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US industrial production rose just 0.1% MoM in July, missing expectations after June’s print was revised higher to a 1.0% MoM gain.
Manufacturing production also slowed from +0.8% MoM in June to +0.3% MoM in July…
But growth is growth and YoY, Industrial Production is rising at its fastest since Feb 2012…
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In addition to growing fears about Emerging Market contagion (where despite the Turkish Lira’s latest surge, we have seen the Chinese Yuan tumble to fresh one year lows amid a surge in the US Dollar), this morning traders were stunned by Chinese tech giant Tencent, which came out with numbers that were simply awful, missing on the top and bottom line, reporting revenue of CNY 73.7BN, below the CNY 77.7BN expected, More importantly, its profit of CNY 17.867BN was far below the CNY 19.3BN expected, and down from CNY 18.231BN a year ago: Tencent’s first profit drop in a decade.
The news sent Tencent ADRs tumbling to the lowest level since August 2017.
Tencent’s earnings disappointment, which sent the stock plunging and dragged EM futures lower…
…followed an drop earlier in the session in shares of Asian video game companies such as Tencent, Nexon and Nintendo on concerns over delays in new games releases in China, as Beijing halted approvals for game licenses. As Reuters notes, many firms have been awaiting games sales licenses since March after Beijing reformed and reorganized the government bodies that oversee the sectors earlier this year.
Tencent’s plunge hit other Asian tech names in sympathy, with other members of the “Asian Acronyms” tech stocks, either BATs (Baidu, Alibaba, Tencent) and TATS (Tencent, Alibaba, Taiwan Semi, Samsung), sliding sharply.
It also slammed ETFs tracking Chinese equities with significant exposures to Tencent.
As Bloomberg Arie Shapira writes, the Tencent debacle “might get the tech and general market bears riled up again, the same ones who came out of hibernation in late July after the Facebook and Twitter earnings blowups led to a three-day mini-panic in the FAANGs.” Furthermore, the recent action in the semiconductors is also helping the bears’ case, with the SOX underperforming yesterday and having now fallen 3.5% in the past four sessions vs the S&P 500 off 0.6%.
The weakness in semis can be partly explained by other earnings disappointments out of Asia, namely China’s Sunny Optical (a ~$13b market cap smartphone lens maker that lost nearly a quarter of its value on Tuesday) and Taiwan’s Hon Hai Precision. Another ugly sign is the persistent decline in Chinese smartphone giant Xiaomi, which slid below its July IPO price to end the day at an all-time low.
And while one can’t exactly call it “contagion”, the Chinese tech giant slump has hit the Nasdaq, with futures sliding well below yesterday’s lows, and killing the Tuesday dead cat bounce in the process.
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The campaign to silence Alex Jones finally crossed over into Twitter – which until now had faced intensifying public scrutiny for its hands off approach and criticism of Mr. Jones’s posts on the platform – when on Tuesday, Twitter suspended the conspiracy theorist and blogger for violating the social media company’s policies, in a stark reversal for Jack Dorsey who previously bucked the trend by other tech giants to muzzle the InfoWars creator.
As CNET first reported, Jones’ account was put in “read only” mode and will be blocked from posting on Twitter for seven days because of an offending tweet, the company said. While Twitter declined to comment on the content that violated its policies, a Twitter spokesperson told CNN the content which prompted the suspension was a video published Tuesday in which he said, “now is time to act on the enemy before they do a false flag”
Last week, Twitter CEO Jack Dorsey defended the company’s decision to not suspend Infowars and Jones from the platform, claiming they had not violated Twitter policies. As Apple removed links to some Infowars podcasts and YouTube terminated some of its channels, Twitter’s CEO Jack Dorsey said his company didn’t remove Jones or Infowars because neither had violated the platform’s policies.
“We’re going to hold Jones to the same standard we hold to every account, not taking one-off actions to make us feel good in the short term, and adding fuel to new conspiracy theories,” Dorsey said in a tweet last week. He later added that it was critical that journalists “document, validate and refute” accounts like those of Mr. Jones, which “can often sensationalize issues and spread unsubstantiated rumors.”
After a CNN report identifying numerous past tweets from Infowars and Jones that did violate Twitter’s rules, those posts were deleted.
Tweets by Infowars and Jones deleted last week included posts attacking transgender and Muslim people; a claim that the 2012 shooting massacre at Sandy Hook Elementary School was a hoax perpetrated by “crisis actors”; and a video calling David Hogg, a survivor of the Parkland, Fla., high-school shooting, a Nazi.
As Rolling Stone notes, while Jones and his sympathizers have cried censorship following the actions of YouTube, Facebook, Apple and others, internet-content platforms specifically reserve the right to suspend users or delete content found to violate of their guidelines — indeed, Infowars’ own terms of service includes such a provision.
Twitter’s crackdown came more than a week after technology companies, including Apple, YouTube and Facebook removed content from Jones and his site, Infowars. As the WSJ notes, the actions against Infowars intensified a growing debate over what role tech companies play in policing controversial content on their platforms while they simultaneously support the principle of free speech.
It is unclear if the ongoing censorship of Alex Jones is having the desired effect: as we noted over the weekend, Silicon Valley’s coordinated purge of all things Infowars from social media has had an unexpected result; website traffic to Infowars.com has soared in the past week, according to Amazon’s website ranking service Alexa.
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Thanks to major downward revisions (Control Group saw a 0.1% drop in June after revisions), headline July retail sales beat expectations rising 0.5% MoM as clothing, food service, and gas station sales jumped.
While the revisions helped, as Bloomberg notes, the data suggest consumer spending is continuing to drive the economy early in the quarter. Tax cuts have put more money in Americans’ pockets this year, consumer sentiment remains elevated and a gauge of small-business optimism rose in July to the second-highest level on record.
The report showed so-called retail control-group sales — which are used to calculate gross domestic product and exclude food services, auto dealers, building-materials stores and gasoline stations — rose 0.5 percent, slightly more than forecast, after a 0.1 percent drop in the prior month.
Nine of 13 major retail categories showed increases, according to the Commerce Department data.
Under the covers: food service and drinking places, gasoline stations, and clothing sales surged; while sporting goods and furniture sales slumped…
Interestingly, retail sales data shows purchases at motor-vehicle and parts dealers rose 0.2% after increasing 0.1% in the previous month, which stands in defiance of other data earlier this month showed the volume of U.S. auto sales fell 4% from June.
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One of the key questions to emerge from Elon Musk’s going private “funding secured” fiasco, is where was the board before, during and after the series of torrid tweets sent out by the Tesla CEO in the past two weeks. In an overnight NYT article, we finally get a fairly clear picture of what was going on through the heads of the company’s board of directors, and it’s not pretty.
While we urge readers to skim the full piece here, below are some of the key soundbites in what appears to be the first step in the board throwing Musk under the bus as defense against a potentially destructive SEC probe that could have vast implications not only for the CEO, but the company in general.
First, it appears that a big rift has emerged between Musk and the Board, to wit: “Members of Tesla’s board are scrambling to control a chief executive who some directors think is out of control.”
The key issue: the same one that was brought up by a key Tesla investor over a month ago, with no success: getting Musk to shut up.
In recent days, according to people familiar with the matter, some of his fellow board members delivered a stern message: Stop tweeting.
Mr. Musk hasn’t heeded that advice. He has continued to post messages on Twitter, publicly plotting the company’s strategy and in some cases making assertions of dubious accuracy. That has only added to the chaos engulfing the struggling company.
But more concerning for Musk is that the Board, which previously endorsed Musk’s confusing narrative of events with a brief statement that effectively confirmed what we now know never happened, namely that the funding was never “secured”, is now building a firewall from the CEO’s increasingly toxic tweets:
Tesla’s board members are also racing to inoculate themselves from the possible fallout from Mr. Musk’s public statements.
While it’s standard for boards to retain lawyers to counsel them on complicated matters, Tesla’s outside directors have hired two law firms to represent them.
Some of the especially colorful words that emerge from the report: “alarmed”, “blindsided”, “erratic”:
Some members of the board have grown alarmed by what they see as Mr. Musk’s erratic behavior, according to three people familiar with some directors’ thinking. Directors were blindsided last week when Mr. Musk claimed on Twitter that he had “funding secured” for a possible deal to convert Tesla from a publicly traded company into a private one. Such a transaction would most likely cost well over $10 billion.
A discussion of what Musk knew when only solidifies the case that Musk’s only intention was to burn the shorts:
Musk said this week that he has been in talks with Saudi Arabia’s main government investment fund about possibly working on a deal to take Tesla private. But there were no indications that Mr. Musk has actually nailed down any commitments to bankroll such a transaction, and the Securities and Exchange Commission last week contacted the company about Mr. Musk’s Twitter posts, which drove up the company’s shares and prompted a halt in trading.
The NYT then focuses on the composition of the “independent” board, highlighting that it is anything but, which will be an issue as part of the company’s attempts to take itself private.
One independent director’s personal relationship was deemed too close for him to sit on a committee the board established to evaluate Mr. Musk’s potential going-private transaction, according to two people familiar with the matter. As a result, that key committee only has three members.
Meanwhile, as Musk’s erratic behavior has stunned investors, the board has similarly been shocked by how Musk forced it to do damage control for him.
“The issues facing Tesla relate to a lack of operational maturity,” said Roger McNamee, a Silver Lake founder who is now a managing director of the private-equity firm Elevation Partners. “The market has been remarkably patient as Tesla struggles to scale its manufacturing.” That patience has been tested by Mr. Musk in recent months. He has publicly disparaged financial analysts and insulted a cave diver who was helping rescue members of a Thai soccer team.
Board members’ frustrations have intensified in recent days.
Directors were upset that Mr. Musk’s tweets forced them to rush out a public statement explaining a transaction that was at an embryonic stage, according to people familiar with the thinking of board members.
