Monday, July 31, 2017

Monday, July 31, Morning Global Market Roundup: Asia Stocks Start Data-Heavy Week With Gains; Dollar Creeps Up

By Nichola Saminather
July 31, 2017

Asian shares turned positive on Monday, shrugging off a new North Korean missile test as investors turned their attention to a raft of global economic data and earnings this week, while the dollar crept up but remained capped by U.S. political concerns.

European stocks look set for a muted start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100, Germany's DAX and France's CAC 40 to all open little changed.

MSCI's broadest index of Asia-Pacific shares outside Japan reversed early losses to rise 0.25 percent.

Chinese shares rose, buoyed by several leading companies' forecasts for strong mid-year earnings. The blue-chip index and the Shanghai Composite both rose 0.6 percent. Hong Kong's Hang Seng climbed 1 percent to a two-year high.

That strong performance came despite a slip in official Chinese manufacturing and services purchasing managers' indices in July, although they stayed above the 50-point mark that separates growth from contraction on a monthly basis.

Investors remained wary after North Korea conducted a missile test late on Friday that it said proved its ability to strike the U.S. mainland. The U.S. responded by flying two bombers over the Korean peninsula on Sunday.

But early jitters dissipated somewhat, with the Korean won reversing losses. The dollar was down 0.2 percent at 1,120.7 won, after jumping almost 0.7 percent on Friday. South Korea's KOSPI fell 0.2 percent.

Australian shares advanced 0.7 percent.

The perceived safe-haven Japanese yen strengthened, with the dollar shedding 0.15 percent to 110.545 yen, touching its weakest since mid-June.

"The geopolitical overhang will likely keep topside moves in check early in the week as the disorganized U.S. and China policy towards North Korea is not helping matters," Stephen Innes, head of Asia-Pacific trading at OANDA, wrote in a note.

Japan's Nikkei was flat, with the firm yen offsetting news the country's industrial output rebounded in June from a decline in May.

On Wall Street on Friday, the S&P and Nasdaq indexes fell after earnings from companies including Amazon, Exxon Mobil and Starbucks disappointed.

But the Dow closed higher and set an intraday record, lifted by Chevron's strong earnings.

U.S. corporate results overall have come in better than expected for the second quarter. More than halfway through reporting season, S&P 500 companies are on track to have increased earnings by 10.8 percent, according to Thomson Reuters I/B/E/S.

S&P E-mini futures were down almost 0.1 percent on Monday.

The dollar index, which tracks the greenback against a basket of six major peers, edged up 0.15 percent to 93.396, after Friday's 0.6 percent decline.

Markets are awaiting speeches by Cleveland Federal Reserve President Loretta Mester and San Francisco Fed President John Williams on Tuesday, for further insight into whether the central bank has turned more dovish in light of recently muted inflation.

"It is easy for uncertainty to increase about the Fed's ability to raise rates next year if inflation remains low. We could see the dollar head below 110.00 yen under such circumstances," said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

Investors will also be keeping a close eye on data including euro zone core inflation for July on Monday; the Reserve Bank of Australia's rate decision, at which it is expected to stay on hold, and U.S. manufacturing conditions, due Tuesday; the Reserve Bank of India's meeting on Wednesday, at which it is expected to cut rates; and Bank of England on Thursday, where it is likely to leave rates unchanged.

A raft of private manufacturing surveys will also be released on Tuesday.

The euro retreated slightly to $1.17385, pulling back from Friday's 0.6 percent gain.

In commodities, oil prices rose for their sixth straight session on tightening U.S. supplies and the threat of U.S. sanctions against Venezuela's oil sector.

U.S. crude futures climbed 0.3 percent to $49.87 a barrel, after earlier hitting $50.06, their first foray above $50 in two months.

Brent crude advanced 0.5 percent to $52.78, adding to Friday's 2 percent surge.

Gold was little changed at $1,268.26 an ounce, after earlier climbing to its highest since June 14.

Article Link To Reuters;

Oil Hits Two-Month High On Tighter U.S. Market, Venezuela Sanctions Risk

By Henning Gloystein
July 31, 2017

Oil prices hit a two-month high on Monday, lifted by a tightening U.S. crude market and the threat of sanctions against OPEC-member Venezuela.

Brent crude futures were at $52.82 per barrel on Monday, up 30 cents or 0.6 percent. Prices hit $52.90 per barrel earlier in the day, their highest since May 25.

U.S. West Texas Intermediate (WTI) futures were up 16 cents, or 0.3 percent, at $49.87 per barrel, and the entire WTI curve is close to moving back over $50 per barrel, with only September and October a notch below that level.

The price rises put both crude benchmarks on track for a sixth consecutive session of gains.

Prices have risen around 10 percent since the last meeting of leading members by the Organization of the Petroleum Exporting Countries (OPEC) and other major producers, including Russia, when the group discussed potential measures to further tighten oil markets.

"U.S. inventories are showing massive drawdowns, Saudi Arabia seems intent on playing its role as the world's swing producer (and) impending sanctions on Venezuela by the U.S. will almost certainly be oil price-supportive," said Jeffrey Halley, analyst at futures brokerage OANDA.

The United States is considering imposing sanctions on Venezuela's vital oil sector in response to Sunday's election of a constitutional super-body that Washington has denounced as a "sham" vote.

But traders said the biggest price supporter was currently a tightening U.S. oil market.

"Strong increases in the price of oil ... (were) fueled in large part by the substantial drawdowns in U.S. inventories over the past several weeks," said William O'Loughlin, analyst at Rivkin Securities.

"A continuation of this trend could indicate the oil market is rebalancing thanks to the production cuts by OPEC and Russia," he added.

After rising by more than 10 percent since mid-2016, U.S. oil production dipped by 0.2 percent to 9.41 million barrels per day (bpd) in the week to July 21.

U.S. crude inventories have fallen by 10 percent from their March peaks to 483.4 million barrels.

Drilling for new U.S. production is also slowing, with just 10 rigs added in July, the fewest since May 2016.

The tighter market was also visible in the price curve, which shows backwardation in the front end.

Backwardation is a market condition in which prices for immediate delivery of a product are higher than those later on.

Brent prices for delivery in September are currently around 35 cents above those for October.

Article Link To Reuters:

OPEC Has A Crippling Problem: Its Members Can’t Stop Pumping

Eight months after a landmark deal to cut oil output to force prices up, big budget obligations drive members to keep producing.

By Benoit Faucon, Lynn Cook, Summer Said, and Georgi Kantchev
The Wall Street Journal
July 31, 2017

OPEC, the once powerful oil cartel, is struggling to hold the line in a make-or-break fight to limit oil production, prop up crippling low prices and prove its relevance.

Why? Its members are addicted to oil.

Eight months after the Organization of the Petroleum Exporting Countries announced a plan for its 14 members and 10 allied countries to withhold almost 2% of the world’s oil every day to boost prices, seven of the 11 OPEC members that pledged to cut appear to be producing more oil than promised.

Crude prices have actually fallen, by 7.6% to $52.52 a barrel, since the beginning of the year—half what the cartel called a fair price just three years ago and a level that some say is here for the long term.

Previously, low production costs meant OPEC members profited even when oil prices fell. These days, members have ramped up government spending to keep populations happy and cover military expenses, and don’t have a cushion to let oil revenues slip. Their strained budgets can be covered only through increasingly high prices per barrel, and if prices are low they need to produce more.

The inability to control output poses a potentially existential threat to OPEC’s influence. The longer prices remain low, said Helima Croft, the global head of commodity strategy at RBC Capital Markets and a longtime watcher of the cartel, “the harder it is to make the case to the most cash-strapped producers that they are ‘better together.’ ”

Tensions were laid bare last week in St. Petersburg, where OPEC and its non-OPEC allies discussed why output was going in the wrong direction.

Russia aimed to boost camaraderie with a visit to the Hermitage museum and a picturesque evening cruise on the Neva River, where ministers donned matching hoodies bearing the logo of the city’s soccer team, FC Zenit.

But during the weekend, Saudi Arabia’s energy minister, Khalid al-Falih, and other oil officials holed up in a hotel conference room at the Four Seasons calling other OPEC ministers—including those in Iraq and the United Arab Emirates—demanding to know why they weren’t cutting production as much as promised, according to people familiar with the matter.

“Some have underperformed. We have talked to them,” Mr. Falih told reporters, adding he didn’t “mince words.”

Iraq denied it wasn’t meeting targets and said OPEC was getting bad information.

OPEC has been under pressure from U.S. shale producers, who since about 2008 have helped to nearly double U.S. oil production.

The output has stolen market share from the cartel’s members and pushed prices lower. OPEC’s share of the global oil market has shrunk to 40% today from 55% in the early 1970s, when its embargo on sales to the West quadrupled oil prices in six months.

The dynamic working against OPEC is that, collectively, its members need the highest oil prices of any industry player—more than companies such as Exxon Mobil Corp. , Royal Dutch Shell PLC and most U.S. shale producers, according to Goldman Sachs .

For decades, OPEC was the low-cost producer of oil. During the boom years of 2011 through 2014, OPEC members, which largely fund national spending with oil revenue, could balance their budgets with oil prices $10 to $40 a barrel less than most oil companies needed to fund their spending and pay dividends. Today, OPEC needs $10 to $20 a barrel more than Big Oil and U.S. exploration and production outfits, the investment bank said in a report to clients.

OPEC members once drew their power from the giant reserves of what is known as “easy oil”—conventional crude that costs as little as $3 per barrel to pump. That cost guaranteed both fat profits when prices were high and the ability to hunker down when the market tanked.

Several years of $100 a barrel oil prices lasting until 2014 coincided with big military, security and domestic spending to pacify restive populations during the Arab Spring, hold back the tide of Islamic State and influence the Syrian civil war. Those spending obligations meant OPEC was fundamentally unprepared for the oil-price crash that followed.

The U.A.E. spends only $12 to pump a barrel of oil but needs oil to sell at $67 to cover its government expenditures, according to the International Monetary Fund. Its national budget has quadrupled to over $114 billion over the past 15 years.

The social spending helps regular Emiratis with housing costs, water bills and cheap electricity—subsidies that the U.A.E. government has been unwilling to significantly cut for fear of street protests.

The Persian Gulf country also has major military commitments, spending about $23 billion a year on defense—more than conflict-heavy countries like Israel and Iraq—as it helps fight wars in Syria and Yemen.

The U.A.E. is among OPEC’s worst offenders in pumping too much oil. It has cut only about half the amount it promised, according to the International Energy Agency, which advises governments and companies about energy trends.

A U.A.E. official said the country’s oil production is tied up in joint ventures with foreign oil companies that are hard to change, making it difficult to cut output. The country’s officials have said they plan to cut more oil production and recently announced limits on their oil exports.

In a move that could put pressure on the U.A.E., OPEC and Russia are planning a meeting of midlevel officials in Abu Dhabi on Aug. 7, the cartel said, “to assess how conformity levels can be improved.”

Overall, OPEC on Nov. 30 agreed to cut production by 1.2 million barrels a day, a deal that took almost a year to negotiate and raised expectations for an oil-market rally. Instead, member exports in June were 120,000 barrels a day lower than October, according to Kpler, a firm that tracks tanker movements to measure oil exports.

“OPEC will have lot of difficulties to respect its commitments because of budgetary difficulties faced by some its member countries,” said Chakib Khelil, the former oil minister of OPEC member Algeria.

Ecuador’s oil minister, Carlos Perez, went on state television this month to say the tiny producer was no longer sticking with its production pledges, “because of the needs that the country has.”

Iraq faces a budget squeeze from its war with Islamic State. It pledged to cut over 200,000 barrels a day but has cut less than half that amount on average through June, according to the IEA.

“Completely untrue and groundless,” Iraq’s Oil Minister Jabbar al-Luaiby said of the overproduction accusation. “Iraq is in full compliance with the OPEC declaration.”

In Saudi Arabia, which produces 30% of OPEC’s output, oil revenue has fallen 60% since the mid-2014 peak in oil prices. In that time period government spending declined only 18%, according to Goldman Sachs.

Instead of cutting spending, the Saudis have drawn down $246 billion of their foreign reserves and issued a $17 billion sovereign bond.

“We calculate, and a lot of people we know calculate, there’s about three more years of this they could deal with, with regard to drawdowns in the sovereign funds—and then they’ve got a very severe problem,” said Tim Dove, chief executive of Fort Worth-based Pioneer Natural Resources Co., a shale driller.

Saudi officials said they can withstand low prices for longer than any other country.

The Saudis haven’t dialed back increases in defense and infrastructure spending, including a $23 billion Riyadh metro system expected to be completed in 2019. Defense and security spending jumped 50% between 2010 and 2013, and defense spending grew again last year to $50 billion amid involvement in wars in Yemen and Syria.

The kingdom is working on plans for an IPO of part of its state-owned oil firm, Saudi Arabian Oil Co., known as Aramco. The listing, expected to be the largest-ever public offering, is expected to fetch tens of billions of dollars that Crown Prince Mohammed bin Salman has said he plans to put in a sovereign-wealth fund to invest in new industries, with the goal of reducing the country’s reliance on oil revenue.

The impending IPO was the impetus behind Saudi Arabia’s decisionlate last year to reverse itself and push OPEC to cut production and raise oil prices, according to people close to the kingdom’s oil ministry. The value of the IPO could depend in part of the price of oil, which the Saudis want to rise to $60 a barrel, the people said.

Mr. Falih denied the cuts are designed to lift prices for the IPO.

Saudi and other OPEC officials once believed U.S. shale producers needed oil prices of $80 a barrel or higher to function. The U.S. financial system and bankruptcy process helped ensure that oil fields continued to pump, even though more than 250 North American oil drillers and service companies have gone bust during the oil slump, according to Haynes and Boone, a law firm specializing in the energy industry.

The continued production helped pay down debt while companies reorganized. When the producers emerged from bankruptcy, new owners had the old debt load wiped clean. With a clean slate, plumbing once expensive shale fields became more economical. Other companies on the ropes sold to stronger rivals that can manage the fields more effectively or issued new shares to raise capital.

On Friday, big U.S. oil firms reported some of their strongest quarterly profits since the price crash.

There are signs that OPEC’s goal of reducing oil in storage, a proxy for the global oil glut, is slowly starting to happen. U.S. inventories have fallen in 14 of the past 16 weeks.

Lower imports into the U.S. have played a role, with Saudi Arabia intentionally lowering its shipments. Imports from Saudi Arabia to the U.S. are at a two-year low, down by about a third since January, data-tracking firm ClipperData said Friday.

Russia, the world’s largest crude producer but not an OPEC member, has gradually cut output by about 300,000 barrels a day since the agreement, the IEA said.

Oil prices have risen over 9% since last week’s meeting in St. Petersburg, when Saudi Arabia said it would go further than limiting its production by also placing a cap on its exports.

Officially, OPEC said the cartel as a whole is complying with its production-cut agreement, with output averaging more than one million barrels a day less this year compared with October 2016, helped by larger-than-agreed cuts by Saudi Arabia. “In all my long years in OPEC, I have not seen this high level of commitment,” said OPEC Secretary General Mohammad Barkindo.

But monthly figures show output recently has moved higher, according to observers including the IEA, which said seven of the 11 OPEC members that pledged to cut were producing more than promised.

OPEC has a long history of fractious relations among its members, a collection of regimes from the Middle East, Africa and South America.

Even the cartel’s most powerful moment, the 1973 oil embargo, divided the group, with only its Arab members taking part in cutting off crude to Western nations that supported Israel.

In 1986, Saudi Arabia was so upset about OPEC members flouting production agreements that unleashed a flood of oil that sank prices long-term, a period known as the “Lost Decade.”

When oil prices began falling in July 2014, then-Saudi oil minister Ali al-Naimi said OPEC no longer had the power—or will—to cut production and save the market. U.S. shale producers were too powerful.

But Mr. Naimi said he believed OPEC members’ still had essential advantages, such as the ability to produce at extremely low cost.

Mr. Naimi was replaced in May 2016 by Mr. Falih, a Western-educated oilman with long experience at Aramco. Mr. Falih has said Saudi Arabia and even OPEC couldn’t make a difference by cutting production on its own.

He reached out to Alexander Novak, energy minister in Russia, where low oil prices were creating a budget crunch for President Vladimir Putin just as he was escalating his country’s military support of Syrian President Bashar al-Assad.

“We both had an extended crisis,” Mr. Novak said in an interview. “We both wanted results.”

OPEC’s agreement last year with Russia and other big producers gave the cartel a coalition that controlled about 55% of global oil output, its earlier level of dominance. Knowing that OPEC members cheated on production pledges in the past, the cartel created a compliance committee to monitor production and scold members who pumped more.

In April, Mr. Falih was upset after reading a news article about Iraq pumping over its limit and stealing market share from Saudi Arabia. The kingdom had been cutting more than it pledged to make up for reported laggards like Iraq.

“See, they are laughing at us,” Mr. Falih wrote in a WhatsApp message to a group of peers, according to people familiar with the exchange.

In Iraq, there is a strong feeling that the country should be exempt from cutting production because of the war against Islamic State, said Luay al-Khatteeb, an adviser to the Iraqi parliament.

He pointed to an issue of lingering resentment in OPEC: “The Saudis are only cutting because they want better prices for the Aramco IPO,” he said, a notion Mr. Falih denied.

OPEC members said they are trying now to negotiate a way to quit the production cuts early next year without sending the market into another downturn.

Some are planning significant major new oil projects between now and 2020, Goldman Sachs said, including the Upper Zakum expansion in the U.A.E., which has the potential to add 1.1 million barrels a day to the market.

Saudi Arabia itself is ramping up expansions at its Khurais and Shaybah fields and is considering a new project at Manifa, which could boost output from that field by more than 60%, to 1.5 million barrels a day.

Article Link To The WSJ:

Canadian Heavy Oil Plugs Gap Left By OPEC, Latin America

By Nia Williams
July 31, 2017

Canada's struggling oil market has found something of a lifeline as traders scramble for heavy crude due to OPEC production cuts and sinking Latin American output.

Output has fallen in Organization of the Petroleum Exporting Countries and non-OPEC Latin American countries such as Mexico and Colombia, leading refiners as far away as China to look to Alberta's oil sands to fill the gap.

The interest has boosted the price for heavy Western Canada Select (WCS) oil, which is within range of its tightest discount to U.S. crude ever.

Canadian heavy oil is an easy substitute for Middle Eastern and Latin American grades, and the rising demand represents a rare bright spot for the oil sands, which have been hit hard by falling prices and the high cost to produce and blend Alberta's heavy, tar-like bitumen.

"We've been seeing a structural change (in the market) since OPEC cut medium sours, and Canadian heavy fits beautifully in there," one trader at an oil sands company said.

OPEC is attempting to rebalance global markets by cutting sour crude output, keeping light sweet barrels flowing as U.S. shale producers are pumping at record levels.

Output in Venezuela, an OPEC member, fell 11 percent in the first five months of the year to a 27-year-low due to underinvestment and infrastructure problems. And as political turmoil mounts there, the United States could impose sanctions that would hinder Venezuela's ability to sell crude.

Mexico's production fell 8 percent in the first five months of 2017 from a year ago as a result of long-running natural production declines in aging oilfields. Colombia's dropped 11.5 percent as a consequence of rebel attacks on pipelines.

Venezuela, Mexico and Colombia produce about 5.3 million barrels per day, while OPEC has cut about 1.8 million bpd in supply, most sour crude.

Gulf Coast refiners are paying more for Canadian production to replace these barrels, pushing the discount for Canadian oil delivered to the U.S. storage hub in Cushing, Oklahoma, to around $5 a barrel below U.S. crude. At current levels that would put the outright price of WCS at Cushing at just under $45 a barrel.

The narrowest differential at Cushing was $4.10 per barrel below U.S. crude in mid-2015.

Canada exports more than 3 million barrels of crude daily to the United States, its No. 1 customer, according to U.S. Energy Department data. Canadian barrels could supply refineries in Sweeney, Texas, and St. Charles, Louisiana, where Venezuela accounts for the majority of imports.

Major beneficiaries would be producers with committed capacity on Enbridge Inc pipelines that funnel crude to the Gulf, like Suncor Energy and MEG Energy, because they enjoy lower tariffs than spot shippers.

Sending more Canadian oil to the United States may be difficult due to pipeline constraints, though more oil could be sent by rail, albeit at a higher price. High costs and poor returns prompted international energy companies to sell around $22.5 billion in Canadian assets this year.

With OPEC cuts now starting to bite in Asia, traders said demand for sour barrels was rising in a region that historically sourced oil from the Middle East and Russia.

Two traders in Calgary said their companies were getting more calls from potential Chinese buyers, and declining freight rates meant more Canadian crude could make its way to Asia.

State-owned Indian Oil Corp bought its first cargo of U.S. and Canadian heavy crude in July, and 1 million barrels of Canadian crude went to China in the first quarter.

"So many tankers out there are looking for work it would not be surprising for somebody to get a sweetheart deal to take it to Asia," said RBC analyst Michael Tran. However, the country's lack of pipelines to the coast make significant exports to Asia unlikely, he said.

Article Link To Reuters:

Climate Change Isn’t The End Of The World

Even if world temperatures rise, the appropriate policy response is still an open question.

By David R. Henderson and John H. Cochrane
The Wall Street Journal
July 31, 2017

Climate change is often misunderstood as a package deal: If global warming is “real,” both sides of the debate seem to assume, the climate lobby’s policy agenda follows inexorably.

It does not. Climate policy advocates need to do a much better job of quantitatively analyzing economic costs and the actual, rather than symbolic, benefits of their policies. Skeptics would also do well to focus more attention on economic and policy analysis.

To arrive at a wise policy response, we first need to consider how much economic damage climate change will do. Current models struggle to come up with economic costs consummate with apocalyptic political rhetoric. Typical costs are well below 10% of gross domestic product in the year 2100 and beyond.

That’s a lot of money—but it’s a lot of years, too. Even 10% less GDP in 100 years corresponds to 0.1 percentage point less annual GDP growth. Climate change therefore does not justify policies that cost more than 0.1 percentage point of growth. If the goal is 10% more GDP in 100 years, pro-growth tax, regulatory and entitlement reforms would be far more effective.

Yes, the costs are not evenly spread. Some places will do better and some will do worse. The American South might be a worse place to grow wheat; Southern Canada might be a better one. In a century, Miami might find itself in approximately the same situation as the Dutch city of Rotterdam today.

But spread over a century, the costs of moving and adapting are not as imposing as they seem. Rotterdam’s dikes are expensive, but not prohibitively so. Most buildings are rebuilt about every 50 years. If we simply stopped building in flood-prone areas and started building on higher ground, even the costs of moving cities would be bearable. Migration is costly. But much of the world’s population moved from farms to cities in the 20th century. Allowing people to move to better climates in the 21st will be equally possible. Such investments in climate adaptation are small compared with the investments we will regularly make in houses, businesses, infrastructure and education.

And economics is the central question—unlike with other environmental problems such as chemical pollution. Carbon dioxide hurts nobody’s health. It’s good for plants. Climate change need not endanger anyone. If it did—and you do hear such claims—then living in hot Arizona rather than cool Maine, or living with Louisiana’s frequent floods, would be considered a health catastrophe today.

Global warming is not the only risk our society faces. Even if science tells us that climate change is real and man-made, it does not tell us, as President Obama asserted, that climate change is the greatest threat to humanity. Really? Greater than nuclear explosions, a world war, global pandemics, crop failures and civil chaos?

No. Healthy societies do not fall apart over slow, widely predicted, relatively small economic adjustments of the sort painted by climate analysis. Societies do fall apart from war, disease or chaos. Climate policy must compete with other long-term threats for always-scarce resources.

Facing this reality, some advocate that we buy some “insurance.” Sure, they argue, the projected economic cost seems small, but it could turn out to be a lot worse. But the same argument applies to any possible risk. If you buy overpriced insurance against every potential danger, you soon run out of money. You can sensibly insure only when the premium is in line with the risk—which brings us back where we started, to the need for quantifying probabilities, costs, benefits and alternatives. And uncertainty goes both ways. Nobody forecast fracking, or that it would make the U.S. the world’s carbon-reduction leader. Strategic waiting is a rational response to a slow-moving uncertain peril with fast-changing technology.

Global warming is not even the obvious top environmental threat. Dirty water, dirty air and insect-borne diseases are a far greater problem today for most people world-wide. Habitat loss and human predation are a far greater problem for most animals. Elephants won’t make it to see a warmer climate. Ask them how they would prefer to spend $1 trillion—subsidizing high-speed trains or a human-free park the size of Montana.

Then, we need to know what effect proposed policies have and at what cost. Scientific, quantifiable or even vaguely plausible cause-and-effect thinking are missing from much advocacy for policies to reduce carbon emissions. The Intergovernmental Panel on Climate Change’s “scientific” recommendations, for example, include “reduced gender inequality & marginalization in other forms,” “provisioning of adequate housing,” “cash transfers” and “awareness raising & integrating into education.” Even if some of these are worthy goals, they are not scientifically valid, cost-benefit-tested policies to cool the planet.

Climate policy advocates’ apocalyptic vision demands serious analysis, and mushy thinking undermines their case. If carbon emissions pose the greatest threat to humanity, it follows that the costs of nuclear power—waste disposal and the occasional meltdown—might be bearable. It follows that the costs of genetically modified foods and modern pesticides, which can feed us with less land and lower carbon emissions, might be bearable. It follows that if the future of civilization is really at stake, adaptation or geo-engineering should not be unmentionable. And it follows that symbolic, ineffective, political grab-bag policies should be intolerable.

Article Link To The WSJ:

Sprint Seeks Alternatives To A Merger With T-Mobile

By Anjali Athavaley and Liana B. Baker
July 31, 2017

Sprint Corp (S.N) has proposed a merger with Charter Communications Inc (CHTR.O) as the wireless carrier seeks an alternative to a deal with T-Mobile US Inc (TMUS.O) that has so far not come to fruition, according to sources familiar with the matter.

Japan's SoftBank Group Corp (9984.T), which controls Sprint, proposed a complex transaction that would create a new company and be controlled by SoftBank, the sources said, asking not to be named because the talks are private. The Wall Street Journal first reported the discussions on Friday.

There is no guarantee Charter would be interested in a tie-up with Sprint, the sources said. Bloomberg reported Friday Charter had rebuffed Sprint's merger proposal.

Charter's market capitalization, at $94.6 billion, is much larger than Sprint, which closed trading valued at $32.8 billion on Friday. Verizon Communications Inc (VZ.N) also expressed interest in a takeover of Charter earlier this year, sources have said.

If Charter were to agree to a merger with Sprint, it would need the blessing of No. 1 U.S. cable provider Comcast Corp (CMCSA.O). Charter and Comcast announced an agreement in May that bars either company from entering into a material transaction in wireless for a year without the other's consent.

Sprint and Comcast declined to comment while Charter, SoftBank and T-Mobile did not immediately respond to requests for comment.

Sprint shares rose 5.8 percent in after-market trading while Charter shares were marginally up.

Sprint has been looking at solutions to further its turnaround, strengthen its financial health and better compete in the fierce U.S. wireless industry.

It held talks this month about receiving billions in funding from Warren Buffett's Berkshire Hathaway Inc (BRKa.N) and John Malone's Liberty Media Corp (FWONA.O), Reuters previously reported, but they have not resulted in a deal.

Sprint had been in a two-month period of exclusive negotiations with Charter and Comcast over a potential wireless partnership that had put Sprint's merger talks with T-Mobile US on hold. That exclusivity period has ended but talks with the cable companies continue, according to the sources.

Despite regulatory hurdles, investors have long expected a deal between T-Mobile and Sprint, the third- and fourth-largest U.S. wireless service providers, anticipating cost cuts and other synergies.

T-Mobile appears to be in no rush to pursue a merger although it has acknowledged interest in speaking to Sprint. T-Mobile has been gaining share from larger competitors AT&T Inc (T.N) and Verizon Communications Inc (VZ.N) in a saturated U.S. wireless market through network improvements and lower prices.

Article Link To Reuters:

Wall Street Isn’t Ready For A 1,100-Point Tumble In The Dow Industrials

Wunderlich’s Hogan says stock-market investors are out of practice for a steep drop.

July 31, 2017

The U.S. stock market has been on such a parabolic march higher that Wall Street investors may have forgotten what a typical, sharp downturn feels like.

Indeed, much has been made about the lack of volatility. The CBOE Volatility Index VIX, +1.78% otherwise known as the “fear gauge,” had been flirting with its lowest close on record, implying that market expectations for a sharp, sudden fall are near rock bottom, as the Dow Jones Industrial Average DJIA, +0.15% S&P 500 index SPX, -0.13% and the Nasdaq Composite Index COMP, -0.12% scale new heights. (The Dow notched a fresh record on Friday to end the week 1.2% higher.)

The recent level of complacency permeating the market has pundits talking about the lack of 5% falls in the market—an occurrence that isn’t unusual in a normal market environment. However, a 5% tumble, while normal, isn’t that common either. It has occurred at least 75 times over the course of the blue-chip index’s, according to WSJ Market Data Group, using data going back to 1901. The Dow, however, hasn’t experienced a 5% decline since 2011, and before that a 5% drop hadn’t happened since 2008, when there were 9 such drops (see chart below):

At this point, with the Dow just 200 points shy of 22,000, a 5% selloff would equate to a 1,100-point, one-day slide in the gauge. Is the market ready for that sort of sudden jolt lower, given the optics of a quadruple-digit downturn and how it might rattle investment psyche?

Art Hogan, chief market strategist at Wunderlich Securities, doesn’t think so.

“I would say no because we’re out of practice. Your usual standard garden-variety volatility just hasn’t been around, and we haven’t seen it for 12 months,” Hogan told MarketWatch.

“Quiet markets have been the norm and not the exception and I think a major pullback is going to feel a whole lot larger for lack of experience and the numbers are larger,” he said.

“Quiet markets have been the norm and not the exception and I think a major pullback is going to feel a whole lot larger for lack of experience and the numbers are larger.” -- Art Hogan, chief market strategist at Wunderlich Securities

Even a 2.5% drop in the Dow, adding up a 550-point decline, could be unsettling, market participants said. Those sorts of tumbles are far more frequent, with 564 such moves of that magnitude occurring in the Dow since 1901. The most recent slump of at least 2.5% was on June 24, 2016, when the Dow tumbled about 610 points, or 3.4%, a day after U.K. citizens voted to end the country’s membership in the European Union. There were 3 falls for the Dow of at least 2.5% in 2015.

Hogan said it is even hard to imagine what the landscape of the market would like in the face of a plunge of the same magnitude of the 1987 crash, when the Dow lost 22.6% of its value, or 508 points, in a single session.

“That’s why it is hard for investors to think about it intuitively. We have no muscle memory for it. It’s hard to harken back to 30 years ago. We have been lulled to sleep,” he said.

As for the S&P 500, going back to 1950, 61 of the past 67 years have had a 5% downdraft at least once, or 91% of all years, according to Ryan Detrick, senior market strategist, at LPL Financial.

“The inevitable 5% drop will be a shock to nearly everyone,” Detrick said. “We’ve been historically spoiled so far this year, but as the economic cycle ages, we fully expect more volatility the remainder of this year and the likely 5% correction to take place as well,” he said.

Market bears have offered no dearth of warnings that a slide is imminent, including citing rich valuations of the biggest names in technology, including Facebook Inc.FB, +1.18% Apple Inc. AAPL, -0.70% Google-parent Alphabet Inc. GOOG, +0.80% ,GOOGL, +0.61% Netflix Inc. NFLX, +0.74% and Inc. AMZN, -2.48%which considers itself online retailer rather than a tech behemoth.

Billionaire investor Howard Marks, co-chairman of Oaktree Capital Management, said “this is time for caution,” pointing to a number of bad-market omens. Those include trailing 12-month price-to-earnings ratios, a measure of valuation, for S&P 500 stocks running at 25 times. He said another valuation metric, the Shiller Cyclically Adjusted PE Ratio, known as the Shiller CAPE, is at its highest level since only two other times in the market’s history: 1929 and 2000.

On CNBC on Thursday, Robert Shiller himself described the low level of volatility in the market as concerning, saying he “lies awake worrying” about how this period of quietude will last before things unravel. Though he admits that it could run longer than academics, market pundits and bears might expect.

So far, investors have demonstrated a preternatural resilience, shaking off political worries associated with an expanding investigation into Russia’s ties to members of President Donald Trump’s administration, infighting within that same administration, and the unwind of easy-money policies around the world as the Federal Reserve attempts to navigate its own efforts to normalize interest-rate policy amid sluggish signs of wage growth, prices and inflation—key measures of economic health.

When, not if, things go pear-shaped, Detrick recommends that investors put the move into Perspective:

“The important thing to remember is the Fed is still accommodative, earnings continue to improve globally, and inflation is contained—meaning any pullback could be a nice opportunity to add equity exposure. Although a 5% correction might feel like 1987 to some of us about now, pullbacks and volatility are perfectly normal parts of bull markets and are needed to flush out the weak hands.”

Article Link To MarketWatch:

U.S. Companies Post Profit Growth Not Seen In Six Years

Strong earnings come as tax and infrastructure initiatives that were expected to spur economy have been sidetracked amid Washington infighting.

By Theo Francis and Thomas Gryta
The Wall Street Journal
July 31, 2017

America’s largest companies are on pace to post two consecutive quarters of double-digit profit growth for the first time since 2011, helped by years of cost-cutting, a weaker dollar and stronger consumer spending.

Earnings at S&P 500 companies are expected to rise 11% in the second quarter, according to data from Thomson Reuters, following a 15% increase in the first quarter. Close to 60% of the firms in the index have reported second-quarter results so far.

Corporate America’s strong earnings performance comes as several policy initiatives that were expected to help boost companies’ bottom line—corporate-tax cuts and increased government spending on infrastructure—have been sidetracked amid political infighting in Washington, D.C., which culminated with the recent failure of the health-law bill.

Even as activity inside the Beltway bogged down, the markets have been on an almost nonstop rally since the election. The S&P 500 is up 16% since early November and 10% this year.

“You could argue that the stock-market investor overestimated Trump but underestimated earnings,” said Christopher Probyn, chief economist for State Street Global Advisors.

The second-quarter profit gains are spread across industries from Wall Street banks to Detroit’s car factories to Silicon Valley’s software labs. Earnings are expected to decline only in the utilities sector, according to data from Thomson Reuters. ​

Several factors are at work, analysts and economists say. A weaker dollar has made it easier to sell U.S.-made goods overseas and has kept borrowing costs low. U.S. wages have improved enough to help bolster consumer spending without raising employer labor costs so much to dent the bottom line.

Companies also continue to reap the fruits of their recent zeal for cutting costs, Mr. Probyn said. “We underestimated some of the cost-cutting and restructuring that has gone on within the various industries; that has permitted earnings to keep doing well.”

Sales, too, rose in the quarter, by an expected 5%, the second-biggest increase in more than five years, according to data from Thomson Reuters. The figures reflect actual results for about half the S&P 500 index, and analysts’ estimates for those that had yet to report results as of Friday.

On Friday, the Commerce Department reported that gross domestic product rose at a 2.6% rate in the second quarter, up from 1.2% in the first quarter.

Executives say even rapid progress on a tax rewrite or an infrastructure bill is unlikely to help improve profits soon.

“We’re halfway through the year, and they haven’t done [tax overhaul],” Christopher Nassetta, CEO of Hilton Worldwide Holdings Inc. said last week. “We’re not going to have enough time for it to trickle through and really benefit this year.”

On an investor call earlier this month, James Dimon, chief executive officer of J.P. Morgan Chase & Co. said: “We’ve been growing at 1.5% to 2% in spite of stupidity and political gridlock because the American business sector is powerful and strong and is going to grow regardless.” Mr. Dimon has made several comments about the need for bipartisan policy revamps.

The White House didn’t respond to a request for comment.

“Political and policy uncertainty continues to weigh on health care, taxation, regulation and trade,” Debra Cafaro, chief executive of Ventas Inc., a real-estate investment firm specializing in senior housing and health-care property, said Friday. “Washington has been wildly unpredictable.”

As executives discuss results with investors and analysts, events in Washington have faded into the background. S&P 500 companies that mentioned President Donald Trump or his administration during their latest conference calls are down by a third compared with three months ago, according to an analysis by research firm Sentieo.

The market has also largely stopped reacting to blow-by-blow developments in Washington, despite uncertainty over the size, shape and timing of any tax and infrastructure initiatives, said Quincy Krosby, chief market strategist with Prudential Financial Inc.

Last week, congressional Republicans and the Trump administration outlined some plans for tax changes to cut individual and corporate tax rates “as much as possible” with a timeline to advance legislation this fall. Many specifics aren’t yet known. President Trump has also promised to put $1 trillion toward infrastructure, likely from a mix of private and public funding, although details remain unclear.

Corning Inc. CEO Wendell Weeks, who was at the White House this month to announce new U.S. investment and hiring, told analysts last week that he still expects Congress to overhaul the tax code—eventually.

“What I am much less confident about is how the political math works in any given year,” Mr. Weeks said. “So I think calling timing on that one is above my pay grade.”

Honeywell International Inc. CEO Darius Adamczyk earlier this month said he hoped lawmakers would advance plans for revamping the tax code as soon as the current quarter. Still, he isn’t counting on it.

“I think there’s more uncertainty in that now than maybe even before, so I can’t let that sort of rule the business,” Mr. Adamczyk said.

That uncertainty could make it difficult for companies to sustain robust earnings growth, said Omar Aguilar, chief investment officer of equities for Charles Schwab Investment Management.

Companies are reporting solid cash flow, but capital spending has been weak until recently. Uncertainty over tax policy may exacerbate that reluctance to invest, Mr. Aguilar said. “Tax reform is clearly what the future may require for these numbers to continue on the same pace.”

Evan Greenberg, CEO of insurer Chubb Ltd. , told investors last week that the U.S. badly needs a tax-code overhaul and higher government infrastructure spending to remain competitive.

“But an awful lot of this requires legislation, and we need an administration that is focused, that is working with Congress,” he said in a conference call. “And we need a Congress that comes together to address these issues of our country.”

Article Link To The WSJ:

Trump’s Dollar Mess: Losses Pile Up As Political Drama Mounts

Currencies are proxy for politics as QE distorts stocks, bonds; In 2017, dollar is a big loser against all 16 major currencies.

By Lananh Nguyen and Liz McCormick
July 31, 2017

President Donald Trump loves to trumpet the record run in U.S. stocks.

“Stock market hits another high with spirit and enthusiasm so positive,” he tweeted on July 12, in one of eight posts about the market this month.

But he’s hardly tweeted a word about another, less rosy measure of Trump’s America: the U.S. dollar. The greenback has fallen hard on his watch and currency traders are now betting on even more declines.

Is Trump necessarily “bad” for the dollar, that global symbol of U.S. economic might? Probably no more than he is “good” for stocks. And you can argue much of the dollar’s slide -- now the longest in six years -- has to do with the vagaries of central-bank policy and interest rates. But more and more, it’s the political drama in Washington that is taking center stage. And there’s no better place for investors to express their views about how a nation is managing its affairs than the $5.1 trillion-a-day global market for foreign exchange.

“The beauty of currency is that it’s a relative price,” said Shahab Jalinoos, Credit Suisse’s head of global FX strategy. “It tells you how a country is perceived relative to every other country.”

Currencies, the medium of exchange that affects all other prices, have traditionally been the purest play on a country’s outlook, whether economic or political. The relationship has only grown stronger in an era of quantitative easing, which has distorted the bond and stock markets. And with central banks around the world pushing interest rates to rock-bottom levels, rate differentials are far narrower than they used to be, which has helped make currency traders more attuned to political developments.

America First?

“What’s most interesting is the way that so many policy decisions and risk events get played out through currency markets these days,” said Mark Haefele, the global chief investment officer at UBS Wealth Management, which oversees more than $2 trillion.

To be fair, the dollar has also come under pressure from lackluster economic data, which weakened the case for higher interest rates in the U.S. as central banks elsewhere move to tighten. And Trump, on more than one occasion, has talked about wanting a weaker dollar and complained that its strength is a negative for U.S. manufacturing -- a key part of his “America First” agenda.

Yet even here, going against America’s longstanding “strong dollar” policy so publicly could backfire, according to John W. Snow, who served as Treasury secretary under President George W. Bush.

“You don’t want to add to the volatility,” said Snow, now the chairman of Cerberus Capital Management. “It’s a critically important market.”

“The currency reflects what is going on in a country and the expectations for that country’s growth and prosperity and inflation and interest rates,” he said.

At first, currency traders, like their counterparts in the stock market, embraced Trump’s election and bought into his pro-growth promises of lower taxes and higher infrastructure spending. The dollar soared in November before ending the year at the highest since at least 2005, according to the Bloomberg Dollar Spot Index, which tracks the greenback versus 10 global currencies.

Unforced Errors

Since then, things have unraveled. While the stock market has rallied to new highs as equity investors looked past politics and focused on corporate earnings, the dollar has slumped more than 8 percent, wiping out the post-election bump and then some. To many, it reflects deepening worries the turmoil embroiling Washington -- much of which has been Trump’s own making -- is undermining his ambitious economic agenda.

And as his administration has lurched from one crisis to the next -- from the firing of FBI Director James Comey to allegations of collusion with Russia and the Republican Party’s failure to repeal Obamacare -- something of a consensus has emerged in the currency market. And that’s to sell the dollar.

“Look at how the dollar moved up when it was felt that the Trump election was going to lead to happy days again,” Snow said. Now, “it looks like the administration’s ability to get things done, like infrastructure spending and tax reform and health-care reform, are not being realized.”

Take July 20, for instance, when news hit that an investigation of the Trump campaign’s ties to Russia expanded to his financial dealings. The dollar immediately sank to an 11-month low. Just two days earlier, the currency slumped after a Republican effort to overhaul health care broke down.

‘Lack Of Confidence’

UBS’s Haefele is a dollar bear himself. His favorite trade is to bet on the euro rising against the greenback, and he sees the common currency potentially reaching $1.20 within the next 12 months from $1.1751 last week. That’s a stunning turnabout from the start of the year, when the seemingly unstoppable dollar pushed the euro to 14-year low of $1.0341.

He’s hardly alone. Hedge funds are piling into bearish bets on the dollar, and now have the biggest net short position in four years. The median year-end forecast for the greenback has fallen to $1.14 per euro, the lowest since 2015.

“We’re going to see continued weakness in the dollar,” said Kristina Hooper, the global market strategist at Invesco. “It is very much a vote of confidence, or lack of confidence, in the U.S. economy.”

Article Link To Bloomberg:

Global Economy Week Ahead: Eurozone GDP And Inflation, U.S. Jobs

The Bank of England will release a policy statement and inflation report Thursday.

The Wall Street Journal
July 31, 2017

This week, the eurozone will see inflation and gross domestic product figures, while the U.S. will learn more about the state of consumer spending and inflation in the June personal-income report. The week culminates with the July U.S. jobs report Friday.

MONDAY: The eurozone’s annual rate of inflation has remained well below the European Central Bank’s target, even as unemployment has fallen sharply since the central bank launched stimulus programs. Figures to be released by the European Union’s statistics agency are expected to show that, while the number of people without work fell again in June, consumer prices rose in the 12 months to July at the same 1.3% pace as in June, which was the lowest in 2017.

TUESDAY: The eurozone has been one of the positive surprises for the global economy this year, having outpaced the U.S. in the three months through March. Eurostat’s preliminary estimate of gross domestic product in the second quarter is expected to show that growth continued at that stronger pace or possibly a little faster.

The U.S. Commerce Department releases the June personal-income report. The release includes figures on consumer spending, as well as the Fed’s preferred inflation gauge, the price index for personal-consumption expenditures. The 12-month figure is expected to remain weak, restrained by recent price declines for items like wireless telephone services. Economists surveyed by The Wall Street Journal expect consumer spending inched up 0.1% in June from the previous month and core PCE prices nudged up 0.1%.

The Bank of England announces its latest policy decision, with no change expected despite signs that a number of the Monetary Policy Committee’s members would like to see the key rate raised from a record low of 0.25%. But with inflation easing in June, and growth still modest in the second quarter, a majority are likely to oppose a rate increase. The BOE also will publish new forecasts for growth and inflation, which will give some guidance as to the future direction of policy.

The U.S. Labor Department releases the July employment report, after the prior month’s report showed employers churning out jobs without generating robust wage growth. U.S. employers added a seasonally adjusted 222,000 jobs in June, and the unemployment rate rose slightly to 4.4% as more people joined the labor force. Economists surveyed by The Wall Street Journal forecast the economy added 180,000 jobs in July, while the unemployment rate ticked down to 4.3%.

The U.S. Commerce Department releases the June international trade report. The U.S. trade deficit narrowed in May on a swift rise in exports, and Friday’s gross domestic product report showed trade providing a boost to the economy in the second quarter, suggesting any headwinds from a strong U.S. dollar might be subsiding. Economists surveyed by The Wall Street Journal expect the trade deficit was $44.4 billion in June.

Article Link To The WSJ:

Venezuela Could Be First Oil State To Fully Fail

-- Helima Croft of RBC Capital Markets said Venezuela could become the first sovereign oil producer to "fully fail" as a state if a vote to form a new legislative body goes through.
-- The new government would essentially give President Nicolas Maduro the power to rewrite the country's constitution as he pleases.

July 31, 2017

Venezuela is already having a major meltdown, and a nationwide vote set for Sunday could send the country over the edge, a top commodities strategist told CNBC.

Helima Croft, global head of commodity strategy at RBC Capital Markets, said in a note that Venezuela, which has the largest oil reserves in the world, could become the first sovereign oil producer to "fully fail" as a state if President Nicolas Maduro moves forward with the vote to form a new legislative body named the National Constituent Assembly (ANC).

On Sunday, protesters clashed with security forces on Sunday as Venezuelans broadly boycotted an election for a constitutional super-body that unpopular leftist Maduro vowed would begin a "new era of combat" in the crisis-stricken nation.

Maduro is widely disliked for overseeing an economic collapse during four years in office. Yet he has pressed ahead with the vote to create the all-powerful assembly despite the threat of U.S. sanctions and months of opposition protests in which more than 115 people have been killed.

The ANC would supersede other legislative bodies — including the opposition-led National Assembly — and would be able to rewrite the country's constitution, cementing Maduro's power. The ANC would also be composed mostly of Maduro's supporters.

Those opposing the vote have taken to the streets in protest, and the United States and other nations have threatened to impose sanctions on Venezuela targeting its oil sector, and its state-run oil company Petróleos de Venezuela, S.A., or PDVSA.

"The Trump administration has issued stark warnings to Maduro about the elections and is reportedly giving serious consideration to targeting the country's oil sector by either banning Venezuelan imports into the United States or prohibiting the use of dollars in PDVSA transactions," Croft said.

"Either measure would result in extreme economic duress," she added. "With the country's foreign reserves recently having fallen below $10 [billion], PDVSA will be extremely hard pressed to avoid a disorderly default in the autumn or continue any semblance of regular salary payments."

Critics say the assembly will allow Maduro to dissolve the opposition-run Congress, delay future elections and rewrite electoral rules to prevent the socialists from being voted out of power in the once-thriving OPEC nation.

The country's economy is almost completely at the mercy of the oil industry, which contributes 95 percent of Venezuela's exports. But a lack of investment in the industry has made it less and less profitable and productive.

A crash in oil prices that started in late 2014 sent the economy into a tailspin. Now, the International Monetary Fund expects Venezuela's inflation rate to rise by a crippling 720 percent this year.

"Unless Maduro has an 11th-hour change of heart, Venezuela appears poised to earn the dubious distinction of being the first sovereign oil producer to fully fail," Croft said.

Article Link To CNBC:

Venezuela Heads For Civil War

The regime has rifles and armored vehicles, but the people have numbers and anger.

By Mary Anastasia O’Grady
The Wall Street Journal
July 31, 2017

Forget all you’ve heard about dialogue in Venezuela between the regime and the opposition. Hungry, hurting Venezuelans are done talking. The country is in the early stages of civil war. Sunday’s Cuban-managed electoral power play was the latest provocation.

In my column two weeks ago, “How Cuba Runs Venezuela,” I failed to mention Havana’s 2005 takeover of the Venezuelan office that issues national identity cards and passports. It was a Castro-intelligence coup, carried out with then-President Hugo Chávez’s permission. The move handed Havana the national Rolodex necessary to spy on Venezuelans and surreptitiously colonize the country. Islamic extremists received Venezuelan passports to give them false cover when crossing borders. Regime supporters got the papers they need to vote under more than one identity.

This is something to keep in mind when Venezuelan strongman Nicolás Maduro reports the results of Sunday’s election for representatives to draft a new constitution. In polls, some 80% of Venezuelans oppose Mr. Maduro’s “constituent assembly.” But the opposition boycotted Sunday’s election because they know Cuba is running things, that voter rolls are corrupted, and that there is no transparency in the operation of electronic voting machines.

Opposition leaders in Caracas are still trying to use peaceful means to unseat Mr. Maduro. Last week they orchestrated an effective 48-hour national strike and on Friday another day of demonstrations.

But grass-roots faith and hope in a peaceful solution has been lost. One symptom of this desperation is the mass exodus under way. On Tuesday the Panam Post reported that “more than 26,000 people crossed the border into Colombia Monday, July 26, according to the National Director of Migration in [the Colombian city of] Cúcuta.”

Venezuelan applications for asylum in the U.S. were up 160% last year, making Venezuelans No. 1 among asylum seekers to the U.S. According to the United Nations Refugee Agency, there were 27,000 Venezuelan asylum seekers world-wide in 2016. By mid-July this year there were already 50,000.

Last week the National Guard arrested and badly beat violinist Wuilly Arteaga, who has become a national symbol of peace. Many of those fleeing say they fear that after Sunday the regime crackdown will intensify. Some of those staying behind have already begun to launch counteroffensives. This provides the regime an excuse for increasing repression, yet there is a growing sense that violence is the only remaining option.

The regime has the armored vehicles, the high-powered rifles, and the SWAT gear. But the population has the numbers and the anger. It also may increasingly have support from dissident government forces.

Consider what happened in the municipality of Mario Briceño Iragorry in the state of Aragua earlier this month, when the pro-government mayor and the regime’s paramilitary, known as colectivos, began looting shops that were closed during a one-day national strike.

Eyewitness testimonies sent to me by a source in Caracas describe how townspeople tried to defend the shops. The mayor brought in paramilitary reinforcements. But the town was saved when the judicial police arrived from the state capital of Maracay. According to the Venezuelan daily El Nacional, they arrested the mayor, who was armed, and “many” colectivos.

The judicial police, who number around 12,000 and conduct criminal investigations, are Venezuela’s largest national police agency. They are also responsible for protecting Attorney General Luisa Ortega Díaz. Ms. Ortega broke with the regime in March when the Maduro-controlled Supreme Court tried to dissolve the opposition-controlled legislature. She is an outspoken critic of Mr. Maduro’s constituent assembly. She has not been arrested, probably because the regime doesn’t want to confront the judicial police.

There are also dissident members of the military but their possible role in recovering democracy seems difficult. The leadership is pro-regime and though there are rumors of grumbling among the lower ranks, organizing a coup requires communication. The security and intelligence apparatus installed by Cuba makes that challenging.

But a citizens’ revolt, led by young people whose families are starving, is already under way. Last week after 24-year-old Ender Caldera died from injuries sustained in a demonstration in Timotes, Merida, his friends exacted revenge by intercepting an armored National Guard truck on a mountain road and setting it afire. Numerous other National Guard vehicles have been torched in Caracas.

The state of Barinas, where the late Hugo Chávez was born, was once a regime stronghold. Today it is an anti-government pressure-cooker where dissidents burn debris in the streets and confront the National Guard. It is the state with the highest number of protest fatalities in the country since the street protests began in April.

Mr. Maduro tried Sunday to put a “democratic” imprimatur on his power grab. But by the afternoon there were at least six dead in clashes with the regime. On the streets of Venezuela, it is now fight or flight.

Article Link To The WSJ:

Deadly Protests Mar Venezuela Ballot As Voters Snub Maduro Assembly

By Alexandra Ulmer and Anggy Polanco
July 31, 2017

Deadly protests rocked Venezuela on Sunday as voters broadly boycotted an election for a constitutional super-body that unpopular leftist President Nicolas Maduro vowed would begin a "new era of combat" in the crisis-stricken nation.

Anti-Maduro activists wearing hoods or masks erected barricades on roads, and scuffles broke out with security forces who moved in quickly to disperse demonstrators who denounced the election as a naked power grab by the president.

Authorities said 10 people were killed in the confrontations, which made Sunday one of the deadliest days since massive protests started in early April.

Maduro, widely disliked for overseeing an unraveling of Venezuela's economy, has promised the assembly will bring peace by way of a new constitution after four months of opposition protests in which more than 120 people have been killed.

Opposition parties sat out the election, saying it was rigged to increase Maduro's powers, a view shared by countries including Spain, Canada, Colombia and the United States.

The Trump administration is considering imposing U.S. sanctions on Venezuela's vital oil sector in response to Sunday's election, U.S. officials said.

Potential U.S. sanctions on sales of light crude to Venezuela's oil company PDVSA would hamper its already weak refining network.

Caracas was largely shut down, streets were deserted and polling stations were mostly empty, dealing a blow to the legitimacy of the vote. A bomb exploded in the capital and wounded seven police officers in what could be the spread of more aggressive tactics.

Critics say the assembly will allow Maduro to dissolve the opposition-run Congress, delay future elections and rewrite electoral rules to prevent the socialists from being voted out of power. The opposition vowed to hold protests again on Monday and to keep pressuring Maduro's cash-strapped government until he's forced from office.

"Even if they win today, this won't last long," said opposition supporter Berta Hernandez, a 60-year-old doctor in a wealthier Caracas district. "I'll continue on the streets because, not long from now, this will come to an end."

Maduro, a former bus driver and union leader narrowly elected in 2013, dismisses criticism of the assembly as right-wing propaganda aimed at sabotaging the brand of socialism created by his mentor and predecessor, the late Hugo Chavez.

"The 'emperor' Donald Trump wanted to halt the Venezuelan people's right to vote," said Maduro as he rapidly voted at 6 a.m. in a low-income area of Caracas that has turned on the government.

"A new era of combat will begin. We're going all out with this constituent assembly," he said.

But with polls showing some 70 percent of Venezuelans oppose the vote, the country's 2.8 million state employees are under huge pressure to participate - with some two dozen sources telling Reuters they were being threatened with dismissal. Workers were being blasted with text messages and phone calls asking them to vote and report back after doing so.

The opposition estimated participation was at around a paltry 12 percent, but warned the government was gearing up to announce some 8.5 million people had voted.

'Slap Maduro'

Fueling anger against Maduro is an unprecedented economic meltdown in the country of some 30 million people, which was once a magnet for European migrants thanks to an oil boom that was the envy of Latin America.

However, nearly two decades of heavy currency and price controls have asphyxiated business. Venezuelans have seen their purchasing power shredded by the world's highest inflation rate.

Millions of Venezuelans now struggle to eat three times a day due to shortages of products as basic as rice and flour.

"Sometimes I take bread from my mouth and give it to my two kids," said pharmacy employee Trina Sanchez, 28, as she waited for a bus to work. "This is a farce. I want to slap Maduro."

To show the massive scale of public anger, the opposition organized an unofficial referendum over Maduro's plan earlier this month.

More than 7 million voters overwhelmingly rejected the constituent assembly and voted in favor of early elections.

The opposition's bid last year to hold a recall referendum against Maduro was rejected, regional elections have been postponed and the president has repeatedly ignored Congress.

Bomb Blast

In Sunday's gravest incident, a bomb went off as a group of police officers on motorbikes sped past Caracas' Altamira Plaza, an opposition stronghold. The state prosecutor's office said seven officers were wounded and four motorbikes incinerated.

Clashes were also reported in the volatile Andean state of Tachira, whose capital is San Cristobal, where witnesses told Reuters an unidentified group of men had showed up at two separate street protests and shot at demonstrators.

Fatalities over the weekend included two teenagers and a candidate to the assembly killed during a robbery in the jungle state of Bolivar. The state's Socialist Party governor, Francisco Rangel, said the death was a "political hit job" and blamed it on the opposition.

Supporters of "Chavismo," the movement founded by Chavez, Maduro's more charismatic predecessor who enjoyed high oil prices for much of his mandate, said they wanted to halt the unrest.

"The (opposition) wants deaths and roadblocks and the government wants peace," said Olga Blanco, 50, voting for candidates to the assembly at a school in Caracas.

The assembly is due to sit within 72 hours of results being certified, with government loyalists such as powerful Socialist Party No. 2 Diosdado Cabello and Maduro's wife and son expected to win seats.

Article Link To Reuters:

Are Central Bankers Turning Marxist?

Workers aren't the only ones frustrated over low wages.

By Daniel Moss
The Bloomberg View
July 31, 2017

Philip Lowe has been in office for a little less than a year and he's treading into territory central bankers have traditionally feared to enter.

The Reserve Bank of Australia governor has decried weak 2 percent wage growth (he's called the trend "insidious"), urged workers to demand higher pay and warned that year-after-year of mediocre compensation gains erodes support for "sensible economic policy." The last comment is a not-so-thinly veiled swipe at populism.

Something extraordinary is going here. What's a central bank chief doing urging workers to rise up and save the economy? Normally such officials are loath to discuss even banal technocratic matters outside their strict purview, such as budgets and taxes. A firestorm engulfs most of them when they do.

Lowe still believes in models such as the Phillips Curve, developed by economist William Phillips about 60 years ago, which links low levels of unemployment with pay and prices. The idea is that an ever-tightening job market must eventually translate into higher wages and inflation. Understandably, then, Lowe is frustrated that full employment isn't getting inflation up off the floor. The sentiment is shared by Janet Yellen, Mario Draghi and their peers around the world.

It's one thing for central banks to say, diplomatically, that fiscal policy needs to carry more of the burden of reviving growth and inflation. It's entirely another to put the onus on labor. Given the decades-long decline in union membership, the increasingly globalized nature of the workforce and the tendency of many employers to lay off staff at the first sign of a downturn or trouble with their business model, workers simply don't have the clout necessary to force wages higher.

And in any event, what can a central banker do about it? He doesn't control workplace regulation, he isn't a union leader and he certainly can't make tax changes or institute other incentives to encourage companies to raise wages. At most, he can keep interest rates relatively low in order to bolster business confidence, and the RBA is doing that. (Caveat: Unlike many of the biggest central banks, the RBA never went to zero rates, let alone negative rates, and didn't have to resort to quantitative easing.)

I checked with Stephen Jen, a classmate of Lowe's at the Massachusetts Institute of Technology and a director of Eurizon SLJ Capital Ltd. in London. Jen gives Lowe credit for raising important issues, but sees little or no role for central banks in resolving them.

"When China and other EM economies truly entered the global economy in 2001, the world had to change in favor of the owners of capital and expense of workers in the West," Jen wrote in an email. "All of our models need to be recalibrated."

For workers, the key probably lies in growing more innovative and productive, rather than simply insisting on higher pay for the same work, unless you're sure that you can't be easily substituted for dozens of others who can do the same job. That's especially true since increasingly, those others may well be in another country offering their labor for less.

That's the price of the globalized economy. And it's important to remember that there are many benefits as well. Australia was able to rack up record exports of its commodities as China underwent its period of truly rapid growth and wages -- even for plumbers, welders and the like -- skyrocketed. That leverage to the China boom also helped insulate the country from the downturn of 2007-2009. There's no way to turn the clock back and no reason to do so. Workers and central bankers alike are simply going to have to find a new path forward.

Article Link To The Bloomberg View:

Trump And Japan's Abe Talk About 'Grave And Growing' North Korea Threat

By Elaine Lies and Takaya Yamaguchi
July 31, 2017

Japanese Prime Minister Shinzo Abe spoke with U.S. President Donald Trump on Monday and agreed on the need for more action on North Korea just hours after the U.S. Ambassador to the United Nations said Washington is "done talking about North Korea".

Nikki Haley, U.S. Ambassador to the United Nations, said in a statement China must decide if it is willing to back imposing stronger U.N. sanctions on North Korea over Friday night's long-range missile test, the North's second this month.

Any new U.N. Security Council resolution "that does not significantly increase the international pressure on North Korea is of no value", Haley said, adding that Japan and South Korea also needed to do more.

Abe told reporters after his conversation with Trump that repeated efforts by the international community to find a peaceful solution to the North Korean issue had yet to bear fruit in the face of Pyongyang's unilateral "escalation".

"International society, including Russia and China, need to take this seriously and increase pressure," Abe said. He said Japan and the United States would take steps toward concrete action but did not give details.

Abe and Trump did not discuss military action against North Korea, nor what would constitute the crossing of a "red line" by Pyongyang, Deputy Chief Cabinet spokesman Koichi Hagiuda told reporters.

A White House statement after the phone call said the two leaders "agreed that North Korea poses a grave and growing direct threat to the United States, Japan, the Republic of Korea, and other countries near and far".

It said Trump "reaffirmed our ironclad commitment" to defend Japan and South Korea from any attack, "using the full range of United States capabilities".

Japan's Chief Cabinet Secretary Yoshihide Suga said the talk between Abe and Trump lasted for about 50 minutes.

"The role that China can play is extremely important," he told a news conference.

"Japan intends to call on those countries involved - including the U.N., the United States and South Korea to start, but also China and Russia - to take on additional duties and actions to increase pressure," Suga said, declining to give details about what those steps might be.

"Very Disappointed"

North Korea said on Saturday it had conducted another successful test of an intercontinental ballistic missile that proved its ability to strike the U.S. mainland, drawing a sharp warning from Trump and a rebuke from China.

Trump later wrote on Twitter that he was "very disappointed" in China and that Beijing profits from U.S. trade but had done "nothing" for the United States with regards to North Korea, something he would not allow to continue.

Chinese Vice Commerce Minister Qian Keming, asked at a news conference in Beijing about Trump's tweets, said there was no link between the North Korea issue and China-U.S. trade.

"We think the North Korea nuclear issue and China-US trade are issues that are in two completely different domains. They aren't related. They should not be discussed together," Qian said.

State-run Chinese tabloid the Global Times said in an editorial on Monday Trump's "wrong tweet" was of no help, and that Trump did not understand the issues.

"Pyongyang is determined to develop its nuclear and missile program and does not care about military threats from the U.S. and South Korea. How could Chinese sanctions change the situation?" said the paper, which is published by the ruling Communist Party's official People's Daily.

South Korean President Moon Jae-in, who is on vacation, planned to have a phone call with Trump soon, a senior official at the Presidential Blue House said.

"If the two heads of state talk, they will likely discuss their respective stances on North Korea, the U.S.-(South Korea) alliance's standpoint on North Korea and other things including how to impose heavy sanctions," the official said.

The United States flew two supersonic B-1B bombers over the Korean peninsula in a show of force on Sunday in response to the missile test and the July 3 launch of the "Hwasong-14" rocket, the Pentagon said. The bombers took off from a U.S. air base in Guam and were joined by Japanese and South Korean fighter jets during the exercise.

"North Korea remains the most urgent threat to regional stability," Pacific Air Forces commander General Terrence J. O'Shaughnessy said in a statement.

"If called upon, we are ready to respond with rapid, lethal, and overwhelming force at a time and place of our choosing."

Article Link To Reuters:

Putin Says U.S. Must Cut 755 Diplomatic Staff

By Polina Devitt and Yeganeh Torbati
July 31, 2017

President Vladimir Putin said the United States would have to cut its diplomatic staff in Russia by 755 people and that Moscow could consider additional measures against Washington as a response to new U.S. sanctions approved by Congress.

Moscow ordered the United States on Friday to cut hundreds of diplomatic staff and said it would seize two U.S. diplomatic properties after the U.S. House of Representatives and the Senate overwhelmingly approved new sanctions on Russia. The White House said on Friday that U.S. President Donald Trump would sign the sanctions bill.

Putin said in an interview with Vesti TV released on Sunday that the United States would have to cut its diplomatic and technical staff by 755 people by Sept. 1.

"Because more than 1,000 workers - diplomats and support staff - were working and are still working in Russia, 755 must stop their activity in the Russian Federation," he said.

The new U.S. sanctions were partly a response to conclusions by U.S. intelligence agencies that Russia meddled in the 2016 U.S. presidential election, and to punish Russia further for its annexation of Crimea from Ukraine in 2014.

Russia's response suggested it had set aside initial hopes of better ties with Washington under Trump, something the Republican president, before he was elected, had said he wanted to achieve.

A federal law enforcement investigation and multiple U.S. congressional probes looking into the possibility that Trump's campaign colluded with Russia have made it harder for Trump to open a new chapter with Putin. Russia denies it interfered in the election and Trump has said there was no collusion.

Moscow said on Friday that the United States had until Sept. 1 to reduce its diplomatic staff in Russia to 455 people, matching the number of Russian diplomats left in the United States after Washington expelled 35 Russians in December.

On Friday, an official at the U.S. Embassy, who did not wish to be identified, said the embassy employed about 1,100 diplomatic and support staff in Russia, including Russian and U.S. citizens.

'Uncalled-For Act'

The State Department declined to comment on the exact number of embassy and consular staff in Russia.

But a State Department official called Russia's action "a regrettable and uncalled-for act."

"We are assessing the impact of such a limitation and how we will respond to it," the official said on condition of anonymity.

As of 2013, the U.S. mission in Russia, including the Moscow embassy and consulates in St. Petersburg, Yekaterinburg and Vladivostok, employed 1,279 staff, according to a State Department Inspector General's report that year. That included 934 "locally employed" staff and 301 U.S. "direct-hire" staff, from 35 U.S. government agencies, the report said.

That breakdown suggested the actual number of Americans forced to leave Russia would be far less than 755.

"We dont (sic) have 755 American diplomats in Russia," said Michael McFaul, a former U.S. ambassador to Russia, in a post on Twitter on Sunday.

The cuts would likely affect how quickly the United States is able to process Russian applications for U.S. visas, McFaul said.

"If these cuts are real, Russians should expect to wait weeks if not months to get visas to come to U.S.," he said.

Putin said Russia could take more measures against the United States, but not at the moment.

"I am against it as of today," Putin said in the interview with Vesti TV.

He repeated that the U.S. sanctions were a step to worsening relations between the two countries.

"We were waiting for quite a long time that maybe something would change for the better, were holding out hope that the situation would change somehow. But it appears that even if it changes someday it will not change soon," Putin said.

He said Moscow and Washington were achieving results on cooperation, however, even "in this quite difficult situation." The creation of the southern de-escalation zone in Syria showed a concrete result of the joint work between the two countries, Putin said.

Article Link To Reuters:

HSBC Announces $2 Billion Share Buyback For Second Half 2017

-- HSBC released second-quarter earnings at noon HK/SIN
-- Market watchers expected the bank, the largest in Europe and Hong Kong, to announce plans to buy back its own shares

July 31, 2017

HSBC, Europe's largest bank, reported a pre-tax profit of $10.24 billion for the first half of 2017 from the same period a year ago on adjusted revenue of $26.1 billion.

The bank also announced a $2 billion share buyback for the second half of the year.

HSBC was widely expected to announce that it will buy back its own shares at between $1.5 billion to $4 billion in the second half of 2017, market watchers said.

The bank had disappointed markets with just a $1 billion share buyback plan in the first six months of the year, after spending $2.5 billion doing so last year in a bid to wind down its cash stockpile.

"We expect a buyback of $2.5 billion to be announced for 2H17 — a lower figure would be seen as a disappointment we think," Deutsche Bank analysts wrote in a note.

The announcement was expected to come along with an increase in pre-tax profit in the second quarter, helped by better global economic conditions and fewer bad loans.

Alex Wong, director of asset management at Ample Capital, told CNBC he expected a 20 to 25 percent jump in second quarter pre-tax profit.

HSBC shares, a heavyweight on the Hang Seng Index, have risen 23 percent as of Friday's close.

Article Link To CNBC: