Last April, at the peak of their since-fizzled bromance, Emmanuel Macron gave a present to Donald Trump: an oak tree which was ceremoniously planted in the manicured lawns of the White House by both leaders. The photo of the two presidents digging away dirt promptly went viral and symbolized the friendship shown by the two leaders.
It was a symbolic gesture: the tree came from Belleau Wood, north-east of Paris, the location of a pivotal battle in which 1,811 Americans died in June 1918 during the first world war.
Since then, Trump’s relations with Europe have soured and his friendship with Macron has since frayed – over issues ranging from Iran to trade – and the tree did not survive. Which is ironic because during Macron’s April 2018 state visit he tweeted that the sapling would be “a reminder … of these ties that bind us” and the “tenacity of the friendship” of the two nations. From little acorns, great transatlantic ties would take root and grow, was the message.
Well, maybe not.
Once the cameras had departed, the tree was uprooted and disappeared in quarantine to avoid the spread of non-native diseases and invasive insects.
“It is a quarantine which is mandatory for any living organism imported into the US,” Gerard Araud, then the French ambassador to America, wrote on Twitter, adding that it would be replanted later. Images showed only a yellow patch of grass in the spot on the White House south lawn where the tree had been planted.
But it was never replanted: the tree died during its quarantine. Its death was confirmed by a diplomatic source to Agence France-Presse. Just like the Macron-Trump love-in, it is no more.
via ZeroHedge News http://bit.ly/31rAt7K Tyler Durden
First there was bitcoin (2017), then bud (Tilray & the other hot pot stocks that went parabolic late last year) – and now, $BYND (2019). Shares of the fake meat company have maintained the forward momentum from the day of the company’s IPO (where they rallied 150%) and have continued to climb, even as the broader market endured one of its most tumultuous stretches in recent memory (the Dow logged one of its longest losing streaks in 8 years last month).
But in a sign that the tide of frothy enthusiasm for the company might finally be turning, analysts at JP Morgan late Monday downgraded the company’s shares from “overweight” to “neutral” – becoming the first team of analysts at a top American investment bank to do so – just two sessions after the bank raised its price target from $97 to $120.
So what has changed? Well, fundamentally speaking, not much. But over the past two sessions, $BYND’s shares have climbed 70%, which has amazed even the most bullish of $BYND evangelists, after the company reported sufficiently robust earnings.
JPM’s cut appears to have impacted shares in the company’s stock, with shares tumbling 14% in premarket (though we imagine another product announcement will be forthcoming to turn things around).
Though JPM’s team remains extremely bullish on $BYND’s long-term growth prospects, justifying its present valuation would require alterations to JPM’s discounted cash flow model – namely, higher long-term revenue and gross margin growth projections – that the bank’s team isn’t yet comfortable making.
$168/share requires assumptions we are not yet comfortable with. For example, keeping all else equal, we could get our DCF to $168 if we assumed revenue growth rate decelerated to 35% in 2021 and then did not decelerate again until 2029. Or put more simply, we could get to $168 if we modeled $4.9B in 2029 sales, rather than the $3.5B we currently presume. Is $5B in sales in ten years out of the question? No but it’s not likely, either, in our view. Similarly, we could model the 2029 gross margin increasing to 43.3% versus the 35.5% we expect; this, too would lead to $168. But the food group’s median is only 29% – we think a ~1,500 basis point advantage is too extreme. Lastly, if we wanted to get $168 fair value, we could either lower the discount rate in our DCF to 2.5% from 6.2% or use a ~26x multiple for terminal cash flow. We could not rationalize a 2.5% discount rate in any way. 26x theoretically is justifiable – plenty of high-growth food and beverage companies trade over 20x today – but would we be okay applying 26x on all future cash flow after 2029? Not at this point.
Instead, the team believes that $BYND’s “extraordinary revenue and profit potential” has finally been priced in, and that the company’s shares will remain extremely vulnerable to any piece of disappointing news.
As we wrote last week, “At some point, the extraordinary revenue and profit potential embedded in BYND… will be priced in” – we think this day has arrived. Our above-the-Street estimates remain unchanged and our price target is more-or-less the same (up $1 merely to reflect lower rates – we value BYND via a DCF). In other words, this downgrade is purely a valuation call.
Although the country’s largest investment bank – and one of the lead underwriters of $BYND’s IPO – has come out as a bear, there’s plenty of reason to suspect that the rally in the fake-meat company’s shares might still have some room to run. In a report published yesterday, S3 Partners, argued that $BYND shares have hit what it called “the short-squeeze trifecta”: Lending fees on $BYND shares have continued to skyrocket (they hit 134% during Monday’s session), making it the most expensive major stock to short.
Overall, short interest stands at $814 million, or 5.87 million shares shorted, representing more than 50% of Beyond Meat’s float. The company is the sixth-largest short bet in the domestic packaged foods and meat sector. Those bears who have had the courage of their conviction to hold their positions even as $BYND shares have rallied 570% since the company’s IPO are down nearly $600 million. But after the company’s rally shifted into ‘ludicrous speed’ over the past two trading sessions, those margin calls might be coming.
“Beyond Meat has hit the short-squeeze trifecta, with several hundred thousand shares of recalls hitting the street; stock borrow rates solidly in the triple digits and its stock price rallying 69% in just two days,” said Ihor Dusaniwsky, managing director at S3.
In other words, Monday morning’s JPM-inspired hit might be more of a hiccup than an inflection point. But as a gentle reminder to all of those who don’t see any bubbles in the broader economy.
BEYOND MEAT SHARES EXTEND LOSSES TO 14% AFTER DOWNGRADE.
It is a sea of green in global markets today, with European stocks rallying as Germany’s carmakers outperformed, following a torrid session in Asia where the Shanghai Composite soared by 2.6%, as risk appetite refuses to go away after the United States stepped back from imposing tariffs on Mexico, while losses in treasuries and gold accelerated.
Advances in European miners and carmakers pushed Europe’s Stoxx 600 Index almost 1% higher, on course for a sixth day of gains in the last seven, with Frankfurt’s DAX racing up 1.2% as German investors returned from a one-day holiday, even as investor confidence in its economy fell to the lowest since 2010. BMW, Daimler and VW – seen as sensitive to trade tariffs – all gained between 1.8%-2%, mirroring a 1.9% gain for the auto sector.
Emini futures also continued their relentless June surge, with the S&P set to open above 2,900 for the first time in over a month.
“It looks like we will have to wait to see at the end of the month, to see what the next move will be,” said David Madden, an analyst at CMC Markets. “In that time, if nothing is said, stocks could press on higher – the belief that the Fed will all of a sudden become dovish is really driving markets.”
The MSCI world equity index, which tracks shares in 47 countries, advanced 0.24%. Wall Street futures were also seen opening higher, with S&P500 mini futures up 0.26%.
Earlier in the session, in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.9% hitting the highest level since May 8, with Shanghai’s bourse climbing 2.6% after news that the country’s finance ministry said that it would loosen restrictions on how local governments spend money on infrastructure raised from selling special bonds helping offset the threat by President Donald Trump to raise tariffs again if President Xi Jinping doesn’t meet with him at the Group of 20 summit at month’s end. As a result, Asian stocks were set to post their biggest three-day gain since January as the risk-on mood spread across the region. Australian stocks also contributed to today’s strong climb. The S&P/ASX 200 Index closed 1.6% higher and reached fresh high for this year, as Vocus Group Ltd. soared after AGL Energy Ltd. offered to buy the company for about $2 billion. India’s S&P BSE Sensex also extended its gains into the third day. In emerging markets, stocks gained and currencies strengthened the most in a week. Oil edged up near $54 a barrel in New York.
Iron ore futures surged on the China spending plan, and the onshore yuan recovered after closing at its weakest level of the year. In emerging markets, stocks gained and currencies strengthened the most in a week. Oil edged up near $54 a barrel in New York.
After hitting its lowest level for 2019, with the “redline” level of 7.00 looming, China’s yuan jumped as much as 0.27%, the most in three weeks, as the central bank set its daily fixing at a stronger-than-expected level. The onshore currency was headed for its first gain in five sessions after the People’s Bank of China fixed its reference rate at 6.8930 per dollar, stronger than the average forecast of 6.9089 in Bloomberg’s survey of 21 traders and analysts. The central bank also said it plans to sell bills in Hong Kong in late June to improve the yield curve of yuan bonds. This comes after the yuan weakened to its weakest level since November on Monday, bringing it closer to 7 per dollar, a level it hasn’t breached since the financial crisis.
PBOC Governor Yi Gang said last week he was not wedded to defending the currency at a particular level. The fixing shows “China will still manage the pace of depreciation and the yuan will not break 7 so soon,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “Even though the door has opened, China needs a proper catalyst.”
PBOC’s plan to sell bills in Hong Kong in late June and its stronger-than-expected fixings are a clear message it will defend the yuan at 7 per dollar, according to Standard Chartered. “The purpose is very very clear, that they just want to defend the currency regardless of the G-20 meeting” outcome, said Becky Liu, head of China macro strategy in Hong Kong. This new bill issuance is set to be around the G-20 meeting; if those talks are positive, the market will likely steady and the bill issuance size will be smaller; however, if the meeting disappoints, the PBOC can step up the amount and frequency of bill issuance in Hong Kong as “a very practical way to defend the currency.”
Elsewhere in FX, the dollar held steady above a 2-1/2 month low with rising expectations for a Fed rate cut tempered by a reluctance to close positions before the G20. “The markets are pricing in a 25-basis-point rate cut in July,” said Peter Schaffrik, head of European rates strategy at RBC Capital Markets, adding that expectations of looser policy would likely continue. “When you see the narrative that the market is painting, that it is all down to the negative implications from the trade war and the reduction of global trade,” he said. “It’s difficult to see how any one data point will change the entire picture.”
In rates, US Treasuries edged lower, with the 10 Yield rising to 2.17% after hitting a 2 year low of 2.05% on Friday. Amid the cautious optimism, a rally in longer-dated euro zone government bonds stalled as the pick-up in risk sentiment globally sparked a sell-off in the bloc. Germany’s 10-year bond yield, seen as a benchmark for government debt, was up 3 basis points at minus 0.23% – still a smidgeon away from last week’s record lows. Thirty-year bond yields in Germany and France were up as much as 8 basis points in early trade.
