Welcome to August: you may be surprised to learn that S&P 500 futures are once again levitating, higher by 0.3%, and tracking European and Asian markets. Asian equities traded higher across the board after China’s Caixin Manufacturing PMI beat expectations and printed its highest since March, refuting the decline in the official PMI data reported a day earlier, while firmer commodity prices boost both sentiment and commodity stocks across Asia and Europe. Notably, with DJIA futures higher by over 100 points this morning, the Dow Jones is set to open above 22,000, a new all time high.

World stocks are on their longest streak of monthly gains in more than a decade, with the MSCI All-Country index rising again on Tuesday, up 0.3%, amid further signs that the global economy remains solid, while the beaten-down dollar edged up slightly from 14-month lows. The dollar again failed to stage a rebound after Monday’s drop, as investors were transfixed by the chaotic developments in Washington, pushing the greenback lower overnight and sending it down for the fifth consecutive month.

“I think the short dollar trade is still the broad consensus trade in the financial markets,,” said Esther Maria Reichelt, an FX analyst at Commerzbank in Frankfurt. “But we are approaching important levels against other currencies, such as 1.20 on the euro, which may prompt some concerns from other central banks.”

Softening U.S. inflation and incessant political turmoil has hit prospects of another Federal Reserve rate hike in coming months and sent the dollar down 10 percent from its January peaks. The dollar’s decline, low inflation and stable global growth has stoked appetite for stocks, with the MSCI extending its run after the index logged its longest streak of monthly gains since 2003-04 in July.

“Data and market behaviour are consistent with our global reflation theme,” strategists at Morgan Stanley, led by Hans Redeker, said in a note, pointing to strong Chinese factory data, corporate earnings and surging South Korean exports. “The combination of USD weakness with decent, but not too strong, US economic growth works in favour of risk appetite, pushing financial conditions globally, and especially in the US, higher.”

In Europe, the Stoxx Europe 600 gained 0.6%, hitting session’s high after data showing euro-area July manufacturing kept in line with the flash reading (PMI 56.6 vs flash reading 56.8). European manufacturing sentiment pointed to “broad-based economic growth” as national surveys signaled economic expansion across the region, with Austria, the Netherlands and Germany being the best performers. French manufacturing accelerated to one of the fastest rates in six years. The Stoxx Europe 600 Index was poised to end its losing streak, heading for the first gain in four days after companies including BP reported, beating estimates, and was the biggest contributor to the advance. Crude itself also rose, as traders awaited the latest government inventory data. Recent commodity strength continued to feed into Asian equities, which were also bolstered by earnings in Japan, South Korean export numbers and Chinese manufacturing data. The U.K.’s FTSE 100 Index advanced 0.8 percent, the largest gain in a week. Germany’s DAX Index advanced 0.4 percent, the biggest gain in a week.

In Asia, the MSCI Asia-Pacific Index rose to the highest since 2007 as equity indexes from Tokyo to Sydney advanced. Japan’s Topix index added 0.6 percent. Banks rallied after Sumitomo Mitsui Financial Group Inc. reported a 31 percent increase in net income for the June quarter.  Australia’s S&P/ASX 200 Index closed 0.9 percent higher, while South Korea’s Kospi index ended up 0.8 percent. The Hang Seng Index in Hong Kong rose 0.8 percent, while the Shanghai Composite Index climbed 0.6 percent. As expected, the surge in the overnight Hong Kong dollar interbank proved fleeting, as the rate tumbled 43 bps to 0.28286%  after climbing to a more than eight-year high of 0.71407% on Monday, according to Bloomberg citing the latest fixing published on the Treasury Markets Association website. The one-week HKD Hibor dropped 2 bps to 0.28836%, after rising to 0.30643% on Monday, highest since July.

For European equity markets, continued improvement in euro-area economy has fueled rally in euro and raised concerns over potential impact on corporate earnings, with the 1.20 area in the EURUSD often cited as a hard stop beyond which profitability will be materially impacted. European government bonds also edged higher as PMI data highlight ECB’s conundrum of robust growth without price pressure.

Meanwhile, as reported earlier, the Reserve Bank of Australia held the benchmark at 1.5% while warning that a rising currency is expected to subdue inflation and weigh on the outlook for growth and employment. The Aussie fluctuated, but has since sunk to session lows, below 0.80.

In commodities, oil prices made further gains as falling U.S. inventories eased some concerns about oversupply. Futures on Brent crude LCOc1 and U.S. crude oil CLc1 rose 0.2 percent and held comfortably above $50 a barrel for the first time since May.

In rates, Britain’s 10-year yield declined one basis point to 1.223 percent. Germany’s 10-year yield fell two basis points to 0.52 percent, the lowest in more than a week.

ISM manufacturing and construction spending are among key data points later on Tuesday, while Apple, Pfizer, Emerson Electric are due to report earnings, together with a number of other companies. Crude oil trades above $50/bbl.

Bulletin Headline Summary from RanSquawk

• European equities trade higher in a move predominantly led by the energy sector with indices also supported by domestic earnings
• FX markets continue to be guided by USD-softness as political upheaval in Washington grips summer trading conditions
• Looking ahead, highlights include US PCE, ISM Mfg. and APIs

Market Snapshot

• S&P 500 futures up 0.3% to 2,474.75
• STOXX Europe 600 up 0.6% to 379.92
• MSCI Asia Pacific up 0.6% to 161.32
• MSCI Asia Pacific ex-Japan up 0.4% to 531.46
• Nikkei up 0.3% to 19,985.79
• Topix up 0.6% to 1,628.50
• Hang Seng Index up 0.8% to 27,540.23
• Shanghai Composite up 0.6% to 3,292.64
• Sensex up 0.09% to 32,542.84
• Australia S&P/ASX 200 up 0.9% to 5,772.37
• Kospi up 0.8% to 2,422.96
• German 10Y yield fell 0.8 bps to 0.535%
• Euro down 0.2% to 1.1818 per US$
• Brent Futures up 0.3% to $52.85/bbl
• Italian 10Y yield fell 2.8 bps to 1.801%
• Spanish 10Y yield fell 1.1 bps to 1.489%
• Gold spot down 0.02% to $1,269.17
• U.S. Dollar Index up 0.05% to 92.91

Top Overnight News

• Venezuela’s most high-profile opposition figures were seized from their homes by security forces, according to people close to them, in what appeared to be a crackdown on officials challenging the government of President Nicolas Maduro
• The euro- area economy expanded apace in the second quarter, a sign the bloc’s upswing is becoming increasingly robust and self- sustaining. While a Purchasing Managers’ Index pointed to broad- based growth, price pressures showed further signs of easing in July
• U.K. manufacturing growth accelerated for the first time in three months in July, bolstered by the strongest jump in export orders in seven years
• Trump personally dictated son’s statement on Russia meeting: Wash. Post
• U.S. detected unusual levels of North Korean submarine activity: CNN
• Pence Says U.S. Backs Georgia in NATO Against Russian Objections
• No Bubble in Stocks But Look Out When Bonds Pop, Greenspan Says
• Banks May Be Hit With $50 Billion Capital Needs After Brexit
• Japan PM Abe to reshuffle cabinet on August 3: Suga
• China July Caixin manufacturing PMI 51.1 vs 50.4 estimate
• It’s time for China to increase yuan flexibility: Sec. Journal
• BP Says It’s Breaking Even After Debt Soared to a Record
• Ferrari Said to Plot ‘Utility Vehicle’ in Plan to Double Profit
• Tesla Batteries May Back Up Wind Farm Off Massachusetts Coast
• Scripps Affirmed by Moody’s on Acquisition by Discovery
• Lexicon to Opt-In for Co-Promotion of Sotagliflozin With Sanofi
• Brighthouse Financial to Replace AutoNation in S&P 500
• New Anthem Data Breach Affected More Than 18,000 Enrollees: CNBC

Asian equities traded higher across the board as Chinese data took focus once again after Caixin Manufacturing PMI beat expectations and printed its highest since March. ASX 200 (+0.9%) was led higher by commodity-related stocks after iron ore extended on yesterday’s over 7% gains and WTI settled above USD 50/bbl for the first time since May. Nikkei 225 (+0.3%) was kept afloat after the prior session’s JPY weakness, while Shanghai Comp (+0.6%) and Hang Seng (+0.8%) conformed to the positive tone after the aforementioned Chinese PMI data coupled with the PBoC’s CNY 170b1n injection into the interbank market. Finally, lOy JGBs were flat with a lack of demand seen amid broad positive risk sentiment and following the uninspiring 10yr JGB auction in which the results were mixed and relatively similar to the prior month.
Chinese Caixin Manufacturing PMI (Jul) 51.1 vs. Exp. 50.4 (Prey. 50.4).

Top Asian News

• India Manufacturing PMI Hits 8-Year Low on Sales Tax Disruption
• Caixin China July Manufacturing PMI 51.1; Est. 50.4
• Iron Ore Investors Zero In on 2018 as China Futures Roll Over
• Singapore’s Chevron House Owner Seeks More Than S$700M in Sale
• MUFG Profit Jumps 53% on Trading Income, Gains From Share Sales
• Macau Casinos’ July Gains Cap Year of Recovery as VIPs Flock
• Honda Sees New Accord, Weaker Yen Easing U.S. Pressure

European bourses are firmer this morning led by the energy sector. BP shares higher by over 2% after reporting earnings were ahead of analyst estimates. Crude prices higher with WTI crude futures making a firm break above USD 50.00/bbl. German curve was initially bull flattening this morning, providing modest concession for the Schatz ahead of today’s EUR 4bln Jun’19 tap with little reaction seen in German paper after a relatively well-digested Schatz auction. Gilts ebbed lower slightly following better than expected UK Mfg. PMI data with paper also unreactive to this morning’s Gilt auction which saw a healthy uptake by the market.

Top European News

• German Labor Market Strengthens as Robust Economy Fuels Hiring
• Female CEOs Hold Key to Returns for $42 Billion Stock Manager
• France July Manufacturing PMI 54.9 vs Flash Reading 55.4
• BOE Rate Excitement Fizzles as Increase Appears Further Away
• U.K. Manufacturing Grows as Export Orders Climb to Near Record
• Euro-Area Economy Steams Ahead as ECB Awaits Inflation to Follow

In currencies, the Greenback continued to suffer yesterday amid the political uncertainty in the USA. President Trump removed Scaramucci from his White House Communications Director post just ten days after the appointment. This news was followed by reports stating that US Senate Finance Committee Chairman Hatch said that senators are too divided to keep working on healthcare overhaul legislation now. The difficulties in the States have led to all its major currencies pairs gaining against the US dollar, as the DXY now trades through 93.00, looking close and close toward the 92.00 support level. USD/JPY saw a bounce on the physiological 110.00 level, however remains to look bearish, with a test of June’s low at 108.80 possible. GBP: Brexit fears have once again resurfaced; with UK Chancellor Hammond yesterday stating future
relationship with European Union remains under discussion, Brexit will not be postponed or delayed. GBP/USD has gained however, amid the aforementioned falling dollar, continuing to print 2017 highs, now through 1.32. With a weakening greenback, GBP/USD bulls could see this opportunity to attack 1.35. AUD: The highlight of the Asian session was the RBA interest rate decision, where as expected, the RBA kept their cash rate on hold at 1.50%. Despite a spike lower on the decision, we did see a bounce in AUD/N ZD,largely likely to the minimal concern of the higher AUD. The statement stated that a higher AUD is weighing on price pressures and would slow economy. However, the tone of the RBA was slightly more optimistic than many anticipated, stating that growth is expected to pick up, alongside the previously mentioned lack of fears toward the AUD.

In commodities, WTI crude futures breached the psychological USD 50/bbl level. Europe’s largest refinery (Pernis) reported further issues with a leak during maintenance work yesterday. Potential supply disruptions in Nigeria, as Niger Delta leaders threaten to dump peace talks. Gold fell 0.1 percent to $1,267.59 an ounce, the largest fall in a week. Iron ore advanced 3.4 percent to 574 yuan per metric ton, the highest in more than four months.

Looking at the day ahead, we will see the June personal income (+0.4% mom expected) and spending data (+0.1% mom expected), followed by the ISM manufacturing PMI for July (56.5 expected; 57.8 previous).  Onto other events, the trade ministers from the BRICS countries will meet in Shanghai. Notable US companies reporting include: Apple, Pfizer, CME, Assurant and Illumina.

US Event Calendar

• 8:30am: Personal Income, est. 0.4%, prior 0.4%; Personal Spending, est. 0.1%, prior 0.1%
  • Real Personal Spending, est. 0.1%, prior 0.1%
  • PCE Deflator MoM, est. 0.0%, prior -0.1%; PCE Deflator YoY, est. 1.3%, prior 1.4%
  • PCE Core MoM, est. 0.1%, prior 0.1%; PCE Core YoY, est. 1.4%, prior 1.4%
• 9:45am: Markit US Manufacturing PMI, est. 53.2, prior 53.2
• 10am: ISM Manufacturing, est. 56.5, prior 57.8; ISM Prices Paid, est. 55.8, prior 55; ISM New Orders, prior 63.5; ISM Employment, prior 57.2
• 10am: Construction Spending MoM, est. 0.4%, prior 0.0%
• Wards Total Vehicle Sales, est. 16.8m, prior 16.4m
• Wards Domestic Vehicle Sales, est. 13.1m, prior 12.8m

DB’s Jim Reid concludes the overnight wrap

As is the norm, the first day of the month also brings the global PMIs and ISM manufacturing data. Europe’s flash numbers 9 days ago were a touch on the weaker side after many months of beats so it’ll be interesting to see the final numbers for the core and the first glance at the peripherals. This morning, China’s Caixin manufacturing PMI for July was slightly above expectation at 51.1 (vs. 50.4 expected, 50.4 previous). Asian markets are stronger as we type. The Nikkei is up 0.2%, the Kospi +1.0%, the Hang Seng (+0.7%) and the three Chinese bourses up between 0.1% to 0.6%.

Staying with China It’s fair to say that consensus expects China’s economic growth to slow slightly in 2H, which is DB’s base case too. However, our China economists now see the risk to the H2 growth outlook shifting to the upside, in part driven by high frequency data that suggests land supply and auctions remained hot in July. With the land market this strong, the fiscal revenue in H2 will strengthen and support infrastructure spending.

As July put the shutters down for the final time, global equity markets were broadly flat to slightly lower yesterday. US equities fluctuated between gains and losses but dipped down again into the close (S&P500 -0.1%), with financials (+0.6%) and telecoms (+0.4%) leading the way while materials (-0.8%) and information technology (-0.5%) dragged it lower. The Dow again bucked the trend (+0.3%) to close at a record for the 4th day in a row.

Over in Europe the STOXX 600 (-0.1%) traded slightly lower on the day, while regional markets were mixed with the DAX (-0.4%) and CAC (-0.7%) lower while the FTSE MIB (+0.3%) and FTSE 100 (+0.1%) posted some gains. Overnight, our European strategists did a stock take of earnings downgrades over the past month, noting that European EPS have been revised down by -0.6%, more than any other major region.

Over in government bond markets, we saw German Bunds and US treasuries largely unchanged, except for Bund yields at the very long end (20Y -1bps; 30Y: -2bps). Gilt yields were higher across nearly all maturities in a somewhat parallel shift of the curve (2Y +3bp; 10Y +2bp). 10 year peripheral yields were 3-4bps lower.

Turning to FX markets, we saw the US dollar index drop further yesterday by -0.4% while the Euro and Sterling gained by +0.7% and +0.5% respectively against the Greenback. In commodity markets the energy segment saw oil prices spike back up into positive territory by the close (+0.8%) with WTI trading above $50 for the first time since May. Iron ore was up 7%, with China’s July steel industry purchasing managers’ index showing the highest reading in 15 months. Away from the markets, White House communications director Scaramucci has left the role after 10 days in the job. The cause of his departure is unclear, whether it was at the hands of Mr Trump or the new Chief of Staff John Kelly, who also started on the same day. Press secretary Sanders noted that Scaramucci left in “mutual agreement” with Kelly. It’s certainly not been a great couple of weeks for the administration.

Taking a look now at some of the data out yesterday. In Europe we got German retail sales data that unexpectedly saw momentum pick up on the month (+1.1% mom vs. +0.2% mom expected; +0.5% previous). We also got UK consumer credit data where net consumer credit supplied in June was in line with expectations at GBP 1.5bn although there were signs of credit growth slowing as mortgage approvals ticked down to 64.7k (vs. 65.0k expected; 65.2k previous) and unsecured borrowing rose at its slowest rate in over a year (10% YoY). Thereafter we got some aggregate Eurozone data in the form of the June unemployment rate that came in just below expectations (9.1% vs. 9.2% expected) and the July CPI estimate that was in line with expectations (+1.3% YoY), but the core CPI was a tad above expectations at 1.2% yoy (vs. 1.1% expected; 1.1% previous).

Over in the US the data was a bit mixed as we saw the Chicago PMI reading for July dip further than expected to 58.9 (vs. 60 expected; 65.7 previous) while the Dallas Fed manufacturing activity reading for July unexpectedly increased to 16.8 (vs. 13 expected; 15 previous) and pending home sales data for June beat expectations at 1.5% mom (vs. 1.0% expected;-0.8% previous). The ECB are clearly enjoying the breather that holiday season offers as CSPP purchases last week implied a lowly average daily run rate of €157mn (slightly higher than last week) against the average of €357mn since the program started . The CSPP/PSPP ratio was 8.1%, up from 6% a week earlier but still significantly below the long-run average. It’s becoming clearer that recent large scale corporate purchases were likely a front loading exercise ahead of the summer lull. Overall CSPP has almost certainty been tapered less than PSPP but the summer months may restore the balance a little between the two as the ECB probably believe that government bonds are going to be easier to purchase in thin markets than corporates.

Turning now to the day ahead. In Europe we will see July data for the UK Nationwide House Price index (-0.1% mom expected; +1.1% previous). Following that we get at the final revisions to the manufacturing PMIs for France, Germany and the Eurozone along with a first look at the data for the UK and periphery. We will also get the advance estimate for Q2 Eurozone GDP (+2.1% YoY expected; +1.9% YoY previous). Across the pond we will see the June personal income (+0.4% mom expected) and spending data (+0.1% mom expected), followed by the ISM manufacturing PMI for July (56.5 expected; 57.8 previous). Onto other events, the trade ministers from the BRICS countries will meet in Shanghai. Notable US companies reporting include: Apple, Pfizer, CME, Assurant and Illumina.

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The AUDUSD has faded overnight gains and was trading near session lows after the RBA kepts its interest rate at 1.5% as expected and previewed last night, however in an echo of last week’s comments from Lowe, the central bank flagged that a stronger AUD was expected to contribute to subdued price pressures and was weighing on the outlook for output and employment and would result in a slower pick-up in economic activity and inflation than currently forecast.

The kneejerk reaction after the statement was for AUDUSD to gap lower, followed by a prompt rebound as traders digested the perceived ongoing weakness of the US dollar and the generally upbeat tone of the statement. It has since drifted lower, however, with the pair back under 0.80 as the dovish warnings prevailed coupled with several banks pushing back their expected first date of the first RBA rate hike (see below).

Overall, there were three noteworthy changes in the Governor’s Statement as flagged by SocGen.

1. Most relevant was a new paragraph addressing the appreciation of the exchange rate and its (undesirable) consequences.
2. Secondly, the labour market is no longer characterised as mixed and described in positive terms.
3. And lastly, the tightening of credit conditions and higher rates for housing investors are acknowledged as having taken place, rather than as something that could happen.

The change in tone on the exchange rate, combined with our constructive view on the AUD, was sufficient to change SocGen’s forecast for RBA policy, and as a result the bank is pushing the date of the first expected rate hike out by six months from February 2018 to August 2018.

Some more details from the French bank:

RBA unhappy about the stronger exchange rate

For many months, the RBA Governor’s Statement limited itself to a simple sentence as regards the Australian dollar’s exchange rate: “An appreciating exchange rate would complicate this adjustment” – the adjustment being economic transition following the mining investment boom. However, today’s statement went much further, and marked a clear change of tone and shift in concern. It is worth repeating the paragraph in full:

“The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

Hence, the RBA is making it quite clear that the exchange rate has again become an important consideration in deciding the policy stance. The RBA is also hinting that a strong exchange rate implies either a looser policy stance or maintaining the current accommodative stance for longer. In other words, while not directly attempting to talk the currency down, the RBA is clearly establishing a quite direct link between the exchange rate and monetary policy, thus attempting to influence interest rate expectations and thereby the exchange rate. Consistent with this, the comment on commodity prices was also changed notably from “The rise in commodity prices over the past year has boosted Australia’s national income” in July, to “Commodity prices have generally risen recently, although Australia’s terms of trade are still expected to decline over the period ahead”.

As mentioned above, this rather radical change in tone is, in our view, sufficiently significant to make us change our view about the course of monetary policy in Australia, and push out our forecast on the timing of first rate hike by six months from February 2018 to August 2018.

RBA even more upbeat about the global economy

The language around the state of the global economy was upgraded a bit further. Conditions are judged to be “continuing to improve” and growth in the key economy for Australia, China, is seen to have “picked up a little”, rather than growth just being supported. Also, the RBA writes that “labour markets have tightened further”, dropping the qualifier “in many countries”.

Forecasts for Australian economy largely unchanged and optimistic

“The Bank’s forecasts for the Australian economy are largely unchanged” is how the RBA described the discussion of the latest quarterly forecast round which will be published in Fridays Statement on Monetary Policy (SoMP). This was no surprise. Although GDP growth in 1Q was a bit weaker than predicted in the May forecasting round, momentum in 2Q appears to be a bit stronger than expected, so the near-term outlook should be roughly identical. And given that underlying inflation was right in line with the forecast, the near-term inflation forecast should be largely the same as well. That said, the about-5% increase in the trade-weighted exchange rate assumption underlying the forecast imparts a downward bias to both the growth and inflation forecasts.

That said, a subtle change in the description of the growth outlook suggests an upward adjustment. According to today’s statement, “Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent”, whereas in May that sentence was “Growth is expected to increase gradually over the next couple of years to a little above 3 per cent”. This could just reflect the fact that the forecast is rolled out one quarter (and a big growth-boosting base effect in 3Q), but it is a notable change. The fan charts and forecast ranges in the SoMP will tell us more. The view on investment prospects in the non-mining sector also sounds more upbeat, and residential construction is also “forecast to be maintained for some time, before slowing”.

Labour market assessment clearly upgraded

After four months of strong employment growth and some modest declines in the unemployment rate, the labour market is no longer being characterized as “mixed”, but in more positive terms. However, the view that “wage growth remains low and this is likely to continue for a while yet” was maintained, and hence this does not appear to stand in the way of a loose policy for another year.

Housing market concerns apparently less acute

For some time, the RBA’s key concerns have been a weak labour market and a hot housing market raising financial stability concerns. This has not gone away, given that “Growth in housing debt has been outpacing the slow growth in household incomes”. However, despite some evidence that house prices are reaccelerating, the RBA states that “there are some signs that these conditions [of briskly rising housing prices] are starting to ease”. Moreover, the fact that higher interest rates for housing investors and some tightening of credit conditions are now a reality rather than a prospect, also suggests reduced concerns.

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Via Global Macro Monitor,

Do the markets price risk anymore?   That seems to happens when the world is awash with central bank based liquidity.

We do see the VIX creeping back over 10 after trading with 8 handle for its only second time in history last Wednesday.

Just as with about everything else, with the exception of crude, which now seems to be pricing in some geopolitical risk,  very few markets are pricing for potential political or geopolitical shocks.

See our post,  No Worries In South Korean Markets,  with their currency and stock market ripping higher this year all while missilies fly up north.   The KOSPI did fall almost 2 percent on Friday,  however.

Non-worries over a budget debacle are quite understandable, however,  since the conflict always seems to work itself out, especially now we have one party rule.

Here is Credit Suisse,

There is “no event risk” currently priced in options that allow investors to hedge against or speculate over potential volatility on the S&P 500, the main US equities barometer, according to Mandy Xu, derivatives strategist at Credit Suisse.

 

…The tranquility in equities presents something of a juxtaposition to fixed income, where jitters have risen in a portion of the US Treasuries market.

 

 

– FT

 

We are expecting several stock negative forces to converge in October, which, we believe, will generate a market sell-off as stocks continue to march higher the rest of the summer adding to their already overextended valuations.

1) seasonality;

 

2) the Fed balance sheet should, or could be shrinking ;

 

3) China’s Party Congress may have concluded, removing the country’s implicit policy put, and thus increasing the risk of a China policy or economic shock;

 

4) the new U.S. Federal government fiscal year begins October 1 and if the Trump administration has not passed any significant economic legislation, the markets may begin to throw in the towel;

 

5) there will be more clarity on ECB tapering;

 

6) even more elevated asset prices as the risk markets grind higher through the rest of summer as we suspect, setting up for a potential blow-off by the end of September;

 

7) nervousness over the debt ceiling;

 

and, finally, 8) by then, the souffle now being baked and puffed up by the markets should barely be able to withstand the slamming of the oven door.

 

  – GMM

Stay tuned.

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Overnight, the Swiss National Bank disclosed the composition and breakdown of its FX reserves as of June 30. There were no notable changes, as the central bank kept most of its asset allocations unchanged from the previous quarter, with equities, government bonds and “other bonds”, at 20%, 68% and 12% respectively. There were also no shifts in the currency composition as shown in the table below.

There was one notable – and unexpected – development, and it had to do with the SNB’s -0.75% deposit rate. As Reuters writes, Swiss banks paid 970 million Swiss francs ($1 billion) in negative interest rate charges in the first half of 2017, a 40% surge from the previous year, as clients continued to hoard even more cash despite every possible action undertaken by the central bank to force savers to spend, or better yet, invest the funds.

The Swiss National Bank has been charging a 0.75% fee on large deposits at the central bank since January 2015, a core policy aimed at weakening the Swiss franc and boost the velocity of money. The negative rate has been a burden for banks, especially at a time when wealthy clients are still keeping more than a fifth of their holdings in cash despite buoyant financial markets, recent earnings at the biggest private banks show.

As Reuters adds, parsing through commercial bank data, the amount of cash rich clients have parked with local banks has come down from the record-high level seen during the financial crisis but is declining only gradually.

In its call last week, UBS, the world’s biggest private bank, said cash holdings at its flagship wealth management division came down in Q2 to 21% of invested assets from 21.5% in the previous quarter. Overall, UBS Wealth Management has CHF1.04 trillion in invested assets.

Credit Suisse, the fourth-largest private bank in the world by assets, said cash holdings across its money managing units held steady in the three months to end-June at around 30%, which is a damning assessment of central banker policies which have tried everything to punish savers, and have so far failed.

Similarly, cash holdings at Julius Baer, Switzerland’s third-biggest private bank, declined only fractionally to 22% from 23%.

Quited by Reuters, Julius Baer CFO Dieter Enkelmann said last week. “It’s interesting to compare right after the crisis in 2008, cash levels were at 34 percent, and the low we have experienced in 2007, pre-crisis. There the cash was around 16 percent,”

“So there would be still room to go down if the markets would continue to do well.”

Alternatively, with global markets at all time highs, and with cash levels stubbornly refusing to go down, the most likely outcome is that at the first whiff of trouble, cash holdings will surge right back up to crisis level, forcing the SNB to unveil even more draconian negative rates, or to abandon its NIRP policy altogether and join the rest of the world in pursuing “hawkish” policies. How that will impact the recently plunging Swiss Franc is unclear.

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Ethereum (ETH/USD) Weekly/Daily

Ethereum (ETH/USD) is breaking downchannel resistance (on the daily chart) going into today’s highly anticipated August 1st Bitcoin (BTC/USD) fork.  On its own, the breakout is bullish, however caution is advised given the volatility expected today around the BTC/USD fork, and the distance between the current ETH/USD price and an uptrend support (on the daily chart).  Last July’s ETH/USD pullback found support at the 61.8% Fib retrace of the rally (from the beginning of the year), but interestingly never tested its major uptrend support line.  Nevertheless, with BTC/USD testing what appears to be bull flag resistance (on its weekly/daily chart), a breakout above its bull flag would reinforce ETH/USD’s rally today above its downchannel resistance.  The weekly MACD blue line is still downsloping but significantly, the same MACD’s less sensitive (to recent price action) red line continues sloping slighty up, suggesting ETH/USD’s longer term trend remains up.  The daily RSI, Stochastics and MACD are bottomish, as are the weekly RSI and Stochastics.  Nevertheless, with uncertainty remaining over the fork, volatility can be expected to spike in the next 24hrs.

 

 

Bitcoin (BTC/USD) Weekly/Daily

Bitcoin (BTC/USD) is bumping up against a slightly downsloping channel resistance line (on the weekly and daily chart) going into today’s highly anticipated August 1st fork.  This same downchannel is arguably a bull flag, with BTC/USD bulls likely making an attempt today to break above flag resistance.  The weekly MACD appeared several weeks ago to be making a negative crossover, but as sometimes occurs, produced a false signal with the MACD line turning higher again after seemingly poised to fall lower.  The relative strength of BTC/USD over Ethereum (ETH/USD) continues, with bullish confirmation coming from ETH/USD also rallying today going into the fork.  Nevertheless, with uncertainty remaining over the fork, volatility can be expected to spike in the next 24hrs.  A short-term bearish (albeit less likely) outcome today would be BTC/USD getting rejected at its downchannel resistance, and forming a lower high (versus its June high).

 

 

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• Muslim vigilantes enforcing Islamic justice have become increasingly common in Germany. The government's inability or unwillingness to stop them has led to the rise of anti-Muslim counter-vigilantes. Germany's BfV intelligence agency, in its latest annual report, warned that an escalating action-reaction cycle could result in open warfare on German streets.
• The self-appointed "Sharia Police" urged both Muslim and non-Muslim passersby to attend mosques and to refrain from alcohol, cigarettes, drugs, gambling, music, pornography and prostitution. In November 2016, the Wuppertal District Court ruled that the Islamists did not break German law and were simply exercising their right to free speech. The ruling, which effectively legitimized Sharia law in Germany, was one of a growing number of instances in which German courts are — wittingly or unwittingly — promoting the establishment of a parallel Islamic legal system in the country.
• "Even if we still refuse to believe it: Parts of Germany are ruled by Islamic law! Polygamy, child marriages, Sharia judges — for far too long the German rule of law has not been enforced. Many politicians dreamed of multiculturalism…. This is not a question of folklore or foreign customs and traditions. It is a question of law and order. If the rule of law fails to establish its authority and demand respect for itself, then it can immediately declare its bankruptcy." — Franz Solms-Laubach, parliamentary correspondent, Bild.

German Muslims have established a self-styled biker gang — modelled on the Hells Angels — aimed at protecting fellow Muslims from the "ever-growing hatred of Islam," according to Die Welt.

The emergence of the group, which aspires to open chapters in cities and towns across Germany, has alarmed German authorities, who have warned against the growing threat of vigilantism in the country.

Muslim vigilantes enforcing Islamic justice have become increasingly common in Germany. The government's inability or unwillingness to stop them has led to the rise of anti-Muslim counter-vigilantes. Germany's BfV intelligence agency, in its latest annual report, warned that an escalating action-reaction cycle could result in open warfare on German streets.

The gang, which calls itself "Germanys Muslims" (the possessive apostrophe is not used in German), is based in Mönchengladbach and now has offshoots in Münster and Stuttgart. It was founded by Marcel Kunst, a German convert to Islam who also uses the name Mahmud Salam.

The gang's uniform consists of a black leather jacket with a logo depicting a one-fingered salute, the "Finger of Tawheed," which represents belief in the oneness of Allah. The logo also includes the number 1438, which represents the current year in the Muslim calendar, as well as the number 713, which stands for GM (Germanys Muslims), the seventh and thirteenth letters of the alphabet.

Police say they do not know how many people belong to the gang, which was established in May. The group's Facebook page, which has more than a thousand followers, describes itself as a "citizens' initiative" which advocates for the "peaceful coexistence between Muslims and non-Muslims in Germany." A mission statement dated June 15 reads:

"Our organization has been founded for only one purpose: To protect and support our brothers and sisters from the ever-growing hatred of Islam!!! To all non-Muslims who read this post, pay attention. The following could change your perception of us!!! We respect every religion and, as dictated by the Quran, do not force our faith on anyone!!! We do not sympathize with the Islamic State and are against compulsion in faith and in marriage!!! ISLAM DOES NOT RECOGNIZE HONOR KILLINGS AS IS OFTEN SUPPOSED!!! The raised finger in our logo is not from the so-called Islamic State. In our faith it symbolizes that there is only one God!!! We have summarized 40 commandments from the Quran for you….IMPORTANT. Whoever gets into a fight on the road or elsewhere (except for self-defense) will be expelled from our group without further discussion!!!"

Although "Germanys Muslims" claims to disavow violence, police say that several of its senior members are known to be Salafists, whose aim is to replace liberal democracy in Germany with Sharia law. One of its members, for instance, was detained as a security precaution during the Tour de France, which passed through Mönchengladbach on July 2.

German police describe the group's founder, Kunst, as an "Islamist who moves in Salafist circles." In a video that is no longer available, Kunst called on the group's members to protect mosques and Muslim women.

In a July 27 interview with Die Welt, Isabella Hannen, spokeswoman for the Mönchengladbach Police Department, revealed that police met with Kunst on July 5 and warned him that "vigilantism will not be tolerated." They also stressed that the monopoly on the legitimate use of physical force (Gewaltmonopol) is the exclusive domain of the state. On July 28, "Germanys Muslims" issued a statement saying that the group respects the authority of the state. "So far, we have no evidence that they are a danger, but we are keeping our eyes on them," Hannen said.

An illustrative photo of an "outlaw" motorcycle gang. (Image source: Roy Lister/Wikimedia Commons)

In its annual report released on July 4, Germany's domestic intelligence agency, the Bundesamt für Verfassungsschutz (BfV), said that Salafism is the "fastest-growing Islamic movement in Germany." The report revealed that the number of Salafists in Germany jumped to 9,700 in 2016, up from 8,350 in 2015; 7,000 in 2014; 5,500 in 2013; 4,500 in 2012; and 3,800 in 2011. According to the BfV:

"Salafists are seeking to impose a theocracy based on their interpretation of the Sharia and in which the liberal democratic order no longer applies. Political and jihadist Salafists share the same basic ideology. They differ primarily in the means by which they wish to achieve their objectives…. Nevertheless, it should be noted that political Salafism has an ambivalent relationship to violence… it does not always prohibit religiously-sanctioned violence."

A previous BfV report stated:

"The absolutist nature of Salafism contradicts significant parts of the German constitutional order. Specifically, Salafism rejects the democratic principles of separation of state and religion, popular sovereignty, religious and sexual self-determination, gender equality and the fundamental right to physical integrity."

The BfV also warned of the danger of civil unrest:

"The potential threat posed by Salafist violence remains dangerously high. Salafist violence could create an additional dynamic through interactions with extremist groups from other 'hostile' ideological camps, as already occurred in individual cases in the past."

The BfV was referring to an alliance between hooligans from rival football clubs who temporarily set aside their mutual hatred for each other in order to unite against a common enemy: radical Salafists. At one point, the grouping, known as Hooligans versus Salafists (HoGeSa), had more than 40,000 followers on its Facebook page before it was shut down by Facebook censors.

According to some commentators, the rise of HoGeSa was fueled in part by a growing sense of frustration that the German government is not doing enough to curb the spread of Islam in the country. Others said the group was incited by the Salafists' increasingly provocative support for replacing Germany's democratic order with Islamic law.

In Wuppertal, for example, seven self-appointed "Sharia Police" sparked public outrage when they distributed yellow leaflets which established a "Sharia-controlled zone" in the Elberfeld district of the city. The vigilantes urged both Muslim and non-Muslim passersby to attend mosques and to refrain from alcohol, cigarettes, drugs, gambling, music, pornography and prostitution.

In November 2016, however, the Wuppertal District Court ruled that the Islamists did not break German law and were simply exercising their right to free speech. The ruling, which effectively legitimized Sharia law in Germany, was one of a growing number of instances in which German courts are — wittingly or unwittingly — promoting the establishment of a parallel Islamic legal system in the country.

In Berlin, a hundred Islamists are now openly enforcing Sharia law on city streets, according to local police who are investigating a recent string of violent assaults in the German capital. The self-appointed morality police involve Salafists from Chechnya, a predominantly Sunni Muslim region in Russia. The vigilantes are using threats of violence to discourage Chechen migrants from integrating into German society; they are also promoting the establishment of a parallel Islamic legal system in Germany. German authorities appear unable to stop them.

Bild, the largest-circulation newspaper in Germany, recently warned that the country was "capitulating to Islamic law." In a special "Sharia Report" it stated:

"The 2013 coalition agreement between the Christian Democrats and the Social Democrats promised: 'We want to strengthen the state's legal monopoly. We will not tolerate illegal parallel justice.' But nothing has been done."

In a commentary, Franz Solms-Laubach, Bild's parliamentary correspondent, wrote:

"Even if we still refuse to believe it: Parts of Germany are ruled by Islamic law! Polygamy, child marriages, Sharia judges — for far too long the German rule of law has not been enforced. Many politicians dreamed of multiculturalism…. This is not a question of folklore or foreign customs and traditions. It is a question of law and order. If the rule of law fails to establish its authority and demand respect for itself, then it can immediately declare its bankruptcy."

Meanwhile, German authorities have been fighting an uphill battle against an extremely violent "rocker" gang, the "Osmanen Germania" — "Ottoman Germania" — which consists mostly of Turkish Germans and, like the "Germanys Muslims" gang, is modeled on the Hells Angels.

The "Ottoman Germania" group, which claims to be a boxing club concerned about the welfare of young people, was founded after Hells Angels decided to allow non-Turkish migrants to join. Police say "Ottoman Germania" is an effort by former Turkish German members of the Hells Angels to protect their market share of organized crime.

The "Ottoman Germania" group is one of the fastest-growing gangs in Germany. Within months of its founding in April 2015, the group had established dozens of chapters across the country. Today the group, which profits from prostitution, extortion and the trafficking of weapons and drugs, operates across Europe, despite repeated police raids.

German authorities believe the "Ottoman Germania" is close to the Turkish government, which uses the group to fight Turkey's internal political struggles in Germany. Police say the gang also cooperates with Germany's Salafists.

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By replacing low-wage cashiers and other retail workers with robots, the retail sector’s struggling companies can engineer a potentially life-saving boost in profits. But as advances in artificial intelligence continue to accelerate, according to the World Economic Forum, large swaths of laborers are going to lose their jobs, leading to unprecedented levels of unemployment.

How to distribute the profits that will accrue to corporations thanks to this paradigmatic shift in labor-market conditions has been the subject of intense debate, as it has the capacity to create a sharp drop in living standards across developed economies.

So how can governments ameliorate this diminution of the American workforce? The WEF has an idea: Tax the robots and use the proceeds to fund a universal basic income for all Americans. As the paper notes, the once-controversial UBI has never been more poplar, thanks to tech luminaries like Mark Zuckerberg, Elon Musk and Bill Gates – all of whom have spoken in glowing tones about the policy’s potential to save America from dystopia. Yet, for all this talk, Zuckerberg & Co. have glossed over a crucial question: How, exactly, will taxpayers afford this?

The WEF says it looked to the private sector for answers, and came up with this simple conclusion: Tax the robots.

“Companies will profit significantly from workforce automation,” WEF writes. “So the private sector will be able to afford shouldering this burden, while at the same time still making greater profits.”

The WEF cites a small, yet successful, experiment that was conducted in the UK, and Ontario, as justification for its plan, which it fleshes out in greater detail below:

“As the robots take over, people will begin to lose their jobs, but companies will be fine. More likely than that – they’ll thrive. The profits generated from automation could be used to pay a basic wage to those displaced by robots. To use the welder example from before, a company could slash the cost of their production by at least a third in a short period of time, and would continue to see greater profits as efficiencies increase and the price for parts drops. If that company eventually arrives at the $2 an hour mark that BCG predicts, the company’s bottom line would have been improved by 1250%.

 

Given all of the savings and massive profits companies are going to reap from these new technologies, they should be responsible for using part of this monetary kick-back to help the workers they’ve displaced. Legislators might consider a sliding-scale automation tax, where a company qualifying itself as using an automated workforce would be taxed depending on how many human workers they have performing tasks compared to how many tasks are performed by automated workers that a human could rightly do. This money could then be put into a UBI fund that is then distributed by the government to citizens affected by automation—or to the entire population.”

While startup costs associated with building a robotic workforce might appear daunting, the WEF notes that they’ve fallen sharply in recent years, and will likely continue to decline as advances in AI technology sharpen robots’ ability to work side-by side with humans.

Some of the largest some of the largest food-service and retail companies have announced initiatives centered around providing customers with a more seamless shopping experience. Cowen's Andrew Charles, the analyst calculates the jump in sales at McDonald’s as a result of the company's new Experience of the Future strategy which anticipates that digital ordering kiosks (shown above) will replace cashiers in at least 2,500 restaurants by the end of 2017 and another 3,000 over 2018.

This trend will only continue to accelerate. McDonald’s, an early pioneer of automation, is already replacing human workers with automated kiosks. They expect a 5% to 9% return on investment in just the first year; in 2019 they expect this return to balloon to double digits. And this is only one sector: PricewaterhouseCoopers estimates that 38% of US jobs will be in danger of being replaced by automation by 2030.

To this, WEF adds that Micky D’s expects a 5% to 9% return on investment in just the first year; in 2019 they expect this return to balloon to double digits.

Amazon.com’s nearly $14 billion acquisition of Whole Foods Market has spurred (long overdue) calls from a handful of Congressional Democrats for an investigation into Amazon’s business practices on anti-trust grounds. Over the past few years, the company’s push for speedier delivery times (it offers same day delivery in certain markets through its Amazon Prime service) and an increasingly expansive away of products is devastating smaller retails and brands.

Some smaller retailers, having ascertained the existential threat Bezo’s blatantly monopolistic business practices pose, have started to push back, setting the stage for a full-scale battle between Amazon and its smaller rivals. In an email sent to authorized retailers, the CEO of Birkenstock USA threatened to cut off any retailers who violate the company’s strict policies surrounding reselling by turning over their stock to Amazon. The e-commerce giant has allegedly been reaching out to individual Birkenstock retailers, offering to buy out their entire stock at full price. Amazon has denied these claims. Already, retail bankruptcies have surged 110% in the first half of this year, according to a report by Fitch as retail surpasses battered energy as the most distressed industry in the US.

Unfortunately, US officials aren’t treating the problem of creeping automation with the deference that the WEF says it deserves. Case in point:

“At the exponential rate of robotization, there isn’t a lot of time for legislators to figure out the intricacies of a solution – but they don’t seem to be in too much of a rush. Steven Mnuchin, the US’s treasury secretary, is already completely ignoring this issue, for example.”

Fed Chairwoman Janet Yellen acknowledged the severity of the problem during her Congressional testimony following questions from two Republican senators. To be sure, the Fed doesn’t have the authority to raise taxes (though it could easily choose to monetize these handouts by agreeing to buy more government bonds). Stagnant wages, worsening labor-force participation and expanding deflationary prices have been linked by economists to increasing automation. In a recent study, PricewaterhouseCoopers estimates that 38% of US jobs will be in danger of being replaced by automation by 2030.
 

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Authored by Alex Gorka via The Stratgeic Culture Foundation,

Much has been said about NATO reinforcements in the Baltic States and Poland perceived in Moscow as provocative actions undermining security in Europe, while very little has been said about gradual but steady militarization of Scandinavia. The theme does not hit headlines and it is not in focus of public discourse but one step is taken after another to turn the region into a springboard for staging offensive actions against Russia.

Ørland in southern Norway is being expanded to become Norway’s main air force base hosting US-made F-35 Lightnings – the stealth aircraft to become the backbone of Norwegian air power. Norway has purchased 56 of such aircraft. F-35 is an offensive, not defensive, weapon. The nuclear capable platforms can strike deep into Russia’s territory.

Providing training to Norwegian pilots operating the planes carrying nuclear weapons, such as B61-12 glider warheads, constitutes a violation of the Non-Proliferation Treaty (NPT) of 1968. Article I of the NPT prohibits the transfer of nuclear weapons from NWS (nuclear weapons states) to other states: «Each nuclear-weapon State Party to the Treaty undertakes not to transfer to any recipient whatsoever nuclear weapons or other nuclear explosive devices or control over such weapons or explosive devices». Article II requires NNWS (non-nuclear weapons states) not to receive nuclear weapons: «Each non-nuclear-weapon State Party to the Treaty undertakes not to receive the transfer from any transfer or whatsoever of nuclear weapons or other nuclear explosive devices or of control over such weapons or explosive devices». How can Russia be sure that these aircraft don’t carry nuclear weapons when there is no agreement of any kind in place to verify compliance with the NPT?

Ørland is located near Værnes – the base that hosts 330 US Marines. In May, the base hosted the biennial NATO military exercise «Arctic Challenge Exercise 2017» to involve over 100 planes from 12 nations. It was the first time a US strategic bomber (B-52H) took part in the training event.

The choice of the base was carefully calculated to keep the planes away from the reach of Russian Iskander missiles (500 kilometres) but no location in Norway is beyond the operational range of Kalibr ship-based sea-to-shore missiles and aircraft armed with long-range air-to-surface missiles.

In June, Norway’s government announced that the decision was taken to extend the rotational US Marine Corps force stationed at Værnes through 2018. The move contradicts the tried-and-true Norwegian policy of not deploying foreign military bases in the country in times of peace.

Also in June, the United States, United Kingdom and Norway agreed in principle to create a trilateral coalition built around the P-8 maritime aircraft to include joint operations in the North Atlantic near the Russian Northern Fleet bases.

Norway is to contribute into NATO ballistic missile defense (BMD) system by integrating its Globus II/III radar in the Vardøya Island located near the Russian border just a few kilometers from the home base of strategic submarines and 5 Aegis-equipped Fridtjof Nansen-class frigates. The radar construction is underway. The Vardøya radar can distinguish real warheads from dummies. Another radar located in Svalbard (the Arctic) can also be used by US military for missile defense purposes.

The country’s ground forces are stationed in Lithuania as part of a NATO multinational force under German command.

Sweden, a close NATO ally, has been upgrading its military with a sharp hike in spending. Last December, the Swedish government told municipal authorities to prepare civil defense infrastructure and procedures for a possible war. The move was prompted by the country’s return to the Cold War-era ‘Total Defense Strategy’. In September, 2016, 150 troops were put on permanent service on the island of Gotland to «defend it from Russia». Sweden maintained a permanent military garrison on Gotland for hundreds of years until 2005.The Swedish Civil Contingencies Agency (MSB) has ordered a review of 350 civilian bunkers on the island. The shelters are designed to protect people against the shock wave and radiation from a nuclear detonation, as well as chemical and biological weapons.

In March, Stockholm announced plans to reintroduce compulsory military service abandoned in 2010. The conscription will come into force on January 1, 2018.

Sweden said in June it wishes to join a British-led «Joint Expeditionary Force», making Swedish participation in a general European war all but inevitable.

This month, the Swedish military announced plans to conduct its largest joint military exercise with NATO in 20 years. Called Aurora 17, the training event is scheduled for September. The drills will take place across the entire country but focusing on the Mälardalen Valley, the areas around cities of Stockholm and Gothenberg and on the strategic island of Gotland. More than 19,000 Swedish troops will take part along with 1,435 soldiers from the US, 270 from Finland, 120 from France and between 40-60 each from Denmark, Norway, Lithuania and Estonia.

In June, Russian President Putin warned «If Sweden joins NATO this will affect our relations in a negative way because we will consider that the infrastructure of the military bloc now approaches us from the Swedish side».

In June, 2016, Finland took part in NATO BALTOPS naval exercise. It was the first time NATO forces trained on Finnish territory (The coastal area at Syndale). Back then, Russian Foreign Minister Sergei Lavrov told his Finnish counterpart, Timo Soini, that the Kremlin would take unspecified measures to respond to increased NATO activity in the Baltic region. According to Lavrov, «We do not hide our negative attitude to the movement of NATO's military infrastructure towards our borders, to dragging new states into the military activity of the bloc».

All these facts and events summed together demonstrate that militarization of Scandinavia is progressing by leaps and bounds to undermine the security in Europe. No hue and cry is raised in the Russian media but the developments are closely watched by Moscow. Visiting Finland on July 27, President Putin said Russia was «keeping an eye on certain intensification in the movement of military aircraft, ships and troops. In order for us to avoid negative consequences, situations that no one wants, we need to maintain dialogue». He also stressed readiness for dialogue with neutral countries that border the Baltic Sea like Finland which is not part of the NATO military alliance.

The facts listed above show the situation is grave enough to top the agenda of the NATO-Russia Council. But it’s not the case as yet. Last year, Frank-Walter Steinmeier, the current President of Germany who was Foreign Minister at the time, slammed NATO for «saber-rattling and war cries» and provocative military activities in the proximity of Russia’s borders. He called for an arms control deal between the West and Russia. Fifteen other members of the Organization for Security and Cooperation in Europe (OSCE) joined Steinmeier's initiative: France, Italy, Austria, Belgium, Switzerland, the Czech Republic, Spain, Finland, the Netherlands, Norway, Romania, Sweden, Slovakia, Bulgaria and Portugal.

Actually, the initiative to relaunch the negotiation process does not belong to Germany. Russia’s proposal to discuss a new European security treaty was rejected by the West. The draft document was published in 2009. In March 2015, Russia expressed its readiness for negotiations concerning a new agreement regarding the control of conventional weapons in Europe.

Moscow has never rejected the idea of launching talks to address the problem. It does not reject it now. The NATO-Russia Council could make a contribution into launching discussions on the matter. It has not done so as yet. Actually, nothing is done to ease the tensions in Europe and the Scandinavian Peninsula in particular. Meanwhile, the situation is aggravating misunderstandings and whipping up tensions.

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The Russian government announced that it’s sixth-generation fighter jet will be equipped with a range of powerful new features, including laser and microwave weaponry, and advanced radar that will “significantly expand” their ability to detect enemy fighters. The jet, which is Russia’s answer to the US F-35, was first announced in 2016, according to the Washington Times. Complications surrounding the development of the F-35, which was famously plagued with delays and cost overruns, once inspired President Donald Trump to threaten to cancel the US’s order with military contractor Lockheed Martin.

Russian officials said the lasers would allow the MiG-41fighters to disable attacking missiles by destroying their tracking systems.

“We already have laser protection systems installed on aircraft and helicopters, and now we are talking about developments in the field of powered lasers that will be able to physically destroy attacking missiles’ homing heads. … Roughly speaking, we’ll be able to burn out ‘the eyes’ of missiles that ‘look at us.’ Naturally, such systems will be installed on sixth-generation aircraft as well,” said the Adviser to the First Deputy CEO of Radio-Electronic Technologies Group (KRET) Vladimir Mikheyev, reported Russian state news agency TASS.

According to the report, developing drone technology is a “high priority” for Russian engineers, who envision unmanned aircraft flying alongside planes operated by human pilots, armed with a diverse group of weapons.

“One drone in a formation flight will carry microwave weapons, including guided electronic munitions while another drone will carry radio-electronic suppression and destruction means, and a third UAV will be armed with a set of standard weaponry. Each specific task is solved by different armaments,” Mr. Mikheyev added.

The Russian government is also developing microwave technology, which officials say will make the jets lighter and more agile.

“The use of microwave weapons is highly problematic for a plane with a pilot due to the need to preserve his life. But if we develop an additional system of protection against our own microwave weapons, we’ll lose even more space and the weight margin. Besides, even the most complex and effective system can be insufficiently efficient,” he said.

The jet will also feature “advanced radar concepts” that will allow pilots to monitor enemy aircraft with “the highest accuracy.”

“The radio-photonic radar will be able to see farther than existing radars, in our estimates. And, as we irradiate an enemy in an unprecedentedly wide range of frequencies, we’ll know its position with the highest accuracy and after processing, we’ll get an almost photographic image of it — radio vision. … This is important for determining the type [of an aircraft]: The plane’s computer will immediately and automatically identify a flying object, for example, an F-18 with specific types of missile armament,” Mr. Mikheyev said.

Government officials first unveiled plans for the sixth-generation MiG fighter early last year, and expects it to be finished by 2025.  
 

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