Category: zerohedge

“Investors are coming to terms with the idea that the Fed will keep raising rates because of inflation and economic pressures,” says Guggenheim Partners’ Global CIO Scott Minerd, adding “the market is finally getting the joke… moving from complacency about The Fed to a realization that it may be behind the curve.”

Via Guggenheim Partners,

The last two weeks have been pretty exciting, certainly a lot more interesting than anything we’ve been through over the last year. Given the recent market dislocation, there is a basis to rebalance portfolios and do trades to take advantage of relative repricing. At a macro level, it should not surprise anyone that rates have begun to rise—we have been talking about the Federal Reserve (Fed) tightening, we have been talking about how the Fed is behind the curve, how the market has not believed the Fed, and that someday this was going to have to get resolved, probably by the market having to adjust to the Fed’s statements. The market has now gotten the joke. I still don’t think the yield curve is accurately priced, but it is a lot closer today than where it was at the beginning of the year.

The concern, as I explained in A Time for Courage, is that now the market is moving from complacency—where it really did not believe the Fed was going to do what it said it was going to do—to a time when it has begun to realize that the Fed may be behind the curve. The market is now coming to believe that the Fed is not going to make three rate increases this year, it is going to make four. And so, rates start to rise and the whole proposition that the valuation of risk assets is based upon, which is faith in ultra-low rates and continued central bank liquidity, comes into question. As markets lose confidence in that view, investors have started to rearrange the deck chairs by repositioning portfolios.

Anytime we see strength in economic data, we are going to see upward pressure on rates. Upward pressure on rates is going to result in concern over the value of risk assets, and we are going to have a selloff in equity markets, or the junk bond market, or both. Credit spreads will widen. The reality of the situation, however, is that the amount of fiscal stimulus in the pipeline, the U.S. economy fast approaching full employment, the economic bounceback in Europe, and the pickup in momentum in Japan and in China are all real. Against this backdrop, even a harsh selloff in risk assets is not going to derail the expansion.

The Fed knows this, and for that reason the Fed is shrugging its shoulders and saying, “Okay, we don’t have a mandate around risk assets, but we do have a mandate about price stability and full employment. And it looks like we’re at full employment or beyond full employment, and the thing that seems to be at risk now is price stability. We’ve got to raise rates.”

What does that mean for investors? Markets are engaged in a tug of war between higher bond yields and the stock market. In the near term, the two markets will act as governors on each other: Higher bond yields will drive down stock prices, and lower stock prices will cause bond yields to stop rising and to fall.

An analogue to today may be 1987.

That year began against the backdrop of 1985/1986, which had seen a collapse in energy prices. In 1986 oil prices were very low, and concerns around inflation had diminished. The Federal Reserve had dragged its feet on raising rates. As we entered 1987, in the first few months of the year the stock market took off. By the time we got to March, stocks were up 20 percent. In April there was a hard correction of approximately 10 percent. As fear overtook greed, market participants became cautious on stocks. Going into that summer the stock market rallied another 21 percent from the April lows. By August we were at record highs; interest rates started to move up; the Federal Reserve was raising rates; the dollar was under pressure; and there were increasing concerns over inflation. The concern was the Fed was behind the curve as it accelerated rate increases. By October things were becoming unhinged. Bond yields had risen in the face of an extended bull market in stocks. The market reached a tipping point and began its infamous slide. By the time we got to the end of the year, the stock market for the year was up just 2 percent. That was the stock market crash of 1987, which wiped out about a third of the value of equities in the course of a few weeks.

Today, investors have the same sorts of concerns they had in 1987.

For now, the market has gotten a reprieve. Soon, investors will start to have confidence in risk assets again. Risk assets like stocks will start to take off. Eventually, the perception will be that the Fed is falling behind the curve because inflation and economic pressures will continue to mount. Eventually the Fed will acknowledge that three rate hikes will not be enough, but it is going to raise rates four times in 2018, and market speculation will increase that there may be a need for five or six rate hikes. That will be the straw that breaks the camel’s back.

This is a highly plausible scenario for this year, but who knows how these things play out in the end. The reality today is that the economy is strong, interest rates are rising, and equities look fairly cheap. The Fed model right now would tell you the market multiple should be 34 times earnings. That is just fair value, not overvalued. And based on current earnings estimates for the S&P this year, the market multiple is closer to 17 times earnings. If stocks go down by 10 percent, the market multiple would drop to 15 times earnings. This would be getting into the realm of where value stocks trade. If there were a 20 percent selloff, you’re at a 14 times multiple. These market multiples don’t make sense. Markets do not price at 14 times earnings in an accelerating economic expansion with low inflation.

I found it interesting that as the 10-year Treasury note started to approach 3 percent the world went into a panic. It is easy to see what happens to the yield curve as the Fed tightens. A few weeks ago the 2s/10s curve was around 50 basis points; today it is at 74. You can see in the nearby chart the downtrend over the last three years in 2s/10s and 2s/30s curves. We had moved so far away from trend that a temporary steepening was to be expected. These spreads have stabilized, which means we could very well be back to the flattening trade. But if these spreads blow out further and the curve continues to steepen, then we have to start thinking that maybe there is something more seriously wrong in a reflationary sense.

Nevertheless, the Fed has made it clear that it is not going to let inflation take off. The Fed is going to continue to tighten, and as the Fed continues to tighten it’s going to continue to put flattening pressure on the curve.

The Fed is due to tighten again on March 21. At that time we will get some clues as to whether it is their view to become cautious or reinforce their inflation-fighting commitment. We are at a very interesting juncture in the market, and it can be very nerve-wracking. If you think of this as a crisis, then I always am reminded of the two Chinese characters for crisis, the first meaning danger, the second meaning opportunity. There is danger here, but there is also a lot of opportunity, and that is why it is a time for courage.

via Zero Hedge http://ift.tt/2EIX0Fy Tyler Durden

The struggle between the South Korean Ministry of Finance and Ministry of Justice over the future of cryptocurrency regulation – a debate that mostly played out during December and January – terrified crypto traders who feared the South Korean government was on the verge of – wittingly or unwittingly – devastating the market.

Headlines about a pending ban in South Korea helped drive the bitcoin price more than 60% lower in January – its largest monthly drop in years – but now that the debate has been settled, the price has been steadily climbing again, breaking above $11,500 earlier today…

…having nearly doubled off the mystery dip-buyer lows…

But in a shocking development that’s almost guaranteed to contribute to speculation about whether any foul play was involved, the Wall Street Journal reports  that one of the country’s top crypto regulators was found dead Tuesday.

While some speculated that the cause of death was a heart attack, the official statement – so far – is that the cause of death remains”unknown.”

Semiofficial news agency Yonhap reported that Mr. Jung was presumed to have suffered a heart attack and police had opened an investigation into the cause of death. Yonhap also reported that Mr. Jung was found at home. The government spokesman said later that “he died from some unknown cause. He passed away while he was sleeping and [his] heart [had] already stopped beating when he was found dead.”

His death comes barely a month after the country’s regulators appeared to settle on a suitable regulatory framework: Crypto exchanges and banks will soon be required to collect customers’ names and information.

