Back on Planet Market, the big news is Trump postponing his threatened March 1 tariff hike on Chinese goods. Trade war threats are not over yet – there is still plenty of aggravation on the Tech side and for Huawai in particular – but the Chinese market went stellar on the news. As yet, there is no trade agreement – just Trump being magnanimous! Yet markets are partying.
A number of clients have pointed out the increasing number of disconnects they see between the economic data and what they see in markets. While data continues to disappoint to the downside, the markets seem quite glib to accept more risk – the rise in stocks since the December bottom highlights we’re back into “Risk On” environment. Thus, we have stronger stocks but a worsening economic picture – which is somewhat illogical. Despite the uncertainty on growth and a rising number of negative estimates, markets seem happy to discount these fears. Bond markets are very strong, confirming an expectation of lower rates for longer!
In terms of volatility, all the fear indicators have retreated – VIX has straight-lined down from 35 to 14, strongly suggesting everyone is sleeping sounder at night. After a decent US earning seasons – spiced with enough downside surprises to make sure everyone remains just a little uncomfortable – US stocks have staged a pretty decent rally back from the Dec lows. Not quite record breaking, and perhaps a tad complacent, but demonstrating investors still have faith in… something? That ongoing cheap money will keep corporates in buy-back mode? Or that returns from stocks are still likely to outperform bonds in the era of free money? Or just a lack of imagination and FOMO (fear of missing out.)
I’m unconvinced the risk is out the market. Maybe the picture is just a little cloudy?
I’m wondering if markets are something like “shell-shocked” and beginning to ignore some of the realities? At the core is the uncertainty re global trade and growth. Naturally any investor will be concerned if the sudden imposition of trade tariffs is going to dramatically reduce global trade volumes. But we’ve now got experience of the Donald Trump approach to trade – it’s not a strategic approach, but a series of tactical small individual agreements before moving to the next “negotiation”. Last night was just another example.
Markets now perceive a clear pattern to Trump’s approach to Trade Negotiations: He threatens to take us to the wire but never actually pulls the trigger. That has two effects: 1) the damage to sentiment is inflicted by the initial threat (which tends to quickly show up in sentiment and order data), and 2) the threat isn’t carried out leaving upside potential. The result is markets are ignoring the early signals (ie pulled factory orders) and focusing on the likely non-tariff agreement upside which Trump then claims as his trade victory.
I’m trying to work out how this kind of herd behaviour translates to the widely articulated fears of global slowdown and imminent recession. If Trump’s bark is worse than his bite, are the 40% of strategists now discounting future growth overly scared of trade dislocation? And will a quick few positive noises, such as more cheap Trump declarations of victory, turn around market sentiment just as quickly? And what is the real damage in the real economy for companies planning their production schedules based on what they see the White House say and do? Real world vs financial world?
While the World Bank and IMF outlooks are still negative, and project Brexit Fear can generate any number of horror stories, maybe the reality is real growth in 2019 as a potential upside surprise. Is the noise of Trump, Brexit and the rest obscuring the likelihood of a longer sustained Global Boom?
Politics is fascinating at present. I won’t comment on Brexit, because I really don’t have the patience anymore, and can’t understand why we’ve got to wait for March 12 for the next vote to not happen. But, there is a classic Wolfgang Munchau article: “The future belongs to the left, not the right”, in this morning’s FT. It resonates very strongly with what I’ve seen and heard in recent months in Europe and the US. Donald Trump and his swing towards the Right is more an aberration than the norm. The Right has rallied on the back of inflamed immigration threats in the US and across Europe where right wing parties threaten large gains in coming elections.
The real debate in society; about income equality, opportunities, health and wellbeing, jobs and taxes, remains the agenda of the Left. It’s the likely rise of the left that poses greater challenges for mercantile economies. Bernie Sanders back on the stomp in the US. Corbyn still in charge despite so many missteps in the UK. The young firebrand congresswoman AOC in the states calling for a 70% tax rate on the wealthy – and naturally right wing say taxes will destroy any incentives for entrepreneurs to entrep!
The rise of the Left might be the real issue to focus on through the year!
Avid readers of Warren Buffett’s annual investor letter complained over the weekend that the legendary investor’s 2019 missive was a little repetitive, as Buffett once again lamented that Berkshire didn’t see many options for investing its $100 billion cash pile – despite his desire to make another big deal. After accruing just $4 billion in GAAP profits for the full year, analysts and the WSJ described 2018 as one of Buffett’s “worst years ever”, as an unexpected $3 billion writedown on its investment in Kraft Heinz during Q4 helped lead to a $25 billion loss on the quarter.
But as Buffett revealed during an interview Monday morning on CNBC’s Squawk Box, it nearly wasn’t so. Because while Berkshire Hathaway didn’t pull the trigger on any new deals last year, it did come close to pulling the trigger during Q4. However, the deal ultimately fell through, and Buffett said he didn’t think it was “still on the books.”
“We had at least one deal possible that would have been very large,” Buffett told CNBC’s Becky Quick from Berkshire-owned Nebraska Furniture Mart on Monday. “I liked stocks in the fourth quarter but I would like buying a business even better.”
In his letter, Buffett explained that, while the prospect of buying a company makes he and Berkshire No. 2 Charlie Munger’s “pulse rates soar”, the sky high valuations for any companies with decent long-term prospects meant that Berkshire would likely continue to focus on buying marketable securities in 2019.
“That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster,” he said.
When asked for a hint about the mystery deal, Buffett said only that the company he had in mind was “on this planet.” Berkshire hasn’t bought a company since 2015, when it bought Precision Castparts in a deal valued at $32 billion.
For the past two months, stocks were buying the rumor that a trade deal would happen, and since Sunday night they have been also buying the news, after Donald Trump announced he would postpone the date for boosting tariffs on Chinese imports, taken as a sign of progress in the trade talks. While bonds fell and the dollar retreated, it was the S&P that finally broke above the key 2,800 resistance level that had proven too much for market for the past four months…
… while global markets were a sea of green.
But no market was as excited to surge on the late Sunday news as China, where the recent $1 trillion rally pushed two more indexes into bull markets overnight on an explosion of volume: China’s CSI 300 Index surged 6% Monday and the Shanghai Composite Index climbed 5.6%, its biggest daily, gain in nearly 4 years and extending their gains from a Jan. 3 low to more than 20%, entering a bull market.
The ChiNext Index of small caps and technology stocks, which entered a bull market Friday, rose a further 5.5 percent. Turnover on Chinese exchanges rose beyond 1 trillion yuan to the most since 2015.
A big driver for this surge in Chinese stocks where the government now appears ok with reflating yet another stock bubble, is the recent increase in margin debt, which has exploded higher over the past two weeks at the fastest pace since 2015.
“Even if stocks retreat in the short term, there’s still room for further gains as leverage is still way below the peak despite the increase,” said Shen Zhengyang, a Shanghai-based strategist with Northeast Securities Co. “Investors also have to bear in mind that economic fundamentals are still bad, so in order to avoid getting burned in a likely more volatile market, it’s key to always remain wary.”
