ADP Prints 200k Jobs Gain For 5th Month In A Row

Amid 50-year lows in initial claims but slumping survey data, ADP printed a much-better-than-expected 235k (200k exp), a modest downtick from an upwardly revised January. Job gains were very broad-based and Mark Zandi confirmed “we’re going into the 3s” for unemployment.

This is the 5th month in a row of 200k-plus gains…

Only Information Service providers saw any jobs losses in February…

Finally, as a reminder, we note that since President Trump’s election, ADP’s data has been systemically upward-biased relative to the pre-Trump era…

Full breakdown:


     ADP National Employment Report: Private Sector Employment Increased by 235,000 Jobs in February

While ADP gives us a glimpse of what is to come on Friday, all eyes will really be on the wage growth data and what that means for inflation (and The Fed)… but this data pretty much guarantees a March rate hike.

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Frontrunning: March 7

  • Cohn’s Exit Leaves Hard-Liners Ascendant in White House (BBG)
  • Trade skeptics gain upper hand in White House as Cohn quits (Reuters)
  • Trump Alienates Allies Needed for a Trade Fight With China (WSJ)
  • Wall Street Frets About Losing White House Friends as Cohn Exits (BBG)
  • How the House Could Change Hands (WSJ)
  • South Korea’s Moon says sanctions on North to stay, too early to be optimistic (Reuters)
  • Kushner to visit Mexico after Trump tirades, testy phone call (Reuters)
  • Republicans in tight races embrace gun control (Reuters)
  • Banks Look to Break Government’s Hold on Student-Loan Market (WSJ)
  • Berlusconi pledges to back League’s Salvini as Italy’s next PM (Euronews)
  • Something’s Brewing: Coca-Cola Plans Its First Alcoholic Drink (WSJ)
  • Goldman puts London staff on notice for German move by June (Reuters)
  • Wells Fargo Is the Go-To Bank for Gunmakers and the NRA (BBG)
  • Broadcom Pledges $1.5 Billion U.S. Investment to Ease Regulatory Scrutiny (WSJ)
  • America Is Giving Away the $30 Billion Medical Marijuana Industry (BBG)
  • How to Gain Power at Work When You Have None (WSJ)
  • Exxon sees earnings doubling by 2025 at current oil prices (Reuters)
  • Where Will Apple Put Its Fourth U.S. Campus? (BBG)
  • Sri Lanka blocks social media as Buddhist mobs attack mosques (Reuters)

Overnight Media Digest

WSJ

– Gary Cohn will resign from the White House after 14 months of serving as U.S. President Donald Trump’s top economic adviser, days after Trump surprised his senior staff by announcing steel and aluminum tariffs that Cohn had opposed. on.wsj.com/2HdNgzE

– Smith & Wesson’s parent company American Outdoor Brands Corp said it was wary of adding “smart-gun” technology to its weapons, as investors push the industry to address safety issues in the wake of recent mass shootings. on.wsj.com/2HcEt11

– Pharmacy chain CVS Health Corp sold $40 billion of bonds Tuesday to help pay for its acquisition of health insurer Aetna Inc months before it needs the money, seeking to get ahead of an expected rise in interest rates and a flood of borrowing across the economy. on.wsj.com/2HabJGo

– Two Republican chairmen in the House are asking the Justice Department to consider the appointment of a second special counsel to investigate matters related to how and why material gathered from a former British spy was used to spy on an associate of U.S. President Donald Trump. on.wsj.com/2H9fuLW

– A buyers’ group organized by investor Ron Burkle and publicly led by businesswoman Maria Contreras-Sweet said it called off a deal for Weinstein Co’s assets less than a week after saying it would buy them by assuming $225 million of debt. on.wsj.com/2HbTnog

 

FT

– Public Health England said the calorie content of processed foods must be cut by 20 per cent by 2024, extending its official campaign against childhood obesity beyond sugar.

– UK’s Foreign Secretary Boris Johnson threatened to ramp up punishment against Moscow if Russia is found to be involved in the incident involving former double agent Sergei Skripal. Russian embassy in London said they regretted that instead of a proper official clarification, Johnson chose to threaten Russia with retribution.

– Paul Flowers, former chairman of Co-operative Bank, has been banned from working in UK financial services over his possession of illegal drugs and for using a work phone for accessing premium-rate sex chatlines on a company mobile.

– Andy Haldane, Bank of England’s chief economist, said that the bank will create regional councils, made up of members of the public, to improve its understanding of the economy.

 

NYT

– The planned sale of the Weinstein Company collapsed yet again on Tuesday, when the investor group that had agreed to purchase the embattled studio said that it had called off the deal after receiving “disappointing information.” nyti.ms/2HbPgZm

– The vast majority of Americans expect artificial intelligence to lead to job losses in the coming decade, but few see it coming for their own position. And despite the expected decline in employment, the public widely embraces artificial intelligence in attitude and in practice, according to a survey that was conducted last fall and from which new findings were released on Tuesday. nyti.ms/2HabLhu

– Gary Cohn, U.S. President Donald Trump’s top economic adviser, said on Tuesday that he would resign, becoming the latest in a series of high-profile departures from the Trump administration. nyti.ms/2HcHnCS

– As the Republican Party struggles to find its footing with the next generation of voters, several conservative college groups have banded together to champion something anathema to the party: a carbon tax. nyti.ms/2Fvvta5

 

 

Britain

The Times

– Melrose Industries Plc is facing fierce pressure to reveal legally binding commitments to protect jobs and invest in research and development if it succeeds in its hostile takeover of GKN Plc, the aerospace and automotive group. bit.ly/2FsU7rY

– BSG Resources Ltd, a mining company controlled by Beny Steinmetz, the Israeli diamond tycoon, was placed in administration on Tuesday amid an escalating legal dispute over allegations that it engaged in bribery linked with a mining project in west Africa. bit.ly/2FuE5h5

The Guardian

– Retailer Debenhams Plc is in talks to rent floor space to flexible-office provider WeWork, as it looks to scale back its high street presence. bit.ly/2Fr7MQr

– Chancellor Philip Hammond will insist on Wednesday that Britain can overcome EU opposition and include financial services in a post-Brexit free trade deal. bit.ly/2FySyZL

The Telegraph

– Procter & Gamble Co is stepping up efforts to “take back control” from advertising agencies by investing more in internal analytics programmes – a move which will spell further trouble for ad giants WPP Plc and Publicis Groupe SA . bit.ly/2Ftd4KZ

– Eurozone members have hit back at French plans for greater economic union in a strongly worded joint statement from finance ministers. bit.ly/2FtgJsf

Sky News

– Officials from the Financial Conduct Authority met key figures from the Investment Association last month to discuss ways of assuaging their concerns about a potential London flotation of Saudi Aramco. bit.ly/2FuPBJr

– J Sainsbury Plc is facing opposition to a pay shake-up it says will give its 130,000 store staff a “leading rate” in the sector. bit.ly/2FsbbhT

The Independent

– UK businesses are drastically underestimating the amount of plastic packaging waste they produce while paying “barely anything” to deal with the problem, new research claims. ind.pn/2FtpToS

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Yield Spread Sends “Recession Warning”

Authored by Jesse Colombo via RealInvestmentAdvice.com,

A few weeks ago, I wrote a piece in which I estimated when the next U.S. recession and bear market would start based upon where we were in the current yield curve cycle and comparing it to the prior six economic cycles. According to that admittedly simple exercise (it wasn’t a hard prediction, but just an estimate based on history), the next stock market peak would occur in September 2019 and the recession would start in February 2020.

In today’s piece, I wanted to discuss in further detail an important chart that I included in my “When Is The Next Recession And Bear Market” piece: the 10-Year/2-Year U.S. Treasury yield spread. I’ll start with a brief refresher: in a normal market, and assuming that the bonds are of the same credit rating, longer-term bond yields are higher than short-term bond yields to compensate investors for the greater risk of holding during a longer period of time (default and inflation risk).

A steep or “normal” yield curve is typically seen early on in the economic cycle and lasts for the majority of the cycle and can be thought of as a “green light” for investors. As the economic cycle matures, the yield curve takes on a flat shape. A flat yield curve can be thought of as a “yellow light” for investors. In the very final stages of an economic cycle, the yield curve often inverts as the Fed’s aggressive rate hikes causes short-term interest rates to actually rise above longer-term interest rates. An inverted yield curve can be thought of as a “red light” for investors.

The 10-Year/2-Year U.S. Treasury bond spread is a very simple, yet powerful, way of visualizing the U.S. Treasury yield curve. To create this chart, the current two-year Treasury note yield is subtracted from the current ten-year Treasury note yield and plotted over time. When the spread is over 100 basis points or 1 percent, it is consider to be a normal or steep yield curve. When the spread is between 0 percent and 1 percent, it is equivalent to a flat yield curve, which is the “recession warning zone” because it signifies that the economic cycle is becoming long in the tooth and that a recession is likely to occur within a few years. When the spread goes under 0 percent into negative territory, that’s when the yield curve is inverted, which implies that a recession is imminent. According to the 10-Year/2-Year U.S. Treasury bond spread, we are currently in the “recession warning zone,” but not the “recession zone” just yet.

The yield curve inverted before every U.S. recession in the past half-century, which is why it is worth paying close attention to (on the chart above, the gray zones show when historic recessions have occurred). In recent years, many bullish market commentators have promoted theories supposedly explaining why inverted yield curves are obsolete as a recession predictor, why “this time is different,” and so on, but a brand new San Francisco Fed paper confirmed that the yield curve is still the most accurate predictor of U.S. recessions.

Why do inverted yield curves predict economic recessions? The main reason is because banks borrow at lower, short-term interest rates and lend money out at higher, longer-term interest rates, and the differential or “spread” between the two rates is where they earn their profit. In addition, yield curve inversions typically occur after several years of interest rate hikes, which have a dampening effect on the economy and financial markets. As fund manager Jeffrey Gundlach has said, the Fed has usually raised interest rates “until something breaks.” My major concern is that it will be the extremely dangerous “Everything Bubble” that breaks this time around.

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“The Last Jedi Has Fallen”: Wall Street Analysts Reacts To Cohn’s Departure

As we highlighted first thing this morning, there has been no shortage of opinions about what Gary Cohn’s departure from the White House (after just one very lucrative year, which allowed Gary to cash out tax free on over $280 million in Goldman deferred comp) will mean for both markets and Trump policy going forward. And while many differ on the margins, the collective agreement is that “political moderate” Gary Cohn’s resignation confirms the ascendancy of the “protectionists”, “populists” and “anti-globalists” in Trump’s circle of influence (first noted here 2 weeks ago), such as Peter Navarro and Wilbur Ross.

Courtesy of Bloomberg, here is a rundown of some of the most vocal views this morning from Wall Street analysts, investors and traders.

‘The last Jedi’, from Citi’s Fraser King

“While heavily-trailed in the press, the market is still mourning the sudden departure of Gary Cohn, the White House’s ‘lonely democrat’ – seen by some as the final bastion of tariff-free international trade. Alas, now the last Jedi has fallen, Trade Wars and a galaxy far, far away now all seems an awful lot closer than before.”

‘Voice of Reason’, from Paul Donovan, chief economist at UBS Wealth Management:

“The departure signals the defeat of anti-protectionism, or reduces the influence of anti-protectionism.”

“Any tax on trade, in any country, means consumers are going to be purchasing goods they would not chose to buy, at prices that are higher than they should have to pay, to subsidize less efficient companies.”

‘Most Meaningful’, from Michael O’Rourke, chief market strategist at JonesTrading Institutional Services:

“Of all the Trump administration resignations, this will be the one most meaningful for markets.”

“Cohn was the administration official financial markets had the most confidence in. This opens the environment up to whole new wave of uncertainty. The likelihood of a trade war just jumped dramatically.”

‘Treasury Tremors’, from Rabobank strategists led by Richard McGuire:

“We would challenge the oft-cited view that protectionism is bearish for USTs as it promises higher import costs (and, thus, inflation) while also portending a possible divesture of U.S. debt by China in retaliation.”

“We would instead argue that higher import costs, in representing a negative supply shock will ultimately weigh on demand. Tit-for-tat trade measures, meanwhile, point to lower world trade volumes which, in turn, promises lower global growth.”

Retaliation Risk. from Ben Emons, chief economist at Intellectus Partners LLC:

“Not only countries may retaliate, reciprocal trade is not a 1 for 1 trade, especially when tariffs are placed on high quality/low cost foreign goods that are a benefit to the domestic consumer.”

“The favorable global synchronization theme from 2017 is morphing into a de-synchronizing theme that can impact markets negatively.”

Faith in Earnings, from James Soutter, a fund manager at K2 Asset Management Ltd. in Melbourne:

“Markets will see this as another negative in the Trump presidency and will move lower on the news in the short term, but this doesn’t have an impact on the broader earnings growth story that equities are experiencing.”

‘More Chaos’, from Alan Patricof, a venture capitalist and managing director of Greycroft LLC who had backed Hillary Clinton against Trump:

“We need a grown up in the White House, that’s the problem, and it gets worse every day,” with the latest news indicating “more chaos.”

“The market doesn’t like uncertainty, the market doesn’t like surprises. All we’ve gotten for the last 15 months is surprises, and yet the market went up. At some point the market has got to be spooked by the fact that they just don’t know what’s going to happen tomorrow.”

“I feel it so many times — I Tweet it myself — this is it we’ve hit the inflection point. But “the market defies me, then we get another crazy move.” But this time, “Gary Cohn has been a grown up in the White House, and now he’s gone.”

‘Bark vs Bite‘, from Terry Haines, a managing director at Evercore ISI:

The narrative will be that protectionists “will be in the ascendant” and Treasury Secretary Steven Mnuchin, “the lone remaining ‘free trader,’ will be in eclipse.” Even so, “there is more bark than bite in the Trump protectionist story line of the last few days.”

“Investors should understand the Cohn departure as the end of his influence in a difficult White House, but not to overreact to it.”

‘Rates Impact?’, from Michael McCarthy, Sydney-based chief strategist at CMC Markets Asia Pacific.

“It’s clear at the moment the markets are likely to price the worst-case scenario on tariffs. “Markets are very concerned about the impact on global growth,” given the “potential for tit-for-tat” protectionist moves in the wake of Europe’s retaliation threat following the move on U.S. steel and aluminum tariffs.

“Higher interest rates could be off the table if this does escalate.”

‘Brutal’ Worries, from Johan Jooste, chief investment officer at Bank of Singapore Ltd.:

The really important next thing is how do other countries react to this. If the response is fairly brutal, if it’s really strong, without Cohn there you’d imagine the White House reacts in kind. Then we get into the kind of thing the market is probably now starting to discount as a greater probability, which is not a good outcome for stocks.”

‘Grandstanding Behavior’, from Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd.:

“I view this as grandstanding behavior by Mr. Trump, with the aim to have more negotiating cards in his deck.”

“In markets, we are closer to a durable low than we were after the first leg down in markets in early February.”

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Cryptocurrencies Should Be Regulated Like Commmodities, Judge Rules

Nearly two-and-a-half years after the CFTC officially declared that bitcoin and cryptocurrencies more broadly would be regulated like securities, a federal judge has ruled that the agency does, in fact, have the authority to regulate the fledgling asset class, according to the same rules governing energy and metals, effectively defining cryptocurrencies as commodities.

US District Judge Jack Weinstein ruled that the CFTC had the standing to bring a fraud lawsuit against New York resident Patrick McDonnell and his company Coin Drop Markets, permitting the case to move forward. Weinstein also preemptively barred McDonnell and CDM from engaging in commodity transactions, according to coindesk.

“Virtual currencies are ‘goods’ exchanged in a market for a uniform quality and value. … They fall well within the common definition of ‘commodity’,” the judge wrote in the order on Tuesday.

Bitcoin

In the lawsuit, the CFTC alleged that McDonnell and his company had fraudulently offered customers virtual currency trading advice beginning in January 2017. After customers handed over their money, instead of passing along his advice, McDonnell took down the company’s website and stopped responding to customers, the CFTC alleged. CDM also failed to register with the CFTC. McDonnell took down the company’s website and stopped responding to customers. McDonnell, who is representing himself in the case, declined to comment to Reuters.

At issue in the case was whether the CFTC had the authority to regulate cryptocurrency as a commodity in the absence of federal level rules, and whether the law permitted the CFTC to “exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts,” according to the document.

In both instances, Weinstein answered in the affirmative, meaning the case can be brought against the defendant.

The CFTC  had defined cryptocurrencies as commodities as far back as 2015, a decision that has led the agency to recently target cryptocurrency businesses that it considers are hoaxing investors.

Since Congress hasn’t yet acted to pass a regulatory framework for cryptocurrencies, the CFTC and Securities and Exchange Commission (SEC) have moved ahead with their own, often vague, decrees, like when the SEC ruled over the summer in its finding on the collapse of the DAO that crypto tokens should be regulated and registered according to SEC securities laws.

Banks have already identified crypto as a threat in terms of both the potential for fraud and also as a form of disruptive competition. The bank has made efforts to restrict its customers’ use of bitcoin and other virtual currencies. Citigroup and JPMorgan Chase have also banned purchases of cryptocurrency on their credit cards. However, these regulator vagaries didn’t stop the CFTC from granting exchanges permission to offer bitcoin derivatives like the bitcoin futures offered by the Cboe and CME.

The full ruling is below

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World Stocks, US Futures Tumble On Spike In Trade War Fears

If yesterday world markets were a sea of green as traders bought risk on news that threats of both a nuclear and trade war had sharply receded, today it’s the opposite, and while North Korea has yet to “unexpectedly” test fire an ICBM, Tuesday’s departure of Gary Cohn has all but assured market that a trade war is, after all, just a matter of time.

To be sure, Cohn’s departure – which is widely seen as a victory for the protectionists led by Peter Navarro and immigration hawks – is the only thing analysts and traders are writing about this morning, and while some thing the market’s overnight response, which has seen S&P futures slide over 20 points and the DJIA is set to open 330 points lower, has been exaggerated…

… others disagree, and fear that much more pain is in store, especially if Cohn’s departure is indicative of an imminent trade bombardment by the Trump administration.

The litany is summarized best by Bloomberg which notes that Cohn’s resignation “is a victory for figures who have sought to expunge the Trump administration of advocates for free trade and globalization, principles that have long been a hallmark of the Washington establishment. A registered Democrat, Cohn was regarded as one of the few political moderates close to the president. His absence will amplify voices like Commerce Secretary Wilbur Ross and trade adviser Peter Navarro who back the president’s impulses to buck convention and pick trade fights on a global stage.”

Citi went further, going so far as to compare Gary Cohn to Luke Skywalker:

While heavily-trailed in the press, the market is still mourning the sudden departure of Gary Cohn, the White House’s ‘lonely democrat’ – seen by some as the final bastion of tariff-free international trade. Alas, now the last Jedi has fallen, Trade Wars and a galaxy far, far away now all seems an awful lot closer than before. USD is caught between a more hawkish Fed (Kaplan, Brainard overnight) and an administration that appears ready to shoot from the hip with regards to trade wars.

Echoing what we said 2 weeks ago, when we correctly predicted the coming trade wars when we highlighted the little noticed Peter Navarro promotion, Bank of Singapore’s James Cheo said that “Cohn’s resignation shows that within the Trump administration the pendulum is swinging toward anti-trade,” adding that “what we should be watching out for is how other countries react in response to the tariffs.”

Whatever one thinks of Cohn’s departure, the rising prospect of escalating protectionism has finally spooked algos and sent European and Asian stock markets reeling on Wednesday. As shown above, S&P futures slumped, while most government bonds climbed, sending the yield on the 10Y to 2.84%, where it started the week.

European government bonds rallied, with yields across the euro zone falling by 1-3 basis points, following similar strengthening in U.S. Treasuries overnight.

In Europe, the Stoxx Europe 600 Index headed for the first drop in three days, led by mining and auto shares. European car-makers, which face the risk of a hike in import tariffs to the United States, were among the worst performers, falling 1.1%. The materials sector is underperforming, pressured by the fall in commodity prices fuelled by US API crude stocks printing a build more than twice as expected. 

“The implication is that without the restraining influence of Cohn on Trump, the president will now have a free hand to press ahead with further tariffs and generally up the ante on trade,” said Neil Wilson, an analyst at ETX Capital.
“This in itself does not bode well for risk despite that small boost we saw on news that North Korea could consider de-nuking.”

Earlier in the day, Asian markets also slid earlier as investors contemplated how bad the hit to China would be once Trump unleashes his trade war, a fear which was magnified by the report that the White House is considering clamping down on Chinese investments and imposing broader tariffs added to the gloom. Australia’s ASX 200 (-1.0%) underperformed with sentiment also dragged by weaker than expected GDP figures, while Nikkei 225 (-0.8%) was choppy and briefly found reprieve, before a firmer JPY ultimately weighed. Elsewhere, Shanghai Comp. (-0.6%) and Hang Seng (-1.0%) initially outperformed despite reports US may consider broad curbs on Chinese imports and takeovers, as well as news that ‘China hawk’ Peter Navarro was among the top 2 candidates to replace Cohn as
Trump’s top economic adviser.

Stocks in China and Hong Kong gave up their morning gains, sliding along with other regional markets and U.S. futures; Shanghai Composite Index dropped 0.6%, trimming week’s advance to 0.5% while the ChiNext Index fell 0.7%, paring week’s gain to 0.8%. The Hang Seng Index slides 1% and is experiencing its wildest trading since 2016. The Hang Seng China Enterprises Index declines 1.1%

In other macro developments, the dollar initially tumbled on the Cohn news but has since recovered most losses, while the yen and the Swiss franc were once more in demand, as currencies sensitive to risk sentiment and from countries heavily reliant on trade were sold off as markets raised the odds for more U.S. barriers to trade. On Wednesday morning, the Bloomberg Dollar Spot Index was little changed, while European stocks followed Asia’s slide.

The Canadian dollar and the Mexican peso both retreated by around 0.5 percent against the dollar as Cohn’s departure was seen as raising risks that Washington could walk away from NAFTA negotiations. Other emerging market currencies that typically move in sympathy with the dollar were lower, with the South African rand and Russian rouble both down around 0.5 percent against the dollar.

Separately, overnight we got comments from two Fed speakers, a hawk and a dove: Fed’s Brainard (voter, dove) said gradual US rate hikes are likely appropriate and that there is greater confidence inflation will reach target, while she added that she is encouraged by substantial fiscal stimulus, full employment and above-trend economic growth. Brainard also stated that headwinds are turning into tailwinds, although they are ready to slow or speed up pace of hikes if forecasts are incorrect. Meanwhile, Fed’s Kaplan (non-voter, soft hawk) reiterated that baseline scenario is for 3 rate hikes in 2018 and said that it is too early to change forecasts due to tariffs as it is not yet known what will be implemented. Kaplan added that anything that jeopardizes trade relations with Mexico or Canada is not in US interest.

Commodities fell on worries that trade friction could slow global growth, with Brent crude futures giving up the previous day’s gains to drop 1.2 percent. Copper on the London Metal Exchange lost 0.9 percent, paring a 1.4 percent gain from the previous session.  WTI and Brent crude futures are trading with losses of over 1% this morning, largely following last nights API report which showed a wider than expected build in crude inventories (5.7mln vs. Exp. 2.7mln). As such, WTI initially traded south of the USD 62/bbl level, with Brent briefly below USD 65/bbl before reclaiming the levels. Elsewhere, gold has been trading relatively sideways throughout the morning, having pared its gap higher overnight after initial support from reports of Cohn’s resignation. Good news out of Australia, which reported record high iron ore exports from Port Hedland (largest iron ore loadings port in Australia).

Bulletin Headline Summary From RanSquawk

  • White House Economic Adviser Gary Cohn is to resign and is expected to leave in next few weeks
  • Asian stocks and to a lesser extent their EU counterparts, were seen lower on the news as fears continue to
  • mount over ‘trade-wars’
  • Looking ahead, highlights include US ADP, BoC rate decision, DoEs, Fed’s Bostic, and Dudley

Market Snapshot

  • S&P 500 futures down 1% to 2,697.75
  • STOXX Europe 600 down 0.2% to 370.55
  • MSCI Asia Pacific down 0.6% to 174.05
  • MSCI Asia Pacific ex Japan down 0.6% to 570.66
  • Nikkei down 0.8% to 21,252.72
  • Topix down 0.7% to 1,703.96
  • Hang Seng Index down 1% to 30,196.92
  • Shanghai Composite down 0.6% to 3,271.67
  • Sensex down 0.8% to 33,049.36
  • Australia S&P/ASX 200 down 1% to 5,901.99
  • Kospi down 0.4% to 2,401.82
  • German 10Y yield fell 0.8 bps to 0.667%
  • Euro up 0.09% to $1.2415
  • Italian 10Y yield fell 0.6 bps to 1.729%
  • Spanish 10Y yield fell 4.2 bps to 1.449%
  • Brent Futures down 1.2% to $65.03/bbl
  • Gold spot down 0.2% to $1,332.27
  • U.S. Dollar Index down 0.06% to 89.57

Top Headline News from BBG

  • Gary Cohn’s absence will amplify voices like Commerce Secretary Wilbur Ross and trade adviser Peter Navarro who back the president’s impulses to buck convention and pick trade fights on a global stage
  • The import taxes U.S. is considering would affect companies that help fuel the about $450 billion in Chinese goods imported to America annually. But Chinese manufacturers won’t be the only ones hurt in a trade war, as their close relationships as suppliers to American brands will likely create a ripple effect
  • China’s foreign currency holdings decreased for the first time in more than a year, as rising U.S. Treasury yields weighed on valuations
  • President Donald Trump signaled he’s open to talks with North Korea, even as his advisers expressed skepticism that Kim Jong Un is serious about suspending his nuclear weapons program and engaging in real negotiations.
  • The Trump administration is considering clamping down on Chinese investments in the U.S. and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property, according to people familiar with the matter.
  • Federal Reserve Governor Lael Brainard said more confidence on inflation warrants gradual interest-rate hikes; suggests tailwinds could speed pace of Fed rate hikes.
  • Opponents of Brexit are looking into whether Britain could postpone its exit from the European Union to give lawmakers and voters more time to weigh up whether they really want to leave.

Asian stocks were mostly lower as US political discord took the limelight once again after reports that National Economic Council Director Gary Cohn is to resign amid tariff disagreements. This latest high-profile and ‘market- friendly’ White House departure dampened the risk appetite and weighed on US equity futures in which Emini S&P gapped lower by about 1% and DJIA futures saw losses of nearly 400 points. ASX 200 (-1.0%) underperformed with sentiment also dragged by weaker than expected GDP figures, while Nikkei 225 (-0.8%) was choppy and briefly found reprieve, before a firmer JPY ultimately weighed. Elsewhere, Shanghai Comp. (-0.6%) and Hang Seng (-1.0%) initially outperformed despite reports US may consider broad curbs on Chinese imports and takeovers, as well as news that ‘China hawk’ Peter Navarro was among the top 2 candidates to replace Cohn as Trump’s top economic adviser. However, gains in Chinese money market rates eventually proved to be the deciding factor and tipped bourses into the red. Finally, 10yr JGBs pared the opening safe-haven inflows to return flat, amid a similar indecisive risk tone in Japanese stocks and following an unchanged BoJ Rinban purchase announcement. PBoC skipped open market operations, but later announced CNY 105.5bln 1yr MLF operation.

Top Asian News

  • Malaysia Central Bank Holds Benchmark Rate as Inflation Eases
  • China Stocks Retreat as Volatility Intensifies on Trade Concerns
  • China’s FX Reserves Snap Yearlong Rising Streak on Valuations
  • Widodo Clears Hurdle for Indonesia to Set Domestic Coal Price

The European cash open took the negative lead from Asia with most major bourses in the red, albeit losses have been pared throughout the session after the departure of NEC Director Cohn spooked investors as the US trade policy may be steered further into protectionist territory while reports from a US administration official stated that White House adviser Peter Navarro and commentator Larry Kudlow are the top two candidates to replace Gary Cohn. Asia-Pacific stocks reacted with a decline across the board.  FTSE 100 (+0.1%) outperforming, supported by a weaker sterling. The materials sector is underperforming, pressured by the fall in commodity prices fuelled by US API crude stocks printing a build more than twice as expected. Rolls-Royce (+12.8%) outperforming on the back of strong earnings. Smurfit Kappa (+3.3%) after US based International Papers confirmed its EUR 8bln offer to the company which was then rejected as an “opportunistic” takeover bid. Telecom Italia (-0.2%) is trading in a choppy fashion after company CEO stated the joint venture with Vivendi’s Canal+ will be put on hold.

Top European News

  • U.K. House Price Growth Slows to Four-Year Low, Halifax says
  • Europe’s Populist Godfather Suddenly Has a Fight on His Hands

In FX, USDJPY and USDCHFto a lesser extent, continues to provide the clearest if not best barometer of broad risk sentiment and the headline pair’s latest retreat from 106.00+ levels highlights the resurgence of aversion prompted by the US President’s import tariff plans. The failure to extend gains on conciliatory gestures from North Korea on the nuclear front to and beyond a key upside Fib just ahead of 106.50 is deemed to be bearish in terms of the technical outlook, while the departure of chief White House economic adviser Cohn is widely perceived as negative from the global trade wars perspective given his more temperate approach towards protectionist policies. 105.50 bids/support now being tested again, and the 2018 low around 105.25 is back on the radar ahead of reportedly big barriers at 105.00. Usd/Chf is sitting roughly in the middle of 0.9400-0.9350 parameters, and the pseudo safe-haven Eur is looking to climb further above 1.2400 vs the Greenback, while eclipsing its previous ytd base against the still Brexit-weighted Gbp to circa 0.8965 (having breached 0.8950 resistance more convincingly). Back to G10 majors, and it’s all change again for the commodity bloc that has reversed gains vs their US Dollar counterpart. Usd/Cad has rebounded over 1.2900 with the Loonie underperforming on the tariff proposals and NAFTA ahead of the BoC policy meeting, which is now even more likely to underscore the need for caution. Aud/Usd is pivoting around 0.7800 after mixed Aussie GDP data overnight and Nzd/Usd is back below 0.7300 as the Aud/Nzd cross holds above 1.0700 in wake of the latest GDT auction showing a dip in prices.

In commodities, WTI and Brent crude futures are trading with losses of over 1% this morning, largely following last nights API report which showed a wider than expected build in crude inventories (5.7mln vs. Exp. 2.7mln). As such, WTI initially traded south of the USD 62/bbl level, with Brent briefly below USD 65/bbl before reclaiming the levels. Elsewhere, gold has been trading relatively sideways throughout the morning, having pared its gap higher overnight after initial support from reports of Cohn’s resignation. Good news out of Australia, which reported record high iron ore exports from Port Hedland (largest iron ore loadings port in Australia). US API Crude Stocks (Mar 2) 5.661M vs. Exp. 2.700M

 

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 2.7%
  • 8:15am: ADP Employment Change, est. 200,000, prior 234,000
  • 8:30am: Nonfarm Productivity, est. -0.1%, prior -0.1%; Unit Labor Costs, est. 2.1%, prior 2.0%
  • 8:30am: Trade Balance, est. $55.0b deficit, prior $53.1b deficit
  • 2pm: U.S. Federal Reserve Releases Beige Book
  • 3pm: Consumer Credit, est. $17.7b, prior $18.4b

Central Banks

  • 8am: Fed’s Bostic Speaks on the Economic Outlook
  • 8:20am: Fed’s Dudley Speaks in Puerto Rico
  • 2pm: U.S. Federal Reserve Releases Beige Book

DB’s Jim Reid concludes the overnight wrap

It all feels a bit 2017 this morning with the two main stories from the past 24 hours revolving around President Trump and North Korea. The big difference now though is that markets appear to be at least hoping that Kim Jong Un’s statement about potentially giving up nuclear weapons has some legs to it, while Trump’s war of words about tariffs doesn’t, although as you’ll see below the news overnight that Gary Cohn is to step down from his role as an economic advisor and also that Trump is considering broad curbs on Chinese imports and investments following an investigation into China intellectual property practices suggests otherwise.

We’ll come to that shortly, but first with regards to North Korea, headlines struck the wires at just after 11am GMT yesterday morning suggesting that North Korea is open to denuclearizing so long as the country’s safety can be guaranteed. North Korea’s leader Kim Jong Un will now meet with South Korea President Moon Jae-in at the end of April to discuss the matter. President Moon Jae-in’s office released a statement saying that “North Korea has clearly expressed its intention for denuclearization on the Korea peninsular, and if there is no military threat, and North Korea’s regime security is promised, they have clarified that there is no reason to hold nuclear weapons”.

President Trump responded by telling reporters that “they seem to be acting positively” and that ”I’d like to be optimistic”. He also suggested that the US would be open to talks with North Korea although Director of National Intelligence, Dan Coats, also added that he was “quite sceptical” and that he was doubtful that this was any sort of breakthrough. After initially starting on the front foot the S&P 500 then ebbed and flowed for much of the session – not helped by some soft corporate earnings numbers in the consumer sector – before eventually ending +0.26% by the closing bell. That’s actually the first <0.50% move up or down since February 22nd.

Meanwhile 10y Treasury yields bounced as much as 4bps from the intraday lows before falling again into the close to finish more or less unchanged at 2.886%. Core European bond markets were broadly 2-3bps higher in yield while BTPs actually rose 7bps from the lows at one stage. The Greenback was weaker versus pretty much all currencies with EM currencies in particular the big winner.

That generally positive sentiment in markets was also attributed to some of the pushback of Trump’s tariff talk from his own administration and party, however that optimism is fading this morning. Initially it started with House Speaker Paul Ryan on Monday night, then yesterday Gary Cohn (an economic advisor to the White House) called on executives from major US companies to meet with the President this week with a view to persuading Trump to back down. However late last night news emerged that Cohn is to resign from his role as Trump’s economic advisor, suggesting that Trump is leaning heavily towards some form of protectionist measures. Needless to say that Cohn’s resignation also leaves further question marks around Trump’s economic agenda. On a similar note, overnight, news has also emerged that Trump is considering further measures, specifically for China imports and investments, supposedly following theft of intellectual property rights. An investigation by the US Trade Representative’s office into China’s intellectual property practices is expected in the coming weeks.

So it feels like these stories have some way to run yet and it’s worth noting that yesterday we also saw the EU respond to Trump’s threats by imposing some of their own, namely putting punitive tariffs on imports of US products including Harley-Davidson, Levi Strauss and Kentucky bourbon. So already some signs of tit for tat but the China developments is not to be underestimated as the investigation has been an issue which has somewhat flown under the radar for markets so far.

This morning in Asia the tone in markets has noticeably shifted following those overnight developments. The Nikkei (-0.80%), Hang Seng (-0.67%), Shanghai Comp (-0.16%) and ASX (-1.01%) are all lower as we go to print, while S&P 500 futures are down over 1%. 10y Treasury yields have also rallied back 3.7bps while bond markets in Asia more generally are stronger. The USD has also continued to weaken (-0.15%) with safe havens like the Yen (+0.49%) and Swiss Franc (+0.34%) stronger.

Staying with politics for now, on this continent markets have quickly accepted that Italy’s political stalemate is likely  to drag on for some time. Indeed if you wanted evidence that the market is not particularly concerned then look no further than the 10y BTP-Bund spread which now at 132bps (4bps tighter yesterday) and pretty much back to Friday’s pre-election level. Keep in mind that it was as wide as 212bps last year in April at one stage. The FTSE MIB bounced back strongly yesterday, notching up a +1.75% gain which was the strongest since February 14th and which also pushed the index back into positive territory YTD.

The DAX (+0.19%) and Stoxx 600 (+0.13%) also finished higher, despite fading a bit, although still remain in the red YTD. It’s worth noting that there was a story yesterday which attracted a bit of attention on Bloomberg suggesting that a rebellion within Renzi’s ruling Democratic Party could support a 5SM led government so it’s worth seeing if that has any legs.

Moving on. While politics continues to dominate the main stories at the moment, central banks should come back to the forefront from Thursday with the ECB and then Friday with the BoJ. In the meantime we’ve also had some  Fedspeak to digest with the Dallas Fed’s Kaplan (neutral/non-voter) yesterday speaking live on CNBC. He reiterated that 3 rate hikes is appropriate in 2018 but also that “I think we should get started sooner rather than later”. He also highlighted that the US economy is “either at or beyond full employment now” and so therefore a gradual pace of hikes is necessary. Kaplan was also asked a question about Trump’s tariffs threats although had a fairly straight bat approach response, saying that “our trading relationship with Canada and Mexico is critical to US competitiveness and US jobs”. Overnight we’ve also heard from the Fed’s Brainard, with her tone sounding a bit more upbeat than usual.  Specifically she said that “stronger tailwinds may help re-anchor inflation expectations at the symmetric 2%  objective” and that “with greater confidence in achieving the inflation target, continued gradual increases in the federal funds rate are likely to be appropriate”.

Here in the UK, the most significant Brexit news yesterday was comments from DUP leader Arlene Foster following a meeting with the EU’s Michal Barnier. Foster said that the current draft “has omissions and overreaches” and that there will therefore “be a need to negotiate”. So expect this to rumble on despite time clearly not being on the UK’s side.

Switching to the data now, yesterday’s releases were a bit of an afterthought but for completeness, in the US January factory orders printed at -1.4% mom which was bang in line with the consensus, while final durable and capital goods orders for the same month were revised up one-tenth to -3.6% mom and down one-tenth to -0.3% mom. There was no data of note in Europe yesterday.

To the day ahead now. The highlight this morning in Europe should be the final revision to Q4 GDP (consensus for no change to +0.6% qoq) along with the various growth components. Away from that we’ll get February house price  data in the UK and the January trade balance in France. This afternoon in the US the most notable release should be the February ADP employment change report which is generally seen as a bit of a precursor for payrolls. The  consensus is for a 200k print while our US economists are slightly below that at 175k. Also due out are the final Q4 revisions for nonfarm productivity and unit labour costs, along with January consumer credit. The Fed is also due to release the Beige Book in the evening. The Fed’s Bostic will also speak this afternoon at 1.00pm GMT on the economic outlook while the Fed’s Dudley is scheduled to speak at 1.20pm GMT although his speech is expected to concern the status of hurricane recovery efforts in the Caribbean. Finally keep an eye on Brexit related headlines once again with ambassadors from all EU countries (except the UK) due to meet in Brussels to hold their first meeting on draft guidelines between the EU and UK.

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Trader: “Cohn’s Resignation Is Far Worse Than Markets Think”

With the S&P down some 25 points and the Dow Jones set to open nearly 350 points lower, one can argue that the market response to Gary Cohn’s resignation has been somewhat exaggerated.

Others, however, like Bloomberg macro commentator and former Lehman trader, Marc Cudmore, claim this morning that the market reaction to Gary Cohn’s resignation as Trump’s top economic adviser has been “surprisingly resilient.”

The reason is that Cohn’s resignation is far worse than the market seems to think, and is why Cudmore is convinced that the market’s contained response “won’t sustain” and that “equity markets will suffer more in the days ahead.”

He explains why in his latest macro view.

Cohn Resignation Is Worse Than Markets Seem to Think: Macro View

The market reaction to Gary Cohn’s resignation as Trump’s top economic adviser has been surprisingly resilient. That won’t sustain.

The bullish interpretation would be to focus on global equities largely taking this news in their stride. Sure, there have been pullbacks, but there’s no sign of broad panic and no hint that it portends a worse environment to come. Such complacency is a mistake.

The multitude of ways this is bad for markets hasn’t yet been fully processed, partially due to the timing. When the news broke, most U.S. traders were in the bar or on their way home, while European investors were fast asleep.

Cohn’s resignation suggests Trump is prioritizing his trade war over any potential negative reaction from U.S. stocks, whose performance he has previously treated as a reliable barometer of his success and appeal.

Combined with threats of broader measures against China and talk of European retaliation, this is worrying for global trade and hence damaging for global growth. Emerging markets, relatively complacent so far, may be particularly vulnerable.

The negative impacts won’t stop there, though. The U.S. financial industry sector just lost its key ally in the administration, which can erode confidence for that sector and beyond into the wider economy.

The whole Trump administration is undermined by yet another high-profile departure. And it’s widened the rift between the president and senior Republicans.

Sure, we have no idea exactly how this will play out. And yes, it may all eventually be seen as a storm in teacup. But that’s a potential narrative for a few weeks time. Cohn quitting has effectively released the handbrake on escalating trade tensions.

For now, there can be no conviction about where this will stop. And uncertainty breeds contempt toward adding to risk. Equity markets will suffer more in the days ahead.

 

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Moldova, Georgia, Ukraine Create New Anti-Russian, Pro-NATO Alliance

Authored by Alex Gorka via The Strategic Culture Foundation,

All over the world, public attention has been riveted on Russia’s reemergence as a military superpower, now that President Vladimir Putin has revealed his new weapon systems in his address to the Federal Assembly on March 2. The US ambitions to attain arms superiority have come to naught. But its anti-Russian policy cannot be reduced to mere attempts to achieve military supremacy. The countries of the former Soviet Union have become a political battlefield, with the US and its allies doing their best to decrease Russia’s influence.

With America’s tacit approval, the GUAM bloc, chaired this year by Moldova, is being revived.

Last March, the prime ministers of Georgia, Ukraine, Moldova, and Azerbaijan held a meeting (Baku was represented by its deputy PM) in Kiev. It was the first high level meeting since 2008. The cooperation agreement signed by those foreign ministers last October mentions a free trade zone. The GUAM organization is expected to hold a summit this June. Three of its members – Ukraine, Moldova, and Georgia – act as tools for advancing America’s interests in the region. With the blessing of the US, they signed EU association agreements in 2014. The 2018 foreign-policy priorities list drafted by Moldova includes mention of the US, the Visegrad group, and Japan. According to Chisinau, the countries of the former Soviet Union – long-standing partners with which it shares historical ties – don’t deserve such an honor.

The speakers of parliament from these three countries took part in a security conference in the Moldovan capital titled “Georgia, Moldova and Ukraine: Eastern Partnership and Current Security Challenges,” which was held on March 2 and attended by about 150 senior officials and experts from different countries. Of course US lawmakers and pundits were among the participants. As usual, the Atlantic Council, an American think tank that always supports neo-cons and anything anti-Russian, could not miss the chance to kindle anti-Moscow sentiments. Damon Wilson, its executive vice president, announced that the US was carefully watching over Moldova, Ukraine, and Georgia, claiming that they “wish to become part of our family,” as he put it.

The parliamentary leaders seized the opportunity to issue a joint statement condemning Russia’s military presence in what they believe to be their respective states’ territories. The document was published in English to reflect the pro-Western tilt of the three-state group. They are “concerned profoundly” over Russian troops in Moldova (1,000 troops and 500 peacekeepers stationed in Transnistria) and what they call “occupation” and “intervention” in some parts of Ukraine and Georgia.

As usual, Moscow is blamed for supporting “separatist movements” and other nefarious acts. The speaker of the Georgian parliament, Irakli Kobakhidze, said an anti-Russian alliance is needed, because only if they are united can these nations stand up to the “challenges” coming from Moscow. “We need joint strategies to face Russia’s aggression,” chimed in Andriy Parubiy, the speaker of the Ukrainian Rada. To dispell any doubts about the new groups’ allegiance to NATO, he emphasized that “On this occasion I would like to speak of the threats faced not only by our region, but also by the Euro-Atlantic zone.”

The idea of reviving this alliance that was designed to counter Russia has failed. Azerbaijan refused to take part in any conference with such a clear anti-Russian agenda. That event demonstrated that there is no unity on Russia within the ranks of GUAM. So, GUAM is actually GUM – a group of three states that have been heavily influenced and pressured by the Americans and which are being used to “contain” Russia and forced to serve as NATO springboards.

These three states could maintain friendly relationships with everyone and stick to a neutral policy. Cooperation with the Eurasian Union could benefit their economies. Good relations with Moscow would not hinder their ties with the EU or other institutions or states, including the US. They could simply refrain from taking sides and concentrate on the well-being of their people. But no, they have chosen to adopt an attitude that is hostile to Russia and join those who are confrontational toward Moscow.

On March 2 the three member states actually announced the creation of a new anti-Russian alliance that will negatively affect the political landscape in Eurasia. The immediate objective is to push Russia out and pull the US in.

Ukraine is a divided nation, plunged in crisis, and unable to fight its own entrenched corruption.

Moldova is facing an election in the fall and the so-called pro-Russian forces are predicted to win.

In Georgia, the idea of NATO membership does not have the support of the majority of the population, according to a recent poll. But the governments of these states are pushing the NATO agenda. They coordinate their political activities in order to counter Moscow in any way they can. For instance, they always vote for Ukraine in the PACE, strongly oppose the Nord Stream gas project, and continue to move closer to NATO.

Moldova has announced its decision to buy lethal weapons from NATO members. Its government is chomping at the bit to join “Western institutions.” Ukraine is home to a US naval facility and is scheduled to receive American lethal arms. Tbilisi is pursuing a “more NATO in Georgia and more Georgia in NATO” policy.

What brings them together? All three states are ruled by oligarchs who obstruct reforms. With their economies in dire straits, the ruling elites promise their people paradise if they join the EU and NATO and become good friends of the US. Adopting an anti-Russia policy is their payment for Western aid and support. Their own national interests and sovereignty are being exchanged for crumbs dropped from the master’s table. 

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Belgium Begins Free Distribution Of Iodine Pills “In Case Of Nuclear Disaster”

As part of the government’s new nuclear safety policy, as of today, every Belgian citizen can come to a pharmacy and get free iodine pills.

Belgium has two nuclear plants, Tihange and Doel, with a total number of seven reactors, and is one of the world’s most nuclear-reliant nations…

In 2017 alone, there were seven incidents at the facilities.

Free distribution of iodine tablets has started in Belgium as a precautionary measure in the event of a nuclear catastrophe, the Belgian Pharmaceutical Association told Sputnik on Tuesday. Before March 6, only those living within 20 kilometers (12 miles) from nuclear sites were entitled to receive the medication free of charge.

As SputnikNews reports, Belgium’s neighbors, Germany and the Netherlands, are concerned over the safety of the kingdom’s ageing nuclear reactors.

In 2016, Germany requested Belgium to shut down its two reactors because of defects found in their pressure vessels, but the kingdom refused. In September 2017, citizens of Aachen, a western German city located 70 kilometers (43 miles) away from the Belgian Tihange, started getting free iodine tablets.

In 2016, the Netherlands started distributing the pills to people who lived within a 100-kilometre (62-mile) radius of the neighboring Dutch Borsselle and Belgian Doel plants.

So how would a population react to their government offering iodine pills – just in case… Fear, of course!

Scared people are not rational, they’ll buy virtually anything that promises to alleviate their fear. Every totalitarian, every proponent of curtailing freedom, knows this. It’s the equivalent of the smoking hot babe: fear sells government.

Not reassuring

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Italy Going Boom

Authored by Jeffrey Snyder via Alhambra Investment Partners,

There may come a time not too much further down the road when Brexit will have been not quite forgotten but placed into a second tier of European disintegration. In that top level, if it should continue, would reside all on its own Itexit. The Italians not the Britons will goad the question of the euro, and therefore the whole of the European experiment.

By now, the formula is a familiar one. If you are against tighter integration and European Union, then you are a fascist xenophobe, a racist of the first order. Rather than dissuade voters, this has, it appears, worked against those using the slurs who fervently hope to keep the experiment for much longer.

Complete vote tallies are not yet available, but by all accounts the Italians in heavy turnout voted heavily yesterday for anti-establishment, anti-euro parties. Though the Italian parliament could be in for a mess in the near future, euroskepticism and anti-establishment fever dominated to a much greater degree than anticipated (for yet another election). Even the mainstream commentary written ostensibly to describe what’s going on can’t refrain from locking out reality:

After establishment parties managed to contain populists in German, French and Dutch elections over the past twelve months, their defenses were overwhelmed in Italy as voters rebelled against two decades of lackluster economic growth and a surge in immigration. The upshot is a far more unpredictable partner for European leaders such as Angela Merkel and Emmanuel Macron as they face the U.S. threat of a trade war while trying to reform the bloc.

This Bloomberg article (predictably) distills Italian economic angst as “two decades of lackluster economic growth” for the transparent purposes of delegitimizing voter dissatisfaction. A more honest paragraph would have been, “It’s been bad for twenty years, why are they now rebelling? Immigrants.” It wouldn’t have been any more true, just stripped of its obvious bias and the misanthropic intentions behind it.

It is technically true that Italy’s economy has been one of the more chronic underperformers, and yet it still can also be the case where that underperformance has changed. Up until 2008 or so, Italians may have been characterized as if not satisfied then at least apathetic about the lackluster nature of their economy under the euro. I don’t think that’s actually true, however, as the EU itself was popular in that country up until the worldwide “dollar” panic.

What explains the revolt now is the recovery from that panic; or the lack thereof. As I’ve written before, the dynamic becomes explosive simply because the Italians, like Americans and everyone else, have been told repeatedly that their economy has not just recovered but recently it is booming. For many, it might be.

That’s not the issue, however, as in any economy there are always proportions doing well and those not doing well. When far too many reside, and stay, in the former, that’s where trouble starts. And when those people left out of whatever economy hear repeatedly that things are really good and they can’t find exactly where that may be, mistrust and blame are surely the only guaranteed results.

The irrational fear of robots is of the same predicament. In not being given any candid answers, people will make up their own minds as to why they can’t seem to experience these boom times. Immigration is a similar if more complex issue (we have to take into account social as well as economic factors).

But even that general review understates the severity of the problem to a considerable extent. Even those who are employed, which is significantly less in Italy as a proportion of the population, they aren’t making much if any progress, either. This lack of opportunity can and does become palpable, a frustration that must be met with honest assessment but in this lost decade rarely if ever is.

Economists don’t countenance anything but recovery. It doesn’t matter how much evidence is stacked up against it, they will claim it’s there, or if pressed that it will be here tomorrow.

This view starts with a conclusion and then seeks evidence for it. The technocracy is defended at all costs, even when it’s most striking feature is its total incompetence. In July of 2012, Mario Draghi promised to “do whatever it takes” to preserve the currency, and thus in political terms to keep the integration dream alive.

Most people saw it as a noble gesture, the hard-pressed efforts of a committed statesman to help out the ordinary folks of Europe suffering under financial repression for reasons they couldn’t understand. These people should have instead heard Mario Draghi for what he was, an utterly confused near lunatic:

The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now — and I think people ask “how come?”– probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis.

Like his predecessor Jean-Claude Trichet or Ben Bernanke, his counterpart at the Federal Reserve in the US, Mario Draghi has no idea what happened in 2008, or, for that matter, what happened again in 2011. His central bank like all central banks is trying to fix a problem they can’t understand, and the effect of doing so is that nothing ever gets fixed.

People might be understandably upset by that fact. It doesn’t take much to acknowledge that these voters might have a case, legitimate criticisms that have nothing whatsoever to do with the darker side of Europe’s tragic history. Economics, however, is the most fragile discipline perhaps ever invented; it prevents even a modicum of honest introspection, largely because it is more of a political force (farce) than a scientific one.

Nowhere is that more evident than in Europe. The risk to the European political situation is not really all that complex. It is easily attributed to the one thing nobody is allowed to question:

The threat to the euro is today greater than it was in 2012, and for that Draghi has completely failed. It comes not in Target II imbalances and Greek default penalties, but in political upheaval tied directly to what it is that Mario Draghi can’t seem to figure out. He can promise all he wants, but Europe’s fate will not be determined by his euro.

It’s recovery or bust for Europe, the same choices as are being faced around the rest of the world for the very same prolonged stagnation. In China, as noted earlier, they are moving in preparation, it appears, for the bust. European voters might seem as irrational, but only if you think the euro was and is like a bumblebee in the capable hands of the brilliant technocratic beekeepers.

It hasn’t been two decades of economic problems, just the last one has been more than enough to turn Italy against that which it once enthusiastically embraced. The breakup began in monetary destruction, nurtured by mistake after mistake, and now moves ever closer to completion drawn forward upon technocratic uselessness covered only by political shrillness. Are we really supposed to wonder why it hasn’t been a winning formula at the ballot box?

If anything, I think Italians, the British, Americans, etc., have until recently all shown remarkable restraint. They gave the technocrats the benefit of the doubt time and again, with dubious policies and experiments and then promises that haven’t come close to being kept. Ten years is a long, long time for nothing being accomplished. That’s really all there is to it. It’s just that simple. 

You want to save Europe? You can start by ending all this blatantly dishonest boom nonsense.

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