WSJ : The EU’s New Bomb Is Ticking in the Netherlands

The EU’s New Bomb Is Ticking in the Netherlands
A referendum law has given Dutch euroskeptics a powerful tool to block deeper European integration, and then some, Simon Nixon writes

THE HAGUE—If the European dream is to die, it may be the Netherlands that delivers the fatal blow. The Dutch general election in March is shaping up to be a defining moment for the European project.

The risk to the European Union doesn’t come from Geert Wilders, the leader of anti-EU, anti-immigration Party for Freedom. He is well ahead in the polls and looks destined to benefit from many of the social and economic factors that paved the way for the Brexit and Trump revolts.

But the vagaries of the Dutch political system make it highly unlikely that Mr. Wilders will find his way into government. As things stand, he is predicted to win just 29 out of the 150 seats in the new parliament, and mainstream parties seem certain to shun him as a coalition partner. In an increasingly fragmented Dutch political landscape, most observers agree that the likely outcome of the election is a coalition of four or five center-right and center-left parties.

Instead, the risk to the EU comes instead from a new generation of Dutch euroskeptics who are less divisive and concerned about immigration but more focused on questions of sovereignty—and utterly committed to the destruction of the EU. Its leading figures are Thierry Baudet and Jan Roos, who have close links to British euroskeptics. They have already scored one significant success: In 2015, they persuaded the Dutch parliament to adopt a law that requires the government to hold a referendum on any law if 300,000 citizens request it. They then took advantage of this law at the first opportunity to secure a vote that rejected the EU’s proposed trade and economic pact with Ukraine, which Brussels saw as a vital step in supporting a strategically important neighbor.

This referendum law is a potential bomb under the EU, as both Dutch politicians and Brussels officials are well aware. Mr. Baudet believes he now has the means to block any steps the EU might seek to take to deepen European integration or stabilize the eurozone if they require Dutch legislation. This could potentially include aid to troubled Southern European countries such as Greece and Italy, rendering the eurozone unworkable.

Indeed, the Dutch government gave a further boost to Mr. Baudet and his allies when it agreed to accept the outcome of the Ukraine referendum if turnout was above 30%, even though it was under no legal obligation to do so. This was a major concession to the euroskeptics, as became clear when strong turnout among their highly motivated supporters lifted overall turnout to 31%. With Mr. Wilders’s party, currently polling above 25%, and both Mr. Baudet and Mr. Roos having launched their own parties, Dutch euroskeptics are confident they will be able to reach the 30% threshold in future referendums.

From the rest of the EU’s perspective, the central question of the election is whether mainstream Dutch parties can find a way to defuse this bomb. That won’t be easy.

The first challenge is to find a way out of the Ukraine impasse. Prime Minister Mark Rutte remains committed to ratifying the deal but he needs to do so in a way that won’t expose him to charges of ignoring the referendum result, thereby stoking euroskeptic support. Dutch, EU and Ukrainian negotiators will sit down next week and try to hammer out a legally binding clarification that makes clear that the agreement doesn’t include military assistance and doesn’t offer a path to Ukraine’s EU membership.

But even if the rest of the EU and Ukraine can reach such a compromise, Mr. Rutte may not be able to secure the backing of the Dutch Senate, where he lacks a majority. Opposition parties don’t want to be seen to be participating in what will inevitably be portrayed as an establishment stitch-up so close to elections.

The second step to defusing the bomb is to amend the referendum law to exclude international agreements. But while pro-European politicians privately say this is their goal, few are willing to say so publicly. Parties on the center-right don’t want to antagonize their increasingly euroskeptic voter base, while much of the center-left is hamstrung by its past support for the referendum law, which they backed because of a long-standing enthusiasm for direct democracy.

Instead, some mainstream politicians are privately pinning their hopes on the Christian Democrats, a center-right party currently in opposition and traditionally suspicious of direct democracy, riding to the rescue by insisting on an amendment to the law as a condition of any future coalition agreement. Yet the Christian Democrats don’t appear in any mood to let other parties off the hook so easily: The party is currently leading the parliamentary opposition to the government’s efforts to ratify the Ukraine deal.