So where does the growing fued between the board and Musk stand? Apparently, at the twitter stage:
Multiple directors have recently told Mr. Musk that he should stop using Twitter, with one urging him to stick to building cars and launching rockets, according to people familiar with the board’s communications. Tesla employees, including the company’s public-relations staff, have echoed that point, another person said.
Which brings up a bigger question: just how loose is board oversight of its CEO, and why did it take an SEC probe into the company to force directors to start taking the company’s current problems seriously? Or does the board know something the company’s investors don’t, and is “scrambling” to take measures to distance itself from its wayward CEO?
For the answer keep an eye on Musk’s tweeting, which as we noted recently has spiked exponentially in recent months, in what appears to be a desperate diversion from something else.
Judging by the board’s response, that “something” could be far more damaging to the company than anything revealed so far.
The full NYT article can be read here.
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On any other day, today’s surge in the Turkish Lira would have been sufficient to prompt a sharp rebound in global risk and euphoria across emerging markets as “the Turkey contagion was contained.” But not today, for a few main reasons: first, the spike in the Lira was due not to improving fundamentals but as a result of another soft capital control: the local banking regulator announced that the total amount of foreign currency and lira swap and swap-like transactions can’t exceed 25% of banks’ legal shareholder equity (which followed a similar determination at 50% just two days earlier). The logic behind the move, taken straight out of the PBOC’s playbook: to “kill offshore lira liquidity to stop foreigners shorting the lira” as Blue Bay’s Timothy Ash noted.
And while the crackdown on shorts worked initially, sending the USDTRY sliding as much as 7% below 6.00, traders are aware that these moves have at beast a very short term impact, and a resumption in the Lira’s slide is virtually assured, especially after a Turkish judge rejected a release request from US pastor Brunson while Erdogan announced new tariffs on US imports, guaranteeing that the diplomatic feud with Erdogan will get worse in the next few days.
As a result, despite the lira’s temporary strength, U.S. equity futures slumped to session lows following declines in both Europe and Asia on Wednesday as risk appetite continued to be tested. Futures on the Dow, Nasdaq and S&P 500 all pointed to a lower open.
Treasuries climbed, with the 10Y yields sliding below 2.90%, while the dollar surged to the highest level in 14 months, sucking liquidity out of emerging markets and sending industrial metals sliding: the Bloomberg Dollar Spot Index rose a fifth day, up 0.2% to highest level since June 2017.
In light of the surging dollar, what spooked traders today was not so much Turkey but China, where the Yuan tumbled to new one year lows, with the USDCNH rising above 6.92 while the onshore yuan also fell below 6.900 per dollar, its lowest level since May 2017.
Elsewhere, Hong Kong intervened for the second time in three months overnight to defend its peg to the after the local currency fell to the weak end of its trading band. However, with the PBOC refusing to intervene and halt the Yuan’s drop, and with traders expecting more trade war retaliation from Trump, the Shanghai Composite was a straight diagonal lower, closing 2.1% lower – down for a 3rd day – and just above the lowest level set for 2018.
There was another key factor in today’s EM rout: China’s Tencent tumbled after reporting disappointing earnings, missing on both the top and bottom line: Tencent (0700 HK) quarterly net profit of CNY 17.867bln vs. Exp. CNY 19.3bln (Prev. CNY 18.231bln), revenue CNY 73.675bln vs. Exp. CNY 77.7bln (Prev. CNY 56.606bln). And with a weight eight times (4.9%) that of Turkish stocks, this one Chinese company pulled down the EM index.
After a positive start to the European session, where volumes were muted and liquidity was drained due to the Assumption Day public holiday, raw material producers pulled the Stoxx Europe 600 Index down as industrial metals such as copper and zinc falling to the lowest in more than a year, with copper on the verge of a bear market.
As Bloomberg adds, with the US bull market just one week away from becoming the longest in historym investor caution remains amid thin summer trading, and as trade tensions between China and the U.S. linger.
“I think we have not seen the worst of it yet,” Peter Tchir, Academy Securities head of macro strategy, said on Bloomberg Television. “You’ve only started to see a knock-on effect. I think this is truly the eye of the storm and we are going to get another round of emerging-market weakness.”
Elsewhere in FX, the pound held losses against the dollar even as U.K. inflation accelerated for the first time in eight months in July, in line with estimates. Price increases were boosted by the cost of auto fuel, transport tickets and computer games. The Aussie and Kiwi were sold against the dollar as liquid proxies to the Turkish lira and South African rand. The yen dropped a second day against the dollar while Japan’s 10- year bond yields edged lower after the central bank refrained from cutting purchases.
There was more “evasive action” by various Central Banks and authorities to stem the capital flight, with an ‘unexpected’ Indonesian rate hike – the fourth time since May – accompanied by further measures or verbal pledges to inject liquidity and contain excessive price action/speculative attacks. However, many regional currencies have lost recovery momentum and handed back a chunk of Tuesday’s recovery gains if not more in some cases.
Oil fell on inventory increases and as Libya’s output climbed. The crude complex has continued the pullback seen in yesterday’s trade that was exacerbated by a surprise build in API crude inventories, with Brent and WTI breaking though the USD 72/BBL and USD 67/BBL levels to the downside. Taking a look at metals, all of zinc (-2.2%), lead (-1.9%) and gold (-0.5%) are down with the yellow metal below the USD 1190/OZ level, as the rising USD is hitting the metals sector as a whole. Copper is also down about 2% on the day and has hit a 13 month low, with the construction material hammered by the Escondida copper mine union stopping a strike amid a new contract offer.
Economic data include retail sales, industrial output and Empire State manufacturing survey. Cisco, NetApp and Macy’s are due to report earnings.
Market Snapshot
Top Overnight News from Bloomberg
Asian equity markets were mostly negative. Nikkei 225 (-0.7%) weakened amid profit taking following the prior day’s gains of over 2%, while ASX 200 (+0.4%) remained afloat on technical buying as the index reclaimed the 6300 level but with upside capped by losses in financials as Australia’s largest lender CBA suffered on criminal misconduct allegations. Elsewhere, Shanghai Comp. (-2.0%) saw hefty losses and the Hang Seng (-1.5%) declined to its lowest in around a year in a continuation of the recent underperformance as Tencent and tech names remained pressured, while the PBoC skipped reverse repo operations for a 19th consecutive occasion and although it later announced CNY 383bln in 1yr MLF loans, this was still lower than its previous MLF operation of CNY 502bln in late July. Finally, 10yr JGBs were marginally higher with only minimal support seen amid the profit taking seen in Japanese stocks and BoJ’s presence in the market in which the central bank kept its purchase amounts unchanged. PBoC refrained from reverse repos but announced to lend CNY 383bln through 1yr Medium-term Lending Facility.
Top Asian News
European equities have started the day marginally positive in a news-thin day as certain European bourses, including the FTSE MIB, are shut due to a public holiday. The metals sector is slightly underperforming on softer base metals prices, with the Stoxx 600 basic resources index breaking its July-low support level to the downside. The day has been dominated by earnings news flow, where Admiral Group (+4.2%) and Vestas Wind Systems (+7.5%) eat on expectations and are leading the gains in the Stoxx 600. William Demant (-7.2%) missed on expectations, however, and are at the foot of the Stoxx 600
Top European News
In FX, Turkish Lira moves and Turkish news remain firmly in the spotlight, as other EM currencies continue to trade in lock-step and contagion spreads via the Usd through the G10 community. Indeed, the DXY climbed to fresh 2018 highs just shy of 96.900 (96.878 to be precise) when the Try retreated towards 6.6000 vs the Dollar and duly eased back when the pair breached 6.0000 to the downside before another bounce on headlines reporting that a Turkish Court has rejected a US appeal against the house arrest of Pastor Brunson – Usd/Try circa 6.2000 at writing. EM – Lots more evasive action by various Central Banks and authorities to stem the capital flight, with an ‘unexpected’ Indonesian rate hike accompanied by further measures or verbal pledges to inject liquidity and contain excessive price action/ speculative attacks. However, many regional currencies have lost recovery momentum and handed back a chunk of Tuesday’s recovery gains if not more in some cases. NZD/CHF – Bottom of the heap of majors, with the Kiwi only just hovering above 0.6550 vs its US counterpart and back below 1.1000 vs its antipodean peer despite extended AUD weakness alongside the YUAN by official and free-float market forces (Cny and Cnh both under 6.9000 vs the Usd and revisiting line in the sand intervention territory). On that note, the SNB appears to have reached its tolerance limit with the Franc and as suspected reiterated the need for ZIRP and FX intervention to curb Chf demand and stabilise fragile FX developments. Usd/Chf rebounding as a result towards parity and Eur/Chf close to 1.1300 vs 1.1275 at one stage
In commodities, the crude complex has continued the pullback seen in yesterday’s trade that was exacerbated by a surprise build in API crude inventories, with Brent and WTI breaking though the USD 72/BBL and USD 67/BBL levels to the downside. Taking a look at metals, all of zinc (-2.2%), lead (-1.9%) and gold (-0.5%) are down with the yellow metal below the USD 1190/OZ level, as the rising USD is hitting the metals sector as a whole. Copper is also down about 2% on the day and has hit a 13 month low, with the construction material hammered by the Escondida copper mine union stopping a strike amid a new contract offer Iranian Oil Minister to attend JMMC meeting in Algeria in September
Looking ahead to today, we will get a series of US data releases: July retail sales, industrial production, manufacturing production and capacity utilization data along with August empire manufacturing, and preliminary Q2 nonfarm productivity and unit labor costs, June business inventories and August NAHB housing market index. Macy’s will be reporting earnings.
US Event Calendar
DB’s Jim Reid concludes the overnight wrap
President Erdogan and Finance Minister Albayrak gave speeches that doubled down on the confrontational message and gave no indications of a positive resolution to the current political standoff with the US over American pastor Brunson’s house arrest. President Erdogan vowed to boycott American electronics, specifically expressing a desire to ban iPhones in favour of Samsung phones without giving details of when and how. Elsewhere, Turkey’s five-year CDS spreads tightened as well, falling 67.5 basis points, and 10- year sovereign bonds rallied 94 basis points. The strong moves were somewhat surprising, given the lack of concrete policy action by Turkish officials, although an easing of contagion fears, the central bank’s pledge of liquidity if required as well as Reuters reports of a potential conference call on Thursday where Finance Minister Albayrak will seek to reassure investors may have helped too.
Broader emerging market currencies performed well in line with the lira yesterday, especially those that had declined in unison over the last few sessions. The South African rand and Argentine peso gained 1.19% and 0.73% against the dollar, respectively. The Mexican peso also gained 1.24%, causing the trade-weighted dollar to close around flat. The DXY index, however, gained 0.35% to the strongest level since June 2017, as developed market currencies depreciated. The yen shed -0.41% but remains in its recent range, but the euro declined -0.58% to its weakest level in over a year and fell below its 200-week moving average.
This morning in Asia, the Turkish Lira is resuming its decline (-2.2%) and equities are broadly lower with the Hang Seng (-1.52%), Shanghai Comp. (-1.31%) and Nikkei (-0.85%) all down. Meanwhile, futures on the S&P are marginally lower while yields on UST10y are c2bp lower. As for data, China’s July new home prices grew to the highest in c2 years, up +1.2% mom and +6.6% yoy (vs. 5.8% in June). Elsewhere, Reuters cited an unnamed White House official who warned more economic pressure may be placed on Turkey if it refuses to release the American pastor.
Back to yesterday, the dollar’s recent strength is weighing on commodity prices. Brent crude oil failed to rally again yesterday, paring intraday gains of as much as 1.82% after news broke that India may cut oil imports from Iran by 50% to satisfy a US waiver. Countries like India are potentially the swing purchasers for Iranian oil; if they decide to follow US sanctions it will likely remove Iranian oil from the global market. The broader commodity complex was lower as well, with the bellwether CRB raw industrials index dipping to its lowest level of the year.
Front month copper futures fell 1.78% to their lowest level since last July. In the US, risk sentiment improved and the S&P 500 posted its first gain in the last five trading session, rising +0.64%. Banks led gains, rallying +1.04%, but they nevertheless remain -0.38% lower since their level before Turkey-related volatility intensified on Friday. Similarly, the VIX index fell 1.5 points but remains 2.4 points higher over the last week. Sectorally, cyclical sectors outperformed, with consumer discretionaries rallying 0.95% and utilities lagging behind. Treasuries sold off slightly but the 10-year yield ended the session broadly flat.
European equities failed to join the global rally yesterday, with the Euro Stoxx 600 closing flat. The weaker euro did not provide a tailwind, with the correlation between the single currency and the Stoxx 600 recently turning positive for the first time since last summer. Usually, a weaker euro boosts European exporters and increases the value of overseas earnings. Fixed income price action was firmer, with the IG and XO iTraxx indexes rallying 0.9bp and 2.4bp, respectively. German bund yields sold off slightly, in line with Treasuries, but peripheral spreads rallied notably. Italian two- and ten-year spreads to Germany closed 9 and 8.7 basis points tighter, respectively. This partially reflects the improved price action out of Turkey, but could be in response to more positive developments surrounding the upcoming Italian budget. Ansa reported that Prime Minister Conte and top ministers agreed that they will need to cut the debt stock moving forward.
Staying with Italy, ANSA also has reported that a 50-year old suspension bridge in Northern Italy has collapsed and led to at least 26 casualties. Following on, the Deputy Premier Salvini has signalled that EU rules should not hold back investments as he noted “there can be no trade-off between fiscal rules and the safety of Italians” while adding that “if external constraints prevent us from spending to have safe roads…then it really calls into question whether it makes sense to follow those rules”.
Moving onto Brexit where the German Chancellor Merkel may be suggesting a more flexible approach to Brexit talks. She noted that “hopefully it’ll not come to an unregulated Brexit, but rather to a reasonable negotiated agreement”, although she added that the UK has to “commit to re-accepting EU rules”. Earlier on, the UK Foreign Secretary Hunt noted that “we need a change in approach by the EC if we’re going to have a pragmatic deal that works for everyone”.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the July NFIB small business optimism index nudged up 0.7pts mom to a fresh 35 year high (107.9 vs. 106.8 expected). Respondents were more optimistic about the general economy, hiring and prospects for employee compensation.
In Europe, Germany’s 2Q GDP was above market at 0.5% qoq (vs. 0.4% expected), while prior data revisions have led to an annual growth of 2.0% yoy (vs. 2.1% expected). The German statistical office indicated that consumption and investment had contributed positively. Elsewhere, the second reading of the Euro area’s 2Q GDP was revised 0.1ppt higher to 0.4% qoq and 2.2% yoy, while the final reading of Germany and France’s July CPI was confirmed at 2.1% and 2.6%, respectively. Meanwhile, the August ZEW survey indicated respondents were less pessimistic this month, with the expectations index for Germany (-13.7 vs. -21.3 expected) and the Euro area (-11.1 vs. -18.7 previous) both improving and now at the highest levels since May. Back in the UK, the June unemployment rate fell to a 43-year low, down 0.2ppt mom to 4.0% (vs. 4.2% expected) while the employment change was below market at 42k in 2Q (vs. 93k expected). Lastly, the average weekly earnings growth (ex-bonus) nudged down one tenth to an inline print of 2.7% yoy.
Looking ahead to today, we will get a series of US data releases: July retail sales, industrial production, manufacturing production and capacity utilization data along with August empire manufacturing, and preliminary Q2 nonfarm productivity and unit labor costs, June business inventories and August NAHB housing market index. Macy’s will be reporting earnings.
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The suspect arrested on suspicion of carrying out a terrorist attack at the UK Parliament on Tuesday has been named as Salih Khater, Sky News reported. It is believed the 29-year-old is a British citizen of Sudanese origin, and remains in police custody after his arrest on suspicion of preparing an act of terror.
A Facebook page for a man of the same name says he lives in Birmingham, works as a shop manager, and has studied at Sudan University of Science and Technology.
Khater has been arrested on suspicion of ramming a car into pedestrians and cyclists before crashing into security barriers outside the Houses of Parliament. The suspect is being held in custody in south London, and is said to be not cooperating with police. Scotland Yard’s head of counter-terrorism Neil Basu said no other suspects have been identified.
Police have been searching addresses in the Midlands after a car smashed into barriers near Parliament on Tuesday morning. Officers revealed the driver travelled from Birmingham to London on Monday night and arrived in the capital just after midnight.
He remained in the Tottenham Court Road area, close to Oxford Street, from around 1.25am until 5.55am.
The silver Ford Fiesta was then driven to Westminster and Whitehall for about 6am and stayed in the area until the time of the attack. It hit cyclists and pedestrians at 7.37am before crashing into security barriers.
According to the MI5, the suspect was unknown and “not currently cooperating”, the Metropolitan Police said afterwards. His vehicle was removed late on Tuesday night.
Two addresses in the West Midlands city were being searched by counter-terror officers later that evening, as well as a flat in Nottingham’s Radford/ Arboretum area.
* * *
It was the second terrorist attack on the Houses of Parliament in just under 18 months. The first one in March last year claimed the lives of five people, including a police officer. In a third incident, an attempted attack was foiled when counter-terrorist officers arrested the potential assailant, who was found outside parliament in possession of three knives.
A man and a women were taken to hospital with non life-threatening injuries after the vehicle hit cyclists in rush hour, but they have now been discharged. Witnesses described how the car came “whipping round the corner” and drove through about a dozen cyclists.
Robert Nicholson told Sky News he saw the incident unfold as he was waiting in a “safe cycling box” near Parliament. He chased the car after the impact left one woman flying up “onto the bonnet” and snapped the frame of one of the bikes.
Assistant Commissioner Neil Basu said: “There is no intelligence at this time of further danger to Londoners or to the rest of the UK connected to this incident.”
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In a day in which the dollar set new highs against virtually all pairs and global risk is on the defensive, the Turkish Lira extended its rapid rebound from record lows, after Turkish regulators imposed new soft capital controls to prop up the battered currency, making it even harder for banks to short the currency through the swap market.
One day after Turkey suspended mark-to-market for banks in a bid to offset fears about debt rollover and capital shortfalls, the Ankara-based Banking Regulation and Supervision Agency (BDDK) announced that the total amount of foreign currency and lira swap and swap-like transactions can’t exceed 25% of banks’ legal shareholder equity; the announcement came just 48 hours after a 50% was imposed on Monday, which however failed to make much of a dent in the selloff.
The latest move limits funds’ access to lira liquidity in the offshore swap market and makes it harder for them to borrow the currency from local lenders and short it. The rate on overnight dollar-lira swaps surged more than 12% points to 34.5%, the highest level since 2003.
“They are killing offshore lira liquidity to stop foreigners shorting the lira,” said Timothy Ash, a strategist at BlueBay Asset Management in London.
Then again, this strategy – which just recently was attempted by China – tends to have a very short-term effect, as it does nothing to alleviate the underlying reasons behind a currency selloff.
For now however it is working, and the lira jumped for a second consecutive day, surging as much as 7% against the dollar with the USDTRY briefly sliding below 6.00, reversing much of the decline triggered by tensions with the U.S. Those tensions have been centered on a dispute over the detention of an American pastor, which resulted in tariffs and sanctions. The dispute exacerbated existing concerns about President Recep Tayyip Erdogan’s unorthodox approach to economic policy.
While on Monday the central bank promised “all necessary measures” to maintain financial stability, it didn’t mention higher interest rates and hasn’t raised them yet, even though Turkish corporate and banking executives have asked it to. Then on Tuesday,in another attempt to stabilize sentiment, we reported that the banking watchdog took an unconventional step to support the nation’s beleaguered banks, temporarily excluding the effect of day-to-day securities losses on how their financial strength is calculated.
The suspension of mark-to-market calculations on capital adequacy ratios will continue until prices of securities “normalize,” the banking regulator said in a document sent to banks on Tuesday. The “recent speculative volatility in markets” caused an “unfair erosion” in banks’ capital strength, it said. Under mark-to-market accounting, portfolios must reflect assets’ current market values rather than their book values.
The emergency moves followed the publication of a report from Goldman last week which spooked traders, and suggested that a USDTRY above 7.1 would wipe out the banks’ excess capital.
The average capital adequacy ratio of the banking system stands at 16 percent as of the end of June, according to official data. Every 10 percent decline in the lira reduces capital adequacy ratios by around 50 basis points on average, according to the Goldman Sachs report.
The BDDK also published a new set of regulations on loan restructurings by banks, financial leasing and factoring firms in the Official Gazette on Wednesday, Bloomberg reports. The new rules allow banks to extend the maturities of outstanding loans to clients, refinance them, make new loans to help troubled companies, and seek new collateral. Banks can also demand debtors sell assets to repay debts and improve their finances. Overdue loans can now be restructured within two years from the day a framework agreement is signed.
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Meanwhile going back to the ongoing escalation in political tensions between the US and Turkey, one day after Erdogan vowed to boycott US electronics products, including the iPhone, Ankara slapped an additional tax on imports of a broad range of American goods. Turkey announced it would impose an additional 50% tax on U.S. rice, 140% on spirits and 120% on cars. There are also additional charges on U.S. cosmetics, tobacco and some food products. The was Erdogan’s latest retaliation for the Trump administration’s punitive actions over the past few weeks to pressure Turkey into releasing an American pastor.
Bloomberg calculated that the items listed in the decree accounted for $1 billion of imports last year, similar to the amount of Turkish steel and aluminum exports that were subjected to higher tariffs by President Donald Trump last week. The decision shows Turkey giving a proportionate response to American “attacks” on the Turkish economy, Vice President Fuat Oktay said in tweets this morning.
Zor günlerde liderinin etrafında kenetlenen Milletimiz, kural tanımaz tavırlara karşı uluslararası kamuoyu ile de kenetlenmiş, haksızlıklara karşı Dünya’yı cesaretlendirmiştir. Durmak yok, yola devam.
— Fuat Oktay (@fuatoktay06) August 15, 2018
In addition to imposing the new tariffs, Erdogan assured the spat with Trump would get worse before it gets better after a local court denied US pastor Brunson’s appeal to be released from house arrest. A local court in Izmir rejected the appeal by the US Pastor to be released from house arrest pending his trial on espionage and terrorism-related charges.
A higher Turkish court was still considering the appeal and Brunson’s lawyer, Ismail Cem Halavurt, told CBS News on Wednesday that he would not consider the appeal formally rejected until the higher court issues it’s ruling. He said that was likely to happen by the end of business on Wednesday. A previous appeal by Brunson was rejected at the end of July.
In response to this barrage of new developments out of Turkey, we expect Trump will shortly escalate his own crackdown on Turkey most likely in a tweet which in turn will send the lira plunging once more.
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Authored by Viktor Katona via Oilprice.com,
It took more than 20 years for littoral states of the Caspian Sea to reach an agreement that would lay the legal foundations for the full utilization of the region’s resources. The Fifth Caspian Summit in Aktau, Kazakhstan, brought the long-sought breakthrough after leaders of Russia, Kazakhstan, Azerbaijan and Iran signed the Convention on the Legal Status of the Caspian Sea – a remarkable feat considering that heretofore, barring bilateral deals, the Caspian has been governed by an obsolete 1940 convention between the Soviet Union (of which four current littoral states were a part) and Iran.
As the current Convention incorporates a plethora of tradeoffs between countries, let’s look at them in greater detail so as to grasp the implications of the deal.
The Convention stipulates that relations between littoral states shall be based on principles of national sovereignty, territorial integrity, equality among members, non-use of threat of force (it was only 17 years ago that Azerbaijan and Iran almost started a full-blown naval war over contested fields) and non-intervention.
The military-related clauses of the document can be considered a net diplomatic success for the Russian Federation as it prohibits the physical presence of any third-party armed forces, along with banning the provision of a member state’s territory to acts of aggression against any other littoral state. Since Russia is by far the most power nation in terms of both general military clout and military presence around the Caspian, this will placate Russian fears about any potential US (or other) encroachment in the area.
