Author: admin

Commenting on today’s sheer market chaos as the US and UK return from holiday, Bloomberg writes that “fixed-income markets have descended into panic amid mounting concern over the risk of Italy leaving the euro or leading to its break-up” and while Italy is suffering the biggest losses in peripheral debt, core bonds and Treasuries are spiking higher.

For those who stayed away from market news over the holiday weekend, this is what happened and why we are here today: Italy PM-designate Conte gave up on efforts of forming a government after Italian President Mattarella rejected Eurosceptic Paolo Savona for the Economy Minister position because the appointment would have “alarmed markets and investors, Italians and foreigners” (yes, very ironic in retrospect, although just as we predicted would happen). Mattarella then summoned former-IMF senior director Cottarelli to meet in a move viewed by some as laying the groundwork for a technocratic government. Forza Italia said they would not support this government, and 5SM and League set their sights on the now highly likely new elections (touted from September 9th). Both 5SM and League saying they will evaluate their coalition in these new elections. 

Meanwhile, on Sunday Italian President Mattarella gave a mandate to form a government to ex-IMF official Cottarelli, while PM-designate Cottarelli accepted the mandate and sees elections at the start of next year. In related news, League leader Salvini said he hopes there will be a government in October for the approval of the budget law and to avoid a VAT increase and M5S leader Di Maio wants elections as soon as possible, while Forza Italia’s Berlusconi said his party will reject the Cottarelli government.

At the same time, the Spanish Parliament started the process for a no confidence vote against PM Rajoy, while it set the date for debate and vote of confidence on PM Rajoy’s government for May 31st and June 1st.

In short: for those who missed the crazy, volatile days of 2011, here is your change to relive them, and here is the mandatory sea of red to go with it.

But what is different this time, is that while the risk-off sentiment is spreading across risk assets around the world, with Italy and Spain leading declines in European stocks and U.S. equity-index futures also sliding amid soaring contagion fears, with the euro also slammed below 1.16 pushing the yen and USD higher along with gold, it is unclear just what the ECB can do this time, which back in 2012 unleashed the threat of “whatever it takes” to halt the last Italian collapse.

Well this time, “whetever it takes” has been running non stop since July 2012, and the ECB is rapidly running out of bonds to monetize, so it may well be that we are finally approaching the end of the European experiment, unless of course Draghi gets a greenlight from Merkel to start monetizing everything – stocks, bonds, and anything else that is not nailed down – in hopes of stabilizing markets. And before it is all over, he will, just as Europe will file criminal charges against those who dare to short Italian bonds. For now, however, as we showed earlier, Italian bonds are crashing with 2Y yields plunging the most on record, Italian-German spreads exploding, Deutsche Bank stock tumbling below €10 for the first time since September 2016, and Italian bank CDS blowing out.

Hera are some of the key charts from this morning’s Italian avalanche:

Italy 2Y yield and 1-day move:

Italy 10Y yield and 1-day move:

 

Italy-German Spread: one day move right out of the European crisis:

Italian stocks are crashing…

… with Italian banks now in a bear market. As Italian banks continue to bleed, trading has been periodically halted in Monte Paschi (-4.5%), Bper (-5.4%) and Banca Generali (-3.0%); all limit down.

The contagion is tangible: while the FTSE MIB is back to July lows, Spain’s IBEX 35 is down the most since February…

… while the Stoxx 600 has fallen to an almost four-week low and is again trading below the level at the start of the year.

In fact, all major European benchmarks are also now in the red for 2018, except France’s CAC 40. Even more important, the declining euro isn’t acting as a cushion for exporter-heavy indexes like the DAX, which is also heavily in the red today.

The downfall in Italian banks has spread across the continent with major losses for the likes of Commerzbank (-5.0%), BNP (-4.6%), RBS (-3.8%), Credit Suisse (-3.8%) all resting at the foot of their respective indices. Meanwhile, Europe’s biggest bank, Deutsche Bank, is back under €10 and just shy of all time lows:

Euro back to July lows:

You get the picture.

In short, everyone is only focused on one thing: Italy’s domestic politics. As a reminder, Italian President Mattarella yesterday gave a futile mandate to ex-IMF official Cottarelli to form a technocratic government. Cottarelli’s list of Ministers is expected to be unveiled today, moving the process to a vote in the Italian parliament (League, 5 Star and Forza Italia have majority) where a snap election – now also dubbed a Euro referendum – appears inevitable.

The question now is what the ECB will do: not only how will Draghi stem this outright liquidation of everything Italian, but whether the ECB’s tapering plans are now indefinitely postponed, and/or whether it is time for even more QE.

While Europe is once again a basket case, Asia traded mostly subdued as the region lacked impetus following the market closures in US and UK, while recent weakness in oil prices and political uncertainty surrounding Italy and Spain have added to the cautious tone. Nikkei 225 (-0.6%) was the worst performer as Japanese exporters suffered from flows into the JPY, while Japan Display shares led the declines in Tokyo with losses of over 20% seen in early trade after reports that Apple is to switch to OLED screens on all iPhone models from next year, which in turn underpinned South Korea’s LG Display. ASX 200 (+0.2%) was lifted by strength in its largest weighted financials sector and as energy names shrugged off the recent aggressive pull-back in crude prices. Shanghai Comp. (-0.5%) failed to maintain the early support from a firm PBoC liquidity operation and eventually slipped amid the broad risk-averse tone, while Hang Seng (-1.0%) was weighed by losses in blue-chip property and energy names.

In macro, aside from the ongoing “flight to safety” surge in the dollar which is now at the highest since November…

… the yen rallied against all G10 peers with USDJPY dropping to a one-month low; the Swiss franc was the other top performers while the U.S. 10-year yield fell to the lowest level in almost seven weeks as it played catchup to the sharp rally in Treasuries futures over the holiday.

Scandinavian currencies were the worst group-of-10 performers, weighed down by the souring risk global sentiment. Meanwhile, the pound fell to a fresh 6-month low against the dollar with Brexit uncertainty continuing to weigh on the currency amid a broader risk-off trend.

In geopolitical news, President Trump tweeted that a US team arrived in North Korea to make arrangement for summit between Trump and Kim Jong Un. South Korea President Moon met with North Korea leader Kim in an unannounced meeting over the weekend in which the latter affirmed commitment for denuclearisation.  On Monday, the WSJ reported that the US is said to prepare new sanctions push against North Korea although reports later stated the US is to hold off on sanctions for summit talks, while South Korean press reported that US is said to demand that North Korea ship out its nuclear weapons and missiles.

In Brexit news, EU Negotiator Barnier said on Friday his scenario is to reach a realistic Brexit deal and that his worst-case scenario is not a no deal. On Saturday, Barnier warned the UK to stop playing ‘hide and seek’ and come to a realistic solution for their exit from the EU.

Elsewhere, WTI crude continues the declines seen on Monday trade (-2.0%) as traders continue to digest a possible OPEC+ production increase next month. Spreads are widening between WTI and Brent futures, with Brent currently up slightly on the day (+0.2%), as a result of a different settlement date for Brent.

In light of Europe’s repeat crisis, it is probably not a surprise that Gold is currently trading higher and has broken the USD 1,300/oz level as safe-haven demand is proving some support for the yellow metal. Copper prices are seeing strength after the closure of an Indian copper smelter is cutting supply to the market. Steel rebar is higher as Chinese seasonal demand has grown.

Expected data include Conference Board Consumer Confidence and Dallas Fed Manufacturing Outlook. Bank of Nova Scotia, HP Inc. and Salesforce.com Inc. are among companies reporting earnings.

Market Snapshot

• S&P 500 futures down 0.8% to 2,697.00
• STOXX Europe 600 down 1.7% to 383.12
• MXAP down 0.4% to 173.10
• MXAPJ down 0.8% to 564.05
• Nikkei down 0.6% to 22,358.43
• Topix down 0.5% to 1,761.85
• Hang Seng Index down 1% to 30,484.58
• Shanghai Composite down 0.5% to 3,120.46
• Sensex down 0.5% to 35,000.77
• Australia S&P/ASX 200 up 0.2% to 6,013.56
• Kospi down 0.9% to 2,457.25
• German 10Y yield fell 14.8 bps to 0.196%
• Euro down 0.7% to $1.1539
• Italian 10Y yield rose 22.0 bps to 2.417%
• Spanish 10Y yield rose 17.3 bps to 1.698%
• Brent futures up 0.1% to $75.37/bbl
• Gold spot up 0.2% to $1,302.15
• U.S. Dollar Index up 0.6% to 95.00

Top Overnight News from BBG:

• Italy’s populist leaders, incensed by a failed bid for power, began mobilizing for an early election even as premier-designate Carlo Cottarelli puts together a cabinet to present to the head of state
• Italy’s Five Star Movement’s support drops to 29.5% from 31.1% a week earlier, League up to 27.5% from 24.5% in SWG opinion poll published on Tuesday
• “We must never forget that we are only ever a few short steps away from the very serious risk of losing the irreplaceable asset of trust,” Bank of Italy governor and ECB Governing Council member Ignazio Visco says in speech in Rome
• A gauge measuring the likelihood of Italy leaving the currency union within the next 12 months jumped to 11.3 percent in May from 3.6 percent in April, according to research group Sentix
• A Bank of England spokesman refuted suggestions of a rift between the central bank and the U.K. Treasury after a report in the Financial Times said the institutions are at “loggerheads” over the future of City of London regulations after Brexit
• Spain’s government nominated Pablo Hernandez de Cos to head the country’s central bank, backing a fiscal conservative for a job that includes a say in European monetary policy.
• Oil headed for its longest run of losses since February as Saudi Arabia and Russia mull easing curbs on crude production as concerns grow over supply shortages
• North Korean leader Kim Jong Un has dispatched one of his top aides to the U.S. for talks ahead of his planned summit with Donald Trump next month, according to a person familiar with the issue
• The Fed should slow its pace of policy normalization to help re-align price expectations around 2 percent and maintain the credibility of its inflation target, Fed’s Bullard said Tuesday in Tokyo
• The Turkish lira strengthened the most in the world on optimism the central bank’s decision to bring clarity to its interest-rate regime is a sign it may be able to fight the currency’s depreciation without pressure from President Recep Tayyip Erdogan. Stocks and bonds also rallied

Asia traded mostly subdued as region lacked impetus following the market closures in US and UK, while recent  weakness in oil prices and political uncertainty surrounding Italy and Spain have added to the cautious tone. As such, Nikkei 225 (-0.6%) was the worst performer as Japanese exporters suffered from flows into the JPY, while Japan Display shares led the declines in Tokyo with losses of over 20% seen in early trade after reports that Apple is to switch to OLED screens on all iPhone models from next year, which in turn underpinned South Korea’s LG Display. ASX 200 (+0.2%) was lifted by strength in its largest weighted financials sector and as energy names shrugged off the recent aggressive pull-back in crude prices. Shanghai Comp. (-0.5%) failed to maintain the early support from a firm PBoC liquidity operation and eventually slipped amid the broad risk-averse tone, while Hang Seng (-1.0%) was weighed by losses in blue-chip property and energy names. Finally, 10yr JGBs were higher amid recent upside in T-notes and declines in US yields, although the gains for Japanese bonds were only modest amid a mixed 40yr auction which printed a higher b/c but lower prices from previous.

Top Asian News

• China Is Said to Consider More U.S. Coal Imports to Cut Deficit
• Japan Display, Sharp Slide on Report Apple to Use OLED Screens
• JD Finance Said to Plan a Listing in China as Soon as 2019
• China Is Likely to Approve Qualcomm NXP Acquisition, WSJ Says
• Copper Supply Shock Hits India as Top Plant Ordered to Close

European equities continue to extend losses (Eurostoxx 50 -1.3%) as financials lead the sell off with the sector down almost 3%. Italian banks continue to bleed with trading halts in Monte Paschi (-4.5%), Bper (-6.3%) and Banca Generali (-4.5%); all limit down. The downfall in Italian banks has spread across the continent with major losses for the likes of Commerzbank (-3.4%), BNP (- 3.6%), RBS (-3.3%), Credit Suisse (-2.8%) all resting at the foot of their respective indices. Italy’s domestic politics remains in scope following Italian President Mattarella giving mandate to ex-IMF official Cottarelli to form a technocratic government. Cottarelli’s list of Ministers is expected to be unveiled today, moving the process to a vote in the Italian parliament (League, 5 Star and Forza Italia have majority) where a snap election appears inevitable. Italy will very much remain the focus as markets price in the uncertainty arising from a snap election. Elsewhere, Dixons Carphone (-19.6%) trades at the bottom of the Stoxx 600 following a profit warning for 2019

Top European News

• Dixons Carphone Slumps 27% on Tough Outlook for U.K. Market
• Standard Life Plans to Return $2.3 Billion to Shareholders
• Intesa CEO Says Investors Are Pricing Italy Worst- Case Scenario
• Nestle to Cut 500 Jobs as CEO Schneider Targets Home Country

In FX, the JPY benefitted most among G10/major currencies from the latest political turmoil in Italy, and to a lesser extent Spain, that has sparked broader risk-aversion and fresh EUR losses to ytd lows, around 125.05 for the cross and circa 1.1510 vs the USD, with very big barriers at 1.1550 breached. In terms of the DXY, the aforementioned Eur slide pushed the index to a new 2018 peak around 95.030, even though Usd/Jpy has retreated further below 109.00 and through a 108.79 Fib to test bids/support around 108.50, but with decent option expiry interest sitting between 108.80-90 (1.2 bn) perhaps limiting downside price action approaching the NY cut. GBP also a fall guy, partly in sympathy with the single currency, but also amidst yet more uncertainty over Brexit and of course UK political unrest, with Cable down through 1.3250 and almost hitting 1.3200 after taking out channel support at 1.3221, albeit briefly. CHF consolidating gains vs the Usd in the low 0.9900 area, but extending advances vs the Eur through 1.1500 and within striking distance of the 1.1447 ytd base, as a prominent US bank goes short for 1.1200 and places a stop at 1.1700. NZD/AUD/CAD: Less pronounced moves, but all weaker for choice of risk-off positioning with the Kiwi around 0.6925, Aud/Usd near 0.7530 and Loonie circa 1.3000. TRY: Bucking the overall trend and clawing back more losses as the Lira derives comfort from moves by the CBRT to simplify its monetary policy operations via officially targeting the 1 week repo rate. Usd/Try currently around 4.6000 vs 4.9000+ less than a week ago.

In commodities, WTI is continuing the declines seen on Monday trade (-1.4%) as traders continue to digest a possible OPEC+ production increase next month. Elsewhere, gold is currently trading upwards and has broken the USD 1,300/oz level as safe-haven demand is proving some support for the yellow metal. Copper prices are seeing strength after the closure of an Indian copper smelter is cutting supply to the market. Steel rebar is higher as Chinese seasonal demand has grown.

Looking at the day ahead, the main highlight in the US will be the May consumer confidence report, while the May Dallas Fed manufacturing activity index and March S&P/Case-Shiller home price index data are also due. Away from that, the OECD conference is also due to kick off (through to Thursday).

US Event Calendar

• 9am: S&P CoreLogic CS 20-City MoM SA, est. 0.7%, prior 0.83%; YoY NSA, est. 6.4%, prior 6.8%
• 10am: Conf. Board Consumer Confidence, est. 128, prior 128.7; Present Situation, prior 159.6; Expectations, prior 108.1
• 10:30am: Dallas Fed Manf. Activity, est. 23, prior 21.8
• 12:40am: Fed’s Bullard Speaks in Tokyo

DB’s Jim Reid concludes the overnight wrap

On paper yesterday should have been one of the quietest trading days of the year with both the US and UK out on holiday. However Italian yields slipped faster than a ball through a Liverpool goalkeeper’s hands as the country’s bond market had a remarkable day. Picture the scene, you are sitting on a European trading floor and as you get breakfast at your desk, Italian 2 year yields have already rallied 21bps to 0.25% after the weekend news that Italy’s President Mattarella blocked the appointment of Paolo Savona as Finance Minister due to his Eurosceptic credentials. On this news the populist coalition collapsed. At that point the market welcomed the appointment of ex-IMF Carlo Cottarelli to run a technocratic administration.

However by late morning fears abounded that this could backfire and make the populists even more popular and with more power when fresh elections are held. So within 2-3 hours we were trading close to 0.96% on the 2 year where they stayed for most of the day before dipping to 0.87% at the close. All in all, a 70.7bps range on the day and +40.7bp wider from Friday’s close.

To put this in perspective we downloaded the available daily G7 + Spain 2 year yields data since 1986 from Bloomberg to see what the biggest daily 2 year moves have been for major economies. Starting with the Italian 2y BTPs, yesterday’s +40.7bp move was the 13th largest daily move over the past 19 years. Notably, if we exclude the 2011/2012 crisis periods, yesterday’s move was actually the second highest print. Compared to its peers, the change was equally remarkable with Spain having had only 11 days over the past 25 years where its 2yr yields posted larger daily moves than 2 yr BTPs yesterday while the data for the other countries are: Canada 10 days, Gilts 4 days, US and France 1 day, and Germany and Japan zero days. Alternatively, if we assume yesterday’s intra-day move of +70.7bp for BTPs was held into the close, this would be the third equal highest daily change across all of our chosen peers, with the two higher prints being 2 yr BTPs back in November 2011 (+81bp) and 2yr Spanish bonds in July 2012 (+76.4bp). So an extraordinary day and move.

Elsewhere, a flight to safety yesterday boosted Core European bonds with Bunds 10y yields down to the lowest in five months (-6.2bp) while OATs also fell -1.5bp. Conversely, peripherals materially underperformed with 10y BTPs up 22.1bp while Portugal (+11.2bp) and Spain (+5.9bp) also rose in sympathy. Meanwhile the spread between 10y Bunds and BTPs are at 233bp, the highest since December 2013.

Over in equities, European bourses were weighed down by the Italian uncertainties with the Stoxx 600 (-0.32%) and DAX (-0.58%) both modestly lower. Within the Stoxx, the energy sector led the losses (-0.96%) as WTI oil fell for the fifth straight day (-1.3%; -7.4% cumulative from the recent peak 5 days ago) as Saudi Arabia and Russia both signalled potentially higher oil supply. Across the region, Italy’s FTSE MIB fell -2.08% with Italian banks hit the hardest, as Banca Monte dei Paschi dropped -7.1% while Unicredit and Intesa Sanpaolo fell -3.8% and -3.2%, respectively.

Following on with Italy, the latest news is that Cottarelli will need to go to Parliament over the next day or so for a vote of confidence that will likely determine whether we get fresh elections as early as August/September (if he loses) or early next year (if he wins it). The President has determined that this was always going to be a short-term administration so Cottarelli and ministers are not expected to stand in the fresh election. According to DB’s Clemente  De Lucia it’s highly likely he will lose as Five Star and League have been saying for a while that they will not support a technocrat government. They reaffirmed this yesterday as did Berlusconi who said his Party will vote against Cottarelli.

Indeed it seems Di Maio is intent on mobilising 5SM party supporters as he is calling for a big demonstration against President Mattarella on June 2nd (the Republic Day) in Rome as he noted “I call on citizens to mobilize, make yourselves heard”. Similarly, the League’s Salvini also called for protests over the weekend and said “today Italy is not free, it’s occupied financially by Germans, French and Eurocrats” and that “the upcoming elections will be…a real and true referendum…between who wants Italy to be a free country and who wants it to be servile and enslaved”. In many ways we shouldn’t be surprised by political turmoil in Italy. A stat we regularly discuss is that Italy have had 90  governments in around 116 years.

Last week’s nearly Government doesn’t even count here. Speaking to DB’s Mark Wall and Clemente De Lucia last night they believe that the rest of the EU wants to avoid an immediate confrontation with Italy on policy. Europe will wait for a government to be formed and assess the policies it implements rather than escalate tensions on the basis of proposed policy. This avoids giving the populists something to capitalise on. In the meantime, Europe is probably not averse to letting the market express its opinion on the sustainability of the mooted policies as long as the market reaction is controlled, contagion is avoided, and there is no unwarranted tightening of financial conditions.

Also Mark thinks the extended hiatus on a political government emerging in Rome means lingering uncertainty elsewhere. This risks complicating the ECB’s path to switching off QE and the EU Council’s plans to gain agreement on euro area institutional reforms this summer. The uncertainty is also an additional headwind to an economic cycle facing more constraints in 2018 than was originally expected. As the cyclical tide goes out, the euro area’s structural deficiencies are being revealed once again. So it’s going to be a fascinating summer for Europe as the Italian political situation crashes into the start of the ECB’s preferred timetable for announcing the exit from QE.

Over in Spanish politics now, the leader of the fourth largest party (Ciudadanos) Mr Rivera noted that he won’t back the Socialists Party’s no confidence motion against PM Rajoy for now, but wants PM Rajoy to agree to a new snap  election in the fall which would allow an orderly end to the legislature. Elsewhere, the latest poll by El Espanol projected Mr Rivera’s Ciudadanos Party could triple its number of seats to become the biggest party if new elections were held, while support for the ruling People’s Party could collapse and the Socialists Party would be little changed. So this story is bubbling under the surface while the Italian story is truly bubbling above the surface.

This morning in Asia, markets are modestly lower with the Nikkei (-0.88%), Kospi (-0.65%), Hang Seng (-0.62%) and Shanghai Comp. (-0.59%) all down. Meanwhile, futures on the S&P are marginally higher while UST 10y yields are c3bp lower. Elsewhere, the US / North Korea’s meeting on 12th June looks to be back on again as President Trump confirmed that “our US team has arrived in NK to make arrangements for the Summit between Kim and myself”. Datawise, Japan’s April jobless rate was in line and steady mom at 2.5%.

Now recapping other markets performance from yesterday. The US dollar index firmed 0.18% while the Euro reversed gains of c0.7% to close -0.22% lower to a fresh six month low, as the Italian uncertainties played out during the day. Elsewhere, the Turkish Lira jumped 2.8% vs. USD as its central bank simplified its monetary policy, now allowing its one-week repo rate to be the same as the current policy rate of 16.5%. DB’s Kubilay Ozturk believes the move is a belated yet strong response from the MPC. While simplification is welcome, the team still thinks the Bank will complete its response by re-calibrating its new single rate by (at least) another 100bps along with a shift to a single policy rate on the June 7th meeting. They believe delivering such a response at the MPC meeting would be a major positive.

Looking at the day ahead, in Europe we’ve got April money supply data for the Euro area and the May consumer confidence reading in France due. The ECB’s Villeroy is also due to speak again, followed by the ECB’s Visco, Mersch, Lautenschlaeger and Coeure. In the afternoon the main highlight in the US will be the May consumer confidence report, while the May Dallas Fed manufacturing activity index and March S&P/Case-Shiller home price index data are also due. Away from that, the OECD conference is also due to kick off (through to Thursday).

 

 

 

via RSS https://ift.tt/2skDaYf Tyler Durden

Two police officers and a civilian were killed Tuesday during a shootout in the Belgian city of Liege, according to Sputnik.

According to a local TV station, an armed man shot the two police officers at the Cafe des Augustins on the Boulevard d’Avroy, located in the city center. He then fled and tried to take a housekeeper hostage at Waha High School. Police responding to the incident managed to subdue the gunman, but during the shooting, a passerby was also killed. Students were unarmed and did not come into contact with the gunman, who has since been “neutralized”.

Here’s what we know so far:

• 4 dead in total
• Multiple people injured
• Gunman opened fire at a Café in central Liége, Belgium
• Tried to take hostages
• At least two police officers killed
• At least one civilian killed
• Attacker yelled ‘Allahu Akbar’
• Gunman neutralized

According to another local media outlet, the shooter was in front of the high school when he was approached by the two police officers for a routine check. But instead of complying, he opened fire.

Blurry photos of the slain officers appeared on twitter.

Shots can be heard in the background of videos circulating online.

BREAKING NEWS: At least 3 dead including 2 officers and 2 injured after a terrorist attack in Liege, Belgium. Terrorist neutralized. The perpetrator yelled ‘Allahu Akbar’ during his shooting rampage.
DEVELOPING pic.twitter.com/u56bJk7MzS

— BNL NEWS (@BreakingNLive) May 29, 2018

And another video…

Coups de feu à Liège, évacuation du boulevard d’Avroy. Beaucoup de voitures de police sur place + secours #Avroy #Liege #gunshot pic.twitter.com/CLXo16nST3

— Victor ⌬ (@VICTORJ_FR) May 29, 2018

Other photos circulating online showed first responders arriving at the scene. Witnesses said they heard many shots ring out during the shootout. Eventually, a security perimeter was established and ambulances dispatched to the scene.

Liege is located in eastern Belgium near the border with Germany.

Belgium’s anti-terror crisis center has been monitoring the situation, officials said. Liege was also the site of a 2011 shooting where a gunman killed four people before turning the gun on himself.

Belgium has been on high alert since a Brussels-based Islamic State cell helped carry out the Paris attacks in 2015 that killed 130 people at the Bataclan theater. Another attack in Brussels in 2016 left 32 dead. Today’s attack unfolded during Ramadan, the Islamic holy month.

via RSS https://ift.tt/2IRkLx2 Tyler Durden

With UK traders returning from vacation, Italy woke up to a sheer selling panic as yesterday’s “modest” selloff mutated into a full-blown liquidation avalanche, lead by a furious repricing of the BTP curve, where 2Y yields exploded another 170 bps higher on the day rising to 2.60% from negative just a few days ago…

… the biggest one day move in Italian 2Y yield in history…

… while the 10Y blew out as much as 70bps to 3.40%, now finally higher than US Treasurys…

… its biggest one day move since the 2011 European debt crisis…

… sending the Germany-Italian spread wider by 50bps to over 300 bps, the highest in 5 years.

Confirming the market revulsion to anything Italian, today’s 6-month bill sale by Rome was met with surprisingly poor demand, covered 1.19 only times, the lowest since April 2010, despite what continues to be an ECB backstop.

Stocks fared no better, with Italian equities tumbling as much as 3% today and now back to the lowest level since last July…

… while Italian banks are now well inside a bear market, down 24% from their recent April highs.

As a result of the panic selling, not seen since the days of the European sovereign debt crisis in 2011/2012, dealers pulled their price indications, which according to Bloomberg signalled dealer unwillingness to trade given the excessive volatility.

But what is even worse is that this is no longer just an Italian crisis, as Deutsche Bank stock tumbled below €10 for the first time since its existential close encounter in September 2016, and just why of all time lows, on fears Italy’s problems will spread beyond its borders…

… but it’s not just Germany as French banks are also getting slammed:

• FRENCH MAJOR BANKS’ 5-YEAR CDS JUMP 50 BPS OR MORE FROM MONDAY CLOSE ON ITALIAN POLITICAL RISK, BNP PARIBAS HIGHEST SINCE APRIL 2017 -IHS MARKIT

… while the EURUSD tumbles below 1.16, the lowest since last July as murmurs of “parity” are once again emerging.

Yesterday we predicted that it is only a matter of time before Europe and the ECB ban shorting of Italian bonds, and we are sticking with it, although at this point – now well past contagion – it is unclear if such a dramatic action will have much of an impact.

Meanwhile, all eyes on Draghi to see how the ECB responds now that Europe is once again facing threats to both its currency, as well as its very existence.

via RSS https://ift.tt/2seYoHC Tyler Durden

Authored by Don Quijones via WolfStreet.com,

“Doom loop” begins to exact its pound of flesh.

Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.

On Friday, Italy’s 10-year risk premium – the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.

Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.

One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.

A recent study by the Bank for International Settlements shows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.

The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).

In other words, despite years of the ECB’s multi-trillion euro QE program, which is scheduled to come to an end soon, the so-called “Doom Loop” is still very much alive and kicking in Italy. The doom loop is when weakening government bonds threaten to topple the banks that own the bonds, and in turn, the banks start offloading them, which causes these bonds to fall further, thus pushing the government to the brink. The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

But it’s not just Italian banks that are heavily exposed to Italian debt. So, too, are French lenders, which last year had combined holdings of Italian bonds worth €44 billion, according to data from the European Banking Authority’s 2017 transparency exercise. Spanish banks had €29 billion.

Which three non-Italian lenders of consequence are most exposed, in absolute terms, to Italian debt, based on Dor’s research?

BNP Paribas, France’s largest bank, with €16 billion of Italian sovereign debt holdings.

Dexia, the French-Belgian lender that collapsed twice and was bailed out twice between 2008 and 2011. It holds €15 billion of Italian debt.

And, drum-roll please: Banco Sabadell, the mid-sized Spanish lender that already has a gargantuan self-inflicted IT crisis on its hands at its UK subsidiary TSB. It has €10.5 billion invested in Italian bonds — the equivalent of almost 40% of its entire fixed asset portfolio, worth €26.3 billion, and 110% of its tier-1 capital.

“With the data from the European Banking Authority, we estimate that the lenders that would suffer the greatest impact [of a new Italian debt crisis] are Unicredit, Sabadell and Intesa Sanpaolo,” analysts from RBC Capital Management recently warned. According to their calculations, with every 10 basis-point rise of Italy’s risk premium, Sabadell will suffer a €28 million hit to its tier-1 capital. Since the coalition between Italy’s Five Star Movement and Lega was first unveiled, on May 15, Italy’s risk premium has surged by 81 basis points.

To make matters worse, another third of Sabadell’s fixed asset portfolio is invested in Spanish bonds. They are also losing value, partly as a result of the contagion effect from Italy but also due to rising domestic political instability, and the approaching end of the ECB’s QE. In the last two weeks, yields on 10-year Spanish bonds have risen from 1.27% to 1.47% while the 10-year risk premium has surged from 72 to 110.

When yields rise, prices fall by definition, and the more prices of Italian and Spanish bonds fall, the bigger the hit the banks’ capital buffers. The more the banks suffer, the more they will shy away from their respective domestic government’s debt, resulting in further falls in bond prices. Such is the fragile relationship of co-dependence between Eurozone banks and the governments whose debt they buy in such abundance.

When banks invest heavily in government debt, they become dependent on the government’s good performance, which is clearly not a given, especially in the Eurozone. Meanwhile, the governments depend on the banks to continue purchasing their debt, which also is no longer a given. This is the “doom loop.” It’s circular. It gets kicked off when either one falters, and the consequences can be dire for both.

In the case of Sabadell, it already has enough on its plate trying to clean up the mess it has created with the botched IT upgrade at its UK subsidiary, TSB, where customers are now leaving in droves. Given that TSB represents roughly a quarter of Banco Sabadell’s total assets, the impact on the Spanish bank’s own financial health could be considerable. If the sell-off in Italian sovereign debt escalates, Sabadell will have even bigger problems on its hands.

Blackstone Group, Cerberus Capital Management, and others face a problem. Read…  Wall Street Mega-Landlords Piled into Spain’s Rental Property Boom, and Now it Hits a Wall? 

via RSS https://ift.tt/2JdaaMw Tyler Durden

American social media firms are still reeling after being hit with a raft of lawsuits on the first day of the European Union’s GDPR enforcement last week. And already, the bloc is considering its next piece of nanny-state legislation that would create unprecedented headaches for both the food-service industry as well as the companies that manufacture the plastic products used in restaurants, coffee shops and bars.

Not to mention consumers, who likely would bear the brunt of higher costs associated with the rule.

The EU on Monday unveiled a proposal that would ban single-serving plastic products like straws and plastic cutlery in an attempt to cut down on marine litter. The draft rule would ban the 10 plastic products that, according to the Associated Press, comprise 70% of all the garbage floating around the ocean.

These other items would include disposable food containers, single-use cotton swabs (typically used to clean people’s ears), as well as plastic plates and cups often used in fast-food restaurants.

According to the BBC, the EU believes the ban will accomplish a number of desirable goals:

• Avoid 3.4 million tons of carbon emissions.

• Prevent 22 billion euros ($25.6 billion) of environmental damage by 2030.

• Save consumers 6.5 billion euros ($7.6 billion).

To be sure, it will likely be three or four years before these rules take effect – that is, assuming they are passed into law in the first place. Not only would the law need to be approved by the European Parliament, but every EU member state (there are presently 28 member states).

The law would also reduce the sale of these plastic products to households as well, as EU First Vice-President Frans Timmermans points out. The law, Timmermans argues, would go a long way toward preserving the environment as the “harmful” plastic items are replaced with more environmentally friendly (and probably more expensive) products.

“Plastic waste is undeniably a big issue and Europeans need to act together to tackle this problem,” EU First Vice-President Frans Timmermans said.

“Today’s proposals will reduce single-use plastics on our supermarket shelves through a range of measures.

“We will ban some of these items and substitute them with cleaner alternatives, so people can still use their favourite products.”

[…]

“You can still organize a pick-nick, drink a cocktail and clean your ears just like before,” Timmermans said.

Timmermans added that the single-serving utensils wouldn’t be completely banned – instead, companies would be “encouraged” to use sustainable materials instead of cheap plastic. The new rules would also reduce the sale of these items in supermarkets. Ultimately, the new rules would seek to hold the makers of these items responsible for the environmental harm they cause by ensuring that “it’s the polluter that pays,” according to the AP.

Bizarrely, industry groups have expressed support for the new rules. But less surprisingly, the notion that the new rules would help “protect” consumers triggered a backlash from conservatives who scoffed at the notion that these rules would somehow improve the quality of life for ordinary working people, who in all likelihood would be forced to pay more for basic household goods from napkins to feminine hygiene products.

This is what tyranny looks like pic.twitter.com/5qTiJGWOVk

— Jacob Wohl (@JacobAWohl) May 28, 2018

Full tyrant indeed as the European Parliament seems to believe that each sovereign nation is unable to decide for themselves. European Green Party lawmaker Monica Frassoni also welcomed the initiative and added that:

“the scale of the problem means that we cannot rely on individual European countries to take action and must instead find a Europe-wide response.”

Producers of these products would be forced to bear some of the costs for environmental cleanup – costs that likely would be passed on to consumers, according to the proposal, a summary of which can be found below (courtesy of DW). The full EU news release can be found here.

• A ban on the private use of disposable plastic products like straws, plastic plates, plastic utensils, plastic coffee stirrers, cotton swabs with plastic stems and plastic balloon holders.

• Curbing the use of plastic cups for beverages as well as plastic food containers, such as the ones used for take-away.

• Producers of certain products will be required to help cover the costs of clean-up and waste treatment, including: tobacco products with filters (such as cigarette butts), plastic bags, candy wrappers, potato chip packages and wet wipes.

• Menstrual pads, wet wipes and balloons will be required to add a label indicating how the product should be disposed.

• Producers of fishing gear – which accounts for 27% of beach litter – will be required to cover the costs of waste collection in ports.

• Each member state should use a deposit system or other measure in order to collect 90% of plastic bottles used in their country by 2025.

• An increase in consumer information about the dangers of plastic packaging.

EU members would also be forced to require clear labeling on products to “educate” consumers about how their waste impacts the environment. According to data compiled by the consulting firm Eunomia, the UK produces by far the most straws of all EU member states.

