Gold continues to shine in the post-Saudi-coup world….

And the precious metal just broke above its 50-day moving average, after bouncing off its 200-day on Tuesday.

This is gold’s best day in 3 months…

Gold is gaining as the dollar index slumps to near 1-month lows…

Of course, it’s USDJPY that really matters (and it just broke below 112.00)

Over the past several months, as we followed HSBC’s currency scandal involving trader Mark Johnson who netted his firm $8 million in illicit profits by front-running a $3.5 billion client order, we frequently noted that Johnson was nothing more than a convenient scapegoat for a global financial industry that is rife with similar front-running scams that go unnoticed.

That said, to our complete ‘shock’ the NY Post today highlights another front-running scam allegedly perpetrated by Wall Street’s finest at the expense of their clients.  According to new documents published in a class action lawsuit filed by a number pension funds and wealthy individual investors, some of Wall Street’s largest primary dealers in the U.S. Treasury market habitually, and illegally, shared client orders via online chat rooms to order to game Treasury auctions.

Wall Street banks secretly shared client information in online chat rooms in order to rig auctions for the $14 trillion US Treasurys market, according to an explosive lawsuit filed in Manhattan federal court on Wednesday.

The move wrongly fattened the banks’ profits and picked profits from clients, the suit claims.

The new accusations, leveled by several pension funds and wealthy individual investors, are contained in an expanded class-action suit originally filed in July 2015 — and include an unusual twist: Some of the evidence came from confidential informants and one of the banks sued in the earlier action.

That bank is now cooperating with the plaintiffs in the massive civil action, and is providing an in-depth look into how Wall Street allegedly conspired to rig Treasury bond trades.

As our readers are undoubtedly aware, typically, the Treasury holds an auction, then banks submit their bids for US debt based on how much they think those bonds are worth. The Treasury then doles out the bonds proportionately to the bidders at the same price. The bank that asked for the best price gets the most bonds.

Traders at the Wall Street banks shared the prices that their clients had sought to buy the bonds, giving each of the banks in the alleged cartel a clearer picture of what they thought the market was, and a better chance at getting a bigger share of the bonds to sell, according to the complaint.

So, which banks would participate in such a scheme?  Surely none of the marquee names on wall street, right?

The amended suit tightens its focus on a select number of banks, naming Goldman Sachs, Morgan Stanley, the Royal Bank of Scotland, BNP Paribas, and UBS, among others, as the firms behind the rigging, which they allege occurred from Jan. 1, 2007, to mid-2015.

The funds continue to allege the banks mined their own customers’ bids for Treasury bonds to get a bigger share of the auction, and sell the bonds for more profit.

Probes on the auction practices are being conducted by the Justice Department, the Securities and Exchange Commission and other federal, state and overseas regulators, sources said. No regulator has accused any bank of wrongdoing.

Of course, we’re sure this is all just another big misunderstanding by a DOJ that is just trying to “criminalize behavior that is normal.

Overnight saw the price of Bitcoin surge to $7997 following Zimbabwe chaos and defaults in Venezuela, rebounding from ‘the world is ending’ $5555 last weekend.

However, if American investors are to be believed, the cryptocurrency has a long way to go before they are selling…

As CoinTelegraph reports, a new survey among Americans indicates that the average investor will not coimpletely exit Bitcoin until its price hits $196,000…

image courtesy of CoinTelegraph

LendEdu commissioned a survey in November 2017 of 564 Americans who had invested in Bitcoin. While surveys have been done in the past to gauge the awareness of the general public about Bitcoin, this survey focused on American Bitcoin investors and their sentiments.

We have come a long way from 2015, when 65% of Americans surveyed didn’t know what Bitcoin was. The questions asked in the survey ranged from their reasons for investing in Bitcoin to when they would sell all their Bitcoins.

Sell all your Bitcoin?

The average price at which the survey respondents said that they will sell all their Bitcoins is $196,166 per Bitcoin. This represents 30x the value of Bitcoin prevailing at the time of the survey. It is to be noted that this is the price at which the respondents will sell all their Bitcoins. Almost a third (32.62%) have sold some of their Bitcoins since they started investing. It is tempting to book profits, given how the price of Bitcoin has rallied in the last year.

Most of the respondents plan to hold their Bitcoins at least one year, with only 16.49% planning to sell sooner than that.According to the survey, 21% of Bitcoin investors plan to hold on to their coins for at least seven years, and 11.7% say they will hold the currency for 10 years or longer.

Store of value or speculative investment?

While pundits debate whether people are investing in Bitcoin because they treat it as a store of value or as a speculative investment, the survey results indicate something completely different. According to LendEdu:

“The most popular selection, chosen by 40.78 percent of respondents, was “I believe Bitcoin is a world changing technology.” It is interesting to see that the plurality of Bitcoin investors are backing the technology as the primary reason for investing. Often, financial professionals speculate that Bitcoin investors are chasing a big payout.”

It seems that the naysayers are wrong, and these aren’t merely “greater fools” chasing huge gains. Instead, American Bitcoin investors are apparently sophisticated enough to realize the value of the project’s technology.

