Category: zerohedge

House Judiciary Committee Democrats on Monday took their first formal step to hold Attorney General William Barr in contempt for his refusal to provide special counsel Robert Mueller’s full report to Congress by 9 a.m. Monday. 

Chairman Jerrold Nadler (D-NY) scheduled a Wednesday vote to hold Barr in contempt, escalating the battle between the Democrat-led House and the Trump Justice Department. 

“William P. Barr, the Attorney General of the United States, shall be found to be in contempt of Congress for failure to comply with a congressional subpoena,” the resolution reads, which adds that Barr’s failure to comply has “hindered the Committee’s constitutional, oversight and legislative functions.”

If Barr makes a good faith effort to comply with the committee, the vote could be postponed. 

Last Thursday, Barr skipped out on scheduled testimony in front of the committee, one day after an often contentious session with the Senate Judiciary Committee. The Justice Department issued a statement objecting to a Democrat demand that committee counsels be allowed to question the AG, which was deemed both “inappropriate” and “unprecedented.” 

One day after Barr released a redacted version of the Mueller report, Nadler issued a subpoena for a full, unredacted copy – however the Justice Department notified the committee last week that it would refuse to comply, according to The Hill. On Friday, Nadler sent a follow-up letter to the DOJ, giving it until Monday to respond or face contempt proceedings against Barr. 

“The Committee is prepared to make every realistic effort to reach an accommodation with the Department. But if the Department persists in its baseless refusal to comply with the validly issued subpoena, the Committee will move to contempt proceedings and seek further legal recourse,” Nadler wrote on Friday. 

Nadler has argued that Mueller’s report and the evidence underlying it are needed in order for Congress to properly conduct oversight on the Trump administration. He and other Democrats have rejected Barr’s offer to allow leaders of the House and Senate Judiciary Committees as well as “Gang of Eight” lawmakers to view a less-redacted version in a secure room.

The Justice Department sent a letter to Nadler last Wednesday — the deadline for the administration to produce Mueller’s full report — describing the subpoena as “not legitimate oversight” and asserting that Nadler’s panel had failed to articulate any “legitimate legislative purpose” for requesting the entirety of Mueller’s underlying evidence. –The Hill

“The requests in the subpoena are overbroad and extraordinarily burdensome. More importantly, these requests would pose a fundamental threat to the confidentiality of law enforcement files and the Department’s commitment to keep law enforcement investigations free of political interference,” wrote Assistant Attorney General Stephen Boyd. 

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

Michael Cohen’s attempts to strike a deal with prosecutors to either delay or reduce his prison sentence have been unsuccessful, and on Monday he will report to the Federal Correctional Institution, Otisville, where he will serve a three-year sentence for tax evasion, lying to Congress and campaign finance crimes.

Cohen was initially set to begin his sentence March 6, but his attorneys argued successfully for his prison date to be pushed back by two months. Cohen has spent the last few months testifying publicly before Congress, appearing during a handful of closed-door sessions, and unsuccessfully trying to convince prosecutors that he has more to offer. A request for a second delay was denied.

During a brief appearance outside his midtown hotel, Michael Cohen delivered a brief statement to the press. In the statement, he claimed he had “much more to tell” – apparently a last-ditch effort to convince prosecutors to shorten his sentence in exchange for further cooperation.

“There still remains much to be told and I look forward to the day that I can share the truth. Thank you very much,” Cohen said before departing his midtown hotel for prison.

Cohen made it clear during his testimony back in February that he accepted responsibility for covering up President Trump’s dirty deeds. He also accepted responsibility when he pleaded guilty late last year as part of a deal with federal prosecutors.

“I blame myself for the conduct which has brought me here today, and it was my own weakness, and a blind loyalty to this man that led me to choose a path of darkness over light.”

Otisville, a medium-security prison, is home to the likes of former NFL star Darren Sharper, Fyre Festival’s Billy McFarland and former reality TV star Mike “The Situation” Sorrentino. The facility once ranked by Forbes as one of “America’s 10 Cushiest Prisons” and will allow Cohen to basically hang out away from his wife, playing horseshoes and working out with a bunch of like-minded criminals.

However, as one former Otisville case manager told the press that prison is still ‘no picnic’, and that Cohen might struggle – or even be thrown into protective custody – because of his reputation for being a ‘rat’ as the president once branded him. However, the prison does have access to kosher meals and a thriving Jewish community.

Here’s what a typical day looks like during the week: lights go on at 6 a.m., followed by breakfast. Work duties, such as mowing the grounds or cleaning up the prison, are performed from 7:30 a.m. to 3 p.m., with a break for lunch at 11. Dinner is served beginning at 4:15 p.m, and it’s lights out at 11:30 p.m. Inmates get to sleep in on the weekends – with lights on at 7 a.m.

via ZeroHedge News http://bit.ly/2GYHX90 Tyler Durden

Via DataTrekResearch.com,

It has been a while since we did a deep dive into US equity valuations. It isn’t just that the S&P 500 is up 17.5% in 2019 and +12.0% over the last year that gets our attention or that the index trades for 17x forward earnings, a lofty level versus historical norms. US equity market volatility – both actual and forecast – is exceptionally low at the moment. This implies a high degree of investor confidence that every valuation input, macro and micro, is stable and predictable at present.

To assess that sanguine judgment, we will outline bullish and bearish scenarios that both key off the same factors:

• The level and volatility of risk free interest rates

• Corporate earnings leverage and future margin growth

• Earnings quality and capital efficiency

First, here is the upside case using that framework:

#1: Risk free interest rates: central banks and bond markets will discover that the neutral rate of interest is far lower than both recent cycles and their own prior estimates. This is why, for example, US inflation is still below the Federal Reserve’s 2% target despite strong labor markets.

Why is this happening? Higher levels of corporate and private sector indebtedness than historical norms make the US/global economy more levered to the cost of debt. That is why equity markets rolled over so hard at the end of last year, fearing a Fed policy mistake driven by this new dynamic.

As central banks and future economic reports condition fixed income markets to this reality, long-term rates will drop further, boosting equity valuations.

#2: Corporate earnings leverage and future margin growth: S&P 500 net margins have been rising since the 1990s and will either remain stable or continue to improve in the future. The data here:

• Peak net operating margins in the 1990s cycle: 7.5% (2000)

• Peak in the early 2000s cycle: 9.0% (2007)

• Peak in the current cycle: 12.0% (2018)

#3: Earnings quality and capital efficiency: record stock repurchases and rising dividend payments show that the companies of the S&P 500 are able to pay out 100% of accounting earnings, highlighting both high levels of capital efficiency and exceptional free cash flow generation even at mid-cycle levels of economic activity. The data:

• From 2014 to 2018, the companies of the S&P 500 reported net income on an operating basis of $4.2 trillion.

• 40% of that has gone to dividend payments ($1.7 billion)

• 59% has gone to stock repurchases ($2.4 billion)

Pull these points together and the bull case looks like this:

• Long-term interest rates have further to fall even as economic growth continues. The 10-year Treasury should yield something more like 2.0% if the neutral rate of interest is 1.0% to 1.5%, for example.

• Corporate margins are rising and asset efficiency remains high, which means returns on capital/equity have further to climb. Even before the 2017 tax bill passed, for example, the companies of the S&P 500 generated $181 billion in incremental net operating profits (20% growth) over the prior 3 years while spending 98% of their earnings on dividends and buybacks.

• The upshot: lower interest rates and higher returns on capital is a powerful combination to drive valuations higher.

And here is the downside case:

#1: Even if neutral interest rates are lower than expected because the world is over-levered that is still a problem because:

• Even in good times, overly indebted countries with aging demographics will find it difficult to grow their way out of high debt burdens. In the next recession this will also limit their ability to provide fiscal stimulus, making future downturns more severe.

• Cheap capital leads to malinvestment, which unwinds in downturns making them more severe than if interest rates were properly set through the cycle.

#2: Corporate profit margins are unsustainably high because capital has been increasingly over-rewarded since the 1990s at the expense of labor.Globalization of both supply chains and high-growth technological product lines (i.e. personal electronics) has also played a role here. The political process in democratic countries will correct this imbalance through wage regulations/taxation/tariffs and/or by changing trade agreements.

#3: That means corporate returns on capital/equity are at similarly unsustainable levels. Companies will have to reinvest to remake/localize supply chains/reallocate profits to labor and away from their sources of capital, both of which will have the effect of lowering shareholder returns.

Our takeaway from this bull-bear debate: the S&P 500 trades for 17x earnings just now and whether valuations go to 18x (bullish) or 15x (bearish) in the next 12-24 months depends on:

• To what degree bond markets and the Federal Reserve come to the view that neutral interest rates are substantially lower than current market prices. That process has to happen before too-high central bank policy or an exogenous shock causes a recession, however.

• Not so much the level of current corporate earnings or profit margins, but how sustainable those are over the next 3-5 years, especially if in the case of recession.

• What, if any, impact the political process will have on capital allocation and structural returns on corporate investment.

The bottom line is that equity valuations are always a function of investor confidence in the predictability of interest rates and corporate earnings/return on capital. Thirty years of lower rates and higher earnings/margins/capital efficiency make it tempting to extrapolate those trends will continue. And perhaps they will, but it is also important to understand where they could stall or even reverse. Our position is that rates will trend lower, supporting higher valuations. We’re much less convinced that corporate returns on capital have much more room to grow.

*  *  *

Continuing on the topic of US equity valuations, two datasets are worth specific mention:

#1: The Shiller Cyclically Adjusted Price-Earnings (CAPE, for short) Ratio.

What it does: instead of using one-year forward earnings expectations, the Shiller CAPE averages and inflation-adjusts the last decade of reported earnings for the S&P 500. The idea is to use a simple and entirely fact-based measure of cross-cycle earnings power rather than rely on just single-point analyst projections.

Here is the current math for one-year forward earnings as compared to Shiller CAPE valuations:

• FactSet shows that consensus earnings expectations for the S&P over the next 12 months are $175/share so the index trades for 16.8x forward earnings. That’s higher than the 5-year (16.4x) and 10-year averages (14.7x) but not what most investors would call outlandishly expensive.

• At current prices, however, the S&P 500 trades for 31.1x its last 10 years of reported earnings adjusted for inflation (CAPE earnings, in other words).

• That compares to a very long run (1870 – present) average of 16.6, pointing to the possibility that US stocks are dramatically overvalued.