Meanwhile, suggesting that Beijing is indeed greenlighting another stock bubble, Chinese brokerage stocks were especially hot, after President Xi said in a Politburo meeting that China will deepen reform in the finance sector and further open the industry. Huatai Securities Co. was among the brokerages to climb by the 10 percent daily limit in Shanghai, closing at its highest since June 2015. Actually as Bloomberg notes, all 30 Shanghai and Shenzhen-listed stocks with the word “securities” in their names rose by the 10% daily limit. The market is reacting quite positively as it’s rare to see the capital market and financial industry the main focus of that top policy meeting, says XuFunds partner Wang Chen.
It wasn’t just China as MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.8%, touching its highest since September, and is now up 10% so far this year. The Japanese Nikkei also gained, closing half a percent up at its highest since December.
The euphoric investor sentiment also boosted the yuan, which is the best performer among major currencies since Feb. 1, strengthening 0.8 percent against the dollar. The currency was up 0.34 percent at 6.6928 as of 3:14 p.m. in Shanghai.
The fresh trade deal optimism quickly spread across the globe and boosted European carmakers and miners, sparking a rally in the Stoxx Europe 600 Index, and by mid-morning, MSCI’s world equity index was up 0.2 percent at its highest since October. There was some mild underperformance in the SMI (U/C) as index heavyweight Roche (-0.6%) is down as the Co. are to purchase Spark Therapeutics in a deal valued at USD 4.8bln, which is at a 122% premium to Spark’s Friday close and at a 19% premium to their 52-week intraday high. Sectors were mixed, with some slight outperformance in Financial names. Other notable movers include PostNL (+9.1%) who are at the top of the Stoxx 600 following their earnings. UK housebuilders are underperforming after Persimmon (-5.7%) are reportedly facing removal of their right to participate in the government’s Help to Buy scheme, following reports of poor standards and hidden charges; as such, Taylor Wimpey (-2.3%) and Barratt Developments (-1.8%) are down in sympathy.
Italy’s bonds rallied after Fitch Ratings kept the country’s credit rating unchanged, easing fears that it will be downgraded to junk anytime soon
Emerging-market currencies and shares advanced despite China’s state-run Xinhua news agency later publishing a commentary saying talks will be harder at the final stage. Treasuries and core European bonds slipped, while Italy’s securities advanced and the euro strengthened. Following Trump’s tweet, developing-nation equities headed for the longest rally in nine months. South Africa’s rand led currency gains, with its biggest advance this month, and Russia’s ruble was set to post its longest winning streak since April 2015. “Given this string of positive news, it is hard to see an inflection in the positive EM momentum today,” Guillaume Tresca, a Paris-based strategist at Credit Agricole SA, wrote in a report. “This could help to support EM sentiment, which has been fragile,” with emerging-market portfolio inflows decelerating in the past two weeks.
The official delay from the U.S. may give fresh impetus to extend a global rally in equities that was being tested amid an uncertain future on global trade and forecasts for global economic growth to ebb. Meanwhile, it is unlikely that the market euphoria will fizzle any time soon: Fed Chairman Jerome Powell, whose dovish capitulation has also helped to boost markets, will testify on U.S. monetary policy on Tuesday and Wednesday.
“Expect him to emphasize patience, stating that any more hikes this year would likely require some pickup in inflation,” wrote analysts at TD Securities in a note. Participants in currency markets shared that sentiment. “We expect more of the same…, with Powell generally supportive of risky assets,” said Adam Cole, chief currency strategist at RBC Market. “We think the mood of optimism and better bid for risk is probably something we live with for the week.”
The trade news was largely priced in to currency markets, with the risk-on mood nudging the dollar down 0.1 percent against a basket of currencies to 96.518. The pound gained after U.K. Prime Minister Theresa May pushed back the deadline for a so- called meaningful vote in Parliament on her Brexit deal as she tries to give herself more time to renegotiate the agreement with the EU. Aussie and Kiwi rose to a fresh day’s high versus the U.S. dollar in early London trading after whipsawing in Asian session amid conflicting headlines around the progress of U.S.- China trade talks; China’s official Xinhua News Agency echoed Trump’s tweet, citing “substantial” progress, but a commentary published later cautioned that the talks may face “new uncertainties,” noting that bilateral trade frictions are “long term, complicated and arduous.” The euro ticked up 0.1 percent against the greenback, trading around $1.1350 and staying within the $1.1213/1.1570 range that has held since mid-October.
In commodities, oil prices edged up toward 2019 highs on the trade news, and as sanctions and political uncertainty tightened supply in several producer countries. However, oil quickly reversed and tumbled to session lows after Trump tweeted just before 7am EDT that “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!”
Economic data include wholesale inventories. Earnings due from Oneok, Mosaic
S&P 500 futures up 0.4% to 2,801.75
STOXX Europe 600 up 0.4% to 372.70
MXAP up 0.7% to 160.73
MXAPJ up 0.7% to 528.35
Nikkei up 0.5% to 21,528.23
Topix up 0.7% to 1,620.87
Hang Seng Index up 0.5% to 28,959.30
Shanghai Composite up 5.6% to 2,961.28
Sensex up 0.9% to 36,189.95
Australia S&P/ASX 200 up 0.3% to 6,186.32
Kospi up 0.09% to 2,232.56
German 10Y yield rose 2.0 bps to 0.116%
Euro up 0.1% to $1.1350
Brent Futures up 0.07% to $67.17/bbl
Italian 10Y yield rose 1.4 bps to 2.487%
Spanish 10Y yield fell 0.7 bps to 1.168%
Brent Futures up 0.07% to $67.17/bbl
Gold spot down 0.06% to $1,328.55
U.S. Dollar Index down 0.1% to 96.42
Top Overnight News
There could be “new uncertainties” in the final stage of the China-U.S. trade negotiations and Beijing should do its best while preparing for the worst, Xinhua said in a commentary
U.S. President Donald Trump said he’ll extend a deadline to raise tariffs on Chinese goods beyond this week, citing “substantial progress” in the latest round of trade talks
The U.S. and China haven’t yet agreed on the critical issue of enforcement in a proposed currency deal that would ensure Beijing lives up to its promise to not depreciate the yuan, four people familiar with the matter said
Theresa May once again postponed a final vote on her Brexit divorce agreement, setting a new deadline of March 12 for Parliament to vote on the accord she’s still trying to renegotiate. EU officials may tell the U.K. that if it wants to delay its departure date, the country must stay in the bloc until 2021
New York Fed President John Williams voiced concerns that inflation expectations may have slipped downward after years in which price rises have failed to reach the central bank’s 2% target
A Chinese state-backed borrower’s failure to make good on a payment on a dollar bond on Friday threatens to overturn assumptions that officials would step in to avert defaults by companies closely linked to local authorities
JPMorgan Chase & Co. gained some of the biggest shares in both fixed-income and equities trading last year, solidifying its leadership in one and nearing the top in the other. Deutsche Bank AG lost ground in both markets while trying to restructure its business
The U.K. and U.S. sought to allay fears of disruption in the multitrillion-dollar derivatives market, vowing to put in place emergency policies to ensure trading continues uninterrupted in the event of a no-deal Brexit
Asian stocks kick-started the week with modest gains following a strong lead from Wall Street where the DJIA notched a 9-week winning streak and reclaimed the 26,000 level to the upside amid optimism surrounding US-China trade talks. ASX 200 (+0.3%) opened marginally firmer but gains in the material sector were offset by underperformance in the utility and telecom names, whilst Nikkei 225 (+0.5%) advances were led by the IT and material sectors. Elsewhere, Shanghai Comp (+5.6%) outperformed as investors cheered US President Trump’s announcement of an extension to the China tariff deadline, citing good progress on key issues whilst also noting plans for a Summit with Chinese President Xi. Meanwhile the CSI 300 (+5.9%), formed of major companies listed in Shanghai and Shenzhen, surged into bull market territory, marking a 23% gain from cycle lows. Finally, Hang Seng (+0.5%) failed to grasp onto the same momentum as its mainland peers, as the index was weighed on by the utilities sector after China Resources Power fell over 5% amid reports of delisting.
Top Asian News
Ping An Is Said to Plan IPO of Fintech Unit at $8 Billion Value
China’s Stock Surge Puts World-Beating Bond Rally in Shade
Failed Hijacker Was on Bangladesh’s Anti-Terror Agency Watchlist
Fortis Asks Indian Regulator to Arrest Founders Accused of Fraud
Major European equities are in the green [Euro Stoxx 50 +0.4%] continuing the gains seen in Asia which were spurred by strong US markets. There is some mild underperformance in the SMI (U/C) as index heavyweight Roche (-0.4%) is down as the Co. are to purchase Spark Therapeutics in a deal valued at USD 4.8bln, which is at a 122% premium to Spark’s Friday close and at a 19% premium to their 52-week intraday high. Sectors are mixed, with some slight outperformance in Financial names. Other notable movers include PostNL (+9.9%) who are at the top of the Stoxx 600 following their earnings. UK housebuilders are underperforming after Persimmon (-4.4%) are reportedly facing removal of their right to participate in the government’s Help to Buy scheme, following reports of poor standards and hidden charges; as such, Taylor Wimpey (-2.5%) and Barratt Developments (-1.5%) are down in sympathy.
Top European News
Twinings Owner Warns of Food Shortages After a No-Deal Brexit
Huawei Frightens Europe’s Data Protectors. America Does, Too
Italian Bonds Surge After Fitch Calms Fears of Rating Downgrades
PKO Says Poland’s Stimulus Should Keep Economic Growth Above 4%
In FX, AUD/NZD/SEK/NOK The Aussie and Kiwi are just eclipsing the Swedish Crown at the helm of the G10 pack, partly on latest US-China trade news that has lifted broad risk sentiment, and for the Nzd also much stronger than expected data in the form of Q4 retail sales overnight. Aud/Usd has rebounded further from recent sub-0.7100 lows through the 50 DMA (0.7134) and just above the 0.7161 (100 DMA) to a high of 0.7174 with last Thursday’s high (0.7207) next on the rader for bulls. Nzd/Usd is hovering just below the top of a 0.6883-27 range as the cross pivots 1.0400 again. Similarly, the Sek and Nok are benefiting from the general appetite for risk assets, with Eur/Sek extending its post-Riksbank minutes retreat to just under 10.5600 at best, while Eur/Nok has been down through 9.7400.
GBP/EUR The next best majors, but mainly at the expense of a softer Usd with the DXY slipping back below 96.500 on the aforementioned US-Sino tariff truce, as Cable maintains 1.3000+ status and the single currency keeps its head above 1.1300. However, the Pound has been choppy again amidst ongoing Brexit uncertainty and a barrage of contrasting headlines, and the Eur is still encountering chart hurdles above 1.1350, like the 30 DMA around 1.1365.
CAD/CHF/JPY All narrowly mixed vs the Greenback, but the Loonie is consolidating closer to highs vs its US counterpart alongside crude prices and eyeing 1.3100 within a 1.3150-22 range and the Franc appears more settled above parity, while the Jpy has pared some overnight losses from 110.85 towards 110.50.
EM Understandably, the Yuans have greeted ‘substantial’ or ‘concrete’ progress between the US and China on the trade issue with delight/huge relief, and from another softer PBoC Usd/Cny reference point have rallied further to test 6.6900+ levels. However, other regional currencies are also getting a boost on the prospect of a deal and wider repercussions for the global economy, with Usd/Zar down sharply from 13.9930 to 13.8480 at one stage, Usd/Rub under 65.2500 and Eur/Huf probing below 318.00 (Forint also appreciating Fitch’s Hungarian upgrade to BBB/stable outlook).
In commodities, WTI futures gave up opening gains despite the overall trade-driven optimism, although it is worth noting that Nigerian election polls have now closed with reports of dozens killed in election violence, however, there has been no reports of disrupted oil flow from the OPEC producer. Oil tumbled after president Trump tweeted a warning to OPEC that oil prices were getting too high. Also, in spite of the Baker Hughes rig count showing a drop of four active rigs, US production reached a record high last week at 12mln BPD according to EIA data. Elsewhere, spot gold benefitted from the easing buck and hovered near Friday’s highs, while copper traded choppy as initial trade-induced upside waned after Xinhua noted that US-China trade talks are said to become more difficult at the final stage. Iranian Supreme National Security Council Secretary said Iran has designed and put into practice initiatives to neutralise the US sanctions against Iranian oil exports. He also noted that Iran has options to stop oil flow if threatened, other than closing Strait of Hormuz.
US Event Calendar
8:30am: Chicago Fed Nat Activity Index, est. 0.2, prior 0.3
10am: Wholesale Inventories MoM, est. 0.3%, prior 0.3%
10am: Wholesale Trade Sales MoM, est. -0.3%, prior -0.6%
10:30am: Dallas Fed Manf. Activity, est. 4.9, prior 1
DB’s Jim Reid concludes the overnight wrap
Can you believe at the end of this week it will be March? Where does time go? The weather was unseasonably unbelievable across most of Europe over the weekend and I’ve caught the sun a little and have spent the entire weekend rubbing my eyes and sneezing non-stop. I now look forward to a week in polluted London to calm me down from countryside pollen. We move into our new house in around 8 weeks but as a measure of the banality of my life at the moment over the weekend we were told that the carpets we ordered throughout the house can only be laid on time if we have various joins between pieces. If we want one without joins anywhere it will be 10 weeks, more expensive and will delay the move date. My vote is for the joins and to get in the house on time but my wife is insistent that she’d rather wait. This debate has to be concluded one way or another tonight over dinner. When I woke this morning to watch clips of the Oscars I was desperately hoping I’d see subtle joins all down the red carpet so I could show my wife that if it’s good enough for Hollywood it’s good enough for us. Sadly I couldn’t see any.
From red carpets to colourful politics this week. Indeed if you’ve had enough of politics I suggest you go on holiday for a few days as this topic should dominate proceedings. We have continued US-China trade discussions but with the March 1st tariff deadline pushed back overnight, a second summit between Trump and Kim Jong Un (Weds/Thurs), another Brexit parliament vote (Weds), Michael Cohen (Mr Trump’s ex-lawyer) giving two days of congressional testimony, including an open session on Wednesday, and the Mueller Russia investigation may be completed even if the results aren’t expected this week. Away from that we’ve got Powell’s semi-annual testimonies to Congress (Tues/Weds), US Q4 GDP (Thurs) and PCE data (Fri), European inflation data (Thurs/Fri) and final PMIs (Friday), and PMIs due out in China (Thurs).
Touching on the highlights of these, Friday was the original deadline that the US and China set to negotiate an agreement before US tariffs on $200bn of Chinese imports rise from 10% to 25%. However Trump has tweeted overnight that “I will be delaying the U.S. increase in tariffs now scheduled for March 1,” citing productive talks with China while adding, “the U.S. has made substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues.” He also said that if both sides make further headway in negotiations then he will meet China’s Xi Jinping at his Mar-a-Lago resort in Florida to conclude an agreement, though he didn’t offer any details on the timing of the meeting or how long he expects the tariff extension to last. However, Mnuchin had said last week that the meeting between Trump and Xi is being tentatively planned for late March. Elsewhere, China’s state-run Xinhua news agency published a commentary on trade talks overnight saying that talks will be harder at the final stage. We should note that Lighthizer is due to testify to the House Ways and Means Committee on Wednesday which should shed some light on where things stand although the media are picking up on disagreements between Trump and Lighthizer. So lots of moving parts.
This morning in Asia risk has gained on the tariff delay tweet with Chinese bourses leading the advance – the CSI (+3.55%), Shanghai Comp (+3.32%) and Shenzhen Comp (+4.08%) are all up. The Nikkei (+0.53%) and Hang Seng (+0.39%) are also up while the Kospi (+0.00%) is trading flat. China’s onshore yuan (+0.39%) is also up – trading at the highest level since July while most EM FX is strong against the greenback this morning. Elsewhere, futures on the S&P 500 are up +0.28% erasing some of the gains after the more cautious news from the Xinhua news agency trickled in. In commodities, US corn and soybean futures are up +0.52% and +0.70% respectively.
Here in the UK the latest Brexit Parliament vote is scheduled for Wednesday with UK PM May updating the House of Commons the day prior. However yesterday Mrs May said that there will be no meaningful vote this week but promised one by March 12th. At this stage it’s not clear whether that will help stave off a Letwin/Cooper revolt which would effectively force the government to extend Article 50. Earlier, on Saturday, three cabinet ministers – Amber Rudd, David Gauke and Greg Clark – wrote a joint article warning that they cannot allow the UK to leave without a deal and suggested that they will vote to stop it on Wednesday, partly indicating that they might vote for a Letwin/Cooper amendment. Expect a delicate few days of negotiations and rumours ahead before MPs go into that vote. Bloomberg reported yesterday that many in the EU are leaning towards a 21-month extension to article 50, partly in an attempt to scare Brexiteers into voting for the existing deal as 21-months is a very long time and anything could happen to Brexit in that period. Sterling is trading (+0.13%) up this morning.
As an aside it’s been interesting to watch the opinion polls (like Survation, YouGov and Deltapoll) in the U.K. Since the new centrist Independence movement started a week ago, the initial polling has suggested that support for the opposition Labour Party is declining most with at least three polls (two over the weekend) suggesting the Tories have at least an 8 point lead. It’s possible this poor showing and threats of more departures could finally prompt Labour to endorse a second referendum so watch this space. It’s also remarkable that the Tories support remains rock solid at or just below 40% considering the perception of how they’ve handled Brexit. It could be argued though that if you voted to leave and still feel that way, then the only viable option is to vote Tory. However the party have a huge dilemma. Keep pursing Brexit (including leaving no-deal on the table) but risk multiple resignations/defections from pro-EU Tory MPs, or alternatively soften their stance and risk voter support and splits on the right wing of the party. The papers (like Guardian, Sky News) at the weekend suggested lots of moderate Tories are close to rebelling so the disunity that Labour is currently suffering from could easily spread to the Government this week. If Labour switch to a second referendum policy it might swing the momentum back towards them. Interesting and fluid times.
Politics also mixes with central bankers this week as we have Fed Chair Powell’s testimonies to the Senate Banking Committee on Tuesday and House Financial Services Committee on Wednesday where he will deliver the Fed’s semi-annual monetary policy report. Expect the focus to be on the balance sheet, the current thinking on inflation and also how Powell now views the economic outlook, particularly as it relates to the various crosscurrents that Powell has previously referred to.
Ahead of this many Fed speakers spoke at a conference in New York on Friday, including Vice Chair Clarida who said that yield curve control, where 10-year yields are pegged, is one potential option to fight a future recession. The Fed will conduct a thorough review of its policy framework later this year. NY Fed President Williams also spoke about potential changes to the framework, citing the risk of unanchored inflation expectations as a reason to reassess the current ‘inflation-targeting’ regime. While he said he takes the Phillips curve seriously and remains attentive to upside risks to inflation given the tight labour market, he noted that downside risks to inflation are elevated as well. San Francisco Fed President Daly spoke about targeting an average inflation rate of 2%, which could be interpreted dovishly as it would imply appetite to let inflation run higher in the near term to compensate for recent downside misses. Clarida also spoke about a higher inflation target, though he noted some of the negative effects of such a policy. Overall, it appears that there are many options on the table for the Fed to consider, and this story will remain in focus through the June conference where they will begin the office policy review which is likely to result in a final assessment next year.
In terms of data this week, the main highlights are at the back end with a first look at US Q4 GDP on Thursday and then the December PCE reading due on Friday. Expectations for Q4 GDP are for a +2.5% qoq annualized reading which would be down from +3.4% in Q3, while core PCE is expected to rise +0.2% mom which would be enough to hold the annual rate at +1.9% yoy and therefore more or less in line with the Fed’s target. Other data worth highlighting in the US next week include December housing starts, building permits and consumer confidence on Tuesday, the December advance goods trade balance on Wednesday, and February ISM manufacturing on Friday.
In Europe the main highlights this week are the preliminary February CPI readings in France and Germany on Thursday and the Euro Area on Friday, as well as the final February manufacturing PMIs, including a first look at the non-core. China’s February PMIs on Thursday is likely to be the main highlight in Asia. We should also note that China’s NPC Standing Committee is due to meet for two days from Tuesday ahead of the annual NPC which begins the week after.
The rest of the day by day week ahead guide is at the end. Before that let’s look at recap of Friday and last week.
On Friday, attention was focused on trade negotiations and communications from central banks. Equities rallied broadly on Friday taking the week into positive territory, with the S&P 500, DOW, and NASDAQ ending the week +0.62%, +0.57%, and +0.74% (+0.64%, +0.70%, and +0.91% on Friday), respectively. In Europe, the STOXX 600 gained +0.62% (+0.22% Friday), with the DAX outperforming, up +1.40% (+0.30% Friday). Commodities rallied as well, with Brent crude oil advancing +1.15% (-0.09% Friday) and copper posting its best week since last September to reach its highest level since last June, gaining +5.40% (+1.81% Friday).
On the trade front, President Trump met with Vice Premier Liu He, and both sides described the discussions as productive. Trump specifically mentioned a potential extension of the March 1 deadline, and top trade negotiator Lighthizer, who is one of the more hawkish members of the administration, said the sides had “made a lot of progress.” That said, he did say that some great hurdles remain, but markets seemed to focus more on the broader optimism, including Treasury Secretary Mnuchin’s announcement that the two sides reached an agreement in principle on currency-related matters. The offshore yuan appreciated +0.91% on the week (+0.21% Friday) to reach its strongest level since last July.
Quickly recapping Friday’s central bank speak. Banque de France Governor Villeroy mentioned that the ECB should “study pragmatically how to contain possible adverse effects on the bank transmission of our monetary policy”. That mirrored earlier comments from the BoJ Governor Kuroda, who said that any future easing would come via tools that have the “least side-effects”. These could be references to some alleviation of the harm from negative interest rates.
It is a quiet day for data with the releases focused in the US where we get the January Chicago Fed national activity index, December wholesale inventories and trade sales and February Dallas Fed manufacturing activity index. Away from that, the BoE’s Carney and Fed’s Clarida are due to speak.
After months of radio silence, Trump the oil analyst has returned to complain about prices being too damn high.
For the first time since OPEC+ agreed to cut production at its December meeting, Trump has chimed in on Twitter to tell the cartel to “relax and take it easy” because oil prices are “getting too high.”
Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!
OPEC and members of an ancillary group led by Russia have been cutting production since the start of the year after striking an agreement during OPEC’s December meeting in Vienna to lower output by an aggregate by 1.2 million b/d during the first six months of 2019.
Of those cuts, 800,000 bpd will come from OPEC members, while Russia and its allied producers will cut 400,000 bpd.
But with retail sales and home sales slumping and the Fed warning that Q4 GDP – due out Friday – might disappoint, Trump probably reckons that now would be a good time for a de facto “tax cut” – the kind that wouldn’t blow out the deficit even further.
Oil prices tumbled after the tweet, notching one of their biggest daily retreats since the beginning of 2019, virtually ensuring that this won’t be the last we hear from Trump on this subject.
As President Trump departs for Vietnam on Monday for his second summit with North Korean leader Kim Jong Un, back home markets are rejoicing, with the S&P futures finally back over 2800 following the president’s decision to postpone the March 1 tariff deadline – which would have seen tariffs on some $200 billion in Chinese goods to rise by 150%.
I am pleased to report that the U.S. has made substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues. As a result of these very……
….productive talks, I will be delaying the U.S. increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for U.S. & China!
While the market has clearly communicated its view – namely, that postponing the deadline confirms the pervasive optimism that a deal will be reached when Trump and Xi meet next month – a roundup of analyst comments published by Bloomberg showed that the consensus has decidedly shifted toward expecting an amicable resolution to the US-China trade war, though some reservations about its long-term efficacy remain. Several analysts said they expect the US’s tariffs on China to be completely unwound. Everyone now expects a deal, because both the US and China are looking to “stabilize business sentiment” and quell growing worries about a prolonged slump in global economic growth.
Ultimately, delaying the deadline will give Trump more leverage over the Chinese, and might even inspire Beijing to extend its menu of concessions – possibly to include more assurances on IP and a relaxation of its requirements for foreign companies to enter into joint ventures with domestic firms if they want to access the Chinese market.
But ominously, the comments largely ignored the tensions between Trump and the China hawks, led by US Trade Rep Robert Lighthizer, who is still technically in charge of US negotiations.
Here’s a roundup of analyst reactions (text courtesy of BBG):
Hua Changchun, Guotai Junan Securities Co.
The two nations will likely reach a deal on all aspects in late March and the tariffs will not rise from the current levels, but that doesn’t mean the conflict between them will be over. Tariff wars will be suspended and we’ll enter the ‘post-trade-war’ era, where the two nations will shift to championing companies, promoting advanced technologies and trying to increase control over global economic rules.
Louis Kuijs, Oxford Economics
This is a positive sign but it’s clearly not the end of difficult negotiations, let alone of the underlying tension between the two countries. Amongst other things, it will be difficult to agree on language on the “verification and enforcement” insisted on by the U.S. but disliked by China. Underlying tensions on technology, China’s industrial policies and, more generally, the rise of China, are unlikely to subside any time soon. Nonetheless, the tariff suspension and, possibly, a more lasting agreement would be a positive for international trade and business in both countries, as well as the global economy more generally.
Li Yishuang, China Securities
The extension of the tariff deadline shows that both sides have a strong will to reach an agreement. The focus is on how China is going to carry out its commitments, especially on government subsidies but there are also more granular issues. As long as both sides are willing to reach a deal, I think they eventually will overcome those obstacles and the probability of a final deal is good. A final deal will be reached after Xi and Trump meet, but on the enforcement of the deal, the two nations will still have some conflicts. This won’t be very smooth.
Wang Huiyao, founder of the Center for China and Globalization
This is a good sign that both sides need a deal at this stage. This is good to stabilize business sentiment in both countries and around the world, and is also good for the stock market. It is also conducive for China’s reforms and opening up, and boosting China-U.S. cooperation.
He Weiwen, former commerce ministry official
This shows that both sides share the will to continue the talks until a final deal, which will be decided by the meeting of Xi and Trump. The temporary no tariff increase creates a stable environment both for the talks and for markets. The ultimate results of the bilateral trade agreement should be the total scrapping of tariffs on $250 billion in Chinese goods, and subsequently on $110 billion of U.S. goods.
Gene Ma, Institute of International Finance
Trump wants a deal, not a war. His time is also running short with the 2020 election on the horizon. Beijing has made a greater commitment to reduce the bilateral trade imbalance. Thus holding back on the additional tariffs in return for some further concessions is not a bad strategy. The question is what he can get at the end. I expect Beijing will offer a longer shopping list, no RMB devaluation, better intellectual property protections, and fewer forced joint ventures. Beijing may tone down “Made in China 2025” but I don’t think it can meaningfully scale back its industrial plans and support for SOEs.
Jonathan Fenby, TSLombard
Trump has been leaning this way since the dinner in Buenos Aires, leading China to play for time — successfully. Xi and colleagues want to sideline the trade war while they deal with domestic economic challenges and try to pump up confidence. Now the question is whether the focus moves from tariffs to technology where China looks more vulnerable.
Derek Scissors，chief economist, China Beige Book International
The tariff delay was essentially decided in early November. That’s when the President either lost his nerve due to stock market weakness or thought he could get important Chinese help on North Korea. Since then, the only important question has been whether the U.S. has agreed internally on a credible enforcement mechanism. It doesn’t appear that we have and, until we do, the talks are worthless.
* * *
In summary, analysts expect that Trump will prevail over the China hawks in his administration and strike a deal, regardless of whether Beijing commitments to “structural reforms”, like scaling back China 2025, reducing IP theft/forced transfers, and agreeing on necessary enforcement mechanisms. But that doesn’t mean that Lighthizer & Co. will quietly step aside and allow Trump to squander the leverage he has achieved with his tariffs. And if stocks do rally to new highs in response to a deal being struck, could we see more of a “sell the news” reaction this time around once investors realize that there’s not much in the way of substance beneath the headlines?
One of Erdoğan’s regional policy priorities, as U.S. troops in neighboring northern Syria prepare to leave, is to prevent Turkey’s south from witnessing the emergence of “a Kurdish belt”.
While the U.S. supports the idea of a buffer zone in northern Syria to keep Kurdish militants and Turkish troops at a safe distance from each other, Erdoğan insists on sole Turkish control over the planned 20-mile-deep strip.
If Turkey, a NATO member, goes ahead with purchasing Russia’s S-400 air and anti-missile defense system, the U.S. Congressional bill requires the departments to include a detailed description of plans for the imposition of sanctions, pursuant to section 231 of the Countering Russian Influence in Europe and Eurasia Act of 2017 (Public Law 115-44).
