Month: October 2016

Personal Income rose less than expected in September (+0.3% vs +0.4% exp MoM) and thanks to a downward revision in August, Spending rose more than expected (+0.5% vs +0.4% MoM).

In context, income and spending continue to rise…

 

Both income (+3.2%) and spending (+3.7%) growth rose in September on a year-over-year basis with service sector wages (+$19.9bn) rising dramatically relative to goods-producing (+$4.3bn).

Chart: Bloomberg

Thanks to the historical revisions, personal savings dipped a little from 5.8% to 5.7%.

 

But perhaps the most notable aspect of today's data is the second straight decline in real disposable income, which declined to $39,092 in September after peaking at $39,117 in July.

This is the first time since Jan 2013 that real disposable income per capita has fallen two straight months.

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Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

With each passing day, I find myself reading wildly inaccurate reports about Venezuela’s inflation. I have already had to take no less than the Wall Street Journal to the woodshed for its misreporting. Now, it’s time for Zero Hedge’s one and only Tyler Durden to take a trip to the shed. On October 27th, he asserted that Venezuela was on the cusp of hyperinflation. What nonsense. Durden’s assertion is dead wrong.

Durden relies on the International Monetary Fund (IMF) for his inflation data, as well as estimates for Venezuela’s inflation. This is a big blunder. The IMF’s reports on Venezuela contain no indication of their methodology. Indeed, it’s clear from reading their reports that they’re using a finger-in-the-wind method to measure current inflation and forecast future inflation. Durden says that Venezuela’s end of year inflation will be 481 percent, a far cry from Venezuela’s current 74.4 percent annual inflation rate courtesy of the Johns Hopkins-Cato Institute Troubled Currencies Project. The Hopkins-Cato project uses changes in black market (read: free market) exchange rates and the principle of purchasing power parity (PPP) to translate exchange rate changes into deadly accurate inflation rate estimates. 

As the accompanying chart shows, Venezuela’s inflation is not about ready to break out in hyperinflation, but has decelerated dramatically from annual rates exceeding 700 percent in 2015 to today’s still punishing rate of 74.4 percent. 

By the way, for those who play fast and loose with the word “hyperinflation,” the hyperinflation threshold is 12,875 percent, year over year. For those who are seriously interested in the topic, see the only documented treatment of all the 56 hyperinflations in the world: Steve H. Hanke and Nicholas Krus, “World Hyperinflations” in Randall Parker and Robert Whaples (eds.) “The Handbook of Major Events in Economic History,” London: Routledge Publishing. 2013.

Once again, the 95% rule reigns – 95% of what you read in the financial press is either wrong or irrelevant.

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In the latest crackdown in illicit Chinese capital outflows, China’s UnionPay banned on Saturday Chinese residents’ use of credit and debit cards supported by its payments network to purchase capital investment type insurance products in Hong Kong, as authorities move to further stem capital flight by narrowing a popular gateway for shifting money abroad and prompted the latest move higher in Bitcoin as a capital flow alternative to traditional channels.

Strict enforcement of the pre-exiting upper purchase limit of $5,000 on applicable products (e.g. travel-related accident and illness policies) was imposed, an amount imposed by China’s foreign-exchange regulator earlier this year. There is still no limit on how many times customers can swipe their cards to complete transactions..

Visitors from mainland China purchased a total of HK$30.1 billion ($3.85 billion) of “insurance products”, also known as Vancouver houses, during the first half of this year, already on par with the HK$31.6 billion total in 2015, according to data from the Hong Kong Office of the Commissioner of Insurance cited by the WSJ.

As the WSJ notes, mainland Chinese clients using debit and credits cards issued by UnionPay are only allowed to buy accident, illness, and tourism-related insurance policies, while other programs are “strictly banned,” according to a statement released Saturday by UnionPay International, a subsidiary of China’s largest bank-card provider UnionPay. The rules are part of a new guidance on payment for overseas insurance products, currently being tested in Hong Kong.

The move came as an increasing number of Chinese residents traveled to Hong Kong to buy insurance policies, particularly life insurance policies with investment functions to counter worries of sustained weakening of the yuan. The purchase of insurance policies is also used to bypass the $50,000 limit Chinese citizens are allowed to move overseas a year.

The company said they noticed “a surge in multiple transactions in individual cards with individual merchants over certain overseas insurance products.

 

”Jittered by two rounds of abrupt devaluation of yuan last year, Chinese residents are eager to park assets overseas to hedge a strengthening dollar. China’s onshore yuan has depreciated by 4.4% against the U.S. dollar this year, and many widely see further weakening in the yuan as China’s central bank repeatedly guided the currency to a six-year low via a midpoint reference system.

However, as Goldman says, although the purchase of insurance plans in HK has been a widely-publicized channel of capital outflow, the move is unlikely to reduce FX outflow by a significant amount. Whether/how the curb may impact the pace of outflows through other channels is unclear at this point.

* * *

Here are the main points on this latest capital flow crackdown from Goldman’s MK Tang:

The curb comes about 9 months after a February announcement for the stronger enforcement of the long-standing upper limit (US$5,000 per transaction) to Chinese residents’ purchase of overseas insurance products using UnionPay cards. Such a purchase involves residents transforming their RMB assets (they pay their UnionPay bills with RMB onshore) to insurance claims that are denominated and settled in FX (per the terms of the overseas insurance plans that they purchase).

On that occasion, the authorities emphasized that they did not tighten the rules per se; rather they were simply reinforcing the implementation of the limits. The announcement was made following very sizable FX outflows in January (at over $120bn on our measure).

In the latest move, a specific emphasis is being placed on the use of UnionPay cards to purchase capital investment-type insurance products in HK (e.g., life insurance policies that entail savings/investment elements); that said, there is still uncertainty on what other products may fall into the banned categories (see our insurance research sector team’s comment here for more details) . Similar to the macro backdrop seen when the February announcement was made, outflow pressure has picked up notably in the last several weeks. FX outflow on our measure, accelerated to close to $80bn in September (although PBOC’s FX reserves fell by a much smaller amount; see our September flow comment here), and the run rate of outflow in October might have been similarly fast (if not faster), judging from the fairly rapid CNY depreciation against the USD during the month (over the past year, FX outflow has tended to be larger when the pace of depreciation is more rapid).

In our view, the rule tightening is likely partially due to concerns about outflow, and partially driven by the wide media coverage of surrounding stories of Chinese residents’ purchase of HK insurance products as a way to evade capital control. Nevertheless, the curb is unlikely to significantly reduce FX outflows, given the relatively modest amount of money involved (total premiums paid by mainland Chinese for HK insurance products including payment (excluding UnionPay cards), was only about US$12bn in 2016H1 vs. total FX outflow in China of $330bn during the same period).

As we have discussed previously (here), a much larger amount of stealth outflows in China is likely to have been facilitated by trading companies who maintain part of their net export proceeds offshore; possibly without the required reporting/documentation. Such a practice can be captured in the current account (trade transactions), but not fully in the capital account (net proceeds kept offshore with false reporting), hence resulting in a negative entry in China’s Balance of Payments line item “net errors and omissions” (NEO). While it has moderated somewhat amid authorities’ rounds of crackdowns on underground banking (e.g., see here), NEO has remained notable at -$50bn in Q2’16 and totaling about -$200bn since Q3’15.

But the insurance purchase ban is not related to these unregulated outflow channels (residents’ purchases of overseas insurance products are accounted for as a reduction in China’s current account surplus). And whether/how the insurance ban may affect the size of outflows through other channels due to for instance, sentiment impact, is also not clear at this point.

In general, significant tightening in the capital account especially in areas that may affect common households, could incur risk of public misinterpretation of policy intent and could potentially be counterproductive by prompting more outflows through unregulated channels where outflow may not be as effectively blocked. We note that authorities have typically been very careful in managing signals and expectations in this regard in the past year. Further administrative adjustment of capital control (e.g., recent crackdowns on underground banking) seems probable should outflow pressure remain, in our view.

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With the FBI having obtained a warrant to begin poring over the 650,000 reported emails found on Anthony Weiner’s computer, attention shifts to just what the FBI may find, with Democrats alleging that much of the thousands of emails allegedly sent from Huma Abedin’s computer are duplicates or otherwise innocuous, while critics alleging more deleted and/or confidential emails may emerge. On her, behalf, however, long-time Hillary aide Huma Abedin has told the FBI she was not aware any of her emails were on the laptop investigators seized as part of its probe info Anthony Weiner’s investigation.

According to Politico, the FBI engaged in a back and forth over the weekend with Abedin or her attorney, when Abedin explained the situation.

“She says she didn’t know they were there,” a source familiar with the investigation said. This is a sensitive topic for Abedin and the Clinton campaign, because on previous occasions, Huma – under oath – disclosed that all the emails in her possession had been accounted for and handed over to the FBI.

As CNBC adds,”there are a number of scenarios that would explain how the emails got onto the laptop without Abedin’s knowledge, including that they were somehow automatically backed up from the cloud. But investigators will want to know how this happened and if there is any indication that Abedin misled them about the existence of emails.

It is a large project. Agents determined there were as many as 650,000 emails on the laptop, dating back years. The number of emails related to the Clinton investigation is likely to be much smaller.

On Saturday, Clinton campaign chairman John Podesta said Abedin had been fully cooperative with the FBI investigation.  “I don’t think she knows anything more than what we’ve seen in the press to date,” Podesta said Sunday on CNN’s “State of the Union.”

“I’m sure…if people—proper authorities want to ask her questions, they’ll ask her questions, but she’s been fully cooperative in this investigation.”

The FBI is now filtering the emails using a software program that will separate out any emails that investigators have not seen before. Those will be kept in a separate file and will be examined by FBI agents to see if they contain classified material or information relevant to the Clinton probe. It is not clear what FBI Director James Comey will do with the information once the FBI obtains it. Standard practice is for the FBI not to comment on investigations — but this is not a standard situation. “We’re in uncharted territory,” the source said.

It is possible that Comey could indicate publicly what the FBI finds before Election Day next week, but that decision has not been made yet.

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• FBI in Internal Feud Over Clinton Probe (WSJ)
• As Clinton struggles, Trump tries to raise doubts (Reuters)
• Dollar shakes off Clinton FBI scare, global stocks stay spooked (Reuters)
• Oil slides as non-OPEC nations demure on output limit plan (Reuters)
• Mark Carney stands ready to serve 8-year term at Bank of England (FT)
• Clinton Team Questions FBI Director’s Motive (WSJ)
• OPEC Splits Prevent Deal With Other Producers to Curb Supply (BBG)
• After a Blockbuster Election, CNN and Fox Plot Their Next Moves (BBG)
• Once the hope candidate, Obama in his final days faces a hopeless electorate (WaPo)
• Banks Are Hoarding $2.4 Trillion of Bonds (BBG)
• Iraqi forces resume offensive towards eastern Mosul (Reuters)
• There Are 5.6 Million Cheap Apartments in America. Not for Long (BBG)
• China as Factory to World Mulls the Unthinkable: Price Hikes (BBG)
• CenturyLink to buy Level 3 Communications for $19.43 billion (Reuters)
• Vatican and China Inch Toward a Diplomatic Breakthrough (WSJ)
• British murder accused Jutting ‘sexually assaulted’ at school (AFP)
• Yellen Imitates Greenspan in Reversal of Mid-1990s Rookie Role (BBG)
• Pro-Russian candidate to face second round in Moldova presidential vote (Reuters)
• Germany welcomes foreign takeovers, but wants fair conditions: Merkel spokesman (Reuters)
• Pirate Party Surge Falls Short as Icelanders Back Stability (BBG)
• Miami baseball star Fernandez was drunk, had cocaine in system at fatal crash (Reuters)
• MGM Resorts ready to bet up to $10 billion on Japan casino, possibly via REIT (Reuters)

 

Overnight Media Digest

WSJ

– As federal agents prepare to scour roughly 650,000 emails discovered on a laptop for possible links to Hillary Clinton’s private server, the case lays bare tensions within the FBI and the Justice Department over how to investigate the Democratic nominee. http://on.wsj.com/2ftZLO7

– The roughly $30 billion deal between General Electric Co and Baker Hughes Inc, expected to be announced on Monday, would create an energy powerhouse, giving General Electric a cost-effective way to play any recovery in the industry. http://on.wsj.com/2fuU2HL

– A disc inside the Boeing 767’s engine violently broke apart, touching off a wide-ranging probe into certain General Electric Co engines. http://on.wsj.com/2f7BCZb

– Negotiators for the Vatican and Beijing reached a compromise on who selects Catholic bishops in China, said people familiar with the matter, potentially marking a major step toward ending six decades of estrangement. http://on.wsj.com/2eoptz5

– Australia and New Zealand Banking Group is shifting its focus in Asia to its institutional banking operations with a deal to sell its retail and wealth businesses in the region to Singapore’s DBS Group Holdings Ltd. http://on.wsj.com/2eSDdTl

– Pakistan’s government vowed to prevent an opposition political protest planned for next week, amid tension between the administration of Prime Minister Nawaz Sharif and the country’s powerful military. http://on.wsj.com/2f1GtNb

– Airstrikes carried out by a Saudi-led military coalition killed at least 60 people at a security complex in Yemen that housed prisoners and staff, the country’s Houthi rebels said. http://on.wsj.com/2ftf9tY

 

FT

Bank of England Governor Mark Carney is ready to serve a full term of eight years, despite critics campaigning for him to resign ahead of time.

The UK business secretary said the government is seeking a deal to shield Britain’s car manufacturing industry from the impact of Brexit by guaranteeing tariff-free access to Europe.

Deutsche Bank AG is preparing to sell its entire stake in Las Vegas gaming group Red Rock Resorts Inc, to give the bank’s balance sheet a boost.

Standard Chartered Plc is in advanced talks over a Chinese joint venture in aviation financing that will aim to help the country’s airlines pay for the $1tn-worth of new aircraft they are set to buy in the next two decades.

Credit Suisse Group AG is in talks with another bank about a cost-sharing project to unlock a new level of savings as it tries to offset rising costs.

 

NYT

– Japan’s three largest shipping companies agreed to merge their container businesses, as the industry struggles with overcapacity and weakened trade around the world. http://nyti.ms/2fvge4w

– The European Union and Canada signed a far-reaching trade agreement on Sunday that commits them to opening their markets to greater competition, after overcoming a last-minute political obstacle that reflected the growing skepticism toward globalization in much of the developed world. http://nyti.ms/2eSNIpV

– Google is locked in a six-year battle with Europe’s antitrust officials. And the stakes for both sides are getting higher. http://nyti.ms/2fv9682

– Consolidated Edison plans to ask state regulators this week for permission to install solar panels on some of its buildings in the city and to share the benefits with needy customers. http://nyti.ms/2fvaVlJ

 

Canada

THE GLOBE AND MAIL

** Toronto-Dominion Bank has made a preliminary offer of about C$600 million ($448.43 million) to buy wealth management firm Richardson GMP Ltd, according to people familiar with the sale process. http://bit.ly/2fmhYxJ

** Canada’s telecom regulator Canadian Radio-television and Telecommunications Commission will take a close look at its policy on net neutrality as a public hearing begins this week on internet pricing practices that allow access to certain content for “free” but charge customers regular rates for other data usage. http://bit.ly/2fmkkwC

** A software program at the Vancouver School Board has triggered a host of problems since it was introduced in 2015, including employees being paid for vacation or sick leave for which they were not entitled, according to a memo dated Sept. 16. http://bit.ly/2fmjbVI

NATIONAL POST

** The Ontario Securities Commission has approved a settlement Friday that will see Canadian Imperial Bank of Commerce pay clients of its investment dealers more than C$73 million ($54.53 million) as reimbursement for charging them excess fees, in some cases for more than a decade. http://bit.ly/2fmmwUS

** Cenovus Energy Inc hopes the next phase of its Christina Lake oilsands facility will be the first project to resume construction following the downturn – but at a much lower cost, CEO Brian Ferguson said in an earnings call last week. http://bit.ly/2fmoVin

 

Britain

The Times

Pharmaceuticals giants want the government to plug a 1 billion pound-a-year funding gap that will be created when Britain leaves the EU, as part of a list of demands being drawn up by big business after last week’s deal with Nissan. http://bit.ly/2fuI5BL

HSBC Holdings Plc is in talks with the Bank of England over a deal that could release more than 5 billion pounds trapped in its Chinese business. http://bit.ly/2fuEqDV

The Guardian

The EU and Canada signed a free trade deal on Sunday that was almost derailed last week by objections from French-speaking Belgians, exposing the difficulties of securing agreement from 28 member states as Britain prepares for Brexit talks. http://bit.ly/2fuCFXo

The GMB union has accused Uber Technologies Inc of misleading its drivers by claiming last week’s tribunal decision on working conditions only affects two drivers involved in the case.

The Telegraph

Pharmaceutical companies will leave the UK unless the Government and the NHS start to pay for breakthrough drugs, particularly cancer treatments, a senior executive at AstraZeneca Plc said. http://bit.ly/2fuH4d6

Sky News

Long queues formed at Asda check-outs after customers across the UK were unable to pay with their cards. The company said all of its 626 UK stores were affected “at one point or another” during the day by the problem with its card payment system. http://bit.ly/2fuIyUC

KKR & Co LP backed Trans European Oil & Gas is pressing IGas Energy to divest its conventional resources arm, which comprises producing assets in the east Midlands and the Weald Basin in the south of England.

The Independent

Theresa May and her Cabinet ministers are pursuing a “make it up as they go along” strategy for Britain’s exit from the European Union, according to John McDonnell. http://ind.pn/2fuJR5T

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In a letter sent by Hillary Clinton’s campaign on Sunday night, former Attorney General Eric Holder as well as dozens of former DOJ officials slammed FBI director James Comey’s decision to reopen the FBI prove into Hillary Clinton just days ahead of the election. Comey wrote a letter to members of Congress announcing the decision, prompting criticism from Democrats and former high-ranking Justice officials, now including ex-Attorney General Eric Holder, suggesting a major ideological and political schism has formed between the DOJ – which as the WSJ reported last night stifled a similar probe into the Clinton Foundation – and the FBI. 

Joining a similar letter penned by Harry Reid on Sunday, the letter said that “Justice Department officials are instructed to refrain from commenting publicly on the existence, let alone the substance, of pending investigative matters, except in exceptional circumstances and with explicit approval from the Department of Justice officials responsible for ultimate supervision of the matter.”

“They are also instructed to exercise heightened restraint near the time of a primary or general election because, as official guidance from the Department instructs, public comment on a pending investigative matter may affect the electoral process and create the appearance of political interference in the fair administration of justice.”

Democrats are furious about what they see as political meddling on the part of the bureau and its director so close to Election Day.

“Many of us have worked with Director Comey; all of us respect him.  But his unprecedented decision to publicly comment on evidence in what may be an ongoing inquiry just eleven days before a presidential election leaves us both astonished and perplexed,” the letter continues.

“We cannot recall a prior instance where a senior Justice Department official—Republican or Democrat—has, on the eve of a major election, issued a public statement where the mere disclosure of information may impact the election’s outcome, yet the official acknowledges the information to be examined may not be significant or new.”

The problem is that no matter what happens now, the criminal probe has been reopened and there are nearly 650,000 emails to sift through, as reported by the Wall Street Journal; as such it is unlikely that the FBI make further comment on the matter before Election Day.

“We do not question Director Comey’s motives. However, the fact remains that the Director’s disclosure has invited considerable, uninformed public speculation about the significance of newly-discovered material just days before a national election” the letter says.

It concludes by calling for the release of “information that provides a full and complete picture regarding the material at issue.”

Full letter below.

NEW: Former Attorney General Holder, dozens of other former DOJ officials pen letter criticizing FBI director Comey. https://t.co/aXmWvAiFMg http://pic.twitter.com/FskFeDpoyE

— ABC News (@ABC) October 31, 2016

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General Electric agreed to merge its oil and gas business with Baker Hughes, Inc.,  creating a publicly traded energy powerhouse that will have over $32 billion in revenue and would give GE a cost-effective way to play an energy industry rebound as the companies seek to bolster their operations amid a global slump in crude prices.

As the WSJ, which first broke the story last week, reports GE will contribute its oil-and-gas business and $7.4 billion through a special one-time cash dividend of $17.50 for each Baker Hughes share.

The new company will be publicly traded on the New York Stock Exchange and will be 62.5% owned by GE and 37.5% owned by Baker Hughes.

 Tbe merger creates a company with more than $32 billion in revenue that could cut costs to better compete with rivals such as Schlumberger to provide equipment and services to oil rigs and wells; it will likely result in even more competition in the sector and lower prices. The deal would enable GE to benefit from a recovery in the industry – assuming the recent OPEC-driven bounce in energy prices persists – without having to pay for a full acquisition of Baker Hughes. It would also enable the companies and their shareholders to benefit from savings and other synergies from putting the two businesses together.

The deal takes place after GE held talks earlier this year about buying pieces of Baker Hughes set to be divested under a sale of the Houston-based company to Halliburton Co., a transaction that collapsed.

GE expects the deal to add about 4 cents to its earnings per share in 2018 and 8 cents by 2020. Lorenzo Simonelli, chief executive of GE Oil & Gas, will be chief executive of the new company and GE Chief Executive and Chairman Jeff Immelt will be its chairman. Baker Hughes Chairman and Chief Executive Martin Craighead will serve as vice chairman. The board of the new company will consist of five directors appointed by GE and four appointed by Baker Hughes.

Following the news, GE shares rose 0.9% to $29.48 in premarket trading as Baker Hughes shares rose 5.7% to $62.50.

In recent public comments, GE has said it is still committed to the oil and gas unit for the long term, but GE said operating profit in the unit will be down by 30% for the year. GE is cutting more than $1 billion in costs out of the company over two years. The conglomerate provided glimmers of improvement from the third quarter, noting that U.S. rig and well counts remained down 50% from the previous year but had ticked upward in the previous three months. Still, orders for services were down across all of GE’s oil business, the company said.

As Bloomberg notes, Oilfield contractors are increasingly forming partnerships to help cut costs and broaden their service offerings and distribution channels amid the downturn. The moves have come into favor as customers seek ways to improve efficiency and get greater value out of the services and gear needed to suck crude out of the ground.

The recent speedup in what has already been a strong year for mergers and acquisitions defies conventional wisdom, coming less than two weeks before the presidential election. The fact that companies are inking mergers at a breakneck pace without knowing who the next president will be shows how strong the imperative to consolidate across industries is, bankers say.

In light of recent government intervention in M&A, there is no guarantee a GE-Baker Hughes deal will be completed. The last merger agreement Baker Hughes entered into—a $35 billion proposed union with Halliburton Co.—was rejected by antitrust regulators this year amid a tough environment for deals in Washington.

More deal-related information will be shared during an investor conference call at 8:30 a.m. New York time.

 

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Asian shares traded mixed, European shares slid while US equity futures posted a modest rebound after Friday’s surprising political news that the FBI reopened its probe into Hillary Clinton, after OPEC failed to agree supply cuts at a meeting in Vienna.

Energy shares on the MSCI All Country World Index and crude both slipped to one-month lows after OPEC ended two days of talks on Saturday without agreeing any individual quotas. The ruble led declines among the currencies of oil-exporting nations, while South Africa’s rand strengthened versus all of its major peers after the South African state prosecutor dropped fraud charges against finance minister Pravin Gordhan. Aluminum and zinc rallied to multi-year highs in Shanghai on optismism Chinese demand will hold up. Gold maintained the bulk of Friday’s gains, and traded at 4 week highs after a survey pointed to cooling support for Clinton before next week’s U.S. presidential election.

“Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.” In a note Spooner also said that “there seems little doubt that a Trump victory would trigger selling in stock markets from current levels. This has traders nervous as they start the week assimilating fresh news on Hillary Clinton’s email problems.”

The Bloomberg Dollar Spot Index rose 0.1 percent, after retreating 0.3 percent from a seven-month high in the last session. It’s climbed more than 2 percent this month, set for the biggest gain since May.  While the Fed is seen leaving rates unchanged in its November 2 meeting, futures prices indicate a 69% chance of an interest-rate hike at its December meeting, up from 59% at the end of September.

Most Asian stocks struggled higher on Monday but investors were rattled by news that the FBI is planning to review more emails related to Democratic presidential candidate Hillary Clinton’s private server, just a week before the election. European markets also looked set for a shaky start, with the Stoxx 600 index down 0.4% in early trading.

As Bloomberg notes, global equities lost ground in October as mixed corporate earnings meld with investor anxiety ahead of the Nov. 8 vote in the U.S. and expectations the Federal Reserve will hike interest rates before the year is out. The S&P 500 Index slid 20 points in about 40 minutes on Friday amid news the Federal Bureau of Investigation was again looking into Clinton’s use of private e-mail while secretary of state, an issue that has dogged her campaign. The OPEC talks yielded little more than a promise that the world’s top oil producers would keep discussing ways to stabilize the market.

“Until the election, the general theme will be uncertainty, which will have implications not just on the stock market, but on the dollar and Treasuries,” said Chad Morganlander, a money manager in Florham Park, New Jersey at Stifel, Nicolaus & Co., which oversees about $180 billion. “The probability that was factored into the market and the global financial system was a Hillary Clinton victory – investors now need to square their books going into the election based on whatever new odds come out.”

MSCI’s broadest index of Asia-Pacific shares outside Japan hit a six-week low on Monday before recovering 0.3 percent. It is set to end the month down 1.6 percent. Japan’s Nikkei, which touched a six-month high on Friday, closed 0.1 percent lower on Monday, but is up 5.9 percent in October.

The Stoxx Europe 600 Index was down 0.2 percent as of 8:12 a.m. London time, with a gauge of energy stocks sliding the most among 19 industry groups. A measure of energy shares on the MSCI Asia Pacific Index slid 0.5 percent, also the worst performance.

AIA Group Ltd. shares slumped as much as 7.2 percent after China UnionPay Co. halted credit and debt card payments for most insurance policies in Hong Kong, making it harder to conduct transactions with Chinese visitors that accounted for about half of the company’s sales in the city. Nippon Yusen KK and Mitsui O.S.K. Lines Ltd. — Japan’s two largest shipping companies — surged more than 5 percent in Tokyo after they agreed to merge their container operations with those of third-ranked Kawasaki Kisen Kaisha Ltd., which added less than 1 percent.

Futures on the S&P 500 Index rose 0.1 percent, after earlier retreating as much as 0.4 percent. An ABC/Washington Post tracking survey released Sunday gave Clinton 46 percent support from likely voters, to Trump’s 45 percent. Clinton was ahead by 12 points a week earlier.

Cited by Bloomberg, Matthew Sherwood, head of investment strategy in Sydney at Perpetual, said that “the race remains very tight and markets are far too complacent about the end result. If the polls tighten more, or the FBI investigation dominates the headlines, there could be a recalibration in market prices this week.”

American data on Monday are forecast to show personal spending and income both increased in September, based on Bloomberg surveys of economists.

Bulletin headline summary from RanSquawk

• European equities trade lower this morning, following on from US and Asian counterparts, with concerns regarding Clinton’s emails back in the spotlight and soft energy prices
• FX markets remain relatively subdued this morning, with ZAR the notable mover after reports suggest charges will be removed against the finance minister
• Highlights include US Core PCE and Chicago PM! and a host of US earnings

Market Wrap

• S&P 500 futures up 0.1% to 2127
• Stoxx 600 down 0.5% to 339
• FTSE 100 down 0.5% to 6964
• DAX down 0.5% to 10642
• German 10Yr yield down 1bp to 0.15%
• Italian 10Yr yield up 8bps to 1.67%
• Spanish 10Yr yield down 1bp to 1.22%
• S&P GSCI Index down 0.2% to 369.4
• MSCI Asia Pacific up 0.3% to 139
• Nikkei 225 down 0.1% to 17425
• Hang Seng down less than 0.1% to 22935
• Shanghai Composite down 0.1% to 3100
• S&P/ASX 200 up 0.6% to 5318
• US 10-yr yield down less than 1bp to 1.84%
• Dollar Index up 0.18% to 98.52
• WTI Crude futures down 0.3% to $48.55
• Brent Futures down 0.4% to $49.50
• Gold spot down 0.2% to $1,273
• Silver spot up 0.4% to $17.83

Global Headline News

• Clinton Allies Target Comey as Probe Scrambles Election Campaign: Escalated attacks on FBI Director James Comey in a bid to stem political damage from his disclosure the agency is reviewing a new batch of files that may be related to an investigation of the former secretary of state’s e-mail practices
• China’s COMAC Chases Xi’s Dream to Challenge Airbus, Boeing: Jet plan part of goal to boost China’s manufacturing ranking
• GE Nears $30 Billion Energy Deal With Baker Hughes, WSJ Reports: Plans to combine oil, gas business with oilfield services co.
• Banks Amass $2.4 Trillion Hoard of Bonds as BofA Leads Rush: Government debt holdings soar as deposits outpace loan demand
• Greenlight Fund Takes Jab at Tesla’s Musk, Axes Vodafone Stake: Carmaker’s charismatic CEO is ‘blinding’ investors, firm says
• American Airlines Jet Fire on Runway Forces Passenger Evacuation: Reported an engine malfunction just before catching fire while taxiing for takeoff from Chicago’s O’Hare airport

Looking at regional markets, we start in Asia where stocks were poised for the worst monthly drop since May as declines in oil prices dragged energy shares lower and investor anxiety grew over next week’s U.S. presidential election. Asian equity markets traded mixed amid indecisiveness ahead of this week’s multiple key risk events, with stocks pressured early on as political jitters resurfaced alongside a new probe into Clinton emails. Nikkei 225 (-0.2%) was also hampered by poor Industrial Production and Retail Sales figures, while the Shanghai Comp (-0.1%) and Hang Seng (-0.1%) were indecisive as earnings took centre stage with Big-4 banks ICBC and AgBank disappointing on their results. Elsewhere, the ASX 200 (+0.6%) outperformed having been lifted by the materials sector — a consequence of the softer USD. Finally,10yr JGBs saw mild gains as the risk averse sentiment spurred safe-haven flows, while the BoJ were also in the market during the session.

Top Asia News

• Goldman Sachs Alumni Said to Start Macro Hedge Fund in Asia: Their Vanhau hedge fund will make half of investments in Asia
• DBS to Buy ANZ’s Wealth, Retail Units in Five Asian Markets: ANZ Bank says it will take A$265 million loss on deal
• Japan’s Shippers to Merge Container Business as Industry Shrinks: Combination will create world’s sixth-largest operator
• Sony Cuts Annual Forecast on Battery Impairment, Components Loss: Company to transfer 8,500 workers to Murata Manufacturing
• Japan Tobacco Raises Profit Forecast on Better Overseas Growth: Raises FY operating profit forecast by 1.4% to 580b yen vs est. 586.2b yen
• Honda Boosts Profit Forecast as SUVs Lead China Sales Surge: China’s tax cut on smaller-engine models spurring demand
• Xi’s Power a Double-Edged Sword as Pressure Grows to Deliver: Investors looking for balance of reform, growth and stability

European markets looked set for a shaky start, with equities opening on the softer side as European participants respond to the jitters surrounding the US election after reports late Friday stated that the FBI were to review newly obtained emails linked to Hilary Clinton. Alongside this, weakening oil prices have added to the dampened sentiment amid soured hopes that an agreement among OPEC nations on a supply agreement will be finalised after objections from Iran and Iraq to even freeze output. In turn, this has led to energy being among the worst performers this morning. Across fixed income, the softer tone has seen global bonds supported with bunds moderately higher, while the 10- yr is outperforming in the curve supported by month-end extensions which are expected to the largest since 2011. Elsewhere, Italian BTPs have been underperforming this morning after the nation was yet again hit by another earthquake.

Top European News

• Carney’s Decision on BOE Future Overshadows U.K. Rate Decision: Governor could decide this week on term as BOE governor
• EU to Match U.S. Capital Demands on Local Units of Foreign Banks: TLAC rules are part of sweeping changes to EU bank laws
• European Banks Stuck With $1.3 Trillion of Bad Loans, KPMG Say

In FX, the Bloomberg Dollar Spot Index rose 0.1 percent, after retreating 0.3 percent from a seven-month high in the last session. It’s climbed more than 2 percent this month, set for the biggest gain since May. While the Fed is seen leaving policy unchanged at a review this week, futures prices indicate a 69 percent chance of an interest-rate hike at its December meeting, up from 59 percent at the end of September. American data on Monday are forecast to show personal spending and income both increased in September, based on Bloomberg surveys of economists.  The rand strengthened 0.9 percent after the City Press newspaper reported that South African prosecutors may drop fraud charges against Finance Minister Pravin Gordhan, who has been a key driver of a campaign to maintain the nation’s investment-grade credit rating. The National Prosecuting Authority said Sunday there were no such plans.  China’s yuan strengthened 0.2 percent, paring its biggest monthly loss since May. It advanced from near a six-year low following Friday’s retreat in the dollar and as China’s clampdown on UnionPay payments for insurance products in Hong Kong provided support. The transactions have been used as a means of skirting capital controls to take funds out of the mainland.

In commodities, crude oil fell 0.3 percent to $48.57 a barrel in New York. OPEC members ended talks on Friday without reaching a deal on country quotas, and discussions with major producers from outside the group on Saturday also concluded without any commitments. Oil has fluctuated near $50 amid uncertainty about whether OPEC can implement the first supply cuts in eight years at an official meeting in November. “Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.” Gold was little changed at about $1,275 an ounce after rallying 0.6 percent on Friday. The metal’s gains reflect “safe-haven buying after the FBI reopened its inquiry into Hillary Clinton’s use of a private e-mail server,” Australia & New Zealand Banking Group Ltd. analysts wrote in a note on Monday. Aluminum and zinc extended gains in Shanghai as investors bet that strong domestic demand, surging coal prices and logistical issues will underpin prices. Aluminum rose to its highest since September 2014, having jumped by about 10 percent last week, and zinc climbed to levels last seen in March 2011.

