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The Bulls are Emboldened

Overview:  The S&P fell for the fourth consecutive session yesterday, the longest losing streak of the quarter, and this seemed to encourage profit-taking in the Asia Pacific region today.  The MSCI Asia Pacific Index slipped for the second consecutiv

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3 years ago

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Overview:  The S&P fell for the fourth consecutive session yesterday, the longest losing streak of the quarter, and this seemed to encourage profit-taking in the Asia Pacific region today.  The MSCI Asia Pacific Index slipped for the second consecutive session, and even confirmation of the Chinese recovery failed to lift the Shanghai Composite.  The Dow Jones Stoxx 600 in Europe is firmer, led by energy and industrials, while US shares are also recovering from yesterday's retreat.  The US 10-year benchmark yield is steady around 0.90%, while peripheral yields in Europe and France are slipping to new record lows.  The dollar is mostly softer, though some profit-taking is weighing on the Antipodeans a bit.  The Scandis and sterling are the strongest in what has been a quiet forex session so far.   Most of the liquid and freely accessible emerging market currencies are higher, and this is allowing the JP Morgan Emerging Market Currency Index to snap a two-day decline.   Gold has recovered from around $1811 yesterday to approach resistance near $1850, while oil is consolidating near nine-month highs, with the January WTI contract straddling the  $47 a barrel mark.   

Asia Pacific

Reports suggest dozens of Australian ships have been stranded outside of China.  It was understood as a part of Beijing's protest against Canberra's foreign policy that puts it firmly in the US camp.  Chinese state-owned media reported that power plants have been directed to stop taking Australian coal.  The fact that the ships are not allowed to dock at port revealed as much.  It is not clear that this signals a formal ban yet.  China is Australia's largest export market and, in recent years, buys the majority of Australia's coal.  Australia is preparing to file a complaint with the WTO over the tariffs imposed on barley.  Separately, the minutes from the recent RBA meeting confirm that officials see the need for monetary and fiscal support for some time. The focus is on the labor market and wages (November report due early Thursday local time).  Officials did not seem too concerned about the Australian dollar's recent strength and instead focused on the trade-weighted index, where it is not as strong as the bilateral exchange rate suggests.  

China's November economic data matched expectations.  Industrial output accelerated to 7.0% year-over-year form 6.5%.  Medical supplies, communication equipment, and electric machinery output were strong, while auto output slowed from elevated levels.  Retail sales rose 5.0% year-over-year after a 4.3% gain through October.  Jewelry and cosmetic sales surged.  Fixed investment rose 2.6%, after 1.8% in October.  The notable development here was the first increase this year from the private sector (0.2%), while pubic investment accelerated to 5.6% from 4.9%.  

China is running a fiscal deficit that is expected to be around 6.7% of GDP this year.  Its interest rates are well above the zero-bound, and the PBOC has not used its balance sheet to drive monetary policy. No Chinese QE.  Capitalism with Chinese characteristics took another step that puts it on a more orthodox footing.  Yesterday, the State Administration for Market Regulation levied fines on units of some of the largest internet companies: Alibaba, Tencent, and SF Holdings for taking advantage of their market positions, i.e., anti-trust violations. The fines seem like small potatoes (CNY500k or ~$76.5k), but that is the maximum under current law, which may be amended and lifted next year.  

Still, it was just last week that Politburo signaled it would step up its anti-monopoly efforts. The fines would seem to have to be dramatically lifted to have the desired deterrence to be effective.  This is not to say in any way that China has become the bastion of traditional liberalism. It does suggest a  more nuanced view is necessary to understand how the Chinese political economy is evolving. Separately, and also important developments that complicate the picture was the scuttling of the Ant IPO and allowing an increasing number of state-owned-enterprises to fail.  The anti-monopoly and Ant moves are consistent with efforts to prevent other centers of power that could rival the Communist Party.  How the state relates to state-owned enterprises may be worthy of a Talmudic debate.  It is not always clear or obvious, even in the US, where the legal standing of Agency debt, for example, was quite ambiguous, at least until Fannie and Freddie were nationalized, and the US encouraged other countries to consider Agency paper as good as Treasuries for reserve purposes.  Last week, foreign central banks held around $361.5 bln of agency securities in their custody account with the Federal Reserve.  Also, as TIC data today is a useful reminder, sometimes, when the media reports a country reduced its Treasury holdings, it simply reflects a shift to Agencies, which pay a better yield.  

After slumping to a one-month low near JPY103.50 yesterday, the dollar recovered smartly, leaving a hammer candlestick in its wake.  Follow-through buying today lifted it to JPY104.15, the 20-day moving average.  There is a battle over JPY104 now where a nearly $560 mln option will expire late today.  The Australian dollar reached almost $0.7580 yesterday, but the upside momentum stalled.  It was sold for nearly $0.7505 today, where new bids were found.  Note that tomorrow the A$1.2 bln option at $0.7500 will expire. Nearby resistance today is seen in the $0.7530-$0.7540 area. The PBOC set the dollar's reference rate at CNY6.5434, a little firmer than expected. The dollar is snapping a five-day advance (modest: from CNY6.5297 on December 7 to CNY6.5510 yesterday on a closing basis).  Separately, the PBOC added CNY950 bln (~$145 bln) into the banking system via the medium-term lending facility, and well more than the CNY600 bln expiring from the facility this month. The overnight repo rate dropped 34 bp to 1.34%.  The rash of corporate defaults, coupled with year-end pressures, boosts the demand for liquidity.  

Europe

As many feared, into the year-end, a crash out of the standstill agreement with the EU looms large, even though talks continue, and the surge in the coronavirus is crushing the recovery seen in Q3.   Today the UK reported that job cuts hit a record in the three months through October, rising by 217k.  That left the number of people on payrolls in November to be 819k below pre-Covid levels.  The hospitality industry accounts for over a third of the loss.  Although Chancellor of the Exchequer Sunak's popularity seemed to rise as fiscal spending increased, he faces stinging criticism over the slowness to extend income-support efforts, which he did finally agree to hours before the program was to expire.  The aid was extended through March, but businesses already had to make the tough decisions.   The October jobless rate, which is reported with a larger lag, rose to 4.9%, the highest in four years.   

The US and Europe took mild measures against Turkey, with harsher moves possible next year.  The US announced sanctions on SSB, a key Turkish defense contractor, and several people, including the head of the company.  The issue was the purchase of a Russian-made air defense system.  US law required sanctions when Turkey received the system (mid-2019), but President Trump waivered, and the defense bill Congres passed last week ordered sanction.  Last week, the EU sanctioned some officials and entities (to be named later) for gas drilling in Cypriot waters.  Europe chose to defer making a decision to ban arms sales and impose tariffs, which France, Greece, and Cyprus were advocating,  pending a discussion with the new US administration.  Turkey has gotten off fairly light.  Meanwhile, the return to a more orthodox monetary policy has stabilized the lira, with the dollar carving out a range of roughly TRY7.75-TRY8.0.  It wrestles with Argentina for the dubious honor of being the weakest currency this year. The peso is about 27.4% this year, while the lira has fallen by about 24%.  Bolstered by a weak lira, interest rate cuts, fiscal stimulus, and the government's push to extend credit, the Turkish economy was the best performer in the G20 in Q3 (seasonally-adjusted and adjusted for the number of working days, the economy grew by 15.6% quarter-over-quarter. 

Yesterday, the euro came with 1/100 of a cent of its December 4 high, which Bloomberg puts at $1.2178. It is consolidating today within about a 15 tick range on either side of $1.2150.  Two options expirations today draw attention.  The first is for about 550 mln euros at $1.2135 and the other, for a billion euros at $1.2175.  Note that there is a 1.1 bln euro option at $1.21 that will roll-off both today and tomorrow.   For two weeks now, the euro has been trading between $1.2060 and $1.2178.  Sterling is also confined to a narrow range of a little less than three-quarters of a cent (~$1.3280-$1.3350).    If maintained, it would be the narrowest range this month. The euro had fallen to about GBP0.9045 yesterday after trading as high as GBP0.9230 before the weekend before recovering to GBP0.9120.  It extended those gains to almost GBP0.9150 today before sellers reemerged.  Initial support is seen near GBP0.9100 now.  

America

Sometimes a compromise can be found by splitting the difference.  Sometimes it is found by both sides accepting the demands of the other.  The hope for more US stimulus this year rests on simply eliminating the elements for which an agreement remains elusive.  A bill for almost $750 bln may be the last gasp effort this year.  State and local spending and lifting Covid-related liability for businesses have been stripped out and put in a different bill.  This may be the closest to an agreement that the US has been in a few months.   Failure could lead to a sell-off in stocks and a rally in bonds. 

The US reports the December Empire Manufacturing Survey today (the Bloomberg survey's median forecast is for 6.2 after 6.3) and the November industrial output figures.  After a 1.1% rise in October, industrial production is expected to have cooled dramatically, rising only 0.3% in November.  Manufacturing output is expected to also rise by 0.3% after a 1.0% gain in October.  The utilization rate of industrial capacity is projected to rise to 73.0% from 72.8%.  It stood near 77.6% last November.  The slack in capacity and the labor market seem to argue against this potential spur of inflation.  The October TIC data due out after the markets close today may draw extra attention.  Recall that the US 10-year yield rose 19 bp in October, the largest gain in two years.   Canada reports November housing starts, and a small decline is expected.  Manufacturing sales (October) and existing home sales (November) are also due.    The focus in Mexico is the bill that requires the central bank to buy excess dollars from banks that could have illicit sources.  If passed by the lower chamber today in which President AMLO's party (Morena) enjoys a supermajority, the president is expected to sign it over the objections of Banxico, the largest private banks, and the business lobby.    

As was the case last year, Brazil will likely make a $113 mln payment to the UN before the end of the year.  Otherwise, it will lose its vote in the General Assembly. Several countries, including the US, are in arrears, but the UN limits the debt to two years of contributions. Some small countries have claimed and granted exceptions.  Brazil's economic ministry explained that its Congress would soon pass a bill granting new payments to the UN (and other multilateral institutions).  Meanwhile, Brazil's decision to cut the income support measures for informal workers in October sapped the recovery.  The economic activity index was nearly halved to 0.86% from 1.68% in September and below expectations.  The virus is surging, and unemployment is at record highs.  The Selic rate stands at a record low of 2%, and the central bank sees no room to cut further with price pressures firming and CPI rising to 4.3% in November, the highest this year.  

The US dollar remains trapped in its trough against the Canadian dollar.  It remains in the range set last Thursday (~CAD1.2710-CAD1.2830).  It is even in a narrower range of roughly CAD1.2720-CAD1.2790.  The greenback has edged higher against the Mexican peso for the past four sessions and reached a three-week high yesterday near MXN20.25. However, the correction may be snapped today.  Initial support is seen near MXN20.00.  If it holds, it would be the first session this month that the dollar has not traded with an MXN19-handle.  The central bank meets Thursday and is widely expected to stand pat, leaving the overnight target rate at 4.25%.  


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Which New World Order Are We Talking About?

Which New World Order Are We Talking About?

Authored by Jeff Thomas via InternationalMan.com,

Those of us who are libertarians have a tendency…

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14 mins ago

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October 4, 2023

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Which New World Order Are We Talking About?

Authored by Jeff Thomas via InternationalMan.com,

Those of us who are libertarians have a tendency to speak frequently of “the New World Order.”

When doing so, we tend to be a bit unclear as to what the New World Order is.

Is it a cabal of the heads of the world’s governments, or just the heads of Western governments?

Certainly bankers are included somewhere in the mix, but is it just the heads of the Federal Reserve and the IMF, or does it also include the heads of JPMorgan, Goldman Sachs, etc.?

And how about the Rothschilds? And the Bundesbank—surely, they’re in there, too?

And the list goes on, without apparent end.

Certainly, all of the above entities have objectives to increase their own power and profit in the world, but to what degree do they act in concert? Although many prominent individuals, world leaders included, have proclaimed that a New World Order is their ultimate objective, the details of who’s in and who’s out are fuzzy. Just as fuzzy is a list of details as to the collective objectives of these disparate individuals and groups.

So, whilst most libertarians acknowledge “the New World Order,” it’s rare that any two libertarians can agree on exactly what it is or who it’s comprised of. We allow ourselves the luxury of referring to it without being certain of its details, because, “It’s a secret society,” as evidenced by the Bilderberg Group, which meets annually but has no formal agenda and publishes no minutes. We excuse ourselves for having only a vague perception of it, although we readily accept that it’s the most powerful group in the world.

This is particularly true of Americans, as Americans often imagine that the New World Order is an American construct, created by a fascist elite of US bankers and political leaders. The New World Order may be better understood by Europeans, as, actually, it’s very much a European concept—one that’s been around for quite a long time.

It may be said to have had its beginnings in ancient Rome. As Rome became an empire, its various emperors found that conquered lands did not automatically remain conquered. They needed to be managed—a costly and tedious undertaking. Management was far from uniform, as the Gauls could not be managed in the same manner as the Egyptians, who in turn, could not be managed like the Mesopotamians.

After the fall of Rome, Europe was in many ways a shambles for centuries, but the idea of “managing” Europe was revived with the Peace of Westphalia in 1648. The peace brought an end to the Thirty Years’ War (1618-1648) in the Holy Roman Empire and the Eighty Years’ War (1568-1648) between Spain and the Dutch Republic. It brought together the Holy Roman Empire, The House of Habsburg, the Kingdoms of Spain and France, the Dutch Republic, and the Swedish Empire.

Boundaries were set, treaties were signed, and a general set of assumptions as to the autonomy within one’s borders were agreed, to the partial satisfaction of all and to the complete satisfaction of no one… Sound familiar?

Later, Mayer Rothschild made his name (and his fortune) by becoming the financier to the military adventures of the German Government. He then sent his sons out to England, Austria, France, and Italy to do the same—to create a New World Order of sorts, under the control of his family through national debt to his banks. (Deep Throat was right when he said, “Follow the Money.”)

So, the concept of a New World Order has long existed in Europe in various guises, but what does this tell us about the present and, more important, the future?

In our own time, we have seen presidents and prime ministers come and go, whilst their most prominent advisors, such as Henry Kissinger and Zbigniew Brzezinski, continue from one administration to the next, remaining advisors for decades. Such men are often seen as the voices of reason that may be the guiding force that brings about a New World Order once and for all.

Mister Brzezinski has written in his books that order in Europe depends upon a balance with Russia, which must be created through the control of Ukraine by the West. He has stated repeatedly that it’s critical for this to be done through diplomacy, that warfare would be a disaster. Yet, he has also supported the US in creating a coup in Ukraine. When Russia became angered at the takeover, he openly supported American aggression in Ukraine, whilst warning that Russian retaliation must not be tolerated.

Henry Kissinger, who has literally written volumes on his “pursuit of world peace” has, when down in the trenches, also displayed a far more aggressive personality, such as his angry recommendation to US President Gerald Ford to “smash Cuba” when Fidel Castro’s military aid to Angola threatened to ruin Mr. Kissinger’s plans to control Africa.

Whilst the most “enlightened” New World Order advisors may believe that they are working on the “Big Picture,” when it comes down to brass tacks, they clearly demonstrate the same tendency as the more aggressive world leaders, and reveal that, ultimately, they seek to dominate. They may initially recommend diplomacy but resort to force if the other side does not cave to “reason” quickly.

If we stand back and observe this drama from a distance, what we see is a theory of balance between the nations of Europe (and, by extension, the whole world)—a balance based upon intergovernmental agreements, allowing for centralised power and control.

This theory might actually be possible if all the countries of the world were identical in every way, and the goals of all concerned were also identical. But this never has been and can never be the case. Every world leader and every country will differ in its needs and objectives. Therefore, each may tentatively agree to common conditions, as they have going back to the Peace of Westphalia, yet, even before the ink has dried, each state will already be planning to gain an edge on the others.

In 1914, Europe had (once again) become a tangle of aspirations of the various powers—a time bomb, awaiting only a minor incident to set it off. That minor incident occurred when a Serbian national assassinated an Austrian crown prince. Within a month, Europe exploded into World War. As Kissinger himself has observed in his writings, “[T]hey all contributed to it, oblivious to the fact that they were dismantling an international order.”

Since 1648, for every Richelieu that has sought to create a New World Order through diplomacy, there has been a Napoleon who has taken a militaristic approach, assuring that the New World Order applecart will repeatedly be upset by those who are prone to aggression.

Further, even those who seek to operate through diplomacy ultimately will seek aggressive means when diplomatic means are not succeeding.

A true world order is unlikely.

What may occur in its stead would be repeated attempts by sovereign states to form alliances for their mutual benefit, followed by treachery, one- upmanship, and ultimately, aggression. And very possibly a new World War.

But of one thing we can be certain: Tension at present is as great as it was in 1914. We are awaiting only a minor incident to set off dramatically increased international aggression. With all the talk that’s presently about as to a New World Order, what I believe will occur instead will be a repeat of history.

If this belief is correct, much of the world will decline into not only external warfare, but internal control. Those nations that are now ramping up into police states are most at risk, as the intent is already clearly present. All that’s needed is a greater excuse to increase internal controls. Each of us, unless we favour being engulfed by such controls, might be advised to internationalise ourselves—to diversify ourselves so that, if push comes to shove, we’re able to get ourselves and our families out of harm’s way.

*  *  *

Unfortunately, there’s little any individual can practically do to change the course of these trends in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. That’s precisely why bestselling author Doug Casey just released Surviving and Thriving During an Economic Collapse an urgent new PDF report. It explains what could come next and what you can do about it so you don’t become a victim. Click here to download it now.

Tyler Durden Wed, 10/04/2023 - 03:30

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As yen weakens and interest peaks, Bank of Japan balances on a policy precipice

Quick Take The Bank of Japan (BOJ) stands at a critical juncture, striving to maintain a delicate balance amid a changing economic landscape. Recent data…

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44 mins ago

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October 4, 2023

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Quick Take

The Bank of Japan (BOJ) stands at a critical juncture, striving to maintain a delicate balance amid a changing economic landscape. Recent data shows that the 10-year yield, which the BOJ has endeavored to keep below 1%, has touched 0.8, a peak unseen since 2013. Simultaneously, the BOJ has labored not to let the Yen weaken, yet it continues to be pressured as it drops further against the US dollar, crossing the 150 mark for the first time in over a year.

There is burgeoning speculation about possible BOJ interventions in these market movements. As the central bank continues to uphold negative interest rates, a shift towards positive rates might become inevitable in the foreseeable future. It’s a precarious fulcrum of financial strategies that the BOJ is balancing on, with market tempests stirring on one side and the stability of the national currency on the other.

This scenario highlights the intricate dynamics of monetary policies and the profound impact they can have on both national and global economies. A closer look at the situation illuminates the complexities in the BOJ’s policy decisions and the broader implications on the financial landscape.

JPY: (Source: Trading View)

The post As yen weakens and interest peaks, Bank of Japan balances on a policy precipice appeared first on CryptoSlate.

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Poland, Austria, & Czechia Introduce Temporary Border-Checks With Slovakia To Curb Illegal Migration

Poland, Austria, & Czechia Introduce Temporary Border-Checks With Slovakia To Curb Illegal Migration

Authored by Thomas Brooke via Remix…

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2 hours ago

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October 4, 2023

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Poland, Austria, & Czechia Introduce Temporary Border-Checks With Slovakia To Curb Illegal Migration

Authored by Thomas Brooke via Remix News,

Poland, Austria and Czechia will all introduce random checks at the countries’ borders with Slovakia from midnight on Wednesday following an influx of illegal immigration.

Temporary checks will be conducted along the length of the border for an initial 10-day period until Oct. 13.

They will focus specifically on road and railway border crossings, although, pedestrians and cyclists may also be asked for documentation. Anyone within the vicinity of the border may be requested to identify themselves.

“The numbers of illegal migrants to the EU are starting to grow again,” said Czech Prime Minister Petr Fiala following the announcement. “We don’t take the situation lightly.”

“Citizens need a valid passport or identity card to cross the border,” the Czech Interior Ministry added.

The Czech policy would also be adopted by neighboring Austria, the country’s Interior Minister Gerhard Karner confirmed.

Poland had already announced its intention to reintroduce checks on the Slovak border with the number of migrants along the Balkans migration route continuing to surge. Prime Minister Mateusz Morawiecki said last week he was “instructing Minister of Interior Mariusz Kamiński to check on buses, coaches, and cars crossing the border when it is suspected there could be illegal migrants on board.”

“In recent weeks, we detected and detained 551 illegal migrants at the border with Slovakia. This situation causes us to take decisive action,” Kaminski added.

Slovak caretaker Prime Minister Ludovit Odor acknowledged the growing issue of illegal migration in his country but insisted that the problem needs a European solution rather than individual nations restricting border access.

He claimed that the decision by the three neighboring countries had been fueled by the Polish government, which is involved in a tightly contested election campaign, with Poles heading to voting booths on Oct. 15.

“The whole thing has been triggered by Poland, where an election will soon take place, and the Czech Republic has joined in,” Odor said.

Slovakia revealed last month that the number of illegal migrants detained by its authorities this year had soared nine-fold to over 27,000. The majority of detainees comprise young men from the Middle East using the Balkan migratory route through Serbia as they seek to migrate to northwestern Europe.

The winner of Sunday’s general election in Slovakia, former Prime Minister Robert Fico, has vowed to tackle the issue more robustly by promising to reintroduce border checks with neighboring Hungary.

“It will not be a pretty picture,” Fico told journalists as he threatened to use force to dispel illegal migrants detected on Slovak territory.

Tyler Durden Wed, 10/04/2023 - 02:00

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