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Futures Tread Water As Critical EU Summit Begins

Futures Tread Water As Critical EU Summit Begins



Futures Tread Water As Critical EU Summit Begins Tyler Durden Fri, 07/17/2020 - 07:47

S&P futures were flat in a especially low-volume session, rebounding from losses late yesterday after Netflix surprised investors with a dismal subscriber outlook, while European shares fluctuated ahead of a critical EU summit in which leaders met in Brussels to try and hammer through a 750 billion euro post-pandemic recovery fund. 10Y yields continued their slide, dropping to 0.60%,as the dollar weakened.

The Nasdaq Composite has managed to go two months without posting back-to-back declines, but that may be under threat as investors question the resiliency of tech’s searing rally following Netflix's deplorable guidance.

European and world equity markets were heading for their third weekly gain in a row, but they were the smallest yet and Friday’s go-slow involved all the main asset classes from commodities to bonds according to Reuters. London’s FTSE, Paris, Milan and Madrid had all sagged into the red in early trading and though the euro ticked up, Italian and Spanish bond yields were struggling to stay anchored to their recent lows. An eventual green light to the €750 billion plan should finally lead to joint European debt, but investors are seeing their broader list of uncertainties and questions growing again.

"Presumably, as is the way of Europe, they will agree to come back from more talks followed by a compromise and a watered down deal," SocGen FX strateigst Kit Juckes said of the EU discussions. “The positive though is that we are getting a recovery fund.”

Europe's Stoxx Europe 600 Index erased gains of as much as 0.3% led by declines in travel, banking and oil sectors, after Germany’s chancellor said that big differences remain in today’s EU recovery fund talks. Dutch Prime Minister Mark Rutte, one of the main resisters to the recovery fund including mass grants, also said that he was “not optimistic” that agreement would be reached on Friday as he arrived for the meeting.  The Netherlands wants countries receiving EU support from the fund to agree to reforms in their labor markets and pension systems, and is leading a group of several smaller EU nations calling for stricter conditions.

Among individual movers, Novartis -1%, Shell and Total decline more than 1.5% as oil retreats. Automakers were the biggest gainers, with Daimler rising 4.1% after 2Q earnings were ahead of expectations.

Earlier in the session, in Asia Japan’s Nikkei slid 0.3% on concerns about rising virus infections in Tokyo. The Topix declined 0.3%, with Yoshimura Food Holdings and Teac falling the most. Chinese shares were steady after a more than 4% slide on Thursday, with investors assessing moves by policy makers to tame signs of exuberance. China’s CSI300 index climbed 0.25%, though that was after a near 5% slump on Thursday. The Shanghai Composite Index rose 0.1%, with Xinjiang Xuefeng Sci-Tech Group and Xinjiang Youhao Group posting the biggest advances. South Korea's Kospi Index and India's S&P BSE Sensex Index rose while the Jakarta Composite fell.

Adding to the recent rise in U.S.-Sino tensions, Washington had said it was considering banning members of the Chinese Communist Party traveling to the United States. The party totals more than 90 million people.

Meanwhile questions remain: will the COVID-19 pandemic force economies into lockdown again? The United States reported at least 75,000 new COVID-19 cases on Thursday, a daily record. Spain and Australia reported their steepest daily jumps in more than two months, while cases continued to soar in India and Brazil.

Investors are also counting on more stimulus. As well as Europe’s recovery fund, the U.S. Congress is set to begin debating a new aid package next week, as several states in the country’s south and west implement fresh lockdown measures to curb the virus. While retail sales for June released on Thursday beat market expectations, real-time measures of retail foot traffic and employee working hours and shifts have flatlined after steady growth since April.

"We now see higher risk of a market correction, considering the improvement in hard economic data we have seen over the past couple of months is likely to halt," said Tomo Kinoshita, global market strategist at Invesco in Tokyo.

In rates, it was a muted session with Treasury yields lower across the curve after all but 30-year drifted to weekly lows on light futures volume during Asia session and European morning. Curve flatter with long-end yields lower by ~1.7bp into early U.S. session. 10-year yields lower by ~2bps just below 0.60%, extending the weekly decline despite gains for U.S. equities during first week of 2Q results reporting, to more than 4bp; 2s10s and 5s30s curves each flatter by ~1bp; U.K. 10-year lags U.S. by 3bp, German 10- year by ~1bp. Futures volumes were around 70% of 20-day average levels as of 7am ET.

In currencies, the Bloomberg Dollar Spot Index headed for a third week of declines as Treasuries advanced for a second week. The euro gained on the day despite a slide in European stocks after Germany said big differences remain in EU recovery fund talks. The pound steadied yet headed for the biggest weekly drop among G-10 currencies, weighed down by weak economic data that fueled expectations of another interest-rate cut by the Bank of England. The yen was up fractionally at 107.13 per dollar and Sweden’s high-flying crown was up again.

In commodities trading, oil prices were little changed with Brent down 0.25% at $43.26 per barrel and U.S. crude down 0.15% at $40.87.  The two benchmark crudes had fallen 1% on Thursday too after the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, agreed to trim their record supply cuts of 9.7 million barrels per day (bpd) by 2 million bpd, starting in August.

Looking at the day ahead now, as well as the aforementioned European Council meeting, we’ll get US housing starts and building permits for June, and the preliminary University of Michigan’s consumer sentiment index for July. Central bank speakers include BoE Governor Bailey, ECB Vice President de Guindos, and Executive Board member Schnabel, while earnings releases to watch out for include BlackRock, Danaher and Honeywell International.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,201.75
  • STOXX Europe 600 down 0.07% to 371.86
  • MXAP up 0.3% to 164.36
  • MXAPJ up 0.7% to 540.35
  • Nikkei down 0.3% to 22,696.42
  • Topix down 0.3% to 1,573.85
  • Hang Seng Index up 0.5% to 25,089.17
  • Shanghai Composite up 0.1% to 3,214.13
  • Sensex up 0.6% to 36,694.16
  • Australia S&P/ASX 200 up 0.4% to 6,033.63
  • Kospi up 0.8% to 2,201.19
  • German 10Y yield fell 0.3 bps to -0.468%
  • Euro up 0.2% to $1.1404
  • Italian 10Y yield fell 1.4 bps to 1.06%
  • Spanish 10Y yield unchanged at 0.402%
  • Brent futures down 0.8% to $43.01/bbl
  • Gold spot up 0.3% to $1,801.84
  • U.S. Dollar Index down 0.2% to 96.18

Top Overnight News from Bloomberg

  • ECB policy makers didn’t agree on whether they expect to use the full amount of their 1.35 trillion-euro ($1.5 trillion) pandemic emergency purchase program when they met Thursday, despite President Christine Lagarde subsequently saying that’s likely, according to people familiar with the discussions
  • U.K. Prime Minister Boris Johnson is set to announce more than 3 billion pounds ($3.8 billion) of extra funding to help prepare the U.K. National Health Service for the risk of a second peak in coronavirus cases
  • Florida and Texas reported record numbers of virus deaths. Brazil surpassed 2 million cases as the virus spreads in the country’s poorer, remote areas. Dr. Anthony Fauci said many states reopened too quickly and called for “a time out” yet said he expects results for a clinical trial on monoclonal antibodies by late summer or early fall
  • Nearly two-thirds of health-care industry leaders anticipate the coronavirus pandemic will continue into the second half of 2021 or longer as hopes for a vaccine this year dwindle
  • U.S. central bankers still have some time to ponder how to best update their public guidance on the likely future path of interest rates and whether they need to deploy a yield-curve control strategy, New York Fed President John Williams said
  • Oil held losses in Asia after a U.S. jobs report cast doubt on the strength of the demand recovery in the world’s largest economy
  • A copper-supply crunch that’s sent prices soaring as producers scale back operations on coronavirus restrictions could still worsen, according to Rio Tinto Group, one of the world’s top miners

Asian equity markets were somewhat mixed as efforts to recoup some of the prior day’s losses heading into the weekend were fettered by the record increases in coronavirus numbers in US and abroad which continued to fuel second wave fears. ASX 200 (+0.3%) traded indecisively with notable weakness seen in tech names after similar underperformance of the sector stateside and after Victoria state suffered a record increase of coronavirus cases which surged by 428 vs. Prev. 317, while Rio Tinto shares failed to sustain the opening momentum that had been spurred by stronger quarterly production and shipment updates. Nonetheless, downside for the Australian benchmark is only marginal as the index just about kept afloat of the 6000 level and the Nikkei 225 (-0.3%) swung between gains and losses as sentiment navigated through a wavy currency. Hang Seng (+0.5%) and Shanghai Comp. (+0.1%) both initially outperformed after nursing the pain from recent heavy selling that resulted to losses in the mainland of about 5% yesterday, which China downplayed as a normal market adjustment, while a firm liquidity effort by the PBoC also contributed to the early improved tone in which it provided a total weekly net injection of CNY 330bln. However, the optimism in for Chinese bourses gradually faded amid the lingering doubts regarding the economic recovery. Finally, 10yr JGBs were higher alongside the indecision in the region and with the BoJ also present in the market for over JPY 1.2tln of JGBs heavily concentrated in 1yr-10yr maturities.

Top Asian News

  • Reliance Said to Plow Billions From Stake Sales Into Debt Funds
  • China’s Manic Traders Test the Communist Party’s Grip on Markets
  • Hong Kong Gives Nod to Asia’s Biggest Healthcare Listing in 2020

European equites (Eurostoxx 50 -0.2%) have staged a relatively mixed performance thus far with price action broadly contained as participants await updates from the EU Council summit in Brussels. On which, the bar for expectations has been tempered somewhat by comments on arrival from the likes of Dutch PM Rutte who assigns a less than 50% chance of a breakthrough by Sunday, whilst German Chancellor Merkel has cautioned that large differences remains and negotiations will be very tough. The DAX (+0.1%) is faring slightly better than its peers amid support for the auto sector after Daimler’s (+4.8%) prelim Q2 release revealed a smaller decline in EBIT than feared with the Co. also looking to make circa EUR 2bln in cost savings. Furthermore for the index, reports note that Deutsche Boerse could propose new rules that would enable a quick expulsion of companies from the DAX if firms file for insolvency. If adopted, Wirecard (-7.2%) could leave the index in August. Elsewhere, the bulk of the corporate updates this morning have come from Scandinavia with earnings from the likes of Ericsson (+10.4%), Saab (+2.8%), Volvo (+1.1%), Danske Bank (+1.1%), Assa Abloy (-2.8%) and Electrolux (-5.8%) to name but a few. From a broader sectoral standpoint, asides from autos, the tech sector is faring better than peers amid upside in chip names such as Infineon (+2.7%) and STMicroelectronics (+3.1%). To the downside, losers include banks, travel & leisure and insurance names.

Top European News

  • Ericsson Jumps After Profit Boost From Network Upgrades
  • ECB Officials Didn’t Agree on If They’ll Use Full Bond Plan
  • U.K.’s Debt Chief Prefers Going Green Over Borrowing for Century

In FX, the single currency is attempting extend gains above 1.1400 vs the Dollar again having posted a lower high from Wednesday’s circa 1.1450 peak amidst post-ECB reports about divergence among GC members on the PEPP that President Lagarde assumes will be used in full. However, the latest retreat seems more to do with apprehension ahead of the EU leaders meeting to try and resolve differences over the Recovery Fund and Budget, as participants continue to play down prospects of reaching an agreement by the end of the 2-day Summit.

  • USD – The Greenback is mixed against G10 counterparts beyond the Euro, and the restraint is highlighted by the confined 96.331-083 DXY range compared to yesterday’s 96.404-95.890 extremes on the back of fluctuating risk sentiment and largely upbeat US data dampened by the ongoing increase in COVID-19 infections and fatalities across Sun Belt states in particular. Ahead, housing data and preliminary Michigan sentiment, but the Buck remains driven by the overall tone and equity performance alongside moves in rival currencies.
  • AUD/NZD/CHF - All benefiting from the aforementioned US Dollar retrenchment, with the Aussie back within striking distance of 0.7000, Kiwi revisiting 0.6550 and Franc holding off sub-0.9450 lows, even though Victoria suffered another record high tally of coronavirus cases and the PBoC bucked the recent trend with a 7.0000+ midpoint Usd/CNY fix overnight (albeit with the onshore Yuan closing back above the psychological level and CNH currently around 6.9970). Conversely, the Nzd will have taken note of a strong rebound in the manufacturing PMI from contraction to expansion following re-opening from lockdown and the Chf has pared some underperformance vs the Eur after sliding to multi-week lows near 1.0800 on Thursday.
  • GBP/JPY/CAD - Sterling is still grappling with a bearish combination of technical and fundamental factors as Cable loses grip of 1.2600 and returns to the midst of a cluster of hourly MAs ahead of Fib support (at 1.2520), while Eur/Gbp remains elevated close to 0.9100. Elsewhere, the Yen is meandering between 107.36-11 and Loonie even more contained either side of 1.3575 against the backdrop of idling crude prices and subdued risk appetite in the run up to Canadian wholesale trade.

In commodities, WTI & Brent remain subdued this morning with Brent Sep’20 future having given up the USD 43/bbl handle to a low of USD 42.88/bbl as we stand while WTI Aug’20 has tested touted support at USD 40.35/bbl at worst. Overall, performance for the complex is somewhat tentative with European bourses currently trading with little conviction as we await the press statement from the first of the weekends European Council Summit meeting (time TBC); for crude explicitly, the only scheduled event is the weekly Baker Hughes rig count. In terms of spot gold, the precious metal is modestly firmer and has recaptured the USD 1800/oz mark, but only just, as the USD continues to drift lower in this period of tentative trade. Elsewhere, Rio Tinto posted a 1.5% increase in iron ore shipments in their Q2 update as well as commenting that demand out of China for iron ore is rising; although, as most updates have, cautioned that the possibility of second COVID-19 wave could be a headwind.

US Event Calendar

  • 8:30am: Housing Starts, est. 1.19m, prior 974,000; Building Permits, est. 1.29m, prior 1.22m
  • 10am: U. of Mich. Sentiment, est. 79, prior 78.1; Current Conditions, est. 86.8, prior 87.1; Expectations, est. 74, prior 72.3
  • 12:30pm: Former Fed Chairs Yellen and Bernanke Testify to Congress

DB's Jim Reid concludes the overnight wrap

xRisk assets fell back yesterday as weak economic data combined with rising numbers of coronavirus cases dampened investor sentiment. By the end of the session, the S&P 500 had fallen back by -0.34% as technology stocks led the decline with the NASDAQ closing down by a larger -0.73%. European indices traded lower as well following a quiet ECB meeting but ahead of the recovery fund summit today. The STOXX 600 was down -0.47%. In terms of the individual moves, there was a large pullback in the ‘normalisation’ travel trade that we saw on Wednesday. Cruiseliners reversed the previous day’s gains as Norwegian Cruise Line (-15.62%), Carnival (-9.73%), and Royal Caribbean Cruises (-7.57%) were the 3 worst performers in the US index, while the 4th and 6th worst performers were American Airlines (-7.37%) and United Airlines (-5.17%). In Europe, similarly the Travel and Leisure sector led the index lower, falling -2.08% after leading the way the day before. Otherwise, Morgan Stanley (+2.49%) had a strong performance after the bank reported adjusted EPS of $2.04 (vs. $1.14 estimated), though Twitter fell -1.11% after the hack of a number of high-profile accounts the previous evening. NFLX fell over -8% in after-market trading in a rare hiccup for the mega-cap growth stocks after reporting they expected 2.5m new subscribers vs. the 5m that analysts expected. The company announced “growth is slowing as consumers get through the initial shock of Covid and social restrictions.”

Talking of tech, yesterday’s CoTD looked at the remarkable rise of Tesla (up +315% since March) which is now over a third of the combined market cap of the combined US, EU and Japanese auto indices. Since March, Tesla has added just over 8 Fords or 27 Renaults. A bit like Sweden’s virus response this divided opinion in my mailbox with many saying Tesla’s valuation is crazy but some highlighting the potential for their battery operations to be scalable and one response suggesting Elon Musk was a genius. See here for a bonus chart that wasn’t in the original mail on global auto market share. Email if you want to be added to the direct mailing list of Chart of the Day.

In the absence of any fresh overnight triggers, Asian markets are trading a little mixed this morning with the Nikkei (-0.34%), Shanghai Comp (-0.51%) and Asx (-0.12%) down while the Hang Seng (+0.61%) and Kospi (+0.65%) are up. In Fx, the US dollar index is down -0.10%. Meanwhile, futures on the S&P 500 are up +0.27%.

A key piece of data that dampened the mood yesterday was the US initial weekly jobless claims for the week through July 11, which came in at a higher-than expected 1.3m. Although this was the 15th consecutive weekly decline in the numbers, they were down by just -10k on the previous week, which is the smallest decline since the peak was reached back in late March, raising fears that gains in the labour market have stalled as cases numbers have risen across the country. Though the other US data released yesterday struck a more positive tone (more on which below), these were all more backward-looking numbers, that didn’t take into account the latest virus upsurge across numerous states.

Speaking of the coronavirus, yesterday the main headline came from the UK’s National Cyber Security Centre, which said that Russian cyber actors were targeting organisations involved in developing a coronavirus vaccine in the UK, the US and Canada. Their website said that the group known as APT29 that was exploiting organisations, “almost certainly operate as part of Russian intelligence services”. Russia has denied the accusations however.

Meanwhile, in terms of the latest on case numbers, Florida reported a further 4.6% increase yesterday, above the previous 7-day average of 4.4%, along with a record 156 daily deaths. Arizona continued to see a slight slowing in cases, with a 2.5% increase vs. the 2.8% weekly average. The positivity rate remains very elevated at 24.5% though. California had just over 9400 new cases, which is above the recent 7-day average of 8900, while fatalities have ticked up in the state with 118 new deaths in the last 24 hours vs. a 94 7-day average. Texas also saw a 5.5% jump in new cases as against the 7 day average of +3.7% while reported fatalities came in at a record 169 in the last 24 hours as against the 7 day average of 88 per day. Overall US cases rose by 2.5% with nearly 64,000 per day over the past week, which is twice as much as the first peak seen in early April. Amidst rising case numbers in the state, the Republican National Committee said that they would be scaling back the Republican National Convention, which is due to be held in the state next month. Arkansas and Colorado were added to the ever growing list of states requiring masks in public spaces. Texas Governor Abbott warned attendants at the Texas Republican Convention yesterday that the recent outbreak may leave him with few options outside of shutting down the second most populous U.S. state. This comes as Pennsylvania rolled back their own reopening yesterday, shuttering nightclubs and lowering occupancy across bars and restaurants. Overnight, Brazil has surpassed the 2m mark of confirmed cases with confirmed fatalities at 76,688. As ever see our table in the pdf of this report.

Meanwhile, Australia’s most populous state, New South Wales, has tightened restrictions for gatherings and venues, including clubs and cafes as the state fears undetected cases of community transmission could spread rapidly. All restaurants, clubs and cafes will be limited to bookings of a maximum 10 people and restricted to one person per four-square-meters. Meanwhile, Victoria reported a fresh record of new cases at 428 in the past 24 hours. Tokyo’s Governor also said that today’s new cases are expected to be at the same level as yesterday (286) without giving specific figures. Elsewhere India has become the third country to cross the 1m confirmed cases mark.

Separately in Israel, where cases have also risen sharply, Channel 12 reported that senior ministers were in favour of returning to a full lockdown at weekends. Also Germany announced that they were imposing some travel rules on citizens moving within the country as summer vacation gets underway. Primarily the rules require those coming from a ‘hotspot’ show proof of recent negative testing and those coming from risk areas abroad quarantine at home for 14-days.

Here in the UK, Bloomberg has reported overnight that PM Johnson is set to announce more than GBP 3bn of extra funding to help prepare the National Health Service for the risk of a second peak in coronavirus cases. Meanwhile the PM will announce today plans to ramp up antigen testing for the virus to 500,000 a day by the end of October to boost its test and trace program in preparation for the testing capacity needed for the winter. PM’s office said late yesterday that, “Tomorrow, he will set out a broad package of measures to protect against both a possible second wave, and to ease winter pressures and keep the public safe.”

The other main news yesterday came from the ECB, where President Lagarde struck a decidedly cautious note on the recovery, and said that “ample monetary stimulus remains necessary to support the economic recovery and to safeguard medium-term price stability”. Though monetary policy was left unchanged, Lagarde notably pushed back against the idea that the ECB wouldn’t use the full €1.35tn PEPP envelope, saying that the ECB’s baseline was that they would use it in full barring positive data surprises. This isn’t just for market stability, but also as a way to ease the monetary policy stance. For more, see our Europe economists’ views here. Sovereign bonds rallied across the continent in response to the press conference, and 10yr yields on French (-1.7bps), Italian (-1.4bps) and Spanish (-2.1bps) debt all fell to their lowest levels in 4 months.

We also heard from some Fed governors yesterday who shared President Lagarde’s sentiment, painting a wary picture of the economy. First we heard from New York Federal Reserve Bank President Williams, who acknowledged that the efforts of the central bank “over the next few years…needs to be making sure that we can get back to a really strong, robust economy with sustainable, strong sustainable growth and inflation at our 2% goal." While also saying that it was not the time to even think of ‘exit strategies”, as the economy is still in a very uncertain situation. This was also the opinion of Federal Reserve Bank of Atlanta President Bostic, who noted that the lack of clarity on fiscal policy may be affecting sentiment in the region as case numbers increase across the country, citing business leaders and consumers in the region. He noted that, “Real-time data that we are getting today is really suggesting there may be a leveling off in terms of level of business activity, in terms of the amount of jobs that are being returned to the economy.” Lastly, Federal Reserve Bank of Chicago President Evans said he saw the U.S. recovering its previous peak in output “in middle or late 2022”, and that he is “looking at the end of this year for the unemployment rate to be 9-9.5%.” On the popular topic of YCC, Evans acknowledged that there was a potential use for it, but that he was undecided and that he is a big advocate of forward guidance and strategies that convince the public that the Fed can fulfill its dual mandate. Overall central bankers continue to provide a lukewarm reading of the economy, but a willingness to continue supporting it in whatever ways it can.

Today all attention will shift to the special European Council summit, with EU leaders gathering this morning in Brussels to discuss the proposed recovery fund along with the EU’s long-term budget. As a reminder from yesterday, our view here at DB is that although an agreement is still possible this weekend, it would now be a positive surprise, and there’s no indication so far of the differences of opinion between the member states having been bridged yet. The meeting gets started at 10:00 Brussels time, though is scheduled to continue into Saturday, so its likely the final news of what’s happened will only be known over the weekend.

Here in the UK, gilt yields fell to another record low yesterday, with 10yr yields down a further -2.7bps to 0.14%. It comes amidst increasing speculation that the Bank of England might be forced into further rate cuts, potentially even into negative territory. Meanwhile yesterday’s labour market release from the ONS said that early indicators for June suggested that the number of employees on payrolls were down around -650k compared with March, although the unemployment rate for the 3 months to May remained at 3.9% as many of the people out of work were not looking for work, and hence weren’t counted as unemployed. That said, the total number of weekly hours worked fell to 877k in the three months to May, their lowest level since 1997, while more up-to-date data on vacancies showed them falling to 333k in the three months to June, which is below their lowest level after the financial crisis.

Finally on the US, the more backward-looking data for June was more positive than the weekly jobless claims, with retail sales increasing by +7.5% (vs. +5.0% expected), and May’s growth being revised higher. Furthermore, the continuing claims for the week through July 4 (the week before the initial claims) fell to 17.338m (vs. 17.5m expected), and the insured unemployment rate fell to 11.9%. As in Europe, 10yr Treasury yields ended the session down -1.3bps at 0.617%.

To the day ahead now, and as well as the aforementioned European Council meeting, we’ll get the final Euro Area inflation reading for June, US housing starts and building permits for June, and the preliminary University of Michigan’s consumer sentiment index for July. Central bank speakers include BoE Governor Bailey, ECB Vice President de Guindos, and Executive Board member Schnabel, while earnings releases to watch out for include BlackRock, Danaher and Honeywell International.

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Hard Choices & the Conservative Mind

A brief essay on The Thoughts of Blaise Pascal
Blaise Pascal plumbs the depths of the human condition and establishes the logic of conservatism by examining…



A brief essay on The Thoughts of Blaise Pascal

Blaise Pascal plumbs the depths of the human condition and establishes the logic of conservatism by examining hard choices in high-stakes situations. Pascal expresses his insights in brilliant pensées—fireworks of thought.

Let me focus on Pascal’s thoughts about two kinds of hard choices: (a) Who shall rule? (b) How shall I behave if God’s existence is uncertain?

Pascal’s general approach to hard choices is to clarify the limits of reason and the power of psychology, the better to chart a narrow path for rational choice: “There is nothing so conformable to reason as the disavowal of reason.” Pensée no. 272

Knowledge is incomplete. A (partial) increase in one’s knowledge tends to induce overconfidence. Wisdom consists in cognitive humility—an elusive frame of mind for intellectuals:

“The sciences have two extremes which meet. The first is that pure natural ignorance in which every man is born. The other extreme is that reached by great minds, who, having run through all that men can know, find that they know nothing, and again come round to the same ignorance from which they started; but this is a learned ignorance, conscious of itself. Those between the two, who have left their natural ignorance and not been able to reach the other, have some tincture of this vain knowledge, and assume to be wise.” Pensée no. 327

Who shall rule?

Pascal foreshadows the conservative principle, Chesterton’s fence. One should hesitate to change a rule, or to break with tradition, unless one understands the origin or function of the rule or tradition.

Pascal makes a case that traditions deserve legitimacy. Traditions have stood the test of time because they reduce conflict: Do we follow ancient laws and opinions because they are more sound? No; but because they stand alone and take from us the root of diversity [conflict].” Pensée no. 589

Pascal then illustrates the conservative principle’s function by concrete analysis of a fundamental political institution in early modern Europe: monarchy with dynastic succession by primogeniture:

The most unreasonable things in the world become most reasonable, because of the unruly lives of men. What is less reasonable than to choose the eldest son of a queen to guide a state? for we do not choose as steersman of a ship that one of the passengers who is of the best family. Such a law would be ridiculous and unjust; but since they are so themselves, and ever will be, it becomes reasonable and just. For would they choose the most virtuous and able, we at once fall to blows, since each asserts that he is the most virtuous and able. Let us then affix this quality to something which cannot be disputed. This man is the king’s eldest son. That is clear, and there is no dispute. Reason can do no better, for civil war is the worst of evils.” Pensée no. 786

Here Pascal foreshadows Nobel Laureate Thomas C. Schelling’s theory of the crucial role of salient focal points in strategic interaction and conflict resolution. Salience is psychological, not strictly logical. If there exists a clear, preferably unique, focal point, it can forestall or overcome bargaining impasses and self-serving conceptions of justice. If the focal point is recurrent—for example, primogeniture—it may readily become a tradition, a Chesterton fence.

How shall I behave if God’s existence is uncertain?

‘Pascal’s Wager,’ his most famous pensée, deploys both the logic of games of chance, and the psychology of belief-formation, to try and convince freethinkers to bet on God, and to dupe themselves

Pascal’s interlocutor is someone who does not believe in God. Their dialogue has three background empirical premises:

  • If God exists, then belief in God is a necessary condition for salvation in the afterlife.
  • One cannot prove the existence of God.
  • One cannot simply decide to believe.

Given these premises, Pascal first makes a gambler’s case that it would be prudent to believe in God. Pascal makes an appeal to interest, not evidence:

“Let us then examine this point, and say, ‘God is, or he is not.’ But to which side shall we incline? Reason can determine nothing about it. There is an infinite gulf fixed between us. A game is playing at the extremity of this infinite distance in which heads or tails may turn up. What will you wager? [… .]

Let us weigh the gain and the loss in choosing heads that God is. [… .] But there is here an infinity of an infinitely happy life to win, a chance of gain against a finite number of chances of loss, and what you stake is finite; that is decided. Wherever the infinite exists and there is not an infinity of chances of loss against that of gain, there is no room for hesitation, you must risk the whole. [… .]

Every gambler stakes a certainty to gain an uncertainty, and yet he stakes a finite certainty against a finite uncertainty without acting unreasonably. [… .] So that our argument is of infinite force, if we stake the finite in a game where there are equal chances of gain and loss, and the infinite is the winnings. This is demonstrable, and if men are capable of any truths, this is one.” Pensée no. 233

The intuition is that any positive chance at an infinite reward has infinite value, and so trumps any finite worldly pleasures here and now. 

Pascal’s wager triggered an ongoing avalanche of analysis of the logic of ‘expected utility.’ It gets complicated fast. Let me mention just a few issues for flavor. What if God exists, but punishes gamblers? What if a gambler has a high ‘discount rate’ (i.e., cares about the present, not the afterlife)? What if there are many Gods?

Howsoever that may be, Pascal is certain that he has got the gambler’s attention. A quandary—a psychological challenge—then naturally arises. If it would be prudent to believe in God, but there is no proof of God and one cannot simply decide to believe in God, then what is a non-believer to do?!

Pascal’s answer is to take steps to dupe oneself by going through the motions of religious practice: 

“I confess and admit it [that belief in God would be prudent]. Yet is there no means of seeing the hands at the game? — Yes, the Scripture and the rest, etc. — Well, but my hands are tied and my mouth is gagged: I am forced to wager and am not free, none can release me, but I am so made that I cannot believe. What then would you have me do? [… .]

Labor then to convince yourself, not by increase of the proofs of God, but by the diminution of your passions. You would fam arrive at faith, but know not the way; you would heal yourself of unbelief, and you ask remedies for it. Learn of those who have been bound as you are, but who now stake all that they possess; these are they who know the way you would follow, who are cured of a disease of which you would be cured. Follow the way by which they began, by making believe that they believed, taking the holy water, having masses said, etc. Thus you will naturally be brought to believe, and will lose your acuteness. — But that is just what I fear. — Why? what have you to lose?

The last process of reason is to recognize that there is an infinity of things which transcend it; it is but weak if it does not go so far as to know that.Pensée no. 233

The psychological thesis is that faking it is transformative. Going through the motions will eventually (a) dull one’s critical faculties, (b) erase one’s awareness of faking it, and (c) induce faith. The rational, self-interested choice is to submit to tradition as a means to psychological transformation.

Pascal’s thoughts about politics (legitimacy of dynastic succession) and about religion (prudent make-believe to achieve faith)—his thoughts about hard choices in high stakes situations—unflinchingly demonstrate the limits of reason and strategically enlist rational choice and psychology to harness traditions. The Pensées are the dawn of the modern conservative mind.


John Alcorn is Principal Lecturer in Formal Organizations, Shelby Cullom Davis Endowment, Trinity College, Connecticut.  Scruples about principles of historical inquiry, and a stint teaching in Columbia’s ‘great books’ core curriculum led him to explore methodological individualism and the social sciences.  As in the Dry Bones song, a concatenation of authors—Jon Elster, Diego Gambetta, Thomas C. Schelling, Robert Sugden, David Friedman, and Michael Munger—eventually brought him to discover EconTalk and EconLog.  


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Israel-Hamas War Latest: Israeli Troops Amass At Border As Iran Warns It Will Intervene If Ground Offensive Launched

Israel-Hamas War Latest: Israeli Troops Amass At Border As Iran Warns It Will Intervene If Ground Offensive Launched


After giving…



Israel-Hamas War Latest: Israeli Troops Amass At Border As Iran Warns It Will Intervene If Ground Offensive Launched


After giving the northern Gaza strip an evacuation ultimatum on Friday, Israel has so far withheld from launching a "significant" ground operation, with some speculating that requests from the US to evacuate all US citizens out of Palestine ahead of the invasion is what is holding Israel back. Meanwhile, Iran’s foreign minister on Saturday said that if Israeli “war crimes & genocide” are not stopped, the war might expand to other parts of the Middle East if Hezbollah joins the battle, and that would make Israel suffer “a huge earthquake.” Meanwhile, Axios reported that Tehran has sent Jerusalem a message through the UN that it will intervene if the campaign in Gaza continues, and particularly if it launches a ground offensive.

This was followed by news Sunday morning that the US has been backchanneling with Iran in recent days to warn against escalating the conflict in Israel (after all, Biden can't afford to lose those sanctioned Iranian oil exports whose re-embargo would promptly send the price of oil above $100).

Another reason why Israel may be waiting: the Pentagon confirmed that it has ordered a second carrier strike group to the eastern Mediterranean Sea after a first carrier strike group, led by the USS Gerald R. Ford, arrived off the coast of Israel last week.


On Saturday, the Israeli army said it’s making preparations for “significant ground operations” in Gaza, with the Israel Defense Forces saying in a statement that the next phase of the war can include a coordinated land, sea and air assault.

Israel has called up a record 300,000 reservists and has been pounding Gaza after the unprecedented incursion in which more than 1,000 Hamas fighters swept across the border and attacked Israeli military posts, bases and settlements. More than 1,300 Israelis died, mostly civilians, and up to 150 people were abducted and taken into Gaza. More than 1,900 Palestinians have been killed in the Israeli bombing campaign as fears mount of major casualties once Israel sends troops into the crowded coastal strip, home to 2.3 million people. Israel on Friday gave 24 hours for more than 1 million Palestinians to evacuate their homes in Gaza.

Separately, Israel confirmed for the first time that there were intelligence indications of something happening in Gaza two hours before the attacks last week. The head of Shin Bet, Israel’s internal security service, spoke with military personnel about the reports, said Tzachi Hanegbi, head of Israel’s National Security Council. “Both sides assessed that this is something other than it turned out to be,” he said.

Meanwhile, Hamas, which has been designated as a terrorist group by the US and the European Union, said Israeli air strikes killed another nine of its hostages in the past 24 hours, raising the total to 26. Many governments, including the US and European countries, are rushing to evacuate citizens in anticipation of an Israeli incursion into Gaza, though the Rafah border crossing out of Gaza to Egypt was reported to be closed to foreign nationals Saturday.

