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EU Blocks Trump’s Iran Sanctions To Protect Companies Hours Ahead Of Snapback

The European Union issued a statement Monday ahead of when renewed US sanctions are set to snap back against Iran after midnight US Eastern time, saying it “deeply regrets” the sanctions and will take immediate action to protect European companies still doing business with Iran.

Image source: ATR

The statement by EU diplomatic chief Federica Mogherini and the foreign ministers of Britain, France and Germany pledged to also work to keep “effective financial channels” open with Iran. “We deeply regret the re-imposition of sanctions by the US, due to the latter’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA),” the statement issued from Brussels begins.

The US has ordered all other countries to halt imports of Iranian oil by early November or face punitive measures. In a statement on Sunday Secretary of State Mike Pompeo said the White House will detail implementation of the measures sometime Monday morning. 

As expected after the Trump administration was unmoved by European leaders’ calls for an exemption, the EU will seek legal protection for firms in the 28-nation bloc to work with Iran by invoking its so-called blocking statute, considered the most powerful tool at its immediate disposal. When invoked, it bans any EU company from complying with US sanctions and does not recognize any foreign court rulings seeking to enforce American penalties.

According to the statement:

We are determined to protect European economic operators engaged in legitimate business with Iran, in accordance with EU law and with UN Security Council resolution 2231. This is why the European Union’s updated Blocking Statute enters into force on 7 August to protect EU companies doing legitimate business with Iran from the impact of US extra-territorial sanctions.

The EU also restated its commitment to upholding the Iran nuclear deal (JCPOA), calling the 2015 brokered agreement “a matter of international security”:

The remaining parties to the JCPOA have committed to work on, inter alia, the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran’s export of oil and gas. 

At the end of the day Monday, the following sanctions will be re-imposed according to a US Treasury Department official statement:

“Sanctions on the purchase or acquisition of US dollar bank notes by the Government of Iran; sanctions on Iran’s trade in gold or precious metals; sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes; sanctions on significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial; sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; sanctions on Iran’s automotive sector.” 

Furthermore, according to the US Treasury, this includes a ban on Iranian-origin carpets and foodstuffs, and notably export or re-export commercial airplanes as well as services and parts.

It is unclear if the EU blocking statute will have any significant impact beyond being used as sending a strong political message. 

First adopted in 1996, the blocking statute bans EU companies from complying with the extraterritorial effects of US sanctions, allowing them to recover damages arising from such sanctions, and declares null any foreign court proceedings seeking to impose penalties among EU countries.

Reuters explained in May after President Trump formally pulled the United States from the JCPOA that “it has never been used and is seen by European governments more as a political weapon than a regulation because its rules are vague and difficult to enforce, serving mainly as a warning to the United States.”

And further that, “The international reach of the U.S. financial system and the U.S. presence of many European companies also raise questions about its effectiveness.”

But perhaps the real question remains whether or not Iran’s economy will weather the storm, which could ultimately become to catalyst for European companies severing relations. 

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

China Launches Personal Attack At “Arrogant, Deceitful” Trump: “We Are Prepared To Fight To The End”

All hope abandon ye who think the trade war with China has any hope of ending soon.

One month ago, Beijing ordered China’s state media “not to use aggressive language” for Trump. As of Sunday, that directive has clearly expired, and after a weekend of bluster by President Trump in which he proclaimed that he has the upper hand in the trade war with China, Beijing finally responded angrily through state media, saying the nation is ready to endure the economic fallout, and launched an “unusually personal attack” against Trump’s trade policies on Monday, saying Trump’s trade “extortion” would not work according to Reuters.

An editorial in the nationalist Global Times on Sunday evening declared that China is prepared for a “protracted war” and doesn’t fear sacrificing short-term economic interests, “considering the unreasonable U.S. demands, a trade war is an act that aims to crush China’s economic sovereignty, trying to force China to be a U.S. economic vassal.”

Separately, in a front-page editorial on Monday, the overseas edition of People’s Daily said Trump was “starring in his own carefully orchestrated street fighter-style deceitful drama” in which diplomacy had been reduced to nothing but a “trading game in which everything should follow the rule of America first”.

“To realise the goal of reviving the American economy, Trump has chosen a simple but crude way. He has bypassed the multilateral trading system of the WTO and started trade conflicts, forcing countries, including its traditional allies, to cede their interests to those of the United States,” the People’s Daily said.

It also claimed that the US was “turning international trade into a zero-sum game” in the hope of forcing China to make a tremendous compromise. “But China will never surrender to blackmail and will definitely rise to defend itself when it involves national interests and national dignity,” it said.

The onslaught continued with an editorial by the China Daily, the flagship state-run English newspaper, which said that “in the face of the bullying of the Donald Trump administration, Beijing must remain sober-minded and never let emotion override reason when deciding how to respond. Given China’s huge market, its systemic advantage of being able to concentrate resources on big projects, its people’s tenacity in enduring hardships and its steadiness in implementing reform and opening-up policies, the country can survive a trade war.“

The latest volley in the trade row between the countries comes as Chinese leaders gather in the coastal resort of Beidaihe near Beijing for their informal, annual summit to discuss the domestic, economic and foreign policies of the coming year according to the SCMP.  The trade war is expected to be high on the gathering’s agenda.

The heated war of words following Beijing’s announcement on Friday that it would add duties ranging from 5 to 25% on an additional US$60 billion in US goods if the Trump administration went ahead with similar action, warning that further countermeasures were ready at any time.

Earlier in the weekend, Trump told an audience of supporters that playing hardball on trade is “my thing” and said that  “we have really rebuilt China, and it’s time that we rebuild our own country now.”

Then in Sunday Twitter posts Trump said the US’ punitive tariffs were “working big time” and that the US is winning the trade war, highlighting the drop in the Shanghai Composite offset by the resilience in the S&P500.

“Every country on Earth wants to take wealth out of the US, always to our detriment. I say, as they come, tax them. If they don’t want to be taxed, let them make or build the product in the US. In either event, it means jobs and great wealth.”

“Because of tariffs we will be able to start paying down large amounts of the US$21 trillion in debt that has been accumulated, much by the Obama administration, while at the same time reducing taxes for our people,” he said, referring to his predecessor Barack Obama.

* * *

Following China’s aggressive response, the yuan resumed its slide, following a rally triggered by a surprise China central bank move to make it more expensive to bet against the currency. As we reported before, China stepped in Friday to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar.

Also on Monday morning, China reported that its current account returned to a surplus in the second quarter after a surprise deficit in the first three months of the year, although it was still the first H1 current account deficit on record.

“Policy makers will pay more attention on the changes in current account as it approaches a balance near zero, signaling less room for currency appreciation,” according to Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank Ltd. in Hong Kong.

Despite China’s heated rhetoric, as JPM explained over the weekend, China’s options are shrinking and are all uniformly negative as follows:

  • intervene in currency markets to offset market pressures risking a new wave of reserve depletion;
  • raise interest rates to defend the currency causing monetary tightening and risking economic weakness; or
  • let the currency depreciate beyond the above critical levels along with market pressures risking capital outflows and a more abrupt move

In other words, the longer trade war goes on, the worse it will be for China, even as the US remains largely isolated from immediate adverse consequences, if only judged by the stock market. 

China disagrees however, as the People’s Daily editorial makes clear:

China has to defend its right to development, and we don’t fear sacrificing short-term interests. However, the US will bear losses as well. It’s a mutual depletion where people in both countries have to pay the same price.

Throughout history, the US arrogantly initiated many wars that eventually ended up hurting itself. Washington’s arrogance this time is up against a major power. When others believed that the US was just playing tricks with trade, the White House thought it could strike down China. But the US’ ability doesn’t match its ambition.

China has time to fight to the end. Time will prove that the US eventually makes a fool of itself.

And now the ball is in Trump’s twitter corner.

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

Futures Rebound As Chinese Stocks Tumble, Yuan Resumes Slide, Cable Crashes

It was supposed to be a typical post-payrolls subdued session to start the week, however there was already a lot of excitement with Asian stocks mixed and European stocks finding a bid to push the continent into the green as a result of a buying program just before 6am EDT, pushing US index futures unchanged.

Following Friday’s two-fer from China, in which Beijing announced a $60BN tariff retaliation to Trump’s latest sanctions, coupled with an assault on yuan shorts after the PBOC hiked the reserve ratio on FX forwards, all eyes were on China, and in an ominous move the Shanghai Composite resumed its slide, dropping for a 4th consecutive day and testing 2018 lows into the close with the “National Team” nowhere to be seen.

Just as concerning is that despite the PBOC’s latest “red line” for the Yuan which on Friday dropped as low as 6.91 vs the dollar before the Chinese intervention, the USDCNH resumed its climb, rising as high as 6.86 although there was no major reaction seen to weekend trade rhetoric from U.S. and China. 

Spooked by China’s weakness, after an initial rise, Asian shares earlier succumbed to selling pressure with Japan’s Nikkei and South Korea’s Kospi index also dropped in sympathy to China.

Overnight, Chinese state media launched an unusually personal attack against U.S. President Donald Trump’s trade policies on Monday, saying Trump’s trade “extortion” would not work. It also sought to reassure investors about Chinese economic strength as the months-long dispute rattles financial markets and raises deepening worries about the impact on the real economy according to Reuters.

Europe’s Stoxx 600 initially pushed lower before a sharp rally back to positive mid-morning; although no catalysts cited for the move. The buying program helped European stocks advance 0.1% and erase a loss of as much as 0.3% earlier, with autos and oil and gas stocks contributing the most to gains, after disappointing corporate earnings in the European banking sector added to the cautious start to the week’s trading. Banks were among the biggest losers in the Stoxx Europe 600 Index after HSBC’s earnings disappointed. Volume was muted, at about 17% below its 30-day average. Weighing on European sentiment was the biggest plunge in German industrial orders since the start of 2017 on trade concerns, which added to early pressure on German stocks.

In a major development to Brexit, over the weekend, UK Trade Secretary Fox said the likelihood of a no-deal Brexit is increasing in which he blamed the “intransigence” of the European Commission. Fox also placed the chances of leaving  the EU without a deal at “60-40” and stated that EU Chief Negotiator Barnier dismissed the UK’s Chequers proposals simply because “we have never done it before”. This also comes alongside commentary in the Sunday Times over the weekend that businesses and investors are scrambling to protect themselves against a plunge in the value of the pound if Britain crashes out of the EU in March. As a result, sterling weakened to the lowest level in 11 months, as GBPUSD tumbled below 1.30.

The Bloomberg Dollar Spot Index climbed for the fourth day in five sessions, extending last week’s advance, but moves in currencies were limited. The euro was flat after German manufacturers took a hit in June.

In EM, the big mover – and loser – was the Turkish Lira, with the TRY tumbling over 2% against the dollar in response to U.S. review of Turkey’s duty-free access following Erdogan’s announcement he would sanction two US officials in the escalating diplomatic spat over the release of Pastor Brunson.

The yield on 10-year Treasuries steadied at 2.95 percent. Bunds and UST curves are unchanged, Italian BTPs move above Friday’s highs as treasury’s buyback continues to support.

Oil crept higher on the day with WTI +0.7% and Brent +0.7% amid a Saudi crude output cut on Friday alongside the US rig count falling for the second time in three weeks, seeing a decline of 4 to 1044. The EU said that other signatories are committed to the continuation of Iranian exports of oil and gas In the metals scope, gold is essentially unmoved and is still languishing around 17-month lows, currently trading at USD 1211.90/oz. London Copper has fallen for the 3rd session in 4 as trade concerns weigh on the construction material. Zinc is also faring poorly and has fallen 2.2%, with Shanghai lead also down 1.4%.

In other geopolitical news, North Korea Foreign Minister Ri described US actions as alarming in response after US Secretary of State Mike Pompeo urged other countries to keep up sanctions pressure on Pyongyang. In addition, a UN report stated that North Korea has not halted its nuclear and missile program which is in violation of sanctions.

President Trump tweeted on Saturday “Iran, and its economy, is going very bad and fast! I will meet, or not meet, it doesn’t matter – it’s up to them… Iran Is messing with the wrong President”. Furthermore, US Secretary of State Pompeo said the White House will make an announcement detailing reinstatement of some Iran sanctions on Monday. Note: The first round of Iran sanctions imposed by the US to come into effect on Tuesday – the Iranian government will no longer be able to purchase US banknotes and broad sanctions will be imposed on Iranian industries.

Venezuela said there was an assassination attempt on President Maduro by far-right opponents after several drones armed with explosives blew up near President Maduro, while reports also noted Maduro was unharmed and that 7 people were being treated for injuries.

Monday’s event docket is quiet with no major economic data expected. Sempra, Tyson and Marriott International are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,836.50
  • STOXX Europe 600 down 0.05% to 388.97
  • MXAP unchanged at 165.25
  • MXAPJ up 0.3% to 534.67
  • Nikkei down 0.08% to 22,507.32
  • Topix down 0.6% to 1,732.90
  • Hang Seng Index up 0.5% to 27,819.56
  • Shanghai Composite down 1.3% to 2,705.16
  • Sensex up 0.5% to 37,748.75
  • Australia S&P/ASX 200 up 0.6% to 6,272.98
  • Kospi down 0.05% to 2,286.50
  • German 10Y yield unchanged at 0.408%
  • Euro down 0.05% to $1.1562
  • Italian 10Y yield rose 1.4 bps to 2.657%
  • Spanish 10Y yield fell 2.0 bps to 1.402%
  • Brent futures up 0.4% to $73.50/bbl
  • Gold spot down 0.2% to $1,212.74
  • U.S. Dollar Index up 0.2% to 95.30

Top Overnight News from Bloomberg

  • After a weekend of claims by U.S. President Donald Trump that he has the upper hand in the trade war with China, Beijing responded through state media by saying the nation is ready to endure the economic fallout. This follows the release late Friday in Beijing of a tariff list designed to retaliate against the U.S. threat to impose new duties on USD200b of Chinese imports. The yuan pared gains and mainland equities declined
  • The pound fell to its lowest level versus the dollar since September, pressured by weekend comments from U.K. International Trade Secretary Liam Fox predicting a messy split from the European Union, adding there’s now a 60% likelihood of a no-deal outcome as the clock ticks down to Britain’s scheduled departure in March
  • German manufacturers took a hit in June as a slide in overseas demand knocked factory orders amid escalating trade tensions. Orders fell 4 percent from the previous month — eight times as much as forecast in a Bloomberg survey of economists
  • Matteo Salvini, Italy’s outspoken deputy premier, said the “Italian economy is sound, so we will block” speculative attempts to influence growth trends. The next budget law will include measures aimed at easing fiscal pressure, which will attract foreign investments, Salvini said
  • President Trump tweeted that he didn’t know about his son’s meeting at Trump Tower during the 2016 presidential campaign, adding that a gathering that included a Russian lawyer with links to the Kremlin was held to get information on Democratic candidate Hillary Clinton
  • U.S. Secretary of State Michael Pompeo warned against easing up on sanctions until North Korea gives up its nuclear weapons, drawing a rebuke from the regime that underscored how far apart the two sides remain
  • London’s moribund luxury homes market is showing signs of bottoming out. Values in the best districts rose 1.2% in the second quarter from a year earlier
  • Saudi Arabia halted new trade and investment dealings with Canada as a dispute over the kingdom’s arrest of a women’s rights activist escalated
  • Not content with a previous warning investors should brace for Treasury yields of 4%, Jamie Dimon went one further at the weekend, suggesting 5% was a distinct possibility

Asian equity markets began the week mostly positive as bourses followed suit from Friday’s gains on Wall St, although upside was limited as the region took its first opportunity to digest Friday’s key events including China’s tariff retaliation list announcement and the mixed US jobs data. ASX 200 (+0.6%) was led higher by commodity-related stocks and Nikkei 225 (+0.1%) was positive but with upside limited by recent JPY strength. Elsewhere, Hang Seng (+0.5%) and Shanghai Comp. (-1.2%) were mixed as the mainland failed to hold on to early gains due to trade uncertainty and further PBoC inaction. Finally, 10yr JGBs were quiet overnight but still edged mild gains as yields slightly eased from last week’s BoJ-triggered surge, while reports also noted that the BoJ bought a record amount of 5yr-10yr JGBs last week in its efforts to cap gains in yields. China state media commented that China is prepared for a long trade battle with the US, while it also noted that US is escalating trade friction with China and is turning international trade as a zero-sum game. In addition, China state media said President Trump is starring in his own carefully orchestrated Street Fighter-style deceitful drama and wants others to play along which is wishful thinking

Top Asian News

  • China Reminds Hedge Funds That the Yuan Is a Dangerous Short
  • Saudi Arabia Suspends Ties With Canada Over Activist Row
  • Japan Tobacco to Buy Bangladesh Cigarette Maker for $1.5 Billion
  • India Bond Buyers Emerge as Nomura, StanChart Say Worst Over
  • Hong Kong Defies Market Slump With Biggest-Ever Summer IPO Haul

European equites opened the week modestly lower (Euro Stoxx 50 -0.2%) as trade concerns weighed on indices initially. Most major European indices were in the red, with the DAX leading the losses and breaking through its 100DMA (12,582) to the downside following Linde (-3.5%) announcing that they and Praxair may need to shed more assets to get antitrust approval, casting doubt over the viability of their merger. The losses in the DAX and Euro Stoxx were short-lived, however, seeing choppy trade and paring back early losses into positive territory on no fundamental catalyst in a news-thin day. The materials sector (-1.2%) is underperforming on the back of softer base metals, as the US-Sino trade spat continues to weigh on the market. HSBC (-0.4%) reported earnings, where the bank highlighted rising expenses alongside a civil penalty of USD 765mln. William Hill (+0.3%) have reportedly entered into talks with US casino “giant” Penn National Gaming that would provide the co. with a greater share of the US sports betting market.

Top European News

  • EU May Soften Irish Backstop Powers to Avoid No-Deal Brexit: FT
  • Trade Spats Burden German Manufacturers as Factory Orders Slump
  • Italy’s Di Maio Says EU Deficit Cap Can’t Block Government Plans
  • Rosneft Says It Can Give Further Boost to Russia Oil Output

In FX, there was more negative news for the Pound as UK Trade Secretary Fox claims that the risk of a no deal Brexit has risen to 60% after EU chief negotiator Barnier rejected the Chequers White Paper, with Cable back down through 1.3000 and hitting marginal new lows around 1.2950, while Eur/Gbp is back above 0.8900 even though the single currency is relatively weak in its own right. Note also, a major US bank has initiated a short Cable trade at 1.2986, looking for 1.2700 and with a 1.3150 stop, while market contacts suggest stops are likely if the aforementioned ytd base is  breached from 1.2950. TRY – The Lira remains under heavy pressure and one of if not the EM underperformer again as Usd/Try soars further above 5.0000 to almost 5.1600 and fresh all-time highs. The catalyst, ongoing US-Turkey diplomatic strains due to Pastor Brunson on top of the latter’s domestic political situation and investor angst over the economy, perceived Government interference with the CBRT and a whole lot more. EUR/NZD/AUD/JPY – All holding up relatively well vs a bid Dollar in general (DXY over 95.300 and still poised for a test of 95.652 highs for the year so far), but the Eur only just keeping its head above 1.1550 and layered bids down to 1.1520 ahead of the 2018 low (1.1510), while the Kiwi remains under 0.6750 and is lagging its antipodean counterpart that is holding firm after PBoC Yuan intervention near 0.7400 and circa 1.0975 on the cross ahead of the RBA policy meeting tomorrow (full preview available via our headline feed). Usd/Jpy is very rangebound again between 111.15-35 with bids at 111.00 and offers at 111.50, 111.60 and  111.73, according to market observers.

In commodities, oil is higher on the day with WTI +0.7% and Brent +0.7% amid a Saudi crude output cut on Friday alongside the US rig count falling for the second time in three weeks, seeing a decline of 4 to 1044. Russia’s energy minister Novak reported that future output is to be in line with the OPEC+ 1mln BPD boost plan.  The EU said that other signatories are committed to the continuation of Iranian exports of oil and gas In the metals scope, gold is essentially unmoved and is still languishing around 17-month lows, currently trading at USD 1211.90/oz. London Copper has fallen for the 3rd session in 4 as trade concerns weigh on the construction material. Zinc is also faring poorly and has fallen 2.2%, with Shanghai lead also down 1.4%

On today’s calendar, there is nothing of note in the US, while in China the Q2 current account balance reading will be out at some stage. It’s worth noting that the first phase of the restoration of US economic sanctions on Iran are also scheduled to take effect from Monday. HSBC, SoftBank and UniCredit are all due to release earnings.

US Event Calendar

  • Nothing major scheduled

DB’s Jim Reid concludes the overnight wrap

This weekend also brought more evidence that it’s unlikely that the trade war dispute will change course soon given the current and recent rhetoric. President Trump tweeted on Saturday that the U.S. market is “stronger than ever,” while the Chinese market “has dropped 27% in the last 4 months, and they are talking to us.” He also tweeted that “Tariffs are working far better than anyone ever anticipated” and would make the U.S. “much richer than it is today”. The Chinese market has actually seen that fall over 8 months not 4 but the scale of the decline is accurate. Indeed the additional fall on Friday saw it drop below Japan as the world’s second largest stock market nearly 4 years after it first went ahead. At a later rally in Ohio Mr Trump reiterated the comments and said in addition that the Europeans are “dying to make a deal”.

This follows Friday’s retaliations from China (evening their time) where they announced fresh tariffs (from 5% to 25%) on $60bn of US imports. The blow was softened by a seemingly coordinated move from the PBOC to impose a reserve requirement of 20% on trading CNY forward contracts. This basically makes it expensive to short CNY and is likely an attempt to ensure that the currency doesn’t weaken too aggressively.

Initially that appeared to work when markets opened late last night with the Yuan rallying as much as +0.40% however it’s back to flat now as we go to print. That may in part reflect China’s Global Times reporting on Sunday evening that China is prepared for a “protracted war” in response to Trump’s comments and that China does not fear sacrificing short-term economic interests. The Shanghai Comp (-0.77%) and CSI 300 (-0.76%) are also both in the red along with the  Nikkei (-0.20%) while the Hang Seng (+0.70%) and Kospi (+0.26%) have both nudged higher. US equity futures are also slightly higher while bond markets have been fairly muted, including JGBs where the 10y is hovering just below 0.10% still.

Staying with China for a second, our China Chief Economist Zhiwei Zhang published a note overnight in light of the recent trade developments. In his view China’s retaliation is a softening of policy stance on the trade war and that with the domestic economy weakening and financial assets falling, China likely feels more pressure than it did two months ago. Zhiwei has kept his GDP forecasts for 2018 (6.6%) and 2019 (6.3%) unchanged along with his CNY forecasts (6.95 end-2018, 6.40 end-2019) for now. More in Zhiwei’s report here .

In other news overnight, the Canadian Dollar (-0.10%) has been fairly volatile following headlines that Saudi Arabia has suspended new trade and investment with Canada, as well as suspending diplomatic ties following the dispute over the arrest of a women’s activist in Saudi Arabia. It appears to be a developing story so worth seeing how this plays out this morning.

As for what we can look forward to over the next five days, this week’s calendar is probably more akin to a typical summer week lull with a relative dearth in potential market sensitive data releases and events. The US CPI report for July, due out on Friday, is quite comfortably the headline event with the consensus running at +0.2% mom for the headline and core. An in-line reading for the latter should help to keep the annual rate at +2.3% yoy and therefore maintain  breathing room above the Fed’s target 2% level.

A day prior to that CPI report we’ll also get the July PPI report while outside of the US we’ll get China’s July Inflation Report on Thursday too. The market expects CPI to nudge up one-tenth to +2.0% yoy however PPI is expected to moderate two-tenths to +4.5% yoy. Other than those data releases we’ll also get preliminary Q2 GDP reports in Japan and the UK (the market and our economists expect a +0.4% qoq reading for the UK).

Meanwhile earnings will really start to taper off with just 44 S&P 500 companies reporting this week. A total of 405  companies in the S&P have reported so far and whilst it feels like we’ve seen some big share price collapses (Facebook and Twitter come to mind) it’s hard to argue against the overall picture having been a fairly solid one this quarter. Indeed 85% of companies have beaten EPS expectations while 73% have beaten top line expectations. Aggregate growth in earnings is around 27% which is up very slightly on Q1. Revenue growth has also hit double digits at 10% – the first time it has done so in 7 years. Markets have responded as you’d expect. Using July 10th as the de-facto start date for earnings season, the S&P 500 has climbed +2.02% and the DOW +2.77%, while the NASDAQ has risen a more modest +0.60%.

Talking of earnings our European equity strategy team have published a note this morning highlighting that with 70% of market cap having reported so far, European Q2 EPS growth is at 5% year-on-year, up from 0% in Q1 and only slightly below the 6% registered earlier in the season. This represents a slight positive surprise relative to consensus expectations for the companies that have reported, which is a good result, given that the sharp deterioration in Euro area growth momentum in Q2 pointed to the risk of a downside surprise. Consensus expects EPS growth to end the earnings season at 2% and then to accelerate to 10% in Q3. Energy, financials and consumer discretionary continue to provide the largest boosts to index-level earnings growth. See the link for the full report. Staying with equities Friday saw a reasonably decent end to the week. Much of the session was spent debating who might make the next move in the  US-China report in the afternoon. July headline payrolls came in at a well below market 157k (vs. 193 expected). However that was offset by a cumulative 59k in upward revisions to prior months. The more significant average hourly earnings reading didn’t throw up any surprises at +0.3% mom (matching consensus) although a small downward revision to June caused the annual reading to moderate slightly to +2.70% from +2.74%. One notable aspect of the report was the drop in the U-6 unemployment rate to 7.5% – a fall of three-tenths – and to the lowest level since May 2001. This came despite participation holding steady so clearly speaks to how tight the labour market is.

The S&P 500 ended +0.46% post that report while the NASDAQ also edged up +0.12%. In Europe the Stoxx 600 closed +0.65% to pare back the five-day loss to less than a percent. Treasuries were well bid for much of the day with the employment data doing little to change that. 2y and 10y yields ended 2.0bps and 3.7bps lower respectively while yields across Europe were broadly 2-5bps lower. Interestingly Bunds actually rallied 5.4bps which appeared to be more to do with safe haven flow after BTPs initially moved sharply higher in yield early on. Indeed 2y BTPs were as much as 40bps higher in the early morning but rallied back to finish slightly lower in yield by the end of play. 10 year yields were 20bps
wider by 9am BST but also rallied all the way back to close just 1bps higher. The initial selloff was all driven by anxiety around the first round of Budget talks which concluded on Friday evening.

The budget negotiations will rest on whether Finance Minister Giovanni Tria can control the spending plans of the new administration. Tria has previously pledged to keep the deficit within the EU’s limit of 3% of GDP and said in a statement after the meeting that the plans are within this. PM Conte said after the meeting (which included Tria, Deputy Premier and Five Star Movement leader Luigi Di Maio, Foreign Minister Enzo Moavero, Europe Minister Paolo Savona and Cabinet Undersecretary Giancarlo Giorgetti) that “We have agreed on the economic and financial planning that will be presented in September,” Apparently there is a follow up budget meeting on Wednesday so we’ll see if the rhetoric continues to be relatively tame.

Elsewhere over the weekend, UK Trade Secretary Liam Fox suggested the chance of a no-deal Brexit was as high as 60% due to the intransigence of the EU. For us this seems to be part of a wider tactic by the British Government to show  they’re willing to tolerate a no-deal scenario in order to strengthen their negotiating hand. So not one to be totally alarmed about at the moment but lots of fraught discussions to come.

As for other snippets back on Friday, the June trade balance reading in the US came in broadly as expected with a deficit of $46.3bn. Interestingly there was a big miss for the ISM non-manufacturing for July at 55.7 (vs. 58.6 expected) – a fall of 3.4pts from June. The details were similarly eye catching. New orders fell the most in 2 years (57.0 from 63.2) and business activity the most since the GFC (56.5 from 63.9). Employment (56.1 from 53.6) and prices paid (63.4 from 60.7) were sharply higher however so the overall read-through including the commentary wasn’t quite so negative.

Meanwhile the remaining PMIs were also out on Friday. In Europe the Eurozone services was revised down 0.2pts to 54.2 leaving the composite at 54.3 and down 0.6pts from June. The UK’s composite was confirmed at a weaker than expected 53.6 (vs. 54.9 expected) not helped by a soft services print (53.5 vs. 54.7 expected – down from 55.1 in June) while in the US the services reading was revised down 0.2pts to 56.0, leaving the composite at 55.7.

It’s a quiet start to the week for data today. In Europe, we get June factory orders and the July construction PMI for Germany along with July new car registrations for the UK and the August Sentix investor confidence survey reading for the Eurozone. There is nothing of note in the US, while in China the Q2 current account balance reading will be out at some stage. It’s worth noting that the first phase of the restoration of US economic sanctions on Iran are also scheduled to take effect from Monday. HSBC, SoftBank and UniCredit are all due to release earnings.

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Canada’s Biggest Producer Cuts Drilling As Heavy Oil Price Tumbles

Authored by Tsvetana Paraskova via Oilprice.com,

Canada Natural Resources, the largest producer, is allocating capital to lighter oil drilling and is curtailing heavy oil production as the price of Canadian heavy oil tumbled to a nearly five-year-low relative to the U.S. benchmark price.

Due to the transportation bottlenecks, the discount at which Western Canadian Select (WCS) – the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta – trades relative to WTI has been more than US$20 this year.

On Thursday, that discount blew out to US$30.80 a barrel – the largest WCS-WTI differential since December 2013, according to data compiled by Bloomberg.

Canada Natural Resources said on Thursday in its Q2 results release that its North America crude oil and natural gas liquids (NGLs) production in the second quarter dropped by 3 percent from the first quarter of 2018, primarily as a result of production curtailments and shut-in volumes of around 10,350 bpd as well as reduced drilling activity and delayed completion and ramp up of certain primary heavy crude oil wells drilled in Q1 and Q2.

“Due to current market conditions the Company has exercised its capital flexibility by shifting capital from primary heavy crude oil to light crude oil in 2018, resulting in an additional 7 net light crude oil wells targeted to be drilled in the second half of the year. Primary heavy crude oil drilling was reduced by 24 net primary heavy crude oil wells in Q2/18, with an additional 35 primary heavy crude oil well reduction targeted for the second half of the year,” Canada Natural Resources said yesterday.

Canada is producing record amounts of heavy oil from the oil sands and its economic recovery is driven by the oil industry, but drillers are finding it increasingly difficult to get this oil to market because pipelines are running at capacity and new ones are finding opposition from various groups.

Until recently, production growth continued despite the pipeline capacity constraint that pressured Canadian crude into a major discount to WTI. Now, the Petroleum Services Association of Canada has cut its well-drilling forecast for this year to a number that will be lower than the 2017 figure. The body expects 6,900 new wells to be drilled in 2018, compared with 7,400 wells predicted in the April forecast. The 2018 figure is also 200 wells lower than that for 2017 as the pipeline shortage begins to bite.

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China Blinks: Why Beijing’s Currency Intervention Is Doomed To Failure

The People’s Bank of China announced Friday a re-introduction of reserve requirements on FX forwards trading which it had eliminated last September just after the Yuan soared against the dollar – a move aimed at taking pressure off the renminbi as the USDCNY rapidly closed in on 7.00. However, as ING’s Chris Turner writes, this looks only a temporary reprieve for the renminbi as all prior PBoC attempts to stem CNY weakness haven’t been all that successful in reversing a trend.

Reserve requirements back in play

Since 2015 the PBOC has used reserve requirements on FX forward transactions as a tool to control ‘macro-financial risks’. The measure puts a 20% required reserve ratio for financial institutions when conducting onshore CNY forwards business on behalf of customers. The move makes it effectively costlier for the market to fund short CNY positions through the forwards market.

This measure was first used for domestic financial institutions in October 2015 and then broadened to include foreign institutions in July 2016 when USD/CNY was pushing above 6.70. These reserve requirements were scrapped when USD/CNY was dipping below 6.50 in September 2017 amidst broad dollar weakness.

Prior PBoC attempts to stem CNY weakness haven’t been all that successful

ING, Bloomberg

Why now?

It seems pretty clear that these measures have been introduced to trigger a squeeze in short CNY positions and keep USD/CNY away from 7.00. This reserve requirement is a relatively soft measure and avoids the bigger stick of FX intervention or rate hikes at a time policymakers are delicately deleveraging the economy.

We also think Chinese policymakers had a bad experience when USD/CNY was last trading near 7.00 in late 2016. Investors struggled to digest the message at the time that the renminbi was stable versus the basket and that the move to 7.00 was all about the dollar. That message will be so much harder to deliver today given the 6% decline in the renminbi against its trading basket since late June and the uncertainty over whether this is a market-led decline or the PBOC is using the renminbi as a weapon in the current trade war.

Temporary reprieve

USD/CNH has sold off 1% on today’s (Friday) news, but we doubt investors will be encouraged to return to Renminbi exposure anytime soon.

US Commerce Secretary Wilbur Ross has made the US trade position clear by outlining that Washington wants to create a situation where it’s more painful for China to continue current practices than it is for China to reform.

An increase in the proposed tariff rate to 25% on the next $200bn worth of Chinese imports looks likely over coming weeks. And combined with firm US rates and what look like continued dollar strength over coming months, it looks as though the PBOC will be forced to use more of its currency toolkit to prevent USD/CNY going through 7.00.

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South African Ruling Party Calls All White People “Murderers”

Update: The party has subsequently deleted the tweet and said it was quoting someone else, though lawyers say they can still be held accountable.

Via The Citizen,

A tweet on the ANC’s parliamentary Twitter account shocked many on Thursday when it appeared to call all white people murderers.

The tweet, which has subsequently been deleted, read: “The biggest mistake we are making is to consult murderers. White people are 9% of the population, they own 79% of land. They never came and consulted us for the land. If they want us to forgive them now, then let us share the land, the mineral resources.”

It was not in quotation marks, so when it was read out of context it came as a bombshell to many, who assumed that this was the view of the ANC itself.

The party then told its critics that it had merely been quoting the remarks of one of the members of the public who had come to parliament’s constitutional review committee’s public hearing on the review of section 25 of the constitution that was being held in the town of Beaufort West in the Western Cape.

However, this didn’t sit well with critics, who pointed out that the party should have made that clearer, by at the very least putting the statement in quotation marks.

Subsequent to the criticism, that was what the account began to do, in an attempt to make it clearer that it was not necessarily expressing the views of the ANC itself.

Nevertheless, this still didn’t well with some. A legal expert, Helene Eloff, also weighed in to make it clear that the ANC had blundered and could be held liable for the view expressed, since a disclaimer can’t be applied retrospectively.

The ANC in the Western Cape on Saturday congratulated the joint constitutional review committee for successfully conducting public hearings into whether the constitution should be amended to allow for expropriation of land without compensation.

The committee had held public meetings across the Western Cape in the past week, and on Saturday finished the public consultation process with a public meeting in Goodwood in Cape Town.

In a statement, the party said:

“The people of the Western Cape have spoken. From Oudtshoorn to Beaufort West, Citrusdal to Swellendam, and finally, the Cape Metro, our people have unequivocally and overwhelmingly said section 25 of the constitution must be amended in order to fulfil the broad and fair land ownership across the province.

“The ANC is proud of its members who came out in numbers and made solid contributions in the public hearings. Our members and supporters are saying land reform through the amendment of section 25 will open the province’s productive forces and, contrary to popular belief, will actually increase agricultural productivity and be the catalyst for the broad industrialisation of our country as millions get absorbed into mainstream economy.

“Our people are saying land is the basis for all economic activity and exclusion of the majority of citizens from land ownership prevents them from full participation in the economy. There is a clear message that land expropriation will have a positive impact also on social challenges as people are freed from burden of landlessness and lack of assets.”

The statement added:

“Our people believe that instead of affecting food security, land expropriation will actually expand it. Instead of causing social and economic upheaval, new economic players will emerge, and our economy may experience a leap forward.”

The party said that contrary to the fears of some, including right-wing organisations, the ANC had made it clear throughout the process, and in its National and Provincial Land Summits, that “not only are we concerned about food productivity, we seek maximisation of all agricultural land, so instead of removing some productive forces from the system, more will be added”.

Parliament’s joint constitutional review committee on Saturday concluded the provincial public hearings into section 25 of the Constitution in the Cape Metropolitan Area with one of the biggest gatherings to date.

The committee, which held a total 34 hearings in all nine provinces of South Africa, was instructed by the National Assembly and the National Council of Provinces to ascertain whether a review of this section and other clauses were necessary, to make it possible for the state to expropriate land in the public interest without compensation. It was also asked to propose the necessary constitutional amendments where necessary.

Hundreds of members of the public attended Saturday’s hearings at the Friend of God Church in Goodwood. The church has a capacity of 1,500. Long queues were still seen outside during the hearing and, as people finished submissions, they made space for others to come into the venue.

Co-chairperson of the committee Vincent Smith said that following the hearings, the committee would assess the hundreds of thousands of written submissions it received after which it will invite those submitters, who indicated that they wanted to make oral presentations, to hearings at parliament.

Once the process had been concluded, the multiparty committee would deliberate extensively on this matter before it reported to both houses of Parliament.

The ruling ANC this week announced that it was going ahead with its intention to review the contentious section.

In a late address on Tuesday, ANC leader and SA President Cyril Ramaphosa said his party will, through the “parliamentary process, finalise a proposed amendment to the Constitution that outlines more clearly the conditions under which expropriation of land without compensation can be effected”.

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92% Of Turks Believe In Human Rights…

A new Ipsos MORI poll of 23,249 adults in 28 countries has explored feelings about human rights across the world.

As Statista’s Niall McCarthy notes, one of its core findings is that 43 percent of people globally agree that everyone in their country enjoys the same basic human rights. When asked if there is such thing as human rights, opinion varied hugely by country, with a selection of countries polled visualized on the following infographic.

Infographic: Where People Do And Don't Believe In Human Rights | Statista

You will find more infographics at Statista

In Turkey, 92 percent of those polled said there is such thing as human rights while only five percent said there is not.

85 percent of Chinese respondents also agreed there is such thing as human rights, along with 80 percent of Americans.

Interestingly, only 29 percent of people in Poland say there is no such thing as human rights.

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Britain Welcomes Radicals – Again And Again

Authored by Douglas Murray via The Gatestone Institute,

It is more than a year since the UK suffered three Islamist terrorist attacks in quick succession. It is also more than a year since the Prime Minister, Theresa May, stood on the steps of Downing Street and announced that ‘enough is enough‘.

Yet the striking aspect of the last year has been how little has changed.

Consider, for instance, the lax controls on extremist preachers that the UK had in place in 2016. As reported here at the time, in the summer of that year, two Pakistani clerics performed a tour of the UK. Their seven-week roadshow took in numerous UK hotspots including Rochdale, Rotherham, Oldham and the Prime Minister’s own constituency of Maidenhead. The two clerics — Muhammad Naqib ur Rehman and Hassan Haseeb ur Rehman — began their tour by visiting the Archbishop of Canterbury, Justin Welby, at Lambeth Palace for a meeting on ‘interfaith relations’.

How expert are these two clerics at ‘interfaith relations’? Well, they are so good that their main credential is their enthusiastic support for the murderer of somebody accused of ‘blasphemy’. Yes — these two preachers are famed in Pakistan for having supported Mumtaz Qadri, the murderer of the progressive Punjab Governor Salman Taseer. Because Taseer believed in a relaxation of Pakistan’s barbaric blasphemy codes (specifically he opposed the execution of a Christian woman — Asia Bibi — who was falsely accused of blaspheming the Muslim god), Qadri — who was meant to be guarding the governor — instead murdered Taseer in 2011. Qadri himself was subsequently tried, sentenced to death and executed by the state. After Qadri’s funeral in Rawalpindi, Hassan Haseeb ur Rehman whipped up the crowds of the murderer’s mourners. Rehman acclaimed the murderer Qadri as a ‘shaeed’ (martyr). The crowd subsequently chanted slogans such as ‘Qadri, your blood will bring revolution’ and ‘the punishment for a blasphemer is beheading’.

Pictured: Salman Taseer, the late Governor of Punjab, Pakistan, accompanied by his wife Aamna, prepares to meet the US Ambassador to Pakistan on November 6, 2010. (Image source: Salman Taseer/Flickr)

Despite criticism from Shahbaz Taseer (the son of the man whom Qadri had murdered), the UK government had no problem allowing into the UK these two men who, as Shahbaz Taseer said, ‘teach murder and hate’. On their tour of the UK in 2016, these two preachers were reported to have spoken to mosques packed with worshipers.

A forgiving person might point out that the Archbishop of Canterbury does not know what he is talking about when he claims that Rehman and Rehman are interfaith experts, and that until 2016 the UK border agencies and other authorities could not have known that the two men are preachers of incitement in their home country. A forgiving person might even have thought all these authorities were naïve but would not be so naïve again.

In 2017, however, it did happen again. In July of last year the clerics were back, ostensibly speaking at a conference on ‘counter-terrorism’. The idea that either man would know how to counter terrorism when the only expertise that either man has is in encouraging terrorism makes their presence at such an event insulting to anyone involved in countering terrorism. Even more so given that their main facilitator in the UK would appear to be the head of the one-man organisation calling itself the ‘Ramadan Foundation’, run by Mohammed Shafiq, a man with his own dark history of extremism and incitement.

A cynical person might assume that the UK authorities had let these radical preachers in the first time because they were ignorant, and the second time perhaps because they were slow. But how to account for events just last month? In July of this year, Hassan Haseeb ur Rehman was in the UK yet again — and againin Oldham. Also again, his visit appears to have been facilitated by the one-man-band, Mohammed Shafiq. The latest bogus ‘counter-terrorism conference’ at which he was speaking also involved not only local MP (and Shadow Home Office Minister) Afzal Khan, but also the father and grandmother of one of the victims of last year’s Islamist suicide bomb attack at the Manchester Arena.

Hassan Haseeb ur Rehman, in his address at the conference, reportedly said:

“I stand before you to say we as Muslims stand against terrorism, these vile people are enemies of Islam and the whole of humanity.

“My mission in life is to promote tolerance and peace, you can see from the thousands who attend my events in Pakistan there is a yearning for the true message of Islam which is Peace and tolerance.

“I am honoured to visit Manchester to remember the victims and their families of the Manchester Arena attack and say we stand with you always”.

Of course the thousands who attended his events in Pakistan did not always hear this message of ‘peace and tolerance’. As the evidence of the aftermath of Qadri’s funeral showed, they heard a message of vengeance, blasphemy, medievalism and violence.

But that is Hassan Haseeb ur Rehman.

The bigger question is for the UK — and specifically for the Prime Minister, Theresa May.

In the past year, the UK has banned a fair number of people from entering the country. It has, for example, barred the Canadian activist and blogger Lauren Southern. It has also banned the Austrian activist and ‘identitarian’ Martin Sellner. Whatever anyone’s thoughts on either of these individuals, it is not possible to claim that either has ever addressed a rally of thousands of people which they have used to extol a murderer. If either of them had done so, a ban from the UK might be explicable. Yet Hassan Haseeb ur Rehman has done these things — and yet has been allowed into the UK three years in a row. Even in the year after Theresa May pretended that ‘enough is enough.’

Perhaps the British government thinks that people do not notice such things. Perhaps the organisers of the ‘counter-terrorism conference’ in Manchester think that people are taken in by such pretences. Perhaps they think that the people of Britain do not mind. But the people of Britain do notice and I rather suspect that they do mind. Very much, in fact.

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Did DARPA Just Develop Autonomous Drones To Hunt Humans?

The Defense Advanced Research Projects Agency’s (DARPA) latest creation of the Fast Lightweight Autonomy (FLA) program, a new class of algorithms for quick drone navigation in cluttered environments, reminds us of the 2013 American post-apocalyptic science fiction film, Oblivion.

Here is a short clip of Jack Harper (Tom Cruise) in the movie, battling against killer drones that use artificial intelligence to navigate and hunt ‘alien scavengers’, and moments before this scene, it was revealed to Harper that alien scavengers were actually humans.

While DARPA’s FLA program has yet to mount a directed energy weapon with enough kilowatts to blast a human into smithereens, it seems like the agency responsible for emerging technologies for use by the military has entered into Phase two flight tests — demonstrating advanced algorithms in drones could autonomously perform tasks dangerous for humans — such as pre-mission reconnaissance on the modern battlefield in a hostile urban setting.

So, yes, this confirms DARPA is developing human-hunting drones, however, it is more on a reconnaissance basis, rather than human-killing drones in Oblivion.

According to the DARPA press release, Phase one flight tests were completed in 2017, as engineers were able to refine their software and improve sensors on the drones to increase efficiency. Experiments were conducted in a controlled environment at the Guardian Centers training facility in Perry, Georgia, and aerial tests showed the quadcopters were able to navigate in urban settings as well as indoors autonomously. Some of the autonomous flight scenarios included:

  • Flying at increased speeds between multi-story buildings and through tight alleyways while identifying objects of interest;

  • Flying through a narrow window into a building and down a hallway searching rooms and creating a 3-D map of the interior; and

  • Identifying and flying down a flight of stairs and exiting the building through an open doorway.

“The outstanding university and industry research teams working on FLA honed algorithms that in the not too distant future could transform lightweight, commercial-off-the-shelf air or ground unmanned vehicles into capable operational systems requiring no human input once you’ve provided a general heading, distance to travel, and specific items to search,” said J.C. Ledé, DARPA program manager.

“Unmanned systems equipped with FLA algorithms need no remote pilot, no GPS guidance, no communications link, and no pre-programmed map of the area – the onboard software, lightweight processor, and low-cost sensors do all the work autonomously in real-time.”

“FLA’s algorithms could lead to effective human-machine teams on the battlefield, where a small air or ground vehicle might serve as a scout autonomously searching unknown environments and bringing back useful reconnaissance information to a human team member. Without needing communications links to the launch vehicle, the chances of an adversary detecting troop presence based on radio transmissions is reduced, which adds further security and safety,” Ledé said.

He pointed out the technology could be useful in a search-and-rescue scenario, where FLA-equipped drones could scan in radio silence behind enemy lines for a downed pilot, crew members, and even lost soldiers.

During Phase two, a team of engineers from the Massachusetts Institute of Technology and Draper Laboratory streamlined the number of onboard sensors to lighten the drone for higher speed.

“This is the lightweight autonomy program, so we’re trying to make the sensor payload as light as possible,” said Nick Roy, co-leader of the MIT/Draper team. “In Phase 1 we had a variety of different sensors on the platform to tell us about the environment. In Phase 2 we really doubled down trying to do as much as possible with a single camera.”

DARPA asked the team of engineers to include software that builds a geographically accurate map of the surrounding area as the drone flies. Using advanced software, the drone recognized roads, buildings, cars, and other objects and identified them as such on the map, providing clickable images as well. After the mission, the drone returned to home base and allowed the human team members to download the media content.

“As the vehicle uses its sensors to quickly explore and navigate obstacles in unknown environments, it is continually creating a map as it explores and remembers any place it has already been so it can return to the starting point by itself,” said Jon How, the other MIT/Draper team co-leader.

DARPA asked a separate team of engineers from the University of Pennsylvania to reduce the drone’s size and weight for autonomous flight indoors. UPenn’s quadcopter ” took off outside, identified and flew through a second-story window opening with just inches of width clearance, flew down a hallway looking for open rooms to search, found a stairwell, and descended to the ground floor before exiting back outside through an open doorway,” said the press release.

The drone’s reduced weight and size brought new challenges for engineers since the sensors and computers used in Phase one were too large for the smaller vehicle.

“We ended up developing a new integrated single-board computer that houses all of our sensors as well as our computational platform,” said Camillo J. Taylor, the UPenn team lead. “In Phase 2 we flew a vehicle that’s about half the size of the previous one, and we reduced the weight by more than half. We were able to use a commercially available processor that requires very little power for the entirety of our computational load.”

An important feature of the UPenn drone is its ability to create a detailed 3-D map of unknown indoor areas, avoid obstacles and have the ability to enter and exit buildings, while hunting for humans.

“That’s very important in indoor environments,” Taylor said. “Because you need to actually not just reason about a slice of the world, you need to reason about what’s above you, what’s below you. You might need to fly around a table or a chair, so we’re forced to build a complete three-dimensional representation.”

The next step, according to Taylor, is for the FLA program to be transferred to the Army Research Laboratory at the Adelphi Laboratory Center in Adelphi, Maryland for further development for potential military applications.

…And if these advancements are not mind-boggling enough, it is only a matter of time before the FLA program could be integrated into drones capable of autonomously hunting America’s enemies in the homeland or in some hybrid war overseas, sort of like in the movie Oblivion.

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