Bernanke: “One thing we learned is that you should always be worrying about financial risks. I just want to say, while I was chair the Federal Reserve made some very substantial internal changes to create new capacities – including what is called The Office of Financial Stability. Which means relative to before the crisis, the Fed is now putting huge amounts of staff resources into monitoring the whole financial system…”
Question from Twitter: “Does chairman Bernanke think there are asset bubbles in the global markets now?”
Bernanke: “I don’t see any obvious major mispricings – nothing that looks like the housing bubble before the crisis, for example. But you shouldn’t trust me. What you should do is make your own judgments about individual asset prices. And what the Fed is doing of course is again monitoring very closely all of these different asset categories and trying both to determine if there is some downside risk and if the downside risk occurs what would the implications be for the broader system. One of the things I learned from our experience in the crisis was with respect to the housing bubble, the Fed spent a lot of time debating ‘is it a bubble – isn’t it a bubble? If it is a bubble how big is it?’ That was the wrong way to think about it I think. The right way to have thought about it I think: ‘We don’t know if it’s a bubble. It might be. If it bursts, what’s the worst that can happen?’ And I think that looking at the worst-case-scenario was the right way to do it and the Fed didn’t do enough of that…”
Hilsenrath: “That implies that, the Fed this time around, if it faces some set of questions about whether there’s a bubble will be potentially more proactive either using regulatory tools or monetary policy to address it. Do you think that’s the case?”
Bernanke: “Based on the experience of the crisis, I think if anyone needed convincing that financial crisis or large speculative bubbles are dangerous I think they should be convinced now. So yes, so the Fed has changed its perspective. Formally speaking, the Fed has switched from being a so-called microprudential regulator that’s focused on a narrow set of institutions and markets – to a macroprudential regulator which means that in addition to looking at individual firms and markets is trying to assess the stability of the overall system. And that’s critical and to the extent there are risks that are apparent – either in terms of the structure of the system or in terms of building mispricings or other problems, the Fed needs to be proactive working with other regulators.”
(Noland: The Fed needs to extricate itself from manipulating the financial markets. It needs to end backstopping the markets. It must never again print Trillions of new “money” out of thin air. Because so long as the marketplace perceives that the markets are too big to fail, there will be speculative excess, major securities markets mispricings and Bubble fragilities. No one – average investor or sophisticated financial operator – has a clue as to the degree Fed policies have distorted asset prices. A credible macroprudential regulator would not promote securities market inflation. And when it comes to courage, history has shown it takes tremendous courage to halt monetary inflation.)
I’ll briefly address the markets. What a week. When I commenced writing the previous week’s CBB – a week ago Friday morning – the Dow was 1,000 points lower. The VIX was 24. It closed this week at 17.08, the low since prior to the August “flash crash.” The Transports gained 4.8% this week. The small cap Russell 2000 surged 4.7%. The Morgan Stanley High Tech Index jumped 4.0%. The HUI index rose 16.3%. Stunning U.S. stock gains were outdone overseas. The German DAX surged 5.7%. Spanish stocks rose an incredible 7.4%. EM equities rallied sharply. Russian stocks jumped 7.2%. Brazilian equities rose 5.2%. Hong Kong’s financial stock index jumped 7.1%. The Shanghai Composite gained 4.3%.
The currencies and commodities were as crazy as stocks. The Brazilian real rallied 4.3% and the Indonesian rupiah surged 8.4%. The Russian ruble rallied 7.3%, the Malaysian ringgit 6.5%, the Colombian peso 5.0%, the South Korean won 3.1%, the Turkish lira 2.7% and the South African rand 2.8%. Big moves were not limited to EM. The Australian dollar surged 4.1% and the New Zealand dollar jumped 4.0%. The Norwegian krone gained 3.5%. The Goldman Sachs Commodities Index surged 5.9%. Crude oil jumped 8.7%. Silver rose 3.8% and copper rallied 2.9%. Wild stuff.
It was a brutal week not only for the bears. Hedging strategies came unglued. Long/short strategies suffered in the chaos. Trend-following momentum strategies were crushed by abrupt reversals in equities, Credit, currencies and commodities. In short, there appeared to be a lot of panic buying and considerable mayhem.
Over recent years, painful short squeezes often provided lift-off for another bull market leg higher. To be sure, once squeezes gain a head of steam, predicting when they’ve run their course tends to be tricky business. But I’m sticking to the view that the global Bubble has burst and contagion has set its sight on the Core. Despite this week’s powerful squeeze, I don’t believe markets have overcome deleveraging/de-risking pressures. I expect wild volatility to continue to weigh on leveraged currency “carry trades.” I would be surprised if the hedge fund community doesn’t suffer year-end outflows. And I certainly don’t think we’ve heard the last of China’s financial and economic woes. Yet in these unstable markets, anything can happen.
For the Week:
The S&P500 jumped 3.3% (down 2.1% y-t-d), and the Dow gained 3.7% (down 4.1%). The Utilities increased 1.1% (down 8.7%). The Banks recovered 2.1% (down 4.6%), and the Broker/Dealers rallied 2.1% (down 9.0%). The Transports surged 4.8% (down 9.7%). The S&P 400 Midcaps jumped 4.1% (down 0.7%), and the small cap Russell 2000 surged 4.7% (down 3.3%). The Nasdaq100 gained 2.4% (up 3.2%), and the Morgan Stanley High Tech index jumped 4.0% (up 4.1%). The Semiconductors rose 3.5% (down 8.4%). The Biotechs dropped 2.6% (up 0.3%). With bullion gaining $17, the HUI gold index surged 16.3% (down 18.7%).
Three-month Treasury bill rates ended the week at zero. Two-year government yields rose six bps to 0.64% (down 3bps y-t-d). Five-year T-note yields jumped 11 bps to 1.40% (down 25bps). Ten-year Treasury yields rose 10 bps to 2.09% (down 8bps). Long bond yields gained 10 bps to 2.92% (up 17bps).
Greek 10-year yields sank 34 bps to 7.57% (down 218bps y-t-d). Ten-year Portuguese yields gained 11 bps to 2.39% (down 23bps). Italian 10-yr yields increased six bps to 1.69% (down 20bps). Spain’s 10-year yields rose five bps to 1.82% (up 21bps). German bund yields jumped 10 bps to 0.61% (up 7bps). French yields rose 10 bps to 0.99% (up 16bps). The French to German 10-year bond spread was unchanged at 38 bps. U.K. 10-year gilt yields jumped 16 bps to 1.86% (up 11bps).
Japan’s Nikkei equities index surged 4.0% (up 5.7% y-t-d). Japanese 10-year “JGB” yields were unchanged at 0.31% (down one bp y-t-d). The German DAX equities index jumped 5.7% (up 3.0%). Spain’s IBEX 35 equities index surged 7.4% (up 0.3%). Italy’s FTSE MIB index jumped 4.0% (up 17.1%). EM equities were higher. Brazil’s Bovespa index rallied 5.2% (down 1.3%). Mexico’s Bolsa surged 3.8% (up 2.9%). South Korea’s Kospi index jumped 2.5% (up 5.4%). India’s Sensex equities index rose 3.3% (down 1.5%). China’s Shanghai Exchange surged 4.3% (down 1.6%). Turkey’s Borsa Istanbul National 100 index surged 6.5% (down 7.6%). Russia’s MICEX equities index jumped 7.2% (up 23.8%).
Junk funds this week saw inflows of $735 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates dropped nine bps to a 23-week low 3.76% (down 11bps y-t-d). Fifteen-year rates fell eight bps to 2.99% (down 16bps). One-year ARM rates rose two bps to 2.55% (up 15bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates up three bps to 3.90% (down 38bps).
Federal Reserve Credit last week declined $1.3bn to $4.447 TN. Over the past year, Fed Credit inflated $35bn, or 0.8%. Fed Credit inflated $1.636 TN, or 58%, over the past 152 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $5.2bn last week to a 10-week low $3.329 TN. “Custody holdings” were up $35.4bn y-t-d.
M2 (narrow) “money” supply dropped $46.6bn to $12.182 TN. “Narrow money” expanded $720bn, or 6.3%, over the past year. For the week, Currency increased $2.0bn. Total Checkable Deposits fell $11.4bn, and Savings Deposits dropped $34.4bn. Small Time Deposits slipped $1.1bn. Retail Money Funds declined $1.8bn.
Money market fund assets jumped $19.5bn to $2.688 TN. Money Funds were down $44.6bn year-to-date, while gaining $57bn y-o-y (2.2%).
Total Commercial Paper surged $86.5bn to $9bn. CP declined $bn year-to-date.
The U.S. dollar index dropped 1.1% to 94.89 (up 5.1% y-t-d). For the week on the upside, the Brazilian real increased 4.3%, the Australian dollar 4.1%, the New Zealand dollar 4.0%, the Norwegian krone 3.5%, the South African rand 2.8%, the Mexican peso 2.0%, the Swedish krona 1.9%, the Canadian dollar 1.6%, the euro 1.3%, the Swiss franc 1.0% and the British pound 0.9%. For the week on the downside, the Japanese yen declined 0.3%.
The Goldman Sachs Commodities Index surged 5.9% (down 9.2% y-t-d). Spot Gold increased 1.6% to $1,157 (down 2.4%). December Silver jumped 3.8% to $15.82 (up 1.4%). October Crude surged $3.97 to $49.63 (down 6.8%). October Gasoline jumped 5.1% (down 4%), and October Natural Gas increased 1.2% (down 13.5%). September Copper jumped 2.9% (down 14.6%). December Wheat slipped 0.8% (down 14%). December Corn was down 1.7% (down 4%).
Global Bubble Watch:
October 6 – Wall Street Journal (Min Zeng and Lingling Wei): “Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis. Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt… Foreign official net sales of U.S. Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July, according to Torsten Slok, chief international economist at Deutsche Bank Securities, the biggest decline since data started in 1978. A year earlier, foreign central banks purchased $27 billion of U.S. notes and bonds.”
October 7 – Bloomberg (Stephen Morris): “Global financial firms’ estimated $100 billion or more exposure to Glencore Plc may draw more scrutiny as regulatory stress tests approach after the commodity giant’s stock plunge this year, according to Bank of America Corp. Bank shareholders and regulators may be concerned that Glencore’s debt and trade finance deals, of which a ‘significant majority’ are unsecured, will reveal higher-than-expected risk and require more capital once the lenders are put through U.S. and U.K. stress tests, BofA analysts said… Adding an estimated $50 billion of committed lines to the company’s own reported gross debt, the analysts say financial firms’ exposure may be three times larger than Glencore’s reported adjusted net debt of less than $30 billion. ‘The banking industry may have significantly more exposure to Glencore than is generally appreciated in the market,’ analysts including Alastair Ryan and Michael Helsby said in a note titled ‘The $100 Billion Gorilla In the Room.’”
October 7 – CNBC (Kate Kelly): “A new report estimates that Bank of America, Citigroup, JPMorgan Chase, and Morgan Stanley have lent $350 million apiece to the troubled commodity giant Glencore PLC — meaning they will be on the hook for potential losses if things deteriorate at the trading and mining company. In a note issued late Wednesday afternoon, analysts at CreditSights used accountings of bank loans prepared by the data firm Dealogic to estimate who had lent what to Glencore as part of its $15.3 billion revolving credit facility. The analysts deduced that ‘North American banks accounted for 20%’ of the revolver, according to the note, with four major U.S. banks taking the lead and four Canadian banks in similar positions.”
October 2 – Reuters (Svea Herbst-Bayliss): “U.S. hedge funds are bracing for their worst year since the 2008 financial crisis after a dramatic sell-off in healthcare and biotechnology stocks triggered double-digit losses for some prominent players last month. September’s sucker punch in the biotech sector, on top of a grim August when global markets tumbled due to fears about slowing growth in China, have pushed many hedge fund managers deep into the red. ‘These are some of the worst numbers we have seen since the crisis,’ said Sam Abbas, whose Symmetric IO tracks hedge fund managers’ returns… While the biotech sector held up relatively well during the initial market sell-off in August, it cratered in September. ‘It was the last remaining bastion of alpha and a sector where many hedge funds were hiding. Now it has succumbed,’ said Peter Rup, chief executive and chief investment officer at Artemis Wealth Advisors Llc, which invests in hedge funds.”
October 7 – UK Telegraph (Mehreen Khan): “Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world. Emerging market companies have ‘over-borrowed’ by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report. This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.”
China Bubble Watch:
October 6 – Bloomberg (Enda Curran): “As China’s leadership steps on the economic-stimulus gas pedal, there’s one image in the rear-view mirror that looms large. Then-Premier Wen Jiabao’s cabinet unveiled a $586 billion program to boost growth in the depths of the 2008 global credit turmoil, a move that opened the floodgates for a record debt surge that current Premier Li Keqiang and President Xi Jinping have had to cope with. Unlike that binge, Li and Xi are opting for targeted measures, more of which were unveiled last week… ‘The more cautious approach towards stimulus reflects concerns among Chinese policymakers about the massive expansion in credit that occurred in China during 2009-2010, which has created significant new imbalances and problem loans in the Chinese financial system,’ said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore.”
October 7 – Bloomberg (Lianting Tu): “As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another. So says Commerzbank AG, which puts the chance of a crash by year-end at 20%, up from almost zero in June… The boom contrasts with caution elsewhere. A selloff in global corporate notes has pushed yields to a 21-month high, and credit-derivatives traders are demanding near the most in two years to insure against losses on Chinese government securities. While an imminent collapse isn’t yet the base-case scenario for most forecasters, China’s 42.1 trillion yuan ($6.6 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago: stretched valuations, a surge in investor leverage and shrinking corporate profits… ‘The Chinese government is caught between a rock and hard place,’ said Zhou Hao, a senior economist in Singapore at Commerzbank… ‘If it doesn’t intervene, the bond market will actually become a bubble. And if it does, the market could crash the way the equity market did due to fast de-leveraging.’”
October 8 – Bloomberg (Justina Lee): “China’s credit guarantees, lauded by Premier Li Keqiang for helping fund smaller firms, are backfiring as a slowing economy risks causing a chain of defaults. Failures of guaranteed loans surged 86% last year to about 400 billion yuan ($63bn), according to UBS Group AG. At the nation’s Big Five lenders, such borrowings made up 18% of the total and 29% of non-performing financing… Standard & Poor’s said specialist guarantee firms are suffering, while the industry’s second-largest company halted operations amid accusations that it took on too much financial risk. Credit guarantees, which began as a way to help smaller firms obtain funding by merging the risks of various borrowers, have now expanded to cover debt such as bonds issued by cash-strapped local-government financing vehicles and online peer-to-peer loans. The business works on the assumption that borrowers are unlikely to default at the same time, a premise that collapsed in the U.S. during the global financial crisis when slumping home prices sparked a chain reaction of defaults… China’s guarantee firms backed 2.6 trillion yuan of loans as of end-2014, an 18% increase from the previous year, Moody’s… data show. They also provided surety for 56.3 billion of new bonds, 79% more than in 2013, China Chengxin International Credit Rating Co. said.”
October 3 – Reuters (Kevin Yao): “China is studying plans to curb currency speculation even as it seeks to quicken the process of making the yuan trade freely, a deputy central bank governor said. Beijing will further open up its capital markets and develop its foreign exchange market as it aims to ‘accelerate the renminbi convertibility on the capital account,’ Yi Gang wrote in an article published in China Finance magazine, a central bank publication. The yuan is also known as renminbi. While the yuan is already convertible under China’s current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still subject to restrictions due to worries about abrupt capital flight and hot money inflows.”
October 6 – Financial Times (Gabriel Wildau): “China’s stock index futures market, once the world’s most vibrant, has been decimated in recent weeks by new regulations designed to discourage bearish speculators blamed for a stock market rout. Share trading resumes in China on Thursday after a string of public holidays since the end of September and comes as futures trading volume averaged only 127,000 contracts per day last month. Just a few months ago, futures contracts based on the CSI 300 index, which tracks the largest companies traded in Shanghai and Shenzhen, were the most heavily traded in the world. Daily volume in July averaged 1.7m contracts, higher than the 1.5m for S&P 500 futures traded in Chicago. Trading volume spiked when China’s stock market began its dramatic tumble in late June, as investors rushed to hedge their long positions or bet on further declines. Then regulators stepped in with a crackdown, sinking volumes. The campaign started with a police investigation into so-called ‘malicious short selling’ in the futures market but later expanded into new rules that raise the cost of futures trading.”
Fixed Income Bubble Watch:
October 4 – Bloomberg (Andrea Wong and Anchalee Worrachate): “More and more, bond traders are drawing the same conclusion: central bankers globally are coming up short in their attempts to combat the world’s economic woes. Even after hundreds of interest-rate cuts and trillions of dollars in quantitative easing, the bond market’s outlook for inflation worldwide is approaching lows last seen during the financial crisis. In the U.S., Europe, U.K., and Japan, those expectations are now weaker than they were before their respective central banks began their last rounds of bond buying. That’s leading investors to write off the Federal Reserve’s chances of raising interest rates this year and increase their bets that it will tighten less than policy makers forecast in the years to come. Speculation has also increased that the European Central Bank and Bank of Japan will need to step up their quantitative easing in the face of deflationary pressures, despite statements to the contrary from their own officials. ‘There’s a lack of faith in monetary policy — you’ve thrown the kitchen sink at it, you’ve cut rates to zero, you’re printing money — and still inflation is lower,’ said Lee Ferridge, the head of macro strategy for North America at State Street Corp. ‘It leads to a risk-off environment.’”
October 8 – Reuters (Sam Forgione): “Investors in U.S.-based funds pulled $36.2 billion out of taxable bond funds in the third quarter, marking the biggest outflows from the funds since the fourth quarter of 2008, preliminary Lipper data showed… Funds that hold investment-grade corporate bonds posted $30.6 billion in outflows over the quarter to mark their biggest quarterly outflows since Lipper records began in 1992…”
October 4 – Bloomberg (Manuel Baigorri Ruth David): “Worried about China’s economic slowdown, oil at its lowest price in six years or Volkswagen AG’s diesel scandal? Dealmakers aren’t. Yet. More than $1 trillion of mergers and acquisitions were announced in the third quarter, over 20% higher than the same period last year… And that’s without including what could be the biggest acquisition of the year — Anheuser-Busch InBev NV’s intention to make a takeover proposal for rival brewer SABMiller Plc… Forget a quiet summer; M&A markets just had their busiest September on record. Companies are still hungry for deals, and willing to pay large premiums for major M&A opportunities…”
Central Bank Watch:
October 6 – CNBC (Matthew J. Belvedere): “Federal Reserve policymakers should not wait until inflation rises to their 2% target to increase interest rates, former Dallas Fed President Richard Fisher said… ‘Just because it’s not at 2% doesn’t mean you don’t start the process because this is a huge tanker going through the sea and you start slowing down way out before you dock,’ Fisher told CNBC’s ‘Squawk Box’… Former Fed Chairman Ben Bernanke argued strenuously on the program Monday that the central bank’s 2% target is sacrosanct. ‘Easy money is justified by the need to get inflation up to the target,’ he said on CNBC, making his case for why the Fed should not rush to increase rates.”
Leveraged Speculation Watch:
October 5 – Financial Times (Miles Johnson, Michael Mackenzie and Dan McCrum): “Hedge funds have suffered their biggest monthly monetary loss since the 2008 financial crisis in the wake of market turbulence that battered the portfolios of some of the industry’s best known investors. The sector as a whole lost $78bn due to its performance in August, the worst monthly absolute fall in assets since October 2008… according to research by Citi… Total hedge fund industry assets at the end of August stood at $3.05tn, according to Citi, down 0.2% year on year. Total hedge fund assets have doubled since 2008, according to HFR… While final numbers are not yet in for September many in the industry expect an acceleration in losses across stocks and bonds. Anthony Lawler, a portfolio manager at GAM, said the broad based nature of the recent sell-off was particularly painful for hedge funds that had bet hard on sectors or companies they believed were undervalued. ‘Well researched equities held by stock pickers can perform badly, not because they are a bad pick, but because they are held by a concentrated group of people who can be forced to reduce or sell when the market turns south,’ he said.”
U.S. Bubble Watch:
October 7 – Bloomberg (Alex Barinka and Caroline Chen): “The biotechnology sector’s two-and-a-half-year deluge of public market debuts, with dozens of companies raising billions of dollars in funding, has ground to a halt. After CytomX Therapeutics Inc. priced its initial public offering late Wednesday, not a single biomedical, drug or therapeutics company is expected to follow suit in the next 30 days. That would make this the slowest monthlong period for IPOs for those industries since February 2013… The lull follows two of the highest-flying years in at least the past decade and a half: in 2013, a record $7.1 billion was raised from 50 biopharmaceutical IPOs that began trading, while the following year’s record 81 offerings brought in a total of about $6 billion…”
EM Bubble Watch:
October 3 – Financial Times (Avantika Chilkoti): “Concern over external debt in corporate Indonesia is mounting as companies seek to roll over more than $42bn of foreign currency loans within the next 12 months, following a period of steep rupiah depreciation. External debt is a red flag to investors. It added fuel to the Asian financial crisis of 1997-98, as ravaged currencies magnified foreign currency borrowings across swathes of the region… And while external debt is more modest, it has been rising in recent years. In Indonesia the private sector’s bill has doubled since 2010 to $169.2bn this July… A quarter of these are short-term borrowings maturing in under a year and 96% are in foreign currency. The rupiah has dropped over 18% since the beginning of the year against the US dollar.”
October 5 – Bloomberg (Stefania Bianchi and Dinesh Nair): “Abu Dhabi is reviewing its largest state-owned companies as the slump in crude oil pressures the emirate’s finances, four people with knowledge of the matter said. Abu Dhabi National Energy Co. and International Petroleum Investment Co. are in talks with banks on options including strategic partnerships, share sales and asset disposals, the people said…”
October 5 – Reuters (Guillermo Parra-Bernal and Jeb Blount): “State-led Petróleo Brasileiro SA , struggling with the biggest debt load among global oil firms, on Monday cut $11 billion from capital spending plans for this year and next as Brazil’s currency and oil prices slump. Petrobras, as the company is commonly known, plans to cut 2015 investment by 11% to $25 billion from the previous $28 billion… Investment for 2016 will be cut 30% to $19 billion from $27 billion.”
October 5 – Bloomberg (David Biller): “Brazil’s consumer prices in September rose more than economists forecast, as traders wager the central bank won’t be able to avoid raising borrowing costs again to tame above-target inflation. Monthly inflation as measured by the benchmark IPCA index accelerated to 0.54% from 0.22% in August… Inflation in the 12 months through September slowed to 9.49% from 9.53% a month earlier.”
October 6 – Financial Times (Robin Harding): “The Bank of Japan has kept monetary policy on hold with an upbeat statement acknowledging risks from a slowdown in emerging markets but otherwise made little concession to recent bad data. By highlighting strength in the domestic economy, the statement signals some genuine BoJ optimism, reducing the chances of the central bank expanding its monetary stimulus at the end of this month. The statement suggests the BoJ thinks Japan’s recovery is basically on track, with a slowdown in Asian export markets posing a modest but containable risk.”
October 7 – Bloomberg (Robin Emmott): “Russia’s military build-up in Syria includes a ‘considerable and growing’ naval presence, long-range rockets and a battalion of ground troops backed by Moscow’s most modern tanks, the U.S. ambassador to NATO said… Speaking on the eve of a NATO defense ministers meeting to be dominated by Russia’s intervention in Syria’s civil war, U.S. Ambassador to NATO Douglas Lute said Moscow had managed a ‘quite impressive’ military deployment over the past week to its Syria naval base in Tartous and its army base in Latakia. ‘There is a considerable and growing Russia naval presence in the eastern Mediterranean, more than 10 ships now, which is a bit out of the ordinary,’ he told a news briefing.”
October 9 – Financial Times (Demetri Sevastopulo): “The US is poised to sail warships close to China’s artificial islands in the South China Sea as a signal to Beijing that Washington does not recognise Chinese territorial claims over the area. A senior US official told the Financial Times that the ships would sail inside the 12-nautical mile zones that China claims as territory around some of the islands it has constructed in the Spratly chain. The official… said the manoeuvres were expected to start in the next two weeks. The move, which is likely to raise tensions between the powers, comes amid disagreement over several issues, including US allegations that China is engaging in commercial cyber espionage.”