Month: November 2018

ABC’s reboot of the Roseanne show is a total flop – coming in dead last in ratings this week, according to Showbiz 411, which adds that just one more episode has been ordered. 

In the nightly ratings battle. the “Roseanne” spin off continues to trend downward.

Last night, “The Conners” was beaten by everything- “NCIS,” “The Voice,” etc. This was their first really objective run, no World Series, nothing to distract potential viewers.

But the key demo sank, which isn’t a good sign. And the total viewers were down by 180K, which is a lot, frankly. People are leaving and they’re not coming back. 

ABC has ordered 1 extra episode to the original order of 10. Sounds to me like a finale. Someone wakes up and says they dreamt Roseanne died. There’s a cackle from the next room. Fade to black. –Showbiz 411

In an addendum, Showbiz 411 notes that Variety reported the salaries of John Goodman, Laurie Metcalf and Sara Gilbert at $375,000 per episode, while the other cast members can’t be cheap either. “The Conners’ has to be added to “Roseanne”‘s syndication package eventually– it will never reach 100 episodes and have its own package. So Werner TV is in trouble, with millions going out and not enough coming back. “The Conners” is doomed,” Showbiz 411 added. 

The Roseanne reboot – which quickly grew to become ABC’s #1 top-rated series in April, was canceled after the network suddenly fired star Roseanne Barr after she compared former Obama adviser Valerie Jarrett to if the “Muslim brotherhood & Planet of the Apes had a baby.” Her comments were condemned as “abhorrent, repugnant and inconsistent with our values.” 

Barr, 65, was fired before a single advertiser pulled out, just three months into the show’s return. Her co-stars immediately turned on her, publicly shunning Roseanne, while ABC initially cancelled the show – before bringing it back as The Conners. 

Roseanne issued an immediate apology:

And yet, MSNBC host Joy Reid was allowed to keep her job despite making anti-gay, anti-Muslim blog posts several years ago over a sustained period – and then lying about it. 

CNN’s Don Lemon, meanwhile, just called white people the “biggest terror threat” to America, with nary a peep from his network. 

We wonder if ABC still feels their kneejerk reaction was worth the tens of millions in lost revenue? According to anonymous ABC executives earlier in October, the network has had serious regrets, according to the Daily Mail. 

“We didn’t think it through properly. What Roseanne did was wrong but we shouldn’t have rushed to fire her. It was almost a knee-jerk reaction by Ben [Sherwood] and Channing [Dungey] who should have launched an investigation,” said one insider, who added “This would have given them more time to listen to the public, advertisers and cast members to determine the best decision.” 

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Gilt yields and cable briefly rose after The Bank of England held its main lending rate unchanged in a unanimous decision with the forward guidance also unchanged (“Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”) as policymakers weighed economic uncertainty sparked by Brexit against higher inflation expectations.

The main highlights in the statement has a slight hawkish bias, indicating that the MPC sees the output gap is closed and the economy will run hot from late 2019 amid growing wage and rising domestic costs;  the BOE also discussed Brexit, saying that the economic outlook will rely significantly on the nature of the EU withdrawal. The MPC judges that the monetary response to Brexit, whatever form it takes, will not be automatic and could be in either direction.

Key highlights from their statement (via RanSquawk):

• Unanimous on the base rate: MPC votes 9-0 to stand pat on rates at 0.75%
• Unanimous on corporate bonds: MPC votes 9-0 to maintain the stock of corporate bonds at GBP 10bln
• Unanimous on APF: MPC votes 9-0 to maintain the stock of UK government bond purchases at GBP 435bln
• Growth: Staff forecast GDP growth to have been around 0.6% in Q3 which is 0.2pp higher than forecast in the August QIR but growth is expected to fall back to 0.3% in Q4
• Inflation: CPI inflation is forecast to remain above target for most of the forecast period before reaching 2% by the end of the third year
• Brexit: The economic outlook will rely significantly on the nature of the EU withdrawal. The MPC judges that the monetary response to Brexit, whatever form it takes, will not be automatic and could be in either direction (same assumption as prior)
• Rates: Future increases in the bank rate are likely to be at a gradual pace and to a limited extent
• Wages: Regular pay growth has been stronger than expected, rising to over 3%.
• Investment: Business investment has been more subdued than previously anticipated as the effect of Brexit uncertainty has intensified
• Labour Market: Remains tight
• Trade: Trade restrictions have increased and there is a risk of a further escalation

Below is a summary of the MPC’s key judgments:

And the key forecasts:

• GDP Growth: 2018 Q4: 1.5% (Prev. 1.5%), 2019 Q4: 1.7% (Prev. 1.8%), 2020 Q4: 1.7% (Prev. 1.7%), 2021 Q4: 1.7%
• CPI Inflation: 2018 Q4: 2.5% (Prev. 2.3%), 2019 Q4: 2.1% (Prev. 2.2%), 2020 Q4: 2.1% (Prev. 2.0%), 2021 Q4: 2.0%
• Unemployment Rate: 2018 Q4: 3.9% (Prev. 3.9%), 2019 Q4: 3.9% (Prev. 3.9%), 2020 Q4 3.9% (Prev. 3.9%), 2021 Q4: 3.9%
• Average Weekly Earnings: 2018: 2.75% (Prev. 2.5%), 2019: 3.25% (Prev. 3.25%), 2020: 3.5% (Prev. 3.5%), 2021: 3.75%

With no surprises, markets have shrugged it all off, with gilt yield briefly popped then fading back:

And cable largely unchanged too, and trading near session highs on last night’s Times’ story which has since been denied twice:

 

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Authored by Bryce Coward via Knowledge Leaders Capital blog,

The selling over recent weeks has been fast and intense, providing investors almost no relief. This type of short-term selling pressure has reached fever pitch levels that is usually indicative of some sort of relief rally, even if the ultimate lows are still ahead of us.

This first chart shows the net number of positive price change days in the market over the trailing month. The current reading of -14, means that the market has been up on only six days over the last 20. There have only been several times over the preceding 15 years in when this indicator fell to -10 or below.

In the table below we show the forward 1 week, 1 month and 3 month returns in each of those instances. Returns over the next week and month were skewed strongly positive while longer-term returns were very mixed.

This mixed longer-term picture fits with other data we have showing a lack of extremes, even though the short-term momentum has been bad. For example, the percent of stocks in an uptrend, as measured by those with their 50 day moving average above their 200 day moving average, remains in a no-mans-land level and is far from levels seen at previous good lows. We need to see a complete washout in stocks before a durable rally can take hold, and that would require this ratio to move below the 30% range.

Furthermore, we haven’t seen enough volatile down days indicative of across the board liquidation that is seen at good lows. The number of days over the last 6 months in which global stocks have finished down by 2% or more only stands at 3. Each good low over the last fifteen years has seen this number breach at least 9.

Next, the net number of stocks making new 200-day highs (number making new highs minus the number making new lows) isn’t extreme enough either. We did breach the 20% threshold earlier in October, but this indicator needs to approach 40% to mark a good, durable low.

All this suggests we are good for a bounce over the coming weeks, and maybe a pretty powerful bounce, but that there is more work to be done on the downside to give us the signal that an intermediate term low in stocks has taken hold.

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Blain’s Morning Porridge, submitted by Bill Blain

“Every night we smash their Mercedes-Benz, first we run, then we laugh till we cry. We’re flat broke, but, hey, we do it in style..”

I am reliably informed Apple is the only thing that matters today. Matters today and will be forgotten next week. I am sure they will be fine cause I just bot a new Mac-Pro… “Sweet-spot pricing” (which seems to mean about 50% more expensive than the same thing made by another tech company) means they are on course for killer numbers. With PE at 20x I can’t help the world’s most profitable company that actually makes stuff we want to buy looks value (compared to much of the questionable stuff at crazy valuations out there..) But…

I also need to catch up on the new ECB stress tests – no surprise to read on BBerg that Deutsche Bank is likely to struggle in terms of potential losses from complex assets. As for the resilience of Italian banks to a severe downturn and a widening of Italian govt spreads… No S*it Sherlock award on its way to the ECB HQ.

I’ve been focused on non-market stuff the last few days – which gave me a change to step back and think. I get a sense and feel there is change in the air.  

• Looking at the Tech sector and some of the noise about Facebook numbers, the ongoing doubts on Tesla, and the queue of IPOs, I can’t but help wonder if we are about to get a reassessment moment. When Apple’s Tim Cook is warning about data collection you have to wonder; a) is Apple about to launch its own Facebook, or b) what does he know we don’t!
• Brexit continues to dominate UK headlines – but Theresa May is still there. The Europeans know a deal is required. And the real world is never is bad as we think – which explains GBP on a run.
• Short-term we’re all focused on next week’s US mid-term elections – will it force Trump to mellow (doubt it), but what are the key issues determining where rates are going and the value of future corporate earnings?

Same as always: growth and consumption. What’s driving growth? The US and Occidental  economies in recovery. What are the dangers that could lead to slowdown or a new recession? Clearly its trade tensions.  Step back and figure what’s really going on. I reckon we might just be approaching a critical moment in the global economy.

At the centre lies Trump vs China. Trump picked this fight deliberately as part of his populist agenda, and he must sense he’s punching Xi towards the ropes. Further escalation of the trade war will cause significant collateral damage in the US, but hit much harder at core China in terms of slowdown, jobs and the prosperity myth. It comes at a dangerous time for China as secondary dangers lurk in the domestic debt bubble, the banking system, demographics and rising internal dissatisfaction with issues such as housing prices, the damaged environment and the growing evidence of widespread corruption. Look at yesterday’s China numbers – weak PMIs.

