The last 48 hours has been quite a chaotic one in precious metals markets with massive volumes of ‘paper’ gold flushed in and out of the futures markets. This morning – shortly after the US open failed to spark a panic-bid in stocks – gold futures bounced off their 200-day moving average on huge volume (around $4.5 billion notional) breaking above the 100DMA…

The last day or so has seen a plunge below the 100DMA (on 33,000 contracts – around $4.2 billion notional), then another flush to the 200DMA as Europe opened overnight (on 22,000 contracts – around $2.8 billion notional) and then shortly after the US equity open, a 35,000 contract ($4.5 billion notional) rip higher off the critical moving average…

Once again the moves in gold appear to mirror manipulation in USDJPY…

Silver is echoing Gold’s moves today but yesterday’s standalone move remains…

Since President Recep Tayyip Erdogan installed himself as ‘Sultan for life’, the Turks appear to have had a dramatic change of heart towards the barbarous relic…

The Turks have never imported a greater value of gold than in the last 12 months…

Additionally, as Bloomberg reports, Bar and coin purchases, a measure of investment demand, were 47 metric tons so far in 2017, compared with 14.8 tons in the same period a year ago, according to a report from the World Gold Council published Thursday.

The weak lira and “President Erdogan’s pro-gold comments in November last year continued to lend support to the market,” the gold council said.

But it’s not just the average Turk who is buying gold, Turkey’s central bank is also buying gold, increasing purchases by 30.4 tons during the third quarter.

While the central bank has cited a good old-fashioned diversification policy, some analysts speculated that the country could be shoring up reserves amid rising tensions between Turkey and its traditional Western allies.

A year ago, President Recep Tayyip Erdogan urged Turks to prefer gold to the U.S. dollar as a savings vehicle, and asked the central bank to support that policy.

And gold is doing exactly what it should do as faith in fiat falters.

The question is – just like in India – how long before Erdogan ‘dictates’ an end to gold imports, imposes tariffs, or confiscates the precious metal?

U.S. index futures declined for the second day in a row, dipping 0.1% to the lowest in more than a week following declines in Asian and European shares. European stocks tried and failed to shrug off the negative sentiment that spurred broad-based declines in Asia following another month of disappointing Chinese macro data…

… eventually reversing gains as the euro strengthened on German growth data. The euro was up a fifth day, rising above 1.1700 for the first time in nearly three weeks after data showed that German GDP was on track for its best year since 2011, forcing Europe’s Stoxx 600 Index to retreat. The U.K.’s FTSE 100 Index jumped 0.1 percent, while Germany’s DAX Index gained less than 0.05%.

Mining companies led the drop, with many commodity prices also falling in the wake of data showing China’s economy moderating. That also weighed on Asian equity gauges, though the Nikkei closed little changed after dropping for four days. The yield on China’s 10-year debt briefly breached 4 percent for the first time in more than three years. China’s CSI300 Index slid as much as 1%, its biggest intraday drop this month, as tech shares lead decline. Sanan Optoelectronics Co. slumps 7% to pace declines on the CSI300 Index; Unigroup Guoxin Co. -5.2% as second-worst performer.

Earlier, Asian stocks dropped headed for a third day of declines, as data showed China’s economy is moderating. The MSCI Asia Pacific Index retreated 0.4 percent to 169.44, with telcos and energy producers leading losses. Despite earlyer gains, the Nikkei closed fractionally in the red again as foreigners resumed selling after a record month of buying in October. The Yen pared losses against the dollar, as traders wait on U.S. inflation data from Tuesday and look for progress on the tax reforms. Japan’s Topix dropped 0.3% while South Korea’s Kospi lost 0.2%. Australia’s benchmark index slumped 0.9% after Royal Dutch Shell Plc sold its entire stake in Woodside Petroleum Ltd., sending the latter’s shares down the most in more than a year.

According to Bloomberg, Asian equities were taking a pause from a world-leading 2017 rally as traders tuned in to China’s economic data. Numbers released Tuesday show the country’s expansion dialed back a notch as factory output, investment and retail sales all decelerated.

“Investors have concerns about a possible fourth-quarter slowdown in China,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. MSCI Inc. announced the results of its November 2017 semi-annual index review which included the deletion of Qantas Airways Ltd. and the addition of Japan’s Sumco Corp.

Markets have been under pressure for the past few days after a global rally took U.S. stocks to records and Japan’s to the highest in a quarter century. This morning market participants were monitoring an ECB conference featuring appearances by Mario Draghi, Janet Yellen, Mark Carney and Haruhiko Kuroda. Meanwhile, U.S. inflation and retail sales numbers that could influence Federal Reserve interest-rate hike odds are on the docket tomorrow, and U.S. tax discussions are ongoing. Fed’s Kaplan stated that the Fed are actively discussing lifting rates next month

Elsewhere, and as reported earlier, Venezuela was declared in default by S&P Global Ratings after missing two interest payments on its debt. Indian sovereign bonds fell for a third day, with the benchmark 10-year yield reaching the highest since September 2016, on accelerating consumer inflation data. Bitcoin edged higher after three days falling.

The common currency heads for a bullish reversal of its trend since the 2 1/2 year high of 1.2092 hit on Sept. 8 as the short- squeeze started on Thursday gained momentum. Investors that are short the euro see their trailing stops being filled, while short-term accounts were stopped out on Tuesday’s run up to 1.1720 high, traders in London and Europe told Bloomberg.

“It is not the dollar that is weak, it is the euro that is strong,” said John Hardy, Saxo Bank’s head of FX strategy. Combined with signs of a move up again in European bond yields, that suggested some traders were back to pricing in an end to the ECB’s stimulus, he said.

In geopolitical developments, overnight President Trump tweets: “After my tour of Asia, all Countries dealing with us on TRADE know that the rules have changed. The United States has to be treated fairly and in a reciprocal fashion. The massive TRADE deficits must go down quickly!” Russian PM Medvedev says Russia has stake in peace on Korean Peninsula, as South Korean President Moon calls for enhanced ‘strategic’ dialogue between South Korea & Russia. US House Ways & Means chair Brady says that the GOP leadership is confident that it has votes for passage of tax bill, major changes to house tax bill are unlikely at committee stage.

In macro, German growth data pressured investors with short-euro exposure as the common currency hit its strongest level in almost three weeks. The dollar was broadly lower within tight ranges during Asia hours before the weakness grew in the London session. The British pound was tipped lower as inflation missed forecasts, and the dollar broke out of a tight range to weaken as traders continue to weigh the chances of a meaningful tax overhaul. Data from the CFTC released on Monday showed the net short position in the Japanese yen to be the largest since January 2014 and in the Swiss franc to the biggest since December 2016.

In rates, yields on 2Y Treasurys hit a fresh nine-year high of 1.6910% on Monday, shrinking the 2s-10s spread to near its smallest since 2007. The trend reflects market bets the Fed’s plans to raise rates in December and two or three times next year will slow the economy. On Tuesday, European bonds turned positive. Aussie bonds were hurt after business conditions printed at highest on record, while China’s sovereign bond selloff reached a fresh milestone, with 10-year yields breaching 4% for the first time in more than three years, before retracing losses and closing back under 4%. 

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said history suggested a flatter, and particularly an inverted, yield curve was “compelling as an early warning sign” of recession. But with the average amount of time it has taken the curve to go from flat to inverted being 18 months and another 18 months to go from inverted to recession, it suggests the expansion still has multiple years in it, said Porcelli.

In commodity markets, gold inched down to $1,272.50 an ounce. The metal has stayed broadly within $15 an ounce of its 100-day moving average, currently at $1,277 an ounce, for most of the last month. Oil prices held in a tight range as support from Middle East tensions and record long bets by fund managers balanced rising U.S. production. U.S. crude was off 19 cents at $56.57, while Brent crude futures eased 23 cents to $62.92 a barrel.

Mining shares lead the drop amid weakness in commodity prices. Economic data include small business optimism index and PPI readings, while Home Depot and TJX are set to report earnings.

