Tag: finance

Overnight, China revealed the latest confirmation that its economy is slowing down when the National Bureau of Statistics reported that the manufacturing PMI fell to 50.2 in October – on the verge of a sub-50 contraction – down from 50.8 in September and below the 50.6 estimate. It was also the lowest number since July 2016 with almost all sub-indexes showing weaker growth momentum. The NBS non-manufacturing PMI also missed, printing at 53.9, and declining from 54.9 due to the weaker services PMI.

Commenting on the report, Goldman said that “growth faced increased downward pressures in the manufacturing sector” and highlighting the continued decline of trade-related indexes, noted that “weaker external demand has possibly weighed on activity growth in the manufacturing sector.”  Meanwhile, weaker auto sales also translated into soft auto manufacturing activities and dragged on overall manufacturing growth.

Goldman also blamed “slower property transactions” for the drop in the services PMI, which was further impacted by the the drop in the stock market : the NBS observed that the October PMI reading for the securities industry was the lowest this year, excluding the Chinese New Year months.

But most importantly, Goldman – as well as most China watchers – took the report to indicate further accommodative policy would be ushered in by Beijing to support contracting economic growth (Goldman expects one more RRR cut before the end of this year).

Perhaps hearing this request, on Wednesday China’s leadership vowed that further stimulus is being planned to prevent the broad slowdown from taking hold. Admitting that Beijing’s cocktail of fiscal and monetary stimulus has been behind the curve, a Wednesday Politburo meeting chaired by the president said that “downward pressure” is increasing, and the government needs to take timely measures to counter this.

“Changes are happening even though the economy is still stable. Downward pressure on the economy has grown, some companies have a large number of operational difficulties, and some risks and hazards that accumulated over a long time are revealing themselves” the Politburo statement said, promising to take preemptive action “in a timely manner.”

“The leadership is paying great attention to the problems, and will be more preemptive and take action in a timely manner,” according to the statement. The Politburo reiterated that China will maintain a proactive fiscal policy and a prudent monetary policy, while trying to find solutions to help private businesses.

And yet, despite its reluctant promises, China finds itself in a dilemma: any further monetary easing will devalue the Yuan below 7.00 against the dollar, a critical level to both the PBOC, and to the Trump trade hawks, who may see breach of the key level as confirmation of currency war and react appropriately. Meanwhile, further fiscal stimulus would mean even more debt in a nation which already has over 300% debt/GDP and has been grappling with periodic on again, off again deleveraging campaigns which have so fair in reducing China’s debt load.

And just in case stabilizing the economy was not enough, China has been grappling with a plunge in its stock market in recent months. Meanwhile, China’s economy continues to contract and Beijing needs to respond, or else suffer the worst possible outcome: social insurrection as millions of angry, unemployed workers find themselves without a job for an extended period of time.

In response, earlier this month, the government and central bank introduced a raft of measures to stabilize sentiment, adding to steps to boost liquidity in the financial system, tax deductions for households and targeted measures aimed at helping exporters. Alas, those measures have yet to have much effect.

“The spring of 2019 will be the real difficult time for China as multiple factors such as trade tension, slower sales of durable goods and the end of a property boom in lower-tier cities weigh on growth,” Lu Ting, chief China economist at Nomura International Ltd. in Hong Kong, said after the announcement. “It’ll be a test if China can sustain growth of around 6.5 percent. Policy makers are likely to further cut taxes and ease property purchase controls in bigger cities to lift the economy.”

“The spring of 2019 will be the real difficult time for China as multiple factors such as trade tension, slower sales of durable goods and the end of a property boom in lower-tier cities weigh on growth,” said Lu Ting, Nomura’s chief China economist. “It’ll be a test if China can sustain growth of around 6.5 percent. Policy makers are likely to further cut taxes and ease property purchase controls in bigger cities to lift the economy.”

China’s borderline contracting PMI numbers came just hours after South Korea reported that the a global economic contraction is increasingly taking hold, and just days after it reported the worst GDP print in 9 years, overnight South Korea doubled down with a shocking industrial output number, which tumbled 8.4%, far below the -5.4% consensus estimate, and the worst print since March 2009.

The contraction was pronounced in electronic parts (-7.8% mom sa) and electrical equipment (-6.0%). Together with autos (-4.8%), these accounted for around half of the sequential decline, and suggest that some of the highest value-added manufacturing sectors around the globe are suffering a sharp slowdown.

Meanwhile, with Asia’s two workhorse economies on the verge of economic contraction, Trump has threatened to take trade war with Beijing into overdrive by taxing all Chinese imports, a step which would have an adverse impact not only on China, but also on the US economy, which while having decoupled from the rest of the world in recent months, as confirmed most recently by the stronger than expected 3.5% Q3 GDP, is starting to show growing sign of slowdown.

Should the US economy join the malaise that has crippled the rest of the world, the only pillar left propping up the US stock market will be the strong corporate earnings. And judging by the sharp drop in stocks this month, traders are increasingly convinced that it is only a matter of time before the US market remains “pillarless.”

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US employment costs surged more than expected in Q3. Up 0.8% QoQ (equals the biggest quarterly jump since Q4 2017), as increases in private wages and salaries accelerated, perhaps signaling that workers are gaining leverage in a tightening labor market.

Wages & Salaries rose 0.9% QoQ (+2.9% QoQ) as benefits slowed (+0.8% QoQ from +0.9% in Q2, and +2.6% YoY vs +2.9% in Q2).

On a year-over-year basis, Q3 is up 2.8%, the biggest annual jump since Q3 2008…

Government wages rose 2.3% YoY vs Private Workers 3.1% YoY gain (the most since 2008).

As Bloomberg notes, the government’s quarterly ECI reading — which covers employer- paid taxes such as Social Security and Medicare in addition to the cost of wages and benefits — offers a glimpse at how American workers are being compensated.

The latest reading shows momentum in worker compensation ahead of October wage figures due in Friday’s monthly employment report.

With the world’s equity market bulls hoping for weak economic data to give The Fed an excuse to pause its ‘normalization’, this data crushes that hope. Is good news bad news? We shall see.

 

 

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For nearly a decade stocks enjoyed an environment of unprecedented bullishness, where good news was good news, and bad news was even better as it suggested central bank intervention via monetary stimulus, boosting asset prices. But that is no longer the case according to the head of Natixis SA’s $1 trillion asset-management arm who says that volatile equity markets are the “new normal.”

“We’re back to the basics: risk on, risk off,” Jean Raby, CEO of Natixis Investment Managers, said in an interview Tuesday at the Canada Fintech Forum in Montreal. “Over the past several years, in a way, bad news was good news because it meant a more accommodating monetary policy. Now we’re in the real world where bad news is bad news, and good news may not be such great news.“

The good news, according to Raby is that for now at least, the fundamental “bad news” is not quite as bad as markets have made it out in the past month, stressing that no single region is in contraction and emerging markets contagion from Turkey and Argentina is probably “overstated.”

“I have to believe, when I look at the fundamentals, that we are still on pretty sound footing.”

Natixis Investment, which is controlled by Groupe BPCE, France’s second-biggest bank, warned earlier this year that a global sell-off could hit its asset-management business, although higher volatility could benefit its trading operations.

While the recent Saudi turmoil has moved away from the front pages, Raby was asked about the longer-term impact on investment in Saudi Arabia, saying it’s too early to tell.

“It’s difficult for me to comment on where the future is going specifically for the kingdom of Saudi Arabia,” he said. “In the Middle East we have a relatively small presence. As far as we’re concerned I would like to believe that we could expand that.”

Raby also discussed the asset management space in Europe, noting that consolidation among large European asset maangers has remained “a very difficult thing to do” after his company’s failed combination with Axa SA’s asset-management business. He also said that smaller asset managers (2 billion to 20 billion euros) often hit “glass ceilings” in terms of higher technology and expansion costs, adding that “It’s those asset managers that come knocking on our door.”

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Following September’s big disappointment in BLS data (95k below ADP’s print), October saw no relenting in ADP’s exuberance with a better than expected +227k (vs +187k exp).

September’s +229k spike was revised down to +218k making October’s +227k print the best since February

Under the hood, small business rose the least with no cohorts seeing net job losses…

“Despite a significant shortage in skilled talent, the labor market continues to grow,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.

”We saw significant gains across all industries with trade and leisure and hospitality leading the way. We continue to see larger employers benefit in this environment as they are more apt to provide the competitive wages and strong benefits employees desire.”   

Mark Zandi, chief economist of Moody’s Analytics, said,

“The job market bounced back strongly last month despite being hit by back-to-back hurricanes. Testimonial to the robust employment picture is the broad-based gains in jobs across industries. The only blemish is the struggles small businesses are having filling open job positions.”   

Full Breakdown:

If projecting today’s ADP data on to Friday’s BLS payrolls print, bear in mind that last month was the biggest variance since Sept 2015…

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General Motors stock is soaring in the pre-market after smashing earnings expectations (the 14th straight quarterly beat) and hinting that full-year earnings may be at the high end of the range that it has forecast.

In boosting adjusted profit to $1.87 a share, GM beat dramatically lowered expectations that earnings would slip from a year earlier and overcame global auto sales leveling off (with China deliveries plunging 15% YoY).

Bloomberg highlights the following key insights:

• GM’s sales in the U.S. have been down slightly this year and dropped 15 percent in China in the quarter, so expectations for this report were low.

• The automaker also said that it expects profit for the year to hit the high end of its previous guidance, which was for between $5.80 and $6.20 a share. Earnings could even beat $6.20 a share depending on “macro factors,” spokesman Tom Henderson told reporters at the company’s headquarters in Detroit.

• Slower retail sales didn’t hurt GM’s performance. In the U.S., the automaker continues to sell more expensive models. New sport utility vehicles including the Chevrolet Traverse and Equinox have been selling well and commanding better prices.

• Delivered nearly 700,000 vehicles in the U.S. in 3Q; GM China delivered nearly 836,000 vehicles.

• GM’s income from its China operations was a third-quarter record. While retail sales dipped, this was driven by the low-priced Baojun brand, while the company delivered more lucrative Cadillac models such as the new XT4 SUV.

All of this has sparked a pre-open squeeze, sending GM up over 10%…

So, despite the plunge in China deliveries, this beat seems driven by China revenues – we wonder if this is a one-off pre-tariffs spike?

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Authored by Laura Frost via BondVigilantes.com,

If you are looking for something really scary this Halloween, there is no need to reach out for blockbuster thrillers or monster figures – just look at these six spooktacular financial charts.

This generation looks different

US Federal Reserve (Fed) Chairman Jerome Powell recently warned about the ever-increasing amount of US student debt outstanding: “You do stand to see longer-term negative effects on people who can’t pay off their student loans. It hurts their credit rating, it impacts the entire half of their economic life.”

Student debt also impacts the overall economy: as graduates seek to repay their loans, they are forced to make concessions to their financial consumption, leading to an ever-growing drag on the economy. They buy fewer goods and services and are delayed in joining the housing ladder, with many choosing (or having) to rent instead. On top of this, student debt sees the highest 90+ day delinquency rate of all US consumer credit.

The anaconda moment?

The long-end of the US Treasury market has often been described as a giant anaconda: it draws little attention as it sleeps most of the time, but the minute it wakes up, everybody around shakes. US 30-year bonds don’t bite, but their moves can be as poisonous as they basically determine millions of mortgage rates, as well as the price that governments and companies around the world pay for debt.

The 30-year Treasury yield has remained within the support and resistance level shown for over 30 years, rallying 6% over the period and giving investors a long bull run. Does the recent breach through this level mean that the anaconda is beginning to stir?

And you thought investors were more protected after the crisis

Investors tend to like debt with strong covenants as it usually protects their interests more by forcing companies to limit their debt levels or dividend payments. This is why they are now increasingly concerned when seeing this chart: covenant-light, or “cov-lite” loan issuance has vastly overtaken the levels seen in the leadup to the financial crisis. Then and now, lighter covenants make it easier for distressed companies to continue issuing secured bonds, potentially eroding the value of higher tier loans and ultimately leading to low recovery rates for investors.

Bobbing for Apples

How scary is this? The Euro Stoxx Banks index market cap is the aggregate of its *26*member banks, including Banco Santander, BNP Paribas, Deutsche Bank and SocGen. At $1 trillion, Apple’s market cap now comfortably exceeds not only this, but also the GDP of countries like Turkey, the Netherlands and Saudi Arabia.

Twenty years ago, Apple was on the brink of collapse—90 days from bankruptcy, the company’s late co-founder Steve Jobs once said. Apple is now the first company in US history to reach the trillion-dollar threshold of market capitalisation (PetroChina was the world’s first, in 2007). Which just goes to show the difficulty investors are faced with bobbing for Apples when they select stocks in the market.

The Fed has never been able to orchestrate a soft landing

With US unemployment at rock-bottom levels and the stock market at near record highs, the Fed has begun hiking rates in an attempt to engineer a soft landing: it wants to slow the economy enough to avoid an overheating, but not so much that it causes a recession.

How many times over the past 70 years has the Fed successfully managed to do this and return unemployment (green line) back up to its natural level (blue line) without a recession ensuing (vertical bars)? You’ll be scared after counting…

And finally…

And finally, our scariest chart this Halloween: how much the US spends on it. Let us know if you’ve ever received a Halloween card… Americans spend $400 million on them, apparently.

Happy Halloween everyone!

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With lower-cost Chinese handset makers nipping at Samsung’s heels, and Apple maintaining its unassailable dominance of the premium market, the South Korean consumer-tech giant reported a stunning 33% drop in operating profits for its mobile business, which fell to 2.2 trillion won last quarter, even as growth in its memory chip business helped the company post a record 17.6 trillion won operating profit, up 21% from 14.5 trillion won from the same time last year, surpassing the expectations of Wall Street analysts.

While the underlying softness in the smartphone segment was widely cited as a cause for concern among analysts, it didn’t stop the world’s largest manufacturer of smartphones and semiconductors from reporting a 13.15 trillion South Korean won ($11.5 billion) net operating profit, the company’s highest ever, representing an 18% increase from 11.19 trillion won ($9.8 billion) a year earlier.

“Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve,” Samsung said in a statement.

Per Reuters and WSJ, analysts had expected Samsung to post a Q3 profit of 12.9 trillion won, and revenue of 64.9 trillion won. But despite its strong overall bottom line, the softness in Samsung’s smartphone sector was difficult for analysts to ignore.

As the company, which ships one of every five smartphones sold globally, said mobile revenues declined 10% to 24.91 trillion won, down from 27.69 trillion won a year earlier. Samsung attributed this to the fact that shipments were flat during the quarter, while “increased promotional costs” and “a negative currency impact” – which, along with trade war fears, has been a perennial favorite excuse for underperformance offered by corporate managers this cycle. In Samsung’s case, these excuses were merely window-dressing, as the weakness in the mobile business could be attributed almost exclusively to the fact that the company’s Samsung Galaxy S9, which is priced in the premium range, has sold poorly. In fact, the device’s lackluster sales forced Samsung to move forward the release of its Galaxy Note 9 to Aug. 24, weeks ahead of the previous year. Apparently, the company’s widely touted introduction of animated human emojis wasn’t enough to offset the steep price of the S9. 

While consumers have been holding on to their smartphones longer than ever before, leading to purchases of smartphones to plateau for all manufacturers, many are also waiting for next year’s release, as Samsung is expected to introduce a foldable-screen phone.

All of this did little to ease investor fears that the memory-chip boom that had lifted Samsung’s share price in recent years (though shares have retreated this year as growth concerns have festered) could be coming to an end, as many fear the semiconductor shortage that helped drive the company’s series of record profits may have peaked.

According to WSJ, the prices for DRAM chips, one of Samsung’s core products, are expected to slide in the coming months, which would be the first drop in two years. And this softness isn’t limited to DRAM chips: Prices of NAND chips are already dropping and could shed another 25% to 30% next year, DRAMeXchange told WSJ.

“NAND (flash memory) chip prices will further decline through the first half of next year…(as) Toshiba’s new production line will start and Hynix starts mass production of one of its NAND lines,” said Song Myung-sup, an analyst at HI Investment & Securities.

“Oversupply is expected to continue.”

Still, analysts noted that, as Samsung continues to cut costs, it will likely soften the blow somewhat from the shifting dynamics in the semiconductor market. 

“Since Samsung continues to reduce the costs of (semiconductors), it is not very likely to witness a so-called hard-landing situation,” said Avril Wu, senior research director at DRAMeXchange.

Samsung, the world’s largest maker of DRAM and NAND chips, isn’t the only chip maker to warn about a slowdown in demand. Executives at SK Hynix said the company is planning to cut investment in 2019 to reflect “global economic uncertainties.” Meanwhile, Texas Instruments,, a U.S. maker of communications chips, said last week in an earnings statement it saw a slowdown in demand across most markets. Samsung shares were flat toward the close of the Asia trading session.

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The nightmare on Wall Street may finally be over with markets getting a treat this Halloween…  but will the trick emerge during the usual last hour of trading?

It is a sea of green as stocks hope to end a turbulent month – which saw the biggest losses for global equity markets since 2012 – in an upbeat mood, with European stocks sharply higher following a rebound in Asia as US equity futures extended on their Thursday gains which saw the Dow soar by more than 400 points, while the dollar remained near one year highs as Treasury yields posted another day of modest increases.

A confluence of factors ranging from China-U.S. trade tensions to worries about global economic growth, corporate profits and higher U.S. interest rates have spurred volatility in financial markets in the past few weeks. But shares in Europe were expected to follow Asia’s lead higher on the last day of the month, while U.S. S&P mini-futures edged up 0.3 percent.

Every sector in Europe’s Stoxx 600 Index rose, with miners and energy companies leading the way. France’s CAC 40 (+1.9%) outperformed peers with the index pushed higher by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. Energy names lead the gains as the complex retraced yesterday’s losses, while utility names underperformed. Tech stocks thanks to Dialog Semiconductor (+10.0%) which rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

Earlier in Asia, the MSCI Asia-Pacific index rose 1%, with Japanese stocks the stand-out performers thanks to a 2.2% advance in the Nikkei, reassured by the Bank of Japan’s signal that it will keep its ultra-easy policy for some time to come. Even so, Asia was on track to fall around 11% this month, which would be its worst monthly performance since September 2011, dropping to its lowest level since February 2017 this week.

Hong Kong’s Hang Seng rose 1 percent on Wednesday and the Shanghai Composite Index climbed 1.4% as weaker-than-expected factory activity data reinforced views that Beijing will roll out more support measures for the economy.

In the latest economic disappointment out of Beijing, the latest official NBS manufacturing PMI fell to 50.2 in October, the lowest level since July 2016 as almost all sub-indexes showed weaker growth momentum. The non-manufacturing PMI missed expectations as well, printing at 53.9, below the 54.9 in September, due to the weaker services PMI.

In Beijing’s ongoing attempt to stabilize the yuan, China’s overnight repo rate surged by 84bps – the most in more than four years – to 2.39%, as authorities take aggressive steps to combat bets against the yuan, which held near the weakest level in a decade against the greenback.

Even so, hopes of boosting the Yuan have proven futile so far, with the USDCNH rising to the highest since January 2017, just shy of 6.800 and knocking on the door of the critical 7.00 level, with today’s move largely a function of renewed dollar strength. The Chinese currency was on track for a loss of 1.4% in October, its seventh straight monthly loss — the longest such losing streak on record

Australian stocks ended 0.4 percent higher, South Korea’s KOSPI added 0.7 percent.

Today’s gains will be a welcome respite in a month that has seen a near historic selloff: the broader MSCI All Country World index was down 8.6% this month, its biggest monthly drop since 2012, losing $4 trillion in market value.

The narrower MSCI World Index was down 8.43% and has wiped out $4.5 trillion in October. The month-end gains followed a sharp bounce for Wall Street’s main indexes, which jumped more than 1% on Tuesday, helped by strong gains for chip and transport stocks as investors took advantage of cheaper prices following the steep recent pullback for equities.

Equity bulls will be hoping this rebound can last following a series of bounces in the past few weeks that quickly gave way to declines as late day algo selling put a dent on carbon-based BTFDing.

Corporate results will be key to sustaining the share gains: attention will next turn to earnings from Apple on Thursday. But trade risks continue to simmer in the background, with the U.S. jobs report is due Friday and US midterm elections are creeping closer, all of which have the potential to further roil markets.

“The recent slide in equities had gone to such an extent that it was bound to invite buyers, such as in the Japanese stock market,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. Ichikawa said the U.S.-China trade row will likely remain a factor of concern beyond the U.S. midterm elections on Nov. 6.

In FX, the Bloomberg Dollar Spot index headed for its best month in two years amid supportive month-end flows that offset profit taking by short-term investors. Price action in the euro was quiet while the pound rebounded, tracking trading in the options market. The yen was steady as the Bank of Japan left its monetary stimulus unchanged and kept its 10-year bond yield target at about zero percent as it updated price forecasts that confirm it won’t meet its inflation target for years to come. Australia’s dollar declined following a weaker-than-expected inflation reading and the abovementioned miss in China’s PMIs. The Indian rupee fell as much as 0.6% on reports that the central bank governor may consider resigning amid growing tensions with the government.

In rates, the 10Y TSY yield climbed 2bps to 3.14%, the highest in more than a week. Germany’s 10-year yield advanced two basis points to 0.39%. Britain’s 10-year yield advanced 3 bps to 1.434%, the largest gain in more than a week. The spread of Italy’s 10-year bonds over Germany’s declined 9 bps to 3.0205%.

Oil prices recovered slightly after dropping to multi-month lows the previous day on signs of rising supply and concern that global demand for fuel will fall victim to the U.S.-China trade war. WTI futures were up 0.38% at $66.43 per barrel after dropping to $65.33 on Tuesday, the lowest since mid-August. Brent crude gained 0.62% to $76.38 after a decline of 1.8% on Tuesday. Gold declined and oil recovered from a two-month low.

