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One day after China finally snapped, and demonstratively refused to intervene and keep the CNH above 7.00 vs the dollar, escalating the trade war into a currency war, stocks are tumbling and Wall Street analysts – all of whom had been bullish until now – are scrambling to adjust their narrative.

With the S&P dropping more than 2%, bringing its slide from the all time highs just two weeks ago to more than 5%, semiconductors which are most directly exposed to Chinese trade, and banks stocks, which are sensitive to interest rates, are among the hardest hit sectors.

As widely expected, President Trump himself joined the fray and on Monday morning tweeted about China and the Fed saying: “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” In doing so, he once again confirmed that he is using trade war as leverage to get Powell to cut rates further, as BofA showed in the following simple schematic:

But while Trump’s reaction was expected, what was more interesting is how sellside analysts – until recently predicting that the S&P will enjoy smooth sailing well into the 3,000, are adjusting their trading recos now that the worst case scenario in the trade war with China has materialized. So, courtesy of Bloomberg, here are some samples of the latest sellside commentary:

Cowen, Chris Krueger

Krueger called China’s retaliation “massive,” adding that “on a scale of 1-10, it’s an 11.” He cited the Chinese government calling on state buyers to halt U.S. agricultural purchases, while there’s “increased anecdotal evidence that the Chinese government is tightening its overview of foreign firms.”

“While there were measures that could have been chosen with larger direct effects on supply chains, the announcements from Beijing represent a direct shot at the White House and seem designed for maximum political impact,” Krueger said. “ We expect a quick (and possibly intemperate) response from the White House, and consequently expect a more rapid escalation of trade tensions.”

“There now will be increased expectations that the Fed will cut again in September to offset the drag caused by this escalation in the trade war,” he added. “Such moves will only be a partial, lagged offset to the recessionary headwinds a cycle of retaliation would cause.”

BMO, Ian Lyngen

“The wait is over for those wondering how Beijing would respond to Trump’s recent tariff announcement. The result: the yuan was allowed to depreciate well beyond 7.0.”

Instructing state-owned Chinese firms to halt U.S. crop purchases triggered “the obligatory flight-to-quality,” which pushed 10-year yields to 1.74%, with two-year yields keeping pace. That was “an impressive move that suggests August will not experience the traditional summer doldrums. Who needs vacation anyway?”

“The most significant unknown at this moment,” Lyngen added, “is how much further the yuan will be allowed to fall given that it’s already the weakest since 2008.”

Morgan Stanley, Betsy Graseck

Bank investors’ eyes were “glued to the yield curve last week,” with Trump’s tariff tweet on Thursday, Graseck wrote in a note. They’re now asking about Morgan Stanley’s net interest margin (NIM), outlook.

Graseck didn’t change her NIM assumptions yet. “We bake one additional cut of 25 basis points in 2019 in-line with our economist, and bake in the 10-year at 1.75% by mid 2020,” she wrote. She’ll update NIM and earnings per share estimates “if it looks like these trade tariffs are going through as September approaches.”

Morgan Stanley, Michael Zezas

“The dynamics of U.S.-China negotiation and macro conditions mean the next round of tariffs will likely be enacted, and investors are likely to behave as if further escalation will follow in 2019 until markets price in impacts,” Zezas wrote. “This supports our core view of weaker growth and skews the Fed dovish.”

Zezas sees incentives for the U.S. to escalate quickly. If the administration “understands the Fed’s trade policy reaction function, then it may also perceive that a more rapid escalation could deliver one or more of three beneficial points ahead of the 2020 election: 1) A quicker, potentially more aggressive Fed stimulus response that could help the economy heading into the election; 2) More time to re-frame the potential economic downside; and 3) A major concession by China (not our base case, but it is, of course, a possibility).”

Source: Bloomberg

via ZeroHedge News https://ift.tt/2OFgJeE Tyler Durden

Authored by Caitlin Johnstone via Medium.com,

The US presidential election is more than 15 months away, and already we’re seeing elitist establishment narrative managers rolling out their long-anticipated “Stop Rebelling and Support Biden, You Insolent Little Shits” campaign. HBO’s Bill Maher spent his “New Rule” monologue segment last night admonishing his audience to abandon any notion of progressive reform and embrace the former vice president instead.

“All the Democrats have to do to win is to come off less crazy than Trump, and of course they’re blowing it, coming across as unserious people who are going to take your money so that migrants from Honduras can go to college for free and get a major in America Sucks,” Maher said.

“Now do I want Biden to be president? Not really, but Biden’s the only Democrat who beats Trump in Ohio. He’s like non-dairy creamer: nobody loves it, but in a jam it gets the job done.”

“I’m sick of hearing that Democrats need to excite the base; Trump excites the base,” Maher said.

“It’s the fatigue, stupid. Let’s make it hard for Donald Trump to play on voters’ fears and let the fatigue win the election for us. We’ll get to the revolution, but remember: put on your oxygen mask before assisting your child.”

Boy, Bill. If that’s not the kind of inspiring rallying cry that can galvanize people against the president, I don’t know what is.

Weirdly, Maher inadvertently explains why his brilliant Biden strategy is doomed to failure earlier on in this exact same segment. Maher praises the Trump economy, saying “It’s hard to beat an incumbent in a good economy; every incumbent since FDR has won if they avoided a recession leading up to the election year.”

“The voters that Democrats need to win, moderates who have Trump fatigue, will vote against a good economy, I think, just to get back to normalcy,” Maher said.

“But they won’t trade it away for left-wing extremism. You say you want a revolution, well, you know, you gotta get elected first.”

Maher has all the facts right there in front of him, but because he is a propagandist who is only famous because he knows how to spout pro-establishment lines in an authoritative tone of voice, he manages to interpret them in the dumbest way possible. Yes, on paper the US economy is doing well, but only by the standards used by neoliberal politicians and mass media outlets to determine economic success. In real terms a population that used to be able to support a family on a single income now mostly requires two incomes, and most of them would struggle to pay even a thousand-dollar emergency expense.

Americans have gotten much poorer in terms of real income and income inequality has been exploding, but because both parties have been normalizing this paradigm and deceitfully using stock markets and unemployment rates to measure economic success, Trump is able to say he’s performing amazingly well economically. In terms of real American spending power he’s actually performing abysmally, but Democrats are resistant to saying so because it will mean conceding that the Obama/Biden administration did, too.

The path to beating Trump, then, is obviously not to hope that Americans will “vote against a good economy” for the first time in living memory as Bill Maher suggests, but to address the elephant in the room of growing income and wealth inequality and how more and more Americans have to work multiple jobs just to make ends meet. If you can offer Americans more in terms of real economic justice instead of crap about the stock exchange that puts bread on nobody’s table, voters will listen. There are some candidates who are campaigning on exactly this platform, and none of them are named Joe Biden.

Joe Biden has a message for the millennial generation: Stop complaining. https://t.co/4qELqr15vU

— HuffPost (@HuffPost) August 3, 2019

Biden’s platform, in contrast, seems more and more to consist of him just telling progressives to shut up and stop whining. Asked on a recent AFSCME forum about his controversial comments in January of last year that he has “no empathy” for young Americans who fear crippling college debt and rising cost of living, The Huffington Post reports that Biden not only stood by his comments, but doubled down on them, saying that if things are bad then the younger generation is to blame for not engaging in the political process.

“Don’t tell me how bad it is, change it,” Biden said.

“Change it. Change it. My generation did.”

Biden, like Bill Maher, is inadvertently giving progressives all the information they need. Yes, they should change it. And the very first thing they should change is a political dynamic which elevates warmongering Wall Street cronies like Joe Biden. There’s absolutely no reason for anyone to accept a status quo that insists the only way to beat Trump is to take a Hail Mary gamble on trying to elect a Democrat who’s no better than Trump. They tried that in 2016 and there’s no reason to believe they’ll be able to bully everyone into playing along in 2020.

The former vice president is about one click away from coming right out and saying “Vote for me, because fuck you that’s why.” And elitist establishment narrative managers are already essentially saying it for him.

