(ZH) "Why Does Extraordinarily Low Volatility Matter" Baupost Explains...

"Why Does Extraordinarily Low Volatility Matter" Baupost Explains...

With elites increasingly sounding the alarm about the state of the stock market, and various market participants fearing the complacency is masking the fragility of the market's true character; it is no surprise that Baupost's recently named President and Head of Public Investments, Jim Mooney, has joined the chorus.
While Mooney (and Klarman's) warning regarding market volatility is not new, perhaps the most interesting nuance is the 'difference this time'.
Confirming JPMorgan's Marko Kolanovic's concern that "we may be very close to a tipping point" as he explained that "low volatility would not be a problem if not for strategies that increase leverage when volatility declines," Baupost's Mooney explains that crucial market structure differences between current times and the 2008 market crash could lead to an exacerbation of any stock market price readjustment.
A Period of Subdued Volatility


"Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits." — Hyman Minsky
...Realized (actual) and implied (anticipated) volatilities hover near their lowest levels ever. The most commonly referenced measure of equity market implied volatility, the VIX has traded at an average of 11 since late April. To put this level in context, since 1990 when the VIX was first created, the index has closed below 10 on only 16 days; seven of those days have been since May 1, 2017. The average closing of the VIX between 1990 and 2016 was about 20 versus a 2017 year-to-date average of roughly 12. Similarly, realized SPX 500 volatility has fallen, with the one and six month levels both at seven. ON these measures, 2017 is the least volatile year since 1965.
Not surprisingly, there is a fair bit of commentary attempting to justify today's historically low levels. The most prominent explanation is that the low realized volatility, which results when asset prices march steadily upward with very few interruptions, naturally causes quantitative models to predict a continuation of subdued volatility, i.e. low implied volatility. Some suggest that dampened market fluctuations result from the consistent bid for equities provided by capital flows into passively managed index finds. Many cite limited realized volatility in underlying U.S> and global economic measures such as economic growth and inflation and conclude we are in a new era of stability. Finally, there is the abiding view that central banks will reliably deploy accommodative monetary policy to arrest any downward market moves.
These explanations almost certainly contain elements of truth, but it is hard not to see a bit of sophistry as well. While there may be a mathematical answer for why volatility is low when nearly every financial asset trades at all-time highs, common sense might suggest the opposite conclusion.
Why does extraordinarily low volatility matter?
The answer lies in volatility influence on risk-taking and, by extension, leverage. In any elevated market, one very important thing to identify is where leverage exists in the system — both that which is obvious and more perniciously, that which is hidden. While leverage is not directly responsible for every financial disaster, it usually can be found near the scene of the crime. Structural leverage linked to low realized volatility may well prove destabilizing and the precipitant, or at least an accelerant, for the next financial crisis. Realized volatility is a critical reference point for a substantial amount of investment activity. For many investors, the level of market volatility determines the level of risk incurred both in their portfolios as well as in many investment products. The lower the volatility, the more risk investors are willing to or, in some cases, required to incur.
Specifically, realized volatility is the essential input for Value-at-Risk (VaR) calculations, and determines the degree of leverage incorporated in a variety of quantitative and structured investment strategies. For instance, the models used by both risk parity and volatility targeting funds, which use volatility levels to determine asset allocations, have been signalling "risk-on" for some time. This has resulted in steadily increased portfolio leverage as realized volatility has fallen across asset classes. Additionally, certain structured short-volatility ETFs have algorithm-based selling and buying programs that automatically lever up and, critically,d own based on realized volatility.
Over the last several years, one of the most reliable winning betes has been shorting volatility in just about any asset class. Investors have generated significant returns with high Sharpe ratios by capturing the spread between higher implied volatility and lower realized volatility. As realized volatility has remained low, profits have mounted and assets deployed in these volatility-targeting and short-volatility trades have grown tremendously. However, it is hard to ignore that this strategy becomes less and less attractive as the absolute level of volatility declines and the spread between implied and realized volatility falls. As the saying goes, "what a wise man does in the beginning, a fool does in the end "
Although it is impossible to calculate with precision, the volume of assets whose performance is, in some manner, linked to volatility likely runs into the hundreds of billions of dollars. As such, any spike in equity markets realized volatility, even to historical average levels, as the potential to drive a significant amount of equity selling (much of it automated). Such selling would, in turn, further incresae volatility which would call for more de-leveraging and yet more selling.
We cannot know whether a dramatic increase in volatility is imminent or even inevitable, nor can we be certain that a spike in volatility would have cataclysmic results...although it certainly could. One thing, however, is for sure: anyone who is directly or indirectly shorting volatility at the current lows is betting current benign environment will persist. Our experience would suggest that, "benign" and "persist" are not words normally associated with one another.
In addition to our areas of regular focus, we have exposure to hedges designed to help protect the portfolio from a sustained change in the volatility environment.
Mooney concludes, rather ominously...


