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Asia Morning: Agreeing to Disagree

Asia Morning: Agreeing to Disagree



A dose of reality swept Wall Street last night, as secondary COVID-19 outbreaks and the threat of renewed US-China trade disputes, muted the peak-virus momentum in markets of the past week. Still, Wall Street stocks managed to finish almost unchanged, which suggests that although some nervousness is around, the underlying recovery-trade momentum is merely taking a vacation and not extended sick leave.

In the case of a market where positioning by the majority of shorter-term players is loaded up one way; it doesn’t take a lot to spur the more nervous ones to head for the exit door. Trade-sensitive Asia, ignoring the secondary COVID-19 outbreaks in China and South Korea yesterday, are clearly more worried about renewed trade disputes. Asian equity markets, by and large, are trading lower this morning as Chinese newspapers are suggesting that the US-China trade agreement should be renegotiated or scrapped.

Dealing with the trade agreement elephant in the room, it is likely to be a storm in a teacup for a few reasons. China itself has taken apparent umbrage at some awkward questions from Australia over the origins of COVID-19. It is reverting to its standard procedure when another country does something it doesn’t like, punish it—in this case, refusing to take some Australian meat exports. It would be slightly hypocritical for China to want to change the trade agreement; therefore, just because the coronavirus pandemic has made execution more difficult. Especially when the United States is asking the same questions. I will only get concerned if China starts banning Australian iron ore and coal exports.

Secondly, it would likely be electoral suicide for President Trump to walk back some or all of the trade agreement terms, having invested such an enormous amount of political capital in it in the first place. The US presidential election is likely to be fought on getting tough on China by both sides. President Trump said as much this morning, stating that he was not considering reconsidering.

Thirdly, the US-China trade agreement was a two-year deal, not a three-month contract. January seems like a millennium ago, but we are actually only four months into the agreement. In that time, the COVID-19 pandemic has shut the world economy down, including China and the US. Compliance would have been nigh on impossible.

The mild correction in asset markets overnight looks like a classic case of the street fitting the events to the narrative to its position and acting accordingly. Put simply; global markets are loaded up to the gunnels on the worldwide recovery trade. Any hint of bad news disrupting that after such an extended one-way run by the herd, is likely to see some of them turn around and run the other way. A good hard dose of reality is undoubtedly coming to the v-shaped recovery trade, but overnight events seem to be more noise than a seminal turn in sentiment.

Asian equities ease on trade fears.

The fall in Asian stock markets is unsurprising, given how sensitive to world trade the region is. However, the falls today are relatively mild given the strength of the rallies of the last week and look more corrective than fundamental. Wall Street itself, managed to shrug the news of with the S&P 500 closing unchanged, the NASDAQ recording a 0.80% gain led by big-tech, and the Dow Jones easing 0.45%.

The Nikkei 225 is slightly lower by only 0.30%, with Mainland China’s Shanghai Composite and CSI 300 both flat for the session. Hardly the reaction you would expect if a trade war was imminent.

The prospect of a further stimulus budget being needed in South Korea has seen the Kospi fall 1.0% today. After an impressive run higher the past week, the Hong Kong Hang Seng has fallen by 1.60% today, reflecting its higher sensitivity to trade concerns. It is a similar story in Singapore, where a relentless rise in COVID-19 cases, trade concerns, and yet another scandal in the commodity trading space, has seen the Straits Times fall 1.0%.

Asian stocks are likely to remain mildly negative for the rest of the session, but the price action looks corrective and is not signalling yet, an unwinding of the global recovery trade.

The US Dollar rises on corrective price action.

It is much the same story in currency markets, where trade concerns have become an excuse to pare back the recent rotation into more risk-seeking positioning. The dollar index climbed 0.43% overnight to 100.16, with the Japanese Yen and Euro notable losers in the basket. Similar price action was seen in the commodity and emerging markets space, where the US Dollar rose as peak-virus trades were reduced and recent profits booked.

Notably, the Australian Dollar failed overnight at its 100-day moving average at 0.6535 and traced out a double top at the sessions high of 0.6560. Trade concerns have seen the AUD/USD fall by 0.65% to 0.6475 today, and the o.6535 and 0.6560 levels now form strong resistance.

Notably, the Indonesian Rupiah continues to outperform. It is climbing yet again this morning with USD/IDR falling from 15,122.00 to 14,932.00 in the past 24 hours. Given that Indonesia is considered one of the most vulnerable countries to the coronavirus pandemic recession, the performance of the IDR is notable. It has now recovered nearly 65% of its March losses. With no sign of the IDR rally running out of steam, this may suggest that the peak-virus trade globally, still has some distance to run, intra-day hiccups aside.

Oil ignores Saudi Arabia and corrects lower. WTI futures expiry to be a damp squib.

One asset class that might be running on empty at these lofty levels could be oil. Both Brent crude and WTI eased overnight even as Saudi Arabia announced an additional 1 million barrel per day production cut, with Kuwait and the UAE also chipping in with small cuts of their own. Unilateral action by Saudi Arabia, the world’s swing producer should have been bullish, but instead, oil prices fell. Traders may have one eye on the expiry of the June WTI Nymex contract today after the carnage of the May expiry.

Brent crude notably failed at its 50-day moving average overnight at $29.30 a barrel, finishing the session 1.80% lower at $27.95 a barrel. It has eased another 1.0% in Asia to $27.60 a barrel. The region between $29.50 and $30.00 a barrel looms as formidable resistance for Brent now. A break of $26.00 a barrel implies a deeper correction is ahead.

WTI clung on to its gains overnight, finishing 2.0% lower and holding just above its 50-day moving average at $25.00 a barrel. The moving average is at $24.50 a barrel this morning, also the lows of the last four days. A break of this level implies a deeper technical correction to the $20.00 a barrel region. Resistance is at the $28.00 a barrel level, where it has failed three times in the past week.

Although I am not expecting a repeat of the carnage of May expiry today, WTI is likely to be its own man as the futures cut-off nears. WTI could easily trade in a ten-dollar range as last-minute position adjustments are arranged. However, it would not surprise me in the least, if the expiry passes with a whimper, as I suspect most June positions that need to be, have long been rolled into the forward futures months.

Gold remains becalmed each side of the $1700.00 region.

Gold eased modestly overnight as the US Dollar strengthened, falling by 0.30% to $1697.50 an ounce. The directionless sideways trading of the past month continued once again, although I note that gold’s multi-week range has compressed into $1675.00 to $1725.00 an ounce. That implies that a breakout is coming, one way or another.

That said, the direction of the breakout is not clear although logic suggests the longer-term trend for gold should be higher, probably much so. I will reiterate though, that a narrowing range aside, the critical longer-term levels remain $1650.00 and $1750,00 an ounce. I will not take my feet off the desk until one of those breaks.

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Why so sad?

Over the past few years, consumer sentiment has increasingly run far below the level predicted by models based on economic data. The Economist illustrates…



Over the past few years, consumer sentiment has increasingly run far below the level predicted by models based on economic data. The Economist illustrates the issue with a graph:

The Economist attributes the gloomy outlook to the lingering effects of Covid.  I suspect the actual explanation is growing political polarization.  Consider the growing partisan gap in how voters evaluate the economy:

Back in the 1990s, there wasn’t much partisan difference in how voters evaluated the condition of the economy.  This was before the public had come to view people with different points of view as the enemy.  I suspect that the responses to polls were more honest back then.  After 9/11, opinion became more polarized.  After Trump was elected, polarization increased even further.  Today, voters in the two major parties live in completely separate worlds, consuming media that is tailored to fit their prejudices.  Thus it’s not surprising that they have radically divergent views of the world.

Voters seem to rate the economy much more highly when their preferred candidate is in power, perhaps partly due to the mistaken assumption that presidents somehow control inflation and the business cycle.  (A myth that is encouraged by our media.)

Until 2021, the biases of the two parties roughly offset, leaving the overall rating roughly equal to the rating one would expect based solely on the economic data.  This changed after Joe Biden became president.  Unlike with President Obama (who inherited a weak economy), Democratic voters are only lukewarm on the current president. 

In contrast, Republican voters have an extremely negative view of President Biden.  With only lukewarm sentiment from Democrats, there is nothing to offset the extremely low economic rating of Republicans.  This leaves the overall rating for the economy far below the level you’d expect with rising real wages, 3.8% unemployment, and 3.7% inflation.  At one point in 2022, consumer sentiment fell below the lowest reading of the early 1980s, when the economy was in far worse shape.

I don’t believe these consumer sentiment figures represent the actual views of the public.  Consumer spending is still very strong, an indication that people feel pretty good about the economy.  Actions speak louder than words.  I suspect the low reported sentiment is mostly a reflection of GOP voters expressing anger at the current political situation.

My own view is that recent economic policy (since 2017) is quite bad, but the negative effects will show up in future years, at a point where we will need to confront the effects of an out of control federal budget.  If people think the current economy is bad, wait until they see what’s coming down the road in a few years!

PS.  Note to commenters:  If you think the economic model is wrong, you need to explain why it fit the data for the 40-year period from 1980 to 2020.


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Menendez indictment looks bad, but there are defenses he can make

The indictment of Sen. Bob Menendez is full of lurid details – hundreds of thousands of dollars in cash stuffed into clothes among them. Will they tank…




Senate Foreign Relations Committee Chairman, Sen. Bob Menendez, D-N.J., right, and his wife Nadine Arslanian. AP Photo/Susan Walsh, File

Reactions came quickly to the federal indictment on Sept. 22, 2023 of New Jersey’s senior U.S. senator, Democrat Bob Menendez. New Jersey Gov. Phil Murphy joined other state Democrats in urging Menendez to resign, saying “The alleged facts are so serious that they compromise the ability of Senator Menendez to effectively represent the people of our state.”

The indictment charged Menendez, “his wife NADINE MENENDEZ, a/k/a ‘Nadine Arslanian,’ and three New Jersey businessmen, WAEL HANA, a/k/a ‘Will Hana,’ JOSE URIBE, and FRED DAIBES, with participating in a years-long bribery scheme…in exchange for MENENDEZ’s agreement to use his official position to protect and enrich them and to benefit the Government of Egypt.” Menendez said he believed the case would be “successfully resolved once all of the facts are presented,” but he stepped down temporarily as the chairman of the Senate’s influential Committee on Foreign Relations.

The Conversation’s senior politics and democracy editor, Naomi Schalit, interviewed longtime Washington, D.C. lawyer and Penn State Dickinson Law professor Stanley M. Brand, who has served as general counsel for the House of Representatives and is a prominent white-collar defense attorney, and asked him to explain the indictment – and the outlook for Menendez both legally and politically.

What did you think when you first read this indictment?

As an old seafaring pal once told me, “even a thin pancake has two sides.”

Reading the criminal indictment in a case for the first time often produces a startled reaction to the government’s case. But as my over 40 years of experience defending public corruption cases and teaching criminal law has taught me, there are usually issues presented by an indictment that can be challenged by the defense.

In addition, as judges routinely instruct juries in these cases, the indictment is not evidence and the jury may not rely on it to draw any conclusions.

A man in a suit pointing at a poster board with various photos on it.
Damian Williams, U.S. Attorney for the Southern District of New York, speaks during a press conference on Sept. 22, 2023 after announcing the Menendez indictment. Alexi J. Rosenfeld/Getty Images

The average reader will look at the indictment and say “These guys are toast.” But are there ways Menendez can defend himself?

There are a number of complex issues presented by these charges that could be argued by the defense in court.

First, while the indictment charges a conspiracy to commit bribery, it does not charge the substantive crime of bribery itself. This may suggest that the government lacks what it believes is direct evidence of a quid pro quo – “this for that” – between Menendez and the alleged bribers.

There is evidence of conversations and texts that coyly and perhaps purposely avoid explicit acknowledgment of a corrupt agreement, for instance, “On or about January 24, 2022, DAIBES’s Driver exchanged two brief calls with NADINE MENENDEZ. NADINE MENENDEZ then texted DAIBES, writing, ‘Thank you. Christmas in January.’”

The government will argue that this reflects acknowledgment of a connection between official action and delivery of cash to Sen. Menendez, even though it is a less than express statement of the connection.

Speaking in this kind of code may not fully absolve the defendants, but the government must prove the defendants’ intent to carry out a corrupt agreement beyond a reasonable doubt – and juries sometimes want to see more than innuendo before convicting.

The government has also charged a crime calledhonest services fraud” – essentially, a crime involving a public official putting their own financial interest above the public interest in their otherwise honest and faithful performance of their duties.

The alleged failure of Sen. Menendez to list the gifts, as required, on his Senate financial disclosure forms will be cited by prosecutors as evidence of “consciousness of guilt” – an attempt to conceal the transactions.

However, under a recent Supreme Court case involving former Gov. Bob McDonnell of Virginia for similar crimes, the definition of “official acts” under the bribery statute has been narrowly defined to mean only formal decisions or proceedings. That definition does not include less-formal actions like those performed by Sen. Menendez, such as meetings with Egyptian military officials.

The Supreme Court rejected an interpretation of official acts that included arranging meetings with state officials and hosting events at the Governor’s mansion or promoting a private businessman’s products at such events.

When it comes time for the judge to instruct the jury at the end of the trial, Sen. Menendez may well be able to argue that much of what he did not constitute “official acts” and therefore are not illegal under the bribery statute.

This case involves alleged favors done for a foreign country in exchange for money. Does that change this case from simple bribery to something more serious?

The issue of foreign military sales to Egypt may also present a constitutional obstacle to the government.

The indictment specifically cites Sen. Menendez’s role as chairman of the Senate Foreign Relations Committee and actions he took in that role in releasing holds on certain military sales to Egypt and letters to his colleagues on that issue. The Constitution’s Speech or Debate Clause protects members from liability or questioning when undertaking actions within the “legitimate legislative sphere” – which undoubtedly includes these functions.

While this will not likely be a defense to all the allegations, it could require paring the allegations related to this conduct. That would whittle away at a pillar of the government’s attempt to show Sen. Mendendez had committed abuse of office.

In fact, when the government has charged members of Congress with various forms of corruption, courts have rejected any reference to their membership on congressional committees as evidence against them.

Three men in suits, standing in front of a fire engine.
NJ Gov. Phil Murphy, left, seen here in 2018 with fellow Democrats Sens. Robert Menendez and Cory Booker, has called on Menendez to resign. AP Photo/Wayne Parry

How likely is Sen. Mendendez’ ouster from the Senate?

Generally, neither the House nor Senate will move to expel an indicted member before conviction.

There have been rare exceptions, such as when Sen. Harrison “Pete” Williams was indicted in the FBI ABSCAM sting operation from the late 1970s and early 1980s against members of Congress. He resigned in 1982 shortly before an expulsion vote. With current Democratic control of the Senate by a margin of just one seat, Sen. Menendez’ ouster seems unlikely even though the Democratic governor of New Jersey would assuredly appoint a Democrat to fill the vacancy.

“In the history of the United States Congress, it is doubtful there has ever been a corruption allegation of this depth and seriousness,” former New Jersey Sen. Robert Torricelli said. True?

That seems hyperbolic. The Menendez case is just the latest in a long line of corruption cases involving members of Congress.

In the ABSCAM case, seven members of the House and one Senator were all convicted in a bribery scheme. That scheme involved undercover FBI agents dressed up as wealthy Arabs, offering cash to Congressmembers in return for a variety of political favors.

In the Korean Influence Investigation in 1978 – when I served as House Counsel – the House and Department of Justice conducted an extensive investigation of influence peddling by Tongsun Park, a Korean national in which questionnaires were sent to every member of the House relating to acceptance of gifts from Park.

Going all the way back to 1872, there was the Credit Mobilier scandal that involved prominent members of the House and Vice President Schuyler Colfax in a scheme to reward these government officials with shares in the transcontinental railroad company in exchange for their support of funding for the project.

Stanley M. Brand does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von der Leyen just said what?…

This past Wednesday, President of the European…



Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von der Leyen just said what?...

This past Wednesday, President of the European Commission Ursula von der Leyen delivered a speech before the 2023 Atlantic Council Awards in New York, where she sounded the alarm over the specter of nuclear war centered on the Russia-Ukraine conflict. But while invoking remembrance of the some 78,000 civilians killed instantly by the atomic bomb dropped on Hiroshima at the end of WWII, she said her warning comes "especially at a time when Russia threatens to use nuclear weapons once again". She  actually framed the atomic atrocity in a way that made it sound like the Russians did it. Watch:

There was not one single acknowledgement in Von der Leyen's speech that it was in fact the United States which incinerated and maimed hundreds of thousands when it dropped no less that two atomic bombs on Japanese cities.

Here were her precise words, according to an Atlantic Council transcript...

You, dear Prime Minister, showed me the meaning of this proverb during the G7 summit in Japan last year. You brought us to your hometown of Hiroshima, the place where you have your roots and which has deeply shaped your life and leadership. Many of your relatives lost their life when the atomic bomb razed Hiroshima to the ground. You have grown up with the stories of the survivors. And you wanted us to listen to the same stories, to face the past, and learn something about the future.

It was a sobering start to the G7, and one that I will not forget, especially at a time when Russia threatens to use nuclear weapons once again. It is heinous. It is dangerous. And in the shadow of Hiroshima, it is unforgivable

The above video of that segment of the speech gives a better idea of the subtle way she closely associated in her rhetoric the words "once again" with the phrase "shadow of Hiroshima" while focusing on what Russia is doing, to make it sound like it was Moscow behind the past atrocities.

Via dpa

Russian media not only picked up on the woefully misleading comments, but the Kremlin issued a formal rebuke of Von der Leyen's speech as well:

In response to von der Leynen's remarks, Russian Foreign Ministry spokeswoman Maria Zakharova accused the European Commission president of making "no mention whatsoever of the US and its executioners who dropped the bombs on populated Japanese cities."

Zakharova responded on social media, arguing that von der Leyen's assertions on Moscow's supposed intentions to employ nuclear weapons "is despicable and dangerous" and "lies."

Some Russian embassies in various parts of the globe also highlighted the speech on social media, denouncing the "empire of lies" and those Western leaders issuing 'shameful' propaganda and historical revisionism.

Tyler Durden Sun, 09/24/2023 - 13:15

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