 

You will find more infographics at Statista

However, by the time these rules take effect, the UK more likely than not will no longer be a member of the bloc.

via RSS https://ift.tt/2IQprn3 Tyler Durden

Authored by Andrew Moran via LibertyNation.com,

On May 11, 1998, at a formal ceremony, Economy Minister Dominique Strauss-Kahn activated the mint printing press and produced its first euro coin, making France the first of 11 nations participating in the launch of the single currency to strike the money. Taking a bite out of the coin, Strauss-Kahan declared that it’s “the real thing, it’s no copy.”

At the time, the Monnaie de Paris was scheduled to mint 7.6 billion coins, or four times the weight of the Eiffel Tower, and eight different coinage denominations with a value between 0.01 and two euros. The coins maintained one national side and one European side.

Proponents scoffed at the naysayers, declaring that it would stimulate the economy and spur industrial growth that can rival that of the U.S. and Japan.

It has been 20 years since there was a lot of hope and promise that a euro banknote and coin would lead to prosperity, savings, and fiscal responsibility. Like a child’s dream of becoming an astronaut when he’s older, the European elite’s aims have not been realized. Twenty years later, the eurozone economy is running on a treadmill, subzero interest rates are the norm, and budget deficits are ubiquitous.

It has also been about a decade since the global financial crisis. Has Europe recovered? Debt is skyrocketing, deficits are not winding down, and quantitative easing persists.

Explain again why any nation wants to stay on a sinking ship… No wonder why half of Europeans hold an unfavorable view of the EU.

THE EURO’S RECENT ASSENT

Despite the European Central Bank (ECB)’s best debasement efforts, the euro has made gains against the U.S. dollar. Between May 2017 and May 2018, the euro has surged 10% versus the greenback.

This is a welcomed trend for European citizens, especially savers and retirees. On the other hand, there hasn’t been as much adulation to the euro’s latest assent by the central planners, indebted members, and failing industries. The strengthening currency has been surprising because of the ECB’s monetary policy which mostly consists of negative rates and $36 billion monthly bond acquisitions.

And this is likely confounding Mario Draghi and his Keynesian cohorts.

Mario Draghi

To the smartest men in the room in Frankfurt, a cocktail of a weakened euro, subzero rates, and bond-buying initiatives will encourage consumer spending, bank lending, and overall growth. But this has not been the case in the aftermath of the economic collapse.

European consumers are frugal in their spending and many are even saving their money underneath their mattresses. European financial institutions are lending, but it turns out that they are holding non-performing loans that are causing a toxic debt problem that may turn banks into zombie outfits. The eurozone gross domestic product (GDP), which shouldn’tbe the lead economic indicator for governments, analysts, and central banks, slowed to 0.1% in the first quarter of 2018.

For all of the interventions by the ECB, Draghi is experiencing reversed results: a booming euro and a lackluster economy.

ECB OUT OF BULLETS

Economy Minister Dominique Strauss-Kahn

In the 20 years since Strauss-Kahn bit that euro coin, France and others bit off more than they can chew. The eurozone has morphed into a complete a mess; it’s no surprise why most Britons voted to leave. The migrant crisis has negatively impacted many European jurisdictions, savers are seeing their deposits erode, national sovereignty is being threatened, and Draghi is doing a terrible job – the trade bloc’s bond market is the No. 1 riskfor 2018.

In the post-recession world, the ECB has fired multiple rounds in its arsenal of Keynesian weapons. Draghi and co. have slashed interest rates, printed billions of euros, bailed out member states, and enabled reckless spending. The results haven’t exactly elicited confidence of nations mulling over a quick exit from the failed continental experiment.

Like the Federal Reserve, the ECB will be out of bullets to contain the next contraction. How much lower can rates go? How many more euros can be printed? How much can national debt and deficits grow?

Akin to the Bretton Woods System, the EU model is a failure. When the next financial crisis hits, the only thing ECB heads will be able to do is shrug their shoulders. And perhaps that’s for the better anyway.

*  *  *

Andrew Moran is the Economics Correspondent at LibertyNation.com and is the author of The War on Cash. You can find more of his work at AndrewMoran.net.

via RSS https://ift.tt/2sjRvnN Tyler Durden

A U.S. Senate committee swiftly passed the latest version of a $716 billion defense bill last week, including a hard-hitting measure to block Turkey from acquiring Lockheed Martin F-35 Lightning II fighter jets.

Democratic Senator Jeanne Shaheen and Republican Senator Thom Tillis are responsible for the new amendment to the National Defense Authorization Act that would eliminate Turkey from the F-35 program over its recent purchase of Russian S-400 anti-missile system.

In response, Turkey pivoted towards Russia, and is expected to acquire Sukhoi SU-57 fifth-generation fighter jets, if Washington chooses to suspend Ankara from the F-35 program.

“Turkey’s manufacturing partner in the US Senate that the F-35 to even want to put embargoes can change the defensive equation. Ankara will not give up its right on the plane it expects to deliver in June. But the option for Russian-made SU has begun to be discussed,” according to the Yeni Safak Turkish newspaper.

If not sure in Plan A, you better prepare for a Plan B. At least, Turkey reportedly considers turning to Russian-made fifth-generation Su-57 fighter jets in case its F-35 deal with the US fails. (Source: Sputnik) 

Nevertheless, according to the Turkish newspaper, Ankara is not abandoning its claim to the expensive American fifth-generation fighter jet, with the first of 21 F-35 planes expected to arrive in June. Turkey has merely initiated new discussions as an alternative to the expensive F-35 program if Washington terminates the contract. That alternative, well, is the low-cost Russian-made Su-57 jets, which are nearly halved in price compared to the F-35s.

As of Monday, Ankara has made no official statements on that matter.

While the news reports have yet to be acknowledged by Turkish officials, a source in the Turkish defense industry told Sputnikthat current media reports are based on experts’ opinion and do not reflect the official position of Ankara.

Professor Dr. Beril Dedeoğlu told the Yeni Safak Turkish newspaper:

“If the decision is confirmed by Trump, this may mean that other agreements are also broken. So if you do not sell them to us, we go to other security systems. We have other agreements with Russia, we get it from China. This is not for the benefit of America, it is not meaningful for its interests. Turkey will remind them of this situation.”

Professor Dr. Beril Dedeoğlu. (Source: Yeni Safak)

Military Aviation researcher Hakan Kilic said:

“Military Aviation researcher Hakan Kilic: “Trump if he signed the decision of the US Senate, will turn Turkey into Europe. Turkey does not receive the F 35 type aircraft, as an alternative to Europe with the UK Eurofighter 2000 have. There is no special feature on radar, but it is a much better plane than the F-16, even an F-35. Because their maneuverability is very strong. ”

Military Aviation researcher Hakan Kilic. (Source: Yeni Safak)

Military strategist Abdullah Agar said:

 “F-35 type aircraft deal is a deal with mutual obligations. One side has no way to cancel the agreement by itself. But the US has previously shown a similar picture in Iran’s nuclear deal. Now he can do something similar. If it does, it will have many consequences in a strategic sense. Trump (F-35 on the embargo) If the Senate approves the decision of Turkey-US relations will be further stretched. Turkey needed to achieve naturally warfare tools and instruments will enter those other engagements. “

Security Expert Abdullah Agar. (Source: Yeni Safak)

As it turns out, Washington’s politicians could unknowingly be Moscow’s greatest defense salesperson, as Turkey, a member of NATO, is now pivoting towards Russian military hardware, including S-400 missile systems, and now, the possible sale of Russian fifth-generation fighter jets… Well, that was not supposed to happen.

via RSS https://ift.tt/2JdgCTy Tyler Durden

Via John Battle’s Searchblog,

It’s somehow fitting that today, May 25th, marks my return to writing here on Searchblog, after a long absence driven in large part by the launch of NewCo Shift as a publication on Medium more than two years ago. Since then Medium has deprecated its support for publications (and abandoned its original advertising model), and I’ve soured even more than usual on “platforms,” whether they be well intentioned (as I believe Medium is) or indifferent and fundamentally bad for publishing (as I believe Facebook to be).

So when I finally sat down to write something today, an ingrained but rusty habit re-emerged. For the past two years I’ve opened a clean, white page in Medium to write an essay, but today I find myself once again coding sentences into the backend of my WordPress site.

Searchblog has been active for 15 years – nearly forever in Internet time. It looks weary and crusty and overgrown, but it still stands upright, and soon it’ll be getting a total rebuild, thanks to the folks at WordPress. I’ll also be moving NewCo Shift to a WordPress site – we’ll keep our presence on Medium mainly as a distribution point, which is pretty much all “platforms” are good for as it relates to publishers, in my opinion.

So why is today a fitting day to return to the open web as my main writing outlet?

Well, May 25th is the day the European Union’s General Data Protection Regulation (GDPR) goes into effect.

It’s more likely than not that any reader of mine already knows all about GDPR, but for those who don’t, it’s the most significant new framework for data regulation in recent history. Not only does every company that does business with an EU citizen have to comply with GDPR, but most major Internet companies (like Google, Facebook, etc) have already announced they intend to export the “spirit” of GDPR to all of their customers, regardless of their physical location. Given that most governments still don’t know how to think about data as a social or legal asset, GDPR is likely the most important new social contract between consumers, business, and government in the Internet’s history. And to avoid burying the lead, I think it stinks for nearly all Internet companies, save the biggest ones.

That’s a pretty sweeping statement, and I’m not prepared to entirely defend it today, but I do want to explain why I’ve come to this conclusion. Before I do, however, it’s worth laying out the fundamental principles driving GDPR.

First and foremost, the legislation is a response to what many call “surveillance capitalism,” a business model driven in large part (but not entirely) by the rise of digital marketing. The grievance is familiar: Corporations and governments are collecting too much data about consumers and citizens, often without our express consent.  Our privacy and our “right to be left alone” are in peril. While we’ve collectively wrung our hands about this for years (I started thinking about “the Database of Intentions” back in 2001, and I offered a “Data Bill of Rights” back in 2007), it was Europe, with its particular history and sensitivities, which finally took significant and definitive action.

While surveillance capitalism is best understood as a living system – an ecosystem made up of many different actors – there are essentially three main players when it comes to collecting and leveraging personal data.

First are the Internet giants – companies like Amazon, Google, Netflix and Facebook. These companies are beloved by most consumers, and are driven almost entirely by their ability to turn the actions of their customers into data that they leverage at scale to feed their business models. These companies are best understood as “At Scale First Parties” – they have a direct relationship with their customers, and because we depend on their services, they can easily acquire consent from us to exploit our data. Ben Thompson calls these players “aggregators” – they’ve aggregated powerful first-party relationships with hundreds of millions or even billions of consumers.

The second group are the thousands of adtech players, most notably visualized in the various Lumascapes. These are companies that have grown up in the tangled, mostly open mess of the World Wide Web, mainly in the service of the digital advertising business. They collect data on consumers’ behaviors across the Internet and sell that data to marketers in an astonishingly varied and complex ways. Most of these companies have no “first party” relationship to consumers, instead they are “third parties” – they collect their data by securing relationships with sub-scale first parties like publishers and app makers. This entire ecosystem lives in an uneasy and increasingly weak position relative to the At Scale First Parties like Google and Facebook, who have inarguably consolidated power over the digital advertising marketplace.

Now, some say that companies such as Netflix, Amazon and Apple are not driven by an advertising model, and therefore are free of the negative externalities incumbent to players like Facebook and Google. To this argument I gently remind the reader: All at scale “first party” companies leverage personal data to drive their business, regardless of whether they have “advertising” as their core revenue stream. And there are plenty of externalities, whether positive or negative, that arise when companies use data, processing power, and algorithms to determine what you might and might not experience through their services.

The third major player in all of this, of course, are governments. Governments collect a shit ton of data about their citizens, but despite our fantasies about the US intelligence apparatus, they’re not nearly as good at exploiting that data as are the first and third party corporate players. In fact, most governments rely heavily on corporate players to make sense of the data they control. That interplay is a story into itself, and I’m sure I’ll get into it at a later date. Suffice to say that governments, particularly democratic governments, operate in a highly regulated environment when it comes to how they can use their citizens’ data.

But until recently, first and third party corporate entities have had pretty much free reign to do whatever they want with our data. Driven in large part by the United States’ philosophy of “hands off the Internet” – a philosophy I wholeheartedly agreed with prior to the consolidation of the Internet by massive oligarchs – corporations have been regulated mainly by Terms of Services and End User License Agreements, rarely read legal contracts which give corporations sweeping control over how customer data is used.

This all changed with GDPR, which went into effect today.

There are seven principles as laid out by the regulatory body responsible for enforcement, covering fairness, usage, storage, accuracy, accountability, and so on. All of these are important, but I’m not going to get into the details in this post (it’s already getting long, after all).

What really matters is this: The intent of GDPR is to protect the privacy and rights of consumers against Surveillance Capitalism.

But the reality of GDPR, as with nearly all sweeping regulation, is that it favors the At Scale First Parties, who can easily gain ‘consent’ from the billions of consumers who use their services, and it significantly threatens the sub-scale first and third party ecosystem, who have tenuous or fleeting relationships with the consumers they indirectly serve.

Put another way: You’re quite likely to click “I Consent” or “Yes” when a GDPR form is put in between you and your next hit of Facebook dopamine. You’re utterly unlikely to do the same when a small publisher asks for your consent via what feels like a spammy email.

An excellent example of this power imbalance in action: Facebook kicking third-party data providers off its platform in the wake of the Cambridge Analytica scandal, conveniently using GDPR as an excuse to consolidate its power as an At Scale First Party (I wrote about this at length here). 

In short: because they have the scale, resources, and first party relationships in place, At Scale First Party companies can leverage GDPR to increase their power and further protect their businesses from smaller competitors. The innovation ecosystem loses, and the tech oligarchy is strengthened.

I’ve long held that closed, walled-garden aggregators are terrible for innovation. They starve the open web of the currencies most crucial to growth: data, attention, and revenue. In fact, nearly all “innovators” on the open web are in thrall to Amazon, Facebook, Apple, and/or Google in some way or another – they depend on them for advertising services, for ecommerce, for data processing, for distribution, and/or for actual revenue.

In another series of posts I intend to dig into what we might do about it. But now that the early returns are in, it’s clear that GDPR, while well intentioned, has already delivered a massive and unexpected externality: Instead of limiting the reach of the most powerful players operating in the world of data, it has in fact achieved the opposite effect.

via RSS https://ift.tt/2sgefFY Tyler Durden

As we have been documenting over the last year and beyond, China is rapidly modernizing its military; unveiling a new stealth bomber, an array of guided-weapons, and deploying further from home. Their most recent focus has been on next generation nuclear weapons – as Beijing ramps up blast experiments for nukes comprised of smaller, smarter warheads designed to limit damage by targeting specific targets, according to the South China Morning Post. 

Between September 2014 and last December, China carried out around 200 laboratory experiments to simulate the extreme physics of a nuclear blast, the China Academy of Engineering Physics reported in a document released by the government earlier this year and reviewed by the South China Morning Post this month.

In comparison, the US carried out only 50 such tests between 2012 and 2017 – or about 10 a year – according to the Lawrence Livermore National Laboratory. –SCMP

China’s development of next gen nukes will put them in direct competition with the United States and Russia, sparking concerns by experts over the prospect of a new cold war arms race that has the potential of boiling over into thermonuclear war. 

Of primary concern is the notion that nations possessing smaller, targeted nukes might be more inclined to use them vs. larger and more devastating munitions – which could easily lead down the slippery slope of larger nuclear exchanges. 

These new weapons are considered more “usable” for tactical tasks such as destroying an underground bunker while generating little radioactive fallout.

Pentagon officials have said the US wants its enemies to believe it might actually use its new-generation weapons, such as smaller, smarter tactical warheads designed to limit damage by destroying only specific targets.

But with these relatively safer and less destructive weapons in hand, governments may end up losing the inhibition to use them. -SCMP

“The use of small warheads will lead to the use of bigger ones,” Beijing-based naval expert Li Jie told the Post. “If other countries use nuclear weapons on us, we have to retaliate. This is probably why there is research to develop new weapons.”

While an international ban prohibits China from testing actual nuclear weapons (a ban North Korea has laughed at for years), major nuclear powers continue to conduct testing via high-powered gas guns that fire high speed projectiles at weapons-grade laboratory materials.

The tests are conducted using a large, sophisticated facility known as a multi-stage gas gun, which simulates the extreme heat, pressure and shock waves produced in a real nuclear blast.

The experiments with the gas gun provide scientists with the data they need to develop more advanced nuclear weapons.

In the past, researchers used supercomputers to draw on historic data derived from live nuclear tests performed before the international ban was imposed in the 1990s.

But new technology that emerged in recent years, such as hypersonic vehicles and artificial intelligence, opened the door for the development of new nuclear weapons that could be smaller in size and more precise.

The gas gun works by using special explosives to force a piston along a hydrogen-filled metal tube. Once the hydrogen gas reaches a certain temperature and pressure, an “impactor” is released which travels at incredibly high speeds of at least 18,640 MPH towards a target. 

Smaller than a saucer, the impactor is comprised of the same materials used in a nuclear warhead such as plutonium, metal, plastic or foam of different densities – resulting in a chemical reaction similar to that of a nuclear detonation. 

[insert: gas gun.JPG, f29bb5ca-5f25-11e8-a4de-9f5e0e4dd719_972x_130850.jpg , f2cf81f2-5f25-11e8-a4de-9f5e0e4dd719_972x_130850.jpg ]

The impactors are quite difficult to produce, as even the slightest structural defect at the microscopic level of just a few nanometers can ruin the experiment, according to Luo Guoqiang of China’s Minyang research center. 

“The making of the impactor involves the cream of precision manufacturing. Thanks to numerous breakthroughs in recent years we are now beating our counterparts in the US with a series of impactors with superior performance,” he said.

Well made impactors, allow experiments to proceed faster at lower cost, while obtaining higher quality data. 

Over the past three years, Chinese scientists have carried out more such gas gun tests than the United States has in 15 years. 

In tunnels deep under mountains in Mianyang, southwestern Sichuan province, where China’s main nuclear design facilities are based, loud blasts from these experiments can be heard more than once a week.

In comparison, between 2003 and 2017, the US fired a total of 150 simulated shots at its Joint Actinide Shock Physics Experimental Research (Jasper) facility at the Nevada National Security Site. -SCMP

That said, China can’t hold a candle to the United States when it comes to advanced nuclear technology, according to Professor Wang Chuanbin, from the State Key Laboratory of Advanced Technology for Materials Synthesis and Processing at the Wuhan University of Technology.

Wang says that the number of live tests conducted by China pales in comparison with the U.S., which has set off over 1,000 nuclear warheads since 1945 beginning with the Manhattan Project. China, meanwhile, has only carried out 45 live tests. 

“It is possible we are in a hurry to catch up,” Wang said.

James Lewis, senior vice-president at the Centre for Strategic and International Studies, a Washington-based think tank, said a new round of the nuclear arms race had already begun, though public opinion had yet to catch up with the grim reality.

The White House is considering a US$1.2 trillion plan to upgrade its nuclear stockpile. Earlier this year, the Pentagon announced it would develop new low-yield nuclear weapons that could be mounted on conventional cruise missiles and launched by submarines.

The White House’s developments are in response to Russia’s recent actions, according to Lewis, who notes that Russian President Vladimir Putin has revealed a series of new nuclear weapon designs – including smaller, tactical nukes – as well as a “super torpedo” capable of wiping out coastal cities. 

“It’s not clear to me how successful the Russian programme will be, but it has stirred everyone up on the subject,” Lewis said. “After some debate, the US decided it needed to think about warheads, without the need for actual tests. It wouldn’t surprise me if China saw all this and decided that it had better get in the game.”

Following a February announcement by US officials of a new nuclear weapons policy, an editorial was published in Chinese state-run tabloid Global Times which said that China would seriously consider going public with its tactical, low-yield nuclear weapons program in response. 

“China is a nation capable of massively increasing the size and improving the technology of its nuclear stockpiles,” stated the newspaper, adding “China needs a new policy to deal with a new situation.”

And as we mentioned last week, Bank of America’s Mike Hartnett writes that the “trade war” of 2018 should be recognized for what it really is: the first stage of a new arms race between the US & China to reach national superiority in technology over the longer-term via Quantum Computing, Artificial  Intelligence, Hypersonic Warplanes, Electronic Vehicles, Robotics, and Cyber-Security.

At the end of the day, the China First strategy will be met head-on by an America First strategy.  Hence the “arms race” in tech spending which in both countries is intimately linked with defense spending. Note military spending by the US and China is forecast by the IMF to rise substantially in coming decades, but the stunner is that by 2050, China is set to overtake the US, spending $4tn on its military while the US is $1 trillion less, or $3tn.

This means that some time around 2038, roughly two decades from now, China will surpass the US in military spending, and become the world’s dominant superpower not only in population and economic growth – China is set to overtake the US economy by no later than 2032  – but in military strength and global influence as well.

And, as Thucydides Trap clearly lays out, that kind of unprecedented superpower transition – one in which the world’s reserve currency moves from state A to state B – always takes place in the context of a war.

Which explains BofA’s long-term strategic recommendation: “We believe investors should thus own global defense, tech & cybersecurity stocks, particularly companies seen as “national security champions” over the next 10-years.“

via RSS https://ift.tt/2kvIsMT Tyler Durden