When It Comes to Taxes, the Government Always Wants More: New at Reason

Yesterday was “Tax Day.” It was April 17 this year because April 15 fell on Sunday and Monday was Emancipation Day. But by calling April 17 “Tax Day,” the media miss the big picture. As John Stossel observes, income taxes make up less than half the tax most of us pay.

We also must pay payroll tax, corporate tax, gift tax, gambling tax, federal unemployment tax, gas tax, cable and telecom taxes, plane ticket tax, FCC subscriber line charges, car documentation fees, liquor and cigarette taxes, etc. Voters don’t often notice all these sneaky taxes.

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Turkish Fighter Jets “Harass” Helicopter Of Greek PM Tsipras

Two Turkish fighter jets harassed the Chinook helicopter carrying Prime Minister Alexis Tsipras and the Greek Armed Forces Chief Admiral Evangelos Apostolakis as they were flying from the islet of Ro to Rhodes on Tuesday afternoon, Kathimerini reported.

The Turkish fighter jets, flying at an altitude of 10,000 feet, asked the Greek helicopter pilot, which at that moment was at 1,500 feet, to provide flight details, according to defense sources.

The pilot immediately informed the prime minister and the HNDGS Chief and alerted the Greek air force which dispatched two fighter jets, which approached the area at 20,000 feet.

Speaking earlier from the southeastern Aegean island of Kastellorizo earlier in the day, Tsipras said Greece will defend its principles “in any way it can… and will not cede an inch of territory,” in an apparent dig at recent provocations from Turkey.

“Our neighbors do not always behave in a manner befitting good neighbors,” he said at the inauguration of two desalination units on the island, noting however that he was sending Ankara “a message of cooperation and peaceful coexistence but also of determination.”

Following the confrontation, the Turkish aircraft retreated, which was a welcome development: many have sarcastically noted that with the world on edge geopolitically and in every other way, all it needs is the unexpected death of an Austrian archduke – or a Greek prime minister – to get the ball rolling.

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Trump Confirms: “Mike Pompeo Met With Kim Jong Un”

Confirming reports first published late last night by the Washington Post, Trump tweeted Wednesday morning that CIA Director (and Secretary of State nominee) Mike Pompeo did, in fact, meet with North Korean leader Kim Jong Un.

The visit, conducted on behalf of the Trump administration, was a clandestine mission and followed a meeting between Trump and a delegation from South Korea last month that was attended by Pompeo. Trump said the visit took place last week but it was reported earlier that the meeting took place during the first weekend in April.

Speaking at his Florida beach resort Tuesday ahead of bilateral meetings with Shinzo Abe, Trump confirmed that the two governments had held direct party-to-party talks for the first time without the South Koreans acting as intermediaries. Trump disclosed that the two countries were hoping to hold the historic meeting in early June, or possibly before.

The White House had no further comment. “The administration does not comment on the CIA director’s travel,” White House press secretary Sarah Huckabee Sanders said.

North Korea said in a letter personally delivered to Trump by a South Korean delegation that it was ready to consider “denuclearization” if the safety of the regime is guaranteed.”

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Stock Rally Enters 3rd Day Despite Inflation Misses, As Traders Search For Next Catalyst

While the general risk-on sentiment across global markets persisted for a third day amid sliding volatility, the rally appears to have lost some steam with Dow futures lagging after last night’s disappointing IBM revenues, which in turn may have capped the S&P ramp that started on Monday.

Earlier, the pound slumped and the euro briefly dropped on disappointing inflation data, as both UK and Eurozone CPI prints missed. European stocks then turned negative driven by steep declines in the auto sector, led by tiremakers after Continental’s profit warning. The catalyst was Continental which cut its forecast for FY adjusted Ebit margin to >10% from the previous view of ~10.5%, citing negative currency impact and inventory revaluation, mainly in the tire business, sending its shares sliding 4.3%, and dragging the rest of the sector with it: Michelin down -3.2%; Pirelli -1.9%, Schaeffler -1.4%; Michelin. SXAP autos index down 1%, biggest underperformer group on benchmark SXXP.

“The profit warning is a huge disappointment as management had previously signaled a significant reduction in raw material headwinds for the Rubber group, which fanned expectations of an improvement in profitability,” said Commerzbank in a note.

As a result, the Stoxx Europe 600 Index dropped 0.1% to session low around 6am ET, erasing earlier gains with 15 of 19 industry groups declining, however despite some weakness in the DAX, most global stock markets remained in the green.

Earlier in Asia, Japanese shares outperformed amid gains across the region, boosted by a drop in the yen as President Donald Trump met Japanese Prime Minister Shinzo Abe. China’s 10-year bond yield tumbled after the People’s Bank of China cut the reserve-requirement ratio for banks, part of its efforts to boost market liquidity amid concerns of trade war and to support credit amid a crackdown on shadow lending.

As Bloomberg notes, the yield on 10-year sovereign debt plunged 16bps, the most since December 2016,  to 3.50%; the cost on five-year sovereign notes slumps 21bps, extending its 12-day drop to 51bps, to 3.17%; the yield on one-year debt declines 16bps to 3.02%. Yield on China Development Bank bonds due in a decade tumbles 20bps to 4.44%, the lowest level since October. The one-year interest rate swaps declines 11bps to 3.19%, the lowest since Jan. 2017

Chinese lenders advanced, but automakers fell after the government moved to allow foreign players to take full ownership of their local ventures.

Meanwhile as the EUR and GMP slumped, the Bloomberg Dollar Spot Index rose for a second day on easing  geopolitical tension and as softer price pressures in Europe hurt the pound and euro. Reports that CIA Director Mike Pompeo held a secret meeting with North Korea’s leader boosted optimism about the prospect of a peace deal for the peninsula, while investors see a low chance of a negative surprise on planned trade talks on Wednesday between U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe. The pound led losses in G-10 land, as U.K. data missed estimates a second day, triggering stops and stop entries by leveraged accounts, on concerns the BOE’s resolve to hike may have been dented. The euro followed suit as euro-area inflation rose less than initially estimated last month.

Meanwhile, with a blockbuster earnings season clearly priced in – as not even Goldman could close green after reporting spectacular earnings  – traders are searing for the next big thing to push stocks higher. Luckily, there’s once again no shortage of catalysts for investors across the globe, from corporate fundamentals and geopolitics to simmering trade tensions and growth concerns. For now the bulls appear to have the upper hand, especially after the U.S. says it’s already started direct talks with North Korea. Separately, Russian leader Vladimir Putin was said to be seeking to dial down tensions with America.

Elsewhere, as we warned overnight, nickel surged to the highest in more than three years on the London Metal Exchange on worries that the metal used in stainless steel could be caught in the crossfire of any further U.S. sanctions against Russia.

Oil prices continued rising, with WTI at USD 67.10 and Brent at USD 72.08. This comes following the weekly API inventory report which despite showing a slightly narrower than expected draw in headline crude stockpiles, was accompanied by draws across all  product components of the release. The rise in oil prices is further compounded by the continued narrative of middle-eastern tensions with the latest source reports suggesting that weapons inspections have been delayed in Douma, Syria amid gunfire on the site. In the metals scope, prices for aluminium surged as Rio Tinto said it could not fulfil supply contracts due to US sanctions on Rusal, adding to the squeeze seen in the aluminium sector. Further, the US Commerce Department launched a probe on imports of some types of steel wheels from China, while it was also said to have made a preliminary finding that aluminium sheet imports from China benefit from unfair subsidies. Gold has remained flat for the day.

In overnight central bank speakers, Fed’s Evans (Non-Voter, Dove) said rates can be raised gradually without risk of a surge in inflation. Elsewhere, the Fed’s Bostic (Voter, Dove) said goal for policy should be to get to a more neutral stance, while he added the US economy is in a good place and that he expects to see a build to inflation.

In geopolitical news, the Russian Embassy in the US notified that no sanctions are coming. US President Trump said US has had discussions with North Korea at high levels, while there were separate reports that Secretary of State nominee Pompeo met with North Korean Leader Kim Jong-Un over the Easter weekend.

What to watch

  • BOC rate decision; Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins are scheduled to hold a news conference
  • Another round of Fed speakers, New York Fed President William Dudley and Fed Governor Randal Quarles to speak; Fed releases Beige Book
  • Brexit negotiations in Brussels; Ireland’s border, the future relationship between the U.K and the EU in focus
  • President Trump and Japan PM Abe will hold 2pm working lunch before joint press conference at 5:30pm Wednesday, White House says in guidance
  • Abbott, Morgan Stanley, U.S. Bancorp, Alcoa, American Express, and Canadian Pacific are among companies reporting earnings. Expected data include MBA mortgage applications.

Bulletin Headline Summary from RanSquawk

  • European equities mostly higher, taking the lead from Asian and Wall St. with all major bourses in the green (Eurostoxx 50 +0.1%) as earnings come into focus.
  • FTSE 100 outperforms as cable has now lost another big figure level (1.4200) in wake of considerably weaker than forecast CPI data
  • Looking ahead, highlights include NZ inflation, BoC rate decision, DoEs and a slew of central bank speakers

Market Wrap

  • S&P 500 futures up 0.2% to 2,712.50
  • STOXX Europe 600 up 0.2% to 381.48
  • MSCI Asia Pacific up 0.7% to 174.37
  • MSCI Asia Pacific ex Japan up 0.6% to 568.76
  • Nikkei up 1.4% to 22,158.20
  • Topix up 1.1% to 1,749.67
  • Hang Seng Index up 0.7% to 30,284.25
  • Shanghai Composite up 0.8% to 3,091.40
  • Sensex up 0.2% to 34,446.75
  • Australia S&P/ASX 200 up 0.3% to 5,861.42
  • Kospi up 1.1% to 2,479.98
  • German 10Y yield fell 0.5 bps to 0.502%
  • Euro down 0.05% to $1.2364
  • Italian 10Y yield fell 4.2 bps to 1.505%
  • Spanish 10Y yield fell 1.2 bps to 1.209%
  • Brent futures up 0.7% to $72.09/bbl
  • Gold spot down 0.2% to $1,345.21
  • U.S. Dollar Index up 0.2% to 89.70

Top Overnight News:

  • High-level U.S. officials have spoken directly with North Korean leader Kim Jong Un in preparation for a meeting between President Donald Trump and Kim, said a person familiar with matter. Washington Post reports that CIA Director Mike Pompeo made a top-secret visit to North Korea over Easter weekend.
  • President Donald Trump again soured on the 11-nation Trans- Pacific Partnership ahead of planned trade talks on Wednesday with Japanese Prime Minister Shinzo Abe. Trump and Abe will hold 2pm working lunch before joint press conference at 5:30pm Wednesday, White House says in guidance.
  • President Donald Trump’s accusations that China and Russia are gaming their currencies were a “warning shot” about the consequences about devaluation, rather than part of a wish to achieve a weaker dollar, U.S. Treasury Secretary Steven Mnuchin said.
  • Fed’s John Williams played down risks the yield curve would become inverted as the U.S. central bank gradually raises interest rates.
  • Putin wants to give President Trump another chance to make good on pledges to improve ties and avoid escalation, according to four people familiar with the matter
  • The PBOC lowered the reserve-requirement ratios for some banks by 1 percentage point, spurring the biggest drop in the 10-year government bond yield since December 2016
  • U.K. Prime Minister Theresa May’s Brexit strategy faces a renewed threat on Wednesday when her flagship bill returns to Parliament’s upper chamber, where Lords of all political stripes are seeking to amend it
  • The European Commission has drafted 30-40 proposals to amend laws and give special powers to regulators for EU to deal with a no-deal scenario, either on Brexit day in March 2019 or after a transition period, FT reports
  • EU President Donald Tusk stepped up the pressure on the U.K. to come up with a solution to prevent a hard border on the island of Ireland after Brexit by warning that all deals, including the transition period agreement, would otherwise be canceled.
  • Brussels seeks emergency powers to prepare for hard Brexit, FT reports.

Asian equity markets were mostly higher as the region got a tailwind from Wall St where sentiment was lifted by encouraging earnings; gains were led by the Nasdaq after Netflix shares surged on strong subscriber numbers. ASX 200 (+0.3%) was positive but with upside capped by weakness in the largest weighted financials sector amid an ongoing Banking Royal Commission grilling and after CYBG flagged a GBP 202mln pre-tax charge, while Nikkei 225 (+1.4%) outperformance was fuelled by a weaker JPY. Hang Seng (+0.7%) and Shanghai Comp. (+0.8%) were underpinned at the open in reaction to the PBoC’s surprise 100bps RRR cut for most banks and a CNY 150bln Reverse Repo operation. Finally, 10yr JGBs were flat as safe-haven outflows from the increased risk appetite in Japan was counterbalanced by the BoJ presence in the market for over JPY 1tln in 1-10yr JGBs, while USTs were lower overnight with yields in the short-end higher in which 2yr yields rose to 2.400% for the first time since 2008. US Commerce Department launched probe on imports of some types of steel wheels from China, while it was also said to have made a preliminary finding that aluminium sheet imports from China benefit from unfair subsidies.

Top Asian News

  • Japan Bank Falls Most Since 1975 Over Faked Documents Report
  • Down $1 Trillion, World’s Worst Stocks Near Make-or-Break Level
  • ‘Risky’ Cash Crunch Pushes India to Defend Its Scam-Hit Banks

The European equities have taken the lead from Asian and Wall St. with all major bourses in the green (Eurostoxx 50 +0.1%) as earnings come into focus. The FTSE 100 is outperforming, fuelled by the weaker sterling as the UK inflation rate drops to the lowest in a year. Almost all sectors are resting in the green, with materials outperforming on the firmer base metal prices while consumer discretionary lagging behind. In terms of stock specifics, Hammerson (+2.4%) shares are higher following a withdrawal from the proposed acquisition of Intu Properties (-3.5%). Danone (+2.3%) is dominating the CAC 40 following strong earnings and maintaining 2018 guidance. Further for the CAC, Total (+0.8%) are also a top performer in French index amid reports the company is in talks to purchase Direct Energie (+30.5%), which in turn is soaring. Elsewhere, Germany’s Continental (-4.3%) shares dropped following a negative change in their 2018 outlook. Michelin (-3.5%) and Pirelli (-1.9%) fell in sympathy

Top European News

  • Equity Strategists Lower Projections for Euro-Area Stock Rally
  • U.K. Inflation Drops More Than Expected to Slowest in a Year
  • Brexit Transition Is No Go Without Irish Border Answer, EU Says
  • Spain Is Booming and Now Voters Turn Against the Prime Minister

In FX, the DXY was underpinned around 89.500 after Tuesday’s broadly better than expected US data and some hawkish-leaning Fed commentary, while US-China/Russia tensions remain relatively contained after latest reports that the White House is not in the process of imposing more sanctions against Moscow, although it is purportedly looking at additional Chinese imports from an unfair competitive angle. However, the index is still looking rangy between 89.700-400 and 90.000-89.000 outside of that. GBP Cable had already retraced further from fresh post-Brexit vote peaks (circa 1.4375) in the run up to UK inflation data, but has now lost another big figure level (1.4200) in wake of considerably weaker than forecast CPI data that could prevent the BoE from hiking rates in May. Eur/Gbp has rebounded sharply as a consequence, through 0.8650 and just over 0.8700. CAD: Only a couple of outlying hawkish calls for the upcoming BoC policy meeting vs the large consensus expecting no change, as the Loonie unwinds some of its recent gains vs the Usd and perhaps is drawn to big option expiries from 1.2585-1.2600 in some 3 bn. Currently near the bottom end of the band vs a circa 1.2525 low yesterday with the level break via options suggesting a 90 pip move on the BoC and MPR. EUR: Eur/Usd just holding above key chart support around 1.2330 having retreated from 1.2400+ on Tuesday following an unexpected downgrade to final Eurozone CPI.

In commodities, Oil prices continue their rise, with WTI at USD 67.10 and Brent at USD 72.08. This comes following the weekly API inventory report which despite showing a slightly narrower than expected draw in headline crude stockpiles, was accompanied by draws across all  product components of the release. The rise in oil prices is further compounded by the continued narrative of middle-eastern tensions with the latest source reports suggesting that weapons inspections have been delayed in Douma, Syria amid gunfire on the site. In the metals scope, prices for aluminium surged as Rio Tinto said it could not fulfil supply contracts due to US sanctions on Rusal, adding to the squeeze seen in the aluminium sector. Further, the US Commerce Department launched a probe on imports of some types of steel wheels from China, while it was also said to have made a preliminary finding that aluminium sheet imports from China benefit from unfair subsidies. Gold has remained flat for the day.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -1.9%
  • 2pm: U.S. Federal Reserve Releases Beige Book

Central Banks

  • 8:30am: Fed’s Dudley Has Opening Remarks at Community Bank Conference
  • 3:15pm: Fed’s Dudley Speaks on Economic Outlook
  • 4:15pm: Fed’s Quarles Speaks in Washington

DB’s Jim Reid concludes the overnight wrap

The strong results of Netflix the said company on Monday night seemed to help extend the rally yesterday as healthy corporate earnings are overpowering the various geopolitical and trade headlines. The tech sector jumped with the Nasdaq rallying +1.74% (Netflix closed up +9.19%) and the NYSE FANG Index rose +3.74%. Broader markets also saw solid gains with the likes of the S&P 500 (+1.07%), Dow (+0.87%), DAX (+1.57%) and Stoxx 600 (+0.80%) all up, while the VIX (-1.3pts to 15.25) is back to testing the March lows after Goldman Sachs, Johnson & Johnson and UnitedHealth also added to a solid day for earnings. GS did actually fade early gains (+1.69% to -1.65% at the close) following the results briefing call (on cost question marks), however it’s hard to look past the fact that it’s been a decent Q1 for US bank results so far.

Not all earnings have been positive. After the bell in the US, IBM’s share price was down c6% after reporting narrower 1Q profit margins and flat revenue growth (FX adjusted). To partly illustrate how times have changed, yesterday IBM’s market cap was only $2.4bln larger than Netflix at $148.2bln and will be smaller today if it opens inline with post close trading. This compares to it being $98bln larger one year ago and a whopping $224.2bln larger five years ago.

Back to the overall positive tone in markets, there is definitely a feeling over the last few days that the trade war tensions are easing with a renegotiated NAFTA looking more likely, Mr Trump opening back the door to TPP and China showing some increased flexibility (more evidence below) in trade/IP policy and showing a willingness to negotiate even while retaliating. There’s little doubt that Mr Trump could make the headlines with some negative comments on trade over the weeks ahead as it continues to be a useful negotiation strategy but the market appears to be increasingly feeling that rhetoric may not fully translate into actions.

The rally in equities though hasn’t yet encouraged a bond sell-off. Yesterday government bond yields ended the day either flat or slightly lower (US Treasuries +0.1bp; Bunds -1.8bp). While some of the softer data may have played a part, it does feel likes rates markets are reluctant to break out of what have been fairly tight ranges for a while – particularly for Treasuries – as we noted over the last couple of days.

This morning in Asia it’s largely been a similar story with equities up (Nikkei +1.40%, Kospi +1.05%; Hang Seng +0.25%) and yields on UST 10y little changed (+0.5bp). Elsewhere, the Washington Post reported US Secretary of State nominee Pompeo has met with North Korean leader Kim Jong Un over the Easter weekend, in part to prepare for a summit with President Trump. So another area of tension potentially in the process of being eased.

Bourses in China are modestly down (Shanghai Comp. -0.56%) while 10y yields on Chinese bonds are down c15bp after yesterday’s 1% RRR cut by the PBOC. Just on that, according to the PBOC the cut – which takes effect from April 25th – will be for certain banks however the excluded banks appeared to be rural or commercial banks in rural areas. The statement also suggested that about 900bn Yuan/$143bn of medium-term lending facility loans would be repaid on the same day that the RRR cut is applied. Our China economist Zhiwei Zhang believe the RRR cut should not be seen as a change of monetary policy stance, rather the main purpose is to avoid an over-tightening on small banks and small businesses as well as to provide more stable liquidity for the banking system. Overall, they maintain their macro and policy outlook for 2018 and expect GDP growth to slow only marginally in the next few quarters (Q2-Q4 forecasts: 6.6% to 6.5%) while annual growth forecasts remain 6.6% and 6.3% for 2018 and 2019.

Staying with a busy China, yesterday Beijing removed the 50% ownership cap for foreign carmakers on local China car producers. According to the FT the plan is to remove it over the course of 5 years. This of course follows threats by President Trump to invoke tariffs on imports from China worth as much as $150bn a year. So further signs maybe of a de-escalation in the ongoing trade war. Something else that caught our eye yesterday was a Reuters article suggesting that China’s international trade rep had held meetings with European ambassadors last week asking them to unite with China against US protectionism.

Over in the US, White House Economic Advisor Larry Kudlow was reported as saying on Fox News yesterday that “we don’t want any currency wars” and that Trump was “just concerned – more about China” following his tweet on Monday calling Russia and China currency manipulators. That was in contrast to Treasury Secretary Steven    Mnuchin’s comments who called Trump’s comments a “warning shot”.

Now turning to the five Fed speakers overnight. The Fed’s Bostic who is a FOMC voter this year said “our goal is to get a more neutral stance” on rates. He added that “we’ve embarked on a slow gradual move to neutral” and he is not anticipating a change to this path, but “to the extent things happen, we will respond”. Mr Evans also reiterated the gradual path towards a more neutral rates setting and then subject to the incoming data “we see how far we  have to go beyond that”. On inflation, he noted that “to the extent that inflation continues to move towards 2%, above 2%, 2.25%, (it is) completely consistent with symmetry for our price objective”. Elsewhere, Mr Williams said “I don’t see the signs of an inverted yield curve” and that “the flattening of the curve that we’ve seen is so far a normal part of the process, as the Fed is raising interest rates…”. On rates, his “own forecast would be that interest rates are going up gradually, smoothly”. Then on trade, he said “what worries me in this trade discussion is that uncertainty, even without action, can have a detrimental effect”. Elsewhere, Mr Harker noted the current unemployment rate of 4.1% is “at or below the natural rate in his view” and that the independence of the Fed is “crucial” to the US economy. Finally, Mr Quarles told the House Financial Services Committee that regulators can’t repeal the Volcker rules but “there’s a lot we can do to increase the certainty of application and reduce the burden of application”.

Moving onto the latest GDP forecasts by the IMF, where its’ forecast for global growth remains unchanged at 3.9% for this year and next but “growth is projected to soften beyond the next couple of years, partly held by back by ageing populations and lacklustre productivity”. Notably, forecasts for the US economy was revised up 0.2ppt in both years, to 2.9% for this year and 2.7% next year.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the March IP was above market at 0.5% mom (vs. 0.3% expected) while capacity utilisation also beat at 78% (vs. 77.9% expected). Most of the growth in March was from a 3.0% mom rebound in utility output. Elsewhere, the March housing starts grew 1.9% mom to 1,319k (vs. 1,267k expected) while building permits were also above expectations at 1,354k (vs. 1,321k). Factoring in the above,the Atlanta Fed’s estimate of 1Q GDP growth edged up 0.1ppt to 2.0% saar.

Germany’s April ZEW survey on current conditions was broadly in line (87.9 vs. 88 expected), but the expectations index fell for the first time since July 2016 (-8.2 vs. -1.0 expected) while the Euro area’s expectations reading was also lower (1.9 vs. 13.4 previous). Elsewhere, the final reading of Italy’s March CPI was revised down 0.2ppt to 0.9% yoy. In the UK, the February unemployment rate edged down 0.1ppt mom to 4.2% (vs. 4.3% expected), marking a fresh low since 1975.The average weekly earnings growth (ex-bonus) was in line and grew at the fastest pace since August 2015, but the headline growth was modestly below market at 2.8% yoy (vs. 3.0% expected). Overall, the implied Bloomberg odds of a May rate hike in the UK fell c5ppt to 80% yesterday.

Looking at the day ahead, the main highlights are the March CPI reports for the UK and Euro area. In the US there is no data due out however we will get the Fed’s Beige Book, while the Fed’s Dudley and Quarles are scheduled to  speak The BoE’s Brazier is also due to speak to lawmakers in London. Morgan Stanley will report earnings.

 

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US Launches Anti-Dumping Probe Into Steel Wheels From China

The tit-for-tat trade spat between the US and China continued late Tuesday when the US revealed that it is starting a new investigation into whether steel wheels produced in China are illegally dumped in the US – an investigation that’s being carried out at the behest of Accuride and Maxion Wheels, two US vehicle components suppliers, Reuters reported.

In addition to the investigation, the Department of Commerce also revealed on Tuesday that producers of common alloy aluminum sheet imported from China enjoy anticompetitive state subsidies as high as 113.3%, based on findings from an investigation launched in November.
Wheels

The news comes a day after China’s Ministry of Commerce announced that it would impose a massive 178.6% anti-dumping tariff on imported sorghum, a grain used to feed Chinese pigs and other livestock, per Yuan Talks.

The two companies initially petitioned the Department of Commerce and the US International Trade Commission earlier this month, according to Tire Business – a trade publication that covers the tire production and other segments of the auto parts industry.

The petition to the U.S. Department of Commerce and U.S. International Trade Commission (ITC) covers certain road-going hub- and stud-piloted steel wheels with rim diameters of 22.5 and 24.5 inches designed principally for use on Class 6, 7 and 8 commercial vehicles.

U.S. trade data show the value of “steel wheel products” imports last year as $420 million.

The petition excludes wheels for tube-type tires and wheels intended primarily for off-road use.

For the Department of Commerce to take action, the ITC must determine that there is a reasonable indication that US industry is materially injured or threatened with material injury by the anti-competitive imports. It can also determine that the development of a US industry has been hampered by the alleged dumping, which floods the market with products sold for less than they cost to produce.

The ITC, acting on a petition from Accuride and Hayes Lemmerz, investigated the same product category in 2012 but found that imports of steel truck wheels from China did not materially injure or threaten U.S. manufacturers.

The petitioners allege antidumping margins of 11.3% to 231.7% and countervailing duty margins of up to 77.3%.

As Tire Business explains, Accuride, based in Evansville, Indiana, is active in three business areas: Medium- and heavy-duty steel and aluminum wheels; medium- and heavy-duty vehicle brake drums, disc wheel hubs, spoke wheels and rotors,  and wheel-end solutions. Maxion, based in Novi, Mich., is a global supplier of light- and heavy-duty steel and aluminum wheels under the Hayes-Lemmerz, Fumagalli and Maxion brands.

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Trader: “Dollar Bears Beware: This Is The Pain Trade Of The Year”

Yesterday, we presented the opinion of former Lehman trader and current macro commentator, Mark Cudmore, who explained why in his view, Trump was on track to “win the currency devaluation game“, something he hinted with his unprecedented tweets slamming Russia and China for currency manipulation.

24 hours later, another FX and macro analyst, Bloomberg’s Vassilis Karamanlis, says “not so fast”, and warns dollar bears that Trump tweets “may not be enough”, noting that as a result of Trump’s constant frustration of dollar longs, “be it with verbal intervention toward a weaker currency, personnel changes or trade protectionism” any rebounds in the U.S. currency this year have been short-lived, leading to “a massive build in short-dollar positions. Hedge funds and other large speculators haven’t been more bearish on the greenback in more than five years.”

But to Karamanlis, the real risk lies not with Trump but with the Fed: “those hoping for an assist from monetary policy are likely to be sorely disappointed” the FX strategist notes and adds that “The Fed isn’t just retaining its bullish stance, it’s looking for a more aggressive rate-hike trajectory than the market anticipates. With almost half of Fed policy makers projecting at least four interest rate increases for 2018, upside risks prevail.”

He explains his full reasoning why it may be time for the dollar bulls to smile, in his latest macro view note below:

Dollar Bears Beware, Trump Tweets May Not Be Enough: Macro View

The entrenched bearish dollar view has all the ingredients to become the pain-trade of the year. It has become super crowded based on occasional utterances from the White House while ignoring a fundamental shift at the Fed.

The Bloomberg Dollar Spot Index is hovering near a three-year low as uncertainties surrounding the Trump administration weigh on investor confidence.

Be it verbal intervention toward a weaker currency, personnel changes or trade protectionism, the U.S. President has had a way of frustrating dollar longs.

As a result, any rebounds in the U.S. currency this year have been short- lived. That’s led to a massive build in short-dollar positions. Hedge funds and other large speculators haven’t been more bearish on the greenback in more than five years, CFTC data show.

With less room for additional short exposure, dollar bears are going to need something more than the short-term turbulence generated by Trump. Those hoping for an assist from monetary policy are likely to be sorely disappointed.

The Fed isn’t just retaining its bullish stance, it’s looking for a more aggressive rate-hike trajectory than the market anticipates. With almost half of Fed policy makers projecting at least four interest rate increases for 2018, upside risks prevail.

Those risks may become more pronounced should the U.S. Senate confirm Richard Clarida as vice chairman. Clarida, no stranger to the notion of a total of four hikes this year, may spark another round of speculation on whether the FOMC could include a price-level target in its policy framework.

Soon-to-be New York Fed President John Williams also advocates such a shift, which Clarida said, in a Pimco commentary back in 2014, would — in theory — result in higher yields on longer-duration bonds.

Given the dollar has been feeling the pressure of a flatter curve since late 2016, the all-new Fed may bring an end to fears that the curve’s shape portends a U.S. recession.

After all, the composition of voting members this year has shifted from 2017’s dovish roster. Dollar pricing hasn’t reflected that.

Even if Trump shifts away from weak-dollar rhetoric and the market catches up with the Fed’s dot plot, the dollar may struggle to gain the 6% needed to retest October’s highs. But that doesn’t mean we’ll see a slide to fresh, sustainable year-to-date lows.

There’s too much focus on Trump and growth in the rest of the world, and not enough on the Fed. The direction of the dollar’s next move may well be determined by actual U.S. data, rather than investors’ interpretations of reactionary early-morning tweets.

 

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Germany Cracks Down On Middle-Eastern Crime Families

Authored Soeren Kern via The Gatestone Institute,

  • Middle Eastern crime clans now control large swathes of German cities and towns – areas that are effectively lawless and which German police increasingly fear to approach. The crime families, which have thousands of members, have for decades been allowed operate with virtual impunity: German judges and prosecutors were unable or unwilling to stop them, apparently out of fear of retribution.

  • “The police cannot win a war with the Lebanese because we outnumber them.” – Criminal clan members to Gelsenkirchen Police Chief Ralf Feldmann.

  • Peter Biesenbach, now Justice Minister of North Rhine-Westphalia, had repeatedly called for an official inquiry to determine the scope of clan activity. Those pleas had been rejected by his predecessor, because such a study would be politically incorrect.

German authorities have launched a crackdown on Middle Eastern crime families in Essen, a city in North Rhine-Westphalia where some 70 Turkish, Kurdish and Arab-born clan members regularly engage in racketeering, extortion, money laundering, pimping and trafficking in humans, weapons and drugs.

Middle Eastern crime clans now control large swathes of German cities and towns — areas that are effectively lawless and which German police increasingly fear to approach.

The crime families, which have thousands of members, have for decades been allowed operate with virtual impunity: German judges and prosecutors were unable or unwilling to stop them, apparently out of fear of retribution.

The nascent crackdown comes nearly a year after the center-right Christian Democratic Union (CDU) won regional elections in North Rhine-Westphalia (NRW) and replaced the center-left Social Democratic Party (SPD), which, apart from one legislative period, has ruled the region since 1966.

Observers say that the clans have become so powerful and ruthless that the government’s only solution is to wage all-out war to utterly annihilate the clans. If the initial raid in Essen is any indication, however, the Middle Eastern crime families in Germany have little to fear.

On April 12, more than 300 police officers, accompanied by dozens of customs, tax and anti-money-laundering agents, searched nearly 100 commercial businesses, hookah bars, gambling halls and betting offices in downtown Essen. After questioning 600 individuals and searching 60 vehicles at checkpoints, police arrested eight people, most of whom were wanted on open arrest warrants. Another 20 people were charged with drugs and immigration violations.

Many of the so-called Lebanese clans actually consist of ethnic Kurds from Southeastern Anatolia who migrated to Lebanon in search of work, and then moved to Germany during Lebanon’s 1975-1990 civil war. In Germany, they built parallel societies based on tribal and clan customs and Islamic honor codes.

Many clan members receive unemployment benefits while they launder profits from illegal activities through bars, restaurants and the used-car trade.

Police have been no match for the clans, whose members use cellphones to summon backup support. Within moments, dozens of clan members form mobs to insult and intimidate law enforcement officers.

“Respect for the police tends towards zero with these clans,” said Arnold Plickert, head of the GdP police union in NRW. “These people live in their own parallel society and have no regard for the German constitutional state.”

Focus magazine described the brute-force methods used by the clans to gain control over the sports betting sector in Essen:

“Five years ago, three leading clan members harassed the operator of several betting shops. They demanded 10,000 euros per month in protection money. In addition, he was told to open two new betting offices for blackmailers and pay another 150,000 euros. Moreover, he was told that he could not operate any business in Essen without participation by the clans. If he refused to comply, he would be killed.

“The businessman turned to the police for help but the investigation dragged on. After a while the police stopped the telephone monitoring. The judge took three years before scheduling the trial. In the end, the accused were found not guilty for lack of evidence.

“Abdou Gabbar, the victim’s lawyer, has now appealed the verdict: ‘The experience with the Essen police and justice in matters regarding the Al-Zein clan was frustrating. The district court did not even want to translate the incriminating telephone calls properly, and simply pronounced the defendants free.’

“Further charges against the protagonists, including for insulting police officers, were also dropped. The judge deemed the risk was too high that clan members would riot in the courtroom.”

Police guard the scene of a shooting murder in Essen, Germany, on April 9, 2016. The murder was part of a bloody feud within a Lebanese clan. (Image source: WDR video screenshot)

In nearby Gelsenkirchen, Kurdish and Lebanese clans are vying for control of city streets, some of which have become zones that are off-limits to German authorities. Senior members of the Gelsenkirchen police department have held secret meetings with representatives of the clans to “cultivate social peace between Germans and Lebanese.”

According to a leaked police report, clan members informed Police Chief Ralf Feldmann that “the police cannot win a war with the Lebanese because we outnumber them.” They added: “This applies to all of Gelsenkirchen, if we so choose.”

When Feldman countered that he would dispatch police reinforcements to disrupt their activities, the clan members laughed and said:

“The government does not have enough money to deploy the numbers of police necessary to confront the Lebanese.”

The police report concluded that German authorities must be realistic about the actual balance of power: “The police would be defeated.”

In Duisburg, a leaked report prepared for the NRW state parliament revealed that Lebanese clans do not recognize the authority of the police and have divided up neighborhoods to pursue criminal activities. Their members are males between the ages of 15 and 25 and “nearly 100%” of them are known to police.

The report described the situation in Duisburg’s Laar district, where two large Lebanese families seem to have taken over control: “The streets are actually regarded as a separate territory. Outsiders are physically assaulted, robbed and harassed. Experience shows that the Lebanese clans can mobilize several hundred people in a very short period of time by means of a telephone call.”

Police say they are alarmed by the aggressiveness and brutality of the clans, which are said to view crime as leisure activity. If police intervene, hundreds of clan members are mobilized to confront the police.

“If this is not a no-go area, then I do not know what is,” said Peter Biesenbach (CDU), now NRW Justice Minister. Before assuming his current post, he repeatedly called for an official inquiry to determine the scope of clan activity. Those pleas were rejected by the previous NRW Interior Minister Ralf Jäger (SPD) because such a study would be politically incorrect:

“Further data collection is not legally permissible. Both internally and externally, any classification that could be used to depreciate human beings must be avoided. In this respect, the use of the term ‘family clan’ (Familienclan) is forbidden from the police point of view.”

The new NRW Interior Minister, Herbert Reul (CDU), has pledged a course correction: “We will not tolerate any illegal activities or parallel justice. We have a zero-tolerance-strategy. We will use all means of the rule of law to fight crime.” How effective his strategy will be remains to be seen.

Ralph Ghadban, a Lebanese-German political scientist and a leading expert on Middle Eastern clans in Germany, said that the only way for Germany to achieve control over the clans is to destroy them. In an interview with Focus, he explained:

“In their concept of masculinity, only power and force matter; if someone is humane and civil, this is considered a weakness. In clan structures, in tribal culture everywhere in the world, ethics are confined to the clan itself. Everything outside the clan is enemy territory.

“I have been following this trend for years. The clans now feel so strong that they are attacking the authority of the state and the police. They have nothing but contempt for the judiciary…. The main problem in dealing with clans: state institutions give no resistance. This makes the families more and more aggressive — they simply have no respect for the authorities….

“The state must destroy the clan structures. Strong and well-trained police officers must be respected on the street. In addition, lawyers and judges must be trained. The courts are issuing feeble judgments based on a false understanding of multiculturalism and the fear of the stigma of being branded as racist.”

An Emnid poll published by Bild on April 14 found that 51% of those surveyed were worried about German no-go zones, areas where the state is unable or unwilling to enforce the law; 77% said that they wanted the state to take more forceful action against the clans.

“The state has not managed to get the problem under control,” said Ghadban, the clan expert. The reason for this is the prevailing political ideology: “The police can only act as politicians allow. The multicultural atmosphere, in which everything is to be tolerated, leads in practice to the fact that the clans are not pursued.”

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Autonomous Drones Will Soon Decide Who To Kill

The United States Army wants to develop a system that can be quickly integrated and deployed into its weaponized drone fleet to automatically Detect, Recognize, Classify, Identify (DRCI) and target enemy combatants and vehicles using artificial intelligence (AI). This is an impressive leap forward, whereas humans still operate current military drones, this technology could foster a new era of autonomous drones conducting operations in hybrid wars — without human oversight.

The project is called “Automatic Target Recognition of Personnel and Vehicles from an Unmanned Aerial System Using Learning Algorithms,” — a very original name, which the details were recently released on the Small Business Technology Transfer (STTR)website. In other words, the Department of Defense (DoD) via the Army is requesting private and research institutions that have developed image targeting AI platforms to form partnerships with them for the eventual technology transfer.

Once the technology transfer is complete, these drones will use machine-learning algorithms, such as neural networks blended with artificial intelligence to create the ultimate militarization of AI. Currently, military drones have little onboard intelligence, besides sending a downlink of high definition video to a military analyst who manually decides whom to kill.

Here is the program’s objective:

“Develop a system that can be integrated and deployed in a class 1 or class 2 Unmanned Aerial System (UAS) to automatically Detect, Recognize, Classify, Identify (DRCI) and target personnel and ground platforms or other targets of interest. The system should implement learning algorithms that provide operational flexibility by allowing the target set and DRCI taxonomy to be quickly adjusted and to operate in different environments.”

A full description of the program:

“The use of UASs in military applications is an area of increasing interest and growth. This coupled with the ongoing resurgence in the research, development, and implementation of different types of learning algorithms such as Artificial Neural Networks (ANNs) provide the potential to develop small, rugged, low cost, and flexible systems capable of Automatic Target Recognition (ATR) and other DRCI capabilities that can be integrated in class 1 or class 2 UASs. Implementation of a solution is expected to potentially require independent development in the areas of sensors, communication systems, and algorithms for DRCI and data integration. Additional development in the areas of payload integration and Human-Machine Interface (HMI) may be required to develop a complete system solution. One of the desired characteristics of the system is to use the flexibility afforded by the learning algorithms to allow for the quick adjustment of the target set or the taxonomy of the target set DRCI categories or classes. This could allow for the expansion of the system into a Homeland Security environment. ”

Once the Army selects a private or research institution in the form of a joint venture, the partnership will allow both entities to further technological innovation in AI drone killing. Before the commercialization of this new dangerous weapon, these three phases must be completed first:

PHASE I: “Conduct an assessment of the key components of a complete objective payload system constrained by the Size Weight and Power (SWAP) payload restrictions of a class 1 or class 2 UAS. Systems Engineering concepts and methodologies may be incorporated in this assessment. It is anticipated that this will require, at a minimum, an assessment of the sensor suite, learning algorithms, and communications system. The assessment should define requirements for the complete system and flow down those requirements to the sub-component level. Conduct a laboratory demonstration of the learning algorithms for the DRCI of the target set and the ability to quickly adjust to target set changes or to operator-selected DRCI taxonomy.”

PHASE II: Demonstrate a complete payload system at a Technology Readiness Level (TRL) 5 or higher operating in real time. On-flight operation can be simulated. Complete a feasibility assessment addressing all engineering and integration issues related to the development of the objective system fully integrated in a UAS capable of detecting, recognizing, classifying, identifying and providing targeting data to lethality systems. Conduct a sensitivity analysis of the system capabilities against the payload SWAP restrictions to inform decisions on matching payloads to specific UAS platforms and missions.”

PHASE III: Develop, integrate and demonstrate a payload operating in real time while on-flight in a number of different environmental conditions and providing functionality at tactically relevant ranges to a TRL 7. Demonstrate the ability to quickly adjust the target set and DRCI taxonomy as selected by the operator. Demonstrate a single operator interface to command-and-control the payload. Demonstrate the potential to use in military and homeland defense missions and environments.”

Interesting enough, The Conversation believes once these AI drones are commercialized, there will be “vast legal and ethical implications for wider society.” Nevertheless, the sphere of warfare could soon expand to include technology companies, engineers, and scientists, who would be labeled as valid military targets because of their involvement in building code for the machines.

The Conversation makes a stunning revelation about the legal implications of Silicon Valley technology firms who provide lines of code to autonomous drone weapon systems. Under the international humanitarian law, “dual-use” facilities – “those which develop products for both civilian and military application – can be attacked in the right circumstances.”

The prospect of totally autonomous drones would radically alter the complex processes and decisions behind military killings. But legal and ethical responsibility does not somehow just disappear if you remove human oversight. Instead, responsibility will increasingly fall on other people, including artificial intelligence scientists.

The legal implications of these developments are already becoming evident. Under the current international humanitarian law, “dual-use” facilities – those which develop products for both civilian and military application – can be attacked in the right circumstances. For example, in the 1999 Kosovo War, the Pancevo oil refinery was attacked because it could fuel Yugoslav tanks as well as fuel civilian cars.

With an autonomous drone weapon system, certain lines of computer code would almost certainly be classed as dual-use. Companies like Google, its employees or its systems, could become liable to attack from an enemy state. For example, if Google’s Project Maven image recognition AI software is incorporated into an American military autonomous drone, Google could find itself implicated in the drone “killing” business, as might every other civilian contributor to such lethal autonomous systems.”

The Conversation reminds us of the recent events of autonomous AI in society “should serve as a warning.”

“Uber and Tesla’s fatal experiments with self-driving cars suggest it is pretty much guaranteed that there will be unintended autonomous drone deaths as computer bugs are ironed out.”

If militarized AI machines are left to the decision-making of who dies…  We ask one simple question: how many non-combatant deaths will count as acceptable to the Army as the AI drone technology is refined?

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Tech Firms Promise To Fight Back Against Government Spying

In an announcement ostensibly meant to put Russian and Chinese hackers on notice – but we imagine is truly intended to reassure wary foreign customers that American cloud computing firms wont’ turn their data over to the NSA – 31 tech titans from around the world (but mostly the US) have signed on to a set of principles stipulating that they will not help any government – including the US deep state – mount cyberattacks or cyberespionage against “innocent civilians and enterprises from anywhere,” the New York Times reported.

The publication of these principles follows a first-of-its-kind joint condemnation on Monday from American and British officials that placed the blame for nefarious cyberactivity squarely on Russia’s shoulders.

Here’s Reuters:

The Cybersecurity Tech Accord, which vows to protect all customers from attacks regardless of geopolitical or criminal motive, follows a year that witnessed an unprecedented level of destructive cyber attacks, including the global WannaCry worm and the devastating NotPetya attack.

The principles are intended to be the cornerstone of an eventual “Geneva Convention for the Internet” that would strictly limit how governments can conduct cyberespionage and cyberwarfare.

On Monday, American and British officials issued a first-of-its-kind joint warning about years of cyberattacks emanating from Russia, aimed not only at businesses and utilities but, in some cases, individuals and small enterprises. The warning was only the latest in a series about Russian threats to elections and electoral systems.

But thanks to some of the documents stolen by former NSA contractor Edward Snowden, the public understands that the US is extremely guilty of browbeating tech firms into cooperating with its intelligence agencies, according to the New York Times.

Perhaps as important, none of the signers come from the countries viewed as most responsible for what Brad Smith, Microsoft’s president, called in an interview “the devastating attacks of the past year.” Those came chiefly from Russia, North Korea, Iran and, to a lesser degree, China.

….

The impetus for the effort came largely from Mr. Smith, who has been arguing for several years that the world needs a “digital Geneva Convention” that sets norms of behavior for cyberspace just as the Geneva Conventions set rules for the conduct of war in the physical world. Although there was some progress in setting basic norms of behavior in cyberspace through a United Nations-organized group of experts several years ago, the movement has since faltered.

Mr. Smith said over the weekend that the first move needed to come from the American companies that often find themselves acting as the “first responders” when cyberattacks hit their customers. “This has become a much bigger problem, and I think what we have learned in the past few years is that we need to work together in much bigger ways,” Mr. Smith said in an interview. “We need to approach this in a principled way, and if we expect to get governments to do that, we have to start with some principles ourselves.”

Microsoft played a central role in trying to extinguish the WannaCry attack last year that struck the British health care system and companies around the world. The Trump administration, along with several other Western governments, later blamed that attack on North Korea. Last summer the NotPetya attack struck Ukraine, crippling systems throughout the country. Iran is suspected in a recent attack on a Saudi petrochemical plant.

Yet not all governments are likely to embrace the “Cybersecurity Tech Accord” in part because the principles it espouses can run headlong into their own, usually secret efforts to develop cyberweapons.

According to Microsoft President Brad Smith, who led efforts to organize the alliance, several high-profile cyberattacks from 2017 demonstrated the need for the technology sector to “take a principled path toward more effective steps to work together and defend customers around the world,” per Reuters. Microsoft and – how’s this for irony? – Facebook are leading the project.

While the accord promised to establish new formal and informal partnerships within the industry and with security researchers to share threats and coordinate vulnerability disclosures, several major US tech companies including Amazon, Apple, Alphabet and Twitter didn’t sign on. And for those that did, Reuters notes that “it was not clear whether any companies would change their existing policies as a result of joining the accord.”

With this in mind, will the CTA ensure that US tech firms will do everything in their power to rebuff not only hackers but intelligence agencies like the CIA and NSA?

Or is this essentially a marketing ploy for the US cloud-computing industry?

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