Tuesday, December 6, 2016

Tuesday, December 6, Morning Global Market Roundup: Asian Stocks Post Biggest Daily Gain In Two Weeks

By Saikat Chatterjee
December 6, 2016

Asian stocks posted their biggest rise in two weeks on Tuesday and the euro steadied as investors judged the selloff after Italy's referendum to be overdone, with robust U.S. economic data also helping sentiment.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS bounced 0.7 percent, its biggest daily rise since Nov. 22, breaking two days of falls. Korea .KS11 climbed 1.4 percent while Japan .N225 rose 0.4 percent.

European stocks are likely to open higher though gains may be subdued as U.S. stock futures ESc1 are in the red.

"Global risk sentiment roared back after falling prey to the initial Renzi fallout and whatever negatives Italy creates for the eurozone, yesterday was not the time for a euro implosion," said Stephen Innes, senior trader at online FX platform, OANDA.

Wall Street rose on Monday, with the Dow Jones industrials setting fresh record highs following a services sector report showing further strength in the economy.

Services sector activity hit a one-year high in November, with a surge in production boosting hiring, following on the heels of Friday's employment report that showed strong job gains last month.

The services news pushed short-dated Treasury yields higher with two-year benchmark yields stabilizing near the 1.13 percent level, not far from a six-year high of 1.17 percent tested in late November.

Interest rates futures FFZ6 implied traders saw a 93 percent chance the Fed would raise rates by a quarter point to 0.50-0.75 percent next week, CME Group's FedWatch showed.

Financial shares in China weakened after the country's insurance regulator suspended an unlisted insurer from selling some products. This followed the country's top market regulator's scathing comments over the weekend condemning "barbaric" share acquisitions by some unidentified asset managers.

With financials .SSE180FI under pressure, both the blue-chip CSI300 index and the Shanghai Composite Index slipped, significantly underperforming regional markets.

In foreign exchange markets, the euro steadied after bouncing back from a near 21-month low set the previous day after Italian Prime Minister Matteo Renzi was defeated in a referendum on constitutional reform.

The euro eased 0.1 percent to $1.0751 EUR= but held on to the bulk of the gains from Monday, when it ended up strengthening about 1 percent on the day, bouncing from a low of $1.0505 set after Renzi said he would resign.

The dollar held near a three-week low against a basket of six major currencies .DXY as investors viewed recent strength as overdone.

The Australian dollar dipped after the Reserve Bank of Australia kept rates on hold at its monthly policy meeting but struck a cautious note on the economy's outlook. The Aussie AUD=D4 was on the backfoot at $0.7460.

"The statement highlighted a mixed economy with caution around labor, growth and inflation," said Su-Lin Ong, a senior economist at RBC Capital Markets.

Oil fell, with U.S. crude CLc1 down more than 1 percent at $51.26 per barrel as investors judged that a 16 percent rally since the OPEC agreement last Wednesday to curb production was getting stale. Brent crude LCOc1 also stumbled. [O/R]

Still, higher stocks and firmer short-dated Treasury yields projected a more optimistic backdrop for risk appetite than Monday when Asian markets plunged as investors worried the euro-zone may be heading for a fresh crisis after the Italian vote.

The lift in sentiment pushed the prices of relative safe-haven assets such as gold and Japanese yen JPY= lower.

Spot gold XAU= fell by as much as 1.6 percent to its lowest since early February at $1,157 an ounce, before bouncing somewhat.

Article Link To Reuters:

Oil Prices Pull Back As Investors Cash In On One-Year Highs

By Dan Strumpf
December 6, 2016

Oil futures retreated from one-year highs on Tuesday, as traders took profits following the sharp rally in the wake of last week’s decision by the Organization of the Petroleum Exporting Countries to cut production.

Light, sweet crude for January delivery CLF7, -0.75% fell 34 cents, or 0.7%, to $51.45 a barrel during the Globex session on the New York Mercantile Exchange. February Brent crude LCOG7, -0.60% lost 26 cents, or 0.5%, to $54.69 a barrel.

Crude futures had hit fresh one-year highs during the New York session. Oil prices have rallied sharply in the sessions before and after last week’s deal by OPEC to cut output. Analysts said the oil market looks increasingly likely to head higher, with occasional pullbacks as traders take money off the table.

“The market is buying into this rebalancing story, assisted by a cut from OPEC,” said Virendra Chauhan, an oil analyst at Energy Aspects. Oil prices rose almost 15% after last week’s OPEC deal, which would remove about 1% of supply from the market when it takes effect in January.

He added that oil futures expiring into next year have come closer into alignment with front-month prices, a typical sign of a market coming back into balance. “There have been substantial shifts [in trading] at least two to three years out” into the future, he said.

Separately, oil prices could see another move later this week on U.S. inventory data from the Department of Energy. The data is due Wednesday morning during New York trading hours, while similar data from the American Petroleum Institute is due later Tuesday during New York trading hours.

S&P Global Platts said it expects U.S. oil stockpiles fell 1.7 million barrels last week, though the pricing agency added that the OPEC agreement “could inadvertently lead to greater U.S. production down the road” as prices rise.

In refined product markets, Nymex reformulated gasoline blendstock for January RBF7, -0.45% — the benchmark gasoline contract — fell 52 points to $1.5523 a gallon, while January diesel traded at $1.6529, 42 points lower.

ICE gasoil for December changed hands at $474.75 a metric ton, down $2.25 from Monday’s settlement.

Article Link To MarketWatch:

Why U.S. Shale Producers Are The Biggest Winner From OPEC’s Oil Deal

‘Oil prices are truly on course for a recovery’: analyst

By Myra P. Saefong
December 6, 2016

Major oil producers from around the globe managed to strike a deal to help the market find a balance between demand and a glut of supplies that has weighed on prices for more than two years.

So far, the oil market has cheered the agreement, but the true winner may be the U.S. shale-oil industry.

The Organization of the Petroleum Exporting Countries’ pledge to curb member production to no more than 32.5 million barrels a day, lifted crude prices CLF7, -0.66% LCOG7, -0.53% for three-straight sessions to tally a weekly gain of more than 11%, and on Monday oil extended those gains.

Key oil producers who aren’t members of OPEC, also agreed to cut back their output by 600,000 barrels a day, with Russia taking on half that reduction.

“The shale producers will be the ones who benefit” from the oil-producer deal and the likely rise in oil prices, said Charles Perry, chief executive officer of energy-consulting firm Perry Management.

“Shale drillers have good backlogs of undrilled but proven leases, and they can get rigs and other equipment quickly,” he said. “So even if OPEC cuts production for a limited period of time, the shale drillers can quickly jump in and drill some new wells.”

Horizontal drilling and hydraulic fracturing, or fracking, which involves using a mix of water, sand, and other additives to coax oil and gas from dense rock formations, has unlocked huge oil-and-gas deposits previously trapped in shale rock. Shale oil wells can be drilled in weeks, with no exploration risk.

