Month: September 2018

An op-ed written in the New York Times by an anonymous “senior official in the Trump administration” has drawn harsh rebuke from both sides of the aisle and beyond – after everyone from President Trump to Glenn Greenwald to the Los Angeles Times chimed in with various criticisms. 

The author, who claims to be actively working against Trump in collusion with other senior officials in what they call a “resistance inside the Trump administration,” has now been labeled everything from a coward, to treasonous, to nonexistent. 

Trump, as expected, lashed out at the “failing” New York Times – before questioning whether the the mystery official really exists, and that if they do, the New York Times should reveal the author’s identity as a matter of national security.

Does the so-called “Senior Administration Official” really exist, or is it just the Failing New York Times with another phony source? If the GUTLESS anonymous person does indeed exist, the Times must, for National Security purposes, turn him/her over to government at once!

— Donald J. Trump (@realDonaldTrump) September 5, 2018

Trump supporters, also as expected, slammed the op-ed as either pure fiction or treason – a suggestion Trump made earlier Wednesday. 

TREASON?

— Donald J. Trump (@realDonaldTrump) September 5, 2018

What we don’t imagine the anonymous author or the Times saw coming was the onslaught of criticism coming from the center and left – those who stand to benefit the most from Trump’s fall from grace, or at least probably wouldn’t mind it. 

In an op-ed which appeared hours after the NYT piece, Jessica Roy of the Los Angeles Times writes: “No, anonymous Trump official, you’re not ‘part of the resistance.’ You’re a coward” for not going far enough to stop Trump and in fact enabling him. 

If they really believe there’s a need to subvert the president to protect the country, they should be getting this person out of the White House. But they’re too cowardly and afraid of the possible implications. They hand-wave the notion thusly:

“Given the instability many witnessed, there were early whispers within the cabinet of invoking the 25th Amendment, which would start a complex process for removing the president. But no one wanted to precipitate a constitutional crisis.”

How is it that utilizing the 25th Amendment of the Constitution would cause a crisis, but admitting to subverting a democratically elected leader wouldn’t?

…

If you’re reading this, senior White House official, know this: You are not resisting Donald Trump. You are enabling him for your own benefit. That doesn’t make you an unsung hero. It makes you a coward. –LA Times

Meanwhile, Glenn Greenwald – the Pulitzer Prize Winning co-founder of The Intercept, also called the author of the op-ed a “coward” whose ideological issues “voters didn’t ratify.” 

Greenwald continues; “The irony in the op-ed from the NYT’s anonymous WH coward is glaring and massive: s/he accuses Trump of being “anti-democratic” while boasting of membership in an unelected cabal that covertly imposes their own ideology with zero democratic accountability, mandate or transparency.“

The irony in the op-ed from the NYT’s anonymous WH coward is glaring and massive: s/he accuses Trump of being “anti-democratic” while boasting of membership in an unelected cabal that covertly imposes their own ideology with zero democratic accountability, mandate or transparency

— Glenn Greenwald (@ggreenwald) September 5, 2018

So who is the “coward” in the White House? 

While the author remains anonymous, there are a couple of clues in the case. For starters, Bloomberg White House reporter Jennifer Jacobs points out that the New York Times revealed that a man wrote the op-ed, which rules out Kellyanne Conway, Nikki Haley, Ivanka and Melania (the latter two being CNN’s suggestions). 

NYT tweet suggests the anonymous senior admin official is a man — “he.”

The official complains Trump “engages in repetitive rants, and his impulsiveness results in half-baked, ill-informed and occasionally reckless decisions.” https://t.co/HsNLRTCK5d pic.twitter.com/6GRD4Lbdbn

— Jennifer Jacobs (@JenniferJJacobs) September 5, 2018

A second clue comes from the language used in the op-ed, and in particular “Lodestar” – a rare word used by Mike Pence in at least one speech. Then again, someone trying to make one think it’s pence would also use that word (which was oddly Merriam-Webster’s word of the day last Tuesday). 

A pence-theory hashtag has already emerged to support this theory; #VeepThroat

This is an interesting theory using an interesting clue. “Lodestar” is, in fact, a very unusual word. So unusual that if I wanted someone to wonder if I were Mike Pence, I might use it. Or, perhaps, if I were someone who worked with Pence and picked up the word as a result. https://t.co/bruo7gsVb8

— Rebecca Lavoie (@reblavoie) September 5, 2018

Are people seriously entertaining the idea that Mike Pence himself wrote that op-ed? Based on the word “lodestar”? Come on.

— Rosie Gray (@RosieGray) September 6, 2018

Given the Op-Ed’s praise of the late Senator John McCain, never-Trumper and Iraq War sabre-rattler Bill Kristol tweeted that it was Kevin Hassett, the Chairman of the Council of Economic Advisers. Of course, Kristol and whoever wrote the op-ed are ideologically aligned, so one might question why he would voluntarily work against this person. 

“John McCain put it best….We will always have his example—a lodestar for restoring honor to public life & our national dialogue. Mr. Trump may fear such honorable men, but we should revere them.”
Hassett, McCain’s top economic adviser in 2000, was a guest at Saturday’s service.

— Bill Kristol (@BillKristol) September 5, 2018

So while we don’t know who wrote the op-ed, it appears to be backfiring spectacularly on its author(s) amid wild theories and harsh rebuke from all sides of the aisle. 

We’re sure Carlos Slim – the largest owner of the New York Times and once the richest man on earth, is having a good laugh at Trump’s expense either way… for now. 

Perhaps Trump can push the “fabrication” angle longer than NYT can retain the moral high ground – especially after they hired, then refused to fire, Sarah Jeong – a new addition to the NYT editorial board who was revealed in old tweets to be an openly bigoted, with a particularly deep hatred of “old white men.” 

oh man it’s kind of sick how much joy I get out of being cruel to old white men

— sarah jeong (@sarahjeong) July 24, 2014

The New York Times stood by Jeong – claiming she was simply responding to people harassing her for being an Asian lesbian – only to have their absurd theory shredded within hours. Jeong in fact has a multi-year history of unprovoked and random comments expressing hatred towards white men. 