In commodities, oil prices rose, bolstered by firmer financial markets and expectations that producer group OPEC and its allies will keep withholding supply. Brent crude futures were at $62.67, up 0.4%. As noted above, gold (-0.4%) continues to fall at the whim of a firmer risk appetite, whilst in terms of base metals, copper (+0.9%) extends on its gains aided by the risk tone and Dalian iron ore surged 6% on supply woes amid expectations that miners will be unable to expand output to meet higher steel demand. Subsequently, JPM modestly upgraded its Chinese steel demand and iron ore price forecasts, noting that the peak disruption “is likely behind us”.
Today’s economic data include small business optimism. HD Supply, Wiley are due to report earnings
Market Snapshot
S&P 500 futures up 0.4% to 2,901.75
STOXX Europe 600 up 0.6% to 380.64
MXAP up 0.7% to 157.13
MXAPJ up 0.9% to 514.11
Nikkei up 0.3% to 21,204.28
Topix up 0.5% to 1,561.32
Hang Seng Index up 0.8% to 27,789.34
Shanghai Composite up 2.6% to 2,925.72
Sensex up 0.5% to 39,990.92
Australia S&P/ASX 200 up 1.6% to 6,546.29
Kospi up 0.6% to 2,111.81
German 10Y yield fell 0.2 bps to -0.221%
Euro up 0.07% to $1.1320
Brent Futures up 0.1% to $62.35/bbl
Italian 10Y yield unchanged at 1.991%
Spanish 10Y yield fell 2.1 bps to 0.583%
Brent Futures up 0.1% to $62.35/bbl
Gold spot down 0.4% to $1,322.97
U.S. Dollar Index down 0.01% to 96.75
Top Overnight News from Bloomberg
Chinese stocks posted their best gains in weeks on the news that local governments will have more room to spend on infrastructure, offsetting U.S. President Donald Trump’s latest threat to raise tariffs on China if President Xi Jinping doesn’t meet with him at the upcoming Group-of-20 summit in Japan
China’s central bank moved to shore up the yuan with a stronger-than- expected fixing and a planned bond sale in Hong Kong
Citigroup was suspended from the primary group of dealers that participate at certain Japanese government bond auctions after it was found to have manipulated futures prices
The Bank of England doesn’t have to wait until all political uncertainty around Brexit is resolved to raise interest rates, according to policy maker Michael Saunders
A record 10 British Conservatives will fight each other to replace Theresa May as prime minister. All agree that Britain has to leave the European Union, but most of them vow to renegotiate. Current favorite Boris Johnson says he will deliver Brexit in October with or without a deal
The Bank of England doesn’t have to wait until all political uncertainty around Brexit is resolved to raise interest rates, according to policy maker Michael Saunders
Australian business confidence surged after Prime Minister Scott Morrison’s shock election win, while conditions again deteriorated, providing further grist to the central bank’s decision to cut interest rates
The U.S. expressed “grave concern” over Hong Kong legislation that would for the first time allow extraditions to mainland China, raising pressure on Beijing as the city braced for a potentially historic showdown over the proposal
The Trump administration’s fight against China’s Huawei Technologies Co. justifies Russia’s decision to build a “sovereign internet” to protect its domestic network from external threats, according to Russian Deputy Prime Minister Maxim Akimov
Asian equity markets were higher across the board after a similar lead from US where sentiment was underpinned by the US-Mexico tariff relief which lifted the S&P 500 and DJIA to a 5-day and 6-day win streak respectively, although gains in the region were initially capped amid a lack of fresh catalysts. ASX 200 (+1.6%) and Nikkei 225 (+0.3%) traded positively with early outperformance in Australia as it played catch up on return from the extended weekend and with Vocus Group the largest gainer following a takeover offer from AGL Energy, while the Japanese benchmark was just about kept afloat by a weaker currency. Elsewhere, Hang Seng (+0.8%) and Shanghai Comp. (+2.6%) conformed to the upbeat tone despite another net liquidity drain by the PBoC and mixed comments by US President Trump who stated that a trade deal with China will work out because of tariffs but warned the next USD 300bln of tariffs will come into effect if Chinese President Xi does not come to the G20. Nonetheless, mainland China outperformed after China issued notice encouraging investment in local government special bonds issuance for project financing and amid reports that the PBoC may continue to support banks through various tools. Finally, 10yr JGBs were lower as yields tracked the rebound in their US counterparts and with demand for Japanese bonds also sapped by gains in stocks and after weaker demand in the enhanced liquidity auction for longer-dated bonds.
