Category: zerohedge

A dramatic video emerged over the weekend of a Tesla traveling on a highway in Taiwan, at what appears to be full speed, before slamming directly into an overturned truck that was laying across the highway. The Tesla appears to make little or no change in direction before hitting the truck. At one point, smoke can be seen coming out of the back tires of the vehicle, indicating that the Tesla may have tried to brake – but to no avail.

The Tesla was “presumably on Autopilot,” Inside EVs said. “Clearly, the car should’ve stopped itself here and you’d think this scenario would be among the easiest for a system such as Autopilot to detect and respond to, but that’s definitely not the case.”

The video of the incident was taken by surveillance cameras on the morning of June 1, 2020, local time.

On Reddit, one poster postulated that the incident may have happened due to the vehicle’s lack of LIDAR, which Elon Musk has publicly ridiculed and has said is unnecessary:

Radar cannot generally perceive stationary obstacles. Teslas have no lidar. The flaw with stereo vision is that the primary algorithm is looking for pixel shifts across epipolar lines between the two cameras. A solid color object has no perceivable pixel offset.

Tesla is also using neural networks, where the computer is able to estimate distance by assuming an object of a particular class is similar in size as other objects of that class. (so, for example, a 1/4 scale fire truck parked in the travel lane might fool it).

There are other things humans do vision wise that Tesla can try, however, the best fix is to just add lidar. Lidar can see nearly all cases of solid collidable object.

You can see the video here:

Here are two other videos, including one from the opposite angle.

pic.twitter.com/ovk5rCtJj4

— hand washing rooster 🐓 (@jsin86524368) June 1, 2020

Inside EVs noted that “it doesn’t appear as though any of the Tesla’s airbags deployed in the incident.”

All that and not a single airbag in the car appears to have gone off. That should be the bigger story here pic.twitter.com/ssi9339vOO

— hand washing rooster 🐓 (@jsin86524368) June 1, 2020

Recall, just a day ago, we reported on a Tesla that was found to have drive off a cliff under “mysterious” circumstances in Santa Clara County, California. 

According to the California Highway Patrol, the Tesla “went over” the cliff, and the driver, 60-year-old Pleasanton resident James Yacorzynski, was found dead at the scene. 

California Highway Patrol officer Ross Lee commented that authorities were unsure how long the Tesla had been sitting at the bottom of the cliff. 

Recall, earlier this year the NTSB revealed that Autopilot had played a role in a fatal 2019 Model 3 accident in Delray Beach, Florida. 

The driver had set the car to go 69 miles per hour 12.3 seconds before the crash took place on a highway that had a speed limit of 55 mph, according to Bloomberg. The NTSB also revealed that the driver’s hands were not on the wheel for the final 7.7 seconds before the crash. 

The NTSB had also arrived at similar findings regarding a 2016 Florida crash where another Tesla driver didn’t react to a truck in the roadway. In that instance, the NTSB found that Tesla’s Autopilot design contributed to the cause of the accident.

The driver was decapitated.

 

Via S&P Global Platts Insights blog,

US-China tensions have bubbled up again, and commodity markets could be caught up in the turmoil, not least LNG. Aviation activity and jet fuel are also in the mix this week, along with corn fundementals in North and South America, and UK solar power.

1. US LNG exporters face new test as China tensions resurface

What’s happening? The US move to no longer recognize Hong Kong’s independence from mainland China could lead to new tariffs and a potential collapse of the Phase 1 trade deal that promised $50 billion in US energy purchases through 2021. That would be significant for US LNG exporters, after deliveries to China resumed April 20 following a 13-month halt due to the impact of tariffs.

What’s next? Despite major coronavirus-related lockdowns earlier in the year, Chinese LNG demand has recovered fairly robustly this spring, with imports averaging over 8 Bcf/d in May, a year-on-year build of 9%, according to S&P Global Platts Analytics data. The global LNG market will continue to look to China to be an engine for demand growth this year, helping to balance a historic supply overhang. Normalizing LNG trade relations with China would be critical to efforts by US exporters to benefit from that recovery and by developers of new liquefaction terminals to secure financing for their projects.

2. Asian jet fuel boosted by plans to ramp up flights from Korea’s Incheon

What’s happening? Jet fuel traders across Asia expect to see improved bids for June and July-loading cargoes after major South Korean airlines said they plan to resume international flights. Korean Air is adding 19 international routes on June 1 including US, Asian and European destinations. This will increase the airline’s operations to 32 international routes, with 146 flights a week from June 1. Asiana Airlines is eyeing similar moves. The airline will resume 13 international routes from June 1 – one to Seattle and 12 to Chinese cities – raising its services to 27 international routes versus 73 before the outbreak.

What’s next? South Korea’s Incheon airport is one of the busiest air traffic hubs in Asia alongside Singapore’s Changi airport. Re-opening of flight routes to and from Incheon should lift regional jet fuel demand and propel recovery in refining margin for the fuel. The FOB Singapore jet fuel/kerosene assessment rebounded by more than threefold from its trough of $13.06/b on April 22 to $37.79/b at the Asian close on May 26. Platts assessed the FOB Korea jet fuel cash differential at minus $2.20/b to the Mean of Platts Singapore jet fuel/kerosene assessments on May 28, a solid rebound from an all-time low of minus $4.65/b on April 22.

3. UK solar causing grid stability headaches – but it could be worse

What’s happening? The UK’s National Grid is seeking capacity turn-down offers from wind and, for the very first time, solar farms during weekends, in an emergency move to secure grid stability. This expensive last-resort action is necessary, the operator says, because of lockdown-affected electricity demand and, in part, rising seasonal solar output. Into this mix comes the announcement that the government has approved the UK’s largest solar scheme to date, the 350 MW Cleve Hill project in Kent, while a 500 MW project in Cambridgeshire is close to an application.

What’s next? As the lockdown eases, so working week electricity demand should recover, at last to some extent – but weekends will continue to challenge grid stability with low demand and surplus generation. UK solar capacity stands at 13.4 GW installed, with midday peaks forecast to approach 9 GW into early June. With demand falling below 20 GW at weekends, the grid’s challenge becomes clear if the wind blows. The real story, however, is that the midday peak problem would be much worse had solar subsidies not been withdrawn several years ago. Flagship projects like Cleve mask the fact that in the last year, just 195 MW of new solar have been added – an increase of less than 1.5% over the period.

4. US’s record corn acreage adds to price woes; Brazil sees more support

What’s happening? Prices of corn in Brazil, the world’s second-largest exporter of the coarse grain, hit record nominal highs this year as robust domestic demand, low stocks and favorable exchange rates boosted local prices. At the same time, producers in the US, the top exporter of corn, are seeing corn prices at breakeven levels due to the collapse in demand from ethanol sector, which accounts for the bulk of the consumption, following COVID-19 related restrictions on movement.

What’s next? Markets are keeping a close eye on Brazil, as corn prices are likely to ease when the harvest of second corn crop hits the market in June. However, Brazilian corn prices are still expected to be significantly higher than previous years even during the peak supply season, as most of the corn is consumed by the livestock industry, unlike the heavily ethanol-dependent US corn market. US corn prices have already hit multi-year lows recently, reaching $3.01/bu on April 21. The outlook for corn prices remains bleak in the US, as the corn planted area in the 2020-21 marketing season is projected to touch a new record, while corn stocks are seen at levels not seen since 1987-88.

Two unique features of SARS-CoV-2 are convincing a growing number of scientists that it was man-made, and not the result of natural evolution, according to the Daily Telegraph.

First, the virus binds more strongly to human ACE2 enzymes than any other species, including bats.

Second, SARS-CoV-2 has a “furin cleavage site” missing in its closes bat-coronavirus relative, RaTG-13, which makes it significantly more infectious – a finding we reported in late February.

According to Israeli geneticist, Dr. Ronen Shemesh, the Furin site is the most unusual finding.

“I believe that the most important issue about the differences between ALL coronavirus types is the insertion of a Furin protease cleavage site at the Spike protein of SARS-CoV-2,” he said. “Such an insertion is very rare in evolution, the addition of such 4 Amino acids alone in the course of only 20 years is very unlikely.”

Shamesh, who is working on a treatment for COVID-19, believes the novel coronavirus was most likely created in a lab, and did not evolve in nature.

“There are many reasons to believe that the COVID-19 generating SARS-CoV-2 was generated in a lab. Most probably by methods of genetic engineering,” he said, adding “I believe that this is the only way an insertion like the FURIN protease cleavage site could have been introduced directly at the right place and become effective.“

Dr Shemesh, who has a PhD in Genetics and Molecular Biology from the Hebrew University in Jerusalem, and over 21 years of experience in the field of drug discovery and development, said it is even “more unlikely” that this insertion happened in exactly the right place of the cleavage site of the spike protein – which is where it would need to occur to make the virus more infectious. –Daily Telegraph

“What makes it even more suspicious is that fact that this insertion not only occurred on the right place and in the right time, but also turned the cleavage site from an Serine protease cleavage site to a FURIN cleavage site,” he added.

In January, a team of Indian scientists wrote in a now-retracted paper that the coronavirus may have been genetically engineered to incorporate parts of the HIV genome, writing “This uncanny similarity of novel inserts in the 2019- nCoV spike protein to HIV-1 gp120 and Gag is unlikely to be fortuitous in nature,” meaning – it was unlikely to have occurred naturally.

Then, in February, a team of researchers in Nankai University noted that COVID-19 has an ‘HIV-like mutation’ that  allows it to quickly enter the human body by binding with a receptor called ACE2 on a cell membrane.

Other highly contagious viruses, including HIV and Ebola, target an enzyme called furin, which works as a protein activator in the human body. Many proteins are inactive or dormant when they are produced and have to be “cut” at specific points to activate their various functions.

When looking at the genome sequence of the new coronavirus, Professor Ruan Jishou and his team at Nankai University in Tianjin found a section of mutated genes that did not exist in Sars, but were similar to those found in HIV and Ebola. –SCMP

According to the Nankai University study, the furin binding method is “100 to 1,000 times as efficient’ as SARS at entering cells.

“This protein cleaving protein is highly promiscuous, it’s found in many human tissues and cell types and is involved in many OTHER virus types activation and infection mechanisms (it is involved in HIV, Herpes, Ebola and Dengue virus mechanisms),” said Dr. Shemesh. “If I was trying to engineer a virus strain with a higher affinity and infective potential to humans, I would do exactly that: I would add a Furin Cleavage site directly at the original less effective and more cell specific cleavage site.”

Meanwhile, Flinders University Professor Nikolai Petrovsky found either “a remarkable coincidence or a sign of human intervention,” telling the Telegraph that COVID-19 is “exquisitely adapted to humans.”

“We really don’t know where this virus came from – that’s the truth. The two possibilities is that it was a chance transmission of a virus…the other possibility is that it was an accidental release of the virus from a laboratory,” he said, adding “One of the possibilities is that an animal host was infected by two coronaviruses at the same time and COVID-19. The same process can happen in a petri-dish.”

“In other words COVID-19 could have been created from that recombination event in an animal host or it could have occurred in a cell-culture experiment. I’m certainly very much in favour of a scientific investigation. Its only objective should be to get to the bottom of how did this pandemic happen and how do we prevent a future pandemic.”

Meanwhile, if you can stand 26 minutes of adrenaline-inducing fear porn soundtrack, Australia’s Sky News has put together a segment obliterating the wet market theory, noting China’s poor track record of biolab security, and tying together much of the emerging findings supporting the lab-origin theory.

Authored by Jonathan Turley,

Yesterday we discussed the four arrests associated with two attacks on New York police officers using Molotov cocktails. 

It is now being reported that one of the defendants arrested, Colinford Mattis, 32, is a furloughed Pryor Cashman associate.  Mattis is a graduate of New York University and Princeton University. He was reportedly arrested with a second attorney in the attack.  Mattis is accused of driving a van and passenger Urooj Rahman, 31, threw a Molotov cocktail. Rahman is reportedly a human rights lawyer but also recently lost her job.

An NYPD surveillance camera reportedly recorded Rahman throwing the device toward a NYPD vehicle in Fort Greene.  A video showed her getting out of a tan 2015 Chrysler Town and Country minivan driven by Mattis and moving toward the patrol car. She was observed lighting a fuse on a Bud Light beer bottle and throwing it through a broken window.  It exploded inside of the vehicle and the two fled.

The FBI statement included the following description:

“Officers pursued the minivan and arrested Rahman and Mattis, who was the vehicle’s driver.  The NYPD recovered several precursor items used to build Molotov Cocktails, including a lighter, a bottle filled with toilet paper and a liquid suspected to be gasoline in the vicinity of the passenger seat and a gasoline tank in the rear of the vehicle.”

They are now charged with causing damage by fire and explosives to a police vehicle. If convicted, each of them faces up to 20 years behind bars. There is a mandatory minimum sentence of 5 years.