And now she’s right on the front lines of perhaps the greatest attempt to smear Trump yet. Not exactly a good look for the Times at a time when MSM credibility has already taken a hit. How many broke bread with the Clinton campaign leading up to the 2016 election?

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China vowed that it will respond and take necessary countermeasures to protect its own economic interests as President Trump is expected to press on with a plan to impose tariffs on an extra $200 billion in Chinese imports as soon as this week.

“China will be forced to retaliate if the U.S. ignores resistance in public hearings and imposes additional tariffs”, said Gao Feng, a Ministry of Commerce spokesman, at a briefing on Thursday in Beijing.

The U.S. public-comment period on the additional tariffs is scheduled to conclude on Thursday, and President Trump is poised to impose previously announced tariffs on $200 billion worth of Chinese goods as early as Friday.

“U.S. measures to pressure China are neither reasonable nor effective”, Gao said. China will closely monitor the impact from additional tariffs, and take strong measures to help both domestic and overseas companies operating in the country to overcome difficulties, according to the spokesman, who also argued for “equal, honest” talk.

“We have the confidence, the capabilities and the tools” to safeguard China’s economic interests, Gao said according to Global Times without further elaborating on the possible countermeasures, adding that any attempt to force China into concession will not work.

Although broad negotiations between the two countries have stalled, Gao said officials from both sides have been in contact since a meeting in Washington last month, in an effort to ease rising tensions.

Meanwhile, Trump is winning the trade war, with a survey of manufacturing sentiment earlier this week revealing the second highest number in history while the world’s second-largest economy is grappling with slowing growth, and has taken measures including stepping up infrastructure construction and channeling funds to smaller firms. At home, economists say the extra tariffs would cause China’s economy to slow more sharply next year if they are enacted.

Blaming the US for hurting both Chinese and US businesses, the spokesperson also noted that China will continue to assess tariff impact on companies in China and take measures to help them deal with potential damages.

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Late Wednesday evening North Korea announced it would pursue denuclearization by the end of President Trump’s first term, or by early 2021. The announcement came via South Korean President Moon Jae-in and his national security advisor Chung Eui-yong, who met with North Korea’s Kim Jong Un the day prior.

Kim has reportedly set down a timeline for denuclearization, the first step of which is a meeting summit between himself and the South Korean president in Pyongyang on Sept. 18-20, during which the two have pledged to discuss “practical measures” toward denuclearization.

This included a personal “good faith” message reportedly sent from Kim to President Trump via the South Korean envoy, to which the president has already responded early Thursday morning via Twitter: Kim Jong Un of North Korea proclaims “unwavering faith in President Trump.” Thank you to Chairman Kim. We will get it done together! – Trump stated. 

Kim Jong Un of North Korea proclaims “unwavering faith in President Trump.” Thank you to Chairman Kim. We will get it done together!

— Donald J. Trump (@realDonaldTrump) September 6, 2018

Kim conveyed the message to President Trump which reportedly reaffirms Kim’s trust in Trump regarding prior diplomatic openings, despite the White House canceling a visit to Pyongyang by the secretary of state last month citing lack of progress.

That message, South Korean national security advisor Chung told reporters after his visit, included that, “He particularly emphasized that he has never said anything negative about President Trump.”

Crucially, the developments represent the first time Kim has ever suggested a timeline for dismantling his nuclear weapons program.

Previously the North has offered to give up its nukes only if extensive security guarantees were delivered by Washington, including the removal of all American troops currently stationed on the peninsula and the dismantling of what’s been referred to as its ‘nuclear umbrella’ of deterrence from South Korea and Japan. 

The talks included an agreement to to open a liaison office ahead of the Moon-Kim summit to lay the ground work for “practical measures” to be agreed upon. 

In his remarks on the planned timeline, Chung further said that Kim showed “frustration over the doubt raised by some parts of the international community about his willingness to denuclearize, and asked us to convey his message to the United States”.

“He said he would appreciate that such good faith is accepted with good faith,” Chung said. “He expressed his strong will to carry out more proactive measures toward denuclearization if action is taken in response to the North’s preemptive steps.” 

According to Chung, Kim desires to see the US take equally significant good faith moves such as the North’s recent reported dismantling of a nuclear test site as well as a missile engine facility, beyond mere recent pledged of suspending joint military exercises with the South. 

While US officials have yet to comment on the developments, and the full contents of Kim’s message to Trump have yet to be revealed, North Korean media appeared to confirm the pledge, with the official KCNA news agency saying Kim told the South’s envoys that his “fixed stand” was to transform the Korean peninsula into “a cradle of peace without nuclear weapons, free from nuclear threat”, according to Reuters.

This could constitute the first important breakthrough since Kim and Trump’s historic summit in Singamore last June and a fresh sign that Kim is willing to follow through on work toward total denuclearization. 

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Shortly after President Trump lashed out Wednesday night at the “GUTLESS anonymous person” who penned an intensely critical New York Times op-ed describing the “resistance” inside the administration, Fox News host Sean Hannity took to the airwaves for his nightly prime-time show, where he and guest Newt Gingrich took turns slamming the “extraordinary statement of arrogance” as a piece of “deep state” propaganda, and its author as a traitorous, arrogant individual hell-bent on undermining not only the administration, but the American democratic system.

Gingrich accused the author of intentionally sabotaging the US government while comparing the anonymous author to disgraced FBI agent Peter Strzok, who was stripped of his security clearance and let go from the FBI for spearheading an clandestine operation from within the bureau to stop Trump from serving as president. Hannity slammed the piece as a “stunning betrayal” while highlighting Trump’s myriad accomplishments during his brief time in office (breakthroughs involving North Korea, the economy and tax reform among them) as evidence against the author’s claim that Trump is heedlessly amoral. The author of the op-ed is clearly just another “swamp sewer creature” who “can’t stand the new sheriff in town,” Hannity said. 

“Whoever this anonymous super-patriot is who wrote the anti-Trump hit piece in the New York Times, I would argue dangerously published, is nothing more than a swamp sewer creature who can’t stand that there is a new sheriff in town,” Hannity said on his show.

Whoever wrote the op-ed clearly believed that they had the “moral authority” to take on the president and defy the popular will of the American people, Gingrich said. By writing the piece, the anonymous official effectively decided to take undermine “the entire American system.”

“They are taking on themselves the moral authority to break to law, to repudiate the commander in chief, to basically repudiate our whole constitutional process and they are now going to decide what they think is right… when you think about it is amazing statement of their willingness to make themselves bigger than the entire American system. And it tells you what people mean when they talk about the swamp and they talk about the deep state,” Gingrich said.

“Here’s a person emerging anonymously in The New York Times to say in essence, ‘Yes, I am the deep state” and I am going to do everything I can to make sure that President Trump cannot perform the job that the American people gave him,'” he added. “That’s an extraordinary statement of arrogance from the part of some person who didn’t win the election, didn’t run for office and has never told us what they believe in.”

Hannity added that he had “never seen a president that worked so hard to stick to the promises he’s made”, adding that the piece’s author clearly “has an agenda, and the agenda is to make themselves look good and hurt the president” and that the author had a genuine “contempt” for the American people.

The full segment below:

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US equity futures rose slightly as European shares rebounded after Asian equity markets opened on Thursday in a sea of red as investors expressed growing concern over the deepening emerging market sell-off, before recovering slightly later in the morning even as Trump was preparing to launch a new trade war with China, announcing another $200BN in Chinese tariffs. 

While focus remains on efforts from Argentina to Indonesia to sustain confidence, the potential for President Donald Trump to announce another round of tariff hikes on Chinese imports as soon as Thursday also looms large.

Traders were skeptical about taking on more risk ahead of tomorrow’s U.S. jobs report, most saw more pain for developing nations, particularly with President Trump set to follow through with a plan to launch another $200 billion of additional tariffs on Chinese imports after a consultation period ends Thursday. Meanwhile, China warned again that it will be forced to retaliate, if the U.S. ignores resistance in public hearings and imposes additional tariffs, said Gao Feng, a Ministry of Commerce spokesman, at a briefing on Thursday in Beijing. The two nations have maintained contact on a working level since Vice Commerce Minister Wang Shouwen visited the U.S. last month, Gao said.

The good news is that the rout that has roiled emerging currencies took a breather on Thursday, as the Turkish lira and South African rand led a recovery in emerging market currencies resulting in a modest stabilization in EM FX, helping support risk assets across the board with only the Philippine peso sliding.

The South African government reiterated plans to reform the economy which supported ZAR, helping push TRY and MXN higher. Offsetting this was the AUD, which was pressured overnight as 2 more of the large banks raise mortgage rates; Elsewhere, the SEK weakened after Riksbank priced out an Oct. hike and hinted that the first hike could take place in 2019. The offshore yuan rallied mid-European morning, driven by reports of a major Chinese bank buying in shorter end of the forward curve, similar to prior moves taken to limit yuan depreciation.

And while emerging currencies reversed losses helped further by a dip in the dollar which brought some relief, as did a gain in copper prices, the MSCI Emerging Market Index dropped for a seventh day, and was on the cusp of a bear market down just why of 20% from its January highs, with few signs of relief from a sell-off that’s battered developing economies around the world. Analysts are now questioning whether the rout merely reflects a series of one-off hits or indicates the beginning of a broader malaise.

“We’ve had a series of idiosyncratic shocks, but this week it has felt like more of a generalised sell-off than an idiosyncratic one,” said Gene Frieda, a strategist at Pimco in London. “Some investors just want to get out now.”

As noted yesterday, the rout across emerging markets is now the longest since the global financial crisis, or specifically 222 days for stocks, 155 days for currencies, and 240 days for local government bonds. The duration of each selloff – as calculated by Bloomberg – had taken even the most ardent bears by surprise because “not one of the seven biggest selloffs since the financial crisis – including the so-called taper tantrum – inflicted such pain for so long on the developing world.”

On Thursday, Asian stocks opened broadly lower as tech sectors were pressured by yesterday’s Nasdaq sell-off. China’s CSI 300 index of mainland listed companies opened nearly 2% lower, following disappointing data released on Wednesday on China’s manufacturing sector and ahead of potential new trade tariffs imposed by the US, before paring losses later in the day. The Shanghai Composite dropped back under 2,700.

Indonesia’s stock market also came under pressure as overseas investors have withdrawn some $3.7bn from the market so far this year, according Bloomberg data, pushing the Jakarta Stock Exchange Composite index down 10 per cent year-to-date. In Japan, the Topix index opened the day 0.7% lower, after a 6.7 magnitude quake struke the northern island of Hokkaido. Stocks in the Philippines were the biggest decliners across the developing world after inflation exceeded 6 percent for the first time since 2009.

Although Asian markets have so far fared better than their EM peers, analysts quoted by the FT cautioned that the region has its own problems. Morgan Stanley analysts said the stable renminbi had bolstered Asia over the past month, but added that “risks are building” in Asian currency markets. They said a pick-up in trade tensions would “not help these markets either”, but pointed out that the impact could be mitigated to some degree if the People’s Bank of China managed to keep the renminbi in check. “The momentum right now is quite strong, so you don’t want to stand in front of it,” said Tai Hui, chief market strategist for Asia-Pacific at JPMorgan Asset Management.

Elsewhere, European equity markets opened lower but ground back to flat as the Stoxx Europe 600 Index shook off two days of declines to trade little changed with Italy’s FTSE MIB (+0.4%) outperforming in a continuation of the trend observed in the past few days, while Spain’s IBEX (-0.6%) underperforms, weighed on by financial names with the IBEX 35 banking sector down over 1%. In terms of stock specifics, Safran (+6.1%) shares flew to the top of the Stoxx 600 following an impressive upgrade in guidance. Metal futures also bounced from recent lows with Copper future +1.8%, although the risk on mood may not last long: according to Bloomberg, European stocks are acting more and more like emerging markets as the correlation between the regions’ equities has been on the rise, climbing to 0.6 from 0.3 in June.

Futures on the Dow, S&P 500 and Nasdaq also pointed to a firmer open. Ten-year Treasuries climbed and European bonds were mixed.

In G-10 FX, havens led the way amid concern President Trump will order additional tariffs on China. The dollar slipped and Treasuries edged higher before tier-one data out of the U.S. Emerging markets and European stocks consolidated. The Swedish krona came under pressure after Riksbank said October isn’t a live meeting any more.

Elsewhere, the pound climbed after being whipsawed amid Brexit discussions. Gold advanced with copper. Bitcoin dropped after a report that Goldman Sachs was said to delay setting up a trading desk for cryptocurrencies.

In geopolitical news, a UK naval ship carried out a freedom of navigation operation near Chinese-controlled Paracel Islands in South China Sea, while reports added the ship did not enter China’s territorial waters but the actions suggested it doesn’t recognize China’s excessive claims on the region. There were later comments by China Foreign Ministry that the Royal Navy ship entered its territorial waters and that the Chinese navy warned it to leave, while it added that the UK should avoid provocative actions.

South Korean official stated that a summit will be held with North Korea on Sept. 18th-20th in Pyongyang to discuss practical measures for denuclearization of the peninsula and that North Korea Leader Kim reaffirmed commitment to denuclearization. The official added that North Korean Leader Kim expressed intent to cooperate closely with US and expressed regret over international community’s doubts of his will to denuclearize, while North Korean Leader Kim a also said that nuclear tests have become permanently impossible after the test site was dismantled and that he no longer intends to conduct long-range missile tests, while Kim’s trust in US President Trump is unchanged and is said to want to realize denuclearization during Trump’s first term.

In commodities, WTI and Brent futures traded marginally higher following yesterday’s retreat to below the USD 69.00/bbl and USD 77.50/bbl levels respectively (with the latter reclaiming the level in recent trade). The weekly API inventory report showed a smaller than expected draw in headline crude stockpiles with a muted reaction in the oil market. News flow has been light for the complex thus far. In terms of NHC updates, tropical depression Gordon continues to drift through Western Mississippi, threat of heavy rains and flooding will continue for several days, while Hurricane Olivia and Florence remain strong albeit still away from land. Traders will keeping an eye on the delayed weekly EIA crude inventory report due at 1600BST/1100EDT. The metals complex is broadly benefitting from the pullback in the dollar. Copper outperforms its peers amid upside in Chinese commodities.

Thursday Expected data include jobless claims and factory orders. Broadcom, Dell Technologies, Marvell Technology, and Palo Alto Networks are among companies reporting earnings.

Market Snapshot

• S&P 500 futures up 0.1% to 2,891.50
• STOXX Europe 600 down 0.04% to 375.53
• MXAP down 0.6% to 160.41
• MXAPJ down 0.7% to 517.07
• Nikkei down 0.4% to 22,487.94
• Topix down 0.7% to 1,692.41
• Hang Seng Index down 1% to 26,974.82
• Shanghai Composite down 0.5% to 2,691.59
• Sensex up 0.2% to 38,110.97
• Australia S&P/ASX 200 down 1.1% to 6,160.42
• Kospi down 0.2% to 2,287.61
• German 10Y yield rose 0.4 bps to 0.384%
• Euro up 0.02% to $1.1632
• Italian 10Y yield fell 8.2 bps to 2.664%
• Spanish 10Y yield rose 0.3 bps to 1.452%
• Brent futures up 0.5% to $77.64/bbl
• Gold spot up 0.6% to $1,204.08
• U.S. Dollar Index down 0.1% to 95.11

Top Overnight News

• German factory orders unexpectedly fell for a sixth month this year amid a slump in investment-goods demand from abroad, adding weight to concerns that trade tension may be starting to bite Europe’s largest economy
• The gap in pricing between longer- maturity Japanese interest-rate swaps traded in Tokyo and in London has fallen to the lowest in a year, suggesting that overseas traders may be giving up on bets of BOJ normalization. Speculation over regulatory changes may also have driven the move
• The former governor of Finland’s central bank is the new frontrunner in a Bloomberg survey of economists on who’ll succeed Mario Draghi in November 2019. His chief selling point, as the ECB prepares to unwind years of monetary stimulus, might be as a compromise candidate
• Europe’s safest companies face the highest costs in the bond market for two years as the European Central Bank readies to wind down asset purchases
• Citigroup Inc. is planning to promote bankers Tyler Dickson and Manolo Falco to run a reconstructed version of its investment banking operations, people familiar with the plan said
• Trump on possible government shutdown at the end of the month: “If it happens, it happens”
• Fed’s Kashkari: Wage growth has been quite low, could also see another rift to economy coming from emerging markets; Fed’s Bostic says economic risks perfectly balanced on both upside & downside
• Riksbank holds rates at -0.50% as expected; tweaks rate path by ruling out Oct. hike and signaling first hike in Dec. or Feb.
• Italian budget package will be EU25-30b according to Il Sole; League and Five Star are looking for 2019 deficit of 2%-2.5% according to Messaggero
• API inventories according to people familiar w/data: Crude -1.2m, Cushing +0.6m, Gasoline +1.0m, Distillates +1.8m

Asian equity markets traded mostly lower after a similar lead from US where the Nasdaq underperformed and the tech sector saw its worst performance in over a month as social media executives testified at Congress. ASX 200 (-1.2%) and Nikkei 225 (-0.4%) were negative as Australia mirrored the tech rout stateside and with sentiment in Japan was dampened after the Hokkaido region was hit by a powerful earthquake which triggered large landslides and mass power outages. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (flat) both opened lower although the latter then found support just below the 2700 level after stock-supportive measures including a proposed regulatory revision to permit more stock repurchases and with interest income from loans to smaller firms to be VAT-exempted. Finally, 10yr JGBs were higher with prices underpinned by the predominantly risk-averse tone in the region and amid the BoJ’s presence in the market in which it upped its purchases of 5yr-10yr maturities.

