TheChek News Flow

A rebound in global equities Friday saw no traction at the start of the week, with markets in Asia dropping on Monday and futures on European and U.S. stocks sliding. The pound slipped as a Brexit deal hung in the balance with just days to go until a critical deadline.

Equities in Japan and Hong Kong suffered among the biggest declines as a risk-off mood returned, following a weekend of warnings on global economic fragility from finance chiefs meeting at an annual IMF gathering. China’s stocks touched a four-year low. International Monetary Fund Managing Director Christine Lagarde advised to be ready for more market volatility, speaking after the worst sell-off in global stocks since February. China’s ambassador to the U.S., in a rare American Sunday TV appearance, said his nation didn’t want a trade war but will respond. Meanwhile, U.S. President Donald Trump threatened to impose another round of tariffs on China.

Treasuries nudged higher amid the cautious tone in markets, with the yield on the 10-year benchmark slipping to 3.15 percent. The yen pushed higher alongside gold prices. Oil climbed amid rising tensions between the U.S. and Saudi Arabia over a missing journalist.

Nikkei -1.87% Hang Seng -1.26% CSI -1.49% Shanghai -1.54% Shenzen -1.25%

Eur$ 1.1568 CNH 6.9258 CNY 6.9284 JPY 111.80 GBP 1.3121 RUB 65.7747 CHF 0.9897 TRY 5.8285

S&P -0.40% EuroStoxx -0.10% Dax-0.18% SMI -0.16%

- VIE FP : Veolia Wins Water Contracts Worth EU93M Cumulative Rev

* Alstom Upgraded to Buy at Deutsche Bank

Stocks sold off sharply this week, sending the S&P 500 lower by 4.1%. Fears over potentially weakening economic and earnings growth helped fuel the selling, which left stocks at three-month lows going into the third quarter earnings season. The Dow Jones Industrial Average lost 4.2% this week, and the tech-heavy Nasdaq Composite fell 3.7%. The International Monetary Fund (IMF) cut its 2018 and 2019 global growth outlook to 3.7% from 3.9% on Tuesday, citing trade uncertainties that include tariffs between the U.S. and China, a pending Brexit deal, and the new trilateral agreement between the U.S., Canada, and Mexico that's supposed to replace NAFTA. A third quarter earnings warning from specialty chemicals company PPG Industries (PPG) weighed on sentiment this week, dampening hopes of another strong quarter. Financial giants JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) kicked off the Q3 earnings season on Friday with mixed results; JPM and C beat bottom-line estimates, but WFC missed. The financial sector initially had a positive reaction to the earnings results on Friday, but later rolled over to close the week with a total loss of 5.6%. A curve-flattening trade in the bond market didn't bode well for lenders, which depend on the interest-rate differential between what they pay for deposits and what they make on loans.

The S&P 500 got into technical trouble this week, breaching its 50-day moving average on Wednesday and then its 200-day moving average on Thursday. The benchmark index tried to reclaim its 200-day moving average on Friday, but closed right at the key technical mark. The Dow Jones Industrial Average and the Nasdaq Composite breached their 200-day moving averages as well; the Dow eventually reclaimed the key technical level, but the Nasdaq did not.

VIX finished the week roughly 40% highe

Macro :

- EU Sherpas’ Brexit Meeting on Monday Said to Be Cancelled

- Saudi Stocks Sink as Trump, Kingdom Exchange Threats: Inside EM

- Italy’s League, Five Star Support Rises Amid Budget: Ixe Poll

- U.K. Homebuilders May be Pressured by Proposed Cap on Leases

Keep an eye on :

- ARL GY : Aareal Bank Targets Further Acquisitions: Euro Am Sonntag

- ALV GY : Allianz Joins Evolve to Launch Fixed-Income ETF in Canada

- BARC LN : Barclays to Offer U.S. Current Account: FT

- BT/A LN : Greenlight Bought ‘Medium Size’ Position in BT: Times

- CEC GY : Ceconomy Chief Executive Officer Pieter Haas to Leave Company

- DAI GY : Daimler to Offer Hydrogen Engines Across All Models by 2022: AMW

- DPW GY : Deutsche Post May Cut 1,400 Jobs, Bild Am Sonntag Reports

- EDP PL : EDP Says Capital Group Sold Remaining Stake on Oct. 10

- EQN LN : Equiniti eyed for 315-325p-per-share bid by GTCR

- FEVR LN : Fever-Tree engages Morgan Stanley to handle potential buyer

- GETIB SS : Getinge Makes SEK 1.8B Provision for Product Liability Claims

- KBX GY : Knorr Plans No Change on Supervisory Board, Thiele Tells FAS

- NG/ LN : Markey, Warren Question National Grid on Woburn, Mass. Incident

- NHY NO : Norsk Hydro Invests in 2 New Extrusion Presses in North America

- PNDXB SS : Pandox Buys Midland Manchester Hotel

- PSM GY : ProSieben Sees Web Portfolio Value Doubling in Five Years: FAS

- RWE GY : RWE Prepares For Massive Job Cuts, Rheinische Post Reports

- SAN FP : Sanofi’s Cerdelga Faces Patent Challenges: FDA

- FP FP : Total in Talks to Buy Stake in Adani LNG, City Gas Projects: PTI

Saudi stocks tumble as investors worry about economic fallout amid worsening ties between the kingdom and the international community

Saudi Arabia on Sunday threatened to retaliate against possible punitive measures after President Trump vowed “severe punishment” if an investigation proves the kingdom was behind the suspected death of a prominent Saudi journalist.

The Saudi government said that if economic sanctions or other forms of punishment were imposed on the kingdom, “it will respond with a larger action,” according to an official statement, which didn’t specifically mention the U.S. or any other country.

The statement also warned that the world’s top oil exporter “plays an impactful and active role in the global economy.”

In an apparent attempt to defuse tensions, the Saudi Embassy in Washington, D.C., later Sunday in a Twitter message said: “To help clarify recently issued Saudi statement, the Kingdom of Saudi Arabia extends it appreciation to all, including the US administration, for refraining from jumping to conclusions on the ongoing investigation.”

The earlier comments marked Riyadh’s strongest response so far to mounting international pressure over the mystery surrounding the disappearance of Saudi journalist Jamal Khashoggi, who was last seen entering the Saudi consulate in Istanbul on Oct. 2.

Turkish authorities believe Mr. Khashoggi, a government critic, was killed by Saudi hit men inside the consulate, and claim they have video and audio evidence to prove it. Saudi Arabia has vehemently denied the allegation, saying Mr. Khashoggi left the consulate and dispatching a security team to Turkey to help the investigation.

Despite the denials, the Saudi government remains under pressure to prove it did nothing wrong.

The Saudi reaction is exposing growing strains between the monarchy and its most important ally, the U.S., in what appears to mark the most significant clash between Riyadh and Washington since Mr. Trump came to office.

The Trump administration has made strengthening ties with the kingdom a priority of its Middle East strategy, partnering with Riyadh to confront religious extremism, to curb the influence of a common foe, Iran, and to try to broker an end to the Palestinian-Israeli crisis.

Even as Mr. Trump remained steadfast in his support for the Saudi leadership, the bilateral relationship hasn’t always been smooth. The president was recently critical of Saudi Arabia’s oil policy, calling it to lower global prices. There has also been growing opposition on Capitol Hill to the kingdom’s conduct of the war in Yemen over civilian victims.

Mr. Trump, in an interview with “60 minutes,” portions of which were broadcast Saturday, said he would be “very upset and angry” if the allegations prove true, and vowed there would be consequences.

But he also said he opposed sanctions against the U.S. ally because it may hurt jobs in the U.S. tied to a $100 billion arms deal with the kingdom.

Capitol Hill has been pressuring the Trump administration to rethink its close partnership with the Saudi leadership in light of Mr. Khashoggi’s suspected killing. Bipartisan lawmakers have raised the possibility of halting arms sales and of imposing economic sanctions on the kingdom.

They triggered an investigation by the Treasury Department’s Office of Foreign Assets Control to determine potential human rights violations under the Global Magnitsky Human Rights Accountability Act. The law gives the U.S. president 120 days to determine whether a foreign national is behind an extrajudicial killing, torture or other human-rights violation of someone exercising freedom of expression. If found guilty, it would lead to sanctions.

The foreign ministers of the U.K., France and Germany on Sunday ramped up pressure as they called for a credible investigation to determine what happened to Mr. Khashoggi, and to hold accountable those responsible.

“We encourage joint Saudi-Turkish efforts in that regard, and expect the Saudi government to provide a complete and detailed response,” they said in a joint statement, adding they already conveyed this message to Saudi authorities.

In its statement, Saudi Arabia said it rejected any attempt to undermine it through political pressure or by threatening to impose sanctions.

But it remains unclear what action Saudi Arabia would take if Washington does impose penalties. It is unlikely to cancel the arms deal while at war in a highly charged region. Saudi Arabia could raise the price of oil it sells to the U.S., but any attempt to influence market prices will also impact its other buyers.

The diplomatic crisis could impact investments. Saudi Arabia, most recently through its sovereign-wealth fund but also through Kingdom Holding, the company of tycoon Prince al-Waleed bin Talal, has been pumping billions of dollars into U.S. tech companies such as Uber and Snapchat Inc. U.S. banks including Citi and J.P. Morgan meanwhile, have expanded in Saudi Arabia.

“If U.S. sanctions are imposed on Saudi Arabia, we will be facing an economic disaster that would rock the entire world,” Turki al-Dakhil, a prominent Saudi commentator, wrote in a column on Sunday for the website of the state-aligned Al Arabiya news channel. “Riyadh is the capital of its oil, and touching this would affect oil production before any other vital commodity.”

Saudi Arabian stocks tumbled Sunday as investors worried about the impact of the growing international pressure, and particularly tensions with the U.S., analysts say. The Riyadh-based Saudi Stock Exchange’s benchmark Tadawul All Share Index closed 3.5% lower, after falling nearly 7% at one point.

Investors and business executives say the allegation of Saudi involvement in Mr. Khashoggi’s disappearance, if proven true, is likely to sour interest in the kingdom and derail an ambitious plan by Crown Prince Mohammed bin Salman to diversify the country’s economy away from oil.

Already, dozens of Western executives have pulled out of Riyadh’s premier business conference later this month, including Uber Chief Executive Dara Khosrowshahi, whose company is partly owned by the kingdom’s sovereign-wealth fund. Media partners such as CNN, Bloomberg and the New York Times also withdrew support for the conference, the Future Investment Initiative, dubbed “Davos in the Desert.”

Among the planned speakers for the Oct. 23-25 conference who also have decided not to attend are AOL co-founder Steve Case, Viacom CEO Bob Bakish, and media executive Arianna Huffington.

At least four people listed as members of the board of Prince Mohammed’s most ambitious economic transformation project—a $500 billion futuristic city on the Red Sea called Neom—said they would not work on the project, at least for now. They include former U.S. Energy Secretary Ernest Moniz.

Richard Branson, the British entrepreneur, said he would give up two directorships related to Saudi tourism projects and would suspend talks with Saudi Arabia about its proposed $1 billion investment in his Virgin Orbit and Virgin Galactic space ventures.

CSU vote collapses to 36.2% while Greens surge to 18.1%, according to projections

Voters in Germany’s powerful southern state of Bavaria on Sunday delivered a stunning rebuke to the ruling Christian Social Union, in an election that underscored the evaporation of support for the parties in Angela Merkel’s grand coalition in Berlin. 

The CSU, which has ruled Bavaria continuously since 1957, saw its share of the vote collapse from 47.7 per cent in the last election five years ago to 36.2 per cent, according to projections from ZDF television, as voters defected in their droves to the Greens and the far-right Alternative for Germany.

Speaking to supporters in the Bavarian parliament, Markus Söder, the state’s CSU prime minister, said it was a “painful result”, though the party had been given a “clear mandate” by voters “to form a stable government”. Robert Habeck, the Green leader, said the people of Bavaria had “voted for change”.

The campaign was dominated by the divisive issue of immigration, in a sign of how the shockwaves from Ms Merkel’s fateful decision to let in more than a million refugees in 2015-16 are continuing to reverberate through German politics and to reshape the party landscape. 

Alarmed by the rise of the anti-Islam AfD, the CSU tried to outflank them by talking tough on immigration and picking fights with Ms Merkel over asylum policy. But the strategy appeared to have backfired spectacularly by alienating tens of thousands of moderate CSU voters and driving them into the arms of the Greens.

The result confirmed the Greens’ status as the rising force in German politics. Running on a platform of open borders, liberal social values and the fight against climate change the party’s support surged to 18.1 per cent, from 8.4 per cent in 2013. Meanwhile the AfD won 10.9 per cent.

“This is an earthquake for Bavaria,” said Jürgen Falter, a political scientist at the University of Mainz. The CSU had governed the state with an absolute majority for most of the past 60 years. “It was Bavaria and Bavaria was the CSU. That is now no longer the case.”

It was a dismal night not only for the CSU but also for the left-of-centre Social Democrats (SPD), whose share of the vote collapsed to 9.6 per cent, from 20.6 per cent five years ago. SPD leader Andrea Nahles described the result as a “bitter defeat”.

The disastrous performance of both the CSU and SPD highlights the shaky ground the grand coalition in Berlin now rests on. All three parties in the alliance, Ms Merkel’s Christian Democratic Union, the CSU and the SPD, are haemorrhaging support. “[They are all] in decline now,” said Jörg Meuthen, a senior AfD politician.

Some are now questioning whether the coalition, already frayed by personal rivalries and near constant bickering over policy, can survive a full term in office. 

“This outcome throws ever more doubt on the future of the grand coalition,” said Heinrich Oberreuter, head of the Passau Journalism Institute and an expert on the CSU. “Based on current polls, if an election were held now, the CDU, CSU and SPD would not even command a majority in the Bundestag.”

Ms Nahles blamed the SPD’s drubbing on the row which blew up during the summer between the CDU and CSU over asylum policy and which brought the coalition government to the brink of collapse. “We could not free ourselves from this factional dispute, and as a result there was no momentum from Berlin” to help the Bavarian SPD, she said. 

The result could lead to a shake-up of Ms Merkel’s cabinet. Horst Seehofer, the CSU party chairman and interior minister, could come under pressure to resign both posts, triggering a government reshuffle. 

Mr Seehofer was the chief protagonist in the CDU/CSU bust-up over the summer, which many in the CSU blame for the slump in the party’s fortunes. But he has no clear successor as party chairman, and his resignation could set off an intense power struggle between pretenders to the CSU throne.

Markus Söder, who played a key role in the summer revolt against Ms Merkel and the CDU, could also face calls for his resignation, though most experts think he will survive since he has the solid backing of the CSU group in the Bavarian parliament.

The CSU will be forced to form a coalition government — a humiliating outcome for a party that has run Bavaria single-handedly for 49 of the past 54 years. 

Its preference will be for a coalition with the Free Voters, a small party that is mainly focused on local politics. ZDF projections showed that such an alliance would command a narrow majority of seats. 

The CSU could also team up with the Greens, though it would be highly reluctant to do so: the two parties are deeply divided over immigration, transport and environmental policy.