Tag: news

With US traders eyeing a half-trading day today ahead of tomorrow’s July 4 holiday, and volumes even more abysmal than usual, the market’s confounding divergence accelerated overnight, with global bond yields tumbling to fresh multi-year lows, which pushed US equity futures higher amid expectations of even easier central banks, and on pace to hit 3,000 just ahead of the US holiday while European stocks were green across the board even as Asian markets were modestly lower.

Benchmark debt yields slumped to fresh lows as simmering global trade war and recession fears rose after the latest round of dismal service PMI data across the globe, which saw China’s Caixin Composite PMI tumble in June to one of the weakest prints since the financial crisis…

… however the latest catalyst for even lower rates were two particularly dovish developments, when the IMF’s Christine Lagarde was unveiled as the ECB’s next head ushering in a candidate analysts anticipate will take up departing President Mario Draghi’s mantle in providing stimulus, while Trump nominated two particularly dovish economists to the Fed’s board, St Louis Fed’s Christopher Waller, and Judy Shelton, an informal advisor to Trump who publicly said the central bank should reduce rates.

Europe’s nomination of IMF chief Christine Lagarde as Mario Draghi’s ECB replacement reinforced expectations of monetary policy easing in the bloc. Traders greeted the decision by sinking German 10-year Bund yields to record lows of minus 39 basis points, threatening to drop below the European Central Bank’s deposit rate of -0.40% for the first time in history, and Italian two-year yields back into negative territory for first time in over a year.

Meanwhile, in the US 10Y Treasury yields also tumbled, dropping as low as 1.93%, or the lowest since November 2016.

“An absence of inflation, the shortages of ‘safe’ positive yielding bonds that is a legacy of QE, geopolitical concerns and a dovish monetary policy bias almost everywhere are seeing the bond rally go on, and on,” Kit Juckes, chief global FX strategist at Societe Generale, wrote in a note.

In the UK, 10Y UK gilts yield fell 4 basis points to 0.687, bringing the below the BoE’s main policy rate for the first time in a decade after Bank of England Governor Mark Carney warned overnight of damage from rising protectionism and a “widespread slowdown.”

“We have already seen some weak data in recent weeks so that is the backdrop (for the plunge in bond yields),” said Head of Macro Strategy at Rabobank Elwin de Groot. “And now have Christine Lagarde as the likely successor of Mr Draghi at the ECB, which for the market says that the dovish policies will continue.”

Finally, Italian bonds extended gains with the 2Y Italian yield dropping below zero and the 10Y tumblined to levels below last May’s rate quake, after a report that Rome has approved legislation aimed at setting aside future savings to keep the fiscal shortfall in line with EU limits.

As yields dropped, stocks rose, perpetuating the divergence observed ever since the start of June when hopes of an all-in thrust by central banks unleashed a furious risk buying spree.

European shares took little notice of some sizeable overnight falls for Asia’s big bourses to push 0.6% higher. Gains were however led by an unusual pairing of traditionally defensive healthcare stocks and carmakers, which jumped 1.2%. There was plenty of data to digest too. Euro area business activity picked up slightly last month, figures showed, but it remained weak as a modest upturn in the services industry offset a continued deep downturn in factory output. Worse, forward-looking indicators did not point to a bounce back, and other data showed Britain’s economy appeared to have contracted in the second quarter against a backdrop of Brexit and global trade worries.

“The latest downturn has followed a gradual deterioration in demand over the past year as Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown,” Chris Williamson, chief business economist at IHS Markit, said of the UK reading.

Earlier in the session, Asian traders were less excited by the prospect of negative rates across the globe as Asian stocks dropped, led by technology and energy firms, while buying Treasuries and gold amid a murky global growth outlook. Most markets in the region were down, with South Korea and China leading declines. Japan’s Topix gauge fell 0.9%, driven by Toyota Motor and Keyence, as the yen strengthened against the dollar. The Shanghai Composite Index declined 0.9%, led by Industrial & Commercial Bank and Kweichow Moutai. The S&P BSE Sensex Index advanced 0.3%, with IndusInd Bank and Reliance Industries among the biggest boosts, as traders looked toward possible government stimulus in a federal budget due Friday.

In the US, S&P futures rose 8 points just shy of 3,000 with Nasdaq 100 contracts advancing as Tesla climbed in premarket trading after a record quarter of deliveries for the electric-car maker.

In currency markets, the pound flirted with two-week lows after the PMI data and stood at $1.2568, on course for its fifth drop in the last six sessions. The euro was steadier at $1.1282 while the dollar traded down at 107.70 yen, off Monday’s high of 108.535 after the Bank of Japan made small tweaks to its bond buying program. The euro pared a small drop as purchasing manager data for the region was revised slightly higher. Gold extended gains.

Sweden’s crown meanwhile hit a 2-1/2 month high of 10.4890 versus the euro after the Riksbank bucked the global trend back towards cutting interest rates and said it remained on track to raise its by early 2020, albeit with some caveats.

Oil prices also rose a touch after data showed U.S. crude inventories fell more than expected last week but remained wobbly after a more than 4% dive on Tuesday, even after OPEC and allies including Russia agreed to extend supply cuts. Brent crude futures traded at $62.85 per barrel, up 0.7%, while U.S. West Texas Intermediate (WTI) crude futures rose 0.6% to %56.56 a barrel, following a 4.8% drop the previous day.Safe-haven gold was back on the rise too, up 0.5% at $1,425.64 per ounce having reached as high as $1,435.99

Data on U.S. private hiring, factory orders and the services sector will come on Wednesday before an early close. June’s government jobs report is due Friday, after the July 4 break.

Expected data include trade balance, jobless claims, and factory orders. International Speedway is reporting earnings.

Market Snapshot

• S&P 500 futures up 0.2% to 2,986.00
• STOXX Europe 600 up 0.5% to 391.41
• MXAP down 0.3% to 161.67
• MXAPJ down 0.4% to 531.26
• Nikkei down 0.5% to 21,638.16
• Topix down 0.7% to 1,579.54
• Hang Seng Index down 0.07% to 28,855.14
• Shanghai Composite down 0.9% to 3,015.26
• Sensex up 0.2% to 39,893.00
• Australia S&P/ASX 200 up 0.5% to 6,685.46
• Kospi down 1.2% to 2,096.02
• German 10Y yield fell 2.9 bps to -0.396%
• Euro down 0.06% to $1.1278
• Italian 10Y yield fell 12.5 bps to 1.482%
• Spanish 10Y yield fell 8.6 bps to 0.207%
• Brent futures up 0.5% to $62.73/bbl
• Gold spot up 0.5% to $1,425.43
• U.S. Dollar Index little changed at 96.75

Top News Highlights from Bloomberg

• Germany took a top EU job for the first time in more than half a century, after Ursula von der Leyen was nominated to be the bloc’s chief executive. While that’s a win for Chancellor Angela Merkel, the EU power politics involved in distributing the region’s top jobs also laid bare the cracks in her once unassailable power
• President Donald Trump said he’s planning to nominate economists Christopher Waller and Judy Shelton to serve on the Federal Reserve Board. Both are likely inclined to support the president’s call for lower interest rates
• Christine Lagarde is set to swap the helm of the International Monetary Fund for that of the European Central Bank, becoming the first woman to run euro-area monetary policy just as the bloc’s economy looks in need of fresh stimulus
• Germany’s 10-year bond yields are threatening to drop below the European Central Bank’s deposit rate for the first time
• Oil had its worst reaction to an OPEC meeting in more than four years, with prices sliding just after the cartel agreed to prolong production curbs as fears about the global economy mount
• Britain’s dominant services sector all but stagnated in June amid Brexit uncertainty and fears for the global economy. IHS Markit’s Purchasing Managers Index unexpectedly fell to 50.2. It followed weak readings for manufacturing and construction, suggesting the economy has slipped into contraction
• Boris Johnson, the favorite to be the next U.K. prime minister, has pledged he’ll launch a review of “sin taxes” on salt, fat and sugar, a signal that he wants to adopt an economically liberal approach after years in which government tried to clamp down on unhealthy behavior
• After a yearlong assault on the Federal Reserve and its chairman, President Donald Trump has tapped two wildly different economists to the central bank’s board who seemingly have one important thing in common. They’re both likely to support the president’s call for lower interest rates

Asian equity markets traded mostly subdued as the region digested another bout of substandard PMI data from China and following a lacklustre session on Wall St where trade was predominantly range-bound despite the late breakout which helped the S&P 500 notch a consecutive record closing high. ASX 200 (+0.5%) and Nikkei 225 (-0.5%) were mixed with Australia led higher by gold miners as the precious metal resumed its advances but with upside capped by financials amid concerns of tighter margins due to the lower rate environment and as energy names suffered the brunt of a near-5% drop in crude, while sentiment in Tokyo caved in from the weight of a firmer currency. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (-1.0%) were downbeat with underperformance in the mainland after another PBoC liquidity drain and disappointing Chinese data in which Caixin Services PMI missed estimates to print a 4-month low and Composite PMI deteriorated to its weakest since October 2016. Finally, 10yr JGBs were higher as they tracked the gains in T-notes which saw the US 10yr Treasury yield drop to its lowest since 2016, with demand also underpinned by the downbeat risk sentiment and BoJ presence in the market.

Top Asian News

• Singapore Deal Forms Biggest Asia Pacific Hospitality REIT
• Turkish Inflation Respite Starts Countdown to First Rate Cut
• Teva Credit Investors Ramp Up Short Bets as Legal Costs Weigh
• Saudi Makeover Masks Same Old Habits When It Comes to Jobs

European Indices are firmer this morning [Euro Stoxx 50 +0.9%] diverting from the somewhat mixed performance seen overnight, where sentiment was afflicted by poor Chinese data and a PBoC liquidity drain; upside in European bourses so far has led to some chatter that the Stoxx 50 is on track to enter a bull market soon. This mornings stock strength follows on from the SPX setting a fresh record close of 2973 yesterday, in-spite of the backdrop of increasing global growth concerns. Sectors are broadly in positive territory, with the exception of the Energy sector; which is lagging on the back of yesterday’s near-5% oil complex decline. In terms of notable movers this morning, Vonovia (+3.0%) are towards the top of the Stoxx 600 on the back of a broker move where they were upgraded to buy from neutral. Alcohol and tobacco are faring better following reports that UK PM Candidate Johnson is to review ‘sin taxes’, thus upside is seen in related names such as British American Tobacco (+2.5%) and Fever Tree (+1.8%). At the other end of the index are Sainsbury’s (-1.4%) after reporting poor grocery sales and commenting that consumer outlook remains uncertain.

Top European News

• U.K. Services Stagnate, Pointing to an Economy in Contraction
• Euro-Zone Business Stays Somber as ECB Plans for More Stimulus
• Unite Buys Student Landlord Liberty Living for $1.8b
• How the Two Tory Rivals for PM Reckon They Can Fix Brexit

In FX, the Antipodean Dollars have both overcome overnight dips on the back of sub-forecast Chinese Caixin services and composite PMIs following reports that Beijing is considering purchasing a reduced amount of US agricultural products in acknowledgement of the agreement to resume trade talks. Aud/Usd has reclaimed 0.7000+ status, but remains capped below the pre-RBA high, while Nzd/Usd has not quite managed to revisit 0.6700 as the Aud/Nzd cross holds firmly above 1.0450. However, the Aussie may yet be hampered by decent expiry options sitting between 0.6985-0.7000 (1 bn) into the NY cut.

• JPY/SEK – The Yen and Swedish Crown are vying for position as the next best major, as Usd/Jpy consolidates within a 107.92-54 range after the latest safe-haven move through 108.00 and the headline pair now looks likely to remain contained by hefty expiry interest spanning 107.00-10 (3 bn) through 107.65-80 (1 bn) to 108.00 (2.2 bn). Meanwhile, Eur/Sek has pared some losses after a test of Fib support under 10.5000 in wake of the Riksbank policy meeting that stuck rigidly to previous (April) guidance in terms of the rate path and likely timing of the next hike, as growth and inflation assessments were deemed to be unchanged in the interim period.
• EUR – Mostly better than expected Eurozone PMIs and an almost glowing review of Italy’s 2019 and 2020 finances, according to EU officials citing Government analysis have propped up the single currency to an extent, with Eur/Usd trading in a tight 1.1294-69 band. Moreover, option expiries appear influential given as much as 4.7 bn running off from 1.1290 to 1.1300 vs strong technical support in the form of the 100 DMA at 1.1260.
• GBP – The Pound remains rooted to the base of the G10 ranks and another dismal UK PMI has rattled Sterling sentiment, as the services sector only just escaped contraction and the composite fell through 50 to signal negative Q2 GDP, albeit very marginal. Cable held above 1.2550, but partly due to a lethargic Dollar as the DXY continues to straddle the 200 DMA in a confined 96.873-662 range, while Eur/Gbp edged back up towards 0.9000 and recent highs only a few pips shy of the round number.
• TRY – The Lira has maintained its recovery momentum in wake of broadly in line and softer Turkish CPI data that offset subsequent news that tax on retail FX transactions could be doubled to 0.2% and President Erdogan may be given the green light to hike levies further. Usd/Try currently around the middle of 5.6645-6090 bounds.

In commodities, WTI (+0.7%) and Brent (+0.8%) are higher this morning and at the top of the day’s range, although, both WTI and Brent did drop to within a few cents of the USD 56.00/bbl and USD 63.00/bbl handles to the downside earlier in the session. Last nights larger than expected headline API draw failed to provide much in the way of impetus for the complex, which was already heavily subdued having experienced around a 5% decline in prices; in-spite of the OPEC+ meeting concluding and resulting in a agreement to extend the output cuts, with analysts citing a “sell the fact” scenario. Looking ahead, we have the EIA release later in the session where markets will be looking for confirmation of the larger than expected draw and ahead of tomorrow’s US market holiday for Independence Day. Gold (+0.5%) is supported this morning as safe havens are benefiting from the ongoing concerns around global growth, which has most prominently been seen across Fixed Income. The yellow metal has is convincingly above the USD 1400/oz mark, and has printed session highs of USD 1437/oz. Separately, Copper is subdued due to the mixed overnight Asia-Pac performance and after Chinese data missed on expectations.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY +12.8%, prior 85.9%
• 8:15am: ADP Employment Change, est. 140,000, prior 27,000
• 8:30am: Trade Balance, est. $54.0b deficit, prior $50.8b deficit
• 8:30am: Initial Jobless Claims, est. 222,500, prior 227,000; Continuing Claims, est. 1.68m, prior 1.69m
• 9:45am: Bloomberg Consumer Comfort, prior 63.6
• 9:45am: Markit US Services PMI, est. 50.7, prior 50.7; Markit US Composite PMI, prior 50.6
• 10am: Factory Orders, est. -0.6%, prior -0.8%; Factory Orders Ex Trans, prior 0.3%
• 10am: Durable Goods Orders, est. -1.3%, prior -1.3%; Durables Ex Transportation, prior 0.3%
• 10am: Cap Goods Ship Nondef Ex Air, prior 0.7%; Cap Goods Orders Nondef Ex Air, prior 0.4%
• 10am: ISM Non-Manufacturing Index, est. 56, prior 56.9

DB’s Jim Reid concludes the overnight wrap

A stray offside toe, VAR, a very bad penalty miss and a late sending off led to yet another World Cup semi-final heartache for England last night. Yes England’s women lost 2-1 to the USA in a very tense and dramatic last 25 minutes of football. Meanwhile over in cricket, England’s women lost the first game in the Ashes so the nations hopes roll back to the men who effectively have a World Cup quarter final in the cricket today. As someone who has followed England cricket round the world in my younger days I would be glued to this game except for the fact I’m in Milan today. I suspect the TV screens will not have it on!

It was a better day for females in the business/political world than English sportswomen yesterday as Ursula von der Leyen was nominated to be president of the European Commission with Christine Lagarde proposed as the President of the ECB. The former may face more nomination hurdles than the latter but the latter is the more important one for markets.

These nominees and the relentless march lower for bond yields were the main stories in markets yesterday. Interestingly, Lagarde will be the first ECB President who isn’t a professional economist. Given her relative inexperience with the ECB’s (complicated) policy toolkit, there is a credibility risk, especially if and when things get more complicated economically, but markets will like the fact that she is a skilled and well connected political operator.

The euro weakened a touch in response to the announcement, possibly reflecting the fact that a more hawkish individual was not chosen. It’s probable that the intellectual economic legwork will now need to be carried solely by Chief Economist Lane, the only trained economist at the top of the new leadership team (recently-appointed Vice President de Guindos is, like Lagarde, a lawyer by training). That said, a lawyer could prove to be useful in the current environment, with the focus on the legal limits of ECB asset purchases, “disenfranchisement,” the risk of debt restructurings, and the prohibition on monetary financing of governments.

Though not a central banker, Lagarde does have a catalogue of prior economic views that may provide clues of her likely policy preferences. Unsurprisingly, she is in favour of deeper European integration. She previously called for “truly integrated financial and capital markets that allow companies to raise financing across borders more easily and support investment” and also pushed for a “rainy day fund” of common EU money. More specifically, she has called for “agreement on a schedule for common deposit insurance, together with a roadmap for reducing vulnerabilities in the banking sector.” She has also cautioned against the risk of deflation, saying that “if inflation is the genie, then deflation is the ogre that must be fought decisively.” So the good intentions are likely there.

Not to be overshadowed, after US markets closed, President Trump announced two nominations to the Fed Board of Governors: Judy Shelton and Christopher Waller. Shelton is currently the US Executive Director at the European Bank for Reconstruction and Development, a role for which she was already confirmed by the Senate. Her confirmation for Governor may be more contentious, given her stated skepticism of the Fed’s legally mandated goals of maximum employment and stable prices. Waller is a more conventional candidate, currently serving as director of research at the St. Louis Fed. That means he currently works for James Bullard, the most dovish member of the FOMC. Both nominees are highly likely to support lowering interest rates.

Turning back to the move in yields yesterday now. They were driven by the combination of dovish comments out of the BoE, a big slide for oil, and holiday-impacted volumes. Indeed it was Gilts which really led the charge with 10yr yields dropping -9.2bps, equalling the biggest drop since last November. At 0.722%, yields are also now at the lowest since September 2016 and they now trade below the BoE’s Bank Rate for the first time since November 2008. The same phenomenon occurred earlier this year in the US and is just 3.3bps away from happening in Europe, using bunds and the ECB’s deposit facility.

Although shockingly poor construction data kick started the move (more on that below), it was comments from Carney which was the bigger story after the BoE Governor said that “intensification of trade tensions has increased the downside risks to global and UK growth” and that it’s “unsurprising” that the market views a lower bank rate in the future. Carney also said that the MPC will be addressing the global growth outlook in the August report. The overall feeling from the speech was that the MPC is preparing the ground to potentially drop the tightening bias (that has recently perplexed markets) when they meet next month.

Even greater was the move for BTPs where 10y yields rallied -12.8bps. That takes the two-day move to -26.3bps, the sharpest rally since last June. In fact yields are -32.1bps over the last 5 sessions. In what is perhaps less of a surprise now, 2y BTP yields also dropped into negative territory briefly yesterday however they eventually closed just above that at 0.022% (-8.0bps on the day). 10yr Bunds were a more modest -1.1bps lower albeit to a new low of -0.367%. 10yr Spain (-4.5bps) and Portugal (-4.8bps) are all of a sudden now just 30-35bps away from 0% which feels all a bit surreal.

Speaking of which, 10y Greek yields also rallied -12.4bps yesterday and are now at a new record low of 2.138%. Amazingly, the spread over Treasuries is just 16.2bps. The last time the spread was that low was all the way back in 2007. For context, the spread was above 1,600bps during 2015. That spread compression to Treasuries came despite Treasuries rallying -4.8bps to 1.976% yesterday. All this came with 5y5y inflation breakevens dropping -4.5bps in the US and -4.2bps in Europe – just 2.9bps off the pre-Sintra all-time lows. Lagarde will have her work cut out!

As mentioned, one of the drivers of lower yields and softer inflation expectations was the sharp fall in oil prices. WTI crude fell -4.65%(up +0.36% this morning), its steepest drop since May. While OPEC and its other partners reached a new output deal earlier this week, the newsflow since then has been consistently poor. The various parties are struggling to agree on the specifications of the next output cuts, with officials from Saudi Arabia and Russia both out in the press (Bloomberg) yesterday giving different methodologies for how to calculate the cuts. The former said that they would change their baseline to the 2010-14 average, rather than continuously updating it based on a five-year moving average. In response, Russian Energy Minister Novak said that “a final decision to switch hadn’t been made.” This is pretty technical, but a change would equal around 670,000 barrels per day difference in output over a year.

Given all of the above bubbling in the background, it was a much more holiday-like session for equity markets. The S&P 500 (+0.29%), NASDAQ (+0.22%) and DOW (+0.26%) all fluctuated in small ranges while the STOXX 600 also closed +0.37%. Volumes were around -20% lower in the US too with markets shutting early today ahead of the Independence Day holiday tomorrow.

This morning in Asia markets are largely heading lower with the Nikkei (-0.61%), Hang Seng (-0.18%), Shanghai Comp (-0.70%) and Kospi (-0.87%) all down. The Japanese yen is up +0.25% while gold is +0.57%. In terms of overnight data releases, we saw China’s Caixin June services PMI reading at 52.0 (vs. 52.6 expected) bringing the composite PMI down to 50.6 (vs. 51.5 last month), the lowest reading since October 2018. The Chinese yuan is trading -0.13% to 6.8806. Elsewhere, futures on the S&P 500 are down -0.13% and yields on 10y USTs are down -2.1bps this morning after declining -5.1bps yesterday to 1.954%, the lowest level since November 2016 while 2y USTs are down -2.5bps this morning (-2.5bps yesterday as well) to 1.738 bringing the 2s10s spread to +21.6bps.

In other overnight news, the US Commerce Department imposed duties of more than 400% on imports of steel products produced in Vietnam using material from South Korea and Taiwan. In three preliminary circumvention rulings on Vietnamese steel, the Commerce Department said certain products produced in South Korea and Taiwan were shipped to Vietnam for minor processing before being exported to U.S. as corrosion-resistant steel products and cold-rolled steel. Elsewhere, the BoJ reduced its bond purchases across three maturity zones. The moves, however, were somewhat expected after the central bank last week altered its monthly bond-buying plan for July, seeking to address a flattening yield curve. Yield on 10yr JGBs are down -0.6bp to -0.156%.

As for other newsflow yesterday, a Bloomberg story attracted a bit of attention, suggesting that ECB policy makers see “no need to rush into a July rate cut” and instead would prefer to wait for further data. That would better fit with the view of a September cut at which point we’ll also get the new staff forecasts and the benefit of knowing what the Fed will have done. The bigger takeaway from the story, rather than the exact timing, is that it further confirmed that a rate cut is likely.

Across the Atlantic, the only Fedspeak came from Cleveland Fed President Mester, who is a known hawk and is not a voter this year. That said, she did lay out her argument against a near-term rate cut. She said that she “prefers to gather more information before considering a change in our monetary policy stance.” She said she doesn’t want to “always react to the market” and does not support a proactive rate cut to boost inflation now. Mester was pretty specific about what would change her view: citing “a few weak job reports, further declines in manufacturing activity, indicators pointing to weaker business investment and consumption, and declines in readings of longer-term inflation expectations.” That heightens interest in this Friday’s jobs report for those who make it back after the holidays.

As for data, it was a very sparse calendar yesterday however the highlight was a spectacularly bad construction PMI here in the UK. The June reading printed at 43.1 which was well below expectations for 49.2 and also 5.5pts down from the May reading. In fact it was the lowest since the crisis. I can only think it’s because my building work finally came to an end that month. The details didn’t look much better and combined with the manufacturing reading on Monday, the data is now increasingly hinting towards a recession here in the UK or at least the rising probability of a negative growth quarter. The services reading is due out today and arguably this is the more important driver of growth so it’ll be well worth watching.

The remaining data yesterday included a weak May retail sales print in Germany (-0.6% mom vs. +0.5% expected) albeit offset to upward revisions to the prior month, and a softer than expected May PPI reading for the Euro Area (-0.1% mom vs. +0.1% expected). In the US, the only notable release was the June Wards total vehicle sales which came in at 17.3 million, matching May’s figure and exceeding the 3m, 6m, and 12m moving averages.

Looking at the day ahead, the main focus this morning in Europe will be on the remaining June PMIs with the services and composite prints due. As for the US, with markets expected to close early ahead of Thursday’s holiday we’ve got a fairly heavy slate of releases to get through including the June ADP employment change print, initial jobless claims, May trade balance, June services and composite PMIs, June ISM non-manufacturing and final May durable, capital and factory orders. Away from that the ECB’s Nowotny and Villeroy are scheduled to speak along with the BoE’s Cunliffe and Broadbent.

via ZeroHedge News https://ift.tt/2Jrvr2S Tyler Durden

Though China wasn’t the only Asian nation where manufacturing activity slumped last month, according to a slate of almost unilaterally disappointing PMI readings released earlier this week, the tend over the past year is increasingly clear: The trade war is President Trump’s to win, as more tech companies resolve to move at least some production outside of the mainland.

And in the latest warning to Beijing that the trade war is having a real, and perhaps irreversible, impact, Nikkei Asian Review reports that HP, Dell and Amazon are joining the wave of consumer-electronics manufacturers who are planning to shift production elsewhere.

The burgeoning exodus, which also reportedly includes a half-dozen Apple suppliers (most notably Foxconn), Nintendo, Sony and others is threatening China’s status as the global manufacturing hub.

HP and Dell, the world’s No. 1 and No. 3 laptop manufacturers, who are responsible for a combined 40% of the world’s production, are planning to shift 30% of their production elsewhere.

Lenovo Group, Acer and Asustek Computer are also evaluating plans to shift production elsewhere. And Amazon is planning to shift at least some of the production for its Kindle e-reader and Echo assistant. For all of these companies, the focus would mostly be on products bound for the US.

HP has already drawn up plans to move some 20% to 30% of production outside China, and is reportedly looking to build out a new supply chain in Thailand and Taiwan. The move could begin as soon as the end of the current quarter, though Nikkei’s sources cautioned that it’s not set in stone.

Dell, meanwhile, has already started a “pilot run” of notebook production in Taiwan, Vietnam and the Philippines, though it still has reservations about a possible shortage of skilled workers.

And at this point, even if China and the US resolve the trade spat amicably in the near future, an outcome that doesn’t look super likely (particularly since the meeting between Trump and Xi in Osaka resulted in what was essentially a reiteration to work toward a solution, exposing how little progress has actually been made over the past six months), rising labor costs in China and the risks associated with such concentrated production are already providing enough incentive to leave.

As one economist put it, “there is no turning back.”

“There is no turning back, and it is not only about tariffs but also about reducing risks for the long term [such as rising labor costs],” said TIER’s Chiu. “Southeast Asian countries and India will together become new competitive hubs in coming years for electronics production,” the economist said.

“There is plenty that policymakers can do in the short-term to pick up the slack if some exporters relocate out of China,” said Mark Williams, a China economist at global research firm Capital Economics. “But China would suffer over the years ahead if it could no longer benefit from the know-how that globally competitive exporters bring to its economy.”

Unfortunately for Beijing, which is already struggling with its slowest economic growth since the early 1990s, even opening up its markets to more foreign companies likely won’t be enough to reverse this trend.

via ZeroHedge News https://ift.tt/2KXdAEn Tyler Durden

Earlier this week, the International Atomic Energy Agency confirmed that Iran’s stockpiles of enriched uranium had surpassed the 300 kg limit set forth in the JCPOA – colloquially known as the ‘Iran deal’ – marking Iran’s first, if small, violation of the treaty. Back in May, the US unilaterally withdrew from the agreement by reimposing sanctions on Iran, a decision that Trump had telegraphed far in advance.

But Iran’s next gesture of defiance won’t be so easily overlooked.

On Sunday, Iran will “take the next step” in enriching uranium beyond the levels specified by the 2015 agreement, President Hassan Rouhani warned, according to the New York Times.

Iran will enrich uranium “in any amount that we want, any amount that is required, we will take over 3.67,” Rouhani said. “Our advice to Europe and the United States is to go back to logic and to the negotiating table. Go back to understanding, to respecting the law and resolutions of the U.N. Security Council. Under those conditions, all of us can abide by the nuclear deal.”

According to USA Today, the deal’s terms refuse to allow Iran to enrich uranium above a 3.67% threshold. At that level, the uranium is strong enough to power nuclear power plants, but well below the 90% enrichment threshold necessary to create a nuclear weapon. Iran has insisted that its nuclear program is for civilian purposes only – but by stockpiling highly enriched uranium, the rogue nation certainly won’t be putting anybody’s mind at ease.

If Iran’s breach of its uranium stockpile limits was easily brushed aside, breaching its enrichment restrictions won’t be. If anything, it will become more fodder for Israel, which has threatened a “preemptive strike” on Iran.

At this point, the only thing that would dissuade Iran from breaching this limit would be an agreement with the JCPOA’s European signatories (Germany, France, the UK and the European Union) to alleviate the economic pressure on Iran caused by US sanctions. Since Trump reimposed the sanctions, the country’s economy has struggled mightily, as its currency has collapsed and its oil exports have slumped. Rouhani gave Europe a 60-day deadline to come up with a plan. But that was in early May, and so far, no plan has been forthcoming.

Despite a flurry of attacks on oil tankers in the region (which Washington was quick to blame on Tehran, despite others expressing doubts), and the downing of an American drone, President Trump has held back from launching an attack on Iranian soil. But this next provocation might not be so easily ignored.

via ZeroHedge News https://ift.tt/2RRluzD Tyler Durden

Authored by Daniel Lacalle,

The G20 summit has not generated unexpected or significant headlines and, of course, is not a catalyst for a relevant change in the global economic trends. The United States and China have only agreed to postpone tariff increases, but no real trade agreement has been reached.

If we look at the last G20 meeting conclusions, nothing has really improved. Plans to introduce new tariffs are delayed, and the result is exactly what happened in the previous G20. The real news is the evidence of a manufacturing recession.

Markets have reacted strongly in a relief rally because the trade dispute did not get worse. The safest assets, such as gold, fell while the stock markets rose despite a widespread disappointment in manufacturing PMIs. And therein lies the danger.  Many investors are betting again on monetary policy as the only factor to drive markets and risky asset valuations higher.

It is difficult to think that the agreement in the G20 will improve the global economic outlook, mainly because the weakness of the Eurozone or China and the slowdown of the manufacturing sector have nothing to do with the so-called trade war, but with almost a decade of excess in demand-side policies, which have perpetuated overcapacity, increased debt and made economies less dynamic by zombifying the low productivity sectors through low rates and constant refinancing of non-performing debt.

If there is any positive news for world economic growth, it has not come from the G20, but from the agreement between Mercosur and the European Union, after twenty years of negotiations. The European Union liberalizes its agricultural, industrial and service imports and supports an improvement that can be significant for the economic growth of the countries integrated in Mercosur, as well as helping the EU revive its stagnant economy. Or at least try.

Unfortunately, these agreements do not reduce the risk of high indebtedness or excess capacity. The great problem of multilateral agreements is that they often disguise the errors of debt saturation and political spending and sometimes increase those mistakes.

We are living a kind of “Groundhog Day”, the constant repetition of something we have already lived: a few smiles, a handshake, a couple of tweets, reasonably broad and vague messages, but little in terms of concrete measures.

Our estimates of economic growth and corporate profits have not improved after the G20, and it is worth warning of the risk of complacency when macroeconomic indicators worsen and investors increase exposure to risk. What emerges in many cases of this different trend between macro indicators and market valuations is that there is only one synchronized bet: More central bank injections. Investors hoping that data will continue to worsen so that central banks will inject more liquidity and lower interest rates.

At the very least we should be cautious in pro-cyclical exposure. Macroeconomic data show the evidence of the slowdown and risk of stagnation.

After more than 20 trillion dollars of stimulus, massive deficit spending and large incentives to increase capex and debt, manufacturing ind¡ices are in contraction. Businesses have plenty of available capital at low cost, but face the prospect of weakening demand and zombification, so manufacturing is showing one of the worst side effects of cheap money: stagnation from debt saturation and widespread excess capacity.

No  trade war truce or central bank quantitative easing is going to change this trend because central planning and demand-side policies are the culprits of stagnation, not the solution.

via ZeroHedge News https://ift.tt/2Jjn2ib Tyler Durden

Yesterday, we reported about the increasingly dejected atmosphere at Deutsche Bank’s Wall Street headquarters, where the looming fear that the bank is going to gut, shutter or sell most, if not all, of its US i-banking business has inspired those remaining employees to openly hunt for other jobs, while some managers and more junior employees are treating every day like its a Summer Friday.

But while things are certainly looking dire at 60 Wall Street, in the UK, where the looming uncertainty over Brexit is being compounded by a continent-wide slowdown, the impact on the financial services industry is being acutely felt, particularly among interns and junior analysts who are worried that they won’t be able to find permanent jobs in the City as thousands of job cuts loom.

According to Bloomberg, which apparently sent a team of reporters to hang out in some popular London pubs frequented by finance types. Though it’s hardly a lasting comfort, some who have lost their jobs are finding camaraderie and a “safe space” with others in a similar position.

Recently, Nomura slashed dozens of brokerage jobs. Afterwards, those who lost out met in the pub to share a few round of goodbye drinks. The expectations for job losses this summer are so severe, that at least one of BBG’s sources deemed the summer of 2019, the “summer of gloom”.

Japan’s biggest brokerage let about 30 people go that day in April. Summer has arrived in London, but the smiles are likely to remain frozen in the financial community as HSBC Holdings Plc and Deutsche Bank AG join Nomura in implementing thousands of job reductions. In an atmosphere that may be the gloomiest since the financial crisis, some are jumping before they’re pushed.

“It’s one of the worst London job markets I have ever seen outside of a crisis,” said Stephane Rambosson, founder of Vici Advisory, a London-based executive search firm. “I think there’s a real possibility that you could see more than 5,000 jobs lost by the end of the year.

“Cuts are concentrated at non-U.S. investment banks. European lenders, hobbled by weak domestic growth and negative interest rates, have been losing market share for years. Experienced bankers have seen contractions before, but there’s a feeling this time is different. It’s not just shaky markets, trade tensions and Brexit: Automation is making some banking skills obsolete.

One now-former banker even joked to BBG that some of his ex-colleagues have been forced to give up their dream of working in finance, and are instead pursuing employment at…a blockchain startup. Others are exploring opportunities in the cannabis industry.

In the City, the anxiety is palpable as some bankers quit rather than wait to be laid off.

“People are stressed out and desperately looking for new things, because they know it’s not going to be easy to find a job at another bank,” said Rambosson, himself a former investment banker. “We see people quitting before the cuts come and taking the view that now’s the right time to get out.”

With all of this in mind, we can’t blame traders for being cynical.

eeThings will get worse,” said Amrit Shahani, research director at Coalition. “We expect a further 10% reduction in investment bank headcount in the U.K. over the next two years, partly due to Brexit job moves.”

It’s as good a time as any to learn that money can’t buy happiness. And while some former bankers might struggle to get over it, for others, it’s never too late to pivot to fintech.

via ZeroHedge News https://ift.tt/2JncKNI Tyler Durden

Via Global Macro Monitor,

The days of the barter economy…

We had to do a double take with this tweet.  Even fact checked it.

In 1989, the cash-strapped Soviet Union paid Pepsi with 17 submarines, a cruiser, a frigate & a destroyer in exchange for $3 bln worth of Pepsi. This caused Pepsi to become the 6th largest military power in the world for a moment, before they sold the fleet for scrap recycling. pic.twitter.com/zlsPLEV7re

— Soviet Visuals (@sovietvisuals) July 1, 2019

I had a twitter debate last month with someone comparing current day China with the Soviet Union before the collapse in the late 1980s.  Are you frickin’ serious?

In the late 1980s, Russia’s initial agreement to serve Pepsi in their country was about to expire, but this time, their vodka wasn’t going to be enough to cover the cost.

So, the Russians did what any country would do in desperate times: They traded Pepsi a fleet of subs and boats for a whole lot of soda. The new agreement included 17 submarines, a cruiser, a frigate, and a destroyer.

The combined fleet was traded for three billion dollars worth of Pepsi. Yes, you read that right. Russia loves their Pepsi.  – Business Insider

I will believe that when China starts swapping their new lunar technology, which just probed the Dark Side of The Moon, for buckets of KFC.

via ZeroHedge News https://ift.tt/31YY4wS Tyler Durden

Despite the civil unrest in France to start the year, the country’s richest citizens still had a fantastic start to 2019, according to Bloomberg.

Amidst protesters taking to the streets to demand higher wages and better pensions, the 14 people from France on the Bloomberg Billionaire’s Index added a combined $78 billion to their collective net worth since the beginning of 2019. That is an astounding 35% increase. The figures will likely serve as additional fuel for protests over income inequality in the country.

France’s pace was more than double China’s richest, who saw growth of 17% for the first six months of the year. The richest in the U.S. saw their wealth grow 15% during the first half the year.

Outside of France, the other highest returns came from Thailand at 33% and Singapore, who came in at 31%. The richest in Japan saw their wealth grow 24%. The only Nigerian on the list, Aliko Dangote, saw his wealth up 60% so far in 2019.

Specifically in France, luxury businessmen Bernard Arnault and Francois Pinault, combined with cosmetics heir Francoise Bettencourt Meyersedit combined to make up $53 billion of the growth. The demand for luxury goods from China has continued even though there has been uncertainty from the ongoing trade war. Arnault’s LVMH shares are up 45% this year, making the company the second best performer in France’s CAC 40 index. He joined Jeff Bezos and Bill Gates as the only people that have fortunes of over $100 billion.

Thailand’s success was a result of Charoen Sirivadhanabhakdi, founder and chairman of TCC Group. Sirivadhanabhakdi’s net worth rose by $4 billion to $16.5 billion as shares of his company, listed in Singapore, were up 38%. 

via ZeroHedge News https://ift.tt/30amim9 Tyler Durden

Authored by Judith Bergman via The Gatestone Institute,

• Although the “military arm” of Hezbollah is prohibited in the EU, the “political arm” is not, which means that in Germany, Hezbollah is free to engage in “non-military” activities — such as fundraising.

• On the one hand, the federal police conduct countrywide raids on middle-aged Germans who post their thoughts on Facebook, while on the other, members of openly lethal terrorist organizations who espouse nothing but hatred towards a specific ethnic group, the Jews, are not only allowed to march in the heart of the German capital… but are free to organize and fundraise for their purpose.

• That participants in the anti-Semitic Al Quds march have been allowed to flaunt their hatred for nearly four decades now, while middle-aged Germans are having their apartments searched for anti-Semitic and racist messages on Facebook, exposes a disturbing double standard in the application of the law.

• At the very least, it shows that German authorities appear to harbor extremely selective views of what constitutes hate speech, based, it seems, on nothing more than the identity of the group that voices it.

In June, the “Al Quds Day” march took place in Berlin. Al Quds Day, in the words of the late historian Robert S. Wistrich, is “The holiday proclaimed by Khomeini in 1979 to call for Israel’s annihilation” which “has since been celebrated worldwide…”

Pictured: Participants in the anti-Israel Al-Quds Day march wave the flag of the Hezbollah terrorist group, on July 25, 2014 in Berlin, Germany. (Photo by Carsten Koall/Getty Images)

In Germany, Al Quds Day marches have been taking place in the country’s capital since the 1980s[1], first in Bonn and since 1996 in Berlin. On Al Quds Day in December 2000, more than 2,000 demonstrators in the Kurfürstendamm — a central boulevard in Berlin — called for “the liberation of Palestine and the holy city of Jerusalem”. In November 2002, only one year after 9/11, the march featured slogans such as “Death to Israel” and “Death to the USA”. At the march in 2016, the slogans were, among others, “Death to Israel”, “Zionists kill children”, and so on.

Despite nearly four decades of such rhetoric — the kind that is arguably capable — according to paragraph 130 of Germany’s Criminal Code, which prohibits hate speech — “of disturbing the public peace” by inciting “hatred against a national, racial, religious group or a group defined by their ethnic origins”, German authorities have continually refused to ban the Al Quds Day march. The argument is, reportedly, that the Administrative Court would overrule such a ban. “A constitutional state must act in accordance with the rule of law,” said the spokesperson for the interior administration of the city of Berlin, Martin Pallgen. “Freedom of assembly and expression also applies to those who reject the rule of law”. Instead, German authorities have prohibited marchers from being overtly anti-Semitic and inciting hatred against Jews. The exercise is a bit like telling a neo-Nazi march please to cover up the swastikas to look more presentable.

It has not helped. In 2016, police issued specific instructions for the march’s participants, banning them from expressing anti-Semitic views or inciting violence against Jews. That restriction, according to Benjamin Steinitz, the director of the Berlin-based Department for Research and Information on anti-Semitism (RIAS), curbed the undisguised hate speech somewhat, but led to the use of “coded messages”, frequently in Arabic or Farsi, which most German police do not speak. “So,” said Steinitz in 2017, “the police regulations have had some effect, but since the goal of this demonstration is the dismantling of the State of Israel, the anti-Semitic content is always there.”

Indeed, according to Der Tagesspiegel, despite the specific police instructions of previous years, in the June 2018 march, the police had to issue the following instructions to the participants:

“It is forbidden to burn dolls. There must be no open calls for kidnapping or murder. The participants should not chant, ‘Zionists into the gas’ or ‘Jew, Jew, cowardly pig, come out and fight alone'”.

According to Der Tagesspiegel, these were all incidents that happened in previous marches — and all, presumably, violations of Germany’s hate speech laws.

This year, according to a report by RIAS, “The Al Quds march did not lose any of its anti-Semitic character, despite attempts to deceive the public by the organizers”. The report mentions, as an example, the presence of anti-Semitic posters and praising Hezbollah. Protesters wearing T-shirts with the name and slogans of the terrorist group Hamas — which vows to eliminate Israel — were also present.

The refusal of the authorities to ban the Al Quds march appears even more suspect in light of the fact that around the same time of the march, on June 6, German authorities launched nationwide coordinated police raids in 13 federal states against suspects who had posted hate speech online. In a total of 38 cases, apartments were searched and suspects interrogated, the Federal Criminal Police Office reported. The suspects were alleged to have posted hate comments, including “public calls for crimes, insults of officials or anti-Semitic verbal abuse.” One of the largest operations reportedly took place in the city of Koblenz, where the apartments of 12 suspects were searched in connection to two far right-wing Facebook groups. The 12 suspects were between the ages of 45 and 68, and were believed to be responsible for the groups called “The Patriots,” and “Our Germany patriotic & free.” The groups were suspected of having made the following comment, among others, about refugee family reunification: “In my opinion all should be gassed”. The nationwide action day to combat hate postings was established three years ago and has since been held once a year. The Federal Police claim that most of the hate speech is “from the right-wing extremist spectrum” (77%), 9% from the “extreme-left” and 14% “foreign or religious ideologies or no concrete political motivation”.

While the Federal Criminal Police Office was searching the homes of middle-aged Germans posting racist comments in Facebook groups, a recent German intelligence report concluded that in 2018, the membership numbers in German for Hezbollah, the Lebanese-based Iranian proxy terrorist organization, rose to a total of 1050, up from 950 in 2017. “Hezbollah denies the right of existence of the State of Israel and fights it with terrorist means,” the intelligence report noted. “In Germany, the followers of Hezbollah maintain organizational and ideological cohesion in local mosques associations that are financed primarily by donations.” The report also mentioned the travel of functionaries between Lebanon and Germany for the purpose of connecting with Hezbollah and noted that “Hezbollah is against the idea of ​​international understanding and the peaceful coexistence of peoples”.

The presence of such a large number of Hezbollah operatives in the country does not appear to worry the German government. Although the “military arm” of Hezbollah is prohibited in the EU, the “political arm” is not, which means that Hezbollah is free to engage in “non-military” activities in Germany — such as fundraising.

In March, the German government refused to ban the terrorist organization in its entirety, and in June, a majority of the Bundestag, including the Christian Social Union, the Social Democratic Party, the Left, the Greens, Free Democrats and Angela Merkel’s Christian Democratic Union (CDU) rejected a proposal by the Alternative for Germany (AfD) party to ban or alternatively limit Hezbollah’s operations in Germany, such as abolishing its non-profit status.

Thus, there seems to be in Germany a revealingly uneven application of hate speech laws.

On the one hand, the federal police conduct countrywide raids on middle-aged Germans who post their thoughts on Facebook. On the other hand, people who back openly lethal terrorist organizations that espouse nothing but hatred towards a specific ethnic group, the Jews, are free to organize, fundraise, and march in the heart of the German capital — if they please just omit “Zionists to the gas” or “Jew, Jew, cowardly pig, come out and fight alone“.

Whatever one’s opinion of hate speech laws, they, like all laws, have to be applied in an equal and consistent manner. That participants in the anti-Semitic Al Quds march have been allowed literally to parade their hatred for nearly four decades now, while middle-aged Germans are having their apartments searched for anti-Semitic and racist messages on Facebook, exposes a disturbing double standard in the application of the law.

It shows at the very least, that German authorities appear to harbor extremely selective views of what constitutes hate speech, based, it seems, on nothing more than the identity of the group that voices it.

via ZeroHedge News https://ift.tt/2Ja8hiV Tyler Durden