• Furthermore, at current levels US stocks are as expensive as they were just ahead of the 1929 crash (30x), although not quite as high as the late 1990s dot com bubble (44x).

Why this matters: more than any other long run valuation analysis, the Shiller CAPE’s current message of a profoundly overvalued US equity market resonates with market watchers who feel domestic stocks are in a bubble. We routinely field questions about this measure.

What it misses: to our thinking the Shiller PE has 2 existential flaws:

• It assumes interest rates revert to some long run average with the same regularity as corporate earnings, namely around a 10-year cycle. In practice, this has not happened for decades. Interest rates have fallen over the last 10, 20 and 30 years. Of course US equity valuations are high. That’s just the math behind discounting cash flows.

• Even today CAPE earnings hold the lingering after effects of the Financial Crisis in their “normalized” cyclical average earnings of 2009 – 2018. We won’t be through those until 2020/2021, which will finally give us more normal cross-cycle earning power averages.

The bottom line on the Shiller CAPE ratio: US stocks are expensive on this measure mostly because it ignores structurally low interest rates.

#2: Current sector-level S&P 500 valuations.

The numbers here: The S&P 500 trades for 16.8x forward earnings but within the index there is a broad dispersion of sector-level valuations. Here is a breakdown:

• Sectors that trade cheap to the S&P: Financials (12.1x), Health Care (15.1x), Materials (16.0x), Industrials (16.2x) and Energy (16.3x). 

  In aggregate these represent 44% of the index by weight, and on average they trade for 15.1x forward earnings.

• Sectors that trade at a premium to the S&P: Consumer Discretionary (21.4x), Technology (19.3x), Consumer Staples (19.1x), Utilities (18.3x) and Communication Services (18.0x).

  The groups here represent 53% of the index by weight, and on average they trade for 19.2x forward earnings.

• Not directly comparable to these due to tax treatment, but presented for completeness: Real Estate (19.1x), at a 3% weight in the S&P 500.

Why this matters: US equity sectors broadly fall into two categories, and these drive their valuations:

• High growth or rate sensitive groups get above-average valuations. The former includes Tech, Communication Services and Consumer Discretionary (where Amazon has a 25% weight). Consumer Staples and Utilities make up the latter.

• Low growth/cyclical and politically exposed groups get low valuations. Financials, Industrials, Materials and Energy make up the first group. Health Care is a class of one in the second.

The bottom line here: US equity valuations are a mathematical tug of war between these 2 camps. As long as rates stay low and Tech/Comm Services companies can continue to grow, aggregate valuations will remain high.

via ZeroHedge News http://bit.ly/2J1dj2d Tyler Durden

Following a series of conflicting reports claiming that Boeing didn’t inform the FAA or Southwest, the largest buyer of its 737 MAX 8 planes, that a safety alert warning pilots that an ‘angle-of-attack’ sensor on the planes might be feeding the system erroneous data, risking a misfire of the plane’s anti-stall software, had been made an ‘optional’ safety feature, Boeing has admitted that it wasn’t aware that the alerts had been disabled when it initially delivered the planes, and that it waited more than 13 months, until after the Oct. 29 crash of a 737 MAX 8 owned by Indonesia’s Lion Air, to inform its regulator that it had inadvertently disabled the alerts.

A series of reports by the Wall Street Journal over the past two weeks uncovered the fact that Boeing had made the alerts – which it insists were not a critically important safety feature – optional. Shortly after that initial report, WSJ published a follow up suggesting that Boeing’s decision to disable the alerts was inadvertent, though a spokesman declined to elaborate about how this happened.

Finally, on Sunday, Reuters confirmed that the decision was, in fact, unintentional, but Boeing still waited to inform its regulator and its customers that the alerts had been disabled on planes that didn’t  include an ‘optional’ package of additional safety figures.

This is the first time since the crash of the Lion Air flight and a subsequent deadly crash on March 10 that Boeing has admitted doing something inadvertently during the development of the 737 MAX 8.

However, as we noted in our prior coverage, Boeing’s insistence that the alerts weren’t critical to safety appears to conflict with the preliminary findings from an investigation into the Ethiopian Air crash, which determined that the pilots of the doomed flight were taken by surprise when MCAS – the slight’s anti-stall system – activated and started pushing the nose of the plane down. Their efforts to deactivate the system were unsuccessful, and after manually raising the nose of the plane four times, the plane plunged out of the sky and crashed into a field outside Addis Ababa, killing all 157 people on board.

Some analysts have argued that if the pilots of the doomed Lion Air and Ethiopian Air flights had been alerted to the misfire, that more than 350 lives could have been saved.

Boeing has said the feeding of erroneous Angle of Attack data to a system called MCAS that pushed the planes lower was a common link in two wider chains of events leading to both crashes, but has stopped short of admitting error on that front.

The angle of attack measures the angle between the air flow and the wing and helps determine whether the plane is able to fly correctly. If the angle becomes too steep, the flow of air over the wing is disturbed, throwing the plane into an aerodynamic stall. That means it starts to fall instead of fly.

Although the angle itself is key for onboard systems, the industry has debated for years whether such data should be included in already crowded cockpit displays because it is directly related to airspeed, which pilots already scrutinize.

Some analysts and academics say having the AOA Disagree alert installed would have helped Lion Air maintenance crew diagnose a problem on the penultimate flight of the 737 MAX jet that crashed in October, killing all 189 on board.

Boeing blamed the mistake on software delivered by a third-party vendor. The company was let off the hook by the FAA after it came clean, with nothing more than a stern warning.

Boeing said a Safety Review Board convened after a fatal Lion Air crash in Indonesia last October corroborated its prior conclusion that the alert was not necessary for the safe operation of commercial aircraft and could safely be tackled in a future system update.

The FAA backed that assessment but criticized Boeing for being slow to disclose the problem.

Boeing briefed the FAA on the display issue in November, after the Lion Air accident, and a special panel deemed it to be “low risk,” an FAA spokesman said.

“However, Boeing’s timely or earlier communication with the operators would have helped to reduce or eliminate possible confusion,” he added.

Boeing attributed the error to software delivered to the company from an outside source, but did not give details.

Boeing is working on a software update for the 737 MAX 8 to make MCAS less powerful and also ensure that two sensors are always feeding flight data to both the plane’s internal systems and the cockpit. The company has said the update could be finished as early as this week, after it completes a final series of test flights.

However, Boeing’s apparent lack of awareness about the functionality of the safety features on its jets is simply staggering. What’s more amazing is that the market has been unwilling to punish the company’s shares even after this latest batch of revelations that appeared to suggest that Boeing misled the FAA.

But the significance of Boeing’s admission wasn’t lost on everybody.

this boeing story is one of the wildest subplots going on right now https://t.co/LXuzcC9ii0

— elizabeth bruenig (@ebruenig) May 6, 2019

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

VIX futures soared overnight after US-China trade-deal realities ‘punched the market in the face’, but spot VIX has soared even further this morning, spiking above 18 to the highest levels since January (blowing through all its key moving averages)…

And remember, this spike in vol is coming at the same time as speculators are record short vol futures…

However, as Nomura’s Charlie McElligott explains in a note this morning, there are bigger, potentially reinforcing threats from this sudden spike:

For all of the recent market consternation about the VIX futures positioning (net spec short still outsized by the net ETN long, as the leveraged short ETNs are essentially extinct which is what matters the most), one thing all can agree on is that systematic VIX roll-down players are certainly “back-in” the trade post the Fed’s dovish pivot – so as this morning we see UXA curve invert powerfully again.

VIX FUTURES CURVE INVERTS- ROLL-DOWN STRATEGIES WILL BE DYNAMICALLY COVERING PART OF THEIR ‘SHORT VOL’ POSITIONS IN COMING DAYS.

As cash markets open, here are Nomura’s key levels to watch for CTA reversals and Gamma “flips”…

CTA FORWARD DROPOFF POINTS ARE ‘MECHANICALLY RISING’ IN COMING-WEEKS ON ACCOUNT OF THE MARKET RALLY – MEANING A ‘LOWER BAR’ FOR MARKET SELLOFF TO TRIGGER DELEVERAGING AS THE PRICE-SIGNAL WEAKENS IN U.S. EQUITIES (TOP ROW ‘0’ = TODAY, ‘5’ = ONE WEEK OUT, ‘10’ = TWO WEEKS, ‘15’ = THREE WEEKS):

It will be critical to watch how reactive OR dynamic these strategies are at unwinding – per Tom Eason, it will likely take a few days of inversion / higher realized for these trades to fully “vomit” their “short vol” positioning.

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

After a barrage of big data releases and events last week, the calendar slows down this week… or at least was supposed to until Trump blew up the Chinese trade deal late on Sunday sending global markets reeling to start the week. That said, trade aside, we still have another round of trade meetings to look forward to between the US and China, as well as US CPI and PPI data which becomes a focal point in light of the recent Fed comments. We’ve also got a slew of data due out in China, the remaining PMIs in Europe and plenty of Fed speakers scheduled through the week.

Naturally, trade talks – or the lack thereof – will be the early focus next week as China’s top trade envoy Liu He returns (perhaps) to Washington on Wednesday. Until Trump’s forceful intervention on Sunday, when the president threatened to hike tariffs on Chinese imports on Friday as the trade talks drag on for too long, markets had already been left confused by the message following talks in Beijing this week. Initially the comments from the US side appeared mostly positive, however late last week, Chinese media reported that officials “may have hit an impasse” which caused markets to temporarily sell-off. In fairness, the details were less negative than the headline suggested, but the story could nevertheless be a signal from Chinese officials about their willingness to walk away from talks if a satisfactory deal isn’t soon completed. Of course, Trump’s tweet on Sunday blew up any tentative ceasefire that had been cobbled together over the past few months. So, as DB’s Craig Nicol writes, “it remains to be seen but with a tentative end-May deadline for an agreement to be reached, next week’s talks could go a long way to deciding the fate of those negotiations.“

Meanwhile, it’s a bit light on data in the US this week, however, we still have more important inflation data to digest starting with the April PPI report on Thursday and then the April CPI report on Friday. The latter is expected to rise +0.2% mom for the core, which would be enough to lift the annual rate by one-tenth to +2.1% yoy. Given Powell’s recent comments emphasizing that a good portion of the weakness in core inflation was due to “transient factors”, and that the trimmed mean rate is at the Fed’s target, inflation data will likely be garnering more attention again in the near term. Our US economists recently dug into the details of core inflation in a report this week which you can find here.

As for Europe, the main highlight will almost certainly be the remaining April PMIs on Monday when we get services and composite prints. All the focus will be on whether or not there is further divergence between the manufacturing and services sectors, or whether the gap is starting to close. The flash prints implied a decent decline for the non-core countries so that will be closely watched. Also worth flagging in Europe next week are March industrial production prints in Germany on Wednesday and France and the UK on Friday, along with the March and Q1 GDP reading for the latter.

In Asia, it’s a busy week for data in China with the Caixin PMIs due on Monday, April trade numbers due on Wednesday and April CPI and PPI on Thursday. In Japan we  get the Nikkei PMIs over Tuesday and Wednesday.

It’s also a reasonably busy week for Fedspeak which will likely be a focal point given the message particularly about inflation being transitory from the Fed on Wednesday. Bullard, Daly and Kaplan are all due to participate at the Hoover event early tomorrow morning before Harker speaks on Monday, Kaplan and Quarles on Tuesday, Brainard on Wednesday, Powell, Bostic and Evans on Thursday and Bostic, Brainard and Williams on Friday. It’s worth noting that Powell’s comments are due to come at a Fed community conference which isn’t typically seen as a venue for policy discussion. In Europe, the ECB’s Lautenschleager and Praet will speak on Monday, while Coeure, Villeroy and Lautenschlaeger also speak on Friday while over at the BoE we’re due to hear from Cunliffe, Haldane and Ramsden early in the week.

As for earnings, the run rate slows now with just 57 S&P 500 companies due to report. Through this weekend we’ve had earnings reports from 382 S&P 500 companies with 288 beating on earnings for an aggregate beat of +6.3%, but just 214 on sales. As DB notes, the breadth of beats in the US has rebounded from the seven-year low in Q4 and the size of beat is running well above average.  On top of that, guidance has seen the bottom-up consensus 2019 estimate rise for the first time since mid-2018. All-in-all a fairly positive earnings season so far then.

Finally, other things to watch next week include a meeting in Berlin between Merkel and US Secretary of State Pompeo, the European Commission’s latest economic forecasts also due on Tuesday, Pompeo meeting with UK PM May on Wednesday in London, South Africa national and legislative elections on Wednesday, Brazil’s rate decision on Wednesday and Norway’s rate decision on Thursday. It’s worth noting that markets in the UK are also closed on Monday.

Summary of key events by day, courtesy of Deutsche Bank:

• Monday: The final April services and composite PMIs will be the main focus with data due in China and Europe. The May Sentix investor confidence reading and March retail sales for the Euro Area are also due. The Fed’s Harker is also scheduled to speak in the afternoon, while the ECB’s Praet and Lautenschlaeger are due to speak.
• Tuesday: Overnight, the final April manufacturing PMI in Japan is due, while China’s April foreign reserves data is also due out. In  Europe we’ll get March factory orders in Germany, the March trade balance for France and April house price data in the UK. In the US the March JOLTS report and March consumer credit print is due. Elsewhere, the latest EU commission forecasts are due, while the BoE’s Cunliffe and Haldane will speak. The Fed’s Kaplan and Quarles will also speak, while US Secretary of State Pompeo is due to meet with German Chancellor Merkel in Berlin.
• Wednesday:China’s April trade data will be due out during the morning, along with the remaining April PMIs in Japan. In Germany the March industrial production print is due out. Away from that, the BoE’s Ramsden is due to speak and the BoJ’s latest meeting minutes are due. Pompeo is also due to meet with UK PM May in London. Meanwhile, China’s Liu He returns to Washington for another round of trade talks. The Fed’s Brainard is also due to speak.
• Thursday: The overnight focus will be on the April CPI and PPI prints in China. There are no data releases due in Europe, while in the US we’ll get the April PPI report along with the latest claims reading, March trade balance and March wholesale inventories data. The Fed’s Powell, Evans and Brainard are also due to speak at a Fed community research event.
• Friday: A busy day for data releases includes March trade data in Germany, March industrial production in France and the UK, and March and Q1 GDP for the UK. In the US the April CPI report is due out along with the April monthly budget statement. The Fed’s Bostic and Williams are also due to speak, along with the ECB’s Coeure, Galhau and Visco.

Finally, here is Goldman focusing on the US, and noting that the key economic data release this week is the CPI report on Friday, adding that there are several scheduled speaking engagements by Fed officials this week.

Monday, May 6

• 09:30 AM Philadelphia Fed President Patrick Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will discuss the economic outlook at Drexel University. Prepared text and audience Q&A are expected.

Tuesday, May 7

• 07:00 AM Dallas Fed President Kaplan (FOMC non-voter) speaks; Dallas Fed President Robert Kaplan will speak on a moderated panel at Tsinghua University in Beijing. Audience and media Q&A are expected.
• 10:00 AM JOLTS Job Openings, March (consensus 7,350, last 7,087k)
• 11:35 AM Vice Chair for Supervision Quarles (FOMC voter) speaks: Fed Governor Randal Quarles will discuss financial regulation at Yale University. Moderator Q&A is expected.
• 03:00 PM Consumer credit, March (consensus +$16.0bn, last +$15.2bn)

Wednesday, May 8

• 08:30 AM Fed Governor Brainard (FOMC voter) speaks: Fed Governor Lael Brainard will give opening remarks at a “Fed Listens” event at the Richmond Fed. Prepared text is expected.

Thursday, May 9

• 08:30 AM Fed Chair Powell (FOMC voter) speaks; Fed Chair Jerome Powell will give opening remarks at a Fed conference on community development in Washington, D.C. Prepared text is expected.
• 08:30 AM PPI final demand, April (GS +0.3%, consensus +0.2%, last +0.6%); PPI ex-food and energy, April (GS +0.2%, consensus +0.2%, last +0.3%); PPI ex-food, energy, and trade, April (GS +0.2%, consensus +0.2%, last flat): We estimate a 0.3% increase in headline PPI in April, reflecting relatively firm energy prices. We expect a 0.2% increase in the core measure excluding food and energy, and also a 0.2% increase in the core measure excluding food, energy, and trade.
• 08:30AM Trade balance, March (GS -$50.3bn, consensus -$51.1bn, last -$49.4bn): We estimate the trade deficit increased to $50.3bn in March, reflecting a slightly larger trade in goods deficit.
• 08:30 AM Initial jobless claims, week ended May 4 (GS 215k, consensus 220k, last 230k): Continuing jobless claims, week ended April 27 (last 1,671); We estimate jobless claims fell to 215k in the week ended May 4 following volatility in the prior weeks likely related to this year’s timing of Easter. The claims reports of recent weeks suggest that the pace of layoffs remains low.
• 09:45 AM Atlanta Fed President Bostic (FOMC non-voter) speaks; Atlanta Fed President Raphael Bostic will discuss the economic and monetary policy outlook at the Louisiana Bankers Association’s Convention and Exposition. Audience Q&A is expected.
• 01:15 PM Chicago Fed President Evans (FOMC voter) speaks; Chicago Fed President Charles Evans will speak at a Fed conference on community development in Washington, D.C.

Friday, May 10

• 08:30 AM CPI (mom), April (GS +0.46%, consensus +0.4%, last +0.4%); Core CPI (mom), April (GS +0.21%, consensus +0.2%, last +0.1%); CPI (yoy), April (GS +2.14%, consensus +2.1%, last +1.9%); Core CPI (yoy), April (GS +2.14%, consensus +2.1%, last +2.0%); We estimate a 0.21% increase in April core CPI (mom sa), which would boost the year-over-year rate by a tenth to +2.1%. Our forecast reflects a boost of roughly +0.01pp each from online sales taxes in California, oil-price pass through in the airfare category, and a rebound in the tax preparation category following a sharp drop over the last two months. We also expect a modest rebound in the apparel category following last month’s methodological changes. We look for another firm shelter inflation reading, as alternative rent measures have risen further, apartment completions have peaked, and aggregate vacancy rates remain low. On the negative side, we expect a sizable drop in used car prices. We look for a 0.46% increase in headline CPI (mom sa), mostly reflecting a boost from higher gasoline prices.
• 08:30 AM Fed Governor Brainard (FOMC voter) speaks: Fed Governor Lael Brainard will speak at a Fed conference on community development in Washington, D.C. Prepared text and audience Q&A are expected.
• 09:08 AM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Fed President Raphael Bostic will discuss the economic and monetary policy outlook at an East Mississippi Business Development Corporation event. Audience and media Q&A is expected.
• 10:00 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will speak at the Bronx Bankers Breakfast. Prepared text and audience Q&A are expected.
• 02:00 PM Monthly budget statement, April (consensus +$160.0bn, last -$146.9bn)

Source: DB, Goldman, BofA

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

Tickets for the last stop on Bill and Hillary Clinton’s 13-city speaking tour are selling for less than $10 on the secondary market. 

Ticketmaster prices have also plummeted, as Hot Air‘s Karen Townsend notes: 

A glance for tickets available on sale at Ticketmaster online shows they begin at $45.72 and go up to $257.18. I wrote about this tour back at the beginning of December and even then, ticket sales were slow and had to be discounted. Perhaps realizing they were on rocky ground, the two Clintons first took the tour to Canada as a soft opening before their American dates. The fine folks in Toronto were less than impressed and the ticket sales showed a lack of interest in the former President and his wife, the woman who felt entitled to the presidency but lost to her old friend Donald Trump. –Hot Air

Last Friday, prime seats at Seattle’s WaMu theater were selling on ticketmaster for $829 – 54% lower than the $1,785 they were asking when the tour was announced in November. 

In December, the Clintons turned to Groupon – offering tickets at nearly 60% off after failing to attract crowds at full price. 

That month, the Daily Mail reported that just 3,300 tickets were sold in the Scotiabank Arena in very liberal downtown Toronto, which holds 19,800. 

Ticket sales were so bad that the New York Times‘ Maureen Dowd noted the power couple’s steady decline. After paying $177 for a ticket to hear the Clintons, the Washington Examiner‘s Byron York noted that Dowd could have simply waited until the day of the event and paid less than $10.

Maureen Dowd paid $177 for a ticket to hear Bill & Hillary Clinton. If she had waited til day of the event, she could have gotten one for less than $10. That’s how popular the tour is… https://t.co/UmWW1F4J6P

— Byron York (@ByronYork) December 2, 2018

During Friday’s appearance in Seattle, the Clintons were met by an overwhelming positive audience, according to the Seattle Times. 

“I really believe that we are in a crisis, a constitutional crisis,” Clinton proclaimed during the 90-minute question and answer session between her, husband Bill and actor Bradley Whitford – adding “This is a test for our country.” 

Although Clinton did not specifically cite the Russian collusion conspiracy theory nor try to tie the Trump campaign with Russian interference in the 2016 presidential election, she said the Mueller Report “not only decisively proves but goes chapter and verse about how the Russians — in the words of the report — conducted ‘a sweeping and systemic interference in our election,’” according to the Times. “And then you wake up and your president is spending an hour on the phone with Vladimir Putin, who was the mastermind of the interference and attack on our election.” –Daily Caller

Alas for Democrats who missed it, the sour grapes tour is over – at least in this format.  

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

Authored by Chetan Ahya, Morgan Stanley chief economist and global head of economics

Some debates fizzle out quickly, while others linger. This year, the Fed’s policy and the outlook for China have dominated macro conversations. The latest iteration of these debates centers on potential shifts in the Fed’s and China’s policy stance.

Going into this week’s FOMC meeting, some investors were debating about the prospects of an “insurance cut”. We saw the bar for a cut as being higher as low core inflation would need to be sustained and/or come with a deteriorating growth backdrop. Moreover, alternative inflation trend measures (e.g., the Dallas Fed’s trimmed mean price index) do not confirm the sharp deceleration in core PCE. Indeed, the prospects of an insurance cut have diminished following Chair Powell’s comments that transient factors are affecting inflation.

Post the meeting, Fed futures are still implying some (albeit lower) probability of a rate cut by the end of this year. If financial conditions stay easy and supportive of growth, we think the debate will shift to the timing of a return to a tightening path. While our Chief US Economist Ellen Zentner sees an eventual resumption of tightening, she expects the Fed to remain on hold for the next 12 months.

We don’t think inflation pressures will force the Fed’s hand, as we only forecast core PCE inflation to reach 2.0% by end-2019. With its renewed commitment to a 2% inflation goal on a “sustained and symmetric basis”, we don’t see the Fed taking action the moment core PCE inflation touches 2%. The Fed is likely to tolerate a modest and brief overshoot.

If inflation doesn’t force the Fed’s hand, will financial stability concerns push it back onto a tightening path? Providing the Fed’s latest assessment of financial system vulnerabilities, in his post-FOMC press conference Chair Powell reiterated that they remain “moderate”. Moreover, in specifically addressing financial stability concerns, while the responsibility lies with the Financial Stability Oversight Council, the Fed is likely to communicate that it would prefer macro-prudential norms (such as the counter-cyclical capital buffer tool that is under the Fed’s purview) over rates as the first line of defense, particularly if core PCE inflation is still tracking below 2%.

Turning to China, some investors see recent commentary from policy-makers as a sign of a hawkish shift. But as our Chief China Economist Robin Xing notes, the policy stance remains pro-growth, and fiscal policy will continue to be the key lever. To be clear, we don’t see the policy-makers’ emphasis on watching for financial stability risks as signalling a reversal in their position.

Moreover, the easing measures announced so far are significant and will be implemented as proposed. For instance, the Central Financial and Economic Affairs Committee meeting recently affirmed the intention to fully implement the US$250 billion fiscal stimulus. Monetary policy support will be relatively more passive, but will accommodate the government bond issuance associated with fiscal easing.

Keeping the big picture on China in mind, the policy objective of stabilising the labour market has not yet been achieved. We think that policy-makers are unlikely to declare victory on this front, hence we don’t see a shift in China’s policy stance any time soon.

Even investors who believe in the stimulus and its impact on China’s growth have questioned their benefits to the rest of the world. Some are suggesting that in this cycle what happens in China stays in China. However, in today’s world of integrated global supply chains, a pick-up in any large economy’s domestic demand will show up in imports too, benefiting the rest of the world. The impacts of a recovery in China tend to appear with roughly a three-month lag. As it is, we’re already seeing tentative signs of spillover with Korea’s exports picking up, and its PMI also. An additional transmission channel will be the impact of stronger economic activity on the domestic operations of multinational companies within China.

In sum, our view is that policy support in China and the US is unlikely to be withdrawn in the near term. With growth in the world’s two largest economies improving, we are confident that the global economy has troughed in 1Q19 and is on a recovery path. As for risks, I am more concerned about the potential re-emergence of US-EU trade tensions than an earlier-than-expected end to US and Chinese policy support.

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

In a sign of just how much President Trump’s threats to hike tariffs (and impose new levies) have rattled Beijing, which is struggling to preserve its world-beating market rally while trying to boost growth as the pace has continued to slacken in the new year, Bloomberg reported on Monday that the Communist Party’s censorship machine wiped all traces of Trump’s threats from the Chinese Internet.

Though Chinese media has reported that its delegation is still planning on traveling to Washington this week (even if Vice Premier Liu He might delay his arrival or skip the trip entirely), more than 16 hours after Trump tweeted his threats, researchers could find no trace of them on Weibo, Tencent’s popular WeChat app or China’s search engine Baidu.

