In the latest issue of Reason, Daniel W. Drezner argues that the breakdown of global trade relations is pushing is setting the stage for future conflict. A snippet:
You might not know about a minor trade skirmish in the Balkans that started late last year. But you should, because it signals a worrying shift in how national security considerations are altering the fabric of globalization in ways eerily similar to how they did at the dawn of the 20th century. That first shift helped start World War I, so in case you’re wondering, yes, I’m going there: The current rise in protectionism could be the precursor to World War III.
The story starts in 2008, when the small southeast European nation of Kosovo unilaterally declared independence from Serbia after nearly a century of being bound to its larger neighbor, followed by a war for secession that ended only after NATO intervened. The Serbian government refused to recognize the breakaway province and, as part of this diplomatic position, late last year successfully pressured members of Interpol to not admit its former territory as a member.
Click on the link below to read the whole article.
Tesla thought it was getting one over on the world last night when it waited until the close of extended hours trading before releasing its awful Q1 delivery numbers. But last night’s timing didn’t the stop reality from taking hold this morning, when Tesla stock crashed $26, down a little over 9% with further downside expected as exasperated mutual funds start dumping at the open.
Feeding the dismal mood, even formerly bullish analysts have come out swinging at Tesla this morning, throwing up all over its disastrous delivery numbers with RBC’s Joseph Spak saying that the delivery miss could wind up turning into a $1 billion revenue miss. Spak was previously looking for 52,500 Model 3 deliveries, down from his previous estimate of 57,000. He said in a note Thursday morning:
“To us, this signals that the tax subsidy cut in the US was a significant hit to these premium vehicles and/or Model 3 is having a bigger cannibalization impact,” he says. Tesla’s comment about challenges of delivering to Europe, China “speaks to a lack of planning and foresight,” Spak said.
Spak also expects a “sizeable cash burn” in Q1. JPMorgan analyst Ryan Brinkman also blasted the company in a morning note: “Tesla’s 1Q19 vehicle production & deliveries report was substantially worse than expected.” JPM lowered their price target to $200 from $215:
“Tesla‘s 1Q19 vehicle production & deliveries report was substantially worse than expected…Deliveries tracked just 63,000 units vs. JPM 70,500 and consensus as recently as March 27 of 74,930, suggesting materially less 1Q revenue, margin, and free cash flow… We believe the market postulated that if Tesla were to miss, it would be due solely to a materially greater than expected number of vehicles in transit (vehicles that could be sold in early 2Q, suggesting little need to lower full year estimates), but this appears to be only partly the case, with vehicles in transit at quarter-end totaling 10,600 vs. our estimate of 10,000, in our view implying lower underlying domestic demand…While most attention is being paid to the Model 3 ramp, deliveries of the higher price Model S & X declined substantially in 1Q, totally just 12,100 between them — less even than the Model S alone used to sell in some quarters preceding the full production ramp of the Model X, again in our view implying a deceleration in underlying demand unrelated to temporary delivery difficulties (maybe due to tax credit expiration?).”
Morgan Stanley poured some more gasoline on the fire, calling the quarter “one that Tesla might want to forget“:
“1Q19 is shaping up to be one TSLA may want to forget, but needs to explain to shareholders who own it as a LT disruptor. We felt the #1 2019 determinant for TSLA’s share price was if it could prove to the mkt. it can be self-funding on a sustainable basis.”
Bank of America says it sees “slower than anticipated progress” on the Model 3 production ramp and that it “continues to question” the company’s profitability, cash flow and valuation:
“Ultimately, given what appears to be slower than anticipated progress on the Model 3 production ramp, TSLA’s past production/ logistics challenges on the Model S/X, and now potentially new challenges with deliveries to Europe and China, we expect it will take some time before the Model 3 production/sales reaches mass scale; and thus, costs related to the ramp and lower priced variants may outweigh potential benefits of operating leverage for some time. .. .Moreover, there still remain a number of major hurdles ahead for TSLA, including: 1) ongoing Model 3 production ramp and future operational challenges associated with expanding the product lineup; 2) what could be a very material cash burn in coming quarters (from ongoing delivery/logistic issues, Shanghai factory construction, etc.) which could pressure TSLA’s liquidity even with recent capital inflows and require future capital raises; 3) faster than usual spike and burnout pattern for Model S/X; and 4) the prospect of new competition and longer term obsolescence. As such, we continue to question TSLA’s longer term profitability, cash flow, and valuation.”
The bears were rampaging, with Citi obviously maintaining its “sell/high risk” rating on Tesla shares:
“Though Tesla bulls might look past the Q1 Model 3 miss, the S/X numbers will likely spark some legitimate demand & company margin concerns, particularly given the risk for some incremental cannibalization from the recently introduced Model Y. We expect the stock to come under pressure on this and perhaps test recent lows—maintain Sell/High Risk.
…
At the very least, Q1 deliveries will likely cause the bull camp to revisit assumptions about the NT demand trajectory. Tesla confirmed its 2019 delivery targets, which of course now look quite aggressive requiring ~100k deliveries on average in each remaining quarter. So demand will likely be scrutinized even more so, and the outcome in the coming months could meaningfully re-shape the entire Tesla bulls/bear debate.”
Goldman Sachs also reiterated their “sell” rating on the company Thursday morning, saying that demand was likely negatively impacted by the phasing out of the Federal EV tax credit in the U.S. Goldman’s note also said that “production levels disappointed” and that “average production was ~4,800, which was marginally higher than the 4,700 in 4Q18 and below Goldman estimates of 5,500/week for 1Q19”.
“These disappointing results will likely lead to pressure on the shares and consensus estimates for the full year, and could potentially fuel investors’ concerns about falling demand,” Goldman’s note continues.
“Further, this likely puts downward pressure on our EBITDA and FCF estimates (as well as consensus) given the lower volume levels and worse utilization than anticipated.”
Back in April 2018 we asked the question of whether or not Elon Musk would be the next CEO faced with a margin call. In that analysis, it was calculated that Musk’s margin call could kick in around $232, or just $30 away (other analyses have arrived at differed “trigger” targets, with some as low as the mid $100’s).
As a reminder, last night we reported that the company’s Q1 delivery and production numbers missed even the most pessimistic of estimates. Total deliveries came in at just 63,000 vehicles and Model 3 deliveries came in at a paltry 50,900. To add insult to injury, the company said it expects the poor delivery number to negatively impact its Q1 net income:
Because of the lower than expected delivery volumes and several pricing adjustments, we expect Q1 net income to be negatively impacted.
The Q1 Model 3 number missed consensus estimates of 55,100 by nearly 10% and also fell well short of the 63,000 Model 3s that the company produced last quarter. The number also fell short of analysts’ estimates of 58,900, according to IBES data from Refinitiv. Deliveries of all models fell 31 percent from the fourth quarter to 63,000 vehicles, including 12,100 Model S sedans and Model X SUVs.
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One day after a global “trade optimism”-inspired rally fizzled at the closing minute of US cash trading, European and Asian shares eased back from eight-month highs while bonds, the dollar and gold rallied as investors took money off the table amid, what else, “fresh concerns” about U.S.-China trade talks while dismal data from Germany signaled trouble for Europe as investors awaited further news from U.S.-China trade negotiations and tomorrow’s US jobs report.
US index futures were flat, while Asian markets and Europe’s Stoxx 600 index fell, led by declines in oil companies and miners.
The biggest economic news of the day was Germany’s latest industrial orders which tumbled at the fastest rate in over five years in February, driven largely by a collapse in foreign demand.
The report compounded fears that Europe’s largest economy, which yesterday slashed its GDP forecast by more than half from 1.9% to 0.8%, has had a feeble start to the year and left the euro stuck at $1.12, sent German Bund yields back below zero in the bond market and ended a four-day run of gains for share traders. Eslewhere, Italian shares and bonds also dropped after Bloomberg reported the country is set to slash this year’s growth forecast and raise the projected budget deficit.
In key company-related news, in the preliminary Ethiopian crash report of the Boeing 737 MAX, anti-stall software is not explicitly mentioned; Chief investigator says they cannot yet say if there is a structural problem with Max 8’s. Meanwhile, Tesla is tumbling after the company’s Q1 vehicle deliveries tumbled and missed badly, with just 63.0k deliveries vs. 90.7k previously.
Earlier in the session, the MSCI Asia index also lost 0.4% overnight after five straight days of gains had taken it to the highest level since late August. Losses were led by Australia and New Zealand while Hong Kong, the Philippines and Indian markets were also in red. The trend was bucked by Shanghai as Chinese shares rose 0.6% while Japan’s Nikkei paused near a recent one-month top.
Emerging-market stocks and currencies also lost momentum on Thursday after recent gains as investors awaited fresh good (or perhaps bad) data for signs the global economy is regaining a firmer footing (or else that central banks will ease more). The MSCI index of developing-market equities fell for a first day in six: the Indian rupee led declines among currencies following a rate cut and dovish outlook from the nation’s central bank. South Africa’s rand weakened after failing to strengthen beyond a key technical level, while the Indonesian rupiah rose after its monetary authority said it would allow further appreciation.
Analysts pointed to investor fatigue and a lack of fresh headlines on the Sino-U.S. trade talks for Thursday’s sell-off while disappointing U.S. economic data this week also weighed on sentiment. “We are expecting quite a constructive agreement between the U.S. and China when it comes to trade,” said AllianceBernstein China Portfolio Manager John Lin. He added it was probably now a consensus view among major investors and if it proved right, would raise other questions such as whether China’s government would “keep its foot on the (stimulus) pedal or ease off a bit.”
Risk sentiment has been supported by constant signs of progress in Sino-U.S. trade talks. White House economic adviser Larry Kudlow said on Wednesday the two sides aimed to bridge differences during talks, while Bloomberg reported that the US would grant China until 2025 to meet trade pledges. The plan would see China committing to buy more U.S. commodities, including soybeans and energy products, and allow full foreign ownership for U.S. companies operating in China as a binding pledge. Investors are also looking if ongoing talks lead to an earlier-than-anticipated meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping to sign an accord.
At 2pm all eyes will be on the White House, where President Trump will meet Chinese Vice Premier Liu He as trade deal negotiations enter what could be the final stages.
While investors have become more optimistic that a trade deal will be signed, Bloomberg quotes Nick Twidale, chief operating officer at Rakuten Securities Australia, who said it “may just be another step in the process.” The implementation of any deal “will most probably provide obstacles in the process and may weigh on sentiment further down the track.”
“Also an important question would be whether an agreement would be sufficient to revive business sentiment and the global trade cycle,” J.P. Morgan Asset Management Asia Pacific Chief Market Strategist Tai Hui added. “We believe on the margin it would help, but practically all investors we’ve spoken to in Asia in the past six months believe friction will still flare up from time to time.
In FX, overnight moves were muted after bigger swings overnight when all major currencies gained against the safe-haven yen. The dollar gained broadly with Treasuries while Sterling dipped after U.K. lawmakers moved to block a no-deal Brexit; the euro largely shrugged off soft German data, and was waiting for the minutes of the European Central Bank’s last meeting, when it pushed back rate hike expectations. Euro-area bonds edged higher, and the yen and equities traded with a defensive tone
In commodities, oil prices slipped a second day, with Brent edging down further from the $70 mark after weekly U.S. oil data showed a surprise build up in crude inventories and record production; Global benchmark Brent has gained nearly 30 percent this year, while WTI has gained nearly 40 percent. Prices have been underpinned by tightening global supplies and signs of demand picking up. “There is a clear bias to the upside with the supply restrictions,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney, pointing to supply cuts by OPEC and others, along with sanctions on Iran.
