Cable Crashes To 29-Month Lows As ‘No-Deal’ Brexit Looms

Sterling has plunged back below 1.23 for the first time since March 2017 after new U.K. Prime Minister Boris Johnson’s first high-level Brexit cabinet meeting today.

Unless the EU agrees to re-open negotiations, Johnson’s top aide Michael Gove warns that a ‘no deal’ exit is the most likely outcome.

“We still hope they will change their minds, but must operate on the assumption that they will not,” Gove wrote in the Sunday Times.

“No deal is now a very real prospect, and we must make sure we are ready.”

And nothing this morning has improved the prospects, prompting traders to sell hard.

This is the weakest level for Sterling since March 2017…

And as cable crashes to FTSE stocks soar…

Most worrying for many is the fact that, as Bloomberg reports, Dominic Cummings, a key leader in the 2016 Brexit campaign, called advisers to the prime minister’s residence Friday night and told them Brexit will happen “by any means necessary,” the Times said. Cummings said Johnson is prepared to suspend Parliament or hold an election to thwart those who may seek to block a no-deal Brexit.

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Here It Comes: The Most Important Week Of The Year

The “most important week of the year” is finally here, when in addition to an avalanche of economic data including US payrolls, European PMIs, BOE and BOJ announcements, and the restart of US-China trade talks, we are in for a historic treat with the Fed set to cut rates for the first time in over a decade, effectively ushering in the next recession (the US economy contracted within 3 months of the first rate cut in the last three economic cycles; this time won’t be different).

As Deutsche Bank’s Craig Nicol summarizes, it’s an incredibly busy schedule for markets this week as they anticipate what will be the first (fully priced-in) rate cut from the Federal Reserve since 2008, as well as the latest decisions from the Bank of England and the Bank of Japan. There are also a number of key data releases, with the US jobs report, Q2 Euro Area GDP and manufacturing PMIs the main highlights. As all this occurs, we’ll see the resumption of US-China trade talks, along with further earnings releases as over 150 S&P 500 companies report.

With the much-anticipated FOMC decision finally taking place on Wednesday, that will be the key focus for markets over the coming week. Markets are expecting a rate cut, but the question of whether that will be a 25bp or 50bp cut is still on investors’ minds. At time of writing, markets put the probabilities at 82.5% for a 25bp cut and 17.5% for a larger 50bp cut, with DB’s US economists are expecting a 25bp cut in July, before further cuts in September and December, while Morgan Stanley is alone in expecting the Fed will go against the grain – and the NY Fed’s own warnings – and cut by 50 bps.

While the Fed can be expected to dominate the agenda, they aren’t the only major central bank that’s meeting next week. Ahead of the Fed, the Bank of Japan will be setting rates on Tuesday, with the consensus expecting policy will be unchanged. On Friday, they will also be publishing the minutes of their June Monetary Policy Meeting. Meanwhile on Thursday, we’ll have the Bank of England’s latest decision, as well as a press conference from Governor Carney and their quarterly inflation report. Although no change in rates is expected this week, markets are now expecting the BoE’s next  move to be a cut rather than a hike.

The data highlight this week will also be from the US, with the monthly jobs report out this Friday. After last month’s strong nonfarm payrolls number of 224k, the consensus is for the number to fall to 160k for July, with the unemployment rate remaining at 3.7%. Another data release to watch out for in the US will be the Conference Board Consumer Confidence number, which is out on Tuesday. June’s 121.50 reading was the lowest number since September 2017, so it’ll be interesting to see if there’s a pickup as expected.

In the Euro Area, we’ll get the first look at Q2 GDP numbers, with the consensus that growth will fall to 0.2%, down from 0.4% in Q1. We’ll also get the country breakdowns for France, Italy, and Spain, so it’ll be interesting to see whether there’s any divergence across the currency union. The other highlights this week will be the Euro Area unemployment rate for June on Tuesday, as well as the final manufacturing PMI on Thursday.

Turning to politics, this week will see the resumption of trade talks between the US and China. The US team, including Trade Representative Lighthizer and Treasury Secretary Mnuchin, travel to Shanghai next week to meet their Chinese  counterparts, beginning on Tuesday. The meeting comes after the G20 meeting between Presidents Trump and Xi, where they agreed to resume talks and Trump didn’t put further tariffs on $300bn worth of Chinese imports. Sticking with the US, this week will see the second round of the Democratic primary debates for the 2020 Presidential election, with the  two debates taking place on Tuesday and Wednesday night. Meanwhile in the UK, there’ll be a parliamentary by-election on Thursday in the Welsh constituency of Brecon and Radnorshire.

Finally, earnings season will continue, with 168 S&P 500 companies report this week. So far, of the 205 companies in the S&P 500 which have reported at time of writing, 78% have beat on earnings, and 59% have beat on sales. Highlights in the coming week include Apple, BP, Procter & Gamble, Mastercard and Pfizer on Tuesday; General Electric, Airbus and Lloyds  Banking Group on Wednesday; Royal Dutch Shell, Barclays, Verizon Communications,  General Motors, Rio Tinto and Siemens on Thursday; and Exxon Mobil, Chevron and RBS on Friday.

Summary of key events by day, courtesy of Deutsche Bank

  • Monday: It’s a light start to the week with the key releases of note being Japan’s June retail sales overnight. After that we will get Spain’s preliminary July CPI, Italy’s June PPI and the UK’s June consumer credit, mortgage approvals and  money supply data. In the US the only release of note is July’s Dallas Fed manufacturing activity index.
  • Tuesday: The main highlight of the day is going to be the outcome of the BoJ’s monetary policy meeting while in the US June core PCE is also due. In terms of data, we will get the Euro Area’s June unemployment rate, preliminary Q2 GDP in France along with June consumer spending, preliminary July CPI in Germany along with August GfK consumer confidence and July confidence indicators for the Euro Area. In the US, we will get June personal income and spending data, May S&P Corelogic house price index and July Conference Board consumer confidence indicator. Trade talks between the US and China will resume and it’s the first of two nights of Democratic primary debates. Earnings releases include Apple, BP, Procter & Gamble, Mastercard and Pfizer.
  • Wednesday: The outcome of the FOMC meeting followed by Chair Powell’s press conference (07:30pm London Time) will be the main event of the day. Overnight China’s official July PMIs are also due. In terms of data, we’ll get the UK’s July GfK consumer confidence, the Euro Area, France and Italy’s preliminary July CPI, Euro Area, Spain and Italy’s preliminary Q2 GDP, and Germany’s July unemployment report. In the US, we will get July’s ADP employment change and MNI Chicago PMI.  It’s also the second night of Democratic primary debates while earnings releasesinclude General Electric, Airbus and Lloyds Banking Group.
  • Thursday: The main highlight of the day is going to be the outcome of the BoE’s monetary policy meeting followed by Governor Carney’s press conference, while the release of final July manufacturing PMIs is also due in Japan, China, the Euro Area, UK, Germany, France, Spain, Italy and the US. In the US, we will also get July Challenger job cuts, ISM manufacturing data and total vehicle sales along with latest weekly initial and continuing claims, and June construction spending. Away from data, BoJ’s Amamiya is also due to speak, while the UK has a parliamentary by-election. Earnings releases include Royal Dutch Shell, Barclays, Verizon Communications, General Motors, Rio Tinto and Siemens.
  • Friday: It’s a payrolls Friday with July’s nonfarm payrolls report due in the US (1:30pm London Time). Prior to that, we will get the BoJ’s June Monetary Policy Meeting minutes, the UK’s July construction PMI and the Euro Area’s June PPI and retail sales. In the US, we’ll get the June trade balance, factory orders, and final durable and capital goods orders along with the final University of Michigan survey results. Earnings releases include Exxon Mobil, Chevron and RBS.

Looking at just the US, the key event this week is the July FOMC meeting, with the release of the statement at 2:00 PM ET followed by Chair Powell’s press conference at 2:30 PM. The ISM manufacturing report will be released on Thursday and the employment report on Friday. There are no other scheduled speaking engagements from Fed officials this week.

Monday, July 29

  • 10:30 AM Dallas Fed manufacturing index, July (consensus -5.3, last -12.1).

Tuesday, July 30

  • 08:30 AM Personal income, June (GS +0.4%, consensus +0.3%, last +0.5%); Personal spending, June (GS +0.3%, consensus +0.3%, last +0.4%); PCE price index, June (GS +0.06%, consensus +0.1%, last +0.16%); Core PCE price index, June (GS +0.19%, consensus +0.2%, last +0.19%); PCE price index (yoy), June (GS +1.32%, consensus +1.5%, last +1.52%); Core PCE price index (yoy), June (GS +1.57%, consensus +1.7%, last +1.60%): Based on details in the PPI, CPI, import price, and GDP reports, we forecast that the core PCE index rose 0.19% month-over-month in June, or 1.57% from a year ago. Additionally, we expect that the headline PCE index increased 0.06% in June, or 1.32% from a year earlier. We expect a 0.4% increase in personal income in June and a 0.3% increase in personal spending.
  • 09:00 AM S&P/Case-Shiller 20-city home price index, May (GS +0.3%, consensus +0.2%, last flat): We estimate the S&P/Case-Shiller 20-city home price index increased 0.3% in May, following a flat reading in April. Our forecast reflects the appreciation in other home price indices such as the CoreLogic house price index in May.
  • 10:00 AM Pending home sales, June (GS +1.5%, consensus +0.4%, last +1.1%): We estimate that pending home sales rose 1.5% in June based on regional home sales data, following a 1.1% increase in May. We have found pending home sales to be a useful leading indicator of existing home sales with a one- to two-month lag.
  • 10:00 AM Conference Board consumer confidence, July (GS 126.0, consensus 125.0, last 121.5): We estimate that the Conference Board consumer confidence index rebounded by 4.5pt to 126.0 in July, reflecting continued increases in stock prices and other confidence measures.

Wednesday, July 31

  • 08:15 AM ADP employment report, July (GS +140k, consensus +150k, last +102k): We expect a 140k gain in ADP payroll employment, reflecting roughly stable jobless claims but a potential drag from other ADP inputs. While we believe the ADP employment report holds limited value for forecasting the BLS nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
  • 08:30 AM Employment Cost Index, Q2 (GS +0.7% vs. consensus +0.7%, prior +0.7%): We estimate that the employment cost index rose 0.7% in Q2 (qoq sa), raising the year-over-year rate to +2.9%. Our Q2 wage tracker stands at +3.0% year-over-year (up from 2.7% for Q1).
  • 09:45 AM Chicago PMI, July (GS 51.2, consensus 51.5, last 49.7): We estimate that the Chicago PMI rebounded out of contractionary territory in July, though we note that weak global manufacturing growth likely continues to weigh on the index.
  • 2:00 PM FOMC statement, July 30-31 meeting: As discussed in our FOMC preview, we expect the FOMC to cut the funds rate by 25bp at the July meeting, as virtually all the signals from the Committee point this way. While we cannot entirely rule out a 50bp move, we assign subjective probabilities of 90% to a 25bp cut and 10% to a 50bp cut. Our view remains that the justification for cuts remains tenuous, as growth, employment, and inflation remain close to the Fed’s goals, financial conditions are very easy, and data have mostly surprised to the upside since the June FOMC meeting.

Thursday, August 1

  • 08:30 AM Initial jobless claims, week ended July 27 (GS 215k, consensus 212k, last 206k); Continuing jobless claims, week ended July 20 (last 1,676k): We estimate jobless claims increased 9k to 215k in the week ended July 27, after decreasing by 10k in the prior week. The claims reports of recent weeks suggest that the pace of layoffs remains very low.
  • 10:00 AM ISM manufacturing index, July (GS 52.5, consensus 52.0, last 51.7): After three straight declines, we expect the ISM manufacturing index to rebound by 0.8pt to 52.5 in July, reflecting a pickup in various business confidence measures.
  • 10:00 AM Construction spending, June (GS +0.3%, consensus +0.3%, last -0.8%): We estimate a 0.3% increase in construction spending in June, with scope for an increase in private nonresidential construction and public construction.

Friday, August 2

  • 08:30 AM Nonfarm payroll employment, July (GS +190k, consensus +170k, last +224k); Private payroll employment, July (GS +175k, consensus +170k, last +191k); Average hourly earnings (mom), July (GS +0.2%, consensus +0.2%, last +0.2%); Average hourly earnings (yoy), July (GS +3.1%, consensus +3.2%, last +3.1%); Unemployment rate, July (GS 3.7%, consensus 3.7%, last 3.7%): We estimate nonfarm payrolls increased 190k in July. Our forecast reflects low jobless claims, a 10-20k boost from Census hiring ahead of August canvassing, and minimal drag from Hurricane Barry—which struck at the end of the survey week. We expect the unemployment rate to remain at 3.7%, as continuing claims were broadly stable. Finally, we estimate average hourly earnings increased 0.2% month-over-month with the year-over-year rate stable at 3.1%, reflecting negative calendar effects but some scope for a further rebound in the supervisory category.
  • 08:30 AM Trade balance, June (GS -$54.7, consensus -$54.5bn, last -$55.5bn): We estimate the trade deficit declined by $0.8bn in June, reflecting a decline in the goods trade deficit.
  • 10:00 AM Factory Orders, June (GS +0.6%, consensus +0.7%, last -0.7%): Durable goods orders, June final (last +2.0%); Durable goods orders ex-transportation, June final (last +1.2%); Core capital goods orders, June final (last +1.9%); Core capital goods shipments, June final (last +0.6%): We estimate factory orders increased by 0.6% in June following a 0.7% decline in May. Durable goods orders rose in the June advance report, driven by a rebound in orders of aircraft and parts.
  • 10:00 AM University of Michigan consumer sentiment, July final (GS 98.4, consensus 98.5, last 98.4): We expect University of Michigan consumer sentiment remained flat from the preliminary estimate for July. The report’s measure of 5- to 10-year inflation expectations increased by three tenths to 2.6% in the preliminary report for July.

Source: Goldman, Deutsche, Bank of America

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Trader Warns “The Fed Is Poised To Make Its Latest Policy Error”

Authored by Richard Breslow via Bloomberg,

The Fed Is Busy Fighting Yesterday’s Battles

It’s a busy week ahead, and, I guess, only one thing matters. The Fed is poised to make its latest policy error.

And the economic numbers are largely irrelevant. The press has been chock-a-block this weekend with stories about income and wealth inequality…

The U.S. fares particularly poorly in recent reports. By some official measures it ranks worst in the developed world. So, naturally, as the FOMC views the world, anything they can do to get the stock market higher seems like just the prescription..

They are going to trickle down on the little people because, in the words of Chairman Jerome Powell, the improvement in employment has, “started to reach communities at the edge of the workforce.” It’s starting to take hold, they are sure of it. Their models insist that it works.

How dumb were people who thought savings were a prudent way to plan for the future…

The S&P 500 sits at record highs. That’s a good thing. Yet we need to get it higher to combat growing inequality and populism? Stocks will continue to be attractive as the concept of earnings multiples becomes largely irrelevant in a world of negative interest rates. Something is better than nothing. But that hasn’t and won’t be a way to conduct social policy. Frankly, using global headwinds as a justification for rate cuts is a more satisfying explanation.

This Friday’s non-farm payrolls report will surely be an interesting one. It’s expected to be pretty good. In fact, most of the numbers on the calendar are slated to show decent strength or, at least, movement in the right direction. But the Fed needs to convince people that it will remain on an accommodative path. We’re still debating 25 versus 50 basis points.

There’s a lot of game theory that goes into successful trading. But managing the economy isn’t supposed to be an exercise where we strategize about how to get maximum shock and awe bang for the buck with financial conditions with our policy pronouncements. Buying the rumor, selling the fact is meant to be something investors, not rate setters should be thinking about.

The dollar is bid. As we head into month end, the longer term charts look pretty good. The latest comments from the administration eschewing the likelihood of efforts to cheapen it have relieved a lot of anxiety about chasing it higher, or at least constantly looking for places to sell. Although many traders wish they had said so a percent or so lower. Buying it with the dollar index within hailing distance of 98.50 is hard but it feels like there will now be bids all the way down toward 96.00. Especially because the euro-at-$1.20 crowd has gone mercifully quiet.

Most interesting, is the inability of Treasury yields to move in either direction. Especially since we expect more QE from Europe imminently. They should be watched very carefully how they behave on any pullbacks, because the assumption that they are a one-way bet seems a bit up in the air.

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Section 230 Is the Internet’s First Amendment. Now Both Republicans and Democrats Want To Take It Away.

Imagine, for a moment, the following series of online exchanges. This isn’t a real conversation. But it’s the sort of chaotic, revealing, and messy back and forth that could spread across the internet on any given day in 2019:

A nonprofit immigrant rights group creates and publishes a Facebook invite for an upcoming event: a rally calling on city cops to stop carrying out sex stings at immigrant-owned massage businesses. An LGBTQ activist shares the invite link on Twitter, adding a note about how transgender and undocumented immigrant sex workers both face especially high rates of abuse.

The activist is retweeted by a number of people. Some of them add additional comments, much of them supportive. Someone is spamming their mentions with rude memes, but the activist doesn’t see if because that jerk has already been muted. When a friend points out the new replies, this is upgraded to a block.

A parenting and religion blogger using the handle @ChristianMama96 shares a link to a blog post titled “Biblical Views of Sex and Gender,” which she wrote and published on her WordPress blog.

In the comments of Christian Momma’s blog post—hosted with a Bluehost plan and a URL purchased via GoDaddy—someone who has been banned from Twitter for violating its misgendering policy is holding court about Caitlyn Jenner. A new commenter calls the first an asshole—a comment Christian Mama deletes because it violates her no-profanity policy.

Christian Mama’s blog gets some new readers from Twitter, where the guy whose comment she deleted has been tweeting at her as part of an extended riff on the religious right. (She stays quiet and lets her fans push back, but keeps screenshots for next week’s newsletter.)

Meanwhile, the sex worker rights rally that was the focus of the initial Facebook invite is well attended and gets picked up by several media outlets, some of whom embed Instagram posts from the event and video that’s been uploaded to YouTube. The articles are indexed by search engines and get shared on social media.

In the end, none of the people, tools, nor tech companies mentioned get forced off the internet nor hit with lawsuits and criminal charges

Tomorrow, the event invite in such a scenario might be for a Black Lives Matter rally, a Libertarian Party fundraiser, a Mormon church group outing, an anti-war protest, or a pro-life march. The blogger and newsletter creator might be a podcaster, an Instagram model, a Facebook group moderator, a popular YouTuber, or an indie press website. The Twitter tribes might be arguing about the latest rape allegations against someone powerful, the drug war, Trump’s tweets, immigration, internet regulation, or whether a hotdog counts as a sandwich.

These sorts of fictitious exchanges are, probably, no one’s ideal of online speech. Like real-world conversations, they will frequently be unpredictable, uncontrollable, and frustrating. Which is to say, they are something like the way people actually communicate—online and off⁠—in a world without top-down government control of our every utterance and interaction. People talk, argue, and disagree, sometimes in florid or outrageous terms, sometimes employing flat-out insults. It can be messy and irritating, outrageous and offensive, but also illuminating and informative—the way free speech always is.

At the end of the day, a diverse array of values and causes has space to coexist, and no faction gets to dictate the terms by which the entire internet has to play. It isn’t always perfectly comfortable, but online, there is room for everyone.

In the digital realm, that freedom is only possible because of a decades-old provision of the Communications Decency Act, known as Section 230. Signed into law by President Bill Clinton, when both Democrats and Republicans were mostly worried about online indecency, it has enabled the internet to flourish as a cultural and economic force.

Widely misunderstood and widely misinterpreted, often by those with political ambitions and agendas, Section 230 is, at its core, about making the internet safe for both innovation and individual free speech. It is the internet’s First Amendment—possibly better. And it is increasingly threatened by the illiberal right and the regressive left, both of which are now arguing that Section 230 gives tech industry giants unfair legal protection while enabling political bias and offensive speech.

Ending or amending Section 230 wouldn’t make life difficult just for Google, Facebook, Twitter, and the rest of today’s biggest online platforms. Eroding the law would seriously jeopardize free speech for everyone, particularly marginalized groups whose ideas don’t sit easily with the mainstream. It would almost certainly kill upstarts trying to compete with entrenched tech giants. And it would set dangerous precedents, with ripple effects that extend to economic and cultural areas in the U.S. and around the world.

As Sen. Ron Wyden (D–Ore.), one of the provision’s initial sponsors, put it during a March 2018 debate on the Senate floor: “In the absence of Section 230, the internet as we know it would shrivel.”

Section 230 is one of the few bulwarks of liberal free speech and radically open discourse in a political era increasingly hostile to both.

The How and Why of Section 230

The Communications Decency Act (CDA) came into being as part of the Telecommunications Act of 1996, and was intended to address “obscene, lewd, lascivious, filthy, or indecent” materials. At the time, mainstream discourse around telecom regulation was primarily concerned with rules regarding telephone companies and TV broadcasts. To the extent lawmakers considered the CDA’s effect on the internet, the focus was on curbing the then-new phenomenon of online pornography.

Under the CDA, telecommunications facilities could face criminal charges if they failed to take “good faith, reasonable, effective, and appropriate actions” to stop minors from seeing indecent content. The law faced a First Amendment challenge, and the U.S. Supreme Court in late 1997 struck down many of the decency provisions entirely. But an amendment introduced by Rep. Chris Cox (R–Minn.) and Wyden, then in the House of Representatives, survived. That amendment was what we now know as Section 230.

After touting the unprecedented benefit of digital communication mediums, the statute notes in a preamble that “the Internet and other interactive computer services have flourished…with a minimum of government regulation.” The legislation states that it’s Congressional policy “to preserve the vibrant and competitive free market” online.

The point of Section 230 was to protect the openness of online culture while also protecting kids from online smut, and the web at large from being overrun by defamatory, hateful, violent, or otherwise unwanted content. Section 230 would do this by setting up a legal framework to encourage “the development of technologies which maximize user control over what information is received” and removing “disincentives for the development and utilization of blocking and filtering technologies that empower parents.” Rather than tailoring the entire internet to be suitable for children or majority sensibilities, Congress would empower companies, families, and individuals to curate their own online experiences.

Section 230 stipulates, in essence, that digital services or platforms and their users are not one and the same and thus shouldn’t automatically be held legally liable for each other’s speech and conduct.

Which means that practically the entire suite of products we think of as the internet—search engines, social media, online publications with comments sections, Wikis, private message boards, matchmaking apps, job search sites, consumer review tools, digital marketplaces, Airbnb, cloud storage companies, podcast distributors, app stores, gif clearinghouses, crowdsourced funding platforms, chat tools, email newsletters, online classifieds, video sharing venues, and the vast majority of what makes up our day to day digital experience—have benefited from the protections offered by Section 230.

Without it, they would face extraordinary legal liability. A world without Section 230 could sink all but the biggest companies, or force them to severely curtail the speech of their users in order to avoid legal trouble.

There are two parts of Section 230 that give it power. The first specifies:

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

The second part says voluntary and “good faith” attempts to filter out or moderate some types of user content don’t leave a company on the hook for all user content. Specifically, it protects a right to “restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable.”

Without that second provision, internet companies wishing to avoid trouble would be better off making no attempts to police user content, since doing so would open them up to much greater legal liability. “Indecent” and “offensive” material—the stuff social giants at least try to filter or moderate—could proliferate even more than they already do.

Beyond the First Amendment

Santa Clara University law professor Eric Goldman argues that Section 230 is “better than the first amendment,” at least where modern communication and technology is concerned.

“In theory, the First Amendment—the global bellwether protection for free speech—should partially or substantially backfill any reductions in Section 230’s coverage,” Goldman wrote on his blog recently. “In practice, the First Amendment does no such thing.”

To be legally shielded on First Amendment grounds, offline distributors like bookstores and newsstands must be almost entirely ignorant about materials found to be illegal. A store is legally protected so long as its owners don’t know about specific offensive material in a publication, even if they know they are stocking the publication. But legal blame can shift if a court determines that owners should have known something was wrong.

And all it can take to reach that should have known threshold is an alert that something might be off. Once a distributor is alerted, by anyone, that a work is problematic or that those involved with it have a problematic history, the distributor may be legally liable for the content—possibly as liable as the work’s creator and the parties directly responsible for its very existence.

In an analog world—with limited content suppliers and limited means of distribution—this expectation may correctly balance free speech and preventing criminality. Because a bookstore cannot hold infinite books, we expect bookstore owners to know what they have in stock. But that expectation doesn’t scale to the digital world, where users are continuously uploading content and companies receive notice about thousands (or more) of potentially problematic posts per day.

“Congress passed Section 230 because the First Amendment did not adequately protect large online platforms that processed vast amounts of third-party content,” writes Jeff Kosseff in his 2019 book on Section 230, The 26 Words That Created the Internet.

As far back as 1997, courts understood that Section 230 was essential to online innovation and expression. In a world without it, computer service providers “would be faced with ceaseless choices of suppressing controversial speech [or] sustaining prohibitive liability,” wrote 4th Circuit Court of Appeals Judge J. Harvie Wilkinson in his decision on Zeran v. America Online, a case involving defamatory messages posted to an AOL message board by a third party.

Some third-party content moderation calls are easy, such as when outright threats of violence or child pornography are concerned. But some—like allegations of defamation—require facts beyond what is immediately obvious. Many require context calls that aren’t readily apparent across cultures or cliques.

Without Section 230, any complaint could thus be sufficient to make a company liable for user-created content. Companies would have every incentive to simply take down content or ban any users whom others flagged. Platforms are already overly deferential to companies and parties that file copyright takedown requests, since Section 230 does not protect against intellectual property law violations. Repealing Section 230 could cause them to show the same deference to people who complain about political or cultural content they don’t like. The result would be a dramatically less permissive environment for online speech.

“Section 230 extends the scope of protection for ‘intermediaries’ more broadly than First Amendment case law alone,” says tech lawyer and Reason contributing editor Mike Godwin in a new book of essays, The Splinters of our Discontent. And more protection for intermediaries means more free speech for all of us.

The Threat From the Right

The free-speech merits of the law haven’t stopped lawmakers on both sides of the aisle from attacking 230, using varying justifications. Some claim it allows companies to be too careless in what they allow. Others claim it encourages “politically correct” censorship by tech-world titans.

“If they’re not going to be neutral and fair, if they’re going to be biased, we should repeal” Section 230, argued Sen. Ted Cruz (R–Texas) last fall. Cruz has helped popularize the idea that only through increased government control over online speech can speech really be free.

No U.S. politician has been more aggressive in pushing this idea than Sen. Josh Hawley, the 39-year-old Republican from Missouri who ousted Democratic Sen. Claire McCaskill (D–Mo.) in the 2018 midterms. McCaskill was also prone to fits over Section 230, but mostly as part of a tough-on-crime charade against “online sex trafficking.” Hawley has almost single-handedly turned tech industry “arrogance” generally—and Section 230 specifically—into a leading front in the culture war.

Hawley has repeatedly suggested big social media platforms should lose Section 230 protection, claiming (incorrectly) that there’s a legal distinction between online publishers and online platforms. According to Hawley—but not the plain text of Section 230 nor the many court decisions considering it—platforms lose Section 230 protection if they don’t practice political neutrality.

“Twitter is exempt from liability as a ‘publisher’ because it is allegedly ‘a forum for a true diversity of political discourse,'” tweeted Hawley last November, in a call for Congress to investigate the company. “That does not appear to be accurate.”

It’s actually Hawley’s interpretation of the law that is inaccurate. Section 230 protections are simply not conditioned on a company offering “true diversity of political discourse” (whatever that means), or anything like it.

The Communications Decency Act does say that “the Internet and other interactive computer services” can be venues for a “true diversity of political discourse,” “cultural development,” and “intellectual activity”—but this comes in a preamble to the actual lawmaking part of Section 230. It merely sums up Congressional dreams for the web at large.

Nonetheless, Hawley’s incorrect characterization of Section 230 has been echoed by numerous Republicans, including President Donald Trump, and those on the fringe right. They say digital companies are biased against conservatives and Washington must take action.

In June, Hawley did just that, introducing a bill that would require tech companies to act like he’s already been insisting they have to. Under his proposal, dubbed the “Ending Support for Internet Censorship Act,” web services of a certain size would have to apply to the Federal Trade Commission (FTC) every two years for Section 230 protection, which would only be granted to companies that could prove perfectly neutral moderation practices.

The bill, in other words, would put the federal government in charge of determining what constitutes political neutrality—and correct modes of expression, generally; it would then grant government the power to punish companies that fail at this subjective ideal. Hawley’s bill would replace the imperfect-but-market-driven content moderation practices at private companies with state-backed speech police.

In talking about tech generally, Hawley makes no concession to the conscience rights of entrepreneurs, freedom of association, or personal responsibility—values Republicans have historically harped on when it comes to private enterprise. Rather, Hawley insinuates that permissible technology and business practices should be contingent on their social benefit.

In a May speech titled “The Big Tech Threat,” Hawley criticized not only social media content moderation but the entire business model, which he condemned as “hijacking users’ neural circuitry to prevent rational decision making.” He implied individuals have little free will when confronted with algorithmic wizardry, blaming Facebook for making “our attention spans dull” and killing social and familial bonds.

For Hawley, overhauling Section 230 is part of a larger war on “Big Tech,” in which Silicon Valley has been cast in the role once occupied by Hollywood, violent games and music, or “liberal media elites.” It’s a battle over control of culture, and Hawley wants to use the power of the federal government to advance the conservative cause. (Hawley’s office did not respond to multiple requests for comment.)

Hawley isn’t the only one. Arizona Republican Rep. Paul Gosar—also parroting Hawley’s falsehoods about the publisher/platform distinction—recently introduced his own version of an anti-Section 230 bill. In January, Rep. Louie Gohmert (R-Texas) proposed conditioning Section 230 protection on sites displaying user content in chronological order.

From Fox News host Tucker Carlson, who has railed that “screens are poison,” to Trump boosters like American Majority CEO Ned Ryun, Hawley’s anti-tech, anti-230 sentiment is gaining traction across the right. Like the social conservatives who once demonized comic books and rap music, contemporary conservatives are siding with censors—but not for the protection of any particular values. They champion regulation as leverage against companies that have made high-profile decisions to suspend or “demonetize” right-leaning content creators.

It’s an impulse borne of bitterness, nurtured by carefully stoked culture war outrage, and right in line with the trendy illiberalism of the MAGA-era right. Their movement has plenty to say about what they wouldn’t allow so long as Republicans are wearing the censor hat, but these conservatives are strangely silent about how the same control would be used by a Democratic administration.

The Threat From the Left

What Democrats would do with the power Republicans are seeking matters, too, because Democrats have their own plans for Section 230 and just as many excuses for why it needs to be gutted: Russian influence, “hate speech,” sex trafficking, online pharmacies, gun violence, “deepfake” videos, and so on.

After Facebook declined to take down deceptively edited video of Nancy Pelosi (D–Calif.), the House Speaker called Section 230 “a gift” to tech companies that “could be a question mark and in jeopardy” since they were not, in her view, “treating it with the respect that they should.”

Senator and presidential candidate Kamala Harris (D–Calif.) has been pushing for the demise of Section 230 since she was California’s attorney general. In 2013, she signed on to a group letter asking Congress to revise or repeal the law so they could go after Backpage for its Adult ad section.

Like Hawley, Harris and bipartisan crusaders against sex-work ads offered their own misinformation about Section 230, implying again and again that it allows websites to offer blatantly illegal goods and services—including child sex trafficking—with impunity.

Section 230 “permits Internet and tech companies like Backpage.com to profit from the sale of children online” and “gives them immunity in doing so,” wrote law professor Mary Leary in The Washington Post two years ago.

“Backpage and its executives purposefully and unlawfully designed Backpage to be the world’s top online brothel,” Kamala Harris claimed in 2016. Xavier Becerra, California’s current attorney general, said in 2017 that the law lets criminals “prey on vulnerable children and profit from sex trafficking without fully facing the consequences of their crimes.”

But attorneys like Harris and Becerra should know that nothing in Section 230 protects web platforms from prosecution for federal crimes. When passing Section 230, Congress explicitly exempted federal criminal law from its purview (along with all intellectual property statutes and certain communications privacy laws). If Backpage executives were really guilty of child sex trafficking, the Department of Justice (DOJ) could have brought trafficking charges at any time.

Nor does Section 230 protect web operators who create illegal content or participate directly in illegal activities. Those operators can be prosecuted by the feds, sued in civil court, and are subject to state and local criminal laws.

Finding deep-pocketed and directly criminal websites is pretty rare, however. And state attorneys general don’t get settlement and asset forfeiture money—nor their names in the headlines—when DOJ does the prosecuting. Hence, AGs have pushed hard against Section 230, asking Congress for its destruction once again in 2017.

In 2018, Congress did honor that request (at least in part) by passing a bipartisan and widely lauded bill—known by the shorthand FOSTA—that carved out a special exception to Section 230 where violations of sex trafficking laws are concerned. The Allow States and Victims to Fight Online Sex Trafficking Act also made it a federal crime to “operate an interactive computer service with the intent to promote or facilitate the prostitution of another person.”

After the law passed, Craigslist shuttered its personals section almost immediately, explaining that the new law opened “websites to criminal and civil liability when third parties (users) misuse online personals unlawfully.” The risk wasn’t worth it. Since then, there’s been ample evidence of a FOSTA chilling effect on non-criminal speech. But the law has failed to curb forced and underage prostitution, and police, social service agents, and sex workers say that FOSTA has actually made things worse.

Proponents portrayed FOSTA as a one-time edit of Section 230 that was necessary due to the special nature of underage prostitution and the existence of companies that allow online ads for legal sex work. But this year, state attorneys general asked Congress to amend Section 230 for the alleged sake of stopping “opioid sales, ID theft, deep fakes, election meddling, and foreign intrusion.”

The range of reasons anti-230 crusaders now give belies the idea that this was ever really about stopping sex trafficking. And they will keep taking bites out of the apple until there’s nothing left.

Harris has since suggested that we must “hold social media platforms accountable for the hate infiltrating their platforms.” Sen. Mark Warner (D–Va.) said companies could see changes to Section 230 if they don’t address political disinformation. Senator and 2020 presidential candidate Amy Klobuchar (D–Minn.) said it “would be a great idea” to punish social media platforms for failing to detect and remove bots.

What both the right and left attacks on the provision share is a willingness to use whatever excuses resonate—saving children, stopping bias, preventing terrorism, misogyny, and religious intolerance—to ensure more centralized control of online speech. They may couch these in partisan terms that play well with their respective bases, but their aim is essentially the same. And it’s one in which only Washington, state prosecutors, and fire-chasing lawyers win.

“There’s a lot of nonsense out there about what [Section 230] is all about,” Wyden said in a May interview with Recode. In reality, “it’s just about the most libertarian, free speech law on the books.”

Is it any wonder most politicians hate it?

How 230 Makes Online Argument Possible

Let’s go back to the hypothetical online arguments from the beginning. All of the characters involved benefit from Section 230 in crucial ways.

Because of Section 230, digital platforms can permit some sex work content without fearing prosecution.

Without it, any information by and about sex workers, including content essential to their health and safety, could trigger takedown alarms from skittish companies worried about running afoul of local vice laws. The same goes for content concerning non-commercial sexual and romantic relationships, as well as stigmatized legal businesses like massage.

Because of Section 230, bloggers and other independent content creators can moderate their own comment sections as they see fit, even if that means deleting content that’s allowable elsewhere or vice versa. Big companies like Twitter can set their own moderation rules, too, as well as provide users with customizable filtering tools. Meanwhile, blogging platforms, domain name providers, and web hosting companies needn’t worry that all of this puts them at risk.

Without Section 230, all sorts of behind-the-scenes web publishing and speech dissemination tools would be in legal jeopardy. Twitter could lose the many recent lawsuits from former users challenging their respective suspensions in court. And online communities large and small could lose the right to discriminate against disruptive, prurient, or “otherwise objectionable” content.

Without Section 230, companies would thus be more likely to simply delete all user-flagged content, whether the report has merit or not, or at least immediately hide reported content as a review proceeds. It’s easy to imagine massive backlogs of challenged content, much of it flagged strategically by bad actors for reasons having nothing to do with either safety or veracity. Silencing one’s opponents would be easy.

Finally, because of Section 230, search engines needn’t vet the content of every news article they provide links to (ditto news aggregation apps and sites like Reddit and Wikipedia). And embedding or sharing someone else’s social content doesn’t make you legally liable for it.

Without Section 230, finding and sharing information online would be much harder. And a retweet might legally be considered an endorsement, with the shared liability that entails.

Yet for all the protections it provides to readers, writers, academics, shitposters, entrepreneurs, activists, and amateur political pundits of every persuasion, Section 230 has somehow become a political pariah. While antitrust actions, data protection laws, and other regulatory schemes have gained some momentum, abrogating Section 230 is now a central front in the digital culture war.

With both major parties having been thrown into identity crises in the Trump era, it’s not surprising they would somehow converge on a pseudo-populist crusade against Big Tech. The political class now wants everyone to believe that the way the U.S. has policed the internet for the past quarter-century—the way that’s let so many of the world’s biggest internet companies be founded and flourish here, midwifed the birth of participatory media we know today, helped sustained and make visible protest movements from Tunisia to Ferguson, and shined a light on legalized brutality around the world—has actually been lax, immoral, and dangerous. They want us to believe that America’s political problems are Facebook’s fault rather than their own.

Don’t believe them. The future of free speech—and a lot more—may depend on preserving Section 230.

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Section 230 Is the Internet’s First Amendment. Now Both Republicans and Democrats Want To Take It Away.

Imagine, for a moment, the following series of online exchanges. This isn’t a real conversation. But it’s the sort of chaotic, revealing, and messy back and forth that could spread across the internet on any given day in 2019:

A nonprofit immigrant rights group creates and publishes a Facebook invite for an upcoming event: a rally calling on city cops to stop carrying out sex stings at immigrant-owned massage businesses. An LGBTQ activist shares the invite link on Twitter, adding a note about how transgender and undocumented immigrant sex workers both face especially high rates of abuse.

The activist is retweeted by a number of people. Some of them add additional comments, much of them supportive. Someone is spamming their mentions with rude memes, but the activist doesn’t see if because that jerk has already been muted. When a friend points out the new replies, this is upgraded to a block.

A parenting and religion blogger using the handle @ChristianMama96 shares a link to a blog post titled “Biblical Views of Sex and Gender,” which she wrote and published on her WordPress blog.

In the comments of Christian Momma’s blog post—hosted with a Bluehost plan and a URL purchased via GoDaddy—someone who has been banned from Twitter for violating its misgendering policy is holding court about Caitlyn Jenner. A new commenter calls the first an asshole—a comment Christian Mama deletes because it violates her no-profanity policy.

Christian Mama’s blog gets some new readers from Twitter, where the guy whose comment she deleted has been tweeting at her as part of an extended riff on the religious right. (She stays quiet and lets her fans push back, but keeps screenshots for next week’s newsletter.)

Meanwhile, the sex worker rights rally that was the focus of the initial Facebook invite is well attended and gets picked up by several media outlets, some of whom embed Instagram posts from the event and video that’s been uploaded to YouTube. The articles are indexed by search engines and get shared on social media.

In the end, none of the people, tools, nor tech companies mentioned get forced off the internet nor hit with lawsuits and criminal charges

Tomorrow, the event invite in such a scenario might be for a Black Lives Matter rally, a Libertarian Party fundraiser, a Mormon church group outing, an anti-war protest, or a pro-life march. The blogger and newsletter creator might be a podcaster, an Instagram model, a Facebook group moderator, a popular YouTuber, or an indie press website. The Twitter tribes might be arguing about the latest rape allegations against someone powerful, the drug war, Trump’s tweets, immigration, internet regulation, or whether a hotdog counts as a sandwich.

These sorts of fictitious exchanges are, probably, no one’s ideal of online speech. Like real-world conversations, they will frequently be unpredictable, uncontrollable, and frustrating. Which is to say, they are something like the way people actually communicate—online and off⁠—in a world without top-down government control of our every utterance and interaction. People talk, argue, and disagree, sometimes in florid or outrageous terms, sometimes employing flat-out insults. It can be messy and irritating, outrageous and offensive, but also illuminating and informative—the way free speech always is.

At the end of the day, a diverse array of values and causes has space to coexist, and no faction gets to dictate the terms by which the entire internet has to play. It isn’t always perfectly comfortable, but online, there is room for everyone.

In the digital realm, that freedom is only possible because of a decades-old provision of the Communications Decency Act, known as Section 230. Signed into law by President Bill Clinton, when both Democrats and Republicans were mostly worried about online indecency, it has enabled the internet to flourish as a cultural and economic force.

Widely misunderstood and widely misinterpreted, often by those with political ambitions and agendas, Section 230 is, at its core, about making the internet safe for both innovation and individual free speech. It is the internet’s First Amendment—possibly better. And it is increasingly threatened by the illiberal right and the regressive left, both of which are now arguing that Section 230 gives tech industry giants unfair legal protection while enabling political bias and offensive speech.

Ending or amending Section 230 wouldn’t make life difficult just for Google, Facebook, Twitter, and the rest of today’s biggest online platforms. Eroding the law would seriously jeopardize free speech for everyone, particularly marginalized groups whose ideas don’t sit easily with the mainstream. It would almost certainly kill upstarts trying to compete with entrenched tech giants. And it would set dangerous precedents, with ripple effects that extend to economic and cultural areas in the U.S. and around the world.

As Sen. Ron Wyden (D–Ore.), one of the provision’s initial sponsors, put it during a March 2018 debate on the Senate floor: “In the absence of Section 230, the internet as we know it would shrivel.”

Section 230 is one of the few bulwarks of liberal free speech and radically open discourse in a political era increasingly hostile to both.

The How and Why of Section 230

The Communications Decency Act (CDA) came into being as part of the Telecommunications Act of 1996, and was intended to address “obscene, lewd, lascivious, filthy, or indecent” materials. At the time, mainstream discourse around telecom regulation was primarily concerned with rules regarding telephone companies and TV broadcasts. To the extent lawmakers considered the CDA’s effect on the internet, the focus was on curbing the then-new phenomenon of online pornography.

Under the CDA, telecommunications facilities could face criminal charges if they failed to take “good faith, reasonable, effective, and appropriate actions” to stop minors from seeing indecent content. The law faced a First Amendment challenge, and the U.S. Supreme Court in late 1997 struck down many of the decency provisions entirely. But an amendment introduced by Rep. Chris Cox (R–Minn.) and Wyden, then in the House of Representatives, survived. That amendment was what we now know as Section 230.

After touting the unprecedented benefit of digital communication mediums, the statute notes in a preamble that “the Internet and other interactive computer services have flourished…with a minimum of government regulation.” The legislation states that it’s Congressional policy “to preserve the vibrant and competitive free market” online.

The point of Section 230 was to protect the openness of online culture while also protecting kids from online smut, and the web at large from being overrun by defamatory, hateful, violent, or otherwise unwanted content. Section 230 would do this by setting up a legal framework to encourage “the development of technologies which maximize user control over what information is received” and removing “disincentives for the development and utilization of blocking and filtering technologies that empower parents.” Rather than tailoring the entire internet to be suitable for children or majority sensibilities, Congress would empower companies, families, and individuals to curate their own online experiences.

Section 230 stipulates, in essence, that digital services or platforms and their users are not one and the same and thus shouldn’t automatically be held legally liable for each other’s speech and conduct.

Which means that practically the entire suite of products we think of as the internet—search engines, social media, online publications with comments sections, Wikis, private message boards, matchmaking apps, job search sites, consumer review tools, digital marketplaces, Airbnb, cloud storage companies, podcast distributors, app stores, gif clearinghouses, crowdsourced funding platforms, chat tools, email newsletters, online classifieds, video sharing venues, and the vast majority of what makes up our day to day digital experience—have benefited from the protections offered by Section 230.

Without it, they would face extraordinary legal liability. A world without Section 230 could sink all but the biggest companies, or force them to severely curtail the speech of their users in order to avoid legal trouble.

There are two parts of Section 230 that give it power. The first specifies:

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

The second part says voluntary and “good faith” attempts to filter out or moderate some types of user content don’t leave a company on the hook for all user content. Specifically, it protects a right to “restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable.”

Without that second provision, internet companies wishing to avoid trouble would be better off making no attempts to police user content, since doing so would open them up to much greater legal liability. “Indecent” and “offensive” material—the stuff social giants at least try to filter or moderate—could proliferate even more than they already do.

Beyond the First Amendment

Santa Clara University law professor Eric Goldman argues that Section 230 is “better than the first amendment,” at least where modern communication and technology is concerned.

“In theory, the First Amendment—the global bellwether protection for free speech—should partially or substantially backfill any reductions in Section 230’s coverage,” Goldman wrote on his blog recently. “In practice, the First Amendment does no such thing.”

To be legally shielded on First Amendment grounds, offline distributors like bookstores and newsstands must be almost entirely ignorant about materials found to be illegal. A store is legally protected so long as its owners don’t know about specific offensive material in a publication, even if they know they are stocking the publication. But legal blame can shift if a court determines that owners should have known something was wrong.

And all it can take to reach that should have known threshold is an alert that something might be off. Once a distributor is alerted—by anyone—that a work is problematic or that those involved with it have a problematic history, the distributor may be legally liable for the content; possibly as liable as the work’s creator and the parties directly responsible for its very existence.

In an analog world—with limited content suppliers and limited means of distribution—this expectation may correctly balance free speech and preventing criminality. Because a bookstore cannot hold infinite books, we expect bookstore owners to know what they have in stock. But that expectation doesn’t scale to the digital world, where users are continuously uploading content and companies receive notice about thousands (or more) of potentially problematic posts per day.

“Congress passed Section 230 because the First Amendment did not adequately protect large online platforms that processed vast amounts of third-party content,” writes Jeff Kosseff in his 2019 book on Section 230, The 26 Words That Created the Internet.

As far back as 1997, courts understood that Section 230 was essential to online innovation and expression. In a world without it, computer service providers “would be faced with ceaseless choices of suppressing controversial speech [or] sustaining prohibitive liability,” wrote 4th Circuit Court of Appeals Judge J. Harvie Wilkinson in his decision on Zeran v. America Online, a case involving defamatory messages posted to an AOL message board by a third party.

Some third-party content moderation calls are easy, such as when outright threats of violence or child pornography are concerned. But some—like allegations of defamation—require facts beyond what is immediately obvious. Many require context calls that aren’t readily apparent across cultures or cliques.

Without Section 230, any complaint could thus be sufficient to make a company liable for user-created content. Companies would have every incentive to simply take down content or ban any users whom others flagged. Platforms are already overly deferential to companies and parties that file copyright takedown requests, since Section 230 does not protect against intellectual property law violations. Repealing Section 230 could cause them to show the same deference to people who complain about political or cultural content they don’t like. The result would be a dramatically less permissive environment for online speech.

“Section 230 extends the scope of protection for ‘intermediaries’ more broadly than First Amendment case law alone,” says tech lawyer and Reason contributing editor Mike Godwin in a new book of essays, The Splinters of our Discontent. And more protection for intermediaries means more free speech for all of us.

The Threat From the Right

The free-speech merits of the law haven’t stopped lawmakers on both sides of the aisle from attacking 230, using varying justifications. Some claim it allows companies to be too careless in what they allow. Others claim it encourages “politically correct” censorship by tech-world titans.

“If they’re not going to be neutral and fair, if they’re going to be biased, we should repeal” Section 230, argued Sen. Ted Cruz (R–Texas) last fall. Cruz has helped popularize the idea that only through increased government control over online speech can speech really be free.

No U.S. politician has been more aggressive in pushing this idea than Sen. Josh Hawley, the 39-year-old Republican from Missouri who ousted Democratic Sen. Claire McCaskill (D–Mo.) in the 2018 midterms. McCaskill was also prone to fits over Section 230, but mostly as part of a tough-on-crime charade against “online sex trafficking.” Hawley has almost single-handedly turned tech industry “arrogance” generally—and Section 230 specifically—into a leading front in the culture war.

Hawley has repeatedly suggested big social media platforms should lose Section 230 protection, claiming (incorrectly) that there’s a legal distinction between online publishers and online platforms. According to Hawley—but not the plain text of Section 230 nor the many court decisions considering it—platforms lose Section 230 protection if they don’t practice political neutrality.

“Twitter is exempt from liability as a ‘publisher’ because it is allegedly ‘a forum for a true diversity of political discourse,'” tweeted Hawley last November, in a call for Congress to investigate the company. “That does not appear to be accurate.”

It’s actually Hawley’s interpretation of the law that is inaccurate. Section 230 protections are simply not conditioned on a company offering “true diversity of political discourse” (whatever that means), or anything like it.

The Communications Decency Act does say that “the Internet and other interactive computer services” can be venues for a “true diversity of political discourse,” “cultural development,” and “intellectual activity”—but this comes in a preamble to the actual lawmaking part of Section 230. It merely sums up Congressional dreams for the web at large.

Nonetheless, Hawley’s incorrect characterization of Section 230 has been echoed by numerous Republicans, including President Donald Trump, and those on the fringe right. They say digital companies are biased against conservatives and Washington must take action.

In June, Hawley did just that, introducing a bill that would require tech companies to act like he’s already been insisting they have to. Under his proposal, dubbed the “Ending Support for Internet Censorship Act,” web services of a certain size would have to apply to the Federal Trade Commission (FTC) every two years for Section 230 protection, which would only be granted to companies that could prove perfectly neutral moderation practices.

The bill, in other words, would put the federal government in charge of determining what constitutes political neutrality—and correct modes of expression, generally; it would then grant government the power to punish companies that fail at this subjective ideal. Hawley’s bill would replace the imperfect-but-market-driven content moderation practices at private companies with state-backed speech police.

In talking about tech generally, Hawley makes no concession to the conscience rights of entrepreneurs, freedom of association, or personal responsibility—values Republicans have historically harped on when it comes to private enterprise. Rather, Hawley insinuates that permissible technology and business practices should be contingent on their social benefit.

In a May speech titled “The Big Tech Threat,” Hawley criticized not only social media content moderation but the entire business model, which he condemned as “hijacking users’ neural circuitry to prevent rational decision making.” He implied individuals have little free will when confronted with algorithmic wizardry, blaming Facebook for making “our attention spans dull” and killing social and familial bonds.

For Hawley, overhauling Section 230 is part of a larger war on “Big Tech,” in which Silicon Valley has been cast in the role once occupied by Hollywood, violent games and music, or “liberal media elites.” It’s a battle over control of culture, and Hawley wants to use the power of the federal government to advance the conservative cause. (Hawley’s office did not respond to multiple requests for comment.)

Hawley isn’t the only one. Arizona Republican Rep. Paul Gosar—also parroting Hawley’s falsehoods about the publisher/platform distinction—recently introduced his own version of an anti-Section 230 bill. In January, Rep. Louie Gohmert (R-Texas) proposed conditioning Section 230 protection on sites displaying user content in chronological order.

From Fox News host Tucker Carlson, who has railed that “screens are poison,” to Trump boosters like American Majority CEO Ned Ryun, Hawley’s anti-tech, anti-230 sentiment is gaining traction across the right. Like the social conservatives who once demonized comic books and rap music, contemporary conservatives are siding with censors—but not for the protection of any particular values. They champion regulation as leverage against companies that have made high-profile decisions to suspend or “demonetize” right-leaning content creators.

It’s an impulse borne of bitterness, nurtured by carefully stoked culture war outrage, and right in line with the trendy illiberalism of the MAGA-era right. Their movement has plenty to say about what they wouldn’t allow so long as Republicans are wearing the censor hat, but these conservatives are strangely silent about how the same control would be used by a Democratic administration.

The Threat From the Left

What Democrats would do with the power Republicans are seeking matters, too, because Democrats have their own plans for Section 230 and just as many excuses for why it needs to be gutted: Russian influence, “hate speech,” sex trafficking, online pharmacies, gun violence, “deepfake” videos, and so on.

After Facebook declined to take down deceptively edited video of Nancy Pelosi (D–Calif.), the House Speaker called Section 230 “a gift” to tech companies that “could be a question mark and in jeopardy” since they were not, in her view, “treating it with the respect that they should.”

Senator and presidential candidate Kamala Harris (D–Calif.) has been pushing for the demise of Section 230 since she was California’s attorney general. In 2013, she signed on to a group letter asking Congress to revise or repeal the law so they could go after Backpage for its Adult ad section.

Like Hawley, Harris and bipartisan crusaders against sex-work ads offered their own misinformation about Section 230, implying again and again that it allows websites to offer blatantly illegal goods and services—including child sex trafficking—with impunity.

Section 230 “permits Internet and tech companies like Backpage.com to profit from the sale of children online” and “gives them immunity in doing so,” wrote law professor Mary Leary in The Washington Post two years ago.

“Backpage and its executives purposefully and unlawfully designed Backpage to be the world’s top online brothel,” Kamala Harris claimed in 2016. Xavier Becerra, California’s current attorney general, said in 2017 that the law lets criminals “prey on vulnerable children and profit from sex trafficking without fully facing the consequences of their crimes.”

But attorneys like Harris and Becerra should know that nothing in Section 230 protects web platforms from prosecution for federal crimes. When passing Section 230, Congress explicitly exempted federal criminal law from its purview (along with all intellectual property statutes and certain communications privacy laws). If Backpage executives were really guilty of child sex trafficking, the Department of Justice (DOJ) could have brought trafficking charges at any time.

Nor does Section 230 protect web operators who create illegal content or participate directly in illegal activities. Those operators can be prosecuted by the feds, sued in civil court, and are subject to state and local criminal laws.

Finding deep-pocketed and directly criminal websites is pretty rare, however. And state attorneys general don’t get settlement and asset forfeiture money—nor their names in the headlines—when DOJ does the prosecuting. Hence, AGs have pushed hard against Section 230, asking Congress for its destruction once again in 2017.

In 2018, Congress did honor that request (at least in part) by passing a bipartisan and widely lauded bill—known by the shorthand FOSTA—that carved out a special exception to Section 230 where violations of sex trafficking laws are concerned. The Allow States and Victims to Fight Online Sex Trafficking Act also made it a federal crime to “operate an interactive computer service with the intent to promote or facilitate the prostitution of another person.”

After the law passed, Craigslist shuttered its personals section almost immediately, explaining that the new law opened “websites to criminal and civil liability when third parties (users) misuse online personals unlawfully.” The risk wasn’t worth it. Since then, there’s been ample evidence of a FOSTA chilling effect on non-criminal speech. But the law has failed to curb forced and underage prostitution, and police, social service agents, and sex workers say that FOSTA has actually made things worse.

Proponents portrayed FOSTA as a one-time edit of Section 230 that was necessary due to the special nature of underage prostitution and the existence of companies that allow online ads for legal sex work. But this year, state attorneys general asked Congress to amend Section 230 for the alleged sake of stopping “opioid sales, ID theft, deep fakes, election meddling, and foreign intrusion.”

The range of reasons anti-230 crusaders now give belies the idea that this was ever really about stopping sex trafficking. And they will keep taking bites out of the apple until there’s nothing left.

Harris has since suggested that we must “hold social media platforms accountable for the hate infiltrating their platforms.” Sen. Mark Warner (D–Va.) said companies could see changes to Section 230 if they don’t address political disinformation. Senator and 2020 presidential candidate Amy Klobuchar (D–Minn.) said it “would be a great idea” to punish social media platforms for failing to detect and remove bots.

What both the right and left attacks on the provision share is a willingness to use whatever excuses resonate—saving children, stopping bias, preventing terrorism, misogyny, and religious intolerance—to ensure more centralized control of online speech. They may couch these in partisan terms that play well with their respective bases, but their aim is essentially the same. And it’s one in which only Washington, state prosecutors, and fire-chasing lawyers win.

“There’s a lot of nonsense out there about what [Section 230] is all about,” Wyden said in a May interview with Recode. In reality, “it’s just about the most libertarian, free speech law on the books.”

Is it any wonder most politicians hate it?

How 230 Makes Online Argument Possible

Let’s go back to the hypothetical online arguments from the beginning. All of the characters involved benefit from Section 230 in crucial ways.

Because of Section 230, digital platforms can permit some sex work content without fearing prosecution.

Without it, any information by and about sex workers, including content essential to their health and safety, could trigger takedown alarms from skittish companies worried about running afoul of local vice laws. The same goes for content concerning non-commercial sexual and romantic relationships, as well as stigmatized legal businesses like massage.

Because of Section 230, bloggers and other independent content creators can moderate their own comment sections as they see fit, even if that means deleting content that’s allowable elsewhere or vice versa. Big companies like Twitter can set their own moderation rules, too, as well as provide users with customizable filtering tools. Meanwhile, blogging platforms, domain name providers, and web hosting companies needn’t worry that all of this puts them at risk.

Without Section 230, all sorts of behind-the-scenes web publishing and speech dissemination tools would be in legal jeopardy. Twitter could lose the many recent lawsuits from former users challenging their respective suspensions in court. And online communities large and small could lose the right to discriminate against disruptive, prurient, or “otherwise objectionable” content.

Without Section 230, companies would thus be more likely to simply delete all user-flagged content, whether the report has merit or not, or at least immediately hide reported content as a review proceeds. It’s easy to imagine massive backlogs of challenged content, much of it flagged strategically by bad actors for reasons having nothing to do with either safety or veracity. Silencing one’s opponents would be easy.

Finally, because of Section 230, search engines needn’t vet the content of every news article they provide links to (ditto news aggregation apps and sites like Reddit and Wikipedia). And embedding or sharing someone else’s social content doesn’t make you legally liable for it.

Without Section 230, finding and sharing information online would be much harder. And a retweet might legally be considered an endorsement, with the shared liability that entails.

Yet for all the protections it provides to readers, writers, academics, shitposters, entrepreneurs, activists, and amateur political pundits of every persuasion, Section 230 has somehow become a political pariah. While antitrust actions, data protection laws, and other regulatory schemes have gained some momentum, abrogating Section 230 is now a central front in the digital culture war.

With both major parties having been thrown into identity crises in the Trump era, it’s not surprising they would somehow converge on a pseudo-populist crusade against Big Tech. The political class now wants everyone to believe that the way the U.S. has policed the internet for the past quarter-century—the way that’s let so many of the world’s biggest internet companies be founded and flourish here, midwifed the birth of participatory media we know today, helped sustained and make visible protest movements from Tunisia to Ferguson, and shined a light on legalized brutality around the world—has actually been lax, immoral, and dangerous. They want us to believe that America’s political problems are Facebook’s fault rather than their own.

Don’t believe them. The future of free speech—and a lot more—may depend on preserving Section 230.

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My Revised Essay, #Heckled

Last year, students at the CUNY Law School disrupted my lecture on free speech. You can watch the video here:

The incident made national headlines, and was the subject of widespread discussion on legal blogs and in other forums.

I’ve posted to SSRN a revised version of my essay #Heckled. My goal is to assess how the First Amendment—and broader principles of free speech—should treat the heckler’s veto on today’s college campuses. Professor Lawrence Solum wrote on the Legal Theory Blog that the essay was “Highly recommended and sobering.”

Here is the abstract:

The conflict is all-too familiar. A controversial speaker is invited to speak at a university. The overwhelming majority of students on campus don’t care one way or the other. A small number of students want to hear what the speaker has to say—primarily, but not exclusively, those who are inclined to agree with the speaker. However, a protest is staged by an equally small number of students who disagree with that speaker’s opinions, and indeed object to his mere presence on campus. Most of those students demonstrate outside the event, or quietly protest inside the room. The leaders of the pack try a different approach: shout down the speaker in an effort to deplatform him.

This conflict is personally familiar: it happened to me. In March 2018, students at the City University of New York (CUNY) Law School disrupted my lecture. I will use my experiences to illustrate how students attempt to promote and inhibit certain types of speech.  My goal is to assess how the First Amendment—and broader principles of free speech—should treat the heckler’s veto on today’s college campuses.

Part I explains why certain speakers are invited on campus.  Part II addresses the corollary question: why do students protest those speakers? Part III considers the necessary consequence of Part II: how do students today protest speakers?  This part also recounts my experiences at CUNY, and addresses how the First Amendment protects speakers who get #heckled. Finally, Part IV addresses how the university should respond to student protests.

I welcome comments and feedback.

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Trump Slams Fed, “King Elijah” & “Conman” Al Sharpton In Furious Twitter Rant

With one day left until the FOMC begins its two-day monetary policy meeting – said to be the most important policy meeting since the days that immediately followed the financial crisis – President Trump once again slammed the Fed in a tweet, echoing a criticism that he has repeatedly used over the past few weeks.

BW

Which is: That the Fed has failed to cut interest rates to get out ahead of central banks in Europe and China, despite the fact that stubbornly low inflation has left the Fed with every excuse to cut. The PBOC and the ECB will benefit from “pumping money into their systems, making it much easier for their manufacturers to sell product.”

Trump’s Fed-bashing apparently has one goal: To convince the central bank to authorize a 100 basis point rate cut, which would bring the Fed funds rate back between 1% and 1.5%.

Trump was very active on Twitter Monday morning, slamming Rev. Al Sharpton and Congressman Elijah Cummings after stirring up a controversy over the weekend with a tweet accusing Cummings’ 7th district of being a “disgusting rodent-infested mess.”

The president insisted that, under the “leadership” of Elijah Cummings, Baltimore has registered “the worst crime statistics in the Nation.”

He also insisted that if Democrats continued to defend the radical-left “squad” and “King Elijah”, that it would be a “long road to 2020.”

Finally, Trump lobbed a few insults at one of his favorite targets, Rev. Al Sharpton. Sharpton and Trump were once close friends, and Sharpton “loved Trump!”, the president insisted. Trump said Sharpton would always invite Trump to his events as a “personal favor to me.”

Unfortunately, Sharpton is nothing more than a “conman”, Trump said.

Trump isn’t the only individual to levy such an accusation against Sharpton.

via ZeroHedge News https://ift.tt/2MmVGL9 Tyler Durden

My Revised Essay, #Heckled

Last year, students at the CUNY Law School disrupted my lecture on free speech. You can watch the video here:

The incident made national headlines, and was the subject of widespread discussion on legal blogs and in other forums.

I’ve posted to SSRN a revised version of my essay #Heckled. My goal is to assess how the First Amendment—and broader principles of free speech—should treat the heckler’s veto on today’s college campuses. Professor Lawrence Solum wrote on the Legal Theory Blog that the essay was “Highly recommended and sobering.”

Here is the abstract:

The conflict is all-too familiar. A controversial speaker is invited to speak at a university. The overwhelming majority of students on campus don’t care one way or the other. A small number of students want to hear what the speaker has to say—primarily, but not exclusively, those who are inclined to agree with the speaker. However, a protest is staged by an equally small number of students who disagree with that speaker’s opinions, and indeed object to his mere presence on campus. Most of those students demonstrate outside the event, or quietly protest inside the room. The leaders of the pack try a different approach: shout down the speaker in an effort to deplatform him.

This conflict is personally familiar: it happened to me. In March 2018, students at the City University of New York (CUNY) Law School disrupted my lecture. I will use my experiences to illustrate how students attempt to promote and inhibit certain types of speech.  My goal is to assess how the First Amendment—and broader principles of free speech—should treat the heckler’s veto on today’s college campuses.

Part I explains why certain speakers are invited on campus.  Part II addresses the corollary question: why do students protest those speakers? Part III considers the necessary consequence of Part II: how do students today protest speakers?  This part also recounts my experiences at CUNY, and addresses how the First Amendment protects speakers who get #heckled. Finally, Part IV addresses how the university should respond to student protests.

I welcome comments and feedback.

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Even Amy Wax is Protected by Academic Freedom

Over at the American Association of University Professors’ Academe Blog, I have a post on the last brouhaha over Penn law professor Amy Wax and her views on immigration and the relative virtues of “First World” culture. There are those who say she should be fired or stripped of her teaching duties. There are those who say that she does not deserve the usual protections of academic freedom and that her speech rights should be curtailed. As usual, protections for free speech do not matter much when people are saying things that pleasant and agreeable. Our tolerance is tested only when someone says something unpleasant and controversial. Read the whole thing here.  A taste below:

The Wax case is not a hard case. She should be fully protected from employer sanction based on the content of the views that she has expressed in her public writings and speeches. This principle is foundational to the modern protection of academic freedom, and there is no exception for faculty speech that makes students uncomfortable or contradicts a dean’s opinion about the values of the institution. Wax is being criticized not merely for how she says things, but for the very substance of her ideas, ideas that are close to her scholarly endeavors. If her speech is not well inside the protected sphere of academic freedom, then academic freedom has little to offer those who might hold controversial views.

Of course, my views on the Wax case reflect the principles I elaborate and defend in my recent book, Speak Freely: Why Universities Must Defend Free Speech, which oddly enough is available for purchase here.

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Markets Coiled Ahead Of “Most Important Week Of The Year”

For what has been widely accepted as “the most important week for markets of 2019”, the market sure is taking its time to get excited, with overnight volumes subdued and global shares easing modestly on Monday with US equity futures hugging the unchanged line as the dollar shit a two-month high against a basket of currencies as markets began the 2-day countdown to a guaranteed rate cut in the US on Wednesday, with much riding on whether the Federal Reserve cuts 25 or 50bps and signals more cuts are to come.

Interest rate futures are fully priced for a quarter-point rate cut from the Fed on Wednesday, with a tiny chance of a half-point move.  As such any hawkish surprise by the Fed threatens to crash risk assets, something which Powell is now terrified of doing after the late 2018 near bear market. More important will be what the central bank flags for the future, given the market implies 100 basis points of easing over the next year or so.

“The week is off to a mixed start which isn’t wholly surprising given just how much investors have to follow in what is typically a peaceful time of year,” said Craig Erlam, senior market analyst at OANDA. “There’s no summer lulls just yet, with the Fed about to embark on an easing cycle, the BoE (Bank of England) offering its first assessment since Boris Johnson became PM, a third of S&P 500 and a quarter of Dow companies reporting second quarter earnings, the US jobs report being released and trade talks restarting between the US and China. As ever, this is almost entirely spread over four days so today may be the calm before the storm.”

MSCI’s All Country World Index of stocks, down by as much as 0.2% on the day, erased some losses to trade 0.05% lower.

After initially opening lower, European shares moved into positive territory with deal-making and a rally in defensive sectors pushing up the pan-European STOXX 600 index. The Stoxx 600 Automobiles & Parts Index (SXAP) fell as much as 1.2%, making it the worst performer on the broader Stoxx Europe 600. Both car and parts manufacturers dropped, dragging down the sub- index to its third consecutive day of decline. Robert Bosch GmbH warned of a 5% decline in automotive production this year, echoing Continental’s forecast last week. The sector’s retreat comes after a three-day winning streak last week when investors focused on good news.

In addition to the Fed, the other key event is the restart of US-China trade talks: negotiators from Washington and Beijing will meet in Shanghai this week for their first in-person talks since a G20 truce last month, but expectations are low for a breakthrough. Data on the weekend showed profits earned by China’s industrial firms contracted in June, fuelling concerns that the trade war will drag on economic growth.

“We remain cautiously optimistic that both sides can agree on a narrow agreement that addresses important trade-related issues, such as U.S. demands to increase exports,” said analysts at Barclays in a note. “That said, we are skeptical about the prospects of a broader agreement that includes the more challenging security-related issues.”

In Asia, MSCI’s broadest index of Asia-Pacific shares was half a percent lower as hopes for progress at U.S.-China trade talks failed to offset worries over Korean corporate earnings and civil unrest in Hong Kong. Most markets in the region were down, with South Korea’s Kospi Index declining 1.8% and Hong Kong’s Hang Seng Index falling 1%. South Korea is already North Asia’s worst performer this year, and its slump continued Monday due to a weaker earnings outlook. Hong Kong, where several demonstrations happened during the weekend, pared losses in late afternoon as China reiterated “one country, two systems” in the city. Other than regional issues, two days of trade talks between the U.S. and China remained the key event investors are watching closely this week. While it will mark the two countries’ first important meeting since the G-20 summit in Osaka, mixed signals and news indicated that neither side is showing an urge to compromise. READ: U.S.-China Talks Set to Resume as Neither Seems Eager for a Deal Australia’s benchmark closed at 6,825.8, near previous record close of 6,828.705 set Nov. 1, 2007. Thailand’s market is closed for a holiday.

In geopolitical news, thousands of Hong Kong protesters clashed with police over the weekend in which dozens were arrested as protests regarding the extradition bill continued. In response, China’s Hong Kong Affairs Office says no one should sit by and allow a few individuals to trample on the rule of law, and the central Government firmly support Chief Executive of Hong Kong Carrie Lam and the Hong Kong police.

Elsewhere, Iranian Official Araqchi said emergency meeting with parties related to 2015 nuclear deal was constructive and unresolved issues remain, while he added Iran will continue to reduce its nuclear commitments if the EU cannot save the deal. Iran Vice President says Iran’s foreign policy is to protect multilateralism and confront US hegemony.

In FX, the dollar index – which measures the greenback against a basket of peers – was higher by 0.1% and at its highest since May 31. A stronger-than-expected U.S. GDP report on Friday gave the dollar wings, as it led some investors to doubt whether the Fed will continue easing this year after its Wednesday meeting. Elsewhere in currencies, sterling fell to a fresh 27-month low around $1.2325 amid reports the government of Prime Minister Boris Johnson was preparing the ground for a “no-deal” Brexit.

In the latest Brexit news, UK Cabinet Minister Gove stated the government will make intensive efforts to get a better Brexit deal, but added we must operate on assumption we will not and that there will be a no-deal Brexit which we must be ready for. Further reports suggest that PM Johnson is to launch the largest advertising campaign since WW2 to get Britain ready for a no-deal Brexit, with an unprecedented marketing blitz on billboards, radio and television. FT reports that UK chancellor of the exchequer, Sajid Javid, is preparing to announce more than GBP 1bln in increased funding for a no-deal Brexit, according to people familiar with the matter. Institute for Government (IfG) has warned that there is no such thing as a managed no deal, and that predictions of a clean break from the EU made by hard Brexiteers will not occur.

In bonds, euro zone bond yields dipped as jittery investors eyed more U.S.-China trade talks and waited for a likely U.S. Federal Reserve interest rate cut, after the European Central Bank’s dovish signaling last week disappointed some. The benchmark German 10-year Bund yield fell more than 1 basis point to -0.3910%, not far from the record low of -0.422% touched last week.

In commodities, oil prices fell as investors fretted over the outlook for global economic growth, while weekend talks between Iran and major powers ended on a generally positive note, suggesting an easing of tensions in the Middle East.Brent crude futures eased 0.74% to $62.99, while U.S. crude lost 0.34% to $56.01 a barrel. Spot gold was flat at $1,418.13 per ounce.

Today’s economic data include the Dallas Fed Manufacturing Outlook. Scheduled earnings include Booz Allen Hamilton and J&J Snack Foods Corp.

Market Snapshot

  • S&P 500 futures little changed at 3,023.50
  • STOXX Europe 600 up 0.2% to 391.58
  • MXAP down 0.4% to 159.40
  • MXAPJ down 0.5% to 523.58
  • Nikkei down 0.2% to 21,616.80
  • Topix down 0.2% to 1,568.57
  • Hang Seng Index down 1% to 28,106.41
  • Shanghai Composite down 0.1% to 2,941.01
  • Sensex down 0.6% to 37,664.74
  • Australia S&P/ASX 200 up 0.5% to 6,825.80
  • Kospi down 1.8% to 2,029.48
  • German 10Y yield fell 1.7 bps to -0.393%
  • Euro down 0.09% to $1.1118
  • Italian 10Y yield rose 4.8 bps to 1.214%
  • Spanish 10Y yield fell 3.2 bps to 0.34%
  • Brent Futures down 0.3% to $63.29/bbl
  • Gold spot little changed at $1,419.19
  • U.S. Dollar Index up 0.1% to 98.06

Top Overnight News from Bloomberg

  • China’s economy continued to weaken in July, bolstering the case for greater policy support to shore up growth as talks over the trade dispute with the U.S. continue
  • ECB President Mario Draghi didn’t pull his punches when he said the economic outlook is getting “worse and worse”; this week, he’ll get more insight into how bad it really is out there
  • Mylan Co.’s EU1b 2024 euro notes surge 4.6 cents to 108.1 cents, the biggest daily increase on record, after reports that Pfizer plans to combine its off- patent drug business with Mylan
  • Almost three months after their trade talks broke down in acrimony, Chinese and American negotiators meet again in Shanghai this week amid tempered expectations for breakthroughs in their year-long trade war
  • U.K. Prime Minister Boris Johnson’s high-level Brexit cabinet holds its first meeting Monday, and will gather every day to ensure the country leaves the European Union on Oct. 31
  • Former Fed Chair Janet Yellen says she would have supported a 25bps interest cut at the FOMC meeting this week, because of global economic growth slowdown and low inflation, the Wall Street Journal reported, citing her speech in Aspen, Colorado
  • Oil traded near $56 a barrel as the U.K. deployed a warship to the Strait of Hormuz to help escort commercial ships, while U.S.-China trade talks are set to resume amid little expectations for a breakthrough
  • The Treasury Department is expected to hold its quarterly note and bond sales at record levels for the third straight time as Washington’s latest budget deal shows that the U.S.’s debt binge will continue
  • China’s top office for Hong Kong affairs plans a briefing on the city’s unrest, after a weekend of demonstrations

Asian equity markets began the week tentative as the upcoming slew of key risk events such as the resumption of US-China trade talks, heavy central bank activity including the FOMC and the latest US NFP jobs data, clouded over last Friday’s record highs on Wall St where tech earnings and better than expected US GDP underpinned stocks. As such, ASX 200 (+0.5%) and Nikkei 225 (-0.2%) were mixed with tech and telecoms front-running the gains in Australia to push the benchmark index to record all-time high, while Tokyo sentiment was subdued by a firmer currency and with earnings in focus. Hang Seng (-1.0%) and Shanghai Comp. (-0.1%) weakened amid modest expectations regarding the US-China trade talks in Shanghai this week and following a decline in Chinese Industrial Profits, with underperformance in Hong Kong after violent clashes over the weekend in protests that entered an 8th consecutive week. Finally, 10yr JGBs traded flat despite the weakness in Tokyo stocks, with demand for bonds subdued as participants were sidelined ahead of tomorrow’s BoJ policy announcement in which it is expected to maintain its policy settings of QQE with YCC control and NIRP at -0.10%. PBoC skipped open market operations for a net daily drain of CNY 50bln. (Newswires) PBoC set CNY mid-point at 6.8821 (Prev. 6.8796)

Top Asian News

  • India’s Finance Minister Seeks ‘Significant’ Rate Cuts from RBI
  • In Latest China Bank Rescue, Authorities Avoid a Takeover
  • Jack Ma’s $290 Billion Loan Machine Is Changing Chinese Banking
  • Swissport Plans to Refinance Outstanding Debt
  • Activist Calls on U.S. to Stop Selling Tear Gas to Hong Kong

European indices have largely started the week off mixed/flat [Stoxx 50 unch], though the FTSE 100 (+1.1%) is outperforming as sterling has continued to move lower throughout the session. Sectors are similarly mixed with some underperformance in the Auto sector, with auto names down in sympathy with Peugeot/PSA Group (-2.6%) afflicted by reports that the Co. are to move all production from their UK, Ellesmere Port to mainland Europe in the event that Brexit makes the plant unprofitable. Other notable movers include, Just Eat (+24.1%) and LSE (+14.9%) who are at the top of the Stoxx 600 and FTSE 100 after the confirmation of takeover discussions with Takeaway.com and sources indicating that the merger with Refinitiv is to be finalised within a week respectively. In contrast, at the bottom of the Stoxx 600 are Heineken (-5.3%) after the Co. reported operating profits of EUR 1.78bln vs. Exp. EUR 1.90bln for H1, though consolidated beer volume increased by 3.1% for the period. Finally, Novartis (-1.4%) are lower after the Co’s Paragon study just missed the statistical significance levels on its primary endpoints. Pfizer (PFE) is expected to announce that they will combine their off-patent drug business with Mylan (MYL) resulting in a market value of around USD 9.5bln.

Top European News

  • LSE Soars on Bet $27 Billion Refinitiv Bid Will Boost Bourse
  • U.K. Starts No-Deal Brexit Meetings as It’s Now a Real Prospect
  • Sports Direct Falls as Shock Tax Bill Deepens Governance Worries
  • Rightmove Results Mask Worrying Trend as Agents Leave: Berenberg

In FX, another day of mild gains for the broad Dollar and index in a continuation from Friday’s GDP-induced momentum and ahead of an action packed week for the Buck, which will see the currency tackle US-China trade talks in Shanghai, the FOMC’s latest monetary policy decision, US ISM and jobs data. DXY gains more ground above 98.00 having eclipsed last week’s high (98.09) ahead of the YTD high at 98.37, meanwhile today’s docket sees a lack of Tier 1 data and no notable scheduled speakers (with the Fed on blackout until Wednesday evening)

  • GBP, EUR, JPY – The Pound has succumbed to further Brexit angst and has given up the psychological 1.2350 mark to the downside, with the move lower coinciding with usual punchy language from UK’s newly appointed Foreign Minister Raab, who reiterated hard lines on Brexit negotiations. As the prospect of a no-deal exit intensified, some desks are observing the declining GBP/USD 3-month risk reversals, which indicate that options skewing leans more towards Sterling weakness in the near-term. Cable has fallen to fresh 2yr lows and currently hovers just under 1.2325 with little by way of immediate tech levels to the downside. Elsewhere, the rising EUR/GBP cross has somewhat cushioned the single currency from Dollar headwinds, with EUR/GBP gaining further tractions above the 0.9000 level. Meanwhile, EUR/USD sees a cluster of options around 1.1100-10 (800mln) and 1.1135-50 (800mln) ahead of today’s NY cut. USD/JPY action is largely dictated by the Dollar ahead of this week’s key risk events and with the BoJ set to publish its latest monetary policy decision overnight. USD/JPY trades closer to the top of a 108.42-70 intraday range with 1bln in options expiring at strikes 108.95-109.05.
  • AUD, NZD – The antipodeans are somewhat resilient to an extent against the firmer Dollar and remain in tight intraday parameters following last week’s losses. Participants are keeping a close eye on US-Sino trade developments as delegates convene in Shanghai in an attempt to restart talks where it was left off, although officials from US have downplayed expectations of a breakthrough. AUD/USD currently trades a whisker away from 0.6900, with the next support level to the downside highlighted at 0.6890 ahead of the psychological 0.6850 while NZD/USD keeps its head above 0.6600.
  • TRY – Further gains for the Lira in the aftermath of the CBRT’s deeper-than-forecast rate cut as the prospect of a normalising economy seemingly materialises. Analysts at SocGen also speculate that yield-seekers may be bypassing G10 currencies and instead chasing EM yields. USD/TRY trades around 5.6370 and nearest to the bottom of a 5.6240-6710 parameter

In commodities, WTI and Brent are also posting a relatively subdued start to the week, with prices little changed though they have regained the USD 56.00/bbl and USD 63.00/bbl levels to the upside respectively after a brief dip in the complex took them below these levels this morning. Some are attributing this dip to comments from Iran referring to emergency talks on a nuclear agreement as ‘constructive’ which may indicate a easing of tensions in the region which; though the dip was short-lived as there is no sign of respite for UK-Iranian tensions as a second UK warship arrives in the Gulf after Iran seized a UK tanker last week. On the complex, PVM notes that due to the lack of a convincing bullish move on Friday, WTI still has a viable objective to the downside as such a move below near-term support levels in todays session would be sufficient to move the complex lower. In terms of metals, Gold (U/C) is unchanged but towards the bottom of the days range on a lack of catalysts thus far ahead of this weeks aforementioned risk events, similarly copper prices are little changed on the lacklustre risk sentiment.

US Event Calendar

  • 10:30am: Dallas Fed Manf. Activity, est. -5, prior -12.1

DB’s Jim Reid concludes the overnight wrap

Welcome to the last few days of July, and a very important FOMC at month-end on Wednesday. If you’ve spent the weekend castigating your children for playing endless rounds of video games bear in mind that a packed Flushing Meadows in New York witnessed the Fortnite World Cup this weekend with the 16 year old winner taking home $3M. Indeed a British 15 year old boy took home $1.125m for finishing second in the pairs competition. To put things in perspective the Tour De France winner yesterday earned €450k in prize money after three weeks and a lifetime of pain and self denial. It really makes me wish I’d have progressed from being satisfied at getting an unbeatable world record in the Javelin on Daley Thompson’s Decathlon 30 years ago on the ZX Spectrum. With a bit more concentration on that and less on school work I could have been someone!

The FED will take care of the main market joystick this week and it’s hard to look past Wednesday’s FOMC conclusion when looking for the highlight of the week – if not the entire summer. Before we preview what will almost certainly be the first cut since 2008, the other main events are as follows. Staying with central banks the BoJ (Tuesday) and BoE (Thursday) sandwich the Fed this week with the no direct policy changes expected but with pressure on both to turn more dovish. The other blockbuster moment is the US jobs report (Friday) after a strong report last month dispelled some fears from previous months. Q2 Euro Area GDP (Wednesday) and the global manufacturing PMIs/ US ISM (Thursday) are the rest of the main data highlights. As all this occurs, we’ll see the resumption of US-China trade talks as the US delegation flies into China today, along with further earnings releases as 168 S&P 500 companies report.

Returning to the Fed, although a 25bps rate cut has been pretty much fully priced in, there is still a chance (or maybe a hope from many in the market) that it will be 50bps even if the Fed have done little to encourage such an assumption. Even to the point that when NY Fed President Williams perhaps did 11 days ago in a speech, the NY Fed took the unusual step of putting out a statement a few hours later downplaying any signalling.

DB’s US economists are expecting a 25bp cut, before further cuts in September and December. Powell’s press conference will be key to how much the committee signals further cuts though. The domestic data has held up ok recently so it will be a hard balance to out dove a market baying for stimulus. Maybe the ECB meeting last week serves as a warning on this front. I suspect we won’t know too much about what they’ll do next as they’ll keep maximum optionality and data dependency. It’s worth reminding readers that as we embark on a 19th Fed easing cycle since the 1950s, 9 have not been able to prevent the US economy moving into an imminent recession (see full report from our asset allocation team last week here ).

Turning to politics, this week will see the resumption of trade talks between the US and China, with the US team, including Trade Representative Lighthizer and Treasury Secretary Mnuchin, travelling to Shanghai today to meet their Chinese counterparts, with discussions starting tomorrow. Sticking with politics, this week will see the second round of the Democratic primary debates for the 2020 Presidential election, with the two debates taking place on Tuesday and Wednesday night. Meanwhile in the UK, there’ll be a parliamentary by-election on Thursday in the Welsh constituency of Brecon and Radnorshire which could easily reduce Boris Johnson’s majority to two (even including the DUP). The full day by day week ahead is at the end as usual for a Monday.

Asian markets have started the week on the back foot with the Hang Seng (-1.20%) and Kospi (-1.46%) leading declines. For the former the continued local protests, which started over the proposed extradition bill to China, are weighing while for the latter, weak earnings seem to be the issue. The Nikkei (-0.39%) and Shanghai Comp (-0.14%) are also seeing relatively modest declines. Elsewhere, futures on the S&P 500 are down -0.10% and the Chinese onshore yuan is trading -0.18% this morning at 6.8928. In terms of overnight data releases, Japan’s June retail sales came in at +0.5% yoy (vs. +0.2% yoy expected) with the previous month revised up by one-tenth to +1.2% yoy.

Staying with Asia, Bloomberg has reported overnight that three Chinese state-owned financial heavyweights, including Industrial & Commercial Bank of China Ltd., agreed to buy at least 17% of Hong Kong-listed Bank of Jinzhou Co. on Sunday. Bank of Jinzhou’s fate, which has been facing liquidity issues, has been a focus since China unexpectedly seized control of Baoshang Bank, earlier in May. Elsewhere, Bloomberg reported over the weekend that several Chinese companies have been approved to buy certain US farm goods tariff free.

Meanwhile here in the UK, PM Boris Johnson’s high-level Brexit cabinet will hold its first meeting today and will gather every day to ensure the country leaves the EU on October 31. Today’s meeting will be led by Michael Gove and he wrote in the Sunday Times that unless the EU agrees to re-open negotiations, “No deal is now a very real prospect, and we must make sure we are ready.” Sterling is trading -0.15% this morning at 1.2366. In other news, Turkey’s President Erdogan said after last week’s interest rate cut by the country’s central bank that, “This was what needed to be done,” while adding, “Even this cut is not enough. Cuts may continue gradually until year-end.”

Last week’s price action was dominated by the trend of US economic outperformance relative to the rest of the world. That trend was emphasized by the strong US GDP report on Friday, which showed a 4.3% expansion in consumption spending, though investment did subtract around 0.1pp from the headline GDP growth print of 2.9%. Net exports and inventories also dragged. That contrasts with Europe, where manufacturing PMIs were worse than expected and President Draghi failed deliver a comprehensively dovish message at the ECB’s press conference after what initially seemed a very dovish statement. There’s little doubt that major ECB easing is coming but it seems there remain a few hurdles in getting council agreement.

This divergence was evident in markets as well, with the euro weakening -0.85% versus the dollar (-0.19% on Friday) and bund yields falling -5.2bps (-1.3bps Friday) compared to a +1.5bps increase in treasury yields (-1.1bps Friday). US equities outperformed, with the S&P 500 and NASDAQ rallying +1.65% and +2.26% (+0.74% and +1.11% Friday) respectively, to both close at fresh all-time highs. The DOW gained a more modest +0.14% (+0.19%) as a few corporate earnings, especially Boeing (-8.57% on the week), weighed on the price-weighted index. However, overall, earnings reports were generally positive, with Alphabet (+10.05%), Texas Instruments (+9.30%), and UPS (+16.76%) some obvious highlights. In aggregate, S&P 500 earnings are beating consensus expectations by +5.3%, which is better than the historical average of around 3.4%. In Europe, the STOXX index gained +0.90% (+0.31% Friday) on the week, while the MSCI EM index fell -0.37% (+0.21% Friday).

In other markets, credit rallied in both the US and Europe, with indexes of cash HY spreads tighter by -13.5bps and -18.5bps in the US and Europe, respectively (-3bps and -1bps on Friday). As mentioned the fallout from the ECB’s policy meeting where they signalled imminent easing was mixed, and peripheral spreads to bunds widened by +1.4bps in Italy (+6.3bps Friday) and +3.7bps in Spain (+2.9bps Friday) with politics in both countries providing additional noise. On the other hand, inflation expectations rose, with the 5y5y inflation swap rate up +4.4bps (+3.9bps Friday) to its highest level in eleven weeks and around 20bps higher than pre-Sintra levels. Volatility remains subdued, with the VIX back down -2.3pts (-0.6pts Friday) to 12.16, right around its lowest level in a year.

via ZeroHedge News https://ift.tt/2YrKEqq Tyler Durden