Frontrunning: June 11

  • U.S.-Canada Trade Feud Escalates After Fraught G-7 Summit (WSJ)
  • Stocks, euro climb as calm in Italy overshadows chaotic G7 (Reuters)
  • Singapore Summit: U.S., North Korea Huddle in Last-Minute Talks (WSJ)
  • Art of the Foreign-Policy Deal: Trump’s Tactics (WSJ)
  • Mexico minister calls for ‘flexibility’ in reworking NAFTA (Reuters)
  • Italian Markets Rally After Finance Minister Commits to Euro (BBG)
  • The Return of the Political-Risk Trade (WSJ)
  • UK Data Cast Doubt Over Health of Economy (BBG)
  • Suicide bomber kills 13, including women, outside Afghan ministry (Reuters)
  • Foxconn says investigating labor conditions at China factory used for Amazon (Reuters)
  • Jaguar Land Rover to Move Discovery SUV Production to Slovakia (BBG)
  • China’s Xiaomi books $1 billion quarterly loss ahead of blockbuster IPO (Reuters)
  • Mexico leftist’s pitch to Trump: growth, not walls to fix migration (Reuters)
  • HSBC Outlines Plan to Spend $17 Billion by 2020 (BBG)
  • The Foreign Funds Making Cyprus Their Gateway to Europe (BBG)
  • China Bought Enough American Cotton Futures to Make 400 Million T-Shirts (WSJ)
  • Audi CEO Is Suspect in Diesel Case, Prosecutors Say (BBG)
  • Rolls-Royce, preparing to cut thousands of jobs, says engine problem has spread (Reuters)

Overnight Media Digest


– KKR & Co is nearing a deal to buy Envision Healthcare Corp for $46 a share, or about $5.5 billion, in one of the largest recent leveraged buyouts.

– Indian media conglomerate Star India, which is fully owned by Twenty-First Century Fox, is among the most desired assets as Walt Disney Co and Comcast Corp gear up for a possible bidding war over a big chunk of Fox.

– A United States national security panel approved Chinese conglomerate China Oceanwide Holdings Group Co’s $2.7 billion takeover of Richmond-based insurer Genworth Financial Inc , after the companies convinced authorities they would take extraordinary steps to secure Americans’ personal data.

– U.S. administration officials escalated President Donald Trump’s criticisms of Canadian Prime Minister Justin Trudeau and the global trading system on Sunday, heightening tensions with major allies as Washington enters an important stretch of negotiations on several fronts, from China to the North American Free Trade Agreement.



Nirav Modi, the billionaire jeweller at the heart of a more than $2 billion fraud case in India, has fled to the UK, where he is claiming political asylum.

EDP-Energias de Portugal sees merits in the plans of suitor China Three Gorges (CTG), it said on Saturday, signalling it may be open to an improved offer after rejecting a 9 billion euro ($10.6 billion) takeover proposal as too low.

A study by Deloitte of two funds at Abraaj found it dipped into investor funds due to cash shortages but there is no evidence of embezzlement at the private equity firm.



– At the annual meeting of major Western powers in decades, President Trump criticized the tariffs imposed on American goods as “ridiculous and unacceptable” and vowed to put an end to being “like a piggy bank that everybody is robbing.”

– K.K.R., the private equity giant, is near a deal to buy Envision Healthcare, months after the company put itself up for sale as controversy over its hospital billing practices mounted.

– Craig Newmark, the Craigslist entrepreneur who arguably forced the newspaper industry to change its business model after his website put a dent in the lucrative classified ads business, is giving $20 million to the CUNY Graduate School of Journalism.



** The United States and Japan declined to sign onto an agreement between the other G7 countries to reduce the amount of plastic waste in the world’s oceans and cut down on the usage of single-use plastics, such as straws, bottles and cups. (

** Some Tim Hortons franchisees are threatening a public protest if management does not agree to overturn a decision to revoke the licence of Mark Kuziora, a restaurant owner who was critical of the company. (

** A new C$75 million ($57.7 million) venture capital fund is being launched to develop early-stage fintech companies and artificial intelligence applications for financial services with the backing of large financial institutions including the Caisse de depot et placement du Quebec and Sun Life Financial Inc . (

** DavidsTea Inc Chief Executive Officer Joel Silver is making an impassioned pitch for stability as the battle for control of the struggling tea retailer comes to a head at the company’s annual general meeting this week. (



The Times

– Market jitters caused by Italy’s political crisis could set back Greek plans for a bond issue, according to officials in Athens.

– The chairman of Stobart Group Ltd, Iain Ferguson, resisted fresh calls for him to resign on Sunday as a boardroom row at the aviation and energy conglomerate escalated further.

The Guardian

– Rolls-Royce Holdings Plc is set to announce more than 4,000 job losses this week as the aero-engine maker attempts to increase profits by cutting middle-management posts.

– Members of parliament are calling for the police and parliament to investigate the links between the millionaire Brexit donor Arron Banks and the Russian government, after it emerged that he met the Kremlin’s ambassador to UK three times, rather than once as he originally claimed.

The Telegraph

– Social media companies such as Facebook Inc face a controversial European Union privacy crackdown that would prevent them from reading private messages sent between individuals.

– Cable operator Virgin Media has launched a landmark legal action against Durham County Council over claims it is obstructing efforts to bring ultra fast broadband to thousands of homes.

Sky News

– Sky News has learnt Apax Partners, the London-based buyout group, is working on a potential offer to take BCA Marketplace Plc private in a deal that would be worth more than 1.7 billion pounds ($2.28 billion).


via RSS Tyler Durden

A Male Student Was Suspended for Groping. He Says Another Guy Confessed, But Boston College Didn’t Care.

BostonBoston College suspended a male student for a year after he allegedly reached his hand up a girl’s skirt at a dance. The student claims not just that he didn’t do it, but that another male student admitted his guilt.

So says the suspended student, “John Doe,” in a lawsuit filed against the college. Doe achieved a partial victory in court on Friday, after the U.S. Court of Appeals for the First Circuit vacated a lower court’s ruling against Doe. His claim that the college violated his contractual rights, as well as basic fairness, should proceed, according to Circuit Judge Juan Torruella.

That decision makes sense, given Boston College’s egregious handling of the matter. Not only did the school ignore Doe’s evidence that he was not responsible and that another man had committed the assault, but a dean actively encouraged reluctant adjudicators who were considering a “no finding” verdict to rule against Doe anyway.

It has taken years to litigate the case, which stems from an incident on October 20, 2012. Doe was moving across the dance floor of a cruise ship when a female student, “A.B.,” screamed at him and accused him of sticking a hand up her dress and inserting two fingers into her anus. Security took Doe into custody and handed him over to the police after the ship docked.

Doe claims that A.B. had simply identified the wrong person. Another man was walking right in front of Doe; according to Doe, this man, “J.K.,” turned to Doe after A.B. confronted him and said, “Sorry, dude, that was my bad.” The following day, J.K. texted Doe’s friends to inquire whether he had gotten into trouble.

A swab of Doe’s hands failed to produce forensic evidence that he had assaulted A.B., and he eventually produced video surveillance footage that led the prosecutor to drop the criminal case. But Boston College’s sexual misconduct investigation—conducted under the auspices of the Title IX, the federal statute interpreted by federal Education Department officials to require such procedures—was another matter.

Sexual misconduct charges against Doe were adjudicated by a committee of Boston College professors, administrators, and students. J.K. was forced to answer questions at the hearing, but college officials assured him that he wasn’t under suspicion. He denied having admitted any responsibility, and the adjudicators never reviewed the text messages.

At the time of the hearing, the police had not yet obtained the results of the forensics examination. Doe asked the college to delay taking any action until the forensic report was released, arguing that this was important evidence that would exonerate him. College officials rejected this request and pressed on.

Then something remarkable happened: One member of the adjudicating committee told an associate dean of students, Carole Hughes, that they were having trouble reaching a decision and were considering a “no finding” determination—i.e., that there simply wasn’t sufficient evidence to find Doe responsible. Hughes informed the dean of students, Paul Chebator, and Chebator “discouraged” the adjudicators from taking this course of action.

Doe was ultimately found responsible for indecent assault and battery and suspended for one year. He appealed the finding but was rejected. He returned to Boston College a year later and eventually graduated. After the criminal case collapsed, Doe implored Boston College to revisit the matter. But the administration determined that “the new evidence…an enhanced analysis of the surveillance video from the ship, the results of the forensic tests, and the results of a polygraph test—did not justify reconsideration of Doe’s case.”

The court disagreed. In his ruling, Torruella specifically cited the dean’s decision to influence the adjudicators and officials’ favorable treatment of J.K. as grounds for Doe’s lawsuit to proceed. These aspects of the case violated “the implied covenant of good faith and fair dealings imposed on every contract by Massachusetts law,” according to the court.

The decision was not a total victory for Doe. The judges rejected his claim that Boston College’s Title IX procedures discriminate against men, saying that this was mere conjecture on his part. They also declined to hold the Department of Education itself accountable for encouraging colleges to adopt sexual misconduct policies that violate due process rights.

Now the case will return to the lower court, which will rule on the basic fairness and breach-of-contract claims. Doe is seeking $3 million in damages.

[Hat tip: The College Fix.]

from Hit & Run

Italian Politics: The Calm Before The Next Storm

Authored by Christopher Wood via,

Europe remains a potential source of angst for financial markets in the form of another existential crisis for the Eurozone.

True, stock markets have relaxed over the past week in part because of relief that another Italian election has been avoided for now and in part because US dollar upward momentum has stalled (see following chart).


Source: Bloomberg


The coalition government’s economic policies will likely conflict with the fiscal rules set by Brussels.

On Italy this is likely just the calm before the next storm given the Five Star and League coalition government’s economic policies are almost inevitably going to be in conflict with the fiscal rules set by Brussels — though the confrontation may take longer to come to a boil because of the presence of technocrats in the new government, a compromise required by Italian president Sergio Mattarella for the government to be formed on June 1.

There will also doubtless be hopes on the part of the political establishment that the differences in ideologies between the left of centre Five Star and the right-wing League will become evident in the everyday practice of trying to run a government resulting in due course in both ‘populist’ parties being discredited in the eyes of the electorate.


Source: Bloomberg


The other point to consider with an Italian populist government now in place is how the ECB will react in terms of the signals sent given that the ECB and the Eurosystem is the single largest holder of Italian government debt. The ECB and the Italian central bank held €371 billion of Italian general government debt securities at the end of March, accounting for 19% of the total outstanding, according to the Bank of Italy (see following chart).


Source: Bank of Italy

A hint was provided late last month when Vítor Constâncio, the just-retired ECB vice president, used a press interview to remind Italy to re-read the rules on ECB support (see Spiegel article “ECB Vice President Constâncio: ‘Italy knows the rules’”, May 29, 2018).

He specifically warned Italy that the so-called “Outright Monetary Transactions (OMT) programme”, designed for intervening in Eurozone national sovereign bond markets during a crisis, can only be used if the country in question also agrees to a fiscal adjustment programme.

It should also be noted that a country needs to maintain at least one investment-grade credit rating to qualify for ECB purchases of its debt or ECB reinvestment of its maturing government bonds.

Certainly, the ECB will now be at pains to stress that its ongoing monetary policy will not be driven by Italian specific issues. This means the focus will remain at the next ECB meeting (June 14) on when ECB ‘quanto easing’ will end. If this is by the end of this year, as some think, that will raise the issue of who is going to buy the Italian bonds, and at what price, which the ECB will no longer be buying in 2019.


The most probable outcome remains a confrontation with Brussels.

Meanwhile, new Italian Prime Minister Giuseppe Conte’s inaugural speech on Tuesday outlined tax and spending policies that will put Italy in direct conflict with Brussels. This is why the most probable outcome remains a confrontation with Brussels.

The Five Star and the League had previously published on May 18 a 58-page document, or “government contract”, outlining their policies which call openly for a review of Italy’s economic status as well as for aggressive fiscal stimulus, be it by both tax cuts and increased welfare spending. Five Star, for example, proposed government-financed universal income schemes.

The question will then become how Brussels and Berlin respond. Will they react negatively and try to enforce austerity on Italy, thereby risking an Italian exit just as a Greek exit was risked earlier, or will the scare provided by the reality of an openly euroskeptical government in Rome force Germany to sign up belatedly to French President Emmanuel Macron’s proposals to move towards greater fiscal integration, banking union and the like?


Meanwhile, the opinion polls continue to indicate decent support for both ‘populist’ parties with the League’s support actually growing. An opinion poll conducted on May 30 to June 4 shows the League’s support rising to 27.2%, up from 21% in late March, while Five Star’s support declined from 34.1% to 30.9% over the same period (see following chart). But the critical issue in any future election, which is hard to know at this point, is whether the Italian electorate is willing to countenance the threat to their savings and pensions that would result from exiting the euro.


Source: SWG

Italian GDP has only risen by an annualized rate of less than 0.5% since 1999.

This was the issue that stopped Greece’s exit. But the difference between Greece and Italy is that Greece enjoyed a long party courtesy of the Eurozone’s low interest rates triggered by the country’s entry into the Eurozone in 2001 before it suffered an admittedly very long hangover from which it is only now just emerging.

Italy, by contrast, has never even had a party as reflected in the charts of Italian GDP and Italian GDP per capita since the euro’s formation at the beginning of 1999. Thus, Italian real GDP and real GDP per capita have risen only by an annualized 0.4% and 0.1% since 1Q99 (see following chart). This is why the Italian electorate has decided to vote for the reflationary policies of the League and the Five Star.


Source: Datastream


From a broader Eurozone perspective the current conventional wisdom is that the political crisis in Italy has now made support for French President Emmanuel Macron’s fiscal integration agenda a non-starter since it has revived German fears of burden sharing, bailout unions, and the like. This may be true so far as it goes. But the reality is that Macron is entirely correct that the current status quo is not sustainable in the Eurozone (i.e. either the Eurozone moves incrementally to a more coherent fiscal union to complement monetary union or the growing political pressures will lead, inexorably, to a break up).

Merkel wants greater integration with the European Monetary Fund, but different from Macron’s proposal.

On this issue, Angela Merkel finally broke her silence on her reaction to Emmanuel Macron’s proposal for greater fiscal integration, first made in a speech by the French president in Paris last September, in the form of a detailed interview with the German newspaper Frankfurter Allgemeine a week ago.

Her reported comments make it clear that Merkel wants to move very slowly in terms of greater integration with her concept of a future European Monetary Fund very different from that proposed by Macron. She sees it more as a tool for strengthening budgetary discipline, whereas the French president views it primarily as a vehicle for promoting fiscal integration.

via RSS Tyler Durden

White House Releases Agenda For Tomorrow’s Historic Summit

The White House has released the much-anticipated agenda of Tuesday’s Trump-Kim summit, and notes that President Trump will meet with the North Korean leader tomorrow morning at 9:00 a.m., after which the two presidents (or dictators according to Abby Huntsman) will participate in a one-on-one meeting, with translators only and no media, an expanded bilateral meeting, and a working lunch.

The U.S. delegation at tomorrow’s expanded meeting will also include Sec. of State Mike Pompeo, Chief of Staff John Kelly, and National Security Advisor John Bolton. Press Secretary Sarah Sanders, Ambassador Sung Kim, and National Security Council Senior Director for Asia Matt Pottinger will join for the working lunch.

And echoing Pompeo’s earlier comments that talks are going quicker than expected, Trump – just like Kim – is expected to depart Singapore tomorrow morning east coast time: “At the conclusion of the summit, President Trump will participate in a media availability before departing tomorrow at approximately 8 p.m. for the United States”.

Full statement below:

Statement Regarding the Summit Between the United States and North Korea

The discussions between the United States and North Korea are ongoing and have moved more quickly than expected.

President Donald J. Trump will meet with North Korean leader Kim Jong Un tomorrow morning at 9:00 a.m. Following the initial greeting, Preside. Trump and Chairman Kim will participate in a one-on-one meeting, with translators only, an expanded bilateral meeting, and a working lunch.

The United States delegation at tomorrow’s expanded bilateral meeting will include Secretary of State Mile Pompeo, Chief of Staff John Kelly, and National Security Advisor John Bolton. Press Secretary Sarah Sanders, Ambassador Sung Kim, and National Security Council Senior Director for Asia Matt Pottinger will join for the working lunch.

At the conclusion of the summit, Preside. Trump will participate in a media availability before departing tomorrow at approximately 8 p.m. for the United States.

via RSS Tyler Durden

Musk Delivers 1,000 “Not a Flamethrower” Units: 20,000 Sold at $500 Each

Submitted by Mish Shedlock

It turns out, Elon Musk’s flamethrower idea was not a joke as Musk’s Boring Co. delivers first 1,000 flamethrowers to customers.

Six months after Elon Musk raised the eyebrows of sane people everywhere by announcing his Boring Co. would sell flamethrowers for $500 a pop, the first 1,000 deliveries were made Saturday for customers who showed up at the company’s headquarters in Hawthorne, Calif.

The flamethrowers went like, well, flaming hotcakes when they went on sale in late January, selling out in just four days. In all, 20,000 were sold, raising about $10 million in revenue for Musk’s tunnel-boring startup. The devices, technically called “Not a Flamethrower” to skirt federal shipping regulations, shoot a two-foot flame.

Despite concerns about the wisdom of allowing personal flamethrowers in wildfire-prone California, state legislators last month shelved legislation that would have required them to come with a safety warning.

Green Eggs and Ham

I will not use this in a house

I will not point this at my spouse

If only Musk could deliver a car with autopilot and brakes that worked.

Publicity Stunt

Let’s recognize this adventure for what it really is: A publicity stunt. It’s also a waste of time and energy given numerous real problems at Tesla.

Oh, and disclaimer or not, it is also the start of numerous legal liabilities for Tesla, at a time when the last thing Musk needs is even more distractions.

via RSS Tyler Durden

Abolish ICE: New at Reason

Immigration and Customs Enforcement (ICE) was created in the panicked days after 9/11 to enhance national security. But its primary purpose has become hunting down and ejecting people whose main “crime” often is that they can’t obtain a piece of paper from the government authorizing them to live and work in the United States.

America got along just fine for 225 years before ICE, the monstrous child of the wars on drugs and terrorism, was spawned. It can do so again, writes Shikha Dalmia.

View this article.

from Hit & Run

“We’re Going To Have To Do Something”: Erdogan Warns Austrian Mosque Closures Could Lead To Religious War

Turkish President Recep Tayyip Erdogan blasted Austria’s decision to close mosques and expel Turkish-backed Imams as anti-Islamic and promised a response, saying the measures announced by Austrian Chancellor Sebastian Kurz could lead to a “war between the cross and the crescent.” Erdogan’s comments came a day after the Austrian government said it would expel up to 60 Turkish-funded imams and shut down seven mosques as part of a crackdown on “political Islam.” The decision lead to widespread fury in Ankara.

“These measures taken by the Austrian prime minister are, I fear, leading the world towards a war between the cross and the crescent,” Erdogan said in a speech in Istanbul, suggesting that a return of the Ottoman Empire is among the many ambitious “to do” items in Erdogan’s calendar: after all that was the last time the “crescent” decided to take on the “cross”, and coincidentally, the Turkish ambitions reached as far as Vienna before the Hapsburgs crushed the Ottoman ascent.

Austrian Interior Minister Herbert Kickl of the far-right Freedom Party (FPOe), the junior partner in Austria’s coalition government, said the move concerned imams with alleged links to the Turkish-Islamic Cultural Association – or ATIB – a branch of Turkey’s religious affairs agency, Diyanet. Kickl said he suspects the organization of violating a ban on the foreign funding of religious organizations. A spokesman for Turkey’s president said on Friday that the decision was “a reflection of the anti-Islam, racist and discriminatory populist wave in this country.” At the time, Kurz claimed the decision was meant to fight radicalization and “parallel societies”.


Meanwhile, other conservative European leaders praised the move, including France’s Marine Le Pen and Italy’s Matteo Salvini. However, even Austria’s opposition parties supported the decision, with the center-left Social Democrats calling it “the first sensible thing this government has done.” Though Austria’s Green Party argued that it could serve as propaganda for Turkey’s government.

Speaking Saturday, Erdogan added that “they say they’re going to kick our religious men out of Austria. Do you think we will not react if you do such a thing?” “That means we’re going to have to do something,” without specifying exactly what form Turkey’s retaliation might take.

Roughly 336,000 people of Turkish origin live in Austria, including about 117,000 Turkish nationals. Relations between Austria and Turkey have been strained since the famous 2016 fake coup attempt against Erdogan.

Erdogan’s tough words come ahead of a presidential and legislative election in Turkey set for June 24, with the Turkish economy on the rocks, inflation soaring, and the lira crashing.

The Austrian government has banned Turkish officials from meeting in Austria ahead of the vote.

via RSS Tyler Durden

Trump Blunders Toward the North Korea Summit: New at Reason

Last month, Donald Trump responded to unwelcome statements from North Korea by abruptly canceling the historic summit meeting with Kim Jong Un scheduled for next week. This decision came because the North Koreans “said they were going to go to nuclear war against us and they were going to defeat us in a nuclear war,” Rudy Giuliani said at a conference in Israel. “Well, Kim Jong Un got back on his hands and knees and begged for it, which is exactly the position you want to put him in.”

In a normal administration, functioning with a modicum of discipline and direction, the president’s personal attorney would not be braying on national TV about critical matters of foreign policy, and the president would not be letting him. But today, writes Steve Chapman, our security and survival are in the hands of fools, knaves, and incompetents.

View this article.

from Hit & Run

Pompeo: Making “Rapid” Progress In Talks With North Korea Ahead Of Historic Summit

During a press briefing Monday in Singapore, Secretary of State Mike Pompeo assured reporters who were present that talks between the North Korean and US delegations in Singapore have progressed “rapidly” ahead of the historic summit between President Trump and Kim Jong Un, with Pompeo adding that the talks were still taking place.

“Our ambassador to the Philippines Sung Kim met today with [North Korean] Vice Foreign Minister Choe Son Hui,” Pompeo told reporters at a press conference. “They are moving quite rapidly and we anticipate they will come to their logical conclusion even more quickly than we anticipated,” he said.


Meanwhile, the Washington Examiner reported that members of the US and North Korean delegations met for a few hours at the Ritz Carlton hotel to discuss the terms of denuclearization.

“North Korea has previously confirmed to us its willingness to denuclearize, and we are eager to see if its words prove sincere,” Pompeo said. He added that he is hopeful the summit “will have set the conditions for future productive talks” between Washington and Pyongyang.

The summit has provided “an unprecedented opportunity to change the trajectory of our relationship and bring peace and prosperity” to North Korea, Pompeo said. However, he played down the possibility of a quick breakthrough and added that the summit should set the framework for “the hard work that will follow.”

While reporters lobbed questions at Pompeo, he declined to provide any details about what Trump might offer Kim during their meeting – though he said the “US is prepared to take actions that will provide North Korea with sufficient certainty that they can be comfortable that denuclearization doesn’t end badly for them.”

He also emphasized that the negotiations would NOT be conducted in the open “with the media.”

“We are not going to conduct these negotiations in the open with the media,” Pompeo said, before adding that “unique steps can be taken” to satisfy the Kim regime without providing sanctions relief.

“The ultimate objective we seek from diplomacy with North Korea has not changed,” Pompeo said, adding that “complete, verifiable, and irreversible denuclearization of the Korea peninsula is the only outcome that the United States will accept.”

In parting, he made it very clear that US sanctions will remain in place as long as the North hasn’t denuclearized completely, and that if talks don’t move in the right direction, the sanctions “will increase.”

Watch Pompeo’s full briefing below:

via RSS Tyler Durden

Futures Flat As Nervous Traders Hunker Down For “The Week From Hell”

Bulletin Headline Summary From RanSquawk

  • European bourses higher ahead of Trump/Kim summit and as Italy reiterates plans to stay in the Eurozone
  • Sterling slides as industrial production has biggest monthly fall since October 2012 and trade deficit widens
  • Looking ahead, highlights include 3- and 10-year note auctions from the US

The “most important week of the year” started off with a session that has been a study in contrasts, with risk-off trades emerging early on in Asian trading, as Asian markets and US futures slipped pressured by the higher Yen in the aftermath of this weekend’s G-7 debacle which resulted in a communique that for the first time ever, was not signed by the US; concerns about a potential trade war, however, quickly morphed into optimism as investors shifted their attention to the historic summit between U.S. and North Korea as well as the meetings by three of the world’s three most important central banks, with the EUR spiking ahead of what may be the ECB’s announcement that it will end QE in early 2019, while Sterling returns to center stage with tomorrow’s critical Brexit vote.

The net result has been an offset of extremes, with US equity futures flat, but don’t expect this to last: as Deutsche Bank’s Jim reid writes, “today is actually the calm before the storm” and we’ll at least be able to monitor the fall out from the tense and quite remarkable G7 meeting over the weekend or G6 vs US meeting as it could be called. 

Helping boost sentiment, Italy’s new finance minister, Tria, gave a strong endorsement of the euro in comments over the weekend, prompting UBS to suggest that Italy’s disagreements with the EU seem more likely to focus on immigration than on economics. Italian bonds and stocks surged while helping the Euro rise to session higher highs, after Tria told the Corriere della Sera newspaper over the weekend that there was “no discussion” of any proposal to leave the common currency and that the government would also block any market conditions that would “push toward an exit” (he would naturally say that having seen the recent rout in Italian bonds).

“This is the one of the first references on not letting the fiscal plan getting out of hand, and that the government will not let the BTP-bund spread get to the same wide level as back in 2011-2012,” Danske Bank’s Arne Lohmann Rasmussen told clients. “We expect to see some stabilization in the BTP-bund spread.” And sure enough, Italian 2Y yields tumbled following renewed hope that the status quo will return to Italy.

Of course, it’s only a matter of time before the Italian sentiment changes: after all for the ruling populist coalition to reach its goals, it will have no choice but to bust Italy’s budget, but until then hope has returned. Among his other points  in the Corriere interview, Tria said that the government will seek an EU accord that would allow the exclusion of infrastructure investment costs from the budget deficit; that a review of legislation on co-operative and small banks isn’t a priority; and that he can’t provide targets for growth and deficit before September.

As Bloomberg notes, not all are convinced that Tria’s comments warranted such a large push higher, given the challenges the new government’s fiscal program will pose to the country’s finances as debt stands at around 130% of GDP as Morgan Stanley noted recently.

Santander GCB rates strategist Luca Jellinek posited that much of the move may have been due to short positions being squeezed out. “There were a lot of shorts in Italy,” he said in emailed comments. This rally is “way too much.”

For now, however, Europe will certainly take it to avoid facing the reality of what global trade may look like in a post-Toronto G7 world, where Germany is most at risk. As a result of the Italian optimism, Europe’s Stoxx 600 Index jumped 0.5%, rising for the first time in five days as contracts for the S&P 500 edged upward and Treasuries fell with core European bonds.

Earlier in Asia, shares in Japan (Nikkei +0.5%), Hong Kong (+0.3%) and South Korea (Kospi +0.8%) all advanced modestly on hopes for a successful outcome from the Trump-Kim summit, while China stocks underperformed. Australia’s markets were shut for a holiday.

S&P 500 Index futures were unchanged on Monday morning, after hitting the highest level in three months with a seventh consecutive advance.

In global FX trading, the dollar remains stuck in a narrow range and will probably not make any notable moves until Wednesday’s FOMC meeting…

… while the euro advanced against the dollar, trimming Friday’s losses as haven demand eased. The yen dropped most among Group-of-10 peers followed by the Canadian dollar, which fell in the wake of the G-7 meeting, which ended with deepening tensions over U.S. tariffs and saw a dispute erupt between Trump and Prime Minister Justin Trudeau.  The pound dropped to a session low after data showed U.K. manufacturing output fell the most in 5 1/2 years in April and construction posted a smaller-than-expected gain, casting fresh doubt over the health of the economy. Norway’s krone slipped for the first time in three days after inflation slowed in May, denting expectations for a central bank hike in September. After a week of unexpected blow ups, there have been no new firework in emerging market FX so far.

US Treasuries ground marginally lower while the curve was unchanged; German 10-year bund yields climbed 2bps to 0.47 percent, while the yield on Britain’s 10-year gilt rose 2bps asis points to 1.388 percent, the highest in almost three weeks.

In commodities, oil prices slipped, currently down about 0.3%, pressured by rising US drilling activity, as well as increasing Russian output to 11.1mln BPD in June and Saudi Arabia reportedly increasing oil production by 100k in June ahead of incoming sanctions on Iran. In the metals scope, Gold is currently negative on the day (-0.15%) as markets await news from the Tump-Kim summit. Copper is negative for the second straight session as supply concerns start to ease. Steel futures are steady and trading essentially flat after gains in recent sessions as Chinese demand begins to ease off.

While today is quiet, what is coming is the week from hell, and the highlights are the Fed (Wed), ECB (Thurs) and BoJ (Fri) meetings, the summit between President Trump and North Korean Leader Kim Jong Un tomorrow, an important Brexit Parliamentary vote (Tues) that could shape Brexit and the UK government’s future leadership, US CPI and retail sales (Weds), Putin and Saudi crown prince Mohammed bin Salman meeting at the opening game of the World Cup (Fri) to possibly talk oil production and on the same day it’s the deadline for the US to publish the final list of Chinese products subject to $50 billion in tariffs.

    Market Snapshot

    • S&P 500 futures up 0.1% at 2,784.75
    • STOXX Europe 600 up 0.4% to 386.53
    • MXAP up 0.09% to 175.02
    • MXAPJ up 0.3% to 573.39
    • Nikkei up 0.5% to 22,804.04
    • Topix up 0.3% to 1,786.84
    • Hang Seng Index up 0.3% to 31,063.70
    • Shanghai Composite down 0.5% to 3,052.78
    • Sensex up 0.7% to 35,676.23
    • Australia S&P/ASX 200 down 0.2% to 6,045.18
    • Kospi up 0.8% to 2,470.15
    • German 10Y yield rose 1.6 bps to 0.465%
    • Euro up 0.3% to $1.1802
    • Italian 10Y yield rose 6.8 bps to 2.858%
    • Spanish 10Y yield fell 4.0 bps to 1.43%
    • Brent futures down 0.3% at $76.21/bbl
    • Gold spot down 0.2% at $1,295.18
    • U.S. Dollar Index little changed at 93.57

    Top Headline News from Bloomberg

    • U.S. President Donald Trump is willing to consider establishing official relations with North Korea and eventually open an embassy in Pyongyang, Axios reports, citing anonymous sources
    • Italian bonds surged after Finance Minister Giovanni Tria made assurances that the country would stay committed to the euro, while also making structural reforms
    • RAI: Italy’s center-right parties made gains in municipal elections in numerous cities, including 14 regional capitals; Five Star suffered setbacks across the country
    • German Chancellor Angela Merkel said she favors a U.S.-Russian summit, seeking to point global diplomacy forward after a tumultuous meeting of Group of Seven leaders
    • Switzerland dismissed a proposal to radically change the way banks lend money, a victory for the financial establishment including central bank chief Thomas Jordan
    • Paris has beaten London as the most attractive European city for investors for the first time in more than a decade, as Brexit fears begin to taint the U.K. capital, according to a report by Ernst & Young
    • Money managers once again cut bets on rising oil prices — the longest streak of declines since 2013
    • Italian finance minister confirms commitment to euro; new govt aims to boost economic growth and employment, not through deficit spending but with structural reforms and better conditions for investment: Corriere
    • U.K Apr. Industrial Production m/m: -0.8% vs +0.1%; Trade Balance -£14.0b vs -£11.4b est.
    • Norway May Underlying CPI y/y: 1.2% vs 1.4% est.
    • China May CPI 1.8% vs 1.8% estimate, PPI 4.1% vs 3.9% estimate

    Asia equity markets began the week somewhat cautious ahead of the upcoming key risk events including the summit between US and North Korea tomorrow, as well as the FOMC and ECB policy meetings later this week. Furthermore, a market closure in Australia and the G7 fall out in which Trump refused to endorse the communique and criticized Canadian PM Trudeau as being dishonest and weak, also added to the tentative tone and saw US equity futures briefly pressured at the open. However, US equity futures have since recovered, while both Nikkei 225 (+0.6%) and KOSPI (+0.6%) were marginally positive as focus turned towards the upcoming historical Trump-Kim summit. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (-0.3%) were mixed with underperformance in mainland China after inaction by the PBoC led to a liquidity drain and as participants digested mixed inflation data. Finally, 10yr JGBs are flat amid the tentative tone in the region and a lack of Rinban announcement by the BoJ.

    Top Asian News

    • With Rates Below Fed’s, Asian Markets Head for Rare Ground
    • South Korea Stocks Lead Gains in Asia Ahead of Trump-Kim Summit
    • Pakistan Said to Devalue Rupee for Third Time Since December
    • ‘Mini 1MDBs’ Rife Across Malaysia, Mahathir’s Adviser Says
    • Pimco Flags Oil Risks as Funds Unimpressed by 8% India Yield

    European bourses are largely positive (Euro stoxx 50 +0.7%) ahead of US President Trump’s meeting with Kim Jong Un in Singapore. FTSE is the outperforming bourse on heavy GBP losses following terrible data. FTSE MIB (+1.8%) is being buoyed by Italian bank stocks (FTSE Italia bank index +3.9%) that are benefitting from comments by the Italian Finance Minister Tria who stated that the new government is ‘clear and unanimous’ with its plan to keep the nation inside the EUR. The performance in Italian Banks has followed through to the Financial sector, which is the current outperformer. The energy sector is currently underperforming as a result of falling oil prices. Rolls Royce are down 1% amid reports of further job cuts and more checks for their Trent engines. Daimler are also down about a percent after the KBA found 5 “illegal switch off devices” in their car engines.

    Top European News

    • U.K. Manufacturing, Construction Data Cast Doubt Over Economy
    • Italian Markets Rally After Finance Minister Commits to Euro
    • Italian Industrial Output Falls in Slowdown Sign for New Leaders
    • European Cyclical Sectors Underperform After G-7 Drama
    • Draghi May Help Worst-Performing European Stocks Find Way
    • Inmarsat Soars After Satellite Company Rejects EchoStar Bid

    In FX, the Dollar index, DXY, is pretty mixed in the aftermath of the weekend G-7 gathering that ended in discord and President Trump disassociating the US from the official communique amidst accusations of dishonesty and deceit between himself and Canadian PM Trudeau. The DXY is on a modestly softer footing as a result, but rangebound and off m-t-d lows around 93.200 within 93.360-540 parameters ahead of CPI data and the FOMC. JPY/CAD: Marked underperformers, with the Jpy seeing stops vs the Usd tripped and another test of resistance around 110.00, but the pair pulling back before the 200 DMA (110.18) amidst reports of supply in Jpy crosses at big figure levels (ie 130.00 vs the Eur) via market contacts. Meanwhile, the Loonie re-tested 1.3000 lows vs its US counterpart in wake of the aforementioned G7 spat as Trudeau called US tariff proposals insulting and Trump retorted by refusing to back the joint statement and claimed his Canadian host had stabbed the US in the back. The pair has retreated since towards 1.2955, but is still 0.4% or so higher alongside Usd/Mxn around 20.3500 even though Mexico’s Economy Minister Guajardo still has high hopes of a NAFTA deal. GBP: Dire UK data in the form of IP, manufacturing/construction output and trade has dragged Cable back down below 1.3400 after the pair stopped just a few ticks shy of its 30 DMA at 1.3444, while Eur/Gbp has rebounded towards 0.8825. EUR: The top G10 performer and back around 1.1800 vs the Greenback ahead of respective Fed and ECB policy meetings this week, with another FOMC hike virtually priced in and expectations turning more hawkish for the latter after recent sourced reports and official comments.

    In commodities, oil prices are slipping, with the fossil fuel currently down 0.3%, pressured by rising US drilling activity, increasing Russian output to 11.1mln BPD in June and Saudi Arabia reportedly increasing oil production by 100k in June ahead of incoming sanctions on Iran. In the metals scope, Gold is currently negative on the day (-0.15%) as markets await news from the Tump-Kim summit. Copper is negative for the second straight session as supply concerns start to ease. Steel futures are steady and trading essentially flat after gains in recent sessions as Chinese demand begins to ease off.

    Looking at the day ahead, it is a fairly quiet start to the week with the only releases of significance coming from Europe with the May Bank of France industrial sentiment print, and April industrial and manufacturing production, and trade data in the UK, all of which disappointed. Brexit headlines may become a factor with UK’s David Davis set to meet with EU’s Michal Barnier to discuss the state of talks. It’s worth noting that German Finance Minister Olaf Scholz is also set to discuss EU reform in a panel interview.

    US Event Calendar:

    • Nothing major scheduled

    DB’s Jim Reid concludes the overnight wrap

    Before we get to what is almost certainly the most busy week of the year so far for news-flow, as a little light relief this weekend we made the tough decision to restrict Peppa Pig from the TV at home. A few weeks ago I was laughing that the Chinese authorities had banned the show from certain areas due to Peppa’s apparent subversive behaviour. I’m slowly beginning to sympathise with the Chinese decision though. As Maisie has watched more and more Peppa we’ve noticed she’s started to become naughtier. She says “boring” all the time, “yuk” when vegetables come out but the last straw came yesterday when she said that “Daddy is fat”. Peppa does all those things and I had to say to Maisie that a) it’s rude to call people fat and b) I think I’m actually in pretty good shape at the moment thanks very much.

    Well I hope all of your batteries are bursting with charge as it’s a week where the hits will come at you faster than insults out of Peppa Pig’s mouth. As well as being my birthday week and the start of the World Cup we have the following landmark events.

    Today is actually the calm before the storm but we’ll at least be able to monitor the fall out from the tense and quite remarkable G7 meeting over the weekend or G6 vs US meeting as it could be called. The full week ahead is at the end today but the highlights are the Fed (Wed), ECB (Thurs) and BoJ (Fri) meetings, the summit between President Trump and North Korean Leader Kim Jong Un tomorrow, an important Brexit Parliamentary vote (Tues) that could shape Brexit and the UK government’s future leadership, US CPI and retail sales (Weds), Putin and Saudi crown prince Mohammed bin Salman meeting at the opening game of the World Cup (Fri) to possibly talk oil production and on the same day it’s the deadline for the US to publish the final list of Chinese products subject to $50 billion in tariffs.

    The ECB will probably be the most interesting of the central bank meetings given the coordinated signals sent by their various speakers last week that the meeting is a live one for debating the end of QE. Our economists continue to expect QE to end in December 2018 following a Q4 taper but by a narrow margin think the announcement will be in July. It’s worth noting that this week’s meeting will also contain new economic projections from ECB officials so that’ll be worth watching.

    Virtually everyone believes the Fed will raise rates 25bps this week and again we’ll see updated economic projections. Will the median dot move from 3 to 4 hikes for 2018? Our economists think the dots stay at 3 for now but they still expect 4 hikes this year while the market is assigning a 43% probability (per Bloomberg) – the highest all year. This will all come a day before the all important US CPI. Before this, by the time you read this tomorrow the first meeting between Trump and Kim Jong Un will have taken place (9am local, 2am BST, 9pm EST). It’s anyone’s guess what will come of that. The bid offer is Nobel Peace prize to nuclear bunker preparation. Interestingly Mr Trump said on  Saturday that he’ll know “within the first minute” if Kim is serious about giving up his weapons. So by 9.01am local time we may know if we have to buy tinned food and defendable bunkers. Later on the same day we’ll see whether peace has broken out in the ruling UK Conservative party where rebels could create havoc for the government’s Brexit bill and Mrs May’s leadership.

