Month: July 2017

By Bill Blain of Mint Partners

Politics – More Destabilizing Than You Think!

“With comedy we can search for the profound…”

Dark skies, torrential rain and thinking about putting the log-burner on.. Welcome to high-summer in England. Markets are thin and the crowds trying to clamber on the train were noticeably lighter this morning. (Actually, the sun was shining this morning as my train sat listlessly somewhere “Sarf” of Wimbledon..)

Don’t be fooled into thinking what’s happening today isn’t critical – events now are setting the tone for the rest of 2017. If you want a title for today’s Porridge – try: “Politics – More Important than you think!”

The big debate is between the Macro Panglossians and the Micro Worriers. There are those  – those who believe the growing synchronous global recovery story will get even stronger, driven by positive economic factors: policy, low interest rates and low inflation. It’s difficult to fault their arguments in favour of a big secular shift into stocks, and to worry less about the bond markets as any rate increases will be limited. (If you buy into this scenario, you might want to think about how oversold the dollar might be..)

On the other side, 30 plus years in markets teaches us: “its never as good as you think..” (But its also true “its never as bad as it might be”…)

At the core of Worried Scenario is someone/thing presses the reset button and the second half of 2017 is remembered for a massive market down-flip. Some toxic combination of overvalued stocks (although we’re seeing a great earnings season). What might the trigger be? Central bank normalisation? The end of QE distortion..? 

The trick is to spot the likely threats.

The obvious one is politics.

Out of sync, out of control politics in Westminster and Washington dominated the weekend news flow. The Conservative party looks more fractured and unstable than anytime in the last 50 years. The Republican Party and Donald Trump look headed for the divorce courts. Politics in the two western economies supposedly driving global recovery have become profoundly negative – and that’s bound to impact market confidence. May and Trump look damaged, and the amount of time that will be spent analysing their longevity detracts from more useful discourse.

It’s a crying shame: both the UK and US governments should have been able to ride stronger global fundamentals and deliver growth. Instead both are myred in doubt, uncertainty and conflict. Politics is a key driver of confidence and weak government is reflected in weak sentiment. 

We don’t need to examine the details of the unfolding political catastrophes, who said or tweeted what…  just understand how deeply flawed politics dents confidence.

That said: the current political circus of failure is truly extraordinary. Who would believe a character from Comedia dell’arte – Scaramouche (key features: boasting, overconfidence and a coward at heart) – would emerge as Trump’s communicator in chief. The Presidency looks cocooned inside a cabal of Generals and Goldman Sachs alumni. (I am told we shouldn’t count Scaramucci as part of the Goldman World Domination Plan – apparently he was never part of the golden circle..) 

In the UK who would have guessed Boris wasn’t acting but actually was and always has been an utter buffoon, or that Spreadsheet Hammond shows such talent as a Macheivelian schemer. What rip in the reality of the universe did we tumble through into a world where people say Jacob Rees-Mogg is the top Tory politician? In any normal world he’d be a national treasure for his eccentricities – not a serious contender!

Whatever…. Its difficult to imagine either the UK or US getting back on the Growth Programme anytime soon..

Which means we should probably consider how to respond.

The obvious trade has been the simplistic “US/UK in Trouble, Europe looks to be improving… so buy Euro stocks and the Euro…” Simplistic and sounds plausible till you examine the detail to conclude Europe remains a very selective pie. The default setting in Europe remains Draghi and the ECB’s “do whatever it takes” stance. That’s a “courageous” bet ahead of German elections. (Again – politics!)

Bottom Line: Politics can still make this market worse.

Meanwhile.. Impressive results from HSBC. We like “dull boring and predictable” investments – and they don’t come much duller or more boring than the Home for Scottish Bank Clerks. (Think about it.. HSBC)

However.. I am concerned the bank is pandering to analysts by announcing a further $2 bln stock buyback. Normally we criticise firms for stock buybacks – it’s unimaginative and should you really be supporting managements who can’t find anything better to do with the money?

In the case of HSBC you could argue its demonstrating a strong and consistent flow of profitable business across the bank, and this really is a great opportunity to return capital to investors.

Or is it?

Are you an HSBC customer? Have you tried to speak to any “customer” manager, been into a branch, or used their banking apps recently? It’s pretty prehistoric. The customer experience is less than inspiring.. This is the digital age…

One would think it’s time for established banks to be evolving, rebuilding, modernising and preparing for the next Century of business – rather than just raking in the money.. The world of finance is undergoing massive evolutionary change. New winners and losers are emerging. If HSBC wants to be part of the future.. then it needs to be spending and reinventing itself for the digital age now… which is why I wonder if jam today for investors means dry bread and water tomorrow….

via http://ift.tt/2ucp9e0 Tyler Durden

Submitted by Koos Jansen, BullionStar.com.

My best estimate as of June 2017 with respect to total above ground gold reserves within the Chinese domestic market is 20,193 tonnes. The majority of these reserves are held by the citizenry, an estimated 16,193 tonnes; the residual 4,000 tonnes, which is a speculative yet conservative estimate, is held by the Chinese central bank the People’s Bank of China.

I’m aware I’ve been absent from writing about the Chinese gold market for a long time, so for some of you it can be burdensome to pick up where we left a few months ago. It is not feasible for me to explain the entire structure of the Chinese gold market again; my suggestion would be to follow the links provided in the text for more background info. Most knowledge is covered in previous BullionStar posts, Mechanics Of The Chinese Domestic Gold Market, Chinese Cross-Border Gold Trade Rules and Workings Of The Shanghai International Gold Exchange. 

To substantiate my estimates on above ground gold reserves in China mainland, we’ll first discuss private gold accumulation in China through the Shanghai Gold Exchange (SGE), after which we’ll address official purchases by the People’s Bank of China (PBOC) and its proxies that operate in the international over-the-counter market.

Chinese Private Gold Accumulation

A few days ago, you could read on the BullionStar Gold Market Charts page that withdrawals from the vaults of SGE in June accounted for 156 tonnes. Year to date SGE withdrawals have reached 984 tonnes, which is 16 % shy of the record year 2015 when 1178 tonnes were withdrawn by this time. Since 2013 gold demand in China has remained extremely elevated – don’t let the World Gold Council tell you anything different – which exposes spectacular years of physical gold accumulation by the Chinese.

Exhibit 1.

The amount of SGE withdrawals provides a fairly good proxy for Chinese wholesale gold demand, although not all gold passing through the SGE adds to above ground reserves. In China, most scrap supply and disinvestment flows through the Shanghai bourse as well, next to mine output and imports. Needless to say, recycling gold within China doesn’t change the volume of above ground reserves. So, simply using SGE withdrawals won’t fly for calculating above ground reserves. What we’re interested in are net imports and mine production in the Chinese domestic gold market.

Although gold exports from the Chinese domestic market are prohibited, exports from the Shanghai Free Trade Zone (SFTZ) where the Shanghai International Gold Exchange (SGEI) is located, are permitted. Before calculating Chinese net imports, let’s have a brief look at exports from the SFTZ – which reflects to what extent the SGEI is developing as a physical gold hub in Asia. As far as I can see, China’s gold bullion export from the SFTZ is still negligible. From the United Nations’ international merchandise trade statistics service COMTRADE, it shows the only countries that have imported tiny amounts from China in 2017 are the UK and India. But the amounts are so small, they carry little importance for our analysis.

There is one region that is importing significant amounts of gold from China, which is Hong Kong, though, this likely isn’t exported from the SFTZ but from the Shenzhen Free Trade Zone. The vast majority of China’s jewellery manufacturers are in Shenzhen, and for quite some years gold jewellery, ornaments, industrial and semi-manufactured parts are being exported from this Chinese fabrication base to Hong Kong. These events haven’t got anything to do with the SGEI in my opinion. Thereby, Hong Kong exports far more gold to China than vice versa.

For computing net gold export from Hong Kong to China we’ll subtract “imports into Hong Kong from China” from “exports and re-exports from Hong Kong to China” (as you know China doesn't disclose gold trade statistics itself). Imports into Hong Kong accounted for 23 tonnes, while exports and re-exports to China accounted for 333 tonnes. Accordingly, China net imported 311 tonnes from Hong Kong in the first five months of 2017.

Exhibit 2. In 2016 rumours circulated Hong Kong’s elevated gold exports relative to gold re-exports possibly hinted at fallacious trade data. This year the numbers show no sign of such activities.

If we apply the same math to Switzerland’s customs data, it shows China net imported 172 tonnes from the Swiss in the first six months of this year.

Most definitely Australia has exported gold bullion directly to China in 2017 as well, but the Australian Bureau of Statistics (ABS) has changed its methodology regarding this data somewhere in 2016 and is reluctant to share the details with me. Using my old way to compute Australia’s export directly to China results in 23 tonnes (this number is provisional and will be amended).

The UK, a large gold exporter directly to China in 2014 and 2015, hasn’t shipped any gold directly to China year to date, according to Eurostat.

Exhibit 3. Annualised Chinese gold import for 2017 stands at 1,159 tonnes.

What’s remarkable is that Chinese true gold demand is far greater than what the World Gold Council (WGC) and GFMS are reporting as “Chinese consumer gold demand”. This is due to incomplete metrics applied by the WGC and GFMS. The immense tonnages imported by China have been waived in previous years, by the aforementioned Western consultancy firms, with dishonest arguments. (If you like to study the details regarding gold demand metrics read this.) In reality, thousands of tonnes are being imported into China and this metal is not coming back in the foreseeable future; causing a bull run on steroids if institutional interest for gold rebounds in the West. Ascending above ground reserves within China imply declining above ground reserves in the rest of the world. And the more scarce the metal in the West, the higher price when demand revives. I’ve described this phenomenon in my previous post How The West Has Been Selling Gold Into A Black Hole. In a forthcoming posts I will add more texture to my analysis.

Domestic mine production in China is not allowed to be exported, effectively all output can be added to above ground reserves. The China Gold Association (CGA) wrote on April 28, 2017, that Chinese domestic mine output in the first quarter accounted for 101 tonnes. Lacking the data for the second quarter, makes me estimate mine production from January until June by doubling 101, which is 202 tonnes. By the way, the CGA added:

Gold is a special product with the dual attribute of general commodity and currency. It is the cornerstone of important global strategic assets and the national financial reserve system. It plays an irreplaceable role in safeguarding national financial stability and economic security.

Based on data publicly available, in the first six months of 2017 China net imported at least 506 tonnes into the domestic market and mined 202 tonnes. An addition of 707 tonnes to Chinese private gold reserves.

Chinese Official Gold Purchases

I can be short on PBOC gold purchases: the Chinese central bank does not buy any gold through the SGE – its increments must be treated in addition to all visible flows – and it buys in secret not to disturb the global market. I’ve shared my analysis regarding the PBOC buying gold through proxies in the international over-the-counter (OTC) market for several years on these pages. Although, my reasoning has been confirmed countless times, it’s worth noting it was affirmed once more not long ago.

Early 2017 world renowned gold analyst Jim Rickards was in a meeting with the three heads of the precious metals trading desks of largest Chinese bullion banks. These gold dealers told Rickards that indeed the PBOC does not buy any gold through the SGE. Rickards stated in the Gold Chronicles podcast published January 17, 2017 (at 25:00) [brackets added by Koos Jansen]:

What I [J. Rickards] don’t know is about the Shanghai Gold Exchange sales, they’re pretty transparent, how much of that is private and how much of that is the government [PBOC]. And I was sort of guessing 50/50, 70/30, whatever. What they told me, and these guys are the dealers [the three heads of the precious metals trading desks], it’s 100 % private. Meaning, the government operates through completely separate channels. The government does not operate through the Shanghai Gold Exchange. … None of what’s going on on the Shanghai Gold Exchange is going to the People’s Bank Of China.

In fact, the PBOC uses Chinese banks as proxies to buy gold in countries like the UK, Switzerland and South-Africa after which the metal is transhipped to Beijing. Note, monetary gold shipments do not show up in customs reports of any country.

I haven’t come across any clues in the past months that have changed my estimate on the PBOC’s true official gold reserves. My best substantiated guess still is 4,000 tonnes (in contrast, the PBOC publicly discloses it holds about 1,840 tonnes). For more information on how and when the PBOC stacked up to 4,000 tonnes, continue reading at the BullionStar Gold University by clicking here.

Estimated Total Gold Reserves China 20,000 Tonnes

Let us put the pieces of the puzzle together. We know the PBOC doesn’t buy gold though the SGE, but prior to 2007 the Chinese gold market wasn’t fully liberalized and back then the PBOC was primary dealer in the domestic market. Any PBOC purchases prior to 2007 could have been from Chinese gold mines. What else do we know? China is said to be a gold importer since the 1990s, suggesting domestically mined gold was not exported after, say, 1994. In the next screen shot from the China Gold Market Report 2010 we can read “China has been a gold importer since the 1990s”.

Exhibit 4. Courtesy China Gold Market Report 2010.

For the sake of simplicity, we’ll calculate from 1994 onwards. Precious Metals Insights (PMI) has estimated that 2,500 tonnes of gold jewellery were held by the Chinese population in 1994. Furthermore, I have data on Chinese non-monetary gold import starting in 2001 – which started slowly but ramped up in 2010 (exhibit 2).

In 1994 PBOC official reserves accounted for 394 tonnes and Chinese domestic mine output accounted for 90 tonnes. So, our starting point in 1994 is:

2,500 (jewellery base) + 394 (official reserves) + 90 (mining) = 2,984 tonnes

From here, we can aggregate domestic mine output and net imports for every succeeding year. As stated above, my assumption is that the PBOC sourced its official gold from domestic mines prior to 2007, but shifted these acquisitions to the international market after 2007. The official gold increments in 2001 (105 tonnes) and 2003 (100 tonnes) I’ve subtracted from “aggregate domestic mine output”, the increments in 2009 (454 tonnes) and onwards I did not subtract from “aggregate domestic mine output”.

The previous calculation has resulted in the following chart:

Exhibit 5. Aggregate net import reflects non-monetary gold.

In the chart the green, blue and grey bars represent private gold reserves, and summed up account for an estimated 16,193 tonnes at the time of writing. The red bars reflect the PBOC's official gold reserves – I would like to stress this number is speculative – and currently account for 4,000 tonnes. My best estimate as of June 2017 for total above ground gold reserves within the Chinese domestic market is 20,193 tonnes.

via http://ift.tt/2wdscUL BullionStar

S&P futures rose 0.1% on the last trading day of the month, trailing European and Asian markets boosted by China's July Mfg. PMI, which despite declining from from 51.7 to 51.4, and missing expecations  of 51.5, saw the construction index rise to its highest level since December 13, sending Chinese iron ore futures surging and the European commodity sector broadly higher.

DCE Iron ore futures +6.43% http://pic.twitter.com/z7TDGWHOkQ

— Sunchartist (@Sunchartist) July 31, 2017

In equities, the MSCI All-Country World Index advanced 0.1%, and the MSCI Emerging Market Index increased 0.3%, while MSCI's broadest index of Asia-Pacific shares outside Japan reversed early losses to rise 0.25%. Stocks have rebounding from Friday’s selloff spurred by raw-material producers on "optimism the global economy is gathering momentum" amid "evidence points to resilient global growth, with investors assessing numbers from the world’s top three economies" according to Bloomberg.

As noted above, China’s official factory gauge showed continued expansion in June, even as it slipped amid government efforts to curb financial risks. Japan’s industrial output expanded in June, while data Friday showed the U.S. economy accelerating in the second quarter. Investors remained wary after North Korea conducted a missile test late on Friday that it said proved its ability to strike the U.S. mainland. The U.S. responded by flying two bombers over the Korean peninsula on Sunday. But early jitters dissipated somewhat, with the Korean won reversing losses. The dollar was down 0.2 percent at 1,120.7 won, after jumping almost 0.7% on Friday. South Korea's KOSPI fell 0.2%.

"The geopolitical overhang will likely keep topside moves in check early in the week as the disorganized U.S. and China policy towards North Korea is not helping matters," Stephen Innes, head of Asia-Pacific trading at OANDA, wrote in a note.

In Europe, Anglo American, Rio Tinto Plc and BHP Billiton helped underpin the advance in the Stoxx Euro 600 Index as miners also propelled the MSCI All Country World Index toward a ninth month of gains. HSBC shares jumped as much as 3.7% to the highest since November 2014 on a $2 billion buyback as profit rose. Shares have climbed 26% this year, with the lender accounting for 13% of Hang Seng Index’s 24% YTD gain, most after Tencent.

Despite today's 0.3% gain, the Stoxx 600 is flat for the month of July, in contrast with a gain of 2% for S&P 500 over the same period, according to Bloomberg. European stocks have been hurt by a strengthening euro which has fueled concerns for European earnings.

“Global expansion dynamics are well underway,” analysts at Candriam Investors Group wrote in a report. “The European recovery is well on track and is leading to above-trend growth in 2017-18. This has led us to increase our profit earnings expectations for euro-zone equities. The economic news flow is starting to become more supportive in the U.S., while emerging markets are benefiting from a good economic momentum.”

A quick look at the FX book shows the Canadian dollar is biggest loser within G-10, while the yen and euro are mixed. Sovereign yields are near unchanged with the T-note yield at 2.29%. Asian stocks are broadly higher led by Australia and China.  Chinese shares rose 0.6%, buoyed by several leading companies' forecasts for strong mid-year earnings. The blue-chip index and the Shanghai Composite both rose 0.6 percent.  Japan’s Topix index closed 0.2 percent lower after swinging between gains and losses. Australia’s S&P/ASX 200 Index rose 0.3 percent and South Korea’s Kospi index added 0.1 percent. Hong Kong’s Hang Seng Index added 1.1 percent. HSBC was among the biggest contributors to the advance (more below). West Texas crude traded above $50 a barrel for the first time since May, while copper rose to a two-year high and iron ore surged.

In the Asian session, the dollar index climbed with gains tempered by tensions over the weekend between U.S. and Russia, as wells as North Korea. In Europe, Euro, EGBs largely unchanged as euro area July inflation matches estimates. Pound slips against dollar. The Bloomberg Dollar Spot Index edged higher, paring its fifth straight month of declines, as investors prepare for a data-heavy week that will culminate with the release of non-farm payrolls data for July, while Apple, Pfizer, Tesla and Berkshire Hathaway will report earnings. The euro began the week on a soft note as investors waited for second-quarter growth data due Tuesday.  The Swiss franc was little changed against the euro, after posting its biggest weekly decline in more than two years; last week’s selloff was triggered by a host of factors, including stop losses and talk of initial public offer-related flows. The ruble slid 1.2% to 60.2550 per dollar, falling for a third day and the most among emerging-market currencies amid heightened geopolitical risks after Russia ordered expulsion of U.S. diplomats. Russian government bonds fell, driving the 10-year yield higher by 9bps. 

Also overnight, the BOJ maintained its govt bond purchase plans for August unchanged from July. Below are Bloomberg's comparisons between planned purchase ranges for August against those for July and the amounts BOJ offered to buy at the last operations:

• 1-to-3 years: 200b-300b yen vs 200b-300b yen for July, 280b yen on July 28
• 3-to-5 years: 250b-350b yen vs 250b-350b yen for July, 330b yen on July 28
• 5-to-10 years: 350b-550b yen vs 350b-550b yen for July, 470b yen July 28
• 10- to-25 years: 150b-250b yen vs 150b-250b yen for July, 200b yen on July 26
• More than 25 years: 50b-150b yen vs 50b-150b yen for July, 100b yen on July 26
• Up to 1 year: 50b-150b yen vs 50b-150b yen for July, 100b yen on July 26

U.S. crude futures climbed 0.3 percent to $49.87 a barrel, after earlier hitting $50.06, their first foray above $50 in two months. Brent crude advanced 0.5 percent to $52.78, adding to Friday's 2 percent surge. Gold was little changed at $1,268.26 an ounce, after earlier climbing to its highest since June 14.

In rates, the yield on 10-year Treasuries advanced less than one basis point to 2.29%. Germany’s 10-year yield climbed one basis point. Britain’s 10-year yield fell less than one basis point.

Copper climbed 1.1 percent to $2.91 a pound, the highest in more than two years. Zinc gained 1.1 percent, nickel 0.7 percent and tin 1 percent Gold fell 0.2 percent to $1,266.98 an ounce after rising to $1,271.23, the highest since June 14. Gold remains on course for its biggest monthly advance since Feb., with prices trading near highest level in more than six weeks, as speculation that Federal Reserve will go slow on raising interest rates hurts dollar. Bullion for immediate delivery +2.2% this month, most since Feb.’s +3.1%. “U.S. GDP data was weaker than expected and inflation remains subdued, which could damp Fed rate hike expectations,” Guotai Junan Futures says in note. “Gold has scope to rise further in the near term.”

Markets are awaiting speeches by Cleveland Federal Reserve President Loretta Mester and San Francisco Fed President John Williams on Tuesday, for further insight into whether the central bank has turned more dovish in light of recently muted inflation.

"It is easy for uncertainty to increase about the Fed's ability to raise rates next year if inflation remains low. We could see the dollar head below 110.00 yen under such circumstances," said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

The slew of corporate earnings continues. Apple Inc., Tesla Inc., Berkshire Hathaway Inc. and Toyota Motor Corp. are all set to unveil results this week. Pending home sales and Dallas Fed manufacturing activity is expected later on Monday, along with earnings reports from Stifel Financial, Loews and others.

Overnight Bulletin Summary from RanSquawk

• European equities trade higher with outperformance in the FSTE (+0.4%) amid gains in HSBC
• USD-index has regained some ground against majors, while EUR inflation data saw the headline meet expectations
• Looking ahead, highlights include Chicago PMI and Pending Home Sales

Market Snapshot

• S&P 500 futures up 0.11% to 2,473.00
• STOXX Europe 600 up 0.3% to 379.46
• MXAP up 0.3% to 160.20
• MXAPJ up 0.4% to 529.01
• Nikkei down 0.2% to 19,925.18
• Topix down 0.2% to 1,618.61
• Hang Seng Index up 1.3% to 27,323.99
• Shanghai Composite up 0.6% to 3,273.03
• Sensex up 0.5% to 32,479.54
• Australia S&P/ASX 200 up 0.3% to 5,720.59
• Kospi up 0.07% to 2,402.71
• US 10Y yield +0.35bps to 2.29%
• German 10Y yield unchanged at 0.541%
• Euro down 0.2% to 1.1726 per US$
• Italian 10Y yield rose 2.7 bps to 1.829%
• Spanish 10Y yield fell 3.1 bps to 1.494%
• Brent Futures up 0.2% to $52.61/bbl
• WTI up 0.2% to 49.80/bbl
• Gold spot down 0.3% to $1,266.39
• U.S. Dollar Index up 0.3% to 93.51

Top Overnight News

• Inflation in the euro area remained well below the European Central Bank’s goal as policy makers prepare to discuss unwinding stimulus.
• After the collapse of Obamacare repeal, Republicans may have to choose between pursuing another health bill or pushing through a tax overhaul this year, because there’s almost certainly not enough time to do both.
• So how much did it end up taking after European Central Bank President Mario Draghi memorably said five years ago he’d do “whatever it takes” to save the euro? About 1.2 trillion euros.
• The Saudi-led alliance that severed ties with Qatar reinstated a list of 13 demands that must be met before talks to resolve the eight-week crisis could start, just as as fresh economic data highlighted the impact of the unprecedented boycott on the Gulf nation.
• Trump’s New Chief Has One Key Asset: Ivanka and Kushner’s Nod
• Trump Hints Ending Subsidies to Insurance Cos if No Bill Passed
• SoftBank Is Said to Plan Making Direct Offer for Charter; Charter Says Has No Interest in Acquiring Sprint
• India Needs 2,100 Planes Worth $290b in 20 Years, Boeing Says
• Astra’s Imfinzi Granted FDA Breakthrough Therapy in Lung Cancer
• J&J Granted FDA Orphan Drug Status for Bedaquiline
• Ford Takes Action to Help Address Concerns of First Responders
• Five Banks Reach $111.2m Total Pact Over FX case, Law Firm Says
• Lockheed Lands $3.69B Advance to Build 50 F-35s for Int’l Buyers
• Alaska Air Says Hacker Accessed Virgin America Worker Passwords
• Koch Network Readies Push for Lower Taxes After Border Tax Kill
• Raytheon’s Troubled GPS III Ground Control Network Slips Again

Asia equity markets traded mixed ahead of this week's key risk events and as participants digested Chinese Manufacturing PMI and further provocation from North Korea. ASX 200 (+0.4%) was underpinned by commodity names amid strength in the metals complex coupled with WTI crude's brief reclaim of USD 50/bbl to the upside, while Nikkei 225 (-0.2%) was dampened by broad-based JPY strength. Geopolitical concerns pressured the KOSPI (-0.3%) following another North Korean missile test on Friday which it claimed was capable of striking mainland US, while both Hang Seng (+1%) and Shanghai Comp. (+0.6%) were positive despite Official Chinese Manufacturing PMI data missing estimates, as the Construction sub-index rose to its highest since December 2013. Finally, 10yr JGBs were flat and failed to benefit from the cautious risk tone in Japan, with demand subdued following a lacklustre BoJ Rinban announcement valued at just only JPY 325b1n of JGBs. PBoC injected CNY 160 bin 7-day reverse repos and CNY 80bln 14-day reverse repos. Chinese Official Manufacturing PMI (Jul) 51.4 vs. Exp. 51.5 (Prey. 51.7). Chinese Non-Manufacturing PMI (Jul) 54.5 (Prey. 54.90)

Top Asian News

• China Is Said to Ask Waldorf Owner Anbang to Sell Assets Abroad
• BOJ Keeps August Bond Purchase Ranges Unchanged From July
• Biggest Indian Bank Surges as Deposit Rate Cut May Boost Profit
• Sumitomo Mitsui 1Q Net Income Rises 31% to 241.5b Yen
• SMFG Reports 1st Qtr Group Earnings Result
• Panasonic Reports 1st Qtr Group Earnings Result (IFRS)
• Tian Guoli Is Said to Be Named China Construction Bank Chairman

European bourses are higher across the board this morning led through material names, following the Chinese Mfg. PMI data, in which the construction index rose to its highest level since Dec'13. Firm earnings and an announcement to plan a USD 2bln share buyback from Europe's largest bank, HSBC (+3%), has lifted financial names higher this morning with support for health care names also seen in the wake of earnings from Sanofi (+1.8%) whereby the Co. also raised their guidance. A cautious start was initially seen for German paper this morning ahead of this morning's Eurozone CPI data with prices relatively unreactive to the release which saw the headline match expectations with core slightly firmer than anticipated. Peripheral debt outperforming its German counterpart with the BTPSs and Bonos tighter by 3bps. Some suggest BTPs are set to benefit from large month-end extensions.

Top European News

• U.K. Consumer Borrowing Cools After Bank of England Warning
• HSBC Rises as Second Quarter of Growth Backs Turnaround Story
• Putin Says Hopes Retaliation Ends Once 755 U.S. Staff Ousted
• Rolls- Royce Shares Fall; Is Said to Caution on Cash Flow to FT
• Greece’s Road to Bailout Exit: 140 Reforms Down, More to Go
• U.K. Takes Two Steps Forward, One Step Back on Brexit Plan
• Italian Unemployment Declines; Jobs Growth Led by Temporary Work

In currencies, the USD-index begins the week slightly firmer, rising 0.1% overnight to pull off 15-months lows reached last week amid a raft of soft US data. USDCAD has been the notable mover with bargain hunting the likely catalyst, given Friday's 1% decline. Major support lies around 1.2400 with the pair testing stalling at 1.2410¬20 multiple times last week. The antipodeans (AUD,NZD) will be in focus this week, both currencies slightly tailing off their 2Y highs. Last week, AUD reached the highest level since May'15 at 0.8066, however the currency has pulled off somewhat with the Aussie back below 0.80. Focus will be on the RBA statement, in which the central bank may sharpen their language on the AUD to temper its recent surge. NZD hovers above 0.75 with participants likely to keep an eye for latest GDT auction and jobs data which will guide price action. Cable: Another central bank to announce their latest decision will be the BoE who will announce their latest economic projections. It is likely the central bank will keep rates unchanged with inflation cooling to 2.6% in June and growth remaining tepid, this has subsequently reduced speculation over a near term rate rise. Since the last meeting, GBP has risen over 3% with the currency now above 1.31. Resistance ahead at 1.3150-60 with additional offers situated at 1.32 (option barrier level).

In commodities, Brent and WTI futures up a nudge this morning, the latter met resistance at USD 50. Over the weekend, Shell's Pernis oil refinery had been forced to close after reports of a fire at the 404k bpd refinery. Also, source reports indicate the US could announce oil related sanctions on Venezuela as soon as today in a response to Sunday's election. Industrial metals supported overnight from the Chinese PMI data, which saw Dalian iron ore futures hitting limit up in Asia, while steel rebar soared to a 3Y high. US could announce oil related sanctions on Venezuela as soon as today in a response to Sunday's election, according to sources. Sources added that US is considering banning sales of US oil and refined products to Venezuela, but are not expected to include a ban on Venezuelan oil shipments to the US.

Looking at today's session, we will get the Chicago PMI number (60 expected; 65.7 previous), the Dallas Fed manufacturing activity reading (13 expected; 15 previous) for July and June pending home sales (1% expected).

US Event Calendar

• 9:45am: Chicago Purchasing Manager, est. 60, prior 65.7
• 10am: Pending Home Sales MoM, est. 1.0%, prior -0.8%; NSA YoY, prior 0.5%
• 10:30am: Dallas Fed Manf. Activity, est. 13, prior 15

DB's Jim Reid concludes the overnight wrap

Welcome to the last day of July and the end of one life and start of a new one split between work and childcare, with nothing much in between. It’s likely that August will see a barbell of excitement with decent activity at either end but with a notable slowdown in the middle. This week we see the monthly PMIs/ISMs over the next couple of days which are a crucial barometer on realtime growth momentum, the BoE on Thursday (probably a lower key event after recent inflation numbers) and then payrolls on Friday which is always fun! Then a likely lull for 2-3 weeks before the Jackson Hole Symposium on August 24-26th with guest star Mr Draghi present for the first time since he attended and strongly hinted at QE three years ago. Will he tee-up further autumnal tapering and create some bond volatility?

We saw a little bit of bond vol on Friday after stronger German CPI (HICP 1.5% yoy vs 1.4% expected) saw 10 year Bunds climb from 0.53% to 0.58% in the morning session where they stayed until a slightly weaker than expected US Q2 GDP print (2.6% vs 2.7% annualised QoQ expected) helped see them reverse course again to close at 0.54%.

The US GDP print still represented a significant pick up from Q1 growth but that was revised down from 1.4% to 1.2%. The growth rebound was bolstered by strong Q2 consumer spending data that was in line with expectations at +2.8% SAAR (vs. +1.9% previous). Later in the day we got the final University of Michigan consumer sentiment reading for July which was revised marginally higher from 93.2 to 93.4.

This morning, China’s July manufacturing PMIs were a tad softer than expectations at 51.4 (vs. 51.5 expected; 51.7 previous), partly due to adverse weather conditions such as high temperatures in parts of China and floods in others as well as routine maintenance in some enterprises. There was also a small fall in the non-manufacturing PMI to 54.5 (54.9 previous). Focus will turn to the extent of economic growth in 2H, as China’s policy makers had previously indicated a preference for slower credit growth. Elsewhere, Japan’s industrial production for June beat expectations at 1.6% mom (vs. 1.5% expected; -3.6% previous). This morning in Asia, Chinese related bourses have all strengthened, with the Hang Seng (+0.7%) and the three Chinese markets up ~+0.6%. The Nikkei (-0.1%) and the Kospi (-0.3%) are both marginally weaker.

Global equity markets were on the softer side on Friday as US equities (S&P -0.1%; NASDAQ -0.1%) mostly dipped on the slightly lower than expected Q2 growth. However the Dow bucked the global trend to climb 0.16% (supported by solid results from Chevron) and to another new record close – the third day in a row. Earlier European equities (STOXX -1.0%) struggled as the Euro strengthened on the day and auto makers continue to weaken. Tobacco stocks fell heavily on both sides of the Atlantic as news filtered through that the US Food & Drug Administration plans to look at regulating nicotine levels in cigarettes. Across the region, other markets also softened, with the DAX (-0.4%), FTSE 100 (-1%), CAC (-1%) and FTSE MIB (-0.9%).

Over in government bonds, change in yields were modest for both US Treasuries (2Y: unch; 10Y: unch) and German Bunds (2Y: -1bp; 10Y: +1bp). Other sovereigns also had modest changes, although yields at 10Y slightly increased, while 2Y yields were marginally lower, with Gilts (2Y: -1bps; 10Y: +1bps), OATs (2Y: -1bps; 10Y: +1bps) and BTPs (2Y: +1bps; 10Y: +3bps).

Turning to currency, the US dollar index fell 0.6% on the back of softer Q2 GDP data, but has recovered a little this morning. The Euro/USD strengthened 0.6% to a new 30-month high of 1.175 and Sterling/USD was also up 0.5% to a fresh 10 month high. Commodity markets saw another day of strong performance, with the energy segment broadly higher on the day as oil rose again (WTI +1.4%) to end the week up over 8%. Precious metals were broadly higher (Gold +0.8%; Silver +1.0%), while industrial metals were slightly lower (copper: -0.3%; Aluminium -0.4%). Agricultural commodities were broadly higher on the day as well.

Away from the markets, voting efforts to repeal Obamacare have ended for now. Despite being health stricken, Senator McCain flew in last week to allow the senate to start the debate on healthcare legislation. In the end, it was McCain and two other senators that blocked the skinny repeal of Obamacare on a vote of 49-51 last Friday. Senate majority leader McConnell said “he’ll move on to other legislative business”, but Trump is not giving up, tweeting “…if a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies….will end very soon!” Trump is referring to ending subsidy payments to health insurance companies which help make insurance accessible to poorer Americans. The next payment is due 21 Aug and the Health and Humans Service Secretary Price has said on Sunday that “no decision (on the subsidy) has been made” either way.

The North Korean situation will also be giving Mr Trump some headaches after the state fired off more intercontinental missiles over the weekend. China has condemned the latest tests, but fell short of more aggressive actions as desired by Mr Trump. Conversely, the US has sent bombers to joint military exercises with South Korea on Saturday and the US ambassador to the UN has said “the time for talk is over…China must decide whether it is finally willing to take this vital step (to resolve this situation)..” The Krw/USD was up 0.8% last Friday and is little changed this morning.

Elsewhere, one thing appearing to head in a better direction for Mr Trump is tax reform. The Republicans are now more confident of overhauling the US tax code, with an outcome likely by the end of the year. This follows House speaker Ryan making a concession and ditching his controversial border adjusted tax last week, which was expected to raise $1trn of tax revenue over a decade. Obviously there is still a long way to go though.

Taking a look now at some of the other data out on Friday, in Europe we got advanced reading of France Q2 GDP which increased marginally more than expected to +1.8% YoY (vs. +1.6% expected; 1.1% previous). We also got the preliminary July CPI readings for France which came in line with expectations at +0.8% YoY (-0.4% mom), while German inflation was higher than expected at 1.5% YoY (as discussed above) which was the main story of interest. We also saw a group of Eurozone confidence indicators for July where economic confidence (111.2 vs. 110.8 expected), services confidence (14.1 vs. 13.4 expected) and industrial confidence (4.5 vs. 4.4 expected) beat estimates although the business climate did disappoint (1.05 vs. 1.14 expected). The final reading for the July consumer confidence indicator also saw no revisions from the initial reading of -1.7 (as expected).

Taking a look now at this week’s economic calendar. Today, we have German retail sales (+0.2% mom expected; +0.5% previous) and UK consumer credit data for June due, followed by the Eurozone unemployment rate (9.2% expected) for June and CPI estimate (+1.3% YoY expected) for July. In the US we will get the Chicago PMI number (60 expected; 65.7 previous), the Dallas Fed manufacturing activity reading (13 expected; 15 previous) for July and June pending home sales (1% expected). We kick off tomorrow in Asia where we will get the Caixin China manufacturing PMI reading and the final Nikkei Japan  manufacturing PMI reading for July. In Europe we will get July data for the UK Nationwide House Price index, followed by a first look at the remaining manufacturing PMIs out of Europe and the final July manufacturing PMIs for France, Germany and the Eurozone as a whole. We will also get the advance estimate for Q2 Eurozone GDP. In the US we will get personal income and spending numbers for June and the ISM manufacturing PMI for July. Wednesday is a quiet day in both the Europe and the US with no real data of note outside of ADP and the Eurozone PPI. Thursday’s calendar will round out July PMI data for the week. In Asia we will get the July composite and services PMI numbers for China (Caixin) and Japan (Nikkei). In Europe we get the July PMIs with the final services and composite PMIs for France, Germany and the Eurozone due as well as a first look at some of the same data for the rest of Europe. Thereafter all focus should shift to the BoE policy meeting. Over in the US we should also get jobless claims data followed by the ISM non- manufacturing composite for July. Thereafter we will get factory orders data as well as the final readings for durable and capital goods orders for June. Friday is relatively quiet day for data in both Asia and Europe with only German factory orders data for June due. The US should be in greater focus as the July payrolls number is due along with other labour market data. Alongside that we will also get the trade balance reading for June.

Onto other events, on Tuesday, trade ministers from the BRICS countries will meet in Shanghai. Then Wednesday, the Fed’s Mester will speak at a Community banking conference and the Fed’s Williams will speak in Las Vega’s on monetary

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Otmar Issing, former Chief Economist and Member of the Board of the European Central Bank and the German Bundesbank, brings back the specter of Grexit scenarios, demanding a Euro-sabbatical for Greece.

KeepTalkingGreece.com reports that, uin an interview with business news magazine Wirtschaftswoche, Issing warned of a new flare-up of the euro crisis.

“The euro crisis is not over yet,” said the economist, one of the architects of the Euro.

Issing called on a policy that would include EU treaties allowing the possibility of temporary withdrawal from the monetary union.

“States like Greece would do well with a Sabbatical outside the monetary union. However, it should be accompanied by massive aid from other countries and a growth-oriented economic policy. And one would have to make re-entry into the euro zone dependent on fundamental reforms, ” Issing said.

Issing no longer relies on the Stability and Growth Pact, a core element of the economic and monetary union. “I would not have considered the dimension of its dismantling by the governments”.

Otmar Issing lashed out at the Greek government saying “the government is still in an anti-growth policy.”

He also criticized Italy saying

“It also did not seize the opportunity. The country has saved tens of billions of interest without using the leeway. ”

The Wirtschaftswhoche article has the title “Economist demands Euro-sabbatical for Greece.”

I don’t know exactly what institutional role 81-year-old Otmar Issing currently has other than sitting at a dusty desk as president of the Center for Financial Studies (CFS) at the Goethe University in Frankfurt am Main since 2006. He is also Goldman Sachs adviser etc etc etc.

He has been calling for Grexit since 2010 saying Euro exit would be good for Greece at least once a year… Leaving the euro might help struggling Greece, German chief economist, euro architect and former European Central Bank (ECB) board member Otmar Issing told CNBC on Tuesday.

“The euro is irreversible – but if it is irreversible for every country has become an open question,” Issing told CNBC.

Then, Issing told CNBC in September 2015…

“For Greece, there are very good arguments that it would do well outside the euro area for some time to come, but it all depends on the Greek government’s reactions”

What he does not say it that the “massive aid from other countries” that will accompanie the Euro-Sabbatical or Grexit would be one more bailout.

If I remember well, Finance Minister Wolfgang Schaeuble had estimated a total of at least 50 billion euros for a 5-year- euro sabbatical. Schaebule offered Varoufakis & Co a temporary Grexit plan in March 2015, as part of the European lenders blackmail towards Greece.

*  *  *

What we learned from Issing’s interview is that we now have a political correct term Euro-Sabbatical that sounds not so scary as Grexit.

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The VIX has recently flirted with its all-time closing low, analysts worry that volatility has been so low for so long that analysts are worried that the next sizable negative shock will cause investors to panic and dump their holdings.

Other than a handful of selloffs over the past couple of years (Aug. 2015, Jan. 2016, June 2016), Federal Reserve-led easing has guided markets steadily higher since the crisis. As MarketWatch reports, The Dow hasn’t experienced a 5% drop since 2011, and before that a 5% drop hadn’t happened since 2008, when there were 9 such drops. The blue-chip index closed at a record high on Friday, leaving it just 200 points shy of 22,000. At this level, a 5% selloff would equate to a 1,100-point, one-day slide in the gauge – an eye-popping four-digit drop.

Art Hogan, chief market strategist at Wunderlich Securities, says the market isn’t prepared for a large selloff because "garden-variety" volatility has been largely absent from US stocks for the last year.

"'I would say no because we’re out of practice. Your usual standard garden-variety volatility just hasn’t been around, and we haven’t seen it for 12 months,' Hogan told MarketWatch.

 

'Quiet markets have been the norm and not the exception and I think a major pullback is going to feel a whole lot larger for lack of experience and the numbers are larger,' he said.”

Hogan isn’t the first strategist to point out the market’s vulnerability to a sharp rise in the VIX. As Morgan Stanley’s Chris Metli said in a research note exploring what a “short vol unwind” might look like. Low volatility has produced a regime where the risks are asymmetric and negatively convex, so being prepared for an unwind is critical, since a 3% or 4% move in the S&P 500 can have a disproportionately large impact on the VIX as dealers and exchange-traded products rush to hedge.

According to Marketwatch and Dow Jones data, even a 2.5% drop in the Dow, adding up a 550-point decline, could rattle investors. Moves of this magnitude, while still relatively rare, are far more frequent, with 564 such moves occurring in the Dow since 1901. The most recent slump of this magnitude occurred on June 24, the day after the Brexit vote, when the Dow tumbled about 610 points, or 3.4%. There were three such moves in 2015. The S&P 500 is also long overdue for a major pullback.

As for the S&P 500, 61 of the past 67 years have seen at least one 5% drop, or 91% of all years, according to Ryan Detrick, senior market strategist, at LPL Financial.

"‘The inevitable 5% drop will be a shock to nearly everyone,’ Detrick said. ‘We’ve been historically spoiled so far this year, but as the economic cycle ages, we fully expect more volatility the remainder of this year and the likely 5% correction to take place as well,’ he said.”

Still, it’s important for investors to remember that while a 5% might “feel like 1987,” it’s necessary to “flush out the weak hands,” Detrick says.

“The important thing to remember is the Fed is still accommodative, earnings continue to improve globally, and inflation is contained – meaning any pullback could be a nice opportunity to add equity exposure.

 

Although a 5% correction might feel like 1987 to some of us about now, pullbacks and volatility are perfectly normal parts of bull markets and are needed to flush out the weak hands.”

Market luminaries including billionaire investor Howard Marks and Nobel Laureate Robert Shiller have warned investors to be cautious. According to Shiller’s CAPE ratio, a popular measure of equity valuations, S&P 500 valuations are at levels only seen twice before: in 1929 and 2000. Shiller said on CNBC Thursday that he “lies awake worrying” about how long this period of quiet will last. Doubleline Capital founder Jeff Gundlach said his fund bought up VIX calls when the index hit its most recent lows.

To be sure, investors are willing to pay a premium for protection. According to Bank of America, the market has never "trusted" the VIX as little as it does now, and has never before been willing to pay, and bet, more for upcoming imminent sharp moves.

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Authored by Mike Shedlock via MishTalk.com,

Sweden’s biggest banks are on a mission to get rid of branch banks and all the branch bank employees too.

That’s where “Aida” comes in. She’s available 24/7 and supposedly can handle all but your most complex needs. Your Banker, Aida Is Always In.

Aida is the perfect employee: always courteous, always learning and, as she says, “always at work, 24/7, 365 days a year.”

 

Aida, of course, is not a person but a virtual customer-service representative that SEB AB, one of Sweden’s biggest banks, is rolling out. The goal is to give the actual humans more time to engage in more complex tasks.

 

After blazing a trail in online and digital banking, Sweden’s financial industry is now emerging as a pioneer in the use of artificial intelligence. Besides Aida at SEB, there’s Nova, which is a chatbot Nordea Bank AB is introducing at its life and pensions unit in Norway. Swedbank AB is adding to the skills of its virtual assistant, Nina. All three are designed to sound like women, based on research suggesting customers feel more comfortable with female voices.

 

“Basically all banks are closing branches,” Mattias Fras, head of Robotics, Strategy and Innovation at Nordea, said in a phone interview. “This is a way to return to full service again.”

 

Swedish banks have already seen their customer satisfaction scores drop to a 20-year low after shutting branches and pushing people onto online services.

Satisfaction Slump

Fastest Way to Full Services

As banks closed branches customers satisfaction dove. Obviously, this is one of those cases where if it doesn’t work, you need to do more of it.

The fastest way to get to full services is to get rid of all the employees. Well not quite all of them, just those Aida, Nova, and Nina cannot handle.

“The goal is to give the actual humans more time to engage in more complex tasks.”

Yeah, right.

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The Indian coast guard seized 1,500 kilograms of heroin, the largest bust ever uncovered by authorities in any county, after commandeering a shady Panama-flagged vessel sailing in the Indian Ocean.

The vessel, which was operating under the name MV Henry, was intercepted off the Gujarat coast near the city of Porbandar, according to Reuters. Crewmembers said the ship was sailing from Dubai to Alang, a town in Gujarat known for shipbreaking.

The Indian Times published a description of the encounter between authorities and the ship’s crew, as well as a video taken by the Coast Guard.

“When quizzed, the master of the ship said that the vessel had no documents as it was headed to the Alang ship-breaking yard in Bhavnagar to be broken.

 

The vessel was subsequently detained and was tugged to the Porbandar port on Sunday where the authorities during inspection found the vessel to be carrying 1500 kgs of heroin.”

Eight Indian nationals were also found aboard the ship. They have been brought in for questioning by authorities and are currently under investigation.

According to the BBC, citing a UN report on the international drug trade, India is part of a transit route, due to its proximity to Afghanistan. Smugglers take the heroin across the Indian Ocean to eastern and southern Africa. India also has a severe heroin problem in the state of Punjab, which is in the border with Pakistan.

In an earlier story about Punjab’s drug epidemic, which is similar in many ways to the crisis in the US, the BBC reported that 53% of the state’s drug users prefer heroin.
 

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Authored by Mac Slavo via SHTFplan.com,

Iceland’s largest volcano, Katla, was just moved to yellow status.  

But that isn’t all that’s concerning. There have also been over 500 earthquakes in Iceland in the last four days.

Experts now believe that a volcanic eruption that could be quite large, may soon occur in Iceland. A series of 40 small earthquakes occurred just North East of Mount Fagradalsfjall two days ago, with the final one felt in Reykjavik, measuring at almost 4 on the Richter scale.  Following tremors at Katla in South Iceland and a glacial river flood in Múlakvísl, the Icelandic Met Office has raised the status of the famous volcano on its “Aviation Colour Code Map for Icelandic Volcanic Systems” from green to yellow. People have even been warned to stay away from the Múlakvísl  River because of the odor of sulfur. 

An earthquake of the magnitude of 3 occurred in the Katla caldera at 00:48 last night followed by a series of smaller tremors.  The seismic unrest could be connected to the glacial river flood and not connected to a possible eruption at all but the Iceland Met Office cannot be certain at this point.

 

Alert code yellow means that the volcano is active but that nothing points to an immenent eruption. If the colour code moves up to orange it means that the volcano is increasing its activity and an eruption is becoming likely. –Iceland Monitor

“It’s quite normal for Reykjanes, there have been a series of quakes there in the past few years,” the Met Office commented. And according to a post on volcano enthusiast site Volcanocafé, eruptions occur in Iceland every three to seven years.

“We have never seen a large powerful intrusion at a Mid Oceanic Ridge at such a well-instrumented place,” Carl Rehnberg wrote on Volcanocafé. “We now know that the initial swarm rapidly transformed from tectonic earthquakes, via volcano-tectonic, to earthquakes consistent with moving magma in a surprisingly short timeframe. As such this is turning into a potential eruption or a state of volcanic unrest.”  Rehnberg believes that a major eruption could be just hours away. If, however, the “current unrest” stops, there will be no eruption.

But, he explains, “At the intensity and force of the current seismic unrest, it is likely that an eruption will occur if the seismic crisis is prolonged.”

Rehnberg speculates that there is a 50 percent chance of an eruption, and that chance is increasing by the hour.  But the Icelandic Met Office, who are currently not concerned about a major volcanic eruption, citing the recent seismic activity as “normal for an active region”.

As a reminder, in response to concerns that volcanic ash ejected during the 2010 eruptions of Eyjafjallajökull in Iceland would damage aircraft engines, the controlled airspace of many European countries was closed to instrument flight rules traffic, resulting in the largest air-traffic shut-down since World War II.

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Authored by Paul Craig Roberts,

The Congress of the United States by almost unanimous votes in both House and Senate has made it clear that Congress would rather destroy the President of the United States and to increase the risk of nuclear war than to avoid conflict with Russia by normalizing relations.

The vote on the new sanctions makes it pointless for President Trump to veto the bill, because it passed both houses by far more than the two-thirds vote required to over-ride the president’s veto. The only thing Trump can achieve with a veto is to prove the false charge that he is in league with Vladimir Putin

The new sanctions bill forecloses the possibility of reducing the rising tensions between the two major nuclear powers. It also shows that whatever interest Congress has, if any, in reducing the threat of war and in avoiding a break with Europe over the sanctions, Congress has a much greater interest in continuing to collect campaign contributions from the powerful and rich military/security complex and in playing to the growing hatred of Russia that is encouraged by the US media.

This reckless and irresponsible action by the US Congress makes completely clear that Washington has intentionally chosen conflict with Russia as the main element of US foreign policy. Perhaps now the Russian government will abandon its cherished illusion that an accommodition with Washington can be reached.

As I have written on many occasions, the only way Russia can achieve accommodation with Washington is to surrender and accept American hegemony. Any further resistance of the Russian government to this obvious fact would indicate dangerous delusion on the part of the Russian leadership.

The fig leaf Congress chose for its violation of diplomatic protocols and international law is the disproven allegation of Russian interference in behalf of Trump in the US presidential election. An organization of former US intelligence officers recently announced that forensic investigation has been made of the alleged Russian computer hacking, and the conclusion is that there was no hack; there was an internal leak, and the leak was copied onto a device and Russian “fingerprints” were added. There is no forensic evidence whatsoever that shows any indication of Russian hacking.

It is all made up, and everyone alleging Russian hacking knows it. There is no difference between the allegation of Russian hacking and Hitler’s allegation in 1939 that “last night Polish forces crossed our frontier,” Hitler’s fig leaf for his invasion of Poland.

That Congress uses a blatantly transparent lie to justify its violation of international law and intentionally worsens US relations with both Russia and the EU proves how determined Washington is to intensify conflict with Russia.

Expect more false allegations, more demonization, more threats.

War is in the cards.

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