Month: January 2018

Aside from a slew of US economic data, including GDP and durable goods, today’s key event will be Donald Trump’s address at Davos at 8am EST, where attention will focus on the president’s take on trade and currency “conflicts.” Ahead of his main speech, however, Trump had a lengthy interview with CNBC’s Joe Kernen in which he touched on everything from trade, to the market, to the government shutdown and immigration law, and of course, the role of the dollar.

Once again refuting recent anti-USD sentiment, Trump countered the market interpretation of Mnuchin’s comments, saying he “ultimately wants to see a strong USD”.

“It’s your great reserve currency. There can never be anything even close to it. There is nothing close to it, there never will be,” Trump told CNBC, explaining that “we are doing so well, our country is becoming so economically strong again – and strong in other ways too, by the way – that the dollar is going to get stronger and stronger.” Then, in a paradoxical twist, Trump said “nobody should be talking” about the dollar, “It should be what it is/”

Here is the full excerpt:

So let me tell you, I think they were taken out of context because I read his exact statement. I’ll tell you where I stand, which ultimately is very important. Number one, I don’t like talking about it because, frankly, nobody should be talking about it. It should be what it is. It should also be based on the strength of the country. We are doing so well, our country is becoming so economically strong again – and strong in other ways too, by the way – that the dollar is going to get stronger and stronger. And ultimately, I want to see a strong dollar. Right now it floats. But it’s your great reserve currency. There can never be anything even close to it. There is nothing close to it, there never will be. But ultimately the dollar, because our country is going to get so much stronger economically, if you look at what’s happened to our country over the – look, I’ve been talking about this with you for 25 years…

Trump’s dollar endorsement triggered a temporary reversal of USD weakness on Thursday, although it has since continued to decline and his latest comments barely registered on the Bloomberg dollar index.

Touching on other key topics, Trump told Kernen that Democrats wouldn’t want another government shutdown “because you look at every poll, it said they made a mistake.” More in the excerpt:

We want to do what’s right and we’re going to do what’s right, and we’re going to solve the DACA problem. And I don’t think the Democrats would want to pull another shutdown. But we’ll get it solved. And if we need a little more time, we’ll take a little more time. I want to get the problem solved correctly

Trump also spoke about what he considers the impact of reduced regulations on U.S. gross domestic product:

Now, in my first quarter, which I consider to be the second quarter because I was there now long enough to have made an impact and don’t kid yourself, regulations are just as big as the tax cuts. I’ve cut more regulations than any President in history and I’ve been here for one year. You can take their term whether it’s eight years or 16 years in one instance— but you can take anybody you want, in one year, we’ve cut more regulations. And by the way, there’s going to be regulation but they’re good, solid, sane regulations. But in quarter two, we had 3.1, and in quarter three, as you know, we had 3.2. But in quarter one, which is the Obama quarter— really the last, I would say, Obama quarter, you had 1.2. We were going in the wrong direction.

As he has done a lot lately, Trump also took credit for the market’s soaring performance, predicting that had Democrats won, the S&P would be 50% lower:

Not only did Jamie Dimon say he thought 3% [GDP] was possible, he said we could get to 4 percent in 2018. Lloyd Blankfein, and I pressed him a little because I said, “That was not the outcome – the election that you were, I think, hoping for. Now that you’ve seen what’s happened to the stock market, up 40% since Election Day, how businesses are growing confidence, are you happy with the outcome?”… 

Had the Democrat won — the stock market is up almost 50% since my election — had the Democrat won, I believe you would have been down 50. That’s the direction we were headed. And you know, a lot of that, regulation. It was staggering. You could not do anything

Finally, looking at Trump’s upcoming main event speech at Davos, Bloomberg reporter Jennifer Jacobs previewed: “Trump’s speech in Davos this morning will last about 15 minutes. He’ll talk about how he’s made the US attractive for business, a senior administration official told reporters. Trump won’t get the new GDP numbers until the speech is over, though, aide said.” That said, Citi’s FX desk doubts the America first message will be favorable for USD today.

Trump’s full interview below:

And transcript:

 

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It’s deja vu all over again as the dollar resumed its decline against all major peers on Friday amid concerns over U.S. trade policy, after a brief rally that followed Trump’s comment on favoring a stronger dollar, setting the Bloomberg Dollar Spot Index heading for its seventh weekly loss. That would be the longest losing streak since 2010.

Meanwhile equity markets from Asia to Europe, and US futures, are a sea of green as the market meltup continues at an unprecedented pace.

Trump’s comments on Thursday that he wants to see a strong greenback barely lifted the currency, which has been dented this week by a rise in U.S. protectionism and Treasury Secretary Steven Mnuchin’s support for a weaker dollar.  Incidentally, with Mnuchin receiving rebuke from central bankers to the president himself overnight, he gave some additional clarification in Davos this morning:

• MNUCHIN: DOLLAR’S SHORT-TERM DIRECTION ‘NOT A CONCERN OF MINE ONE WAY OR THE OTHER’
• DOLLAR COMMENTS WERE ‘JUST A STATEMENT OF FACT’ -TREASURY SECRETARY STEVEN MNUCHIN
• DOLLAR COMMENTS NOT INTENDED TO VIOLATE G20 COMMITMENT: TREASURY SECRETARY MNUCHIN

So far the dollar response to any attempt to talk up the dollar has been brief and feeble at best.  “The next couple of weeks could be a watershed moment for world trade and protectionism –- with President Trump’s Davos and, more importantly, State of the Union speeches likely to set the tone for U.S. trade policy over the coming year,” said Viraj Patel, currency strategist at ING Bank NV. “Were ‘America First’ policies to quickly lead to a ‘Sell America’ sentiment in global markets, then we could well see EUR/USD moving beyond 1.30 –and USD/JPY down at 100 — by year-end,” Patel wrote in a client note on Friday.

“The market focus before Mnuchin was on monetary policy, but now it’s shifted to the U.S.’s external policy, its trade stance,” said Naohiro Nomoto, manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. “The U.S. will likely target countries with strong trading relations with America, meaning that the dollar will be top-heavy against the euro and yen this year.”

Sue Trinh, Hong Kong-based head of Asia FX strategy with Royal Bank of Canada, wrote that President Trump’s comments that the dollar would continue to strengthen won’t probably change the emerging-market dynamic.  Regardless of whether the Trump administration wants a strong U.S. currency or not, this week’s plunge is breaching technical barriers that had stood as proverbial last lines of defense against a significant gap lower.

Elsewhere in macro, sterling was one of the main outperformers versus the dollar, trading at levels last seen on the day after the Brexit referendum in June 2016. Elsewhere, “The last time the euro was this overbought was March 2008,” says Roberto Cobo Garcia, head of G-10 currency strategy at BBVA. “There is not a fundamental justification for a 10-figure spike since mid-November.”

With the dollar tumbling, its polar opposite, China’s yuan, was set for its biggest weekly advance since Sept. 1. The onshore yuan gained 0.15% to 6.3219 per dollar, extending its advance for the week to 1.3% and set to climb for seventh week, longest such run since February 2017.

Meanwhile, equity markets were a sea of green, with european equities headed higher after a mostly bullish session in Asia. Europe’s Stoxx 600 Index climbed, with personal and household-goods shares leading gains after LVMH quarterly sales beat estimates. Esewhere, aside from the luxury space, sector specific performance is relatively broad-based with other individual movers including Thales (+3%) following a positive broker upgrade at Exane and Givaudan (-2%) following disappointing earnings.

Earlier in Asia, Japanese stocks fell while those in South Korea and Hong Kong climbed. Chinese markets were higher in which the Hang Seng (+1.3%) advanced to fresh record levels amid strength in Tencent and China’s largest banks, while the Shanghai Comp. (+0.3%) was choppy after the PBoC refrained from open market operations which resulted to a net weekly drain of CNY 320bln. The Hang Seng Index surged 1.5% to a new record high of 33154, while the Hang Seng China Enterprises index surged 2.5%, led by Chinese banks and real estate developers. Mainland participants also digested Industrial Profits which grew a slower pace, but continued to show double-digit growth for December, while FY Industrial Profits grew at its fastest pace since 2011.

Naturally, U.S. equity futures inched higher, and were up over 10 points at 2851.50 at last check, which will force Goldman to promptly revise the bank’s 2018 S&P price target which was hit in under 4 weeks.

Elsewhere, West Texas crude oil edged higher after surging to the highest level in more than three years Wednesday, and gold resumed an advance to trade near an 18-month high. Bitcoin dropped below $11,000.

Today’s expected data is wholesale inventories, annualized GDP and durable-goods orders. AbbVie, Colgate-Palmolive, Honeywell and NextEra Energy are among companies reporting earnings.

Market Snapshot

• S&P 500 futures up 0.3% to 2,851.50
• Brent futures little changed at $70.43/bbl
• Gold spot up 0.5% to $1,355.44
• U.S. Dollar Index down 0.6% to 88.82
• STOXX Europe 600 up 0.4% to 400.31
• MSCI Asia Pacific up 0.04% to 186.68
• MSCI Asia Pacific ex Japan up 0.5% to 612.18
• Nikkei down 0.2% to 23,631.88
• Topix down 0.3% to 1,879.39
• Hang Seng Index up 1.5% to 33,154.12
• Shanghai Composite up 0.3% to 3,558.13
• Sensex down 0.3% to 36,050.44
• Australia S&P/ASX 200 down 0.08% to 6,050.02
• Kospi up 0.5% to 2,574.76
• German 10Y yield fell 0.7 bps to 0.605%
• Euro up 0.6% to $1.2465
• Brent Futures up 0.1% to $70.51/bbl
• Italian 10Y yield rose 5.4 bps to 1.695%
• Spanish 10Y yield fell 1.4 bps to 1.396%

Top Overnight News

• The U.S. Treasury secretary has traditionally been the chief spokesman on currency policy, though President Donald Trump’s White House has demonstrated in the past 48 hours that the practice of one message and one messenger may be a thing of the past.
• President Donald Trump wanted to fire Special Counsel Robert Mueller in June, three people familiar with the matter said, raising concerns among his top aides and closest supporters that Trump would put himself in legal jeopardy.
• Chancellor Angela Merkel said a new government for Germany is within reach as she began coalition talks with the Social Democrats and one of her allies set a two-week deadline
• Countries should abide by the G-7 and G-20 agreements and shouldn’t target currency rates for the sake of international competitiveness, Japanese Finance Minister Taro Aso says on Friday
• President Trump wanted to fire Special Counsel Robert Mueller in June, three people familiar with the matter said, raising concerns among his top aides and closest supporters that Trump would put himself in legal jeopardy
• As the EU presents its plan for the U.K.’s Brexit transition, many governments are willing to push the expiration date beyond the December 2020 deadline they’ll set out as their official stance
• President Donald Trump will support a path to citizenship for as many as 1.8 million undocumented immigrants brought into the U.S. as children, doubling the number of people covered by current protections from deportation, White House officials said Thursday.
• Prime Minister Theresa May’s office slapped down Philip Hammond after the chancellor of the exchequer said he hoped the U.K. economy would move only “very modestly apart” from the European Union after leaving the bloc.
• As the European Union presents its plan for the U.K.’s Brexit transition, many governments are willing to push the expiration date beyond the December 2020 deadline they’ll set out as their official stance.

Asian equities are broadly but modestly higher amid quiet conditions with both Australia and India shut today for national holidays. Nikkei 225 (-0.2%) was negative as the index gradually pared the initial support seen from a recovery in USD/JPY which reclaimed the 109.00 handle on Trump comments. Chinese markets were higher in which the Hang Seng (+1.3%) advanced to fresh record levels amid strength in Tencent and China’s largest banks, while the Shanghai Comp. (+0.3%) was choppy after the PBoC refrained from open market operations which resulted to a net weekly drain of CNY 320bln. Furthermore, participants also digested Industrial Profits which grew a slower pace, but continued to show double-digit growth for December, while FY Industrial Profits grew at its fastest pace since 2011. Finally, 10yr JGBs were slightly higher as prices retained marginal opening gains and with the BoJ also present in the market for JPY 820bln in JGBs under its Rinban operation. PBoC skipped open market operations for a net weekly drain of CNY 320bln vs. last week’s CNY 590bln net injection.

Top Asian News

• TPG Is Said to Back $1 Billion Tata Fiber Management Buyout Bid
• Japanese Inflation Continues Rising But No Closer to Target
• Thailand Central Bank Head Fires Warning at Baht Speculators
• China Economy Starts 2018 on Solid Trajectory After Profits Dip
• China Is Said to Consider Banking, Insurance Watchdog Merger

European equities trade higher across the board (Eurostoxx 50 +0.4%) with outperformance in the CAC (+0.8%) as LVMH tops the index (+4.7%) following their earnings, subsequently dragging the likes of Kering (+3%) and Christian Dior (+4.5%) higher in sympathy. Elsewhere, aside from the luxury space, sector specific performance is relatively broad-based with other individual movers including Thales (+3%) following a positive broker upgrade at Exane and Givaudan (-2%) following disappointing earnings.

Top European News

• SES, Eutelsat Extend Slide After Satellite Woes, