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The fall of ISIS in Syria could spell more trouble for the US

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Fears of Turkey abandoning its NATO membership and allies may be premature in the current environment, Aliriza told CNBC.

“It’s not a question of Turkey sacrificing its NATO membership to fight its war against the YPG. Rather, Turkey is using NATO to remind the U.S. of its obligation as an ally,” he said, adding that this alone would make it “unlikely that Turkey would leave the organization.”

There has been plenty of hot rhetoric coming out of Ankara recently, but the U.S. has moved to calm the situation by sending top White House aides, including president Donald Trump’s national security advisor, H.R. McMaster, to meet with Turkey to open a dialogue.

Sending officials like McMaster “to meet with Turkey officials shows the importance that the U.S. places on its relationship with Turkey,” Sloat said.

But first, the U.S. administration must solve its own internal differences before it can work on a more concrete solution in Syria. When the U.S.-led coalition made the announcement for plans of a border security force, Tillerson retracted the statement, telling reporters “that entire situation has been mis-portrayed, mis-described, some people misspoke. We are not creating a border security force at all.”

Commanders on the ground have also said definitively that they want to continue the partnership with the YPG, and will not leave the northern Syrian city of Manbij, even after Turkey’s demands that the U.S. pull out.

“The U.S. needs a coherent internal plan to solve their differences, and then come up with a regional plan for Syria,” Sloat said, adding that the “resumption of a ceasefire and peace talks between Turkey and the [Kurdistan Workers’ Party] are important to resolve the situation.”

Erdogan is under no illusion that he needs to make any concessions, however, especially with Turkish elections coming up in 2019. The military operations in Afrin have garnered huge public support back in Ankara.

Aliriza acknowledged that an agreement has to be made between all parties involved in the region for a deescalation of the situation, even leaving room for the Syrian Kurds to achieve some part of their goal of autonomy.

On paper, the situation can still be managed, according to him: “The tensions between Turkey and the U.S. has not been solved, but it is put on hold as long as Turkey does not expand their operations to Manbij.”

“Until then, there is no direct confrontation between the NATO allies, and the situation can still be managed,” Aliriza pointed out.

Although the YPG are the U.S. allies on the ground in Syria, the U.S. is not present in Afrin where the Kurdish enclaves have experienced Turkish assaults for the past month. Manbij, however, holds hundreds of American soldiers.

During a Tillerson visit to Turkey, Erdogan proposed a plan to expel the YPG contingent from Manbij, with Turkish forces taking over its place with the U.S. Tillerson has agreed to consider the proposal. There are no signs that the Kurdish militia would accede to the request peacefully, however, and any movement by Ankara into the region could complicate matters further.

“If Turkey enters Manbij, the situation will become even more difficult,” Aliriza said.

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China’s Li Auto to raise up to $1.93 billion from Hong Kong listing

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A Li Xiang One hybrid SUV is on display during the 18th Guangzhou International Automobile Exhibition at China Import and Export Fair Complex on November 23, 2020 in China.

Li Zhihao | Visual China Group | Getty Images

GUANGZHOU, China — Chinese electric vehicle start-up Li Auto plans to raise around $1.93 billion in a Hong Kong secondary listing.

The Nasdaq-listed company said it will offer 100 million class A ordinary shares to investors at a price of no more than 150 Hong Kong dollars or $19.29. Final pricing will be announced by Aug. 6.

At 150 Hong Kong dollars per share, Li Auto would raise 15 billion Hong Kong dollars or $1.93 billion.

Li Auto is pushing ahead with the listing despite a recent sell-off in Chinese technology stocks that was triggered by regulatory crackdowns hitting everything from food delivery to ride hailing.

Chinese electric vehicle makers are trying to take advantage of the excitement around the industry to raise money.

Last month, Li Auto rival Xpeng raised around $1.8 billion in a Hong Kong listing.

But Li Auto is also tapping into a trend of U.S.-listed Chinese companies looking to raise money closer to home. Alibaba, NetEase and JD.com are among China’s technology giants that have carried out secondary listings.

Doing a secondary listing in Hong Kong also helps to hedge against some of the geopolitical risk that has spilled over into financial market regulation.

Earlier this year, the U.S. Securities and Exchange Commission adopted rules that impose stricter auditing requirements for foreign firms listed in the U.S. Those requirements carry the threat of delisting for companies that run afoul of the rules.

And last month, the SEC also said it will require additional disclosures from Chinese companies looking to list on U.S. exchanges.

Li Auto said that it plans to use the proceeds of its share offering for research and development into technologies and future models, as well as expanding production capacity and its retail store footprint.

Competition in the Chinese electric vehicle market is getting intense. Start-ups like Li Auto, Xpeng and Nio are competing against established players like BYD and Tesla as well as traditional automakers.

Li Auto said Sunday it delivered 8,589 Li One vehicles in July, a monthly record. The Li One SUV is the company’s only model on the market. It’s a hybrid vehicle that comes with a fuel tank for charging the battery, extending the 180-kilometer driving range by about 620 km (385.35 miles).

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Europe’s economic recovery could slow down amid Delta variant

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LONDON, UNITED KINGDOM – 2021/07/27: Women protect themselves from rain under an umbrella as they walk by a sign in a shop.

SOPA Images | LightRocket | Getty Images

LONDON — European consumers are proving more reluctant to spend money this summer, and it could hurt the economic recovery following the shock from Covid-19, experts told CNBC.

The behavior marks a sharp contrast to last year, when there was a feeling of seizing the moment after the first Covid lockdowns in the region were lifted. Now, consumers are afraid they will be living with Covid-19 for longer than they had expected and are adjusting their attitudes accordingly.

“Because [the pandemic] has been going on for 18 months or so, we have got used to working from home and [are] more cautious about spending,” Marchel Alexandrovich, European economist at investment bank Jefferies, told CNBC on Monday.

Consumers are particularly skeptical about attending crowded events, according to Paul O’Connor, head of the U.K.-based multi-asset team at Janus Henderson.

There are some areas where we see continued consumer caution.

Paul O’Connor

head of the multi-asset U.K. team at Janus Henderson

Speaking to CNBC on Monday, O’Connor said there had been a “steady improvement” in some economic indicators, such as the number of people using public transport, going shopping and even attending the gym. “But there are some areas where we see continued consumer caution,” he added.

A survey published in July by Ipsos Moris showed that 40% of U.K. consumers were not yet comfortable taking vacations abroad. Over 40% of respondents also said they were not comfortable going to large public gatherings such as sports or music events.

In addition, “the return to work has been very hesitant,” O’Connor said, despite the relaxation of Covid restrictions in the U.K. and elsewhere in Europe. This is impacting “the economy around the office,” such as coffee shops, he added, as people opt for a hybrid working model, spending most of their time at home.

The root causes

This consumer behavior is being influenced by both government legislation and the evolution of the pandemic.

Alexandrovich gave the example of some “hesitant” consumers who are not leaving their house before they go on holiday to avoid being in contact with someone who has the virus.

In the U.K., for instance, if you are in contact with someone who tests positive for the coronavirus in the following days, you must self-isolate for 10 days — even if you’re fully vaccinated (at least for now).

Meanwhile, the highly transmissible Delta Covid variant has led to a surge in infections in recent weeks.

 “The evidence from the U.K. suggests that the surge in cases is hampering economic activity as people refrain from taking full advantage of reopening,” economists at Pantheon Macroeconomics said in a note in July.

As a result, this economic consultancy slightly lowered its expectations for U.K. growth in the third quarter. “We suspect forecasters will soon have to contemplate the same in Europe, especially those coming into the third quarter with a baseline that (euro zone) GDP will leap by 3%,” they wrote.

Data released Friday showed that the euro zone grew by 2% in the second quarter of this year, recovering after two consecutive quarters in negative territory.

Though many economists are bullish on the euro zone economy in the coming quarters, they describe it as a “cautious optimism”.

“The surging ‘delta’ variant of SARS-CoV-2 infections across Europe during June and July raised the risk that the ongoing lifting of restrictions could be delayed significantly, ” analysts at Berenberg said in a note last week, although they did note that the number of new infections seems to be cresting in the 19-member bloc.

A waiter wearing a face mask serves customers at a restaurant in Leadenhall Market in the City of London on July 27, 2021.

TOLGA AKMEN | AFP | Getty Images

Bert Colijn, senior economist at ING, also said in a note last week that “looking ahead at [the third quarter], we would note that the Delta variant is causing some delays in the easing of restrictions and that supply chain problems continue to weigh on manufacturing production.” However, he is still expecting GDP to grow by 2% next quarter.

Momentum could be hit by other factors too.

“Growth in most major economies is likely to slow over the coming quarters,” Neil Shearing, group chief economist at Capital Economics, said in a note Monday.

“But the main reason is that most economies have already recouped much of their lost output,” he added, arguing that this likely be seen in the U.K. and euro area later this year.

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Goldman Sachs joins Wall Street rivals in boosting junior banker salaries

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David Solomon, Goldman Sachs & Co.

Andrew Harrer | Bloomberg | Getty Images

There’s a new minimum wage on Wall Street.

Goldman Sachs is giving its junior bankers a pay raise, the last major Wall Street firm to do so in a year where record deal-making activity has led to fierce competition for workers.

First-year analysts — the most junior of investment bankers who are typically recent college graduates — will be paid a $110,000 annual base salary, up from $85,000, according to a person with knowledge of the changes. The person added that second-year analysts will earn $125,000, up from $95,000, and first-year associates will get a $25,000 pay bump to $150,000.

The move establishes a new floor for compensation among major Wall Street investment banking programs. The industry was roiled in March when an internal survey done by Goldman analysts detailed long hours and burnout caused by the deals boom; rivals immediately seized on the controversy to announce perks including $20,000 special bonuses and Peloton bicycles.

But Goldman, which has perhaps the top brand in investment banking, resisted following its rivals in raising pay.

Instead, CEO David Solomon initially told employees the firm was hiring more bankers, automating menial tasks and recommitting to a “Saturday rule” to give workers a weekend respite. The bank had debated internally whether to boost salaries, which are fixed, instead of just making bonuses larger, the Financial Times reported last month.

In the meantime, rival banks including Morgan Stanley, JPMorgan Chase, Citigroup and Barclays all boosted first-year analysts’ pay to $100,000 from around $85,000.  That followed raises from Bank of America and other firms earlier in the year.

The industry can afford to be generous: The business of advising on mergers and acquisitions has been red hot this year, with the volume of deals globally soaring past $2 trillion amid a record first half. Investment banks get paid lucrative fees at the close of deals, and larger deals result in more dollars for compensation pools.

Banks often move in lockstep when it comes to pay and perks, hoping to lure enough talented workers to develop a pipeline of experienced dealmakers.

In the end, Goldman not only met competitors’ pay, but also exceeded it. The move could ultimately force rivals to match the bank’s $110,000 salary for first-year bankers, according to a Wall Street recruiter who declined to be identified.

Junior Goldman bankers also have more news coming: They will learn about the size of their bonuses later this month, according to the person. The percentage of pay a banker makes in so-called variable compensation grows as they climb the ranks.

“We have always paid very competitively,” Solomon said last month during an earning conference call. “We have always been a pay-for-performance organization.”

—CNBC’s Hannah Miao contributed to this report.

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