After disappointing (lower than expected) prints in CPI and PPI, inflationista’s last best hope is with import and export prices (which, however, are both expected to slow today).
But that hope was just dashed as Import prices plunged 1.5% YoY (vs -1.2% exp) and Export prices dropped 0.7% YoY.
On a MoM basis, import prices fell 0.3% (headline and ex-petroleum), and import prices dropped 0.2% MoM.
Every sub-index below both import and export prices declined in May as China exported the most deflation since September 2007…
Finally, as a reminder, this data does not include Trump’s new tariffs, but is potentially significantly impacted by the strength of the dollar.
Notably, agricultural export prices fell 5.3% YoY, largest year-over-year drop since April 2016, led by 20.6% YoY decrease in soybean prices. So tariffs are deflationary?
via ZeroHedge News http://bit.ly/2wUflJa Tyler Durden
Yesterday Craig Hicks pleaded guilty in state court to murdering three of his neighbors, all Muslim college students, at an apartment complex in Chapel Hill, North Carolina, four years ago. Hicks says he shot his victims—19-year-old Razan Mohammad Abu-Salha; her 21-year-old sister, Yusor Mohammad Abu-Salha; and Yusor’s 23-year-old husband, Deah Shaddy Barakat—because of a parking dispute. Their families believe he shot the students because he hates Muslims. The dispute illustrates the fuzziness of hate crime laws and the degree to which their enforcement hinges on speech that would otherwise be constitutionally protected.
North Carolina has several statutes aimed at crimes motivated by bigotry, but none of them applies to murder cases. That hardly seems to matter, since Hicks received three consecutive life sentences without the possibility of parole. If he had been convicted of federal hate crimes, he might have received the death penalty. (Or he might not have.) But the argument about how to describe his crimes seems to be about the message his prosecution sends rather than the penalty he receives.
During a hearing last week, Hicks’ lawyers tried to block expert testimony about “implicit bias.” The New York Times reports that Durham County District Attorney Satana Deberry “responded that Mr. Hicks was trying to avoid punishment for what she repeatedly called his ‘white supremacist’ worldview.” That’s a telling way of putting it, since people’s opinions, no matter how ugly, are not supposed to be punishable by law in the United States.
If Hicks had been charged with federal hate crimes, prosecutors would have had to prove that he shot his victims “because of” their religion. According to a federal appeals court ruling that the Justice Department cited in explaining its decision not to take on the case, that would have required showing that Hicks would not have murdered his neighbors “but for” their religion, which would have been hard to do.
Prior to his crimes, Hicks was an outspoken atheist and critic of organized religion, a subject he discussed on social media. But the evidence of a specific anti-Muslim bias is less clear. “I’ve defended Muslims,” he told the Times in a jailhouse interview. “I know Muslims. I take pity on them, the way society treats them like they are lesser people.” He denied even knowing that his neighbors were Muslims, although the women wore headscarves and he contradicted himself by criticizing them for not properly observing Ramadan.
At the same time, Hicks was known to confront and quarrel with people of various backgrounds, especially over parking. This would hardly be the first case of murderous violence inspired by trivial issues.
Ripley Rand, then the U.S. attorney for the Middle District of North Carolina, met with the victims’ relatives in 2015 but declined to prosecute Hicks. He told the Times (in the newspaper’s paraphrase) that “the federal government was meant to intervene if local authorities could not or would not do their jobs,” which “did not seem to be the case” here, since Hicks “seemed destined to spend the rest of his life in prison.”
That is demonstrably not the Justice Department’s general policy, since defendants such as Charleston mass murderer Dylann Roof, Charlottesville killer James Fields, and Pittsburgh shooter Robert Bowers have been prosecuted for federal hate crimes even though state courts were clearly willing and able to handle the cases. Given such precedents, it is not hard to understand the frustration expressed by Mohammad Abu-Salha, father of the women Hicks killed.
“If a Muslim man knocked on a door and executed a Christian family in their home with no provocation, that would be called terrorism,” Abu-Salha told the Times. “But we Muslims are soft targets.”
Contrary to the implication, the crucial difference in this case seems to be the absence of evidence documenting the defendant’s bigotry. Roof published a racist manifesto. Fields used “multiple social media accounts” to “express his beliefs regarding race, national origin, religion and other topics.” Bowers posted anti-Semitic comments and said things “evincing an animus towards people of the Jewish faith.” If Hicks had left a similar trail of hateful statements, it seems likely that the Justice Department would have intervened, notwithstanding North Carolina’s undoubted willingness to prosecute and punish him.
The decision to charge someone with federal hate crimes exposes him to dual prosecutions for the same conduct, so he can be tried again if he is initially acquitted (or even if he is convicted). Federal prosecution also may increase the penalty he faces, changing a life sentence to execution or a short prison term to a long one. When the Justice Department makes that decision based on the views people have expressed, it is effectively targeting defendants for extra jeopardy and extra punishment because of their opinions. Instead of questioning such belief-based inequality, Americans have learned to demand it.
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Yesterday Craig Hicks pleaded guilty in state court to murdering three of his neighbors, all Muslim college students, at an apartment complex in Chapel Hill, North Carolina, four years ago. Hicks says he shot his victims—19-year-old Razan Mohammad Abu-Salha; her 21-year-old sister, Yusor Mohammad Abu-Salha; and Yusor’s 23-year-old husband, Deah Shaddy Barakat—because of a parking dispute. Their families believe he shot the students because he hates Muslims. The dispute illustrates the fuzziness of hate crime laws and the degree to which their enforcement hinges on speech that would otherwise be constitutionally protected.
North Carolina has several statutes aimed at crimes motivated by bigotry, but none of them applies to murder cases. That hardly seems to matter, since Hicks received three consecutive life sentences without the possibility of parole. If he had been convicted of federal hate crimes, he might have received the death penalty. (Or he might not have.) But the argument about how to describe his crimes seems to be about the message his prosecution sends rather than the penalty he receives.
During a hearing last week, Hicks’ lawyers tried to block expert testimony about “implicit bias.” The New York Times reports that Durham County District Attorney Satana Deberry “responded that Mr. Hicks was trying to avoid punishment for what she repeatedly called his ‘white supremacist’ worldview.” That’s a telling way of putting it, since people’s opinions, no matter how ugly, are not supposed to be punishable by law in the United States.