The specific provision charged appears to be 18 U.S.C. 844 (i):

“Whoever maliciously damages or destroys, or attempts to damage or destroy, by means of fire or an explosive, any building, vehicle, or other real or personal property used in interstate or foreign commerce or in any activity affecting interstate or foreign commerce shall be imprisoned for not less than 5 years and not more than 20 years, fined under this title, or both;  and if personal injury results to any person, including any public safety officer performing duties as a direct or proximate result of conduct prohibited by this subsection, shall be imprisoned for not less than 7 years and not more than 40 years, fined under this title, or both;  and if death results to any person, including any public safety officer performing duties as a direct or proximate result of conduct prohibited by this subsection, shall also be subject to imprisonment for any term of years, or to the death penalty or to life imprisonment.”

Unlike Samantha Shader’s case discussed yesterday, the vehicle was unoccupied.  However, the device did explode (unlike Shader’s Molotov cocktail). Still, Shader is looking at more serious charges of attempted murder. I would expect that additional charges might be sought.

Pryor Cashman’s website described Colinford Mattis, 32, as a member of the firm’s Corporate Group. That reported entry was deleted after the media learned of the connection.

However, two references remain on site.  One describes the corporate team that worked on a deal to sell a $319 million stake in AccorHotels. Another entry refers to Mattis as being on the team that launched brand management platform WHP Global on the acquisition of legacy women’s fashion brand Anne Klein.

According to Pryor Cashman managing partner Ronald Shechtman, Mattis has been on furlough since April due to the pandemic.  He said that Mattis’ employment status will be reviewed.  Given the serious federal criminal charges, a review may be in order.

Mattis graduated from New York University School of Law in 2016 and received his bachelor’s degree from Princeton University. He was also previously employed as an associate at Holland & Knight.  Rahman was just admitted to the New York bar in June 2019 after graduating from Fordham University School of Law.

Here is the DOJ filing: Criminal Complaint

“This is fucking lunacy — conspiratorial madness of the worst kind — but it’s delivered by a Serious Obama Official and a Respected Mainstream Newscaster so it’s all fine,” Intercept journalist Glenn Greenwald fired off in response to a CNN segment blaming “foreign interference” for the still raging George Floyd protests and riots. 

“This is Infowars-level junk. Should Twitter put a ‘False’ label on this? Or maybe a hammer and sickle emoji?” he added. Indeed after three years of national Russiagate obsession was promptly memory-holed given it died a fiery death with the great nothing-burger that was the Mueller investigation, Obama’s former National Security Advisor and later ambassador to the UN Susan Rice appeared on CNN’s The Situation Room with Wolf Blitzer to blame it all on the… you guessed it: Russians!

Absolutely Incredible: Obama’s Former NSA Susan Rice on CNN talking about the protests and domestic strife

“This is right out of the Russian playbook” pic.twitter.com/luXiPV0bOq

— Saagar Enjeti (@esaagar) May 31, 2020

“I’m not reading the intelligence today, or these days — but based on my experience, this is right out of the Russian playbook,” Rice said in the interview.

“But we cannot allow the extremists, the foreign actors, to distract from the real problems we have in this country that are longstanding, centuries old, and need to be addressed responsibly.”

Predictably and without asking for a shred of evidence, Wolf Blitzer responded: “you’re absolutely right on the foreign interference.” He further asked her on whether the Kremlin might be trying to “embarrass” the US by “promoting the racial divide in our country.”

“Well we see it all the time, we’ve seen it for years, including on social media where they take any divisive, painful issue… and they play on both sides,” Rice responded, echoing similar prior accusations that somehow supposed ‘Russian intelligence’ putting out anti-Hillary memes on Facebook in 2016 secured Trump the election.

Imagine how hard Americans would laugh if Russian officials and pundits blamed American spies for stoking ethnic tensions in the Caucasus. That’s how dumb this stuff looks to the world outside America. https://t.co/6HhOyicdAU

— Matt Taibbi (@mtaibbi) June 1, 2020

“I would not be surprised to learn that they have fomented some of these extremists on both sides on social media… [or] that they’re funding it in some way, shape, or form,” Rice added. 

Also on Sunday current national-security adviser Robert O’Brien actually floated similar theories, naming China, Iran, and even Zimbabwe, as well as “Russian activists” as seeking to exploit unrest in US cities. 

Pressed by @GStephanopoulos on evidence that foreign adversaries are exploiting U.S. unrest, O’Brien points to social media activity from China “coming straight from the government.”

He also names Zimbabwe, Iran and says “there may be Russian activists.” https://t.co/8NuFvYRECl pic.twitter.com/nApMWEuMfs

— ABC News (@ABC) May 31, 2020

In that interview O’Brien was at least pressed for evidence, which predictably he didn’t give, only saying there’s been “trolling by foreign adversaries”.

He pointed to China’s Foreign Ministry mocking US authorities for hypocritically lecturing Beijing on the Hong Kong issue and “freedom” and “democracy”.

As for Rice’s grand conspiracy theories that it’s all about those ever-present ‘pesky Ruskies’ which seem to “show up” for sinister ‘interference’ purposes anytime something “bad” happens in America, it must be recalled that she actually did help destroy an entire country, and had a very direct hand in it.

She was of course among the Obama administration’s chief Libya war architects, pushing hard for military intervention to ultimately overthrow Gaddafi in 2011, resulting in what is still a failed state and renewed major civil war. 

In an Olympic level feat of pretzel-twisting, hoax hustler Rice manages to shoehorn the Russians into the narrative yet again! #ObamaGateLizard https://t.co/bEcj0d5Xly

— James Woods (@RealJamesWoods) May 31, 2020

Some activists on social media accused Rice herself of attempting to hijack and deflate the protest momentum in saying foreigners were behind it:

She’s attempting to hollow out the uprising, delegitimize it. I wish these people had even the passing ability to do some introspection. They sound insane.

— #MedicareForAll 🌹 #GreenNewDeal 🌻 (@Real_AnnaBird) May 31, 2020

Russia officially responded to Rice’s claims. Kremlin spokesman Dmitry Peskov said on Monday when asked about the CNN interview: “We have never interfered in international affairs and we don’t intend to interfere now.”

“Any insinuations that have been mentioned are absolutely wrong, erroneous, and, as far as we understand, such insinuations can in no way reflect Washington’s official position,” said Peskov.

Yesterday we showed that in a world where most companies have mothballed buybacks until they get a sense of what cashflows will look like in the new post-corona abnormal, the tech sector remains a beacon for hope for those who demand to frontrun a management team buying back its own shares.

Getting a head start on even more buyback announcements, online retailing monopoly Amazon – which as a reminder disappointed investors with a surprise $4 billion in coronavirus-linked expenses – surprised markets when the A2/AA- rated issuer announced a monster USD bond issuance in 6 parts: 3yr, 5yr, 7yr, 10yr, 30yr and 40yr. The initial price talk according to Bloomberg was as follows:

• USD 3Y: +40 Area
• USD 5Y: +65 Area
• USD 7Y: +85 Area
• USD 10Y: +105 Area
• USD 30Y: +130 Area
• USD 40Y: +150 Area

As a reminder, last week we first pointed out that less than 5 full months into the year, IG issuance had surpassed a record $1 trillion, a number which AMZN will push well toward $1.1 trillion after the offering closes today.

The news of the massive issuance was enough to spook Treasurys, and in an immediate reaction we saw Treasury Sep 20 futures fell from 138-31+ to 138.26+, and the 10Y yield was last trading at session highs above 0.68%.

Perhaps tied to Amazon’s buyback-boosting bond offering, Amazon quickly upgraded its price target to $2,800, just one month after it hiked the PT to $2,600. This is how analyst Brian Nowak justified his latest upgrade:

• E-commerce: Shelter-In Hobby #1: 2020 is setting up to be an e-commerce inflection year as the combination of shelter-in place, lower spend on experiences (dining out, bars, travel, etc) and gov’t stimulus have driven dollars online. Trends have accelerated monthly as shoppers have moved from stocking up (March), to buying more essentials and home items (March/April), to broad-based larger, more frequent buying (April to now) as our bottom-up e-commerce model leads us to estimated 58% Y/Y e-commerce growth in April (~4X faster than 1Q:20 and 2019). As in other online behaviors, we think part of this acceleration is structural, with more shoppers, spend and categories per shopper (namely grocery) moving online faster…but how durable is this growth?
• How Shifting Consumer Dollars Are (In Part) Driving E-commerce… It seems pretty durable. Our analysis of shifting consumer spend shows why the accelerating e-commerce trends aren’t surprising…as the dollars available to capture were much larger. That is, we estimate that e-commerce only captured ~12% of the incremental $170bn of April consumer dollars up for grabs from lost retail sales (stores closed/shelter-in), lower spend on bars/restaurants, and travel (see Exhibit 2). As detailed in the appendix, the estimated ~$60bn spent by consumers from their stimulus checks has also been a tailwind. While the world is now re-opening, we expect these buckets of available dollars (and the structural e-commerce behavior changes above) to remain e-commerce tailwinds…as we expect adjusted retail and travel spend to decline an aggregate of 18% in 2H:20…and for 3,000+ retail stores to close this year. Increased store closures alone could be a powerful driver to faster multi-year e-commerce growth.
• …As We Now See E-commerce Growing ~25% in 2020…Even if the Consumer Weakens in 2H: We believe this impact of behavioral change and more consumer dollars to be grabbed is large…as consider that even if e-commerce captures only 4% of these foregone consumer dollars in 2H (down from 12% in April from an assumed weaker consumer, no stimulus checks, and gradual reopenings) it would imply e-commerce still grows 21% in 2H and 25% in 2020. This is in-line with our new e-commerce base case. The extent to which consumers continue to spend more aggressively through the downturn could lead to even faster e-commerce growth…as every 1% of the 2H incremental available wallet up for grabs that e-commerce captures adds ~120bp to 2020 e-commerce growth. Stepping back, we think ‘20 will be a year in which we pulled forward ~2 years of e-commerce penetration (see Exhibit 7) Looking into ’21, our base case expects e-commerce growth to slow from these elevated levels (tough comps and an assumed weaker consumer ) but in aggregate our ’21 e-commerce estimate is ~10% higher than previously modeled.

As a result, Nowak raises his Amazon growth estimates and boosts the PT to $2,800:

Remains Top Pick: We expect AMZN to continue to drive and benefit from these inflecting e-commerce trends, as we raise our ’20/’21 AMZN revenue by 4%/5%…now expecting ’20/’21 US GMV (ex Whole Foods) to grow by 34%/18% Y/Y. This larger top-line drives up our forward profit estimates…and our PT to $2,800 as AMZN remains our top pick. We see faster top-line/share gains and a larger than expected profit snapback in ’21 ahead (lapping ’20 Covid investments and 2 years of 1-day investments) and think the street is still under-appreciating these trends, with AMZN currently trading at ~17X our ’21 EBITDA (a ~15% discount to the historical NTM average).

Visually, this is how the $2,800 price target is hit on a sum of the parts basis:

And the resulting valuation: AMZN historically trades at an average of ~20X NTM EBITDA, and MS’ SoTP implies ~19x ’21 EBITDA, a 4% discount to the 2 year average.

Accelerating losses into and across the open this morning suddenly reversed at around 0938ET… which coincidentally is when Charles Schwab’s website seemed to start having difficulties…

Source: DownDetector

The outage is nationwide…

Source: DownDetector

Robinhood also having issues…

 

Probably just a coincidence…

 

Authored by Mike Shedlock via MishTalk,

ESPN NBA Reporter Chris Martin Palmer made a fool out of himself with a pair of Tweets, one of which exploded in his face.

My how things change when it is your gated community that is being burnt down.

Palmer deleted his Tweet but here is his “Burn that s**t down. Burn it all down.” Tweet Archive.

Comments Pour In

A lot of people have been affected and lives lost, but we need to all remember… Chris Palmer can’t get his Starbucks today.

Listen.

A lot of people have been affected and lives lost, but we need to all remember… Chris Palmer can’t get his Starbucks today.

You animals. https://t.co/r7dfGZr2Yi

— Kyle Honeycutt🗨 (@coinableS) May 31, 2020

More Replies to Palmer

Amazing Irony

Palmer incites looters to burn things down just as long as they stay away from his gated community. 

But they didn’t. 

And that is what happens when you openly encourage violence against others. 

I suspect the career of Chris Martin Palmer is now over. 

If it’s not, it should be.

Following May’s preliminary PMI rebound, final ‘soft’ survey data for the US manufacturing sector was expected to consolidate its rebound.

However, while Markit’s PMI held its rebound at 39.8 (from 36.1) it was slightly below the 40.0 expectations and showed no improvement over the flash print.

ISM Manufacturing showed a similar picture – with a modest rebound but disappointingly missing expectations (up from 41.5 to 43.1, but less than the 43.8 exp)

Source: Bloomberg

Markit reports that a marked decline in total sales and negative sentiment towards the outlook for output over the coming year drove employment down, as firms reduced workforce numbers substantially. At the same time, lower input buying and weaker overall demand conditions put pressure on suppliers to lower their prices. Consequently, input costs fell again, in turn helping manufacturers to cut their output charges at a record pace as firms sought to remain competitive.

Under the hood of ISM’s data, things are not pretty…

 

While most respondents suggested some level of optimism that the corner has been turned:

• “Fuel sales demand are beginning to rebound in May as stay-at-home orders are lifted across the country.” (Petroleum & Coal Products)

• “Returning to full production for automotive, ramp-up will still depend on speed of automotive start-ups. We have built up inventory to stock. Ready to ship.” (Fabricated Metal Products)

• “Business activity remains strong for consumable applications and very weak in durable segments.” (Plastics & Rubber Products)

• “We see a lot of positive signs, despite what’s going on. People seem to continue to be building and looking to projects for fall of 2020 and beyond. There is good optimism out there.” (Nonmetallic Mineral Products)

• “Despite the COVID-19 issues, we are seeing an increase of quoting activity. This has not turned into orders yet, but it is a positive sign.” (Computer & Electronic Products)

There were a few non-believers:

• “Current conditions in the automotive, construction, oil and gas, agriculture equipment, and tube/pipe markets are all adversely impacting our business results.” (Chemical Products)

• “We see an issue with suppliers that are affecting production. At the same time, social distancing measures in [the] manufacturing plant and customer demand are impacting the rate of production.” (Transportation Equipment)

• “Increased COVID-19 sales in the food business has really stressed our production capabilities.” (Food, Beverage & Tobacco Products)

Digging into some of the pricing details, We see the following “essential” commodities higher in price:

Alcohols; Crude Oil; Freight; Personal Protective Equipment (PPE; PPE — Gloves; and PPE— Masks

But most other commodities are lower in price…

Acrylate Monomers; Aluminum; Base Oils; Copper; Corn; Diesel Fuel (3); Methanol; Nylon; Oil Based Products; Packaging Materials; Plastic Products; Polypropylene; Solvents; Steel; Steel — Carbon; Steel — Cold Rolled; Steel — Hot Rolled; Steel — Stainless; and Steel Products.

Chris Williamson, Chief Business Economist at IHS Markit said:

“Manufacturing remained in a deep downturn in May, as measures taken to contain the spread of COVID-19 continued to cause production losses, disrupt supply chains and hit demand. Job losses meanwhile continued to run at one of the highest rates in over a decade, and pricing power has collapsed.

“With increasing numbers of companies restarting production, we should see some improvements in the output trend in coming months, and it was reassuring to see signs of the downturn already starting to ease in May, suggesting April was the eye of the storm as far as the production collapse is concerned.

“There remains a high risk that any recovery will be frustratingly slow as ongoing social distancing measures, high unemployment, job insecurity and damaged balance sheets constrain consumer and business spending. The recovery will of course also fade quickly if virus infections start to rise again. For now, however, we focus on the good news that we may be past the worst in terms of the economic decline.”

But, despite all that, The Dow is back to pricing in economic expansion…

Source: Bloomberg

Submitted by Michael Every of Rabobank

“There are years where nothing happens, and there are weeks where decades happen.” So said Lenin, who knew a thing or two about revolutionary times. The US faces its worst protests/riots since 1968, which are whipped up by the far right, or the Russians, or ANTIFA –newly-designated as a terrorist organisation by President Trump– depending on what you read. The editor of China’s Global Times has trolled this must be Hong Kong protestors at work – with no Twitter fact-check; certainly Hong Kong’s “If we burn, you burn with us” fits the real rage on display. So should markets think not of the end of lockdown but the start of breakdown? (We have certainly swapped quarantine for curfew in many places.) Perhaps – but 1968 and 1992 were both followed by the usual US exceptionalism. Indeed, the US private sector just sent the first astronauts into space from US soil in a decade, with plans for a moon landing and a trip to Mars. Then again, we are decades further into neoliberal financialisation now, with all the resultant atrophying of previous US strength: the public sector can no longer put a man on the moon; it has to be outsourced.

Re: decades in weeks and breakdowns, on Friday markets –and this Daily– felt a Rubicon was about to be crossed when Trump tweeted “CHINA!” just before a press conference on the subject. However, despite his aggressive rhetoric on the South China Sea and “Wuhan virus”, the conclusion was a bazooka had not been brought to the table. Trump announced: the beginning of the process of ending Hong Kong’s separate legal status from China; a shift in the US travel advisory; action to limit access to US universities; and a working group to protect the US financial system from China; and sanctions on HK and PRC individual. Yet he did not walk away from the phase one trade deal – Trump opted to leave the WHO entirely instead. Equities and CNH both rallied Friday, and Hong Kong was up strongly today. Wrongly.

Loss of US recognition will not directly impact Hong Kong much, as China says, yet:

• The shift on visas prevents Chinese nationals studying STEM at post-grad level in the US if they attended a military university (around 4% of the total in the US) OR have links to a firm signing up to Beijing’s policy of ‘Military-Civilian Fusion’: that covers anything larger than an SME.

• The working group on financial markets is almost certain to recommend delisting Chinese equities from the US, a process already underway, and escalate restrictions on US capital flows into China, also underway.

• We should expect the list of sanctioned individuals to be lengthy and embarrassing. Some will have at least one account with a Western bank, which will have to be closed and moved to a Chinese bank, causing a backlash (last week saw former Hong Kong CEO CY Leung call for a boycott of a bank that could not be more ‘Hong Kong’). Moreover, once Chinese banks are doing that banking instead, US sanctions will then apply to them. We will still end up with restrictions on USD usage in Hong Kong/China that the market think we have dodged.

• Trump was never going to walk away from a trade deal even if many observers already see it as dead: why bother? If China sticks to it, great – but it won’t change the political direction of travel; and if they don’t, it’s more fuel on the anti-China fire in the near future.

In short, Trump put US-China decoupling on the table – and STILL pushed the stock market up. Those who don’t see that might want to look at Hong Kong’s money changers, who are having to turn away hundreds of customers due to a lack of USD in the face of massive demand; and this is matched by inquiries over emigration and foreign property purchases. The Hong Kong Finance Secretary has even had to come out and say there are no plans to change the city’s HKD peg to the USD or to impose capital controls: that this had to be said speaks volumes. The South China Morning Post likewise points out Beijing may be holding back on a massive stimulus package because it is keeping its power dry and asks: is it for looming US decoupling? It’s certainly not because the economy is doing well from the latest PMI data (manufacturing 50.6 with new export orders 35.3 and 54% of firms seeing insufficient demand; services at 53.6; and Caixin manufacturing 50.7.)

Meanwhile, the tectonic shift on the US-China front runs through all other markets. Mexico has questioned the US over the phase one trade deal given USMCA Article 32.10 states an FTA with a non-market economy allows the other two parties to terminate or update it. Obviously it isn’t a FTA –it’s barely a deal anymore– but Mexico is stirring the pot given much of the US trade lost to China is likely to be gained by it, underlining the new regionalisation underway.

Far more significantly, Trump postponed the G7 meeting set for June because Germany’s Angela Merkel refused to attend. In response to this slight, as well as the milquetoast EU reaction to Hong Kong, who are still set to proceed with a September EU-China investment summit, Trump has shifted the “out of date” G7 date to September – and invited Australia, South Korea, India, and Russia to join. Yes, Russia used to be in G8, and Australia, South Korea, and India are all in the G20. Yet this overlooks the fact that all of the above except Russia feel threatened by China, and are establishing new national security mechanisms to deal with those concerns, including trading arrangements (India may be buying the Aussie barley China no longer is, for example). Moreover, reverse Nixon-ing to bring in Russia from the cold would be the requisite move to encircle China. That’s realpolitik over liberal ideals.

Please listen to Lenin, Europe (where watches are still set back to 2005). The EU debt/budget debate would have been timely 15 years ago, but the block looks to be drifting into a geo-strategic headache if the US and Russia were to build bridges over the top of it, or if the global architecture fragments, WHO style. Even the UK may opt for the US over an EU FTA (and for Australia, India, etc.). This is a real risk of that building in the British determination to walk away from deadlocked EU trade negotiations within weeks; and in the UK dumping Huawei and angling for a new “D10” (D for Democracy) of countries to unite behind a Western technological 5G alternative; and as the UK says 2.9m Hong Kongers are eligible for British residency – this from a government seen as having won the Brexit debate over immigration.  

Everywhere you look, decades are happening in weeks. Are they taking us towards US collapse or renaissance? Towards European solidarity or division and (further) European irrelevance? Towards a Chinese century – or very rapidly away from it?

Does this matter for your market/asset? How can it not?! Bond yields are very low; volatility is very low; equities are very high; and the USD is well off its highs. Not all of these can be correct if those tectonic plates are about to shift: only one can.