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US home prices (in the 20-city Case-Shiller universe) rose at 5.89% YoY – the strongest growth since July 2014.
This has pushed the national home price index to new record highs…
Perfect time to hike rates and deflate yet another bubble?
The 3-6 month lag effect of rate moves on home prices is looming.
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Having weakened to unchanged for the last two months, April saw personal spending rise 0.4% MoM (as expected) and personal income rise 0.4% MoM (as expected). However, year-over-year growth in spending (+4.3%, weakest since Sept 2016) and income (+3.6%, weakest since Jan 2017) both signaled a rolling over of the post-Trump exuberance (just in time for another rate-hike by the The Fed).
Major (upward) revisions to spending data seems to have exaggerated April's demise…
But, this is not what The Fed (nor Trump) was hoping for.
Spending and Incomes are still rising though…
And the revisions sent the savings rate soaring off crash lows…
Before and After…
Here's why – huge downward revisions to income and spending was re-engineered higher…
And this is the economic data that The Fed et al. uses to judge whether rate-hikes are appropriate – more noise, less signal.
via http://ift.tt/2rfXXv8 Tyler Durden
Authored by Mac Slavo via SHTFplan.com,
(Pictured: Texas State Representatives Panco Nevarez (Left) and Matt Rinaldi (Right) Came To Blows On The House Floor Over Illegal Immigration)
We’ve repeatedly warned that the division festering among the Left and Right could soon lead to violence across America and the real possibility of a civil war. Earlier this year we reported that Anti-Fascist groups were beginning to arm themselves for physical violence after taking a beat down in Berkeley.
And while attacks have thus far been limited to protesters clashing on college campuses and speaking venues for Republicans, things have now taken a drastic turn.
Hours ago, as supporters of illegal immigration massed to protest the policies being put into place by the new White House administration and the Texas State government, two Texas legislators nearly came to blows in the Capital.
According to Republican legislative representative Matt Rinaldi, he was accosted by Democrat Poncho Nevarez.
The argument stemmed from the fact that scores of protesters were waving signs in Austin, TX, with many identifying themselves as illegal immigrants. Rinaldi reportedly had enough of the disturbance and contacted ICE agents. When Rinaldi advised the House Floor that the agents had been contacted, Nevarez apparently lost total control of his faculties and began assaulting him, to the point that other legislators had to step in to break up the fight.
Nevarez then directly threatened violence against Rinaldi because of his call to ICE. Reports claim that not only did Nevarez threaten Rinaldi’s life but indicated that he would wait for Rinaldi to leave the legislature and would get him on the way to his car.
Rinaldi, who is a concealed handgun licensee, responded by saying that he would shoot in self defense if forced to and reportedly said that he would put a bullet in the head of Nevarez if confronted.
But even after the protest ended, tensions remained high. Rep. Ramon Romero, a Democrat from Fort Worth, said he was standing with fellow Democratic Rep. Cesar Blanco of El Paso when Republican colleague Matt Rinaldi came over and said: “This is BS. That’s why I called ICE.”
Rinaldi, of Irving in suburban Dallas, and Blanco then began shouting at each other. A scuffle nearly ensued before other lawmakers separated the two.
Later, a group of Democratic lawmakers held a press conference to accuse Rinaldi of threatening to “put a bullet in the head” of someone on the House floor during a second near scuffle. They said the comment was made in the direction of Democratic Rep. Poncho Nevarez, from the border town of Eagle Pass.
In a subsequent Facebook statement, Rinaldi admitted saying he’d called federal authorities and threatened to shoot Nevarez — but said his life was in danger, not the other way around.
“Nevarez threatened my life on the House floor after I called ICE on several illegal immigrants who held signs in the gallery which said ‘I am illegal and here to stay,'” Rinaldi wrote. He said Democrats were encouraging protesters to ignore police instructions and, “When I told the Democrats I called ICE, Representative Ramon Romero physically assaulted me, and other Democrats were held back by colleagues.”
Rinaldi took to Facebook to share details of the incident and express his concerns:
Today, Representative Poncho Nevarez threatened my life on the House floor after I called ICE on several illegal immigrants who held signs in the gallery which said "I am illegal and here to stay." Several Democrats encouraged the protestors to disobey law enforcement.
When I told the Democrats I called ICE, Representative Ramon Romero physically assaulted me, and other Democrats were held back by colleagues.
During that time Poncho told me that he would "get me on the way to my car." He later approached me and reiterated that "I had to leave at some point, and he would get me."
I made it clear that if he attempted to, in his words, "get me," I would shoot him in self defense. I am currently under DPS protection. Several of my colleagues heard the threats made and witnessed Ramon assaulting me.
Supporters of undocumented and illegal immigration will no doubt applaud the threats made by Poncho Nevarez, underscoring just how tense the situation has become across the country.
The only question now is… how long until the shooting starts?
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So much for Trump’s lawyers gaining control over the president’s tweeting habits.
Just three after the Italian G-7 meeting ended in an unprecedented lack of consensus over the Paris climate deal, prompting Angela Merkel to announce one day later that Germany can no longer “completely rely” on the US, Trump escalated the dispute with Germany over trade and defense while the German Chancellor met with Indian Prime Minister Narendra Modi in a demonstration of her ability to pivot from the U.S. to strengthen alternative global alliances.
“We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military,” Trump said in his first tweet on Tuesday. “Very bad for U.S. This will change”
We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change
— Donald J. Trump (@realDonaldTrump) May 30, 2017
Trump’s tweet came minutes after Merkel and Modi held a joint press conference in Berlin, at which the German leader sent a very clear message to the US, calling India a “reliable partner with respect to big projects.” That contrasted with her Sunday comments at a Munich rally that reliable trans-Atlantic ties that formed the basis of German foreign policy since World War II “are to some extent over.”
Merkel and Modi stressed their mutual values on the economy and climate change, with the Indian leader suggesting he will adhere to the Paris Agreement to combat global warming even if the U.S. quits. He praised Merkel’s experience and Germany’s economic example to India.
“We are meant for each other,” Modi said.
In the same vein, on Monday Germany’s foreign minister Sigma Gabriel, called Trump’s policies “short-sighted,” saying they stand against the European Union’s interests.
“Anyone who accelerates climate change by weakening environmental protection, who sells more weapons in conflict zones and who does not want to politically resolve religious conflicts is putting peace in Europe at risk,” Sigmar Gabriel said on Monday. “The West has become smaller, at least it has become weaker.”
In a follow up tweet, Trump said Russian officials are likely “laughing” at the U.S. amid continuing reports related to Russian meddling in the 2016 presidential race.
“Russian officials must be laughing at the U.S. & how a lame excuse for why the Dems lost the election has taken over the Fake News,” Trump tweeted shortly after his German-bashing tweet.
Russian officials must be laughing at the U.S. & how a lame excuse for why the Dems lost the election has taken over the Fake News.
— Donald J. Trump (@realDonaldTrump) May 30, 2017
Trump’s latest comments come after reports last week that son in law and senior aide Jared Kushner in December sought to establish a backchannel line of communication between the Trump transition team and Moscow. The move came during a meeting with Russian Ambassador Sergey Kislyak. The FBI is looking at meetings that Kushner held with Kislyak and Russian banking executive Sergey Gorkov in December as part of the law enforcement investigation into possible collusion between the Trump campaign and Moscow.
The tweet also came out at the same time as news broke that Trump’s communications director, Mike Dubke, has resigned from the White House.
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Gold-backed Currency Launches in Dubai
Technology, shariah gold and bitcoin point to changing views
Ramadan Kareem rang out across Dubai and the rest of the Muslim World this weekend as the holiest month in the Islamic calendar began. For 29-30 days over a billion Muslims around the world practice sawm (fasting), charity (zakat) and salat (prayer). This period is a time of spiritual reflection, increased devotion and worship as well as a time to come together with loved ones for both the break fast meal (Iftar) and pre-fast meal (Suhur).
Ramadan is obviously observed in different ways around the Muslim world. Here in Dubai a non-Muslim will experience a place full of both celebration and reflection, with events happening every evening that are there to welcome everybody. The month also sees a number of companies launching Ramadan promotions ranging from bank accounts (free banking for six months, anyone?) to spa treatments (2-for-1 massage?) to huge packs of dates (the first food to break the fast).
As part of the celebrations, a new gold-backed currency has been launched, here in Dubai. It is a new currency known as OneGram (OGC) backed by one gram of gold and can be used for digital payments. There is a fixed number of OGCs and digital transaction fees (minus admin costs) will be reinvested to buy more gold. According to the managers, “the amount of gold backing each OGC will increase with time.”
OneGram has been launched by a private company of the same name. The company claims to offer a proof-of-stake blockchain that is ‘’further anonymized’ than Bitcoin. Reports state that ‘developers employ zero-knowledge dual-key stealth addresses and ring signature protocols toward ‘instant, untraceable, unlinkable, trustless transactions.’
Shariah Gold Standard
In December we witnessed the launch of the Shariah Gold Standard. Announced in Bahrain by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the World Gold Council, the Standard is the first ever set of guidelines for the 2 billion Muslims looking to invest in gold-based financial products.
As we explained in December:
According to Islamic texts, gold is a ribawi item, which means that it must be sold on weight and measure, and cannot be traded for future value or for speculation. In order for a gold instrument to be Shariah-compliant, the precious metal must be the underlying asset in related transactions.
When the Shariah Gold Standard was launched, one of the world’s leading investors Mark Mobius labelled it as a “godsend” that was both “innovative and revolutionary”. Currently the Islamic Finance market accounts for 1% of the global GDP, and is growing at nearly 20% per year. The new AAOIFI issued guidelines are expected to propel demand for gold as more companies (such as GoldCore) launch Shariah-compliant gold investment products. The combined use of both innovative Shariah gold investment standards and new technology could boost demand by around 500-1000 tonnes per annum.
The launch of OneGram is part of the new wave of gold financial products that we are beginning to see as a result of the Shariah Gold Standard. Muslims have long looked for more gold products to be made available to them in the $2 trillion Islamic financial markets.
A gold-backed cryptocurrency is not just a positive sign for Muslim investors, it is also a positive sign for those who are looking to invest outside of the financial system. Of course, investing in physical gold has long been available for both Muslims and non-Muslims for many years, but this recent announcement says a lot more about the demands for safe-haven investing than previous changes in financial markets have.
A new safe-money standard?
Right now it seems the world is paying attention to a financial and geopolitical situation that is proving to have one too many cracks to fix and fill. But, in the background, there is a growing awareness of how we can protect ourselves when those cracks turn into canyons.
There is something in the air that suggests we might be seeing a turn in the way savers and investors are beginning to view their money. The launch of technologically advanced, shariah compliant gold-products is an early indication of this. But when one also considers the recent performance of bitcoin, then we see that the desire to hold money outside of the financial system with reduced counterparties is growing.
The size of the bitcoin market might be minuscule compared to gold, and gold’s market size minuscule compared to that of the dollar, but times are changing. The increased accessibility to these sound-money, safe-haven assets is a sign that the most powerful financial group in the world – the people on the street – are harnessing ways to gain control of their investment portfolios.
Ultimately we believe bitcoin is a complementary asset to gold, but time will tell. Whilst watching and waiting on bitcoin, gold investors should feel assured that launches of gold-backed products such as OneGram are not only validation of the modern approach to investing in gold, but also validation of their decision to invest in gold.
This is good news for gold investors who have chosen to invest in not only the ultimate form of financial insurance but also one that is finite and physical. As awareness and demand grow, it is not unreasonable to expect to see some tightening in the availability of physical gold, which will have a positive impact on the price.
News and Commentary
North Korea warns of ‘bigger gift package’ for U.S. after latest test (Reuters)
| Avoid Digital & ETF Gold – Key Gold Storage Must Haves |
Gold Prices (LBMA AM)
29 May: USD 1,265.00, GBP 983.41 & EUR 1,127.87 per ounce
26 May: USD 1,265.00, GBP 983.41 & EUR 1,127.87 per ounce
25 May: USD 1,257.10, GBP 969.48 & EUR 1,119.57 per ounce
24 May: USD 1,251.35, GBP 963.29 & EUR 1,119.58 per ounce
23 May: USD 1,259.90, GBP 969.62 & EUR 1,119.17 per ounce
22 May: USD 1,255.25, GBP 967.17 & EUR 1,123.07 per ounce
19 May: USD 1,251.85, GBP 962.17 & EUR 1,122.03 per ounce
Silver Prices (LBMA)
29 May: USD 17.29, GBP 13.45 & EUR 15.41 per ounce
26 May: USD 17.29, GBP 13.45 & EUR 15.41 per ounce
25 May: USD 17.15, GBP 13.23 & EUR 15.29 per ounce
24 May: USD 17.03, GBP 13.14 & EUR 15.22 per ounce
23 May: USD 17.14, GBP 13.22 & EUR 15.25 per ounce
22 May: USD 16.95, GBP 13.04 & EUR 15.10 per ounce
19 May: USD 16.77, GBP 12.90 & EUR 15.02 per ounce
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Access Award Winning Daily and Weekly Updates Here
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Two days after Trump returned from his first international trip, and confirming media reports of an imminent shale up within the White House communication team (and away from it) moments ago NBC and ABC reported that Trump’s communications director, Mike Dubke has resigned and is leaving the White House.
JUST IN: @NBCNews confirms Mike Dubke, President Trump’s communications director, is leaving the White House
— NBC News (@NBCNews) May 30, 2017
Dubke, 47, had been tasked with helping to shape the president’s message, a process that Trump became increasingly frustrated with in recent weeks. According to Axios which first reported Dubke’s departure, the veteran Republican served for just three months before tendering his resignation May 18. He offered to stay through the overseas trip, and Trump accepted. He has been trying to help restructure the press and communications operation, and is parting on good terms, a senior administration official said, which probably suggests he is not suspected of leaking Trump confidential information.
Dubke is still coming into work, and his last day has not yet been set. Previously, he had helped found Crossroads Media, a Republican media services firm.
Dubke’s resignation may serve as an opportunity to revamp Trump’s communications team, which has frequently come under criticism during the early months of the president’s term.
The high profile departure is the start of a wave of changes as the West Wing struggles to cope with burgeoning scandals and a stalled agenda, according to Axios which also adds that Trump is considering much broader changes, including the possibility of bringing in David Urban, a prominent GOP lobbyist who was a senior adviser on the campaign, as chief of staff.
Friends say Urban, 53, who’s credited with helping Trump win his crucial upset in Pennsylvania, brings seasoned political judgment and no personal agenda. He’s a West Point graduate, has a master’s in government administration from Penn, and a law degree from Temple. Urban was on Trump’s plane and in his green rooms during frequent campaign stops in the Keystone State, and the two became cellphone buddies.
Trump met yesterday with two top officials from his campaign, Corey Lewandowski and David Bossie, about joining the crisis-communications war room he’s setting up, perhaps as part of an outside-inside duet.
And a list of the likely changes to take place at the White House over the coming days:
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In what some may find an amusing change in outlook by the bank that less than a year ago was on insolvency’s door, its stock at record lows, this morning Deutsche Bank downgraded its peers, other (ostensibly more sound) European banks, to underweight from benchmark on expectations that fading euro-area growth momentum will weigh on the sector over coming months.
At the same time, DB strategist Andreas Bruckner also Upgraded energy to overweight from underweight as recent USD weakness points to near-term upside for oil. He also upgraded construction materials to overweight from underweight as the recent correction has gone too far given sector is already priced for severe slowdown in global growth and a sharp rise in U.S. credit spreads even as they have tightened.
The German bank also downgrades tech to benchmark from overweight given fair price after outperformance and USD weakness, DB notes however that within tech, Deutsche Bank prefers semiconductors.
It also downgraded airlines to benchmark from overweight, and downgrades consumer durables to underweight from benchmark on expected slowdown in global PMI momentum, fading U.S. consumer confidence and high valuation. Finally, it reduced its underweight in mining as sector is below fair value estimate.
The details:
Banks – downgrade from benchmark to underweight, as fading Euro area growth momentum is set to weigh on the sector over the coming months. The Euro area composite PMI new orders index, at 55.5, is consistent with 3% Euro area GDP growth, significantly above our economists’ GDP forecast of 1.8%. If PMIs fade back to the levels consistent with our economists’ projections (at around 53), this would imply PMI momentum (i.e. the six-month change in PMIs) turning negative over the coming months.
Banks are among the sectors most sensitive to swings in Euro area PMI momentum and tend to underperform when it turns negative. There is no particular valuation support, with the sector’s P/E discount at 20%, roughly in line with the long-term average. We expect PMI momentum to trough later in the year, at which point we will be looking to turn more positive on banks, especially given that our sector analysts see upside for the sector over the next 12 months (as a function of the expected interest rate normalization).
Energy – upgrade from underweight to overweight: the sector has underperformed the market by 12% year-to-date, making it the worst performing sector so far this year. Following the recent correction, energy is around 5% cheap on our short-term fair-value model based on oil and sterling (the largest upside in four years). It also ranks as the cheapest sector on our European sector valuation scorecard. The relationship between the oil price and the USD points to near-term upside for oil, given the recent USD weakness. Lastly, oil speculative positions have fallen sharply from asix-year peak in February, pointing to a more balanced market sentiment. The key risks for the sector are the continued rebound in US shale oil production and the scope for renewed USD strength weighing on commodity prices (though we note that our FX strategists have recently reduced their projected USD upside for the rest of the year).
Construction materials – upgrade from underweight to overweight: the sector has underperformed the market by around 9% since early December, making it the third worst performing sector over that period (after energy and food retail). The correction now seems to have gone too far, given that: (a) the sector is already priced for a slowdown in global growth momentum that is significantly harsher than the mild fade that we envisage; (b) it is discounting a sharp rise in US credit spreads, even as the actual spreads have continued to tighten; (c) the sector would benefit from a further fall in the European policy uncertainty index from still-elevated levels; and (d) the sector’s P/E relative is close to the lowest level since 2009.
Tech – downgrade from overweight to benchmark, given that: (a) the sector has outperformed the market by around 12% since early December and appears fairly-priced on our two-factor model; (b) the case for dollar strength, which has historically been a key performance driver due to the sector’s above-average sales exposure to the US, has softened and tech has yet not caught up with the recent USD weakness; and (c) the sector ranks as the most expensive sector on our European sector valuation scorecard. Within tech, we prefer semiconductors (~30% of tech market cap) which has not yet caught up with the recent rebound in US consumer confidence.
Airlines – downgrade from overweight to benchmark: the sector has outperformed the market by almost 25% since the beginning of the year, supported by lower commodity prices and favorable FX moves. As such, it has now overshot its underlying drivers and is more than 10% above fair value according to our 3-factor model (based on oil prices, Sterling and peripheral bond spreads). On the upside, the sector could benefit from a further reduction in European policy uncertainty – and relative P/Es remain close to a 10-year low (at a 35% discount to the market).
Consumer durables (i.e. luxury goods) – downgrade from benchmark to underweight, given that (a) the sector is highly sensitive to swings in global growth, but has not yet reacted to the recent fade in global PMI momentum, which we think has further to go; (b) the sector has outperformed in line with the post-election rebound in US consumer confidence to a 17-year high, but this has recently started to fade, and (c) the sector’s relative P/E, at a 30% premium to the market, is almost one standard deviation above its long-run average.
Mining – reduce underweight: the sector has been the weakest sector in Europe over the past three months, underperforming the market by around 15% on the back of falling metal prices. As a consequence, our fair-value model (based on copper, sterling and US real rates) now points to around 5% upside. Yet, we remain underweight, given that: (a) after its recent sharp fall, the iron ore price points to around 40% downside for miners’ relative EPS, suggesting renewed earnings downgrades to come; (b) adjusting for the iron-ore implied EPS downside, the relative P/E is around one standard deviation above the long-term average; (c) we expect the China credit impulse to turn negative again over the coming months, which would be consistent with further downside for iron ore; (d) global PMI momentum has started to roll over – and mining tends to underperform when this is the case.
Finally, this is why DB is increasingly souring on the European recovery: the bank believes the Euro area PMI momentum is set to turn negative over the coming months, and explains why in the charts below.
And now we wait for other European banks to downgrade Deutsche Bank in sympathy.
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Tuesday’s session started off on the back foot, with the Euro first sliding on Draghi’s dovish comments before Europarliament on Monday where he signaled no imminent change to ECB’s forward guidance coupled with a Bild report late on Monday according to which Greece was prepared to forego its next debt payment if not relief is offered by creditors, pushing European stocks lower as much as -0.6%. However the initial weakness reversed after Greece’s Tzanakopoulos denied the Bild report, sending the Euro and European bank stocks higher from session lows. S&P futures are fractionally lower, down 3 points to 2,410.
Elsewhere, the Japanese yen rallied after strong retail sales data while US Treasuries ground higher after returning from a long weekend largely unchanged; Australian government bonds extend recent gains as 10-year yield falls as much as four basis points to 2.37%. Asian stock markets and were modestly lower; Nikkei closed unchanged despite a stronger yen. China and Hong Kong remained closed for holidays while WTI crude was little changed.
Despite the rebound, the Stoxx Europe 600 Index declined a fourth day as data showed that contrary to expectations of a record print, euro-area economic confidence fell for the first time this year, and as Draghi’s dovish comments to the European Parliament weighed on banking shares. As discussed yesterday, Italian bonds edged lower as traders digest the prospect of an earlier-than-expected election.
As Bloomberg politely explained, the overnight pullback across several assets serves as a reminder that, while equity benchmarks across the world have posted repeated records this year, potential headwinds to the global growth story remain and investor concern lingers. Or, in other words, selling is still not illegal. Elections in the U.K., Germany and Italy are looming as Brexit negotiations begin, while in the U.S. President Donald Trump’s ability to implement spending and tax-cut plans is far from certain. Speaking on Tuesday, St. Louis Fed President James Bullard said the new administration will need to fulfill the expectations that have driven the stock market higher, unless of course, the same Bullard suggests that QE4 is on the table next in which case the market will rise even higher.
“Washington does have to deliver at some point,” Bullard said in an interview on Bloomberg TV in Tokyo. “That is a concern going forward, whether the honeymoon period would end at some point and maybe the reality of American politics would settle in.”
Looking at global markets, Japanese stocks ended higher despite a stronger yen, with the Topix reversing earlier losses. Data showed Japan’s jobless rate stayed at the lowest in more than two decades last month, but household spending remained in a slump while retail sales came in stronger than expected. Hong Kong and China markets were shut for a holiday.
The Stoxx Europe 600 Index declined 0.2 percent. Futures on the S&P 500 Index fell 2 points, or 0.1%, to 2,411. The S&P cash index closed at a new record high on Friday.
In currencies, the euro traded little changed at $1.1167 as of 6:16 a.m. in New York. The British pound added 0.2 percent. The Bloomberg Dollar Spot Index was little changed. The yen strengthened 0.2 percent to 111.06 per dollar. The rand retreated 0.9 percent, extending losses for a second session after President Jacob Zuma survived a bid by some members of his party to oust him.
Accross commodities, West Texas oil dipped back under $50, falling 0.6% to $49.52 per barrel; prices swung last week following the agreement by OPEC and its allies to extend cuts by nine months.
On the U.S. calendar, we get personal spending, personal income, consumer confidence, Dallas Fed index, S&P/Case-Shiller home price, but according to SocGen, “today’s data will all be forgotten by the end of the week, with US ISM on Thursday and the labour market report on Friday more likely to stick in memories.”
Market Wrap
Bulletin Headline Summary from RanSquawk
Top Overnight News from Bloomberg
Asian equity markets traded subdued after market closures in UK and US, while participants in mainland China, Hong Kong and Taiwan remained absent for the Dragon Boat Festival. This lack of demand weighed on risk sentiment in the region, although ASX 200 (+0.8%) staged a late recovery amid gains in financials and resources, while Nikkei 225 (-0.1%) was pressured by a firmer JPY. Furthermore, political concerns in Europe also added to the cautious tone after Greece hinted at a default after it threatened to opt out of the next payment, while there were also reports that UK PM May was prepared to leave the EU without a deal. Finally, 10yr JGBs were slightly higher on safe-haven demand, although upside was capped following the 2yr JGB auction in which the b/c and accepted prices declined from the prior month.
Top Asian News
In Europe, risk off sentiment filtered into the market following the long weekend in the US and UK. Despite Europe being open for trade yesterday, with negative news circulating today, noticeably, the Euro’s overnight pressure extending into European trade, amid reports that Greece could opt out of their next payment, if creditors fail to agree on debt relief, however which was later denied by a Greek Government spokesman Political news continues to dictate trade, with whispers of an early Italian election being followed by comments from UK PM May, stating that the government is prepared to leave the EU without a deal. An aftermath of the first Prime Minsters debate has been evident, with both candidates coming out seemingly unconvincing. Polls have continued to tighten in the UK, with opposition leader Jeremy Corbyn stating that if he is elected, he will make sure there is a Brexit deal, however, the conservatives remain in a convincing lead in the polls. Airline names underperform in the European morning, with British Airways’ parent company, IAG weighing on the FTSE following the IT failure, which hit over 300,000 passengers over the weekend. Financials underperform, stemmed by a downgrade on European banks by Deutsche Bank, with the sector down near 1%. The recent bounce in GBP has also not helped the FTSE, with GBP/USD finding some support around 1.28, trading at session highs. The risk off sentiment has been noted in the JPY with demand notable, as USD/JPY was briefly led below 111.00 once again.
Fixed income markets have slowed down following yesterday’s bullish pressure, however still reside near session highs. Gilts have been noticeable, with the UK lOy spiking to new contract highs on the open. German paper has failed to continue the bid seen yesterday, trading marginally in the red around the intra-day 162.17 base. The lOy yield spread has narrowed slightly to 70.2bps, following the 9 month low seen last week.
Top European News
In currencies, the euro traded little changed at $1.1167 as of 6:16 a.m. in New York. The British pound added 0.2 percent. The Bloomberg Dollar Spot Index was little changed. The yen strengthened 0.2 percent to 111.06 per dollar. The rand retreated 0.9 percent, extending losses for a second session after President Jacob Zuma survived a bid by some members of his party to oust him. Risk drivers minimal from what we can evaluate, with the Greek payment opt-out story prompting modest flow out of EUR/JPY, and pulling USD/JPY below 111.00 as a result. Indeed, the JPY has made ground across the board, with the commodity currencies also suffering a little. China’s absence hits metals price, and this has weighed on AUD and NZD but modestly so. GBP is fighting back a little as the recent narrowing in the election polls saw the Pound taking a hit late last week. Cable has come back into the mid 1.2800’s, while the EUR cross rate dips into the mid 0.8600’s, but traders will be wary of (more) month end flow hitting the later at some stage today and tomorrow.
In commodities, drivers have been overlapping in recent sessions, with the rise in Oil prices into the OPEC/non OPEC meeting last week, largely supportive of a risk on mood. This saw metals prices rising, pushing the lead Copper ‘benchmark’ up to USD2.60. Oil has since dropped back to test the low USD48.00’s in WTI, while Brent has also been reined in, but was well contained below USD51.00. WTI is now pivoting on USD50.00, but Copper is back testing the support levels from USD2.50. On the day, only Silver, Nickel, Tin and Palladium showing (small) gains on the day. Gold is still showing better levels, but has retraced from the USD1270 highs seen earlier.
Looking at today’s calendar, we will get a first look at how consumer spending is looking in Q2 with the April personal income and spending reports (the latter expected to increase +0.4% mom). We will also receive the April PCE core and deflator readings where a modest +0.1% mom rise in the core is expected. Following that we’ll get the March S&P/Case-Shiller house price index before we then get the May consumer confidence reading (expected to decline 0.5pts to 119.8) and finally the Dallas Fed’s manufacturing survey for May. Away from the data, this evening at 1pm we are due to hear from the Fed’s Brainard who has sounded a little more positive of late.
US Event Calendar
DB’s Jim Reid concludes the overnight wrap
Back after a long and often rainy bank holiday weekend. We used some of the extra time to watch our first film of the year – LaLa Land. I really enjoyed it. In fact it’s undoubtedly the best ever Oscar winning film for 5 seconds that I’ve ever seen. Moving from the big to the small screen, if you’re exhausted at the drama surrounding the current US political administration and want something more boring and mainstream then today is your lucky day as season 5 of House of Cards lands on Netflix. Enjoy. I’m off to a conference in Germany so it’ll have to wait for my return.
Staying with politics, on a day of holidays in the US and UK, Italian election anticipation was the main story to disturb the quiet. All the talk was about a possible new electoral system in Italy which could allow an election to take place as soon as this autumn, rather than waiting until 2018. In an interview with Il Messaggero, former PM Renzi said that Italy voting at the same time as Germany this autumn “would make sense for many reasons”. Renzi said that he favoured a German-style electoral system based on proportional representation and that while this would not be a solution to all problems, the system “would be a step forward in overcoming the current stalemate” and so removing obstacles to snap elections and thus removing the need to wait until 2018. Over the weekend anti-establishment 5-Star supporters overwhelmingly backed a proportional law modelled on that of Germany in which parties must secure at least 5% of votes to get into parliament.
Up until a few noises in this direction last week, Italian politics had been looking more like an early 2018 story however clearly the risk now is that this is brought forward to the autumn. Germany’s federal election is scheduled for September 24th. Remember also that Italy is still to pass its budget law, due in October, which has the potential to complicate matters. There is also the not so small issue of Italy’s banking system woes which still need to be taken care of. With regards to polling, the overall theme is that it is very tight and the gap at the top within the margin of error. Of the last 10 opinion polls conducted since May 18th, the Democratic Party (PD) leads in 6 and the Five Star Movement (5SM) leads in 4. However the margin between the two parties is anywhere from +/- 2%. It’s worth noting that only 2 other parties (Forza Italia and Lega Nord) qualify for the >5% cut-off based on recent polls. This all raises the possibility of a hung parliament.
In an otherwise quiet day for markets it was the underperformance in Italian assets which easily stood out. While the Stoxx 600 (-0.03%) finished more or less flat, the FTSE MIB tumbled -2.01% while Italian Banks closed down -3.51%. 10y BTP yields were also 8.6bps higher while Bunds and OATs were 2-3bps lower. The Euro (-0.17%) traded sideways for much of the session however we have seen it dip -0.32% in the early going this morning.
The slightly stronger performance for core government bond markets in Europe yesterday perhaps reflected a slightly dovish tone from ECB President Draghi. Speaking at a hearing at the European Parliament in Brussels, Draghi said that “we remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary”. This was put in the context of underutilized resources being re-absorbed and for inflation to return to and durably stabilize around levels close to 2%. Draghi did note a measureable reduction to downside risks and tail risks which Europe faced at the end of last year as receding measurably. ECB Governing Council Member Nowotny also spoke yesterday and said that he see’s “positive news” on growth but that on the other hand he still needs to see evidence that this is sustained.
The Bundesbank’s Weidman also said that “in light of subdued price pressures, an expansionary monetary policy continues to be appropriate in principal”. Over at the Fed meanwhile San Francisco Fed President John Williams spoke again although much of the speech was a repeat of comments recently. Williams said that he sees a “much smaller” balance sheet in years ahead and that the unwinding could begin with a “baby step” later this year. Early this morning the dovish St Louis Fed President James Bullard also spoke with the most notable takeaway being a fairly frank assessment of Trump’s administration. Bullard said that “Washington does have to deliver at some point and I think that is a concern going forward, whether the honeymoon period would end at some point and maybe the reality of American politics would settle in”. He added that “we’ll see if that happens or not” and that “I think the jury is out”.
Away from Central Bank speak t he latest CSPP numbers out yesterday showed a surprisingly high amount of corporate purchases last week. The average daily purchases of €452mn was well above the average of €367mn since the program started. The CSPP/PSPP ratio was 20% (vs. 17.2%, 12.6%, 10.7% and 8.7% in the previous four weeks). Since QE was trimmed in April the CSPP/PSPP ratio has been 13.7%, up from 11.6% between July 2016 and March 2017. So after a few weeks where it looked like an equal taper it seems that corporates are being tapered less for now. The ECB has certainly not been predictable on this though.
This morning in Asia it’s been another fairly directionless session, characterised again by thin volumes with markets in China closed for a second day. The Nikkei (-0.54%) and Kospi (-0.46%) are both weaker, however the ASX (+0.24%) is slightly firmer. The Hang Seng is shut along with bourses in China. Commodities have for the most part traded sideways while Asian currencies are a little softer. Macro data this morning was reserved for Japan where April retail sales (+1.4% mom vs. -0.2% expected) rose surprisingly, while the jobless rate held steady at 2.8%.
Before we look at the day ahead, we are yet to hear of any polls post last night’s TV Q&A between PM Theresa May and Labour leader Jeremy Corbyn. While both faced challenges with the current PM questioned on recent u-turns, the candidates seemingly came away unscathed. Prior to the Q&A a survation poll conducted over May 26-27 confirmed some of the recent trend with the Conservatives lead shrinking to just 6% at 43%-37%, from 9% on May 19-20 and 18% on May 12-13. We did a thorough recap of the UK polls in yesterday’s EMR for those interested.
Looking at today’s calendar, we’ve got a fair few data releases to get through today. This morning in Europe we’ll be kicking off in France where the latest consumer confidence and consumer spending reports are due, along with the preliminary release of Q1 GDP. Following that we’ll get May confidence indicators for the Euro area before a first look at the May inflation reports this week with Germany first up. This afternoon in the US we will get a first look at how consumer spending is looking in Q2 with the April personal income and spending reports (the latter expected to increase +0.4% mom). We will also receive the April PCE core and deflator readings where a modest +0.1% mom rise in the core is expected. Following that we’ll get the March S&P/Case-Shiller house price index before we then get the May consumer confidence reading (expected to decline 0.5pts to 119.8) and finally the Dallas Fed’s manufacturing survey for May. Away from the data, this evening at 6pm BST we are due to hear from the Fed’s Brainard who has sounded a little more positive of late. The ECB’s Liikanen is also due to speak this morning.
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The percentage of the total labor force represented by armed forces personnel is in decline and the world, in general, is becoming a more peaceful place.
Marian Tupy writes:
Yesterday was Memorial Day, a federal holiday remembering all those who have died while serving in the United States armed forces. So, in today’s column, I take a brief look at the declining share of men and women worldwide who can expect to be exposed to the horrors of war. Looking at armed forces personnel as a percent of the total labor force, we can observe a sustained decline since the end of the Cold War. Globally, it has dropped from 1.08 percent in 1990 to 0.8 percent in 2014. That’s a 26 percent reduction.
In Africa, Asia, Europe and Latin America, it has declined by 27 percent, 54 percent, 43 percent and 40 percent respectively. Even in the Middle East and North Africa, armed forces personnel as a share of the total labor force declined by 58 percentage points—though, admittedly, some of the conflicts in the region have become more serious since 2014.
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