Top Asian News

• Tencent Will Subject Players of its Top Game to Police ID Checks
• BOJ Needs Extra Easing Not Extra Flexibility, Says Kataoka
• China Says It Will Retaliate Based on U.S. Moves as Tariffs Near
• Fugitive Jewelers Rob Indian Business of Trade Pricing Edge

European equities trade mixed (Euro Stoxx 50 +0.1%) with Italy’s FTSE MIB (+0.4%) outperforming in a continuation of the trend observed in the past few days, while Spain’s IBEX (-0.6%) underperforms, weighed on by financial names with the IBEX 35 banking sector down over 1%. In terms of stock specifics, Safran (+6.1%) shares flew to the top of the Stoxx 600 following an impressive upgrade in guidance. Elsewhere, Sodexo (-4.4%) shares took a hit following uninspiring earnings. Also of note: Wirecard (+1.2%) is to take Commerzbank’s (-0.7%) spot in the DAX 30.

Top European News

• Commerzbank Is Ousted From Benchmark After 30 Years by a Fintech
• Brexit Pollster Faces Scrutiny Over Secret Political Operations
• Riksbank Says It’s Ready to Raise Rates in December or February
• Buyout Firms Circle U.K. Assets as Brexit’s a ‘Building on Fire’

In FX markets, the DXY remained subdued and tested the 95.00 level to the downside as its major counterparts initially extended on recent gains with EUR/USD briefly fuelled after it tripped through stops at the prior day’s highs around 1.1640, while GBP/USD found a base at 1.2900 and held on to the majority of the advances spurred by the recent Brexit-friendly headlines. Elsewhere, JPY firmed against the greenback with the currency spurred by safe-haven and repatriation flows following the Hokkaido earthquake, while antipodeans initially traded higher in which AUD/USD and NZD/USD briefly reclaimed the 0.7200 and 0.6600 handles respectively, but then pared the moves with AUD pressured after more of Australia’s big 4 banks hiked mortgage rates and effectively reduced pressure on the RBA to start tightening policy.

Commodities were mixed overnight with WTI crude futures subdued following the prior day’s retreat to below the USD 69.00/bbl level and after the weekly API inventory report showed a smaller than expected draw in headline crude stockpiles. Elsewhere, gold initially benefitted from a weaker greenback but then met resistance at USD 1200/oz, while copper outperformed the commodity complex amid upside in Chinese commodities.

 

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior -4.2%
• 8:15am: ADP Employment Change, est. 200,000, prior 219,000
• 8:30am: Nonfarm Productivity, est. 3.0%, prior 2.9%; Unit Labor Costs, est. -0.9%, prior -0.9%
• 8:30am: Initial Jobless Claims, est. 212,500, prior 213,000; Continuing Claims, est. 1.72m, prior 1.71m
• 9:45am: Markit US Services PMI, est. 55.2, prior 55.2; Markit US Composite PMI, prior 55
• 10am: ISM Non-Manufacturing Index, est. 56.8, prior 55.7
• 10am: Factory Orders, est. -0.6%, prior 0.7%; Factory Orders Ex Trans, prior 0.4%
• 10am: Durable Goods Orders, est. -1.7%, prior -1.7%; Durables Ex Transportation, prior 0.2%
• 10am: Cap Goods Orders Nondef Ex Air, prior 1.4%; Cap Goods Ship Nondef Ex Air, prior 0.9%

DB’s Jim Reid concludes the overnight wrap

Today marks 14 years at DB for me. I’ll be going through the employee handbook later to see what service landmarks I may be edging closer to. I think in the very very old days you got a silver clock for 25 years’ service. Only 11 years until I can
find a replacement for my iWatch. I’ll be interested to hear of your fascinating long service awards if you have any.

Talking of tech, we wondered in our week ahead whether yesterday’s Congressional hearing with the main tech companies on social media and foreign influences on elections would be a big event. In some ways it was as it finally started to drag US equities down into the risk off mood that it had recently been immune to. However, in broad terms US stocks still outperformed and outside tech most sectors edged higher. Europe saw significant underperformance. Meanwhile the EM sell off continued but moderated a bit and Italy continued to out-perform. Elsewhere the headlines turned more positive on Brexit and the Pound saw a big intra-day swing. So lots going on.

Expanding on these themes now. Firstly the NASDAQ tumbled to a -1.19% loss by the end of play last night which was the biggest fall for the index since July. The NYSE FANG index also fell -2.76% (most since July 30) while Facebook, Twitter and Alphabet – executives of which were testifying at Capitol Hill – were down -2.33%, -6.06% and -0.88% respectively. The S&P 500 was down a more sedate -0.28% with 285/505 stocks rising while the DOW actually clawed back to a small +0.09% gain by the close. It’s worth noting that DB’s US Equity Strategist Binky Chadha published an update on Tuesday with his views into year end. Binky still has a 3000 target for the S&P 500 (current 2888.60) but believes that there are a number of reasons to be cautious in the near-term with the window for a 3-5% pullback open, especially with September usually seasonally weak. Thereafter Binky is a lot more constructive from October into year end.

Meanwhile Europe again was the material underperformer yesterday with the STOXX 600 finishing -1.09% (-1.72% lower this week) and the DAX closing down -1.39% for a fifth consecutive daily loss. That’s the longest losing run since the late January/early February sell-off for the DAX. EM equities shed -1.77%, taking their losses since last Wednesday to -4.47% and -19.74% since their January peak. They did briefly step into bear market territory intra-day though. EM currencies stabilised a bit, trading up +0.16% and closing higher for only the second time over the last eight sessions. The Turkish Lira actually rallied +1.06% while the Argentine Peso gained +1.23%. Media outlets reported that IMF Managing Director Lagarde indicated to Argentine President Macri that expedited disbursements are likely. The South African Rand was down a much less eye watering (relative to recent moves) -0.51%.

Once again the big outlier in European markets was Italian assets. The FTSE MIB (-0.09%) was close to unchanged while 10y BTPs ended 8.3bps lower. That’s in the context of a +2.3bps move for 10y Bunds and flat day for Treasuries. Newsflow out of Italy has turned incrementally more positive with each passing day this week with PM Conte the latest to speak, saying yesterday morning that talks have been “very productive” and that the budget law will keep finances “in order”. Deputy Prime Minister Salvini, head of the League, said “we want to respect the commitments made, with the Italians remaining within the constraints imposed by others,” suggesting that he now plans to avoid confrontation by respecting previous government’s fiscal plans. We will see.

A quick look at Asia this morning where the risk-off tone has continued for the most part. The Nikkei (-0.28%), Hang Seng (-0.64%), Kospi (-0.02%) and ASX (-1.08%) are all in the red although the Shanghai Comp (+0.17%) is still holding onto gains. US equity futures are a little weaker while EM FX is broadly stable. As for newsflow, North and South Korea have agreed to hold a summit later this month (18th-20th) with Kim Jong Un quoted as saying that he is open to accepting “stronger” denuclearization measures, so long as the US acknowledges measures North Korea has already taken. Elsewhere JGBs are little changed after the BOJ’s Katoaka (a known QE hawk) said that the BoJ’s move to allow more flexibility in yield movements will delay achieving the 2% inflation target.

Staying with Asia, today marks the deadline for the end of the public comment period concerning another potential round of tariffs on $200bn of China imports. Our China Chief Economist Zhiwei Zhang believes that the impact on China will be manageable, as officials have space to ease policy. In their base case, they expect further trade confrontation, looser monetary policy, a weaker yuan, and a fiscal boost to infrastructure spending. There are risks to the upside, if a positive trade deal is reached, which would see higher rates, a strong yuan, and less infrastructure spending. 

Moving on. The big story here in the UK yesterday was a Bloomberg article which hit the screens in the early afternoon suggesting that the UK and Germany had dropped key Brexit demands and were seeking a watered down version of a future agreement for now to push through the process and avoid a no deal. Indeed the story said that Germany “is ready to accept  a less detailed agreement on the UK’s future economic and trade ties with the EU” and the UK side “is also willing to settle for a vaguer statement of intent on the future relationship” including “postponing some decisions until after Brexit day”. The story went as far as to say that an initially planned document of up to 100 pages could now just be a tenth of that.

So signs of a classic fudge or at least scope for such with any big decisions pushed back to avoid the risk of a no-deal. As always with these stories there’s a question of source reliability but perhaps there’s also no smoke without fire and the more than 1% rally for Sterling from the lows on the back of it showed that the market took some notice. The Pound was actually a little off its intraday highs (closed +0.39% vs. USD) after Reuters reported a German government spokesman as saying that Germany’s position is unchanged. That didn’t seem like a great surprise though and crucially the comment didn’t explicitly refute the earlier story.

Elsewhere the economic data didn’t move the dial particularly for markets yesterday but for completeness the final August PMIs in Europe mostly confirmed the flash estimates. The Eurozone composite PMI printed at 54.5, up 0.1pp from the flash estimate, though readings in France and Germany were revised down 0.2pp and 0.1pp to 54.9 and 55.6pp, respectively. Readings in Spain and Italy came in at 53.0 and 51.7, with Italy’s slowdown in particular raising some concerns as it fell to a 22-month low. Away from Europe, the other standout PMI was in South Africa, where the index dipped further into contractionary territory to 47.2, a 29-month low and comes after data on Tuesday signalled a recession. In the US, the July trade deficit was broadly in line with expectations at -$50.1 billion. Notably, the bilateral deficit with China rose to a new all-time high, at -$36.8 billion.

As far as the day ahead is concerned, shortly after this hits your emails we’ll get July factory orders data out of Germany followed closely by the August construction PMI. In the US it’s a fairly packed calendar with the August ADP employment change reading due along with final revisions to Q2 nonfarm productivity and unit labour costs, the latest weekly initial jobless claims print, final August services and composite PMIs, August ISM non-manufacturing, July factory orders and final July durable and capital goods orders data. Meanwhile the ECB’s Lautenschlaeger is scheduled to speak in Vienna around lunchtime while the Fed’s Williams is due to speak in the afternoon. As mentioned earlier keep an eye on potential trade headlines given the deadline for the public comment period on the next round of tariffs.

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Authored by Michael Lebowitz via RealInvestmentAdvice.com,

If you were contemplating an investment at the beginning of 2014, which of the two assets graphed below would you prefer to own?

Data Courtesy: Bloomberg

In the traditional and logical way of thinking about investing, the asset that appreciates more is usually the preferred choice.

However, the chart above depicts the same asset expressed in two different currencies. The orange line is gold priced in U.S. dollars and the teal line is gold priced in Turkish lira. The y-axis is the price of gold divided by 100.

Had you owned gold priced in U.S. dollar terms, your investment return since 2014 has been relatively flat.  Conversely, had you bought gold using Turkish Lira in 2014, your investment has risen from 2,805 to 7,226 or 2.58x. The gain occurred as the value of the Turkish lira deteriorated from 2.33 to 6.04 relative to the U.S. dollar.

