woensdag 18 oktober 2017

Wolf Richter; Wheezing Consumers And Slowing Economy, No Problem: UK Inflation Jumps Most In 5+ Years. Rate Hike Due In November

The Fed leads, other central banks follow. The UK is not the only one. But it’s furthest ahead. In the US, consumer prices as measured by the Consumer Price Index rose 2.2% in September compared to a year ago. In the Eurozone, prices rose 1.5%. And today the UK’s Office for National Statistics reported that consumer prices in the UK jumped 3.0%, after having already risen 2.9% in August. It was the biggest increase since April 2012. And inflation is outpacing wage increases, which inched up a meager 2.1%, slamming consumers further, and hampering the UK economy that is already showing signs of strain, with, for example, new vehicles sales plunging over 9% in September from a year ago. Inflation has now been above the Bank of England’s target of 2.0% for the eighth month in a row...


Note the dreadful “Deflation Monster” that economists and the media spent so much energy scaremongering about, though a little price deflation would be a godsend for consumers, and the consumer-driven aspects of the economy. A broader measure of the CPI, which includes “owner occupiers’ housing costs” (CPIH), rose 2.8%; it was also the highest since April 2012. The ONS explains the homeowner’s cost component:
# The CPIH is the most comprehensive measure of inflation. It extends the CPI to include a measure of the costs associated with owning, maintaining and living in one’s own home, known as owner occupiers’ housing costs (OOH), along with Council Tax. Both of these are significant expenses for many households and are not included in the CPI. 
The report by the ONS also pointed out that the culprit wasn’t just energy or the depreciation of the UK pound: The inflation rate for a range of goods has, however, picked up since the start of the year and the overall rate in the UK is higher than in most other EU countries, including all of the larger western European nations. Depreciation may have influenced this but increasing global commodity prices could also be a factor. This chart by the ONS shows how broad the price increases have been. The yellow bars indicate the upward contribution of each category to the overall inflation figure in September 2017...


When inflation hits 3.1%, the Bank of England is required to write a letter to the Chancellor of the Exchequer to publicly explain why CPI is overshooting the central bank’s 2% inflation target. BOE Governor Mark Carney told lawmakers on Tuesday that he expects inflation to rise further in October, adding that “it’s more likely than not” that he’ll need to write that letter to the chancellor. This inflation data was the last reading before the BOE’s next meeting in early November. A veritable cacophony has been emanating from the BOE about what to do next. As the debate rages, more and more indication are lining up that the BOE will raise rates in November by a quarter point to 0.5%. It would be the first rate hike in a decade. Inflation isn’t necessarily caused by growth or strong internal demand or rising wages, none of which is happening in the UK. Average weekly earnings inched up only 2.1% year-over-year during the three months to the end of July. Falling “real” incomes (adjusted for inflation) have been straining consumers.
That consumers are cutting back is showing in numerous ways, many of them all too conveniently blamed on the uncertainties of the not very smooth Brexit negotiations. For example, new vehicle sales (as determined by registrations) plunged 9.3% in September year-over-year, the sixth decline in a row. So the BOE is facing surging inflation in a slowing economy with sagging consumer spending due to inflation eating into purchasing power. This is not a nice scenario. But it if doesn’t get inflation under control, the BOE will face even worse economic conditions and consumers will be crushed. Inflation is also rising elsewhere, and the Fed has been, albeit timidly, on the forefront with its tightening policies. The Fed has hiked its target range for the federal funds rate four times and is now engaged in unwinding QE and shedding assets from its balance sheet. Another rate hike is likely in December.
The Bank of Canada has raised its policy rate twice this year, including a surprise hike in September. It is likely to raise its policy rate again in December. The ECB is unlikely to raise rates for now, but it has already tapered its QE program by €20 billion a month earlier this year and will likely announce more QE-tapering at its next meeting on October 26. It too follows the Fed’s path, but years behind: first QE tapering, then rate hikes. When the US Consumer Price Index jumped 2.2% in September, all fingers pointed at energy costs, particularly gasoline. But there’s something boiling beneath the surface, and it has nothing to do with energy.

North Korea Crisis: Would The United States Sacrifice Los Angeles For Seoul?

As tensions over the North Korea crisis rise almost on a daily basis, the above is the kind of question that a lot East Asians are asking themselves. Will the US allow North Korea to develop a nuclear ballistic missile arsenal that would put Los Angeles at risk? Or will the US strike North Korea's nuclear capabilities and save Los Angeles, but risk a retaliatory North Korean attack on Seoul, or Tokyo? After World War II, the US took on the role of Policeman of the World, and in doing so, signed some sort of mutual defense treaty with many countries: Japan, South Korea, Israel, Taiwan, the Philippines, the Marshall Islands, the ANZUS agreement with Australia and New Zealand, a special treaty with Iceland, and the NATO agreement with all of Europe. The Diplomat
The purpose was to discourage attacks on any of these allies that would otherwise have the risk of spiraling into World War III. What we're seeing now is a kind of fatal flaw in the strategy behind these mutual defense treaties. The idea was that the United States would protect these countries, but today the United States is more concerned about protecting itself. And because of the mutual defense treaties, neither South Korea nor Japan has a nuclear capability or nuclear deterrent, even though both countries are threatened with nuclear attack from North Korea (not to mention China), and even though they now feel unsure that they can depend on the United States to protect them. Development of a nuclear capability Japan is deeply unpopular because of their experience in World War II. But according to Thomas Cynkin, a former U.S. diplomat in Japan, the Japanese have developed a "nuclear latency policy," which allows Japan to develop nuclear weapons very quickly. Cynkin says the country is estimated to have “9 tons of plutonium, enough for over 1,000 warheads,” as well as an advanced space industry, which provides easy access to ballistic missile technology. There is no such easy path to nuclear weapons development in South Korea. Washington Post
Nuclear development is openly debated in South Korea, but would infuriate the Chinese and draw retaliation. The Chinese were infuriated by South Korea's deployment of the Terminal High Altitude Area Defense (THAAD) missile system, which is purely defensive, and China retaliated with a harsh economic boycott that's still in place. Deployment of offensive nuclear weapons would dangerously provoke the Chinese. North Korea's last major test was a ballistic missile test that occurred on September 14. The missile flew over Japan, landing in the Pacific Ocean far enough to have put the American base on Guam within range, raising international anxiety. It's been a whole month since that test, so international anxieties have subsided. But all it would take is another North Korean test of a nuclear bomb, or a long-range ballistic missile, or the two combined, and international anxieties will rise higher than ever, along with a new debate over deploying nuclear weapons in Japan and South Korea.... Cipher Brief and National Interest (5-Sep)

North Korea Nuclear Missile Crisis Close To Reaching A Tipping Point

On Sunday, Secretary of State Rex Tillerson said that "diplomatic efforts will continue until the first bomb drops." When I first heard I immediately thought that he was being intentionally ambiguous, because he could easily have made it clearer whether he meant the first North Korean bomb or the first American bomb. Tillerson was responding to a question about whether President Trump's tweets undermine him:
# "Well, I think what the President is doing is he is trying to motivate action on a number of people's part in particular the regime in North Korea. I think he does want to be clear with Kim Jong-un and that regime in North Korea that he has military preparations ready to go and has those military options on the table and we have spent substantial time actually perfecting those. But be clear, the President has also made clear to me that he wants this solved diplomatically. He is not seeking to go to war.
# Question: So he does think it is a waste of time?
# No, sir. He made it clear to me to continue my diplomatic efforts which we are. And we will, as I told others the diplomatic efforts will continue until the first bomb drops." CNN
When we try to interpret what Tillerson and Trump mean by this we have to understand that the United States has run out of time. As Nikki Haley said last month, "We have kicked the can down the road long enough. There is no more road left." This means one US administration after another have allowed North Korea to carry out their threats to develop a ballistic missile with a nuclear warhead. Most analysts believe that North Korea will "soon" have the ability to target the US mainland with a nuclear weapon equipped ballistic missile, where "soon" could mean several weeks to several months. Indeed, North Korean officials have repeatedly said that they are working non-stop to develop this nuclear missile capability, neither diplomacy nor sanction nor anything else will stop them. AFP
At that point, the North Koreans are expected to do something spectacular, like launch a nuclear missile to land in the Pacific Ocean halfway to the US mainland. This will be a clear tipping point in the North Korean crisis. The North Koreans believe, possibly correctly, that once this point is reached, then they will be able to use nuclear threats to make demands of the US, South Korea, and Japan, such as demanding that all US troops be withdrawn. The North Koreans would then continue development, and would soon have an arsenal of ballistic missiles with nuclear missiles targeting the US mainland. This will also presumably make the Russians and the Chinese very happy as well. Sputnik News (Moscow)
# Would the North Koreans actually carry out their nuclear threats? I keep going back to 2010, when the North conducted two acts of war targeting South Korea, in May, North Korea torpedoed and sank the warship Cheonan, killing dozens of South Korean crew members, and in November, North Korea killed South Korean civilians by shelling Yeonpyeong Island. In both cases, the South Koreans chose not to respond, but it's pretty clear that they might have. The North Koreans carried out those two acts of war because they correctly concluded that the South Koreans would not retaliate. Since the beginning of his term, President Trump has repeatedly made clear, through tweets and statements, that unlike the South Koreans in 2010, we actually would retaliate, and forcefully. But after three decades of empty threats by American administrations, the North Koreans may quite reasonably conclude that Trump's tweets are simply another empty threat.
And so we return to Tillerson's remark, and to the question: Why was it so carefully and meticulously ambiguous as to whether "the first bomb" would be dropped by the US or North Korea? Will Trump and Tillerson permit North Korea get to the point where they have an arsenal of nuclear-tipped ballistic missiles pointed at the United States? These are two older men, Boomers, decisive, sharp businessmen who now have to make the most important and critical decisions of their lives. I certainly can't read their minds, but I find it hard to believe that they would just sit back and let North Korea develop a nuclear arsenal with impunity, and then have to lead a humiliated United States a year from now.... KCNA Watch (North Korea)

dinsdag 17 oktober 2017

Dow Fails To Hold 23,000 As Yield Curve Carnage Continues

The Dow is now up 17% YTD, crushing bonds and bullion. Everything changed when China’s central bank decided that it would remove a reserve requirement for financial institutions trading in FX forwards for clients by cutting it to zero from 20% currently...


But let's not spoil the party! Dow 23,000...


1200 points in 27 days...


The Dow is now the most overbought in 8 months (and the past three times, the rally has stalled)...


We have never seen a divergence between VIX and The Dow this wide for this long...


Additionally, as BofA notes, the S&P 500 has only traded 1% or more in either direction 8 times so far in 2017, tied with 1965 (full year) for the third fewest in history...


The only years with fewer moves in excess of +/-1% were 1964 (3 times) and 1963 (6 times)...


For comparison the most +/-1% moves occurred during the height of the Great Depression in 1932 (181 times), and the most in recent history was during the GFC in 2008 (134 times). The above stat is yet another striking depiction of today’s historic low vol environment. Anyway, moving on from all that malarkey. Small Caps and Trannies were notably weaker today as The Dow did what it does...


VIX was very illiquid again and actually rallied along with stocks today. Dow was ramped back to 23,000 once again into the close but failed to hold it...


Small Caps stumbled notably today (worst day in 6 weeks)...


This is the widest divergence between stocks and vol since the 2015 China deval collapse...


PG&E soared after headlines about arrest in the CA wildfires BUT then dropped when clarified as a different arsonist...


NFLX was a big 'sell the news' event...


Trump Tax Reform hope has left the building...


Banks had an ugly after a hopeful pre-market earnings from MS and GS...


And finally started to rollover as the yield curve collapse continues...


Treasuries were mixed today with the long-end rallying but short-end seing yields rise further with yet more dramatic curve flattening...


The bond market bloodbathery continues to crush the dreams of the 'recovery-hypers'...


FX markets were volatile today...


With a big reversal in the dollar...


As the Peso and Loonie dumped early on NAFTA disagreements then surged after NAFTA negotiators claimed "success" in round 4 and talks will extend beyond 2017 deadline...


Gold and Silver were lower today...


WTI and RBOB both gained ahead of tonight's API data (WTI barely but RBOB solid)...


Finally, for good measure, 'Industrial' Production remains well below 2014 highs, but the 'Industrial' Average is soaring to new record highs...

Dow Hits 23,000; There's Just One Thing...

Just four weeks since The Dow crossed 22,000, but thanks to Goldman, Boeing, Caterpillar, 3M, and JPMorgan (accounting for over 500 Dow points), the mainstream media's favorite index just topped 23,000 for the first time ever...


With the Top 6 names driving 50% of the index's move...


However, it seems options traders ain't buying it. If everything's so awesome, why are investors buying Dow protection with both hands and feet?


As retail piles in, so professoinals are hedging to extremes. Finally, for good measure, 'Industrial' Production remains well below 2014 highs, but the 'Industrial' Average is soaring...

US Industrial Production Data Dashes 'Survey-Driven' Hopes Of Manufacturing Renaissance

Following August's storm-driven collapse in Industrial Production (-0.9%, worst since May'09), September was due for a bounce back and it did but only meeting expectations with a 0.3% rise on a surge in Utilities. However, aggregate industrial production for US remains 2% below its 2014 peak. Manufacturing Surveys have all been soaring heading into today's IP print...



But, while August's tumble was revised slightly better to a 0.7% drop, September's print was only 'as expected'...



Driven by a surge in Utilities;
- Utilities rose 1.5% in Sept. after falling 4.9% in Aug.
- Mining rose 0.4% in Sept. after falling 0.2% in Aug.
- Harvey, Irma combined effect trimmed industrial production growth by 0.25 percentage point in Sept, Fed said.
Finally, for good measure, 'Industrial' Production remains well below 2014 highs, but the 'Industrial' Average is soaring...


Just remember, perception is not reality...

Goldman Beats Despite 26% Drop In Fixed Income As Prop Trading Jumps; Avg Comp Slides To $339,190

Following strong earnings from Morgan Stanley earlier this morning, which without a balance sheet (with rising credit loss provisions) to drag it down, reported solid, and better than expected trading and wealth management revenues, all eyes were on Goldman. And after last quarter's abysmal report, which saw FICC revenue tumble 40% in Q2, Goldman Sachs did not disappoint, reporting Q2 revenue of $8.326BN, above the $7.54BN expected, and 2% higher from the $8.168BN reported a year ago. This was also the highest quarterly revenue reported by the bank since Q2 2015, when the company generated revenues of $9.1 Billion. Goldman's EPS of $5.02 was also above the $4.17 expected, although there was just one number that interested investors: the company's FICC trading which at $1.452BN came in stronger than the $1.37BN expected, although it was still a 26% drop from the $1.964BN reported last year. Less impressive was Goldman's equity sales and trading, which dropped 7% Y/Y to $1.668BN, and missed expectations of a $1.70BN. This was more than offset by the surge in Goldman Investing and Lending (Prop) which jumped 35% Y/Y to $1.883 billion.
Commenting on the result, Goldman said its equities business operated in an environment characterized by "higher stock prices" compared to the previous three-month period. Still, "volatility remained subdued" and the drop in revenue in the unit was attributable to "lower revenue in equities client execution" but that was at least partially offset by higher results in cash products. "Commissions and fees were lower in the equities unit", the result of lower U.S. market volumes, Goldman said. Breaking down the key revenue segments:
- 3Q trading rev. $3.13 billion, est. $3.04 billion
- 3Q FICC sales & trading revenue $1.452 billion, est. $1.37 billion
- 3Q equities sales & trading revenue $1.668 billion, est. $1.70 billion
- 3Q investment banking revenue $1.80 billion, est. $1.50 billion
- 3Q Investing and Lending (Prop): $1.883BN, up 35% Y/Y...


Discussing the ongoing weakness in FICC, Goldman explained that "net revenues in Fixed Income, Currency and Commodities Client Execution were $1.45 billion for the third quarter of 2017, 26% lower than the third quarter of 2016, due to significantly lower net revenues in commodities, interest rate products and credit products and lower net revenues in currencies, partially offset by higher net revenues in mortgages. Although market-making conditions improved in most businesses compared with the second quarter of 2017, Fixed Income, Currency and Commodities Client Execution continued to operate in a challenging environment characterized by low levels of volatility and low client activity." And while equities trading was mildly disappointing, it came largely in line with historical. Goldman noted that "net revenues in Equities were $1.67 billion for the third quarter of 2017, 7% lower than the third quarter of 2016, primarily due to lower net revenues in equities client execution, reflecting significantly lower results in derivatives, partially offset by higher results in cash products. Net revenues from commissions and fees were lower, reflecting lower market volumes in the United States, and net revenues in securities services were slightly higher compared with the third quarter of 2016...


Equities operated in an environment characterized by higher global equity prices compared with the second quarter of 2017, while volatility levels remained low. " Goldman als clarified the burst in prop investing and trading as follows: "Net revenues in Investing & Lending were $1.88 billion for the third quarter of 2017, 35% higher than the third quarter of 2016 and 19% higher than the second quarter of 2017. Net revenues in equity securities were $1.39 billion, 51% higher than the third quarter of 2016, reflecting an increase in net gains from investments in private equities, which were positively impacted by corporate performance and company-specific events. Net revenues in debt securities and loans were $492 million, 3% higher than the third quarter of 2016, reflecting higher net interest income, partially offset by lower net gains from investments in debt instruments."
Unlike last quarter, Investment Banking revenues finally rebounded, rising 17% year over year, "reflecting an increase in completed mergers and acquisitions. Net revenues in Underwriting were $886 million, essentially unchanged compared with the third quarter of 2016, as slightly higher net revenues in debt underwriting, reflecting higher net revenues from investment-grade activity, were largely offset by lower net revenues in equity underwriting, reflecting a decrease in industry-wide offerings." The bank also warned that " the firm’s investment banking transaction backlog decreased compared with both the end of the second quarter of 2017 and the end of 2016." Two other notable highlights: 3Q compensation expenses of $3.172 billion, were higher than the estimate of $2.9 billion, while 3Q non- compensation expense was $2.18 billion. Finally, based on the total headcount of 35,800, up 1,700 from the prior quarter, at the end of the quarter and calculated LTM comp accruals, the average compensation per Goldman banker dropped to $339,190 from $357,126 in Q2....

Critical Threats To 2017's Bull Market: Macro View

While the idea that anything could go wrong in global stock markets (especially US markets) is simply incomprehensible to most, Bloomberg's macro strategist Mark Cudmore dares to mention a few of the more prescient 'known unknowns' that could hamper the meltup for the rest of the year...


# Via Bloomberg, The base case for the last 11 weeks of 2017 is that the global equity bull market marches on, or even accelerates. But it’s worth determining which known risks have the potential to significantly derail it and which ones can be mostly ignored. The MSCI All World Index has risen more than 40% from its February 2016 low without a 10% correction. What could cause one before year-end? Globally, the combination of good growth, solid earnings and excess liquidity remains supportive. Excluding true black swans (unknown unknowns), here are three critical candidates to keep an eye on: Military conflict in North Korea is the obvious one. Its potential for disruption is so massive it needs no further explanation. With Spain threatening to seize direct control of Catalonia, large-scale civil unrest and martial law can’t be ruled out as a possibility.
The looming removal of any autonomy for the region is unlikely to be accepted without a fight. The hit to European sentiment and assets has the potential to be severe enough to ripple through global markets. A U.S. government shutdown into year-end during the illiquid holiday season is an entirely underestimated risk. Since at least a temporary agreement has always been reached in the past, investors are assuming the same again, especially with mid-term elections putting pressure on the major parties to compromise. But Trump’s decision to undermine the Affordable Care Act by removing subsidies for health insurers has only increased the partisan divide. The official December 8 deadline isn’t a binary moment for markets, but as we get farther into December with no deal, the negative asset impact would be severe.
# Other risks; including Nafta negotiations, China deleveraging, Brexit talks, U.S. tax reform failure, Kurdistan, German government formation and an inflation pick-up....

Global Stocks Just Shy Of Record Highs As Dollar, Yields Rise On Taylor Tension

Global markets traded near all-time highs on Tuesday, with S&P futures, Asian shares and European stocks all flat this morning, while oil continued to gain on Kurdish geopolitical concerns while most industrial metals fell. The euro extended its recent slide and stocks drifted as Spain’s escalating hard-line response to the Catalonian secession threat fueled concern the crisis may intensify. Markets initially followed the US reaction to reports of a positive John Taylor (Rule), Donald Trump meeting, which sent 2Y Treasury yields to their highest since 2008 and pushed up the dollar higher amid speculation the next Federal Reserve chairman will be more hawkish, while TSYs briefly traded through Monday’s session lows because as we showed yesterday, the Taylor Rule would suggest a Fed Funds rate that is far higher than the current...


However, the pop in short-yields was not matched at the long end and the 2-to-10 year U.S. yield curve hit its shallowest in more than a year. “Fed chairs have often influenced U.S. monetary policy quite considerably in the past. And I would certainly see Taylor as a candidate who would fit in this pattern,” Commerzbank analyst Thu Lan Nguyen said. “That makes one thing clear: should Trump nominate Taylor as Yellen’s successor the U.S. dollar would initially appreciate notably.” Cable remained volatile through U.K. inflation data and dovish commentary from BOE’s Ramsden but eventually traded flat. In addition to Spain, the EUR/USD continued its recent trend lower, pricing a nine-month QE extension within ECB taper, while bunds and other EGBs continue to grind higher. The South African rand weakened following a Zuma cabinet reshuffle The common currency declined for a fourth day, the longest streak since May. The Stoxx Europe 600 Index was little changed following mixed trading in Asian stocks earlier, after North Korea warned that a nuclear war could “break out any moment.”
Core European equity markets dipped from the open before trading back to unchanged with the tech sector supported by Infineon (2.5%) after positive comments from BofA, leisure sector underperforms after Merlin Entertainments (-19.5%) posts poor earnings forecast. Spain’s IBEX Index fell 0.3 percent to the lowest in a week as Spain cut its economic growth forecast for 2018, acknowledging the impact of an escalating political crisis that led the National Court in Madrid to jail two leading Catalan separatists. As reported on Monday, the Spanish state is turning up the pressure on the separatist leaders as Prime Minister Mariano Rajoy tries to persuade Catalan President Carles Puigdemont to drop his push for independence or see Madrid take direct control of the regionl two Catalan independence leaders were ordered jailed without bail during a sedition trial. Asia’s regional stock benchmark was little changed, holding near its highest level in 10 years, while a gauge of mining stocks advanced after Rio Tinto Group signaled it’s on track for record annual iron ore shipments.
The MSCI Asia Pacific Index added less than 0.1 percent to 167.82 as of 11:40 a.m. in Hong Kong, after extending gains from its highest level since November 2007 on Monday. Materials stocks led gains Tuesday, rising 0.5 percent. Japan’s Topix fluctuated, erasing early gains, after a six-day rally pushed it further into technically overbought levels. It eventually closed 0.2% higher in Tokyo after gaining as much as 0.6%. Australia’s S&P/ASX 200 Index rose 0.7 percent and South Korea’s Kospi index was up 0.2 percent. “Investors are pausing just a bit while waiting for more directional data points on the global state of affairs before they assess whether current high valuations have firm footing,” said Attila Vajda, managing director of Project Asia Research & Consulting Pte. China’s GDP report due on October 19 will help determine investment decisions.
# Elsewhere, the pound dropped amid speculation the Bank of England will deliver the U.K.’s first rate increase in more than a decade next month after data showed inflation in U.K. accelerated in September, although testimony by Governor Mark Carney befire lawmakers in London appears to have taken away the fizzle. British Prime Minister Theresa May and European Commission chief Jean-Claude Juncker agreed over dinner in Brussels on Monday that the pace of negotiations over Britain’s departure from the European Union should be stepped up. Some market watchers such as JP Morgan are sceptical on sterling’s outlook, recommending investors to buy euros against the British pound as “the overhang of the Brexit issue itself would constrain how much accommodation the BoE would be able to remove.”
One of Monday’s big movers, oil, consolidated a near month-high having spiked after Iraqi forces seized the oil-rich city of Kirkuk from fighters loyal to the country’s semi-autonomous Kurdish Regional Government. After months of rangebound trading during which OPEC-led supply cuts supported crude values but rising U.S. output capped markets, prices have moved up significantly this month. Brent crude oil was 5 cents higher at $57.87 a barrel by 0800 GMT, up almost a third from its mid-year levels. U.S. West Texas Intermediate (WTI) crude CLc1 was nudging up again too at $51.99. There were unconfirmed reports that Kurdish forces had shut around 350,000 barrels per day (bpd) of oil production from major fields. “The 500,000 bpd Kirkuk oilfield cluster is at risk,” Goldman Sachs said in a note to clients. Tension between the United States and Iran is also rising, after U.S. President Donald Trump on Friday refused to certify Iran’s compliance over a nuclear deal which removed long-running sanctions. “If there (were new sanctions), we expect that several hundred thousand barrels of Iranian exports would be immediately at risk,” Goldman said. During the previous round of sanctions around 1 million bpd of oil was cut from global markets.
In currencies, the Bloomberg Dollar Spot Index gained 0.1 percent to the highest in more than a week. The euro dipped 0.3 percent to $1.1764. The British pound dropped to session lows near $1.3226. The Japanese yen climbed less than 0.05 percent to 112.15 per dollar. Yields were little changed, with the US 10-year up one basis point to 2.31%; Germany’s 10-year yield decreased less than one basis point to 0.37 percent; Britain’s 10-year yield climbed two basis points to 1.336 percent, the biggest increase in almost two weeks. Gold declined and most emerging-market currencies weakened alongside developing-nation stocks. WTI crude resumed its push above $52 a barrel as tensions in Iraq lingered. Treasuries edged higher as odds rose that John Taylor will replace Janet Yellen at the Fed. Johnson & Johnson, Goldman Sachs, Harley-Davidson, Morgan Stanley, Omnicom are among companies reporting earnings
# Market Snapshot;
- S&P 500 futures little changed at 2,556.10
- STOXX Europe 600 down 0.07% to 391.13
- VIX Index down 0.6% at 9.85
- Nikkei up 0.4% to 21,336.12
- Topix up 0.2% to 1,723.37
- Hang Seng Index up 0.02% to 28,697.49
- Shanghai Composite down 0.2% to 3,372.04
- Sensex down 0.09% to 32,605.86
- Spanish 10Y yield fell 1.6 bps to 1.566%
- Brent Futures up 0.5% to $58.10/bbl
- WTI crude up +0.5% at $52.15/bbl
- Gold spot down 0.5% to $1,289.85
- U.S. Dollar Index up 0.1% to 93.41
# Top Overnight News; from Bloomberg
- John Taylor, a Stanford University economist and a candidate for Federal Reserve Chairman, made a favorable impression on President Donald Trump after the interview at the White House last week, according to several people familiar with the matter
- North Korea warned that a nuclear war may “break out any moment” as the U.S. and  South Korea launched one of the largest joint naval dri
- Spanish Interior Ministry is preparing first steps it would take if govt opts to trigger clause in constitution allowing for suspension of Catalonia’s self-government, El Pais reported
- Spain cut growth forecast for 2018 to 2.3% from 2.6% earlier, acknowledging the impact of an escalating political crisis
- BOE is seen keeping rates on hold through 2018 after making first hike in over a decade in November, according to a Bloomberg survey; 76% of the economists see a rise next month, up from 22 percent of respondents in September but they don’t see another increase until 1Q 2019
- BOE’s David Ramsden said he wasn’t in MPC majority pushing for a hike in coming months
- Last-minute efforts by U.K. PM Theresa May to unblock stalled Brexit talks came up short with EU officials now looking to December to move negotiations on to discussions about the future EU-Britain relationship
- Some Qatari banks are becoming less willing to sell dollars to foreign lenders amid a lingering regional standoff with a Saudi- led alliance, according to people familiar with the matter
- European car sales fell in September for only the second monthly drop this year as concerns about Brexit among U.K. consumers more than offset gains in France, Italy and Spain
- Reserve Bank of Australia said economic conditions at home and abroad “had been more positive since 2016,” according to minutes of this month’s policy meeting where interest rates were left unchanged
- U.K. Prime Minister Theresa May and European Commission President Jean-Claude Juncker’s dinner attempt to smooth out Brexit differences yielded little, revealing entrenched previous stances before the summit on Thursday
- Industrial production in September and Home Builders Market Index for October will be announced today in the U.S.
- Goldman Sachs, Morgan Stanley, IBM, Johnson & Johnson, Harley Davidson
*) Asia equity markets eventually traded mostly higher following the momentum from their US peers, where all major indices edged to fresh record levels once again. The positive lead provided an early bid tone in ASX 200 (+0.8%) which was also led by materials names as Rio Tinto rose to its highest in around 6 years on strong Q3 iron ore shipments, while Nikkei 225 (+0.4%) was also higher but saw some intraday pressure in which participants took heed of a strengthening JPY and booked profits. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.1%) were choppy despite a substantial liquidity operation by the PBoC, with participants tentative in the midst of earnings season and ahead of China’s 19th National Congress. Finally, 10yr JGBs were subdued amid a somewhat positive risk tone in Japan and after softer 20yr bond auction results in which the amount sold, b/c and accepted prices all declined from prior. PBoC injected CNY 100bln via 7-day reverse repos and CNY 90bln via 14-day reverse repos. PBoC set CNY mid-point at 6.5883 (Prev. 6.5839) China researcher states that China should tighten its monetary policy and toughen property curbs.
# Top Asian news;
- The Money-Losing Volatility Trade That Hedge Funds Can’t Resist
- China Bonds Slump as Zhou’s Optimism on Economy Seen Taking Toll
- HNA to Spend $7.6 Billion on Technology in Tourism Industry
- Hedge Fund Oasis Joins Asatsu Shareholders Opposing Bain Bid
- China’s Stocks, Bonds, Currency Drop in Unison Before Congress
- Gym of Choice for Hong Kong Financial Elite Is Said to Seek Sale
- Don’t Panic: China’s Deleveraging May Actually Be Good for Bonds
*) European equity markets trade marginally in the red, the FTSE found a marginal bid following the UK CPI data, recovering from best levels, however, still behaving as one of the noticeable underperformers across Europe. The CAC continues to trade near session lows, despite strong earrings from the likes of Danone. An opening markdown for the 10-year German debt future, largely due to reports that the more hawkish-leaning John Taylor put in an impressive performance when interviewed by President Trump for the role as next Fed chair. The news unsettled US Treasuries, and especially the short end of the curve where 2 year yields rallied to multi-year peaks alongside a jump in implied rates per Eurodollar contracts from the turn of next year through to 2019. A strong German ZEW report could add more pressure, while supply is also due via a Eur4 bn Schatz offering (though dovish ECB forward guidance on rates should underpin sentiment here, and reiterated by speakers to come).
Back to Eurex, the range so far for Bunds has been 162.59- 37. With a 3% headline print all priced in to the UK CPI data, (and in fact a bit more for many), Gilts have rebounded to a fresh intraday high of 124.34 (from 124.23 at best pre-data), while Short Stg futures have pared losses to just a tick. Note, comments from BoE’s Ramsden may also be lending some support to the 10 year bond and 3 month strip as he highlights slack in the economy, no second round inflation in wages and investment risks from Brexit. Note, however, y/y CPI has hit a 5 year-plus peak and November tightening remains a better than 50% prospect so any further bounce in debt/STIRs may be contained. Germany sells EUR 3.22bln vs. Exp. EUR 4bln 0% 2y Schatz Auction b/c 1.3 prev. 1.8 and average yield -0.75 prev. -0.72%, retention 19.5%.
# Top European news;
- Bunds Unruffled by ECB Taper Prospects Paint a Picture of Calm
- Italy Exercises Power Over Strategic Telecom Italia Assets
- Lloyds Can’t Shake Troubled Past in Suit Over HBOS Takeover
- U.K. Inflation Climbs to 5 1/2-Year High on Food, Transport
- Brexit Timeline Pushed Back as May’s Late Push Comes Up Short
- Credit Suisse Investor Herro Opposes Push to Break Up Bank
# In currencies, Sterling saw choppy trade following the 9.30 data, as the bid coming into the figures saw a marginal retracement. GBP/USD still trades near session highs, likely to look toward 1.33. USD: The greenback firmer by 0.2% following the move higher in US rates amid source reports stating that John Taylor (very hawkish) made a favourable impression on President Trump in regards to the Fed Chair position. The break above 93.32 (38.2% Fib retrace of the October fall) and the subsequent push through 93.40 indicates a bullish trend forming, however 93.50 is capping further gains for now. Meanwhile, the downward trend continues for EUR which ended yesterday’s session on the back foot amid the stronger greenback. Although with little key risk events until the Oct 26th ECB monetary policy decision it is possible that the pair will stay within close proximity to 1.18.
# In commodities, US Total shale regions oil production for November is seen upwards of 82,000 bpd at 6.12mln bpd WTI and Brent Crude futures have ground higher through early European trade as WTI trades through 52.00/bbl, with latest news from an IEA head stating that OPEC compliance is currently at 86%.
# Looking at the day ahead, the September industrial production print is the most notable release, while September manufacturing production and the import price index readings are also due, along with the October NAHB housing market index print. Onto other events, keep an eye on BoE Governor Carney testifying before the UK Parliament. Away from this, the ECB’s Constancio and Costa is also slated to make comments. Meanwhile EU foreign ministers hold preparatory talks ahead of the summit at the end of the week. Morgan Stanley, Goldman Sachs and IBM results are also due....

Theresa May's Government Fears Imminent Collapse Of Brexit Negotiations

Following Theresa May’s dinner with Jean-Claude Juncker in Brussels, we have a promise that both sides are committed to accelerating Brexit negotiations…except nobody actually believes that. Apart from the “bear hug” that Juncker gave Britain’s Brexit Secretary, David Davis, as they went their separate ways, there is no evidence that relations are any more cordial, or that any tangible progress was made in breaking the deadlock. Rather than no progress, however, thah the UK government sees the potential for the negotiations to collapse after this week’s EU Summit. “Theresa May’s government fears Brexit talks will break down unless the European Union gives ground at a key summit this week, according to a person familiar with her team’s views. Without a clear sign that negotiations will progress to trade and transition arrangements by December at Thursday’s summit of EU leaders, the entire Brexit process will be in danger of collapse.”
Mrs May made a telephone call on Sunday to the one person, Merkel, who could have softened the EU’s stance ahead of the dinner. Consequently, we were not surprised to learn that now “senior British ministers are losing faith in the EU’s willingness to strike a deal, the person said.” As we’ve said before, it still boils down to money and the EU is not shifting until the two sides can agree on a number. The growing problem for Mrs May is that she now has little room to maneuver due to the weakness of her own position. The source in Mrs May’s team told Bloomberg “May took a political risk by promising to pay into the EU budget and settle the divorce bill in a speech in Florence, Italy, last month and now needs something in return for before she can make concessions.” So, the stand-off continues, with the EU contingent staying confident that they have far more to gain at this point. “German Chancellor Angela Merkel and French President Emmanuel Macron are the two key obstacles to allowing talks to move on trade, according to the first official. Germany has a vested interest in delaying the progress in the Brexit talks because Frankfurt is trying to tempt companies away from London, the person said.” You can throw in Paris, Amsterdam and Dublin as beneficiaries too…just as long as the deeply embedded structural problems in European banks don’t suddenly flare up again.

Is China Planning To Deploy Its Army Against North Korea?

New photos of a recent highway construction in China could be part of a contingency plan to invade North Korea or amass a huge army on their shared border. Experts fear this newly uncovered plot could stoke the fires of World War 3, inevitably involving the United States. According to The Express UK, communist China has traditionally been North Korea’s closest ally, but Kim Jong-un’s continued nuclear and ballistic missile tests have tested Beijing’s patience on the rising tensions worldwide. These new revelations also come as North Korea was spotted transporting 30 Scud missiles from Hwangju, south of the capital Pyongyang, to Nampo, on the Korea Bay coast opposite China. New photos have emerged and they reveal that the Communist superpower is building a six-lane highway in its desolately populated northeast on route to North Korea...


With most Chinese peasants not able to afford the luxury of a car, the construction of the G1112 Ji’an–Shuangliao Expressway, has led experts to believe it will be used for quick deployment of tanks and troops to its North Korean border. The photos obtained by Daily Star Online show Chinese construction workers digging tunnels through the mountains and massive cranes constructing bridges over rivers.
# Chinese workers construct a six lane highway to North Korea’s border...


Scott Snyder, senior fellow for Korea studies and director of the program on US-Korea policy at the Council on Foreign Relations, told Daily Star Online: “China’s Jilin province has even budgeted and paid for improvements in road infrastructure inside some parts of North Korea in recent years in order to improve logistical access to the Rason port inside North Korea.” Dean Cheng, an Asia security expert at the Heritage Foundation, a think tank in Washington, said Beijing would have a ”vast array” of contingency plans involving military options to seize Kim Jong-un’s nuclear weapons. And just last week, a highly respected security think tank warned that the threat of war between China and the US was now real.
In the bombshell report, the Rand Corporation said any conflict between North Korea and South Korea and the US would quickly spiral into World War 3. If it’s decided upon by a nation to “take out” the North Korean dictator, Kim Jong-Un, American and Chinese troops would then rush across the border in a race to take control of the tyrant’s nuclear weapons and missile facilities colliding in a clash between China and the US, effectively spawning WW3. A whopping 85% of North Korea’s nuclear facilities are believed to be located within 62 miles of the Chinese border. China actually threatened the US with a “real war” last month. The communist nation said that Donald Trump had made a “serious miscalculation” over North Korea. Photos uncovered by a North Korean monitoring site suggested China was secretly helping Kim’s nuclear missile program. But there were other confusing and conflicting signs that North Korea may be preparing to fire missiles towards China next week. It looks like the world is steamrolling its way to a third world war....

The ECB Has Bought €1.9 Trillion In Bonds: Here Is Who Sold And What They Did With The Money

Since the ECB launched its sovereign debt QE, initially known as PSPP, in March 2015 and later expanded to include corporate debt, or CSPP, in June 2016, the world's biggest hedge fund central bank has created enough money out of thin air to purchase bonds with no consideration for price to grow its balance sheet, investment portfolio, by €1.89 trillion...


Meanwhile, over the entire QE period, net European bond new issuance has only amounted to €394 billion, only one-fifth of what the ECB has bought, and that only after picking up recently. In fact, through much of 2016, there was hardly any net issuance at all according to Citi data...


Here, as Citi notes, It’s hardly rocket science that for every bond the ECB has bought there must have been a seller, either a new issuer or an existing holder, which means:
* Net € FI issuance = Domestic net buying of € FI + Foreign net buying of € FI + ECB net buying of € FI 
Imbalances between desired issuance and desired holdings at the prevailing market price are what drive valuation changes until equilibrium is found. Put differently, if the ECB bought a bond from an investor who wished to remain in the € fixed income market, then that investor would buy from another investor, who could buy from yet another, but unless there was new issuance to invest in eventually prices would reach levels where someone would take the money out and put it somewhere else. But who has been selling to the ECB? And where have they been putting their money? That's the question Citi's Hans Lorenzen set out to answer, and since per the math above, net of issuance holdings of private investors must have fallen by more than €1.5 trillion, the answer would be rather material. Put that number into context, the €1.5 trillion in debt that someone sold without replacing, is equivalent to more than 9% of €-denominated bonds outstanding at the start of the program. Those are bonds which used to be held by private investors, who have now been given cash and have to park that cash somewhere else. As Citi notes, "It truly is crowding out on an unprecedented scale." Going back to Citi's question, here is the answer in two parts.
1) The "who" sold this €1.5 trillion in private holdings: Using ECB data, we know that private banks have beem major sellers, to the tune of €645 billion since the start of QE, making up more than 40% of the decline in private holdings. Here the net selling has mostly been of government bonds (€293bn) other MFIs (€273bn), while corporate and other bonds only amount to €70bn. Aside from banks, Citi calculates that while non-resident European investors have sold €400bn since Q1 2015, with non-bank private Euroarea investors filling the gap of €795bn. This calculation challenges the predominant assumption that the selling to the ECB has mostly been done by foreigners, as much of the non-bank net selling must have come from other domestic investors. When one adds Eurozone banks, it is clear that the majority of private selling in aggregate has been domestic. The chart below breaks down the transactions in bonds issued by Euro-area residents by investor type. Aside from banks, the main sellers have been households and other financial institutions...


