Investors getting jittery

USD traded sharply higher against all of the major currencies on Tuesday as Treasury yields surged and stocks plummeted. With several factors driving investors out of risk assets, FX traders need to beware of the possibility of risk aversion intensifying over the next few days. From surging commodity prices, the prospect of tighter monetary policies, risk of the US government shutdown and even a credit default, there are plenty of reasons to be worried.  

The cost of natural gas is skyrocketing and the increase is spilling over to oil. In the last 2 days, natural gas prices rose more than 10% and in the past year, it is up 180%. Heading into the cooler fall and winter months, households will be hit by significantly more expensive heating bills. The energy crisis is so severe that in countries like the UK and China, there have been forced blackouts and factory shutdowns.  In some Chinese provinces, traffic lights have been turned off. 

Aside from having a direct impact on pocketbooks, higher natural gas and oil prices is also a problem for inflation. In comments made today, Federal Reserve Chairman Jerome Powell admitted that “it’s fair to say that” inflation is broader, more structural and more concerning than earlier this year. More specifically he said supply chain constraints like shortages of chips “have not only not gotten better – they’ve actually gotten worse.” Stickier inflation increases the need for less accommodation, which is positive for rates, negative for stocks and risk currencies. Considering that no one expects the energy crisis or supply chain bottlenecks to be resolved quickly, risk aversion could intensify, leading to demand for USD, JPY and Swiss Franc.

Treasury Secretary Janet Yellen warned that the government would not be able to make all of their payments if the debt ceiling is not raised by October 18th.  Companies like JPMorgan said they have begun preparing for a potential US credit default. Although it is very unlikely, if that happens the consequences for the markets would be brief but significant. Equities and currencies would fall sharply.

The government’s current funding expires on October 1st and lawmakers are rushing to pass legislation that would avoid a partial shutdown. There’s a lot going on in Washington this week and the battle on Capitol Hill is hurting and not helping risk appetite.  Consumer confidence weakened in September and given recent developments, we expect further deterioration this month.

With no major economic reports on the calendar on Wednesday, equities and Treasuries will drive currency flows. The Bank of England and Reserve Bank of New Zealand may be two of the least dovish central banks but their currencies have been hit the hardest by risk aversion.

The UK is dealing with its own petrol crisis worsened by driver shortage. EUR remains the most resilient, experiencing only modest losses due to euro’s low yield. Risk aversion is normally negative for USD/JPY but 10 year Treasury yields which rose to its highest level since June is having greater influence on USD flows.

Israel trying to buy out loyalty of Jordan

Israeli Channel 12 reported that Foreign Minister Yair Lapid has secretly met with King Abdullah of Jordan as Prime Minister Naftali Bennett embarked for New York where he was expected to meet with Bahraini and UAE ministers and speak at the United Nations General Assembly (UNGA). 

Bennett and President Isaac Herzog have also met with King Abdullah, in what is seen as a series of overtures to repair Israel's relationship with the Hashemite Kingdom that had become strained under former Prime Minister Benjamin Netanyahu's tenure.

Lapid and King Abdullah discussed the tensions in Jerusalem, including around the Temple Mount, known to Muslims as al-Haram al-Sharif. The two men also spoke of ways to improve ties between Israel and Jordan, acceding to Channel 12.

It added that the Biden administration received a report of the visit.

Bennett's government has also signed a major water deal with the Hashemite Kingdom that almost doubled the amount of water Israel sends to Jordan. It also agreed to allow Jordan to increase its exports to Palestinian areas of the West Bank.

Israel's longest border is with Jordan and the stability of it is vital for Israel's security. 

Anti Iran stance of Bennett can’t make him true successor of Netanyahu

Prime Minister Naftali Bennett addressed the UN General Assembly for the first time, barely 100 days after he was sworn in, ending Benjamin Netanyahu's more than decade-long premiership. 

"For way too long, Israel was defined by wars with our neighbors," Bennett said in his address. "But this is not what Israel is about. This is not what the people of Israel are about. Israelis don’t wake up in the morning thinking about the conflict. Israelis want to lead a good life, take care of our families, and build a better world for our children."

Bennett warned the assembly that two problems – the coronavirus and political polarization – were "challenging the very fabric of society at this moment" and has the ability to "paralyze nations." 

“Israel had rejected polarization by forming the government he leads, what started as a political accident can now turn into a purpose," Bennett said. "And that purpose is unity. Today we sit together, around one table. We speak to each other with respect, we act with decency, and we carry a message: Things can be different."

As for the pandemic, Bennett said Israel had successfully developed a model for managing it by rejecting lockdowns and embracing booster shots. "Lockdowns, restrictions, quarantines – cannot work in the long run," he said. The government's decision to begin providing booster shots was a tough one, given the fact that the US Food and Drug Administration hadn't approved them, but it ultimately paid off, Bennett stated, saying that Israel "pioneered the booster shot."

Turning to the issue of Iran, Bennett blamed Tehran for funding, training and arming groups that "seek to dominate the Middle East and spread radical Islam across the world," as well as to destroy Israel. Furthermore, he said, Iran is trying to dominate the region by stretching its presence into Lebanon, Iraq, Syria, Yemen, and Gaza, and "every place Iran touches – fails."

Bennett also warned that Iran's nuclear weapons program had "hit a watershed moment, and so has our patience," saying that Tehran has crossed all red lines and ignored international inspections. "Words do not stop centrifuges from spinning," he said.

Bennett took the opportunity to criticize countries that took part in a commemoration marking the 20th anniversary of the adoption of the Durban Declaration and Program of Action.

"And to those countries who chose to participate in this farce, I say', Attacking Israel doesn’t make you morally superior, fighting the only democracy in the Middle East doesn’t make you "woke", adopting clichés about Israel without bothering to learn the basic facts, well, that's just plain lazy," he said.

The prime minister did not address the Palestinian issue after last week’s UN speech by Palestinian President Mahmoud Abbas, who delivered a one-year ultimatum to Israel to withdraw to pre-1967 borders.

Netanyahu’s Likud party quickly issued a statement criticizing Bennett’s speech and extolling his predecessor. “Netanyahu's speeches at the UN made waves all around the world and brought Israel's political interests to the forefront of international attention,” read the statement. “Unlike him, Bennett gave an empty speech in front of an empty hall and wasted empty words, instead of taking advantage of an important international platform.” 

The Palestinian ambassador to the UN, Riyad Mansour, told Palestinian radio station Ashams that Bennett had ignored not just the Palestinians, but also the international community, in his speech. "We will act on all fronts, especially the Security Council and the International Criminal Court and all the countries of the world, but the anchor will be the Palestinian people's unity and its hold on its land," he said. "The world remembers well what happened in May in the lands of Palestine," including within Israel's pre-1967 borders, Mansour added, referring to Jewish-Arab violence and rioting earlier this year during a military confrontation between Israel and Hamas.

Any attack by Israel on Lebanon will be met with a response, says Qassem

Any attack by Israel on Lebanon will be met with a response from Hezbollah, said Deputy Secretary General Sheikh Naim Qassem on Friday evening, according to Palestinian media.

"Any Israeli attack on Lebanon will be met with a response from Hezbollah. Even if [Lebanon] is dragged into a war, we will face the war. Our weapons are locked and loaded. If we need more, we have our ways to rearm ourselves," he said, according to reports on Twitter.

“We are waiting for the Lebanese government’s position on the indirect negotiations with [the Israeli enemy] regarding the border issue, and when our turn arrives, we will do our duty,” he said. 

"We will continue to bring oil as long as Lebanon’s central bank and Lebanese fuel companies do not supply Lebanon’s oil/fuel needs," he added.

Qassem's statement came in the backdrop of Lebanese President Michelle Aoun's speech at the United Nations General Assembly earlier on Friday.

In his speech, Aoun called for a resumption of the indirect talks on Lebanon's maritime dispute with Israel. 

"We remain gravely concerned at Israel's repeated threats against Lebanon and, more recently, Israel's plans to carry out oil and gas exploration activities along the contested maritime border," he said.

"We condemn any and all attempts to violate the limits of our exclusive economic zone and we maintain our right to the oil and gas found within that zone," he said. 

"Lebanon demands the resumption of indirect negotiations on the demarcation of the southern maritime borders in line with international law," Aoun said. "We will not relinquish or compromise on our border claims and it is the role of the international community to stand with us."

Israel and Lebanon began US-mediated negotiations regarding their maritime border in October 2020, which were the first talks between the countries in 30 years. The two Middle East neighbors hoped that settling the border dispute would encourage further gas exploration in the area.

Israel already pumps significant amounts of gas from the Mediterranean, but Lebanon has yet to do so.

The Lebanese delegation at the time faced significant pressure from Hezbollah to abandon the negotiations.

After four rounds of talks, negotiations stopped in November. Israeli Energy Minister Yuval Steinitz accused Lebanon of changing its position seven times, presenting “positions that add up to a provocation.”

Aoun's remarks came two weeks after a new Lebanese government was sworn in, ending a 13-month long political crisis that began after a devastating blast destroying the Beirut port on August 4, 2020.

Qassem's statement may be an attempt to signal to the Lebanese people that despite Aoun's condemnation of Israel's actions, Hezbollah still sees itself as the true defender of Lebanon.

Germany gets ready for most unpredictable elections

For the first time in well over a decade, German voters will enter polling booths for federal elections on Sunday with no clear idea which party will win, who will be the next chancellor, or what governing coalition will be formed.

Only a razor’s edge separates the centre-left Social Democratic Party (SPD) from the conservative Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), according to the latest poll by the Allensbach Institute, which puts the archrivals at 26 percent and 25 percent, respectively.

Other polls released in recent days put the SPD’s lead at two to four points, with a margin of error of about 3 percent.

Experts have urged caution when interpreting polling data due to the uncertain influence of a historically high number of undecided voters, as well as an expected surge in postal voting.

Exit polls will be released when voting ends at 6pm local time (16:00 GMT) on Sunday, and results will emerge throughout the night.

Angela Merkel’s decision to depart as chancellor after 16 years has upended German politics and led to the most unpredictable race in years. At various points in the campaign, the SPD, CDU/CSU and the Greens have each been leading the polls.

Climate change has dominated party programs and televised debates more than any other issue. On Friday, more than 100,000 protesters joined outside the German parliament building in Berlin, where activist Greta Thunberg told crowds that “no political party is doing even close to enough” to avoid climate disaster.

Other points of debate included social welfare spending and raising the minimum wage, overhauling Germany’s rickety digital infrastructure, and the country’s role in the NATO alliance.

Success and failure in the campaign have largely been determined by party leaders’ ability to frame themselves as a natural heir to Merkel, who remains Germany’s most popular politician.

Gaffes by CDU leader Armin Laschet saw his approval rates tank, while allegations of CV-padding and plagiarism knocked Green candidate Annalena Baerbock’s race off course.

Finance Minister and SPD candidate Olaf Scholz has played up his reputation as a boring, pragmatic centrist to great effect.

A recent poll found that 47 percent of voters favoured him for chancellor, compared with 20 percent for Laschet and 16 percent for Baerbock.

“The issue of succession became perhaps the most important campaign issue,” Kai Arzheimer, a professor of politics at the University of Mainz, told Al Jazeera.

“Voters are more worried or more interested in who would be most competent, and who would be best able to manage Germany and Germany’s future. So personalities have become a major focus in this campaign.”

A total of 60.4 million voters aged above 18 are eligible to cast a ballot on Sunday. Voting booths will open at 8am (06:00 GMT) on Sunday and close at 6pm (16:00 GMT).

Under Germany’s electoral system, voters cast two ballots for the Bundestag, the federal parliament, which has a base number of 598 seats.

The first is for a candidate to represent one of Germany’s 299 districts, which is determined in a United Kingdom-style first-past-the-post system.

The second is for a party. These votes are distributed according to proportional representation to each party that passes a 5 percent threshold, who chose 299 more candidates from internal lists to represent them.

A number of “overhang” seats are created if there is an imbalance between a party’s directly elected seats and its share of voters, a feature that has caused the Bundestag to balloon in size.

In 2017, the total number of seats rose to 709, and the number is expected to rise again this year.

The states of Berlin and Mecklenburg-Vorpommern will also hold simultaneous state elections. Berliners will receive a further ballot for a referendum to expropriate the capital’s largest landlords and take nearly a quarter-million homes into state ownership.

Germany’s federal returning officer told local media that the number of votes submitted by post would be at least 40 percent, potentially even doubling the 28.6 percent in 2017.

The COVID-19 pandemic is not expected to reduce turnout, he added, noting that regional elections earlier this year did not see any significant decline.

In the coming weeks and months, German parties will negotiate with each other to form a coalition capable of governing with a majority in the new Bundestag.

There is little appetite to renew Merkel’s favoured “grand coalition” of SPD and CDU/CSU, so polling suggests three parties will be required.

There are no formal rules that govern coalition talks, which will last until MPs vote in a new government and elect a new chancellor.

The CDU and the SPD have indicated that they will seek to lead a coalition even if they do not come out in the first place.

The most likely options, taking their names from the party colours, are a so-called “traffic light” combination of SPD, Green and Free Democratic Party (FDP); or a “Jamaica” coalition of CDU/CSU, Green and FDP.

The pro-business FDP wants tight fiscal control over finances, which complicates a marriage with the SPD and the Greens, who have staked their campaigns on increasing spending for social welfare and climate protection.

“This might be a very big issue, whether we will have more taxes or higher taxes, or not,” said Ursula Munch, director of the Academy for Political Education in Tutzing.

“The Free Democrats, they promised their voters to have a tax reduction.”

A left-wing coalition of SPD, the Green and the Left Party may be mathematically possible if the latter clears the 5 percent hurdle to enter parliament. The Left’s program has more in common than the FDP, but its opposition to NATO is a major barrier to the larger parties.

“It will take quite a long time,” said Munch. “It’s impossible to form a coalition before November and we’ll be happy if we have one in February.”

If Merkel does stay on as interim chancellor until December 17, she will make history by overtaking her mentor, former CDU leader Helmut Kohl, as Germany’s longest-serving post-war leader.

Israel aims at repairing relationship with ruling junta in United States

Israel is deeply concerned with what is happening in the Democratic Party and how even something like Iron Dome - a purely defensive system - is no longer a matter of consensus.

On Thursday evening, the House of Representatives approved a bill to provide Israel with US$ one billion in aid to replenish stockpiles of Iron Dome interceptors, used up during the IDF’s last clash with Hamas in the Gaza Strip in May.

The decision to provide the funding was made earlier this year by US President Joe Biden during his meeting at the White House in August with Prime Minister Naftali Bennett.

Initially, the Democratic Party leadership tried to insert the provision into a stopgap spending bill aimed at averting a government shutdown at the end of the month. But then they came up against opposition from the far-left flank of the party, including members of the so-called “Squad” like representatives Alexandria Ocasio-Cortez of New York and Rashida Tlaib of Michigan.

Leadership of the party pulled the provision from the bill and decided to bring it back to the House as a stand-alone piece of legislation, which was done on Thursday, passing with an overwhelming majority of 420 to 9.

Interestingly, Ocasio-Cortez voted “present” – a form of abstaining – after initially planning to vote against the bill. She was later seen crying on the House floor.

In a letter to her constituents in New York that she posted to Twitter Friday, Ocasio-Cortez said she was inclined to vote “no” at first because she opposes giving “unconditional” aid to Israel while “doing nothing to address or raise the persistent human rights abuses against the Palestinian people.” She did not explain what caused her to switch her vote to “present.”

On the one hand, Israel can breathe a sigh of relief. The bill passed and it received overwhelming support. On the other hand, Israel needs to be deeply concerned with what is happening in the Democratic Party and how even something like Iron Dome – a purely defensive system that saves lives – is no longer a matter of consensus. Instead, even Iron Dome stirs controversy.

It is important that we recognize the truth, Israel has a problem. Part of it is the fault of Israel and part of it has nothing to do with Israel.

The part that is on Israel is the active role the previous prime minister played in undermining support for Israel in the Democratic Party. He did this by intentionally clashing with then-President Barack Obama, the way he spoke against the Iran deal in 2015 in Congress and the way he cozied up to former President Donald Trump, while knowing that it could push away Democratic friends.

On the other hand, some of the trends seen today in the Democratic Party have nothing to do with Israel. The Squad wasn’t created around Israel but rather to advance progressive, far-left issues in which Israel gets entangled.

It is into this situation that Mike Herzog, Israel’s newly-confirmed ambassador will enter when he arrives in a few weeks in Washington. He will have to maneuver between an administration and Congress that is seemingly supportive of Israel on the one hand, but also needs to balance that support within a party that appears to be moving farther and farther to the Left.

The Iron Dome fiasco shows what Herzog’s number one mission needs to be, trying to repair ties within the Democratic Party while building new alliances and relationships with minority groups throughout the US.

Policy on Iran is important but that will anyhow be determined by the political echelon. Policy on the Palestinians is also important but everyone knows that not too much can happen now anyhow due to the unique makeup of the current government.

Where the needle can potentially move is in the relationship between Israel and the current ruling party in the US. Herzog should come to this with a strategic plan, focused on identifying friends and untapped potential allies, and communicating about Israel and its policies in a way that can appeal to a progressive and liberal demographic.

Waiting out an administration or a Congress is not a strategy even though that is what former Prime Minister Benjamin Netanyahu did when Obama was president.

Israel needs to initiate, to communicate and to build relationships. What happened with Iron Dome shows how important all of this is?

Angry Americans Hysterical Reactions

After Iranian President Ebrahim Raisi virtually addressed the 76th United Nations General Assembly, many political analysts commented on the contents of his speech. However, what is interesting is that the authors of the JCPOA are crying over an empty coffin. 

To examine this issue, let’s review what the president told the UN General Assembly.

“Sanctions are the US new way of war with the nations of the world,” Raisi said at his speech. 

Is this a remark that anyone can object it? No. The fact is the United States has imposed crippling sanctions against Iran cannot be denied. Even the American or hardliner Israeli analysts admit this. As the Iranian president rightfully said, sanctions against the Iran started “not with my country’s nuclear program; they even predate the Islamic Revolution and go back to the year 1951 when oil nationalization went underway in Iran…”

The United States went too far in its illegal sanctions on Iran to the extent that strict financial sanctions even impeded the import of medicine and medical equipment to Iran at the time of the global Coronavirus pandemic. There is little doubt that the Americans committed medical terrorism against the Iranian people. Raisi also pointed to this fact in his speech.

“Sanctions, especially on medicine at the time of the COVID-19 pandemic, are crimes against humanity,” he said.

He also emphasized, “I, on behalf of the Iranian nation and millions of refugees hosted by my country, would like to condemn the continued illegal US sanctions especially in the area of humanitarian items, and demand that this organized crime against humanity be recorded as a symbol and reality of the so-called American human rights.”

Soon after the speech, a network of analysts and commentators started bashing Raisi, as well as screaming over a revival of the JCPOA. Since Raisi administration took the power in early August, Iran started to patiently evaluate the situation to return to the negotiations table. In a phone call on 14th September 201 with former British Foreign Secretary Dominic Raab, Iranian Foreign Minister Hossein Amir Abdollahian said that Iran is in the process of “consultations on how to continue the Vienna talks,. He reiterated to welcome negotiations that have tangible results and secure the rights and interests of the Iranian people.”   

This is what the Iranian president had previously touched on during first TV interview on 5th September.

“Negotiation is an option as a tool for diplomacy, but negotiation under pressure and threats is not acceptable at all,” Raisi insisted.

After Raisi’s speech, Ali Vaez, Director of Iran Project and Senior Advisor to the Crisis Group tweeted, “.@raisi_com’s speech at #UNGA was one of the most anti-American speeches I’ve heard from an Iranian president in years.” 

Barbara Slavin, Director of the Future of Iran Initiative at the Atlantic Council, replied to Vaez’s tweet, saying, “As harsh as @Ahmadinejad1956 but more coldly rational. Did you notice at the end, #Raisi said #Iran wanted 'large scale economic and political cooperation with all countries of the world? We need to remember, as well, that he is only the front man, not the decider.” 

Yet, the most predictable strategy was outlined by the CEO of The Foundation for Defense of Democracies (FDD), Mark Dubowitz.

He tweeted, “Raisi’s new negotiating team will ask for total sanctions relief and give less than the JCPOA. @USEnvoyIran @Rob_Malley will give them 97% and then pretend that they held the line and that there’s a “longer and stronger” deal to be had.”

It seems that the thinkers, who helped draft the JCPOA, don’t agree with the text anymore, as it ostensibly contradicts their desires. The plan is now clear. Bashing Raisi and his foreign policy team with every tool in order to write a “longer and stronger” deal to satisfy desires is not helpful at all. But what is really a longer and stronger deal? 

The United States has always been interested in dragging the Iranian missile program into the negotiations. For eight years, since the intensive negotiations started, Iran has made it crystal clear that its defensive capabilities are not up for negotiations. Yet, the United States is using various pressure tools to impose a deal on Iran. Iran has always reiterated that it will only go back to the original 2015 JCPOA text, if and only if the US verifiably lifts all sanctions. 

As for Raisi’s speech, he condemned US terrorism and extremism in Afghanistan, Iraq, Syria, and Yemen, asked for the lifting of all sanctions, and restated that Iran will return to the Vienna talks were intended to revitalize the nuclear deal.

If this is too harsh for the Crisis Group, then it shows that the JCPOA revival is not their concern. Had it been so, they would not have objected to a rational speech in which Raisi insisted on the need to lift sanctions. It is advised that the thinkers would not shed crocodile tears over the JCPOA revival.