Although the optics suggest that the value of gold in Turkish Lira has risen sharply, the value of the Turkish Lira relative to the U.S. dollar has fallen by an equal amount. A position in gold acquired using lira yielded no more than an investment in gold using U.S. dollars.

Data Courtesy: Bloomberg

This real-world example is elusive but important. It helps quantify the effects of the recent economic chaos in Turkey. Turkey’s economic future remains uncertain, but the reality is that their currency has devalued as a result of large fiscal deficits and heavy borrowing used to make up the revenue shortfall. Inflation is not the cause of the problem; it is a symptom. The cause is the dramatic increase in the supply of lira designed to solve the poor fiscal condition.

A Turkish citizen who held savings in lira is much worse off today than even two months ago as the lira has fallen in value. She still has the same amount of savings, but the savings will buy far less today than only a few weeks ago. Her neighbor, who held gold instead of lira, has retained spending power and therefore wealth. This illustration highlights the ability of gold to convey clear comparisons of various countries’ circumstances. It also illustrates the damage that imprudent monetary policy can inflict and the importance of gold as insurance against those policies.

Penalty

Using Turkey as an example also helps illustrate why we say that inflationary regimes impose a penalty on savers. Inflation encourages and even forces people to spend, invest or speculate to offset the effects of inflation. Investing and speculating entail risk, however, so in an inflationary regime one must assume risk or accept a decline in purchasing power.

Most people think of inflation as rising prices. Although that is the way most economists represent inflation, the truth is that inflation is actually your money losing value. Inflation is not caused by rising prices; rising prices are a symptom of inflation. The value of money declines as a result of increasing money supply provided by the stewards of monetary discipline, the Federal Reserve or some other global central bank.

This is difficult to conceptualize, so let’s bring it home in a simple example. If you live in a country where the annual inflation rate is a steady 2%, the value of the currency will decline every year by 2% on a compounded basis. At this rate, the purchasing power of the currency will be cut in half in less than 35 years.

Now consider a country, like Turkey, that has been running chronic deficits, printing money rapidly to make up a revenue shortfall, and begins to experience accelerating inflation. The annual inflation rate in Turkey is now estimated to be over 100% or 8.30% per month, a difficult number to comprehend. The value of their currency is currently falling at an accelerating pace so that what might have been purchased with 500 lira 9 months ago now requires 1,000 lira.

Put another way, for the prudent retiree who had 10,000 lira in cash stashed away nine months ago, the inflation-adjusted value of that money has now fallen to less than 5,000 lira. If inflation persists at that rate, the 10,000 will become less than 1,000 in 29 months.

Believe it or not, Turkey is, so far, a relatively mild example compared to hyperinflationary episodes previously seen in Germany, Czechoslovakia, Venezuela, and Zimbabwe. These instances devastated the currencies and the wealth of the affected citizens. Fiscal imprudence is a real phenomenon and one that eventually destroys the financial infrastructure of a country. For more on the insidious role that even low levels of inflation have on purchasing power, please read our article: The Fed’s Definition of Price Stability is Likely Different than Yours.

Summary

There are over 3,800 historical examples of paper currencies that no longer exist. Although some of these currencies, like the French franc or the Greek drachma disappeared as a result of being replaced by an alternative (euro), many disappeared as a result of government imprudence, debauching the currency and hyperinflation. In all of those cases, persistent budget deficits and printed money were common factors. This should sound worryingly familiar.

Modern day central banks function by employing a steady dose of propaganda arguing against the risks of deflation and in favor of the benefits of a “modest” level of inflation. The Fed’s Congressional mandate is to “foster economic conditions that promote stable prices and maximum sustainable employment” but promoting stable prices evolved into a 2% inflation target. The math is not complex but it is difficult to grasp. Any number, no matter how small, compounded over a long enough time frame eventually takes on a parabolic, hockey stick, shape. The purpose of the inflation target is clearly intended to encourage borrowing, spending and speculating as the value of the currency gradually erodes but at an ever-accelerating pace. Those not participating in such acts will get left behind.

In the same way that rising prices are a symptom of inflation attributable to too much printed money in the system, deflation is falling prices due to unfinanceable inventories and merchandise pushed on to the market caused by too much debt. Contrary to popular economic opinion, deflation is not falling prices caused by a technology-enhanced decline in the costs of production – that is more properly labeled as “progress.” The Fed is either knowingly or unknowingly conflating these two separate and very different issues under the deflation label as support for their “inflation target”. In doing so, they are creating the conditions for deflation as debt burdens mount.

Gold, for all its imperfections, offers a time-tested, stable base against which to measure the value of fiat currencies. Accountability cannot be denied.  Despite the unwillingness of most central bankers to acknowledge gold’s relevance, the currencies of nations will remain beholden to the “barbarous relic”, especially as governments continue to prove feckless in their application of fiscal and monetary discipline.

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Dutch bank ING Groep, the latest financial services provider in the Netherlands, admitted on Tuesday that criminals had been able to launder money through its accounts and agreed to pay €775 million ($900 million) to settle the case. It was hardly a surprise: in fact, ING was warned as early as a decade ago that its money laundering controls were lax, the Dutch prosecutor said, in the latest case highlighting failures in European Union money laundering controls from Latvia to Denmark.

ING admitted to shortcomings which had allowed clients “to use their bank accounts for money laundering practices for years” and its chief executive Ralph Hamers said it had taken “drastic measures” to prevent a repetition.

Now, thanks to Reuters, we find just how pervasive money laundering has been using what is traditionally seen as one of Europe’s sleepiest banks.

Consider this: when Dutch prosecutors trawled through ING’s books they found a “women’s underwear trader” had been able to launder €150 million through the bank’s accounts without ringing alarm bells.

