Tag: finance

Authored by Richard Breslow via Bloomberg,

“Hey, it’s already Thursday.”

“Ugh, it’s only Thursday.”

Both statements are legitimate ways of looking at the world. But they sure bring you to different conclusions. Traders have spent the entire night taking a dour view of every piece of news. And I guess if your focus is Chinese equities, that’s understandable. But, that aside, it just doesn’t feel right. And it will be interesting to see if this mood lasts the day. It has barely started and I’m dying to see how it ends.

In case you haven’t looked, equity indexes in China got harpooned. They went up in a bubbly frenzy and came down today in just as dramatic fashion. The CSI 300 got most of the press, but still remains well up on the year.

No one likes getting caught on the wrong side of a move like this, but in the long run, taking out some of the froth might prove a healthy development all around. What’s interesting is how modest the knock-on effects to European markets and U.S. futures was compared with what you might ordinarily expect. And that is bullish. One trader’s view that the SPX couldn’t maintain the break above its resistance zone yesterday, is another’s being impressed how well futures have held in there so far today.

The economic numbers that have come out overnight have, mostly, been pretty good. The market seemed inclined to pick out the portions that could cast them in a less flattering light. Australian unemployment was a beat. Even if heavily influenced by part-timers. But the unemployment rate ticked up. And that got the attention. No matter that the participation rate was higher. The U.K. number was solid. And they sold into it. And of course in China, a really good GDP lost out to a retail sales miss and their largest liquor producer coming under official criticism. If you owned that stock today, it did prove alcohol in excess can be bad for your health.

Markets have been excited at the prospect of a virus vaccine being developed. The excitement has been rampant and asset prices reacted quickly to the news. Even if somewhat prematurely. Today, it has been back to detailing the number of new cases and potential hotspots. Old news, new news depends on the mood of the day. Traders are entitled to focus where they choose, but it’s hard not to feel that we were reacting to the price action and not the other way around.

Fed speaker comments have also been discussed. Some have taken them as frustratingly downbeat. Long road ahead. Others that “more” is coming and traders love that. The fact is, both are true. Main Street commentators stressed the former and Wall Streeters the latter. Little surprise there. And I have found it interesting how various people reacted to those bank earnings. You can, perhaps, fault the authorities for their policy mix and lack of creativity, but hardly the banks for doing their jobs and taking advantage of the opportunities presented.

The ECB meets today. I suspect President Christine Lagarde will find a way of coming off as friendly not only to markets, but also to banks. Hear what she has to say before reacting to any early headlines that might look underwhelming. All these central bankers are still very much in accommodative mode. And intend to make sure all of the massive bond issuance that is coming is taken up smoothly.

And as the day goes on and we begin to focus more intently on the EU summit, don’t be overly distracted by talk of the Frugal Four. A deal is very likely to eventually get done. And even if it isn’t put to bed this weekend, the spin will be positive. They will keep taking bites out of the apple until something, even if it isn’t what some optimists may hope for, eventually gets done. Lean positive.

Maybe I’m being starry-eyed, but it just seems like there’s a good chance the day ends happier than it began. Time will tell.

Concluding the reporting by the big US money center banks, Bank of America this morning published Q2 earnings which were more of the same observed earlier in the week: strong trading results offset by a deteriorating balance sheet and surging credit loss provisions.

Specifically, the bank reported total Q2 revenue of $22.3BN, slightly better than the $22.01BN expected but down 3.3% Y/Y. This resulted in Net Income of $3.5BN, down 52% Y/Y, and EPS of $0.37, down exactly half from the $0.74 a year ago.

Looking closer at revenue, Net Interest Income tumbled to $10.8BN, missing the $11.1BN expectation and down 11% from $12.3BN a year ago, driven by lower interest rates, partially offset by loan and deposit growth (YoY spot 1M LIBOR fell 222 bps; 10yr treasury rate declined 135 bps). The bank was hit especially hard by the plunge in the net interest yield which slumped to an all time low of 1.87%, a record 46 bps drop from 2.33 in Q1. The decrease driven was by lower NII “due to rates, coupled with the investment of deposit inflows, which are being held in low yielding products while their durability is assessed given the uncertain economic environment.” On the other end, the average rate paid on interest-bearing deposits by BofA declined 34 bps from 1Q20 to 0.13%.

The collapse in Net Interest Income was partially offset by a surge in Trading Revenue, which jumped to $4.41BN, up 35% from Q2 2019, and smashing consensus expectations of $3.83BN. Looking at the breakdown:

• Equity revenue: $1.226BN, +7% from $1.145BN (exp. 1.25BN), driven by a strong performance in cash and client financing, partially offset by a weaker performance in derivatives.
• FICC revenue: $3.186BN, +50% from $2.128BN (exp. $2.57BN), driven by strong results across credit-related products as the market rebounded after the March selloff, as well as a robust performance from macro products due to solid market-making conditions.

Also notable, if not nearly as high as JPM’s, BofA’s average VaR jumped to $81MM in 2Q (from $34MM a year ago) driven by the inclusion of market volatility stemming from the COVID-19 crisis in the lookback period.

Visually, the breakdown is as follows:

Investment banking revenues also crushed expectations of $1.6BN, rising 57% to $2.2BN in Q2 from $1.37BN a year ago, driven by increases in debt and equity underwriting fees which again is all thanks to the Fed whose nationalization of the bond market sent issuance volumes to all time highs. Some more details:

• Average deposits of $494B increased 36% from 2Q19, reflecting client flight to safety, government stimulus and placement of credit draws
• Average loans and leases of $424B increased 14% from 2Q19, driven by revolver draws at the end of 1Q20 which were partially paid down throughout 2Q20

As with the other banks, stellar trading results – which are unlikely to repeat unless we have another crisis and the Fed pumps another $3 trillion in the market 0 was the good news. The not so good news: the surge in credit loss provisions, which after jumping to $4.8BN in Q1, rose another $5.117BN in Q2 which included a reserve build of $4.0B, primarily due to the weaker economic outlook related to COVID-19.

At the same time, total net charge-offs of $1.1B were relatively unchanged from 1Q20 (the net charge-off (NCO) ratio of 45 bps decreased 1 bp from 1Q20 with consumer net charge-offs of $0.7B decreasing $138MM primarily driven by deferrals and government stimulus; Commercial net charge-offs of $0.4B increased $162MM primarily driven by real estate and energy).

