Head of MI5: UK Facing Most Severe Terrorist Threat Ever

In the UK, it’s extremely rare that interviews with members of the British intelligence, let alone the head of MI5, are broadcast on primetime news programs, yet this is what happened, when Andrew Parker, MI5’s director general, warned that Britain was facing the most severe terrorist threat ever and further attacks are inevitable. Parker explained “That threat is multi-dimensional, evolving rapidly and operating at a scale and pace we’ve not seen before…It’s at the highest tempo I have seen in my 34-year career. Today there is more terrorist activity, coming at us more quickly, and it can be harder to detect.”

While Islamic State has been suffering heavy defeats in Iraq and Syria, MI5 estimates that 850 Britons who had travelled to its territory could return Britain. About 100 have died in fighting.

There’s no question that Parker and his spying agency are under severe pressure, having failed to prevent four Islamist terror attacks which led to 36 deaths – Westminster Bridge, Manchester, London Bridge and Parsons Green tube station. More so, when Parker’s staff is increasing 25% to 5,000. UK politicians are pushing for more oversight as The Guardian reports “This month the government will receive reports on whether chances to thwart the atrocities were missed and what lessons could be learned. Ministers and the National Security Council wanted independent oversight of the review, in essence not allowing MI5 or counter-terrorism police to assess themselves. Oversight is being provided by the barrister David Anderson QC, a former government appointment as independent reviewer of terrorism legislation.”

From a BBC report:

“Mr Parker was asked what was the point of MI5 surveillance when someone who had made ‘no secret of his affiliations with jihadist extremism’ had then been allowed to go on to launch a deadly attack. He said the risk from each individual was assessed on a ‘daily and weekly basis’ and then prioritised ‘accordingly’.


‘One of the main challenges we’ve got is that we only ever have fragments of information, and we have to try to assemble a picture of what might happen, based on those fragments.’


He said the likelihood was that when an attacked happened, it would be carried out by someone ‘that we know or have known’ – otherwise it would mean they had been looking in completely the wrong place”.

Defending his agency, Parker stated that 20 terror plots had been prevented during the last four years and seven in the last seven months. However, he lamented “The threat is more diverse than I’ve ever known. Plots developed here in the UK, but plots directed from overseas as well. Plots online. Complex scheming and also crude stabbings; lengthy planning but also spontaneous attacks. Extremists of all ages, gender and backgrounds, united only by the toxic ideology of violent victory that drives them.”

Journalists pressed Parker on the role of technology firms and social media platforms. He remained relatively diplomatic, but said they were inadvertently helping terrorists and emphasized their “ethical responsibility” to do more in helping the government in the “dark edges” of the internet.

As an aside, there was a different story about MI5 in the Daily Mail last weekend. Under the headline “Communists monitored by MI5 over fears they could destroy democracy are now senior advisors to (Labour leader) Corbyn, claims the spy agency’s former chief.” Dame Stella Rimington, who headed the agency from 1992-96 said “I see in Momentum (left-wing political organisation) some of the people who we were looking at in the Trotskyist organisations of the 1980s. They are now grown up and advising our would-be prime minister Mr Corbyn as to how to prepare himself for power.”

Great…although hardly a surprise.

Rimington and MI5 refused to name names. According to the Mail, “Labour MPs have suggested possible candidates included Mr Corby’s spin doctor, Seamus Milne, Momentum founder Jon Lansman and the Unite’s chief of staff, Andrew Murray, who worked for Labour’s election campaign.” Closer to finance, we shouldn’t forget that UK’s Shadow Chancellor, John McDonnell, said he was a Marxist four years ago “Look I’m straight, I’m honest with people, I’m a Marxist” and pledged to “overthrow capitalism.”

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Mnuchin: “Extraordinary” If Tax Reform Gets Done This Year; “No Question” Market Drops If Bill Fails

Barely a day after Gary Cohn told an audience at the annual meeting of the American Bankers Association that Congress has a “unique opportunity” to pass tax reform by the end of the year, Treasury Secretary Steven Mnuchin – who shares responsibility for the administration’s tax agenda alongside Cohn – acknowledged the truth about Trump’s No. 1 legislative priority: namely, that it would be “extraordinary” if the Republicans could pass tax reform by year’s end.

At a Tuesday press conference, Mnuchin borrowed a line from his boss and reminded his audience that it took a couple of years for Ronald Reagan to pass tax reform, in the process risking the end of the bull run that yesterday carried the Dow above 23,000, a rally that has largely been predicated on investors’ hopes for tax reform, according to the Hill.

“It took Ronald Reagan over two years on a bipartisan basis to get tax reform done,” Mnuchin said during an interview on Fox News’ Special Report with Bret Baier. “If we get it done this year, it will be extraordinary.”


“Our objective is to get it on the President’s desk by December to get him to sign it this year,” Mnuchin added, but cautioned that there’s “no artificial deadline.”


“We are going to work on it as fast as we can,” the Treasury secretary added.

Mnuchin called the GOP plan to reform the tax code critical to creating a “competitive” environment for American businesses.

On Monday, Trump made similar remarks at a press conference with Mitch McConnell that was, somewhat ironically, intended to address concerns that the fractured Republican leadership might bungle tax reform like they bungled Obamacare repeal. At the conference, Trump surprised reporters by admitting that Congress still has a “long way” to go on tax reform.

“I would like to see it be done this year,” Trump said. “But don’t forget it took years for the Reagan administration to get taxes done — I’ve been here for nine months.”


“We could have a long way to go but that’s okay,” he added.

To be sure, the urgency of tax reform hasn’t been lost on the Republican leadership. House Speaker Paul Ryan has threatened to keep Republican representatives – who are on vacation this week but have just 28 voting sessions left in the year – in Washington over the December holiday break if they don’t manage to write and pass a bill before then. Of course, it’s far more likely that reform will hit a wall in the Senate, where the Republicans’ razor-thin majority has allowed a handful of senators to effectively obstruct the Trump agenda.

Oddly, in a Politico interview published this morning, Mnuchin – already a master of mixed messaging – warned that passing tax reform by year end is “essential” and that, if it doesn’t happen, markets could tank.

“There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done,” Mnuchin said in the interview. “To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.”

Mnuchin had promised earlier this year that tax reform would be done by August. Then it was year-end. Now, it appears the only concrete “deadline” for reform is some time just before the 2018 mid-term election. And once again, market implied odds have proven correct, while many market strategists – like the team at Goldman with its 65% odds of a deal by Q1 – have been far too optimistic.

In a breakthrough for the Trump administration, Sen. John McCain said last night he’d vote yes on a budget bill that the Senate is rushing to pass by the end of the week. That bill would unlock the reconciliation process, allowing Republicans to pass tax reform with a simple majority and circumvent a Democratic filibuster.

Still, it’s unclear if Republicans have the votes to pass that legislation, which is expected to be brought to a vote Thursday morning.  

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Dow Futures Over 23,000: Dollar, Global Stocks Jump As China Congress Begins

World stocks stayed near peaks and currencies moved in tight ranges on Wednesday as China’s 19th Communist Party Congress opened while focus in Europe turned to speeches from top euro zone central bankers before next week’s key policy meeting, as well as Catalonia’s ultimatum due on Thursday. S&P futures are solidly in the green as usual, with Dow futures jumping above 23,000, driven higher by IBM as investors looked for new reasons to extend gains after hitting new all-time highs Tuesday. The dollar continues to strengthen, buoyed by speculation that the next Federal Reserve chair will be more hawkish, as volatility in major currencies fell to a three-month low, while Treasury yields rose. 

Among the factors contributing to today’s burst of risk on buying is the continued bid in USD, which has forced markets into hybrid risk-on mode according to Bloomberg. EUR/USD and GBP/USD push through yesterday’s session lows, which consequently supports domestic equity markets via exporters and multinationals. Rally in USD/JPY pressures USTs, dragging down core fixed-income markets; UST/bund spread wider by 1.6bps. U.S. equity futures also supported, Dow futures test 23,000; crude futures hold small gains after bullish API data.

European stocks are on fire, with the Stoxx 600 heading for its biggest rise in 2 weeks as the euro weakened for a fifth day on speculation the ECB will remain accommodative even as it tapers asset purchases, while volatility slid; the Stoxx 600 gained 0.4% while euro falls back to $1.1750 and VStoxx hits intraday record low. Technology, food and beverage best performers among industry groups, all 19 sectors in green; DAX hit another record high. The European vol index, the VStoxx dropped as much as 8% to 10.7, the lowest level on record. bond yields fell ahead of a series of speeches from top European Central Bank officials before next key policy meeting on Oct. 26.

Looking at European stocks, BNP Paribas Wealth Management CIO Florent Brones said that “there are many positive elements supporting the euro-area stock market at this point, and while the market has been rallying, we’re not yet seeing double-digit gains.”

European Central Bank chief Mario Draghi, Chief Economist Peter Praet and Executive Board Member Benoit Coeure are among those officials scheduled to speak. First remarks from Draghi at a conference in Frankfurt had limited initial market impact. “Today, bond market investors will probably concentrate exclusively on the various ECB speakers, who could influence market expectations for the last time ahead of next week’s meeting,” said ‎BayernLB rate strategist Alexander Aldinger.

The MSCI’s Asia-Pacific index ex Japan was flat, near its late 2007 peak after China President Xi Jinping kicked off the twice-a-decade party congress with a wide-ranging speech, in which he warned of “severe” challenges while laying out a road map to turn the country into a leading global power by 2050. Investors are watching to see whether Xi will push through tough reforms as the world’s second-largest economy faces structural challenges over the next five years. Jinping said the market would be allowed to play a decisive role in allocating resources but also said the role of the state in the economy had to be strengthened.

“His speech offered nothing to move the markets in Asia,” ‎Bayern LB’s Aldinger also said. Investors are looking for clear direction on economic and financial market reform over the next five years, but as has been the case in history, the actual speech was light on detail.

China’s CSI300 index added 0.8 percent in reaction, while Shanghai stocks rose 0.3 percent. “Market participants are paying much more attention to the party congress this time, as they are watching if any surprise reforms will emerge amid concerns over economic growth,” said Yan Kaiwen, analyst with China Fortune Securities.

Still in Asia, Japan’s Nikkei rose for a 12th consecutive day, getting a lift from hopes that this weekend’s election will produce political stability and continuation of loose monetary policy even as technical indicators suggest the gauge is overheating. An opinion poll by Kyodo showed Japanese Prime Minister Shinzo Abe’s coalition was on track for a roughly two-thirds majority in Sunday’s general election there. The 14-day relative strength index stood above 70 – a level frequently seen as overbought – for an eighth day, while the Toraku Index, a barometer of momentum, climbed to 128, far higher than the 120 level that signals the Topix is poised to fall.

“The Japanese stock market may be on alert for high prices and stay in a narrow range,” said Mitsushige Akino, an executive officer with Ichiyoshi Asset Management Co. in Tokyo. “Yet business sentiment is on a firm footing not only in the U.S. but also globally.” Pharmaceutical stocks and automakers were among the biggest boosts to the benchmark gauge, while banks and services companies weighed the most. About two stocks fell for every one that rose. The Nikkei 225 Stock Average extended its winning streak, the longest since June 2015, boosted by Fast Retailing Co. and Astellas Pharma Inc. The Topix has gained 2.5 percent in an 8-day rally, boosting its advance this year to almost 14 percent. It trades at 15.3 times estimated profits for the next year, well below the high of 20.5 reached in March 2013 and compared with the S&P 500 Index’s 19.4 times. “Valuations are low, both compared to other global markets and particularly so when taking account of the 0% yield on 10yr government bonds,” said Nicholas Smith, a strategist at CLSA Ltd. in Tokyo. “Sure, over the short-term it might have a pullback, but I think the fundamentals are excellent and the market is pricing in the decreased uncertainties that go with Abe stronger for longer.”

In currencies, the dollar edged up amid speculation President Trump could chose a more hawkish leader to replace Federal Reserve Chair Janet Yellen, while investors awaited for any news on progress on U.S. tax reforms.The dollar index rose 0.07 percent to 93.54, extending a rebound from Friday’s 2 1/2-week low of 92.749. It rose as high as 93.729 on Tuesday. The onshore yuan predictably strengthened against the dollar as the 19th Party Congress began in Beijing while the U.S. Treasury’s twice-yearly report softens China FX criticism. The PBOC injected a net 270 billion yuan of liquidity helping the Shanghai Composite 0.3% higher. Australian 10-year yield drops to a one-month low of 2.72% as the curve extends bull-flattening; Treasuries steady. Canadian dollar outperforms G-10 peers after Nafta negotiators agree to extend talks into next year; kiwi slips following weaker Fonterra milk price auction. WTI crude holds above $52; Dalian iron ore futures gain 2.2 percent

In Europe, the euro was holding at $1.17, still some way above the recent low and major chart support at $1.1667, as dealers awaited speeches by several policymakers from the European Central Bank due later on Wednesday, which includes President Mario Draghi. Some risks linger: Catalonia has until Thursday to back down from its secession push. Investors were reminded of the economic cost of the crisis when Spain, the euro-region’s fourth-biggest economy, cut its growth forecasts for next year. The Catalan standoff is one of several political risks facing investors in Europe, including high-stakes coalition talks that began Wednesday in Germany between Angela Merkel’s Christian Democrats and potential partners to lead Europe’s biggest economy.

Overnight, the biggest mover was the Mexican peso which boasted its biggest rise in over four months after trade ministers from the United States, Canada and Mexico extended the deadline on a contentious round of talks.

In commodity markets, talk the next U.S. Federal Reserve chief may be a policy hawk kept gold pinned down $1,283.01 an ounce. Oil prices were lifted by a fall in U.S. crude inventories and concerns that tensions in the Middle East could disrupt supplies. Brent crude futures were at $58.31, up 0.4 percent from their last close – and almost a third above mid-year levels.

Rates markets remain paralyzed with barely any moves across the bond complex: the yield on 10-year TSYs rose 3 bps to 2.33% , the highest in a week; Germany’s 10-year yield gained two basis points to 0.39 percent, while Britain’s 10-year yield advanced two basis points to 1.276 percent.

The Fed’s Beige Book and earnings from American Express, EBay and Alcoa will be in focus today.

Bulletin headline summary from RanSquawk

  • European equities higher, with IT outperforming
  • CAD and MXN notably firmer after NAFTA ministers agreed to extend negotiations into 2018.
  • Looking ahead, highlights include US Housing Starts and comments from Praet and Coeure.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,559.50
  • VIX Index trading 0.3% lower at 10.28
  • STOXX Europe 600 up 0.4% to 391.35
  • MSCI Asia down 0.01% to 167.44
  • MSCI Asia ex Japan up 0.01% to 552.36
  • Nikkei up 0.1% to 21,363.05
  • Topix up 0.07% to 1,724.64
  • Hang Seng Index up 0.05% to 28,711.76
  • Shanghai Composite up 0.3% to 3,381.79
  • Sensex up 0.1% to 32,656.28
  • Australia S&P/ASX 200 up 0.01% to 5,890.48
  • Kospi down 0.06% to 2,482.91
  • WTI Crude up 0.3% to $52.05
  • Brent futures up 0.68 to $58.35/bbl
  • Gold spot down 0.2% to $1,282.88
  • U.S. Dollar Index up 0.1% to 93.60
  • German 10Y yield rose 0.6 bps to 0.371%
  • Euro down 0.06% to $1.1759
  • Italian 10Y yield fell 3.4 bps to 1.732%
  • Spanish 10Y yield rose 2.8 bps to 1.575%

Top Overnight News

  • Xi Jinping warned of “severe” challenges while laying out a road map to turn China into a leading global power by 2050. The nation will continue opening its doors to foreign businesses and strengthen financial sector regulation
  • The U.S. softened FX criticism for China, lauded it for acting to avoid a “disorderly” depreciation and then allowing the yuan to rise against the dollar this year. The Treasury Department said no major trading partner is manipulating its currency to gain an advantage in trade
  • Senators from both political parties said a bipartisan deal was reached to stabilize Obamacare, just two weeks before Americans start signing up for 2018 coverage
  • Nikki Haley, the U.S. ambassador to the United Nations, will use a Wednesday Security Council meeting to seek world attention on Iran’s actions in the Middle East in an early test of whether President Donald Trump’s toughening position on the Islamic Republic is alienating allies and leaving the U.S. isolated internationally
  • The SEC is preparing to provide formal assurances to Wall Street by telling financial firms they won’t have to overhaul their operations to comply with sweeping new European rules on investment research, three people familiar with the matter said
  • With monetary policy being accommodative, there is a window of opportunity for economic reforms, European Central Bank President Mario Draghi said as he spoke on Wednesday
  • Dollar continued to strengthen helped by speculation that the next Federal Reserve chair will be more hawkish; Trump’s choice will be unveiled before he leaves Nov. 3 for an 11-day trip to Asia and Hawaii, a person familiar with the process said Tuesday
  • Spanish Deputy PM: Spanish government will take control of Catalonia unless the regional leader withdraws his claim to independence by 10 a.m. on Thursday
  • Housing starts and building permits for Sept. will be announced and the U.S. Federal Reserve releases its Beige Book

