Month: November 2017

If you like your volatile cryptocurrency, you can keep your cryptocurrency…

image courtesy of CoinTelegraph

Following a seemingly endless stream of 'good news' – Bitcoin futures, Amazon rumors, Fork dividends, multiple nations moving towards adoption – Bitcoin exploded this mornng to a new record high $7354… up 29% for the week.

Then it crashed $650 to $6700…

 

Once again it seems Ether is being sold to fund the Bitcoin buys..

As CoinTelegraph notes, with Bitcoin’s increasing acceptance by Wall Street financiers and traders, the sky is quite literally the limit for the digital currency. While Bitcoin’s $116 bln market capitalization is large by the cryptocurrency world’s standards, it’s minuscule in comparison to the $639 tln derivatives market. If even the tiniest fraction of those funds were to enter Bitcoin, its value would be inconceivable.

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Over ten years since the last rate hike by the Bank of England in July 2007 (when incidentally, cable was trading above $2.00), and following years of market expectations of an imminent rate hike that failed to materialize…

…. moments ago the BOE – which had telegraphed the move extensively in recent months despite some dovish misgivings – finally pulled the trigger, and raised rates by 25bps to 0.5% in order to curb the effect of high inflation brought about by the post-Brexit plunge in the pound, squeezing local households and pressuring the UK economy. However, while cable initially spiked higher on the news, it subsequently slumped on the news that the vote was not a unanimous 9-0 decision as some had expected, as would telegraph a normal rate hike cycle, and instead had a decidedly dovish tilt with a far more contested 7-2 vote, with Cunliffe and Ramsden dissenting based on insufficient evidence that domestic costs, particularly wage growth, would pick up in line with central projections.

Here is the BOE assessment:

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 1 November 2017, the MPC voted by a majority of 7-2 to increase Bank Rate by 0.25 percentage points, to 0.5%.  The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.  The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

Some other key BOE considerations:

• Growth: GDP grows modestly over the next few years at a pace just above its reduced rate of potential.  Business investment is being affected by uncertainties around Brexit, but it continues to grow at a moderate pace, supported by strong global demand, high rates of profitability, the low cost of capital and limited spare capacity.
• Consumption: Consumption growth remains sluggish in the near term before rising, in line with household incomes
• Trade: Net trade is bolstered by the strong global expansion and the past depreciation of sterling. 
• Inflation: After CPI rose to 3.0% in September, the MPC still expects inflation to peak above 3.0% in October, as the past depreciation of sterling and recent increases in energy prices continue to pass through to consumer prices.   Expects domestic inflationary pressures to gradually pick up as spare capacity is absorbed and wage growth recovers.
• Wages: The central projection was that whole-economy total pay growth was expected to rise from a little over 2% to 3% in a year’s time, levelling out at around 3.25% in the medium term.
• Brexit: Uncertainties are weighing on domestic activity, which has slowed even as global growth has risen significantly.  Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures.
• Slack: slack has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target

The outlook:

There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal.  The MPC will respond to developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation.  The Committee will monitor closely the incoming evidence on these and other developments, including the impact of today’s increase in Bank Rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.

While the 7-2 vote split was clearly less hawkish than an ideal scenario would suggest, what has spooked traders are the following parts from the statement that appear especially dovish:

• In the MPC’s central forecast, conditioned on the gently rising path of Bank Rate implied by current market yields, GDP grows modestly over the next few years at a pace just above its reduced rate of potential.
• In line with the framework set out at the time of the referendum, the MPC now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target.
• Monetary policy continues to provide significant support to jobs and activity in the current exceptional circumstances.  All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.

In immediate reaction, as shown in the chart above, GBP/USD dropped as much as 1.1% to 1.3098 low as the 7-2 vote risks that Carney adopts a dovish approach at his press conference, as policy makers saw considerable risks stemming from Brexit.  According to Bloomberg, bids at 1.3150-60 filled, with option related protection above 1.3100. One-week risk reversals at 31bps in favor of GBP puts, remain in sideways trading since mid-October.

So is this the start of a more traditional hiking cycle or just a one-off correction from last year’s rate cut? According to the BOE, “all members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.” Incidentally, this is what the market expected just prior to the announcement.

Incidentally, the chart above may be right as BOE policy makers omitted language from previous statements saying that more hikes could be needed than the markets expect. That implies that officials are comfortable with pricing for two more quarter-point increases, roughly one by late next year and another in 2020.

Here is Bloomberg’s take:

That’s a very prudent pace of rate hikes, the one the Bank of England is penciling in. And yet, despite the warning about the “considerable risks” coming from Brexit, it is still a path of tightening ahead. The dropped wording that interest rates may need to rise more than markets expect has markets recalibrating, with bond yields falling and pushing back expectations for a follow-up. It’s not a big reset, though, with a second quarter-point move now fully priced in for September 2018 (compared with August before the decision). That’s what the market expects

And with the overhang of more imminent rate hikes gone, Gilt yields have also tumbled.

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After an angry overnight tweet…

NYC terrorist was happy as he asked to hang ISIS flag in his hospital room. He killed 8 people, badly injured 12. SHOULD GET DEATH PENALTY!

— Donald J. Trump (@realDonaldTrump) November 2, 2017

The portion of Trump's tweet about the Islamic State in Iraq & Syria (ISIS) flag is a reference to the complaint filed against Saipov that claims the suspect asked to place the terror group's flag in his hospital room.

President Trump earlier in the day on Wednesday said he would "certainly consider" sending the suspect, Sayfullo Saipov, to the U.S. military prison in Guantánamo Bay, Cuba.

“I would certainly consider that, yes," Trump said when asked by a reporter at the White House. "Send him to Gitmo.”

But President Trump has modestly toned down his rhetoric towards the NYC truck attack terrorist this morning – though still demanding the death penalty, he has backed away from sending him to Gitmo…

Would love to send the NYC terrorist to Guantanamo but statistically that process takes much longer than going through the Federal system…

— Donald J. Trump (@realDonaldTrump) November 2, 2017

…There is also something appropriate about keeping him in the home of the horrible crime he committed. Should move fast. DEATH PENALTY!

— Donald J. Trump (@realDonaldTrump) November 2, 2017

As The Hill reports, Saipov, a 29-year-old Uzbek national with lawful permanent resident status in the U.S., is accused of killing eight people and injuring nearly a dozen others with a truck on a bike path in lower Manhattan on Halloween. He has been charged with providing material support to ISIS, in addition to violence and destruction of a motor vehicle with willful disregard for human life, the acting U.S. attorney for the Southern District of New York announced Wednesday.

Trump in the wake of the attack placed blame on the American justice system, calling it "a laughingstock."

“We need quick justice and we need strong justice — much quicker and much stronger than we have right now,” the president said during a Cabinet meeting.

 

“Because what we have right now is a joke and it's a laughingstock. And no wonder so much of this stuff takes place.”

We cannot wait to hear from the 'other' side on how this is very unpresidential.

 

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Authored by Donna Brazille, former interim chair of the Democratic National Committee, originally published in Politico.

* * *

“When I was asked to run the Democratic Party after the Russians hacked our emails, I stumbled onto a shocking truth about the Clinton campaign.“

Inside Hillary Clinton’s Secret Takeover of the DNC

Before I called Bernie Sanders, I lit a candle in my living room and put on some gospel music. I wanted to center myself for what I knew would be an emotional phone call.

