Second Saudi Prince Confirmed Killed During Crackdown

Following the death of Prince Mansour bin-Muqrin in a helicopter crash near the Yemen border yesterday, the Saudi Royal Court has confirmed the death of Prince Abdul Aziz bin Fahd – killed during a firefight as authorities attempted to arrest him.

The death has been confirmed by the Saudi royal court.

The Duran and Al-Masdar News both report that the prince died when his security contingent got into a firefight with regime gunmen attempting to make an arrest.

Prince Aziz (44) who was the youngest son of King Fahad.

The Duran’s Adam Garrie points out that Prince Abdul Aziz was deeply involved in Saudi Oger Ltd, a company which until it ceased operations in the summer of this year, was owned by the Hariri family. Former Lebanese Prime Minister Saad Hariri was punitively in charge of the company until it ceased operations.

Prince Abdul Aziz’s strange and sudden death which is said to have occurred during an attempted arrest, sheds light on the theory that the clearly forced resignation of former Lebanese Prime Minister Saad Hariri had more to do with internal Saudi affairs than the Saudi attempt to bring instability to Lebanon.

The Saudi Royal family has now lost two princes in 24 hours.

As Al Jazeera notes, in this Saudi version of ‘Game of Thrones’, 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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Lira Spikes After US Resumes Turkish Visa Processing

Having plunged several weeks ago following the latest diplomatic spat between Turkey and the US, in which the two countries’ consulates announced they had halted bilateral visa processing services, the Turkish Lira spiked moments ago on a Reuters report whiuch suggests diplomacy may be slowly returning to US-Turkish relations:

  • U.S. SAID PLANNING LIMITED REINSTATEMENT OF TURKEY VISAS
  • U.S. MISSION IN TURKEY SAYS RESUMES PROCESSING VISAS ON “LIMITED BASIS” -MISSION EMAIL SEEN BY REUTERS”.

As Bloomberg adds, “the U.S. mission in Turkey will issue statement later on Monday about updates to its visa ban, according to two U.S. officials who asked not to be named because the policy hasn’t yet been made public. Officials confirm earlier report by Reuters that U.S. is partially lifting its ban on issuing visas in Turkey, without elaborating.”

“Given that the diplomatic spat between Turkey and the U.S. contributed to the lira’s selloff, any signals that would indicate that relationship may gradually normalise will provide the lira with respite,” Piotr Matys, a currency strategist at Rabobank in London, told Bloomberg, and sure enough, the TRY jumped sharply in kneejerk response to the headline.

Still, as some FX desks point out, “TRY will need something a lot more substantial than this headline to recover fully. Relations remain extremely strained and there is still scope for this situation to worsen again.”

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Two Critical Charts For Investing Successfully Over the Next 12 Months

Something truly massive happened in early 2017.

That “something” was the market shifted from deflation towards an inflationary outlook.

If you don’t believe me, you can see for yourself.

Inflation expectations broke out of a multi-year downtrend. Not only that, but  they have since continued higher, bouncing of support.

Investing in the markets is like playing poker, and this was a massive “tell” that the market had changed.

The next big “tell” came when yields on the 10-Year Treasury broke out of a downtrend.

As I’ve explained time and again, bonds trade based on inflation expectations among other things. So to see yields rising like this, breaking a multi-year downtrend, “tells” us that the bond market is adjusting to the future threat of inflation.

Put simply, we are getting numerous signs that the markets are shifting into a new major trend. And when I saw “major” I mean MAJOR.

Put simply, BIG INFLATION is THE BIG MONEY trend today. And smart investors will use it to generate literal fortunes.

Imagine if you’d prepared your portfolio for a collapse in Tech Stocks in 2000… or a collapse in banks in 2008? Imagine just how much money you could have made with the right investments.

THAT is the kind of potential we have today. And if you’re not already taking steps to prepare for this, it’s time to get a move on.

We just published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay ou as it rips through the financial system in the months ahead

The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.

We are making just 100 copies available to the public.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/inflationstorm.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

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Trump: Texas Massacre A “Mental Health” Problem, Not A “Guns Situation”

Following the horrific murder of dozens of worshippers in Texas yesterday, demands for gun control were prevalent, but President Trump, speaking at a press conference in Tokyo, said the mass shooting was not “a guns situation,” pointing out that the problem was the killer’s “mental health.”

“I think that mental health is your problem here,” Trump said during a news conference in Tokyo, Japan in response to a question about the massacre in Sutherland Springs, Texas.

 

“This was a very – based on preliminary reports – a very deranged individual. A lot of problems over a long period of time.”

However, as The Hill reports, police have identified the shooter as Devin Kelley, 26, but have not issued an assessment about his mental health.

Kelley reportedly received a bad conduct discharge from the Air Force in 2014 over allegations of domestic violence.

The president said that “we have a lot of mental health problems in our country, as do other countries, but this isn’t a guns situation.”

 

“This is a mental health problem at the highest level, it’s a very, very sad event,” Trump added .

The shooting, in which 26 people were killed and 20 others injured, shocked the country and cast a cloud over Trump’s visit to Asia. He first reacted to the speech earlier Monday while speaking at the U.S. Embassy in Japan, calling the violent outburst an “act of evil.”

Later at the news conference, The Hill notes that Trump declared that “it’s a little bit soon” to discuss the issue of guns, and suggested that more people would have been killed if another armed person had not opened fire on the church gunman.

“Fortunately, somebody else had a gun that was shooting in the opposition direction,” he said.

 

“Otherwise, it wouldn’t have been as bad as it was, it would have been much worse.”

Along those lines of personal protection, many are pointing to a tweet by Texas Governor Greg Abbot from two years ago…

I’m EMBARRASSED: Texas #2 in nation for new gun purchases, behind CALIFORNIA. Let’s pick up the pace Texans. @NRA https://t.co/Ry2GInbS1g

— Greg Abbott (@GregAbbott_TX) October 28, 2015

But finally, we note that, as LA Times reports, Of the five deadliest shootings in US history, three came in the last two years, two in the last two months…

 

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Saudi Banks Begin Freezing Accounts Of Arrested Royals, Private Jets Grounded

Two days after the most stunning purge in recent Saudi history, the so-called “anti-corruption probe” – which was really a countercoup – that led to the arrest of dozens of Saudi Arabian royals, ministers and businessmen allowing Mohammed to further cement control over the Kingdom, appeared to be widening on Monday when, as Reuters reports, Saudi banks begun freezing the accounts of those arrested. The Saudi central bank ordered commercial banks to freeze the accounts of people under investigation in the probe, the Reuters sources said, adding that the number of accounts affected could run into the hundreds, although the names of those affected have yet to emerge.

“The freezing of accounts has already happened,” said another source. “The freezing is a precautionary measure that will end as soon as the suspects are either charged or pronounced innocent.” Considering that prince Alwaleed alone has over $19 billion in assets, including nearly a billion dollars in jewelry, plans, yachts, furniture and cash…

… the local central banks may have “accidentally” found an unexpectedly efficient way of refilling Saudi’s dwindling foreign reserve account.

At the same time, fears of a broader crackdowns were spreading, and as Bloomberg reported this morning, the Olayan family, which runs one of Saudi Arabia’s biggest conglomerates, is putting plans to sell shares in some of its local assets on hold “amid slow economic growth in the kingdom.” What it means is that right now it is a good idea to keep a very low profile.

Olayan Financing Co., which controls the billionaire family’s investments in the Middle East, decided not to proceed with an initial public offering of a holding company of about 20 local units, the people said, asking not to be identified because the discussions are private. Plans for the sale of the holding company, which may worth as much as $5 billion, could be revived in the future, they said. 

 

Olayan had been working with Saudi Fransi Capital on the planned sale that could have happened as early as next year, people familiar with the matter said in March. It’s also working with HSBC Holdings Plc’s local unit on the 30 percent sale of its Health Water Bottling Co., people said in May. The IPOs would be the first time Olayan Financing sold shares in one of its Saudi businesses since at least 2000. The family still plans to proceed with the IPO of its water business, the people said.

Such fears appear justified, because as Reuters writes, the crackdown continued on Monday when the founder of one of the kingdom’s biggest travel companies was reportedly detained. Al Tayyar Travel plunged 10% in the opening minutes after the company quoted media reports as saying board member Nasser bin Aqeel al-Tayyar had been held by authorities. The company gave no details but online economic news service SABQ, which is close to the government, reported Tayyar had been detained as part of the anti-corruption probe.

Many more are coming: the front page of leading Saudi newspaper Okaz challenged businessmen on Monday to reveal the sources of their assets, asking: “Where did you get this?” in bright red text. Another headline from Saudi-owned al-Hayat warned: “After the launch (of the anti-corruption drive), the noose tightens, whomever you are!”

Meanwhile, to prevent royals from quietly fleeing the country, a no-fly list has been drawn up and security forces in some Saudi airports were barring owners of private jets from taking off without a permit, pan-Arab daily Al-Asharq Al-Awsat reported.

And as the crackdown extended, so did the confusion, and many analysts were puzzled by the targeting of technocrats like ousted Economy Minister Adel Faqieh and prominent businessmen on whom the kingdom is counting to boost the private sector and wean the economy off oil.

“It seems to run so counter to the long-term goal of foreign investment and more domestic investment and a strengthened private sector,” said Greg Gause, a Gulf expert at Texas A&M University. “If your goal really is anti-corruption, then you bring some cases. You don’t just arrest a bunch of really high-ranking people and emphasize that the rule of law is not really what guides your actions. It just runs so counter to what he seems to have staked quite a lot of his whole plan to.”

Robert Jordan, former U.S. Ambassador to Saudi Arabia, says on Bloomberg TV, said that the Saudi Crown Prince’s anti-corruption drive, which included detaining Prince Alwaleed bin Talal, was “almost the equivalent of arresting Bill Gates.”

The Saudis have come to a fork in the road and they have taken it,” he said adding that “this is about the most breathtaking revelation I think we could possibly have imagined.

The reforms have been well-received by much of Saudi’s overwhelmingly young population, but caused resentment among some of the more conservative old guard, including parts of the Al Saud dynasty frustrated by Prince Mohammed’s meteoric rise. “It’s overkill – and overkill in a way that makes it harder to achieve his long-term objectives,” said Gause.

Meanwhile, in a more troubling escalation, overnight The Saudi-led military coalition said on Monday it would temporarily close all air, land and sea ports to Yemen to stem the flow of arms from Iran to Houthi rebels after a missile fired toward Riyadh was intercepted over the weekend.  Saudi Arabia has been involved in a two-year-old war in Yemen, where the government says it is fighting Iran-aligned militants, and into a dispute with Qatar, which it accuses of backing terrorists, a charge Doha denies. Detractors of the crown prince say both moves are dangerous adventurism. Saudi’s focus now appears to have turned to Iran, and with the war drums beating louder, some wonder how long before the increasingly chaotic events in Saudi Arabia lead to another Middle-east war.

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Broadcom Offers Hostile $130 Billion Deal To Buy Qualcomm In Largest Tech Acquisition In History

As was leaked by Bloomberg on Friday afternoon, this morning communications chipmaker Broadcom, which just last week announced it would move its headquarters from Singapore to the US (to make any future mega deals easier) said it offered to buy smartphone chip supplier Qualcomm Inc for $70 per share in a transaction valued at $130 billion, including $25 billion net debt, in what would be the biggest technology acquisition ever.