Top Asian News
China Car Slump Extends to a Year With No Rebound In Sight
China Sets Yuan Fixing Stronger Than Expected in Sign of Defense
When This Chinese Newspaper Editor Tweets, Wall Street Listens
India’s World-Beating Growth May Not Be so Fast After All
European equities are higher across the board [Eurostoxx 50 +0.9%] following on from a similar lead in Asia wherein Mainland China closed with gains in excess of 2.5%. Germany’s DAX (+1.3%) is outperforming its peers as the index plays catch-up following yesterday’s holiday. Sectors are broadly in the green with the exception of defensive sectors amid the current “risk on” mood, whilst material names are outperforming as Dalian iron ore futures spiked 6% higher on supply concerns and copper prices rose almost 1% on the firmer risk sentiment. In terms of in individual movers, Thyssenkrupp (+5.5%) sits near the top of the Stoxx 600 as the steel name benefits from the aforementioned iron ore spike. Elsewhere, German autos are supported (BMW +1.6%, Daimler +1.8%, Volkswagen +1.8%) as the stocks react to the weekend US-Mexico developments for the first time. Finally, Hugo Boss (+4.3%) shares were bolstered amid an upgrade at Morgan Stanley.
Top European News
Lloyds Tests U.K. Utility Industry Exposure as Corbyn Risk Looms
Alitalia Rescue Stalled as Govt Eyes New Deadline: Repubblica
Novo Nordisk Climbs After Rival Lilly’s Disappointing Trial Data
Danske Tells Debt Issuers to Act Fast as Orders Get Erratic
In FX, GBP rose on more hawkish leaning BoE rhetoric, as Saunders follows Haldane on the rate hike path has been validated to a degree by the latest UK labour report revealing firmer than forecast wages, and in particular an unexpected pick-up in ex-bonus earnings, in stark contrast to Monday’s dismal GDP and industrial output figures. Hence, the Pound has rebounded across the board with Cable back above 1.2700 and testing yesterday’s pre-data peaks ahead of resistance seen around 1.2740, while Eur/Gbp has reversed from fresh multi-week highs circa 0.8932 through 0.8900.
NZD/JPY/CHF/AUD – In contrast to Sterling’s revival, the Kiwi has extended losses to 0.6588 vs its US counterpart and 1.0550+ against the Aussie, which is also weak compared to the Buck but holding up better around 0.6950 ahead of jobs data on Thursday. Nzd/Usd saw accelerated selling on a break of 0.6600 and market participants also noted stops in Nzd/Jpy when 71.81 failed to hold, with a variety of model and spec offers pushing the cross down to 71.54. Similarly, the Yen and Franc have weakened a bit further vs the Dollar as the DXY sits tight between 96.832-673, with Usd/Jpy hovering above 108.50 within a 108.36-73 range and Usd/Chf holding closer to the upper end of a 0.9923-0.9893 band. Note, however, Usd/Jpy may well be drawn towards decent option expiry interest at 108.50 in 1.1 bn.
CAD/EUR – The Loonie continues to outperform, as technical impulses turn increasingly bullish and Usd/Cad trade below the 200 DMA (1.3273) towards 1.3250 and post-NA jobs data lows of 1.3225, while the single currency remains above 1.1300 where more expiries lie (1.1 bn) even though Eurozone Sentix sentiment soured significantly and ECB’s Rehn reiterated that all monetary stimulus options will be available if growth weakens further. On the flip-side, Eur/Usd is still butting up against resistance ahead of 1.1350 and the 200 DMA (1.1365), including option barriers and more expiries, like 2.3 bn from 1.1340 to 1.1350 and 2.8 bn at 1.1360.
NOK – The Norwegian Crown slipped in wake of considerably sub-consensus CPI metrics that called into question firm Norges Bank guidance for a rate hike at this month’s policy meeting, but Eur/Nok reversed from a probe over resistance around 9.8300 to revisit pre-inflation data levels sub-9.7800 on the back of an upbeat regional survey that restored June tightening expectations. Conversely, Eur/Sek has seen more upside towards 10.6900 ahead of Sweden’s inflation update on Friday and potential pointers from Prospera’s expectations survey tomorrow.
In commodities, WTI (+0.8%) and Brent (-0.3%) futures are choppy as the benchmarks are benefitting from the improved risk tone,with the former around USD 62.50/bbl and the latter hitting a session peak just under USD 54.00/bbl. News flow has been light for the complex as participants eye tonight’s EIA Short term Energy Outlook report and API inventories release with the street looking for a headline draw of 1.25mln barrels. Elsewhere, Energy Intel’s Senior Correspondent notes that Russian Energy Minister Novak requested a delay to the OPEC/OPEC+ meeting (originally scheduled for June 25/26) as a later date would give key participants the chance to discuss the issue more at the G-20 summit on June 28. The correspondent also notes of that Iranian officials are yet to agree on the new proposed dates to move the OPEC meeting from June to early July, according to sources and the current secretariat is looking at the option of holding OPEC meet in June and the non-OPEC in July. Elsewhere, gold (-0.4%) continues to fall at the whim of a firmer risk appetite, whilst in terms of base metals, copper (+0.9%) extends on its gains aided by the risk tone and Dalian iron ore surged 6% on supply woes amid expectations that miners will be unable to expand output to meet higher steel demand. Subsequently, JPM modestly upgraded its Chinese steel demand and iron ore price forecasts, noting that the peak disruption “is likely behind us”.
US Event Calendar
6am: NFIB Small Business Optimism, est. 102, prior 103.5
8:30am: PPI Final Demand MoM, est. 0.1%, prior 0.2%; PPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%
8:30am: PPI Final Demand YoY, est. 1.95%, prior 2.2%; PPI Ex Food and Energy YoY, est. 2.3%, prior 2.4%
DB’s Jim Reid concludes the overnight wrap
Since I moved out of London 9.5 years ago I’ve had a 1 to 3 mile commute to the station depending on whether I use the local or mainline station. I’m proud of the fact that outside of my leg being in a brace I’ve walked or cycled pretty much every day over that period. I’ve seen heavy rain, hail, lightening, snow and even Saharan sand fall from the skies whilst getting to and from the station. However I have to say that yesterday I took one look out the window first thing and also at the forecast and really didn’t fancy it so I drove. It proved to be one of the best decisions I’ve ever made as the rain was biblical in London and the surrounds yesterday with no real respite all day. I can’t remember a summer day like it. I’m back on my bike today and hopefully I’ll remember to change out of my Lycra in time to appear live on Bloomberg TV this morning at 10am. So catch me if you are able.
I suspect (and hope) the appearance won’t be as memorable as President Trump’s live phone interview with CNBC yesterday which drove much of the conversation around markets. To say that the interview was wide-ranging would be an understatement. While Trump proudly touted his weekend agreement with Mexico which averted higher tariffs, he also emphasised how his threats were key to reaching an agreement. He said “tariffs are a beautiful thing” and that “without tariffs, we would be captive to every country.” Trump did go on to say that China is “going to make a deal because they’re going to have to make a deal,” though he said that no bilateral meeting with President Xi was yet scheduled for the G-20 at the end of June. After US markets closed, headlines from the Chinese media broke suggesting that the two leaders will meet, but the details have yet to be hammered out. Meanwhile, Trump said to reporters outside the White House after the CNBC interview that he could impose tariffs of 25%, or “much higher than 25%” on $300 billion in Chinese goods, if Chinese President Xi Jinping doesn’t meet with him at the upcoming G-20 summit in Japan. Elsewhere, the US VP Pence said overnight that the US is going to stand firm on China while adding we are in a very strong position on the country.
Back to the CNBC interview, Trump also criticised the Federal Reserve, saying they have been “very disruptive to us,” and spoke admiringly of China’s system where President Xi has more direct influence on the PBoC. Two-year Treasury yields fell -2.8bps while Trump was speaking, but ultimately retraced to end the day +5.0bps higher at 1.90%.
Apart from the move in Treasuries, risk assets barely budged during his comments, as they were still being helped higher by the halo effect of no Mexican tariffs being imposed after the announcement late last Friday night. The +0.45% gain for the S&P 500 last night, although down from the +1.09% session highs, means that the index has risen for five consecutive days – the first time that has happened since April. It has now posted a +4.88% return for June to date so far which is the best start to a month since October 2011, taking the index to just 2.01% below its all-time peak. The NASDAQ also rallied +1.05% yesterday which means it’s up by an even larger amount this month (+4.96%), while semiconductors are the real standout after rising +2.54% yesterday (+9.08% in June). In Europe a +0.21% gain for the STOXX 600 means that index is up a solid +2.50% so far in June too. Meanwhile it’s been a much more sideways 10 days for rates following that fairly decent rally through May. For example, 10y yields are +2.0bps higher now following a +6.4bps climb yesterday, while the yield curve is +4.3bps steeper in June at 24.3bps following yesterday’s +1.6bps move. Bund yields rose +3.7bps to -0.219%, the first time in five sessions that they didn’t close at a new all-time low. Germany was on a public holiday though so trading was thin.
This morning in Asia markets are following Wall Street’s Lead with the Nikkei (+0.29%), Hang Seng (+0.76%) and Kospi (+0.31%) all up while Chinese bourses are up c.2% with the CSI 300 +2.33%, Shanghai Comp +1.87% and Shenzhen Comp +2.82%. Elsewhere, futures on the S&P 500 are up +0.17%.
In other overnight news, the PBoC fixed a higher reference rate for the yuan today at 6.8930 (vs. expectations of 6.9089). The move comes after the onshore yuan traded at weakest level of the year yesterday at 6.9311. The central bank has also said that it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the currency. The onshore yuan is trading up +0.20% at 6.9170.
Moving on. Once again Italian assets traded to their own beat again yesterday with the FTSE MIB opening higher, then wiping out those gains by late morning before ultimately closing +0.61%. In bonds, 10y BTP yields closed flat, despite rising as much as +7.6bps earlier in the session. Italian PM Conte grabbed the early attention on the wires, telling Corriere della Sera that the Italian government would be effectively over if Italy can’t make a budget compromise with the EU. Deputy PM Salvini, who admittedly has regularly shifted his positions depending on circumstances, said that a confrontation with the EU “is the last thing we want to do.” Data in Italy also showed a big slump in industrial production in April of -0.7% mom (vs. 0.0% expected). It’s worth noting that despite the ongoing and justified concerns around Italy, 10y BTPs are still trading at around the lowest yield (2.358%) since the new government was elected last year.
Meanwhile, news from the UK economy was nearly as bleak as the weather yesterday following a weak April GDP reading of -0.4% mom (vs. -0.1% expected). While the extent of the drop was a surprise, the slump being led by a big drop in autos output was less so with car companies closing production plants preparing for a no deal Brexit last month. Sterling dropped -0.35% yesterday which helped the FTSE 100 to a +0.59% gain. It’s worth noting that we get the April and May employment stats in the UK today so that should be worth watching in light of yesterday’s data. After that attention will shift to Thursday’s first ballot for the Conservative leadership contest. The field is officially set with 10 contenders, with Boris Johnson leading according to the bookmakers, who give him around a 56% chance of winning the contest. Jeremy Hunt and Andrea Leadsom are next in line with roughly 17% and 10% chances, according to the betting markets. Elsewhere, the BoE MPC member Michael Saunders, a hawk, said in an overnight speech that “The MPC does not necessarily have to keep rates on hold until all Brexit uncertainties are resolved, the MPC has already raised rates twice since the Brexit vote. We will act again if needed to ensure a sustained return of inflation to target over time.” Our UK economists, however, changed their view last week forecasting that the BoE will no longer hike rates this year and see rising risks that the Bank rate has reached its terminal point, with the weak April GDP reading further reinforcing their view. To read their complete note click here .
Over in the US, the JOLTS report on the condition of the US labour market was released, showing still-robust conditions despite the disappointing nonfarm payrolls report. The quits rate, which has led wage growth fairly reliably, stayed at its cyclical high of 2.6%, while the hiring rate also stayed high at 4.3%. Separately, the New York Fed published its Survey of Consumer Expectations, which showed that 3-year inflation expectations have fallen to 2.59%, their lowest level since May 2017.
Looking at the day ahead, as well as the employment data in the UK this morning we’ll also get the May Bank of France industrial sentiment reading and Sentix investor confidence reading for the Euro Area. In the US we’ll get the May NFIB small business optimism reading, before the focus turns to the May PPI report. Away from that the ECB’s Nowotny and Rehn are due to speak this morning while over at the BoE we’re due to hear from Saunders, Tenreyro and Broadbent.
via ZeroHedge News http://bit.ly/2R4LEyB Tyler Durden
After the monthslong power blackout that followed Hurricane Maria in 2017, Puerto Ricans realized they couldn’t rely on government to meet their basic needs. Enter Biotecture Planet Earth, a New Mexico–based nonprofit that specializes in sustainable building. The organization is constructing an off-grid, hurricane-resistant compound in Aguada, Puerto Rico. Built largely out of garbage such as tires and cans, the buildings include systems that provide electricity, collect water, and grow food. The compound will serve as an education and community center.
from Latest – Reason.com http://bit.ly/2ICx8KJ
via IFTTT
Roughly six months ago, after President Trump and President Xi reportedly struck a deal on the sidelines of the G-20 Summit in Buenos Aires to put the next escalation of tariffs on Chinese goods on hold to allow time for the two sides to negotiate a trade deal, a tweet from a then-obscure editor of an English Language Chinese newspaper sent markets reeling when he disputed the veracity of these reports – confirming only that “talks are underway.”
I learned from source close to China-US trade talks that speculations of trade negotiations will be extended are inaccurate. The only thing that is certain now is the talks are underway.
To the best of our knowledge that was the first time that Hu Xijin, the editor in chief of the Global Times, an English-language newspaper run by China’s “People’s Daily”, demonstrated how much of an impact one of his tweets could have on global markets. Since President Trump announced his plans to raise tariffs on Chinese goods, Hu’s tweets – for example, a warning last week about the risk of visa issues for Chinese students, or a tweet early last month warning that the chances of a deal in the near term were basically “zero” – have often been harbingers of official Chinese policy pronouncements.
Hu Xijin
Six months later, and news organizations like Bloomberg are comparing Hu’s twitter feed to President Trump’s, which is unsurprising given President Xi’s well-known reticence when it comes to direct public communication and his preference through dictating his will through layers of bureaucrats and functionaries.
In other words, Hu has become so well known in the west, that he’s finally warranted his own profile in the American financial press. But since Bloomberg has a team of reporters in China whose access we imagine it wants to preserve, the piece pays a surprising amount of deference to Hu’s claims that he’s not a member of, or in any way affiliated with, the Communist Party, and that his tweets don’t constitute officially sanctioned pronouncements, feeding into Beijing’s official position that the Chinese press operate independently of the central government, with a level of autonomy similar to journalists in the West (a similar dynamic was at play during a recent ‘debate’ between Fox News’ Trish Regan and a popular Chinese TV host).
One investor compared Hu’s twitter feed to the closest thing that Beijing has to President Trump’s in terms of its influence over Western markets.
Larry McDonald, the founder of investment newsletter Bear Traps Report, described the feed as a “Chinese Communist version of Trump’s Twitter.”
“A lot of fund managers and investors we know are watching Hu’s Twitter account closely, as it provides key information about China’s stance on the trade war and other issues,” McDonald said. “Hu’s Twitter is seen as China’s way to fight back. It is a negotiation tactic by the Chinese Communist Party.”
Chinese officials interviewed by BBG for its story wouldn’t confirm any official relationship between Hu and the Communist Party…
How closely Hu’s message conforms to the official point of view remains unclear, although he sometimes cites an “authoritative source” or people “close to the negotiations.” Hu suggested that he, like many in China’s heavily censored media environment, operates within boundaries that are defined largely by what you get away with.
“My background carries a certain amount of authority, but I also speak on issues that other state media keep quiet about,” Hu told Bloomberg. “I was appointed by the People’s Daily. The authorities have absolute control over me and can take me down easily.”
One detail to watch: Hu said tweets that are “based on what I know” are “definitely true.” He used that or similar phrases in his posts about FedEx, the student warnings and China’s move to create a blacklist of foreign companies.
China has distanced itself from Hu tweets when asked by reporters at the foreign ministry’s regular news briefings. “As a general rule, we do not respond to the opinions or comments of experts, scholars, media and think tanks,” ministry spokesman Geng Shuang said May 14 in response to a query about Hu’s Boeing tweet.
…But tellingly, much of what Hu tweets regarding developments in the US-China trade war aren’t shared on Weibo, where he has a much larger following. Keep in mind, Twitter, like most American social media, is blocked by China’s ‘Great Firewall.’
Chinese authorities likely view the editor as a useful conduit to an overseas audience, similar to English-language state media services such as the China Daily newspaper and the China Global Television Network. Tellingly, Hu doesn’t share his predictions of official action with his much bigger fan base of 19 million followers on the largely Chinese-language social media platform Weibo.
So, is Hu one of the few extremely well-sourced quasi-independent journalists operating in a media ecosystem where he’s forced to push try and get away with as much as he can get away with in order to bring his (mostly western) audience the truth? Or is his his twitter feed effectively an economic weapon wielded by the Communist Party against American equity markets as just another instrument of pressure in what has become a sprawling trade spat?
We’ll let you decide.
via ZeroHedge News http://bit.ly/2WBJZX5 Tyler Durden
After the monthslong power blackout that followed Hurricane Maria in 2017, Puerto Ricans realized they couldn’t rely on government to meet their basic needs. Enter Biotecture Planet Earth, a New Mexico–based nonprofit that specializes in sustainable building. The organization is constructing an off-grid, hurricane-resistant compound in Aguada, Puerto Rico. Built largely out of garbage such as tires and cans, the buildings include systems that provide electricity, collect water, and grow food. The compound will serve as an education and community center.
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Pledge tax cuts appealing to the Tory base. The party is so fragmented that appealing to the base makes perfect sense.
The court tossed out a private lawsuit against Johnson over alleged Referendum lies. The lawsuit was so absurd, it was guaranteed to help Johnson.
Chances for rival Michael Gove, the best hope of Stop Boris Movement, are sinking fast over cocaine usage. Apparently it went up Gove’s nose but not Johnson’s.
Yesterday I observed that there is a stark set of double standards operating about the cocaine use of Michael Gove vs Boris Johnsson in this leadership contest. Johnson has now denied he ever took the drug. I have scoured the archives for everything we know about it. Here it is. https://t.co/9QEUnZgMRY
In an afternoon speech, Gove tried to defend his cocaine position.
Q: You have a lot of supporters here. But you must know your campaign is in real trouble. When you were a prominent figure before you became an MP, you thought it was OK to snort cocaine. Then, as justice secretary, you were prepared to send poor people who did the same to jail. People do not like double standards.
A. Gove says he has reflected on this. He would ask people to judge him by what he did as justice secretary. He encouraged people to to accept that people should be given a second chance.
That defense was a flop.
Sneeze Defense
I Thought It Was Sugar
When ridiculous defenses work, it’s smacks of something far more fundamental: The party did not want Gove.
Gove did himself in, not cocaine. Gove was willing to ask for another Brexit extension.
That was political suicide.Cocaine hypocrisy obviously did not help.
Problem With Jeremy Hunt
Thanks to cocaine-gate, Jeremy Hunt is now the second favorite behind Johnson.
Like Gove, Hunt is willing to have another extension.
“Boris Johnson is dominating the campaign, despite being largely absent from it. The former foreign secretary is refusing to give broadcast interviews, and his campaigning consists of private talks with MPs, plus the odd intervention in friendly newspapers (mostly the Telegraph, which pays him handsomely for his column). Yet what has been striking today is how all the other contenders are defining themselves in opposition to him, by stressing the need for serious leadership or a fresh start etc.”
Johnson’s Shut Up and Dance With Me Campaign
Johnson may not be giving interviews but he did do one critical thing: appeal to the base with tax cuts.
Matt Hancock, Dominic Raab, and Michael Gove – criticized the tax cut directly.
“One thing I will never do as prime minister is to use our tax and benefits system to give the already wealthy another tax cut,” said Gove
Kiss them all goodbye as hopeless. Gove did himself in. The rest, other than Hunt, never had any real chance in the first place.
Via Eurointelligence
Over the weekend we got a glimpse of the Brexit dynamics we are likely to see under a new Tory leader. Boris Johnson proposed two fiscal measures likely to create significant new facts for the UK’s future relationship with the EU. One is a refusal to pay the £39bn, the negotiated total financial settlement included in the draft withdrawal agreement. The other is a massive Salvini-style income-tax cut, in the form of an increase in the upper threshold for the lower tax rate of 20% from the current £46000 to £80000.