Then there’s energy… Although the Convention establishes a general legal framework for territorial disputes to be solved, it refrains from any particularities. Therefore prolonged negotiations are to be expected with regard to many disputed oilfields, stemming predominantly from Irani and Azerbaijani claims. Iran advocated throughout the entire negotiation process an egalitarian approach to delimiting the seabed (each nation would get 20% of the coast), running counter the other countries’ aspirations. The things is that when Russia concluded its seabed delimitation agreements with Kazakhstan and Azerbaijan in 2001 and 2003, respectively, the parties split their parts using the median line. Point 8.1. effectively keeps the delimitation task in the hands of relevant governments, thereby providing a very modest boost to the demarcation of the Southern Caspian (the Northern part is fully delimited).
There are two main territorial conflicts to be settled – the Irani-Azerbaijani and the Azerbaijani-Turkmen disputes. The row between Baku and Teheran revolves around the Araz-Alov-Sharg field (discovered in 1985-1987 by Soviet geologists), the reserves of which are estimated at 300 million tons of oil and 395 BCm of natural gas. Even though the field is only 90 kilometers away from Baku and should seemingly be under Azerbaijan’s grip, if one is to draw a straight line from the Azerbaijani-Irani border most of the field ought to be allotted to Iran (the median would keep most of it in Azerbaijan). As those old enough to remember the 2001 naval ship hostilities would attest, it does matter at what angle the final line is drawn.
The Serdar/Kapaz field (estimated to contain 50 million tons of oil) is the bone of contention between Azerbaijan and Turkmenistan. Considered to be an extension of Azerbaijan’s main oil-producing unit, the Azeri-Chirag-Guneshli field, Baku sees it as an indispensable element in its quest to mitigate decreasing oil output numbers. Geographically, Serdar/Kapaz is closer to Turkmenistan, yet here too Azerbaijan might come out the ultimate winner. The Apsheron peninsula stretches out some 60km into the Caspian Sea, in effect extending Azerbaijan’s geographical reach. Absent previous demarcation agreements between Baku and Ashgabat, the settlement will once again boil down to getting the angles right, as in the case of Araz-Alov-Sharg. However, it must be said that a resolution might come about as a by-product of new gas endeavors.
Clause 14, dealing with laying subsea pipelines and cables, is the one most coveted by energy analysts, since it has the potential to significantly alter Europe’s gas supply options.
According to point 14.2., all parties have the right to construct subsea pipelines given that they comply with environmental standards (which are particularly strict in the Caspian Sea). With no further caveat included, some analysts might be tempted to think that Russia will inevitably use the “environmental protection” card when trying to stop the construction of the Trans-Caspian pipeline (TCP) from Turkmenistan, a pipeline it spent many years to halt. Under current circumstances, when US-Russian relations falling ever deeper into an insurmountable ditch, Moscow’s decision to allow for the construction of the mightily Washington-backed TCP to take place might be perceived as a massive omission.
Since the Turkmen gas is unlikely to find demand in Azerbaijan or Turkey, it would need to take the whole route via the South Caucasus Pipeline, TANAP and TAP. Merely the transportation tariffs from these pipelines would render any transportation economically unviable unless European gas prices rise substantially to levels above $300/MCm. Moreover, the estimated cost of building the subsea TCP of $2 billion is a disabling burden for either Türkmengaz or SOCAR. Thus, allowing the construction of Trans Caspian gas pipelines might be a brilliant ruse from the Russians – cognizant of all the deficiencies above, they can wield it as a sign of good will in their never-ending negotiations with the European the economics for supplying gas to Europe via the Southern Gas Corridor are far from being Union.
This being said, there are natural impediments to see the TCP implemented anytime soon. Azerbaijan might be interested in getting transit fees for Turkmen natural gas, yet it lacks the required infrastructure to include the above volumes in its traditional conduit via Turkey.
All in all, the Caspian convention is a good basis for further negotiations, even though it falls short of being an all-encompassing legal framework. Territorial disputes will most likely remain frozen for quite some time and no new gas pipeline projects will see the light of day unless market conditions change.
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The United Kingdom is to leave the European Union on March 29, 2019, but a final deal has yet to be agreed between Westminster and Brussels.
In the event of a “no-deal Brexit“, the UK leaving the EU single market and customs union without a free trade deal, Britain would have to adopt rules set by the World Trade Organization (WTO). This scenario, as Statista’s Raynor de Best notes, could mean that airline licenses, medicine certifications and certain citizen rights end overnight along with an increase in bureaucratic checks on goods and people passing in and out of the country.
According to estimates from the International Monetary Fund (IMF), a hard Brexit would also lead to significant long-term economic damage across the European continent.
You will find more infographics at Statista
The Washington-based fund said the economic output of the EU-27 could be reduced by 1.5 percent of GDP by 2030.
Ireland, the Netherlands, Denmark and Belgium, all countries with close trading links to the UK, would be hit hardest. Germany would lose 0.5 percent of its GDP due to industrial supply chains.
Nations with financial ties to the City of London, such as Malta, Cyprus and Luxembourg, would also be negatively affected by a “no deal”.
The IMF estimated, for example, that two-way bank claims between Luxembourg’s financial sector and the UK were about 220 percent of Luxembourg’s GDP.
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