Do We Need Federal Laws on Data Breach Notifications? New at Reason

EquifaxIn the wake of the Equifax breach, Andrea O’Sullivan examines whether Congress has a role to play in telling private companies when they must reveal consumer data hacks:

There is no question that Equifax screwed up majorly and should be held accountable. Already, federal regulators tasked with overseeing consumer safety and credit—namely, the Federal Trade Commission (FTC) and Consumer Financial Protection Board (CFPB)—are hard at work determining how to proceed.

But some feel that this is not enough. Legislators see the Equifax breach as an opportunity to promote data breach notification bills that had trouble getting passed in the past.

Specifically, Rep. Jim Langevin is pushing forward a new version of 2015’s failed Personal Data Notification and Protection Act (PDNPA). An updated version of the bill is not available on Congress’ legislation website, but the earlier version would have required businesses that collect PII on at least 10,000 individuals to notify affected parties within 30 days of a security breach. The bill outlines what information and resources the companies should make available to victims and designates the FTC as the enforcer. There are a few exemptions, such as for incidents that would affect ongoing legal investigations or those that are determined to not be a reasonable harm risk to individuals.

View this article.

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“Great Anger”: Trump Slams NFL Whose “Ratings Are Way Down” After “Tremendous Backlash”

President Trump continued his feud with NFL “kneelers” for the fifth consecutive day, when early on Tuesday he tweeted that ratings for NFL games are “way down except before the game starts, when people tune in to see whether or not our country will be disrespected.”

The president noted the boos heard when the Dallas Cowboys knelt before the national anthem Monday night saying there was “Great anger.” As shown last night…

… the Cowboys and owner Jerry Jones knelt before the anthem began, leading to boos from the crowd, but then stood as the anthem was sung.

Trump then said that “while Dallas dropped to its knees as a team, they all stood up for our National Anthem. Big progress being made-we all love our country!

Following Trump’s attack on Friday night in which he slammed on players who do not stand during the national anthem in which he said “wouldn’t you love to see one of these NFL owners, when somebody disrespects our flag, to say, ‘Get that son of a bitch off the field right now. He is fired”, more than 200 players kneeled after his comments during games on Sunday.

“Tremendous backlash against the NFL and its players for disrespect of our Country,” the president tweeted Monday evening.

Meanwhile, Trump has been criticized for focusing on the NFL as Puerto Rico’s governor warns of a humanitarian crisis in the wake of Hurricane Maria. He mentioned the territory on Twitter late Monday for the first time since last Wednesday, saying it is in “deep trouble” while pointing to the island’s vulnerable infrastructure and financial crisis.

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“Gold prices to reach $1,400 before the end of the year” – GoldCore

“Gold prices to reach $1,400 before the end of the year” – GoldCore

by MarketWatch

Gold finished sharply higher on Monday, recouping roughly half of last week’s loss, as declines in the U.S. stock market and growing tensions between the U.S. and North Korea lifted prices for the yellow metal to the highest settlement in more than a week.

December gold rose $14, or 1.1%, to settle at $1,311.50 an ounce. Prices, which lost about 2.1% last week, saw their highest finish since Sept. 15, according to FastSet data as reported by Marketwatch.

“The backdrop for gold today is as bullish as it has been in a long time,” said Mark O’Byrne, research director at GoldCore in Dublin.

Gold in USD (5 years) 

He expects gold prices to reach $1,400 before the end of the year.

With President Donald Trump “in the White House and the political situation in the U.S. and globally more uncertain than it has been in many years, gold will almost certainly continue to see robust safe-haven demand,” he said.

“This should push gold higher in the coming months.”

Recent military tensions between North Korea and the U.S. and its allies has helped to underpin gold’s haven status as a hedge against a sudden escalation in geopolitical tension.

According to media reports Monday, North Korean Foreign Minister Ri Yong Ho told reporters that Trump’s tweet that leader Kim Jong Un “won’t be around much longer” was a declaration of war, and Japanese leader Shinzo Abe on Monday called a snap general election in a bid to consolidate power in the midst of a diplomatic crisis with North Korea.

Gold is “coming out of a bear market, and “the technical position looks better and better after gold bottomed in December 2015,” said O’Byrne.

“Since then, we have seen a series of higher lows and higher highs.”

“Global demand remains robust with strong demand being seen in many sectors—especially in the ETFs and also in Chinese demand”, he said.

Gold is also considered a counter to what some market participants have described as lofty levels for U.S. equities potentially ripening for a correction.

The Dow Jones Industrial Average DJIA, -0.24% and the S&P 500 index SPX, -0.22% recently touched all-time highs, but traded broadly lower to start the week.

Gold gained even as the ICE U.S. Dollar Index DXY, +0.24% which measures the buck against a half-dozen currencies, was up 0.5%.

The two markets often move inversely as a weaker dollar can make commodities pegged to the currency, including most of the world’s gold, more appealing to buyers using weaker monetary units.

The dollar strengthened against the euro, which was under pressure after a heavy drop in support for mainstream parties in Germany’s general election on Sunday left the way forward in doubt for German Chancellor Angela Merkel’s conservative alliance.

News and Commentary

GoldCore expect “gold prices to reach $1,400 before the end of the year” (MarketWatch.com)

North Korea Tensions Drives Gold up 1.2% (Bloomberg.com)

Tech stocks, North Korea tensions drag Asian markets down (MarketWatch.com)

Fed’s Kashkari again says more Fed rate hikes are a bad idea (MarketWatch.com)

Euro Drops, Stocks Mixed as Korean Crisis Simmers: Markets Wrap (Bloomberg.com)

 Bullion surges as North Korea tensions resurface. Source: Bloomberg

Video: We’re Reaching Peak Gold (Bloomberg.com)

It makes sense to invest in gold now (Rediff.com)

It’s the Debt Stupid! (Campaigner.com)

Here’s how indoor farming can help feed 9.1 billion people by 2050 (MarketWatch.com)

Investors Take Cover in Gold as North Korea Threatens War: Chart (Bloomberg.com)

Gold Prices (LBMA AM)

26 Sep: USD 1,306.90, GBP 969.59 & EUR 1,105.38 per ounce
25 Sep: USD 1,295.50, GBP 957.89 & EUR 1,089.26 per ounce
22 Sep: USD 1,297.00, GBP 956.15 & EUR 1,082.09 per ounce
21 Sep: USD 1,297.35, GBP 960.56 & EUR 1,089.00 per ounce
20 Sep: USD 1,314.90, GBP 970.53 & EUR 1,094.79 per ounce
19 Sep: USD 1,308.45, GBP 969.30 & EUR 1,091.25 per ounce
18 Sep: USD 1,314.40, GBP 970.16 & EUR 1,100.68 per ounce

Silver Prices (LBMA)

26 Sep: USD 17.01, GBP 12.67 & EUR 14.43 per ounce
25 Sep: USD 16.95, GBP 12.57 & EUR 14.27 per ounce
22 Sep: USD 16.97, GBP 12.52 & EUR 14.18 per ounce
21 Sep: USD 16.95, GBP 12.58 & EUR 14.24 per ounce
20 Sep: USD 17.38, GBP 12.84 & EUR 14.48 per ounce
19 Sep: USD 17.15, GBP 12.70 & EUR 14.31 per ounce
18 Sep: USD 17.53, GBP 12.94 & EUR 14.66 per ounce


Recent Market Updates

– Commodities King Gartman Says Gold Soon Reach $1,400 As Drums of War Grow Louder
– Bitcoin “Is A Bubble” but Gold Is Money Says World’s Biggest Hedge Fund Manager
– Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms
– Gold Investment “Compelling” As Fed May “Kill The Business Cycle”
– “This Is Where The Next Financial Crisis Will Come From” – Deutsche Bank
– Global Debt Bubble Understated By $13 Trillion Warn BIS
– Bitcoin Price Falls 40% In 3 Days Underlining Gold’s Safe Haven Credentials
– Gold Up, Markets Fatigued As War Talk Boils Over
– Oil Rich Venezuela Stops Accepting Dollars
– Massive Equifax Hack Shows Cyber Risk to Deposits and Investments Today
– British People Suddenly Stopped Buying Cars
– Buy Gold for Long Term as “Fiat Money Is Doomed”
– Conor McGregor – Worth His Weight In Gold?

Important Guides

For your perusal, below are our most popular guides in 2017:

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

Please share our research with family, friends and colleagues who you think would benefit from being informed by it.

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North Korea Boosts Coastal Defenses Following “Declaration Of War” Speech

North Korea appears to be following through with its threat to shoot down US fighter jets and bombers that travel near its airspace, as US jets and bombers did on Saturday, according to a Yonhap report – the latest sign that North Korea intends to follow through with threats made by Foreign Minister Ri Yong Ho during a speech outside the UN on Monday.

During the speech, Ri claimed that Trump’s recent tweet that DPRK's leadership would “not be around much longer” amounted to "a declaration of war" and added that North Korea has "every right to take countermeasures against the US, including to shoot down American jets outside the DPRK's airspace" as part of its right to self-defense under the United Nations charter.

“The UN Charter acknowledges member states’ right of self-defense,” Ri said outside a hotel near the UN headquarters on Monday. “As the United States has declared a war, even though its strategic bombers don’t cross our border, we will come to own all rights to respond for self-defense including shooting down its planes at any time."

Less than a day later, North Korea has reportedly boosted its east coast defenses, moving aircraft and fortifying their positions, according to Lee Cheol-woo, the chief of the South Korea National Assembly's intelligence committee.

As a reminder, on Monday Ri said that the North’s right to countermeasures included shooting down U.S. bombers “even when they are not inside the airspace border of our country”.

“The whole world should clearly remember it was the U.S. who first declared war on our country,” he told reporters in New York on Monday, where he had been attending the annual United Nations General Assembly. “The question of who won’t be around much longer will be answered then,” he said.

The buildup is also a reaction to an unprecedented “show of force” this weekend when Air Force B-1B Lancer bombers escorted by fighter jets flew in international airspace over waters east of North Korea on Saturday, even crossing the de-facto sea border between the two countries. The flight was the farthest north of the demilitarized zone separating North and South Korea that any US fighter jet or bomber has flown in the 21st century. According to Reuters, the B-1B Lancer bombers came from Guam and the U.S. Air Force F-15C Eagle fighter escorts came from Okinawa, Japan. The Pentagon said the operation showed the seriousness with which it took North Korea’s “reckless behavior.”

Lee added that, contrary to the impression gleaned from the fiery speech, the North was being cautious not to cause any accidental military clash along the tense land border, and that it has directed its armed forces to "report first before taking any military measures."

Separately, White House spokeswoman Sarah Sanders denied on Monday that the United States had declared war, calling the suggestion “absurd”, while China's Foreign Ministry spokesman Lu Kang said war on the Korean peninsula would have no winner.

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Euro Tumbles Ahead Of Yellen, Macron Speeches As Stocks Shake Off Korean Crisis

S&P futures are flat after Monday’s drop in the S&P 500 where a rout in Apple weighed on tech companies and tensions with North Korea persist; Asian stocks are modestly lower while Europe has shaken off the Korean crisis and is in the green on the back of a sharp drop in the EURUSD which has tumbled below 1.18 as the USD rises ahead of much anticipated speeches by the Fed Chair and the French president.

At 12:45pm ET Janet Yellen is due to speak at an economics conference in Cleveland on the topic of “inflation, uncertainty and monetary policy“, while other U.S. and European central bankers will also offer more clues to the path of monetary policy. Investors will be parsing Yellen’s words for clues on whether the U.S. central bank will stick to plans to raise interest rates in December. “Investors are not fully up to speed with the risk of hawkish signals from Fed officials,” Mizuho strategist Antoine Bouvet said. “The Fed is back in a situation where it would want to show optimism at the very least, and the market should be pricing in more hikes in the coming months and quarters than it is currently.” Money markets currently point to a 70 percent chance of a hike in December but only a 20% chance of a further hike in March 2018, and just under 3 rate hikes for the next two years.

Another big speech on today’s calendar will be delivered by French president Emmanuel Macron: it is being billed as a big Euro integration platform, although it comes as a bad time, just 2 days after Merkel’s ability to embrace the idea has taken a set-back. Looking at what’s expected from Macron, the press have suggested that the speech will include plans for a permanent finance minister for the euro area, a euro area  budget worth several percentage points of aggregate GDP and a “European Monetary Fund”. As if to acknowledge the necessity of progress, German Finance Minister Schaeuble recently reciprocated, saying he intends to publish proposals for a reinvigorated ESM shortly after the election. We will see if the German election result cautions either. After the dust settles in Germany, the rush to integrate may need to slow. Merkel’s room for manoeuvre on conditionality just got narrower, meaning progress towards integration will likely be slower and the scale of common resources agreed will likely be more limited.

While global equities were mostly flat, the big movers overnight were the rising dollar, and the sliding euro. Indeed, as Bloomberg notes, markets attempted to stabilize as investors digested a host of catalysts from North Korean war threats and central-bank policy to tailwinds for oil and the aftermath of the German election.

The euro tumbled below $1.1800, its weakest since August 25, sliding below its 55-DMA for the first time in 5 months, as investors continued to unwind long positions, with fresh tactical selling pressure setting in ahead of Yellen’s speech. What started off as a knee-jerk reaction after the German election now appears to have become a broader hit on euro bulls’ conviction. Concern that the European Central Bank may not shed sufficient light on stimulus tapering even at its next meeting is weighing on the sentiment, amid growing speculation that the $1.20 level marks the limit of the central bank’s tolerance for gains in the common currency for now, Bloomberg notes. Additionally, the euro’s inability to stage a significant rally during the most recent war of words between the U.S. and North Korea also raised doubts whether it can re-test $1.20 level soon enough.

The good news for Europe is that a weaker euro automatically meant higher European stocks, and the Stoxx 600 was trading about 0.2% higher at publication time after opening in the red.  In terms of sector specific performance, healthcare names sit at the bottom of the pack with Swiss heavyweight Roche trading lower after being downgraded at Exane. To the upside, energy names lead the way higher amid yesterday’s surge in crude prices, with RBC’s downgrade of Total failing to place too much pressure on the sector.

There was no further reaction in Asia trading hours to the most recent threats from North Korea, and the risk-off moved quickly stalled (though it has not yet been reversed). The general feeling in Asia is that this is simply further noise – although as Citi notes some spooky parallels have been drawn with the infamous 1969 EC-121 shoot-down incident, when NK did shoot down a US reconnaissance plane, and Nixon resisted the urge to hit the big red button. Asian stocks fluctuated without clear direction with neither large gains or losses across the the main indexes. The Korean Kospi was modestly lower as won drops following latest escalation in U.S.-North Korea rhetoric.  Yesterday’s Nasdaq rout pressured ASX 200 (-0.22%) and Nikkei 225 (-0.33%), although strength in energy names following a 3% rally in crude later helped stem downside in Australia. Hang Seng (+0.05%) and Shanghai Comp. (+0.06%) also conformed to the lacklustre, indecisive tone amid a lack of drivers and a weaker PBoC liquidity operation.

As the Euro fells, the dollar strengthened against most G-10 peers as recovery from the multi-year low hit earlier this month continues. The New Zealand dollar underperformed after business confidence plunged to a two-year low. The pound briefly supported as EUR/GBP cross breaks through yesterday’s session low. Treasuries edge lower from overnight highs, initially spurred by North Korean risks. Yields marginally higher across the curve, long-end flattens with most participants eagerly awaiting Yellen speech for hints on next policy direction

Meanwhile safe havens such as gold took a breather. The yellow metal and the Swiss franc pared some of yesterday’s gains, which followed North Korea’s declaration it could shoot down U.S. warplanes. WTI crude fell, but remained close to a five-month high after also surging on Monday as Turkey threatened to shut down Kurdish crude shipments.

In bigger picture terms, markets continue to oscillate between risk-on and risk-off stances since early August as tensions simmer on the Korean Peninsula. Equities have edged away from recent record highs as the U.S. and North Korea trade threats, and now an assortment of global political risks look set to further cloud the outlook.

“I think we have a classic case of risk-on, risk-off across markets,” said Saxo Bank’s head of FX strategy, John Hardy. “There is a lot being attributed to North Korea but I think there are a lot of other factors here,” he added, citing the drop in Apple and big U.S. tech stocks and the weekend German elections that saw a far-right party enter parliament.

The yen, which traditionally performs strongly in jittery markets, was beginning to fade meanwhile having gone as high as 111.550 yen to the dollar as gold also dropped off a 1-week high it had hit on Monday. That came after North Korea’s foreign minister said a tweet by U.S. President Donald Trump that “little Rocket Man” might not be around for too long amounted to a declaration of war.

The bond market’s reaction to the latest escalation in tension between North Korea and the U.S. proved short-lived. Yields on U.S. Treasuries and German Bunds fell to a day’s low follow North Korean Foreign Minister’s Ri Yong Ho comments on Trump’s tweet. Both traded back up early on Tuesday in what analysts say reflects a widespread belief that diplomacy will prevail. All other euro zone bond yields were also a touch higher.

A rise in oil to a 26-month high, which bolsters inflation, and an upcoming sale of two-year German debt should also keep upward pressure on yields. Brent crude futures dipped fractionally to $58.85 a barrel, having earlier hit $59.49, the highest since July 2015 and more than 34 percent above the 2017 low. The rise was supported by Turkey’s threat to cut crude exports from Iraq’s Kurdistan region as well as signs that market rebalancing is accelerating. Turkish President Tayyip Erdogan threatened on Monday to cut off the pipeline that carries 500,000-600,000 barrels of crude per day from northern Iraq to the Turkish port of Ceyhan, intensifying pressure on the Kurdish autonomous region over its independence referendum.

Alongside geopolitics, this week’s bevy of central bank speakers continues to offer more clues to the path of monetary policy and the fate of stimulus. It’s Federal Reserve Chair Janet Yellen’s turn on Tuesday, who will weigh in as policy makers continue to disagree on whether to raise U.S. interest rates again this year. Finally investors will be monitoring the ongoing saga that President Donald Trump’s domestic policies have become in a bid to gauge the chances of any meaningful tax reform in the world’s biggest economy.

Economic data include new home sales, consumer confidence. Scheduled earnings include Nike, Carnival, Micron

Market Snapshot

  • S&P 500 futures down 0.01% to 2,495.25
  • STOXX Europe 600 up 0.2% to 384.55
  • MSCI Asia down 0.3% to 161.66
  • MSCI Asia ex Japan down 0.5% to 529.61
  • Nikkei down 0.3% to 20,330.19
  • Topix unchanged at 1,672.74
  • Hang Seng Index up 0.05% to 27,513.01
  • Shanghai Composite up 0.06% to 3,343.58
  • Sensex down 0.05% to 31,610.25
  • Australia S&P/ASX 200 down 0.2% to 5,670.98
  • Kospi down 0.3% to 2,374.32
  • Brent Futures down 0.6% to $58.65/bbl
  • Gold spot down 0.3% to $1,306.87
  • U.S. Dollar Index up 0.2% to 92.85
  • German 10Y yield rose 0.2 bps to 0.402%
  • Euro down 0.3% to $1.1811
  • Italian 10Y yield unchanged at 1.814%
  • Spanish 10Y yield fell 0.2 bps to 1.622%

Bulletin Headline Summary from RanSquawk

  • European and Asian equities traded with little in the way of firm direction as equity markets shrugged off mounting geopolitical tensions
  • NZD extended on political uncertainty, as USD gains some ground as markets await Yellen
  • Looking ahead, highlights include US new home sales, APIs, ECB’s Praet, Fed’s Yellen, Mester and Brainard, US 2yr note auction

Top Overnight News

  • The U.S. has gamed out four or five different scenarios for how the crisis with North Korea will be resolved, and “some are uglier than others,” National Security Adviser H.R. McMaster said as tensions remain high between the two countries
  • U.S. Senate Republicans fail in their push to repeal Obamacare; Senator Susan Collins said Monday the bill would cause too many Americans to lose insurance
  • French Prime Minister Emmanuel Macron will make proposals for re-shaping Europe that he acknowledges will need German Chancellor Angela Merkel’s support to push through
  • U.K. Prime Minister Theresa May’s speech last week failed to break the Brexit stalemate, as the EU demands more from the U.K. if there’s to be any hope of a discussion about trade next month. As the fourth round of talks kicked off, both sides remain divided over when Britain should agree to the size of its bill
  • While Austria may have successfully sold a 100-year bond this month, other European countries may be slow to follow suit given the concerns over demand, liquidity and legal restrictions
  • The Bank of Greece plans to start stress tests for the country’s four systemic banks in late February with a view to determine by June if they need fresh capital before the end of the Greek bailout program
  • CVC Is Said to Mull Options for $4 Billion Drugmaker Alvogen
  • Baidu’s iQiyi Is Said to Seek a U.S. IPO at Over $8b Valuation
  • Jaguar Land Rover Is Said to Hunt for Luxury Brand Purchases
  • Demise of Obamacare Repeal Shows How Far GOP Remains From Goal
  • Turkey Warns Iraq Kurds It Can ‘Close Valves’ on Oil Exports
  • Nestle Aims to Boost Profitability Amid Pressure From Loeb
  • Trump’s State-Tax Plan Could Cause Headaches for 52 Republicans
  • Banks Lobbying to Stem MiFID’s Spread Spark a U.S. Client Revolt
  • Uber’s New ‘Good Cop’ Tack Will Face Test in U.S. City Tussles

Asian stocks lacked any solid direction after the weak momentum from US where all 3 major indices closed negative due to geopolitical concerns, while the Nasdaq took the brunt of the worst day for the tech sector in over a month. This pressured ASX 200 (-0.22%) and Nikkei 225 (-0.33%), although strength in energy names following a 3% rally in crude later helped stem downside in Australia. Hang Seng (+0.05%) and Shanghai Comp. (+0.06%) also conformed to the lacklustre, indecisive tone amid a lack of drivers and a weaker PBoC liquidity operation. 10yr JGBs were relatively flat with only minimal support seen from the cautious risk tone in Japan, while today’s 40yr auction also failed to spur firm demand despite the b/c at the highest since 2015, as this was relatively stable from the prior. PBoC injected CNY 40bln via 14-day reverse repos and CNY 10bln via 28-day reverse repos. PBoC set CNY mid-point at 6.6076. BoJ Minutes from July 19th-20th meeting stated that Japan’s economy was expanding moderately and that financial conditions were highly accommodative. The minutes also stated that exports are on an increasing trend and that momentum towards achieving the 2% price stability target was being maintained. RBA’s Bullock says high levels of debt leave households vulnerable and that RBA will take this into consideration for monetary policy.

Top Asian News

  • Cindat Capital Says Estimates Put China NPLs Up to $1 Trillion
  • Euro Hits One-Month Low as Stops Triggered Across the Board
  • Iron Ore Faces ‘New Reality’ on Flight to Quality, BHP Says
  • Modi Starts $2.5 Billion Plan to Electrify Every India Home
  • Singapore Cryptocurrency Firms Facing Bank Account Closures

European equites started the session on the backfoot, albeit modestly so with lingering geopolitical tensions continuing to act as a source of concern for investor sentiment. In terms of sector specific performance, healthcare names sit at the bottom of the pack with Swiss heavyweight Roche trading lower after being downgraded at Exane. To the upside, energy names lead the way higher amid yesterday’s surge in crude prices, with RBC’s downgrade of Total failing to place too much pressure on the sector. From a fixed income perspective, the 10yr Bund trades relatively flat after initial losses have been pared throughout the morning. However, analysts at IFR highlight that paper could be halted at 162.05 which marks the 50% retracement of the 8th-21st September move. In the periphery, yields continue to remain resilient to the fallout of the German election with RBC downplaying the concerns for peripheral markets in a research note this morning. That said, investors will continue to remain wary over potential Catalan-related headlines over the coming days.

Top European News

  • ECB Is Said to Start Stress Tests at Greek Banks in February
  • EU Dangles Praise for U.K. But Asks More for Brexit Trade
  • London Luxury Home Values Set for 20% Rebound Over Five Years
  • BNP Paribas Aims to Grow German Revenue 8% Per Year Through 2020
  • Monte Paschi Restructuring Will Cut Bank in Half: EU Official
  • Pandora’s U.S. September Campaign Failed, Carnegie Says: Ritzau
  • Deutsche Wohnen, Vonovia Lead Europe Real Estate Stocks Higher

In currencies, the JPY remains at better levels after yesterday’s comments from the North Korean Foreign Minister in which he stated that the
war of words from President Trump has been deemed as a declaration of war. Additionally, PM Abe also called a snap election which will likely be held around late October, as such uncertainty heading into the event could suggest that risks are skewed to the
downside in USD/JPY.
With regards to the USD itself, the USD-index is broadly higher as participants await comments from Fed’s Yellen and
look for any further clarity on the train of thought at the Fed after last week’s meeting very much left a Dec hike on the table.
Additionally, broader USD strength has also likely been supported by EUR softness which was initiated by a break of September’s
lower in EUR/GBP.
NZD notably weaker overnight with NZD/USD slipping 0.45%, as political uncertainties, alongside poor overnight data weighed on
the Kiwi. As it stands, the RBNZ are not seen lifting interest rates until Sep’18, according to OIS markets. Focus will be on the
comments from the RBNZ where there may be an air of caution given the latest election results.

In commodities, both WTI and Brent have given back a small percentage of yesterday’s noteworthy gains which were largely triggered by tensions surrounding the Kurdish independence referendum. As  such, WTI has briefly moved back below the USD 52/bbl level in early European trade. However, markets will likely remain sensitive to any Turkish involvement in the matter after President Erdogan threatened to cut off the pipelines that transfer oil from Northern Iraq. Elsewhere, copper was seen higher during Asia-Pac trade while safe-haven gold was mildly underpinned as geopolitical concerns  lingered. Local press reports state that ASX will likely suspend most of Australian listed gold sector if WA government budget with new gold royalty increases is passed

Looking at the day ahead, there is the Conference board consumer confidence index, Richmond Fed manufacturing index, CoreLogic house price data for key cities as well as new home sales data. Onto other events, there is the BOJ Minutes for its July meeting. In the US, the Fed’s Mester, Brainard and Bostic will speak. Further, Mrs Yellen will speak on inflation, uncertainty and monetary policy. Back in the Europe, UK’s PM May and EU president Tusk will meet to discuss Brexit, while France’s Macron will outline his plans to reform the EU.

US Event Calendar

  • 9am: S&P Case Shiller 20-City MoM SA, est. 0.2%, prior 0.11%; 20-City YoY NSA, est. 5.7%, prior 5.65%
  • 9:30am: Fed’s Mester Moderates Session NABE
  • 10am: New Home Sales, est. 585,000, prior 571,000; New Home Sales MoM, est. 2.45%, prior -9.4%
  • 10am: Conf. Board Consumer Confidence, est. 120, prior 122.9; Present Situation, prior 151.2; Expectations, prior 104
  • 10am: Richmond Fed Manufact. Index, est. 13, prior 14
  • 10:30am: Fed’s Brainard Speaks on Labor Market Disparities
  • 11:30am: Fed’s Bostic Speaks to the Atlanta Press Club
  • 12:45pm: Yellen Speaks on Inflation, Uncertainty, and Monetary Policy

DB’s Jim Reid concludes the overnight wrap

What happens when you cross a middle aged man with two recent knee
operations and a trampoline at a 2 year olds birthday party. Answer a very sore
and ‘clicky’ knee. Over the weekend I went on a trampoline for possibly the first
time in around 4 decades and got my timing a bit wrong. I bounced high in the air
and then misjudged the landing and over extended just as the trampoline came
to meet my leg. It was quite painful at the time and 3 days later it just clicks all the
time. I’m hoping I haven’t done any damage! As a minimum it’s going to make
me very bad at surveillance going forward. It does worry me that the next few
years I’m going to be doing more and more silly things to impress my children or
their friends or probably their parents! I may as well already book in a surgeon for
a few weeks after my first sports day whenever that is!

Bunds bounced better than me at the weekend after the uncertain German
election results with 10 year bunds 4.6bps lower yesterday. In both bonds
and equities the core outperformed the peripheral (more below). For today, we
have a Yellen speech at 12:45pm ET entitled “inflation, uncertainty and monetary
policy” to look forward to and a Macron speech where timing is not ideal given
that it was billed as a big Euro integration platform 2 days after Merkel’s ability
to embrace the idea has taken a set-back.

Looking at what’s expected from Macron, the press have suggested that the
speech will include plans for a permanent finance minister for the euro area, a euro
area budget worth several percentage points of aggregate GDP and a “European
Monetary Fund”. As if to acknowledge the necessity of progress, German Finance
Minister Schaeuble recently reciprocated, saying he intends to publish proposals
for a reinvigorated ESM shortly after the election. We will see if the German election result cautions either. After the dust settles in Germany, the rush to
integrate may need to slow. Merkel’s room for manoeuvre on conditionality just
got narrower, meaning progress towards integration will likely be slower and the
scale of common resources agreed will likely be more limited. For more details,
please refer to DB’s Mark Wall’s “Reality check for the Macron Pivot”.

Focusing back now on the German election and its near term implications. As a
recap, Merkel’s CDU/CSU remained the strongest party, scoring 33% of the votes,
but it’s also the worst result since 1953 and substantially less than 2013 (41.5%).
A feasible alliance to govern is the Jamaica coalition between the CDU/CSU, the
Greens and the FDP. Looking ahead, DB’s Barbara Boettcher believes markets
will face a period of political uncertainty as coalition building will take time.
Further, coalition talks are unlikely to turn serious before the elections in Lower
Saxony on Oct 15. Thus, it is likely that Merkel will be re-elected as chancellor
only just-in-time for the December EU summit. Overall, the risk of a failure of
coalition forming is small, in part as German voters demand predictability and
responsibility in uncertain times.

This morning in Asia, markets are trading a bit softer. As we type, the Hang Seng
(-0.03%), ASX 200 (-0.13%) and the Kospi (-0.39%) is down slightly. Elsewhere,
the Nikkei is down -0.40% as the initial optimism from PM Abe’s stimulus package
and his call for a snap election has somewhat faded. The new election is likely to
take place on 22 October and is opportunistic from Abe in an attempt to capitalise
on his growing approval ratings (now c50% vs. c30% in July).

Moving on to markets yesterday now. US bourses softened following rising
geopolitical tensions and weakness in large cap tech stocks. The S&P and Dow
both closed c0.2% lower following North Korea’s Foreign minister threatening to
shoot down US warplanes in any airspace given that “the US has declared a war”.
The Nasdaq fell 0.88% (worse day since mid-August), impacted by increased
selling in the FANG stocks (down 1% to 4.7% each). Elsewhere, suppliers to Apple
and Apple’s own shares were down c3% and -0.88% respectively, after Digitimes
reported Apple has instructed suppliers to slow down delivery of some of the
component shipments for the production of the iPhone X. Elsewhere, the energy
sector rose 1.47% (+9.3% for the month) on the back of higher oil prices (more
below).

European markets were mixed but little changed, the Stoxx 600 and the Dax rose
0.18% and 0.02% respectively following Merkel’s election win. Across the region,
most indices traded lower though, with the FTSE (-0.13%) and CAC (-0.27%) down
slightly, while the peripherals slightly underperformed (FTSE MIB -0.63%; IBEX
-0.86%), perhaps a reflection of the rising populist vote in Germany.

Over in government bonds, there was a similar theme with core bond markets
firmer but peripherals underperforming. Core bond yields were modestly lower
in the US (UST 2Y: -1bp;10Y: -3bp) and also across Europe, with Bunds (2Y:
-3bp; 10Y: -5bp), Gilts (2Y: -1bp; 10Y: -2bp) and French OATs (2Y: -3bp; 10Y: -3bp)
all down 1-5bp across maturities. Conversely, peripherals such as Italian BTPs
(2Y: +0.3bp; 10Y: unch) and Portuguese (2Y: +2bp; 10Y: +2bp) bond yields were
slightly higher.

Turning to currencies, the EURUSD fell 0.86%, partly reflecting the uncertainties
with Merkel’s new coalition mandate. Elsewhere, the US dollar index gained
0.52% while Sterling was little changed (-0.28%). In commodities, WTI oil rose 3.08% and Brent jumped 3.80% to $59.02/bbl (the highest close since
November 2015) after Turkey indicated it may shut down Kurdish oil exports
that pass through its territory. Precious metal were slightly higher (Gold +1.04%;
Silver +1.08%) while other base metals are also trading higher this morning, with
Copper (1.12%), Zinc (+2.87%) and Aluminium (+0.30%) all slightly higher.

Away from the markets and onto central bankers commentaries. In the US,
the NY Fed’s Dudley has noted that inflation should eventually pick up and
“stabilise around the Fed’s 2% goal over the medium term”. Thus in response,
“the Fed will likely continue to remove monetary accommodation gradually”.
Elsewhere, the more dovish Chicago Fed’s Evans disagreed and noted that “as
the FOMC comes to decision points over the coming months, I think we need
to see clear signs of building wage and price pressures before taking the next
step in removing accommodation”.

Over in Europe, ECB’s Draghi talked up the economy, noting “economic
expansion is now firm and broad based across countries and sectors”, but gave
little away on the extent and potential approach on the tapering plans. Notably,
he said “we have to be sensitive about the danger of halting a recovery through
hasty monetary policy decisions” and that we know “a very substantial degree
of monetary accommodation is still needed for the upward inflation path to
materialize.” Elsewhere, ECB’s Executive Board member Coeure indicated that
the ECB was not “scared” by the prospect of QE exit, but noted that exit would
have to be carried out carefully.

Moving onto Brexit, the EU’s Chief Brexit negotiator Barnier has signalled he is
unwilling to discuss a trade deal until the UK provides more clarity. He said “what
is important now is for the UK government to translate the (PM May’s) speech
into a clear negotiating position”. His counterpart David Davis has reiterated UK
will honour its financial commitments, but has avoided specifics. We wait and
see how the Brexit talks evolves.

With the US congressional leaders expected to release the parameters of a tax
framework shortly, DB’s Binky Chadha gauges that little or nothing has been
priced in. He expects the fundamental impact of a cut in corporate tax rate to be
modest at the aggregate level, but the relative impacts could be large for small
vs. large companies. For more details
Finally, the latest ECB CSPP holdings were released yesterday. They bought
€1.77bn last week which equates to €353mn/day vs. €349mn/day since CSPP
started. Overall, the CSPP/PSPP ratio of net purchases continues to run well
above average, at 14.8% last week (vs. 19.2%, 13.6%, 12%, 10.3% and 9.6%
in previous weeks), which continues to suggest the ECB has tapered credit
purchases less than government bonds.

Before we take a look at today’s calendar, we wrap up with other data releases
from yesterday. Over in the US, the September Dallas Fed manufacturing
activity index was above the markets’ expectations at 21.3 (vs. 11.5 expected)
– the highest reading since February. Within the details, the employment index
rose 6.4pts to the highest reading since April 2014 and the prices paid index also
rose to the highest since July 2011. Moving along, the Chicago Fed National
index was a touch lower at -0.31 (vs. -0.25 expected), although there were positive revisions to the prior month and the three-month average remained close
to the zero mark, which suggests an economy growing at around trend.

In Germany, the September IFO business climate index fell slightly to 115.2
(vs. 116 expected), driven by weaker expectations (107.4 vs. 108 expected)
and current assessment (123.6 vs. 124.7 expected). However, DB’s Marc
Schattenberg does not see the dip in the IFO index as a signal of a marked
slowdown in Germany’s growth prospects for Q3, as the average reading of the
IFO index increased further in Q3 to 115.7 from 114.3 in Q2.

Looking at the day ahead, in France, there is the September manufacturing and
business confidence indicators. In the UK, there is finance loans for housing. Over
in the US, there is the Conference board consumer confidence index, Richmond
Fed manufacturing index, CoreLogic house price data for key cities as well as
new home sales data. Onto other events, there is the BOJ Minutes for its July
meeting. In the US, the Fed’s Mester, Brainard and Bostic will speak. Further,
Mrs Yellen will speak on inflation, uncertainty and monetary policy. Back in the
Europe, UK’s PM May and EU president Tusk will meet to discuss Brexit, while
France’s Macron will outline his plans to reform the EU.

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Deciphering Germany’s Election Results: New at Reason

Germany’s Angela Merkel will likely have to form a coalition with a free-market party and an environmentalist one.

Marian Tupy writes:

What are we to make of the results of the German election? On the face of it, Germans have opted for a safe pair of hands. Angela Merkel, who first became Chancellor in 2005, and her party, the center-right Christian Democrats, have won 33 percent of the vote and 246 seats in the Bundestag. Since there are 630 seats in the federal parliament, Merkel’s CDU/CSU will need to form a coalition with one or more parties to form government.

Over the last four years, she has governed with the center-left Social Democrats (SPD gained 20.5 percent of the vote and 153 seats). That arrangement is unlikely to continue because, in order to undermine the SPD, Merkel’s milquetoast Christian Democrats have moved to the left. As such, the SPD base feels that the party needs to go into opposition to find its independent voice again.

A coalition with the leftist Die Linke (9.2 percent and 69 seats) is out of the question and the same goes for a coalition with the rightist Alternative for Deutschland (AfD), which gained 13.3 percent of the vote and 94 seats in the Bundestag.

View this article.

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“Emerging Markets May Be Suddenly Hit On Multiple Fronts At Once”, Trader Warns

With emerging markets the best performing conventional asset class in 2017 by a wide margin (excluding cryptocurrencies of course), with a total return of nearly 50% YTD, performance not seen since 2009…

… Bloomberg macro strategist and commentator Mark Cudmore warns that we are now entering dangerous territory for Emerging-market whose “assets may be suddenly hit on multiple fronts at once” noting that “one of the core themes of 2017 has been the resilience of EM. And it’s precisely because of its solid and steady performance all year that pain can intensify so quickly. Complacent longs might soon be questioning what happened.”

He explains why in his full Macro View note below.

Emerging Market Bearishness Can Come at You Fast:   

 

Emerging-market assets may be suddenly hit on multiple fronts at once. 

 

One of the core themes of 2017 has been the resilience of EM. And it’s precisely because of its solid and steady performance all year that pain can intensify so quickly. Complacent longs might soon be questioning what happened.

 

Between the Fed’s plan to reduce the balance sheet and the dollar’s nascent rebound, the environment is suddenly looking more difficult for EM. But similar macro concerns have been brushed off many times this year. The difference this time is that those macro pressures are being combined with a broad array of idiosyncratic negatives.

 

Asia will suffer due to a trifecta of rising oil prices, weakening tech stocks and a North Korean problem that appears to be intensifying by the week. That will be compounded by extended holidays in several of the region’s major markets — China, South Korea and Taiwan. And a fear that the Xi Jinping “put” on economic growth in China may expire after the Communist Party Congress in mid-October.

 

Eastern Europe will be vulnerable to some retrenchment amid political tensions in both Germany and Spain. Greater integration, and hence convergence trades, will be on the back-burner for a few weeks.

 

As a major energy importer, Turkey is getting hit by the double-whammy of the geopolitical pressure from the Kurdish independence referendum and the related spike in oil prices.

 

South Africa, with by far the most liquid financial markets on the continent, is seeing a sharp terms-of-trade deterioration, due to lower metals prices but higher energy costs. That’s dangerous for a country with a large current-account deficit, minimal growth, high unemployment and a volatile currency.

 

Latin America will feel the pinch from weaker metals, but also suffer a deleveraging blow from yet another U.S. domestic policy failure.

From all sides, EM is likely to start feeling the pressure. And as long-time EM traders know well, sometimes the liquidity you saw on the way in just isn’t there on the way out.

 

 

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As Cash Use Plummets, Swedish Government Begins Testing Cryptocurrencies

Authored by Mac Slavo via SHTFplan.com,

Riksbank, Sweden’s central bank, is taking a serious look at Bitcoin. As cash use plummets and the amount of currency in circulation dwindles, central banks are looking to cryptocurrencies as government-backed money.

In Sweden, the number of banknotes and coins in circulation has fallen to its lowest level in three decades.

Riksbank estimates that cash transactions made up only 15 percent of all retail transactions last year. That number is down from 40 percent in 2010, thanks in large part to massively popular mobile payment services. That leaves the bank wondering if a technology similar to that of Bitcoin’s could be implemented in Sweden.

Riksbank isn’t the only central bank taking a serious look at blockchain, the technology that makes Bitcoin and other cryptocurrencies run.

 

These systems, also called distributed ledgers, rely on networks of computers, rather than a central authority like a bank, to verify and record transactions on a shared, virtually incorruptible database.

 

Government bankers across the world believe this has the potential to replace cash and make other payment systems more efficient.

 

– Technology Review

Riksbank is investigating not only distributed-ledger technology (which it describes as unproven yet “progressing incredibly rapidly”) but also traditional, centralized accounting methods for its “e-krona” (pdf) project. Many central banks are looking into this type of currency, but Sweden appears to be at the forefront of the movement.

According to Rod Garratt, an economics professor at the University of California, Santa Barbara, a cryptocurrency that’s available to all consumers “opens up a whole host of issues” and would pose new challenges for makers of monetary policy.

First, there’s the question of who, exactly, should verify the transactions and maintain the distributed ledger. Even if that’s solved, the new system would be, in a sense, too streamlined, making it easier for bank runs to occur in a moment of crisis or panic. In most current financial systems, large-scale withdrawals of funds are naturally slowed by the time it takes for a central bank to produce the paper money people are demanding. But if the currency is purely digital, no such brakes exist—a panicked citizenry could empty their accounts almost instantly, leaving an entire country’s banking system all but penniless.

 

A new journal article (pdf) published by the Bank of International Settlements, a kind of central bank for central banks, suggests a more straightforward approach than trying to use cryptocurrency to replace cash. In the article, Garratt and Morten Bech, a researcher at the BIS, draw an important distinction between a “retail” cryptocurrency like FedCoin and a “wholesale” one that would only be used by banks.

 

Technology Review

China’s central bank has also begun testing of a digital currency. Speeches and research papers from officials at the People’s Bank of China show that the bank’s strategy is to introduce the digital currency alongside China’s renminbi. But there is currently no timetable for this, and the bank seems to be proceeding cautiously.

But the main issue for governments is that they are losing their grip and control on currency. Sweden’s dwindling cash usage is increasing reliance on mobile payment systems risks marginalizing people who don’t use them or can’t access them. Those systems are also run by private companies, which means that commercial forces, rather than government policies, could end up determining how effectively the financial system serves people and the economy.

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And Europe’s Best-Performing Bond Market In 2017 Is…

Greeks are working longer for less pay, suffering from depression and committing suicide at a record pace, and seeing a mass exodus of young talented workers amid continued capital controls and pension cuts.

So it should be no surprise that Greek government bonds are being bought with both hands and feet by global investors reaching for yield, sparking GGBs to a return of almost 17% year-to-date – the best across Europe – even as concerns linger about the sustainability of Greece’s economic recovery once the current rescue program ends in 2018. 

Is this front-running hope for a fruitful review, starting mid-October, of the nation’s financial bailout? Or anticipation of Draghi extending The ECB's buying program to junk?

Remember, the market is not the economy…

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Brickbat: History Lesson

Victory ArchIn Louisiana, the Orleans Parish School Board has rescinded the permission it gave to a private group to repair and refurbish a World War I monument that sits on school property. Officials have refused to say why they will not allow the monument, first erected in 1919, to be refurbished, but it is included in a list of monuments that Take Em Down NOLA, the group that spearheaded the removal of Confederate statues, wants removed. The group objects because the names of black World War I veterans are listed separately from those of white veterans.

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