New Employment Regulations Could Destroy California’s Gig Economy

California legislators are taking a major swipe at the gig economy.

Last week, by a 55–11 vote, the state Assembly passed a bill called AB 5. The legislation makes it the default assumption that workers who perform services for hire are not independent contractors but employees. The company hiring them therefore must abide by all sorts of employment regulations—everything from paying into the state’s unemployment insurance fund to tracking hours for overtime purposes.

“Big businesses shouldn’t be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” says Assemblymember Lorena Gonzalez (D–San Diego), the bill’s sponsor, in a statement released after the vote.

The bill, which now heads to the state Senate, is intended to codify the 2018 California Supreme Court decision Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which ruled that all service-for-hire workers are employees unless they can prove otherwise via the “ABC test.”

The ABC test says that people are independent contractors only if they are “free from control” from the direction of their hiring entity (meaning they can decide when to work and what jobs to take), if they are performing work outside the normal scope of the entity hiring them, and if they are customarily involved in the work they’re being hired to do.

Prior to the decision, gig economy companies classified their workers as contractors, on the grounds that they aren’t given set hours or schedules like normal employees. If you’re performing rides for Uber or dropping off meals for DoorDash, it’s up to you when and how much you want to work.

That’s not enough under the Dynamex decision. To satisfy the court’s ABC test, for-hire workers must also be doing work that is outside the normal scope of the company that’s hiring them. If a delivery company is going to hire contractors, for instance, they can’t be put to work delivering packages.

Since the Dynamex decision came down, there has been a lot of confusion about what it would actually require of companies. AB 5 attempts to clear things up by explicitly stating that all of the state’s labor regulations apply to workers considered employees under Dynamex.

Rideshare companies are strongly opposed to the bill, warning that it will raise prices for consumers and force them to give their new employees more regimented schedules. Lyft issued a statement saying its drivers “overwhelmingly prefer the freedom of working where, when, and how much they want. Many are moms, students, seniors or veterans and 75% of them drive less than 10 hours a week.” The company adds that AB 5 “would force ridesharing drivers into shift work, eliminating the control drivers currently have over their own schedules.”

Jarrett Dieterle, a fellow with the free market think tank R Street, similarly argues that the mass reclassification of contractors as employees risks destroying the flexibility that has made gig-economy work so valuable for so many.

“Most workers who become freelance contractors or join gig economy platforms do so to smooth income volatility. They are facing unexpected large expenses or a sudden reduction in household income,” writes Dieterle. “Forcing contracting firms to reclassify workers as employees would make this quick access to supplemental income more complicated.”

According to an analysis performed by R Street, codifying the Dynamex decision into state law would foist some $6.5 billion in additional payroll expenses onto Californian businesses annually.

The authors of AB 5 have tacitly acknowledged the sweeping changes the bill will create through the exemptions they’ve included in the legislation. The bill exempts health care professionals, insurance agents, stock brokers, and hair stylists (most of whom work as contractors).

More carveouts may follow. Gonzalez described her bill as “an important work-in-progress.” The San Francisco Chronicle reports that many legislators who voted for the bill expect more changes to be made in the Senate to limit its scope.

In part, this is a problem created by the courts, not the state legislature. But lawmakers are leaning in to the problem by forcing contractors to abide by the state’s voluminous employment regulations. They should be trying to undo the damage done by the decision instead.

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‘One-Two’ Trade War And Fed Policy Punch May Trigger Correction

Authored by Brandon Smoth via Birch Group,

Maybe you’ve seen this scenario before: A boxer gets back up after violently being knocked down, only to get knocked out shortly after.

At the end of last year the Dow Jones suffered a severe correction from October 3 to December 24 (see red arrow below):

After recovering, the Dow now seems to be struggling to “stay up” since the end of April. Could this mean we are headed towards another major correction?

Because of recent developments in the U.S.-China trade wars and Fed monetary policy, Frank Holmes seems to think so, writing in Forbes:

I’m not going to use the R-word here. All I’m going to say is that it might be time for investors to brace for a significant correction—especially with debt at record levels and the Federal Reserve left with very little firepower to combat a full-blown crisis.

So let’s examine the “one-two” punch that may trigger this “significant correction”.

China Calls Out U.S. for “Wrong Actions”

According to Evelyn Cheng over at CNBC, POTUS recently increased tariffs on $200 billion of Chinese goods from 10% to 25%, and put telecom provider Huawei on notice.

Cheng quoted Ministry of Commerce spokesperson Gao Feng as saying:

If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.

Feng finished by issuing a strong warning at the end of the article…

The U.S. … crackdown on Chinese companies not only seriously damages the normal commercial cooperation between both countries, but it also forms a great threat to the security of the global industrial and supply chain… China is firmly opposed to this. We will closely monitor developments and make adequate preparations.

The increase in tariffs has already had a major impact on international trade according to a recent IATA report, with growth dropping sharply by more than 3.5% since the tariffs were imposed (see chart):

In the U.S., the tariffs are impacting companies like UBS, which is projected to close 12,000 locations resulting in an estimated loss of $40 billion, according to the Forbes article. The resulting job losses and economic impact would be staggering.

As for companies operating in China, according to an official survey, the impact increased tariffs have had is dire:

The vast majority (74.9%) of respondents said the increases in U.S. and Chinese tariffs are having a negative impact on their businesses. The impact was higher for manufacturers at 81.5% for U.S. tariffs and 85.2% for Chinese tariffs.

These tariffs are likely hitting consumers in their wallets too. According to a Goldman Sachs chart shared on CNBC, nine consumer categories were hit particularly hard by increased tariffs:

If China and the U.S. don’t reach a trade agreement soon, which doesn’t appear likely, the ongoing trade war could provide a knockout punch to the economy by itself.

