Month: June 2018

Munich prosecutors have arrested Audi CEO Rupert Stadler, also a member of parent company Volkswagen’s board, on concerns he might try to suppress evidence, in what is the highest-profile arrest of a Volkswagen executive since the diesel emissions scandal exploded into public view nearly three years ago.

The arrest comes a month after Audi admitted that another 60,000 A6 and A7 models with diesel engines could have “software emissions issues,” and more than two months after Volkswagen CEO Matthias Mueller stepped down and was replaced by Herbert Diess, formerly the CEO of the company’s core VW unit, according to the BBC.

While former VW Group CEO Martin Winterkorn has been charged by US authorities, Stadler is the first executive to be taken into custody, and perhaps it’s about time: the emissions scandal provided ample evidence that Volkswagen had probably the worst executive oversight in Europe, and that a real criminal conspiracy had unfolded in the highest ranks of the company. The only real surprise is that it’s taken this long: US authorities blew the lid off the company’s emissions test-defeating software in September 2015 – nearly three years ago. Since then, the scandal has spread from the VW unit to other Volkswagen subsidiaries, and beyond: BMW and Daimler have also faced allegations of emissions cheating, as has American car maker General Motors.

More surprising still has been Volkswagen’s steadfast support of Stadler, who retained the backing of his fellow board members, including the influential Porsche-Piech families that own majority voting rights in Volkswagen, according to the Financial Times. The arrest was first reported in Germany’s Der Spiegel. 

The company issued a statement on Stadler’s arrest to Reuters.

“We confirm that Mr Stadler was arrested this morning. The hearing to determine whether he will be remanded is ongoing,” the spokesman said, adding that the presumption of innocence applied to Stadler’s case.

The CEO has previously survived calls by minority shareholders to step down, and yet in the face of threats the company not only defended Stadler, it extended his contract and promoted him to the head of a new “premium” cars division. The new role gave him sales responsibilities group-wide. The company will likely continue to stand by him as lawyers haggle for his release.

The company maintains that there’s no evidence to suggest Stadler knew of the cheating, though after Munich prosecutors raided Stadler’s apartment (and one other Audi boardmember) they named Stadler as a suspect. They’ve also said they’re investigating 20 suspects whom prosecutors believe were aware of Audi’s diesel engine scheme.

In light of today’s development, expect more imminent arrests as it is unlikely, given the number of Audi employees currently under investigation, that this will be the last shoe to drop.

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Global stocks and US index futures are a sea of red this morning amid growing concerns over the escalating trade war between China and the U.S., which on Friday launched tit-for-tat $50BN in tariffs, coupled with the growing risk that Merkel’s government is on the edge of collapse.

As Bloomberg notes, it’s pretty risk-off this morning no matter where you look: it’s blow for blow in the U.S.-China trade spat sending European and Asian stocks sharply lower, metals have been melting, EM currencies remain under pressure with Argentina’s peso sinking further.

Global trade is (once again) back at the top of the wall of worry, with investors afraid that the confrontation between the U.S. and China can escalate out of control, hitting both the global economy and corporate earnings. On Friday, China immediately responded after President Donald Trump slapped tariffs on $50 billion of imports, putting an additional 25 percent levy on $34 billion of U.S. agricultural and auto exports starting July 6.

“Up to now it’s been hypothetical; action has been taken, tariffs are coming and you need to pay very, very careful attention to the impact it’s going to have on your holdings,” Bank of Singapore Chief Investment Officer Johan Jooste told Bloomberg Television. “There are too many unknowns right now to be terribly specific. The thing you do know is risk is higher. The market will take something of a cautionary stance.”

Analysts expect the U.S.- China confrontation to be a war of attrition: while China has shown a willingness to make a deal on shrinking its trade surplus with the U.S., it has made clear it won’t bow to demands to abandon its industrial policy aimed at dominating the technology of the future.

Looking ahead, as a reminder on Friday Reuters reported the US may impose higher tariffs on an additional $100bn of Chinese imports. If this triggers another round of actions from China, then this second round of trade war will likely be much more damaging for both sides. According to DB, this could reduce China’s GDP growth by c0.3% of GDP, but importantly, the US tariff list will likely include big item consumer goods such as phones, computers, TVs etc, which could mean a lot more workers in China and US consumers would be negatively affected. If this second scenario eventuates, economists expect China to loosen policy such as tolerating the property and land market boom in tier 3 cities and cutting the RRR twice over the rest of this year to partly offset the potential drags

In Europe, Angela Merkel’s political future is on the line amid a crisis over Germany’s migration policy, while U.K. prime minister Theresa May seems cornered by Brexit foes. Meanwhile, there is some confusion over Europe’s grand MiFID II overhaul on market transparency: according to Robert Ophele, chairman of French market regulator Autorité des Marchés Financiers, the jury is still out, given the “surprise” surge in off-exchange trading.

As a result, the Stoxx 50 is down -0.9%, with the rebound in the Euro not helping export-heavy Germany. The DAX is the clear underperformer, down -1.3%, with Germany’s political drama the main source of angst this morning. The FTSE 100, with its heavier weighting of energy and metals vs other European indices, is falling in line with peers, which however according to Bloomberg implies that neither Brexit nor the possible clash at Friday’s OPEC meeting are rattling energy shareholders that much.

In Asia, markets were closed for the holidays in China and Hong Kong, but Japan’s Topix Index fell the most in almost three weeks as the yen edged higher and after a strong earthquake hit Japan’s industrial heartland of Osaka.

Oil tumbled below $64 initially, after Saudi and Russia signaled global output would continue to rise while the US-China suggested Chinese demand could decline.

#Oil is down between 1-2% (sub $73 Brent, sub $64 WTI) after Saudi and Russia signalled output would (continue) rising and, in a blow to global trade, China said it would impose tariffs on US crude imports🐻 #OOTT pic.twitter.com/ZejmciwvQP

— Amanda Cooper (@a_coops1) June 18, 2018

However, oil then promptly rebounded ahead of this Friday’s key OPEC meeting, following a Bloomberg report that OPEC was discussing output hikes of only up to 600,000b/d, well below earlier rumors of as much as 1.5mmb/d.

In global FX it has been a quiet session, with Sweden’s ensuing World Cup football encounter probably more discussed at trading desks than major currencies (at least according to Bloomberg’s Love Liman). The dollar tried and failed to build on gains soon after the London open but made no progress even though the euro was held was down by concerns surrounding the fate of Merkel’s ruling coalition. The Bloomberg Dollar index slumped to session lows not long after it hit session highs around the time Europe opened. The EUR first slumped, erasing all of Friday’s gains, however, then rebounded back over 1.16 after Europe opened for trading.