If Hicks had been charged with federal hate crimes, prosecutors would have had to prove that he shot his victims “because of” their religion. According to a federal appeals court ruling that the Justice Department cited in explaining its decision not to take on the case, that would have required showing that Hicks would not have murdered his neighbors “but for” their religion, which would have been hard to do.
Prior to his crimes, Hicks was an outspoken atheist and critic of organized religion, a subject he discussed on social media. But the evidence of a specific anti-Muslim bias is less clear. “I’ve defended Muslims,” he told the Times in a jailhouse interview. “I know Muslims. I take pity on them, the way society treats them like they are lesser people.” He denied even knowing that his neighbors were Muslims, although the women wore headscarves and he contradicted himself by criticizing them for not properly observing Ramadan.
At the same time, Hicks was known to confront and quarrel with people of various backgrounds, especially over parking. This would hardly be the first case of murderous violence inspired by trivial issues.
Ripley Rand, then the U.S. attorney for the Middle District of North Carolina, met with the victims’ relatives in 2015 but declined to prosecute Hicks. He told the Times (in the newspaper’s paraphrase) that “the federal government was meant to intervene if local authorities could not or would not do their jobs,” which “did not seem to be the case” here, since Hicks “seemed destined to spend the rest of his life in prison.”
That is demonstrably not the Justice Department’s general policy, since defendants such as Charleston mass murderer Dylann Roof, Charlottesville killer James Fields, and Pittsburgh shooter Robert Bowers have been prosecuted for federal hate crimes even though state courts were clearly willing and able to handle the cases. Given such precedents, it is not hard to understand the frustration expressed by Mohammad Abu-Salha, father of the women Hicks killed.
“If a Muslim man knocked on a door and executed a Christian family in their home with no provocation, that would be called terrorism,” Abu-Salha told the Times. “But we Muslims are soft targets.”
Contrary to the implication, the crucial difference in this case seems to be the absence of evidence documenting the defendant’s bigotry. Roof published a racist manifesto. Fields used “multiple social media accounts” to “express his beliefs regarding race, national origin, religion and other topics.” Bowers posted anti-Semitic comments and said things “evincing an animus towards people of the Jewish faith.” If Hicks had left a similar trail of hateful statements, it seems likely that the Justice Department would have intervened, notwithstanding North Carolina’s undoubted willingness to prosecute and punish him.
The decision to charge someone with federal hate crimes exposes him to dual prosecutions for the same conduct, so he can be tried again if he is initially acquitted (or even if he is convicted). Federal prosecution also may increase the penalty he faces, changing a life sentence to execution or a short prison term to a long one. When the Justice Department makes that decision based on the views people have expressed, it is effectively targeting defendants for extra jeopardy and extra punishment because of their opinions. Instead of questioning such belief-based inequality, Americans have learned to demand it.
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From Judge Joseph Rodriguez, writing in Rodgers v. Laura & John Arnold Found. (D.N.J. June 11, 2019):
New Jersey’s Criminal Justice Reform Act … moved pretrial release decisions away from a resource-based model heavily reliant on monetary bail to a risk-based model. Consistent with [a] constitutional amendment [passed by the voters], the statute expressly requires courts, when making pretrial release decisions, to impose pretrial conditions that will reasonably assure: (1) the defendant’s appearance in court when required, (2) the protection of the safety of any person or community, and (3) that the defendant will not obstruct or attempt to obstruct the criminal justice process. The CJRA provides a hierarchy of pretrial release conditions and requires courts to utilize the least restrictive options necessary to achieve the three goals noted above. The major difference between the new system and the old system is that judges must first consider the use of non-monetary pretrial release conditions, which has resulted in a significant reduction in the use of monetary bail.
In order to assess risk, the CJRA utilizes a Public Safety Assessment (“PSA”). In particular, the State adopted a PSA developed by Defendant the Laura and John Arnold Foundation. The PSA is a data-based method that helps courts assess the risk that the criminal defendant will fail to appear for future court appearances or commit additional crimes and/or violent crimes if released pending trial. After scores are assessed, a decision-making framework proposes pretrial conditions to manage the risk. Although the trial judge must consider the PSA scores and pretrial conditions recommendations, the court makes the ultimate decision on conditions of release or detention after considering a variety of factors besides the PSA.
The Complaint alleges that in the first six months of 2017, New Jersey courts granted 3,307 motions for pretrial detention and approximately 18,000 individuals were released on non-monetary conditions…. Plaintiff claims that on April 5, 2017, Jules Black was arrested by the New Jersey State Police and charged for being a felon in possession of a firearm. Plaintiff alleges that Black was released on non-monetary conditions the following day because he had a low PSA score. Three days later, Black allegedly murdered Christian Rodgers. At the time of his death, Rodgers was 26 years old and is survived by his mother, Plaintiff June Rodgers, who brings this lawsuit both individually and on behalf of her son….
The New Jersey Products Liability Act (PLA) requires plaintiffs suing under the PLA to prove “by a preponderance of the evidence that the product causing the harm was not reasonably fit, suitable or safe for its intended purpose because it[:]
“a. deviated from the design specifications, formulae, or performance standards of the manufacturer or from otherwise identical units manufactured to the same manufacturing specifications or formulae, or
“b. failed to contain adequate warnings or instructions, or
“c. was designed in a defective manner.”
The Restatement (Third) of Torts includes in the definition of product non-tangible items such as “other items”:
“For purposes of this Restatement: (a) A product is tangible personal property distributed commercially for use or consumption. Other items, such as real property and electricity, are products when the context of their distribution and use is sufficiently analogous to the distribution and use of tangible personal property that it is appropriate to apply the rules stated in this Restatement. (b) Services, even when provided commercially, are not products. (c) Human blood and human tissue, even when provided commercially, are not subject to the rules of this Restatement.”
The Court finds that the PSA is not a product as defined by the PLA. It is neither a tangible product or a non-tangible “other item” as contemplated by section 19 of the Restatement of Torts and it is not distributed commercially. The Court has considered Plaintiff’s argument that the PSA, as a matter of policy, should be considered a product analogous to approaches of the First and Fifth United States Court of Appeals, which are “moving toward liability of technological systems.” Plaintiff’s arguments are misplaced, however. Plaintiff cites Lone Star Nat. Bank, N.A. v. Heartland Payment Systems, Inc., 729 F.3d 421 (5th Cir. 2013) (whether economic loss doctrine barred negligence claims against a bank that had its security software breached by computer hackers), and Patco Constr. Co. v. People’s United Bank, 684 F.3d 197 (1st Cir. 2012) (whether a bank’s security procedure was commercially reasonable under the UCC), neither of which are products liability cases.
