30
Nov
Off

The euro stumbled, dropping to session lows on Thursday after Eurostat reported that despite a welcome decline in Europe’s unemployment rate to 8.8%, the lowest level in 9 years, Eurozone inflation missed expectations, rising from 1.4% to 1.5%, below t…

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8
Nov
Off

During his trip to London this week, US Commerce Secretary, Wilbur Ross, wasn’t only defending revelations in the Paradise Papers that he’d invested in a shipping company with ties to the Putin family. He also attended a “closed-door meeting” with executives from JPMorgan, Goldman, HSBC and other banks. The meeting took place over lunch in the exclusive St James’s District (hedge fund land these days) at Wiltons restaurant. Wiltons, if you’re not familiar with it, started as an oyster stand in 1742 before developing a clientele of English aristocrats and foreign dignitaries and latterly, bankers. Ian Fleming, creator of the James Bond novels and bon vivant,  listed it as one of his top 10 restaurants in the 1950s.

During lunch, the banks warned Ross that time is running out for the UK government. The failure to provide clarity on Brexit means that they will be forced to start moving jobs out of London. According to the FT:

A group of large financial institutions with big London operations, led by Wall Street’s pre-eminent banks, have told the US commerce secretary that Britain’s unstable government and slow progress in Brexit planning may force them to start moving thousands of jobs out of City in the near future. The warnings came on Friday during a closed-door meeting between executives from the banks, which included JPMorgan Chase, Goldman Sachs and HSBC, and Wilbur Ross during the US commerce secretary’s visit to London, according to people briefed on the discussions.

 

Those briefed on the talks, which were held over lunch at Wiltons restaurant in London’s exclusive St James’s district, said the banks were particularly concerned by the failure of Britain to provide clarity over whether it will secure a transition deal to smooth the changing regulatory regime after the UK leaves the EU. They warned they had even less clarity over what a final Brexit deal will look like. Absent clarity from the government about post-Brexit plans, the executives said jobs would move back to the US or to other European capitals as banks begin to enact their worst-case contingency plans, the sources said. ”There was broad discussion around the lack of progress in the Brexit talks and some discussion around various political scenarios,” one person briefed on the talks said.

Not surprisingly the banks declined to comment when contacted by the FT, which also discovered that Morgan Stanley failed to show up to the gathering. Shame on it. The FT’s anonymous sources emphasized that bank executives communicated a greater level of anxiety regarding Brexit negotiations than in the past. Decisions on job relocations are imminent, as FT explains:

US banks have been among the loudest critics of Britain’s decision to leave the EU since last year’s referendum, with Goldman boss Lloyd Blankfein recently tweeting he anticipated “spending a lot more time” in Frankfurt post-Brexit. But the recent warnings in private meetings with Mr Ross — as well as similar soundings taken by the City of London Corporation, the capital’s local government, on a fact-finding mission to Wall Street and Washington — included a level of urgency not seen in previous criticisms, those present said. The banks warned Mr Ross that a “point of no return” is fast approaching, when they must start moving jobs, capital and infrastructure in order to meet the March 2019 Brexit deadline if no transitional deal is secured.

In London’s City A.M. financial newspaper yesterday, the City of London’s policy head, Catherine McGuinness, highlighted rising nervousness in the US financial sector about Brexit.

City of London Corporation’s policy chief Catherine McGuinness was told the sector had moved beyond its initial “surprise” and “curiosity” at the events unfolding on this side of the Atlantic, with fear creeping in that no real movement had been made since last summer’s referendum. “The message was that this is taking too long and it may have implications beyond your borders,” McGuinness said. “[They] are becoming nervous,” she said. “It wasn’t just curiosity, it was concern at the lack of progress that we have been making, and nervousness that it had implications beyond Europe’s borders in terms of causing disruption to markets.”

 

While New York expects to benefit from some of the disruption, the overriding sense was that Brexit could cause global ripples if progress failed to materialise, she added. Fears that the UK would simply “crash out” were also growing. She was speaking after a three-day fact-finding mission, where she met US Treasury officials, as well as Commodity Futures Trading Commission (CFTC) chairman Chris Giancarlo, and representatives from the International Swaps and Derivatives Association (ISDA). McGuinness noted that the recent IRSG report, which set out a blueprint for how financial services might continue to do business after Brexit, had been welcomed in the States. But she acknowledged that progress on the matter back home was painfully slow, saying she had “very little sense” of when – or if – a financial services position paper could be expected from the government.