*  *  *

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On the heels of disappointing US Manufacturing ISM/PMI prints last week – and global surveys – US Services surveys were expected to show a modest rebound in July.

Markit’s Services PMI did surprise to the upside, printing 53 (from 51.5 in June and above the 52.2 flash print), but business expectations plunged to a record low.

Although client demand strengthened further from May’s recent low, service sector firms reported another fall in business confidence during July. The degree of optimism slipped for the sixth month running to a fresh series record low, reflecting heightened economic uncertainty.

ISM’s Services survey collapsed to its weakest since August 2016 (printing 53.7 vs 55.5 expected)

• Business activity fell to 53.1 vs 58.2 prior month

• New orders fell to 54.1 vs 55.8

• Prices paid fell to 56.5 vs 58.9

• Backlog of orders fell to 53.5 vs 56

• New export orders fell to 53.5 vs 55.5

So, Markit’s Services respondents seem to be in a world of their own…

 

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“An improvement in the overall rate of business growth signalled by the services PMI for July is welcome news, but the overall weak pace of expansion remains a concern. The PMIs for manufacturing and services collectively point to GDP expanding at an annualized rate of under 2% in July, below that seen in the second quarter and among the weakest seen over the past three years.

However, Williamson was quick to steal the jam out of that donut…

“A sharp drop in future expectations meanwhile suggests downside risks have increased in the near-term at least, hinting that the upturn in growth seen in July could prove short-lived and that GDP growth could remain disappointingly modest in the third quarter.

“Optimism is at its lowest ebb since comparable data were first available in 2012 as companies have grown increasingly concerned about the year ahead, fueled by trade war worries and wider geopolitical jitters, as well as growing worries that the economic cycle has peaked.”

So take your pick – headline improvement (buy stocks because here comes the rebound), or under the cover collapse in confidence (buy stocks because Fed will save us all)… or sell.

via ZeroHedge News https://ift.tt/2Ksi8jh Tyler Durden

Following a series of deadly mass shootings over the weekend that left 29 dead and dozens more injured, President Trump will deliver a statement at 10 am ET.

It’s not clear what Trump will say, or whether he’ll propose any new policies or initiatives, but in a series of tweets Monday morning, the president appeared to express support for more stringent background checks.

We cannot let those killed in El Paso, Texas, and Dayton, Ohio, die in vain. Likewise for those so seriously wounded. We can never forget them, and those many who came before them. Republicans and Democrats must come together and get strong background checks, perhaps marrying….

— Donald J. Trump (@realDonaldTrump) August 5, 2019

….this legislation with desperately needed immigration reform. We must have something good, if not GREAT, come out of these two tragic events!

— Donald J. Trump (@realDonaldTrump) August 5, 2019

Democrats are pushing Republicans to join them in supporting the universal background check bill that passed the House earlier this year before dying in the Senate, and by the looks of it, President Trump appears to now support that measure.

Meanwhile, Mexican President AMLO criticized the US’s gun control policy on Monday and said his country was working to stop the import of US-made guns into Mexico. Though, when it comes to gun violence, Mexico is resembles the pot calling the kettle black.

AMLO’s implication that the proliferation of firearms is the root cause behind mass shootings simply isn’t supported by the data: As one recent study showed, Mexico’s intentional homicide rate is much higher than the US’s, even though the number of guns in circulation per capita in the US is much higher than in Mexico. But warring drug cartels have led to a murder rate in Mexico that is consistently much higher than in the US.

Source: Reddit

In addition to the two shootings over the weekend, another shooting at a Garlic Festival in California earlier in the week left another 3 dead. Last time Trump expressed support for more stringent background checks and/or gun control (in the wake of the deadly Oct. 2017 shooting in Las Vegas), he swiftly changed his mind after a brief spat with the NRA. But, with the NRA still reeling from a recent power. struggle, will Trump, uh, stick to his guns this time around?