The meteoric rise in bitcoin concerned South Korean Prime Minister Lee Nak-yon, who warned late last year that rising interest in cryptocurrencies could “lead to some serious distorted or pathological phenomenon.”

The dead regulator ran a government economics office that was responsible for South Korea’s legislative framework for bitcoin:

A South Korean official who guided Seoul’s regulatory clampdown on cryptocurrencies was found dead on Sunday, according to a government spokesman.

Jung Ki-joon, 52, was head of economic policy at the Office for Government Policy Coordination. He helped coordinate efforts to create new legislation aimed at suppressing cryptocurrency speculation and illicit activity, the spokesman said.

Semiofficial news agency Yonhap reported that Mr. Jung was presumed to have suffered a heart attack and police had opened an investigation into the cause of death. Yonhap also reported that Mr. Jung was found at home. The government spokesman said later that “he died from some unknown cause. He passed away while he was sleeping and [his] heart [had] already stopped beating when he was found dead.”

Coincidentally, a different regulator, Choe Heungsik, governor of Financial Supervisory Service, said Tuesday that he wants to see “normal” trading in cryptocurrencies and FSS will “actively” support it. In addition to registering accounts, the country is also seeking to develop a suitable anti-money laundering framework.

Jung’s colleagues said he had been under heavy stress in recent months as South Korea worked to tackle cryptocurrency speculation. There’s no indication that foul play was involved.

According to CryptoCompare, about 4.5% of all bitcoin transactions world-wide last year used the South Korean won, making it the most widely used fiat currency in bitcoin trading after the dollar, the yen and the euro. Bitcoin prices in South Korea are sometimes up to 50% higher than on other exchanges – a phenomenon bitcoin traders have termed “the kimchi premium”.

via Zero Hedge http://ift.tt/2FfWwUb Tyler Durden

Walmart stock tumbled after reporting Q4 non-GAAP EPS of $1.33 (GAAP was $0.73), missing consensus est. of $1.37 if more than $1.22 a year ago, largely thanks to the company’s plunging tax rate (Q4 at 21.6%, down 9.2%) on revenue of $136.3BN, also above the est. of $134.83BN, up 4.1% from the $130.9BN a year earlier (the number includes $1.12BN from membership and other income, down 5.8% y/y). For the full fiscal year 2018, total revenue was $500.3 billion, an increase of $14.5 billion, or 3.0%.

More disappointing was Walmart’s Q4 gross profit, which declined 61bps to 24.1%, even as the company’s effective tax rate tumbled 917bps to 20.3%.  Furthermore, gross merchandise volume (a measure of all the goods it sells online) rose 24% in 4Q vs 54% in 3Q;

But the biggest disappointment to investors is that despite reporting stronger than expected US comp sales of 2.6%, beating expectations of 2.0%, Walmart guided full year 2019 EPS of $4.75-$5.00, well below the consensus estimate of $5.13.

Also disappointing was Walmart slower Q4 eCommerce sales, which rose only 23% in Q4, down from an average of 50% in the last three quarters. Walmart has been aggressively investing in its eCommerce business to catch up with Amazon, and the efforts had generally paid off until the current slowdown, even if online shopping still makes up only about 4% of the company’s nearly $500bn in annual sales. Looking ahead, the company hopes that eCommerce sales growth will revert back to “approximately 40%.”

Some more details on the fourth quarter ended Jan 31:

• Walmart U.S. comps. ex-fuel up 2.6%, est. up 2.0%; forecast up 1.5%-2.0%
  • Wal-Mart U.S. traffic up 1.6% y/y, avg ticket up 1.0%
  • Wal-Mart U.S. E-commerce sales up 23% y/y, GMV up 24%
• Sam’s Club comps. ex-fuel up 2.4%, est. up 1.9% (CM, avg of 19); co. saw up 1.5%-2%
• Sam’s Club traffic up 4.3%, avg ticket down -1.9%

Commeting on the results, WMT CEO Doug McMillon said that “we have good momentum in the business with solid sales growth across Walmart U.S., Sam’s Club and International. We’re making real progress putting our unique assets to work to serve customers in all the ways they want to shop, and I want to thank our associates for their great work this past year. We’re making decisions to position the business for success and investing to win with customers and shareholders.”

But what investors were far more focused on was Walmart’s disappointing guidance, which as noted above, sees year adj. EPS $4.75-$5.00 (reflects effective tax rate 24%-26%, excluding benefit of ~5c from currency), versus a Wall Street est. of $5.13. The company also sees FY19 Walmart US comp. sales growth ex-fuel of at least 2%, Sam’s Club (ex-fuel & tobacco) up 3%-4%.

Other guidance details:

• Expect to slightly leverage expenses on a consolidated basis
• Consolidated operating margin (% of sales): approximately 4.3% – 4.4% in constant currency
• Capital expenditures: approximately $11.0 billion
• Effective tax rate: between 24% and 26%

Walmart also sees year net sales growth in constant currency of 1.5%-2.0%, hurt by:

• Sam’s Club closures, decision to remove tobacco from certain clubs
• Decision to wind down first-party eCommerce business in Brazil, divestiture of Suburbia

Another major red flag was that Walmart uncharacteristically did not provide 1Q comp. sales targets.

In light of the poor guidance, despite the sharp tax rate drop, the market was not happy, and send WMT stock over 4% lower in premarket trading.

Finally, the WMT weakness has spilled over into Target, which is also indicated lower at after Walmart forecast year adjusted EPS below estimates and did not provide 1Q comp. sales targets. Also, in another hit to Target, AMZN earlier announced that Amazon Rewards Visa Cardmembers will now get 5% back on all Amazon.com purchases (equal to TGT’s REDCard reward), 2% back at restaurants, gas stations and drugstores, and 1% back on all other purchases.

Source: WMT

via Zero Hedge http://ift.tt/2ohVBvx Tyler Durden

After a week in which stock-trading abruptly algos decided that rising yields are irrelevant at worst, and at best positive for equities, the correlation has again flipped overnight sending Asian shares lower and European share erasing earlier gains as bonds fell around the globe, with the 2Y Treasury yield rising 3bps to 2.23% – highest since September 2008 – and the 10Y briefly as high as 2.93%…

… ahead of this week’s “monster issuance” of $258 billion  in TSY bills and notes…

… which in turn has sent the recently beaten down dollar higher for the third day in a row…

… and pushed S&P futures sharply lower for the second consecutive day, as the VIX is above over 21 as of 6am ET.

Europe’s main bourses saw a steady start as lower domestic currencies helped their cause, although early gains were quickly faded amid declines in auto and banking, but weakness across Asia where Tokyo and South Korea saw drops more than 1%, meant MSCI’s 47-country world share index was 0.2 percent in the red.

