Category: zerohedge

Gas prices at the pump have already climbed above $4 a gallon in places like Fresno, Calif. But the worst sticker shock is being felt, and paid, by drivers in Hell’s Kitchen, the Manhattan neighborhood where a Mobil station on 11th Ave. has raised its cash price to $4.999 per gallon (more for credit), significantly higher than the average for the five boroughs.

According to AAA, the average price in New York City is $3.18 a gallon. Across the Hudson River in New Jersey, the statewide average is $3 after former Gov. Chris Christie saddled the state with a huge gas tax increase when gas prices were still low. The national average is still $2.93 – up 12 cents in the past two weeks, or nearly a penny a day.

Gas prices have been soaring as peak driving season approaches, pushed higher by President Trump’s decision to scrap the Iran deal, a decision that’s widely expected to remove hundreds of thousands of barrels of Iranian oil from the global market.

On Tuesday, in his latest DoubleLine webcast, Jeffrey Gundlach warned that prices are now high enough to pressure growth: “At what level will oil have a negative effect on the consumer? I’d say right about now,” Gundlach said.

While oil’s rally has been strong in dollar terms, both Gundlach and Mark Cudmore, an analyst at Bloomberg, pointed out how the strengthening dollar has made the impact of higher oil prices that much more punishing in foreign currency terms.

WTI pushes over $70/barrel even as the dollar continues its rally. Just think how much oil is soaring in other currencies!

— Jeffrey Gundlach (@TruthGundlach) May 7, 2018

Meanwhile, rapidly rising oil prices are hurting consumers and businesses with rising costs. As Cudmore explains, oil prices have risen too far, too fast and are rapidly increasing costs for business and consumers globally. Meanwhile, a sharp retracement would hurt speculators who have piled in to the long-oil trade.

With the national average gas price continuing its push toward $3 a barrel, already a quarter of Americans are cutting back on their summer travel plans, according to a recent survey. One New Yorker who spoke with CBS New York said he won’t be traveling far this Memorial Day Weekend because of high gas prices. 

“Sometimes I go down to Atlantic City, the Jersey Shore, out to Long Island, Jones Beach,” he said. “This year I think I’ll stay at Orchard Beach.”

And prices at the pump are only going to rise, at least in the very near term, as moves in oil prices filter through to consumers.

According to a AAA forecast, by Memorial Day weekend, the average gas price will be at least 5 cents higher than it was on Monday. Since prices are climbing so rapidly, CBS warned readers to keep an eye out for price gouging, which is defined as prices climbing 10% above their average.

If consumers are looking for somebody to blame, President Trump would make a convenient target, since his decision to pull out of the Iran deal was a near-term catalyst for higher prices. But Iran, of course, isn’t the only producer that’s struggling. Years of mismanagement and neglect in Venezuela have taken much of the OPEC country’s pumping capacity offline. By the Brookings Institute’s estimation, the highest gas prices in four years could wipe out nearly half of the stimulative impact  from the Trump tax cuts. In other words: First Trump giveth, then he taketh away.

Finally, there is Saudi Arabia, which can easily boost output and slam prices lower as it did in November 2014 when OPEC effectively broke apart as Riyadh scrambled – unsuccessfully – to gain shale market share. Commenting on Saudi output, Petromatrix managing director Olivier Jakob said that “the current White House cannot allow Saudi Arabia to let the prices rise to levels that will hurt Trump politically.”

In other words, calls for crude to reach $100 or higher over the summer fail to take into account President Trump’s focus on domestic elections and the role of gasoline prices. Of course, oil was $60 just a few months ago and is now at $80 on its way higher, and so far Trump has yet to make a stink about the surging oil price which, as of this moment, is the biggest hurdle facing America’s middle class.

 

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• Rare Bipartisan Deal Rolls Back Postcrisis Banking Regulation (WSJ)
• Fed Minutes to Detail Views on Inflation Overshoot, Yield Curve (BBG)
• Turkey Heads Toward a Currency Crisis as Lira Goes Into Freefall (BBG)
• U.S. warns citizens in China after ‘abnormal’ sound injures consulate worker (Reuters)
• The Hard Truth at Newspapers Across America: Hedge Funds Are in Charge (BBG)
• Eurozone composite PMI down to lowest in 18 months (MW)
• Barclays explores mergers with rival banks (FT)
• Apple Avoids Amazon’s Beauty Contest, Searches Secretly for New Campus (WSJ)
• Ocean, jungle explosions new risks from Hawaii eruption (Reuters)
• Barclays has no plans for tie-up with rival banks: sources (Reuters)
• Lira Plunges as Japanese Investor Exodus Adds to Turkey’s Woes (BBG)
• Gun control support fades after Florida shooting: poll (Reuters)
• Tiffany Sales Blow Away Estimates (BBG)
• Comcast says considering all-cash offer to buy Fox assets (Reuters)
• Ex-Trump campaign chief seeks to suppress evidence seized by FBI (Reuters)
• Tesla Model 3 registrations zip past rivals in California (Reuters)
• Why Do Americans Stay When Their Town Has No Future? (BBG)
• Iranian officials split over response to U.S. demands (Reuters)
• London’s Long Housing Boom Is Over. Is a Bust Coming? (BBG)
• How the U.S. Will Launch More Rockets, And Faster (BBG)

Overnight Media Digest

WSJ

– J.C. Penney, struggling to reverse its decline, is losing its chief executive to Lowe’s Companies Inc, another retailer trying to fix itself. on.wsj.com/2rZt27W

– Amazon.com Inc found itself thrust into the contentious issue of government surveillance on Tuesday after dozens of civil-rights organizations called on the tech giant to stop selling its facial-recognition technology to law-enforcement organizations. on.wsj.com/2IYNkIl

– Mark Zuckerberg apologized to European Union lawmakers over the fake-news and privacy scandals engulfing Facebook Inc but rebuffed suggestions that the company has outsize market power and avoided responding to many difficult questions. on.wsj.com/2sbCjZV

– President Donald Trump is weighing measures to cut European Union steel and aluminum exports to the U.S. by about 10 percent, in a sign the bloc’s concessions to secure tariff exemptions aren’t meeting White House demands, EU officials familiar with the talks said. on.wsj.com/2s0lkKA

 

FT

The U.S. House of Representatives passed on Tuesday bipartisan legislation that would ease bank rules introduced in the wake of the 2007-2009 financial crisis, giving President Donald Trump a major legislative victory.

U.S. civil liberties groups on Tuesday called on Amazon.com Inc to stop offering facial recognition services to governments, warning that the software could be used to target immigrants and people of colour unfairly.