Broadcom’s bid consists of $60 in cash and $10 in shares, representing a 28% premium to QCOM’s closing price on Thursday, a day before media reports of a potential deal pushed up the company’s shares. The deal values Qualcomm’s equity at roughly $103bn.

The proposal stands whether Qualcomm’s pending NXP deal is consummated on currently disclosed terms of $110/shr or if deal is terminated. Silver Lake Partners has provided $5b convertible debt financing commitment letter to support transaction.

A tie-up would combine two of the largest makers of wireless communications chips for mobile phones and, as Reuters adds, raise the stakes for Intel, which has been diversifying into smartphone technology from its stronghold in computers.

In a letter to Qualcomm, Broadcom CEO Hock Tan said the “proposal is compelling for stockholders and stakeholders in both companies. Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company.”

If concluded, the hostile deal would be the biggest ever takeover in the technology sector and create a company with a combined market capitalisation of more than $200bn.

The full press release below:

Broadcom Proposes to Acquire Qualcomm for $70.00 per Share in Cash and Stock in Transaction Valued at $130 Billion

  • Broadcom Proposal Stands Whether Qualcomm’s Pending Acquisition of NXP is Consummated on the Currently Disclosed Terms of $110 per Share or the NXP Transaction is Terminated
  • Broadcom and Qualcomm, Including NXP, Will Have Pro Forma Fiscal 2017 Revenues of Approximately $51 Billion and EBITDA of Approximately $23 Billion, Including Synergies
  • Delivers Immediate, Substantial and Compelling Premium for Qualcomm Stockholders
  • Silver Lake Partners Provides $5 Billion Convertible Debt Financing Commitment Letter to Support Transaction

Broadcom Limited (AVGO) (“Broadcom”), a leading semiconductor device supplier to the wired, wireless, enterprise storage, and industrial end markets, today announced a proposal to acquire all of the outstanding shares of Qualcomm Incorporated (QCOM) (“Qualcomm”) for per share consideration of $70.00 in cash and stock.

Under Broadcom’s proposal, the $70.00 per share to be received by Qualcomm stockholders would consist of $60.00 in cash and $10.00 per share in Broadcom shares. Broadcom’s proposal represents a 28% premium over the closing price of Qualcomm common stock on November 2, 2017, the last unaffected trading day prior to media speculation regarding a potential transaction, and a premium of 33% to Qualcomm’s unaffected 30-day volume-weighted average price. The Broadcom proposal stands whether Qualcomm’s pending acquisition of NXP Semiconductors N.V. (“NXP”) is consummated on the currently disclosed terms of $110 per NXP share or the transaction is terminated. The proposed transaction is valued at approximately $130 billion on a pro forma basis, including $25 billion of net debt, giving effect to Qualcomm’s pending acquisition of NXP on its currently disclosed terms.

“Broadcom’s proposal is compelling for stockholders and stakeholders in both companies. Our proposal provides Qualcomm stockholders with a substantial and immediate premium in cash for their shares, as well as the opportunity to participate in the upside potential of the combined company,” said Hock Tan, President and Chief Executive Officer of Broadcom. “This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products. We would not make this offer if we were not confident that our common global customers would embrace the proposed combination. With greater scale and broader product diversification, the combined company will be positioned to deliver more advanced semiconductor solutions for our global customers and drive enhanced stockholder value.”

Tan continued, “We have great respect for the company founded 32 years ago by Irwin Jacobs, Andrew Viterbi and their colleagues, and the revolutionary technologies they developed. Following the combination, Qualcomm will be best positioned to build on its legacy of innovation and invention. Given the common strengths of our businesses and our shared heritage of, and continued focus on, technology innovation, we are confident we can quickly realize the benefits of this compelling transaction for all stakeholders. Importantly, we believe that Qualcomm and Broadcom employees will benefit from substantial opportunities for growth and development as part of a larger company.”

Thomas Krause, Broadcom Chief Financial Officer, added, “The Broadcom business continues to perform very well. Broadcom has completed five major acquisitions since 2013, and has a proven track record of rapidly deleveraging and successfully integrating companies to create value for our stockholders, employees and customers. Given the complementary nature of our products, we are confident that any regulatory requirements necessary to complete a combination with Qualcomm will be met in a timely manner. We look forward to engaging immediately in discussions with Qualcomm so that we can sign a definitive agreement and complete this transaction expeditiously.”

Strategic and Financial Benefits

  • Creates a Leading Diversified Communications Semiconductor Company: Qualcomm’s cellular business is highly complementary to Broadcom’s portfolio, and the combination will create a strong, global company with an impressive portfolio of technologies and products.
  • Accelerates Innovation to Deliver More Advanced Semiconductor Solutions to Global Customers: As a result of enhanced scale, reach and financial flexibility, the combined company will benefit from the ability to accelerate innovation and deliver more advanced semiconductor solutions to its broad global customer base.
  • Compelling Financial Benefits: The combined company will have an enhanced financial profile, benefiting from Broadcom’s proven operating model with industry-leading margins. The combined Broadcom and Qualcomm, including NXP, will have pro forma fiscal 2017 revenues of approximately $51 billion and pro forma 2017 EBITDA of approximately $23 billion, including synergies. The transaction is expected to be accretive to Broadcom’s  Non-GAAP EPS in the first full year after close.

The combined company is expected to have an investment grade credit
rating and strong cash flow generation to facilitate rapid deleveraging.

Approvals and Financing

Broadcom’s proposal was unanimously approved by the Board of Directors of Broadcom. Broadcom is prepared to engage immediately in discussions with Qualcomm to work toward a mutually acceptable definitive agreement and is ready to devote all necessary resources to finalize the necessary documentation on an expeditious basis.

The proposed transaction will not be subject to any financing condition. BofA Merrill Lynch, Citi, Deutsche Bank, J.P. Morgan and Morgan Stanley have advised Broadcom in writing that they are highly confident that they will be able to arrange the necessary debt financing for the proposed transaction. Silver Lake Partners, which has served as a strategic partner to Broadcom in prior transactions, has provided Broadcom with a commitment letter for a $5 billion convertible debt financing in connection with the transaction.

Broadcom expects that the proposed transaction would be completed within approximately 12 months following the signing of a definitive agreement.

Redomicile Announcement

As previously announced on November 2, 2017, Broadcom intends to redomicile to change the parent company of the Broadcom corporate group from a Singapore company to a U.S. corporation.

Letter to Qualcomm

The full text of a letter sent to Qualcomm is below.

November 6, 2017

Board of Directors
Qualcomm Incorporated
5775 Morehouse Drive
San Diego, CA 92121

Dear Members of the Board of Directors:

On behalf of Broadcom, I am pleased to submit this proposal to acquire Qualcomm in a transaction that will provide Qualcomm stockholders with an immediate, substantial and compelling premium to the value that would be achievable by Qualcomm on a standalone basis, as well as the opportunity to participate in the upside potential of the combined company.

As you know from prior discussions between our two companies, Broadcom has been interested for some time in combining Qualcomm’s mobile business with the Broadcom platform. We continue to believe that such a combination will deliver substantial benefits to our respective stockholders, employees, customers and other stakeholders. We are hopeful that you will agree that the proposal we outline in this letter presents a compelling opportunity for Qualcomm stockholders to realize both present and future value for their Qualcomm shares.

Strategic Rationale

We have great respect for the legacy Qualcomm has built since its founding more than 30 years ago by Irwin Jacobs, Andrew Viterbi and their colleagues. Based on our knowledge of the semiconductor industry, we believe that there is a significant strategic, financial and operational rationale for the proposed transaction. A combination of Qualcomm and Broadcom will create a strong, global company with an impressive portfolio of industry-leading technologies and products. Given the highly complementary nature of our businesses, we are confident that our global customers will embrace the proposed combination as we work strategically with them to deliver more advanced value-added semiconductor solutions.

Since I discussed a combination with Steve in August of last year, Broadcom has successfully completed the integration of the Broadcom-Avago combination, de-levered its balance sheet and meaningfully increased revenues and profitability. As a result, Broadcom stockholders have been rewarded with a 55% appreciation in Broadcom’s stock price since that time, ranking in the top 10% among the S&P 500 over that period. We believe these factors, coupled with our history of successful acquisitions and integrations, clearly demonstrate our commitment and ability to implement value-enhancing transactions and deliver robust results for stockholders, employees, customers and other stakeholders.

Proposed Terms

We are offering Qualcomm stockholders $70.00 per share, consisting of $60.00 per share in cash and $10.00 per share in Broadcom shares. This represents a significant premium of 28% to the closing price of Qualcomm common stock on November 2, 2017, the last unaffected trading day prior to media speculation regarding a potential transaction, and a premium of 33% to Qualcomm’s unaffected 30-day volume-weighted average price. Our proposal stands whether your pending acquisition of NXP is consummated on the currently disclosed terms of $110 per share or that transaction is terminated.

Our proposal will enable Qualcomm stockholders to achieve both immediate cash value and the ability to participate in the future success of the combined enterprise, which will benefit from greater scale and broader product diversification. The combination of our two companies and associated synergies will be accretive to Broadcom’s earnings, which will directly benefit Qualcomm stockholders through their equity ownership in the combined company. We have significant experience with acquiring and integrating companies and an established track record of delivering financial results for our stockholders. I am confident that we can deliver similar results for our combined stockholders should we consummate this transaction.

Financing

The proposed transaction will not be subject to any financing condition. BofA Merrill Lynch, Citi, Deutsche Bank, J.P. Morgan and Morgan Stanley have advised us in writing that they are highly confident that they will be able to arrange the necessary debt financing for the proposed transaction. Silver Lake Partners, which has served as a strategic partner to Broadcom in prior transactions, has provided Broadcom with a commitment letter for a $5 billion convertible debt financing in connection with the transaction. We also expect to maintain our investment grade credit rating following the proposed transaction. We and our advisors are available to review our financing plans with you at your convenience.

Regulatory Approvals

We and our advisors have conducted extensive analysis of the regulatory approvals that will be required in connection with the proposed transaction, and we are confident that the transaction will receive all necessary approvals in a timely manner. We would not make this offer if we were not confident that our common global customers would embrace the proposed combination, and we do not anticipate any material antitrust or other regulatory issues that would extend the normal timetable for closing a transaction of this nature.

Employees

We have a long history of providing outstanding opportunities for leadership and growth to employees, including business unit leaders, of companies we acquire. Employees who have joined our company as a result of acquisitions have become an integral part of our business, and we look forward to the opportunity to welcome Qualcomm’s employees to Broadcom.

Conclusion

We believe that our proposal represents the most attractive, value-enhancing alternative available to Qualcomm stockholders, and that it is in the best interests of both parties to proceed as soon as possible to reach agreement on a transaction structure and terms. We are ready to devote all necessary resources to finalize all documentation on an expeditious basis. We and our advisors are prepared to engage in discussions immediately to work toward a mutually beneficial transaction.

We look forward to working with you to complete this transaction successfully and suggest that our respective financial and legal advisors and senior management team meet at your earliest convenience to work toward this goal.