Shale oil producers in the U.S. include EOG Resources Inc. EOG, +0.69% Devon Energy Corp.DVN, -0.23% and Whiting Petroleum Corp. WLL, +0.65% as well as Continental Resources Inc.CLR, -0.31% which is headed by Harold Hamm, seen as a possible pick by President-elect Donald Trump as Energy Secretary.

Action And Reaction

The OPEC production cuts are set to begin on Jan. 1 and the group will meet again in May to reassess the agreement and decide whether to extend the reductions.

Oil producers found more than enough incentive to reach a deal as prices for West Texas Intermediate crude futures suffered sharp losses in the last two years. By the end of 2015, settled below $40 a barrel—a more than 60% drop from the peak in 2014 of over $105 a barrel. WTI has now gained close to 40% year to date.

Against that backdrop, total oil production from seven major U.S. shale plays have fallen all year, but those declines have moderated in recent months. The Energy Information Administration forecast shale oil output down 20,000 barrels a day in December from a month earlier. The month-to-month decline for November was estimated at 30,000 barrels, and for October it was a decline of 61,000 barrels a day.

The EIA will issue its latest shale output update, with a forecast for January, on Dec. 12.

Perry attributed the declines in shale production in recent months, in part, to the “normal depletion decline of existing wells.” But if “new wells are drilled, these declines will change into oil production increases fairly rapidly.”

Michael Roomberg, a portfolio manager at Miller/Howard Investments DBBEX, +0.57% explained that “shale wells, like all oil wells, naturally become less productive over time, as the pressure in the formation is released, like the air from a balloon.”

And “that decline must be constantly offset by new well drilling, otherwise overall basin supply will decline,” he said. “So long as prices are insufficient to incentivize new drilling activity, supply will decline.”

But if oil producers stick to their agreement, prices for oil are expected to rise.

“Oil prices are truly on course for a recovery,” with Brent prices having reached a solid $54, backed by the first coordinated action by the OPEC members in 8 years, said Mihir Kapadia, chief executive officer and founder of Sun Global Investors. “It has definitely set a new price outlook for the commodity.” On Monday, Brent prices briefly topped $55 a barrel while those for WTI hit $52, marking levels not seen for those contracts in more than a year.

Part of the reason for OPEC’s reluctance to cut back on production has been concern over the loss of marketshare to non-OPEC producers such as the U.S.—specifically shale producers. OPEC’s agreement marked the first output cut in about 8 years.

“While some say OPEC has succeeded in its goal of limiting high-cost production, I tend to think they’ve sown the seeds of their own demise,” said Troy Vincent, oil analyst at ClipperData. “Production costs in the U.S. have roughly halved during the downturn in prices caused by Saudi Arabia’s turn to market share maximization, as companies focused on innovation and efficiency.”

“This sets a good foundation for the next leg up in U.S. production,” he said.

U.S. offshore oil output, however, isn’t likely to benefit as much as shale production, analysts said. Offshore wells involve a degree of exploration risk and logistical difficulties, given that they’re often drilled in deep water.

Offshore producers “have especially big lead times to drill wells, so it will take them a particularly long period to be able to get mobilized to drill new off shore wells,” said Perry.

Article Link To MarketWatch:

Amazon Introduces Next Major Job Killer To Face Americans

By James Covert, Linda Massarella and Bruce Golding
The New York Post
December 6, 2016

Amazon on Monday unveiled the latest plan to automate American workers out of existence — a futuristic grocery store without any cashiers.

High-tech sensors and artificial intelligence are allowing shoppers at the Seattle food market to swipe an app when they enter, then roam the aisles and grab staples like bread and milk, artisanal cheeses and chocolates and ready-made meals.

Customers can watch as the items they pluck off the shelves get added to a virtual cart on the app — and subtracted if they put them back — with receipts e-mailed to them once they leave, according to the company.

The 1,800-square-foot Amazon Go store is currently open only to employees of the online retail giant, but the company plans to start letting the public in next year.

Amazon will also test out “large, multifunction stores with curbside pickup capability” and “drive-through prototype locations,” sources told The Wall Street Journal (paywall).

The company wants to open more than 2,000 brick-and-mortar grocery stores, compared with about 2,800 operated by The Kroger Co., now the nation’s largest full-service grocery retailer.

Amazon’s plans mark its latest push into the $800 billion-a-year grocery business, following it AmazonFresh delivery service that began expanding across the country in 2013 and arrived in Brooklyn in late 2014.

It also threatens countless jobs at grocery stores, which are the leading employers of cashiers and had 856,850 on their payrolls in May 2015, according to the latest figures from the federal Bureau of Labor Statistics.

Britt Beamer, president of America’s Research Group, a consumer-behavior research and consulting firm, estimated that Amazon’s cutting-edge technology had the potential to wipe out 75 percent of typical grocery-store staff.

“It’ll be a big job-killer,” Beamer said. “It’ll eliminate the cashier, it’ll get rid of the baggers, it’ll eliminate the stock clerks. This could be big.”

Neil Saunders, managing director of the retail research firm Conlumino, called checkout lines “the most inefficient parts of the store experience,” and said Amazon could both “save a lot on labor costs” and “make the process much quicker for consumers and much more satisfying.”

Saunders said the new-fangled shopping method could make people “feel like they stole” an item.

“There is a bit of education needed for consumers,” he said.

An Amazon spokeswoman declined to say how the company planned to prevent shoplifting.

The opening of Amazon Go follows the company’s increasing use of warehouse robots and its heavily hyped scheme to deliver online purchases via a fleet of Prime Air drones, which Amazon predicts will one day “be as normal as seeing mail trucks on the road.”

It also comes amid growing concern over the impact of self-driving vehicle technology on the nation’s 3.5 million truckers, cabbies and other professional motorists.

Speaking on the technological advances at a Capitol Hill hearing last month, Sen. Jack Reed (D-RI) called such driving jobs “a ticket to the middle class” for many people without college degrees.

“We have to make sure this technology not only enables better productivity, but doesn’t disqualify millions of Americans from good, solid jobs,” Reed warned.

In 2011, President Obama blamed automation for a lack of hiring.

“There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers,” he told NBC News.

“You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate,” Obama said.

In New York City, the introduction of MetroCard vending machines led the MTA to eliminate 600 token-booth jobs in 2010, although the workers were all reassigned to other tasks, said Transit Workers Union spokesman Pete Donohue.

Meanwhile, the use of robots and other manufacturing efficiencies were responsible for 88 percent of the 7 million factory jobs the US has lost since peak employment in 1979, according to a study last year by Ball State University’s Center for Business and Economic Research.

Article Link To The New York Post:

For Europe’s Unity, 2017 Will Be A Year Of Reckoning

Mainstream parties are feeling pressure from populist politicians, setting up votes next year in several core European nations that will help determine fate of open borders and the euro.

By Marcus Walker and Anton Troianovski 
The Wall Street Journal
December 6, 2016

Demands from the gathering forces of European populism range from erecting border fences to dismantling the euro. Some insurgent parties want greater fiscal leeway from Europe. Others want their money back from neighboring nations.

They share one thing: Their ideas would unravel the 60-year project of European integration.

These diverse anti-establishment forces have yet to win power in any of the European Union’s core countries. Even so, they are piling pressure on mainstream parties, pulling EU countries in different directions as their governments try to assuage a growing public conviction that Europe isn’t working.

A string of elections in 2017 will test whether the populist forces can beat mainstream politicians. A political revolt against Europe’s status quo that began in Greece and the U.K. will come to a head in France, Germany, the Netherlands and probably Italy. The outcome could eventually, if not immediately, determine the fate of the EU, with its open internal borders and common currency.

At the heart of the new European question, and of many national contests, lies disillusionment over the burdens of life in the euro and anger about a perceived loss of control over immigration. Sunday’s referendum in Italy and presidential election in Austria suggest Europeans are split between those who reject what the EU stands for and those who believe it needs change to survive.

“The only thing that unites Europe in this time is dissatisfaction,” said Caterina Pifano, a lawmaker for Italy’s 5 Star Movement.

The anti-establishment party’s demands include a nonbinding referendum on whether Italy should keep the euro. Such a move could spook financial markets and destabilize Italy’s fragile banking system, Ms. Pifano said. “The point,” she added, “is to press Europe to understand that there’s a problem. It’s not Italy, nor France—it’s that this Europe can’t go on.”

Other populist movements want to go further. France’s National Front wants to return to national currencies. It calls for an orderly process in concert with other EU nations, led by the Franco-German “motor,” to end the experience of the euro. It hasn’t laid out how that process would work, nor how to revive the French franc if Germany wouldn’t cooperate.

The National Front wants to renegotiate the EU’s founding treaties, not simply quit them. Its demands for change, including the return of France’s net contribution to the EU’s budget and restrictions on migration within the EU, would undermine the EU’s signature policies.

Party leader Marine Le Pen is a leading contender in France’s presidential election next year, though not the favorite. A win by her could be the fastest route to an EU unraveling by setting a collision course between France and Germany, where EU defender Angela Merkel remains favorite to win a fourth term as chancellor in fall 2017.

In most countries, a majority still supports membership of the EU and its currency. According to an EU survey in May, the most recent, 54% of Italians, 69% of Austrians and 73% of Germans want to keep the euro. Only about one in three, though, said they had a positive image of the EU.

The greatest long-term threat to the EU’s stability could be Italy, whose economy has failed to grow since the country joined the euro or to recover from the financial crisis.

Italians this weekend resoundingly rejected constitutional changes proposed by Prime Minister Matteo Renzi, who resigned on Monday. His failed plan was to streamline Italian politics to unlock economic changes European authorities view as vital for Italy’s viability in the euro.

Italy’s 5 Star Movement wants to shake up the EU, including by casting off its Germany-sponsored fiscal shackles. Italy’s anti-immigrant and regionalist Northern League, by contrast, wants to quit.

The bloc is incapable of changing, said Carlo Vettori, a Northern League politician from Bolzano in Italy’s mountainous north, where Europe was for decades seen as a model of good government for Italy to emulate. These days, governed by an elite caste of mutually blocking interest groups, “Europe has become more like Italy, instead of Italy becoming more like Europe,” Mr. Vettori said.

This Alpine region was a battleground in both of Sunday’s elections, which were fought over many of the themes that will shape Europe’s elections in 2017. North of Bolzano, the Brenner Pass linking Italy and Austria is a symbol both of Europe’s openness and of its threatened disintegration.

Fireworks, dancing, and Beethoven’s Ninth marked the moment here at 4,495 feet above sea level when Europe’s internal frontiers fell in 1998. Soon afterward, the euro swept away the currency-exchange kiosks.

Now, populists on both sides of the pass say the costs of common money and having no borders are too high. Italy is currently Europe’s biggest entry point for African and Middle Eastern migrants. Many, Germany-bound, cross the pass on foot.

Local innkeeper Gerhard Meyer has turned against the open Europe that once made him a celebrity. He was the first East German to cross to the West when Hungary cut open its fortified border with Austria in 1989. He later settled in the Austrian village of Steinach am Brenner, where his hotel caters to travelers who flood across the Alps.

“For me, it was like the Garden of Eden when the borders were opened in Europe,” Mr. Meyer said.

Now an Austrian citizen, he wants strict border controls at the Brenner Pass, to curb terrorism risk and stop migrants he describes as “money-seeking welfare tourists.” Like many in this region, Mr. Meyer voted for the candidate of the far-right, EU-skeptic Freedom Party in Sunday’s election for the ceremonial but symbolically important Austrian presidency. It lost but scored its highest-ever electoral support.

For Stefan Pan, a local Italian industrialist, the kind of border controls Mr. Meyer and the Freedom Party seek would be a disaster—“like bringing back the Berlin Wall.”

His company, Pan Surgelati, is a world leader in apple strudel. Much of the 20 miles of strudel his plant churns out daily is exported to Austria and Germany via the river of trucks flowing over the Alps. Populists fanning irrational fears risk rending Europe’s economic fabric, Mr. Pan said.

South of the Alps, unending economic pain since 2008 is the biggest source of disillusionment with the EU. Policies required before the European Central Bank would prop up Italy’s fragile bond market left Italians bitter at a eurozone they see as dominated by German interests and strictures.

As premier, Mr. Renzi lobbied the EU to allow Italy more breathing space, while also pushing labor-law and other changes urged by Germany and the ECB to make Italy more competitive. The 5 Star Movement led the campaign against his plan.

“Europe, high finance and [German Finance Minister Wolfgang] Schäuble wanted these reforms, because they would help Italy’s creditors push through unpopular economic measures and austerity,” said Paul Koellensperger, an internet entrepreneur and 5 Star Movement politician in Bolzano.

At the Brenner Pass, dashes of green paint on the asphalt mark the border between Austria and Italy. Abandoned apartments that once housed Italian customs officials stand opposite a shiny new mall. Inside, people from all over Europe mill around a display of photos from the past: soldiers, tollgates, the Nazi flag.

On Sunday night, relief among pro-EU Austrians was palpable after the center-left candidate for head of state, Alexander Van der Bellen,held off the Freedom Party’s Norbert Hofer. Yet even Van der Bellen supporters who gathered at a cultural center in Innsbruck said Europe needs a rethink.

Retiree Evelyn Kiss said the EU is dominated by “global business and big corporations,” echoing rhetoric used by populists of both the left and right. The answer, she said, is to reform the EU, not to topple it.

“The EU is like democracy,” Ms. Kiss said. “We need it, there is nothing better, but we must work at it.”

Article Link To The Wall Street Journal:

Euro Steadies After Short-Covering Rally, Eyes On ECB And Italy

By Masayuki Kitano
December 6, 2016

The euro steadied on Tuesday, having bounced from a near 21-month low set the previous day after Italian Prime Minister Matteo Renzi's loss in a referendum over constitutional reform, an outcome that traders had widely expected.

Renzi announced on Monday that he would resign after the resounding defeat in the referendum.

Still, while Renzi's resignation could open the door to an early election next year and the possibility of the anti-euro 5-Star Movement gaining power, many investors and analysts think it more likely that a caretaker government will be put in place until an election in 2018.

The euro eased 0.1 percent to $1.0757. On Monday, it ended up gaining 1 percent on the day, having bounced from a low of $1.0505 set in Monday's early Asian trade.

Analysts said the euro was buoyed by relief over the lack of any immediate sign Italy would head toward an early election after Renzi's resignation.

However, they warned that the euro's outlook remains clouded by worries over political risks in Europe, with elections coming in the Netherlands, France and Germany next year.

"The euro has bounced due to a short-squeeze, but this doesn't mean that it has entered a rising trend," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"I think it's reasonable to stay with the view that it will eventually head lower, to levels below $1.05," Murata added.

In the near-term, the euro could be supported by investor caution ahead of the European Central Bank's policy meeting on Thursday, analysts said.

While the ECB is seen likely to announce an extension of its quantitative easing (QE) programme, one uncertainty is whether it will send any signals about a possible tapering of its asset purchases, said Sim Moh Siong, FX strategist for Bank of Singapore.

"If they do signal a tapering, then perhaps that would cancel out the impact of extending the QE," Sim said, adding that market participants may be reluctant to make bearish bets against the euro now because of this risk.

At the Dec. 8 meeting, the ECB is expected to extend its QE programme by six months and keep the size of monthly asset purchases unchanged, according to a majority of economists polled by Reuters.

The dollar was little changed against a basket of six major currencies at 100.16, not far from Monday's low of 99.849, its lowest level since Nov. 15.

In late November, the dollar index had set a 13-1/2 year high of 102.05, having rallied as U.S. bond yields surged on expectations of higher fiscal spending and a faster pace of Federal Reserve monetary tightening under President-elect Donald Trump.

"The market seems to be hoping for the best, and I think some of these expectations need to be validated before we see further dollar strength," said Bank of Singapore's Sim, referring to the hopes for increased U.S. fiscal stimulus.

Against the yen, the dollar held steady at 113.79.

The Australian dollar was weighed down after the Reserve Bank of Australia kept interest rates unchanged but sounded cautious on economic growth.

The Aussie was last down 0.2 percent on the day at $0.7460.

Article Link To Reuters:

Obama’s Last Stand

The White House tries to kill another pipeline for U.S. oil.

By Review & Outlook
The Wall Street Journal
December 6, 2016

The U.S. Army Corps of Engineers on Sunday delivered a symbolic victory to the environmental left by denying a permit to complete the 1,200-mile Dakota Access oil pipeline. The political obstruction illustrates why it’s so hard to build anything in America these days.

Construction is almost complete on the Dakota Access, which aims to transport a half million barrels of oil each day from the Bakken Shale in North Dakota to Illinois for delivery to refiners on the East and Gulf coasts. About 99% of the pipeline doesn’t require federal permitting because it traverses private lands. But the Corps must sign off on an easement to drill under Lake Oahe that dams the Missouri River.

After an exhaustive consultation with Native American tribes, the Corps in July issued an environmental assessment of “no significant impact.” Construction is unlikely to harm tribal totems because the Dakota Access would parallel an existing gas pipeline. The route has been modified 140 times in North Dakota to avoid upsetting sacred cultural resources.

After largely refusing to engage in the Corps’s review, the Standing Rock Sioux sued. A federal court in September rejected the tribe’s claims, only to be overruled by the Obama Administration, which ordered a temporary suspension to work around Lake Oahe. Although the D.C. Circuit Court of Appeals in October refused to enjoin construction on the pipeline, the Corps has maintained its administrative injunction.

Tensions have escalated between local law enforcement and protesters, who have signaled an intent to defy Corps orders to disband before Dec. 5. North Dakota winters are cold, and a charitable reading of the Corps’s political mediation is that the Administration is trying to allow squatters to save face so that they can disperse before imperiling their own safety.

However, the Corps’s switcheroo has jeopardized its integrity and created a legal quagmire by requiring an exhaustive new environmental impact statement that considers alternative routes. This process could take years and is not normally required when an environmental assessment concludes no significant impact.

The pipeline builder Energy Transfer Partners could sue the Corps for violating due process, though a judge might rule the company lacks standing since the government hasn’t made a final determination. Energy Transfer is likely better off waiting for the Trump Administration.

A spokesman for Mr. Trump said the President-elect supports construction of the pipeline but would “review the full situation when we’re in the White House and make the appropriate determination at that time.” This protects the Trump Administration from claims of predetermination, but it won’t stop environmental groups from suing if Mr. Trump reverses the Obama Administration’s course.

Energy Transfer devised the least intrusive route to expedite permitting but it still got caught between the Standing Rock tribe and no-fossil-fuels greens who have turned the Dakota Access into a Battle of the Alamo. If Mr. Trump wants to build more infrastructure, a top-to-bottom renovation of permitting regulations is a good place to start.

Article Link To The Wall Street Journal:

Trump Advisors Aim To Privatize Oil-Rich Indian Reservations

By Valerie Volcovici 
December 6, 2016

Native American reservations cover just 2 percent of the United States, but they may contain about a fifth of the nation’s oil and gas, along with vast coal reserves.

Now, a group of advisors to President-elect Donald Trump on Native American issues wants to free those resources from what they call a suffocating federal bureaucracy that holds title to 56 million acres of tribal lands, two chairmen of the coalition told Reuters in exclusive interviews.

The group proposes to put those lands into private ownership - a politically explosive idea that could upend more than century of policy designed to preserve Indian tribes on U.S.-owned reservations, which are governed by tribal leaders as sovereign nations.

The tribes have rights to use the land, but they do not own it. They can drill it and reap the profits, but only under regulations that are far more burdensome than those applied to private property.

"We should take tribal land away from public treatment," said Markwayne Mullin, a Republican U.S. Representative from Oklahoma and a Cherokee tribe member who is co-chairing Trump’s Native American Affairs Coalition. "As long as we can do it without unintended consequences, I think we will have broad support around Indian country."

Trump’s transition team did not respond to multiple requests for comment.

The plan dovetails with Trump’s larger aim of slashing regulation to boost energy production. It could deeply divide Native American leaders, who hold a range of opinions on the proper balance between development and conservation.

The proposed path to deregulated drilling - privatizing reservations - could prove even more divisive. Many Native Americans view such efforts as a violation of tribal self-determination and culture.

"Our spiritual leaders are opposed to the privatization of our lands, which means the commoditization of the nature, water, air we hold sacred," said Tom Goldtooth, a member of both the Navajo and the Dakota tribes who runs the Indigenous Environmental Network. "Privatization has been the goal since colonization – to strip Native Nations of their sovereignty."

Reservations governed by the U.S. Bureau of Indian Affairs are intended in part to keep Native American lands off the private real estate market, preventing sales to non-Indians. An official at the Bureau of Indian Affairs did not respond to a request for comment.

The legal underpinnings for reservations date to treaties made between 1778 and 1871 to end wars between indigenous Indians and European settlers. Tribal governments decide how land and resources are allotted among tribe members.

Leaders of Trump’s coalition did not provide details of how they propose to allocate ownership of the land or mineral rights - or to ensure they remained under Indian control.

One idea is to limit sales to non-Indian buyers, said Ross Swimmer, a co-chair on Trump’s advisory coalition and an ex-chief of the Cherokee nation who worked on Indian affairs in the Reagan administration.

"It has to be done with an eye toward protecting sovereignty," he said.

$1.5 Trillion In Reserves

The Trump-appointed coalition’s proposal comes against a backdrop of broader environmental tensions on Indian reservations, including protests against a petroleum pipeline by the Standing Rock Sioux tribe and their supporters in North Dakota.

On Sunday, amid rising opposition, the U.S. Army Corps of Engineers on Sunday said it had denied a permit for the Dakota Access Pipeline project, citing a need to explore alternate routes.

The Trump transition team has expressed support for the pipeline, however, and his administration could revisit the decision once it takes office in January.

Tribes and their members could potentially reap vast wealth from more easily tapping resources beneath reservations. The Council of Energy Resource Tribes, a tribal energy consortium, estimated in 2009 that Indian energy resources are worth about $1.5 trillion. In 2008, the Bureau of Indian Affairs testified before Congress that reservations contained about 20 percent of untapped oil and gas reserves in the U.S.

Deregulation could also benefit private oil drillers including Devon Energy Corp, Occidental Petroleum, BP and others that have sought to develop leases on reservations through deals with tribal governments. Those companies did not immediately respond to requests for comment.

Trump's transition team commissioned the 27-member Native American Affairs Coalition to draw up a list of proposals to guide his Indian policy on issues ranging from energy to health care and education.

The backgrounds of the coalition’s leadership are one sign of its pro-drilling bent. At least three of four chair-level members have links to the oil industry. Mullin received about eight percent of his campaign funding over the years from energy companies, while co-chair Sharon Clahchischilliage - a Republican New Mexico State Representative and Navajo tribe member - received about 15 percent from energy firms, according to campaign finance disclosures reviewed by Reuters.

Swimmer is a partner at a Native American-focused investment fund that has invested heavily in oil and gas companies, including Energy Transfer Partners – the owner of the pipeline being protested in North Dakota. ETP did not immediately respond to a request for comment.

The fourth co-chair, Eddie Tullis, a former chairman of the Poarch Band of Creek Indians in Alabama, is involved in casino gaming, a major industry on reservations.

Clahchischilliage and Tullis did not respond to requests for comment.

Bureaucratic Thicket

Several tribes, including the Crow Nation in Montana and the Southern Ute in Colorado, have entered into mining and drilling deals that generate much-needed revenue for tribe members and finance health, education and infrastructure projects on their reservations.

But a raft of federal permits are required to lease, mortgage, mine, or drill – a bureaucratic thicket that critics say contributes to higher poverty on reservations.

As U.S. oil and gas drilling boomed over the past decade, tribes struggled to capitalize. A 2015 report from the Government Accountability Office found that poor management by the Bureau of Indian Affairs hindered energy development and resulted in lost revenue for tribes.

"The time it takes to go from lease to production is three times longer on trust lands than on private land," said Mark Fox, chairman of the Three Affiliated Tribes in Forth Berthold, North Dakota, which produces about 160,000 barrels of oil per day.

"If privatizing has some kind of a meaning that rights are given to private entities over tribal land, then that is worrying," Fox acknowledged. "But if it has to do with undoing federal burdens that can occur, there might be some justification."

History Of ‘Termination’

The contingent of Native Americans who fear tribal-land privatization cite precedents of lost sovereignty and culture.

The Dawes Act of 1887 offered Indians private lots in exchange for becoming U.S. citizens - resulting in more than 90 million acres passing out of Indian hands between the 1880s and 1930s, said Kevin Washburn, who served as Assistant Secretary for Indian Affairs at the Department of the Interior from 2012 until he resigned in December 2015.

"Privatization of Indian lands during the 1880s is widely viewed as one of the greatest mistakes in federal Indian policy," said Washburn, a citizen of Oklahoma's Chickasaw Nation.

Congress later adopted the so-called “termination” policy in 1953, designed to assimilate Native Americans into U.S. society. Over the next decade, some 2.5 million acres of land were removed from tribal control, and 12,000 Native Americans lost their tribal affiliation.

Mullin and Swimmer said the coalition does not want to repeat past mistakes and will work to preserve tribal control of reservations. They said they also will aim to retain federal support to tribes, which amounts to nearly $20 billion a year, according to a Department of Interior report in 2013.

Mullin said the finalized proposal could result in Congressional legislation as early as next year.

Washburn said he doubted such a bill could pass, but Gabe Galanda, a Seattle-based lawyer specializing in Indian law, said it could be possible with Republican control of the White House and the U.S. House and Senate.

Legal challenges to such a law could also face less favorable treatment from a U.S. Supreme Court with a conservative majority, he said. Trump will soon have the chance to nominate a Supreme Court justice to replace Antonin Scalia, a conservative member who died earlier this year.

"With this alignment in the White House, Congress and the Supreme Court," he said, "we should be concerned about erosion of self determination, if not a return to termination."

Article Link To Reuters:

Barclays' Exit From Energy Trading Stirs Concerns Over Liquidity

By Catherine Ngai and Olivia Oran 
December 6, 2016

British bank Barclays Plchas joined the list of top banks to exit energy trading, an exodus that analysts say raises concern among oil producers that falling liquidity means they cannot use derivatives for their basic function: to hedge risk by locking in future prices.

Wall Street firms have scaled back in commodity markets since the 2008 financial crisis from owning physical assets or taking positions in the market in the face of regulatory scrutiny. The banks were big players in the market for derivatives years into the future.

The departure of Barclays exacerbates the scarcity of counterparties for trade when producers are trying to hedge their production for 2018 and beyond, potentially raising the cost to lock in that output.

That increase could force cash-strapped producers to forgo protection altogether, putting them at risk if the market takes another leg down.

Some producers seek to lock in future profits and fund expansion through selling as much as 80 percent of production years into the future.

"It's one less bank willing to make a trade in the market, which reduces liquidity overall. That's one less source of credit and one less counterparty," said John Saucer, vice president of research and analysis at Mobius Risk Group.

On Thursday, Barclays said it would close its energy business within the 'Macro' trading division, according to an internal memo obtained by Reuters, a move to better maintain resources. They follow a string of other big banks who, with profits hampered by toughening financial regulations, have chosen to exit.

Executives and traders within the industry said that Barclays' move was not surprising as it had been scaling down in recent years. But it represents the departure of another former top-five player from the energy space. Other big players who have already exited the market include RBS Sempra in 2010 and Deutsche Bank three years ago.

Merchant traders such as Vitol Group, Mercuria Energy Group and Glencore Plc sought to fill the vacuum left by the investment banks.

But the merchant traders have preferred to trade around their own physical positions, which are often linked to derivatives contracts with nearby expirations.

"Merchant books are physically oriented. They don't offer the same type of liquidity that the banks do," Saucer added. "When they're there, it's patchy and specific. It's ancillary to the other stuff they're doing."

That means merchant traders have little incentive to trade years into the future, and so have failed to plug the gap left by the big banks. Merchants also have tighter credit availability than banks, so are less willing to tie up capital in long-distant futures trade.

Barclays has been reducing its footprint for a while, having announced a retreat from precious metals in January. Two sources familiar with the matter said that Barclays' business with oil producers seemed to be reducing in size over the years, it retained a decent refinery business.

The memo noted that the Macro's energy business accounted for less than two percent of overall revenue for the markets business at the British lender.

Still, those with a stronger financial position and a larger presence, including heavy hitters like Goldman Sachs & Co[GSGSC.UL] or JPMorgan Chase & Co, remain in the market and can absorb additional hedging needs. If one of the current larger players dropped out, that would be much more concerning because it would greatly increase the price to hedge, traders said.

One point of uncertainty, they added, was what Barclays was going to do with its trade book. Analysts pointed out that Barclays could unwind hedges that it already conducted with market participants. The other option would be to sell the hedge book, thereby passing on any risk to another player. That could be prime opportunity for banks or merchants wanting to grow.

"We think of this in relationship terms and if there was a specific reason to trade with Barclays. Sadly, increasingly, there wasn't," said Steve Sinos, vice president of Mercatus Energy Advisors, which works with energy producers and consumers. "They were competitive, but weren't providing anything outstanding. And, they didn't have a lot of lending with our clients."

Article Link To Reuters:

Ahead Of Deal To Cut, OPEC Oil Output Hits Record High

By Alex Lawler
December 6, 2016

OPEC's oil output set another record high in November ahead of a deal to cut production, a Reuters survey found on Monday, helped by higher Iraqi exports and extra barrels from two nations exempted from cutting supply - Nigeria and Libya.

The latest rise in supply means the Organization of the Petroleum Exporting Countries will have a bigger task in complying with a plan to cut supply starting in 2017 - its first production-reduction deal since 2008.

Supply from OPEC increased to 34.19 million barrels per day (bpd) in November from 33.82 million bpd in October, according to the survey based on shipping data and information from industry sources.

Brent crude LCOc1 rose above $55 a barrel on Monday, trading at a 16-month high, on prospects of a tighter market next year following OPEC's deal. Prices are still half their level of mid-2014.

"OPEC's decision to cut production has removed a lot of downside risk for 2017," said Bjarne Schieldrop, chief commodities analyst at SEB, even though "some cheating is a natural habit among OPEC's members".

Based on the November survey, OPEC is pumping 1.69 million bpd above the 32.50 million bpd production target that it agreed last week to adopt from January 2017, following an outline agreement reached in September.

Supply has risen since OPEC in 2014 dropped its historic role of fixing output to prop up prices as Saudi Arabia, Iraq and Iran pumped more. Production also climbed due to the return of Indonesia in 2015 and Gabon in July as members.

November's supply from OPEC excluding Gabon and Indonesia, at 33.23 million bpd, is the highest in Reuters survey records starting in 1997. At last week's meeting, Indonesia suspended its membership again.

In November, Angola provided the largest supply boost as planned maintenance on the Dalia crude stream ended.

Output also climbed in Iraq due to record exports, lifting supply to 4.62 million bpd in November according to the survey. Iran, which was allowed to raise output under the OPEC deal as sanctions had crimped its supply, pumped 40,000 bpd more.

Indonesian output rose by 10,000 bpd.

Libya and Nigeria, both of which are exempt from the supply cut due to the impact on their output from conflict, boosted production in November.

Among countries with lower output, the biggest drop came from top exporter Saudi Arabia due to reduced crude use in power plants for air-conditioning, and lower refiner processing, sources in the survey estimated.

The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data, and information provided by sources at oil companies, OPEC and consulting firms.

Article Link To Reuters:

Cook: Apple Watch Sales To Consumers Set Record In Holiday Week

By Julia Love
December 6, 2016

Sales of the Apple Watch to consumers set a record during the first week of holiday shopping, and the current quarter is on track to be the best ever for the product, Apple Inc (AAPL.O) Chief Executive Tim Cook told Reuters.

Responding to an email from Reuters, Cook said the gadget's sell-through - a measure of how many units are sold to consumers, rather than simply stocked on retailers' shelves - reached a new high.

"Our data shows that Apple Watch is doing great and looks to be one of the most popular holiday gifts this year," Cook wrote.

"Sales growth is off the charts. In fact, during the first week of holiday shopping, our sell-through of Apple Watch was greater than any week in the product’s history. And as we expected, we’re on track for the best quarter ever for Apple Watch," he said.

Cook's comments followed a report on Monday from technology research firm IDC estimating that the tech giant sold 1.1 million units of the Apple Watch during the third quarter of 2016, down 71 percent from the year-ago quarter. The comments offer a glimpse of the gadget's performance during the holiday quarter, which is typically Apple's strongest.

The CEO did not immediately respond to a request for specific sales figures for the gadget.

Apple has disclosed few details about the performance of the Apple Watch, its first new product released under Cook. The company has not broken out sales of the gadget in its earnings, instead lumping it into an "other products" category that includes devices such as the iPod and Apple TV.

Article Link To Reuters:

Amazon Takes On Tech’s White Whale: Grocery Shopping

Online retail giant aims to disrupt $795 billion U.S. grocery business with stores that don’t include checkout lines and other concepts.

By Therese Poletti
December 6, 2016

Amazon.com Inc.’s plans for its most ambitious brick-and-mortar effort yet aim to disrupt an arena seen as an Achilles' heel for Silicon Valley: The $795 billion grocery industry.

Amazon released a video Monday about a convenience-store effort called Amazon Go, one of three grocery concepts the online-retail giant is planning, according to a Monday report from The Wall Street Journal and earlier reporting from Business Insider. According to Amazon’s website, Amazon Go has been in the works for four years and weaves together a combination of machine learning, computer vision, artificial intelligence, sensors and RFID technology in what it calls “Just Walk Out Technology,” which rids the store of one of the biggest hassles of shopping, the checkout lines.

Amazon said Monday it plans to open its first small-format grocery store, Amazon Go, in Seattle with technology that allows customers to skip checkout. Pictured above, a prototype curbside pickup Amazon location in Seattle's Ballard neighborhood. Photo: Jay Greene for the Wall Street Journal

“No lines, no checkouts, no registers, no, seriously,” a video on its website says in a demo showing 20-something shoppers entering the store, scanning an app at the turnstile and simply walking out with their wares.

The ability to build its biggest push into physical retail from scratch with this type of automatic technology could be the ticket to further disruption of traditional brick-and-mortar retailers like Wal-Mart Stores Inc. WMT, -1.33% and Target Corp. TGT, -1.23% Grocery shopping for fresh food has long been a difficult but enticing arena for tech startups, which have put forth efforts like Webvan during the dot-com boom and now Instacart and its rivals, which offer grocery shopping as a service. Stores have even developed their own online options, such as Safeway.com, but Amazon has a good chance to crack into traditional grocery shopping with this hybrid effort, which addresses many of the issues consumers have with online grocery shopping.

John Blackledge, a Cowen & Co. analyst with an outperform rating on Amazon, wrote in a note to clients Monday that he believes the grocery business is Amazon’s “biggest potential source of revenue upside over time, with Go being another layer of Amazon’s multiplatform grocery strategy,” which also includes its Amazon Fresh and Prime Now two-hour delivery.

“We are encouraged by Amazon’s growing footprint in this category, which we see as ripe for potential disruption given younger demos increasingly purchasing food and beverage grocery items via digital channels,” Blackledge wrote.

According to a recent survey by Cowen & Co., 65% of consumers surveyed preferred to buy their groceries in a store, with 51% of them stating that they liked to inspect or select the food. Cowen estimates that the online portion of the U.S. food and beverage grocery market was only about 4% retail penetration in 2016, or about $33 billion.

Amazon AMZN, +2.57% is testing the Amazon Go technology in an 1,800-square-foot convenience store in Seattle accessible only by Amazon employees, though the company plans to open it to the public early next year. The retail space automatically detects when products are taken from or returned to the shelves and keeps track of them in a virtual shopping cart. When you’re done shopping, you can just leave the store, and items will be charged to your Amazon account.

“The items are identified and automatically associated with the user at or near the time of the item pick,” according to the abstract of one Amazon patent for the technology, published last year.

The company likens the technology at the Amazon Go store to that used in self-driving cars, saying it uses computer vision and AI to associate items with past purchases made by the consumer. This use of AI and machine learning will make its algorithms smarter for future purchases, and is an early consumer-oriented effort, built using AI tools in the design of the product from the get go, versus enhancing an already existing product.

Despite the work already put into the effort, this could be a costly experiment for Amazon, with the different range of store formats planned, physical retail locations to acquire or rent, technology systems to install and maintain, more employees to hire and, of course, keeping inventory stocked. The cost of Amazon’s vast physical warehouse infrastructure build-out over the past few years has only been eclipsed in cost by the money its spends on shipping products to customers of its Amazon Prime service, which includes free shipping.

Building more physical stores—the WSJ and BI reports say Amazon will build up to 2,000 brick-and-mortar locations—will certainly add to Amazon’s already hefty spending. But if any dot-com can handle the financial outlay necessary to finally break into the grocery business and make it work, it will likely be the company that already did the same to bookstores.

Wall Street seems bullish on the efforts, with Amazon’s shares gaining nearly 3% on Monday. The online-retail giant’s stock has increased 12.4% so far this year, handily outpacing the S&P 500 SPX, +0.58% index, at 7.9%, and Dow Jones Industrial Average DJIA, +0.24% , which has gained 10.3%.

Article Link To MarketWatch:

Rumors Of Sharp Drop In China’s Yuan Swirl On Social Media

By Leslie Shaffer
December 6, 2016

Rumors swirled on social media on Tuesday that China's currency dropped sharply in overnight trade, but the purported move may have been an isolated hiccup from some providers.

Some currency data providers were showing that the yuan tumbled, with the dollar fetching as much as 7.49 yuan in overnight trade. It wasn't clear if the data were indicating the offshore yuan or the onshore currency, but the onshore currency does not trade overnight. That would have been an 8.8 percent rise for the currency pair from the onshore close of 6.8830, according to Reuters data.

China's central bank does not allow the currency to move more than 2 percent from its daily fixing in onshore trade. While policymakers can not closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.

Data charts on Google and currency-data provider and money transfer service XE showed the short-lived blip. Google confirmed that the figure was a bug and that it was fixing it. In its Finance section, Google's disclaimers state that it can't guarantee the accuracy of foreign-exchange rates and advises confirming rates before making transactions.

An email to XE sent outside office hours wasn't immediately returned.

Dow Jones reported that U.K.-based brokerage and data provider ICAP was the source for the data. A call to ICAP's Singapore office went unanswered and it didn't immediately return an emailed request for comment.

Google's data chart indicated that the data source was data provider SIX Financial Information. A call to SIX's Singapore office went unanswered and an emailed request for comment wasn't immediately returned.

Analysts generally indicated to CNBC that they hadn't seen any sign of the drop. Reuters data didn't show anything close, indicating that the offshore dollar/yuan's high for the year was at 6.9650 and the onshore yuan's was at 6.9210.

Sean Yokota, head of Asia strategy at SEB, told CNBC that people were sharing a screenshot on Chinese social media platform WeChat showing a mispricing in Google data showing the dollar was fetching 7.4 yuan.

He noted that China's policymakers would likely want to avoid a devaluation of the currency. Indeed, analysts have recently noted that policymakers have appeared to slow the yuan's fall against the dollar as the greenback surged since the surprise U.S. election win of Donald Trump.

Similarly, Richard Yetsenga, chief economist at ANZ, told CNBC that while there was a lot of chatter, it would be "quite dramatic" if the 7.48 figure were to turn out to be accurate, but he added that it was hard to imagine at this stage.

The apparent hiccup didn't appear to affect trading in the currency on Tuesday. The People's Bank of China (PBOC) set the yuan midpoint at 6.8575 against the dollar on Tuesday, suggesting a stronger yuan compared with a fix of 6.887 on Monday.

In onshore trade, the dollar was fetching 6.8654 yuan at 10:23 a.m. HK/SIN, the Chinese currency's strongest against the greenback since mid-November. Offshore, the dollar was fetching 6.8691 yuan.

In the wake of the Trump win, the yuan fell to nearly eight year lows against the dollar, touching its weakest since at least January 2009, during the global financial crisis, with analysts suggesting the slide had more to do with the dollar's strength. Some noted that, based on currency movements within the trade-weighted basket, policymakers appeared to be supporting the yuan somewhat.

The Chinese currency likely received another fillip from a surge on Monday in the cost of borrowing the offshore yuan. Overnight Hibor, or the Hong Kong interbank offered rate, for the offshore yuan jumped to 12.38 percent on Monday from 7.16 percent on Friday. On Tuesday, the rate retraced some of the surge, to around 6.17 percent.

Monday's sharp rise made it more expensive for traders to short the Chinese currency.

Stephen Innes, senior trader at OANDA, said in a note Monday that the higher rates were discouraging short-term yuan trades.

"Dealers are in little mood to challenge state-owned banks dollar-selling flows, nor the exorbitant short-term yuan funding rates," signaling that the market was conceding the dollar/yuan pair's top was likely at 6.90 through year-end, he said, adding that traders were now looking to other vehicles to play a negative regional bias.

Article Link To CNBC:

U.S. Seeks To Reassure Beijing After Trump Call With Taiwan Leader

By Roberta Rampton and Ben Blanchard
December 6, 2016

The White House said on Monday it had sought to reassure China after President-elect Donald Trump's phone call with Taiwan's leader last week, which the Obama administration warned could undermine progress in relations with Beijing.

The statement from a spokesman for U.S. President Barack Obama highlighted concerns about the potential fallout from Trump's unusual call with Taiwan President Tsai Ing-wen on Friday, which prompted a diplomatic protest from Beijing on Saturday.

White House spokesman Josh Earnest said senior National Security Council officials spoke twice with Chinese officials over the weekend to reassure them of Washington's commitment to the "One China" policy and to "reiterate and clarify the continued commitment of the United States to our longstanding China policy."

The policy has been in place for 40 years and is focused on promoting and preserving peace and stability in the strait separating China and Taiwan, which is in U.S. interests, Earnest said.

"If the president-elect's team has a different aim, I'll leave it to them to describe," he said.

"The Chinese government in Beijing placed an enormous priority on this situation, and it’s a sensitive matter. Some of the progress that we have made in our relationship with China could be undermined by this issue flaring up," he said.

The call with Taipei was the first by a U.S. president-elect or president with a Taiwan leader since President Jimmy Carter switched diplomatic recognition to China from Taiwan in 1979, acknowledging Taiwan as part of "one China." China regards Taiwan as a renegade province.

Despite tensions over matters ranging from trade to China's pursuit of territorial claims in the South China Sea, the Obama administration has highlighted cooperation on global issues, such as climate change and Iran's and North Korea's nuclear programs.

Earlier on Monday, China's Foreign Ministry said Trump was clear about China's position on the Taiwan issue and that China had maintained contacts with his team.

Vice President-elect Mike Pence sought to play down the telephone conversation, saying on Sunday it was a "courtesy" call, not intended to show a shift in U.S. policy on China.

Senate Foreign Relations Committee Chairman Bob Corker, who has been mentioned as a possible secretary of state in the Trump administration, said on Monday he thought reaction to the Taiwan call was being overblown.

"He got a call, he took it, and again, he's getting calls from everyone, so I think probably a lot more is being read into it than is the case, really," Corker said.

'Stern Representations'

Chinese Foreign Ministry spokesman Lu Kang would not say directly whom China had lodged "stern representations" with about Trump's call, repeating a weekend statement it had gone to the "relevant side" in the United States.

"The whole world knows about the Chinese government's position on the Taiwan issue. I think President-elect Trump and his team are also clear," Lu told a daily news briefing.

"In fact, China has maintained contacts and communication with the team of President-elect Trump," he added, repeating a previous assertion, although he did not give details.

Lu also said he would not speculate on what prompted the call, but described the matter of Taiwan as the most important and sensitive question between China and the United States.

Former U.S. Secretary of State Henry Kissinger, who was White House national security adviser when President Richard Nixon made his historic visit to China in 1972, told a forum in New York on U.S.-China relations that he had been "very impressed at the calm reaction of the Chinese leadership" to Trump's call.

Kissinger, who met with Trump last month, said it suggested Beijing may be looking to develop a "calm dialogue" with the new U.S. administration.

Tough Rhetoric

Trump, who vowed during his campaign to label China a currency manipulator, issued more tough rhetoric on Sunday.

"Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the U.S. doesn't tax them) or to build a massive military complex in the middle of the South China Sea? I don't think so!" Trump said on Twitter.

China is not currently viewed as a currency manipulator by either the Treasury Department or the International Monetary Fund. The World Trade Organization says Chinese tariffs on imported goods are generally higher than U.S. tariffs.

China, Taiwan, the Philippines, Vietnam, Malaysia and Brunei claim parts or all of the energy-rich South China Sea, through which trillions of dollars in trade passes annually.

Lu would not be drawn on directly commenting on Trump's tweets but defended the China-U.S. relationship.

"The China-U.S. economic and trade relationship has over many years always been a highly mutually beneficial one, otherwise it couldn't have developed the way it has today," he said.

The diplomatic contretemps was one of several recently for the Republican president-elect, a real estate magnate who has never held public office and has no foreign affairs or military experience.

Trump, who takes office on Jan. 20, is still considering his choice for secretary of state.

The Global Times, an influential tabloid published by the ruling Communist Party's official People's Daily, said in an editorial on Tuesday that China would have to meet Trump's "reckless remarks" head-on.

"Trump's China-bashing tweet is just a cover for his real intent, which is to treat China as a fat lamb and cut a piece of meat off it," the paper said.

Article Link To Reuters:

The Wrong Way To Stand Up To China

By Editorial Board
The Bloomberg View
December 6, 2016

Aides to President-elect Donald Trump say that his precedent-shattering phone call with Taiwanese leader Tsai Ing-wen on Friday was not a diplomatic blunder but a deliberate move to signal resolve against China. If so, he needs to rethink his strategy.

There are valid arguments for the U.S. to be more assertive toward China, and Trump has even articulated some of them. China's island-building efforts in the South China Sea, and its harassment of Japan in the East China Sea, are destabilizing. In many ways, the Chinese economy remains unfriendly to foreign competition, with certain areas closed off entirely. On North Korea, China has not done nearly enough to temper the regime's bellicose instincts.

Any successful strategy to change China’s calculations and behavior, however, requires several elements -- chief among them clarity and consistency. This Trump has not provided. After news broke of the call, the first between a U.S. president or president-elect and Taiwan’s leader since the U.S. established diplomatic relations with Communist China in 1979, Trump initially seemed to suggest it hadn’t been his idea. Then he protested that critics were overreacting. Then he lashed out at China for its supposed hypocrisy. Claims that he was challenging conventional State Department thinking won’t impress leaders in Beijing. The incoming administration now stands to lose credibility if it fails to follow through.

Moreover, any attempt to reorder the chessboard in Asia requires buy-in from allies. Chinese leaders weren’t the only ones left wondering what exactly Trump intends or how he plans to pursue his goals. America’s friends in the region are already worried about the president-elect’s isolationist impulses and frustrated with his sinking of the Trans-Pacific Partnership trade agreement. Several were hedging toward China even before Trump’s victory, and now more will be reluctant to participate in any attempt to pressure the Chinese regime. That knowledge is sure to stiffen rather than weaken Chinese resolve.

The new U.S. administration will have more luck if it calibrates the pressure it places on China rather than engages in showy gambits. The Barack Obama administration did actually manage to alter Chinese behavior with specific threats on some issues -- cyberspying and on land reclamation at Scarborough Shoal in the South China Sea, for example. By contrast, Taiwan's status remains the foremost of China’s core interests, and pressing further there will make compromise in other areas virtually impossible.

And advancing U.S. interests does require cooperation with China. It might seem silly, as Trump tweeted, for the U.S. to sell billions of dollars' worth of weaponry to Taiwan but not accept a phone call from its legitimately elected leader. Yet the U.S. position on the island has enabled decades of peace and relative stability across the Taiwan Strait -- not to mention trade and economic development that’s benefited Taiwan as well as the U.S. and China. It’s also allowed for cooperation between Washington and Beijing -- not as much as one might like, but crucial nonetheless -- on fighting global warming, limiting Iran’s nuclear ambitions and sanctioning North Korea. Such deals make the U.S. stronger -- and a President Trump may find he needs to strike more of them.

Article Link To The Bloomberg View: