Of the 1,000 or so California bills that likely will become law this year, virtually every measure will give government more power to do one thing or another. The consensus in the Capitol is that the government “must do something” about any problem that pops into a lawmaker’s mind. Most bills deal with relatively small expansions, but make no mistake about it: state officials want to seize control of big stuff, too, such as the healthcare system.
However, lawmakers routinely shrug at the crises that afflict every government-controlled system in the state. The public pension funds, which provide lush retirements to state and local workers, are awash in “unfunded liabilities” (debt), thus driving municipal budgets toward the fiscal cliff and crowding out public services. Nothing to see there. California’s public schools range from incompetent to mediocre, but nothing ever changes. No one listens.
California’s leaders ignore the demonstrably true maxim that the more heavily the government controls anything, the more likely it’s going to be a disaster. Take recent reports about our prison system. “Nearly 1,000 men and women in California prisons overdosed last year and required emergency medical attention in what officials acknowledge is part of an alarming spike in opioid use by those behind bars,” the San Francisco Chroniclereported on May 5.
Prisons are tough places, but think about that revelation. They are among the most tightly controlled environments on Earth, yet correction officials can’t figure out how to deal with dramatic spikes in the number of inmates who are dying from drug overdoses and alcohol poisoning. Not only is it illegal for people to have those substances, but the California Department of Corrections and Rehabilitation controls every point of entry.
Such substances are as plentiful as ever. That’s true even though former Gov. Jerry Brown implemented a $14 million strategy to plug the drug pipeline at two Kings County facilities—and after a federal prison oversight official announced a $252 million medication plan designed to battle overdoses. Gov. Gavin Newsom’s budget would spend an additional $233 million over three years to deal with the drug problem in a variety of ways, including education programs.
California’s prisons have every manner of scanner, camera and security system. They use body scans, visitor searches, drug-sniffing dogs and drones to patrol the place. The inmates are a captive audience and can, quite obviously, be subjected to any anti-drug program that officials can concoct. And still the problem festers.
Officials say inmates’ friends throw drug-filled soccer balls, drones and other such items over the walls of some facilities. That shouldn’t be hard to stop. Most drugs apparently are coming from visitors and employees. Unions have been accused of imposing obstacles to more thorough searches of guards. That’s another feature of government: you can’t change anything without the unions’ OK.
This is the nature of government. It can’t stop the flow of illicit substances in a sealed and militarized building that’s under its total control. It throws hundreds of millions of dollars at the problem. It holds hearings, as officials ponder what to do. Decades from now, when some new type of drug is all the rage, prison officials surely will be theorizing about how to control it. Only the name of the official task force and the size of the budget request will be different.
Back in 2016, The Los Angeles Times investigated a surge in drug-related inmate deaths not just in state prisons, but on death row. As the report explained, “The condemned inmates…are among the most closely monitored in the state” and “spend most of their time locked down, isolated from the rest of the prison system under heavy guard with regular strip searches and checks every half hour for signs of life.” They can, however, obtain methamphetamine and heroin.
Meanwhile, legislators keep passing more laws cracking down on the substances that the general, non-imprisoned population can legally purchase. The latest: Senate Bill 38 would ban flavored-tobacco products, including most vaping liquids. Obviously, Prohibition’s lessons have been lost in California. Do state officials really think that they can keep menthol cigarettes and vape pens off of our street corners and out of the hands of teenagers?
Not only is the state incapable of keeping drugs out of its prisons, it is incapable of adequately maintaining its own prison infrastructure. Reporting on a Stockton inmate’s death last year from Legionnaires’ disease, The Sacramento Beeexplained this month that, “Incidents of tainted water have spawned inmate lawsuits, expensive repairs, heft bills for bottled water and fines, putting a multimillion-dollar burden on the taxpayer-funded correction system.”
At the very least, shouldn’t these scandals give lawmakers pause about their ability to fix societal problems? If they can’t keep heroin off of death row, then maybe they should rethink their ability to control the rest of us.
This column was first published in the Orange County Register.
Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut@rstreet.org.
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Of the 1,000 or so California bills that likely will become law this year, virtually every measure will give government more power to do one thing or another. The consensus in the Capitol is that the government “must do something” about any problem that pops into a lawmaker’s mind. Most bills deal with relatively small expansions, but make no mistake about it: state officials want to seize control of big stuff, too, such as the healthcare system.
However, lawmakers routinely shrug at the crises that afflict every government-controlled system in the state. The public pension funds, which provide lush retirements to state and local workers, are awash in “unfunded liabilities” (debt), thus driving municipal budgets toward the fiscal cliff and crowding out public services. Nothing to see there. California’s public schools range from incompetent to mediocre, but nothing ever changes. No one listens.
California’s leaders ignore the demonstrably true maxim that the more heavily the government controls anything, the more likely it’s going to be a disaster. Take recent reports about our prison system. “Nearly 1,000 men and women in California prisons overdosed last year and required emergency medical attention in what officials acknowledge is part of an alarming spike in opioid use by those behind bars,” the San Francisco Chroniclereported on May 5.
Prisons are tough places, but think about that revelation. They are among the most tightly controlled environments on Earth, yet correction officials can’t figure out how to deal with dramatic spikes in the number of inmates who are dying from drug overdoses and alcohol poisoning. Not only is it illegal for people to have those substances, but the California Department of Corrections and Rehabilitation controls every point of entry.
Such substances are as plentiful as ever. That’s true even though former Gov. Jerry Brown implemented a $14 million strategy to plug the drug pipeline at two Kings County facilities—and after a federal prison oversight official announced a $252 million medication plan designed to battle overdoses. Gov. Gavin Newsom’s budget would spend an additional $233 million over three years to deal with the drug problem in a variety of ways, including education programs.
California’s prisons have every manner of scanner, camera and security system. They use body scans, visitor searches, drug-sniffing dogs and drones to patrol the place. The inmates are a captive audience and can, quite obviously, be subjected to any anti-drug program that officials can concoct. And still the problem festers.
Officials say inmates’ friends throw drug-filled soccer balls, drones and other such items over the walls of some facilities. That shouldn’t be hard to stop. Most drugs apparently are coming from visitors and employees. Unions have been accused of imposing obstacles to more thorough searches of guards. That’s another feature of government: you can’t change anything without the unions’ OK.
This is the nature of government. It can’t stop the flow of illicit substances in a sealed and militarized building that’s under its total control. It throws hundreds of millions of dollars at the problem. It holds hearings, as officials ponder what to do. Decades from now, when some new type of drug is all the rage, prison officials surely will be theorizing about how to control it. Only the name of the official task force and the size of the budget request will be different.
Back in 2016, The Los Angeles Times investigated a surge in drug-related inmate deaths not just in state prisons, but on death row. As the report explained, “The condemned inmates…are among the most closely monitored in the state” and “spend most of their time locked down, isolated from the rest of the prison system under heavy guard with regular strip searches and checks every half hour for signs of life.” They can, however, obtain methamphetamine and heroin.
Meanwhile, legislators keep passing more laws cracking down on the substances that the general, non-imprisoned population can legally purchase. The latest: Senate Bill 38 would ban flavored-tobacco products, including most vaping liquids. Obviously, Prohibition’s lessons have been lost in California. Do state officials really think that they can keep menthol cigarettes and vape pens off of our street corners and out of the hands of teenagers?
Not only is the state incapable of keeping drugs out of its prisons, it is incapable of adequately maintaining its own prison infrastructure. Reporting on a Stockton inmate’s death last year from Legionnaires’ disease, The Sacramento Beeexplained this month that, “Incidents of tainted water have spawned inmate lawsuits, expensive repairs, heft bills for bottled water and fines, putting a multimillion-dollar burden on the taxpayer-funded correction system.”
At the very least, shouldn’t these scandals give lawmakers pause about their ability to fix societal problems? If they can’t keep heroin off of death row, then maybe they should rethink their ability to control the rest of us.
This column was first published in the Orange County Register.
Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at sgreenhut@rstreet.org.
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In the eight episodes of the Netflix docu-series Losers, elite athletes get knocked out, trounced, screwed over, bitten, and booed. With different creative choices, the whole thing could have been a syrupy stew of inspirational insipidness, in which all of the losers turn out to be winners after all.
Instead, there’s not a lot of smiling—but there are also very few tears. The series is shot with a pleasingly uniform aesthetic and an eclectic mix of still-trim former athletes in nice sweaters reflecting on their losses. The mix of stories is varied and somewhat unexpected: I had clear memories of the near-misses of the backflipping French figure skater Surya Bonaly, for instance, but knew nothing about the cutthroat world of 1980s Canadian curling or desert long-distance running.
If there’s a takeaway, it’s an echo of Schumpeter’s observation about the marketplace’s gale of creative destruction, in which economic structures are constantly destroying themselves and being created anew. Or Bradley Cooper crooning in A Star Is Born that “maybe it’s time to let the old ways die.” Sometimes you lose because the game is rigged or because someone else is better than you. Other times you lose because the game you’re playing is being constantly reinvented around you. That can be good or bad, but it’s always interesting.
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Microsoft will reportedly become the latest tech giant to ‘suspend’ its relationship with Huawei, according to the South China Morning Post.
One week after Washington first imposed strict limits on Huawei and its affiliates that will make it almost impossible for American firms buy Huawei products or sell American-made components to the company, a handful of chipmakers, telecoms companies and tech firms (Alphabet) have reportedly scaled back or severed their relationship with Huawe.
Though Microsoft said yesterday that it hadn’t made a decision, the SCMP reported Friday morning that Microsoft had decided to stop accepting new orders from Huawei for operating systems and other content-related services: Windows operating systems for laptops and other content-related services. The US software giant has already removed Huawei laptops from its online stores.
Like with Google’s Android ban, Windows will continue to work on existing Huawei PCs.
The Post understands that the Windows operating systems equipped on existing Huawei PCs will not be affected and will still be eligible for updates and security protections, according to one of the people. Meanwhile, Microsoft’s services team for the Chinese company has already moved out of its Shenzhen-based headquarters.
One of SCMP’s sources also insisted that the suspension may only be ‘temporary’, and that the relationship between Microsoft and Huawei would likely endure.
“This does not mean that Microsoft is not cooperating with Huawei any more. The suspension in business between the two companies could be just temporary,” said one of the people.
As more companies suspend their relationship with Huawei, the company will soon face its first test of global capital markets’ confidence in the Chinese telecoms giant, the company is said to be preparing to seek its first syndicated loan since tensions with Washington boiled over, per BBG. The latest fundraising attempt comes about four months after Huawei obtained a 14 billion yuan loan from five Chinese banks. Back in September, the company raised $1.5 billion in an offshore loan from a group of ten mostly international banks.
Whether the company borrows in dollars or HKD, it’s borrowing costs are likely to be significantly higher than in the not-too-distant past. Since Washington put Huawei on a trade blacklist, the company’s bonds have been hammered lower, sending its borrowing costs higher.
Beijing continues to back Huawei while denying accusations that Huawei is a tool of the state security apparatus. Responding to Mike Pompeo’s claim that Huawei’s CEO was lying about the company’s ties to Beijing, Chinese Foreign Ministry spokesman Lu Kang said Friday morning during his regular press briefing that US politicians continue to “fabricate lies to try to mislead the American people.”
“Recently, some U.S. politicians have continually fabricated rumors about Huawei but have never produced the clear evidence that countries have requested,” he said, according to Reuters.
Global Times editor Hu Xijin, one of the most closely watched mouthpieces for Beijing, pushed back at President Trump’s claim from Thursday that the trade spat would come to a swift conclusion, saying “this kind of confidence believing that the US can quickly pres China to submit is the biggest obstacle to reaching a deal.”
President Trump on Thursday predicted a swift end to China-US trade war. This kind of confidence believing that the US can quickly press China to submit is the biggest obstacle to reaching a deal. The trade war may last for a long time. I think people better not hold illusion.
Another Chinese envoy reiterated on Friday that there are no plans for a Trump-Xi meeting, sending US stock futures reeling. If relations between Washington and Beijing remain frosty, Japanese officials might need to borrow a few strategies from the classic American film ‘The Parent Trap’ to ‘facilitate a dialogue’ and save the global economy.
via ZeroHedge News http://bit.ly/2YIlRPl Tyler Durden
If yesterday global markets were a “sea of red”, roiled by a wave of selling as traders digested all the latest trade war escalations (which, as Rabobank said, it was getting impossible to keep up with all of them) and latest economic headwinds, today is shaping up as a whipsaw day, as US equity futures are sharply higher…
… while market are, as one would expect, a “sea of green.”
While there was no specific catalyst, stocks edged higher on Friday and oil prices bounced on the same recurring trigger – “optimistic” comments by President Trump, who repeated previous reports that he would meet China’s Xi in June at the G-20 meeting, which boosted “hopes of progress” in U.S.-China trade talks, especially after Trump once again predicted a quick trade deal with China, one that could include Huawei; elsewhere, Theresa May’s expected resignation briefly sent sterling fluctuating wildly.
Meanwhile, in the latest trade war salvo, the Commerce Department said late on Thursday it was proposing a new rule to impose anti-subsidy duties on products from countries that undervalue their currencies, in another move that could penalize Chinese products. This, too, was broadly ignored by markets.
Despite today’s rebound, growing trade tensions hit global markets this week, with the MSCI All Country index in line for a more than 1% fall in its third week in the red, its longest losing streak since a rout in December.
The MSCI World index gained 0.2% on Friday following the overnight comments from Trump, who said issues with China’s Huawei Technologies Co Ltd might be resolved within the framework of a broader trade deal. However, no high-level talks have been scheduled and Trump also labeled the telecommunications company “very dangerous”. As one would expect, the algos only took the positive spin from the speech.
After a poor start, following yesterday’s US stock rout, Asian markets were initially torn between fears of a more protracted U.S.-China trade war and hopes the world’s two largest economies would reach a deal soon (spoiler alert: they won’t). China and Hong Kong stocks climbed around 0.3% while Japan’s Nikkei fell 0.2% as the yen surge took the USDJPY as low as 109.46.
“It might be a step too far that there is optimism over a trade deal but there may be a little more optimism over the way talks are going,” Investec chief economist Philip Shaw said.
European stock markets were more upbeat. The pan-regional Euro Stoxx 600 index, Germany’s DAX, France’s CAC and Britain’s FTSE 100 all rose around 0.8 percent. The best performing sector was the Stoxx 600 Automobiles & Parts Index, which rose 1.5% in early trade, the best performing sector on the broader gauge, as China outlined details on earlier announced car-purchase tax cuts. Among battered European carmakers, Volkswagen shares +1.8%, Fiat Chrysler +1.7%, Peugeot +5%, Daimler +1.4%; among suppliers, Faurecia +2.5%, Valeo +1.5%, Hella +1.5%, Continental +1.3%.
The European auto rally echoed similar action in Chinese automakers, which jumped in afternoon trading after China’s Ministry of Finance issued a statement detailing tax subsidies for buying cars. However, the rally quickly fizzled out as analysts pointed out that the new statement merely provided details on tax cuts already announced last year.
In a remarkable move on Thursday, US yields plunged and curves inverted as the 10-year Treasury yield hit 2.292% the lowest level since mid-October 2017. It has since rebounded modestly, and last stood at 2.3220%. “Fixed income safe-haven sovereign markets are the asset of choice at the moment, and although we had a recovery in European stock markets this morning, there has not been much of a retracement at all in (German) bunds or (British) gilts,” Investec’s Shaw said. While not as “kinked” as yesterday, the 3Month-10Year curve remained inverted to the tune of -3bps, flashing another warning sign about the health of the world’s biggest economy.
The more positive trade chatter emanating from the China-US trade dispute has seen debt futures lower across the curve, with 10yr debt futures trading with losses of over 9 ticks and printing a session base of 124-07 in the EU morning. This comes as yields recover following yesterday’s print of fresh 10yr YTD lows at 2.292%, with yields up by just over 4 bps. Traders will now be looking ahead to US durable goods data to round off the week.
Elsewhere, euro-area bonds traded, with Italian debt rallying on conciliatory comments by Salvini
“The fear now is that the economic recovery from the poor second half of 2018 may be dying before it even emerges,” said Peter Schaffrik, global macro strategist at RBC Capital Markets.
The biggest political event so far, was the widely expected announcement from Theresa May that she would resign on June 7, sending the pound on a rollercoaster ride. It popped up nearly half a percent against the dollar after the announcement but the gains were short lived and it subsequently traded back at $1.2672, and not far off the day’s lows versus the euro, only to rebound again after, and then slump once more.
According to online bookies, May will be succeeded by a Eurosceptic leader, most likely Boris Johnson, increasing chances of a no-deal Brexit, although some analysts saw a rising chance the UK will be compelled to request further Brexit delay, which would raise probability of early general election or second referendum.
On Thursday, the pound had suffered its 14th consecutive day of losses against the euro, its longest losing streak on record, although that streak may end today.
Elsewhere in currency markets, the dollar slipped against most peers as soft US data saw a short-squeeze in the euro extending ahead of a long weekend in the U.S. and U.K. The Australian dollar fell as investors positioned for RBA rate cuts with some analysts hinting at QE coming down under. The euro, which on Thursday slumped to levels last seen in May 2017 as a recovery in euro zone business activity was weaker than expected, traded at $1.1182 on Friday.
A quick note on the yuan, which after a startling slide in the first half of May, has found its feet this week and stayed in a narrow range, just as the central bank would like. The stabilization came as the People’s Bank of China barely budged on the daily reference rate, fixing the yuan just stronger than the 6.9 per dollar level throughout the week. PBOC deputy governor Liu Guoqiang said Thursday that “China is able to keep the exchange rate basically stable at a reasonable and equilibrium level.” The message to support the yuan is clear, according to Stephen Chiu, senior FX analyst at China Construction Bank Asia Corp. “China is continuing to send a signal that they don’t want further depreciation in the yuan. And to defend the spot rate from 7, it’s probably better to defend the fixing at 6.9.” The PBOC set the yuan reference rate at 6.8993 on Friday, compared with 6.8994 Thursday, 6.8992 Wednesday, 6.8990 Tuesday and 6.8988 Monday.
In commodities, oil prices gained amid OPEC supply cuts and tensions in the Middle East. Crude futures tumbled on Thursday as trade tensions dampened the demand outlook, with the benchmarks posting their biggest daily falls in six months. U.S. crude was at $58.7 a barrel, up 1.4%, after Thursday’s 5.7% fall that took it to the lowest in two months. Brent crude futures rebounded 1.3% to $68.65 per barrel, after falling 4.6% in the previous session.
Expected data include durable goods orders. Foot Locker is among companies reporting earnings.
Market Snapshot
S&P 500 futures up 0.6% to 2,836.75
STOXX Europe 600 up 0.7% to 376.35
German 10Y yield rose 0.3 bps to -0.117%
Euro up 0.1% to $1.1192
Italian 10Y yield rose 0.5 bps to 2.265%
Spanish 10Y yield fell 2.2 bps to 0.83%
MXAP up 0.2% to 153.08
MXAPJ up 0.2% to 499.34
Nikkei down 0.2% to 21,117.22
Topix up 0.04% to 1,541.21
Hang Seng Index up 0.3% to 27,353.93
Shanghai Composite up 0.02% to 2,853.00
Sensex up 1.4% to 39,352.38
Australia S&P/ASX 200 down 0.6% to 6,456.04
Kospi down 0.7% to 2,045.31
Brent futures up 1.3% to $68.64/bbl
Gold spot down 0.2% to $1,281.45
U.S. Dollar Index little changed at 97.86
Top Overnight News
U.K. Prime Minister Theresa May said she will step down on June 7, triggering a leadership contest that could make way for a more pro-Brexit leader such as Boris Johnson
The Trump administration is seeking to choke off Beijing’s access to key technologies by limiting the sale of vital U.S. components to China’s Huawei Technologies Co. It’s considering putting at least five Chinese surveillance companies on the same blacklist
President Trump said Thursday that China’s Huawei Technologies, which was put on a U.S. blacklist earlier this month, could be part of a trade pact with the country
The U.S. is also proposing tariffs on goods from countries found to have undervalued currencies, in a move that would further escalate its assault on global trading rules
One of Asia’s best-performing bond managers offloaded his holdings of Huawei Technologies Co. debt last week, underscoring investor concerns over potentially devastating U.S. curbs on the Chinese tech giant
Euro-area economy remains on track with European Central Bank projections that foresee an upturn later this year, policy maker Bostjan Vasle said
U.S.-China trade conflict and cracks in the global economy are herding investors to the safest parts of financial markets, pushing yields to multiyear lows and strengthening bets that the Fed will cut interest rates in 2019
President Trump and Japanese Prime Minister Shinzo Abe are unlikely to resolve trade disputes involving automobile tariffs during meetings starting this weekend in Tokyo, a Japanese official said
Japan’s key price gauge ticked higher in April as travel costs rose ahead of Japan’s longest postwar holiday, yet multiple factors are set to complicate the Bank of Japan’s mission to boost inflation in coming months
Oil headed for its biggest weekly drop this year as the escalating trade war caused investors to reassess the outlook for global growth, drowning out concern over supply risks
Asian equity markets were mixed with the region cautious following the headwinds from US where all major indices declined due to ongoing trade uncertainty, weak PMI data and after energy losses snowballed. ASX 200 (-0.6%) and Nikkei 225 (-0.2%) were negative as Australia’s energy sector felt the brunt of the recent sell-off in oil in which WTI fell over 5%, while a firmer currency dampened risk appetite in Tokyo. Conversely, Hang Seng (+0.3%) and Shanghai Comp. (U/C) were kept afloat for most of the session after recent encouraging comments from President Trump that there is a good possibility of a US-China trade deal and that Huawei could be included in a trade agreement. Furthermore, the PBoC refrained from open market operations, although this was due to ample liquidity and as its efforts this week already resulted to a net injection of CNY 100bln. Finally, 10yr JGBs were higher following the bull flattening seen in the US curve and amid the mostly risk-averse tone in the region, while the results of Japan’s enhanced liquidity auction for 2s, 5s, 10s and 20s also showed firmer demand.
Top Asian News
Japan Downgrades View of Economy Again as Tax Hike Approaches
Brimming Oil Tanks Forcing China Teapots to Cut Their Losses
Barclays Says China May Devalue Yuan, Limit Sales of U.S. Goods
Mobius Says Bear Market Unlikely for Emerging-Market Stocks
European stocks extend on opening gains [Eurostoxx 50 +0.9%] as the region nurses some losses following yesterday’s collapse. Upside in Europe seems to be more of a consolidation, although sentiment is somewhat supported following comments from US President Trump who said there is a good possibility of a US-China trade deal and that Huawei could be included in any trade deal. However, the President did caveat his comments by suggesting it that it would be fine if a meet with China does not happen. Nonetheless, broad-based gains are seen across major bourses, with Italy’s FTSE MIB (+1.2%) outperforming its peers as banks are supported by price action in BTPs (given the large holdings of the Italian debt). Meanwhile, defensive sectors are slightly lagging their peers with healthcare and consumer staples posting milder gains than the riskier sectors. In terms of individual movers, Casino shares (+17.9%) spiked higher amid reports that the co. will not be impacted by its parent company Rallye (-33.2%) confirming administrative procedures. Elsewhere, Deutsche Bank (-1.0%) shares fell following its AGM, although it’s worth noting the Co. is trading ex-dividend. Finally, Moller-Maersk (-1.5%) fell post-earnings as the shipping giant flagged negative impacts from the US-China trade war.
Top European News
Bankers Stunned as Negative Rates Sweep Across Danish Mortgages
U.K. Retail Sales Better Than Expected as Online Purchases Climb
Maersk Warns of ‘Considerable Uncertainties’ Amid Tariff War
Julius Baer Misses Key Target as Pressure Mounts on CEO Hodler
In FX, the USD has pulled back further from Thursday’s highs, with the DXY down to 97.685 vs 98.373 ahead of the Markit PMIs and US housing data that prompted the relatively abrupt fall from its fresh ytd pinnacle. However, the index is showing signs of stabilisation around support at 97.700 as the Buck bounces vs G10 and EM rivals ahead of durable goods and a long holiday weekend (Memorial Day in the US, and Spring Bank holiday in the UK).
CAD/NZD/AUD – The Loonie and Kiwi are leading the comeback vs their US counterpart, but not the major pack as the NOK and SEK outperform following upbeat Scandi labour data, and improvement in overall risk sentiment and a partial recovery in oil prices that has seen Eur/Nok retreat from 9.8000 and Eur/Sek through 10.7500. The crude revival is also weighing on Usd/Cad to an extent as the pair pivots 1.3450 vs 1.3500+ at one stage on Thursday, while Nzd/Usd is back above 0.6500, partly as Aud/Nzd cross flows reverse from near 1.0600 to 1.0560 on even louder RBA easing shouts overnight. Specifically, Westpac is now predicting 3 rate reductions before the end of 2019 and Aud/Usd is struggling to regain a foothold above 0.6900.
GBP – Better than expected, or not as weak as forecast UK retail sales data has supported the recovery in Sterling to a degree with Cable back above 1.27 from almost 1.2600 yesterday. Sterling strength then aided the pair to clip 1.2700 to the upside after UK PM May decided to step down on June 7th with a leadership contest to begin in the following week (10th June), although those gains faded as PM May continued her speech with GBP falling back below the figure. In terms of the next steps in UK politics, following the leadership contest, a new Tory leader will be elected towards the end of July. Reports then noted the prospect of a potential general election to take place in October (according to Telegraph’s Christopher Hope) before dialogue with the EU recommences in regard to a Brexit deal.
JPY/EUR/CHF – All relatively flat vs. the Buck following yesterday’s mammoth moves, although the JPY holds onto most of its risk premium having briefly dipped below 109.50 ahead of a Fib at 109.41. The Yen was hardly deterred after Japan’s Government cut their economic assessment in May’s monthly report, which also noted that the Japanese economy is recovering at a moderate pace while the weakness in exports and outputs continues. It’s worth keeping in mind large option expiries in the form of 1.7bln at strike 109.40-50 and 1.8bln between 109.75-85. Similarly, CHF retains most of yesterday’s gains and is ultimately little changed vs the USD and EUR. Elsewhere, the single currency remains just under the 1.1200 handle after having clipped the figure amid the pullback in the Dollar with little to inspire the currency amid the absence of Eurozone data and speakers. EUR/USD currently hovers below its 21 DMA (1.1189) with chunky option expiries in the form of 2.1bln between 1.1170-80 and 2.3bln around 1.1185-1.1200.
In commodities, The energy complex is consolidating some of yesterday’s losses after the sector posted its largest sell-off YTD. WTI (+1.3%) and Brent (+1.3%) hovers around 58.50/bbl and 68.50/bbl respectively with news flow relatively light thus far. Broader macro concerns seem to have sparked yesterday’s selloff alongside several factors including disappointing data, increasing US stockpiles and with technical selling. Elsewhere, metals are directionless with gold (Unch) failing to benefit from the receding Dollar amid a potential unwind in risk premium, whilst copper (+0.3%) prices are supported amid rising demand as traders stockpiled ahead of restrictions on scarp imports coming into force in July.
DB’s Jim Reid concludes the overnight wrap
As the trade war simmers in the background I’m still of the opinion that Trump’s trade escalation tweet from nearly 3 weeks ago was a game changer for the short-term direction of markets and it would be a surprise if markets didn’t test the resolve of the US and Chinese at some point this summer. It feels that the two sides have retrenched into positions that will be pretty hard to reverse anytime soon and as such this escalation likely has legs. Falling asset prices might be the only way for markets to get the resolution they desperately want.
Yesterday showed that 1) tensions between the US and China are showing little evidence of reducing anytime soon, and 2) the early impact from the recent escalation on the survey data is certainly on the negative side following yesterdays PMIs. The end result was a fairly weak session for equities which saw the S&P 500 and NASDAQ for example drop -1.19% and -1.58% respectively. However they were off their lows hit around an hour before the close of -1.78% and -2.14%. The Philly semi-conductor index closed -1.65%, taking it -16.75% off its recent peak, the STOXX 600 dropped -1.20% and the MSCI EM index dropped -1.26%. After markets closed, President Trump told reporters that he would consider making concessions on his recent limitations on doing business with Huawei, as part of an eventual trade deal, confirming again that the issues are linked and that he remains amenable to a broad deal. This has helped sentiment a little overnight. Meanwhile also overnight the Trump administration has laid out a proposal that would let US based companies seek anti-subsidy tariffs on products from countries found by the US Treasury Department to be engaging in competitive devaluation of their currencies. Currently no country in the world meets that criteria but the proposal sets a broader standard by focusing on the “undervaluation” of currencies (per Bloomberg). The US Commerce Secretary Wilbur Ross said that “this change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries.” This is likely to add to the US toolkit to deal with trade related scuffles.