"As has been the case for longer than we would have imagined, we remain in a market that is broadly expensive and largely indifferent to risk.

This continues to be a time for patience and, above all, caution. If there is anything to be taken from Hyman Minksy's words, it is that no one should be lulled into a false sense of comfort by the illusion of stability which surrounds us... We most assurdely, are not"
And if one wants a picture of what that looks like, Morgan Stanley recently explained...A violent rise in volatility could be driven by just a 3% to 4% one-day S&P 500 selloff. Right now the risk is greatest in the VIX complex, and demand for VIX futures from three main sources could result in 100,000 contracts ($100mm vega) to buy in a down 3.5% SPX move. For context VIX futures ADV over the last year is 230,000 (although has risen to as high as 700,000 in big selloffs).

    (ZH) Iceland Could Be About To Experience A Major Volcanic Eruption

    Iceland Could Be About To Experience A Major Volcanic Eruption


    by Tyler Durden
    Jul 31, 2017 2:00 AM
    TwitterFacebookReddit

    Iceland’s largest volcano, Katla, was just moved to yellow status.
    But that isn’t all that’s concerning. There have also been over 500 earthquakes in Iceland in the last four days.
    Experts now believe that a volcanic eruption that could be quite large, may soon occur in Iceland. A series of 40 small earthquakes occurred just North East of Mount Fagradalsfjall two days ago, with the final one felt in Reykjavik, measuring at almost 4 on the Richter scale. Following tremors at Katla in South Iceland and a glacial river flood in Múlakvísl, the Icelandic Met Office has raised the status of the famous volcano on its “Aviation Colour Code Map for Icelandic Volcanic Systems” from green to yellow. People have even been warned to stay away from the Múlakvísl River because of the odor of sulfur.


    An earthquake of the magnitude of 3 occurred in the Katla caldera at 00:48 last night followed by a series of smaller tremors. The seismic unrest could be connected to the glacial river flood and not connected to a possible eruption at all but the Iceland Met Office cannot be certain at this point.

    Alert code yellow means that the volcano is active but that nothing points to an immenent eruption. If the colour code moves up to orange it means that the volcano is increasing its activity and an eruption is becoming likely. –Iceland Monitor
    “It’s quite normal for Reykjanes, there have been a series of quakes there in the past few years,” the Met Office commented. And according to a post on volcano enthusiast site Volcanocafé, eruptions occur in Iceland every three to seven years.
    “We have never seen a large powerful intrusion at a Mid Oceanic Ridge at such a well-instrumented place,” Carl Rehnberg wrote on Volcanocafé. “We now know that the initial swarm rapidly transformed from tectonic earthquakes, via volcano-tectonic, to earthquakes consistent with moving magma in a surprisingly short timeframe. As such this is turning into a potential eruption or a state of volcanic unrest.” Rehnberg believes that a major eruption could be just hours away. If, however, the “current unrest” stops, there will be no eruption.
    But, he explains, “At the intensity and force of the current seismic unrest, it is likely that an eruption will occur if the seismic crisis is prolonged.”
    Rehnberg speculates that there is a 50 percent chance of an eruption, and that chance is increasing by the hour. But the Icelandic Met Office, who are currently not concerned about a major volcanic eruption, citing the recent seismic activity as “normal for an active region”.
    As a reminder, in response to concerns that volcanic ash ejected during the 2010 eruptions of Eyjafjallajökull in Iceland would damage aircraft engines, the controlled airspace of many European countries was closed to instrument flight rules traffic, resulting in the largest air-traffic shut-down since World War II.

