Month: May 2018

Late last night, the New York Times dropped the latest in its saga of reports (fed to its reporters, we imagine, by a senior member of Mueller’s team, if not the man himself) about the ongoing negotiations over a long-sought presidential interview.

Trump’s legal team has been wrangling with Mueller for months over the terms of a potential presidential interview. The president himself has vacillated between toying with cooperating and steadfast refusal.

Most recently, Rudy Giuliani, the newest member of his legal team, has taken charge of the negotiations, seeking to leverage his decades-old relationship with Mueller.

Last night, the Times published a list of questions that the Mueller team had delivered to Trump’s attorneys – a list that Trump’s team had sought for months.

Here are the questions Mueller wants to ask Trump: https://t.co/SlQ3LloALL pic.twitter.com/rLMYTmRJZ7

— Amy Fiscus (@amyfiscus) May 1, 2018

Trump responded to the list of nearly four dozen questions with furious series of tweets this morning, declaring that none of the questions pointed to collusion with the Russians – the latest evidence that the whole probe is nothing more than a “witch hunt.”

So disgraceful that the questions concerning the Russian Witch Hunt were “leaked” to the media. No questions on Collusion. Oh, I see…you have a made up, phony crime, Collusion, that never existed, and an investigation begun with illegally leaked classified information. Nice!

— Donald J. Trump (@realDonaldTrump) May 1, 2018

Trump also questioned how he could be guilty of obstruction of justice if the crime he’s accused of interfering with never happened.

It would seem very hard to obstruct justice for a crime that never happened! Witch Hunt!

— Donald J. Trump (@realDonaldTrump) May 1, 2018

Then Trump turned his attention to a delegation of Trump administration officials and their coming trip to China. Trump asserted that, much like the North Korea issue and NAFTA, the US trade deficit with China “should have been fixed years ago.”

Delegation heading to China to begin talks on the Massive Trade Deficit that has been created with our Country. Very much like North Korea, this should have been fixed years ago, not now. Same with other countries and NAFTA…but it will all get done. Great Potential for USA!

— Donald J. Trump (@realDonaldTrump) May 1, 2018

Circling back to the Mueller questions, we can’t help but wonder: While the Times would have us believe that the leak came from Mueller’s office, what if Trump’s team intentionally leaked the questions to give their boss cover to finally fire the special counsel – or at least refuse to sit for an interview.

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Authored by Elizabeth Vos via Disobedient Media,

Last year, Disobedient Media broke coverage of the groundbreaking findings published by the Forensicator, which suggested that the files published by the Guccifer 2.0 persona had not been hacked from Eastern Europe, but were instead accessed locally. Recently, the Forensicator published a new analysis, the first of three articles which will comprise a series centered once again on the work of Guccifer 2.0.

The Forensicator’s article, Did Guccifer 2 Plant his Russian Fingerprints?, analyzes the first five Word documents that Guccifer 2.0 published on his WordPress.com blog the day after the DNC alleged that it had been hacked by Russian state-sponsored operatives. The first of those documents, which Guccifer 2.0 labeled 1.doc, also known as the “Trump opposition report,” received a substantial amount of corporate media attention.

One particular aspect of this document was highlighted by Ars Technica the day after Guccifer 2.0 published it; towards the end of the document there were error messages written in Russian, using the Cyrillic alphabet. These error messages were dubbed “Russian fingerprints” by Ars Technica.

Ars Technica found these “Russian fingerprints” in a PDF posted by Gawker the previous day. Apparently both Gawker and The Smoking Gun (TSG) had received pre-release copies of Guccifer 2.0’s first batch of documents; Guccifer 2.0 would post them later, on his WordPress.com blog site. Although neither Gawker nor TSG reported on these Russian error messages, some readers noticed them and mentioned them in social media forums; Ars Technica was likely the first media outlet to cover those “Russian fingerprints”.

Although almost two years have passed since the day (June 15, 2016) that Guccifer 2.0 published his first batch of documents, very few voices (with the important exception of Adam Carter) have questioned the method by which Russian error messages were embedded within the persona’s version of the Trump opposition report. The Forensicator’s latest study does just that, describing in dense technical detail the circuitous sequence of events that led to the situation where Guccifer 2.0’s version of the Trump opposition report had Russian error messages embedded within it.

Those who wish to view the Forensicator’s findings in full are encouraged to visit his blog, where the entire analysis is available. The Forensicator summarized the results of his research as follows:

According to the Forensicator, the sheer complexity of the process required to create the Cyrillic error messages calls into question the narrative that Guccifer 2.0 inadvertently disclosed the so-called Russian fingerprints by mistake. The Forensicator outlined some of the major points made above in order to provide context.

When reports emerged that Guccifer 2.0 had chosen the “Trump opposition report” as their first disclosure, many observers questioned whether this catalog of publicly available media articles did any serious damage to the Clinton campaign or the DNC.  The Smoking Gun and Gawker made valiant attempts at defending the soft punches; they argued that Guccifer 2.0’s disclosure of the DNC’s talking points gave away the Democrat’s anti-Trump-strategy, harming its effectiveness. For many, this was not a very satisfying answer.

Narrative arguments aside, the fact that the DNC mentioned this specific document the day before Guccifer 2.0 published it raises questions as to possible Democratic Party coordination or collusion with those behind the Guccifer 2.0 persona’s publications. 

The Forensicator noted that the Trump opposition report is unique. It was one of four documents attached to a particular Podesta email. Those four attached documents, out of over 2000 Word documents in the Podesta emails, will trigger a bug in Word 2007 that ultimately generates error messages that (when translated to Russian) became the so-called “Russian fingerprints.”  Within those four attached documents, only the Trump opposition report is relevant to the Trump campaign.

Essentially, the Trump opposition report is the only document from over 2000 Word documents in the WikiLeaks Podesta email collection that both triggers the bug in Word 2007 that generates the Russian error messages (the “Russian fingerprints”) and that is at all relevant to the Trump campaign.

The Forensicator was quick to point out to this writer that it is impossible to confirm whether Guccifer 2.0’s 1.docdocument originated in the Podesta email collection, but a search through that collection nonetheless shows us how unique this document is. The Forensicator emphasized that this specific attachment was the singular document in the entire collection that was somewhat ‘hurtful’ to Trump, and able to generate the “Russian fingerprints.”

Although the Forensicator was able to find source documents for Guccifer 2.0’s first five Word documents in the Podesta email collection, we have no way of knowing if the Podesta emails were, in fact, the source.  Since the DNC mentioned the Trump opposition report as being taken and it appeared the next day prominently featured in Guccifer 2.0’s first disclosures, it suggests that Guccifer 2.0’s 1.doc was derived directly from a DNC source.  Otherwise, the association between the DNC’s claim that the Trump opposition report was taken and its disclosure by Guccifer 2.0 doesn’t hold.

In addition to choosing this unique document, the Forensicator explained to this author that there were three other critical factors that needed to be present in order to create a version of the Trump opposition report that would have Russian error messages embedded within it. Specifically, those conditions include: 

The Forensicator continued, “Whether you buy these theories or not, that might explain the use of RTF and a template file, many of us can agree that this multi-step process is too long and complex to be easily explained by Guccifer 2.0’s carelessness.”

The latest analysis by the Forensicator demonstrates that it is highly unlikely that the Cyrillic error messages found in Guccifer 2.0’s first publication were the result of simple lack of foresight on the part of Kremlin-backed hackers. Instead, the likely conclusion reached is that this document was carefully crafted with the intent of creating evidence that Russian hackers were the source of the security breaches that led to the Wikileaks publication of the DNC and Podesta emails. 

Disobedient Media will continue to report on the Forensicator’s findings as they are published.

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In a predictably furious response to a presentation delivered Monday by Israeli Prime Minister Benjamin Netanyahu, Iran’s Foreign Ministry denounced allegations that the Islamic Republic had been carrying on its nuclear program in secret, calling Netanyahu “an infamous liar” and accusing him of being the head of a “child-killing Zionist regime,” according to a statement published in English on Iran’s Ministry of Foreign Affairs website.

The statement was attributed to Foreign Ministry Spokesman Bahram Qassemi.

Iran’s Foreign Ministry Spokesman Bahram Qassemi has lashed out at Israeli Prime Minister’s Monday speech against Iran, calling Netanyahu’s move a propagandistic one and one of his most recent theatrical presentations on Iran’s “secret” nuclear program.

In a Tuesday statement, Qassemi described Netanyahu’s claims as worn-out, useless and shameful. He added that such remarks are futile efforts by a “broke and infamous liar who has had nothing to offer except lies and deceits.”

He further noted that Zionist leaders see the survival of their “illegal regime”, which is established based on lies, in viewing others as a threat using battered charlatanism of the ignorance age and unawareness of the world’s public opinion.

Qassemi also stressed that the futility and uselessness of such claims is now obvious more than ever.

“Netanyahu and the notorious, child-killing Zionist regime must have reached the basic understanding that the people of the world have enough awareness and cognisance,” he added.

In a series of tweets, Iranian Foreign Minister Javad Zarif ridiculed Netanyahu’s accusations, noting that the Israeli prime minister appeared to have “coodinated the timing of alleged intelligence revelations by the boy who cries wolf just days before May 12.” President Trump has set a self-imposed deadline of May 12 for the renegotiating of the Iran deal.

Pres. Trump is jumping on a rehash of old allegations already dealt with by the IAEA to “nix” the deal. How convenient. Coordinated timing of alleged intelligence revelations by the boy who cries wolf just days before May 12. But Trump’s impetuousness to celebrate blew the cover. https://t.co/5gxmmZcrF7

— Javad Zarif (@JZarif) April 30, 2018

On Monday, Netanyahu triggered a rally in oil prices when he accused Iran of secretly developing and building nuclear weapons in violation of the JCPOA. During his presentation, Netanyahu claimed he had 55,000 pages of documents and 183 CDs, which he said comprised an “atomic archive” of documents on Iran’s nuclear program that had been taken from inside the country.

Iran wasn’t the only country to doubt the allegations. Berlin also responded skeptically to Iran’s allegations.

Steffen Seibert, a spokesman for the German government, said that while “the international community had doubts” about Iran’s compliance, it was paramount that they adopt “an unprecedented, thorough and robust surveillance system.”

The International Atomic Energy Agency, whose responsibility it is to monitor Iran’s compliance, refused to comment on the allegations.

While experts confirmed that most of Bibi’s big reveal had been previously known, many admitted that the presentation would be “hugely helpful for Trump” as it “builds the public case for Trump to blow up the Iran deal on May 12 by reimposing sanctions on Iran’s oil exports and central bank.” Though, of course, Netanyahu insisted that “no one” is seeking a war with Iran.

In other words, Netanyahu provided the media with cover to cheer the next regional conflict: that between the US, its allies, Saudi Arabia and of course Israel on one side and Iran, Syria, Russia, and potentially China on the other. A conflict with the potential to metastasize into an all-out world war. While the White House released a statement validating Netanyahu’s findings, it refused to say whether it had made up its mind on whether to cancel the Iran deal.

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In addition to bringing May Day which, as Deutsche Bank’s Jim Reid describes as “the day people danced around a maypole in funny outfits and generally partake in outdoor celebratory activities but if yesterday was anything to go by in London anyone going outside was likely to need to dance just to prevent frost bite“, the start of the new month marks a far more “historic” occasion: as we previewed three weeks ago, with the ticking over of the monthly calendar, this US economic expansion now becomes the outright second longest in history with data going back over 164 years and 34 business cycles.

According to Deutsche Bank’s calculations, at 107 months the current expansion just nudged ahead of the long 1960s expansion, and will beat the 1990s expansion for the title of longest expansion in history if it extends past July next year.

What is notable is that as discussed before, the last four expansions (since the early 1980s) have all been long ones and are all in the top 6 longest of all time.

Why have they been so long? According to Jim Reid it’s largely due to demographics and globalisation colliding.

The global labour force has naturally surged since 1980 with China deciding to integrate itself into the global economy at almost the same point. China thus dumped an additional billion of low paid labour on the world. This has helped structurally depress global wages for three and a half decades and meant that policy hasn’t needed to be tightened as early in the last four cycles as through most of history.

While these factors have helped prolong these business cycles, the risk is that we’re just past peak global labor now and therefore subsequent cycles will see wage pressures, rising yields and generally rising market instability.

Or maybe not: as we also showed last month, according to the latest CBO budget forecast, the US is now expected to not have a recession any time until Dec. 31, 2028, which would imply that the CBO expects the current expansion to last no less than 234 months (since June 30, 2009), which would make it nearly 20 years long…

… and double the longest period without economic contraction in history. Good luck.

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With most of the world’s markets closed, celebrating Labor Day in France, Italy, Spain, Germany, Switzerland, Norway, Sweden, South Korea, China and Hong Kong, overnight markets have been especially thin, with virtually no newsflow, even as the dollar surge continues keeping a lid on S&P futures.

What markets were open moved little: Japan’s Topix index fell 0.2%; Aussie stocks were up 0.6%; S&P 500 futures faded an overnight gain of 0.1% and were trading flat. Treasury 10-year yields steady in a tight range of 2.95%-2.96%; Australia 10-year yield falls 1bp to 2.76%. WTI crude rises 0.3%; Dalian iron ore closed

Ahead of today’s much anticipated launch of US metal tariffs against Europe, late on Monday the White House announced that Donald Trump decided to delay imposing said tariffs on EU, Mexico and Canada until June 1, but the impact on markets will be deferred due to holidays around the globe.

The highlight of the overnight session was again the dollar, as the DXY index notched its ninth gain in 11 days, and broke above its 200-DMA for first time since May 2017, leading to a USD-driven move across G-10 and EMFX markets, while weighing on most commodities and US futures.

The Bloomberg Dollar Spot Index (BBDX) extended its advance Tuesday to the highest level since January as Treasuries halted three days of gains ahead of the Federal Reserve’s policy meeting.

Elsewhere, the pound extended losses after weaker-than-forecast April manufacturing PMI data; the Sonia curve further prices out chances of a May hike. The latest drop in GBP spurred the FTSE, one of the few European equity gauges trading, to rise for a fourth day. SEK continues recent selloff, and the lack of liquidity saw the Swedish krona drop nearly 1% against the dollar and to a fresh eight-year low against the euro.

US Treasuries remained in a tight range, with yesterday’s month-end related bid faded in Asian hours.  The yield curve flattened on Monday on a combination of month-end and softish data, causing the 10yr yield to retreat from last week’s best levels, falling to sub-2.94%. While most of the action was concentrated in the long-end of the curve (30s yields down c.2bps at settlement), all the major yield spreads were narrowing; 5s30s flattened by c.1bps the lowest spread in more than six years. Ahead of Wednesday’s Quarterly Refunding Announcement, the US Treasury borrowed USD 488bln in Q1, expectations are to issue USD 75bln in net marketable debt in Q2, down USD 101bln previous estimate, and USD 273bln in net marketable debt in Q3. Elsewhere, BTPs underperformed their peers on Monday after Italy’s 5SM leader Di Maio called for a fresh election in June. Following the election in March, talks between parties have largely failed and no successful attempts were made to form a government. US 10yr T-Notes futures settle 4 ticks higher at 119-20.

Today’s market attention will now turn to the much-anticipated Apple earnings due after the close, when Tim Cook is expected to announce a slowdown in iPhone sales and guidance, potentially offset with a massive expansion in Apple’s dividend and buyback, potentially as much as $400 billion.

In geopolitical news, Iran’s Foreign Minister tweeted Iran allegations are old allegations that have already been dealt with by the IAEA. Meanwhile, US Secretary of State Pompeo stated that Israel’s nuclear files on Iran are real and that many are new, while US Treasury.

Elsewhere, Secretary Mnuchin stated that President Trump is still considering the Iran agreement. White House is said to be mulling restrictions on China researchers amid trade dispute.

Crude futures retraced some of the Iran/Israel-related move higher. Post the climb seen in oil on Monday following increased pressure on the US by Israel to pull out of the Iranian nuclear deal, oil pared back some of these gains, with both WTI and Brent down slightly amid the firmer USD. Gold has fallen to a six week low following the stronger USD which continued its rise toward 3 month highs. Metals markets remain sensitive to the news that Trump has extended steel and aluminium tariffs for Canada, EU, Mexico, among others. Here too, though, volumes were contained by widespread market closures including China.

Bulletin Headline Summary from RanSquawk

• Labour day holiday in France, Italy, Spain, Germany, Switzerland, Norway, Sweden, South Korea, China and Hong Kong
• DXY spiked passed its 200dma with 2018 peak of 92.640 in focus, cable falls through 1.3700 level as miss on manufacturing data adds to woes
• Looking ahead, highlights include, US mfg PMI, Canadian GDP, US construction spending, ISM mfg PMI, APIs, NZ jobs and GDT

Market Snapshot

• S&P 500 futures down 0.2% at 2,642.75
• STOXX Europe 600 up 0.05% to 385.53
• MXAP down 0.2% to 173.83
• MXAPJ down 0.2% to 568.04
• Nikkei up 0.2% to 22,508.03
• Topix down 0.2% to 1,774.18
• Hang Seng Index up 1.7% to 30,808.45
• Shanghai Composite up 0.2% to 3,082.23
• Sensex up 0.6% to 35,160.36
• Australia S&P/ASX 200 up 0.5% to 6,015.23
• Kospi up 0.9% to 2,515.38
• German 10Y yield fell 1.2 bps to 0.559%
• Euro down 0.3% to $1.2039
• Brent Futures down 1.5% to $74.02/bbl
• Italian 10Y yield rose 4.3 bps to 1.53%
• Spanish 10Y yield rose 1.8 bps to 1.28%
• Gold spot down 0.5% to $1,308.29
• U.S. Dollar Index up 0.4% to 92.22

Top Overnight News

• President Donald Trump will delay imposing steel and aluminum tariffs on the European Union, Mexico and Canada until June 1 as he finalizes deals with them, the White House said in a statement
• U.K Apr. Manufacturing PMI: 53.9 vs 54.8 est; Markit note adverse weather was partly to blame in Feb. and Mar., there are no excuses for Apr’s disappointing performance, chances of a near term hike from BOE increasingly remote
• Italian President rules out new elections in June: Messagero
• Japan Apr. Manufacturing PMI: 53.8 vs 53.3 est; Markit note output growth quickens to 3mth high; input prices continued to inflate sharply
• The U.K. is proposing a new plan to kick-start stalled Brexit talks and make progress on the vexed issue of the Irish border as negotiations resume in Brussels this week
• U.S. Treasury Secretary Steven Mnuchin said he’s unconcerned about the bond market’s ability to absorb rising government debt after his department said it borrowed a record amount for the first quarter
• Britain’s opposition Labour party plans to spend 2.3 billion pounds (3.2 billion) installing insulation in low-income households to help bring down what it says are “skyrocketing” energy bills
• Developing economies are better suited to withstand a global downturn than in the past, said Bruno Braizinha, a rates and cross-asset strategist at Societe Generale SA. A U.S. recession next year or in early 2020 will probably be shallower than the global financial crisis a decade ago, and emerging market fundamentals are much stronger and supported by Chinese growth, he said in an interview
• The U.S. isn’t seeking to put Russian aluminum giant United Co. Rusal out of business by sanctioning the company, Treasury Secretary Steven Mnuchin said, but its majority owner Oleg Deripaska must reduce his stake to less than 50 percent
• BP Plc capped a shaky Big Oil earnings season on a more upbeat note, as investors reacted positively to the highest profit in years even as the continuing burden of oil-spill payments pushed debt higher

Asia-Pac equity markets traded positive, although lacked firm impetus amid mass closures in the region and following the negative lead from Wall St where sentiment was dampened amid geopolitical concerns. This was due to Israel’s stern rhetoric on Iran which it alleged had lied on its nuclear program, while the telecoms sector led the declines amid doubts the T-Mobile-Sprint merger would get regulatory approval. ASX 200 (+0.6%) saw energy names underpinned on higher oil prices following Israel’s exposure of Iran and the possible implications it could have on the nuclear agreement, while financials also gained after big 4 bank ANZ reported over 4% profit growth. Nikkei 225 (+0.2%) was in the green but with price action indecisive as it began a 2-day trading week and pondered over the recent JPY strength. There wasn’t much price action elsewhere with mainland China, Hong Kong, India, Singapore, South Korea and Taiwan among the markets shut for public holiday, while US equity futures were off prior lows amid mild short covering and after reports the US extended tariff relief for its allies by delaying its decision another month to June 1st. Finally, 10yr JGBs were higher to track the prior day’s upside in T-notes and with the BoJ present in the market under its bond buying programme, while yields were lower across the curve with outperformance seen in super-long-end bonds. Australian RBA Cash Rate (May) 1.50% vs. Exp. 1.50% (Prev. 1.50%). (Newswires) RBA reiterates that steady policy is consistent with growth and inflation targets, while it also repeated that low rates supports the domestic economy and that a stronger AUD would slow economic pick-up. Furthermore, RBA stated that Inflation and wage growth likely to stay low for a while but added that it expects stronger exports.

Top Asian News

• RBA Leaves Key Rate at 1.5% as Seen by All 27 Economists
• SoftBank’s Credit Swaps Drop to Two-Week Low on Sprint Deal

As European markets are closed for labour day, focus is on UK’s FTSE 100 (+0.3%), currently trading somewhat lacklustre albeit in thin trade. The index has however received a boost from the weakening sterling following softer UK Manufacturing PMIs. Just Eat (+3%) is higher after delivering strong results whilst BP (+0.8%) is also fuelled post-earnings. Mining names are underperforming amid falling base metal prices influenced by the dollar bid. Other noticeable movers include FTSE 100 heavyweight British American Tobacco (-0.8%), lagging behind following a downgrade at Piper Jaffray.

Top European News

• Large Upside Buying in Short Sterling Bets on No BOE Rate Hike
• Italian President Rules Out New Elections in June: Messaggero
• Qatar’s Wealth Fund Is Said to Weigh Selling European Hotels
• Swedish Krona Declines an Eighth Day to Lowest Level Since 2009

In FX, the DXY index faced some resistance around recent highs and the 200DMA (91.980), but has worked its way through some hefty buy/sell orders in G10 pairings at key levels along with big barriers and other major technical obstacles to cross the 92.000 marker and register a fresh high since mid-January. The 2018 peak at 92.640 (from January 12th) is next on the radar for bulls.  GBP: The Pound’s misfortunes rumble on and the latest bearish catalysts have come in the form of a sub-forecast UK manufacturing PMI plus weak consumer credit and mortgage approvals. Cable has tumbled through 1.3700 as a result, and through decent bids in the high 1.3670 area, with sellers now eyeing chart ‘support’ just ahead of 1.3650, while Eur/Gbp is testing 0.8800 offers again. SEK: A notable underperformer beyond the G10, as Eur/Sek extends its post-dovish Riksbank rally towards 10.6500 ahead of a big Swedish stock dividend payment day on May 7.  EUR/NZD/AUD/JPY/CHF: All around 0.3-0.4% weaker vs the Greenback, with the Eur/Usd breaching several major downside technical levels on the way to testing a 1.2035-30 Fib area, including 1.2055 and 1.2050 barriers. Aud and Nzd are only just holding above the well documented and obvious 0.7500/0.7000 psychological and round number handles, with the former not getting any support from the RBA overnight (stood pat on rates and maintained a neutral policy stance), while the Kiwi is awaiting latest GDT auction results and NZ jobs data. Usd/Jpy briefly capped by supply at 109.50 and the recent peak just a few pips above, but now testing Fib resistance at 109.65, while Usd/Chf is extending gains above 0.9900.

In commodities, post the climb seen in oil on Monday following increased pressure on the US by Israel to pull out of the Iranian nuclear deal, oil pared back some of these gains, with both WTI and Brent down slightly amid the firmer USD. Gold has fallen to a six week low following the stronger USD which continued its rise toward 3 month highs. Metals markets remain sensitive to the news that Trump has extended steel and aluminium tariffs for Canada, EU, Mexico, among others. Note, volumes overnight were contained by widespread market closures including China. Iranian crude exports have hit 2.61mln BPD in April, a record figure

Looking at the day ahead, in Europe the focus is on the UK with March money and credit aggregates data, along with the April manufacturing PMI. In the US we’ll also receive the final April manufacturing PMI print along with the April ISM manufacturing, March construction spending and April vehicle sales data. The headline earnings release is Apple, while results from Pfizer, Merck and BP will also be closely watched.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 56.5, prior 56.5
• 10am: Construction Spending MoM, est. 0.5%, prior 0.1%
• 10am: ISM Manufacturing, est. 58.4, prior 59.3
  • ISM Employment, prior 57.3
  • ISM Prices Paid, est. 78.5, prior 78.1
  • ISM New Orders, prior 61.9
• Wards Domestic Vehicle Sales, est. 13.3m, prior 13.4m; Total Vehicle Sales, est. 17.1m, prior 17.4m

DB’s Jim Reid concludes the overnight wrap

One celebration for today is that with the ticking over of the monthly calendar, this US economic expansion now becomes the outright second longest in history with data going back over 164 years and 34 business cycles. At 107 months it nudges ahead of the long 1960s expansion and will beat the 1990s expansion if it extends past July next year. In fact as we’ve discussed before, the last four expansions (since the early 1980s) have all been long ones and are all in the top 6 longest of all time. Why have they been so long? Well as we’ve discussed before we think it’s largely due to demographics and globalisation colliding. The global labour force has naturally surged since 1980 with China deciding to integrate itself into the global economy at almost the same point. China thus dumped an additional billion of low paid labour on the world. This has helped structurally depress global wages for three and a half decades and meant that policy hasn’t needed to be tightened as early in the last four cycles as through most of  history. This has helped prolong these business cycles. However we think we’re just past peak global labour now and therefore subsequent cycles will see wage pressures earlier. So the days of super long business cycles may be over so enjoy this one while it lasts.

Given it’s the first day of a new month we’ve included our usual monthly performance review at the end of today’s EMR. Given the turmoil for equity markets in March, April felt more like a bounce back month for most markets with 25 of our 39 assets ending the month with a positive total return including 13 out of 15 equity markets. The abating trade war spat between China and the US, some signs of stabilising global growth following the monthly PMIs, and a fairly decent earnings season so far on both sides of the pond has certainly helped although as we saw towards the end of the month the bond sell-off has ensured fixed income has been weak and this has provided renewed headwinds for risk after a good recovery.

The last day of April started with an M&A flurry and risk on dominating but ended on the weak side as the S&P 500 closed out at the lows for the day (-0.82%). All sectors within the S&P fell with losses led by telco and health care stocks. Sprint dropped -14% on concerns that its merger deal with TMobile (-6%) may face regulatory challenges while stock specific factors pushed down Allergan (-5%) and Celgene (-4.5%) in the healthcare space. Elsewhere, MacDonalds jumped 5.8% after a result beat while Apple rose 1.8% ahead of its results and possible shareholder payout today. The Dow (-0.61%) and Nasdaq (-0.75%) also retreated while the Stoxx 600 rose for the third consecutive day (+0.18%).

This morning in Asia, most markets are closed for holidays (China, HK, South Korea), while the ASX200 (+0.49%) and Nikkei (+0.19%) are modestly up as we type. Much of continental Europe will also be closed today. Overnight, the White House confirmed that President Trump has extended the steel tariff exemptions on the EU, Canada and Mexico until 1 June to allow further talks, while agreement in principle has been reached with Australia, Brazil and Argentina, with details to be “finalised shortly”. Elsewhere, Treasury Secretary Mnuchin said he is “not concerned about” the rising supply of US treasuries, in part as “there are still a lot of buyers” and “I think the market can easily handle it”.

The data highlight yesterday was the US PCE data. In fairness Friday’s GDP report meant that yesterday’s PCE was to some degree a formality with the +0.2% mom print in line with expectations. Significantly however, the annual rate is now at +1.9% yoy (from +1.6%) thanks to base effects which puts it technically within a whisker of the Fed’s 2% target with the 6-month annualized rate now at a very solid +2.3%.

Elsewhere the Chicago PMI was weaker than expected (57.6 vs 58) but the prices paid component soared to a near-seven-year-high and surpassed the 70-mark in April for only the third time since 2012. This backs up most survey data that shows price rises are at multi-year highs. Staying with prices, Germany’s April CPI was slightly below market at -0.1% mom (vs. 0% expected) and 1.4% yoy (vs 1.5% expected), while Italy’s CPI print was also below expectations at 0.6% yoy (vs 0.8%).

Meanwhile here in the UK, along with the announcement of ex-DB Sajid Javid as Home Secretary, the Irish Border subject took on some focus as EU’s Chief Brexit negotiator Barnier warned that “until we reach this agreement and operational solution for Northern Ireland…there is a risk, a real risk” of negotiation talks collapsing. Later on, he did soften his tone a bit as he promised to work “day and night” for a solution leading up the June Summit of EU leaders. On other side, the UK’s Brexit Secretary Davis said “we’ve put forward proposals… and look forward to making progress this week”. The preferred option A for the UK is a sweeping new free trade agreement that would avoid the need for border checks post Brexit.

Staying in Europe, 10y BTPs (+4.4bps, BTP/Bunds spread +5.6bp) were the relative underperformer in the bond market yesterday after the latest twist in the political soap opera saw 5SM leader Luigi Di Maio call for new elections as early as June. This comes after talks with the PD broke down. This would in turn potentially raise the uncertainty level again however it’s worth noting that the decision lies with Italy’s President Sergio Mattarella. Elsewhere, core 10y bond yields firmed slightly with UST 10y and Bunds down 0.4bp and 1.2bp respectively.

Over in commodities, WTI oil jumped 1.8% and to fresh multi-year highs before paring gains to close +0.69% higher yesterday ($68.57/bbl), in part as Israel’s PM Netanyahu said “Iran lied about never having a nuclear weapons program” and “after signing the nuclear deal in 2015, it intensified its efforts to hide its nuclear files”. Elsewhere, the US dollar index firmed 0.33% while the Euro fell to the lowest since mid-January (-0.43% to 1.2078).

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the March personal income growth was lower than expected (0.3% mom vs. 0.4%) while spending was in line at 0.4% mom. Elsewhere, the April Dallas Fed index (21.8 vs. 23 expected) and March pending home sales print were both below consensus (0.4% mom vs. 0.7%). In Europe, Germany’s March retail sales fell for the fourth consecutive month, but prior revisions meant the annual growth was 1.3% yoy (vs 1.2% expected). Finally, the Eurozone’s March M3 money supply was 3.7% yoy (vs 4.1% expected). After adjusting for sales and securitizations, growth in household lending was up 3.0% yoy while growth in non-financial corporate loans rose 3.3% yoy.

Looking at the day ahead, in Europe the focus is on the UK with March money and credit aggregates data, along with the April manufacturing PMI. In the US we’ll also receive the final April manufacturing PMI print along with the April ISM manufacturing, March construction spending and April vehicle sales data. The headline earnings release is Apple, while results from Pfizer, Merck and BP will also be closely watched.

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Submitted by Bill Blain of Mint Partners

“Stand up ye victims of oppression, for the tyrants fear your might..“

It’s supposed to be a holiday in Yoorp this morning, and I was expecting a nice quiet start to the day. Instead, I found myself mired in deal stuff from the moment I stumbled into the office – so this morning’s porridge might be bit late, and shortish.

As Europe is supposed to be out, maybe it’s safe to talk about the continent behind its back – tee hee! The big debate is whether Europe is growing or isn’t. Many folk have remarked the current “recovery” in the US is the second longest ever (bar one,) and certainly the least energetic recovery ever – its been a very gentle new-normal upwards curve. In Europe, the up-path is even more difficult to discern, to the extent many observers think it petered out completely during the first quarter. However, why should not Europe post the same kind of stock market gains, and business advances as the US?

More recent European numbers thru April have been much stronger – especially PMIs – and yesterday a number of European Cheerleaders sent me articles highlighting the positive prospects for Europe highlighted by rising PMIs and stronger GDP posts. I found myself actually reading economic reports from French and Italian banks y’day about the positive prospects for growth across Europe.

Analysts are looking at rising PMIs as a very strong indicator of growth to come. One very good note (from Unicredit) points out US data tends to overestimate, while European numbers lag – the result being US outperformance over Europe is significantly underestimated. Hence, it’s a good argument that European stocks are massively undervalued: while US stocks are some 20% higher, Europe posted about 6%! European analysts believe US is unlikely to outperform the Eurozone per capita over the longer 5-10 year term. Others point out the current US recovery is fuelling bubbles across the markets. Since we Anglo-Saxons are always talking Europe down, I suppose it’s only fair they point out the inconsistencies in US and UK markets.

Other analysts point out the “UK shooting itself in the foot” as another reason to buy Europe. I guess they were talking about Brexit. Yawn. Let me digress a moment: Sir Patrick Minford – (yes, the same one who frightened me when I was a baby economics student back in the 1980s) – published a paper: the Economics of Brexit “Getting the Best Deal for the UK”. It’s wonderful foaming at the mouth Brexiteering, but contains some important truths:

• Only 12% of the UK’s GDP is involved in selling to the EU – yet our economic base (they way we do things) is entirely aligned with it: production methods, labour rules and regulations, energy and financial markets. All they need to do to sell to Europe is meet EU product standards. Minford says EU protectionism within the single market could add as much as 20% to the best prices available in the developed market. Anything except a Zero Tariff agreement with Europe is sub-optimal for both Europe and the UK. That should be easy to achieve in goods (production standards) and in services (especially finance) through an equivalence regime

A pragmatic Brexit will be good for Europe and the UK, but no need to rehash all these arguments again. The best hope for Europe is the UK getting out, and stop interfering in uniting the continent. Then they can put their own shop in order – and that’s where the problems really start.

Should Europe aim for becoming a superstate, or remain a group of closely affiliated but separate entities? The answer goes back to the imperfect introduction of the Euro – which never solved the basic questions of monetary union without fiscal and economic union. It’s much the same question the infant USA faced in the 1790s onwards – how to become a sovereign state. They solved it – but basically they were one people.

I suppose my real worries about Europe boil down to my fear of what’s not happening the other side of the English Channel – in Brussels and across the continent. I still don’t believe Europe, as currently structured, will simultaneously sort out the regional policy requirements and of the South vs the economic goals of the North, the looming problems facing the rule of law in the East, and growth in Germany in alignment with the rest of Europe under the current Euro umbrella. I’m not anti-Europe, I just don’t see how all these policy conundrums are reconciled.

There are so many conflicting tensions. These could probably be solved if Europe was a homogenous group of shared goals, culture and history – but they are not. Since they are not, perhaps the previous model of multiple cooperating European states was the right one – but sovereignty was surrendered to the mighty Euro. Countries that are not free to solve their internal problems need release. Hence the ongoing political impasse across Italy is likely to continue to breed continuing populist politics, while the Greeks will retain a long-term resentment to Europe for generations. Right wing racism will continue to fuel electoral dissent – and becomes easy for rable-rousers to focus.