U.S. President Donald Trump said on Tuesday there was a “substantial chance” his summit with North Korean leader Kim Jong Un will not take place as planned on June 12 amid concerns that Kim is resistant to giving up his nuclear weapons

 

NYT

– Former executive at Valeant Pharmaceuticals International Gary Tanner, and Andrew Davenport, the onetime head of a small mail-order pharmacy were convicted on Tuesday of using a secret kickback arrangement to defraud the drugmaker. nyti.ms/2kgxFGf

– Facebook CEO Mark Zuckerberg’s meeting with European lawmakers in Brussels ended with members of the parliament complaining that Zuckerberg had used the session’s odd format to evade specific questions and just repeat statements he had made in the past. nyti.ms/2IFOBR2

– President Trump declared on Tuesday that he was not happy with how recent trade talks with China had gone, and said the United States had not reached a deal to suspend penalties on the Chinese telecom firm ZTE Corp, disputing reports that the administration had decided to go easy on the company in return for trade concessions. nyti.ms/2KNCceE

– United States Congress agreed on Tuesday to free thousands of small and medium-sized banks from strict rules that had been enacted as part of the 2010 Dodd-Frank law to prevent another meltdown. nyti.ms/2s7b6aF

 

Canada

THE GLOBE AND MAIL
** An internal investigation has urged the South African government to consider suspending a $1.2-billion contract with Bombardier Inc as part of a wider probe into corruption and soaring costs in a $5-billion locomotive project. tgam.ca/2GH9wkY

** Deloitte LLP, one of the world’s largest accounting firms, is hiring its first ever chief economist in Canada, the latest sign that financial services firms feel the pressure to evolve for a new era. tgam.ca/2kktNnR

** Robo-adviser Wealthsimple is boosting its line of business for financial advisers with the addition of prominent wealth management executive Jean-Francois Courville. tgam.ca/2ICLi1b

NATIONAL POST
** The British Columbia Securities Commission issued letters to 12 offshore companies that advertise initial coin offerings in the province, asking that they cease activities in the region until they are compliant with applicable laws. bit.ly/2IENAgk

 

Britain

The Times

Marks & Spencer said it had earmarked 14 stores for closure, in addition to 21 that have already shut. It plans to relocate, convert and downsize other stores and “radically” reshape its clothing and homewares business. (bit.ly/2IZUr3a)

Fresh charges have been brought against two people in an investigation into allegations of bribery at Unaoil, an oil and gas consultancy business. The Serious Fraud Office said that it had charged Basil Al Jarah and Ziad Akle with conspiracy to pay alleged bribes to secure a 555 million pound ($745 million) contract that was linked with a scheme to build two oil pipelines in Iraq. (bit.ly/2kf0oLx)

The Guardian

Mark Zuckerberg’s meeting at the European parliament ended in acrimony amid a chorus of complaints that the Facebook Inc founder had been allowed to evade questions and give vague answers. Over the 90-minute session, he told MEPs there would be no repeat of the Cambridge Analytica data scandal as he fielded accusations that his company had too much power. (bit.ly/2kftOsU)

The European Union is bracing itself for a trade war with the United States, after Donald Trump’s administration signalled to Brussels that it would not prolong the exemption granted to European steel and aluminium importers from its tariffs. (bit.ly/2IZPask)

The Telegraph

The chief executive of Royal Dutch Shell Plc, Ben van Beurden, has suffered a bruising shareholder revolt, after more than a quarter of the oil company’s investors voted against his multi-million euro payout for last year. (bit.ly/2J1rhR8)

The UK boss of Homeserve Plc, which provides home emergency insurance cover and repairs, is to step down, as the business reports growing success in its overseas markets. (bit.ly/2kfto5O)

Sky News

London-listed investment firm Intermediate Capital Group Plc is on the brink of winning a 1.2 billion pound race to participate in Britain’s biggest-ever software takeover deal. ICG is likely to strike a joint agreement to buy Iris, which supplies software to doctors’ offices across the UK, in the coming days. (bit.ly/2x5E5kV)

A senior Conservative lawmaker is demanding a personal intervention from the boss of bank TSB to help customers who have been unable to access their accounts online for a month. (bit.ly/2IW002y)

The Independent

BP Plc has had to halt work on one of its North Sea gas fields due to the reintroduction of U.S. sanctions on Iran in the wake of Donald Trump’s decision to withdraw the United States from the Iran nuclear deal. (ind.pn/2IYkdVE)

British supermarket Tesco Plc said it was shutting its loss-making website Tesco Direct, putting up to 500 jobs at risk. Tesco Direct is the firm’s non-food website, which sells a range of general merchandise, including technology, homewares, clothing and toys. (ind.pn/2keqSNg)

 

 

 

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A 30-year-old man from New York state has been ordered to move out of his parents’ house after a very short legal battle with his Mom and Dad. Representing himself in court after a “brief search on the internet” that “took minutes,” Rotondo argued that he was entitled to six more months at his parents’ home rent free.

State Supreme Court Justice Donald Greenwood, with a mostly straight face, ordered Michael Rotondo of Camillus, New York to leave his parents’ home for good after he reportedly moved back home eight years ago.

Just how did Michael find himself on the internet today?

After years of encouraging him to seek work and become self-sufficient (and perhaps lose his virginity), Mark and Christina Rotondo were at their wits’ end – finally penning a Feb. 2 eviction letter which read: “Michael, after a discussion with your mother, we have decided that you must leave this house immediately. You have 14 days to vacate. You will not be allowed to return. We will take whatever actions are necessary to enforce this decision.

A short while later, the neerdowell received another letter that read: “Michael Joseph Rontodo, you are hereby evicted.”

When that failed to do the trick, the Rotondos gave Michael $1,100 – writing in a February 18 letter; “so you can find a place to stay,” adding “There are jobs available even for those with a poor work history like you … Get one- you have to work!“

The Rotondos also recommended that Michael “Sell the other things you have that have any significant value (e.g. stereo, some tools etc.). This is especially true for any weapons you may have. You need the money and will have no place for the stuff.” 

We can only imagine what kind of weapons Michael owns…

Finally, in April Micahel’s parents went to their local town court to try and evict him – only to be told to take it to the state supreme court – where the legal advice he found during his “brief internet search” was insufficient to win over Judge Greenwood. 

Despite being served with an eviction order, Rotondo seemed to enjoy his time in court. According to Syracuse.com, Rotondo asked television cameras to interview him outside the courtroom. He made it clear that he didn’t live in a basement, and that he had his own bedroom. He also said he did his own laundry. –The Guardian

Hear that ladies? 

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Authored by Charles Hugh Smith via OfTwoMinds blog,

The acceleration of non-linear consequences will surprise the brainwashed, loving-their-servitude mainstream media.

Linear correlations are intuitive: if GDP declines 2% in the next recession, and employment declines 2%, we get it: the scale and size of the decline aligns. In a linear correlation, we’d expect sales to drop by about 2%, businesses closing their doors to increase by about 2%, profits to notch down by about 2%, lending contracts by around 2% and so on.

But the effects of the next recession won’t be linear–they will be non-linear, and far more devastating than whatever modest GDP decline is registered. To paraphrase William Gibson’s insightful observation that “The future is already here — it’s just not very evenly distributed”: the recession is already here, it’s just not evenly distributed– and its effects will be enormously asymmetric.

Non-linear effects can be extremely asymmetric. Thus an apparently mild decline of 2% in GDP might trigger a 50% rise in the number of small businesses closing, a 50% collapse in new mortgages issued and a 10% increase in unemployment.

Richard Bonugli of Financial Repression Authority alerted me to the non-linear dynamic of the coming slowdown. I recently recorded a podcast with Richard on one sector that will cascade in a series of non-linear avalanches once the current asset bubbles pop and the current central-bank-created “recovery” falters under its staggering weight of debt, malinvestment and speculative excess.

The Intensifying Pension Crisis (37-minute podcast)

The core dynamic of the next recession is the unwind of all the extremes:extremes in debt expansion, in leverage, in the explosion of debt taken on by marginal borrowers, in malinvestment, in debt-fueled speculation, in emerging market debt denominated in US dollars, in financial repression, in political corruption–the list of extremes that have stretched the system to the breaking point is almost endless.

Public-sector pensions are just the tip of the iceberg. What happens when the gains in equities and bonds that have nurtured the illusion that public-sector pension funds are solvent and can be funded by further tax increases reverse into losses?

Pushing taxes high enough to fund soaring public pension obligations will spark taxpayer revolts as the tax increases will be monumental once the delusion of solvency is stripped away in the upcoming recession.