Spot gold traded lacklustre as markets were tentative ahead of the ECB minutes, US-China trade talks and payrolls, with investors pulling money out of gold ETFs with around $153MM removed out of the $10BN VanEck Vectors Gold Miners ETF over the last five days. Meanwhile, copper (-0.3%) succumbs to the cautious risk tone but remains above its 100 WMA of just under $2.90/lb. Finally, Dalian iron ore futures saw its best day in seven-weeks, extending its record-breaking rally, as supply-side woes (largely from cyclones in Western Australia) and a pick-up in demand (steel mills replenishing stocks) boosted the base metal to a new peak of USD 103.49/tonne.
On today’s docket, initial jobless claims are due, while companies reporting earnings include Constellation Brands and RPM International.
Market Snapshot
S&P 500 futures down 0.1% to 2,876.25
STOXX Europe 600 down 0.4% to 387.49
MXAP down 0.2% to 162.37
MXAPJ down 0.4% to 538.98
Nikkei up 0.05% to 21,724.95
Topix down 0.1% to 1,620.05
Hang Seng Index down 0.2% to 29,936.32
Shanghai Composite up 0.9% to 3,246.57
Sensex down 0.3% to 38,761.75
Australia S&P/ASX 200 down 0.8% to 6,232.80
Kospi up 0.2% to 2,206.53
German 10Y yield fell 0.9 bps to -0.001%
Euro up 0.04% to $1.1237
Brent Futures down 0.6% to $68.88/bbl
Italian 10Y yield rose 1.5 bps to 2.186%
Spanish 10Y yield fell 0.7 bps to 1.134%
Brent Futures down 0.4% to $69.05/bbl
Gold spot up 0.1% to $1,291.33
U.S. Dollar Index unchanged at 97.10
Top Overnight News from Bloomberg
U.S. President Donald Trump will meet Chinese Vice Premier Liu He at the White House on Thursday as speculation grows that negotiations over a trade deal are entering their final stages
Britain took a decisive step away from a damaging no-deal Brexit as members of Parliament and political leaders backed efforts to prevent a disorderly departure from the EU
Though the U.K. is better prepared for a no-deal Brexit than it was a number of months ago, it would still cause a large economic shock, the Times reports, citing Bank of England governor Mark Carney
European Union increasingly sees a long Brexit delay as the most likely outcome of an emergency leaders’ summit next week, according to EU officials
Trade deal that the U.S. and China are crafting would give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation, according to people familiar with the talks
Bank of Japan is likely to unveil its lowest two-year inflation forecast under Haruhiko Kuroda’s governorship at a meeting later this month, according to a former chief economist of the central bank
Trump administration is examining options for shutting entry points to the U.S. from Mexico in case the president follows through with his threat to close the border, a White House official said
Nomura will fire about 100 workers at its troubled European business as Japan’s biggest brokerage embarks on its latest attempt to achieve sustained profitability overseas; the job cuts in Europe will mostly target rates and credit traders in London, one of the people said, asking not to be identified as the numbers aren’t public
Italy is set to slash its growth forecast for this year and raise its projected budget deficit, according to two senior officials with knowledge of the draft outlook. Italy’s economy is set to grow just 0.1 percent this year, according to the draft, the officials said. The government’s previous forecast was for a 1 percent expansion
India’s central bank delivered a back-to-back interest rate cut on Thursday and fueled speculation of more policy easing after lowering inflation and economic growth forecasts
Asian equity markets traded cautiously with the region tentative ahead of looming risk events and after a positive lead from Wall St. where US-China trade optimism kept stocks afloat despite poor ISM & ADP data. ASX 200 (-0.8%) and Nikkei 225 (Unch.) were subdued with broad weakness seen across all sectors in Australia as the post-budget euphoria faded and profit-taking set in following a 7-day win streak, while the Japanese benchmark was indecisive amid a choppy currency. Chinese markets were mixed ahead of an extended weekend in which the Hang Seng (-0.2%) stalled after it briefly rose above 30k for the first time since June last year, while the Shanghai Comp. (+0.9%) was boosted on hopes US and China are nearing a trade deal and with reports also suggesting a Trump-Xi meeting date to sign off on a deal could be announced as early as today. Finally, 10yr JGBs were lower as prices tracked the recent weakness in T-notes and as Japanese stock markets held above water for most the session, while mixed results at the 30yr auction also failed to spur demand.
Top Asian News
India Central Bank Cuts Interest Rate to Boost Flagging Economy
Bank Indonesia Chief Says Rate Is on Hold Amid Global Risks
China Willing to Work With U.S. on Agreement Reached by Leaders
Japan Post Insurance to Sell $3.7 Billion Shares in Global Deal
A subdued start to the fourth European session of the week with stocks treading water thus far [Eurostoxx 50 U/C] following a mixed Asia-Pac session, ahead of key risk events including the ECB minutes and US-Sino trade talks. The FTSE 100 (-0.6%) marginally lags in the equity-space as a slew of ex-divs [Direct Line (-5.0%), St James’ Place (-3.4%) and DS Smith (-2.4%)] coupled with a firmer Pound pressure the index. Broad-based losses are seen across European sectors, although energy names are faring slightly worse amidst marginal downside in the oil complex. In terms of individual movers, Commerzbank (+2.4%) trades near the top of the Stoxx 600 amid reports that UniCredit (-1.4%) may bid on the German bank if a Deutsche Bank (-1.7%) deal fails. Meanwhile, Software AG (+3.0%) shares were bolstered by a broker upgrade at UBS. On the flip side, Maersk (-11.2%) shares declined following the separate listing of its drilling unit.
Top European News
Commerzbank Shares Rise on Report of Possible UniCredit Offer
ICG Said to Near $1.2 Billion Deal for Italy’s Doc Generici
German Institutes Slash 2019 Growth Forecast by More Than Half
Miners Fall as Iron Ore Rally Pauses on Anglo and GS Warnings
In FX, the Dollar index is holding around the 97.000 level within an extremely narrow 97.013-225 range, and symptomatic of the listless tone in the G10 currency markets overall after choppy trade from Monday through Wednesday amidst fluctuating risk on, off and on again sentiment. However, today and Friday offer some prospect of more decisive moves or at least price action if not clear direction, with the ECB Minutes, Fed speakers and NFP on the agenda.
GBP – The Pound remains underpinned as UK Parliament passed another motion to avoid a no deal Brexit and request that PM May go back to the EU seeking a further A 50 extension if no alternative is found to the WA by April 12 or May 22 (assuming no sudden change of heart and the current proposal with Brussels is accepted as the better of evils vs a CU). Cable has rebounded from yesterday’s sub or circa 1.3120 lows to retest 1.3200, but not quite as near the big figure this time as 21/30 DMA convergence around 1.3165 continues to exert some gravitational influence. Similarly, Eur/Gbp has retreated through 0.8550 towards 0.8500 again, though has not managed to get as close as it did on Wednesday.
JPY/EUR – Both firmer vs the Greenback, albeit fractionally given the relatively constrained trade noted above, with the Jpy inching higher within a 111.50-35 band and potentially capped by decent option expiry interest from 111.50-60 (1.3 bn) and the 200DMA (111.49). Meanwhile, the single currency continues to meet resistance around 1.1250 and has not been helped by abysmal German industrial orders data or confirmation that the country’s group of Economic Institutes has become the latest to slash the 2019 GDP to under 1%.
CHF/NZD/AUD/CAD – All underperforming, but again in context only marginally. Indeed, the Franc is meandering between 0.9987-72, Kiwi hovering from 0.6800 to 0.6773 and Aussie just keeping its head above 0.7100, and at this stage not looking likely to arouse expiry interest at 0.7140-50 in 1 bn. For choice, the Loonie is lagging against the backdrop of softer crude prices and back below 1.3350 ahead of Canada’s Ivey PMI.
EM – Literally no respite for the Lira it seems, as economic, fiscal and political issues continue to weigh on the currency and Turkish assets in general. Indeed, Usd/Try has nudged up to 5.6600 again after Wednesday’s mixed inflation data and another hike in swap limits, as investors eye next week’s Economic Program conscious of the fact that the CBRT may not be able to loosen its grip on the monetary policy reins given that headline CPI remains so high.
In commodities, the energy complex had consolidated following yesterdays advances and was edging lower for the majority of the session, though WTI & Brent futures have recently reverted much of this downside and are now just edging into positive territory for the day. Brent and WTI are currently trading around sesson highs of USD 69.34 and USD 62.50 respectively. Earlier in the session, Brent prices edged lower after hitting resistance at its 200 DMA around USD 69.60/bbl, meanwhile WTI remains north of its 200 DMA (USD 61.40/bbl). Elsewhere, spot gold (+0.1) trades lacklustre as markets are tentative ahead of the ECB minutes, US-China trade talks and NFP. It is also worth noting that investors are pulling money out of gold ETFs with around USD 153mln removed out of the USD 10bln VanEck Vectors Gold Miners ETF over the last five days. Meanwhile, copper (-0.3%) succumbs to the cautious risk tone but remains above its 100 WMA of just under USD 2.90/lb. Finally, Dalian iron ore futures saw its best day in seven-weeks, extending its record-breaking rally, as supply-side woes (largely from cyclones in Western Australia) and a pick-up in demand (steel mills replenishing stocks) boosted the base metal to a new peak of USD 103.49/tonne.
US Event Calendar
7:30am: Challenger Job Cuts YoY, prior 117.2%
8:30am: Initial Jobless Claims, est. 215,000, prior 211,000; Continuing Claims, est. 1.75m, prior 1.76m
9:45am: Bloomberg Consumer Comfort, prior 60
DB’s Jim Reid concludes the overnight wrap
After a pause on Tuesday, Monday’s risk rally on stronger manufacturing PMIs extended further yesterday on the previous night’s trade news and then a mostly positive global round of non-manufacturing PMIs. It was so good that 10 year bund yields now give you a positive yield again (0.008% – up +5.7bps yesterday). Hurry while stocks last. It makes me want to work out how much the average person would have to invest in them to give them their required retirement income given the 1bps yield! The move was helped by signs of hope from the services PMIs in Europe (more on that below) and Kudlow’s comments that US and China negotiators are “making good headway”. Later in the session, Bloomberg reported that the US requested a six-year timetable for China to implement changes to its import purchases and market access reforms, possibly an indication that a deal is being formalised. The FT reported that there are still a couple of sizeable outstanding issues; 1) what happens to existing US levies on Chinese goods, which Beijing wants to see removed, and 2) the terms of a US enforcement mechanism that ensures that China abides by the deal. Overnight, the White House has said that President Trump will meet Chinese Vice Premier Liu He today in the Oval Office at 16:30 ET (21:30 UK Time). It really feels like progress is being made even if tough work remains.
The tech sector really led the charge yesterday with the NASDAQ closing up +0.60%, albeit off its highs of +1.14%, which means it’s now closed up four days in a row – good for a +2.95% spurt during that time. The FANGs weren’t to be left out with the NYSE FANG index rallying +0.93% – the fifth consecutive daily gain – to put it at the highest level since early October. Amazingly the NASDAQ is also back to being just 2.64% off its all-time highs from late August again. Meanwhile the S&P 500 climbed +0.21% and DOW +0.15%. The latter’s underperformance was entirely driven by Boeing’s -1.54% drop. The Wall Street Journal reported that last month’s 737 Max crash in Ethiopia came despite the fact that pilots followed Boeing’s instructions on how to compensate for a software defect. Ethiopian authorities will release their report on the crash today, potentially opening Boeing up to legal liability.
European equities had a better session, with the Stoxx 600 advancing +1.01% to its highest level since August 9th last year. Bourses rallied across the continent, led by the DAX (+1.70%), the IBEX (+1.33%), and by banks (+1.61%). The only major laggard was the FTSE 100 (+0.37%), which was pressured by the stronger pound on perceived positive Brexit news as well as by the sharp rise in gilt yields, which rose +9.4bps for their biggest selloff in 13 months. Treasury yields rose as well, climbing +4.5bps while the 2s10s curve steepened another 1.0bps to 18.0bps. High yield spreads were also 5bps tighter in both Europe and the US. Oil prices traded flat, though US inventory data showed a surprisingly large 7.2 million barrel increase in stockpiles last week, taking some air out of the narrative of robust demand so far this year.
On Brexit, Prime Minister May and Labour Leader Corbyn held discussions yesterday on a cross-party proposal that both sides described as “constructive” even if Mr Corbyn said that there had not been “as much change as (he) had expected” in Mrs May’s stance.
Their teams will continue negotiations today, and the most likely date for another vote is Monday or Tuesday next week. Last night, Parliament voted 313-312 to pass the Cooper-Letwin amendment, which would try to force a long Article 50 extension. The bill will now move to the House of Lords today and, assuming it is passed cleanly, will take no-deal Brexit off the table – from the U.K. side at least. That has enraged the hard-Brexit supporting wing of May’s party, but it could still push them to back her deal next week if she ends up bringing it to a vote. Prior to the May and Corbyn meeting, European markets were mostly busy watching any Parliament reaction to May’s pivot and any reaction from the EU. On the former two MPs resigned however significantly neither were Cabinet ministers. Is this the calm before the storm in terms of resignations? It’s fair to say that there are a vast number of unhappy Tory MPs over the talks with Mr Corbyn. On the latter there wasn’t too much to highlight. The EU seem to be mostly watching for now. Elsewhere, the Sun has reported overnight that PM May is likely to request 9 month delay to Brexit during the EU summit.
In Asia this morning markets are trading mixed with the Shanghai Comp (+0.56%) and Kospi (+0.19%) up while the Hang Seng (-0.52%) is down and the Nikkei is trading flat. Elsewhere, futures on S&P 500 are trading flattish (-0.06%).
Back to the PMIs where the big talking point, and in contrast to the manufacturing data, was the 0.6pt upward revision to the March services reading for the Euro Area to 53.3, helping to lift the composite to 51.6 (vs. 51.3 flash). With the services sector more domestically orientated than the manufacturing sector it helps to boost the case that the domestic European economy is generally doing ok. The positive revision was helped by a boost from most countries. Germany and France were revised up 0.5pts to 55.4 and 0.4pts to 49.1, respectively, while Italy (53.1 vs. 50.8 expected) and Spain (56.8 vs. 55.0 expected) both came in ahead of expectations.
Staying with the PMIs, yesterday DB’s Peter Sidorov highlighted the fascinating stat that while Germany’s manufacturing PMI is in the deepest downturn outside of the Great Recession, Germany’s services PMI is in the top 25% of readings since the start of the euro area recovery in late 2013. In standardised terms, that is the largest underperformance of manufacturing vs services we have seen since the start of the data in 1997.
Overall the data should be welcomed by the ECB however it doesn’t hide the fact that any recovery back to trend growth still requires the manufacturing sector to lift out of the doldrums. On the subject of the ECB yesterday we got a fresh story from MNI under the title “ECB tiering more likely if rates cut further”. A word of warning that MNI hasn’t proved to be the most reliable of sources in recent times. The headline seemed to be a bit punchier than the actual story too, with the main message being that the tiering debate is still in its infancy right now with no clear outcome.
There’s a chance that we learn a bit more about the ECB’s thinking today with the minutes from last month’s confused policy meeting. Confused in the sense that it felt like the ECB sent out various contradicting messages. A reminder that in the end that they opted to announce the bare bones of the new TLTRO replacement facility but downgraded growth and inflation without suggesting any cohesive future policy implications.
In contrast to the data in Europe yesterday it wasn’t quite so good a day for US data. The March ADP print came in at 129k versus 175k expected, and in fact was the lowest reading since September 2017. We should however caveat that the ADP reading overstated NFPs by 163k in February, which isn’t the first time we’ve seen such a big divergence. So there is a bit of a question about the ADP survey being a reliable spot indicator of payrolls. More important though was the miss in the March ISM non-manufacturing (56.1 vs. 58.0 expected) and -3.6pt drop from February. New orders was the big driver of the decline (59.0 from 65.2), however, the employment component did nudge up +0.7pts to 55.9. The gap between the US and the RoW is closing through a slight dip in the former and a welcome rise in the latter.
To the day ahead now where shortly after this hits your emails we’ll get February factory orders data out of Germany, followed by the March construction PMI. In the US this afternoon the early data release is March challenger job cuts before we get the latest weekly initial jobless claims reading. We’ve also got the aforementioned ECB minutes due out at lunchtime while the Fed’s Mester and Harker are speaking this evening. Keep an eye on potential trade headlines too with China Vice Premier Liu He now in Washington.
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Less than a day after Germany’s leading economic institutes cut its growth outlook for the already struggling German economy, Italy is out with a disappointing guidance cut of its own, making a mockery of last year’s EU negotiations with Italy to slash its deficit spending, which as everyone knew were nothing more than a farce.
Italian stocks tumbled on Thursday after the Italian Treasury once again slashed its forecast for economic growth for 2019, bringing the projection down to just 0.1% for the year, down from 1% previously. With growth expected to be flat for the coming year, the populist government of Europe’s third-largest economy now anticipates that its budget deficit will expand to around 2.3% or 2.4% of GDP, a level that was unacceptable to Brussels during the battle over the populists’ proposed fiscal stimulus efforts that nearly brought the founding EU member to the precipice of ‘Italeave’.
Now, just four months after Italy and Brussels reached a tenuous accord, the populists are finally coming clean, much to Brussel’s chagrin, we imagine.
ITALY SAID TO CUT 2019 GDP GROWTH FORECAST TO 0.1% FROM 1%
ITALIAN OFFICIALS COMMENT ON DRAFT OUTLOOK DUE BY APRIL 10
ITALY SAID TO TARGET GDP GROWTH OF 0.3% T0 0.4% FOR 2019
ITALY SAID TO SEE WIDER 2019 BUDGET DEFICIT AT 2.3% TO 2.4%
FTSE MIB DIPS AMID REPORT ITALY SAID TO CUT GDP GROWTH FORECAST
The FTSE MIB fell 0.6% on the day, hitting session lows, after the forecast, weighing on broader European stock indices, as banking stocks like UniCredit led the way (though UniCredit was also under pressure from reports that it was considering a bid for Commerzbank). The news also weighed on the euro, though both the currency and Italian stocks have steadily pared their losses, while Italian bonds rallied. Despite the gloomier outlook, the Italian government is still targeting growth of 0.3% to 0.4% for the year, but amid a broader slowdown in the global economy that even officials like the IMF’s Christine Lagarde have acknowledged is “losing momentum,” that figure could be difficult to achieve.
Compounding Brussels’ frustration with Rome, the cut follows Italy’s controversial decision to join Beijing’s”One Belt, One Road” initiative, becoming the first G7 nation and first founding EU member to join the “neocolonial” project.
The forecast cut couldn’t have come at a worse time, as the English-language financial press was once again shining a spotlight on Italy’s unsustainable debt burden – which Brussels fears will only worsen as the populist coalition ruling the country has decided the more deficit spending is the only way to jumpstart Italy’s moribund economy.
As one Bloomberg commentator wrote just hours before the guidance cut was announced, “Italy’s public debt of €2.4 trillion ($2.7 trillion) is significantly bigger than its economy and among the largest in the currency union, making it the most dangerous. This debt mountain threatens the financial stability of Italy and the future of the euro: Any plans to strengthen the single currency must solve the question of who will bear this burden.”
via ZeroHedge News https://ift.tt/2OOdYEe Tyler Durden
As the saying goes, the definition of insanity is doing the same thing over and over again and expecting a different outcome. This is a perfect way to describe the current effort by Democrats and some conservatives to implement a federal paid leave program, writes Veronique de Rugy. If the United States implements this policy, they believe Americans will not suffer the same negative consequences suffered in every country that has such a policy on its books.
Mere hours after Joe Biden published a video where he vowed to be “more respectful” toward women after a controversy over his history of “inappropriate” physical contact with women exploded onto the front pages, three more women have come forward to the Washington Post to share their owns stories about their encounters with the former Veep, bringing the total number to seven.
All three women told WaPo that Biden’s unwillingness to apologize for his behavior in his grand mea culpa video had offended them, and said it had become clear that Biden was “struggling to understand” exactly why his actions were inappropriate. This isn’t about sexual assault, one woman said, it’s about power dynamics between men and women.
Vice President Biden with Sofie Karasek, one of three women who spoke with the Washington Post.
One woman described how Biden had touched his forehead to hers during a widely photographed moment that she said was “kind of inappropriate.”
Vail Kohnert-Yount said she was a White House intern in the spring of 2013 and one day tried to exit the basement of the West Wing when she was asked to step aside so Biden could enter. After she moved out of the way, she said, Biden approached her to introduce himself and shake her hand.
“He then put his hand on the back of my head and pressed his forehead to my forehead while he talked to me. I was so shocked that it was hard to focus on what he was saying. I remember he told me I was a ‘pretty girl,'” Kohnert-Yount said in a statement to The Post.
She described feeling uncomfortable and embarrassed that Biden had commented on her appearance in a professional setting, “even though it was intended as a compliment.”
“I do not consider my experience to have been sexual assault or harassment,” she stated, adding that she believes Biden’s intentions were good. “But it was the kind of inappropriate behavior that makes many women feel uncomfortable and unequal in the workplace.”
Another woman described meeting Biden when he introduced Lady Gaga at the Oscars in 2016. She was part of a group of sexual assault victims who appeared with the singer. When she met Biden after the ceremony, he once again did the forehead touching thing – one of his signature moves – in front of a bevy of cameras.
The most recent encounter described to The Post took place in 2016.
Sofie Karasek was part of a group of 51 sexual assault victims who appeared onstage at the Oscars with Lady Gaga that year; Biden had introduced the singer’s performance.
Karasek said as she met Biden after the ceremony, she was thinking about a college student who had been sexually assaulted and recently died by suicide. She decided to share the story with the then-vice president, and Biden responded by clasping her hands and leaning down to place his forehead against hers, a moment captured in a widely circulated photograph.
Karasek said she appreciated Biden’s support but also felt awkward and uncomfortable that his gesture had left their faces suddenly inches apart. She said she did not know how to respond to, as she described it, Biden crossing the boundary into her personal space at a sensitive moment.
Someone printed her the photo of that moment, which Karasek framed and put on a shelf, but later took it down as the #MeToo movement began drawing more attention to cases of sexual harassment, assault and unwanted touching.
The third woman was a Democratic staffer during the 2008 campaign. She met Biden at a reception for 50 people that she helped organize. She described how Biden delivered an unwanted hug that lasted “for a beat too long.”
She now runs a nonprofit that fights sexual harrassment and said she felt duty bound to speak up.
The third woman to speak with The Post recalled meeting Biden for the first time during the 2008 election cycle.
Ally Coll said she was a young Democratic staffer helping run a reception of about 50 people when Biden entered the room. She said she was then introduced to Biden, who she said leaned in, squeezed her shoulders and delivered a compliment about her smile, holding her “for a beat too long.”
Coll, who runs the Purple Campaign, a nonprofit group that fights sexual harassment, said she felt nervous and excited about meeting Biden at the time and shrugged off feelings of discomfort. She says now that she felt his alleged behavior was out of place and inappropriate in the context of a work situation.
“There’s been a lack of understanding about the way that power can turn something that might seem innocuous into something that can make somebody feel uncomfortable,” said Coll, who consults with companies about their workplace policies.
In Biden’s defense, one woman who spoke with WaPo said the touching foreheads maneuver was a common gesture Biden employs with men and women (probably to try and convey, in pictures, that he’s a genuine “tactile” politician).
But with Biden reportedly set to declare his candidacy before the end of the month, his campaign-in-waiting has been thrown into disarray, and his top advisors are searching for scapegoats in the crowded field of Democratic rivals vying for the 2020 nomination.
If this report makes one thing clear, it’s that this scandal isn’t going away. And before it’s over, Biden, who is also facing renewed backlash over his role in the Anita Hill hearings, when he led the Senate committee that interrogated her, might find support for his candidacy has significantly diminished.
However, he has had one unexpected defender throughout all of this: President Trump, who has said Biden shouldn’t apologize.
Maybe the president is working with Biden’s rivals, too?
via ZeroHedge News https://ift.tt/2IbjAHm Tyler Durden
The last few days have seen a steady stream of leaks from the team investigating the crash of ET302, each more damning than the last, culminating with reports published Wednesday that the 737 MAX 8’s anti-stall software reengaged itself four times during the brief 6 minute struggle to right the doomed plane post-takeoff. Eventually, the sources said, the anti-stall software pushed the plane’s nose lower for the final time, sending it plummeting toward the Earth.
Boeing responded to this news with its own PR counteroffensive, and last night announced that its CEO, Dennis Muilenburg, had ridden in the cockpit of a 737 during a live test of its updated anti-stall software, and – get this – he survived! Boeing shares immediately lurched skyward.
But alas, it might take more than one successful test flight to distract from what investigators just told the world. Because right around 11:30 am Addis Ababa time, the findings from the official preliminary report were finally released in full. And they weren’t very flattering.
In the report, investigators urged Boeing to review the 737’s flight control system, and concluded that the crash wasn’t Boeing’s fault.
Which is a surprisingly indirect way of suggesting it was Boeing’s fault.
Finally, investigators recommended that Boeing complete “a full review” of its flight control systems, according to the FT.
Minister of Transport Dagmawit Moges said that the crew of the Ethiopian Airlines flight from Addis Ababa to Nairobi on 10 March “performed all the procedures repeatedly provided by the manufacturer but were not able to control the aircraft.”
As result, investigations have concluded that Boeing should be required to review the so-called manoeuvring characteristics augmentation system on its 737 Max aircraft before the jets are permitted to fly again, she said.
The results of the preliminary investigation led by Ethiopia’s Accident Investigation Bureau and supported by European investigators were presented by Ms Moges at a press conference in Addis Ababa on Thursday morning.
Boeing 737 MAX 8s have been grounded by regulators around the world for more than two weeks as the company scrambles to convince the FAA, foreign regulators and nervous passengers, that it had solved the software glitch that is believed to have contributed to both the crash of ET302 and a Lion Airlines crash that happened five months earlier. Of course, these are only preliminary findings and investigators still need to finalize their report. But as Boeing scrambles to finish revamping MCAS after a delay, it’s going to need to work extra hard to convince the public that these planes are safe.
via ZeroHedge News https://ift.tt/2UplWZP Tyler Durden
The multipolar transformation that is occurring across the Eurasian continent confirms the industrial and diplomatic cooperation between China and the European continent in spite of strong opposition from the United States.
Xi Jinping’s visit to Europe confirms what many of us have been writing about over the past few months and years, namely, the reality of an ongoing global transformation of a world dominated by the United States to a pluralistic one composed of different powers collectively shaping a multipolar world.
Europe therefore finds itself in fortuitous position, balanced as it is between its old world links to the United States on the one side and the fledgling Eurasian one being ushered in by Russia and China on the other.
Countries like Germany and France, but even the United Kingdom, have long implemented commercial policies that encourage integration between the countries of the Eurasian supercontinent. In 2015, the United Kingdom was among the first Western countries to join the Chinese Asian Infrastructure Investment Bank (AIIB), which finances projects of the Belt and Road Initiative (BRI).
The Chinese BRI mega project kicked off in 2014 with the ambitious goal of integrating trade between China and Europe by sea and by land, in the process incorporating all the countries in between. The idea, as a natural consolidation of trade, is to shorten the delivery times of goods by rail and integrate sea routes. The project covers not only ports and rail lines but also the construction of technological infrastructure to achieve global interconnectivity using the 5G technology developed by the Chinese tech giant Huawei.
Germany and France have over the years deepened their partnerships with Beijing. Paris in particular boasts historical ties with China stemming from the nuclear cooperation between China General Nuclear Power Group (CGNPC) and Électricité de France (EDF) stretching back to 1978, as well as the aerospace one between Airbus and the Chinese aviation companies that has been ongoing since 1985.
Italy has in recent months approached the BRI as a result of the new government consisting of the Lega Nord and Five Star Movement (M5S). The decision to sign a memorandum of understanding between Beijing and Rome underlines how the new government wants to maintain a balanced position between Washington and Beijing in certain sectors. This is exactly the approach of Germany, which has elected to continue deepening its ties with Moscow vis-a-vis hydrocarbons and Nord Stream 2 in the face of pressure from Washington. Moreover, both Germany and Italy have confirmed that they want to rely on Huawei for the implementation and management of 5G traffic, which is fundamental to a world dominated by the internet of things.
The decisions of Germany, France and Italy to continue their cooperation with Moscow and Beijing in various fields flies in the face of the narrative advanced by the American-controlled scaremongering media controlled that attempts to discourage European politicians from acting in the interests of their countries and engaging with Russia and China.
What Washington continues to misunderstand is why certain European countries are so determined to embrace the opportunities offered by the East. Italy’s recent example is quite easy to understand. The Italians hope that the BRI will provide much needed stimulus to their production industry, which has been in the doldrums in recent years. The desire for Chinese capital to give a boost to the export of Italian-produced goods is the driving force behind the proposed agreement between Beijing and Rome.
In addition to the obvious and natural desire for capital, there is also the idea of ensuring energy supply, as Germany is doing with the construction of the Nord Stream 2 with Russia. Despite strong US opposition, Berlin has favored its own national interest in energy diversification, avoiding giving in to pressure from Washington, which wanted Germany to rely on LNG supplied all the way from the US at an exorbitant price when compared to Russian-supplied gas.
There are striking divergences between Europe’s politicians, especially if we look at the relations between Macron and Salvini in Italy, or those between May and her European colleagues. Even between Merkel and Macron there seem to be notable frictions surrounding energy independence. However, in spite of these apparent divergences, the prevailing theme in the final analysis is that of wishing to escape Washington’s suffocating dominance in favor of a greater participation in the concept of a multipolar world.
No European capital – whether it be Paris, Rome, Berlin or London – intends to break the Atlantic pact with Washington. This is confirmed at every possible formal occasion. However, as Beijing becomes more and more central to questions concerning technology or the supply of liquid capital for investments or business expansion, the changes to the global order seem unstoppable.
The last obstacle remains those countries still closely linked to pro-Atlantic policies, those who find in Beijing, and above all Moscow, an excellent excuse to invite Washington’s greater intrusion into the sovereign affairs of Europe. The Baltic countries and Poland seem to offer the best inroads for US policy makers to try to influence the debate on the old continent regarding ties with the East. The artificial crises created in Ukraine, Syria and Venezuela also serve as tools to divide European leaders into opposing camps, creating the conditions to scupper European cooperation with the East.
It is no coincidence that for US strategists the two greatest dangers lie in the possibility of Moscow and Beijing, or Moscow and Berlin, cooperating and coordinating their efforts. The Berlin-Moscow-Beijing triangle, with the addition of Rome and Paris, represents a scenario for Washington that is unprecedented in terms of its challenge to US hegemony in Europe.
Wang Yiwei, Senior Research Fellow at the Center for China and Globalization, during Xi Jinping’s historic visit to Rome expressed in concrete terms the changing global order:
“With the 16+1 cooperation plan between Central and Eastern European nations and China, several countries signed memoranda of understanding with China to jointly build the BIS. So far, the governments of 16 Central and Eastern European countries have signed memoranda of understanding on BIS cooperation with China. Currently, 171 cooperation agreements have been reached with 123 countries and 29 international organizations under the BIS “
via ZeroHedge News https://ift.tt/2VrDTnT Tyler Durden
A video of a group of British soldiers using a large poster of Labour leader and avowed Marxist Jeremy Corbyn for target practice has provoked outrage in the UK and prompted the Ministry of Defense to launch an investigation, Sky News reports.
Corbyn, who will be meeting with Prime Minister Theresa May on Wednesday to discuss a possible Brexit compromise, has drawn the ire of the armed services due to his support for cuts to the defense budget and UK’s nuclear arsenal, as well as his tacit support for the government of Venezuela.
The cellphone footage, which has since gone viral, was initially posted to Snapchat before finding its way to Twitter. Though it’s unclear when the video was filmed, it’s believed that the shooting exercise took place in Kabul, Afghanistan, where soldiers carry out “guardian-angel” drills – ironically, practice to protect celebrities and government officials. In the video, the poster of Corbyn was accompanied by a label that read: “Happy with that.”
In a statement released Wednesday, the Army said “we are aware of a video circulating on social media. This behavior is totally unacceptable and falls well below the high standards the army expects. A full investigation has been launched.”
Labour lawmakers condemned the video, pointing out that it has circulated during a particularly charged time. A Labour MP who was allegedly targeted for murder in a neo-Nazi plot shared her experience during Wednesday’s PMQs…
“I was to be murdered to send a message to this place,” Rosie Cooper said. “Members of this House are regularly abused and attacked. Our freedoms, our way of life, our democracy is under threat.”
…eliciting a sympathetic reply from Speaker Bercow.
“By this sort of poisonous fascistic bile, we will not be cowed,” Bercow said. “And the sooner the purveyors of hate, of fascism, of Nazism, of a death cult realize that, the better.”
According to the BBC, the soldiers in the video were from the UK Army’s Third Battalion, and part of a parachute regiment known as 3 Para.
A Labour Party spokesman denounced the video as “alarming and unacceptable” but said the party has confidence in the MoD to investigate the incident.
via ZeroHedge News https://ift.tt/2G0RpbB Tyler Durden
Bethany, Oklahoma, police are investigating several teens for child pornography after a school resource officer found nude images on their phones. The students, three girls and two boys aged 14 and 15, reportedly admitted exchanging nude photos with one another.
In the latest issue of Reason, Daniel W. Drezner argues that the breakdown of global trade relations is pushing is setting the stage for future conflict. A snippet:
As the saying goes, the definition of insanity is doing the same thing over and over again and expecting a different outcome. This is a perfect way to describe the current effort by Democrats and some conservatives to implement a federal paid leave program, writes Veronique de Rugy. If the United States implements this policy, they believe Americans will not suffer the same negative consequences suffered in every country that has such a policy on its books.
Bethany, Oklahoma, police are investigating several teens for