“It should have been clear to the bank that the monetary flows had little to do with the lingerie trade,” the prosecutors said on Tuesday after imposing a 775 million euro penalty on the Dutch bank for its failings, Reuters reported. Commenting on Europe’s latest money laundering scandal – and its settlement – Ana Gomes, a Portuguese member of the European Parliament, said: “I fear that countries in Europe are oblivious to fighting financial crime.”

ING’s penalty coincides with European regulators considering whether to tighten regional controls of financial crime and one official with knowledge of the matter said money laundering may be raised at a meeting of EU finance ministers this week. Several months ago, Latvia – which had styled its banks as a financial bridge between Russia and the west – was forced to close one of its banks after it was accused by the United States of money laundering and breaking sanctions.

Denmark’s Danske Bank has also been in the spotlight: it has admitted to flaws in its anti-money laundering controls in Estonia and a year ago launched its own inquiry, the results of which are expected this month.

“The system is now designed to allow money laundering. It is full of holes. We need serious European rules with pan-European powers of enforcement,” Gomes added.

The crackdown on illegal money flows has escalated all the way to the ECB:

Europe has made some reforms, requiring countries to set up centralised bank account registers, but cooperation across borders remains poor and the European Parliament has asked the European Central Bank (ECB), which monitors the bloc’s big banks, to step up its anti-money laundering checks.

In response, the ECB has long claimed that its AML powers are limited, but fresh new laws are unlikely until a new European Parliament takes office after elections next year.

Meanwhile, in the case of ING, Dutch prosecutors highlighted a series of lapses that they said followed years when it put profit ahead of controls, leaving the compliance department understaffed and able only to investigate the “tip of the iceberg”.

It goes without saying that the targets of the laundering crackdown were mostly Russian entities: the prosecutors said that $55 million had been paid by telecoms group VEON, formerly VimpelCom, out of an account at ING via a Gibraltar-based company to Gulnara Karimova, the daughter of the former president of Uzbekistan. And despite being alerted, ING took years to pass the information to the authorities, they added in their report.

The Uzbek Prosecutor General’s office said last year that Karimova was in custody following a conviction for embezzlement. Her Swiss lawyer Gregoire Mangeat said she had been “detained arbitrarily”, adding it was not possible to talk to her.

It wasn’t just Russia though: in another case highlighted by Dutch prosecutors, two companies importing fruit and vegetables from South America ran up cash deposits of more than a half a million euros, before ING was alerted by police. It then closed the accounts. Prosecutors said that the Netherlands’ central bank (DNB) had warned ING as early as 2008 that its procedures were insufficient, but lead prosecutor Margreet Frohberg told Reuters that it had failed to act in earnest until 2016.

A DNB spokesman said that Dutch banks had begun improving their controls as early as 2008, but moved too slowly:

“A minimalist interpretation and a mechanical implementation of the laws is insufficient. More really has to happen.”

“The financial sector knows this … but we’re still far from where we need to be,” he said, adding that the Netherlands was increasing penalties and demanding tighter controls.

As for ING, it said it was impossible to estimate how much money was laundered through its accounts, but lead prosecutor Margreet Frohberg told Reuters “hundreds of millions of euros” were involved. The fine is not ING’s first for failing to prevent illegal transactions. In 2012 it paid a penalty of $619 million for facilitating billions of dollars worth of payments through the U.S. banking system on behalf of Cuban and Iranian clients.

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Authored by Joseph Jankowski via PlanetFreeWill.com,

The European Union is in the final stages of crafting legislation that will force big tech and internet companies to censor “extremist” content and cooperate with law enforcement, Reuters reports.

The bill is expected to be released by the end of the month and will absolutely require companies such as Google, Facebook, and Twitter to swiftly remove any content considered terroristic from their platforms.

EU Commissioner in charge of Justice, Consumers and gender equality, Věra Jourová , speaks at a news conference on a second monitoring of the illegal online hate speech code of conduct in Brussels, Belgium, 1 June 2017. [Olivier Hoslet/EPA]

In March, the European Commission told such companies that they had three months to show they were removing “extremist” content more rapidly or face legislation forcing them to do so.

EU recommendations were sent out at the time regarding the speedy removal of all content including terrorist content, incitement to hatred and violence, child sexual abuse material, counterfeit products, and copyright infringement.

The threat eventually led to the creation of an online “code of conduct” aimed at fighting racism and xenophobia across Europe, an effort both the EU and big tech collaborated on.

According to European Justice Commissioner Vera Jourova, that an existing code of conduct to counter hate speech could remain voluntary.

“(But on) terrorist content, we came to the conclusion that it is too serious a threat and risk for European people that we should have absolute certainty that all the platforms and all the IT providers will delete the terrorist content and will cooperate with law enforcement bodies,” Jourova said on Wednesday.

“Yes, this is in the final stage,” she added, addressing the new bill.

While details of the new legislation remain hidden, the Financial Times in August learned that law enforcement will be in charge of flagging content for censorship.

EU security commissioner Julian King also had mentioned last month that the bill will “likely” turn the agreed upon “code of conduct” into mandatory law, placing the prediction by Jourova that it will remain voluntary on shakey grounds.

The big tech – EU code of conduct establishes “public commitments” for tech companies, including the requirement to review the “majority of valid notifications for removal of illegal hate speech” in less than 24 hours. It was also crafted to make it easier for law enforcement to notify firms directly of any unwanted content.

Within the code is a narrow explanation of “hate speech,” being defined as “all conduct publicly inciting to violence or hatred directed against a group of persons or a member of such a group defined by reference to race, colour, religion, descent or national or ethnic origin.”

The nature of enforcing censorship based on a narrow and subjective term such as “hate speech” is likely to keep suspicions high that these types of decision aren’t about creating a safer world, but rather a world in which superstates like the EU control the content people see online for political purposes.

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