Today’s main events include the September personal income and spending reports, along with the PCE core and deflator readings. We’ll also get the Chicago PMI and Dallas Fed manufacturing survey

US Event Calendar

• 8:30am: Personal Income, Sept., 0.4% (prior 0.2%)
• 9:45am: Chicago Purchasing Manager, Oct., est. 54 (prior 54.2)
• 10:30am: Dallas Fed Manufacturing Activity, Oct., est. 2% (prior -3.7%)

DB’s Jim Reid concludes the overnight wrap

Friday’s late damage to markets was from the fresh FBI decision to re-open the investigation into Hillary Clinton’s private email use. Indeed I’ve never known a US election campaign like this with lurid accusations one minute and FBI investigations the next. Clinton’s campaign team have been fairly robust in response and have effectively told the FBI to immediately put the details of the allegations out in the open. The fact that there has not been much additional news over the weekend has taken some of the sting out of what was an explosive development just before Friday’s close.

The wires have been busy reporting some of the latest polls but we’d caution on their findings given that they all have sampling periods which span both before and after the headlines broke. The ABC/Washington Post poll has got a fair bit of airtime and shows Clinton as holding a small 1 point lead over Trump. However, that’s not much change from the 2point lead in the previous poll so the implied gain for Trump is pretty small. Other polls conducted by IBD/TIPP and USC/LA Times have shown no change. Again though these cover only a small period post the headlines (2 out of 6 days for the former and 2 of 7 days the latter). State-only polls are also evidently suggesting that it’s too early to really assess the impact.

Bloomberg is also highlighting the latest CBS/YouGov survey. That survey showed that only 5% of Democrat supporters would be less likely to support Clinton following the latest FBI announcement. The survey also suggested that 13% are now more likely to vote for her. 50% said it doesn’t matter. Taken together, it’s hard to really take much away from these polls right now.

So we’ll wait to see if anything changes and whether anything substantive gets released from the FBI before Election Day in just 10 days time. Over the last few years we’ve all had to make ourselves better political analysts, but I never thought analysing the FBI would be an important skill. Analysing Mark Carney could also be a good skill this week especially for Sterling assets. Over the weekend conflicting reports suggest that he either may be close to announcing he’ll leave by the end of 2018 (The Times) or be prepared to serve his full 8 year term to 2021 (FT). Both articles suggest he could discuss his intentions at the BoE meeting on Thursday which will give it added dimension.

Other things to look for this week are all the global PMIs between Tuesday and Thursday, the BoJ meeting on Tuesday, the FOMC on Wednesday and aforementioned BoE meeting Thursday and of course US payrolls on Friday. We also have 131 and 76 S&P and Stoxx 600 companies respectively reporting. It’s also possible that we get the UK High Court Brexit case ruling concerning the triggering of Article 50 without parliamentary approval. For those that missed it, on Friday Northern Ireland’s High Court ruled that the law of the province did not restrict Theresa May from triggering an exit in a boost to the UK government. More on the next 5 days at the end in the week ahead.

In terms of the remaining weekend newsflow, we finally got confirmation of an eleventh hour rescue yesterday of the CETA agreement between the EU and Canada. Talks were complicated by the objection from the Francophone region of Wallonia, with the region citing a range of concerns about the deal from the impact on employment to its impact on regional values. Significantly the deal still requires the approval of 38 national parliaments in order to be fully ratified, meaning it may drag on further. There’s also suggestion now that the opposition put up by Wallonia may act as a precedent for further trade deals and so limiting Europe’s future negotiation power. The only other thing to mention from this weekend concerns Iceland where the Independence Party came out on top in the snap election with 21 seats. Notably the populist Pirate Party more than tripled the number of seats it won (10 seats) to leave it in joint second place. An expanded coalition will be needed however the Pirate Party has previously ruled out working with the Independence Party.

Onto markets now where risk is opening up a bit mixed this morning. The Hang Seng (+0.13%) and ASX (+0.77%) are currently running with gains however the Nikkei (-0.23%), Shanghai Comp (-0.45%) and Kospi (-0.56%) look to be ending the month on more of a down note. That’s largely to do with the moves for Oil this morning where WTI (-0.43%) has followed a -2.05% decline on Friday following disappointment from the latest OPEC discussions. Discussions between delegates were said to have ended in a deadlock with disputes over country level quotas. Non-OPEC countries were also said to have met on Saturday with the same outcome. According to the WSJ the talks were said to have run into trouble when Iraq and Iran disputed the data being used to estimate production levels. Credit indices are also trading with a slightly softer tone while Gold and the USD index have edged up +0.10%. The Mexican Peso is holding near a two-week low following three days of losses into Friday.

There’s also been some data out this morning in Japan. It’s made for slightly disappointing reading however. Both industrial production (0.0% mom vs. +0.9% expected) and retail sales (0.0% vs. +0.2% expected) were flat in September and missed relative to expectations for a modest rise. Despite that there’s not been much of a reaction for the Yen.

