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Despite all the happy-talk of “constructive conversations” from last week’s meeting of the minds between Washington and Beijing, reports from today’s World Trade Organization meeting suggest things are not going so well.

As Bloomberg reports, Chinese and U.S. ambassadors to the WTO clashed at the regulatory body’s general council meeting in Geneva, where Beijing lashed out at President Donald Trump’s proposed tariffs on $150 billion of Chinese goods. Washington defended its measures and criticized China’s vows of retaliation.

Today’s meeting “was extraordinary in its intensity,” WTO Spokesman Keith Rockwell said. “We had the two most powerful members of the WTO weighing in on their views of each others’ policy in a way I have not seen in my many years here.”

Reuters reports that the new U.S. ambassador to the World Trade Organization, Dennis Shea, said something had gone “terribly wrong” with judges at the world body and that China’s arguments showed Beijing was living in a fantasy.

…there was a “steadily worsening rupture of trust” by the Appellate Body

“Something has gone terribly wrong in this system when those charged with adjudicating the rules are so consistently disregarding those very rules,”

Beijing’s exhortations against protectionism have “entered the realm of Alice in Wonderland.”

“It is amazing to watch a country that is the world’s most protectionist, mercantilist economy position itself as the self-proclaimed defender of free trade and the global trading system…”

“White is black. Up is down.”

As if those comments were not exponential enough, China accused US of hostage-taking at the WTO (which probably has a ring of truth to it). Reuters reports that China’s Ambassador to the WTO, Zhang Xiangchen, told its membership on Tuesday, that…

“the United States is threatening the World Trade Organization with “three hard blows”, including taking the system of judicial appointments hostage.

Zhang said it was “dangerous and devastating” that the United States was challenging the WTO’s fundamental guiding principles by blocking new judges, by imposing global tariffs on steel and aluminium, and by threatening China with a separate $50 billion package of tariffs.  

However, Shea responded in kind…

“The truth is, it is China that is the unilateralist, consistently acting in ways that undermine the global system of open and fair trade,” Shea said.

“The WTO must avoid falling down this rabbit hole into a fantasy world, lest it lose all credibility.”

But apart from that – talks are going well!!

And President Trump tweeted on Tuesday that he would speak to Chinese President Xi Jinping later in the day on trade, “where good things will happen.”

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With Fed Chair Jay Powell implying that ’emerging markets are on their own’, it appears the collapse of Argentina’s currency has sent them running into the arms of The IMF to secure a bailout.

Bloomberg reports that Argentina is said to have negotiate a $30 billion credit line with The IMF. This report follows Argentine President Macri addressing the nation noting that “market conditions are more difficult” and that Argentina “is one of the world’s countries that most depends on debt” (rather like America).

The Peso is rebounding from its earlier crash on the headlines…

Argentina’s 100-Year bonds however are taking it on the chin…

As a reminder, back in March, the Argentine government rebuffed an investor proposal that it should request a flexible credit line from the International Monetary Fund to shore up the nation’s finances, according to three people with direct knowledge of the matter.

How times have changed.

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Via Bill Blain’s Morning Porridge,

“He spoke of lands not far, for lands they were in his mind, of fusion captured high, where reason captured his time..“

If Carlsberg did weekends – that was probably the best Spring Bank Holiday in the history of the World. I spent the weekend moored up in the pretty little Isle of Wight harbour of Bembridge – and I look like a ripe tomato. This morning its back to the markets… and still wondering what to say about direction..

The short-term action in US stocks – while London was closed – was fascinating. Bouncing off moving averages and hinting either at a recovery to come, or perhaps further correction… which is about as helpful as a stocks might go up or they might go down comment.

The reality is stock markets are range bound – with apparently limited entropy to move higher, but sustained by buyers who believe the global growth scenario is so buoyant they are still likely to move higher at some point.

They point to political uncertainty about Iran, Korea, China trade wars, as factors holding the markets back. Trump is a yawn, but he keeps the markets nervous. What’s going to happen in France, Germany or elsewhere – for instance possible new Italian elections will keep us short-term worried. But they don’t really change much.

The market bulls counter ephermal political threats with the massive pools of money looking to be invested, the strong earnings season, and the fact yields in the bond markets may be rising, but still look way below normal making stocks look attractive to those who have got comfortable with yield tourism.

Others look at the way the market has matured. My comments about Apple becoming a dull, boring, predictable company (which will therefore make it even more loved by investment professionals) struck a chord with many readers. The fact Warren Buffet is the third largest holder is another. Others predict Amazon will become the first one trillion market revenues firm, propelling it over the $1T market cap. Others point the tech data revolution has only just begun and the upside for firms like Facebook is only dimly understood.

On the other hand, the more we understand about data mining, the outlook for disruptive car makers, or how the world’s leading smartphone supplier has built its sustainable business, some of the sky-high valuations are going to look questionable. Once we understand the magic, its no longer so magical – and even a slight correction is expectations and valuations in the Tech Secfor will trigger a substantial fall in prices, which will inevitably pull down rest of market. That has been true of every single stock market sector darling since the railways..

Meanwhile, JPM’s Jamie Dimon warning of a surprise 4% in bonds has got a number of folk nervous. Actually, 4% will still be well below the pre-crash 10-yr average of 5%! However, the fact the leveraged loan market and its covenant-lite product now tops $1 bln, hi-yield still trades at a gnat’s crotchet from investment grade, trillions of BBB debt could tumble from investment grade into junk on a yield shock, and investors are now mounting legal challenges on bank capital (see: Hedge Fund raises complaint about Unicredit capital in FT), is worth a read!

The big questions is always where do we go from here, and if this seasons superb US earnings represent a peak, if we’re back into a rising oil price world, and the bond market is about to get a slapping, then this cycle is looking toppy. All of which explains why markets are going nowhere at present.

More tomorrow, back to the day job for now…

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Remember last week when a fake report by CNN that the US and China were about to reach an agreement during last Friday’s trade talks – when in reality nothing like that happened – sent stocks surging?

Well, CNN’s “fake news” factory was in overdrive again this morning, again moving markets and sending oil tumbling on an unconfirmed report that Trump won’t withdraw from the Iran deal. Well, just moments later oil shot up after this time it was the NYT denying CNN’s report

• TRUMP TOLD MACRON HE’LL WITHDRAW FROM IRAN DEAL, NYT REPORTS
• TRUMP TO REINSTATE ALL DEAL-RELATED SANCTIONS ON IRAN: NY TIMES

From the NYT:

President Trump told President Emmanuel Macron of France on Tuesday morning that he plans to announce the withdrawal of the United States from the Iran nuclear deal, according to a person briefed on the conversation.

The article also states that “the United States is preparing to reinstate all sanctions it had waived as part of the nuclear accord — and impose additional economic penalties as well” and adds that “the talks collapsed over Mr. Trump’s insistence that sharp limits be kept on Iran’s nuclear fuel production after 2030. The deal currently lifts those limits.”

Mr. Trump’s decision, while long anticipated and widely telegraphed, plunges America’s relations with European allies into deep uncertainty. They have committed to staying in the deal, raising the prospect of a diplomatic and economic clash as the United States reimposes stringent sanctions on Iran.

It also raises the prospect of increased tensions with Russia and China, which also are parties to the agreement.

In kneejerk response, oil promptly jumped, retracing half of its losses following the CNN report as oil traders and algos try to handicap whose news is real and whose is fake.

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In a clear signal that President Vladimir Putin has chosen to maintain Russia’s political status quo, damn the western sanction torpedoes, today the lower house of the Russian Parliament approved longtime Putin ally (and former president) Dmitry Medvedev, as chairman of Putin’s cabinet, cementing his tenure as prime minister for another term, RT reports. 

Of 433 lawmakers present at the Tuesday session of the State Duma, 374 voted in favor of Medvedev’s candidacy while 56 voted against it. There were no abstentions.

In accordance with Russian law, Medvedev’s government was dismissed after Vladimir Putin was sworn in as president on Monday, though all of its members will continue in their roles until a new government is formed. The prime minister now has a week to present his plans for forming his new cabinet. As it turns out, he already has a few people in mind.

According to the Russian media, Medvedev will expand the power of Finance Minister Anton Siluanov, elevating him to deputy prime minister in charge of economic development. Meanwhile, former Deputy Defense Minister Yuri Borisov is being considered for the position of deputy prime minister in charge of defense. 

Tatyana Golikova, the head of the Russian Audit Chamber, has been picked for the position of deputy prime minister in charge of social policy, labor and healthcare, replacing Olga Golodets who will become deputy prime minister in charge of culture and sports.

For now, Medvedev has said he’s only proposing ministers for key posts, but noted that other nominations will follow.

Medvedev’s candidacy was met with fierce resistance from both the Russian Communist Party (the second-largest political party in the country behind Putin’s United Russia party), as well as the center-left Fair Russia Party.

Meanwhile, as the Saker pointed out in a post about Medvedev’s renomination, many of Putin’s supporters would also be “bitterly disappointed” by Medvedev’s return, given his association with the “Atlantic-integrationists” who support a closer partnership with the West. The nomination will only spur rumors that Putin is planning to cave on his defense of Syrian President Bashar al-Assad or Russia’s support for separatists in the Donbass.

Just a quick note here (since I am inundated by emails about this): there is no way I can put a positive spin on the fact that Putin has re-nominated Medvedev as Prime Minister.  I am personally bitterly disappointed and so are many others.  A comment I just saw on the YouTube chat of the inauguration was succinct and to the point: “Путин кинул народ – мы не за Медведева голосовали” or “Putin betrayed the people – we did not vote for Medvedev”.  This is going to be a very widely shared feeling, I am afraid.

Now, there are a number of explanations for this development including that Medvedev is an effective manager, that he has been weakened by the corruption scandals in Dagestan, that the new task-centered management doctrine of the Russian government makes personalities less important, etc.

Frankly, I don’t buy any of them.  First and foremost, the re-nomination of Medvedev is a hugely important symbolic act which says the following: there will NOT be a purge of the Atlantic-Integrationist IMF/WTO/WB type, of the 5th columnist inside the Kremlin and that the (very unpopular) “economic block” of the Russian government will stay in power.  In fact, this re-nomination will only pour more fuel on the fire of rumors saying that Putin/Russia will “cave in” in Syria or the Donbass or that the internal economic course will continue to remain what is politely known as “liberalism”.   The devil is always in the details, but I have to say that seeing Medvedev re-nominated is, at the very least, a PR-disaster.  If that is how Putin begins his term, it scares me to think of what might come next (Kudrin? Chubais?)…

Medvedev served as prime minister during Putin’s most recent term as president. Before that, he served as president while Putin ran the Russian government.

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With a historic summit between President Donald Trump and North Korean Leader Kim Jong Un just weeks away, Bloomberg has confirmed reports that Chinese President Xi Jinping and North Korean leader Kim Jong Un met in the port city of Dalian over the past two days – the second meeting between top officials of the two Communist allies in less than two months.

Kim traveled to China via an Air Koryo plane that’s believed to be Kim’s personal jet. Officials confirmed there are no direct air routes between Dalian and the North.

The first meeting took place in late March, when Kim traveled to China via an armored train in what is widely believed to have been the young dictator’s first trip abroad since he succeeded his father, Kim Jong Il, upon his death.

The second round of talks between the two Communist leaders are taking place following historic talks between South Korean leader Moon Jae-in and Kim at the DMZ late last month, where the leaders of the two Koreas agreed on a framework to end the Korean war.

Following reports of the meeting, President Trump tweeted that he’d be speaking with Xi by phone at 8:30 am ET, and that the primary topic would be trade, where “good things will happen”.

I will be speaking to my friend, President Xi of China, this morning at 8:30. The primary topics will be Trade, where good things will happen, and North Korea, where relationships and trust are building.

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

According to BBG, Kim reportedly filled Xi in on developments in the Korean peninsula and pushed to strengthen communication and cooperation with China.

In comments reported after the meeting, Kim reiterated that, as long as the regime’s security is guaranteed, North Korea “does not need to have nuclear weapons…”

“As long as relevant parties eliminate the hostile policy and security threats against North Korea, North Korea does not need to have nuclear weapons, and denuclearization is achievable,” Kim was quoted as saying.

Xi agreed that “positive progress” had been made since the two leaders first met, adding, “I feel happy about it.”

His response was reported by China’s Xinhua news agency.

“After my first meeting with the chairman [Kim Jong Un], I’m very glad to see positive progress in both bilateral relations and the situation on the Korean Peninsula…. Developing the traditional friendship between China and North Korea is a common treasure of both nations. Improving friendship and cooperation between the two nations is a position both sides hold firmly and is the only correct choice. High-level exchanges between both sides carry important effects that are irreplaceable. Both sides need to maintain regular exchanges, boost strategic communications and mutual trust, and defend our common interests.”

As BBG points out, Dalian is home to China’s first domestically built aircraft carrier, which is nearly ready to start sea tests. The new carrier, known as the Type 001A, was built by China Shipbuilding Industry Corp. Trump recently revealed that his meeting with Kim has been scheduled for June, and that the location – which he did not reveal – had also been decided. It was later reported that Singapore will host the talks.

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WTI Crude is testing a $67 handle, down over 4% this morning, and accelerating lower as CNN reports that Trump will announce new sanctions on Iran but will not withdraw from the nuclear deal…

Despite earlier reports that Mike Pompeo has already briefed European leaders on Trump’s decision to withdraw, CNN claims he will not and that has sparked more selling in WTI…

And Energy Stocks…

And commodity currencies (RUB and CAD getting hit hard)

Perhaps President Trump noticed how soaring oil (and gasoline) prices were eating into his tax cuts?

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Authored by Patrick Buchanan via Buchanan.org,

This next week may determine whether President Trump extricates us from that cauldron of conflict that is the Middle East, as he promised, or plunges us even deeper into these forever wars.

Friday will see the sixth in a row of weekly protests at the Gaza border fence in clashes that have left 40 Palestinians dead and 1,500 wounded by live fire from Israeli troops.

Monday, the U.S. moves its embassy to Jerusalem. Tuesday will see the triumphal celebration of the 70th birthday of the state of Israel.

Palestinians will commemorate May 15 as Nakba, “The catastrophe,” where hundred of thousands of their people fled their homes in terror to live in stateless exile for seven decades.

Violence could begin Friday and stretch into next week.

Yet more fateful for our future is the decision Trump will make today ahead of the May 12 deadline to decide whether America trashes the Iran nuclear deal and reimposes sanctions.

While our NATO allies are imploring Trump not to destroy the deal and start down a road that is likely to end in war with Iran, Bibi Netanyahu on Sunday called this a Munich moment:

“Nations that did not act in time against murderous aggression against them paid a much higher price later on.”

From a U.S. standpoint, the Munich analogy seems absurd.

Iran is making no demands on the United States. Its patrol boats have ceased harassing our warships in the Persian Gulf. Its forces in Iraq and Syria do not interfere with our operations against ISIS. And, according to U.N. inspectors, Iran is abiding by the terms of the nuclear deal.

Iran has never tested a nuclear device and never enriched uranium to weapons grade. Under the deal, Iran has surrendered 95 percent of its uranium, shut down most of its centrifuges and allowed cameras and inspectors into all of its nuclear facilities.

Why Iran is abiding by the deal is obvious. For Iran it is a great deal.

Having decided in 2003 not to build a bomb, Iran terminated its program. Then Tehran decided to negotiate with the U.S. for return of $100 billion in frozen assets from the Shah’s era — by proving they were not doing what every U.S. intelligence agency said they were not doing.

Should Iran rashly decide to go for a nuclear weapon, it would have to fire up centrifuges to enrich uranium to a level that they have never done, and then test a nuclear device, and then weaponize it.

A crash bomb program would be detected almost instantly and bring a U.S. ultimatum which, if defied, could bring airstrikes. Why would Trump risk losing the means to monitor Iran’s compliance with the deal?

Israel, too, has an arsenal of nuclear weapons that can be delivered by Jericho missile, submarine-based cruise missile, and the Israeli air force.

Why then is the world anxiously awaiting a decision by President Trump that could lead to an unnecessary war with Iran?

The president painted himself into this corner. He has called the Iran nuclear deal “insane” and repeatedly pledged to tear it up.

The Israelis, Saudis and Beltway War Party want the deal trashed, because they want a U.S. clash with Iran. They are not afraid of war. Instead, they fear Trump will extricate us from the Middle East before we do our historic duty and effect regime change in Iran.

What is Israel’s motive? Israel fears that the Iranians, having contributed to Bashar Assad’s victory in Syria’s civil war, will stay on and establish bases and a weapons pipeline to Hezbollah in Lebanon. Israel has launched scores of airstrikes into Syria to prevent this.

The problem for Bibi: While Trump sees no vital U.S. interest in Syria and has expressed his wish to get out when ISIS is demolished and scattered, Bibi has cast us in the lead role in taking down Iran in Syria.

Trump may want to stay out of the next phase of the Syrian civil war. Bibi is counting on the Americans to fight it.

But while Bibi may have a vital interest in driving Iran out of Syria, Iran is no threat to any vital interest of the United States.

Iran’s economy is in dreadful shape. Its youth have voted repeatedly against presidential candidates favored by the Ayatollah. There are regular constant demonstrations against the regime.

Time is not on the side of the Islamic Republic.

Fifty million Persians, leading a Shiite nation of Persians, Azeris, Baloch, Arabs and Kurds, are not going to control a vast Middle East of hundreds of millions of Arabs and Turks in an Islamic world where Shiites are outnumbered five times over by Sunnis.

For the United States, the strategic challenge of this century is not Iran, North Korea or Russia. If it is any nation, it is China.

Trump the dealmaker should find a way to keep the nuclear deal with Iran. We are far better off with it than without it.

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