Asia equity markets traded marginally positive following a similar picture in the US where all indices extended on record levels, in which the DJIA briefly surmounted the 23,000 milestone for the 1st time ever. The mild momentum from the historical feat in US carried over to Asia which saw ASX 200 (+0.1%) briefly above 5,900 and at its highest in almost 6 months, while Nikkei 225 (+0.1%) also eked minor gains. Hang Seng (Unch) and  Shanghai Comp. (+0.3%) were kept afloat after a continued substantial liquidity operation by the PBoC, although upside was capped as focus remained on the 19th CPC National Congress which opened today. Finally, 10yr JGBs were flat amid a lack of drivers and with demand restricted by a mildly positive tone in Japan and a tepid BoJ Rinban announcement for JPY 400bln of JGBs. Chinese President Xi delivered address at the opening of the 19th CPC National Congress in which he said China will continue to reduce overcapacity and that China will deepen interest rate and FX reform. President Xi also commented that China will lower barriers of entry for foreign businesses and that GDP is to increase to CNY 80tln from CNY 54tln over the next half-decade.

Top Asian News

  • Topix Holds Near 10-Year High as Indicators Signal Overheating
  • Japan Equity Movers: Ichiyoshi Securities, Matsuya, Toho Zinc
  • Espenilla Vows Philippines Won’t Overheat, Peso Is Under Control
  • Xi Imagines China in 2050: Highlights From His Three-Hour Speech
  • Europe Aviation Agency Warns on Kobe Steel as Scandal Deepens
  • China Sells Bonds at Cost Lower Than Forecast as PBOC Adds Cash

European bourses were relatively directionless early in the session, although they have since picked up some upward momentum, with the Stoxx 600 up 0.4%. Focus this morning has been on the latest batch of earnings releases, particularly from the some of the Dutch large caps, with Akzo Nobel announcing a second profit warning this year, while ASML Holding also announced a weak earnings update. EGBs softer across the board, the belly of the German curve noticeably underperforming with the yield up 2bps. Focus will be on the German auction in the long-end.

Top European News

  • U.K. Jobless Rate Stays at 42-Year Low Amid Strong Labor Demand
  • ECB Bond Program Survives Another Challenge at German Court
  • ECB’s Draghi Sees ‘Window of Opportunity’ for Economic Reforms
  • ECB Set-Up in Euro Bonds Underway as Market Sees QE for Longer
  • Bond Calls Clash at JPMorgan, Morgan Stanley Before ECB Tapering
  • Saenz Says Spain Will Apply Art. 155 if Catalans Don’t Comply

In FX, the dollar index caught a bid overnight and throughout the morning session, trading back above 93.50. This comes off the back of yesterday’s reports that the US President could be swaying towards, noticeable hawk, John Taylor as Janet Yellen’s successor, with the announcement expected before Trump’s department for Asia on November 3rd. NAFTA reports were a theme of yesterday’s US session, as early source reports indicated that Canada and Mexico were said to reject US NAFTA proposals. However, as the story developed, later comments took focus, stating that ministers had agreed to extend negotiations into 2018. Following the initial reports, USD/CAD hit 1.2590, however, over the following hours, the move was reversed, as the pair broke through 1.25, hitting lows through 1.2490. USD/MXN saw similar price action, after firstly moving to highs of 19.1500, the pair came back to trade at lows of 18.7300. Sterling trades subdued, following the bearish BoE commentary seen yesterday. GBP/USD took a slight move higher following the release of the UK jobs reports, however this was quickly pared given that wages had slowed from the prior month. GBP/USD has consolidated through 1.32, with EUR/GBP running into a slowdown at 0.8930, now behaving as the weekly high.

In commodities, West Texas Intermediate crude increased 0.3 percent to $52.04 a barrel, the highest in three weeks.  Gold dipped 0.4 percent to $1,280.13 an ounce.

Looking at the day ahead, data will likely play second fiddle with the most notable releases being August/September employment data in the UK and September housing starts and building permits data in the US. The Fed’s Beige Book is also due out in the evening. Corporate earnings results on Wednesday include eBay and American Express

US Event Calendar:

  • 7am: MBA Mortgage Applications, prior -2.1%
  • 8am: Fed’s Dudley and Kaplan Discuss Economic Development
  • 8:30am: Housing Starts, est. 1.18m, prior 1.18m;  Building Permits, est. 1.25m, prior 1.3m
  • 2pm: U.S. Federal Reserve Releases Beige Book

DB’s Jim Reid concludes the overnight wrap

China’s 19th Party Congress is front and centre today with headlines developing as we type. In his opening speech, President Xi Jinping started with the opening remark that “the prospects are bright while the challenges are also grave”, before reminding his audience of his achievements over the past five years, which included: poverty reduction, strengthening the one party rule, national security, cutting down pollution and the Belt and Road infrastructure initiatives. Further, his anti-graft drive has achieved an “important and irreversible’ momentum and he insisted that China has ‘zero tolerance” on corruption. On the long term, he wants to set the agenda for the country to be “a modern, socialist power” by 2050. On the economy, he says the liberalisation of both interest rate exchanges will continue as “the door China opened will not close but will open wider and wider”. Elsewhere, he wants China to make the “quality and efficiency” of growth a priority and deepen supply side reforms as well as insisting on the need to reduce excessive capacity and debt ratios. On housing, he said “houses are for people to live in, not for speculation” and he promised to provide more homes through a variety of different channels. Before his formal address, Deputy central bank chief Pan also noted that he expects that the Yuan will have a more secure foundation after the congress allowing the central bank to push exchange rate market reforms.

This morning in Asia, markets are trading marginally higher. The Nikkei (+0.12%), Hang Seng (+0.01%) and Chinese bourses (+0.2% to 0.5%) are up slightly, while the Kospi is down -0.12% as we type. For those who have missed it, our China Chief Economist Zhiwei Zhang published a prior note previewing the 19th National Congress meeting. Zhiwei notes that this week-long event actually kicks off a six-month process that continues with the Central Economic Working Conference (CEWC) in December and the National People’s Congress (NPC) in March next year. He notes that the current event is more about politics than setting economic policies, as the representatives will elect a group of leaders. Based on the age rule, five of seven incumbent members of the Politburo should retire as they are older than 67. Other important things to look out for include the CEWC setting GDP growth targets, while finally, the NPC will see a reshuffle of cabinet ministers and government posts.

Over to the US, and the search for the next Fed Chair is apparently very close, with an announcement potentially as soon as 3 November according to sources familiar with the selection process (per Bloomberg). Earlier, Trump told reporters that “within those five (candidates) you’ll get the answer” and that “honestly I like them all”. The five candidates he is referring to are Mrs Yellen, Kevin Warsh, John Taylor, Jerome Powell and Gary Cohn. Elsewhere, Trump continued to rally support for his tax reforms, this time speaking at the Heritage Foundation and reiterating the need for lower corporate tax rates and that “let’s give our country the best Christmas present of all – massive tax relief”.

Turning to the UK, Gilts outperformed yesterday with 10y yields down 6.1bp (Bunds -0.8bp, OATs -1bp; UST -0.3bp) but GBPUSD fell 0.46% following the combination of Brexit headlines and a slightly less hawkish tone from  central bankers. Firstly, in BOE Governor Carney’s testimony to UK lawmakers, he has reiterated that the “majority of the committee (believe) some raise in rates over the coming months may be appropriate”, in part as the UK economy is running out of spare capacity. However, other new MPC members seem a bit less hawkish, with Deputy Governor Ramsden saying “I still think there is some slack in the economy” and noted he was not part of the majority of MPC members pushing for a rate increase. Elsewhere, Tenreyro noted that “we’re approaching a tipping point at which it would be necessary to remove some of that stimulus” but her decision on rates in the coming months will depend on how the economy evolves. Finally, Carney noted the “very limited amount of time” between now and March 2019 and that the Bank was preparing for the possibility of a “hard Brexit” without a transition period, although he conceded that an “agreement is in everyone’s interests”. The next BOE meeting is on 2 November and the odds of a rate hike fell 1.5ppt to 80.6% (per Bloomberg).

Over to Brexit talks, where the stalemate has continued with rhetoric suggesting a reduced chance of a breakthrough at the EU Summit later this week. The EU negotiator Barnier noted Monday’s dinner with UK PM May has  yielded little and that “we are ready to accelerate the rhythm, but to accelerate you need two”. On the other side, UK negotiator Davis has signalled his side is unlikely to make more offers until after the EU Summit, noting “let’s wait and see what they are before we make the next move” and that “we’re reaching the limits of what we can achieve without considerations of the future relationship”. That said, there is still hope, with the Council of the EU reportedly working on preparatory work on the future relationship with UK and aim to have a roadmap ready by December, although this is contingent on the EU deciding that UK has made sufficient progress on the divorce bill issue. Elsewhere, perhaps the Irish PM summed it up well, saying “it’s quite a difficult negotiation when people who want to leave EU in the UK don’t really seem to agree among themselves with what that actually means”. So for now, we continue to wait and see which side blinks first.

Onto yesterday’s market performance, the Dow edged (+0.18% to 22,997) higher and touched an intraday high of 23,002, which was the sixth time the index passed a 1,000 increment in the last 12 months. Elsewhere, Nasdaq was broadly flat while S&P 500 rose +0.07%. Within the S&P, the healthcare sector rebounded (+1.31%) following a bipartisan deal to allow insurance subsidies for Obamacare to resume, while modest losses were led by the consumer staples and financials sector (-0.55%). Both Goldmans and Morgan Stanley’s results beat consensus with weaker trading income mainly offset by stronger revenue from investing and lending units (GS) and wealth management (MS) respectively. However, the share price performance diverged slightly with MS +0.37% and GS -2.61% on the day. Notably, the VIX rose above 10 yesterday (+0.4pts to 10.31).

European bourses were broadly softer, with the Stoxx 600 (-0.25%), DAX (-0.07%) and FTSE (-0.14%) down slightly, while Spain’s IBEX was the one of the few higher (+0.35%). Turning to currencies, the US dollar index  strengthened 0.20% while the Euro and Sterling fell 0.25% and 0.46% respectively. In commodities, WTI oil was broadly flat (+0.02%) yesterday but is trading slightly higher this morning, as tensions between Iraqi and Kurdish forces have reduced. Precious metals softened for the second consecutive day (Gold -0.82%; Silver -1.11%), while Copper retreated (-1.14%) from its 3 year high and other base metals (Zinc -3.07%; Aluminium -0.82%) also fell.

Turning to other central bankers commentaries. In the US, the Fed’s Harker told the WSJ that he thinks one more rate hike is appropriate this year, but warned “we just have to be prudent and take our time” with his view dependent on the inflation readings. The Fed’s Kaplan reiterated his views, noting that softer inflation readings recently “may well be transitory” and that “it’s likely we’ll see greater evidence of this progress (rising inflation), so “as a consequence, it will be appropriate to continue the process of gradually removing monetary accommodation”. Elsewhere, he pointed out that the change in fiscal policy and structure reforms “could provide upside” for US economic growth.

In Europe, ECB VP Constancio noted that the euro area is “more resilient” than last year”, but that “in the present configuration of risks….(we) will have to take macro prudential policy much more seriously or they will face the risk of other financial crises that monetary policy cannot prevent.” Elsewhere, he noted that monetary policy, even when recalibrated, “will continue to keep a very accommodative stance”.

Finally, back onto a topic that has gone quiet for a while. As per the Politico, special counsel Mueller’s team has interviewed President Trump’s former press secretary (who left in August) Sean Spicer back on Monday. He has been previously tasked with investigating potential Russian interference in the 2016 US Presidential election. For now, we await what eventually comes out from these investigations.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the September IP was in line with market expectations at 0.3% mom (up for the first time since June), but the prior month reading was revised upwards by c0.2ppt. Elsewhere, the capacity utilization was slightly softer at 76% (vs. 76.2% expected). The September import price index came in higher at 0.7% mom (vs. 0.6% expected) but was partly offset with the export price index at 0.8% mom (vs. 0.5% expected). Finally, the NAHB housing market index was stronger than expectations at 68 (vs. 64).

In the UK, the macro data was broadly in line with consensus. The September CPI was in line at 0.3% mom and 2.7% yoy (for core CPI) – steady on August and the joint highest since December 2011. The PPI was also in line at 0.2% mom and 3.3% yoy. Elsewhere, the RPI was slightly lower than expected at 0.1% mom (vs. 0.3%) and 3.9% yoy (vs. 4.0% expected), along with the house price index at 5% yoy growth (vs. 5.4% expected). Across Europe, the final reading of the Eurozone September CPI was unchanged at 0.4% mom and 1.5% yoy. Germany’s ZEW survey of the current situation was slightly lower than expected at 87 (vs. 88.5) along with expectations at 17.6 (vs. 20 expected). Finally, the October Eurozone ZEW survey on expectations continued to weaken from the recent peak back in June (37.7) to a still reasonable level of 26.7.

Looking at the day ahead, the ECB’s Draghi, Coeure and Praet are all taking part at a Conference in Frankfurt. The Fed’s Dudley and Kaplan are also due to speak in the afternoon. Data will likely play second fiddle with the most notable releases being August/September employment data in the UK and September housing starts and building permits data in the US. The Fed’s Beige Book is also due out in the evening. Corporate earnings results on  Wednesday include eBay and American Express.

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The Countries Most (& Least) Satisfied With ‘Democracy’

Across the globe, the spread of right- and left-wing populism and authoritarian politics have shaken the very foundations of democracy.

As Statista’s Niall McCarthy notes, a new survey from Pew Research has found that people across the globe are generally unhappy with the functionality of their political systems, though levels of satisfaction with democracy vary hugely between countries.

As can be seen from the following infographic which shows a selection of countries from the survey, people in India have tremendous faith in democracy. 79 percent of those polled said they are satisfied with the way democracy is working in India compared to 11 percent who are dissatisfied. Germany also recorded a high level (73 percent) of satisfaction with democracy.

Infographic: The Countries Most & Least Satisfied With Democracy  | Statista

You will find more statistics at Statista

In many other developed countries, however, faith is waning.

In the United Kingdom and Japan, 47 percent of people are not satisfied with how democracy is working in their countries while in the U.S., that rises to 51 percent. France, South Korea and Brazil all recorded dissatisfaction levels of 65 percent or higher… but Greece tops the charts with only 21% of its citizenry ‘satisfied’ with the weay democracy is working.

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“One Of The Biggest Fears I Have Is I Miss It”: There Is A Sudden Rush To Open Long-Vol Funds

Last month, Soc Gen analyst, Praveen Singh, analyzed evolving cross-asset volatility trends, and boldly went where so many have unsuccessfully gone before. Singh’s warning was that the market is now entering dangerous volatility regimes.

The crux of Soc Gen’s argument was mean reversion, notably that the current low level of volatility happens less than 2% of the time for equities. Furthermore, Soc Gen found that when equity volatility has been this low in the past, it went on to rise by 3 points in the subsequent 12 months. This means that volatility is more likely to go up than fall further from current levels… at least in theory.

Portfolio managers, however, are increasingly thinking along the same lines. While it’s rumoured that Brevan Howard will shortly launch a long volatility fund, according to a Bloomberg it appears that there is a surge of interest in launching long volatility funds.

According to Bloomberg Brevan Howard Asset Management, 36 South Capital Advisors, One River Asset Management and at least three other firms are rolling out new funds designed to protect investors from rising market turbulence.” Former SAC Capital’s, Hamming Rao, opened a volatility fund with a long bias this June, based in Florida.

While buying volatility has been a widowmaker trade in recent years, the fund managers Bloomberg spoken to by Bloomberg couldn’t be more optimistic: Jerry Haworth, the co-founder of 36 South who “tripled investor’s money” during the GFC, launched the Lesidi Fund earlier this month. Haworth commented “This is a multi-decade opportunity to buy volatility’…To increase the appeal of his long-volatility strategy, Haworth focuses on reducing the ‘negative carry,’ or steady bleed of cash, that accompanies calm markets. That’s gotten easier these days as prices for options and other volatility-linked derivatives have fallen.”

In a similar vein, Michael Preiss, a portfolio strategist at $1.9bn Singapore-based Taurus Wealth Advisers argued “The most mispriced asset class in the world is volatility…a bunch of our clients are in discussions with us at the moment about whether to add volatility strategies.”