2) Where did the money go? While the answer will hardly come as a surprise, there are, intuitively, four destinations where a euro pulled out of € fixed income could move into.
* stay in fixed income, but move into bonds denominated in other currencies;
*move out of fixed income and into another asset class (domestic or foreign), like equities;
*move into money markets;
*leave the securities market altogether, in which case you'd expect it to show up as a deposit (with a domestic or a foreign bank.
While there are some potential complications here, mostly because there is no explicit data revealing the "mirror image" for the private selling of €-denominated bonds, if one lines up the transactions against Citi's proxy, consisting of net purchases of European equities, money market flows, and non-government deposits, and the directional terms of the resulting asset disposition proceeds emerge, or as Citi summarizes, "When investors have been selling bonds, investments in our proxy have mostly tended to rise." Furthermore, as shown in the second chart below, splitting up these “proxy investment outlets” into their constituent parts, it becomes clear that the bulk of the “delta” from before QE in 2014 is in an increase the rate of deposit accumulation and an increase in outflows from Eurozone investments. However, since QE began, the deposit accumulation has continued, but the purchases of equities and especially foreign investments have grown, and have accelerated markedly this year...


# In short: the ECB purchased €1.5 trillion in bonds, mostly from European banks and domestic investors, with no regard for prices thereby virtually assuring booked profits for the sellers, who then turned around and purchased domestic equities, foreign investments, or converted the money into deposits and money market instruments. And so, with the ECB set to taper with trial balloons that the ECB could cut its monthly QE by half or more, what happens next now that this swap is about to be throttled by more than 50%? Will households sell more or less bonds, and what will happen to yields? We will present one answer, an answer which the central banks do not want to hear, shortly....

Wolf Richter; Pentagon Worried About Hackers Causing Stock Market Crash

But no one’s worried when stocks get manipulated higher. It’s funny, the all-out government effort to prevent a major decline of the stock market, or of individual stocks, via manipulation or hacking. Now even the Pentagon is looking into it. What’s funny is that everyone cheers when manipulation, hacking, and other shenanigans cause the market or individual stocks to soar. It’s just declines they’re worried about at these precarious levels. Manipulating stocks higher is a time-honored game that routinely receives kudos from all around. The Fed printed nearly $4 trillion and cut rates to zero for eight years – no matter what the damage to the real economy – for the sole purpose of manipulating up asset prices including stock prices. “Wealth effect,” Ben Bernanke called it. Corporate executives and analysts exaggerate future earnings only to deflate them at the last minute, because stock prices are “forward looking” and fake future earnings is all that matters, even if reality now sucks. And on and on. Whatever it takes to push stock prices up, by hook or crook, is cool. These are our heroes. But when some lonely dude might hack into high-speed stock trading systems or spook the trading algos, quant-fund managers, and high-speed traders and throw algorithmic trading off track to where prices might actually fall in a major way, all heck breaks loose, and the Pentagon feels empowered to step in.
Trading by automated systems, such as used by quant funds and high-speed traders, is dominating stock trading. The risk of hacking into those systems or manipulating those systems in other ways is a real issue, but it should cut both ways. And the systems themselves are designed to manipulate prices, so. Nevertheless, the Pentagon’s research arm, the Defense Advanced Research Projects Agency (Darpa), is working with “dozens” of high-speed traders, quant-fund managers, “people from exchanges and other financial companies,” executives, and “others” from Wall Street to figure out how hackers “could unleash chaos in the US financial system.” This is what the Wall Street Journal reported, citing “participants in the discussions” and a confirmation by Darpa. While not previously reported, the project is unclassified. But Darpa declined to release a list of its participants. “We started thinking a couple years ago what it would be like if a malicious actor wanted to cause havoc on our financial markets,” Wade Shen, a Darpa program manager since 2014, told The Journal. In his prior job, he’d researched artificial intelligence at MIT. This early-stage pilot project, aimed at identifying market vulnerabilities, has been going on for 18 months. Here are a few of the “dozens” of people who’ve worked with Darpa on the so-called Financial Markets Vulnerabilities Project:
- Jamil Nazarali, senior adviser to the CEO of Citadel Securities, “a trading giant responsible for around 20% of daily volume in US stock markets.”
- Misha Malyshev, CEO of trading firm Teza Technologies.
- Manoj Narang, CEO of quant hedge fund Mana Partners.
In these meetings, participants “brainstorm about how hackers might try to bring down US markets, then rank the ideas by feasibility.” The scenarios include: Hackers could cripple a widely used payroll system; they could inject false information into stock-data feeds, sending trading algorithms out of whack; or they could flood the stock market with fake sell orders and trigger a market crash. Or hackers could publish “‘fake news’ to shake investor confidence.” Narang told The Journal that he’d thought the stock market was resilient and would quickly bounce back from a hack, but since his discussions with Darpa, he grew more concerned: One scenario he fears: a hack of a US exchange in which the attacker sends a wave of fake sell orders to every firm offering to buy shares. That could potentially erase hundreds of billions of dollars of market value as prices drop and firms try to cover losses by selling on other exchanges, Mr. Narang said.
However this will turn out and whatever will come of it, if anything, what’s fascinating is that the Pentagon is worried about malicious actors causing a decline in stock prices. It’s not at all worried about malicious actors causing a surge in stock prices. A surge in stock prices, no matter who or what causes it, is good. By extrapolation, the Pentagon is not really worried about malicious actors per se. It’s only worried about those on the wrong side of the “wealth effect.” And what makes this funny, if it weren’t so serious, is that it’s the Pentagon, of all places, that’s doing this. Oh the irony!

Don Quijones; Days Of Living Dangerously In Catalonia

Fractured communities, splintered families, broken friendships. In Catalonia the economy is already beginning to feel the pinch from the rise in political tensions, as tourist numbers plunge 20% to 30% and as hundreds of companies, both domestic and foreign, move their headquarters to other parts of Spain, albeit in most cases only on paper. But there’s one business that’s doing a brisk trade: the flag business. Wherever you go these days, flags are everywhere. For years the estelada flag, the starry symbol of Catalan independence, has been a ubiquitous feature of the urban landscape. But now the Spanish flag is doing its best to catch up. As Catalonia’s separatist movement grows in confidence, more and more balconies in Madrid, Valencia, Seville and other Spanish cities, including even Barcelona, are sporting the bold red and yellow of the Spanish flag...