      (ZH) Low Volatility Will Make The Next 5% Drop In The Dow "Feel Like 1987"

      Low Volatility Will Make The Next 5% Drop In The Dow "Feel Like 1987"

      The VIX has recently flirted with its all-time closing low, analysts worry that volatility has been so low for so long that analysts are worried that the next sizable negative shock will cause investors to panic and dump their holdings.
      Other than a handful of selloffs over the past couple of years (Aug. 2015, Jan. 2016, June 2016), Federal Reserve-led easing has guided markets steadily higher since the crisis. As MarketWatch reports, The Dow hasn’t experienced a 5% drop since 2011, and before that a 5% drop hadn’t happened since 2008, when there were 9 such drops. The blue-chip index closed at a record high on Friday, leaving it just 200 points shy of 22,000. At this level, a 5% selloff would equate to a 1,100-point, one-day slide in the gauge - an eye-popping four-digit drop.
      Art Hogan, chief market strategist at Wunderlich Securities, says the market isn’t prepared for a large selloff because "garden-variety" volatility has been largely absent from US stocks for the last year.


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

      'Quiet markets have been the norm and not the exception and I think a major pullback is going to feel a whole lot larger for lack of experience and the numbers are larger,' he said.”
      Hogan isn’t the first strategist to point out the market’s vulnerability to a sharp rise in the VIX. As Morgan Stanley’s Chris Metli said in a research note exploring what a “short vol unwind” might look like. Low volatility has produced a regime where the risks are asymmetric and negatively convex, so being prepared for an unwind is critical, since a 3% or 4% move in the S&P 500 can have a disproportionately large impact on the VIX as dealers and exchange-traded products rush to hedge.
      According to Marketwatch and Dow Jones data, even a 2.5% drop in the Dow, adding up a 550-point decline, could rattle investors. Moves of this magnitude, while still relatively rare, are far more frequent, with 564 such moves occurring in the Dow since 1901. The most recent slump of this magnitude occurred on June 24, the day after the Brexit vote, when the Dow tumbled about 610 points, or 3.4%. There were three such moves in 2015. The S&P 500 is also long overdue for a major pullback.
      As for the S&P 500, 61 of the past 67 years have seen at least one 5% drop, or 91% of all years,according to Ryan Detrick, senior market strategist, at LPL Financial.


      "‘The inevitable 5% drop will be a shock to nearly everyone,’ Detrick said. ‘We’ve been historically spoiled so far this year, but as the economic cycle ages, we fully expect more volatility the remainder of this year and the likely 5% correction to take place as well,’ he said.”
      Still, it’s important for investors to remember that while a 5% might “feel like 1987,” it’s necessary to “flush out the weak hands,” Detrick says.


      “The important thing to remember is the Fed is still accommodative, earnings continue to improve globally, and inflation is contained - meaning any pullback could be a nice opportunity to add equity exposure.

      Although a 5% correction might feel like 1987 to some of us about now, pullbacks and volatility are perfectly normal parts of bull markets and are needed to flush out the weak hands.”
      Market luminaries including billionaire investor Howard Marks and Nobel Laureate Robert Shiller have warned investors to be cautious. According to Shiller’s CAPE ratio, a popular measure of equity valuations, S&P 500 valuations are at levels only seen twice before: in 1929 and 2000. Shiller said on CNBC Thursday that he “lies awake worrying” about how long this period of quiet will last. Doubleline Capital founder Jeff Gundlach said his fund bought up VIX calls when the index hit its most recent lows.
      To be sure, investors are willing to pay a premium for protection. According to Bank of America, the market has never "trusted" the VIX as little as it does now, and has never before been willing to pay, and bet, more for upcoming imminent sharp moves.

