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The knives are out early this morning among the brokers, where UBS – hardly the embodiment of ibanking and sales and trading health these days – just downgraded Goldman Sachs to Neutral, cutting its price target from $250 to $235, on the recent disappointing results from the company’s FICC group. UBS said it believes the market is pricing in an “inflection” in Goldman’s trading revenue despite the recent weakness suggesting a recovery is needed to justify 2018 consensus estimates. The bank concedes that “recent weak results could rebound but believe a recovery in trading revenues would need to be substantial as we estimate a roughly 25% rebound in FICC revenues is implied in 2018 consensus estimates.”

It adds that “while trading could rebound, that has not happened over the past year for GS absent a surprise event such as Brexit or the Trump election and we have difficulty relying on such an event in order to justify a bullish thesis.”

As a result, UBS has “limited confidence” in a FICC rebound at Goldman and sees better opportunities for investors elsewhere, such as Morgan Stanley (and why note even UBS shares).

From UBS:

Shares seem to reflect a rebound in revs but we have limited confidence in that

 

We are downgrading GS shares to neutral as the market seems to be pricing an inflection in their FICC revenues despite the recent weakness, suggesting a recovery is needed to justify 2018 consensus. We believe there are better opportunities for investors (such as buy-rated MS). Importantly, adjusting for unusual items (ie low taxes, excess I&L, etc) 1H17 earnings missed consensus forecasts as of mid-Feb 2017 (before revisions began) by 19.2%, yet the stock is down by 12.1% and consensus 2018 estimates are only down 7.2%, suggesting to us that the street is largely willing to embed a recovery in GS, trading results.

 

We recognize recent weak results could rebound but believe a recovery in trading revenues would need to be substantial as we estimate a roughly 25% rebound in FICC revenues is implied in 2018 consensus estimates. While trading could rebound, that has not happened over the past year for GS absent a surprise event such as Brexit or the Trump election and we have difficulty relying on such an event in order to justify a bullish thesis.

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Submitted by Rajan Dhall from fxdaily.co.uk

FX Week Ahead – The greenback crashes again! Could Fed chair revive the USD at Wednesday’s FOMC.

Last week I asked whether it was ‘end of days’ for the USD, based largely on the fading set of US economic data, which in fairness, happens in times of a ‘gradual’ recovery, going through the familiar series of peaks and troughs.  Some may have an issue with the term ‘recovery’ in the face of unprecedented cheap money which central banks are only now are planning to rein in, but we can apply to this to a number of major economies, so for the purposes of determining exchange rate (fair value) levels, we will even out the playing field a little.

Looking at some of the price action, we have broken out of some key levels and areas, so in this respect, ‘end of days’ means an end to the uptrend which has seen the EUR rate pushing back through 1.1500, while the commodity currencies also look to have set a longer term low in place. What is doesn’t mean – necessarily – is that the USD is going to implode, though the past week has seemed that way!  Matters relating to a certain president D Trump have clearly accentuated the weakness – and we won’t go into this – much said already – and this looks to have been the dominant factor.  Next week however, this may, or may not be highlighted by how the market takes to the FOMC announcement on Wednesday, which will see Fed Funds unchanged, but keen focus on the statement (only, no press conference) which accompanies this.  Indeed, some are ruling out another rate move from the Fed this year, but there are plenty of twists and turns ahead, as well as a ‘normalisation process’ which has been ‘designed’ to curb market excesses of the past, though has had minimal impact on the equity market.  The Fed chair has consistently highlighted valuation levels in stocks, so only a major drop off in the data, is expected to dissuade the Fed from their gradual rate path adjustments, though the familiar dissenters have been unnerved by some of the readings, not least of all inflation and sluggish wage pick up. 

No major data releases until Friday however, when when get the preliminary GDP stats for Q2.  Growth rate expectations have been fluctuating in the mid 2.0%’s where consensus is still for a 2.4% print.  Manufacturing and services PMIs are out on Monday as well as existing homes sales, while durable goods orders fall due on Thursday. 

Back to currencies, and against the tide of USD sales, USD/JPY losses have been relatively tame.   Wall Street has been making fresh record highs, so hampering JPY upside here is the ongoing divestment out of Japan despite the green shoots of recovery in the domestic economy.  This prompts many to look for higher levels in the cross JPY rates, and we will not preclude the spot rate yet, with yield differentials where they are and unlikely to tighten up as the BoJ maintain yield control measures.  Inflation targets are still a way off and the central bank has extended the period in which they expect them to be acheived. 

Given the turmoil at the White House alone, days of old would have seen USD/JPY crushed, so we have to acknowledge the resilience we are seeing at moment.  That said, it can only be tested so far.  A move through 111.00 is little to get excited about, but sub 110.00 could see some of the heavy JPY shorts – CFTC reporting another increase last week – turn tail.

Out of Japan next week, the inflation data on Friday wil again confirm the mountain to climb before we reach 2.0%, but the impressive unemployment rate of 3.1% expected to remain pretty much unchanged (worth a mention!). 

USDJPY Daily

As mentioned above, EUR/USD has powered higher in the midst of USD weakness, with the market carried away by the prospects of APP tapering this year.  President Draghi and most of the ECB (at the meeting last week), have done their utmost to rein in this latest round of exuberant positioning, which has pushed EUR/USD through 1.1600 and close to 1.1700 as of late trade Friday.  Too far, too fast?  Well naturally the ECB think so, but given some of the upside projections for 1.2000 by end the year – even 1.2500! – the rate of gains (vs time) look unsustainable at the very least.  Yields have fared more favourably however, with core EU rates pulling back (German 10yr back to 50bps vs near 65bps in the previous week), but this is largely a function of the broader bid in global fixed income.

EUR strength will at some point impact on exports, whilst also dampening inflation to a modest degree, but until the data really starts to reflect this, any pullbacks in the EUR will be corrective, so on the downside, the low 1.1500’s will likely prove the first point of support based on the congestion seen here on the way up.  EUR/CHF has also pushed into the mid 1.1000’s to eye a move on 1.1100, but we are struggling here a little.  Above the figure lie the highs seen in early summer last year, but gains have been tempered by the USD aspect which has seen the CHF spot rate dip under 0.9500. 

Amid the mix of PMI data over the week, we have some harmonised inflation numbers of note, while in Germany, the IFO survey on Tuesday is standout release. 

EURUSD Daily

The data highlight of the week in the UK is the Q2 GDP number on Wednesday, but despite retail sales holding up (according to last Thursday’s data), growth figures are expected to ease off from 2.0% in Q1 to 1.7% on a yearly basis. Rate hike expectations have eased off a little in the wake of the softer inflation read last week, but with less slack in wage growth than expected, steady growth could maintain the balance of MPC hawks sticking to their calls for a 25bp hike. 

This has given Cable the support to maintain the upside pressure on 1.3000.  Above here, the move through 1.3100 has been short lived on each occasion with key levels at 1.3145 and 1.3185-90 intact.  The strong bid in EUR/GBP has also played its part, but 0.9000 is a strong level, which if breached won’t necessarily lead to any runaway moves to the upside.  The perception of a soft Brexit may be misplaced at the present time, especially with last week’s talks highlighting the discord on EU citizens in the UK and the exit bill, but Theresa May’s weakened hand (whether you believe this or not) has worked in favour of the Pound, so the market is looking at ‘fair value’ again. 

GBPUSD Daily

The CAD has also ‘finally’ realised ‘fairer’ value levels, and as I stated last week, the recognition (and by this I meant the BoC response and rate hike – apologies for not being more explicit) of the improving growth and labour stats has sent the spot rate down to a little shy of 1.2500.  It is hard to see us avoiding a push below here next week, but in the short space of time, we have come a very long way and a correction here is long overdue.  On Friday we saw the market reacting to the stronger retail sales figures for May, but given the BoC’s assertions that the policy change was effected based on the data from May, this is priced in. There was scant regard for inflation slipping to 1.0%, but we expect this will impact at some stage.  House prices have also come off significantly in the last few months, and this will also test gov Poloz’s view that the economy can handle the latest tightening.  How far we correct depends on the USD again, but a pronounced move will come up against the strongest resistance in the 1.2950-1.3000 area. 

On the downside, 1.2000-1.2200 is a key target zone, 1.1800 or so beyond that, and these are not outside the realms of reality into the latter part of the year if economic expansion continues and Oil prices can stabilise (a big if).  The economy has adjusted to the lower price environment, but we expect a WTI move back towards $40.0 will prove unsettling again (to put it mildly).  GDP numbers for May are due at the end of the week, and are expected to show a modest 0.2% rise on the month.

USDCAD Weekly

It has been a good week for the AUD, where a key breakout vs the USD through 0.7835-50 is one such level which may have highlighted a major top in the greenback – pre 0.6800 in early 2016.  For all the worries over commodity prices as well as housing concerns back home, AUD has pushed higher against a number of its counterparts, but the spot rate clearly hit a wall ahead of 0.8000, so some form of pullback here may see the above (breakout) level tested the other way.  With inflation the bane of all major economies, the Q2 reading on Tuesday could see one or other of these limits tested, but we have already seen its limits reached against its NZD counterpart, which has retraced sharply after testing up to 1.0850.  Back in the mid 1.0600’s, 1.0500 is the first support point from here, and we are still undecided as to whether the key 1.0370-50 base tested a few weeks back is a major platform.

AUDUSD Daily

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Ahead of his closed-door meeting with the Senate Intelligence Committee at 10am, Jared Kushner released an 11-page statement which confirmed four contacts with Russians during his father-in-law’s presidential campaign or after the election, but described the encounters as unmemorable and denied colluding with the Russian government to help Donald Trump win the election.

The Senate Intelligence Committee is investigating Russian meddling in the 2016 campaign, including whether Trump’s campaign colluded with a Russian government effort to tip the election toward Trump.

The key statement: "I did not collude, nor know of anyone else in the campaign who colluded, with any foreign government. I had no improper contacts. I have not relied on Russian funds to finance my business activities in the private sector. I have tried to be fully transparent with regard to the filing of my SF-86 [security clearance] form, above and beyond what is required."

In the most consequential meeting, Kushner said he agreed to meet with a Russian banker, Sergey Gorkov, on Dec. 13 at the request of the Russian ambassador to the U.S., Sergey Kislyak

Kushner’s interview with committee staff is voluntary, will take place out of the public eye and will not be under oath. It nevertheless may serve as a building block for the ongoing Russia investigations by Special Counsel Bob Mueller as well as House and Senate committees. The stakes for the congressional interviews are high for Kushner because Kushner is of acute interest to special counsel Bob Mueller, and prosecutors can be expected to pick apart today's statement.

Kushner amended his security clearance disclosures to account for previously unreported meetings with foreign contacts, and his brother-in-law, Donald Trump Jr., disclosed this month that in June 2016 Kushner sat in on a meeting with a Russian lawyer and a Russian lobbyist that Trump Jr. believed would deliver potentially damaging information about Democratic nominee Hillary Clinton, according to Bloomberg.

Suspicions about Kushner’s contacts with Russians have been intensifying since late May, when the Washington Post first reported that Kushner was a “person of interest” in the multiple investigations into whether the Trump campaign colluded with Russia to sway the election in its favor. Among other misdeeds, Kushner has been accused in the media of trying to set up a backchannel to Moscow during the campaign. However, he denies this allegation, saying that he merely asked Kislyak if lines of communication existed for Moscow's generals to brief former National Security Adviser Mike Flynn on events in Syria. He was told there were none.

“I did not suggest a ‘secret back channel’. I did not suggest an ongoing secret form of communication for then or for when the administration took office. I did not raise the possibility of using the embassy or any other Russian facility for any purpose other than this one possible conversation in the transition period,” he testified, according to the Financial Times.

Rebutting one of the more persistent allegations against him – namely that he left a handful of meetings with foreign officials off his security clearance application – Kushner said that, due to a clerical error, all of his meetings with foreign parties were ommitted, according to Reuters.

Kushner has said he didn’t read to the bottom of an email forwarded to him by his brother-in-law about the Russia meeting that described potentially receiving damaging information about Clinton. He has said he left the meeting after only a couple of minutes, even texting an assistant asking them to call him and give him an excuse to leave.

"[I]n looking for a polite way to leave and get back to my work," he says in the statement, "I actually emailed an assistant from the meeting after I had been there for ten or so minutes and wrote 'Can u pls call me on my cell? Need excuse to get out of meeting.' I had not met the attorney before the meeting nor spoken with her since. I thought nothing more of this short meeting until it came to my attention recently."

Another highlight: "With respect to my contacts with Russia or Russian representatives during the campaign, there were hardly any. … [T]he day after the election, I could not even remember the name of the Russian Ambassador. … I sent an email asking [Dmitri Simes of the Center for the National Interest, which hosted a Trump foreign policy speech], 'What is the name of the Russian ambassador?'"

Meanwhile, Kushner last week filed an amended financial disclosure that included 77 items worth at least $10 million that were described as “inadvertently omitted” from a March filing. The updated filing includes details about the Kushner family’s real estate holdings. The disclosure has been revised 39 times since its initial filing on March 9.

Other notable excerpts from today's statement, via Axios:

• "When it became apparent that my father-in-law was going to be the Republican nominee for President, as normally happens, a number of officials from foreign countries attempted to reach out to the campaign. My father-in-law asked me to be a point of contact with these foreign countries. … [O]ver the course of the campaign, I had incoming contacts with people from approximately 15 countries."
• "I called on a variety of people with deep experience, such as Dr. Henry Kissinger, for advice on policy for the candidate, which countries/representatives with which the campaign should engage, and what messaging would resonate."
• "The first [campaign contact] that I can recall was at the Mayflower Hotel in Washington, D.C. in April 2016. … [T]he host of the event, Dimitri Simes, … introduced me to several guests, among them four ambassadors, including Russian Ambassador Sergey Kislyak. With all the ambassadors, including Mr. Kislyak, we shook hands, exchanged brief pleasantries."
• "Reuters news service has reported that I had two calls with Ambassador Kislyak at some time between April and November of 2016. While I participated in thousands of calls during this period, I do not recall any such calls with the Russian Ambassador. We have reviewed the phone records available to us and have not been able to identify any calls to any number we know to be associated with Ambassador Kislyak and I am highly skeptical these calls took place."
• "I had no ongoing relationship with the Ambassador before the election, and had limited knowledge about him."
• "The only other Russian contact during the campaign is one I did not recall at all until I was reviewing documents and emails in response to congressional requests for information."
• That was the Trump Tower meeting, and he said the invitation from Donald Trump Jr. "was on top of a long [email] back and forth that I did not read at the time. … Documents confirm my memory that this was calendared as 'Meeting: Don Jr.| Jared Kushner.' No one else was mentioned."
• "There was one more possible contact that I will note. On October 30, 2016, I received a random email from the screenname 'Guccifer400.' This email, which I interpreted as a hoax, was an extortion attempt and threatened to reveal candidate Trump's tax returns and demanded that we send him 52 bitcoins in exchange for not publishing that information. I brought the email to the attention of a U.S. Secret Service agent on the plane we were all travelling on and asked what he thought. He advised me to ignore it and not to reply — which is what I did. The sender never contacted me again."
• "On November 16, 2016, my assistant received a request for a meeting from the Russian Ambassador. … The [Dec. 1] meeting occurred in Trump Tower, where we had our transition office, and lasted twenty [to] thirty minutes. Lt. General Michael Flynn (Ret.), who became the President's National Security Advisor, also attended.
• "I believed developing a thoughtful approach on Syria was a very high priority given the ongoing humanitarian crisis, and I asked if they had an existing communications channel at his embassy we could use where they would be comfortable transmitting the information they wanted to relay to General Flynn. The Ambassador said that would not be possible and so we all agreed that we would receive this information after the Inauguration. Nothing else occurred. I did not suggest a 'secret back channel.'"
• "My assistant reported that the Ambassador had requested that I meet with a person named Sergey Gorkov who he said was a banker and someone with a direct line to the Russian President who could give insight into how Putin was viewing the new administration and best ways to work together. I agreed to meet Mr. Gorkov because the Ambassador has been so insistent, said he had a direct relationship with the President, and because Mr. Gorkov was only in New York for a couple days."
• "The [Dec. 13] meeting with Mr. Gorkov lasted twenty to twenty-five minutes. … At no time was there any discussion about my companies, business transactions, real estate projects, loans, banking arrangements or any private business of any kind."
• "There has been a good deal of misinformation reported about my SF-86 [security clearance] form. As my attorneys and I have previously explained, my SF-86 application was prematurely submitted due to a miscommunication and initially did not list any contacts (not just with Russians) with foreign government officials."
• "[P]eople at my New York office were helping me find the information, organize it, review it and put it into the electronic form. They sent an email to my assistant in Washington, communicating that the changes to one particular section were complete; my assistant interpreted that message as meaning that the entire form was completed.
• "At that point, the form was a rough draft and still had many omissions including not listing any foreign government contacts and even omitted the address of my father-in-law (which was obviously well known). Because of this miscommunication, my assistant submitted the draft on January 18, 2017."
• "The very next day, January 19, 2017, we submitted supplemental information to the transition, which confirmed receipt and said they would immediately transmit it to the FBI."

His full prepared testimony is below (link):

 

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In a mixed session, which has seen Asian stocks ex-Japan broadly higher, the European Stoxx 600 index dropped as much as 0.6% after data Markit PMI data signalled euro-area economy grew in July at its slowest pace in six months while carmakers extended declines on continued concern about antitrust collusion in the industry.  Germany’s DAX Index was hardest-hit euro-area benchmark, down as much as 0.8%. Autos continued to be the worst-performing sector on the Stoxx Europe 600 after EU and German regulators said they are studying possible collusion among German automakers. Der Spiegel magazine reported on Friday that BMW, Daimler and Volkswagen may have cooperated for decades on technology. 

Concerns have risen that with the Euro trading near its strongest level in 2 years and appreciating 11% against the USD YTD, it may weigh on exporters’ earnings; 1.20 on the EURUSD is being seen a key barrier beyond which European earnings will suffer.  As a result, the euro headed for its first decline in three days as data showed the region’s economy cooling at the start of a week packed with earnings results and a Federal Reserve rate decision. Stocks were dragged down for a second day by carmakers amid a collusion probe.

The common currency halted the advance that saw it hit a two-year high after a composite Purchasing Managers’ Index fell in July to a six-month low. Automakers extended a slump as European Union and German authorities said they are studying possible collusion among German producers. Crude fluctuated as an OPEC committee gathers to discuss the progress of supply cuts. Bonds were mixed.

Europe’s PMI was closely scrutinized after both German and Eurozone manufacturing missed expectations:

• Flash Eurozone PMI Composite Output Index at 55.8 (56.3 in June), below the 56.2 expected and 6-month low.
• Flash Eurozone Services PMI Activity Index at 55.4 (55.4 in June), below the 55.6 expected. Growth unchanged.
• Flash Eurozone Manufacturing PMI Output Index at 56.9 (58.7 in June). 6-month low.
• Flash Eurozone Manufacturing PMI(3) at 56.8 (57.4 in June). 3-month low.

Meanwhile, in a week heavy on political and monetary events, with several key Trump-related hearings later in the week, as well as the Fed’s July decision on deck, earnings from industry bellwethers from Amazon.com Inc. to GlaxoSmithKline Plc are set to provide the latest tests for a bull market that’s propelled the value of global equities to $78 trillion. According to Bloomberg, euro-area manufacturing figures indicate that gross domestic product is expanding at a 0.6 percent quarterly pace, compared with 0.7 percent in the second three months of the year, adding further doubts about the sustainability of the stock rally at a time when the strong euro is weighing on exporters.

In Asia, the MSCI Asia Pacific Index edged higher after rallying over the past two weeks to the highest level in more than 10 years. Japan’s Topix index slid 0.5 percent, after dropping as much as 1 percent earlier in the day. Australia’s S&P/ASX 200 Index lost 0.6 percent.  The Shanghai Composite Index advanced 0.4 percent while Hong Kong’s Hang Seng was 0.5 percent higher. India’s Sensex climbed 0.6 percent to a record. The Australian dollar rose 0.6 percent, trading above 79 U.S. cents ahead of a speech by Reserve Bank of Australia Governor Philip Lowe on Wednesday.

The Dollar slumped to a five-week low against the yen on concern a widening probe into possible ties between Russia and U.S. President Donald Trump’s election campaign may derail his growth agenda. Lower U.S. Treasury yields and oil prices spur leveraged selling in the greenback ahead of Jared Kushner’s closed-door meeting with the Senate Intelligence Committee on Monday, according to an Asia-based foreign-exchange trader quoted by Bloomberg. As noted over the weekend, hedge funds and other large speculators were the most bearish on the dollar in more than four years as the Federal Reserve meets this week

As noted earlier, the Polish zloty jumped the most against the euro since May after Poland’s President Andrzey Duda said he’d veto part of an overhaul of the judiciary that’s brought tens of thousands of protesters into the streets across the eastern European nation

In rates, the German government bond yields edged lower after euro zone PMI data also came in below forecasts. The 10-year yield – the benchmark for euro zone borrowing costs – fell to 0.49 percent, down 0.4 basis points and its lowest in more than a week. Yields fell on Friday as the strong euro led investors to question the timing of when the ECB would begin to withdraw its stimulus.

Bulletin Headline Summary from RanSquawk

• European equities trade lower amid disappointing PMI readings and downside in auto names
• Quiet start to the week for FX markets with participants eyeing this week’s FOMC meeting
• Looking ahead, highlights include Eurozone and US PMIs, US Existing Home Sales

Market Snapshot

• S&P 500 futures down 0.1% to 2,466.50
• STOXX Europe 600 down 0.3% to 379.14
• MXAP up 0.03% to 159.58
• MXAPJ up 0.3% to 526.46
• Nikkei down 0.6% to 19,975.67
• Topix down 0.5% to 1,621.57
• Hang Seng Index up 0.5% to 26,846.83
• Shanghai Composite up 0.4% to 3,250.60
• Sensex up 0.7% to 32,251.51
• Australia S&P/ASX 200 down 0.6% to 5,688.07
• Kospi up 0.06% to 2,451.53
• German 10Y yield fell 0.9 bps to 0.497%
• Euro down 0.2% to 1.1644 per US$
• Brent Futures up 0.3% to $48.19/bbl
• Italian 10Y yield fell 4.1 bps to 1.78%
• Spanish 10Y yield rose 0.6 bps to 1.457%
• Brent Futures up 0.3% to $48.19/bbl
• Gold spot up 0.1% to $1,256.03
• U.S. Dollar Index up 0.1% to 93.93

Top Overnight News

• The Fed will unveil the timing of its balance sheet unwind in September and wait until December to raise interest rates again, according to a Bloomberg survey of 41 economists
• U.K. Trade Secretary Liam Fox will meet his U.S. counterpart in Washington on Monday as Britain seeks a trans-Atlantic trade deal as soon as possible after leaving the EU
• The world is leaning less on its biggest economy to sustain the global recovery, according to the International Monetary Fund. Beneath the global growth figures, the drivers of the recovery are shifting, with the world relying less than expected on the U.S. and U.K. and more on China, Japan, the euro zone and Canada, according to the Washington- based fund
• The Polish zloty jumped the most against the euro since May after Poland’s President Andrzey Duda said he’d veto part of an overhaul of the judiciary that’s brought tens of thousands of protesters into the streets across the eastern European nation
• U.K.’s Fox in U.S. to Argue for Quick Post- Brexit Trade Deal
• White House Team Differs on Trump Support for Russia Sanctions
• Euro Area Economy Grows at Slowest Pace in Six Months
• OPEC Signals No Big Changes to Supply Deal at Meeting in Russia
• Fed Seen Making September Balance-Sheet Announcement: Survey
• America First No More as IMF Sees U.S. Fading as Growth Engine
• BMW Denies Diesel Cheating as EU, Germany Probe Auto Cartel
• Asda Is Said to Hold No Takeover Interest for B&M: Telegraph
• J&J Picks HIV Vaccine Candidate for Further Testing This Year
• Glaxo’s ViiV, J&J HIV Injection Shown as Effective as Oral Dose
• Blackstone Buys Clarion Events; No Terms
• Ireland to Hire Custodian to Manage Cash From Apple Tax Case
• Monsanto Cites Illegal Off-Label Products in Dicamba Findings
• Diebold Nixdorf Dragged Down by Peer’s Disappointing 3Q Forecast
• HCA in Pact to Buy Hospital From Community Health; No Terms
• Polish President Duda to Veto Part of Judiciary Legislation
• Deutsche Bank, JPMorgan Agree to Settle Yen-Libor Lawsuits

Asian stocks traded mixed after quiet weekend news flow and with participants awaiting the upcoming FOMC meeting on Wednesday. ASX 200 (-0.7%) traded negative as energy and financial sectors weighed on the index, whilst Nikkei 225 (-0.6%) also suffered in the red amid a strong JPY. Shanghai Comp. (+0.4%) and Hang Seng (+0.4%) were higher following the PBoes firm liquidity injection of CNY 350b1n, in addition to some Hong Kong banks reducing deposit rates to less than 4% after declines in the CNH HIBOR. Finally, 10yr JGBs were flat with brief pressure seen after the BoJ Rinban announcement, in which it reduced buying of 5yr-10yr JGBs to JPY 470bn from JPY 500bn. PBoC injected CNY 200b1n via 7-day reverse repos and CNY 150bln in 28-day reverse repos. PBoC set CNY mid-point at 6.7410, Prev. 6.7415.