I had promised Bernie when I took the helm of the Democratic National Committee after the convention that I would get to the bottom of whether Hillary Clinton’s team had rigged the nomination process, as a cache of emails stolen by Russian hackers and posted online had suggested. I’d had my suspicions from the moment I walked in the door of the DNC a month or so earlier, based on the leaked emails. But who knew if some of them might have been forged? I needed to have solid proof, and so did Bernie.

So I followed the money. My predecessor, Florida Rep. Debbie Wasserman Schultz, had not been the most active chair in fundraising at a time when President Barack Obama’s neglect had left the party in significant debt. As Hillary’s campaign gained momentum, she resolved the party’s debt and put it on a starvation diet. It had become dependent on her campaign for survival, for which she expected to wield control of its operations.

Debbie was not a good manager. She hadn’t been very interested in controlling the party—she let Clinton’s headquarters in Brooklyn do as it desired so she didn’t have to inform the party officers how bad the situation was. How much control Brooklyn had and for how long was still something I had been trying to uncover for the last few weeks.

By September 7, the day I called Bernie, I had found my proof and it broke my heart.

***

The Saturday morning after the convention in July, I called Gary Gensler, the chief financial officer of Hillary’s campaign. He wasted no words. He told me the Democratic Party was broke and $2 million in debt.

“What?” I screamed. “I am an officer of the party and they’ve been telling us everything is fine and they were raising money with no problems.”

That wasn’t true, he said. Officials from Hillary’s campaign had taken a look at the DNC’s books. Obama left the party $24 million in debt—$15 million in bank debt and more than $8 million owed to vendors after the 2012 campaign and had been paying that off very slowly. Obama’s campaign was not scheduled to pay it off until 2016. Hillary for America (the campaign) and the Hillary Victory Fund (its joint fundraising vehicle with the DNC) had taken care of 80 percent of the remaining debt in 2016, about $10 million, and had placed the party on an allowance.

If I didn’t know about this, I assumed that none of the other officers knew about it, either. That was just Debbie’s way. In my experience she didn’t come to the officers of the DNC for advice and counsel. She seemed to make decisions on her own and let us know at the last minute what she had decided, as she had done when she told us about the hacking only minutes before the Washington Post broke the news.

On the phone Gary told me the DNC had needed a $2 million loan, which the campaign had arranged.

“No! That can’t be true!” I said. “The party cannot take out a loan without the unanimous agreement of all of the officers.”

“Gary, how did they do this without me knowing?” I asked. “I don’t know how Debbie relates to the officers,” Gary said. He described the party as fully under the control of Hillary’s campaign, which seemed to confirm the suspicions of the Bernie camp. The campaign had the DNC on life support, giving it money every month to meet its basic expenses, while the campaign was using the party as a fund-raising clearing house. Under FEC law, an individual can contribute a maximum of $2,700 directly to a presidential campaign. But the limits are much higher for contributions to state parties and a party’s national committee.

Individuals who had maxed out their $2,700 contribution limit to the campaign could write an additional check for $353,400 to the Hillary Victory Fund—that figure represented $10,000 to each of the thirty-two states’ parties who were part of the Victory Fund agreement—$320,000—and $33,400 to the DNC. The money would be deposited in the states first, and transferred to the DNC shortly after that. Money in the battleground states usually stayed in that state, but all the other states funneled that money directly to the DNC, which quickly transferred the money to Brooklyn.

“Wait,” I said. “That victory fund was supposed to be for whoever was the nominee, and the state party races. You’re telling me that Hillary has been controlling it since before she got the nomination?”

Gary said the campaign had to do it or the party would collapse.

“That was the deal that Robby struck with Debbie,” he explained, referring to campaign manager Robby Mook. “It was to sustain the DNC. We sent the party nearly $20 million from September until the convention, and more to prepare for the election.”

“What’s the burn rate, Gary?” I asked. “How much money do we need every month to fund the party?”

The burn rate was $3.5 million to $4 million a month, he said.

I gasped. I had a pretty good sense of the DNC’s operations after having served as interim chair five years earlier. Back then the monthly expenses were half that. What had happened? The party chair usually shrinks the staff between presidential election campaigns, but Debbie had chosen not to do that. She had stuck lots of consultants on the DNC payroll, and Obama’s consultants were being financed by the DNC, too.

When we hung up, I was livid. Not at Gary, but at this mess I had inherited. I knew that Debbie had outsourced a lot of the management of the party and had not been the greatest at fundraising. I would not be that kind of chair, even if I was only an interim chair. Did they think I would just be a surrogate for them, get on the road and rouse up the crowds? I was going to manage this party the best I could and try to make it better, even if Brooklyn did not like this. It would be weeks before I would fully understand the financial shenanigans that were keeping the party on life support.

***

Right around the time of the convention the leaked emails revealed Hillary’s campaign was grabbing money from the state parties for its own purposes, leaving the states with very little to support down-ballot races. A Politico story published on May 2, 2016, described the big fund-raising vehicle she had launched through the states the summer before, quoting a vow she had made to rebuild “the party from the ground up … when our state parties are strong, we win. That’s what will happen.”

Yet the states kept less than half of 1 percent of the $82 million they had amassed from the extravagant fund-raisers Hillary’s campaign was holding, just as Gary had described to me when he and I talked in August. When the Politico story described this arrangement as “essentially … money laundering” for the Clinton campaign, Hillary’s people were outraged at being accused of doing something shady. Bernie’s people were angry for their own reasons, saying this was part of a calculated strategy to throw the nomination to Hillary.

I wanted to believe Hillary, who made campaign finance reform part of her platform, but I had made this pledge to Bernie and did not want to disappoint him. I kept asking the party lawyers and the DNC staff to show me the agreements that the party had made for sharing the money they raised, but there was a lot of shuffling of feet and looking the other way.

When I got back from a vacation in Martha’s Vineyard I at last found the document that described it all: the Joint Fund-Raising Agreement between the DNC, the Hillary Victory Fund, and Hillary for America.

The agreement—signed by Amy Dacey, the former CEO of the DNC, and Robby Mook with a copy to Marc Elias—specified that in exchange for raising money and investing in the DNC, Hillary would control the party’s finances, strategy, and all the money raised. Her campaign had the right of refusal of who would be the party communications director, and it would make final decisions on all the other staff. The DNC also was required to consult with the campaign about all other staffing, budgeting, data, analytics, and mailings.

I had been wondering why it was that I couldn’t write a press release without passing it by Brooklyn. Well, here was the answer.

When the party chooses the nominee, the custom is that the candidate’s team starts to exercise more control over the party. If the party has an incumbent candidate, as was the case with Clinton in 1996 or Obama in 2012, this kind of arrangement is seamless because the party already is under the control of the president. When you have an open contest without an incumbent and competitive primaries, the party comes under the candidate’s control only after the nominee is certain. When I was manager of Gore’s campaign in 2000, we started inserting our people into the DNC in June. This victory fund agreement, however, had been signed in August 2015, just four months after Hillary announced her candidacy and nearly a year before she officially had the nomination.

I had tried to search out any other evidence of internal corruption that would show that the DNC was rigging the system to throw the primary to Hillary, but I could not find any in party affairs or among the staff. I had gone department by department, investigating individual conduct for evidence of skewed decisions, and I was happy to see that I had found none. Then I found this agreement.

The funding arrangement with HFA and the victory fund agreement was not illegal, but it sure looked unethical. If the fight had been fair, one campaign would not have control of the party before the voters had decided which one they wanted to lead. This was not a criminal act, but as I saw it, it compromised the party’s integrity.

***

I had to keep my promise to Bernie. I was in agony as I dialed him. Keeping this secret was against everything that I stood for, all that I valued as a woman and as a public servant.