If Turkey, a NATO member, goes ahead with purchasing Russia’s S-400 air and anti-missile defense system, it risks the imposition of sanctions under United States law, pursuant to section 231 of the Countering Russian Influence in Europe and Eurasia Act of 2017. Pictured: A Russian S-400 missile battery. (Image source: Vitaly Kuzmin/Wikimedia Commons)
The summer peak of the crisis between Turkey and the United States, two NATO allies in theory, has been replaced by cautious pessimism. Few Turks today remember the days of massive Turkish protests against President Donald Trump and his administration, often exhibited in childish ways such as groups gathering to burn fake U.S. dollars or smashing iPhones in front of cameras. This is, however, an extremely fragile tranquility.
On February 15, after keeping the position vacant since October 2017, Washington nominated David Satterfield, a career diplomat, as new ambassador to Ankara, an appointment that still needs to be confirmed by the Senate. In Ankara, a complex puzzle awaits Ambassador Satterfield.
There are no signs that Turkish President Recep Tayyip Erdoğan may rethink — or even recalibrate — his assertive neo-Ottoman foreign policy calculus. As the country awaits its critical local elections on March 31, his popularity is augmented by supportive masses who want to “Make Turkey great again.” A surprise defeat at the ballot box could be the beginning of the end of Erdoğan’s 17-year-old rule.
One of Erdoğan’s regional policy priorities, as U.S. troops in neighboring northern Syria prepare to leave, is to prevent Turkey’s south from witnessing the emergence of “a Kurdish belt”. The U.S. troop pullout could expose Syrian Kurds, U.S. allies in the multinational fight against Islamic State, to the risk of a Turkish military incursion. While the U.S. supports the idea of a buffer zone in northern Syria to keep Kurdish militants and Turkish troops at a safe distance from each other, Erdoğan insists on sole Turkish control over the planned 20-mile-deep strip. The Turkish strongman also rejects a plan by the United States for a multinational force to police the area.
Part of the Turkish-American puzzle is about a rigid plan by Erdoğan to make Turkey the first NATO ally to deploy the Russian-made S-400 air and anti-missile defense system. Turkish authorities, including Erdoğan, have repeatedly refused requests by Turkey’s Western allies to drop the Russian deal and go for a Western-made defense architecture. Most recently, on February 20, Turkey’s Undersecretary for Defense Industries in charge of military procurements, Ismail Demir, said that the S-400 system would become operational in October.
The S-400 issue is potentially another source of crisis between Washington and Ankara. Demir’s remarks looked very much like an official Turkish reply to Vice President Mike Pence who just days ago had repeated warnings to Turkey not to proceed with the S-400 purchase. Pence, speaking at the Munich Security Conference, told attendees “we will not stand idly by while NATO allies purchase weapons from our adversaries. We cannot ensure the defense of the West if our allies grow dependent on the East”.
Pence’s “we will not stand idly by” warning also involves another Turkish plan to purchase military gear, this time from the West. Turkey is part of a U.S.-led, multinational consortium that builds the F-35 next-generation fighter jet, and has committed to buy at least 100 aircraft. On February 19, Trump signed a spending bill that blocks the transfer of F-35s to Turkey. According to the spending bill, delivery of the jets to Turkey will be blocked until the U.S. Secretary of State and Secretary of Defense submit an update to the report regarding Turkey’s S-400 purchase.
If Turkey goes ahead with purchasing Russia’s S-400 systems, the Congressional bill requires the U.S. departments to include a detailed description of plans for the imposition of sanctions, pursuant to section 231 of the Countering Russian Influence in Europe and Eurasia Act of 2017 (Public Law 115–44).
Turkey’s systematic efforts to support various Islamist groups in the nearby Middle East, as well as in the less-nearby corners of the Mediterranean basin, are a cause of concern for Western countries, including the United States, that have a “stabilizing agenda” for the region. As a result of Erdoğan’s ideological kinship with groups such as Hamas and the Muslim Brotherhood, Turkey is already in a cold war with a long list of regional countries including Egypt, Saudi Arabia, the United Arab Emirates and Israel. New tensions were recently added to the list when Libya and Algeria slammed Turkish arms shipments to Islamist militants.
In December, Algerian authorities announced the discovery of an arms shipment from Turkey at the Algerian-Libyan border, including rockets and 48 million rounds of ammunition. An Algerian official told the newspaper al-Watan that “the purpose of such [Turkish] activity is to not only destabilize Libya, but send such an arsenal to unstable regions, including Algeria”.
Erdoğan’s anti-Western ideology often makes strange bedfellows for Turkey. The most recent is Venezuela, after Turkey joined Russia, China and Iran in backing the battered regime of Nicolas Maduro. When, in November, Trump signed an executive order authorizing sanctions on Venezuelan gold — after sending an envoy to warn Turkey off the trade — a mysterious Turkish company, Sardes, with just $1 million in capital, had already shuttled $900 million worth of the precious metal out of Venezuela.
With or without an American ambassador residing in Ankara, there is more than enough evidence to expect a badly bumpy road ahead for the former strategic allies that are now allies only in theory or, in a more realistic lexicon, ideological adversaries.
As the US struggles with declining life expectancy (as deaths from suicides, drug overdoses and other “deaths of despair” climb), rising infant mortality and ballooning health-care costs that preclude access to preventative care for millions of Americans – not to mention the attendant ills of rampant obesity and tobacco use), America has seen its position among the world’s healthiest nations deteriorate, while, across the Atlantic, more European nations are claiming spots in the highest echelons of the global rankings.
Four other European nations ranked among the top 10 in 2019: Iceland (third place), Switzerland (fifth), Sweden (sixth) and Norway (ninth). Japan was the healthiest Asian nation, climbing three ranks to place fourth overall, and supplanting Singapore, which dropped to eighth. Rounding out the top ten were Australia and Israel, which ranked seventh and 10th, respectively.
Variables including life expectancy are used to rank countries, while factors like tobacco use and obesity work against the overall ranking. Environmental factors like access to clean water and sanitation are also taken into consideration. Spain has the highest life expectancy at birth among European Union nations. Out of all 169 nations that BBG tracks, only Japan and Switzerland rank higher. By 2040, Spain is forecast to have the highest lifespan, at roughly 86 years, followed by Japan, Singapore and Switzerland.
The reason? Access to primary care.
“Primary care is essentially provided by public providers, specialized family doctors and staff nurses, who provide preventive services to children, women and elderly patients, and acute and chronic care,” according to the European Observatory on Health Systems and Policies 2018 review of Spain. Over the past decade, this has helped bring about a decline in deaths from heart disease and cancer. While China ranked 52nd overall, it’s on track to surpass the US by 2040, according to the Institute for health metrics and evaluation.
In the Caribbean, Cuba placed highest at 30, making it the only developing nation to be ranked that high.
In North America, Canada holds the highest ranking, placing 16th overall – that’s well above the US and Mexico, which rank 35th and 53rd.
The key to the healthy lifestyles of European countries, according to BBG, could be their observance of the Mediterranean diet, which is heavy in vegetables, nuts and lean proteins like fish.