Back to the lunch between Ross and the bankers, the one positive note which emerged for the UK government is that the prospect of a Labour government headed by Jeremy Corbyn fills them with dread. That’s scant consolation, however, as the banks are believed to have drawn up contingency plans to shift 10,000 jobs out of London in the short-term. This number was confirmed by the Bank of England last week. However, the FT notes a much larger exodus is possible if the government fails to set up a transitional deal as part of Brexit.

Sam Woods, deputy governor (of the Bank of England), said that a longer-term 75,000 job-loss figure cited in a previous report by Oliver Wyman, the consultancy, was “plausible”. Mr Woods also said that a transitional deal was an asset whose value diminished through time, as banks scrambled to get in place for March 2019.

Still, we wonder how sympathetic to London’s Brexit challenges Ross was during the lunch. After all, this is the man who said last December that Brexit was a “God-given opportunity” for other countries to take business away from the UK. Finally, it also crossed our minds as to who picked up the bill? We doubt that it was Ross, or Deutsche Bank, if it was invited. Our guess is Goldman, but what was the catch?

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7
Nov
Off

Authored by Jamal Elshayyal via Al-Jazeera,

Was Saturday a “Red Wedding” moment for the Kingdom of Saudi Arabia? As the plot thickens in Riyadh, here’s a roundup of the chatter on the streets…

It started off with the resignation of Lebanese Prime Minister Saad Hariri, a clearly orchestrated move produced and executed by his paymasters in Riyadh.

Hariri announced on a Saudi-owned channel from the Saudi capital that he was resigning his post in protest at foreign intervention in Lebanon‘s domestic affairs. The irony was lost on him. 

The ostensible reason he gave, as he invoked his late father’s name, was that he too is threatened with assassination. 

As the day turned into evening, there were reports of explosions being heard close to the King Khalid International Airport in Riyadh. It transpired that Houthi rebels (linked to Iran and allied with former President Ali Abdullah Saleh, who is partially linked to the United Arab Emirates) had fired at least one ballistic missile from Yemen towards Riyadh. It put an exclamation point on the fact that the war in Yemen is far from over – more than two years since Saudi Arabia launched operation “Decisive Storm”.

As the clock inched to midnight another bombshell was dropped, this time by the Saudis: A royal decree ordering the arrest of several princes, billionaires, and notable figures, as well as the sacking of senior government officials. Some were the sons of the late King Abdullah. One was the head of the Saudi National Guard. 

All three of these developments will have seismic implications, not just in Saudi Arabia, but in the region and beyond.

The resignation of Hariri, or sacking by his Saudi sponsors, should sound the alarm bells for any government that doesn’t want to see another war erupt in the region.

A lot of chatter involved Israel.

It’s no secret that Israel has been conducting military exercises on its northern front for several months now. While Hezbollah has been busy helping prop up the Assad regime in Damascus, Tel Aviv has been developing its missile defence systems. Sooner or later, it will want to test those in real-life scenarios, as the logic would have it. 

Forcing Hariri to quit the government would help Israel frame any aggression against Lebanon as an attack on Iranian proxies.

With Gaza politically neutralised for now, following Hamas‘ handover of power to the Palestinian Authority, Israel could very well see this as an optimal time to attack. Such an attack would also provide a perfect opportunity for the West to test the new Saudi leadership’s “moderate” credentials: Would it cheer Israel on?

In Yemen, the war has cost the Saudi economy hundreds of millions of dollars. This war, launched by Crown Prince Mohammed Bin Salman to restore Sanaa’s legitimate government and put Iran in check, has failed to do either. But it has succeeded in killing thousands of innocent people, displacing millions, and helping Tehran position itself as the defender of the oppressed in the Middle East.

The targeting of Riyadh could push the young prince to be even more reckless and destructive in his ongoing expedition in Yemen. 

