Month: June 2017

In what may be the most unexpected news of Thursday morning, the Guardian has reported that former UKIP leader, and the man largely responsible for Brexit, Nigel Farage is a “person of interest” in the FBI’s investigation looking into possible collusion between the Kremlin and Donald Trump’s presidential campaign. As the UK newspaper notes, citing “sources with knowledge of the investigation“, the former Ukip leader had raised the interest of FBI investigators because of his relationships with individuals connected to both the Trump campaign and Julian Assange, the WikiLeaks founder whom Farage visited in March.

“One of the things the intelligence investigators have been looking at is points of contact and persons involved,” one source said. “If you triangulate Russia, WikiLeaks, Assange and Trump associates the person who comes up with the most hits is Nigel Farage.

So far, Farage has not been accused of wrongdoing and is not a suspect or a target of the US investigation. But being a person of interest means investigators believe he may have information about the acts that are under investigation and he may therefore be subject to their scrutiny.

The Guardian adds that it was Farage’s proximity to people at the heart of the investigation that was being examined as an element in their broader inquiry into how Russia may have worked with Trump campaign officials to influence the US election. “He’s right in the middle of these relationships. He turns up over and over again. There’s a lot of attention being paid to him.”

The source mentioned Farage’s links with Roger Stone, Trump’s long-time political adviser who has admitted being in contact with Guccifer 2.0, a hacker whom US intelligence agencies believe to be a Kremlin agent.

Meanwhile, Farage’s spokesman said he had never worked with Russian officials, and described the Guardian’s questions about Farage’s activities as “verging on the hysterical”.

“Nigel has never been to Russia, let alone worked with their authorities,” the spokesman said. But he did not respond to questions about whether Farage was aware of the FBI inquiry; had hired a lawyer in connection to the matter; or when Farage first met Trump.

 

The spokesman also declined to comment on whether Farage had received compensation from the Russian state-backed media group RT for his media appearances. RT, which has featured Farage about three times over the last 18 months, also declined to comment, citing confidentiality.

Farage said he only met Assange once has but declined to say how long the two have known each other.

In the past, the former Ukip leader has also voiced his support for the Russian president, calling Vladimir Putin the leader he most admired, in a 2014 interview. Ukip also has history with Assange: Gerard Batten, a Ukip member of the European parliament (MEP), defended the Wikileaks founder in a speech in the European parliament in 2011.

One source familiar with the US investigation told the Guardian that the examination of Farage’s activities was considered especially delicate given his role as an MEP.

* * *

While Farage reportedly first met Trump at a campaign stop in Mississippi in August, where he spoke at a Trump campaign event, Farage’s relationships with people close to the US president began years earlier. Farage first met Steve Bannon, Trump’s strategist and former campaign chief executive, in the summer of 2012, when Bannon, who was interested in rightwing movements in Europe, invited the then Ukip leader to spend a few days in New York and Washington, according to an account in the New Yorker magazine.

There Farage was introduced to, among others, the staff of the then senator Jeff Sessions, who is now the US attorney general. Speaking of his longtime admiration for Bannon, Farage told the New Yorker last year: “I have got a very, very high regard for that man’s brain.”

Two years later, in 2014, Breitbart News, of which Bannon was executive chair, opened an office in London. A top editor, Raheem Kassam, later went on to work as Farage’s chief of staff.

 

In 2015, Breitbart News arranged a dinner in Farage’s honour at “the embassy”, the nickname for the house the news group rented in Washington. According to a report in Bloomberg, attendees were “blown away” by Farage’s speech at the event, which was also attended by Sessions.

 

Then, on 24 June last year, the day after the UK voted to leave the EU, Farage thanked Bannon during an interview for Breitbart News’s coverage of the leave campaign. Bannon, in turn, congratulated Farage on his victory, saying he had led an extraordinary “David v Goliath” campaign.

Farage’s ties to Stone are also under scrutiny, it is understood. Stone has frequently publicised his relationship with Assange and described him on Twitter as “my hero”.

* * *

Farage was asked about his relationship with Assange in a recent interview with Die Zeit, the German newspaper, after he was seen on 9 March leaving the Ecuadorian embassy where Assange has lived for years. Farage, who declared he had “never received a penny from Russia”, said he met Assange for “journalistic reasons”. Pressed on his meetings with Russian officials in the past, Farage initially denied having had any, but then acknowledged that he had met Alexander Yakovenko, the Russian ambassador to the UK, in 2013.

Asked by Die Zeit what he was doing now, and whether he saw himself as a politician or a journalist, Farage concluded: “Changing public opinion. That’s what I have been doing for 20 years. Using television, media. Shifting public opinion. That’s what I am good at.”

A spokesman for Farage told the Guardian he had only met Assange on that one occasion. “The meeting was organised by a broadcaster, they could have easily sent another presenter instead.”

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For once, Elliott’s Paul Singer may have lost, if only for the next six months. On Thursday morning, U.S. paints and coatings giant PPG Industries announced it had dropped its pursuit of paintmaking rival Akzo Nobel NV and will not make a formal bid after the Dutch maker of chemicals and coatings refused to discuss a sweetened $29.5 billion offer. Under Dutch securities rules, PPG may not approach Akzo again during a six month cooling-off period.

PPG CEO Michael McGarry said the company had made a final approach to Akzo last week, but the company did not respond.

“Akzo Nobel’s boards have consistently refused to engage and did not respond to our call or letter,” PPG Chief Executive Officer Michael McGarry said in the statement. “As a result, we believe it is in the best interests of PPG and its shareholders to withdraw our proposal to Akzo Nobel at this time.”  In April, PPG had proposed a takeover deal then worth about 26.3 billion euros ($29.5 billion), or 95 euros per share.

In addition to the possibility of raising its offer, PPG said Thursday it would consider paying Akzo Nobel shareholders a “ticking fee” of 10 cents a share for every month of delay in closing a deal past a 15-month target. The U.S. company said the offer was an effort to dispel worries expressed by Burgmans about any agreement running afoul of regulators. PPG also offered as much as 50 million euros towards retaining top management.

The decision to walk away came after a large group of Akzo Nobel shareholders led by hedge fund titan Elliott Advisors on Monday lost a bid in court to try to force Akzo’s boards to engage in talks with PPG.

A Dutch court on May 29 rejected a petition by Elliott, billionaire Paul Singer’s New York hedge fund, to force a shareholder vote on firing Burgmans. The fund claimed he was in “flagrant breach” of his duties to investors for rejecting PPG’s offers. The company reiterated its support for the chairman, saying Burgmans had played a crucial role in evaluating and rebuffing the latest bid.

Akzo has argued a PPG takeover would be bad for employees, that the companies’ cultures don’t mesh, that a deal faces antitrust risks and that Akzo should stay Dutch in the country’s national interest. Also in April, Akzo presented its case for remaining independent, offering shareholders 1.6 billion euros in extra dividends and detailing plans to sell or float its chemicals subsidiary, which represents a third of company sales and profits.

“The deal collapsed because Akzo Nobel just did not want it, and as long as the current management board and supervisory board are there, I don’t see that changing,’’ ABN Amro Bank analyst Mutlu Gundogan told Bloomberg. “It’s not a mega-surprise that PPG is withdrawing.”

In muted response, Akzo shares droped modestly by less than 2%, as investors had apparently priced in the decision given Akzo Nobel’s fierce opposition to a deal and strong poison pill protections in case PPG had decided to press ahead with a hostile bid.  What is more interesting is that Akzo’s shares have held their gains even after the bid was dropped, suggesting expectations of further M&A in the company’s future.

Akzo Nobel said in a statement it would pursue a strategy of “accelerating sustainable growth and profitability and creating two focused, high-performing businesses.” As an alternative to a takeover, the Amsterdam-based company has proposed to hive off its chemicals business.

PPG’s decision capped a frustrating three-month courtship. Akzo Nobel rejected the U.S. company’s third takeover bid May 8, defying pressure from shareholders such as Elliott Management Corp. to negotiate. McGarry flew to Rotterdam last month in an attempt to get talks under way. But Akzo Nobel CEO Ton Buechner and Burgmans were unwilling to negotiate during a 90-minute airport meeting.

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• Trump Expected to Withdraw From Climate Deal Today (WSJ)
• Saudi-Russia detente heralds new oil order (Reuters)
• Uber Posts $708 Million Loss as Finance Head Leaves (WSJ)
• Fearing Trump’s next move, liberals urge Supreme Court conservative Kennedy to stay (Reuters)
• Trump, after House panel subpoenas, backs efforts to probe Obama administration (Reuters)
• Trump ‘Self-Help’ Infrastructure Plan Irks State, Local Leaders (BBG)
• Monte Paschi on Track to Get State Funds After EU Agreement (BBG)
• Everywhere Trump Traveled Before Air Force One (BBG)
• Comey to Say Trump Asked Him to Back Off Probe of Flynn (WSJ)
• PM May’s lead falls to 3 percentage points, YouGov poll shows a week before UK election (Reuters)
• My Smart Beta ETF Premised on Cats Rang Up an 849,751% Return (BBG)
• South Korea’s Moon sends aide to U.S. to quell fears over anti-missile system (Reuters)
• House Panel Issues Subpoenas as Russia Probe Ramps Up (WSJ)
• London’s Brexit Apocalypse Is Nowhere in Sight (BBG)
• PPG Ends $28 Billion Pursuit of Rival Akzo Nobel (WSJ)
• He Quit a $2 Million Job to Help Run France (BBG)
• Why the U.S. Can’t Kick Its Addiction to Social Security Numbers (BBG)
• The Whistleblower Behind Caterpillar’s Massive Tax Headache Could Make $600 Million (BBG)
• Rouhani Vows to Shed Iran Sanctions as Trump Piles on More (BBG)
• Talking Taxes: What’s Fair for the Rich? (WSJ)

 

Overnight Media Digest

WSJ

– U.S. President Donald Trump said he would make an announcement Thursday on the Paris climate treaty, with three White House officials saying he is expected to withdraw from the accord, although they cautioned that the situation may yet change. on.wsj.com/2rU7quK

– Ohio filed a suit against five drug companies, alleging they fueled the opioid addiction crisis by misrepresenting the addictive risks of their painkillers. on.wsj.com/2qGpmo7

– Former FBI Director James Comey is expected to testify as early as next week before a Senate committee that President Donald Trump asked him to back off the investigation of former national security adviser Michael Flynn, according to a person familiar with the matter. on.wsj.com/2qBFwQf

– Japanese investment bank Nomura Securities bought about $100 million worth of Venezuelan government bonds last week as part of the same transaction that has landed Goldman Sachs Group Inc in the thick of a political controversy. on.wsj.com/2qCP3Xu

– The Trump administration ordered a review of oil reserves and production on Alaska’s vast public lands, an early step in potentially opening more areas of the state to drilling- including the now-protected Arctic National Wildlife Refuge. on.wsj.com/2spJY52

 

FT

Prime Minister Theresa May was criticised by participants of other parties for not attending a televised debate in which senior politicians defended their promised policies, days before Britain’s June 8 election.

HSBC Holdings Plc is preparing to offer online investment advice with a personalised service in the coming months for people with savings of less than 15,000 pounds ($19,309.50).

Ratings agency Moody’s downgraded Petrofac Ltd by one notch to Ba1 from Baa3, prompted by the Serious Fraud Office’s announcement earlier this month that it had launched an investigation into the UK oil services company.

Luxembourg-based private equity group CVC Capital Partners raised 16 billion euros ($17.98 billion), setting a new European fundraising record as investors scramble to put money into leveraged buyouts.

 

NYT

– Uber said that it lost $708 million over the first three months of the year on revenue of $3.4 billion. That is a narrowing of the previous quarter’s loss of $991 million, on revenue of $2.9 billion. Uber said it was still sitting on $7.2 billion in cash, about the same amount it held at the end of 2016. nyti.ms/2rdnS86

– Express Scripts, the nation’s largest pharmacy benefits manager, is suing Kaléo, the manufacturer of Evzio. Express Scripts claims it is owed more than $14.5 million in fees and rebates related to Evzio, and it has dropped the drug from its preferred list. nyti.ms/2rdnd6A

– In a reversal, a majority of Exxon Mobil’s shareholders, have voted in favor of more open and detailed analyses of the risks posed to its business by policies aimed at stemming climate change. Those policies include the goal of the Paris climate agreement to restrict global temperatures to no more than 2 degrees Celsius above preindustrial levels. nyti.ms/2rdwdsx

– Trump is expected to withdraw the United States from the 2015 climate change accord that committed nearly every nation to take action to curb the warming of the planet. Trump said on Twitter that he had made his decision and would announce it in the Rose Garden on Thursday afternoon. nyti.ms/2rdAFYe

 

Britain

The Times

A “huge demand” for new homes in the build-to-rent sector in London helped Telford Homes Plc to record sales and profits for the year. bit.ly/2qHkbnI

British families have spent an extra 27 pounds ($34.75) on groceries during the past 12 weeks after food price inflation rose again, increasing the squeeze on household incomes at a time when real wages are falling. bit.ly/2qHu5FV

The Guardian

Mobile phone calls on the London Underground could soon be possible under plans by the mayor and Transport for London. Informal talks have been held with telecoms infrastructure companies and Transport for London (TfL) is expected to invite bids in the weeks after the general election. bit.ly/2qHaiqe

The four top directors at UK turnaround specialist Melrose Industries Plc are to share a bonus pot of 160 million pounds ($205.95 million) in one of the biggest corporate paydays in the City. bit.ly/2qHxkNw

The Telegraph

Takeaway technology firm Deliveroo is offering its drivers the option to be paid for each order they deliver, rather than per hour – a move which the company hopes will reinforce the riders’ status as self-employed contractors, rather than employees. bit.ly/2qHkFKy

The Murdoch brothers have held secret talks with Ofcom in a bid to persuade the regulator to wave through Twenty-First Century Fox Inc’s planned 11.7 billion pounds ($15.06 billion) takeover of Sky Plc. bit.ly/2qHxsfY

Sky News

The convenience store supplier Nisa Retail is in talks about a 120 million pounds ($154.46 million) refinancing deal amid a sector shake-up given extra impetus by Tesco Plc’s proposed 3.7 billion pounds ($4.76 billion) takeover of the wholesaler Booker Group Plc. bit.ly/2qHzYmJ

Manchester United has been named as Europe’s most valuable club in a new report which highlights the growing financial muscle of the Premier League. bit.ly/2qHvrk9

The Independent

Retail banks in the United Kingdom are slowly bolstering their reputation, but many still have to fight hard to win consumers’ trust, especially Royal Bank of Scotland Group Plc , TSB Bank Plc and HSBC Holdings Plc. ind.pn/2qHB5T9

Noel Edmonds has ratcheted up the pressure in a 110 million pounds ($141.59 million) compensation battle with Lloyds Banking Group Plc. The TV star has set up an “honesty countdown” clock website that tracks how much time the lender has to pay him the money he says he is owed. ind.pn/2qHy7hs

 

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From “Blain’s Morning Porridge” by Bill Blain of Mint Partners

 

“I know that I am mad, but mother dearest, now, for this one time, I do not rave…. ”

A line from a Bloomberg article y’day caught my eye: “The economy is too good and money is too cheap”. I emphasise it deliberately. Note it down. It sums up the underlying problem succinctly. The threats implied in one single line are legion – but who is worried about inflation?

I’m told by very senior economists and analysts from around the financial markets the inflationary threat is low and probably overestimated. After all, the comfortable consensus seems to be we’re in for a new normal of 20-yrs of stable but low growth.

Wake up and smell the fricking coffee! The consensus is the consensus until its decisively proved wrong!

If you don’t believe there is inflation stare deep into your Bloomberg screens and call up the price of any and all financial assets; bonds or stocks. If you want to see inflation in action, then Financial Asset Prices are screaming “Danger, Danger Will Robinson, Danger!” If you want inflation – there it is. Methinks all these clever people aren’t seeing the inflationary Forest because of the financial asset trees.

I’m quite sure some of these very smart folk will be saying: “Calm down Blain.. Low bond yields mean there is no inflation. Calm. Calm.” These folk forget its central bank distortion keeping rates so low – and too much money. Why are stocks so high? Because folk think the economy is recovering… which means it will heat up.. These are mutually exclusive events.

Even more surprising is an article in the FT based on a European Commission paper calling for the bundling of European Sovereign Debt into a “new financial instrument”. That sounds awfully like debt mutualisation – packaging debt into a common instrument. Will it be a joint and several liability – meaning all Eurozone nations effective become liable for each other? That sounds like a screaming NO! from the Germans.

You can understand why the ECB is pushing it. Basically, they are running out of capacity to buy sovereign bonds into the QE purchase programme. Their purchases must be weighted on a relative balance of each country. However, that causes a massive distortion – Bunds are running out. All the German banks want/need to hold them, and the Germans are in surplus so aren’t selling more.

Meanwhile, the liabilities of all the other countries are rising, and the current set up of the ECB means it can’t absorb them because it’s stuck with the relative weightings. It can’t buy more Italy unless it can balance them with more Germany – which it can’t find!!!

And hence the real reason we’re dancing around an EU taper – it’s absolutely nothing to do with the success of the policy in creating European Growth. (I very much doubt it has.) Its all about being trapped in relative weighting rules meaning it can’t buy more without the Germans making a fundamental shift.

Let me try and explain the threat by example: Italy has massive sovereign debt to refinance, the only people holding Italy debt are weak Italian banks and those who still believe the ECB has unlimited appetite to buy more.. Something has to give.. 

Both the factors above – the looming crisis I believe will hit financial asset prices later this year (a correction is coming), and a resumption of European Debt hostilities makes me very nervous. I’ve been wailing, Casandra-like, for years about the multitude of unsustainable realities underpinning markets. (Don’t encourage me by saying Casandra was eventually proved right… she was too late.)

Meanwhile, the surface noise of uncertainty in markets remains just as loud. We have an ongoing wobble in European stocks following the threat of electoral risk in Italy, and Greece having the temerity to get shirty about its next debt bailout.

Interesting to note a further slide in the price of Spain’s Banco Popular debt – highlighting the increasing the risks of a bail-in. The only realistic option for the bank is to be bought by another Spanish name, but yesterday we were seeing domestic sellers – strongly suggesting it’s increasingly unlikely.

Meanwhile, the UK election gets more and more interesting. The Tory campaign looks off the rails and off message. Some polls now suggest its possible they will actually lose seats. On the face of it Corbyn appears to be attracting a strong, and very British, underdog vote – helped by an almost human performance on TV. We might have mis-judged this whole election, thinking it was about the need for Strong

Brexit Politics and Firm Leadership. If it’s actually about personalities, then Theresa May is in more trouble than the polls suggest. (And have you noticed how very very quiet Boris has been the last few weeks?)

On the other hand, I did read a very well argued paper from a US investment bank yesterday that the polls are wrong and may is still on for a 100 seat majority. It was full of very convincing charts and graphs – which I am sure explain exactly how the man on the Clapham Omibus makes political choices.

The effect on markets if May fails to secure a 50+ seat majority will be fascinating – last week we were talking about a nailed-on 100+ victory and Labour wipe out!)
I heard something on the radio about JPM arguing sterling will actually rise on a hung parliament on the basis we’ll be forced to negotiate a soft-Brexit. Bring me a quarter ounce of whatever they are smoking…..

We’re still a week away from potential Mayagedon!

Bring it on. 

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S&P futures are little changed this morning, while Asian shares rise and European stocks (+0.5%) are poised to snap a five-day losing streak amid a broad-based rally. The pound declined as better-than-expected manufacturing data failed to offset political risk before the impending election, while crude oil gained.

Across Europe, all 19 industry groups on the Stoxx Europe 600 Index advanced (the index itself was up 0.5% in early trading), helped by media companies amid strength in the auto sector after Barclays said fears for the used car market have been overdone. Bank shares underperformed rising European stocks, after JPM and BofA warned on Wednesday that low market volatility would crimp trading revenue. Energy shares also rose as oil bounced in the wake of data pointing to a bigger-than-expected drop in U.S. stockpiles. The euro fell after two days of gains while the dollar edged higher. European manufacturing activity grew at its fastest rate in more than six years in May, according to the final eurozone PMI index.

The final Markit Eurozone Manufacturing PMI rose to a 73-month high of 57.0 in May, up from 56.7 in April and unchanged from the earlier flash estimate. The PMI has signalled expansion in each of the past 47 months.

• Germany 59.5 (flash: 59.4) 73-month high
• Austria 58.0 2-month low
• Netherlands 57.6 4-month low
• Ireland 55.9 22-month high
• Spain 55.4 4-month high
• Italy 55.1 3-month low
• France 53.8 (flash: 54.0) 2-month low
• Greece 49.6 9-month high

Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone upturn is developing deeper roots as factories enjoy a spring growth spurt. Demand for goods is growing at the steepest rate for six years, encouraging manufacturers to step up production and take on extra staff at a rate not previously seen in the two-decade history of the PMI survey.“

Asian shares, as measured by MSCI’s main index of Asia-Pacific shares, excluding Japan rose 0.1% to 498.39, though gains were limited by data showing Chinese factory activity contracted in May for the first time in 11 months. The MSCI Asia Pacific Index rose 0.3 percent, after capping its fifth straight monthly gain for the longest winning streak since 2013. Japan’s Topix rallied 1.1 percent as capital spending topped estimates. The Shanghai Composite fell 0.5% after the a private survey of the manufacturing sector. The findings contrasted with official data on Wednesday which suggested growth remained steady. The poor Chinese data hit the Australian dollar, often seen as a proxy for the health of the world’s second-biggest economy.

As reported earlier, following ongoing fireworks, China’s onshore yuan shrugged off poor PMI data and headed for the biggest four-day advance in almost 12 years, rising to a seven month high amid speculation policy makers are trying to discourage bets against the currency. The Yuan strengthened beyond 6.8 per dollar for the first time since Nov. 11 after the central bank pushed its reference rate, around which the spot rate can fluctuate, 0.8 percent higher in the second-largest single-day appreciation of the currency since it was de-pegged from the dollar in 2005.

“The PBOC has let the yuan bulls loose in the China shop,” said Stephen Innes, senior trader at OANDA in Australia, referring to the People’s Bank of China.

Britain’s pound, on a rollercoaster ride this week as polls have sent conflicting signals about the outcome of next week’s election, fell 0.1 percent to $1.2874 after another poll showed the Prime Minister Theresa May’s Conservatives just 3 percentage points ahead of the Labour opposition. There was little reaction to Britain’s manufacturing PMI beating forecasts. “This data point is clearly a positive for the UK economy however GBP traders are putting macro releases on the back burner at present, with the twists and turns in the race for upcoming election having a greater impact on the market of late,” David Cheetham, markets analyst at broker XTB, said.

In commodities, Brent rose off Wednesday’s three-week lows in anticipation of the United States quitting the Paris accord. President Donald Trump is expected to announce his decision later on Thursday. West Texas Intermediate crude oil advanced 1.3 percent to $48.96 a barrel, rebounding from a 2.7 percent drop in the previous session.

“If he actually withdraws the U.S from the climate accord, this would signal his intention to further roll-back emission regulations that would favor the use and demand of fossil fuels, thus giving a much needed boost to oil prices,” Jonathan Chan, investment analyst at Phillip Futures in Singapore, told Reuters.

Gold dropped 0.2 percent to $1,266.99 an ounce, giving back some of Wednesday’s 0.5 percent gain.

There was little acticity in rates, where the yield on 10-year Treasuries rose one basis point to 2.21 percent, after falling a similar amount on Wednesday.

Today markets will look ahead to jobless claims and ISM data, while Lululemon, Dollar General and Tech Data are among companies expected to release earnings. U.S.

Market Snapshot

• S&P 500 futures up 0.1% to 2,413.25
• STOXX Europe 600 up 0.5% to 391.83
• MXAP up 0.3% to 153.14
• MXAPJ up 0.1% to 498.39
• Nikkei up 1.1% to 19,860.03
• Topix up 1.1% to 1,586.14
• Hang Seng Index up 0.6% to 25,809.22
• Shanghai Composite down 0.5% to 3,102.62
• Sensex up 0.06% to 31,162.95
• Australia S&P/ASX 200 up 0.2% to 5,738.13
• Kospi down 0.1% to 2,344.61
• German 10Y yield unchanged at 0.303%
• Euro down 0.2% to 1.1225 per US$
• Italian 10Y yield fell 8.9 bps to 1.908%
• Spanish 10Y yield rose 1.2 bps to 1.565%
• Brent Futures up 1.2% to $51.37/bbl
• Gold spot down 0.2% to $1,266.43
• U.S. Dollar Index up 0.2% to 97.11

Top Overnight News

• Trump’s Biggest Goals at Risk as Kushner Is Sucked Into Probe
• If Trump Dumps the Climate Accord, the U.S. Is the Loser
• China, EU Recommit to Climate Pact With Trump Support in Doubt
• Goldman Sachs Says OPEC Should Be More Like the Federal Reserve
• Buy Utility, Real Estate ETF Straddles Before FOMC: Goldman
• Perennial Said to Be Chosen for Final United Engineers Talks
• Intelsat Bondholders Said to Reject Merger Terms With OneWeb
• Google Submits New Plan for London King’s Cross Headquarters
• Europe Carmakers Lobby Raises 2017 Market Growth Forecast to 2%
• VW Weighs U.S. Factory Plans as Trump Ponders Trade Barriers
• Autoliv Repurchased 870,972 Shares in May
• Air Transport Prices 3.8m Shrs From Existing Stockholder
• Next IPhone Sale Likely to Start in Nov.: Hua Nan Securities

Asian stock markets traded mixed following a subdued lead from Wall St. where financials suffered after revenue warnings by BofA and JPMorgan, while the region also digested a miss on Chinese Caixin Manufacturing PMI. A deluge of data was the main driver in Asia with Nikkei 225 (+1.1%) the outperformer following encouraging Japanese Capex, Company Profits and PMI figures, while a softer JPY also underpinned exporter sentiment. Conversely, ASX 200 (+0.1%) traded choppy and was briefly pressured alongside weakness in the Shanghai Comp. (-0.4%) after the disappointing Chinese PMI data which fell into contraction territory for the 1st time in 11 months. 10yr JGBs were relatively flat with demand lacking amid strength in Japanese stocks, while slightly weaker 10yr auction results added to the lacklustre price action with both b/c and accepted prices lower than prior. Chinese Caixin Manufacturing PMI (May) 49.6 vs. Exp. 50.1

Top Asia News

• China Crushes Yuan Bears, Snubs Moody’s as Currency Takes Off
• China Stocks Decline From Four-Week High as Factory Data Misses
• Citi Assigns 40 Percent Probability of India Rate Cut in June
• Pakistan’s MSCI Dream Becomes Dull Reality as Stocks Hold Losses
• Prada Falls as Much as 4.9% After Michael Kors Sales Plummet
• Bharti Said to Sound Out Banks to Fund $8 Billion Indus Deal
• Kaisa Said to Plan New Bonds to Exchange Debt From Workout

European equity markets trade in modest positive territory, as energy outperforms, following the higher than expected draw in yesterday’s API report (-8670k), with the earlier miss in the Chinese Caixin Manufacturing PMI unfazing European markets. Manufacturing has been the theme of the morning, with Manufacturing PMI figures being seen across the continent with slight beats in the UK and Germany assisting in maintaining the marginal positive territory in European bourses. Politics continue to dictate, with the overnight selling pressure in GBP, following the latest UK election from Times/YouGov and SurveyMonkey showing Labour gaining on the Conservative lead, finding a bounce, with GBP/USD seeing support around the 1.285 level. Risk sentiment has been unaffected by the marginal morning buying seen in USD/JPY, looking towards the 112.00 handle, with the subdued trade evident in fixed income markets, with the French OAT auction being the highlight, currently trading marginally lower on the day alongside the German Bund.

Top European News

• Spring Boom Fuels Hiring at European Factories as ECB Looks On
• U.K. Domestic Demand Helps Manufacturing Sustain Growth Momentum
• Banco Popular Shares Fall to Record Low on Solvency Concerns
• ECB’s Villeroy Warns Against ‘Dangerous Hesitations’ by U.S.
• Satellite Companies Fly; Softbank’s OneWeb Deal Said to Collapse
• Iron Ore Sell-Off Deepens as New Month Opens With Same Old Pain
• Deutsche Bank Plans Asia Wealth Expansion With 50 New Hires
• Italy’s Growth Pace Revised Up, Boosting Prospects for 2017

In currenices, we have seen some modest adjustments in some of the major pairings, with some of the crosses playing a key part over the last 24 hours. These have moderated in the last 12 hours or so, but the focus turns back to the USD as the US data schedule starts in earnest today. First up is the ADP private jobs survey, with the manufacturing ISM release later on this afternoon. A very small comeback seen in US Treasury yields after the weakness seen this week, and this has lifted USD/JPY back above 111.00 in what is a very tentative move based on the price action alone. EURUSD maintains better levels but continues to struggle, in what is a clear sign that we have risen a little too fast in the time frame achieved, but we see little prospect of a major pullback here as the ECB meeting next week will be fraught with taper-talk risk. Tight ranges set to play out here as a result.

In commocidites, the big news overnight was the Caixin manufacturing PMI released in Asia, falling short of expectation and below the pivotal 50.0 mark. We would have expected a little more of a reaction were it not for the losses already suffered in the metals market, and with China demand having been a concern for some time, this was effectively priced in. Even so, minor losses seen across the board, but Copper is in the upper half of its USD2.50-2.60 range. Nickel is still underperforming though, and this is largely on the technical backdrop, having fallen back under the key 9000 mark. Oil prices have stabilised after another strong report from APIs showing a near 8.5mln barrel draw down in Crude, but higher US production levels have tempered some of this. Gold is still at better levels as safe haven flow dictates as well as recent USD weakness. Silver is well propped-up above UD17.00.

Looking at the day ahead, we’ve got a fairly packed calendar. Along with the final manufacturing PMI revision we will also receive the ISM manufacturing print for May which is expected to nudge down a modest 0.1pts to 54.7. The other important data concerns the ADP report which comes a day before tomorrow’s payrolls. The  ADP consensus is currently sitting at 180k. Also due out today is April construction spending, initial jobless claims and the May vehicle sales data. Away from the data we’re due to hear from the Fed’s Powell this afternoon at 1pm when he speaks on the ‘Normalization of Monetary Policy’. The ECB’s Villeroy is due to speak this morning. China Premier Li Keqiang is also due to meet the EU’s Tusk and Juncker at the China-EU summit in Brussels.

US Event Calendar:

• 7:30am: Challenger Job Cuts YoY, prior -42.9%
• 8:15am: ADP Employment Change, est. 180,000, prior 177,000
• 8:30am: Initial Jobless Claims, est. 238,000, prior 234,000; Continuing Claims, est. 1.92m, prior 1.92m
• 9:45am: Markit US Manufacturing PMI, est. 52.5, prior 52.5
• 9:45am: Bloomberg Consumer Comfort, prior 50.9
• 10am: ISM Manufacturing, est. 54.7, prior 54.8; Prices Paid, est. 67, prior 68.5; New Orders, prior 57.5; Employment, prior 52
• 10am: Construction Spending MoM, est. 0.5%, prior -0.2%
• Wards Total Vehicle Sales, est. 16.9m, prior 16.8m
• Wards Domestic Vehicle Sales, est. 13.2m, prior 13.1m

DB’s Jim Reid concludes the overnight wrap

While politics continues to bubble a little under the surface, yesterday US banks cast a shadow over markets with Q2 trading outlooks disappointing. Indeed JP Morgan’s CFO said at a conference yesterday that revenues from its trading business are down 15% in Q2 so far relative to this time last year, driven predominantly by the fixed income business. She also added that she doesn’t see any reason why this trend will change in June. Similar comments were made by BofA’s CEO who said revenues are 10-12% lower while Wells Fargo’s CFO said that the Bank has taken its foot off the gas in lending lately. Morgan Stanley’s CEO later said that the estimates from his two rivals “are reflecting reality and I don’t think we’re very different”.

That sent shares prices for US Banks lower with the sector ending the day down -1.68%. That weighed on the broader index however a late bounce back into the close meant the S&P 500 only finished down a tiny -0.05%. It’s worth noting that yesterday DB’s Binky Chadha published his latest asset allocation report in which he argues for a broader-based more sustainable move up for the S&P on an imminent turn up in growth and a positive data surprise phase. You can find more in his report. Note that it’s global PMI/ISM day so we’ll see the latest on activity sentiment as the day progresses.

Closer to home European bourses were also a little weaker at the margin (Stoxx 600 -0.13%) following a late dip into the close although the bigger underperformer was the energy sector after Oil prices dipped lower. WTI Oil tumbled -2.70% and closed back below $48.50/bbl seemingly just on scepticism around the recently extended production cut deal. It has bounced back a little this morning (+0.60%) after the weekly API data reported a drop in crude inventories last week. Meanwhile bond markets were a bit of mixed bag yesterday with month-end flows seemingly distorting any obvious trends. Treasuries ended little changed while yields in Europe ranged from a 5bp rally in Portugal (following the strongest quarterly GDP print since 2013) to a 5bp move higher for Gilts (as the market dissected that shock YouGov/Times poll).

Staying with politics, the EU-China summit is scheduled to kick off today however the FT, amongst other news outlets, is reporting that both have agreed to forging an alliance on combating climate change, in stark contrast to the suggestions that President Trump is to withdraw the US from the Paris climate act (the President has tweeted that he will announce his decision at 3pm EDT today). It’s expected that the alliance will be revealed on Friday at the EU leaders’ summit. Meanwhile the Washington Post is reporting that former FBI Director James Comey is preparing to testify to Congress as early as next week  concerning the conversations with President Trump prior to his dismissal.

This morning in Asia it’s been another mixed start for risk assets. Leading the way is the Nikkei (+0.97%) with the rally coinciding somewhat with a weaker Yen after the BoJ’s Harada said that “monetary easing measures have been effective and warnings of the dangers of these measures make little sense”. He did however go on to say that these measures have not achieved an increase in prices, but that a tightening labour market should lead to wage growth. “Hyperinflation” and the collapse of the Yen are unlikely to happen when the BoJ exits easy policy, Harada also said. Nice to know!! The Hang Seng (+0.39%) and ASX (+0.15%) are also a little firmer this morning however the Shanghai Comp (-0.28%) and Kospi (-0.14%) are in the red. China’s Caixin manufacturing PMI for May printed at 49.6 (lowest since June 2016) and down from 50.3, resulting in a bit of divergence from the official data. Sterling has also weakened a bit more in the early going this morning (although remains above where it was prior to that shock poll this time yesterday) after another YouGov/Times poll late last night showed the Conservative lead shrinking to just 3% over Labour at 42% to 39%. That’s down from 7% on May 27th.

Moving on. As suggested by some softer country-level inflation reports leading into it, yesterday’s Euro area headline CPI print missed to the downside after coming in at +1.4% yoy for May (vs. +1.5% expected) and down five-tenths from April largely on base effects. The core also dropped a bit more than expected (+0.9% yoy vs. +1.0% expected) and was down three-tenths from the month prior. That level matches where core inflation was from December through to February. Prior to this in France headline inflation was confirmed as being flat in May versus expectations for a small +0.1% mom rise. In Germany there were no surprises to come from the latest unemployment data with the 5.7% rate for May down one-tenth from April. Meanwhile in the UK mortgage approvals edged lower for a third consecutive month in April (64.6k vs. 66.0k expected).

Across the pond, the highlight of the data yesterday was the May Chicago PMI which rose 1.1pts from April to 59.4 (vs. 57.0 expected) making it the strongest reading since November 2014. Pending home sales were confirmed as falling -1.3% mom in April after expectations were for a small rise. Away from that the main take away from the Fed’s Beige Book was some districts reporting that positive optimism was waning somewhat, while labour markets also continue to tighten and most districts reported shortages across a broadening range of occupations and regions. The Dallas Fed’s Kaplan also spoke yesterday and reiterated his call for two more rate hikes this year, despite highlighting concern about the recent decline in core inflation. He added that he expects an increasingly tight labour market will help create building inflation pressures in the months ahead.

Looking at the day ahead, this morning in Europe we will receive the final revisions to the May manufacturing PMIs which also includes a first look at the data for the UK and periphery. As a reminder, with strong data for Germany and France, readings in the periphery are expected to be a little softer. This afternoon in the US we’ve got a fairly packed calendar. Along with the final manufacturing PMI revision we will also receive the ISM manufacturing print for May which is expected to nudge down a modest 0.1pts to 54.7. The other important data concerns the ADP report which comes a day before tomorrow’s payrolls. The  ADP consensus is currently sitting at 180k. Also due out today is April construction spending, initial jobless claims and the May vehicle sales data. Away from the data we’re due to hear from the Fed’s Powell this afternoon at 1pm when he speaks on the ‘Normalization of Monetary Policy’. The ECB’s Villeroy is due to speak this morning. China Premier Li Keqiang is also due to meet the EU’s Tusk and Juncker at the China-EU summit in Brussels.

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Content originally generated at iBankCoin.com

Five days after Chipotle, Inc. announced a massive malware attack resulted in widespread theft of customer payment data, Kmart parent company Sears ($SHLD) revealed that several Kmart locations had been similarly infested with malware. While the beleagured company disclosed that “certain credit card numbers” were compromised, it appears the majority of customers were unaffected –  which the company says is thanks to their decision upgrade all Kmart locations to EMV “smart chip” credit and debit card Point-of-sale (POS) machines.

All Kmart stores were EMV “Chip and Pin” technology enabled during the time that the breached had occurred and we believe the exposure to cardholder data that can be used to create counterfeit cards is limited. –Kmart

This is in stark contrast to a 2014 malware attack on Kmart’s older magnetic swipe Point of Sale system which resulted in the theft of customer data – allowing thieves to create counterfeit cards, according to Sears spokesman Chris Brathwaite.

[2014] Brathwaite stressed that the data stolen included only “track 2” data from customer credit and debit cards, and did not include customer names, email address, physical address, Social Security numbers, PINs or any other sensitive information.

 

However, he acknowledged that the information stolen would allow thieves to create counterfeit copies of the stolen cards. –krebsonsecurity.com

Kmart has issued a FAQ regarding the hack.

While Kmart looks to have dodged a bullet, Chipotle is still using magnetic POS machines

Chipotle ($CMG) declined to upgrade to the newer EMV chip reading equipment in 2015 – citing inefficiencies and concerns over delays in the authentication process in a fast paced food service environment.

The breach could mean big trouble for shares of Chipotle, which have only partially recovered from an E.coli outbreak in late 2015. According to Reuters, security analysts say the company will likely face a fine based on the size of the breach and number of records compromised.

“If your data was stolen through a data breach that means you were somewhere out of compliance” with payment industry data security standards, Julie Conroy, research director at Aite Group, a research and advisory firm.

 

“In this case, the card companies will fine Chipotle and also hold them liable for any fraud that results directly from their breach,” said Avivah Litan, a vice president at Gartner Inc (IT.N) specializing in security and privacy. –Reuters

Who knows, maybe the GMO-refusing burrito merchants carry separate cyberliability insurance? 

In 2015 the credit card industry shifted liability to those who haven’t upgraded to EMV systems

Per Gizmodo…

If stores accept EMV payments, the credit card companies still accept liability for counterfeit fraud. That’s true even if the store accepts EMV payments, but also accepts magnetic stripe payments, and one of those magnetic stripe payments turns out to be fraudulent. The technical wording from Visa is, “The party that has made investment in EMV deployment is protected from financial liability for card-present counterfeit fraud losses on this date. If neither or both parties are EMV compliant, the fraud liability remains the same as it is today.”

While EMV payment systems don’t prevent over-the-phone credit card fraud, MasterCard said overall fraud had dropped 54% year-over-year in January of 2016. That’s significant.

 As the banking industry shifts towards convenient and safe digital payment systems and a cashless society, enjoy the smell of paper fiat currency while it’s still around. Then go play with your gold and silver collection.

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China’s unprecedented crackdown against Yuan shorts continued overnight, when the FX market saw even more fireworks as the onshore yuan headed for the biggest four-day advance since 2005 following the strongest central bank fixing since January and amid ongoing speculation China’s central bank is trying to crush shorts while China’s big banks continue to limit offshore liquidity.

The onshore Yuan rose 0.18% to 6.8062, extending the four-day gain to 1.2%, as of late trading in Shanghai. At one point in the session, the Yuan rose as much as 6.79, the most since July 2005, when China ended a peg to the dollar, according to Bloomberg.  Earlier, the People’s Bank of China strengthens its reference rate by 0.79% to 6.8090 from 6.8633, the most since January. According to trader, the PBOC continues to use the fixing to guide the exchange rate higher, and both the onshore and offshore yuan will remain strong in the short term; Kenix Lai, an FX analyst at Bank of East Asia told Bloomberg that Thursday’s reference rate was stronger than what the bank’s model suggests. The gap between the onshore and offshore yuan rates narrowed modestly to 0.7%, after widening to 1% on Wednesday.

Meanwhile, the internals suggest that the move is not over as onshore yuan 12-month non-deliverable forwards gain for a seventh day, advancing 0.04% to 6.9785, while CNY 1-month volatility rises 8 basis points to 3.82%.

Separately, Bloomberg’s replica of CFETS index, which tracks the yuan against 24 currencies, climbed 0.6% to 92.96, this was the biggest advance since the index was expanded.

The moves in the offshore markets were even more dramatic, with the CNH fluctuating between early gains and leading to subsequent losses; last trading 0.3% weaker at 6.76041 per dollar after earlier rising to a seven-month high. The impact of the PBOC’s direct intervention meant the USD/CNH one-month risk-reversal options volatility fell to -0.1075, indicating options to sell the yuan against the dollar cost less than the options to buy: this was the first time this has happened since 2011.

In another notable move, the CNH tomorrow next forward points soared as much as 205 points to 290, the highest on record…

… however later in the session the move reversed direction to drop to 72.5. CNH 1-month forward points jump for a second day, rising 77.5 to 545

Similarly, after soaring earlier in the session, CNH overnight deposit rate ended up dropping 5 percentage points to 15%.

On the offshore liquidity front, the one-day CNH interbank rate in Hong Kong adds 21.74 percentage points to highest level since Jan. 6, according to fixing by Treasury Markets Association. One-week CNH Hibor advances 11.74 percentage points to 19.59633%; one-month rises to 10.57033%.

* * *

Despite the ongoing fireworks, there was some good news for Yuan traders. In a note released overnight, UBS wrote that the CNY has appreciated notably against the USD in the past couple of days – a bit of an understatement – and added that “we see this as playing a bit of catching up following recent USD weakness. CNY has actually depreciated against the basket this year despite strengthening against the USD. Poor liquidity meant CNH moved up more. We now expect CNY to stay strong and not moving beyond 7 against USD this year.”

More importantly, UBS said it expects the RMB to remain stable going forward. Here are the note highlights:

After a notable recovery in demand and corporate earnings, there are signs of the current mini-cycle peaking, although the slowdown has been very gradual and will likely remain so. We see property and credit as the two main forces that will lead to a slowdown in growth. That said, property starts and construction will likely lag sales by at least 6 months, which means property construction should remain resilient until year-end While we think overall credit growth may slow more notably than the official TSF growth would suggest (see Tightening on Shadow Credit and Implications; Deleveraging by Supervisory Tightening), any impact on the economy will likely also be delayed until Q4. As such, we maintain our 2017 GDP growth forecast of 6.7%, and expectations for Q4 to slow to 6.5%. The slowdown is expected to be more pronounced in 2018, when we see growth slowing to 6.2%.

 

We now see USDCNY not moving beyond 7 by end 2017 (versus 7.15 previously) and to remain relatively stable in 2018 – not moving beyond 7.1 by end of next year (from 7.3 previously). A weaker USD since the beginning of this year despite expected Fed tightening, tighter Chinese capital outflow controls, subsiding risks of a US-China trade war, and altered expectation towards USDCNY (partly helped by PBC adjustments to its CNY fixing strategy) are all important factors behind recent USDCNY stability. Going forward, UBS does not expect the USD to strengthen in 2018, and we expect controls on capital outflows to persist and political pressure on the CNY to stay. We also see limited upside for CNY – if and when the USD weakens further, we see the Chinese government limiting CNY  appreciation (allowing for a bit of depreciation against the basket), so as to leave some room for USDCNY stability when the USD strengthens again.

 

 

Helped by exchange rate stability and controls on outflows, China’s FX reserves will likely stay above $3 trillion in 2017. As USDCNY has stabilized, carry-trade or arbitrage activities by corporate and financial institutions have come down substantially – even through the underlying desire by Chinese corporates and households to diversify into foreign assets remain. Onshore FX purchase activity by households also seems to have calmed down. As a result, we now see China’s FX reserves staying above $3 trillion in 2017, despite the fact that its current account surplus will likely shrink.

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Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

When we think about terrorism we most often think about the horrors of a Manchester-like attack, where a radicalized suicide bomber went into a concert hall and killed dozens of innocent civilians. It was an inexcusable act of savagery and it certainly did terrorize the population.

What is less considered are attacks that leave far more civilians dead, happen nearly daily instead of rarely, and produce a constant feeling of terror and dread. These are the civilians on the receiving end of US and allied bombs in places like Syria, Yemen, Afghanistan, Somalia, and elsewhere.

Last week alone, US and “coalition” attacks on Syria left more than 200 civilians dead and many hundreds more injured. In fact, even though US intervention in Syria was supposed to protect the population from government attacks, US-led air strikes have killed more civilians over the past month than air strikes of the Assad government. That is like a doctor killing his patient to save him.

Do we really believe we are fighting terrorism by terrorizing innocent civilians overseas? How long until we accept that “collateral damage” is just another word for “murder”?

The one so-called success of the recent G7 summit in Sicily was a general agreement to join together to “fight terrorism.” Have we not been in a “war on terrorism” for the past 16 years? What this really means is more surveillance of innocent civilians, a crackdown on free speech and the Internet, and many more bombs dropped overseas. Will doing more of what we have been doing do the trick? Hardly! After 16 years fighting terrorism, it is even worse than before we started. This can hardly be considered success.

They claim that more government surveillance will keep us safe. But the UK is already the most intrusive surveillance state in the western world. The Manchester bomber was surely on the radar screen. According to press reports, he was known to the British intelligence services, he had traveled and possibly trained in bomb-making in Libya and Syria, his family members warned the authorities that he was dangerous, and he even flew terrorist flags over his house. What more did he need to do to signal that he may be a problem? Yet somehow even in Orwellian UK, the authorities missed all the clues.

But it is even worse than that. The British government actually granted permission for its citizens of Libyan background to travel to Libya and fight alongside al-Qaeda to overthrow Gaddafi. After months of battle and indoctrination, it then welcomed these radicalized citizens back to the UK. And we are supposed to be surprised and shocked that they attack?

The real problem is that both Washington and London are more interested in regime change overseas than any blowback that might come to the rest of us back home. They just do not care about the price we pay for their foreign policy actions. No grand announcement of new resolve to “fight terrorism” can be successful unless we understand what really causes terrorism.

They do not hate us because we are rich and free. They hate us because we are over there, bombing them.

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Hedge funds are jumping back into gold.

Money managers boosted their long positions in U.S. futures by the most in almost a decade in the week ended May 23, Commodity Futures Trading Commission data show. 

As Bloomberg notes, bullion futures have posted three straight weekly gains, helped by U.S. and European political angst that has boosted demand for the metal as a haven.

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