Month: July 2024

Authored by Jonathan Turley,

We previously discussed the free speech lawsuit of Portland State University Professor Bruce Gilley who was blocked from the Twitter account of the University of Oregon’s Division of Equity and Inclusion after tweeting “All men are created equal.”

The court just granted a preliminary injunction holding that there was a substantial likelihood that he would prevail on the merits against the University of Oregon.

Portland State University Professor Bruce Gilley was excluded from a Diversity Twitter page by the Communication Manager of the Division of Equity and Inclusion at the University of Oregon.

(The manager is identified as “tova stabin” who the court notes “spells her name with all lowercase letters.”).

Stabin has now left the school.

In Gilley v. Stabin, Judge Hernández previously offered this background:

On or about June 14, 2022, Defendant stabin, in her capacity as Communication Manager, posted a “racism interruptor” to the Division’s Twitter page, @UOEquity. The Tweet read “You can interrupt racism,” and the prompt read, “It sounded like you just said_________. Is that really what you meant?”

Plaintiff Bruce Gilley, a professor at Portland State University, responded to the Tweet the same day it was posted with the entry “all men are created equal.” Plaintiff is critical of diversity, equity, and inclusion (“DEI”) principles, and intended his tweet to promote a colorblindness viewpoint. Plaintiff tagged @uoregon and @UOEquity in his re-tweet. Also on June 14, 2022, Defendant stabin blocked Plaintiff from the @UOEquity account. Once he was blocked, Plaintiff could no longer view, reply to, or retweet any of @UOEquity’s posts….

Plaintiff later filed a public records request with the University of Oregon to inquire about the policy VPEI uses to block Twitter users. … The University initially responded that there was no written policy and that “the staff member that administers the VPEI Twitter account and social media has the autonomy to manage the accounts and uses professional judgment when deciding to block users.” …Plaintiff also asked whether other Twitter users had been blocked from @UOEquity, and the University responded that two other users were blocked. … Plaintiff asserts that “[b]oth of the other users have expressed politically conservative viewpoints, including criticizing posts of the @UOEquity account.” Am. Compl. ¶ 70.

On June 27, 2022, Defendant stabin responded to an email from University of Oregon employee Kelly Pembleton, who was helping respond to Plaintiff’s public records request. Defendant stabin sent the following in response to Pembleton’s request for a list of the users she had blocked on @UOEquity:

“Doesn’t take real long. I’ve only ever blocked three people. Here is the list. I’m assuming the issue is this guy Bruce Gilley. He was not just being obnoxious, but bringing obnoxious people to the site some. We don’t have much following and it’s the social I pay least attention to. Here’s a screenshot of everyone I’ve ever blocked. I hardly do it (and barely know how to).”

Minutes later, Defendant stabin sent another email to Pembleton about the records request. The email reads, in pertinent part:

“Oh, I see. It is Bruce who brought it. Not surprising. He was commenting on one of the “interrupt racism” posts, as I recall talking something about the oppression of white men, if I recall. Really, they are just there to trip you up and make trouble. Ugh. I’m around at home for a quick zoom about it.’

The court previously denied the university’s motion to dismiss. The University of Oregon then continued to spend public dollars to try to defend its right to censor academics and students in this arbitrary way. Now it has lost the key fight over the preliminary injunction.

In his decision, Judge Hernández zeroed in on the guidelines allowing for the censorship of offensive or hateful speech:

“Plaintiff has shown that the two provisions of the social media guidelines he challenges create a risk of censoring speech that is protected by the First Amendment. As Plaintiff points out, speech that is “hateful,” “racist,” or “otherwise offensive” is protected by the Constitution. Pl. Br. 3 (citing Snyder v. Phelps, 562 U.S. 443, 454 (2011); Cohen v. California, 403 U.S. 15, 25 (1971); Am. Freedom Def. Initiative v. King County, 904 F.3d 1126, 1131 (9th Cir. 2018)). The Court held that the @UOEquity account was a limited public forum, meaning that any restrictions on speech must be reasonable and viewpoint-neutral. Op. & Ord. 25.5 Plaintiff is correct that the provisions allowing the Communications Manager to block “hateful,” “racist,” and “otherwise offensive” speech create a risk of viewpoint discrimination because “[w]hat is offensive or hateful is often in the eye of the beholder.” Pl. Br. 4. If Plaintiff was blocked for posting “all men are created equal” because the post was viewed as hateful, racist, or otherwise offensive, such blocking would violate the Constitution. Deleting or hiding the post for that reason would also violate the Constitution.”

That is why this decision could have a lasting impact for higher education. The Oregon language is not dissimilar from many schools limiting campus speech under vague guidelines.

Notably, we have discussed how these schools have been losing in federal courts in their effort to maintain censorship systems. Yet, administrators continue undeterred in pursuing these policies with the support of their faculty.

Oregon has long been known for radical viewpoints in academia. I previously criticized the school policy to monitor student speech on social media and off campus as part of its speech regulations.

The school previously gave special recognition to University of California (Santa Barbara) Professor Mireille Miller-Young who criminally assaulted pro-life advocates on the campus of the University of California at Santa Barbara.  At Oregon, she was honored as a featured speaker at the University of Oregon’s  Department of Women’s, Gender and Sexuality Studies.  Part of its “black feminist speaker series,” Miller-Young’s work was highlighted by the College of Arts and Sciences and the Department of English to show “the radical potential of black feminism in the work that we do on campus and in our everyday lives.”

It is unlikely that the legislature will object to this expensive fight to preserve the right to censor speech. The state itself has moved aggressively against free speech rights of doctors and others in areas like abortion. However, the people of Oregon should consider the use of their tax dollars to seek to limit the “indispensable right” of free speech and to give figures like stabin such discretion over what speech to allow on campus.

US equity futures are lower but well off their worst levels, after a rout in Japan sent the Nikkei tumbling, hammered gold and crypto as the yen carry trade unwound – if only until next week when the BOJ inevitably disappoints yet again. As of 7:50am, S&P futures were 0.1% lower, while Nasdaq futs dropped 0.2%, with tech giants are mixed pre-market trading: AAPL -43bp, NVDA -20bp, AMZN +23bp, GOOG/L +27bp. Wednesday’s session was a bloodbath: the index finally broke a 356 day streak without a down 2% (or greater) move – the longest streak since 2007, when it went 943 days without a down >2% move – as the S&P fell -2.3% (worst day since Dec ’22), NDX fell -3.7% (worst session since Oct ’22), Mag Seven -6% (worst session since Nov ’22), AI winners down -5% to -10%, and Index vol spike (VIX > 18 for first time since April). Bond yields are 5-8bp led by the front end. Commodities are weaker: WTI fell -1.8%; base metals are mostly lower. The USD is lower but also well off its worst levels. Today, the macro data focus will be 2Q data release: Consensus expects GDP to print 2.0% QoQ saar vs. 1.4% prior, driven by a rebound in personal consumption to 2.0% vs 1.5% in Q1.

In premarket trading, IBM shares rose 4.3% after the IT services company reported second-quarter results that beat expectations, with the company’s software division notably strong. IBM also said its generative AI book has grown to more than $2 billion. Ford plunged -13% after the automaker reported adjusted earnings per share for the second quarter that missed the average analyst estimate. Analysts note that unwelcome warranty headwinds drove the company’s significant miss. Chipotle shares jumped 3.5% after the burrito chain reported second-quarter comparable sales that beat consensus expectations. Analysts said traffic growth was strong, and highlighted management taking action to address negative publicity over portion size. Here are some other notable premarket movers:

• Day One Biopharmaceuticals shares gain 9.2% after Ipsen enters into an exclusive ex-US licensing agreement with the biotechnology company to commercialize tovorafenib for the most common childhood brain tumor.
• Edwards Life shares tumble 23% after the maker of heart valves reported sales for the second quarter that missed the average analyst estimate. The medical-devices company also said it has agreed to buy JenaValve Technology and Endotronix for about $1.2 billion.
• Las Vegas Sands shares fall 3.5% after the casino operator reported net revenue for the second quarter that missed the average analyst estimate. Analysts noted weakness in Macau and disruptions caused by casino renovations as headwinds.
• Lululemon shares fall 2.0% after Citigroup cut its recommendation on the athleisure apparel maker to neutral from buy. The analyst notes that the active-apparel category has slowed this year and is expected to cool further.
• Viking Therapeutics shares climb 18% after the drug developer said it is advancing its weight-loss shot into a late-stage trial. The biotech also said a mid-stage trial of its obesity pill will start in the fourth quarter.

As the global economy slows, traders have also started ramping up bets that the Fed will have to cut interest rates sooner than expected to sustain the US economy. Yields on two-year Treasuries dropped seven basis points to 4.35%. The yen rallied more than 1% on bets the rate gap between Japan and the US will shrink.

“We are getting disappointment after disappointment,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “The message is that maybe growth is weaker than the US data led us to think, and maybe it’s time to reshuffle allocations away from US large tech.”

Today, the US will release GDP data for Q2 as well as initial jobless claims later on Thursday. Concern about the economy kicked into high gear on Wednesday after former New York Fed President William Dudley called for lower borrowing costs — preferably at next week’s gathering. Such a move could be worrisome as it would indicate officials rushing to avoid a recession, some analysts said. That said, the most dramatic moves have been in high-flying chipmakers, with investors taking profits after this year’s massive rally. STMicroelectronics NV and BE Semiconductor Industries NV both sank more than 10% in European trading.

“If there was a bubble in the AI and Magnificent 7-part of the market, then last night saw it pop,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.

