As we jokingly mocked the sterling-trading algos yesterday ahead of today’s “big” Phase 1 Brexit announcement, the market had gotten too far ahead of itself in its exuberance that today’s announcement was the final Brexit catalyst, when in reality it only sets the stage for the far more complex, trade-focused Phase II. As a result, and as we expected, GBP/USD had dropped 0.2% following a “sell the news” reversal which sent cable to multi-month highs. It then dropped even more, sliding 0.4% to 1.3420 after EU officials said it’s not realistic to expect a trade deal with the U.K. by March 2019.

Echoing our sentiment, Valentin Marinov, head of G-10 FX research at Credit Agricole CIB said the drop in the pound after an EU official said it was not realistic to expect a U.K. trade deal by March 2019 “highlights that people may have gone a bit ahead of themselves buying the pound.” The official’s comments “should not come as a huge surprise given the complexity of the upcoming discussions and the need for a transitional period after March 2019”

As Bloomberg then adds, sentiment was fragile even before the headline came out as profit-taking dictated price action soon after the deal announcement. As a result, strong support is not expected until 1.3320-23, which is Thursday’s low and the 21-DMA. Meanwhile, a Europe-based trader said range-seeking accounts faded the dip near 1.3420.

In short: for one of the clearest demonstrations of “buy the rumor, sell the news” look no further than the GBPUSD chart below:

via http://ift.tt/2BiD5eD Tyler Durden

Gold demand increases along with uncertainty thanks to Trump, Brexit and North Korea

– Recent events have increased concerns over ability of leaders to repair rather than excerbate problems
– Holdings in gold-backed ETFs rose by 9.1 tonnes to 2,357 tonnes thanks to European demand
– Trump inflames Middle East tensions. Israel announcement seen as sign of U.S. “failure and impotence”
– Key Brexit Minister admits divorce from EU could have consequences as bad as the financial crisis
– Chinese media bordering North Korea offer advice on how to deal with nuclear attack

Last Saturday was the 75th anniversary of the Chicago Pile experiment. The experiment that proved for the first time that an atomic bomb could exist. The experiment was a key step in the Manhattan Project that went onto develop the infamous bomb in World War II.

The timing of the anniversary could not be more apt. The results of the experiment not only resulted in devastation at the end of the Second World War but also changed science and turned the nature of war on its head.

Today the world feels very much on the brink of something huge about to be detonated. It might be a nuclear weapon from North Korea, it could be the grenade that Trump has just thrown into the Middle East peace protest or it might be a subtle economic disaster courtesy of Brexit. It might be all three.

The truth is we just don’t know. It is this uncertainty that is making so many investors and savers nervous. There is almost a euphoria to the panic – see the bitcoin price by way of example or stock market performances. But there is also an underlying air of calm and understanding. Gold investment is climbing whilst Google searches for ‘buy gold’ peaked last month.

Trump is ‘declaring war against 1.5 billion Muslims’

No matter your thoughts on Trump’s decision to recognise Jerusalem as Israel’s capital, it cannot be denied that it is a contentious one. The city is arguably the most important aspect of the entire Palestine question.

Trump’s decision has reversed decades of US policy and brought with it a raft of criticism from US allies as well as the Arab and Muslim world.

President Mahmoud Abbas said the decision was tantamount to the United States “abdicating its role as a peace mediator”.

A spokesman for Hamas said the decision would “open the gates of hell on US interests in the region”.

Saudi Arabian media say King Salman told Mr Trump by telephone on Tuesday that the relocation of the embassy or recognition of Jerusalem as Israel’s capital “would constitute a flagrant provocation of Muslims, all over the world”.

His views were echoed by President Abdul Fattah al-Sisi of Egypt, who warned against “complicating the situation in the region by introducing measures that would undermine chances for peace in the Middle East”.

And this is seen as a declaration of war:

the Palestinian delegate to the United Kingdom said on Wednesday that President Trump’s move to recognize Jerusalem as the capital of Israel signals “a declaration of war” in the region. “He is declaring war in the Middle East, he is declaring war against 1.5 billion Muslims, hundreds of millions of Christians that are not going to accept the holy shrines to be totally under the hegemony of Israel,” Manuel Hassassian told BBC 4 Radio’s “Today.”

Trump argued that this is a ” long overdue step to advance the peace process and work towards a lasting agreement”. Allies and others swiftly disagreed with some suggestions that this is not about peace but entirely politically strategic.

The 1997 film Wag The Dog has become shorthand for Presidents using diversionary tactics. For example, in 1998 Clinton launched air-strikes on Afghanistan and Sudan just days after a Grand Jury hearing into his conduct with Miss Monica Lewinsky.

Today we may be seeing a similar approach from President Trump. After all, Trump’s Israel announcement comes immediately after his former National-Security Adviser Michael Flynn pleaded guilty and agreed to cooperate with the FBI.

We could also be seeing an attempt by Trump to stir up Muslim violence as a political tool. This would not be surprising given a large chunk of his campaign was about using so-called Muslim barbarism as a political strategy. This latest announcement is a provocation.

We have seen in the past how long and expensive campaigns in the Middle East can go on for. The disruption they cause and the vast expense they bring. The United States is unlikely to suddenly turn its back on its primary allies in the region – Israel and Saudi Arabia – a conflict in itself. Therefore one should expect more violence and increased involvement by Trump in the war zone that is just getting started.

Elsewhere in the world…nuclear bombs

Trump has form when it comes to provoking hotbeds of tension. His most recent head-to-head was of course with North Korea.

This year has been one of great progress for the country, with 23 reported missile tests. Each one making new ground and some even breaking into forbidden airspace.

China has been vital when it comes to preventing the despot that is Kim-Jong Un from going literally nuclear on the US. However it seems that perhaps they are even getting quite nervous.

According to Business Insider a Chinese newspaper based next to North Korea has published a full-page guide on how to deal with a nuclear attack.

Whilst it was later explained that this was not about North Korea but instead just an educational guidance on nuclear weapons, one has to wonder what provoked such a reaction.

Is the next financial crisis around the corner?

Much of the world is likely bored by Trump’s ongoing sabre-rattling. Here in the UK we have other pressing issues to deal with. Many of which are becoming the new definition of uncertainty – how do you handle a problem like Brexit?

We are barely over the 2008 financial crisis. It rather feels like we keep sweeping the results of it under the carpet and now we’re stepping over rather large, often non-negotiable mounds. But there is now something else which could cause as far-reaching consequences.

David Davis, Brexit Minister, told MPs this week that his department had failed to carry out a qualitative assessment of the Brexit impact because it was simply impossible.

He explained that as with the financial crisis, the economic rule book will in all likelihood go out the window should Brexit happen:

“It will have an effect, the assessment of that effect is not as straightforward as people imagine.

“I’m not a fan of economic models because they have all proven wrong. When you have a paradigm change – as happened in 2008 with the financial crisis – all the models were wrong”

This explanation comes as Prime Minister Theresa May has just about managed to get a handle on Brexit negotiations. The situation has been so uncertain that businesses are being forced to take protective measures against the worst possible outcomes.

Reuters explains:

Senior executives in the financial services sector, which accounts for about 12 percent of the economy, told Reuters May’s efforts to secure a transition deal had come too late and they had no choice but to start restructuring.

The uncertainty is particularly painful for the manufacturing sector as low margins make it risky for them to restructure unless it is essential. They have been holding off on investment but are preparing for new certification that would allow them to sell in Europe if there is no deal.

“The delay is so great and the uncertainty is so great that companies have no choice but to start triggering their plans,” the head of one of Britain’s largest companies said.

Uncertainty should lead to certainty about gold investment

Every week there are stories of politicians screwing up one way or another. Granted, this week feels particularly bad. But in truth there were always going to be problems with Brexit, North Korea was always going to be testing nuclear weapons and the Middle East was a bubbling cauldron waiting to have the heat turned up.

The outcome (for now) remains the same: we don’t know how this will end. Whilst the future might seem uncertain but the ways in which we can protect ourselves are anything but. Gold and silver act as both financial insurance and portfolio diversifiers.

Last month holdings in gold ETFs increased and more people showed an interest in gold investment. This suggests that savers are no longer concerned about the low, opportunity cost of holding gold. Instead they are realising that the uncertainty we see across the globe is not because of one event such as a bad negotiation or announcement, instead it is the general air of uncertainty and concern as to how this will pan out.

Those looking to insure their portfolio against global events should ignore the day-to-day reports and instead prepare for these guaranteed uncertain times by diversifying and owning gold and silver. For many years, gold and silver have protected investors and savers from uncertainty, both economic and geopolitical.

Related reading

Twitter, elections and the Middle East drive uncertainty

Pension Funds, Sovereign Wealth Funds, Central Banks “Stock Up” on Gold “Amid Uncertainty”

Buy Gold As Fed Shows Uncertainty And Concern Over Financial ‘Imbalances’

News and Commentary

Gold rises on bargain hunting after slumping to over 4-month low (Reuters.com)

Dollar Heads for Weekly Gain, Asia Stocks Advance (Bloomberg.com)

Platinum’s discount to palladium hits 16-year-high (Reuters.com)

Consumer credit accelerated in October by largest amount in 11 months (MarketWatch.com)

U.S. Stocks Climb as Pound Jumps, Crude Rebounds (Bloomberg.com)

Source: ZeroHedge

Reuters mentions ‘central bank manipulation’ (Reuters.com)

Mike Kosares: The gift of gold is peace of mind (USAGold.com)

Why the stock wobble isn’t helping gold (Bloomberg.com)

De-Dollarization Continues: China, Iran To Eliminate Greenback From Bilateral Trade (ZeroHedge.com)

Bill Murphy: Rocketing bitcoin highlights gold and silver suppression (Gata.org)

Gold Prices (LBMA AM)

08 Dec: USD 1,245.85, GBP 924.42 & EUR 1,061.09 per ounce
07 Dec: USD 1,256.80, GBP 937.57 & EUR 1,066.77 per ounce
06 Dec: USD 1,268.55, GBP 948.37 & EUR 1,072.31 per ounce
05 Dec: USD 1,275.90, GBP 950.29 & EUR 1,075.71 per ounce
04 Dec: USD 1,279.10, GBP 952.67 & EUR 1,079.43 per ounce
01 Dec: USD 1,277.25, GBP 946.57 & EUR 1,072.51 per ounce
30 Nov: USD 1,282.15, GBP 952.64 & EUR 1,084.06 per ounce

Silver Prices (LBMA)

08 Dec: USD 15.83, GBP 11.76 & EUR 13.48 per ounce
07 Dec: USD 15.91, GBP 11.94 & EUR 13.49 per ounce
06 Dec: USD 16.12, GBP 12.06 & EUR 13.64 per ounce
05 Dec: USD 16.29, GBP 12.14 & EUR 13.72 per ounce
04 Dec: USD 16.33, GBP 12.09 & EUR 13.77 per ounce
01 Dec: USD 16.42, GBP 12.16 & EUR 13.80 per ounce
30 Nov: USD 16.57, GBP 12.32 & EUR 14.00 per ounce

Recent Market Updates

– UK Pensions Risk – Time to Rebalance and Allocate to Cash and Gold
– Bailins Coming In EU – 114 Italian Banks Have NP Loans Exceeding Tangible Assets
– Silver’s Positive Fundamentals Due To Strong Demand In Key Growth Industries
– An Interview with GoldCore Founder, Mark O’Byrne
– Risk Of Online Accounts Seen As One of Largest Brokerages In World Halts Online Trading After “Glitch”
– Low Cost Gold In The Age Of QE, AI, Trump and War
– Own Gold Bullion To “Support National Security” – Russian Central Bank
– Bitcoin $10,000 – Huge Volatility of Cryptocurrencies and Risky Fiat Making Gold Attractive
– Financial Advice from Dr Wayne Dyer
– Buy Gold As Fed Shows Uncertainty And Concern Over Financial ‘Imbalances’
– Brexit Budget – Grim Outlook As UK Economy Downgraded
– Geopolitical Risk Highest “In Four Decades” – Gold Demand in Germany and Globally to Remain Robust
– Gold Versus Bitcoin: The Pro-Gold Argument Takes Shape

Important Guides

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

Essential Guide To Storing Gold In Switzerland

Essential Guide To Storing Gold In Singapore

Essential Guide to Tax Free Gold Sovereigns (UK)

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

via http://ift.tt/2AHtGvJ GoldCore

U.S. equity index futures have bounced on the last day of the week, along with European and Asian shares, oil and the dollar following overnight news that the UK and EU have reached a successful conclusion on Phase 1 of Brexit negotiations, that Congress has punted on the government shutdown for another 2 weeks until December 22, and ahead of the November nonfarm payrolls data. 

Setting the bullish mood this morning was Christmas coming early for Theresa May, who managed to forge an agreement – if only for the time being – with the EU in the early hours of Friday morning to pave way for phase 2, with talks set to move to trade with support being voiced by Senior Brexiteers, Gove and Johnson. In reaction to this, GBP initially hit a 6-month high, however once the agreement had been confirmed, the pound saw a "buy the rumour sell the news" price action, while gilts were met with selling pressreure with the price making a firm move below 124.00.

Also after the close on Thursday, the House voted 235-193 and Senate voted 81-14 to pass the stopgap spending measure which will avoid a government shutdown and fund government through to Dec. 22nd, kicking the can on and averting a government shutdown for another two weeks.

European stocks advance in a broad rally amid optimism over a newly-struck deal between Britain and the European Union to unlock divorce negotiations and proceed to discussing a future trade deal. The Stoxx Europe 600 Index rises 0.7%, with the index heading for a weekly gain of 1.3%. Banks advance the most, up for a second day, as the sector emerged relatively unscathed from global regulators’ final batch of Basel III post-crisis capital rules, with few lenders needing to raise major new funds. Miners are also among the best indusreptry group performers, following copper prices higher. The FTSE 100 is trailing other European indexes, trading little changed, as the pound climb.

Asia equity markets took the impetus from a positive tone in US where all indices finished higher and tech continued its rebound, while Congress also voted to pass the stop-gap spending bill to fund the government till December 22nd and avert a shutdown. ASX 200 (+0.3%) and Nikkei 225 (+1.4%) were higher in which the latter outperformed as exporters benefitted from a weaker currency and after a stellar upward revision to Q3 GDP figures. Hang Seng (+1.2%) and Shanghai Comp. (+0.6%) were also in the green amid better than expected Chinese trade data, although gains were capped in the mainland after the PBoC refrained from open market operations for a total net weekly drain of CNY 510bln. China's trade data in a nutshell:

• Chinese Trade Balance (USD)(Nov) 40.2B vs. Exp. 35.0B (Prev. 38.2B)
• Chinese Exports (USD)(Nov) Y/Y 12.3% vs. Exp. 5.3% (Prev. 6.9%)
• Chinese Imports (USD)(Nov) Y/Y 17,7% vs. Exp. 13.0% (Prev. 17.2%)

Finally, 10yr JGBs eked mild gains despite the broad positive risk tone, as prices eyed the 151.00 level and amid the BoJ’s presence in the market for JPY 840bln of government bonds.

The positive moves for many markets will be a welcome reversal for investors, who earlier in the week booked profits amid a stock rotation and waning risk sentiment. With the U.S. debt deadline nudged back, tax reform becoming more likely, and a breakdown of Brexit negotiations averted for now, solid economic data of the kind seen today could give fresh legs to the rally in risk assets.

The Bloomberg Dollar Spot Index rose a fifth day, its best run in nine months, before the U.S. jobs report (full preview here). The gauge was on track for its best week this year, supported by year-end funding demand. The pound orbited $1.35 as Brexit breakthrough met profit-taking amid thin liquidity. The broader dollar index headed for its best week in 2017 as year-end funding and a report that the U.S. president will release a long-promised infrastructure plan next month supported the greenback.  The euro slipped a sixth day as the yen led losses among G-10 currencies. Gilts slumped, dragging bunds and Treasuries lower, while stocks advanced.

 

In rates, the yield on 10-year Treasuries rose two basis points to 2.38 percent, the highest in more than a week. Germany’s 10-year yield gained two basis points to 0.31 percent. Britain’s 10-year yield climbed six basis points to 1.318 percent, the highest in more than a week. Japan’s 10-year yield dipped less than one basis point to 0.053 percent.

Meanwhile, oil rose above $57 a barrel in the second day of gains. Gold edged up slightly in Asian trade amid bargain hunting after the yellow metal dropped below its recent trading range to hit the lowest in more than four months overnight. However, prices did fail to make a break above 1250. Copper futures in Shanghai rose after data showed a jump in Chinese imports. WTI and Brent crude futures up modestly, however prices have pulled back from the highs, having met resistance at USD 57 and USD 62.50 respectively.

Today's data include non-farm payrolls, unemployment, wholesale inventories and U. of Mich. Consumer Sentiment Index. Johnson Outdoors is reporting earnings

Top Headline News from BBG

• The U.K. and the EU struck a deal to unlock divorce negotiations, opening the way for talks on what businesses are keenest to nail down — the nature of the post-Brexit future
• Congress passed a two-week extension of federal funding that averts a government shutdown this week with Dec. 22. as deadline the new round of negotiations.
• U.K. factory output rose 0.1% m/m in October, marking six consecutive increases for the first time since modern records began in 1997. Overall industrial production was unchanged as warmer weather reduced energy demand
• China’s exports unexpectedly jumped as global demand remained firm, while import growth continued to outpace sales abroad
• China will prevent major risks and effectively control leverage ratio next year, according to a politburo meeting on 2018 economic work, Xinhua reports
• Steinhoff Share Price Plunge Nears 90% as Debt Cut to Junk
• Inside Big Banks, Bitcoin Futures Are Riling Trading Executives
• Bitcoin Wildness Highlights Worries as Futures Trading Nears

Market Snapshot

• S&P 500 futures up 0.3% to 2,649.00
• STOXX Europe 600 up 0.8% to 389.67
• MSCI Asia up 0.6% to 169.02
• MSCI Asia ex Japan up 0.8% to 549.09
• Nikkei up 1.4% to 22,811.08
• Topix up 1% to 1,803.73
• Hang Seng Index up 1.2% to 28,639.85
• Shanghai Composite up 0.6% to 3,289.99
• Sensex up 1% to 33,263.86
• Australia S&P/ASX 200 up 0.3% to 5,994.37 
• Kospi up 0.08% to 2,464.00
• German 10Y yield rose 1.9 bps to 0.312%
• Euro down 0.3% to $1.1736
• Italian 10Y yield fell 4.8 bps to 1.414%
• Spanish 10Y yield rose 1.0 bps to 1.42%
• Brent futures up 0.6% to $62.60/bbl
• Gold spot down 0.15% to $1,245.46
• U.S. Dollar Index up 0.2% to 94.01

Asia equity markets took the impetus from a positive tone in US where all indices finished higher and tech continued its rebound, while Congress also voted to pass the stop-gap spending bill to fund the government  till December 22nd and avert a shutdown. ASX 200 (+0.3%) and Nikkei 225 (+1.4%) were higher in which the latter outperformed as exporters benefitted from a weaker currency and after a stellar upward revision to Q3 GDP figures. Hang Seng (+1.2%) and Shanghai Comp. (+0.6%) were also in the green amid better than expected Chinese trade data, although gains were capped in the mainland after the PBoC refrained from open market operations for a total net weekly drain of CNY 510bln. Finally, 10yr JGBs eked mild gains despite the broad positive risk tone, as prices eyed the 151.00 level and amid the BoJ’s presence in the market for JPY 840bln of government bonds.

Top Asian News

• PBOC Is Said to Meet With Big Banks on Bond Market Amid Rout
• The $64 Million Question: Is Goldman Embracing Tiny Asian IPOs?
• HNA Mystery Charity Begins ‘Difficult’ Job of Valuing Assets
• ICICI Is Said to Pick Banks for IPO of $3 Billion Brokerage Arm
• Mysterious Late Drops Stoke Taiwan Dollar Intervention Talk
• HNA Says It Won’t Default in Coming Years After Yield Surge
• India Invokes Rarely-Used Measure to Gain Control of Realty Firm

Aside from Brexit, banks across Europe are rallying this morning as reforms to Basel 3 have appeared to be kinder to European banks than had been expected. Alongside this, the rise in EGB yields have further bolstered the strength in banking names. Elsewhere, consumer staples are the only sector in the red with gains otherwise relatively broad-based. Gilts have edged up a handful of ticks in wake of the UK data raft and BoE survey, but not really on anything revealed in the releases. Instead, the 10 year benchmark is consolidating off the lows and deriving some support as the cash yield crosses 1.30%. In fact, Bunds have actually seen more downside in recent trade and since the more bearish Liffe open, with the core German bond extending losses to 48 ticks at one stage before regaining some composure as well. Elsewhere, US Treasuries are sitting tight and also appear to be in pre-NFP idling or biding time mode after yesterday’s declines on the White House funding reprieve. Curve flattening also took a breather, and the next big driver on that front is likely to come from the FOMC rather than BLS report given that a hike is virtually factored in. SEP details will be key and the central views on Fed Funds ahead.

Top European News

• U.K. Manufacturing on Best Run in Two Decades Amid Car Demand
• RBS CEO Sees ‘Diminishing’ Chance of DoJ Settlement This Year
• Boring Is Beautiful as Proved by East Europe’s Currency Winners
• BaFin Examines Trading of Steinhoff Shares in ‘Routine’ Review
• Gilts Slide, Pound Strengthens on Breakthrough in Brexit Talks
• Defiant Merkel Critics Press Her to Consider Minority Rule

In FX, GBP Firmer overall, albeit off best levels seen in the run up to confirmation of an agreement between the UK and EU on the divorce fee, ECJ and Irish border issue that was the outstanding element and bone of contention preventing a deal being done and blocking the passage to phase 2 of Brexit negotiations (ie transition and trade terms). UK production figures (largely in-line) did little to sway prices. USD-index has moved closer to 94.000, and discounting the Pound would almost certainly be above the big figure, with support emanating from the aforementioned Government financing extension, and the next decisive move dependent on the big monthly US jobs report. EUR/USD trading at levels not seen for a while having pivoted 1.1800 in recent sessions and big option expiries at the strike for today now look set to run off untouched. 1.1780-35 marks the boundaries so far, with bids around 1.1750 filled and stops tripped to the lows.

In commodities, old edged up slightly in Asian trade amid bargain hunting after the yellow metal dropped below its recent trading rangeg to hit the lowest in more than four months overnight. However, prices did fail to make a break above 1250. Copper futures in Shanghai rose after data showed a jump in Chinese imports. WTI and Brent crude futures up modestly, however prices have pulled back from the highs, having met resistance at USD 57 and USD 62.50 respectively.

Looking at the day ahead, the November employment report in the US is likely to be the biggest focus. Also due out in the US are October wholesale inventories and the preliminary December University of Michigan consumer sentiment reading. Away from the US, October trade data in Germany and the UK, as well as October industrial production in France and the UK are due.

US Event Calendar

• 8:30am: Change in Nonfarm Payrolls, est. 195,000, prior 261,000
  • Unemployment Rate, est. 4.1%, prior 4.1%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.0%
  • Average Hourly Earnings YoY, est. 2.7%, prior 2.4%
  • Underemployment Rate, prior 7.9%
• 10am: Wholesale Inventories MoM, est. -0.4%, prior -0.4%; Wholesale Trade Sales MoM, est. 0.25%, prior 1.3%
• 10am: U. of Mich. Sentiment, est. 99, prior 98.5; Current Conditions, est. 114.3, prior 113.5; Expectations, est. 90.5, prior 88.9

DB's Jim Reid concludes the overnight wrap

Morning from Geneva. If you suddenly don’t see the EMR for a few days then you’ll know that I’ve been putting my money where my mouth is with regards to the start of the end of fiat money (see our note here from a couple of months ago) and have now made enough money on Bitcoin that I don’t need to work again. At one point yesterday it was up 40% in 40 hours at over $19,000 on one exchange before falling back. It’s a bit of a side show for global markets but fascinating nevertheless. As we discussed in the fiat money note we do believe that there is something tangible in the demand for cryptocurrencies and over the years ahead there may well be more and more desire for alternative mediums of exchange. If and when inflation does take off central banks are unlikely to be able to control it given the need to instead control the excessive debt burden most countries face. So we could end up with a situation where the current crypto surge is one of the biggest bubbles in history but still see a cryptocurrency emerge as a long term success story. Interesting times. For full disclosure I should add that sadly I passed on Bitcoin somewhere in the low 1000s so you’re stuck with me for a while longer. Shame as that would have paid for my new kitchen a few times over and thrown in a full time chef for good measure.

On the menu today is a payroll print that isn’t quite the draw it sometimes is, as the markets’ focal point now is all around inflation. Pretty much everyone assumes job growth is going to be broadly decent so the big story is really about prices and wages. As such, the average hourly earnings number today will attract a decent amount of attention and could be the swing factor. For the record, our US team expects non-farm payrolls to rise 175k (vs. consensus 195k) with an unemployment rate of 4.2% (vs. 4.1%), while we’re in line with the market on average hourly earnings growth of 0.3% mom.

Elsewhere today, this morning may be a key turning point for Brexit talks. Last night, the EU President Tusk informed the media that he will make a press statement on Brexit at 7:50am (6:50am GMT) but did not elaborate more. This is just as this mail will hit inboxes. Overnight, Bloomberg noted UK officials were increasingly confident of a deal on the Irish border, while EU officials expected PM May to be in Brussels this morning by 7am if a deal was sealed overnight. Then at 1:18am London time, PM May’s Chief of Staff tweeted “home for 3 hours of sleep, then back to work” and as we go to print it’s been confirmed that Mrs May will be in Brussels by 7am. So lots to look forward to. Circling back to yesterday, GBPUSD jumped 0.60% after Reuters cited an unnamed Irish official noting that Ireland and Britain are “very close” to a Brexit deal. GBPEUR has traded close to 1.15 this morning having been as low as 1.131 yesterday morning.

Over in the US, a partial government shutdown this Saturday has now been averted. Both the House (235-193) and the Senate (81-14) have voted in favour of extending the government funding for two weeks until 22 December. Senate Majority leader McConnell noted “we want to resolve all of these issues (spending limits) in the next couple of weeks”. Elsewhere, the Senate has also formally named eight Republican lawmakers to be part of the Conference committee to reconcile the House and Senate’s versions of the tax bill. Staying in the US, as I’m sure you’re wading through 2018 outlooks at the moment, it’s worth highlighting that one of the more accurate forecasters for the US equity market in 2017 suggested that he’s holding out for up to 6% US GDP growth. The exact quote was “I see no reason why we don’t go to 4, 5, even 6 percent,”. The forecaster in question was Mr Trump who said this to reporters at a cabinet meeting on Wednesday. I missed this story yesterday but it’s a fun one to look back on. Last time we saw growth with a 6-handle was 1984!