The moves this morning follow that late tumble into the close on Friday evening post the FBI headlines which put a dampener on things after earlier data showed Q3 GDP in the US had surprised to the upside at +2.9% qoq saar (vs. +2.6% expected). The S&P 500 eventually finished -0.31% with healthcare stocks in particular getting hit hard. It also means that the index has now fallen for four consecutive sessions for the first time since June. In fairness the cumulative four-day loss is only -1.16% so it’s far from being a huge selloff. Earnings continue to be a big factor with 291 S&P 500 companies now ticked off. The overall trend is relatively positive with our US equity strategists reporting that 66% have beat on EPS with a weighted average beat of 5.7% even if just 36% have beat on sales (with 30% missing and the remaining large proportion in line). They note that this earnings season has been better than they expected primarily because of the strong performance for financials and large tech (ex. Apple). They also highlight that the blended (actually for reported and estimate for remaining) bottom up Q3 EPS has climbed to $30.99 or +2.8% yoy. They expect the final Q3 EPS to come in +2 to +3% yoy. As always last minute estimates are helping, albeit less of a factor than that in previous quarters. EPS has been revised down on average by 3% during the calendar quarter versus the five-year average of slightly over 4%. It’s worth noting that analysts are already starting to slash Q4 EPS estimates however. The consensus is for $31.29 now, down from $31.76 at the start of September.

Meanwhile markets in Europe were also a little softer on Friday. The Stoxx 600 finished -0.27% with earnings also dictating sentiment after UBS came in better than expected, but offset but slightly weaker numbers for AB-InBev and Novo Nordisk – the latter tumbling nearly 15% alone. Away from that, it was a much quieter day for sovereign bond markets. Core European bond yields ended fairly little changed, although were still some 15-20bps higher in yield for the week, while 10y US Treasury yields closed the week at 1.848%, down close to 1bp on Friday but up 11bps for the week.

Back to that GDP data. In terms of the composition, along with the boost from consumption the primary drivers for growth included exports which increased +10.0% annualized with net exports adding 0.83 percentage points to GDP growth as a result. Inventory building was also positive adding 0.61 percentage points. In terms of other data the final revisions to the University of Michigan consumer sentiment survey were made on Friday. The headline sentiment index reading was revised down to 87.2 from 87.9 as a result of a big downgrade for the current conditions index to 103.2 from 105.5. Expectations (76.8 from 76.6) were actually revised up a touch.

Over in Europe the focus of the data on Friday was on the inflation reports in Germany and France. For the former, CPI rose +0.2% mom in October which matched expectations. That helped to push the YoY rate to +0.8% from +0.7%. In France the data was a little bit more disappointing. CPI was unchanged in October versus expectations for a +0.2% mom. Meanwhile the other data to highlight was the latest economic confidence reading for the Euro area which rose to 106.3 this month from 104.9 in September. That actually puts the reading at the highest level this year. It’s worth noting that our European Economics team SIREN momentum indicator has reached a seven-month high. The SIREN surprise index has also surged to its best reading in 3 years and similarly, the SIREN surprise for Q4 has had its best start to a quarter since Q1 2012. They do however note that technical arguments suggest the improvement is overstated and the upside surprise is strongly tilted towards Germany. Furthermore they see headwinds next year from higher Oil, political uncertainty and the weakening of the fiscal and credit impulse so it might be too early to factor in a stronger recovery trend. Nevertheless, more robust data flow could strengthen the ECB’s conviction on its above-consensus 2016 GDP forecasts and the case of the more hawkish ECB Council members.

Turning over now to the week ahead. It’s a busy start to the week for data today. We’ll be kicking off firstly in the UK where the latest money and credit aggregates data is due for September. Shortly after that we’ll get Q3 GDP for the Euro area along with the October CPI report. Over in the US this afternoon the big focus will be on the September personal income and spending reports, along with the PCE core and deflator readings. We’ll also get the Chicago PMI and Dallas Fed manufacturing survey. Tuesday morning kicks off in China with the official manufacturing and non-manufacturing PMI’s for October. The RBA policy rate decision will also be due along with the BoJ decision. No change in policy for either is expected. In Europe tomorrow the only data due is the manufacturing PMI for the UK. There’s important data in the US however with the ISM manufacturing, while any last revisions to the manufacturing PMI will be made. The IBD/TIPP economic optimism reading will also be released, while vehicle sales data is out in the evening. Wednesday morning kicks off with the remainder of the final manufacturing PMI’s in Europe, along with the latest unemployment rate print for Germany. Over in the US the highlight data wise is the ADP employment change reading which comes before the FOMC meeting later in the evening. As we noted earlier we’re not expecting any surprises at the outcome of that. Turning to Thursday, the non-official services PMI will first of all be released in China. There’s not much data in Europe aside from the Euro area unemployment rate print however the focus will again be on another central bank meeting, this time in the form of the BoE. Again, we’re expecting no change to policy but the inflation report could be interesting. It’s set to be another busy afternoon in the US on Thursday. Q3 nonfarm productivity and unit labour costs kick things off followed by the remaining PMI’s. We’ll also get initial jobless claims, ISM non-manufacturing and finally factory orders. There’s little sign of things quietening down on Friday. We’ll kick off firstly in Japan with the Nikkei PMI’s. In Europe we then get the remaining PMI’s for October along with Euro area PPI before all eyes turn to the October employment report in the US including of course nonfarm payrolls. We’ll also get the September trade balance reading.

Away from the data it’s fairly quiet for central bank speak. The Fed’s Lockhart and Fischer both speak on Friday while the ECB’s Coeure speaks on Thursday following by Constancio on Friday. BoJ Governor Kuroda will also hold his usual post meeting press conference tomorrow morning and BoE Governor Carney speaks post the BoE decision on Thursday. The other big focus this week will be earnings. 131 S&P 500 companies are due to report including Pfizer (Tuesday), Facebook and MetLife (Wednesday) and Kraft Heinz (Thursday). In Europe 76 Stoxx 600 companies are due to report including BP, Shell, Credit Suisse and BMW.

via http://ift.tt/2f027U1 Tyler Durden