On the diplomatic front, Joe Biden’s team has voiced anxiety about Israel’s 24-hour evacuation demand, a deadline that the European Union and the United Nations called unrealistic. On Friday, Biden said people shouldn’t “lose sight of the fact that the overwhelming majority of Palestinians had nothing to do with Hamas” something Biden tweeted on Sunday morning.

The US Embassy in Israel said it’s “working on potential options for departure from Gaza.” US citizens living in or visiting Gaza may be allowed to leave on Saturday, according to a US official. The embassy said it’s facilitating more chartered evacuation flights from Tel Aviv’s Ben Gurion Airport and urged US citizens and immediate family members to use them “while they are available.” The US government also said it is assisting US nationals and their immediate family members with a valid travel document to depart Haifa via sea for Cyprus on Oct. 16, according to a statement on the US Embassy in Israel website.

The State Department in Washington authorized the departure of non-emergency embassy personnel on Friday, citing an “unpredictable security situation.” With commercial flights to Israel disrupted, European countries such as France and Germany also have been providing planes to get their citizens out of the region.

Latest Developments:

Iran’s foreign minister on Saturday called on Israel to stop its attacks on Gaza, warning that the war might expand to other parts of the Middle East if Hezbollah joins the battle, and that would make Israel suffer “a huge earthquake.” Hossein Amirabdollahian told reporters in Beirut that Lebanon’s Hezbollah terror group has taken all war scenarios into consideration and Israel should stop its attacks on Gaza as soon as possible. Meanwhile, the Axios news site reported that Tehran has sent Jerusalem a message through the UN that it will intervene if the campaign in Gaza continues, and particularly if it launches a ground offensive. The report cited two diplomatic sources with knowledge of the matter. The report said Amirabdollahian made the comments when he met Saturday with UN Middle East envoy Tor Wennesland in Beirut, a meeting that led to intense criticism from Israel. A short while later, Iran’s mission to the UN warned in a tweet that if Israel’s “war crimes & genocide” are not stopped immediately, this could have “far-reaching consequences” and the situation could “spiral out of control.”

* * *

US Warned Iran in Back-Channel Talks on War: The US has held back-channel talks with Iran in recent days to warn the country against escalating the conflict in Israel, as Israeli forces prepare an expected ground assault in response to last weekend’s surprise attack by Hamas. “We have means of communicating privately with Iran, and we have availed ourselves of those means over the past few days to make clear privately that which we have said publicly,” White House National Security Advisor Jake Sullivan said Sunday on CBS News’s Face the Nation. Sullivan said the US couldn’t rule out that Iran might intervene in the conflict, and was monitoring both the possibility of direct involvement by Tehran and proxy activity by Hezbollah across the border with Lebanon.

* * *

Israeli army awaits "political" green light for Gaza invasionThe Israeli army is awaiting a "political decision" on the timing of a major ground offensive on the Gaza Strip, military spokesmen said Sunday as civilians stepped up desperate efforts to flee northern Gaza. Military spokesmen Lt. Col. Richard Hecht and Rear Adm. Daniel Hagari told separate briefings on Sunday that "a political decision" will set off any action against Hamas. "We will be holding discussions with our political leadership," Hecht told one briefing.

Prime Minister Benjamin Netanyahu told troops near the Gaza border on Saturday that "more is coming." But he did not say when any ground operation would start. Military spokesmen have told reporters that any invasion would aim to eradicate Hamas' militant network and leadership so that it cannot stage more attacks. The Israeli military has particularly singled out Yahya Sinwar, the chief of Hamas in Gaza who they blame for the Oct. 7 attacks. "That man is in our sights," Hecht said on Saturday. "He is a dead man walking and we will get to that man."

* * *

Rockets were fired at Tel Aviv and southern Israel overnight, and the Israel Defense Forces attacked targets in and around the northern part of Gaza. It was not immediately clear how much damage, if any, was caused in the rocket attacks. One Israeli died on Sunday in a Hezbollah attack on Israeli army posts near the border with Lebanon. Subsequent reports indicate that more rockets had been fired into northern Israel from Lebanon.

* * *

Moroccans Push to Sever Israel Ties in Mass ProtestTens of thousands of protesters took to the streets of Rabat, Morocco’s capital, demanding King Mohammed VI to severe ties with Israel which were restored in 2020. The marchers denounced as “barbaric” ongoing military intervention by Israel in Gaza and demanded the closing of its liaison office in the Moroccan capital. 

* * *

Blinken Meets With Saudi Crown PrinceBlinken travelled to Riyadh on Sunday for an hour-long talk with Saudi Crown Prince Mohammed bin Salman that the top US diplomat deemed “very productive.”   MBS highlighted Riyadh’s diplomatic outreach “to calm the situation,” the official Saudi Press Agency reported.

* * *

Blinken Will Return to Israel on MondayUS Secretary of State Antony Blinken will return to Israel on Monday for further consultations with senior officials there, his spokesman said. The top US diplomat was previously in Israel on Thursday as part of a frenetic tour of the region that included stops in Qatar, Jordan, Bahrain and the United Arab Emirates as well as Saudi Arabia, as the Biden administration tries to limit the threat of a spreading conflict in the Middle East.

* * *

Blinken Urges China to Use Its InfluenceUS Secretary of State Antony Blinken urged Beijing to use its influence to prevent other state or non-state actors from attacking Israel and widening its war with Hamas, the State Department said. Blinken spoke with Foreign Minister Wang Yi before departing from Riyadh, where the top US diplomat was attempting to shore up support for Israel among Arab nations, said State Department spokesman Matthew Miller. He met with Saudi Arabia’s Crown Prince Mohammed bin Salman, the State Department said.

* * *

Israel, Hezbollah exchange fire, heightening fears of a second front openingCross-border fire erupted between Israel and Lebanon early Sunday, killing at least one person on the Israeli side of the border. Both the Israeli military and the Lebanese militant group Hezbollah acknowledged the fighting. Hezbollah says it fired guided missiles toward an Israel army post in Shtula from Lebanon, according to the militant group’s Al-Manar TV. The Israeli military said earlier it was targeting southern Lebanon after initial report of a shooting near the Lebanese border.  

The group said in a statement the attack was in retaliation for Israeli shelling that killed Reuters videographer Issam Abdallah on Friday and two Lebanese civilians on Saturday. Israel has responded by targeting the outskirts of the town of Ait el-Shaab, the Israeli military said. The Israel Defense Forces also banned civilians from going within two-and-a-half miles of the Lebanese border. In addition, the Reuters news service reports, Israel disrupted GPS electronic location services in the northern border area and at the Gaza front, according to Reuters. Israel's Magen David Adom rescue service said a 40-year-old man was killed in the attack from Lebanon, without elaborating or giving his nationality.  As Israel wages its war against Hamas over last week's unprecedented attack by the Gaza Strip militant group, there's been concern that Hezbollah could enter the war as well as Israel moves toward launching a ground offensive in Gaza.

* * *

Hezbollah Strikes Israeli Army PostsIran-backed Hezbollah attacked two Israeli army posts near the border with Lebanon in response to what the militant group said was the killing of Lebanese nationals in recent days. One of the Middle East’s most powerful militias, Hezbollah said it fired guided missiles against an Israeli army post in Shtula in Upper Galilee. An hour later, it said its members used “live ammunition” to target an army post in Al-Raheb and destroyed a tank.

* * *

Israeli Shares Down 3% As War Enters Second WeekIsrael’s TA-35 stock index fell sharply on Sunday as Israel continues to strike back against Hamas targets and tensions rise on the northern border with Hezbollah. The index was down 3.3% in early afternoon, having reached the lowest levels since mid-2021. Banking stocks led the decline. The sector was down 12.3% last week “on account of volatility concerns,” the Tel Aviv Stock Exchange said. Other Middle Eastern markets were narrowly mixed.  

* * *

Israel Acknowledges Reports of Gaza Activity: Israel confirmed for the first time that there were intelligence indications of something happening in Gaza two hours before the attacks last week. The head of Shin Bet, Israel’s internal security service, spoke with military personnel about the reports, said Tzachi Hanegbi, head of Israel’s National Security Council. “Both sides assessed that this is something other than it turned out to be,” he said.

* * *

Abbas Stresses Need for Humanitarian Corridor in Biden CallIn a phone call with US President Joe Biden late Saturday, Palestinian President Mahmoud Abbas stressed the urgent need for humanitarian corridors to be opened in the Gaza Strip so that basic materials and medical supplies such as water, electricity and fuel, can be delivered to civilians. Abbas also told Biden he rejected the displacement of Palestinians from Gaza and affirmed his rejection of the killing or abusing of civilians on both sides, calling for the release of civilians, priosners and detainees.  

* * *

Pope calls for humanitarian corridors for Gaza residents: Pope Francis called on Sunday for humanitarian corridors to allow the delivery of essentials to the Gaza Strip, which is under heavy Israeli bombardment following a bloody attack on Israel by Gaza's rulers, Hamas. "Humanitarian law must be respected, especially in Gaza, where it is urgent and necessary to guarantee humanitarian corridors and help the population," said the Pope after his traditional Angelus prayer in Rome's Saint Peter's Square.

* * *

U.S. arranges for ship to evacuate Americans from Israel to Cyprus Monday: The United States has organized a ship to take Americans out of Israel to Cyprus on Monday, the U.S. Embassy said. With Israel moving toward an invasion of the Gaza Strip, the ship will leave from the Israeli port of Haifa for Limassol, taking "U.S. nationals and their immediate family members with a valid travel document," the U.S. embassy said in a security alert Sunday. Tens of thousands of U.S. passport holders live in Israel and 29 have been confirmed killed in the Hamas attacks on October 7. Another 15 are missing and believed to be among hostages held by Hamas since the attacks. The U.S. embassy didn't say how many people would fit on the ship but said "boarding will proceed in order of arrival and is on a space limited basis." Each passenger will have to sign a document promising to repay the cost of the trip and will only be allowed to bring one suitcase. The embassy said some chartered flights would be arranged from Cyprus for onward travel.

* * *

UK Foreign Minister Urges Israel to Show RestraintJames Cleverly called on Israel to avoid civilian casualties in Gaza and respect international law in any military operations against Hamas, saying his “strong advice” was being offered from a position of friendship.” It’s in Israel’s interest to avoid civilian casualties because Hamas wants to turn the conflict “into a wider Arab-Israeli war, or indeed a war between the Muslim world and and the wider world,” the UK foreign minister said on Sky News. His comments came hours after Prime Minister Rishi Sunak said the UK stood unequivocally with Israel, making no mention of the plight facing Palestinian civilians.

* * *

Gaza Death Toll Reaches 2,300: The number of people killed in Israeli attacks on Gaza has reached more than 2,300, local authorities said, with thousands more wounded in the past eight days. This now outnumbers the death toll of the 51-day Israel-Hamas war of 2014, according to Ashraf Al-Qedra, a spokesperson for the Gaza health ministry. The 2014 war killed more than 2,200 Palestinians, according to UN figures. At the time it was the deadliest and most destructive violence since Hamas took over the Gaza Strip.

* * *

Situation in Gaza hospitals getting ever more desperate: Medics in Gaza warned Sunday that thousands could die as hospitals packed with wounded people run desperately low on fuel and basic supplies. Palestinians in the besieged coastal enclave struggled to find food, water and safety ahead of an expected Israeli ground offensive in the war sparked by Hamas' deadly attack. A week of blistering airstrikes have demolished entire Gaza neighborhoods but failed to stem militant rocket fire into Israel. Hospitals are expected to run out of generator fuel within two days, according to the U.N., which said that would endanger the lives of thousands of patients. Gaza's sole power plant shut down for lack of fuel after Israel completely sealed off the 25-mile-long territory following the Hamas attack.

* * *

Israel Says it Killed Hamas Military LeaderThe Israeli military said on Sunday its fighter jets killed the Hamas military leader responsible for the attack on one of Israel’s communities last Saturday, Kibbutz Nirim. In a statement, the military said this occurred Saturday night during operations that also took out Hamas rocket launchers. It said the man was commander of the Nukhba forces in Khan Yunis in the southern Gaza Strip. Nukhba are the elite Hamas military unit that Israel says trained and led the October 7 attack. Hamas has been designated as a terrorist group by the US and the European Union.


Tyler Durden Sun, 10/15/2023 - 09:55

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5 Signs That Gold Will Increasingly Flow To The East

5 Signs That Gold Will Increasingly Flow To The East

Authored by Ronni Stoeferle via,

The reshaping of the world economy…



5 Signs That Gold Will Increasingly Flow To The East

Authored by Ronni Stoeferle via,

The reshaping of the world economy and the global (political) order is in full swing.

It is a long process, the concrete outcome of which is uncertain in advance and associated with numerous imponderables. Nevertheless, there are powerful factors, such as the shift in economic, demographic and military weight, that are driving the readjustment in the (geo)political arena. And this readjustment is also reflected in the change in gold flows. They are increasingly shifting from West to East, since “Gold goes where the money is,” as James Steel pointedly put it.

1. The central banks of the states of the East are among the strongest buyers of gold – also within the West

This is also reflected in the continuing enthusiasm of central banks for gold, especially in non-Western countries. 2022 saw the largest purchases of gold by central banks since records began more than 70 years ago, at 1,136 tons. The first half of 2023 saw a continuation of this trend. Despite a weaker second quarter, central bank purchases in the first half of the year set a new half-year record. Central banks increased their gold reserves by a total of 378 tons from January to June. The previous half-year record from 2019 was thus slightly exceeded. China made the largest purchases, followed by Singapore, Poland, India and the Czech Republic. So even in the West, it was countries in the East that made additional purchases.

The following chart shows the extent to which institutional demand for gold has shifted to the East. It compares the cumulative gold sales of Western central banks with the cumulative gold purchases of the Shanghai Cooperation Organization (SCO or SOC) since 2001.

Looking at the BRICS, we also see a striking overlap, with central banks from four of the five BRICS countries – Brazil, Russia, India and China – buying a cumulative 2,932 tonnes of gold over 2010–2022.

2. Holdings of US Treasuries are reduced

In turn, the BRICS continue to reduce their share of the soaring US government debt. In other words, gold is becoming more and more interesting as a reserve asset because US Treasuries have been becoming less and less interesting as a currency reserve for more than a decade. The militarization of money by freezing Russia’s foreign exchange reserves just days after Russia’s invasion of Ukraine in late February 2022 added emphasis to this process, but did not kick it off.

The BRICS now hold only 4.1 percent of all US government debt, compared with 10.4 percent in January 2012. That is a decline of more than 60 percent. The rest of the world has reduced its exposure to US government debt by much less. In January 2012, the rest of the world held 22.0 percent of all US government debt on their books; currently, they hold 19.3 percent. That is a decrease of more than 12 percent.

3. The East is expanding its infrastructure for gold trading

However, the East is not only stocking up on gold and mining gold itself on a large scale. China and Russia have ranked among the top 3 gold producing nations for years.

Countries such as China, the United Arab Emirates and even Russia are expanding their gold trading infrastructure. This is to establish a permanent infrastructure for the detour of gold trading from gold trading centers in the West such as London, New York and Zurich. This testifies to the changing understanding of roles: The East increasingly no longer sees itself as a customer of Western infrastructures, but offers the infrastructure itself.

Key developments include:

  • SGE & SFO NRA: Cooperation between the Chinese and Russian gold markets

For some time now, China and Russia have been working hard to link their gold markets through cooperation between the Shanghai Gold Exchange (SGE) and the Russian financial authority, the National Financial Association (NFA). The NFA is a Russian professional association representing the entire Russian financial sector, including the Russian precious metals market.

In the face of Western sanctions, Russian gold exports to China have already surged since mid-2022. As three Russian banks – VTB, Sberbank and Otkritie – are already members of the SGE International Board of the SGE, which was founded in 2014, this cooperation between the gold markets of Russia and China is likely to intensify in the future.

  • Memberships in gold-related institutions

As gold flows from west to east and the importance of eastern gold markets increases, these markets will also have greater representation and influence in the global institutions that represent the gold market, such as the LBMA and the World Gold Council (WGC).

In 2009, only six Chinese refineries were on the LBMA’s Good Delivery List, but now there are thirteen. While just 15 years ago there was only one regular (full) member of the LBMA from China, the Bank of China, there are now seven. China’s growing influence is also reflected in the World Gold Council. In February 2009, only one Chinese gold producer was a member of the WGC; now there are four.

  • India International Bullion Exchange (IIBX)

In addition to its sophisticated OTC gold trading market, India has also established a trading infrastructure for gold futures contracts on the Multi Commodity Exchange of India Limited (MCX). In July 2022, the India International Bullion Exchange (IIBX), supported by the Indian government, was officially opened for trading spot gold contracts backed by physical metal. IIBX is located in a special economic zone in GIFT City in the Indian state of Gujarat, and the gold underlying the contracts is stored there. One goal of IIBX is to allow qualified buyers to import gold directly into India without the need for banks or authorized agencies. So far, however, trading volumes have been minimal.

  • Establishment of a Moscow World Standard

At the end of February 2022, when sanctions against Russia were imposed by the West immediately after the start of the Ukraine war, the London Bullion Market Association (LBMA) excluded the three Russian banks VTB, Sovkombank and Otkritie. A few days later, the LBMA removed all six Russian precious metals refiners from the LBMA Good Delivery List and the CME Group followed suit, removing the same refiners from the list of approved COMEX refiners.

As a result, Moscow announced in July 2022 that a new infrastructure for precious metals trading independent of the LBMA and COMEX would be established. According to Moscow, this is intended to break the supremacy of London and New York in global precious metals pricing. This proposal calls for the introduction of a Moscow World Standard (MWS) for precious metals trading, similar to the LBMA’s Good Delivery List, the establishment of a new international precious metals exchange in Moscow based on the MWS, the Moscow International Precious Metals Exchange, and the creation of a new gold price fixing based on the MWS so as to establish gold prices and reference prices different from those of the LBMA and COMEX.

4. Private gold demand shifts to the east

EAST’S increased interest in gold is also evident in the non-governmental sector. Chinese consumer demand, for example, increased from 292.6 tons to 824.9 tons (2022) since the turn of the millennium. This is an increase of 181%. Annual consumer demand in India has also increased since the turn of the millennium, albeit from an already high level in 2000. China and India, which together accounted for only 28.7% of consumer demand in 2000, account for almost half of global consumer demand (48.4%) in 2022 and together acquired 1,600 tons of gold last year.

Source: World Gold Council, Incrementum AG

Recent developments point in the same direction. In the first eight months of the current year, Asian gold ETFs increased their holdings by 7.7%, while North America and Europe recorded outflows of 2.3% and 6.1%, respectively. Significantly, in the bars and coins demand segment, Turkey and Iran replaced Germany and Switzerland in the top 5 in the first half of the year. China now leads this sub-segment of gold demand – in the first half of 2022, Germany was still in the lead – followed by Turkey, the US, India and Iran. This is because while demand for bars and coins in Turkey shot up from 9.5 tons to 47.6 tons in the second quarter of 2023, it fell by around three quarters in Germany.

5. The price of gold in currencies of the East has increased significantly

As of the end of September, gold was 14.6% higher in Indian rupees than at the beginning of 2022, 18.0% higher in Chinese renminbi, 34.3% higher in Russian rubles, 22.1% higher in South African rand (all left-hand side) and 114.0% higher in Turkish lira (right-hand side). Gold thus impressively demonstrates its value-preserving properties in difficult (geo)political and macroeconomic situations in these countries.

The significantly increased premium on the gold price in China since July is an unmistakable sign that there is a structural shortage of gold in the Chinese market and thus an expression of the strong demand for gold in the Middle Kingdom, which is struggling with profound economic problems.


This shift in demand from West to East can be observed not only among governments or government-related entities, but also among institutional and private investors. Gold is flowing to where it is most valued and where economic prosperity and savings rates have increased. In the medium term, the shift in demand should therefore find support from the higher growth prospects in Asia and the Middle East. “Ohne Geld, ka Musi” (“Without money, no music”) – this is how the vernacular formulates this economic truism in German. And as the IMF’s most recent economic growth forecast indicates, the sub-region of emerging and developing Asia will grow at a projected 5.2% this year and 4.8% next year, while the West will grow much less strongly. This will also lead to a shift in influence on pricing from West to East.

Tyler Durden Sun, 10/15/2023 - 10:30

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