        >>> Ducati sale does not have majority backing of VW group works council (transl

        Ducati sale does not have majority backing of VW group works council (translated)
        31 JUL 2017
        The prospective sale of Italian motorcycle company Ducati does not have the backing of a majority of the Volkswagen (VW) [ETR:VOW] group works council, Frankfurter Allgemeine reported.
        The German daily cited a works council spokesperson who said VW does not need the money and units will not be sold to bargain hunters. The spokesperson said Ducati, gear manufacturer Renk, and engine manufacturer MAN Diesel&Turbo [MANG:DE] will not be sold.
        The VW owning families Porsche and Piech are also thought to be against a sale of Ducati and Renk, the report stated, citing VW group sources. The works council controls half of the 20 seat board, with Porsche and Piech holding four seats. A spokesperson for Porsche SE declined to comment, the report added.

        >>> Mitsubishi Heavy officially agrees with EDF, AREVA to acquire 19.5% stake in

        Mitsubishi Heavy officially agrees with EDF, AREVA to acquire 19.5% stake in New NP
        31 JUL 2017
        Mitsubishi Heavy Industries, Ltd. [TYO:7011] officially agreed with Electricité de France (EDF) and AREVA Group to acquire a 19.5% stake in New NP, a new company to be launched as an affiliate of EDF, the Japanese heavy engineering company said in a statement filed to the Tokyo Stock Exchange.
        Stock Exchange Announcement
        Mitsubishi Heavy Industries, Ltd. (MHI) has taken a formal decision to invest in New NP, a new company to be launched as an affiliate of Electricité de France (EDF), a leading French utility, in conjunction with reorganization of France's AREVA Group, all-round specialists in nuclear energy. Agreements on the investment have been concluded with both EDF and the AREVA Group.
        MHI will acquire a 19.5 percent equity stake in New NP. The move will expand ties between MHI and EDF, the world's largest operator of nuclear power plants (NPPs) benefiting from a broad experience in project development and international cooperation on the basis of the EDF group's integrated organization, engineering skills and lessons learned, and with New NP, designer and manufacturer of nuclear equipments, products (including fuel) and systems. It is aimed at establishing a global structure for the provision of the most sophisticated nuclear power generation technologies that excel in both safety and reliability.
        Since September 2015 MHI had been mulling investment into AREVA NP, a company in the AREVA Group that has long undertaken the design and manufacture of equipment for NPPs, as well as actual plant construction and fuel supply. However, in the framework of the reorganization of the AREVA Group, AREVA NP will now become an EDF affiliate under a temporary new name: New NP. In its new position, New NP will specialize in profit-making after-sale servicing and fuel supply for existing NPPs, as well as engineering and equipment manufacturing of nuclear reactor. MHI has thus taken the formal decision to invest in the newly launching New NP.
        In taking the investment decision, MHI President and CEO Shunichi Miyanaga offered the following comment: "For many years MHI has been a key player in cooperation between Japan and France in the development of nuclear power generation technologies, and we have high hopes and expectations that this new structure will deepen and expand our ties of cooperation. With this new initiative, we will strive all the more vigorously to further improve technologies to ensure the safety and reliability of nuclear energy and to foster nuclear energy's widespread adoption in the global market as a leading choice that can resolve the globally shared issues of reducing greenhouse gas emissions and achieving stable supplies of energy."
        Cooperation between MHI and the AREVA Group began in the 1990s through collaboration in the fuel cycle business. In 2006 the two parties concluded an agreement of more broad-based cooperation in the nuclear energy field, after which the joint venture (JV) ATMEA was established through a fifty-fifty investment with the partner currently known as AREVA NP. Through integration of the two companies' technologies, the JV proceeded to develop the "ATMEA1," a pressurized water reactor (PWR) in the 1200 megawatt (MW) class providing the world's highest levels of safety, reliability and seismic capacity. Marketing of the ATMEA1 is currently underway in Turkey and other countries worldwide, especially emerging economies, where new NPP construction plans are going forward.
        EDF is the world's largest provider of nuclear energy, currently operating a total of 73 NPPs in France and the UK. To date MHI has received orders for 15 replacement steam generators for EDF's plants, and today close, strong ties of cooperation continue to be forged between the two companies. In June 2016 a memorandum of understanding (MOU) was concluded toward MHI and EDF's cooperation in the nuclear energy field; it calls for EDF's marketing, technological and other support of ATMEA's business, plus broad-based cooperation in the global markets making use of the two companies' technological capabilities and specialized strengths.
        MHI's investment into New NP was decided with intent to strengthen the ties between Japan and France in the nuclear power industry based on these close relationships of cooperation with the AREVA Group and EDF.
        MHI will continue to coordinate with EDF and the AREVA Group toward the closing of the transaction. All procedures are slated to be completed at the end of the current calendar year.
        In another move involving the AREVA Group, MHI is also scheduled to acquire a 5 percent equity stake in New AREVA Holding (formerly referred to as "NewCo"), a company conducting business primarily in fuel cycle. In this case also, all procedures will continue to go forward toward targeted completion at year end.

        FT : HSBC shares rise 3% on new share buy-back pledge

        Hong Kong-listed shares in HSBC Holdings rose as much as 3 per cent on Monday after the bank pledged a new share buy-back of up to $2bn.

        Shares jumped to as much as HK$78.75 early in the afternoon session after the bank raised its total buy-back figure to $5.5bn, exceeding many analysts’ expectations.

        The increased buy-back plan for this year came alongside promising results for the first half, during which adjusted pre-tax profit came in at $12bn, up 12 per cent and beating analysts’ consensus forecast.

        Earnings per share of 35 cents also beat forecasts.

        Shares were still up 2.8 per cent at HK$78.60 as the afternoon session progressed, with the benchmark Hang Seng index up 1 per cent.

        >>> What to look at today = 31st of July 2017

        Markets kick of the week mixed, over the weekend Venezuela held a vote that saw many dead, including a candidate, amid Venezuela protests during election for new legislative body that will reform constitution.US said to be considering oil-related sanctions against Venezuela, which could be announced by as early as today; not expected to include ban on Venezuelan oil shipments to the US. This saw crude futures rise as high as $50/bbl. China July official manufacturing PMI came in at 51.4 slightly lower than expected and non-manufacturing PMI 54.5 also shy of expectations. Sub-component for construction rose to a high not seen since Dec 2013. China iron ore futures rose 7% early in the session; the strength in iron ore also pushed the major names in Australia higher. Yen again pushed higher keeping pressure on the equities markets despite earnings season being in full swing. North Korea missile launch showed that it may be within striking range of US cities. South Korea and the US held a joint missile drill over the weekend. Elsewhere in geopolitical news Russia president Putin declared that Russia would kick out over 750 US diplomats by the end of Sept in retaliation to new sanctions.

        Nikkei -0.02% Hang Seng +0.99% CSI +0.49% Shanghai +0.57% Shenzen +0.56%

        Eur$ 1.1743 CNH 6.7289 CNY 6.7259 JPY 110.50 GBP 1.3127 CHF 0.9683 RUB 59.5851 WTI$ 49.91 +0.40%

        S&P -0.09% EuroStoxx +0.06% Dax +0.08% FTSE +0.13% SMI -0.02%

        Macro :
        - Kim Jong Un Says Entire U.S. in Range of North Korea’s ICBM
        - OPEC to Meet With Non-OPEC to Discuss Weaker Cuts Compliance
        - BOE to Cut Growth Forecasts as Rate-Increase Chances Diminish
        - Pimco Attracts Almost $50B to Funds in 6 Mos Ended in June: FT

        Keep an eye on :
        - ADP FP : Vinci Wants to Increase Stake in ADP, Les Echos Reports
        - AF FP : Air France Labor Union Calls Strike at De Gaulle Airport: Info
        - ALV GY : Pimco Attracts Almost $50B to Funds in 6 Mos Ended in June: FT
        - AZN LN : AstraZeneca CEO Says Brexit Uncertainty Slows Decisions: FT
        - BAS GY : BASF Upgraded After Shares Drop on 2Q Results, Berenberg Says
        - GBB FP : Bourbon Finalizes Debt Rescheduling Announced in March
        - BP/ LN : BP is Said In Talks to Offload More Oil Fields: Sunday Telegraph
        - CGG FP :CGG Says Lenders’ Committee, Bondholders Approve Safeguard Plan
        - CNP FP : CNP Assurances First Half Net Income EU657 Mln
        - CBK GY : Cerberus Seeks Commerzbank Board Position: Sueddeutsche Zeitung
        - DIA SM : LetterOne acquires 10% of Grupo Dia for EUR 323m
        - DUFN VX : Dufry With Loss in 1H; Considering IPO of North American Unit
        - ENGI FP : Engie Says Leads French Tender for Solar W/ 94.6 MW Awarded
        - ENI IM : Eni’s Cash Flow Break-even Was ‘Hidden Gem’ at 2Q: Mediobanca
        - GALP PL : Galp Second Quarter Adjusted Ebitda Beats Estimates
        - HEIA NA : Heineken First Half Adjusted Operating Profit Beats Estimates
        - HSBA LN : HSBC Second Quarter Adjusted Pretax Profit Beats Estimates, HSBC Plans Share Buyback of up to $2b
        - LR FP : Legrand Confirms Targets as 1H Rises 12%
        - MIC SS : Millicom to Sell Senegal Tigo Ops to Consortium Instead of Wari
        - NSG NO : Norske Skog Extends Exchange Offer Deadline; Warns Non-Payment
        - ROG VX : Roche Treatment Granted Orphan Drug Status by FDA
        - SAN FP : Sanofi Sees Profit ‘Broadly Stable’ in 2017, Sanofi Sees Increasingly Competitive Multiple Sclerosis Market
        - SAN SM : Santander to Cut 600 Jobs in Germany, Rheinische Post Reports
        - SAN SM : Santander Agrees Popular Assets Sale With Blackstone: Vozpopuli
        - SFR FP : SFR Vows Legal Action on TF1 Threat to Cut Access for Clients
        - SNBN SW : SNB Posts 1H Profit of CHF 1.2B on Negative Rates Income
        - TEF SM : Telefonica to Raise Prices for Top-End Bundles: EL Economista
        - TSLA US : Elon Musk Says Tesla Model 3 Reservations Now Exceed 500,000
        - TFI FP : TF1 Ends Distribution Pacts With SFR As Talks Stall
        - TIT IM : Telecom Italia May Bid for Soccer TV-Rights, CEO Tells Stampa
        - UMI BB : Umicore First Half Adjusted EPS Beats Estimates
        - UNI IM : Unipol to Spin Off About EU3b of Its Bank’s Bad Loans Into NewCo
        - VIE FP : Veolia 1H Net Falls; Co. Confirms 2017-19 Targets
        - DG FP : Vinci Wants to Increase Stake in ADP, Les Echos Reports
        - VIV FP : Vivendi May List Telecom Italia Network on Stock Exhange: Sole
        - VOW3 GY : Volkswagen Picks Five Possible Bidders for Ducati: Repubblica
        - VOW3 GY : VW Planned Sale of Ducati, Renk Units Lacks Board Support: Rtrs
        - VOW3 GY : Audi Is Said to Target EU10 Bln in Cost Cuts by 2022: Reuters

        >>> Europe : Brokers Upgrades & Downgrades - 31st of July

        >>> Up
        * BASF Raised to Hold at Berenberg
        * Hilton Raised to Hold at Berenberg
        * Julius Baer Raised to Hold at Kepler Cheuvreux, PT CHF55
        * Kloeckner Raised to Buy at Kepler Cheuvreux, PT EU11
        * Severn Trent Raised to Outperform at RBC, PT 2,650p
        * United Utilities Raised to Outperform at RBC, PT 1,050p
        * Wolseley Raised to Outperform at RBC, PT 5,200p

        >>> Down
        * Cementir Holding Cut to Neutral at MedioBanca, PT EU6.40
        * DIA Cut to Underweight at Morgan Stanley, PT EU5.50
        * Econocom Cut to Hold at ING
        * Heineken Cut to Hold at Bank Degroof Petercam, PT EU83
        * Hertz Cut to Underweight at Barclays, PT $9
        * Mapfre Cut to Neutral at JPMorgan, PT EU3.15
        * Schroders Cut to Neutral at Citi
        * Somfy Cut to Neutral at Natixis
        * Telekom Austria Cut to Sell at Citi

        >>> Initiation
        * Autogrill New Outperform at Raymond James, PT EU12
        * Evry New Buy at Goldman, PT NOK38
        * Evry New Overweight at Morgan Stanley, PT NOK35

        >>> Call
        >> Stock
        * ADECCO ADDED TO CITI FOCUS LIST EUROPE
        * DEUTSCHE POST REMOVED FROM CITI FOCUS LIST EUROPE
        >> Sector
        * BANKING SECTOR RAISED TO OVERWEIGHT VS NEUTRAL AT NATIXIS
        * CAPITAL GOODS SECTOR RAISED TO OVERWEIGHT VS NEUTRAL AT NATIXIS
        * CHEMICALS SECTOR RAISED TO OVERWEIGHT AT NATIXIS
        * ENERGY SECTOR RAISED TO NEUTRAL VS UNDERWEIGHT AT NATIXIS
        * INDUSTRY SECTOR RAISED TO OVERWEIGHT VS NEUTRAL AT NATIXIS
        * LUXURY GOODS CUT TO UNDERWEIGHT VS OVERWEIGHT AT NATIXIS
        * PHARMACEUTICALS CUT TO NEUTRAL VS OVERWEIGHT AT NATIXIS

        >>> Asian Update

        Asia Mid-Session Market Update: Geopolitical risks high on uncertainty in Venezuela, North Korea and Russia; China PMI sees multi-year high

        ***Asia Summary***
        - Markets kick of the week mixed, over the weekend Venezuela held a vote that saw many dead, including a candidate, amid Venezuela protests during election for new legislative body that will reform constitution.US said to be considering oil-related sanctions against Venezuela, which could be announced by as early as today; not expected to include ban on Venezuelan oil shipments to the US. This saw crude futures rise as high as $50/bbl.

        - China July official manufacturing PMI came in at 51.4 slightly lower than expected and non-manufacturing PMI 54.5 also shy of expectations. Sub-component for construction rose to a high not seen since Dec 2013. China iron ore futures rose 7% early in the session; the strength in iron ore also pushed the major names in Australia higher.

        - Yen again pushed higher keeping pressure on the equities markets despite earnings season being in full swing. North Korea missile launch showed that it may be within striking range of US cities. South Korea and the US held a joint missile drill over the weekend. Elsewhere in geopolitical news Russia president Putin declared that Russia would kick out over 750 US diplomats by the end of Sept in retaliation to new sanctions.

        ***Key economic data***
        - (CN) CHINA JUL MANUFACTURING PMI (GOVT OFFICIAL): 51.4 V 51.5E; NON-MANUFACTURING PMI: 54.5 V 54.9 PRIOR
        - (NZ) NEW ZEALAND JUN BUILDING PERMITS M/M: -1.0% V 6.9% PRIOR
        - (JP) JAPAN JUN PRELIM INDUSTRIAL PRODUCTION M/M: 1.6% V 1.5%E; Y/Y: 4.9% V 4.8%E
        - (NZ) NEW ZEALAND JUL ANZ BUSINESS CONFIDENCE: 19.4 V 24.8 PRIOR; ACTIVITY OUTLOOK 40.3 V 42.8 PRIOR
        - (AU) AUSTRALIA JUN HIA NEW HOME SALES M/M: -6.9% V 1.1% PRIOR
        -
        ***Speakers and Press***
        China
        - (CN) China President Xi: China needs to speed up modernization of its military to fend off threats
        - (CN) China Commerce Ministry (MOFCOM): Irrational outbound investment 'effectively curbed'
        - (CN) China State Researcher Long Guoqiang: US trade calculation exaggerates deficit with China
        - (CN) MSCI warns that companies in China that suspend trading in their shares for too long risk being dropped
        - (CN) Moody's: Value of M&A transactions in China property sector is likely to reach a record high in 2017, following several major deals announced in July and Q2
        Korea
        - (KR) South Korea and US conduct joint ballistic missile test (as announced earlier), in response to North Korea's ICBM test; South Korea is expected to hold talks with the US military about the temporary installation of additional Thaad launchers, according to South Korea's Defense Minister Song Young-moo
        Japan
        -(JP) Japan PM Abe: After speaking with Pres Trump agreed more action needed on North Korea
        Other
        - (SG) IMF raises Singapore’s 2017 GDP growth forecast to 2.3% v 2.2% seen in early May; Sees 2018 GDP growth at 2.5% - financial press
        ***Asian Equity Indices/Futures (00:20ET)***
        - Nikkei -0.1%, Hang Seng +0.8%, Shanghai Composite +0.6%, ASX200 +0.6%, Kospi -0.3%
        - Equity Futures: S&P500 -0.1%; Nasdaq -0.1%, Dax -0.1%, FTSE100 -0.1%

        ***FX ranges/Commodities/Fixed Income (00:20ET)***
        - EUR 1.1762-1.1732; JPY 110.72-110.31; AUD 0.7990-0.7956; NZD 0.7523-0.7499
        - Aug Gold -0.1% at 1,267/oz; Sept Crude Oil +0.4% at $49.91/brl; Sept Copper +0.5% at $2.89/lb
        - USD/CNY *(CN) PBOC SETS YUAN REFERENCE RATE AT: 6.7283 (strongest setting since Oct 14th, 2016) V 6.7373 PRIOR
        - (CN) China PBOC OMO injects CNY240B in 7-day and 14-day reverse repos v CNY140B prior in 7-day
        - (KR) South Korea sells 3-yr treasury bonds; avg yield 1.720%
        - (TH) Thailand sells THB5.0B in 3-month bills, avg yield 1.10140%
        - (HK) Hong Kong Overnight HIBOR rises to highest level since 2008

        ***Equities notable movers***
        Hong Kong/China
        - Hutchison Telecom, 215.HK Agreed to sell Hutchison Telecommunications fixed-line phone business for HK$14.5B to private equity firm, I Squared Capital; +13%
        - Maanshan Iron & Steel,323.HK Gets approval for the listing of an investee company Anhui Xinchuang; +8.3%
        Japan
        - Hitachi, 6501.JP Reports Q1 Net ¥75.1B v ¥34Be; Op ¥131.8B v ¥96Be; Rev ¥2.09T v ¥2.03Te; +5%
        - Isuzu, 7202.JP Isuzu expected to report a higher profit in June quarter, beating forecasts of a decline – Nikkei; +5%
        Australia
        - Kogan.com, KGN.AU Entered into an agreement with The Hollard Insurance Company Pty Ltd for an initial period of three years to market a range of insurance offerings; 3 days of gains, +7.9%
        Korea
        - Lotte Shopping, 023530.KR Reports Q2 (KRW) Net 4.16B v 82.3B y/y; -10%
        Other
        -Sprint, S Charter affirms no interest in acquiring Sprint
        - CHTR Softbank's Masayoshi Son said to be planning a direct offer for Charter - financial press