Not surprisingly, the mood in Brussels, where this situation is being watched closely, is gloomy. One top official reckons the chances of the Dutch government defusing this bomb at less than 50%. Those may turn out to be the odds on the ultimate survival of the European project.

>>> Europe : Brokers Upgrades & Downgrades - 21st of November 20

>>> Up
*Enterprise Inns Raised to Neutral at Citi
*Outokumpu Raised to Reduce at AlphaValue

>>> Down
*Cie d'Entreprises CFE Cut to Hold at ING, PT EU101
*PostNL Cut to Neutral at UBS, PT EU4.60
*Technip Cut to Underperform at Bernstein, PT $14
*WS Atkins Cut to Hold at Liberum, PT 1600p

>>> PT change


>>> Initiation
*AIR LIQUIDE RATED NEW NEUTRAL AT GOLDMAN
*Clariant Rated New Neutral at Goldman
*Croda Rated New Neutral at Goldman
*DSM Rated New Sell at Goldman
*Givaudan Rated New Neutral at Goldman
*LINDE RATED NEW BUY AT GOLDMAN, ADDED TO CONVICTION LIST
*PORSCHE RATED NEW HOLD AT JEFFERIES
*Yara Rated New Neutral at Goldman

>>> Call
>> Stock
*SOLVAY RATED NEW BUY AT GOLDMAN, ADDED TO CONVICTION LIST

>>> What to look at today - 21st of November 2016

Friday US markets on close: Dow -0.2%, S&P500 -0.2%, Nasdaq -0.2%, VIX 12.9 (-0.5pts); Treasuries: 2-yr 1.08% (+2bps), 10-yr 2.34% (+6bps), 30-yr 3.02% (+3bp), Best Sector in S&P500: Conglomerates, Worst Sector in S&P500: Healthcare. Oil prices rise over 1% in electronic trade; Iraq's al-Luaibi said he plans to offer new proposals at Vienna meeting for output cut, Iran's oil min expressed confidence that members will reach a consensus, and Russia's Putin stated it would not be hard for Russia to freeze oil output. China Pres Xi: US-China relations are at a "hinge-moment" following US presidential elections; Hopeful for a smooth transition in relations with pres-elect Trump. Goldman Sachs: China property developers may begin to cut prices in Q1 of 2017. Japan: Trade balance misses consensus on headline but beats on adjusted basis for its best print in nearly 5 years; Exports fall for 13th straight month, imports fall for 22nd straight month; Exports to Europe, Asia and China down just over 9%, exports to US down over 11% y/y.

Nikkei +0.77% Hang Seng -0.10% CSI +0.43% Shanghai +0.51%

Eur$ +1.0607 CNH 6.9168 CNY 6.8980 JPY 111.04 GBP 1.2342 CHF 1.0095 RUB 64.6163

S&P +0.15% EuroStoxx +0.16% DaX +0.09% SMI -0.18%

Macro :
- Trump Presidency to Put Economic Pressure on Europe: Atos CEO
- Kentucky Pension May Stay in Some Hedge Fund Strategies: Peden
- A $19 billion hedge fund is trying to recruit tech talent with a coding contest
- Dealbook: Trump Adviser Takes Stake in China Ride-Sharing Company
- Network Rail Break-Up Mulled by U.K. Government: Sunday Times
- Moscovici Urges More EU Fiscal Stimulus: El Pais
- Airbnb Seeks to Complete 700 Tax Agreements in Cities: FT