This letter does not constitute a binding obligation or commitment of either company to proceed with any transaction. No such obligations will in any event be imposed on either party unless and until a mutually acceptable definitive agreement is formally entered into by both parties.

Sincerely,

/s/ Hock Tan

Hock Tan
President and Chief Executive Officer

Advisors

Moelis & Company LLC, Citi, Deutsche Bank, J.P. Morgan, BofA Merrill Lynch and Morgan Stanley are acting as financial advisors to Broadcom. Wachtell, Lipton, Rosen & Katz and Latham & Watkins LLP are acting as legal counsel.

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Global Stocks Drift Lower As US Futures Rebound From Overnight Scare, Oil At 2 Year Highs

Following an early shaky start, which saw the Hang Seng tumble as much as 1.6% driven by weakness in financials and real estate names following the latest warning by PBOC governor Zhou about “sudden, complex, hidden, contagious, hazardous” risks In markets and a decline in local real estate prices, and pressure global risk, US equity futures have recouped all losses and are back to unchanged on monday morning, as President Trump continues on his first official trip to Asia. An “anti-corruption” purge in Saudi Arabia, including the arrest of Prince Alwaleed bin Talal will put stocks including Citigroup, Twitter and Apple – some of his major holdings – in focus according to Bloomberg. it also helped sent oil prices to the highest level since July 2015. In company news, talks between Sprint’s majority owner, SoftBank, to combine the carrier with T-Mobile US collapsed over the weekend.

Following a torrid weekend for newsflow, when among other things we learned that NY Fed president Bill Dudley is retiring, Monday morning has been a far more subdued affair, and European markets have enjoyed a quiet start to the week, apart from ongoing speculation over Dudley’s departure; USD unwinds small overnight rally, with USD/JPY retracing gains seen after Trump’s comments on trade initially weakens JPY; GBP/USD approaches high set on Friday in reaction to non-farm payrolls. European stocks hold small losses across the board, banks underperforms. Telecom sector also weakens after Deutsche Telekom falls 3.7%, spurred by collapse of the Sprint/T-Mobile deal. Overnight gains in iron ore futures helped support mining stocks and other base metals. As Bloomberg’s rates commentators note, reduced supply this week drives up core EGBs, led by bund futures; USTs rise in tandem. Large BTP/bund block trade pushes peripheral spreads marginally wider.

European stocks were mixed before edging slightly lower after their seventh weekly advance in eight, even as the latest European PMI prints indicated strong survey momentum has continued at the start of the fourth quarter. Basic resource shares outperformed as the Bloomberg Commodity Index rose to the highest since March, but they were offset by retreating banks and telecom companies.

The Stoxx Europe 600 Index fell less than 0.1%, with miners headed for their highest level since January 2013, and leading gains as they track metal prices higher. SBM Offshore slides after making a provision of $238m in relation to a reopened investigation into legacy issues and Unaoil, based on discussions with the U.S. Department of Justice.

News out of Asia was a dominant theme for many assets, with inflation comments from Bank of Japan Governor Haruhiko Kuroda, remarks on excessive leverage from his Chinese counterpart Zhou Xiaochuan and the grievances on trade from Trump. The yen declined before erasing the loss, and stocks in the region were mixed. Asian stocks edged lower for a second consecutive session after China’s central bank Governor Zhou Xiaochuan warned that the mainland’s financial system is becoming significantly more vulnerable due to high leverage. The MSCI Asia Pacific Index was down 0.1% to 169.72. Financial stocks led the decline, with AIA Group Ltd. being one of the biggest drags. Westpac Banking Corp. also fell after its full-year profit missed estimates. The Topix index retreated from the highest level in more than a decade as technical indicators suggest the gauge is overheating.

“Zhou highlighting concerns of excess leverage and thus more regulation is weighing down on stocks,” said James Soutter, a Melbourne-based fund manager at K2 Asset Management Ltd. “If they do that, it might slow down China’s growth, which may impact the region.” Gains by technology stocks such as Tencent Holdings Ltd. and Sony Corp. helped pare the earlier decline of as much as 0.6 percent in MSCI’s broadest gauge of Asian stocks. MISC Bhd rose as much as 8 percent, the most in four years, after reporting a surge in profit for the third quarter. Analysts upgraded the stock after highlighting improvement in all business

Oh, and speaking of that Hang Seng early drop, don’t worry: the BTFDers emerged, and Hong Kong’s benchmark gauge erased a drop of as much as 1.6% to close little changed. AAC Technologies Holdings and Tencent Holdings climbed while the city’s developers slumped; AAC Technologies surges 10% to a record price, while Tencent adds 2.5%. As a result, the Hang Seng Index closes little changed at 28,596.80 even as Hang Seng China Enterprises Index dropped 0.7%, paring an earlier loss of 2%. Additionally, the Shanghai Composite Index adds 0.5%, erasing a retreat of 0.5% while the ChiNext Index added 1%.

Among the key weekend events, a helicopter transporting eight Saudi officials including Prince Mansour bin Muqrin (Deputy Governor of the Asir Province) reportedly crashed near Abha. Additionally, Prince Alaweed bin Talal who is the largest shareholder of Citi and the second largest shareholder  of 21st Century Fox was among 10 other princes and 4 ministers were arrested on Saturday night. This has been billed as a corruption crackdown, although what it really is, is a power grab from Crown Prince Mohammed bin Salman. 

In the UK, Chancellor Hammond is said to scrap plans to raise business rate tax by 3.9% in April.  Bank of England Governor Carney said that if Brexit turned out to be worse than policymakers currently expect, it was possible that
the BoE would not be able to cut interest rates in the future due to inflationary pressure.

Meanwhile in Japan, President Trump said that TPP agreement is not the right idea, adding that the US has suffered massive trade deficits at hands of Japan for many years.

U.S. 10-year Treasuries find support from rally in core and peripheral bonds in Europe; bund futures extend gains on higher volumes after stop losses are triggered on short positions; currency traders fail to find inspiration as majors are trapped in narrow ranges; euro dips briefly after interbank investors add to long dollar positions, though better-than-forecast euro-area PMI for October staves off a bigger drop for the common currency

In commodities, WTI gained 0.6 percent to $55.97 a barrel, the highest in about nine months. Gold increased 0.1 percent to $1,271.66 an ounce. Copper rose 1 percent to $3.15 a pound, the highest in more than a week.

All eyes today will be on retiring NY Fed President William Dudley who is scheduled to give a speech on “Lessons from the Financial Crisis” just after noon at an Economic Club of New York luncheon. Central Bank of Mexico Governor Agustin Carstens speaks at an event hosted by Comexi, the Mexican Council for International Affairs.

Ahead of a light week for economic data releases investor focus has turned to Asia and the U.S. president’s visit to the region. Trump has already brought up trade grievances about both China and Japan and has warned nations against challenging the U.S. He goes on to South Korea and China this week. News on central bankers also will be closely watched, writes Bloomberg. Federal Reserve Bank of New York President William Dudley is close to announcing his retirement, CNBC reported late on Saturday. His early departure would mean the top three positions at the Fed changing over within a relatively short period. Trump announced last week that Fed Governor Jerome Powell will be nominated to replace Janet Yellen when her term expires in February. Vice Chairman Stanley Fischer retired in mid-October.

Bulletin Headline Summary From RanSquawk

  • European bourses lead from Asia and trade on the backfoot, while oil prices rise on Saudi Royal Purge
  • USD/JPY rises to highest level since March as Trump criticises Japan’s trade practises with the US, alongside BoJ jawboning
  • Looking ahead, highlights include a possible retirement speech from Fed’s Dudley

Market Snapshot

  • S&P 500 futures little changed at 2,581.75
  • STOXX Europe 600 down 0.01% to 396.02
  • MSCI Asia unchanged at 169.84
  • MSCI Asia ex Japan unchanged at 556.69
  • Nikkei up 0.04% to 22,548.35
  • Topix down 0.08% to 1,792.66
  • Hang Seng Index down 0.02% to 28,596.80
  • Shanghai Composite up 0.5% to 3,388.17
  • Sensex up 0.3% to 33,798.88
  • Australia S&P/ASX 200 down 0.1% to 5,953.78
  • Kospi down 0.3% to 2,549.41
  • German 10Y yield fell 2.6 bps to 0.338%
  • Euro down 0.1% to $1.1596
  • Italian 10Y yield fell 0.4 bps to 1.527%
  • Spanish 10Y yield fell 0.6 bps to 1.468%
  • Brent futures up 0.5% to $62.38/bbl
  • Gold spot up 0.04% to $1,270.41
  • U.S. Dollar Index up 0.03% to 94.97

Top Overnight News

  • Trump told a gathering of business leaders in Tokyo that Japan has an unfair advantage on trade and that he intends to fix that imbalance by making it easier to do business in the U.S.
  • Ousted Catalan president Carles Puigdemont and four former members of
    his government were released in Brussels pending a court ruling on an
    international arrest warrant issued by Spain
  • Mnuchin reiterates goal to get tax reform bill to Trump in 2017
  • Carney says BOE might not be able to cut interest rates if Brexit deal worse than expected
  • PBOC’s Zhou warns China’s financial system is getting more vulnerable
  • Kuroda: BOJ will continue powerful easing; 2% inflation still a long way
  • Saudi corruption crackdown sees senior princes, top billionaire arrested
  • U.K. Prime Minister Theresa May meets other party leaders to discuss steps to tackle sexual harassment in U.K. politics

Asian markets began the week on the backfoot. ASX 200 (-0.10%) slightly lower following a soft earnings report from Westpac (- 2.5%), subsequently failing to reach the 6000 mark. Chinese markets, in particular the Hang Seng (-0.02%) underperformed as PBoC Governor Zhou warned of risks over debt and the need to eliminate zombie companies. President Trump kicked off his tour of Asia in Japan, whereby the President stepped up his rhetoric of a tough stance being needed over North Korea. Additionally, the President also criticised the TPP agreement, noting that the US has suffered massive trade deficits with Japan for many years. PBoC sets CNY mid-point at 6.6247 (Prev. 6.6072). Bank of Japan meeting minutes from Sep 20-21 states that momentum towards price goal is being maintained. One member said current yield curve is not sufficient to achieve 2% inflation target, adding that a further increase in demand needed to raise prices. Bank of Japan Governor Kuroda expects Japans economy to steadily move toward achieving 2% inflation target, adding that the BoJ will persistently continue powerful easing.

Top Asian News

  • Turkey Central Bank Boosts Lenders’ FX Buffers on Weak Lira
  • Billionaire Olayan Family Is Said to Put Saudi IPO Plans on Hold
  • San Miguel to Sell Unit’s Shares After Merging Liquor Assets
  • PBOC Chief’s Latest Warnings Seen Signaling Tougher Debt Stance
  • DBS Profit Sinks as Bank Tries to Put Bad Energy Loans Behind It
  • Evergrande’s Unit Hengda Raises 60b Yuan in Third Round Funding
  • China is Finally Going After Click Farms and Fake Online Sales

European equities traded heavy across the board with a risk off tone seemingly creeping into the market. The crackdown on corruption in Saudi Arabia has been a likely catalyst to this, one iconic target of the purge is billionaire tycoon, Prince Alwaleed bin Talal, a significant investor in the likes of Twitter, Citigroup, Accor and Twenty-First Century Fox. Accor trades as one of the laggards in the Cac following the aforementioned probe, with Deutsche Telekom the notable European underperformer following news that merger talks between Sprint and T-Mobile US have ended. Elsewhere, material names trade in the marginal green, buoyed by the a buoyant iron ore market. JGBs set the tone in fixed income markets, rallying strongly through Monday’s trade, a bullish bond market flooded into European bonds, with a 10k Bund order seeing the future contract trade firmly through 163.00 with the next touted resistance to be at 163.43. The Saudi international bond spreads have now widened by about 5bps following the anti-corruption crackdown.

