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After accelerating on and off for the last few months, Core Producer Prices and Final Demand both came in lower than expected in July as a drop in margins for fuels offset a rise in guestroom rentals and drug prices.

PPI Final Demand printed +3.3% YoY (against 3.4% prior and expectations)

In July, a 0.1-percent rise in the index for final demand goods offset a 0.1-percent decline in prices for final demand services.   

In July, a major factor in the increase in prices for final demand goods was the index for pharmaceutical preparations, which rose 0.7 percent. Prices for eggs for fresh use, fresh fruits and melons, motor vehicles, and liquefied petroleum gas also moved higher. Conversely, the electric power index fell 1.6 percent. Prices for meats; hay, hayseeds, and oilseeds; and nonferrous scrap also decreased.

Leading the July decline in prices for final demand services, margins for fuels and lubricants retailing dropped 12.7 percent. The indexes for machinery and equipment parts and supplies wholesaling, food retailing, hospital outpatient care, and airline passenger services also moved lower. Conversely, prices for guestroom rental climbed 3.9 percent. The indexes for apparel, jewelry, footwear, and accessories retailing; inpatient care; and truck transportation of freight also increased.

Finally, core PPI also missed expectations and slipped back from seven year highs…

 

Is this ‘Goldilocks’ enough to leave The Fed on its current ‘gradual’ path?

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Emerging Market currencies are down broadly but the biggest losers (for now) are the Turkish Lira (record lows) and Russian Ruble (20-mo lows) as both suffer from US government actions.

 

The Ruble has broken down to its lowest since Nov 2016 (US election)…

The move comes after the U.S. said it was imposing the new restrictions to punish President Vladimir Putin’s government for the March 4 nerve-agent attack on former spy Sergei Skripal and his daughter in the U.K. As Blomberg reports, the threatened measures spooked investors, driving the ruble to the lowest levels since 2016 and pushing stocks like Aeroflot and VTB, which could be targeted by some of the new restrictions, down as much as 6 percent.

“It is clear that major sanctions actions are looming against Russia now either by the Administration, by Congress or both,” Tim Ash, a senior emerging-market strategist at Bluebay Asset Management LLC in London, said. “All bets are off.”

And The Lira is plumbing new record low depths…

As Bloomberg reports, the grip of bears on Turkish assets tightened as the nation’s souring relationship with the U.S. added to investor concern over authorities’ inability to put a lid on inflation, sending its currency to a fresh record low and driving up bond yields.

The development “raises the odds that the U.S. will double down on their sanctions” and adds to the “domestic challenges that plague lira-denominated assets,” analysts including Michael Every at Rabobank in London wrote in note to clients.

And for now, the great fall of China remains halted with offshore yuan still treading water…

 

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Over the weekend, Trump claimed on Twitter that the US is winning the trade war with China for one simple reason: whereas US stocks are back to all time highs, the Chinese market has tumbled and remains mired in a bear market. Now, another indication may have emerged that the US is getting the upper hand in the ongoing trade feud: according to Reuters, the trade war with the United States is “causing rifts” within China’s Communist Party, with some critics saying that China’s overly nationalistic stance “may have hardened the U.S. position.”

While China’s President Xi still retains his undisputed grip on power, some have noted an unusual surge of criticism about economic policy and how the government has handled the trade war, revealing “rare cracks in the ruling Communist Party.” Specifically, Reuters notes that the backlash is being felt at the highest levels of the government, hitting a close aide to Xi, his ideology chief and strategist Wang Huning.

Wang, a prominent and influential academic, has recently also come under attack for his strident views on Chinese power: the architect of the “China Dream”, Xi’s vision for China to become a strong and prosperous nation, Wang has been taken to task by the Chinese leader for crafting an excessively nationalistic image for the country, which has only provoked the United States, the sources said.

“He’s in trouble for mishandling the propaganda and hyping up China too much,” said one of the sources, who has ties to China’s leadership and propaganda system.

Naturally, China did not respond to a Reuters request for comment on Wang and his relationship with Xi, or on whether China had erred in its messaging in the trade war. But, in a stark confirmation that the ongoing trade war with the US is taking its toll, there is a growing feeling within the Chinese government that the outlook for China has “become grim”, according to a government policy advisor, following the deterioration in relations between China and the United States over trade.

Other influential policy makers have echoed the sentiment:

“Many economists and intellectuals are upset about China’s trade war policies,” an academic at a Chinese policy think tank told Reuters, speaking on condition of anonymity due to the sensitivity of the issue. “The overarching view is that China’s current stance has been too hard-line and the leadership has clearly misjudged the situation.”

The reason for the disappointment is that this view – which has quickly gained dominance – contrasts with the popular thinking at the beginning of the year of many Chinese academics “who had touted China’s ability to withstand the trade row in the face of Trump’s perceived political weakness at home.”

China thought it had reached a deal with Washington in May to avoid a trade war, but was shocked when the Trump administration, in Beijing’s eyes, went back on that agreement.

“The evolution from a trade conflict to trade war has made people rethink things,” the policy advisor said. “This is seen as being related to the exaggeration of China’s strength by some Chinese institutions and scholars that have influenced the U.S. perceptions and even domestic views.”

And in what will come as welcome news to Trump this morning, one official who is familiar with China’s propaganda efforts said the messaging had gone astray: “In the trade war, the line of thinking in the propaganda has been that Trump is crazy,” said the official. “In fact, what he is scared of is us getting strong.”

That view is correct, and it is surprising that it has dawned on China only now: after all Trump and Navarro have long declared that their true motive is to slow down China’s ascent by any means necessary, not merely reshaping the US trade deficit with China.

It also explains the growing backlash to China’s repeated nationalistic message.

Under Xi, officials have become increasingly confident in proclaiming what they see as China’s rightful place as a world leader, casting off a long-held maxim of Deng Xiaoping, the former paramount leader who said the country needed to “bide its time and hide its strength”.

Hu Angang, an economics professor at Tsinghua University and an expert in the field of “Chinese exceptionalism”, is one prominent advocate for the view that China has achieved “comprehensive national power”. However, as the Chinese stock market has tumbled in recent weeks, Hu has faced a public backlash, with critics blaming him for making the United States wary of China by trumpeting and exaggerating its relative economic, technical and military might.

It is unclear if Wang, the propaganda boss, will face any consequences Reuters writes, and there may be other reasons for the tensions within the party related to him.

Meanwhile, as official media has in recent days been filled with defiant commentary regarding the United States and the trade war, there have been signs of a shift in China’s messaging, demonstrated mainly by Beijing’s downplaying of Made in China 2025, the state-backed industrial policy that is core to Washington’s complaints about the country’s technological ambitions.

Still, “the thinking in Chinese government circles is that the damage has already been done”, and that China has learned the hard way that its domestic propaganda is now being scrutinized abroad in a way it never was before.

“It’s impossible for China to ‘bide its time and hide its strength’, but at least we can control the volume of our own propaganda and tell China’s story the proper way,” the policy insider said.

“When the size of China’s economy was small, it got little outside attention but China is now closely watched.”

That said, there is little tangible change observed in what has now become a daily media invective: on Thursday, Chinese state media accused the United States of a “mobster mentality” in its move to implement additional tariffs on Chinese goods, and warned Beijing had all the necessary means to fight back.

“The two countries’ trade conflict, which is merely push and shove at the moment, is likely to escalate into more than just a scuffle if the U.S. administration cannot marshal its mobster mentality,” state newspaper China Daily said in an editorial.

“China continues to do its utmost to avoid a trade war, but in the face of the U.S.’s ever greater demand for protection money, China has no choice but to fight back,” it said.

On its early morning news show, state broadcaster CCTV said that “China has confidence in protecting its own interests, has many means.”

Another commentary, written by China Institute of International Studies research fellow Jia Xiudong and published in the overseas edition of the People’s Daily newspaper, said the United States was trying to “suppress China’s development”.

Of course, that’s completely accurate, and goes to the real tension between the two nations, of which trade war is just one manifestation.

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A furious Russia condemned a new round of U.S. sanctions as “draconian” on Thursday and threatened to retaliate as news of the measures sent the ruble tumbling to two-year lows and sparked a wider asset sell-off over fears that Moscow was locked in a spiral of never-ending sanctions.

“Such measures are absolutely unfriendly and can hardly be associated with the constructive – difficult but constructive – atmosphere at the last meeting of the two presidents,” Kremlin spokesman Dmitry Peskov said on a conference call.

As reported yesterday, in the latest diplomatic attack launched by Trump, the U.S. State Department said on Wednesday it would impose fresh sanctions by the month’s end after determining that Moscow had used a nerve agent against a former Russian double agent, Sergei Skripal, and his daughter, Yulia, in Britain, something Moscow denies. The latest sanction announcement came just days after a bipartisan group of senators proposed a law mandating “crushing sanctions” – including on purchase of new sovereign debt and on big state banks – to punish Russia for election interference.

As NBC first reported, the new sanctions would come in two tranches:

• The first, which targets U.S. exports of sensitive national-security related goods, comes with deep exemptions and many of the items it covers have already been banned by previous restrictions.
• The second and more serious tranche, activated after 90 days if Moscow fails to provide “reliable assurances” it will no longer use chemical weapons and allow on-site inspections by the United Nations or other international observer groups, could include downgrading diplomatic relations, suspending the state airline Aeroflot’s ability to fly to the United States and cutting off nearly all exports and imports.

The added sanctions could include a downgrading in diplomatic relations, blanket bans on the import of Russian oil and exports of “all other goods and technology” aside from agricultural products, as well as limits on loans from U.S. banks. The U.S. also would have to suspend aviation agreements and oppose any multilateral development bank assistance.

Russia’s embassy in the United States responded to the diplomatic escalation, calling the new U.S. sanctions “draconian” and said the reason for the new restrictions, allegations it had poisoned the Skripals in Britain, was fabricated and far-fetched, and said Washington’s “findings” against it in the Skripal case were not backed by evidence.

“On August 8, 2018 our Deputy Chief of Mission was informed in the State Department of new ‘draconian’ sanctions against Russia for far-fetched accusations of using the ‘Novichok’ nerve agent against a UK citizen,” the embassy said in a statement.

“We have grown accustomed to not hearing any facts or evidence.”

Russia’s defiant response stopped short of specific measures pending more details on the U.S. plans, although officials said Russia may also respond by imposing restrictions on trade with the U.S. under a law passed earlier this year in response to an earlier wave of penalties. RIA Novosti reported the Russia may respond to new U.S. sanctions by banning supplies of RD-180 rocket engines. As a reminder, RD-180 engines, produced by Russia’s NPO Energomash, are used in Atlas V rockets of space contractor United Launch Alliance LLC, a partnership between Boeing Co. and Lockheed Martin Corp.

“The law allows the government to take retaliatory measures that are appropriate to the sanctions pressure,” said Dmitry Mezentsev, chairman of the economic policy committee in the upper house of parliament. “The Russian economy is big and stable enough that we aren’t scared by steps like this.”

Konstantin Kosachyov, chairman of the international affairs committee in the upper house of parliament, said imposition of the new limits would amount to “the behavior of a police state.”

The news which came shortly after more details were revealed about an earlier set of proposed U.S. sanctions, sent Russian assets reeling and the ruble as low as 66.712 against the dollar, a fresh two-year low, and a 3-day drop of nearly 4%, and pushed stocks like Aeroflot and VTB, which could be targeted by some of the new restrictions, down as much as 6%.

The move also triggered a sell-off in Russian government bonds and the dollar-denominated RTS index fell to its lowest since April 11.

“It is clear that major sanctions actions are looming against Russia now either by the Administration, by Congress or both,” Tim Ash, a senior emerging-market strategist at Bluebay Asset Management LLC in London, said. “All bets are off.”

Dmitri Trenin, director of the Carnegie Moscow Center and a former colonel in the Russian army, said the State Department’s move looked like the latest salvo in what he called a hybrid war. “Sanctions are the U.S. weapon of choice,” Trenin wrote on Twitter. “They are not an instrument, but the policy itself. Russia will have to brace for more to come over next several years, prepare for the worst and push back where it can.”

There is still a possibility to avoid a full blown diplomatic war: the additional sanctions also could be averted if Trump declared that waiving them would be in the U.S. national interest, however that would be a politically risky move in light of criticism that he’s been too soft on Russia on issues including interference in the 2016 presidential campaign.

“I don’t see a face-saving solution here,” said Vladimir Frolov, a foreign-policy analyst in Moscow and a former Russian diplomat.

Which, considering Trump’s growing concerns about the upcoming conclusion of the Mueller probe of Russian collusion/interference, may be precisely the reason why the US president is so eager to appear as a stern enemy of Putin. And in the context of this escalating diplomatic feud, one wonders just what Trump really told Putin in that letter that Rand Paul delivered to the Russian president a few days ago.

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If yesterday global stocks largely ignored Wednesday’s slump in Chinese stocks, today they are doing the mirror image, barely responding as the Shanghai Composite rebounds strongly from near 2018 lows. European shares slid while U.S. index futures were mostly flat following a positive session in Asia that saw Chinese equities shrug off the latest tariff escalation between DC and Beijing. European stock markets struggled on Thursday with trade war worries, Russia’s ruble tumbled after the United States imposed fresh sanctions on the country and Turkey’s lira dropped to a new low.

Energy majors led the drop in Europe’s Stoxx 600 Index following yesterday’s sharp drop in crude. European equities traded lower (Eurostoxx 50 -0.1%) with heavier underperformance in the FTSE 100 following a plethora of large cap ex-dividends, as well as the abovementioned weakness in energy names. Consumer discretionary outperforms on the back of Adidas (+8.2%) lifting the sector and supporting the DAX 30 (Unch) amid earnings.

Chinese and Hong Kong stocks pushed firmer earlier, while Japanese shares dropped. China’s Shanghai Composite surged 1.8%, reversing yesterday’s losses, led by technology stocks after the government set up a group led by Premier Li Keqiang to develop the sector. The news that China set up the government-sanctioned body has encouraged investors to buy tech-related shares, said Dai Ming, Shanghai- based fund manager with Hengsheng Asset Management; investors eager to bet on a rebound after earlier corrections are quite sensitive to such news.  The ChiNext Index of small-cap and technology closes 3.4% higher for best day since June 29, while six of the top gainers on MSCI China Index are tech stocks; Kingdee International +11%, ZTE Corp. H shares +8.7%, Hangzhou Hikvision +10%

Helping boost local sentiment, China’s factory inflation held up in July even as commodity prices eased, and consumer prices gained slightly more than expected: PPI rose 4.6% from a year earlier, compared with consensus estimates of 4.5%. CPI rose 2.1%, also beating fractionally consensus of a 2.0% increase.

July CPI inflation up while PPI inflation down

Early on Thursday, China’s state broadcaster said the country must counteract U.S. tariffs and that Beijing had the  confidence to protect its own interests as well as the means to do so. China had already announced additional tariffs of 25 percent on $16 billion worth of U.S. imports from fuel to autos. The tariffs will apply to billions of dollars in U.S. gasoline, diesel and other oil products, though not crude.

Elsewhere in Asia, Japan’s Nikkei slipped 0.2 percent, in part because core machinery orders fell. Shares in Mazda Motor Corp, Suzuki Motor Corp and Yamaha Motor Co also fell on news they conducted improper fuel economy and emissions tests on their vehicles. Japan will try to avert steep tariffs on its car exports and fend off U.S. demands for a free-trade agreement at talks in Washington later.

In the US, stock futures were little changed as investors awaited job and PPI data. Tesla remained in focus on reports Musk sought SoftBank money and the SEC is now looking into his tweets. Morgan Stanley added to its recent pessimism, officially turning bearish on U.S. semiconductors, saying the sector now has the poorest risk-reward ratio in three years as cyclical risks are piling up. Rite Aid will also be in the spotlight after the company and Albertsons agreed to scrap a merger that would have helped reshape the U.S. retail and health-care industries.

A decline in the MSCI Emerging Market Currency Index has stalled since the middle of the year after retracing around half of its rally from late 2016 to March 2018 according to Bloomberg data. A rebound is possible if U.S.-China trade frictions don’t escalate and the yuan recovers, said Khoon Goh, analyst at ANZ

Emerging-market currencies weakened for a second day, with Turkey’s lira and Russia’s ruble extending their slump as disputes with the U.S. deepened. As a reminder, on Wednesday, the Trump administration said it was imposing new sanctions to punish Russia for the March 4 nerve-agent attack on former spy Sergei Skripal and his daughter in the U.K., sending the ruble tumbling as low as 66.712 against the dollar, a fresh two-year low, and a 3-day drop of nearly 4%.

Turkey’s lira, bond and stocks markets were also taking a pounding after meetings between officials in Washington looked to have made little progress in mending a row over Ankara’s jailing of an American pastor. The lira touched a record low of 5.44 against the dollar, weakening some 2.5% from Wednesday’s close. There was widespread selling in the country’s bond markets and Istanbul stocks dropped 1 percent.

The Bloomberg Dollar Spot Index rose for the first day amid renewed geopolitical tensions between the U.S. and other countries amid continued tariff escalation: the greenback starts out on a stronger footing against emerging-market currencies before getting traction across the board, with the Bloomberg Dollar Spot Index rising as much as 0.2% while the yen swung into a loss as traders adjusted positions ahead of the U.S.-Japan trade discussion.

With the U.S. waging a trade war on several fronts, economists are starting to take seriously the idea that President Donald Trump could act on his preference for a weak dollar.

“While not our base case scenario, we cannot rule out a turn toward a more interventionist currency policy, particularly since the current administration has, at times, hinted at a preference for dollar weakness or objected to perceived Chinese currency manipulation,” JPM chief economist Michael Feroli said in a research note this week.

In central bank news, overnight the RBNZ kept the Official Cash Rate unchanged at 1.75% as unanimously expected and stated that it expects to maintain OCR at this level into 2020. RBNZ repeated rates are to stay expansionary for a considerable time and the next move could be up or down, while it also stated that recent growth moderation could persist for longer. Furthermore, it lowered its forecast for OCR to 1.8% from 1.9% for both September 2019 and December 2019 and lowered TWI NZD forecast to 72.8% from 74.0%, while RBNZ Governor Orr later stated the OCR could be lowered if growth slows further.

While volumes in the major currencies remained low in spot and options markets, there was much pain for three specific currencies:

• NewZealand’s kiwi fell to $0.6641, the lowest since March 2016, and the nation’s bond yields and swap rates also declined after the RBNZ pushed back its forecast for an interest-rate increase to late 2020 and lowered its estimate for economic growth over the coming year.
• The Russian ruble hit a two-year low after the U.S. announced new sanctions on Russia over the March 4 nerve-agent attack on a former double agent in the U.K.
• Turkey’s lira plunged to a record low and bond yields climbed as a dispute over the detention of an American pastor dragged on and added to investor concern about double-digit inflation.

Treasuries steadied before a 30-year auction after a record, $27 billion 10-Year auction on Wednesday was easily digested by the market; Italian bonds led gains for European debt.

Oil pared some of yesterday’s drop, though held near a seven-week low after China’s decision to slap 25 percent duties on U.S. imports including petroleum products.  WTI (Unch) and Brent (Unch) are trading within the prior day’s range, with WTI futures breaching USD 67/bbl to the upside. Brent initially flip-flopped either side of USD 72/bbl before grasping a firmer footing north of the level. News flow has been light for the complex. Elsewhere gold continues to move off intraday highs of USD 1216.29 as the dollar strengthens in European trade. Copper takes a breather having surged overnight, stabilising around USD 2.765/oz.

In geopolitical news, the White House is reportedly drafting an executive order that would permit placing sanctions on foreign nationals that interfere with US elections.

Elsewhere, the Russian embassy said the new US sanctions are “draconian” and not backed by facts or evidence, while there were reports Russia may respond to the US with the use of countersanctions law.

Economic data include initial jobless claims, PPI readings, wholesale inventories. Brookfield Asset Management, Microchip are among companies reporting earnings.

Market Snapshot

• S&P 500 futures up 0.1% at 2,857.50
• STOXX Europe 600 down 0.2% to 388.80
• MXAP up 0.09% to 166.99
• MXAPJ up 0.4% to 542.21
• Nikkei down 0.2% to 22,598.39
• Topix down 0.3% to 1,740.16
• Hang Seng Index up 0.9% to 28,607.30
• Shanghai Composite up 1.8% to 2,794.38
• Sensex up 0.4% to 38,041.61
• Australia S&P/ASX 200 up 0.5% to 6,297.65
• Kospi up 0.1% to 2,303.71
• German 10Y yield fell 1.1 bps to 0.387%
• Euro down 0.2% to $1.1585
• Italian 10Y yield rose 4.4 bps to 2.644%
• Spanish 10Y yield fell 0.3 bps to 1.404%
• Brent Futures up 0.1% to $72.36/bbl
• Gold spot down 0.2% to $1,211.40
• U.S. Dollar Index up 0.2% to 95.28

Top Overnight News from Bloomberg

• The trade dispute with the U.S. is causing a rift in the Chinese government, hitting a close aide to President Xi Jinping, Reuters reported, citing unidentified people close to the administration. Wang Huning’s approach is being criticized by some as excessively nationalistic and needlessly provocative to Washington, Reuters said
• Russia threatened to retaliate for the new round of sanctions announced by the U.S., but stopped short of specific measures pending more details on the American plans. Officials said Russia may respond by imposing restrictions on trade with the U.S. under a law passed earlier this year in response to an earlier wave of restrictions
• China’s factory inflation held up in July even as commodity prices eased, and consumer prices gained slightly more than expected. The producer price index rose 4.6 percent from a year earlier, compared with the projected 4.5 percent rise seen in a Bloomberg survey. The consumer price index rose 2.1 percent, the statistics bureau said, versus the forecast 2 percent increase
• A Turkish delegation to Washington refused to commit to releasing the American pastor Andrew Brunson, as both sides sought a way out of an escalating feud, a U.S. official said
• Oil held a loss near a seven-week low as China vowed to retaliate against the U.S. administration’s latest tariffs, raising trade tensions between the world’s two biggest economies
• The U.K. housing market remained listless in July as Brexit uncertainty intensified and Britons braced ahead of the BOE’s Aug. 2 interest-rate increase, according to the Royal Institution of Chartered Surveyors
• China confirmed that it will impose 25 percent tariffs on an additional $16 billion worth of imports from the U.S. from Aug. 23, matching an earlier move from Washington in another ratchet higher for the trade war between the two nations