Looking ahead, it could be the dollar that benefits from this week’s gathering of central bankers in Sintra, Portugal, given a renewed focus on the widening gap between monetary policy in the U.S. and the euro area, Credit Agricole says (and to think it was just a year ago that Draghi’s Sintra speech sent the Euro soaring higher). In other G-10 FX, the Yen strengthened as Osaka earthquake adds pressure from trade wars on Japanese stocks; Topix index declines 1%.

Meanwhile in EM, the Thai baht, the South Korean won and the Philippine peso led weakness in emerging Asian currencies as rising trade tensions between the U.S. and China escalated against a backdrop of a strengthening U.S. dollar.  Elsewhere, the South African rand’s implied volatility against the USD is rising at a faster rate than actual price swings, indicating that traders are anticipating a wild ride ahead for South Africa’s currency. After falling to a three-year low in April, the rand’s three-month implied volatility has climbed as crises in Turkey and Argentina soured sentiment toward emerging markets and rising U.S. rates attracted capital to the dollar, and is now at the highest since December.

Surprisingly, the Turkish lira was today’s outperformer, as it started the week with heavy swings and bond yields climbed to a record high ahead of the country’s presidential and general elections on Sunday. The strength may not last: “The external backdrop is not conducive for risky assets due to growing trade tension between the U.S. and China,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London.

Sovereign bonds were mixed, while developing-nation Asian equities extended declines for a fourth day. Euro-area bonds and Treasuries found support from investors. While Italy’s bonds continue to recover, local investors are skeptical. They are avoiding the nation’s debt after political uncertainty fueled a market rout at the end of May, even as the securities may look more attractive after the slump according to Bloomberg.

Ahead of the Bloomberg report on smaller than expected OPEC production cuts, the market’s attention was focused on reports that Russian energy minister Novak stated OPEC and non-OPEC countries will discuss raising the oil output by 1.5mln bpd in Q3 only. However, Iran stated that 3 OPEC members (Iraq, Iran & Venezuela) will veto a proposed production increase. Ahead of this meeting banks are expecting production increases of 700k BPD (SocGen & Barclays) to 1mln BPD (Goldman Sachs). Sources in EU trade suggested that this would be a smaller hike than expected, however, with 300-600k BPD the stated figures.

In the metals scope gold is in the green (+0.15%) as market sentiment sours on Chinese trade concerns and investors are flocking to safe haven assets. Copper has slipped for the second straight session and is at USD 6,997/tonne hovering just above 2 week lows as supply concerns continue to ease. Aluminium is also falling and has hit 2 month lows at USD 2,193/tonne, with support seen at the 200dma of USD 2,175/tonne.

It’s a quiet calendar, with the only expected data on Monday the NAHB Housing Market Index.

Market Snapshot

• S&P 500 futures down 0.6% to 2,767.75
• STOXX Europe 50 down 1.1% to 3466.45
• MXAP down 0.7% to 171.55
• MXAPJ down 0.4% to 559.81
• Nikkei down 0.8% to 22,680.33
• Topix down 1% to 1,771.43
• Hang Seng Index down 0.4% to 30,309.49
• Shanghai Composite down 0.7% to 3,021.90
• Sensex down 0.04% to 35,607.98
• Australia S&P/ASX 200 up 0.2% to 6,104.13
• Kospi down 1.2% to 2,376.24
• German 10Y yield fell 1.6 bps to 0.387%
• Euro down 0.3% to $1.1581
• Italian 10Y yield fell 12.7 bps to 2.343%
• Spanish 10Y yield unchanged at 1.297%
• Brent futures up 0.8% to $74.04/bbl
• Gold spot up 0.2% to $1,281.51
• U.S. Dollar Index up 0.1% to 94.85
•  

Top Overnight News

• U.S. and China trade war escalates. In his announcement of tariffs on Chinese goods on Friday, Trump vowed additional duties if China retaliated — which Beijing immediately did. An announcement on U.S. restrictions on investments from China will follow
• Germany’s crisis over migration policy is entering a critical phase with Chancellor Angela Merkel’s political future on the line and the ripples already being felt across Europe
• Merkel’s CDU allies stand behind chancellor in migration crisis; German Interior Minister Horst Seehofer said to target immediate refusals at border, RND reports
• OPEC is said to debate output hike of 300k to 600k b/d versus Russia’s proposal of 1.5m b/d; Bloomberg survey showed majority forecast of 500k b/d
• Iran says Venezuela and Iraq will join it in blocking a proposal to increase oil production that’s backed by Saudi Arabia and Russia when OPEC and its allies meet in Vienna this week
• Pound faces another week of political turmoil as the Conservative Party’s internal battle over Brexit rages ons
• U.K. Prime Minister Theresa May has been warned that rebels inside her own party could bring down her government if they don’t like the final Brexit deal she negotiates with the European Union
• Oil fell near $64 a barrel as Saudi Arabia and Russia prepared for a clash with allied crude producers over whether to lift output and as China and the U.S. exchanged threats over trade
• Three people were confirmed dead and almost 100 injured after a strong earthquake hit Osaka on Monday morning, rattling one of Japan’s industrial heartlands and halting trains and factories across the region
• Steady growth in Japanese exports for a second straight month offered more reassurance that Japan’s economy is rebounding in the current quarter, despite rising trade tensions. A surge in imports pushed the trade balance to a bigger-than-expected deficit
• A falling tide lowers all boats, it seems. Amid an exodus from emerging markets, investors are pulling out of even Asian economies with solid prospects for growth and debt financing
• After two months of cutting bets on rising prices, hedge funds are feeling optimistic again as OPEC prepares to meet
• China, Hong Kong, Taiwan and Indonesia closed for holidays

Asia stocks mostly backpedalled at the start of the week as the region digested the tit-for-tat trade spat between US and China, in which the US confirmed tariffs on USD 50bln of Chinese goods and China responded with reciprocal tariffs of the same value against the US. ASX 200 (+0.3%) and Nikkei 225 (-0.8%) both opened negative with Australia initially led lower by commodity-related sectors although strength in financials and healthcare later reversed the downside in the index, while sentiment in Japan was dampened by a firmer JPY and amid a fatal earthquake in Osaka. KOSPI (-1.3%) underperformed as a fallout from the US-China tariff dispute due to fears South Korea could feel the brunt of the trade war between its 2 largest trading partners, and with index-heavyweight Samsung Electronics pressured after it was ordered to pay USD 400mln for patent infringement related to semiconductor technology. Finally, markets in mainland China, Hong Kong, Taiwan and Indonesia were all closed for holiday, while 10yr JGBs were uneventful despite the risk averse tone as prices took a breather from last week’s upside and following a lack of a Rinban announcement by the BoJ.