But that’s not the only punch the economy is taking, as Fed Chairman Powell may also provide a potential monetary policy “haymaker.”

Fed Monetary Policies May Trigger Even More Trouble

According to May 2019 FOMC meeting minutes, the Fed still has rose-colored glasses on when it comes to reporting inflation, sticking to its “symmetric rate” philosophy (emphasis ours):

… the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

But as usual, their reporting excludes some costs…

On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent.

Food and energy are pretty important inflationary items to be ignored, especially if the trade wars trigger a situation where inflation gets out of control.

According to official sources, inflation actually sits at 2.1% and is on the rise, despite Chairman Powell’s attempts to minimize it. Real inflation, reported at ShadowStats using older methodology, sits closer to 6%.

It looks like this one-two punch of Fed policy and trade war negotiations may cause inflation to “run hot” in the near future, as Powell previously alluded to in March.

Not a good outlook if it all plays out.

The U.S. Economy May Struggle to “Get Back Up” This Time

We are riding through a turbulent market on the cusp of a rapid inflation increase. Markets like this can do damage to retirement portfolios that aren’t resilient enough.

Diversifying assets, considering various investment channels, and lowering risk exposure are tried and true ways to protect portfolios.

Assets such as gold and silver should be considered for any portfolio “resilience” plan. As shown in the Oxford Economics chart below, gold is known for its ability to outperform other assets during inflationary markets:

Even Frank Holmes brought attention to gold’s performance during times of high inflation, saying this is a favorable climate for the yellow metal. But don’t wait till after inflation has run too hot. The time to seek out the security and benefits of safe haven assets is now.

via ZeroHedge News http://bit.ly/2WDYzNb Tyler Durden

Amazon Faces New Pressure After US Antitrust Agencies Revamp Oversight

A new agreement between the Federal Trade Commission (FTC) and the Department of Justice (DOJ) will place Amazon and Google under heightened antitrust scrutiny, according to Jeff Bezos’s Washington Post.

According to the report, the US government’s two leading antitrust agencies have been quietly divvying up competition oversight of the two tech giants – a move long sought by both Democrats and Republicans on Capitol Hill who have called for more oversight. 

The FTC is said to have jurisdiction over Amazon, while the DOJ will reportedly oversee Google according to the Post – setting the stage for enhanced scrutiny of the Mountain View-based search-and-advertising company. The New York Times reports that the DOJ is actively exploring an investigation of Google’s advertising and search business, according to several people with knowledge of the discussions. The Times adds that the agency’s interest stems in part from rivals’ complaints. 

The DOJ and FTC have declined to comment, however former FTC chair Maureen Ohlhausen said: “If there is an active discussion of where the boundaries are, that would indicate there’s a reason for that discussion, whether it’s a new interest, study or investigation.” 

The early moves from the government’s twin antitrust agencies mark the latest attempts by U.S. regulators to better supervise tech giants. Earlier this year, the FTC established a special task force it said would monitor tech and competition, including “investigating any potential anticompetitive conduct in those markets, and taking enforcement actions when warranted.”

For years, the European Union has taken the lead in probing whether Silicon Valley too easily stamps out rivals to the detriment of web users. E.U. officials are actively investigating Amazon and have repeatedly fined Google for violating its antitrust laws. –Washington Post

2020 Democratic candidate Elizabeth Warren (D-MA), who has long run on a platform of consumer protection, recently threatened Amazon, Apple and Facebook with major investigations. Warren came out this week in support of a potential DOJ investigation of Google. 

Politicians and small business owners have long complained that Amazon has concentrated too much power in their dominance of online retail, along with its growing reach across a variety of other types of businesses. According to the Post, “It holds sway over third-party sellers on its site, who pay for advertising to compete against first-party and private-label sales by Amazon. Its low prices also have helped it draw customer spending at the expense of brick-and-mortar competitors.“

Amazon sells around half of all goods bought online in the US, however its share of overall retail sales is much smaller. 

It has expanded into other areas, too, such as cloud computing with Amazon Web Services and grocery sales with the acquisition of Whole Foods, a deal the FTC allowed to proceed in 2017.

Google’s chief critics contend the company has acted illegally to protect its huge footprint in search and advertising as well as its newer ambitions, ranging from smart thermostats to self-driving cars. The FTC previously investigated Google but closed the matter in 2013 without breaking it up or forcing it to make major changes to its business practices. –Washington Post

According to Gene Kimmelman, president of DC-based consumer advocacy group Public Knowledge, “This should be a wake-up call to both Google and Amazon to behave themselves because it at least shows that the Justice Department and FTC are thinking about them.”

“This is more of a warning to the companies that they’re being carefully scrutinized and they need to be careful not to play fast and loose given their dominant positions in the digital marketplace.” 

A prospect that should really worry Google and Amazon is a replay of the government’s case against Microsoft in the 1990s. Microsoft did not have to break itself into two, which was the government’s goal. But the company was distracted for at least a decade, which allowed space for start-ups like Google. Microsoft’s reputation took a dive. –New York Times

And according to Silicon Valley lawyer Gary Reback, who was ‘instrumental’ in the case against Microsoft, “The damage to the monopolist’s position comes from the public airing of the facts.” 

via ZeroHedge News http://bit.ly/2WjbPHN Tyler Durden

After Virginia Beach Shooting, a Quick Pivot to Squabbling About ‘Silencers’ and Trump’s Golf Clothes

Can “the sound of gunfire…save lives”? A civil engineer for the Virginia Beach government opened fire on his co-workers last Friday, fatally shooting 12 people and wounding others. The shooter, 40-year-old DeWayne Craddock, reportedly resigned from his job with the city’s utilities department via an email sent just hours before the attack.

On Friday afternoon, Craddock opened fire in a city office building and wound up in what local Police Chief James Cervera described as “a long gun battle” with police officers. Craddock himself was shot—possibly by his own hand, possibly by a cop—and taken to the hospital, where he soon died.

Authorities said they do not have any clue as to Craddock’s motive and that there was no pattern to whom he targeted. One co-worker said Craddock passed him three times and spared him each time.

His victims included a contractor who was dropping by the building and an array of city employees, including several staffers on the administrative side, four civil engineers, and three property-line review agents.

Craddock used two .45 caliber pistols, which he purchased legally in 2016 and 2018, according to the Bureau of Alcohol, Tobacco and Firearms.

Because there was no “assault weapon,” just common handguns, and no whiff of trickery or malfeasance in how Craddock obtained them, those who jump on senseless violence to advocate gun control have seized on the fact that he had fitted his guns with a sound-suppression mechanism (aka a “silencer”).

“The sound of gunfire can save lives,” Hillary Clinton tweeted Sunday, sharing a Washington Post op-ed that calls for a ban on such devices.

The Post piece, by former Homeland Security official Juliette Kayyem, points out that “suppressors are legal in 42 states, though they are regulated under the National Firearms Act and therefore are treated like other specialty gun accessories, including requiring a background check and a $200 tax.” Kayyem continues:

Recently, making suppressors more easily accessible has become a focal point of gun rights activists who want to increase dwindling gun sales and hunting groups who argue that suppressors are actually a health necessity in that they reduce hearing loss. As recently as June 2017, the then-Republican-majority House was considering a law to make the regulation of suppressors less onerous. You know, for the sake of the auditory sensitivities of shooters.

One mass shooting with a suppressor does not make a trend, nor does it require us to alter how we train for or respond to them. But, it does mean we must continue to vigorously regulate and even eventually ban these devices as essential steps in adopting common-sense gun-control measures.

Many on the left and in media are using the opportunity to criticize President Donald Trump for everything from playing golf the morning of the Virginia Beach shooting to not making a long enough statement about it to wearing golf attire while doing so.

FREE MINDS

The border authorities want info about visitors’ digital footprints. “The State Department is now requiring nearly all applicants for U.S. visas to submit their social media usernames, previous email addresses and phone numbers,” reports NBC. “It’s a vast expansion of the Trump administration’s enhanced screening of potential immigrants and visitors.”

It’s also incredibly stupid. Those whose extremist content could get them excluded from entry will surely just leave out those accounts on their application. Meanwhile, the American authorities will waste massive amounts of time and resources combing through perfectly benign Twitter feeds and Facebook pages, not to mention subjecting visitors to probing questions about their emoji use, sarcastic comments, and article shares.

Before this, social media and phone number searches were only done on visa applicants who triggered an extra level of scrutiny. That was about 65,000 applicants per year, reports NBC.

Under the new rules, about 15 million applicants will be affected.

FREE MARKETS

A draft spending bill released by congressional Democrats on Sunday would encourage U.S. banks to work with marijuana businesses. It would also allow a more permissive marijuana legalization scheme in the District of Columbia. Currently, recreational marijuana growth, possession, and gifting have been decriminalized in D.C., but the drug can’t be sold there legally.

Financial institutions across the U.S. are still often reluctant to do business with cannabis operations in states where recreational sales are legal, since the drug remains outlawed at the federal level. The new federal spending bill, which heads to a subcommittee on Monday morning, states that none

of the funds made available in this Act may be used to penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, a producer, or a person that participates in any business or organized activity that involves handling marijuana, marijuana products, or marijuana proceeds, and engages in such activity pursuant to a law established by a State, political subdivision of a State, or Indian Tribe: Provided, That the term “State” means each of the several States, the District of Columbia, and any territory or possession of the United States.

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After Virginia Beach Shooting, a Quick Pivot to Squabbling About ‘Silencers’ and Trump’s Golf Clothes

Can “the sound of gunfire … save lives”? A civil engineer for the Virginia Beach government opened fire on his co-workers last Friday, fatally shooting 12 people and wounding others. The shooter, 40-year-old DeWayne Craddock, reportedly resigned from his job with the city’s utilities department via an email sent just hours before the attack.

On Friday afternoon, Craddock opened fire in a city office building and wound up in what local Police Chief James Cervera described as “a long gun battle” with police officers. Craddock himself was shot—possibly by his own hand, possibly by a cop—and taken to the hospital, where he soon died.

Authorities said they do not have any clue as to Craddock’s motive and that there was no pattern to whom he targeted. One co-worker said Craddock passed him three times and spared him each time.

His victims included a contractor who was dropping by the building and an array of city employees, including several staffers on the administrative side, four civil engineers, and three property-line review agents.

Craddock used two .45 caliber pistols, which he purchased legally in 2016 and 2018, according to the Bureau of Alcohol, Tobacco and Firearms.

Because there was no “assault weapon,” just common handguns, and no whiff of trickery or malfeasance in how Craddock obtained them, those who jump on senseless violence to advocate gun control have seized on the fact that he had fitted his guns with a sound-suppression mechanism (aka a “silencer”).

“The sound of gunfire can save lives,” Hillary Clinton tweeted Sunday, sharing a Washington Post op-ed that calls for a ban on such devices.

The Post piece, by former Homeland Security official Juliette Kayyem, points out that “suppressors are legal in 42 states, though they are regulated under the National Firearms Act and therefore are treated like other specialty gun accessories, including requiring a background check and a $200 tax.” Kayyem continues:

Recently, making suppressors more easily accessible has become a focal point of gun rights activists who want to increase dwindling gun sales and hunting groups who argue that suppressors are actually a health necessity in that they reduce hearing loss. As recently as June 2017, the then-Republican-majority House was considering a law to make the regulation of suppressors less onerous. You know, for the sake of the auditory sensitivities of shooters.

One mass shooting with a suppressor does not make a trend, nor does it require us to alter how we train for or respond to them. But, it does mean we must continue to vigorously regulate and even eventually ban these devices as essential steps in adopting common-sense gun-control measures.

Many on the left and in media are using the opportunity to criticize President Donald Trump for everything from playing golf the morning of the Virginia Beach shooting to not making a long enough statement about it to wearing golf attire while doing so.

FREE MINDS

The border authorities want info about visitors’ digital footprints. “The State Department is now requiring nearly all applicants for U.S. visas to submit their social media usernames, previous email addresses and phone numbers,” reports NBC. “It’s a vast expansion of the Trump administration’s enhanced screening of potential immigrants and visitors.”

It’s also incredibly stupid. Those whose extremist content could get them excluded from entry will surely just leave out those accounts on their application. Meanwhile, the American authorities will waste massive amounts of time and resources combing through perfectly benign Twitter feeds and Facebook pages, not to mention subjecting visitors to probing questions about their emoji use, sarcastic comments, and article shares.

Before this, social media and phone number searches were only done on visa applicants who triggered an extra level of scrutiny. That was about 65,000 applicants per year, reports NBC.

Under the new rules, about 15 million applicants will be affected.

FREE MARKETS

A draft spending bill released by congressional Democrats on Sunday would encourage U.S. banks to work with marijuana businesses. It would also allow a more permissive marijuana legalization scheme in the District of Columbia. Currently, recreational marijuana growth, possession, and gifting have been decriminalized in D.C., but the drug can’t be sold there legally.

Financial institutions across the U.S. are still often reluctant to do business with cannabis operations in states where recreational sales are legal, since the drug remains outlawed at the federal level. The new federal spending bill, which heads to a subcommittee on Monday morning, states that none

of the funds made available in this Act may be used to penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, a producer, or a person that participates in any business or organized activity that involves handling marijuana, marijuana products, or marijuana proceeds, and engages in such activity pursuant to a law established by a State, political subdivision of a State, or Indian Tribe: Provided, That the term “State” means each of the several States, the District of Columbia, and any territory or possession of the United States.

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“Now It Gets Interesting” Trader Warns, Gold’s Move “Impressive & Significant”

Authored by Richard Breslow via Bloomberg,

The news has been sordid. Markets are decidedly unsettled. And the mood among traders is one of resignation. It’s been the first day of this sell-off that I’ve not heard much, if anything, about bounces or oversold conditions. In fact, quite the opposite. Analysts are embracing the price action and arguing that even these levels reflect too much optimism. Self-inflicted wounds can be the most devastating.

Nevertheless, it’s a new month and probably worth taking some stock as to where we stand. We have a habit of extrapolating moves ad infinitum and creating narratives to bolster the case. On the back of proper forward guidance or hard economic trends that is an example of resolve and discipline. In explaining what may be current themes it works until it doesn’t. Especially if traders are trying to navigate waters roiled by behavior that can’t be made an input for any model.

The S&P 500 has fallen right into major-league support. Whether it holds or not will be a big deal in setting the tone for the coming month. There are technical levels galore between the current price and 2700. Including the important retracement level at 2715 of the move from last December’s low to May’s high. Remember how bullish everyone was a mere month ago? If stocks are going to hold, this is the zone.

Not coincidentally, the Nasdaq 100 and the Russell 2000 have also fallen into areas that need to hold. There aren’t any bellwethers playing the which-one-doesn’t-belong game. It looks like it is sink or swim together. And all of these indexes are trading off the same news. Oddly enough, or perhaps not, there are any number of other global indexes that have similarly fallen toward important pivots. This is true in Europe as well as Asia. It’s going to be an interesting week.

Of course, it would be a lot easier to be more constructive on risk assets in general if the move lower in sovereign yields wasn’t so relentlessly impulsive. But here, too, there is reason to watch things closely. In November of 2016, 30-year Treasury yields took off from a base of c. 2.50% and we never saw that level again. Until now. And you don’t need a chart to validate the assumption that 2% in the 10-year is a big deal.

There have been a lot of analysts throwing in the towel on West Texas crude. Before you do, watch whether today’s bounce off the lows holds. This is a market with scope to move. But there is a lot of support down here and the market bounced where it should have. And, frankly, some of the price targets being thrown out there seem very aggressive.

The move in gold is actually impressive and significant. And yet it feels late to the party. I suspect it is back in the category of everyone should have some in their portfolio, but I’m not sure if the message it is sending is actionable in the broader context
June follows May. And we’ll see if prices continue on or correct.

There are a ton of levels to help define which will be the case. The central banks should step back and see how the news plays out. Their models don’t capture what is going on either.

via ZeroHedge News http://bit.ly/2JTiim4 Tyler Durden

Key Events This Week: Everything All At Once

The next 5 days will be extremely busy: Trump in the UK, Xi in Russia, the US jobs report on Friday, the ECB on Thursday. Of course, with markets buffeted by renewed fears over a global trade war and growing fears of a recession, it’s hard to see that as being anything but front and center this week according to DB’s Craig Nicol.

Meanwhile, President Trump travels to Europe while a potential speech by Vice-President Pence is also likely to be closely watched. In addition to that, we have an ECB meeting and Fed research event to look forward to, while data releases include the global PMIs and US employment report. UK politics should also be a factor as the Conservative Party leadership contest gathers steam.

Given developments this morning in addition to the US-China tariffs that go into effect tomorrow, it’s hard to look past trade headlines as being the main driver in markets once again. President Trump is due to travel to Europe starting with the UK on Monday where a meeting with PM May at some point is expected. Beyond that, Trump is scheduled to meet Irish PM Varadkar on Wednesday and French President Macron on Thursday. Another event to watch is US Vice-President Pence making a (according to CNBC ‘hawkish’) potential speech on US-China relations on Tuesday, which is the  30th anniversary of the Tiananmen Square incident.

Not to be outdone, UK politics should also get a turn in the spotlight with UK PM May due to step down as the Conservative Party leader on Friday. The deadline for nominations is the week after, however, expect newsflow to ramp up meaningfully as contenders step forward. See our UK economists latest views here. There’s also the prospect of an ECB meeting on Thursday to look forward to. The ECB is expected to focus on preserving the easy policy stance by ensuring the market believes it has credible options to ease the stance further if necessary and protecting the transmission mechanism from impairment. However, the meeting is more likely to be about signals than actions. Deutsche Bank believes that beyond a c.20bp discount of TLTRO3, the focus will be on forward guidance, not tiering.

As for data, the final May PMI revisions and then the May employment report in the US are the big highlights. We’ll get the manufacturing PMIs around the globe on Monday with the Caixin PMI for China the early test (it beat expectations of a drop to 50.0, staying unchanged at 50.2) before the ISM manufacturing reading is due in the US. The consensus expects a 0.2pt increase to 53.0; however, our US economists have highlighted that in the current business cycle, the new exports orders components has led the  headline by 5 months, and that the recent sharp downtrend in new export orders does not bode well for the headline manufacturing ISM, which is arguably the most market-moving sentiment survey. Following that, the services and  composite PMIs will be due on Wednesday along with the ISM non-manufacturing in the US.

As for payrolls on Friday, the consensus is for a 190k reading for May which follows a 263k reading in April. The unemployment rate is expected to hold at 3.6%, while earnings are expected to rise +0.3% mom, keeping the annual rate at +3.2% yoy. Other data worth flagging the week includes final April durable and capital goods orders in the US on Tuesday, May ADP in the US on Wednesday, final Q1 GDP revisions for the Euro Area on Thursday, and April industrial production reports for Germany and France on Friday.

In terms of Fedspeak, the big event is the Fed research conference on “Monetary Policy Strategy, Tools, and Communications Practices” on Tuesday and Wednesday. Chair Powell is due to make opening remarks, with Kaplan, Clarida, Rosengren, Brainard and Evans all due to participate. Our US economists note that this review is wide ranging, touching on topics such as the concept of maximum employment, tools for providing stimulus if the fed funds rate falls back to zero, and what changes, if any, they should make to their current 2% inflation targeting framework. As such, it has the potential to re-orient elements of how the Fed conducts monetary policy with knock-on effects to markets and the real economy. However, as Chair Powell and his colleagues have cautioned, the result of this review is more likely to produce “evolution rather than revolution”.

Other Fed speakers next week include Daly, Quarles, Barkin and Bullard on Monday, Williams on Tuesday, Bowman and Bostic on Wednesday, Kaplan and Williams on Thursday and Daly on Friday. Over at the BoE we’re due to hear from Ramsden on Wednesday and Carney on Thursday while the BoJ’s Kuroda is due to speak on Thursday.

Finally, other potentially important things to watch next week include the RBA policy decision on Tuesday and China’s Xi Jinping making a two-day state visit to Russia from Wednesday.

Key events by day, courtesy of Deutsche Bank:

  • Monday: The data highlight will likely be the final May manufacturing PMIs due in Japan, China, Europe and the US. We’ll also get the May ISM manufacturing in the US along with April construction spending and May vehicles sales data. Away from that the Fed’s Daly, Barkin and Bullard are due to speak, while President Trump travels to the UK where he is expected to meet with UK PM May (continuing through to Wednesday).
  • Tuesday: In terms of data, in Europe the May CPI report for the Euro Area is due along with the April unemployment rate, while in the US we’ll get final April durable goods, capital goods and factory orders data. Meanwhile the Fed’s Powell, Williams and Brainard are due to speak, the former making opening remarks at a Fed research conference.
  • Wednesday: The remaining final May PMIs will be due in Japan, China, Europe and the US along with April PPI and retail sales for the Euro Area, and the May ISM nonmanufacturing and ADP employment print in the US. Away from that the BoE’s Ramsden is due to speak in the morning, followed by the Fed’s Clarida, Bowman and Bostic. The Fed’s Beige Book is also due to be released. Elsewhere, China’s Xi Jinping makes a two-day state visit to Russia while President Trump meets Ireland PM Varadkar.
  • Thursday: The ECB policy meeting will likely be the main focus of the day, while data releases in Europe include April factory orders in Germany and final Q1 GDP revisions for the Euro Area. In the US we’re due to get final Q1 readings for nonfarm productivity and unit labour costs, jobless claims and the April trade balance. The Fed’s Kaplan and Williams are also due to speak, while the BoJ’s Kuroda and BoE’s Carney are also scheduled to make comments. President Trump is expected to meet France President Macron.
  • Friday: The May employment report in the US will be the main data focus. Also due are April industrial production prints in Germany and France, April trade balance in Germany and April wholesale inventories and consumer credit in the US. The May foreign reserves reading for China is also expected at some stage. Meanwhile, UK PM May is due to step down as leader of the Conservative Party.

Finally, in Goldman’s preview of key US events, the bank notes that the key economic data releases this week are ISM manufacturing on Monday, ISM non-manufacturing on Wednesday, and the employment report on Friday. The Chicago Fed will host a conference on the Fed’s framework review on Tuesday and Wednesday. Chair Powell will speak on Tuesday, and Vice Chair Clarida will give remarks on Wednesday.

Monday, June 3

  • 09:10 AM Fed Vice Chair for Supervision Quarles (FOMC voter) speaks: Fed Vice Chair for Supervision Randal Quarles will talk about the Libor transition at an Alternative Reference Rates Committee (AACC) Roundtable. Prepared text is expected.
  • 09:45 AM Markit Flash US manufacturing PMI, May final (consensus 50.6, last 50.6)
  • 10:00 AM ISM manufacturing index, May (GS 51.8, consensus 53.0, last 52.8): Our manufacturing survey tracker — which is scaled to the ISM index — edged up by 0.3pt to 53.7, reflecting mixed manufacturing surveys in May. Generally speaking, the early-month manufacturing surveys outperformed (particularly Empire and Philly) and may not have fully reflected the impact of the trade war escalation. That adds downside risk to our ISM forecast relative to our survey tracker, and we thus expect the ISM manufacturing index to decline by 1.0pt to 51.8 in May.
  • 10:00 AM Construction spending, April (GS +0.3%, consensus +0.4%, last -0.9%): We estimate construction spending rebounded to +0.3% in April following the previous month’s decline, with scope for a decline in private residential construction but gains in public and private nonresidential construction.
  • 12:40 PM Richmond Fed President Barkin (FOMC non-voter) speaks: Richmond Fed President Thomas Barkin will speak on “Challenges to Women’s Labor Force Participation” to the Charlotte Economics Club.
  • 1:25 PM St. Louis Fed President Bullard (FOMC voter) speaks: St. Louis Fed President James Bullard will speak to the Union League Club of Chicago. Prepared text and Q&A are expected.
  • 5:00 PM Lightweight Motor Vehicle Sales (GS 16.9m, consensus 16.9m, last 16.4m)

 
Tuesday, June 4

  • 08:30 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will deliver opening remarks at an annual conference on governance and culture reform in the financial services industry hosted at the New York Fed. Prepared text is expected.
  • 09:55 AM Fed Chair Powell (FOMC voter) speaks: Fed Chair Jerome Powell will discuss monetary policy strategy, tools, and communication practices at the Fed’s framework review conference in Chicago. Prepared text is expected.
  • 10:00 AM Factory Orders, April (GS -0.7%, consensus -1.0%, last +1.9%): Durable goods orders, April final (last -2.1%); Durable goods orders ex-transportation, April final (last flat); Core capital goods orders, April final (last -0.9%); Core capital goods shipments, April final (last flat): We estimate factory orders decreased by 0.7% in April following a 1.9% increase in March. Durable goods orders decreased in the April advance report, driven primarily by a drop in aircraft orders.
  • 03:45 PM Fed Governor Brainard (FOMC voter) speaks: Fed Governor Lael Brainard will moderate a panel at the Chicago Fed conference titled “What Does Full Employment Look Like for Your Community or Constituency?”

Wednesday, June 5

  • 08:15 AM ADP employment report, May (GS +170k, consensus +188k, last +275k): We expect a 170k gain in ADP payroll employment, reflecting an increase in jobless claims and lower oil prices which may weigh on the ADP measure. While we believe the ADP employment report holds limited value for forecasting the BLS nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
  • 09:45 AM Fed Vice Chair Clarida (FOMC voter) speaks: Fed Vice Chair Richard Clarida will give welcoming remarks on the second day of the Fed’s framework review conference in Chicago.
  • 09:45 AM Markit Flash US services PMI, May final (consensus 50.9, last 50.9)
  • 10:00 AM ISM non-manufacturing index, May (GS 55.0, consensus 55.5, last 55.5): Our non-manufacturing survey tracker declined by 2.1pt to 54.7 in May, following weaker regional service sector surveys. We expect the ISM non-manufacturing index to decline by 0.5pt to 55.0 in the May report.
  • 10:00 AM Fed Governor Bowman (FOMC voter) speaks: Fed Governor Michelle Bowman will testify at a nomination hearing before the Senate Banking Committee. Bowman has been renominated to serve a full 14-year term. Prepared text is expected.
  • 11:50 AM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Fed President Raphael Bostic will speak on a panel hosted by the Atlanta Regional Housing Forum in Atlanta.
  • 02:00 PM Beige Book, June FOMC meeting period: The Fed’s Beige Book is a summary of regional economic anecdotes from the 12 Federal Reserve districts. The April/May Beige Book reported growth at an overall slight-to-moderate pace across all Districts. Contacts reported a slightly positive outlook, but trade tensions continued to weigh on the manufacturing outlook, even before the recent escalation in trade tensions with China and Mexico. In the June Beige Book, we look for additional anecdotes related to trade, as well as anecdotes on growth, labor markets, price inflation, and the recent tightening in financial conditions.

Thursday, June 6

  • 08:30 AM Nonfarm productivity, Q4 final (GS +3.4%, consensus +3.5%, last +3.6%): Unit labor costs, Q4 final (GS -1.0%, consensus -0.9%, last -0.9%): We estimate nonfarm productivity increased by 3.4% (qoq ar) in Q1, and we estimate growth in Q1 unit labor costs – compensation per hour divided by output per hour – decreased by 1.0% (qoq ar).
  • 08:30 AM Initial jobless claims, week ended June 1 (GS 220k, consensus 215k, last 215k); Continuing jobless claims, week ended May 25 (consensus 1,660, last 1,657k): We estimate jobless claims increased by 5k to 220k in the week ended June 1, after increasing by 3k in the prior week. There is a scheduled auto plant shutdown.
  • 08:30AM Trade balance, April (GS -$50.3bn, consensus -$50.6bn, last -$50.0bn): We estimate the trade deficit edged up to $50.3bn in April, reflecting a slightly larger trade in goods deficit.
  • 08:40 AM Dallas Fed President Kaplan (FOMC non-voter) speaks: Dallas Fed President Robert Kaplan will speak at Boston College. Prepared text and audience and media Q&A are expected.
  • 1:00 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will discuss international economics at the Council on Foreign Relations in New York. Prepared text and audience Q&A are expected.

Friday, June 7

  • 12:00 AM San Francisco Fed President Daly (FOMC non-voter) speaks; San Francisco Fed President Mary Daly will speak at the Singapore Management University. Audience Q&A is expected.
  • 08:30 AM Nonfarm payroll employment, May (GS +195k, consensus +185k, last +263k); Private payroll employment, May (GS +185k, consensus +174k, last 236k); Average hourly earnings (mom), May (GS +0.2%, consensus +0.3%, last +0.2%); Average hourly earnings (yoy), May (GS +3.1%, consensus +3.2%, last +3.2%); Unemployment rate, May (GS 3.6%, consensus 3.6%, last 3.6%): We estimate nonfarm payrolls increased 195k in May. Our forecast reflects low overall jobless claims and a possible boost from Census hiring, and we note that the payroll month largely preceded the trade war escalation and stock market sell-off. We expect the unemployment rate to remain at 3.6%. Finally, we estimate average hourly earnings increased 0.2% month-over-month and 3.1% year-over-year, reflecting neutral calendar effects but some scope for a rebound in the supervisory category.

Source: BofA, DB, Goldman

via ZeroHedge News http://bit.ly/2EPDRzL Tyler Durden

90% Of  ‘Catch-And-Release’ Illegals Fail To Show Up For Immigration Hearings

Approximately 90% of illegal aliens detained and then released into the United States while they await their asylum hearings fail to show up to their court dates, according to a recent pilot program conducted b Immigrations and Customs Enforcement (ICE) and the Department of Justice (DOJ). 

And as Breitbart‘s John Binder notes, “Since December 21, 2018, DHS has released at least 190,500 border crossers and illegal aliens into the interior of the United States.” What’s more, the ‘catch-and-release’ system often results in work permits which allow migrants to take jobs in the United States while awaiting their asylum claims – which of course hurts low-income Americans the most. 

ICE officials told Congress last month that around 87% of illegal aliens skip out on their asylum hearings, forcing the agency to attempt to locate and deport each offender – which is nearly impossible given available resources. 

“That particular population, as we continue to release into the interior hundreds if not thousands of family units into the interior every week, is of grave concern as it relates to these individuals not appearing before immigration judges and now being fugitives,” said the official. 

Another federal immigration official noted during the same testimony that around 12% of border crossers actually end up qualifying for asylum, which underscores that wholesale fraud committed by illegals. 

At current rates of illegal immigration, border apprehensions for the calendar year 2019 are expected to outpace every fiscal year of former President Obama. Meanwhile, DHS officials have said only about 42 miles of mostly replacement border wall barriers have been constructed since President Trump’s inauguration.

Leading up to the 2020 presidential election, Americans are vastly opposed to releasing border crossers and illegal aliens into the interior of the country, and GOP voters have said building a border wall and reducing all illegal and legal immigration is their top priority. –Breitbart

As Binder notes, around 2-in-3 American voters are opposed to catch-and-release, according to a Harvard-Harris poll, and according to GOP voters, conservatives and Trump supporters, building a border wall and reducing overall immigration is their top priority. 

via ZeroHedge News http://bit.ly/2WBcqDW Tyler Durden

Blain: “The Question Is Who Replaces China As New Supply Chains Emerge”

Blain’s Morning Porridge submitted by Bill Blain

“Hang on, I’ve got an idea…”

June is bursting out all over, but we’ve still got 5 more days of May.

An exciting week in prospect – Trump in the UK, Xi in Russia, the US Employment Report on Friday. The ECB on Thursday. I would advise avoiding central London for the next few days – its likely to be full of demonstrators. I will publish the best original photos from Readers of the Trump Baby balloon… not because I think it’s particularly smart to be insulting our greatest trade partner, (perhaps our only trade partner if Brexit pans out as badly as it might), but because it’s kinda funny, and we need something to cheer us up.

I was going to scribble something about how Trump’s latest twitterstorm targeting Mexico highlights the risks to any and all emerging market economies, but he’s also taken India off the developing nations list, hinting they are also in his book of names to be “sorted”. Is it just random? Or is it part of some grand plan?

I met with a very senior UK/Australian strategist/economist on Friday, and over a very pleasant bottle of Lady Petrol we got talking about EM. While we both agree smart EM is good way to achieve non-correlated returns, we concluded the last 30 years of thematic EM investment based in BRICS was probably a nonsense – full credit to Jim O’Neill for coming up with the moniker, but they are such different and challenging economies it never made much sense to treat them as a unit. Each EM nation faces its own set of challenges – which often boil down to governance and law.

There is a massive opportunity out there. Which nations benefit from the New Cold War? Which countries replace China as new global supply chains develop and form? That’s a fascinating EM theme.

Mexico would have been one of my picks – but Trump is now going for the jugular. India? Not a chance – too much inequality, bureaucracy and too difficult to try to find partners. Brazil? Forget it. South-East Asia? I suspect Vietnam has higher ambitions. North Korea is tipped, but when ESG is now an investment requirement, who is going to buy goods built in Slave Labour conditions? Mention Africa and there is much shaking of heads and sharp dismissal – I suspect it’s too easy an option to simply write off Africa; we might be missing a great opportunity for affirmative capitalism to improve lives if we can see past the endemic corruption.

While it’s easy to talk about China being replaced – the who-by is a more difficult and nuanced call. Maybe, as more than one wag as suggested, China replaces China?

Or what about a new industrial revolution? Maybe the right investment theme is to identify opportunities in developed nations with the ambition to replace China directly through the innovation of new tech such as 3D printing, automation and robotics? Who has these abilities – which boil down to which economies have the engineering supply chains to provide the graduates to staff and run new manufacturing plant? Robotics is not going to replace us, but we do have to upskill. Sadly education in the Anglo-Saxon Occident is failing to produce the skills in the quantities required – time for a rethink on education I think.

Back in Yoorp, the ECB meet on Thursday, and although there is talk about revision to higher European growth, it won’t change the lower into infinity choices facing the bank. Speculation about who succeeds Draghi remains rife, but it feels there is a concerted spin effort underway to recast arch-sceptic and Bundesbank chief Jens Weidmann as a born again Europhile.. which further hints at backroom deals being done in Brussels on the other European top jobs. I suspect this leads to a very unhappy parliament if a cabal of leaders have already carved up the top jobs… but hey-ho!

In Markets, Bond yields are still falling and stocks are looking well wobbly.

Is the inverse yielding treasury curve really predicting a recession? Or is it dollar strength, a flight to quality, and the expectation the US is the most likely winner of the New Cold War that’s fuelled the rally in Bonds? Lots of analysis says a recession is on the way – fuelled by the current noise on trade war. That doesn’t seem to be a major issue for lots of investors who remain wedded to the belief low interest rates = strong stock prices… which is a curious notion.. Low interest rates suggest an economy in trouble, requiring support and nurture… not one that supports optimistic stock valuations..

The bottom line is who is going to pay my pension if bond yields are the square root of nothing? How I am going to live off dividends if I’m invested in a stack of tech stocks that will never ever make a profit, or across an economy when 10-years of zero interest rates means corporates are overleveraged, having converted their equity into debt to fuel buybacks?

Time to go back to basics and figure out what is wrong with this programme. Financial assets (listed stocks and bonds) remain profoundly distorted – which isn’t a reason not to trade them in the short-term, but long term you have to be asking some pretty serious questions.

I’m going to stick with non-correlated alternatives for the time being. There are certainly risks – not least in terms of liquidity, but if you can buy US$ bonds liked to performing assets that give an 8% return plus additional upside at maturity, then what’s not to like? Happy to explain!  

Meanwhile…

Later this week we have the 75th anniversary of D-Day. I was hoping to attend some of the events in my home village of Hamble. It was the setting off point for part of the invasion fleet, but we have a pretty packed schedule of business.

There is no shortage of D-Day heros, but three personal stories are worth sharing:

The legendary D-Day piper, Bill Millan, set off from Hamble quay. A few years ago She-Who-Is-Now-Mrs-Blain and I were delighted to sponsor a March of 100 Pipers in his honour through the village and met his son – who is a pretty mean piper himself. (I am a very bad piper.) Millan was apparently the only man to wear his kilt during the invasion, and the vision of him charging up the beach playing Highland Laddie with the Commandos must have been a stand out moment. There is a story the Germans didn’t shoot at him because they simply assumed he was mad! There is now a statue of Piper Bill on Sword Beach.

Or there is my sailing chum Elis, who as an ensign in the merchant marine wasn’t bound by the same age restrictions as the military forces – he may have been the youngest man in the invasion force. Or our neighbour Ted – as a young lad growing up in the village during the war, he told me how he spent the months before the invasion skipping school to deliver water to the invasion craft moored on our river. Every day he piloted his water barge up and down the river, until one morning they’d all gone.

On that note, back to the day job! 

via ZeroHedge News http://bit.ly/2W7Qn3r Tyler Durden

“Scene From A Disaster Movie”: Video Shows Out Of Control Cruise Ship Slamming Into Dock In Venice

A massive cruise ship in Venice crashed into a dock on Sunday, plowing into a tourist boat and sending those on land running for safety, according to CNN. One onlooker called it a “scene from a disaster movie”. The cruise ship, the MSC Opera, ran into the San Basilio terminal and a smaller tourist boat that was docked already. Four people suffered light injuries during the accident.

The accident happened at about 8:30am local time on the Giudecca canal, which is one of the busiest in Venice, a city that is popular with tourists. Multiple videos surfaced on Sunday showing the cruise ship, horns blaring, ramming into the dock and shoving the smaller boat out of the way. 

“The noise of siren and of clash is totally frightening, looking like a scene from a disaster movie,” wrote one Twitter user, Tancredi Palmeri. 

The operator of the ship, MSC Cruises, said the ship experienced “a technical issue” while heading toward the terminal for mooring. 

Here is the accident from a second angle:

The company that operates the ship stated: “Investigations to understand the exact causes of the events are currently in progress. In the meantime, the ship has received authorization to be moored at the Marittima terminal, as planned. From there, it will continue to carry out passenger boarding and disembarking operations.”

The local port authority for Venice said on Sunday that it was looking to “finally create a solution to the traffic of large ships in Venice.”

Italy’s environment minister said on Sunday that the accident was “confirmation of what we have been saying for a long time: Cruise ships must not sail down the Giudecca (canal). This is why for months we have been working with the ministers… to move them (the vessels) and we are close to a solution.”

via ZeroHedge News http://bit.ly/2JPBuRu Tyler Durden