Wednesday, December 14, 2016

Wednesday, December 14, Morning Global Market Roundup: Asia Resigned To Fed Hike, Uptight On Rate Outlook

By Wayne Cole
December 14, 2016

Asia shares crept cautiously higher on Wednesday while a hush settled on the U.S. dollar as investors felt certain the Federal Reserve would raise rates for the first time in a year, but were less sure what it might herald for 2017.

European bourses were tipped to open a shade lower by spread betters, while E-mini futures for the S&P 500 were down a miniscule 0.02 percent.

Australia led the going early with a gain of 0.8 percent, though MSCI's broadest index of Asia-Pacific shares outside Japan could only manage a 0.1 percent rise.

Japan's Nikkei and Shanghai stocks both dithered either side of flat, as did much of the region.

The outcome of the Fed's policy meeting will be announced at 1900 GMT, followed by Chair Janet Yellen's news conference half an hour later.

A quarter point move is fully priced in, as are two more hikes next year. Any hint that the Fed may move more aggressively than that would likely send the dollar higher and jolt emerging markets.

All eyes are thus on the Fed's economic and rate "dot" plots for a sense of how policymakers think President-elect Donald Trump's policies will impact growth and inflation.

"As most FOMC participants are likely to wait for more specifics on Trump's fiscal policy initiatives before formally altering their forecasts, markets may be disappointed by the lack of additional insight provided," said Michelle Girard, chief U.S. economist at RBSM.

"We expect most participants will continue to see two to three rate hikes as appropriate in 2017."

Treasuries have already priced in a rate hike and more, with two-year yields reaching ground last trod in April 2010 at 1.18 percent.

In contrast, the European Central Bank only last week extended its asset buying campaign and moved to purchase more short-term debt.

A Rich Spread

As a result, the spread between U.S. and German two-year yields is now the widest since late 2005, with Treasuries offering a mouth-watering premium of 191 basis points.

The gap kept the euro on the defensive at $1.0635, not far from the recent 20-month trough at $1.0505. The dollar was likewise steady on the yen at 115.24 and against a basket of currencies at 101.000.

Speculation that a Trump Administration will implement more debt-financed fiscal stimulus and cut regulation helped all three major U.S. stock indexes to records this week. The Dow ended fewer than 100 points from the magical 20,000 mark.

Bank of America Merrill Lynch's latest survey of investors found expectations of global growth at 19-month highs and inflation at the second highest percentage in 12 years.

Fund managers were the most optimistic about corporate profits in more than six years and allocations to bank stocks surged to an all-time peak.

The Dow ended Tuesday up 0.58 percent, while the S&P 500 gained 0.65 percent and the Nasdaq 0.95 percent. Tech stocks joined the party as Apple climbed 1.7 percent and Amazon 1.9 percent.

However, confidence in Asia toward business conditions over the coming six months dropped in the final quarter of 2016 to its lowest level in a year as firms fretted about sluggish demand in a persistently low-growth economic environment, a Thomson Reuters/INSEAD survey found.

Asian companies are particularly reliant on demand from China, which is firmly in Trump's protectionist sights.

Bulk commodities from iron ore to coal have also benefited from the reflation trade, combined with signs of stronger growth in China. Again, any hint the Fed might step up the pace of tightening could undo some of those gains.

Oil ran into profit-taking following a reported rise in U.S. crude inventories and an estimate that OPEC may have produced more crude in November than previously thought.

U.S. crude futures, which hit a high of $53.41 on Tuesday, were down 70 cents at $52.28 a barrel. Brent crude eased 68 cents to $55.04.

Article Link To Reuters:

The Euro-Area Survived The Oil Slump, Now It Faces Off With Food

Produce prices are turning out to be a bigger threat to inflation.

By Carolynn Look
December 14, 2016

Just as rising oil prices finally start to lighten the European Central Bank’s quest for higher inflation, food is back as the dead-weight in the price basket.

As of October, food is again placing the same drag on headline inflation as energy, according to a note published by Societe Generale economists Michel Martinez, Brian Hilliard and Vaibhav Tandon. The difference is that oil prices are on a gradual upward trend, while food price gains have slowed this year.

The slowdown in prices for food in itself is not totally new: for much of 2014, they were a bigger drag than energy. But now, as oil looks set to rise further after the world's largest producers committed to tightening supply, this part of consumers' everyday outgoings may get greater attention.

The ECB expects headline inflation to “increase significantly” in 2017 and sees energy prices accounting for “about four-fifths of the pick-up”, according to staff forecasts released last Thursday. Meanwhile, the outlook for edibles sees a slight rise at best, while downside risks remain, according to the SocGen economists.

“Apart from weather and weaker global commodity prices, Russia’s ban on EU imports has also been a key factor, triggering an excess of food supply in the euro area,” they wrote. “Looking ahead, we expect only a gradual pick-up in food inflation” while “overall, the risks remain tilted to the downside.”

Article Link To Bloomberg:

Oil Prices Fall On Rising U.S. Crude Stocks, OPEC Output Concerns

By Henning Gloystein
December 14, 2016

Oil prices fell on Wednesday following a reported rise in U.S. crude inventories and an estimate that OPEC may have produced more crude in November than previously thought, potentially undermining a planned output cut.

U.S. West Texas Intermediate (WTI) crude oil futures were down 69 cents, or 1.3 percent, to $52.29 a barrel.

International Brent crude futures were down 69 cents, or 1.2 percent, at $55.03 per barrel.

Traders said the price falls followed a report of surprise increases in U.S. crude inventories. Markets were also focused on an anticipated U.S. interest rate hike, likely supporting the dollar and making dollar-traded fuel imports more expensive for countries using other currencies at home.

"Momentum continues to wane in oil markets with both Brent and WTI slightly lower overnight, following higher than expected API inventory numbers in the United States ... (which) showed an unexpectedly large increase of 4.7 million barrels," said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore.

"We expect Asia trading to have a slightly negative bias as traders trim longs into the Federal Reserves' main event this evening," he added, referring to the expected decision later on Wednesday by the U.S. central bank to hike interest rates.

Greg McKenna, chief market strategist foreign exchange and futures brokerage AxiTrader said that "traders pretty much have a Fed increase of 25 basis points locked and loaded."

Oil traders said prices were further depressed by a report from the International Energy Agency (IEA) which said it believes that Middle East producer club OPEC pumped about 34.2 million barrels a day of crude in November, 500,000 bpd above OPEC's official estimate, which was already a record.

If correct, that would undermine the effort by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers like Russia to cut almost 1.8 million bpd of production in a bid to end two years of oversupply and cheap oil.

The agency said global oil supply rose to a record 98.2 million bpd in November, as OPEC production offset declines elsewhere.

This stands against expectations of 96.95 million bpd of global oil demand for the fourth quarter of 2016.

Despite this, the IEA said that due to firm demand increases, oil market could show a shortfall of 600,000 bpd early next year if producers stick to their reduction plans.

Article Link To Reuters:

The Left’s Scheme To Stop Trump Is A Betrayal Of Our Democracy

By F.H. Buckley
The New York Post
December 13, 2016

Occasionally you come across an idea so startlingly bad you have to pinch yourself.

Bacon-flavored ice cream. An all-Monkees oldies station. And the campaign to urge Republican presidential electors to vote for someone other than Donald Trump.

They’ve even got a name — Hamilton Electors — and a Web site. Their message, taken from “Animal House,” is that “it’s not over.” Trump hasn’t been officially elected, and won’t be until the electors meet in each state next Monday. We might have thought we were voting for Trump or for Hillary, but we were really voting for a set of electors in each state who were pledged to vote for one or the other candidate. That’s what the Framers gave us, in Art. II of the Constitution.

Big deal, one might think, if all the electors vote like automatons for the candidate they’re pledged to support. Over 58 presidential elections since 1788, fewer than 160 electors failed to vote as they promised, and only six in the last 50 years. People ordinarily perform their promises, and for electors party loyalty supplies a further motive to do so. In addition, political parties extract a pledge that electors vote as promised, and in half the states the so-called “faithless elector” is subject to criminal sanctions if he fails to do so.

So what’s different this time? It’s not that the president-elect lost the “popular vote.” That’s happened four times before, most recently in 2000. It’s that Trump wasn’t supposed to win.

Now, it’s true that while electors might have turned into automatons over the years, that wasn’t how the Framers saw them. They expected the electors to exercise independent judgment.

But then that doesn’t take us very far. In 1787, when the Framers drafted the Constitution, people in the different states knew little about each other. “Of the affairs of Georgia,” said Virginia’s James Madison, “I know as little as those of Kamskatska.” The voters wouldn’t know much about out-of-state candidates, they thought. But the electors might, and so we might trust them more than the voters.