In Q2, the total allowance for loan and lease losses of $19.4B increased $3.6B from 1Q20 and represented 1.96% of total loans and leases. Total allowance of $21.1B includes $1.7B for unfunded commitments.

Putting it all together: trading revenues were strong, but maybe not as strong as they could have been (see Goldman), while the balance sheet was certainly not as ugly as Wells Fargo’s but it could have been better. As a result, BofA stock traded 3% lower on the report, with questions remaining if this was as bad as it would get, or if there would be more pain next quarter.

Full earnings presentation below (pdf link):

Summary:

• Global cases top 13.5 mil
• HK reports 63 new cases for 3rd record in a week
• US reports 65k+ cases; 2nd highest daily tally
• Indonesia orders social distancing violators punished
• Tokyo suffers record jump
• Victoria reports more than 300 new cases Thursday
• ICU deaths moving lower around the world

* * *

Days after adopting its more restrictive measures to combat COVID-19 yet, Hong Kong has reported a record single-day jump in newly confirmed cases, its third record-setting tally in a week.

A record 63 local cases were reported on Thursday. Of these, 35 were of unknown origin, according to the city’s health department. The city-state’s new outbreak has infected 300+ people under two weeks, with more than a third of infections bearing no discernible connections to preexisting outbreaks.

Meanwhile, in the US, as the nationwide death toll topped 140k, the number of new cases reported yesterday (remember these numbers come with a 24-hour delay) was the second-highest yet, coming in at more than 65k.

As another wave of infections sweeps across southeast Asia, Indonesia is planning to fine violators of social distancing rules under a new law as President Joko Widodo scrambles to contain an outbreak that his government once deliberately tried to ignore and dismiss as nonexistent, despite the threat posed to his people.

Elsewhere in the Asia-Pacific region, Tokyo also reported another daily record of 286 new coronavirus cases as Japanese grow concerned about the outbreak in the capital, which is now under level 4 COVID-19 alert, the highest possible. The government is now trying to discourage travel and commuting, scrapping a campaign to promote domestic tourism. While the city’s latest cluster was traced to nightclubs, officials believe it has now traveled much further.

Meanwhile, Australia’s second-most-populous state, Victoria, also recorded 317 new cases, its biggest spike yet too, as the state struggles to clamp down on a sudden reemergence of infections that has threatened to spread across all of Australia. The jump comes one week after Melbourne and some of the surrounding area entered a new partial lockdown.

The 7-day average of COVID-19 deaths in the US as ticked higher to levels not seen in 2 weeks as the pattern appears to plateau. The US reported roughly 1,000 deaths on Thursday.

Globally, the US reported another 230k+ new cases, and just under 5k deaths, driving the global case total north of 13.5 million (exact total: 13,727,388 per Worldometer).

But while the numbers on the chart appear to show a slight tick higher, the deluge of MSM warnings that the death lag is very, very real have seemed almost unhinged in their authors’ refusal to acknowledge several factors – including lower median age of those infected and more effective treatment strategies – that might constrain deaths from returning to their highs from the NYC peak. Or 3,000 deaths a day, as the NYT once predicted.

However, the latest data out of Bloomberg shows that overall mortality continues to decline. Overall ICU deaths have fallen to just under 42% at the end of May from almost 60% in March, according to the first systematic analysis of two dozen studies involving more than 10,000 patients spanning three continents. Such news is fortunate given the “unprecedented demand” that the virus has imposed on these services.

In a statement that was largely as expected, and devoid of surprises, the ECB kept both rates and its €1.35 trillion-euro Pandemic Emergency Purchase Program unchanged. The central bank reiterated it’ll conduct PEPP purchases in a “flexible manner” until at least June 2021, reinvest maturing bonds until at least the end of 2022. The ECB also said it will buy €20BN per month, plus €120BN this year under asset purchase program, which will run until shortly before interest rates rise.

In keeping key interest rates unchanged at present levels, the ECB also said rates will stay at present or lower levels until inflation goal is near.

The full statement is below:

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

(1) The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

(2) The Governing Council will continue its purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,350 billion. These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the pandemic-related downward shift in the projected path of inflation. The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions. This allows the Governing Council to effectively stave off risks to the smooth transmission of monetary policy. The Governing Council will conduct net asset purchases under the PEPP until at least the end of June 2021 and, in any case, until it judges that the coronavirus crisis phase is over. The Governing Council will reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2022. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

(3) Net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates. The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

(4) The Governing Council will also continue to provide ample liquidity through its refinancing operations. In particular, the latest operation in the third series of targeted longer-term refinancing operations (TLTRO III) has registered a very high take-up of funds, supporting bank lending to firms and households.

The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

And now attention turns to Lagarde.

 

S&P futures slipped back under 3,200 and Chinese stocks finally cracked overnight, after a surprise drop in China’s retail sales signaled a bumpy economic recovery, with investors now turning to for guidance from the ECB on on its massive stimulus program. The dollar jumped and Treasury yields drifted lower.

Nasdaq futures led declines among the main American equity benchmarks, with Twitter plunging 6.6% in the premarket as hackers accessed its internal systems to hijack some of the platform’s top voices including U.S. presidential candidate Joe Biden, reality TV star Kim Kardashian West, former U.S. President Barack Obama and billionaire Elon Musk and used them to solicit digital currency. Tesla dropped 4.9% as its vehicle registrations nearly halved in the U.S. state of California during the second quarter, according to data from a marketing research firm.

Bank of America Corp shares edged lower after it reported a more than 50% decline in second-quarter profit, setting aside $4 billion for potential loan losses tied to the coronavirus pandemic. Morgan Stanley is due to report quarterly results later in the day, wrapping up what has been a mixed bag of quarterly earnings updates from the top six U.S. lenders. Johnson & Johnson was flat as it posted a 35.3% fall in quarterly profit as demand for its medical devices was hammered by hospitals putting off non-urgent procedures such as knee and hip replacement. Diversified manufacturer Honeywell and medical device maker Abbott Laboratories (ABT.N) are also slated to report their quarterly results on Thursday.

Stock markets in Asia and Europe also fell earlier in the day after data showed China’s retail sales fell 1.8% in June.

Asian stocks fell, led by communications and health care, after rising in the last session. Most markets in the region were down, with Shanghai Composite dropping 4.5% and Hong Kong’s Hang Seng Index falling 2%, while India’s S&P BSE Sensex Index gained 0.5%. Trading volume for MSCI Asia Pacific Index members was 20% above the monthly average for this time of the day. The Topix declined 0.7%, with Yoshimura Food Holdings and ITmedia falling the most. The Shanghai Composite Index retreated 4.5%, with China Life and Nacity Property Service posting the biggest slides.

The slump in tech shares and the reminder of the long road ahead to a full global recovery is quashing optimism seen earlier in the week spurred by progress in developing a coronavirus vaccine. While China is experiencing a modest domestic recovery, it remains vulnerable to setbacks as shutdowns continue to hamper activity across the globe.

“The problem is, this is still uneven,” Helen Qiao, chief greater China economist at Bank of America Corp., said on Bloomberg TV, referring to the latest data. “It is hard to see how China can remain on a firm footing at a time when the rest of the world is still coping with a very deep recession.”

In macro, the dollar rose against all Group-of-10 peers and the euro fell to a two-day low in European hours as risk sentiment worsened and given positioning ahead of the ECB. The central bank is widely expected to keep its QE program unchanged at 1.35 trillion euros, supplemented by negative interest rates and generous long-term loans to banks. The Swiss franc and the yen held up well, in line with familiar risk-off patterns; the Norwegian krone was the worst Group-of-10 performer as oil prices edged lower after closing at a four-month high; the OPEC+ alliance confirmed it would start tapering output cuts from next month. The Australian dollar fell as traders focused on the upward revision of job losses in May and a record spike in coronavirus cases in the nation’s second-most populous state.

In rates, 10Y Treasurues were modestly higher, with 10Y yields at 0.62% last. Gilts edged higher after Britain ramped up its bond sale plan by another 110 billion pounds, which was less than the 115 billion pounds estimated in a Bloomberg survey of primary dealers. Most regional bonds climbed ahead of the ECB’s policy decision, where it’s expected to keep its emergency bond-buying program unchanged. President Christine Lagarde will likely face questions over whether the current level of support is sufficient.

Looking at the day ahead now, the ECB meeting and President Lagarde’s subsequent press conference are likely to be the highlights. Other central bank speakers today include the Fed’s Williams, Bostic and Evans. Data releases include June’s retail sales, the weekly initial jobless claims, the Philadelphia Fed’s business outlook survey for July, and the NAHB housing market index for July. Earnings releases will include Johnson & Johnson, Netflix, Bank of America, Abbott Laboratories and Morgan Stanley.

Market Snapshot

• S&P 500 futures down 0.8% to 3,194.50
• STOXX Europe 600 down 1% to 370.26
• German 10Y yield fell 0.6 bps to -0.45%
• Euro down 0.07% to $1.1404
• Italian 10Y yield fell 1.1 bps to 1.074%
• Spanish 10Y yield rose 0.4 bps to 0.426%
• MXAP down 1.5% to 164.16
• MXAPJ down 1.8% to 538.13
• Nikkei down 0.8% to 22,770.36
• Topix down 0.7% to 1,579.06
• Hang Seng Index down 2% to 24,970.69
• Shanghai Composite down 4.5% to 3,210.10
• Sensex up 0.5% to 36,212.32
• Australia S&P/ASX 200 down 0.7% to 6,010.86
• Kospi down 0.8% to 2,183.76
• Brent futures down 0.9% to $43.38/bbl
• Gold spot down 0.3% to $1,805.32
• U.S. Dollar Index up 0.1% to 96.18

Top Overnight News from Bloomberg

• Tokyo joined Australia’s second-biggest state in posting record coronavirus cases as second waves spread in several hotspots
• The Chinese economy expanded 3.2% in the second quarter from a year ago as the nation returned to growth, but the economy remains 1.6% smaller than a year ago and details showed the recovery was uneven, with a contraction in retail sales continuing in June
• As countries across Asia Pacific struggle with resurgences of the coronavirus, one data point is steering government responses: the share of cases with no clear indication of how infection occurred
• For all the pressure on U.K. Chancellor of the Exchequer Rishi Sunak to explain how he’ll repair public finances ravaged by the coronavirus, investors are lending the money with very few questions
• A relentlessly expanding physical hoard of bullion stored in London and New York means exchange-traded funds have usurped managed money in the futures market as the key driver of the price of the shiny metal
• The number of hours worked in the U.K. economy fell the most on the record in the coronavirus lockdown, underlining the risk facing the labor market as government income support is phased out

Asian stocks traded negatively as the recent vaccine optimism that underpinned global stocks took a back seat to the slew of tier-1 releases in the region including Australian Employment numbers, as well as Chinese GDP, Industrial Production and Retail Sales data. ASX 200 (-0.7%) was subdued with underperformance seen in commodity names and amid rumours of a potential Stage 4 lockdown surrounding Victoria state where its capital Melbourne is currently under stage 3 restrictions. Nikkei 225 (-0.8%) was pressured by recent detrimental currency flows and after falling short of the 23K status, while KOSPI (-0.6%) also declined after the BoK kept rates unchanged at 0.5% as expected and provided a grim tone on the economy. Elsewhere, Hang Seng (-2.0%) and Shanghai Comp. (-4.5%) failed to benefit from the mostly better than expected Chinese data in which GDP and Industrial Production topped estimates but Retail Sales disappointed and showed a surprise contraction which led to concerns related to consumer demand and an uneven recovery. Finally, 10yr JGBs were higher amid the negative mood across stocks and improved demand at the enhanced liquidity auction for 2yr-20yr JGBs.

Top Asian News

• Apple Supplier JDI Surges as CEO Reveals Mobile OLED Talks
• Worst China Stocks Selloff Since February Caps Brutal Reversal
• Hong Kong Sees Record 63 Local Virus Cases in Swelling Wave
• Thai Finance Minister Quits in Cabinet Shake-Up Amid Slump

European equities have started the session on the backfoot (Eurostoxx 50 -0.7%) as markets take a breather from some of the recent vaccine-inspired gains. Macro newsflow from a European perspective has been light as markets look ahead to the latest policy announcement from the ECB today and perhaps more importantly the upcoming negotiations on the EU recovery fund and budget. In terms of the composition of losses in Europe, all sectors trade lower with the exception of oil & gas names which trade closer to the unchanged mark post-yesterday’s JMMC agreement while telecom names are erring higher as well. The laggard in Europe is Food & Beverage with Heineken (-2.5%) a noteworthy underperformer after the Co. reported a 16% decline in H1 sales. Elsewhere, for the luxury sector, Richemont (-5.3%) sit near the foot of the Stoxx 600 after posting a near 50% decline in Q1 trading revenue in what was a particularly bleak earnings report. Other movers include Zalando (+2.1%) and Atos (-1.7%) post-earnings, whilst Deutsche Lufthansa (-3.0%) lag other travel & leisure names despite noting that it hopes to get around 90% of its short haul flights back up and running by the end of October.

Top European News

• Analysts Wary After Biggest Swedish Bank Has Tiny Impairment
• U.K. Bond-Sale Plan Is Now Equal to 18% of GDP to Fund Recovery
• Risky Debt Threatens U.K. Recovery, Finance Lobby Says
• Johnson Battles U.K. Spy Watchdog Ahead of Key Russia Report

In FX, the Dollar has clawed back more lost ground vs G10 and EM rivals on renewed safe haven demand as euphoria over COVID-19 vaccines fades somewhat and markets look ahead to key events, like the ECB, US retail sales data and weekly initial claims. However, the DXY still looks precarious just above 96.000 after Wednesday’s bearish break below the round number (to 95.770 and just off the June low), as coronavirus cases and deaths continue to rise in several states and reach fresh record peaks in some areas, such as Texas yesterday.

• GBP/NZD/AUD – The major victims of a reversal in broad risk sentiment and associated Greenback revival, but with Cable also undermined by negative technical factors having lost grip of the 1.2600 handle and a series of shorter term MA levels, including the 50, 100 and 200 markers, on the way down through 1.2550. Note, conflicting UK jobs data has not really impacted, but the Pound may be taking heed of NIRP expectations in Short Sterling futures that been brought forward by some 6 months in wake of BoE’s Tenreyro’s ‘live’ revelation yesterday. Meanwhile, benign NZ CPI and a mixed Aussie employment report have not helped the Nzd or Aud retain gains vs the Usd, with the former back under 0.6550 and the latter retreating through 0.7000.
• EUR/CAD/JPY/CHF – Also unwinding outperformance relative to the Buck, as the Euro relinquishes 1.1400+ status ahead of the ECB policy meeting and press conference amidst another heavy spread of option expiries descending from just shy of Wednesday’s high (circa 1.1452) at 1.1440-30 (1 bn) through 1.1380-75 (1 bn) down to 1.1350 (2 bn). Note, a full preview of the upcoming July ECB convene and presser is available on our Research Suite and will be reposted via the headline feed in the run up to the event. Similarly, the Loonie is paring back post-BoC between 1.3502-29 parameters against the backdrop of softer crude prices, while the Yen has pulled back from over 107.00, albeit some distance from 1.5 bn expiry interest at 107.25-35, and the Franc is straddling 0.9450.
• SCANDI/EM – General weakness, or payback after midweek session strength with few exceptions and the oil/commodity bloc bearing the brunt of the general deterioration in temperament. However, the Cnh is holding around 7.0000 following another firm PBoC Cny fix and a slew of Chinese data overnight that was either side of expectations, but comfortably above consensus in terms of Q2 GDP.

In commodities, WTI and Brent are once again subdued following the modest pullback in sentiment more broadly before today’s key central bank event. For the crude complex itself, since yesterday’s JMMC meeting where they confirmed OPEC+ will begin easing production cuts to 7.7mln BPD (~8.3mln BPD when taking compensation into account) there has been very little in the way of fundamental updates. As attention now returns more so to the demand side of the equation and the impact of any further COVID-19 induced headwinds; for the supply side, attention will be on whether OPEC+ members who are required to over-compensate do so as well as the situation in areas including Libya. Elsewhere, spot gold has had a somewhat more rangebound session but has most recently erred lower as European equity bourses attempt to rise from their session lows. Saudi Energy Minister said the effective oil cuts in August will be around 8.1-8.2mln BPD and reportedly commented that it is too late to change August quotas at this JMMC since term lifters’ nominations are already set for the month. (Newswires)

US Event Calendar

• 8:30am: Initial Jobless Claims, est. 1.25m, prior 1.31m; Continuing Claims, est. 17.5m, prior 18.1m
• 8:30am: Retail Sales Advance MoM, est. 5.0%, prior 17.7%; Retail Sales Ex Auto and Gas, est. 5.0%, prior 12.4%
  • Retail Sales Ex Auto MoM, est. 5.0%, prior 12.4%; Retail Sales Control Group, est. 4.0%, prior 11.0%
• 8:30am: Philadelphia Fed Business Outlook, est. 20, prior 27.5
• 9:45am: Bloomberg Consumer Comfort, prior 42.9
• 10am: Business Inventories, est. -2.3%, prior -1.3%
• 10am: NAHB Housing Market Index, est. 61, prior 58
• 4pm: Net Long-term TIC Flows, prior $128.4b deficit; Total Net TIC Flows, prior $125.3b

DB’s Jim Reid concludes the overnight wrap

Risk assets were positive but volatile yesterday. It looked like a decent session was going to fizzle out as stocks dipped from their peaks 45 minutes before the European close as US/China tensions hit the headlines again and tech stocks came under some pressure after a dizzying run. However by the end of the session the S&P 500 reversed its downward course to finish just shy of its post-pandemic high. The reversal seemed driven by headlines that President Trump has told aides that he does not want to escalate tensions with China and also that Senate Majority Leader McConnell reiterated his plans to release a fiscal stimulus bill early next week. By the close the S&P 500 had advanced a further +0.91%, but was up as much as +1.27% at the day’s high and had briefly erased its YTD losses. The Nasdaq was up a lesser +0.59%, having been up over 1% earlier in the session but in negative territory after Europe closed. The best performing stocks were some of the most affected by the pandemic and the shutdowns. In the US, Airlines were among the leading industries, up over +10%, while Norwegian Cruise Line (+20.68%), Carnival (+16.22%), and Royal Caribbean Cruises (+21.20%) were among the best performing stocks in the S&P.

It was a similar story in Europe, where the Travel and Leisure sector (+6.06%) led the STOXX 600 higher, however the sector is still over -33% down from pre-pandemic highs compared to the broad index which is down -13.83%. The rise of cruise lines, airlines and other hospitality stocks in both the US and Europe was likely tied in parts to the positive vaccine stories over the last 36 hours. Europe managed to survive the aforementioned dip in risk sentiment with most of the bourses up by around 2%, including the STOXX 600 (+1.76%), the DAX (+1.84%) and the CAC 40 (+2.03%).

In terms of earnings, Goldman Sachs rose +1.4% yesterday as they announced, like their American peers, a large jump in fixed incoming trading. FICC sales and trading revenue of $4.24 billion beat an estimate of $2.64 billion. Also in-line with peers was the large Q2 provision for credit losses, up $1.59 billion from the prior year. Alcoa slightly beat after the close, but most importantly on the earnings call CEO Harvey said, “if the number of virus cases increases substantially in a prolonged first or potential second wave, a new round of strict lockdown orders would likely cause the current demand recovery to reverse course.”

Asian markets are trading lower this morning with the Nikkei (-0.71%), Hang Seng (-1.17%), Shanghai Comp (-1.41%), Kospi (-0.52%) and Asx (-0.97%) all down. A miss on retail sales data seems to be weighing on Chinese bourses even as Q2 GDP surprised on the upside (more below). The jump in COVID-19 infections in the region seems to also be acting as an overhang. Futures on the S&P 500 are also trading down -0.40%.

In more detail on the data, China’s Q2 GDP surprised on the upside with a reading of +3.2% yoy (vs. +2.4% yoy expected). Only 2 out of 28 economists on Bloomberg had pencilled in an above +3% print. Bloomberg highlighted that public investment swung to growth of +2.1% yoy in 1H, after contracting in the first 5 months. China’s 1H GDP growth now stands at -1.6% yoy (vs. -2.4% yoy expected). Alongside GDP we saw the other main data releases for June with industrial production rising in line with expectations at +4.8% yoy while YtD fixed asset investment came in at -3.1% yoy (vs. -3.3% yoy expected). Retail sales disappointed with a print of -1.8% yoy (vs. +0.5% yoy expected). The surveyed jobless rate for the month fell to 5.7% (vs. 5.9% last month). Elsewhere, Chinese President Xi Jinping wrote in a brief letter to a group of global chief executives that “We will continue efforts to deepen reform and opening, and provide a more sound business environment for Chinese and overseas investors.”

On the coronavirus, markets were initially reacting to the previous night’s news from the Moderna’s trial, in which their vaccine produced antibodies in all the patients tested. In response the company’s share price was up by +6.90% yesterday. The other news came through from UK ITV’s Robert Peston, who tweeted that “Positive news is coming on Oxford Covid-19 vaccine. The vaccine is generating the kind of antibody and T-cell (killer cell) response that the researchers would hope to see, I understand.” AstraZeneca shares surged following that tweet, ending the day up +5.23%, and Peston’s report on the ITV website said that the news could come as soon as today. Sky News also reported that the Lancet medical journal will publish data on the potential AstraZeneca Plc vaccine on Monday, so one to look out for.

There are some signs that the virus’ continued spread throughout the US may be slightly slowing in states that showed sharp increases in mid-June. Florida reported a 3.5% increase in cases yesterday, below the 4.5% weekly average. Still deaths continue to rise in the state, a further 112 reported yesterday compared to the average of 90 per day over the last week. Meanwhile Arizona saw a 2.5% increase that is also lower than its weekly average of 2.9%, however positive tests in the state remain very high at 23.4%, indicating that the official count may be missing a large number of cases. Deaths in the state rose by 97, the 5th increase in the last 6 days, and well above the 7 day average of 68. We would expect case growth to slow down this week as activity has dropped in these regions. Overall cases in the US rose by 2.0%, in-line with the last week’s average. According to rtlive’s model, only 6 states currently have an Rt under 1.0 and so there is very real concern of cases rising throughout the country even as the majority of the northeast sees limited case growth.

In Asia, after Tokyo raised their alert level to the highest point on a 4-point scale yesterday, they reported a record 280 confirmed cases today. The 7-day average of new cases in the city is now above its April peak. Tokyo‘s governor has urged residents to avoid stores that don’t meet guidelines designed to reduce the spread, but hasn’t called on businesses to close their doors yet. Australia’s second most populous state, Victoria recorded 317 new cases in the past 24 hours, the largest single-day increase for any of Australia’s states and territories.

On another note, the use of masks continued to become more widespread, with Walmart announcing that it would require all customers to wear them in its US stores from July 20. This comes as more US states have adopted mask mandates in recent days, the most recent of which was Alabama yesterday. The state borders recent hotspot Florida and has seen daily new cases rise by over 1,500 for 4 days in a row for the first time. In Europe, both Ireland and Serbia announced that the use of masks would become mandatory. The former also announced that they will delay the latest phase of reopening, which included bars and nightclubs, after the effective transmission rate rose over 1.0 in the country.

Attention today will turn to the ECB’s latest monetary policy decision, along with President Lagarde’s subsequent press conference. Our European economists write in their preview (link here ) that they expect the policy statement to remain unchanged, following the decision at the last meeting to expand the envelope for their Pandemic Emergency Purchase Programme by a further €600bn, bringing the total up to €1.35tn. Though recent comments from ECB officials have shown signs of an emerging optimism, our economists don’t believe these signal a change in the policy stance, and expect the commitment to “substantial monetary policy stimulus” to be repeated. Other issues to look out for include any comments from President Lagarde on the German Constitutional Court, now that the German Bundestag has passed a motion on proportionality.

Staying on Europe, our economists have written a fresh blog post on the proposed EU recovery fund ahead of the special European Council summit that commences tomorrow in Brussels (link here ). Their view is that although an agreement is still possible this weekend, it would now be a positive surprise, with the political messaging having shifted away from expecting a (full) agreement on Friday and Saturday. This could simply be expectations management, but so far there is no indication of the differences of opinion between member states having been bridged yet. That said, if agreement is not reached this weekend, then they still expect an agreement within weeks. The question of how the market will respond to the lack of an agreement will ultimately depend on the post-summit statements on how close or far the EU is from an agreement.

Ahead of that and the ECB later today, the euro actually strengthened to a 4-month high against the US dollar yesterday, at $1.1412. Indeed, if it surpasses the $1.145 it reached at the height of the market’s pandemic fears in early March, that’ll take the euro to its strongest level against the dollar in over a year. Meanwhile in fixed income, yields on 10yr Italian debt fell by -1.1bps to close at their lowest level in over 3 months, but bunds held steady, with just a +0.3bps rise. Over in the US, yields on 10yr Treasuries similarly rose by just +0.7bps.

Looking at yesterday’s data, the main news came from the US, where industrial production rose by a stronger-than-expected +5.4% in June (vs. +4.3% expected), though this still left IP -10.9% below its level in February before the pandemic hit. Further positive news came from the New York Fed’s Empire State manufacturing survey, with the headline general business conditions index rising to 17.2 (vs. 10.0 expected), the first positive reading since February. Finally here in the UK, the June CPI reading rose by a tenth to +0.6% (vs. +0.4% expected),which is the first time that the inflation rate has risen since January.

To the day ahead now, and as mentioned the ECB meeting and President Lagarde’s subsequent press conference are likely to be the highlights. Other central bank speakers today include BoE Governor Bailey, along with the Fed’s Williams, Bostic and Evans. Data releases include May’s UK unemployment and the Euro Area trade balance, while over in the US, we’ll get June’s retail sales, the weekly initial jobless claims, the Philadelphia Fed’s business outlook survey for July, and the NAHB housing market index for July. Earnings releases will include Johnson & Johnson, Netflix, Bank of America, Abbott Laboratories and Morgan Stanley.

Controversial video sharing app TikTok has another demerit to add to its growing list: the app was just fined by South Korea for mishandling child privacy data. 

The company was fined 186m won by the Korea Communications Commission (KCC), which is the country’s main watchdog organization, for collecting the data of children under 14 years old without the consent of their legal guardians. 

The fine, though relatively small (about $155,000 USD), represents about 3% of the company’s annual revenue, according to the BBC. It comes as the result of an investigation that began last year. 

The KCC found that “more than 6,000 records involving children were collected over six months, violating local privacy laws.” In addition, the Chinese firm “failed to inform” its users that their personal data was being transferred overseas. 

“We hold ourselves to very high standards on data privacy, and work to continuously improve and strengthen our standards,” TikTok said, through a spokesperson.

On July 15, U.S. Secretary of State Mike Pompeo said that a U.S. decision on whether or not to ban TikTok would be coming “soon”. 

The news comes just about a week after the United States said it was considering banning Chinese social media apps. Additionally, recall that on July 7, we noted that the DOJ and FTC were investigating TikTok for child privacy violations. 

The investigation is in response to allegations that the company violated a 2019 agreement where it promised to protect children’s privacy. The report of this investigation cited officials from various nonprofit groups who claimed that officials from the DOJ and FTC had met with them over complaints that TikTok had violated an agreement reached with the two agencies in 2019.

Officials from both the FTC, which reached the original consent agreement with TikTok, and the DoJ, which often takes legal actions on behalf of the FTC, met via video conference with representatives from the various groups to discuss the matter, according to David Monahan, a campaign manager with the Campaign for a Commercial-Free Childhood, one of the sources who spoke with Reuters.

“I got the sense from our conversation that they are looking into the assertions that we raised in our complaint,” Monahan said.

According to the agreement, TikTok agreed to police sensitive information about minor users shared on its platform. But the digital privacy groups who brought the complaint alleged that “TikTok failed to delete videos and personal information about users age 13 and younger as it had agreed to do, among other violations.”

Sec. Pompeo when asked if the Administration has considered banning TikTok: “We’re certainly looking at it.” pic.twitter.com/N9NmbDOka0

— Benny (@bennyjohnson) July 7, 2020

India recently banned TikTok and dozens of other Chinese apps, and Fox News host Laura Ingraham asked Pompeo last week if the Trump Administration, which has been ratcheting up the pressure on China, might consider pursuing a similar tack.

“We’re certainly looking at it,” Pompeo said, adding that the administration was taking the issue “very seriously.” “With the respect to Chinese apps on people’s cellphones, I can assure you the United States will get this one right.”

But he added: “I don’t want to get out in front of the president, but it’s something we’re looking at.”

Asked if he could endorse Americans downloading the app to their phones, Pompeo replied: “Only if you want your data in the hands of the Chinese Communist Party.”

Finally, if you still have any doubts about whether TikTok is working to expand the influence of the CCP in the US, give this WSJ story published last month a read…

This is insane https://t.co/Rt1t7SxoIc

— jsadinolfi (@jsadinolfi) June 17, 2020

 

As the Nasdaq’s explosive rally finally begins to unwind, European courts are piling on the pressure. One day after an EU court repudiated the bloc’s own anti-trust officials and saved Apple from a roughly $15 billion tax bill (all pending appeal, of course), the European Court of Justice, the highest court in the bloc, issued a ruling attaching new restrictions to how the personal data of EU citizens are handled by US companies.

Citing the risk of extralegal government surveillance, the court declared that US tech giants must keep all private data belonging to EU citizens in the EU.

According to the ruling, companies’ transferring the data of EU citizens out of the bloc exposes it to undue government surveillance, perhaps carried out by the US intelligence community. To protect the privacy of Europeans in accordance with the principles articulated in the GDPR, the ECJ ruled that private data of its citizens must remain in Europe.

Specifically, the ruling invalidates a widely used EU-U.S. data-transfer agreement in a major victory for privacy activists who have long argued that the US tech companies’ data practices should make them ineligible to operate in the EU. It will force companies to make a difficult decision. Since all data on EU citizens must now be physically stored in data centers on the continent, US tech giants will need to choose: either they build out the necessary infrastructure (server farms, etc), or they abandon their European business.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Authored by Wolf Richter via WolfStreet.com,

OK, it’s actually worse.

Mortgages that are in forbearance and have not missed a payment before going into forbearance don’t count as delinquent.

They’re reported as “current.” And 8.2% of all mortgages in the US – or 4.1 million loans – are currently in forbearance, according to the Mortgage Bankers Association. But if they did not miss a payment before entering forbearance, they don’t count in the suddenly spiking delinquency data.

The onslaught of delinquencies came suddenly in April, according to CoreLogic, a property data and analytics company (owner of the Case-Shiller Home Price Index), which released its monthly Loan Performance Insights today. And it came after 27 months in a row of declining delinquency rates. These delinquency rates move in stages – and the early stages are now getting hit:

Transition from “Current” to 30-days past due: In April, the share of all mortgages that were past due, but less than 30 days, soared to 3.4% of all mortgages, the highest in the data going back to 1999. This was up from 0.7% in April last year. During the Housing Bust, this rate peaked in November 2008 at 2% (chart via CoreLogic):

From 30 to 59 days past due: The rate of these early delinquencies soared to 4.2% of all mortgages, the highest in the data going back to 1999. This was up from 1.7% in April last year.

From 60 to 89 days past due: As of April, this stage had not yet been impacted, with the rate remaining relatively low at 0.7% (up from 0.6% in April last year). This stage will jump in the report to be released a month from now when today’s 30-to-59-day delinquencies, that haven’t been cured by then, move into this stage.

Serious delinquencies, 90 days or more past due, including loans in foreclosure: As of April, this stage had not been impacted, and the rate ticked down to 1.2% (from 1.3% in April a year ago). We should see the rate rise in two months and further out.

Overall delinquency rate, 30-plus days, jumped to 6.1%, up from 3.6% in April last year. This was the highest overall delinquency rate since January 2016 (on the way down).

These delinquency rates are the first real impact seen on the housing market by the worst employment crisis in a lifetime, with over 32 million people claiming state or federal unemployment benefits. There is no way – despite rumors to the contrary – that a housing market sails unscathed through that kind of employment crisis.

Delinquency Hotspots:

The overall delinquency rate rose in every state. But there were some real hotspots, in terms of the percentage-point increase in the delinquency rate in April, compared to April a year ago:

• New York: +4.7 percentage points

• New Jersey: +4.6 percentage points

• Nevada: +4.5 percentage points

• Florida: +4.0 percentage points

• Hawaii: +3.7 percentage points.

The worst hit metros are tourism destinations and New York City where the most devastating and deadliest outbreak of the Pandemic in the US occurred. These are massive increases in the delinquency rates in April:

• Miami, FL: +6.7 percentage points

• Kahului, HI: +6.2 percentage points

• New York, NY: +5.5 percentage points

• Atlantic City, NJ: +5.4 percentage points

• Las Vegas, NV: +5.3 percentage points.

“With home prices expected to drop 6.6% by May 2021, thus depleting home equity buffers for borrowers, we can expect to see an increase in later-stage delinquency and foreclosure rates in the coming months,” CoreLogic said in the report.

With over 8% of the mortgages now being in forbearance, there is a lot of uncertainty about them as well – how many of them can exit forbearance or the extension and return to regular payments, and how many of them end up exiting forbearance and becoming delinquent.

CoreLogic expects to see “a rise in delinquencies in the next 12-18 months – especially as forbearance periods under the CARES Act come to a close,” the report said. To what extent the delinquencies deteriorate further depends largely on the labor market, and on unemployment, and that remains a horrible mess at the moment.

*  *  *

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely.

Even scarier than the pandemic for some in this country is the idea that they may have to actually get up off the couch, look for employment once again and earn money the old fashioned way: doing something productive.

It’s now less than 14 days until Americans surviving on $600 per week in extra unemployment benefits could see their “lifelines” come to an end. The program, which was designed to increase unemployment during the pandemic, has accounted for a majority of the Treasury’s $100 million in jobless payments last month and is scheduled to end before August, according to Bloomberg.

At the same time these benefits end, the Fed will continue to pump billions, if not trillions, into capital markets, facilitating an even further spread between the “haves” and the “have nots” in the country. For many Americans, it also means that they may have to dive into the meager savings they have. 

Stimulus talks in Washington seem to be stalled at the moment and until they progress, there will be no extension of the benefits. Democrats are calling to extend the program (surprise) and the Trump administration is battling to try and cap the amount that Americans can receive, rightfully claiming that the extra unemployment is a disincentive to return to work.

Employers are also standing with the Trump administration, arguing the obvious: the bump in unemployment has disenfranchised potential workers from going back to the job market. Despite this, job postings are lower by about 23% than they were in 2019.

One 63 year old former maintenance supervisor interviewed by Bloomberg called the extra $600 per week “a lifeline to our pre-pandemic existence.”

“It’s going to put me in an extremely uncomfortable and possibly threatening situation with my housing,” he said about the program potentially ending.

33 year old Amanda Steinhauser of Blackwood, NJ is earning about twice what she was making at her job from unemployment assistance. She’s used the bump in pay to pay off credit card debt and save “hundreds of dollars” per week.

But the fact that she is making more now than she was previously hasn’t stopped her from petitioning to keep the benefits, deeming them necessary to meet her new standard of living. She says that the loss of the benefits could cause her to run through her savings, which was ironically helped along by unemployment: “I have been looking for a job ever since I was laid off back in March, and I haven’t been able to find anything. If I don’t have that $600, I know I’m going to be screwed.”

42 year old Jill Haber, a former marketing professional, says the benefits have helped pay the bills but don’t make up her previous salary. She says she’s lucky to have savings: “I’m lucky in that I have that to dip into,” Haber said. “A lot of people don’t.”

Former bar manager Raven Gilbert was laid off in March. She says even with the added benefits, it still falls short of what she was making earlier this year. She qualifies for just $134 per week without it. 

“I don’t know what will happen. I don’t know that I’ll be able to make my bills or buy enough food,” she concluded.

Maybe someone should just tell Raven to become a corporate bond fund manager and the Fed will take of the rest. She can go from $600 per week in free money to trillions in free money overnight. Or perhaps she could learn to code. And of course, there’s always…

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

The one thing I never thought I’d say is that Donald Trump is consistent, and yet on the subject of the Nordstream 2 pipeline he has been.

No single project has caused more wailing and gnashing of teeth than Nordstream 2. And since Nordstream 2 is simply the substitute for South Stream, which was supposed to come across the Black Sea into Bulgaria and then feed eastern Europe, this U.S. opposition to another Russian pipeline spans multiple administrations.

So, this is policy that goes far beyond simple 2020 electoral politics, Trump trying to look tough on the Russians, or his misguided Energy Dominance policy.

With Trump rescinding the sanctions exemption for Nordstream 2 he now has declared open war against Europe, specifically Germany over this project.

But here’s the thing, I think Trump is doing this for updated reasons that fit a different agenda than why the U.S. opposed Nordstream 2 previously, because he knows he can’t stop the pipeline now. All he can do is further alienate Germany, who he has targeted as the main problem in Europe.

Before I go any further, though, I think a little history lesson is in order.

U.S. opposition to Nordstream 2 is deeply ingrained on all sides of the political aisle in D.C. From Republicans still fighting the cold war to Democrats having deep ties to Ukrainian gas transit there are a multitude of reasons why Nordstream 2 is verboten in D.C.

On the other hand, Europe’s relationship with Nordstream 2 is, in a word, complicated.

Russian President Vladimir Putin scuttled South Stream back in late 2014 because the EU changed its pipeline rules during its development after the contracts were in place.

Most of that was U.S. pressure, but some of that was Germany’s Angela Merkel working with then-President Barack Obama to create the worst possible scenario for Gazprom – a pipeline that wasn’t profitable.

Merkel backed Obama’s play in Ukraine in 2014 as a power move to control prices for Russian gas into Europe, putting Soviet-era pipelines under EU gas directive jurisdiction.

The EU was always going to use Ukrainian gas transit as leverage over Putin to drive gas prices below Gazprom’s cost thinking they had no other options.

Putin famously pivoted to China, singing the mega-deal for Power of Siberia in retaliation to that. Since Putin had already brought Crimea in from the cold war and tacitly backed the breakaway of the Donbass Merkel was now the one on her back foot.

At the same time, to salvage the work done on South Stream to that point, Putin cut a deal with Turkish President Recep Tayyip Erdogan to replace South Stream’s volumes to eastern Europe with Turkstream’s to Turkey.

The plans for Turkstream include multiple trains into eastern Europe with countries like Serbia, Hungary and the Czech Republic itching for that gas.

Russia’s options were manifest and Putin deftly outmaneuvered Merkel and Obama. These events forced Merkel’s hand after she stupidly caved to the Greens over ending Germany’s use of nuclear power and now she needed Nordstream 2.

And so Nordstream 2 became a big geopolitical football because Merkel saw, as well, the opportunity to bring the recalcitrant Poles and Baltics under her control as well, solidifying long-term EU plans to engulf all of Euope to Russia’s borders.

Nordstream 2 would nominally replace Ukrainian gas supplies and she could set Germany up to be the gas transit hub, supporting political power emanating from Brussels.

This would give her leverage over Poland, who are trapped between their hatred of the Russians and their unwillingness, rightfully, to submit to Germany.

But Merkel, ever the deft three-faced keeper of the status quo, worked with Putin to secure gas flows through Ukraine for another five years, allaying the worst of Poland’s fears while they have courted Trump to bring in over-priced U.S. LNG.

But from the beginning, Nordstream 2 becomes a different animal geopolitically the moment Trump comes to power. Because Trump is opposed to the EU’s consolidating power over Europe while also sucking the U.S. dry on trade and defense.

He’s made this abundantly clear.

Since the beginning of the year Trump has ratcheted up the pressure on both China and the EU. And the only way that makes any sense is if you are willing to see them as allies in undermining the U.S.’s global position.

This isn’t to say that the U.S.’s global position should remain as it is. Far be it for me, of all people, to argue that. But with the insanity of the COVID-19 fake pandemic, the World Economic Forum’s plans for The Great Reset, and the fomenting a cultural revolution in the U.S. the stakes are now as high as they’ve ever been.

The Davos Crowd is making their big move to consolidate power in Europe. Trump is working with Boris Johnson in the U.K. to oppose that. That’s the simplified version of the chess board.

And this is why I think Trump refuses to give up on stopping Nordstream 2. He’s seen the depths to which The Davos Crowd will go to implement this radical change and he’s forcing the moment to its crisis, as T.S. Eliot put it.

He’s making the choice very clear for Merkel and company. If you want Nordstream 2, suffer the consequences of having to do business without the U.S.

This isn’t about Russia anymore, at all. It’s about Germany and the future of the U.S. If Trump loses in November all of the work done to slow down this push for transnational technocratic oligarchy will end.

If he wins then the current policy sticks, the EU is forced to deal with the U.S. retrenching completely, pulling back on commitments to Europe while divorcing U.S. trade from China.

He may actually be courting lower U.S. dollar flow the world over and forcing Europe into real economic crisis by early next year.

This sanctions policy against Nordstream 2 is consistent with his ‘snap’ decision to pull troops out of Germany, his unilateral abrogation of both the INF treaty and the JCPOA while pressuring NATO to do more.

Merkel, meanwhile, is trying to run out the clock on both Trump and Brexit, as I talked about in my podcast from last week. She’s hoping that Trump will be defeated which will set things back to the way they were before him, force U.K. Prime Minister Boris Johnson to knuckle under in trade deal talks and establish the primacy of the EU as the center of Western power.

Putin, for his part, doesn’t care who he deals with in the long run. He can’t afford to. He has to play the cards on the table in front of him with the people in power, since Russia is still a minor player but with big potential.

For Trump, I believe he sees Nordstream 2 as the perfect wedge issue to break open the stalemate over NATO and cut Germany loose or bring Merkel to heel.

This next round of sanctions will target the companies involved directly in the pipeline. Germany can’t afford not to finish Nordstream 2. So, we are headed for an epic clash here.

Trump and Merkel hate each other, with good reason. And while I have mixed feelings about the way Trump does business, I know Angela Merkel is the key to the EU’s future.

I mentioned in a recent article that I feel Trump is a guy with almost nothing left to lose. If he’s going out he’s going out with a bang. Arrest Ghislaine Maxwell, sanction China and threaten war over Hong Kong, ramp up dollar diplomacy on Europe.

He knows that hybrid war is the only war the U.S. can ‘win’ decisively given the relative dominance of the U.S. dollar today.

While the end of dollar hegemony is in sight, do not underestimate how much damage can be done to the status quo while Trump is in power. That status quo isn’t good for anyone except those who currently want that power back.

*  *  *

Join My Patreon to get help navigating the waters of hybrid war, Install the Brave Browser to take power from Google’s ability to erase the past.