Key Points
Boris Johnson is building up his lead in the Tory leadership race with the promise of a dramatic income-tax cut.
This is strategically a smart move, as it shifts the debate away from Brexit to a domain that is popular among Tory members.
Tax cuts would make it harder for the UK and the EU to negotiate a future association agreement, as the EU could come to regard the UK as a tax haven.
Strategically Smart Move
Shut up and dance. Johnson is not talking much with the media. The less you say to the media, the less likely you are to get trapped into offending someone.
Does £46,000 (roughly $58,000) constitute being wealthy? Johnson’s tax cuts primarily benefits the middle class ($58,000 to $101,000). Gove ridiculously attacked the cuts as a benefit to the wealthy.
Johnson also discussed not using the £39,000 Brexit breakup fee for other things.
The EU does not like tax cuts and may view the UK as a tax haven. Via points 2 and 3, Johnson purposely gave the EU a strong reason not to deal. This increases the likelihood of no deal even if Johnson’s official stance is to negotiate.
Being willing to deal but making it difficult or impossible to do so is brilliant.
Shut Up and Dance Musical Tribute to Johnson
Prepare for No Deal
This is likely to come down to Hunt vs Johnson.
Prepare for Johnson and No Deal.
via ZeroHedge News http://bit.ly/31hPkBE Tyler Durden
One of four members of U.S. Special Operations forces charged in connection with the death of Staff Sgt. Logan Melgar, a member of the U.S. Army Special Forces, in Mali says Melgar’s death occurred as a result of a hazing incident that was to have included them videotaping Melgar being sexually assaulted by a Malian security guard. The claims come in a written stipulation of facts from Marine Staff Sgt. Kevin Maxwell as part of a plea deal in the case.
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The total number of honey bee colonies across Europe plunged 16% over the winter 2017–18, according to COLOSS (Prevention of honey bee COlony LOSSes), an international, non-profit organization based in Switzerland, tasked with the goals of protecting honey bees.
Allison Gray, the lead researcher on the study, sent a COLOSS questionnaire to 25,363 beekeepers in 36 countries: 33 in Europe, plus Algeria, Israel, and Mexico.
The data collected revealed an overall loss rate of 16.4% of honey bee colonies during winter 2017/18 between the countries.
Beekeepers were asked several questions about their hives: (a) were alive but had unsolvable queen problems (e.g., a missing queen, laying workers, or a drone-egg laying queen), (b) were dead or reduced to a few hundred bees and (c) were lost through natural disaster (from various possible causes).
Gray and her team determined that Portugal, Northern Ireland, Italy, and England had the most significant colony collapses of more than 25%. The authors noted that smaller bee farms experienced higher loss rates than large-scale ones.
“The overall loss rate in winter 2017/18 was highest in Portugal (32.8%), a new country to the survey. Other countries with high losses (above 25%) were Slovenia, Northern Ireland, England, Wales, Italy, and Spain, countries mostly in Western Europe,” wrote Gray.
A year earlier, loss rates were the lowest in Norway, Northern Ireland, and Algeria, and the year before that in Central Europe.
Winter losses linked to queen difficulties was 1% in Bulgaria to 20.3% in Slovenia, whereas for winter 2016/17, the rate for this loss for Slovenia was the lowest for the study.
Each hive’s queen is crucial for the survival of the overall colony. If a queen goes missing or doesn’t lay eggs to create more drones, the colony will collapse. Honey bees are also at risk from parasitic mites.
If honey bees don’t have enough forage or food supply consists of nectar and pollen from blooming plants within flight range of the hive, the colony will collapse.
Gray found that intensive foraging on specific plant sources, including orchards, oilseed rape, maize, heather, and autumn forage crops, was associated with hive collapses during the winter periods.
The colony collapse of honey bees is a complex issue, wrote Gray, and are frequently caused by volatile weather or natural disasters rather than climate. And there is no solution at the moment.
She noted that future investigations should be conducted into the impact of pesticides, and herbicides on honey bees.
Not too long ago, we reported that honey bees exposed to glyphosate, the active ingredient in Roundup, lose critical bacterial in their guts and are more susceptible to infection and death from harmful bacteria. It showed how glyphosate is possibly contributing to a rapid decline of honey bees around the world, otherwise known as Colony Collapse Disorder (CCD), a phenomenon that occurs when the majority of worker bees in a colony disappear and leave behind the queen.
Globally, honey bees are the world’s most important pollinator of food crops. It’s estimated that 33% of the food people eat from around the globe rely on pollination by bees. So when the bee populations across Europe, the Americas, and other parts of the world are in decline, it could trigger lower crop yields, therefore causing food shortages and economic stress for governments and central banks.
via ZeroHedge News http://bit.ly/2R3LnvG Tyler Durden
One of four members of U.S. Special Operations forces charged in connection with the death of Staff Sgt. Logan Melgar, a member of the U.S. Army Special Forces, in Mali says Melgar’s death occurred as a result of a hazing incident that was to have included them videotaping Melgar being sexually assaulted by a Malian security guard. The claims come in a written stipulation of facts from Marine Staff Sgt. Kevin Maxwell as part of a plea deal in the case.
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