Seattle’s First-in-the-Nation Straw Ban Goes Into Effect. More Will Follow.

Seattle continues to play its role as an incubator of bad policy ideas by imposing the nation’s first ban on plastic straws. First articulated in September of last year, the new ban officially went into effect on Sunday.

The law prohibits all food-service businesses, including restaurants, coffee shops, delis, and pubs, from offering any disposable straw or utensil to patrons unless they specifically request one. Should a customer ask for one, said straw will have to be not just biodegradable but compostable under Seattle’s exacting city-level standards. Violators will be hit with $250 fines.

Seattleites will still probably see plastic straws around town for the next couple months, as plenty of businesses are still scrambling to make the switch to their compostable counterparts.

Caroline Lee of Young Tea, a boba tea shop in downtown Seattle, told Reason last week that she was still in the process of working with her supplier in Taiwan to make a straw that meets the new regulation. Lee says the new straws are six to seven times more expensive and fall apart from exposure to high heats, requiring special packaging when shipped by sea. She is considering having a test batch flown in by air, which will raise costs further.

Lee expressed her hope that the city would give business owners a grace period and even compensate them for the extra costs they are being asked to take on. So far, compensation seems out of the question. But there will, mercifully, be a grace period. Ellen Pepin-Cato of Seattle Public Utilities (SPU)—the agency responsible for enforcing the ban—tells The Seattle Times that the focus for now would be on “continuing outreach and assistance to businesses to help them come into compliance, rather than enforcement.”

As businesses in the Emerald City struggle to comply with the new straw ban, other jurisdictions are passing or seriously considering bans of their own.

Vancouver, Canada, prohibited straws back in May, much to the chagrin of boba tea shop owners, plastics manufacturers, and disability advocates (who take issue with banning a essential utensil for those who have difficulty bringing cup to mouth). Several New York City councilmembers are trying to do the same in their city, introducing legislation in May that would ban straws for everyone who doesn’t need one for medical purposes.

These councilmembers are being spurred on by the Lonely Whale, an environmental group that sees straws as a “gateway plastic” that could spawn more bans of more plastic items. Lonely Whale played a crucial role in Seattle’s ban with its Strawless in Seattle campaign. They’ve since deployed actor Adrian Grenier to make videos and co-sign op-eds demanding that the Big Apple follow Seattle’s lead and ditch single-use straws altogether.

An exhausting number of celebrities and corporations are jumping aboard the craze too. From Tom Brady and Ikea to Calvin Harris and McDonald’s, everyone is telling you to stop sucking and start think about the planet.

They’ll sometimes claim that Americans use 500 million straws a day. Always they’ll argue that ditching straws is an unambiguous good for our oceans filling with plastic. Neither argument is very convincing.

That 500 million straw a day figure—cited by The Washington Post yesterday—has been debunked as the product of a nine-year-old’s research. But even if that stat were accurate, straw bans are unlikely to help the planet much. The U.S. is responsible for a tiny portion of the world’s marine plastic waste (less than 1 percent), as are plastic straws themselves (about .03 percent). The best approach to the problem of oceanic plastic pollution is better waste management systems in the developing world, not bans on plastic products.

It is easy to see a parallel between this movement and the once-popular urge to prohibit or restrict the use of plastic bags. Likewise spurred on by bad stats and feel-good activism, San Francisco became the first major city to ban plastic bags in 2007, with prohibitions later moving on to the usual suspects of Seattle, Los Angeles, Austin, and eventually the entire state of California. But once the easy wins were out of the way and consumers became increasingly irritated at the loss of convenience, a blacklash set in. Ten states have passed preemption ordinances prohibiting municipalities from imposing their own bag bans (among them Minnesota, which overturned a Minneapolis ban). Last week the Texas Supreme Court ruled that Austin’s bag ban was illegal under preexisting state law.

Something similar will likely happen with plastic straws. As the novelty of straw bans wear off and as their costs become more apparent, momentum will slow, and hopefully reverse. That will leave a handful of municipalities clinging to their prohibitions, a few states with straw ban preemption laws, and a lot of consumers and businesses hoping just to be left alone.

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CIA Teams Up With Defense Industry To Undermine Korea Negotiations

Via Disobedient Media

In a new development that will shock no one, factions within the CIA attempted for the second time in just over a month to undermine President Trump’s peace overtures towards North Korea by leaking information calculated to decrease confidence in Kim Jong Un’s willingness to earnestly negotiate.

On June 29, 2018, NBC News released a report quoting anonymous CIA officials who claimed that North Korea was increasing nuclear production at “secret sites” without providing any actual evidence for such claims. The report’s credibility is further weakened by the fact that it also cited reports from a think tank which has strong connections to the defense industry and other private special interests.

In disseminating their report, the CIA used NBC reporter Ken Dilanian as an outlet for leaks. As Disobedient Media previously reported, Dilanian was outed by the Intercept in 2014 as a CIA asset. In the aftermath of the disclosure, Dilanian’s previous employers at the Tribune Washington and Los Angeles Times disavowed the disgraced journalist. In at least one instance, the CIA’s instructions to Dilanian appears to have led to significant changes in a story that was eventually published in the Los Angeles Times.

Since that time, Dilanian has persisted in pushing articles written by former CIA officials who continue to perpetuate the “Trump-Russia” collusion narrative without any regard to facts, such as Steven Hall’s Washington Post article titled: “I was in the CIA. We wouldn’t trust a country whose leader did what Trump did.”

In the absence of hard evidence from the CIA to back their claims about North Korea, Dilanian cited the opinion of Clinton administration official Joel Wit and reports from 38north.org. 38north is a project run by the Henry L. Stimson Center. The Stimson Center’s Board of Directors includes individuals associated with organizations such as Northrop Grumman, the Boeing Company, Warburg Pincus, the Carnegie Endowment, Mercy Corps, The Council on Foreign Relations, the Department of Defense, the CIA and US Department of the Treasury. Their Partners include the George C. Marshall Foundation, Saudi Arabia’s Gulf Research Center and the Jinnah Institute.

Satellite images circulated by 38north claiming to show improvements to North Korea’s Yongbyon Nuclear Scientific Research Center appear to have been obtained from Airbus Defense and Space SAS, a subsidiary of European multinational conglomerate Airbus Group SE. Airbus was the brainchild of Germany’s DaimlerChrysler Aerospace and British Aerospace. The association of a German connected transnational group in efforts to undermine Korean peace negotiations is interesting given the strong connections they held with the now scandalized South Korean government of Park Geun-hye.

The involvement of a think tank in a website that is centered around undermining US confidence in North Korea is hardly a surprise given their connections to the military-industrial complex and internationalist special interest groups. Both Northrop Grumman and Boeing have seen their stock’s value drop in the aftermath of Trump’s Singapore meeting with Kim Jong Un in what analysts saw as a temporary setback to defense stocks. Seeing such corporations use their ties to institutions such as the Stimson Center to collaborate with the CIA in an effort to scuttle commitments to North Korean denuclearization and a peace accord between the Koreas and United States represents a new low.

Despite the best efforts of the CIA, President Trump has stated that there is no current nuclear threat from North Korea, and that the Singapore Summit represented a positive interaction with the leader of the so-called “hermit kingdom.” Trump has repeatedly highlighted the opportunity for Chairman Kim to engage with the world and begin a new era of “security and prosperity” for North Korea. North Korea destroyed portions of their test site at Punggye-ri before a group of foreign journalist observers in the lead up to the US-North Korea summit on June 12.

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3 Month Bill Bid-To-Cover Plunges To Lowest In A Decade Amid Fleeing Demand

While demand for US Treasurys remains brisk at primary auctions (if more questionable in the secondary market where we recently learned that Russia dumped half of its Treasury holdings, or almost $50BN, in April), the same can hardly be said for the short-end of the market, where moments ago we saw what happens to auction demand in a time of rapidly rising rates.

As shown in the chart below, while the yield on 3 Month Bills auctioned off today came in largely as expected at 1.940%, the demand did not, and after an already depressed Bid to Cover of 2.89 last week, today’s 3M auction suffered from one of the lowest demands on record, tumbling to just 2.62, with $125.88BN in bids tendered for $48BN in paper, down sharply from $138.87BN on June 25. In context, this was the lowest Bid To Cover inthe past ten years, and one would have to go back all the way to the post-Lehman days of 2008 to find a lower BTC.

And with both T-Bill issuance continuing to surge, and rates rising, two things are certain: not only will the Libor-OIS spread resume blowing out amid the continued surge in short-term supply and increasingly tighter financial conditions, but demand will continue slide, although the good news is that we are still well off from the record lows, in which auctions were only 2.0x covered at the start of the century. That said, who knows: perhaps the break in the bond market will begin with a failed Bill auction as the US Treasury finds it increasingly difficult to roll over short-term debt.

What we do know is that today’s sloppy 3-Month auction follows an equally ugly 6-Month Bill sale on June 18, when it took saw the second lowest BTC print this decade. The result: two unexpectedly ugly Bill auctions two weeks apart from each other as demand for cash-equivalents suddenly flees.

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Tesla Is Tanking

Having surged as much as 7% pre-market despite missing its deadline for the milestone of producing 5,000 Model 3 cars in a week – it appears the humans have now read the reports (rather than the machines), and Tesla’s stock price is tumbling…

Well that escalated quickly…

“I think we just became a real car company,” Musk wrote earlier.

And judging by Tesla’s bonds, it has a long way to go…

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Will Any Country Stand Up To Trump Sanctions?

Authored by Mike Shedlock via MishTalk,

Juan Cole claims Turkey, Iraq, and China will defy Trump sanctions. But saying and doing are two different things.

Juan Cole, Informed Comment, says Turkey, Iraq and China defy Trump on new Iran Sanctions, Act to Hold Tehran Harmless.

Let me first point out the EU said the same thing, but it won’t.

China might, but how does that get goods to Iran?

Iraq by itself is meaningless. It would also imply cooperation between Iraq and Iran.

India is more interesting. The Financial Tribune reported India to Revive Rupee Payment for Iran Oil Imports. That is from the First Iranian English Economic Daily, but the headline rings true. I do not doubt it a bit. Here are some interesting snips:

India is looking to revive a rupee trade mechanism to settle part of its oil payments to Iran, fearing foreign channels to pay Tehran might choke under pressure from US sanctions, two government sources said.

During a previous round of sanctions, India devised a barter-like scheme acceptable to Washington to allow it to make some oil payments to Tehran in rupees through a small state bank.

Iran used the funds to import goods from India, Reuters reported. “We are looking at reviving rupee mechanism … We have to prepare ourselves,” one of the sources told Reuters, adding that the current payment mechanism might not work from November.

Refiners in India currently use State Bank of India and Germany-based Europaeisch-Iranische Handelsbank AG to buy Iranian oil in euros, according to IOC and other companies.

Oil Trades Directly in Euros

Read that last line carefully. Please note that Iranian oil trades directly in euros, not dollars.

India purchased oil both in Rupees and in euros, directly from Iran.

No one needs dollars to buy oil.

Is this hash settled once and for all? Unfortunately, no. Petrodollar conspiracy proponents will never stop making idiotic claims that people get sucked into.

With that, let’s move on.

India Preparing for Cut in Oil Imports from Iran

Reuters reports India Preparing for Cut in Oil Imports from Iran.

India’s oil ministry has asked refiners to prepare for a ‘drastic reduction or zero’ imports of Iranian oil from November, two industry sources said, the first sign that New Delhi is responding to a push by the United States to cut trade ties with Iran.

India has said it does not recognise unilateral restrictions imposed by the United States, and instead follows U.N. sanctions. But the industry sources said India, the biggest buyer of Iranian oil after China, will be forced to take action to protect its exposure to the U.S. financial system.

India’s oil ministry held a meeting with refiners on Thursday, urging them to scout for alternatives to Iranian oil, the sources said.

That is the difference between saying and doing. It is entirely believable that India will establish another Rupee exchange mechanism. However, it appears unlikely India will use it.

Let’s return to Juan Cole.

Turkey, Iraq and China defy Trump on New Iran Sanctions

​The Trump administration is unlikely to have the same success in getting other countries to boycott Iranian petroleum as did the Obama administration in 2012-2015, though its officials are making a full court press in that regard.

Proof came in the form of statements from the Turkish, Iraqi and Chinese governments yesterday. Turkish Economy Minister Nihat Zeybekci was scathing on Trump’s aggressive moves against Iran. Turkey, he said, is not bound by the new US sanctions, which are unilateral. Reuters reports him saying in Ankara, “The decisions that the United States makes are not binding on us. We would be bound by any decisions taken by the United Nations.”

Then Zeybekci, who is certainly speaking for newly reelected Turkish president Tayyip Erdogan, put the sting in the tail: “We will try to pay attention so that Iran, which is a friend and brother country, doesn’t experience injustice or is wronged in these matters.”

Turkey isn’t just not cooperating with Washington on this issue, it is actively defying Trump and Pompeo and promising to run interference for Iran. This stance comes despite the conflict in Syria between Turkey and Iran, where they took opposite sides (though that conflict is winding down and likely few would make policy just on that basis anyway).

Iraq also says that the change in Washington policy toward Iran will not affect its plans for economic cooperation with Tehran. The logistics of oil transport are such that it makes sense for Iraq to send Kirkuk oil to a refinery in Kermanshah for Iranian consumers, and to accept refined Iranian petroleum into south Iraq at the other end of the country.

Russia had plans to invest $50 bn. in the Iranian hydrocarbon sector, and while some of those plans may now be shelved, Washington should not count on much cooperation from Vladimir Putin, who has an active battlefield alliance with Iran in Syria.

Most important of all, China’s massive Sinopec oil company says it needs Iranian oil for its new provincial refineries and has no plans to cut back.

Saying vs. Doing

Can we accept the headline as fact? The correct answer is no.

India and the EU said they would defy sanctions, then backed down.

Is it possible?

Yes. Turkey holds a lot of cards.

Synopsis

Turkey, in and of itself, is not a major global player. But Turkey has a critical land connection to both Iran and the EU.

If the US sanctioned Turkey it could take over US military bases or deny US air rights. Sanctioning Turkey would also drive the country straight into the arms of Russia.

And unless Trump sanctioned Turkey, the country could get goods easily through Greece or Bulgaria and pass them straight to Iran. This would be a huge boon to a country struggling financially with massive inflation.

If Turkey allows goods into Iran, would Trump bomb either country? That seems highly doubtful.

It only takes one major country to stand up to Trump for this whole thing to collapse or backfire spectacularly.

China is a huge global player, but China has no means of getting goods to Iran. Iran would have Yuan, but what would it do with them?

Domino Effect

If Turkey does go ahead with this threat, might not India, Russia, and Georgia join the party?

Yes, perhaps. Trump would have to then sanction India, China, Turkey, Russia, and Georgia.

You can see where this is headed. But, it has to start somewhere. As I said, saying and doing are different matters.

I cannot stand Turkish president Recep Tayyip Erdoğan, but he could do the whole world a big favor by standing up to Trump.

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Charlottesville White Nationalist Sues ‘To Bring Civility Back,’ Wins $5 in Damages From Woman Who Cursed Him Out

A white nationalist who helped organize last August’s infamous Unite the Right rally in Charlottesville, Virginia, has won his lawsuit against a woman who cursed him out in public. He sued for $500, but a Charlottesville judge awarded him only $5 in damages.

Jason Kessler claimed that by shouting things like “fuck you” and “fuck you, asshole,” and by calling him a “murderer” and a “crybaby,” Donna Gasapo was inciting violence.

Gasapo allegedly said those things on March 16 outside Charlottesville General District Court, where DeAndre Harris was being tried for assault. Harris, who is African American, was beaten during the August rally, but he was on trial for (and later acquitted of) assaulting a white nationalist.

Kessler had been under fire since one of his protest’s participants, James Alex Fields Jr., killed counterprotester Heather Heyer by hitting her with his car. (Fields now faces federal hate crime charges.) Kessler attended Harris’ trial to cover it for a website, and Gasapo was enraged he would show his face. “Someone in our community was murdered,” she later explained, according to the Charlottesville Daily Progress. “White supremacists stormed into our city. It doesn’t sit well with me.” She essentially admitted to yelling and cursing at him, and indeed, Kessler had video of her remarks, which he posted online.

Gasapo’s attorney, Pam Starsia, argued her client’s speech was protected by the First Amendment, but Kessler, who represented himself, claimed her words could have provoked violence—though not from a bystander. Instead, Kessler argued that Gasapo’s words could have caused him to become violent. “There was a chance that I could respond violently and I don’t want that to happen,” he said in court. Kessler also claimed that by calling him a murderer in public, Gasapo damaged his character.

Kessler, who has not been shy regarding his white nationalist views, claimed in his lawsuit that he was suing Gasapo in order “to bring civility back to our community.”

The Supreme Court ruled in 1943 that that the First Amendment does not protect “fighting words.” And in this case, Judge Robert H. Downer Jr. ruled in favor of Kessler on Friday, saying Gasapo’s words could have incited a violent response from Kessler.

At the same time, he only awarded Kessler $5 in damages. His logic was that not only is Kessler a public figure, but that by posting a video of Gasapo’s remarks online, Kessler showed he wasn’t particularly fearful of his character being damaged.

Kessler’s victory was mainly symbolic, but Starsia finds it disturbing the judge ruled in his favor at all. “I think we should all be very concerned about what this ruling means in terms of opening up other frivolous harassment suits against members of our community who are expressing their opinions and their very real feelings of frustration, which we believe are protected by the First Amendment,” she said after Friday’s hearing, according to the Daily Progress. Gasapo may yet decide to appeal.

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The Yuan Is Plunging… Again

The offshore Yuan just crashed to its weakest against the greenback in 11 months.

The pace of the devaluation is suddenly accelerating (today is the biggest drop in the Yuan in 5 months), with Yuan testing 6.70…

For context this means that ALL US exports to China are now 7.4% more expensive than they were in Q1 – that’s quite a blanket tariff.

And as we noted previously, before this is dismissed as just the mirror of USD strength, we suggest the following chart shows very clearly the PBOC allowing the Yuan to weaken notably against just the dollar while – until the last few week – maintaining Yuan’s buying power against the rest of the world.

Additionally, as Capital Economics points out, if the PBOC is using the exchange rate to fight back against the US, it is pulling its punches: the PBOC’s daily reference exchange rate has in the past few days been stronger than market rates might have suggested, not weaker.

It is of course still notable that the PBOC has done relatively little to stand in the way of the currency slide, even if it isn’t directly responsible for it. It always argues that the exchange rate is driven by market forces.

But its tolerance will probably only go so far, given the painful experiences of 2015 and 2016: any benefit to exporters would be swamped if depreciation triggered economic and financial instability.

Still, as a wise market participant noted, while all the bellicose language is coming from Trump, perhaps the biggest factor right now is that Beijing has “weaponized” the Yuan…

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As Markets Start Taking Trade War Seriously, What Cracks Next

With the US set to roll out new tariffs on China this Friday, hitting $34BN in Chinese imports with a 25% tax, any hopes that Trump’s trade war with China is “reversible” and mostly rhetorical, are quietly fading away. On Sunday, Morgan Stanley underscored just this point, saying that “the US and its key economic partners now view trade differently: One party’s in-kind response is the other’s escalation” and added that “This is what a vicious cycle looks like.”

MS also said that with Congress unlikely to step in due to a rise in popular support for Trump’s strategy, “a near-term ‘circuit breaker’ to trade escalation is more likely to come from the scoreboard – namely, more challenged and volatile markets.

In other words, a market crash may be need to break the regime of tit-for-tat, and looking at the sharp market drop to start the second half of the year, the market may be starting to get the message.

What about other markets, especially those in China, where the Shanghai Composite is now down 22% for the year while the Renminbi (-3.3%) just suffered its worst month since FX markets were established in China back in 1994?

According to Deutsche Bank’s Alan Ruskin – who echoes JPMorgan on the topic, here too it’s set to get worse before it gets better.

As Ruskin wrote in a note last week, anyone who has read the latest White House Office of trade and manufacturing policy report on China’s ‘economic aggression’ will understand that “the US – China relations are not going back to a ‘business as usual’ model any time soon.

And, if he is correct, for the markets here are a few important elements to consider:

  1. whereas tariffs levered against US’s traditional allies has spotty/weak support at best within Republican and Democrat parties, there is widespread bipartisan support to address China trade issues, not least as it relates to perceived intellectual property transgressions. This means the IP issue is now ‘live’ and will transcend the Trump Administration.
  2. technology transfer has the potential to impact all trade and particularly FDI. There will likely be a strong interventionist approach on the US side to trade and FDI that has the potential to transfer advanced technologies that is not desirable from a national security standpoint and where protections are not enforceable/ enforced.
  3. the uncertainties generated by this shift, have the potential to cool China’s role in global supply chains at least as they relate to US corporations, and encourage alternatives where IP is perceived as better protected and where the US is seen having a less ‘competitive’ strategic relationship.

Of course, if a “peaceful” resolution of trade issues does not lead to ‘business as usual’ as assumed above, then the negative response observed from China assets, and the CNY, makes sense, according to DB.

This pivots to another topical question: will China, whose currency just had its worst month in history, seek to devalue even more aggressively? As Ruskin explains, until now China has appeared to take a view that the last thing it needs is to interject CNY weakness into the equation and complicate negotiations with the US. However, the recent price action itself suggests this resolve to keep USD/CNY stable is weakening.

And while this may be a response to the US’s tougher trade stance, it is probably better ascribed to the increased market pressures for CNY weakness.

Making matters worse for China is that Beijing now has no choice but to ease conditions as a result of a slump in the economy, not so much retaliation for US-specific trade overtures. However, to Trump it won’t matter what caused it.

Indeed, the relationship whereby USD/CNY has followed reserve requirements (as per the chart above) is likely to hold as a broader directive on CNY trends, especially with chatter of more RRR reductions to come.

And although RRR cuts should in theory not negatively impact the currency as much as rate cuts, RRR changes have historically impacted the currency more in China because:

  1. RRR is used as a more active liquidity tool than most parts of the world;
  2. it does provide a strong directive on the policy bias; and
  3. the broader policy bias logically gets directly reflected in the official currency bias.

Finally, as the Yuan continues to sink, here is a trade idea from Ruskin who recently noted that USDCNY vol looked under priced, adding that “the 6m straddle breakeven straddles are indicated at 6.46 to 6.75.”

The market is taking a view that China will make sure that USD/CNY is not going to intercede in ongoing negotiations with the US that will straddle the Congressional mid-term elections. However, for a currency pair that has moved from 6.38 to 6.65 since mid-June, vol still looks extraordinary low.

In short, the market still does not appear to have taken on board the likely persistence in shifting US – China relations; nor, the more troubling prospect that divergent US and China policy will engender its own volatility, resulting in a positive feedback loop that only accelerates this divergence. And for those who are leery of shorting US stocks, or the SHCOMP on fears of government intervention, the best bet may be to go long Yuan volatility which according to DB, is assured to rise as the trade was and policy divergence accelerates.

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The Best And Worst Performing Assets In June, Q2 And YTD

As we hit the mid-point for the year, leaving behind a half most would rather forget and looking forward to a half in which central bank QT is about to really pick up, DB’s Jim Reid writes that markets spent most of the month of June flip-flopping between constantly evolving trade-war related headlines, as well as digesting the diverging path of a more hawkish than expected Fed versus a more dovish than expected ECB following their respective policy meetings.

So when it was all said and done, while the majority of assets ended the month with a negative total return (24 out of 39 in local currency terms and 26 out of 39 in dollar terms), the heaviest falls were reserved for EM assets in particular.

EM equities bore the brunt of this with the Shanghai Comp (-7.3%) officially falling into a bear market and falling by the most in a month since January 2016. The Bovespa (-5.2%) was also sharply lower while EM equities more broadly suffered a -4.1% fall. EM bonds were also hit to the tune of -2.8% despite Treasuries (0.0%) actually finishing unchanged. The other big fallers in June were soft commodities including Corn (-11.1%) and Wheat (-5.5%) as well as metals like Copper (-3.7%), Gold (-3.5%) and Silver (-1.9%).

Meanwhile, at the top of the leaderboard the clear winner in June was WTI Oil (+10.6%) which benefited from the latest  OPEC decision to only gently reintroduce supply back into the market.

Meanwhile core equity markets largely chopped and changed around the trade headlines. The S&P 500 finished the month +0.6% and Stoxx 600 -0.6%, however the more export sensitive DAX was hit to the tune of -2.4%. European Banks (-0.6%) also continued to slide, not helped by the dovish ECB outcome while the relative outperformers last month was actually the periphery with the IBEX (+2.5%), Portugal General (+1.5%) and Greek Athex (+1.1%) all ending higher.

As for bond markets, Bunds (+0.1%) were similarly muted last month after yields did something of a u-turn post the ECB meeting. Spanish Bonds (+1.4%) and BTPs (+1.5%) were firmer while Gilts (-0.6%) suffered a negative total return. The end result for credit however was a broadly softer picture. In Europe only Senior Financials (+0.1%) delivered a positive return, with Non-Fins (-0.1%), HY (-0.5%) and Sub Financials (-0.5%) all weaker. In contrast, US HY (+0.4%) was the relative outperformer across the pond, while IG Corps delivered a -0.5% return.

The above is summarized in the June performance charts below.

Stepping back from June, and focusing on Q2 more broadly, the picture looks slightly weaker according to Deutsche. In local currency terms, 16 assets finished in positive territory versus 23 in negative. However the stronger USD (+5.2% versus the Euro, +4.0% versus the Yen and +5.8% versus Sterling) means that the picture is more stark in dollar adjusted terms with only 9 assets returning a positive total return, versus 30 delivering a negative return. In terms of standouts, the combination of Italy woes in May and a dovish ECB, trade war headlines and EM pain in June means the FTSE MIB (-1.7%), European Banks (-5.2%), EM Equities (-7.9%) and Shanghai Comp (-9.1%) are amongst the biggest equity market fallers in Q2. The S&P 500 (+3.4%) and Stoxx 600 (+4.3%) on the other hand delivered solid single digit returns. BTPs (-5.1%) were unsurprisingly the biggest bond market underperformer while Bunds (+1.3%) and Treasuries (+0.1%) were fairly muted. Meanwhile credit, with the exception of US HY (+1.4%), was weaker across the board with European indices returning -0.1% to -2.0% (higher beta underperforming) and US indices -0.4% to -1.6%. Brent (+16.7%) and WTI Oil (+14.2%) were the big winners in Q2.

Finally, for the first half of the year through June we’re now at 15 assets in positive territory in local currency terms but just 8 in dollar terms. WTI (+22.7%) and Brent (+22.3%) also top this leaderboard while at the other end the Shanghai Comp (-12.9%), Copper (-10.6%), European Banks (-9.8%) and EM Equities (-6.6%) have been the big underperformers.

The S&P 500 is sitting with a +2.6% total return which is ahead of the vast majority of core equity markets, while the Stoxx 600 (+0.1%) is more or less unchanged (although -2.6% in dollar terms). Bunds (+1.6%) have outperformed Treasuries (-1.1%) so far while in credit US HY (+0.3%) is the only positive returner

Source: Deutsche Bank

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EU Threatens $300 Billion Retaliation If US Moves Ahead With Auto Tariffs

More than a week after President Trump threatened to slap a 20% tariff on auto imports from the European Union, Brussels has issued a written warning to the US Department of Commerce with a threat of its own: If the Trump administration moves ahead with the auto tariffs, the bureaucrats in Brussels won’t hesitate to respond with tariffs on $300 billion in US goods, according to the Financial Times. The threat comes as Trump doubled-down on his trade threats in an interview with Fox Business’s Maria Bartiromo that aired Sunday morning, where Trump criticized the EU’s $151 billion trade surplus. Trump initially threatened to impose the 20% tariffs if the EU doesn’t eliminate trade barriers to US automotive imports.

The warning marked the first time that Brussels has filed a written submission with the Commerce Department, which is presently considering Section 232 auto tariffs. In the letter, which was obtained by the FT,   Brussels warned that Trump’s threatened auto tariffs would risk sparking a global trade war that could ultimately harm employment in the US and slice billions of dollars off US GDP. That echos a warning from GM, issued in comments to the Commerce Department’s investigation, where the carmaker said tariffs would lead to a “smaller company.”

In a sign of the EU’s exasperation at Mr Trump’s confrontational trade policy, which has already stoked tensions over steel and aluminium, the document said the move “could result in yet another disregard of international law” by the US. It said imposing the car tariffs would not be accepted by the international community and would “damage further the reputation” of the US.

A trade group representing global automakers recently warned that Trump’s threatened tariffs could raise prices for US consumers by up to $6,000 per car. The $300 billion figure proposed by the EU is roughly equivalent to the value of US imports of cars and parts, which reached $330 billion last year, according to the FT.

Europe

The EU also argued that the Trump administration’s national security concerns – which it has used to justify its aggressive trade policy under Section 232 of the Trade Expansion Act – has “no basis in fact.”

The EU has also firmly rejected Mr Trump’s use of national security arguments to justify restrictive trade measures, saying it has no basis in fact and risks undercutting the entire rules-based system of international trade.

This development harms trade, growth and jobs in the US and abroad, weakens the bonds with friends and allies, and shifts the attention away from the shared strategic challenges that genuinely threaten the market-based western economic model,” the document said.

The document, submitted to US authorities on Friday, marks the latest step in the EU’s campaign to get Mr Trump to step back from the brink before it is too late.

Finally, the EU devoted part of its letter to what appeared to be subtle political threats, pointing out that EU-based car companies operate plants in several Republican-dominated states across the Southern US, meaning that Trump voters would likely absorb the brunt of the EU’s retaliation. The implication is clear: it’d be a shame if something were to happen to those jobs. But even if the EU chose not to retaliate, the tariffs threatened by Trump would still harm the US by knocking $14 billion off of US GDP due to “market fragmentation.”

The commission document said that, according to its “internal analysis” and other expert studies, the tariffs would be an “own goal” for the US economy even before other economies retaliated. The interconnectedness of the car industry, and its high degree of regional specialisation, mean that imposing additional 25 per cent tariffs on imports would cause a hit to US gross domestic product “in the order of” $13bn-$14bn, according to the document.

The paper, submitted by the EU’s representation in Washington, also underlines that EU-owned car companies account for more than a quarter of US car production, with plants “across the country, including in South Carolina, Alabama, Mississippi and Tennessee” — all strongly Republican states — and that the majority of this production was for export.

EU Commission President Jean-Claude Juncker will have a chance to follow up on these threats in person when he travels to Washington later this month. And EU officials have said they will take part in a two-day Department of Commerce hearing set to begin July 19. 

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