More importantly the Trade War is damaging Xi’s domestic credibility, forcing him on the defensive – kneejerk reaction forces him to double up on the anti-corruption drive, but from a position of political weakness rather than strength. Xi has been assiduously cultivating his “heir to Mao” strong dear leader persona in recent years, but perhaps it’s just a hollow facade. Perhaps he’s not as strong or as ensconced as he pretends.

I doubt China is heading for economic meltdown or disaster – but it faces challenge. Hey, that’s what happens to grown-up economies. Trade weakness could trigger recession and rising internal dissent, and the country will be forced to reassess its economic future direction and economic relationships. It’s also entirely possible we’ll see some major domestic changes and shifts in response to the Trump trade challenge. Perhaps even change at the top?

Moreover, its not just a China issue. Its potentially global. The trade spat twixt Xi and Trump is deliberate, and it’s going to change the global economy. My good chum, the Mad Mint Economist Martin Malone, reckons global corporates see the writing on the wall and are preparing by switching supply chains – which is set to benefit the rest of South East Asia (and sure, since its fashionable, lets put North Korea on the list of likely beneficiaries)!

The potential effects are wide-ranging and ripe with potential opportunity – the FT this morning carries a tale about EM assets being at all time lows, and interviews with analysts suggesting its time to buy. Changes in supply chains and China demand are bound to impact global commodity flows. A global supply chain revolution has all kind of implications for everything in terms of China demand for occidental goods (witness Land Rover sales decline y’day, and Apple about to publish $100 bln result.)

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After a torrid rally in the last two days of a brutal October helped offset some of the losses in the worst month for global equities in more than six years, world markets started off November in a sea of green with gains in Asian and European markets, and S&P futures pointed to a higher open buoyed by upbeat earnings and hope that today’s Apple earnings will ease more “growth” and tech stock concerns, while sterling rallied on reports that Britain and the European Union are close to a post-Brexit deal on financial services, even though a government official has since denied the report.

After October’s drubbing which saw global markets drop 7.5%, their worst month since May 2012, as shares took a battering on a number of factors ranging from trade wars to concerns about the global economy and higher U.S. interest rates, the MSCI All-Country World Index was up 0.3% on the first day of November. The recent rally has helped the S&P rise above its long-term uptrend.

Futures on the S&P 500 jumped after the European open, having traded mixed for much of the overnight session, and rising 0.6% as of 7am ET.

European markets followed a strong start in Asia, with robust company earnings helping the pan-European STOXX 600 index hit a  two-week high with miners and carmakers leading the way higher. And while strong results from the likes of ING Groep helped push European banking shares higher, not all the news was positive, with Royal Dutch Shell falling after profit fell short of expectations. At the same time, Britain’s FTSE 100 fell 0.1% as the pound strengthened on a report – since denied – that Britain and the EU are close to a deal that would give financial services firms in the UK continued access to European markets once Brexit happens.

Earlier in the session, Asian shares also posted advances with MSCI’s index of Asia-Pacific shares outside Japan rising 0.7%, adding to modest gains the previous day. The index had fallen 10.2% in October, its worst monthly performance since August 2015.

Earlier in Asia, markets enjoyed Wall Street’s improved mood, and rose for a second day on Wednesday as strong company results and bargain hunting of beaten-down technology and internet favorites lifted spirits, despite an air pocket late in the session which cut the Dow’s 400 point gain in half in a manner of minutes. Hong Kong’s Hang Seng rose 1.5 percent on Thursday and the Shanghai Composite Index climbed 0.2%, closing barely green after stronger gains earlier in the session.

China’s yuan rallied from the weakest level in a decade as the country’s leadership signaled that further stimulus measures are being planned.

Japan’s Nikkei bucked the trend and slipped 1% following two days of big gains.

“What we are seeing is the equity markets trying to rebound after bottoming out. Corporate earnings in the U.S. and Japanese markets have been relatively strong on the whole, which means there are plenty of bargain hunting opportunities,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

The big currency mover overnight was the pound, which surged after reports that U.K. and European negotiators have reached a tentative agreement to give U.K. financial services companies access to European markets, however, on Thursday morning this report was denied by a government official, paring some of the gains.

Sterling’s rally nudged the dollar off its recent peak, with the DXY index sliding 0.6% to 96.539. The index had spiked to a 16-month high of 97.20 overnight after the ADP report showed U.S. private sector payrolls increased by the most in eight months in October. The Bloomberg Dollar Spot Index headed for its biggest loss in nearly three weeks as profit taking was the name of the game, given multiple signals the latest move was overdone versus other Group-of-10 currencies.

The Australian dollar and the Kiwi dollar were also sharply higher, rising 1.2% and 1.4% respectively after strong domestic trade data helped offset some of the concerns about slowing growth in China – Australia’s biggest trading partner. “We’ve got a reasonably risk-friendly market, and with the new month we have some dollar selling,” said Kit Juckes, a strategist at Societe Generale.