“Hello, senator. I’ve completed my review of the DNC and I did find the cancer,” I said. “But I will not kill the patient.”

I discussed the fundraising agreement that each of the candidates had signed. Bernie was familiar with it, but he and his staff ignored it. They had their own way of raising money through small donations. I described how Hillary’s campaign had taken it another step.

I told Bernie I had found Hillary’s Joint Fundraising Agreement. I explained that the cancer was that she had exerted this control of the party long before she became its nominee. Had I known this, I never would have accepted the interim chair position, but here we were with only weeks before the election.

Bernie took this stoically. He did not yell or express outrage. Instead he asked me what I thought Hillary’s chances were. The polls were unanimous in her winning but what, he wanted to know, was my own assessment?

I had to be frank with him. I did not trust the polls, I said. I told him I had visited states around the country and I found a lack of enthusiasm for her everywhere. I was concerned about the Obama coalition and about millennials.

I urged Bernie to work as hard as he could to bring his supporters into the fold with Hillary, and to campaign with all the heart and hope he could muster. He might find some of her positions too centrist, and her coziness with the financial elites distasteful, but he knew and I knew that the alternative was a person who would put the very future of the country in peril. I knew he heard me. I knew he agreed with me, but I never in my life had felt so tiny and powerless as I did making that call.

When I hung up the call to Bernie, I started to cry, not out of guilt, but out of anger. We would go forward. We had to.

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The SEC’s crackdown on ICOs has finally brought it to Hollywood.

The agency – which in a ruling issued over the summer legally qualified ICOs as securities – said today that celebrities who endorse token sales might be violating so-called “anti-touting” laws if they don’t state what compensation they received, if any.

As we’ve pointed out numerous times, celebrity endorsements of ICOs have become something of a punchline in recent months as Floyd Mayweather, Paris Hilton, Jamie Foxx, Dennis Rodman and many, many others have embraced the trend.

In some cases, the celebrities apparently experienced a twinge of regret and deleted their endorsements from their social media platforms, like Hilton did with Lydian Coin – a company that has few to recommend it aside from an indecipherable White Paper and a CEO who pled guilty to beating his girlfriend.

More broadly, regulators from Canada to China to Singapore are cracking down on ICOs to try and protect gullible investors. Most have taken a similar approach to the SEC by declaring the tokens to be securities subject to securities laws and regulations that generally prohibit outright fraud.

Of course, that the SEC would issue this “quick clarification” is hardly a surprise. Fortune raised the legality issue surrounding celebrity ICO endorsements in an article published in September, two months after the SEC delivered its “warning shot” across the bow of the ICO market.

“Aside from pure in-game token situations, companies really need to think of these as securities,” says Jeffrey Neuburger, who advises clients about ICOs at the law firm Proskauer in New York.

 

Neuburger adds that those promoting the securities, including Mayweather, could face serious consequences, especially if the company in question has not been truthful in the course of the token offering.

 

“If they know something is not right and they endorse it, there could be all sorts of fallout, including SEC action and even criminal charges if there is evidence of fraud,” he says.

 

There is no evidence that the companies endorsed by Mayweather, whose publicity firm did not respond to a request for comment, have done anything wrong. Nonetheless, he may be deemed among those responsible if the SEC decides the firms engaged in the illegal sale of securities.

Despite the international crackdown, the ICO market is still chugging along. The token sales have already raised more than $3 billion this year despite troubles at one of the largest and most high-profile ICOs. Given that these types of questionable endorsements were fairly widespread prior to the SEC’s latest warning, we imagine this is yet another “warning shot” – putting celebrities on notice that, should they choose to endorse one of these products, their promotional posts must be clearly identified, and the endorser must make any pertinent disclosures regarding compensation.

We imagine they will do the right thing.

* * *

Read the SEC’s warning below:

SEC Division of Enforcement and SEC Office of Compliance Inspections and Examinations

Nov. 1, 2017

Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments.  These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.  The SEC’s Enforcement Division and Office of Compliance Inspections and Examinations encourage investors to be wary of investment opportunities that sound too good to be true.  We encourage investors to research potential investments rather than rely on paid endorsements from artists, sports figures, or other icons.  

Celebrities and others have recently promoted investments in Initial Coin Offerings (ICOs).  In the SEC’s Report of Investigation concerning The DAO, the Commission warned that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.  Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.  A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws.  Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.  The SEC will continue to focus on these types of promotions to protect investors and to ensure compliance with the securities laws.

Investors should note that celebrity endorsements may appear unbiased, but instead may be part of a paid promotion.  Investment decisions should not be based solely on an endorsement by a promoter or other individual.  Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate and in compliance with federal securities laws.  Conduct research before making investments, including in ICOs.  If you are relying on a particular endorsement or recommendation, learn more regarding the relationship between the promoter and the company and consider whether the recommendation is truly independent or a paid promotion.  For more information, see an Investor Alert that the SEC’s Office of Investor Education and Advocacy issued today regarding celebrity endorsements.  

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Yesterday’s brief dip in ES has been promptly bought with US equity futures fractionally lower, Asian shares inching higher on Thursday and Europe unchanged ahead of today’s Super Thursday, where we get the Republican tax bill revealed shortly before noon, the BoE’s rate hike announcement, and Trump appointing Jay Powell as the next Fed chair, as well as as earnings from companies including Apple and Starbucks. With the dollar dropping slightly, markets seem to have taken a shine to the euro and EM FX, specifically your high beta currencies.

“There is some element of uncertainty about the U.S. tax bill and next Fed chief, and this is having an effect on the U.S. market, though shares in Asia appear quite resilient today,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust. “Still, it would not be surprising if some investors used the uncertainty as a reason to take profits after recent strong gains,” she said.

Among the main events today, and as widely reported yesterday, the White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen’s term expires in February, a source familiar with the matter said on Wednesday. Powell’s nomination, which would need to be confirmed by the Senate, is expected later on Thursday before President Donald Trump leaves on a trip to Asia. Rising expectations that Trump will tap Powell, who is seen as more dovish on interest rates, have pressured U.S. Treasury yields and kept the dollar on the backfoot this week, according to Reuters.

The progress toward American tax reform is also on most investors’ radars, alongside corporate earnings and Friday’s U.S. jobs report. There have been conflicting reports about when and how the U.S. tax rate on companies would be lowered. US GOP tax bill said to propose 12% repatriation tax on cash and 5% rate on non-cash holdings. US House Republicans were reported to be mulling a corporate tax phase out after 10 years, while US House Tax Committee Chairman Brady said that a permanent corporate tax reduction could require several steps.

On Wednesday, the Fed held policy steady as expected and emphasized rising economic growth as well as a strengthening labor market, while downplaying the impact of recent hurricanes. Investors took that as a sign the U.S. central bank is on track for another hike next month, with federal fund futures putting the odds of a December rate hike at about 85% according to Bloomberg calculations.

With regards to the BoE, the market prices in a 90% probability of a hike today. Our economists see the outlook for the meeting as tilted towards hawkish messaging on the outlook for rates next year, at least relative to market pricing. But they struggle to see this as credible without more certainty over Brexit and more evidence of faster wage growth.

Both the dollar and sterling lag G-10 peers as investors awaited central bank news from both sides of the Atlantic, with BOE forecast to raise rates for the first time in a decade and Trump said to nominate Powell as the next Fed Chair. Bund futures set fresh day lows after soft French, Spanish auctions drive broad EGB weakness. Gilt and Treasury futures dip, though trade in tight ranges. European stocks mostly lower, with DAX leading losses while Italy’s FTSE MIB outperforms; health care leads sector declines, Sanofi weighing after trimming the outlook for its diabetes business. Rally in base metals pauses; most metals drop on LME, led by zinc and nickel.

In global equity markets, European stocks were little changed near their highest level since 2015 amid a slew of earnings, as investors braced for the BOE’s first rate hike in more than a decade. The Stoxx 600 rose 0.1%, with real estate shares leading gains, led by Intu Properties which rose after saying it sees sustained retailer demand and rising rents. Credit Suisse climbed as its assets under management rise to a record. Playtech slumped, dragging on travel-and-leisure shares after forecasting full-year performance below the bottom end of estimates. The U.K.’s FTSE 100 holds steady ahead of the BOE rate decision on Thursday.

Asian shares were mixed as a rally that drove prices to the highest level in 10 years showed signs of tiring. Materials stocks led gains in Asia amid a surge in nickel prices this week to a two-year high. The yen strengthened against the U.S. dollar after the Powell news hit the tap.e The MSCI Asia Pacific Index gained 0.1% percent to 169.86 as of 4:19 p.m. in Hong Kong, with the materials sector gauge touching a five-year high. Nickel has jumped 10 percent this week through Wednesday to the highest level since June 2015, while some investors are betting iron ore will command higher prices next year. Honda Motor Co. was the biggest boost to the index after raising its guidance and announcing a new shareholder returns policy. News about Trump’s decision to nominate Powell, first reported by the Wall Street Journal, followed the central bank’s policy statement that reinforced expectations of a rate hike in December and said growth in the world’s largest economy was “solid.” Investors expect the appointment of Powell, the Fed’s only Republican, to be an extension of the dovish policies under Janet Yellen that have contributed to the rise in global stock markets. “The biggest factor for today’s gain is the sudden rally of nickel prices on Tuesday and Wednesday, as its surge affects miners in Indonesia, Australia and New Zealand, in the midst of recent rallies of crude and iron ore,” said Seo Sang-young, a strategist at Kiwoom Securities.

China stocks retreated as small caps fell to a one-month low. The ChiNext Index of small-cap and tech shares was the biggest loser Thursday, dropping to a one-month low, while the Shanghai Composite Index also declined and stocks in Hong Kong gave up earlier gains.  In Hong Kong, energy stocks including PetroChina Co. and Cnooc Ltd. rose amid crude oil’s bull market. Drug makers led gains in India. Divi’s Laboratories Ltd. surged as much as a record 21 percent after the U.S. FDA said it plans to lift a ban on its factory. Indonesia’s financial stocks jumped to fresh highs after two of the country’s four biggest lenders recently booked record profit.

After initially rising following a strong ADP report, Treasury yields then fell on Wednesday and the yield curve flattened the most since 2007 after the Treasury Department said it would keep auction sizes steady in the coming months, despite the Fed’s plan to reduce its bond holdings. 10-year yields were at 2.359% in Asian trading, compared to their U.S. close of 2.376% on Wednesday, when they dipped as low as 2.349% . German 10Y yields rose one bps to 0.39 percent, the highest in a week. Britain’s 10% yield also climbed to 1.356 percent, +1bp, the highest in a week, while Japan’s 10Y declined 0.055 percent, -1bp, the lowest in four weeks.

In commodities, crude oil futures steadied, with Brent crude up 7 cents at $60.56 per barrel and U.S. crude down 1 cent at $54.29.  While oil settled lower on Wednesday after weekly U.S. government inventory data showed the latest crude stock draw was not as big as an industry trade group had reported, both Brent and U.S. crude futures remain near their highest levels since July 2015 as lower global supply pushed markets higher. Gold gained 0.1% to $1,276.34 an ounce, the highest in more than a week. Copper fell 0.7% to $3.12 a pound.

Elsewhere, bitcoin extended gains for the fourth consecutive day, hitting $7,000 to establish a fresh record.

Bulletin headline Summary from RanSquawk

• Markets subdued as anticipation on the BoE
• USD finds some support following overnight weakness, as Trump intends to select Powell as the next Fed Chair
• Looking ahead, highlights include The BoE Rate Decision and QIR, Fed’s Powell, Dudley and Bostic

Market Snapshot

• S&P 500 futures down 0.2% to 2,570.25
• STOXX Europe 600 up 0.02% to 396.85
• MSCi Asia up 0.1% to 169.84
• MSCI Asia ex Japan down 0.05% to 556.24
• Nikkei up 0.5% to 22,539.12
• Topix up 0.4% to 1,794.08
• Hang Seng Index down 0.3% to 28,518.64
• Shanghai Composite down 0.4% to 3,383.31
• Sensex down 0.04% to 33,588.29
• Australia S&P/ASX 200 down 0.1% to 5,931.71
• Kospi down 0.4% to 2,546.36
• Gold spot up 0.1% to $1,276.28
• U.S. Dollar Index down 0.2% to 94.67
• German 10Y yield rose 1.1 bps to 0.384%
• Euro up 0.2% to $1.1636
• Brent futures down 0.4% to $60.28/bbl
• Italian 10Y yield fell 2.3 bps to 1.538%
• Spanish 10Y yield unchanged at 1.475%

Top headline News from Bloomberg

• President Donald Trump plans to nominate Federal Reserve Governor Jerome Powell to the top job at the U.S. central bank, according to people familiar with the decision. The annoucement is due at 3 p.m. Washington time.
• “Not only is he the continuity candidate given he is already on the Fed board, but he also has a good working relationship with the current FOMC,” Michael Hewson, chief market analyst at CMC Markets, writes of Powell.
• House Republican leaders plan to unveil a tax bill Thursday that would cut the corporate tax rate to 20 percent — though it may not stay there. The decision may come down to congressional scorekeepers who’ll assess the effect on the federal deficit
• Euro-zone manufacturing PMI increased to 58.5 in October — the highest since February 2011 and the second-highest in over 17 years, as companies boost hiring to cope with a surge in orders that is set to last
• Japan’s Government Pension Investment Fund posted its fifth-straight quarterly gain, the longest run in more than two years, as global stocks advanced to new highs and weakness in the yen helped boost the value of overseas investments
• Bitcoin climbed past $7,000 for the first time, breaching another milestone less than one month after it tore through the $5,000 mark
• North Korea is working on an advanced version of the KN-20 intercontinental ballistic missile that could potentially reach U.S., CNN reports, citing unidentified U.S. official
• Tesla Inc. still hasn’t figured out how to overcome manufacturing challenges that threaten its viability as an automaker, with battery factory- line glitches pushing out production targets for the Model 3 sedan
• While Credit Suisse Group AG wasn’t immune to the third- quarter trading slump, Chief Executive Officer Tidjane Thiam’s pivot to wealth management drove assets to a record as the bank predicted continued strong performance
• After two rocky days in Congress, Facebook and Twitter face rising momentum for regulation of political ads to curb Russian election meddling, although some key Republicans remain skeptical and urged the companies to do a better job on their own
• German Unemployment Extends Decline as Economy Powers Ahead
• Sex-Harassment Storm Hits U.K. Political Elites Amid Brexit

Asian equity markets were mostly subdued as region failed to sustain the early momentum from US, where stocks printed fresh intraday record levels before some profit taking crept in. Furthermore, a deterioration in sentiment coincided amid a continued pullback in US equity futures due to tax plan uncertainty, with reports now suggesting the plan could include a phase out in corporate taxes after a decade. As such, ASX 200 (-0.1%) finished negative with financials pressured after big 4 NAB announced to drop 6,000 workers. Elsewhere, Nikkei 225 (+0.3%) was indecisive but extended on 21-year highs nonetheless, while Hang Seng (-0.2%) and Shanghai Comp. (-0.7%) were lower after the PBoC skipped its liquidity operations. Finally, 10yr JGBs saw marginal gains as they tracked upside in T-notes and amid an indecisive risk tone in Japan, while the BoJ were also in the market for JPY 710bln of JGBs in the belly to super-long end.

European Equity markets have traded mixed, with little way of direction, as participation focus moves to 12:00GMT and the BoE. Sectors also trade rangebound, with Telecoms out-performing, marginally so, up 0.30% with financials behind, as expectations are on a hike from the UK Central Bank. Healthcare and IT pull the bourses lower however, both down 0.50%. Fixed Income markets follow the subdued trading fashion, with yields relatively stagnant. Much attention was on auctions from Spain and France, particularly the former, as an increased scope has been on Spain following the recent political turmoil.

In FX, the central bank week continued yesterday evening, as the FOMC’s retained rates between 1.00% – 1.25%. Markets were seemingly unfazed, with much of the Greenback’s hinging on President Trump’s announcement of the next Fed chair, with market expectation increasingly looking toward an appointment of Governor Powell. The Dollar Index saw some selling pressure as we entered the morning’s Asian session, finding some support around the 94.40 area as Europeans came to market, aided by the rate hike expectations for Dec increasing to 92%, from a previous 83%. EUR/USD looks towards key support at last week’s low at 1.15, as GBP/USD trades in a range-bound fashion, as full focus is on the BoE interest rate decision. Sterling traders will await the MPC’s decision, followed by Carney’s 12.30 press conference 30 minutes later, with expectations on a 25bps hike (>90%) from the Central Bank. Concerns remain toward data from the UK however, with a larger trade deficit, weaker retail sales and manufacturing activity, accompanied by a slowdown in CPI growth, all possibly still on the mind of the MPC members. EUR/GBP trades around a key support level, above the 0.8750, despite the break seen yesterday, offers do remain around these levels.

In commodities, oil news has been light today, with the highlight coming from the SOMO stating Southern Iraqi Crude exports stood at 3.35mln bpd in October (3.24mln bpd in Sep). Markets are unfazed, with WTI consolidating within the day’s range.. Saudi Energy Minister Al-Falih said he expects oil market to continue proving and producers to renew resolve to normalize stockpiles. Kuwait said it sees oil output cut being announced in Vienna and that the length of extension and other alterations could be announced in Feb-Mar. (Newswires) OPEC wants to see the floor for oil prices at USD 60/bbl in 2018, according to a source familiar with Saudi oil thinking.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior -27.0%
• 8:30am: Initial Jobless Claims, est. 235,000, prior 233,000; Continuing Claims, est. 1.89m, prior 1.89m
• 8:30am: Nonfarm Productivity, est. 2.6%, prior 1.5%; Unit Labor Costs, est. 0.4%, prior 0.2%
• 9:45am: Bloomberg Consumer Comfort, prior 51

DB’s Jim Reid concludes the overnight wrap

Today’s EMR is basically a therapy session and if I’m still writing the EMR in 30 years’ time (for anyone that will have me) you can trace the reason why back to today. For 43 years on this planet I’ve lived my life in a fairly prudent  manner making sure that there is a rainy day fund for any unforeseen circumstances. However guess what I’m doing today on the day the Bank of England likely raises rates for the first time in a decade and from the lowest level in the bank’s 323 year history? Yes I’m taking out a large loan and buying a new house. Likely at the top of a very expensive UK property market and as Brexit lurks around the corner.

Long time readers will remember that 3-4 years ago we did extensive renovations on our current house which was supposed to be a forever home. However at that point we didn’t have any children and had to come to terms with the fact that we may never be lucky enough to have them. Not in our wildest dreams did we imagine that 3 years later we’d have 3 of them. So although our house is wonderful, after finding out we had twins coming we very vaguely explored the possibility of finding a house with a layout more appropriate for our expanded family and the next thing we knew we’d fallen in love with a place and made an offer. It completes today. We won’t move in for a year as we don’t do anything simply and it needs a fair amount of work. So I’m in state of shock still. One day I will weigh up the full lifetime monetary cost of the ‘incident’ last Xmas holidays that led to the twins arrival (e.g. new car, full time childcare help, new house, future school fees, university costs and deposit for a first home etc etc). However for now I’m burying my head in the sand

From the sand dunes welcome to super , super Thursday with a busy day ahead. First we have the European manufacturing PMIs delayed from yesterday due to holidays, then we’ll likely have the first BoE rate hike for a decade and then in the US session Mr Trump is going to be busy as he announced yesterday that today would see his Fed Chair pick revealed (WSJ say Powell chosen) and he’s also likely to stand with lawmakers to announce the House tax bill  (9am EST/3pm BST the time expected).

With regards to the BoE, the market prices in a 90% probability of a hike today. Our economists see the outlook for the meeting as tilted towards hawkish messaging on the outlook for rates next year, at least relative to market pricing. But they struggle to see this as credible without more certainty over Brexit and more evidence of faster wage growth.

This follows last night’s FOMC where the statement was largely designed to not tone down markets’ strong expectation of a rate hike in December (probability now up 9ppt to 92%). In the details, Fed officials voted unanimously to keep rates on hold this month. On the recent economic performance, the Fed has upgraded the description from rising “moderately” to “rising at a solid rate despite hurricane-related disruptions”. On unemployment, it changed from “has stayed low” to it has “declined further”. On inflation, it acknowledged that although the storms had boosted headline inflation, core inflation remained soft, but there was no change to the committee’s view that “inflation…is expected to remain somewhat below 2% in the near term, but (will) stabilize around the 2% objective over the medium term.” On the recent hurricane disruptions, it reiterated that it will continue to affect economic activity, “but past experience suggests that the storms are unlikely to materially alter the course of the economy over the medium term”. Overall, DB’s Peter Hooper continues to expect three more hikes next year with the voting committee shifting in a modestly hawkish direction. Refer to link for more details.

Now onto tax reform, as per Republican lawmakers involved in the discussions, the tax bill will impose a one-time tax of 12% (vs. 10% from prior reports) on US companies’ accumulated offshore earnings that are held as cash and 5% for non-cash holdings (per Bloomberg). Finally, Treasury Secretary Mnuchin is reportedly resisting a gradual phase-in of tax cuts over 5 years (ie: from 35% to 20% by 2022, -3ppt p.a) as it would not boost growth as much as expected. We can’t wait to find out more later today.

As for the Fed Chair announcement this afternoon, the WSJ claimed last night that Powell has got the job. According to people familiar with the matter, the White House has notified Powell that President Trump intends to nominate him as the next Chairman and that Trump has also personally spoken with Powell on Tuesday too. Such an outcome had been increasingly priced in so it’s unlikely to impact markets too much.

This morning in Asia, markets are trading a bit lower, but the Nikkei is up 0.19% to a fresh 21 year high following Honda’s corporate result (shares +5%). Although we’re at 21-year highs we first saw these levels 30 years ago so three decades of treading water for the index in reality. Across the region, the Hang Seng (-0.15%), Kospi (-0.39%), Shanghai Comp. (-0.58%) and ASX 200 (-0.08%) are all down as we type.