European equities trimmed initial gains (Eurostoxx 50 flat) to trade with little in the way of firm direction ahead of the US return to market. The FSTE 100 lagged peers (-0.4%) after disappointing earnings from index heavyweights HSBC (-4%) and BHP Billiton (-4%), dampening sentiment for UK stocks and the former leading to underperformance in the financial sector. Other individual movers include Hikma Pharmaceuticals (+9%) after appointing their new CEO, Fidessa (+21.4%) are also seen higher after reports that Swiss-listed Temenos (-6.8%) are to make an offer for the Co., while Intercontinental Hotels (-3.9%) have faced selling pressure this morning following a lacklustre earnings update.

MSCI Asia Pacific index declines for first time in seven days. The Hang Seng index slipped after HSBC profits missed; H-shares erase most losses after falling as much as 1.9%. n. In Australia, the ASX 200 came under pressure from material and financial names, with many of the large banks reversing the prior days gains. Over in Japan, the Nikkei (-1.0%) had tripped through 22,000 amid softness in tech names. The Hang Seng (-0.8%) reopened for the first time since last week, however initial gains had been short-lived.

But all attention today will be on the bond market, where as Bloomberg notes, debt investors are trading with caution as Treasury markets reopened after the Presidents’ Day break as the VIX jumped to its highest level in five sessions. As reported yesterday, Treasuries are under pressure ahead of what Bloomberg has dubbed “monster debt supply” in which the U.S. gets set to sale a record amount of debt with three days of auctions today totaling $258 billion. And while speculators are turning bearish – rapidly covering net short bets across the curve but mostly in the 2Y…

… money managers are looking at the highest U.S. yields in years as a buying opportunity in a world where shorter-term Japanese and German notes still carry negative yields.

“I just advise caution,” said Principal Global Investors’ chief global economist Bob Baur said about stocks as Wall Street futures also pointed lower. “I‘m not sure whether this (early February sell-off) was the dip to buy, there will probably be a relapse and then another relapse, before maybe around mid-summer stocks make another run up.”

European bond yields pushed up too, with traders also working through the options of who could succeed Mario Draghi as European Central Bank chief next year after Spain’s economy minister was nominated for the bank’s number two job.

In other news, BOJ governor Haruhiko Kuroda didn’t discuss monetary policy during an appearance in parliament today. Speculation has been swirling about the possibility the BOJ is scaling back its stimulus since the central bank reduced its purchases of government bonds in January.

The UK is said to have a secret plan to withhold Brexit payments if the EU refuses to provide the UK with a desirable trade deal. Elsewhere, according to a letter seen last week, Netherlands government has linked its decision to activate hard Brexit plan amid a lack of clarity from the UK.

Echoing China, the German Economy Minister says the EU will respond appropriately if the US puts a tariff on European steel imports.

Speaking of Germany, it reported mixed February ZEw numbers: German ZEW Economic Sentiment (Feb) 17.8 vs. Exp. 16.5 (Prev. 20.4); German ZEW Current Conditions (Feb) 92.3 vs. Exp. 93.9 (Prev. 95.2)

South Africa’s rand and Turkey’s lira both gave back more of their recent gains, while growing concerns about the previously reported alleged fraud at India’s second-largest state-run bank sent the rupee skidding to a near three-month low: “Punjab National Bank will need to provide for at least a substantial portion of the exposure. As a result, the bank’s profitability will likely come under pressure,” rating agency Moody’s said as it put it on a downgrade warning.

In commodity markets, Oil prices were mixed, with reduced flows from Canada pushing up U.S. crude while Brent sagged $65.45 per barrel on the back of weaker Asian stocks and the dollar’s bounce. Spot gold slipped 0.4 percent to 1,341.06 an ounce, also corseted by the dollar’s bounce, while industrial metals including copper drifted lower for a second day in a thinner-than-usual trading due to new year holidays in China.

Bitcoin broke above $11,500, almost double its intraday low from just two weeks ago.

Bulletin Headline Summary from RanSquawk

• European equities have trimmed initial gains (Eurostoxx 50 flat) to trade with little in the way of firm direction ahead of the US return to market
• EU Parliament is to call for Britain to have privileged single market access after Brexit, according to Business
• Insider
• Looking ahead, highlights include US supply, WalMart earnings

Market Snapshot

• S&P 500 futures down 0.6% to 2,719.50
• STOXX Europe 600 up 0.1% to 378.63
• MSCI Asia Pacific down 0.9% to 176.50
• MSCI Asia Pacific ex Japan down 0.5% to 575.76
• Nikkei down 1% to 21,925.10
• Topix down 0.7% to 1,762.45
• Hang Seng Index down 0.8% to 30,873.63
• Shanghai Composite up 0.5% to 3,199.16
• Sensex down 0.09% to 33,745.75
• Australia S&P/ASX 200 down 0.01% to 5,940.85
• Kospi down 1.1% to 2,415.12
• German 10Y yield rose 2.0 bps to 0.755%
• Euro down 0.4% to $1.2355
• Brent Futures down 0.6% to $65.28/bbl
• Italian 10Y yield rose 5.6 bps to 1.773%
• Spanish 10Y yield fell 0.3 bps to 1.508%
• Brent Futures down 0.6% to $65.28/bbl
• Gold spot down 0.7% to $1,337.27
• U.S. Dollar Index up 0.6% to 89.60

Top Overnight News

• Latvia will seek to prevent ECB Governing Council member Ilmars Rimsevics from returning to his post after he was caught up in a bribery probe that’s rocked the Baltic nation, the country’s prime minister said in an interview
• Treasuries are about to reach a turning point, with the trend toward a flatter yield curve poised to end in the next few months, says Akira Takei, a fund manager at Asset Management One
• Chancellor Angela Merkel sent a strong signal in the debate over her preferred successor as German leader by appointing close ally Annegret Kramp-Karrenbauer as general secretary of her Christian Democratic Union party
• Prime Minister Theresa May’s team is eyeing up a contingency plan to hold back billions of pounds in Brexit payments, if the European Union refuses to give the U.K. the trade deal it wants
• Brexit Secretary David Davis will reassure the European Union that the U.K. won’t try to undercut the bloc by tearing up regulations after the split, making the case for mutual trust between regulators on each side
• Spain’s Economy Minister Luis de Guindos won the backing of euro-area finance ministers late Monday to replace ECB Vice President Vitor Constancio; some economists reckon he may side with the more optimistic governors on the council, who have long been pushing for an end to quantitative easing, while at the same time being mostly consensus-oriented
• Australia’s central bank reiterated that inflation is expected to “only gradually” accelerate as the economy strengthens and wage pressures increase, in minutes of this month’s policy meeting

Asian equity markets are somewhat fragile, with major Asian bourses off to a weaker start. US markets were closed for President’s day and as such, Asian participants took the cue from European equities which slipped in yesterday’s session. In Australia, the ASX 200 (flat) has come under pressure from material and financial names, with many of the large banks reversing the prior days gains. Over in Japan, the Nikkei (-1.0%) had tripped through 22,000 amid softness in tech names. The Hang Seng (-0.8%) reopened for the first time since last week, however initial gains had been short-lived, with the index conforming to the sombre tone. JGBs are flat in thin-trade, March futures contract down 2 ticks and hovering near yesterday’s levels. USTs off by 6+ ticks with yields continuing to pick up, 2yr yields now at the highest since Sep’08 after hitting 2.22%, while the US curve is also flattening this morning. The RBA meeting minutes failed to provide any fireworks with the central bank sticking with its neutral tone. As such, AUD had been largely unmoved post the release of the minutes and instead focus will fall on the wage price index due out tomorrow. RBA February minutes states that low rates are helping reduce unemployment and lift inflation, additionally rising AUD would impede pickup in economic growth and inflation, however AUD TWI is still within narrow range of past couple of years.

Top Asian News

• Espenilla Says Philippine Rate Hike on Table But Data Dependent
• India Is Said to Tighten Approvals for Offshore Borrowing
• Bitcoin Rises as South Korea Talks ‘Active’ Support for Trading
• BHP Falls as Much as 3.8% in London After Adj Profit Misses Ests
• Toyota Readies Cheaper Electric Motor by Halving Rare Earth Use

European equities have trimmed initial gains (Eurostoxx 50 flat) to trade with little in the way of firm direction ahead of the US return to market. The FSTE 100 modestly lags its peers (-0.4%) after disappointing earnings from index heavyweights HSBC (-4%) and BHP Billiton (-4%), dampening sentiment for UK stocks and the former leading to underperformance in the financial sector. Other individual movers include Hikma Pharmaceuticals (+9%) after appointing their new CEO, Fidessa (+21.4%) are also seen higher after reports that Swiss-listed Temenos (-6.8%) are to make an offer for the Co., while Intercontinental Hotels (-3.9%) have faced selling pressure this morning following a lacklustre earnings update.

Top European News

• Gulliver Ends HSBC Tenure With Rare Profit Miss on Margins
• U.K. Has Plan to Halt Brexit Cash If EU Backslides on Trade Deal
• Morgan Stanley Says Stock Slide Was Just Appetizer for Real Deal
• Oil Holds Momentum That’s Driven by OPEC’s Promise to Re- Balance
• A Diversified Portfolio May Not Help Investors Much This Year

In FX, the DXY has now rebounded above 89.500, and on broad-based gains vs G10 rivals, albeit mainly inspired by another round of short covering. A major French bank notes that the market remains very short of Dollars (in line with latest weekly CFTC spec positioning data) and modestly long Jpy and moves in the headline pairing off last week’s circa 105.55 low support the rebalancing theory as spot trades back over 107.00. 107.32 offers eyed next, and as a recap this level now forms resistance rather than support on the way down as the 2017 low. Similar price moves elsewhere, as Eur/Usd recoils further from recent peaks and briefly testing bids at 1.2350 with small stops just below, but not challenging key Fib support at 1.2319. Cable briefly reclaimed the 1.4000 handle after reports in Business Insider suggested that the EU Parliament is to call for Britain to have privileged single market access after Brexit. Usd/Chf now inching closer to 0.9350 and Usd/Cad just shy of 1.2600 amidst the ongoing Greenback recovery, while Aud/Usd is retesting 0.7900 on the downside with little direction gleaned from RBA minutes overnight, but key data to come
tomorrow (wage growth). Nzd/Usd straddling 0.7350, with strong chart support around 0.7338.

In commodities, WTI and Brent crude futures are seen higher albeit off best levels as the firmer USD caps gains; WTI holds above the USD 62.00bbl level (note the weekly API inventories will be released tomorrow, not today due to   yesterday’s US market holiday). In terms of energy news flow, the Joint OPEC/non-OPEC Technical Committee concluded that the oil glut is dissipating at a faster pace than anticipated, according to sources. Additionally, UAE energy minister claims OPEC and allies are to continue oil cooperation beyond 2018 and notes UAE, Saudi Arabia and Russia all support an extension cut beyond 2018. In metals markets, spot gold trades lower alongside the aforementioned firmer USD while copper prices have seen little in the way of firm direction as Chinese participants remain away from market. UAE Energy Minister says the UAE is expected to over-deliver on production cuts in Q1 due to maintenance commitment with OPEC-led pact.

Global Event Calendar

• Mexico Citibanamex Survey of Economists
• 8:30am: Canada Wholesale Trade Sales MoM, Dec., est. 0.4%, prior 0.7%
• 10am: Mexico International Reserves Weekly, Feb. 16, no est., prior 173b

Bond Auctions:

• 11:30am: U.S. to Sell USD51 Bln 3-Month Bills
• 11:30am: U.S. to Sell USD45 Bln 6-Month Bills
• 1pm: U.S. to Sell USD55 Bln 4-Week Bills
• 1pm: U.S. to Sell USD28 Bln 2-Year Notes

DB’s Jim Reid concludes the overnight wrap

With Chinese New Year holidays and President’s Day in the US, yesterday was always going to be quiet and we weren’t disappointed on this. It was a far cry from two weeks ago last night when we saw the largest single day spike in the VIX on record and a 1000 point move on the DOW in c20 minutes towards the end of the session. In reality the market has regained its poise very impressively since. For the markets that were open yesterday, it was generally a down day  though. The Stoxx 600 fell for the first time in four days (-0.63%), but trading volume was thin and at roughly half the 30 day average. Within the Stoxx, losses were led by the health care, consumer and real estate sector, with Reckitt  Benckiser down 7.5% after warning pricing pressures would continue to hit margins. Across the region, the DAX (-0.53%) and FTSE (-0.64%) also fell modestly while Italy’s FTSE MIB was the relative laggard at -1.0%. The Vstoxx rose for the first time in six days, up 7.7% to 19.13.

Government bonds weakened with core 10y bond yields up 2-4bp (Bunds +2.8bp; Gilts +2bp), in part reversing Friday’s gains in the absence of material macro data. Key peripherals yields were also up 2-5bp, while Greek bonds outperformed with its 10y yields down 1.9bp after Fitch upgraded the country’s long term issuer rating from B- to B with a positive outlook retained. Post the change, Fitch’s rating is now in line with S&P’s. In FX, the US dollar index was marginally higher (+0.13%) while the Euro was broadly flat and Sterling fell 0.19%. In commodities, WTI oil was up 1.33% to $62.50/bbl while precious metals were little changed (Gold -0.04%; Silver +0.18%).

This morning in Asia, markets are broadly lower with the Nikkei down for the first time in four days (-1.06%), while the Kospi (-1.27%) and Hang Seng (-0.37%) are also lower, as the latter pared back earlier gains as trading resumed post the New Year holidays. The UST 10y yield is up 2bp and S&P index futures are down c0.3% this morning.

Back in Europe, finance ministers have nominated the Spanish Economy Minister Luis de Guindos to be the next Vice President of the ECB to replace Mr Constancio. The decision puts Spain back on the ECB’s executive board after a six year absence. Mr de Guindos will resign from his existing post within days and said he is “pragmatic” rather than a dove / hawk when it comes to monetary policy and will always defend the ECB’s independence. Looking ahead, he will face a hearing at the EU Parliament and then EU leaders will ratify his appointment at their summit on March 22. Elsewhere, Germany’s acting Finance Minister Peter Altmaier said Mr de Guindos would be an “excellent choice” for the role.

Staying with the ECB, the latest QE purchases data was released yesterday. It was yet another very strong week for CSPP relative to PSPP which now leaves little doubt about the ECB’s intentions to keep the former elevated relative to the latter, given that we now have 6 full weeks of data since they halved the net flow of QE. The CSPP/PSPP ratio was 29.4% (27.3% over last 4 weeks). As a reminder, before Apr 2017 when QE was still €80bn/m the ratio was 11.5%.

Between Apr-Dec 2017 (QE €60bn/m) the ratio edged up to 12.7% but since Jan 2018 (QE €30bn/m) the ratio is now 25.5%. Indeed the strength of corporate vs. government purchases as proxied by the CSPP/PSPP ratio has so far surpassed our expectations of “roughly 20%”.

Staying in Europe, an interesting story yesterday as SPD members now start voting as to whether to enter a coalition with Mrs Merkel, was the one that suggested that the far right AfD party has overtaken the SPD in the polls for the first time. The Bild/INSA poll put them at 16% and 15.5% respectively against 12.6% and 20.5% at the election back in September. The fear from the SPD was always that a renewed collation agreement would lead to them seeing their popularity drop further but with stalemate elsewhere they were left with limited choice but to negotiate in the end. Are the electorate punishing them for their decision to enter talks or the fact that it took so long to do so? Either way, in our view the fact that far right in Germany are now second in the polls is fairly remarkable really.

Continuing with politics, ahead of the 4th March national election in Italy, DB’s Clemente De lucia noted that the risk of a hung parliament remains high, but it is a close call as the centre-right coalition is closing the gap to get an outright majority. If the elections prove to be inconclusive, Clemente expect the parties and institutions to work hard to form a grand coalition. Whatever the result of the elections, the fiscal stance will be in the spotlight after the vote. All parties are pledging significant expansionary policies. As things stands, Italy does not comply with EU fiscal rules and without some adjustments, Rome could be on a collision course with Brussels. With the gap between Rome and Brussels not significantly large, we expect a compromise to be reached. Refer to the note for more details.

Now turning to some of the Brexit headlines. The BOE governor Carney noted the transitional deal to be reached before the end of March “obviously won’t be a hard, legally binding agreement, but….something that has legal text associated with it, which will be part of the separation agreement, (then) that should be good enough”. Elsewhere, three unnamed senior British officials have told Bloomberg that the UK have a fall back option of withholding the £40bn divorce Brexit payments to ensure the EU agrees to the trade deal it wants. The former leader of PM May’s conservative party Iain Duncan Smith said “either the EU gives us a trade deal or they won’t get any money at all”. Finally, DB’s Oliver Harvey has assessed the suitability of a CETA (comprehensive economic and trade agreement) type deal between the UK and the EU and the implications for growth and markets. Overall, the team believes there are no workable alternatives for the UK to maintain close to present levels of trade with the EU27 in the current time frame outside of the EEA and a separate customs agreement. They expect this to be the ultimate destination of Brexit, but not before a political crisis. Refer to their note for more details.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. The February Rightmove index on asking prices for UK homes was above the prior month’s reading at 0.8% mom (vs. 0.7% previous) and 1.5% yoy (vs 1.1% previous). The Euro area’s current account surplus in December was below last month’s reading at €29.9bln (vs. €32.5bln previous) but the fullyear surplus rose to a new high of €392bn. In Asia, Japan’s Reuters’ Tankan manufacturers’ index fell 6pts to +29 in February (vs. the prior reading at an 11- year high), while the non-manufacturers index was steady at a solid level of +33.

Looking at the day ahead, the January PPI and the February ZEW survey are due in Germany. The February CBI selling prices data in the UK and the February consumer confidence print for the Euro area are also due in the afternoon. In terms of politics, the Social Democrats party in Germany will begin a two-week period for members to vote on the  proposed coalition pact.

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After delaying a public offering of Albertsons in 2015, Cerberus Capital Management wants a return on its investment, and the owner of 19 grocery chains, including Safeway, provided the first glimpse of how the company plans on achieving that goal – at an optimal price point, of course.

The Wall Street Journal reported Tuesday that Cerberus-owned Albertsons is buying the parts of Rite Aid that aren’t already being sold to Walgreens Boots Alliance.

The combined company, to be based in both Boise, Idaho, and Camp Hill, Pa., would operate approximately 4,900 stores and 4,300 pharmacies across 38 states and Washington, DC, with a heavy presence along the coasts. The company’s new name is to be determined upon the deal’s close, expected by the summer.

Walgreens had initially planned on a merger with Rite Aid, but dropped that deal over the summer in favor of buying more than 2,000 Rite Aid stores, or over half of the total.

Albertsons is considered something of an innovator in the world of e-commerce: While the company owns 2,300 stores, it acquired the Plated meal service last year, and is in the process of offering the popular boxes of pre-measured ingredients to millions of store customers.

And in a sign of the damage that Amazon has inflicted, the three largest US pharmacy chains are now all pursuing deals.

All three of the U.S.’s biggest pharmacy chains are now pursuing deals in a sign of the threats they face as customers increasingly shop online. CVS has agreed to buy health insurer Aetna Inc., and Walgreens, in addition to the scaled-back Rite Aid deal, is in talks to buy drug distributor AmerisourceBergen Corp. , The Wall Street Journal recently reported.

John Standley, Rite Aid’s CEO, will serve as the CEO of the combined company. The merger will help the company expand its food offerings to stand out from CVS Health Corp., Walgreens and Walmart. It will also expand Rite Aid’s e-commerce offerings.

“We know that scale matters,” said Bob Miller, Albertsons chief executive. “We continue to grow to compete with all competitors, not just Amazon.”

Standley is to serve as the new company’s CEO, while Miller would act as chairman. Speculation as to who would succeed the 73-year-old Albertsons CEO had mounted in recent years.

As WSJ points out, Amazon’s further push into grocery has caused supermarket stocks to tumble and prompted food retailers to search for deals in a sector known for razor-thin profits. A historic drop in food costs also hurt sales last year when it sparked a price war among grocers. Supermarket shoppers tend to be more loyal to a brand if they can buy their prescriptions with their food. Aside from owning pharmacies, Rite Aid also runs a benefits manager.

Once the deal is done, Cerberus will own 70% of the combined company, while the rest will be owned by Rite Aid shareholders.

via Zero Hedge http://ift.tt/2C6PCC0 Tyler Durden

President Trump cast his support for Mitt Romney’s run to fill Orrin Hatch’s soon-to-be vacated Senate seat in a Monday night tweet. 

“He will make a great Senator and worthy successor to @OrrinHatch, and has my full support and endorsement!” tweeted Trump (or whoever had his phone) on Monday evening.

.@MittRomney has announced he is running for the Senate from the wonderful State of Utah. He will make a great Senator and worthy successor to @OrrinHatch, and has my full support and endorsement!

— Donald J. Trump (@realDonaldTrump) February 20, 2018

Romney replied:

Thank you Mr. President for the support. I hope that over the course of the campaign I also earn the support and endorsement of the people of Utah.

— Mitt Romney (@MittRomney) February 20, 2018

Romney and Trump have a hate-hate relationship, notably trading barbs during the 2016 election, with Romney calling Trump a “phony” and a “fraud” to a crowed of nearly 700 at the University of Utah, and Trump calling Romney a disloyal “choke artist” and “failed candidate” who was eager for Trump’s endorsement during his unsuccessful 2012 Presidential bid. 

“You can see how loyal he is,” Trump said. “He was begging for my endorsement. I could’ve said, ‘Mitt, drop to your knees,’ and he would’ve dropped to his knees. He was begging. True. True. He was begging me.” –WaPo

After Trump won the election, he trolled Romney with the possibility of the Utah politician becoming Secretary of State – only to give the job to Exxon CEO Rex Tillerson.

Trolled:

More recently, Romney criticized Trump for his comments regarding the white supremacist rally in Charlottesville, VA, as well as the President’s endorsement of Alabama Senate candidate Roy More. Romney also spoke out against Trump’s alleged comment referring to Haiti and other African nations as “shithole countries.” 

Romney’s connection to the original Trump-Russia dossier

Before Hillary Clinton and the DNC paid Fusion GPS to assemble the infamous Trump-Russia dossier, Billionaire hedge fund manager Paul Singer – who donated $1 million to Romney’s Restore Our Future Super PAC, and manages a portion of Romney’s more than $200 million fortune – initially hired Fusion GPS for anti-Trump opposition research through his news organization, the Washington Free Beacon.

Of note, Singer’s Free Beacon was originally part of a 504(c)(4) tax-exempt organization called the Center for American Freedom – whose original board of directors included never-Trump neocon Bill Kristol. Kristol’s father, Irving, is known as the “godfather of neoconservatism,” and was a self-described “member in good standing of the Young People’s Socialist League,” which was, according to the Senior Kristol, “commonly; and correctly, designated as Trotskyist” (Excerpt from Memoires of a Trotskyist by Irving Kristol). For what it’s worth, Bernie Sanders was also a member of the YPSL.

From a November, 2017 interview with Deseret News, Kristol said the following of Trump and Romney:

Deseret News: As a conservative critical of President Trump, what would you say is the right way to fight or engage him?

Bill Kristol:  Recruit candidates and back them effectively and make the case for policies more along the Bush/McCain/Romney track.

As one can see, Romney deeply ingrained in the incestuous circle of neocon never-Trumpers who fought tooth and nail against his nomination, and have resisted Trump ever since he won. 

pic.twitter.com/CZwWgPEgZt

— thebradfordfile (@thebradfordfile) February 20, 2018

We’re sure Trump’s endorsement of Romney is part of a multi-dimensional board game of some sort. 

via Zero Hedge http://ift.tt/2Gu7WmI Tyler Durden

Authored by Damian Reilly via Medium.com,

The average age of a first time mum at London’s Chelsea and Westminster hospital is 37, a statistic that tells you everything you need to know about the choices supposedly affluent city dwellers are being forced to make in the capital. For the middle classes, the cost of living in London — the cost of getting by — long ago went past insane (£17,040: the cost per year of educating a four year-old child at Thomas’s school in Fulham, not including uniform). It’s the incredible price of property, of course, that’s been the engine driving this madness, ratcheting the pressure ever higher on Londoners who don’t own a home while making very wealthy, on paper at least, those who do.

For the last two decades and more, the capital’s property market to all intents and purposes has behaved like a giant Ponzi scheme played on a global scale. Money from all over the world has poured into London bricks, inflating values unrealistically in relation to wages, while the lavish bonuses paid to European bankers working in the City have also stoked momentum responsible for pushing up, for example, the average price of a London semi-detached house by 553 per cent between January 1995 and November 2017, from £133,820 to £873,603.

Over the same period, the average cost of a detached house in the capital went from £257,748 to £1,453,271.

At last, however, the party is over. London property prices, now still flailing cartoonishly in mid-air despite being well over the edge of a cliff, are at the start of what we can call, for want of a better term, a death plunge. Although the carnage is only just beginning in earnest, desperate homeowners looking to sell are already dropping asking prices by tens of thousands of pounds and more. They know the tide is going out quickly.

The reasons you would have to be clinically insane to buy property in London today are blessedly easy to understand. Describing a modern financial disaster normally requires some pretence of understanding, say, derivatives markets or the myriad immensely complex ways international banks package and trade debt. Not this time.

This time the four horsemen of the capital’s property apocalypse  –  Brexit, knackered oil prices, the threat of a socialist government and absolutely astonishing levels of personal debt  –  are so obvious and easy to see coming they might as well be arriving on bright red London buses.

1. Brexit is the most obvious factor frightening away potential buyers. Why would anyone purchase a property now in the capital when such an enormous and ominous question mark hangs in the sky? International investors keen to use London as a glamorous base from which to access European markets are understandably cautious — despite some misleadingly high profile 2017 Chinese investments into landmark London buildings — while the threat of a banker exodus is very real (property prices in Frankfurt are spiking as I type). According to the latest report by property data experts Molior London, sales of homes in the capital dropped by 20 percent in the last quarter of 2017. The report added some 15,000 recently completed luxury apartments remain unsold. For market watchers this is an amazing departure from the status quo, when London new builds were snapped up by global investors often before a brick had been laid.

2. The sustained low oil price is also very bad news for London property, chiefly because it means wealthy Arabs — traditionally big-time investors in the capital — are no longer so wealthy. Since Saudi Arabia went tonto on American shale producers in 2015, opening all the spigots to flood the market with cheap oil in an effort to drive them out of business, Gulf Arabs have had a lot fewer disposable petrodollars to put into Mayfair and Knightsbridge pied-a-terres. In fact, virtually all Gulf states are currently running heavy budget deficits, meaning there is significantly less cash washing about at the top of the London property market — bad news for property sellers down the ladder.

Dr Eckart Woertz, an expert in Gulf economies and senior researcher at the Barcelona Centre for International Affairs, explains: “The low oil price means there is less money to invest. In fact, most Gulf countries are now repatriating money. Look at Saudi Arabia — they have repatriated $200bn of their foreign reserves. The appetite to invest large-scale in London real estate by the big sovereign wealth funds and wealthy individuals is much reduced, which is unsurprising given the yields that are available.”

He adds the recent Riyadh Ritz sheikhdown by Saudi Arabia’s de facto ruler Mohammed bin Salman of 100 or so of the kingdom’s richest men has sent a powerful message to other wealthy Saudis considering investing abroad. “They cannot do it as much now — they cannot wire big amounts. I know someone who has set up a real estate development in a European capital… he has Saudi clients who are telling him they cannot get more than ten million dollars out of the country. Wiring money now raises suspicion.”

3. For those of us who would love to be worried about the difficulty of wiring ten million dollars, the prospect of Jeremy Corbyn waiting in the wings to become Britain’s next Prime Minister is a rather more relatable bad omen for London property values. Corbyn, who at the time of writing was priced at 3–1 to be Britain’s next leader, would head up a socialist government very different in outlook to the nakedly capitalist ones that have presided over the capital’s property boom. Corbyn, for example, has openly advocated large-scale “requisitioning” of homes owned and left empty by wealthy investors in order to give them to the poor. “It cannot be acceptable that in London you have luxury buildings and luxury flats kept as land banking for the future while the homeless and poor look for somewhere to live,” he has said. While undoubtedly a lovely sentiment, Jez, making state confiscation threats out loud isn’t great for shifting houses to minted foreigners.

4. And then there’s perhaps the most overlooked factor affecting the market: after years and years of being squeezed relentlessly, the indigenous London middle class, as it is in the wider UK, is largely skint. According to a recent survey by comparethemarket.com, a person in Britain is on average £8,000 in debt, not including mortgage repayments. Last June, the Bank of England announced UK unsecured consumer credit had gone over £200bn. It’s not all skagheads in tenement blocks running up these debts. Research has repeatedly found that more than a third of people using credit cards on a monthly basis to make ends meet earn between £50k and £70k a year. In London, where living costs are highest, the pain is felt as keenly, if not moreso, as it is anywhere else in the country. With interest rates expected to start rising in earnest this year, that pain can be expected to intensify horribly.

Over the coming months you will read and hear plenty of commentary from interested parties talking up the prospects for London’s property market. All of it will be bull.

London’s property market has not “plateaued”, nor has growth “cooled”. London property values are right now dropping like a stone and there is little to break the fall. Whisper it: 2018 will be the year smug Londoners finally stopped boring on about basement and loft conversions at smart dinner parties.

By the late summer, these same people will be weeping hot tears into cold gazpacho starters and moaning to anyone who’ll listen about negative equity. At long last, the crash has arrived.

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Venezuela just notched an important milestone in the brief history of the Bloomberg Misery Index: For the fourth year in a row, the Latin American socialist paradise was ranked the world’s “most miserable” economy, with a score on the misery index that’s more than three times as large as its score from 2017.

But this year, the rest of the countries atop the list of the most miserable will more closely resemble Venezuela as rising prices surpass unemployment as the greatest contributor to global misery, according to Bloomberg.

Shifts in ranking among the most miserable countries are illustrated in the chart below:

Perhaps the most notable move is South Africa. Cape Town, one of the country’s largest cities, is facing such a severe water shortage due to a severe drought that the city could essentially run out of water in less than 100 days. Meanwhile, the country’s ruling party finally forced out its deeply unpopular leader, former President Jacob Zuma, but disillusionment with the ANC, the country’s ruling party since the end of apartheid, continues to simmer.

Meanwhile, Thailand again claimed the “least miserable” spot, though the Thailand’s unique way of calculating unemployment (and the fact that the country’s fishing industry is facing international pressure over slave-like working conditions) makes No. 2 Singapore worth mentioning as an important also-ran. Mexico is becoming less miserable as an inflationary spiral driven by a weakening currency has largely subsided. Romania, meanwhile, is moving in the wrong direction on the miserable list as its economy struggles with rising inflation.

Overall, economists with the International Monetary Fund expect the global economy to expand by 3.7% year-on-year, while the world in 2018, matching last year’s pace that was the best since 2011.

In Venezuela, hyperinflation has left many economists throwing up their hands at the actual rate of price growth. Black-market currency rates have provided an angle on the numbers, while alternative measures have chased daily cost swings. A recent government slashing of grocery prices gave a brief reprieve to inflation, while the surveyed economists see it rising 1,864 percent this year.

Venezuela and Romania are examples of two countries that are heading in the wrong direction…

Some have not been so fortunate. In Venezuela, hyperinflation has left many economists throwing up their hands at the actual rate of price growth. Black-market currency rates have provided an angle on the numbers, while alternative measures have chased daily cost swings. A recent government slashing of grocery prices gave a brief reprieve to inflation, while the surveyed economists see it rising 1,864 percent this year.

It’s anyone’s guess: The International Monetary Fund’s latest estimate has that figure at 13,000 percent for this year after about 2,400 percent in 2017.

Romania also is heading in the wrong direction. Economists see a 3.3 percent inflation rate for 2018 after much more subdued price growth last year, pushing its misery down 16 notches, to No. 34. The National Bank of Romania is chasing inflation with interest-rate hikes, aiming to stay ahead of any overheating while growth surges on ballooning government spending.

…While Mexico’s dramatic improvement is also worth noting.

At the other end of the spectrum, Mexico makes the biggest progress this year, moving 16 notches toward “least miserable” as economists remain optimistic that the central bank will be able to tame last year’s bout of high inflation, bringing it to an average 4.1 percent this year after 6 percent in 2017. Unemployment is set to remain around 3.4 percent.

Two caveats here: Mexico’s jobless figures don’t take into account the 60 percent or so of workers who are in the informal economy. And despite this year’s improvement, consumer confidence remains in a funk and Nafta negotiations might not see a happy ending.

Here are some other notable factoids, courtesy of Bloomberg:

• Malaysia moves down the misery scale to No. 52 from No. 43 due to moderating inflation. The tepid price growth is allowing Bank Negara Malaysia to be patient with interest-rate hikes, even as they were first in the region this year to tighten this year
• Argentina, ranked at No. 3, belies a third year of improvement in its overall score, set to be the lowest since at least 2013, the year in which the IMF censured the country for covering up high inflation and when Bloomberg began calculating the data
• South Korea and Norway, which also happened to perform well in the Bloomberg 2018 Innovation Index at Nos. 1 and 15, broke into the top-10 least miserable
• Saudi Arabia, projected to make the biggest plunge from 2017 in its misery index number, climbs into the top 10 most-miserable economies
• The U.S. will see its misery score improve to 6.2 this year from 6.5 in 2017 even as inflation rises following years of persistently low price gains, and as the labor market continues to tighten
• China, the world’s second-largest economy, saw its misery score rise to 6.3 this year from 5.5 in 2017. Consumer prices are estimated to rise 2.3 percent this year, compared with 1.6 percent in 2017
• Asian economies are fortunate to escape the top 10 most miserable this year, which are otherwise geographically diverse with Europe, Latin America, and Africa almost equally represented.

 

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Authored by Alex Gorka via The Strategic Culture Foundation,

The NATO defense chiefs’ meeting on February 14-15 was mainly devoted to sharing the defense burden and other issues routinely discussed at any event. As usual, there were turgid speeches with opaque meaning to leave one guessing what’s really behind those nice words.

In fact, the alliance took two far-reaching decisions proving a clue to its plans for near future.

The ministers said yes to the creation of military Schengen to ease forces movements across the Old Continent. NATO is to do away with the cumbersome and lingering bureaucratic procedures hindering transportation of troops and hardware through territories of member states. One of the solutions is a standardized form used by European allies and partner states for granting permission for movements. Germany has offered to host the command center to implement the concept of free transit zone in view of its vast experience in providing logistical support.

It’s not red tape only. One thing leads to another. The military Schengen will inevitably result in additional expenditure to adapt the civilian infrastructure to military needs, upgrading roads, tunnels and bridges to enable hardware movements and heavy aircraft landings.

The decision is taken amid burgeoning preparations to boost military infrastructure near Russia’s borders. The fact that by signing the 1997 NATO-Russia Founding Act the bloc pledged not to deploy “substantial” ground forces on permanent basis close to Russia appears to be ignored and forgotten. With the document no longer valid, the bilateral military relationship will be deprived of any legal basis.

To augment the forces in East Europe, the Black Sea, the Baltics and the Scandinavian Peninsula the bloc needs new logistic hubs. Unobstructed large-scale transport movements become top priority for implementation of the war plans, such as concentrating combat-ready stocks for a full US brigade in Poland. So, the alliance is clearing the obstacles that hinder its ability to rapidly boost forward presence and concentrate forces for an attack.

The ministers announced another important decision using euphemisms to obfuscate the essence.

NATO agreed to launch an assist and train mission in Iraq, “establishing specialist military academies and schools.” According to Secretary General Jens Stoltenberg, the alliance’s priorities “in the South” include improving “the ability to react to future crises in the region, including with enhanced planning and exercise.” So, it’s not a pure training mission but rather a commitment to join the US campaign aimed at rolling back the Iran’s influence. The US cuts its forces in Iraq moving them to Afghanistan, where the situation is getting worse, and NATO is right here to fill the gap under the pretext of training and increased military aid. With military presence, which goes hand in hand with training missions, the alliance is on its way to prevent Iraq from falling into the Iran’s orbit and also reduce Russia’s influence in that country. Iraq is too important to be anything but pro-Western.

NATO is also lending the US a helping hand in Syria, the country viewed by Washington as a battlefield in the campaign to roll back Iran. French President Macron has just threatened to strike Syria if the information about the use of chemical weapons by its government is confirmed. The US has made it clear that it has no plans to leave or even reduce its presence in Syria after the defeat of the Islamic State. It will stay indefinitely. The purpose is to counter the threat from Iran. America has quietly launched a nation-building process in the Syrian territories under its control.

The ministers’ meeting of the multinational organization has expressed its readiness to dance to the US tune, confirming its commitment to raise defense expenditure up to 2% of GDP, spur military build-up in Europe, including the creation of two more commands, and join the US in its anti-Iran campaign in an attempt to remake the world in its own image. So, we have the same old song and dance with the alliance remaining in full saber-rattling mode.

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Romania’s commitment to increase its defense budget to the North Atlantic Treaty Organization (NATO) target of 2 percent of GDP has spurred the government to approve a $1 billion purchase of American-made M142 HIMARS (High Mobility Artillery Rocket System).

Defence Minister Mihai Fifor told Jane’s that the HIMARS system would “improve Romania’s national and allied defense capability” and emphasized that Romania’s commitment to the 2 percent of GDP target “for the next 10 years is strong”.

Prime Minister Viorica Dancila said, “We want those procurement programmes to also strengthen our defense industry based on offset arrangements where possible.”

Romanian Prime Minister @VioricaDancila said that the government decisions to purchase #HIMARS missile systems and multirole corvettes were important steps in improving the capability of the Romanian armed forces as a @NATO and EU member #defence pic.twitter.com/EEYk4Sk5MR

— Radio Romania International (@RRInternational) February 15, 2018

In September 2017, the U.S. State Department approved Romania’s application to acquire HIMARS and other support related-equipment totaling some $1.25 billion. According to Army Recognition, a global defense security technology publication describes the impressive list of what Romania will receive from the Pentagon:

The Government of Romania has requested the possible sale of fifty-four (54) High Mobility Artillery Rocket Systems (HIMARS) Launchers, eighty-one (81) Guided Multiple Launch Rocket Systems (GMLRS) M31A1 Unitary, eighty-one (81) Guided Multiple Launch Rocket Systems (GMLRS) M30A1 Alternative Warhead, and fifty-four (54) Army Tactical Missile Systems (ATACMS) M57 Unitary.

Also included with this request are: fifty-four (54) M1084A1P2 HIMARS Resupply Vehicles (RSVs) (5 ton, Medium Tactical Cargo Vehicle with Material Handling Equipment), fifty-four (54) M1095 MTV Cargo Trailer with RSV kit, and ten (10) M1089A1P2 FMTV Wreckers (5 Ton Medium Tactical Vehicle Wrecker with Winch), thirty (30) Low Cost Reduced Range (LCRR) practice rockets, support equipment, communications equipment, sensors, spare and repair parts, test sets, batteries, laptop computers, publications and technical data, facility design, training and training equipment, systems integration support, Quality Assurance Teams and a Technical Assistance Fielding Team, U.S. Government and contractor technical, engineering, and logistics support services, and other related elements of logistics and program support.

The M142 HIMARS carries six rockets, or one MGM-140 ATACMS missile mounted on a 6×6 Family of Medium Tactical Vehicles (FMTV) five-ton truck chassis. Lockheed Martin designed the HIMARS to be as small as possible, with the ability to ‘shoot-and-scoot.’

Army Recognition provides a summary of the military capabilities of the HIMARS system:

The HIMARS can carry a single six-pack of rockets or one ATACMS (Army Tactical Missile System) missile on the Army’s Family of Medium Tactical Vehicles (FMTV) 5-ton truck, and can launch the entire MLRS family of munitions. It was successfully combat-tested in Operation Iraqi Freedom.

The HIMARS can fire the full range of rockets and can launch the entire Multiple Launch Rocket System Family of Munitions (MFOM) to a maximum range of 40 km, including HE-FRAG (High-Explosive Fragmentation) and cluster. It also fires newly developed extended range guided munitions from a range of 60 to 100 km.

The ATACMS family includes the Block 1, Block 1A and Block 1A Unitary missiles. The block 1 missile delivers 950 anti-personnel anti-material (AP/AM) baseball-sized M74 sub-munitions to ranges exceeding 165 km. The block 1A missile range exceeds 300 km by reducing the sub-munition payload to 300 bomblets and adding GPS guidance.

The HIMARS fire control system, electronics and communications units are interchangeable with the existing MLRS M270A1 launcher, and the crew and training are the same.

In 2017, President Trump called out NATO allies for not meeting the 2 percent of GDP spending on their defense budgets. He stated that it is not fair for the U.S. taxpayer to be footing the bill for military defense spending for NATO members.

“Over the last eight years, the United States spent more on defense than all NATO countries combined. If all NATO members had spent just 2 percent of GDP on defense last year, we would have had another $119 billion for our collective defense,” Trump said.

“We should recognize that with these chronic underpayments and growing threats, even 2 percent of GDP is insufficient to close the gaps in modernizing, readiness and the size of forces. We have to make up for the many years lost,” he added.

As for Romania, well, it seems like they got the message from the Trump administration to spend money they do not have and buy a billion dollars worth of rocket launchers.

Nevertheless, this could turn out to be a good purchase considering the threat of war with Russia is at levels not seen since the Cold War era as countries in Eastern Europe are rapidly acquiring military-grade weapons for the fear the next world war could be sparked along the Russian border.

via Zero Hedge http://ift.tt/2CxgI0W Tyler Durden