This morning in Asia markets are trading mixed with the Nikkei (-0.55%), Shanghai Comp (-0.04%) and Kospi (-0.97%) all down while the Hang Seng (+0.21%) is up. Elsewhere, futures on the S&P 500 are up +0.30% and the Chinese onshore yuan is trading broadly unchanged at 6.9137. In terms of overnight data releases Japan’s April CPI (at +0.9% yoy), Core CPI (+0.9% yoy) and Core-Core CPI (+0.6% yoy) all came in inline with consensus. It’s worth noting that ahead of the US long weekend markets across the pond are expected to close early today.
Also overnight, China’s commerce ministry released its semi-annual trade report saying that China will actively boost imports and seek to diversify its export markets while adding that China faces a more complicated trade environment and more efforts are needed for a stable trade development amid protectionism and domestic economic downward pressure.
On the Brexit front, things continue to evolve. Various news wires (including Bloomberg and the BBC) suggested last night that Prime Minister May will likely announce her schedule to resign today with June 10th the date suggested. A leadership campaign will likely last around 6 weeks with a hard Brexiteer more likely to win. Given that the Brexit Party is expected to win the EP elections in the UK that new Tory PM could tap into that support in an upcoming general election. So as DB’s recent research has been suggesting, a hard Brexit is becoming an increasing probability.
Back to yesterday and high yield credit spreads also got sucked into the risk off widening +14bps in the US while the flight for safety saw 10y Bunds (-3.4bps) hit -0.120% for a fresh 32-month low, 10y Treasuries (-7.2bps) hit 2.310% for a new 19-month low, and 30y yields (-5.4bps) hit 2.748% for a fresh 17-month low. The 1m-10y, 3m-10y, 6m-10y and 1y-10y curves are all negative now, though the 2y10y remains stubbornly in its recent range at 17.0bps. A massive drop for WTI oil (-5.44%; is up +1.16% this morning) only added to the pain for risk while Gold rallied +0.82% along with safe haven currencies like the Yen and Swiss Franc. The dollar had rallied to a two-year high, but sharply retraced after the poor US data to end the session -0.17% weaker.
Indeed yesterday’s PMIs did part of the damage – particularly those in the US as we’ll discuss below however the PMIs in Europe as well as Germany’s IFO survey did little to help. Comments in the Chinese media including a reference to US politicians making moves to start a “technology cold war” and a spokesman from China’s Ministry of Commerce blaming the US for “unilaterally” escalating trade tensions and suggesting that “China won’t make concessions on matters of principle” also didn’t help.
Back to the details of those PMIs. In Europe the flash May composite rose +0.1pts from April to 51.6 and was a smidgen below the consensus of 51.7. However the headline manufacturing (-0.2pts to 47.7; 48.1 expected) and services (-0.3pts to 52.5; 53.0 expected) readings both fell and missed expectations. Germany’s headline manufacturing print ‘stabilised’ at an albeit low 44.3 with the subcomponents mixed however there was better news in France where the reading rose +0.6pts to 50.6. Overall a picture of continued weakness in the manufacturing sector with the gap up to services showing no sign of closing yet. Our economists in Europe noted that the data also implied a drop of -0.7pts for the non-core reading. We should note that the survey period covered May 13-22 for the Eurozone and therefore the trade escalation period.
As for the IFO survey in Germany, the May reading fell 1.3pts to 97.9 (vs. 99.1 expected) and to the lowest level in more than four years. The drop was concentrated in the current assessment component which hit 100.6 – down -2.8pts from April – while the expectations reading flat lined at 95.3. IFO suggested that they received around 2/3rds of their replies during the first week so the full impact of the trade escalation may not yet be felt, making next month’s data of particular significance.
The data didn’t make for much more palatable reading in the US where the PMIs were a sea of disappointment. The flash manufacturing reading fell -2pts to 50.6 (vs. 52.6 expected) and hit the lowest in just under 10 years. The services reading fell -2.1pts to 50.9 (vs. 53.5 expected) – the lowest in over 3 years while the composite also hit 50.9 (vs. 53.0 last month). So 2009 levels for the manufacturing reading and it didn’t go under the radar that the new orders component went below 50 for the first time since the crisis. That component has led the headline index by around 5 months, suggesting the slide is likely to continue through the summer. The associated commentary did mention trade but not in any great detail which perhaps also raises the risk of further downside. The most obvious mention was that “reduced confidence was commonly attributed to hesitation among clients and increased uncertainty, which were both often linked to global trade tensions”. Interestingly the difference between the US and Eurozone manufacturing PMI is now just 2.9pts and the lowest for the year.
We should note that the May ISM report isn’t due out until June 3rd so we’ll have to wait a while to see what that shows. However there are a number of surveys due next week including consumer confidence, manufacturing surveys from the Richmond and Dallas Fed, and the Chicago PMI. So plenty to keep the market engaged. It’s worth noting that yesterday’s Kansas City Fed manufacturing survey hit 4 yesterday (52.8 on an ISM-adjusted scale), down -1pts and weaker than expected. The other US data was claims which was broadly in line at 211k, and new home sales which fell -6.9% mom in April and more than expected.
Finally, looking at the day ahead, this morning the only data due out in Europe is the April retail sales report and May CBI survey. In the US we’ll then get preliminary April durable and capital goods orders that provide an initial glimpse into the current-quarter capex trend. Our US economists note that headline orders (-1.3% vs. +2.8%) should decline due to Boeing. Orders excluding transportation (+0.1% vs. +0.2%) might also be a bit soft given that the team are mildly cautious on non-defense capital goods orders excluding aircrafts (+0.2% vs. +1.0%), which are a good gauge of equipment spending in the GDP accounts. Away from the data the ECB’s Nowotny is due to give a briefing to an IMF delegation this morning. Finally a reminder that European Parliament elections carry on until Sunday evening with results likely overnight/Monday morning. The UK and US will be on holiday so the results will be digested in a little bit of a market vacuum. For a full preview please see yesterday’s EMR.
via ZeroHedge News http://bit.ly/2X5WsP0 Tyler Durden
In the eight episodes of the Netflix docu-series Losers, elite athletes get knocked out, trounced, screwed over, bitten, and booed. With different creative choices, the whole thing could have been a syrupy stew of inspirational insipidness, in which all of the losers turn out to be winners after all.
Instead, there’s not a lot of smiling—but there are also very few tears. The series is shot with a pleasingly uniform aesthetic and an eclectic mix of still-trim former athletes in nice sweaters reflecting on their losses. The mix of stories is varied and somewhat unexpected: I had clear memories of the near-misses of the backflipping French figure skater Surya Bonaly, for instance, but knew nothing about the cutthroat world of 1980s Canadian curling or desert long-distance running.
If there’s a takeaway, it’s an echo of Schumpeter’s observation about the marketplace’s gale of creative destruction, in which economic structures are constantly destroying themselves and being created anew. Or Bradley Cooper crooning in A Star Is Born that “maybe it’s time to let the old ways die.” Sometimes you lose because the game is rigged or because someone else is better than you. Other times you lose because the game you’re playing is being constantly reinvented around you. That can be good or bad, but it’s always interesting.
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How much could there possibly be to say about the new live-action Aladdin? It’s another squeeze of the Disney property that’s already yielded a phenomenally popular 1992 animated film, a pair of straight-to-video sequels (best left undiscussed), and a stage show that’s been running on Broadway pretty much forever. (Well, since 2014.) I haven’t seen the Disney on Ice version of Aladdin, and I’m pretty sure I never shall.
The story, frankly derived from the 1940 adventure fantasy The Thief of Baghdad, is by now a part of pop-culture DNA. Young street thief Aladdin works the bustling bazaar of the fictitious desert city of Agrabah with his wily pet monkey, Abu. He falls into the hands of the evil Grand Vizier Jafar, advisor to the sultan, who maneuvers Aladdin into entering the Cave of Wonders, a fabulous storehouse of gold and jewels, as well as a magic lamp—which is all that Jaffar is actually interested in. Aladdin does Jafar’s bidding and emerges from the cave with the lamp and a magic carpet that he also found inside. Jafar tries to double-cross Aladdin, but Abu steals the lamp back from the sorcerer and soon he and Aladdin are making the acquaintance of an ancient genie who has been trapped inside the lamp for thousands of years. The genie tells Aladdin he will grant him three wishes (none of which can be a wish for more wishes). Soon he has transformed Aladdin into a wealthy prince named Ali, who before long has made his way into the royal palace and begun courting the sultan’s beautiful daughter, Princess Jasmine. Jafar—who controls the sultan through a powerful spell—does everything he can to disrupt this romance. In the end, of course, he fails.
So what’s new in this live-action version of the old tale? Practically nothing. It’s still a musical, and the songs are largely the same (naturally including the Oscar- and Grammy-winning “A Whole New World,” once again delivered with full Broadway gusto on a magic-carpet ride over city and starlit sea). The story is well-served by director Guy Ritchie (of the Sherlock Holmes movies), whose acrobatic action sensibility provides lots to look at (especially in a wall-running bazaar chase and a breakdancing production number inside the palace which is a couple of miles more entertaining than that description would suggest). The production design, by Gemma Jackson, is pure Disney, stuffed with charm and tchotchkes and ready to fill the skies with fireworks at the swell of a chorus or to bring in CGI elephants and giraffes and cantering ostriches for no particular reason at all. It’s fun. Bring a kid.
The main players—Mena Massoud as Aladdin, Naomi Scott as Princess Jasmine, and Nasim Pedrad as her genie-fancying handmaiden Dalia—are fine, solid. However, Marwan Kenzari, who plays the scheming Jafar, lacks the resonant menace that Jonathan Freeman brought to the animated character in 1992, and he has none of the mad-eyed brio that Conrad Veidt provided in The Thief of Baghdad. An underplayed Jafar is practically no Jafar at all.
Fortunately, Will Smith, taking on the role of the genie, pretty much makes the movie. Unintimidated by Robin Williams’s memorably hyperactive performance in this part in the 1992 film, Smith dials back the manic yammering and delivers his lines with a smoother spin. When lovestruck Aladdin tells the genie about Jasmine and says, “She’s a princess,” Smith flicks back a deadpan “Aren’t they all?” that’s gone almost before you register it. When the genie suggests a made-up place name for Aladdin to tell people that Prince Ali is from, the naive lad is hesitant. “Is that a real place?” he asks. “Yeah—it’s got a brochure,” the genie says, magically producing one.
From time to time, Smith clambers over the fourth wall to address us directly, at one point crowing, “This genie’s on fire, folks!” He kinda is.
from Latest – Reason.com http://bit.ly/2VYofEG
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How much could there possibly be to say about the new live-action Aladdin? It’s another squeeze of the Disney property that’s already yielded a phenomenally popular 1992 animated film, a pair of straight-to-video sequels (best left undiscussed), and a stage show that’s been running on Broadway pretty much forever. (Well, since 2014.) I haven’t seen the Disney on Ice version of Aladdin, and I’m pretty sure I never shall.
The story, frankly derived from the 1940 adventure fantasy The Thief of Baghdad, is by now a part of pop-culture DNA. Young street thief Aladdin works the bustling bazaar of the fictitious desert city of Agrabah with his wily pet monkey, Abu. He falls into the hands of the evil Grand Vizier Jafar, advisor to the sultan, who maneuvers Aladdin into entering the Cave of Wonders, a fabulous storehouse of gold and jewels, as well as a magic lamp—which is all that Jaffar is actually interested in. Aladdin does Jafar’s bidding and emerges from the cave with the lamp and a magic carpet that he also found inside. Jafar tries to double-cross Aladdin, but Abu steals the lamp back from the sorcerer and soon he and Aladdin are making the acquaintance of an ancient genie who has been trapped inside the lamp for thousands of years. The genie tells Aladdin he will grant him three wishes (none of which can be a wish for more wishes). Soon he has transformed Aladdin into a wealthy prince named Ali, who before long has made his way into the royal palace and begun courting the sultan’s beautiful daughter, Princess Jasmine. Jafar—who controls the sultan through a powerful spell—does everything he can to disrupt this romance. In the end, of course, he fails.
So what’s new in this live-action version of the old tale? Practically nothing. It’s still a musical, and the songs are largely the same (naturally including the Oscar- and Grammy-winning “A Whole New World,” once again delivered with full Broadway gusto on a magic-carpet ride over city and starlit sea). The story is well-served by director Guy Ritchie (of the Sherlock Holmes movies), whose acrobatic action sensibility provides lots to look at (especially in a wall-running bazaar chase and a breakdancing production number inside the palace which is a couple of miles more entertaining than that description would suggest). The production design, by Gemma Jackson, is pure Disney, stuffed with charm and tchotchkes and ready to fill the skies with fireworks at the swell of a chorus or to bring in CGI elephants and giraffes and cantering ostriches for no particular reason at all. It’s fun. Bring a kid.
The main players—Mena Massoud as Aladdin, Naomi Scott as Princess Jasmine, and Nasim Pedrad as her genie-fancying handmaiden Dalia—are fine, solid. However, Marwan Kenzari, who plays the scheming Jafar, lacks the resonant menace that Jonathan Freeman brought to the animated character in 1992, and he has none of the mad-eyed brio that Conrad Veidt provided in The Thief of Baghdad. An underplayed Jafar is practically no Jafar at all.
Fortunately, Will Smith, taking on the role of the genie, pretty much makes the movie. Unintimidated by Robin Williams’s memorably hyperactive performance in this part in the 1992 film, Smith dials back the manic yammering and delivers his lines with a smoother spin. When lovestruck Aladdin tells the genie about Jasmine and says, “She’s a princess,” Smith flicks back a deadpan “Aren’t they all?” that’s gone almost before you register it. When the genie suggests a made-up place name for Aladdin to tell people that Prince Ali is from, the naive lad is hesitant. “Is that a real place?” he asks. “Yeah—it’s got a brochure,” the genie says, magically producing one.
From time to time, Smith clambers over the fourth wall to address us directly, at one point crowing, “This genie’s on fire, folks!” He kinda is.
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While Democrats dither over the virtues of ‘Medicare for All’, the Trump administration is about to embark on an all-out offensive to lower health-care costs in the US.
According to WSJ, Trump is preparing an executive order that would force health-care providers – hospitals, internists, specialists etc. – to disclose the discounted and negotiated rates for various procedures that they negotiate with insurance companies. The order would force more transparency among health-care pricing, an industry that is accustomed to transacting in private.
The idea is that more price transparency would improve consumer choice and stoke more competition, which could exert downward pressure on prices. However, previous attempts to introduce more transparency to the industry have been vehemently resisted by special interests. President Trump is also working on an initiative to lower the cost of prescription drugs.
For example, patients would be able to see the price of a routine scan – like a CAT scan – in advance. If one clinic wants to charge $5,000 for the procedure, the patient can check with another clinic and shop around for the best price. The stunning lack of transparency in this market has allowed for immense cost disparities to persist between various providers – prices that are often completely divorced from the actual cost of the procedure.
The White House is planning a meeting on Friday to iron out the last details of the order.
A bipartisan plan introduced in the Senate is seeking to accomplish something similar by mandating that providers disclose the price of a given procedure within 48 hours of the request.
As WSJ revealed in a blockbuster report published last summer, the opacity surrounding medical-services pricing has sometimes led hospitals to wildly inflate the costs of some of the most common procedures. After receiving complaints about the price of a $50,000 knee surgery from Medicare, the hospital set out to determine how much the surgery actually cost.
The answer? Just $10,550, including the surgeons and the anesthesiologist.
The Trump administration is also weighing whether to use the DoJ’s anti-trust authority to break up regional hospital monopolies and encourage more competition.
For years now, health-care costs have dramatically outpaced consumer-price inflation. One researcher who monitored health-care costs over a five-year period from the beginning of 2012 to the end of 2016 found average costs nationally rose by 16%, roughly three times the rate of inflation.
via ZeroHedge News http://bit.ly/2K1wGb0 Tyler Durden
Fighting off tears after rattling off her accomplishments and thanking the people of the UK for the ‘honor of a lifetime’, Theresa May said Friday that she will resign on Friday, June 7 – two weeks from now – after a rebellion within the conservative party finally forced her to step down.
May, the second – but certainly not the last – female prime minister in the UK, will abandon her supremely unpopular withdrawal agreement instead of trying to force it through the Commons for the fourth time.
Though May will stay on as caretaker until a new leader can be chosen, the race to succeed May begins now…odds are that a ‘Brexiteer’ will fill the role. Whatever happens, the contest should take a few weeks, and afterwards May will be on her way back to Maidenhead.
“It is and will always remain a deep regret for me that I was not able to deliver Brexit…I was not able to reach a consensus…that job will now fall to my successor,” May said.
Between now and May’s resignation, May still has work to do: President Trump will travel to the UK for a state visit, while Europe will also celebrate the 75th anniversary of D-Day.
The pound’s reaction was relatively muted, as May’s decision to step down had been telegraphed well in advance.
Watch May’s remarks below:
The discussion now turns to whom May’s successor might be. Here’s a list of likely candidates courtesy of the Independent.
Boris Johnson, former foreign secretary
Andrea Leadsom, former Commons leader
Sajid Javid, home secretary
Jeremy Hunt, foreign secretary
Michael Gove, environment secretary
Dominic Raab, former Brexit secretary
Matt Hancock, health secretary
Boris Johnson, who resigned as May’s foreign secretary back in July over May’s “Chequers Deal” – the first outline of what would evolve into the withdrawal agreement. The leadership election process takes four-to-six weeks, which means we won’t know who will be the next PM until mid-summer. Ultimately, registered Tories from across the UK will choose the next PM in a UK-wide vote.
via ZeroHedge News http://bit.ly/2YSxX8L Tyler Durden