What’s not so clear is the motive behind the mass arrests and sackings that took place in the wee hours of Sunday morning.

Removing the head of the National Guard and a one-time contender to the throne is an obvious play to consolidate power by Bin Salman.

However, what’s more puzzling is the detention of billionaire prince Alwaleed Bin Talal. On paper, Bin Talal and Bin Salman are a match made in heaven: Both want to transform Saudi Arabia into a “secular” society, both detest the idea of democracy and liberalism, and both are equally willing to hand over the Kingdom’s wealth and sovereignty to the United States

Earlier I spoke to a contact who used to work for the billionaire prince. He told me that a possible reason for his detention was Alwaleed’s refusal to put up money to help prop up Saudi’s staggering economy. The message from Bin Salman to the country’s wealthy elite is: Pay up or get locked up.

In the Saudi version of Game of Thobes, the 32-year-old Bin Salman shows that he is willing to throw the entire region into jeopardy to wear the royal gown. His actions have already all but destroyed the Gulf Cooperation Council (GCC); Yemen can no longer be referred to as a functioning state; Egypt is a ticking time bomb; and now Lebanon may erupt. There’s a lot to worry about.

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6
Nov
Off

The first stage of Donald Trump’s five-nation tour of Asia began well with the President playing golf with Prime Minister, Shinzo Abe, describing their relationship as “really extraordinary”.

This suggested progress following the awkward moment during their previous meeting in February 2017. Abe was the first foreign leader Trump met after his election victory and Trump was mocked on social media after refusing to give Abe his hand back during their 19-second handshake. Today their budding relationship was tested as Trump lashed out at Japan’s unfair trade practices and his related attempts at humour. In rhetoric that sounded familiar to his campaign speeches Trump complained that Japan has been “winning” on trade, alluding to the $69 billion trade deficit in 2016.

“We want fair and open trade. But right now, our trade with Japan is not fair and it’s not open. The US has suffered massive trade deficits with Japan for many, many years.

One way that Trump is aiming to fix the trade deficit by making it easier for Japanese companies to do business in the US. However, his decision to highlight the auto industry was perhaps unfortunate. Nonetheless, Trump lamented.

“Many millions of cars are sold by Japan into the United States, whereas virtually no cars go from the US into Japan…Try building your cars in the United States instead of shipping them over. That’s not too much to ask. Is that rude to ask?

Last year Japanese automakers manufactured approximately 4.2 million cars and 4.5 million engines in the US, so the criticism was somewhat unjustified. Besides Japanese companies making more products in the US, Trump is keen to gain better access for US companies in Japanese markets. He stated.

“As president, I‘m committed to achieving fair, free, and reciprocal trading relationship. We seek equal and reliable access for American exports to Japan’s markets in order to eliminate our chronic trade imbalances and deficits with Japan.

On that note, Trump had some words of advice for the Japanese leader for reducing the deficit by buying US missiles to combat North Korea. As Reuters notes.

Trump also pressed Japan to lower its trade deficit with the United States and buy more U.S. military hardware.

 

“He (Abe) will shoot them out of the sky when he completes the purchase of lots of additional military equipment from the United States,“ Trump said, referring to the North Korean missiles.

 

”The prime minister is going to be purchasing massive amounts of military equipment, as he should. And we make the best military equipment by far.”

Abe’s calmly responded that Japan would shoot down missiles “if necessary”. Having described Japan as a “majestic country” and praising its ancient culture and customs as “terrific”, there was another awkward moment as Trump compared Japan’s economy to the US. According to the FT.

At a press conference with Japanese prime minister Shinzo Abe, Mr Trump joked that the US economy was more powerful than Japan’s, in an awkward moment during an otherwise positive visit where the two leaders focused on North Korea.

 

“The Japanese people are thriving. Your cities are vibrant and you’ve built one of the world’s most powerful economies,” Mr Trump said. “I don’t know if it’s as good as ours, I think not. OK? And we’re going to try and keep it that way, but you’ll be second.”

