Monday, July 25, 2016

Monday, July 25, Morning Global Market Roundup: G20 Growth Vow Keeps Global Shares Near Nine-Month High

By Marc Jones
July 25, 2016

World shares held near nine-month highs on Monday after G20 finance chiefs vowed over the weekend to use "all policy tools" to lift global growth.

Europe got off to a solid start, climbing almost 0.3 percent .FTEU3 as takeover activity continued in the UK gambling sector and talk of record profits at Ryanair helped break some of the recent gloom around airlines. [.EU]

Backsliding oil prices LCOc1 though held back commodity firms and emerging market stocks. MSCI's 46-country All World index .MIWD00000PUS couldn't push over peaks hit last week after some record highs on Wall Street.

While the weekend's signals from the G20 meeting in China were welcome, investors were bracing for a hectic week that includes a U.S. Federal Reserve meeting, European bank stress tests and what could be another super-sized slug of stimulus from Japan.

"I think everyone is range-trading at the moment and just waiting to see what the direction is," said TD Securities head of global research Richard Kelly.

"The Bank of Japan is really the one that is front and centre this time with the all talk around 'helicopter money'," he added. "If they disappoint, which I think is probably more likely, then we are likely to see risk assets coming off."

Bank of Japan chief Haruhiko Kuroda had said at the weekend that he could ease policy further but also that there had been no discussion about "helicopter money" - radical money printing that aims to give cash directly to the population.

The yen was losing ground against the dollar JPY= though it was off last week's six-week low and the greenback struggled to make much of an impact against either sterling GBP=or the euro EUR= in early European trading.

The dollar's index against a basket of six major currencies .DXY =USD hit a 4-1/2-month high of 97.543 on Friday. It last stood at 97.371.

"Dollar/yen could test the 108 handle if the Fed's comments this week are supportive towards a rate hike and if the BOJ eases," said Koji Fukaya at FPG Securities in Tokyo.

"On the other hand, the pair could drop below 105 if the BOJ stands pat as easing expectations are well entrenched."

In bond markets, euro zone yields held near post-Brexit lows for the most part.

Benchmark German 10-year yields were flat on the day at minus 0.08 percent DE10YT=TWEB and the Italian IT10YT=TWEB and Spanish equivalents ES10YT=TWEB were at 1.24 and 1.12 percent respectively, just a couple of points from multi-month lows.

As well as ongoing talk of central bank stimulus and low oil prices keeping down inflation, this week also sees a series of bond redemptions that will mean investors have cash to buy again. [GVD/EUR]

Oil prices meanwhile hovered near 2-1/2-month lows having lost about 4 percent last week on renewed worries about a global crude glut.

Brent crude futures LCOc1 traded at $45.66 per barrel, down 0.1 percent and near Friday's low of $45.17, its lowest since May 11. Gold XAU= also struggled at it fell 0.5 percent to 1,316 an ounce.

Article Link to Reuters:

G20 Growth Vow Keeps Global Shares Near Nine-Month High

Will Berniacs Ruin Hillary’s Prom?

Hillary Clinton’s former foe from Vermont has pledged to support her, but his followers may not be so forgiving this week in Philly.

By Jackie Kucinich and Gideon Resnick
The Daily Beast
July 25, 2016

On the eve of the Democratic Convention, everything was coming up Bernie.

Sure, Hillary Clinton picked a centrist running mate in Tim Kaine - angering hardcore Sanders fans.

But with the hack of DNC emails released by Wikileaks that showed their staff discussed planting negative stories about Bernie Sanders during the primary—and the subsequent resignation of his nemesis, DNC chairwoman Debbie Wasserman Schultz, meant the Bern was top of mind heading into what should be Hillary Clinton’s coronation.

This, going into the day of the convention that seems to be the most friendly to Sander’s message. The program on Monday is studded with his endorsers and loyalists—including Reps. Keith Ellison and Raul Grijalva, who both later backed Hillary Clinton but have retained their loyalty to Bernie and the movement he assembled. Not to mention Sanders himself.

And in terms of this convention—aside from the fact he’s not the headliner—Sanders got much of what he wanted.

The platform is filled with asks from the Sanders campaign, like instituting free college for families up to a certain income level as well as raising the minimum wage up to $15.

When Sanders met at the White House in early June, he had several demands, but chief among them was the resignation of Wasserman Schultz. She had, in his campaigns estimation, put her thumb on the scale throughout the process. (Spoiler alert: she kinda did.)

The emails released late last week showed DNC staffers seemingly trying to plant a story that Sanders, who is Jewish, was an atheist.

In an interview with ‘60 Minutes’ on Sunday, Clinton said she had no knowledge of the actions of the DNC and criticized any attempt effort to attack Sanders—or anyone else—based on their faith.

“I am adamantly opposed to anyone bringing religion into our political process,” she said, after denying she knew anything about the DNC efforts on her behalf.

Sen. Tim Kaine, her newly-minted veep pick and former DNC chairman himself, joined her in chiding the DNC, saying that while staff can have opinions they should never act on them in any official capacity during a primary race.

Sanders and his campaign found themselves in the unique position of wanting to sustain a message of unity a day out from Clinton’s convention while also taking a victory lap for the ousting of Schultz.

“Debbie Wasserman Schultz has made the right decision for the future of the Democratic Party,” Sanders said in a statement following her resignation announcement. “While she deserves thanks for her years of service, the party now needs new leadership that will open the doors of the party and welcome in working people and young people. The party leadership must also always remain impartial in the presidential nominating process, something which did not occur in the 2016 race.”

That doesn’t mean his supporters won’t be coming to Philadelphia with a head full of steam and a list of demands.

The Bernie Delegates Network, an organization which is as it sounds, held a press conference in Philadelphia on Sunday hours before protesters took to the streets to stake their claim in the fight against Clinton and the political powers that be.

One of their main issues: the selection of Kaine as Clinton’s running mate.

Norman Solomon, the national coordinator for the group, said they’d be conducting another poll soon to determine if delegates want to protest the pick on the floor of the convention. He expressed regret that certain decisions made by Clinton would keep him from voting for a woman.

“It really hurts me to be standing and feeling like I can’t really support the first woman who is likely to be a candidate for president,” Solomon said. “I would like to be able to do that. But boy are they making it hard.”

This clearly isn’t how the DNC saw their convention in Philadelphia starting out—subtracting major speakers from the roster at the very last minute is not exactly ideal—though the atmosphere was immediately different than the Republican National Committee’s convention in Cleveland. Still, it wasn’t nearly as unified as the Dems hoped to portray.

The Bernie contingent in Philadelphia was loud and proud—a stroll around downtown on Sunday afternoon there saw as many convention attendees sporting Bernie attire as those dressed in Hillary swag.

Meanwhile, at a press conference at a desolate warehouse, around the corner from a shuttered strip club, where scenes from ‘The Wrestler’ were filmed, Republican National Committee Chairman Reince Priebus hoped to capitalize—rather insincerely—on the DNC’s very apparent fissures.

“The days will show really what an uphill climb the Democrats are facing this week in unifying their party starting out the week by losing their party chairman over long standing bitterness between factions, there’s no way to keep things together,” he said, no doubt relishing in the fact his dumpster fire of a convention was in the rearview mirror. “The problems the Democrats have are ideological and the extreme left will not be satisfied by one person’s resignation.”

But a few minutes later, after Trump consigliere Paul Manafort said Trump’s completely dark and scary convention was “optimistic,” a question about their nominee brought Reince and company back to reality.

When a reporter stood and asked about Trump re-upping his attack on Ted Cruz’s father for supposedly playing a role in the Kennedy assassination, Priebus looked to Manafort to answer and Manafort non-verbally motioned for Priebus to take the podium.

Reluctantly, he did, to the chuckles of the assembled press corps.

“He’s got a right to talk about whatever he wants to talk about,” Priebus said. “However, I don’t think he was ever saying that this was any sort of factual piece of information this is something he referred to, he’s talked about it, he’s gotten off of it, and as far as I’m concerned we can move on from it.”

The reporter retorted, “If it wasn’t factual why did he discuss it in the first place?”

Priebus, who just wanted to make it stop, responded, “I think he mentioned it in passing and everyone glommed onto it and it became a controversy. But as far as the overall picture of Donald Trump that is one rhetorical issue that you can all debate until the cows come home but it doesn’t identify or define the Donald Trump campaign.”


Article Link to the Daily Beast:

Will The Election Be Settled By October Surprises?

Leaks of Trump’s tax returns and of Clinton Foundation e-mails could create shock waves.

By John Fund 
The National Review
July 25, 2016

Could the presidential election be decided by two competing “October Surprises” based on leaked information?

One from WikiLeaks could involve the deleted e-mails from Hillary Clinton’s private server and could be related to the FBI’s ongoing investigation of the Clinton Foundation. Another could involve the leaking of confidential tax-return information regarding Donald Trump, who has steadfastly refused to release his returns even as he demanded to see the returns of people seeking to be his vice-presidential running mate.

Speculation about possible October surprises is rampant here among political observers covering the Democratic convention. Events here were already disrupted on Friday by a batch of Democratic National Committee e-mails released by provocateur Julian Assange’s WikiLeaks project. The e-mails appeared to prove Bernie Sanders’s argument that the party apparatus was determined to sabotage his campaign from Day One.

Rather than talk about the damaging content of the e-mails, Hillary Clinton campaign manager Robby Mook said Sunday that the leak was an effort from the Russians to help Republican presidential nominee Donald Trump.

“What’s disturbing to us is that experts are telling us Russian state actors broke into the DNC, stole these e-mails, and other experts are now saying that the Russians are releasing these e-mails for the purpose of actually helping Donald Trump,” Mook said on CNN’s State of the Union. “I don’t think it’s coincidental that these e-mails were released on the eve of our convention.”

Team Hillary is well aware that Assange’s WikiLeaks probably has other surprises in store for the fall campaign. During a June 12 interview with Britain’s ITV, Assange was asked if had any undisclosed e-mails. He responded:

"We have upcoming leaks in relation to Hillary Clinton, which is great, WikiLeaks has a very big year ahead. We have e-mails related to Hillary Clinton which are pending publication, that is correct."

He then went on to predict — correctly — that Loretta Lynch would not indict Hillary over her breaches of national security:

"Unfortunately, I think what’s going to happen is that the FBI is going to go “We have accumulated a lot of material about Hillary Clinton, we could proceed to an indictment..[But] she’s not going to indict Hillary Clinton."

Assange strongly hinted that other e-mail releases were coming, and sources close to him say they will go beyond the DNC e-mails. Assange himself says he wants to stop Hillary because she is, in his view, a liberal “war hawk” He claims that “a vote today for Hillary Clinton is a vote for endless, stupid war.” He then followed up by saying: “Hillary didn’t just vote for Iraq. She made her own Iraq. Libya is Hillary’s Iraq and if she becomes president, she will make more.”

Speculation in the Hillary camp about what could be in future releases from WikiLeaks center around her association with the Clinton Foundation. Peter Schweizer, the author of Clinton Cash, told me: The activities of Hillary Clinton during her time as secretary of state intersect with the favor-seeking of the Clinton Foundation. It is strange that so few of her publicly released e-mails touch on the Clinton Foundation. Maybe the private ones do.” The FBI recovered many of the deleted e-mails from Hillary’s server, and those are part of its ongoing probe into the Clinton Foundation.

Democrats are responding to all this with their own attacks against Trump for refusing to release his tax returns. Tim Kaine, Hilary’s new running mate, used his first speech of the campaign to say:

"And we’ll make sure that Wall Street, corporations, and the wealthy pay their fair share of taxes. And while we’re on the subject of taxes, where are Donald Trump’s tax returns? Raise your hands if you think those returns would show that he’s paid his fair share of taxes? I don’t see a lot of hands."

Trump’s tax returns could prove troublesome for him. Fortune reporter Shawn Tully says that Trump’s 2014 financial-disclosure form (which has not been independently audited) claimed $362 million in income, but it was actually only revenue. Income equals revenue minus expenses.

Many people believe that Trump’s actual income is far lower than what he claims. Tully estimates that Trump probably earned just a third of the $362 million in 2014 income that he claimed. Trump declined to respond to questions about Tully’s article when it came out.

David Cay Johnston says that when he examined the few Trump tax returns that have been made public, he found many strange lapses. As part of an application for a casino license, Trump revealed his 1984 return, which showed that he had paid no income taxes at all that year. But a tax lawyer for Trump testified in court that the return was not prepared by his firm, even though the signature on the photocopy was his. The original return has never surfaced.

“With a crew of Lois Lerner's running the IRS, those returns surely will leak right after the nomination is made formal,” Quin Hillyer wrote at NRO this spring. After all, someone in the IRS did precisely that in 2012, illegally leaking tax information about Mitt Romney. Mitt Romney had delayed releasing his returns until late in the campaign, and the Democrats gleefully used the leaked tax info against him. Trump himself criticized Romney for delaying release of his tax returns, saying he “was hurt very badly” by that. Will history repeat itself again in this campaign?

No one knows for sure whether October surprises of leaked information are headed our way this fall. But clearly anything is possible in this cut-throat year of political surprises. That’s why polls are only of so much use – they may be dramatically overcome by events on the ground.

Article Link to the National Review:

Terrorism As Therapy: The Takeaway From Munich

By Ralph Peters
The New York Post
July 25, 2016

Friday’s McDonald’s massacre in Munich wasn’t just about the revised menu. It was terrorism.

It wasn’t Islamist terrorism. It wasn’t political or racist terrorism. It was a fusion of copycat killing and a disturbed young man’s self-therapy with a Glock.

But it was still terrorism.

The usual experts rushed to declare that, since it wasn’t motivated by Islam or racial hatred or nationalism, the Munich slaughter of nine and wounding of more than a dozen didn’t qualify as terrorism. But terror isn’t just about cause. It’s also about effect.

When a gunman determined to die shuts down a major city and spreads panic in its streets, that’s terrorism, folks.

The 18-year-old shooter appears to have been a lost soul of the sort terrorists exploit, but which also can act in the absence of causes or mentors. A German-Iranian who claimed dual nationality, he seems to have had no solid national identity at all.

Born in Germany, he could never truly become a German (let alone Bavarian), not even with German citizenship. And Iran held no appeal.

He seems to have been the classic outsider, the sort who, in the past, might’ve committed suicide in a corner. But violent headlines about mass killings obsessed him. For too many of today’s loners, it’s not enough to end their pain by dying. They want company when they go.

There was no indication that Islam was a factor.

And yet...the pervasiveness of terror now, magnified by the media, provided the shooter with an example of how to go out in a blaze of glory and the sense that “everybody’s doing it.” He had more in common with punks who shoot up movie audiences or gun down their classmates than he did with the Nice truck driver, but the general atmosphere of terrorism as cool and empowering captured him.

Instead of arguing about whether a specific incident qualifies as terrorism, we should seek to understand the different varieties of terrorists now active. There’s plenty of overlap, but we’re faced by three basic kinds.

First, we have terrorism as self-assertion, the classic political, nationalist or racist killer who seeks tangible change in a society. He may be willing to die, but he doesn’t seek death. This is the brand of terrorist who slaughters young people on an island in Norway, who murders innocents in a Charleston church or who assassinates police officers in Dallas. He wants to shock the world and change it, not escape it.

Second, we have terrorism as self-validation. This terrorist becomes a suicide bomber — the latest killed 80 people and wounded over 200 in Kabul on Saturday — or undertakes another mission that can only end in his death.

These are individuals who could never find their path until they found their way to fanatical faith. It’s about the need to submerge the failing self in something greater, something transcendent. When your prison is the world, a suicide mission’s the ultimate get-out-of-jail-free card.

Repeatedly, we mock Islamist terrorists as being “not really religious” because they haven’t devoted their lives to arcane details of scripture. We’ve lost our sense of the soul’s desperation and the ecstasy of union with the divine, of God’s wonder, real or imagined. Religious knowledge has never been as important as religious feeling.

For Islamist fanatics, the act of terror is not only empowering — at the end of a powerless life — but blessed. Until we grasp that, we’ll keep being surprised.

The third, emerging type of terrorist is deeply alarming — because he’s the hardest by far to spot in advance. Had we the common sense and commitment, we could identify far more political or religious terrorists — they leave clues all around, if only we’re willing to see them. Indeed, we have stopped many of their plots through the years.

But the true loner not motivated by politics or bigotry or corrupted faith, the killer without fingerprints, is the hardest to spot in advance. And there are many millions of young people who fit the mold of the troubled soul in the shadows.

Even their parents don’t see it coming. We can’t monitor every kid with pimples playing video games in the basement. And even the most annoying among them will turn out kind of OK or become lawyers.

But how can we know when the angry young man will become a deadly young terrorist?

Instead of struggling to explain away every new mass killing as “not terrorism,” we must recognize that the scope and scale of terrorism’s expanding. What was once an anomaly is now a ready-to-hand solution for a widening variety of misfits.

The Munich shooter collected literature on mass killings and had an online trail of studying slaughters. He spotted a growth industry and joined.

Article Link to the New York Post:

What The Fed Will And Won't Do This Week

By Mohamed A. El-Erian
The Bloomberg View
July 25, 2016

Here is what is likely to emerge from the two-day meeting of the Federal Open Market Committee this week:

1. Although they will refrain from any action on interest rate policy, central bankers will signal the possibility of a hike sometime this year, perhaps as early as their next meeting in the third week of September.

2. Fed officials' openness to raising interest rates later this year will primarily reflect their comfort with the health of the labor market, including several additional indications in recent weeks that the weak job creation numbers for May were indeed an outlier. Meanwhile, the assessment of inflation will remain essentially unchanged.

3. Fed officials will be comforted by the extent to which financial markets have brushed off the surprise outcome of the Brexit referendum in the U.K. The response of investors may even have been too cavalier, given the considerable uncertainties around what could be protracted and messy negotiations between the U.K. and its European partners.

4. The possibility of a 2016 rate hike also is increased by a less-positive input: the further recognition by Fed officials that structural headwinds are compounding the cyclical obstacles to U.S. "economic liftoff."

5. Nonetheless, the Fed's openness to a rate hike will remain conditional, as officials point to some mixed elements of U.S. data and the overall uncertainties facing the global economy. Obviously, central bankers will also be aware that two important monthly job reports are scheduled before they gather again in September.

6. Although the Fed will be very careful not to get embroiled in what is likely to be a noisy U.S. presidential election in November, global political and geopolitical uncertainties are likely to be part of the impetus for officials to retain considerable policy optionality at this point.

The most likely immediate market impact of all this will be some repricing of shorter-maturity U.S. Treasury securities, as traders and investors revise somewhat higher their expectations for the 2016-17 path of the Fed funds rate. What happens more broadly in financial markets essentially depends on two other data points: whether this week's set of corporate earnings also beats expectations; and more generally, how far financial markets remain focused on short-term corporate and central bank liquidity injections as opposed to the more gradual impact of tepid fundamentals.

Article Link to The Bloomberg View:

A Vacuum Of Leadership On Trade

By The Editorial Board
The Bloomberg View
July 25, 2016

The liberal economic order created in the second half of the 20th century has rarely seemed in such danger. The U.S. and Europe led the way in building that system but are no longer its champions.

The next U.S. president, it seems, will be either a timid, wavering defender of trade or an outright protectionist. Meanwhile, Britain’s decision to leave the European Union brings the prospect of new trade barriers within the EU, threatening wider disruption to what’s been up to now a model of economic integration.

The threat is not so much that there will be a headlong retreat from globalization. The forces pushing the other way -- advancing technology, not least -- are probably too powerful. Rather, it’s that dithering and incompetent governments will prevent a liberal economic order from realizing its full potential. Unless something changes, excellent opportunities for spreading prosperity farther and faster will be lost.

To seize those chances, leaders need to understand why globalization works, be willing to make the case to skeptical voters, and do more to support those workers whom international trade -- or any other kind of economic disruption -- threatens to leave behind.

Globalization is simply competition writ large. One of the few things economists know for sure -- maybe the only thing -- is that competition spurs innovation and efficiency, making products better and cheaper, and raising living standards in the aggregate. The wider the scope of this competition, the better. If barriers to trade and competition worked, living standards in the former Soviet empire would have vaulted past those in the U.S., leaving American consumers to gaze enviously on the good life, Cuban-style.

What about the rallying cry of the new protectionists -- the idea that trade should be fair rather than free? Some rules are needed, of course, to avoid labor and environmental abuses, and to guard against predatory subsidies and exchange-rate policies. Past and prospective free-trade pacts aren’t lacking in such rules.

Yet the claim that trade with low-wage countries is unfair in and of itself is both economically specious and morally bankrupt. When goods are made at lowest cost, it’s a win-win for trading partners. And make no mistake: Free trade is anti-poverty. Denying countries such as China the right to sell Americans cheaper products makes both countries poorer -- with the least well-off losing most.

It’s vital that political leaders make this case. When they bow to demands for trade barriers rather than propose help for workers whose jobs are displaced by competition, they abdicate their responsibility. The right approach is to provide effective safety nets, better vocational education, help with moving and retraining to find new jobs, employment subsidies for low-wage workers, and fairer, simpler taxes.

Get those things right, and you spread the benefits of domestic and foreign competition widely. Get those things wrong, and you only compound the problem by restricting trade -- adding slower growth to a rigid labor market and systemic lack of economic opportunity.

One shouldn’t altogether despair about the lack of leadership currently on display in the U.S. and Europe. Whatever governments do, technology will continue to compress distances and drive competition. In Europe, mutual interest will dictate close economic connections between the U.K. and the rest of Europe, Brexit notwithstanding. Even President Donald Trump would recoil from the consequences of his promise to hike tariffs, once his supporters began to understand what that would do to their household budgets.

The real danger is in failing to grasp all the benefits that further economic integration has to offer. The prevailing mood jeopardizes opportunities such as the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, and a resuscitated World Trade Organization. Moving forward on any or all of those projects would boost confidence at a time when the world economy badly needs it. Leaders in the U.S. and Europe can and should do better.

Article Link To The Bloomberg View:

In Troubled Times, Germans Embrace ‘Mommy’ Merkel

From the refugee crisis to terror attacks, the chancellor should be losing support. She’s never been more popular.

Politico EU
July 25, 2016

BERLIN — Nothing erodes public confidence in the ruling class like political upheaval, violence and economic uncertainty. Yet in Germany these days, that combustible mix is fueling a quiet revival of Angela Merkel’s political fortunes.

The weekend violence in Germany, which began with the deadly rampage by a bloodthirsty teen in Munich and ended with a suicide bombing in a small Bavarian city, marked the latest in a series of events, from the U.K. referendum to an ISIL-inspired hatchet attack on a German commuter train, that have unnerved the Merkel Republic.

So far, instead of turning away from their leader, as one might expect, Germans have been flocking to her like moths to a flame. A string of recent polls (taken before the weekend attacks) showed that Merkel had largely recovered from the hit she took during the refugee crisis. The chancellor’s approval rating reached 59 percent in July, the highest since September 2015, in this month’s benchmark Deutschlandtrend poll, conducted by Infratest dimap for German public television.

With little more than a year to go until the next general election, Merkel, the leader Germans only half-mockingly like to refer to as Mutti (Mommy), is once again ascendant.

"Merkel’s trademark sangfroid was on full display over the weekend."

That may not be too surprising in a conservative country of voters who prize continuity and fear change. Still, given the thrashing Merkel took for opening Germany’s gates to more than one million migrants last year, her recent bounce is notable. The question is whether it’s sustainable.

Even if Merkel’s biggest advantage is the gnawing unease in her population over recent events, that ur-Teutonic emotion Germans call Angst, it’s also her Achilles heel. The explosion of violence in Germany over the past few days offered a stark reminder of how volatile the environment has become. The Munich attack on Friday was followed by the murder of a woman near Stuttgart by a machete-wielding Syrian refugee. A suspected suicide bombing outside a festival in the small city of Ansbach late Sunday that left the bomber dead and 12 injured, capped off what go down as the country’s bloodiest weekend in recent memory.

Though the attacks weren’t linked, they have further unsettled an already jittery public. That the Ansbach bomber was a Syrian refugee whose asylum application had been rejected will do little to convince Germans that refugees don’t pose a serious security risk. Merkel’s response in the coming days and weeks could determine whether Germans continue to trust her.

That said, terrorism is far from Merkel’s only problem.

“She still faces a number of ticking time bombs,”said Thorsten Benner, director of the Berlin-based Global Public Policy Institute, a think tank.

Those include the refugee crisis, Brexit and Italy’s banking woes , to name but a few. Germans’ biggest current fear is terrorism, followed by political extremism and domestic tensions over refugees, according to a study published this month by insurer R+V.

While Merkel has found short-term remedies for some voter concerns, most are far from resolved and could flare at any moment. As this month’s failed coup in Turkey illustrated, new threats to the region’s stability abound.

Far-Right Disharmony

Merkel’s recent recovery came mainly the result of a calming of the refugee crisis. The closing of the so-called Balkan route coupled with the European Union’s deal with Turkey, which halted the flow of migrants across the Aegean, has eased if not erased fears about the number of refugees arriving.

The drop in refugee numbers has coincided with infighting in the anti-immigrant Alternative for Germany (AfD) party.

Disputes within the leadership of the party have cost it support. Recent polls put it at about 11 percent, well off the 15 percent it was polling as recently as May. Merkel’s conservative alliance is back up around 35 percent after falling to the low 30s earlier in the year.

The AfD has already tried to capitalize on the weekend attacks, highlighting the attackers’ links to the Muslim world and migrant backgrounds.

However serious are the challenges Merkel faces, it’s difficult to fathom a scenario where Germans would give up what most regard as the voice of reason in troubled times.

Merkel’s trademark sangfroid was on full display amid the weekend chaos. During what on Friday at first appeared to be a terrorist siege in Munich, the chancellor remained out of sight. Amid the cacophony of false alarms, which took police several hours to dispel, Berlin was largely silent, saying only that the chancellor was monitoring events closely.

Merkel didn’t appear until the next day after a fuller picture of the Munich rampage had emerged. She spoke from the Berlin chancellery, but the cadence of her voice and her choice of words evoked the Lutheran church she grew up in as the daughter of a pastor: “To the families, the parents and children for whom today everything appears empty and senseless, I say both for myself and in the name of many, many people in Germany: We share your pain. We are thinking of you. We suffer with you…The state and its security services will continue to do everything they can to protect the safety and security of all.”

With that, she left the stage, taking no questions from the assembled reporters.

No Alternative

Even though a majority of Germans don’t believe the government can prevent terror — a poll out last week found that 77 percent of Germans anticipate further terrorist attacks — they appear to find solace in Merkel’s words.

They have less faith in her political rivals. Social Democrat leader Sigmar Gabriel, the man expected to challenge Merkel for the chancellorship, is among the country’s least popular major politicians and many of his own supporters think he’s not suited to run the country. None of the other parties is big enough to mount a serious challenge for chancellor.

That means Merkel, to borrow one of her favorite phrases, is “without alternative.”

The only real question is what kind of coalition she will build. Though more than 40 percent of Germans continue to favor the current grand coalition between Merkel’s conservatives and the Social Democrats, the foot soldiers in both parties want to avoid it at all costs.

"The emergence of the AfD has complicated the math for the center-right forces around Merkel."

Many in Berlin are betting Merkel will pursue a deal with the Greens. While the party has shed much of its radical positions, there’s still some question about whether it could ever govern with a party that is the epitome of the establishment. Some influential Greens have their own doubts and are pushing for a left-wing alliance between with the Social Democrats and the Left party, a motley collection of former communist elements.

The emergence of the AfD has complicated the math for the center-right forces around Merkel. Their preferred partner, the liberal Free Democrats, are unlikely to win enough of the vote to form a coalition.

Though the election is more than a year away, the unofficial beginning of the campaign season will be this fall after the summer break.

Given the chancellor’s dominance, the parties will be competing as much for her favor as for voters. Despite the challenges she faces, few think the Merkel era will end any time soon.

“She has the luxury of being able to choose who she governs with,” Benner said.

Article Link to Politico EU:

The Revenge Of Unrealistic Expectations

The Washington Post
July 25, 2016

It's the revolution of rising expectations again.

Watching Donald Trump last week, I thought of Alexis de Tocqueville, the French political philosopher whose "Democracy in America," published circa the 1830s, remains the most insightful study of our national character. But it was Tocqueville's other masterpiece, "The Old Regime and the Revolution" (1856), that came foremost to mind. In it, he outlined what we now call the "revolution of rising expectations" - a concept highly relevant to today's presidential campaign.

The French Revolution presented a paradox, Tocqueville wrote. Before the revolution, prosperity was on the rise; and yet, it wasn't enough to prevent the revolution. Why? The answer, Tocqueville argued, was that the first taste of prosperity had whetted people's appetites for more - and when these raised expectations were not met, there was a furious backlash. Existing ideas and institutions were discredited. There was a power vacuum. Change became chaos.

Something similar is happening now. Our economic and political expectations were raised in the late 1990s - and then they were dashed. The resulting fears and discontents undermined the credibility and prestige of existing leaders and doctrines. There was (and is) an intellectual void that, in many ways, was tailor-made for "outsiders" - think especially Trump and Bernie Sanders - who rejected conventional analyses and offered their own solutions.

To be sure, the United States in 2016 is nowhere near the extreme breakdown of France in 1789. Still, broad parallels exist. Think back a couple of decades to 1996 or 1997. The economy and stock market were booming in what would become the longest economic expansion in U.S. history. The unemployment rate was below 5 percent. Elsewhere, America's dominance seemed indisputable. In technology, we led in software and personal computers. After the Soviet Union's collapse, the United States was the sole superpower.

We prepared for a prosperous and placid future. But it was not to be. The stock market bubble burst in early 2000. Then 9/11 exposed our vulnerability to terrorism. The 2008-2009 financial crisis and accompanying Great Recession gave the lie to our presumed control of the business cycle. Both Russia and China emerged as geopolitical rivals and, possibly, military foes.

We had paradise for a fleeting moment - and then it was lost. It is the subconscious comparison between the imperfect present and the idealized past (of the late 1990s) that feeds our disappointment. Otherwise, our situation might seem less desperate. After all, the economy has created more than 14 million jobs since the employment low point. What's missing is the sense of boundless optimism and national superiority that characterized the boom years.

Americans are now said to be "angry" and to demand "change." This is misleading. In the past two decades, Americans have had more change than they've wanted. What they'd really like is to repeal the changes - the economic uncertainties, the physical threats, the geopolitical challenges - and revert to the romanticized world of the late 1990s, when the outlook seemed more tranquil.

Trump has cast himself as our savior who will restore the glory days. Whether he can do this - or rather, whether most Americans believe he can do it - is a central fault line of the campaign. That is the thrust of his "America First" slogan. In his acceptance speech, he sounded at times like Sen. Elizabeth Warren (Mass.), the Democratic left-wing populist.

"Big business, elite media and major donors are lining up behind the campaign of my opponent," he said, "because they know she will keep our rigged system in place."

Oh really, retort Democrats. The man will say and do almost anything to win. What he hasn't said - and probably never will - is that his vision for America is a simplistic fiction. We can't repeal the economy's periodic instability, though we may (perhaps) mitigate it; we can't isolate ourselves from the rest of the world without being exposed to collateral damage; and we can't borrow ourselves to prosperity.

As long as we cling to these unrealistic ideas - as long as they are benchmarks for our success or failure - the more we condemn ourselves to the revenge of false expectations.

Article Link to the Washington Post:

Eyes On Fed, BOJ, Europe's Bank Stress Test

By Balazs Koranyi
July 25, 2016

Central banks from Washington to Tokyo take center stage next week, although policymakers are likely to remain cautious as they wait for the dust to settle from Britain's shock vote to leave the EU.

As they wait for political reassurances and greater clarity over the likely impact of the move, central banks have mostly avoided action since Britain's June 23 referendum, calming jittery markets with verbal assurances but leaving the burden on governments to chart a path.

G20 finance ministers and central bankers said on Sunday they would work to support growth and better share the benefits of trade, after a two-day meeting in China dominated by the impact of Brexit and fears of rising protectionism.

The U.S. Federal Reserve is all but certain to keep interest rates on hold on Wednesday, acknowledging improved economic prospects but offering few hints about its next move, keen to avoid repeating its past mistake of stoking rate hike expectations.

The next move is still seen as an increase in rates. But even as concerns over Brexit ease the U.S. election is drawing closer, likely pushing back action towards the end of the year and possibly limiting the Fed to a single hike in 2016, a far cry from its early-year estimate for four moves.

"As the outlook up to mid-September will presumably not be clear enough by then, the next rate hike is more likely to happen in December in our opinion, followed by two further steps in the coming year," Commerzbank said in a note. "Consequently, we predict a somewhat stronger dollar and slightly higher yields in the medium term."

Analysts polled by Reuters also see the next move in the fourth quarter while futures imply a move closer to mid-2017.

Still, the U.S. economy remains on a solid footing with preliminary second-quarter GDP figures due on Friday expected to show the annual growth rate accelerating to a healthy 2.6 percent from 1.1 percent three months earlier.

Economic data have surprised on the upside and financial conditions have also eased recently, suggesting that the U.S. is entering the third quarter on a strong note with solid growth momentum.


For the Bank of Japan, struggling with low inflation, next Friday's rate decision will be a close call with markets simmering with speculation that it will have to ease policy.

It is likely to cut its inflation forecasts, but only slightly, which may allow the bank to justify standing pat for the time being.

Prime Minister Shinzo Abe, fresh off a big election win, is also working on a stimulus package with a headline figure of at least 20 trillion yen ($189 billion), potentially taking some pressure off the BOJ, which was criticized earlier this year for cutting rates into negative territory.

Still, it is uncertain whether the bank can avoid delaying the timeframe for meeting its 2 percent inflation target, suggesting that its rate decision will be a close call.

"Concerns about Brexit fallout on the real economy and financial markets have driven investors to bet on BOJ easing this month," Naomi Muguruma, senior market economist, Mitsubishi UFJ Morgan Stanley Securities said.

"Therefore if the BOJ stands pat this month, that would disappoint the markets, prompting a fall in stock prices and a rise in the yen," Muguruma added.

For now, analysts expect the bank to expand its asset purchases and cut its key rate to -0.2 percent from -0.1 percent.

In Europe, the week's top event will be Friday's release of banking stress test results, with all eyes focused on Italian lenders, seen as the weakest link due to their low profitability and the 360 billion euros ($397 billion) worth of non-performing loans on their books, a legacy of Europe's debt crisis.

Though the test is not a pass-or-fail exercise, the data could give fresh impetus to agreeing on a solution with Italy and the European Commission seemingly deadlocked, disagreeing over state support.

European Central Bank president Mario Draghi hinted on Thursday at the possibility of setting up a public backstop to help Italian banks sell down some of their bad loans that have hampered their ability to lend.

Second-quarter euro zone and British GDP figures will also make for interesting reading, although the number will be seen as less relevant in the wake of the Brexit decision.

Article Link to Reuters:

Nintendo Shares Dive As Company Plays Down Pokemon GO's Earnings Impact

By Junko Fujita
July 25, 2016

Shares in Nintendo Co tumbled as much as 18 percent on Monday after the company said Pokemon GO would have a limited impact on its earnings - their biggest setback so far after a huge run-up on the smash-hit game.

The Kyoto-based gaming company, which is due to report first-quarter results this week, surprised markets with a statement on Friday that income garnered through its 32 percent stake in affiliate Pokemon Company, which owns the licensing rights, would be limited and that it did not plan to revise its earnings outlook for now.

Recording its biggest decline since October 1990, the stock ended down 17.7 percent, or by 5,000 yen - the daily limit allowed.

But some market players said Nintendo was being disingenuous, adding that there were few expectations of upward revisions to its profit targets so early after the game's launch and that it was clear the game would be key to earnings.

"The market has overreacted to the Nintendo statement," said David Gibson, a senior analyst at Macquarie Securities Group, noting the game in Japan had broken records with 10 million downloads in one day.

"I believe that Pokemon GO will be material in the company's earnings given the current trends for the game."

Pokemon GO's success has triggered massive buying in Nintendo shares and even with Monday's decline, the shares are still up some 60 percent compared with levels prior to the game's July 6 launch in the United States, Australia and New Zealand, adding nearly $12 billion in market value.

Yasuo Sakuma, portfolio manager at Bayview Asset Management, said he still saw the company's shares as cheap given the potential for Nintendo to reap rewards from other strong character franchises as it forays deeper into mobile gaming.

"Nintendo is well-placed to boost its earnings with its other characters, such as Super Mario and Zelda and their potential is unknown," he said.

Pokemon GO is Nintendo's first venture into mobile gaming as the company had until recently been keen to protect its console business from cannibalization.

In addition to its stake in Pokemon Company, Nintendo has an undisclosed holding in Niantic Inc - the game's developer, which was spun off from Google.

It is also expected to benefit from sales of Pokemon GO Plus - an accessory that alerts players to nearby Pokemon so that they don't have to always be looking at their smartphones. Nintendo said, however, that sales of the device have already been factored into its earnings outlook.

Nintendo, which reports earnings on Wednesday, has forecast a 37 percent rise in operating profit to 45 billion yen ($425 million) in the year to March. While it is expected to see upside from Pokemon GO it will also have to contend with a strong yen which eats into the value of earnings garnered abroad.

Seven analysts' estimates that have been revised since the game's launch range from 36 billion yen to 60 billion yen.

Article Link to Reuters:

Oil Prices Dip On Ongoing Oversupply, Economic Headwinds

By Henning Gloystein and Osamu Tsukimori
July 25, 2016

Oil prices held near two-month lows on Monday amid worries that a global crude and refined product glut would weigh on markets for some time to come.

International Brent crude oil futures were trading at $45.58 per barrel at 0657 GMT, down 11 cents from their previous close. U.S. West Texas Intermediate (WTI) crude was at $44.11, down 8 cents a barrel.

Both benchmarks were close to two-month lows reached last week.

Traders said that ongoing oversupply and growing economic headwinds were weighing on oil.

"Sentiment looks to have turned negative," said Matt Stanley of brokerage Freight Investor Services (FIS) in Dubai, although he added that markets would likely remain volatile.

Barclays bank said "global oil demand in Q3 16 is growing at less than one-third the rate it was in Q3 15, weighed down by anemic economic growth", adding that demand support from the OECD has faded, while growth from China and India has slowed.

Morgan Stanley said headwinds were growing for the second half of the year, leading to an expectation of lower oil prices. It pointed to resilient U.S. supply, falling demand for transport fuels, and oversupply by refiners, particularly in gasoline.

"As a result, crude oil demand from refineries is underperforming product demand by a wide margin," the bank said, adding that growing economic risks added further to downside risks for oil.

A strong dollar and a fourth weekly rise in the U.S. oil rig count also weighed on prices, traders said. [USD/] [RIG/U]

Money managers cut their net long U.S. crude futures and options positions, which would profit from rising prices, to a four-month low in the week to July 19, the U.S. Commodity Futures Trading Commission said on Friday.

Libya's hopes to boost crude exports have been dealt a blow after the head of the National Oil Corporation (NOC) objected to a deal between the government and local guards to reopen key ports.

Article Link to Reuters:

ASEAN Breaks Deadlock On South China Sea, Beijing Thanks Cambodia For Support

By Michael Martina and Manuel Mogato
July 25, 2016

Southeast Asian nations overcame days of deadlock on Monday when the Philippines dropped a request for their joint statement to mention a landmark legal ruling on the South China Sea, officials said, after objections from Cambodia.

Beijing publicly thanked Cambodia for supporting its stance on maritime disputes, a position which threw the regional block's weekend meeting in the Laos capital of Vientiane into disarray.

Competing claims with China in the vita shipping are among the most contentious issues for the Association of Southeast Asian Nations, with its 10 members pulled between their desire to assert their sovereignty while finding common ground and fostering political and commercial ties with Beijing.

China claims most of the sea, but ASEAN members the Philippines, Vietnam, Malaysia and Brunei all have rival claims. In a ruling by the U.N.-backed Permanent Court of Arbitration on July 12, the Philippines won an emphatic legal victory over China on the dispute.

The Philippines and Vietnam both wanted the ruling, which denied China's sweeping claims in the strategic seaway that channels more than $5 trillion in global trade each year, and a call to respect international maritime law to feature in the communique.

Calling for bilateral discussions, Cambodia opposed the wording on the ruling, diplomats said.

Manila agreed to drop the reference to the ruling in the communique, one ASEAN diplomat said on Monday, in an effort to prevent the disagreement leading to the group failing to issue a statement.

The communique referred instead to the need to find peaceful resolutions to disputes in the South China Sea in accordance with international law, including the United Nations' law of the sea, to which the court ruling referred.

"We remain seriously concerned about recent and ongoing developments and took note of the concerns expressed by some ministers on the land reclamations and escalation of activities in the area, which have eroded trust and confidence, increased tensions and may undermine peace, security and stability in the region," the ASEAN communique said.

It was important to avoid militarization of the region, and for freedom of navigation to be maintained, ASEAN said.

Beijing says the court ruling has no bearing on its rights in the sea, and described the case as a farce.

Cambodia's position was the right one and would safeguard unity of ASEAN and cooperation with China, China's Foreign Minister Wang Yi told Cambodia's Foreign Minister Prak Sokhon, according to a statement posted on China's Foreign Ministry website early on Monday.

"China greatly approves of Cambodia and other ASEAN countries taking charge of impartiality and safeguarding fairness," Wang said.

China frequently blames the United States for raising tensions in the region and has warned regional rival Japan to steer clear of the dispute.

"We will not permit any outside force to seek to exploit and hype up the so-called South China Sea arbitration case and bring chaos to this region," Wang said.

Major Powers Arrive

The United States, allied with the Philippines and cultivating closer relations with Vietnam, has called on China to respect the court's ruling.

It has criticized China's building of artificial islands and facilities in the sea and has sailed warships close to the disputed territory to assert freedom of navigation rights.

U.S. Secretary of State John Kerry arrived in Laos' capital on Monday. He is expected to discuss maritime issues in a meeting with Wang, as well as in meetings with ASEAN members.

Both are in town for the ASEAN regional forum and East Asia summits, which bring ASEAN diplomats together with the U.S., China, Japan, Russia and several other countries.

Kerry will urge ASEAN nations to explore diplomatic ways to ease tension over Asia's biggest potential military flashpoint, a senior U.S. official said ahead of his trip.

Barack Obama is set to become the first U.S. president to visit Laos, attending an annual summit in September.

Nobel laureate Aung San Suu Kyi is also in Laos, making her debut at ASEAN meetings as the foreign minister for Myanmar.

Article Link to Reuters: