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European Stocks Jump As Inflation Disappoints, US Futures Flat Ahead Of Yellen Speech
It is only logical that a day after the S&P500 surged, hitting Goldman's 2016 target of 2,100 more than a year early because the US manufacturing sector entered into a recession, that Europe would follow and when Eurostat reported an hour ago that European headline inflation of 0.1% missed expectations of a modest 0.2% increase (core rising 0.9% vs Exp. 1.1%), European stocks predictably surged not on any improvement to fundamentals of course, but simply because the EURUSD stumbled once more, sliding by 40 pips to a session low below the 1.06 level.
In other words, just because the ECB is failing in its mandate to spur inflation, stocks are surging because the ECB is about to unleash even more of the same "medicine" that does nothing for the economy but at least boosts risk assets.
As a result, while US equity futures remain relatively flat (the US ramp takes places just after the 9:30am open), Europe is outperforming the rest of the world thanks to the ECB's failure to satisfy its mandate:
- S&P 500 futures up 0.1% to 2102
- Stoxx 600 up 0.4% to 386
- MSCI Asia Pacific down 0.1% to 134
- US 10-yr yield up 2bps to 2.16%
- Dollar Index up 0.25% to 100.04
- WTI Crude futures down 0.8% to $41.50
- Brent Futures down 1% to $43.99
- Gold spot down 0.2% to $1,068
- Silver spot down 0.2% to $14.17
Elsewhere, global stocks are little changed before Federal Reserve Chair Janet Yellen delivers a speech to The Economic Club of Washington, in her first of two speeches in 48 hours. On Thursday she testifies before Congress' Joint Economic Committee. It's expected she'll signal a December interest rate hike is likely, while stressing the pace of increases thereafter will be gradual. U.S. data on Wednesday showed manufacturing activity unexpectedly contracted in November, throwing up questions about the durability of the world's largest economy. There's a 72 percent chance the Fed will raise rates in two weeks, according to Bloomberg data.
As a result of yesterday's recessionary manufacturing PMI, the bond market reverted back to the QE trade, if only on the long end and the spread between 10-year notes has narrowed to the least in 10 months. Two-year securities are yielding their highest in over five years, rising 30 basis points since the last Fed meeting on Oct.28.

Not all Fed officials are talking up the prospects of action this month. On Tuesday Chicago Fed President Charles Evans - known as a dovish Fed policymaker - admitted "to some nervousness" about the upcoming decision. He thinks it may be appropriate for the Fed funds rate to still be under 1 percent at the end of 2016.
The biggest highlights in FX overnight was the Aussie dollar, where a Bloomberg index of the currency has risen to its highest since the beginning of July, prompted by a stronger-than-forecast growth report. GDP rose 0.9 percent in the third quarter from a revised 0.3 percent in the previous three months. Dig beneath the surface and the picture isn't so rosy, though. The expansion was driven by the fastest gain in exports since 2000. Domestic demand contracted by 0.5 percent, the biggest decline since 2009. Since the third quarter, when the Australian dollar fell by almost 9 percent against its U.S. counterpart, it's rebounded 4 percent as expectations diminish for a rate cut in the first half of 2016. The central bank kept its benchmark rate unchanged at a record-low 2 percent yesterday.

Also in FX, as noted above the most notable release came in the form of Eurozone CPI (CPI Estimate Y/Y 0.10% vs. Exp. 0.20%), with the below expectation reading further heightening calls for the ECB to act at their meeting tomorrow, and as such seeing further softness go through EUR, with EUR/USD making a break below the 1.0600 handle. This comes after an initial bid in EUR as European participants arrived at their desk on touted profit and short-squeeze related flow, while ATM vol sharply higher ahead of the eagerly awaited ECB meeting tomorrow. EUR/CHF ATM vols also traded sharply higher in early trade as market participant's position for the upcoming ECB decision and also speculate as to whether the SNB will have to act too.
In commodities, oil continued to slide, dropping for the third day in four as OPEC ministers arrive in Vienna ahead of Friday's meeting. It's been over a year since the cartel maintained output to defend market share against higher-cost shale producers. In that time, crude oil has slumped 37 percent. Saudi Arabia's Oil Minister Ali al-Naimi says his country will consider all issues and listen to the concerns of other group members
Taking a closer look at regional markets, Asia stocks traded mixed with price action relatively subdued ahead of upcoming key risk events . Nikkei 225 (-0.4%) saw a mild pullback amid a lack of catalysts to propel the index firmly above 20,000, while the ASX 200 (-0.2%) was initially led lower by industrials, although recovered from lows following encouraging Australian Q3 GDP figures. Shanghai Comp. (+2.3%) fluctuated between gains and losses led by financials after insurers outperformed following the NDRC easing requirements for corporate bond issuance and encouraged insurers to develop bond default insurance and swaps. On the other hand, gains were capped by weakness in tech names coupled with the sharp losses seen in Shenzhen indices. 10yr JGBs tracked USTs higher, while the BoJ also entered the market to purchase JPY 470b1n worth of government debt. BoJ's Iwata says the central bank will ease if the Japanese price trend comes under threat by the slowdown in emerging markets. Note, that these comments by Iwata are largely in line with the neutral rhetoric coming out of the BoJ
Top Asian News:
- Aussie Economy Accelerates as Exports Gain Most in 15 Years: 3Q GDP rises 0.9% q/q vs est. 0.8% gain
- Bank of Japan Raising QE Exit Provisions Seen as Drop in Bucket: Kuroda has said balance sheet concerns won’t stop more easing
- China Eases Controls on Corporate Bond Sales as Growth Slows: AAA rated notes could be waived from internal review
- China’s Lufax Said to Seek $1 Billion at $15 Billion Value: Lender valued at $10 billion during last fundraising in March
- Rajan Gives Rupee Bond Bulls Confidence to Forecast End of Rout: Mobius sees “lot of room” for Indian central bank to cut rates
- Price Cuts Herald Sydney Home-Boom End as Foreigners Retreat: Real estate agents having to accept price reductions on homes
In Europe, equities spent the morning trading in positive territory in line with their Asian counterparts and were further bolstered by increased speculation regarding the ECB tomorrow after the lower than expected CPI reading (Euro Stoxx: +0.5%). Gains were initially capped by materials and energy names, with the commodity complex seeing continued weakness. WTI and Brent Jan'16 futures both saw downside this morning to trade below USD 41.50 and USD 44.00 respectively.
In line with the upside seen in equities, Bunds also rose on increased ECB-related speculation ; while looking at the roll, Bunds have been changing hands at -181 ticks compared to a five week range of -200/-163 on a settlement basis. Also of note, the Mar/Dec Gilt 10Y spread ended wider by 90 ticks yesterday, the widest for the spread since the roll spread began. In terms of the periphery, long end Spain outperforms with 10s30s flatter by 2bps, with 30Y SPGB richer by over 2bps against Italy amid touted real money demand.
Top European News:
- Inflation Stuck Near Zero Reinforces Draghi’s Push for Stimulus: Euro-area inflation unexpectedly unchanged in Nov., giving fuel to Draghi’s campaign to step up stimulus
- VW’s Billionaire Owners Vow to Back Carmaker’s Scandal Recovery: Owners underscored their commitment to carmaker, breaking silence more than two months after scandal
- Abengoa, the Teetering Sun King of Spain, Prepares for End Game: Banks, bondholders ready for battle to recover what they can, company, creditors have until end March to reach agreement
- Adidas Said to Prepare to Sell Reebok-CCM Next Year: Sale may happen early next yr as co. simplifies its business, NYP reports
- Nissan Union Rebukes French Over Power Grab at Partner Renault: Double voting rights for French would destabilize alliance between two of world’s largest carmakers, union says
Onto the day ahead, it’s a fairly quiet start data-wise in the European session this morning with just the advanced November CPI reading for the Euro area due up, which missed expectations of a 0.2% print. Over in the US it’s all eyes on the ADP employment change reading for November (market expectations for 190k). Also expected are the final revisions to Q3 unit labour costs and nonfarm productivity along with the ISM NY. Fedspeak wise, the big focus will of course be on Fed Chair Yellen who is due to make brief welcoming remarks at an event at 1.30pm GMT, followed by her comments to the Economic Club of Washington in the early evening. Elsewhere we’re also due to hear from Lockhart (1.10pm GMT), Tarullo (2.00pm GMT) and Williams (8.40pm GMT). The Fed’s Beige Book is also due to be released later this evening.