Researchers say eating habits may provide clues to health levels enjoyed by Spain and Italy, as a “Mediterranean diet, supplemented with extra-virgin olive oil or nuts, had a lower rate of major cardiovascular events than those assigned to a reduced-fat diet,” according to a study led by the University of Navarra Medical School.
Many of the lowest ranking countries are located in sub-Saharan Africa, which accounted for 27 of the 30 unhealthiest nations in the ranking. Haiti, Afghanistan and Yemen were the others. Mauritius was the healthiest in Sub-Sahara, placing 74th globally due to its low rates of death by communicable disease.
Egypt’s oil and gas future looks very bright. The large scale concessions awarded during the EGYPS2019 conference in Cairo, 11-13 February, shows the appetite of IOCs, such as Shell, BP and ENI in this emerging energy hotspot.
After years of a major slump, partly due to continuing payment and security issues, the Pharaohs are again back in the top league. Continuing concerns about security in Egypt’s Western Desert or the Sinai no longer seem to be a breaking point for investors. At the second day of EGYPS2019 the announcement of five onshore and offshore licenses by EGPC, as presented by Egypt’s minister of energy Tarek El Molla, has created a very bright future for the North African oil and gas producer. The success story of the offshore deepwater gas field Zohr, operated by Italian oil major ENI, could be supported further by positive results from current exploration efforts in the offshore Noor field. If expectations are met, a new gas hub could be in the making, combining Cypriot and Israeli production with Egypt’s existing LNG infrastructure.
(Click to enlarge)
The long awaited results of the Egyptian natural gas holding company EGAS were announced on the 12th of February. Dutch oil major Shell was awarded 3 concessions, all crude blocks in sector 7 West Fayoum, sector 9 South East of Horus, and sector 10 South AbuSnan. Italian oil major ENI, currently in the news with regards to its major offshore gas projects Zohr and Noor, was awarded sector 11 East of Siwa, while sector 2 went to the General Petroleum Company, sector 4 to Neptune Energy, and sector 5 North Beni Suef to Merlon International.
With regards to the Egyptian gas prospects, American oil giant ExxonMobil, which hasn’t been very active in Egypt for years, reentered the North African country by winning the north of Amreya Marine Company concession area. The North Sidi Gaber, as well as North El Fanar areas, went to Shell and Petronas. The North West Sherbin concession has been awarded to British oil major BP and Eni.
The re-emergence of major IOC interest should be not underestimated. Egypt’s former rough period, especially during and after the Arabic Spring and the rule of Muslim Brotherhood president Mursi and the military coup shortly after, has had a very negative impact on upstream projects. Most IOCs and independents working in Egypt at the time, were affected by security threats and delayed payments, resulting in a major slowdown in operations. The current success of ENI, and the improving political and security situation seems to have changed the sentiment. Shell and ExxonMobil’s participation could be a game changer.
Cairo’s dreams about becoming an energy hub, and supplying European markets, are once again alive and kicking. Shell’s Egypt Chairman Gasser Hanter reiterated this. Hanter stated at EGYPS2019 that ‘Egypt’s Idku and Damietta LNG export plants are likely to remain the low-cost option for East Mediterranean gas producers looking to export”. He expects that, soon, it will become very clear to the other participants in the East Med that the Egyptian option has the best commercial and strategic factors. The Shell official is very optimistic with regard to the willingness of Israel and Cyprus to consider the Egyptian option. Some developments are expected around the East Mediterranean Gas Forum meeting in March in Cairo. At present, provisional agreements have been signed between Cyprus and Egypt to pipe gas from Cyprus’ field Aphrodite to Egypt. Israel has already a gas export deal with Egypt. The deal was set up by Egypt’s Dolphinus Holdings, which expects to import 64 Bcm/year of gas from Israel over a 10-year period. Noble Energy and Israel’s Delek, two prominent producers in the Tamar and Leviathan fields, have agreed to buy a stake in the idled East Mediterranean Gas pipeline. Shell reiterated at EGYPS2019 that the economics of Egypt’s export plants remained compelling, suggesting any other future liquefaction projects in the region may struggle. The underlying economics are clear, as the LNG liquefaction plants in Idku and Damietta already exist, removing the possible multibillion investments needed if choosing other options.
In addition to the IOCs interest, Arab oil & gas company Dana Gas also stated to expect major new discoveries. Dana’s CEO Patrick Allman-Ward stated at EGYPS2019 that his company will start drilling in 2019 in an area it says could become Egypt’s next giant Mediterranean gas field, after seismic data pointed to reserves as large as 20 trillion cubic feet. First drilling operations will be conducted in an area that is expected to hold 406 Tcf. The targeted area is part of the North Arish field, which is located in the East Med.
The year 2019 could become the Red Sea Year, as Egyptian sources indicate that the Egyptian company Ganoub El Wadi Petroleum Company (Ganope) is expected soon to launch its delayed bid round for offshore Red Sea. The last days rumors have been floating around, especially after that Egypt’s minister of energy Tarek El Molla indicated a bid round on the 12thof February at EGYPS2019. El Molla stated bluntly that 2019 will be the Red Sea Year. This was also stated by Abed Ezz El Regal, CEO of EGPC. The bid round was expected earlier, but was delayed at the end of 2018 by Ganope. The Red Sea has become a major focus area for EGPC and others, after that Cairo was able to reach a maritime demarcation agreement with Saudi Arabia. Ganope’s CEO Mohamed Abdul Azim stated that his company is expected to drill nine new wells. Based on the Red Sea geophysical data, which has been acquired lately by a 2D, 10,000 square kilometer survey by Schlumberger, a bid round is expected to be announced within the next days. The prospectivity of the Red Sea is expected to be very interesting, as already shown by several projects on the other side of the sea in Saudi Arabia.
A possible combined effort between Saudi Arabia and Egypt is still in the offing, as some projects could be combined. For sure, Egyptian and Saudi drilling operations could be combined, taking advantage of the growing offshore drilling JVs of bother countries. The ongoing Saudi Aramco-Rowan JV (ARO) at the International Maritime Industries (IMI) Ras Al Khair Shipyard projects, also could be combined with Egyptian parties. Some new builds or upgrades for the Red Sea arena would be feasible to be done in Egyptian shipyards too.
With the Tories on the brink of a historic party rupture, and MPs from across the floor forsaking Labour Leader Jeremy Corbyn over his insufficient condemnations of anti-semitism within the party (among other issues), the House of Commons just can’t seem to get itself together, even in the face of a challenge of historic magnitude (Brexit). The situation has grown so dire, that the Church of England’s General Synod on Saturday voted to pray for the UK’s political leaders – and also for its poor – that they may find a way through the Brexit morass in a way that minimizes the harm to the UK’s most vulnerable populations.
Justin Welby, the archbishop of Canterbury
According to the Guardian, Archbishop of Canterbury Justin Welby warned that If attention was not paid to the “pain and exclusion” of certain parts of UK society revealed by Brexit, greater division and strife would result. Speaking to the General Synod ahead of a vote to authorize five days of Brexit-related prayer, Welby – who voted remain during the 2016 referendum – proclaimed that “We cannot ignore the warnings that have been proffered about the possible profound impact that the next months may possibly have on the poorest in our society.”
“We must be ready for any difficulties and uncertainties, and not allow any destructive forces to create further divisions in our society.”
“It is true that no predictions on the economy are certain. That is not project fear, it is saying that where there are risks it is the strongest, not the weakest, who must take the weight of the risk. That is not currently the way we are going.”
Welby argued that the church must “play our part” as peacemaker to heal the divisions in Parliament and help the UK “unify as a country.” This after Welby declared last month that a ‘no deal’ Brexit would be “not only a political failure, but a moral one.”
The church must be a peacemaker “to play our part in uniting our country and to put the most vulnerable at the centre of national life”.
He told the synod: “How we recover from and heal these divisions may be the biggest challenge that lies ahead of us – to unify as a country, to have a healthy and functioning democracy, and to have a strong ethically and morally based economy that works for all.”
The burdens on political leaders were enormous, he said. “It is easy to stand on the sidelines and judge. We do not have to make the decisions.”
Before the vote, the Archbishop of York called for a prayer to “save our parliamentary democracy.”
Before the vote, John Sentamu, the archbishop of York, led the synod in a prayer asking God to “save our parliamentary democracy” and “protect the high court of parliament and all its members from partiality and prejudice”.
Sadly, the church was probably unaware of just how appropriate its call to prayer was: Because at this point, it would take an act of God to smooth over the bitter inter- and intra-party sniping over Brexit that has brought all business in Parliament to a grinding halt.
And with that, the Church of England has officially joined Prime Minister Theresa May as a willing accomplice to “Project Fear”.
Authored by Jeffrey Tucker via The American Institute for Economic Research,
They Shall Not Grow Old is an extremely painful film to watch. I’ve seen most of the major war films but I can’t recall one that is more powerful overall – powerful in the sense that it shakes you to your spiritual core.
This film puts you right there as a middle-class Briton in the midst of the Great War, step-by-step from regular civilian to the killing fields of the Western front, from the onset of patriotism at the beginning to the shattered hopes and lives of the end.
You are left with a deeply unsettling number of questions to which there are no obvious answers, questions such as where does war come from and why can’t it be stopped and why, after this experience, did humankind ever allow it to happen again? The whole thing seems too unbelievable to be true. And yet somehow this movie makes it too true to ignore, try as one might.
Audiences are wild for the film (99% on Rotten Tomatoes). It exudes integrity in every frame.
The headline pitch for the film is the technology that made it possible. The producers took old black-and-white spotty footage and colorized it, added sound, and removed the rough edges, seemingly bringing the dead back to life. It’s jaw-dropping for sure, and enough reason to keep watching. If you have had any moments of regret concerning the effect of CGI on modern filmography, this movie might change your mind.
But this is far from all that the film offers. The narrative is genius storytelling, somehow taking this ghastly, complex, ignored series of events with strange beginnings and turning it into a deeply engaging human drama about the mystically evil event we call war which baptizes mass murder and death in the cleansing waters of patriotic fervor.
Why do people choose to give up their normal, happy lives to risk debilitating injury and death in steamy swamps of the warzone, a life of sleeping while standing up in terrifying trenches while suffering gangrene and dysentery with the only hope of escaping resting with the obliteration of people just like yourself but for accident of geography who are living the same way just over the hill?
True, Britain had a draft. It was instituted in January of 1916. From the telling we receive here, however, it’s not obvious that it was necessary. The nation was calling and that was enough. Propaganda posters were everywhere. The pressure must have been unbearable. You surely do not doubt the superiority of your nation or distrust the claims of its leadership. Your friends and colleagues were going. Were you just going to let them risk their lives for the great cause of…something…while you languished at home as a cowardly shopkeeper?
I wondered what I would have done, but it seems rather obvious given the times. I too would have signed up. I’m sure every viewer was thinking the same. From that moment of mental decision making, you feel deep empathy with all the subsequent events: the disease, the terror, the heartache, the sense of betrayal after the war.
The world had never seen total war before, but these were also times of the advent of the total state that knew no limits to its power. The age of laissez-faire was said to be over, and scientific planning would take its place. We had the intelligence. We had modern technology. We had central banks to generate the necessary funds out of thin air.
Why stop with domestic policy? The total beckoned to be tested on the battlefield. From the Middle Ages through the Napoleonic and Colonial wars, the conflicts between nations were between states and those who worked for them. But with the Great War, it was different. Whole nations were now at war, not just governments. Not one was excluded from the massive mobilization.
As Ludwig von Mises wrote, “The first step which led from the soldiers’ war back to total war was the introduction of compulsory military service. It gradually did away with the difference between soldiers and citizens. The war was no longer to be only a matter of mercenaries; it was to include everyone who had the necessary physical ability.”
And so it began, almost as if by accident. The noble and heroic legend of wars past was summoned up in support of a new kind of war in which, as people soon discovered, individual bravery mattered hardly at all. The difference between those who came home in one piece and the many millions who were slaughtered was purely accidental. How can you fight bravely from a trench? Your main goal was survival and there was very little you can do to make it more or less likely.
Every viewer will be affected differently but here are the parts that stood out to me. I had read about mustard gas but had not seen or fully realized the implications. I had known that the soldiers in the war were young but as young as 15 years old? Remarkable. I hadn’t fully realized what a remarkable invention the tank was for war. I’ve heard stories of the tragedy afflicting returning soldiers from Vietnam but hadn’t known that it affected those returning from the Great War too.
There is a moment near the end in which a soldier is telling the story of successfully pushing through the German line and pouring into a trench occupied by German soldiers. Enemy combatants came out with their hands up. The aging soldier continued with the story: “at that moment, we had to decide what to do, so of course we….” – and if the audio had stopped there I had no way to predict what he would have said. He continued: “we captured them and led them back to camp.” Whew: four fewer murders that day than one might have expected.
You read every manner of speculation concerning the mysterious appearance of moral nihilism in the 20th century. Rarely is the Great War named as a culprit, but this film leaves no doubt. Hundreds, even thousands, of years of struggle to develop and cultivate a sense of decorum, decency, peace, human understanding, and, poof, in a seeming instant it is all gone.
The veneer of civilization slipped away, to quote one memoir. You either kill or be killed, on a scale not seen since the Black Death wiped out half of Europe’s population. It’s one thing to be killed by disease; another to manufacture with industrial equipment the means to inflict mass death on a population by design.
It’s no wonder that following this war, humankind’s hold on the idea of fixed moral categories became tenuous at best. The claims made by the ruling class that this war was conducted for righteous reasons, complete with mandatory church attendance during training, came to be revealed very obviously as a tissue of lies.
“Each chief of the murderers causes his colors to be blessed,” wrote Voltaire, “and solemnly invokes God before he goes to exterminate his neighbors. If a chief has only the fortune to kill two or three thousand men, he does not thank God for it; but when he has exterminated about ten thousand by fire and sword, and, to complete the work, some town has been leveled with the ground, they then sing a long song in four parts, composed in a language unknown to all who have fought, and moreover replete with barbarism. The same song serves for marriages and births, as well as for murders.”
Every idealist hopes that humankind can learn from history. There is plenty of evidence that we do not. Voltaire failed to stop war, despite valiant efforts. Still, we must face history, even its most brutal chapters, if there is to be any hope of finding our way back to peace and civilization.They Shall Not Grow Old makes a mighty contribution to that goal.