The entire status quo rests on the marginal borrower/buyer. All the demand for pretty much anything has been brought forward by the central banks’ repression of interest rates and the relentless goosing of liquidity: anyone who can fog a mirror can buy a vehicle on credit, get a mortgage guaranteed by a federal agency, or pile up credit card and student loan debts.

Those with stock portfolios can gamble with margin debt; those with access to central bank credit can borrow billions to fund stock buy-backs or the purchase of competitors, the better to establish a cartel or quasi-monopoly.

What’s not visible in all the cheery statistics is how many enterprises and households are barely keeping their heads above water as inflation shreds the purchasing power of their net incomes. Inflation is supposedly tame, but once again, following Gibson’s aphorism, inflation is already here, it’s just not evenly distributed.

While employees with employer-paid health insurance are dumbstruck by $50 or $100 increases in their monthly co-pays, those of us who are paying the unsubsidized “real cost of health insurance” are being crushed by increases in the hundreds of dollars per month.

The number of cafes, restaurants and other small businesses with high fixed costs that will close as soon as sales falter is monumental. Add up soaring healthcare premiums, increases in minimum wages, higher taxes and junk fees and rising rents, and you have a steadily expanding burden that is absolutely toxic to small businesses.

The first things to go are marginal employees, overtime, bonuses, benefits, etc.–whatever can be jettisoned in a last-ditch effort to save the company from insolvency. The first bills cash-strapped households will stop paying are credit cards, auto loans and student loans; defaults won’t notch higher by 2%; they’re going to explode higher by 20% and accelerate from there.

Here are a few charts that reveal the extremes that have been reached to maintain the illusion of “recovery” and normalcy: total credit has exploded higher, after a slight decline very nearly brought down the global financial system in 2008-09:

The massive expansion of assets purchased by central banks will eventually be slowed or even unwound, removing the rocket fuel that’s pushed stocks and bonds to the moon:

As governments/central banks borrow/print “money” in increasingly fantastic quantities to keep the illusion of “recovery” alive, the currencies being debauched lose purchasing power. Venezuela is not an outlier; it is the first of many canaries that will be keeling over in the coal mine.

Wide swaths of the economy won’t even notice the recession devastating the rest of the economy, at least at first. Public employees will be immune until their city, county, state or agency runs out of money and can no longer fund its obligations; shareholders of Facebook et al. who cashed out at the top will be doing just fine, booking their $18,000 a night island get-aways, and those few willing to bet on declines in the “everything bubbles” of real estate, stocks and bonds will eventually do well, though the Powers That Be will engineer massive short-covering rallies in a last-ditch effort to mask the systemic rot.

The acceleration of non-linear consequences will surprise the brainwashed, loving-their-servitude mainstream media. The number of small businesses that suddenly close will surprise them; the number of homeowners jingle-mailing their “ownership” (i.e. obligation to pay soaring property taxes) to lenders will surprise them; the number of employees being laid off will surprise them, and the collapse of new credit being issued will surprise them.

Don’t be surprised; be prepared.

*  *  *

My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition. Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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Update: The speculation of “will he, won’t he” is over as Italy’s president Mattarella gives Conte the green light to form a populist government, one which will blow out the Italian budget, and set the country on collision course with Brussels and Berlin: 

• ITALY PRESIDENT TO ASK CONTE TO TRY TO FORM GOVT: REPUBBLICA

* * *

The blow out in Italian yields has returned after taking a brief one day hiatus, with the 10Y BTP yield hitting a fresh 2018 high of 2.46%, the highest going back to 2014…

… as the carnage in the short end resumes, send the 2Y to 0.28%…

… while the Bund-BTP spread has blown out again to 194 bps on Wednesday.

Today’s selling was prompted by a report that Italian President Mattarella has not yet decided whether to give the PM role to PM appointee, law professor Giuseppe Conte, with Repubblica reporting that Mattarella is to take time on the Premier candidate over concerns that his cabient may be far too anti-establishment.

As the FT notes, the anti-establishment Five Star Movement and the far-right League have become locked in a stand-off with Sergio Mattarella after pushing for a staunchly Eurosceptic economist, Paolo Savona, to be finance minister. As Repubblica adds, Mattarella is taking extra time before his decision on premiership as he is highly critical of Finance Minister candidate Savona.

Meanwhile, the public debt contagion has started to spread, as Monte dei Paschi’s bonds are also selling off with the yield on its €750m Tier 2 bond climbing to a record high of 8.2%: Monte dei Paschi raised the debt, which counts towards its capital ratios, at 5.375% in January and had planned to sell a further €700m of such paper before the year-end to strengthen its balance sheet.

Concerns have emerged about Italian banks’ non-performing loans; the two populist parties have said they will repeal laws allowing banks to forcibly recover debts from Italian citizens without judicial approval. The share prices of bad debt collection specialists such as Cerved and DoBank have fallen heavily this past week.

Quoted by the FT, Fidelity portfolio manager David Simner said there had been “a sense of panic in the air” in recent days as “investors have scrambled to reduce risk as the spending implications of the new government has naturally caused concerns over the future dynamics of the debt load of a country which is already very heavily laden.” He concluded that many investors remain in a wait and see mode “if [the market] has found a new lower clearing level that may provide some consolidation.”

However, the best summary of Italy’s troubles came from Bloomberg’s Mark Cudmore overnight with the following damning summary:

In Italy, the president has no good options as far as markets are concerned. If he blocks the coalition, it’ll leave the country in limbo and stir up popular resentment before new elections. But if he approves the coalition, then it’s even more worrying because of the government’s fiscally irresponsible proposals.

Of course, the real catalyst for the ongoing selling in Italy is the market’s much delayed reaction to the electoral victory of the anti-establishment parties which now threaten to blow out the Italian budget, at a time when the ECB is not only the only buyer of Italian bonds…

… and worse, coming just as the ECB is tapering its BTP purchases.

What happens next? Well, as most sellside desks predict, the Bund-BTP spread is virtually assured of hitting 200 bps, and until there is some further clarity on how the current political power moves play out, it will be impossible to call a bottom to the Italian rout, which meanwhile is starting to “contage” across Europe as that old Europe bogeyman, redenomination risk…

…is slowly but surely rising.

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Continuing his gloating from late Tuesday evening, President Trump taunted the FBI in an early Wednesday tweet musing “how things have turned around on the Criminal Deep State.” Trump remarks on the irony of the FBI “getting caught in a major SPY scandal the likes of which this country may never have seen before” after they went after “Phony Collusion with Russia,” which he called “a made up Scam”.

Look how things have turned around on the Criminal Deep State. They go after Phony Collusion with Russia, a made up Scam, and end up getting caught in a major SPY scandal the likes of which this country may never have seen before! What goes around, comes around!

— Donald J. Trump (@realDonaldTrump) May 23, 2018

Since the New York Times and Washington Post on Friday confirmed speculation that the FBI did, in fact, have a mole inside the Trump campaign, the president has repeatedly questioned the legitimacy of the Mueller probe, stating that if there was any evidence of collusion, the FBI’s mole would’ve discovered it during the campaign.

Instead, the Mueller probe has dragged on for more than a year, with the intelligence community insisting they never deliberately spied on Trump. But in an embarrassing revelation, we now know that the bureau FBI enlisted Stefan Halper, a US citizen, political veteran and longtime US Intelligence asset, to befriend and spy on three members of the Trump campaign during the 2016 US election. In another reference to the spying revelations, Trump quoted Fox’s Andrew Napolitano saying “it’s clear that they had eyes and ears all over the Trump Campaign,” before reiterating that “SPYGATE…could be one of the biggest political scandals in history.”

“It’s clear that they had eyes and ears all over the Trump Campaign” Judge Andrew Napolitano

— Donald J. Trump (@realDonaldTrump) May 23, 2018

SPYGATE could be one of the biggest political scandals in history!

— Donald J. Trump (@realDonaldTrump) May 23, 2018

Trump started tweeting about Spygate last night, questioning why Halper was paid so much money if he wasn’t feeding information about the Trump campaign to the FBI. Trump also insisted that Bernie Sanders, an early contender for the Democratic nomination who ultimately lost out to Hillary Clinton, “got duped!” as the FBI used similar surveillance tactics on his campaign.

If the person placed very early into my campaign wasn’t a SPY put there by the previous Administration for political purposes, how come such a seemingly massive amount of money was paid for services rendered – many times higher than normal…

— Donald J. Trump (@realDonaldTrump) May 23, 2018

…Follow the money! The spy was there early in the campaign and yet never reported Collusion with Russia, because there was no Collusion. He was only there to spy for political reasons and to help Crooked Hillary win – just like they did to Bernie Sanders, who got duped!

— Donald J. Trump (@realDonaldTrump) May 23, 2018

Of course, the Spygate news isn’t the only scandal plaguing the FBI this week. Emails recently obtained by Wisconsin Senator Ron Johnson seem to suggest that former Deputy FBI Director Andrew McCabe may have participated in the leaking of the Steel Dossier to CNN. The emails were from an exchange between McCabe and former Deputy Attorney General Sally Yates, where McCabe gave Yates a heads up that CNN would be running with the story. It raises questions regarding how McCabe knew about CNN’s plans.

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It is a “risk off” sea of red in global markets this morning, with US equity futures tumbling (Dow -191, ES -18) following European and Asian market sharply lower, as a quartet of growing risks spooks traders, among them i) the ongoing Turkish lira meltdown, ii) unexpectedly weak European PMIs which missed across the board, iii) the ongoing Italian political quagmire where president Matarella is stalling the formation of a new government, and iv) the return of geopol/trade war fears rose after Trump cast doubts over the North Korean summit and expressed dissatisfaction regarding trade talks with China.

While risk assets slumped and treasuries rose alongside the dollar as while oil dropped with most commodities, the main story overnight remains the unprecedented collapse in the Turkish lira, which started with a flash crash just as futures reopened for trading overnight, with many blaming Japanese flows suggesting domestic retail traders – i.e. Mrs Watanabe – were stopped out in TRYJPY, with the consequent spillover pushing USDJPY lower.

As European trading began, the TRY gapped even lower, dropping to a new all time low of 4.9253 after the release of a series of weak European PMIs which slammed the euro to fresh 2018 lows, while the USDJPY broke 110 and EURCHF touched 1.16.

As risk off gripped stocks, treasuries extended the overnight rally with 10Y TSY yields dropping to just above 3.00%.

In Europe, 10Y bund yields broke back under 50bps after further loss in European manufacturing momentum and the bund/BTP spread snapped wider amid growing concerns about the political situation in Italy, where President Sergio Mattarella is due to announce his decision on whether to give law professor Giuseppe Conte a chance to lead a populist government as early as Wednesday. For now, Mattarella has not yet decided whether to give the PM role to Conte according to sources.

As Mark Cudmore pointed out earlier, Matarella has no good options as far as markets are concerned: “If he blocks the coalition, it’ll leave the country in limbo and stir up popular resentment before new elections. But if he approves the coalition, then it’s even more worrying because of the government’s fiscally irresponsible proposals.“

And if Italian politics wasn’t enough of a problem for euro longs, German and French PMI data missed forecasts adding to the bearish sentiment surrounding the Euro lately. This morning Europe’s PMIs disappointed across the board, with momentum in France’s private sector slowed to the weakest since the start of 2017, with a lull in services offsetting a pickup in manufacturing numbers, while both German manufacturing and services PMIs missed and dropped.

• EU Markit Manufacturing Flash PMI 55.5 vs. Exp. 56.0 (Prev. 56.2)
• EU Markit Services Flash PMI 53.9 vs. Exp. 54.6 (Prev. 54.7)
• German Markit Manufacturing Flash PMI (May) 56.8 vs. Exp. 57.9 (Prev. 58.1)
• French Markit Manufacturing Flash PMI (May) 55.1 vs. Exp. 53.7 (Prev. 53.8)

Following the release of the soft French, German and EU PMI data, Bund futures pushed to session highs amid renewed concerns the ECB’s tapering plans may be delayed.

As a result, European stocks tumbled as the Stoxx Europe 600 Index sank the most since March alongside U.S. equity-index futures, after US President Trump expressed doubt over the US-North Korean summit before further expressing dissatisfaction in regards to trade talks with China. European sectors are almost all in the red, with consumer staples outperforming while energy plumb the depths amid the retreat in oil prices overnight. In terms of stock specifics, Marks & Spencer (+3.5%) is higher (despite reporting a second straight decline in annual profits) amid faster than expected store closures. Standard Chartered (+1.6%) is in the green following an FT report that Barclays (-0.8%) was looking at a potential merger with rival banks, however Reuters later said the FT report was just more fake news.

Earlier in the session, Asian stocks likewise traded mostly negative after US President Trump placed doubts on the summit with North Korea and expressed dissatisfaction regarding trade talks with China. ASX 200 (-0.2%) was led lower by the energy sector following weakness in crude as Santos shares slumped about 9% after the Co. rejected the approach from Harbour Energy and disengaged from further talks. Nikkei 225 (-1.2%) underperformed as exporters suffered the brunt of a firmer currency, while Shanghai Comp. (-1.4%) and Hang Seng (-1.8%) conformed to the broad risk averse tone amid Trump discontentment with trade discussions. Furthermore, the PBoC conducted a net daily liquidity drain from the interbank market, while basic materials names were pressured by NDRC plans to reduce benchmark coal prices and after US Treasury Secretary Mnuchin clarified that steel and aluminium tariffs were not part of the recent truce and will remain in place for China.

Finally, S&P futures dropped in Asian hours and accelerated further to the downside as European cash equity markets opened, trading near session lows just above 2,700.

In FX, the euro tumbled to a six-month of 1.17 as the abovementioned PMI misses added to concern economic momentum is slowing. The yen strengthened more than 1% against the dollar in the London session as European stocks followed Asia lower, with gains boosted amid a scramble among Japanese margin traders to cut losses from a slide in the Turkish lira as hopes faded that the central bank may step in to rescue the battered currency. Risk sensitive currencies such as the Swedish krona and Norwegian krone were the worst Group-of-10 performers as the worsening geopolitical climate as well as weak European PMIs weighed on the sentiment; EUR/USD fell to a day low of 1.1699 before paring some losses. The pound slid and U.K. government bonds rose as U.K. inflation unexpectedly slowed to a 13-month low in April, denting prospects for rate increases with money markets reducing bets of a Bank of England interest-rate hike in August.

As expected, thanks to the latest move higher in the dollar, emerging markets continue to be a bloodbath, with the TRY sticking out meanwhile the Turkish central bank continues to do nothing.

In commodities, oil has extended the losses seen over night in the current risk averse environment, with downward pressure seen from both a rising USD and overnight source reports suggesting OPEC could increase production in June to offset Venezuelan and Iranian shortages. Prices were also dealt a blow by the latest API reports which posted a narrower  than expected drawdown in headline crude inventories (-1.3mln vs. Exp. -1.6mln). Elsewhere, gold is trading range-bound with participants tentative ahead of today’s FOMC minutes release, while copper was lacklustre overnight alongside the downbeat risk sentiment. Steel has fallen for the fourth consecutive session hitting one month lows as supply glut concerns continue. OPEC and non-OPEC producers are to discuss potential changes to way in which they assess oil stockpiles, according to sources.

In other overnight news, ECB’s Coeure said QE will not end abruptly after September and is not worried by the slowdown in growth, confident that inflation will rise.  US President Trump said the House Ways and Means Committee are working on additional tax cuts by November and that he will propose new tax cuts before that month. 

US House passed the Dodd-Frank rollback bill which was then sent to President Trump to sign, while the US House also passed the “right to try” bill which seeks to permit terminally ill patients to try experimental drugs still in clinical trial stage.

Expected data include mortgage applications, new home sales, and PMIs. Fed is scheduled to publish its latest FOMC meeting minutes, while Lowe’s, Target, Tiffany, Synopsys, and CIBC are among companies reporting earnings

Bulletin Headline Summary from Ransquawk

• Sentiment remains downbeat in Europe amid Trump comments on China and NK. EZ data added to woes
• TRY at record lows, GBP at 2018 lows with CPI below forecast, CHF at month highs in risk averse markets
• Looking forward, highlights include, US New Home Sales, DOEs, FOMC minute and a slew of speakers

Market Snapshot

• S&P 500 futures down 0.6% to 2,708.75
• STOXX Europe 600 down 0.9% to 393.22
• MXAP down 0.4% to 173.52
• MXAPJ down 0.8% to 563.63
• Nikkei down 1.2% to 22,689.74
• Topix down 0.7% to 1,797.31
• Hang Seng Index down 1.8% to 30,665.64
• Shanghai Composite down 1.4% to 3,168.96
• Sensex down 0.4% to 34,498.59
• Australia S&P/ASX 200 down 0.2% to 6,032.51
• Kospi up 0.3% to 2,471.91
• German 10Y yield fell 4.7 bps to 0.513%
• Euro down 0.5% to $1.1718
• Italian 10Y yield fell 6.1 bps to 2.066%
• Spanish 10Y yield fell 1.5 bps to 1.442%
• Brent futures down 0.6% to $79.10/bbl
• Gold spot up 0.2% to $1,294.02
• U.S. Dollar Index up 0.2% to 93.79

Top Overnight News from Bloomberg

• European May Composite PMIs: France 54.5 vs 56.8 est; Germany 53.1 vs 54.6 est; Eurozone 54.1 vs 55.1 est; Markit note it’s becoming increasingly evident that underlying growth momentum has slowed
• U.K. Apr. CPI y/y: 2.4% vs 2.5% est; Core CPI 2.1 vs 2.2% est; ONS note base effects of airfare prices dropping out of calculation
• Italian President Mattarella is due to announce his decision as early as Wednesday on whether to give law professor Giuseppe Conte a chance to lead a populist government following a last-minute wobble over the candidate’s suitability; according to Repubblica he is taking extra time before the decision as he is critical of Finance Minister candidate Savona.
• Trump says House panel is working on more tax cuts by November
• President Donald Trump expressed pessimism about whether the summit with North Korea’s leader would take place, even as U.S. officials continue to press ahead with plans for a historic meeting to be held on June 12
• Emerging-market companies and governments straining to deal with the rising cost of borrowing in dollars face increasing pressure as a record slew of bonds come due
• Divisions among Federal Reserve officials over the yield curve and inflation will be under scrutiny on Wednesday when the U.S. central bank releases minutes of its policy meeting at the start of the month
• Turkey’s main stock exchange in Istanbul converted its foreign-currency assets into liras, a mostly symbolic gesture meant to express confidence in the nation’s rapidly depreciating currency
• Add skittish Japanese investors to the list of woes for Turkish assets. With Turkey’s lira breaking below the 24-yen level on Tuesday for the first time, Japanese margin traders cut their losses early Wednesday in Asia, said Takuya Kanda, general manager at Gaitame.Com Research Institute Ltd. in Tokyo
• Italian President Sergio Mattarella is due to announce his decision as early as Wednesday on whether to give law professor Giuseppe Conte a chance to lead a populist government following a last-minute wobble over the candidate’s suitability
• Foreign Secretary Boris Johnson set Theresa May a list of Brexit demands, saying she must “get on with” taking the U.K. out of the European Union’s trading rules as fast as possible
• The Spanish Budget Ministry is working on a plan to reorganize the debt of the country’s regional governments to help them sell bonds in the public markets again after a six- year absence

Asian equity markets traded mostly negative as the downbeat sentiment rolled over from US where stocks retreated and DJIA pulled back from the 25k level, after US President Trump placed doubts on the summit with North Korea and expressed dissatisfaction regarding trade talks with China. ASX 200 (-0.2%) was led lower by the energy sector following weakness in crude as Santos shares slumped about 9% after the Co. rejected the approach from Harbour Energy and disengaged from further talks. Nikkei 225 (-1.2%) underperformed as exporters suffered the brunt of a firmer currency, while Shanghai Comp. (-1.4%) and Hang Seng (-1.8%) conformed to the broad risk averse tone amid Trump discontentment with trade discussions. Furthermore, the PBoC conducted a net daily liquidity drain from the interbank market, while basic materials names were pressured by NDRC plans to reduce benchmark coal prices and after US Treasury Secretary Mnuchin clarified that steel and aluminium tariffs were not part of the recent truce and will remain in place for China. Conversely, baby related stocks gained in Hong Kong as participants reacted took their first opportunity to react to the prospects of China relaxing its child policy restrictions and Standard Chartered was boosted on reports Barclays was examining a potential merger with rivals including the dual-listed lender. Finally, 10yr JGBs are marginally higher amid gains in T-notes and a broad risk-averse tone, while the BoJ were also present in the market for JPY 840bln of JGBs in maturities spread across the curve.

Top Asian News

• Lira Tumbles to Record as Lack of Central Bank Action Fuels Rout
• Bank Indonesia Conducting Dual-Intervention as Rupiah Weakens
• Fallen Singapore High-Flyer Gets Court Protection to Reorganize

European equities are firmly in the red as the downbeat sentiment rolled over from Asia overnight and Wall St. yesterday. Markets took a risk averse stance after US President Trump expressed doubt over the US-North Korean summit before further  expressing dissatisfaction in regards to trade talks with China. European sectors are almost all in the red, with consumer staples outperforming while energy plumb the depths amid the retreat in oil prices overnight. In terms of stock specifics, Marks & Spencer (+3.5%) is higher (despite reporting a second straight decline in annual profits) amid faster than expected store closures. Finally, Standard Chartered (+1.6%) is in the green following an FT report that Barclays (-0.8%) was looking at a potential merger with rival banks, however source reports denied this news later

Top European News

• Politics Engulf Euro Junk Bond Market With Big Italy Exposure
• StanChart Says Focus Is on Strategy, Denting Merger Speculation
• Boris Johnson Warns May to ‘Get on With It’ and Deliver Brexit
• Thyssenkrupp’s CEO Under Fire as Activist Elliott Buys Stake
• Bond Investors Burned by Sanctions Creep Back Into Russian Debt

In FX, the JPY has been a beneficiary of the broad risk aversion which subsequently took USD/JPY below 111.00 during Asia-Pacific trade, thereafter the pair continued to fall victim to selling pressure and took out the widely-watched 200DMA at 110.21 and psychological 110.00 (which holds USD 2bln in option expiries due to roll-off at the NY cut) before eventually taking out Fib support at 109.78. The potential damage for the USD from the JPY has been somewhat offset by the softer EUR (DXY +0.25%) with the shared currency dealt a blow by this morning’s PMI releases which thus far have painted a dreary picture for the Eurozone. IFR highlight that if we get a break of the 1.1700 level to the downside, large stops and gamma below this level could see 1.1500 on the cards. The EUR initially also lost ground to the GBP with the EUR/GBP cross around 0.8750 before the cross was dealt some reprieve by softer than expected UK inflation figures (Y/Y CPI 2.4% vs. Exp. 2.5%) which saw GBP/USD briefly slip below 1.3350. Elsewhere, commodity-linked currencies have been subdued as oil prices retreated from multi-year highs with AUD also dampened after weak construction data, while NZD has seen a bout of pressure after the RBNZ published an article on unconventional monetary policy in which it stated it has significant room for easing in a conventional manner with the OCR at 1.75%. The losses in NZD were then instantly pared given the context of the comments which were made as an implicit argument against adopting unconventional measures, before the broad risk averse sentiment pressured currencies across the FX space and saw NZD/USD test 0.6900 to the downside. Elsewhere, TRY experienced a flash crash which saw the currency drop over 2.5% against the greenback and extend on its recent trend of record lows approaching into next month’s election, in which President Erdogan has vowed to take greater control of the central bank if he wins, although the currency has since pared some of the losses amid a lack of immediate fresh news catalyst behind the latest bout of selling

In commodities, oil extended the losses seen over night in the current risk averse environment, with downward pressure seen from both a rising USD and overnight source reports suggesting OPEC could increase production in June to offset Venezuelan and Iranian shortages. Prices were also dealt a blow by the latest API reports which posted a narrower than expected drawdown in headline crude inventories (-1.3mln vs. Exp. -1.6mln). Elsewhere, gold is trading range-bound with participants tentative ahead of today’s FOMC minutes release, while copper was lacklustre overnight alongside the downbeat risk sentiment. Steel has fallen for the fourth consecutive session hitting one month lows as supply glut concerns continue. OPEC and non-OPEC producers are to discuss potential changes to way in which they assess oil stockpiles, according to sources.

Looking at the day ahead, the highlight is the May PMIs across the globe, which includes the manufacturing, services and composite prints in Europe and the US. Away from that, Q1 employment indicators in France and April’s  CPI/RPI/PPI in the UK is due in the morning (CPI 0.5% mom; core CPI 2.2% yoy expected), while April new home sales in the US is due in the afternoon. The May consumer confidence print for the Euro area is also due in the afternoon, while in the evening the latest FOMC meeting minutes will be released. Also worth noting is the House Foreign Affairs Committee holding a hearing to question Secretary of State Mike Pompeo regarding Trump’s foreign policy priorities, and the European Commission publishing country specific recommendations for economic policy.

US Event Calendar

• 7am: MBA Mortgage Applications, prior -2.7%
• 9:45am: Markit US Manufacturing PMI, est. 56.5, prior 56.5; US Services PMI, est. 55, prior 54.6
• 10am: New Home Sales, est. 679,500, prior 694,000; New Home Sales MoM, est. -2.09%, prior 4.0%
• 2pm: FOMC Meeting Minutes
• 2:15pm: Fed’s Kashkari Speaks in Moderated Q&A in North Dakota

DB’s Jim reid concludes the overnight wrap

How time flies. Yesterday was the 5th anniversary of the start of the taper tantrum as Mr Bernanke hinted at an upcoming reduction in stimulus and created a few weeks of mini-panic. Meanwhile we’re only a few months away from the 10th anniversary of the Lehman Brothers collapse and its 6 and half years ago this week that Italy was on the brink with 10 years yields at over 7.25% and around +500bp over Bunds. Makes one feel very old.

Italy continues to grab the headlines even if yesterday was a much calmer day market wise 24 hours after the highest yields since ECB QE started. The main story was confusion surrounding who will be Italy’s next Premier, as La Repubblica reported that President Mattarella still needs time to consider the proposed candidate Giuseppe Conte  while the paper also noted that endorsement from the two populist parties for the Florence University law professor may no longer be certain and that the 5SM Party leader Di Maio may be back in running for the Premier. This morning, Bloomberg noted the President will decide on a PM as soon as today.

In government bonds yesterday, peripherals bonds outperformed with yields on Italian 10y BTPs down for the first time in three days (-5.3bp) while treasuries were unchanged and Bunds partly reversed its gains on Monday (+3.7bp). Meanwhile, 10y Gilts also rose 4.7bp in part as BOE Governor Carney told Parliament that “it made sense to take a bit of time” to assess the economic outlook in light of the soft advance GDP reading for 1Q, while noting that “it’s more likely to have been temporary and idiosyncratic factors that slowed the economy”.

Over in equities, US bourses closed modestly lower following President Trump’s comments on trade and North Korea. The S&P initially traded +0.34% higher on news that China will cut import tax on passenger cars from 25% to 15%, but later reversed gains to close -0.31% as Trump noted that trade talks with China “were a start” and that he was “not really” pleased with the recent results so far. Elsewhere on next month’s scheduled summit with North Korea, he noted “there’s…a very substantial chance, it won’t work out” but added that this is “OK” and “that doesn’t mean it won’t work out over a period of time”. Meanwhile in Europe, the Stoxx 600 (+0.27%), FTSE (+0.23%) and Italy’s FTSE MIB (+0.54%) were all modestly higher while the DAX (+0.71%) led the gains as it resumed trading following Monday’s holiday.

As for today when the market isn’t fixating on Italy or North Korea the big focus will be on the flash May PMIs around the globe and the Fed minutes tonight. Overnight we’ve already had the manufacturing reading out of Japan which came in at 52.5 compared to 53.8 in April. In a couple of hours’ time it’ll be Europe’s turn and the current market consensus is for no change in the composite reading for the Euro area at 55.1. Indeed the manufacturing reading is expected to fall a very modest 0.1pts to 56.1 – although this would make it the fifth consecutive monthly decline if so and also the lowest reading since February last year – while the services reading is expected to stay at 54.7. As always with the flash print we’ll also get the data for Germany and France. Germany’s manufacturing reading is expected to also fall very modestly, by 0.2pts to 57.9 while the data in France is expected to fall a marginal 0.1pts to 53.7. Later this afternoon we’ll get the flash PMI data for the US where the manufacturing reading is expected to stay steady mom at 56.5, and the services reading nudge up 0.4pts to 55.0. So all that to look forward too.

This morning in Asia, markets are trading lower with the Nikkei (-1.08%), Hang Seng (-1.01%) and Shanghai Comp. (-0.77%) all down while the Kospi is modestly higher (+0.36%), In the US, President Trump told Reuters he will  propose “new tax cuts prior to November”, when the mid-term elections are due but did not provide more details. Elsewhere, the Lower House has approved a bill (258 to 159 vote) to give regulatory and capital relief to smaller lenders by raising the asset threshold from $50bn to $250bn before lenders face stricter oversight from the Federal Reserve.

Now recapping other markets from yesterday. The US dollar index fell for the first time in seven days (-0.07%), while the Euro dipped -0.10% and Sterling nudged up 0.04%. Elsewhere, the Turkish Lira closed -2.04% vs. the USD yesterday after Fitch noted it was concerned about the erosion of its central bank’s independence. This morning it is down a further c2% to mark another fresh record low. In commodities, WTI oil fluctuated before closing -0.21% lower while precious metals were little changed (Gold -0.11%; Silver +0.21%).

Finally we turn to some Brexit headlines. The BOE Governor Carney has told Parliament that the UK economy is up to 2ppt worse off than they would have been without Brexit, which is equivalent to £900 worse off for each British household, to which Foreign Secretary Johnson quickly refuted “it’s absolutely not the case” but did not elaborate more. Meanwhile Chancellor Hammond noted “…the future trajectory of household income…will depend in part on the quality of the deal that we negotiate as we exit the EU…” Elsewhere, the BOE’s Vlieghe seemed slightly hawkish as he sees one or two rate hikes a year for the next three years, in part as a tightening labour market is supporting wage growth.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the May Richmond Fed manufacturing index rebounded 19pts mom to an above consensus print of 16 (vs. 10 expected). In the details, the shipments and new orders indices rebounded from even weaker April readings and there were more evidence of pricing pressure with the wages component at the highest since 1997 while the prices paid index was the highest in 6 years. These broad trends on pricing pressure were also similar to readings from the NY and Philly surveys. Meanwhile in the UK, the CBI’s industrial trends total order book index fell 7pts mom to -3 in May, marking the softest reading since November 2016. Elsewhere, the April public sector net borrowing ex-banking groups was slightly lower than expected at £7.8bln (vs. £8.5bln).

Looking at the day ahead, the highlight is the May PMIs across the globe, which includes the manufacturing, services and composite prints in Europe and the US. Away from that, Q1 employment indicators in France and April’s  CPI/RPI/PPI in the UK is due in the morning (CPI 0.5% mom; core CPI 2.2% yoy expected), while April new home sales in the US is due in the afternoon. The May consumer confidence print for the Euro area is also due in the afternoon, while in the evening the latest FOMC meeting minutes will be released. Also worth noting is the House Foreign Affairs Committee holding a hearing to question Secretary of State Mike Pompeo regarding Trump’s foreign policy priorities, and the European Commission publishing country specific recommendations for economic policy.

via RSS https://ift.tt/2x0DdOi Tyler Durden

After issuing a dire warning first aimed at Italy, which he said is “on the verge of inducing a fresh European crisis“, followed with an ominous prediction that “Turkey’s goose is cooked“, overnight Bloomberg macro commentator and ex-Lehman trader Mark Cudmore looks at the bigger picture, and in his latest Macro View note he is yet again especially dour, warning  that the Italian and EM shocks will spill over, and that “global equities will slump amid a shortage of good news”, predicting that “the next couple of weeks are filled with many potential negative catalysts for global equities but there’s little left on the calendar that might offer respite.”

His conclusion: the market has entered a “terribly negative dynamic that might temporarily overwhelm any bullish economic considerations.” Read why in his full note below.

Global Equities to Slump Amid Shortage of Good News: Macro View

The short-term outlook is dire for global equity markets.

For most major market themes, the marginal newsflow from here is likely to be negative for risk assets.

Turkey’s freefall will continue to weigh on the rest of EM. At this stage, any reluctant emergency monetary policy to defend the lira will only stem losses. Rather than turn the tide, it’ll confirm a crisis has taken hold.

On trade, after the relief of ceasefire between China and the U.S., the next development can only be a re- escalation of tensions.

In Italy, the president has no good options as far as markets are concerned. If he blocks the coalition, it’ll leave the country in limbo and stir up popular resentment before new elections. But if he approves the coalition, then it’s even more worrying because of the government’s fiscally irresponsible proposals.

Oil prices have risen too far, too fast and are rapidly increasing costs for business and consumers globally. A backdrop of dollar strength exacerbates the oil price move in other currency terms. But a retracement would hurt hedge funds and speculators who have very large long positions.

U.S. yields are at the highs of multi-year ranges and there’s still plenty of supply this week. Climbing yields will pressure risk assets. But a Treasuries rally — perhaps on a bout of risk aversion — would squeeze the massive speculative short position, causing more losses and contagion.

So we’re in the relatively unique situation where a major yield move in either direction will be negative for equities.

The earnings season has come and gone and failed to raise U.S. equities out of their range. That was the most positive reason to buy stocks and it’s now behind us.

In conclusion, the next couple of weeks are filled with many potential negative catalysts for global equities but there’s little left on the calendar that might offer respite.

It’s a terribly negative dynamic that might temporarily overwhelm any bullish economic considerations.

via RSS https://ift.tt/2J1vwfr Tyler Durden

Authored by Jeffrey Snider via Alhambra Investment Partners,

On June 21, 2017, Italy’s Parliament approved Law #96. The new regulation altered Law #130 of 1999. Pertaining to limitations on the activities of Special Purpose Vehicles (SPV), the 2017 amendment expanded their scope. The intention was clear; SPV’s were going to be used as the primary method of cleaning up Italian banks as a conduit for the country’s mountain of bad debts and non-performing loans (NPL).

Less than a month later, the sales team at the accounting firm PwC (what used to be known as PricewaterhouseCoopers) actually and intentionally described Italy’s NPL problem as the “place to be.”

The Italian NPL market is now definitively “The Place To Be”, due to the volumes of NPL, the highest in Europe yet (€324bn of GBV at the end of 2016) and the recent trends in the Italian NPL arena. Ailing banks are going through a restructuring process, significant banks are engaged in massive NPL deleverage plans, overall the NPL management is passing through a prominent overhaul under new ECB guidelines and the NPL servicers are experiencing a deep evolution and facing consolidation manoeuvres.

Those who live in Italy, this “place to be” is only pain from the past and a great deal still left for the future. For well-capitalized individual firms loaded with spare capacity, picking through the bones of Italy’s desperate bank sector is a necessary profit opportunity. This is how it’s supposed to work, the healthy gobbling up what’s left of the profligate and, quite frankly, stupid. The only question to ask is, what took so long?

Economists fear prolonged periods of unsuitable economic conditions because in the past it has led to structural alterations nearly all of them having been unpleasant. Unemployed workers are transformed, for one example, into unemployable workers. Though economists hold monetary policy as neutral in the long run, the same can be witnessed (starting with Japan) of banks stuck in monetary uncertainty and chronic dysfunction.

At some point, they stop acting like banks and head in direct line toward zombie status. That was true for Italy almost immediately during the 2008 panic. Italian banks just stopped lending altogether; it is stunningly remarkable to witness the trend for Italian loans over the space of just about an entire decade, to see it as an almost perfect straight line recalls only the unnaturalness of it.

The first stage of zombification was straight up liquidity preferences. Italian banks didn’t stop expanding the size of their overall balance sheet, it’s more that they did so by buying as much Italian government (almost all central government) debt as they could. It wasn’t just a matter of safety in terms of perceived credit risk, the overriding problem was liquidity risk (collateral required in both repo as well as the ECB’s ever-expanding funding windows).

Draghi’s July 2012 “promise” seen in this light becomes something other than what has been described. In short, Italy’s banks jumped out of the frying pan of stupidity (bad loans revealed as really bad in 2008) and into the official fire (PIIGS, of which one or the other middle “I” standing for Italy).

By the time Italian authorities last year finally authorized the “bad bank” option, Italian banks had accumulated €200 billion of bad debts. And I’m only including those loans that have already been reported as soured, there is another ~€120 billion of NPL’s that can be easily classified as unlikely to ever be paid off.

What did Draghi’s promise actually accomplish? For one, it’s not just the zombie banks but also what those zombies did to the Italian economy. While the ECB was buying up sovereign debt (in separate episodes, the PSPP, or QE, being only the latest non-sterilized scheme) Italy’s economy did only appear to stabilize. PR is not nothing for central bankers, but it is ultimately useless for Italians.

Real GDP is growing again, and has been positive for fifteen consecutive quarters, just shy of four years. There was even some acceleration indicated during this latest “reflation.”

And yet, Italians opted for a radical change in their government as a result of Parliamentary elections held earlier this year. An entirely populist government has engendered almost total mainstream condemnation.

None of the mainstream commentary takes any note whatsoever of what’s really been going on in Italy. These stories are (often purposefully) stripped of the necessary economic and financial context to de-legitimize anti-establishment opposition.

Italy’s new government, likely to be formally confirmed within the next few days, sets a perilous precedent for Brussels: it marks the first time a founding member of the EU has been led by populist, anti-EU forces.

Might not Italians have some very good reason for being upset with the EU? The political experiment was once wildly popular in Italy. The Italian economy had always been an underperformer among the rest of Europe, North and South. It enjoyed, however, some measure of sustained growth and success – but only until October 2008.

Since, the Italians have witnessed one hackneyed scheme after another, none of them – whether domestic or originating in Brussels – having so much as a measurable impact on Italy’s truly dire economic situation.

Over the past few years, they have even been subjected to constant claims of a European recovery, even a complete renaissance. And they might wonder if that’s true, why haven’t most Italians felt it?

Here’s why…

The disdain only continues, however, and it is entirely unhelpful for much beyond Italy’s borders. This weekend it was announced that an obscure formerly leftist lawyer has been named Italy’s next leader (awaiting approval of Italy’s President, Sergio Mattarella). Giuseppe Conte was apparently the compromise candidate most palatable to the League (dominating the North of Italy) and M5S (South).

In Brussels, Conte’s nomination to be PM was met with puzzlement. “Nobody knows who he is and he is not even a high-profile academic,” said one EU official, noting that even Italians had been joking that the man who could be their next prime minister was less well-known than his namesake, the Chelsea FC manager Antonio Conte.

Authorities have bungled, mismanaged, and ultimately failed in their most sacred duties; responsibilities that were largely self-appointed from the moment BNP’s money market funds suspended NAV calculations on August 9, 2007.

But the media isn’t allowed to write that, how it might upset or even obliterate the technocratic dream. Monetary policy in particular is to this day described as successful if not comprehensively so. Europe is booming, even when it isn’t even close.

A novice, populist politician in charge of Europe’s third largest economy isn’t some far-fetched dystopian nightmare. The nightmare has been the last decade under the thumb of the thoroughly and irredeemably conventional. Why not try something very different, something possibly less corrupted? 

What is happening in Italy is not unique nor is it really all that far in the extreme. That’s the point. You can dismiss the politics of it, but you can only do so by denying the clear economic reality. So long as this continues, and it doesn’t seem to be abating, rather intensifying in denial, it will (can?) only become more problematic.

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Back in March of last year, Erico Matias Tavares , asked Iben Thranholm – one of Denmark’s most widely read columnists on such matters – if Denmark was on the brink?

Thranholm is a former editor and radio host at the Danish Broadcasting Corporation (DR), at which she created a religious news program that set a new standard for religious analysis in the newsroom. She has traveled extensively in the Middle East, Italy, the United States and Russia to carry out research and interviews. She has been awarded for her investigative research into Danish media coverage of religious issues.

Her response now seems prophetic..

IT: Yes, Denmark is on the brink. And Europe is on the brink. We completely lost our culture, our values and our moral compass. What used to be good is now evil and vice-versa. 

You mentioned Denmark being the happiest country in the world but I am not sure that is true. We have high alcohol consumption and about half a million people on happy pills for a reason. 

Channel 1, our main TV channel here, recently aired a documentary on three Danish girls who converted to Islam out of their own will, not because they got married or anything like that. They all had the same background, coming from broken homes, dealing with alcoholism and so forth – basically part of the legacy of the 1968 revolution we had across Europe. What these girls lacked was structure, and they found it in Islam because it regulates all aspects of your life: how you dress, what you eat, with whom you can socialize with, how to pray, how to interact as a wife and so on. 

That is what the right-wing parties in Europe don’t understand. This is a spiritual battle. There is no political freedom without spiritual freedom. If you go around just forbidding things, like don’t wear the head cloth and so forth, it will not work. Our civilization will gradually disappear.

The only thing that can save Europe right now is a true spiritual, dare I say Christian, revival across the Continent. This played a significant role in the demise of communism in the Soviet Union and East Germany. The churches there provided hidden venues for people to congregate, express ideas and share their faith and hardships.

Since its inception Christianity was always about fighting evil with love, prayer and faith because these three are the key to freedom. And these are the values that the radical left and radical Islam do not tolerate, because of course both demand total obedience to the state and their conception of God, respectively. 

ET: Thank you so much for sharing your thoughts and your courage. You deserve to be in the cover of a magazine, not on some government blacklist. Wish you all the best.

IT: Thank you.

A year later,  in an editorial that drew the fury of progressives in Denmark, the country’s immigration minister said “a significant group” of refugees “cheats, lies and abuses our trust” to soak the Danish government for additional benefits – or to cheat on exams that allow them to receive asylum status.

According to Inger Stojberg’s editorial, which was published in the Danish BT tabloid, thousands of migrants pose as adolescents to receive the additional benefits that the state of Denmark bestows on unaccompanied minors seeking asylum in the country. In fact, as many as two-thirds of the refugees admitted to Denmark have later been found to be older than the age they gave during their arrival. More from RT (translation theirs):

Another problem that Stojberg highlighted is the age of so-called minors among migrants, many of whom are believed to be grown men posing as adolescents. “We also see young people under the age of 18 who cheat their way into getting better treatment and more benefits,” she stated, stressing that an unaccompanied minor costs over 500,000 kroner ($80,000) per year for the state. “In fact, two thirds of those whom we later age-tested proved to be older than they originally stated,” she added.

Stojberg also cited Facebook Groups found online where refugees share answers to Danish language and culture tests that every migrant entering Denmark must take.

However, rather than inciting popular demand to have these loopholes closed once and for all; Stojberg’s editorial, which she also posted on her Facebook page, triggered a backlash, with Danish citizens accusing her of “cheating” the Danish people by spreading lies and hate.

And now, less than a month later, Stojberg has gone one step further, calling for Muslims to take time off work during the fasting period of Ramadan, saying the practice is “dangerous for all of us”.

As The Local reports, the comments from immigration and integration minister Inger Støjberg, a member of the centre-right Liberal Party, come after Ramadan, Islam’s revered month in which Muslims around the world fast from dawn until dusk, began last week.

“I want to call on Muslims to take leave from work during the month of Ramadan to avoid negative consequences for the rest of Danish society,” Støjberg wrote in a column for the BT tabloid.

“I wonder if a religious order commanding observance to a 1,400-year-old pillar of Islam is compatible with the society and labour market that we have in Denmark in 2018.”

She also said she feared the fasting could affect “safety and productivity,” giving as an example bus drivers who have “neither had a drink nor eaten for more than 10 hours”.

“This can be dangerous for all of us,” she said.

“On the brink” indeed!!

Over the last 15 years, the country has tightened its immigration policies, insisting that migrants must learn the country’s customs and language in order to adapt to the labor market.

And the government’s immigration curbing policies are working: according to government data, more than 3,000 people applied for asylum in Denmark last year – a steep drop from the spring of 2016, when numbers were near their peak. Over the past three years, the country has taken in some 30,000 refugees, mostly Syrians, Eritreans and Afghans.

via RSS https://ift.tt/2kgGdgk Tyler Durden