Top European News

  • SocGen Drags Banks Down as Analysts Cut EPS Ests., Price Targets
  • Deutsche Telekom Falls On Sprint Deal Collapse; Watch Towers
  • U.K. October Car Sales Plunge 12% in Seventh Consecutive Drop
  • Euro-Area Economic Boom Spurs Fastest Job Creation in a Decade

In currencies, USD
Non-farm Monday trade has set the tone this European morning, with the Greenback trading in a rangebound fashion throughout the Asian and early EU sessions. EUR/USD longs have struggled following Friday’s NFP release, with the pair trading back below 1.60, however, the consolidation does continue, trading around the 1.60 area, with bears looking for a clean break below. GBP: weekend commentary from BoE Governor Carney, stating that if Brexit turned out to be worse than policy makers expectations, it could be possible that the BoE would be unable to cut interest rates in the future due to inflationary pressures. Sterling was relatively unfazed, following the subdued tone. JPY: The US President, on his tour of Asia, is currently in Japan. He has commented on trade, stating that TPP agreement is not the right idea, adding that the US has suffered massive trade deficits at hands of Japan for many years. The Japanese currency has been very marginally weaker overnight, following a fail of a test of 115.00.

In commodities, oil markets have been dictated to by the Saudi Arabian news, with the uncertainty resulting in oil prices seeing a 2 year high, as WTI crude futures briefly retook USD 56.00/bbl. Precious metals have come off post NFP lows with bids supported by the growing risk tone, Gold’s 1265.00 area continues to behave as key support, with silver seeing a simultaneous bounce around 16.75.

Looking ahead, there is no data due in the US however the NY Fed’s Potter and Fed’s Dudley are both due to speak. Euro area finance ministers will also discuss completing the banking union and fiscal rules for the EMU.

US Event Calendar

  • No major econ releases scheduled
  • 12:10pm: Fed’s Dudley Speaks on Lessons from the Financial Crisis

DB’s Jim Reid concludes the overnight wrap

It’ll be a quieter week to be in the US as the post payrolls period is always on the lighter side data wise but this week we’ll have plenty of newsflow on the US tax plan and we’ll likely wake up to new Mr Trump headlines most mornings as his Asian tour is now in full flow.

Today will kick start the process for markups of the tax bill and the House is expected to vote on a final draft towards the end of the week. At the same time, the Senate will release its own version of the bill, which could differ significantly from the House’s. In our economist’s view, the sticking points remain the same: the capping of the mortgage interest deduction and proposed repeal of the state and local tax deduction. Already, the National Association of Homebuilders and the National Federation of Independent Business have voiced opposition to the House bill, which is noteworthy given their relatively conservative leanings. So work still to be done. DB are hosting a conference call today (Kelly, Hooper & Slok) at 8am EST on what to expect from this and from new Fed Chair Powell. Details at the very end. For the full week ahead and easy to read cut-out and keep of all events click on “Next   week… this week”. The day by day week ahead is copied at the end today.

On Saturday night, Saudi Arabia’s King Salman announced a sweeping anticorruption drive and ordered the arrest of Prince Alwaleed bin Talal, ten other senior members of the royal family, four cabinet ministers and former top officials. Bloomberg noted initial public reaction within the country may be positive with many sharing a video clip showing the Crown Prince Mohammed bin Salman noting no one is above the law. It is too early to know the follow on implications, but note that Prince Alwaleed is the world’s 50th richest person with worth of $19bln and has stakes in Citigroup, Twitter and JD.com. His investment firm Kingdom Holding Co’s share price dropped 7.6% on Sunday.

Over in Japan, President Trump told a group of business leaders that “for the last many decades, Japan has been winning (on trade). You do know that…right now our trade with Japan is not fair and it isn’t open”, and that Japanese car makers should “try building your cars in the US instead of shipping them over”. Elsewhere, he reiterated that his decision to withdrawal from the Tran-pacific partnership free trade agreement will be “ultimately proven right”, and that he sees easing trade restrictions in other ways, although did not elaborate.

Turning to Catalonia which had a new twist over the weekend. Back on Friday, a Spanish judge issued an arrest warrant for ousted Catalan President Puigdemont and four others currently living in Belgium, noting they promoted “violent force” and incited “insurrection”. Then on Sunday, Puigdemont voluntarily turned himself in to Belgium police, saying “I won’t flee justice….but to real justice”, noting that Spanish courts “can’t guarantee a fair and independent sentence that will be free of the enormous weight and influence of politics”. Later on Monday morning, a Belgium judge has released Puigdemont, but he is required to reappear before a court in Brussels within 15 days, which will potentially decide to carry out an extradition process or not. Interestingly, Puidgemont’s PdeCAT party has put his name forward as a candidate for the upcoming regional election to be held on 21 December, while the Spanish Government spokesman Mendez de Vigo said “any politician can run in the election unless he / she has been convicted of a crime”. Elsewhere, according to a new poll by La Vanguardia, it shows the Catalan secessionist coalition could win the new election with 66-69 seats, but this may not be enough to secure a clear majority in the regional assembly as 68 seats are required. The Spanish IBEX fell 0.96% and 10y yields fell 0.4bp last Friday.