….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

— Donald J. Trump (@realDonaldTrump) May 5, 2019

This must have been puzzling to millions of Chinese investors, seeing as with the Shenzhen Composite closing 7% lower, Chinese stocks embarked on their worst session in three years, while the yuan recorded its largest daily drop in just as long. Still, there was no mention of Trump’s threats in the official Xinhua News Agency to the more market-oriented Caixin and even the often belligerent Global Times.

On Chinese search engine Baidu, the top US news was President Trump’s “very productive” Friday phone call with Russian President Vladimir Putin.

But among the savvier Internet users who often manage to circumvent government censorship to tap into foreign news, some compared Trump to  Thanos, the villain from the Avengers film series, complaining that Trump wiped out Chinese stocks with a snap of his fingers.

via ZeroHedge News http://bit.ly/3018RFJ Tyler Durden

It was only a matter of time.

With the Turkish central bank rapidly running out of foreign reserves to deflect a tsunami of domestic lira selling, now that its pig lipsticking gimmicks have been exposed to the entire world, it was not a question of if but when the lira would crack and again tumble below 6 against the dollar.

That “when” was this morning, as Turkey’s currency suddenly plunged below 6.00 per U.S. dollar, triggering a volley of stop selling and touching its lowest level in almost seven months as authorities considered holding a new contest for the Istanbul mayor’s seat amid fraud allegations over the March election,

The immediate catalyst was also known: over a month after Erdogan lost a local election in the country’s top two cities, Turkey’s top electoral body has been under fierce pressure from President Recep Tayyip Erdogan as it nears a decision on whether to order a new contest for the mayor’s seat in Istanbul, a ruling that according to Bloomberg could inflict more damage on the economy by prolonging political turmoil.

“I have kept quiet until this day, but I have had enough,” Erdogan said over the weekend. “There is a clear case of fraud.”

Dozens of judicial investigations into alleged fraud in the March 31 municipal vote have also turned up the heat on the High Election Board, which may decide on the ruling party’s demand for a revote as early as Monday. Along with a setback in Turkey’s commercial hub, Erdogan’s AK Party also lost other key cities to the opposition, including the capital, Ankara.

Accelerated by the global market rout, the rising political uncertainty has sparked an exodus in Turkish assets while slamming the stagflating economy. The logical result: the continued collapse in the lira, which only avoided a plunge as the central bank intervened aggressively in the open market; the TRY has now depreciated for four consecutive weeks following the elections and is now well below the key psychological level of 6 per dollar Monday morning.

Furthermore, as Goldman notes, the USDTRY formed a “golden cross”, which is when a security’s 50-day moving average rises above its 200-day reading. The greenback gained all three times the pattern was formed over the past five years.

Technicals aside, all eyes are on the fight for the fate of Istanbul, where the ruling party’s loss would mark the biggest electoral defeat yet for Erdogan, who came to prominence as mayor of Turkey’s biggest city in the 1990s. Erdogan has refused to accept the vote’s outcome because he says election laws were violated when private-sector employees instead of civil servants were enlisted as ballot box officials.

The looming decision will serve as a litmus test for “the maturity of Turkey’s democracy,’’ according to Sinan Ulgen, chairman of Edam, an Istanbul-based think tank.

“If the board rules to renew the elections in Istanbul, they need to have a clear and acceptable reason that is in line with the law and public conscience,” he said. “Should the board defy that, it would mean a step backward for democracy.’’

While in the weeks following the election, Erdogan occasionally appeared to concede that Istanbul was lost, in recent days his rhetoric turned more aggressive and his calls for a fresh vote became more vocal after Devlet Bahceli, the head of a nationalist party that formed an alliance with Erdogan’s AKP, called new elections in Istanbul a matter of “survival.”

Meanwhile, Istanbul’s chief prosecutor sparked flashbacks to the fake “failed coup” of 2016, when he bolstered Erdogan’s argument over the weekend, alleging that dozens of those officials were found to be linked to a group that Turkey accuses of staging a failed coup attempt against Erdogan almost three years ago. The opposition dismisses the allegations as being an excuse for the government’s inability to acknowledge defeat. Turkey’s state-run media said Sunday that 43 suspects in a judicial probe of alleged Istanbul election irregularities were linked to that group, led by US.-based preacher Fethullah Gulen.

As Bloomberg adds, two of the 43 had an encrypted messaging application called ByLock that’s widely used by other Gulenists, Anadolu news agency reported, citing information from Istanbul’s chief prosecutor. The rest of the suspects were found to have deposited savings in a now-defunct lender allegedly run by Gulenists in the past, Anadolu said.

So there you have it: for all those long the carry-rich Lira, mostly Mrs Watanabe and various clueless retail investors, you can now blame Gulen for your ongoing P&L woes.

As for the lira’s future, expect much more pain. Citing traders, Bloomberg notes that as soon as the TRY tumbled below 6.00, the country immediately intervened, and Turkish state-run lenders sold more than $400 million of foreign currency on Monday. That amount failed to make even the smallest dent on the relentless selling pressure.  In other words, with FX reserves half a billion less, Turkey is rapidly, as Bloomberg put it, “approaching the rubicon” of state insolvency.

Once that happens, we wish the IMF the best of luck once Turkey disintegrates and Lagarde tries to wrest control from Erdogan over the local imploding economy.

via ZeroHedge News http://bit.ly/2Y74Z4l Tyler Durden