Keep an eye on :
- AIR FP : Airbus Faces New Fines for Delays of A400M Plane: Spiegel
- AB1 GY : Tuifly, Air Berlin Leisure May Agree Merger This Week: HB
- AIXA GY : Aixtron Says Cfius to Recommend Against Purchase by Grand Chip
- ATC NA : Altice/SFR Media to Cease Publishing Expansion, AFP Reports
- ATC NA : Altice/SFR Media to Cease Publishing Expansion, AFP Reports
- BAYN GY : Bayer’s Financing for Monsanto Purchase Is Secure: Tagesspiegel
- BCP PL : BCP to Postpone Shareholder Meeting on Voting Rights: Negocios
- BCP PL : Fosun International Agrees to Buy 16.7% of BCP for EUR174.6 Mln
- BT/ LN : BT Says Openreach Dispute Delays GBP6b Investment: Telegraph
- CNA LN : Tokyo Gas Teams With Centrica to Cut LNG Shipping Costs: Nikkei
- CSGN VX : Credit Suisse’s Swiss Unit Kicks Off Operations Ahead of IPO
- DAI GY : Daimler Electric Shift Could Hit 6 of 7 Jobs: Manager Magazin
- DENERG DC : Dong Energy's oil and gas unit interests AP Moller-Maersk and EIG
- ELIOR FP : Elior Enters India, Buying Megabite Food Services, CRCL
- ENGI FP : Engie in Advanced Talks With Neptune Over Oil Unit Sale: Times
- FB US : Facebook Reports Stock Buyback of Up to $6b of Class A Shares
- GSK LN : GSK Gets FDA Approval for Expanded Use of FluLaval Quadrivalent
- INTC US : Intel Said to Plan Job Cuts in Wearables Group: TechCrunch
- ISP IM : Italian Banks Discount Keeps Widening, Intesa Still Favored: CS
- LHN VX : LafargeHolcim Sees ‘Very Encouraging’ U.S. Prospects: Investir
- LECN VX : Leclanche & Narada Power Sign Global Alliance
- LLOY LN : Lloyds Said to Be Lead Bidder for BofA U.K. Credit Card Unit: FT
- MGGT LN : New Meggitt COO in line to become CEO next year; activist Elliott approaches Honeywell, others for sale
- NESN VX : Some Nestle Foods Lose Swiss Cross on Labels: Unit CEO in SamS
- NOVN VX : Novartis Exercises Option to Buy Selexys Pharmaceuticals
- PAH3 GY : Peter Daniell Porsche Willing to Join VW Supervisory Board: FAS
- SSABS SS : SSAB Sees Strengthened Momentum in North America in 1Q: DI
- SLB US : Hess Sues Schlumberger for $200 Million-Plus on Faulty Valves
- SFR FP : Altice/SFR Media to Cease Publishing Expansion, AFP Reports
- GLE FP : SocGen Sounding Investors on Italy Consumer Unit Sale: Sole
- FP FP : Petrobras in negotiations with Total to sell stakes in oil fields, two power-plants
- UCG IM : UniCredit Remains a Buy Ahead of Strategic Update: Jefferies
- UTDI GY : United Internet May Pay Higher 2016 Dividend: Euro-am-Sonntag
- VOW3 GY : VW Should Reclaim Board Bonuses, CDU’s Fuchs Tells RND
- VOW3 GY : VW’s Hohmann-Dennhardt Defends Unequal Payout for Customers
- VOW3 GY : Peter Daniell Porsche Willing to Join VW Supervisory Board: FAS

>>> Asian Update

Asia Mid-Session Market Update: Oil rises on renewed OPEC optimism; Japan trade data mixed, Oct exports disappoint after strong showing in Q3 GDP

***Friday US markets on close: Dow -0.2%, S&P500 -0.2%, Nasdaq -0.2%***
- At the close: VIX 12.9 (-0.5pts); Treasuries: 2-yr 1.08% (+2bps), 10-yr 2.34% (+6bps), 30-yr 3.02% (+3bp)
- Best Sector in S&P500: Conglomerates
- Worst Sector in S&P500: Healthcare

***Weekend US Corporate Headlines***
- HW: To be acquired by Australia's Boral for $2.6B or $24.25/shr cash; Boral intends to raise approximately A$2.06B in new equity to partially fund the acquisition
- LOCK: Confirms to be acquired by Symantec for $2.3B or $24/shr; Symantec raises share repurchase program by $500M (3.3% of market cap) to $1.3B

***Politics***
- (US) President-elect Trump's choice of Treasury Sec narrowed down to economic advisor Steven Mnuchin and Rep Hensarling (R-TX) - press
- (DE) German Chancellor Merkel: Plans to run for 4th term as Chancellor; 2017 election will be "very difficult"; I am not irreplaceable within the CDU party
- (FR) France President center-right primary results: Francois Fillon with 44%; Alain Juppe 28% and Nikolas Sarkozy (concedes defeat) with 22%; Fillon and Juppe move to run-off next weekend.
- (KR) South Korea prosecutors determine Pres Park had a role in influence-peddling case; Top opposition Democratic Party calls for impeachment - press

***Asia Session Notable Observations, Speakers and Press***
Energy:
- Oil prices rise over 1% in electronic trade; Iraq's al-Luaibi said he plans to offer new proposals at Vienna meeting for output cut, Iran's oil min expressed confidence that members will reach a consensus, and Russia's Putin stated it would not be hard for Russia to freeze oil output.

China:
- China Pres Xi: US-China relations are at a "hinge-moment" following US presidential elections; Hopeful for a smooth transition in relations with pres-elect Trump.
- Goldman Sachs: China property developers may begin to cut prices in Q1 of 2017; Implementation of curbs in Shanghai, Nanjing and Suzhou has been stricter than in previous cycles.

Japan:
- Trade balance misses consensus on headline but beats on adjusted basis for its best print in nearly 5 years; Exports fall for 13th straight month, imports fall for 22nd straight month; Exports to Europe, Asia and China down just over 9%, exports to US down over 11% y/y.
- FSA to monitor banks' securities management amid sharp rise in JGB yields following US elections, citing concerns over widening of unrealized losses on investment into bonds

Australia:
- Goldman raises AUD/USD 3-month target to $0.78 from $0.75 and 12-month to $0.75 from $0.72. Sees Australia moving through transition point, and RBA will contemplate rate hikes thanks to sharply improving trade balance and stronger private sector demand.
- Conversely, NAB sees AUD/USD fall to $0.70 next year given risks that US interest rates will rise above RBA's OCR. NAB states under these conditions AUD typically falls below $0.60.

***Asian Equity Markets (23:30ET)***
- Nikkei225 +0.7%, S&P/ASX flat, Kospi -0.2%, Shanghai Composite +0.9%, Hang Seng +0.3%

***FX ranges/Commodities/Futures/Fixed Income (23:30ET):***
- EUR 1.0580-1.0615; JPY 110.65-111.20; AUD 0.7310-0.7545; NZD 0.6985-0.7025
- Dec gold +0.1% at $1,210/oz, Jan crude oil +1.4% at $47.10/brl, Dec copper +1.9% at $2.52/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 5.3 tonnes to 920.6 tonnes; 7th straight decline; lowest since June 22nd
- SLV: iShares Silver Trust ETF daily holdings fall to 10,891 tonnes from 11,080 tonnes prior; 4th straight decline; lowest since July 31st
- Equity Futures: S&P500 +0.2%, Dax +0.1%, FTSE100 +0.2%
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.8985 V 6.8796 PRIOR; weakest Yuan setting since 2008; 12th straight day of weaker Fix
- (CN) PBOC to inject CNY110B in 7-day reverse repos, CNY60B in 14-day reverse repos, and CNY15B in 28-day reverse repos
- (AU) Australia sells A$600M of 1.75% in 2020 bonds; avg yield 1.9852%; bid-to-cover 3.38x
- (KR) South Korea sells 20-yr bonds; avg yeild 2.235%

***Key economic data:***
- (JP) JAPAN OCT TRADE BALANCE: ¥496B V ¥610BE; ADJ TRADE BALANCE: ¥474B (highest since Nov 2011) V ¥404BE
- (NZ) NEW ZEALAND OCT CREDIT CARD SPENDING M/M: 2.8% V 2.6% PRIOR; Y/Y: 10.2% V 8.2% PRIOR
- (TH) THAILAND Q3 GDP Q/Q: 0.6% V 0.7%E; Y/Y: 3.2% V 3.3%E

***Asia movers***
- Oriental Press Group 18.HK: Reports H1 Net HK$60.0M v loss HK$6.0M y/y; Rev HK$507M v HK$604M y/y; +12.7%
- Melco International 200.HK: Credit Suisse Raised 200.HK to Outperform from Neutral; +7.9%
- Australia gold stocks upgraded at Deutsche; Northern Star Resources (NST) +5.3%; Regis Resources (RRL) +2.2%; Evolution Mining (EVN) +3.1%
- Doray Minerats; Macquarie Raised DRM.AU to Neutral from Underperform; +4.9%
- FamilyMart 8028.JP: Itochu said to spend around ¥40B to increase stake in the company - Nikkei; +4.8%
- Kingsoft 3888.HK: Reports Q3 Net CNY141.7M v CNY47.6M y/y; Rev CNY2.23B v CNY1.51B y/y; +4.0%
- Westfield WFD.AU: Macquarie Raised WFD.AU to Outperform from Underperform; +1.8%
- Fosun Intl; 656.HK: Entered into MOU setting out the terms of Fosuns investment in the share capital of BCP; +1.1%
- PYI Corp 498.HK: Reports H1 Net loss $3.8Mv loss $297.7M y/y, Rev $2.31B v $3.38B y/y; -3.0%
- Yuan Heng Gas Holdings Ltd 332.HK: Issues H1 profit warning; -4.3%

WSJ : Euro, Dollar Flirt With Parity



From: LAURENT CHEKROUN (MAKOR SECURITIES LO) At: 11/19/16 21:30:13
Subject: WSJ : Euro, Dollar Flirt With Parity
Euro, Dollar Flirt With Parity
Trump outlook and Fed’s likely move are strengthening dollar, and ECB may not help stop euro’s fall

A 10-day losing streak for the euro against the U.S. dollar is rekindling an old debate: Will the single currency reach parity with the dollar?

In the last two weeks, the euro has fallen 4% against the dollar, hitting $1.06, a level last seen 12 months ago.

The sharp shift in expectations for U.S. interest rates and economic growth since the presidential election has refueled the euro’s relative fall against the greenback. If the Federal Reserve increases rates, expectations are the dollar would rise further by drawing money to the U.S. looking for higher returns.

The European Central Bank, meanwhile, is showing few signs of a major shift in a monetary policy that has pushed rates into negative territory and includes a massive bond-buying program.

The euro also has to contend with a gauntlet of coming eurozone votes that could increase power for the sort of populist parties that, many investors believe, embrace policies that could stymie growth.

Following Donald Trump’s victory, Citigroup said it had shifted its euro-dollar forecast “180 degrees.” The bank now predicts the euro will tumble to just 98 cents in the next six to 12 months. This week others have joined the bank in predicting parity. The euro Friday closed at $1.058 in European trading.

The divergence of U.S. monetary and fiscal policy with the rest of the world “should be very beneficial to the dollar,” said Adnan Akant, head of currencies at asset management firm Fischer Francis Trees & Watts.

Mr. Akant now believes that parity could be reached fairly soon.

“Well, that’s only 7% to 8% away; yes, I would think so,” he said.

The euro’s decline could be good for the European economy. A weaker exchange rate will make the eurozone’s exports more competitive and should encourage inflation, which has been persistently below the ECB’s target near 2%. But such trends are not all good news for consumers, who will see a rise in the cost of dollar-denominated imports like oil.

Launched in 1999, the single currency spent much of its early years below parity, falling to as low as 83 cents in 2000, when there was a strong U.S. economy and a weak one in Europe.

But the currency has traded above $1 since late 2002, climbing to a high of $1.60 as the U.S. struggled with the financial crisis in 2008.

Analysts were last predicting parity in early 2015, when the euro was dragged down by the ECB’s introduction of quantitative easing, a bond-buying program designed to push down interest rates.

That March, the euro fell to as low as $1.046. But U.S. interest-rate rises didn’t occur as fast as economists were predicting, puncturing the trade.

Monetary policy divergence is once again driving the euro lower against the dollar.

Goldman Sachs expects one interest-rate increase soon from the Federal Reserve, followed by another three in 2017, and believes the ECB will extend its QE program to the end of 2017.

But the current fall is also different from 2015’s big decline. Back then, the euro dropped against the currencies of almost all its major trading partners. This time, the euro is actually up 1.8% this year against a trade-weighted basket.

Not all strategists believe parity is destined. There are two actors in this trade, the euro and the dollar.

“A lot of good news has already been priced in for the U.S., possibly too much,” said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management, who also bet against parity in early 2015.

“If you just look at how the eurozone has performed in terms of data, things look better than they did the last time people were gunning for parity,” he said.

The eurozone economy has grown slowly but consistently for each of the last nine quarters, expanding by between 0.3% and 0.8% of GDP every three months.

Alongside interest-rate expectations, political risk is weighing on the currency.

“Both blades of the scissor are moving against the euro right now,” said Marc Chandler, a strategist at Brown Brothers Harriman in New York. “My view is that the currency goes to record lows.”

Europe has already witnessed one political earthquake this year, when the British surprised investors by voting to leave the European Union. Now, the eurozone’s political diary is full of potential market shocks.

Early next month, a constitutional referendum in Italy could sink the government of Prime Minister Matteo Renzi. The resignation of Mr. Renzi, one of Europe’s most reform-minded leaders, could freeze Italy’s economic overhaul and erase the meager growth the country has generated.

Also lining up are key elections in France, Germany and the Netherlands, all of which have seen populist right-wing parties gain support.

Investors “were surprised on Brexit, they were surprised on the U.S. election,” said Mark McCormick, head of North American foreign exchange strategy at TD Securities. “This time, they will want to be more cautious when it comes to Europe.”

>>> New Meggitt COO in line to become CEO next year; activist Elliott approaches

New Meggitt COO in line to become CEO next year; activist Elliott approaches Honeywell, others for sale - report

Meggitt [LON:MGGT]’s newly appointed chief operating officer, Tony Wood, is in line to become chief executive of the UK-based aerospace-equipment and engineering group, The Sunday Times reported.
Meggitt is expected to start seeking a successor to incumbent CEO Stephen Young within the next 12 months and Wood is considered a prime candidate, sources cited in the report said.
During recent weeks Meggitt activist shareholder Elliott Management has reportedly been approaching other key investors. Elliott, which acquired a 5.2% Meggitt stake three months ago, is eager to push for a sale or break-up, and has been courting the US conglomerate Honeywell [NYSE:HON] and other prospective buyers, the report said, citing City sources.
The same people also named the British aerospace and automotive parts company GKN [LON:GKN] and French aerospace group Safran [EPA:SAF] as possible buyers, the report said.
Neither Elliott nor Meggitt wished to comment, the item reported.
The original report appeared in The Sunday Times, Business section, page 3

>>> Dong Energy's oil and gas unit interests AP Moller-Maersk and EIG

Dong Energy's oil and gas unit interests AP Moller-Maersk and EIG

Dong Energy's oil and gas unit has attracted the interest of AP Moller Maersk and EIG, the American investment company, according to a report by Borsen.
The Danish business daily cited the Danish newswire Ritzau which in turn cited a report by Bloomberg to which unnamed sources said that Maersk and EIG are possible bidders. The sources also said that the offer period expires at the end of the year and that the deal value could reach over USD 2bn.
Meanwhile, Dong told the newswire via e-mail that a sale will not occur this year and that there is still no point in speculating about when a deal might happen and who potential buyers could be.

>>> Golan Telecom: Patrick Pariente takes lead in sale talks, replaces Michael G

Golan Telecom: Patrick Pariente takes lead in sale talks, replaces Michael Golan - report

Michael Golan, the Israeli businessperson, has been replaced by Patrick Pariente to handle talks for the sale of the Israeli telecommunications company Golan Telecom, according to a report in Globes.
The report noted, based on unidentified sources, that Golan shareholders decided they were let down by the lack of progress in the talks for the sale of Golan, and resolved to replace Michael Golan with Pariente.
The report said that the Israeli businesspersons Gil Sharon and Electra , which have been in talks to buy Golan Telecom, failed in an attempt to close an acquisition deal by the end of last week, in part, as Michael Golan insisted that the buyers met certain demanding conditions.
Electra had previously withdrawn from the talks, but had come back to place a bid with Sharon, the report continued.
Golan has to pay ILS 600m (USD 154.5m) to the Israeli telecommunications company Cellcom, and if no progress can be made soon, Cellcom may seek to take steps to claim what it is owed, the report added.