The next largest group of respondents see Bitcoin as something akin to digital gold:

“The second most popular reason why investors liked Bitcoin, chosen by 21.81 percent of respondents, was for the possibility of long term storage of value of it. Many financial professionals often compare Bitcoin to precious metals like gold, silver, and platinum. For centuries, investors have used precious metals as a way to diversify away from government backed currency.”

Worried About Safety

Another big takeaway from the survey is that almost half (44.15%) of the respondents were worried about the technological safety of their Bitcoins. This isn’t surprising, considering high profile cases such as Mt. Gox. That exchange, the largest in the world by volume, went bust and its former CEO was arrested in Japan on embezzlement charges. He has pleaded not guilty.

In addition to the ill-fated Mt. Gox, numerous other exchanges have faced security problems. Multiple exchanges have been hacked and their customers’ Bitcoins have been lost. While Bitcoin holders can follow certain practices like keeping their Bitcoins in cold storage to increase security, the survey shows that ordinary investors continue to worry about the safety of their coins.

Yesterday’s torrid, broad-based rally looked set to continue overnight until early in the Japanese session, when the USD tumbled and dragged down with it the USDJPY, Nikkei, and US futures following a WSJ report that Robert Mueller had issued a subpoena to more than a dozen top Trump administration officials in mid October.

And as traders sit at their desks on Friday, U.S. index futures point to a lower open as European stocks fall, struggling to follow Asian equities higher as the euro strengthened at the end of a tumultuous week. Chinese stocks dropped while Indian shares and the rupee gain on Moody’s upgrade. The MSCI world equity index was up 0.1% on the day, but was heading for a 0.1% fall on the week. The dollar declined against most major peers, while Treasury yields dropped and oil rose.

Europe’s Stoxx 600 Index fluctuated before turning lower as much as 0.3% in brisk volumes, dropping towards the 200-DMA, although about 1% above Wednesday’s intraday low; weakness was observed in retail, mining, utilities sectors. In the past two weeks, the basic resources sector index is down 6%, oil & gas down 5.8%, autos down 4.9%, retail down 3.4%; while real estate is the only sector in green, up 0.1%. The Stoxx 600 is on track to record a weekly loss of 1.3%, adding to last week’s sell-off amid sharp rebound in euro, global equity pullback. The Euro climbed for the first time in three days after ECB President Mario Draghi said he was optimistic for wage growth in the region, although stressed the need for patience, speaking in Frankfurt. European bonds were mixed. The pound pared some of its earlier gains after comments from Brexit Secretary David Davis signaling a continued stand-off in negotiations with the European Union.

In Asia, the Nikkei 225 took its time to catch up to the WSJ report that US Special Counsel Mueller has issued a Subpoena for Russia-related documents from Trump campaign officials, although reports pointing to North Korea conducting ‘aggressive’ work on the construction of a ballistic missile submarine helped the selloff. The Japanese blue-chip index rose as much as 1.8% in early dealing, but the broad-based dollar retreat led to the index unwinding the bulk of its gains; the index finished the session up 0.2% as the yen jumped to the strongest in four-weeks. Australia’s ASX 200 added 0.2% with IT, healthcare and telecoms leading the way, as utilities lagged. Mainland Chinese stocks fell, with the Shanghai Comp down circa 0.5% as the PBoC’s reversel in liquidity injections (overnight net drain of 10bn yuan) did little to boost risk appetite, as Kweichou Moutai (viewed as a bellwether among Chinese blue chips) fell sharply. This left the index facing its biggest weekly loss in 3 months, while the Hang Seng rallied with IT leading the way higher. Indian stocks and the currency advanced after Moody’s Investors Service raised the nation’s credit rating.

The dollar was pressured even as tax reform moved a step forward given Trump-Russia probe came back into focus. Two-year Treasury yield hit a fresh high and bonds slipped. The euro stayed on course to its best week in two months as Draghi remains bullish on prospects of higher wages; the kiwi hit its lowest level since June 2016.

Meanwhile, the U.S. Treasury yield curve remained on investors’ radar, reaching its flattest levels in a decade, reflecting a belief that the Federal Reserve will continue to raise interest rates.

The U.S. House of Representatives passed a tax overhaul expected to boost share prices if it becomes law. The legislative battle now shifts to the Senate. As Bloomberg notes, as “Washington took one step closer to tax reform and China’s central bank injected the most cash since January into its financial system this week, investors have been trying to decide if resilient global growth and strong earnings forecasts warrant sticking it out in equities. Lofty valuations contributed to fund managers paring back some exposure after global shares reached record highs earlier this month.”

As earnings season drew to a close with 90 percent of U.S. and European companies having reported, analysts said results were supportive but weaker than the previous quarters. “While they look good overall, the strong momentum apparent since Q1 is now fading,” said Societe Generale analysts, adding that consensus earnings estimates are no longer being raised for U.S. or euro zone stocks.

As also reported on Thursday, Fed’s Williams suggested that central banks should consider unconventional policy tools for use in the future, including higher inflation targets and income targeting. Williams also suggested that negative rates need to be on list of potential tools if the US enters a recession, even as he said that a December hike, followed by 3 hikes in 2018 is perfectly reasonable. “What really matters is gradual normalisation not timing, should raise rates to around 2.5% in the next couple of years” he said adding that “Low inflation in a way is lucky as it allows strong growth, however, if it does not pick up over the next few years he will re-think the rate path.”

Oil prices were on track for weekly losses, slipping from two-year highs hit last week on signs that U.S. supply is rising and could potentially undermine OPEC’s efforts to tighten the market. U.S. light crude stood at $55.53 a barrel, up 0.7 percent on the day but still within its trading range in the past couple of days. It was down 2.1 percent on the week. Brent futures hit a two-week low of $61.08 a barrel but last stood 0.3 percent higher at $61.53. It was down 3.1 percent for the week.

Economic data today includes housing starts, building permits.

Market Snapshot

• S&P 500 futures down 0.1% to 2,583.25
• STOXX Europe 600 down 0.2% to 384.06
• MSCI Asia up 0.4% to 170.15
• MSCI Asia ex Japan up 0.5% to 558.90
• Nikkei up 0.2% to 22,396.80
• Topix up 0.1% to 1,763.76
• Hang Seng Index up 0.6% to 29,199.04
• Shanghai Composite down 0.5% to 3,382.91
• Sensex up 0.8% to 33,377.55
• Australia S&P/ASX 200 up 0.2% to 5,957.25
• Kospi down 0.03% to 2,533.99
• German 10Y yield rose 1.1 bps to 0.387%
• Euro up 0.2% to $1.1795
• Brent Futures up 0.7% to $61.78/bbl
• Italian 10Y yield rose 0.2 bps to 1.572%
• Spanish 10Y yield rose 0.6 bps to 1.548%
• Brent Futures up 0.7% to $61.78/bbl
• Gold spot up 0.3% to $1,282.59
• U.S. Dollar Index down 0.3% to 93.69

Top Overnight News

• House Republicans pass tax bill, while Senate Finance Committee approves different version
• Special Counsel Robert Mueller is said to have served President Donald Trump’s election campaign a subpoena in mid-October seeking documents related to Russia contacts
• ECB President Mario Draghi said he was confident for wage growth in the euro area
• While U.K. Brexit Secretary David Davis said there would be some clarity on the Britain’s divorce bill with the European Union in a “a few more weeks,” there are signs that talks with EU leaders are in a new stand-off
• Japanese PM Shinzo Abe says he will push through initiatives to boost productivity and compile a new economic policy package next month
• Canada is open to a Mexican proposal to review the North American Free Trade Agreement every five years instead of ending the deal automatically if not renegotiated, which the U.S. had demanded, Reuters reports, citing two unidentified government sources
• Senate Panel Approves Tax Plan as GOP Leaders Gird for Battle
• Murdoch Has His Pick of Suitors as He Ponders Fox’s Fate; Sky Rises Most Since June on Interest From Comcast, Verizon
• Chinese Stocks Tumble as State Media Warning Triggers Selloff
• India’s First Moody’s Upgrade in 14 Years Bets on Reforms
• Draghi Says Confidence on Inflation Will Help Drive Wage Gains
• China Issues Draft Rules to Curb Asset Management Product Risks
• Bitcoin Flirts With Record $8,000 High, Leaving Sell-Off Behind
• PDVSA Looks Like a ‘Zero’ to Man Who Ran Elliott’s Argentina Bet
• Manafort Spent Millions on Home Updates But Numbers Don’t Add Up
• Tesla Seals Order From Michigan Grocery Chain for Semi Trucks
• Luxoft Holding Second Quarter Adjusted EPS Beats Estimates
• JPMorgan’s Gu Sees ‘Very Robust’ Pipeline for Hong Kong IPOs

In Asia, the Nikkei 225 took its time to catch up to a report suggesting that US Special Counsel Mueller has issued a Subpoena for Russia-related documents from Trump campaign officials, although reports pointing to North Korea conducting ‘aggressive’ work on the construction of a ballistic missile submarine probably helped the selloff. The Japanese blue-chip index rose as much as 1.8% in early dealing, but the broad-based dollar retreat led to the index unwinding the bulk of its gains; the index finished the session up 0.2%. Australia’s ASX 200 added 0.2% with IT, healthcare and telecoms leading the way, as utilities lagged. Mainland Chinese stocks fell, with the Shanghai Comp down circa 0.4% as the PBoC’s injections have done little to underscore risk appetite, as Kweichou Moutai (viewed as a bellwether among Chinese blue chips) fell sharply. This left the index facing its biggest weekly loss in 3 months, while  the Hang Seng rallied with IT leading the way higher. The PBoC injected a net CNY 810bln this week, against a net drain of CNY 230bln last week. Japanese PM Abe promised to rid the country of deflation once and for all. He pledged to use all policy tools, including tax reforms and deregulation, to push up wages in order to put an end to the country’s persistent deflation he also noted that he wants to increase pressure on North Korea along with the international community. Japanese Finance Minister Aso stated that Japan is to continue to firmly escape deflation. South Korea’s FX authority warned that the pace of the KRW’s gains has been fast. A BoK official warned that the KRW has appreciated fast in a short time, and reiterates that FX authorities are monitoring the situation. Moody’s raised India’s sovereign rating to Baa2 from Baa3, outlook to stable from positive.

Top Asian News

• India Rating Raised by Moody’s as Reforms Boost Growth Potential
• China to Rein Risks in Asset Management Industry
• China Warning Wipes $6 Billion From Stock Loved by Goldman
• Erdogan Says Turkey Has Withdrawn Troops From NATO Exercise
• China Stocks Cap Worst Week Since August as Moutai Battered

European bourses trading modestly lower this morning, with downbeat earnings weighing sentiment, while the spill-over from a soft Asian session has dented risk in Europe. Vivendi shares had been lower as much as 2% after a weak earnings update. FTSE 100 slipping slight amid the strength in GBP, which is back above 1.32 against the greenback. Comments from ECB’s Draghi have sparked some additional movement, as while largely sticking to the post-October 26 policy meeting presser he appeared more confident about the growth and inflation outlook (economic activity more self-propelling, underlying inflation to converge with headline etc). Hence, a decline in Bunds below parity to a 162.50 low, but again not yet posing a real threat to more substantial downside targets/supports. Market contacts suggest that 162.48 needs to be breached from an intraday chart perspective to bring Thursday’s 162.38 Eurex base into contention, and recall there are more/bigger stops anticipated below 162.36. On the upside, assuming 162.48 holds, yesterday’s 162.82 session high is the first proper line of resistance. Gilts have also retreated into negative territory alongside Bunds and USTs, to 124.45 vs 124.77 at best and their 124.72 previous settlement.

Top European News

• We’ll Wait for U.K. Brexit Concessions, EU Leaders Tell May
• From EON to Fortum: How to Save Nasdaq’s Fading Power Market
• Carige Talks With Underwriters Continue as Deadline Looms
• Elior Plunges Most on Record as Hurricane Irma Wrecks Party
• Norway Idea to Exit Oil Stocks Is ‘Shot Heard Around the World’

In FX, the USD is down again, but off worst levels seen so far this week as the Index holds within a 93.500-93.900 broad range. Some respite for Dollar from progress on the tax reform bill, but another Russian-related probe into Trump’s election campaign has capped the upside. The Euro was underpinned by upbeat comments from ECB President Draghi, and holding close to 1.1800 vs the Usd. Hefty option expiries still in play from 1.1790-1.1800 through 1.18250 and up to 1.1840-50. The Yen regaining a safe-haven bid amid the latest US political challenge against the President, with Usd/Jpy down to new multi-week
lows sub-112.50. AUD/NZD is the biggest G10 losers on broad risk-off sentiment and the recovering Greenback, with Aud/Usd back below 0.7600 and Nzd/Usd even weaker under the 0.6800 handle. Note, cross flow also weakening the Kiwi as Aud/Nzd trades back at 1.1100+ levels.

In commodities, Brent and WTI crude futures trading higher by 0.4% and 1.3% respectively, the latter making a break above yesterday’s at USD 55.59, however has met resistance at the USD 56 handle. Iraq/Kurd oil flow to Ceyhan rises to 254k bpd, according to Port Agent

Looking at the day ahead, a slightly quieter end to the week although the ECB’s Draghi is due to give a keynote address on “Europe into a new era – how to seize the opportunities”. The Bundesbank’s Weidmann is also slated to speak while the Fed’s Williams speaks in the evening. US housing starts for October and the Kansas City Fed’s manufacturing activity index for November are the data highlights.

US Event Calendar

• 8:30am: Housing Starts, est. 1.19m, prior 1.13m; MoM, est. 5.59%, prior -4.7%
• 8:30am: Building Permits, est. 1.25m, prior 1.22m; MoM, est. 2.04%, prior -4.5%
• 10am: MBA Mortgage Foreclosures, prior 1.29%; Mortgage Delinquencies, prior 4.24%
• 11am: Kansas City Fed Manf. Activity, est. 20.5, prior 23

DB’s Jim Reid concludes the overnight wrap

Maybe the S&P 500 will be the new hard currency of the world as nothing seems to break it at the moment. After a very nervous last week (longer in HY and EM) for markets, the S&P 500 closed +0.82% last night (best day since September 11th) and for all the recent fury and angst is only 0.34% off its’ all-time closing high. The Nasdaq gained 1.30% to a fresh all time high and the Stoxx 600 was also up for the first time in eight days. The positive reaction seems to have started in Asia yesterday, in part as commodity prices stabilised somewhat and news that China’s PBoC injected cash with the largest reverse repo operation since January. Then US markets got an additional boost from Cisco guiding to its first revenue gain in eight quarters and Wal-Mart posting its strongest US sales in more than eight years. There was also a little sentiment boost from the House passing its tax bill.

This morning in Asia, markets are strengthening further. The Nikkei (+0.11%), Hang Seng (+0.78%) and Kospi (+0.28%) are all modestly up while the Shanghai Comp. is down 0.55% as we type. Moody’s upgraded India’s sovereign bond rating for the first time since 2004. It’s one notch higher to Baa2/Stable (also one notch higher than S&P’s BBB-) with the agency citing ongoing progress in economic and institutional reforms. India’s 10y bond yields is down c10bp this morning to 6.96%. Elsewhere, UST 10y has partly reversed yesterday’s moves and is trading c2bp lower.

Now back to US tax reforms, which is a small step closer to resolution. The House has voted (227-205) to pass its version of the tax reform bill despite 13 Republicans dissenting. President Trump tweeted “a big step toward fulfilling our promise to deliver historic tax cuts…by the end of the year”. Notably, the more challenging task may now begin in terms of passing the Senate’s version where fiscal constraints are tighter and the Republicans only have 52 of the 100 seats in the Chamber. Overnight, the Senate Finance Committee voted to approve its revised tax package, so a full chamber vote could come as early as the  week after Thanksgiving. If passed, the two versions of the tax bill will need to be somehow reconciled. Our US economist believes there is a decent chance that some version of tax reform can be achieved, but this is likely to be a Q1 event with potential stumbling blocks along the way.

Turning to the various Brexit headlines, PM May flew out last night to Sweden for an informal summit with European leaders seeking to kick start the stalled Brexit talks. She is expected to meet with the Swedish Premier and Irish counterpart before meeting with EU President Tusk on Friday. Following on, the Brexit Secretary Davis noted that we have to “wait a few more weeks” for clarity on how much UK is willing to pay in the divorce settlement. Elsewhere, Goldman Sachs CEO Blankfein tweeted “many (fellow business leaders) wish for a confirming vote on (Brexit)…so much at stake, why not make sure consensus still there?”

Moving onto central bankers’ commentaries. In the US, the Fed’s Mester sounded reasonably balanced and remains supportive of continued gradual policy tightening. She noted “anecdotal feedback from business contacts suggest they are increasing wages”, but it’s going to be hard to see strong wage growth because productivity growth is low. Overall, she sees “good reasons” that inflation will rise back to 2% goal, but “it’s going to take a little longer…”

The Fed’s Williams noted one more rate hike this year and three more in 2018 remains a “reasonable guess” subject to incoming data. Finally, the Fed’s Kaplan  reiterated the Fed would continue to make progress towards achieving its 2% inflation target, but noted that the neutral fed funds rate is “not that far away”.

In the UK, BOE Governor Carney reiterated that interest rates would probably rise “a couple of times over the next few years” if the economy evolved in line with the Bank’s projections, but also cautioned that the fundamental economic impacts of Brexit will only be “known over a very long period of time”. That said, he noted the BOE will remain nimble and support the economy no matter what the result of the Brexit negotiations will be. Elsewhere, Chancellor Hammond has confirmed that the Treasury does not plan to change the inflation gauge that the BOE targets from CPI to CPIH – which includes owner occupied housing costs and is the new preferred price measure by the Office for National Statistics.

Now recapping other markets performance yesterday. Within the S&P, only the energy and utilities sector were modestly in the red (-0.58%), partly weighed down by Norway’s sovereign wealth fund plans to sell c$40bln of energy related stocks to make it less vulnerable to the sector. Elsewhere, gains were led by telco, consumer staples and tech stocks. European markets were all higher, with the DAX and CAC up c0.6% while the FTSE 100 was the relative underperformer at +0.19%. The VIX index dropped 10.4% to 11.76.

Over in government bonds, UST 10y yields rose 5.3bp following the House’s approval of the tax plans and a solid beat for industrial production, while Gilts also rose 2.3bp, in part due to slightly stronger retail sales figures. Other core bond yields were little changed (10y Bunds flat, OATs -0.4bp), while Italian yields marginally underperformed (+0.5bp), partly reflecting that Banca Carige has failed to get banks to underwrite its planned share sale – making a bail in more likely, as well as recent polls (eg: Ipsos) showing the 5SM party taking a modest lead versus peers. Elsewhere, some of the recent pressure in the HY space appears to be reversing with the Crossover index 9.2bp tighter.

Key currencies were little changed, with the US dollar index up 0.13% while Sterling gained 0.18% and Euro fell 0.18%. In commodities, WTI oil dipped 0.34% yesterday but is trading marginally higher this morning after Saudi Arabia reaffirmed its willingness to extend oil cuts at the November 30 OPEC meeting. Elsewhere, precious metals were slightly higher (Gold +0.03%; Silver +0.54%) while other base metals continue to softened, although losses are moderating (Copper -0.17%; Zinc -0.84%; Aluminium -0.35%).

Away from the markets, our US economists have published their latest outlook for the US economy. They note the US economy is on good footing for continued above-trend growth in 2018 and beyond. Overall, they believe private sector fundamentals are broadly sound, the labour market has more than achieved full employment and financial conditions are highly supportive of growth. On real GDP growth, their forecast for 2018 is unchanged at 2.3%, but 2019 is up a tenth to 2.1% while growth in 2020 is expected to slow to 1.5% as monetary policy tightening gains traction. The Unemployment rate is expected to fall to 3.5% by early 2019, so although inflation should remain low through year-end, our team’s medium-term view that core inflation should normalise is intact. Hence, in terms of rates outlook, they still expect the next rate increase in December, followed by three hikes in 2018 and four more in 2019. Elsewhere, tax reform is a wild card, though it faces significant political challenges. Conversely, potential disruptions to trade policy would be a negative development. For more detail, refer to their note.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the October IP was above expectations at 0.9% mom (vs. 0.5%) and 2.9% yoy – the highest since January 2015, in part as the post storm recovery efforts gets underway. Aggregate capacity utilization was also beat at 77% (vs. 76.3% expected) – highest since April 2015 and the NAHB housing market index was also above at 70 (vs. 67) – highest since March. Elsewhere, the November Philly Fed index was slightly below expectations but still solid at 22.7 (vs. 24.6 expected), with both the new orders and employment indices above 20. Finally, the weekly initial jobless claims was slightly higher (249k vs. 235k expected), perhaps impacted by the delayed filings following the storms and the Veteran’s day holiday, while continuing claims fell to a new 44 year low (1,860k vs. 1,900k expected).

In the UK, core retail sales (ex-auto fuel) for October slightly beat expectations, at 0.1% mom (vs. flat expected) and -0.3% yoy (vs. -0.4% expected). In the Eurozone, the final reading for October CPI was unrevised at 0.1% mom and 1.4% yoy, but France’s 3Q unemployment was slightly higher than expected at 9.7% (vs. 9.5%).

Looking at the day ahead, a slightly quieter end to the week although the ECB’s Draghi is due to give a keynote address on “Europe into a new era – how to seize the opportunities”. The Bundesbank’s Weidmann is also slated to speak while the Fed’s Williams speaks in the evening. US housing starts for October and the Kansas City Fed’s manufacturing activity index for November are the data highlights.

According to the latest analysis of satellite imagery taken at North Korea’s Sinpo South Shipyard on November 5 conducted by the 38 North website, Pyongyang is pursuing an “aggressive schedule” to build its first operational ballistic missile submarine.

Continued movement of parts and components into and out of the parts yards adjacent to the construction halls indicates an ongoing shipbuilding program, the analysts concluded. “The presence of what appear to be sections of a submarine’s pressure hull in the yards suggests construction of a new submarine, possibly the SINPO-C ballistic missile submarine (SSB)- the follow-on to the current SINPO-class experimental ballistic missile submarine,” 38 North said in the report published today.

Additionally, Imagery from November 5 shows two larger circular objects that may be sections of a submarine’s pressure hull: “The diameter of the first object was approximately 7.1 meters, while the diameter of the second starts at approximately 7.1 meters and reduces to approximately 6.1 meters. The larger object has what appears to be two internal cross members that could be used to support decks or internal equipment.”

If correct, that would imply that the shipbuilding program is for a submarine with a beam broader (in width) than the ROMEO-class attack submarine (6.7 meters)—meaning it is potentially a SINPO-C SSB, the reported follow-on to the SINPO-class SSBA.

Separately, at the test stand, imagery from November 5 shows an object visible at the top of the service tower that appears to be either a launch canister support or launch canister.

This object does not appear in previous satellite or ground images of the test stand. While there is no additional activity of note in the immediate area, the service tower remains in place. During the earlier development of the Pukguksong-1/KN-11, it was removed after testing campaigns. Therefore, the continued presence of this object suggests ongoing SLBM ejection tests. If correct, this is likely a continuation of the ejection test campaign reported during July of this year.[4] Regardless, additional ejection tests should be expected in the future for further development of the Pukguksong-1, a potential Pukguksong-3, or other future SLBMs.

Such a test would also be valuable for validating missile launch systems for a new class of SSBs.

And while images of a test stand indicated continued experimenting with a mechanism for ejection launch of missiles from a submarine, so far, the report said, no activity could be seen suggesting preparations for a new test of a submarine-launched missile.

Last month, The Diplomat magazine quoted a U.S. government source as saying U.S. military intelligence had detected a new diesel-electric submarine under construction at Sinpo and dubbed it the Sinpo-C. It said the submarine was likely a larger successor to North Korea’s single experimental ballistic missile submarine.

Another article in The Diplomat last month quoted a U.S. government source as saying that North Korea had tested a new solid fuel engine sometime between Oct. 15 and Oct. 21. U.S. intelligence officials have declined to comment on this.

Back in 2015, at the height of Angela Merkel’s “open door” admission policy which in addition to granting German entry to over 1 million refugees, many of whom turned out to be radical jihadists and sent her approval rating crashing to the lowest in her career, the German chancellor realized that the great migration wave from the middle east into Central Europe, originally meant to reinvigorate Europe’s aging demographics (and prompted Deutsche Bank to even boost its German GDP forecast), maybe was not such a great idea, and was just not worth the risks and trade offs.

And while in the subsequent two years Germany in particular, and Central Europe in general managed to avoid another mass migration wave with most refugees gated either in Turkey or Italy, a second wave of migration into Europe now may be imminent as the situation in refugee camps in Africa and the Middle East is only getting worse, the head of the UN World Food Programme said. He added there is a clear link between hunger and migration.

Speaking to German newspaper Die Zeit, the executive director of the UN’s World Food Programme, David Beasley, said that living conditions, mostly food distribution, in refugee camps in crisis-affected regions had deteriorated dramatically before the European migrant crisis struck in 2015.

“We paid a heavy price for this mistake and I’m afraid we’re about to make it once again,” Beasley believes. According to the UN food chief, while many asylum seekers wanted to stay in their home region, the lack of food has driven them away. “If they don’t have enough food, they will leave. And many of them would go to Europe,” Beasley said.

Beasley also warned that while the UN has been seemingly making progress in fighting world hunger over the last 10 years, the number of people suffering hunger worldwide has now dramatically increased again; he added that the food crisis is caused mainly by wars and climate change. Yemen is threatened by famine because Saudi Arabia is blocking the country’s ports, preventing aid deliveries, urging Gulf countries not to stand aside but instead join the food aid program for crisis-stricken regions, Beasley said.

A WFP report from March says that some 108 million people across the globe faced “crisis food insecurity or worse,” a dramatic increase from 2015 when the figure was 80 million. The document says that major food crises were fueled by “conflict, record-high food prices and abnormal weather patterns.”

The number of asylum seekers in the EU during the second quarter of 2017 reached 149,000, according to statistical data from Eurostat. The applications mainly came from Syria, Nigeria and Afghanistan. Germany, Italy, France, Greece and the UK account for almost 80 percent of all first-time applicants in the union, the data shows.

Of course, for Europe’s political oligarchs none of the above social dimensions of the migrant tragedy matters, but one thing does: the chart shown below which demonstrated that as of December 2015, there was a direct correlation between the approval rating of establishment politicians and the migrant flood hitting Europe.

If Beasley is right, and Europe is indeed about to be flooded with millions of disgruntled migrants, the anti-establishment wave that brought brexit and countless subsequent tremors, will seem like a walk in the park next to the nationalistic backlash that will soon follow.

Turkish lira plunged near record low 3.9/USD this morning and bond yields spiked over 12.5% for the first time in history as investor anxiety escalated following President Erdogan’s attack on the nation’s central bank, decrying it’s “wrong path.”

Currency crisis…

And bond market panic…

As Bloomberg reports, Turkish President Recep Tayyip Erdogan signaled an end to his uneasy truce with the new central bank chief, attacking the institution now run by Governor Murat Cetinkaya for its repeated revisions to economic targets and “wrong path” to tackle soaring inflation.

“They say central banks are independent so we shouldn’t interfere. This is the end result because we haven’t interfered,” Erdogan said in a speech on Friday in Ankara.

“Results speak for themselves.”

“We will solve this, things can’t go on like this,” Erdogan said, vowing to step up a fight against what he calls the “interest rate lobby,” an alleged cabal of financiers and lobbyists that he says is conspiring to keep Turkey’s interest rates artificially high.

“We can’t make this a taboo,” he said, rejecting the idea that central bank independence means he shouldn’t comment on interest rate policy.

The comments come as a slew of economic stimulus measures implemented in the wake of a 2016 coup attempt have helped push growth up while driving core inflation to 11.8 percent in October, the highest since 2004.

“We’re back at Erdoganomics 101,” said Cristian Maggio, head of research at TD Securities in London.

“I would have expected him to start shouting at the central bank only once the lira was on a more solid footing versus the U.S. dollar and euro. We’re clearly not there yet, so that makes me think that he’s more concerned about growth, a concern that we share.”

Economic Data continues to surprise to the upside (compared to what had been terrible expectations)…is this as good as it gets?

But credit, the yield curve, and now stocks are not loving it…

Small Caps were the only major index green today…

The Dow and S&P 500- fell for the 2nd week in a row – something they haven’t done for 3 months…Small Caps best on the week (followed by Nasdaq thanks to yesterday’s panic buy)…

Futures show the crazy moves this week better..

VIX was slammed late on today in a desperate bid to get the S&P green on the week...

But while stocks rebounded briefly, FX carry wasn’t…

And nor was the bond market…

Big week for tax-related stocks…

SFIX went public today at $15…

While US HY bond prices ended the week higher (thanks to yesterday’s melt up)…but still remains well below its 200DMA…

US HY spreads rose for the 4th week in a row…

European HY Fund assets crashed to their lowest since June 2016…

Treasuries were mixed on the week with the front-end higher in yield and back-end lower….

The US Treasury yield curve crashed almost 10bps this week – the biggest flattening since Dec 2016 to its flattest since Nov 2007

Note that is the flattest 2s10s since Oct 2007… The last 3 times it was this flat, the US economy was in recession…

The Dollar Index had its worst week in over 2 months, dropping to 1-month lows… (this is also the first consective weekly decline in the dollar index since July)

Yen and Euro strength weighed the most on the dollar this week… (AUD and CAD were weaker as oil slipped)

USDJPY was clubbed like a baby seal this week (worst in 2 months) – (today was USDJPY’s worst drop since May). It seems 114.000 to 112.00 is the corridor…

Gold had its best week in over a month, surging back above its 50DMA towards the $1300 level…

GOLD

Bitcoin had another big week – getting as close to $8000 as possible… (up 45% from its lows last weekend)…

Finally, we note that in the weeks since MbS launched his ‘corruption’ crackdown in Saudi Arabia, only one asset has really shone…

it has been a rocky session for the dollar which has dumped to a 4-week low, dragging with it USDJPY, the Nikkei and Treasury yields – and to a lesser extend US equity futures – all of which have slumped in the Japanese am session, following a WSJ report that Robert Mueller’s team “caught the Trump campaign by surprise” in mid-October by issuing a document subpoena to more than a dozen top officials.

 

The campaign had previously been voluntarily complying with the special counsel’s requests for information, and had been sharing with Mr. Mueller’s team the documents it provided to congressional committees as part of their probes of Russian interference into the 2016 presidential election. The Trump campaign is providing documents in response to the subpoena on an “ongoing” basis, the person said.

If confirmed, this would be the first time Trump’s campaign has been ordered to turn over information to Mueller’s investigation, even if subpoena has not – for now – compelled any officials to testify before  Mueller’s grand jury.

According to Citi, and a handful of other desks,the news of the report is what initially sent the USDJPY below 113, at which point stop loss selling accelerated and has seen the pair tumble to 112.50 at last check.

While it took the other major currencies a while to catch on, the dollar eventually did selloff across the board, with cable and EUR leading the AUD and kiwi.  Meanwhile, the Korean won has surged, sending the USDKRW below 1,100, ignoring the latest jawboning and verbal intervention from Korean central bankers.

Still, not everyone is convinced and Citi for one, thinks the sell-off in US assets has been exaggerated due to diminished liquidity conditions and stop runs, especially since the news that Mueller issued a subpoena “doesn’t really have any implications for markets.”

Others, such as Westpac’s FX strategist Sean Callow, agree: “USD/JPY’s apparent fatigue is consistent with a speculative market already very short yen”he said, adding that “USD/JPY seems to have already factored in not only a Fed hike in December but some form of tax cut package as well.”

Furthermore, while the subpoena news may seem surprising, Citi’s Ding notes that “we already know that the investigation is ongoing and links between Russia and the Trump campaign are under scrutiny”, in other words the WSJ report was to be expected, even if the market appears to be overplaying it for the time being.

In any case, at least for now the mood is one of risk off, and in addition to the dollar, Nikkei, yields and US futures all heavy, Chinese stocks are also down with the Shanghai Comp -0.7% lower, although that may be more a function of the sharp reversal in PBOC liquidity injections, because after yesterday’s gargantuan 310Bn net reverse repo – and 810Bn net this week – today’s 10Bn liquidity drain once again prompted fears that the PBOC just may be serious about the deleveraging after all.

Public pensions all around the country like to play a clever little game that allows them to drastically understate the current value of their future liabilities and therefore pretend that their ponzi schemes are something other than insolvent frauds.  Of course, we’re talking about the artificially high discount rates that pension boards consistently use to understate their net underfunding levels…a topic that we’ve written about frequently over the years.

Alas, at least in the opinion of Yale’s Chief Investment Officer David Swensen, those 7.5% annual returns that pensions love to rely on, even if they’ve never managed to actually achieve them, are going to be increasingly difficult to hit over the coming years.  As Swensen told Bloomberg, despite achieving a 13.5% annual return over the past 32 years, he is now preparing university officials for much lower returns averaging around 5% for the foreseeable future.

The investment chief, who was interviewed by former U.S. Treasury Secretary Robert Rubin, also said he’s expecting lower returns for the university’s endowment, which he’s run for 32 years with a 13.5 percent average annual rate of return.

For the past 12 to 18 months, Swensen said he has been warning university officials to expect much lower returns in the future, as little as 5 percent annually, which would be down from previous assumptions of 8.25 percent.

“It’s not a very popular change,” he said. “We’re victims of our own success.”

Meanwhile, as we pointed out a couple of months ago (see: Pension Ponzi Exposed: Minnesota Underfunding Triples After Tweaking This One Small Assumption…), the state of Minnesota recently provided a beautiful illustration of exactly what happens when public pensions decide to ditch their inflated discount rates for more realistic assumptions…their net underfunding tripled to $50 billion…here’s more
from Bloomberg:

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules.

The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent
governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53 percent of what it needed to cover promised benefits, down from 80 percent a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg.

The Minnesota’s teachers’ pension fund, which had $19.4 billion in assets as of June 30, 2016, is expected to go broke in 2052. As a result of the latest rules the pension has started using a rate of 4.7 percent to discount its liabilities, down from the 8 percent used previously. As a result, its liabilities increased by $16.7 billion.

Unfortunately, lower returns was only part of the bad news that Swensen had for U.S. investors as he described the current disconnect between “fundamental risks that we see all around the globe with the lack of volatility in our securities markets” as “profoundly troubling.”

David Swensen, Yale University’s longtime chief investment officer, said the lack of market volatility in the current geopolitical environment is a major concern and warned that another crash is possible.

“When you compare the fundamental risks that we see all around the globe with the lack of volatility in our securities markets, it’s profoundly troubling,” Swensen, 63, said Tuesday during remarks at the Council on Foreign Relations in New York. That “makes me wonder if we’re not setting ourselves up for an ’87, or a ’98 or a 2008-2009,” he said, referring to previous market crises.

“The defining moments for portfolio management” came in those years, “and if you ignore that you’re not going to be able to manage your portfolio,” Swensen said.

Asked why Yale’s uncorrelated assets are higher now than in 2008, he said, “I’m not worried about the economy so much, what I’m concerned about is valuation.”

Of course, we’re sure these warnings will provoke pension managers all around the country to promptly reassess their optimistic return assumptions and adjust future pension benefits accordingly to preserve the solvency of their funds for future generations of pensioners…