What are the solutions? While Macron has a blue-print for a united Europe, its got a limited shelf-life: while I read the support from Germany’s left, I don’t detect strong buy-in across conservative Germany  – they are not going to buy fiscal union. And that’s without the looming budget crisis Europe will face post Brexit.

Bottom line – if the real reason the dollar remains weak is doubts over Trump, why is the Euro so strong when the underlying structure of Europe is so wobbly? Perhaps because I’ve got it completely wrong. Willing and hoping to be convinced I have…

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Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Twenty-three-month-old Alfie Evans, passed away in a British hospital on Saturday. While the official cause of death was a degenerative brain disease, Alfie may have been murdered by the British health system and the British high court. Doctors at the hospital treating Alfie decided to remove his life support, against the wishes of Alfie’s parents. The high court not only upheld the doctors’ authority to override the parents’ wishes, it refused to allow the parents to take Alfie abroad for treatment.

In upholding the government’s authority to substitute its judgment for that of Alfie’s parents, the high court is following in the footsteps of authoritarians throughout history. Ever since Plato, supporters of big government have sought to put government in charge of raising children. The authoritarianism of a system where “experts” can override parents is underscored by a police warning that they were “monitoring” social media posts regarding Alfie.

Alfie’s case is not just an example of the dangers of allowing government to usurp parental authority or the failures of socialized medicine. It shows the logical result of the widespread acceptance of the idea that rights are mere privileges bestowed by government. It follows from this idea that rights can be taken away whenever demanded by government officials or the popular will.

Of course, most western politicians deny they believe rights come from government. They instead claim that government must place “reasonable” limits on rights to advance important policy goals, such as limiting the right to free speech to protect certain groups from hate speech, or limiting property rights to promote economic equality. But, a right by its very nature cannot be limited or abolished and still be a right.

This disdain for a true understanding of rights is found among both liberals and conservatives. Both support a welfare-warfare state funded via the theft of income taxes and the indirect theft of inflation. Both support jailing people for nonviolent actions like drinking raw milk. Many politicians, regardless of ideology, support restrictions on parental rights such as mandatory vaccination laws.

While claiming to support the right to life, most modern liberals not only support legalized abortion, they want to force pro-lifers to fund abortion providers. Both the right-wing neocons and left-wing humanitarian interventionists dismiss the innocents killed in US military actions as inconsequential “collateral damage.”

America’s Founding Fathers rejected the idea that rights come from government. They instead embraced the view that rights are either granted by the creator or are a basic attribute of humanity.

Since rights do not come from government, government has no more legitimate authority to violate our rights than does a private individual. Thus, if an individual cannot use force to make you help others, neither can the government. If an individual cannot use force to stop you from gambling online or telling un-PC jokes, neither can the government. If an individual cannot use force to stop parents from seeking medical treatment for their child, neither can the government.

Widespread acceptance of natural rights and the principle of nonaggression that flows from natural rights is key to obtaining and maintaining a free society. Thus, educating people in the benefits of free markets, individual liberty, and a foreign policy of peace and free trade is key to protecting future Alfie Evanses, and other victims of the welfare-warfare state, as well as to restoring respect for the moral principles of liberty among a critical mass of the people.

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Greece has rushed to reinforce its land border with Turkey as fears mount over a sharp rise in the number of refugees and migrants crossing the frontier.

As The Guardian reports, police patrols were augmented as local authorities said the increase in arrivals had become reminiscent of the influx of migrants on the Aegean islands close to the Turkish coast. About 2,900 people crossed the land border in April, by far surpassing the number who arrived by sea, the UN refugee agency (UNHCR) said. The figure represents half of the total number of crossings during the whole of 2017.

Speaking from the frontier town of Orestiada, the local mayor, Dimitris Mavrides, told the Guardian:

“Our reception facilities are overwhelmed and things are on the verge of spinning out of control. Far more are coming than are actually being registered.

“The government has just sent 120 extra police, but they are temporary and simply not enough. Frontex also has to intervene,” he added, referring to Europe’s border and coastguard agency.

This coincidental spike in refugees from Turkey into Greece comes  as tensions between two NATO member states have escalated dramatically in the last two months – Turkey has threatened to invade Greek islands, Greece has responded, and Greeks now see Turkey as the greatest threat to their existence.

However, The Guardian notes that the abrupt rise reflects a switch in tactics by people smugglers circumventing the controversial agreement the EU struck with Turkey in a bid to stem migration flows at the height of the crisis when more than a million people entered the bloc through Greece.

Under the deal, signed in March 2016, migrants and refugees reaching eastern Aegean islands must remain in situ until asylum requests are processed through a system that is notoriously slow, or face deportation.

The land border does not fall under the agreement and is said to be easier to traverse. “In a boat it can take as little as three minutes to cross and is far cheaper,” said Mavrides.

“They are coming precisely because it is not part of the deal and because word has got out the situation on the islands is dramatic. If they get here and are processed, they are free to go anywhere on the mainland. We have four buses a day to Athens and Thessaloniki and they are full.”

Officials in Greece’s leftist-led government say privately that they are dealing with a timebomb.

Clashes erupted on Lesbos this month between Greek extremists and asylum seekers protesting against their inability to move to the mainland after the country’s highest administrative court said it was illegal to impose geographic restrictions on migrants.

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