That’s obviously not true today, especially with a public celebrity such as Trump. People who voted for him didn’t need to be instructed about his character by better-informed electors.

As for the electors, they knew all there was to know about Trump’s character before the election. A Republican elector from Texas, Chris Suprun, has announced that he might not vote for Trump. He’s being hailed as a hero by the left, but he’s simply a promise-breaker.

A person with more integrity would’ve announced his change of plans before the election, and not waited until after to discover that, gee, Donald Trump ain’t the most polite of people.

And what of the claim that Hillary got more votes and thus deserves to be elected? The Trump people played “Moneyball” and went looking for votes in states they could turn, and they succeeded brilliantly. Had the rule been that the winner is the fellow who gets the most votes, they’d have spent more time in California. The time to change the rules is before the game starts, not once it’s over.

So the Hamilton Electors people would promote an unfair change in the rules by appealing to faithless promise-breakers. That’s bad enough, but what’s worse is their hypocrisy. They can’t argue that the electors know the candidates better than the voters, and they can’t argue that losing the popular vote somehow disqualifies Trump, because the Framers honestly, truly, really hated democracy. They structured the government in such a way as to muffle majoritarian votes, and Hillary’s winning the popular votes would not count a featherweight in their minds.

What they wanted, instead, is just what we have: an Electoral College that doesn’t simply count votes. It also weighs them, in such a way as to advantage the smaller states. As against nationalists such as Hamilton, who would’ve abolished the state governments if he could.

We live in a federal republic in which each state has the number of electors equal to the number of its senators and representatives. If that gives more voting power to people in Vermont than New York, that’s just what the Framers wanted.

One last thing. If electors can betray their pledges, if they can vote for whomever they want, if the fig leaf of last-minute, disputed rumors about Russian involvement gives them an excuse, then we’re not living in a democracy.

A plea for faithless electors in the name of democracy is ultimately a betrayal of democracy, and an invitation to chaos and a constitutional crisis of the kind we’ve not seen since the Civil War.

Article Link To The New York Post:

The Green Party Has No Regrets

Sure, they may have siphoned away critical votes from the Democratic ticket, but Stein and her party have no regrets and don’t care who knows it.

By Patricia Murphy
The Daily Beast
December 14, 2016

Mark Tuesday, Dec. 13 as the day Green went black. Not only did Green Party nominee Jill Stein’s three-state presidential recount end with a whimper, President-elect Donald Trump named former Texas governor Rick Perry to head the Department of Energy, one of the three federal departments he promised to eliminate during his own White House run in 2012.

Along with Trump’s picks of Exxon CEO Rex Tillerson as secretary of State and Scott Pruitt to top the EPA, the Perry pick completed Trump’s transfer of American environmental stewardship from Barack Obama to three of the country’s most prominent fossil fuel aficionados.

If the Stein recount and Trump’s choice of Perry seem unrelated, they’re not for Democrats, many of whom complain that had Jill Stein and Libertarian nominee Gary Johnson not gobbled up votes in crucial swing states, Hillary Clinton would be naming her own cabinet picks right now. Instead, they’re bracing for a White House run by a climate change denier and a federal government run by professional polluters.

“I think Donald Trump’s appointments are nothing short of a horror show,” she told The Daily Beast, when asked about Perry, Tillerson, and Pruitt. “Donald Trump is appointing, not only to the the EPA, the Department of Energy, but to non-environmental agencies as well, people whose purpose and whose track records is in flagrant violation of the missions of the agencies to which he is appointing them.”

Stein said that she and the Green Party remain committed to environmental justice and pointed out that she was the only presidential candidate to visit the Standing Rock site in North Dakota, “which is a microcosm of our larger national and and global fight for environmental justice, for climate justice, and for our democratic right to protest.”

But, like Gary Johnson and the Libertarian Party, Stein takes no responsibility for getting Donald Trump elected president just because her name was on the ballot.

“It’s very clear from exit polls that there were very few Greens, 61%, that would have come out to vote if they didn’t have a Green candidate to vote for,” she said. “Of the remainder of those, over 1/3 would have voted for Donald Trump. It’s not supported by the numbers that the Greens would have made the margin of difference, not not for a single electoral vote.”

Stein spoke to reporters Tuesday, the deadline for all states to certify their election results before the Electoral College meets later in the month. Although she requested statewide recounts in three states with some of Trump’s smallest victories, a Pennsylvania judge denied Stein’s request for a recount, while the Michigan Supreme Court intervened to stop the statewide recount there. Only Wisconsin approved and conducted a statewide recount, where Stein’s $3.5 million effort resulted only in 131 more votes going to Donald Trump.

But Green Party activists in those states say they stand behind Stein’s candidacy and recount efforts, even as Trump populates his cabinet with millionaires, billionaires, Wall Street veterans, and energy executives.

“It’s a deplorable and despicable cabinet and as far as climate change,” said Carl Romanelli, a longtime Green Party activist in Pennsylvania. “But sadly that’s policy we would have been faced with under Clinton, too. We’re hopeful that the left will organize around a Trump presidency, instead of being silent as they were for eight years of President Obama expanding fracking and nuclear energy.”

Romanelli said he has “no regrets at all” about Stein’s candidacy or her recount efforts, which he said were designed to expose the flaws in American election law, which he called “state-sponsored Jim Crow.”

“I do believe that among the dissent, there’s that feeling that we are somehow carrying water for the Democratic Party. We are not,” he said. “It’s a fundamental constitutional guarantee that every American has for an election that’s administered with integrity and a vote that’s verifiable and provable and we cannot say that in Pennsylvania.”

In Michigan, another state where the courts shut down Stein’s recount efforts, veteran activist Eric Borregard said he sees the Green Party’s role in 2016 as a success.

“We’ve known for many, many years that our state’s campaign was corrupt. They could never get the same results twice. If you can’t get it twice, you can’t get it once. This is nothing new to us, but making it known to more people, getting that word out that your campaign system is corrupt, in that sense I think it was a successful campaign for her.”

He called the recent focus in the press on potential Russian hacking a distraction.

“You don’t have to go to Russia to find out who’s hacking our elections,” he said. “You can go to the county clerks in Michigan and pretty much every one of them is incapable of holding a fair election.”

Even in Wisconsin, where the statewide recount actually ended up giving Trump 131 more votes than he started with, Wisconsin Green Party co-chairman George Martin said the recount achieved what was intended.

“They say it wasn’t much of a change in terms of votes. But we said from the beginning, we’re not doing this for the benefit of one candidate over another,” Martin said. “We said we’re doing this to take a really good look at our voting system. It wasn’t about the number of votes, it’s about how it worked.”

Like Stein and activists in other swing states, Martin dismissed criticism of the Greens as Clinton’s spoilers or Trump’s unwitting enablers. “Democracy is not a spectator sport,” he said. “We know we were doing the right thing.”

Article Link To The Daily Beast:

Too Big To Fail: China Maps Out Its Trump Strategy

By Ben Blanchard and Christian Shepherd
December 14, 2016

When Donald Trump becomes U.S. president next month, one issue above all others could force his new administration to work closely with China and underscore why he and Beijing need each other - North Korea.

A nuclear armed North Korea, developing missiles that could hit the U.S. west coast, is clearly bad news for Washington but also Pyongyang's sometimes-reluctant ally Beijing, which fears one day those missiles could be aimed at them.

"There is enormous space for the two countries to cooperate on North Korea. The two must cooperate here. If they don't, then there will be no resolution to the North Korean nuclear issue," said Ruan Zongze, a former Chinese diplomat now with the China Institute of International Studies, a think-tank affiliated with the Foreign Ministry.

"It's no good the United States saying China has to do more. Both have common interests they need to pursue, and both can do more," he added.

North Korea is a tricky proposition even at the best of times for China, and simply easing up on U.N. sanctions as a way to express displeasure at Trump's foreign policies could backfire badly for China, said one China-based Asian diplomat.

"They can't really do that without causing themselves problems," the diplomat added, pointing to China's desire to denuclearize the Korean peninsula.

Taiwan Tension

From North Korea to Iran to a closely entwined business relationship worth $598 billion in 2015, the two countries have broad common interests, and China expects Trump to understand that.

While China was angered by Trump's call this month with Taiwan President Tsai Ing-wen, and then casting doubt over the future of the "one China" policy under which the U.S. recognizes Taiwan as being part of China, it was also quite restrained, said a senior Beijing-based Western diplomat

"China's game now is to influence him and not antagonize him," he said, speaking on condition of anonymity.

China believes the two countries need each other, and as Trump is a businessman he understands that, the People's Daily's wrote last month.

"The importance of the China-U.S. relationship goes without saying, and can be said to be too big to fail," the communist party mouthpiece wrote in a commentary.

China also expects a transactional relationship with the deal-making Trump, especially on trade, even if for Beijing Taiwan is completely off limits for negotiation.

"Trump is a businessman. He wants a deal," a source with ties to the Chinese leadership told Reuters, requesting anonymity. "He wants the biggest benefit at the smallest cost."

On the campaign trail, Trump threatened punitive tariffs on China, and has recently repeated his criticism of Chinese trade policy, dovetailing with his Taiwan comments.

"This is provocation, but war is unlikely," a second Chinese source with leadership ties said of Trump's Taiwan moves.

"The Chinese side will not easily yield," the source said. "We expect tensions."

Trade Interests

Wang Huiyao, head of the Centre for China and Globalisation and a government adviser, said China should invite the United States to join the Beijing-lead Asian Infrastructure Investment Bank.

"He will pursue U.S. interests and to do so he cannot ignore the huge benefits that come from China-U.S. trade relations," Wang said.

The Asian diplomat said some Chinese officials had expressed "euphoria" at Trump's election, believing it marked the end of U.S. dominance in the world and represented China's chance to seized the initiative.

But Trump's unexpected move to put the Taiwan issue center stage in relations with China had put an end to that.

"They're not as happy now," he said.

To be sure, there are voices in China seeing opportunity in a Trump presidency.

Huo Jianguo, former head a trade policy body under China's Commerce Ministry, said Trump is likely to reduce the United States' engagement with the world, presenting an opening for China.

"Under Obama, China-U.S. relations had already deteriorated to their worst possible level. Trump will not continue to ratchet up what were clearly ideological attempts to suppress China," Huo said.

"China should not seek to immediately take the lead in global governance. They should first lead RCEP to become successful, then from here China's global influence can take root," Huo said, referring to a Southeast Asian-backed free trade deal China has championed.

Even the Global Times, an influential and normally stridently nationalistic tabloid, has sought to temper expectations on how China could use a Trump presidency to its advantage.

"China still cannot match the U.S. in terms of comprehensive strength," it said in an editorial. "It has no ability to lead the world in an overall way, plus, neither the world nor China is psychologically ready for it. It's beyond imagination to think that China could replace the U.S. to lead the world."

Article Link To Reuters:

China Says Damage To 'One China' Principle Would Impact Peace

By Ben Blanchard
December 14, 2016

China's Taiwan Affairs Office said on Wednesday any interference with or damage to the "one China" principle would have a serious impact on peace and stability in the Taiwan Strait.

U.S. President-elect Donald Trump said on Sunday the United States did not necessarily have to stick to its long-standing position that Taiwan is part of "one China", further upsetting China which was already angered by Trump's earlier telephone call with Taiwan President Tsai Ing-wen.

The issue is highly sensitive for China, which considers Taiwan a renegade province, and Beijing expressed "serious concern" about Trump's remarks.

An Fengshan, a spokesman for China's policy-making Taiwan Affairs Office, told a regular news conference the Taiwan issue was about China's sovereignty and territorial integrity.

"Upholding the 'one China' principle is the political basis of developing China-U.S. relations, and is the cornerstone of peace and stability in the Taiwan Strait," he said.

"If this basis is interfered with or damaged then the healthy, stable development of China-U.S. relations is out of the question, and peace and stability in the Taiwan Strait will be seriously impacted," An added.

Taiwan's policy-making Mainland Affairs Council said peaceful relations were a mutual responsibility across both sides of the Taiwan Strait.

“Taiwan has repeatedly stressed that maintaining peace and stability across the Taiwan Strait and throughout the region is in the best interests of all parties," said MAC spokesman Chiu Chui-cheng. “Taiwan places equal weight on the development of Taiwan-U.S. relations and cross-strait relations."

China is deeply suspicious of Tsai and her ruling Democratic Progressive Party, believing they want to push for the island's formal independence, a red line for Beijing.

China has repeatedly warned the hard won peace and stability across the narrow strait that separates them could be affected by any moves toward independence.

"I think the facts tell these people that Taiwan independence is a dead end," An said.

Article Link To Reuters:

Aleppo Evacuation May Be Delayed Until Thursday

By Laila Bassam, Tom Perry and Lisa Barrington 
December 14, 2016

The evacuation of rebel-held eastern Aleppo due to start at dawn has been delayed, perhaps until Thursday, with an opposition official blaming Iran and its Shi'ite militias allied to President Bashar al-Assad for the hold-up.

A ceasefire agreement brokered by Russia, Assad's most powerful ally, and Turkey ended years of fighting in the city and has given the Syrian leader his biggest victory yet after more than five years of war.

Officials in the military alliance fighting in support of Assad could not be reached immediately for comment on why the evacuation was delayed.

Rebel sources said the ceasefire remained in place despite the delay in the evacuation plan.

"What is stopping the agreement presently is Iranian obstinacy. But the deal still stands, the ceasefire stands until now," said a commander with the Nour al-Din al-Zinki group, speaking in a voice message to Reuters from eastern Aleppo.

Sources on Tuesday had given different expected start times for the evacuation. A military official in the pro-Assad alliance had said the evacuation was due to start at 5 a.m. (10:00 p.m. ET), while opposition officials had been expecting a first group of wounded people to leave earlier.

However, none had left by dawn, according to a Reuters witness waiting at the agreed point of departure. Twenty buses were waiting there with their engines running but showed no sign of moving into Aleppo's rebel-held eastern districts.

"There is certainly a delay," said Rami Abdulrahman, director of the Syrian Observatory, a war monitor.

Officials with Aleppo-based rebel groups accused Shi'ite militias backed by Iran of obstructing the Russian-brokered deal. The pro-opposition Orient TV cited its correspondent as saying the plan may be delayed until Thursday.

People in eastern Aleppo have been packing their bags and burning personal possessions as they prepare to leave, fearing looting by the Syrian army and its Iranian-backed militia allies when they restore control.

Rapid Advances

The evacuation was the culmination of two weeks of rapid advances by the Syrian army and its allies that drove insurgents back into an ever-smaller pocket of the city under intense air strikes and artillery fire.

By taking full control of Aleppo, Assad has proved the power of his military coalition, aided by Russia's air force and an array of Shi'ite militias from across the region.

Rebels groups have been supported by the United States, Turkey and Gulf monarchies, but the support they have enjoyed has fallen far short of the direct military backing given to Assad by Russia and Iran.

Russia's decision to deploy its air force to Syria 18 months ago turned the war in Assad's favor after rebel advances across key areas of western Syria.

In addition to Aleppo, he has won back insurgent strongholds near Damascus this year.

However, Assad is far from taking back all of Syria. Wide areas of the country remain in the hands of armed groups including Islamic State, which this week managed to retake the desert city of Palmyra from Syria's army.

Russia regards the fall of Aleppo as a major victory against terrorists, as it and Assad characterize all the rebel groups, both Islamist and nationalist, fighting to oust him.

But at the United Nations, the United States said the violence in the city, besieged and bombarded for months, represented "modern evil".

The once-flourishing economic center with its renowned ancient sites has been pulverized during the war, which has killed hundreds of thousands of people, created the world's worst refugee crisis and allowed the rise of Islamic State.

As the battle for Aleppo unfolded, global concern has risen over the plight of the 250,000 civilians who were thought to remain in its rebel-held eastern sector before the sudden army advance began at the end of November.

Tens of thousands of them fled to parts of the city held by the government or by a Kurdish militia, and tens of thousands more retreated further into the rebel enclave as it rapidly shrank under the army's lightning advance.

The rout of rebels from their shrinking territory in Aleppo sparked a mass flight of terrified civilians and insurgents in bitter weather, a crisis the United Nations said was a "complete meltdown of humanity". There were food and water shortages in rebel areas, with all hospitals closed.

"Shot In Their Homes"

On Tuesday, the United Nations voiced deep concern about reports it had received of Syrian soldiers and allied Iraqi fighters summarily shooting dead 82 people in recaptured east Aleppo districts. It accused them of "slaughter".

"The reports we had are of people being shot in the street trying to flee and shot in their homes," said Rupert Colville, a U.N. spokesman. "There could be many more."

The Syrian army has denied carrying out killings or torture among those captured, and Russia said on Tuesday rebels had "kept over 100,000 people in east Aleppo as human shields".

Fear stalked the city's streets. Some survivors trudged in the rain past dead bodies to the government-held west or the few districts still in rebel hands. Others stayed in their homes and awaited the Syrian army's arrival.

For all of them, fear of arrest, conscription or summary execution added to the daily terror of bombardment.

"People are saying the troops have lists of families of fighters and are asking them if they had sons with the terrorists. (They are) then either left or shot and left to die," said Abu Malek al-Shamali in Seif al-Dawla, one of the last rebel-held districts.

Terrible conditions were described by city residents.

Abu Malek al-Shamali, a resident in the rebel area, said dead bodies lay in the streets. "There are many corpses in Fardous and Bustan al-Qasr with no one to bury them,” he said.

Article Link To Reuters:

A Very Socialist Christmas

Venezuela’s Maduro destroyed the currency. Now he’s after the toys.

By Review & Outlook
The Wall Street Journal
December 14, 2016

This is a time of year when many Americans count their blessings, and among these is the annual Marine Corps Toys for Tots program. Marines accept voluntary donations and distribute toys to millions of needy children. In Venezuela they are developing a different tradition. The government has deployed soldiers from its National Guard to seize millions of toys before they reach Venezuelan shoppers.

Rather than accepting blame for inflation that has been running at 470%, the government of President Nicol├ís Maduro is pretending that the country’s largest toy distributor, Kreisel-Venezuela, is simply charging too much. CNN reports that along with seizing the toys, the government also detained at least two people and that Kreisel executives may be prevented from leaving the country.

The regime is promising to offer the toys at below-market prices in poor areas. But with less than two weeks before Christmas, parents are wondering if they will be able to find gifts in a nation where shortages of meat, vegetables, medicine and other basic necessities have become common. Parents also can’t shop for toys while they are forced to line up this week to deposit their 100-bolivar notes, which the government has decided to outlaw in an attempt to disrupt a thriving underground market.

Venezuela has also been racked by surging crime and poverty. The unfolding misery ought to inspire U.S. musicians to collaborate around the holidays and record songs of protest. But raising awareness of the horrors of collectivism is rarely in style among American pop stars.

Venezuelans are now aware of what happens when the rule of law disappears from a nation. To adapt Margaret Thatcher, the problem with socialism is that eventually you run out of other people’s money—and toys.

Article Link To The Wall Street Journal:

Trump’s Russian Reset Reset

This time, the aim should be to hold Putin’s hand until he gives up power.

By Holman W. Jenkins, Jr.
The Wall Street Journal
December 14, 2016

Rex Tillerson’s preferment at the State Department perhaps is Donald Trump’s best answer to the clamor about Russian meddling in the U.S. election.

Mr. Tillerson may not be trained in diplomacy, but he’s had a lot of experience in dealing with Vladimir Putin. He opposed sanctions. He favors rapprochement. He’s one person who can talk to Mr. Putin.

No, this doesn’t mean Mr. Tillerson is a “friend of Vladimir”—a term meaningless in the context of somebody with Mr. Putin’s problems and dilemmas.

Mr. Trump is right to bring up the CIA’s faulty assessment of Saddam Hussein’s WMD, but not for the reason Mr. Trump implies. Think Tonkin Gulf. No president in his right mind lets a single provocation or intelligence judgment determine him on a strategy.

It’s untidy to say so, but presidents use provocations or intelligence judgments to justify deep-laid policies they have already committed themselves to. And whatever his approach to Russia ends up being, Mr. Trump is smart not to get railroaded into a confrontation because Democrats in Washington and certain Republicans want to make a fuss about information that rightly or wrongly—it doesn’t matter—accuses Mr. Putin of trying to assure Mr. Trump’s election.

Now Mr. Trump has to govern, and come up with a policy on Russia, potentially the most dangerous actor on the international scene, preferably without having to engage in any childish exercises to prove his administration isn’t Mr. Putin’s puppet.

Mr. Trump isn’t wrong to sense the panting desire of MSNBC hosts to use Russia to discredit his presidency. Don’t get us started on Paul Krugman’s hallucinogenic conflation of Mr. Putin with FBI director James Comey.

Yet, except for the bias of hindsight (which you would think the CIA had trained itself to avoid), does it not make more sense to suppose that the Kremlin, believing Hillary Clinton would win, actually thought it was using WikiLeaks to weaken her in office?

But then far-off observers are bad enough at “what” and typically terrible at “why.”

Twelve years ago, this column puzzled over Mr. Putin’s seeming ineptitude at making Russia a “gracious and dutiful partner for trade and finance,” and added, “Western imaginations didn’t quite grasp that Saddam Hussein fancied himself a conqueror, an empire builder, a man of destiny.”

Now the Russian regime is entering its rotten phase; Mr. Putin has no retirement plan. He increasingly relies on high-risk foreign interventions he can’t sustain to prop up his domestic legitimacy.

All national leaders have favorites in the elections of their partners and adversaries. Mr. Obama claimed his nuclear deal would help elect pro-Western moderates in Tehran. When Mr. Putin complains about America’s cavalier interventions abroad, however, he really means that America’s leaders have been unacceptably cavalier about the health and welfare of one Vladimir Putin.

Mrs. Clinton’s pointed questioning of his 2011 re-election, amid protests in the Moscow streets, was like the angel of death-by-lamppost fluttering around his ears.

Mr. Obama’s dismissal of Russia as a mere “regional power” undermined all the shirtless he-man posing Mr. Putin does to keep his domestic enemies at bay and the Russian masses on his side.

The U.S. cannot fix Mr. Putin’s problem for him, but it can help him avoid disastrous miscalculation. It could yet have a role in helping him unburden himself of power, escaping into retirement in Monaco or some such gilded refuge. At least it should be open to trying.

Our president-elect himself of course remains something of an unknown quantity. But it’s hard to argue that America’s current Russia policy has been a success.

What’s more, anybody who isn’t committed to the notion of Mr. Trump as a Russian plant will notice that he’s also calling for a big strengthening of America’s military—and his cabinet picks strongly support this change of direction.

One might also observe that Mr. Tillerson is the anti-Trump: an Eagle Scout, a lifelong respecter of protocol, a CEO who actually works for and answers to a board. He is probably the last person to substitute his former employer’s interest in Russian oil for the aims and interests of the country that appointed him, though this is the “narrative” being hastily adopted by his enemies.

The ultimate joke may come when, as with his two most recent predecessors, Mr. Trump discovers his biggest challenge is one he wasn’t thinking about when he ran: Italy. Both sides perhaps should have won in last week’s Italian referendum. Italy needs domestic reform. It also needs to get out of the euro if it’s not to end up like Greece on a more disastrous scale.

An unraveling of the European Union, or at least the euro currency, may be the real threat to all the good things Mr. Trump wants to do for the U.S. economy, by which his presidency will be judged by those who put him there.

Article Link To The Wall Street Journal:

Google Extends Conservative Outreach As Trump Calls Tech Meeting

By Julia Love and Ginger Gibson 
December 14, 2016

Alphabet’s Google is racing to hire more conservatives for its lobbying and policy arm, trying to get a foothold in President-elect Donald Trump’s Washington after enjoying a uniquely close relationship with the administration of President Barack Obama.

In the weeks since the Nov. 8 election, Google has ramped up efforts to hire Republican lobbying firms and in-house lobbyists to change the composition of its Washington office, according to three lobbyists with knowledge of the matter.

The company also posted an advertisement for a manager for conservative outreach and public policy partnership, seeking a "liaison to conservative, libertarian and free market groups."

While the position is not new, it gives Google a chance to make a hire that reflects the new political climate. Conservatives already are represented in the office.

A Google spokeswoman declined to comment on the record for this article.

Chief Executive Officer Larry Page of Alphabet, Google's parent company, is expected to be in the room on Wednesday when Trump convenes a gathering of leaders of some of the largest technology companies in his New York headquarters. The session, organized by Trump son-in-law Jared Kushner, adviser Reince Priebus and Trump supporter and tech financier Peter Thiel, is billed as an introductory meeting that would not result in any job or investment announcements, two sources briefed on the talks said.

Others attending are Apple Inc Chief Executive Officer Tim Cook, Facebook Inc Chief Operating Officer Sheryl Sandberg, CEO Jeff Bezos, Tesla Motors Inc CEO Elon Musk, Microsoft Corp CEO Satya Nadella and Oracle CEO Safra Catz, according to sources familiar with the session plans.

The Information Technology Industry Council, a trade group whose members include Google, Apple, Facebook and Amazon, had a conference call last Friday to discuss policy objectives it could agree on to present to Trump, according to a person familiar with the call.

Trump clashed with Silicon Valley on several issues during the election campaign, including immigration, government surveillance and encryption. His surprise victory alarmed many companies, which fear he might follow through on his pledges.

Trump has also opposed the Obama administration's "net neutrality" rules, ordered in 2015 by the communications regulator to reclassify broadband internet services to treat them more like public utilities. The rule is now said to be headed for a reversal.

Google Bet Heavily On Clinton

Liberal-leaning Silicon Valley bet heavily on Democratic presidential candidate Hillary Clinton winning the White House, and many technology companies have found themselves scrambling in the wake of Trump's election. But Google, which forged deep ties to the Obama White House and was the largest corporate contributor to Clinton's campaign, appears to have been caught especially off guard, Washington insiders said.

Only 33 employees of Google and its parent company Alphabet donated $201 or more to Trump, for a total of $23,300. Clinton received donations from 1,359 Google or Alphabet employees for a total of $1.6 million. Google NetPAC, the company's political action committee, made 56 percent of its contributions to Republicans in the 2016 election cycle, according to data from the Center for Responsive Politics.

During Obama's presidency, more than 250 people moved between jobs at Google or related firms and the federal government, national political campaigns and Congress, according to a report this year by the Campaign for Accountability, a watchdog group. The company notched several wins during the administration, including favorable policies on net neutrality.

Google seemed poised to enjoy similar treatment under a Clinton administration. Schmidt was seen wearing a staff badge at Clinton's election night party, a sign of their close relationship. But those ties are now something of a liability as the company tries to re-position its presence, lobbyists said.

The hiring push will adjust the political makeup of Google's Washington office, where the team of lobbyists for Congress and the agencies contains more Democrats than Republicans, according to people familiar with the operation. Such a skew is not unusual given that Democrats controlled the White House the past eight years.

To be sure, conservatives are well-represented in the company's Washington office: Susan Molinari, a former Republican congresswoman from New York, has been the top lobbyist since 2012, and Seth Webb, who worked for a former Republican speaker of the house, helps lead Congressional lobbying.

But the company has tended toward moderate Republicans in past hiring. Its previous director of conservative outreach was alumnus of Mitt Romney's 2012 presidential campaign, and a number of former staffers for Sen. John McCain have passed through the office as well.

But the company still has to reconcile the lobbyists it hires with its liberal-leaning existing staff. Said one lobbyist for a rival tech company, "I think they are going to have a tough time really finding the cultural fit."

Article Link To Reuters:

Fed Set To Hike Rates, Policy Outlook Now Hinges On Trump Presidency

By Howard Schneider
December 14, 2016

The Federal Reserve will conclude its two-day policy meeting on Wednesday afternoon with an interest rate increase all but assured and will issue new forecasts assessing whether the economic outlook has changed since the U.S. election.

The latest policy statement and projections are to be released at 2 p.m. EST (1900 GMT) with a press conference by Fed Chair Janet Yellen following at 2:30 p.m.

Markets are poised for the federal funds rate to rise to a target range of between 0.5 and 0.75 percent from the current range of 0.25-0.5 percent, where they have rested since the Fed approved its last rate increase a year ago.

Of more significance is the backdrop of the meeting. After years of the Fed fretting about low interest rates and weak inflation, the weeks since Donald Trump's victory have seen both bond yields and inflation expectations start to rise. The Dow Jones industrial average is up more than 11 percent since the vote.

Details of policymakers' new economic assessments, the first since the election, will be dissected closely to see if policymakers yet feel the arrival of the Trump administration has shifted the economic outlook or poses a risk of greater inflation. The president-elect has said he wants a major tax cut and infrastructure spending program, even as the economy approaches full employment and wages are rising.

"Inflation risks are more significant than they were three months ago," when the policymakers issued their last forecasts, sad Northern Trust chief economist Carl Tannenbaum. "Rates could well rise more than anticipated."

Despite the changed circumstances, it is not certain the Fed will budge on its assessments. The median forecast of policymakers as of September was for two interest rate increases in 2017, an outlook Tannenbaum and many analysts feel may remain the case.

Trump has not yet taken office, and any proposals would have to clear a Republican-controlled Congress that may be stricter about increasing public debt than Trump. In recent public appearances some Fed officials have said they see a chance Trump's policies may force them to speed the pace of rate increases, yet also said they are hesitant to change their outlook before he shares more details.

"Investors who are looking for clarity may be disappointed," said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management.

Article Link To Reuters:

Actelion Says It Continues Deal Talks As J&J Drops Out

By Greg Roumeliotis
December 14, 2016

Switzerland's Actelion Ltd (ATLN.S) said on Tuesday that it was in talks with an undisclosed suitor about a "strategic transaction," even as another potential acquirer, U.S. healthcare company Johnson & Johnson (JNJ.N), ended talks.

The latest twist in Actelion's deal negotiations illustrate how its chief executive Jean-Paul Clozel is driving a hard bargain as bidders circle his company, which he founded in 1997 and turned into Europe's largest biotechnology drug marker.

Actelion did not name the company it was still in discussions with. It informed Johnson & Johnson that it was confident it could attract an offer significantly higher than the approximately 250 Swiss francs per share that the U.S. company had offered, according to a person familiar with the matter that requested anonymity because the negotiations were confidential. There were also disagreements about the structure of the deal, the person added.

Actelion shares ended trading at 208.50 Swiss francs in Zurich on Tuesday before Actelion gave the update on the talks, giving it a market capitalization of 22.5 billion Swiss francs ($22.2 billion).

Acquiring lung disease specialist Actelion would have boosted J&J's drug pipeline and given it more pricing power, at a time when its popular arthritis drug Remicade faces cheaper competition from Pfizer Inc (PFE.N).

Clozel and his wife, Chief Scientific Officer Martine Clozel, have built up a world-leading drug portfolio at Actelion to treat deadly pulmonary arterial hypertension. They aim to expand in drugs for multiple sclerosis and diarrhea-causing clostridium difficile, but regulatory approvals for those are years away.

The company is also counting on its new pulmonary arterial hypertension treatments Opsumit and Uptravi, which combined are forecast to bring in nearly 4.5 billion francs in annual sales by 2020, according to Reuters data.

Analysts have previously identified France's Sanofi (SASY.PA) as a potential buyer for Actelion, whose portfolio would supplement the French drugmaker's Genzyme rare disease unit. Sanofi did not immediately respond to requests for comment.

Ending deal negotiations without a sale would likely subject Clozel to new shareholder pressure. Five years ago, he successfully defended against an effort by activist hedge fund Elliott Management to put Actelion up for sale, questioning his strategy.

Article Link To Reuters:

Syria: The Crime Of The Century

By Noah Rothman
December 14, 2016

“Aleppo has basically fallen,” Donald Trump declared at an October 9 presidential debate. He was wrong then. The assertion was made only, in part, to justify his support for an American partnership with the Assad regime and its benefactors in Moscow on the grounds that they are effectively fighting ISIS (they weren’t then, and Damascus remains brazenly callous about refusing to prioritize the fight against ISIS). Given how Syria and its Russian and Iranian allies have viciously and remorselessly prosecuted the campaign against anti-Assad rebels—a campaign unimpeded by Western intervention—Trump was bound to be right someday. That horrible day is here.

For the tens of thousands of civilians and rebels trapped in pockets in the last remaining Syrian city still in the hands of anti-Assad forces, it is judgment day. As pro-government forces close in on the city, reports are leaking out into the civilized world of grotesque atrocities. On Tuesday, the United Nations human rights office alleged that government forces are summarily executing civilians, including women and children. This is buttressed by unconfirmed yet credible reports published by the Associated Press of massacres in rebel-held areas at the hands of Assad’s soldiers.

Residents who still have access to the internet are posting heart-wrenching dispatches in which they, resigned to their fates, bid their final farewells. For those that escape the concentration shelling and bombing of an ever-shrinking rebel-held area, civilians face an end worse than death. “This morning 20 women committed suicide in order not to be raped,” revealed Abdullah Othman, the leader of a rebel group in Aleppo in a message to The Daily Beast.

These are hardly the first crimes against humanity in Aleppo that were committed by pro-Damascus forces right under Western noses. The year opened with a devastating aerial bombardment on eastern Aleppo’s civilian areas, which cut the city off from outside and indigenous aid providers and threatened residents with starvation. A similar starvation tactic directed against the city of Homs had effectively routed rebel forces there earlier, and the quarter million remaining Aleppo residents feared their fates would be similar. By late November, the city’s last rations were depleted, and the international community was reduced to begging Moscow and Damascus to allow humanitarian aid into the city. For aid workers, however, the prospect of relieving Syrian civilians can be just as deadly a task as defending them from Assad’s forces.

In September, United States officials accused Russian warplanes of dropping the munitions that destroyed a United Nations convoy carrying food supplies outside Aleppo. In his farewell address, outgoing UN General Secretary Ban Ki-moon accused Russia of orchestrating a “sickening, savage, and deliberate attack” on the global body. This was the natural extension of a systematic air campaign targeting hospitals, including maternity wards, the aim of which was to render the city of Aleppo hostile to life.

The images of lifeless or shell-shocked children streaming out of the Syrian charnel house have been impossible to avoid. Those images go viral for a moment or two; they provide Western political commentators an opportunity to emote before the moment inevitably fades. The executors of this atrocity now have the gall to question the validity of the reporting around this historic crime. Russia’s UN ambassador, Vitaly Churkin, on Tuesday called the idea of mass slaughters in Aleppo “fake news” and speculated that the youngest victims of Russian and Syrian bombs are, in fact, actors. These insults to intelligence and dignity will be consumed voraciously by the West’s enemies, but the West isn’t defending itself anymore. It is exhausted.

Sitting stoic and genuinely chastened on the set of a CNBC interview program in 2013, Bill Clinton reflected on his presidency and his failure to intervene in the genocide in Rwanda earlier. Documents released in 2004 revealed that the Clinton White House knew well in advance of the massacres that there was a “final solution to eliminate all Tutsis” in the works. Yet, his White House did nothing until political pressure was too great to overcome. “If we’d gone in sooner, I believe we could have saved at least a third of the lives that were lost,” Clinton confessed. “It had an enduring impact on me.” That amounts to nearly 300,000 souls.

How will posterity look back on Western inaction in Syria? This was a conflict that demonstrated the prohibition on the use of weapons of mass destruction against civilians and on the battlefield was no more. This was a conflict that shattered the European compact, as millions of unassimilated Muslim refugees streamed into the neighboring continent yielding the rise of a grimly familiar reactionary nationalism. This was a conflict in which hundreds of thousands were slaughtered as the world watched, wrung their hands, and eventually changed the channel. Barack Obama’s regrets will be monumental, but his grief will be our own, too. As an increasingly insecure United States retrenches from its global obligations, this was a glimpse at the post-American future. Elections have consequences, and this is the world Americans voted themselves.

Article Link To Commentary:

Obama Should Out Putin's Wealth As Payback For Election Hacking

By Eli Lake
The Bloomberg View
December 14, 2016

Everyone except the next president seems to understand that Russia interfered in the U.S. election.

It's not just the latest CIA assessments, or the earlier public statement from the Office of the Director of National Intelligence and the Department of Homeland Security. Nor is it the fact that cyber-security experts in July had pinned the hacks of Democrats on bad actors in Moscow. As the Daily Beast reported Monday, even Russian officials are pretty much copping to the cybercrime of this young century.

All of this raises a very Russian question for Obama: What is to be done?

It's tricky. The current president certainly shouldn't respond in kind. Given Putin's own war against his opposition, future Russian elections will be as good as fixed before anyone votes. What's more, Putin these days is popular. So hacking and leaking the e-mails of Putin's allies doesn't have the same effect as hacking and leaking the e-mails of Hillary Clinton's allies.

Obama's options are limited. Sanctions or covert action? Trump could begin to reverse them in less than six weeks. Based on his response to the reports about the Russian hacking assessments over the weekend, it's safe to assume Trump is not inclined to punish Putin for hacking and leaking the e-mails of his political opponents.

The one thing Obama can do -- something that Trump cannot undo -- is disclosure. Obama should disclose as much of the intelligence community's assessment of the Russian hacks as he can without compromising sources and methods. This way the public discourse can be based upon facts instead of whispers. Democrats in Congress, with the support of a growing number of Republicans, are already talking about a multi-year independent study. Far better for us all to immediately see a detailed report laying out what the Russians did in the last year.

That would be a start, but Russia still should pay for its interference. To do that, Obama should shine a spotlight on the Russian president's money. Since the 2014 stealth invasion of Ukraine, the CIA and the Treasury Department have devoted more resources to learning the details of Putin's personal wealth. Obama should declassify dossiers of Putin's and his inner circle's fortune: their front companies, their homes, their yachts, their secret bank accounts. If he's feeling puckish, Obama could tell his administration to anonymously post all that information on random public websites. He could say the CIA was hacked. Oops. Sorry, Vladimir. Our cyber security is a mess right now.

U.S. officials have hinted before that they know more than they are saying about Putin's money. Adam Szubin, the acting undersecretary of the Treasury for terrorism and financial intelligence, told the BBC in January that Putin "supposedly draws a state salary of something like $110,000 a year. That is not an accurate statement of the man's wealth, and he has long time training and practices in terms of how to mask his actual wealth."

In October, retired Admiral James Stavridis told NBC News: "It's well known that there's a great deal of offshore money moved outside of Russia from oligarchs. … It would be very embarrassing if that was revealed, and that would be a proportional response to what we've seen."

For normal countries, this kind of information on a national leader would be political poison. But for Putin it won't be. When the Panama Papers were released this year, implicating Russian oligarchs in shielding their wealth in offshore accounts, there was little interest inside Russia. Most Russians expect their leaders to be corrupt.

The effect of a disclosure by the Obama administration though would be apparent in the West. Putin may not care whether his citizens know how corrupt he is. But I bet his Western bankers and business partners do. Fiona Hill, a senior fellow and Russia expert at the Brookings Institution, told me Monday: "The one thing about revealing this information is that it would stigmatize his wealth. This is shining a spotlight on him and his allies."

Hill added, however, that she did not know how much concrete information the U.S. government had in this regard. Putin is very good at hiding his money.

It's doubtful that Trump would begin his presidency by imposing sanctions on the Russians for the electoral hacks. But having a detailed, public record of Putin's and his inner circle's wealth would at least leave this option open for European governments. And who knows: in a month or a year, the Trump administration might have a vendetta against Putin, and if it does, the justification for sanctions will already be a matter of public record.

Even in the meantime, the disclosure could actually help Trump. The president-elect says he wants to reset the U.S.-Russian relationship, just as Obama said when he came into office in 2009. The prospect of Western banks shying away from the personal wealth of Putin and his allies would create a little leverage in what are sure to be tough negotiations about that reset. As Trump might say, it's a reminder of the kind of thing that can happen to Putin's money if he doesn't play nice. Big league.

Article Link To The Bloomberg View:

World War II Is Still 'Raging' In Asia. Can Putin And Abe End It?

Economic diplomacy may hold the key.

The National Interest
December 14, 2016

On December 15, Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin will try to end World War II. For over seven decades, a dispute over four islands, which Russia calls the Southern Kurils and Japan calls the Northern Territories, has prevented a formal peace agreement.

New research underscores their herculean task. A team of political scientists at the University of North Texas examined every territorial dispute involving two or more states between 1816 and 2001. To estimate the importance of territory to competitors, researchers evaluated the presence of valuable resources, ethnic ties and other factors. Japan and Russia’s island row received the highest score possible.

The historical record for resolving these “perfect storm” disputes is sobering. Current quarrels include the Golan Heights, Kashmir, and Taiwan, among others. Of those disputes that have been resolved, one third have ended through violence.

Only twice did bilateral negotiations peacefully and permanently calm a perfect storm. Both cases involve Poland, which settled border disputes with Czechoslovakia and West Germany in 1957 and 1972, respectively. Beyond looking west for inspiration, what might Abe and Putin learn from these outliers?

While each case is unique, both suggest economic diplomacy is critical for laying the groundwork for peace. Deployed correctly, trade, investment and other economic incentives can build trust, overcome ancient animosities and create an environment for winning seemingly impossible political concessions.

In the first case, a decade of economic cooperation helped Czechoslovakia and Poland settle a dispute as old as the countries themselves. Relations began to thaw after a treaty paved the way for joint development of industrial areas. Each brought something to the table, with Czechoslovakia specializing in engineering and Poland specializing in raw materials production.

Building on this foundation, targeted economic commitments increased trust and set the stage for a political deal. Key among them were Czechoslovakia’s significant investments in Polish mining. Economic conditions within Poland, which was facing a number of headwinds and needed access to capital, made these incentives even more attractive.

In the second case, it was a trade agreement that paved the way for a peaceful resolution between Poland and West Germany. Months before resolving their border dispute, the two countries clinched a deal that provided Poland with significant market access. Over the next four years, Poland’s exports to West Germany grew nearly six fold.

Despite a condensed timeline, the overall pattern is similar: economic diplomacy made political progress possible. In early 1970, Poland’s minister for foreign trade became the first official of post-war Poland to visit West Germany. Six months later, West Germany’s economic minister became the first cabinet-level official to visit post-war Poland. In December of that year, the border dispute was resolved.

These cases prove that even the thorniest disputes can be resolved peacefully, but also suggest that Japan and Russia have more work to do.

To be sure, economic relations between Japan and Russia have been improving, with trade quadrupling over the last decade. Furthermore, Abe firmly grasps the importance of economic diplomacy. In September, he added a new post for economic cooperation with Russia to the portfolio of Japan’s minister for economy, trade and industry.

But the question is whether cooperation in the economic realm has reached a tipping point that could catalyze progress in the political realm. Looking closer, there is plenty of room for increased cooperation. That could include greater investment from Japan in Russia’s Far East, especially infrastructure projects, as well as joint development of the islands.

Another challenge, of course, is that economic diplomacy does not operate in a vacuum. Just as Poland was eager for greater trade and investment, Russia’s sclerotic economy is primed for Japan’s economic incentives. But China’s rise has increased the strategic value of the islands, where Russia has been developing military installations. This could raise the bar for economic cooperation.

It would be a mistake to judge this month’s summit solely on whether a grand bargain is reached. Given the perfect storm that Abe and Putin confront, a better gauge of success is whether they can continue building a foundation for peace. Successful steps forward could take many forms, but history suggests the most important would be economic.

Article Link To The National Interest:

Dollar Takes Breather, Investors Anxious About Fed Rate Outlook

By Hideyuki Sano
December 14, 2016

The dollar took a breather on Wednesday as investors waited to see if the U.S. Federal Reserve will signal any acceleration in the pace of future rate increases to deal with an expected ramp-up in fiscal spending under President-elect Donald Trump.

In its policy meeting ending later in the day, the Federal Open Market Committee (FOMC) is seen as all but certain to raise its interest rate target by 0.25 percentage point to 0.50-0.75 percent. The decision will be announced at 1900 GMT.

It would be just the Fed's second rate hike since the financial crisis in 2007-08, following last December's tightening.

"The markets think a rate hike is a certainty so the focus is on the outlook for next year. I think they will maintain their previous projections to raise rates twice next year but if they turn more hawkish, the dollar will test its upside again," said Shinichiro Kadota, chief FX strategist at Barclays.

The dollar index, which tracks the U.S. unit against a basket of six major currencies .DXY =USD, edged down to 101.00, having slipped from this week's high of 101.78 touched early on Monday.

The euro EUR= inched higher to $1.0637, pulling further away from Monday's one-week low of $1.0525.

Against the yen, the dollar JPY= was slightly higher at 115.25 yen, but remained well below Monday's 10-month peak of 116.12 yen.

Some investors were eager to take profits from the dollar's massive rally of about 10 percent against the yen since the Nov 8 U.S. election.

Expectations that Trump will cut taxes, boost fiscal spending and raise U.S. growth over the near-term lifted U.S. bond yields and stock prices, making the dollar more attractive.

On Monday, the benchmark U.S. 10-year yield US10YT=RR touched more than two-year highs above 2.50 percent, and the 30-year U.S. Treasury yield climbed to around a 17-month peak.

"If Treasury yields could correct lower after the FOMC outcome, that means the yen could appreciate again," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

"Until then, the pair is range-bound in the 115-level," he said.

Although many investors had long thought the Fed will raise rates very slowly and cautiously, especially under dovish Chair Janet Yellen, Trump's surprise election victory last month has drastically shaken up that assumption.

The two-year U.S. debt yield rose to a 6 1/2-year high on Tuesday, and U.S. money market futures <0> are pricing in almost two rate hikes next year.

That marks a sea change from before the election, when markets were not fully pricing in even one rate hike in 2017.

Commodity-linked currencies were supported by strong rises in oil prices after OPEC and some of its rivals reached their first deal since 2001 to jointly reduce output to tackle global oversupply.

The Australian dollar AUD=D4 traded at $0.7489, having hit a near one-month high of $0.7524 on Tuesday.

The Aussie was also not far from its March peak of 86.66 yen AUDJPY=R, a break of which could open a way for a test of above 90 yen touched last year.

The Canadian dollar stood at C$1.3133 per U.S. dollar CAD=D4, after having risen to as high as C$1.3102 to the dollar on Tuesday, an eight-week high.

The biggest winner in the past few sessions from rallying oil prices was the Russian rouble RUBUTSTN=MCX, which rose 5.4 percent over the past week against the dollar to hit a 16-1/2-month high.

The Russian currency is the best performing currency since Trump's upset.

Article Link To Reuters:

China Central Bank Advisers Rally Behind Beleaguered Yuan As Trump Threat Looms

By Winni Zhou and John Ruwitch
December 14, 2016

In what appeared to be an effort to shore up investor confidence in the beleaguered Chinese yuan, a phalanx of central bank advisers signaled their readiness to defend the currency and said a stabilizing economy will temper future depreciation pressure.

In November, the yuan CNY=CFXS hit an almost 8-1/2 year low against a broadly strengthening dollar, forcing authorities to tighten outbound investment as they scrambled to staunch capital outflows.

But recent data showing a stabilizing economy have provided some support to the yuan.

Fan Gang, a member of the central bank monetary policy committee told the China Securities Journal that the latest economic data showed the Chinese economy was stabilizing.

Deflation had ended, and overcapacity and corporate debt issues were starting to get resolved, Fan was quoted as saying.

"If next year's economic growth would be higher than 2016, it would show that the economy has already bottomed out and would enter a recovery period," Fan said.

China posted its strongest retail sales growth of the year in November, while surging steel production lifted factory output though private investment began to slow again, leaving the economy more reliant on state spending amid mounting debt.

The fears about a rush of capital from the world's second-biggest economy has been fed by Republican Donald Trump's upset Nov. 8 election victory. The New York billionaire's campaign threats to slap high import tariffs on Chinese goods and label Beijing a currency manipulator on the first day in office on Jan. 20 have stoked uncertainty about the yuan's outlook.

The yuan has already lost more than six percent to the dollar so far this year, pressured by a broad rally in the dollar on the back of bets that Trump's policies will set U.S. growth on a higher gear, and prompt the Federal Reserve to raise rates at a faster pace.

The Fed is all but certain to raise rates when the two-day meeting ends later on Wednesday.

China's yuan was slightly weaker against the dollar in trading on Wednesday, fetching 6.9049 at midday, after the central bank lowered the midpoint.

Free Float

In the same article, Sheng Songcheng, an adviser to the People's Bank of China, said he was opposed to a free float of the yuan as that would bring limited incentive to exports and economy while bring negative impacts to imports.

"Once the public's confidence in the yuan gets hurt, the economy will be hit hard, and the foreign exchange reserves would also be hard to protect," Sheng was quoted as saying.

China currently operates an administered peg exchange rate system, whereby the yuan-dollar exchange rate is allowed to fluctuate by 2 percent either side of a midpoint fixed by the central bank each day.

The government has said it's ongoing markets reforms target full convertibility for the yuan but no specific timeline has been set.

In December, Beijing said it would allow limited convertibility of the yuan in free trade zones in Guangdong, Fujian and Tianjin, in a move to further liberalize its capital account after its currency was admitted to the IMF's reserve basket.

The official paper also cited former central bank advisor Yu Yongding as saying the central bank should appropriately intervene in the foreign exchange market while strengthening capital controls.

"Therefore, we can avoid from using excessive foreign exchange reserves to intervene in the forex market," Yu said.

Chinese officials often say there is no basis for yuan depreciation, with PBOC vice governor Yi Gang saying on Nov. 27 that current conditions point to a stabilisation of the yuan.

"We can see such voices everyday, and it's useless to just offer some verbal defense...The impact from authorities' vocal support for the yuan is very limited. The dominate power in the forex market is corporate dollar purchases," said a trader at a Chinese bank in Shanghai.

China's foreign exchange reserves fell far more than expected in November to the lowest level in nearly six years, as authorities struggled to stem capital outflows.

Article Link To Reuters:

After China’s Hubris, It’s Trump’s Turn

Once confident U.S. was in decline, Beijing finds itself with a weak economic hand.

By Andrew Browne
The Wall Street Journal
December 14, 2016

China’s belligerence during the Obama era began with hubris—a conviction that post-financial-crisis America was in irreversible decline and its own rise was unstoppable.

That triumphant sense of destiny abruptly ended decades of foreign-policy caution. Chinese dredgers ripped up South China Sea reefs to build militarized islands. Paramilitary fleets swarmed around islets disputed with Japan in the East China Sea. And China served notice that it not only intended to contest the U.S.-led regional security order, but also reshape the global financial architecture. Nothing symbolized that ambition more than Beijing’s successful effort to persuade the International Monetary Fund to ordain the yuan a global reserve currency.

Today, as Beijing tries to figure out how to play Donald Trump, the economic fortunes are reversing.

The U.S. economy has new wind in its sails. Investors are betting on a fresh gust from Mr. Trump’s pledge to splurge on public works and cut taxes. Stocks are hitting highs; the dollar is surging.

Meanwhile, the Chinese economy is struggling. Just months after the yuan formally joined the world’s top currency elites, it has become a symbol not of China’s economic ascendancy but its decline. Chinese citizens are scrambling out of the yuan, spooked by slowing growth, soaring debt and a property bubble.

The yuan has dropped more than 6% against the dollar this year and is now at eight-year lows. Beijing has discovered that the prestige of reserve-currency status, which required China to allow greater cross-border capital flows, has become a liability. Authorities are reimposing restrictions.

Worse, liberalization in the financial realm was supposed to spur overhauls in the real economy, particularly the laggard state-owned industrial sector.

That project is now largely abandoned, threatening China’s long-term prospects.

It isn’t a crisis yet; the government still has plenty of financial firepower left. But one is brewing.

How does all this play into U.S.-China relations on the eve of a Trump presidency?

Mr. Trump accuses China of “raping” America by stealing its jobs through unfair trading practices. During the campaign, he threatened to label China a currency manipulator and slap punitive tariffs of 45% on Chinese exports. On Sunday, he raised the stakes exponentially by positioning Taiwan as a bargaining chip—continued U.S. adherence to a “one-China” policy, which underpins the U.S.-China relationship, in return for Chinese concessions on flashpoints such as trade.

Mr. Trump clearly thinks he has the upper hand. “We have trade power over China,” he told the Washington Post before his election.

On the Chinese currency, though, Mr. Trump is hopelessly out of date: China is trying to prop up the yuan—the opposite of manipulation Mr. Trump suggests.

On trade, although the headline data shows China accounted for 50% of the U.S. trade deficit last year, that number gives a highly distorted view since around 37% of those exports consist of imported parts, mainly from Japan, South Korea and Taiwan, Deutsche Bank Chief Economist Zhiwei Zhang said. In value-added terms, he calculates, China accounted for just 16% of the U.S. deficit, slightly ahead of Japan and Germany.

A trade war with China, Mr. Zhang notes in a report, “would be a war against all participants of the global supply chain, including U.S. companies.”

As for dragging Taiwan into the trade dispute, if Mr. Trump tries that as president it will almost certainly backfire. No Chinese leader could bargain over Taiwan and hope to hold on to power. And no other issue would be more likely to inflame China’s nationalistic public and put pressure on the government to lash out, perhaps militarily.

Of course, Mr. Trump’s economic policies are untested. The Organization for Economic Cooperation and Development says they could either boost U.S. and global growth, or spoil it all if they led to trade protectionism that invited retaliation.

Don’t entirely count China out, either. The Cornell economist Eswar Prasad, an expert on the Chinese currency, says that while the yuan’s “value and prestige have both taken a beating,” this could turn out to be “just temporary stumbles” if growth continues at a decent clip and the government recommits to economic overhauls.

David Dollar, formerly the U.S. Treasury’s China emissary and now a scholar with the Brookings Institution, argues that if Mr. Trump wants to play hardball in pursuit of balanced trade, he should try to force China to open up its markets and allow U.S. companies to export more products and services. A potentially fruitful way to apply pressure, he writes, would be to restrict the acquisition of U.S. companies by Chinese state enterprises.

As Mr. Trump prepares to ascend to the presidency, however, he risks succumbing to a similar hubris that overcame China, miscalculating both strategically and economically just as China overreached at a moment of U.S. weakness. The consequences for both countries could be even more destructive.

Article Link To The Wall Street Journal:

Toward A Rust Belt Powerhouse

By Jim O'Neill
Project Syndicate
December 14, 2016

A few days ago, US President-elect Donald Trump took to Twitter – his medium of choice – to declare that he did not need China’s permission to contact Taiwan, because China didn’t ask for permission to devalue its currency. At that moment, my hope that the Trump shake-up would be economically beneficial for the United States diminished.

I believe that the developed economies need a jolt to escape their post-2008 malaise and their excessive reliance on easy monetary policy. Given Trump’s propensity for shaking things up, he seemed a good candidate for the job. But if the Trump disruption were actually going to help the US, it would need to focus on economic essentials, rather than simplistic – and often false – populist memes.

Judging by his accusations against China, it seems that Trump is simply stirring the pot and riling up his supporters – not advancing any kind of constructive agenda. After all, any reasonable observer of China – including some of Trump’s own advisers, with whom I have worked in the past – knows that the country has not devalued its currency for some time.

Yes, the Chinese renminbi has declined recently against the dollar, but not as much as the Japanese yen, the euro, or the British pound – and those declines have been driven by relative confidence in the US economy. In any case, the Chinese have a trade-weighted exchange-rate policy, not one based on keeping the renminbi at some targeted level relative to the dollar.

Instead of accusing China of undermining US companies’ competitiveness, Trump should be focused on a genuine pro-growth strategy. Such a strategy could follow the British “northern powerhouse” model – which I helped to create as a member of the government – focused on revitalizing the economies of the former heartland of British manufacturing.

London is the only city in the United Kingdom that ranks in the world’s top 50. That is a big deal in a world where, for the last 20 years, cities have accounted for more than 60% of economic growth, wealth expansion, and gains in living standards. Individually, the far smaller cities in England’s north cannot really compete with that.

But, by linking together major cities – including Manchester, Sheffield, Leeds, and Liverpool – the north could become far more unified, with seven million people acting as a single regional economy, thereby providing many of the agglomeration benefits of major global cities. And, indeed, the distances between Manchester, Leeds, Liverpool, and Sheffield are smaller than the distances covered by the Central, District, and Piccadilly lines in the London Underground. With affordable state-of-the-art transport systems, therefore, it seems clear that these cities could take advantage of urban agglomeration benefits.

Of course, the cities of England’s north are proud of their unique histories and eager to maintain their individual sense of identity. None of this would be taken away from them. While it is understandable that some have viewed the northern powerhouse strategy as a platform for emphasizing their own superiority, this is unhelpful, not least because it causes some decision-makers in the central government to doubt the project’s relevance. Why invest so much in these cities, when so many other areas of the country are also struggling? The only answer is precisely the opportunity to reap the benefits of integration.

Fortunately, despite some doubts, the UK government has announced efforts to kick-start some of the necessary transport links, with the goal of shortening the Leeds-Manchester train journey to 30 minutes. But other elements of the northern powerhouse plan are just as important, especially the devolution of significant decision-making powers – and some spending and revenue powers – to the city level, in exchange for electing mayors (something the UK can learn from the US). After all, England is probably the most politically centralized economy in the OECD – a reality that probably contributes to its deep regional imbalances.

Beyond devolution and transport, England’s north needs to improve dramatically the education and skills of its labor force, in order to attract and retain cutting-edge companies. Plans to replicate some of the remarkable improvements in London and southeast England’s educational attainment of the last 20 years are ambitious but achievable.

The reality is that, with greater decision-making authority and more linkages and skills, England’s northern cities could become far more dynamic, potentially reversing decades of relative economic decline. In fact, I would venture to predict that the northern powerhouse project, which has already attracted the attention of local and foreign investors, will be one of the UK’s most important structural economic policies for many years to come. That is why it is critical that UK leaders continue to advance it.

The northern powerhouse strategy provides valuable lessons for other countries. Already, China is pursuing a similar regional development strategy, aimed at revitalizing its old northern industrial belt, thereby taking some of the pressure off its ultra-dynamic coastal cities. The US should follow suit, with a plan to revitalize the so-called Rust Belt that was integral to Trump’s victory.

As an added benefit, such an approach could spur “competitive envy” in other sluggish regions. That is what has happened in the UK, with progress in England’s north spurring some to argue for, say, a “Midlands engine,” covering the other major urban-based UK area outside of London, with many cities in close proximity to one another.

Of course, the US is much larger than England, and its old industrial cities are much farther apart. But some of the ideas that have animated the northern powerhouse could enrich Trump’s economic plans considerably. Given that infrastructure investment is a key element of his agenda, and that devolution of powers to the states is popular among US Republicans, there certainly seems to be space for such an approach.

Article Link To Project Syndicate: