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Via Dana Lyons’ Tumblr,

The numerous important trendline tests currently underway across the financial markets suggest this is a key juncture.

Volatility in global equity markets has kicked back into hyper-drive this week with an average daily true range in the S&P 500 approaching a staggering 3% for the week. The volatility (at least the downside part of it) has resulted in “tests” of a number of important trendlines throughout the financial markets — both in the U.S. and abroad. This proliferation of important tests suggests that we are near an important juncture in the markets. Specifically, as the tests pertain to stocks, it’ll be critical for the various markets to hold their respective uptrend lines. Should they fail here, it could be a long way down to the next significant support levels.

We could have spent all day posting about key trendline tests presently in play. However, as highlighted in our #TrendlineWednesday feature on StockTwits and Twitter, here are some of the most important ones across the financial markets, in the U.S. and abroad.

First off, we have the Russell 2000 testing its post-2009 Up trendline.

Similarly, the Nasdaq 100 is testing its post-2009 Up trendline that it held last month.

Across the pond, we see perhaps the most prolific trendline in the global stock market universe — the broken post-2000 Down trendline in France’s CAC-40 Index — getting tested at the moment.

Staying in Europe, we also have the UK’s FTSE 100 testing its post-2009 Up trendline.

And at perhaps the lowest end of the European equity spectrum, we see Deutsche Bank testing the trendline connecting its series of lower lows over the past decade.

Elsewhere in the world, we see, once again, the MSCI Emerging Markets Index testing its broken decade-long Down trendline.

And it’s not just stocks getting having all the trendline fun. We see, among other bond tickers, the 30-Year U.S. Treasury Yield testing its post-2016 Up Trendline.

Like I said, we can go on and on here. I think the message behind all of these important tests is that this is a critical juncture in the market. If, in the case of the stock indices, the tests are successful, a solid rally may finally take hold after the recent correction. If not, like we said, it could be a long way down.

*  *  *

If you are interested in an “all-access” pass to our charts, research and investment moves, we invite you to further check out The Lyons Share. There, we post all of the noteworthy chart developments for members — EVERY DAY. You can also follow our investment process and posture on a daily basis — including insights into what we’re looking to buy and sell and when. Given what we believe will be a treacherous market climate going forward, there has never been a more important time to reap the benefits of our risk-managed approach. Thanks for reading!

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Washington media exploded Friday night following the publication of sentencing memos filed by Special Counsel Robert Mueller and prosecutors with the SDNY which called for Cohen to serve a “substantial” prison sentence (NY prosecutors recommended a “slight downward variance” of 42 months), arguing that the attorney’s decision to rat on his former boss with his back against the wall wasn’t a noble act and didn’t excuse his many criminal acts – from bank fraud to violations of campaign finance laws – that were committed with the assumption of impunity, and without the knowledge of the family Cohen has claimed to be trying to protect.

As a refresher, here are a few of the highlights from the memos:

• Mueller said Cohen had “gone to significant lengths to assist the Special Counsel’s investigation” and met with the special counsel’s office on 7 occasions. Still, Mueller didn’t ask for leniency and said any prison sentence imposed by the New York judge would be appropriate.

• Cohen provided information about his contacts with “Russian interests,” including his and others’ involvement in the Moscow Project and Russians’ outreach to the campaign.

• “Synergy on a government level”: One Russian national who contacted Cohen in late 2015 claimed to be a “trusted person” in the Russian Federation reached out and claimed they could offer the campaign “synergy on a government level.”

• “By virtue of his regular contact with Company executives during the campaign,” Cohen provided the Special Counsel’s office “useful information concerning certain discrete Russia-related matters core to its investigation.”

• The White House link: Cohen provided “relevant and useful information” about his contacts with “persons connected to the White House” from 2017 to 2018.

• During his proffer sessions, Cohen admitted that he had previously lied about an invitation to arrange a meeting between Trump and Vladimir Putin in late 2015. Cohen claimed that, in fact, he had discussed the possibility with Trump.

• Federal Prosecutors for the first time also said that Cohen committed campaign finance crimes “in coordination with and at the direction of [Donald Trump, aka Individual-1]”

While the Washington press corp was quick to assume that these revelations suggest that Mueller will try to frame Trump as working to orchestrate wide-ranging collusion with a foreign government (in the documents, Trump was referred to only as “Individual 1”), many, including the president himself, pointed out that these allegations amount to little more than hearsay and are totally dependent on the word of an admitted liar.

In a Saturday morning tweetstorm, Trump let his feelings about the memos and their contents be known, arguing that the summary of Cohen’s testimony “totally clears” the president of wrongdoing…

Totally clears the President. Thank you!

— Donald J. Trump (@realDonaldTrump) December 7, 2018

…Before pointing out that after two years and nearly $30 million spent on Mueller’s probe, the special counsel had failed to uncover any concrete evidence of collusion (even CNN admitted that the sentencing memos don’t suggest that there was “any crime committed” by the president).

