Tag: news

Submitted by Simon Watkins at Oilprice.com

The announcement on 13 August that Israel and the United Arab Emirates (UAE) will normalise relations, around the same as Israel’s Prime Minister Benjamin Netanyahu announced that he was suspending plans to annex more areas of the West Bank that it seized during the 1967 ‘Six Dar War’, has naturally raised the adjunct question about what this deal means for the two powerhouses of the Middle East: Saudi Arabia and Iran? As with so many queries relating to the Middle East, the answer is not as straightforward as many might imagine, but it is outlined below. To begin with, the Israel-UAE deal is a lot more multi-layered than the simple announcement implies, which means that the response of Saudi and Iran to it is equally multi-faceted.

“More than any other outcomes from this deal, the UAE wanted to put itself firmly in the U.S.’s most-favoured allies for receiving future business and financing deals, as it suffered a big hit from the Saudi-led oil price war that just ended, and to be included in the U.S.-Israel intelligence and security network to protect itself from Iran,” a senior source who works closely with the European Union (EU) on energy security told OilPrice.com last week. “This formal deal, though, just officially clarifies what has been happening for some time between Israel and the UAE in the field of intelligence co-operation to counteract Iran’s growing power in the region that has become more militaristic, given the increasing dominance of the IRGC [Islamic Revolutionary Guards Corps] in Tehran,” he said. 

A key part of this joint intelligence initiative between the UAE and Israel (and, by extension, the U.S.) has been the dramatic increase in the past two years of the purchase of commercial and adjunct residential properties in Iran’s southern Khuzestan province – a key sector for its oil and gas reserves – by UAE-registered businesses, particularly those based in Abu Dhabi and Dubai, said the source. “Around 500,000 Iranians left Iran around the time of the [1979 Islamic] Revolution and settled in Dubai, in the first instance, and then Abu Dhabi, and they have never been in favour of the IRGC having the key role in Iran, so some of them have been used to front businesses or commercial property developments in Khuzestan that are being funded from business registered in those two states of the UAE,” he added. 

“However, these apparently Abu Dhabi and Dubai businesses are actually being funded from a major Israeli property company that in turn is funded from a Israel-U.S. operation specifically set up for this project, with a budget of US$2.19 billion,” he told OilPrice.com. “These businesses, and the additional property acquisitions for the individuals working for these business in Khuzestan, mean that not only is the native Iranian population being diluted by non-Iranian Arabs [although broadly Persian in demographic terms, indigenous Arabs make up around two per cent of Iran’s population] but also the opportunity for on-the-ground intelligence gathering has been dramatically enhanced,” he underlined. “Basically, Israel is doing through the UAE presence in southern Iran exactly what Iran has been doing to Israel through its presence in Lebanon and Syria.” 

Given the obvious opportunities for increased intelligence-gathering and economic and political disruption within Iran’s borders stemming from the new Israel-UAE deal, Iran has been unsurprisingly hostile to it. Iranian Parliament Speaker’s Special Aide for International Affairs, Amir-Abdollahian, made a very public show shortly after the announcement, of meeting with Palestine’s Ambassador to Tehran, Salah Zavavi, and stated that: “The UAE’s act to normalise relations with the Zionist regime is a strategic mistake, and the UAE government must accept responsibility for all its consequences.” He added that Iran remains firmly behind the Palestinian people. Palestine’s Zavavi asked the speakers of all parliaments of Islamic countries to condemn the action of the UAE and to support the ‘inalienable rights of the Palestinian people’. 

More indicative of future actions over and above just words was the subsequent high-level meeting of Iran’s Defence Minister, Brigadier General Amir Hatami, and his Russian counterpart, Sergey Shoygu. Even publically, Hatami alluded to the new military deals reached with China and Russia – revealed exclusively by OilPrice.com – referring to the joint strategic, regional and international goals and interests between Tehran and Moscow, underlining the “developing mutual defence co-operation” between the two sides. Hatami then castigated the U.S.’s recent attempts to invoke a ‘snapback’ of full international sanctions against Iran through the United Nations Security Council: “In recent years, Iran and Russia have launched a joint and purposeful effort to counter the unilateralism and bullying policies of the U.S. and the Trump administration in the region,” he noted. “The realistic response of the UN Security Council [UNSC] and the rejection of the recent U.S. anti-Iran resolution on extension of arms embargoes against Iran, once again, brought a major defeat for the U.S. and its regional allies and proved the global opposition to unilateralism,” he underlined.

“The guarantee of China and Russia’s support as two of just five Permanent Members on the UNSC was one of the absolutely key reasons why Iran agreed to the military elements of the 25-year deal it had made earlier with China,” said the EU source. Indeed, with this new Israel-UAE deal now formally announced, the IRGC (with the rubber-stamped blessing of Supreme Leader, Ali Khamenei) is fully set to allow the presence of Chinese and Russia naval assets in and around Iran’s key ports at Chabahar, Bandar-e-Bushehr, and Bandar Abbas, in line with the military element of the agreement, as from 9 November, a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com last week. 

These deployments will be accompanied by the roll-out of Chinese and Russian electronic warfare (EW) capabilities that will encompass each of the three key EW areas – electronic support (including early warning of enemy weapons use) plus electronic attack (including jamming systems) plus electronic protection (including of enemy jamming). Based originally around neutralising NATO’s C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) systems, part of the new roll-out of software and hardware from China and Russia in Iran will be the Russian S-400 anti-missile air defence system (“to counter U.S. and/or Israeli attacks”) and the Krasukha-2 and -4 systems (“as they proved their effectiveness in Syria in countering the radars of attack, reconnaissance and unmanned aircraft”).

So, what will Saudi Arabia’s position be in the wake of the Israel-UAE deal? “Saudi Arabia, in particular, may be quietly supportive but is unlikely to normalise relations,” Jon Alterman, director of the Middle East Program at the Center for Strategic and International Studies in Washington told OilPrice.com last week. “The clerical establishment has had a privileged role in the Kingdom since the eighteenth century, the king is the custodian of the two holy mosques, and Saudi Arabia is the founder of the Organization of the Islamic Conference,” he added. ‘Quietly’ is the operative word here as, according to the Iran source, currently 62 per cent of the aforementioned US$2.19 billion Israel-UAE property fund for new settlements of UAE citizens into Iran’s Khuzestan comes from “Saudi Arabian-connected organisations.” 

This fits in with the widely held view among dedicated-Saudi analysts that Crown Prince Mohammed bin Salman (MbS) is far more sympathetic to the agreement – and to the ultimate strategic aim of the U.S. and Israel of undermining the IRGC’s grip on the country – than his father, King Salman. King Salman told the Organisation of Islamic Cooperation just last year that the Palestinian cause remained a core issue and that the kingdom “refuses any measures that touch the historical and legal position of East Jerusalem.” On the other hand, he is 84 years old and in poor health and even Saudi’s Foreign Minister, Prince Faisal bin Farhan, cautiously welcomed the Israel-UAE agreement, saying: “It could be viewed as positive.” It is also apposite to note that back in 2002 – not that long ago in global geopolitical terms – it was the Saudis who launched the ‘Crown Prince Abdullah Peace Plan’ at the Beirut Arab summit, offering Israel full recognition in exchange for a return to its pre-1967 borders.

By Michael Every of Rabobank

But I Repeat Myself

“Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself.” Mark Twain

One can always find a useful Mark Twain quote. Today’s is not about the US Congress –although who can point to a set of politicians covering themselves in glory at the moment?– but rather about myself. I repeat myself. Yes, I repeat myself. I said I repeat myself. Me? I say the same thing a lot. In doing so, I’m probably also an idiot, but there you go.

Simply put, risks are rising on many fronts and the markets care not a jot about that, or about actual fundamentals. Keep on selling the USD, why not? EUR at over 1.20 beckons. AUD at 0.75. GBP at 1.35. CNY at 6.80. You name the currency, everyone wants to hold it and hold it badly, and at higher and higher prices. Let’s just repeat myself again to recap some of the current backdrop to wanting to hold all other currencies than USD. To do so, here’s the morning summary from Bloomberg – with my comment:

• Fed No. 2 Richard Clarida left open the possibility of employing Treasury yield caps at some point in the future, though he indicated it’s not likely right now. Yes, he did indeed. He also flagged inflation could well over 2% provided it was “consistent”. Perhaps yield caps might be used one day —after just being rejected in a multi-year strategy review!– and I am sure the Fed would love CPI well over 2%. Good luck getting there. Good luck with the US getting there while everywhere else in the world is performing better economically and behaving better monetarily.
• South Korea is gearing up for another year of record bond issuance as the government prepares to boost its budget by 8.5% in 2021, setting the country on track for a record debt burden. Record bond issuance. Record debt burden. Two sets of three magic words that scream “Buy my currency!”
• Global trade is on course to recover more quickly from the coronavirus pandemic than after the 2008 financial crisis, according to Germany’s Kiel Institute for the World Economy. Not all the data show this, and imports are largely dependent on government hand-outs to maintain consumption that are about to run out. Plus, mercantilism is baaaack. Oh, that’s right. This is a German institute: they know from mercantilism. They just think it’s free trade.
• Chinese authorities have detained an Australian television anchor as relations worsen between the two over trade and security. Barley, beef, wine, tourism, universities, the Aussie press talking about iron ore too within five years, and a TV host being arrested. Oh, and CoreLogic house prices -0.5% m/m after -0.8% last month. So buy AUD! That said, when the RBA didn’t address the currency today when leaving rates on hold, even as it is up 28% from its March low, perhaps that is the smarter move…in the short term.
• Looking out to 2050, China’s economy is set for a sustained slowdown, writes Chang Shu. No: way before 2050. Despite the Caixin PMI at 53.1 today, this recovery is again all pump-priming. Debt is soaring. Bank profits are collapsing. The augmented fiscal deficit is goodness knows where. Only mercantilism and a one-off work-from-home export boom is propping up the external accounts, and even then FX reserves are no longer rising. There was also a report yesterday underlining how urbanisation is no longer productive: people drifting to cities for jobs? Good. Building a mega-city and placing people there with no jobs? Not so good – as we have seen over and over all over the world when tried. Still, buy CNY as nothing can go wrong until 2050!
• Consumer prices are sliding in Europe in the wake of the coronavirus lockdowns: Germany, Italy and Spain all reported negative rates. That’s deflation. On one hand, maybe it’s EUR positive, which is also deflationary of course. On the other hand, is the ECB going to sit there and do nothing? There is always more that can be done. The US is not the only one who will be forced to do so. Hey, buy me some EUR now!
• As expected, India posted an eye-watering hit to GDP after shrinking 23.9% last quarter — the biggest contraction among major economies — and it could force a fiscal rethink. We have covered the risks of a fiscal rethink in INR and what it could potentially mean: not good, in short. But go long INR!
• Long-term effects of the pandemic could still affect Germany a decade on from now, says Jamie Rush. But buy EUR, right!
• GMO says it’s time to give up on US Treasuries in a zero-rate world, suggesting investors consider high-yield corporate bonds and EM debt. Because Treasuries are not needed in the global financial system at all, right? And EM in particular are always going to do well in a world forced to keep bond yields low because the economy is so weak! The track record there is crystal clear THE OTHER WAY ROUND. Unless we presume growth is going to be fine everywhere and it’s just the Fed who will the respond with yield caps and zero rates and every EM will diligently raise rates while the Fed doesn’t. Like that is going to happen!
• Japan’s economy is struggling to recover from a record contraction, says Yuki Masujima, citing high-frequency data. Capital spending was -11.3% y/y in Q2, for example, and company profits -46.6% y/y. What’s the new post-Abe Abenomics going to be called? And when do we get it? And far does JPY fall as part of that plan?
• The global recovery could be job-poor due to structural shifts stemming from the Covid crisis, says ANU’s Warwick McKibbin. Which is just *wonderful* for emerging markets, obviously. And everyone around the world, not just the US and the USD.

Moreover, the political consensus still seems to be that President Trump’s re-election odds are improving (or at least the betting market says so). If so, consider the trade-related pledges he has made that would hit CNY and EUR in particular if one joins the dots.

Not entirely unrelated to November, China’s Global Times also states: “If India makes more provocations and launches new border conflicts against China, about 90% of respondents [among Chinese international relations experts surveyed] support China defending itself and striking back at India with force.” That as Indian strategists are also talking about a countdown towards further fighting if China does not back down.

The same paper also noted on Taiwan yesterday: “If the island has made arrangements of take-offs and landings of US military jets, it is crossing the Chinese mainland’s redline to safeguard national unity. This will be very serious. If the mainland has conclusive evidence, it can destroy the relevant airport in the island and the US military aircraft that land there – a war in the Taiwan Straits will thus begin.”

But I repeat myself. In my defense, so does the current market action – and while acting like a member of a Mark Twain Congress.

By Grant Buckles of Gallup

As Congress and the Trump administration remain deadlocked in talks over the next coronavirus stimulus package, seven in 10 Americans (70%) say they would support the government sending an additional economic impact payment (EIP) to all qualified adults. These stimulus payments, which were first distributed in April as part of the popular CARES Act, are widely supported as the U.S. economy continues to face high unemployment amid the coronavirus pandemic.

Despite deep polarization on a number of policies related to COVID-19, an additional EIP receives strong support among both Democrats and Republicans. Democrats (82%) are most likely to favor the federal government sending another direct payment to all qualified U.S. adults (based on their income level), with about two-thirds of Republicans (64%) and independents (66%) saying the same.

These results from the Franklin Templeton-Gallup Economics of Recovery Study, conducted Aug. 3-11, highlight bipartisan support for an additional wave of stimulus payments.

Majorities across racial groups support another one-time stimulus payment — and while the same is true among age groups, there is some variation by age. Younger adults are the least likely to support an additional EIP, even though nearly two-thirds of this group are in favor of the policy.

Consensus Around Amount of Additional Payments

Given the discussion of different EIP amounts among lawmakers, this study also explored views on the maximum size of new stimulus payments. Respondents who thought the federal government should send another one-time EIP were asked what the maximum level of the next stimulus payment should be. They were then given hypothetical ranges, from less than $300 to $900 or more. The majority of these respondents said that the maximum payout should be set at $900 or above.

Earlier in 2020, tax filers with adjusted gross incomes up to $75,000 for individuals and up to $150,000 for married couples filing joint returns received payments of $1,200 for individuals or $2,400 for married couples. For those with incomes above these amounts, payments were reduced.

Support for setting maximum payments at $900 or more is high among both Democrats and Republicans. Two-thirds of Democrats who support an additional EIP (68%) think each qualified adult should receive $900 or more. A majority of Republicans (60%) and independents (65%) who support this policy also believe that the payments should be $900 or more.

Older supporters of an additional EIP are more likely to think these payments should be at least $900. Seventy-five percent of those aged 65 and older and 77% of adults aged 55 to 64 think the payments should be this amount, compared with 42% of 18- to 34-year-olds.

Unemployed Workers’ Desire to Work Not Influenced by Amount of Stimulus

Another component of the CARES Act was Pandemic Additional Compensation, an extra $600 in federal funds paid each week to Americans receiving state unemployment benefits. This supplemental unemployment benefit expired at the end of July.

These additional unemployment payments have been criticized by some for creating a disincentive for workers to return to the job they held before the pandemic. Indeed, in talks about the next stimulus package, some lawmakers have suggested reducing or even eliminating this additional benefit. However, the vast majority of respondents indicated a desire to return to work, and their willingness to do so varied little when they were presented with different hypothetical levels of additional federal unemployment benefits.

To study the impact of additional benefits on likelihood of returning to work, Gallup asked people receiving unemployment insurance (UI) about how likely they are to return to their previous job if the government were to offer an additional weekly UI benefit. Gallup randomized the amount of the additional benefit displayed for each respondent — as either $150, $300 or $450.

Those asked about receiving the highest weekly benefit ($450) were just as likely to say they are very likely to return to their previous job (52%) as those asked about receiving a smaller additional weekly benefit of $150 (54%). The survey results may not indicate how people might actually behave under the different circumstances, but to the extent they do predict behavior, they suggest relatively few workers would choose to stay home due to greater federal assistance rather than head back to work.

Bottom Line

With the fate of additional coronavirus assistance still in doubt as Congress returns from its August recess, both Democratic and Republican leaders have signaled support for an additional EIP to qualifying adults. This reflects a broad consensus among the American public, with a majority of both Democrats and Republicans supporting another round of stimulus payments.

There is greater debate among political leaders over additional unemployment benefits. Some leaders support reinstating additional weekly UI benefits to offset the financial burden of prolonged unemployment and provide assistance to those workers who are unable to return to their job for health reasons. Others have suggested that these additional payments may disincentivize people from returning to work since they are earning more by staying at home. Results from the Franklin Templeton-Gallup Economics of Recovery Study, however, add to a growing body of evidence suggesting that more generous benefits do not discourage people from returning to work.

As Massachusetts and Virginia lead the country in a push toward mandatory vaccination for both COVID-19 and the flu (which public health experts worry could exacerbate the current COVID-19 outbreak), a large group of protesters converged outside the Massachusetts State House in Boston, holding signs that read “Unavoidably unsafe,” “My child, my choice,” “Parents call the shots” and “I am not a threat.”

Written in chalk in front of the statehouse was the phrase “No forced shots”. While some protesters wore masks, many didn’t.

The protest were inspired by an Aug. 19 announcement that influenza immunization will be required for all children ages 6 months or older who are attending Massachusetts child care, pre-school, kindergarten, or K-12 schools.

In other words, children must be vaccinated, or else. Full-time undergraduate students, and graduate students under 30, will also be required to get the vaccine.

Activists insisted that “informed and voluntary consent” is a basic human right.

“The flu vaccine should not be a mandate. It should be a choice,” Jessica Marchant said during a TV interview.

Others accused state officials of “taking advantage” of the fear caused by the virus.

“I think parents are vulnerable right now. They need their kids to go to school and they backed us into a corner,” Taryn Proulx told WCVB.

“We feel like we have to just comply or rearrange our whole lives and homeschool our children.”

Health experts have warned of a brutal “twindemic” caused by the flu circulating alongside SARS-CoV-2. While COVID-19 most seriously affects older adults, children are much more vulnerable to the flu.