Looking forward, most eyes this morning will be on the final revisions to the October manufacturing PMIs, which also includes a first look at the data for the periphery. The consensus is for no change to the flash reading for the Eurozone at 58.6. As a reminder, if that holds it will be the highest reading in 80 months. We’ll actually have to wait until next week to get the remaining services and composite prints. In terms of the country specific details today, Germany and France are expected to broadly stay put relative to their flash readings, while Spain is expected to nudge up half a point to 54.8. Italy is also expected to see a modest rise of 0.2pts to 56.5. For completeness, yesterday’s data in the Netherlands (60.4) was the second highest on record while Greece softened a bit to 52.1 – although more significantly held above 50 for the fifth month in a row following nine sub-50 prints. Elsewhere the  UK firmed 0.3pts to 56.3 (vs. 55.9 expected), a solid level but still below levels of other G10 nations.

Now recapping market’s performance from yesterday. US bourses edged higher back towards their record highs, with the S&P (+0.16%) and Dow (+0.25%) up slightly, while the Nasdaq dipped 0.17% following strongerperformance back on Tuesday. Within the S&P, gains were led by energy (+1.09%) and materials stocks, with partial offsets from telco and utilities names. After the bell, Facebook was down c2% despite posting higher than expected quarterlyrevenue, although the stock is already up c56% YTD (vs. S&P up c15% YTD). European markets were also broadly higher, as the DAX jumped 1.78% to a fresh record high as trading resumed post a holiday. Across the region, the Stoxx gained 0.39% to a 2 year high driven by materials and tech stocks, while the FTSE (-0.07%) and Spain’s IBEX (-0.16%) fell marginally. The VIX was broadly steady at 10.2.

Over in government bonds, yields were mixed but little changed. The UST 10y pared back intraday gains to be 0.7bp lower, while core European bond yields rose c1bp (Bunds +0.9bp; Gilts +1.1bp; OATs +0.8bp). At the 2y part of the curve, Bunds were flat while Gilts rose 2.9bp ahead of the potential BOE rate hike today.

Turning to currencies, the US dollar index gained 0.28% following the marginally hawkish FOMC meeting, while the Euro and Sterling weakened 0.23% and 0.29% respectively. In commodities, WTI oil dipped 0.15% following an API report that showed a slightly less than expected decline in US crude and gasoline stockpiles. Precious metal strengthened modestly (Gold +0.25%; Silver +2.53%) while other base metals fell marginally (Copper -0.04%; Zinc -0.59%; Aluminium -0.73%).

Away from the markets, the UK trade secretary Fox said the EU is being “unreasonable” by requiring UK to pay a Brexit bill before allowing talks to move onto trade and transition deal. He noted “the idea that the UK would actually agree to a sum of money before we knew what the end state looked like… I think is a non-starter”. However, this partly contradicts Brexit Secretary Davis earlier comments where he noted “the withdrawal agreement…will probably favour the EU in terms of things like money and so on”. Elsewhere, the CEO of BOE’s prudential regulation authority Sam Woods noted that Oliver Wyman’s estimate of up to 75,000 job loss in banking and insurance is “plausible” if the UK leaves the EU bloc without a trade deal. With all this bubbling along, we shall find out more with the next round of Brexit talks to resume from 9th November.

Over in Japan, Mr Abe has been officially reappointed as PM following his clear election win. On the choice of the next BOJ governor whose term ends next April, PM Abe said “the slate is completely blank”, although he also noted “I’ve faith in (existing) governor Kuroda’s abilities and I leave monetary policy up to him”.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the macro data was a bit mixed. The October ADP employment change was above expectations at 235k (vs. 200k expected), although there was a 25k downward revision to the prior month’s reading. The October ISM manufacturing remains solid as it eased from last month’s 13 year high to 58.7 (vs. 59.5 expected). In the details, 16 of 18 industries reported expansion and the new orders index eased 1.2pts to a still very solid reading of 63.4. The final reading for the October Markit manufacturing PMI was broadly in line at 54.6 (vs. 54.5 expected). Elsewhere, construction spending came in at 0.3% mom (vs. -0.2% expected) and total car sales in October were above expectations at 18m (vs. 17.5m expected) as demand continues to be supported by post storm purchases. Finally, the Atlanta Fed’s early GDPNow model estimate of 4Q GDP growth is now 4.5% saar. If true, this would only mark the 4th quarter since the great recession has the US economy ever reached this high level.

Finally in the UK, the October Nationwide house price index was in line at 0.2% mom, leaving an annual growth of 2.5% yoy and Sweden’s manufacturing PMI was 59.3 (vs. 63.5 expected) in October. Looking at the day ahead, we have the BoE meeting outcome due around lunchtime. BoE Governor Carney will follow while the Bank’s latest inflation report will also be released alongside this. Datawise we’ll receive the final October PMI revisions in Europe along with the October unemployment print in Germany and initial jobless claims and Q3 nonfarm productivity and until labour costs in the US. The Fed’s Bostic is also due to speak along with the IMF’s Lagarde. Today the new Fed Chair and draft tax plans are expected to be announced. Apple and Credit Suisse are amongst the notable corporate reporters.

via http://ift.tt/2gWJYG3 Tyler Durden

Submitted by Shant Movsesian and Rajan Dhall MSTA from fxdaily.co.uk

Onto one of the main events this week, after the FOMC passed without a flutter and the BoE meet Thursday morning to deliver what many anticipate will be a 25bp hike to reverse the emergency move last summer.  As such, many are pondering whether this intended move – signalled pretty insistently in the prior 2 meetings – is a mere readjustment of the knee-jerk move last summer or whether this is the start of a tightening cycle. 

Based on the data, one could argue that the numbers have been relatively healthy given the level of uncertainty emanating from the Brexit vote.  That said, the data was also on a stronger footing last year before the MPC cut rates, so on the basis of a 25bp cut, one could also argue that ‘the accommodation’ has not helped in any material way.  With that and the somewhat erratic messages Theresa May conveyed in her interviews outlining her approach to the EU negotiations last year, we saw another sharp tumble in the Pound, and this is where the problems for the BoE really started, fuelling inflation based on the mathematical impact on import prices.   So the BoE made a rod for their own back, and it would not to wrong to assume that they perhaps regret the impromptu rate cut, when many others advised on holding back some ammunition at the time. 

Looking on to the rest of the major economies, Gov Carney at least feels comfortable in absorbing a rate hike in the current climate when the US, and since then Canada are tightening monetary conditions.  As we have seen in the US though, it has been a slow and tortuous process, while in Canada, the 50bp reversal has only served to shoot the CAD higher again, only to fall and give back all of its interest rate induced gains as momentum in the data fades.  While North America renegotiates NAFTA, the Brexit process will be infinitely harder to quantify in terms of risk, and as constructive as minister David Davis believes the talks have been, the EU reminds him and the PM that progress is far from satisfactory. 

Of the greater concern in hiking rates at this time is household debt. As disposable income and indeed real income, recede, the MPC must surely take account of how the economy will take to a rate move at the present time.  Earlier this week we saw personal credit rising again, so indebtedness is a worry to consider despite the relaxed tone from certain quarters at ‘the bank’.  Over the summer we saw a strong set of retail sales numbers which have since turned a little sour, highlighting the impact of tourist season and at a time when the Pound is/was cheap.  UK growth depends on the high street for input, and if households are squeezed further, then the consumer will be adding little to headline GDP. 

The financial services sector is the big revenue earner for the Treasury, but this week’s case studies on the potential job losses and business put another dent into prospective growth, but this is and has been a major concern for some time, though the BoE seem confident that business investment is holding up and London relocations will be moderate.  Once again, uncertainty reigns, but we are told rates are too low.  If rates do rise tomorrow as they are largely expected to, we should see a sharp GBP response, but also very likely short lived.  Central banks have the power of forward guidance at the present time, and the BoE have convinced many people that this is the start of a tightening cycle.  10yr Gilts are sticking close to 1.40%, but as we have seen with the Fed and the BoC, things can change quickly.  Whether it is conveyed tomorrow or not, we see a much higher probability of this being a ‘one and done’ – there are just too many unknowns otherwise.   Once the currency effect passes through inflation, the MPC will have an easier decision to make – eventually – but hopefully not before it is too late! 

EURGBP 4HR

GBPUSD 4HR

* * *

And here are some additional thoughts from Bloomberg macro commentator Tanvir Sundhu

BOE Won’t Easily Give Up Its Hard-Won Optionality: Macro View

The BOE meeting may not prove kind to traders positioning for a one-and-done interest rate hike.
The central bank needs to maintain its hard-won control in the rates market. After the BOE expressed a greater urgency for a rise at its last meeting, the central bank’s credibility will take a hit if it fails to hike.

The market prices a more than 90% probability of a 25 basis-point increase today, with a subsequent hike seen in September 2018 and three in total by 2020. Prior to the June meeting, no rate moves were priced until 2020. So the BOE’s forward guidance belatedly helped it gain control over the forward curve.

The U.K. swaps curve is suggesting the market views the BOE’s terminal rate at about 1%. That appears low given one of the main justifications for a hike is the persistence of above-target inflation.

Market pricing may be validated if the MPC delivers an increase and offers no new guidance, which may see a relief bull-flattening of the curve (particularly under a 5-4 vote). And a so-called dovish hike may see real yields move lower in the belly of the curve. But the selloff in gilts after September’s meeting showed what a more- hawkish-than-expected outcome can do.

To be sure, there are many factors that define the rate-hike cycle. Unsecured credit conditions have tightened while the MPC’s Term Funding Scheme ends in February, adding uncertainty for the outlook and damping the odds of a second increase in the first quarter.

And with domestic pressures — wage growth, productivity growth, unit labor cost — contained and Brexit-related FX-weakness having passed through to prices faster than expected, inflation next year will likely return to target in the first half

Low-delta options on sterling-denominated assets may be attractive given the fragility of Brexit negotiations and the many possible outcomes that exist.

So yes, there are definitely factors that weigh against a more hawkish tilt. But after fighting so hard to buy itself some optionality by making clear that the policy reaction function won’t be restrained by Brexit uncertainty, the BOE isn’t going to give it away for free. “One-and-done” is unlikely to be the trading narrative that comes out of today’s meeting.

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Authored by Ryan McMaken via The Mises Institute,

In a recent interview with Mises Weekends, Claudio Grass examined some of the advantages of the Swiss political system, and how highly decentralized politics can bring with it great economic prosperity, more political stability, and a greater respect for property rights. 

Since the Swiss political system of federalism is itself partially inspired by 19th-century American federalism, the average American can usually imagine in broad terms what the Swiss political system looks like. There are Swiss cantons, which are like the American states. And there is the Swiss federal legislature, which is like the American congress.

What the American tends to miss, however, is that the scale of political units in Switzerland is much, much smaller than that found in the United States. When a Swiss person talks about how Swiss politics is based largely around the cantonal level of government, what he's really telling us is that Swiss politics is centered around a political unit that is often the size of a small American city. 

While we may often equate a Swiss canton with an American state, the truth is that even the smallest US state by population (Wyoming) is larger than all but four of the 26 Swiss cantons. 

In contrast, the largest Swiss canton (by population) is Zurich, with a population of 1.5 million. That makes it smaller than all but 11 US states. 

But most Swiss cantons are much smaller than this. Indeed, the median population for Swiss cantons is 234,000 people, or the size of Irving, Texas or Gilbert, Arizona. (The average is 324,000). The smallest canton boasts a mere 16,000 people. 

The physical size of Swiss cantons is much smaller as well, given that the entire size of Switzerland is smaller than West Virginia. Rhode Island, the smallest US state, is larger than all but five of the Swiss cantons. The largest Swiss canton, Graubunden, is about the size of Puerto Rico, and is smaller than Connecticut. 

Obviously, then, in terms of size and scope, American states are much much larger than Swiss cantons in general. 

In the United States, the median population size for a state is 4.5 million, or more than 20 times the median size of a Swiss canton. (The average US population per state is 6.4 million). 

Needless, the say, in Switzerland, when we're talking about the cantonal level, we really are talking about local government in contatrast to US states where even sparsely populated states like South Dakota are considerably larger than all but the two largest cantons, while being vastly larger in terms of physical geography. 

If the United States were composed of states approximating the median population size of Swiss cantons, the US would have over 1,300 states total. Each would have a population of around one-quarter of a million inhabitants. 

Given the small size of these political subdivisions, the potential for taxpayers "voting with their feet" is even greater than it is in the US, where it is already likely that migration patterns often show preferences for states with lower tax and regulatory burdens. 

Size and Political Representation 

The size of political jurisdictions has significant implications for political representation as well. 

In an earlier article titled "The US Should Have 10,000 Members of Congress" I noted that the United States has an exceptionally high politician-to-citizen ratio. 

That is, electoral districts (i.e., Congressional districts, for example) are absolutely huge by the standards of both Europe and Latin America. Moreover, they're also huge by the standards of the 18th-century Americans who wrote the US constitution and the various state constitutions of the time. 

Specifically, in the United States, there are 535 Members of Congress who allegedly represent 320,000,000 people. This means there are 598,000 US residents per member of Congress. Meanwhile, in Germany, there are 130,000 residents per member of the national legislature. In Canada, the number of 99,000. In Switzerland, the number is 33,000. (The US is so off-the-charts, I've excluded it from this graph for the sake of scale): 

Moreover, the number of legislators compared to the overall size of the population is now tiny compared to what was expected at the time the US Constitution was written:

In 1790, members of congress represented on average 37,000 people. In Massachusetts in 1800, for example, there were 422,000 people sharing 16 members of Congress. Senators were not directly elected at the time, however, so if we include only members of the House, the average constituency size in Massachusetts in 1800 was 30,142. To reach a constituent size like this today, the US Congress would require 10,000 members.

 

(The size of the House of Representatives remains small today because Congress arbitrarily capped the total number of Representatives in the early twentieth century.) 

Nor is this just an issue for the national legislature. 

Electoral districts are also huge within US states, when compared to the number of members of cantonal legislatures in Switzerland. 

For example, in the US, the number of residents per state legislator ranges from 3,105 in New Hampshire up to a gargantuan 310,000 in California. 

In Switzerland, the number of Swiss residents per cantonal legislator ranges from 8,200 in Zurich down to a miniscule 327 in Appenzell Innerhoden. 

But rather than look just at extremes, let's consider a mid-sized Swiss canton and a mid-sized US state. 

In Indiana, for example, there are 6.6 million residents, and 150 legislators, which means there are about 43,000 residents per legislator. In the Swiss canton of Fribourg, with a population of 311,000, the cantonal legislature boasts 130 members. Thus, in Fribourg, there are approximately 2,400 residents per legislator. 

This means that even a mid-sized canton has far fewer residents per legislator than even the most representative legislature in the US, which is New Hampshire, with 3,100 residents per legislator. 

In other words, in Switzerland, it is entirely reasonable to expect that one's cantonal representatives be familiar with one's neighborhood, local culture, and local concerns. One might even expect to run into his legislator on the street, especially if he's representing only 2,000 or so other people. The number of voters per legislator, of course, is even smaller. 

In the US, on the other hand, even a state legislator often represents a small city, in terms of his or her constituency size. 

Members of Congress are far worse, with each member representing a population equivalent in size to a Fresno, California, or Tucson, Arizona. 