The Scandinavian currencies – the Norwegian crown and Swedish crown – a proxy for overall risk, also rallied as did the euro, which rose over half a percent to $1.1376 after retreating to $1.1302 on Wednesday, its lowest since mid-August. The single currency has been weighed by less-than-stellar economic news from the euro zone.

In commodities, WTI futures were down 0.86 percent at $64.75 per barrel after its worst month in more than two years, and Brent crude lost 1.13 percent to $74.19 per barrel. The two benchmarks remained on the back foot after falling more than $10 from a four-year peak reached early in October as broader market ructions were seen hurting demand for fuel.

The focus now turns to Apple earnings Thursday, then to the monthly U.S. jobs report Friday. Other expected data highlights include initial jobless claims and manufacturing PMI readings from Markit and ISM. In addition to Apple, DowDuPont and Starbucks are among companies set to report earnings.

Market Snapshot

• S&P 500 futures up 0.2% to 2,717.00
• STOXX Europe 600 up 0.4% to 363.15
• MXAP up 0.2% to 149.84
• MXAPJ up 1% to 476.56
• Nikkei down 1.1% to 21,687.65
• Topix down 0.9% to 1,632.05
• Hang Seng Index up 1.8% to 25,416.00
• Shanghai Composite up 0.1% to 2,606.24
• Sensex up 0.2% to 34,505.43
• Australia S&P/ASX 200 up 0.2% to 5,840.80
• Kospi down 0.3% to 2,024.46
• German 10Y yield rose 1.2 bps to 0.397%
• Euro up 0.5% to $1.1372
• Brent Futures down 0.5% to $74.68/bbl
• Italian 10Y yield fell 4.7 bps to 3.056%
• Spanish 10Y yield fell 0.7 bps to 1.541%
• Brent Futures down 0.5% to $74.68/bbl
• Gold spot up 0.9% to $1,225.61
• U.S. Dollar Index down 0.5% to 96.61

Top Headline News from Bloomberg

Asia equity markets traded mostly higher as the region sustained the momentum from Wall St where stocks continued to pare back some of the losses from its worst monthly performance in 7 years, helped on the day by month-end rebalancing and with sentiment also underpinned by strong jobs data as well as a rally across FAANG stocks post-Facebook earnings beat. ASX 200 (+0.2%) was lifted by early outperformance in the mining sector as BHP shares gained on the announcement of a USD 10.4bln shareholder return program, although upside was capped by indecisiveness across financials amid less than inspiring NAB results and M&A hopes with Macquarie said to be mulling an offer for AMP Capital. Elsewhere, Nikkei 225 (-1.0%) was pressured by the recent currency strength and with much of the focus on earnings, while Shanghai Comp. (+0.6%) and Hang Seng (+1.8%) outperformed following the better than expected Chinese Caixin Manufacturing PMI data and continued supportive efforts by Chinese authorities. Finally, 10yr JGBs were lower with yields higher across the curve after the BoJ tweaked its monthly bond purchases in which it cut the number of occasions it will buy 1-3yr and 3-5yr JGBs to just 4 times from 5 times per month, although firmer demand at the 10yr auction helped stem losses.

Top Asian News

• China’s Yuan Jumps Most in Three Weeks as USD Bulls Take Profit
• Daiwa Finds Partner to Set Up Majority-Owned China Venture
• Hong Kong Reveals Crypto Rules in Push to Tame Wild Market
• Japan Victory Over Mobile Carriers Triggers $34 Billion Rout
• Keyence Boosts Full Year Dividend Forecast, Beats Estimates

Top European News

• BT’s Brighter Profit Outlook Smooths Path for New CEO Jansen
• BOE Rate-Hike Plans Hamstrung by Brexit: Decision Day Guide
• Emirates and FlyDubai Evolve From Odd Couple to Best Buddies
• Novo Slashes 1,300 Jobs as CEO Jorgensen Reshapes Drugmaker
• Abu Dhabi Said in Talks to Form 2 Banks in Three-Way Merger

Looking at the day ahead, we get the preliminary Q3 nonfarm productivity and unit labour cost releases, the latest weekly initial jobless claims print,  final revision to the October manufacturing PMI, September construction spending, ISM manufacturing and then October vehicle sales data. Away from all that the big earnings release today is Apple when we’re due to get numbers at the close, while Royal Dutch Shell, Dow Dupont, Kraft Heinz and Credit Suisse are other notable highlights.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior 70.9%
• 8:30am: Nonfarm Productivity, est. 2.1%, prior 2.9%; Unit Labor Costs, est. 1.0%, prior -1.0%
• 8:30am: Initial Jobless Claims, est. 212,000, prior 215,000; Continuing Claims, est. 1.64m, prior 1.64m
• 9:45am: Markit US Manufacturing PMI, est. 55.8, prior 55.9
• 10am: Construction Spending MoM, est. 0.0%, prior 0.1%
• 10am: ISM Manufacturing, est. 59, prior 59.8
• Wards Total Vehicle Sales, est. 17.1m, prior 17.4m

DB’s Jim Reid concludes the overnight wrap

What is it about Octobers? History is quite clear that Octobers are by no means always bad, but when they are bad they have a tendency to be quite bad or at least more volatile!

Normally we publish our MTD and YTD performance review on the first of every month in the EMR but because the past month has seen such big and interesting moves we felt that the review deserved a standalone piece. In particular in the review today we will show that if the year ended now, we’d be set for a record % of assets in our universe in negative territory in dollar terms for a year. This follows last year, when the exact opposite was true. Of the assets we track, we saw the least number in negative territory in dollar terms in 2017. This perhaps highlights a world where we’ve moved from peak QE and everything being expensive to QT over the last 2 years. For this analysis we’ve used the data we collate for our long term study and go back to 1901. So this will be published slightly later this morning along with all the usual stats.

However as an interesting aside, in today’s pdf in the EMR we show the typical daily progression of the S&P 500 through the average year using daily data back to 1927. The average year sees the S&P gain +7.53% on a price basis using this data. However by September 6th, the average year has already seen the index climb +6.05%. Over the course of the next 7 weeks this falls back to +4.70% by October 27th. To be fair, September is worse from a performance basis but October has seen bigger ranges. After these two months are left behind, we then see the usual Santa Claus rally and average gains of nearly +3% into YE on average.

Highlighting the fact that volatility increases we also show the +/- 1 standard deviation of the move over the course of the year. The graph quite clearly shows how the range of outcomes increases dramatically in October before calming down through November and December. Why this happens we still don’t know after over 20 years of observing this trend, but 2018 has further advanced the legend of Octobers being difficult. So click on the link for these graphs and watch out for the performance review slightly later this morning.

There’s something ironic about the fact that despite the S&P 500 just having its worst monthly performance since September 2011, the two-day rally into month end of +2.67% which included a climb of +1.09% yesterday was the biggest since February and the third biggest since June 2016. The two-day climb for the NASDAQ of +3.63% was the biggest since June 2016 (following a +2.01% rally yesterday) although in fairness the index is only now just back to within 10% of its all-time closing high back in  August while the NYSE FANG index has rallied +5.54% over the last two days (following a climb of +3.59% yesterday) – the biggest two-day gain since February 2016.

So an impressive turnaround which at least has helped to limit some of the damage done in October. Europe also got swept up in the risk-on tone yesterday with the STOXX 600, DAX, CAC and FTSE 100 climbing +1.71%, +1.42%, +2.31% and +1.31% respectively. Italy unperformed but the FTSE MIB did still nudge up +0.27% and BTPs finished -4.6bps lower in yield following an Il Sole report in the morning which suggested that the Italian government may try to make the case to the EU that the ‘effective’ budget may be closer to 2% for 2019 versus the current 2.4% draft when taking into account slowing growth and lower spending on pensions and the planned citizens income.

Overnight in Asia we’ve seen markets extend on yesterday’s gains with the exception of Japan where the Nikkei (-0.88%) and Topix (-0.69%) have struggled with the telecoms sector down around 8% following news of heavy prices cuts on mobile plans. Away from that however the Hang Seng (+1.84%), Shanghai Comp (+1.13%) and Kospi (+0.47%) are all higher along with S&P 500 futures (+0.30%). A more or less in-line Caixin manufacturing PMI in China (50.1 vs. 50.0 expected) was confirmed this morning however notably we did see PMIs fall below 50 in Taiwan, Malaysia and Thailand overnight for the month of October – all export driven economies and signs therefore of the impact of the trade war on the wider region.

Back to yesterday where EM FX (-0.33%) actually weakened despite the move for equities with the likes of the South African Rand (-1.29%), Mexican Peso (-1.40%) and Brazilian Real (-0.68%) all under pressure. The Turkish Lira (-1.92%) underperformed, as the government announced a new suite of substantial tax cuts. Treasuries nudged up another +2.1bps after the US Treasury Department refunding announcement largely met expectations, while there was a similar move for Bunds (+1.6bps) while WTI Oil fell another -1.31% and edged lower for the third consecutive session. Gold and Silver also fell -0.67% and -1.55% respectively as risk-off dissipated.

There wasn’t really a lot of new news to drive markets yesterday although the tech sector was certainly at the heart of it aided by Facebook’s (+3.81%) earnings post the close on Tuesday. Netflix climbed +5.59%, Alphabet +3.91% and Amazon +4.42%. As you’ll see in the day ahead we’ve got Apple’s earnings later this evening so expect another decent test for the sector. Yesterday we got stronger than expected earnings from 25 out of the 34 companies that reported in the S&P 500 with 25 also beating on revenues.

The narrative around this earnings season has focused on the downward revisions to guidance, but our US equity strategy team argues in a note last night that this earnings season is largely a return to historical averages, and that underlying earnings growth remains strong. Beats are around their historical norms, and headline margins continue to climb to record highs. Buybacks continue their blistering pace as companies continue to return capital to investors, though companies are also paying down debt.

In the US, our economists have updated their various market-based models, and conclude that the risks of a recession over the next 12 months is right around its historical average of 15%. We would have sympathy with this but with QT in full force things could look different in 12 months’ time. Their full note is available here.

Meanwhile, yesterday’s headlines out of the Politburo in China suggesting that more stimulus may be on the way is perhaps helping sentiment overnight, however our economists thought the message from the official press release was subtle. They note that the government did recognise the economic slowdown and promised to take “timely actions”, as widely reported by journalists. But the government also mentioned that (1) the focus of the economy has moved from speed to quality; and more importantly (2) some policies have been released, and their effect will be transmitted to the economy with a lag. Our economists think that these subtle messages suggest likely disagreements in the government.

They highlight that while some may be worried about the downside risk to the economy, others may argue the slowdown is natural and push against aggressive policy easing. You can find more in our colleagues’ report here.

Today we will see the BoE meeting at lunchtime. Neither we nor the market are expecting any policy changes with rising external risks and lack of clarity on a transition deal however our UK economists do expect Governor Carney to talk up market pricing of a rate hike next year on the back of stronger wage and output growth in Q3 which should make him sound marginally hawkish. As far as the inflation report is concerned only marginal tweaks are likely compared to the September forecasts.

Speaking of Brexit, Sterling has had a fairly strong last 36 hours. Yesterday the currency strengthened +0.47% following a Bloomberg report in the late afternoon suggesting that Brexit Minister Raab expects a Brexit deal by November 21. However, upon closer examination, this turned out to be a bit of a misleading headline and the pound quickly retraced the some of the move. The letter being cited was a week old and merely said the Raab would be willing to testify to the Brexit Committee on November 21 which could be a suitable date after a deal was struck. But the details were vaguer than the headline. Overnight however Sterling is up another +0.60% and back above $1.280 following a report in the Times suggesting that the UK and Europe have tentatively agreed to all aspects of a future deal on services which would include the EU guaranteeing UK companies access to markets in Europe as long as financial regulation in the UK remained broadly aligned with Europe. Expect some reaction to that today.

Elsewhere in Europe, the race to replace German Chancellor Merkel as party leader is on, with Friedrich Merz giving a long news conference in Berlin to introduce his candidacy. Merz has been out of parliament since 2009, but he is one of the three frontrunners to succeed Merkel. He did not offer any surprising policy positions in his remarks, focusing his remarks on the need for party unity and for including younger voters and women in the process.

On the data front, preliminary October Euro Area CPI printed in line with expectations at +2.2% headline and +1.1% core, from +2.1% and +0.9%, respectively. French and Italian October CPI both printed 0.1pp lower that forecast, at +2.5% and +1.7% respectively. In Germany, September retail sales rose +0.1% mom, less than the +0.5% expected, and, when combined with downward revisions to prior months and a substantial base effect, equal to a -2.6% yoy decline. So further evidence of third quarter softness in Germany.

Before turning to today’s calendar, it’s worth a look ahead to next week’s major event: the US midterm election. Our US team has updated their analysis of the polls, betting odds, and markets ahead of the vote. It looks probable that the Democrats will take control of the House, while the Republicans are likely to retain control of the Senate. The policy implications are a bit ambiguous,  as trade policy – the most important area for markets – is somewhat disconnected from the legislature.

As far as the day ahead is concerned then, this morning in Europe we’ll get October house prices data in the UK followed closely by the UK’s manufacturing PMI. Focus should stay here into lunch with the aforementioned BoE meeting before this afternoon in the US we get the preliminary Q3 nonfarm productivity and unit labour cost releases, the latest weekly initial jobless claims print,  final revision to the October manufacturing PMI, September construction spending, ISM manufacturing and then October vehicle sales data. Away from all that the big earnings release today is Apple when we’re due to get numbers at the close, while Royal Dutch Shell, Dow Dupont, Kraft Heinz and Credit Suisse are other notable highlights.

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After tumbling to its weakest level against the dollar since August earlier this as S&P warned that recession fears surrounding a hard Brexit could elicit a ratings cut from the influential credit ratings agency, the British pound had been headed for its largest two-day gain since January on reports that UK Prime Minister Theresa May had reached a banking deal to help UK banks maintain their access to EU markets. However, the rally came to an abrupt halt Thursday morning when two anonymous UK officials rubbished the report, saying that no such deal had been reached, and that negotiations between the two sides remain stalled amid the standoff over the Irish border backstop.

Adding to the pain, an assistant to EU chief negotiator said that a final Brexit agreement was still weeks away. “Nothing has changed,” they said.

