FIG Topics of Interest



U.S. stock funds bled $27.6 billion in the days through Dec. 12, which includes last Friday’s plunge in the S&P 500 Index that capped the worst week for the gauge since March, according to BofA’s note, which cited EPFR Global data. This is the second-biggest redemption since February’s spike in the VIX volatility measure, according to Jefferies Financial Group Inc.
Instead of U.S. equities, market players flocked to Japanese and emerging-market equity funds, as well as government bonds as global equity funds saw a record weekly outflow of $39 billion, according to BofA. Investment-grade bond funds also set a historical precedent with an $8.4 billion redemption, the data show.

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The data breach lasted four years, and the intruders stole information about 500 million customers. On Tuesday, The New York Times reported that investigators had traced the hack back to the Chinese government, calling it part of a broader intelligence-gathering operation. Reuters had previously reported Chinese involvement.
But back in 2015, the Obama administration struck a data-theft deal with Chinese President Xi Jinping, agreeing that neither country would steal personal information of the other’s citizens. 

The Marriott breach would have crossed right through that timeline. If it can indeed be attributed to China, it would give the Trump administration more leverage for its position that China has not been acting in good faith on cybersecurity.

“The agreement was struck very quickly at a time when the U.S. was threatening retaliation over IP theft, and President Xi Jinping was traveling to D.C. for a summit with President Obama,” recalled Robert Silvers, who helped sign the deal in his prior role as assistant secretary for cyber policy at the Department of Homeland Security.

“There was leverage there, and we capitalized on that leverage.”

The deal was informal and didn’t impose significant consequences on either party for not complying. It called for more communication and cooperation over investigating cybercrimes between the two countries, in addition to prohibiting either side from stealing intellectual property or trade secrets from the other.

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The U.S. Congress, facing a Friday deadline for approving about $450 billion in funding for several government agencies or forcing them into a partial shutdown, is steering toward a two-week extension as President Donald Trump and Democrats argue over border wall funding.
Without action by Congress, federal agencies including the Department of Agriculture, State Department and Department of Homeland Security would find themselves without any money to pay employees and administer programs through the fiscal year that ends next Sept. 30.

Trump has demanded $5 billion for this year as part of his plan to build a wall on the border with Mexico that Democrats argue would be ineffective at keeping out illegal immigrants and illicit drugs.

Instead, Democrats want to continue improving less costly fencing and employing high-tech instruments to detect illegal border crossings.

If at any point Congress and Trump cannot agree on legislation to keep the government agencies running, essential services, such as the FBI and other federal law enforcement, would continue.

But some vital programs would have to be suspended until the money dispute was resolved.

For example, visitors most likely would not be admitted to national parks, some Securities and Exchange Commission and Internal Revenue Service activities could be curtailed, as well as some Justice Department programs.

Funding already is in place for many agencies, such as the Defense Department.

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Canada’s largest oil producing province ordered an unprecedented output cut, an effort to ease a crisis in the nation’s energy industry and adding to global actions to combat a recent price crash.

The plan announced Sunday will reduce production of raw crude and bitumen from Alberta by 325,000 barrels a day, or 8.7 percent, from January until excess oil in storage is drawn down. The reduction would then drop to 95,000 barrels a day until the end of next year at the latest.
Alberta Premier Rachel Notley is following the advice of producers like Cenovus Energy Inc. and Canadian Natural Resources Ltd., which have been hammered by record low prices for heavy Canadian crude, which at one point were $50 a barrel less than U.S. grades. The crisis has caused some producers to reduce production on their own, slash dividends and delay next year’s drilling plans.

“Every Albertan owns the energy resources in the ground, and we have a duty to defend those resources,” Notley said in a statement. “But right now, they’re being sold for pennies on the dollar. We must act immediately, and we must do it together.”

The amount being cut is more than the total production of each of OPEC’s three smallest members: Equatorial Guinea, Gabon and the Republic of Congo.

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"Chinese growth is still slowing and suggests that more vigorous policy stimulus is likely required to help stabilize it," said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. That’s particularly so "if there is no breakthrough with the U.S. on trade soon."
Manufacturing output prices plunged in November, dropping to 46.4 from 52 a month earlier , while input prices fell to 50.3 from 58. That "cliff-drop" points to a further weakening of industrial profitability and manufacturing investment growth going forward, said economists led by Eva Yi at China International Capital Corp. in Beijing in a note.
"Domestic demand leading indicators are collapsing in China," they wrote, adding that stabilizing that demand "should be taken as the top priority for cyclical management right now, where delays in proper policy adjustments may lead to further pain later."
The cooling property market in November weighed on construction, according to Liu Xuezhi, an economist at Bank of Communications Co. in Shanghai. Construction activity dropped to 59.3 from 63.9 last month, but Liu says the faster expansion of new orders and business activity expectations indicate a potential increase in building work.

The next key event to watch is the Central Economic Work Conference that’s likely to be held in mid-December, according to Bank of America Merrill Lynch economists led by Helen Qiao. Should Xi and Trump fail to reach a trade deal this weekend, Chinese policymakers are expected to roll out more easing measures to shore up growth, they said.

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US Trade Representative Robert Lighthizer said on Wednesday that he was examining all available tools to raise U.S. tariffs on Chinese vehicles to the 40 percent duties that China is now charging on U.S.-produced vehicles.
Automotive duties on both sides have been increased by tit-for-tat tariffs. The United States imposed a 25 percent tariff on Chinese vehicles on top of the 2.5 percent it normally charges. China had lowered tariffs for all other countries to 15 percent, but imposed an additional 25 percent retaliatory tariff on U.S. vehicles.
"As the President has repeatedly noted, China's aggressive, State-directed industrial policies are causing severe harm to U.S. workers and manufacturers," Lighthizer said. "We are continuing to raise these issues with China. As of yet, China has not come to the table with proposals for meaningful reform."

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“Capex is the No. 1 story,” said David Woo, head of global rates and foreign exchange strategy at Bank of America Corp. “There are hundreds of data points coming out every month but that’s the one that I watch,” and bond traders should too.
The trade war and likely political gridlock after the midterm elections pose “the biggest uncertainty for capex and therefore U.S. rates and the U.S. dollar,” said Woo, who’s analyzed the economy and markets for almost a quarter century.
While few expect capex to collapse, there’s a growing debate over business investment, which encompasses spending on equipment, on structures such as factories and offices, and on intellectual property and software.
What Our Economists Say...

While recent data suggest that soft investment in the third quarter may carry over into this quarter or even the beginning of next year, the outlook for investment in 2019 is still positive. The supply-side impact from tax cuts has so far not materialized. But consumer demand is expected to remain above trend, and the economy continues to rub up against capacity constraints, signaling that business investment should gain steam next year.
-- Tim Mahedy, Yelena Shulyatyeva and Carl Riccadonna, Bloomberg Economics
“I don’t count business investment as down and out,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “But there are a lot of uncertainties about next year,” so the expansion “could slow more than anyone is expecting.”

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Ukraine’s parliament will vote on whether to impose martial law after Russia fired on its warships Sunday. Several sailors were wounded in the clash, which sparked the dramatic renewal of tensions between the ex-Soviet neighbors in the Kerch Strait, near Crimea, which President Vladimir Putin seized with his military four years ago.
President Petro Poroshenko has submitted his decree on martial law, which parliament is set to debate starting at 4 p.m. in Kiev. The text reveals that the measure would cover the whole country, not just regions in the immediate area of the long-standing conflict with Russian-backed fighters. It would begin Monday and remain until Jan. 25.
The decree also calls for a partial military mobilization, air defense of major government sites, industrial areas and troops, and heightened border security. One clause is marked secret and its details won’t be released to the public.
Russia was reacting to “an incursion into the territorial waters of the Russian Federation by foreign warships,” which refused to respond to requests from border guards, Kremlin spokesman Dmitry Peskov told reporters on a conference call. The Russian ships acted strictly in accordance with domestic law, he said.
Russia’s annexation of Crimea -- and the waters around the peninsula that include the Kerch Strait -- hasn’t been recognized on the international stage.

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The U.S. government is trying to persuade wireless and internet providers in allied countries to avoid telecommunications equipment from China's Huawei Technologies, the Wall Street Journal reported on Thursday.

U.S. officials have reached out to their government counterparts and telecom executives in friendly countries where Huawei equipment is already in wide use about what they see as cybersecurity risks, according to the WSJ report , which cited unnamed people familiar with the situation.

Huawei has come under scrutiny in the United States recently.

Intelligence agency leaders and others have said they are concerned that Huawei and other Chinese companies may be beholden to the Chinese government or ruling Communist Party, raising the risk of espionage.

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“The Permian will continue to grow and OPEC needs to learn to live with it,’’ said Mike Loya, the top executive in the Americas for Vitol Group, the world’s largest independent oil-trading house.

The U.S. energy surge presents OPEC with one of the biggest challenges of its 60-year history. If Saudi Arabia and its allies cut production to keep prices higher, shale will thrive, robbing them of market share. But because the Saudis need higher crude prices to make money than U.S. producers, OPEC can’t afford to let prices fall.
An infestation of dots, thousands of them, represent oil wells in the Permian basin of West Texas and a slice of New Mexico. In less than a decade, U.S. companies have drilled 114,000. Many of them would turn a profit even with crude prices as low as $30 a barrel.

So the cartel finds itself squeezed between the-sky’s-the-limit U.S. output and softer demand growth. The 15 members, and allies including Russia, Mexico and Kazakhstan, will discuss the possibility of their second retreat from booming American production in three years when they gather Dec. 6 in Vienna.

OPEC helped create the monster that haunts its sleep. After it flooded the market in 2014, oil prices crashed, forcing surviving U.S. shale producers to get leaner so they could thrive even with lower oil prices. As prices recovered, so did drilling.

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