Rather, the PSA constitutes information, guidance, ideas, and recommendations as to how to consider the risk a given criminal defendant presents. The PSA essentially is a nine-factor rubric that uses “information gathered from [an eligible defendant’s] electronic court records” to “measure the risk [he or she] will fail to appear in court and the risk he or she will engage in new criminal activity while on release,” in an effort to provide New Jersey judges with objective and relevant information that they can use as one factor—among several—in making decisions about pretrial-release conditions. As such, the PSA does not “thwart” the role of judges and prosecutors, as Plaintiff contends.
Under the First Amendment, information and guidance such as that reflected in the PSA are not subject to tort liability because they are properly treated as speech, rather than product. See Restatement (Third) of Torts § 19 cmt. d (noting that courts “express[ ] concern that imposing strict liability for the dissemination of … information would significantly impinge on free speech”). Accordingly, Plaintiff’s claims of products liability fail at the outset.
While the Court need go no further, Plaintiff also has failed to plausibly allege proximate causation required for products liability claims. Importantly, the discretionary decision of a judge on whether or not to detain an accused individual, in every case, creates an obstacle for finding proximate cause. By New Jersey statute, the judge is required to consider many different pieces of information in addition to the PSA score; the judge then has complete discretion to reject the recommendation to which the PSA contributes. That is, the PSA does not supplant judicial decision making but merely informs a judge’s decision of whether to release or detain a defendant pending trial. This obviates Plaintiff’s argument that the PSA was defective in that it omitted risk indicators of firearm possession and sex-crimes….
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From Judge Joseph Rodriguez, writing in Rodgers v. Laura & John Arnold Found. (D.N.J. June 11, 2019):
New Jersey’s Criminal Justice Reform Act … moved pretrial release decisions away from a resource-based model heavily reliant on monetary bail to a risk-based model. Consistent with [a] constitutional amendment [passed by the voters], the statute expressly requires courts, when making pretrial release decisions, to impose pretrial conditions that will reasonably assure: (1) the defendant’s appearance in court when required, (2) the protection of the safety of any person or community, and (3) that the defendant will not obstruct or attempt to obstruct the criminal justice process. The CJRA provides a hierarchy of pretrial release conditions and requires courts to utilize the least restrictive options necessary to achieve the three goals noted above. The major difference between the new system and the old system is that judges must first consider the use of non-monetary pretrial release conditions, which has resulted in a significant reduction in the use of monetary bail.
In order to assess risk, the CJRA utilizes a Public Safety Assessment (“PSA”). In particular, the State adopted a PSA developed by Defendant the Laura and John Arnold Foundation. The PSA is a data-based method that helps courts assess the risk that the criminal defendant will fail to appear for future court appearances or commit additional crimes and/or violent crimes if released pending trial. After scores are assessed, a decision-making framework proposes pretrial conditions to manage the risk. Although the trial judge must consider the PSA scores and pretrial conditions recommendations, the court makes the ultimate decision on conditions of release or detention after considering a variety of factors besides the PSA.
The Complaint alleges that in the first six months of 2017, New Jersey courts granted 3,307 motions for pretrial detention and approximately 18,000 individuals were released on non-monetary conditions…. Plaintiff claims that on April 5, 2017, Jules Black was arrested by the New Jersey State Police and charged for being a felon in possession of a firearm. Plaintiff alleges that Black was released on non-monetary conditions the following day because he had a low PSA score. Three days later, Black allegedly murdered Christian Rodgers. At the time of his death, Rodgers was 26 years old and is survived by his mother, Plaintiff June Rodgers, who brings this lawsuit both individually and on behalf of her son….
The New Jersey Products Liability Act (PLA) requires plaintiffs suing under the PLA to prove “by a preponderance of the evidence that the product causing the harm was not reasonably fit, suitable or safe for its intended purpose because it[:]
“a. deviated from the design specifications, formulae, or performance standards of the manufacturer or from otherwise identical units manufactured to the same manufacturing specifications or formulae, or
“b. failed to contain adequate warnings or instructions, or
“c. was designed in a defective manner.”
The Restatement (Third) of Torts includes in the definition of product non-tangible items such as “other items”:
“For purposes of this Restatement: (a) A product is tangible personal property distributed commercially for use or consumption. Other items, such as real property and electricity, are products when the context of their distribution and use is sufficiently analogous to the distribution and use of tangible personal property that it is appropriate to apply the rules stated in this Restatement. (b) Services, even when provided commercially, are not products. (c) Human blood and human tissue, even when provided commercially, are not subject to the rules of this Restatement.”
The Court finds that the PSA is not a product as defined by the PLA. It is neither a tangible product or a non-tangible “other item” as contemplated by section 19 of the Restatement of Torts and it is not distributed commercially. The Court has considered Plaintiff’s argument that the PSA, as a matter of policy, should be considered a product analogous to approaches of the First and Fifth United States Court of Appeals, which are “moving toward liability of technological systems.” Plaintiff’s arguments are misplaced, however. Plaintiff cites Lone Star Nat. Bank, N.A. v. Heartland Payment Systems, Inc., 729 F.3d 421 (5th Cir. 2013) (whether economic loss doctrine barred negligence claims against a bank that had its security software breached by computer hackers), and Patco Constr. Co. v. People’s United Bank, 684 F.3d 197 (1st Cir. 2012) (whether a bank’s security procedure was commercially reasonable under the UCC), neither of which are products liability cases.
Rather, the PSA constitutes information, guidance, ideas, and recommendations as to how to consider the risk a given criminal defendant presents. The PSA essentially is a nine-factor rubric that uses “information gathered from [an eligible defendant’s] electronic court records” to “measure the risk [he or she] will fail to appear in court and the risk he or she will engage in new criminal activity while on release,” in an effort to provide New Jersey judges with objective and relevant information that they can use as one factor—among several—in making decisions about pretrial-release conditions. As such, the PSA does not “thwart” the role of judges and prosecutors, as Plaintiff contends.
Under the First Amendment, information and guidance such as that reflected in the PSA are not subject to tort liability because they are properly treated as speech, rather than product. See Restatement (Third) of Torts § 19 cmt. d (noting that courts “express[ ] concern that imposing strict liability for the dissemination of … information would significantly impinge on free speech”). Accordingly, Plaintiff’s claims of products liability fail at the outset.
While the Court need go no further, Plaintiff also has failed to plausibly allege proximate causation required for products liability claims. Importantly, the discretionary decision of a judge on whether or not to detain an accused individual, in every case, creates an obstacle for finding proximate cause. By New Jersey statute, the judge is required to consider many different pieces of information in addition to the PSA score; the judge then has complete discretion to reject the recommendation to which the PSA contributes. That is, the PSA does not supplant judicial decision making but merely informs a judge’s decision of whether to release or detain a defendant pending trial. This obviates Plaintiff’s argument that the PSA was defective in that it omitted risk indicators of firearm possession and sex-crimes….
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As more photos and information about the suspected torpedo attacks on two tankers in the Sea of Oman reach the western press, the first aerial footage of one of the tankers has found its way online.
The footage, which aired on Iranian television, shows one of the tankers in flames, but still afloat (earlier reports, now confirmed to have been inaccurate, claimed that one of the tankers had sunk, which would have unleashed an oil spill twice the size of Exxon-Valdez).
The Norwegian-owned and Marshall Islands-flagged Front Altair was reportedly struck three times, while the Panama-flagged, Japanese-owned Kokuka Courageous was hit twice.
Nobody has claimed responsibility for the attack, but the west is already insinuating that Iran was behind it. The Iranians have vociferously denied any involvement, and the country’s foreign minister has noted the ‘suspicious’ timing: A Japanese-owned ship was attacked while Japan’s prime minister was meeting in Tehran with senior Iranian officials.
via ZeroHedge News http://bit.ly/2X8A0Iw Tyler Durden
I can’t emphasize this point enough: The fact that central banks are about to embark on a new easing cycle, here and now, represents a global fail of epic proportions the magnitude of which has to be appreciated with hard cold data.
I’ve discussed some of this recently in Game Over, but the background data is so much more profound than that. Perhaps it’s no wonder that the Wall Street Journal in a column today implored Jay Powell to “project calm and stability“.
After all confidence must be maintained. And I got to tell you a lot of confidence is needed in light of the data.
Consider what has happened in the last 10 years that has gotten us to the point of a new easing cycle.
Let’s start with central banks themselves. They haven’t normalized their balance sheets, despite the Fed’s marginal balance sheet reduction since 2018 (about to end as it is). Central banks balance sheets are still sitting at $19.4 trillion up from $6 trillion at the beginning of 2008:
These massive injections were originally undertaken as emergency measures to help save the global economy and help it set on a new growth path.
But fact is growth has stalled globally and the process started before trade wars began as leading indicators started turning in late 2017/early 2018 signaling a business cycle already pressing against its natural lifecycle:
Since 2008 global debt levels have exploded higher.
On the government level we can observe a 77% increase in debt over 2008:
On the corporate front an increase of over 50%, much of it coming from the US and China:
Consumers in comparison have increased debt by a much more modest 7% since 2008:
Of course the 2008 numbers represented over leveraging that resulted in the great deleveraging following the great financial crisis. The message: Consumers have re-levered.
The net result: Over 240% debt to GDP on a global basis with no end in sight. This entire debt construct remains one that is entirely dependent on low rates. The good news, if you can call it that, then is more low rates are coming and negative rates in many countries will remain in place.
But what has all this debt expansion produced? Aside from historic wealth inequality expansion not much really.
The promised growth acceleration never happened:
The US had a debt to GDP ratio of 63% in 2008, it’s now at 105% and with increasing deficits north of $1 trillion it can ill afford a recession.
Fact is each cycle has produced less and less growth over the decades and it requires ever more debt to manufacture it. Make no mistake: Without this vast expansion in debt real GDP growth figures would be even less than shown on the chart.
So what has all this debt and central bank balance sheet expansion really produced? Massive asset inflation above the natural state of the economy, a classic measure of an asset bubble.
Consider: Household assets over GDP reached a new record high, higher than during the 2007 real estate bubble:
But it gets worse. After all central bank policies to punish cash and create the TINA (there is not alternative) effect, have produced the largest valuations in financial assets versus the underlying economy ever.
Household financial assets over GDP:
And NOW central banks are forced to cut rates again and embark on a new easing cycle with debt levels jammed to record highs and household financial asset levels at record highs?
Here? With rates still on the floor?
How is this supposed to produce more growth? How is this supposed to stop a business cycle turning?
Consider this: At the beginning of 2000 the Fed funds rate was at 6.5%, they then were forced to cut by 525 basis points. From the recession low of 2002 the Fed raised interest rates by 400 basis points before being forced to cut by 500 basis points to zero. In this cycle they barely managed to raise rates by 225 basis points before now being forced to cut again with rates still below 1993 rates:
Which also implies they only have 225 basis points to play with here unless they go to negative. Less than half of the ammunition they had during the last 2 recessions.
What these charts all say: Economic recovery growth has been slowing from cycle to cycle, but is requiring ever more debt to produce less growth. At the same time asset bubbles, as defined by valuations over the underlying size of the economy, have increased ever more. It’s frankly a terrifying picture.
I humbly suggest this is not a system that is sustainable without a major reset, especially if you consider another hard core reality, perhaps the most ignored and least understood. Demographics.
Working age population has been slowing big time, and continues to slow, in fact has just turned negative again:
With a shrinking in the growth of the labor force you can’t produce more growth. This slowing trend commenced 20 years go and shows no signs of ending. Indeed in 2018 the US experienced its lowest birth rate in 32 years. And I suspect a free fall in male fertility rates over the last 10 years is not helping.
These are profound realities and they are not going away even if we want to wish them away.
These are facts, hard, cold facts. So sure, central banks may embark on the next hurrah here with more intervention and blow asset bubbles even higher. But it won’t solve a thing. It’s pissing against the wind of structural realities. And that wind is gaining force and Jay Powell can pretend to project all the ‘calm and stability’ he wants. It doesn’t change the fact that the last 10 years represent a global fail of epic proportions.
And now here we are, faced with a global slowdown with recession risk increasing as the world is more in debt than ever, with central banks still on bloated balance sheets and low to negative rates.
But fear not, they have a solution: More of the same. And they are telling you.
Here’s the BOJ’s Kuroda and he is telling you exactly what his solution is:
Kuroda: more negative rates, more asset purchases and increase the monetary base.
That’s his solution.
Can they just simply admit that the entire system can’t hold itself up without permanent stimulus?
Answer: No, because they need to keep up confidence.
The farce of it all. https://t.co/uFlZnKexZZ
It was shaping up as another bad day for stocks, which have once again been spooked by the lack of de-escalation in the US-China trade war (as reported yesterday, the S&P would have to drop below 2,650 for that to happen), when Iran – as Trump will soon allege – came to the bulls’ rescue, and “attacked” two tankers in the Straits of Hormuz, sending oil soaring and pushing energy stocks – and European stocks and US equity futures – higher, even as bond yields dropped amid a general flight to safety.
Brent surged as much 4% after the attacks added to the already-heightened tensions between Iran and the United States. And of course, given that oil was at 5-month lows yesterday, people are taking precautions that it might escalate into something further.
“Whenever you have an incident in the Arabian Gulf a little bit of nervousness always starts to kick in about that particular artery getting clogged up,” CMC Markets senior analyst Michael Hewson said. “But personally I think it will be much like in the past where you get a spike higher but ultimately it doesn’t change the underlying supply and demand dynamics,” Hewson said.
The area is near the Strait of Hormuz through which a fifth of global oil consumption passes from Middle East producers.
“Whenever you have an incident in the Arabian Gulf a little bit of nervousness always starts to kick in about that particular artery getting clogged up,” CMC Markets senior analyst Michael Hewson said.
The European Stoxx 600 Index opened in the red following a second day of declines across Asia, but it went on to reverse losses, and contracts on the three main U.S. gauges tracked the move, as oil exploded higher helping propel energy stocks on both sides of the Atlantic. Europe’s oil producers moved higher in the region’s stock markets. Shares were also lifted by some stellar gains in the telecoms sector as Germany dished out licenses for its new 5G mobile network to some new entrants
There was plenty of caution remaining however, and Treasuries continued to tick up alongside European government bonds.
Earlier in session, Asia was a different story. Hong Kong’s Hang Seng had dropped sharply for a second day as public tensions continued there about a bill which would allow extradition to China, with most major markets in the region down. The Hong Kong legislature scrapped a meeting to discuss the extradition bill, according to a statement on its website. China stocks erased an early decline to rise 0.1% in a steep rebound that showed the plunge-protecting “National Team” stepped in to rescue stocks. Technology was the biggest drags on the region’s benchmark stock index. Asian semiconductor stocks joined a global selloff in chip stocks, as Evercore ISI warned that a recovery in demand for memory chips may not pick up until the second half of next year.
Doubts also have been growing about any improvement in what U.S. President Donald Trump called ‘testy’ trade relations with China before this month’s G20 summit and some market anxiety emerged that Federal Reserve rate cut speculation may have been overdone.
Investors will be looking to what the FOMC will say after its next policy meeting on June 18-19, with Fed Funds rate futures pricing in a 25-basis-point rate cut for the subsequent policy review on July 30-31. That is 180 degrees opposite to the Fed’s projection three months ago, when policy makers saw gradual rate hikes in coming years.
“The U.S. real economy has not worsened that much. But given market expectations, the Fed will have no choice but to cut rates,” said Kozo Koide, chief economist at Asset Management One.
In rates, the 10-year U.S. Treasuries yield dipped to 2.103%, near Friday’s 2.053%, its lowest level since September 2017, while Germany borrowing costs sank back toward all-time lows in Europe. Bond yields also fell in Asia. Long-dated Japanese government bond yields hit their lowest levels since August 2016, with 20-year yield down 2.5 basis points at 0.220 percent, before they rose back on a weak 30-year bond auction. In Australia, long known for its high-yield currency, rates fell to record lows, with three-year yield dropping below 1% for the first time ever, after jobs data pointed to another interest rate cut in July to follow one last week.
In currencies, the dollar was stuck in a tight range, the Swiss franc advanced as the SNB kept rates and verbal guidance unchanged, and the yen gained 0.2% to 108.32 to the dollar as risk sentiment soured while the Australian dollar dropped 0.25% to $0.6910. The euro stood little changed at $1.1293, having taken a hit on Wednesday after Trump said he was considering sanctions over Russia’s Nord Stream 2 natural gas pipeline project and warned Germany against being dependent on Russia for energy. The pound stayed subdued after British lawmakers defeated an attempt led by the opposition Labour Party to try to block a no-deal Brexit by seizing control of the parliamentary agenda from the government.
Expected data include jobless claims. Dollarama and Broadcom are reporting earnings
Market Snapshot
S&P 500 futures up 0.3% to 2,888.25
STOXX Europe 600 up 0.2% to 380.59
MXAP down 0.5% to 155.67
MXAPJ down 0.4% to 509.43
Nikkei down 0.5% to 21,032.00
Topix down 0.8% to 1,541.50
Hang Seng Index down 0.05% to 27,294.71
Shanghai Composite up 0.05% to 2,910.74
Sensex down 0.2% to 39,670.76
Australia S&P/ASX 200 down 0.02% to 6,542.40
Kospi down 0.3% to 2,103.15
German 10Y yield fell 1.1 bps to -0.247%
Euro up 0.07% to $1.1295
Italian 10Y yield rose 4.0 bps to 2.065%
Spanish 10Y yield fell 2.2 bps to 0.552%
Brent futures up 2.6% to $61.54/bbl
Gold spot up 0.4% to $1,338.20
U.S. Dollar Index little changed at 96.96
Asian equity markets traded relatively flat/mixed following an uninspiring performance on Wall St where all major indices extended on losses as trade uncertainty lingered, with the downside led by energy and financials after a further decline in oil prices and yields. ASX 200 (Unch.) and Nikkei 225 (-0.5%) were subdued but with losses in Australia stemmed as mixed jobs data supported the case for further rate cuts by the RBA, while the Japanese benchmark was pressured as energy names suffered the brunt from the recent 4% drop in crude and with the nation’s largest megabank MUFG weighed as it faces its first ever Q1 loss due to a JPY 300bln impairment related to its Indonesia JV. Hang Seng (U/C) and Shanghai Comp. (+0.1%) were initially weaker after the recent miss on lending data, as well as ongoing trade uncertainty with President Trump continuing to send mixed signals regarding a trade deal and as the Chinese government mouthpiece Global Times suggested Beijing is preparing for ties worsening. Hong Kong underperformed again amid disruptions following the mass protests and as the Legislative Council was set to hold a meeting regarding the extradition bill today, although this was later postponed, and stocks gradually rebounded from lows. US equity futures were also active and deteriorated overnight amid the widespread risk averse tone and technical selling in which DJIA futures slipped below the 26k level and E-mini Nasdaq 100 pulled back from resistance at 7.5k. Finally, 10yr JGBs were initially higher as the weakness across stocks spurred a flight to quality and amid the declining global yield environment, although the gains in bonds were aggressively pared after an abysmal 30yr auction in which the b/c printed its lowest since November 2017 and the tail in price spiked to 0.87 from 0.03.
Top Asian News
Asia Tech Walloped by Prospect of Extended Slump in Chip Demand
Indonesia’s Foreign Reserves Fall at Fastest Pace in Three Years
Gulf Stocks Fall Most in World as Tanker Incident Fuels Risks
European equities are higher across the board [Eurostoxx 50 +0.4%] as the region deviated from the subdued Asia-Pac lead. Sectors are all in the green with the energy sector outperforming (+0.6%) amid the surge in energy prices as two oil tankers were reportedly attacked near the key shipping channel, the Strait of Hormuz (see the Commodities section for a full briefing). Meanwhile, some defensive sectors are lagging its peers with the likes of Utilities (+0.1%) and Consumer Staples (Unch) little changed. Elsewhere, Germany’s 5G auction ended in which raised EUR 6.55bln, above estimates of EUR 3-5bln. Four companies won bids: Deutsche Telekom (+0.7%) won 130MHz, Vodafone (+1.1%) won 130MHz, Telefonica Deutschland (3.5%) won 90MHz and 1&1 Drillisch (+7.5%) won 70MHz. In terms of individual movers, Thales (+2.3%) shares are supported after the Co. raised its EBIT outlook. Wirecard (+3.2%) rose to the top of the DAX amid a positive broker move. On the flip side, ProsiebenSat1 (-3.9%) fell to the foot of the Stoxx 600 amid ex-dividend trade.
Top European News
Germany’s $7.4b Spectrum Bill Inflates Network Costs
SNB Keeps Ultra-Loose Policy With a New Rate to Tame Currency
European Equities Risks Are Skewed to Upside for 2H19: Citi
U.K. Tories Vote for May’s Successor After Johnson Plays It Safe
In currencies, flanking the G10 ranks after the SNB refrained from raising its assessment of the Franc from highly valued despite acknowledging that the currency has appreciated since the last quarterly policy review in March and repeating the need to maintain NIRP and intervention. Board members also noted elevated risks of heightened demand for the Chf, more pronounced downside risks to the Swiss economy due to external and reiterated that there is room to loosen the monetary reins further, but signalled steady rates through the 3 year forecast horizon. Note, the 3 month Libor target and range was replaced with a new benchmark rate, but for purely technical reasons and the impending switch from Libor to SARON. Usd/Chf and Eur/Chf are both lower in wake of the policy pronouncements, statement and revised forecasts for growth and inflation, with the former retreating towards 0.9900 again and latter eyeing 1.1200. Conversely, the Aussie has been undermined by mixed labour data that underpins prospects for another RBA rate cut, with Aud/Usd hovering just above 0.6900 and Aud/Nzd only a few pips away from 1.0500. For the record, headline payrolls beat consensus, but mainly due to temp jobs and the unemployment rate remained unchanged against forecast for a dip, while decent option expiries at 0.6930 look fairly safe at this stage.
CAD/JPY – The Loonie and Yen are both firmer vs the Greenback amidst an escalation in US-China trade angst and geopolitical concerns, with Usd/Cad easing back between 1.3343-14 parameters and Usd/Jpy holding in a 108.53-17 range. A relatively sharp rebound in crude prices on reports of tanker attacks in the Gulf of Oman has underpinned the Loonie, while the Yen is benefiting from a degree of safe-haven positioning, like the Franc and Gold, but also wary of balanced expiry interest given 1.5 bn running off from 107.90-108.10 and 1.6 bn between 108.65-80.
EUR/NZD/GBP – Narrowly mixed vs the Buck as the DXY nestles near 97.000 after the post-US CPI bounce, but is capped ahead of resistance just above the round number in the form of 100 and 10 DMAs (97.020 and 97.033 respectively). The single currency is pivoting 1.1300 having failed to close above Fib resistance at 1.1338 on Wednesday, with support coming in around 1.1280 and option expiries nearby at 1.1310-30 (1.1bn) then 1.1345-60 (1.2 bn). Elsewhere, the Kiwi is seeing some bearish contagion from its Antipodean counterpart, but holding up better vs the Usd within a 0.6587-65 band ahead of NZ manufacturing PMI. Meanwhile, the Pound has lost grip of 1.2700 vs the Usd and Eur/Gbp is back over 0.8900 on no deal Brexit risk in the run up to the start of the Tory leadership race and first elimination vote.
EM – The Lira has given up more post-CBRT gains and is now somewhat weaker than it was prior to the policy meet on latest remarks from Turkey reaffirming intentions to go ahead with the Russian S-400 order, and as the Defence Minister claims that Syrian Government forces attacked a Turkish observation post in Idlib. Usd/Try has rebounded towards 5.8500.
In commodities, WTI and Brent futures surged higher in early European trade and have held onto most of their gains amid a number of bullish headlines for the oil complex: 1) a UAE Port Official stated that an oil tanker is currently on fire in the Gulf of Oman, with subsequent reports indicating that two oil tankers (of which one belongs to a Japanese shipping company, and is carrying chemical materials) have been attacked by torpedoes, although no one has yet claimed the attacks. Analyst point out that the magnitude of the spike in energy prices could be attributed more to the location of the attack, i.e. close to the Strait of Hormuz (a key shipping channel), for reference, four oil tankers have been damaged in the same area in the last month. Fingers have been pointed at Iran for last months attacks, although Tehran has denied any involvement. 2) On the OPEC front, reports stated that Kazakhstan has reduced its oil output to 1.76mln BPD for the January to May period, which exceeds their obligations under the current OPEC+ pact. The oil producer has also indicated support for an extension to the OPEC+ deal, whilst Algeria has also floated the idea of an OPEC+ supply cut of 1.8mln BPD (currently 1.2mln BPD) in H2. 3) Russian President Putin stating that relations with the US are worsening, which comes in the context of US President Trump stating overnight that he is considering sanctions to block the Nord Stream 2 pipeline, and indicating that Germany is at risk by depending on energy from Russia. Brent futures currently reside around the USD 61.75/bbl mark, having opened trade sub-60/bbl and hit a high of around USD 62.60/bbl thus far.
US Event Calendar
8:30am: Import Price Index MoM, est. -0.2%, prior 0.2%; Import Price Index YoY, est. -1.2%, prior -0.2%
8:30am: Export Price Index MoM, est. -0.15%, prior 0.2%; Export Price Index YoY, prior 0.3%
8:30am: Initial Jobless Claims, est. 215,000, prior 218,000; Continuing Claims, est. 1.66m, prior 1.68m
9:45am: Bloomberg Consumer Comfort, prior 61.7
DB’s Jim Reid concludes the overnight wrap
As the UK ponders over when summer will finally decide to return, the grey clouds that continue to gather over the Federal Reserve appear to show little sign of dissipating any time soon. That said, the market isn’t giving the Fed much hope of skipping straight to autumn with futures continuing to price in high odds of a rate cut this summer with as good as a full 25bp cut priced in for the July meeting. Yesterday’s soft CPI report – which we run through in more detail below – was the latest fuel for the fire. At the same time, Commerce Secretary Ross was the latest US administration official to be given a free hand to attack the Fed, calling the December rate hike “at best premature” and the Fed “more aggressive in interest rates than the facts really warranted”. Ross was a bit more coy about trade talks, suggesting that the US and China may decide “it’s worth reopening” talks at the G-20 meeting later this month but also that it won’t be used as a forum for the sides to sign a final accord.
In light of the recent developments, yesterday our US economists updated their economic and Fed forecasts. They revised down their 2019 growth forecast by 0.4pp to 1.9% and their core PCE inflation forecast by 0.1pp to 1.8%. In response, they now expect the Fed to cut interest rates three times this year, at each of the July, September, and December meetings. That easing will likely feed through into growth over the following quarters, so they upgrade their 2020 forecast by 0.3pp to 2.2%. Their full update is available here .
Back to markets, where, when it was all said and done, the biggest price action was unsurprisingly in rates where 2y Treasury yields fell -5.1bps and 10y yields -2.3bps. The move was mostly driven by a drop in inflation breakevens, as oil prices fell sharply after US inventory data showed a 2.2mn barrel build in stockpiles despite expectations for a drawdown. WTI crude fell -4.05% to $51.11 per barrel. In other risk assets, with a potentially nervous 6 days until the crucial upcoming Fed meeting, equities have definitely taken their foot off the pedal with the S&P 500 dipping back -0.20% by the end of trading last night. The NASDAQ also ended -0.38% and DOW -0.17%. The move in oil prices drove a -1.44% decline for the energy sector, while tech and bank shares also lagged. The former were negatively affected by idiosyncratic company news, with Tesla’s (-3.61%) latest guidance disappointing and the WSJ reporting that senior executives at Facebook (-1.72%), including CEO Mark Zuckerberg, knew about privacy lapses as far back as 2012. Bank stocks in both the US and Europe fell as well, down -1.41% and -1.18% respectively, as the renewed drop in bond yields proved a negative for the sector.
For the most part this morning, equity markets in Asia are following Wall Street’s lead with the Nikkei (-0.81%) and the Kospi (-0.73%) leading the declines. We should note that protests in Hong Kong have continued overnight, with Hong Kong’s Cable TV reporting that the Legislative Council won’t be debating the extradition bill today. The Hang Seng has pared back losses to trade -0.74%, having been down as much as -1.77% earlier in the session, while the Shanghai Comp is now in marginally positive territory (+0.12%). At the moment the US administration has remained fairly tight lipped about the protests, as President Trump gave a fairly noncommittal comment that he hopes the two sides can “work it out.” However White House Counsellor Conway did say yesterday that Trump may bring it up with China at the G-20 and the argument is that any interference would likely heighten tensions between the US and China at what is clearly already a very tense time. So it’s a situation which is worth following. Alongside the US-China uncertainty, Trump also re-injected doubts concerning the recent agreement with Mexico, saying that he could still take punitive action in 45 days if he chooses. He also threatened Germany with sanctions over the controversial Nord Stream 2 pipeline, though those would likely be targeted on involved companies rather than blanket tariffs.
Staying with politics, Sterling fell -0.28% yesterday after the House of Commons voted 309-298 against a motion brought forward by the Labour Party that would have allowed MPs to take control of the parliamentary timetable on 25 June, to presumably pass legislation that would prevent a no-deal Brexit. The current legal default requires the UK to leave the EU on 31 October, with or without a deal. A number of Conservative leadership candidates – including front-runner Boris Johnson – have said that if a deal can’t be reached, they would favour proceeding without a deal so as to honour the October deadline. However, this is unlikely to be the last attempt to stop no-deal, and the House of Commons has already voted on a non-binding motion to reject a no-deal Brexit back in March. The attempts to stop no-deal come at an important moment in the race for the Conservative leadership, with the first ballot of Conservative MPs being held today. The ballot will take place this morning and we expect to get a result around 1pm UK time. The 10 candidates each need at least 5% of the votes to progress to the second ballot on Tuesday, and if all of the candidates reach the 5% threshold, the one with the least support will be eliminated.
Coming back to the data, as mentioned the US CPI report was soft with the +0.11% mom core print below expectations for +0.2% and in the process lowered the annual rate to +2.0% yoy, while the 3-month and 6-month readings also dropped to +1.6% and +1.9% respectively. The trimmed mean measure, which excludes outliers and had been cited by Powell as evidence that soft inflation has been transitory, also slid to 0.11% mom, its weakest reading in two years. So the weaker momentum is clearly significant and makes it harder for the Fed to pass off the misses as solely transitory. The softness was centred around transportation and recreation and the read through suggests further downside for the core PCE reading also. The other US data was the monthly budget statement, which showed a monthly deficit of -$207.8bn, which was actually the widest-ever May deficit reading in dollar terms on record. So far this fiscal year, the US budget is on track for its widest deficit since 2011. Finally, US mortgage applications rose 26.8% wow last week, which was the fastest pace since January 2015, as lower interest rates seem to be feeding through to housing activity.
In other news, an MNI story yesterday suggested that a certain number of ECB officials had suggested that QE may return if necessary, however other officials had concerns over bond limits and that no major policy action is likely during the remainder of Draghi’s term. Separately, bank of France Governor Villeroy said that the ECB can do more if conditions deteriorate, and suggested that they have not yet achieved their price stability target. That latter view has certainly been supported by the market, with the five year-five year inflation swap rate dipping below 1.2% to a new all-time low.
The debate about restarting asset purchases will certainly remain in focus for the next several months, especially if the Fed ends up cutting interest rates as our economists now expect, and DB’s Michal Jezek has a new note out detailing his analysis of what credit markets are pricing for the ECB, available here . For completeness, in Europe yesterday the STOXX 600 finished -0.30% yesterday while Bund yields fell -0.4bps. BTPs (+4.1bps) again underperformed after the Italian treasury successfully sold €6bn of 2040 bonds, with investors possibly hedging their new positions by selling shorter-dated BTPs. The move came despite more positive mood music between the EU and Italy, as Prime Minister Conte told reporters that he is drafting a response to the EU which will reportedly aim to defer any actions until after the summer.
To the day ahead now, where shortly after this hits your emails we’ll get the final May CPI revisions in Germany and then the April industrial production print for the Euro Area. Across the pond the only data due is the May import price index reading and latest claims print. Away from that we’re due to hear from the BoE’s Carney this afternoon while the aforementioned Conservative Party leadership contest will also be closely watched. Meanwhile, Euro Area finance ministers will gather in Luxembourg to discuss Italy and the Euro Area budget.
via ZeroHedge News http://bit.ly/2wUaB6k Tyler Durden
Each summer, when wildfires sweep through parts of the state, thousands of inmates from the California Department of Corrections are deployed to work alongside the professional firefighters to battle the blazes. The professionals earn an average of $74,000 annually in the Golden State, while the inmates settle for $3 per day—and that’s not even the worst inequality in the system. When they get out of prison, those same men and women are barred from pursuing careers as a firefighter or emergency medical technician, thanks to a California law that prohibits anyone with a criminal record from working in those professions.
It’s an arrangement the professionals are pushing to maintain. After last year’s devastating wildfires in many parts of the state, California lawmakers took a serious look at lifting the ban on letting formerly incarcerated individuals work as firefighters, but opposition from firefighters unions killed the effort.
“Good for them that they can work to repay their debt to society in this fashion, but that’s not the same thing as a firefighter,” Carroll Willis, communications director for the California Professional Firefighters Association, told a local TV station in Sacramento. “Firefighters are sworn officers. They take an oath and can and should be held to the highest possible standard.”
That’s as callous as it is misleading. In Willis’ view, an inmate can be trusted to fight fires—but the same person, once released from prison, cannot?
Most crimes should not come with a lifetime sentence, but too many of them do. According to the American Bar Association, there are more than 12,000 state licensing laws that limit career choices for the roughly 70 million Americans with a criminal record.
In some cases, those limitations might make sense. California’s inmate firefighter program, for example, is not open to prisoners who have been convicted of arson, sexual assault, kidnapping, or a gang-related offense. That same policy, with some tweaking, could work on the outside. Yet there’s no obvious reason a 19-year-old who had consensual sex with a 17-year-old, say, should be barred from fighting fires, and no reason a former gang member looking for a fresh start shouldn’t have the chance to put his life on the line for people who need saving.
What’s more, being able to use in-demand skills helps former prisoners transition to life as law-abiding citizens, while a blanket employment ban reduces the supply of trained firefighters in a state where wildfires are a serious concern.
That doesn’t help anyone—except, of course, the professional firefighters who can demand inflated wages by keeping labor competition to a minimum.
from Latest – Reason.com http://bit.ly/31utRWn
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Each summer, when wildfires sweep through parts of the state, thousands of inmates from the California Department of Corrections are deployed to work alongside the professional firefighters to battle the blazes. The professionals earn an average of $74,000 annually in the Golden State, while the inmates settle for $3 per day—and that’s not even the worst inequality in the system. When they get out of prison, those same men and women are barred from pursuing careers as a firefighter or emergency medical technician, thanks to a California law that prohibits anyone with a criminal record from working in those professions.
It’s an arrangement the professionals are pushing to maintain. After last year’s devastating wildfires in many parts of the state, California lawmakers took a serious look at lifting the ban on letting formerly incarcerated individuals work as firefighters, but opposition from firefighters unions killed the effort.
“Good for them that they can work to repay their debt to society in this fashion, but that’s not the same thing as a firefighter,” Carroll Willis, communications director for the California Professional Firefighters Association, told a local TV station in Sacramento. “Firefighters are sworn officers. They take an oath and can and should be held to the highest possible standard.”
That’s as callous as it is misleading. In Willis’ view, an inmate can be trusted to fight fires—but the same person, once released from prison, cannot?
Most crimes should not come with a lifetime sentence, but too many of them do. According to the American Bar Association, there are more than 12,000 state licensing laws that limit career choices for the roughly 70 million Americans with a criminal record.
In some cases, those limitations might make sense. California’s inmate firefighter program, for example, is not open to prisoners who have been convicted of arson, sexual assault, kidnapping, or a gang-related offense. That same policy, with some tweaking, could work on the outside. Yet there’s no obvious reason a 19-year-old who had consensual sex with a 17-year-old, say, should be barred from fighting fires, and no reason a former gang member looking for a fresh start shouldn’t have the chance to put his life on the line for people who need saving.
What’s more, being able to use in-demand skills helps former prisoners transition to life as law-abiding citizens, while a blanket employment ban reduces the supply of trained firefighters in a state where wildfires are a serious concern.
That doesn’t help anyone—except, of course, the professional firefighters who can demand inflated wages by keeping labor competition to a minimum.
from Latest – Reason.com http://bit.ly/31utRWn
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