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[Markets] Stocks Fall Ahead of Fed Chair's First Congressional Testimony Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average was down 0.13% on Tuesday. The blue-chip index has closed higher for 10 of the past 12 sessions. Netflix Inc. fell 13. Published:7/17/2018 9:00:43 AM
[Markets] After the Bell: For the Dow, No Netflix Will Be Good News The Dow Jones Industrial Average edged higher today. The S&P 500 and the Nasdaq Composite did not. In today's After the Bell, we... •...explain why the Dow outperformed the rest of the major indexes; •...review ... Published:7/16/2018 5:21:37 PM
[Markets] Ron Paul Warns When The "Biggest Bubble In History" Bursts, It'll "Cut The Stock Market In Half"

Authored by Michael Snyder via The Economic Collapse blog,

When this bubble finally bursts, will we witness the biggest stock market crash in U.S. history?  “The bigger they come, the harder they fall” is a well used phrase, but I think that it is very appropriate in this case.  From a low of 6,443.27 on March 6th, 2009, we have seen the Dow nearly quadruple in value since the last financial crisis.  It has been a remarkable run, and it has lasted far longer than virtually any of the experts anticipated.  But what goes up must come down eventually. 

This stock market bubble was almost entirely fueled by easy money from the Federal Reserve, and now that easy money has been cut off.  The insiders can see the handwriting on the wall and they are getting out of the market at a pace that we haven’t seen since 2008.  Could it be possible that the day of reckoning is finally at our door?

Of course we have been hearing warnings like this for a very long time.  In fact, I have been warning about a market crash for a very long time.  Just the other day, one of my readers insisted that if something was going to take place that “it would have happened by now”.  In the Internet age, we have been trained to have very short attention spans, but financial bubbles don’t care about the length of our attention spans.  They all inevitably come to a bitter end, but they don’t reach that end until they are good and ready.

And without a doubt we are on borrowed time, but meanwhile so many of us that are continually warning about what we are facing are getting a lot of heat for it.

There's a bubble building in markets that will burst, Ron Paul says from CNBC.

For instance, when Ron Paul told CNBC that the stock market is “the biggest bubble in the history of mankind”, he was strongly criticized for it, but he was 100 percent correct…

This market is in the “biggest bubble in the history of mankind,” and when it bursts, it could cut the stock market in half, he told CNBC’s “Futures Now” Thursday.

If the Dow only plummets to about 12,000 or so during the coming downturn we will be exceedingly fortunate, because the truth is that stock prices need to fall by at least that much just to get us into the neighborhood where stock prices will start to make sense once again.

Today, sales to stock price ratios are hovering near all-time highs.

The same thing is true for earnings to stock price ratios and GDP to stock price ratios.

The only other times these ratios have been so elevated were just before major stock market crashes.

In the end, these ratios always, always, always return to their long-term averages eventually.

It may take many years, but it always happens.

So what factors led Ron Paul to make such an ominous prognostication?  The following comes from CNBC

“The Congress spending and the Federal Reserve manipulation of monetary policy and interest rates — debt is too big, the current account is in bad shape, foreign debt is bad and it’s not going to change,” he said.

Paul isn’t alone in his critique. A number of politicians have voiced concern over ballooning deficits, including current House Speaker Paul Ryan, who raised a warning on the nation’s debt in 2012.

Of course it isn’t just the U.S. that is drowning in debt.

According to the Institute of International Finance, total global debt just hit a brand new record high of 247 trillion dollars

Every quarter the Institute of International Finance publishes a new number of the total amount of global debt outstanding, and every quarter the result is the same: a new record high

Today was no exception: according to the IIF’s latest Global Debt Monitor, the amount of debt held in the world rose by the biggest amount in two years during the first quarter of 2018, when it grew by $8 trillion to hit a new all time high of $247 trillion, up from $238 trillion as of Dec. 31, 2017 and up by $30 trillion from the end of 2016.

Global debt has been rising much, much faster than global GDP, and at this point there is three times as much debt in the world as there is money.

There is no possible way that all of that debt can ever be paid off.  The only way that the party can continue is for debt to continue growing faster than global GDP, and everyone knows that is simply not sustainable in the long-term.

So an absolutely monumental “adjustment” is coming.  You can call it a “crash”, a “collapse” or anything else that you would like, but just as certainly as you are reading this article it is coming.

It is just a matter of time.

But for now, the talking heads on television continue to insist that everything is just fine and that the stock market still has more room to go up

There’s still room for stock markets to rise and worries of an impending recession are premature, according to Berenberg Capital Markets’ chief economist.

“Even if profits peaked in (the first quarter of) 2018, which remains uncertain, history suggests the stock market has room to appreciate,” Mickey Levy, Berenberg’s chief Americas and Asia economist, said in a client note this week. He pointed to data demonstrating how in every economic expansion since the mid-1970s, the S&P 500 index went on to appreciate for a “significant period” after corporate profits peaked.

I wish that CNBC would have me on just one time so that I could refute some of these guys.

Since 1913, the Federal Reserve has gone through 18 rate hiking cycles.  In 18 out of 18 cases, those rate hiking cycles have ended in either a recession or a market crash.

Do you really think that the 19th time will be different?

10 years ago, virtually everyone thought that the “boom times” would last forever too.  But they didn’t.  Instead, we plunged into the greatest economic and financial crisis since the Great Depression, but at this point 2008 seems like ancient history to most people.

Yet again we have fooled ourselves into thinking that the good times will just continue to keep on rolling, and once again our society will be in for a very rude awakening when the inevitable crash finally arrives.

Published:7/16/2018 5:21:37 PM
[Markets] Intraday Update: Dow Flat, Blame 'Paralysis Through Analysis' Earnings season was not distraction enough for markets to get their groove back. •...are in awe of Faang–Facebook (FB), Amazon.com (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOGL)–performance;  •...blame Elon Musk's oversharing for Tesla's (TSLA) sputtering stock.   The Dow has been flat so far Monday at around 25,020.44. Investors found nothing to write home about, despite a good start to the earnings season. Published:7/16/2018 12:53:25 PM
[Markets] [$$] U.S. Stocks Resilient in Trade Spat, Sparking Complacency Fears Trade fears have slammed markets around the world, but U.S. stocks are rising as strong profits and spending lead investors to overlook the risks of a downturn. The S&P 500 and Dow Jones Industrial Average have gone up all but one day since the U.S. and China imposed tariffs on $34 billion of each other’s goods on July 6. The S&P 500 is now up 4.8% for the year. Published:7/15/2018 7:19:51 PM
[Markets] E-mini Dow Jones Industrial Average (YM) Futures Analysis – Strengthens Over 25072, Weakens Under 24825 Based on last week’s close at 25004, the direction of the September E-mini Dow Jones Industrial Average this week will be determined by trader reaction to the 50% level at 24925. Published:7/15/2018 4:41:08 AM
[Markets] Trade Tumult Sparks Safe-Haven Bid For US Bonds & Mega-Cap Tech Stocks

Investors chose to 'barbell' their portfolios today (if you want to believe that such a thing as 'investors' exist) - seeking protection from trade wars by buying bonds and buying the biggest cap, highest valuation, tech behemoths - makes perfect sense really...

Chinese stocks were miraculously panic bid at the open (remember this was after US equities had tumbled)...

 

Once again - as futures show - the US equity market open sparked a ridiculous panic-buying spree in Nasdaq (mega-tech) stocks...

 

Cash markets show that Small Caps undeperformed and actually struggled to get green for a while before europe closed and more momentum came into US Stocks...

VIX was monkeyhammered lower as S&P 2800 was once again the target for the machines but failed (NOTE - the pre-market signaling that we have seen before in those VIX tails)

 

And The Dow extended its bounce off the 50/100DMA...(NOTE, it may be a small thing but this was a lower high in the dow)

 

And another giant short-squeeze...

 

Wells Fargo was lower but the rest of the big banks were up ahead of earnings tomorrow morning..

 

FANG Stocks surged to a new record high...

Does anyone else get the feeling these markets are being 'helped' to ensure the policies of the countries' officials appear to be working (or not hurting)?

And so while investors sought the safe-haven of mega-cap tech stocks, they also bid the long-end of the bond curve...

 

30Y Yields rebounded to pre-Tariff levels then fell back...

 

Notably, following CPI's print this morning, real 30Y yield are once again almost negative...

 

Oh, and while the longer-dated yield curve continued to collapse...

 

The short-end has already inverted...

 

Transitory...

 

The dollar chopped around intraday but ended practically unchanged...

 

Offshore Yuan tumbled overnight, then rebounded to test up to the CNY fix (which was notably devalued), before fading again...

 

Cryptos legged down once again today...

 

PMs managed small gains on the day, as did copper, but crude kept tumbling...

 

In fact WTI traded back below $70 for a while today

 

 

Published:7/12/2018 3:06:38 PM
[Markets] Tariffs: TD Ameritrade’s Views and the Impact on Asset Managers On July 11, JJ Kinahan of TD Ameritrade Holding (AMTD) stated his views on the rising US-China trade tensions. The US markets saw a sharp downtrend on June 11 as President Donald Trump announced new tariffs of $200 billion on China and pulled down the major US stock indexes. The Dow Jones Industrial Average fell sharply and ended the day at 24,700.45. The S&P 500 fell 0.71% and ended at 2,774.02. Published:7/12/2018 1:05:46 PM
[Markets] Intraday Update: Dow Spikes 200 Points as NATO Approves More Military Spending Major benchmark indexes are trying to stage a comeback as China's less-aggressive response to the latest tariffs give investors hope that a reconciliation between the two nations is still possible. In today's Intraday Update, we... •...note that Wednesday's selling "did not get emotional";•...consider what could happen in an all-out trade-war scenario; •...gasp as defense stocks spike on reports that NATO has agreed to U.S. demands for increased military spending.  The Dow's slow rise turned to surge as defense stocks climbed sky-high, while the S&P 500 has climbed 0.7% to 2794.57. The turnaround was not surprising given Wednesday's selling "did not get emotional," wrote Frank Cappelleri, an Instinet technical analyst. Published:7/12/2018 12:35:44 PM
[Markets] Does US Jobs Report Bode Well for Gold Prices? The US non-farm payroll figure for June improved at a marginally slower rate than in May. In June, 213,000 jobs were added compared to 244,000 in May. The data for June, however, beat the market expectation of 195,000 job additions. The broader market S&P 500 Index (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite Index (QQQ) rose 0.85%, 0.41%, and 1.34%, respectively, on Friday, July 6, after the announcement of the non-farm payroll report. The US unemployment rate threw a surprise for June as it grew to 4.0% from 3.8% a month earlier. Published:7/12/2018 6:48:03 AM
[Markets] Broadcom and CA, Comcast and Sky, Papa John's, Twitter - 5 Things You Must Know U.S. stock futures rose on Thursday, July 12, and global stocks regained some poise following the previous session's selloff that was driven by the U.S. trade fight with China. The Dow fell 219 points, or 0.88%, to 24,700, the S&P 500 slid 0.71% and the Nasdaq tumbled 0.55%. Earnings are expected Thursday from Delta Air Lines Inc. Published:7/12/2018 4:58:58 AM
[Markets] US STOCKS-Wall St snaps 4-day rally; latest trade threat weighs * Indexes down: Dow 0.9 pct, S&P 0.7 pct, Nasdaq 0.6 pct (Repeats to include in-line graphic. NEW YORK, July 11 (Reuters) - U.S. stocks fell on Wednesday, breaking a four-session streak of gains after Washington's threat to impose tariffs on an additional $200 billion worth of Chinese goods fanned trade war fears, while a sharp drop in oil prices hit energy shares. China responded to U.S. President Donald Trump's threats by accusing the United States of bullying and warned that it would hit back. Published:7/11/2018 4:55:53 PM
[Markets] After the Bell: Dow Sinks 220 Points as More Tariffs Take a Toll The Dow Jones Industrial Average sold off on renewed worries of a trade war as the U.S. and China continue to spar. •....discuss how Fastenal (FAST) bucked the trend to end higher. A Real Dark Night of the Soul It may be darkest before the dawn, but with the world inching closer and closer to an all-out trade war between the world's two biggest economies, it's starting to feel more like "a real dark night of the soul [where] it is always three o'clock in the morning," as F. Scott Fitzgerald wrote in one of his more pessimistic essays. Published:7/11/2018 3:54:53 PM
[Markets] Trump Tariff Threat Sparks Commodity Carnage, Yield Curve Crash, Stock Slump

And that happened...

China tumbled overnight...

Europe was ugly...

US Futures show the action best... the sudden panic bid at the US cash open...

 

The machines managed to get Small Caps back to unch before it all dropped again..

 

Dow tested down to its 50/100DMA and rebounded intraday...

 

Dow fell back into the red year-to-date...

 

Global Banks tumbled today after a brief bounce...

 

FANG stocks plunged at the open - then the PPT sent them back to the highs...

 

While stocks fell today, they still have a long way to go catch down to the bond market's reality post-Trade-Wars...

 

Treasuries were bid on the trade war, sold off during the day then were bid into the close

 

And the yield curve collapsed to new cycle lows...

 

The Dollar spiked to its highest since July 4th...

 

Offshore Yuan crashed to its lowest close in 12 months...

 

Turkey was a bloodbath today with Lira and stocks battered...

 

 

PMs limped lower but copper and crude were crushed...

 

Commodities were clubbed like a baby seal today - crashing most since 2014 to a new record low...

 

Copper crashed...

 

Crude collapsed...

 

The Global growth scare is upon us...

Published:7/11/2018 3:26:42 PM
[Markets] US STOCKS-Wall St on track to snap 4-day rally; latest trade threat weighs China responded to U.S. President Donald Trump's threats by accusing the United States of bullying and warned that it would hit back. Industrial names including Boeing, 3M and Caterpillar, which have been among the hardest hit throughout the recent trade dispute, were among the Dow's biggest drags on Wednesday. U.S. crude oil futures settled down 5 percent on the trade dispute escalation and as expectations of growing supplies increased on news that Libya would reopen ports. Published:7/11/2018 2:26:33 PM
[Markets] Markets Now: Dow Drops 207 Points as Caterpillar, Chevron Slide Want to know why the Dow Jones Industrial Average is doing what it's doing? 1:59 p.m. There's no relief for the markets today, and a new set of tariffs is to blame. The Dow Jones Industrial Average has slumped 207.16 points, or 0.8% to 224,712.50, with Boeing (BA), Caterpillar (CAT), Chevron (CVX) and 3M (MMM) accounting for more than half the drop. Published:7/11/2018 1:24:37 PM
[Markets] Stocks- Wall Street Slumps amid Another Round of U.S.-China Tariffs The S&P 500 lost 14 points or 0.51% to 2,779.58 as of 9:43 AM ET (13:43 GMT) while the Dow composite decreased 140 points or 0.56% to 24,779.06 and tech heavy NASDAQ Composite was down 43 points or 0.56% to 7,715.99. Published:7/11/2018 11:53:31 AM
[Markets] Technicals Now Suggest Market Support Levels May Be Tested Given the weak action Wednesday morning combined with stochastic levels, we believe that tests of support levels may be forthcoming (more below). The indices closed mixed Tuesday with positive internals on the NYSE while NASDAQ internals were negative. The S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and Nasdaq 100 closed higher while the Dow Transports, S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index posted losses. Published:7/11/2018 10:22:21 AM
[Markets] Global Sovereign Wealth Funds To Abandon Stocks Amid Trade War Tumult

As the hopes and dreams of the end of the trade war - that delusionally sustained around 800 Dow points of exuberance in the last few days - are dashed at the altar of Trump tariff reality, it appears the world's sovereign wealth funds are well ahead of the looming storm.

And away from 3 or 4 mega tech stocks, the broad US equity market is not 'breaking out' as many hope...

In an annual report by asset manager Invesco, over a third of sovereign investors plan to cut their equity exposure over the next three years after a strong run in 2017, citing trade wars, geopolitics and high valuations as headwinds to performance.

Reuters reports that the report, which is based on interviews with 126 sovereign investors and central bank reserve managers with $17 trillion in assets, found equities had overtaken bonds to become the biggest asset class in portfolios, averaging 33 percent. This is up from 29 percent in 2017.

Nearly half of sovereign investors are now incrementally or materially overweight equities, but while 40 percent said they were happy with the status quo, 35 percent plan to reduce their equity exposure over the medium term, Invesco noted.

Alex Millar, head of EMEA sovereigns at Invesco, said survey participants had been “pretty far-sighted” in highlighting the risk of a trade war early in the year.

“Equities had a good run last year, but this hasn’t caused investors to change their long-term expectations – they think returns going forward will be tough,” said Millar.

Maybe the sovereign wealth funds are part of the SMART money that is exodus-ing US equities at an unprecedented pace...

Ironically, as SWFs abandon stocks, Central Banks are venturing deeper into alternative assets and ramping up their risk-taking.

Government-backed agencies have traditionally focused on preserving capital, but, as Bloomberg reports, with some government-bond yields having slumped below zero, central banks are increasing their bets (of their trillions of dollars of foreign reserves) on higher-risk mortgage-backed securities, corporate debt, equities and emerging-market debt.

“Central bank reserve managers typically wake up in the morning figuring out how to avoid losing money,” said Alex Millar, head of EMEA sovereign and institutional sales at Invesco Ltd. But now, "the requirement for return is creeping up.”

“They’ve had to look for asset classes outside of their traditional comfort zone,” Millar said. “They’re beefing up their risk-management capabilities, their understanding of asset classes, having to educate their board on why they need to do that.”

Central banks have earmarked an average of about 14 percent of their assets for non-traditional investments, the survey showed.

Published:7/11/2018 10:22:21 AM
[Markets] Dow Tumbles as Trump Launches New Trade Threats at China Leading decliners on the blue-chip Dow were Boeing Co. fell 0.4% after the drugmaker said Tuesday it would defer price hikes following talks with Donald Trump and said Wednesday that it plans to reorganize into three business units. Stocks on Wall Street fell sharply and global stocks tumbled on Wednesday, July 11, following the latest escalation in trade war rhetoric from the White House, which published a list of $200 billion worth of China-made goods it said will be hit with fresh tariffs. Published:7/11/2018 8:57:13 AM
[Markets] All 30 Dow stocks fall premarket, led by United Technologies and McDonald's All 30 Dow stocks fall premarket, led by United Technologies and McDonald's Published:7/11/2018 8:21:02 AM
[Markets] All 30 Dow stocks fall premarket, led by United Technologies and McDonald's MARKET PULSE All 30 of the Dow Jones Industrial Average's (djia) components' shares were falling in premarket trade Wednesday, as worries over the escalation of a trade war with China weighed on the broader stock market. Published:7/11/2018 7:52:29 AM
[Markets] Markets Now: Dow Drops 218 Points as Trade War Escalates Want to know why the Dow Jones Industrial Average is doing what it's doing? Asian markets slumped on Wednesday after the Trump administration released a list of additional tariffs on $200 billion in Chinese goods. Hong Kong’s Hang Seng dropped 1.3% to 28,311, while Japan's Nikkei 225 shed 1.8% to 21,932.21. Published:7/11/2018 7:21:27 AM
[Markets] A New World Order: Brought To You By The Global-Industrial Deep State

Authored by John Whitehead via The Rutherford Institute,

“There are no nations. There are no peoples ... There is only IBM and ITT and AT&T, and DuPont, Dow, Union Carbide and Exxon. Those are the nations of the world today. The world is a college of corporations, inexorably determined by the immutable by-laws of business.”—Network (1976)

There are those who will tell you that any mention of a New World Order government - a power elite conspiring to rule the world - is the stuff of conspiracy theories.

I am not one of those skeptics.

What’s more, I wholeheartedly believe that one should always mistrust those in power, take alarm at the first encroachment on one’s liberties, and establish powerful constitutional checks against government mischief and abuse.

I can also attest to the fact that power corrupts, and absolute power corrupts absolutely.

I have studied enough of this country’s history—and world history—to know that governments (the U.S. government being no exception) are at times indistinguishable from the evil they claim to be fighting, whether that evil takes the form of terrorism, torture, drug traffickingsex trafficking, murder, violence, theft, pornography, scientific experimentations or some other diabolical means of inflicting pain, suffering and servitude on humanity.

And I have lived long enough to see many so-called conspiracy theories turn into cold, hard fact.

Remember, people used to scoff at the notion of a Deep State (a.k.a. Shadow Government), doubt that fascism could ever take hold in America, and sneer at any suggestion that the United States was starting to resemble Nazi Germany in the years leading up to Hitler’s rise to power.

We’re beginning to know better, aren’t we?

The Deep State (“a national-security apparatus that holds sway even over the elected leaders notionally in charge of it”) is real.

We are already experiencing fascism, American-style.

Not with jackboots and salutes, as Robert Kagan of the Brookings Institution notes, “but with a television huckster, a phony billionaire, a textbook egomaniac ‘tapping into’ popular resentments and insecurities, and with an entire national political party — out of ambition or blind party loyalty, or simply out of fear — falling into line behind him.”

And the United States is increasingly following in Nazi Germany’s footsteps, at least in the years leading up to Hitler’s rise to power.

Given all that we know about the U.S. government—that it treats its citizens like faceless statistics and economic units to be bought, sold, bartered, traded, and tracked; that it repeatedly lies, cheats, steals, spies, kills, maims, enslaves, breaks the laws, overreaches its authority, and abuses its power at almost every turn; and that it wages wars for profit, jails its own people for profit, and has no qualms about spreading its reign of terror abroad—it is not a stretch to suggest that the government has been overtaken by global industrialists, a new world order, that do not have our best interests at heart.

Indeed, to anyone who’s been paying attention to the goings-on in the world, it is increasingly obvious that we’re already under a new world order, and it is being brought to you by the Global-Industrial Deep State, a powerful cabal made up of international government agencies and corporations.

It is as yet unclear whether the American Police State answers to the Global-Industrial Deep State, or whether the Global-Industrial Deep State merely empowers the American Police State. However, there is no denying the extent to which they are intricately and symbiotically enmeshed and interlocked.

This marriage of governmental and corporate interests is the very definition of fascism.

Where we go wrong is in underestimating the threat of fascism: it is no longer a national threat but has instead become a global menace.

Consider the extent to which our lives and liberties are impacted by this international convergence of governmental and profit-driven interests in the surveillance state, the military industrial complex, the private prison industry, the intelligence sector, the technology sector, the telecommunications sector, the transportation sector, and the pharmaceutical industry.

All of these sectors are dominated by mega-corporations operating on a global scale and working through government channels to increase their profit margins: Walmart, Alphabet (formerly Google), AT&T, Toyota, Apple, Exxon Mobil, Facebook, Lockheed Martin, Berkshire Hathaway, UnitedHealth Group, Samsung, Amazon, Verizon, Nissan, Boeing, Microsoft, Northrop Grumman, Citigroup… these are just a few of the global corporate giants whose profit-driven policies influence everything from legislative policies to economics to environmental issues to medical care.

The U.S. government’s deep-seated and, in many cases, top secret alliances with foreign nations and global corporations are redrawing the boundaries of our world (and our freedoms) and altering the playing field faster than we can keep up.

Global Surveillance

Spearheaded by the National Security Agency (NSA), which has shown itself to care little for constitutional limits or privacy, the surveillance state has come to dominate our government and our lives. 

Yet the government does not operate alone.

It cannot.

It requires an accomplice.

Thus, the increasingly complex security needs of our massive federal government, especially in the areas of defense, surveillance and data management, have been met within the corporate sector, which has shown itself to be a powerful ally that both depends on and feeds the growth of governmental bureaucracy.

Take AT&T, for instance. Through its vast telecommunications network that crisscrosses the globe, AT&T provides the U.S. government with the complex infrastructure it needs for its mass surveillance programs. According to The Intercept, “The NSA considers AT&T to be one of its most trusted partners and has lauded the company’s ‘extreme willingness to help.’It is a collaboration that dates back decades. Little known, however, is that its scope is not restricted to AT&T’s customers. According to the NSA’s documents, it values AT&T not only because it ‘has access to information that transits the nation,’ but also because it maintains unique relationships with other phone and internet providers. The NSA exploits these relationships for surveillance purposes, commandeering AT&T’s massive infrastructure and using it as a platform to covertly tap into communications processed by other companies.”

Now magnify what the U.S. government is doing through AT&T on a global scale, and you have the “14 Eyes Program,” also referred to as the “SIGINT Seniors.” This global spy agency is made up of members from around the world (United States, United Kingdom, Australia, Canada, New Zealand, Denmark, France, Netherlands, Norway, Germany, Belgium, Italy, Sweden, Spain, Israel, Singapore, South Korea, Japan, India and all British Overseas Territories).

Surveillance is just the tip of the iceberg when it comes to these global alliances, however.

Global War Profiteering

War has become a huge money-making venture, and America, with its vast military empire and its incestuous relationship with a host of international defense contractors, is one of its best buyers and sellers. In fact, as Reuters reports, “[President] Trump has gone further than any of his predecessors to act as a salesman for the U.S. defense industry.”

The American military-industrial complex has erected an empire unsurpassed in history in its breadth and scope, one dedicated to conducting perpetual warfare throughout the earth. For example, while erecting a security surveillance state in the U.S., the military-industrial complex has perpetuated a worldwide military empire with American troops stationed in 177 countries (over 70% of the countries worldwide).

Although the federal government obscures so much about its defense spending that accurate figures are difficult to procure, we do know that since 2001, the U.S. government has spent more than $1.8 trillion in the wars in Afghanistan and Iraq (that’s $8.3 million per hour). That doesn’t include wars and military exercises waged around the globe, which are expected to push the total bill upwards of $12 trillion by 2053.

The illicit merger of the global armaments industry and the Pentagon that President Dwight D. Eisenhower warned us against more than 50 years ago has come to represent perhaps the greatest threat to the nation’s fragile infrastructure today. America’s expanding military empire is bleeding the country dry at a rate of more than $15 billion a month (or $20 million an hour)—and that’s just what the government spends on foreign wars. That does not include the cost of maintaining and staffing the 1000-plus U.S. military bases spread around the globe.

Incredibly, although the U.S. constitutes only 5% of the world's population, America boasts almost 50% of the world's total military expenditure,  spending more on the military than the next 19 biggest spending nations combined. In fact, the Pentagon spends more on war than all 50 states combined spend on health, education, welfare, and safety. There’s a good reason why “bloated,” “corrupt” and “inefficient” are among the words most commonly applied to the government, especially the Department of Defense and its contractors. Price gouging has become an accepted form of corruption within the American military empire.

It’s not just the American economy that is being gouged, unfortunately.

Driven by a greedy defense sector, the American homeland has been transformed into a battlefield with militarized police and weapons better suited to a war zone. Trump, no different from his predecessors, has continued to expand America’s military empire abroad and domestically, calling on Congress to approve billions more to hire cops, build more prisons and wage more profit-driven war-on-drugs/war-on-terrorism/war-on-crime programs that pander to the powerful money interests (military, corporate and security) that run the Deep State and hold the government in its clutches.

Global Policing

Glance at pictures of international police forces and you will have a hard time distinguishing between American police and those belonging to other nations. There’s a reason they all look alike, garbed in the militarized, weaponized uniform of a standing army.

There’s a reason why they act alike, too, and speak a common language of force.

For example, Israel—one of America’s closest international allies and one of the primary yearly recipients of more than $3 billion in U.S. foreign military aid—has been at the forefront of a little-publicized exchange program aimed at training American police to act as occupying forces in their communities. As The Intercept sums it up, American police are “essentially taking lessons from agencies that enforce military rule rather than civil law.”

Then you have the Strong Cities Network programFunded by the State Department, the U.S. government has partnered with the United Nations to fight violent extremism “in all of its forms and manifestations” in cities and communities across the world. Working with the UN, the federal government rolled out programs to train local police agencies across America in how to identify, fight and prevent extremism, as well as address intolerance within their communities, using all of the resources at their disposal. The cities included in the global network include New York City, Atlanta, Denver, Minneapolis, Paris, London, Montreal, Beirut and Oslo.

What this program is really all about, however, is community policing on a global scale.

Community policing, which relies on a “broken windows” theory of policing, calls for police to engage with the community in order to prevent local crime by interrupting or preventing minor offenses before they could snowball into bigger, more serious and perhaps violent crime. 

It sounds like a good idea on paper, but the problem with the broken windows approach is that it has led to zero tolerance policing and stop-and-frisk practices among other harsh police tactics.

When applied to the Strong Cities Network program, the objective is ostensibly to prevent violent extremism by targeting its source: racism, bigotry, hatred, intolerance, etc. In other words, police—acting ostensibly as extensions of the United Nations—will identify, monitor and deter individuals who exhibit, express or engage in anything that could be construed as extremist.

Of course, the concern with the government’s anti-extremism program is that it will, in many cases, be utilized to render otherwise lawful, nonviolent activities as potentially extremist. Keep in mind that the government agencies involved in ferreting out American “extremists” will carry out their objectives—to identify and deter potential extremists—in concert withfusion centers (of which there are 78 nationwide, with partners in the private sector and globally), data collection agencies, behavioral scientists, corporations, social media, and community organizers and by relying on cutting-edge technology for surveillance, facial recognition, predictive policing, biometrics, and behavioral epigenetics (in which life experiences alter one’s genetic makeup).

This is pre-crime on an ideological scale and it’s been a long time coming.

Are you starting to get the picture now?

We’re the sitting ducks in the government’s crosshairs.

On almost every front, whether it’s the war on drugs, or the sale of weapons, or regulating immigration, or establishing prisons, or advancing technology, if there is a profit to be made and power to be amassed, you can bet that the government and its global partners have already struck a deal that puts the American people on the losing end of the bargain.

Unless we can put the brakes on this dramatic expansion, globalization and merger of governmental and corporate powers, we’re not going to recognize this country 20 years from now.

It’s taken less than a generation for our freedoms to be eroded and the police state structure to be erected, expanded and entrenched.

Rest assured that the U.S. government will not save us from the chains of the global police state.

The current or future occupant of the White House will not save us.

For that matter, anarchy, violence and incivility will not save us.

Unfortunately, the government’s divide and conquer tactics are working like a charm.

Despite the laundry list of grievances that should unite “we the people” in common cause against the government, the nation is more divided than ever by politics, by socio-economics, by race, by religion, and by every other distinction that serves to highlight our differences.

The real and manufactured events of recent years—the invasive surveillance, the extremism reports, the civil unrest, the protests, the shootings, the bombings, the military exercises and active shooter drills, the color-coded alerts and threat assessments, the fusion centers, the transformation of local police into extensions of the military, the distribution of military equipment and weapons to local police forces, the government databases containing the names of dissidents and potential troublemakers—have all conjoined to create an environment in which “we the people” are more divided, more distrustful, and fearful of each other.

What we have failed to realize is that in the eyes of the government, we’re all the same.

In other words, when it’s time for the government to crack down—and that time is coming—it won’t matter whether we voted Republican or Democrat, whether we marched on Washington or stayed home, or whether we spoke out against government misconduct and injustice or remained silent.

When the government and its Global-Industrial Deep State partners in the New World Order crack down, we’ll all suffer.

If there is to be any hope of freeing ourselves, it rests—as it always has—at the local level, with you and your fellow citizens taking part in grassroots activism, which takes a trickle-up approach to governmental reform by implementing change at the local level.

One of the most important contributions an individual citizen can make is to become actively involved in local community affairs, politics and legal battles. As the adage goes, “Think globally, act locally.” 

America was meant to be primarily a system of local governments, which is a far cry from the colossal federal bureaucracy we have today. Yet if our freedoms are to be restored, understanding what is transpiring practically in your own backyard—in one’s home, neighborhood, school district, town council—and taking action at that local level must be the starting point.

Responding to unmet local needs and reacting to injustices is what grassroots activism is all about. Attend local city council meetings, speak up at town hall meetings, organize protests and letter-writing campaigns, employ “militant nonviolent resistance” and civil disobedience, which Martin Luther King Jr. used to great effect through the use of sit-ins, boycotts and marches.

And then, as I make clear in my book A Government of Wolves: The Emerging American Police State, if there is any means left to us for thwarting the government in its relentless march towards outright dictatorship, it may rest with the power of communities and local governments to invalidate governmental laws, tactics and policies that are illegitimate, egregious or blatantly unconstitutional.

Nullification works.

Nullify the court cases. Nullify the laws. Nullify everything the government does that flies in the face of the principles on which this nation was founded.

We could transform this nation if only Americans would work together to harness the power of their discontent.

Published:7/11/2018 1:19:17 AM
[Markets] Apple, Stitch Fix Show Leadership Trait As Dow Jones Rises; These 2 Sectors Reverse Apple continued to show market leadership. The megacap tech refused to give up any of its solid gains over the prior three sessions while Microsoft edged higher for a fourth day in a row as large and megacaps outperformed the small-cap space in stocks today. While the Dow Jones industrial average gained nearly 0.6% for its fourth win in a... Published:7/10/2018 3:46:34 PM
[Markets] Trade-War Buying-Panic Stalls As US Yield Curve Tumbles To Fresh 11 Year Lows

Dow up 700 points... 30Y Yields unchanged...

 

Do you want to play this game?

China managed to extend gains after Monday's best day in years...

 

But Italian banks suffered as Salvano used the b-word (Breakup)...

 

And US Stocks were more mixed than they have been in the last few days...Small Caps adn Trannies were underperformers, Nasdaq unch (after making an record high intraday) and The Dow best...

 

But the trade war has been a buying extravaganza...

 

S&P algos wanted 2800 desperately...

 

The Dow has retraced exactly 50% of its February drop...

 

It looks like the short squeeze is over...

 

Small Caps underperformed Big Caps again today...

 

Treasury yields ended the day higher but notably 30Y ended barely higher as the short-end underperformed...

 

The yield curve tumbled once again...

 

To a fresh low since August 2007... (10s30s now at single-digits)

 

But the swap curve is now officially inverted...

 

And the eurodollar curve has inverted...

 

After a brief but modest bounce in the dollar, it resumed its down trend today, ending at the lows of the day...

 

EM FX surged today back to 4-week highs...

 

With Argentina's peso surging...

 

Cryptos were ugly...

 

Commodities were mostly unchanged but copper resumed its downtrend...

 

Copper closed back near 12 month lows...

 

And finally, while soft, hope-filled survey data bounces, hard, real economic data remains flat from the election...

 

Published:7/10/2018 3:17:06 PM
[Markets] Stocks Bounce in Afternoon Trading Stocks rebounded from an early afternoon dip Tuesday with the Nasdaq slightly lower and the Dow and S&P 500 holding on to earlier gains. Published:7/10/2018 1:47:43 PM
[Markets] What Happens Next?

Since the early close last Tuesday, the S&P 500 is up 80 points, The Dow is up over 700 points... but 30Y Treasury yields are unchanged and the yield curve has tumbled?

Bonds must be wrong, right? They are manipulated, right? Stocks must be the arbiter all of future knowledge - just like they were in 2008?

Still, as

I'm accused of 'confirmation' bias and yet last I saw, the broad NYSE composite is no higher today than it was back in December, and has not made a new high since Jan 26th. Sounds a whoooole lot like a classic topping pattern. Think 1989, think 2000, think 2007.

— David Rosenberg (@EconguyRosie) July 10, 2018 ">Gluskin Sheff's David Rosenberg points out, anyone questioning the bull thesis is lambasted...

"I'm accused of 'confirmation' bias and yet last I saw, the broad NYSE composite is no higher today than it was back in December, and has not made a new high since Jan 26th. Sounds a whoooole lot like a classic topping pattern..."

Doesn't look like a 'rebound' as much as the other indices so dominated by FANG etc.

This won't end well..

h/t: @carlquintanilla

As Rosenberg concludes - " Think 1989, think 2000, think 2007."

Published:7/10/2018 1:17:23 PM
[Markets] Stocks- Wall Street Modestly Higher as Earnings in Focus The S&P 500 gained six points or 0.24% to 2,790.80 as of 9:39 AM ET (13:39 GMT) while the Dow composite increased 109 points or 0.44% to 24,885.76 and tech heavy NASDAQ Composite was up over 12 points or 0.17% to 7,769.08. Published:7/10/2018 11:47:28 AM
[Markets] Dow set for fourth day of gains, S&P 500 touches nearly 4-month high U.S. stocks were in rally mode Tuesday, setting the Dow up for further gains and extending the benchmarks to their highest levels in months on strong economic data that have thus offset fears over global trade disputes. Published:7/10/2018 10:15:13 AM
[Markets] Market Snapshot: Dow set for fourth day of gains, S&P 500 touches nearly 4-month high U.S. stocks trade higher early Tuesday, setting the Dow up for further gains and extended the benchmarks to their highest levels in months on strong economic data that has thus offset fears over global trade disputes.
Published:7/10/2018 9:17:21 AM
[Markets] Buffett Cashes-Out Equity Index Puts He Wrote Nearly A Decade Ago

Warren Buffett - the man who has literally bet it all on Keynesian theory (who in late 2017 speculated that the Dow could be on its way to 1 million) - is unwinding a huge put option position in equity indices that he wrote during the worst of the financial crisis in 2008, about a decade ago. According to Bloomberg, the puts that he wrote have netted Berkshire Hathaway $2.4 billion in profit over the course of the last decade.

But hey, when you know you have the Federal Reserve on your side to bail you and the entire global economic system out, why wouldn’t you write several billion dollars in equity index puts?

At the height of the financial crisis turmoil, Buffett was known to have made a couple of large transactions, including his massive stake that he took in Bank of America. This put option position in equity indices was one of the lesser known positions he took and hadn’t really been discussed too much at length over the last decade. Bloomberg noted the last of these options will expire in 2026:

Equity-index put options written by Berkshire Hathaway Inc. started expiring in June, and the last of them will be gone by January 2026. Buffett, Berkshire’s chairman and chief executive officer, initiated the deals between 2004 and 2008 to bet that stock prices would rise in the long run. The options, tied to four major equity indexes, added a total of $2.4 billion to earnings from 2008 to 2017.

As the positions are starting to inch closer to their expiration date, Bloomberg took a look at how they have benefited Buffett and Berkshire Hathaway over the years. The chart below shows their contribution to Berkshire's profit over the last 10 years.

Buffett, who had been critical of the use of derivatives in the past (do as I say, not as I do) actually has argued that these transactions were different because - we are not making this up - there was no counterparty risk.

Buffett, 87, already ended some other derivative bets, exiting his last credit-default agreement in 2016. His use of derivatives was sometimes controversial because he’d once lambasted them as “financial weapons of mass destruction,” later arguing that his bets were different and had no counterparty risk.

I guess when your counterparty is the Fed, this could actually be true.

He also put a nice PR spin on his use of these instruments by comparing them to an insurance company:

Buffett has likened the benefits of derivative wagers to the perks of his insurance operations. Berkshire received a total of $4.2 billion in premiums upfront on the options that it has put to work for more than 10 years, just as the “float” generated by insurance premiums can be invested before any claims must be paid.

The derivative bets have created volatility in quarterly earnings, swings that Buffett said “neither cheer nor bother” him and his business partner, Charles Munger. Berkshire’s vice chairman, Munger defended the derivatives after a shareholder at the 2009 annual meeting questioned the deals.

“There’s some limit to the amount of those things we should do, but I think we stayed well short of the limit,” Munger said.

This is an adept analogy. Of course, unless a disaster strikes and you have to pay out.

The article also notes that the option position has been reworked several times over the course of the last decade and that Goldman Sachs is one of the mystery "risk free" counterparties. Go figure:

Terms on the equity options have shifted over the years. In a 2010 filing, Berkshire said it received $4.8 billion in premiums for 47 contracts. In late 2010, the company unwound eight of those options at the urging of a counterparty, according to Buffett’s annual letter to shareholders. That left Buffett’s company with 39 contracts and $4.2 billion in premiums. On some of the deals, the parties also have shortened maturities and reduced strike prices, according to Berkshire’s 2009 letter.

The parties on the other end of the deal have remained a bit of a mystery. Buffett said in 2010 that Goldman Sachs Group Inc. was among the counterparties, without naming others. It’s unclear whether Goldman is part of the remaining group. A spokesman declined to comment.

The article ends with some fund manager absolutely gushing over Warren Buffett‘s decision, heralding it as a "creative" decision when really it was little more than simply betting that the stock market would once again go up:

“These derivatives are an example of his creativity,” said James Armstrong, who manages about $700 million including Berkshire shares as president of Henry H. Armstrong Associates. “He saw a mispriced opportunity where Berkshire could make money because people were going to pay more for this insurance than it was going to cost Berkshire.”

We can't think of anything less creative than betting on the "Don't Pass" line for the 5,000th time in a row and just hoping the house can win one more time.

But why wouldn’t he? Having lived through the last 87 years where we have watched central banks do anything and everything possible to ensure that the stock market always rises, Buffett probably thought he was betting on the closest thing to free money possible while the entire global financial system was inches from ruins in 2008.

How long Buffett's "strategy" will continue to work remains to be seen. The idea of simply assuming the market is always going to go up will eventually have to give at some point – but for now, he is counting another major win where Berkshire Hathaway reaped  billions as a result of nonsensical monetary policy and artificially manipulated interest rates. Congrats, Warren!

Published:7/9/2018 8:47:03 PM
[Markets] Dow Posts Best Day in a Month The Dow Jones Industrial Average had its best day in a month Monday as investors focused on a strong jobs report from late last week and the coming earnings season, despite heightened trade tensions. Some fear the protectionist trade policies will slow corporate activity and crimp global growth, hurting a range of assets from stocks to commodities. Now, many are looking ahead to second-quarter earnings season, which begins in earnest Friday with results from some of the nation’s largest banks, to see how the trade threat is affecting companies. Published:7/9/2018 7:14:18 PM
[Markets] Key Words: ‘This rally in stocks is a last hurrah!’ warns Guggenheim’s Minerd The Dow Jones Industrial Average on Monday is off to a solid start for the week, but Scott Minerd of Guggenheim Partners says investors shouldn’t be lulled into a false sense of security amid intensifying clashes over global trade.
Published:7/9/2018 6:40:45 PM
[Markets] US STOCKS-Dow, S&P 500 post best session in over a month; banks lead gains U.S. stocks rose on Monday, giving the Dow and S&P 500 their biggest gains in more than a month, as bank shares jumped ahead of earnings reports later this week. Industrial, energy and consumer discretionary shares also rose sharply, while S&P utilities and telecommunications - among the market's recent outperformers - led percentage declines. The S&P banks index climbed 2.7 percent, registering its biggest daily percentage gain since March 26. Published:7/9/2018 4:42:20 PM
[Markets] Dow finishes up over 300 points, erasing losses for 2018 Dow finishes up over 300 points, erasing losses for 2018 Published:7/9/2018 3:10:30 PM
[Markets] Dow up by more than 300 points as financials and industrials rally The Dow rises by triple digits for a third session Monday as U.S. stocks rallied, putting Wall Street on track to extend its recent gains as positive economic news continued to offset escalating trade tensions. Published:7/9/2018 2:44:12 PM
[Markets] Dow's 330-point rally puts blue-chip benchmark back in positive territory for 2018 The Dow Jones Industrial Average enjoyed a triple-digit rally on Monday, that put the benchmark on track for a third straight advance and pushes it back in to positive territory for 2018. The Dow (DJIA) most recently, was up 336 points, or 1.4%, at 24,792, which puts it above its close at the end of 2017 at 24,719.22, a gain of 0.3% so far this year, according to the FactSet data. Published:7/9/2018 2:11:05 PM
[Markets] ‘This rally in stocks is a last hurrah!’ warns Guggenheim’s Minerd The Dow Jones Industrial Average on Monday is off to a solid start for the week, but Scott Minerd of Guggenheim Partners says investors shouldn’t be lulled into a false sense of security amid intensifying clashes over global trade. Published:7/9/2018 1:43:57 PM
[Markets] Caterpillar's stock surges to pace Dow gainers, is still worst performer over the past month MARKET PULSE Caterpillar Inc.'s stock (cat) rallied 3.8% in afternoon trade Monday, to put it on track for the biggest gain in nine months, and enough to pace the Dow Jones Industrial Average's (djia) gainers, as investors set aside worries about trade to focus on recent upbeat economic data. Published:7/9/2018 1:12:38 PM
[Markets] Dow up by triple digits as financials rally Dow turns positive for 2018BloombergStrong jobs data Friday gave markets a boost. The Dow rose by triple digits for a third session Monday as U.S. stocks posted a broad rally, with strong economic data appearing to overshadow worries about rising trade tensions. Among notable leaders were bank stocks, putting the financial sector in position for its biggest one-day advance in a month. Published:7/9/2018 12:10:03 PM
[Markets] Dow's 275-point surge puts it on pace to close above key trend line Dow's 275-point surge puts it on pace to close above key trend line Published:7/9/2018 10:44:42 AM
[Markets] Stocks advance for third straight session as strong data overshadow trade fears Financial, energy stocks lead on the dayBloombergStrong jobs data Friday gave markets a lift. U.S. stocks rallied in early trading on Monday, putting Wall Street on track to extend its recent rally as positive economic news, notably last week’s jobs report, continued to overshadow escalating trade tensions. While the Nasdaq is within 1% of its record, both the Dow and the S&P — which have been trading in a tight range for months — are several percentage points away. Published:7/9/2018 9:10:14 AM
[Markets] US STOCKS SNAPSHOT-Wall St enters third day of gains as trade fears ease U.S. stock indexes opened higher on Monday, on track for third day of gains in a row, after last week's strong U.S. jobs data helped investors brush aside trade concerns. The Dow Jones Industrial Average ... Published:7/9/2018 8:40:41 AM
[Markets] "[Stock] Markets Are Crazy" - Gundlach, Minerd Warn: This Is Anything But Goldilocks

Dow Jones Futures are up almost 400 points from the post-trade-war lows, Nasdaq is up even more on a relative basis, and 'safe-haven' FANG stocks are soaring as investors embrace the trade war...

There's just one thing - nothing else agrees with this riskless, goldilocks environment, and DoubleLine's Jeff Gundlach points out the ugly reality to those willing to listen...

One quick glance at the gaping divergence between lower yields (and collapsing yield curve) and soaring stocks tells you something is amiss (and we know which way this normally resolves in the short term)

Which is what Guggenheim's Scott Minerd is worried about:

And judging from the yield curve, growth is anything but the thing to buy right now...

As we are already seeing global trade volumes slump...

Published:7/9/2018 7:38:31 AM
[Markets] Global Stocks Jump As Trade Fears Set Aside; China Soars, Dollar Slides

Global markets are a sea of green this morning, with US index futures sharply higher to start the new week which sees the official start of Q2 earnings season on Friday the 13th, following solid gains in Europe and Asia in the aftermath of Friday's "goldilocks" jobs report whose strong payroll gains but weaker than expected wage growth further pressured the dollar and boosting Emerging Markets, while analysts said that traders took comfort in the lack of escalation in the trade war (although considering it only started on Friday, it is difficult to see just how it could escalate in following 48 hours).

As has often been the case in the past month, the market tone was set by China, whose Shanghai Composite index posted solid gains, led by insurers and banks, after Caixin reported that regulators may implement tighter regulations on wealth management products later than the market expected due to recent volatility. China's regulator had imposed stricter rules on asset management industry in April, and new regulations on wealth management products - including on investment targets, leverage - were expected to follow. "The delay of new bank wealth management rule can be slightly positive for sentiment amid market panic, as economic growth becomes the top priority for regulators,” Huatai Securities analyst Shujin Chen writes in note.

As a result of the delay, and following a note from local investment bank CICC which said that "A-share valuations and sentiment have hit the bottom after the market’s recent rout, offering medium- to long-term opportunity", the Shanghai Composite surged by 2.5%, its biggest one day jump since February 22.

Doubling down on the all-clear signal, the Shanghai Stock Exchange issued a strange statement which said that Shanghai-listed companies’ valuation is "at relatively low level, compared to that of stock markets in other major economies"  and that valuation is becoming attractive after the latest round of sell- off. It added that the Shanghai exchange will continue to support qualified listed companies to buy back shares, as that can help boost investor confidence and stabilize market expectation. In short, the jawboning brigade was unleashed and the result may have helped Chinese stocks set a bottom for now, which was hit on July 6 when the SHCOMP dipped briefly below 2,700. In addition to verbal intervention, the lack of new trade war actions by either the US and China was seen by some as a reprieve to the recent tit-for-tat escalation, also helping boost sentiment.

The solid Chinese performance lifted the MSCI Asia Pacific Index which was up 1.2%, and on course for the biggest jump in a month.

Positive sentiment from Asia flowed through into the European session, if amid reduced liquidity and market activity, with the Euronext suffering a trading pause for some stocks after two market orders got stuck in the order book.

The Stoxx Europe 600 index was up 0.6%, headed for a fifth consecutive advance - the longest winning streak since March - led by miners and energy companies - as investors set aside concern about escalating trade tensions to focus instead on the upcoming earnings season. Citi strategists said European bank stocks offer a good buying opportunity as the sector is set to benefit from macro data stabilizing in 2H, political risk remaining at current levels and interest-rate expectations holding.

Commenting on Monday's equity bounce the head of Asia research at ANZ Banking Group, Khoon Goh, said that "despite tariffs on China imports into the U.S. now being officially implemented, markets have started the week on a better footing thanks to the absence of further escalation for the time being," and added that "the U.S. payrolls report on Friday, while strong, did not see any significant rise in wage growth, which was a relief to a market that was worried about the potential for a more aggressive Fed hiking path."

In the US, futures on the S&P 500, Dow and Nasdaq all pointed higher and commodities and emerging-market equities found support from the weakening dollar, which dropped for the fifth day, the longest losing streak in nearly five months, following key technical breaks versus major peers.

Adding to the positive sentiment, the Chinese yuan which had been battered in recent days, jumped after the PBOC reported that China’s foreign currency reserves rose $1.51 billion to $3.112 trillion in June, rising by more than the highest Wall Street estimate, and easing fears that China has been selling reserves to stem the recent slide in the Yuan, and that there has been less intervention than expected as the yuan slid last month.

"So for now, no new U.S.-Sino trade news is good news for ... EM in general," said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney, however adding that "our base case remains for trade tensions to get worse before they get better."

Elsewhere, after diving in early trading following news of the dramatic resignation of Brexit minister David Davis, the British pound climbed as on optimism Theresa May can contain the latest government crisis over Brexit. "David Davis resigned as Brexit secretary and the pound is holding up relatively well on the back of it,” CMC market analyst David Madden wrote in note. “This will put severe pressure on Prime Minister May, and there are questions being asked about how long she will last in the top job."

The the euro climbed to its strongest level since June 14 after German industrial production beat all estimates for May while the ECB’s Coeure said existing trade risks don’t have the potential to derail euro-zone recovery. 

Further helping sentiment, the start of earnings season this week may prove a helpful distraction and divert attention from the trade war that’s kept global stocks under pressure.

US Treasuries slipped in the absence of a fresh escalation of the U.S.-China trade conflict, with the 10Y yield rising 3bps to 2.85%; Germany’s 10Y bunds also climbed 2 bps to 0.32%, the highest in more than a week on the biggest surge in four weeks, while 10-year gilts rose 4 bps points to 1.267%, the largest climb in more than two weeks.

In Brexit news, following David Davis' resignation,Brexiteer MP Jacob Rees-Mogg was said to vote against UK PM May's Brexit plan, while there were also reports that Brexiteer MPs threaten to topple PM May and replace her with Jacob Rees-Mogg in anger at the PM’s Chequers deal. Furthermore, Jacob Rees-Mogg more recently commented that UK PM May's Brexit plan must be bad if Davis cannot support it and that a serious mistake by PM May led to Davis quitting.

Oil traded mixed and WTI/Brent spreads widening, with Brent +0.75% and WTI -0.25%. WTI has broken through the USD
74/BBL & 200 DMA levels to the downside, with investors eyeing the 50 and 100DMA levels as key supports at USD 73.52/BBL and USD 73.49 respectively in the wake of increased supply form the US, as Baker Hughes noted an increased rig count for the first time in several weeks. Gold prices are up and being lifted to two week highs at USD 1,260/Oz by a  softer dollar and short covering. London copper has rebounded from a close to 1 year low in the previous session, and is up 1.8% on the day as a weaker dollar has also forced short covering for the construction material.

Looking ahead, highlights include, ECB’s Praet, Draghi and Fed’s Kashkari, and consumer credit data. Helen of Troy and Couche-Tard are among companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.4% to 2,772.75
  • STOXX Europe 600 up 0.6% to 384.53
  • MXAP up 1.2% to 165.95
  • MXAPJ up 1.3% to 540.29
  • Nikkei up 1.2% to 22,052.18
  • Topix up 1.2% to 1,711.79
  • Hang Seng Index up 1.3% to 28,688.50
  • Shanghai Composite up 2.5% to 2,815.11
  • Sensex up 0.8% to 35,951.89
  • Australia S&P/ASX 200 up 0.2% to 6,286.04
  • Kospi up 0.6% to 2,285.80
  • Brent futures up 0.7% to $77.65/bbl
  • Gold spot up 0.4% to $1,260.92
  • U.S. Dollar Index down 0.2% to 93.79
  • German 10Y yield rose 1.9 bps to 0.311%
  • Euro up 0.2% to $1.1773
  • Italian 10Y yield fell 1.5 bps to 2.447%
  • Spanish 10Y yield rose 0.2 bps to 1.311%

Top Overnight News from Bloomberg

  • U.K. Prime Minister Theresa May was plunged into a crisis after Brexit Secretary David Davis and his deputy resigned over her plans to keep close ties to the European Union after the divorce. Dominic Raab, who campaigned for Brexit, will replace Davis, according to the government
  • Britain’s financial-services industry is battling a drop in foreign investment while some of its European counterparts enjoy big gains, according to a new study. Investment in Britain’s financial-services firms from abroad fell 26% last year, EY said in a report Monday
  • Recep Tayyip Erdogan will cap his years-long drive to transform Turkey’s government on Monday as he’s sworn in as an executive president with vastly expanded powers
  • Benoit Coeure said the ECB is alert to risks from trade tensions that are rapidly escalating, but its current monetary-policy stance is working well
  • U.S. Secretary of State Mike Pompeo summed up his 27 hours in the North Korean capital Pyongyang as “productive,” but no sooner had he left than local media published a statement saying the U.S.’s “unilateral and gangster-like demand for denuclearization” risked upending ties
  • Bank of England policy makers are adjusting to an upheaval at the statistical office at the very point when they need as much clarity as possible to help decide whether to raise rates next month
  • If a U.S. or global recession is looming, it’s time to own the Swiss franc, Singapore dollar, U.S. dollar and Japanese yen -- and ditch emerging market currencies, according to analysts from JPMorgan Chase & Co.
  • China’s foreign-currency holdings increased last month for the first time since March as the yuan slumped and trade tensions with the U.S. worsened
  • Japanese investors pared holdings of German sovereign bonds in May by the most since June 2015, while selling the most Italian debt in a year amid the political crisis that gripped Rome during the month

Asian stocks began the week higher across the board as the region followed suit to Wall St’s performance on Friday after a Goldilocks US jobs report. The broad appetite for risk saw all majors gains from the open with the ASX 200 (+0.2%) led higher by mining stocks including BHP amid reports BP is front running the bidding for its US shale assets and with Nikkei 225 (+1.2%) supported by a predominantly weaker currency. Hang Seng (+1.3%) and Shanghai Comp. (+2.5%) conformed to the upside with broad gains across the sectors in both indices and which followed the PBoC snapping its recent streak of liquidity drains, while focus in Hong Kong also turned to Xiaomi which declined over 4% in early trade on its debut due to valuation concerns. Finally, 10yr JGBs were subdued as focus was centred around stocks and amid a lack of Rinban announcement, although downside was also stemmed as prices sat near their best levels since May and at close proximity to retest resistance around 151.00. China's Cabinet has issued a statement on expanding agricultural and resource related imports, promoting trade balance.

Top Asian News

  • HSBC Is Said to Poach BofA’s Top Asia Power, Utilities Dealmaker
  • Goldman Sachs Hires Bank of America’s Naraghi for Asia ECM Role
  • Bankers Quit Goldman, Citigroup for Biotech Riches in Hong Kong
  • China Stocks Rebound With Biggest Gain Since 2016, Yuan Climbs

European equities are higher (Euro Stoxx 50 +0.4%), with the FTSE (+0.1%) underperforming due to a higher GBP, as investors monitor developments in the UK following the resignation of UK Brexit Secretary David Davis. The current outperformer is the AEX (+0.8%), which is being lifted by a broker upgrade for index heavyweight Altice (+3.3%) at RBC as well as Orange being open to a potential alliance within their home market. Air France (+4.0%) reported improved passenger numbers for June vs. May, easing investors’ concerns about strike action that has been hitting the company. Renault (-2.3%) are currently struggling on the back of emission measurement concerns at their partner co. Nissan.

Top European News

  • Coeure Says Trade-War Challenge Isn’t Shaking ECB’s Path to Exit
  • U.K.’s Aging Nuclear Fleet Offers Target for China’s Atomic Tech
  • Daimler’s Emissions Issues Mount With Truck Engine Sale Stop
  • PAI Partners Boosts Ontex Offer and Will Start Due Diligence

In FX, AUD was the top G10 performer on a mixture of better risk sentiment overall, short covering and stops on a break of technical resistance, with Aud/Usd up through 0.7440-50 to just over 0.7475 and bulls now eyeing a Fib level just shy of 0.7500. GBP: Cable has recovered well from a wobble and brief retreat through 1.3300 in wake of David Davis’ resignation due to what he perceives to be a too soft EU withdrawal White Paper from the UK Government, with market contacts noting stops on a break of 1.3330 on the way to a 1.3360 high, and also noting stops vs the EUR at 0.8800 in the cross that is currently towards the bottom of a 0.8850-15 range. However, the single currency is fairing much better vs a generally soft USD following the weaker than forecast elements of last Friday’s US jobs report, with a Fib breached around 1.1720 and peak around 1.1780, opening up scope to 1.1800, while the DXY has extended losses to just below 93.800. TRY: The Lira is firmer and back over 4.5500 vs. Usd as traders await an announcement at 18.00 from the Erdogan Government on their cabinet line-up.

In commodities, oil is mixed and WTI/Brent spreads widening, with Brent +0.75% and WTI -0.25%. WTI has broken through the USD 74/BBL & 200 DMA levels to the downside, with investors eyeing the 50 and 100DMA levels as key supports at USD 73.52/BBL and USD 73.49 respectively in the wake of increased supply form the US, as Baker Hughes noted an increased rig count for the first time in several weeks. Gold prices are up and being lifted to two week highs at USD 1,260/Oz by a softer dollar and short covering. London copper has rebounded from a close to 1 year low in the previous session, and is up 1.8% on the day as a weaker dollar has also forced short covering for the construction material. BP is in the lead to acquire the U.S. onshore shale oil and gas assets of BHP submitting an offer worth over USD 10bln; according to sources.

Looking at today's calendar, we'll get May consumer credit data in the evening. Away from that, ECB President Draghi speaks to the European Parliament's Committee on Economic and Monetary Affairs in Brussels, BoJ Governor Kuroda will speak overnight at a Branch Manager's meeting, while the BoE's Broadbent will speak at a conference in London and the ECB's Nowotny will speak in Zurich. German Chancellor Merkel and Chinese PM Li Keqiang are also due to chair a meeting of cabinet ministers from both countries.

US event calendar:

  • 3pm: Consumer Credit, est. $12.0b, prior $9.26b

DB's Jim Reid concludes the overnight wrap

The most common 3 words heard in England over the last few days have been “It’s coming home” as people who previously thought the team would get knocked out around the quarter-final stage now suddenly think we’re world beaters. The truth is probably somewhere in the middle (and nearer to the former) but England’s remarkable World Cup adventure continues into the semi-final this week. England’s only two major semi-finals in my lifetime occurred at the World Cup of 1990 and the Euros in 1996. The former occurred the day before my last GCSE exam at school and I remember sitting in the exam hall devastated. I went to the latter game and enjoyed the pre-match entertainment too much to remember much about England’s early opening goal but had a sore head by the time of the German win on penalties. This time I think England will win the semi and lose in the final to France this coming Sunday where ironically I’ll be on holiday at the time! It could be unbearable.

So a busy finale to the World Cup but a fairly quiet week ahead for data. Indeed, the week following payrolls is normally quiet for data but US PPI (Wednesday) and CPI (Thursday) will ensure that attention on markets is kept elevated ahead of the summer holiday season commencing. For CPI, the consensus for the core reading is for yet another +0.2% mom reading – the 33rd month in a row that we’ve had such a consensus (of which 18 have proven to be correct). The annual rate is also expected to rise one-tenth to +2.3% yoy which would be the highest since January 2017. Headline CPI is expected to come in at +0.2% mom and +2.9% yoy. Outside of this its mostly second tier US data this week. Staying with inflation, China’s CPI (1.9% expected - up 0.1%) and PPI (4.4% expected - up 0.3%) are due tomorrow and will be a focus. On Friday China’s trade number will be worth a second glance as well given all the focus on trade at the moment

The Fed will also get a bit of attention this week too with the semi-annual Monetary Policy Report to Congress due out on Friday afternoon. It’s worth noting however that Fed Chair Powell won’t testify until the following week. Elsewhere US Q2 reporting season kicks into life on Friday with bank earnings from Wells Fargo, JP Morgan and Citigroup. The S&P banks index has fallen -4.7% in the past month and -12.6% from its January highs, partly due to yields stalling and the yield curve flattening so it’ll be interesting to see if this has impacted the hard numbers. Prior to that there is only a small smattering of other earnings releases this week including PepsiCo on Tuesday and Delta Airlines on Wednesday.

As for politics, President Trump has a busy week ahead, starting with his participation at the NATO summit on Wednesday and Thursday, before travelling to the UK to meet PM May on Friday. The full day by day week ahead is at the end.

Turning to the weekend news, after securing cabinet approval for her proposal for a softer Brexit on Friday, PM May is  expected to address Parliament today to reaffirm that “this is the right Brexit” plan. In terms of initial reactions, Trade Secretary Fox has publicly supported the plans and Foreign Secretary Johnson indicated he will stay on the Cabinet. However overnight, the Brexit Secretary Davis, his deputy Brexit Department Minister Baker and Junior Brexit Minister Ms  Bravermann have all resigned, with the former indicating he could not be a “reluctant conscript” to PM May’s plans. Later  on, PM May said she was “sorry” Mr Davis decided to quit while noting that “Parliament will decide whether or not to back the (Brexit) deal the government negotiates…”. This is an important couple of days for Mrs May as there is a chance that she will face a leadership battle which could throw the Brexit negotiations into further turmoil.

Elsewhere on the European side, the Irish PM Varadkar noted the proposal marked “real progress” but cautioned there are still many difficulties while the Austrian Chancellor Kurz noted the UK made an “important, positive step” forward”. This morning, Sterling pared back early gains on Davis’s resignation to be up c0.1%.

Now moving to some weekend trade rhetoric. On Saturday, China’s Premier Li has reiterated the country’s pledge to open up its markets, as he noted “opening up has been a key driver of China’s reform agenda, so we’ll continue to open wider to the world…” He added that “for foreign products which meet Chinese consumer needs, we would open the door wider…we would lower overall import tariffs to the Chinese market”. Back in Europe, French Finance Minister Le Maire warned that “if tomorrow there is an increase in (car) tariffs (by the US)… our reaction should be united and strong…” and that “let it be known that if we’re attacked, we’ll react collectively and…firmly”. Meanwhile, the FT reported Mexico’s incoming Economy Minister Marquez “sees a possibility (for a NAFTA deal to be signed) maybe late September, early October”. Although she noted the deal would probably be a slimmed down deal where it would lock in changes already agreed but leave much of the original NAFTA agreement unchanged.

This morning in Asia, markets are rebounding strongly following a positive US lead from Friday, with the Nikkei (+1.39%), Kospi (+0.61%), Hang Seng (+1.52%) and Shanghai Comp. (+1.65%) all up. Chinese bourses may have also been boosted by China’s securities regulator saying on Sunday that it plans to ease restrictions on foreign investment in stocks listed on the Shanghai and Shenzen exchanges to attract more foreign capital. Datawise, China's June foreign reserves was slightly higher mom and above expectations at $3.11trn (vs. $3.10 trn expected) while Japan’s May trade deficit was narrower than expected at -304bn Yen (vs. -483bn Yen).

As for markets performance back on Friday. Risk assets were relatively calm and edged higher despite the formal implementation of higher US tariffs on $34bn worth of Chinese goods. European equities were modestly higher, with the Stoxx 600 (+0.20%), DAX (+0.26%) and FTSE (+0.19%) all up. The S&P rose +0.85% with all sectors up with gains led by the health care and tech sector (Nasdaq +1.34%). Meanwhile government bonds firmed slightly, with 10y bonds yields on treasuries and Bunds -0.7bp lower while Gilts underperformed following the Brexit uncertainties (+0.9bp). In FX, the US dollar index weakened for the fourth straight day (-0.46%) while the Euro and Sterling both gained c0.5%.

Quickly back onto trade, DB’s China economist Zhiwei Zhang noted China’s response to the US tariffs thus far signals a positive gesture. The statement released on Friday reiterated China’s commitment to reform and open up its market, improve protection of intellectual properties. Most importantly, it promised to develop a good business environment for foreign firms and signalled that China may not retaliate beyond trade and target US firms doing business in China. The team noted the next thing to watch is whether and how soon the US administration will initiate a second round of trade war.

Following on with geopolitics in North Korea, there seems to be a difference in perspectives on how the latest US / NK talks have gone. Bloomberg reported that North Korea released a statement describing the US demands as “gangsterlike” and “cancerous” while the US Secretary of State Pompeo noted “I was there for the event…..when we spoke to them about the scope of (nuclear) denuclearisation, they did not push back”.

We wrap up with other data releases from Friday. In the US, the June change in non-farm payrolls was above market (213k vs. 195k expected) with upward revisions to the prior month. In the details, growth in payrolls was broad-based, with the 365-industry diffusion index sitting at a solid 65.5 in June, while the average growth for total payrolls over the past six-months (215k) is modestly above last year (198k). Meanwhile the average earnings growth was below  expectations at 0.2% mom (vs. 0.3%), leading to a steady annual growth of 2.7% (vs. 2.8% expected). Elsewhere, the June unemployment rate rose 0.2ppt mom to a still low level of 4% (vs. 3.8% expected) as participation increased. The May trade deficit was slightly narrower than expected (-$43.1bn vs. -$43.6bn) and was the smallest nominal deficit since October 2016. Factoring in the above, the Atlanta Fed estimate of Q2 GDP growth is now at 3.8% saar while the NY Fed estimate closed unchanged at 2.8% saar. In Europe, Germany’s May IP was well above market at 2.6% mom (vs. 0.3% expected), leading to an annual growth of 3.1% yoy. Italy’s May retail sales rebounded to 0.8% mom (vs. 0.5% expected) while France’s May trade deficit was wider than expected at -€6.0bn (vs. -€5.1bn) as exports fell -2% mom while imports were little changed. Over in the UK, the June Halifax House prices index was above expectations at 1.8% yoy (vs. 1.6%) while the 1Q unit labour costs rose 3.1% yoy (vs. 2.9 previous), which was the largest increase since 4Q 2013.

Looking at today's calendar, we'll get May consumer credit data in the evening. Away from that, ECB President Draghi speaks to the European Parliament's Committee on Economic and Monetary Affairs in Brussels, BoJ Governor Kuroda will speak overnight at a Branch Manager's meeting, while the BoE's Broadbent will speak at a conference in London and the ECB's Nowotny will speak in Zurich. German Chancellor Merkel and Chinese PM Li Keqiang are also due to chair a meeting of cabinet ministers from both countries.

 

 

Published:7/9/2018 6:07:47 AM
[Markets] Dow futures up 100 points as stocks get ready to build on last week’s gains Dow futures climb roughly 100 points on Monday, keying off a global rally for stocks as investors took a break from trade-focused worries and remained encouraged by last week’s upbeat U.S. jobs report.... Published:7/9/2018 4:40:05 AM
[Markets] Market Snapshot: Dow futures up 100 points as stocks get ready to build on last week’s gains Dow futures climb roughly 100 points on Monday, keying off a global rally for stocks as investors took a break from trade-focused worries and remained encouraged by last week’s upbeat U.S. jobs report.
Published:7/9/2018 4:40:05 AM
[Markets] 2017 Was A Year Of 'Hope', 2018 Is The Year Of 'Reality'

Via RealInvestmentAdvice.com,

Fireworks To Start Q3

As America went back to work following “Independence Day,” the markets set off some ‘fireworks” of its own with back to back gains Thursday and Friday. Moving average lines continue to play an important role in providing levels at which buyers have consistently shown up. Last week, the Dow gained +0.7% and continues to lag behind the rest of the market mainly due to several of its constituents are more vulnerable to trade problems. The S&P 500 gained a stronger +1.5% on the week and, as shown below, ended the week above its 50-day average. With MACD lines (lower box) getting close to turning positive, the market will have to deal with a lot of overhead resistance at both the June highs and the current downtrend line from all-time highs earlier this year.

The market has remained confined to a fairly broad trading range as shown below. While the decline from the June highs reversed the short-term overbought condition, the rally from the 50% retracement level has “reversed that reversal” once again.

Love volatility yet?

With the market still on a short-term sell signal, it suggests the current rally is likely limited to the June highs keeping the markets confined to the broader trading range for now.

The good news is the break above the 61.8% retracement level, as we noted last week, keeps the markets intact (Pathway #1) for now. And, as suggested above, a retest of recent June highs seems very likely. However, Monday will be key to see if we get some follow through from Friday’s close.

Currently, a continued trading range between the 100-dma and the June highs seems to have the highest probability levels (Pathway #2a and #2b). While there is always a risk of something going wrong (Pathway #3) the odds currently seem somewhat diminished. However, with the ongoing trade war rhetoric brewing between China and the U.S., a negative surprise certainly maintains a high enough probability to pay attention to.

As I noted over the last few weeks, participation remains concerning as Bob Farrell’s rule #7 states:

“Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.”

For the year, 10-stocks have made up almost entirely all of the gains of the market. Actually, a better way would be to say:

“The top-10 stocks have more than offset the losses from the rest of constituents so far this year given the markets are only up 3.22% ytd.”

The biggest risk to the markets over the next couple of months will be earnings announcements and economic data as the “trade war” continues to mount. As noted by Reuter’s Christopher Beddor:

The U.S.-China trade war will be fought in the trenches, and it’s going to get ugly. The first round of tariffs hits on Friday, and U.S. President Donald Trump says they might come to cover more than $500 billion of goods. Exporters will feel the pain first, but uncertainty will also dampen investment, impede research and twist reform. It marks a moment of mourning for those who hoped the world’s two largest economies could work things out.

The initial round of U.S. duties cover just 2 percent of China’s total exports, calculate analysts at JPMorgan. They reckon that even if the White House slapped a 25% tariff on every Chinese product sold in the United States, Chinese economic growth would slow by only around 0.5 percentage points.

More damage could come from economic aftershocks. Equity markets in China and the United States have swooned already, in part because investors worry that global supply chains will need to reroute. Some American businesses say they are already scaling back or postponing capital spending because of uncertainties around trade, according to minutes from the Federal Open Market Committee. In China, the government has been forced to moderate monetary policy to cushion financial markets.”

With valuations elevated and earnings expectations extremely lofty, the risk of disappointment in corporate outlooks is elevated. Furthermore, despite those who refuse to actually analyze investor complacency measures, both individual and institutional investors remain heavily weighted towards equity risk. 

In other words, while investors may be “worried” about the market, they aren’t doing anything about it due to the “fear of missing out.”  

This is the perfect setup for an eventual “capitulation” by investors when a larger correction occurs as overexposure to equities leads to “panic selling” when losses eventually mount.

It is exactly for that reason that we manage risk. But, managing risk is NOT the same as sitting in cash.

As we note each week in this missive, our portfolios remain primarily weighted towards equity risk, for now. However, in early February of this year, we reduced our equity allocation models to 75% exposure which has served us well in reducing portfolio volatility over the last few months.

These periods of either “equity risk reductions/increases” are driven by the investment discipline we discuss with you each week. The chart below shows the history of the model allocation adjustments going back to 2006 when we first started tracking changes to the model used in our 401k plan manager at the end of this newsletter.

While there are certainly periods where the model under-performs the benchmark index, particularly an all-equity index, it is the reduction in drawdowns which leads to longer-term out-performance over a passive index. The obvious point here is simply “getting back to even” is not the same as “growing value.” 

We have been and currently remain underweight equity. But, as I stated, being “underweight equity” is far different from assuming we are sitting entirely in cash. While we certainly do not advocate market timing, we certainly do adhere to the principals of risk management and capital preservation.

With valuations currently trading at the second highest level in history, the outlook for forward returns over the next decade are extremely low. In fact, it is highly probable that bonds will once again outperform stocks over the next 10-year period. However, when that over-valuation is reversed, we will certainly become “raging equity bulls” once again.

But that time is not now, and I agree with Doug’s comments this past week that risks continue to outweigh the rewards.

Kass: Concerns Remain Plentiful

I am still carrying a small net long exposure with a plan to short strength in the S&P area of 2750-2775.

But my forward looking concerns are plentiful – trade wars, the message of the bond market (as well as the message of the bank stock market), rising geopolitical risks (the immigration issue is dividing the EU and splintering some of the entrenched parties) and the possibility of policy mistakes at both the White House and the Federal Reserve as the later pivots away from monetary largesse.

Importantly, the rising ambiguity of global economic growth (and the possible repudiation of the so called synchronized global economic recovery) will likely give investors some pause into the Summer:

The powerful symbol of the yield curve. An excerpt:

You can try to play down a trade war with China. You can brush off the impact of rising oil prices on corporate earnings.

But if you’re in the business of making economic predictions, it has become very difficult to disregard an important signal from the bond market.

The yield curve is perilously close to predicting a recession and so is the absolute level of interest rates – something it has done before with surprising accuracy…

* PMI manufacturing new orders by region are turning lower:

And hastily crafted White House policy (conflated with politics), developed on the back of a napkin and delivered by tweet is dangerous in an interconnected world. Policy developed by hardliners like Navarro and by an inexperienced President that seems at its epicenter the faulty notion that US imports and US GDP are inversely related – when in fact deficits and growth are directly correlated – is likely also to prove dangerous. (President Trump is making economic uncertainty and market volatility great again. #MUVGA)

Finally, as expressed recently, I am constantly shocked how optimistic investors, strategists, analysts and biz news commentators apply first level thinking when considering the wide range of possible political, economic and market outcomes (many of them adverse). But, to me, we are in a vortex of uncertainty and in a new regime of volatility — at a time in which global monetary policy has pivoted from being expansionary to being contractionary and is no longer suppressing volatility. (We will soon see the end of ECB QE by year end, with it being cut in half in three months. That’s a really big deal as liquidity flow becomes a drain both here and over there).

Bottom Line

  • 2017 was a year of hope, in which the S&P Index’s valuation experienced a three handle valuation increase. Wall Street triumphed over Main Street.

  • 2018 is a year of reality, in which the S&P Index’s valuation has and will likely to continue to contract. Main Street is triumphing over Wall Street.

I will grow more cautious as stocks move higher in the near term — as downside risk increasingly dwarfs upside reward.

Published:7/8/2018 7:05:00 PM
[Markets] The Yield Curve Is The Economy's Canary In A Coal Mine

Authored by Dave Kranzler via InvestmentResearchDynamics.com,

The economy has hit a wall and is now sliding down it. I don’t care what bullish propaganda may or may not be bubbling up in the headlines from the financial media and Wall Street, the hard numbers I look at everyday show accelerating economic weakness. The fact that my view is contrary to mainstream consensus and political propaganda reinforces my conviction that my view about the economy is correct.

As an example of the ongoing underlying systemic decay and collapse conveyed by this week’s title, it was announced that General Electric would be removed from the Dow Jones Industrial Average index and replaced by Walgreen’s. GE was an original member of the index starting in 1896 and was a continuous member since  1907.

GE is an original equipment manufacturer and industrial product innovator. It’s products are used in broad array of applications at all levels of the economy globally.  It is considered a “GDP company.” GE was iconic of American innovation and economic dominance. Walgreen’s is a consumer products reseller that sells pharmaceuticals and junk. Emblematic of the entire system, GE has suffocated itself with poor management which guided the company into a cess-pool of financial leverage and hidden derivatives.

As expressed in past issues (the Short Seller’s Journal), I don’t put a lot of stock in the regional Fed economic surveys, which are heavily shaded by “hope” and “expectation” metrics that are used to inflate the overall index level. These are so-called “soft” data reports. But now even the “outlook” and “expectations” measurements are falling quickly (see last week’s Philly Fed report). The Trump “hope premium” that inflated the stock market starting in November 2016 has left the building.

Something wicked this way comes:  Notwithstanding mainstream media rationalizations to the contrary, a flattening of the yield curve always always always precedes a contraction in economic activity (aka “a recession”). Always. Don’t let anyone try to convince you otherwise. An “inverted” yield curve occurs when short term yields exceed long term yields. When the yield curve inverts, it means something wicked is going to hit the financial and economic system.

Prior to the financial crisis in 2008, the yield curve was inverted for short periods of time during 2007. The most simple explanation for why inversion occurs is that performance-driven capital flows from riskier investments into the the longer end of the Treasury curve, driving the yield on the long end below the short end. The expectation is that the Fed will be forced to cut short term rates drastically – thereby driving the short-end lower, which in turn pulls the entire yield curve lower (the yield curve “shifts” down). This gives investors in the long-end a better rate-of-return performance on their capital than holding short term Treasuries for safety. The Fed’s dilemma will be complicated by the fact that it does not have much room to cut rates in order to combat a deep recession.

Studies have shown that curve inversions precede a recession anywhere from 6 months to 2 years. I would argue that, stripping away the affects of inflation and data manipulation, real economic activity has been somewhat recessionary for several years. 

The massive intervention in the Treasury market by the Fed, ECB and Bank of Japan has muted the true price discovery mechanism of the Treasury curve. The curve has been barely upward sloping for quite some time relative to history.  This could indeed be history’s equivalent of an inverted curve. That being the case, if an inversion occurs despite the Fed’s attempts to prevent it, it means that whatever is going to hit the U.S. and global financial and economic system is going to be worse than what occurred in 2008.

A note on gold and silver: The massive take-down in the price of gold and silver, which is occurring primarily during the trading hours of the LBMA and the Comex – both of which are paper derivative markets – is quite similar to the take-down that occurred in the metals preceding the collapse of Bear and Lehman in 2008. It is imperative that the price of gold’s function as a warning signal is de-fused in order to keep the public wallowing in ignorance – just like in 2008. 

But keep an eye on the stock prices of Deutsche Bank, Goldman and Morgan Stanley – as well as the Treasury yield curve...

Published:7/7/2018 2:27:31 PM
[Markets] Stocks Post Weekly Gains The S&P 500 added 23.21 points, or 0.8%, to 2759.82 and the Nasdaq Composite advanced 101.96 points, or 1.3%, to 7688.39. The gains came in a quiet session, with just 5.2 billion shares changing hands across exchanges owned by the New York Stock Exchange and Nasdaq—the lowest volume for a full trading day this year. For the week, the Dow industrials added 0.8%, while the S&P 500 notched a 1.5% gain and the Nasdaq posted a 2.4% advance, its biggest one-week rise since May. Published:7/6/2018 7:23:00 PM
[Markets] After the Bell: Dow Gains 99.74 Points Because 100 Was Too Much to Ask The Dow Jones Industrial Average gained today as a strong payrolls number outweighed the start of a trade war. •...and review the disappointing trade data that cause Cboe Global Markets (CBOE) to sink. The Dow Jones Industrial Average rose 99.74 points, or 0.4%, to 24,456.48, to finish the week up 185.07 points, or 0.8%. Published:7/6/2018 6:21:54 PM
[Markets] Intraday Update: Dow Gains Outpaced by Nasdaq, Tradeoffs in the Trade War? Indices are all up Friday afternoon, with the Nasdaq Composite ahead of the Dow Jones Industrial Average and S&P 500. The Dow Jones Industrial Average is up 0.6% to 24,502.65, while the S&P 500 is 0.9% higher to 2,761.27, and the Nasdaq Composite is rising 1.3% to 7,684.23. Investors seem to be focusing on a positive June payrolls data release and shrugging off the official start of U.S. tariffs on $34 of Chinese goods and reciprocal action by its largest trading partner. Published:7/6/2018 12:20:07 PM
[Markets] Caterpillar's stock falls to pace Dow decliners as trade war worries heat up Shares of Caterpillar Inc. (cat) slumped 1.2% in morning trade Friday, enough to pace the Dow Jones Industrial Average's (djia) decliners, as the first round of tariffs between the U.S. and China went into effect. Meanwhile, the Dow was up 6 points. Caterpillar has a lot to lose in a escalating trade war, as 59% of the machinery maker's revenue in 2017, 2016 and 2015 was from overseas. Published:7/6/2018 9:20:02 AM
[Markets] Shots Fired - US Futures Spike As US-China Trade War Officially Begins

While Chinese markets are still closed for lunch, the announcement of US tariffs on China being officially unleashed - followed swiftly by China commenting that "it's forced to retaliate" - has, of course, been met with a sudden wave of panic-buying in US equity futures...

Shots Fired

0001ET *U.S. TARIFFS ON CHINA TAKE EFFECT AS TRUMP TRADE WAR ESCALATES

0004ET *CHINA SAYS IT HAS TO FIGHT BACK

0006ET *CHINA SAYS IT'S FORCED TO RETALIATE ON U.S. TARIFFS

And Dow Futures spike 100 points...

What a farce - if this holds then Trump will be more than pleased to follow through with more hundreds of billions in tariffs - and new record highs for The Dow?

After early weakness, onshore- and offshore-Yuan are now spiking too...

Published:7/5/2018 11:53:31 PM
[Markets] After the Bell: Dow Jones Gains 180 Points as Tariffs Don't Scare the Stock Market The Dow Jones Industrial Average closed near its high of the day despite expectations that tariffs will go into effect at midnight and minutes from the June FOMC meeting that confirmed the Fed's tightening path. For this first time this week, the Dow moved one direction in the morning—and closed there! Even more surprising, that direction was higher despite tariffs and tightening, both of which we're probably going to see more of. The S&P 500 gained 0.9% to 2736.61, while the Dow Jones Industrial Average rose 181.92 points, or 0.8%, to 24,356.74. Published:7/5/2018 5:23:21 PM
[Markets] Dow finishes up more than 180 points ahead of jobs report Dow finishes up more than 180 points ahead of jobs report Published:7/5/2018 3:51:28 PM
[Markets] Stocks Pop On Trade-War Ceasefire Hopes, Yield Curve Crushed As 'Policy Error' Looms

Just seemed appropriate...

China stocks continued their rout overnight...

 

European Auto stocks soared today on the heels of an unsubstantiated report on zero tariffs from a German paper...

 

US Equities also gained on the day - on hopes that trade war talks with Europe are progressing...

Small Caps went vertical in the last few minutes...

 

And all major US equity indices are up on the week...

 

The Dow miraculously managed to close 1 point above its 200DMA... ending a a 7 day streak below it...

 

Another tough day for Tesla as Elon Musk's warnings to the 'bears' are losing right now...

 

The Mega-Tech stocks rebounded on the day...

 

Treasury yields were very mixed today with everything but 30Y higher in yield on the day (and dramatically flattening)...

 

2s30s tumbles below 40bps for the first time since July 2007...today was the biggest absolute flattening in the curve in two months...

 

2018 has been a one-way street of collapse in the yield curve...

 

The Dollar Index fell for 3rd day in a row (5th of last 6) to 3-week lows - and closed at the spike high of the June Fed day...

 

The offshore Yuan is starting to drift lower after the PBOC intervention...

 

Cryptos slid on the day but remain higher on the week...

 

 

PMs were flat as the dollar slipped lower but Copper and Crude tumbled...

 

Copper was clubbed like a baby seal today - plunging by the most since December to the lowest in 12-months...

With copper down 15 of the last 18 days, we have still yet to hear any 'commentator' note that Dr.Copper is signaling anything but a global synchronous recovery.

 

Some relatively high volatility in the energy complex today but WTI/RBOB ended the day below the close from Tuesday...

 

Finally, there is only one question that really matters...

Published:7/5/2018 3:21:26 PM
[Markets] Stocks- Wall Street Increases as Trade Tensions Ease The S&P 500 gained 13 points or 0.50% to 2,726.86 as of 9:41 AM ET (13:41 GMT) while the Dow composite increased 126 points or 0.52% to 24,301.00 and tech heavy NASDAQ Composite was up 52 points or 0.70% to 7,555.42. Published:7/5/2018 11:49:46 AM
[Markets] General Electric Leaves the DJIA Behind as It Plots a New Course Now that you have gotten used to the Dow Jones Industrial Average (DJIA) without General Electric , a fresh look at the charts and indicators seems in order. In this daily bar chart of GE, below, we can find some improvement in the chart and the indicators. Published:7/5/2018 11:20:02 AM
[Markets] Dow Chemical settles SEC charges for failing to report ex-CEO's perks By Joshua Schneyer NEW YORK (Reuters) - A three-year U.S. Securities and Exchange Commission investigation found that Dow Chemical failed to properly disclose around $3 million in perks for former Chief Executive Andrew Liveris, ranging from personal use of company aircraft to sporting events and dues Dow paid to a charity Liveris chaired. In a statement issued Monday, the SEC said it settled charges with Dow related to improper disclosure of the perks. The company agreed to pay $1.75 million and is required to hire a consultant to review its compliance with SEC disclosure rules related to executive perquisites for a one-year period. Published:7/3/2018 2:33:36 PM
[Markets] Stocks Pump'n'Dump As "What China Giveth, China Taketh Away"

'Murica, F**k Yeah...

Despite the holiday-shortened trading day, there was plenty of vol for everyone today...

Equity futures show the chaos best as PBOC Governor Yi rescued the world overnight but US investors used his overnight pump to dump their gains (not helped by China's court ruling against Micron)....

 

In cash equity land, Small Caps remain green on the week...

 

The Dow closed below its 200DMA for the 7th day in a row...

 

Micron was a mess after the headlines...dropping to 2-month lows...

 

But Tesla is worse - down over 14% from its post-production goal highs...

 

Treasury yields tumbled today as stocks reversed around the cash equity open...

 

We are starting to see a pattern intraday in Treasuries - buying overnight, selling during US day...

 

The Dollar erased yesterday's gains as China's intervention rippled through markets but as stocks sold off in the last hour of the short-day, the dollar bounced a little...

 

The biggest news overnight (and into the open) was China's intervention to rescue the Yuan from freefall...

 

But some context is important for this bounce...

China's stocks managed to surge on the intervention but only CHINEXT is back to breakeven on the week...

 

Cryptos pumped and dumped today but ended the day unchanged, still up notably on the week...

 

PMs rallied on the dollar weakness but copper and crude faded...

 

Notably WTI tumbled after reports that the Saudis would increase production as Trump asked...

 

Published:7/3/2018 12:32:26 PM
[Markets] Morning Movers: Campbell Soup Jumps, Facebook Slides, Delta Air Lines Drops The Dow Jones Industrial Average is set for a higher open on a truncated trading day. •...and ponder an expanded investigation of Facebook (FB). S&P 500 futures have advanced 0.4%, while Dow Jones Industrial Average futures have risen 130 points, or 0.5%. Published:7/3/2018 8:32:53 AM
[Markets] All 30 Dow stocks rise premarket, led by Exxon Mobil All 30 Dow stocks rise premarket, led by Exxon Mobil Published:7/3/2018 7:35:39 AM
[Markets] U.S. stock futures inch higher as traders look past trade tensions Wall Street was set for a higher open on Tuesday, with stock futures building on the prior day’s gains as traders looked past the heightened U.S.-China trade tensions for now. All three U.S. benchmarks on Monday managed to shake off early losses and end in positive territory. Tech shares in particular rallied, helping the Nasdaq Composite Index (^IXIC) end 0.8% higher, while the Dow (^DJI) gained 0.2% and the S&P 500 (^GSPC) put on 0.3%. Published:7/3/2018 5:00:45 AM
[Markets] The Dow has lost its momentum The Dow does not like what it sees as trade tensions rise. The opening shots of multiple trade and tariff wars have been fired at friend and enemy alike and the Dow does not like what it sees. The threat of those trade wars was enough to bring to a crashing bend the multi-year uptrend in the Dow in 2018 February. Published:7/3/2018 12:29:30 AM
[Markets] After the Bell: Don't Read Too Much Into the Dow's 35-Point Gain The Dow Jones Industrial Average rallied into the close to finish in positive territory following early-morning losses. •...and review the disappointing gaming data from Macau that sank Wynn Resorts (WYNN). Yes, the Dow Jones Industrial Average gained 35.77 points, or 0.2%, to 24,307.18, while the S&P 500 rose 0.3% to 2726.71, and the Nasdaq Composite climbed 0.8% to 7567.69. Published:7/2/2018 5:27:16 PM
[Markets] Stocks pare losses as technology shares boost Nasdaq U.S. stocks pared losses Monday after a weak morning as gains in technology stocks bolstered the Nasdaq. On the first trading day of the third quarter, the S&P 500 flipped in and out of negative territory while the blue-chip Dow almost erased most of its 100-point deficit. The S&P 500 (^GSPC) shed less than a point to 2,717 and the Nasdaq Composite Index (^IXIC) reversed an earlier drop to rise 32 points, or 0.4%, to 7,542. Published:7/2/2018 2:25:26 PM
[Markets] Markets Now: Dow Dips Just 32 Points as Economy Weathers Tariffs…For Now  Want to know why the Dow Jones Industrial Average is doing what it's doing? 2:26 p.m. Earlier today, we noted that it would be an accomplishment today if the S&P 500 could just hold support at 2700. The S&P 500 has dipped 0.89 point to 2717.48, while the Dow Jones Industrial Average has fallen 32.07 points, or 0.1%, to 24,239.34. Published:7/2/2018 1:57:41 PM
[Markets] Markets Right Now: Stocks falling on Wall Street Monday U.S. stocks are falling Monday amid weak economic data from Asia and an election result in Mexico that's likely to complicate talks on renegotiating the NAFTA trade agreement. The S&P 500 index lost 18 points, or 0.7 percent, to 2,699. The Dow Jones Industrial Average fell 180 points, or 0.7 percent, to 24,088. Published:7/2/2018 8:55:47 AM
[Markets] "It's Not A Happy Start": Second Half Opens With Sea Of Red Across Global Markets

JPMorgan's warning that the Chinese rout is far from over "as 2018 becomes 2015" proved prescient, and overnight global sentiment quickly shifted to "risk off" as soon as China opened for trading, leading to a resumption of selling first in China, then across Asia, and finally around the world, resulting in a market snapshot which this morning is another sea of red ahead of this Friday's deadline for the US-Chinese trade war, when 25% tariffs kick in on some $34 billion in Chinese exports to the US.

The underlying concerns are well known: trade-war jitters, political risk in Europe and divergence in fiscal and monetary policy and economic performance between the US and the rest of the world weighed on investors' minds.

“It’s not a happy start to the second half,” Saxo commodity head Ole Hansen said. "Trade war concerns, U.S. sanctions, Trump’s rants and political problems in Europe, as well as worries about slowing emerging-market growth are all playing their part."

Political risks dragged the euro and pound down, the Mexican peso's rally was short lived after the election of the country's first leftist president in decades, while Treasuries climbed and dollar strength again slammed emerging markets. Overnight, Mexico's Andres Manuel Lopez Obrador won a decisive victory in the Presidential election with quick count results showing he received 53.0%-53.8% of votes, while an exit poll also showed that Lopez Obrador is set to get a majority at the lower house.

Once again, it started with China, whose stocks took another battering on Monday as selling returned amid concern about a falling currency, housing curbs and the impact of trade tariffs. The Shanghai Composite Index extended last month’s 8% rout - with real estate and bank stocks heavily offered as leverage and credit exposure is under increasing pressure - sliding another 2.5% on Monday and bringing its bear market rout to -22% since the January high....

... while the yuan touched its weakest level since Oct. 3, resuming its sharpest drop since China’s August 2015 devaluation....

... after another unexpectedly sharp overnight selloff, sent the offshore Yuan down 0.6% to 6.6760 and fast approaching the 6.70 barrier.

What is curious is that the PBOC set the Yuan stronger than the expected fixing, suggesting that China is not yet using yuan depreciation as an active tool in its trade conflict with the U.S., and will likely step in to avert any disorderly decline, according to Morgan Stanley. “The PBOC could step up intervention if depreciation risk intensifies,” according to China economists at the bank, led by Robin Xing in Hong Kong. Goldman strategist on Friday also concluded that the PBOC has been "leaning against excessive depreciation in recent days." We wonder what will happen if China decides to lean in...

Adding to concerns about China, over the weekend, China's June PMI indicated weaker-than-expected manufacturing data and showed that new export orders slid into contraction, suggesting that trade war concerns are starting to seep through the Chinese economy.

Chart: Tom Orlik

It wasn't just China: trade also weakened in export powerhouse South Korea, which reported June exports which were modestly down Y/Y.

Chart: Tom Orlik

The Asian turmoil quickly spread to Europe, where nearly all members of the Stoxx Europe 600 Index retreated. Miners were the biggest losers in Europe as metals fell and West Texas oil traded near $74 a barrel after U.S. President Donald Trump called for 2 million barrels in increased Saudi production. The Stoxx 600 Banks Index fell as much as 1.3%, led by drops in Italian and Spanish lenders. The Spanish Ibex 35 Banks Index fell 2%, with all 6 members dropping. The reason: BBVA and Banco Sabadell are among Spanish companies with exposure to Mexico where leftist Andres Manuel Lopez Obrador won Sunday’s presidential elections. Separately, Deutsche Bank once again tumbled, slides as much as 3.4% to €8.91 and near its all time low, but it has since found a bid.

Italian bonds made the European party complete with BTP futures sliding again, as yields rose as much as 9bps across 2- to 10-year sectors, widening vs core bonds as risk appetite continues to sour following European open. 

Needless to say, investors are no longer enamored with Europe, which in Q2 saw the biggest quarterly ETF outflow in 2 years.

The US wasn't immune to the global rout and futures on the S&P 500, Nasdaq and Dow all dropped, with the S&P set to erase all of Friday's gains (which were far less as a result of that last hour selling rush).

There was more turmoil in FX: after rallying the most in a month Friday, the euro slipped -0.4% on Monday, erasing all earlier losses, as concern about a potential escalation in the German political crisis provides investors with another reason to fade rallies. On Monday, Merkel’s CDU and Bavarian CSU are holding last-ditch talks to reach a compromise over migration policy disputes.

On Sunday, Germany Interior Minister and CSU party leader Seehofer offered to resign, which follows a meeting over the weekend with Chancellor Merkel that Seehofer described as pointless and in which he rejected the migration deal that was negotiated at the EU summit. However, reports later stated that Seehofer is said to remain in politics if Chancellor Merkel's CDU party backs down regarding migration, while he also said he wants to avoid the collapse of Merkel's government and is said to be seeking one more discussion with the CDU. SU caucus chief Dobrindt opposed the resignation and requested an internal vote, while there were also comments from Economy Minister Altmaier who stated that the German coalition is in a serious situation.

As a result of the escalating German political crisis, the common currency dropped as much as -0.5% to touch 1.1626 day low, before paring losses. CFTC data published on June 29 shows hedge funds sold the euro for a seventh week in a row, a bearish momentum unseen in more than five years.

Some were quick to assure traders not to dump the euro: "Principally, it can be quite relevant for the euro if the political situation in Germany changes dramatically,” wrote Commerzbank FX strategist Esther Maria Reichelt. “However, for now there is little reason to doubt that all parties who might be suitable for a formation of the government support a similar economic and principally pro-European course. That means that the stability of the euro is not under threat even if the disagreements on asylum escalate further."

Similarly, the Mexican peso turned lower, reversing an early advance of 1.3%, after Mexicans elected leftist Andres Manuel Lopez Obrador as their first left-wing president in decades.

On the other hand, the dollar kicked off the second half of the year on a strong footing as global equities slid amid trade concerns, while the yuan hit a nine-month low.

The return of dollar strength led to another drop in emerging-market stocks, which gave up half of Friday’s gain.

Crude futures gap lower at the Globex reopen, pressured as markets react to a tweet from US President Trump over
the weekend that he spoke with Saudi Arabia’s King Salman on raising production maybe by as much as 2mln barrels and that prices were too high which the Saudi ruler agreed with. However, the White House were quick to clarify that Saudi Arabia stated they could raise output if required and that there was no actual agreement to raising output by the said amount. In regards to this, Iran’s OPEC Governor Ardebili said on Saturday “there is no way one country could go 2mln BPD above their production allocation unless they are walking out of OPEC”. An Iranian official later stated that adjustments to the OPEC output levels would require an emergency meeting

Elsewhere, gold (-0.3%) is subdued by a slightly firmer dollar as the yellow metal continues to be detached from the risk sentiments. Chinese iron ore futures fell almost 2% on Monday, due to a fresh increase in iron ore stocks at China’s ports, after a hat trick of positive closes last week.

Looking ahead, highlights include US mfg PMIs, US construction spending, ISM manufacturing and ECB’s Praet.

Market Snapshot

  • S&P 500 futures down 0.6% to 2,705.00
  • STOXX Europe 600 down 0.9% to 376.36
  • MXAP down 1.2% to 164.11
  • MXAPJ down 0.7% to 535.26
  • Nikkei down 2.2% to 21,811.93
  • Topix down 2.1% to 1,695.29
  • Hang Seng Index up 1.6% to 28,955.11
  • Shanghai Composite down 2.5% to 2,775.56
  • Sensex down 0.5% to 35,240.17
  • Australia S&P/ASX 200 down 0.3% to 6,177.79
  • Kospi down 2.4% to 2,271.54
  • German 10Y yield fell 0.9 bps to 0.293%
  • Euro down 0.4% to $1.1637
  • Italian 10Y yield fell 9.9 bps to 2.413%
  • Spanish 10Y yield fell 1.4 bps to 1.307%
  • Brent Futures down 1.1% to $78.39/bbl
  • Gold spot down 0.3% to $1,248.72
  • U.S. Dollar Index up 0.4% to 94.83

Top Overnight News from Bloomberg

  • Mexicans elected Lopez Obrador as their first left-wing president in decades, according to exit polls that showed him headed for a landslide victory over two business-friendly rivals
  • Fate of German Chancellor Merkel’s ruling bloc is due to be decided Monday as a coalition dispute over migration policy reaches its endgame
  • German Chancellor Angela Merkel’s Christian Democratic Union and its Bavarian sister party will hold joint talks later Monday in Berlin in an effort to broker an 11th-hour compromise after separate discussions failed to end the standoff over migration policy
  • Chinese stocks took another battering on Monday as selling resumed amid concern about a falling currency, housing curbs and the impact of trade tariffs. The Shanghai Composite Index extended last month’s 8 percent rout, while the yuan touched its weakest level since Oct. 3
  • A one-day rally in Chinese stocks fizzled out as the yuan resumed declines and data showed further signs of weakness in the economy. Purchasing manager index readings for June released Saturday showed a gauge of export orders tumbled
  • Commodity powerhouse Australia warned that rising trade protectionism will hurt global growth, adding its voice to a chorus of alarm just days before the U.S. and China slap duties on each other, risking a spiral of tit-for-tat tariffs
  • Confidence among Japan’s large manufacturers cooled after reaching a 13-year high at the end of last year. While trade tensions are casting a shadow over companies globally, big producers in Japan cited a lack of workers and the rising cost of materials as key concerns
  • After decades of pleading for easier access to the China’s car market, manufacturers saw duties on overseas imports almost halved to 15% on Sunday. But the reprieve for producers of those models is set to end in five days. For BMW AG, Tesla Inc. and other global automakers whose future is ever-more dependent on China’s burgeoning market, any gains from lower import tariffs this week will likely be short-lived -- thanks to President Donald Trump’s trade war

Asian equity markets began H2 softer with the region constrained by disappointing data releases including Chinese Official & Caixin Manufacturing PMIs which both fell short of estimates, while the latest BoJ Tankan survey was mixed with headline Large Manufacturing Index also below forecasts. As such, ASX 200 (-0.3%) and Nikkei 225 (-2.2%) were lacklustre although strength in Property and Healthcare sectors kept Australia afloat for most the session, while Japan was dampened following mixed Tankan data but with a weaker JPY intiially limiting the downside. Elsewhere, Shanghai Comp. (-2.5%) was among the underperformers after both the Official and Caixin Manufacturing PMI missed estimates, while PBoC inaction resulting to a net daily drain and the absence of participants in Hong Kong for public holiday also ensured a subdued tone. Finally, 10yr JGBs were marginally higher amid the cautious risk tone in Japan and BoJ’s presence in the market, while the less than impressive BoJ tankan survey and source reports the BoJ are to revise lower its CPI forecasts at this month’s Outlook Report is also seen to likely to keep the BoJ maintaining its ultra-loose policy for a prolonged period.

Top Asian News

  • Global Automakers Prepare for ’Nightmare’ China Tariff Whiplash
  • Sentiment Sours in Asian Stocks as Trade War Hits China Exports
  • Top Iron Ore Shipper Cuts Outlook as Price Seen Back in $50s

European equities kick off the week in negative territory, albeit off lows (Eurostoxx 50 -1.0%) following the tone seen in the AsiaPac session, with sentiment also dampened by the latest developments in Germany. Over the weekend, German Interior Minister Seehofer rejected Chancellor Merkel’s deal with the EU on migration whilst also threatening to resign. Trade war woes continue to linger after the EU threatened to impose new retaliatory tariffs worth USD 300bln if the US continues with the EU auto tariffs. Financials and industrials underperform amid the uncertainty surrounding the potential fall of the German government (Interior Minister Seehofer is to meet Chancellor Merkel today) and the fall of base metals. Energy names take a hit following the recent decline in oil prices. In terms of stocks specifics, Microfocus (+5.1%) shares were lifted following reports they’re to sell their SUSE business to EQT partners for USD 2.4bln. Vedanta (+26.8%) shares spiked higher after Volcan approached the company with a buyout offer. Meanwhile, Playtech (-29.3%) shares slumped after the company lowered their guidance.

Top European News

  • UBS Makes Sweeping Changes to Europe Investment Bank Leadership
  • Brexit Banker Kids Leave Top U.K. Schools With Rare Empty Seats
  • German Banks Are Plotting a Counter-Attack Against MiFID II
  • U.K. Manufacturing Growth Holds Up in June After Subdued Quarter

In FX, the EUR has been under pressure in early EU trade, as 1.1700 held firm vs the Usd amidst reports of decent selling against vs the JPY after the cross breached 129.00 to the downside, from 128.95 to 125.80. Meanwhile, a prominent US bank has also implemented a short Eur position on unstable German political grounds and despite the prospect of SNB  intervention via the CHF around 1.1550, targeting 1.1200 with a 1.1660 stop. Back to the headline pair, 1.1623 represents 10 DMA support just below the base so far. USD - Although the Dollar has retreated from best levels vs several major counterparts the DXY remains underpinned above 94.500 with Usd/Jpy holding midway between 110.50-111.05 and the Greenback broadly firmer across the board. Sub-forecast Chinese PMIs suggest that trade wars may hit the world’s 2nd largest economy more than the US, and the YUAN continues to weaken in response if not by design. AUD/NZD - Among the G10 underperformers on the latest downturn in overall risk sentiment, and with the Aud also undermined by a slower PMI print and decline in job ads overnight, as it slips further below 0.7400 vs its US peer and pivots 1.0900 against the Kiwi that is striving to keep its head above 0.6750 vs the Usd. MXN - Off recent peaks vs the Usd, but with the Peso still  holding above 20.000 in wake of the election and convincing win for AMLO

In commodities, oil traded lower with WTI (-0.4%) and Brent (-0.9%) pressured as markets react to a tweet from US President Trump over the weekend that he spoke with Saudi Arabia’s King Salman on raising production maybe by as much as 2mln barrels and that prices were too high which the Saudi ruler agreed with. However, the White House were quick on clarifying that Saudi Arabia stated they could raise output if required and that there was no actual agreement to raising output by the said amount. In regards to this, Iran’s OPEC Governor Ardebili said on Saturday “there is no way one country could go 2mln BPD above their production allocation unless they are walking out of OPEC”. An Iranian official later stated that adjustments to the OPEC output levels would require an emergency meeting. Amongst the weekend  comments, Saudi crude output reached a near-record 10.7mln BPD according to a survey while Russian June output reached over 11mln BPD according to the oil ministry. Libya’s NOC declared a force majeure at Hariga and Zeutina ports while weekend reports suggested around 850K BPD may be offline in the country. Elsewhere, gold (-0.3%) is subdued by a slightly firmer dollar as the yellow metal continues to be detached from the risk sentiments. Chinese iron ore futures fell almost 2% on Monday, due to a fresh increase in iron ore stocks at China’s ports, after a hat trick of positive closes last week.

Looking at today's calendar, in the US the June ISM manufacturing will also be closely watched in the afternoon. Other data due out includes May PPI and the unemployment rate reading for the Euro area. Meanwhile the ECB’s Praet is due to speak.

    US Event Calendar

    • 9:45am: Markit US Manufacturing PMI, est. 54.7, prior 54.6
    • 10am: Construction Spending MoM, est. 0.5%, prior 1.8%
    • 10am: ISM Manufacturing, est. 58.5, prior 58.7
      • 10am: ISM Employment, prior 56.3
      • 10am: ISM Prices Paid, est. 74.8, prior 79.5
      • 10am: ISM New Orders, prior 63.7

    DB's Jim Reid concludes the overnight wrap

    Welcome to the second half of the year. For all the fire and fury in H1, the S&P 500 continues to be the star core equity market performer but at +2.6% in total return terms, it has struggled to maintain its flying start where it was +5.7% alone in January. The large majority of equity markets are lower in 2018 with EM leading the way as trade wars and higher US yields and a firmer dollar take their toll. Actually June saw the Renminbi (-3.3%) see its worst month since FX markets were established in China back in 1994. On the other hand the best performer in our global suite of assets in June, Q2 and YTD has been Oil.

    This weekend the main stories have concerned Mrs Merkel, US/China tariffs and a Trump tweet on Saudi Oil production. The other main story is that one of Russia, Croatia, Sweden, Switzerland, Colombia or England will be in the World Cup final in just under 2 weeks!! Expect the low expectations previously seen in England to reach fever pitch optimism before tomorrow’s game!

    Firstly on Germany, according to the DPA, the CSU party leader Mr Seehofer has offered his resignation as German interior minister following policy differences on migration issues with Merkel, but said he’ll stay in politics if she backs down. The Euro initially traded higher but later reversed gains to be -0.2% lower this morning. Looking ahead, both the CSU and CDU are expected to reconvene for more meetings today, with Mr Seehofer telling reporters in the early hours of Monday morning that “all other steps will be decided after the discussion” with Mrs Merkel’s Party. So it could still be a big day for German politics and the survival of Germany’s government.

    Moving onto oil, which rose 8.1% last week (WTI) to a fresh c3.5 year high. Over the weekend Potus indicated mixed messages on oil on social media and in a live interview. This morning, WTI oil is trading -1.2% lower.

    In terms of trade tensions, Canada’s retaliatory tariffs on $12.6bn worth of US goods went into effect yesterday. The country has imposed a 25% tariff on metal products and a 10% tariff on 250 other goods. The Canadian Foreign minister Freeland noted “we’ll not escalate and we’ll not back down”. Meanwhile, the US treasury department is also due to release its report outlining investment restrictions on Chinese investments in certain US industries soon.

    This morning in Asia, markets are trading lower with the Nikkei (-1.35%), Kospi (-1.57%) and Shanghai Comp. (-1.13%) all down while the Hang Seng is closed for holiday. In Mexico, exit polls by El Financiero showed Lopez Obrador winning the  election with 49% of the votes where he will be the country’s first left wing President in c4 decades (as per Reuters). The Mexican Peso is trading c0.9% higher this morning. Datawise, over the weekend China’s June manufacturing PMI slowed 0.4pt mom to 51.5 (vs. 51.6 expected), but this was partly offset by a stronger non-manufacturing PMI print of 55, leading to a still solid composite PMI of 54.4 (-0.2pt mom). Earlier this morning, the June Caixin China manufacturing PMI also edged down 0.1pt to 51 (vs. 51.1 expected).

    As for this week, it will be a disjointed one as the US celebrates AMEXIT day on Wednesday with markets closing early tomorrow ahead of this. Around this the data highlights are today’s final global PMIs/US ISM, Wednesday’s services equivalent in Europe (Thursday in US) and then Friday’s US payrolls. Current consensus is for a 195k print (May was 223k). Average hourly earnings is expected to come in at a solid +0.3% mom which, if realised, would push the annual rate up one-tenth to +2.8% yoy and back to the January highs just before the vol shock. We also have the latest Fed minutes on Thursday where more details should emerge about the hawkish hike seen a few weeks back. Elsewhere, outside of this weekend’s trade stories, Friday is when the US is scheduled to impose tariffs on $34bn of Chinese goods. So plenty of time for some more trade headlines.

    As for markets back on Friday. European equities were all higher (Stoxx 600 +0.81%; DAX +1.06%), boosted by a rebound in tech stocks and a lift in sentiment as EU leaders reached a preliminary agreement on migration issues. In the US, the S&P also traded c1% higher initially, but fell late in the session following an Axios report which suggested President Trump was keen for the US to withdraw from the WTO. Later on, White House officials denied the story, but the damage was partly done with the S&P only closing +0.08% higher.

    Meanwhile European bond yields were broadly lower, in part as Reuters reported that the ECB is considering recycling more of its maturing assets into longer-term bonds. Across the region, the 10y yields on Bunds (-1.7bp), OATs (-4bp) and Italian BTPs (-10.1bp) were all down, while treasuries (+2.4bp) and Gilts (+1.5bp) nudged higher. In FX, the US dollar index weakened for the first time in four days (-0.88%) while the Euro and Sterling both jumped +0.99%.

    Before we take a look at today’s calendar, we wrap up with other data releases from Friday. In the US, the May core PCE was firmer than expected at 0.213% mom, leading to an annual growth of 2% yoy (vs. 1.9% expected) – the highest since April 2012. The three-month and six-month annualized rates of inflation also nudged up to 2.2% and 2.3% saar respectively. Meanwhile the May personal income growth was in line at 0.4% mom while personal spending was weaker than expected at 0.2% mom (vs. 0.4% expected). Elsewhere, the June Chicago PMI was above market (64.1 vs. 60 expected) while the final reading of the June University of Michigan consumer confidence index was revised down by 1.1pt to 98.2. Following the above, the Atlanta Fed’s estimate of Q2 GDP growth was cut by seven-tenths to 3.8% saar.

    In Europe, the Euro area’s core June CPI edged down 0.1ppt mom to an in line print of 1% yoy while France’s CPI was also in line at 2.4% yoy. In Germany, the June unemployment rate was in line at 5.2% while the May retail sales disappointed at -1.6% mom (vs. 1.9% expected). Over in the UK, the final reading of the 1Q GDP was unchanged at 1.2% yoy. Elsewhere, the May mortgage approvals was the highest since January (64.5k vs. 62.3k expected) while the net lending on secured dwellings also beat at £3.9bn (vs. £3.7bn expected).

    Looking at today's calendar, the flash June manufacturing PMIs for Spain, Italy and the UK along with final June manufacturing PMI reads for France, Germany, the Eurozone and the US are due. In the US the June ISM manufacturing will also be closely watched in the afternoon. Other data due out includes May PPI and the unemployment rate reading for the Euro area. Meanwhile the ECB’s Praet is due to speak.

     

     

    Published:7/2/2018 6:24:27 AM
    [Markets] Dow futures fall more than 100 points as Trump, EU exchange trade jabs As 2018’s second half starts, trade-war fears aren’t going awayStock futures are in the red as the global auto industry remains in focus. U.S. stock futures lost ground Monday, with investors staying concerned about trade fights as the year’s second half starts, after President Donald Trump talked tough again on trade with the European Union. On Friday, the Dow (^DJI) , S&P 500 (^GSPC)and the Nasdaq Composite (^IXIC)all closed slightly higher, but logged losses for the week. Published:7/2/2018 4:24:04 AM
    [Markets] [$$] Dow Industrial Average Manages Scant 2nd-Quarter Gain, Vexed By Trade Woes The Dow Jones Industrial Average eked out a meager gain in the second quarter, but escalating trade tensions have punished the blue-chip index more than its peers and left it vulnerable to further volatility. The Dow is more prone to trade-related swings than the S&P 500 and other indexes because its multinational constituents, such as Boeing Co. and Caterpillar Inc., receive a significant amount of their revenue from overseas. Renewed threats from President Donald Trump to impose further tariffs and restrictions on China, which was followed by promises of retaliation from Chinese President Xi Jinping, sent the Dow tumbling 0.6% in June, trimming its gains for the second quarter to 0.7%. Published:7/1/2018 7:21:15 PM
    [Markets] Match Made In Hell: Bayer-Monsanto Partnership Signals Death Knell for Humanity

    Authored by Robert Bridge via The Strategic Culture Foundation,

    On what plane of reality is it possible that two of the world’s most morally bankrupt corporations, Bayer and Monsanto, can be permitted to join forces in what promises to be the next stage in the takeover of the world’s agricultural and medicinal supplies?

    Warning, plot spoiler: There is no Mr. Hyde side in this horror story of epic proportions; it’s all Dr. Jekyll. Like a script from a David Lynch creeper, Bayer AG of poison gas fame has finalized its $66 billion (£50bn) purchase of Monsanto, the agrochemical corporation that should be pleading the Fifth in the dock on Guantanamo Bay instead of enjoying what amounts to corporate asylum and immunity from crimes against humanity. Such are the special privileges that come from being an above-the-law transnational corporation.

    Unsurprisingly, the first thing Bayer did after taking on Monsanto, saddled as it is with the extra baggage of ethic improprieties, was to initiate a rebrand campaign. Like a Hollywood villain falling into a crucible of molten steel only to turn up later in some altered state, Monsanto has been subsumed under the Orwellian-sounding ‘Bayer Crop Science’ division, whose motto is: "Science for a better life."

    Yet Bayer itself provides little protective cover for Monsanto considering its own patchy history of corporate malfeasance. Far beyond its widely known business of peddling pain relief for headaches, the German-based company played a significant role in the introduction of poison gas on the battlefields of World War I. 

    Despite a Hague Convention ban on the use of chemical weapons since 1907, Bayer CEO Carl Duisberg, who sat on a special commission set up by the German Ministry of War, knew a business opportunity when he saw one.

    Duisberg witnessed early tests of poison gas and had nothing but glowing reports on the horrific new weapon:

    “The enemy won’t even know when an area has been sprayed with it and will remain quietly in place until the consequences occur.”

    Bayer, which built a department specifically for the research and development of gas agents, went on to develop increasingly lethal chemical weapons, such as phosgene and mustard gas. “This phosgene is the meanest weapon I know,” Duisberg remarked with a stunning disregard for life, as if he were speaking about the latest bug spray. “I strongly recommend that we not let the opportunity of this war pass without also testing gas grenades.”

    Duisberg got his demonic wish. The opportunity to use the battlefield as a testing ground and soldiers as guinea pigs came in the spring of 1915 as Bayer supplied some 700 tons of chemical weapons to the war front. On April 22, 1915, it has been estimated that around 170 tons of chlorine gas were used for the first time on a battlefield in Ypres, Belgium against French troops. Up to 1,000 soldiers perished in the attack, and many more thousands injured.

    In total, an estimated 60,000 people died as a result of the chemical warfare started by Germany in the First World War and supplied by the Leverkusen-based company.

    According to Axel Koehler-Schnura from the Coalition against BAYER Dangers:

     “The name BAYER particularly stands for the development and production of poison gas. Nevertheless the company has not come to terms with its involvement in the atrocities of the First World War. BAYER has not even distanced itself from Carl Duisberg’s crimes.”

    The criminal-like behavior has continued right up until modern times. Mike Papantonio, a US attorney and television presenter discussed one of the more heinous acts committed by this chemical company on Thomas Hartmann’s program, The Big Picture: “They produced a clotting agent for hemophiliacs, in the 1980s, called Factor VIII. This blood-clotting agent was tainted with HIV, and then, after the government told them they couldn’t sell it here, they shipped it all over the world, infecting people all over the world. That’s just part of the Bayer story.”

    Papantonio, citing Bayer’s 2014 annual report, said the company is facing 32 different liability lawsuits around the world. For the 2018 Bayer liability report, click here.

    Before flushing your Bayer products down the toilet, you may want to put aside an aspirin or two because the story gets worse.

    One of the direct consequences of the ‘Baysanto’ monster will be a major hike in prices for farmers, already suffering a direct hit to their livelihood from unsustainable prices.

    “Farmers have already experienced a 300% price increase in recent years, on everything from seeds to fertilizer, all of which are controlled by Monsanto,” Papantonio told Hartmann. “And every forecaster is predicting that these prices are going to climb even higher because of this merger.”

    Yet it’s hard to imagine the situation getting any worse for the American farmer, who is now facing the highest suicide rate of any profession in the country. The suicide rate for Americans engaged in the field of farming, fishing and forestry is 84.5 per 100,000 people - more than five times that of the broader population.

    This tragic trend echoes that of India, where about a decade ago millions of Indian farmers began switching from farming with traditional farming techniques to using Monsanto’s genetically modified seeds instead. In the past, following a millennia-old tradition, farmers saved seeds from one harvest and replanted them the following year. Those days of wisely following the rhythms and patterns of the natural world are almost over. Today, Monsanto GMO seeds are bred to contain 'terminator technology', with the resulting crops ‘programmed’ not to produce seeds of their own. In other words, the seed company is literally playing God with nature and our lives. Thus, hundreds of thousands of Indian farmers are forced to buy a new batch of seeds – together with Monsanto pesticide Round Up - each year and at a very prohibitive cost.

    But should the world have expected anything different from the very same company that was involved in the production of Agent Orange for military use during the Vietnam War (1961-1971)? More than 4.8 million Vietnamese suffered adverse effects from the defoliant, which was sprayed over vast tracts of agricultural land during the war, destroying the fertility of the land and Vietnam’s food supply. About 400,000 Vietnamese died as a result of the US military’s use of Agent Orange, while millions more suffered from hunger, crippling disabilities and birth defects.

    This is the company that we have allowed, together with Bayer, to control about one-quarter of the world’s food supply. This begs the question: Who is more nuts? Bayer and Monsanto, or We the People?

    It’s important to mention that the Bayer – Monsanto convergence is not occurring in a corporate vacuum. It is all part of a race on the part of the global agrochemical companies to stake off the world’s food supplies. ChemChina has bought out Switzerland’s Syngenta for $43 billion, for example, while Dow and DuPont have forged their own $130 billion empire.

    However, none of those companies carry the same bloodstained reputations as Bayer and Monsanto, a match made in hell that threatens all life on earth.

    Published:6/30/2018 6:14:45 PM
    [Markets] [$$] When the Momentum Starts to Fade The Dow had traded 293 points higher earlier in the day, led by Nike (NKE), whose strong earnings sent the stock up 11%. The Dow closed up 55 points. A $3.4 billion sell order that was entered toward the end of the day typified the mood, says Christopher Harvey, head of equity strategy at Wells Fargo Securities. Published:6/29/2018 11:09:44 PM
    [Markets] Stocks Edge Higher During Momentary Pause in Trade Tensions U.S. stocks edged higher Friday, as investors took advantage of a momentary pause in trade tensions to boost major indexes’ gains for the second quarter. Shares of energy companies rose alongside a spike in oil prices, while Nike pulled the S&P 500 and Dow industrials higher after the athletic apparel retailer reported its first sales gain in four quarters, sending shares to their highest closing price ever. All three major indexes notched a second consecutive session of gains Friday after several days when the S&P 500 and Dow industrials switched between gains and losses. Published:6/29/2018 6:41:30 PM
    [Markets] After the Bell: For the Dow, a Good Quarter, but a Bad Year Stocks added to Thursday's gains to end the quarter on a high note, with the Dow Jones Industrial Average up 0.2%. The Dow Jones Industrial Average rose  55.36 points, or 0.2%, to 24.271.41. The Nasdaq Composite, which escaped some of the trade war turmoil, takes the cake however: It 0.1% to 7510.30 today, but it's up 6.3% this quarter and has jumped 8.8% since the start of 2018.  Global stocks had their worst start to the year since 2010, but the fact that all three major indexes managed to notch gains for the second quarter seems like a feat, given the near-constant worry about tariffs that repeatedly torpedoed the market of late. Published:6/29/2018 5:40:54 PM
    [Markets] The stock market is days away from setting a bearish record The U.S. stock market is a few days from hitting a notable milestone, but it isn’t one that investors will feel particularly good about. Both the Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) have been mired in correction territory for months, ever since Feb. 8, when concerns that inflation was returning to the economy sparked a selloff that led to their dropping 10% from record levels hit earlier in the year. Amid months of rangebound trading, neither index has been able to fully recover and notch new records, which is what would be needed for them to exit correction territory (the Nasdaq Composite Index (^IXIC) , which never officially corrected, hit a record earlier this month). Published:6/29/2018 3:39:19 PM
    [Markets] Weekend Reading: #MAMI – Make America More Indebted

    Authored by Lance Roberts via RealInvestmentAdvice.com,

    I have spilled a lot of digital ink over the last few years on the trajectory of debt, spending and the impact of fiscal irresponsibility. Most of it has fallen on “deaf ears” particularly in the rush to pass “tax reform” without underlying fiscal restraints. To wit:

    “The recently approved budget was an anathema to any fiscally conservative policy. As the Committee for a Responsible Federal Budget stated:

    ‘Republicans in Congress laid out two visions in two budgets for our fiscal future, and today, they choose the path of gimmicks, debt, and absolutely zero fiscal restraint over the one of responsibility and balance.

    Passing fiscally irresponsible budgets just for the sake of passing “tax cuts,” is, well, irresponsible. Once again, elected leaders have not listened to, or learned, what their constituents are asking for which is simply adherence to the Constitution and fiscal restraint.’

    I then followed this up this past Monday with “3 Myths Of Tax Cuts” stating:

    ‘Tax cuts do not pay for themselves; they can create growth, but in the amount of tenths of percentage points, not whole percentage points. And they certainly cannot fill in trillions in lost revenue. Relying on growth projections that no independent forecaster says will happen isn’t the way to do tax reform.

    As the chart below shows there is ZERO evidence that tax cuts lead to stronger sustained rates of economic growth. The chart compares the highest tax rate levels to 5-year average GDP growth. Since Reagan passed tax reform, average economic growth rates have only gone in one direction.'”

    The reason for the history lesson is the CBO (Congressional Budget Office) has just released a new report confirming exactly what we have been saying for the last two years.

    “In CBO’s projections, the federal budget deficit, relative to the size of the economy, grows substantially over the next several years, stabilizes for a few years, and then grows again over the rest of the 30-year period, leading to federal debt held by the public that would approach 100 percent of gross domestic product (GDP) by the end of the next decade and 152 percent by 2048. Moreover, if lawmakers changed current laws to maintain certain policies now in place—preventing a significant increase in individual income taxes in 2026, for example—the result would be even larger increases in debt.

    The federal government’s net interest costs are projected to climb sharply as interest rates rise from their currently low levels and as debt accumulates. Such spending would about equal spending for Social Security, currently the largest federal program, by the end of the projection period.”

    My friends at the Committee for a Responsible Federal Budget summed up the issues well.

    • Debt Is Rising Unsustainably

    • Spending Is Growing Faster Than Revenue

    • Recent Legislation Will Substantially Worsen the Long-Term Outlook if Extended. 

    • High And Rising Debt Will Have Adverse and Potentially Dangerous Consequences (Will lead to another financial crisis.)

    • Major Trust Funds Are Headed Toward Insolvency. 

    • Fixing the Debt Will Get Harder the Longer Policymakers Wait. 

    While the CRFB suggests that lawmakers need to work together to address this bleak fiscal picture now so problems do not compound any further, there is little hope that such will actually be the case given the deep partisanship currently running the country.

    As I have stated before, choices will have to be made either by choice or force. The CRFB agrees with my assessment.

    “CBO continues to remind us what we’ve known for a while and seem to be ignoring: the federal budget is on an unsustainable course, particularly over the long term. If policymakers make the tough decisions now – rather than wait until there’s a crisis point for action – the solutions will be fairer and less painful.”

    I am not hopeful. With government dependency at record levels as a percentage of disposable incomes (22.05%), the outlook for the economy will continue to become less bright as Government transfer payments only offset a small fraction of the increase in pre-tax inequality.

    These payments fail to bridge the gap for the bottom 50% because they go mostly to the middle class and the elderly. With wage growth virtually stagnant over the last 20-years, the average American is still living well beyond their means which explains the continued rise in debt levels. The reality is that economic growth will remain mired at lower levels as savings continue to be diverted from productive investment into debt service.

    The “structural shift” is quite apparent as burdensome debt levels prohibit the productive investment necessary to fuel higher rates of production, employment, wage growth, and consumption. Many will look back at this point in the future and wonder why governments failed to use such artificially low-interest rates and excessive liquidity to support the deleveraging process, fund productive investments, refinance government debts, and restructure unfunded social welfare systems.

    Instead, those in charge continue to “Make America More Indebted.”

    As individuals, we must realize we can only depend on ourselves for our financial security and work to ensure our own fiscal solvency.

    As my father used to preach:

    “Hope for the best, prepare for the worst, and remember the best rescue is a self-rescue.” 

    Be hopeful. Just don’t be dependent.

    Just something to think about as you catch up on your weekend reading list.

    Economy & Fed

    Markets

    Most Read On RIA

    Research / Interesting Reads

    “ Wall Street is a street with a river at one end and a graveyard at the other.” – Fred Schwed, Jr.

    Published:6/29/2018 3:39:18 PM
    [Markets] US STOCKS SNAPSHOT-Wall St ends up on Nike, bank gains; posts declines for week A surge in Nike Inc shares and a rally in bank stocks lifted Wall Street's major stock indexes on Friday, though all three still posted weekly declines. Based on the latest available data, the Dow Jones ... Published:6/29/2018 3:10:48 PM
    [Markets] The 'Rebound' From February's Crash Is The 2nd Worst On Record

    The bounce in the S&P in the last 24 hours (off unchanged for the year) has saved the major US equity market index from its worst start to a year since 2010.

    2018 has also been a 'different' year in terms of volatility.  As Bloomberg notes, a procession of awful days is battering investor nerves. While most of 2018’s sessions have been up ones, when the market falls, it falls hard. Single-day drops are 20 percent bigger than gains, on average, the widest gap in seven decades.

    The average move in the S&P 500 is 0.7 percent this year, up from 0.3 percent in 2017. It’s a pace that if maintained would be the biggest increase on record.

    Since the peak of the S&P 500 in late January, only Small Caps remain comfortably in the green (because domestic companies are insulated from Trump's trade wars according to the narrative), but The Dow and S&P remain well off their highs...

    And as a reminder, in March, Morgan Stanley called the euphoria blow off top the highs for the year.

    In fact, this inability of the S&P 500 to get back to its highs after 'correcting' in February - is historic.

    Over at Leuthold Group in Minneapolis, they rank equity downdrafts by degrees of pain.

    Yesterday, Leuthold's Jim Paulsen warned that "it's been too quiet, for too long" and today Leuthold points out that

    While an "intermediate correction" is what everyone hoped February's was (a plunge that never gets worse than about 12%), the odds of it being one of those are shrinking.

    Of 33 such episodes over the last 70 years, only one has taken longer to erase...

    The exception was in 1994, a selloff that also began in February and lasted two years. Like now, the second year of Bill Clinton's presidency featured a tightening Fed and losses in Treasuries.

    Given the tightening of financial conditions, we would not be holding our breath for any immediate return to the highs - in fact quite the opposite...

     

     

    Published:6/29/2018 2:22:19 PM
    [Markets] Stocks gain as financials, energy rally, but remain poised for weekly losses Wells Fargo & Co. jumps after increasing dividendsBank stocks were on the rise Friday. U.S. stocks advanced Friday, with the Dow rising more than 200 points as major banks indicated that they would return capital to shareholders after passing the Federal Reserve’s stress tests, lifting the financial sector. Published:6/29/2018 2:22:19 PM
    [Markets] Stocks Rise as Big Banks Move Higher, Dow Jumps as Nike Soars Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average rose sharply on Friday, led by bank shares. JPMorgan Chase & Co. , Citigroup Inc. and Bank of America Corp. gained after the Federal Reserve didn't object to the banks' capital-distribution proposals. Published:6/29/2018 10:08:53 AM
    [Markets] Why One Trader Is Raining On The 'Market Bounce Optimism' Parade

    The cognitive dissonance continues with a blip market rebound into month- / quarter-end prompting remarks from many that the worst is over and it's new highs (for the Dow or S&P) from here. Last night's CCAR prompted more glad-handing (despite 6 banks being tapped on the shoulder) and while bank stocks are up at the open, they did not fare well the last time...

    And while stocks rebound in early trading - the yield curve continues to collapse on its inexorable path to signaling slowing or no growth and the next recession (helped overnight by rumors of an ECB 'Twist').

    But it is former fund manager Richard Breslow that sums up the glee into the July 4th week better than most - "you can still be happy... as I rain on your parade."

    Via Bloomberg,

    It seems positively churlish to read all the happy news gracing the wires, marvel at the sea of equity green, share the relief of the beleaguered emerging-market countries, whose assets are having a bounce, and conclude it’s good, but not enough.

    It’s admittedly early in the day, but despite some impressive moves you would be hard-pressed to find any asset that isn’t still in very familiar territory.

    Had the markets concluded, or even just got excited at the prospect, that the world had changed, you would have expected these reversals to have caused a lot more pain to traders riding the recent trends. In a world fraught with anger and hostility, this all looks remarkably civilized. And I’ve yet to hear anyone complain to me that liquidity has been a challenge.

    Even the Shanghai Composite, reacting to soothing words from PBOC-related sources rose over 2%, and it did so in a steady manner without gaps. Just a textbook example of a trend day. But it failed to end positive on the week nor best last Monday’s low.

    Double bottom from today’s low, to be sure, but no one who has been short this thing was carried out on their shield.

    And although the euro shot higher as EU leaders strode happily before the press to declare victory at the save-Angela-Merkel summit, it, too, is currently at a price we’ve experienced three other days this week.

    Give it some credit though, 1.15 versus the dollar continues to grow as very significant support.

    The dollar index is doing similar things in reverse with 95.50 looming formidably above. But we have still spent the day within Wednesday’s range. As have the DAX, S&P 500 futures, EuroStoxx 50 and CAC.

    Perhaps most interesting, 10-year Treasuries, bunds and BTPs have not broken away from distressing, and distressed, levels.

    I’ve no idea whether today is the pause that refreshes or the start of something new. We are ending the second quarter with markets rife with ambiguity. The most that can be concluded is breakouts to new territory just don’t seem to be in the cards on this summer Friday. For all the fundamental news, once again it has been the technicals directing price traffic. Or maybe people are realizing that the biggest mistake that keeps happening is when victory is declared prematurely.

    Published:6/29/2018 8:36:57 AM
    [Markets] Morning Movers: KB Home Soars, Constellation Stumbles, Nike Flies The Dow Jones Industrial Average is gaining this morning as investors ignore trade tensions. •...highlight KB Home's (KBH) earnings-driven rise. Don't look now, but the Dow is trying to rally for a second day in a row, and wouldn't that be something? Published:6/29/2018 8:36:57 AM
    [Markets] Nike shares soar toward record, account for more than half of Dow futures gains Nike shares soar toward record, account for more than half of Dow futures gains Published:6/29/2018 6:38:00 AM
    [Markets] An investing playbook for 2018’s 2nd half — with how U.S. stocks stand apart The dogged Dow is trying to end its rocky week on an upbeat note, as everyone wonders what’s ahead in this year’s second half. For investors, global stocks are now not looking as great as earlier this year, say Schroders strategists for our call of the day. Global stocks have been cut to a meh rating, government bonds and credit draw neutral-to-negative scores, and commodities get a positive-to-neutral rating. Published:6/29/2018 6:37:59 AM
    [Markets] Need to Know: An investing playbook for 2018’s 2nd half — with how U.S. stocks stand apart The dogged Dow is trying to end its rocky week on an upbeat note, as everyone wonders what’s ahead in this year’s second half. Global stocks are not looking as great as earlier this year, say Schroders strategists for our call of the day.
    Published:6/29/2018 6:06:30 AM
    [Markets] Intraday Update: The Dow's Tell-Tale Heart Both the Dow Jones Industrial Average and the S&P 500 have been straining to stay out of the red. The unnamed narrator confesses that he is nervous, not mad, in the opening scene of "The Tell-Tale Heart," Edgar Allan Poe's study of paranoia. Stocks appear subdued now. Published:6/28/2018 1:03:05 PM
    [Markets] Equity 'Bull' Markets Are Toeing The (Trend-)Line

    Via Dana Lyons' Tumblr,

    A slew of global equity markets are testing key bull market Up trendlines.

    After a few slow weeks, our #TrendlineWednesday feature on Twitter today was more prolific. Much of that can be attributed to a wide array of equity indices testing key bull market uptrends. Specifically, several are testing their cyclical bull market Up trendlines – primarily from early-2016 lows (although, some of us would argue that the cyclical bull actually still stems back to 2009). In any event, these ~2-year old trendlines hold considerable significance. They have provided the necessary support to maintain the bull markets’ pace of advance thus far. Therefore, a break of such support would undermine the pace of advance, at a minimum – and potentially subject the markets to meaningful downside pressure.

    As mentioned, several of these trendlines are under siege currently from a number of equity indices, both domestically and abroad. Leading off, due to visibility, is the Dow Jones Industrial Average which is testing the Up trendline from its early 2016 lows.

    Similarly, the broader NYSE Composite is also testing its post-2016 Up trendline.

    As we mentioned above, it’s not just U.S. indices experiencing tests of their bull market uptrends. In Hong Kong, the Hang Seng is also testing the Up trendline from its 2016 lows.

    And around the world in Chile, we see it’s benchmark stock index, the IPSA likewise testing its post-2016 Up trendline.

    Finally, another emerging market, Taiwan, is testing its Up trendline stemming back to its cyclical low in 2015.

    So what will become of all these key trendline tests? Time will tell. There are markets that we like a great deal - and others that we don’t. But the fact that we have an abundance of tests underway simultaneously suggests that we’re at another important juncture in the global market - so stay on your toes.

    *  * *

    If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

    Published:6/28/2018 1:03:05 PM
    [Markets] Stocks fall after GDP data; trade still a primary focus U.S. stocks fell in early trading on Thursday, as ongoing uncertainty surrounding trade policy gave investors another reason to hold off on making big bets as the market nears the end of the month, quarter, and the first half of 2018. The Nasdaq Composite Index (^IXIC) fell 15 points, or 0.2%, to 7,433. Thus far this week, the Dow is off 2%, the S&P has lost 1.9%, and the Nasdaq has lost 3.1%. Published:6/28/2018 9:00:25 AM
    [Markets] Morning Movers: Dow Tumbles 132 Points as Walgreens Slumps on Amazon Pharmacy Acquisition The Dow Jones Industrial Average went from flat to down in less than an hour. S&P 500 futures have declined 0.4%, while Dow Jones Industrial Average futures have dropped 135 points, or 0.6%. Consider the Citi Economic Surprise Index, a measure of whether economic data is coming in stronger or weaker than expected. Published:6/28/2018 8:30:09 AM
    [Markets] Walgreens shares pull back after initial post-earnings gains Walgreens Boots Alliance announced third-quarter results Thursday. Walgreens announced a $10 billion share buyback. New Dow Jones Industrial Average component Walgreens' stock rose early in pre-market trading before turning negative. Published:6/28/2018 7:30:26 AM
    [Markets] Walgreens Boots Tops Q3 Earnings Forecasts, Unveils $10 Billion Share Buyback shares were active in pre-market trading trading Thursday after the newest member of the Dow posted stronger-than-expected quarterly earnings and unveiled a $10 billion share buyback. Walgreens Boots, which joined the Dow Jones Industrial Average earlier this week when General Electric Co. Comparable store sales, however, fell 1.4% at its international pharmacy division and 1.2% domestically, from the same period last year, pushing shares lower in pre-market trading. Published:6/28/2018 6:59:51 AM
    [Markets] US Futures Rebound Amid Emerging Markets Rout; China Drops To 2 Year Low

    Bulletin Headline summary from RanSquawk

    • European equities are lower across the board (Eurostoxx 50 -0.6%) as trade tensions continue to weigh on sentiment
    • DXY remains above 95.00 in European trade after an early bout of strength (now off best-levels)
    • Looking ahead, highlights include German national CPI, US GDP (F), weekly jobs, EU summit, BoE’s Haldane, US 7yr note auction

    US equity markets are looking to undo yesterday's bearish reversal, with index futures higher this morning, reversing the trend from earlier markets where Asian stocks flirted with a 9 month low and Europe was mixed.

    The MSCI Asia Pacific index started off the overnight session by declining for a fourth day, helping drag a gauge of developing-market stocks to the lowest level in almost a year, although at a slower pace as Chinese stocks sank deeper into a bear market, if at a more modest pace ...

    ... helped by a modest stabilization in the recent Yuan rout. In the end, however, the Shanghai Composite Index fell 0.9%, dropping below 2800 for the first time since March 2016 and erasing an earlier gain of 0.5%, as sentiment remained subdued amid trade concerns.

    Meanwhile, the Chinese yuan remained weak but the selloff was more controlled than in recent days, with the onshore yuan declining for the sixth session, its longest losing streak since June 2017, while the offshore yuan, or CNH, dropping for a record 11th day...

    ... rose as high as 6.64, the highest since November 2017, before reversing some losses. Property developers and airlines have been among the hardest hit by the yuan’s decline due to their large amounts of dollar debt. Like the offshore yuan, Air China has fallen for 11 straight days in Hong Kong, its longest ever losing streak. China Southern Airlines has plunged 35% in 10 days, while developer Country Garden Holdings is the worst performer on the Hang Seng Index this week.

    “The news that China will crack down on property speculation in 30 cities hurt sentiment and put pressure on shares,” said Dai Ming, Shanghai-based fund manager with Hengsheng Asset Management Co. “It makes investors agitated whenever China tightens regulation over the property sector.”

    The woes of real estate companies were further compounded Thursday after the government said it was starting a six-month campaign to root out violations in the housing market. That followed a tightening this week of loan approvals for redeveloping shanty-town projects and regulators urging companies to use proceeds from overseas bond sales to repay debt.

    European stocks followed the decline across Asia as investors remained confused by America’s strategy toward Chinese trade and investment. Technology companies and carmakers were the biggest losers as the Stoxx Europe 600 Index dropped.

    Futures on the S&P 500 pointed to a firmer open in the wake of Wednesday’s slump. West Texas Intermediate crude extended gains and China’s yuan headed for another drop. The British pound weakened, and Italian bonds slipped after a disappointing auction.

    With equity markets relatively calm, it was all about the dollar, which remained above 95.00 in European trade after an early bout of strength, which has since reversed and the BBG dollar index dipped to session lows, with trade posturing remained a key focus for investor sentiment.

    As a result of the stronger dollar and rising oil price, it was generally a bloodbath across EM FX, with the Indian rupee slumping to record low, while the Indonesian rupiah weakened to lowest since 2015. Kiwi slides to two-year low after dovish RBNZ statement.

    Separately, the rout across the broader Emerging Markets FX space sent the MSCI EM FX index to the lowest level since November 2017.

    USD strength has however somewhat abated as the session progresses with some commentators highlighting month-end rebalancing flows set to come into-play. Models suggest the USD could be sold amid equity re-balancing and thus provide some support for EURUSD which has thus far been able to maintain at 1.1500 handle. The Euro initially dipped then edged toward session highs against the dollar following Italian inflation data that modestly beat expectations, and may presage euro-zone CPI figures on Friday; the European summit is also later today. The USDJPY edged lower after gaining 0.2% Wednesday when White House adviser Larry Kudlow said the president wasn’t retreating on China and China growth was “not doing well.”

    In terms of the latest state-of-play, trade uncertainties remain in focus after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China. Markets continued to weigh counter-measures from China with CNY devaluation increasingly becoming part of the narrative in the spat between the two nations with China also announcing adjustments of tariffs on some imports from other Asia-Pac nations.

    In overnight central bank news, the RBNZ maintained the Official Cash Rate at 1.75% as unanimously expected, while it reiterated that it expects to keep rates at current expansionary level for considerable period and that the next direction is equally balanced between up and down. RBNZ added that global economic growth is likely to underpin demand for New Zealand products and services, but also stated that recent weaker GDP implies marginally more spare capacity in economy than anticipated and that CPI remains below target. Furthermore, the RBNZ later announced from 2019 onwards rate decisions will be announced after 1400 local time on a Wednesday and implemented the following day.

    Ahead of today's EU summit, German Interior Minister Seehofer said the CSU party is not seeking a break-up of the coalition government nor oust Chancellor Merkel, while there were also comments from German Finance Minister Scholz said he does not rule out possibility coalition can reach solution to migration issue. German Chancellor Merkel said on migration, “we are not where we want to be yet”; adding “we won't be able to reach a common migration agreement at the June Summit”. She went on to say Germany must consider coalition of the willing on migrant policy if an agreement is not reached by the 28 EU members and the migrant policy may make or break the EU.

    In geopolitics, South Korean and US Defence Chiefs agree UN Sanctions against North Korea will be in place until North Korea takes solid, irreversible measures towards denuclearisation.

    10-year Treasury yields remained immune to any risk on sentiment, with the yield barely rising 1bp to 2.83%. The yield curve flattened in U.S. on Wednesday as Treasuries rallied following Kudlow’s comments.

    West Texas Intermediate crude extended gains and China’s yuan headed for another drop. The British pound weakened, and Italian bonds slipped after a disappointing auction

    Expected data include jobless claims and GDP. Accenture, McCormick, Shaw Communications, Walgreens Boots and Nike are among those reporting earnings.

    Top Overnight News from Bloomberg

    • The European Central Bank warned in its Economic Bulletin that global growth -- already forecast to slow as many advanced economies approach capacity constraints -- might take an additional hit from recent threats to trade
    • Chancellor Angela Merkel said German-French proposals for the euro area won’t lead to a “debt union” and rejected unilateral measures to curb migration as she headed to a summit with other European Union leaders
    • China is slowing approvals for offshore bonds and considering whether to ban short-dated issuance in dollars, according to people familiar with the matter, moves that would reduce financing options for the developers that have led record sales of such debt
    • China’s expansion looks to have slowed further this month, underscoring the fragility of its economy as the next wave of tariffs in the trade dispute with the U.S. approaches
    • The Indian rupee slumped to an all-time low as a resurgence in crude prices and the emerging-market selloff took a toll on the currency of the world’s third-biggest oil consumer
    • United Co. Rusal is doing everything it can to avoid punitive U.S. restrictions due for full enforcement in October, according to the Russian aluminum giant’s acting Chief Executive Officer Evgeny Nikitin
    • Treasury Secretary Steven Mnuchin won a battle inside the Trump administration over trade policy this week after a series of setbacks as he tries to ease economic tensions with China
    • Russia’s Finance Ministry is on track for its biggest bond-issuance miss in 3 years as investors demand a premium to hold the nation’s debt after the toughest U.S. sanctions to date and a selloff in emerging markets
    • U.K. Treasury said it was won over by Jonathan Haskel’s expertise in productivity and innovation when choosing the only man among the five candidates to join the Bank of England’s Monetary Policy Committee
    • Hungarian forint tumbled to a record against the euro as the central bank maintained a dovish monetary policy seen as out of line with the rest of Europe

    Market Snapshot

    • S&P 500 futures little changed at 2,706.25
    • STOXX Europe 600 down 0.2% to 379.38
    • MXAP down 0.4% to 164.48
    • MXAPJ down 0.6% to 530.47
    • Nikkei down 0.01% to 22,270.39
    • Topix down 0.3% to 1,727.00
    • Hang Seng Index up 0.5% to 28,497.32
    • Shanghai Composite down 0.9% to 2,786.90
    • Sensex down 0.4% to 35,085.11
    • Australia S&P/ASX 200 up 0.3% to 6,215.39
    • Kospi down 1.2% to 2,314.24
    • German 10Y yield fell 0.3 bps to 0.318%
    • Euro down 0.1% to $1.1539
    • Italian 10Y yield fell 7.8 bps to 2.541%
    • Spanish 10Y yield unchanged at 1.356%
    • Brent futures up 0.1% to $77.73/bbl
    • Gold spot down 0.2% to $1,249.37
    • U.S. Dollar Index little changed at 95.33

    Asia equity markets traded somewhat indecisive following the headwinds from Wall St where all major indices wiped out intraday gains, as trade uncertainties remained in focus after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China. ASX 200 (+0.2%) and Nikkei 225 (Unch) were mixed with Australia kept afloat by commodity names as the energy sector outperformed on further gains in crude and with Santos underpinned after the board approved a new dividend policy which targets paying 10%-30% of free cash flow, while a firmer currency and disappointing Retail Sales data weighed on sentiment in Tokyo. Hang Seng (+0.4%) and Shanghai Comp. (+0.2%) were choppy on the trade uncertainties and following another net liquidity drain by the PBoC, although Chinese stocks later recovered amid pre-emptive measures in the face of a looming trade war including a further devaluation of the currency and adjustments of tariffs on some imports from other Asia-Pac nations.  Finally, 10yr JGBs traded flat amid the indecisive risk tone and amid weaker demand at today’s 2yr auction later, in which accepted prices also declined from prior.

    Top Asian News

    • Vietnam Forces Facebook and Google to Pick Privacy or Growth
    • Rupee Hits Record Low as India Pays for Insatiable Oil Demand
    • China Turmoil Batters Last Emerging-Market Haven as Rout Deepens
    • China Digs In on Trade as Tariffs Near, Economy Deepens Slowdown

    European equities are lower across the board (Eurostoxx 50 -0.6%) in recent trade with all major bourses in the red as trade tensions continue to weigh on sentiment. Consumer staples outperform while IT names lag behind (Europe’s tech sector -1.7%) amid NEC Director Kudlow rejecting the notion that US President Trump has softened his stance in regards to China on foreign investment, adding that the approach is aimed at “protecting our technological family jewels”. In terms of stocks specifics, Shire (+2.1%) shares are higher after Takeda shareholders rejected a proposal which opposed a deal with Shire.

    Top European News

    • ECB Publishes Methodology for New Euro Short-Term Interest Rate
    • Takeda’s Shareholder Vote Signals Support for Shire Takeover
    • BP to Buy U.K.’s Largest Electric Vehicle Charging Company
    • Merkel Says Stronger Europe Is in Germany’s National Interest

    In FX, the DXY remains above 95.00 in European trade after an early bout of strength (now off best-levels) with trade posturing remaining a key focus for investor sentiment. In terms of the latest state-of-play, trade uncertainties remain in focus after White House economic adviser Kudlow rejected the perception that Trump was softening his stance on China. Markets continue to weigh countermeasures from China with CNY devaluation increasingly becoming part of the narrative in the spat between the two nations with China also announcing adjustments of tariffs on some imports from other Asia-Pac nations. GBP has managed to recoup some of it’s initial losses against the USD (albeit still on a 1.3000 handle) after taking out stops to the downside at 1.3100 early doors in Europe before then running into support around 7-month lows at 1.3068. From a fundamental perspective, BoE’s Cunliffe did little to reveal his voting intentions at the August QIR and instead focused on household debt with a more medium-term focus. Narrative for the GBP could now shift towards Brexit ahead of the EU leaders summit; albeit expectations for any progress are particularly low with PM May set to get a slap on the wrist from her peers. USD/CAD is continuing to return to pre-Poloz levels amid USD softening after the BoC head took time to note the uncertainties facing the Canadian economy which saw pricing for a rate hike decline to beneath 50%. Large option expiries could come into play for CAD with 1.3bln in USD/CAD at 1.3345-50.

    Commodities are mixed with choppy trade in gold (unch) after initially hitting 6-month lows as the yellow metal tracks the change in the dollar. WTI (+0.3%) and Brent (+0.1%) are back in positive territory, printing fresh highs for the day at USD 72.87/bbl and USD 77.93/bbl respectively. During the week, API and EIA crude inventories printed the largest drawdown since September 2016 with oil stocks dropping by nearly 10mln barrels. Traders will be mindful of halted oil exports in Libya following the country’s Eastern NOC’s instructions. Meanwhile, India’s oil ministry requested that refiners prepare for a 'drastic reduction or zero' imports from Iran from November, (according to sources) following US President Trump asking allies to quit importing Iranian oil. Libya's Eastern NOC have instructed companies in the East of the nation to halt oil exports. Tankers attempting to enter East Libyan ports will be deemed illegal, a tanker due at Libya's Zueitina port is said to have been turned away. (Newswires)

    Looking at the day ahead, the big focus will likely be the EU Summit in Brussels where leaders are due to discuss migration policy, the EU budget, Brexit, security and reforming the economic and monetary union. In the US the third and final reading for Q1 GDP and Core PCE is due, as well as the June Kansas City Fed manufacturing activity index and latest weekly initial jobless claims data. The Fed's Bullard and Bostic and the BOE’s Haldane and Bailey are due to speak. The Fed will also release part two of its annual bank stress test results.

    US Event Calendar

    • 8:30am: Initial Jobless Claims, est. 220,000, prior 218,000; Continuing Claims, est. 1.72m, prior 1.72m
    • 8:30am: GDP Annualized QoQ, est. 2.2%, prior 2.2%;
      • Personal Consumption, est. 1.0%, prior 1.0%
      • Core PCE QoQ, prior 2.3%
    • 9:45am: Bloomberg Consumer Comfort, prior 56.5
    • 11am: Kansas City Fed Manf. Activity, est. 26, prior 29

    DB's Jim Reid concludes the overnight wrap

    The flip-flopping (mostly flopping) of trade related headlines is enough to be driving markets crazy at the moment with sentiment swinging from more positive early on yesterday to negative by the close. By the end of play the S&P 500 ended -0.86% and was down -1.69% from intraday highs, while the Dow closed -0.68% and Nasdaq -1.54%. Within the S&P, financials (-1.26%) continued a run of now 13 consecutive losing days – the longest streak on record and  are now off -12.6% since the late January highs and -5.9% down from c3 weeks ago. The Energy sector was a bright spot (+1.34%) once again with Oil more than doing its part after WTI and Brent rose +3.16% and +1.72%, respectively, following supply outages in Libya and data which showed the biggest fall in US stockpiles since 2016. WTI hit YTD intraday highs yesterday in trading above $73.

    In bonds, US 10y yields fell 5.1bps to 2.826% - the lowest since late May, while Bunds (-2bp) and Gilts (-5.8bp) also firmed amidst the risk off tone. The relentless flattening of the Treasury curve did continue however with 2s10s down another 2.2bps and to a new fresh post 2007 low of 32.1bps. Before the late US selloff, Europe indices were actually quick to wipe out early losses with the Stoxx 600 (+0.72%) and DAX (+0.93%) finishing higher on the back of a solid rally in European energy stocks (+2.63%).

    With Oil back to the highest since December 2014 (+22% in YTD 2018) and bond yields generally heading towards the lower end of their recent ranges we’re set up for interesting European inflation numbers over the next two days. Certainly something to watch. Also watch for headlines from the important EU summit over the next couple of days. There a fuller preview below.

    This morning in Asia, markets are trading mixed but have improved from a weaker opening with the Hang Seng (+0.58%) and Shanghai Comp. (+0.19%) rebounding while the Nikkei (-0.09%) and Kospi (-0.82%) are both down as
    we type. The Chinese Yuan is weakening further (-0.1%) while the Yen is up marginally. Meanwhile after a 14 hour marathon session, the budget committee of the German Parliament has approved a €344bn budget plan for 2018 that will boost spending by 4% yoy without incurring any new debt. The budget will boost investments by €2.8bn to €39.8bn with additional funding for jobs in police / security forces. As for data, Japan’s May retail sales fell the most in c2 years and was below market at -1.7% mom (vs. -0.8%), which has led to annual growth of 0.6% yoy.

    Back to yesterday and to detail the Trump trade turnaround seen. Initially markets were stronger following the news that President Trump intends to use the CFIUS as opposed to emergency law for passing legislation concerning the violation of intellectual property rights on US companies – the latest development in this seemingly never-ending  story. Significantly, this is seen as a softening stance of sorts for the President and one which puts him more in line with Treasury Secretary Steven Mnuchin. The Treasury Secretary also added yesterday that moves to strengthen  CFIUS “is not intended to target China” and that it was “unfortunate” that the market got mixed messages. Late in the European afternoon though Trump’s top economic advisor Larry Kudlow told Fox Business News that Trump is not softening his stance on China and that China’s reaction to trade demands from the US has not been satisfactory.

    So as we look ahead to today, expect trade to be one of or if not, the big talking point at today’s EU summit which kicks off in Brussels and continues into Friday. There’s a laundry list of agenda points to get through for EU leaders with the not so insignificant talking points like Brexit, migration policy, the EU budget, security and the economic and monetary union amongst the big topics. The summit will be of particular significance for Merkel given domestic political tensions of late however yesterday the CDU and Social Democrats confirmed that no headway was made on migration talks in a meeting in Berlin which will only heighten the pressure on Merkel. Notably, the CSU Party leader Seehofer did reaffirm on ARD TV that “I know of nobody in my party who either wants to endanger the government….or bring down the Chancellor”. Meanwhile Italy PM Conte also confirmed that the EU draft on migration was dropped which should not be a great surprise given the limited headway made from Sunday’s mini summit.

    As discussed above, it’s worth also keeping an eye on some of the regional flash European CPI reports today. Data for Italy will be out this morning with the consensus at +0.2% mom for June. Germany will be out later this afternoon with +0.2% mom also expected however base effects are expected to push the annual rate down to +2.1%.

    Staying with data, US Q2 GDP prospects were given a boost yesterday after the May advance goods trade balance revealed a smaller than expected deficit of $64.8bn (vs. $69.0bn expected). That also compares to $67.3bn in April  and it means that the trade balance has now narrowed for three consecutive months to a 9 month high. The durable and capital goods orders data was a little more disappointing (durable ex transport -0.3% vs. +0.5% expected, core capex orders -0.1% mom vs. +0.3% expected) but upward revisions to prior months made that more of a wash. Pending home sales (-0.5% mom vs. +0.5% expected) were notably softer however. It’s worth noting that our US economists are forecasting Q2 GDP growth of 3.8%.

    In Europe, the Euro area’s May M3 money supply was stronger than expected at 4% yoy (vs. 3.8%). After adjusting for sales and securitizations, growth in household loans was steady at 2.9% yoy for a sixth consecutive month but growth in non-financial corporate loans increased to a new cyclical high of 3.6% yoy. Meanwhile, France’s June consumer confidence index fell 2pt mom to a 21- month low of 97 (vs. 100 expected) while Italy’s overall June economic sentiment index rose 0.8pts to a three-month high of 105.4. Over in the UK, the June Nationwide house price index slowed less than expected with annual growth at 2% yoy (vs. 1.7% expected; 2.4% previous). Elsewhere, the CBI’s distributive trades survey indicated that retailers were continuing to see better conditions in Q2, with a net 32% of retailers reporting annual sales growth in June – the best result since last September.

    Looking at the day ahead, the big focus will likely be the EU Summit in Brussels where leaders are due to discuss migration policy, the EU budget, Brexit, security and reforming the economic and monetary union. Datawise, it is looking like a busy day for inflation releases in Europe with preliminary June CPI reports due in Spain, Italy and Germany (2.1% yoy expected). We'll also get June confidence indicators for the Euro area and the ECB’s economic bulletin, while in the US the third and final reading for Q1 GDP and Core PCE is due, as well as the June Kansas City Fed manufacturing activity index and latest weekly initial jobless claims data. The Fed's Bullard and Bostic and the BOE’s Haldane and Bailey are due to speak. The Fed will also release part two of its annual bank stress test results.

    Published:6/28/2018 6:29:45 AM
    [Markets] Dow industrials set to bounce higher after their 166-point drop Bitter U.S.-China trade fight ‘could pick up steam anytime,’ analyst warnsDow newbie Walgreens Boots Alliance is on the earnings docket Thursday. U.S. stock futures showed a small gain early Thursday, suggesting the Dow may rebound somewhat after falling in 10 of the past 12 sessions as trade-related worries weighed. Dow Jones Industrial Average futures (YMU18.CBT)rose by 73 points, or 0.3%, to 24,208, while S&P 500 futures (ESU18.CME)added 8.60 points, or 0.3%, to 2,713.50. Published:6/28/2018 6:00:14 AM
    [Markets] Market Snapshot: Dow industrials set to take a breather after their 166-point drop U.S. stock futures show little change early Thursday, suggesting the Dow may catch its breath after falling in 10 of the past 12 sessions as trade-related worries weighed.
    Published:6/28/2018 5:29:54 AM
    [Markets] Why the market’s Brexit meltdown in 2016 was a buy signal in disguise Do you remember what triggered a major global stock market panic two years ago at this time? The answer is the “Brexit” referendum that took place on June 23, 2016, in the United Kingdom, when British voters unexpectedly voted in favor of the U.K. leaving the European Union. From where it was trading before the result was known, to just two trading sessions later, the Dow Jones Industrial Average (^DJI)  fell almost 1,000 points. Published:6/28/2018 4:29:15 AM
    [Markets] Bank Bloodbath Batters Stocks Below Key Support As Yield Curve Crashes

    Yeah that happened...

    China was ugly overnight (after The National Team tried to save things on Tuesday)...

    European stocks rebounded (along with US stocks early) on the heels of soothing White House comments - but remember they closed before the collapse in US had got going...

    But that dead-cat-bounce died again as Larry Kudlow assured investors that Trump was not backing away from China at all... The Dow ended down ove 450 points from its highs of the day...

     

    Small Caps are clinging to their June gains still...

     

    This is now the 3rd day in a row the The Dow has closed below its 200DMA - something that hasn't happened since March 2016

     

    Banks bloodbath'd

    Remember the 'fortress balance sheet' banks - "no brainers" in a rising rate, lower regulation environment? Yeah how's that working out for you? S&P Financials index is down 13 days in a row - a record losing streak - and has seen 10 days in a row of fund outflows (also a record).

    “What we see here is the market taking a glass-half-empty type of view of potential risks,” Sandler O’Neill & Partners analyst Jeff Harte said on Bloomberg TV. “The really big investing-centric banks have taken it on the chin even more because I think people are rightly concerned about trade wars. They’re truly international companies so the extent that trade wars were to break out, it would be worse news for them.”

    And while US financials were lower, the collapse of Deutsche Bank once again today, sent GSIBs (Global Systemically Important Banks) down to 14-month lows...down 22% from the highs.

    Time for US Stocks to catch down...

     

    VIX topped 18...

     

    Emerging Markets were massacred today after a few days of respite. The surge in the dollar crushed EM stocks (blue) which are catching down to the early warning signals from EM FX and EM Debt...

     

    Treasury yields tumbled across the curve with the long-end outperforming...

     

    30Y dropped back below 3.00%...

     

    And the yield curve flattened to a new cycle low...collapsing since The Fed hiked rates

     

    The Dollar Index surged again today - the biggest 2-day spike in over 2 months...

     

    Yuan is in freefall... smashing above 6.62/USD today and down over 6% in the last few weeks...

     

    Makes you wonder...this 10-day losing streak is the longest ever

     

    And the inversion of the Yuan vol term structure is eerily reminiscent of the collapse in February..

     

    Just when you thought the worst was over for Emerging Market FX... it collapses...

     

    Dollar strength weighed broadly on commodities with silver underperforming but WTI exploded higher on the back of solid inventory data...

     

    WTI tagged $73 and last month's highs and then faded..

     

    Crude is now at its most expensive in terms of silver since Nov 2014...

     

    Gold/Silver surged...

     

    Finally we noted that as the dollar spiked, so did WTI - competing against each other to see who break the most correlation algos...

    Published:6/27/2018 3:25:45 PM
    [Markets] Dow finishes down over 160 points as financials, tech slide Dow finishes down over 160 points as financials, tech slide Published:6/27/2018 3:25:45 PM
    [Markets] Dow industrials turn lower as tech weighs on stocks Dow industrials turn lower as tech weighs on stocks Published:6/27/2018 12:55:44 PM
    [Markets] Stocks- Wall Street Higher as U.S. Softens Foreign Investment Stance The S&P 500 gained eight points or 0.30% to 2,731.28 as of 9:45 AM ET (13:45 GMT) while the Dow composite increased 74 points or 0.31% to 24,357.66 and tech heavy NASDAQ Composite rose over 21 points or 0.29% to 7,583.57. Published:6/27/2018 11:58:25 AM
    [Markets] Market Extra: ‘Godfather’ of chart analysis says stock market now dealing with ‘uglier action’ Prominent market technician Ralph Acampora is getting a little skittish about recent moves in the stock market, notably in the Dow Jones Industrial Average.
    Published:6/27/2018 11:58:24 AM
    [Markets] Dow futures turn positive after Trump administration move on Chinese tech investments Dow futures bounced back, trading in positive territory on Wednesday, after the Trump administration said it would rely on the interagency Committee on Foreign Investment in the United States, or CFIUS, to address concerns about foreign purchases of sensitive domestic technologies. Dow Jones Industrial Average futures (YMU18.CBT), which were down as much as 126 points, was last trading 28 points, or 0.1%, higher at 24,433, while S&P 500 futures (ESU18.CME) added 5 points, or 0.2%, to 2,732.50. On Tuesday, the Dow Jones Industrial Average (^DJI)rose just 0.1%, to 24,283.11, closing below its 200-day moving average for the second straight session. Published:6/27/2018 8:24:20 AM
    [Markets] Global Markets Slide As Trade Fears Return: China Bear Market Deepens, Deutsche Hits Record Low

    Trade fears have returned with a twist, as global market weakness has spread to European banks while safe havens including the yen and sovereign bonds are broadly higher amid renewed risk-off sentiment.

    Once again, it started in China where the Shanghai Composite slumped for another session, dropping 1.1%, and falling deeper into a bear market.

    The weakness was prompted by a renewed decline in the "weaponized" Yuan, which fell for a 10th consecutive day, matching a record losing stretch, and prompting questions whether Beijing is seeking to retaliate to Trump's protectionism with another round of devaluation.

    As we noted last night, last time the yuan devalued this fast, it unleashed hell on the world's financial markets

    The continued slump in the yuan has stoked concerns that Chinese policy makers are less willing to temper its decline, which may remove an anchor of stability for emerging-market currencies. Still, it may not be all Beijing's doing as policymakers set the fixing at a level that was stronger than analysts expected on Wednesday, while the decline could have been far worse when at least one major Chinese bank sold the dollar in the onshore market to keep the yuan stronger than 6.6, according to two traders, prompting speculation of intervention.

    A foreign-exchange trader in Asia told Bloomberg the offshore yuan ran into a large dollar-seller - possibly an agent bank working for Chinese authorities - after weakening beyond 6.61 per dollar.  Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd., said he wouldn’t be surprised if the People’s Bank of China intervened if speculative bets against the yuan grew. “The PBOC may think that fundamentally the yuan should weaken, but the move is too fast in the past week and that could ignite capital outflows,” Ong said. “Any intervention should aim only to smooth out such market moves

    Whatever Beijing's intentions, the Chinese drop pressured the MSCI Asia Pacific index lower for third day, while the yuan led to a decline in Asian currencies, as developing-market stocks also tumbled, with the MSCI Emerging Markets Index hitting the lowest in 10 months.

    In Europe, the Stoxx 600 reversed initial gains and fell with beaten-down autos sector index resuming its sell-off,  down 0.8% and hitting its lowest level since September 2017 amid worries over trade tensions.

    The banking sector did not help, as Deutsche Bank suffered a sharp selloff shortly after the start of trading, sending the stock to new all time lows, and dragging the European banking sector to the lowest level since 2016, and down 14% YTD.

    U.S. equity-index futures also slid amid a rush for safety, which sent the dollar higher and the yield on 10Y Treasurys as low as 2.84%, briefly sending the 2s10s below 33 bps.

    In FX, the dollar was headed for a second day of gains in early trading, only surpassed by the yen, which was boosted by demand for haven assets. The pound slipped while Brexit tensions kept demand for pound puts strong across tenors, though BOE policy maker Ian McCafferty’s stance that officials shouldn’t wait any longer to increase interest rates eases pressure on the medium term. The kiwi led declines among Group- of-10 peers, dropping to its lowest since November and also dragging down the Aussie, before the RBNZ’s interest-rate decision on Thursday,

    Continued mixed signals on global trade have complicated the investment picture, after President Donald Trump signaled he may take a less confrontational path toward curbing Chinese investments, only for his trade representative Robert Lighthizer to once again pour fuel on the showdown with countries including the EU, blasting the various retaliatory tariffs the U.S.' trading partners have advanced in reaction to the Trump administration's trade policies, calling the tariffs proof of the "complete hypocrisy" of the global trade system.

    "[T]he European Union has concocted a groundless legal theory to justify immediate tariffs on U.S. exports. Other WTO Members, including China, have adopted a similar approach. These retaliatory tariffs underscore the complete hypocrisy that governs so much of the global trading system," Lighthizer said in a statement Tuesday evening.

    Also overnight, the US House voted 400 vs. 2 in favor of passing bill to tighten oversight of US foreign investment due to concern over China. In related news, US President Trump suggested he would back down from his demand for new tight restrictions on Chinese investments into technology and instead rely on other channels already in place such as CFIUS.

    And speaking of trade, the Fed’s Bostic who is a FOMC voter this year noted overnight that “the more (trade tensions) progresses in this more contentious way, the more it pulls me to feel like the risks are on the downside for the broader economy”. He added that “there is some likelihood I’ll be moving away from four (rate hikes) as a real possibility”. Elsewhere, the Fed’s Kaplan spoke on the yield curve as being a signal of recession. He said based on past experience “I’m loathe to say this time will be different. It’s significant to watch the yield curve”. For now, he noted the flattening yield curve is telling you that the short term US growth is strong while medium and long term growth is “sluggish”. Meanwhile the Fed’s Barkin noted the “aggregate effects of corporate tax cuts are especially hard to predict…and given these many uncertainties, the FOMC has been cautious when assessing the future impacts of the recent tax legislation”. That said, he added it’s reasonable to expect “at least a moderate boost” for the economy from recent tax cuts.

    In commodities, oil was up ~0.8% on the day and around the month-long high levels seen post Tuesday afternoon’s rally after reports the US was pressing its allies to halt all oil imports from the nation by November. Further, API inventory report showed the largest drawdown to crude stockpiles since September 2016, although the impact was relatively contained on slight fatigue considering WTI had already rallied over 3% prior to the release. In the metals scope, gold is uneventful at its lowest levels since December 2017 as the overnight weakening has abated slightly. Copper has hit 12 week lows as trade concerns have hit the building material at USD 6,679/tonne, alongside ongoing supply concerns from Chile.

    Expected data include MBA mortgage applications, wholesale inventories, and durable-goods orders. Canopy Growth, General Mills, Paychex, Bed Bath & Beyond and Rite Aid are among companies reporting earnings

    Market Snapshot

    • S&P 500 futures down 0.6% to 2,713.00
    • STOXX Europe 600 down 0.8% to 374.43
    • German 10Y yield fell 2.9 bps to 0.311%
    • Euro down 0.2% to $1.1631
    • Italian 10Y yield rose 6.2 bps to 2.619%
    • Spanish 10Y yield fell 2.9 bps to 1.364%
    • Brent futures up 0.1% to $76.41/bbl
    • Gold spot down 0.2% to $1,256.19
    • U.S. Dollar Index up 0.1% to 94.78
    • MXAP down 0.7% to 165.81
    • MXAPJ down 1.1% to 535.03
    • Nikkei down 0.3% to 22,271.77
    • Topix up 0.02% to 1,731.45
    • Hang Seng Index down 1.8% to 28,356.26
    • Shanghai Composite down 1.1% to 2,813.18
    • Sensex down 0.7% to 35,244.36
    • Australia S&P/ASX 200 down 0.03% to 6,195.86
    • Kospi down 0.4% to 2,342.03

    Top Overnight News from Bloomberg

    • U.S. President Donald Trump signaled he may take a less confrontational path toward curbing Chinese investments in sensitive American technologies, potentially relying on a U.S. committee that scrutinizes foreign acquisitions for national security risks
    • An accelerating slump in China’s yuan is stoking fear that policy makers are less willing to temper the currency’s decline as the economy slows and a trade battle with the U.S. worsens
    • The Canadian government is preparing new measures to prevent a potential flood of steel imports from global producers seeking to avoid U.S. tariffs, according to people familiar with the plans
    • S&P Global Ratings affirmed the U.S.’s sovereign credit score at AA+, the assessor’s second- highest grade, citing the country’s “diversified and resilient economy” while noting the impact of ongoing political wrangling on public finances
    • Oil held gains above $70 a barrel as the U.S. pressed allies to end Iranian imports by a November deadline and after industry data showed American inventories declined
    • U.K. house-price growth slowed in June, dropping to its weakest pace in five years, according to Nationwide Building Society.
    • Europe’s junk-debt investors are gaining ground after years of borrowers chipping away at the safeguards enshrined in the small print of bond documents
    • Bank of Japan’s Deputy Governor Masayoshi Amamiya sees the central bank as “very far off from the exit”, underpinning monetary policy divergence that could keep the pair in bullish trajectory as long as trade concerns ease

    Asian equity markets were negative with the region cautious as trade concerns lingered, albeit with a slight moderation after US President Trump suggested he would ease off on demands for new tight restrictions regarding  Chinese investments and instead go through channels already in place such as the Committee on Foreign Investment in the United States. ASX 200 (flat) was choppy as the initial gains led by the energy sector were briefly eclipsed by weakness in telecoms and financials, while Nikkei 225 (-0.3%) exporter names were dampened by currency strength. Elsewhere, Hang Seng (-1.8%) and Shanghai Comp. (-1.1%) were also subdued amid the current backdrop of trade concerns and after a net liquidity drain by the PBoC which saw the mainland index extend on its descent through bear market territory. Finally, 10yr JGBs were relatively flat with only minimal support seen from the risk-averse tone in Japan and the BoJ’s presence for JPY 810bln of JGBs across the curve. Chinese President Xi is said to have warned leaders to be prepared in the event of a full-scale trade war with US during a 2-day meeting, according to a note from SGH Macro Advisors that also suggested the PBoC will refrain from buying US Treasuries and seek to lower them.

    Top Asian News

    • BreadTalk Soars to Record High as It Presents at Citi Roadshow
    • Bank Rakyat Is Said to Revive Sale of Stake in Life Insurer
    • China H Shares, Once World’s Hottest, Tumble Into Bear Market
    • Yuan’s Rapid Selloff Puts China’s Market-Anchor Role in Danger

    European equity bourses were initially negative across the board as trade concerns hit European markets following US congressional approval of increased US-Chinese investment scrutinization. There was a turnaround, however, into positive territory with the DAX currently the outperforming bourse, after hitting 2 month lows, on the back of US Defence Secretary Mattis striking a positive tone after talks with Chinese President Xi. Most bourses are still below their 100DMA, however, and have not been able to eliminate the losses seen throughout the week, with the DAX at 12,210 vs. its 50DMA of 12,761, the FTSE 100 at 7,534 vs its 50DMA of 7,616 and the CAC at 5,268 vs. its 50DMA of 5,473. The financial sector (-0.4%) is currently underperforming as falling treasury yields are weighing on the sector.

    Top European News

    • European Banks Decline as Deutsche Bank Hits Fresh Low
    • Banks in Denmark Are Facing a Capital Hit as Early as This Year
    • Norway Sells Out of SAS in Move That May Ease Consolidation
    • Bulgaria Blames ‘Constantly Changing’ Demands for Euro Delay

    In FX, it was a cagey start to European trade in FX markets with most majors sticking to their recent ranges.  Subsequently, the USD trades relatively unchanged thus far with the DXY sitting just above 94.50 as markets pause for breath after US President Trump took a slightly more conciliatory tone yesterday by suggesting he would ease off on demands for new tight restrictions regarding Chinese investments. That said, despite these comments from Trump, they are unlikely to signal a U-turn in US trade policy and the threat of an escalation in trade tensions remains at the forefront of investor sentiment. From a Chinese perspective, preparations are said to be made by leaders of the communist regime to help protect the nation’s economy in the event of a trade war with the US. It’s worth noting that the PBoC set the CNY mid-point fix at its softest level since 25th December last year with USD/CNY back below 6.6000 as the recent move to the downside continues to gather momentum; scepticism remains as to whether this is actually a targeted policy measure by China and how fair they would be willing to tolerate the move given the risk of capital outflows. Elsewhere, not too much to report for EUR as focus on the most recent ECB policy announcements and communications somewhat abates Subsequently, in the absence of any major USD traction at this stage of the session, option activity could dictate performance for the pair with 1.6bln in expiries at 1.1650, 3.3bln at 1.1625 and 2.4bln at 1.1600.

    In commodities, oil is up ~0.8% on the day and around the month-long high levels seen post Tuesday afternoon’s rally after reports the US was pressing its allies to halt all oil imports from the nation by November. Further, API inventory report showed the largest drawdown to crude stockpiles since September 2016, although the impact was relatively contained on slight fatigue considering WTI had already rallied over 3% prior to the release. In the metals scope, gold is uneventful at its lowest levels since December 2017 as the overnight weakening has abated slightly. Copper has hit 12 week lows as trade concerns have hit the building material at USD 6,679/tonne, alongside ongoing supply concerns from Chile.

    Looking at the day ahead, the main focus will likely be on the preliminary May durable and capital goods orders data, while the May advance goods trade balance is also due along with May pending home sales. Central bank speak continues with the BoE's Carney speaking in the morning about the BoE's Financial Stability Report, followed later by the ECB's Praet and Fed's Rosengren.

    US Event Calendar

    • 7am: MBA Mortgage Applications, prior 5.1%
    • 8:30am: Advance Goods Trade Balance, est. $69.0b deficit, prior $68.2b deficit, revised $67.3b deficit
    • 8:30am: Wholesale Inventories MoM, est. 0.2%, prior 0.1%; Retail Inventories MoM, prior 0.6%, revised 0.5%
    • 8:30am: Durable Goods Orders, est. -1.0%, prior -1.6%; Durables Ex Transportation, est. 0.5%, prior 0.9%
    • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.45%, prior 1.0%; Cap Goods Ship Nondef Ex Air, est. 0.3%, prior 0.9%
    • 10am: Pending Home Sales MoM, est. 0.5%, prior -1.3%; Pending Home Sales NSA YoY, prior 0.4%

    DB's Jim Reid concludes the overnight wrap

    Unlike London’s rail network during a heatwave, the fallout from the weekend trade related headlines proved to be fairly short-lived in the end with the last 24 hours making for a much calmer affair in markets. Last night the S&P 500  closed +0.22% with energy names leading the way after WTI Oil surged +3.60% while the Dow (+0.12%) rose for only the second time in the last eleven sessions. The Nasdaq closed +0.39% while prior to that in Europe the Stoxx 600 closed out an uneventful session +0.02% with volumes well below average. The VIX edged back below 16 and is now back to its YTD average again more or less while moves for bond markets were similarly muted outside of the periphery with Bunds just 1.3bp higher while Treasuries nudged down -0.3bps. The US dollar index (+0.41%) was stronger also.

    As for the newsflow, well Peter Navarro’s soothing words on Monday night appeared to do its job although to be honest yesterday felt more like a no news is good news sort of day. President Trump did tweet his disdain at Harley Davidson’s pledge to move production out of the US, saying that “it will be the beginning of the end” and that “they  will be taxed like never before”. Harley Davidson’s shares fell as much as -2.70% before ending -0.60% lower. Trump also tweeted that his administration is finishing its study of tariffs on cars from the EU, while House Speaker Paul Ryan also weighed in with some comments of his own yesterday afternoon. Speaking to reporters in response to the Harley-
    Davidson situation, Ryan said that “there are better tools than tariff increases” and that “tariffs aren’t the right way to go”. All in all then, nothing that really got the market too excited. Later in the session though Trump then spoke at the White House and indicated that he might be favouring Treasury Secretary Steven Mnuchin’s softer approach towards protecting US intellectual property from China, specifically by using the Committee on Foreign Investments in the US (CFIUS).

    Despite that, this morning, after China’s Shanghai Comp won the race to be the first major equity index to hit correction territory this year, the index is extending on losses (-0.45%) while the rest of Asia is also trading modestly lower with the Nikkei (-0.27%), Kospi (-0.13%) and Hang Seng (-0.58%) all down. In the US, rating agency S&P has affirmed the US’s sovereign credit rating of AA+ with stable outlook and noted “we expect that debates over funding the government and raising the debt ceiling will continue to be resolved at the last minute”. Meanwhile Reuters cited unnamed sources saying that Canada may be preparing higher tariffs on steel to prevent a flood of steel imports as producers divert their output away from the US. Back in Asia, BOJ’s Deputy Governor Amamiya sees the BOJ as “very far off from exit” in terms of stimulus policies, in part as he does not think “the side effects exceed the benefits at this point”, although “the effects are cumulative and we’re watching this carefully”. As for data this morning, China’s May industrial profits moderated 0.8ppt mom to a still solid level of 21.1% yoy.

    Moving on. There was a bit of macro data out yesterday in the US with the June consumer confidence print coming in at a weaker than expected 126.4 (vs. 128.0 expected). It also fell 2.4pts from May although the absolute level is still indicative of an upbeat US consumer (130.0 is the post-recession high made back in February). In the details the present conditions gauge was actually more or less unchanged at 161.1 although the expectations gauge did slip 4pts to 103.2. Meanwhile the Richmond Fed manufacturing index rose 4pts to 20 (vs. 15 expected) with new orders rising to the highest since February and prices paid the highest since 2012.

    Meanwhile, Sterling was kept busy yesterday with a couple of BoE speakers doing the rounds in the morning. Incoming MPC member Jonathan Haskel said that “given current conditions and economic data, I agree with the broad direction of travel” but also that “the first risk involved in raising interest rates would be if this is done too quickly, disturbing investment and borrowing plans by more than would have been expected”. Haskel’s testimony leant slightly dovish at  the margin which was in contrast to outgoing MPC member and well-known hawk Ian McCafferty who said that the BOE “should not dally” in raising rates.

    Unsurprisingly there was greater weight placed on Haskel’s comments with Sterling falling as much as -0.55%, before paring some of that move into the close to finish -0.42%. Gilts were also the relative outperformer yesterday in bond markets (2y closing +0.4bps higher and 10y +1.0bps higher) while the probability of a hike at the August meeting continues to hover just north of a coin flip (currently 58%).

    Over in the US, the Fed’s Bostic who is a FOMC voter this year noted “the more (trade tensions) progresses in this more contentious way, the more it pulls me to feel like the risks are on the downside for the broader economy”. He added that “there is some likelihood I’ll be moving away from four (rate hikes) as a real possibility”. Elsewhere, the Fed’s Kaplan spoke on the yield curve as being a signal of recession. He said based on past experience “I’m loathe to say this time will be different. It’s significant to watch the yield curve”. For now, he noted the flattening yield curve is telling you that the short term US growth is strong while medium and long term growth is “sluggish”. Meanwhile the Fed’s Barkin noted the “aggregate effects of corporate tax cuts are especially hard to predict…and given these many uncertainties, the FOMC has been cautious when assessing the future impacts of the recent tax legislation”. That said, he added it’s reasonable to expect “at least a moderate boost” for the economy from recent tax cuts.

    Coming back to Oil, the complex rallied around 3% (WTI +3.60%; Brent +2.11%) yesterday on the prospect of reduced oil supply after Bloomberg reported the US has pressed its allies to stop importing oil from Iran by the November 4 deadline as part of its sanction efforts. Notably, an unnamed State Department official said the US administration would not rule out waivers or extensions to the November deadline, but it is not discussing those options either. Meanwhile, the US energy secretary Perry also noted the recent OPEC plans for higher crude output “may be a little short” of what’s required to prevent an oil price spike.

    As for other news, there was some positive headlines in Germany yesterday with two CSU leaders (Seehofer and Dobrindt) stressing that they do not want to break up the coalition. Merkel also added that the CDU sees scope for broad agreement with the CSU on migration however she also added that it’s unlikely that this week’s EU summit will make for an overall deal on all aspects of migrant policy. So expect this to drag on a little longer. Elsewhere, it was interesting to note a Bloomberg story yesterday suggesting that Special Counsel Robert Mueller is intending to accelerate his investigation into the Russia-US election probe. The story suggested that Mueller and his team have a view to present conclusions by Autumn, conveniently timed with the US mid-terms.

    Before we wrap up, a quick mention that yesterday our House View team published a note focusing on the latest trade war developments. The report has a special focus on (1) Trade tensions – different measures, potential macro impact and the scope for policy response in the US and China, and (2) Policy divergence between the Fed and ECB. It also covers the upcoming EU council summit later this week. The document as usual also summarises our economists’ macro and monetary policy outlook and forecasts, as well as the key strategy views across rates, FX and Credit. You can find a link to the report here.

    Looking at the day ahead, it looks set to be a relatively quiet session in Europe with the only data due being June consumer confidence data in France and May M3 money supply data for the Euro area are due. In the US the main focus will likely be on the preliminary May durable and capital goods orders data, while the May advance goods trade balance is also due along with May pending home sales. Central bank speak continues with the BoE's Carney speaking in the morning about the BoE's Financial Stability Report, followed later by the ECB's Praet and Fed's Rosengren.

    Published:6/27/2018 6:56:27 AM
    [Markets] Dow futures slide as fears of full-scale trade war grow Dow futures dropped by more than 100 points on Wednesday, as global equities sold off on revived fears about a full-scale U. S-China trade war. On Tuesday, the Dow Jones Industrial Average (^DJI)rose just 0.1%, to 24,283.11, closing below its 200-day moving average for the second straight session. The S&P 500 index (^GSPC) gained 0.2% and the Nasdaq Composite Index (^IXIC) rose 0.4%. Published:6/27/2018 6:56:26 AM
    [Markets] ‘Godfather’ of chart analysis says stock market now dealing with ‘uglier action’ Prominent market technician Ralph Acampora is getting a little skittish about recent moves in the stock market, notably in the Dow Jones Industrial Average. Published:6/27/2018 5:55:10 AM
    [Markets] Dow futures slide 140 points as fears of a full-scale trade war grow Dow futures dropped more than 100 points on Wednesday, as global equities sold off on revived fears about a full-scale U.S-China trade war, with investors worried about how Beijing will respond to U.S. President Donald Trump’s policy moves. On Tuesday, the Dow Jones Industrial Average (^DJI)rose just 0.1%, to 24,283.11, closing below its 200-day moving average for the second straight session. The S&P 500 index (^GSPC) gained 0.2% and the Nasdaq Composite Index (^IXIC) rose 0.4%. Published:6/27/2018 4:54:50 AM
    [Markets] Dow futures slide 200 points as fears of a full-scale trade war grow Dow futures dropped close to 200 points on Wednesday, as global equities sold off on revived fears about a full-scale U.S-China trade war, with investors worried about how Beijing will respond to U.S. President Donald Trump’s policy moves. On Tuesday, the Dow Jones Industrial Average (^DJI)rose just 0.1%, to 24,283.11, closing below its 200-day moving average for the second straight session. The S&P 500 index (^GSPC) gained 0.2% and the Nasdaq Composite Index (^IXIC) rose 0.4%. Published:6/27/2018 4:23:16 AM
    [Markets] What GE can learn from Hewlett Packard about breakups On Tuesday, General Electric Inc. (GE) said it would spin off its health-care business and unload its ownership in Baker Hughes, an oil services company, as part of a restructuring that will greatly change the corporate monolith that was recently booted from the Dow Jones Industrial Average(^DJI) . The changes are the result of a year-long review of the struggling company by Chief Executive John Flannery, who should give a call to Meg Whitman, the former CEO of Hewlett Packard, once one of the largest tech companies, to see how these types of moves can play out. It was involved in nearly every part of the tech business: PCs, printers, servers, supercomputers, software, storage, networking, services and other businesses. Published:6/26/2018 6:51:21 PM
    [Economy] Thoughts on Trade (Steven Hayward) The Dow Jones has shed nearly 1,000 points over the last couple weeks, ostensibly over fears of an escalation of trade tensions between Trump and our major trading partners, some of whom have begun imposing retaliatory tariffs of their own. (Though who really can say exactly what moves the stock market on any given day or week—talk about fake news). Trade wars seldom work out very well, but if anyone Published:6/26/2018 5:51:09 PM
    [Markets] We Now Know What The "Trump Tariff Put" Is

    Submitted by Nick Colas of Datatrek Research

    We got the first sign of a “Trump Tariff Put” on Monday as the White House walked back threats to the Tech sector late in the day after a steep intraday decline in US stocks. That got us wondering: what sort of equity market pullback would it take to have the White House shelve/materially soften its plans to renegotiate numerous trade pacts? Our back of the envelope math: 9% on the S&P from here, or a 3-5% one-day decline on Chinese/European retaliation.

    In a recent note we cast a wary but hopeful eye on the notion of a “Trump Tariff Put”; yesterday we saw it in action. The day started with a Wall Street Journal article outlining possible limitations on Chinese investment in US companies with “Industrially significant technology”. A pre-open walk-back tweet from Treasury Secretary Mnuchin did little to calm markets. At the lows of the day the S&P was at 2700, down 2%.

    Then trade advisor Peter Navarro came out in the afternoon and said to “discount” notions that there would be investment restrictions. That seemed to do the trick, and the S&P closed at 2717. One gets the feeling that perhaps policymakers are unaware that Technology is 26% of the S&P 500, and by taking its trade issues into that sphere they crossed a red line. At least as far as equity markets go…

    Making some lemonade from Monday’s tart action, at least we now know what sort of market action makes trade hawks fly back to the nest for a break. The magic number seems to be 2% on the S&P and right around 500 points on the Dow Jones Industrial Average. For our readers who trade for a living, it is worth keeping those numbers in mind for future trade news-driven days.

    Thinking a little more broadly about the “Trump Tariff Put”, let’s consider how much of a stock market slide it would take to convince the White House to materially soften its efforts on this front. We know from Monday’s headlines this is their Achilles Heel. But how big is that target?

    A few background thoughts here:

    • #1. Whether by a happy accident or entirely intentionally, policymakers have staged their economic/trade program quite cleverly since the start of 2017. Year 1, focus on tax cuts to rev the US economy and push equities to all-time highs. Year 2, do the heavy lifting on the trade issues that were a hallmark of President Trump’s campaign for office. Hope that Year 1’s actions serve as a counterweight to Year 2’s harsher measures.
    • #2. That makes the current trade initiative entirely dependent on real-time economic growth and, by necessity, equity market returns. And since the latter keys off not just on current earnings but their perceived sustainability/future growth, the Trump administration’s focus on stock prices does have some self-correcting moderation built into the cadence of its actions.
    • #3. The wild cards in the deck just now: a Federal Reserve bent on raising interest rates, a slow motion train wreck in emerging markets, and global debt levels over 2x higher than a decade ago. How much of these factor into White House trade policy is hard to know. The same holds true, of course, for US equity prices. And how much the current administration will parse the effects of these factors to determine its course of action on trade is the $64 question.

    So how much of an equity decline would it take for the administration to soften its tone on trade? Two answers:

    • Down 9% on the S&P from here, as long as the decline was clearly due to trade war concerns. The math behind this guesstimate: the index is up about 18% since President Trump took office. Giving back half those gains would be palatable. More than that would not be, and may even spook markets and consumers into thinking a recession was inevitable. Not the right scenario going into midterm elections.
    • A 3-5% one-day move lower based on European/Chinese retaliation. We know from Monday’s action that 2% is some sort of a pain threshold, but “fixing” it was still in the administration’s power (Navarro’s late date walk-back). If that were not possible because the catalyst was outside US control, that might be enough to push the White House into a softer stance.

    Bottom line: as investors gather more experience with this administration, they see that it responds and shifts positions based on news flow. And if we’ve learned one thing about “Policy puts” over the decades, it is that markets get pulled in the direction of the strike price once volatility picks up.

    Published:6/26/2018 5:20:23 PM
    [Markets] US Dead-Cat-Bounce Fades As 'Weaponized' Yuan Tumbles

    It was BTFD day in America...

     

    China was a mixed bag overnight as the tech-heavy CHINEXT was suddenly panic bid (National Team?) but SHCOMP closed in a bear market...

     

    Europe continues to slide...

     

    But US stock investors (machines) decided today was BTFD day (Trannies never made it into the green today)...

     

    But all major indices remain down from Friday...

     

    The Dow managed to scramble back above its 200DMA...but closed back below it...

     

    With FANG Stocks bouncing...

    But all still down on the week... AAPL (red) scrambled back into the green...

     

     

    And while stocks had a dead cat bounce of a day, -...trading in a very narrow range once again...

     

    For some context as to just now narrow this range is - here's 10Y...

     

    The Dollar Index bounced off Fed-spike highs today, breaking a 4-day losing streak

     

    Yuan leads the weakness supporting the dollar...

     

    Yuan is tumbling...

     

    Cryptos were lower on the day despite good news from Facebook...

     

    Crude spiked despite dollar gains and PMs limped lower...

     

    WTI topped $70 on the heels of US threats on Iran oil sanctions

    What happens next?

    Does Bitcoin foretell further pain in The Dow?
    Published:6/26/2018 3:20:14 PM
    [Markets] Stocks Rise but Wall Street Remains Wary of Trade Rhetoric has replaced General Electric in the blue-chip Dow index. Donald Trump's recent focus on trade and tariffs, and his administration's plans to curb inward investment in the tech sector in order to combat intellectual property theft, sent markets reeling Monday, June 25. Published:6/26/2018 1:49:52 PM
    [Markets] The stock market is climbing back from its trade-driven selloff, with Dow up 100 The stock market is climbing back from its trade-driven selloff, with Dow up 100 Published:6/26/2018 1:19:22 PM
    [Markets] Stock market climbs after trade-driven selloff The Dow closed below the average—a closely watched gauge for long-term momentum trends—for the first time since June 2016 on Monday, a technical move that chart watchers tend to view as a break in a longer-term trend. Energy shares rallied 1.4% thanks to soaring oil prices. Investors remain worried that trade tensions between the U.S. and major trading partners such as China and the European Union could develop into a big drag on the global economy. Published:6/26/2018 12:49:23 PM
    [Markets] Stocks- Wall Street Opens Slightly Higher as Trade Tensions Ease The S&P 500 gained two and a half points or 0.09% to 2,719.58 as of 9:40 AM ET (13:40 GMT) while the Dow composite increased 11 points or 0.05% to 24,264.20 and tech heavy NASDAQ Composite rose over 10 points or 0.15% to 7,542.93. Published:6/26/2018 11:49:23 AM
    [Markets] Trader Points Out What Peter Navarro Never Said Yesterday

    Much was made of Trump trade advisor Peter Navarro's comments on CNBC yesterday - that prompted a 200 point bounce in Dow futures - but most notably there was no follow-through overnight (China stocks, yuan weak) as it appears The White House's "just kidding" kneejerk response to markets is failing having cried 'fire' in the theater one too many times.

    "The market is over-reacting," Navarro profferred - which algos instantly took as relief and ignited momentum via USDJPY (all of which was erased overnight)...

    But as former fund manager Richard Breslow notes, “You are over overreacting” is about as loaded a phrase as there is out there. And it’s also becoming more trite by the day.

    In only very limited circumstances is it altruistically meant to help the recipient. It’s far more likely to mean some version of, “Why are you so angry just because I messed up?” Usually with the implied, but unspoken, word “again.

    It’s the ultimate passive-aggressive non-apology. Thus spake Peter Navarro.

    Via Bloomberg,

    Time and time again, we are treated to headlines that read, markets bounced after so and so chastised traders for listening to what they said. We are supposed to know which audience the comments were meant for. That’s well and truly taking targeted advertising to the next level. And it isn’t higher.

    Find very little solace when a down day for the S&P 500 elicits these immortal words perfectly on cue. The constant need for do-overs doesn’t inspire confidence. It merely defines the latest iteration of what has become the official reaction function.

    Who needs a central bank put when all it takes is a few choice words to get the algorithms chasing their tails?

    But the rest of the world isn’t lines of code, and words do have consequences. Playing the junkyard dog gets old for everyone involved. And, as we’ve seen, it’s becoming recognized as simultaneously less convincing and more dangerous. Being understood to not being able to say what you mean isn’t a prescription for progress. On anything. And it’s the opposite of realpolitik. Zealotry has its place, but acting like Sicarii is something to be done only with very careful consideration and under the greatest of provocation. Do invading BMWs pose an adequate threat?

    And now, as a segue only possible in a trading note, what levels to watch in this young but already messy week?

    The S&P 500 is fairly straightforward with 2700 being a nearby and obvious level of support everyone will be keeping an eye on. For a close touch 2720 is a reasonable pivot for the day with good old 2750 looming large above.

    Treasury yields are worrisome. They should be higher, but they’re not. I’d much rather get involved if the 10-year could manage to get back above 2.92% than here. Not a big ask. The alternative is yields I have a hard time fathoming. Sovereign yields, including bunds and BTPs often have a hard time masking reality.

    As for the dollar, it’s deeply conflicted. Many easy levels to cite, so as a punt to the bigger picture, the June 14 range for the dollar index will trap it until it breaks one way or the other.

    I was thinking about throwing in the exhortation that it is better to speak softly and carry a big stick. But under the circumstances, if I were giving government spokesmen some advice, I’d tell them to reconsider what columnist Mary McGrory meant when she wrote, “Since Harry Truman left town almost nobody has spoken his mind. Mr. Truman took the tradition of plain speaking back to Missouri with him”

    Published:6/26/2018 8:49:57 AM
    [Markets] Breaking up Berkshire Hathaway may be the best idea in a post-Buffett world What will happen to Berkshire Hathaway (BRK-B) when legendary CEO Warren Buffett retires or, as expected, dies while still at the helm of Omaha, Neb.-based Berkshire. Buffett, both a skilled executive and investor, has beaten the S&P 500 Index (^GSPC) 155-fold over his 50-plus years running Berkshire, all with a just-folks attitude that couldn’t stand in sharper contrast to folks like Carl Icahn who have made lesser billions while reaching for far more credit. Sad or not, here it is: Berkshire hasn’t beaten the S&P 500 or the Dow Jones Industrial Average (^DJI) by any of the following periods: One year, three years, five years, nine years (roughly, the recovery from the 2008 crash, which bottomed in March 2009) or 10 years. Published:6/26/2018 8:49:57 AM
    [Markets] Market Snapshot: Stock futures struggle for direction in wake of steep trade-driven selloff U.S. stock futures moved slightly lower on Tuesday, suggesting the beaten-up Dow industrials index may extend the prior day’s 328-point drop that was blamed on trade-related angst.
    Published:6/26/2018 8:18:19 AM
    [Markets] What Led to the Fall in State Street Stock? On June 25, the Dow Jones Industrial Average (DJI) ended the day in the red, and State Street (STT) fell 2.3%. Let’s explore the reasons that may have led to a fall in the Dow Jones and State Street. Published:6/26/2018 7:48:02 AM
    [Markets] Mark Hulbert: This hit to the Dow could be triggering a buy signal The Dow breaking its 200-day moving average is historically bullish, writes Mark Hulbert.
    Published:6/26/2018 6:17:23 AM
    [Markets] Dow industrials set to take a breather after their 300-point tumble Analyst: ‘Trump’s agenda of protectionist measures is threatening U.S. and global growth’ReutersA man walks through a container area at a Chinese port. U.S. stock futures showed little change early Tuesday, suggesting the beaten-up Dow industrials may catch their breath after the prior day’s 328-point drop that was blamed on trade-related angst. Dow Jones Industrial Average futures(YMU18.CBT)were up 12 points, or less than 0.1%, to 24,291, while S&P 500 futures (ESU18.CME)rose 0.20 point to 2,722.50. Published:6/26/2018 4:17:14 AM
    [Markets] Our Columnists Take Your Questions on What Stocks to Buy Here The Dow Jones Industrial Average has fallen as much as 400 points so far on Monday, and two of our top columnists took your questions on what stocks to buy, sell or hold. Joining us were: James "Rev Shark" DePorre of TheStreet's Real Money premium site for active traders. Published:6/25/2018 8:23:53 PM
    [Markets] This hit to the Dow could be triggering a buy signal In fact, a shrewd contrarian bet might even be to consider that break as a buy signal. The Dow’s (^DJI) 200-day moving average has for decades been used as technical confirmation of the U.S. stock market’s major trend. Published:6/25/2018 4:46:48 PM
    [Markets] Peter Schiff: Expecting A Strong Dollar From Trade Wars Is "An Asinine Theory"

    Via SchiffGold.com,

    It looks like we’re heading toward a full-blown trade war.

    As the war continues to escalate. Pres. Trump has levied more tariffs on Chinese imports in retaliation for China’s retaliation after the US announced its first round of tariffs. A lot of people seem to think this is bullish for the dollar. In fact, the greenback has surged in recent weeks. But in his latest podcast, Peter Schiff said this is a bunch of nonsense.

    Peter accurately describes these tariffs as “taxes.” But despite the fact the world seems to be hurtling toward an all-out trade war, Peter noted that US stock markets haven’t reacted as negatively as one might expect. The Dow has certainly dropped, but not precipitously. And the Russell 2000 – representing smaller companies – has actually continued to gain ground.

    Peter said this indicates that investors seem to think the US will win the trade war, or that it at least won’t significantly impact the US domestic economy. Peter called this “nonsense.”

    Nevertheless, the nonsense continues to drive the dollar higher. The dollar index has climbed above 95. Keep in mind, it was trading in the 88 range back in February. That was from a high of 105 in early 2017. The strong dollar is a big reason for the recent weakness in gold.

    As Peter noted, everybody was bullish on the dollar in 2017 because of rate hikes. We got the rate hikes, but the dollar fell. Peter said now we have some other misconceptions that are powering the dollar.

    The thinking is – at least when it comes to trade – is that the dollar is going to benefit from a trade war, which I think is wrong. I think it’s just as wrongheaded as the concept that the dollar is going to benefit from larger budget deficits.”

    Peter called the notion that budget deficits make for a strong dollar an “asinine theory.” The big deficit coupled with the Fed shrinking its balance sheet means we will see trillions of dollars in Treasuries hit the market.

    The thinking is this is going to absorb all the dollars out there and there is going to be a dollar shortage, which is complete nonsense.”

    As Peter points out, once the government gets the dollars, it spends them right back into circulation. There’s no shortage.  Furthermore, Treasuries are really nothing more than interest-bearing dollars.

    You’ve got a Treasury, you’ve got a dollar. I mean, what’s the difference between a 30-day Treasury bill and a dollar? You know, they’re pretty much the same thing. The only difference is people don’t readily spend their Treasuries, right? They don’t go into a store and purchase something with a Treasury. But they can. They can cash it in and buy something. But they’re effectively dollars. So, even though the Federal Reserve, in theory, will be shrinking its balance sheet, the US government will be expanding its balance sheet.”

    Practically speaking, the supply of dollars is really the supply of Federal Reserve notes and Treasury notes. They’re all notes. They are all promises to pay dollars. The only difference is Treasury notes have a fixed maturity date and yield while Federal Reserve notes don’t.

    It’s all part of the global money supply. So to say that dollars were disappearing, we’re going to have a shortage of dollars when the Treasury is flooding the world with its IOUs for dollars is nonsense.”

    On top of that, the government is broke. It can’t afford to pay higher interest rates. That’s why Peter believes the Fed will never actually shrink its balance sheet, and will ultimately cut rates and go back to quantitative easing.

    Currently, private and institutional investors are buying US bonds. Peter said that demand could let the Fed off the hook for a while.

    But it’s not going to create a shortage of dollars. The supply of dollars is going to grow and grow and grow. Eventually, what’s going to happen is it’s going to be the demand for those dollars this is going to collapse, not the supply. And when the demand for dollars collapses, then the price of the dollar collapses. You get massive inflation. That is what is coming.”

    Peter said the idea that a trade war is going to help the dollar is equally misguided.

    The idea is tariffs will shrink the trade deficit, leading to a shortage of dollars. US trading partners get dollars by trading products to the US.

    But the problem is they’ve already got a glut of dollars. It’s not like they don’t have a bunch of dollars from exporting products to the United States for decades. Dollars are piling up around the world.”

    And as Peter pointed out, just because the trade deficits shrink doesn’t mean they’re going away. They’ll still be enormous.

    So, we’re still going to be over-supplying the world with an asset it already has in abundance. So, this idea that our enormous deficits getting slightly less enormous is somehow going to send the dollar skyrocketing, as everybody is scrambling to get their hands on them, this is nonsense.”

    Peter said the trade war will also likely lower US consumption. In the first place, a tariff is a tax that consumers ultimately pay. That means less spending power. Second, if the trade deficit is shrinking, that means America is not importing as much stuff from China and other countries. But it’s not like America is making all of the things imported from China. If Americans aren’t buying as much stuff from the Chinese, it will ultimately mean Americans are buying less stuff. That means a drop in US GDP.

    So, what’s going to happen if the economy slows down and unemployment picks up? Well, the Fed is going to slow down on its hikes. It’s either going to hike more slowly, or call off the hikes completely, or start cutting, depending on how much the economy decelerates.”

    So, where are people going to go? Gold.

    Even though gold has made a move down with the breakout in the dollar – or the move up in the dollar – I think that’s the last safe haven standing. I mean, once you run out of safe havens, where are your going to go? That’s where people are heading because nobody is looking there now. People don’t even think they need a safe haven. In fact, I don’t even know if money is moving based on a search for a safe haven. It’s just going where the momentum is.”

    Published:6/25/2018 4:14:05 PM
    [Markets] Stocks suffer worst day in weeks as Trump’s trade threats rattle; Dow ends below key level U.S. stocks closed sharply lower Monday, with major indexes seeing their biggest one-day drop in weeks and the Dow bearishly closing below a closely watched level for the first time in two years as fresh threats from President Donald Trump against U.S. trading partners underlined how the risk of protectionist policies has not left the market. The day’s losses were widespread, with 26 of the Dow’s 30 components ending lower, along with nine of the 11 primary S&P 500 sectors. The Dow also ended below its 200-day moving average, a closely watched gauge of an asset’s long-term momentum trends. Published:6/25/2018 3:44:15 PM
    [Markets] Market Snapshot: Stocks suffer worst day in weeks as Trump’s trade threats rattle; Dow ends below key level U.S. stocks closed sharply lower on Monday, with major indexes seeing their biggest one-day drop in weeks and the Dow bearishly closing below a closely watched level for the first time in two years as fresh threats from President Donald Trump against the U.S.’s trading partners underlined how the risk of protectionist policies had not left the market.
    Published:6/25/2018 3:44:15 PM
    [Markets] Dollar Dumped, Copper Clubbed, FANG Fubar, & Tech Wrecked

    Even with Navarro's plunge protection, The Dow closed below its 200DMA for the first time since Brexit (June 2016)...

     

    Artist's impression of Peter Navarro's role this afternoon...

    China started off well on the RRR Cut - then it went pear-shaped...

