Approximately 90% of illegal aliens detained and then released into the United States while they await their asylum hearings fail to show up to their court dates, according to a recent pilot program conducted b Immigrations and Customs Enforcement (ICE) and the Department of Justice (DOJ).
And as Breitbart‘s John Binder notes, “Since December 21, 2018, DHS has released at least 190,500 border crossers and illegal aliens into the interior of the United States.” What’s more, the ‘catch-and-release’ system often results in work permits which allow migrants to take jobs in the United States while awaiting their asylum claims – which of course hurts low-income Americans the most.
ICE officials told Congress last month that around 87% of illegal aliens skip out on their asylum hearings, forcing the agency to attempt to locate and deport each offender – which is nearly impossible given available resources.
“That particular population, as we continue to release into the interior hundreds if not thousands of family units into the interior every week, is of grave concern as it relates to these individuals not appearing before immigration judges and now being fugitives,” said the official.
Another federal immigration official noted during the same testimony that around 12% of border crossers actually end up qualifying for asylum, which underscores that wholesale fraud committed by illegals.
At current rates of illegal immigration, border apprehensions for the calendar year 2019 are expected to outpace every fiscal year of former President Obama. Meanwhile, DHS officials have said only about 42 miles of mostly replacement border wall barriers have been constructed since President Trump’s inauguration.
Leading up to the 2020 presidential election, Americans are vastly opposed to releasing border crossers and illegal aliens into the interior of the country, and GOP voters have said building a border wall and reducing all illegal and legal immigration is their top priority. –Breitbart
As Binder notes, around 2-in-3 American voters are opposed to catch-and-release, according to a Harvard-Harris poll, and according to GOP voters, conservatives and Trump supporters, building a border wall and reducing overall immigration is their top priority.
via ZeroHedge News http://bit.ly/2WBcqDW Tyler Durden
June is bursting out all over, but we’ve still got 5 more days of May.
An exciting week in prospect – Trump in the UK, Xi in Russia, the US Employment Report on Friday. The ECB on Thursday. I would advise avoiding central London for the next few days – its likely to be full of demonstrators. I will publish the best original photos from Readers of the Trump Baby balloon… not because I think it’s particularly smart to be insulting our greatest trade partner, (perhaps our only trade partner if Brexit pans out as badly as it might), but because it’s kinda funny, and we need something to cheer us up.
I was going to scribble something about how Trump’s latest twitterstorm targeting Mexico highlights the risks to any and all emerging market economies, but he’s also taken India off the developing nations list, hinting they are also in his book of names to be “sorted”. Is it just random? Or is it part of some grand plan?
I met with a very senior UK/Australian strategist/economist on Friday, and over a very pleasant bottle of Lady Petrol we got talking about EM. While we both agree smart EM is good way to achieve non-correlated returns, we concluded the last 30 years of thematic EM investment based in BRICS was probably a nonsense – full credit to Jim O’Neill for coming up with the moniker, but they are such different and challenging economies it never made much sense to treat them as a unit. Each EM nation faces its own set of challenges – which often boil down to governance and law.
There is a massive opportunity out there. Which nations benefit from the New Cold War? Which countries replace China as new global supply chains develop and form? That’s a fascinating EM theme.
Mexico would have been one of my picks – but Trump is now going for the jugular. India? Not a chance – too much inequality, bureaucracy and too difficult to try to find partners. Brazil? Forget it. South-East Asia? I suspect Vietnam has higher ambitions. North Korea is tipped, but when ESG is now an investment requirement, who is going to buy goods built in Slave Labour conditions? Mention Africa and there is much shaking of heads and sharp dismissal – I suspect it’s too easy an option to simply write off Africa; we might be missing a great opportunity for affirmative capitalism to improve lives if we can see past the endemic corruption.
While it’s easy to talk about China being replaced – the who-by is a more difficult and nuanced call. Maybe, as more than one wag as suggested, China replaces China?
Or what about a new industrial revolution? Maybe the right investment theme is to identify opportunities in developed nations with the ambition to replace China directly through the innovation of new tech such as 3D printing, automation and robotics? Who has these abilities – which boil down to which economies have the engineering supply chains to provide the graduates to staff and run new manufacturing plant? Robotics is not going to replace us, but we do have to upskill. Sadly education in the Anglo-Saxon Occident is failing to produce the skills in the quantities required – time for a rethink on education I think.
Back in Yoorp, the ECB meet on Thursday, and although there is talk about revision to higher European growth, it won’t change the lower into infinity choices facing the bank. Speculation about who succeeds Draghi remains rife, but it feels there is a concerted spin effort underway to recast arch-sceptic and Bundesbank chief Jens Weidmann as a born again Europhile.. which further hints at backroom deals being done in Brussels on the other European top jobs. I suspect this leads to a very unhappy parliament if a cabal of leaders have already carved up the top jobs… but hey-ho!
In Markets, Bond yields are still falling and stocks are looking well wobbly.
Is the inverse yielding treasury curve really predicting a recession? Or is it dollar strength, a flight to quality, and the expectation the US is the most likely winner of the New Cold War that’s fuelled the rally in Bonds? Lots of analysis says a recession is on the way – fuelled by the current noise on trade war. That doesn’t seem to be a major issue for lots of investors who remain wedded to the belief low interest rates = strong stock prices… which is a curious notion.. Low interest rates suggest an economy in trouble, requiring support and nurture… not one that supports optimistic stock valuations..
The bottom line is who is going to pay my pension if bond yields are the square root of nothing? How I am going to live off dividends if I’m invested in a stack of tech stocks that will never ever make a profit, or across an economy when 10-years of zero interest rates means corporates are overleveraged, having converted their equity into debt to fuel buybacks?
Time to go back to basics and figure out what is wrong with this programme. Financial assets (listed stocks and bonds) remain profoundly distorted – which isn’t a reason not to trade them in the short-term, but long term you have to be asking some pretty serious questions.
I’m going to stick with non-correlated alternatives for the time being. There are certainly risks – not least in terms of liquidity, but if you can buy US$ bonds liked to performing assets that give an 8% return plus additional upside at maturity, then what’s not to like? Happy to explain!
Meanwhile…
Later this week we have the 75th anniversary of D-Day. I was hoping to attend some of the events in my home village of Hamble. It was the setting off point for part of the invasion fleet, but we have a pretty packed schedule of business.
There is no shortage of D-Day heros, but three personal stories are worth sharing:
The legendary D-Day piper, Bill Millan, set off from Hamble quay. A few years ago She-Who-Is-Now-Mrs-Blain and I were delighted to sponsor a March of 100 Pipers in his honour through the village and met his son – who is a pretty mean piper himself. (I am a very bad piper.) Millan was apparently the only man to wear his kilt during the invasion, and the vision of him charging up the beach playing Highland Laddie with the Commandos must have been a stand out moment. There is a story the Germans didn’t shoot at him because they simply assumed he was mad! There is now a statue of Piper Bill on Sword Beach.
Or there is my sailing chum Elis, who as an ensign in the merchant marine wasn’t bound by the same age restrictions as the military forces – he may have been the youngest man in the invasion force. Or our neighbour Ted – as a young lad growing up in the village during the war, he told me how he spent the months before the invasion skipping school to deliver water to the invasion craft moored on our river. Every day he piloted his water barge up and down the river, until one morning they’d all gone.
On that note, back to the day job!
via ZeroHedge News http://bit.ly/2W7Qn3r Tyler Durden
A massive cruise ship in Venice crashed into a dock on Sunday, plowing into a tourist boat and sending those on land running for safety, according to CNN. One onlooker called it a “scene from a disaster movie”. The cruise ship, the MSC Opera, ran into the San Basilio terminal and a smaller tourist boat that was docked already. Four people suffered light injuries during the accident.
Qualcuno ci spiegherà perché le navi che salvano vite sono sotto sequestro, mentre queste #grandinavi sono libere di far danni. pic.twitter.com/mSyhCMvvZc
The accident happened at about 8:30am local time on the Giudecca canal, which is one of the busiest in Venice, a city that is popular with tourists. Multiple videos surfaced on Sunday showing the cruise ship, horns blaring, ramming into the dock and shoving the smaller boat out of the way.
“The noise of siren and of clash is totally frightening, looking like a scene from a disaster movie,” wrote one Twitter user, Tancredi Palmeri.
The operator of the ship, MSC Cruises, said the ship experienced “a technical issue” while heading toward the terminal for mooring.
Here is the accident from a second angle:
The company that operates the ship stated: “Investigations to understand the exact causes of the events are currently in progress. In the meantime, the ship has received authorization to be moored at the Marittima terminal, as planned. From there, it will continue to carry out passenger boarding and disembarking operations.”
The local port authority for Venice said on Sunday that it was looking to “finally create a solution to the traffic of large ships in Venice.”
Italy’s environment minister said on Sunday that the accident was “confirmation of what we have been saying for a long time: Cruise ships must not sail down the Giudecca (canal). This is why for months we have been working with the ministers… to move them (the vessels) and we are close to a solution.”
via ZeroHedge News http://bit.ly/2JPBuRu Tyler Durden
It turned out we were wrong about the imminence of a U.S.-China trade deal – so wrong, in fact, that the spat has morphed into a tit-for-tat of further tariff hikes and company restrictions. Right after markets took a breather on Thursday, U.S. President Donald Trump shocked everyone with threats of higher levies on Mexican goods over immigration, and China announced it will set up a list of “unreliable entities” in retaliation of America’s Huawei ban.
Here’s how bad it got: The Stoxx Europe 600 had its worst month since January 2016. Its cyclical shares dropped for a sixth straight week, the longest streak for an index going back to 2010. Autos have hit the lowest versus the broader benchmark since 2013, while banks have reached an all-time relative low.
Time to buy the dips? It’s not uncommon still to hear the argument that mutual interest will bring Beijing and Washington to an accord. Gregory Perdon, co-chief investment officer at U.K. private bank Arbuthnot Latham, points out that the Chinese President is under pressure from an economic slowdown while his U.S. counterpart is sensitive to stock losses and his re-election prospects. He’s counting on the Group of 20 summit in June for a detente.
And with bond yields plunging – the German 10-year rate reached a record low on Friday — equities’ relative appeal is growing.
For now, earnings estimates have stayed steady, but it’s hard to price the risk premium amid an uncertain economic outlook, especially for Europe, which is trade-sensitive and already seeing slowing growth. Stocks could get another boost from further monetary easing, but in this part of the world, central banks hardly have room to cut rates.
“The market is finding it difficult to price in any overnight Trump tweet about tariffs or a reaction from China to possibly restrict rare earth minerals to the U.S.,” says Punit Patel, a fund manager at London & Capital Asset Management. “For the moment it’s less about deteriorating fundamentals with regards to near-term earnings estimates and it’s just the market trying to gauge what sort of multiple does it want to compensate for the tail risks building on the 2020 EPS backdrop.”
via ZeroHedge News http://bit.ly/2Zbxizp Tyler Durden
Global stocks continued to slide and investors sought the safety of government bonds, the yen, the Swiss franc and gold on the first trading day of June as rising trade tensions sparked fears of an upcoming recession (which according to Morgan Stanley will hit in 3 quarters or less, while JPMorgan said the probability of a U.S. recession in the second half of 2019 had risen to 40% from 25% a month ago) denting stocks again…
… sending the 10Y TSY yield as low as 2.07%, the lowest level in almost 21 months, after JPMorgan said it now expects the 10Y yield to drop to 1.75% by year end…
… pushing the inversion between the 3M and 10Y yield to a whopping 28 bps…
… and sending oil sliding close to bear market territory.
With no improvement in tone or sentiment between the US and China, and in fact with China striking a combative tone on Sunday, blaming the U.S. for the collapse in trade talks and saying it won’t be pressured into concessions after the White House rattled markets Friday by announcing tariffs on Mexican goods, the worsening trade and broader economic backdrop made for a jarring start to June after a torrid May that wiped $3 trillion off global equities.
Also over the weekend, China’s Defence Minister Wei Fenghe warned the United States not to meddle in security disputes over Taiwan and the South China Sea, after acting U.S. Defence Secretary Patrick Shanahan said Washington would no longer “tiptoe” around Chinese behaviour in Asia.
“We’re in a phase of brinkmanship — it’ll be a difficult month,” Rob Mumford, an emerging market portfolio manager at GAM Investments, said at a roundtable in Hong Kong. “We’re at the maximum pressure.”
US equity index futures all pointed to a drop at the open, though losses were pared modestly from earlier in the session. In Europe, the Stoxx 600 Index also came off its lows, with gains in food and healthcare shares offsetting declines in banks. European shares fell further and the Swiss franc jumped to a two-year high as Beijing sent another shot across Washington’s bows on trade and then euro zone data came in weak though the main groundswell was in bonds.
“No one now thinks a deal would be possible at the G20. It is going to be a prolonged battle. Investors are rushing to the safe assets,” Mitsubishi’s Fujito said.
German government bond yields dropped to a new record all-time lows of -0.219%, while those on two-year U.S. Treasuries were seeing their biggest two-day fall since early October 2008, when the global financial crisis was kicking off.
“Bonds are more or less on fire and I think we are going to spend the week with trade dominating everything else,” said SocGen fx strategist Kit Juckes. With German and UK political concerns and worries about Italy’s finances resurfacing too, “it is hard to think the yen is not going to be at least one of the winners this week.”
There was not flight to safety for Deutsche Bank, whose stock dropped to a new all time low, sliding below €6.00 for the first time ever after JPMorgan said DB’s issue is not about capital or liquidity but about poor operating profitability and it needs to stop “tinkering with its restructuring efforts.” The German bank “needs to make objective decisions about what business and/or asset can be closed or reduced”, JPM’s Kian Abouhossein and Amit Ranjan wrote, adding that CEO Sewing is “up to the challenge” to take action against status quo as he is over-delivering on cost targets. One look at the chart below suggests the market disagrees.
Asian stocks reversed an earlier decline as utilities and IT stocks boosted the regional index. Markets in the region were mixed. South Korea’s Kospi index and India’s S&P BSE Sensex Index rose, while Japan’s Topix index and Australia’s S&P/ASX 200 fell. The MSCI Asia Pacific Index climbed 0.2% in Hong Kong. The Kospi closed 1.3% higher, with Chasys Co. and Heung-A Shipping Co Ltd leading gains. India’s S&P BSE Sensex Index advanced 1.2%, led by basic materials and technology shares. Chinese shares ended little changed though the yuan faced pressure.
A private survey of China’s manufacturing sector published on Monday suggested a modest expansion in activity as export orders bounced from a contraction. In contrast to the fall in NBS manufacturing PMI, the Caixin manufacturing PMI was unchanged in May at 50.2, and above the 50.0 expected, although sub-indexes suggested weaker production, higher inventories and stronger new orders. Business confidence appeared to have deteriorated in light of lingering trade tension with the US.
Additionally, economists noted increases in new export orders pointed to possible front-loading of U.S.-bound shipments to avoid potential tariff hikes that U.S. President Donald Trump – who kicked off a potentially confrontational state visit to Britain on Monday – had threatened to slap on another $300 billion of Chinese goods. “Chinese companies probably see the current export conditions as severe as during the China shock in 2015,” said Wang Shenshen, economist at Tokai Tokyo Research Center.
And speaking of economic headwinds, with the bitter trade weighing, factory activity contracted in most Asian countries and the euro zone last month, the latest PMI surveys showed. The eurozone’s slowdown was for the fourth month running, and at an accelerating pace, as slumping automotive demand, Brexit and wider political uncertainty took their toll. “The sector remains in its toughest spell since 2013,” said Chris Williamson, chief business economist at IHS Markit.” The UK mfg PMI also dipped below 50, indicating contraction.
Elsewhere, Emerging market stocks and currencies were heading for their biggest 3-day gain in two months as bets a sell-off last month had gone too far outweighed falling oil prices and renewed trade tensions. The MSCI Emerging Markets Index of stocks climbed to a two week high, while its currency counterpart traded above its 200-day moving average.
“Why should emerging markets sell off just because the U.S. is shooting itself in the head?” said Jan Dehn, Ashmore Group’s head of research based in London. “I can understand why Mexico sold off, but this is a policy mistake, which will hurt America. So it is only right that America is sold, not emerging markets.”
Asian currencies led by South Korea’s won were the best performers, while Chinese telecom stocks rallied after a report Beijing will issue commercial licenses for fifth-generation telecommunication services. The Yen rose, as did Europe’s go-to safety play, the Swiss franc, which rallied to its highest in nearly two years against the euro. The euro hovered at $1.1171 having been stuck in one of its tightest ranges ever against the dollar.