We have a strong sense that Trump’s efforts at persuasion will have little impact on the US trade deficit with Japan. Indeed, we suspect that Abe is following the traditional Japanese approach of listening carefully, responding politely and carrying on regardless. That has been the tactic so far with the Japanese also highlighting that the current deficit is a significantly lower proportion of the total US trade deficit than it was in the past. Furthermore, as the FT explains, Japan was irritated when the Trump Administration withdrew from the Trans-Pacific Partnership.

While Mr Trump and Mr Abe are aligned on how to tackle the threat from North Korea, the trade relationship remains a thorny issue. The US is trying to push Japan to enter into bilateral trade talks. Japan was disappointed when Mr Trump in January withdrew the US from the 12-nation Trans-Pacific Partnership trade deal that was the economic pillar of Barack Obama’s Asia “pivot”.

Efforts as recently as last month to improve US/Japan trade relations foundered, as Reuters explains. Note the use of the term “Indo-Pacific”.

In a second round of economic talks in Washington last month, U.S. Vice President Mike Pence and Japanese Finance Minister Taro Aso, who doubles as deputy premier, failed to bridge differences on trade issues. The two sides are at odds over how to frame future trade talks, with Tokyo pushing back against U.S. calls to discuss a bilateral free trade agreement. Trump also said earlier that an Indo-Pacific trade framework would produce more in trade that the Trans-Pacific Partnership pact pushed by his predecessor but which he announced Washington would abandon soon after he took office. The 11 remaining nations in the TPP, to which Japan’s Abe is firmly committed, are edging closer to sealing a comprehensive free trade pact without the United States.

During the press conference with Abe, Trump described his Asian trip as his “first visit to the Indo-Pacific” region. This seems to be part of the Trump Administration embryonic Asian strategy. The term was first used by Secretary of State, Rex Tillerson, last month in a speech that praised India while criticising China for undermining the international order. The former Asia adviser to George W Bush, Dennis Wilder, told the FT that the Trump Administration is seeking a response to China’s “Belt and Road”.

Dennis Wilder, former, said Mr Trump was trying to find a way to respond to Chinese efforts to build economic and security ties across Asia. “The concept of a free and open Indo-Pacific region is a maritime centric concept that goes back to the great naval thinker [Admiral] Mahan,” said Mr Wilder.

 

“In some ways, the Trump team is trying to answer Xi Jinping’s big idea of the Belt and Road Initiative with their own big idea. The challenge is to put some substance to this concept.”

Besides a lack of progress on trade with Japan, our sense is that aligning more closely with India is unlikely to counter China’s carefully constructed Eurasian strategy, to any meaningful extent. That is, absent a catastrophic bursting of China’s credit bubble which could set the Middle Kingdom back several years.

Meanwhile, there are plenty more stops on Trump’s Asian – especially China – for more gaffes, golf (?) and awkward moments as this FT diagram shows.

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6
Nov
Off

After the latest offshore tax investigative bombshell called the “Paradise Papers” – a sequel to last year’s Panama Papers – revealed yesterday that Trump’s Commerce Secretary Wilbur Ross had indirect business ties with two Russian oligarchs, as well a…

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6
Nov
Off

As the FX markets came to life last night after a tense weekend in the middle east, it is clear that anxiety about the Saudi Riyal is at the forefront.

Forward bets on devaluation/depegging surged most in 7 months as shares in bin-Talal’s Kingdom Holdings continued their slide to the lowest since Dec 2011.

The round-up risks overwhelming local and foreign investors struggling to get their heads around the rapid changes shaking the kingdom, but for the second day in a row, any selling was met by instant panic-buying as we suggest Saudi’s very own Plunge Protection Team stepped in…

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6
Nov
Off

As discussed last Friday, several notable surprises in the proposed GOP tax bill involved real estate, and would have an explicit – and adverse – impact on not only proprietors’ tax bills, but also on future real estate values if the republican tax bil…

The post Trump Is About To Crush Home Prices In Counties That Voted For Hillary: Here’s Why appeared first on Forex news forex trade.

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6
Nov
Off

With President Donald Trump arriving in Japan today to kick off a 10-day Asia tour, the Washington Post is reporting that the only way to locate and secure all of North Korea’s nuclear weapons sites “with complete certainty” would be …

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