Top Asian News

• HDFC Bank Is Said to Mull Relying on India in $2.3 Billion Offer
• Noble Group Halts Shares as Restructuring Hangs in Balance
• India Is Said to Plan to Sell a Stake in State-Run Coal Miner
• Deutsche Bank Head of Asia Equity Sales Tan Is Said to Leave
• Emerging Asia Hit by Biggest Foreign Investor Exodus Since 2008

European equities took impetus from Asia as the fallout from the US-China tariff dispute continue to subdue the market. FTSE 100 (-0.2%) outperforms its major peers as the index is kept afloat by currency effects. In terms of sectors, energy names are extending losses following the slump in oil prices (ahead of the key OPEC+ meeting later this week) while material names are also hitting rock bottom amid trade woes effecting base metal prices. IT names are underperforming, albeit off worse levels, as risk averse investors flee to less risky sectors. Looking at stock specifics, Aviva (+2.4%) and RSA (+1.7%) are amongst UK’s top performers after reports that DAX 30 heavyweight Allianz (-0.3%) is considering the companies for a large UK deal. Elsewhere, Hermes (-0.7%) replaced Lafargeholcim (-0.1%) in the CAC 40 today.

Top European News

• Equinor Awards Record $3.7 Billion in Drilling-Service Deals
• Norwegian Air Gains as Lufthansa CEO Says He’s Mulling Bid
• UBS Credit Rating Is Raised at Moody’s on Wealth Management
• Credit Suisse Gears Up for Next Wave of Leveraged Loan Issuance

In FX, the Dollar is mixed overall, but netting more gains vs the Eur and Gbp in particular against losses elsewhere to nudge the index back up to 95.000 and close to ytd peaks (around 95.150) forged in wake of last week’s divergent Fed and ECB policy actions/guidance. A clearer or convincing break above the big figure would bring strong resistance just ahead of 95.500, but this may also require other G10 pairs to breach levels that have held so far, like 111.00 in Usd/Jpy and 1.3200 in Usd/Cad. EUR/GBP: As noted, the major laggards as Eur/Usd remains capped ahead of 1.1600, while Cable is retreating towards 1.3200 amidst ongoing Brexit jitters and ahead of this week’s BoE policy meeting that is widely if not unanimously expected to see the MPC stand pat again and signal no urgency to normalise policy further. Nearest support is 1.3210 and for Eur/Usd the 2018 base at 1.1510. JPY/CAD: Marginal outperformers with Usd/Jpy pivoting around 110.50 and the Jpy benefiting from a degree of safe-haven demand amidst the latest import tariff trade-off between the US and China, while the Loonie has recovered some lost ground to trade back above 1.3200 vs its US peer after sliding in wake of the G7 fall-out. Note, latest OPEC spec suggesting 300-600k BPD output increase has boosted crude prices and the Cad to a degree. TRY: Attempting to pare some of its recent losses beyond 4.7000 vs the Usd, but still looking very vulnerable against the backdrop of widespread EM weakness relative to the Dollar as Turkey’s election looms and polls indicate a very unpredictable outcome. Indeed, even improvements in the jobless rate and a swing in the budget balance to a surplus from deficit is not offering the Lira any real comfort.

In commodities, oil rebounded from losses seen at the end of last week as concerns over Chinese crude tariffs were offset by a Bloomberg report OPEC may cut oil output by a far smaller 300-600kb/d. Still WTI was down modestly ahead of the upcoming OPEC meetings this week that are set to announce increased production for the cartel. Brent is outperforming WTI on Libyan internal conflicts affecting refinery production.

Reports have noted that Russian energy minister Novak stated OPEC and non-OPEC countries will discuss raising the oil output by 1.5mln bpd in Q3 only. However, Iran stated that 3 OPEC members (Iraq, Iran & Venezuela) will veto a proposed production increase. Ahead of this meeting banks are expecting production increases of 700k BPD (SocGen & Barclays) to 1mln BPD (Goldman Sachs). Sources in EU trade suggested that this would be a smaller hike than expected, however, with 300-600k BPD the stated figures.

In the metals scope gold is in the green (+0.15%) as market sentiment sours on Chinese trade concerns and investors are flocking to safe haven assets. Copper has slipped for the second straight session and is at USD 6,997/tonne hovering just above 2 week lows as supply concerns continue to ease. Aluminium is also falling and has hit 2 month lows at USD 2,193/tonne, with support seen at the 200dma of USD 2,175/tonne

Looking at the day ahead, the most significant event today is the start of the ECB’s Forum on Central Banking in Sintra (continuing until Wednesday), with President Draghi due to make opening remarks in the evening. Away from that, the Fed’s Dudley and Williams are all due to speak while datawise in the US the NAHB housing market index reading is due for June. Finally the Brexit withdrawal bill passes to the House of Lords on Monday and Germany Chancellor Merkel meets new Italy PM Conte.

US Event Calendar

• 10am: NAHB Housing Market Index, est. 70, prior 70
• 8:45am: Departing NY Fed Chief Dudley Speaks at Bank Culture Conference
• 9am: Dudley, Duke and Gorman Speak on Culture in Finance Panel
• 1pm: Fed’s Bostic Speaks on Economist and Monetary Policy Outlook
• 4pm: Fed’s Williams Speaks at NY Fed Bank Culture Conference

DB’s Jim Reid concludes the overnight wrap

Happy Monday. Whether it’ll be a happy Tuesday for me might depend on whether Tunisia help England to end a stretch of only one win in their last eight World Cup games tonight. Having said that, half of Deutsche Bank is going to be in mourning today after Germany’s opening match defeat yesterday. Outside of football I hope you all had a good weekend. I spent yesterday afternoon watching Paddington 2 for the fifth time as Maisie loves it. In fact it might be Hugh Grant’s best film since “Mickey Blue Eyes”! Talking of Mr Grant, once we get past the BoE meeting on Thursday, it will be a case of “Four Central Bank meetings and a nuclear summit” over the last week.

Of those central bank meetings so far, the main outcomes were that the Fed was more hawkish than expected and with the ECB pulling off a remarkably dovish QE exit routine. As such our rates strategists have now upped their 10 year US Treasury forecast for YE 2018 to 3.50% (from 3.25%) and lowered their 10 year Bund forecast to 0.90% from 1.25%. We can’t stray too far away from central bankers this week as between today and Wednesday we have the ECB’s Forum on Central Banking due to take place in Sintra.