“The opportunity is right now. One of the biggest fears I have is I miss it.” according to Arun Singhal of Astrid Hill. Singhal expects to launch a  volatility fund before year-end with an initial target size between $50 million and $100 million.

The conundrum for investors was perfectly explained a few days ago by the new Nobel laureate in economics, Richard Thaler “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping.” Of course, we can point to all manner of risks which could have major knock-on effects in financial markets, North Korea, Brexit, Peshmerga, several major European banks, China’s credit bubble, etc.

However, since central bank policies are the major reason for our low volatility world, the fact that monetary accommodation is now being (slowly) withdrawn – with ECB expected to join shortly – means that there is finally some prospect for a “regime change” in financial markets. After all, the bubble merchants have generally been raising rates at the onset of recessions in the past.

Of course, it would require a change in regime that overwhelms the central banks’ ability to unload a few thousand VIX contracts at “just the right time” and a vast number of HFTs and algos which are doing very nicely in the current BTFD environment.

Meanwhile, talking of mean reversions, there is another factor which makes the current timing slightly more attractive than it has been (ever actually).

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Amazon Strikes Deal With Landlords To Install Package Lockers In Apartment Buildings

Since the dawn of the e-commerce era, the largest US landlords have loudly complained about the crush of packages flooding mailrooms at apartment properties across the country.
One apartment owner went so far as to stop accepting packages altogether, …

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How The Elite Dominate The World – Part 2: 99.9% Of The World Live In A Country With A Central Bank

Authored by Michael Snyder via The Economic Collapse blog,
Even though the nations of the world are very deeply divided on almost everything else, somehow virtually all of them have been convinced that central banking is the way to go. 

Today, le…

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Airbus Takes On Boeing By Striking Deal For Bombardier Ownership Stake

Boeing’s battle to crush Bombardier has encountered an unexpected obstacle.

Bloomberg reports that Airbus SE has agreed to acquire a majority stake in Bombardier Inc.’s C Series program, which the Commerce Department slapped with a 300% tariff it ruled in Boeing’s favor in a complaint alleging Bombardier had benefited from anti-competitive government subsidies.

Under the terms of the deal, Airbus won’t pay a dime up front for the C-Series, but will begin assembling the technologically advanced by poor-selling jetliner in the US in what Bloomberg said could be an effort to circumvent the tariffs.  Airbus is adding another final assembly line for the C-Series at its factory in Mobile, Alabama, which will serve US customers and complement production in Canada, according to a company statement late Monday. However, Bloomberg says it’s unclear if the deal will allow the C-Series to avoid the tariffs.

It’s too soon to say if the new Alabama production line would enable the C Series to avoid U.S. tariffs. The duties were applied to C Series planes “regardless of whether they enter the United States fully or partially assembled,” according to a U.S. government fact sheet on the matter. Boeing said Airbus and Bombardier were just trying to get around the restrictions.

As part of the deal, Airbus will assume just over half of the interest in a partnership controlling the C-Series. Bloomberg says the European planemaker’s marketing muscle and production expertise boosts the viability of the all-new aircraft after more than $6 billion in development costs forced Bombardier to rely on government assistance.

The deal also thrusts Airbus into the middle of a trade spat between the two North American aerospace firms. In response to the Commerce Department’s ruling, Canadian Prime Minister Justin Trudeau canceled military equipment orders with Boeing, adding that they wouldn’t be reinstated until Boeing drops its complaint against Bombardier.

Boeing filed its complaint in April after Delta Air Lines agreed to buy 75 of the C-Series in a deal worth some $5 billion. Boeing alleged that the planes had been sold for “absurdly low prices.”

The dispute had crossed the Atlantic even before Airbus’s involvement. UK Prime Minister Theresa May said she personally lobbied President Trump to cancel the tariffs. Bombardier has a large factory in Belfast, a constituency that’s important to the conservatives, which employs 4,000 locals.

The Airbus deal is an embarrassing setback for Boeing, one analyst said.

“This is a program that has been waiting for a deus ex machina, and wow, it really got one,” Richard Aboulafia, an aerospace analyst at Teal Group, said in an interview. The deal casts Airbus as a global player while Boeing comes off as “a bit shortsighted and protectionist. It makes Boeing look like they’ve been playing tic tac toe against a chess master.”

Bombardier shares traded in Toronto climbed 15.7% on Tuesday after the deal was announced.

Trump and Canadian Prime Minister Justin Trudeau discussed the deal Monday evening in a phone call, according to a statement from Trudeau’s office that provided no details of the conversation.

Canadian Innovation Minister Navdeep Bains said the deal will face a review under the Investment Canada Act. But one unnamed government source told Bloomberg that it’s likely to be approved.

Assuming it is approved, the transaction would be expected to close in the second half of next year, at which point Airbus will own 50.01% of the C Series partnership. Bombardier will hold about 31% and the province of Quebec, which controversially invested $1 billion in the C Series after the cost overruns and delays, will own approximately 19%. Quebec will remain an investor in the C Series until at least 2023, said the province’s economy minister, Dominique Anglade.

Bombardier has rejected Boeing’s complaint, saying Boeing doesn’t have grounds to accuse Bombardier of unfair trade practices because Boeing doesn’t make a mid-sized jet comparable to the C-Series.

Unsurprisingly, Boeing criticized the deal, hinting that it could try to expand its complaint to include Airbus if the company tries to avoid the C-Series sanctions.

“This looks like a questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government,” Boeing, the world’s largest aerospace company, said in an emailed statement. “Our position remains that everyone should play by the same rules for free and fair trade to work.”