Circling back to the rumored banking deal, according to the Financial Times, the reports of the “tentative agreement on all aspects of a future partnership on services” regarding banking stirred hopes that a “backstop” deal – which has seemingly been “90%” complete for months now as May struggles with what some analysts are calling “the Brexit Trilemma”, a knot of competing and conflicting interests among different parties in the UK –  would include an agreement to protect the City of London’s banking and trading operations from the immediate threat of disruption after March 29, also known as “Brexit day.”

Analysts insist that the only barrier holding the pound back from a breach of the $1.32 level, around where it traded over the summer before investors started to reckon with the fact that negotiations over the final Brexit treaty might prove impossible.

“If the UK and the EU can reach an agreement…[the pound] will rally towards $1.32 before long,” said Qi Gao, foreign exchange strategist at Scotiabank.

Reports of the official denial helped to validate commentary from one FX analyst who cautioned that investors should take the news with a grain of salt.

“This is not the ‘Hail Mary’or ‘Eureka’ moment just yet,” said Jordan Rochester, FX strategist at Nomura.

“It’s good news at the margin, but not a solid sign that a deal is close…just a hint of confidence from Mr Raab that it will be.”

A deal would allow UK-based banks to maintain mostly unfettered access to Continental financial markets without needing to obtain a separate license, though it’s expected that UK banks would continue to be bound to EU banking rules after the Brexit deal is done. With the timeline for a deal pushed back to late November, we wonder if the Bank of England will once again lend its voice to the chorus of critics urging negotiators to ‘get on with it’ and strike a deal before the long-feared economic and market chaos arrives.

GBP/USD trimmed its advance to trade at $1.2867, up just 0.8% on the day, after earlier rising as much as 1.2% to 1.2920.

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In the wake of the deadliest attack on Jews in American history, President Trump late Wednesday doubled down on his support for the theory that financier and liberal donor George Soros may be financing the caravan – a theory that was originally propagated by Florida Rep. Matt Gaetz – during a brief huddle with reporters.

Asked if he believed that Soros or other Democratic donors have been financing the caravan, Trump said that, while he didn’t know, he “wouldn’t be surprised.”

“I wouldn’t be surprised. I don’t know who, but I wouldn’t be surprised. A lot of people say yes,” he told a Daily Mail journalist who asked him what he thought of the idea that Soros was funding the caravans.

The comments are almost guaranteed to provoke another round of outrage as some in the media have blamed Trump for inspiring suspect Robert Bowers’ attack on the Tree of Life synagogue in Squirrel Hill Pittsburgh with rhetoric blaming Soros – whom liberals see as a stand-in for antisemitism – for the caravan.

Before embarking on his rampage, Bowers posted on the social media network Gab that Jewish aid organization HIAS, which helps resettle refugees, needed to be stopped. Helping to validate the claims of those who say Republicans have taken their criticisms too far, Soros was the first of more than a dozen prominent Democrats to find a pipe bomb in his mailbox during last week’s spate of attempted mail bombings, which have been blamed on a Florida man who fervently supported the president and was said to have deliberately targeted his critics.

TRUMP on whether GEORGE SOROS is funding the migrant caravan:

“I don’t know who, but I wouldn’t be surprised. A lot of people say yes.”pic.twitter.com/nnoAioG8SR

— JM Rieger (@RiegerReport) October 31, 2018

According to RT, more than 6,000 migrants are heading for the US border in four distinct caravans. The closest and largest group, numbering about 4,000, has made it as far as Juchitan, Mexico. Two more groups with about 2,000 migrants have just left El Salvador.

While it’s unclear who exactly is funding the massive coordinated operation to provide support and logistical help to the migrants during their journey, one thing should be obvious: They are getting help from somewhere. Over the past few weeks, aid workers have been spotted handing out cash to migrants, while local groups have supplied them with food and shelter. Most recently, migrants have been spotted boarding chartered buses that ferried them to their next stop toward the US.

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Authored by Tom Luongo,

German Chancellor Angela Merkel has stepped down as the leader of the Christian Democratic Union, the party she has led for nearly two decades.  Yesterday’s election in Hesse, normally a CDU/SPD stronghold was abysmal for them.

She had to do something to quell the revolt brewing against her.

Merkel knew going in what the polls were showing.  Unlike American and British polls, it seems the German ones are mostly accurate with pre-election polls coming close to matching the final results.

So, knowing what was coming for her and in the spirit of trying to maintain power for as long as possible Merkel has been moving away from her staunch positions on unlimited immigration and being in lock-step with the U.S. on Russia.

She’s having to walk a tightrope on these two issues as the turmoil in U.S. political circles is pulling her in, effectively, opposite directions.

The globalist Davos Crowd she works for wants the destruction of European culture and individual national sovereignty ground into a paste and power consolidated under the rubric of the European Union.

They also want Russia brought to heel.

On the other hand, President Trump is pushing Merkel on policy on Russia and Ukraine that furthers the image that she is simply a stooge of U.S. geopolitical ambitions.  Don’t ever forget that Germany is, for all intents and purposes, an occupied country.  So, what the U.S. military establishment wants, Merkel must provide.

So, if she rejects that role and the chaos U.S. policy engenders, particularly Syria, she’s undermining the flow of migrants into Europe.

This is why it was so significant that she and French President Emmanuel Macron joined  this weekend’s summit with Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan in Istanbul.

It ended with an agreement on Syria’s future that lies in direct conflict with the U.S.’s goals of the past seven years.

It was an admission that Assad has prevailed in Syria and the plan to atomize it into yet another failed state has itself failed.  Merkel has traded ‘Assad must go’ for ‘no more refugees.’

To President Trump’s credit he then piggy-backed on that statement announcing that the U.S. would be pulling out of Syria very soon now.   And that tells me that he is still coordinating in some way with Putin and other world leaders on the direction of his foreign policy in spite of his opposition.

But the key point from the Istanbul statement was that Syria’s rebuilding be prioritized to reverse the flow of migrants so Syrians can go home. While Gilbert Doctorow is unconvinced by France’s position here, I think Merkel has to be focused on assisting Putin in achieving his goal of returning Syria to Syrians.

Because, this is both a political necessity for Merkel as well as her trying to burnish her crumbling political throne to maintain power.

The question is will Germans believe and/or forgive her enough for her to stay in power through her now stated ‘retirement’ from politics in 2021?

I don’t think so and it’s obvious Davos Crowd boy-toy Macron is working overtime to salvage what he can for them as Merkel continues to face up to the political realities across Europe, which is that populism is a natural reaction to these insane policies.

Merkel’s job of consolidating power under the EU is unfinished.  They don’t have financial integration.  The Grand Army of the EU is still not a popular idea.  The euro-zone is a disaster waiting to happen and its internal inconsistencies are adding fuel to an already pretty hot political fire.

On this front, EU integration, she and Macron are on the same page.  Because ‘domestically’ from an EU perspective, Brexit still has to be dealt with and the showdown with the Italians is only just beginning.

But Merkel, further weakened by another disastrous state election, isn’t strong enough to fend off her emboldened Italian and British opposition (and I’m not talking about The Gypsum Lady, Theresa May here).

And Macron should stop looking in the mirror long enough to see he’s standing on a quicksand made of blasting powder.

This points to the next major election for Europe, that of the European Parliament in May where all of Merkel’s opposition are focused on wresting control of that body and removing Jean-Claude Juncker or his hand-picked replacement (Merkel herself?) from power.

The obvious transition for Merkel is from German Chancellor to European Commission President.  She steps down as Chancellor in May after the EPP wins a majority then to take Juncker’s job.

I’m sure that’s been the plan all along.  This way she can continue the work she started without having to face the political backlash at home.

But, again, how close is Germany to snap elections if there is another migrant attack and Chemnitz-like demonstrations.  You can only go to the ‘Nazi’ well so many times, even in Germany.

There comes a point where people will have simply had enough and their anger isn’t born of being intolerant but angry at having been betrayed by political leadership which doesn’t speak for them and imported crime, chaos and violence to their homes.

And the puppet German media will not be able to contain the story.  The EU’s speech rules will not contain people who want to speak.  The clamp down on hate speech, pioneered by Merkel herself is a reaction to the growing tide against her.

And guess what?  She can’t stop it.

The problem is that Commies like Merkel and Soros don’t believe in anything.  They are vampires and nihilists as I said over the weekend suffused with a toxic view of humanity.

Oh sure, they give lip service to being inclusive and nice about it while they have control over the levers of power, the State apparatus.  But, the minute they lose control of those levers, the sun goes down, the fangs come out and the bloodletting begins.

These people are vampires, sucking the life out of a society for their own ends.  They are evil in a way that proves John Barth’s observation that “man can do no wrong.”  For they never see themselves as the villain.

No.  They see themselves as the savior of a fallen people.  Nihilists to their very core they only believe in power. And, since power is their religion, all activities are justified in pursuit of their goals.

Their messianic view of themselves is indistinguishable to the Salafist head-chopping animals people like Hillary empowered to sow chaos and death across the Middle East and North Africa over the past decade.

Add to this Merkel herself who took Hillary’s empowerment of these animals and gave them a home across Europe.  At least now Merkel has the good sense to see that this has cost her nearly everything.

Even if she has little to no shame.

Hillary seems to think she can run for president again and win with the same schtick she failed with twice before.  Frankly, I welcome it like I welcome the sun in the morning, safe in the knowledge that all is right with the world and she will go down in humiliating defeat yet again.

Merkel is a lame-duck now.  Merkelism is over.  Absentee governing from the center standing for nothing but the international concerns has been thoroughly rebuked by the European electorate from Spain to the shores of the Black Sea.

Germany will stand for something other than globalism by the time this is all over.  There will be a renaissance of culture and tradition there that is similar to the one occurring at a staggering pace in Russia.

And Angela Merkel’s legacy will be chaos.

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