Chances are that coming so close after the big ECB meeting, it’s unlikely to have the same impact on markets as it did this time last year when Draghi announced that the ECB was ready to start phasing out extreme monetary stimulus. However it’s a true A-list gathering of Central Bankers that makes the casting agents of Ocean’s Eleven look like they ran out of money. As such headlines will be aplenty. Kicking things off tonight, President Draghi will deliver opening remarks followed by a speech from former US Secretary of State Lawrence Summers. Tomorrow morning Draghi will then make the introductory speech, before board member Peter Praet speaks in two separate panels, the second including the Fed’s Bullard and ECB’s Lane. Finally on Wednesday we’ll hear from ECB board member Sabine Lautenschlager in the morning and then Benoit Coeure. The main event might well come on Wednesday afternoon though when we get to watch a policy panel featuring Draghi, the Fed’s Powell, BoJ’s Kuroda and RBA’s Lowe.

Elsewhere we have a BoE meeting (Thursday) and a likely contentious OPEC meeting in Vienna (Friday) where ministers are due to discuss a possible lift back up in output after the freeze last year. Headlines will start from Wednesday as officials and companies start to gather before the meetings. Global flash PMIs at the end of the week are likely to be the big data highlight. With regards to other potentially important things to look out for, early this week the Brexit withdrawal bill passes to the House of Lords and back to the Commons with plenty of opportunity for rebellion and headlines about the future of Brexit and PM May. Mrs Merkel will be busy keeping her party’s coalition together while also meeting Italian PM Conte in Berlin today and Macron tomorrow re-strengthening the Euro Area. Finally the Fed’s results from its 2018 bank stress tests will be out on Thursday. The rest of the week ahead is included at the end.

Back to Ms Merkel, last week speculation swirled about the health of her party’s (CDU) 69-year old coalition with the CSU due to policy differences on immigration, as Sonntag reported Germany’s Interior Minister Mr Seehofer (a member of CSU) will defy Chancellor Merkel and unilaterally implement a plan to turn away refugees from Germany as early as today. Over the weekend, the tone was a bit more conciliatory as the Bild newspaper reported the CSU Party will meet today and may give Ms Merkel another two weeks to get an EU deal facilitating the return of immigrants to countries where they were first registered.

Notably, Mr Seehofer noted “the situation is serious but manageable” and that “no one in the CSU has an interest in toppling the Chancellor, in dissolving the union of the CSU-CSU”. Elsewhere, the WSJ reported Ms Merkel has reached out to some of her southern EU neighbours to sound out their willingness to readmit migrants. Looking ahead, as highlighted above Ms Merkel will meet with her Italian and French counterparts this week and then also have the June 28-29 summit of EU leaders to seek some sort of agreement.

Turning to trade tensions and its potential impacts on China. DB’s Zhiwei Zhang and team estimates the impact of the announced US tariff on China’s economy is quite small for now. They note that if the US imposes 25% tariff on $50bn of Chinese goods ($34bn in July, $16bn in Sep.), the total impact would be less than 0.1% of China’s GDP in 2018.

Looking ahead, Reuters reported the US may impose higher tariffs on an additional $100bn of Chinese imports. If this triggers another round of actions from China, then this second round of trade war will likely be much more damaging for both sides. The team estimate this could reduce China’s GDP growth by c0.3% of GDP, but importantly, the US tariff list will likely include big item consumer goods such as phones, computers, TVs etc, which could mean a lot more workers in China and US consumers would be negatively affected. If this second scenario eventuates, our economists  expect China to loosen policy such as tolerating the property and land market boom in tier 3 cities and cutting the RRR twice over the rest of this year to partly offset the potential drags.

This morning in Asia, markets are trading modestly lower with the Nikkei (-0.93%) and Kospi (-1.22%) both down, while markets in HK and China are closed for holidays. Meanwhile, futures on the S&P are down c0.5% and UST 10y yields are down c1bp. Datawise, Japan’s May adjusted trade balance was lower than expected (-JPY297bn vs. +JPY144bn expected) as growth in imports was stronger than expected.

As for markets back on Friday, equities broadly weakened as trade tensions escalated. The Stoxx 600 (-0.99%), DAX (-0.74%) and FTSE (-1.70%) all declined, dragged down by materials and energy stocks (-2.43%). The S&P traded -0.7% lower initially, but recovered later in the day to close -0.10%, in part due to higher volumes on the close for index rebalancing. Government bonds were broadly firmer (UST 10y -1.5bp; Bunds -2.3bp) while 10y Italian BTPs rallied for the third consecutive day (-12.9bp), in part reflecting the ongoing reactions to a more a dovish ECB.

In commodities, WTI oil dropped -2.74% as the Russian energy minister Mr Novak signalled that Russia and Saudi Arabia both “in principle” support a gradual rise in output. Meanwhile, other LME base metals also dropped 2-3% following increased trade tensions (copper -2.19%; zinc -3.36%; aluminium -2.30%) while the price of soybeans fell to a fresh one year low (-2.05%). On Sunday, Iran’s representative to the OPEC meeting noted that Iran, Venezuela and Iraq “are going to stop” Russia & Saudi Arabia’s proposal for higher oil production. He added that if the two countries want to “act alone, that’s a breach of the cooperation agreement”. This morning, WTI oil is down another c2%. So lots to look forward to ahead of this week’s OPEC meeting.

Before we take a look at today’s calendar, we wrap up with other data releases from Friday. In the US, the May IP was weaker than expected at -0.1% mom (vs. 0.2%), weighed down by a -0.7% mom decline in manufacturing production, which was mainly due to a decline in production in the auto sector as a result of a fire at a major truck assembler. Elsewhere, the June Empire manufacturing index was above market at 25 (vs. 18.8 expected) and the highest since October 2017, with the new orders and employment indices both firmer. Meanwhile the June University of Michigan sentiment index was 99.3 (vs. 98.5 expected), with both the 1yr and 5-10 inflation expectation up 0.1ppt mom to 2.9% yoy and 2.6% yoy respectively. Notably, the 1yr ahead index is now at its highest level since March 2015. Following the above, the NY Fed’s estimate of Q2 GDP growth has edged 0.1ppt lower to 3.0% saar.

In Europe, the final reading of the Euro area’s May core CPI was confirmed at 1.1% yoy, while Italy print was revised 0.1ppt lower to 1% yoy. The Euro area April trade surplus was smaller than expected at €18.1bln (vs. €20bln) while the 1Q Euro area labour costs have increased 2.0% yoy, up from 1.4% yoy in Q4, which is the fastest pace recorded for five years.

Looking at the day ahead, the most significant event today is the start of the ECB’s Forum on Central Banking in Sintra (continuing until Wednesday), with President Draghi due to make opening remarks in the evening. Away from that, the Fed’s Dudley and Williams are all due to speak while datawise in the US the NAHB housing market index reading is due for June. Finally the Brexit withdrawal bill passes to the House of Lords on Monday and Germany Chancellor Merkel meets new Italy PM Conte.

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Submitted by Bill Blain of Mint Partners

Iceland, Rising worries about immigration, trade and oil prices… whatever next.

“A free man can live on fish. Independence is better than meat.”

Today, its’ all about Iceland! The giant-killing demi-gods of football slaughtered Argentina in a 1-all draw! [Think Led Zep riff : Da da da dada!] What other mere team can possibly match them? The population of Edinburgh is 100k people bigger than the whole of Iceland! And, since the Icelanders are pretty much Scots according to their DNA, I’m now a fanatical fan! I’ve ordered my Iceland shirt, the Black-Death Brennavin, fermented shark and sheep’s wobbly bits for the next game on Friday when they will take down Nigeria in Stalingrad! (I shall be supporting England this afternoon – I guess I’ve gone soft after so many years amongst them… Who are they playing btw?)

Meanwhile…. Back in the markets, so much to worry about.

I suppose the challenge is to figure out what the looming German political implosion over immigration policy, the likely splatter effects across Europe, trade war worries and US high-tech sanctions on China, turmoil in OPEC, and the light comic relief provided by the UK Brexit shenanigans, are collectively going to do to sentiment. Germany without Merkel? A full scale trade war? They are not unimaginable!

Or, I could worry about what I’m going to say at tomorrow’s Euromoney Global Borrowers and Investors Conference…

Or, I could worry about this week’s big Central Bank gab-fest. I would love to be a fly on the wall in Portugal… I can picture Jay Powell sitting there with a smug smile talking about the normalised US economy at full employment while Draghi tries to put some kind of gloss on Europe’s stunning 1% growth quantum and his difficulties balancing his “independent” central bank with national vs EU political imperatives – you have to admire the man for trying. The US is pretty much the only normalised economy on the planet – average interest rates are still below 1%, inflation is where?, and central bank balance sheets remain at record levels. What is “synchronous” about that?

There seem to be two economic outlooks in fashion at the moment. I) that normalisation and synchronous growth will drive the global economy much higher therefore buy buy and buy some more, versus the alternative II) that years of intervention, distortion and regulatory bluster leave markets weaker and more vulnerable than ever before. I suppose that’s going to be the gist of my debate at the Euromoney conference tomorrow… I guess I’ll be talking about “irrational complacency” and “delusional exuberance”…

The big issue is likely to be the OPEC meeting where the Iran axis will try to block the Russia/Saudi pact from increasing production. My stock picking chart-analyst Steve Previs cast his technical eye over the recent charts of oil price action. He concludes we’re looking at a likely slide back towards $60 BBl in the near term despite bullish oil speculators. The US ramping up production and the Russia/Saudi pact looking to sell more – the prospects for an oil glut look high. So much for oil prices driving inflation?

Let’s wait and see what direction sentiment takes…

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Authored by Andrew Korybko via Oriental Review,

Trump promised to replace what he termed as “fool trade” with fair trade when it comes to America’s economic partnerships, especially those with NAFTA and the EU.

Tweeting from Singapore after the failed G7 Summit in Canada, the President wrote that “Fair Trade is now to be called Fool Trade if it is not Reciprocal”, before explaining how Canada and Germany “rip off” the US through their own protectionist tariffs and insufficient contributions to NATO, respectively. Trump’s sour that their leaders attacked him for his “Make America Great Again” steel and aluminum tariffs while hypocritically ignoring their own lopsided economic relations with the US, and he believes that now is the time to make right for what he truly believes are the historic wrongs that his predecessors committed in voluntarily handicapping American power.

Proverbially speaking, the President conceptualizes America as Gulliver the “giant” tied down by a bunch of Lilliputian dwarves, albeit having previously put itself in this submissive position out of some sort of ideological masochistic-sadism that Trump wants to free it from.

Canada’s Prime Minister Justin Trudeau (R) meets with U.S. President Donald Trump during the G7 Summit in the Charlevoix town of La Malbaie, Quebec, Canada, June 8, 2018

The Cold War-era quid pro quo of the US providing costly security assistance to its NATO allies in order to enable them to concentrate more fully on building their utopian welfare states is no longer relevant because of the changing nature of geopolitics and the rise of asymmetrical threats, though Clinton, Bush, and Obama perpetuated this state of affairs because it advanced the Liberal-Globalist model that all three of them were pursuing at the expense of average Americans.

Having entered into office because of the desperation that millions of regular folks in Middle America are experiencing as a result of the domestically catastrophic consequences of globalization on the American Heartland and especially the Midwest, Trump feels obligated to do something about this massive self-inflicted economic wound that’s bleeding hundreds of billions of dollars from the country each year for voluntary reasons that are impossible for this businessman to fathom.

Transforming “fool trade” back into fair trade will harmonize this imbalance, at least from the US’ perspective, though it’ll be detrimental to its semi-socialist partners who have grown accustomed to having the “big brother” that they love to complain about so much subsidizing their militaries and de-facto doing the same for their economies through this decades-long legacy of uneven trading arrangements that Trump now wants to change.

The far-reaching consequences of the Europeans losing out on this multibillion-dollar bonanza are that their domestic growth and social stability will undoubtedly suffer while the elite scramble to appease the masses as they frantically try to negotiate more favorable trading terms with the US.

America can deal with an indefinite disruption of transatlantic trade much better than the Europeans can, and Trump’s betting that he can exploit the resultant geopolitical tumult in order to strengthen the US’ unipolar control over the EU.

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Italy demanded on Saturday that the Netherlands recall two NGO-operated migrant transport ships flying the Dutch flag, after Italian Interior Minister Matteo Salvini warned that they would not be allowed to dock in Italian ports. 

The ships are currently sitting off the coast of Libya. 

“They should know that Italy no longer wants to be an accomplice in the business of illegal immigration and therefore they will have to aim for other, non-Italian, ports,” Salvini said in a Friday post on Facebook.  

The blocked NGO ships come on the heels of Italy’s refusal to take in a boat full of 629 shipwrecked migrants picked up off the coast of Libya – a move ushered in by the Italian government’s new populist coalition headed by Salvini. 

“We are finished being doormats,” tweeted Salvini on Sunday. 

After Salvini’s comments, one of the Dutch-flagged NGOs, Mission Lifeline, tweeted in German “When fascists promote us…” to which Salvini fired back over Twitter “insults and threats will not stop us.” 