Asian equity markets were eventually mostly higher after bourses recovered from the initial trade-related losses  triggered by China’s retaliation announcement of 25% tariffs on USD 16bln of US goods. This initially weighed across the region with underperformance in the Nikkei 225 (-0.2%) after disappointing Machine Orders which declined at the fastest pace YTD and as automakers reeled from fresh reports of improper testing. ASX 200 (+0.5%) was also subdued at the open with Australia’s energy sector dragged by a slump in crude, although the index then recovered amid strength in the largest weighted financials sector with Suncorp underpinned by a deal to sell its Australia life insurance unit and after it declared a special dividend. Elsewhere, both Hang Seng (+0.9%) and Shanghai Comp. (+1.8%) opened negative on the trade tensions, but then rebounded with a vengeance alongside a broad recovery in the region and after Chinese inflation data topped estimates to suggest stronger than anticipated activity. Finally, 10yr JGBs were flat amid a lack of drivers and choppy sentiment in the region, while the 30yr auction also failed to spur demand with all metrics weaker than prior.

Top Asian News

• China’s Key Tasks Suggest CDRs Are Slipping Down Priority List
• Philippines Delivers 50 Basis-Point Rate Hike in Aggressive Move
• China Tech Shares Surge as Govt Sets up Body to Develop Industry

European equities trade flat-to-lower (Eurostoxx 50 unch) with heavier underperformance in the FTSE 100 following a plethora of large cap ex-dividends. Softer oil prices also weigh on index’s energy giants while the sector as a whole lags. Consumer discretionary outperforms on the back of Adidas (+8.2%) lifting the sector and supporting the DAX 30 (Unch) amid earnings. Of note: Deutsche Bank upgraded the European auto sector to overweight from benchmark, while the firm downgraded European pharma and consumer staples.

Top European News

• Italian Bond Roller Coaster May Just Be Approaching Its Zenith
• Italy’s Conte Sees 5 Yrs to Complete Flat Tax, Citizen’s Income
• Di Maio Vows Italy to Use Tough Tactics in EU Budget Battle
• TUI’s Slowing Sales Show Europeans Have Had Enough of the Sun

In currencies, NZD was by far the biggest G10 loser as the RBNZ tweaked OCR rate projections out to the end of next year and stressed that a hike is firmly off the table given increased risks of a cut. The Kiwi has nosedived in response and further on dovish comments from deputy Governor McDermott to test support around 0.6650 vs its US counterpart and 1.1175 vs its AUD antipodean peer, which is holding up better with the YUAN in wake of stronger than expected Chinese CPI and PPI data overnight (Aud/Usd between 0.7415-55). TRY/RUB – Bringing up the rear again in the EM area, as US sanctions continue to bite and investors take flight, while the Rouble is also losing more ground due to ongoing weakness in oil prices. Usd/Try is just off a new all time high circa 5.4475 and Usd/Rub a fresh ytd peak around 66.7100. GBP/EUR – Broad risk aversion due to ongoing global trade and diplomatic spats from the US to China, EU, Turkey, Russia, Saudi Arabia and Canada, plus heightened risks of a no deal Brexit continue to take their toll on Sterling and the single currency to varying degrees. Indeed, Cable has fallen again and through 1.2850 for what seems to be daily 2018 lows, but Eur/Gbp is not extending too much further above 0.9000, for now, as the single currency also fails to maintain gains over 1.1600 vs the Greenback ahead of key technical resistance levels.

In commodities, WTI (Unch) and Brent (Unch) are trading within the prior day’s range, with WTI futures breaching USD 67/bbl to the upside. Brent initially flip-flopped either side of USD 72/bbl before grasping a firmer footing north of the level. News flow has been light for the complex. Elsewhere gold continues to move off intraday highs of USD 1216.29 as the dollar strengthens in European trade. Copper takes a breather having surged overnight, stabilising around USD 2.765/oz.

Looking at the day ahead, in Europe the ECB will publish the latest economic bulletin. In the US, we get the July core PPI report (0.2% mom and 2.8% yoy expected) along with final June wholesale inventories data and the latest weekly initial jobless claims data. Merck and Adidas will also report earnings.

US Event Calendar

• 8:30am: Initial Jobless Claims, est. 220,000, prior 218,000
• 8:30am: Continuing Claims, est. 1.73m, prior 1.72m
• 8:30am: PPI Final Demand MoM, est. 0.2%, prior 0.3%; PPI Ex Food and Energy MoM, est. 0.2%, prior 0.3%;
  • PPI Final Demand YoY, est. 3.4%, prior 3.4%; PPI Ex Food and Energy YoY, est. 2.8%, prior 2.8%
• 8:45am: Bloomberg Aug. United States Economic Survey
• 9:45am: Bloomberg Consumer Comfort, prior 58.6
• 10am: Wholesale Inventories MoM, est. 0.0%, prior 0.0%; Wholesale Trade Sales MoM, est. 0.2%, prior 2.5%

DB’s Jim Reid concludes the overnight wrap

A look at the S&P 500 (-0.03%) last night suggests a pretty quiet day. Indeed the intraday range of 0.33% was the 3rd smallest this year. However there were actually some interesting stories floating around as trade continued to be a hot topic, WTI Oil falling -3.22%, Italy seeing a bullish morning but a bearish afternoon on the budget debate, Sterling down -0.44% to a fresh 12 month low against the dollar, Turkey reversing Tuesday’s gains and Russia after a bad day then seeing fresh US sanctions imposed after the close.

Starting with trade, following yesterday’s confirmation by the US that it will impose 25% tariffs on an additional $16bn worth of Chinese goods from August 23rd, China quickly responded with confirmation that it will impose 25% tariff on $16bn worth of US imports from the same date. The list of impacted US goods includes fuel products, autos and medical equipment but excludes bigger ticket items like crude oil and large aircraft. Nonetheless, trade tension concerns coupled with a smaller than expected decline in US crude inventories from the latest EIA data saw WTI oil down to the lowest in c7 weeks (-3.22%).

Moving onto equities, the S&P fluctuated before a late decline to close broadly flat as stronger tech and financial stocks were offset by energy and consumer staples. Notably the Nasdaq edged up for the seventh consecutive day (+0.06%), matching its streak in early March. Back in Europe, bourses were broadly weaker, impacted by trade tensions and weaker health care stocks (-0.78%) as Danish drugmakers Novo Nordisk and H. Lundbeck fell -6.1% and -14.3%, respectively following disappointing trading updates. Across the region the Stoxx 600 (-0.20%) and DAX (-0.12%) nudged lower while the FTSE rose +0.75%, partly aided by the lower Sterling.

This morning in Asia, markets are trading mixed with China’s CSI300 leading the gains (+2.42%) along with the Hang Seng (+0.88%), in part boosted by news that regulators (CSRC) plans to further open the domestic market to  foreigners. The Nikkei (-0.28%) and Kospi (-0.26%) are down modestly as we type. Datawise China’s July CPI rose 0.2ppt mom to an above market print of 2.1% (vs. 2.0% expected) while the decline in PPI growth was less than expected at 4.6% yoy (vs. 4.5%). Meanwhile the Yen is c0.2% stronger ahead of trade talks between Japan and the US today at Washington while the New Zealand kiwi dollar is down to a 2yr low (-1.1%) after the central bank pushed back its forecast for an interestrate hike to late 2020.

In government bonds yesterday core 10y yields were down c1bp (Bunds -1bp; Gilts -1.3bp; Treasuries -1.3bp) while treasuries also firmed despite absorbing a record $26bn auction yesterday, matching its previous record set in 2009. Notably yields on 10y BTPs swung within a 10bp range as it initially rallied following Italian Finance Minister Tria’s reassuring comments where he noted that the introduction of a “flat tax” would be done in stages while PM Conte also confirmed he wants to see the measures introduced “progressively”. However gains were later reversed as the leader of the 5SM Party Di Maio noted the plans to cut taxes and introduce citizen’s income should be brought in “immediately” in the 2019 budget and if the EU changed the way the deficit was calculated, then his plans can be accommodated. By the end of day, yields on 10y BTPs ended +4.3bp higher.

Moving onto currencies, the US dollar index dipped -0.10% while Sterling weakened to the lowest since August 2017 (-0.44%). DB’s Oliver Harvey believes part of the recent weakness could be due to corporates preparing for a hard Brexit or markets giving more importance to the current account deficit in the absence of any major news. Meanwhile the Russian ruble tumbled -3.24% yesterday to the lowest since November 2016. The pressure on the ruble started after Russia’s Kommersant newspaper published the full text of a US bill seeking “crushing sanctions” on Russia for election meddling. Losses then accelerated as the US announced new sanctions on Russia for the March 4 nerve agent attack in the UK. Bloomberg noted the latter sanctions will begin from Aug. 22 and will limit exports to Russia of US goods and sensitive technology. Elsewhere the Turkish Lira resumed its decline (-0.96%) yesterday.

As for the limited data releases from yesterday, in the US, the MBA’s new purchase mortgage applications index fell 2.0% last week but the four-week average was still up a modest 0.6% yoy. In France, the July Bank of France industry sentiment index was steady mom and in line with expectations at 101. Meanwhile Spain’s June industrial output fell more than expected to -0.6% mom (vs. -0.2%), leaving annual growth at a modest 0.5% yoy.

Looking at the day ahead, in Europe the ECB will publish the latest economic bulletin. In the US, we get the July core PPI report (0.2% mom and 2.8% yoy expected) along with final June wholesale inventories data and the latest weekly initial jobless claims data. Merck and Adidas will also report earnings.

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Authored by Jessica Corbett via CommonDreams.org,

In the age of “media-bashing enthusiast” President Donald Trump – who regularly declares critical journalists and outlets “fake news” and “the enemy of the American people” – at least 43 percent of Republican respondents to a new survey said they believe “the president should have the authority to close news outlets engaged in bad behavior.”

The Ipsos poll (pdf), first reported by The Daily Beast‘s Sam Stein, also found that nearly half of Republicans agree with one of the president’s most common claims: that “the news media is the enemy of the American people.” As Stein notes, “members of the press, as well as top officials at some of the nation’s leading publications, have objected to the phrase, arguing that it is both wildly inaccurate and deeply dangerous.”

Earlier this year – following Trump’s so-called Fake News Awards—Reporters San Frontières, the international watchdog that ranks global press freedom, downgraded the United States, citing the president’s hostility and raising alarm that his behavior could have negatives repercussions the world over. As the group’s leader put it, “The unleashing of hatred towards journalists is one of the worst threats to democracies.”

This new poll’s findings, as Stein writes, “present a sobering picture for the fourth estate, with respondents showing diminished trust in the media and increased support for punitive measures against its members,” and “illustrate the extent to which Trump’s anti-press drumbeat has shaped public opinion about the role the media plays in covering his administration.”

Although the numbers were highest – and thus, most “disturbing“ – for self-identified Republicans, “swaths of self-identified Democrats and Independents supported anti-press positions as well.” Twelve percent of Democrats and 21 percent of Independents also said they believe the president should be able to shutter news outlets, while 12 percent of Democrats and 26 percent of Independents agreed with Trump’s position that the media is the enemy of the people.

Additionally, 72 percent of those polled – 85 percent of Republicans and 63 percent of Democrats – think it should be easier to sue reporters for libel allegations.

Despite these “nuts” and “terrifying” takeaways – which left many readers concluding that “the war that Trump is constantly waging on the media and the truth is bearing some major fruit,” and “43 percent of Republicans want a dictator instead of a president who follows the Constitution” – there were a few silver linings:

• 57 percent think “news and reporters are necessary to keep the Trump administration honest”;

• 68 percent agreed that “reporters should be protected from pressure from government or big business interests”; and

• 85 percent claimed they still believe that “freedom of the press is essential for American democracy.”

And though Stein’s report on the survey sparked concerns, The Huffington Post‘s Ariel Edwards-Levy pointed out in a series of tweets that while an anti-media stance seems to have gained popularity under the Trump presidency, American support for the idea of the president closing down publications is not necessarily new:

In 1979, 22% of Americans agreed that “the President has a right to close down a newspaper that prints stories that he feels are biased or inaccurate.” So, not really, no. pic.twitter.com/inxHzNIsxk

— Ariel Edwards-Levy (@aedwardslevy) August 7, 2018

But there’s always going to be a minority of the public that is kinda fuzzy on the First Amendment, and that’s not solely a product of the Trump Administration.

— Ariel Edwards-Levy (@aedwardslevy) August 7, 2018

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Figures just released by the Office for National Statistics from the UK have revealed another rapid increase in deaths involving cocaine in England and Wales.

As Statista’s Martin Armstrong notes, the 432 such fatalities in 2017 represent an all-time high and makes now for six consecutive years of increases.

The infographic below shows how these deaths have developed over the last ten years.

You will find more infographics at Statista

…blown away!

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