This morning in Asia, the final reading of Japan’s 3Q GDP was above market at 0.6% qoq (vs. 0.4% expected) and 2.5% yoy (vs. 1.5% expected). Markets have follomowed the positive lead from the US and are trading higher, with the Nikkei (+1.34%), Hang Seng (+0.96%), China’s CSI 300 (+0.70%) and Kospi (+0.01%) all up as we type. Elsewhere, China’s November exports and imports were both above expectations, leading to a higher trade surplus of $40.2bn (vs. $35bn expected).

Now recapping markets performance from yesterday. US equities were all higher with gains supported by tech stocks and improved sentiment with regards to the tax bill. The S&P was up (+0.29%) for the first time in four days, while the Dow (+0.29%) and Nasdaq (+0.54%) also advanced. Within the S&P, gains were led by the industrials and tech sectors, with only consumer staples and telco stocks modestly in the red. European markets were a bit mixed, with the Stoxx 600 virtually flat (+0.02%) while the FTSE fell -0.37%, impacted by higher terling. Elsewhere, the DAX (+0.36%) and CAC (+0.18%) both rose and the VIX dropped 7.8% to 10.16.

Government bond were also mixed, with 10yr UST 10y and Gilts rising c2.5bp, partly impacted by news that President Trump is planning to release his infrastructure plans in early January and the aforementioned Brexit developments. Other core bond yields were broadly flat (Bunds and OATs -0.2bp). Peripherals outperformed with yields down 3-6bp, partly supported by the prospect of lower supply until year end.

Turning to currencies, the US dollar index firmed (0.2%) for the fifth consecutive day, while the Euro and AUD fell 0.19% and 0.70% respectively, with the latter down to a six month low following weaker trade balance and 3Q GDP stats over the past two days. In commodities, WTI oil was up 1.30% while Gold fell 1.28% to the lowest in four months. Elsewhere, other base metals continue to soften (Copper -0.02%; Zinc -0.22%; Aluminium -0.21%).

Away from the market and onto banks and capital levels. The Basel committee has announced a package of Basel 3 reforms (aka Basel 4) and confirmed a floor limit of 72.5% which seeks to limit the reduction in capital requirements available to banks using their own capital models relative to those using the standardised approach. Overall, the EBA noted “the reforms have a limited aggregate impact on regulatory capital ratios”, with the agreement to reduce the weighted average core tier 1 ratio of EU banks by c0.6ppt relative to the status quo. For a detailed analysis of the impact on individual banks, refer to our colleagues’ note.

Over in Germany, at the SPD party conference, a majority of members voted for a resolution to allow its leader Mr Schulz to engage in coalition talks with Ms Merkel’s CSU/CDU bloc, but it’s unclear whether the talks relate to forming a potential grand coalition or a minority led government. Schulz noted “we don’t have to govern at any price, but we also can’t reject governing at any price”. Elsewhere, he posed the question of “why don’t we work to make a United States of Europe a reality by 2025 at the latest?” Bloomberg noted that Ms Merkel declined to endorse his proposal later on.

Finally, DB’s FX team has published a report showing how tax reform would help fix the extremely large distortions on the US balance of payments (BOP). They calculate that the proposed changes could halve the US trade deficit, an improvement of $250bn. The change would merely be an accounting shift in BOP reporting, which could happen quickly, without any disruptions to global trade. Further, these changes to the US BOP would meet the goals of the Trump administration in reducing the trade deficit and reversing US investment abroad. It is a "low-hanging fruit" because it would result from changing the anomalous ways in which US corporates currently account for their global earnings. Finally they make the point that this statistical improvement would be politically valuable ahead of the next presidential election and could reduce the pressure on the administration to resort to outright protectionist measures to improve the trade balance. Refer to their note for more details.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the Fed reported that household net wealth grew to US$1.74trn in 3Q, which lifted the ratio of wealth to disposable income to a new high of 6.73x. Further, firms are now sitting on liquid assets of US $2.4trn, which is also at a fresh high. Elsewhere, the October consumer credit was above expectations at US$20.5bn (vs. $17bn expected), while the weekly initial jobless claims (236k vs. 240k expected) and continuing claims (1,908k vs. 1,919k expected) were broadly in line.

In Europe, the final reading of the Eurozone’s 3Q GDP was unrevised at 0.6% qoq, but prior revisions saw annual growth revised up 0.1ppt to 2.6% yoy. In Germany, the October IP was below market at -1.4% mom (vs. 0.9% expected) and 2.7% yoy (vs. 4.3% expected). Note that according to the Economy Ministry, output was impacted by workers taking extra vacation days during the month. In the UK, the November Halifax house price index was above expectations at 0.5% mom (vs. 0.2% expected), but earlier revisions meant annual growth was in line at 3.9% yoy. Finally, Italy’s 3Q unemployment rate was in line at 11.2%.

Looking at the day ahead, the November employment report in the US is likely to be the biggest focus. Also due out in the US are October wholesale inventories and the preliminary December University of Michigan consumer sentiment reading. Away from the US, October trade data in Germany and the UK, as well as October industrial production in France and the UK are due.

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Early on Friday morning, the EU and UK negotiated a deal allowing Brexit negotiations to move on to the "Phase 2", which will establish their future trading relationship.

The European Commission said it recommends to the European Council to conclude that sufficient progress has been made in the first phase of the Article 50 negotiations with the U.K. The European Council will announce its decision on 15 December 2017. If approved, talks can proceed to second phase. Diplomats from both sides worked into the night to resolve the Irish border issue – although questions remain whether it’s really fully resolved. UK Prime Minister, Theresa May, and Brexit secretary, David Davis, travelled to the Berlaymont building, the headquarters of the European Commission in Brussels, early on Friday morning to conclude the agreement with EU President, Jean Claude Juncker, and the EU’s chief negotiator, Michel Barnier.

Juncker and May subsequently hosted a press conference announcing the breakthrough. In a sign that a deal had been reached Martyn Selmayr, Juncker’s head of cabinet, had earlier tweeted a photograph of white smoke emerging from the chimney of the Sistine Chapel, the signal that the Vatican has successfully chosen a new Pope.

News of the deal led to an immediate spike in Sterling which however faded almost as quickly. Bloomberg reports.

(The) Pound erased earlier gains as investors took profits after U.K. and EU struck a deal to move forward on Brexit negotiations, shifting focus to more difficult trade talks, Mizuho Bank says. “The more important issue is the trade talks which are more difficult, so it’s understandable the pound has been sold on the fact of a breakthrough which has been talked about for the last few days,” says Daisuke Karakama, chief market economist in Tokyo. “There’s political uncertainty over the U.K.’s decision on whether to retain access to the single market or not, and this fluid political situation doesn’t warrant pound buying. I think the pound has seen a peak”.

The major delay in reaching agreement had been the question of the future border arrangements between Northern Ireland and the Republic of Ireland. Northern Ireland’s Democratic Unionist Party, which has been propping up May’s government in Parliament, had demanded a “soft” (basically open) border with its southern neighbour. However, no details were provided during the press conference and the DUP noted this morning that more work is needed (see below).

According to the Financial Times.

Britain reached a historic deal on its EU exit terms on Friday, enshrining special rights for 4m citizens and paying €40bn-€60bn in a hard-fought Brexit divorce settlement that clears the way for trade talks next year. Theresa May and Jean-Claude Juncker, the European Commission president, met early on Friday to sign off a 15-page “progress report” that will allow EU negotiators to recommend opening a second phase of talks on post-Brexit relations. Shortly after the breakfast started, Mr Juncker’s chief of staff Martin Selmayr tweeted pictures of white smoke rising from a chimney stack, indicating the deal was done. The final breakthrough on Northern Ireland’s border came after a week of high drama in Brussels and Westminster, with agreed compromises scuttled on Monday by the Democratic Unionist party, Mrs May’s parliamentary allies.

 

The prime minister’s decision to seal the agreement on Friday marked the finale of a three-week diplomatic effort to finalise the most contentious divorce terms. EU leaders will formally decide at a summit next week whether it represents “sufficient progress” to start the second phase of negotiations. Mrs May is to meet Donald Tusk, the European Council president, later in the morning. In a move intended to show an immediate EU response to Britain’s offer, Mr Tusk intends to release draft negotiating guidelines this morning that set EU priorities for the next phase, including in trade and a post-Brexit transition negotiations.

During the press conference, Juncker commented that “Both sides had to listen to each other, adjust their position and show a willingness to compromise…This was a difficult negotiation for the European Union as well as for the United Kingdom.” In an uncharacteristic gesture of goodwill, Juncker stated “We can now start looking towards the future – a future in which the UK will be a close ally.”

May remarked that securing the deal had “required give and take on both sides”, but she now looked forward to a “positive and ambitious future relationship” and the settlement was “fair to the British taxpayer”. Nonetheless, most British taxpayers will not view a 40-60 billion euro payment to the EU as fair, since the settlement is closer to the opening demands of the EU. May also stated that she will be writing a letter to the people of Norther Ireland and was pleased  that the rights of 3 million EU citizens in the UK and 1 million UK citizens in the EU had been secured.

While today’s agreement is a step forward in the Brexit process, hurdles remain. Last night, DUP leader, Arlene Foster, told Sky News that she had secured “six substantive changes” to the text on the Irish border. However, it’s become apparent that Foster has only given a cautious approval to the deal, noting that there is still work to be done on regulatory alignment and that the initial agreement could “pre-judge” the outcome of political discussions within the UK. In a statement she noted.

We cautioned the Prime Minister about proceeding with this agreement in its present form given the issues which still need to be resolved and the views expressed to us by many of her own party colleagues. However, it was ultimately a matter for the Prime Minister to decide how she chose to proceed.

If the Irish border question can be fully resolved, the negotiations on the future trade relationship could be difficult and prolonged. Responding to the news, Nigel Farage, the high-profile former leader of the UK independence party, stated “The deal is not acceptable”. According to Marc Ostwald, global strategist at ADM ISI in London.

The question now is whether the hard Brexiteers decide to unseat Mrs May.

Readers can peruse the full 7000-page report outlining the Ireland agreement, rights of EU citizens in the UK and the controversial Brexit divorce bill in its entirety at the following link.

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Authored by Dmitri Speck via Acting-Man.com,

The Gift that Keeps on Giving

Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

 

Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]

 

I want to show you the Santa Claus rally in the German DAX Index as an example. Price moves are often exaggerated in the German stock market, which leads to quite pronounced – and hence profitable – seasonal trends.

Recurring trends can be discerned at a glance on a seasonal chart

The chart below is not a standard chart that depicts a price trend over a specific time period. Rather, this seasonal chart shows the typical seasonal pattern of the German DAX Index. It illustrates the average returns generated by the index in the course of a year over the past 20 years. The horizontal axis shows the time of the year, the vertical axis shows the price information indexed to 100.

 

DAX, seasonal pattern over the past 20 years. The Santa Claus rally lies immediately ahead

 

The Santa Claus rally starts in mid-December!

The positive seasonal period near the end of the year is highlighted in dark blue on the chart. The Santa Claus rally in the DAX Index begins on December 13 and typically lasts until January 02 of the next year.

 

A Disproportionate Gain in Stock Prices

The average return achieved in the time period from December 13 to January 02 amounted to 3.66 percent. This gain was generated in just 19 calendar days.

Thus the Santa Claus rally on average generated an annualized gain of 99.62 percent!

For comparison: in the rest of the time the annualized gain of the DAX amounted to just 1.86 percent.

In short, the seasonal trend around the Christmas holidays is quite extraordinary.

 

Prices Rose in 90% of all Cases

This raises the question whether this is a robust result or if it is a statistical artifact attributable to a few outliers. Let us take a closer look at the individual years underlying the pattern.

The following bar chart shows how prices behaved in the time period from December 13 to January 02 in every year since 1997. Green bars indicate years generating gains, red bars indicate years in which losses occurred.

 

DAX, percentage return achieved between 13. Dec. and 02 Jan. in individual years since 1997. Most of the time the DAX rises at the end of the year.

 

As the breakdown illustrates, the green bars clearly dominate both in frequency and extent. The Santa Claus rally took place in 18 of the past 20 years, with the largest gain amounting to 16.13 percent (achieved in 1998). By contrast, there were just 2 years in which the Santa Claus rally failed to happen. The largest loss was recorded in 2000 and amounted to 4.99 percent.

In other words, individual outliers are not responsible for generating the market’s strength close to the end of the year. In fact, the pattern is quite stable from a statistical perspective. What causes the market’s strength at the end of the year though?

 

There are Compelling Reasons for the Year-End Rally in the Stock Market

One often cited reason for the stock market rally at the end of the year is window dressing by investment funds – i.e., investment funds support prices at year-end in order to prettify their results – which has the purely coincidental side-effect of boosting bonus payments, which are often calculated at the turn of the year.

 

The real reason for the Santa Claus rally… it’s just a little extra for the “folks back home”. [PT]

 

Less obvious, often psychological reasons, are probably more a important factor though. These include the fact that people often take stock at the end of the year and position themselves for the new year. In addition, there is the statistically significant holiday effect, which demonstrably tends to lead to rallies on occasion of other holidays as well. During Christmas time the strong desire to buy things (such as presents) appears to be spilling over into the stock market as well.

Christmas is after all a time of giving. So perhaps it should be no surprise that the stock market is often rewarding investors generously at this time of the year.

Left: How Santa got into the business; right: Santa and the boys arrive on Wall Street

The Santa Claus rally in other markets

If you want to find out how pronounced the Santa Claus rally in your favorite market instruments is, visit my free-of-charge website http://ift.tt/1nVjVOD or call up the Seasonax app on your Bloomberg terminal or in Thomson-Reuters Eikon. As an aside: there are never any guarantees in the markets, but you can certainly let the probabilities work in your favor!

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A British man is about to undertake what he calls a "big, expensive project" but he has over 100 million reasons to do so…

James Howells is a British IT worker and was an early Bitcoin ethusiast…

He may also be the most frustrated man in the world currently, but hopefully that's all about to change.

As The Independent reports, Howells began his fascination with the cryptocurrency in February 2009, and through his computational expertise, he mined 7,500 Bitcoins in the preceding years.

However, there was a woman in Howells' life and, as Gizmodo reports, his girlfriend got fed up with the noise of his block-mining hardware and made him stop. At the time, it was not a big loss he notes, bitcoin was worth next to nothing.

 

"After I had stopped mining, the laptop I had used was broken into parts and sold on eBay. However, I kept the hard drive in a drawer at home knowing it contained my Bitcoin private keys, so that if Bitcoin did become valuable one day I would still have the coins I had mined," he told the Telegraph.

 

Then "in mid-2013 during a clear-out, the hard drive was mistakenly thrown out and put into a general waste bin at my local landfill site, after which it was buried on site."

And so buried deep below thousands of tons of garbage on a Welsh landfill site, lies a hard drive with bitcoins potentially worth more than $100 million.

Four years later and he still – understandably – hasn’t let it go.

He says he’s now considering digging up the landfill in order to find the lost hard drive.

“A modern landfill is a complex engineering project and digging one up brings up all sorts of environmental issues such as dangerous gasses and potential landfill fires,” he said.

 

“It’s a big, expensive and risky project.”

We wish you luck James!

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Finally, An Honest Inflation Index – Guess What It Shows

Posted with permission and written by John Rubino, Dollar Collapse 

 

 

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Authored by Bruce Bawer via The Gatestone Institute,

The other day, I reported about the Church of Sweden's strenuous efforts to appease Islam. Now comes the news that from December 15 to March 15, churches in the diocese of Gothenburg will be used at night as shelters for the homeless.

Lovely idea. But there is a catch. The only homeless people who will be allowed in are foreigners — either immigrants from elsewhere in the EU, who are by definition legal, or illegal immigrants from outside the EU. In other words, native Swedes need not apply, even though the initiative is being paid for by taxpayer money.

A man begs on the street in Lund, Sweden, July 23, 2013. (Image source: Sigfrid Lundberg/Flickr)

The argument for this policy — which represents an expansion and formalization of a practice that began two winters ago — is that it is designed to help people who are not covered by the Swedish welfare system. But this argument does not hold up. One reason there are so many immigrants in Sweden, both legal and illegal, is that the country's welfare system is a bonanza for foreigners. Far from not being covered by the system, immigrants often enjoy preferential treatment. Last fall, for example, it was reported that several Swedish municipalities were passing over hardworking citizens who had waited several years to rent government-owned housing, and were giving the homes instead — for free — to unemployed, newly-arrived immigrants. Some Swedes actually stirred from their torpor and angrily criticized this policy, but the protest was to no avail: the Swedish Parliament had passed a law compelling local governments to put foreigners at the top of their waiting lists.

That the Swedish Parliament could pass such a law is, of course, a scathing indictment of its welfare system's priorities. So is the fact that there are, as it happens, a great many ethnic Swedes living and begging on the streets of its cities, and — in the winter — huddling in the doorways of stores and offices, wrapped in layers of blankets at night, in hope of keeping alive in the subfreezing cold. The same disgraceful situation can be observed in the major cities of Norway and Denmark.

These Swedes should not be on the streets. The Scandinavian welfare states were founded on a compact between the citizens and their government: the people would pay outrageously high taxes, and in return their government would guarantee them a magnificent safety net should they get sick or get fired. But ever since these countries chose to open their doors to mass Muslim immigration, that compact has been broken.

Yes, the citizens are still being forced to pay for the welfare system — but that system no longer has their backs. The people in authority, from the highest-ranking national leaders down to the lowest local bureaucrats, would seem to have forgotten for whom they work. In a way, it makes sense: After all, a state-employed paper-pusher who gives citizens something for which they have already paid can hardly feel particularly virtuous, whereas handing out free stuff to aliens who have done absolutely nothing to deserve it can make that same government paper-pusher feel like a world-class Good Samaritan.

What is even more shattering than this state of affairs is that millions of those Scandinavian citizens accept it. Marinated from birth in multiculturalism, millions of them dare not demand what they have coming to them — what they have paid for, what they deserve — lest they be viewed by others, and even by themselves, as bigots.

Fortunately, not all Scandinavians fit this description. When the alternative news website Samnytt reported that the churches in Gothenburg would be turning away homeless people who belong to that church in order to accommodate members of a religion that views Christianity as an abomination, dozens of readers reacted with outrage. "The road to hell is paved with good intentions," wrote one. "The hatred toward ethnic Swedes knows no bounds," wrote another. A third suggested that the churches of Gothenburg will soon, in any case, be converted into mosques — minarets and all.

At present, alas, that seems like the safe bet.

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In the latest sign that Trump’s decision to recognize Jerusalem as Israel’s true capital has put American lives at risk, Russia Today is reporting that Shia paramilitary group Harakat Hezbollah al Nujaba has declared that the US’s violation of the holy land status quo is a “legitimate reason” to attack American troops in Iraq.

“Trump's stupid decision… will be the big spark for removing this entity [Israel] from the body of the Islamic nation, and a legitimate reason to target American forces,” said Akram al-Kaabi, the Iraqi organization’s leader, as cited by Reuters.

Of course, militia leaders aren’t the only ones speaking out against Trump’s decision. Heads of state and other senior officials in the governments of Turkey, Saudi Arabia, Jordan and – of course – the Palestinian territories have denounced the declaration. Meanwhile, the embassy’s impending move to Jerusalem will probably only further infuriate much of the Muslim world. One Palestinian official said Trump’s declaration has effectively precluded the possibility of a two-state solution.

The Israelis claim all of Jerusalem as their capital, while the Palestinians hope to make east Jerusalem the capital of a future Palestinian state.

According to the latest update from the US Defense Department, there are 5,200 US troops in Iraq, mostly special forces “advisers”. Officially, the Iraq War “ended” in December 2011, when the military pulled the last US ground troops out of the country.   

Al Nujaba, a militia group mostly made up of Iraqis, has about 10,000 fighters, according to Reuters. Being a part of the Iran-backed Popular Mobilization Forces (PMF), the group is believed to be one of the most important militias in Iraq.

In November, Ted Poe from the US House of Representatives proposed imposing “terrorism-related sanctions” on Nujaba. The text of the document says Nujaba is “an affiliated faction” of the US-designated foreign terrorist organization Kata’ib Hezbollah, which also fights with the PMF.

And there's good reason to believe the group will follow through on its threats.

Nujaba’s leader Akram al-Kaabi was earlier sanctioned by the Treasury Department “for threatening the peace and stability of Iraq.” As a former insurgent, it’s believed Kaabi took part in “multiple mortar and rocket attacks” on the Green Zone in Baghdad in 2008.

Shortly before making his announcement, Trump acknowledged that the move would cause dissent, but he also insisted it would help solve the Arab-Israeli conflict.

A number of world powers, including Germany, Turkey, and Russia, expressed grave concern over the Trump administration’s decision.

US decision to recognize Jerusalem as Israel’s capital may become a “legitimate reason” to attack American troops in Iraq.
 

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Authored by Pepe Escobar via The Asia Times,

Is the world's center of gravity shifting to the heart of the Indo-Pacific – a new pivot to Asia?

In the context of the New Great Game in Eurasia, the New Silk Roads, known as the Belt and Road Initiative (BRI), integrates all of China’s instruments of national power – political, economic, diplomatic, financial, intellectual and cultural – to shape the 21^st century geopolitical/geoeconomic order. BRI is the organizing concept of China’s foreign policy for the foreseeable future; the heart of what was conceptualized, even before President Xi Jinping, as China’s “peaceful rise.”

The Trump administration’s reaction to the breath and scope of BRI has been somewhat minimalistic. For the moment, it amounts to a terminological switch from what was previously known as Asia-Pacific to “Indo-Pacific.” The Obama administration, up to the former president’s last visit to Asia in September 2016, always referred to Asia-Pacific.

Indo-Pacific includes South Asia and the Indian Ocean. So, from an American point of view, that does imply elevating India to the status of a rising global superpower able to “contain” China.

US Secretary of State Rex Tillerson could not have stated it more bluntly: “The world’s center of gravity is shifting to the heart of the Indo-Pacific. The United States and India – with our shared goals of peace, security, freedom of navigation, and a free and open architecture – must serve as the eastern and western beacons of the Indo-Pacific. As the port and starboard lights between which the region can reach its greatest and best potential.”

Attempts to portray it as a “holistic approach” may mask a clear geopolitical swerve where Indo-Pacific sounds like a remix of the Obama era “pivot to Asia” extended to India.

Indo-Pacific directly refers to the Indian Ocean stretch of the Maritime Silk Road, which as one of China’s top connectivity routes, features prominently in “globalization with Chinese characteristics.” As much as Washington, Beijing is all for free markets and open access to commons. But that must not necessarily imply, from a Chinese point of view, a single, vast institutional web overseen by the US.

‘Eurasifrica’?

As far as New Delhi is concerned, embracing the Indo-Pacific concept entailed quite a tightrope act.

Last year, both India and Pakistan became formal members of the Shanghai Cooperation Organization (SCO), which is a key element of the Russia-China strategic partnership.

India, China and Russia are BRICS members; the president of the BRICS New Development Bank (NDB), headquartered in Shanghai, is Indian. India is a member of the China-led Asia Infrastructure Investment Bank (AIIB). And until recently India was also participating in BRI.

But then things started to unravel last May, when Prime Minister Narendra Modi refused to attend the BRI summit in Beijing because of the China-Pakistan Economic Corridor (CPEC), a key BRI node that happens to traverse Gilgit-Baltistan and the sensitive region Pakistan defines as Azad Kashmir and India as Pakistan-occupied Kashmir.

And right on cue, at an African Development Bank meeting in Gujarat, New Delhi unveiled what might be construed as a rival BRI project: the Asia-Africa Growth Corridor (AAGC) – in partnership with Japan. AAGC could not be more “Indo-Pacific,” actually delineating an Indo-Pacific Freedom Corridor, funded by Japan and using India’s know-how of Africa, capable of rivaling – what else – BRI.

For the moment, this is no more than an avowed “vision document” shared by Modi and his Japanese counterpart Shinzo Abe to do some very BRI-like things, such as developing quality infrastructure and digital connectivity.

And adding to AAGC comes the Quadrilateral, which the Japanese Foreign Ministry spins as projecting “a free and open international order based on the rule of law in the Indo-Pacific.” That once again pits the “stability of Indo-Pacific region” against Tokyo’s perception of “China’s aggressive foreign policy” and “belligerence in the South China Sea” which imperils what the US Navy always describes as “freedom of navigation”.

As much as Xi and Abe may have recently lauded a new start of Sino-Japanese relations, reality says otherwise. Japan, invoking the DPRK threat but actually fearing China’s fast military modernization, will buy more US weapons. At the same time, New Delhi and Canberra are also quite worried about China’s economic/military onslaught.

Essentially, AAGC and the Quadrilateral link India’s Act East Policy with Japan’s Free and Open Indo-Pacific strategy. Reading these documents in tandem, it’s not far-fetched to qualify the Indo-Japanese strategy as aiming for a “Eurasifrica.”

In practice, apart from the expansion in Africa, Tokyo is also driven to expand infrastructure projects across Southeast Asia in cooperation with India – some in competition or overlapping with BRI. The Asian Development Bank (ADB), meanwhile, is mulling alternative financing models for infrastructure projects away from BRI.

As it stands, the Quadrilateral is still a work in progress, with its “stability of Indo-Pacific region” pitted against Beijing’s avowed desire to create a “community with a shared future” in the Asia-Pacific. There are reasons to worry that this new configuration might actually evolve into a stark economic/military polarization of Asia.

A split at the heart of BRICS

Asia needs a whopping $1.7 trillion in infrastructure projects a year, according to the ADB. In theory, Asia as a whole would benefit from an array of BRI projects coupled with some others that are ADB-financed and AAGC-linked.

Considering the extremely ambitious breath and scope of the whole strategy, BRI enjoys a substantial head start. Beijing’s vast reserves are already geared towards investing in Asia-wide infrastructure in tandem with exporting excess construction capacity and improving connectivity all around.

In contrast, New Delhi barely has enough industrial capacity for India’s own needs. In fact India badly needs infrastructure investment; according to an extensive report, India’s needs amount to at least $1.5 trillion over the next decade. And on top of it India holds a persistent trade deficit with China.

A tangible would-be success is the Indian investment in Chabahar port in Iran as part of an Afghan trade strategy (see part two of this report). But that’s about it.

Apart from energy/connectivity projects such as the national digital ID Aadhaar system (1.18 billion users) and investing in an array of solar power plants, India has a long way to go. According to the recently published Global Hunger Index (GHI), India ranks at 100 out of 119 countries surveyed on child hunger, based on four components: undernourishment, child mortality, child wasting, and child stunting. That’s an extremely worrying seven notches below the DPRK. And only seven notches above Afghanistan, at the bottom of the list.

New Delhi would hardly lose if there were a conscious bet on building up on India-China cooperation under the BRICS framework. And that includes accepting that BRI investment is useful and even essential for India’s infrastructure development. The doors remain open. All eyes are on December 10-11, when India will host a trilateral Russia-India-China – all BRICS members – at the ministerial level.

Next: China and India slug it out, from the Gulf of Oman to the Arabian Sea

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