Brent crude fell for a fourth day, tumbling as much as 1.8% to $60.86 per barrel. Oil has dropped almost 20% since April, approaching a bear market. WTI futures dropped 1.3% too to below $53 a barrel for the first time since mid-February. Copper futures in Shanghai fell 0.5% to two-year lows while safe-haven gold jumped as much as 0.5% to a 10-week high of $1,312.4 per ounce.
Expected data include PMIs and construction spending. Box and Coupa Software are reporting earnings.
Market Snapshot
S&P 500 futures down 0.4% to 2,742.00
STOXX Europe 600 down 0.7% to 366.56
MXAP up 0.2% to 152.60
MXAPJ up 0.5% to 500.95
Nikkei down 0.9% to 20,410.88
Topix down 0.9% to 1,498.96
Hang Seng Index down 0.03% to 26,893.86
Shanghai Composite down 0.3% to 2,890.08
Sensex up 1% to 40,124.89
Australia S&P/ASX 200 down 1.2% to 6,320.55
Kospi up 1.3% to 2,067.85
German 10Y yield fell 1.1 bps to -0.213%
Euro up 0.03% to $1.1172
Italian 10Y yield rose 1.4 bps to 2.297%
Spanish 10Y yield fell 2.7 bps to 0.688%
Brent futures down 3.8% to $62.05/bbl
Gold spot up 0.7% to $1,315.17
U.S. Dollar Index little changed at 97.71
Top Overnight News from Bloomberg
Trump landed in the U.K. for a three-day state visit at a sensitive time for the country’s ruling Conservative Party. Rival candidates are jostling to replace outgoing Prime Minister Theresa May, and the president has already weighed in with his own opinions on the contenders
Trump opened another potential front in his trade war, terminating India’s designation as a developing nation and thereby eliminating an exception that allowed the country to export nearly 2,000 products to the U.S. duty-free. Meanwhile China was planning retaliatory trade measures against the U.S.
China’s government says it’s willing to work with the U.S. to end an escalating trade war but blames President Donald Trump’s administration for the collapse in talks and won’t be pressured into concessions
“We don’t have plans to change our inflation target, but are looking at our framework more broadly,” San Francisco Fed President Mary Daly says in reply to question after speech in Singapore
President Trump on Saturday defended his decisions to impose or raise levies against imports from Mexico and China, respectively, saying “companies are moving to the U.S.” to avoid paying the levies
Trump downplayed the chance he would impose tariffs on Australia, a top U.S. ally, after the New York Times reported his administration considered doing so last week
With U.K. Prime Minister Theresa May about to hand over the reins of power, candidates to succeed her now feel free to speak out on issues such as Huawei Technologies Co. Ltd.’s role in the country’s 5G telecoms infrastructure
The Social Democrats, the junior coalition partner in Germany’s government, will begin searching for an interim chief after Andrea Nahles said she lost the support of her party
Factory output in the euro area fell close to a six-year low in May, with slumping orders and declining workforces signaling a bleak outlook for demand. The data underscores a picture of an economy that is struggling to emerge from a slowdown that has lasted more than a year
Britain’s manufacturing sector unexpectedly shrank in May for the first time since the direct aftermath of the 2016 Brexit referendum. IHS Markit’s manufacturing PMI dropped to 49.4 from 53.1 in April as factories unwound Brexit preparations when the departure date was pushed back. The reading was weaker than the 52 forecast
Deutsche Bank AG and UniCredit SpA moved some of their swaps trades from London to Frankfurt in May as banks used a lull in the ongoing Brexit drama to prepare for the worst
Asian equity markets traded negatively with risk appetite subdued as the US faces a 2-front trade war against China and Mexico, although stronger than expected Caixin PMI data helped limit losses in China. Nonetheless, a risk averse tone was seen from the reopen after China released a white paper that blamed the US for the setback of trade talks which pressured US equity futures to extend on the losses from Wall St’s worst May performance since 2010. ASX 200 (-1.2%) and Nikkei 225 (-0.9%) declined with the energy sector the underperformer in Australia after the recent oil slump, while safe-haven currency flows weighed on Tokyo stocks and with weakness in SoftBank exacerbated on reports of funding difficulties for its next USD 100bln tech fund. Hang Seng (U/C) and Shanghai Comp. (-0.3%) were initially higher after the PBoC maintained net liquidity through CNY 80bln of reverse repos and after Chinese Caixin Manufacturing topped estimates, although the gains were short-lived as trade concerns remained heavily in focus with China playing the blame game, while it is also set to draft its own blacklist of ‘unreliable’ entities and probe FedEx over possible infringement of Huawei’s legal rights regarding rerouted packages. Finally, 10yr JGBs were steady with only marginal gains seen despite the widespread risk aversion and the BoJ presence in the market for JPY 800bln in up to 5yr JGBs.
Top Asian News
Bank of Jinzhou Auditors Resign Citing Loan Inconsistencies
China’s Top Courier Gains as FedEx Targeted in U.S. Trade War
SpiceJet Has ‘Offers’ for Stake in Indian Budget Airline
Turkish Inflation Slows Again as Food Prices Bring Relief
Major European indices began the week lower in continuation from the Asia-Pac session which was weighed on by China releasing a white-paper blaming the US for the set back in trade talks and are to draft a ‘black-list’ of unreliable entities. Throughout the mornings trade bourses have been grinding higher but are still in negative territory [Euro Stoxx 50 -0.1%]; sectors are mixed on the day with some moderate outperformance seen in Utilities, which Nomura Quants note is not sufficient to trigger an excessive volatility shock as the sell-off in cyclicals in minimal compared with prior selloffs. Notable movers this morning include Infineon (-6.4%) who are near the bottom of the Stoxx 600 after it was reported that they are to acquire Cypress Semiconductors for an enterprise value of EUR 8bln; Co’s boards have already consented to this acquisition. Elsewhere, airline names are somewhat subdued after reports that the global airline industry is to record its lowest profit in five-years, particularly easyJet (-2.1%) which is also weighed on following reports that the Co. are this week to drop out of the FTSE 100 (-0.4%). At the other end of the Stoxx, and topping the DAX are Wirecard (+2.3%) following the CEO stating they expect an outstanding H1.
Top European News
Euro-Area Manufacturing Remained Stuck in Its Slump in May
U.K. Manufacturing Slips Into Contraction After Brexit Delay
Danske Moves Toward Total Baltic Exit Amid Laundering Saga
One Man’s $75 Million Perk Triggers Indignation in Denmark
Glencore’s Executive Departures Hasten as Oil Chief Leaves
In FX, the dollar was little changed on the day thus far, following on from a relatively subdued session overnight as the index remains sub-98.00 ahead of this week’s key risk events which includes US ISM manufacturing PMI, ECB’s monetary policy meeting and US jobs data. The index remains near the middle of the intraday 97.57-80 range with gains capped by bleeding US yields.
EUR/GBP – Hardly fazed on manufacturing PMI day in which the EZ number was unrevised (as expected) whilst UK’s manufacturing sector slipped into contraction, with new orders and employment both declining whilst stockpiling paused following the Brexit delay. Sterling remains dedicated to Brexit related development as new members line up for the Tory leadership, with the latest from Environmental Sectary Gove, a front runner, reportedly considering a further extension beyond October 31st, whilst leading candidate Johnson said that if he is elected, the UK will leave the bloc with or without a deal on Brexit day. EUR/USD remains within a relatively tight 1.1157-90 range with clean air to the upside until the 1.1200 handle. Beyond that, the pair’s 50 DMA resides around 1.1208 with resistance seen at 1.1264 (May high). Meanwhile, Cable hovers around the 1.2650 mark with little seen to the upside by way of near-term tech levels.
CHF/JPY – Both firmer on the day, albeit the Yen to a lesser extent, in a continuation of the Trump triggered risk-off mood around the market. USD/JPY fell to whisker away from the 108.00 level (low 108.08) whilst its Franc counterpart slipped further below parity vs. the Greenback. Deutsche Bank recommends “good news rallies should be sold as trade tensions may get relief rallies” as the JPY-crosses “should remain under pressure”. It’s worth keeping in mind USD/JPY sees almost 1bln in option expiries at 108.00-15 ahead of supports at 107.77 and 107.27 (Jan 10 low and 61.8% Fib respectively) whilst USD/CHF sees its 200 DMA at 0.9959 (having already tested the level) ahead of its 200 WMA at 0.9847.
AUD/NZD – Marginally firmer in the aftermath of optimistic China Caixin manufacturing data which provided the antipodeans with some relief following last week’s losses. AUD/USD hovers around the 0.6950 mark (high 0.6960, low 0.6928) despite a looming RBA rate cut, with participants on the look-out for guidance into the aggressiveness of the much-anticipated easing cycle. Meanwhile, its antipodean counterpart seems to be benefiting more as the AUD/NZD cross breached its 200 DMA (1.0624) as it tests the 1.0600 level ahead of its 50 DMA (1.0571)
In commodities, WTI and Brent futures are recovering off Asia-Pac lows with the former back above the 53.00/bbl handle and climbing towards the next round figure, whilst the latter is attempting to turn positive on the day having already dipped below the 61.00/bbl figure overnight. The weekend saw the release of Russian May crude production which stood at an 11-month low at 11.11mln BPD, down from last month’s 11.24mln BPD, although this was mainly due closures from the Druzbha pipeline due to oil contamination. Elsewhere, Saudi reported a M/M decline in oil output to 9.65mln BPD from the prior 10.05mln BPD, whilst the Kingdom’s energy minister stated that Saudi is committed to do whatever is required to stabilise the oil market. GS takes into account the supply/demand side concerns and net-net expects prices to remain volatile in the coming months, albeit around current levels. Turning to OPEC, the bank sees higher production from Saudi, Russia, UAE and Kuwait to offset Iranian and Venezuelan shortfalls. Thus, GS expects backwardation to persist in the coming months, whilst also revising lower its Q2 Brent forecast to 65.50/bbl from 72.50/bbl, also citing spare capacity created by a new Permian pipeline. Elsewhere, gold (+0.7%) benefits from its safe haven characteristics and extends gains above its 1300/oz level whilst copper prices are seeing some reprieve following last week’s slump as the red metal was underpinned by optimistic Caixin manufacturing data from China.
Goldman Sachs suggest that oil prices may recover from here due to a tight EU crude market, sudden moves lower, OPEC’s reluctance to increase supply and above consensus growth forecasts, However, increasingly uncertain macro outlook, rising production an OPEC spare capacity suggests prices at likely to remain around current levels with high volatility
US Event Calendar
9:45am: Markit US Manufacturing PMI, est. 50.6, prior 50.6
10am: ISM Manufacturing, est. 53, prior 52.8
10am: Construction Spending MoM, est. 0.4%, prior -0.9%
Wards Total Vehicle Sales, est. 16.9m, prior 16.4m
DB’s Jim Reid concludes the overnight wrap
Obviously being a Liverpool supporter it was a glorious weekend for me. Not even the kids could spoil it although on Saturday we went out strawberry picking as a family and aimed to leave at 930am but eventually left hot, bothered and bad tempered at 1pm. There were tantrums, numerous toilet related accidents, several changes of clothes, more tantrums, buckets of suncreams to apply, sunglasses to find, pack lunches to prepare etc etc. Originally we finally got ready to leave 2 hours late and then as we reversed the car we found that our electric gates wouldn’t open. After 30mins of failed brute force we called someone out. They came in an hour, fixed it and off we went 3.5 hours late. As for the final it was an awful game. In fact given it was Europe’s premier sporting occasion and given that it featured two English sides I’d imagine those in Brussels this morning will be lobbying extensively for the hardest possible Brexit so they don’t have to watch such a poor spectacle again. Anyway a great result… for me at least.
Markets have been on the wrong end of some bad results over the past month and after a strong 2019 up until the end of April, May was a big risk-off month with this trend accelerating over the last week. Craig has already published the May/YTD/QTD performance review(link here ) this morning so please see that for more but the highlights are Bunds going from 0% to a multi-century record low of -0.202% and the S&P500 (-6.2%) having its 3rd worst month in the last 92 behind only December and September last year which saw declines of -9.0% and -6.8% respectively. We’ll review the last week in a bit more detail later on but the highlight on Friday was a 13.9bp rally for 2yr US Treasuries (24.2bps on the week – the most for nearly a decade) as the probability of multiple US rate cuts this year surged as the out of the blue Mexican tariffs added to the recent Chinese ones. I suppose one of the additional worries would be that if the US has been so quick to escalate the trade war on these two countries the bar must be a bit lower to carry out a trade assault on Europe at some point in the future. Interesting times.
Quickly looking forward to this week before we analyse the weekend news, the data highlights will be the final global manufacturing PMIs and US ISM (today), the services and composite PMIs/US ISM (Wednesday), the latest ECB meeting (Thursday) and then another payroll Friday to end the week. The US ISM today may be the key release. The consensus expects a 0.2pt increase to 53.0 however our US economists have highlighted that in the current business cycle, the new exports orders components has led the headline by 5 months, and that the recent sharp downtrend in new export orders does not bode well. In the background we are still waiting for the date of a potentially China hawkish speech from US VP Pence (rumoured to have been moved from tomorrow’s 30th anniversary of the Tiananmen Square incident, maybe to avoid being maximum inflammatory). It could still be this week and likely be a big event. In terms of Fedspeak, the big event is the long awaited Fed research conference on “Monetary Policy Strategy, Tools, and Communications Practices” tomorrow and Wednesday. The future of how to interpret the 2% inflation mandate is the most widely anticipated part of the get together but this will likely be nearer the start of the conversation rather than the end of it. So so don’t expect a revolution yet.
China’s May Caixin manufacturing PMI has already been published overnight and it has diverged a touch from the official PMI from Friday as it slightly beat expectations at 50.2 (vs. 50.0 expected). Surprisingly, the commentary alongside the release said that the new orders component continued to rise over the previous month. However, the output sub-index fell to 50.1 (vs. 50.7 in last month), the lowest reading since January 2019. China also held a press conference yesterdayandissued a white paper outlining their official position on the trade talks. Theystated that the US ‘should bear the sole and entire responsibility’ for the breakdown in negotiations. Vice Commerce Minister Wang Shouwen didn’t overly escalate matters though and said that China is willing to work with the U.S. to find solutions, but the latter’s strategy of maximum pressure and escalation can’t force concessions from China. The white paper reiterates what the Chinese have recently suggested they require for a trade deal – a) US should remove all additional tariffs, b) China’s purchases of goods from the U.S. should be realistic, and c) there should be a proper balance in the text of the agreement. China has also launched an investigation into FedEX for ‘wrongful delivery of packages’, with the state broadcaster CCTV saying the investigation ‘will be a warning to other warning companies, organisations and individuals violating China’s rules and regulations’. This came after news at the end of last week that the Chinese are drafting an ‘unreliable entity list’ of foreign companies. So tensions are continuing to build.
Elsewhere, President Trump has said overnight that he is “really okay” with imposing tariffs on Mexico over illegal immigration if an agreement can’t be reached on stemming the flow of migrants at the border. He added that Mexico is sending a “big delegation” to the White House on Wednesday and we will see “what can be done, but if it’s not done, you know what we’re going to be doing, and, uh, I’m really okay with that.” On a more dovish note, Mr Trump downplayed a New York Times report which said that his administration considered imposing tariffs on Australia last week. Trump’s response to the report was that the US has very strong ties with Australia and he didn’t mention tariffs. Meanwhile, President Trump has said that his top economic adviser Kevin Hassett will leave the White House shortly and he will name his replacement “soon” after he returns from a trip to Europe this week.
Markets in Asia have started the week on largely negative footing with the Nikkei (-1.26%), Hang Seng (-0.35%) and Shanghai Comp (-0.49%) all lower while the Kospi (+0.84%) is up. The Japanese auto index is down a further -1.04% this morning after declining -3.60% on Friday. All the G10 currencies are trading slightly stronger (+0.10-0.30%) this morning. Elsewhere, futures on the S&P 500 are down -0.54% while oil prices (WTI -0.95% and Brent -1.39%) are also weak. In other overnight data releases, Japan’s final May manufacturing PMI came in two tenth above the preliminary read at 49.8 (vs. 50.2 in last month) while capital spending in Q1 remained strong at +6.1% yoy (vs. +2.6% yoy expected).
Elsewhere Andrea Nahles, the head of junior German coalition partner the SPD, resigned yesterday throwing ever more questions out there about the sustainability of the coalition.
Recapping Friday’s and last week’s market action now, the moves were dominated by the trade-war escalation and generally poorer economic data. The S&P fell -2.62% in a holiday-shortened week for its worst weekly performance of the year, sliding early in the week before staging a modest recovery on Thursday that was subsequently erased after the Mexico tariff induced selloff on Friday (-1.32% on Friday). That was the fourth consecutive weekly decline, a streak that hasn’t occurred since October 2014. Other US indexes staged similar moves, with the DOW and NASDAQ down -3.01% and -2.41% (-1.41% and 1.51% Friday), respectively. Some cyclical sectors lagged, with banks down -3.96% (-1.53% Friday), with other recent laggards actually outperforming with the Philly semiconductor index down only -1.20% (-1.45% Friday).
That poor move by banks was largely attributable to the sharp move lower in bond yields, as treasuries rallied on risk aversion and tepid inflation data. Ten-year yields fell -18.7bps (-8.0bps Friday) but the real action was in the front end, where 2-year yields fell -24.2bps (-13.9bps Friday) for their sharpest weekly move in almost 10 years. US core PCE for the first quarter was revised lower by 0.3pp to 1.0% on an annualised quarter-on-quarter rate. That’s significantly below the Fed’s target, and though there remains scope for inflation to rise over the next several months and quarters, the market is pricing full-on easing from the Fed now. Futures prices now imply 55bps of cuts this year, an additional 34bps of cuts compared to the preceding week. The sharp repricing in the front end is keeping the 2y10y yield curve in positive territory though, as it rose +4.4bps this week to 19.8bps (4.8bps Friday).
Other global equity indexes followed the US lower, with the STOXX 600 down -1.82% (-0.81% Friday) and European banks ending -3.22% (-1.67% Friday), back to their lowest level since December’s mini meltdown. Bunds rallied, though not as sharply as treasuries, with yields dropping -8.5bps to a new all-time low of -0.20% (-2.7bps). Italian BTPs notably underperformed, with yields rising +11.6bps (+1.4bps Friday), in the face of generalised safe haven flows into bonds. In credit, European HY cash spreads widened +14bps (+8bps Friday), while spreads in the US staged their worst performance of the year, widening +38bps (+20bps Friday). Despite all the carnage in equities and credit, the VIX and V2X remained surprisingly calm, rising only +2.9pts and +0.7bps (+1.4pts and +0.7pts Friday) to 18.71 and 17.42 respectively.
via ZeroHedge News http://bit.ly/2WkJAYV Tyler Durden
President Trump and his family might be about to meet Queen Elizabeth II for a historic state visit, but despite the momentous occasion, the president’s mind appears elsewhere, as he has been tweeting at a constant clip since landing in the UK a few hours ago.
Trump described the coverage as “all negative & so much Fake News, very bad for US. Big ratings drop.”
Then he asked: “Why doesn’t owner @ATT do something?,” before exhorting Americans to boycott AT&T to force the company, which recently bought CNN owner Time Warner in a deal that was aggressively opposed by the Trump DoJ, to make “big changes” at the cable news channel.
“When the world watches @CNN, it gets a false picture of the USA. Sad!”
Just arrived in the United Kingdom. The only problem is that @CNN is the primary source of news available from the U.S. After watching it for a short while, I turned it off. All negative & so much Fake News, very bad for U.S. Big ratings drop. Why doesn’t owner @ATT do something?
I believe that if people stoped using or subscribing to @ATT, they would be forced to make big changes at @CNN, which is dying in the ratings anyway. It is so unfair with such bad, Fake News! Why wouldn’t they act. When the World watches @CNN, it gets a false picture of USA. Sad!
Trump’s favorite network, Fox News, isn’t widely available in the UK, and British Sky Television – which was once controlled by the Murdoch family (as are the tabloid “The Sun” and the broadsheet “Times of London”), who still control Fox News – was recently taken over by Comcast after the company outbid the Murdochs. Rupert Murdoch, the family patriarch, founded the pay-TV channel in London back in the late 1980s.
via ZeroHedge News http://bit.ly/314m3ud Tyler Durden
As the Metropolitan Police dispatch over 10,000 police officers to provide extra security during President Trump’s three-day state visit to the UK capital – which officially started early Monday when Air Force One touched down in London – the editors of the UK’s most left-wing newspaper have published a scathing editorial warning that Trump “was not welcome”, and bashing outgoing PM Theresa May’s government for inviting him.
In the editorial – published just a day after London Mayor Sadiq Khan wrote an op-ed in the paper arguing that the UK would be on the “wrong side of history” for hosting Trump – the editors of the Guardian warned that inviting Trump to the UK was a “crass error” and an act of “gross irresponsibility.”
Though the paper acknowledged that the visit was “largely symbolic”, it added that there was “more at stake here than pomp and circumstance:” Trump is a “demagogue who represents a threat to peace, democracy and the climate of our planet.” As the leader of the UK’s closest ally, the paper acknowledged that Trump “can’t be ignored.” But to make him, his wife and four adult children “honored guests of the Queen” risked “legitimizing his destructive policies, his cronyism and his leanings toward autocracy.”
Trump’s position as the leader of the free world “makes his personality a legitimate source of fascination,” the paper’s editors argued. But the real danger of hosting Trump to celebrate the 75th anniversary of D-Day – something that should be, according to the etiquette of statecraft, a non-partisan occasion, though this was apparently lost on the Guardian’s editors – isn’t that it would “boost his ego,” but that “his presence and public statements will boost anti-democratic and rightwing populist elements here.”
This criticism, it must be noted, glosses over the fact that Trump was democratically elected, that he his ‘autocratic leanings’ aren’t rooted in action or fact, and that intensifying speculation that Trump might refuse to leave the White House should he leave in 2020 (a prospect that’s looking increasingly unlikely) is just another example of groundless left-wing hysteria.
The paper blasted Trump over his ‘meddling’ in the UK’s affairs – the president memorably suggested over the weekend that the new Tory government dispatch Nigel Farage to negotiate a new Brexit deal with Brussels – and accused him of violating ‘diplomatic norms.’
For a nation “in the throes of a full-blown constitutional crisis,” inviting Trump on an official state visit, and, worse still, making him just the third US president after George W Bush and Barack Obama to receive such an honor, is tantamount to an act of “national self-harm.”
The Guardian’s editors concluded with an exhortation to action for the outgoing prime minister: “It is incumbent upon Mrs May and others to challenge him directly – or risk appearing to give the assault on women’s rights, and bullying of neighbouring states, a seal of approval.”
If the Guardians’ editors were incensed by Trump’s mere presence in the country, imagine how they will feel about this: Around the time his plane touched down in London, Trump fired off a series of tweets comparing London Mayor Sadiq Khan to a “very dumb and incompetent Mayor of NYC, de Blasio, who has also done a terrible job – only half his height.” He also blasted the mayor, who authorized a giant balloon portraying Trump as a ‘crybaby’ (an extremely mature decision, in our estimation), as a “loser” who should “focus on crime” in his city.”
.@SadiqKhan, who by all accounts has done a terrible job as Mayor of London, has been foolishly “nasty” to the visiting President of the United States, by far the most important ally of the United Kingdom. He is a stone cold loser who should focus on crime in London, not me……
….Kahn reminds me very much of our very dumb and incompetent Mayor of NYC, de Blasio, who has also done a terrible job – only half his height. In any event, I look forward to being a great friend to the United Kingdom, and am looking very much forward to my visit. Landing now!
If our instincts our correct, this editorial will be merely the first in a daily assault on Trump from a paper that has published patently false stories about Trump’s administration, including claims that former Trump campaign executive Paul Manafort met with Julian Assange in furtherance of the ‘Russia hoax’, and still had the gall to accuse Trump of being a purveyor of ‘Fake News’.
via ZeroHedge News http://bit.ly/2KolWnl Tyler Durden
Unfortunately for everybody who didn’t “sell in May”, stocks are on track to pick up where they left off in June, with the main indexes set to open lower on Monday.
And while signs of intensifying trade tensions have widely been blamed for the weakness overnight, the announcement late Sunday that the Trump administration will soon be losing one of the market’s favorite purveyors of economic optimism certainly isn’t helping.
Kevin Hassett
In a tweet Sunday night, President Trump revealed that Hassett would be leaving his post “shortly”, before praising Hassett, the head of the White House Council of Economic Advisors, as “very talented.”
Kevin Hassett, who has done such a great job for me and the Administration, will be leaving shortly. His very talented replacement will be named as soon as I get back to the U.S. I want to thank Kevin for all he has done – he is a true friend!
Hassett has served as the White House’s chief economist since September 2017. A longtime “movement” conservative, Hassett helped shape the 2017 Republican tax law and – despite being a staunch free trader and immigration moderate – distinguished himself as a staunch defender of the president’s policies. Most memorably, he repeatedly appeared in interviews defending the administration’s position that, thanks to the Trump tax cuts, sustained 3% growth would be possible.
However, his tenure was not entirely free of the whiff of controversy. Following the NYT’s publication of the “Trump resistance” op-ed back in September, the Washington Post named Hassett as a suspect for the authorship of the now infamous “internal resistance” op-ed purportedly published by a Trump Administration insider. At the time, he vociferously denied having any role in the editorial’s publication.
Hassett told the Washington Post that his departure was unrelated to the trade conflict, and that he had told the president about his plans to leave last week. He plans to stay in the role for another month or so while the administration interviews potential replacements. The economist didn’t comment on the search for his replacement, but did say the Council of Economic Advisors was “chuck full” of good advisors.
Whomever Trump picks to replace Hassett, investors will be hoping that he or she possesses the same gift for jawboning the markets. Because if not, how will we ever make it back to the ATHs?
via ZeroHedge News http://bit.ly/2EPsFTw Tyler Durden
American universities, already dealing with a slump in applications as tuition costs climb at a rate that far outpaces inflation, might soon have an even more serious problem on their hands: In its latest trade war threat, Beijing has warned Chinese students to “raise their risk assessment” before deciding to study in the US.
For “a period of time now” – a period that undoubtedly coincides with the dawn of the Trump Administration – Chinese students studying in the US have faced visa delays and restrictions, China’s Ministry of Education warned.
“For a period of time now, some Chinese students in the US have faced situations where their visas were restricted or delayed, the period of validity was shortened, or [their applications] were rejected,” it said in a statement, relayed by the Chinese state broadcaster CCTV.
“The ministrywants to remind [Chinese] students and scholars to raise their risk assessment,strengthen their preventative awareness, and make the appropriate preparations.”
Global Times editor Hu Xijin broke the news of the warning on Twitter.
Based on information I received, China will issue a warning on the risk of studying in the US. This warning is a response to recent series of discriminatory measures the US took against Chinese students and can also be seen as a response to the US-initiated trade war.
Since last summer, Chinese students hoping to study in the technologically sensitive fields of robotics, aviation, engineering and hi-tech manufacturing have faced tighter visa controls in the US, thanks to a Trump Administration policy that’s mandated increased wariness of Chinese students vying to work in technologically sensitive industries. At one point, Steven Miller had nearly convinced Trump to ban student visas for Chinese students over national security concerns, however Terry Branstad, the US ambassador to China, won out after warning that small private colleges – including in the state of Iowa, where Branstad was once governor – would be adversely impacted.
Though hundreds of thousands of Chinese students are currently studying in the US (in March, there were 369,364 students from China), the US’s appeal has waned slightly over the past few years, as the rate of applications from Chinese students to American colleges has declined.
Treasury yields dropped on the news, as signs of intensifying trade tensions over the weekend instigated a rally in Treasury bonds.
via ZeroHedge News http://bit.ly/2JUKsgg Tyler Durden