     

    European stocks erased all the hopeful bounce from Friday and then some...

     

    US Futures were ugly overnight and as everyone waited for the ubiquitous buying panic at the open, it never occurred and every bounce was offered... Nasdaq 100 dropped 3% - the biggest drop since April 2nd.

    And then Trump Trade Advisor Peter Navarro rescued the markets by telling CNBC that there are no plans to impose investment restrictions... and the market bounced...

    S&P 500 dropped 2% - breaking below its 50DMA and 100DMA...

    And then bounced back on Navarro, back above its 50- and 100DMA...

    And the Dow bounce...

     

    The S&P dipped into the red for June and every effort was made to ignite some momentum to get it back green...

     

    FANG Stocks clubbed like a baby seal... on a cap-weighted basis down over 5% - the worst day since Feb 2016

     

    NFLX was worst and even AAPL (red below) dropped over 2.5%...

     

    Tech underperformed relative to financials - erasing the month's relative performance...

     

    Finally, before we leave equity-land, we would like to note that Goldman did it again - Muppet'd their clients...

    This is the biggest drop in 3 months.

     

    Despite the relative chaos in equity land, Treasuries traded very narrowly, ending down 1-2bps...

     

    The yield curve flattened very modestly but made a new cycle low

     

    It certainly seems like someone was desperate to put on a trade war bet as volume in the GOVT (government bond) ETF exploded on Friday to a record high with around $600 million traded...

    “Momentum players seem to be loading up on Treasuries ever since the 10-year yield broke downside of the 100 daily moving average early last week,” said Dave Lutz, head of ETFs at JonesTrading Institutional Services.

     

    The Dollar Index continued its slide today - back below the peak of the Fed-day spike and erasing much of the ECB spike...

     

    USDJPY spiked higher (Yen lower) on the Navarro headlines...

     

    Cryptos actually had a positive day, extending gains from yesterday's bounce back through $6,000 for Bitcoin...

     

     

    And while the dollar was dumped, commodities found no bid, with copper hit worst...

     

    Copper dropped below $3 for the first time since April... lowest close since Aug 2017

    Finally, we note that despite the Navarro reassurances, the VIS term structure closed inverted...

     

    Published:6/25/2018 3:13:32 PM
    [Markets] The Dow could snap this 501-day streak and if it does it could spell trouble The Dow could snap this 501-day streak and if it does it could spell trouble Published:6/25/2018 2:46:22 PM
    [Markets] The Dow keeps falling, now down nearly 500 points as trade jitters mount The Dow keeps falling, now down nearly 500 points as trade jitters mount Published:6/25/2018 2:13:22 PM
    [Markets] GE’s exit from the Dow will change the index’s calculation in an important way The owner of the 122-year-old Dow Jones Industrial Average is set to change an important component of the blue-chip gauge on Friday: its divisor. Published:6/25/2018 1:44:01 PM
    [Markets] Market Extra: GE’s exit from the Dow will change the index’s calculation in an important way The owner of the 122-year-old Dow Jones Industrial Average is set to change an important component of the blue-chip gauge on Friday: its divisor.
    Published:6/25/2018 1:44:01 PM
    [Markets] Arms Index shows no panic in the stock market's selloff The stock market selloff is broad and steep, but the Arms Index suggests investors aren't acting in an overly fearful and panicky way. The Arms Index is a volume weighted breadth measure that tends to rise above 1.000 when the market declines, as ratio of declining volume to advancing volume tends to increase more than the ratio of declining stocks to advancing stocks. The Dow Jones Industrial Average (djia) tumbled 369 points, the S&P 500 (spx) shed 1.6% and the Nasdaq Composite (comp) sank 2.4%. Published:6/25/2018 12:13:54 PM
    [Markets] Nasdaq down 200 points — and the Dow, 400 — as Monday losses mount Nasdaq down 200 points — and the Dow, 400 — as Monday losses mount Published:6/25/2018 11:44:46 AM
    [Markets] Stock market tumbles as Trump makes more trade threats U.S. stocks were trading sharply lower on Monday, with the Dow industrials down more than 400 points, as fresh threats from President Donald Trump against the U.S.’s trading partners undercut investor sentiment. The technology-heavy Nasdaq Composite Index (^IXIC) declined 185 points, or 2.4%, to 7,507 amid reports of new efforts to block Chinese investment in and sales to U.S. tech firms. Published:6/25/2018 11:44:46 AM
    [Markets] Dow down more than 300 points and Nasdaq off 125 as Monday slide steepens Dow down more than 300 points and Nasdaq off 125 as Monday slide steepens Published:6/25/2018 9:12:21 AM
    [Markets] Martin Armstrong: 30 Years Of Global Warming Forecasts Have All Failed

    Authored by Martin Armstrong via ArmstrongEconomics.com,

    The Wall Street Journal just published a review of the Global Warming Forecasts for the past 30 years. They have not even come close to the scenarios they put forth back in 1988...

    On June 23, 1988, the then NASA scientist James E. Hansen who helped to start all this nonsense testified before the Senate Committee on Energy and Natural Resources.

    He stated that he expressed had a “high degree of confidence” in “a cause-and-effect relationship between the claimed CO2 induced “greenhouse effect and observed warming.” 

    That is how government characterizes something when they are guessing – “high degree of confidence” which was the same words used to invade Iraq who had weapons of mass destruction. He later came out and said: “Simply stated, there is no doubt that Saddam Hussein now has weapons of mass destruction.” (August 25, 2002).

    The CIA Director testified before Congress and said: “We said in the estimate with high confidence that Iraq had them.” see Transcript Washington Post).

    Why does anyone EVER believe those in government? They cannot even forecast GDP accurately when they fudge the numbers.

    Here is Hansen’s forecast.

    The dark red overlay is actual surface temperatures reported and there is even a controversy surrounding them that they have been constantly skewed higher to not look like complete idiots.  Even the models devised by the United Nations Intergovernmental Panel on Climate Change, are at least twice the actual temperature by now even with fudged numbers. So why are all these model so exaggerated?

    These models are completely VOID of cyclical models and they do not even understand that this is a cycle. They are constructed with same idiotic bases that whatever trend is in motion will remain in motion. The Dow Jones Industrials closed 1932 at 60.26 and 1933 at 98.67. That was a 63.7% gain year over year. By assuming that trend will remain in motion, which was his dire forecast, the Dow would have reach 96,433,885,025.00 by 1975. That makes 50,000 look cheap.

    Even averaging a 5-year advance VOID of understanding cycles, fails to provide a valid forecast ever. If I take the closing in the Dow of 2009 and the closing of 2014, the average advance was 1479 points per year. Now take the 2014 closing of 17823.07, that gives me 25,218.09. That is fine because we have been in a bull market. We all know the cycle will change. That is what is wrong with the global warming forecasts.

    What actually happened, they got $1 billion for research by scaring the HELL out of everyone. I wonder what kind of chart I should make to get $1 billion handed to me from Congress with no performance requirements. What a deal.

    Published:6/25/2018 8:42:32 AM
    [Markets] Twenty-six of 30 components in red as Dow falls 160 points early Monday Twenty-six of 30 components in red as Dow falls 160 points early Monday Published:6/25/2018 8:42:32 AM
    [Markets] "It's Not Healthy" Trader Warns "Market Liquidity Looks Really Ugly This Morning"

    Whether it is Trump's trade threats (and potential Yuan 'weaponization'), Fed tightening, or global synchronous economic slowing, there are plenty of reasons to be less sanguine than the always-sunny Nasdaq portends (hey, just look at the Dow) but that is not why former fund manager Richard Breslow thinks "markets look really ugly this morning."

    It's not about equities being down or yen up, as Breslow notes, it's the dearth of liquidity!

    In fact, as the former FX trader points out, it is the lack of liquidity that drives prices in the immediate aftermath of any event, distorts coherent analysis of what is going on and is creating an enormous disincentive to trade. And it’s all circular because cause and effect are rapidly reinforcing each other. It’s not healthy when the most honest answer to why an asset moved the way it did is, “People were the other way around.”

    Via Bloomberg,

    And the virus is spreading. Doesn’t seem to matter what you look at. The reaction, and descriptions, that followed the election in Turkey or the Chinese cut of the reserve requirement ratio are just a couple of today’s examples. As a side note, global trade tensions aren’t really waxing or waning every time S&P 500 futures play at making fools of the latest round of weakest hands.

    In many ways, traders are smarter than they’re given credit for. And yet, they constantly set themselves up to be fleeced. The re-election of Turkey’s President Erdogan wasn’t nearly the surprise you would have expected given the portrayal of what the odds actually were in the lead-up to balloting. Traders were short the lira going in and weren’t about to get out despite momentum for the trade having stalled last week. They expected the vote to skew the way it did. They got everything right, except the ensuing 12 hours of gamesmanship.

    The three-percent drop in USD/TRY had everything to do with the buyers having already bought and nothing to do with traders supposedly liking certainty or expectations that a leopard can suddenly change its spots. There was no thinking going on here. That came in when the cross got to an important chart level that has shown its relevance more than half-a-dozen times in the last month.

    As far as today’s behavior in Chinese stocks is concerned, the lesson policy makers need to relearn is that well-telegraphed policy changes don’t work. They just set up a similar dynamic of weak hands being caught-out looking for a free lunch. Any nerve soothing will have to wait for another day.

    The reality is that event trading is a strategy to be used sparingly when liquidity goes missing and marginal positioning is increasingly leaning in one direction. Keeping your powder dry to take advantage of the aftermath has been working much better.

    The former is gambling at a time when the odds keep getting worse. The latter represents a far more viable business proposition. Market structure, not market-making is a bigger reality in today’s world.

    Just consider that the last week saw the dollar's net positioning explode long by the largest amount ever...

    And bond shorts remain near record length...

    And VIX shorts are piling back in again...

    What could go wrong?

    Published:6/25/2018 8:11:37 AM
    [Markets] Global Stocks Dive On Fears Of "Irreversible" Trade War; Italian Bonds, Turkish Lira Tumble

    Bulletin Headline Summary from RanSquawk:

    • Trump is said to be planning new restrictions on tech exports to China
    • PBoC says they are to cut the re-lending rate for SME loans by 50bps, following the RRR cut over the weekend
    • Looking ahead, highlights include, US New Home Sales and BoJ’s Sakurai speaking

    Global stocks are diving in what has been a generally quiet session, amid renewed trade war fears following reports that the Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive U.S. industries under an emergency law, putting Washington’s trade war with Beijing on what Bloomberg dubbed a "potentially irreversible course", while on Sunday Trump threatened "more than reciprocity" to trade barriers.

    According to overnight news reports, the US Treasury is devising rules to block firms with 25% Chinese ownership from acquiring companies involved in industrially significant technologies and that it plans using International Emergency Economic Powers Act 1977 to impose investment restrictions.

    "This one could well result in an escalating trade war,” Lee Ferridge, a macro strategist at State Street Corp., told Bloomberg TV in Hong Kong. “Volatility is going to continue to rise from here."

    Adding to the trade war jitters, an EU internal memo says trade crisis "set to deepen in coming months" and warns of the breakdown of rules-based trading. The EU Commission has also warned of a direct response to any new taxes on EU cars imported into the US.

    The result is a sea of red with European equities following Asia lower from the open, with the mining and auto sectors underperforming, resulting in a sea of red across global stock markets.


    Europe's Stoxx 600 Index declined as every industry sector fell. Earlier, equities in Shanghai and Hong Kong led a retreat in Asia in the wake of various reports the Trump administration is preparing new curbs on Chinese investments. Nasdaq and S&P futures are also near session lows, while the 10Y Tsy has been bid, its yield sliding as low as 2.865%.

    A solid German IFO came and went with little impact on the market:

    • German Ifo Expectations New (Jun) 98.6 vs. Exp. 98.1 (Prev. 98.5, Rev. 98.6)
    • German Ifo Current Conditions New (Jun) 105.1 vs. Exp. 105.7 (Prev. 106.0, Rev. 106.1)
    • German Ifo Business Climate New (Jun) 101.8 vs. Exp. 101.8 (Prev. 102.2, Rev. 102.3)

    As Holger Zschaepitz notes, Germany's Ifo business climate at 101.8 still at elevated levels, and points to GDP YoY growth of 2%.

    Italian concerns added to the volatile mix, with bonds slumping after the League party continued its post-election bounce in a second round of municipal voting coupled with an EU emergency meeting on refugees which suggested that Italy now has the upper hand over Germany, putting Merkel's political future in doubt. As Italian bonds slumped, yields on the 2Y BTP have blown out on Monday, rising back over 1%.

    China’s shares and currency fell after Sunday's announcement the PBOC would cut China's Required Reserve Ratio, freeing up more than $100 billion in the banking system to help cushion a slowing economy, a move that was anticipated, and which however has been seen as insufficient to offset the potential economic slowdown that may be inflicted on China as Trump escalates protectionist measures.

    As a result, the onshore Yuan dropped to its lowest since early January while the offshore CNH tumbled to levels last seen in 2017, as the Shanghai composite failed to rebound on China's easing and dropped more than 1%.

    Despite the latest major liquidity injection, markets failed to respond positively because not only was the RRR cut telegraphed well in advance, it reflects officials’ concern over the economy, leverage and trade outlook. As Bloomberg reminds us, the move comes into effect one day before the first round of U.S. tariffs on Chinese goods begin, fueling trade tensions between the world’s two-largest economies, even as stress increases between the U.S. and its European trade partners.

    Elsewhere in Asia, the Singapore Straits Times Index fell as much as 1.1% Monday, poised to enter technical correction, as rising key interest rates and mounting trade concerns put regional economies under the spotlight and affect the outlook of a key Asian trading hub.

    The 10Y Treasury climbed and emerging-market equities slid, in another sign of a risk-off impulse. Recep Tayyip Erdogan’s double victory in Turkey’s presidential and parliamentary elections triggered a lira rally, however, as we previewed the "optimism" was short lived, and the Turkish lira has since tumbled back to unchanged.

    As we noted last night, and as sellside commentary published in the aftermath of Erdogan's re-election confirmed, while Turkey’s lira drew support from Erdogan’s victory, any gains will probably be short-lived amid concerns about the independence of the nation’s central bank and its monetary policy, according to investors and analysts. Not everyone agrees: Ark Capital, a Dubai- based hedge fund, which made money from the lira’s slump in recent months, is now seeking to profit from the currency’s advance after Erdogan’s election win.

    Elsewhere in FX, the dollar was range-bound, giving up some overnight gains, as London came into the market, although it has since seen a bid return and was trading near session highs; the yen gained against all Group- of-10 peers, while the euro stabilized in European morning hours, drawing some support from the trimming of long-dollar positions while Scandinavian currencies slid along with commodity currencies in reflection of the worsening risk sentiment. The big story, however, was once again in Emerging Markets which after enjoying a brief respite at the end of last week, have once again been hammered.

    In overnight central bank news, ECB's Vasiliauskas states the ECB could start to discuss lifting short-term interest rates from autumn 2019. Also overnight, the ECB's Praet (Dovish) said prolonging the purchase of assets for 2019 is an option. In the BoJ's Summary of Opinions from June 14th-15th meeting stated it is appropriate to pursue powerful monetary easing with persistence under the current guideline as inflation is a long way from target but added the momentum towards achieving 2% is maintained. Furthermore, Summary of Opinions stated that although Japan's GDP for the March quarter of 2018 contracted for the first time in nine quarters, this largely reflects temporary factors such as irregular weather.

    In the latest Brexit news, at least 50 UK Conservative MPs are willing to rebel against the government if PM May fails to inject more money into defence, an ally of Gavin Williamson, the defence secretary, said last night. The FT added that over 50 Conservative MPs are prepared to block any attempt to remove Britain from the EU without a deal — including some sitting ministers — according to senior Conservative politicians. UK Trade Secretary Fox told Sky he would accept an extended Brexit transition period given it was for technical reasons.

    Commodities trade mixed with WTI (+USD 0.21/bbl) now in the green, if below Friday’s highs after the conclusion of the latest OPEC+Russia summit in which member states vaguely agreed to boost production. Brent (-USD 1.01/bbl) on the other hand is lower as the global benchmark reacts to the OPEC and OPEC+ meetings at the back-end of last week. The oil producers agreed on an output hike, though no specific numbers were confirmed. The output increase is yet to be distributed amongst the members. Saudi Energy Minister Al-Falih said on Saturday that the increase is to be closer to 1mln BPD than to 600K BPD. The metal complex looks relatively mixed, gold and copper trades flat,  synchronised with the uneventful dollar moves. Elsewhere, Shanghai steel rebar prices dropped for a second consecutive session following a rise in steel product inventories raising concerns about oversupply and weakening demand in the market.

    Looking at the day ahead, we get new home sales data and the Chicago Fed national activity index, while earnings are expected from Carnival.

    Market Snapshot

    • S&P 500 futures down 0.6% to 2,743.75
    • STOXX Europe 600 down 0.8% to 381.82
    • MXAP down 0.8% to 167.93
    • MXAPJ down 1% to 545.35
    • Nikkei down 0.8% to 22,338.15
    • Topix down 1% to 1,728.27
    • Hang Seng Index down 1.3% to 28,961.39
    • Shanghai Composite down 1.1% to 2,859.34
    • Sensex down 0.3% to 35,584.89
    • Australia S&P/ASX 200 down 0.2% to 6,210.41
    • Kospi up 0.03% to 2,357.88
    • German 10Y yield fell 1.7 bps to 0.32%
    • Euro up 0.09% to $1.1662
    • Brent Futures down 0.7% to $75.02/bbl
    • Italian 10Y yield fell 3.7 bps to 2.427%
    • Spanish 10Y yield rose 0.8 bps to 1.361%
    • Brent Futures down 0.7% to $75.02/bbl
    • Gold spot down 0.02% to $1,270.32
    • U.S. Dollar Index down 0.03% to 94.50

    Top Overnight News from Bloomberg

    • The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive U.S. industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course
    • China’s PBOC will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan ($108 billion) of liquidity. The required reserve ratio for some banks will drop by 0.5 percentage point, effective July 5, the day before the U.S. and China are scheduled to impose tariffs on each other
    • German Ifo institute’s business confidence gauge resumed its decline in June as trade risks intensified and economic data remained mixed
    • Recep Tayyip Erdogan, modern Turkey’s longest-serving ruler, won a mandate to govern with sweeping new powers after a double victory in presidential and parliamentary elections
    • President Donald Trump’s aggressive approach to recasting U.S. partnerships and his direct assault on the World Trade Organization will unwind decades of progress and return global commerce to a free-for-all, according to an internal European Union memo
    • Jyrki Katainen, the EU commissioner in charge of jobs and growth, told the French newspaper Le Monde in a story posted Saturday that if Trump applies new tariffs to European cars, as he threatened this week, the bloc “again, would have no choice but to react.”
    • The U.K.’s five main business lobby groups told Theresa May they’re “deeply concerned” that time is running out for a Brexit deal that protects hundreds of thousands of British jobs

    Asian equity markets began the week down as the region digested a targeted RRR reduction by the PBoC with reports the US is planning new restrictions on tech exports to China and on Chinese investment, which are expected  to be announced by end of the week. ASX 200 (-0.2%) and Nikkei 225 (-0.8%) both initially opened higher with gains led by the energy sector in the wake of the OPEC+ agreement to raise output so they no longer overshoot on production cuts. The actual communique didn’t explicitly state an amount for the output increase, although the touted figures by ministers were much less than some of the previously suggested scenarios of as much as 1.8mln bpd, which in turn lifted crude by around 4% on Friday. However, gains in the bourses were later pared as trade tensions returned to the fore with the US Treasury said to be devising rules to restrict China investment under the International Emergency Economic Powers Act of 1977. Elsewhere, the Hang Seng (-1.2%) was among the laggards as money market rates in Hong Kong printed fresh decade highs, while Shanghai Comp. (-1.0%) was choppy as support from the PBoC’s policy efforts tussled with renewed trade concerns. Finally, 10yr JGBs were uneventful with prices flat near last week’s best levels amid the cautious risk tone. The release of the Summary of Opinions also failed to spur demand as the BoJ stuck to its rehashed statements, and the central bank’s presence in the market was largely ignored as it was only seeking Treasury discount bills. PBoC announced that it will lower some banks' RRR by 50 basis points on July 5th.
    PBoC is to cut the re-lending rate for SME loans by 50bps. PBoC skipped open market operations for a daily net drain of CNY 10bln. PBoC set CNY mid-point at 6.4893

    Top Asian News

    • U.S. Plans Curbs on Chinese Investment, Citing Security Risks
    • Trump’s Auto Tariff Threat Against Europe Puts Asia on Notice
    • Alibaba’s Jack Ma Says Bitcoin ‘Could Be A Bubble’

    European equities started the week with a bout of selling (Eurostoxx 50 -0.9%) as trade war woes dampen sentiment across the board. Overnight, it was stated that the Trump administration is reportedly planning to bar a number of Chinese companies from investing in US tech while blocking exports to China. The two measures are to be announced at the end of the week. In the wake of this, the IT sector in Europe underperforms. In terms of stock specifics, Prysmian (-7.3%) rests at the foot of the Stoxx 600 amid additional FY costs and a cut in the company’s EBITDA outlook. On the flip side, IWG (+3.1%) is on a firmer footing following confirmation that PE firm Terra Firma has approached the company about a possible bid.

    Top European News

    • Erdogan Claims Victory in Turkish Election as Rivals Cry Foul
    • EU Said to See Trade Apocalypse Nearing as It Seeks WTO Revamp
    • German Business Sentiment Slips as Trade Risks Shake Outlook

    In FX, the JPY was the standout G10 performer and refuge for investors as the US continues its trade offensive against China with fresh export embargoes and tighter tech investment rules, as Usd/Jpy retreats from 110.00+ levels again and currently re-tests Fib support around 109.50 following a brief dip below. Market contacts also report widespread offers in Jpy crosses, and especially vs the Eur. EUR: Undermined by the broad downturn in risk sentiment and aforementioned LHS flows vs the Jpy, but off lows in wake of a mixed German Ifo survey and softer Usd overall, with the headline pair circa 1.1650 vs 1.1630 at one stage. However, the upside looks technically challenging towards 1.1700 with daily chart resistance and a Fib all aligning together at 1.1681. CHF: Firmer overall due to its own safe-haven characteristics, but not as strong as the Jpy given latest SNB pledges to prevent the Franc from appreciating too much, with Usd/Chf hovering just below 0.9900 and Eur/Chf pivoting either side of 1.1500 after decent offers from 1.1520 down to the big figure. CAD/AUD: Marginal underperformers, as the Loonie loses underlying support amidst a post-OPEC+ pull-back in oil prices and slips back towards 1.3300 vs its US rival, while the Aud is back below 0.7450. There was some fleeting respite for the TRY after conclusive 50%+ wins for President Erdogan at the weekend elections, with Usd/Try down under 4.5500 at one stage, but the Lira already losing recovery momentum as relief gives way to reality and ongoing problems for Turkey on the economic and fiscal fronts. Usd/Try back up near 4.7200 in more recent trade

    Commodities traded mixed with WTI (+USD 0.21/bbl) now in the green, albeit off Friday’s highs. Brent (-USD 1.01/bbl) on the other hand is lower as the global benchmark reacts to the OPEC and OPEC+ meetings at the back-end of last week. The oil producers agreed on an output hike, though no specific numbers were confirmed. The output increase is yet to be distributed amongst the members. Saudi Energy Minister Al-Falih said on Saturday that the increase is to be closer to 1mln BPD than to 600K BPD. The metal complex looks relatively mixed, gold and copper trades flat, synchronised with the uneventful dollar moves. Elsewhere, Shanghai steel rebar prices dropped for a second consecutive session following a rise in steel product inventories raising concerns about oversupply and weakening demand in the market.

    Looking at the day ahead, we'll have the May Chicago Fed national activity index, May new home sales, and June Dallas Fed manufacturing activity index.

    US Event Calendar

    • 8:30am: Chicago Fed Nat Activity Index, est. 0.3, prior 0.3
    • 10am: New Home Sales, est. 667,000, prior 662,000; MoM, est. 0.76%, prior -1.5%
    • 10:30am: Dallas Fed Manf. Activity, est. 23, prior 26.8

    DB's Jim Reid concludes the overnight wrap

    It was a busy weekend for markets with the informal EU meeting, Turkish elections, a Chinese RRR cut and more signs of escalating Trade tensions. Starting with China, on Sunday the PBoC said it will cut reserve requirement ratio (RRR) by 50 bps from July 5, which is just 1 day before higher US tariffs on $34bn of Chinese goods will start. The RRR cut is expected to inject RMB 700bn (US$108bn) of liquidity to the economy, with 500bn going to 12 large banks to support debt to equity swap programs and 200bn going to small banks for their lending to small businesses. DB’s Zhiwei Zhang and team believes the shift of policy stance is well expected by the market and take this as a signal of policy easing, likely in response to the weakening macro data and the threat of trade war. They believe the policy easing will likely put upward pressure on property prices and depreciation pressure on the RMB. Overall, they: i) revise their forecast of USDCNY to 6.8 and 7.2 by the end of 2018 and 2019 (vs: 6.4 and 6.4 previously), ii) see one more RRR cut in 2018 and three more in 2019 and iii) continue to expect GDP growth to slow modestly for the rest of the year (Q1: 6.8%, Q4: 6.5%) and next year (6.3%). Refer to their note for more details.

    Over in Turkey, Reuters cited local news agency Anadolu which reported that 99% of the ballots have been counted and the incumbent President Erdogan has declared victory after winning 52.5% of the Presidential votes (vs. 31% for his closest challenger), while his AK Party and coalition ally MHP has won a total of 53% of the votes. This morning, the Turkish Lira has firmed c0.5% against the dollar.

    Over now to Brussels where on Sunday, 16 EU leaders have met for emergency talks hoping to get a migration deal before the full summit later this week. In the end, there was no EU wide deal, instead members endorsed further tightening of their own borders and pledged to give more money to foreign countries to prevent people from entering into Europe. Germany’s Ms Merkel noted that “there will be bilateral and trilateral agreements (with individual EU states)” rather than waiting “for all 28 members” for some sort of EU wide agreement. Similarly France’s Macron said the solution should be “European”, but noted it could just be several states together.

    Now moving onto some of the latest headlines on trade. After President Trump’s threat of higher tariffs on European made cars on Friday, the EU Commission Vice President Katainen noted on Saturday that “if they decide to raise import tariffs, we’ll have no choice, but to react”, although he also added that “we don’t want to fight (over trade) via Twitter, we should end the escalation”. In the US, the WSJ reported that the US Treasury is preparing rules that would block firms with at least 25% Chinese ownership from buying US companies involved in “industrially significant technology” as well as “enhancing” export controls to keep technologies from being shipped to China. Meanwhile in China, the HK based newspaper SCMP cited two unnamed Chinese government sources who noted that China does not plan to target US firms operating in China as this “option has never been on the cards”. As a reminder, the big question on our Chinese economists mind is whether China will move beyond trade and target US business interests in China. The team estimate that US firms sold US$448bn worth of goods and services to China in 2017, with c37% through trade and c63% ($280bn) through local operations by US subsidiaries in China.

    With all this weekend news, markets are trading mixed in Asia with the three Chinese bourses up 0.1%-0.7% while the Nikkei (-0.47%), Kospi (-0.05%) and Hang Seng (-0.38%) are down modestly. Meanwhile the UST 10y yield is down c2bp and futures on the S&P are down c0.5% as we type.

    Looking ahead to the rest of the week, the meeting in Brussels yesterday is the precursor to the highly anticipated EU Summit on Thursday and Friday in the same city. There’s no doubt that the big topics of discussion amongst EU leaders will be the latest trade war developments and Brexit, as well as migration policy, the EU budget, security and reforming the economic and monetary union. If all that can be solved in 2 days I’ll be very impressed. In terms of data this week, all of it is outlined in the week ahead at the end but the highlight is probably Friday’s US PCE and Europe’s first look at June inflation across the region on Thursday and Friday. Remember that April’s data was very weak but Easter was blamed. May’s then was much stronger than expected just at the time Italy was blowing up and bond yields were collapsing. 1 month later a dovish ECB and trade tensions have created another European bond rally so the inflation number will be interesting in this light.

    As for markets back on Friday. European equities were all higher following stronger oil prices (more below) and better than expected PMIs. The Stoxx 600 (+1.09%), FTSE (+1.67%) and DAX (+0.54%) were all up, although the latter was weighed down by car maker stocks (BMW -1.1%; Daimler -0.3%) after President Trump tweeted “if these (EU) tariffs…are not soon broken down…we’ll be placing a 20% tariff on all of their cars coming into the US”. Over in the US, the Dow broke its 8-day losing streak and avoided the worse daily run since 1978 (+0.49%), while the S&P rose +0.19% and the Nasdaq retreated for the second straight day (-0.26%). The risk off tone was also evident with the VIX down 5.9% to 13.77.

    Meanwhile government bonds were broadly flat with 10y treasuries and Bunds yields only moving 0.2bp, although Gilts rose 4.2bp, partly reflecting the ongoing reactions to a more hawkish BOE. Oil prices jumped 3-4% on Friday after OPEC signalled a smaller than expected increase in oil output (Brent +3.42%; WTI +4.64%). The OPEC and non-OPEC members agreed that they would return to 100% compliance with the previously agreed oil outputs. However, over the weekend the messaging on the exact amount of increase seems a bit less clear with the Saudi Arabian Energy minister indicating that this implied a reallocation of production from members with limited spare capacity to those who have more, and pledged a “measurable” supply increase and “will do whatever is necessary to keep the market in balance”. Conversely, Iran’s minister indicated that if OPEC members stick to their own allocations, then the real output would only increase by 500k bbl per day by the end of the year. This morning, Brent and WTI are down -1.9% and -0.4% respectively.

    Before we take a look at this week’s calendar, we wrap up with other data releases from Friday. In the US, the June Services PMI was in line with expectation at 56.5, while a softer than expected manufacturing PMI print (54.6 vs. 56.1 expected) contributed to a lower but still solid composite PMI of 56 (-0.6pt mom). The New York Fed’s estimate of Q2 GDP growth ended the week at 2.9% saar, down a tenth from a week earlier.

    In Europe, the flash June PMIs improved mom and were broadly stronger than expectations, driven by services PMIs. The Euro area composite PMI rose 0.7pt mom to 54.8 (vs. 53.9 expected) while manufacturing PMI was in line at 55 and the services PMI rose to a four month high of 55 (vs. 53.8 expected). Across the countries, Germany (54.2 vs. 53.4 expected) and France’s composite PMI (55.6 vs. 54.2 expected) were both above market, mainly due to stronger than expected Services PMIs. Meanwhile, France’s 1Q GDP was confirmed at 2.2% yoy.

    Looking at the day ahead, it's a fairly quiet start to the week today with the only data of note in Europe being the June IFO survey in Germany, while in the US we'll have the May Chicago Fed national activity index, May new home sales, and June Dallas Fed manufacturing activity index

    Published:6/25/2018 6:12:43 AM
    [Markets] Dow futures drop more than 150 points as Trump makes more trade threats The trading week was set to kick off on a downbeat note on Wall Street Monday, as Dow futures fell more than 150 points, dragged lower by a sharp drop in the price of Brent crude and by fresh threats from President Donald Trump against the U.S.’s trading partners. Dow Jones Industrial Average futures (YMU18.CBT) slid 173 points, or 0.7%, to 24,428, while S&P 500 futures (ESU18.CME) fell 16.25 points, or 0.6%, to 2,743.25. The Dow (^DJI) snapped an eight-day losing streak on Friday, but it marked its biggest weekly decline since March 23, with a loss of 2%. Published:6/25/2018 4:11:52 AM
    [Markets] Global Stocks Weaken as Trump Opens New Fronts in Global Trade War Reports suggest President will target tech sector in next tariff move to thwart China investment in U.S. Oil continues to slide as OPEC decision on output adds supply, but investors question details. Wall Street futures fall, with Dow poised for 140 point decline, as benchmark slips into year-to-date decline. Published:6/25/2018 1:40:17 AM
    [Markets] OPEC "Deal" Ends With Output Confusion, Sets Stage For "Deal Unraveling"

    Just 24 hours after OPEC appeared on the edge of splintering, Iran seemed to cave and in a deal that was described as a victory for everyone, OPEC member states and Russia provided a vague assurance they would boost output by striving to return to full compliance of the original production quotas as set in the 2016 Vienna production cut agreement.

    As Goldman summarized in its post-mortem, "no further details were provided, including no country level allocation, no guidance for non-OPEC participants or timeline for the increase." Furthermore, during the press conference following Friday's deal, the one question which never got an explicit answer is how much output would be boosted by, with little clarity shed beyond “targeting full compliance at the group level”.

    This suggests that there is room for countries with spare capacity to increase production above the individual quotas but also that such adjustments could not be resolved.

    As a result, Goldman's energy analyst Damien Courvalin said that he views today’s agreement "as masking disagreements within the group and a potential start to the unraveling of the deal, with core-OPEC and Russia looking to increase production but Iran opposing such an increase."

    Bloomberg's Javier Blas confirmed as much, noting that Friday’s agreement was a "fudge in the time-honored tradition of OPEC, committing to boost output without saying which countries would increase or by how much" a fudge which gave every member - especially Iran which by endorsing a production boost would have been seen as effectively approving of Trump's sanctions and allowing other states to take its market share - an "out" to save face, by sufficiently masking up the details so no explicit accusations of backtracking can be made.

    Importantly, "it gives Saudi Arabia the flexibility to respond to disruptions at a time when U.S. sanctions on Iran and Venezuela threaten to throw the oil market into turmoil."

    “It is very clear that Saudi Arabia, worried about prices running higher going forward, is trying to put in place a near-term cap on prices,” said Yasser Elguindi of Energy Aspects Ltd., a consultant. “Having secured its floor, Riyadh would like to see a near-term ceiling of $75.”

    Which, incidentally, is also the price above which Trump tends to take to twitter in bashing OPEC. And not only Trump: oil prices have recently gotten so high, they have led to political fallout among mostly Developing Nations such as India, whose petroleum minister rang Al-Falih last month and expressed “concern about rising prices.” A week later, it was the head of China’s National Energy Administration on the phone with the Saudi oil minister, asking Riyadh to guarantee adequate supplies.

    * * *

    So what is the actual production boost? This is where the confusion really sets in. First, here is Goldman's take:

    Several ministers suggested that this would correspond to a 0.7 mb/d increase in production, which would represent OPEC returning to its aggregate production quota. Such an increase in production would likely only be gradual, leaving it on a path close to our base case 550 kb/d increase in 3Q18. While production could exceed our 550 kb/d expectation for 4Q18, we see risks that Iran production may be even lower than we assume. As a result, we view today’s announcement as coming not far off our base case and as a result our price forecast and outlook remain unchanged.

    Bloomberg referenced a similar number, noting that the deal could add about 700,000 barrels of daily supply from OPEC and non-OPEC producers. To get there, Russia will probably raise output as much as it can while Saudi Arabia attempts to adjust its production to manage prices.

    On Saturday morning, however, the discrepancy grew, with various soundbites estimating the boost based more on political tensions than actual production dynamics, and ranging from under 500kb/d to over 1 million:

    • IRAN OIL MIN: OPEC+ DEAL WON'T ADD MORE THAN 500K B/D TO MKT
    • OMAN SEES OPEC+ REAL INCREASE OF 600K-700K B/D OVER 6 MONTHS
    • NOVAK: `REAL' OIL OUTPUT BOOST IN OPEC+ DEAL SEEN NEAR 1M B/D

    A bigger issues is that as BBG notes, traders are far from confident that all those barrels will materialize. The alliance faces multiple risks: the loss of Iranian and Venezuelan exports because of U.S. sanctions, volatile environments in Libya and Nigeria, and hurricane season in the Gulf of Mexico. At the same time, there is a shrinking amount of spare production capacity globally.

    “They cannot control the upside at the moment,” tweeted the market’s most vocal bull, hedge-fund manager Pierre Andurand. “Same as in early 2008.”

    Goldman, which like Andurand has been extremely bullish the commodity sector recently, agreed:

    Even under a more aggressive production scenario, we don’t believe that today’s announcement threatens to create a large reversal in fundamentals. For example, if OPEC were to plug its production shortfall (+0.7 mb/d) and Russia add 0.2 mb/d for the whole of 2H18, we would only expect a slim market surplus of 0.1 mb/d yet this would require an unprecedented increase in core-OPEC and Russia production and would leave the market with little remaining spare capacity.

    But the best indicator of the market's response to the deal was the price of oil itself, which soared the most since OPEC's November 2016 meeting (even if still modestly below the May highs).

     

    Commenting on the price action, Goldman said that "oil prices were able to maintain their price gains despite an ambiguous press conference," confirming the bank's take that the market had likely priced in already a 0.8-0.9 mb/d OPEC increase."

    So in conclusion, what wll happens next? Here we offer two takes, a longer term one from Goldman, which is confident that the OPEC deal was much ado about nothing:

    Even if today’s agreement marked the beginning of the end of the production cooperation, we believe that core OPEC and Russia would likely have settled on a similar outcome, if not smaller, to achieve both higher output, stable inventories and not a sharp fall in prices. In the case of Saudi, supporting prices helps fund its economic diversification and maximize the value of the assets it is selling while higher production prevents high prices that would hurt consuming nations that either provide it with security or will be important in its economic transition (US, China, India). President Trump's tweet after today's annoucement further reinforces this view. In the case of Russia, collaboration with Saudi increases its sphere of influence although the country no longer benefits from rising prices: the state saves excess oil revenues in foreign assets leaving for little impact on current activity while rising domestic fuel prices are keeping the CBR more hawkish.

    Incidentally, on Saturday morning the big news was that OPEC had invited Russia to join OPEC as an observer, a move that could portend a dramatic shift in the balance of power as OPEC+Russia now openly take on the marginal price setter, shale. That said, for now Russia is not in a hurry, with its energy minister Novak saying he has no plans to join OPEC as a full member, yet. 

    As for the market's short-term reaction, one which matters far more for traders, we present the take from Swiss energy consultant Olivier Jakob who had what may be the most accurate take:

    Published:6/23/2018 10:24:00 AM
    [Markets] Ike Was Right!

    Authored by Bill Bonner via Bonner & Partners,

    We wait for the world to fall apart.

    The Dow is still more than 1,000 points below its high; so we presume the primary trend is down. Treasury yields – on the 10-year note – are near 3%… twice what they were two years ago. So we presume the primary trend for bonds is down, too.

    If we’re right, we are at the beginning of a long slide… down, down, down… into chaos, destitution, and destruction.

    Faked Out

    Our working hypothesis is that General Eisenhower was right.

    There were two big temptations to the American Republic of the 1950s; subsequent generations gave in to both of them.

    1. They spent their children’s and grandchildren’s money. Now, the country has a government debt of $21 trillion. That’s up from $288 billion when Ike left the White House.

    2. And they allowed the “unwarranted influence” of the “military/industrial complex” to grow into a monster. No president, no matter how good his intentions, can stop it.

    A corollary to our major hypothesis is that the rise of the Deep State (the military/industrial/social welfare/security/prison/medical care/education/bureaucrat/crony complex) was funded by the Fed’s fake-money system.

    Now, investors, businesses, households, and the feds themselves have all been “faked out” by a fraudulent money system. None of them can survive a cutback in credit.

    For nearly 30 years, central banks have backstopped markets and flooded the world with liquidity.

    But last week, the Fed turned the screws a little further. It now targets a 2% Fed Funds Rate and claims to be on the path of “normalization.”

    And the European Central Bank (ECB) made it official, too; it hasn’t quite begun tightening, but it’s got its toolbox open. And command of the ECB work crew is set to change hands next year anyway, passing on to a German engineer.

    Scarred Psyche

    The German psyche has been scarred by its awful experience in the last century. Even though today’s Germans didn’t live through it themselves, the entire country seems to have a race memory of it.

    Still preparing for hard times, the household savings rate in Germany is at least three times higher than in the sans souci U.S.

    Germany’s apocalypse, too, can be described in Eisenhower’s terms – too much debt (arising from World War I)… and too much influence in the hands of the military/industrial complex.

    Debt led to hyperinflation. But the damage done by Germany’s hyperinflation of the early ’20s lead to far more than just wiped-out mortgages and billion-dollar cigars.

    It discredited the traditional elite of the country – its institutions, its culture, and its politics. Germany had the world’s finest artists, composers, and philosophers. Its writers, engineers, and scientists were second to none.

    Even in the early ’30s, Germans could still look to the East – to the madness, purges, and famines of Russia – and say to themselves: “Ah, that couldn’t happen here; we are so much more civilized.”

    But by then, civilization was on the run, from the Rhine all the way to Siberia. And in Germany, the old elite was being chased out of leading posts in academia, the military, and the government.

    Ruined by hyperinflation and chaos – and hounded by extremists – thousands emigrated from Germany to England and America. Those left yielded to mob spirits and rabble-rousing upstarts – communists, anarchists, and national socialists – who fought it out in the streets.

    The national socialists – the Nazis – won. Even though it was prohibited by the Versailles Treaty, they quickly began building up the military/industrial complex.

    Then, as Madeleine Albright phrased it, “What good is it having such a powerful military if you can’t put it to use?”

    As it transpired, Germany attacked the Soviet Union. By then, the average Russkie may have hated Stalin, but he rallied to defend Mother Russia.

    By the end of World War II, eight million Germans would be dead, with millions more condemned to die in prisoner-of-war camps or from starvation.

    By 1945, Germany had been bombed so thoroughly that nothing much was left of its once-impressive industrial capacity.

    Its farms had been starved of investment (the money went to the military) for the previous 10 years. And the country had been cut in half, with foreign troops ruling over every aspect of life.

    Runaway Money

    And today, 73 years later… there are still foreign troops garrisoned on German soil… and the Germans still fear letting the money system get out of control.

    They’re right to be wary of runaway money. It turns honest wage-earners into paupers, while the speculators get rich.

    Worse, it gives the meddlers a source of almost unlimited financing. Then, there’s no telling what mischief they will get up to. Revolution? War? Or simply a complete economic collapse?

    News also came last week that the inflation rate in Venezuela has reached 24,600%. In other words, if you bought a pack of cigarettes for $5 last June, you could expect to pay $1,230 for the same pack today.

    When the money goes, everything seems to go with it. The economy, government, order, morality, right and wrong – all sink into a greasy stew where you don’t know which parts are edible and which are poisonous.

    This year’s rise in oil prices was supposed to give Venezuela a little break. Oil is the country’s biggest asset and its major export. And the state-owned oil giant PDVSA was supposed to rescue the nation.

    But it is too late.

    The vernacular – the vast web of thoughts and deals that make up everyday life for everyday people – has been so corrupted and distorted that it can’t react normally. Venezuela can no longer take advantage of opportunities or respond to crises. The New York Times reports:

    Desperate oil workers and criminals are also stripping the oil company of vital equipment, vehicles, pumps and copper wiring, carrying off whatever they can to make money. The double drain – of people and hardware – is further crippling a company that has been teetering for years yet remains the country’s most important source of income.

    Wages could not keep up with inflation. The NYT highlights the case of a typical rig worker who stayed on the job for the entire month of May, yet earned only enough to buy one chicken.

    No longer able to feed their children, workers walk off the job. Or drive off.

    Trucks disappear. So do wrenches and copper pipes. Even with a higher oil price, income falls for the company… the state… and the remaining employees.

    What’s a man to do?

    Leave! Venezuelans are rushing the borders to escape, often taking little more than the clothes on their backs with them.

    But wait… Americans are civilized people with full employment, a solid dollar, and a military that is bringing order to a troubled world. What possible significance could Germany 1920–1945 or Venezuela 1999–? have for us?

    And Eisenhower was just an old worrywart, wasn’t he?

    Published:6/22/2018 8:28:23 PM
    [Markets] Dow Suffers Biggest One-Week Loss Since March The Dow Jones Industrial Average rose Friday but posted its biggest one-week slide since March as escalating tariff tensions drove investors out of companies they fear could suffer under tighter trade conditions. Stocks wobbled throughout the week, with shares of industrial firms, agricultural companies and auto makers sliding as investors feared global trading relations were becoming increasingly fractured. President Donald Trump asked his administration Monday to identify an additional $200 billion of Chinese goods that would be penalized with tariffs. Published:6/22/2018 7:56:51 PM
    [Markets] After the Bell: And Just Like That, the Dow's Back in Black Stocks ended mixed again on Friday, although the Dow Jones Industrial Average managed to snap its eight-day losing streak. •...unwind Red Hat's (RHT) double-digit plunge. Markets couldn't make a clean sweep Friday, but it was the Nasdaq that was the laggard. Published:6/22/2018 5:57:48 PM
    [Markets] [$$] The Score: The Business Week in 7 Stocks Investors are waking up to the idea that the trade war between the U.S. and China could be the real deal. Boeing, which counts China as its largest market, single-handedly took 94 points off the Dow Jones Industrial Average that day. The business giants on Wednesday appointed Dr. Atul Gawande as chief executive of a yet-to-be-named company tasked with tackling rising employee health-care costs. Published:6/22/2018 5:26:40 PM
    [Markets] Don't Ignore the Dow's Discards ’s removal from the Dow Jones Industrial Average this past week was a new low for the struggling industrial giant. The last 10 booted companies have risen an average of 6.4% in the year after their respective removals, according to The Wall Street Journal’s Market Data Group. Published:6/22/2018 4:56:51 PM
    [Markets] Crude Crescendo Helps Dow Beat Longest Losing Streak In 40 Years

    If you own Netflix alone in your portfolio - everything is awesome in the world - if you own anything else, not so much...

    Spot the odd one out...Nasdaq (green) vs World Stocks ex-US, the UST yield curve, EM FX, SIFIs, and Global Macro data...

     

    China was ugly this week...

    Emerging Markets ugly across all asset classes...

    DAX ended the week ugly - Trump trade tariffs on autos - but FTSE managed to end with a gain...

    Heavy volume in US markets on the Russell rebalance today.

    Since Fed Day, The Dow is down around 3% and Nasdaq and Small Caps up around 1% (losing some ground the last two days)

    On the day, S&P and Dow managed gains - flipping the script on the week...ugly close into the rebalance.

    On the week in stocks:

    • Dow's worst week in 3 months (ends 8-day losing streak, worst in 40 years)

    • Trannies' worst week in 3 months

    • S&P worst week since early April

    • Nasdaq ended the week lower - first down week in a month

    • Small Caps up (barely) for 8th week in a row

    Here's the culprit for the tech wreck - Red Hat missed... (biggest drop since Oct 2006)

    "Most Shorted" Stocks up for the 8th time in the last 9 weeks... (the biggest short-squeeze ever)...

     

    But it has paused a little the last two days (but we've seen this before)...

     

    NYSE FANG+ Stocks ended the week lower - first down week in a month - even with dip-buyers scrambling in every day...

     

    After a four week melt-up short-squeeze, Tesla stocks and bonds tumbled this week...

     

    Mixed bag in US banks this week with Citi up and the rest down... (all lower after last night's stress test)

     

    A roller-coaster week for financials relative to tech that ended with the two unchanged relative to each other...

     

    Unusual action in bonds this week. All Treasury yields ended the week lower but the belly notably outperformed the wings..

    The curve flattened very modestly on the week.

    This is the lowest weekly close for the 10Y Yield (and first below 2.90%) since April...

     

    The Dollar Index fell the most in almost three months this week (after last week's best gains since the US election after the ECB)

     

    Yuan weakened the most as JPY strengthened on the week...

     

    In fact - ever so quietly - Yuan has devalued by 4.5% from its highs of the year (which were very similar to the last devaluation level)...

     

    Another down week for cryptos - led by an 11% plunge in Litecoin - after Japanese regulatory crackdown sparked selling overnight...

     

    PMs were very modestly lower on the week (with a weaker dollar?) but copper was clubbed on trade tensions and crude exploded on OPEC...

     

    WTI Crude soared over 5% today - the biggest single-day surge since the OPEC meeting in Nov 2016... (though notably still 6% below the May highs)...

     

    Silver continues to outperform gold after last week's collapse...

     

    Published:6/22/2018 3:25:33 PM
    [Markets] Dow snaps 8-day losing streak as energy boosts stocks Dow snaps 8-day losing streak as energy boosts stocks Published:6/22/2018 3:25:32 PM
    [Markets] Dow snaps losing streak on energy lift The S&P 500 and Dow Jones Industrial Average climbed on Friday, as the Dow put to rest an eight-day losing streak with a boost from energy stocks, but losses in the technology space kept the Nasdaq in check. Exxon Mobil rose 2.1 percent and Chevron gained 2.0 percent, as the two biggest boosts to the S&P. The S&P energy index was up 2.2 percent, as the sector notched its strongest day in June. A rally in oil prices due to OPEC's earlier decision to restrict supply in an effort to drain global inventories has given the sector a gain of more than 11 percent for the quarter-to-date, best among the 11 major S&P groups. Published:6/22/2018 3:25:32 PM
    [Markets] Dow rises nearly 200 points, aims to avoid longest skid since 1978 as energy rallies Energy stocks lead, supported by jump in crude pricesExxon shares were among top Dow gainers. Energy stocks were by far the biggest gainers of the day, with the group surging after OPEC reached a deal to boost output, though not by as much as some had expected. The Dow Jones Industrial Average (^DJI) rose 194 points, or 0.8%, to 24,655. Published:6/22/2018 1:24:53 PM
    [Markets] Stocks- Dow Surges as OPEC Boosts Output The S&P 500 gained 11 points or 0.41% to 2,761.92 as of 9:42 AM ET (13:42 GMT) while the Dow composite increased 144 points or 0.59% to 24,606.55 and tech heavy NASDAQ Composite fell over nine points or 0.13% to 7,703.28. Published:6/22/2018 11:54:37 AM
    [Markets] Fun With The Fed's "Stress" Test

    Authored by Nicholas Colas via DataTrekResearch.com,

    Like many of you, I spent part of the late afternoon reading through the results of the Federal Reserve’s annual stress test of the US banking system. At first blush, everything looks good. Everyone passed. Now investors can look forward to next week’s Comprehensive Capital Analysis and Review, when we hear what sorts of buybacks and dividends these institutions can pay in the year ahead.

    It’s difficult not to gasp a little when you look at the “Severely adverse” scenario the Fed used in this year’s review:

    • A 7 quarter recession that leaves GDP 7.5% lower than prior highs

    • Unemployment rises to 10% over the same period

    • Inflation drops to 1% and short term Treasuries yield close to zero

    • At the same time, investors shun long term Treasuries and yields there remain unchanged

    • Investment grade and mortgage yield spreads blow out to 5.75% and 3.5% respectively

    • US stocks drop by 65% in early 2019, and the VIX goes over 60

    • House prices drop 30% and commercial real estate by 40%

    I don’t know about you, but to me that looks like the recipe for revolution more than a regulatory what-if scenario, but let’s go with it.

    Two points:

    #1) If the US banking system is really as robust as the Fed’s analysis indicates, doesn’t that merit a higher multiple on domestic stocks than historical norms? A bullet proof banking system should be worth a systematic premium over a shaky one, after all. America’s banks should be able to provide capital in even a severe downturn, make orderly markets if they have capital markets desks, and generally act as they would at any other point in the economic cycle. That would be a welcome change.

    Now, there is a headwind to this positive case: the Financial sector is 14% of the S&P 500, and the regulatory process that makes them systematically safe also reduces their structural return on capital. So we’re unlikely to see much P/E expansion in the group, but every other sector - consumer or industrial - should get an uptick. A robust financial system should make the next recession easier than most previous ones by limiting any shock to the supply of credit, after all. Trough earnings will be higher than expected, and valuations should expand.

    This is ultimately a cyclical argument, which means we’ll have to see it work in the next downturn before investors are willing to pay higher multiples. But for those investors who actively consider 5-10 year equity investment horizons, this is a bullish case we’ve not read anywhere else.

    #2) If the Fed’s stress tests have a fatal flaw, it is that they assume a “V” bottom from the near-death levels they outline in their requirements. This doesn’t get much attention in the Fed’s document (link at the end of this note) but as near as we can tell, this is what they assume in the “Severely adverse” scenario for a recovery:

    • Unemployment improves in the 6 quarters after the peak by almost 2 points

    • GDP growth turns positive 4 quarters after its trough

    • US equity markets recover almost all their losses in the 2 years after the bottom

    • Corporate bond spreads recover to near 2014 levels 7 quarters after they peak

    • The VIX breaks below its long run average (20) just 2-3 quarters after the Dow trades at 10,000

    Some of those – GDP and unemployment – we can see; the Dow’s recovery, bond spreads tightening and the VIX seem fanciful at best. We understand the Fed’s intent is to model another 2007-2008 scenario, but perhaps the next downturn will be different. For example:

    • The next recession, even a garden-variety contraction, will come just as artificial intelligence, robotics, drones, and other technologies hit their strides. All those advances have been invisible in the unemployment data because the US economy is growing.

      Take it from an old cyclicals analyst: companies do their big restructurings in economic downturns, not expansions. The next period of contraction is when capital will substitute for labor at an accelerating rate.
    • At the start of 2007, US public debt-to-GDP was 63%; it is now 106% (yes, we include Social Security). There will potentially be less room for fiscal stimulus in the next downturn, especially since every other developed economy has the same problem (which may be why the Fed’s assumptions include no change to long term yields).

    The upshot here is that the next recession – especially a severe one – may not be anywhere near as easy on the way out as the Fed’s scenarios portray. 

    So yes, the system is safe at the bottom of a 2007-style crack. But what if the recovery is much slower?

    Since the Fed assumes a “V”, what happens if it is an “L”. We don’t know; they don’t include that possibility.

    And what does it mean that the most systemically important banks in the world are in a bear market?

    Published:6/22/2018 11:54:37 AM
    [Markets] Beware of the Russell 2000, but should you buy the Dow Jones Industrial Average? The four major markets are the Dow Jones Industrial Average (^DJI), S&P 500 Index (^GSPC), Nasdaq 100 Index (XNAS:NDX) and Russell 2000 Index (^RUT). Some might argue that the Nasdaq Composite Index (^IXIC) is more important than the Nasdaq 100, but the Nasdaq Composite also has many small-cap stocks that are already included in the Russell 2000, so the Nasdaq 100 is a better indicator overall. With that, the Russell 2000 and the Nasdaq 100 are higher-beta markets, but with one material difference. Published:6/22/2018 11:24:29 AM
    [Markets] If JP Morgan Gaps Below Its 200-Day Simple Moving Average Then A Bear Market For Stocks Will Follow JP Morgan is the biggest of the ‘too big to fail’ U.S. money center banks and is component of the Dow Jones Industrial Average. Traders had the opportunity to buy JP Morgan on weakness to its 200-day simple moving when it was $105.24 on May 29 and again over the last five days with the average now at $106.73. Investors beware that the weekly chart for JP Morgan is negative and if a bear market is confirmed the downside risk is to the 200-week simple moving average now at $77.33 and rising each week. Published:6/22/2018 9:54:09 AM
    [Markets] Dow bids to avert longest losing streak in 40 years with early advance Friday Dow bids to avert longest losing streak in 40 years with early advance Friday Published:6/22/2018 9:24:37 AM
    [Markets] Dow Rises for First Time in 9 Days, Oil Jumps as OPEC Agrees to Boost Output rose Friday for the first time in nine trading sessions. The blue-chip index's losing streak was extended to eight on Thursday, the longest losing streak since March 2017. If the Dow was to finish lower on Friday for a ninth day, it would mark the longest losing streak in 40 years. Published:6/22/2018 9:24:37 AM
    [Markets] A ‘summer buy’ signal for stocks is on the horizon, says Bank of America Keep one eye on oil and the other on the Dow today, where much is riding on how well investors can summon some appetite for buying after a tough week for stocks. If the Dow stretches its losing streak to nine sessions, that would match the longest such run since 1978, according to the WSJ Market Data Group. The broader index may just escape that fate, thanks to climbing oil prices, and it’s certainly looking chipper today — though that hard-to-call OPEC meeting could quickly turn things on a dime. Published:6/22/2018 7:24:43 AM
    [Markets] Dow's 8 Day Losing Streak Set To End Amid Global Relief Rally

    After yesterday's intraday risk reversal, which sent S&P futures from session highs just before the European open, to lows following a day of news with more trade war developments and renewed Italian concerns, while the Dow closed down for 8 sessions in a row, tied for the longest losing streak since 1978, markets appear willing to put it all behind as they close out the week, with futures rising to 12 points to 2,765 and just shy of session highs, while the Dow finally appears poised to end its losing streak.

    The optimism was broad-based with European stocks rising and unwind much of yesterday’s Daimler-led risk-off moves, as European manufacturing and services PMI data beat analysts’ expectations, with the composite posting the first monthly rebound after 3 months of declines, lifting the EUR above 1.16, and sparking a short squeeze.

    • EU Markit Manufacturing Flash PMI 55.0 vs. Exp. 55.0 (Prev. 55.5)
    • EU Markit Services Flash PMI 55.0 vs. Exp. 53.7 (Prev. 53.8)
    • EU Markit Composite Flash PMI 54.8 vs. Exp. 53.9 (Prev. 54.1)

    The EURUSD levitation however was interrupted by news that the German SPD party was preparing for new elections knocked the common currency back.

    As a result, European equity markets rallied from the open, with the bank sector supported by Italian bank M&A news; Greek stock and bond markets outperform after EFSF repayment extension plan is confirmed.  Automaker and supplier stocks were the only segment to decline among the broader 19-industry Stoxx Europe 600 Index amid lingering concerns about China’s plan for retaliatory tariffs on U.S.-made vehicles and regulators’ crackdowns on diesel emissions. Core fixed income edges lower given general positive environment.

    Risk sentiment benefited from reports that some U.S. officials were trying to restart trade talks with China before President Trump’s tariffs come into effect next month, which in turn sent the Bloomberg dollar index dropping for a third day, extending its weekly decline to 0.3%, the biggest since mid-April, as stretched positioning dictates price action with longs taking profit amid deescalation of trade war concerns.

    In Asia, declines in Japanese and Hong Kong equities were offset by advances in their Chinese and Korean counterparts as investors awaited developments. The Nikkei 225 (-0.8%) saw early underperformance amid recent JPY strength, while Australia's ASX 200 (-0.2%) bucked the trend for most the session amid strength in financials led by ANZ Bank which announced to double its share repurchase. Elsewhere, trade concerns continued to cloud over the Hang Seng (+0.2%) and Shanghai Comp. (+0.5%) from the open, although stocks then recovered as participants also digested another net weekly liquidity injection from the PBoC.

    In FX, the dollar and yen both fell against their major peers as reports that some U.S. officials were trying to resume trade talks with China damped demand for haven assets; euro hit one- week high. The Australian dollar led G-10 advance, as an oil rally helped to insulate spot against cross related selling; New Zealand’s dollar also rose versus most Group-of-10 peers. Elsewhere, the pound was up against most of the G-10 group on continued buying after the Bank of England’s Chief Economist Andy Haldane supported a rate hike.

    The weakening dollar provided respite to Asian currencies under pressure from growing concern there will be a full-blown trade war.

    In rates, treasuries edged lower, along with bunds as Thursday’s risk-off trade is unwound following Greece debt deal; Italian bonds bounced reversing some of yesterday's losses.

    Oil jumped ahead of the conclusion of OPEC's summit, where the cartel is expected to announce a net 600,000 barrel increase in production (1MM nominal), although it remains unclear if Iran will endorse the decision. WTI traded higher as OPEC near an agreement on an output increase. Initially sources had suggested that ‘building [a] consensus [would] be a big challenge’ and ‘not all OPEC members [were] likely to accept the Ministerial Committee's proposal for an oil output increase of around 1mln BPD’. Whilse source reports had also suggested that Iran were doubting a consensus could be reached a more collaborative tone was struck after last minute talks and negotiations, with Iran stating that the meeting with the Saudi Oil Minister was positive. Following this multiple oil ministers confirmed that a compromise deal including a higher Iran quota may be part of the agreement and the 1mln BPD increase was an overestimation. The real effect is to be 700k BPD as according to the Nigerian Energy Minister.

    Gold is up slightly heading in to the weeks end as the USD edges off of 11 month highs. Steel is set for the worst week in two months as the metal is eyeing losses once again on Friday. Copper is also set to fall on Friday as worries loom about falling Chinese demand due to trade concerns

    Looking ahead, highlights include Canadian CPI and Retail Sales and the OPEC press conference. In the US, economic data include Markit manufacturing and Services PMI. CarMax and Blackberry are due to release results.

    Market Snapshot

    • S&P 500 futures up 0.4% to 2,763.50
    • STOXX Europe 600 up 0.4% to 382.54
    • MXAP up 0.02% to 169.06
    • MXAPJ up 0.4% to 550.47
    • Nikkei down 0.8% to 22,516.83
    • Topix down 0.3% to 1,744.83
    • Hang Seng Index up 0.2% to 29,338.70
    • Shanghai Composite up 0.5% to 2,889.76
    • Sensex up 0.2% to 35,516.79
    • Australia S&P/ASX 200 down 0.1% to 6,225.23
    • Kospi up 0.8% to 2,357.22
    • Brent Futures up 1.4% to $74.05/bbl
    • Gold spot up 0.1% to $1,268.56/oz
    • U.S. Dollar Index down 0.3% to 94.61
    • German 10Y yield rose 1.5 bps to 0.35%
    • Euro up 0.4% to $1.1650
    • Brent Futures up 1.4% to $74.05/bbl
    • Italian 10Y yield rose 18.0 bps to 2.464%
    • Spanish 10Y yield fell 1.5 bps to 1.321%

    Top Overnight News

    • International Monetary Fund Managing Director Christine Lagarde warned that financial markets could react violently to any fiscal loosening in large member states as the fund prepares for a mission to Italy.
    • Some White House officials are trying to restart talks with China to avoid a trade war before U.S. tariffs on Chinese products take effect July 6, three people familiar with the plans said, setting up a battle with others in the administration who favor a harder line
    • OPEC and its allies reached a preliminary agreement in the face of strong opposition from Iran to boost production by a theoretical 1 million barrels a day -- although the actual increase will be smaller as several countries are unable to raise output
    • Greece’s euro-area creditors struck a landmark deal to ease repayment terms on some of the nation’s mountain of debt, clearing the way for the country to exit the lifeline that’s kept it afloat since 2010
    • Economic momentum in the euro area unexpectedly picked up in June, although worrying signs persist for the common-currency region, IHS Markit said Friday
    • Turkish President Recep Tayyip Erdogan seeks re-election on Sunday. But he risks running into a demographic wall, as he may struggle to win the young vote -- one reason why the upcoming vote could be the tightest he’s faced
    • Greece’s euro-area creditors struck a landmark deal to ease repayment terms on some of the nation’s loans in an effort to ease its mountain of debt and clear the way for it to exit the lifeline that’s kept it afloat since 2010
    • U.K. Chancellor of the Exchequer Philip Hammond said he’s no enemy of Brexit as he slammed European Union proposals for cross-border financial services after Britain leaves the bloc
    • Nomura Holdings Inc. dismissed 28 sales and trading staff in the U.S., according to a person familiar with the matter

    Asia stocks were somewhat mixed with the region cautious as trade concerns lingered and following a weak lead from Wall St where all major US indices closed negative and the DJIA declined for an 8th consecutive day to post its longest losing streak in over a year. As such, Nikkei 225 (-0.8%) saw early underperformance amid recent JPY strength, while ASX 200 (-0.2%) bucked the trend for most the session amid strength in financials led by ANZ Bank which announced to double its share repurchase. Elsewhere, trade concerns continued to cloud over the Hang Seng (+0.2%) and Shanghai Comp. (+0.5%) from the open, although stocks then recovered as participants also digested another net weekly liquidity injection from the PBoC. Finally, 10yr JGBs were relatively unchanged with prices sitting near 2-week highs, while the latest CPI data from Japan was largely ignored despite the headline being a tad firmer than expected as inflation remained far from the 2% price goal. In addition, today’s BoJ Rinban announcement also failed to spur demand as the central bank maintained all purchase amounts. PBoC injected CNY 40bln via 7-day reverse repos and CNY 30bln via 14-day reverse repos, for a net weekly injection of CNY 140bln vs. last week's CNY 240bln net injection.

    Top Asian News

    • Sharp Is Raising as Much as 216 Billion Yen in Share Sale
    • Mahathir Says Ringgit’s Fair Value Is Same as Asia-Crisis Peg
    • What’s Wrong With Asian Stocks? Theories From Goldman and Others
    • Barclays Sees Rupee Suffering Worse Rout Than in Taper Tantrum
    • Hong Kong Dollar Strength Seen to Ease When Xiaomi Boost Fades

    European bourses are largely higher (Eurostoxx 50 +0.8%) with bank stocks leading the gains on Friday, as fears over Italian Euroscepticism ease, as Borghi reiterates there is no intention to leave the Euro Zone. The energy sector was dragging on equities as OPEC accord tensions pressured the sector but bounced on a deal nearing closure. The SMI is currently the outperforming bourse whilst the DAX underperforms as trade concerns linger over German auto names and pressure on the index. French company specific news dominates newswires, with the French Government saying they have no intention of breaking up EDF (flat) into a nuclear and non-nuclear unit, as well as Airbus (+1.5%) on a positive note being circulated from JP Morgan.

    Top European News

    • Euro Area Growth Unexpectedly Quickens as Slowdown Risks Persist
    • Greece’s Creditors Agree to Landmark Debt Deal as Payments Eased
    • Jooste Profited From Steinhoff Land Deal in 2007, Filings Show
    • Citadel Securities Has Swaps-Trading Bonanza in Italy Chaos
    • As U.S. Alliances Fray, Russia Courts New Customers for Missiles
    • Deutsche Bank Defendant Defies Prosecutors in Paschi Trial

    In FX, the EUR has continued its firm rebound from post-Fed and especially ECB policy meeting lows, with upbeat preliminary PMIs for June providing additional momentum to extend recovery gains beyond 1.1600 vs the Usd and briefly challenging the 21 DMA around 1.1670. However, offers layered between there and 1.1700 are capping further upside for now, and reports that Germany’s SPD are preparing for an election also undermined the single currency. AUD/NZD: The major beneficiaries a pre-OPEC squeeze in oil prices and broad Greenback retracement in wake of yesterday’s disappointing US data (Philly Fed survey in particular), as the former regains 0.7400 and looks to close above a chart pivot circa 0.7413, while the latter is hovering around 0.6900. GBP: Building on post-BoE gains with Cable testing 1.3300 for a near 2 big figure bounce from worst levels in the run up to Thursday’s MPC policy revelations, but also meeting some technical resistance ahead of its 21 DMA (1.3310). CAD - Consolidating above 1.3300 against its US counterpart and eyeing crude ahead of OPEC like the antipodean dollars and other commodity currencies, but also looking towards Canadian CPI and retail sales data for independent impetus ahead of next week’s BoC outlook report. DXY - Finding some support around 94.500, but off fresh ytd peaks some 100 ticks higher on the aforementioned worse-thanforecast US releases and decent recoveries in rival trading partners.

    In commodities, oil trades higher as OPEC near an agreement on an output increase. Initially sources had suggested that ‘building [a] consensus [would] be a big challenge’ and ‘not all OPEC members [were] likely to accept the Ministerial Committee's proposal for an oil output increase of around 1mln BPD’. Whilst source reports had also suggested that Iran were doubting a consensus could be reached a more collaborative tone was struck after last minute talks and negotiations, with Iran stating that the meeting with the Saudi Oil Minister was positive. Following this multiple oil ministers confirmed that a compromise deal including a higher Iran quota may be part of the agreement and the 1mln BPD increase was an overestimation. The real effect is to be 700k BPD as according to the Nigerian Energy Minister. Libyan oil ports had exacerbated the rise in oil, with a further storage tank catching fire due to domestic conflicts. However, Libya’s NOC has confirmed Ras Lanuf and Es Sider are under the control of Libya’s National Army, with fires now all extinguished. Gold is up slightly heading in to the weeks end as the USD edges off of 11 month highs. Steel is set for the worst week in two months as the metal is eyeing losses once again on Friday. Copper is also set to fall on Friday as worries loom about falling Chinese demand due to trade concerns.

    Looking at the day ahead, the big data highlight is the release of the flash June PMIs around the world. In Europe and the US we'll receive the manufacturing, services and composite prints. Away from that the final Q1 GDP revisions will  be made in France. The Oil market will also be in focus with the OPEC meeting in Vienna (continuing into Saturday).

    US Event Calendar

    • 9:45am: Markit US Manufacturing PMI, est. 56.1, prior 56.4
    • 9:45am: Markit US Services PMI, est. 56.5, prior 56.8
    • 9:45am: Markit US Composite PMI, prior 56.6

    DB's Jim Reid concludes the overnight wrap

    Happy Friday. I hope you didn’t notice the morning being slightly darker in the northern hemisphere today. These are those rare weeks where I go to bed in bright light and wake up in it too. Sadly this doesn’t last long. In a few weeks it’ll be totally dark getting up to write this!

    So what has this slightly darker day got in store for us. Given the current nervousness on trade and growth at the moment there will be a lot of interest in today’s flash PMIs, especially in Europe. This morning in Asia we’ve already had the manufacturing PMI in Japan with the reading coming in at 53.1 compared to 52.8 in May. Later this morning we’ll get the data from Europe. The consensus for the composite Euro area reading is 53.9. As a reminder May printed at 54.1 which was the lowest since November 2016. The small drop is expected to be as a result of the manufacturing sector (55.0 versus 55.5 previously) while the services sector is expected to hold steady at 53.8. Germany’s composite is expected to stay at 53.4 and France’s also to hold at 54.2 (although both are expected to show further deterioration in the manufacturing sector). For the US this afternoon both the manufacturing and services readings are expected to fall a modest 0.3pts to 56.1 and 56.5 respectively.

    We’ll also see the OPEC meeting today, so all eyes on how much supply they’ll add to the market. Ahead of this, overnight Bloomberg noted OPEC ministers have reached a preliminary agreement to boost production by a theoretical 1m barrels a day, although Saudi Arabia’s energy minister noted this number is “nominal, as the actual effect will be something less because not every country can respond”, so the real production increase may be c600k barrels a day. Notably with Iran’s oil minister walking out of the meeting and telling reporters that “it was not a good meeting”, we may have to wait until Saturday to see whether this proposal will be formally ratified. For now, WTI oil is up c1% this morning.

    Elsewhere in Asia, markets are mixed but little changed with the Nikkei (-1.0%) and Hang Seng (-0.27%) both lower while the Kospi (+0.19%) and Shanghai Comp. (+0.35%) are up modestly as we type. Datawise, Japan’s May core CPI was steady mom and in line at 0.7% yoy. Meanwhile, China’s Commerce Ministry said it will impose anti-dumping tariffs on imported styrene from the US, South Korea and Taiwan – ranging from 3.8% to 55.7% and taking effect from 23  June.

    China’s import of the chemical from the US is not huge ($4bn worth last year) and the potential for higher tariffs has been flagged back in February, but the announcement does come at a somewhat sensitive time which could add to the trade tensions. Elsewhere, all of the 35 largest US banks have passed the first part of the Fed’s annual stress test, suggesting they have enough capital to withstand an extreme recession. Reuters noted that next week’s tests are the ones to watch as they’ll likely be tougher and the results will be used to determine whether the Fed approves or denies banks’ capital plans.

    Yesterday was a slightly odd day as markets started to step up their focus on the impact of the potential trade war on a day where there was actually some hope that there was still a chance of a near term de-escalation. Daimler’s profit warning from Wednesday night which we reported yesterday was the catalyst even if the link to trade in their warning was perhaps exaggerated. Meanwhile Italy had a bad day due to the appointment of two eurosceptic in key parliamentary posts with a sales tax on US internet companies adding to the risk off. In truth Daimler’s issues (shares -4.90%) also included diesel and emissions problems so the trade element may have been slightly exaggerated especially as tariffs haven’t come in yet for them.

    At a macro level China was reported by MNI as engaging with the U.S. to deescalate the Trade War. The story quoted “a source with knowledge of the matter” saying that China trade officials have approached US officials in order to find ways to minimize punitive tariffs on China. It went on to say that China and US are making last minute efforts to avert the tariffs’ implementation (the $34bn from July 6th). Note that this is not to do with the additional $200bn Mr Trump highlighted on Monday. Meanwhile, Bloomberg also cited that some White House officials are trying to restart talks with China too. Having said that, Wilbur Ross’s comments suggested less diplomacy around the corner. He said that “If it really does get to be a big war, we have many more bullets than any of these other countries”.

    On Italy, the Senate selected economist Alberto Bagnai as head of the finance committee. He has written two books calling for the monetary union to be dismantled. I read the review of one of the books on Amazon and it said “As serious as euroscepticism can get”. This was from a guy called Billy! The role of head of the budget committee in the lower house was given to Claudio Borghi who is an economic adviser for the League party and one that has been involved in the mini-bots discussion which as a reminder started the serious sell-off a month ago. Italian 2 and 10yr yields rose +26.9bp and +18.1bp respectively while the 10y Bunds / BTPs spread also rose 22bp to 239bp.

    Elsewhere the US Supreme Court announced that it will allow states and local government to start collecting sales taxes from internet retailers that don't currently charge. Wayfair Inc. initially dropped -9.5% following the court decision but pared back losses to close -1.6% after the company said it doesn’t expect “any noticeable impact”. Other online retailers also pared back declines as investors considered whether the additional taxes would materially shift consumers’ buying behaviour, in part as the States were already collecting c75% of the potential taxes from online purchases as per the Government Accountability Office. In the end, eBay (-3.2%) and Amazon (-1.1%) both fell while bricks and mortar retailers were in demand yesterday (Walmart +0.7%; Best Buy Co. +1.8%).

    With all this, it was a risk off day (S&P 500 -0.63%) with the Dow (-0.80%) down for the 8th day in a row. The last 8-day negative run was March 2017 but there’s only been 1 other outside of that (2011) since the GFC. The last 9-day slump was back in 1978 so we’ll see if today matches that! Back in Europe, the DAX was weighed down by car marker stocks (-1.44%) while Italy’s FTSEMIB led the decline following the political changes mentioned earlier (-2.02%). Meanwhile credit spreads widened with Main and Crossover up 2.8bp and 6.5bp respectively. Elsewhere, core government bonds were also boosted by the risk off tone (UST10y yields -4.2bp; Bunds -4.2bp) while other peripherals underperformed along with Italy (Spain +7.3bp; Portugal +4.6bp).

    Gilts (-2bps) were caught in the crossfire between the risk off and a hawkish BoE meeting yesterday. The MPC’s decision to keep cash rates steady was widely expected, but it was slightly surprising that BoE’s Chief Economist Haldane dissented for the first time since 2014 and voted for a rate hike at yesterday’s meeting (vote of 6-3). The minutes indicated that the Bank regards recent data as consistent with its judgment that the very weak GDP growth reported in Q1 will prove temporary and that “all members agreed that the domestic labour market had remained strong, and there was widespread evidence that slack was largely used up. Pay and domestic cost growth had continued to firm broadly as expected”. Following the meeting, the Bloomberg implied odds of a rate hike in August jumped +20ppt to 56% while Sterling also reversed an earlier drop to end +0.52% higher against the dollar. It’s also worth highlighting that the MPC voted to change guidance on when they will consider reducing the stock of debt purchased in QE – from until the BoE rate reached 2% to 1.5%. Later in the day, it was also announced that the BoE will get an extra £1.2bn capital injection to allow the Bank to respond more immediately to any new financial crisis.

    Ahead of Turkey’s election for this Sunday, DB’s Kubilay Ozturk noted that in its inaugural dual elections, Turkey will be voting to elect 600 members to the National Assembly and a new President. The latest polls point to the AKP +MHP alliance winning a majority in the Parliament and Erdogan retaining his Presidential mandate in the second round. That said, Kubilay highlights that momentum behind the opposition has picked up since mid-May, pointing to a non-negligible possibility of non-AKP majority in the Parliament confronted with an Erdogan Presidency. Another possibility is full opposition victory in both elections, which seems a low likelihood event, based on current poll data. History suggests markets favour political clarity following the ballot, as manifested in the knee-jerk reaction after the June 2015 (negative) and the November 2015 (positive) elections. Secondly, markets also look for clarity in macro policy outlook, depending on starting conditions. Dissipation of political uncertainty and advent of policy clarity are necessary but not sufficient. A sustainable rally requires accommodative global conditions, too. See his report for more details.

    Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the macro data was broadly softer than expectations. The June Philly Fed business index fell 14.5pts mom to 19.9 (vs. 29  expected) - the lowest level since November 2016. In the details, the new orders index dropped from the May reading which was at a 45 year high (-22.7pts mom to 17.9), while both the prices paid and prices received indices moderated a little but remained at elevated levels. Meanwhile, firms reported order backlogs were diminishing and were less upbeat about business prospects in the next six months. The May CB leading index was also below market (0.2% mom vs. 0.4% expected) while the April FHFA house price index was up 0.1% mom (vs. 0.5% expected), leading to annual growth of 6.4% yoy. Elsewhere, the weekly initial jobless claims (218k vs. 220k expected) and continuing claims (1,723k vs. 1,710k expected) were broadly in line and remain at low levels, suggesting further tightening of labour market conditions.

    The Euro area’s June consumer confidence index was below consensus at -0.5 (vs. 0) but still resilient considering the 10y average reading was -13. France’s June manufacturing confidence index was steady mom and above market at 110 (vs. 108 expected) while the business confidence reading was in line at 106. Over in the UK, the May public sector net borrowing (ex-banking groups) was lower than expected at £5bn (vs. £6.3bn).

    Looking at the day ahead, the big data highlight is the release of the flash June PMIs around the world. In Europe and the US we'll receive the manufacturing, services and composite prints. Away from that the final Q1 GDP revisions will  be made in France. The Oil market will also be in focus with the OPEC meeting in Vienna (continuing into Saturday).

    Published:6/22/2018 6:24:00 AM
    [Markets] Dow set to rally after 8-session skid blamed on trade fears Red Hat shares plunge premarket after guidance disappointsCarMax is on the earnings docket, and the Dow industrials finally may see an up day. U.S. stock futures rose early Friday, suggesting the Dow could put an end to its eight-session losing streak. Dow Jones Industrial Average futures (YMU18.CBT)rose by 117 points, or 0.5%, to 24,589, while S&P 500 futures (ESU18.CME)added 13.25 points, or 0.5%, to 2,765.75. Published:6/22/2018 4:53:04 AM
    [Markets] Market Snapshot: Dow set to rally after 8-session skid blamed on trade fears U.S. stock futures rise early Friday, suggesting the Dow could put an end to its eight-session losing streak. But the main equity benchmarks still look set for weekly losses, thanks to recent selling that has been pinned on trade-related worries.
    Published:6/22/2018 4:53:04 AM
    [Markets] Dow Set to Snap 8-Day Losing Streak as Stocks Recover, But Trade War Lingers Global stocks mixed as investors count trade war costs, await OPEC decision. Oil grinds higher as reports say Russia and Saudi Arabia back a 1 million bpd output increase. Wall Street futures point to stronger open as Dow looks to snap 8-day losing streak. Published:6/22/2018 2:52:13 AM
    [Markets] Asia Markets: Asian markets retreat as trade worries weigh Asian markets dipped lower in early Friday trading, as the Dow posted its eighth straight decline and trade tensions between the U.S. and China remained high.
    Published:6/21/2018 10:22:39 PM
    [Markets] Dow Sinks for Eighth Straight Session; Intel's CEO Departs -- ICYMI U.S. equities fell Thursday, June 21, as investors monitor escalating trade tensions between the U.S. and China. The Dow Jones Industrial Average closed lower, extending its losing streak to eight days, led by Caterpillar Inc. Intel was top of mind for most investors after the company's CEO Brian Krzanich suddenly resigned. Published:6/21/2018 7:20:53 PM
    [Markets] U.S. Stocks Retreat as Trade Tensions Linger The Dow Jones Industrial Average fell Thursday, notching its longest streak of consecutive declines in more than a year as trade friction between the U.S. and China weighed on stocks. The consequences of escalating trade tensions became clearer after German auto maker Daimler AG issued an unexpected profit warning late Wednesday, saying Chinese retaliatory import duties on vehicles built in the U.S. would crimp sales and earnings. Published:6/21/2018 6:50:36 PM
    [Markets] Five Things You Need to Know to Start Your Day Trade concerns continued pummeling global markets, even as U.S. officials brushed off concerns, the #MeToo movement claimed another corporate titan and Xiaomi aims high with its IPO. The S&P 500 Index extended its slump and the Dow Jones Industrial Average careened toward its eighth straight drop. Italian bonds and stocks slumped after two prominent critics of the European Union were given key posts in parliament. Commerce Secretary Wilbur Ross disputed concerns raised by Federal Reserve Chairman Jerome Powell and others that U.S. companies are becoming so anxious about the prospect of a trade war, they’re postponing investment and hiring decisions. Published:6/21/2018 6:20:31 PM
    [Markets] Dow extends losing streak to 8 days, longest stretch since March 2017 Dow extends losing streak to 8 days, longest stretch since March 2017 Published:6/21/2018 3:21:50 PM
    [Markets] Dow Ties Worst Losing Streak In 40 Years

    This is easy...

    The brief respite for Chinese stocks disappeared overnight...

    And it appears to be finally leaking into American stock markets too...

     

    The Dow closed red... again... for the 8th day in a row...

     

    There has not been a longer Dow losing streak since 1978!!

     

    The Dow is down over 1% YTD while Nasdaq is up almost 12%...

     

    This is the worst year-to-date divergence between Dow/Nasdaq since 2009...

     

    Is the short-squeeze over? "Most Shorted" stocks suffered their biggest down day since April 6th today (but even then they tried to squeeze the open)...

    NOTE - this was only the 2nd down day for the "most shorted" stocks in June (down 3 of the last 21 days)

     

    Another day, another dip in FANG stocks bought (though ended lower on the day)...

     

    Amazon was down but nothing like as bad as many of the other online retailers (after SCOTUS' decision)...

     

    VIX traded back above 15 today...

     

    As we suspect the vol term structure is starting to wake up to the looming reality of the actual imposition of the trade tariffs and retaliations...

     

    Treasuries were bid today with yields down 3-5bps, pushing all yields lower on the week...

     

    The Dollar Index took a dive early on (but cable was the big gainer that led the way in the majors on the back of a hawkish BoE)...

     

    While the drop felt notable (it was the biggest daily drop in June) - compared to last week's ECB surge it was a storm in a teacup...

     

    Longer-term it seems the dollar index is stuck in resistance...

     

    Cryptos leaked lower all day today, no major catalyst evident...

     

    On the day copper was the biggest loser with WTI, gold, and silver unchanged; but on the week so far, quite a divergence...

     

    WTI ended the day unchanged after testing down towards a $64 handle and above a $66 handle ahead of OPEC...

     

    Notably, the massive discounts for Permian crude tumbled today...

     

    And as we reflect on the oil complex ahead of tomorrow's OPEC decision, we thought this might be useful...

     

    Published:6/21/2018 3:21:50 PM
    [Markets] Dow Logs Eighth Straight Drop as Stocks Slump Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average traded lower Thursday marking its eighth straight daily decline, the longest losing streak since March 2017. Intel Corp. Published:6/21/2018 3:21:50 PM
    [Markets] Trade concerns could give the Dow its longest losing streak since the 70s The Dow could soon do something it hasn’t done in 40 years. But it’s a milestone most investors won’t be happy about. Published:6/21/2018 12:48:44 PM
    [Markets] Market Extra: Trade concerns could give the Dow its longest losing streak since the 70s The Dow could soon do something it hasn’t done in 40 years. But it’s a milestone most investors won’t be happy about.
    Published:6/21/2018 12:48:44 PM
    [Markets] Trade Wars And Charles Dow's Best Saying

    Authored by Nicholas Colas via DataTrekResearch.com,

    “The one fact pertaining to all conditions is that they will change.” 
    - Charles Dow

    We start with that quote because today’s note is about the Dow Jones Industrial Average and, of course, about change. The easy bit first: GE is leaving the Dow after being there for 111 years – longer than any other company. The company replacing it, Walgreens Boots Alliance, is all of 4 years old in its current form. At a closing price of $65, it will have roughly 5x more influence on the Dow than GE with its $13 price.

    Why Walgreens and not Amazon or Google? Ironically, it is because Charles Dow’s namesake market measurement didn’t anticipate change. Specifically, he never envisioned a world where individual stock returns would be so asymmetric that one group (Tech) would see share prices rise to hundreds of dollars while the rest of the market saw share prices remain around $50. So he made his index price-weighted…

    Big mistake, that, because since Google and Amazon trade for $1,168 - $1,735 they will never see the inside of the Dow. Remember that the Dow’s largest weighting is Boeing, with a $340 share price and a 9.8% weighting. Google and/or Amazon would swamp the Average.

    Moreover, with the rise of indexing, companies have less pressure to split their stocks so that’s probably not going to happen with Google or Amazon. Not only is single-stock investing less popular, but also exchange traded/passive funds actually like high priced stocks since US trading commissions are paid per share. Fewer shares for the same trade size equates to lower costs.

    Of course the other reason the Dow was in the news today was its 13th trip to the unchanged line on the year.

    That’s notably worse than the S&P 500, which is still up 3.3% on the year. We pulled the data on what stocks have represented this tug of war in 2018. Here’s the data:

    • 3M (down 15.3% YTD) is responsible for the biggest hit to the Dow in 2018, at 224 points. This is 28% of the Average’s underperformance versus the S&P 500. Worth noting: 3M is one of the most international companies in the Dow, with just 39% of revenues coming from domestic sources.
    • The next 3 losers for the year represent 389 points of headwind, or 49% of the Dow’s slippage to the S&P 500. They are Goldman Sachs (down 10.4% YTD, 174 points), Johnson & Johnson (down 12.3%, 112 points) and Caterpillar (down 9.1% YTD, 103 points).
    • The remaining quarter (23% really) of the Dow’s underperformance to the S&P comes from Proctor & Gamble (down 16.9%, 98 points) and Walmart (down 15.3%, 97 points).

    So what does this Dow math lesson tell us about equity market sentiment as we come up on the half-year mark? Three observations:

    #1. Home is where the heart and stock market returns are. We mentioned that 3M generates just 39% of its revenues from the US. The numbers for: JNJ (48% non-US revenues), CAT (54% non US), and PG (55% non-US sales). As for Walmart, although its revenues are still 73% US-based, much of what it sells is obviously made elsewhere.

    In fact, you can draw a YTD stock price performance line from the zero-return Dow’s heavy non-US exposure to the S&P 500 (39% non-US) at +3.3% to the much more domestic Russell 2000, up 10.3%.

    #2. Trade war concerns are one explanation, and certainly a good one for the Dow’s flat-line in 2018 but the S&P 500’s performance needs a few words of explanation. The Tech sector here has both the highest international revenue exposure (58%) in the index and the best performance (+11.7%). Why?

    By virtue of China’s home grown tech giants (Tencent, Alibaba, Baidu) and the US’s own leaders (AAPL, GOOG, FB, etc), there is little overlap between the two countries and that’s proving to be a powerful positive for US large cap Tech stocks. Yes, Apple has China exposure but Facebook and Google are both banned. And, of course, Apple’s largest manufacturing partner is China, which helps.

    #3. There seems little doubt that the trade-war-of-words between the US and China will only get worse but we take some comfort in Charles Dow’s quote. Things will change, and eventually for the better. But for now, big cap Tech is (and will remain) a popular parking lot for equity capital.

    Published:6/21/2018 11:20:08 AM
    [Markets] Stocks Tumble as Dow Heads for Eighth Straight Drop Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average traded lower Thursday. If the index finishes the day in the red it would mark its eighth straight daily decline, matching the longest losing streak since March 2017 Intel Corp. Published:6/21/2018 10:48:15 AM
    [Markets] US STOCKS-Futures edge lower as trade tensions mount U.S. stock index futures dipped on Thursday as the impact of an ongoing trade spat between the United States and China began to appear in company forecasts, while a media report said Beijing could target U.S. blue-chip firms. S&P 500 e-minis were down 3.25 points, or 0.12 percent and Nasdaq 100 e-minis were down 3 points, or 0.04 percent. China could strike at members of the Dow Jones Industrial Average if U.S. President Donald Trump keeps exacerbating tensions over trade, state-controlled Chinese tabloid The Global Times said in a commentary. Published:6/21/2018 6:47:03 AM
    [Markets] Dow shapes up for 8th loss in a row as trade gloom lingers Nasdaq-100 futures drop following Nasdaq Composite’s record closeThe Nasdaq Composite has gained 12% so far this year. U.S. stock futures lost ground early Thursday, putting the Dow Jones Industrial Average at risk of an eighth down session in a row. Trade-related tensions have been weighing on global markets, though the tech-laden Nasdaq Composite still managed to score an all-time closing high in the prior session. Published:6/21/2018 4:46:50 AM
    [Markets] Market Snapshot: Dow shapes up for 8th loss in a row as trade gloom lingers U.S. stock futures lose ground early Thursday, putting the Dow Jones Industrial Average at risk of an eighth down session in a row.
    Published:6/21/2018 4:46:50 AM
    [Markets] China could strike back at Dow-listed firms over trade: Global Times China could hit back at U.S. firms listed on the Dow Jones Industrial Average if U.S. President Donald Trump keeps exacerbating tensions with China over trade, state-controlled Chinese tabloid The Global Times said on Thursday. Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China follows through with retaliation against his previous targeting of $50 billion in imports. The Dow, which counts Boeing Co, Apple Inc and Nike Inc among its constituents, ended down 0.17 percent on Wednesday. Published:6/20/2018 11:45:59 PM
    [Markets] China could strike back at Dow-listed firms over trade - Global Times China could hit back at U.S. firms listed on the Dow Jones Industrial Average (.DJI) if U.S. President Donald Trump keeps exacerbating tensions with China over trade, state-controlled Chinese tabloid The Global Times said on Thursday. Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China follows through with retaliation against his previous targeting of $50 billion in imports. The Dow, which counts Boeing Co (BA.N), Apple Inc (AAPL.O) and Nike Inc (NKE.N) among its constituents, ended down 0.17 percent on Wednesday. Published:6/20/2018 9:08:09 PM
    [Markets] China could strike back at Dow-listed firms over trade - Global Times China could hit back at U.S. firms listed on the Dow Jones Industrial Average if U.S. President Donald Trump keeps exacerbating tensions with China over trade, state-controlled Chinese tabloid The Global Times said on Thursday. Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China follows through with retaliation against his previous targeting of $50 billion in imports. The Dow, which counts Boeing Co, Apple Inc and Nike Inc among its constituents, ended down 0.17 percent on Wednesday. Published:6/20/2018 8:45:29 PM
    [Markets] Daimler Cuts Outlook, Blames Trump Trade War... Who's Next?

    While US equity markets are indefatiguable (if you don't look at the Dow), amid a record spike in earnings expectations - that will never go down again... ever - it appears, Daimler may have just become the first to break the narrative (as real world trade war impacts come home), lowering its earnings potential for the year, citing increased import tariffs for US vehicles into the Chinese market for fewer than expected SUV sales and higher than expected costs.

    Full Statement from Daimler:

    Today, due to current developments, Daimler AG has made a new assessment of the earnings potential for the year 2018.

    From today's perspective, the decisive factor is that, at Mercedes-Benz Cars, fewer than expected SUV sales and higher than expected costs - not completely passed on to the customers - must be assumed because of increased import tariffs for US vehicles into the Chinese market.

    This effect cannot be fully compensated by the reallocation of vehicles to other markets. As another decisive factor, a negative effect on earnings is to be expected in the second half of the year in connection with the new certification process WLTP (Worldwide Harmonized Light Vehicles Test Procedure). Furthermore, earnings at Mercedes-Benz Vans are affected in connection with the recall of diesel vehicles. Additionally, earnings at Daimler Buses are negatively affected by the declining demand in Latin America.

    As a result, Daimler has now the following expectations for EBIT (the operating result EBIT represents earnings before interest and taxes) in the year 2018:

    • Mercedes-Benz Cars: slightly below the previous year,

    • Mercedes-Benz Vans: significantly below the previous year's level,

    • Daimler Buses: in the magnitude of the previous year and

    • Daimler Group: slightly below the previous year's level.

    And just like that the smoke and mirrors of unshakable EPS growth are blown away and smashed as the reality of escalating trade war rhetoric bubbles up to the real world with automakers the first to start cutting EPS expectations.

    Here's who else will be next as the CEOs and investors come to terms with the reality of trade wars.

    Lastly, as a reminder,  the biggest risk is that neither the US, nor China, is so far willing to indicate of a potential "out" to this classical tit-for-tat escalation, which in turn means that the risk of an all-out trade war, one which expands beyond merely the US and China, is growing.

    As a result of escalating trade war concerns, Barclays recently estimated the impact in the worst-case scenario of an all-out trade war for US companies across sectors and US trading partners.

    In a nutshell, the bank calculated that an across-the-board tariff of 10% on all US imports and exports would lower 2018 EPS for S&P 500 companies by ~11% and, thus, completely offset the positive fiscal stimulus from tax reform.

    Barclays concludes that although protectionism was one of the four arrows of "Trumponomics," it did not materialize during the administration’s first year in office, when equity valuations reached an all-time high as sentiment improved with the market’s focus on the other three “progrowth” arrows – tax cuts, deregulation, and fiscal expansion. The risk here is that an unleashing of anti-trade policies and potential of a trade war could reverse the upward trend in valuations, which is already showing up in The Dow... but being ignored by Nasdaq...

    Published:6/20/2018 6:44:04 PM
    [Markets] [$$] What About Amazon? Dow Industrials Dumping GE for Walgreens Reflects Index’s Dilemma The Dow Jones Industrial Average has ejected numerous blue-chip industrial companies over the past decade in an effort to adapt a 19th-century index to a 21st-century economy. That path has become increasingly ... Published:6/20/2018 6:44:03 PM
    [Markets] Dow Gets Swept Into Nasty Reversal Even as Nasdaq Posts New Record The Dow declined again on Wednesday but the Nasdaq closed at a new record high. increased its bid for Twenty-First Century Fox Inc. Wall Street also was processing comments from Federal Reserve Chairman Jerome Powell, who said at a European Central Bank conference in Portugal that the central bank was likely to gradually increase interest rates. Published:6/20/2018 6:15:58 PM
    [Markets] How Companies Fare After Being Kicked Out---or Added---to the Dow Managers at most U.S. publicly traded companies would likely give their eye teeth to have their companies’ shares added to the venerable Dow Jones Industrial Average, which first was published in its current form in 1896. S&P Dow Jones Indices, which publishes the index, said Tuesday that General Electric (GE) will be removed on June 26 before trading opens. It will be replaced by Walgreens Boots Alliance (WBA). Published:6/20/2018 5:43:44 PM
    [Markets] Nasdaq notches record; Dow extends losing streak to 7 days Small-cap Russell 2000 ends at all-time highIt’s been an up-and-down June for the Dow. U.S. stock-market indexes closed mostly higher Wednesday, though the Dow Jones Industrial Average posted its seventh consecutive daily decline, its longest losing streak since March 2017. The Nasdaq gains were fuelled by a rally in biotechnology stocks, with the iShares Nasdaq Biotechnology ETF (IBB) gaining 1.7%. Published:6/20/2018 3:44:17 PM
    [Markets] Big-Tech Blasts Higher As Dow Slumps To Worst Losing Streak In 15 Months

    As long as you only look at small caps and big tech...

    Since Trump escalated the trade wars last week, futures show the divergence between the Nasdaq and Dow best...

     

    And while Nasdaq and Small Caps surged - on yet another short-squeeze - The Dow struggled to stay green all day...

     

    The Dow is down 7 days in a row - the longest losing streak since March 2017...

     

    Another day, another short-squeeze... (13 of the last 15 days have seen "most shorted" stocks rise)...

     

    This is the biggest short-squeeze in the history of the data...as "most-shorted" stocks have led the recent buying panic...

     

    US Tech stocks continue to diverge from... well... everything...

    FANG soared...

    Notably outperforming Financials once again...

     

    Treasury yields rose modestly (1-3bps) once again today - back to practically unchanged on the week...

     

    10Y TSY Yield rose today to unchanged on the week...

     

    The Dollar Index traded sideways once again, still taking a breather from the impact of Draghi last week...

     

    Cryptocurrencies managed to bounce back (on Tether headlines) today after Bithumb hack headlines overnight...

     

    WTI managed gains after a big surprise crude inventory draw but PMs and copper lagged...

     

    Gold buys the most platinum ever...

     

    Finally, Exceptional USA leads the world...

     

     

     

     

     

     

     

     

    Published:6/20/2018 3:13:47 PM
    [Markets] Nasdaq closes at record high; Dow extends losing streak to 7 sessions Nasdaq closes at record high; Dow extends losing streak to 7 sessions Published:6/20/2018 3:13:46 PM
    [Markets] FAANGs power Nasdaq to record high; Dow remains under pressure The so-called FAANG stocks rose, with Facebook (FB.O) up 3.1 percent and Alphabet (GOOGL.O) and Amazon.com (AMZN.O) gaining nearly 2 percent. Right now the focus is on M&A," said Art Hogan, chief market strategist at B. Riley FBR in New York. At 12:44 a.m. EDT the Dow Jones Industrial Average (.DJI) was up 12.10 points, or 0.05 percent, at 24,712.31, the S&P 500 (.SPX) was up 10.91 points, or 0.39 percent, at 2,773.50 and the Nasdaq Composite (.IXIC) was up 75.67 points, or 0.98 percent, at 7,801.25. Published:6/20/2018 2:13:55 PM
    [Markets] Dow Fluctuates, Nasdaq Strikes Record High The index has closed down for six straight sessions, the Dow's longest losing streak since March 2017. increased its bid for Twenty-First Century Fox Inc. Wall Street also was processing comments from Federal Reserve Chairman Jerome Powell, who said at a European Central Bank conference in Portugal that the central bank was likely to gradually increase interest rates. Published:6/20/2018 1:43:04 PM
    [Markets] US STOCKS-Media stocks, techs boost S&P; Nasdaq hits record high A jump in technology and media stocks lifted the S&P 500 on Wednesday and pushed the Nasdaq to a record high, but the Dow remained under pressure from an escalation in the U.S.-China trade spat that has slammed global markets. The S&P 500 media index rose 1.1 percent with all its 14 members in positive territory. Right now the focus is on M&A," said Art Hogan, chief market strategist at B. Riley FBR in New York. Published:6/20/2018 11:12:17 AM
    [Markets] Dow threatens 7-day losing streak; tech rally sends Nasdaq to another record U.S. equity benchmarks mostly rose late-morning Wednesday, though the Dow threatened to extend its recent losing streak to a seventh straight session, while gains in technology stocks helped to lift the broader market. The Dow Jones Industrial Average (^DJI) fell 58 points, or 0.3%, to 24,635, erasing an early advance. Were the Dow to extend that stretch to seven, it would still represent the longest since that month. Published:6/20/2018 10:12:07 AM
    [Markets] Dow takes early steps toward snapping six-session losing streak Dow takes early steps toward snapping six-session losing streak Published:6/20/2018 9:11:47 AM
    [Markets] GE shares down in premarket, and Walgreens up, after news of Dow swap GE shares down in premarket, and Walgreens up, after news of Dow swap Published:6/20/2018 7:41:39 AM
    [Markets] Correction? Why stocks actually look set to rally to new highs Dow futures have a small spring in their step today, hinting at a comeback after the blue-chip gauge’s six-session skid. Or the nascent rally could stem from trade-war fears easing, though MarketWatch’s Mark Hulbert doesn’t buy that kind of explanation. “On the daily ‘500’ chart, note the backtest of the breakout area near 2,740,” the Arbeter Investments president writes in a note to clients, as he shares the illustration below. Published:6/20/2018 7:11:21 AM
    [Markets] Global Markets, US Futures Rebound As Trade War Panic Fades

    After 6 consecutive declines in the Dow Jones, the longest stretch since March 2017, and erasing all of 2018’s gains, the cash index is finally set for a rebound, trading some 130 points higher in the premarket, as trade war panic fades for now (even if the list of what can go wrong next is long). As a result, the market snapshot this morning is a sea of green...

    ... with S&P futures trading near session highs.

    More Dow strength was assured after yesterday's decision to replace Dow Jones stalwart General Electric with Walgreens, even if the expulsion of the "last true industrial" stock was not that surprising in light of its collapsing performance...

    ... and 51% drop in EPS over the past year.

    Source: @Schuldensuehner

    With lack of new trade war rumblings, traders were quick to add to risk around the globe, and European stocks also rose adding to momentum from Asia, as the panic surrounding a potential global trade war showed signs of easing. The European rally was broad-based with every sector advancing in the Stoxx Europe 600 Index, which jumped following three days of losses.

    Earlier in Asia, shares in Japan and China both reversed declines, even though the Shanghai Composite Index was unable to rebound above the 3,000 level it fell through on Tuesday. The Shanghai Composite gained 0.5%, the most since June 12, after falling as much as 1.2% in morning; Shenzhen Composite Index likewise advanced 1.4% higher, while Hong Kong’s Hang Seng Index added 1.4%, and the Hang Seng China Enterprises Index +0.9%. Consumer staples and health-care stocks lead gains in both markets; firms’ reliance on domestic market makes them largely immune to a China-U.S. trade war.

    China's 10-year treasury futures dived near 0.5%, the biggest drop this month, due to profit-taking amid improving risk sentiment. It surged 0.4% on Tuesday as China’s stock market crashed.

    Source: @YuanTalks

    There were some fireworks in FX trading, where the euro whipsawed as the market’s knee-jerk reaction to comments by ECB policymakers came amid otherwise muted flows. Ahead of the ECB's Sintra conference conclusion later today, the EUR briefly erased an early loss after Bank of France Governor Francois Villeroy de Galhau said in a letter released Wednesday that the first ECB interest-rate rise “could come as of the summer of 2019.” Villeroy later specified that his comments were in line with the Governing Council’s rate guidance issued after its June 14 meeting.

    The Euro then sharply tumbled to a 1.1537 day low after Governing Council member Ewald Nowotny highlighted that monetary policy divergence is helping to weaken the currency against the dollar, and that the ECB's slow policy normalization is fueling the common currency’s weakness against the dollar, suggesting that it was the ECB's purpose to weaken the EUR. This is what Nowotny said:

    "What we also see, is that we have a development of the exchange rate that’s leading to a significant weakening of the exchange rate against the dollar. That’s surely primarily a development of the interest-rate policy, where the ECB wants to keep its rates on hold at least until summer of next year, while the U.S. has announced rate hikes, so that the difference between European and U.S. rates becomes stronger." 

    The EURUSD then subsequently steadied near 1.1560 as options-related bids above 1.1500 kept absorbing selling pressure while offers according to three traders quoted by Bloomberg.

    Elsewhere, the onshore yuan jumped after the People’s Bank of China set its daily reference rate at a stronger level than all analyst and trader projections.

    Separately, the Bloomberg Dollar Index reversed earlier Asian-session losses following buying after the London open, and was fractionally higher on Wednesday. Part of the dollar strength came from a weakening pound ahead of a second vote on whether the U.K. Parliament should get a say on what happens if there’s no deal at the end of the Brexit talks with the EU. Sterling dropped 0.2% to touch 1.3148, a fresh seven-month low. As Bloomberg explains, if the House of Commons decides in favor of Parliament having a “meaningful vote” it could have an impact on Prime Minister Theresa May’s political future and the path Brexit negotiations take.

    The relative calm spread to emerging markets, which had been hit hard in recent weeks, but developing-nation risk assets rose on Wednesday, paring their plunge a day earlier. And while there were no major outliers in the FX space, Turkey’s lira fell again, before an election this weekend.

    US Treasury yields were unchanged at 2.896%. Germany’s 10Y yield rose less than 1bp to 0.38%, the first advance in more than a week, while Britain’s 10Y Gilt yield also gained 1 bp to 1.283%, also its first advance in a week. Meanwhile, Italian 10-year yields dropped 2 bps to 2.535%, the lowest in almost four weeks.

    Commodities are trading mixed with oil extending gains as energy ministers emerge ahead of the key OPEC+ meeting later this week. WTI reclaimed the USD 65/bbl overnight, and is now eyeing USD 65.50/bbl while Brent trades north of USD 75.50/bbl. Yesterday’s API inventories printed a larger than expected draw, in which energy prices gradually edged higher in the aftermath. In terms of comments, the Russian Deputy Energy Minister expressed the country is ready to talk about all OPEC+ proposals and they expect to reach an agreement in terms of an ease in output cuts by June 23rd, while the Nigerian Energy Minister stated all options are on the table, however it is too early to tell if they will support a hike in production. An Iranian official said Iran will only accept production increases to push compliance to 100% on the condition that producers stick to their quotas. Elsewhere, oil output in Libya dropped to 700k BPD from just over 1mln BPD amid conflict in the region.

    Moving onto the metals complex, gold (-0.3%) trades lower on the day, subdued by a firmer dollar. London copper futures bounced off 3-week lows following a near-2% loss during Tuesday’s session although escalating trade tensions cap any recovery in risk appetite. Elsewhere, iron ore futures trimmed losses amid a 5% drop in Chinese iron ore outputs for May while Shanghai steel rebounds after slumping nearly 3% in yesterday’s session.

    On today's calendar, expected data include MBA mortgage applications, current account, and existing home sales. Micron and Actuant are among companies reporting earnings. ECB President Draghi, Fed Chair Jerome Powell, RBA Governor Philip Lowe take part in a policy panel in Sintra, Portugal.

    Market Snapshot

    • S&P 500 futures up 0.3% to 2,775.50
    • STOXX Europe 600 up 0.7% to 385.78
    • MXAP up 0.6% to 169.70
    • MXAPJ up 0.7% to 552.15
    • Nikkei up 1.2% to 22,555.43
    • Topix up 0.5% to 1,752.75
    • Hang Seng Index up 0.8% to 29,696.17
    • Shanghai Composite up 0.3% to 2,915.73
    • Sensex up 0.5% to 35,476.49
    • Australia S&P/ASX 200 up 1.2% to 6,172.58
    • Kospi up 1% to 2,363.91
    • German 10Y yield rose 0.9 bps to 0.382%
    • Euro down 0.3% to $1.1560
    • Italian 10Y yield rose 0.3 bps to 2.292%
    • Spanish 10Y yield fell 1.2 bps to 1.229%
    • Brent futures up 0.4% to $75.41/bbl
    • Gold spot down 0.1% to $1,273.00
    • U.S. Dollar Index up 0.2% to 95.20

    Top Overnight News from Bloomberg

    • The U.S. economy is booming this quarter as tax cuts power consumers and businesses. Yet risks are mounting that the high will be short-lived
    • China’s direct investment in the U.S. slumped in the first half of this year, amid deteriorating economic relations between the two nations, according to research firm Rhodium Group LLC
    • The European Union is on course to hand dozens of U.K.-based companies a pre-Brexit tax bombshell, according to people familiar with a state-aid probe that could lead to bills exceeding 1 billion pounds ($1.3 billion)
    • The gap between real barrels and those that exist only on paper means that the impact on the market of any agreement between the OPEC and its allies to increase supply is likely to be about one-third smaller than the headline announcement, according to Bloomberg calculations
    • Iran put itself on a collision course with Saudi Arabia at this week’s OPEC meeting, rejecting a potential compromise that would allow a small oil-production increase to appease energy consumers

    Asia stocks traded mixed as the region attempted to compose itself from the prior day’s sell-off and after some late reprieve on Wall St. where the majors still finished negative but well off worst levels, aside from the DJIA which underperformed as industrials and materials suffered the brunt of the heightened trade tensions. ASX 200 (+1.0%) was the biggest gainer and reached its highest intraday level in a decade with upside led by its largest weighted financials sector, while Nikkei 225 (+0.6%) traded indecisive and at the whim of a choppy currency. Hang Seng (+0.3%) swung between gains and losses, while Shanghai Comp. (-0.6%) remained downbeat on the tariff-threat overhang. Finally, 10yr JGBs are marginally lower with demand sapped by the improved picture in the region, although downside was also limited amid the indecision throughout most of the session in Japan and with the BoJ present in the market for JPY 690bln of JGBs in the belly to super-long end.

    Top Asian News

    • Thailand Bucks Southeast Asia Trend by Keeping Rates on Hold
    • Ackman-Backed Platform Is Said to Discuss Unit Sale With UPL
    • Goldman Sachs Hires Veteran Dealmaker for China Investment Bank
    • China’s Investment in the U.S. Is Collapsing as Trade War Flares
    • China Stocks Bear Market to Last Next 12 Months: Morgan Stanley

    European equities are recovering some of the losses seen yesterday as trade war news flow slows. The FTSE 100 is the outperforming bourse, coming off of month lows hit in Tuesday’s trade, as the GBPUSD extends losses at 6 month lows. The DAX is currently underperforming, with automotive names hit (Continental (-0.6%), Daimler (-0.5%)).Volkswagen (+0.8%) is bucking the trend, however, following an announcement of a possible alliance with Ford to develop and make transporter vans as according to sources. Imperial Brand’s (+3.0%) naming as a top pick at Liberum has pushed the co. to the top of the FTSE 100. Dialog Semiconductor (+2.2%) confirmed it is in discussions on a potential acquisition of Synaptics and is to proceed with due diligence.

    Top European News

    • U.K. Companies Said to Face Pre-Brexit Tax Bombshell From EU
    • Nowotny Says Euro Weakening on Fed-ECB Policy Path Differences
    • The Macron-Merkel Euro Plan Is Released. Here’s How It Stacks Up; Franco-German Plan Adds to Pressure on Banks to Tackle Bad Debt
    • Ferragamo Plunges After Controlling Family Sells Shares

    Commodities are trading mixed with oil extending gains as energy ministers emerge ahead of the key OPEC+ meeting later this week. WTI reclaimed the USD 65/bbl overnight, and is now eyeing USD 65.50/bbl while Brent trades north of USD 75.50/bbl. Yesterday’s API inventories printed a larger than expected draw, in which energy prices gradually edged higher in the aftermath.  In terms of comments, the Russian Deputy Energy Minister expressed the country is ready to talk about all OPEC+ proposals and they expect to reach an agreement in terms of an ease in output cuts by June 23rd, while the Nigerian Energy Minister stated all options are on the table, however it is too early to tell if they will support a hike in production. An Iranian official said Iran will only accept production increases to push compliance to 100% on the condition that producers stick to their quotas. Elsewhere, oil output in Libya dropped to 700k BPD from just over 1mln BPD amid conflict in the region. Moving onto the metals complex, gold (-0.3%) trades lower on the day, subdued by a firmer dollar. London copper futures bounced off 3-week lows following a near-2% loss during Tuesday’s session although escalating trade tensions cap any recovery in risk appetite. Elsewhere, iron ore futures trimmed losses amid a 5% drop in Chinese iron ore outputs for May while Shanghai steel rebounds after slumping nearly 3% in yesterday’s session.

    In currency markets, it was all eyes on the EUR which in contrast to broadly still waters elsewhere, some choppy price action on early ECB commentary from the Sintra symposium as the single currency rebounded further from Tuesday’s lows and towards 1.1600 vs the Usd on an apparent less dovish nuance from Villeroy vis-à-vis rate guidance (subsequently corrected to conform with consensus), but then retreated to sub-1.1540 when Nowotny noted Eur depreciation vs the Dollar on divergent interest rate policy. Technically, 1.1510 is still nearest support vs circa 1.1600 resistance and the 20DMA at 1.1686. CHF/JPY:  Both on the back foot vs a firm Greenback, as the DXY holds above 95.000 and risk sentiment overall stabilises, but with the Franc also increasingly wary about SNB intervention via Thursday’s policy meeting in the shape of NIRP and direct FX action should the Chf strengthen too much. Usd/Chf hovering above 0.9950 and Eur/Chf over 1.1500. Meanwhile, after largely irrelevant and rather dated BoJ minutes Usd/Jpy has bounced off yesterday’s base into a firmer range around 110.00, but perhaps capped by decent option expiry interest at and north of the big figure (around 2 bn from 110.00-05 and then between 110-40-50). GBP/CAD: Still hampered by Brexit and NAFTA uncertainty, with Cable struggling around a chart pivot at 1.3165, while the Loonie has extended losses vs its US counterpart to 1.3300+ and appears vulnerable or primed for a test of 12 month lows at 1.3348.

    Looking at the day ahead, the ECB’s Villeroy, Knot, Lautenschlager and Coeure will speak at separate events while at Sintra there is a policy panel featuring President Draghi, Fed Chair Powell and BoJ Governor Kuroda. So expect lots of headlines. Away from that, Germany’s PPI for May, UK CBI selling prices data for June and May existing home sales in the US will be released. Elsewhere, the OPEC International Seminar is due to begin in Vienna.

    US Event Calendar

    • 7am: MBA Mortgage Applications, prior -1.5%
    • 8:30am: Current Account Balance, est. $129.0b deficit, prior $128.2b deficit
    • 9:30am: Draghi, Powell, Kuroda and Lowe speak in Sintra, Portugal
    • 10am: Existing Home Sales, est. 5.52m, prior 5.46m; MoM, est. 1.1%, prior -2.5%

    DB's Jim Reid concludes the overnight wrap

    A quieter day at the World Cup yesterday but glancing at Russia vs Egypt last night reminded me of one of my favourite jokes. What do you call a young river in Egypt? Punchline at the end after the day ahead.

    Not even an ancient Egyptian prophet could be expected to predict the exact path of this escalating trade war at the moment. The war of words are clearly worsening though and markets are starting to move towards pricing in this not being a short-term spat. It’s fair to say they have a long way further to fall if a compromise isn’t found, but we also have to try to work out what Mr Trump’s agenda and goal is. Is this a genuine crusade to get huge concessions from the Chinese or is he making a calculated gamble ahead of the mid-terms and will be happy to get relatively small last minute concessions that he can grandstand to voters? The problem with the latter outcome is that we have 4 and half months until voters go to the polls and thus plenty of potential uncertainty. Maybe Mr Trump is a master tactician as the tax cut does give the US economy and equity markets enough strength for him to be able to avoid blinking for now. For someone that focuses on equity markets like Mr Trump, the S&P 500 is still up +3.33% in 2018 (DOW went negative YTD again yesterday though) and outperforming virtually every other main global equity market. With Chinese equities down -3.5% to -5.8% yesterday and down c0.5% this morning, his actions are creating more issues for others than himself on a relative basis at the moment. Until the pain in US markets is higher, then he may carry on with his current tactics.

    The negative trade rhetoric continued after we went to print yesterday. President Trump told the National Federation of Independent business that “we’ve got to do something about it….we’re going to make it fair”. Meanwhile, White House adviser Navarro said “China does have much more to lose than we do” and that “China may have underestimated the strong resolve of President Trump”. On the other side, China’s PBOC sought to calm market sentiment as it indicated the central bank was prepared for outside shocks and “we’ll be forward-looking, prepare relevant policies and comprehensively use all kinds of monetary policy tools”. Meanwhile, Governor Yi also said China “has room to face all sorts of trade friction”.

    This morning in Asia, markets are broadly higher with the Kospi (+1.03%), Nikkei (+0.56%) and Hang Seng (+0.41%) modestly up while Chinese bourses are down 0.1% to 0.6% as we type. Meanwhile China’s Yuan is slightly stronger vs. the dollar for the first time in three days (+0.10%) while futures on the S&P are marginally up. Elsewhere onto the latest BOJ minutes, most members said it was appropriate to stop providing the projected timing on when the 2% inflation target will be achieved. Members also agreed that even if the projected timing was reviewed in the latest meeting, the Bank’s monetary policy stance would not change at all.

    Turning back to trade tensions and its potential impacts, DB’s Zhiwei Zhang and team have updated their analysis and estimate that if the trade war escalates to include US$200bn of Chinese exports at a tariff rate of 10%, it would have a meaningful impact on both sides, with the cumulative impact on China’s GDP growth at 0.2-0.3ppt (this includes the 25% tariff on the first $50bn of exports). The products affected would likely include consumer goods, which the US government has so far been carefully trying to avoid hitting. Notably, the big question on our economists’ mind is whether China will move beyond trade and target US business interests in China. The team estimate that US firms sold US$448bn worth of goods and services to China in 2017, with c37% through trade and c63% ($280bn) through local operations by US subsidiaries in China. Overall, China has not threatened officially to target US firms in China, but it’s one to watch and a risk that our economists see as rising as trade tensions build.

    Our US economists’ base case remains that the trade conflict with China will be settled before it progresses significantly beyond the initial imposition of tariffs on $50bn of imports in both directions. However, recent events have clearly increased the risks that the conflict will begin to have measurable negative economic effects. If things deteriorate further, there is the possibility of a stock market correction in the -5% to -10% range, although if a settlement is then negotiated quickly, equities could recover and the risks to GDP mitigated. However, if a trade war gathers further momentum, it could well induce the next recession.

    As for markets yesterday, risk assets sold off while core bonds and the Yen firmed as the US / China trade tensions intensified. China’s Shanghai. Comp. dropped -3.78% to a two year low, while European bourses also weakened, with the export biased DAX (-1.22%) leading the decline. That said, the Stoxx 600 (-0.70%) and S&P (-0.40%) was relatively resilient, as the latter staged a steady recovery throughout the day while the domestically focused small- cap Russell 2000 index edged up +0.06%. Within the S&P, materials and industrials stocks that are more exposed to a potential trade war with China underperformed (GM -3.9%; Boeing -3.8%; Caterpillar -3.6%), while telco, health care and utilities stocks all advanced. Meanwhile the VIX rose for the second straight day (+8.5% to 13.35).

    Government bonds firmed on the back of flight to safety and continued dovish commentaries from the ECB. 10y yields on US treasuries fell as much as 6.6bp intraday before closing -2bp lower at 2.897%, while Bunds (-2.6bp), OATs (-2.1bp) and Gilts (-4.1bp) were also in demand. The US 2s10s spread has nudged 1.5bp lower yesterday to a fresh post GFC low of 35.2bp. In Europe, Mr Draghi seemed to reinforce the ECB’s dovish stance as he noted “we’ll remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter”. He added that “the path of very short-term interest rates that is implicit in the term structure of today’s money-market interest rates broadly reflects these principles”. Meanwhile, the ECB’s Liikanen took a step further and added that the ECB can hold rates steady even after summer 2019 “if necessary”.

    In commodities, soybeans fell to a fresh c2 year low (-2.20%) while wheat (-2.39%) and base metals (Copper -1.07%; Zinc -0.89%; Aluminium -1.12%) retreated on higher trade tensions. WTI oil also traded lower ahead of this Friday’s OPEC meeting (-1.18%). Over in FX, the US dollar index firmed for the first time in three days (+0.27%) while the Euro and Sterling fell -0.28% and -0.54% respectively.

    Away from the markets and onto “a new chapter” for the EU as termed by Germany’s Merkel. After her meeting with French President Macron, Chancellor Merkel said Germany and France has agreed to cooperate to reform the EU’s asylum system as we both “understand the topic of migration is a joint task” and “our goal remains a European answer to the challenge”. Elsewhere, the two leaders agreed to an in principle plan to strengthen the Euro area, including setting up a euro-area budget and a crisis backstop under the ESM (European stability mechanism). Overall, Ms Merkel summed it up as “an important step for Europe….we can say we’ve taken a small step along the road”. Meanwhile Mr  Macron suggested the proposal will be presented to other countries, with specifics to be worked out later this year and the plans to take effect from 2021. Staying with Europe, today sees a key Brexit vote in the U.K. House of  Commons and again covers how much say parliament should have on the final deal or if negotiations break down. If the Government loses it could have major implications for PM May so one to watch.

    Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the May housing starts rebounded more than expected, up 5% mom to 1.35m (vs. 1.31m expected). Conversely, housing permits fell more than expected at -4.6% mom to 1.30m (vs. 1.35m), but annual growth is still up 8% yoy and broadly in line with growth in recent months. In Europe, the ECB’s April current account surplus was narrower than last month at €28.4bn (vs. €32.8bn previous), but still lifted the 12-month running surplus to a new high of €410bn.

    Looking at the day ahead, the ECB’s Villeroy, Knot, Lautenschlager and Coeure will speak at separate events while at Sintra there is a policy panel featuring President Draghi, Fed Chair Powell and BoJ Governor Kuroda. So expect lots of headlines. Away from that, Germany’s PPI for May, UK CBI selling prices data for June and May existing home sales in the US will be released. Elsewhere, the OPEC International Seminar is due to begin in Vienna.

    ...........Juvenile.

    Published:6/20/2018 6:12:58 AM
    [Markets] Dow futures up over 100 points as trade fears ebb for now Stock futures pointed to a firmer start for Wall Street Wednesday, as worries about a U.S.-China trade war appeared to ebb for now, tempting some investors to wade into a market that took a hard hit on those concerns a day earlier. Investors were also looking ahead to comments by Federal Reserve Chairman Jerome Powell and existing home sales data.. Dow Jones Industrial Average futures (YMU18.CBT) rose 113 points, or 0.5%, to 24,828, while S&P 500 futures (ESU18.CME) added 9.05 points, or 0.3%, to 2,775.25. Published:6/20/2018 5:41:21 AM
    [Markets] GE Stock Gets Booted From the Dow -- but It Was Already Barely There As expected, GE stock is being replaced in the Dow Jones Industrial Average due to its low trading price, which had already made it practically irrelevant in terms of the index's performance. Published:6/20/2018 5:11:01 AM
    [Markets] Global Stocks Rebound But US-China Trade War Concerns Keep Investors on Edge U.S-China trade tensions keep investors on edge, however, and safe-have flows active. GE weakens on demotion from the Dow. Global stocks recovered Wednesday, with Asia shares boosted by the prospect of central bank support from China, even as investors remain cautious amid the deepening trade dispute between Washington and Beijing. Published:6/20/2018 4:11:20 AM
    [Markets] General Electric Kicked Out of the Dow Jones General Electric has been kicked off the Dow Jones Industrial Average, a position it has occupied for more than a century https://bloom.bg/2ysBoui #tictocnews (Source: Bloomberg) Published:6/20/2018 3:14:56 AM
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