Bulletin Headline Summary from RanSquawk

• Lower than expected UK CPI weighs on GBP
• EUR bid following German GDP
• Looking ahead, Draghi, Yellen, Carney, Kuroda all currently speak, with US PPI and APIs due later

Market Snapshot

• S&P 500 futures down 0.1% to 2,579
• STOXX Europe 600 down 0.08% to 385.82
• MSCI Asia down 0.4% to 169.53
• MSCI Asia ex Japan down 0.3% to 556.72
• Nikkei unchanged at 22,380.01
• Topix down 0.3% to 1,778.87
• Hang Seng Index down 0.1% to 29,152.12
• Shanghai Composite down 0.5% to 3,429.55
• Sensex down 0.2% to 32,964.82
• Australia S&P/ASX 200 down 0.9% to 5,968.75
• Kospi down 0.2% to 2,526.64
• German 10Y yield fell 0.2 bps to 0.415%
• Euro up 0.3% to $1.1706
• Italian 10Y yield fell 1.2 bps to 1.568%
• Spanish 10Y yield fell 2.7 bps to 1.505%
• Brent Futures down 0.3% to $63.00/bbl
• Gold spot down 0.4% to $1,273.54
• U.S. Dollar Index down 0.1% to 94.39

Top Headline News

• Brexit Secretary David Davis reckons it’s as close as 50-50 whether he gets a breakthrough in divorce talks by December, according to European business leaders he briefed at a meeting Monday. His spokesman later said this news was “categorically untrue” and that Davis had not made such a comment
• Trump is seeking a qualified candidate to serve as Federal Reserve chairman nominee Jerome Powell’s vice-chair; candidate doesn’t necessarily have to be Ph.D. economist
• Trump said he will be making a major statement once back in Washington
• U.K. inflation came in less than forecast as cheaper auto fuel offset the rising cost of fuel, but the measure still held close to a 5 1/2-year high
• German growth steamed ahead in the third quarter, keeping Europe’s largest economy on track for its best year since 2011. That expansion is bolstering the euro area’s upturn and supporting the global outlook. Similar data from Italy showed the economy expanded at a faster pace last quarter
• Traders are increasing bets on the divergence of the world’s three major central banks, ramping up long future positions on German bunds and Japanese debt while shorting Treasuries, if open interest is any guide
• China’s economic expansion dialed back a notch in October, as a campaign to manage credit risks took hold and the Communist Party signaled a less stringent approach to hitting growth targets
• Fed’s Kaplan: Actively considering a December rate hike; there’s a mounting case for moving ahead of signs of price increases: FT
• Brady says confident House Republicans have votes to pass tax bill
• German 3Q GDP q/q: 0.8% vs 0.6% est; y/y 2.8% vs 2.3% est.
• U.K. Oct. CPI y/y: 3.0% vs 3.1% est; food inflation largest upside contributor +4.2% y/y, most in 4 years
• German Nov. ZEW expectations: 18.7 vs 19.5 est; current situation 88.8 vs 88.0 est.

In Asian markets, Australia’s ASX 200 fell over 1% at one point settling back below 6,000, with broad based losses apparent as the banks, miners, energy and property stocks weighed, while tech outperformed. The index has moved back from worst levels but closed around 0.9% lower as yet another dual-citizenship based issue led to a senator resigning from her post. Japanese stocks benefitted from Wall St.’s lead and the uptick in USDJPY in early trading, but relinquished its the early gains closing down 0.1%. JGB futures were supported heading in to 5Y supply, with decent demand at the auction underpinning the market. Australian 3-year bond yields were up just shy of 5bps on the day, moving through the 2.0% level following the record NAB Business Conditions print. 10-year Treasury futures consolidated around US session lows.

• China Industrial Production (Y/Y) Oct 6.2% Exp. 6.3% Prev 6.6%
• China Retail Sales (Y/Y) Oct 10.3% Exp. 10.4% Prev 10.3%
• China Fixed Asset Investment (YtD Y/Y) Oct 7.3% Exp. 7.4% Prev 7.5%

China’s NBS suggested that rising profits and government cost cutting measures are helping firms de-leverage. The body also noted that property de-stocking has achieved obvious results, and it expects the sector to maintain a healthy trend. Finally the bureau stated that the nation’s survey based jobless rate is <5% in October, and that the country has already exceeded its FY job creation total.

Top Asian News

• China 10-Year Yield Breaks 4% as Analysts See Selloff Worsening
• China’s Economy Moderates as Retail, Factories, Investment Slow
• Reliance Communications Is Said to Default on 2020 Dollar Bond
• China Stocks Retreat as Consumer Subgauge Falls Most Since April
• Hon Hai Third Quarter Net Income Misses Lowest Estimate

European equities trade subdued, with much of the volatility coming from individual names. Telecoms outperform amid a strong report from UK listed Vodafone (+4.7%), with IT also trading in the green, being led by Infineon. The Dax was weighed upon following a bullish EUR, where EUR/USD and EUR/GBP trade near session highs. No shock to see Gilts and the Short Sterling strip rebound on the back of softer than expected UK headline inflation,  even though the y/y rate remains likely to breach the upper limit at some stage, and probably soon. The 10 year debt future has now jumped around ¼ pt from fresh pre-data session lows of 124.25 to 124.53, while 3 month futures are 0.5-2 ticks ahead vs -0.5 to -4 ticks at worst. Bunds also recovering more poise on the back of their UK bond counterpart and up through the nearest upside chart resistance to 162.16, +8 ticks vs -17 ticks at the Eurex low, but probably in need of some independent buying momentum to make a clean break, especially with more Eurozone data and ECB speakers (including chief Draghi) looming.

Top European News

• U.K. Inflation Holds at 3% as Cheaper Fuel Offsets Food Prices
• Vodafone Boosts Outlook as Data-Hungry Users Ditch Wi- Fi
• Ericsson Cost-Cutting Plan Ends at R&D Department’s Doorstep
• Carrefour CEO Delays Strategic Revamp Until After Christmas
• Portugal’s Fitch Call a Potential ‘Rubicon’ Moment: Rabobank
• Italy Economy Expands At Faster Pace in Sign of Firmer Recovery

In FX, volatility has been led by data this European morning, as early EUR strength was seen following strong German GDP figures. Further bullish pressure was seen in EUR/GBP, as UK CPI has been the catalyst of the day, printing at 3.00%, lower than expected resulting in GBP selling. In the AUD, choppy trade, with support coming from an upbeat NAB business survey overnight (sentiment at record highs and outlook improved), but the AUD recovery undermined my more political concerns as another MP was forced to quit on dual nationality grounds. AUD/USD back down in the low 0.7600s having reclaimed 0.7640 at one stage, but AUD/NZD holding 1.1100+ status on Kiwi underperformance (also plagued by political and Central Bank impulses). Sterling mixed after yesterday’s pounding, with Cable back up above 1.3100, but EUR/GBP higher again as Brexit uncertainty persists (UK Minister rates chances of a divorce deal by December as only evens).

In commodities, the latest IEA monthly oil market report saw 2017 and 2018 oil demand growth forecast being cut by 100k BPD to 1.5mln and 1.3mln respectively. Trade was light however, with much of the oil volatility seen in yesterday’s session. Iraqi/Kurd oil flows to Ceyhan have fallen to 180k bpd, according to a port agent Gold saw a stop hunt through last Friday’s lows and as such, the selling pressure moved across other precious metal markets, with Silver now looking towards its last Friday lows.

US Event Calendar

• 6am: NFIB Small Business Optimism, est. 104, prior 103
• 8:30am: PPI Final Demand MoM, est. 0.1%, prior 0.4%; Ex Food and Energy MoM, est. 0.2%, prior 0.4%; PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.2%
• 8:30am: PPI Final Demand YoY, est. 2.4%, prior 2.6%; Ex Food and Energy YoY, est. 2.2%, prior 2.2%; Ex Food, Energy, Trade YoY, prior 2.1%

DB’s Jim Reid concludes the overnight wrap

After a chilly day yesterday, markets heat up today and tomorrow with China’s monthly data dump just out (see below) and lots of global inflation data out today and tomorrow. We also have an audience with the four most important central bankers in the world at 10am GMT this morning hosted by the ECB in Frankfurt which will be a rare and interesting opportunity to hear from the fantastic four on one stage. However it’s not likely to be ground breaking given that Yellen is soon to be replaced, Draghi is figuratively leaning back deep into his armchair for a few months, Kuroda is unlikely to change course soon (see comments from yesterday below) and Carney is waiting on Brexit developments. Elsewhere UK PM May’s Brexit legalisation (the EU withdrawal bill) is the subject of two days of line-by-line examination in Commons. The debate starts at 12pm GMT so plenty of headlines likely after a weak day yesterday for Sterling (-0.61% vs Dollar, -0.57% vs Euro) post the weekend news that there may be increasing party support for a leadership challenge. In terms of inflation data, ahead of the US CPI tomorrow we get the final October CPI report in Germany (+0.0% mom expected and no change from flash), UK CPI/RPI/PPI for October, and US PPI (+0.2% mom core expected). UK inflation being the most interesting with RPI likely above 4% – the first time since December 2011. We will also get the flash 3Q GDP for the Eurozone (+2.5% yoy expected), Germany (+2.3% yoy) and Italy (+1.7% yoy) too.

In the US, the House Ways and Means Chairman Brady appear confident that the House’s version of the tax bill will be passed this week, noting that “we don’t expect major changes” as “a lot of the work’s been done” already. Before that, President Trump is expected to address the full conference of House Republicans this Thursday morning to rally support on tax reform. Elsewhere, the Senate  Finance Chairman Hatch said the mark up process of the Senate’s version of the tax bill “leaves us with some work to do in order to make the reforms permanent”, but “we are working to ensure that the reduced (corporate) rates and…reforms designed to bring investments back to the US…remain in place past the 10 year budget window”.

Now over to China. Both the October IP (6.2% yoy vs. 6.3% expected) and retail sales (10% yoy vs. 10.5% expected) were softer than expectations, but fixed assets formation was in line at 7.3% yoy. Elsewhere, monthly property sales turned negative for the first time since March 2015, dropping to -1.7% yoy from 1.6%. The slower growth is partly due to monetary and fiscal policies that have become less expansionary. Overall, our China economists maintain their view that GDP growth will slow to 6.6% yoy in Q4 and 6.3% in Q1. T his morning in Asia, markets are trading a bit mixed. The Nikkei (+0.36%) and Hang Seng (+0.05%) are up slightly, while the Kospi (-0.24%) and Chinese bourses (c-0.6%) are down as we type, with the latter partly impacted by softer consumer stocks.

Ahead of the fantastic four appearance later today, BOJ’s Kuroda and ECB’s Constancio both sounded a bit dovish on monetary policy yesterday. Kuroda noted that “it’s not easy to quickly dispel the deflationary mindset that has  formed over the course of 15 years of deflation” (Sep. core inflation at 0.7% yoy vs. target of 2%). However, with a steadily improving output gap, companies should gradually raise wages and prices. For now, “the bank will continue to persist with powerful monetary easing to ensure that such positive developments are not cut short.” Elsewhere, the ECB’s Constancio reiterated that “the euroarea economy is experiencing a broad-base, robust and resilient recovery”, although he cautioned that “we know this process still relies significantly on our monetary policy support…..it’s not self-sustained yet….we must be patient and persistent”.

Staying with central bankers commentaries, the Fed’s Harker has tweaked his expectations for a December rate hike from pencilled in to “lightly pencilled in” and that he would be more confident with three more rate hikes in  2018 if underlying inflation picks up above 2%. On inflation, he reiterated that its “one area that not only continues to elicit caution, it even constitutes a conundrum”, but with a tight labour market, inflation “is likely to reassert itself at some point”. On the Fed’s balance sheet unwind, he believes it will be “utterly uninteresting”. In the UK, the BOE’s Haldane noted that inflation is running well above the 2% target (consensus expects 3.1% yoy for Oct.) and “are expected to remain above target for the next few years”. Further, he noted this was one of the main reason why BOE tightened rates last month, but that “small adjustments” to interest rates were “unlikely to have a significant impact” on the daily lives of most people.

Staying in the UK, when Brexit Secretary Davis was asked by the Head of BusinessEurope Ms Marcegaglia on whether he thought a breakthrough for Brexit talks can be achieved by December, Davis was said to have noted that “there was a 50/50 chance of getting a deal” without elaborating more.

Now onto markets performance for yesterday. US bourses nudged up c0.1% (S&P & Nasdaq +0.10%, Dow +0.07%) ahead of a bumper week in terms of CPI and tax plans. Beneath the surface, GE shares dropped 7.17% after the new  CEO announced turnaround plans which included lower FY18 earnings guidance, dividend cuts for the second time since 1938 and plans to divest $20bln of assets to shrink the group to 3 core business lines (power, aviation and healthcare). European markets were broadly lower, with the Stoxx 600 down (-0.66%) for the fifth consecutive day – the longest run since May, with all sectors excluding  consumer staples modestly in the red. The softness was partly impacted by weaker corporate results, with French utility company EDF down 10.39% after lowering its 2018 guidance. Across the region, the DAX (-0.40%), CAC (-0.73%) and FTSE (-0.24%) all fell modestly. Notably, the VSTOXX remains close to a one month high after slipping 0.49% yesterday, while the VIX rose 1.86% to 11.50.

Over in government bonds, core 10y bond yields were little changed (UST +0.7bp; Bunds +0.6bp; Gilts -1.3bp), but peripherals outperformed, with Spanish and Portugal yields down 4.0bp and 7.1bp respectively. Turning to currencies, the US dollar index gained 0.13% while Euro was virtually flat and Sterling weakened 0.61% as mentioned earlier. In commodities, WTI oil was broadly flat (+0.04%) and precious metals strengthened (Gold +0.25%;  Silver 1.02%) post the modest risk off bias. Elsewhere, copper gained 1.40% partly due to increased optimism on global demand while other base metals were little changed (Zinc +0.08%; Aluminium +0.06%).

Away from the markets, the latest IMF World economic outlook report has upgraded the economic growth outlook for the Euro area, with 2017 now expected to be 2.1% yoy (+0.5ppt from April), 2018 at 1.9% (+0.3ppt) and 2019 at 1.7% (+0.1ppt). The agency noted “the strengthening domestic-demand-driven recovery in Europe has boosted global trade,” and that “Europe’s contribution to the growth of global merchandise imports in 2016-17 is similar to that of China and the US combined”.

Finally, the latest ECB holdings were released yesterday. Net CSPP purchases last week was €1.73bn and Net PSPP purchases €12.78bn. This left the CSPP/ PSPP ratio at 13.6% last week (13.6% over last 4 weeks vs. 11.5% before QE was trimmed in April 2017). We still think the ECB will likely keep CSPP relatively unscathed when they halve their APP in January.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the October monthly budget statement was bigger than expected at -$63.2bln (vs. -$59.0bln). Over the past three months federal receipts are little changed yoy, weighed down perhaps by storm-related weakness in August and September. In the UK, the November Rightmove house price index was up 1.8% yoy (vs. 1.4% expected), but prices in London fell 2.4% yoy. In Spain, the number of home sales rose 11.0% yoy in September.

Looking at the day ahead, a packed 24 hours from start to finish. The data highlights will likely be the final revisions to October CPI reports in Germany and the UK, Q3 GDP for the Euro area (second reading), US PPI for October and the late evening release of Q3 GDP in Japan. Away from the data the ECB’s Draghi, Fed’s Yellen, BoE’s Carney and BoJ’s Kuroda are all scheduled to participate on a policy panel hosted by the ECB. Also scheduled to speak throughout the day are the Fed’s Bullard, Evans and Bostic and the ECB’s Coeure and de Galhau. If that wasn’t enough then politics will also get its fair share of attention with President Trump due to attend the East Asia Summit and UK PM Theresa May’s Brexit legislation the subject of two days of examination in the House of Commons.

German GDP growth for Q3 2017 printed at 0.8% Q/Q, easily beating the consensus estimate of 0.6%, which was in line with growth in the previous quarter, driven by fixed capital formation amid stable household and government consumption. While year-on-year GDP growth was reported as 2.3%, the underlying growth was 2.8% after adjusting for calendar effects. The data confirmed that German growth was on track for its best year since 2011, and pushed the EUR higher for the fifth day, rising above 1.1700 for the first time in 3 weeks.

More from Bloomberg:

The German economy powered ahead in the third quarter, underpinning a recovery in the euro area…. Output increased 2.8 percent from a year earlier when adjusted for working days. The report confirms the Bundesbank’s prediction that the German economy carried its strong growth momentum into the second half, putting it on course for its best performance since 2011 and potentially straining up against its maximum capacity…“

 

You can feel the German economy is really humming along,” Holger Sandte, chief European analyst at Nordea Markets in Copenhagen, said before the release. “We are looking at a pretty robust picture so that raises the question: where is the speed limit?”

Germany’s Federal statistics office noted that the stronger-than-expected growth was driven by exports and capital investment. Spending on equipment was reported to be particularly strong. With hindsight, this shouldn’t be that much of a surprise as both “hard” and “soft” indicators – especially in the manufacturing sector – have shown accelerating momentum in 2017. The September manufacturing PMI reading for September 2017 of 60.6 was a 77-month high and printed at the same level in October 2017, implying that the momentum has carried forward into the last quarter of the year. However, if there was one small negative in today’s German data, it was the ZEW Indicator of Economic Sentiment: for November 2017, the expectations indicator rose 1.1 points from 17.6 the previous month to 18.7, below the 19.5 consensus.

On an encouraging note for the Eurozone, while Germany remains the foundation of growth, it is more broadly spread than it’s ever been. Indeed, the better-than-expected growth across Europe was the basis for the IMF’s upgrade to its 2017 GDP forecast of 3.6%, the fastest growth since 2010. From Bloomberg:

While Germany has long been an engine of expansion for the euro area thanks to robust domestic demand and striving exports, the rest of the region is finally catching up. Differences in growth rates between member states have shrunk to the smallest in the region’s history and the European Commission said last week that the 19-nation region will grow this year at its fastest pace in a decade. The International Monetary Fund said on Monday that strengthening growth across the European region – which includes the euro area as well as developing economies in the central and eastern part of the continent – is spilling over into the rest of the world. The brighter prospects accounted for the bulk of the upward revision to its global outlook in October.

The GDP news will be gratefully received by Chancellor Angela Merkel as she continues the tricky coalition negotiations with the pro-business Free Democrats and the Green Party which, as Reuters notes, is “an alliance untested at the national level”. Back to Bloomberg:

Chancellor Angela Merkel entered the final stretch of preliminary talks to form a new government, with factions in the complex multi-party negotiations remaining far apart. Any decisions taken by the future coalition partners on whether to cut taxes or funnel more money into education and digital infrastructure will impact Germany’s growth prospects. The rate of economic expansion over the next two years looks set to exceed the pace that’s sustainable in the long term.

While the Eurozone’s structural problems remain unaddressed and the ECB’s ability to wind back its stimulus remains untested, the worst part of Germany’s economic strength and the broader Eurozone resurgence, is that a host ECB bureaucrats will be putting themselves forward to take the credit. Uh-oh, too late…

Authored by Mike Krieger via Liberty Blitzkrieg blog,

Two years ago, German intelligence warned the world of the unique risks Saudi Arabia posed to the region.

I covered it at the time in the post, German Intelligence Warns – Saudi Arabia to Play “Destabilizing Role” in the Middle East. Here’s an excerpt:

Saudi Arabia is at risk of becoming a major destabilizing influence in the Arab world, German intelligence has warned.

 

Internal power struggles and the desire to emerge as the leading Arab power threaten to make the key Western ally a source of instability, according to the BND intelligence service.

 

“The current cautious diplomatic stance of senior members of the Saudi royal family will be replaced by an impulsive intervention policy,” a BND memo widely distributed to the German press reads.

 

Saudi Arabia has previously been accused of supplying arms and funding to jihadist groups fighting in Syria, including Islamic State in Iraq and the Levant (Isil).

At the core of this intelligence warning was none other than crown prince Mohamed bin Salman, or MBS.

I’ve been warning about the specific dangers presented by his brazen and sociopathic personality for years, and the recent purge finally threw it all into the spotlight for everyone to see.

MBS has already wreaked havoc on portions of the region with his reckless and failed polices with respect to both Yemen and Qatar. Today’s post will focus on the humanitarian catastrophe unfolding in Yemen, courtesy of the Saudi crown prince.

The New York Times reported last week:

Saudi Arabia’s three-day-old blockade of entry points to Yemen threatens to plunge that war-ravaged country into a famine that could starve millions of people, the top relief official of the United Nations said Wednesday.

 

The Yemen crisis has worsened since the Saudis imposed the blockade on Monday after a missile was fired deep into their territory by the Iran-backed Houthi rebel group, which has been warring with a Saudi-led military coalition for nearly three years.

 

Despite Saudi Arabia’s assurances that the measure was temporary while it reviews inspection procedures, virtually all humanitarian deliveries to Yemen have been halted, including at least three United Nations airplanes full of emergency supplies.

 

Mr. Lowcock said the Saudis must immediately allow the entry of food and medicine at all seaports, permit the immediate resumption of air services to the cities of Sana and Aden, and provide an “assurance of no further disruption to these services.”

 

Without such steps, he said, Yemen will suffer “the largest famine the world has seen for many decades, with millions of victims.”

 

The World Food Program, the anti-hunger agency of the United Nations, which has been feeding seven million people a month in Yemen, is now unable to do so, Mr. Lowcock said. “What we need is a winding down of the blockade to save the lives of those people.”

 

The country is struggling with an acute hunger crisis that has affected at least 17 million people, more than a third of them considered close to famine. Yemen also suffering a cholera scourge that has sickened nearly one million.

 

“Humanitarian supply lines to Yemen must remain open,” said Robert Mardini, the Red Cross’s regional director for the Near and Middle East. “Food, medicine and other essential supplies are critical for the survival of 27 million Yemenis already weakened by a conflict now in its third year.”

Since then, the Saudis have opened the port of Aden and a crossing at Wadea, but this is woefully inadequate.

As Al Jazeera notes:

On Friday, the UN office for the coordination of humanitarian aid, OCHA, said the coalition was still blocking desperately needed UN aid deliveries to Yemen, despite the reopening of Aden and Wadea.

 

“Humanitarian movements into Yemen remain blocked,” said OCHA spokesman Russell Geekie.

 

“The reopening of the port in Aden is not enough. We need to see the blockade of all the ports lifted, especially Hodeida, for both humanitarian and for commercial imports.”

 

UN aid chief Mark Lowcock told the Security Council this week that unless the blockade is lifted, Yemen will face “the largest famine the world has seen for many decades, with millions of victims”.

 

Stylianides echoed Lowcock’s concerns.

 

Yemen “is suffering the world’s worst humanitarian crisis, with more than two-thirds of its population in need of humanitarian assistance”, he said in a statement.

 

“The EU shares the concerns expressed by… Lowcock and calls for full and unrestrained access to be restored immediately, to avoid Yemen suffering the largest famine in decades,” Stylianides said.

What we’re looking at here is potentially the worst famine in decades, and it’s important for decent U.S. citizens from across the political spectrum to admit our government’s hands are soaked in blood.

As The Intercept reported:

Saudi Arabia relies heavily on the U.S. military for intelligence sharing, refueling flights for coalition warplanes, and the transfer of American-made cluster bombs, rockets, and other munitions used against targets in Yemen.

 

Congress, however, has never authorized U.S. support for the war, which has caused 10,000 civilian deaths and has spiraled in recent months into one of the worst humanitarian crises of the century. For two years, Saudi Arabia and its allies have imposed a sea and air blockade around Yemen. Now, more than 7 million Yemenis face starvation and thousands, mostly children, are dying from cholera. Coalition warplanes have repeatedly struck crowded markets, hospitals, power plants, and other civilian targets.

 

Several members of Congress indicated an interest in the issue, noting that the Obama and Trump administrations’ reliance on the 2001 Authorization for Use of Military Force to justify U.S. involvement in the conflict is absurd. That authorization, after all, was designed to fight the terrorist groups responsible for the September 11 attacks, not to intervene in Yemen’s civil war.

 

For 16 years, the executive branch has pointed to the AUMF as legal justification for its involvement in conflicts across the Middle East and Africa, a strategy that is legally questionable. But the use of the AUMF in the Yemeni context is especially bizarre given that the AUMF’s target is Al Qaeda, and the group AQAP — Al Qaeda in the Arabian Peninsula –is fighting alongside the U.S.-Saudi coalition against the Houthi rebels.

 

One bipartisan legislative attempt to force a vote on authorization for the war, H.Con.Res.81, faced a major setback last week after appearing to gain political momentum. On November 1, lawmakers stripped the bill of its privileged status, meaning the bill no longer maintains a fast-track to a floor vote. The legislation was designed to invoke the War Powers Act of 1973 to terminate U.S. involvement in the Yemen War.

 

Because the bill is no longer privileged, it will head back to the the House Foreign Affairs Committee, which is led by Rep. Ed Royce, R-Calif., a lawmaker who has expressed deep support for the Saudi-led military campaign. Few expect the legislation to move forward now that it is back in Royce’s domain. In April, the representative read a statement of support for the Saudi-led campaign in Yemen and entered into the congressional record an opinion column written by a Saudi general.

 

The move to crush H.Con.Res.81 was apparently negotiated by Democratic and Republican leadership. As part of a compromise, there will be some congressional debate over the war, though no on-the-record vote for authorization. As The Intercept previously reported, Rep. Steny Hoyer, D-Md., the Democratic whip, was among the Democratic leaders opposed to invoking the War Powers Act to bring U.S. involvement in the war to an end.

 

Still, sponsors of the legislation are hoping to force a debate and an on-the-record vote over the war.

 

“Our national security interests in Yemen are unclear, yet we are giving money and military assistance to Saudi Arabia so they can continue to wage war in Yemen,” said Rep. Thomas Massie, R-Ky., one of 43 co-sponsors. “This military action was never authorized by Congress and the American people deserve an open debate by their elected officials.”

 

Rep. Walter Jones, R-N.C., also a co-sponsor of the resolution, expressed frustration that House Speaker Paul Ryan has refused to allow a vote on the war and disappointment that the compromise solution negotiated by congressional leadership will not include a binding vote.

 

“This is part of my frustration about the fact Congress does not meet its constitutional responsibility when sending young men and women to die for this country, and we have a constitutional duty that we must debate war,” Jones said. “The vote to go to war in Yemen, we can’t even get a vote on this resolution. To me this is the way Congress does not work. We don’t work because we do not uphold the constitution.”

Meanwhile, many of the cretins in Congress can’t be bothered to answer questions about Yemen.

Unconstitutional war that could create the worst famine in decades? Meh, I’m too busy trying to figure out how to provide tax breaks to oligarchs.

https://www.facebook.com/plugins/video.php?href=https%3A%2F%2Fwww.facebook.com%2FNowThisPolitics%2Fvideos%2F1773105169387632%2F&show_text=0&width=476

After all, who cares, there’s just too much money to be made from war.

From The Washington Post:

BERLIN — As U.N. and international humanitarian agencies raise the alarm over the Saudi blockade of aid deliveries to Yemen, European and American officials have remained mostly silent. The few remarks coming out of Western capitals in recent weeks have hardly been messages of support for the Yemenis in the midst of a catastrophic humanitarian crisis — in fact, quite the opposite.

 

Two weeks ago, Britain’s then-Defense Minister Michael Fallon offered a blunt assessment of the government’s view on the controversy. “I have to repeat, sadly, to this committee that obviously other criticism of Saudi Arabia in this Parliament is not helpful,” Fallon told the parliamentary defense committee, to which he defended the planned sale of several fighter jets to Saudi Arabia. (Fallon has since resigned over sexual harassment allegations.)

 

In response to a missile attack from Yemeni territory targeting Saudi Arabia — which triggered the most recent escalation of the crisis — President Trump similarly ignored the plight of civilians in the war-torn country and instead went on to praise U.S. weapons sold to Saudi Arabia.

 

Both the United States and Britain have been making more money with arms sales to Saudi Arabia in recent years than ever before. Human rights critics fear that Saudi Arabia has not only bought their weapons but their acceptance for its policies.

 

 

Of course Saudi Arabia’s attractiveness to Western countries is not just about arms sales. On Thursday, Downing Street said it would provide Saudi energy giant Aramco with credit guarantees of $2 billion to facilitate trade between the two countries. Britain and the United States are both trying to persuade Aramco to hold its much anticipated IPO (valued at hundreds of billions of dollars) on the London and New York stock exchanges, with President Trump tweeting that such move would be “Important to the United States!”

 

In the United States, the Obama administration similarly suspended the sale of precision guided munitions to Riyadh last year. However, the Trump administration is believed to be working on the resumption of such sales. A separate major U.S. arms export deal to the kingdom was struck in May, and Trump has voiced increasingly strong support for the Saudi leadership ever since. Similarly, Germany is still exporting military equipment to the kingdom, although it now appears to be refraining from direct arms deliveries.

If that’s not MAGA, then I don’t know what is.

If E.U. politicians were determined to implement an arms embargo on Saudi Arabia, parliamentarians would have to persuade the governments of all member states to agree to such a ban. With more than a dozen nations profiting from arms and military equipment exports to the kingdom, the chances of such an embargo being implemented anytime soon are virtually nonexistent.

 

Attempts by nongovernmental organizations to force governments into committing to an embargo enforced by courts have so far also been blocked. Campaigners suffered a major defeat this summer, when London’s high court ruled that Britain was not complicit in alleged war crimes in Yemen by allowing the Saudi military to use its arms.

 

The court refused to say how it came to its conclusion, however, and barred the public from accessing the key evidence.

It always makes sense when you follow the money.

*  *  *

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END

Authored by Patrick Buchanan via Buchanan.org,

If the crown prince of Saudi Arabia has in mind a war with Iran, President Trump should disabuse his royal highness of any notion that America would be doing his fighting for him.

Mohammed bin Salman, or MBS, the 32-year-old son of the aging and ailing King Salman, is making too many enemies for his own good, or for ours.

Pledging to Westernize Saudi Arabia, he has antagonized the clerical establishment. Among the 200 Saudis he just had arrested for criminal corruption are 11 princes, the head of the National Guard, the governor of Riyadh, and the famed investor Prince Alwaleed bin Talal.

The Saudi tradition of consensus collective rule is being trashed.

MBS is said to be pushing for an abdication by his father and his early assumption of the throne.

He has begun to exhibit the familiar traits of an ambitious 21st-century autocrat in the mold of President Recep Tayyip Erdogan of Turkey.

Yet his foreign adventures are all proving to be debacles.

The rebels the Saudis backed in Syria’s civil war were routed. The war on the Houthi rebels in Yemen, of which MBS is architect, has proven to be a Saudi Vietnam and a human rights catastrophe.

The crown prince persuaded Egypt, Bahrain and the UAE to expel Qatar from the Sunni Arab community for aiding terrorists, but he has failed to choke the tiny country into submission.

Last week, MBS ordered Lebanese Prime Minister Saad Hariri to Riyadh, where Hariri publicly resigned his office and now appears to be under house arrest. Refusing to recognize the resignation, Lebanon’s president is demanding Hariri’s return.

After embattled Houthi rebels in Yemen fired a missile at its international airport, Riyadh declared the missile to be Iranian-made, smuggled into Yemen by Tehran, and fired with the help of Hezbollah.

The story seemed far-fetched, but Saudi Foreign Minister Adel al-Jubeir said the attack out of Yemen may be considered an “act of war” — by Iran. And as war talk spread across the region last week, Riyadh ordered all Saudi nationals in Lebanon to come home.

Riyadh has now imposed a virtual starvation blockade — land, sea and air — on Yemen, that poorest of Arab nations that is heavily dependent on imports for food and medicine. Hundreds of thousands of Yemeni are suffering from cholera. Millions face malnutrition.

The U.S. interest here is clear: no new war in the Middle East, and a negotiated end to the wars in Yemen and Syria.

Hence, the United States needs to rein in the royal prince.

Yet, on his Asia trip, Trump said of the Saudi-generated crisis, “I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing.”

Do they? In October, Jared Kushner made a trip to Riyadh, where he reportedly spent a long night of plotting Middle East strategy until 4 a.m. with MBS.

No one knows how a war between Saudi Arabia and Iran would end. The Saudis has been buying modern U.S. weapons for years, but Iran, with twice the population, has larger if less-well-equipped forces.

Yet the seeming desire of the leading Sunni nation in the Persian Gulf, Saudi Arabia, for a confrontation with the leading Shiite power, Iran, appears to carry the greater risks for Riyadh.

For, a dozen years ago, the balance of power in the Gulf shifted to Iran, when Bush II launched Operation Iraqi Freedom, ousted Saddam Hussein, disarmed and disbanded his Sunni-led army, and turned Iraq into a Shiite-dominated nation friendly to Iran.

In the Reagan decade, Iraq had fought Iran as mortal enemies for eight years. Now they are associates, if not allies.

The Saudis may bristle at Hezbollah and demand a crackdown. But Hezbollah is a participant in the Lebanese government and has the largest fighting force in the country, hardened in battle in Syria’s civil war, where it emerged on the victorious side.

While the Israelis could fight and win a war with Hezbollah, both Israel and Hezbollah suffered so greatly from their 2006 war that neither appears eager to renew that costly but inconclusive conflict.

In an all-out war with Iran, Saudi Arabia could not prevail without U.S. support. And should Riyadh fail, the regime would be imperiled. As World War I, with the fall of the Romanov, Hohenzollern, Hapsburg and Ottoman empires demonstrated, imperial houses do not fare well in losing wars.

So far out on a limb has MBS gotten himself, with his purge of cabinet ministers and royal cousins, and his foreign adventures, it is hard to see how he climbs back without some humiliation that could cost him the throne.

Yet we have our own interests here. And we should tell the crown prince that if he starts a war in Lebanon or in the Gulf, he is on his own. We cannot have this impulsive prince deciding whether or not the United States goes to war again in the Middle East.

We alone decide that.

Zimbabwe is on edge amid speculation that a military coup is in progress, with army tanks seen outside the capital a day after the army commander threatened to “step in” to calm political tensions over the president’s firing of his vice president. The Associated Press said it saw three tanks with several soldiers in a convoy on a road heading toward an army barracks just outside the capital, Harare, while Reuters reported that four tanks were seen heading toward the capital.

According to Reuters, two other tanks were seen parked beside the main road from Harare to Chinhoyi, about 20km from the city. Eyewitnesses also saw military vehicles blocking major roads outside the city.

News_Executive @News_Executive

BREAKING: Tanks and military vehicles are blocking the roads leading to Zimbabwe capital of Harare, reports of a possible standoff between the army and President Mugabe

The alleged coup takes place one day after Zimbabwe’s army chief demanded a “stop” to the purge in President Robert Mugabe’s ruling Zanu-PF, following the sacking of vice president Emmerson Mnangagwa. Mnangagwa was well-supported by the Zimbabwean national forces. On Monday, Amry General Constantino Chiwenga told a media conference attended by at least 90 senior army officers at the army headquarters in Harare on Monday that: “The current purging which is clearly targeting members of the party with a liberation background must stop forthwith.”

According to New Zimbabwe.com, Chiwenga recently returned from a trip in China to find Mnangagwa fired from government and expelled from Zanu-PF. The report said that the army had been seen to be backing Mnangagwa to succeed Mugabe, 93, but the nonagenarian’s wife Grace had emerged as a top contender. Mnangagwa was kicked out of both government and the ruling party last week following accusations that he was plotting to topple Mugabe from power.

This prompted the army chief to accuse Zimbabwe’s ruling party of expelling senior officials who participated in the 1970s war against white-minority ruled Rhodesia, saying “counter revolutionaries” were plotting to destroy the party. This was the first time Zimbabwe’s military directly criticised the infighting in Zanu-PF and marked a rift between Mugabe and an institution that has been a key pillar of his power.

“The current purging and cleansing process in Zanu-PF which so far is targeting mostly members associated with our liberation history is a serious cause for concern for us in the defense forces,” said Chiwenga, at a press conference, reading from his statement.

 

He then warned those “behind the current treacherous shenanigans that when it comes to matters of protecting our revolution, the military will not hesitate to step in. The current purging of which is clearly targeting members of the party with a liberation background must stop forthwith.”

It appears that one day later, Chiwengae has made good on his threat, with tanks deployed around the capital. Local media also reported that heavily armed military personnel had sealed off state TV broadcaster ZBC.

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NAZEEM GROOTBOOM @Unathi_007

#Zimbabwe We might see the fall of the old men #RobertMugabe

9:41 AM – Nov 14, 2017

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As AP adds, while it is routine for tanks to move along that route, Tuesday’s timing heightens unease in this country that for the first time is seeing an open rift between the military and 93 -year-old President Robert Mugabe.

Meanwhile, reports on the ground from Zimbabwe suggest that a coup may indeed be taking place. A flurry of photos – shared by journalists across Twitter – show a fleet of the armoured vehicles making their way to the country’s capital.  The convoy has taken to the streets just a day after the head of the armed forces said he was prepared to “step in” to end a purge of supporters of ousted vice-president Emmerson Mnangagwa.

IamDumbToo @IamDumbToo

Tank movement in #harare#zimbabwe

A journalist in Harare has told News24 that “it seems the army is angry”. He says the situation is a bit “tense” in the capital.

Some on Twitter are saying that although a coup is almost never a good thing, it brings an end to Mugabe’s much despised regime.

Meanwhile, in a sign that events may turn violent, earlier on Tuesday, The Zimbabwean reported that Zimbabwe’s Zanu-PF youths said they were “prepared to die” in defence of President Mugabe’s government. In a statement on Tuesday, Zanu-PF’s secretary of the youth league Kudzai Chipanga said that Zanu-PF youths did not take lightly the military’s threats.

“We as Zanu-PF youth league are a lion which has awakened and found its voice, therefore we will not sit idly and fold our hands whilst cheap potshots and threats are made against Mugabe,” Chipanga said.

* * *

Here is Al Jazeera with a brief explainer of the political crisis in Zimbabwe that threatens to sweep Robert Mugabe from his post:

Zimbabwe is facing a political crisis with the ruling Zanu-PF party, as a very public showdown over who is likely to succeed President Robert Mugabe plays out. The current standoff is between the Youth faction, loyal to his wife, Grace Mugabe, and the former liberation fighters, loyal to Emmerson Mnangagwa, the vice president who was fired last week. Al Jazeera’s Hannah Hoexter explains.

Readers can track live updates from the alleged coup at the following live feed.

Pouring cold water on yesterday’s optimistic demand forecast projected by OPEC, which projected global crude demand growth to rise by 1.5mm b/d in 2018, this morning the International Energy Agency warned that the crude oil price rally could be short-lived because, contrary to OPEC’s expectations, global oil demand will be weaker than expected this year and next. In its closely watched monthly oil report, the IEA cut its crude demand growth outlook by 100,000 barrels a day for 2017 and 2018, as the WSJ reported. The agency now expects demand to grow by 1.5 million barrels a day this year and 1.3 million barrels a day next year.

The IEA predicted that balances will likely show the crude market is oversupplied in Q4 2017 and the first half of 2018, with oil demand in 2017 at 97.7mmb/d, rising to 98.9 million in 2018. Meanwhile, non-OPEC Oil Supply is expected To rise by 700,000b/d In 2017 To 58.1mmb/d, and another 1.4 mmb/d in 2018 to 59.5mm b/d, led by shale output.

The IEA also noted that global oil inventories fell 63mm barrels In Q3, only second quarterly draw since 2014, with the call on OPEC crude seen at 32.6mmb/d in Q4, declining to 32.0mmb/d in Q1 2018.

However, “the highlight of the report was that they lowered their demand forecast,” said Jens Pedersen, senior analyst at Danske Bank. The report also cautioned that “if the geopolitical concerns calm down, then prices could fall down again, so on the margin it’s a tad bearish.”

The IEA noted that oil prices have risen roughly 20% since early September with Brent crude sustaining gains above $60 a barrel in recent weeks, on the back of supply disruptions and geopolitical tensions in the Middle East. But if those problems prove temporary, a “fresh look at the fundamentals” would likely show the “market balance in 2018 does not look as tight as some would like and there is not in fact a ‘new normal.’”

As noted above, the IEA’s findings stand in stark contrast to that of OPEC, which released its monthly oil report Monday. OPEC raised its forecasts for global oil demand for this year and next, touting increased market rebalancing and stability. The two reports come ahead of the highly anticipated OPEC meeting in Vienna on Nov. 30, during which the cartel and some other major producers are set to debate whether to extend an agreement to rein in production.

The IEA focused particularly on US supply, noting that growth in US oil output until 2025 will be the strongest seen by any country in the history of crude markets, making it the “undisputed” leader among global producers, per the FT.  The IEA predicted that technological advances that have enabled production from US shale oilfields to thrive will lead to growth of 8m barrels a day between 2010 and 2025, surpassing expansion rates enjoyed by any other nation.

“The US will become the undisputed global oil and gas leader for decades to come,” said Fatih Birol, IEA executive director. The country is expected to account for 80 per cent of the increase in global supply over the same period. “The growth in production is unprecedented, exceeding all historical records, even Saudi Arabia after production from the mega Ghawar field or Soviet gas production from the super Siberian fields.”

US tight oil production, which includes crude, condensates and natural
gas liquids (NGLs) will rise to 13m b/d by 2025, out of total US output
of 16.9m b/d.

Additionally, while the IEA said that global oil supply had risen in October by 100,000 barrels a day to 97.5 million barrels a day, driven by non-OPEC production in the North Sea and Mexico,  OPEC output fell by 80,000 barrels a day in October to 32.53 million barrels a day, as a result of lower production in Iraq, Algeria and Nigeria—the lowest level since May. The figure was roughly in line with OPEC’s own estimate of 32.59 million barrels a day.

Commercial petroleum stocks in the Organization for Economic Cooperation and Development—a group of industrialized, oil-consuming nations, including the U. S.—fell below 3 billion barrels in September, for the first time in two years, the IEA said.

The agency this week also released its annual World Energy Outlook, in which it said global oil demand would not peak before 2040, although demand growth should slow “considerably” after 2025 amid greater fuel efficiency and electrification.

IEA Executive Director Fatih Birol, who in recent months has been rather pessimistic on the oil outlook, said even as penetration of electric vehicles drags down oil demand for passenger vehicles, global oil demand should continue to be strong through 2040 for commercial trucks, planes, ships and petrochemicals. “It’s too early to write the obituary of oil,” Mr. Birol said.

Yellen warns “valuations are at the high end of ranges” but tax cut details diss stocks.

It was all going great until I hit 310kph…

Ugly data from China overnight sent China bond and stock prices lower…

Notably Gold remains the only asset higher since the Saudi chaos…

All Cash Indices ended the day red but the dip-buyers rescued Dow, S&P, and Nasdaq green fro the month…

Futures show the crazy swings best once again… Dow (blue) almost ramped back to unch for the week…

VIX and USDJPy worked their magic to ramp stocks numerous times…

AAPL shares were down for the 4th day in a row…

FANG stocks fell on reports that SALT deductions would remain in the House Bill but dip-buyers came back in…

ROKU tumbled 13% as it appears the short squeeze is over…

VIX (equity protection costs) is starting to wake up a little as credit risk protection costs rise…

High yield bond prices fell to fresh 8 month lows…

As HY spreads surged once again – led by Comms…

Credit and Equity decoupling continues…

Hotter than expected PPI prompted the yield curve to flatten dramatically (2Y +1bps, 30Y -4bps)…

Sending the yield curve to fresh flats for the cycle – the flattest since Oct 2007…

The Dollar Index dropped to 3 week lows…

As EURUSD surged today on what Citi called “no news, no data,  no catalyst” as the algos seemed keen to lift it back to pre-ECB levels…

WTI Crude fell over 2% today, back below $56 on IEA demand outlook cuts…

Dollar weakness helped PMs today but the massive surge in volume as Gold bounced off its 200DMA was the most notable…

So to sum the day up… China Down, Dollar Down, Yield Curve Down, Credit Down, Stocks Down, Gold Up

With a December rate-hike baked into the cake (odds as close to 100% as possible), the hotter-than-expected PPI print has sparked notable outperformance in the long-end (amid Fed-driven slowdown fears) sending the yield curve to new cycle flats – flattest since 2007…

The last two times the yield curve was this flat, the US economy was in recession…

As a reminder, it took The Fed driving rates up to 5.25% before financial conditions finally snapped tighter…

But The Fed has only around 100bps of tightening space before the curve is inverted this time.

Is the largest public pension fund in the United States getting ready to dump about $50 billion worth of stocks?  According to a new note from Bloomberg, CalPERS’ board is meeting for a workshop today in Sacramento to discuss asset allocations for the upcoming year which could include a doubling of the fund’s bond allocation from 19% to 44% which would be funded with a massive $50 billion sell down of equities.

Calpers is looking at a menu of options for its fixed-income target ranging from the current 19 percent to as much as 44 percent, according to a presentation for a board workshop in Sacramento coming up Monday. Equities could be cut to as little as 34 percent from 50 percent. Stocks were the best-performing asset class in fiscal 2017, returning almost 20 percent.

 

“The markets have had a pretty good run and it’s possible Calpers staff is thinking this might be a good time to lock in some of the gains,” Keith Brainard, research director for the National Association of State Retirement Administrators, said in a phone interview.

Unfortunately, as we’ve noted before (see: CalPERS Board Votes To Maintain Ponzi Scheme With Only 50bps Reduction Of Discount Rate), a shift toward higher fixed income allocations may require a simultaneous decrease in the fund’s discount rate assumptions which could drastically increase contribution requirements from various public employers all around the Golden State.

“We’ve cut the return expectation to the point that employers are screaming, ‘We can’t afford it. We can’t afford it,’ ”Jelincic said. “I personally would be willing to take on a little more risk.”

 

The average allocation for public pensions is about 23 percent to fixed income and 49 percent to stocks, according to Nasra data.

 

The Calpers board is scheduled to vote on the allocation in December. Almost all of the fixed-income and stock holdings are managed in-house while more complex assets, such as private equity and real estate, are overseen by outside consultants. Allocations to private equity and real assets would stay at 8 percent and 13 percent, respectively, under all scenarios under consideration.

 

The allocation revisions occur every four years. Calpers is working to provide for a growing wave of longer-living retirees.

Of course, while a more conservative asset allocation may be warranted in the current bubbly equity environment, often logic is quickly dismissed by politicians when it’s implementation could expose a massive ponzi scheme that has been hiding in plain sight for decades and risks the financial solvency of local and/or statewide government entities.

This battle between math/logic and politicians has played out numerous times in states all across the country and somehow we suspect that “math/logic” will continue to lose…better to bury your head in the sand for a couple of more years and pretend there is no problem.

With Special Counsel Robert Mueller reportedly preparing to make another round of arrests in his probe into the Trump campaign’s efforts to “collude” with Russia, House and Senate Republicans – not to mention President Donald Trump – will be thrilled to learn that Attorney General Jeff Sessions might soon appoint a second special counsel to investigate allegations of corruption and self-dealing involving several prominent Democrats and Obama-era officials, including Bill and Hillary Clinton.

According to the Washington Post, Attorney General Jeff Sessions is entertaining the idea of appointing a second special counsel to investigate alleged wrongdoing by the Clinton Foundation and the controversial sale of a uranium company to Russia. A letter obtained by WaPo shows Sessions directed senior federal prosecutors to explore at least some of these matters and report back to him and his top deputy, Rod Rosenstein, as to whether the DOJ should follow up with a full-blown investigation.

For months now, President Trump has encouraged Sessions to appoint a special prosecutor to investigate the Clintons. Those calls grew louder – and were joined by several senior Republicans in Congress – after it was revealed that the DNC and the Clinton campaign jointly financed the infamous “Trump dossier” – which contained several salacious claims that the FBI reportedly used to justify launching the original investigation into collusion between the Trump camp and Russia back in July 2016.

Those calls only intensified further after the Hill reported that the FBI had launched an investigation into corruption surrounding Russia’s efforts to gain control over a stockpile of Uranium based in the US – uranium that was owned by the Canadian company Uranium One and represented 20% of total uranium assets in the US. That investigation led to the arrest of the most senior official of the US subsidiary of Rosatom, the Russian state-backed nuclear agency. Yet, for some unknown reason, the FBI neglected to inform Congress of the investigation. Several months after the arrest of the Russian, then-Secretary of State Hillary Clinton voted to approve the sale of the Uranium One assets to Rosatom. Around the time she voted ‘yes’ on the deal, her husband Bill Clinton received a $500,000 speaking fee from Kremlin-aligned Alfa Bank, while the Clinton Foundation received more than $100 million in donations from Russia-affiliated entities.

Session’s letter was a response from the Justice Department to an inquiry from House Judiciary Committee Chairman Robert W. Goodlatte, who in July and again in September called for Sessions to appoint a second special counsel to investigate concerns he had related to the 2016 election and its aftermath.

The list of matters he wanted probed was wide ranging, but included the FBI’s handling of the investigation into Hillary Clinton’s use of a private email server while she was secretary of state, various dealings of the Clinton Foundation and several matters connected to the purchase of the Canadian mining company Uranium One by Russia’s nuclear energy agency. Goodlatte took particular aim at former FBI director James Comey, asking for a second special counsel to evaluate the leaks he directed about his conversations with President Trump, among other things.

Assistant Attorney General Stephen E. Boyd wrote that Sessions had “directed senior federal prosecutors to evaluate certain issues raised in your letters,” and those prosecutors would “report directly to the Attorney General and Deputy Attorney General, as appropriate, and will make recommendations as to whether any matters not currently under investigation should be opened, whether any matters currently under investigation require further resources, or whether any matters merit the appointment of a Special Counsel.”

It appears that, after a year of being dogged by allegations that Russia was partly responsible for Trump’s upset victory over Clinton in the 2016 election, Trump’s claim that the DOJ “should be looking at the Democrats” is finally being heeded by his own attorney general.

As we’ve long maintained, the Clintons have just as many – if not more – connections to the Russian government than Trump and his affiliates. And given the recent revelations about Don Jr’s contact with Wikileaks and Carter Page’s freelance trips to Moscow, it’s about time that these connections were brought into full public view.

We can only hope that Sessions follows through.

After a 12-day tour through five Asian countries where he discussed the threat posed by North Korea and how America might shrink its massive trade deficits, President Donald Trump is heading back to the US Tuesday. And in true Trump fashion, the president hinted that he would be making a “major announcement” upon his return to the states – but offered no clues about what the topic of said “announcement” might be.

Here’s the tweet, sent around 1 a.m. Eastern Time:

Of course, there’s a lot happening in Washington right now, and Trump’s hinted-at announcement could be in reference to one of any number of issues. Will he deliver an update on the administration’s position regarding tax reform as two bills that differ in dramatic fashion wend through Congress? Perhaps some type of security announcement? Or the revelation that the US has finally entered into talks with North Korea after Trump adopted a notably softer tone toward his favorite Asian antagonist over the weekend?

There’s also the possibility that he could deliver an official statement about Alabama Senate candidate Roy Moore, who Trump previously said should “do the right thing” and step aside if allegations about him having inappropriate sexual contact with a 14-year-old girl turn out to be true?

Shortly before his teaser tweet about the upcoming announcement, the president hinted that he had made some major breakthroughs on behalf of the US’s trading relationship in the region, claiming that the US’s regional partners now understand that trade deficits “most come down”?

The president also took the time to thank the staff of the US embassy in the Phillipines for doing such “GREAT WORK” during his visit. Strangely, similar praise for other US embassies in the region was not forthcoming.

Donald J. Trump ✔@realDonaldTrump

THANK YOU to the amazing staff and their families of the United States Embassy in the Philippines. Keep up the GREAT WORK!

He also took a swing at polls that reflect a presidential approval rating below 40%, pointing to a Rassmussen poll that puts his approval rating at a reasonable 46%…

View image on Twitter

Donald J. Trump ✔@realDonaldTrump

One of the most accurate polls last time around. But #FakeNewslikes to say we’re in the 30’s. They are wrong. Some people think numbers could be in the 50’s. Together, WE will MAKE AMERICA GREAT AGAIN!

With the House gearing up to pass its version of the tax reform program on either Thursday or Friday, it’s possible Trump could be taking to the bully pulpit to try and whip up votes among intransigent blue-state Republicans. Or the announcement could be on any one of a number of topics. North Korea, trade, tax reform, the upcoming Alabama special election – all are priorities for the White House and the Republican Party right now.

The House is expected to vote on and, hopefully, pass its tax reform package on Thursday, but the Senate’s plan still hasn’t made it out of committee. Luckily for the Trump administration – which badly needs this legislative victory to stave off a donor mutiny –  this could soon change: To wit, the Finance Committee has started the process of ‘marking up’ the bill, that is, the process of adding amendments and making alterations. But the process still needs to run smoothly if McConnell is to meet his deadline of starting floor consideration the week after Thanksgiving.

Every day, the chances that the bill will pass by the administration’s year-end deadline appear to dim, something evidenced by the murmurs about trying to convince a Democrat or two to break ranks and support the Trump plan.

“The first day of the Senate Finance Committee hearing featured Republicans and Democrats exchanging jabs over the proposal to slash corporate taxes and reduce individual rates, while closing some tax breaks.

 

The House is expected to pass its version of the bill Thursday as Republicans seek to put a bill on President Trump’s desk by year’s end.

 

It’s a heavy lift, given the tight time frame and differences between the chamber’s bills, though so far Republicans are hitting their marks.

 

Senate Finance Committee Chairman Orrin Hatch (R-Utah) sought to highlight aspects of the measure that Democrats have supported in the past, including its preservation of some individual tax breaks and changes to the international tax system.

 

“Long story short: Our proposed international reforms are not just a Republican wish list or some sort of favor to big companies,” he said. “They are, in fact, well within the bipartisan mainstream.”

And in one hint at which side may win out in the battle over the soul of tax reform, the JCT reported that the Senate’s plan to rewrite the tax code would go much further than a competing House proposal toward making good on Republican promises to focus on the middle class, a new report shows, Politico reported.

The markup process will continue Tuesday, when lawmakers will question JCT officials and potentially begin to discuss amendments.

Lawmakers have submitted some 355 amendments, though not all of them will be considered.

A notable one from Orrin Hatch would make unspecified changes to ensure the bill doesn’t add to the deficit after 10 years. The legislation can’t increase the deficit outside of the budget window if Republicans want to pass it with only a simple majority.

Republicans also sought to rebut Democratic criticisms that they were shut out of the drafting process and that the bill benefits the rich.

However desperate, recruiting support from some Democrats could be key.

Interestingly, the Hill reports that no Republican senators have said they oppose the bill. And while that’s technically true, at least four Republicans have said they oppose the House plan, and have expressed misgivings about certain elements of the senate proposal. For example, John McCain has said he wouldn’t vote for any bill that didn’t have some measure of bipartisan support. And while Republicans are making a nominal effort to reach out to Democrats, nobody expects even Red State Dems like West Virginia’s Joe Manchin III to break ranks over tax reform.

Also, Sens. Jeff Flake and James Lankford have expressed concerns about how the legislation might bloat the debt, while Sens. Marco Rubio and Mike Lee are pushing for a bigger child tax credit.

There are many discrepancies between the House and Senate tax plans. But these are the two largest: That the Senate bill would delay the corporate tax rate cut until 2019, while the House bill has the cut take effect more immediately. And the Senate bill also repeals the full state and local tax deduction, while the House bill retains a property tax deduction of up to $10,000 to appease enough blue-state Republicans to pass the bill.

And so far, it appears both sides remain firmly committed to their respective versions of the bill. House Ways and Means Committee Chairman Kevin Brady has made it clear that he will fight to keep the $10,000 property tax deduction in the final bill. Others in the Senate have sharply criticized the SALT deduction, arguing that it’s tantamount to a subsidy when the low-SALT states can’t deduct as much from an itemized return.

The Hill claims that Trump could complicate the process of passing the bill by injecting himself into the debate, like he did again Monday by proposing that the final legislation include repeal of ObamaCare’s individual insurance mandate and lower the top individual tax rate to 35%.

Case in point: Steven Mnuchin told the Wall Street Journal that the Trump administration wouldn’t support tax legislation with a corporate tax rate of more than 20% as part of any future compromise between the House and the Senate.

“It’s not going up,” he said. “I can tell you this is one of the things the president feels very strongly about.”

The House bill maintains a top individual tax rate of 39.6 percent, while the Senate bill lowers the top rate slightly to 38.5 percent. Neither bill repeals the individual mandate.

In another case of mixed messaging surrounding the contents of the bill, GOP lawmakers say they’re still considering including individual mandate repeal in the tax legislation, but Brady also said he doesn’t expect major changes to the House bill before it comes to the floor.

Trump badly needs a win on tax reform following the embarrassing death of the Obamacare repeal-and-replace bill in the Senate earlier this year. In an effort to rally the troops, president will address the House GOP conference Thursday morning, ahead of the chamber’s vote.

Now we wait to see if Paul Ryan is forced to reschedule the vote at the last minute, like he has done so many times already this year.

US equities just legged lower – led by tech-heavy Nasdaq – after Ways & Means Committee Chair Kevin Brady confirmed that The House Tax Bill will keep SALT deductions, implicitly lowering tax revenues (and thus a potentially smaller corporate tax cut).

Nasdaq is leading the drop…

Apple most notably extended losses on the headline…

And FANG Stocks are fading..

Almost exactly one year ago, the IRS realized that it could be leaving billions of dollars on the table in the form of uncollected taxes, and launched a tax-evasion probe on the largest US Bitcoin exchange, Coinbase, seeking to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015.

In a vexing paradox for cryptocurrency traders who had hoped they could avoid the IRS indefinitely as someone, somewhere once may have mentioned, the higher the price of bitcoin rose, the more motivated the IRS was to obtain access to user transaction records. Or, as Bloomberg put it, “the exploding value of the cryptocurrency since its first real-world transaction in 2010 is one reason the U.S. Internal Revenue Service is pushing to see records on thousands of users of Coinbase Inc., one of the biggest U.S. online exchanges. The company’s digital currency platform allows gains to be converted into old-fashioned dollars in transactions that the IRS alleges are going unreported.”

To be sure, as we have reported over the past year, Coinbase and industry trade groups are fighting back in court, claiming the government’s concerns about tax fraud are unfounded and that its sweeping demand for information is a threat to privacy. That however, did not stop the IRS which claimed in a court filing that “U.S. taxpayers, including Coinbase users, have made use of virtual currencies to avoid the reporting and payment of taxes.” The agency said it needs access to customer records to “gain some degree of visibility into a space where it is already necessarily moving about somewhat in the dark.”

Meanwhile, both Coinbase and bitcoin have exploded. Whereas Coinbase had under 5 million users last November when the IRS filed its lawuist, as of last week it had 12.2 million users, deploying 41 million virtual currency wallets in 32 countries that have so far exchanged $40 billion in digital currency. The price of bitcoin hit a record high just under $8,000 at the start of November, more than 10x higher than in November 2016.

The biggest problem, however, and the reason why the IRS is unlikely to relent is that as the IRS said, it detected a “reporting gap” between the 500,000 virtual currency users Coinbase reported between 2013 and 2015 and the less than 900 bitcoin users reporting gains or losses for each of those years.

That would imply that less than 0.2% of coinbase users bothered to report anything on their tax forms. One can see why the IRS is angry.

And, worse for those who believe they will be able to get away with their cryptoprofits unscathed by Federal Taxes, following last week’s hearing, a federal judge is poised to allow a limited investigation into those gains to proceed over the company’s objection that the agency is on “a massive fishing expedition” meant to make itself look tough in the eyes of its critics in Congress, according to Bloomberg.

“It’s legitimate for them to investigate whether people are making money on their bitcoin purchases” and paying taxes on any gains, U.S. Magistrate Judge Jacqueline Scott Corley in San Francisco told lawyers for Coinbase at a hearing last Thursday. “I have to give tremendous discretion to the agency as to how they investigate,” she added later.

Coinbase was not impressed. Mike Lempres, the company’s chief legal and risk officer said after the hearing that the company can’t negotiate with the IRS about a “forward-looking, rational reporting system” so long as the agency is suing it. Such discussions aren’t possible “because we’re in this tussle with them where they are improperly searching for private information of our customers with no evidence of wrongdoing,” Lempres said. He declined to comment on Corley’s pending ruling before the company has seen a final order in writing.

Last year, the IRS persuaded Corley last year to order Coinbase to approve its summons for customer records from 2013 to 2015 for an investigation into whether taxpayers failed to report income. Coinbase resisted, and negotiations between the company and the agency resulted in a narrowed request for information about 8.9 million transactions and 14,355 account holders. Coinbase argued Thursday the inquiry remains unreasonably broad.

On Thursday, Bloomberg reports, Corley said she would allow the IRS to investigate Coinbase customers who made money on the currency and bar the agency from probing accounts of those who hadn’t. The judge also said she’ll probably give Coinbase time to appeal her decision before it turns over any customer information.

While lots was said of bitcoin’s drop over the past 4 days, much of attributed to suspension of the controversial Segwit 2x fork which was originally due in mid-November, some are wondering if a key catalyst for the price drop wasn’t the latest court ruling, although it in itself should have little impact on trading decisions: after all, at this point it’s a binary outcome: either the IRS will have access to all those who made money trading the crypto… or it won’t.

In retrospect, it will be interesting to find out, if only based on the number of IRS submissions, how many of the over 12 million bitcoin accounts have actually made money trading cryptos. We will soon find out.