    So a busy week and so far in Asia the main story is the G7 summit. The summit ended in a war of words as Trump refused to allow US officials to endorse a planned joint communique after Canadian leader Trudeau comments in a press conference at the close of the event basically suggesting US tariffs were insulting. Mr Trump tweeted that the Canadian PM was “very dishonest & weak” and White House advisor Larry Kudlow backed him up by saying on TV yesterday that Trudeau “really kind of stabbed us in the back”. Late last night German Press also reported Chancellor Merkel as saying that the EU wont be “taken for a ride” by the US.

    The G7 has been going for around 45 years and never before have you had this kind of fractious relationship  between members.

    Overnight, the biggest fallout in markets from that meeting is in FX where the Canadian Dollar (-0.29%) and Mexican Peso (-0.20%) are amongst the bigger movers this morning. In fairness however those moves are still relatively muted and equity markets in Asia certainly don’t appear to be showing any signs of concern. Indeed the Nikkei (+0.54%), Hang Seng (+0.30%) and Kospi (+0.54%) have all posted solid gains to start the week with only bourses in China (Shanghai Comp -0.26%) slightly lower. That’s unlikely to reflect the May inflation figures which were out on Saturday in China though with CPI coming in bang on the money at +1.8% yoy (unchanged from April) after falling food prices were offset by higher oil, and PPI rising a bit more than expected to +4.1% yoy (vs. +3.9% expected; +3.4% previously). Away from all this its worth noting that Italy’s Finance Minister Giovanni Tria was reported in Italian Press (Corriere della Sera) as saying that “there is no discussion of any proposal to leave the euro” and that “the government is determined to block in every way possible market conditions that would push toward an exit”. The single currency is about +0.20% versus the US Dollar post those comments coming out.

    Back to Friday, which in the end was a largely mixed day for risk assets. It initially started off fairly sluggish and that continued through the entire European session as a combination of the volatility across EM currencies, some soft  macro data in Europe, a story initially reported in the Nikkei News suggesting that Apple had warned suppliers that parts for the iPhone in the second half of 2018 could be down 20% (although which was later somewhat downplayed), and a bit of nerves ahead of the G7 all appeared to play a factor in one way or another. However, it was also EM currencies that appeared to help lead risk assets to a bit of a bounceback late into the evening with the Brazilian Real (+5.09% for the biggest one-day gain since 2015) at the head of that after the central bank of Brazil announced that it intends to support the currency by flooding the market with FX swaps.

    In the end, the S&P 500 closed +0.31% meaning it rose in 4 out of the 5 days last week for a weekly gain of +1.62% – the biggest in 4 weeks. The Dow (+0.30%) closed up a similar amount while the Nasdaq (+0.14%) lagged slightly but still closed within a whisker of its all-time high again. In Europe markets struggled from the get go but did at least pare heavier losses at the open. The Stoxx 600 finished -0.21% which means it ended -0.46% for the week – the third consecutive weekly fall. The DAX also lost -0.35% while the periphery was hit harder with the IBEX and FTSE MIB finishing -0.84% and -1.89% respectively. The latter was also down -3.41% for the week which is the fifth consecutive weekly decline – the longest run since January/February last year.

    At the other side of the risk spectrum sovereign bonds were fairly well bid. Going into ECB week, Bunds rallied 3.4bps on Friday although were as much as 8.3bps lower intraday at one stage, falling back below 0.400%. They closed at 0.443% which means they are still up 26bps or so from the intraday Italy-impacted lows in May. OATs were 1.0bp lower on Friday and Gilts 1.1bps. BTPs struggled again though with the 10y rising another 7.8bps. Yields were up 45.5bps last week which is actually the biggest one-week move since November 2011 when BTP yields rose over 60bps in a week.

    Speaking of big moves, EM currencies had their fair share of them last week for various reasons. By the close of Friday though there was a fairly even spread of big winners and losers. Indeed over the 5 days the Turkish Lira (+3.92%), Polish Zloty (+1.55%) and Brazilian Real (+1.54%) were the 3 biggest gainers while the South African Rand (-2.90%), Mexican Peso (-1.73%) and Argentine Peso (-1.43%) were the 3 biggest losers. There are a lot of country-specific stories in EM at the moment (Brazil being the latest such example) at a time when the Fed is in full  blown tightening mode and while that hasn’t quite spilled over into an all-out EM crisis is does feel like the seeds have gently been sown with EM central banks now playing a more pivotal role than they have in recent memory to stop all out crisis from happening. It’s certainly one to carefully watch in the background.

    Before we wrap up, let’s review the data that was released on Friday. The print which certainly attracted the most attention was the German industrial production report for April which came it at a much softer than expected -1.0% mom (vs. +0.3% expected). This came following softer factory orders data the day prior which suggests a softer read through for Q2 growth so far. The same data was also softer in France (-0.5% mom vs. +0.3% expected) while in the US wholesale inventories rose a little more than expected (+0.1% mom vs. 0.0% expected). What to look out for this week?

    It is a fairly quiet start to the week with the only releases of significance coming from Europe with the May Bank of France industrial sentiment print, and April industrial and manufacturing production, and trade data in the UK. Brexit headlines may become a factor with UK’s David Davis set to meet with EU’s Michal Barnier to discuss the state of talks. It’s worth noting that German Finance Minister Olaf Scholz is also set to discuss EU reform in a panel interview.

    via RSS Tyler Durden