European stocks tumbled on the busiest day of the corporate earnings season, following steep declines on Wall Street and in Asia. The Stoxx 600 is down 1.4%, led lower by declines in media and technology shares after underwhelming reports from a slew of companies. Results from Nestle SA and Gucci owner Kering SA showed consumers are cutting spending on everything from food to luxury handbags. All European market are lower with French stocks on the verge of a correction. Luxury & Brands, Periphery Banks, EU Resilient Consumer and EU Semis are among the worst underperformers. The broad weakness was driven by earnings disappointments, particularly on UMG, KER and STM. Germany IFO prints 87.0 vs. 89.0 survey vs. 88.6 prior. Here are the most notable European movers:

• Roche shares rise as much as 4.4% after reporting first-half results that impressed analysts, with Jefferies calling the increased guidance for the year a “positive surprise.”
• Sanofi shares gain as much 4.2% after the French drugmaker reported strong 2Q earnings and raised guidance, with analysts attributing the outperformance in part to strong sales of its key drug Dupixent.
• Unilever shares advance as much as 6%, reaching the highest since Nov. 2020, after the consumer-goods giant reported 1H underlying operating margin that came ahead of estimates.
• Indivior shares rise as much as 19%, their best day in five months, lifted by the pharmaceutical firm’s new $100 million share buyback and a preliminary settlement related to opioid litigation.
• Michelin shares gain as much as 2.3% after the tiremaker’s results were welcomed by analysts, who said pricing, mix and cost discipline were able to offset challenges in the form of lower volumes.
• UCB shares gains as much as 2.2%, rising to a record high, after the Belgian biotech firm’s plaque psoriasis drug Bimzelx contributed to the strong first-half results.
• Universal Music Group shares fall as much as 30%, the most on record, following second-quarter results which Citi says “undermine” what had been seen as defensive growth credentials.
• Stellantis shares fall as much as 13% in Milan, the most since March 2020, after the carmaker’s earnings plunged in the first half of 2024. Morgan Stanley says free cash flow was a key disappointment.
• Kering shares slump as much as 10% to a seven-year low on disappointing results, which included a warning that profit is set to plunge in the second half of the year.
• Nestle shares drop as much as 4.8% to touch a four-year low, after the consumer-goods giant lowered its FY sales outlook and reported 1H organic revenue that fell short of expectations.
• STMicroelectronics shares fall as much as 9.5% after reducing full-year outlook for a second consecutive quarter, citing a prolonged slump in demand for chips used in cars.
• BE Semi shares slump 15% after the company missed estimates on third-quarter guidance, dragged by a slow recovery in chip assembly market, as flagged by peer ASMPT Wednesday.
• J. Martins shares sink as much as 15% to a three-year low as 2Q like-for-like sales in its flagship Biedronka grocery chain in Poland declined three times faster than expected by analysts.

Earlier in the session, Asian stocks also slumped following the sell-off on Wall St where the S&P 500 and Nasdaq suffered their worst declines since late-2022 owing to disappointment following some mega-cap earnings and a surprise contraction in US Manufacturing PMI. ASX 200 was dragged lower by notable losses in tech, while miners also suffered after several quarterly production updates and lower underlying commodity prices. Nikkei 225 underperformed and briefly dipped beneath the 38,000 level after shedding over 1,000 points with pressure from currency strength and prospects of a BoJ rate hike at next week’s policy meeting. Hang Seng and Shanghai Comp. conformed to the broad selling in the region and fell towards the 17,000 level where support held, while the mainland index also retreated albeit to a lesser extent than regional peers after the PBoC’s surprise MLF operation and 20bps rate cut to the 1-year MLF rate with markets seemingly unimpressed by China’s piecemeal stimulus efforts.

In FX, the yen leads G-10 FX, rising 1% against the greenback as the USD/JPY declined as low as 152.23, the lowest since May 3. The pair has lost about 6% since its peak earlier this month as the carry trade has partially unwound as momentum has reversed. Dollar demand from Japanese importers and fix-related purchases were met with selling by leveraged accounts, while rising 2-year JGB yields and falling Treasury yields further eroded the dollar bid, according to Asia-based FX traders. The Swiss franc is not far behind with a 0.6% gain. The Aussie dollar and Norwegian krone are the weakest, falling 0.8%.  The Norwegian krone dropped to its weakest level against the euro in more than a year amid falling oil prices and dampened demand for riskier assets.

In rates, treasuries were near session highs in early US trading Thursday, with US 10-year yields falling 5bps to 4.23% although tightening took place across the curve led by short-dated tenors, further steepening the curve. Front-end-led rally pushed 2-year yield to within 11.5bp of lower 10-year yield, least inverted level since October 2023, and 5-year yield as much as 43bp lower than the 30-year, widest gap since May 2023. The curve-steepening bout unleashed in late June by US presidential election outlook shift to favor Donald Trump winning in November was renewed Wednesday by mounting expectations for Fed rate cuts as US stock benchmarks slid. Weakness in stock benchmarks globally stoked haven demand, while market-implied expectations for Fed rate cuts this year increased further. Gains may complicate auction of 7-year notes at 1pm New York time.  Bunds extended gains after Germany’s business outlook unexpectedly fell. The WI 7-year yield around 4.135% is lower than auction results since January and about 14bp lower than last month’s result; earlier this week, 2- and 5-year auctions drew lowest yields since January with mixed results, but both have richened from auction yield levels

In commodities, oil prices decline, with WTI falling 1.8% to trade near $76.20 a barrel. Spot gold falls $26 to around $2,371/oz.

On today’s calendar we get the first estimate of 2Q GDP, weekly jobless claims and June preliminary durable goods orders (8:30am) and July Kansas City Fed manufacturing activity (11am). Fed officials have no scheduled appearances until after the next FOMC meeting ends July 31. Over in Europe, there’s also the Ifo’s business climate indicator from Germany for July, and the Euro Area M3 money supply for June. Otherwise, central bank speakers include ECB President Lagarde, and Bundesbank President Nagel.

Market Snapshot

• S&P 500 futures little changed at 5,470.25
• STOXX Europe 600 down 1.3% to 505.72
• MXAP down 1.5% to 179.71
• MXAPJ down 0.9% to 559.25
• Nikkei down 3.3% to 37,869.51
• Topix down 3.0% to 2,709.86
• Hang Seng Index down 1.8% to 17,004.97
• Shanghai Composite down 0.5% to 2,886.74
• Sensex little changed at 80,119.66
• Australia S&P/ASX 200 down 1.3% to 7,861.21
• Kospi down 1.7% to 2,710.65
• German 10Y yield -3 bps at 2.41%
• Euro little changed at $1.0847
• Brent Futures down 0.6% to $81.20/bbl
• Gold spot down 1.0% to $2,374.61
• US Dollar Index down 0.19% to 104.20

Top Overnight News

• US President Biden said America is to choose between hope and hate, optimism and negativity, while he added that he needs to unite the party and it is time to pass the torch but will continue his duties as President for the remainder of his term. Furthermore, he also commented that Vice President Harris is experienced, tough and capable.
• China continues to lower its policy rates, taking its 1-year MLF rate down 20bp to 2.3%, as the gov’t works to bolster growth. BBG  
• China smartphone shipments +10% in Q2; Apple (AAPL) China sales fell 2% Y/Y in Q2, Huawei sales +41%: Canalys.
• Five of China’s major state-owned banks cut deposit rates to cushion a hit to their already record low margins after this week’s surprise lowering of lending benchmarks to bolster stuttering economic growth. RTRS
• The yen surged toward 152 on bets the interest-rate gap between Japan and the US is finally set to shrink. Some 90% of BOJ watchers see a risk of it hiking on July 31, even if that isn’t their base case, and the Fed faces growing calls to start cutting the same day. The move hit Japan’s Nikkei 225 and undermined assets from gold to bitcoin. BBG
• Germany’s IFO survey for Jul fell a bit short of expectations, with the Expectations index coming in at 86.9 (vs. the Street 89.3 and down from 88.8 in June). BBG  
• Negotiations on a ceasefire-for-hostages deal in the Gaza conflict appear to be in their closing stages and U.S. President Joe Biden and Israeli Prime Minister Benjamin Netanyahu will discuss remaining gaps on Thursday, a senior U.S. official said on Wednesday. RTRS
• US GDP growth probably accelerated to an annualized 2% last quarter from 1.4%. But discretionary spending growth has cooled, and demand may moderate further in the second half as the labor market weakens — tipping the Fed toward easing, Bloomberg Economics said. BBG
• Harris could have her VP selection in the next two weeks, and the frontrunners remain Cooper (NC), Shapiro (PA), and Kelly (AZ). CNN
• Boeing’s plea deal with the DOJ over 737 Max crashes includes at least $243.6 million in fines and three years probation. RTRS
• STMicro cut its annual revenue outlook for a second time, and BE Semi issued weak third-quarter guidance. BBG

Earnings

• Ford Motor Co (F) Q2 2024 (USD): Adj. EPS 0.47 (exp. 0.68), Revenue 47.8bln (exp. 44.02bln). FY adj. EBIT view 10-12bln (exp. 11.23bln). FY CapEx view affirmed between USD 8.0-9.0bln. Shares -13.5% pre-market
• International Business Machines Corp (IBM) Q2 2024 (USD): Adj. EPS 2.43 (exp. 2.20), Revenue 15.77bln (exp. 15.62bln). Shares +4% pre-market
• Nissan Motors (7201 JT) Q1 (JPY): Recurring profit 65.13bln (-60.9% Y/Y), Net profits 28.56bln (-72.9%); Cuts FY guidance; Cuts FY24/25 China sales forecast to 777k (prev. 800k), cuts US forecast to 1.41mln (prev. 1.43mln) Shares -6.9% in Asia trade
• STMicroelectronics (STM FP) Q2 (EUR): Revenue 3.232bln (exp. 3.204bln), Q2 gross margin 40.1% (exp. 40%). Sees Q3 gross margin 38% (exp. 40.9%), sees Q3 net revenue 38% (exp. 40.9%). Cuts FY24 revenue guidance to between EUR 13.2-13.7bln (exp. 14.3bln). Shares -12.5% in European trade
• Nestle (NESN SW) H1 (CHF): Sales 45bln (exp. 45.58bln), Net 5.6bln (exp. 6.08bln), EPS 2.16, +1.8%. In H1, repurchased CHF 2.4bln shares as part of the three-year CHF 20bln buyback which began in 2022. FY Guidance: Organic revenue growth of at least +3% (prev. guided +4%). Shares -4% in European trade
• Roche (ROG SW) H1 (CHF): Revenue 29.8bln (exp. 29.911bln), Net Income 6.697bln (exp. 7.523bln); Outlook for 2024 earnings raised; Roche expects to further increase its dividend in CHF. Shares +2.5% in European trade
• Anglo American (AAL LN) H1 (USD): Adj. EBITDA 4.9bln (exp. 4.51bln). Adj. EPS 1.06 (exp. 0.90). Adj. Profits 1.29bln (exp. 1.07bln). Decision to temporarily slowdown Woodsmith Crop nutrients project resulted in a USD 1.6bln impairment. Expect to substantially reduce overhead and other non op. costs in phases. Shares -1% in European trade
• AstraZeneca (AZN LN) Q2 (USD): Revenue 12.452bln (12.628bln), Core EPS 1.98 (exp. 1.9595); Guidance for FY 2024 increased, with Total Revenue and Core EPS anticipated to grow by a mid teens % (prev. a low double-digit to low teens percentage). Shares -3% in European trade
• BE Semiconductor Industries (BESI IM) Q2 (EUR): Revenue 151mln (exp. 152mln), Orders 313mln, Net 41mln. Q3 Guidance: Revenue seen flat, Gross Margin between 64-66% (prev. 65%). CEO estimates that around 50% of orders over the last 12-months were AI-related. Shares -11.5% in European trade
• TotalEnergies (TTE FP) Q2 (USD): Net Income 4.7bln (exp. 4.9bln), adj. EBITDA 11.1bln (exp. 11.6bln), adj. EPS 1.98 (exp. 2.06). Refining utilisation rate is expected to be in excess of 85%. Start up of Anchor, within the Gulf of Mexico, expected in Q3. “Sales of petroleum products in the second quarter 2024 were down year-on-year by 2%, mainly due to lower diesel demand in Europe that was partially compensated by higher activity in the aviation business.” Shares -1.5% in European trade
• Unilever (ULVR LN) H1 (EUR): Sales 31.3bln (exp. 32.9bln), adj. Operating Profit 6.1bln. Q2: Underlying Sales +3.9% (exp. +4.3%), quarterly dividend +3%. Commences the EUR 1.5bln share buyback programme. Shares +5.5% in European trade

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were negative following the sell-off on Wall St where the S&P 500 and Nasdaq suffered their worst declines since late-2022 owing to disappointment following some mega-cap earnings and a surprise contraction in US Manufacturing PMI. ASX 200 was dragged lower by notable losses in tech, while miners also suffered after several quarterly production updates and lower underlying commodity prices. Nikkei 225 underperformed and briefly dipped beneath the 38,000 level after shedding over 1,000 points with pressure from currency strength and prospects of a BoJ rate hike at next week’s policy meeting. Hang Seng and Shanghai Comp. conformed to the broad selling in the region and fell towards the 17,000 level where support held, while the mainland index also retreated albeit to a lesser extent than regional peers after the PBoC’s surprise MLF operation and 20bps rate cut to the 1-year MLF rate with markets seemingly unimpressed by China’s piecemeal stimulus efforts.

Top Asian News

• PBoC injected CNY 200bln via 1-year MLF loans with the rate lowered to 2.30% vs prev. 2.50%.
• Japan’s Chief Cabinet Secretary Hayashi says will not comment on daily share moves; will not comment on FX moves; reiterates it is important for currencies to move in stable manner reflecting fundamental; closely watching FX moves.
• China’s State Planner says it is to lower the threshold for the use of ultra-long special bond for investing in equipment upgrade projects. Issuing a notice to increase support for equipment upgrades and consumer good trade-ins. Lifts subsidies for car trade ins to up to CNY 20k/vehicle. Allocating CNY 300bln in ultra-long-term treasury bonds.

European bourses, Stoxx 600 (-1.2%) opened the session on the backfoot in fitting with the risk-averse mood seen across markets overnight. A slew of poor earnings only fuelled the pressure seen in Europe with indices heading lower since the cash open, where they currently reside. European sectors are entirely in the red. Healthcare fares better than the rest, given some of the post-earning strength in Sanofi, Roche and Lonza. Tech follows closely behind, after poor BE Semiconductor and STMicroelectronics results, but also in a continuation of the prior day’s price action. Autos are also hampered by significant losses in Renault and Stellantis. US equity futures (ES U/C, NQ -0.2%, RTY U/C) are mixed, seemingly taking a breather following the hefty losses seen in the prior session. In terms of pre-market movers, Ford (-13.5%) slips after significantly missing on the bottom line, whilst IBM (+4%) gains after strong earnings and improving guidance.

Top European News

• European Stocks Hit by Weak Earnings on Busiest Reporting Day
• SocGen, BofA Say Time to Buy Norway’s Krone as Rout Overdone
• Julius Baer Slumps as Profit Fall Signals Tough Benko Recovery
• Ipsos Slides After Full-Year Revenue Guidance Misses Estimates
• German Business Expectations Fall, Deepening Rebound Concerns
• Getlink Shares Rise as Citi Notes Positive Margin Performance
• TotalEnergies’ Profit Drops More Than Expected on Refining

FX

• Similar price action for the USD as Wednesday with the dollar softer against havens such as CHF and JPY but firmer against risk-sensitive currencies such as AUD and NZD.
• EUR is a touch firmer vs. the USD but only marginally so. 1.0825 from Wednesday marks the recent base for the pair. There is a slew of DMAs to the downside in the pair with the 200 DMA at 1.0817.
• GBP is seeing shallow losses vs. the USD but off worst levels after briefly breaching Wednesday’s low at 1.2878.
• JPY has extended its upside vs. the USD to a 4th consecutive session with the Yen benefitting from risk-aversion, efforts by officials to guide the currency lower, an unwind of carry trades and mounting expectations of a hawkish BoJ at next week’s meeting.
• AUD/USD has now extended its downtrend to a 10th consecutive session as global risk sentiment continues to suffer and questions remain over the health of the Chinese economy.
• CNH edgins out gains vs. the USD in a market which is characterised by a reversal in recent popular trades with long USD/CNH having been one of them. From a fundamental standpoint, the PBoC surprised markets with a 20bps reduction to the 1yr MLF rate overnight.

Fixed Income

• USTs are benefitting from the tepid risk tone with the sell-everything/deleveraging narrative not yet extending to the fixed income space. Thus far, as high as 111-04 to within half a tick of yesterday’s best. Data slate is busy today with focus on US IJCs and Q2 PCE, with a 7yr auction thereafter.
• Bunds are bouncing from the US auction-induced dip that occurred late on Wednesday and benefitting from the broader macro tone. The German Ifo survey for July was weaker-than-expected, which helped to lift Bunds to a 132.78 high.
• Gilts are towards session highs of 98.21; specifics for the UK light and instead Gilts have been caught up in the broader risk-off tone that is continuing from the Wall St. handover.

Commodities

• A downbeat morning for the crude complex amidst the broader risk aversion seen across markets, and in a continuation of the weakness seen in prices on the back of sluggish Chinese demand, with prices unfazed by the surprise PBoC MLF rate cut overnight. Brent Sep in a USD 80.95-81.60/bbl range.
• Precious metals are lower across the board despite the softer Dollar and risk aversion amid a broader downturn in metals in what is seemingly an unwind of winning trades. Spot gold slipped from a USD 2,401.31/oz high, through the psychological figure and to a current USD 2,365.91/oz low.
• Base metals also trade on the backfoot amid the broader risk aversion and ongoing pessimism regarding Chinese demand.
• Russian Deputy PM Novak expects the JMMC meeting on August 1st to be constructive, aims to fulfil OPEC+ deal, will compensate for overproduction OPEC+ partners are satisfied with compensation schedule. Russia aims to fulfil OPEC+ deal, will compensate for overproduction. Constantly in touch with OPEC+ partners, talked with OPEC+ representative last week. Russia has no friction with OPEC+ over exceeding production quotas. Not planning additional measures to normalize the situation with AI-95 petrol supplies, difficulties are temporary. Russia is not going to ban diesel exports, its production is extensive, the situation is stable.

Geopolitics: Middle East

• US senior official said Gaza ceasefire negotiations appear to be in their closing stages and negotiators have worked out a pretty detailed text of the arrangements for how a Gaza hostage deal would work in which the initial phase of the hostage deal would see women, men aged over 50 and the sick and wounded hostages released over a 42-day period. Furthermore, the official said the remaining obstacles to a Gaza hostage deal are bridgeable and there will be activity on this issue in the coming week, while US President Biden and Israeli PM Netanyahu will talk about how to close final gaps holding up a Gaza hostage deal during their meeting on Thursday.

Geopolitics: Other

• Ukrainian Navy spokesman said Russia has pulled all its vessels out of the Sea of Azov, according to Reuters.
• Russian Foreign Ministry says experts from Russia and the US have met to discuss Ukraine although the ministry does not see such contacts as practical because the US side is biased, according to RIA

US Event Calendar

• 08:30: 2Q GDP Annualized QoQ, est. 2.0%, prior 1.4%
  • 2Q Personal Consumption, est. 2.0%, prior 1.5%
  • 2Q GDP Price Index, est. 2.6%, prior 3.1%
  • 2Q Core PCE Price Index QoQ, est. 2.7%, prior 3.7%
• 08:30: June Durable Goods Orders, est. 0.3%, prior 0.1%
  • June Durables-Less Transportation, est. 0.2%, prior -0.1%
  • June Cap Goods Ship Nondef Ex Air, est. 0.2%, prior -0.6%
  • June Cap Goods Orders Nondef Ex Air, est. 0.2%, prior -0.6%
• 08:30: July Initial Jobless Claims, est. 238,000, prior 243,000
  • July Continuing Claims, est. 1.87m, prior 1.87m
• 11:00: July Kansas City Fed Manf. Activity, est. -5, prior -8

DB’s Jim Reid concludes the overnight wrap

Markets saw a massive slump yesterday, as the combination of weak earnings and poor data hit investor sentiment. That led to some very big losses, with the Magnificent 7 (-5.88%) posting its worst day since September 2022, leaving it in technical correction territory after falling over -10% from its record just two weeks earlier. And in turn, the concentration of that group drove equities down more broadly, with the S&P 500 (-2.31%) seeing its biggest fall since December 2022. It’s also the first -2% decline for the index since February 2023, ending one of the 10 longest runs without one in the S&P’s history. In the meantime, with the mood becoming increasingly negative, speculation about future rate cuts mounted further, and the 2s10s yield curve steepened to its least inverted level since July 2022, at just -15.1bps by the close. So it was a rough day all round, and we’ve got earnings from four more of the Magnificent 7 next week, so there’s plenty still to navigate over the days ahead.

Now of course, it’s worth noting that markets have been on a historic run higher since last October, so we need to put this decline into some context. Indeed, the S&P 500 is up for 28 of the last 38 weeks, which is something that hasn’t been exceeded since 1989. But given we’ve had that relentless run of gains, in many respects that leaves markets more vulnerable right now, as historically it’s unusual to see such a prolonged run of gains maintained for much longer. On top of that, equity positioning was already elevated by historic standards, and we’re about to enter the toughest part of the year on a seasonal basis, with markets often struggling in the late-summer period. Then add in unusually high political uncertainty, and you’ve got several near-term challenges that make for a pretty tough backdrop.

The initial driver of those losses yesterday were the earnings releases from Tesla and Alphabet after the previous day’s close, meaning that futures were already negative coming into the session. For Tesla (-12.33%), it marked its worst daily performance since September 2020, and even though the share price decline was smaller for Alphabet (-5.04%), it was still its worst day since January. Several other results added to the more negative tone as well, with Visa (-4.01%) posting its worst day since May 2022, while earlier in Europe LVMH was down -4.66% after posting disappointing results the previous evening. And in turn, those losses helped push the VIX index up +3.32pts to 18.04pts, which is its highest level since April when geopolitical tensions were heightened in the Middle East.

Matters then weren’t helped by a fresh batch of underwhelming data. That started in the European session, where the flash PMIs for July came in beneath consensus, which added to fears that the economy was losing momentum into Q3. For instance, the Euro Area composite PMI was down to just 50.1 (vs. 50.9 expected), so barely above the 50 mark that separates expansion from contraction. The German numbers were particularly disappointing, as their composite PMI was back into contractionary territory at 48.7 (vs. 50.6 expected), although to be fair, the UK did surprise on the upside at 52.7 (vs. 52.6 expected). Later on, the US data was also fairly mixed, with new home sales falling to an annualised rate of just 617k in June (vs. 640k expected), which is their lowest in 7 months.

With the deteriorating backdrop, that led to growing anticipation that the Fed would deliver a rate cut at their meeting-after-next in September. Indeed, yesterday saw investors dial up their expectations for cuts this year, with the amount priced in by the Fed’s December meeting up +3.1bps on the day to 65bps. That then led to a decline in Treasury yields, with the 2yr yield down to 4.43% by the close, and having traded as low as 4.375% intra-day, its lowest since February. However, bonds did sell off during the US afternoon following a soft 5yr Treasury auction, and the 10yr yield ended the day +3.3bps higher at 4.28%. These moves left the 2s10s curve at just -15.1bps by the close, which is the steepest it’s been since July 2022 in the first few weeks of the current period of inversion. Bear in mind that in recent cycles, a re-steepening back out of inversion has occurred shortly before a recession, so that’s one to keep an eye on given how it’s moved ahead of the past few downturns.

The sense that rate cuts were moving closer was cemented by Bank of Canada’s decision, where they delivered a 25bp rate cut yesterday to 4.5%, in line with expectations. That’s now the second consecutive meeting where they’ve cut rates, and Governor Macklem said in the press conference that “it is reasonable to expect further cuts in our policy interest rate” if inflation continued to move lower as they forecast. Canadian government bonds outperformed yesterday following the decision, with the 2yr yield down -7.3bps.

Over in Europe, the weak PMIs also led investors to grow more confident that the ECB would cut rates in September. In fact, overnight index swaps were pricing in an 92% chance of a rate cut by the close, up from 78% the previous day. That meant yields on 2yr German (-5.7bps), French (-5.1bps) and Italian (-0.8bps) debt all moved lower. As in the US, this was accompanied by sizeable curve steepening and yields on 10yr bunds (+0.7bps), OATs (+2.1bps) and BTPs (+4.8bps) all moved higher. This left the German 2s10s yield curve at -21.4bps, the steepest since October last year.

The negative tone has continued in Asian markets overnight, with all the major indices losing ground. The Nikkei (-2.58%) is currently on course for its worst day since April, which comes as the Japanese Yen (+0.91%) is currently at its strongest level since April, at 152.50 per US Dollar. In part, that’s been driven by growing expectations that the BoJ might hike rates at their meeting next week, and market pricing has reflected that in recent days. Otherwise, there have been losses for the KOSPI (-1.51%), which follows overnight data showing that South Korean GDP unexpectedly contracted by -0.2% in Q2 (vs. +0.1% expected). But the CSI 300 (-0.59%) and the Shanghai Comp (-0.43%) are putting in a relatively better performance, which comes as the People’s Bank of China announced a 20bp cut in their medium-term lending facility rate, taking it down to 2.3%. Even so, both indices were still at their lowest level since February, and the Hang Seng is also down -1.42%. Looking forward, US equity futures are slightly higher this morning, with those on the S&P 500 up +0.21%.

To the day ahead now, and data from the US includes the Q2 GDP release, along with the weekly initial jobless claims, and the preliminary reading for durable goods orders in June. Over in Europe, there’s also the Ifo’s business climate indicator from Germany for July, and the Euro Area M3 money supply for June. Otherwise, central bank speakers include ECB President Lagarde, and Bundesbank President Nagel.

Shares of Universal Music Group plummeted up to 30% in Amsterdam on Thursday after the world’s largest record label, representing top artists like Taylor Swift, Billie Eilish, Drake, Adele, and Ariana Grande, reported disappointing second-quarter earnings. The report fell short of investor expectations regarding subscription and streaming revenue growth. 

Universal’s second-quarter report showed subscription revenue in recorded music grew 6.5% year-over-year, or 6.9% in constant currency, missing the Bloomberg estimate of surveyed analysts for growth of 11%.

• Recorded Music subscription revenue grew 6.5% year-over-year, or 6.9% in constant currency and streaming revenue decreased 4.2% year-over-year, or 3.9% in constant currency, while physical revenue grew 9.5% year-over-year, or 14.4% in constant currency and license and other revenue grew 18.0% year-over-year on both a reported and constant currency basis

On an earnings call, Chief Financial Officer Boyd Muir told investors that Spotify and YouTube’s weak advertising revenue growth were some of the major drivers of softer sales. He said there are emerging roadblocks with social media platforms becoming major music distributors.  

Universal Music has been pushing for platforms to compensate artists fairly and has advocated for a new streaming royalty model. The company started pulling its music from ByteDance Ltd.-owned TikTok in February after talks to extend a licensing deal failed. In May, it reached a deal with TikTok that included better pay for songwriters and artists, new promotional agreements and protections against AI-generated music. -Bloomberg

Here’s a snapshot of second-quarter results: 

• Revenue EU2.93 billion, +8.7% y/y, estimate EU2.88 billion (Bloomberg Consensus)

• Recorded Music revenue EU2.20 billion, estimate EU2.22 billion

• Music Publishing revenue EU511 million, estimate EU519.9 million

• Merchandising & Other revenue EU227 million, estimate EU165.4 million

• Ebitda EU580 million, estimate EU591.4 million

• Adjusted Ebitda EU649 million, estimate EU641.4 million

• Adjusted Ebitda margin 22.1%, estimate 22.3%

• Revenue in constant currency +9.6%, estimate +8.14%

• Recorded Music revenue in constant currency +6.8%, estimate +7.05%

• Music Publishing revenue in constant currency +10.4%, estimate +11.2%

• Merchandising & Other revenue in constant currency +43.7%, estimate +6.24%

• Net income EU625.0 million

Here are first-half results:

• Ebitda EU1.07 billion, estimate EU1.08 billion

• Recorded Music Ebitda EU959 million, estimate EU942 million

• Music Publishing Ebitda EU229 million, estimate EU238.4 million

• Merchandising & Other Ebitda EU18 million, estimate EU21.9 million (2 estimates)

Shares in Amsterdam plunged as much as 30% today.

Citi analysts told clients that the results “undermine” what had been seen as defensive growth credentials. Citi, Barclays, and Guggenheim removed positive stances on the company, while Kepler Cheuvreux downgraded.

More from Wall Street analysts (courtesy of Bloomberg): 

Citi (neutral vs buy)

• Analyst Thomas Singlehurst says the mix was radically different from expectations, with 2Q Streaming & Subscription constant currency growth meaningfully below
• Main concerns are unprecedented level of volatility between different revenue lines, and that cash conversion appears to have got worse
• While sources of volatility may only be temporary, sentiment may be hit until there is evidence of re-acceleration in growth and inflection in cash flow
• Results undermine defensive growth credentials

Cowen (buy)

• Results beat on revenue and profitability, but subscription streaming growth a meaningful miss and ad-supported streaming performance also disappointed, analyst Doug Creutz writes
• While still confident in the long-term growth trajectory, the 2Q results “create some unwelcome” noise

Morgan Stanley (overweight)

• Analyst Ed Young says revenue miss, and unexpected deceleration, in Subscription and Streaming within Recorded Music likely to be key focus
• This was offset by revenue beats elsewhere, which does highlight diversified sources of growth

Meanwhile, Bill Ackman’s Pershing Square holds a 10% stake as the second largest shareholder of the music group. 

Oops. 

Authored by Michael Snyder via The Economic Collapse,

Do you remember how painful the Great Recession was?  2008 and the years immediately following were definitely a very dark chapter in our history, but a new study has actually found that the percentage of Americans that worry they won’t be able to pay their bills is actually higher today than it was back then.  Slowly but surely, our economic strength has been fading and our standard of living has been falling.  Unfortunately, now we have reached a point where a very large portion of the U.S. population is really struggling. 

According to a CNN poll that was just released, almost 40 percent of all U.S. adults “say they worry most or all of the time that their family’s income won’t be enough to meet expenses”…

Many Americans regularly worry they won’t be able to make ends meet.

Nearly four in ten (39%) of US adults say they worry most or all of the time that their family’s income won’t be enough to meet expenses, according to a new CNN poll. That’s up from 28% who expressed those concerns in December 2021, and it’s similar to the numbers seen during the Great Recession (37%).

To cope, significant shares of Americans said they are adding side jobs, cutting down on driving and putting more expenses on credit cards.

If you would have asked me before I saw the results, I would have been quite confident that the number during the Great Recession would have been higher than the number in 2024.

Just like everyone else, I remember the Great Recession as such a painful time.

Sadly, the economic pain that we are experiencing now is just beginning.

Ordinary Americans from coast to coast are being absolutely crushed by rising prices, and that isn’t going to change any time soon.

In an article that CNN posted about this new survey, one woman that works for the CDC admitted that she was recently forced to move because costs have risen so aggressively…

“The grocery store is just outrageous right now. But it’s not just that. Everything has gone up. Clothing. My insurance,” said Angela Russell, an Ohio resident who works as a program analyst at the Centers for Disease Control and Prevention (CDC).

Russell, who has two adult children and three grandkids, said she recently moved out of her rental home in Cincinnati in favor of one in a rural area where the rent is cheaper.

Other recent surveys have come up with results that are even more alarming.

For example, one discovered that a whopping 71 percent of Americans are stressed out about their “ability to afford everyday expenses”…

71% of Americans say they’re stressed by their ability to afford everyday expenses.

Americans most regularly spend money on groceries, phone bills, utilities, gasoline and rent/mortgage payments.

Grocery bills frustrate Americans more than any other regular expense. Utilities, rent/mortgage payments, gasoline and insurance payments round out the top five most annoying expenses.

That is most of the country.

Unsurprisingly, younger generations are being hit particularly hard by the pain of inflation…

Financial stress levels are highest among millennials (77%), followed by Generation Z (75%) and Generation X (74%). Baby boomers reported experiencing the least financial stress, although at 59% it was still more than half of those surveyed.

Those that follow my work regularly know that I tend to rant about rising prices at the grocery store.

Sometimes it is hard for me to believe that prices have gotten so high, and it appears that a lot of people out there agree with me.

Another recent survey found that 80 percent of Americans have observed a “notable increase” in grocery store prices…

According to a study by Qualtrics on behalf of Intuit Credit Karma, 80% of Americans say they have felt a “notable increase” in grocery costs in recent years. More than a quarter of respondents said the increased cost has led them to occasionally skip meals, while about one-third said they spend more than 60% of their monthly income on mandatory expenses such as food, utilities and rent.

Food has certainly become ridiculously expensive, but we actually spend far more money on housing.

Today, the typical household spends about 12 percent of total income on food and about 33 percent of total income on housing…

According to data from the Bureau of Labor Statistics, the top three annual expenses for the average American household in 2022 (the most recent data available) were housing (33.3%), transportation (16.8%) and food (12.8%).

For most Americans, spending money in these areas is unavoidable.

Housing costs have been rising much faster than the overall rate of inflation, and we just learned that home prices reached yet another new all-time record high last month…

Home prices hit a new high in June for the second straight month, the latest sign that the housing market is unaffordable to millions of Americans.

The spring home-buying season, usually the busiest time of year for the housing market, was a dud this year. Home sales declined in June for the fourth straight time on a monthly basis. The combination of high prices and elevated mortgage rates has made homeownership less attractive to renters and deterred current homeowners from moving.

Meanwhile, homelessness in the United States is at the highest level ever recorded and it has been growing at the fastest pace ever recorded.

We just can’t keep going on like this.

Something has to give.

It appears to be inevitable that all of this economic pain will have a dramatic impact on the upcoming election.  At this point, approximately three out of every five Americans believe that we are already in a recession right now…

You don’t need to be a financial genius to know that times are tough for plenty of Americans. With that in mind, a majority of people actually think the economy is doing even worse than the “experts” say it is. Three in five people believe that the U.S. is currently in a recession, even though we’re not officially in one according to the financial definition.

The survey of 2,000 Americans explored what’s driving this lack of consumer confidence in the economy. Inflation and the rising cost of living (68%) top the list of reasons why respondents believe the U.S. is in a recession, followed by friends and family members complaining about money (50%).

It is not an accident that this has happened.

For more than a decade, people like me have been relentlessly warning that the decisions that our leaders were making would have disastrous consequences, and that is exactly what has happened.

And if we stay on the path that we are on, it won’t be too long before we witness a meltdown of absolutely epic proportions.

*  *  *

Michael’s new book entitled “Chaos” is available in paperback and for the Kindle on Amazon.com, and you can subscribe to his Substack newsletter at michaeltsnyder.substack.com.

We’ve all heard the liberating stories about the ‘gig economy’—breaking free from nine-to-five jobs and offering flexibility.

For many Americans, it sounded super enticing. However, once in the gig economy, the reality is very different. The pay is often horrendous, and there’s no work-life balance while ferrying people around town as an Uber or Lyft driver or delivering food for DoorDash.

The BlueForge Alliance, a nonprofit integrator supporting the United States Navy’s Submarine Industrial Base, has kicked off a campaign with a new ad for youngsters, explaining their future is not an Uber driver but, in fact, helping to build America’s next fleet of naval ships – in a stable job environment.

“The campaign seeks to reach a younger audience of next-generation talent who may be unaware of the substantial opportunities for stable and impactful careers in maritime manufacturing,” BlueForge Alliance wrote in a statement earlier this month. 

The ad campaign for millennials and Gen Zers will lead them to the “CareersBuiltToLast.com” website, which highlights well-paying, high-tech, high-ceiling manufacturing jobs. This is undoubtedly enticing for youngsters, some of whom have been financially paralyzed by elevated inflation and high interest rates—thanks to failed Bidenomics. 

“Many people across America aren’t aware of the huge opportunities for careers in maritime manufacturing,” said James Rowe, Managing Director at adam&eveDDB New York.

Rowe said, “The gig economy has created a transitory workforce, and we wanted to demonstrate that there are incredible long-term career opportunities across American manufacturing.”

He continued: “Bringing an icon like Rosie the Riveter into 2024 felt like a unique way to connect with a new generation and make them aware of the prospects that a career in manufacturing has to offer.”

For the American blue-collar worker, who has been crushed by de-industrial trends over the last three decades, there is hope that re-shoring trends, beginning with former President Trump and continuing with President Biden, will eventually lead to high-paying jobs once again that can rebuild the middle class.

Television host Mike Rowe would likely be proud of these manufacturing jobs.

Authored by Conor Gallagher via NakedCapitalism.com,

US President Joe Biden, long showing signs of decline, is now officially done for in five months time, if not sooner. The current odds-on favorite to be the next president speaks often about turning away from Europe. Governments are collapsing, and countries are fracturing across the EU. And the eurozone economy is a mess.

One might be tempted to come to the conclusion that it is time for the EU to start figuring out an exit strategy from its war against Russia. Trouble is, if the bloc’s crop of leaders were able to grasp the situation and act, they likely would have gotten out a long time ago – or never been game at all. Instead they kept digging deeper, and here again we have the EU doubling down.

EU diplomats have spent the past few weeks throwing a fit over Hungarian Prime Minister Viktor Orbán’s shuttle diplomacy efforts. In its very first session the newly elected Parliament produced a belligerent joint text, making all sorts of hardline demands, such as the removal of any restrictions on the Ukrainian use of Western weapons systems to strike Russian territory.

They also chose to reappoint one of the war’s biggest backers, Ursula von der Leyen, as president of the European Commission – the most powerful position in the EU. Let’s take a look at von der Leyen’s pitch as she worked to cobble together enough votes for her second five-year term and what the plan is now that she’s back. Emboldened by her reappointment, she is pushing for a defense union.

Politico describes this task as “the number one challenge of her second term: making huge amounts of EU money available to reindustrialize and re-arm the EU.”

Left unexplained is who would foot the bill for the ambitious  plans, but the Commission and the European Central Bank continue to consider the possibility of issuing Eurobonds to finance the purchase or manufacture of weaponry, an idea considered off-limits until recently. Some background on the potential “miracle” of Euro defense bonds from Euractiv: 

This miracle happened during the eurozone crisis when the EU created a legal instrument, the European Financial Stability Facility, able to issue bonds and with a lending capacity of €440 billion. And with the COVID pandemic, the miracle was repeated as the EU adopted a recovery fund with a firepower of €750 billion, financed through common debt issuance.

The same line of thinking has inspired politicians to imagine defence bonds – to finance a major boost of the EU’s defence capabilities, after years of neglect when it was assumed that war was a thing of the past or that Uncle Sam would always come to the EU’s defence.

Estonia’s Prime Minister [now the High Representative of the European Union for Foreign Affairs and Security Policy] Kaja Kallas highlighted in December the need for EU defence bonds to fight Russia’s aggression in Ukraine…

Speaking at the European Defence Agency annual conference on 30 November, [European Council President Charles] Michel said EU member states should pool what could amount to €600 billion in defence investment over the next 10 years.

He also said European defence bonds would be an attractive asset class, including for retail investors. Incidentally, a top European Investment Bank cautioned in an interview with Euractiv in January that investors don’t currently have an appetite for defence-related financial assets.

A couple of weeks later, French President Emmanuel Macron returned to the topic, telling investors at the World Economic Forum in Davos that Europe should resort to joint debt to finance its priorities, including defence.

Who doesn’t love “miracles?” But there are some issues, including economic difficulties across the bloc, governments crumbling, and public frustration with everything from the immigration to the economy. There is also the reported military manpower shortages, which is a whole other problem that has been frequently covered.

Politico quotes an unnamed diplomat who says that “Everything that costs anything — for example, Ukraine defense,” will prove “problematic” during von der Leyen’s second term. While von der Leyen is throwing around figures like 500 billion over the next decade, another diplomat said, “We didn’t see spreadsheets, we didn’t see details, this is pie in the sky money.”

More details are likely coming soon as von der Leyen is planning to appoint a Commissioner for Defense who will present a white paper on the future of European militarization efforts within 100 days.

The real question is whether Germany will go along with any eurobond plan. The historically unpopular chancellor Olaf Scholz remains opposed to Euro defense bonds – for now. He argues that the EU already has various research and industrial funds to support defense cooperation among member states and defense companies.

For example, Poland, France, Germany and Italy just signed a letter of intent to jointly develop long-range cruise missiles. Poland and Germany were among those countries that got rid of their missiles in the 1990s following the 1987 Intermediate-Range Nuclear Forces Treaty. That agreement expired in 2019, however, after then-president Donald Trump withdrew from it. The US is ever-so-generously agreeing to cover Germany where US long-range missiles will be rotationally deployed in 2026 as a temporary solution.

While Scholz talks up agreements like the joint development of long-range cruise missiles, Atlanticists are insisting he do more, and he does not have a strong record of firmness when pressured by his NATO/EU colleagues.

Recall in the Fall of 2022 when he resisted sending more heavy arms to Ukraine. After a few weeks of badgering, he pledged to support Ukraine “for as long as it takes.” He also caved on the Leopard tanks after making a show of resistance. On the other hand, the Taurus missiles still haven’t been sent to Ukraine. Yet the Eurobond issue is starting to be reminiscent of these previous pressure campaigns. It was only four months ago that idea was viewed as “radical;” now Germany is viewed as the main roadblock.

Berlin is facing its own budgetary constraints while also pushing arbitrary limits onto other EU nations, and the inadequate ramp up of military spending is “set[ting] the stage for further clashes with Germany’s international partners, especially Washington, in the coming months.” On the other hand, any eurobond plan would only strengthen political threats to the “center” in Germany, such as the Alternative for Germany and Sahra Wagenknecht who want to stop the digging and attempt to repair ties with Russia.

Could a Trump Election Further Von Der Leyen’s Goals?

It’s important to note that Trump didn’t actually undermine the NATO alliance in any significant way as president and appointed CIA officials and neocons to run his hawkish foreign policy, although there is hope that will change in a second go-round.

In reality, however, the plan for the US to take a backseat on the European front and focus on the Pacific is part of a strategy long pushed by neocons. It might be an unrealistic and dangerous one, but it is a strategy nonetheless. Here is a team from the influential Center for Strategic and International Studies (CSIS) writing earlier this year in Foreign Affairs about how Europe must lead in the fight against Russia so the US can focus on China:

That complicated reality requires U.S. allies, especially in Europe, to take on a larger share of directing the containment of Russia. Europe has shown its political and economic resilience in the face of Russian aggression. Yet militarily, the continent remains dependent on the United States. This dynamic must change, in part because the United States must commit more of its resources to Asia. The growth of European defense spending since Russia’s full-scale invasion of Ukraine is an encouraging step. In 2023, 11 NATO members hit their spending target, allocating at least two percent of GDP to national defense, up from just seven members in 2022. The rest need to follow suit.

Europe must also resolve the problem of coordination. Right now, the United States coordinates more than 25 militaries in Europe. While it must continue to do this in the short term, it must push individual European countries and the European Union to take over this role and to create a stronger European pillar in NATO.

This is precisely what is atop Queen Ursula’s to-do list for her second term, so a second Trump presidency might not be a disaster but an opportunity in the eyes of ambitious and deluded in Brussels who want to amass more power in the name of marshaling the bloc’s finances to ramp up militarization efforts against the Russian menace.

In many ways Europe’s bureaucracy has already changed in small but fundamental ways in order to redirect money towards war. From Equal Times:

“In 2023, there was a very significant increase in military spending worldwide, but especially in Europe. In Spain, for example, it grew by 24 per cent and in Finland by 36 per cent. If we compare it with 2013, the European countries in Nato are spending 30 per cent more,” says Pere Ortega, a researcher at the Barcelona-based Centre Delàs for Peace Studies, which is critical of measures adopted by the European Commission to promote military spending, such as the VAT exemption for the purchase of armaments or the change in the regulations of the European Investment Bank (EIB) to allow it to finance industrial projects in the military sphere.

And according to the European Council on Foreign Relations (ECFR), the number of countries meeting the two percent target has risen from 3 to 23 since 2014:

The problem now is that individual states are running into budgetary constraints.

More Guns, Less Butter

EU leaders are determined to reimpose austerity on bloc countries beginning in 2025. That’s a return to the annual limits of 3 percent of GDP for public deficits and 60 percent for public debt, which were suspended in response to the Covid-19 pandemic.

There are some new twists to the rules that were marketed as measures to soften the pain, but if they do, it will be minimal. For example, the new agreement stipulates that countries with a deficit above 3 percent of GDP are required to halve this to 1.5 percent but can do so during periods of growth. That growth might quickly evaporate with such a public spending pullback, but that’s the plan. Elsewhere, countries will still be required to  reduce their debt on average by 1 percent per year if it is above 90 percent of GDP, and by 0.5 percent per year on average if the debt is between 60 percent and 90 percent of GDP.  The new rules give countries seven years to get their spending in order, up from four previously.

These rules will make it close to impossible to spend more on defense without completely cutting social services to the bone. Even without factoring in increased defense expenditures the outlook is grim:

Too meet reformed EU fiscal rules, Italy and France would have to go for fiscal consolidations over 2025-2028 that are larger than during the Euro Crisis (2011-2014). Spain has to do about half.

Do we properly remember the effects and political debates of €zone austerity? pic.twitter.com/Rmuz8jfkTJ

— Philipp Heimberger (@heimbergecon) June 21, 2024

So how to reconcile the goal of a defense union and remilitarization with plans for austerity?

A few possibilities:

• There is talk of exemptions from the debt rules for military spending.

• Bloomberg reported back in March that EU officials and investors are using the fiscal rules to push for an EU-wide bond program that would bring the investors bigtime profits while allowing the bloc to ramp up military spending without individual nations incurring more debt.

Of course a third option is that the EU will abandon its war against Russia, stop supporting Nazis, quit fetishizing austerity, and rebuild its economies, but back to reality.

The big question remains if Germany will get onboard with the EU bond program. One reason it could is because it would help Berlin with its own budgetary constraints. While Germany wouldn’t face major budget crunches like France, Italy, and Spain under the return of debt and deficit rules, it is hamstrung by its self-imposed deficit brake.

That rule, intended to force German governments to balance the federal budget, was introduced under former Chancellor Angela Merkel during the euro crisis and restricts deficit spending to a minimum, except under “extraordinary” circumstances, such as a natural disaster or war. The current government tried to override the brake in order to shovel more money into the Ukraine bottomless pit, but was rebuked last Fall by the constitutional court.

An EU-wide war bond program could help the bloc bypass all the self-imposed debt brakes while still cutting and privatizing social services, and both could be a boon for investors. What’s not to love? The Centre for European Policy Studies with more:

Against this backdrop, the EU’s true ‘Hamiltonian moment’ in defence would be a decision to issue joint debt to properly fund the ambitions set out in its Defence Industrial Strategy.

Based on Art. 122 TFEU and implemented in accordance with Articles 173-174 TFEU, such bonds—possible under the EU’s Financial Regulation—could provide the backbone for grants to Member States to bolster the Union’s defence production capacity if paired with existing incentives for joint capabilities research, development, production, and procurement. This would avoid the two-speed logic and weaker conditionalities surrounding proposals to use the European Stability Mechanism (excluding key countries such as Poland, Sweden and Denmark) to issue loans to EU Member States for defence spending.

Like how the Covid-induced Recovery and Resilience Facility stabilised European markets and sustained demand during and after the pandemic, Euro-defence bonds are a potential game-changer for the EU’s defence ambitions due to the potential speed and scale of resource mobilisation, and the potential impact on market de-fragmentation. And, fortunately, the German Constitutional Court should have nothing to object to this time around.

The View from Outside the Cult

Voices from Moscow, Budapest, and Belgrade are issuing warnings that the EU continuing down this road increases the threat of war, and they are concluding that is what Brussels wants.

Moscow is taking note of von der Leyen’s plans and preparing accordingly according to Kremlin spokesman Dmitry Peskov:

“[It] confirms the general attitude of European states to militarisation, escalation of tension, confrontation and reliance on confrontational methods in their foreign policy,” said Peskov “Everything is quite obvious here.”

The Kremlin spokesman added that while Russia did not pose a threat to the EU, actions by its member states regarding Ukraine “have excluded any possibility of dialogue and consideration of Russia’s concerns. These are the realities in which we have to live, and this forces us to configure our foreign policy approaches accordingly,” Peskov said.

Hungarian Prime Minister Viktor Orban, childishly reprimanded by the EU for talking peace with world leaders, keeps warning about the levels of delusion in Brussels. His latest in a Magyar Nemzet op-ed:

The Brussels bureaucrats want this war, they see it as their own, and they want to defeat Russia. They keep sending the money of the European people to Ukraine, they have shot European companies in the foot with sanctions, they have driven up inflation and they have made making a living difficult for millions of European citizens.

Serbian President Aleksandar Vucic echoed those thoughts in a recent interview with the Pink TV channel:

“The West would like to conduct warfare from a distance, through someone else, through investing money and so on, but at the moment they are not ready [for a direct conflict with Russia]. Will they be ready? They are not ready now, but I think they will be ready. They are already preparing for a conflict with the Russian Federation and they are preparing much faster than some people would like to see, in every sense. We know that from the military preparations, we know how they’re going. And I want to tell you, they are preparing for a military conflict.”

Authored by Paul Sutton via DailySceptic.org,

Orwell observed how some writers are so important that cultural and political “ownership” of their work is fiercely contested.

He said this of Dickens and Shakespeare, so would be delighted that he’s now firmly in that camp.

But I think he’d be less happy that the weasel word ‘problematic’ is the cover under which his position is now being undermined – as he’d have predicted, by our censorious ‘progressives’.

To this group, certain writers – Eliot, Pound, Kipling, Celine – are clearly beyond the pale, so that any discussion of them has to be prefaced by an impassioned and often inaccurate lecture on their moral and political failings. There is a sense that this is done as much from the fear of not doing so, especially for Pound. The denunciations are highly performative and follow a script, an observation that could be easily made of much discussion with progressives.

They seem to speak nervously and miserably, as if under constant observation. Self-censorship is at work: they feel the need to monitor everything and everyone and so assume this applies to them.

I was subjected to one such lecture by some graduate students, whom I and a good friend were chatting to in an Oxford cafe. One chap was English, the other Italian, both were doing DPhils in Literature. The place is Greek-run and, being half-Greek (though not a speaker), I enjoy its atmosphere and coffee. Indeed, we started talking when I overheard them speaking Greek to the English bloke’s Greek girlfriend.

The students maintained that the important thing is quality of writing but, paradoxically, this can only be judged by a strict contemporary “evaluation” of any Right-wing or outdated views. Inevitably, this contextualisation then reveals that said writers are “problematic” and “not as good as XYZ” – usually some figure who fits their sensibilities, and coincidentally one who’s almost always female – or at least better suited to the diversity required by these commissars.

So far, so well known and wearily familiar. The absolute impossibility of literature under such a mindset – one enthusiastically endorsed by graduate students who professed to live for literature – is utterly depressing. We’re in effect dealing with its cancellation

I made a perfunctory effort in observing their complete inconsistency, but things got more interesting when Orwell was discussed. Of course, Orwell famously wrote against their stand, not least in his brilliant defence of Kipling’s literary merit and his refusal to allow orthodoxy to dictate his aesthetic preferences, in Benefit of Clergy.

Unfortunately, Orwell’s stint in the Burmese Imperial Police made him a despicable figure to the students, little better than a Waffen SS or Gestapo officer.

True, he’d belatedly retrieved himself by his “eventual writing” in the 1940s, but he’d spent many years performing the dirty work of the British Empire. His famous essay, A Hanging, showed him enthusiastically hands on at it.

I’d honestly never heard such a narrow and limited view, and was intrigued. As a preposterous misrepresentation, it needs little rebuttal. A Hanging is indeed a brilliantly disturbing account of an Indian murderer being hanged, a man who’d have been executed at that time in any country. The essay explores the deep unease Orwell felt about his role, so it’s a lie to claim it shows him uncritically doing his job, let alone revelling in his exertion of British authority.

Such an interpretation shows a shocking lack of understanding. As does the idea that Orwell only recanted any pro-Imperial views in the 1940s; his underrated Burmese Days was published in 1934 and he wrote extensively about his disgust for the job he did in the late 20s and 1930s. Of course, he didn’t only feel disgust, nor would he pretend that the British brought only misery and were unique as imperial exploiters.

What I’m most interested in is how an alternative Orwell was then offered up, a writer who’d accepted the British Empire was “problematic” yet offered a nice comforting view of how nice and comforting life can be – if you agree with the progressives, that is.

Step forward Jan Morris and his trilogy Pax Britannica. Now, I haven’t read this non-fictional account of the British Empire but from background knowledge, it’s not in any way a replacement for Orwell or even remotely comparable. It’s an exhaustive historical work, not a personal creative one. But this trilogy was extolled by the students as what Orwell should have done when discussing empire. There was the implication that Orwell could now be – somewhat thankfully – ignored.

Bizarrely, the Englishman then introduced Joyce, first saying that the man was a lifelong sponger who’d have probably fleeced him, but as a writer was the very model of a pan-European, liberal and open to all cultures. Again, the grubby contradictions and sheer banality of such a perspective are eye-popping – from a DPhil student in perhaps the country’s finest university.

And I’ve a nagging feeling that Jan Morris – a famous case of gender realignment (he ‘transitioned’ to female in 1972) – was picked for the ‘acceptable author’ reasons. That’s the problem with ‘author context’ vetting – as with ‘diversity hires’. Much as I’ve enjoyed Morris’s travel writing, especially Oxford, it’s staggering for this author to be proposed as some alternative to Orwell! Not only in terms of obvious lesser importance, but they’re not remotely comparable in terms of genre or aims. How could any serious reader – let alone one at a leading university – talk such gibberish?

Discussion on Pound and Eliot was even more absurd. Both were (begrudgingly) great poets, but it was impossible to read either without a thorough warning of their antisemitism – the Italian seemed to think this was a safety requirement. He had no faith in any reader simply reading a text, whilst disingenuously claiming to believe that anything worthwhile would always survive on its own merits. If someone genuinely feels this, then why the need for all the Health and Safety proclamations? It’s the pathetic unwillingness to be honest I most despise – why not just say “I want Eliot to neither be read nor survive”?

Pure funk – he’d be afraid someone would accuse him of being a philistine, as Eliot’s status is near-unassailable. I say “near”, since these people are – though they’d never admit to it – really working on that. So, just be honest about it!

Needless to say, discussion then moved on to the Rhodes statue at nearby Oriel College, which both DPhils were adamant had to be removed. It was easily as disturbing to “victims of British imperialism” as any supposed hurt caused by Gaza protest chants of “From the river to the sea, Palestine will be free” to Oxford’s Jewish students. Anyway, the English chap maintained, Jewish students (of which he wasn’t one) mostly approved of the protests, since only two had signed a petition in Balliol approving Israel’s actions.

“I wonder how those brave souls felt?” I asked. “I thought minorities were the key to all this?”

The Englishman – in fact, a pseudo-European intellectual – lovingly informed me that he could sniff out a fascist, and only one course of action could then follow.

Some stirring words from Lorca on the Spanish Civil War were recited.

I should have quoted Nietzsche – but presumably he’s problematic and a fascist?

He who fights with monsters best take care lest he himself becomes the monster.

*  *  *

Paul Sutton can be found on Substack. His new book on woke issues The Poetry of Gin and Tea is out now.

Chocolate maker Lindt & Spruengli AG has warned the global chocolate market is under strain due to high prices. Reducing demand is necessary to prevent cocoa prices from surging once again amid persistent cocoa supply issues stemming from adverse weather conditions impacting some of the world’s largest farms in West Africa. 

Bloomberg reports that Lindt CEO Adalbert Lechner told investors during an earnings call on Tuesday that the global chocolate market was experiencing a slowdown for some products due to rising cocoa prices. He said price hikes for consumers partially offset higher cocoa bean costs for the Swiss chocolatier and confectionery company, adding that cost inflation will ramp up into next year. 

“It is quite difficult to predict where the futures market will go from here and how quickly we will see a further correction,” Lechner told investors.

He said, “The speed and the extent of the market correction will also depend a lot on the impact of the overall volume demand in the chocolate market.”

Cocoa futures in New York have been oscillating in what some call a ‘symmetrical triangle’ since prices peaked at $12,000 a ton in April. This followed a massive run-up early this year fueled by a historic shortage in West Africa due to poor harvests. The $8,000 level is a price magnet as traders wait for new harvest or demand data. 

“It is still early in the season” to predict harvest figures, “which may keep the market in a back-and-forth pattern,” according to a Tuesday ADM Investor Services note.

Here are the latest cocoa reports:

• Cocoa Traders Face Billion Dollar Loss As Ghana Throttles Cocoa Delivery Supplies, Report Says
• Cocoa Grinding Estimates Suggest Demand Destruction Nearing
• Cocoa Prices Fall To Critical Technical Support Level On Improving Ivory Coast Outlook
• Global Cocoa Shortage Much Worse Than Previously Forecasted As Prices Surge

Cocoa prices have been supported by better-than-expected demand and poor harvest figures. Some analysts believe prices might need to go higher to achieve proper demand destruction. 

Authored by Connor Freeman via The Libertarian Institute,

As NATO escalates its proxy war in Ukraine and inches closer to fighting directly with Russia, the Washington-led bloc is embracing mandatory military service. Many European members of NATO have expanded or reintroduced conscription as part of large-scale preparations for such a war, CNN reports. Already outpaced in terms of military industrial capacity by Russia, the alliance’s new battleplans will see an attempt to beef up weapons production and form 35-50 brigades of 3,000-7,000 battle ready troops.

Outgoing NATO Secretary General Jens Stoltenberg has insisted, “Today, we have 500,000 troops on high readiness, combat-ready battlegroups in the eastern part of the Alliance for the first time.” But the bloc is struggling to meet its goals of assembling 300,000 soldiers prepared to be activated within a month and another half a million in six months. There is also a question of whether the bloc can filed a military fit for a protracted war akin to the Ukraine conflict.

Following the end of the Cold War, several European states ceased conscripting their citizens. Although increasing numbers of NATO member countries have resorted to the draconian practice during recent years, especially in the Baltics and Scandinavia. Roughly a third of the NATO alliance practices some form of compulsory military service.

This year, for the first time since it was abolished in 2006, Latvia reimplemented its draft. Male citizens are subject to conscription within a year of turning 18 years old. Additionally, Norway has unveiled a long-term plan to increase its ranks of mandatorily conscripted troops, employees, and reservists by 20,000 as well as double the military budget. In 2015, Oslo became the first NATO government to establish a gender-neutral draft.

Lithuania brought back mandatory military service in 2015, each year drafting 3,500 to 4,000 men between the ages of 18-26 for a nine-month period. Although the Finnish Defense Forces employ only 13,000 people during peacetime, Helsinki claims it has the ability to activate over 900,000 reservists with 280,000 combat-ready troops. Sweden conscripts both men and women, Stockholm drafted 7,000 its citizens and the military expects to conscript 8,000 next year. The Swedes have had conscription since 1901.

Citing the supposed Russian threat to Europe, Robert Hamilton, the head of Eurasia Research at the Foreign Policy Research Institute, said “It is tragically true that here we are, in 2024, and we are grappling with the questions of how to mobilize millions of people to be thrown into a meatgrinder of a war potentially.” For 30 years, Hamiliton served as a US Army officer. “Meatgrinder” is a term often used by frontline troops in Ukraine, particularly during the battle of Bakhmut where the average life span of such a soldier was only a few hours.

In the United Kingdom, conscription is currently being pushed by Conservative MPs. The 2025 National Defense Authorization Act, the annual military spending bill, may include provisions which inter alia will seek to automatically register all eligible men and women for Selective Service, a form of conscripted labor, which could inevitably include military service.

Former Supreme Allied Commander of Europe General Wesley Clark echoed Hamilton’s hawkish sentiments, emphasizing “whether this is a new Cold War or an emerging hot war is unclear.” He added that NATO “must rebuild our defenses,” including with mandatory military drafts.

“I think young people in Europe and the US will come to realize that this generation, like the generation that fought WWII, it didn’t ask to be the ‘Greatest Generation’ but the circumstances thrust that burden on them,” Clark added.

The risk of direct war with Russia is growing by the day amidst the Ukraine proxy war, as the alliance has largely approved NATO missiles to be used for attacks against the Russian mainland. The bloc will soon provide Kiev with F-16s and an explicit green light for the warplanes to carry out direct strikes against Russian territory as well. Without irony, Stoltenberg claimed this should not be viewed by Russia as an escalation.

As NATO considers increasing its nuclear weapons deployments, the US is also planning to deploy previously banned, medium-range, nuclear capable missiles in Germany which has caused Russia to hint it could similarly retaliate. Pointing to the massive US-led buildup for war with China, President Vladimir Putin accused NATO of creating major security threats for Russia in Asia.

NATO set its sights on China four years ago, identifying Beijing as a military threat to European security. China maintains a “no limits” partnership with Russia. “NATO is already ‘moving’ there (to Asia) as if to a permanent place of residence. This, of course, creates a threat to all countries in the region, including the Russian Federation. We are obliged to respond to this and will do it,” Putin vowed earlier this year. That same month, Stoltenberg cited China as a reason the bloc is considering an “adaptation” of its nuclear arsenal.

Authored by Pepe Escobar,

There can hardly be a better place to track the four-day, twice-a-decade plenum of the Communist Party of China than dynamic, “one country, two systems” Hong Kong.

Hong Kong is right at the heart of East Asia – halfway between Northeast Asia (Japan, the Koreas) and Southeast Asia. To the west is not only China but the Eurasia landmass, linking it to India, Persia, Turkiye and Europe. To the east, sailing forward, is the Pacific and the US’s West Coast.

Moreover, Hong Kong is the ultimate multipolar, multi-nodal (italics mine) hub: a frenzied global metropolis forged by trade routes going back centuries, attracting people from every latitude keen on interconnecting commerce, ideas, technologies, shipping, commodities, markets.

Now, reinvented for 21stcentury Eurasia integration, Hong Kong has all it takes to profit as a key node of the Greater Bay Area, the southern hub propelling China to economic superpower status.

The plenum in Beijing was a quite serious/sober affair – trying to strike a balance between sustainable economic growth and national security all the way to 2029, when the PRC celebrates its 80th anniversary.

The proverbial comprador elites, 5th columnists and outright Sinophobes across the West have gone bonkers on the current slowdown of the Chinese economy – complete with slumps in the financial and property fronts – running in parallel to all hybrid war strands of Chinese containment emanating from Washington.

Fact: China’s GDP grew roughly 5% in the first semester; and the final plenum communique, released at the end of the four-day meeting, stressed that this should remain the “unwavering” target for the second semester.

The official rhetoric of course was heavy on stimulation of domestic consumption, and “new momentum” to drive exports and imports.

This key passage in the final communique breaks it all down when it comes to the new iteration of “socialism with Chinese characteristics”:

“We must purposefully give more prominence to reform and further deepen reform comprehensively with a view to advancing Chinese modernization in order to better deal with the complex developments both at home and abroad, adapt to the new round of scientific and technological revolution and industrial transformation, and live up to the new expectations of our people.

It was stressed that, to further deepen reform comprehensively, we must stay committed to Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents, and the Scientific Outlook on Development and fully implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.

We must thoroughly study and implement General Secretary Xi Jinping’s new ideas, viewpoints, and conclusions on comprehensively deepening reform and fully and faithfully apply the new development philosophy on all fronts.”

And to make it more simple, Xi actually explained it all in some detail.

Those Pesky ‘Markets’

Nowhere around the world one finds a government focused on devising five-year plans for economic development (Russia now seems to be engaged in its first attempts) – encompassing development of rural land, tax reform, environmental protection, national security, the fight against corruption, and cultural development.

When the term “reform” appears no less than 53 times in the final communique, that means – contrary to Western proselytism – that the CPC is dead set on improving governance and increasing efficiency. And all those targets must be met – otherwise heads will roll.

Science and technology will once again have pride of place in China’s development, a sort of follow-up to the Made in China 2025 strategy. The emphasis predictably will be on better integration of the digital economy into the real economy; infrastructure upgrading; and boosting “resilience” in the industrial supply chain.

It’s fascinating to watch how the communique emphasizes the necessity to “correct market failures” – which is a euphemism for reigning in turbo-neoliberalism. What is stressed is “unswerving support and guidance” to the development of the “non-state sector”, with Beijing ensuring “all forms of ownership” in the economy competing fairly and lawfully “on an equal footing”.

The plenum could be easily interpreted as a calculated exercise in Taoist patience. According to Xie Maosong, from the China Institute for Innovation and Development Strategy at the Chinese Academy of Sciences, “Xi said many times that the easy part of the reform is over, and now we are in uncharted waters. The party must watch its step, particularly as the external risks build. We are also touching the vested interests of many groups.”

Of course turbo-capitalist Hong Kong’s main obsession is “markets”. Conversations with British traders scouting Asia for their clients reveal they are not so keen on investing in China – yet that does not faze Beijing’s planners. What matters for the Politburo is how to meet the economic, social, environmental and geopolitical targets set by Xi for the next five years. It’s up to the markets to adapt to it.

Of course Beijing planners are already factoring Trump in the overall equation. The Western mantra that China’s economy is struggling to stabilize may be debatable. Yet China’s economy may be in fact in a more precarious position now than when Trump unleashed his trade war in mid-2018. The yuan may seem to be under more pressure because of the gap between US and Chinese borrowing costs.

According to a JPMorgan estimate, every 1% tariff hike during the 2018-2019 period of the US-launched trade war was linked to a 0.7% rise of the US dollar versus the yuan.

Trump plans to impose a 60% tariff on virtually all Chinese products.

That would lead to an exchange rate of roughly 9 yuan to the dollar, 25% weaker than now.

Now Read the Whole Thing and Get to Work

It’s enlightening to check what Hong Kong’s chief executive, John Lee, said about the plenum. He encouraged “all sectors of the community” to read the communique. And the Hong Kong business elite did get the drift: they interpreted it as Beijing betting once again on Hong Kong’s key role for the development of the Greater Bay Area.

It would not be any other way. Hong Kong, Lee stressed, is a “superconnector” and “super value-adder”, linking mainland China with the Global North and the Global South, and still attracting all sorts of foreign investment to China.

Now compare it with the predominant view on Hong Kong in US business circles. The American Chamber of Commerce in Hong Kong is appalled, stressing how US businessmen in fact don’t understand the Safeguarding National Security directive approved last March, which complemented the National Security Law installed by Beijing in 2020.

For Beijing, these are very serious matters of national security – which range from a crackdown on money laundering to preventing the proverbial 5th columnists from launching a color revolution such as the one that nearly destroyed Hong Kong in 2019. No wonder so many American investors cannot get it. Beijing couldn’t care less.

Now let’s see what China’s top mutual fund manager has to say about it.

Zhang Kun, manager of Blue Chip Mixed Fund, runs four funds with combined assets of $8.9 billion. He prefers to set his sights on Beijing’s aim to boost per capita GDP to match the West by 2035.

If that happens, with or without a US trade war – and the Chinese won’t stop at nothing to achieve it – then per capita GDP could be around $ 30,000 (it was $12,300 last year, according to Chinese think tanks).

So foreign investment will continue to be welcomed in China, via Hong Kong or not. But on each and every front, what trumps everything is national security. Call it a practical exercise in sovereignty.