Of course, Airbus and Boeing are each other’s primary rival. By acquiring the ownership stake in the C-Series, Airbus is killing two birds with one stone. Embarassing and threatening Boeing, while acquiring new technology for cheap that could allow it to cater to a new kind of customer: Chinese airlines looking for more fuel-efficient planes.

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George Soros Donates $18 Billion To His ‘Open Society’ Foundation

Hungarian-born billionaire investor George Soros is pledging $18 billion – the bulk of his $26 billion fortune – to his Open Society Foundation, completing the integration of his family office, Soros Fund Management, and the charitable organization that serves as a front for Soros’s globalist agenda.

WSJ reports that the gift has vaulted Open Society to the top ranks of philanthropic organizations. It now appears to be the second largest such organization in the US by assets after the Bill and Melinda Gates Foundation, based on 2014 figures from the National Philanthropic Trust. Soros, who is 87, shares influence over the investment firm’s strategy with Open Society’s investment committee. Soros serves as the committee’s chairman, but the committee was set up to survive him, he said.

“It’s an ongoing process of migration from a hedge fund toward a pool of capital deployed to support a foundation over the long term,” said Bill Ford, a committee member and the chief executive of General Atlantic LLC, a firm that invests in growth-stage companies.

However, Bloomberg reported that the transfer of funds was authorized to help minimize a tax bill hedge fund managers are facing this year. Money managers have until the end of the year to pay taxes on fees they earned from assets in offshore funds, but had earlier deferred payment on. Many are now turning to charitable donations, including to their own foundations, to help offset the tax burden.

Tax experts have estimated that collectively managers have at least $100 billion offshore, based on tax-advisers’ conversations with clients, brokers and fund-service providers. A New York-based money manager such as Soros could be subject to a top federal income tax rate of 39.6%, not including state and local taxes. When Congress eliminated the tax break in 2008 during the aftermath of the financial crisis, it gave hedge fund managers until Dec. 31, 2017 to bring the cash home and pay the accumulated taxes.

It’s believed that most of Soro’s wealth is tied up with his family office. At the end of 2013, Soros had amassed $13.3 billion in his Soros Fund Management through the use of deferrals, according to Irish regulatory filings. Since it’s unclear how much the fund’s assets have grown since then, it’s difficult to tell what percentage of the fund’s assets the donation represents.

Soros founded Open Society in 1993 and has used it to support pro-Clinton groups and Super PACs, as well as leftist groups like Black Lives Matter, and other leftist groups that purportedly have links to local Antifa organizations.

Soros has also given more than $33 million to the Black Lives Matter groups involved in the social unrest in Ferguson and Baltimore.

Sources close to Soros told WSJ that he doesn’t plan to trade the billions that now belong to Open Society. After stepping back from active management in 2000, Soros came out of retirement in 2007 to bet against the housing market, and has had several notable trading successes in recent years – including a profitable bet on S&P 500 puts ahead of the June 2016 Brexit vote. His most recent trade was a bet that stocks would slump following Trump’s election.

Instead, the Dow Jones Industrial Average climbed above 23,000 for the first time on Tuesday.

Several states have accused Soros of inappropriately meddling in local affairs. Israel accused the philanthropist billionaire of “continuously undermining Israel’s democratically elected governments.” Meanwhile, Soros’s support for refugees brought him into conflict with Hungarian President Viktor Orban, formerly a friend of the billionaire. Orban has accused Soros of being a political puppet master, and officials in his government have described Soros’s Open Society charities as “political activism disguised as NGO work.”:

Soros, who has lived under both communism and Nazi occupation in Hungary, hoped to foster “open societies” in places where authoritarian governments held power. He named his foundation after a book by the philosopher Karl Popper, one of his teachers at the London School of Economics, who was a notable defender of liberal democracies.

As WSJ explains, Open Society operates through a network of more than 40 foundations and offices in countries from Afghanistan to South Africa and has a broad mandate to act on its founder’s values. OS organizations have funded refugee relief, public-health efforts and programs including a mobile court for gender crimes in the Democratic Republic of the Congo. The philanthropy also advocates for rights of the Roma, one of Europe’s largest ethnic minorities.

Responding to rumors that the firm is becoming more risk averse, one of Soros’s portfolio managers told WSJ that the firm would still look for opportunities for profitable macro trades, but that those opportunities would be smaller and more fleeting.

Though Soros has been a vocal opponent of President Donald Trump’s agenda, he once hired Treasury Secretary Steven Mnuchin to run a credit business at Soros.

It’s long been known that most of Soros’s fortune would eventually go to Open Society, though Soros previously funded it with annual donations. He plans to give it most of the rest of his wealth in his lifetime or upon his death, said people familiar with the matter, pushing its assets above $20 billion.

Soros Fund Management’s annual returns have averaged around 11% in the past 10 years, according to a person familiar with the figures, well below the 30% of its early decades.

Soros has about $6 billion in private-equity and related investments, including African cellphone towers and a stake in a restaurant chain called Dinosaur Bar-B-Que. The overseers of this chunk of money report to Open Society’s investment committee.

Soros is best known for building one of the world’s largest fortunes through a series of super-profitable trades. In September 1992, the Bank of England left the European Exchange Rate Mechanism under pressure from speculators, including Soros, who had been aggressively shorting the pound.

The trade netted Soros a profit of $1 billion and earned him a reputation as the man who broke the Bank of England. 

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Ethereum, Mises, & Why Cryptos Are Not A Bubble

Authored by Tom Luongo via TomLuongo.me,
Bitcoin satisfies Mises’ Regression Theorem as money and that’s why it’s so confusing to some many people.

So many people simply misunderstand what cryptocurrencies are and what they can be.&…

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