La nave Ong Lifeline commenta: “Quando i fascisti ci fanno pubblicità…”.
Roba da matti.
A casa nostra comandiamo noi, la pacchia è STRA-FINITA, chiaro?
Insulti e minacce non ci fermano.
Se voi mi aiutate, io non mollo! #chiudiamoiporti pic.twitter.com/w5ZI1H5nYa

— Matteo Salvini (@matteosalvinimi) June 16, 2018

“The issue of migrants is epic and Europe has remained detached for years about it, having inappropriate procedures in place before this issue became so severe,” Italy Foreign Affairs Minister Enzo Moavero Milanesi said, according to interview in Corriere della Sera. 

On Saturday, France agreed to accept some of the 629 migrants from 26 countries rescued by the MV Aquarius following an international spat between French President Emmanuel Macron and Italian authorities which led to Spain agreeing to take them in.

After Italian Interior Minister Matteo Salvini refused to accept the NGO vessel packed with shipwrecked immigrants, Macron said that Italy was “playing politics” with the migrants, and that the Italian government had displayed “cynicism and irresponsibility.“

Mr Macron’s spokesman Benjamin Griveaux said the French president recalled that “in cases of distress, those with the nearest coastline have a responsibility to respond“.

“There is a degree of cynicism and irresponsibility in the Italian government’s behaviour,” he quoted President Macron as saying. –BBC

Rome wasn’t having any of Macron’s rhetoric – as Italian Prime Minister Guiseppe Conte shot back – accusing Macron of being hypocritical, cynical and rigid. 

“The statements around the Aquarius affair that come from France are surprising and show a serious lack of knowledge about what is really happening. Italy can not accept hypocritical lessons from countries that have always preferred to turn their backs when it comes to immigration,” Conte’s office said.

And after several days of discussions, Madrid announced on Saturday that it had accepted France’s offer to take in some of the 630 shipwrecked migrants. 

Merkel in jeopardy

With a populist wave sweeping Europe and several European nations such as Austria preparing for strict and aggressive measures against unchecked migration, German Chancellor Angela Merkel finds herself hanging by a thread after a lawmaker from her own party said she could be out by the end of next week during an appearance on BBC World at One (via Express).

The Chancellor is at odds with her conservative Bavarian allies – the Christian Social Union (CSU), who share power with Merkel’s Christian Democrats (CDU). 

As Bloomberg reports, the executive of the Bavarian party – an ally in Merkel’s government – will pass a resolution Monday approving rebel Interior Minister Horst Seehofer’s plan to turn away more refugees at Germany’s borders, the Bild Zeitung reported, citing party aides. Merkel has been given a two-week deadline to gain the support of EU partners or Seehofer will execute the order unilaterally, according to Bild.

The two-week ultimatum, if true, would mark an irreparable rift between the Chancellor and the party’s Chairman Horst Seehofer, according to Social Democrat lawmaker Ingrid Arndt-Brauer. 

Such an ultimatum would be “outrageous and not to be tolerated:” Arndt-Brauer told Bloomberg. “You cannot do that with the chancellor — relations between Merkel and Seehofer would seem beyond repair”

On Friday, the CSU, had announced the end of its alliance with Merkel’s CDU – though that report was quickly denied.

“No one in the CSU has an interest in bringing down the chancellor, to break up the CDU/CSU parliamentary alliance or to blow up the coalition,” said Seehofer in a statement to newspaper Bild am Sonntag, adding “We want a solution for sending back refugees at our borders.”

While the German public’s anger over Merkel’s “open door” policy has been simmering for years, the instability within the ruling coalition – which features a decades-old political alliance between the CDU and CSU – intensified when Merkel decided over the weekend to veto a plan by Interior Minister Horst Seehofer aimed at controlling and reducing illegal migration. The minister’s refusal to back down has already shattered an uneasy truce between conservative backers and opponents of her liberal asylum policy.

France and Germany close to an agreement

Merkel’s troubles within Germany notwithstanding, Paris and Berlin appear to be close to an agreement on eurozone reform after months of infighting and division, according to French Finance Minister Bruno Le Maire. 

Populist uprising

As Niall Ferguson notes in The Sunday Times, “On immigration, Italy’s populists are the future. Merkel is the past,” and the migration issue will be looked at by future historians as a watershed moment in the destruction of the EU. 

Increasingly, I believe that the issue of migration will be seen by future historians as the fatal solvent of the EU. In their accounts Brexit will appear as merely an early symptom of the crisis. Their argument will be that a massive Völkerwanderung overwhelmed the project for European integration, exposing the weakness of the EU as an institution and driving voters back to national politics for solutions.

Let us begin with the scale of the influx. In 2016 alone an estimated 2.4m migrants came to the 28 EU member states from non-EU countries, taking the total foreign-born population of the union up to 36.9m, more than 7% of the total.

This may be just the beginning. According to the economists Gordon Hanson and Craig McIntosh, “the number of African-born first-generation migrants aged 15 to 64 outside sub-Saharan Africa [will] grow from 4.6m to 13.4m between 2010 and 2050”. The great majority of these will surely head to Europe. -Niall Ferguson

Ferguson notes  that the wave of populism sweeping Europe stands to spread like wildfire – having already established footholds within the governments of six EU member states: Austria, the Czech Republic, Greece, Hungary, Italy and Poland – while 11 populist parties have at least 20% popular support – “implying that the number of populist governments could roughly double.” 

I used to be sceptical of the argument that Brexit was about leaving a sinking ship. I am now reassessing my view. Even as the impossibility of reconciling Tory remainers and Brexiteers becomes an existential threat to Theresa May, events in Europe are moving in directions that seemed inconceivable just a few years ago. -Niall Ferguson

Never forget, Gaddafi wanted a scant €5bn/year to keep North African migrants out of Europe. Alas, Hillary Clinton and the French were hell bent on taking him out.

“We came, we saw, he died” – and then Europe was destroyed by unchecked migration. 

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Authored Amir Tehari via The Gatestone Institute,

As the Turkish election campaign reaches its final phase, a consensus is emerging that it should be regarded as a referendum on Recep Tayyip Erdogan, the man who has dominated the nation’s politics for almost two decades.

Erdogan has often boasted that he has never lost an election and, as polls indicate, he is unlikely to lose this time either. Since 2002, he and his AKP (Justice and Development Party) have won five parliamentary elections, three local elections, three referendums and one presidential election.

But what if the victory he expects next week turns out to be a tactical win and a strategic loss?

Erdogan won his first victory in a national election at a time that Turkish politics had hit an impasse and needed radical changes of direction and method. Erdogan provided that change and, at least during his first decade as the captain of the Turkish ship of state, succeeded in steadying the wayward vessel and pointing it towards what looked like peace and prosperity.

Now, however, observers of the Turkish experience are almost unanimous in thinking that not only those promised golden shores may be receding but that Erdogan’s leadership may have led to five new impasses.

The first impasse is political.

By concentrating power in the presidency, which means in his own hands, something that, after Ataturk’s death, took Turkey almost half a century to modify, Erdogan has upset the institutional balance and the pluralism of the political scene developed since the latest of the military juntas in the 1980s.

Two decades ago, Erdogan was the bearer of a new message of pluralism, power-sharing and give-and-take. Today, he himself is the message. In voting for Erdogan you are no longer voting for a program, a philosophy, or even a new governing elite. You vote for Erdogan.

Turkey’s President Recep Tayyip Erdogan. (Photo by Getty Images)

Paradoxically, the Turkish voter today knows less about who really Erdogan is, or wants to be, than two decades ago. Uncertainty regarding the future of Turkish institutions is more acute than it was in the post Turgot Ozal sunset phase of rule by corrupt and incompetent parties.

The second impasse created under Erdogan concerns the vexed issue of identity, most dramatically underlined by the four-decade long failure of successive governments in Ankara to forge a modus vivendi with the ethnic Kurds who account for at least 15 per cent of the population. Ataturk had decided to solve the problem by denying it existed. He jettisoned the Ottoman system of “unity in diversity” by inventing an ideal “Turkish identity” that ignored ethnic, religious and cultural differences in a society rich in its diversity. Ataturk’s policy led to an impasse which produced a civil war that has claimed more than 40,000 lives.

Initially, Erdogan realized the wisdom of the Ottoman policy of managing ethnic prejudices by regarding diversity as an asset. His government was initially successful in defusing the Kurdish time-bomb with a series of accommodating policies. Later, however, Erdogan tried to “drown the fish” by dividing the nation into numerous ethnic identities of which Kurds would be one among many, a trick that ensured the failure of his initially promising policies.

To be sure, the Kurdistan Workers Party (PKK) helped that failure by sticking to its dogmatic, violent and Stalinist methods. Today, the Kurdish question is more acute than ever.

The third impasse concerns Turkish aspirations after full membership of the European Union, a goal shared by almost all political parties, even if only in a pro-forma manner, since the 1960s.

May be “Destination Europe” was never more than an empty slogan as powerful voices in the European Union oppose Turkish membership for a variety of reasons, including racism and concerns about Islam.

Nevertheless, the slogan provided a strong narrative in favor of democratic reforms and economic liberalization that cut across parochial and partisan interests and narrow concerns.

Today, however, as far as “joining Europe” is concerned, Turkey is farther than ever from its pronounced goal. Almost all parties contesting next week’s elections at both presidential and parliamentary levels agree that the road to Europe is blocked, at least for the foreseeable future.

Erdogan has also created a fourth impasse in Turkey’s relations with the North Atlantic Treaty Organization (NATO) and its leader the United States. That led to a surrealistic situation in which Turkish forces invading Syria at some point feared a direct clash with US troops helping Syrian Kurds consolidate their hold on a chunk of territory.

Erdogan’s involvement in Syria obliged him to try to be sweet to the Russians who were emerging as a major player there. That, in turn, widened the distance with both the US and the European Union at a time they had their own issues with Vladimir Putin’s Russia. Too late, Erdogan realized that Turkey, de-coupled from NATO, would not be as valuable to Russia and thus denied the influence that Ankara might have dreamed of.

Finally, Erdogan has created a fifth economic impasse by casting a shadow of doubt over policy options he might contemplate once reconfirmed in his position. Four years ago, Turkey seemed to have definitely converted to a model of economic liberalism that emphasized private enterprise, limited the public sector to a few key areas, and respected international norms and practices especially as far as transparency and the rule of law are concerned.

Today, however, Turkish economy seems to be prone to interventionist temptations, corrupt practices and shenanigans prevalent in so-called “developing nations” with petty autocratic governments.

Not surprisingly, direct foreign investment has fallen to its lowest level since 2010 while the Turkish currency, lira, has lost almost a third of its value compared to a basket of world currencies. Turkish annual growth rate forecast by the World Bank is the lowest since 2008 with recession a growing concern.

Paradoxically, in this election campaign, none of those impasses featured as prominently as they deserved, with all parties, and their presidential candidates, falling for the personalization of the exercise that Erdogan wanted.

In that sense, Erdogan may have already won.

At a time of uncertainty many voters may decide that it is better to stick with the devil they know rather than risk courting an unknown one.

However, Erdogan’s win could also turn out to be his loss, especially if, as many expect, voter-turnout and his share of the votes take a downward turn.

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The People’s Liberation Army Navy (PLAN) has carried out an alarming anti-aircraft drill with missiles fired at dummy drones over the South China Sea to simulate an aerial attack, after Washington challenged Beijing by flying Boeing B-52 Stratofortress bombers near its highly disputed militarized islands, said the South China Morning Post.

The military exercise, which involved “three target drones making flyovers of a ship formation at varying heights and directions,” is part of a much larger effort by Beijing to increase its military readiness for future combat with the U.S.

The report said the drones served to “precisely verify the feasibility and effectiveness to ensure a close stimulation of an aerial attack target,” according to the report.

In other words, Beijing is preparing for an attack on its islands — most likely led by the U.S. and backed by its regional allies.

Details were limited about the overall military exercise — including the exact date and which militarized island the drill was conducted on.

The report came out shortly after U.S. Secretary of State Mike Pompeo expressed great concern over China’s rapid militarization of the South China Sea during a briefing in Beijing with Chinese leadership on last week’s summit between President Trump and North Korean leader Kim Jong-un.

Pompeo’s remarks came after the recent U.S. Navy warships and U.S. Air Force Boeing B-52 Stratofortress bombers traveled dangerously close (separate but related incidents) to the militarized islands, which drew sharp criticism from Beijing.

During Pompeo’s visit to China in April, he “reaffirmed our deep concerns about the building and militarizing of outposts in the South China Sea, as those actions increase tensions, complicate and escalate disputes, endanger the free flow of trade, and undermine regional stability”, the U.S. State Department released in a statement.

China lays unilateral claim to most of the South China Sea, a region that has vast natural resource and one of the world’s busiest shipping lanes. Other claims to the heavily disputed area are by the Philippines, Vietnam, Malaysia, Brunei, and Taiwan. It is still unclear whether Beijing used its sovereign territory or a foreign nation’s territory to conduct the latest round of war drills.

