Month: September 2018

It appears Israel has paid a huge price for last week’s attack on Syria which led to the accidental “friendly” fire downing of a Russian reconnaissance plane with 15 personnel on board as the door could now be forever shut on striking targets in Syria with impunity. The Russian Ministry of Defense (MoD) has announced plans to deliver to its advanced S-300 air defense system to Damascus within two weeks.

Prior plans to deliver the system, which is considered vastly more effective and can strike at a greater range than Syria’s current S-200 and others, were nixed after Israeli threats that delivery would constitute a “red line” for which Israel must act. 

The Russian MoD acknowledged this and said the situation has “changed” upon announcing its intent to follow through on what Syria has already purchased: “In 2013 on a request from the Israeli side we suspended the delivery to Syria of the S-300 system, which was ready to be sent with its Syrian crews trained to use it,” the MoD statement said.

Defense Minister Sergei Shoigu said early Monday, “A modern S-300 air defense missile system will be supplied to the Syrian Armed Forces within two weeks. It is capable of intercepting air assault weapons at a distance of more than 250 kilometers and hit simultaneously several air targets.”

Significantly, Syria’s systems will be integrated with Russian systems via the S-300, in order to prevent instances of “blind” firing (or failure to have friend or foe identification capabilities).

Russia had in previous statements blamed Israel for the last Tuesday incident in which a Russian Ilyushin-20 reconnaissance plane was accidentally brought down by an aging Syrian S-200 defense system after Russia had scrambled its jets to respond to an attack by four Israeli F-16s on Syrian government targets.

Shoigu said the S-300 system will prevent such future mishaps: “The command posts of Syrian air defense forces and units will be equipped with automated control systems only supplied to the Russian armed forces. This will facilitate centralized control over all forces and resources of the Syrian air defense, monitor the situation in the air, and ensure operative issuance of orders.”

He added that, “Most importantly, we will guarantee the identification of all Russian aircrafts by the Syrian air defense systems,” according to TASS.

Russian MoD presented a detailed 3D timeline of Il-20 downing in Syria on September 17. pic.twitter.com/efaJZnqmYB

— Military Advisor (@miladvisor) September 23, 2018

The Russian-made S-300s are widely acknowledged to be far superior in their capability and reach that Syria’s current S-200 system. If installed — something which Russia has promised will happen in two weeks time — Syria might very well become nearly untouchable.

Israel has long claimed to be acting primarily against Iran inside Syria, often firing from over “neutral” Lebanese airspace, but additional new electronic countermeasures to be erected along with the S-300 system will hinder this, per RT:

The third measure announced by the Russian defense ministry is a blanket of electronic countermeasures over Syrian coastline, which would “suppress satellite navigation, onboard radar systems and communications of warplanes attacking targets on Syrian territory.”

Shoigu said the measures are meant to “cool down ‘hotheads’ and prevent misjudged actions posing a risk to our service members.” He added that if such a development fails to materialize, the Russian military “would act in accordance to the situation.”

All of this is precisely the game-changer that Israel’s leadership has long worried about as they’ve sought to maintain “freedom of action” in Syria, according to prior statements by Prime Minister Benjamin Netanyahu.

But as a Haaretz report noted previously, the range of the new defense system will give Damascus the ability to detect potentially hostile aircraft from point of origin: “With Putin’s S-300, Assad’s army could even ‘lock-on’ IAF aircraft as they take off from bases within Israel.” And as one Israeli defense analyst put it, “Israel should be worried.”

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Authored by Don Quijones via WolfStreet.com,

Payment chaos: For bottom-line-obsessed bank executives, IT systems are an expense to be slashed. The results are in.

Internet banking has become a crisis-prone business in the UK, as the online platforms of big banks suffer regular outages and other forms of IT disruption.

Friday morning, the online systems of the Royal Bank of Scotland, Ulster Bank and Natwest – all part of the RBS Banking Group – crashed in unison, leaving millions of customers unable to pay bills or view their balance on their online and mobile accounts. The group has 19 million customers in the UK and Republic of Ireland and 5.5 million active mobile app users.

After around five hours of chaos, the RBS Group announced that the problems had been resolved. The failure had apparently been caused by a “technical glitch” — a word that is being used with increasing frequency by high-street lenders — in a regular update to their firewall. The bank emphasized that it was an “access issue” and there is no evidence that customer data was compromised. But then, it would say that!

On Thursday, it was the turn of the UK’s largest bank, Barclays, whose website and telephone banking service crashed for around seven hours, leaving frustrated customers locked out of their online accounts.

Fed-up customers took to social media to vent their anger, with some complaining that they were unable to access their accounts not only through the Internet platform but also ATMs. Barclays has around 24 million UK customers, though it’s not clear how many of them were affected by the outage.

The bank told customers that they should still be able to make payments to existing payees through mobile banking, though new payees weren’t possible due to the incident. It also claimed that payments into accounts were unaffected by the issues.

One alarmed customer begged to differ, complaining to the BBC that a payment due into his account had gone missing, while another customer reported the systems inside branches being down, preventing customers from carrying out transactions even in the old fashioned, pre-digital way. By mid-afternoon, the IT “glitch” — that word again! — had been “resolved,” though no explanation has yet been given as to what caused it.

A few days earlier an outage at online challenger bank Cashplus, which targets people with poor credit histories, left customers unable to access their accounts, make cash withdrawals, or make or receive payments. The problems prompted Nicky Morgan, chair of the Treasury Committee, to ask Richard Wagner, chief executive officer of Cashplus, for an explanation of what happened and how victims of the outage will be compensated.

In other words, over the last two days, dozens of millions of UK bank customers have been locked out of their online accounts at different banks.

In terms of RBS, this is not the first time this year its subsidiary Natwest has suffered an outage. Its banking app went down briefly in April and in July a glitch with its card payments left customers unable to use their cards in shops or online.

RBS, the largely state-owned lender that has cost British taxpayers almost a hundred billion pounds in bailouts, losses, fines and legal fees, also has a rich history of outages, including a major blackout in 2012 that lasted for over a week, disrupting customers’ wages, payments and other transactions. The outage was allegedly caused by an “inexperienced” RBS tech operative’s blunder. For the duration of the blackout, the only means many customers had of accessing basic banking services was to visit the local branch.

That, however, didn’t stop RBS from embarking on a branch closure rampage, blaming the growth of internet banking for its decision to close one in four of its branches. Now, it can’t manage to keep those web-based services up and running, leaving customers even worse off. Even as the lender has increasingly digitized its services, it has consistently downsized its IT services team. In 2017 it revealed that it planned to axe 900 IT jobs by 2020 and is doubling down on its outsourcing of IT roles to India to reduce costs.

This underscores one of the major problems high-street lenders have with technology. They never treat it as a mission-critical aspect of their business, even as that business becomes increasingly dependent on technological solutions to stay competitive.

Bottom line-obsessed bank executives are always looking for cheap, short-term shortcuts to IT issues, with the result that lenders — particularly, but not only, in the UK — have for decades under-invested in their sprawling, creaking, accident-prone legacy systems dating back to the primeval age of COBOL and mainframe technology. And if some banks had been thinking about trying to finally move off their legacy systems and drag their IT platforms into the 21st century, the recent botched IT migration at mid-sized TSB, which continues to sow chaos 23 weeks after it was supposed to be ready, will not encourage them to do so. By Don Quijones.

Time is running out. March 29 is the deadline. Urgent action is needed. But it’s not happening. Read…  Disorderly Brexit Would Trigger Mayhem in Derivatives Market  

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In his latest attempt to clear his name following allegations from Palo Alto University Professor Christine Blasey Ford claiming that he had had attempted to sexually assault her more than 35 years ago when they were seniors in high school, Judge Brett Kavanaugh will hand over calendars from the summer of 1982 which supposedly show that he was out of town when the party described by Ford allegedly took place.

According to the New York Times, the calendars do not disprove Ford’s allegations, as he could have attended a party that he did not list on his calendar. Instead, his team intends to argue that Kavanaugh’s calendars don’t confirm Ford’s account of how an inebriated Kavanaugh allegedly pinned her to a bed and tried to remove her clothing. Ford has said she does not recall the specific date of the party.

The calendar pages from June, July and August 1982, which were examined by The New York Times, show that Judge Kavanaugh was out of town much of the summer at the beach or away with his parents. When he was at home, the calendars list his basketball games, movie outings, football workouts and college interviews. A few parties are mentioned but include names of friends other than those identified by Dr. Blasey.

The challenge for senators trying to confirm or refute the accusation against Judge Kavanaugh is that Dr. Blasey has said she does not recall the specific date or location of the house where the alleged incident occurred. She has said she believes it was during the summer of 1982, and she remembers wearing a bathing suit with other clothing on top of it, suggesting the party might have taken place after a swim outing at a local country club.

While three other people whom Ford said were also in attendance at the party have said they did not remember the incident, Ford’s lawyer Debra Katz explained that this is hardly surprising.

“It’s not surprising that Ms. Keyser has no recollection of the evening as they did not discuss it,” Ms. Katz said. “It’s also unremarkable that Ms. Keyser does not remember attending a specific gathering 30 years ago at which nothing of consequence happened to her. Dr. Ford of course will never forget this gathering because of what happened to her there.”

Kavanaugh doesn’t intend to argue that Ford wasn’t assaulted at the party; instead, his lawyers are expected to claim that the assailant wasn’t Kavanaugh, but a friend of Kavanaugh’s with whom he bore a striking resemblance. 

Meanwhile, Kavanaugh’s calendars appeared to offer an unusually detailed accounting of his teenage life.

The calendar pages are one-month pages with each day in a small box. Unusual for a teenager, Judge Kavanaugh seemed to keep track of his days even during summer vacation. The pages show typical teenage activities from the era, including “beach week” after the end of the school year and nights at the theater to see “Grease II,” “Rocky III” and “Poltergeist” with friends.

Judge Kavanaugh was gone many weekends with his parents in St. Michaels, Md., and one weekend in Connecticut with his grandmother, according to the calendars. He listed an interview for Yale University, where he would eventually enroll, and the start of football camp in August, when he stayed in the dorms at Georgetown Prep. He also played summer league basketball.

Of course, given Sunday night’s bombshell report that a second accuser is coming forward, Kavanaugh’s defense team will need to come up with another strategy to defend against both of these accounts. But they were handed a reprieve Monday morning when reports surfaced that NBC, The New York Times and The Washington Post passed on Ronan Farrow’s Kavanaugh accuser story because reporters felt uneasy about the facts.

The allegations were leveled by Kavanaugh’s former Yale classmate Deborah Ramirez, who said Kavanaugh “pulled his penis out and tried to press it into her face” at a dorm-room party their freshman year. The stakes for this allegation are higher given that Kavanaugh was a legal adult at the time, and he swore during his previous testimony before the Senate Judiciary Committee that he had never committed a sexual assault as an adult.

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Shortly after the Trump admin enacted another $200BN in tariffs on Chinese imports just after midnight on Monday, China published a white paper to “clarify the facts about China-US economic and trade relations, demonstrate its stance on trade friction with the United States, and pursue reasonable solutions”, the Global Times reported.

Excluding the foreword, the massive, 36,000-Chinese-character white paper is comprised of six parts, which are

• mutually-beneficial and win-win China-US cooperation in the trade and economic field,
• clarification of the facts about China-US trade and economic relations,
• the trade protectionist practices of the US administration,
• the trade bullyism practices of the US administration,
• damage of the improper practices of the US administration to global economy, and
• China’s position.

China is the world’s biggest developing country and the United States is the biggest developed country, said the white paper. “Trade and economic relations between China and the United States are of great significance for the two countries as well as for the stability and development of the world economy.”

The white paper said the two countries are at different stages of development and have different economic systems, and therefore some level of trade friction is only natural. “The key, however, lies in how to enhance mutual trust, promote cooperation, and manage differences.”

The white paper said China and the US are at different stages of development and have different economic systems, and therefore some level of trade friction is only natural. “The key, however, lies in how to enhance mutual trust, promote cooperation, and manage differences.” https://t.co/YyGgSFcCS3

— Global Times (@globaltimesnews) September 24, 2018

In the spirit of equality, rationality, and moving to meet each other halfway, the two countries have set up a number of communication and coordination mechanisms such as the Joint Commission on Commerce and Trade, the Strategic and Economic Dialogue, and the Comprehensive Economic Dialogue, the white paper said.

Each has made tremendous efforts over the past 40 years to overcome all kinds of obstacles and move economic and trade relations forward, which has served as the ballast and propeller of the overall bilateral relationship, according to the white paper.

However, the new administration of the US government has trumpeted “America First” since taking office in 2017, and has abandoned the fundamental norms of mutual respect and equal consultation that guide international relations, according to the authors:

“Rather, it has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs, and attempting to impose its own interests on China through extreme pressure.”

The white paper stressed China has responded from the perspective of the common interests of both parties as well as the world trade order, observing the principle of resolving disputes through dialogue and consultation, and answering the US concerns with the greatest level of patience and good faith.

The Chinese side has been dealing with these differences with an attitude of seeking common ground while shelving divergence, the white paper said. “It has overcome many difficulties and made enormous efforts to stabilize China-US economic and trade relations by holding rounds of discussions with the US side and proposing practical solutions.”

However, the US side has been contradicting itself and constantly challenging China, the white paper said.

“As a result, trade and economic friction between the two sides has escalated quickly over a short period of time, causing serious damage to the economic and trade relations which have developed over the years through the collective work of the two governments and the two peoples, and posing a grave threat to the multilateral trading system and the principle of free trade.”

The Chinese government published the white paper to clarify the facts about China-US economic and trade relations, demonstrate China’s stance on trade friction with the United States, and pursue reasonable solutions.

It is 100% certain that nobody in Trump’s inner circle – and certainly not Peter Navarro – will ever read the report.

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The main event over the weekend was China’s decision to pull out of trade talks with the US amid a broad cooling of relations between Beijing and Washington, coupled with the US decision to launch “Phase II” of the trade war implementing $200BN in new tariffs on Chinese imports. As markets are closed in China, Japan and South Korea, traders expressed their sentiment via the Hang Seng and ASX both of which are down.

Looking ahead at this week’s main events, we have trade, Wednesday’s FOMC meeting, the Italian budget, the UK’s next move on Brexit after the Salzburg fiasco, inflation data in the US (PCE) and Europe (CPI),the General Debate of the UN General Assembly and a host of trade related meetings on the sidelines, and a steady stream of central bank speak.

The FOMC is a done deal, with 90%+ odds of a hike this Wednesday. The bigger focus for the market will instead be on the Committee’s signal about prospects for rate hikes in coming quarters. Deutsche Bank economists believe that while the market may interpret a few elements of the meeting dovishly, namely the possible change to the description of the policy stance as “accommodative” and a decline in the long-run median dot, they would caution against this interpretation. Instead, they expect the overall message from the meeting to be that the current gradual pace of rate hikes remains appropriate and that, with growth expected to continue to run well above potential, the labor market beyond full employment, inflation at target and financial conditions still accommodative, the Committee has become more confident that rate hikes should continue at least to neutral. Moreover, as Chair Powell has recently indicated, as long as income and job gains remain strong, a restrictive monetary policy stance could be needed. This signal should reinforce elevated market pricing for the next rate hike in December and support expectations for further hikes at least through the first half of 2019 (DB expects 4 hikes next year)

The other date to be aware of next week is Thursday which is the deadline for Italy ‘s draft 2019 budget. As has been the case of late expect daily newsflow in the interim on this. A deficit forecast of 1.6% GDP would be a long way from the fears upsetting markets over the summer.

Meanwhile the big data highlights next week are the latest inflation prints in the US and Europe. On Friday we’ll get the August PCE report in the US where the consensus expects a +0.1% mom print which would be enough to hold the annual rate at +2.0% yoy. In Europe we’ll get the September CPI report for the euro area on Friday too with the consensus expecting no change in the +1.0% yoy core reading. Country level data in Europe is also due out in Germany (Thursday), France (Friday), Italy (Friday) and Spain (Friday).

On trade, Tuesday will see the General Debate of the UN General Assembly kick off in New York including an address from President Trump. On the sidelines of this Japan  PM Abe will meet with Trump to discuss trade with Trump also confirming  bilateral meetings from leaders of South Korea, Egypt,  France,  Israel  and the UK. EU Trade Commissioner Malmstrom is also due to meet US Trade Representative Lighthizer and Japan’s Economy Minister Seko in New York to discuss trade. So plenty to watch.

As for the remaining data due out next week, in the US we’ve got various manufacturing surveys due through the week including those from the Dallas Fed (Monday), Richmond Fed (Tuesday), Kansas Fed (Thursday) and Chicago PMI (Friday). Also due out in the US is September consumer confidence on Tuesday, August new home sales on Wednesday, the third and final Q2 GDP print, August advance goods trade balance and preliminary durable and capital goods orders on Thursday, and final September University of Michigan consumer sentiment survey revisions on Friday.

In Europe, Germany ‘s September IFO survey on Monday and September confidence indicators on Wednesday for the euro area are also worth highlighting. It’s also a busy week for central bank speakers next week. On Monday ECB President Draghi is due to speak to EU Parliament. On Tuesday BoJ Governor Kuroda will speak following the BoJ’s latest meeting minutes release, while the ECB’s Coeure and Praet, and BoE’s Vlieghe are also due to speak. On Thursday BoE Governor Carney and Chief Economist Haldane speak, along with the ECB’s Draghi and Praet, and Fed’s Kaplan. Fed Chair Powell is also due to make brief remarks on the US economy at a Senate event. The Fed’s Barkin and Williams then speak on Friday along with the BoE’s Ramsden and ECB’s Lane and Praet. Finally, other snippets worth highlighting include the OPEC meeting in Algiers tomorrow where members are due to review compliance with output targets, and Italy’s Salvini taking part in a forum tomorrow. On Monday France is due to unveil its 2019 budget while German Chancellor Merkel takes part in a town hall event. On Wednesday EU27 government envoys meet in Brussels to discuss Brexit while on Thursday Turkey President Erdogan begins a three-day visit to Germany where he is set to meet with Merkel.

A full daily breakdown of the week’s events from Deutsche Bank

• Monday: It’s a quiet start to the week for data on Monday. In Europe, we get the September IFO survey in Germany along with September CBI Trends total orders and selling prices data for the UK. In the US, we’ll get the August Chicago Fed national activity index and September Dallas Fed manufacturing activity index. Away from that, ECB President Draghi is due to speak in Brussels. Monday is also the day when the US will start levying 10% tariffs on the additional $200bn of Chinese imports. Away from that, German Chancellor Angela Merkel will speak in Hanover, France  will unveil its 2019 budget and French President  Emmanuel Macron will meet US President Donald Trump in New York.
• Tuesday:  Overnight  on  Tuesday  we  get  the  minutes  of  July  BoJ  monetary policy meeting. In Europe, we get September confidence indicators for France while  in  the  US,  we  get  the  July  FHFA  and  S&P  CoreLogic  house  price index, September Richmond Fed manufacturing index and September consumer confidence data. Away from that, the BoJ’s Kuroda, ECB’s Praet and Coeure, and BoE’s Vlieghe will be speaking at different times.  Japanese PM Shinzo Abe will meet with US President Trump in New York to discuss trade while EU Trade Commissioner Cecilia Malmstrom will meet with US Trade Representative Robert Lighthizer and Japan’s Economy Minister Hiroshige Seko in New York to discuss WTO  reform  and  trade.  President  Trump  will  also  address  the  UN  General Assembly.
• Wednesday: The big highlight on Wednesday is the FOMC meeting and Fed Chair Powell press conference. Data-wise there is nothing of note in Asia while in Europe we’ll get September consumer confidence for France and September CBI retailing reported sales in the UK. In the US, August new home sales data is due. Also worth highlighting is the EU27 government envoys meeting in Brussels to discuss Brexit.
• Thursday: It’s a pretty busy day on Thursday with lots of data releases lined up including preliminary September CPI for Germany and the final Q2 GDP print for the US. Prior to that we get August industrial profits for China while in Europe we get preliminary October GfK consumer confidence for Germany, August M3 money supply and September confidence indicators for the Euro area. In the US we’ll get the August advance goods trade balance, preliminary August wholesale inventories, August retail inventories, preliminary August durable goods and capital goods orders, latest weekly initial jobless claims, August pending home sales and Kansas City Fed manufacturing activity data. Away from that, the BoJ’s Kuroda, BoE’s Carney and Haldane, ECB’s Draghi and Praet, and Fed’s Kaplan will all be speaking at different times during the day, with Fed Chair Powell also scheduled to make brief remarks on the US Economy at a Senate event in the evening. Turkish President Erdogan also begins a three-day visit to Germany, where he’ll meet with Chancellor Angela Merkel. The OECD is also due to deliver a press conference on barriers to trade, while Thursday is also the deadline for the 2019 draft budget in Italy.
• Friday: It’s a busy end to a busy week on Friday with the highlights being September CPI for the Euro area and August PCE  data for the US. As well as that, overnight we get September GfK consumer confidence for the UK along with  summary  of  opinions  of  the  September  BoJ  monetary  policy  meeting, August retail sales and preliminary August industrial production for Japan, and September Caixin manufacturing PMI for China. In Europe, we get preliminary September  CPI  for  France,   Spain and Italy, September unemployment for Germany and final Q2 GDP revisions for the UK. In the US we get August personal income and spending data along with the September Chicago PMI and final September University of Michigan survey data. Finally the Fed’s Barkin and Williams, BoE’s Ramsden, ECB’s Lane and Praet will all be speaking at different times during the day.

Finally, here is Goldman’s preview of just US events, where the key economic data releases this week are the durable goods report on Thursday and core PCE on Friday. In addition, the September FOMC statement will be released on Wednesday at 2:00 PM EDT, followed by Chairman Powell’s press conference at 2:30 PM.

Monday, September 24

• 10:30 AM Dallas Fed Manufacturing index, September (consensus +31.0, last +30.9)

Tuesday, September 25

• 09:00 AM FHFA house price index, July (consensus +0.2%, last +0.2%)
• 09:00 AM S&P/Case-Shiller 20-city home price index, July (GS +0.1%, consensus flat, last +0.1%): We expect the S&P/Case-Shiller 20-city home price index increased 0.1% in July, following a 0.1% increase in June. Our forecast of a modest increase reflects a slower pace of home price appreciation in other measures such as the FHFA house price index and residual seasonality in the home price index.
• 10:00 AM Richmond Fed Manufacturing Index, September (consensus +21, last +24)
• 10:00 AM Conference Board consumer confidence, September (GS 132.0, consensus 132.0, last 133.4): We estimate that the Conference Board consumer confidence index decreased 1.4pt to 132.0 in September after increasing 5.5pt to 133.4 in August, a new cycle high.

Wednesday, September 26

• 10:00 AM New home sales, August (GS -0.1%, consensus +0.5%, last -1.7%): We estimate new home sales declined by 0.1% in August, following a 1.7% decline in the prior month. Single family starts increased in August, while mortgage applications sharply declined.
• 02:00 PM FOMC statement, September 25-26 meeting: As discussed in our FOMC preview, we expect the FOMC to raise the target range for the funds rate by 25 basis points in the September meeting. In the post-meeting statement, we think the committee is likely to retain the upbeat tone of recent meetings, with minimal changes to the overall language. In the Summary of Economic Projections (SEP), we look for: (1) slightly higher median estimates for 2018 GDP growth; (2) a slight increase to the median unemployment rate projection for 2018, and unchanged headline and core inflation projections; and (3) a firmer consensus behind the current median policy path of 4 hikes in 2018, 3 hikes in 2019, and 1 hike in 2020.

Thursday, September 27

• 08:30 AM U.S. Census Bureau Report on Advance Economic Indicators; Advance goods trade balance, August (GS -$71.8bn, consensus -$70.6bn, last -$72.2bn); Wholesale inventories, August preliminary (consensus +0.3%, last +0.6%): We estimate that the goods trade deficit declined slightly in August, as goods exports likely rebounded. We note that outbound container traffic also rebounded in the month while inbound traffic declined somewhat.
• 08:30 AM GDP (third), Q2 (GS +4.2%, consensus +4.2%, last +4.2%): Personal consumption, Q2 (GS +3.8%, consensus +3.8%, last +3.8%) We do not expect a revision in the third vintage of the Q2 GDP report (previously reported at +4.2% qoq saar). We also forecast an unchanged reading for personal consumption (+3.8% qoq ar).
• 08:30 AM Durable goods orders, August preliminary (GS +3.3%, consensus +1.9%, last -1.7%); Durable goods orders ex-transportation, August preliminary (GS +1.4%, consensus +0.4%, last +0.1%); Core capital goods orders, August preliminary (GS +0.2%, consensus +0.4%, last +1.6%); Core capital goods shipments, August preliminary (GS +0.4%, consensus +0.5%, last +1.0%): We expect durable goods orders to increase in the August report, given stronger data from commercial aircraft orders and scope for an increase in defense spending. Given strength in manufacturing surveys from earlier in the month, we see scope for further core capital goods orders growth. Manufacturing production growth was below expectations in August, but there was strong growth in the capex-sensitive business equipment category of industrial production. Accordingly, we look for a 0.4% increase in core capital goods shipments.
• 08:30 AM Initial jobless claims, week ended September 22 (GS 205k, consensus 209k, last 201k); Continuing jobless claims, week ended September 15 (consensus 1,675k, last 1,645k): We estimate initial jobless claims rose 4k to 205k in the week ended September 22, after falling to the lowest level since 1969 in the previous week. While we expect a pickup in filings in the aftermath of Hurricane Florence, we note that claims typically increase in the weeks following the initial week, given closures of claims offices and overall weather-related difficulties in filing claims.
• 10:00 AM Pending home sales, August (GS -1.5%, consensus -0.2%, last -0.7%): We estimate that pending home sales declined by 1.5% in August, following a 0.7% decrease in the July report, due to weak regional home sales data so far in August. We have found pending home sales to be a useful leading indicator of existing home sales with a one- to two-month lag.
• 11:00AM Kansas City Fed manufacturing index, September (consensus +16, last +14)

Friday, September 28

• 08:30 AM Personal income, August (GS +0.4%, consensus +0.4%, last +0.3%); Personal spending, August (GS +0.4%, consensus +0.3%, last +0.4%); PCE price index, August (GS +0.12%, consensus +0.2%, last +0.12%); Core PCE price index, August (GS +0.04%, consensus +0.1%, last +0.16%); PCE price index (yoy), August (GS +2.18%, consensus +2.2%, last +2.31%); Core PCE price index (yoy), August (GS +1.92%, consensus +2.0%, last +1.98%): Based on details in the PPI and CPI reports, we forecast that the core PCE price index rose 0.04% month-over-month in August, or 1.92% from a year ago. Additionally, we expect that the headline PCE price index increased 0.12% in August, or 2.18% from a year earlier. We expect a 0.4% increase in August personal income and a 0.4% gain in personal spending.
• 09:45 AM Chicago PMI, September (GS 63.0, consensus 62.0, last 63.6): Regional manufacturing surveys were mixed in September, and we estimate that the Chicago PMI edged down by 0.6pt to 63.0. Further uncertainty about trade policy could potentially weigh on business sentiment in this report.
• 10:00 AM University of Michigan consumer sentiment, September final (GS 100.5, consensus 100.5, last 100.8); We expect the University of Michigan consumer sentiment index to edge down 0.3pt from the preliminary estimate for September. The report’s measure of 5- to 10-year inflation expectations stood at 2.4% in the preliminary report for September.

Souce: SocGen, DB, Goldman, BofA

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More than a year after Sirius XM made a “strategic” $480 million investment in Pandora after the music streaming service rebuffed the satellite radio company’s deal proposal, it appears Pandora has finally caved.

According to Bloomberg, SiriusXM announced early Monday that it had agreed to buy Pandora in an all-stock, tax-free deal valued at about $3.5 billion, with an implied price of Pandora stock of $10.14 per share, roughly a 12% premium over Friday’s closing price. The transaction is expected to close during the first quarter of 2019.

Notably, the deal includes a “go-shop” clause which gives Pandora a month to solicit a better offer.

SiriusXM fell 1% in premarket trading on the news, while Pandora shares climbed 14%.

 

 

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As gold prices cling stubbornly to the lowest levels in a year as US stocks continue their record-breaking tear, two of the world’s biggest gold miners are sensing an opportunity. As the Financial Times reports, Canada’s Barrick Gold (the world’s largest miner) is preparing to merge with Randgold Resources (its UK-listed rival) in an all-share deal that will create the world’s biggest gold miner, with an $18 billion valuation and a dominant mining position in Africa.

Per the Wall Street Journal, Barrick shareholders will own 67% of Randgold, and Randgold investors will own 33% of Barrick. Put another way, Randgold shareholders will own 33.4% of the combined company, with the rest controlled by investors in Toronto-based Barrick. The deal still needs to be approved by shareholders.

More than the mining synergies (Barrick runs massive mines in Nevada and throughout South American while Randgold ha extensive operations in Mali and the Democratic Republic of Congo), WSJ and FT points out that the merger will bring together two outsize personalities in Barrick’s John Thornton, a former Goldman Sachs executive, and Randgold’s Mark Bristow. Bristow and Thornton reportedly recently spent a month together hashing out the terms of the deal, though talks began all the way back in 2015. Should the deal close, Thornton will serve as chairman of the combined company while Bristow will take over as CEO.

According to the two companies, the combined firm would have generated revenue of $9.7 billion last year while adjusted EBITDA would have been $4.7 billion.

While Barrick has clung to its No. 1 spot, the company has struggled in recent years as its profitability has lagged behind Newmont Mining Corp., its closest rival by production volume. Barrick’s portfolio of mines has also shrunk, with the company owning about one-third of the 30 mines it controlled back in 2013. Here’s more from the WSJ:

Barrick’s gold production has also dwindled, falling more than 25% since 2013 to 5.3 million ounces last year. The acquisition of Randgold, whose production is focused on Africa and which produced 1.3 million ounces in 2017, will help make up the loss.

“The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry,” Mr. Thornton said in a statement.

The combined group will own five of the world’s top 10 tier-one gold assets with two potential tier-one gold projects under development or expansion, the companies said. The new group will consider selling noncore assets over time, the companies said.

Toward the bottom of its story, the FT revealed that China-based Shandong Gold was essentially acting as a silent partner in the deal, buying $300 million of shares in Barrick, while Barrick will also buy the equivalent amount of shares in Shandong Mining.

For their part, analysts complained about the absence of a premium for Randgold investors, though they acknowledged that the deal offered important synergies.

“While this does not offer a premium, the production upside of the combined group under the leadership of Mr Bristow (who is likely to be relentless in terms of cost reductions), is likely to create arguably the go-to gold businesses globally,” said Michael Stoner, analyst at Berenberg.

“For the London gold space, this is a disappointment, and takes away one of two large-cap, liquid names in the market (the other being Fresnillo),” he added.

Analysts at Numis said: “In our view, Barrick has a number of world-class assets but has acquired the reputation of being a poor steward of those assets, while Randgold has the reputation for delivering strong shareholder value in difficult operating jurisdictions.”

Still, as performance in the shares of both companies has lagged behind gold itself, investors will be expecting the combined management to make significant strides in boosting value for shareholders. But given the reputation of each company’s chief executive, the potential for a power struggle at the top could prove to be an unfortunate distraction.

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U.S. stock futures followed European and Asian shares lower in thin volume after China called off planned trade talks with the U.S. and the Trump administration imposed another $200 billion in “Phase II” China tariffs just after midnight; oil jumped 2.4% as OPEC+ member defied Trump’s calls for lower oil prices, refusing to boost output.

Asia set the downbeat tone as Hong Kong stocks fell, while thinner than average volumes across Asia due to holidays in China, South Korea and Japan.  “Given that the trade talks are off, investors will be watching what happens after the implementation of the tariffs and particularly whether the U.S. will move to the next phase, which would be tariffs on a further $267 billion of Chinese goods,” said Dushyant Padmanabhan, a currency strategist at Nomura in Singapore. White House trade adviser Peter Navarro said on NPR’s Morning Edition that “the president was crystal clear in his statement: if China retaliates, the process will move forward on the additional amount.”

European stocks followed lower, with miners and carmakers, both sectors heavily exposed to global trade, among the biggest decliners in the Stoxx Europe 600 Index, while futures on the S&P 500 and Dow pointed to a weaker open. Randgold Resources and bucked the trend to rally on merger news following news of a merger with Barrick, creating the world’s largest gold miner; Sky also rose after Comcast beat Fox in the auction for the broadcaster with a $39 billion bid, a deal that has been two years in the making. Comcast will start buying Sky shares in the market in order to reach the 50% threshold before the Oct. 11 deadline. Current shareholders just got an extra 9% for their patience as Comcast will pay 1,728p for the shares. What Fox will do with its 39% stake is still unknown. Elsewhere, Carrefour denied it approached Casino Guichard-Perrachon only hours after the rival grocer said its board rebuffed a proposal for a possible merger.

Surprisingly, with a new round in the trade war now live and with the Fed set to hike rates in just a few days, the dollar initially pushed higher, but failed to sustain an early-London advance. Pound volatility was the highlight in options space for another day as Brexit headlines were in focus, while the euro advanced after stronger than expected German IFO data beat across the board, and ahead of a Mario Draghi speech Monday.

As the dollar declined, the Chinese yuan dipped even more, weakening over 200 pips to as low as 6.87 as traders were unable to trade the Shanghai Composite which was closed on Monday.

Elsewhere in overnight FX trading, the euro reversing earlier losses to edge higher in early London session. The pound strengthened on increasing talk of a second U.K. referendum on the final Brexit deal, recovering above $1.31 as some traders took profit on short positions; as Bloomberg notes, the premium to protect against losses in the pound versus the dollar over the next three months has widened to the most since January 2017 after U.K. Prime Minister Theresa May said Friday that Brexit negotiations had reached an impasse.  The Australian and New Zealand dollars declined, leading losses among the Group-of-10 peers, with the offshore yuan as China canceled trade talks with the U.S. and $200 billion of American tariffs on Chinese goods took effect after midnight Washington time.

As noted last night, JPMorgan said it was starting to factor into its strategy a growing potential for a “Phase III” of the tariff war next year affecting all Chinese imports, which would lead to weaker growth in the country and hit U.S. stocks. While the escalation in cross-Pacific trade tensions are proving a new test for global stocks which have posted two strong weeks of gains, today’s decline was virtually negligible in the context of the recent sharp move higher.

And with trade war progressing, attention now turns to the Fed’s policy meeting that will see rates increased for the third time this year, with markets pricing in another hike in December.

Elsewhere, market jitters continued in Indian shares where the rupee slid as cracks appeared in Asia’s best-performing stock market this year amid concerns about troubles in the shadow banking sector after IL&FS announced several defaults on Friday following by key management resignation.

Emerging-market shares and currencies initially weakened but have since recouped many of their losses as the dollar rally fizzled. The rupee and rupiah led a drop in Asian currencies; Hong Kong stocks fell the most in the region on a day when most North Asian markets were closed for holidays.

Treasuries declined with European sovereign bonds: the 10-year TSY yield gained 2 bps to 3.08%, hitting the highest in more than four months with its fifth straight advance. Germany’s 10-year yield increased two basis points to 0.48%.

Crude oil hit a fresh cycle high, as Brent rose above $80/barrel, a 4 year high, after OPEC shunned U.S. President Donald Trump’s calls to increase supply. Looking at the oil rally, traders are looking increasingly convinced the it has more juice, while the OPEC meeting on Sunday showed its members clearly have no urgency to boost their output.

Switching to gold, the bullion is still holding around its $1,200 level. Credit Suisse strategists have now abandoned their bearish view on the precious metal, while BofAML sees gold topping $1,300 on fiscal deficit. What’s in it for gold miners? Their valuation level is near an all-time low, the rand is weak and GEM stocks have underperformed their U.S. peers.

In the latest Brexit news, UK PM May’s aides have reportedly begun contingency planning for a snap election in November to save the Brexit talks and her job after EU leaders rebuffed the PM’s Chequers plan. Strategists have begun “war-gaming” an autumn vote to win public backing for a new plan, according to the Times. However, there were also reports UK Brexit Secretary Raab dismissed claims of a snap general election in Autumn, while playing down the chances of the government pivoting towards a Canada-style deal and EU officials are also thought to be working on a counter-proposal to Chequers, which is likely to appear in early October, the Guardian reported. Meanwhile, Telegraph said that a majority of the UK cabinet is now supporting moves towards a Canada-style Brexit deal. As such, May will now be asked to reassess her approach and opt for a free trade agreement that represents a ‘clean Brexit’. UK Cabinet Ministers will be required to grant limitless access to European Union migrants for more than two years after a “no-deal” Brexit, according to the Times. Such a move proposed by Home Secretary Javid will likely anger Brexiteers.

In central bank news, ECB’s Dolenc said that ECB’s interest rates will remain low through the summer of 2019, says he can’t comment on when they will change.

On the geopolitical front, there was a shooting at a military parade in Iran that was claimed by anti-government group as well IS militants, while Iranian President Rouhani criticised the US and Gulf states as having enabled the attack. Iran revolutionary guards threatened retaliation for the attack on the Iranian military parade; although it is not clear who they will retaliate against.

Data include Chicago Fed National Activity and Dallas Fed Manufacturing Activity. Amalgamated Bank and Ascena Retail are reporting earnings.

Market Snapshot

• S&P 500 futures down 0.2% to 2,928.25
• STOXX Europe 600 down 0.2% to 383.38
• MXAP down 0.6% to 165.18
• MXAPJ down 1% to 524.49
• Nikkei up 0.8% to 23,869.93
• Topix up 0.9% to 1,804.02
• Hang Seng Index down 1.6% to 27,499.39
• Shanghai Composite up 2.5% to 2,797.49
• Sensex down 1.7% to 36,221.78
• Australia S&P/ASX 200 down 0.1% to 6,186.87
• Kospi up 0.7% to 2,339.17
• German 10Y yield rose 1.1 bps to 0.473%
• Euro up 0.1% to $1.1763
• Brent Futures up 2.2% to $80.56/bbl
• Italian 10Y yield fell 5.1 bps to 2.47%
• Spanish 10Y yield rose 0.2 bps to 1.497%
• Brent futures up 2.6% to $80.86/bbl
• Gold spot down 0.1% to $1,198.99
• U.S. Dollar Index down 0.1% to 94.15

Top Overnight News

• China dashed hopes for a near-term resolution to the trade war with the U.S., warning Trump that his threats of further tariffs are blocking any potential negotiations. The response, which came just over an hour after the U.S. imposed new duties on $200 billion in Chinese goods on Monday, underscores a deepening gulf between both governments
• ECB should consider tightening monetary policy sooner than originally planned, ECB Governing Council member Ewald Nowotny said Sunday on Austrian television
• Theresa May’s fiercest critics spelt out their Brexit demands on Monday, just as the embattled Conservative leader heads into a potential showdown with her top ministers; The Sunday Times reported that May’s aides have discussed the possibility of a November general election, in which she would seek a public endorsement of a harder Brexit stance
• Bank of England policy makers have the chance this week to share their thoughts on interest rates now that Governor Mark Carney has said he’s staying for longer
• Donald Trump’s demand that OPEC take rapid action to reduce oil prices received a tepid response, with the group saying it would boost output only if customers requested it
• All signs point to Prime Minister Stefan Lofven losing the first round in his battle to remain in power as Sweden seats its new parliament
• Brett Kavanaugh’s nomination to the U.S. Supreme Court is at risk of unraveling after new sexual misconduct allegations emerged, just as the Senate Judiciary Committee prepares to hear testimony from a woman claiming he assaulted her in high school
• The European Central Bank should consider tightening its monetary policy sooner than originally planned, ECB Governing Council member Ewald Nowotny said Sunday on Austrian television
• The European Union’s trade chief heads to New York this week to continue negotiations with the U.S. and Japan, as the three parties seek a way to end what they see as China’s unfair commercial policies and dial down global tensions

Asian stocks traded lower with South Korea, Japan, Taiwan and mainland China away due to public holidays, with risk sentiment dampened after China cancelled trade talks with the US. In addition, fresh US-tariffs took effect from today with 10% US tariffs on USD 200bln worth of Chinese goods and China had previously announced a retaliation of 5-10% tariffs on USD 60bln of US goods. ASX 200 (-0.1%) losses were led by weakness in the metals sector, while healthcare and financial names also weighed on the index. Hang Seng (-1.6%) extended on losses from the open as trade concerns remained in focus and amid continued increases in money market rates in Hong Kong with the 3-month HIBOR at its highest in 10 years. China cancelled upcoming trade talks with the US. (WSJ) In related news, there were comments from US President Trump stating the US have a lot more tariffs if China retaliates. (Newswires)

Top Asian News

• China Says Talks Can’t Happen Under U.S. Tariff Threat: Xinhua
• China Beige Book Says Manufacturers Stressed Even Before Tariffs
• Tiny Maldives Boots Out Pro-China President in Election Surprise
• China Firms May Face Strains on 364-Day Dollar Bonds: Law Firm
• India Said to Plan Raising $2.8 Billion by Merging Power Firms

European equities have started the day on the back foot as trade concerns have come back into the fray after US-China sanctions have taken effect and China cancelled US trade talks. The automotive sector is struggling in the wake of this, with weakness in Daimler (-1.3%) and Volkswagen (-1.0%) pressuring both the DAX and consumer discretionary sector into underperformance. This is being further exacerbated by The German Government and carmakers failing to strike a deal on hardware retrofits for older diesel vehicles. The energy sector is the outperformer and benefitting from higher oil prices as market participants digest commentary from the JMMC meeting in Algiers over the weekend. The 2 year takeover saga of Sky (+9.0%) has reached a conclusion as the Co. have accepted Comcast’s bid of GBP 17.28/share made in a blind auction over the weekend. Comcast beat out 21st Century Fox and value the UK broadcaster at over GBP 30bln. Randgold Resources (+4.9%) and Barrick Gold have confirmed they are in late stage discussions regarding a merger valued at USD 18bln.

Top European News

• ECB on Runway to Rate Liftoff Considers What Should Happen Next
• German Business Sentiment Slid Amid New Round in Trade Spat
• The Secret Plot to Tie the Hands of Italy’s Populist Government
• Italian Bonds Extend Drop Amid Budget-Deficit Concerns
• Drax in Talks to Buy U.K Power Generation Plants From Iberdrola

In FX, the Pound has regained some composure after last week’s fall from grace, and its recovery is perhaps even more impressive given weekend UK press reports full of talk about a snap election. Moreover, some market observers are pinning the rebound on latest remarks from Raab striking a defiant message amidst all the growing criticism of and opposition to PM May’s Chequers plan as he maintains that this is the best formula for a deal with the EU, but M&A flows also look supportive given Comcast’s conquest in the battle for Sky. Cable has reclaimed 1.3100+ status, and techs are also noting the fact that a daily cloud base around 1.3055 has held on a couple of occasions, while Eur/Gbp is back below 0.8900 even though the single currency looks more solid around 1.1750 bs the Dollar. In fact, Eur/Usd is trying to probe higher towards 1.1800 in wake of Germany’s Ifo survey that saw a clean sweep of beats vs consensus and only minor moderation in components from the previous month. However, a 1.1780 Fib still needs to be breached from a chart perspective and there is decent option expiry interest from 1.1740-50 (1.4 bn) exerting a gravitational pull.  EM – In contrast to the Cad, Brent’s outperformance vs WTI and further advances towards $81/brl have boosted the Rub to test sub-66.0000 peaks vs the Usd, while the Try has resumed its recovery momentum vs the Usd and bounced off 6.3300+ lows to sit just off 6.2150.

In commodities, the oil sector is benefitting from commentary over the weekend where OPEC stated that they would only boost production should customers require it, with Saudi Energy Minister Al-Falih also saying that the “market is well supplied”, and that demand will increase in October. This commentary disregarded US President Trump’s calls to markedly increase output to reduce oil prices, and also came amid the OPEC world outlook that stated demand is expected to continue growing at a healthy rate in the mediumterm. This has seen Brent up over 2% today and with it finding a firm footing above USD 80/bbl in European trade. In reaction to this markets are gearing up for higher oil prices in the medium-term, with Bank of America Merrill Lynch revising their 2019 oil price forecasts. This has gone from USD 75/bbl to USD 80/bbl for Brent and USD 65/bbl to USD 67/bbl for WTI.  In the metals space, gold is essentially unmoved after declining over a percent on Friday, with the yellow metal trading within a thin USD 5/oz range. London copper has fallen from 10 week highs as trade concerns hit the market, with the construction material trading around USD 6,330/T in Monday’s session.

US Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, est. 0.2, prior 0.1
• 10:30am: Dallas Fed Manf. Activity, est. 31, prior 30.9

DB’s Jim Reid concludes the overnight wrap

The Fed (Wednesday) is the main event although Italy’s draft 2019 budget (Thursday) could grab the global market spotlight away from Washington if the recent run of better political headlines proves illusory. So, Wednesday will likely see the widely anticipated 25bps rise to 2.25% (upper bound) in the Fed Funds rate but the statement and press conference will be the main market mover. A reminder that DB continue to expect 5 more hikes after this one out to the end of 2019. Thursday is the deadline for Italy’s draft 2019 budget. As has been the case of late expect daily newsflow leading up to this. Will the more market-friendly Finance Minister Tria’s recent rhetoric win out or will the populist Deputy Prime Ministers Salvini and Di Maio influence be felt? The former favours a deficit target of around 1.6% of GDP, while the latter have pushed for a target above 2%. Our economists believe that any target below 2.3% will be enough to maintain debt sustainability for now and satisfy the market, but the European Commission may be more demanding. We’ll also be attentive to any one-off measures that may act as a backdoor way of raising the deficit without affecting the headline number.

Meanwhile the main data highlights this week revolve around the inflation prints in the US and Europe. On Friday we’ll get the August PCE report in the US where the consensus expects a +0.1% mom print which would be enough to hold the annual rate at +2.0% yoy. In Europe we’ll get the September CPI report for the euro area on Friday too with the consensus expecting no  change in the +1.0% yoy core reading. Country level data in Europe is also due out in Germany (Thursday), France (Friday), Italy (Friday) and Spain (Friday).

Brexit might also grab the headlines after a turbulent end to last week which we detail below. The U.K. Labour Party (the opposition) have their annual conference this week and there’s every chance that the membership might recommend a second EU referendum which may start to shape the opposition’s actual policy on the issue. Party leader Corbyn suggested over the weekend that he would respect the membership’s vote (Tuesday) but he would prefer a general election. Talking of which, the Sunday Times reported that aides of PM May have been preparing the grounds for a snap election in November to try to break the Brexit deadlock. This was flatly denied but it shows how fluid this situation is at the moment. The FT also reported that Shadow Chancellor John McDonnell was pushing for a policy whereby every large British company would be forced to hand over 10% of the company’s equity to workers within a decade. If Labour were to get elected and if they enacted this it would be a monumental upheaval to capitalism in the U.K. There are so many permutations possible before Xmas on both Brexit and who leads the country into 2019. See the link later for the latest DB Brexit view and fresh Sterling short recommendation.

Kick starting the week, the 10% tariffs on $200bn of Chinese goods by the US took effect overnight with China set to retaliate with tariffs on $60bn of US goods imminently. Over the weekend China called off trade talks which were planned with US officials with Bloomberg reporting a source as saying that talks are unlikely to resume until after the US mid-term elections now. So any hopes of de-escalation any time soon appear low. Markets-wise, a number of holidays in Asia today means it’s been a fairly thin session for volumes although of the bourses that are open the Hang Seng (-1.25%), ASX (-0.07%), Jakarta Comp (-0.96%) and Nifty (-0.52%) are all in the red. Futures in the US are also lower along with most EM currencies.

As for last week, equity markets advanced amid mostly positive data, though PMIs in Europe disappointed slightly. The S&P 500 (-0.04% Friday) and DOW (+0.32% Friday) have hit new all-time highs during last week, though only the DOW closed at its peak. The NASDAQ (-0.51% Friday) shed -0.29% amid another tough week for the tech sector- the IT-heavy index is now down -1.51% this month versus the S&P 500’s +0.97% rally. The Euro Stoxx 600 rallied +1.70% last week, its best performance since March, with Italian stocks leading gains (FTSEMIB +3.12%).

In the US, jobless claims fell to a fresh 48-year low, while regional business surveys from the New York and the Philadelphia Federal Reserve Banks printed firmly in expansionary territory. In Japan, August CPI beat expectations at 1.3% yoy, sparking a 1.5bps selloff in JGB – not much a move in absolute terms, but it makes last week the sharpest selloff since July. Digging into the European data, the highlight was a 2pt miss for Germany’s manufacturing PMI, which fell to 53.7 from 55.9, dragging down the composite PMI as well. The new export orders sub-index dipped to 48.2, its lowest level since June 2013. Services held up though and the overall Euro Area composite PMI printed at 54.2 from 54.5 last month, consistent with still above-potential growth. The employment sub-index stayed flat at 55.3, its highest level in over a decade.

Government debt mostly soldoff last week, with Treasury yields up 6.7bps to 3.063%, their highest level since May. That marks the 4th consecutive advance for US yields, the longest streak since January-February. In Europe, yields had traded higher for most of the week, but partially retraced after Friday’s softer PMIs. German bund yields rose 1.1bps on the week, while BTPs continued to rally. Italian 10y yields are 40.6bps lower this month (-15.3bps last week), on track for their best month since July 2015 and their second-best month since 2013.

Despite the divergence in US and European yields last week, the Euro rallied +1.07% and the DXY index shed -0.74%. Both moves came off their peaks/ troughs after the softer European data caused the euro to partially retrace. Emerging market currencies mostly rallied, with the EM FX index up +1.30% on the week. The Turkish Lira retreated -1.93%, as investors were not impressed with the governments new macro plan, while the Argentine Peso (+6.91%), South African Rand (+4.27%) and Russian Ruble (+2.49%) all advanced.

The sharpest FX mover of the week was the pound, which erased gains of +1.76% to end the week virtually flat after Brexit headlines exploded on Friday. Prime Minister May declared that negotiations with the EU are “at an impasse” and reiterated that “no deal is better than a bad deal.” This follows an acrimonious EU summit on Thursday and comes ahead of the Conservative party conference on 30 Sep-1 Oct. Our economists believe that it will be hard for May to maintain her strength into the conference while simultaneously negotiating a compromise with Brussels. They still think a deal by November is possible, but downgrade the odds that Parliament approves one to 50%. There is likely to be more rhetoric and volatility ahead. Full note here.

Finally, oil markets whipped around last week amid competing reports about Saudi Arabia and OPEC’s production plans. Early in the week, reports like Bloomberg suggested that Saudi Arabia was comfortable with oil at $80/barrel, and Brent crude oil  futures duly tested that level, which has held since 2014 without breaking. On Friday, however, various reports have suggested that OPEC may support a 500k barrel per day expansion in production. After trading as much as +2.60% higher on the week, Brent retraced to close +0.91% higher. Over the weekend OPEC and its allies suggested that output would only be
increased should customers demand it.

It’s a quiet start to the week for data. In Europe, we get the September IFO survey in Germany along with September CBI Trends total orders and selling prices data for the UK. In the US, we’ll get the August Chicago Fed national activity index and  September Dallas Fed manufacturing activity index. Away from that, ECB President Draghi is due to speak in Brussels. Away from that, German Chancellor Angela Merkel will speak in Hanover, France will unveil its 2019 budget and French President Emmanuel Macron will meet US President Donald Trump in New York.

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