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Despite the fact that the Organization for the Prohibition of Chemical Weapons (OPCW) has yet to produce its fact-finding report into last month’s alleged chemical attack in Douma, France has implicated and moved on a Chinese firm said to be connected with Syria’s chemical weapon’s program.

France has frozen the assets of multiple international and Middle East companies, including a China based trading company over links to the Syrian Scientific Studies and Research Centre (SSRC) – also widely known by its French initials CERS – which is the Syrian government’s chief defense technology and missile research arm widely blamed for producing Syria’s chemical weapons. 

The South China Morning Post reports via the AFP:

The businesses include Sigmatec and the Al Mahrous Group, both based in Damascus; Technolab in Lebanon; and a trading company in Guangzhou in China, according to a list published in the government’s official gazette.

Two Syrian nationals will also face asset freezes, as well as a person born in Lebanon in 1977 whose nationality was not given.

The asset freezes were signed by French Finance minister Bruno Le Maire.

French finance minister Le Maire and Foreign Minister Jean-Yves Le Drian in public statements linked the businesses to CERS, which they alleged is “the main Syrian laboratory in charge of developing and producing unconventional chemical weapons and ballistic launchers.” 

Last month’s US-led airstrikes on Damascus primarily targeted sites connected with CERS such as the Barzeh research center, which was destroyed by well over a dozen tomahawk missile strikes; however, the OPCW during prior routine inspections connected with the late 2013 US-Russia brokered deal to decommission Syria’s sarin stockpiles reported that it found “no evidence” of chemical weapons at the site. 

Over the past years of war in Syria, France has consistently accused President Bashar al-Assad of both using chemical weapons on civilians and misleading weapons inspectors as to the current status of his program, in spite of both former Secretary of State John Kerry and OPCW inspectors declaring the 2013-2014 decommissioning process a monumental success. France was part of the US-led coalition that launched a massive missile attack against Damascus and other locations in Syria on April 13. 

John Kerry in May of 2014 to CNN: “We got all of the chemical weapons out.” 

In April 2017 France produced an intelligence paper which attempted to cast doubt over Syria’s US-Russian sponsored decommissioning of its chemical program: “France assesses that major doubts remain as to the accuracy, exhaustiveness and sincerity of the decommissioning of Syria’s chemical weapons arsenal,” the paper stated.

Concerning the latest asset freeze targeting Chinese and other international companies with links to the Damascus based Syrian research center, the French ministers’ joint statement identified a total of nine companies implicated, according to Reuters: “Three people and nine companies have been targeted for their role in the research and/or acquisition of materials for the development of chemicals and ballistic weapons for this country,” the statement said.

The punitive measures come just as some 30 countries are set to meet in Paris on Friday to discuss erecting international mechanisms aimed at identifying and punishing countries involved in the development and use of internationally banned chemical weapons. 

Last January France announced that it sanctioned 25 individuals and companies over suspected links to Syria’s program, which also included Chinese citizens. China has been long positioned itself as the chief international investor in post-war Syria, with Defense One news reporting that “Over the past year, Chinese-Syrian negotiations over trade and investment expanded from early diplomatic exchanges to commitments of nearly $2 billion in reconstruction contracts. China has become Syria’s largest trade partner, snapping up 80 percent of its exports.”

As China eyes rebuilding Syria in close economic partnership with Damascus, its companies will likely increasingly be targeted by the West, itself hopeful of sweeping up the economic spoils of a post-Assad Syria. 

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It’s a miracle!

Yulia and Sergei Skripal were reportedly in a critical condition for weeks following the attack, at one point, their doctors feared that they would suffer brain damage if they managed to survive.

But, just weeks after his daughter was discharged, Sergei Skripal has been released from hospital despite being ‘attacked by Russia’ using one of the “deadliest nerve agents in the world” just two months ago.

Doctors gave no details on the condition of Skripal, and his current location is not known at this time.

As a reminder, the Russian double-agent was poisoned in Salisbury alongside his daughter, Yulia, in early March. As RT reports, her recovery was much quicker and she has been out of hospital since last month.

However, Yulia Skripal has not been seen in public since she was discharged, and the only public statement from her was issued by British police.  The Russian embassy says it has been refused access to the Russian citizens.

Citing patient confidentiality, a hospital spokesperson said they were unable to comment on any details about patients, but said: 

“Treating people who are so acutely unwell, having been poisoned by nerve agents, requires stabilizing them, keeping them alive until their bodies could produce more enzymes to replace those that had been poisoned.”

England’s National Health Service issued a statement this morning:

“Sergei Skripal has been discharged from Salisbury District Hospital. Mr. Skripal and his daughter, Yulia Skripal, were admitted to the hospital along with DS Nick Bailey after having been exposed to a nerve agent on 4 March 2018. All three have now been discharged.”

The Salibury hospital’s Chief Executive Cara Charles-Barks said:

“It is fantastic news that Sergei Skripal is well enough to leave Salisbury District Hospital,” 

Detectives from the UK’s Counter-Terrorism Policing network continue to investigate the attempted murders of Sergei and Yulia Skripal in Salisbury in March this year.

“This is a complex investigation and detectives continue to gather and piece together all the evidence to establish the full facts and circumstances behind this dreadful attack,” the UK’s Counter-Terrorism representative stated.

The Russian ambassador to the UK said he was happy that Skripal was alright, but he had the impression that Russia would never see the Skripals.

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Veteran D.C. attorney Joe diGenova – who President Trump initially wanted to hire to represent him in the Mueller probe, only to have to step aside due to conflicts – sat down on Fox News on Thursday where he put a bow on what many believe was a high-stakes gamble by various members within the Obama Intelligence Community (IC) and others to infiltrate the Trump campaign and frame Donald Trump with Russiagate.

Key among the participants in this alleged plot is former CIA director John Brennan, whose involvement is thought to have dovetailed with the FBI’s recently disclosed “operation Crossfire Hurricane” – the code name given to the agency’s earliest counterintelligence investigation into the Trump campaign. The FBI says the operation was launched following a drunken conversation between a Clinton-linked Australian ambassador and a low-level Trump associate, George Papadopoulos, who may have been set up from the start after being fed information by a professor named Joseph Mifsud, who is currently missing.

It’s becoming more and more clear John Brennan ran a Russian false flag operation against the Trump campaign, using elements associated with the DOJ, the DNC, and MI6

— Jack Posobiec🇺🇸 (@JackPosobiec) May 16, 2018

When Carlson asked diGenova for an update on recent developments, the former federal prosecutor (and special counsel to boot) said:

• We know that Hillary Clinton was illegally exonerated
• We know that there was a substantial effort to frame the current President of the United States with crimes by infiltrating his campaign and then his administration with spies that the FBI had set upon them
• We have learned that the crimes were committed by the FBI, senior members of the Department of Justice, John Brennan, Mr. Clapper, Mr. Comey, and others associated with the Democratic party
• Donald Trump and his associates committed no crimes

When asked to explain the mechanics of the setup, diGenova tells Carlson that the FBI “purposely sent people into the Trump campaign to plant false information, then forced that information to be forwarded back to CIA and then funneled to the FBI, to be used as false information in FISA applications.”

“Everybody involved in that process who knowingly participated committed a crime,” diGenova added. The lawyer then offered Brennan some legal advice: 

Tucker: So why aren’t they being held to account?

diGenova: As of today, I understand that a referral for criminal prosecution has been made by Mr. Horowitz to Mr. Huber, who is investigating the FISA leaks, the unmasking, the leaks of the unmasking and everything we described tonight. Criminal referrals have already been made, and I suggest that Mr. Brennan – who loves to make comments about the process, get himself a good lawyer. Not a good writer. 

Tucker: Wait, John Brennan the NBC news paid consultant?

diGenova: Yes, NBC News’ consultant, the former Director of the Central Intelligence Agency, the most partisan hack leader of the CIA in history, needs a very very good lawyer. 

Tucker: Criminal lawyer?

diGenova: Yes, criminal lawyer – oh yes, he doesn’t need a slip-and-fall lawyer, although he’s going to slip and fall. He’s going to be in front of a grand jury shortly.

Tucker: That’s news. 

diGenova: Yes, and that’s good news. 

Brennan, along with Strzok and former Secretary of State John Kerry were recently accused of setting “Russian espionage traps for minor players in the Trump campaign,” according to journalist Paul Sperry.

DEVELOPING: A major new front is opening in the political espionage scandal. In summer 2016, Brennan with his FBI liaison Strzok, along with help from Kerry @ State, were trying to set Russian espionage traps for minor players in the Trump campaign through cultivated intel assets

— Paul Sperry (@paulsperry_) May 11, 2018

Brennan also appears to have perjured himself during Congressional testimony about the Steele Dossier – and is being investigated by House Intelligence Committee Chairman, Devin Nunes. As Paul Sperry wrote in February:

In his May 2017 testimony before the intelligence panel, Brennan emphatically denied the dossier factored into the intelligence community’s publicly released conclusion last year that Russia meddled in the 2016 election “to help Trump’s chances of victory.”

Brennan also swore that he did not know who commissioned the anti-Trump research document (excerpt here), even though senior national security and counterintelligence officials at the Justice Department and FBI knew the previous year that the dossier was funded by the Hillary Clinton campaign. –RealClear Investigations

Except, Brennan was feeding President Obama unverified dossier information according to Sperry – directly contradicting his testimony, while former NSA Director Michael Rogers told Congressional investigators that the dossier was in fact part of the Intelligence Community Assessment (ICA) in the Russia investigation.

In a March 5, 2018, letter to House Intelligence Committee Chairman Devin Nunes, Adm. Rogers informed the committee that a two-page summary of the dossier — described as “the Christopher Steele information” — was “added” as an “appendix to the ICA draft,” and that consideration of that appendix was “part of the overall ICA review/approval process.”

…

“Brennan put some of the dossier material into the PDB [presidential daily briefing] for Obama and described it as coming from a ‘credible source,’ which is how they viewed Steele,” said the source familiar with the House investigation. “But they never corroborated his sources.” -RCI

So, if Sperry’s tweet is correct, Brennan, the Obama State department, the CIA and the FBI conspired to set “Russian espionage traps” for minor players in the Trump campaign, planted a mole (or several) within the Trump campaign, and then used a phony Clinton-funded dossier created by a former British spy to bolster their flimsy claims as part of the ICA.

Indeed, it appears the whole house of cards is about to collapse. 

Brennan keeps flying off the handle…

As various aspects of the alleged plot have unraveled, Brennan – who insisted on being sworn in under Obama on an original draft of the constitution (without the Bill of Rights and all those inconvenient amendments), spied on members of Congress, endorsed torture, and ran Obama’s covert drone war. has become progressively unhinged. 

When former Deputy FBI Director Andy McCabe was fired in March for lying under oath about leaks to the media, Brennan fired off an angry screed over Twitter in response to a celebratory tweet by President Trump, writing “When the full extent of your venality, moral turpitude, and political corruption becomes known, you will take your rightful place as a disgraced demagogue in the dustbin of history. You may scapegoat Andy McCabe, but you will not destroy America…America will triumph over you.”

When the full extent of your venality, moral turpitude, and political corruption becomes known, you will take your rightful place as a disgraced demagogue in the dustbin of history. You may scapegoat Andy McCabe, but you will not destroy America…America will triumph over you. https://t.co/uKppoDbduj

— John O. Brennan (@JohnBrennan) March 17, 2018

McCabe was fired after the DOJ’s Inspector General, Michael Horowitz, found that he lied four times about authorizing a self-serving leak to the New York Times claiming that the FBI had not put the brakes on the Clinton Foundation investigation, during a period in which he was coming under fire over a $467,500 campaign donation his wife Jill took from Clinton pal Terry McAuliffe.

Brennan lost it again in April after President Trump called James Comey a “proven LEAKER & LIAR,” who “leaked CLASSIFIED information, for which he should be prosecuted,” firing back once again to let Trump know that his “kakistocracy is collapsing after its lamentable journey.” 

Your kakistocracy is collapsing after its lamentable journey. As the greatest Nation history has known, we have the opportunity to emerge from this nightmare stronger & more committed to ensuring a better life for all Americans, including those you have so tragically deceived. https://t.co/eC6LATH2Gd

— John O. Brennan (@JohnBrennan) April 13, 2018

Several weeks later after Trump tweeted “Clapper lied about (fraudulent) Dossier leaks to CNN … He is a lying machine who now works for Fake News CNN,” Brennan – who now works for MSNBC, fired back “Mr. Trump: Your hypocrisy knows no bounds. Jim Clapper is a man of integrity, honesty, ethics, & morality. You are not.” 

Mr. Trump: Your hypocrisy knows no bounds. Jim Clapper is a man of integrity, honesty, ethics, & morality. You are not. Jim Clapper served his country for over a half century, including in Vietnam. You did not. By your words & behavior, you diminish the Office of the Presidency. https://t.co/bYlmZInDoM

— John O. Brennan (@JohnBrennan) April 28, 2018

Clapper notably leaked information about the Steele Dossier to CNN’s Jake Tapper and appears to have lied to Congress about it under oath.

The revelation that Clapper was responsible for leaking details of both the dossier and briefings to two presidents on the matter is significant, because former Federal Bureau of Investigation (FBI) director James Comey wrote in one of four memos that he leaked that the briefing of Trump on salacious and unverified allegations from the dossier was necessary because “CNN had them and were looking for a news hook.” –The Federalist

Integrity, Honesty, Ethics, Morality & Leaking like a sieve

Speaking of leaks, Former Assistant FBI Director James Kallstrom told Fox‘s Maria Bartiromo in March that there was a plot among “high-ranking” people throughout government – “not just the FBI,” who coordinated in a scheme to help Hillary Clinton avoid indictment. 

Kallstrom rattled off a list of involved parties – ending with Brennan…

Kallstrom: There’s no question that he and McCabe and others in the FBI and the Justice Department, and, we’re gonna find out the State Department and the National Security Advisor to the President, and the Deputy National Security advisor, and John Brennan.

While discussing Brennan’s pithy tweet in response to McCabe’s firing, Kallstrom dropped a bombshell: that Brennan had projected extreme animosity towards Trump, and was directly involved in leaks to the press. 

Kallstrom: My sources tell me that he was leaking almost weekly and daily. He was taking that bunch of phony crap supposedly from Russia, and peddling that through the Congress, all his buddies in the media, he was one of the active people. I’ve known him a long time.

Bartiromo: You think he’s involved?

Kallstrom: Oh I think he’s involved, absolutely. And I think it goes right to the top Maria.

Considering the direction things seem to be going for John Brennan and his role in what may be the largest scandal in US history, diGenova’s advice to get a “very very good lawyer” seems sound. Meanwhile, as Congressional investigators and the DOJ’s Inspector General wrap up their investigations of what happened, we wonder how much deeper the rabbit hole goes. Maybe even undersea?

Remember these:
John Brennan
Upstream collection
Undersea cables

— Jack Posobiec🇺🇸 (@JackPosobiec) May 18, 2018

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Authored by Mike Shedlock via MishTalk,

EC president Jean-Claude Juncker says the EU will activate a ‘blocking statute’ to avoid Iran sanctions.

Five hours ago Reuters reported the EU Will Start Iran Sanctions Blocking Law Process on Friday.

“As the European Commission we have the duty to protect European companies. We now need to act and this is why we are launching the process of to activate the ‘blocking statute’ from 1996. We will do that tomorrow morning at 1030,” European Commission President Jean-Claude Juncker said.

“We also decided to allow the European Investment Bank to facilitate European companies’ investment in Iran. The Commission itself will maintain its cooperation will Iran,” Juncker told a news conference after a meeting of EU leaders.

Solidarity Busted Already

Two hours ago the Nasdaq reported Macron Rules Out Trade War Over Iran Deal as Firms Head for Exit.

French President Emmanuel Macron ruled out on Thursday any trade war with the United States over its withdrawal from the Iranian nuclear deal as a wave of European companies quit business with Tehran, fearing the global reach of U.S. sanctions.

Macron acknowledged the predicament of firms wanting to trade with Iran or invest there, especially multinationals with close business ties to the United States. But he made clear bigger matters were at stake.

“We won’t start a strategic trade war against the U.S. about Iran,” he said on arriving for a second day of a European Union summit in Bulgaria. “We’re not going to take counter-sanctions against U.S. companies, it wouldn’t make sense.”

“All European Union member states are still backing this agreement, despite the fact the United States has decided not to, and we will continue talks with the United States,” German Chancellor Angela Merkel told reporters at the EU summit.

Actions Speak Louder Than Bluffs

The EU can claim it is still honoring the deal, but ultimately the decision is up to corporate CEOs. And we have seen the response.

• Soren Skou, chief executive of Danish-based A.P. Moller-Maersk, made this statement: “With the sanctions the Americans are to impose, you can’t do business in Iran if you also have business in the U.S., and we have that on a large scale. I don’t know the exact timing details, but I am certain that we’re also going to shut down.”

• Italian steel manufacturer Danieli announced it has halted work on finding financial coverage for orders it won in Iran worth 1.5 billion euros ($1.8 billion). “With the withdrawal of the U.S. from the treaty the banks are no longer ready to fund Iranian projects for fear of secondary sanctions,” Danieli CEO Alessandro Trivillin said.

EU’s Pathetically Weak Response to Donald Trump

Eurointelligence mocked the Juncker’s response last night, even before Juncker made it.

It is really quite sad to see the lack of gumption by EU leaders when confronted with Donald Trump’s threats.

The fundamental tenet of German policy will be to protect the interests of industry in general, and of the car industry specifically. That clearly sets limits to the EU’s ability to stand up to Donald Trump, and risks a major trade conflict.

Yesterday’s EU summit in Sofia agreed a broad strategy of the neither-here-nor-there kind to deal with Trump. The leaders managed to agree that they will not enter into a trade talks if the US applies tariffs to steel and aluminium from June 1, when the current and final exemption expires.

The leaders also agreed the implausible strategy to prepare protection for European companies against secondary US sanctions to be slapped on EU companies dealing with Iran. But they gave no details on how this can be done. As FAZ recently pointed out, the only companies willing and able to resist US pressure will be European importers of Persian carpets.

Jean-Claude Juncker even mentioned the possibility of invoking the blocking statute. This is the ultimate bluff. The statute would allow the EU to impose sanctions on European companies that comply with US sanctions. In other words, it would give EU companies a choice between pest and cholera. Needless to say, this has not been agreed. Nor will it be. It is a sign of the helplessness and panic of EU leaders that they even talk about it.

Windbags Juncker, Merkel, Macron

Merkel’s role in Europe is now essentially the same as Juncker’s. Both are nothing but pathetic windbags with dwindling power.

Macron wants to be the European savior but he is just another windbag who bows down to Trump internationally while accomplishing nothing domestically.

Nonetheless, this story is not over yet. The EU will at some point be forced to respond and the results won’t be pretty.

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A man who fired gunshots at the Trump National Doral golf and spa resort in northwest Miami-Dade has been shot by police, according to the Orlando Sun Sentinel.

The shooting at the resort, located off the Palmetto Expressway at Northwest 36th Street and 87th Avenue, occurred at around 1:30 am, according to Miami-Dade Police Director Juan Perez, who delivered an update on the situation at a pre-dawn news conference outside the resort.

#UPDATE: #MDPD and @DoralPolice responded to a shooting where a subject opened fire in the lobby of the @TrumpDoral. Officers exchanged gun fire, striking the subject. Thankfully, there were no shooting victims. An officer suffered a broken wrist. More information to follow. pic.twitter.com/u00I2Ju60R

— Miami-Dade Police (@MiamiDadePD) May 18, 2018

The man who was shot, who had reportedly been “yelling and spewing some information about President Trump”, was seen sitting up in his gurney as rescue workers took him to Kendall Regional Medical Center. The man’s identity was not revealed. The incident is not currently being considered an act of terrorism. In addition to local police, the FBI and other federal agencies are at the scene.

During the incident, which unfolded very quickly, an officer from the Doral Police Department was hurt, but not from gunfire. He was taken to a hospital, possibly with a broken wrist.

“These officers did not hesitate for one second to engage this individual who was actively shooting in the lobby of the hotel,” Perez said.

Trump’s son, Eric Trump, tweeted his thanks to the Doral and Miami-Dade police departments after news of the shooting broke.

A huge thank you to the incredible men and women of the @DoralPolice Department and @MiamiDadePD. Every day they keep our community safe. We are very grateful to you! 🇺🇸🇺🇸🇺🇸

— Eric Trump (@EricTrump) May 18, 2018

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In a surprising twist to end the week, global markets are in the green and US equity futures are near session highs despite two negative overnight developments: China denying it had agreed to cut the US trade deficit by $200BN, and the official formation of a populist, budget-busting Italian government. There were also some disappointing earnings overnight (Applied Materials, Deere, Nordstrom), which followed drops in marquee names Walmart and Cisco after their results failed to impress the market.

European stocks traded little changed after erasing initial declines as the euro tumbled amid uncertainties in Italy, sending Europe’s Stoxx 600 Index heading for an 8th straight week of gains, even as Italian bond yields spiked to 2.22%, the highest in 10 months, with the BTP/Bund spread blowing out another 10bps, and Italy’s default risk surging.

The biggest European underperformer this morning was Italy’s FTSE MIB (-1.1%). The Italian benchmark has fallen to a one-month low as details of the 5SM and League government contract emerged with measures such as a universal basic income, adjusting tax bands and limited deficit spending; both parties are yet to agree on a PM. Given the ‘alliances’ view on the banking sector, Italian banks sit at the foot of the index (Ubi Banca -4.5%, Banco BPM -4.9%, Bper Banca -4.3%, Intesa Sanpaolo -1.7%).

As a result of the latest Italian developments, Europe failed to follow Asian peers higher which however rose on news that China has offered a $200BN deficit-reduction deal, only for China to deny that was the case as the Asian session drew to a close. Australia’s ASX 200 (-0.1%) initially opened higher but failed to hold on to gains amid weakness
in financials and mining-related sectors, while Nikkei 225 (+0.4%) was kept afloat by a weaker currency. Chinese markets were supported amid trade optimism in the wake of US-China trade talks with the Shanghai Comp. (+1.2%) and Hang Seng (+0.3%) closing in positive territory.

More importantly, however, the dollar reversed an early decline and Treasury yields edged lower after reaching the highest level since 2011. With nothing seemingly able to stop it, the Bloomberg Dollar Spot index heads for its longest streak of weekly gains since July 2015.

The latest bout of Dollar strength means another day of “sea of red” pain for Emerging Markets, which are now scrambling to hike rates to offset capital flight (see Brazil, Indonesia hikes in the past 48 hours) although it may be too little too late. No surprise: the Turkish lira weakened to a fresh record low as emerging market currencies headed for their biggest weekly slump since November 2016.

Dollar strength was not enough to pressure US Treasurys lower however, and the yield on 10-year U.S. Treasuries fell for the first time in more than a week, after rising overnight with the 30Y rising as high as 3.26%, above Bill Gross’ threshold level, and the highest since Sept. 2014 while also a critical downward channel resistance level.

Gross: US 30yr Tsy now the focus as oil price keeps going up. 3.23% technical cap currently breached on an intraday basis.

— Janus Henderson U.S. (@JHIAdvisorsUS) May 17, 2018

Today investors will be closely watching progress on the latest China-U.S. trade talks for signs of a breakthrough that could reignite the recent stock rally, even as they remain on edge over oil prices at a four-year high and a 10-year Treasury yield now firmly above 3%.

WTI and Brent are currently trading in positive territory approaching the week end, with Brent once again approaching the in-focus figure of USD 80BBL, currently trading +0.48% at USD 79.61/BBL. Traders awaiting further direction from Baker Hughes’ rig count later in the day. As the weeks’ close approaches, Gold is seeing some profit taking, with the yellow metal currently down 0.1%. Aluminium has also witnesses a slide as the metal fell for the third straight session on increasing inventories. Nickel is currently the outperformer in the metals scope, as it has risen to a near one month high of USD 14,830/tonne.

No major economic data is expected, while Campbell Soup and Deere are among companies reporting earnings.

Bulletin Headline Summary from RanSquawk

• Five Star and League release government programme, with traders awaiting news on the name of the Italian premier; FTSE MIB underperforming
• US-China trade tensions hit a stumbling block as China deny USD 200bln trade surplus reduction; risk tone hitting European bourses
• Looking forward, highlight include, Canadian CPI, retail sales, Fed’s Mester, Kaplan and Brainard

Market Snapshot

• S&P 500 futures up 0.2% to 2,724.50
• MXAP up 0.1% to 174.34
• MXAPJ up 0.02% to 567.54
• Nikkei up 0.4% to 22,930.36
• Topix up 0.4% to 1,815.25
• Hang Seng Index up 0.3% to 31,047.91
• Shanghai Composite up 1.2% to 3,193.30
• Sensex down 0.7% to 34,913.00
• Australia S&P/ASX 200 down 0.1% to 6,087.36
• Kospi up 0.5% to 2,460.65
• STOXX Europe 600 down 0.3% to 394.53
• German 10Y yield fell 1.0 bps to 0.63%
• Euro up 0.1% to $1.1807
• Italian 10Y yield fell 0.2 bps to 1.856%
• Spanish 10Y yield rose 0.3 bps to 1.411%
• Brent futures up 0.5% to $79.73/bbl
• Gold spot down 0.2% to $1,288.82
• U.S. Dollar Index little changed at 93.47

Top Overnight News from Bloomberg

• Italy’s populist leaders sealed a coalition agreement that aims to ramp up spending on the poor and slash taxes in a direct challenge to the European Union establishment; however, plan drops request to cut QE bonds from debt ratio, doesn’t mention EU250b ECB write-off and drops reference to euro exit process
• Fed’s Mester: monetary policy should be on the table to defend financial stability if macroprudential tools fail to contain stability risks
• Lighthizer says Nafta countries are ’nowhere near close to a deal’
• China denied it has offered President Donald Trump a $200 billion reduction in its annual trade surplus. Trump seen following through on threat to impose China tariffs
• President Donald Trump rebutted his national security adviser, telling reporters that he didn’t consider the nuclear disarmament of Libya a model for negotiations with North Korea over its atomic weapons program
• President Donald Trump’s chief Nafta negotiator said the U.S., Canada and Mexico are “nowhere near close to a deal” to update the region’s 24-year-old free-trade pact as U.S. lawmakers warn that time is almost up to reach a agreement that can pass the current Congress.
• Oil headed for a third weekly gain as tensions in the Middle East intensified and the International Energy Agency said global stockpiles have shrunk
• EU Commission activates measures to try to block the effect of U.S. sanctions on European firms
• Japan April CPI y/y 0.6% vs 0.7% est; Core CPI 0.7% vs 0.8% est.

Asian stocks traded mostly positive but with gains contained as focus remained on US-China trade talks and the current geopolitical climate. Nonetheless, the region showed some improvement from the weakness on Wall St, after the Chinese trade delegation was said to offer a package to reduce the US trade deficit by USD 200bln annually. This was the same amount the US had demanded during the 1st round of trade talks earlier this month in Beijing, while President Trump also commented that it is important to keep trade cooperation between US and China, which is in contrast to an earlier pessimistic tone from Trump that he doubted trade talks would be successful. In addition, sentiment was further underpinned by China ending its anti-dumping investigation on US sorghum, while North Korea seemed to have reverted back from its recent change in temperament and is said to increase efforts to defuse military tensions. ASX 200 (-0.1%) initially opened higher but failed to hold on to gains amid weakness in financials and mining-related sectors, while Nikkei 225 (+0.4%) was kept afloat by a weaker currency. Chinese markets were supported amid trade optimism in the wake of US-China trade talks with Shanghai Comp. (+1.2%) and Hang Seng (+0.3%) closing in positive territory. Finally, 10yr JGBs were marginally softer amid similar price action in T-notes and as yields tracked  continued gains in their counterparts stateside, which saw the US 10yr yield extend above 3.100% and the 30yr yield reach its highest since September 2014.

Top Asian News

• Kaisa Group Repurchases Partial Senior Notes Due 2022, 2024
• U.S. Hedge Fund Questions Korea’s Accounting Probe of Biologics
• China NDRC Talks to Cos. Over Violations in Overseas Borrowing
• Chinese Bank’s $150,000 Trump Dinner Invite Draws Complaint

European equities are trading mixed with (Eurostoxx 50 +0.1%) with underperformance in Italy’s FTSE MIB (-1.1%). The Italian benchmark has fallen to a one-month low as details of the 5SM and League government contract emerge with measures such as a universal basic income, adjusting tax bands and limited deficit spending; both parties are yet to agree on a PM. Given the ‘alliances’ view on the banking sector, Italian banks sit at the foot of the index (Ubi Banca -4.5%, Banco BPM -4.9%, Bper Banca -4.3%, Intesa Sanpaolo -1.7%). Moving on, telecoms lag following downgrades of Altice and Telecom Italia as well as a few ex-dividends weighing on the sector. Elsewhere, Swiss luxury goods maker Richemont (-5.2%) took a hit amid disappointing earnings, dragging Swatch (-1.2%) down in sympathy. Finally, FTSE 100 heavyweight AstraZeneca (-2.0%) shares fell ill after reporting a miss on revenue and EPS.

Top European News

• PayPal to Buy IZettle for $2.2 Billion to Compete With Square
• Italy FTSE MIB Falls as 5 Star Leader Says Govt Contract Agreed
• Italy’s Di Maio Says Final Government Contract Agreed
• Italian Bonds Set for Worst Week Since 2015 on Political Concern

In FX, The DXY index is still largely trading sideways within recent ranges above 93.000 and underpinned by lofty US Treasury yields that are shielding the Greenback from trade-related bumps and bruises as talks between the US, China and other nations on tariffs continue. NZD: The outlier amidst very tight Usd/major moves, as the Kiwi revisits 0.6900 and recoups losses vs the Aud with the cross back down under 1.0900. JPY/CHF: Contrasting fortunes as the Jpy extends losses vs the Dollar to 111.00 in wake of more disappointing Japanese data (CPI softer than forecast following the surprise GDP contraction), and clears a key Fib resistance level (110.85) along the way. Stops reportedly at 111.20 unscathed so far. Conversely, the Franc has rebounded to trade through parity vs the Greenback, and is also testing bids below 1.1800 vs the Eur. EUR/GBP/CAD/AUD: All encircling round numbers vs the Usd and not showing much sign or inclination to break away, as Eur/Usd hugs 1.1800, Cable clings to 1.3500, Usd/Cad drifts back down to  1.2800 and Aud/Usd sits just above 0.7500. A large Eur/Usd option expiry at the strike (1.8 bn) could keep that pair tethered, but the Loonie could well see more volatile price action after displaying resilience in the face of no NAFTA deal (and reports suggesting no agreement in the offing) given looming Canadian CPI and retail sales data. On  that note, the break-even via options indicates a circa +/- 75 pip reaction that could trigger 1.2700 expiries or a topside barrier.

In commodities, WTI and Brent are currently trading in positive territory approaching the week end, with Brent once again approaching the in-focus figure of USD 80BBL, currently trading +0.48% at USD 79.61/BBL. Traders awaiting further direction from Baker Hughes’ rig count later in the day. As the weeks’ close approaches, Gold is seeing some profit taking, with the yellow metal currently down 0.1%. Aluminium has also witnesses a slide as the metal fell for the third straight session on increasing inventories. Nickel is currently the outperformer in the metals scope, as it has risen to a near one month high of USD 14,830/tonne.

US Event Calendar

• 3am: Fed’s Mester Speaks at ECB on Macroprudential, Monetary Policy
• 9:15am: Fed’s Kaplan Speaks in Moderated Q&A
• 9:15am: Fed’s Brainard Speaks About Community Reinvestment Act

DB’s Jim Reid concludes the overnight wrap

Happy Friday. The trick for all of us here in the UK this weekend is to stay out of the house as much as possible tomorrow and not get sucked into the coverage of the Royal Wedding here at Windsor. I got home last night to find my wife watching an hour long special on the event. I asked her why she was so fascinated by it. She replied that when she was young all her class dreamt of marrying a prince after Charles and Diana’s wedding. She reminded me that she failed in this dream as she’s married a banker and had to live vicariously through Meghan Markle. I think I’m annoyed by the wedding as I quite liked Suits (the big TV show Miss Markle was in) and the royal romance has kind of ruined part of it.

Anyway, back in the normal world yesterday was a case of another day, another survey that showed prices going through the roof in the US. Although this won’t be the main headline you’ve seen over the last 24 hours, I still think the fact that ‘prices received’ in the Philly Fed report were at their highest in 29 years merits close attention. This follows numerous equivalents across the different regional and national US surveys. The prices received number is less commodity influenced and should reflect more ‘core’ type inflationary pressures. The overall Philly Fed number was very strong even if there were concerns about falling capex spend within the report. See below for more on the data.

Meanwhile US 10yr Treasury yields continued to edge higher (+1.5bps) to 3.112% – to fresh 7 years highs and the 30yr up around 3bps to 3.247% – highest since September 2014. Yields are up another basis point or so in the overnight session too. US equities held in ok (S&P 500 -0.09%) especially after an earlier dip with Mr Trump not sounding optimistic on China trade talks although overnight developments appear more positive (see below). Europe saw a stronger day with most European bourses up 0.7% to 1.0% with the exception of Italy (‘only’ +0.29%). Core European bonds were 2-3bps higher with peripherals outperforming (Italy & Spanish yields flat) which was impressive given the Italian newsflow. Gilts soared 6bps as lots of stories circulated as to whether Mrs May is preparing a more prolonged stay within the custom union perhaps until an alternative can be worked out.

Overnight, price action has been generally muted in Asia for the most part with little reaction to the headlines which broke last night suggesting that China was to offer the US a $200bn reduction in its annual trade surplus with the country. As a reminder the $200bn number was demanded by Trump’s administration earlier this month following a visit to Beijing. A Bloomberg story noted that China would increase imports of US goods following talks between the two nations in Washington this week and on a similar note China has also said that it will end its anti-dumping and anti-subsidy investigations into US imports of sorghum. The Hang Seng (+0.12%), Shanghai Comp (+0.28%) and Nikkei (+0.40%) are all up modestly on the news, as are US equity futures (+0.22%) however all eyes will likely be on Trump’s twitter account at the US open to see his response. In other news, Japan has reported slightly softer than expected inflation data overnight (core +0.7% yoy vs. +0.8% expected) which is weighing on the Yen (+0.20%). So with yields generally on a rising trend again its worth keeping an eye on Oil.

Yesterday’s focus was on Brent which rose to around $80.50 intra-day and with an 8-handle for the first time since December 2014, on the back of a decline in US crude oil inventories and continued geo-political tensions. We closed back down at $79.30 but overnight have added about 20c to that.

Meanwhile, in Italy the wait for the coalition agreement as well as who will be PM continues for now but the 5SM and League parties have stated that they have virtually completed a draft government program with more confirmation that they have dropped the request for €250bn write-off of the Italian debt held by the ECB. However, a 5SM official said that the draft agreement contains a proposal that the Italian bonds bought by the ECB under PSPP should not be counted towards country’s gross debt to GDP ratio (Eurostat said this was not possible). There’s been a lot of talk and opinion pieces about the €250bn write off  draft request over the last 36+ hours and a common worry would be that creates a wedge between the new coalition and the core of Europe even though the request has seemingly been removed. It will be interesting to see whether this impacts the ECB’s decision of QE. It complicates things on both sides. Carry on for longer and you may be seen as enabling populist policies but stop at this point and you may be creating more Italian instability. The can of worms has been opened.

Further, the draft program still carries the pledge of tax cuts, pension reforms (likely EU unfriendly) and the reviewing of EU treaties even as the reference to the € has been dropped. The document also calls for a review of European “bail-in” rules for the banking industry while adding that small shareholders should also be entitled to partial  reimbursements in the event of a lender becoming insolvent. So lots to look forward to when we see the actual final agreement.

Fully reviewing yesterday’s data now. The US was a little mixed in nature, with initial jobless claims increasing to 222k  as against consensus of 215k while the Philly Fed surprised significantly on the upside by reaching 34.4 (highest since June 2017), as against Bloomberg consensus of 21 and the previous read of 23.2. The rise in the Philadelphia Fed Business Outlook index was on the back of a robust rise in new orders (surging 22.2pts to a huge 40.6) and employment components of the index. We’ve already remarked on the 29-yearhigh ‘prices received’ index but what  was a little worrying was the decline in the component for six-month outlook for the capex to 21.6 from 29.8 last month. The April Leading Index rose in line with expectations at +0.4% mom. In the Euro area, construction output declined to -0.3% mom in March while the previous months figure got revised lower to -0.7% mom from -0.5% mom.

In terms of the day ahead then, it’s another fairly quiet morning for data in Europe with the April PPI print in Germany and the March trade balance reading for the Eurozone the only data of significance. It’s similarly quiet in the US with no releases to highlight however we are due to hear from the Fed’s Mester at 8am BST this morning when she speaks on monetary policy at an ECB conference in Frankfurt, followed by Kaplan and Brainard at separate events at 2.15pm BST this afternoon. The latter is speaking on modernization of the Community Reinvestment Act at a housing conference so it’s unlikely to be market sensitive.

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After a series of false alarms over the past week, on Friday morning Italy’s anti-establishment Five Star Movement (M5S) and the far-right Northern League have finally agreed on a policy program, ending a monthslong stalemate.

The 57-page “Contract for a Government of Change” was published early Friday and includes a handful of key provisions that have, unsurprisingly, made bondholders nervous:

• ITALY FIVE STAR, LEAGUE PROGRAM URGES REVIEW OF EU FISCAL RULES
• FIVE STAR, LEAGUE PLAN SEEKS 15%, 20% TAX RATES FOR COS, PEOPLE
• FIVE STAR, LEAGUE PLAN SEEKS REVIEW OF BAIL-IN RULES: PROGRAM

Here’s a roundup courtesy of the Financial Times:

• Universal basic income of €780 per person per month, funded in part through EU
• No mention of a referendum on membership of either the EU or the euro
• Agreement to meet the goals of the Maastricht Treaty
• No plans to ask the ECB to cancel debt
• Calls for airline Alitalia to be relaunched
• Flat tax to become a dual rate with deductions
• Seeks a strong contribution to EU immigration policy

“This government contract binds two political forces that are and remain alternative, to respect and achieve what they promised to citizens,” Di Maio said, quickly sinking the euro as it headed for what would be its fifth straight weekly fall against the dollar since 2015. Meanwhile, stocks in Milan hit their lowest level in a month as Italian investor fears, inexplicably dormant for months, finally reappeared.

Italian government bonds also retreated on Friday, sending 10-year yields to their highest levels in seven months as investors worried that the new ruling coalition was about to embark on a spending spree.

Nervous investors – concerned about an imminent deficit-busting debt issuance spree – are starting to wave in Italian default protection, and this morning, Italian credit default swaps soared to their highest levels since January.

The deal ends a lengthy stalemate that had persisted since Italy’s March elections. Recently, the party’s were facing the prospect of another vote either over the summer or early next year if they did not agree on a platform. The two parties still need to pick a prime minister.

The full contract is below:

 

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Overnight, experts and pundits were stumped by the biggest geopolitical news from Thursday: how could China possibly – or feasibly – agree to a $200 billion cut in the US-China trade deficit, even if merely to placate President Trump. On Friday morning we got the answer: this entire story was nothing more than the latest fake news created by “someone” in the US official cadre, and the promptly spun by the US media without actual confirmation by China.

And so, the mystery of just how China would shrink its $200 billion trade deficit with the US died on Friday morning, when China gave the answer: it wouldn’t, after Beijing denied it had offered the deficit-cutting package, just hours after it dropped an anti-dumping probe into U.S. sorghum imports in a conciliatory gesture as top officials meet in Washington.

“This rumor is not true. This I can confirm to you,” Chinese foreign ministry spokesman Lu Kang politely told a news briefing saying “the question is about some US officials who said China will cut the deficit. As I understand, the relevant consultations are ongoing and they are constructive,” he said, adding that he could not elaborate on the specifics of the negotiations.

Commentary posted in an article on WeChat accounts run by Xinhua News Agency and People’s Daily overseas edition was less restrained, and said that the offer to cut China’s trade surplus with the U.S. is “nonexistent” and that reports that China accepted the U.S. demand to narrow the trade gap are “purely a misreading.”

The article said that China will “never negotiate under the conditions set by the U.S.” and added that “two sides made progress in areas such as the U.S. allowing more exports of technology products including semiconductors, as well as lifting restrictions on energy exports” but stressed that “China won’t make unilateral concessions.“

The article also underscored that just hours before President Donald Trump met Vice Premier Liu He, the two sides were at loggerheads on key issues, and concluded that negotiations are ongoing and called on China to “fight for the best, and prepare for the worst.” It added that “tomorrow is a crucial day” without elaborating.

As a reminder, a $200 billion reduction in the trade gap with China by 2020 was on a list of demands the Trump administration made earlier this month as Treasury Secretary Steven Mnuchin led a delegation to Beijing. That mission left with little common ground with China and reports emerging of infighting among the U.S. officials. The U.S. merchandise trade deficit with China hit a record $375 billion last year. The Trump administration has threatened to impose tariffs on as much as $150 billion of Chinese imports to the U.S. as tensions over trade have escalated. Trump expressed doubt before his meeting with Liu that China and the U.S. would come to an agreement to avoid a damaging trade war.

“Will that be successful? I tend to doubt it,” Trump said during a press briefing on Thursday with NATO Secretary-General Jens Stoltenberg. “The reason I doubt it is because China’s become very spoiled.”

Victor Shih, a China politics and finance professor at the University of California in San Diego said earlier that he finds an agreement to cut the U.S. deficit by $200 billion “difficult to contemplate.”

“Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the U.S., the bilateral trade deficit may reduce by $100 billion,” he said. “A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain.”

* * *

What wasn’t fake news, is that earlier on Friday, China did offer a conciliatory olive branch when it announced that it would end its sorghum anti-dumping and anti-subsidy investigation, which had effectively halted a trade worth over $1 billion last year. The United States shipped 4.76 million tonnes of sorghum to China in 2017, worth about $1.1 billion, accounting for the bulk of Chinese imports of the grain used in animal feed and Chinese liquor.

“The imposition of anti-dumping and anti-subsidy measures on imports of sorghum originating from the United States would have a widespread impact on consumer living costs, and does not accord with the public interest,” the Commerce Ministry said in a statement.

In April, China forced U.S. sorghum exporters to put up a 178.6% deposit on the value of sorghum shipments to the country after launching an investigation in February following Trump’s imposition of steep tariffs on imports of solar panels and washing machines.

“China has taught a lesson to the United States and showed how it can hurt U.S. exports,” said Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney.

“Now they are showing goodwill by halting its anti-dumping investigation into sorghum imports, but it is a cheap way of showing goodwill as the U.S. doesn’t have much sorghum left to export. The next U.S. sorghum crop will be harvested in August,” Houe said.

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