Top Global News:
- Treasuries Retreat Before Yellen; Europe Stocks Rise, Oil Drops: Yield on 10-year U.S. notes rebounded from a one- month low, OPEC seen maintaining output amid global eco uncertainty
- Yahoo’s Board to Discuss Sale of Web Businesses, WSJ Reports: Board considers potential sale in a series of meetings starting Wednesday
- Mark Zuckerberg Philanthropy Pledge Sets New Giving Standard: Mark Zuckerberg and his wife pledged to give away virtually all of their $46b in Facebook shares
- Citigroup Bonus Pool for Traders, Bankers Said to Stay Flat: Decision is preliminary and hinges on performance in December
- Hedge Funds Brace for Redemptions as Losses Engulf Marquee Firms: Industry coming off worst 3Q inflows since 2009
- Saudi Oil Minister Pledges to Listen to Other OPEC Members: Saudi Arabia will discuss all issues at the OPEC meeting on Friday and listen to concerns of other members
- Euro Bears Looking to Draghi to Sustain Slide Toward 2002 Low: Traders betting euro will extend three months of losses vs USD and decline toward parity last seen in 2002 may find support from Draghi
Bulletin Headline Summary from Bloomberg and RanSquawk
- Lower than expected Eurozone CPI has seen softness go through the EUR and bolstered equities and fixed income ahead of tomorrow's ECB meeting
- WTI and Brent have traded lower throughout the session, with yesterday's API crude oil inventories showing a build, albeit a lower build than previous
- Looking ahead, today sees Eurozone CPI, BoC rate decision, US ADP employment change and release of Fed Beige Book as well as comments from Fed's Lockhart, Tarullo, Williams and Yellen
- Treasuries decline before Yellen speech and as market prepares for ECB and Draghi tomorrow with November nonfarm payrolls due Friday.
- Euro-area inflation remained at 0.1% in Nov., lower than expectations for an increase of 0.2%
- Fed Governor Lael Brainard urged her colleagues at the central bank to move cautiously as they raised interest rates and to expect the Fed’s benchmark to top out at a lower level than in previous economic expansions
- Obama has pushed an approach to climate change in Paris that ensures any final deal won’t hinge on a ratification vote in the Senate. Unlike other international accords, it would not be subject to the chamber’s “advice and consent”
- Puerto Rico made a crucial round of bond payments Tuesday, buying precious weeks to negotiate with its creditors over ways to reduce the island’s crippling debt
- As far as bond traders are concerned, Empresas ICA SAB’s missed interest payment this week is just a prelude to what’s likely to be the biggest default in Mexico in at least two decades.
- Hours after Turkey announced it had downed a Russian jet last week, Putin made his first move -- targeting Turkish goods. Other measures soon followed
- While Russia isn’t alone in using the strategy, it stands out for the speed and breadth of its retaliatory steps, according to Christopher Granville, a former U.K. diplomat in Moscow
- Cameron will make the case for extending British airstrikes against Islamic State into Syria as he asks Parliament Wednesday to back military action in a vote
- Hedge fund investors are losing patience even with marquee firms as many of them struggle this year, especially those that offer macro strategies or stock funds heavily weighted to rising shares
- Citigroup plans to leave its bonus pool unchanged from 2014, joining JPMorgan in a move that puts pressure on their weakened rivals in Europe, according to a person briefed on the matter
- A bond regulator in China has said it will ease controls on corporate debt sales as economic growth slows
- Sovereign 10Y bond yields mostly lower. Asian stocks mostly lower, European stocks gain, U.S. equity-index futures rise. Crude oil, copper and gold lower
US Event Calendar
- 7:00am: MBA Mortgage Applications, Nov. 27 (prior -3.2%)
- 8:15am: ADP Employment Change, Nov., est. 190k (prior 182k)
- 8:30am: Non-farm Productivity, 3Q F, est. 2.2% (prior 1.6%); Unit Labor Costs, 3Q F, est. 1% (prior 1.4%)
- 9:45am: ISM New York, Nov., est. 58 (prior 65.8)
Central Banks
- 8:10am: Fed’s Lockhart speaks in Fort Lauderdale, Fla.
- 8:30am: Fed’s Yellen speaks at National College Fed Challenge in Washington
- 9:00am: Fed’s Tarullo speaks in Washington
- 12:25pm: Fed’s Yellen speaks to Economic Club of Washington
- 3:40pm: Fed’s Williams speaks in Portland, Ore.
DB's Jim Reid completes the overnight wrap
Kicking off what’s set to be a busy December month ahead, the first day of the new month saw markets generally reverse much of what we saw on Monday. In contrast to how we closed out November, European equity markets closed broadly lower yesterday, the Stoxx 600 in particular stalling at -0.31%. Across the pond meanwhile, the S&P 500 finished up +1.07% to kick start the month on the front foot, while the moves for US credit were particularly impressive with CDX IG nearly 3.5bps tighter at the close of play.
Headlines were dominated by what was a pretty soft ISM manufacturing print for the US last month and which as a result saw the Atlanta Fed slash their Q4 GDP forecast to 1.4% from 1.8%. We’ll touch on the data shortly. Comments from Chicago Fed President Evans also attracted some attention in the late afternoon, with the Fed official admitting to some nervousness about the upcoming FOMC decision and highlighting that he would ‘prefer to have more confidence than I do today that inflation is indeed beginning to head higher’. Much like the views of his fellow FOMC colleagues, Evans highlighted the need for the Fed to use ‘language that made it clear about the expected pace of our increases’. Speaking after the market close meanwhile, the Fed’s Brainard was also relatively cautious, highlighting that a ‘new normal’ for the US economy is ‘likely to be characterized by a lower level of interest rates than in the decades preceding the crisis, which counsels a cautious and gradual approach to adjusting monetary policy’.
These comments come before what’s set to be a pretty busy day ahead for Fedspeak, while data-wise we’ve got the November ADP employment change reading which will be closely watched in anticipation of Friday’s employment report. The big focus of today looks set to be commentary from Fed Chair Yellen who is set to deliver her latest economic outlook speech to the Economic Club of Washington around 5.30pm GMT this evening. We’d imagine that this will be a decent preview of what she will likely say before the Joint Economic Committee on Thursday, so worth keeping an eye on.
Back to that data yesterday. One of the most interesting stats of the day was that the two largest economies in the world saw their PMI/ISM’s 'contract' simultaneously for the first time since February 2009. Clearly this is only manufacturing and not services but the US ISM (48.6 vs. 50.5 expected) dipped below 50 for the first time since November 2012 following China's PMI release (49.6 vs. 49.8 expected) that we discussed yesterday morning. With services accounting for around 85% of the US economy the common perception yesterday was that the disappointing number wouldn't have much impact on the Fed's drive to hike in two weeks time (the probability of which is little moved at 72% this morning). This is probably fair but it's another reflection of the unique times we live in that there is such a large gap between services and manufacturing PMIs. In the US they have never diverged as much. We’ll get the latest reads on Thursday and if analyst expectations are correct then this theme will continue.
Taking a look at markets in Asia this morning, it’s been a fairly mixed start for bourses there. Having lagged a bit yesterday, gains are being led out of China with the CSI 300 (+1.44%) and Shanghai Comp (+0.42%) both advancing, while the Hang Seng (+0.34%) is also up. Meanwhile there’s been some modest losses for the Nikkei (-0.18%), Kospi (-0.57%) and ASX (-0.15%). The Aussie Dollar is slightly weaker despite Q3 GDP in Australia coming in a little higher than expected for the quarter (+0.9% qoq vs. +0.8% expected). Elsewhere, Oil markets are about half a percent lower, while credit indices are modestly tighter in Asia.
Looking at the rest of the data yesterday, along with the softer ISM manufacturing print, ISM prices paid last month dropped 3.5pts to 35.5 (vs. 40.0 expected) which was the lowest since February earlier this year. The final manufacturing PMI for November was revised up however at the last count by +0.2pts to 52.8. Elsewhere, construction spending was a bit higher than expected in October (+1.0% mom vs. +0.6% expected) while total vehicle sales last month just topped 18.1m saar which was in line with the market consensus. That manufacturing data caused the Dollar to come under some pressure yesterday with the Dollar index finishing lower (-0.32%) for the first time in a week. Treasury yields fell in tandem, 2y yields in particular nudging down a couple of basis points and off the recent highs to 0.909%.
Over in Europe there was no change to the final Euro area manufacturing PMI at 52.8. Regionally we saw a slight upward revision for Germany (+0.3pts to 52.9) offset by a downward revision for France (-0.2pts to 50.6). The first reads for Italy (54.9 vs. 54.2 expected) and Spain (53.1 vs. 51.7 expected) came in better than expected. Elsewhere the Euro area unemployment rate nudged down in October by a tenth to 10.7%. After the big bounce in October, the UK manufacturing PMI was down 2.5pts last month to 52.7 (vs. 53.6 expected), although still the second highest reading of the last 8 months.