The South China Morning Post said regional military strategists expect relations between Beijing and Washington to further deteriorate over the South China Sea, as Beijing continues to expand its military reach, which was once dominated by Washington for decades.

“The vast waters of the South China Sea connect the Pacific and Indian oceans and have high military, security and strategic importance, so anyone who dominates the region has the advantage,” said Li Mingjiang, an associate professor at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore.

“But China is unlikely to follow what the US wants as [Beijing] is also looking to expand its military presence in the South China Sea with the hope of turning the region into an area under its military dominance.”

Xu Liping, a senior research fellow at the Chinese Academy of Social Sciences, agreed with Mingjiang.

“The drills, as well as other recent military exercises, are a message to the world that China is determined about, and capable of, safeguarding its territory in the South China Sea,” Liping said.

“These tensions will remain, but the question is – how are the two sides going to manage this dispute?”

While there is no comprise in sight, the Washington-Beijing struggle for regional dominance in the South China Sea could lead to a further decline in relations between both countries.

To give a perspective of what the future could behold, the escalating trade war between Washington-Beijing could, in fact, lead to a hot conflict, and it seems the epicenter could be the South China Sea.

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Authored by Andrei Akulov via The Strategic Culture Foundation,

The combat experience that Russia’s Terminator-2 tank support combat vehicle (BMPT-72) has gained in Syria has proven to be invaluable. It is being used to develop a new Terminator-3 version that will soon equip the tank support system to do things like attacking unmanned aerial vehicles (drones). Other armored vehicles and dismounted infantry in difficult terrain remain high-priority targets.

Few details are available so far. Like its predecessors, the new vehicle’s armor protection will be equivalent to that of a main battle tank, with armaments allowing it to engage virtually any enemy weapon system or unit and to fire at multiple targets at the same time. Automation makes it possible to reduce the number of crew members from 5 to 3.

The new weapon system is likely to share its chassis, sensors, armor, and active protection system with the new Armata T-14 main battle tank. According to Russian media reports, the main armament will be a 57-mm. gun already used by the Russian Navy. Its rate of fire is 300 rounds per minute, its range — 16 km., and its altitude — over 4 km. The projectile can penetrate armor over 100 mm. thick. Because the firing range of its machine gun and automatic grenade launcher are 60-140% greater than that of the American Bradley IFVs and Stryker wheeled armored vehicles and anti-tank systems, this system can reliably protect tanks and infantry while remaining safely out of reach.

The Zvezda TV channel quoted officials from the weapons manufacturer Techmash who claimed that the Tosochka thermobaric, wheeled-chassis, heavy multiple-rocket launcher is to be delivered to the Russian Army in 2020. Using wheels instead of caterpillar tracks allows it to move faster but also increases the system’s vulnerability when operating on the front lines. One must assume that the MLRS will not be used to fire directly at targets, but will instead shoot at them from protected positions. Wheels make it more effective against terrorist units. It does not need trailers to move rapidly across great distances, which is exactly what is required to forcefully attack militants on different fronts.

Russian officials confirmed in May that the Uran-6 demining robot and the Uran-9 unmanned light battle tank have been tested in Syria. The latter is the first remote-controlled military robot in the world (a miniature tank) with a 30-mm. gun, enabling it to carry out the missions of an armored combat system supporting infantry on the ground.

The Uran-6 is a unique unmanned ground vehicle (UGV), or mine-clearing robotic system, that saves human lives by clearing routes across mine fields. Weighing six tons, it can be transported by truck. With its bulldozer blade and trawls, it can do the work of 20 sappers, neutralizing ordnance with a potential explosive energy of 59 kg. (130 lbs.) of TNT equivalent. Aided by four cameras for 360-degree view, it can be equipped with a large number of tools, such as a robotic arm, a rear forklift, a gripper with a cargo-lifting capacity of one ton, etc. The system can conduct demining operations on any terrain, while remaining at a safe distance of up to one km. away.

Made of steel plates 8 mm-10 mm thick, the vehicle is highly resistant to mine blasts and shrapnel damage. The system can defend itself using 7.62-mm small arms.

Built on the basis of a tracked chassis, the Uran-6 is powered by a 6-cylinder water-cooled, turbo-charged diesel engine, allowing it to move at a speed of up to 15 km., negotiate obstacles 0.8 m. high, cross 1.2-m wide ditches and water obstacles, and operate in swamps 0.45 m. deep. The system is able to work continuously for up to five hours. It did a great job in Palmyra, Syria, defusing bombs and bobby traps. The Russian Army plans to increasingly rely on UGVs as time goes on.

Mainly designed for reconnaissance and patrol purposes, as well as for protecting convoys and supporting infantry, Tigr-M all-terrain infantry mobility vehicles have also seen combat in Syria. With the Arbalet-DM remote module installed, the system becomes robotic. The module consists of a 12.7-mm. caliber Kord machine gun with 150 cartridges or a 7.62-mm caliber PKTM machine gun with 250 cartridges. Laser guidance is used. The Arbalet-DM can lock on and automatically track stationary and moving targets identified by a TV camera from a distance of 2.5 km. or 1.5 km. if thermal-imaging equipment is used. A laser range finder has a range of 100 m.-3,000 m. This new version of Tigr is funded by the 2018-2025 state procurement program.

The Tigr-M has outstanding off-road capabilities. With an operational range of 1.000 km, the vehicle can reach speeds of up to 155 km. per hour. It can climb 31-degree slopes and cross water obstacles that are 1.2 m wide.

The famous, combat-proven BMP-3 heavily armed infantry combat vehicles are to become unmanned too, as soon as the AU-220 combat module armed with a 57-mm. automatic cannon is installed. It will enable the system to strike aerial targets. The gun’s rate of fire is 80 rounds per minute and its range is 14.5 km. Any type of rounds can be used. An armor-piercing round can penetrate 130 mm. of steel from one km. away A coaxial 7.62-mm machine gun can hold 1,000 rounds of ammunition. The module can fully rotate 360 degrees.

The trend is clearly evident — the Russian Army is making great strides in its introduction of new, more highly automated technologies. New weapons that are unlike anything owned by any other country, such as tank support vehicles, are currently either being added to the Russian arsenal or are being developed. The army is also gradually moving away from soldier-to-soldier warfare, turning instead toward combat that is fought by remote-controlled machines driven by artificial intelligence. In March, Defense Minister Army General Sergei Shoigu said that a number of military robotic systems were nearing the completion of their trials before going into serial production this year. He was telling the truth. Many nations are working hard to put unmanned systems onto the battlefields, but Russia appears to be leading this race, fielding its military robotics more quickly than anyone else. The very pace of the updates to these armored vehicles captures the imagination.

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