Now onto China, after issuing a verbal warning of a “Minsky moment” two weeks ago, China’s central bank Governor Zhou published an article on the bank’s website over the weekend, noting that while the overall health of the financial system is good, risks are accumulating with some that are “hidden, complex, sudden, contagious and hazardous” and that “high leverage is the ultimate origin of macro financial vulnerability”. His comments could add to the concerns that regulators may intensify the deleveraging drive in China. Elsewhere, as per Bloomberg he also noted: i) China’s financial regulation lags international standards…ii) China should increase direct financing and expand the bond market, reduce intervention in the equity market and reform the IPO system, iii) China should let the market play a decisive role in the allocation of financial resources and iv) China should improve the coordination among financial regulators. Interesting stuff!

This morning in Asia, markets are trading slightly lower. The Hang Seng has pared back losses to be down 0.59%, partly impacted by Governor Zhou’s comments on leverage and softness in property developer stocks.  Elsewhere,the Nikkei is marginally higher (+0.08%) while the Kospi (-0.34%) and ASX 200 (-0.10%) are down slightly as we type. 

Away from the markets and onto central banker’s commentaries. BOE Governor Carney noted that the BOE is working on the assumption that Brexit transition will be eventually smooth, but when asked if Brexit was much worse than expected, could it prevent the BOE from cutting rates even when growth is slowing, he noted “that’s an extreme possibility but it’s a possibility”, although “we’ll supply as much support as we can during this course of adjustment”. Elsewhere on Brexit, the Confederation of British Industry President Drechsler noted “I’m reminded of a prime-time soap opera (re Brexit), with a different episode each week…” and appeal for a “single, clear strategy” for transition as Brexit is “only 508 days away, but for many businesses, their alarm clock are set even earlier than that”.

With Fed Governor Powell’s nomination as the next Fed Chair now official, our US economists take a closer look at the key implications of what this could mean for the markets, including: i) continuity of monetary policy, ii) reasonably high degree of continuity in terms of leadership style, and iii) changes to the Fed’s communication policy, potentially to be more brief and to the point. For more details, refer to link.

Staying in the US, a new poll by ABC News & Washington Post showed President Trump’s approval rating is now 37%, the lowest since 1946 for any president at this point in their first term based on polling data. Approximately 55%  +14ppt since April) say the President is not delivering on major campaign promises. Perhaps this will add impetus to deliver the tax reforms by Christmas as per President Trump’s plans.

Over the weekend, there were also more rhetoric on the tax plan via Sunday talk shows. Republican senator Lankford noted that he can’t support the party’s tax bill “if the measures balloons the debt (too much)”. Elsewhere, VP Mike Pence said the “right type of tax cuts” such as immediate cut to corporate tax rates could lead to GDP growth of 3.5%-4%, which is a claim also backed up by House Majority Whip Steve Scalise. Finally, House speaker Ryan said the Republicans have learned from past experience, so the House and Senate will better coordinate and move together, so the difference from the two version of the tax bills should be small.

Now quickly recapping markets performance on Friday. US equities strengthened further (S&P +0.31%; Dow +0.10%; Nasdaq +0.74%) to fresh record highs, supported by Apple which guided to higher than expected salesfor the  upcoming December quarter (shares +2.6%). Within the S&P, modest gains in IT and health care sectors were partly offset by losses from financials and materials names. European markets were broadly higher with both the Stoxx 600 & DAX up 0.28%, while the FTSE rose marginally (+0.07%) and Spain’s IBEX underperformed (-0.96%). The risk on bias contributed to the VIX falling 8.0% to a new all-time low of 9.14.

Over in government bonds, yields were little changed with UST 10y down 1.3bp following the miss on headline non-farm payrolls. Core European bond yields were marginally lower, with Bunds and OATs down 0.9bp and 0.7bp respectively, while Gilts were broadly flat. Turning to currency, the US dollar index and Sterling gained 0.27% and 0.14% respectively, while the Euro fell 0.43%. In commodities, WTI oil rose 2.02% to $55.64/bbl and back towards its YTD high.

Before we take a look at today’s calendar, we wrap up with other data releases from Friday. In the US, the macro data was a bit mixed. The headline change in October nonfarm payrolls was lower than expected at 261k (vs. 313k), but is more in line if factoring in the upward revision of 51k to the prior month’s reading. The labour market remains solid with the October unemployment rate down to 4.1% (vs. 4.2% expected) – the lowest since December 2000. However, labour force participation rate has declined to a six-month low of 62.7% and the average hourly earnings growth was weak, flat for the month (vs. 0.2% expected) and 2.4% yoy (vs. 2.7% expected). Last month’s spike could have been more storm related than previously thought.

The October ISM non-manufacturing composite was above expectations at 60.1 (vs. 58.5 expected) – the highest since August 2005 and the September factory orders also beat at 1.4% mom (vs. 1.2% expected). Moving along, the final reading for September durable goods orders was unrevised at 2% mom but core capital goods orders was revised 0.4ppt higher to 1.7% mom. Elsewhere, the trade deficit for September was broadly in line at -$43.5bln (vs. -$43.2bln expected). The October Markit PMI composite was slightly lower than last month at 55.2 (vs. 55.7 previous) while the services PMI was softer than expected at 55.3 (vs. 55.9 expected). Finally, following the recent data updates, the Atlanta Fed’s GDPNow estimate of 4Q GDP growth has fallen back to 3.3% saar, broadly similar to the NY Fed’s Nowcast estimate of 3.2% saar.

The UK’s October Markit PMI for composite was above consensus at 55.8 (vs. 53.8 expected) and the services PMI was also higher at 55.6 (vs. 53.3 expected) – the highest since April 2017.

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