Expected data include mortgage applications and Chicago Business Barometer. Air Canada, ADP, General Motors, Kellogg, Sprint, and AIG are among companies reporting earnings

Market Snapshot

• S&P 500 futures up 0.6% to 2,701.25
• STOXX Europe 600 up 1.4% to 360.66
• MXAP up 1.6% to 148.97
• MXAPJ up 1.4% to 469.62
• Nikkei up 2.2% to 21,920.46
• Topix up 2.2% to 1,646.12
• Hang Seng Index up 1.6% to 24,979.69
• Shanghai Composite up 1.4% to 2,602.78
• Sensex up 1% to 34,231.36
• Australia S&P/ASX 200 up 0.4% to 5,830.31
• Kospi up 0.7% to 2,029.69
• German 10Y yield rose 2.6 bps to 0.395%
• Euro up 0.09% to $1.1355
• Italian 10Y yield rose 13.6 bps to 3.103%
• Spanish 10Y yield unchanged at 1.567%
• Brent futures up 1.1% to $76.75/bbl
• Gold spot down 0.5% to $1,216.90
• U.S. Dollar Index down 0.1% to 96.91

Top Overnight News

• BBDXY rose for the third day to a fresh 2018 high even as the greenback traded mixed against Group-of-10 peers; Treasury yields crept steadily higher and the curve steepened
• An official gauge of activity in China’s manufacturing sector worsened in October as the effects of an ongoing trade war with the U.S. hit home. The non-manufacturing PMI also worsened. China’s manufacturing PMI fell to 50.2 this month, lower than projected in a Bloomberg survey of forecasters. A gauge of new orders for export fell to the lowest reading since early 2016
• Optimism in Britain’s economy slumped in October to the lowest level this year, with confidence falling in almost all parts of the country, Lloyds Bank said in a survey published on Wednesday
• Italy’s populists are insisting their plans to ramp up government spending will shield the nation from recession, brushing off warnings that their confrontational approach may already be hurting the economy
• Australia’s annual core inflation was weaker than forecast in the three months through September, suggesting the central bank’s prolonged interest-rate pause has further to run
• The Aussie dollar lead G-10 declines, weighed down by slowing inflation and deteriorating Chinese PMI data, though an options expiry helped limit the drop
• The Bank of Japan left its monetary stimulus unchanged as it updated price forecasts that confirm it won’t meet its inflation target for years to come
• Official figures released over the past few weeks suggest money is increasingly leaving China’s borders
• The euro held losses after inflation data matched estimates while the pound edged higher once London entered the market; Italian bonds extended bull steepening after a report that the government may see a deficit nearer to 2% than the 2.4% in the current budget draft for 2019
• The yen held losses after the BOJ left its monetary policy unchanged, and forecasts inflation to remain below its 2% target through until at least early 2021
• The rupee pared losses as India’s government sought to defuse growing tensions with its central bank, saying it respects the institution’s autonomy

Asian equity markets traded positive as the region sustained the momentum from Wall St where all majors finished with
firms gains and in which both S&P 500 and DJIA moved back into profit for the year. ASX 200 (+0.4%) and Nikkei 225 (+2.2%)
were higher from the open with financials the early outperformer in Australia after ANZ Bank earnings and with CBA to offload its
funds unit for over AUD 4.1bln, while Japanese stocks were underpinned by a weaker currency and with focus on a slew of
earnings releases. Hang Seng (+1.6%) and Shanghai Comp. (+1.4%) conformed to the overall risk appetite as investors digested
earnings including big 4 lenders ICBC and Agricultural Bank of China, but with early indecision seen following uninspiring Chinese
PMI data in which both Official Manufacturing PMI and Non-Manufacturing PMI fell short of estimates. Finally, 10yr JGBs were
lower with demand subdued by the strong performance in Japanese stocks and following an unsurprising BoJ policy
announcement in which the central bank maintained all policy settings.
PBoC skipped open market operations for a net daily drain of CNY 150bln, while it announced to sell CNY 10bln in 3-month and
CNY 10bln in 1yr CNY-denominated bills in Hong Kong on November 7th.

Top Asian News

• BOJ Cuts Frequency, Tweaks Ranges for Short Bonds for November
• MUFG Buys Commonwealth Bank Asset Arm for $2.9 Billion
• Incredible Shrinking Australian Banks Shed $13 Billion of Assets
• HNA Is Said to Try Offloading Airbus Planes to Leasing Firms

European equities are higher across the board (Eurostoxx 50 +1.3%) as the region took impetus from the gains experienced in Asia and on Wall Street. France’s CAC 40 (+1.9%) outperforms its peers with the index fuelled by gains in heavyweights L’Oreal (+5.4%) and Sanofi (+5.0%) post-earnings. In terms of sectors, energy names lead the gains as the complex retraces yesterday’s losses, while utility names underperform. Elsewhere, Dialog Semiconductor (+10.0%) rose to the top of the Stoxx 600 amid optimistic earnings, while Nokian Tyres (-14.7%) plumbed the depths after cutting guidance due to currency impacts.

Top European News

• Telefonica Signals End to Decade of Weakness With Soccer Push
• Sanofi Lifts Forecast as Vaccines, Eczema Drug Provide Fuel
• Spanish Economy Proves Euro-Area Brightspot as Recovery Holds
• Casino Short Sellers Ask Board to Block Interim Dividend Payment
• L’Oreal Jumps as Luxury Cosmetics Get Another Boost From China

In FX, after breaching 97.00 to the upside overnight to hit its highest level since June 2017, the DXY initially paused for breath to sit on a 96.00 handle before extending gains back above 97.00 thereafter. USD will likely garner a bulk of the focus in the FX space today with month-end flows (as according to Barclays, Citi, Nordea and Credit Ag) said to be positive for the greenback. Furthermore, Nordea highlight that today is SOMA redemption day for the USD which will have a net USD -22.9bln impact on liquidity; Nordea explains that “On the ten SOMA days since the end of February, EUR/USD has always been lower at CET17:15 vs CET08:00, by an average of 0.25%”. In terms of where the majors stand vs. the USD, EUR/USD was unable to hold onto initial gains after Friday’s low at 1.1336 eventually gave way. As such, a test of 1.1300 to the downside could now well be on the cards. Option expiry activity for the pair could be a guiding force later on with 871mln due 1.1275-85, 2.2bln between 1.1300-25 and a further 1.47bln between 1.1340-50. EUR relatively unreactive to EZ inflation prints with headline Y/Y CPI in-line with Exp. at 2.2%, core and super-core metrics both slightly firmer than forecast. The AUD remains softer vs. the USD in the wake of domestic inflation metrics whereby all figures either missed or printed in-line with estimates and which was below the RBA’s 2%-3% target range. The data sent AUD/USD back below 0.7100 with Chinese PMI readings thereafter guiding the pair to session lows of 0.7073 before staging a mild recovery back towards the 0.71 handle. Elsewhere for the region, USD/JPY trades relatively unchanged as the risk environment outweighs mild USD softness; prices trade in close proximity to the 113.00 handle and just below 1.3bln in expiries at 113.10-20.0 Finally, focus during the Asia-Pac session also fell on the INR which faced some selling pressure amid a widening rift between the RBI and government with reports noting that Governor Patel may consider resigning; reports briefly pushed USD/INR above the 74.00 level. Turkish Central Bank Governor reiterates that the central bank will maintain a tight monetary policy decisively and further tightening will be delivered if needed with the use of all available instruments.

In commodities, WTI (+0.4%) and Brent (+0.8%) are both in the green amid a positive risk tone. This comes alongside markets preparing for Iranian sanctions coming into effect next week. Last night’s APIs showed a larger-than-expected crude stock build, although this was almost half of last week’s figure. Trader’s will be keeping an on US oil production numbers released later today with the weekly DoEs. Gold is trading in the red, albeit off lows amid safe haven outflows as equity markets continue to trade positively following the momentum from Asia. In related news, the London Bullion Market Association predicts that gold is to reach USD 1532/oz by October of next year. Separately, disappointing Chinese manufacturing PMI has resulted in a fall in the price of both zinc and copper, as well as affecting the outlook for China metals demand.

Looking at the day ahead, there should be some focus on the Q3 employment cost index (+0.7% qoq expected) along with the October ADP employment change report and October Chicago PMI. Worth flagging today also is scheduled comments from Italian Finance Minister Tria this morning, along with comments from the ECB’s Nowotny, Hansson and Nouy. Earnings wise today we’ve got Sanofi, GlaxoSmithKline, General Motors, Anthem, ADP, Estee Lauder, AIG, and Yum Brands.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 4.9%
• 8:15am: ADP Employment Change, est. 187,000, prior 230,000
• 8:30am: Employment Cost Index, est. 0.7%, prior 0.6%
• 9:45am: Chicago Purchasing Manager, est. 60, prior 60.4

DB’s Jim Reid concludes the overnight wrap

The tech sector had another wild ride yesterday, first tricking and then treating investors – especially into the US close. The NY FANG index reversed an early decline of as much as -2.33% to close up +1.88% – snapping a two day run which saw the index lose nearly $250bn in market cap. After the close Facebook posted EPS of $1.76 versus expectations for $1.47, but revenues were softer at $13.73bn versus $13.80bn. Facebook shares initially fell but recovered to be up +3.37% after hours. After Facebook, fellow tech company eBay reported mixed earnings, beating profit forecasts and upgrading its fourth quarter guidance, but posting weaker free cash flow and sales growth.

Before all this the S&P 500, DOW, NASDAQ and Russell 2000 closed +1.57%, +1.77%, +1.58% and +1.99% respectively last night – only the fifth time this month that all four bourses have closed higher. Markets had earlier pared their gains around US lunchtime and flirted with turning red, but ultimately rallied into the close, with the VIX ending the session -1.34pts at 23.36.

This morning in Asia positive sentiment from Wall Street has carried over with the Nikkei (+1.67%), Hang Seng (+0.60%), Shanghai Comp (+1.13%) and Kospi (+0.33%) all up along with most Asian markets. In terms of data, the official China October PMIs were released with the composite reading at 53.1 (vs. 54.1 in previous month) as both the manufacturing PMI (at 50.2 vs. 50.6 expected) and services PMI (at 53.9 vs. 54.6 expected) decelerated. The accompanying statement with the PMI release attributed the weakness to the long holiday in October but also admitted that the external environment is starting to drag manufacturing lower. In the details for the manufacturing PMI, the new export orders decelerated to 46.9 from 48.0 in September, marking the 5th consecutive month with a sub 50 reading. In the meantime, China’s onshore yuan continues to attract attention and remains under pressure with it reaching the level of 6.9714 yesterday, the lowest since May 2008. It is currently trading
flattish in the Asian session at 6.9668, as we type.

Overnight, the BoJ left key interest rates and asset purchase targets unchanged while the BoJ’s quarterly outlook report indicated  that inflation will remain below its 2% target at least until early 2021 and lowered the 2018 GDP growth forecast to 1.4% from 1.5%. The BoJ also added a statement in its outlook report about the need to “pay close attention to future developments” regarding risks to the financial system, while saying that the risks are not currently significant thanks to sufficient capital bases. The BoJ is also seeing the current core-CPI rising to around 1% yoy from earlier range of 0.5%-1%, which was lowered at June meeting. The BoJ will release its schedule for JGB purchases next month at 5pm Tokyo time today (8am BST) which is likely to be closely watched given the recent news from Asahi that the BoJ might tweak the schedule and also BoJ Governor Kuroda’s presser will likely be started by the time this reaches your inbox.

Outside of Facebook and eBay, other major earnings were a bit disappointing when you include guidance. GE stock fell 8.88% to a new 9-year low, and the company’s benchmark 2035 bonds dropped to a record low price, after the company cut its dividend to $0.01 per share from $0.12 and announced that the SEC is expanding an investigation into the company’s accounting practices. Mastercard and Pfizer also traded lower, despite beating earnings estimates, as the market continues to punish companies for moderating guidance of missing on revenues. Coca-Cola was a bright spot, gaining +2.54% after beating on most major metrics and maintaining strong guidance.

In contrast to the US yesterday Europe largely struggled for traction from the moment the Italy and Euro Area GDP figures hit early in the session. More on that shortly but by the close the STOXX 600 had finished +0.01% and the DAX -0.42%. Italy’s FTSE MIB also ended -0.22% after being up as much as +0.73% while 10y BTP yields rose +13.8bps. Bunds and Treasuries on the other hand were -0.9bps and +3.8bps respectively.

Oil prices fell -1.72% to a two-month low amid reports that China and India, the top two buyers of Iranian oil, will defy American sanctions and continue to buy imports from Iran. Europe and South Korea have also indicated some degree of unwillingness to accommodate US sanctions, and there could therefore be minimal downside for Iranian oil exports moving forward – though they are already down -500,000bpd to 1.6mmbpd as of September. With less pressure on the supply side of the global oil balance, there could be scope for oil prices to remain pressured.

The British pound was pressured in yesterday’s trading, dropping -0.64% versus the dollar as S&P indicated that the potential for a no-deal Brexit outcome is a factor in its ratings decision for the UK. They argued that such a scenario would result in a “moderate recession” and cautioned that the odds have risen, given the apparent impasse within the governing coalition over how to address the Irish border issue in the withdrawal treaty. Separately, however, the DUP agreed to support the autumn budget removing the tail risk of a nearterm potential government crisis.

Back to the data. As noted earlier in Europe the big focus was on the Italian GDP preliminary print which disappointed at 0.0% qoq for Q3 compared to expectations for a +0.2% reading. That’s the first time the Italian economy has stalled since Q4 2014 with the last negative reading coming in Q2 2014. Our Italian economist Clemente De Lucia made the point yesterday that the focus will now turn to growth over the coming quarters as the fiscal expansionary plan put out by the government is largely based on the assumption that growth will surprise to the upside and converge to broader euro area levels. However with tighter financial conditions, elevated uncertainty, and softer Q4 data so far, the risks certainly appear to be to the downside for now. Post the data, Deputy PM Salvini stated that the government will push ahead with the budget regardless, while also blaming the weak quarter growth on the previous government.

That data – combined with a slightly softer than expected France reading (+0.4% qoq vs. +0.5% expected) – played a role in the broader Euro Area miss (+0.2% qoq vs. +0.4% expected) although there is likely to also be softness elsewhere in the region. Either the German economy must have contracted in the third quarter, Spain must have had a notable miss to our expectations for +0.6% qoq growth, or smaller countries like Ireland and the Netherlands must have had a marked slowdown. While the annual rate slipped to +1.7% yoy the previous quarter reading was revised up one-tenth to +2.2%. Also out yesterday was the preliminary October CPI reading in Germany which came in as expected at +0.1% mom and +2.4% yoy. That annual reading is actually the highest in over a decade now. German unemployment stayed steady at 5.1% as expected.

In the US the data was a bit more contrasting. The consumer confidence data for October was actually stronger than September, following downward revisions. The headline reading rose +2.6pts to 137.9 (vs. 135.9 expected) and marked a new post crisis high – in fact a new 18 year high. The present conditions index also rose 3.4pts to 172.8 and the expectations component 2.1pts to 114.6. The associated statement highlighted that employment growth continues to fuel sentiment, however next month’s data should be more interesting in light of capturing the full market crash in October and also the midterm elections. Meanwhile, the latest housing market data was a tad softer in the US yesterday. The August S&P CoreLogic house price index fell to +5.5% yoy from +5.9% and is now at the  lowest since December 2016.

To the day ahead now where the early focus in Europe this morning should be with the October CPI figures for the broader Eurozone. The consensus is for a lift in the YoY core rate to +1.1% yoy from +0.9% in September. Prior to this we’ll get France’s CPI report while a little later on we also get the same data in Italy. The release of the Central Bank of Turkey’s inflation report could also be worth a watch in EM land while Brazil’s latest policy meeting is also due today. This afternoon in the US there should be some focus on the Q3 employment cost index (+0.7% qoq expected) along with the October ADP employment change report and October Chicago PMI. Worth flagging today also is scheduled comments from Italian Finance Minister Tria this morning, along with comments from the ECB’s Nowotny, Hansson and Nouy. Earnings wise today we’ve got Sanofi, GlaxoSmithKline, General Motors, Anthem, ADP, Estee Lauder, AIG, and Yum Brands.

 

 

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The crime scene inside the Tree of Life congregation had not yet been cleared when President Trump, First Lady Melania Trump and several administration figures arrived in Pittsburgh late on Tuesday to pay their respects after the deadliest attack on Jews in American history. At the same time, crowds of people both young and old gathered to shout and protest the president, letting him know that he was not welcome in their city.

Even Pittsburgh Mayor Bill Peduto opposed the president’s visit, suggesting that Trump was being insensitive by visiting the city so soon after a massacre that some on the left have insisted is somehow the president’s fault (though the shooter published posts on social media network Gab denouncing Trump and his agenda, insisting that the president was secretly a “globalist” who was “controlled by Jews.”) Ahead of the visit, several Pittsburgh rabbis warned Trump that he was “not welcome” in the city.