Top Asian News

• China Banks That Funded HNA’s Growth Are Said to Halt New Loans
• Mystery Bond Trader Nets $10 Million on Treasury Strangle Gamble
• Singapore Startup Takes Bitcoin Into Real World With Visa
• India Starts Antidumping Investigation on Imported Solar Cells
• No Relief for Lanka Rupee Sliding at Fastest Pace Since 2006
• Exporters Lead Japanese Stock Decline as Yen Holds Gains

Broadly a negative start for European equities with weakness stemming from Automakers and Airliners. Germany automakers, BMW, Daimler and Volkswagen softer this morning following reports that the European Union confirmed a probe into alleged price-fixing, while airliners have been dragged lower by Ryanair following the release of their financial results. Elsewhere, lower crude prices, coupled with weaker than expected Eurozone PMI readings has also added to the risk off tone. Credit markets have been supported by safe-haven flow, while peripheral bonds are slightly tighter to bunds this morning. Spanish debt supported from Fitch revising its outlook on Spain to positive, while month-end extensions are aiding OATs, Bonos and BTPs.

Top European News

• Saudi Energy Minister: Build-Up in Global Inventories Reversing
• Polish Zloty Jumps Most Since May as President Scraps Court Bill
• Telecom Italia Shares Rise as Board Meets to Approve CEO Exit
• Czech Top Judges Say Polish Judicial Reforms Undermine Democracy
• IMF Cuts U.K. Forecast After Disappointing First- Quarter Growth

In currenices, it has been a very quiet start to the week with the greenback a fraction firmer, however the bias remains to the downside amid the ongoing US political uncertainty. DXY saw a break below 94.00, hitting a low of 93.82 in Asia, slight attention will be placed on the FOMC decision, as participants look for clarity on the timeline of balance sheet normalisation. Antipodeans (AUD, NZD) were the notable mover overnight with much of the price action seen through the cross as AUD/NZD moved within a whisker of 1.07. RBA speak last week failed to temper the AUD rise with the currency consolidating above 0.7950 and hovering around 2Y highs. Focus will be on RBA. Governor Lowe on Wednesday who may also look to curb the recent surge. EUR sagging this morning having touched lasts week post ECB peak at 1.1684, while softer PMI releases from France and Germany have also added to the EUR easing. EUR slightly south of 1.1650 with bids noted just ahead of Friday’s low at 1.1619.

In commodities, crude prices were softer this morning with both WTI and Brent down initially, amid the OPEC/Non-OPEC monitoring committee meeting the Saudi Energy Minister has stated that there has been no discussion over deeper cuts, however there has been talks over Nigeria and Libya production caps, given their recent increase in output. Gold rangebound after prices briefly touched a 4-week high on the back of a politically. Subsequently the energy complex rebounded however, after the Saudi energy minister made some solemn promises, in which he saw Saudis capping exports at 6.6mmb/d, saying that Nigeria would cut if it reaches output of 1.8mmb/d, and sees a deep cut in Saudi August production.

Looking at today’s busy session, we get the July manufacturing, services and composite flash PMIs for Germany, Eurozone (both of which declined and missed expectations) and the US later this morning. Existing home sales data in the US will also be released.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 52.2, prior 52; Services PMI, est. 54, prior 54.2; Composite PMI, prior 53
• 10am: Existing Home Sales, est. 5.57m, prior 5.62m; Existing Home Sales MoM, est. -0.89%, prior 1.1%

DB’s Jim Reid concludes the overnight wrap

After a long hot first half to the summer, Saturday was cold in Surrey with torrential downpours that lasted most of the day. Probably the one person in the UK doing cartwheels of celebration at this turn in the weather was my wife who has just about had it with being doubly pregnant in summer. The cartwheels are figurative of course as she is struggling with everything physical at the moment. Help is at hand though and today marks the start of what I’ve resigned myself to be the start of a 25 year (minimum) financial noose around my neck. We have hired a nanny who starts today. Just as her job is done, three sets of school fees will then filter through, followed by University fees, help with deposits on their first homes and then finally their weddings where at that point I’ll pass them on to be someone else’s financial responsibility. If I succeed I’ll tell you about it in the EMR sometime in 2042 via telepathic hologram or whatever medium this gets published via at that point. I’ll be interested to hear from the elder readers at what age their offspring became financially independent!

Moving on and forgetting the fact that I’ve now committed to a path with no return, the highlight this week are today’s flash PMI numbers and the FOMC meeting this Wednesday, although the latter will likely be a relatively mundane affair with the action perhaps being saved for a September balance sheet announcement. Nevertheless we’ll preview our expectations just before the week ahead at the end. One also has to keep an eye on all things Washington related following Friday’s announcement of Press Secretary Sean Spicer’s resignation. Mr Trump now has new people at the helm of both his legal and communications teams after resignations towards the end of last week. Late on Friday Congressional negotiators agreed to advance a bill punishing Russia for its involvement in the 2016 election and also restricting Presidential powers to remove sanctions on Russia. It will now go to a vote and if it passes Mr Trump could be in a difficult situation as he has publicly stated he wants improved relations with Russia but clearly if Congress has voted for the bill he’d be seen as siding with Mr Putin if he didn’t respond positively when it reached his desk. These matters are obviously important for many reasons not least as Mr Trump does need Congress on his side if he has hopes of rescuing his legislative agenda.

Elsewhere, today sees senior White House advisor Jared Kushner interviewed by the Senate Intelligence committee, with Donald Trump Jnr. and ex-Trump campaign Chairman Paul Manafort before Senate committees on Wednesday. As the week starts in Asia, the Nikkei (-0.9%) and the Kospi (-0.1%) have softened, but the Hang Seng is up 0.4% to be at the highest level since July 2015. The three key Chinese bourses ranged from -0.1% to +0.2%. Overnight the IMF have released their latest vow on the global economy and their chief economist is increasingly confident that “the recovery in global growth is on a firmer footing….there is now no question mark over the world economy’s gain in momentum,”. Headline global growth of 3.5% in 2017 and 3.6% in 2018 is the same as April, but the projections now capture downward revision to US and UK, offset with improvements in China, Europe and Japan. Compositionally, US has been cut by 0.2% and 0.4% respectively, to 2.1% growth in both 17 and 18. UK has been cut to 1.7% (-0.3%) for 17, while Europe is expected to grow by 1.9% in 17 and 1.7% in 18.

Despite a general lack of data on Friday, Global markets saw a broader risk off move. US and European equities were down with the DAX, STOXX 600 and S&P 500 falling -1.66%, -1.32% and -0.04% respectively. In Europe we saw losses across all sectors with Automobiles (-2.7%) being the worst hit while banks were also down -1.1%. In fact the DAX is now at 3 month lows, probably not helped by the 2-year high in the Euro. Indeed the dollar index fell by -0.5% on Friday to end the week down -1.4%, while the Euro continued to strengthen as it gained +0.3% on Friday (vs the Dollar) to end the week up +1.7% as a whole (+2.5% vs  Sterling). The S&P 500 did rally into the close after hitting its lows (around -0.4% for the day) around the time Europe went home. Energy (-0.88%) was the big laggard in the US after Oil fell -2.45% partly on news that OPEC supply this month is expected to be at its highest levels since December. This more than offset earlier week gains closing -1.7% on the week. Tech stocks were just in the red and ended a 10-day positive run. Precious metals also benefited from the risk off moves with Gold and Silver both ticking up by just over +0.5% respectively.

Credit Markets somewhat mirrored the risk off moves in equities. In Europe iTraxx Main was about -1bp tighter on the day but Crossover widened around +1bps. Risk off moves were more visible in the US where CDX IG was flat on the day but CDX HY widened by +3bps. Staying with credit, this morning we have published a Credit Bite where we highlight the resilience of the EUR HY market to the moves in government bond yields following Draghi’s Sintra speech. We do note however that there has been some weakness in the technicals that are worth keeping an eye on. If you haven’t received the report please contact Nick Burns.

Talking of yields, bonds continued their recovery on Friday as we saw yields on  US Treasuries (2Y -1bp; 10Y -2bps) and German Bunds (2Y: unch; 10Y -2bps) fall across most maturity points. Yields on Gilts (10Y -3bps), OATs (10Y -2bps) and BTPs (10Y -4bps) also dropped on the day. After a week where the ECB and Draghi were seen as relatively dovish on the pace of tightening (if not deviating from the message that tightening was coming), Bunds fell 9bps but Italian and Spanish bonds fell 22bps and 20bps respectively.

Taking a look back at Friday’s calendar, it was an uneventful end to the week in terms of macro data. In Europe the only data of note was UK public sector net borrowing data for June where the deficit overshot expectations at 6.3bn (vs. 4.2bn expected; 6.0bn previous). Across the pond there was no data of note in the US, but Canada saw June inflation come in just marginally below expectations (+1.0% YoY vs. +1.1% expected; +1.3% previous).

Before we detail the full week ahead, let’s preview the FOMC this Wednesday. Our US economics team published a note on Friday updating their view on the Fed and detailing their expectations for the July FOMC statement. They note that the Fed is unlikely to take any action in a policy firming direction at the meeting this week, partly because inflation has continued to surprise to the downside as of late. They do expect the FOMC statement to particularly focus on how the Fed will handle the dichotomy between a resumption of moderate growth and continuing improvement in the labor market on one hand and ongoing softness in inflation on the other. Given this dichotomy they modestly update their Fed view – they see the Fed pausing in Q1 2018 after another hike in December and then resuming at a pace of one hike per quarter thereafter, thus moving their Fed call in line with the median FOMC expectation of three rate hikes during 2018. On the topic of the timing of the initial taper of balance sheet reinvestment the team  believes that a July announcement and August tapering (while possible in principle) has a low probability given a) the recent softness in inflation; b) because Yellen did not take the opportunity at her Congressional testimony to more strongly signal a July announcement; and c) because market expectations are generally centred on a September announcement and October commencement. They note that these relatively strongly held market expectations should also allow the Committee to get by without giving any more specific guidance on timing even within this week’s statement.

To the rest of the week ahead now. Monday starts with the July manufacturing, services and composite flash PMIs for Germany, Eurozone and the US. Existing home sales data in the US will also be released. Onto Tuesday, Germany will have the IFO July index for business climate and expectations, while France will report confidence indicators for July. In the US on Tuesday data includes consumer confidence, FHFA house price index, S&P/Case-Shiller house price index and Richmond Fed manufacturing index. Turning to Wednesday, in the UK Q2 GDP is due, while the focus in the US will be the July FOMC rate decision. New home sales data will also be due. For Thursday, the morning session looks quiet with only Euro area M3 money supply data due. Across the pond the US will update its durable and capital goods orders for June as well as the initial jobless claims, advance goods trade balance, wholesale inventories and Kansas City Fed’s manufacturing index. Finally, on Friday, the early data is out of Japan where June CPI data is due, while in Europe we have Germany and France providing an update on CPI. Euro area confidence indicators are also due. It’s a bumper end to the week in the US with the advance Q2 GDP report, core PCE and the final University of Michigan consumer sentiment reading.

Onto other events. On Monday, the UK begins preliminary post-Brexit trade talks with the US, ECB’s Frank Smet’s will speak at Munich and OPEC and non- OPEC meet in Russia to discuss progress with production cuts. On Tuesday, the US secretary of Commerce will address the economic club of Washington. Onto Wednesday the Fed of Minneapolis President will be the first speaker post the FOMC decision. Finally, notable US companies due to report include: Alphabet, Amazon, AMD, AT&T, Twitter, Facebook, McDonalds, GM, Caterpillar, Ford, Boeing, Royal Dutch Shell, Chevron, Exxon, Merck and AbbVie. Closer to home, we also have CS, BNP Paribas and UBS due to report.

via http://ift.tt/2uQpiaQ Tyler Durden

Polish President Andrzej Duda unexpectedly said on Monday that he would veto two of three bills reforming the country’s judiciary system, easing Brussels’ fears that the ruling Law and Justice party will undermine the division of powers. In a news conference on Monday morning, Duda said that he would veto two of three contentious bills, one that would have forced all members of the Supreme Court to step down, except for those kept on by the president; and a second that would have given parliament control over the National Judicial Council, the body that appoints judges, the FT reports.

“I have decided that I will send back to Sejm (lower house of parliament), which means I will veto the bill, on the Supreme Court, as well as the one about the National Council of the Judiciary,” Duda said after days of mass street protests adding “I regret that I, as president of the Republic of Poland, wasn’t consulted over this initiative before it reached the Sejm [the lower house of parliament]. I couldn’t carry out consultations [on this matter] and nor could the other interested entities.”

Duda’s veto puts him at odds with the de facto leader of the country, Jaroslaw Kaczynski, who is the leader of PiS but has no formal government post, Reuters notes. Poland’s ruling Law and Justice party claims that the changes are necessary to overhaul an inefficient system that has not been purged since the collapse of communism almost three decades ago.

However, in recent days the legislation has faced mounting international criticism, and sparked days of protests, with tens of thousands of Poles taking to the streets to rally against the changes which they fear would undermine the independence of the judiciary. The US State Department on Friday urged Poland to “ensure that any judicial reform does not violate Poland’s constitution or international legal obligations and respects the principles of judicial independence and separation of powers”.

Duda’s decision was greeted by the opposition: “What we had was not a reform, but appropriation of the courts. I congratulate all Poles, this is a great success, really,” Katarzyna Lubnauer, head of the parliamentary caucus of the opposition party Nowoczesna.

Meanwhile the Polish zloty, which tumbled under pressure as the battle over the judicial reforms has unfolded, jumped on the news, trading up 0.9 per cent at PLN4.24 against the euro.

via http://ift.tt/2vAA430 Tyler Durden

Authored by Mike Shedlock via MishTalk.com,

On June 14, Reuters reported Munich, Home to BMW, Considers Diesel Ban to Tackle Pollution.

Today, with strong overtones of regulators hopping in bed with industries they are supposed to regulate, EU’s Car Regulator Warns Against Diesel Ban in Cities.

Munich, home to carmaker BMW, has become the latest German city to consider banning some diesel vehicles amid “shocking” nitrogen oxide emissions in the Bavarian capital.

 

“As much as I would welcome avoiding such bans, I think it is just as unlikely that we can continue to do without bans in the future,” Munich mayor Dieter Reiter was quoted as saying by the Sueddeutsche Zeitung newspaper on Wednesday.

 

Asked about the latest nitrogen oxide readings, which the paper said violated European air quality standards well beyond busy trunk roads, the mayor said: “The results are shocking, nobody expected this.”

 

The scandal over rigged diesel emission tests at Volkswagen has already thrown the future of diesel engines into doubt, and has highlighted carmakers’ struggle to comply with ever stricter rules on the nitrogen oxides emissions.

Regulators in Bed With Industry?

Flash forward to today.

Banning diesel cars in European cities could hamper automakers’ ability to invest in zero-emission vehicles, the European Union’s commissioner for industry has warned the bloc’s transport ministers.

 

In a letter seen by Reuters, Commissioner Elzbieta Bienkowska said there would be no benefit in a collapse of the market for diesel cars and that the short-term focus should be on forcing carmakers to bring dangerous nitrogen oxide emissions into line with EU regulations.

 

In the letter, Bienkowska told ministers she was concerned that the latest emissions violations at Audi and Porsche were discovered by prosecutors and not Germany’s vehicle and transport authorities.

 

Bienkowska’s letter also called for all cars with excessively high levels of nitrogen oxide emissions to be taken of European roads, but said carmakers should act on a voluntary basis.

 

Experts who have seen the letter to ministers say the commissioner appeared to be bowing to carmakers’ demands.

 

“Her letter contained some important statements that we believe show the industry’s lobbyists have scored a big win,” Bernstein analyst Max Warburton said in a report.

Diesel Job Math

The Center for Economic Studies (CESifo) produced a report on the German diesel industry for its stated client, the German Association of the Automotive Industry.

Let’s dive into the report on the Consequences of a Potential Ban on New Cars and Light Trucks with Combustion Engines.

Based on the structure of production in 2015, at least 457,000 employees are involved in producing types of products which would be directly affected by the ban (e.g., diesel engines). This is equivalent to 7.5% of overall manufacturing employment in Germany. The largest share of these employees (426,000) works in the automotive industry itself. If one includes product groups that would be indirectly affected (e.g., transmission systems, which are more complex in vehicles with combustion engines), the number of potentially affected jobs rises by 163,000 or an additional 3% of overall manufacturing employment. These jobs are mainly clustered in the metal industry: 102,000 employees in metal processing produce parts destined for vehicles with combustion engines. Taking the direct and indirect channel together, a total of at least 620,000 employees would be affected by the ban, which represents over 10% of total German manufacturing employment.

 

Among the 457,000 directly affected jobs, 31,000 jobs in small and medium-sized enterprises would be highly at risk. These firms can be expected to face larger difficulties than large companies in developing new alternative fields of business against the background of a major shift in propulsion technology. This share is substantially larger among indirectly affected jobs: Here 101,000 out of 163,000 jobs are situated in small and medium-sized enterprises and highly concentrated among automotive suppliers in the metal industry.

 

If value-added is considered instead of employment, these effects become even more pronounced. This is due to the exceptionally high average labour productivity in the automotive industry. If direct and indirect effects are combined, around 13% of German overall manufacturing value added would be affected by the ban. Based on the 2015 figures, this would represent a volume of 48 billion euros. In interpreting these figures, one has to bear in mind that not the entire workforce and value-added “at risk” would necessarily vanish. Some parts, for example, are also used in heavier trucks and buses, which would probably not be subject to the ban. In addition, new jobs in the areas of alternative propulsion technologies in Germany would help to limit employment reduction, at least in the aggregate.

Germany’s Over-Dependence On Diesel Technology

Eurointelligence discussed diesel in a recent article.

As we have noted time and again it is very hard for people to separate their expectations of the future from their fundamental beliefs. One of the unshakable beliefs in Germany is the virtue of the diesel car. It gives the German motor industry a competitive advantage that cannot be reversed.

Except, of course, through new technologies and shifting social trends.

 

We noted this tendency to wishful thinking again when we read a story in FAZ this week on the future of the diesel car in Germany, and the importance of the technology for the German economy. One of the statistics quoted is that one tenth of the jobs in German industry directly depends on the production of car engines. And so, the car-obsessed media reporters and German economists have a tendency to downplay technological, social, and political trends by insisting that diesel still has a future.

 

The Ifo institute has done the math on the impact of a diesel bans on the industry. It shows that 620,000 jobs in Germany directly and indirectly depend on the production of fuel engines for cars – about 1.5 percentage point of the labour force. This is about 10% of all jobs in German industry. These numbers would include suppliers, but presumably, do not take account of any multiplier effects one would observe if those jobs were to disappear.

 

The Ifo Institute made another important observation, according to FAZ. If fuel-driven engines were made illegal from 2030, Germany could reduce its carbon dioxide emission by one-third. But the study does not advocate such a strategy. Indeed the headline says that banning combustion engines is the wrong path to take. The Ifo institute favors free-market solutions to the problem. Ifo chief Clemens Fuest, who presented the study, argued that it would be a mistake to over regulate the industry because this would waste resources, which in turn would be bad for the goal of climate protection.

 

We also note confirmation bias among diesel advocates in that they only ever focus on carbon dioxide emissions, rather than the high levels of nitrogen oxides and other substances that are believed to be responsible for tens of thousands of death each year in Europe. This is the main reason why cities are now considering diesel bans.

 

The study also tried to correct the impression that German car makers are inactive when it comes to alternative technologies. According to the Ifo study, Germany registers around one-third of all global patents in the area of alternative engines – hybrid and electrical. We do not doubt that the German car giants are actively researching alternatives. But the point is that the competitive advantage of German motor manufacturing is predominantly based on its fuel-based engine technologies – an advantage that is bound to decline over time. They are not ahead of the game in the fields of hybrid and electric engines. There is an illusion in Germany that appears to equate the number of registered patents with future commercial success.

 

In the meantime, expect to see an increase in costs to maintain the diesel technology, and a fall in revenues. Diesel registrations in Germany are falling at a dramatic pace. And car companies are now paying for expensive recall operations, like Mercedes did this week, to upgrade existing cars with the latest software to optimize engines to reduce fuel emissions.

Protecting the Cheaters

My take is the focus on carbon dioxide is wrong. A focus on carcinogens and other pollutants would make more sense.

We can debate at length what pollution standards should be. What’s not debatable is German auto corporations lied and cheated their way to good results and now they are caught with their pants down, at least twice.

Either way, diesel is on the way out. And with that pending change, Germany’s vaunted lead in auto technology has turned into ashes.

Meanwhile, EU regulators are prepared to look the other way in an attempt to give German manufacturers time to catch up.

One can argue that letting the cheaters off the hook makes economic sense, but let’s be honest about what’s happening.

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Authored by Soeren Kern via The Gatestone Institute,

• "I am in fundamental disagreement with these left-wing people who do everything to dissociate fundamentalism from Islam. Islam has been radicalized for fifty years. On the Shiite side, there was Imam Khomeini and his Islamic revolution. In the Sunni world, there was Saudi Arabia, which used its immense resources to finance the spread of this fanaticism of Wahhabism. But this historical evolution took place within Islam and not outside. When the people of the Islamic State attack, they do it by saying 'Allahu Akbar.' So how can we then say that this has nothing to do with Islam? It must be stopped." — Sir Salman Rushdie, author of the novel The Satanic Verses, who has been hunted to be killed by Muslim extremists for nearly 30 years.
• Residents of the Paris suburb of Mée-sur-Seine complained that a mosque was blasting prayers on outdoor loudspeakers well beyond midnight each night during Ramadan. Mourad Salah, a local Muslim leader, said the city council was to blame for the noise because of its failure to provide Muslims with a larger mosque: "The ball is in the mayor's court. Until we have a place of prayer worthy of the name, with a greater capacity, things will be difficult."
• An online petition — "Women: An Endangered Species in the Heart of Paris" — accused Paris Mayor Anne Hidalgo of allowing a large swathe of the city to become a no-go zone for women. Every night, hundreds of migrants from Africa and the Middle East line the pavements to form an intimidating gauntlet for women walking from the Gare du Nord and Gare de l'Est railway stations to their homes, the petition said. Shouts of "bitch" and "dirty whore" are common.

June 1. Saber Lahmar, a 48-year-old Algerian who has lived in Bordeaux since his release from Guantánamo Bay in 2009, was charged with "terrorist association" and placed in pre-trial detention. He is suspected of providing financial, logistical and doctrinal aid to French jihadists who were planning to travel to Iraq and Syria. Lahmar was arrested in Bosnia in 2001 after being accused of plotting to bomb the American embassy in Sarajevo. In November 2008, U.S. District Judge Richard J. Leon ordered Lahmar to be released from Guantánamo because there was insufficient reason to hold him. In December 2009, Robert C. Kirsch, a lawyer at the firm of WilmerHale, which represented Lahmar in federal court, said: "We are grateful for the courage and generosity of the French people and government, and for the ongoing effort by President Obama… which will now give Mr. Lahmar a chance to rebuild his life in France."

June 1. A group of prominent intellectuals accused French authorities of covering up the April 4 murder of a Jewish woman by her Muslim neighbor. Kobili Traoré a 27-year-old Malian Muslim, tortured 66-year-old Sarah Halimi and threw her out of her third-story apartment. The letter criticizes the Paris Prosecutor's Office for omitting hate crime charges from a draft indictment against Traoré. They cited a recording of the incident made by another neighbor. In it, Traoré can be heard shouting "Allahu Akbar" and calling Halimi "dirty Jew" to her face. Some observers believe the authorities covered up Halimi's murder to prevent it from helping Marine Le Pen's presidential campaign.

June 2. The mayor of Nice, Christian Estrosi, banned Noorassur, a local insurance broker, from hanging a sign with the words "Islamic finance" because it "poses a high risk of disturbing public order." Estrosi said the sign was placed in close proximity to the Promenade des Anglais, the site of the July 14, 2016 jihadist attack. He said that there was a risk to both the staff and the customers and that passersby might see the sign as a provocation. Noorassur's founder, Sonia Mariji, filed a lawsuit against the city. "Islamic finance is not incompatible with the Republic," she said. "I am a fruit of the Republic." Her lawyer accused Estrosi of "conveying the idea that Islamic finance is linked to Islamist terrorism."

June 6. Farid Ikken, a 40-year-old Algerian, attacked a police officer in front of the Notre Dame Cathedral in Paris. Government spokesman Christophe Castaner said the hammer attack was an "isolated act." Ikken was later charged with "attempted murder in connection with a terrorist enterprise." Prosecutor François Molins said that Ikken was radicalized through Islamic State propaganda he found on the internet. Molins also confirmed that Ikken, who had recorded a video pledging allegiance to the Islamic State, was a former journalist who was legally living in France as a student working on his doctoral thesis.

A policeman stands guard near Notre-Dame Cathedral in Paris, France, on June 6, 2017, after Farid Ikken, a 40-year-old Algerian, attempted to murder a police officer at the site. (Photo by Pascal Le Segretain/Getty Images)

June 8. In an interview with L'Obs, British Indian author Sir Salman Rushdie, the object of an Islamic death sentence for alleged blasphemy in his 1988 best-selling novel The Satanic Verses, blamed European leaders for refusing to see the reality of the origins of jihadism:

"I am in fundamental disagreement with these left-wing people who do everything to dissociate fundamentalism from Islam. Islam has been radicalized for fifty years. On the Shiite side, there was Imam Khomeini and his Islamic revolution. In the Sunni world, there was Saudi Arabia, which used its immense resources to finance the spread of this fanaticism of Wahhabism. But this historical evolution took place within Islam and not outside. When the people of the Islamic State attack, they do it by saying 'Allahu Akbar.' So how can we then say that this has nothing to do with Islam? It must be stopped."

June 11. Three more men were charged with involvement in supplying the weapon that Karim Cheufri used to kill police officer Xavier Jugelé in Paris on April 20. A total of four suspects have been charged with directly or indirectly helping Cheufri, who was shot dead after killing Jugelé and wounding two other police officers on the Champs-Elysées.

June 13. President Emmanuel Macron and British Prime Minister Theresa May announced an anti-terror action plan to remove jihadist propaganda from the internet. The action plan includes exploring the possibility of legal penalties against social media companies if they fail to remove unacceptable content from their networks.

June 14. The mayor of Mandelieu-La-Napoule, Henri Leroy, called on the fashion chain Hennes & Mauritz (H&M) to prohibit sales personnel from wearing Islamic headscarves. He said he had received repeated complaints from shopkeepers and local citizens who are "embarrassed by the religious attire of your employees." He added: "I think it is useful to remind you that the municipality is attached to Republican values and to religious neutrality." Feïza Ben Mohamed, a candidate in the local elections in the Alpes-Maritimes department accused Leroy of "Islamophobia" and of engaging in a "shameful polemic."

June 18. Marine Le Pen, leader of the anti-EU, anti-immigration National Front party, won a seat in parliament for the first time. Overall, her party won only eight seats in the 577-seat National Assembly, dashing her hopes of becoming the main opposition to President Emmanuel Macron. Le Pen blamed France's electoral system and called for proportional representation. "It's a scandal that our party that won 7.6 million votes in the first round of the presidential election and three million more in the second round, cannot form a group in the French parliament," she said.

June 19. Adam Lofti Djaziri, a 31-year-old jihadist from the Paris suburb of Argenteuil, was killed when he rammed his car, laden with guns and gas canisters, into a police van on the Champs-Elysées. Police said Djaziri had meant to turn his vehicle into a car bomb but it failed to explode. No one else was injured in the attack. Djaziri had mailed a letter to his family just before the attack saying he had wanted to travel to Syria but that he had been stopped from doing so "by apostates against the Islamic State." It later emerged that although Djaziri had been on a jihadist watchlist, he had legally been allowed to purchase firearms.

June 20. A Polish truck driver was killed when he crashed into the back of another truck that had been stopped by migrants on a highway near Calais. The migrants had placed barriers consisting of tree trunks and other large objects to slow down three trucks headed for Britain in an attempt to stow away in them. Four migrants — two Afghan adults and two Eritrean minors — were charged with manslaughter, impeding traffic and endangering lives. Polish Interior Minister Mariusz Blaszczak asked French authorities to "take action to guarantee the security of Polish truck drivers in the Calais region."

June 22. President Emmanuel Macron's government introduced new anti-terrorism legislation that would give French authorities greater powers to act to protect an event or location thought to be at risk from attack, without first having to seek permission from the courts. The draft law would also allow mosques thought to be promoting extremism to be shut down for up to six months. Prime Minister Edouard Philippe argued it struck the "right balance" between respecting freedoms and reinforcing security. Rights groups including Amnesty International and Human Rights Watch said the legislation would enshrine into law draconian powers allowed under the state of emergency, which has been in place since the November 2015 jihadist attacks in Paris.

June 22. A special anti-terror tribunal in Paris sentenced 18 members of a jihadist network to between one and 28 years in prison for a grenade attack on a Jewish grocery store in the Paris suburb of Sarcelles in September 2012. The "Cannes-Torcy cell," named after the towns where its members were based, was accused of having planned several other attacks before the network was dismantled in 2012. During the hearing at a special anti-terror tribunal, the cell was described as "the missing link" between the self-proclaimed al-Qaeda militant Mohamed Merah — who murdered three Jewish children and a teacher in an attack at their school in Toulouse in 2012 — and the network that attacked the Bataclan concert hall in November 2015.

June 22. Residents of the Paris suburb of Mée-sur-Seine complained that a mosque was blasting prayers on outdoor loudspeakers well beyond midnight each night during Ramadan. "The loudspeaker was used for the many faithful praying on the sidewalk because the mosque is too small," according to Le Parisien. Mourad Salah, a local Muslim leader, said the city council was to blame for the noise because of its failure to provide Muslims with a larger mosque: "The ball is in the mayor's court. Until we have a place of prayer worthy of the name, with a greater capacity, things will be difficult."

June 23. Five jihadists were sentenced to a combined 25 years in prison for associating with the Islamic State. The men, all in their 20s, had been recruited by Omar Diaby, a French national of Senegalese descent known for funneling fighters to Syria. Ali Abzouzi and Luck Manodritta were sentenced to six and eight years in prison, respectively. The two had spent several months in Syria in 2013 and 2014. Two others, Cedric Belly and David Assila, were given four years in prison including two-year suspended sentences for having attempted to join the others. The court also handed a three-year jail sentence to Magomed Bagaiev for helping a young woman prepare to leave for Syria. Diaby, also known as Omar Omsen, is believed to have recruited around 50 French jihadists to fight to Syria.

June 24. Interior Minister Gerard Collomb rejected calls from charities for the construction of a new migrant camp in the northern port of Calais, where hundreds migrants have once again gathered in hopes of crossing the English Channel to Britain. In October 2016, French authorities bulldozed a migrant camp known as "The Jungle," but aid agencies say about 400-600 migrants are now sleeping rough on streets. Collomb said: "We don't want to create a gathering point where numbers would swell back up to 7,000 over time. That would not be tolerable, for the migrants, the residents of Calais and for economic life."

June 26. An online petition — "Women: An Endangered Species in the Heart of Paris" — accused Paris Mayor Anne Hidalgo of allowing a large swathe of the city to become a no-go zone for women. Every night, hundreds of migrants from Africa and the Middle East line the pavements to form an intimidating gauntlet for women walking from the Gare du Nord and Gare de l'Est railway stations to their homes, the petition said. Shouts of "bitch" and "dirty whore" are common. The petition was launched by a woman called Laurence who said:

"As a woman you start adopting defensive measures. You don't go here or there. Avoid certain routes. Take your kids to school another way. I stopped going to my tobacconist and some cafes because suddenly there were only men inside. I have to ask the teenage drug dealers politely to step aside in the foyer just so I can get to my own front door…. You get used to averting your eyes from streams of urine and pools of spittle…to lowering your head… to walking alone… to feeling fear, great, great fear because you dared to speak out."

Pierre Liscia, a conservative councilor, said that city officials were concerned that the lawlessness might derail the Paris bid for the 2024 Olympics:

"The cynical thing is that last month a vast clean-up operation was launched when the Olympic committee came to visit for an inspection ahead of the Games. They moved out 1,600 people in 24 hours. I find it contemptible that the mayor's office acted only when there was media attention."

Mayor Hidalgo has repeatedly denied that there are no-go zones in Paris, and in January 2015 she threatened to file a lawsuit against Fox News for "harming the honor of Paris" after it reported that such zones exist.

June 27. The trial began of Beatrice Huret, a 45-year-old former supporter of France's anti-immigration National Front party, for helping to smuggle her Iranian migrant lover across the English Channel to Britain. Huret met 37-year-old Mokhtar while volunteering at the now-demolished "Jungle" migrant camp in Calais. In June 2016, she purchased a small boat for 1,000 euros which Mokhtar and two friends used to cross the Channel. The boat capsized en route but the trio arrived safely after being rescued by the British coastguard. Huret was subsequently arrested and charged with being part of a migrant smuggling network. Since then, the couple have kept up their relationship, with Huret regularly visiting Mokhtar in the northern English city of Sheffield, where he obtained a work permit. Huret, who has a 19-year-old son, said: "I am prepared to give up my life for him. The only thing that would bother me is that I would no longer be able to see Mokhtar if I'm in jail."

June 27. The mayor of Lorette, Gerard Tardy, banned burkinis and other Muslim clothing at a new outdoor swim park. The regulation states:

"Monokinis, burkinis, partial veils or veils which totally conceal the face, or a combination thereof, are prohibited on the beach. Any breach of this provision will lead to the immediate expulsion (which may cover the entire swimming season) of the offenders by security or, if necessary, by the police."

Aldo Oumouden, spokesman of a mosque in Saint Étienne, responded:

"France is multicultural and banning the veil at this facility is an attack on the individual freedom of Muslims and does not even distinguish between burkini and headscarf. How is it that the veil is aggressive or dangerous for the population? It does not represent any health problem, and there is no interference with the freedom of others. Does Mayor Tardy not realize that this decision will further stigmatize Muslims? It is not only unnecessary but also devastating for community harmony."

June 28. Human Rights Watch (HRW) said that new counter-terrorism legislation proposed by the French government will fuel prejudice against Muslims. President Emmanuel Macron wants the legislation to replace temporary emergency powers in place since jihadists attacked Paris in 2015. HRW said:

"As the text stands, the law could, for instance, be used arbitrarily to prohibit any meeting at which ideas or theological concepts associated with conservative interpretations of Islam, such as Salafism, are expressed regardless of whether there is any demonstrable connection to criminal activity. Poorly worded laws that are likely to lead to closing solely Muslim places of worship may also help feed anti-Muslim rhetoric and prejudice prevalent in wider society."

June 29. The mayor of Chevigny-Saint-Sauveur, Michel Rotger, banned halal menus in school canteens. "Under the principle of secularism, a single menu is proposed. No substitute meals will be provided except in case of food allergies," he said. "I am applying the recommendation of the Association of Mayors of France (AMF)," he added. The AMF recently published a guide for "secular best practices" which criticized "denominational menus" in canteens. "We are putting in place an operation so that children eat everything and that what is offered is balanced," Rotger said. "There is too much waste, and we will teach them to eat meat, be it poultry or pork." Muslim groups have vowed to fight the ban in court.

June 30. A new mobile app — "No-Go Zone" — appeared in the Google App Store. The app warns people if they are in a Paris no-go zone, and provides live alerts of thefts and sexual assaults in the city. The app description reads: "Whether you are staying in an unknown location, looking for a safe place to live, on your way to a specific location then No-Go Zone allows you to reduce any risk of aggression, theft, harassment or incivility."

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Authored by Curt Mills via NationalInterest.org,

The headline of the New York Times piece was breathless: “Iran Dominates in Iraq After U.S. Handed the Country Over.” The content was only slightly less so:

“But after the United States’ abrupt withdrawal of troops in 2011, American constancy is still in question here – a broad failure of American foreign policy, with responsibility shared across three administrations.”

The statement is curious. “What about U.S. history of involvement there tells you it’s going to end well?” asks Hussein Banai of Indiana University Bloomington. Arango’s reporting, which advocates for “American constancy” in Iraq, “contributes to this mythmaking on all sides that all Iraq might need is a U.S. stablizing force,” says Banai. “And it’s just ridiculous.” (Iran’s foreign minister, the veteran diplomat Javad Zarif, also complained about this piece in comments to the National Interest on Monday).

The evidence suggests the 2011 withdrawal was anything but “abrupt.” Barack Obama, an original opponent of the war and supporter of withdrawal, won the 2008 election on an anti-war wave. Leading figures in U.S. life had been calling for withdrawal since the war took a turn for the worse shortly after the fall of Baghdad in 2003. But most importantly, the exodus of U.S. forces in 2011 had been negotiated in 2008 by President Bush; not abrupt. And “it had been working it ways through the Iraqi parliament for some time” before that, Banai notes.

The importance of the American withdrawal, in terms of that event spurring a major upshoot in Iranian influence, is likely overstated. “Iran’s influence in Iraq is… ascendant,” Arango writes. But hasn’t it been for some time?

Trita Parsi, president of the National Iranian American Council, tells me: “Iranian influence in Iraq started much sooner,” than 2011. “The United States had essentially lost Iraq the minute it invaded Iraq but had no plan for the day after . . . The idea that Iraq somehow fell in Iran’s after 2011 is simply wrong. Just listen to the very same critics who before 2011 were arguing that Iran has too much influence in Iraq.” Banai adds: “The major message of that piece is what? That since U.S. withdrawal, Iran has effectively taken over Iraq’s national sovereignty.” Iran was a player in Iraq from the beginning last decade—“there is just nothing to empirically support” that Iran has largely taken over because of U.S. withdrawal. The pair worry about the implications of such thinking.

Indeed, at one point in the piece, Arango uncritically quotes a former aide to the “the Iraqi politician” Ahmad Chalabi, who died in 2015–without mentioning that Chalabi had significant ties to neoconservatives and provided tranches of fabricated evidence to sell the 2003 war. Then there is Arango’s portrayal of an Iraq dominated by Iran in the political and economic realm. Most concede the stentorian military influence Iran has in the country. But Parsi, Banai and others take issue with the characterization of all ties, particularly economic, as inherently insidious. The idea that “a country like Iran would not have influence in its neighboring country, Iraq, is preposterous,” Parsi says, adding that “part of the problem of the article is it depicts American intentions in the best possible light,” versus “Iranians are selling detergent and food to Iraqis because of their desire to subjugate Iraqis.” The New York Times does point out that Iraq’s Shia rank-and-file “also hold close their other identities as Iraqis and Arabs,” putting limits on the Islamic Republic’s ability to strictly appeal to heaven.

One takeaway from Arango’s piece could be a hard lesson: the United States should never go looking for trouble in the Middle East ever again.

But one could read it the other way: Iran is ascendant because the United States got out too early (or at all), and is now well on its way to establishing a “Shia crescent” from Afghanistan to Morocco, in direct challenge to our allies; Tehran must be confronted and toppled. The consequences of following such dialectical thinking have, of course, been laid bare by recent history.

But the New York Times, for one, does not appear to have wholly absorbed them.

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Something needs to be said. We are against the existence of irredeemable paper currency, central banking and central planning, cronyism, socialized losses and privatized gains, counterfeit credit, wealth transfers and bailouts, and welfare both corporate and personal.

When we write to debunk the conspiracy theories that say manipulation is keeping gold from hitting $5,000 (one speaker here at FreedomFest claimed gold will go to $65,000), we are not trying to defend the Fed. When we discuss the flaws in predicting that kind of price, and the error in expecting to profit from it, we are not expressing a pro irredeemable dollar view.

We are saying there are good arguments against the regime of irredeemable paper currency—but this is not one of them. Irredeemable currency has two fatal flaws. One is the interest rate is unhinged. It can skyrocket as it did from the end of WWII through 1980, or collapse as it has been doing since then. Two is there is no extinguisher of debt. Debt grows—must necessarily grow—exponentially. As it has been doing for many decades.

The antidote to this poisonous system is the gold standard. However, it must be said that no gold price will cause the metal to circulate in the economy. It did not circulate when it was “cheap” 20 years ago. It did not circulate when it was “expensive” 6 years ago. It does not circulate now. It will not circulate even if it hits any of the gold bug price targets (if anything, a rapid price rise will be a powerful force keeping it out of circulation, as most people would have large taxable capital gains).

The one thing that can make gold circulate is interest.

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For two weeks, we have been talking about a potential capitulation. The gold price has risen about $40 since then, and that of silver 85 cents.

Will the bounce continue? Have the fundamentals firmed up?

We will show graphs of the true measure of the fundamentals. But first charts of their prices and the gold-silver ratio.

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved down this week.

In this graph, we show both bid and offer prices for the gold-silver ratio. If you were to sell gold on the bid and buy silver at the ask, that is the lower bid price. Conversely, if you sold silver on the bid and bought gold at the offer, that is the higher offer price.

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph.

We have switched to the October contract, as the August is nearing expiry and under selling pressure.

The dollar fell this week (the mirror image of the rising price of gold). As the dollar fell, the cobasis fell—gold became less scarce.

Our calculated gold fundamental price fell a few bucks (chart here).

Now let’s look at silver.

As the dollar has dropped, the cobasis has come down (though still backwardated). Our calculated silver fundamental fell 25 cents to $17.59.

© 2017 Monetary Metals

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