While all this frenetic flag buying, selling, waving and draping may be good business for some, it points to a very dark reality for Spanish and Catalan society: two deeply rooted, diametrically opposed forms of nationalism with a bleak not-so-distant past are on the verge of a head-on clash. While much of the focus of the international media has been on divisions between Spain and Catalonia, it’s within Catalonia itself that the most toxic effects of this political crisis are being felt...


Communities within the region are fracturing, families are splintering and friendships are breaking apart as the politics of sectarianism worm their way into just about every public and private space. Stress levels are rising and many people are struggling to sleep. A friend of mine told me last week that the morning after the violence-marred referendum on Oct.1, two colleagues at the office where she works, belonging to a company whose management is fiercely unionist, were entrusted with the unpleasant task of finding out where all the other junior employees’ loyalties lie. “On the side of dialogue” was my friend’s improvised response. The pressures to conform are at times unbearable. The wife of a close friend complained at the weekend that she had been strongly criticized by her work colleagues for not taking part in last Tuesday’s general strike. If there’s another strike she’ll probably stay at home, if only to avoid the accusatory glares of her fellow colleagues.
Another friend, of Spanish-German descent, was interviewed by a German newspaper about his feelings over recent developments in Catalonia. Having suffered serious setbacks in his work as sales manager for a German chemicals company and facing the possibility of having to move to Madrid as a direct result of the political chaos in Catalonia, my friend was pretty candid about the chaos it’s causing. But when the journalist sent him the final copy of the article, he saw that she had featured his full name and the name of the company he works for. “You can’t do that,” he told her. “I could lose my job. My company could lose all its contracts with local government institutions. I could even be blacklisted.” In the end the journalist agreed to remove all mention of my friend and his business from the article. That more or less sums up the bleak reality that has descended on Catalonia, a place where it’s becoming increasingly difficult to express your opinions freely and openly without paying a high price. The fact that this is happening in a country where the roots of democracy are still fairly shallow should give pause for thought. Hopes that Catalonia’s woes could be contained are fading....

Kurds Flee Kirkuk After Iraq Army Defeats Them In Complete Rout

People in Erbil, the capital city of the Kurdistan Regional Government (KRG), were shocked on Monday at the speed with which their supposedly legendary Peshmerga militias defending Kirkuk collapsed at the approach of Iraqi army forces and Shia militias, in what is seen as a total rout. For several days, Kurdish forces were locked in an armed standoff Iraqi government troops and allied Iranian-backed paramilitaries known as Popular Mobilization Units (PMUs) on the outskirts of the city. Kurdish leaders were using the strongest rhetoric, saying that Kirkuk would be defended to the last Peshmerga, and that if Iraqi forces attack, they would be soundly defeated. So there's a lot of anger today among the Kurds about how this rout could have occurred so quickly, within about 15 hours. Al Jazeera
The Kurds took control of Kirkuk in 2014, at a time when the country Iraq seemed to be falling apart, because the so-called Islamic State (IS or ISIS or ISIL or Daesh) defeated the Iraqi army quickly and took control of Mosul, making it ISIS headquarters in Iraq. ISIS also took control of vast swaths of land, including many villages, but it was Kurdish Peshmerga militias that prevented ISIS from taking control of Kirkuk as well. The Kurds might have been able to retain Kirkuk as part of the regional KRG government, but Kurdish leaders decided to go further and hold a non-binding referendum on September 25 on the question of secession of an independent Kurdish state from Iraq. This referendum went ahead despite almost universal international opposition, as the United States, Turkey, Iran, and Iraq expressed concern that the referendum would create unrealistic expectations and destabilize the region. And that appears to be exactly what happened. Once the referendum had passed, Iraq's prime minister Haider al-Abadi said that he had no choice but to order military action to capture Kirkuk and prevent a secession from taking place. The rapid advance of the Iraqi forces resulted in quickly seizing control of the city's airport, in addition to an oil field, the strategic K1 military base and the Taza Khormatu district southeast of Kirkuk. A convoy of elite Iraqi counter-terrorism unit forces took control of the governorate building in central Kirkuk in the afternoon, meeting no resistance. Iraqi forces also took control of the governor's office, which had been left deserted. Al-Abadi said in a statement:
# "It is my constitutional duty to work for the benefit of the citizens, and to protect our national unity that came under threat of fragmentation as a result of the referendum that was organized by the Kurdish region. The referendum came at a time where the country is fighting against terrorism that has come in the form of ISIS. We tried to urge (the Kurds) not to violate the constitution and to focus on fighting ISIS, but they did not listen. They chose their personal interests over Iraq's interests." Middle East Eye
By evening, there was an Iraqi victory parade in Kirkuk. With the approach of the Iraqi forces, thousands of civilians fled Kirkuk, and headed for Sulymaniyeh and Erbil in the Kurdish region. However, other civilians were seen cheering on the Iraqi forces as they entered Kirkuk's southern outskirts. That's because Kirkuk is a multi-ethnic city, with a population of a million people, roughly 30% Kurdish, 30% Arab, 30% Turkmen and 10% Christian.... Iraqi News, Al Jazeera and BBC

maandag 16 oktober 2017

Stocks Surge To Moar Record Highs, But Taylor Chatter Spooks Bonds, Dollar And Gold

Another day, another record high...


North Korea headlines and 'John Taylor For Fed Head' headlines prompted some turmoil in FX markets, bond markets, and commodity markets, but stocks didn't even blink...


Trannies were worst with Small Caps clinging to unch but GS, AAPL, JPM, and TRV accounted for 100% of the points gains in The Dow...


The machines really wanted Dow 23,000 amid a very chaotic day in VIX land today...


Small Caps continue to tread water (1509, 1511, 1508, 1512, 1510, 1504, 1508, 1507, 1505, 1503, 1502) even as earnings expectations tumble...


Bank stocks soared today, loving the collapse in the yield curve...


Healthcare stock were hit again on Trump's "Getting away with murder" comments...


Treasury yields rose on the day but notably bear flattened with the front-end drastically underperforming...


The Dollar Index rallied on the day led by AUD and CAD weakness (odd on a strong commodity day) and cable tumbled on May's comments...


WTI Crude (and Brent) surged overnight to 2-week highs on Iraq 'invasion' headlines but WTI was unable to hold above $52...


Gold's bounce after CPI last week, extending its post-Golden-Week gains, stalled today after John Taylor headlines...


Copper made headlines, hitting a 3 year high, surging after China's Golden Week holiday ended and ahead of this week's National Congress to prove everything is awesome in the red ponzi...


Which raises the question, is copper overdone or do 10Y Yields need to explode 75bps higher...