Tag: finance

The gold trading Commitment of Traders (COT) report, released Friday, shows the peculiarly timed gold sell off and much needed wash out of speculative longs out of the gold futures market last week sets gold up for lower prices, prior to moving higher again.

The timing of the sudden sell off, when Chinese gold markets and the Shanghai Gold Exchange (SGE) were closed for the five days of the Chinese Golden Week, has rightly raised a lot of eyebrows. China is now a powerful force in the gold market, and is influencing global gold prices through the physical gold exchange, the Shanghai Gold Exchange and indeed the Shanghai Futures Exchange. China also has four gold-backed ETFs that are growing in popularity.

Concerns that the sell off was manipulative in nature are again widespread. The sell off was once again another purely paper or electronic futures market sell off with little or no liquidations of actual gold bullion and no important gold data or news or wider market data. Indeed the sell off came at a time of very robust physical demand – especially in mainland Europe – due to concerns about Deutsche and other German banks, Italian banks and other European banks.

There is also very robust demand in the UK on concerns about the outlook for sterling which has seen sterling gold surge in recent months. Gold brokers in the UK, including GoldCore, saw significant demand after the sell off last week and the sterling flash crash led to a further spike in demand.

Our friend John Rubino in Dollar Collapse looked at the latest Commitment of Traders (COT) report and his latest note about this is an important one to consider:

This year’s recovery in precious metals prices – and the sudden spike in gold/silver mining stocks – convinced a lot of people that a new bull market had begun. Last week’s brutal smack-down scared the hell out of many of the same folks.

The latest commitment of traders (COT) report implies that we should all relax. Things are playing out pretty much according to a script that’s been in place for decades — and which points to happy times by early next year.

The quick and dirty COT story is that it’s a snapshot of what the big players in gold/silver futures contracts are up to. There are two main groups in this market: the commercials (mostly big banks and companies that buy metal to turn it into coins, jewelry and industrial products) and speculators who bet on price moves. The former consistently fool the latter into guessing wrong at turning points. That is, the speculators are usually way long at the top and very short at the bottom. So you can tell where prices are headed over next the six or so months by looking at what the speculators are betting on and assuming that if they’re excited, they’re wrong.

The following chart illustrates the point (see chart above). Ignore everything here except the red line, which represents the speculators. When it’s way up, they’re very long and prices are about to fall, and vice versa.

This year they’ve gone record long, which explains the fast recovery in metals prices and mining stocks: The speculators were piling in. This of course sets the stage for an eventual correction. So what happened last week was to be expected (though it was several months overdue, illustrating the point that the COT report is great for direction but dangerously unreliable for timing).

The full note can be read here

 

Gold and Silver Bullion – News and Commentary

PRECIOUS – Gold up on China post-holiday buying; weaker dollar supports (Reuters)

Gold supported as Chinese investors return (BullionDesk)

Gold Advances as Investors Pile Into ETFs After Prices Retreat (Bloomberg)

Gold up on weaker dollar; presidential debate in focus (Reuters)

Gold Fizzles in Worst Week Since ‘13 as Fed Rate Fears Resurface (Bloomberg)

COT Report Is Playing Out As Usual, Which Means Lower – Then Much Higher – Prices Coming (DollarCollapse)

Ed Steer’s Gold and Silver Daily (GoldSeek)

Dutch gold finds a new home (NewsEurope)

Gundlach: “Deutsche Bank Will Be Bailed Out But What About Credit Suisse” (ZeroHedge)

Here’s Where the Next Bank Deposit “Bail-In” Will Strike… (InternationalMan)

Gold Prices (LBMA AM)

10 Oct: USD 1,262.10, GBP 1,016.62 & EUR 1,129.71 per ounce
07 Oct: USD 1,255.00, GBP 1,012.91 & EUR 1,127.62 per ounce
06 Oct: USD 1,265.50, GBP 994.30 & EUR 1,131.23 per ounce
05 Oct: USD 1,274.00, GBP 1,001.11 & EUR 1,134.37 per ounce
04 Oct: USD 1,309.15, GBP 1,026.90 & EUR 1,172.21 per ounce
03 Oct: USD 1,318.65, GBP 1,023.40 & EUR 1,173.99 per ounce
30 Sep: USD 1,327.90, GBP 1,025.01 & EUR 1,187.67 per ounce

Silver Prices (LBMA)

10 Oct: USD 17.78, GBP 14.31 & EUR 15.92 per ounce
07 Oct: USD 17.33, GBP 14.01 & EUR 15.55 per ounce
06 Oct: USD 17.76, GBP 13.98 & EUR 15.88 per ounce
05 Oct: USD 17.80, GBP 13.99 & EUR 15.86 per ounce
04 Oct: USD 18.74, GBP 14.68 & EUR 16.78 per ounce
03 Oct: USD 19.18, GBP 14.89 & EUR 17.07 per ounce
30 Sep: USD 19.35, GBP 14.92 & EUR 17.33 per ounce

Recent Market Updates

– Currency Shock Sees Sterling Gold Surges 5% In One Minute “Flash Crash”
– Top Gold Forecaster: “As Quickly As Gold Fell” May “Rally Back” on Global Risks
– Gold Buying ‘Opportunity’ After Surprise 3.4% Drop
– Deutsche Bank “Is Probably Insolvent”
– GBP Gold Rises 1.3% as Sterling Slumps On ‘Hard Brexit’ Concerns, Up 36% YTD
– Why Krugman, Roubini, Rogoff And Buffett Hate Gold
– ECB Refused “To Answer Questions” – Deutsche Bank “Systemic Threat” Is “Not ECB Fault”
– Euro “Might Start To Unravel” If Collapse Of Deutsche Bank
– Do You Really Own Your Gold?
– “Gold Will Likely Soar To A Record Within Five Years”
– Savings Guarantee? U.N. Warns Next Financial Crisis Imminent
– Gold Up 1.5%, Silver Surges 3% – Yellen Stays Ultra Loose At 0.25%
– Trump and Clinton Are “Positive For Gold” – $1,900/oz by End of Year

via http://ift.tt/2ej4Dot GoldCore

In the latest scandal to emerge involving Deutsche Bank, earlier today the FT reported that German’s largest lender was allowed to cheat, pardon was given “special treatment” by the ECB in the July stress tests.  As part of the July stress tests results, which “promised to restore faith in Europe’s banks by assessing all of their finances in the same way” Deutsche Bank’s result was boosted by a “special concession” agreed to by Mario Draghi: DB’s results included the $4 billion in proceeds from selling its stake in Chinese lender Hua Xia even though the deal had not been done by the end of 2015, the official cut-off point for transactions to be included.

While the Hua Xia sale was agreed in December 2015, it has still not been completed and now faces a delay after missing a regulatory deadline last month, though the bank is still confident of completion this year.

As the FT notes, the Hua Xia treatment was disclosed in a footnote to Deutsche’s stress test results, and adds that “none of the other 50 banks in the stress tests had similar footnotes, even though several also had deals agreed but not completed at the end of 2015.”

As disclosed in the central bank’s summer stress test, Deutsche’s common equity tier one capital fell to 7.8% after it was “subjected to the stress tests’ imagined doomsday scenario of fines, low interest rates and low economic growth.” However, without the Hua Xia boost, the ratio would have been 7.4%, a level comfortably above regulatory minimums. Why the speal treatment? Because the higher published result helped reassure investors who were growing increasingly nervy about the bank’s capital adequacy.

Other banks were not as lucky:

In one case, Spanish lender Caixabank completed the €2.65bn sale of foreign assets to its parent company Criteria Holding in March but was still not allowed to include the impact of that sale in its results.

The special treatment raised eyebrows among market analysts: “This [Deutsche’s treatment] is perplexing,” said Chris Wheeler, an analyst at Atlantic Equities. “The circumstances mean that it is inevitable the market watchers will be suspicious and have some concern about the veracity of the results.”

Nicolas Véron of Bruegel, the Brussels think-tank, said it was important that both the ECB and the European Banking Authority, which oversaw the tests, could “explain and defend their methodological choices”, especially given the market focus on Deutsche. “Stress testing methodologies should be applied uniformly and without any special treatment,” he added. “This of course equally applies to banks that are systemically important, such as Deutsche Bank.”

The only comment the ECB gave to the FT is that the central bank “treats all banks equally in line with the regulation” even though that appeared not to be the case in an attempt to pad DB’s balance sheet. The ECB would not comment on the Deutsche case specifically. The EBA said that there were more than 20 “one-offs” approved in the stress tests. “The one-offs are designed to avoid obvious anomalies in the forward-looking stress test where events have already taken place in 2015,” the EBA said.

According to the FT, other “one-offs” were disclosed citing a clause in the methodology that permits limited concessions around “administrative expenses, profit or loss from discontinued operations and other operation expenses”. Still, there is an obvious contradiction between the disclosure and the state rules:

The Deutsche disclosure simply says that the results include the proceeds of the Hua Xia sale, which “will be closed in 2016”. There is no effort to reconcile that to the official rules, which say: “any divestments, capital measures or other transactions that were not completed before 31 December 2015, even if they were agreed upon before this date, should not be taken into account in the projections”.

As a result of the report, DB shares, which earlier had traded as low as -3% on the day following the weekend report that the German lender’s negotiations with the DOJ had dailed to reach a deal, rebounded and were almost unchanged on the day as traders read into the report that the ECB would break even its own rules to keep Deutsche Bank stable.

via http://ift.tt/2d2oCYj Tyler Durden

While the entire nation was transfixed on last night’s latest, and most scandalous yet “debate”, in which there was little actual debating and a lot of talking points and character assassination attempts, index futures were little changed throughout Sunday’s 90 minutes event, suggesting that no clear winner had emerged on either side.

While the two candidates focused on each other’s personal failings for much of the early part of the debate, investors said there was not enough in terms of policy substance in Sunday’s debate to change the market’s perception of the direction of the race according to Reuters. “I don’t think it changed people’s opinions in the investing community that Clinton is more likely to win, as she was before the debate, certainly after Friday,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

“The market declared tonight’s debate a draw and has no more clue after debate than before, at least not in watching the S&P futures. Once again the debate was great theater, but did not give the market any insight,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Despite the night’s civil ending, it was hard to glean much information, as a good part of the debate was simply a name-calling fest.”

Steven Englander, global head of G10 currency strategy at CitiFX in New York, said: “Both Trump and Clinton supporters expected that emerging market currencies and U.S. equities would go down and the VIX would go up if Trump were to win and vice versa if Clinton wins,” he added. And indeed, as noted last night, the kneejerk reaction of the most accurate, real-time proxy of debate performance, the Mexian Peso, showed that once the debate started, the mood shifted mostly in Trump’s favor, leading to modest losses after this weekend’s Trump Tape fiasco.

 

However, that changed after surprisingly a CNN/ORC snap poll of debate watchers found that 57% thought Clinton won the encounter, versus 34% for Trump, despite various focus groups indicating that Trump had been the winner.

CNN/ORC poll of debate watchers: Hillary Clinton won town hall #debate 57% to 34% https://t.co/nIG3oBvnZD https://t.co/PtVWUSsTM4 http://pic.twitter.com/VvvZQKlbbk

— CNN Politics (@CNNPolitics) October 10, 2016

Exiting the debate, and headed into the European open, U.S. stocks index futures were up about 0.3 percent. U.S. stock markets are open on Monday, though the bond market is closed for the Columbus Day holiday, as is CME pit trade for FX products.

Earlier, Asian shares eked out minor gains. MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 percent. Japanese markets were closed for a holiday.

Chinese shares racked up their biggest gains in two months as investors returned from a week-long holiday and caught up with gains on global markets, however, property stocks tumbled following various property transaction curbs implemented by some 10 cities in China over the past holiday week, seeking to ease the bubble in China’s property sector.

More notable, China’s yuan hit a six-year low against the dollar before recovering as China’s markets reopened after a week-long break. The People’s Bank of China set the weakest fix for currency since September 2010 and in the spot market fell as low as 6.7051, also its lowest since September 2010. The currency fell as much as 0.46 percent in Shanghai to 6.7051 a dollar, the weakest since September 2010. The offshore exchange rate declined by a similar magnitude during the mainland holidays, while a gauge of the greenback’s strength rallied 1 percent. Until today, China’s central bank was speculated to be keeping the currency stronger than the 6.7 level as it sought to limit capital outflows.

“This sends the signal that the yuan’s future path may be more event-driven, meaning China will allow it to drift lower when there is a big event on the dollar as we saw last week,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “Today’s spot will be very important and the market will closely watch whether the yuan will close beyond 6.7 or not.”

The Yuan last traded at 6.7025, down 0.03 percent on the day.

Oil prices fell, with investors sceptical an agreement among members of the Organization of the Petroleum Exporting Countries (OPEC) to cut output would have a major impact. Brent crude, the international benchmark, was down 18 cents at $51.73 a barrel.  “A meeting between OPEC and non-OPEC producers (namely Russia) will add to oil headlines this week. Don’t expect a firm agreement from Russia, but headlines about cooperation are likely,” Morgan Stanley said. However, this morning we did see the Saudi Oil minister prop up prices by saying he is optimistic on an output deal with Russia, and added that it wasn’t “unthinkable” that crude prices could rise another 20% this year to $60 a barrel.

Market Snapshot

• S&P 500 futures up 0.3% to 2154
• Stoxx Europe 600 up 0.1% to 339.82
• MSCI Asia Pacific little changed at 140.59
• Shanghai Composite (+1.4%)
• Equity indexes: FTSE 100 down -0.1%, CAC 40 down -0.1%, DAX down -0.1%,IBEX 35 down -0.1%, FTSE MIB down -0.3%
• US 10Yr yield little changed at 1.72%
• Dollar index up 0.1% to 96.69
• WTI oil futures down 0.5% to $49.57/bbl
• Gold spot up 0.4% to $1262.3/oz
• Bonds: German 10Yr yield (0bps), Portuguese 10Yr yield (-6bps)
• Commodities: LME 3m Nickel (+2.1%), Natural Gas Futures (-1%)
• FX: Euro (-0.2%), Sterling spot (-0.2%)

Global Headline News

• Trump Unpacks Three Decades of Clinton Baggage in Debate; Mexico Peso Near Month-High After Debate; European Stocks Swing
• Noble Group to Sell U.S. Unit to Calpine for $1.05 Billion
• Deutsche Bank Talks With Justice Department Said to Continue
• Goldman Sees Shock Potential for U.S., Europe Stocks This Year
• Samsung Gets Hit Again as AT&T, T-Mobile Halt Note 7 Sales; Samsung Said to Halt Note 7 Output Amid Reports of New Fires
• Merck Leads as Lung Cancer Treatment Moves Beyond Chemotherapy
• Alcoa’s Last Earnings Call Before Split to Tout Parts Prospects
• Almost 1.4 Million Without Power as Matthew Death Toll Rises
• Hurricane Matthew Oil Impact: Fallout for East Coast Terminals
• Samsung Said to Halt Note 7 Output Amid Reports of New Fires
• Kuroda Signals BOJ May Delay Hitting Inflation Target to 2018
• Yuan Weakens Most Since June as Trading Resumes After Holidays
• Jack Ma’s Ant Financial Names New CEO to Oversee IPO in 2017
• Thai Baht Falls With Stocks, Bonds as King’s Condition Unstable
• Wal-Mart Fails to Subdue JD.com Bears With Short Bets at Record

Looking at regional markets, we start in Asia where stocks shrugged off last Friday’s Wall Street losses and traded mostly higher as the region digested the miss in US NFP and latest developments in US politics. ASX 200 (+0.2%) opened higher alongside mild gains in US equity futures after the Trump campaign was rocked by leaked tapes, which brought to light inappropriate comments made by the Republican candidate regarding women. Shanghai Comp. (+1.5%) outperformed on return from Golden Week as it took the first opportunity to react to last month’s strong official PMI data and reports that China injected USD 41 bIn through its mid-term lending facility in September. As a reminder, markets in Japan, Taiwan and Hong Kong are all shut due to public holidays.

• Chinese Caixin Services PMI (Sep) M/M 52.0 (Prey. 52.1)
• Chinese Caixin Composite PMI (Sep) M/M 51.4 (Prey. 51.8). (Newswires)
• PBoC set the mid-point at 6.7008 (Prey. 6.6778); weakest CNY setting since 2010. PBoC injected CNY 20bIn in 7-day and CNY 10bIn in 14-day reverse repos. (Newswires) PBoC injected USD 41 bIn via the mid-term lending facility in September.
• China’s government vowed to streamline administrative approvals, delegate more power to lower government levels and ease regulations on foreign investment in an attempt to support the economy.
• BoJ Governor Kuroda commented over the weekend that there is currently no need to reduce rates but also reiterated that they are prepared to conduct additional monetary easing if needed.

Top Asian News

• Samsung Said to Halt Note 7 Output Amid Reports of New Fires
• Kuroda Signals BOJ May Delay Hitting Inflation Target to 2018
• Yuan Weakens Most Since June as Trading Resumes After Holidays
• Doosan Bobcat Withdraws $2.2 Billion IPO to Revise Offering
• Jack Ma’s Ant Financial Names New CEO to Oversee IPO in 2017
• Thai Baht Falls With Stocks, Bonds as King’s Condition Unstable
• Wal-Mart Fails to Subdue JD.com Bears With Short Bets at Record

In Europe, financial concerns are back on the table with Deutsche Bank (-3.1%) yet again in focus after weekend reports confirmed that CEO Cryan failed to reach an agreement with the DoJ. As such, equities were on the back foot to start the week, however they have since rebounded after an FT report that the ECB had allowed Deutsche Bank to cheat in latest stress test, suggesting the central bank was eager to help out DB. Elsewhere, the FTSE 100 modestly underperforms (flat) as the softer GBP and upside in mining names helps support the index. In credit markets, last week’s theme continues for 10yr Gilts, with the spread widening significantly against their German counterpart amid the ongoing Brexit fears, which some suggest could see the BoE hold back on further loosening monetary policy as the GBP depreciation may see them overshoot on their 2% inflation target, alongside looser fiscal policy from the UK government. Elsewhere, Portuguese bonds have rallied this morning after some reassuring words from the finance minister ahead of the DBRS rating on scheduled on 21st October.

Top European News

• Deutsche Bank Talks With Justice Department Said to Continue
• Be Selective on Banks Into 3Q; Stay L/T Cautious: JPMorgan
• Barclays, RBS, Lloyds May Face 3Q Capital Hit on Pensions: Citi
• Ingenico Cut at Barclays; Sees Paysafe, Wirecard More Favorably
• William Hill, Playtech Top European Gambling Picks: Deutsche; William Hill Deal Concerns Outweigh Positives: Goodbody
• NN Group Downgraded; Could Pay EU6.0/Share for Delta Lloyd: KBW
• Sell EasyJet; Challenges May Intensify, SocGen Says

In FX, sterling stole the limelight for all the wrong reasons, despite the key US payrolls release which does not seem to have done any major damage to the USD other than taking some of the bid tone away. Cable has been relatively well contained as a result, with the first line of support coming in around 1.2200, buyers have stepped in on the early dip into the mid 1.2300’s as some look to fade weakness from current levels. Not too much to discern in terms of sentiment from EUR/GBP price action, but we have a long way to go before the EU negotiations start in earnest, so perhaps some relief is due here near term. USD/JPY is back on a 103.00 handle after dipping below to fill the gap from early Asia. The European bourses are largely flat on the morning, so little to direct trade in all JPY pairs, with range bound trade alluding to consolidation all round. AUD/USD is finding some near term demand below .7600, but USD/CAD is still eyeing 1.3300+, but we are seeing some strong resistance here after the strong Canadian jobs report from Friday. EUR/USD gains have stalled at 1.1200, the better than expected German trade data and EU Sentix sentiment putting a bid under any dips here into the mid 1.1100’s. Norwegian inflation (both core and headline) came in at a lower than expected +0.3%; yearly inflation rate in from 4% to 3.6% but to limited effect on the NOK.

In commodities, Brent and WTI are both marginally down so far after both Iran and Iraq stated that they will not be involved in discussions in Turkey. However, this morning we did see the Saudi Oil minister prop up prices by saying he is optimistic on an output deal with Russia. Gold is trading higher by 0.55% as risk sentiment is slightly off and China came back to market after a public holiday. Silver has also benefited from risk off sentiment up USD 0.23/oz so far. In Shanghai, December copper and tin are down around 0.3%, while the rest of the base metals contracts are up an average of 1.7%.
Iranian NISOC current crude oil output almost 3mln bpd and are now targeting 500k bpd hike in production according to the Co.’s Managing Director.  Saudi Energy Minister states he will meet Russian counterpart in next 2 days and Saudi-Russia Oil Committee are set to meet within couple of weeks. Saudi Energy Minister Falih says he is optimistic of getting non OPEC participation in OPEC output freeze by November 30 meeting.

* * *

US Event Calendar

• No data due to Columbus day holiday

Bulletin Headline Summary From RanSquawk and Bloomberg

• European equities trade modestly lower as ongoing concerns around Deutsche Bank continue to dictate sentiment
• Donald Trump and Hillary Clinton conducted the 2nd US Presidential Debate in which it was perceived that Donald Trump performed better than some anticipated
• Looking ahead, highlights include US NFIB Business Optimism Index

DB’s Jim Reid concludes the overnight wrap

Well that was an interesting week, especially if the majority of your assets are denominated in the British Pound. Thanks goodness I was asleep for the flash crash. I’m off to Paris today where I’ll be sure to keep my wallet firmly in my pocket. More on Sterling later but no other place to start today other than the second US presidential debate which has been a lively affair!

Indeed much like the first debate the early exchanges kicked off in a similar fiery fashion, with personal attacks being the dominant theme. As the exchange eventually took some form of structure however, Clinton again demonstrated a similar well prepared approach while Trump remained on the attack throughout with a number of news reports since suggesting that he had generally improved on some of the key policy issues compared to the first time round. That said it was clear that both chose to focus, somewhat unsurprisingly, on the topics which have dominated the tabloids in recent days and which will likely be the talking point today. The latest CNN/ORC poll has just been released a short time ago and it shows that 57% thought Clinton won the debate compared to 34% for Trump. It’s worth reminding readers that the CNN/ORC poll after the first debate (which favoured Clinton at 62% to 27%) had a split between respondents which was more weighted towards Democrats over Republicans.

In terms of FX markets this morning the Mexican Peso, which is seen as a bit of a bellwether for the debate, initially rallied as much as +2% before the debate reflecting some of the negative newsflow around Trump from the weekend however the currency pared those gains as the debate wore on and is now back to being +1.36% stronger. It’s been a similar trend for the Canadian Dollar while US equity index futures are up ever so slightly but have pared back a bit too. In Asia with Japan and Hong Kong on holidays it’s fairly quiet although China has reopened with the Shanghai Comp (+0.99%) and CSI 300 (+0.82%) on the front foot, helped by a weaker CNY this morning. The Kospi (-0.11%) and ASX (+0.16%) are both little moved this morning.

After all this excitement, the American public probably need a lie down and luckily for them today is Columbus Day. Equity markets are open but bond markets are shut. I would expect activity to be light. Things will get more exciting from tomorrow as US earnings season kicks off with Alcoa with three big banks reporting on Friday which will be an interesting focal point for markets. We’ll preview the rest of the week ahead at the end but let’s move onto to the UK.

Sterling fell -4.15% last week (-8.78% at the flash crash lows) against the dollar and is now -15.78% in 2016 and -27.71% from the post crisis highs ($1.717 in July 2014) based on spot returns. It’s currently down -0.27% in the early going this morning at $1.241. For a bit of a global context, of the 148 currencies that we can analyse on Bloomberg, Sterling is actually the joint 142nd weakest currency on a year to date basis. It’s by far and away the weakest of the G10 and only the following nations have weaker currencies so far this year; Angola, Sierra Leone, Nigeria, Venezuela, Mozambique and Suriname. The Suriname Dollar has actually fallen nearly 48% so far in 2016 so Sterling still has some way to go to catch that. A year ago we mentioned the DB Sterling house view of $1.15 in the EMR and received a lot of  interest. The official low was $1.1841 on Friday morning but Bloomberg reported that one electronic platform had a print of $1.1378. I’m looking forward to seeing what these moves have done to the UK’s level of expensiveness in the Mapping the World’s Prices document we took over this year when we update in early 2017. Will London slip out of the top 5 of expensive global cities.

Also of interest next year will be to watch UK inflation and Gilts. The problem with shorting Gilts is that you are battling BoE bond buying. Last week the Conservative party discussed their unease with QE which helped unsettle Gilts, however without it they may have to put up with unease of a different variety down the line. So a delicate balance. Overall the real yield graph shows that financial repression is alive and well and highlights our point from the long-term study last month that negative real returns from government bonds are an almost certainty across the developed market now over virtually any short, medium or long term horizon.

It was always going to take a big surprise one way or another from payrolls on Friday to really take the focus away from those incredible moves in Sterling. In the end the 156k print for September came in slightly below the consensus of 172k and also included a net downward revision of 7k over the previous two months. Private payrolls (167k vs. 170k expected) were slightly better than the headline as government employment (-11k) finally softened following four consecutive months of relatively sturdy gains. A positive for aggregate income growth was the tick-up in the average workweek to 34.4hrs from 34.3hrs. Elsewhere average hourly earnings rose +0.2% mom last month (vs. +0.3% expected) which lifted the annual rate by two-tenths to +2.6%. Lastly the unemployment rate rose one-tenth to 5.0% largely as a result of a lift in the participation rate to 62.9% from 62.8%. The Atlanta Fed revised down their Q3 GDP forecast marginally following Friday’s data to 2.1% from 2.2%.

Overall then that data was probably enough to silence the November hike hawks, but keep a December move firmly on table (with the market implied probability unchanged at 64%) depending obviously on what happens now with hard data between now and then. Markets didn’t do too much in the aftermath of the data. The S&P 500 (-0.33%) edged lower not helped by a difficult session for energy and commodity related sectors following a pullback in Oil prices. More on that shortly. In Europe the Stoxx 600 closed -0.93% while the FTSE 100 (+0.63%) was the standout reflecting that leg lower for Sterling. Over the five days the S&P 500 and Stoxx 600 were -0.67% and -0.96% while the FTSE 100 rallied to the tune of +2.10%. In rates markets 10y Treasury yields edged 2bps lower to 1.719% although continue to hover around four month highs. It had been a different mood in European bond markets though. 10y Gilts (+9.9bps) were spooked by the Sterling moves and in the process rose to a new post-Brexit high in yield (0.969%). That dragged up the rest of European bond yields with 10y Bund yields (+3.8bps) back into positive territory at 0.017% for the first time in two and a bit weeks.

In terms of Oil, WTI retreated -1.25% and is down another -1.08% this morning following a near two week rally which saw it rise over $5/bbl. The leg lower has come ahead of a non-OPEC producers meeting in Istanbul this week, where prior to it, Russia’s energy minister dampened hopes that an agreement of sorts on production cuts would be struck and instead said that meetings would just be consultations. Elsewhere in the commodity complex, Gold (+0.22%) finally broke its run of 8 consecutive daily losses in which it has lost over 6% and given up the vast amount of post-Brexit gains.

Recapping the remainder of the data on Friday, August industrial production reports for both Germany (+2.5% mom vs. +1.0% expected) and France (+2.1% mom vs. +0.6% expected) were a fair bit better than expected although the same couldn’t be said for the UK where the data disappointed (-0.4% mom vs. +0.1% expected). Manufacturing production for the UK also printed slightly below expectations (+0.2% mom vs. +0.4% expected). In the US the other data release was the August consumer credit print ($25.9bn vs. $16.5bn expected) where household borrowing jumped at the fastest pace in almost a year.
There was also a bunch of Fedspeak to highlight on Friday. The Cleveland Fed’s Mester re-iterated her largely upbeat view on the US economy, saying that the jobs report was solid and recent data is consistent with the Fed raising rates as soon as next month. Uber-hawk Esther George said that the job’s number was encouraging and suggests that momentum is continuing and that growth is on track for 2%. Finally over the weekend the Fed’s Vice-Chair Fischer said that ‘since monetary policy in only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years’.

Before we look at this week’s calendar, this morning we have published our latest HY strategy monthly where we take a look at the relationship between senior secured and senior unsecured bonds within the capital structures of European HY companies. We look at the relationships at a company level assessing the spread ratio as well as the spread-per-turn of leverage (SPT) ratio of the two bonds through the year. We also look at the cross-sectional relationship to try and assess whether there are any potential relative value opportunities. In addition we have also highlighted how the strength in supply in September may have negatively impacted what have so far this year been overwhelmingly positive technical’s for European HY.

Onto the week ahead now. It’s a quiet start to the week today with just Germany trade data, France business sentiment and the Euro area Sentix investor confidence reading due this morning. There’s no data due in the US with it being Columbus Day. US equity markets are open but bond markets are shut. Tuesday kicks off in Germany where the October ZEW survey will be released. In the US the NFIB small business optimism reading and labour market conditions index are due out. We kick off in Japan on Wednesday with the latest machine orders data. Over in Europe we’ll get the final revised September inflation report in France along with the August industrial production print for the Euro area. Over in the US the JOLTS report for August is the sole data release while the September FOMC minutes will then be released in the evening. Thursday kicks off with the September trade data for China. In Europe we’ll then get the final September inflation report in Germany, while in the US session we’ll get initial jobless claims and the import price index. It’s a busier end to the week on Friday. In China the CPI and PPI prints for September will be closely watched. In Europe we’ll then get UK construction output and Euro area trade data, while the BoE will also release its latest credit conditions and bank liabilities surveys. Over in the US it’s all eyes on the September retail sales data, while PPI, business inventories and finally the first estimate of the University of Michigan consumer sentiment survey for October will be out.

Away from the data, the Fedspeakers during the week include Evans and Kashkari on Tuesday, Dudley and George on Wednesday, Harker on Thursday and Kashkari, Rosengren and Fed Chair Yellen on Friday. The latter is due to speak in Boston on the topic of ‘macroeconomic research after the crisis’. Over at the ECB we’ll hear from ECB officials including Visco, Mersch and Coeure this week. Of course the other big focus is on the unofficial commencement of earnings season in the US. Alcoa report prior to the open tomorrow while JP Morgan, Citigroup and Wells Fargo headline the banks reporting on Friday.

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Submitted by Soeren Kern via The Gatestone Institute,

• The Czech Republic, Poland and Slovakia, all former Communist countries, also oppose the EU plan to relocate 160,000 "asylum seekers," which they say is an "EU diktat" that infringes on national sovereignty.
• "One of the principals underpinning the system is the primacy of EU law." — Margaritis Schinas, chief spokesperson for European Commission.
• "In the early autumn of 2015 we erected a fence on the external green border of the European Union and the Schengen Area. This was to protect the European Union's greatest achievement: free movement within the common area of the internal market…. We do not want to distribute the migration burdens falling on Europe, but we want to eliminate them: to put an end to them." — Hungarian President Viktor Orbán, July 11, 2016.
• "We do not like the consequences of having a large number of Muslim communities that we see in other countries… That is a historical experience for us." — Hungarian President Viktor Orbán, September 3, 2015.
• "We lose our European values and identity the way frogs are cooked in slowly-heating water. Quite simply, slowly there will be more and more Muslims, and we will no longer recognize Europe." — Hungarian President Viktor Orbán, September 30, 2016.

Hungarian Prime Minister Viktor Orbán has proposed amending the Constitution to prevent the European Union from settling migrants in Hungary without the approval of Parliament.

In a speech on October 4, Orbán said the amendment would be presented to Parliament on October 10, and, if approved, it would come into effect on November 8.

Hungarian voters overwhelmingly rejected the European Union's mandatory migrant relocation plan in a referendum on October 2, but failed to turn out in sufficient numbers to make the referendum legally binding.

More than 97% of those who voted in the referendum answered 'no' to the question: "Do you want the European Union to be entitled to prescribe the mandatory settlement of non-Hungarian citizens in Hungary without the consent of the National Assembly?"

Voter turnout was only 40%, however, far short of the 50% participation required to make the referendum valid under Hungarian law.

Orbán has been a vocal opponent of the EU's plan to relocate 160,000 "asylum seekers" from Greece and Italy. Under the scheme, 1,294 migrants would be moved to Hungary. The Czech Republic, Poland and Slovakia, all former Communist countries, are also opposed to the EU plan, which they say is an "EU diktat" that infringes on national sovereignty.

Although the referendum has been invalidated, Orbán — whose eurosceptic Fidesz party has more support than all opposition parties combined — said he would not be deterred. Speaking to supporters after the polls closed, he said:

"The European Union's proposal is to let the migrants in and distribute them in mandatory fashion among the member states and for Brussels to decide about this distribution. Hungarians today considered this proposal and they rejected it. Hungarians decided that only we Hungarians can decide with whom we want to live. The question was 'Brussels or Budapest' and we decided this issue is exclusively the competence of Budapest."

In an address to Parliament on October 3, Orbán hailed the vote as a "great victory" and reiterated his plan to amend the Hungarian Constitution to ensure that the EU cannot settle migrants in Hungary. He said:

"No party or party alliance in the history of Hungarian democracy has ever received such a large mandate. I'm telling you with sufficient gentleness, we will not let the opinion of the 3.3 million people who voted 'no' to be ignored.

"… with sufficient modesty and restraint I must say that Hungarians made history yesterday. If it is true that history is written by the victors then with a resounding victory of the 'no' votes Hungary won yesterday."

In Brussels, Margaritis Schinas, chief spokesperson for European Commission, the powerful administrative arm of the European Union, said that regardless of the referendum, EU law still takes precedence over Hungarian law. He said:

"On the referendum, if it had been legally valid, our comment would have been that we take note of it. Since it was declared legally void by the Hungarian electoral commission, we can now say that we also take note of it…. One of the principals underpinning the system is the primacy of EU law."

The EU's unrelenting stance, and Orbán's continued opposition to it, implies that the intra-European fight over what to do with hundreds of thousands of migrants from Africa, Asia and the Middle East is far from over.

Some 400,000 migrants passed through Hungary in 2015 on their way toward Western Europe. Since then, Hungary has built fences on its borders with Serbia and Croatia, effectively cutting off the so-called Western Balkan Route, which constitutes the main land route through Eastern Europe for migrants who enter the EU from Turkey via Greece and Bulgaria.

Migrants protest at Budapest Keleti railway station, September 4, 2015. (Image source: Mstyslav Chernov/Wikimedia Commons)

Orbán, who has emerged as the standard-bearer of European opposition to German Chancellor Angela Merkel's "open-door" migration policy, has rejected criticism of the fences. In a July 11, 2016 article in Frankfurter Allgemeine Zeitung, he wrote:

"In the summer of 2015, with complete disregard for European rules, more than ten thousand migrants a day were arriving at the Hungarian-Serbian border. These people had already been in the territory of another Member State: in the territory of both the EU and the Schengen Area. As it is the responsibility of a country on the Schengen Area's external border to ensure that the crossing of that external border is controlled, Hungary had no choice but to erect a physical barrier.

 

"Germany, and a considerable section of German public opinion, were unable to comprehend — and some people are still unable to do so — how Hungary, the country that tore down the iron curtain, could resort to such a measure.

 

"I understand how German society, which for decades was divided by walls and barbed wire, dislikes the fence. But if anyone has the moral standing to explain this to their German friends, surely the Hungarians do. After all, it was Hungary that cut through the Iron Curtain which divided Europe — and the German people — in the decades after the Second World War….

 

"In 1989 we dismantled a fence which divided the peoples of Europe. In the early autumn of 2015 we erected a fence on the external green border of the European Union and the Schengen Area. This was to protect the European Union's greatest achievement: free movement within the common area of the internal market.

 

This free movement is protected by the Schengen Agreement, in accordance with jointly agreed European regulations ratified many years ago. As a result, we have been protecting the European people's way of life and economic model — at least on the section of Europe's external border for which we are responsible.

 

And, no less crucially, we have been protecting their security….

 

"When some people hear comments such as these they automatically react with the accusation of populism. As Shakespeare would put it, however, populists are people who call a spade a spade. We Hungarians call things by their names. This is part of our nature. We do not want to distribute the migration burdens falling on Europe, but we want to eliminate them: to put an end to them."

Orbán has repeatedly warned that Muslim refugees are threatening Europe's Christian identity.

At a news conference after a meeting with other European leaders in Brussels, Orbán said:

"We don't want to, and I think we have a right to decide that we do not want a large number of Muslim people in our country. We do not like the consequences of having a large number of Muslim communities that we see in other countries and I do not see any reason for anyone else to force us to create ways of living together in Hungary that we do not want to see. That is a historical experience for us."

Orbán was referring to the 150-year Ottoman Turkish occupation of Hungary, which began with the Siege of Buda in 1541, and ended with the Treaty of Karlowitz in 1699, when the Ottomans ceded Hungary to the Habsburg Monarchy.

The Ottoman conquest of Hungary actually began at the Battle of Mohács in 1526, when Turkish forces led by Sultan Suleiman I destroyed the Hungarian army and partitioned the country. Some 15,000 Hungarian troops were killed in the battle and many of those who survived were beheaded by Turkish forces.

Over the next century and a half, the Ottoman forces occupying Hungary plundered and pillaged the land and took more than a million Hungarians as slaves, according to Paul Fregosi, the author of Jihad, a history of Muslim holy war against Christians.

In a September 3, 2015 essay published by Frankfurter Allgemeine Zeitung, Orbán wrote:

"Let us not forget that those arriving have been raised in another religion, and represent a radically different culture. Most of them are not Christians, but Muslims. This is an important question, because Europe and European identity is rooted in Christianity. Is it not worrying in itself that European Christianity is now barely able to keep Europe Christian? If we lose sight of this, the idea of Europe could become a minority interest in its own continent."

Speaking at a September 30, 2016 rally in support of the referendum, Orbán said:

"We lose our European values and identity the way frogs are cooked in slowly-heating water. Quite simply, slowly there will be more and more Muslims, and we will no longer recognize Europe. What we have seen so far from the people's migration have only been warm-up rounds. The real battle is yet to come."

When asked if he thought the EU could override Hungarian law, Orbán replied:

"I can't imagine that there is a state among the democratic community of Europe which says clearly that it doesn't want something, and then in another capital, they try to override it. Brussels, for example.

 

"I think this would be unprecedented in the history of the European Union, so I don't think there would be a decision like this, a decision raping democracy. I have a much better opinion of the European Union."

via http://ift.tt/2dZlQ7l Tyler Durden

As we’ve pointed out numerous times in recent months, real estate in America’s largest metropolitan areas like New York and San Francisco looks to be rolling over in a big way.  Earlier this week we pointed out that the volume of apartment sales in New York was down 20% YoY in 3Q 2016 as buyers disappeared while sellers, who have grown accustomed to selling above asking price, were slow to concede pricing concessions (see “NYC Real Estate Bubble Bursts As Apartment Sales Crash 20%“).  Now, the Wall Street Journal seems to be catching on to the carnage noting that residential rental rates have collapsed in San Francisco, San Jose and New York. 

“San Francisco and New York are leading the way in the downturn,” said Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at the University of California at Berkeley. “People are going to be surprised that this is happening but they shouldn’t be. It’s been too far, too fast.”

 

The rental market is coming off its biggest boom in decades. The foreclosure crisis, along with a trend toward urban living, has created seven million new renter households since the housing-market peak in 2006, as the home ownership rate declined to 51-year lows.

As we previously pointed out in a post entitled, “Of San Francisco Rental Market Shows Signs Of Cracking Under Pressure Of Excess Supply“, one of the biggest factors contributing to a soft rental market is the massive increase in supply of multi-unit housing complexes versus minimal job growth to fill those new housing units.

The main cause of the rent slowdown is a flood of new supply, with more than 555,000 units under construction across the 100 largest U.S. metro areas, according to MPF. Tenants also are beginning to tighten their purse strings as rents have jumped by as much as 60% in some markets since 2010. Growth of high-paying jobs, meanwhile, is slowing in New York, San Francisco and nearby Silicon Valley.

 

Almost 6,700 additional apartments are expected to be built in San Jose and nearly 6,500 more in San Francisco by the end of 2018, according to Axiometrics. New York is expected to get more than 42,000 new units during that same period.

Below is a look at the staggering growth in construction of multi-unit housing facilities compared to minimal growth in employment levels over the past 16 years.

 

San Francisco, Oakland and San Jose are facing among the largest supply gluts in the country with a 76% surge in new housing units coming online in 2016. 

 

Just as employment levels are peaking…

 

Which is causing luxury apartment buildings in San Francisco to offer some pretty serious incentives as pointed out by Yahoo Finance:

“Listings that once rented in just two to three weeks can now take two to three months to rent,” explains Paul Hwang, principal broker at Skybox Realty, a San Francisco-based real estate agency.

 

At least four new apartment buildings have opened within a three-block radius of one another during the last 18 months in San Francisco’s thriving South of Market neighborhood, which is home to major tech companies like Airbnb, Pinterest and Yelp (YELP).

 

Those four buildings — Jasper, 340 Fremont, 399 Fremont and Solaire — frequently offer some sort of bargain for prospective renters. 340 Fremont is offering six weeks of free rent; Solaire is pitching four weeks of free rent, free on-site storage and $1,000 discounts to renters who work at tech companies like Apple (AAPL), Facebook (FB) and Yahoo (YHOO). Meanwhile, another building, 399 Fremont, even tried giving away free bikes one weekend.

Meanwhile, the glut of new supply, like in New York, is also forcing down rental rates on existing capacity. 

Eugene Korsunsky, president of Intempus Realty, a San Jose real-estate brokerage firm that manages apartments and single-family homes for landlords, said for the past couple of years apartments sat on the market for about a week. Now it can take him nearly a month to find a tenant, he said.

 

“We’ve actually had to drop the rent on some properties, which I don’t think I’ve ever done in my career,” he said.

 

Tenants are even gaining the upper hand on renewals. Landlords typically drive a harder bargain on such leases because they know residents would rather avoid the hassle of moving.

To summarize, while low rates may offer an enticing cost of capital to real estate developers even low return hurdles can’t be met when a sluggish job market fails to produce renters.

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Submitted by Nick Giambruno via InternationalMan.com,

One shot from a pistol pierced the night right before Antonio Bedin collapsed, dead.

Antonio, a 67 year-old retired Italian, had just committed suicide. He was plagued by health problems and by the loss of his savings.

Last year, four small Italian banks became insolvent and immediately needed capital. They turned to a bail-in.

Antonio was one of thousands of small savers who were wiped out. Antonio lost everything. Then he shot himself.

He wasn’t alone.

There was another pensioner who hung himself at his home near Rome after he lost more than $100,000.

Their stories became national news sensations. It generated intense anger at the bail-ins.

A bail-in is when a bank recapitalizes itself by tapping its creditors, including depositors.

Most people think of the money they deposit into the bank as a personal asset they own.

But that’s not true.

Once a deposit is made at the bank, it’s no longer your property. It’s the bank’s. What you own is a promise from the bank to repay. It’s an unsecured liability. That’s a very different thing from owning physical cash stuffed under your mattress. Money deposited into the bank technically makes you a creditor of the bank. You’re liable to get burned from a bail-in should the bank get into trouble.

People in Cyprus had to find this out the hard way in early 2013. People awoke on an otherwise normal Saturday morning to the shock that the money in their bank accounts had been taken by a bail-in to recapitalize the banks.

Not surprisingly, many Italians aren’t just waiting around to get “Cyprused.”

I recently spent weeks on the ground in Italy investigating the ongoing banking crisis. I spoke with a prominent lawyer who told me that most Italians are now distrustful of the banks. They’re keeping a substantial portion of their savings in cash under their mattresses. They’re also buying lots of gold.

I’ve been to Italy numerous times over the years. But this time, I saw something new. There were signs everywhere advertising gold bullion, like the one below.

 

I think it indicates a strong demand for gold and a strong distrust of the banks. It seems to me like a slow motion bank run is already happening. This is the last thing Italy’s banking system needs. It’s further bleeding the capital in the banking system.

I only see the situation getting worse…

Italians are rightly afraid of bail-ins. That fear is leading them to withdraw their savings as cash and also to buy gold. This further drains the banks’ capital, making it more likely they’ll need to do a bail-in to remain solvent, which fuels even more withdrawals. It’s like a self-fulfilling prophecy.

This means that the chances are good that a large number of unsuspecting Italian savers are going to get wiped out.

The thought of potentially many more old, struggling pensioners committing suicide because they got wiped out from bail-ins has enormous emotional power in Italy. It’s like political nitroglycerin.

It would have a catalyzing political effect.

Bottom line, if Italians get Cyprused before the referendum later this year it’s a virtual certainty it will fail.

That’s the unenviable conundrum the current, pro-EU Italian government is facing. They can stall and save the banks through a bail-in, or they can let the whole house of cards come down. Either option is political suicide.

It’s hard to imagine that the frustrated Italian populace won’t vote to give the establishment the finger in the referendum, and humiliate the pro-EU government.

Prime Minister Matteo Renzi has promised to resign if that happens.

If he does, the anti-euro, populist Five Star Movement will almost certainly come to power. They’ve promised to promptly hold another referendum. This one would be on whether Italy should leave the euro and go back to its old currency, the lira.

If Italy—the third-largest member of the eurozone—leaves, it will have the psychological effect of someone yelling “Fire!” in a crowded theater. Other countries will quickly head for the exit, and return to their national currencies.

Economic ties and integration are what hold the EU together. Think of the currency as the economic glue. Without the euro, economic ties will weaken, and the whole project could unravel.

It would be a deathblow to the EU, the world’s largest economy… And it would explode into a global stock market crash like the world has never seen.

The Financial Times recently put it this way:

An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.

That’s how important the upcoming referendum in Italy is. It would be the first domino to fall in the collapse of the EU.

Not surprisingly, the unsavory George Soros is keenly aware of what’s going on. He recently said, in reference to the Brexit and events in Italy, “Now the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible.”

Soros Fund Management has been picking up gold assets and placing bets that stocks will crash.

He’s positioning to make big profits from the coming crisis. And I think we should, too.

That’s exactly why I recently spent weeks on the ground in Italy.

There are potentially severe consequences in the currency and stock markets.

via http://ift.tt/2d6dCEu Tyler Durden

via http://ift.tt/2dYn65D williambanzai7

From the no-handshake start, following the most awkward Bill-Melania pre-debate greeting, it was clear the gloves were off. While Trump started apologetically, once Clinton opened up ad hominem character attacks, The Donald turned it up to '11'. Lashing out at Bill's indiscretions "his actions are worse than words", Hillary's lying "you should be in jail… I will call for a special prosecutor", and the biases of the moderators"it's one of three here" even the crowd cheered.. before being quickly shushed. Online polls, unbiased commentators, and the Mexican Peso agreed Trump won.

A picture paints a thousand words…

*  *  *

Melania meets Bill…

 

Melania #Trump and Bill #Clinton shake hands prior to the #debate http://pic.twitter.com/SGbqz1neah

— dotemirates (@dotemirateseng) October 10, 2016

 

 

No handshake at the start…

 

The second presidential debate is underway. Clinton and Trump did not shake hands. LIVE BLOG: https://t.co/sqIgbIUg1R http://pic.twitter.com/rd3Ga7bDNh

— TWC News Coastal NC (@TWCNewsILM) October 10, 2016

 

 

Hillary appeared to attract a fly…

"You should be in jail"

 

Trump to Clinton: "You'd be in jail" if I was in charge http://pic.twitter.com/FvgldWAsNS

— CNBC Now (@CNBCnow) October 10, 2016

 

 

"I will bring a special prosecutor"

 

Trump: If elected, I'd "instruct my attorney general to get a special prosecutor" to investigate Clinton emails https://t.co/6yZPKjd2Py

— NBC News (@NBCNews) October 10, 2016

 

And, AG Holder chimed in…

Former U.S. Attorney General Eric Holder calls Trump "dangerous" and "unfit" after saying he'd jail Hillary Clinton if he were in charge http://pic.twitter.com/TUuR2JATkY

— BNO News (@BNONews) October 10, 2016

 

"I was surprised to Bernie sign on with you the devil…"

 

Trump: Take a look at WikiLeaks and see what they said about Bernie Sanders…I was so surprised to see him sign on with the devil. #debate http://pic.twitter.com/QPXpUlozco

— ABC 7 Chicago (@ABC7Chicago) October 10, 2016

 

 

"It's just words, folks"

 

"I don't know Putin"…

Trump on Clinton: “She lied. Now she’s blaming the lie on the late, great Abraham Lincoln.” #debate https://t.co/Bkt1WshFGP

— NBC News (@NBCNews) October 10, 2016

 

Trump slams Clinton over "Deplorables" comment…

WATCH: Trump slams Hillary Clinton over deplorables remark, says she has "hate" in her heart. #TTT16 #debate http://pic.twitter.com/TF3JDUUx1q

— MRCTV.org (@mrctv) October 10, 2016

 

They shook hands at the end…

Hillary Clinton and Donald Trump shake hands at the end of the second presidential #debate. http://pic.twitter.com/pmtoBXDuAe

— NBC News (@NBCNews) October 10, 2016

 

Clinton's campaign responded…

hey, @realDonaldTrump – regarding your claim that Captain Khan would be alive if you were president:

go fuck yourself.#debate

— Jesse Lehrich (@JesseLehrich) October 10, 2016

* * *

Online polls show it as an overwhelming win for Trump… (DrudgeReport.com)

Finally, the most real-time indicator of performance…

It's on like Donkey Kong.

Trump exceeded almost everyone's expectations with this debate. It wasn't a meltdown. Hillary didn't destroy him.

— ian bremmer (@ianbremmer) October 10, 2016

Who had the greater positive impact on your voting choice tonight?

• 21 say Trump
• 9 say Clinton#Debate2016 http://pic.twitter.com/wAwekyA97n

— Frank Luntz (@FrankLuntz) October 10, 2016

Everything was on the line for Trump tonight and he did what he had to do.
All talk of Trump backing out should immediately cease. #debate

— Michael Krieger (@LibertyBlitz) October 10, 2016

Focus Group: Who are you willing to vote for?

BEFORE #DEBATE
• Hillary: 8
• Trump: 9

AFTER DEBATE
• Hillary: 4
• Trump: 18

— Frank Luntz (@FrankLuntz) October 10, 2016

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Via The Saker,

This article was written for the Unz Review: http://ift.tt/2e0KqRq

The tensions between Russia and the USA have reached an unprecedented level. I fully agree with the participants of this CrossTalk show – the situation is even worse and more dangerous than during the Cuban Missile Crisis. Both sides are now going to the so-called “Plan B” which, simply put, stand for, at best, no negotiations and, at worst, a war between Russia and the USA.

The key thing to understand in the Russian stance in this, an other, recent conflicts with the USA is that Russia is still much weaker than the USA and that she therefore does not want war. That does not, however, mean that she is not actively preparing for war. In fact, she very much and actively does. All this means is that should a conflict occur, Russia you try, as best can be, to keep it as limited as possible.

In theory, these are, very roughly, the possible levels of confrontation:

1. A military standoff à la Berlin in 1961. One could argue that this is what is already taking place right now, albeit in a more long-distance and less visible way.
2. A single military incident, such as what happened recently when Turkey shot down a Russian SU-24 and Russia chose not to retaliate.
3. A series of localized clashes similar to what is currently happening between India and Pakistan.
4. A conflict limited to the Syrian theater of war (say like the war between the UK and Argentina over the Malvinas Islands).
5. A regional or global military confrontation between the USA and Russia.
6. A full scale thermonuclear war between the USA and Russia

During my years as a student of military strategy I have participated in many exercises on escalation and de-escalation and I can attest that while it is very easy to come up with escalatory scenarios, I have yet to see a credible scenario for de-escalation. What is possible, however, is the so-called “horizontal escalation” or “asymmetrical escalation” in which one side choses not to up the ante or directly escalate, but instead choses a different target for retaliation, not necessarily a more valuable one, just a different one on the same level of conceptual importance (in the USA Joshua M. Epstein and Spencer D. Bakich did most of the groundbreaking work on this topic).

The main reason why we can expect the Kremlin to try to find asymmetrical options to respond to a US attack is that in the Syrian context Russia is hopelessly outgunned by the US/NATO, at least in quantitative terms. The logical solutions for the Russians is to use their qualitative advantage or to seek “horizontal targets” as possible retaliatory options. This week, something very interesting and highly uncharacteristic happened: Major General Igor Konashenkov, the Chief of the Directorate of Media service and Information of the Ministry of Defence of the Russian Federation, openly mentioned one such option. Here is what he said:

“As for Kirby’s threats about possible Russian aircraft losses and the sending of Russian servicemen back to Russia in body bags, I would say that we know exactly where and how many “unofficial specialists” operate in Syria and in the Aleppo province and we know that they are involved in the operational planning and that they supervise the operations of the militants. Of course, one can continue to insist that they are unsuccessfully involved in trying to separate the al-Nusra terrorists from the “opposition” forces. But if somebody tries to implement these threats, it is by no means certain that these militants will have to time to get the hell out of there.”

Nice, no? Konashenkov appears to be threatening the “militants” but he is sure to mention that there are plenty of “unofficial specialists” amongst these militants and that Russia knows exactly where they are and how many of them there are. Of course, officially, Obama has declared that there are a few hundred such US special advisors in Syria. A well-informed Russian source suggests that there are up to 5’000 foreign ‘advisors’ to the Takfiris including about 4’000 Americans. I suppose that the truth is somewhere between these two figures.

So the Russian threat is simple: you attack us and we will attack US forces in Syria. Of course, Russia will vehemently deny targeting US servicemen and insist that the strike was only against terrorists, but both sides understand what is happening here. Interestingly, just last week the Iranian Fars news agency reported that such a Russian attack had already happened:

30 Israeli, Foreign Intelligence Officers Killed in Russia’s Caliber Missile Attack in Aleppo:

 

“The Russian warships fired three Caliber missiles at the foreign officers’ coordination operations room in Dar Ezza region in the Western part of Aleppo near Sam’an mountain, killing 30 Israeli and western officers,” the Arabic-language service of Russia’s Sputnik news agency quoted battlefield source in Aleppo as saying on Wednesday. The operations room was located in the Western part of Aleppo province in the middle of sky-high Sam’an mountain and old caves. The region is deep into a chain of mountains. Several US, Turkish, Saudi, Qatari and British officers were also killed along with the Israeli officers. The foreign officers who were killed in the Aleppo operations room were directing the terrorists’ attacks in Aleppo and Idlib.”

Whether this really happened or whether the Russians are leaking such stories to indicate that this could happen, the fact remains that US forces in Syria could become an obvious target for Russian retaliation, whether by cruise missile, gravity bombs or direct action operation by Russian special forces. The US also has several covert military installations in Syria, including at least one airfield with V-22 Osprey multi-mission tiltrotor aircraft.

Another interesting recent development has been the Fox News report that Russians are deploying S-300V (aka “SA-23 Gladiator anti-missile and anti-aircraft system”) in Syria. Check out this excellent article for a detailed discussion of the capabilities of this missile system. I will summarize it by saying that the S-300V can engage ballistic missiles, cruise missiles, very low RCS (“stealth”) aircraft and AWACS aircraft. This is an Army/Army Corps -level air defense system, well capable of defending most of the Syrian airspace, but also reach well into Turkey, Cyprus, the eastern Mediterranean and Lebanon. The powerful radars of this system could not only detect and engage US aircraft (including “stealth”) at a long distance, but they could also provide a tremendous help for the few Russian air superiority fighters by giving them a clear pictures of the skies and enemy aircraft by using encrypted datalinks. Finally, US air doctrine is extremely dependent on the use of AWACS aircraft to guide and support US fighters. The S-300V will forces US/NATO AWACS to operate at a most uncomfortable distance. Between the longer-range radars of the Russian Sukhois, the radars on the Russian cruisers off the Syrian coast, and the S-300 and S-300V radars on the ground, the Russians will have a much better situational awareness than their US counterparts.

It appears that the Russians are trying hard to compensate for their numerical inferiority by deploying high-end systems for which the US has no real equivalent or good counter-measures.

There are basically two options of deterrence: denial, when you prevent your enemy from hitting his targets and retaliation, when you make the costs of an enemy attack unacceptably high for him. The Russians appear to be pursuing both tracks at the same time. We can thus summarize the Russian approach as such

1. Delay a confrontation as much as possible (buy time).
2. Try to keep any confrontation at the lowest possible escalatory level.
3. If possible, reply with asymmetrical/horizontal escalations.
4. Rather then “prevail” against the US/NATO – make the costs of attack too high.
5. Try to put pressure on US “allies” in order to create tensions inside the Empire.
6. Try to paralyze the USA on a political level by making the political costs of an attack too high-end.
7. Try to gradually create the conditions on the ground (Aleppo) to make a US attack futile

To those raised on Hollywood movies and who still watch TV, this kind of strategy will elicit only frustration and condemnation. There are millions of armchair strategists who are sure that they could do a much better job than Putin to counter the US Empire. These folks have now been telling us for *years* that Putin “sold out” the Syrians (and the Novorussians) and that the Russians ought to do X, Y and Z to defeat the AngloZionist Empire. The good news is that none of these armchair strategists sit in the Kremlin and that the Russians have stuck to their strategy over the past years, one day at a time, even when criticized by those who want quick and “easy” solutions. But the main good news is that the Russian strategy is working. Not only is the Nazi-occupied Ukraine quite literally falling apart, but the US has basically run out of options in Syria (see this excellent analysis by my friend Alexander Mercouris in the Duran).

The only remaining logical steps left for the USA in Syria is to accept Russia’s terms or leave. The problem is that I am not at all convinced that the Neocons, who run the White House, Congress and the US corporate media, are “rational” at all. This is why the Russians employed so many delaying tactics and why they have acted with such utmost caution: they are dealing with professional incompetent ideologues who simply do not play by the unwritten but clear rules of civilized international relations. This is what makes the current crisis so much worse than even the Cuban Missile Crisis: one superpower has clearly gone insane.

Are the Americans crazy enough to risk WWIII over Aleppo?

Maybe, maybe not. But what if we rephrase that question and ask

Are the Americans crazy enough to risk WWIII to maintain their status as the “world’s indispensable nation”, the “leader of the free world”, the “city on the hill” and all the rest of this imperialistic nonsense?

Here I would submit that yes, they potentially are.

After all, the Neocons are correct when they sense that if Russia gets away with openly defying and defeating the USA in Syria, nobody will take the AngloZionists very seriously any more.

How do you think the Neocons think when they see the President of the Philippines publicly calling Obama a “son of a whore” and then tells the EU to go and “f*ck itself”?

Of course, the Neocons can still find some solace in the abject subservience of the European political elites, but still – they know that he writing is on the wall and that their Empire is rapidly crumbling, not only in Syria, the Ukraine or Asia, but even inside the USA. The biggest danger here is that the Neocons might try to rally the nation around the flag, either by staging yet another false flag or by triggering a real international crisis.

At this point in time all we can do is wait and hope that there is enough resistance inside the US government to prevent a US attack on Syria before the next Administration comes in. And while I am no supporter of Trump, I would agree that Hillary and her evil cabal of russophobic Neocons is so bad that Trump does give me some hope, at least in comparison to Hillary.

So if Trump wins, then Russia’s strategy will be basically justified. Once Trump is on the White House, there is at least the possibility of a comprehensive redefinition of US-Russian relations which would, of course, begin with a de-escalation in Syria: while Obama/Hillary categorically refuse to get rid of Daesh (by that I mean al-Nusra, al-Qaeda, and all their various denominations), Trump appears to be determined to seriously fight them, even if that means that Assad stays in power. There is most definitely a basis for dialog here. If Hillary comes in, then the Russians will have to make an absolutely crucial call: how important is Syria in the context of their goal to re-sovereignize Russia and to bring down the AngloZionist Empire? Another way of formulating the same question is “would Russia prefer a confrontation with the Empire in Syria or in the Ukraine?”.

One way to gauge the mood in Russia is to look at the language of a recent law proposed by President Putin and adopted by the Duma which dealt with the issue of the Russia-US Plutonium Management and Disposition Agreement (PMDA) which, yet again, saw the US yet again fail to deliver on their obligations and which Russia has now suspended. What is interesting, is the language chosen by the Russians to list the conditions under which they would resume their participation in this agreement and, basically, agree to resume any kind of arms negotiations:

1. A reduction of military infrastructure and the number of the US troops stationed on the territory of NATO member states that joined the alliance after September 1, 2000, to the levels at which they were when the original agreement first entered into force.
2. The abandonment of the hostile policy of the US towards Russia, which should be carried out with the abolition of the Magnitsky Act of 2012 and the conditions of the Ukraine Freedom Support Act of 2014, which were directed against Russia.
3. The abolition of all sanctions imposed by the US on certain subjects of the Russian Federation, Russian individuals and legal entities.
4. The compensation for all the damages suffered by Russia as a result of the imposition of sanctions.
5. The US is also required to submit a clear plan for irreversible plutonium disposition covered by the PMDA.

Now the Russians are not delusional. They know full well that the USA will never accept such terms. So what is this really all about? It is a diplomatic but unambiguous way to tell the USA the exact same thing which Philippine President Duterte (and Victoria Nuland) told the EU.

The Americans better start paying attention.

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On Friday, in the aftermath of the historic pound sterling flash crash, we presented Citi’s forensic take of how in just 30 seconds, bid/ask spreads in cable exploded as wide 600 pips.

Today, we provide another take, that of JPM’s Nikolaos Panigirtzoglou, who looks at the “gapping market” that emerged on Friday morning Asia time, and shares some color on the role of high frequency traders behind the sudden, dramatic plung in sterling.

Below is his full note:

Friday’s flash crash in sterling reinvigorates the debate about market liquidity and the role of High Frequency Traders (HFTs) as providers of liquidity. Similar to previous flash crashes such as the August 24th 2015 flash crash in US equities or the October 15th 2014 flash crash in USTs, market gapping, a step change in prices from one level to another without much trading in-between, raises questions about market structure and liquidity in FX markets. This is also because FX markets are perceived to be a lot more liquid than equity or bond markets, so the conventional view is that FX markets are unlikely to experience flash crashes or market gapping in the absence of high impact news.

The flash crash in a major currency like sterling questions the above perception and perhaps shows there are liquidity vulnerabilities in FX markets that are more similar to those seen in equity or bond markets. A step change following a significant event such the Brexit referendum or the SNB’s abandonment of its peg is not problematic as it represents a natural market resetting. But a step change triggered by an order flow is more problematic and in our opinion reflective of how vulnerable market liquidity is in FX markets also.

Liquidity vulnerabilities in equity or fixed income markets as a result of changing market structures are well documented. In equity markets the shift away from principal trading towards agency trading, where markets makers simply match buyers with sellers without holding inventory beyond a short period of time, took place well before the Lehman crisis. But the Lehman crisis caused a similar shift within fixed income markets. Regulatory and other forces have made it a lot more costly for traditional dealers to act as principal traders in fixed income markets, inducing them to change towards a more order-driven trading model of matching buyers and sellers with minimal inventory risk, or to retrench and be replaced by agent traders.

At the same time electronic trading and advances in technology has encouraged the emergence of HFTs as liquidity providers in the most liquid segments of equity, FX and to some extent income markets. These HFTs use sophisticated quantitative models coupled with speed and high trading frequency, to exploit small price moves. They do so by arbitraging price differences across venues or by detecting and taking advantage of order shifts or imbalances or by simply exploiting very short term momentum or mean reversion signals.

However, different to traditional market makers, HFTs tend to operate with a much shorter inventory cycle, meaning that they conduct offsetting trades within seconds or even shorter, in order to neutralize  their original position. As a result they tend to quote for smaller sizes and for a very short period of time. This in turn reduces market depth, i.e. the ability to trade in size in markets, especially in those markets where HFTs are important liquidity providers like equity markets. So we note that while the emergence of HFTs has been beneficial for bid ask spreads and small investors, it has likely had a negative impact on the ability of big institutional investors to trade in size. This is one of the reasons big institutional investors have resorted to dark pools for implementing large equity trades.

More importantly, because HFTs’ models are typically adapted to exploit small price moves, HFTs have a higher incentive to withdraw from their market making role in periods when volatility rises abruptly as  they are reluctant to subject themselves to the risk of large price moves. In addition, there is a similar incentive to withdraw from market making when they detect a big order imbalance, i.e. when they detect markets becoming one-sided, as they are reluctant to subject themselves to the risk of not being able to close their position in a very short period of time.

In addition, given HFTs employ similar models, this creates the risk of a simultaneous withdrawal by HFTs in periods of high volatility or stress or in periods when market become more one-sided. A simultaneous withdrawal by HFTs not only amplifies the initial market move, but also creates step changes or gapping markets as liquidity provision gets impaired and quotes are withdrawn.

How big is the role of HFT in FX markets relative to other markets? A previous report by the BIS “Highfrequency trading in the foreign exchange market”, September 2011 concluded that around a quarter to one third of spot FX trading volumes are due to HFTs. But given that this study was conducted five years ago, we suspect that this share has risen since then.

Indeed, the latest 2016 Euromoney FX rankings survey is consistent with a rising share by HFTs as liquidity providers. The biggest change in this year’s rankings has been the advent of non-bank liquidity providers led by XTX Markets who was ranked third for electronic spot FX trading with a market share of more than 10% and third for FX trading platforms. In contrast, the combined market share of the top five global banks dropped to just 44.7% for overall FX trading in this year’s survey. This market share had peaked in 2009 at 61.5% and was above 60% as recently as 2014.

Moreover, many of the banks ranked outside the top 10 for overall FX trading are understood to be sourcing liquidity from non-bank liquidity providers. According to Euromoney, these non-bank liquidity providers or HFTs are set to gain more market share in the future, helped by advances in technology, more defined business models and a lower-cost infrastructure base than traditional FX banks. HFTs are already very important in FX spot markets as mentioned above, but they look to build capability in forwards and other products in the near future.

In all, the FX market appears to be going through structural changes similar to those experienced by equity markets in the past. The advent of non-bank liquidity providers such as HFTs has reduced bid ask spread and increased market efficiency in FX markets, but at the cost of lower market depth and withdrawal of liquidity provision in periods of stress.

 

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