Category: zerohedge

U.S. companies such as Apple and Nike, which rely on China for a major part of their growth and which have targets painted on their backs as Beijing and Washington ratchet up trade-war tensions, are “bracing for China’s retaliatory wrath” according to Bloomberg.

While Beijing has yet to formally retaliate after Trump blacklisted Huawei, Chinese state media last week said China is “well armed to deliver counterpunches,” without giving specific details. And as companies await China’s next move, there is rising, if unwelcome, suspense over what form retaliation might take. Companies might “just have to read the tea leaves on how their business operations are being treated,’’ Erin Ennis, senior vice president of the U.S.-China Business Council, said in an interview with Bloomberg Television on Saturday.

As Bloomberg notes, one option China could use is from the 2017 “template” when relations with South Korea deteriorated over Seoul’s decision to deploy a missile shield. The government curbed travel to South Korea, hurting cosmetics companies that rely on Chinese tourists, while local authorities shut most of Lotte Shopping’s China stores, alleging fire safety violations. Consumers boycotted South Korean products, dealing a devastating blow to Hyundai Motor sales. A similar pattern of action took place during the 2013 trade feud with Japan which escalated over territorial disagreements in the East China Sea.

Naturally, a lot at stake, with Bloomberg noting that China’s fast-growing consumer market is a top priority for U.S. giants looking for growth in a slowing global economy. And, as Apple made abundantly clear when it slashed its profit guidance in January, no company is more exposed to China’s wrath than the Cupertino-based company.

So how bad could it get for the world’s largest company? According to the latest increasingly gloomy research, the answer is very.

Since Apple gets 20% of its revenue from China and manufactures its iPhones (which generated 60% of its total 2018 revenue) there, few companies are as exposed to Beijing’s retaliation. Apple has already been suffering in the region, seeing sliding revenue as consumers buy more phones from Huawei and other local brands. According to relatively optimistic research by Wedbush analyst Dan Ives, blowback from Trump’s Huawei ban could cost Apple about 3% to 5% of its iPhone sales in China.

It gets worse.

In a research report from May 27, Citi announced that it was “proactively slashing” its iPhone unit sales “as we believe the US/China trade situation will result in a slowdown of Apple iPhone demand in China as China residents shift their purchasing preference to China national brands.”

Citi warns that independent due diligence reveals “a less favorable brand image desire for iPhone and this has very recently deteriorated.” As a result, Citi is materially lowering its sales and EPS estimates below consensus as China represents 18% of Apple sales “which we believe could be cut in half.“

Within China Apple has 12% unit share (exiting Dec 2018 and -10% market sham for FY18) and we believe these unit shipments could be cut in half. We remain optimistic on Apple services with Apple Arcade to launch in 2H 2019. We note Apple stock has already pulled back -15% in the past 30 days compared to the S&P500 -5% and is trading at 15x NTM PE on consensus and 16x NTM PE our materially below consensus forecast.

So while Citi does not see multiple compression, it is worried that “consensus is simply too high” and based on its updated below consensus view, Citi cuts its target price to $205 from $220 as “in the months ahead consensus will likely recalibrate lower closer to our below consensus estimates.”

Meanwhile, in an even more stark take on Apple’s worst case scenario, Wedbush analyst Krish Sankar projects that EPS could plunge by 26% in fiscal 2020 in the event that China bans the iPhone in retaliation to Trump’s Huawei ban. .

“Apple’s iPhone, iPad, and Mac systems are at risk of experiencing demand destruction due to collateral damage from the sales ban to Huawei” Wedbush warned, adding what we have repeatedly discussed, namely that the perception that Huawei is being “unfairly punished” could lead Chinese consumers “to retaliate as patriotism leads them to support domestic brands while products and services from U.S. companies fall out of favor.”

That said, Wedbush concedes that a full iPhone ban is an “extreme case” scenario, and expects that the earnings impact from weaker China demand will be “material but manageable.”

“We estimate 5-30% unit demand destruction across all hardware sales in China could impact EPS by 1-8%,” wrote Sankar, who nonetheless affirmed an outperform rating and a $245 price target. As a reminder, last week none other than Goldman estimated that Apple’s earnings would take a 29% hit if China banned Apple products.

And now all eyes turn to Beijing which for all its bluster has yet to actually announce any “nuclear” (listed here) or otherwise responses to the ever-escalated trade and tech war.

For more on China’s escalating boycott of Apple products, watch the following clip:

via ZeroHedge News http://bit.ly/2YTRk16 Tyler Durden

Another dead cat bounce dies…

Another overnight liftathon and opening ramp has ended prematurely with the S&P 500 just going red on the day (joining Small Caps and Trannies deep in the red)…

Bonds have been bid all day…

 

And the dollar is ratcheting higher…

 

 

 

via ZeroHedge News http://bit.ly/2JIrZUk Tyler Durden

Authored by Mac Slavo via SHTFplan.com,

Although talk of a recession subsided early this year, it’s back in full force thanks to the trade war with China.

“Call it scare-mongering if you like, but many of the data releases [last] week had the unmistakable whiff of a recession,” said chief U.S. economist Paul Ashworth of Capital Economics.

According to Market Watch, none of us should expect great economic news during this holiday-abbreviated week. The trade deficit is likely to widen (and not in the United States’ favor), consumer confidence could decline (and it should for all intents and purposes), and household spending was probably tepid in April. This all signifying one thing: an economic recession.

The U.S. economy has taken a turn for the worse and it doesn’t look as if things will get much better anytime soon as global problems persist. A mountain of evidence in the past two weeks shows that key segments of the economy have slackened. Retail sales fell last month, business investment nearly dried up and manufacturers are growing at the slowest pace in nine years.

Most of the economic news is bleak. But neither Ashworth or other economists are predicting that recession will be “soon.” That means we have the time necessary to prepare but shouldn’t wait too long to do so. Stocks, the one bright spot in this oddball economy will eventually become infected with the trade war drama that’s hitting the rest of the markets.

“The dawning realization that U.S.-China trade tensions are not going to be resolved anytime soon continues to rattle markets,” said chief economist Douglas Porter of BMO Capital Markets, according to Market Watch.

Employment hasn’t taken a major hit just yet either, which seems to align with economists guesses that most will have some time to prepare. “The U.S. still has a rock solid labor market,” said chief economist Scott Anderson of Bank of the West. Layoffs and unemployment remain near a 50-year low, and even if companies aren’t hiring as rapidly as they were last fall, they aren’t resorting to mass job cuts, either…just yet.  But eventually, that will be necessary.

Most economists also agree that the Federal Reserve’s recent decision to leave interest rates stagnant won’t be enough to keep the U.S. from slipping below 2% growth in the second quarter. They also expect the initial 3.2% reading for first-quarter gross domestic product to be trimmed to 3% or less.

“The strength of the US economy in the first quarter was presumably one of the factors that emboldened President Donald Trump to take a tougher line with China in the trade dispute,” Ashworth contended.

But the incoming data “would leave Trump in a more vulnerable position.”

This trade war has the ability to fling the U.S. into recession, and if that happens before the election in 2020, Donald Trump’s chances of reelection will drop dramatically.

via ZeroHedge News http://bit.ly/2VVofAc Tyler Durden

Amazon is set to purge many of its small suppliers over the next few months, according to Bloomberg. The purge could shatter the generally favorable relationship between Amazon and many of its long-time vendors, as we first discussed last month when we reported that Amazon was accused of “crushing” its merchants by undercutting products with its own.

The move is supposed to help cut costs and focus wholesale purchasing on large brands like Procter & Gamble, Sony and Lego. Amazon wants to ensure that the company has adequate supplies of “must-have” merchandise that will help it compete with companies like Target and Walmart. As a result, bulk orders for thousands of smaller suppliers may dry up over the next few months.

It also means that many smaller retailers that have relied on Amazon for a steady stream of orders will have to win sales one shopper at a time on the platform’s marketplace. This marks one of the large shifts in Amazon strategy since it opened the site up to independent sellers nearly 2 decades ago.

James Thomson, who organizes the Prosper Show, an annual e-commerce conference focused on Amazon said that “this is the kind of change that will scare the living daylights out of brands selling on Amazon. Amazon usually doesn’t give a lot of lead time and brands will be left scrambling. If they make this change soon, brands will have until the end of the summer to get their acts together or their holiday quarter will be at risk.”

Amazon stated: “We review our selling partner relationships on an individual basis as part of our normal course of business, and any speculation of a large scale reduction of vendors is incorrect.”

Amazon traditionally secures inventory in two ways: it buys items directly from wholesale vendors and resells them, and it allows independent merchants to post their own products on site, similar to a consignment model. About half the goods sold on the site come from independent merchants and the change will push the company’s marketplace share of revenue even higher.

It’s one of the latest moves in Amazon‘s “hands off the wheel” initiative, which is supposed to help it continue expanding product selection without spending more to oversee it. The initiative includes other automated tasks that were previously done by human employees, like forecasting demand and negotiating prices. It also involves pushing more Amazon suppliers to sell goods on their own so that Amazon doesn’t have to pay people to do it for them.

An additional upside for Amazon is that the company holds less inventory, reducing the risk that it gets stuck with unsold merchandise. Instead, Amazon can collect a commission on each sale a vendor makes and charge them fees to store, pack and deliver their goods. Vendors that sell less than $10 million per year will no longer get wholesale orders from Amazon, although the purge will vary by category.

Amazon also didn’t renegotiate its annual terms with many smaller vendors – a move that telegraphs that a supplier shakeout is continuing. The company also isn’t filling many vacant vendor manager positions, according to an anonymous source, indicating that the company will expect to need fewer people to handle supplier relationships in the future.

Amazon began discussing which vendors it would keep last fall. Employees who manage vendor relationships were able to make a written argument about suppliers that should not be cut, but the decision ultimately fell into the hands of senior leaders of the company.

Amazon has tried to make a shift to its marketplace over the last few years. The marketplace generated more than half of the site’s e-commerce sales last year and revenue from merchant services is still growing at double the pace of revenue from its online store. CEO Jeff Bezos said of marketplace sellers in his annual shareholder letter: “…they were kicking our first-party butt. Badly.”

Regardless, while Amazon is looking to be more like Walmart and Target, those two competitors are copying Amazon‘s marketplace model to increase selection. US shoppers are estimated to spend $317 billion on Amazon this year, which will represent 52.4% of all online sales. Profits have increased for seven quarters in a row, a trend that is expected to continue this year.

One month ago, we wrote about accusations that Amazon was “crushing” its merchants by stealing their product ideas and undercutting them on prices, while giving their own Amazon-branded products premium real estate on their website. 

While Amazon says its own products represent only about 1% of total sales, the giant has been stepping up efforts to recruit Chinese suppliers and manufacturers directly, in order to cut merchants out of the equation. These new Chinese players have also entered the picture at the same time “an explosion” of counterfeit products and fake reviews have hit the site; two issues prominent in Chinese e-commerce. 

“Amazon crushes small companies by copying the goods they sell on the Amazon Marketplace and then selling its own branded version,” Senator Elizabeth Warren has previously said. 

Anderson Salgado, a former Amazon vendor manager and CEO of Trisbell, a consulting firm that helps people sell products on Amazon said that it takes about 120 days to shift from an Amazon wholesale supplier to marketplace seller. Smaller vendors should prepare now, he said.

He concluded: “If this happens soon and people are not ready for it, they will not be ready during the holidays. The people who get ahead of the game are going to thrive.”

via ZeroHedge News http://bit.ly/2EDLppb Tyler Durden

Authored by Noah Feldman, op-ed via Bloomberg.com,

Trump and the House Democrats have turned it into a political game. That’s not what the Constitution’s framers had in mind…

Impeachment has jumped the shark. The episode that proves it is the one in which serious, informed politicians are wondering if President Donald Trump actually wants to be impeached for political advantage and is trying to goad Democrats into obliging him.

It would be impossible to imagine a more preposterous scenario under the Constitution and in the history of the presidency. Impeachment was intended by the constitutional framers as a highly serious option reserved for only the most extraordinary, egregious violations of the rule of law. Today’s discussion treats impeachment as a trivialized gambit within the ordinary game of electoral politics. The undermining of the constitutional ideal is near-total. It’s almost laughable.

To be clear, impeachment itself is and has long been a matter of high seriousness. Not so long ago, Richard Nixon resigned from the presidency to avoid the historic disgrace of being impeached. President Bill Clinton toughed it out, famously. But neither he nor anyone else doubted that his impeachment, however motivated by partisanship, became a permanent stain on his personal and presidential legacy. Whether you think that Clinton was guilty of high crimes and misdemeanors or not, it mattered enormously that he was just the second president in 200 years to be impeached. The House Republicans pushing his impeachment weren’t just saying that they wanted to make it harder for Clinton’s vice president, Al Gore, to win the next election. They were making the argument that Clinton was a genuine criminal who had subverted the justice system by lying under oath.

Fast forward 20 years. When critics of the Trump presidency started discussing impeachment almost as soon as he took office, they meant to do much more than achieve some political advantage. Or at least I did. In my role as a constitutional law professor, I wrote several essays trying to make sense of the law, history and theory of impeachment. I went back and read books on the subject going back to the 1970s.

I wasn’t alone. Two of my most distinguished colleagues at Harvard Law, Laurence Tribe and Cass Sunstein, each wrote full length books on the ins and outs of impeachment. Both had worked for President Barack Obama. Yet both went to great lengths to avoid saying that Trump deserved to be impeached on the basis of available evidence. Instead, they provided nuanced analysis of constitutional precedent and logic. The point of the exercise was to help guide the public in a rational, nonpartisan way through the thickets of possible constitutional crisis.

Of course, no scholar or expert would deny that there is a political aspect to impeachment. Some politics is inherent in a constitutional structure that places impeachment responsibility in the House of Representatives and the trial to remove a president in the Senate. The framers may have been idealistic, but they weren’t naive. They knew that elected politicians would not be free of political motivation. Nevertheless, they also made successful impeachment and removal very difficult, precisely to discourage Congress from taking the whole process lightly. They chose words with grand implications — “high crimes” — to underscore that removing the president outside of elections must not be undertaken lightly.

Yet somehow, all the talk in the last two and a half years has robbed impeachment of its original serious content and atmosphere. Maybe it’s just too many rapid-fire conversations on CNN, MSNBC and Fox News, with their constant drumbeat of partisan prediction and preoccupation. We have talked about impeachment in the partisan context so much that we can no longer imagine it as something more than an electoral ploy.

The blame for this development goes to both parties. Since the 2018 midterm election, House Democrats have made it painfully clear that discussing impeachment is primarily or even exclusively a tool to weaken Trump’s chances in 2020. You almost never hear a Democrat say, “We have a moral duty to impeach even if it will cost us the election in 2020.” Rather, the idea of impeachment and the idea of electoral advantage have become inextricably entwined.

On the Republican side, there has been much gleeful speculation that a Democratic effort to impeach Trump would bring out the Republican base in huge numbers. Trump himself is clearly toying with the possibility that this might be true — hence his recent efforts that seem to be daring the Democrats into action, or at least making them look like wimps if they don’t impeach him.

That leaves us with the preposterous notion that the president could or would somehow bring about his own impeachment to help him get re-elected. Gone is the traditional notion that impeachment itself would be a blot on Trump’s reputation. Not that Trump has ever cared much about reputation in the ordinary sense, but he very clearly wants to be remembered as a great president. In his mind, however, being impeached apparently wouldn’t stand in the way of his lionization as a leader.

Trump’s beliefs about politics and the Constitution are nothing if not a reflection of this instant in time. That he is treating impeachment as mere rhetoric shows that impeachment has lost its sting. That’s sad enough for now. It will be much, much sadder in the future, the next time we need impeachment to mean something.

*  *  *

Noah Feldman  is a professor of law at Harvard University and was a clerk to U.S. Supreme Court Justice David Souter. His books include “The Three Lives of James Madison: Genius, Partisan, President.”

via ZeroHedge News http://bit.ly/2QvQyo8 Tyler Durden

Americans’ confidence in consumption was expected to extend April’s modest rebound but instead it soared in May, led by a big surge in consumers’ view of the present situation.

• Headline Consumer confidence in May rose to 134.1 vs. 129.2 prior month.

• Present situation confidence rose to 175.2 vs. 169.0 last month – highest since Dec 2000

• Consumer confidence expectations rose to 106.6 vs. 102.7 last month.

Expectations for the labor market also surged to a new cycle high (also the highest since Dec 2000)…

Almost every sub-index in the survey was higher/more optimistic.

“Consumer Confidence posted another gain in May and is now back to levels seen last Fall when the Index was hovering near 18-year highs,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

“The increase in the Present Situation Index was driven primarily by employment gains. Expectations regarding the short-term outlook for business conditions and employment improved, but consumers’ sentiment regarding their income prospects was mixed. Consumers expect the economy to continue growing at a solid pace in the short-term, and despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead.”

So, as we see UMich and The Conference Board surveys showing a return to exuberance among US consumers, bank surveys are tumbling.

According to the report by BofA economist Joseph Song, consumers reacted negatively to the escalation in the trade war, and the confidence indicator started to slip lower on May 11th, coinciding with the announcement that the US will raise tariffs on imports from China to 25% from 10%.

Digging into the details, BofA found that the deterioration in confidence was driven by a decline in both current conditions and expectations, diametrically opposite to what UMich found, beginning the question are US sentiment and confidence surveys – which clearly have the power to boost stocks, something which the president has clearly made a prerogative of his administration – just as manipulated as any “data” out of China?

Among the findings in the BofA report, is that the current expectations indicator had rebounded back to recent highs before the latest trade news, which the bank notes is “unwelcomed news as even a short term trade dispute could have a meaningful, albeit temporary, impact on spending.”

Case in point, when we asked respondents if they had reduced or delayed spending at the start of the year, roughly 48% reported some pull back with lower income households citing the government shutdown as the primary reason and upper income households noting the stock market selloff.  

via ZeroHedge News http://bit.ly/2woWUMP Tyler Durden

More than 5 million people were left without power after a series of tornadoes ripped through parts of Ohio and Indiana late Monday, destroying homes and severing power lines – the latest installment in a two-week span of powerful tornadoes and thunderstorms that has rocked the Midwest, leaving nine dead.

State officials in Ohio told the press that they have confirmed at least seven people were injured in the storms. The town of Celina in Mercer County, about 80 miles north of Dayton, sustained extensive damage, prompting the Ohio Department of Transportation to employ snow plows to remove debris off Interstate 75. Across the region, the NWS issued 36 tornado warnings.

The agency confirmed a “large and dangerous” tornado on the ground near the suburb of Trotwood in Montgomery County shortly before midnight.

“We probably have more than a handful of tornadoes that we need to look at on the ground throughout the region, maybe even more,” said John Franks, a meteorologist with the National Weather Service in Wilmington, Ohio.

The City of Montgomery said it was focusing on ‘life-saving’ measures.

“A large, dangerous tornado touched down last night in northwest Montgomery County,” the county said in a statement. “We are focused on supporting life-saving measures, such as shutting down gas lines or locating people who are trapped by debris.”

BREAKING: Two major tornadoes hit Dayton In Ohio. Reports of catastrophic damage and multiple injuries:pic.twitter.com/HVhzRGMyUL

— Live Report (@tweetlivereport) May 28, 2019

One Dayton resident told NBC that a tornado destroyed her entire street, adding that she didn’t hear any warning sirens before the storm. A pastor at a church in northern Dayton said one of the storms destroyed his office.

“I saw the clouds spin backwards and the trees began to sway uncontrollably and we took shelter,” she said. “I was standing on the porch that is no longer standing.”

Scott Ritz, a pastor at Northright Wesleyan Church in northern Dayton, told NBC News early Tuesday morning that there was “tremendous damage.”

“My corner office is no longer there,” Ritz said of his church building. “It’s in the parking lot.”

Four shelters opened in Montgomery County overnight to offer cover, food and water to distraught residents. Though ironically, one shelter lost power soon after opening.

Thanks to outages at pump stations and water-treatment plants, Dayton officials warned residents to boil their water before drinking.

Frightening video of aftermath of tornado in Dayton sent to us by a viewer. She says it’s off Troy Street. Many viewers have said the damage looks like a war zone… @ABC22FOX45 #daytontornado pic.twitter.com/X8fjz8Pk47

— Adam Aaro (@AdamFox45Now) May 28, 2019

In nearby Mercer County, at least seven people were hospitalized for injuries sustained during the storm – though thankfully nobody died. The town of Celina, a town of about 10,000 residents about 72 miles northwest of Dayton, saw ‘numerous’ homes destroyed.

The Mercer County Emergency Management Director says that emergency crews are focusing their efforts on search and rescue. Residents are asked to stay off roadways if possible. https://t.co/9GbvD8CyM9

— WDTN (@WDTN) May 28, 2019

The mayor of Celina said his town looked like ‘a war zone’ after the storms.

“It looks in areas like a war zone, some of the houses were completely moved off their foundations and gone,” Celina Mayor Jeffrey Hazel told WDTN.

At least one Dayton suburb, the town of Beavercreek, issued an emergency warning telling residents to watch out for gas leaks while crews worked to clear downed power lines.

Earlier in the weekend, tornadoes also touched down in Colorado, Iowa and Oklahoma. Tornadoes were also reported in the Eastern part of Ohio.

via ZeroHedge News http://bit.ly/2QzoXSY Tyler Durden

Following what was a mostly quiet holiday weekend for trade-war-related rhetoric (other than a dollop of trade-deal optimism offer by President Trump, little was said by either side), Beijing has started the holiday-shortened week by reiterating threats to embrace what we have described as a ‘nuclear’ option: restricting exports of rare earth metals to the US.

Global Times editor Hu Xijin, who has emerged as one of the most influential Communist Party mouthpieces since President Trump increased tariffs on $200 billion in Chinese goods, tweeted that China is “seriously considering restricting rare earths exports to the US.”

Based on what I know, China is seriously considering restricting rare earth exports to the US. China may also take other countermeasures in the future.

— Hu Xijin 胡锡进 (@HuXijin_GT) May 28, 2019

There are signs that these warnings should be taken seriously: One week ago, President Xi and Vice Premier Liu He, China’s top trade negotiator, visited a rare earth metals mine in Jiangxi province. Rare earths, which are vital for the manufacture of everything from microchips to batteries, to LED displays to night-vision goggles, have been excluded from US tariffs.

Though other Chinese officials have denied that export curbs were being considered, Xi’s visit was widely viewed as a symbolic warning. Seven out of every 10 tons of rare earth metals mined last year were produced by Chinese mines. One analyst warned that Xi’s visit was intended to send “a strong message” to the US.

Beijing is limited in its ability to retaliate against Washington’s tariffs by the fact that there simply aren’t enough American-made goods flowing into the Chinese market. Because of these limits, it’s widely suspected that Beijing will find other ways to retaliate. Though they are more plentiful than precious metals like gold and platinum, rare earths can be expensive to refine and extract.

The tension has sparked a 30% increase in ‘heavy rare earth’ metals.

The prices of so-called heavy rare earths, which are used in batteries for electric vehicles and in defence applications, have risen 30 per cent this year, said Helen Lau, senior analyst and head of metals and mining research at Argonaut in Hong Kong.

“I think it is a little bit reckless, from my point of view, for China to ban the export of rare earths to the US directly,” Lau said. “There’s always some way to have a similar impact…Maybe we want to reduce exports to everyone. That is a likely scenario.”

Even if Beijing doesn’t follow through on these threats, some analysts suspect that, given their scarce supply, China might move to restrict their export to help meet domestic demand. Beijing has already slapped tariffs on rare earths mined in the US.

Lau said she believes China, regardless of the trade war, will ultimately move to reduce exports of rare earths to meet its own domestic demand.

“Everyone knows that China needs rare earths for its electric-vehicle industry,” Lau said. “Electric-vehicle production is very strong – every single month it is growing in high double digits, and this year it has doubled from last year. The demand for rare earths is very strong.”

According to the SCMP, June could be a critical make-or-break moment for the global rare earth metals trade, because that’s when China is expected to set its mining quota for the second half of the year. The quota for the first half of the year was 60,000 tonnes, unchanged from the year prior.

There is precedent for a rare earth export ban: China briefly limited exports of rare earth materials to Japan back in 2010 after a Chinese trawler collided with Japanese patrol boats near a disputed island. Beijing also briefly imposed licenses, quotas and taxes on rare earth elements but removed many of them in 2014 after the US and Japan complained to the WTO.

To wean the US off its dependence on Beijing, one American chemicals company on Monday signed an MoU with an Australian mining firm to develop a rare earths mine in Hondo, Texas to help compensate for the “critical supply chain gap.” And Japanese scientists recently announced the discovery of a massive cache of rare earths on the sea floor off the coast of Tokyo.

But whether these alternatives can be cultivated in time is very much in doubt. Still, Beijing is likely wary of resorting to an export ban since it would likely only work once. Once the option has been invoked once, analysts say, efforts to develop these alternative sources will likely accelerate.

via ZeroHedge News http://bit.ly/2HIdWfm Tyler Durden

While global stocks remain near record highs, global bond yields are at their lowest since January 2018, with US Treasury rates at their lowest since Q4 2017 (and the curve inverted out beyond 10 year maturity).

Of course, investors are told to shrug this dramatic divergence off (“it’s Japan and Germany’s fault, not a reflection of US growth”, keep buying NFLX calls and pray to the god of central banking that all will be well.

Former fund manager, and FX trader Richard Breslow disagrees, warning in his latest note that “bond yields signal all is not right with the world.” And understatement perhaps, but there are more disturbing divergences not so easily shrugged off…

Via Bloomberg,

Talk about receiving mixed signals. Equity markets are basically quiet. Up a little in Asia, down a little in Europe. Pretty much trading at very familiar levels that we’ve seen multiple times this month. When the Shanghai Composite rallied in the last minutes of the day, it felt like it just wanted to get back to being neutral rather than responding to any particular news. Foreign-exchange markets have been somewhat more cautious but nothing jaw-dropping. Just a slow start to a holiday-shortened week.

Then you look at global bond yields and can’t help but wonder if something is seriously the matter. This isn’t about inflation undershoots. It isn’t about the latest batch of economic numbers. This is about geopolitics and where do you invest in a world where the quick resolution of our troubles and uncertainties can no longer be most investors’ base case.

Traders are looking at bond yields and concluding that they may be lower than the models suggest but they’re good enough. Bizarrely, even those with negative yields. Dumping stocks wholesale is hard to do. And not possible given many strategies. Besides, as tenuous as they have looked at times, they really haven’t done anything wrong — other than having stopped making new all-time highs on a regular basis. The retracement levels continue to hold. If that ceases to be true, we can revisit.

Getting out of carry is all about timing. You can lighten up, and, obviously, traders have, but it places you one headline away from being seriously off-sides. And the hunt for yield remains a powerful inducement to be involved. Especially for your limited partners who pay for the privilege of sleeping at night. The important skill will be to differentiate between the expected winners and losers within the asset class. You just have to decide which of the world’s problems you are trying to avoid.

It remains something of a mystery why the price action in commodities like precious metals has remained so moribund. And whether that can continue. They may look comatose, but are surely worth keeping a close eye on. The longer they sit, moreover, the technical picture will begin to be more supportive.

In a world of perpetual quantitative easing it became an accepted investing strategy to ignore geopolitical risk other than for very short bursts of time. Maybe that will largely remain the case. Or at least look like it. But not if you are trading bonds. And the more bonds you own, the more “risk” assets you can not only afford to own, but may have no alternative. Don’t expect a single market narrative to neatly describe all price action.

via ZeroHedge News http://bit.ly/2QvM0y4 Tyler Durden

Turkey has launched a cross-border operation into neighboring Iraq against Kurdish militants in a mountainous northern region of the country. 

The Turkish defense ministry confirmed its military unleashed a barrage of artillery fire and air strikes on Monday afternoon before ground forces entered northern Iraq to “demolish the caves and shelters that are being used by terrorist groups and to eliminate terrorists” — a reference to the outlawed PKK. 

“The operation, with the support of our attack helicopters, is continuing as planned,” the statement said further. While cross-border shelling has happened somewhat frequently in the past, Turkey has rarely sent ground troops.

Back in December 2015 when Turkey, claiming to be engaged in counter-ISIS and general counter-insurgency operations, crossed into Iraq with a large ground force then Iraqi Prime Minister Haidar Abadi demanded Turkey cease violating Iraqi sovereignty, in a standoff which proved a major embarrassment for Baghdad. 

Turkish state media released video footage of its operation inside Iraq:

Turkey launches a counter-terrorism operation dubbed Pence, which means claw in Turkish, in northern Iraq https://t.co/zvnknaxOdk pic.twitter.com/IcB9xd5Vp5

— TRT World (@trtworld) May 28, 2019

Not only has Turkey not been bashful about routinely violating the sovereignty of both Iraq and Syria ostensibly to “fight terrorists”, it has often positively boasted about it and published video footage of the incursions. 

Citing the defense ministry, Reuters reports the following of the ongoing, controversial operation:

It said the operation targeted Iraq’s Hakurk region, just across the border from Turkey’s southeastern tip, which also borders Iran. The Kurdistan Workers Party (PKK) militant group is based in northern Iraq, notably in the Qandil region to the south of Hakurk.

Video published by the ministry showed helicopters landing commandos on mountainous terrain. It also shared photos showing shells fired by howitzers and soldiers perched on ridges, surveying hillsides with their rifles.

In Syria, Turkey has recently strained its relations with the United States over Washington’s support to the Syrian Democratic Forces (SDF), composed mainly of Kurkdish “People’s Protection Units” (YPG/YPJ), which Ankara sees as but an extension of the “terrorist” PKK.

Turkey’s President Erdogan has repeatedly condemned what he sees as US aid and support to a banned terrorist group, while in recent years American officials have laid blame for the rise of ISIS on Turkey’s well-known and active support to jihadists in northern Syria.  

via ZeroHedge News http://bit.ly/2WwNCN6 Tyler Durden