Bringing together all of those PMI’s, DB’s Alan Ruskin pointed out an interesting stat yesterday. Over the last 12 months, the biggest positive manufacturing PMI change has been in Italy, followed by Germany, the Eurozone, Australia and France. At the other end of the scale, the US ISM reading has shown the greatest deterioration, with the US PMI also deteriorating over that time (although not as severely), while South Africa, Brazil and Canada are also lower.
Another interesting data point from yesterday was the latest CEO business optimism data in the US. Based on the Business Roundtable survey, the CEO economic optimism index fell to 67.5 in Q4 which is down from 74.1 in Q3 and now to the lowest reading in three years. Over the next six months, expectations for both sales and capex were nudged lower this quarter, with just 60% of CEO’s expecting sales to rise over the next six months. The proportion who expect capex to decrease rose to 27% from 20% last quarter.
Before we take a look at today’s calendar, a couple of other snippets worth highlighting. After pressure had been building in recent weeks, yesterday saw Puerto Rico honour its latest debt obligations and so avoid default, buying the island a couple of extra weeks to negotiate with creditors on its remaining high debt load. The next repayment deadline is January 1st with the situation still looking very fragile however. Meanwhile, the latest growth data out of Brazil made for fairly bleak reading yesterday. The economy shrank -1.7% qoq in Q3 and more than expected (-1.2% expected). That means YoY GDP in Brazil is now -4.5% and the lowest on record, having previously stood at -3.0%. Combined with other soft data in Brazil of late, it adds to what has been a combination of negative headlines for the country recently, including the ongoing saga at Petrobras and the recent arrest of the Chairman of Brazil’s largest investment bank BTG Pactual.
Onto the day ahead, it’s a fairly quiet start data-wise in the European session this morning with just the advanced November CPI reading for the Euro area due up. Over in the US this afternoon it’s all eyes on the ADP employment change reading for November (market expectations for 190k). Also expected are the final revisions to Q3 unit labour costs and nonfarm productivity along with the ISM NY. Fedspeak wise, the big focus will of course be on Fed Chair Yellen who is due to make brief welcoming remarks at an event at 1.30pm GMT, followed by her comments to the Economic Club of Washington in the early evening. Elsewhere we’re also due to hear from Lockhart (1.10pm GMT), Tarullo (2.00pm GMT) and Williams (8.40pm GMT). The Fed’s Beige Book is also due to be released later this evening.
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European Stocks Jump
Yup....just like fish jumping right into the boat.
Crashing currency=stawks up. Borderline deflation=stawks up. Bruth Jenner gets tits=stawks up. Trillions in debt=stawks up. ESPN shedding subscribers like like a bad case of dandruff=stawks up. Elites meet in Paris to best figure out how to take more of your earnings=stawks up.
That about cover it? ;-)
you forgot war. according to that Arch-Enemy of the EUR, the Dr. Professor "Nobel Laureate" Krugman, an imminent Invasion From Mars would be heaven, for stocks in particular and the economy in general
meanwhile, Paris is important. Yes, most of what is going to be decided there is rubbish, but the principles...
... let's put it this way: if one of the two American Views presented there prevails... we all have huge problems on this planet. including... more wars
"luckily" one of them is utterly unsustainable and the other one is a childish phantasy. both are after all only coverups sold to guillible masses
The only prevalent view among those meeting in Paris is how best to ass rape the gullible on an even grander scale.
nmewn, that's the view(s) that you hear. Your MSM, in it's infinite wisdom, does not tell you much what foreigners think or say
strongly simplified, the average Asian asks why the average European is entitled to a "double ration of oil", or the American to a "fourfold ration of oil", for example
Quite Pavlovian
annnd... another day I am "disappointed" by prices in the eurozone not changing
"It is only logical that a day after the S&P500 surged, hitting Goldman's 2016 target of 2,100 more than a year early because the US manufacturing sector entered into a recession, that Europe would follow and when Eurostat reported an hour ago that European headline inflation of 0.1% missed expectations of a modest 0.2% increase (core rising 0.9% vs Exp. 1.1%), European stocks predictably surged not on any improvement to fundamentals of course, but simply because the EURUSD stumbled once more, sliding by 40 pips to a session low below the 1.06 level. "
aaaand... another day I'm reminded of the Great And Mighty Dollar casting his fearsome light on the whole globe, with the EURUSD as his shadow
Orrrrrrr......maybe it's just this.
http://www.zerohedge.com/news/2015-11-30/futures-rebound-latest-chinese-intervention-renewed-hopes-moar-mario#comment-6855708
possible, though I always understood that the American "Plunge Protection Team" is sponsored by the FED, in order to keep the FED "at arm's lenght"
No country for fat white folks.
Come on in. The waters fine. Oh, and be sure to buy my stawks, they are fresher. I'm just selling to diversifiy and let others bask in the glory of equities.
How the fuck can anyone take the BoJ seriously anymore?
Pretty much all our children that are still taking the Common Core curriculum.
A lot of our states have banned it.....but we're not a 100% yet.
If one quarter of the 57 states ban it, that's about 25. Right?
You showed your work.......so.......that's correct.
WIth the softest ISM since 2009, there are lots of implications for continued dovish Fed policy. Potential for bubble conditions certainly on the rise. Would certainly ensure a sharp pullback in 2016-2017 or crash.....
http://crackerjackfinance.com/2015/12/ism-sinks-to-post-2009-lows-indust...
this has nothing to do with "european stocks jumped". like every day since the end of 2012, as soon as London opens (where US bank affiliates don't have to conform to "stricter" rules on collateral) the stealing begins like clockwork.
if you stole from the bank every day and no one noticed, and you had no soul, would you stop on your own? if the bank owner encouraged you to do so and got a piece of the action after he retired from the bank, would it make it better?
the media around the world can spin as much as they want, this is all theft and corruption. QE is corruption for the 1%, nothing else. politicians decided to turn a blind eye (duuh) and benefit. they will be thrown out one by one, even if it takes years or decades. wealth is being destroyed on a massive scale to everyone below.
hard to be optimistic when everyone on top is bad
if you put it this way: "this is all theft and corruption", then QE is all about "pouring money into the potholes" after the theft and corruption
but the FED's QE has ceased. temporarily, at least
and imo the ECB's QE is... a nonono, you won't export the effects of your QE to us, when you want and the way you want. aka Currency War
Just one more fix should do it.
The 'unofficial' QE has never ceased. Let’s not forget that the regulators have been turning a blind eye to all the same shit that caused the crisis but made the banks profitable...temporarily though.
there are 400+ traders in the "markets" group of the NY FED, who "monitor" markets and some of which arrive at 4:30 AM to "get a jump on market intelligence" activities by calling their "contacts" in London, Frankfurt and Tokyo. this is not me concluding this, this is from the only articles to ever mention any detail whatsoever about their activities (we know more about how the CIA operates than we know from this cartel).
to keep the turd afloat, the wouldn't need QE. they have (and probably created) HFT & algos, along with off-balance sheet vehicles, hedge funds, CME futures market, reverse repo (do they obey the rules?), rehypothecation, margin, securities lending etc etc etc.
yellen is a figure, who runs this is the NY FED and their balance sheet which is 99% of all Federal Reserve holdings. if there ever was any intent on making this more transparent and less of an obvious financial rape of the american people by Wall Street, you would have this balance sheet spread evenly among at least 4 regional offices. the way it is designed encourages this behavior.
madbraz, there is an EU grayman here who posts that the EU is made up of angels and noble spirits ..even before the blood in paris is dry.
criminals I guess are only in America.
The profile is a fat white guy.
overmed, what is a greyman? or, a more burning question: why do you write so often about "the EU government"?
seriously, it confuses me every time. do you really think that "Brussels is something like Washington"? everytime I ask myself if what we have here is really that... outlandish
criminals are everywhere
gotta go , but the Eu is a government when it does what the NWO wants..try climate change regs and open borders, for you it is not a .gov but the JV team, with nato armies as the strong arm and polica as internal security. it to you is a non government government sorta like the FED is independent or government much like a photon is a wave and and particle, but not..is that your view?
even more simple then that: if it has an army, a flag, a territory and it can get away with it... it's a sovereign
sovereigns are firm believers in holding arms, btw, and "government" as such is just an expression of sovereignty
all the rest happens because it's... tolerated by this or that sovereign, depending on how much power and clout they apply
hence "the EU" isn't a government. it's a coalition of governments, if you prefer. some of them hold even nuclear arms
QE4 2016.