Not everyone in Pittsburgh was so opposed to Trump’s presence. After arriving at the building where the Tree of Life congregation is housed, Trump and Melania Trump were greeted by Rabbi Jeffrey Myers. Myers took them inside the building, where they lit ritual yahrzeit candles to honor the memories of the victims. After spending roughly 20 minutes inside, the Trumps emerged and walked to a memorial outside, where the first lady placed a flower and the president placed a small stone on a marker for each of the dead, per Reuters.

The two left in the presidential motorcade about 30 minutes after arriving.

Trump made no public remarks during his three hour stop in Pittsburgh, as “he wanted today to be about showing respect for the families and the friends of the victims as well as for Jewish Americans,” according to White House Press Secretary Sarah Huckabee Sanders.

During his time in Pittsburgh, Trump also visited the hospital where three police officers, wounded in a gunfight with the shooting suspect, were being treated. Trump also visited with the wife of one of Richard Gottfried, one of the victims in Saturday’s attack. “She said she wanted to meet the president to let him know that they wanted him there,” Sanders said.

.@realDonaldTrump and @FLOTUS with Rabbi Jeffrey Myers, lay a stone and flower for each of the 11 victims at the memorial outside the Tree of Life synagogue in Pittsburgh, PA. pic.twitter.com/bIyZO8Zslb

— Sarah Sanders (@PressSec) October 30, 2018

Throughout his visit, the Trumps were joined by Ivanka Trump and Jared Kushner. Trump’s daughter famously converted to judaism before marrying Kushner. They were also joined by Treasury Secretary Steven Mnuchin, who is also Jewish. While CNN said Ivanka Trump and other members of the entourage became emotional at times, Trump reportedly remained stoic.

Meanwhile, thousands of protesters gathered in Squirrel Hill bearing signs with slogans like “we build bridges not walls” as well as “imagery evoking the neighborhood’s most famous resident, the late Fred Rogers”. Other popular slogans included “Hate is not welcome here.”

Funerals for three of the victims were held on Tuesday, and were attended by hundreds of mourners, according to NPR.

A large crowd of Jewish and non-Jewish mourners gathered Tuesday under a vaulted white ceiling, tall chandeliers and stained glass windows inside Pittsburgh’s Rodef Shalom to honor Cecil and David Rosenthal. At 59 and 54, the brothers were two of the youngest victims and are among the first of the 11 victims of the shooting at Tree of Life synagogue to be laid to rest.

The brothers’ wooden coffins sat head-to-head at the front of the temple as family remembered them as social, thoughtful men who were deeply involved in their congregation.

[…]

For many in Pittsburgh’s Jewish community, Tuesday’s funeral services start the formal period of mourning the victims — a process carefully guided by Jewish tradition. A separate service was held Tuesday for Dr. Jerry Rabinowitz, 66, a physician who also was killed on Saturday. Services for the rest of the victims will be held in coming days.

For his part, Trump said he insisted on visiting Pittsburgh because he said on Saturday that he would – and he wanted to keep the promise he made to the victims and their families. Funerals for the other 8 victims will be held on Wednesday and throughout the week.

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Authored by John Rubino via DollarCollapse.com,

After a long, initially-successful run promoting European integration and mass immigration, German Chancellor Angela Merkel saw the bottom fall out of her political fortunes this year. This week she stepped down as leader of the formerly-dominant Christian Democrat party and promised not run again when her term as Chancellor ends in 2021.

What happens next is almost certain to be chaotic, as the following chart (courtesy of this morning’s Wall Street Journal) makes clear:

Note that in August of 2017 the two least popular parties were the far right Alternative for Germany (blue line) and the far left Greens (green line). In the ensuing 14 or so months AfG’s support rose from single digits to around 17% while the Greens rocketed from the bottom of the pack to 20%.

If you didn’t know what these two parties stood for you might think, “Fine, they’re new and interesting, so let them form a coalition and govern for a while.”

Unfortunately they’re more likely to kill each other in street fights than work together, since the former want closed borders and free markets while the latter want increased regulation and unlimited immigration.

The alternative to an AfG/Green coalition then becomes some combination of the remaining, more centrist (by European standards at least) parties. But the biggest of those parties – Merkel’s Christian Democrats and their coalition partner Social Democrats – are in freefall, precisely because of what they’ve done while in power.

So there appears to be no way to put these puzzle pieces together to produce a stable government.

And – here’s where things get truly scary – a stable Germany under Merkel’s bland but firm hand has been the only thing holding the European Union and eurozone together. If Germany descends into internal turmoil without a coherent government to push the Italys and Hungarys around, European populists/nationalists will fill the resulting vacuum. Borders will be re-imposed within and without the EU, national government budgets – already above EU deficit limits in many cases – will explode. Already-debilitating debts will keep rising, and the ECB will be forced to bail out Italy for sure and probably several other member states after that.

Since an ECB bailout of the Italian banking system means, in effect, moving Italy’s debt onto Germany’s balance sheet, the world’s one remaining rock-solid credit will join the ranks of politically unstable, increasingly indebted countries that may or may not be able to avoid financial collapse.

The end-game? A euro devaluation will be imposed by the global currency markets or announced preemptively on some future Sunday night by Merkel’s successor (assuming there is one).

The descent of the world’s second most important currency from reserve asset to modern day Italian lira will raise a lot of questions, including:

• Should we all buy the US dollar because it’s the only sound currency left?

• Should we dump dollars because the US is really not that different from Europe in terms of financial mismanagement and political incoherence?

• Should we dispense with the whole fiat currency thing and go back to sound moneythat requires politicians and central bankers to live within their means?

• Should we dispense with the whole “constitutional democracy” thing and hand over control to a leader who’s strong enough to put things right?

These four options seem about equally plausible at the moment. But the worlds they’ll create couldn’t be more different.

*  *  *

Other posts in the “Why We’re Ungovernable” series are here.

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