AFTER TWO YEARS AND MILLIONS OF PAGES OF DOCUMENTS (and a cost of over $30,000,000), NO COLLUSION!

— Donald J. Trump (@realDonaldTrump) December 8, 2018

As he’s fond of doing, Trump quoted a defensive take offered by Fox News host Geraldo Rivera.

“This is collusion illusion, there is no smoking gun here. At this late date, after all that we have gone through, after millions have been spent, we have no Russian Collusion. There is nothing impeachable here.” @GeraldoRivera Time for the Witch Hunt to END!

— Donald J. Trump (@realDonaldTrump) December 8, 2018

Bill Mitchell pointed out in a tweet that Cohen had said Trump had no knowledge of his contacts with Russians UNTIL the lawyer learned that saying the opposite would be the only way to avoid a lengthy prison term.

I’m confused on the Cohen testimony. He said Trump had no knowledge of him reaching out to the Russians, but then when he found out it would get him a more lenient sentence, he said he DID recall discussing this with Trump?

Anyone else see the glaring problem with this?

— Bill Mitchell (@mitchellvii) December 8, 2018

Before the memos were released on Friday, Trump reminded the public that his legal team would publish a “major Counter Report” to Mueller’s allegations to shine a light on the political bias at the DOJ that helped kick start the investigation.

We will be doing a major Counter Report to the Mueller Report. This should never again be allowed to happen to a future President of the United States!

— Donald J. Trump (@realDonaldTrump) December 7, 2018

In a statement, White House Press Secretary Sarah Huckabee Sanders argued that Cohen’s claims contain “nothing of value that wasn’t already known.”

“The government’s filings in Mr. Cohen’s case tell us nothing of value that wasn’t already known,” press secretary Sarah Huckabee Sanders said in a statement. “Mr. Cohen has repeatedly lied and as the prosecution has pointed out to the court, Mr. Cohen is no hero.”

To be sure, some conservatives continued to insist that the memos contained evidence of wrongdoing by Trump. One of the most prominent among these was Kellyanne Conway’s less-famous husband George Conway, who has emerged as a prominent Trump critici since being denied a position within the president’s DOJ.

Except for that little part where the US Attorney’s Office says that you directed and coordinated with Cohen to commit two felonies. Other than that, totally scot-free. https://t.co/YXmgY9KmXi

— George Conway (@gtconway3d) December 8, 2018

Trump has taken a lot of flack from the media lately for pointing out the DOJ’s conspicuous unwillingness to pursue charges against the Clintons. However, one Twitter user made one “casual observation” that could explain why Trump has been subjected to so much scrutiny, while the Clintons haven’t.

Don’t take this as a defense of Trump, just a casual observation…he has no political insurance policy as an outsider…it begs the questions as to why Clinton’s and perhaps O were not investigated this thoroughly…Answer, they had leverage on their opponents

— Robert L. Armstrong (@rlaattorney) December 8, 2018

 

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Authored by Chris Martenson via PeakProsperity,

Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst. 

The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.

It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.

History also shows that after the puncturing, pundits obsess over what precise pin triggered it, as if that matters.  It doesn’t, because ’cause’ of a bubble’s bursting can be anything.  It can be a wayward comment by a finance minister, otherwise innocuous at any other time, that spooks a critical European bond market at exactly the right (wrong?) moment, triggering a runaway cascade.

Or it might be the routine bankruptcy of a small company that unexpectedly exposes an under-hedged counterparty, thereby setting off a chain reaction across the corporate bond market before the contagion quickly spreads into other key elements of the financial system. 

Or perhaps it will be the US Justice Department arresting a Chinese technology executive on murky, over-reaching charges to bully an ally into accepting that unilateral US sanctions are to be abided by everyone, regardless of sovereignty.

How was it that the famous Tulip Bulb bubble came to a crashing end back in the 1600’s?  No one knows the exact moment or trigger. But we can easily imagine that in some Dutch pub on the fateful night on the Feb 3rd1637, a bidder on the most-coveted of all bulbs, the Semper Augustus, had an upset stomach and briefly grimaced when hit by a ripping gas pain:

Interpreting this face as distaste for the opening bid price, the assembled crowd may have suddenly realized the absurdity of paying so much (enough to clothe and feed a family for more than half a lifetime) for an ungrown flower. The bids were pulled, and the rest is history.

The point is: it doesn’t really matter what the pin actually is. The fatal trigger is often something completely unexpected and impossible to have predicted. So obsessing over what will end the Everything Bubble is a fool’s errand.

Rather than the “pin”, what’s important to focus on is the “pop” — what the aftermath will be. The duration and height of a bubble is directly correlated with the scope of the destruction its bursting will wreak, as is the number of asset classes that get caught up in the mania.

It’s much wiser to spend our time focusing on where the damage is going to occur, what path it’s most likely to take, and how bad the losses will be — so that we can position ourselves accordingly in advance for safety and, for the more adventurous, profit.

We’ve never seen anything like the current bubble we’re in. Stocks, bonds, real estate, fine art, you name it — nearly everything has been inflated to all-time highs. When this Everything Bubble pops, the pain is going to be epically calamitous.

And it’s increasingly looking like the “pop” has sounded.

Greed & Fear

Every bubble requires two essential inputs to fuel its rise:

1. a compelling story
2. ample credit

If either is missing, no bubble.

Price bubbles are not financial phenomenon, but rather psychological constructs born and nurtured in the human brain stem. Greed and fear — that’s what drives bubbles.

Greed on the way up and then fear on the way down. But neither has much influence without a tempting yarn and a lot of easy credit.

Attempting To Replace The Business Cycle With A Credit Cycle

In their quest for power and glory (and accompanied by a dead-flat learning curve), the world’s central banks are now pursuing their third, largest, and most ill-considered attempt to defeat the business cycle by replacing it with a credit cycle.  The fact that the prior two credit cycles blew up spectacularly doesn’t seem to be deterring them in the slightest.

A rather minor business cycle slowdown in 1994 was fought with a tidal wave of new credit under Greenspan. That ultimately resulted in the Dot Com Bubble crash of 2000, but the lesson went unlearned. 

Instead the Fed concluded that the idea was sound, but was simply not taken far enough. The elite cheerleading squad, captained by Paul Krugman, fully supported a doubling down, and the media unquestioningly went along with the program.

So Greenspan and Bernanke created the Housing Bubble 1.0 by offering the world’s credit markets a price of money so low it couldn’t be refused.  Housing was the story, and the Fed supplied the credit.  As predicted by a scant few of us, that all blew up spectacularly in 2008. And no constructive lessons were drawn from that experience, either.

With the political aircover to “save the system” (from the problems that it created!), Bernanke, Yellen, Kuroda and Draghi then led the most aggressive, coordinated central bank bender in all of human history.

$Trillions and $trillions were printed up, and many times that amount were leveraged and loaned throughout the banking and speculative finance universes:

(Source)

If you can’t clearly see how the above chart explains the massive price inflation over the past years in stocks, bonds and real estate, you’ll have no chance of understanding what’s coming next.  Best of luck to everyone choosing to avoid paying attention to this critical information; you’ll dearly need it.

Paying attention or not, here we all are; stuck together in a world awash with credit. $250 trillion in debt. 4 times that amount in unfunded liabilities. And a mind-bogglingly massive amount of tangled financial derivatives roughly the same size as both those debts and liabilities put together.

The Greed Is Now Gone

All that credit had to go somewhere. And it did.

Rare art fetched record-breaking prices. As did top-end trophy properties the world over.  Rare cars and large gemstones commanded the highest prices ever seen.  Stocks were bid up to ridiculous Price/Earnings multiples. And the Housing Bubble 2.0 returned to many metros around the globe — housing has never been more unaffordable to more people than it is now.

Can you feel it?  How greed is now giving way to fear? 

Sure, you probably know people who are hanging onto the Wall Street marketing slogans (“Buy the dips…hang on…don’t panic…successful investors don’t sell into weakness, they buy more!”). But the party atmosphere is now over. 

Just ask anyone who bought a house in Seattle in June (now down 11%). Or FAANG stocks in July (down 20%+). Or cryptocurrencies in January (down 80%+).

We’ve seen more downside volatility in the financial markets this year than in all of 2012-2017.

Until and unless the central banks reverse their current tightening course, everything is headed lower.

And I mean everything.

How bad will it get?  Honestly, pretty damn bad. Worse than 2000 and worse than 2008.

The credit cycle is just that much larger this time.

It’s the airgap between the economic value added (EVA) lines below and the spiked tops above that defines the amount off pain involved in the unwinding. This chart clearly shows the reckoning is going to be on a scale we’ve never experienced before.

Which is why our our advice continues to be protect your money, develop all 8 Forms of resilience (especially Emotional), and prepare to be a source of support for shell-shocked neighbors and loved ones.

The “Big One” Is Here

The recent market volatility is just the beginning of the downslide.

There will be many starts and stops along the way, but coming soon will be a shock that wakes people up and scares them badly.

Perhaps it will be another institutional failure like Lehman Brothers.  Or maybe a sovereign default.  Or even a central bank failure (yeah, I’m looking at you Swiss National Bank!).

Just “printing less” is causing the major stock indexes to stumble, while plunging the peripheral emerging markets into bear market territory. 

What’s going to happen when the central banking cartel is in net “money withdrawal” mode? Will today’s teetering markets be able to withstand that headwind?

We won’t have to wait long to find out. We should hit that milestone in the next quarter.

For now, the Fed and ECB lack the political capital to resume printing anytime soon. The Bank of Japan hardly has the muscle to muster anything more than temporary speed bump on its wind-down. And China increasingly has less and less motivation to help the US financial elites by rescuing their markets for them.  Besides, the Chinese authorities have their own massive collapsing bubbles to contend with right now.

And to add insult to injury, recession indicators are piling up faster and faster now. 2019 is looking primed to be The Year That Mass Layoffs Returned. Should that be the case, the resultant slowdown in consumer spending is certainly not going to help matters.

Against this backdrop, how far could the markets fall from their current prices? Easily 30% to 50%. And that’s if we’re lucky.

In Part 2: What To Do Now That The “The Big One” Is Here, we detail out the key indicators to watch most closely to track the great unwinding ahead, so that you can stay head of events and increase your odds of positioning for safety (and profit).

Those of us who have spent the past years watching in concern as the Everything Bubble grew, this is the moment we’ve been anticipating. Time to put your crash plans into action.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access).

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After hinting on Friday that he might reveal his nominee to succeed Joseph Dunford as Chairman of the Joint Chiefs of Staff ahead of Saturday’s Army Navy game, the president did exactly that, revealing in a tweet that he intends to nominate four-star General Mark Milley – presently the chief of staff for the US Army – to lead the committee of America’s most powerful military commanders who are responsible for advising the president on all military-related matters.

Mark Milley

The date of Milley’s takeover has yet to be determined. Milley’s nomination comes months earlier than expected; Dunford still has nearly 10 months left in his term (in the past, JCOS chairmen have typically been nominated in the Spring).

I am pleased to announce my nomination of four-star General Mark Milley, Chief of Staff of the United States Army – as the Chairman of the Joint Chiefs of Staff, replacing General Joe Dunford, who will be retiring….

— Donald J. Trump (@realDonaldTrump) December 8, 2018

….I am thankful to both of these incredible men for their service to our Country! Date of transition to be determined.

— Donald J. Trump (@realDonaldTrump) December 8, 2018

Milley must now be confirmed by the Senate. Assuming he is, he will become the first JCOS chairman to serve a single four-year term instead of a two-year term with the option for a second, a change that was included in the latest National Defense Authorization Act.

Dunford was nominated in 2015 by former US President Barack Obama, before being nominated by Trump for a second two-year term last year.

Milley became chief of staff of the Army in 2015 after serving at the commander of Army Forces in Fort Bragg, North Carolina. He also served in the US Army special forces as a Green Beret. A Massachusetts native and Princeton University graduate, Milley served three tours in Afghanistan during Operation Enduring Freedom. He also served as deputy commanding general of US forces in Afghanistan. Before that, he served in Panama, Haiti, Bosnia-Herzegovina and Somalia, among other countries, according to the Hill.

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Via Steven Guinness’ blog,

A couple of days ago the European Court of Justice issued a press release stating that the Advocate General of the ECJ, Campos Sanchez-Bordona, had advised the court that the UK should be allowed to unilaterally revoke Article 50 of the Lisbon Treaty and remain in the European Union.

The ECJ has since announced that it will give its verdict on December 10th as to whether the UK would be permitted to ‘cancel‘ Brexit ahead of the March 29th deadline. The decision will come just 24 hours before parliament is due to vote on the withdrawal agreement.

The independently minded among us may consider the timing of the ECJ’s announcement as suspect. Traditionally the ECJ concurs with the feelings of the Advocate General, which makes it likely that prior to the vote in parliament MP’s will be informed that the UK has the authority to unilaterally repeal Article 50 if it so chooses.

If coverage of Brexit over the past week is an accurate indicator, then such a development would only intensity support in the House of Commons for voting down the deal.

The reaction to the Advocate General from people who support leaving the EU has been largely predictable. Those that have labelled warnings over a ‘no deal‘ Brexit from the Bank of England as ‘project fear 2.0‘ believe that this is an attempt to sabotage the UK’s withdrawal from the EU ahead of March 2019. Whilst that is possible, it is not my interpretation of what is going on here.

Immediately after the ECJ’s press release was distributed, Lord Kerr – the author of Article 50 and leading campaigner for a second referendum – commented on the Advocate General’s position:

• This is no surprise and, if it the Court agrees, will confirm that it is still up to us to decide whether we want to keep the existing deal we’ve got in the EU rather than leave on the Government’s terms.
• We can choose to change course. There is still time and, until the UK has left the EU, the Article 50 letter can be withdrawn.
• With support growing across the country for a People’s Vote, it is clear to me that this is the best way forward. The people should have the right to choose.

Anyone that has followed closely the communications of Lord Kerr will know that over the past two years he has persistently stated that the UK has the right to ‘take back‘ the Article 50 letter before March 29th 2019 if it wants to.

What needs pointing out here is that Kerr – who remains on the Executive Committee of the Trilateral Commission – did not include within the text of Article 50 that a nation state has the right to unilaterally revoke the article. In this context, Article 50 was not definitive from a legal perspective. It would be fair to ask Kerr why that was. Because the article neither says it can or it cannot be revoked unilaterally, it has allowed this latest piece of theatre to gestate just months before the UK is due to leave the EU.

That said, the European Commission in March 2017 were very clear on their stance regarding the revocation of Article 50:

• It is up to the United Kingdom to trigger Article 50. But once triggered, it cannot be unilaterally reversed. Notification is a point of no return. Article 50 does not provide for the unilateral withdrawal of notification.

It appears that this will now not prove the case. But before committing to the theory that this is emblematic of a ‘Brexit Betrayal‘, there is an alternative way of looking at it.

I believe that the ECJ’s impending verdict on Article 50 is part of the drive to begin the process of the government legislating for a second referendum. If you decipher the words of Lord Kerr, he is not suggesting that the article be revoked through an act of parliament. Rather, his position is that the British people should have the final say on whether a majority still wants to leave the EU. This is why he is advocating for a remain option on any future ballot paper.

Rejection of the withdrawal agreement through parliament also appears to be part of this process. Fellow Trilateral Commission member Keir Starmer (shadow Brexit secretary) recently told Robert Peston of ITV:

• Unless the deal falls, then other options simply aren’t available.

Starmer followed up these comments with further insight when interviewed by Sophy Ridge on Sky News:

• If we get to a question of a public vote, it will be because the option of a deal has been taken off the table by the Prime Minister who will have failed to put something before parliament that we can have confidence in. She’s pushing these other options by the failure to have got the option of a deal that parliament can support.

Assuming the deal does fall, it will happen just as the ECJ will likely have ruled that Article 50 can be unilaterally revoked. The pathway would then be clear for legislation to begin on another referendum. The People’s Vote and other anti-Brexit campaigners would inevitably double down and rally behind the cause.

So does this mean that the goal is to see Article 50 revoked via the ballot box? Whilst that might be the case, I think the opposite scenario of leaving the EU on World Trade Organisation Terms is more likely. This would mean that the ballot for a second referendum would have to include a ‘no deal‘ option.

When setting out the ‘Roadmap to a People’s Vote‘ in September, Lord Kerr wrote:

• It will ultimately be for our elected representatives to determine the precise route to a People’s Vote and the mechanics by which it would operate.

In other words, it is not for Kerr to say whether no deal should be an option or not on the ballot. And at no point has Kerr publicly stated his opposition to a no deal option. Fellow Trilateralist Keir Starmer told Sophy Ridge on Sky News that he would be ‘worried‘ about the option, but ultimately agreed with Kerr that the question on the ballot would be a matter for parliament to decide.

Far from dismissing an option for no deal, other advocates for remaining in the EU continue to call for it to be included in a referendum. Former Prime Minister Tony Blair is on the record as supporting it. Most recently MP Justine Greening produced a ‘Five Point Proposal for a Second Referendum‘ that supports a three option ballot of the withdrawal agreement, no deal or remain. Gina Miller, founder of the anti-Brexit group ‘Best for Britain‘, appeared on Sky News last weekend and backed the idea of a no deal option:

I think no deal would have to be on the ballot. We would have to be fair to everyone and that’s why I believe it would have to be all three options.

Listen carefully to the words of MP’s and you will hear them speak of how parliament cannot possibly sanction a no deal exit from the EU. Yet some of those sitting in the chamber are quite content with granting that option to the British public.

A separate question is whether Theresa May’s deal with the EU will still be put to a referendum if voted down in parliament. If not, the only other options left would leaving on WTO terms or staying as part of the bloc.

If we do end up back at the polling booth, proponents of remaining in the EU will campaign that this is the last chance to stop Brexit. Proponents of leaving will campaign that this is the last chance in our lifetimes to ‘take back control‘ and vacate the EU entirely. Polling data did not accurately reflect public opinion ahead of the 2016 referendum, and I do not believe it would a second time around. The allure of believing that you can ‘take back control‘ and ‘put one over‘ the establishment is as strong today as it was two years ago.

The ECJ sanctioning the unilateral withdrawal of Article 50 would do nothing to change the likelihood of a no deal option being put to the public. What it will do is galvanise those who are fervently calling for a second vote to take place. But do they fully comprehend what they are asking for?

As I have written before, remain campaigners are so focused on securing the option to remain that they are failing to grasp how the vehicle of another referendum could produce the result that they ardently oppose. A result that would ultimately be to the benefit of the central banking fraternity.

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In the latest confirmation that global trade war and shifting supply chains are taking their toll on China, resulting in growing economic turmoil, overnight Beijing reported that growth in China’s exports decelerated meaningfully to 5.4% yoy in November, the lowest print since April 2018, half the consensus estimate of 9.9% and far below October’s 15.6% print; at the same time import growth tumbled to just 3.0% yoy, a huge miss to the 14% Wall Street estimate and an even bigger drop from October’s 20.8% print.

In sequential terms, exports contracted 2.8% M/M and imports declined 6.1% M/M, reversing October’s strong 2.9% gain; as a result of the disproportional drop in imports, China’s trade surplus widened to $44.7 billion from $34 billion. That was the highest this year.  The notable deceleration in headline trade growth was primarily due to a very high base (i.e. exports up 6% M/M and imports up 7% in November last year). Notwithstanding, sequential momentum was pretty weak.

In terms of exports to major destinations, growth decelerated broadly, with exports to the EU slowing the most to +6.0% yoy in November (from +14.6% yoy in October), while exports to the US slowed to +9.8% yoy in November (from +13.2% yoy in October), supported by continued front-loading ahead of potential tariff increases. Exports to Japan increased +4.8% yoy in November, down from +7.9% yoy in October. For major EMs, exports to ASEAN slowed meaningfully to +5.1% yoy in November following several months of double-digit growth.

Commenting on the geographic breakdown, Goldman analyst Zhennan Li said that “the notable contraction in imports was broadly consistent with weakening exports in November from Korea and Taiwan to China. Weaker-than-expected exports in November could reflect the faster than expected fading impact from front-loading ahead of tariffs levied on $200bn Chinese goods starting in late September (likely to be increased to 25% next year). With the waning of this tailwind, we expect exports to resume modest momentum in the coming months, which would weigh on overall growth.“

But the most notable, and politically-relevant observation by far, was the sharp plunge in Chinese imports from the US, which tumbled 25% in November from a year earlier: this was the single biggest monthly decline since January 2016 when China’s economy and capital markets were reelilng in the aftermath of the Yuan devaluation and Shanghai Composite bubble bursting.

As a result of this plunge in imports from the US, the trade surplus with the U.S. was almost $35.6 billion, facilitated by the 9.8% rise in exports. China’s data also confirmed the trade story as seen from the US perspective: as we reported on Thursday, the US reported that the goods trade deficit with China widened to $43.1 billion in October, an all time high.

While China’s burgeoning trade surplus with the US will be welcomed in Beijing – if cause for further fury in the White House – the broader slow down in China’s trade is unmistakable, and could be observed in the imports of major commodities, where growth decelerated notably in both value and volume terms. In value terms:

• Iron ore imports slowed to +3.3% yoy in November (vs. +11.7% yoy in October);
• Crude oil imports grew by +57.6% yoy in November (vs. +89.0% yoy in October);
• Steel products imports decreased by 3.7% yoy in November (vs. +19.0% yoy in October).

And in volume terms:

• iron ore imports declined by 8.8% yoy in November (vs. +11.2% yoy in October);
• crude oil imports grew +15.7% yoy in November (vs. +31.5% yoy in October);
• steel products imports contracted 7.3% yoy in November (vs. +20.0% yoy in October.)

Analysts were quick to highlight China’s sharp slowdown in trade: “Major economies excluding the U.S. have all shown slowing growth momentum, dragging on overall global demand. Meanwhile imports remain weak on sluggish domestic demand,” said Xia Le, Hong Kong-based chief Asia economist at BBVA.

“The weaker-than-expected trade growth is due to a high base, lower oil prices and the fading of front-loading ahead of tariff hikes,” said Larry Hu, a Hong Kong-based economist at Macquarie referring to exporters shipping goods faster to get them into the U.S. ahead of possible tariff hikes. As a result, the “slower exports and property investment will lead to a further slowdown in China’s economy,” Hu said adding that “export growth will decline significantly to low single-digits next year as front-loading ends.”

That said, that front-loading was likely still happening in November as the U.S. tariff hike threatened for Jan. 1, 2019 was still on the table before presidents Donald Trump and Xi Jinping met during the Group of 20 summit. That tariff hike, which has helped spur export growth since August, was delayed for at least 90 days after the high-stakes meeting last week. However, by now it is unlikely that much trade remains for frontloading.

Additionally, “the truce may buy time for manufacturers to lengthen the inventory cycle, but it is unlikely to boost the capex outlook meaningfully, unless uncertainty is eliminated completely,” Angela Hsieh, Barclays’ EM Asia economist wrote last week.

The latest data is just a continuation of even more pain for China: the official factory gauge and other early indicators have pointed to slowing domestic growth as GDP continues to drift lower, while aggregate credit growth recently collapsed to a record low print…

… as government support measures have yet to boost business sentiment and offset the effects of waning domestic and global demand.

As such, expect the trade war with the US to continue as it presents a convenient scapegoat for both sides: for Beijing, it serves to distract from the economy far broader troubles and allow Xi Jinping to blame Trump for everything that is wrong, while for Trump it serves to distract from his own domestic political scandals which, with the publication of Mueller’s report imminent, are only set to grow.

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Authored by MK Bhadrakumar via Oriental Review,

The statement issued by the North Atlantic Treaty Organization on December 4 regarding the Intermediate-Range Nuclear Forces (INF) Treaty following the meeting of the foreign ministers of the alliance in Brussels puts the seal on the US decision to withdraw from the pact.

Washington has successfully rallied its European allies. Armed with NATO solidarity, US Secretary of State Mike Pompeo gave Russia a 60-day ultimatum to return to compliance with the Treaty. Pompeo hopes to make Russia the culpable party.

However, quite some time ago, the US had already made up it mind to scrap the treaty. The Congress even made provision in the Pentagon budget for R&D relating to intermediate missiles. But an alibi was needed. In 2002, the US unilaterally withdrew from the ABM Treaty and dealt a body blow to international security without bothering to explain. On the contrary, INF Treaty is vital to European security and an alibi is necessary.

In some ways, the INF Treaty has become an anachronism, since it stipulated that the US and Russia should not produce intermediate range missiles. Whereas, many other countries make such weapons today. Washington decided that it too must have such weapons. Pompeo actually admitted this in his remarks on December 4 in Brussels. He said,

“Secondly, while Russia is responsible for the demise of the treaty, many other states – including China, North Korea, and Iran – are not parties to the INF Treaty. This leaves them free to build all the intermediate range missiles that they would like. There is no reason the United States should continue to cede this crucial military advantage to revisionist powers like China, in particular when these weapons are being used to threaten and coerce the United States and its allies in Asia.”

“If you ask the question why the treaty wasn’t enlarged to include more nations, including China, keep in mind that it has been tried three times without any success already, and it has failed each time.”

Moscow has calmly reacted. It called the US decision “reckless” and rejected the allegation regarding its non-compliance of the treaty. Once again, Moscow challenged Washington to provide specific details of any Russian violation. But Moscow senses a fait accompli. President Vladimir Putin said yesterday,

“The arguments cited are essentially clear: Russia and the United States are the only countries that do not produce weapons of this kind. This is actually true. Many other countries – probably about a dozen already – make such weapons, while Russia and the United States have limited themselves bilaterally. Now, apparently, our American partners decided that the situation has changed so much that the United States should also have such weapons.”

“What will our response be? Simple: then we will do it too.”

Arguably, it may suit Moscow to enhance its own deterrent capability by targeting Western Europe with nuclear missiles at a juncture when NATO continues to expand menacingly to the east and encircle Russia. If US scraps INF Treaty, Europe is going to be the loser. Second, Russia will arm itself to defang the NATO.

Indeed, one major dimension to the Ukraine crisis itself is the NATO’s growing power projection. The US, Canadian and British instructors are training the airborne assault and mechanised brigades of the Ukrainian armed forces in the ranges in the Zhytomyr and Lvov regions to prepare them for deployment in the conflict zone in Donbas.

The British press recently reported that the 77th brigade of the British armed forces is being deployed to Ukraine for conducting special cyber operations, as well as psychological and information warfare. Again, western private military contractors have been spotted on the contact line in Donbas, training Ukrainian spec ops personnel for undertaking offensive operations. In September – October, Ukraine held its annual joint military exercise, followed by a series of large air exercises, with the US and other NATO countries.

The Russian Foreign Ministry spokesperson disclosed at a briefing on Wednesday that the US is “proactively exploring a military build-up in Cyprus … with a view to setting up a forward deployment base for the US Armed Forces” with an eye on the growing Russian capability in eastern Mediterranean.

The CNN reported on December 5 that the US is preparing to sail a warship into the Black Sea to challenge Russia’s preponderant presence.

No doubt, the steady build-up of NATO on Russia’s western border provides the backdrop to the demise of the INF Treaty. The US seeks a shift in the strategic balance in its favor. And it is shaking off all constraints limiting its arms build-up.

Curiously, on Wednesday, in a blatant provocation, US Navy sailed the guided missile destroyer USS McCampbell “in the vicinity of Peter the Great Bayto challenge Russia’s excessive maritime claims and uphold the rights, freedoms, and lawful uses of the sea enjoyed by the United States and other Nations.” This is the first time in the past 35 years (since 1987) that the US conducted a “Freedom of Navigation Operation” in those waters claimed by Russia.

The Peter the Great Bay (where Vladivostok and Nakhodka Port are situated) is neither a disputed territory nor an international waterway as such and there is no conceivable reason why the US should conduct a Freedom of Navigation Operation there.

But, in layman’s language, the US simply decided to taunt Russia by getting McCampbell to pee into the bay, marking territory.

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On Tuesday, the UK Parliament is slated to vote on whether PM Theresa May’s Brexit deal should survive or die.

All the signs are that politicians in the House of Commons will choose overwhelmingly to stop the agreement May has struck after 18 months of talks with the EU.

And so, in what seems like a desperate last minute play, May’s government (that is whoever remains loyal to her) has issued a dramatic letter of warning to the country warning of the consequences of a ‘no’ vote and the case of the UK crashing out of the EU without a deal.

This is Project Fear 3.0 (to be clear, Project Fear 1.0 was PM Cameron’s 2016 warnings of national security threats, among other things; and Project Fear 2.0 was The Bank of England’s latest economic depression forecast)

The government is telling supermarkets to keep as much stock as possible in warehouses around the country.

“The problem for supermarkets throughout this process is the seasonality of fresh produce,” said Brian Connell, a supply chain consultant at KPMG.

“Some of the stuff they would want to stockpile hasn’t even been sown yet, let alone grown or harvested.”

Retail giants including Tesco Plc, J Sainsbury Plc, Walmart Inc.’s Asda and Wm Morrison Supermarkets Plc — the country’s four biggest grocery chains — are now asking their main suppliers to ramp up their stock over concerns that half their shelves will be empty if there is a hard or no-deal Brexit, according to Joe Clarke, national officer for food, drink and tobacco at the Unite union.

As Bloomberg reports, the request is being made by ministers because in the worst-case scenario, a no-deal Brexit would cut the capacity of the country’s main EU trading route from the French port of Calais to Dover in southeast England to just 13 percent of the current level due to additional border checks.

Six government and industry officials with knowledge of the matter spoke to Bloomberg on condition of anonymity because the contingency plans aren’t public.

Worries over panic buying and loss of access to the EU’s customs union and single market are mounting for grocers, as they predict a 47 percent drop in goods and believe supply chains could dry up within two weeks of a chaotic exit from the bloc, Clarke at Unite said. They are asking their top 20 manufacturers to supply more produce in case this happens, meaning there will be less choice of brands for shoppers.

Even in the best-case no-deal Brexit scenario, officials foresee six weeks of disruption at the borders. The government is briefing organizations affected by cross-border trade on its latest no-deal planning Friday.

Separately, the Department of Health said in a letter Friday it expects up to six months of “significantly reduced access” especially on shorter shipping routes in the event of a no-deal Brexit. It didn’t give specifics on what businesses should do to prepare, though it said “six-week stockpiling activities remain a critical part of our contingency plans.”

The full letter is below:

Medicines supply contingency plans for a no-deal Brexit scenario

I am writing as part of the Government’s ongoing preparations for a March 2019 ‘no deal’ Brexit scenario and the potential impact on the supply of medicines.

On 23 August 2018, I wrote to all pharmaceutical companies that supply prescription only medicines and pharmacy medicines to the UK from, or via, the European Union or European Economic Area asking them to ensure they have a minimum of six weeks additional supply in the UK, over and above existing business-as-usual buffer stocks, by 29 March 2019.

I am writing to update you on the progress made to date and some updates to the Government planning assumptions, which may now affect you even if you do not supply prescription only or pharmacy medicines from or via the EU/EEA into the UK.

As you will be aware, the Government and the EU have now agreed the basis upon which the UK will leave the EU in March 2019. This represents a significant step towards the UK’s objective of securing an orderly exit from the EU. Nevertheless, as a responsible Government we have to plan for all scenarios.

Update to cross-Government planning assumptions

In August I advised that the cross-Government planning assumption about potential border delays would be subject to revision in light of future developments.

Government departments have been working to design customs and other control arrangements at the UK border in a way which ensures goods can continue to flow into the country, and won’t be delayed by additional controls and checks. On the UK side this work is proceeding well, and we have been clear we will not impose additional controls and checks. However, the UK Government does not have control over the checks which member states impose at the EU border. The European Commission has made it clear that, in the event of a ‘no deal’ scenario, it will impose full third country controls on people and goods entering the EU from the UK. Whether this happens or not is in their hands, not ours.

Although we cannot know exactly what each member state will do with respect to checks on the EU border, the cross-Government planning assumptions have been revised so we can prepare for the potential impacts that the imposition of third country controls by member states could have. These impacts are likely to be felt mostly on the short straits crossings into Dover and Folkestone, where the frequent and closed loop nature of these mean that both exports and imports would be affected.

The revised cross-Government planning assumptions show that there will be significantly reduced access across the short straits, for up to six months.

This is very much a worst-case scenario. In a ‘no deal’ exit from the EU we would, of course, be pressing member states hard to introduce pragmatic arrangements to ensure the continued full flow of goods which would be to their benefit as well as ours. Nevertheless, as a responsible Government, we have a duty to plan for all scenarios. And in areas where we cannot tolerate significant risk to the flow of goods, such as with medicines and medical products, we need to have contingency plans in place for this worst-case planning assumption.

This means that whilst the six-week stockpiling activities remain a critical part of our contingency plans, this now needs to be supplemented with additional actions.

The Government recognises the vital importance of medicines and medical products and is working to ensure that there is sufficient roll-on, roll-off freight capacity to enable these vital products to continue to move freely in to the UK. The Government has also agreed that medicines and medical products will be prioritised on these alternative routes to ensure that the flow of all these products will continue unimpeded after 29 March 2019.

Our data shows that you currently do not manufacture, batch test or release your products in the EU before marketing them in the UK. However, if this has changed I would ask you to contact our Medicines Supply Contingency Planning Programme.

*  *  *

The timing of the Health Department’s letter risks angering Brexiteers, who will likely see it as an attempt to exert pressure ahead of the vote, and rightfully so, as Health Secretary Matt Hancock told BBC Radio Friday the likely logistical problems were “another reason” to vote for the prime minister’s deal.

This, we suspect, is far from over…

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