Implications

When we look at differences in the size and scope of political and electoral jurisdictions, we find that in many cases, US jurisdictions are ten or twenty times the size of what they are in Switzerland. 

These vast differences in geography and demographics may highlight some of the realities that underpin many of the political and institutional differences that divide Americans and the Swiss. 

Both the United States and Switzerland employ a federal structure. In many ways, however, the Swiss political system is far more decentralized than is the American. There is no single executive in Switzerland, for example, and policy continues to be highly decentralized, with cantonal governments exercising large amounts of control and influence within the fields of naturalization, culture, public finance, and healthcare. 

Moreover, when we speak of the cantonal level in Switzerland, we're really referring to what an American would recognize as the local level in politics. Swiss cantons are usually equal in size to a small American metropolitan area.

On top of this, political representation is hyper-democratic by modern American standards (but not necessarily historical American standards), with many cantonal legislators representing perhaps only 1,500 residents in many cases.1

The implications of this reality are significant. Given the small and local nature of government, and the smallness of electoral districts, voters have a completely different relationship with government institutions.

For example, when local government amenities are funded largely by one's local cantonal government, this means that government services — including social benefits like healthcare subsidies — are funded not by some other anonymous taxpayer living hundreds or even thousands of miles away. A small cantonal size means taxpayer-funded amenities are funded by one's neighbors, and other living nearby with whom one is likely to interact peacefully on a daily basis. In cases like this, it's more difficult to see democratic politics as a matter of getting as much as one can get out of some distant, faceless "oppressor."  When important political institututions are close to home, and at a human scale, one might feel more inclined to take an additude of stewardship toward one's community rather than an attitude of "take the money and run." 

In fact, constituency size has been shown to correlate to government spending in many cases, as shown in research by Mark Thornton, George S. Ford, and Marc Ulrich. See here and here. 

As Thornton et al. conclude: 

[T]he evidence is very suggestive that constituency size provides an explanation for much of the trend, or upward drift in government spending, because of the fixed-sized nature of most legislatures. Potentially, constituency size could be adjusted to control the growth of government.

Other factors mentioned by Thornton, et al. and others include:

• Large constituencies increase the cost of running campaigns, and thus require greater reliance on large wealth interests for media buys and access to mass media. The cost of running a statewide campaign in California, for example, is considerably larger than the cost of running a statewide campaign in Vermont. Constituencies spread across several media markets are especially costly. 
• Elected officials, unable to engage a sizable portion of their constituencies rely on large interest groups claiming to be representative of constituents. 
• Voters disengage because they realize their vote is worth less in larger constituent groups. 
• Voters disengage because they are not able to meet the candidate personally. 
• Voters disengage because elections in larger constituencies are less likely to focus on issues that are of personal, local interest to many of the voters. 
• The ability to schedule a personal meeting with an elected official is far more difficult in a large constituency than a small one. 
• Elected officials recognize that a single voter is of minimal importance in a large constituency, so candidates prefer to rely on mass media rather than personal  interaction with voters. 
• Larger constituent groups are more religiously, ethnically, culturally, ideologically, and economically diverse. This means elected officials from that constituent group are less likely to share social class, ethnic group, and other characteristics with a sizable number of their constituents. 
• Larger constituencies often mean the candidate is more physically remote, even when the candidate is at "home" and not at a distant parliament or congress. This further reduces access. 

None of this, of course, can diminish the importance of significant cultural differences between the Swiss and the Americans. However, these differences can also be reenforced by political institutions. When looking at the super-sized institutions of the United States — as compared to the small, localized political institutions of Switzerland — it's hard to conclude that these vast differences in the constitutional landscape can be ignored.

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Greece is planning a 30 billion euros debt swap which will convert 20 existing bonds into 5 (or less) new issues in the next few weeks (although the exact timing remains uncertain). The bonds are expected to have similar maturities to the existing notes from 2023-2042.

According to Bloomberg, the Greek government is planning an unprecedented debt swap worth 29.7 billion euros ($34.5 billion) aimed at boosting the liquidity of its paper and easing the sale of new bonds in the future. Under a project that could be launched in mid-November, the government plans to swap 20 bonds issued after a restructuring of Greek debt held by private investors in 2012 with as many as five new fixed-coupon bonds, according to two senior bankers with knowledge of the swap plan. The bank officials requested anonymity as the plan has yet to be made public.

Markets have responded well to the news as Bloomberg reported.

• Greek 10-Year Yield Drops to Lowest Since July on Debt-Swap Plan

• Greek 5-yr bond yield drops by 10bps to 4.345%, its lowest level since the nation issued the new note in July.
• Demand spurred by optimism that the third bailout review will be completed in time; news that government is planning a debt-swap plan is also boosting sentiment

While we struggle to believe that the Greek debt crisis is anywhere near close to being solved, at least the country seems to have been touched by Europe’s recovery.

Furthermore, the European Council announced on 25 September 2017 that Greece’s finances have stabilised and it was closing the excessive debt procedure. It sounded good anyway…

"After many years of severe difficulties, Greece's finances are in much better shape. Today's decision is therefore welcome", said Toomas Tõniste, minister for finance of Estonia, which currently holds the Council presidency.

 

"We are now in the last year of the financial support programme, and progress is being made to enable Greece to again raise money on the financial markets at sustainable rates." 

 

From a deficit of 15.1% of GDP reached in 2009, Greece's fiscal balance has steadily improved, turning into a 0.7% of GDP surplus in 2016. Although a small deficit is projected for 2017, the fiscal outlook is expected to improve again thereafter…In the light of this, the Council found that Greece fulfils the conditions for closing the excessive deficit procedure. Greece will now be subject to the preventive arm of the EU's fiscal rulebook, the Stability and Growth Pact. Monitoring will continue until August 2018 under its macroeconomic adjustment programme.

Meanwhile, the planned debt swap is a step in the Greek government’s preparations for August 2018 when, excuse our cynicism, Greece will essentially look to borrow more money to buffer its debt mountain. Bloomberg comments. 

“The move aims to address the current illiquidity of the Greek bond market,” according to analysts at Pantelakis Securities SA in Athens.

 

It will also “establish a decent yield curve, thus facilitating the country’s return to public debt markets.”

 

The move comes as Greece prepares for life after the end of its current bailout program in August 2018. The debt swap is a step toward the country’s full return to markets required to avoid a new bailout program. The government plans to tap the bond market in 2018 to raise at least 6 billion euros to create an adequate buffer to honor debt obligations, according to a government official…

 

Finance Minister Euclid Tsakalotos said in October that tapping markets soon wouldn’t be aimed at getting fresh money so much as to better manage the country’s debt and make its bonds more attractive. The new bonds, following the swap, are expected to have the same value as the old ones and will have a fixed coupon, one of the people with knowledge of the matter said.

Talking of cynicism, Goldman Sachs role in this transaction remains uncertain.

The challenge for Greece is to be in a sufficiently strong financial position to refinance more than 17 billion euros of debt in 2019 as Bloomberg explains, Greece returned to markets in July for the first time since 2014, raising 3 billion euros through new 5-year bonds. Now, with the swap plan, the government wants to ensure it can tap the market for enough funds to refinance its debt obligations in 2019, which originally amounted to 19 billion euros. The government managed to reduce this number by 1.6 billion euros with the July bond issuance.

While the timing of the debt swap transaction is uncertain, the government is aiming to complete it in time for the return of representatives of the country’s creditors in the last week of this month. No doubt they will be overjoyed by what they find.

There's just one thing…

via http://ift.tt/2z5LAFF Tyler Durden