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Well that escalated quickly…

The Dow is down almost 1500 points from its pre-Powell highs, breaking back below 26k erasing all the “trade truce” gains…

 

Gold is soaring…

 

 

 

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Despite a quarter that was marked by unrest in the streets of Hong Kong, HSBC reported relatively robust results on Monday (local time) that beat the Street’s expectations. And in addition to announcing a share buyback of $1 billion (which is half the size of last year’s), the bank followed several of its peers in announcing mass layoffs (HSBC will cut roughly 2% – approximately 4,000 jobs – from its global workforce) while also revealing that its CEO John Flint, who has been in the job only 18 months, will leave the bank as its board looks for “a different approach” on growth, resource allocation and execution.

Like many of its fellow global banks, HSBC shares have underperformed during Flint’s tenure, which could be one reason for his sudden departure. Noel Quinn, who has led global commercial banking at HSBC since December 2015, will take over for Flint on an interim basis, SCMP reports. The news sent HSBC shares down roughly 2% to their lowest intraday level in 9 months.

John Flint

“In the increasingly complex and challenging global environment in which the bank operates, the board agrees that a change is needed – and John agrees – to make the most of the significant opportunities ahead of us,” HSBC’s Chairman Mark Tucker said on a conference call. “This is a decision about the future.”

Flint, 51, joined the bank in 1989 spent his entire career there. He led the lender’s retail banking and wealth management businesses before taking over for retiring CEO Stuart Gulliver in February 2018.

The bank’s board insisted that there hadn’t been a clash of personalities and no disagreement over strategy, but that the bank’s directors had decided it was time for Flint to go.

“There has been no personality clash. There has been no disagreement over strategy,” Tucker said. “This is a unanimous decision of the HSBC non-executives [on the board]. Personalities have not been a factor in this at all.”

Q2 net profit rose 6.8% to $4.37 billion, up from last year’s $4.09 billion. Pre-tax profit increased to $6.19 billion, beating analysts’ consensus estimate provided by the bank of $5.63 billion.

Operating income rose 8.2% to $14.4 billion during the quarter, while net interest income increase increased 1.7% to $7.77 million in the quarter.

Here’s a roundup of analyst comments, courtesy of Bloomberg

KBW, Ed Firth (market perform)

Flint’s departure is the key news and Firth says he’s often been “uninspired” by the “business as usual” strategy under the outgoing CEO

His replacement is more likely to be internal but will have to take a more “dynamic approach” to improving underperforming areas of the bank

While second-quarter numbers are a “comfortable beat,” the outlook is “reasonably downbeat” and pressures are growing for the bank, notably in Hong Kong.

JPMorgan, Raul Sinha (underweight)

Overall the results look solid, with adjusted pretax profit about 8% ahead of company-compiled consensus, but the sheen is taken off this by the announcement Flint will leave after only 18 months in the role

Sinha says Flint’s departure looks to have been driven by the HSBC board seeking to “accelerate change alongside a potentially rapid deterioration in outlook.”

Jefferies, Joseph Dickerson (hold)

The bank benefited from higher HIBOR rates in Hong Kong and tight cost controls but the $1 billion buyback announced looks “token,” given it is at only half the prior year’s level

Outlook statement “points to the challenges the bank faces in terms of interest rates, not to mention the geopolitical risks.”

Hard to see” consensus estimates for 2020 and beyond being revised higher after the results.

RBC, Benjamin Toms (underperform)

Profit was well ahead of expectations thanks to beat on revenue, costs and impairments, but the second-quarter results look “softer around the edges”

The $1 billion buyback was below the $1.5 billion to $2 billion expected in consensus
And “we find the timing a little odd” in terms of the departure of Flint.

Bank of America Merrill Lynch, Alastair Ryan (neutral)

Flint’s departure was unexpected but the results demonstrate it wasn’t due to near-term financials given that second-quarter revenue outpaced expectations.

New buyback is a “positive surprise” as BofAML had removed buybacks from its estimates.

BBG Intelligence.

Net interest margin increase and positive operating jaws demonstrate that HSBC is continuing to deliver, but with Flint’s exit and a downgraded outlook, those conditions are set to change.

Global Markets and Global Banking units both likely to need more refocusing and in order to meet its 2020 targets, would expect the bank’s costs and investment levels to be “aggressively managed.”

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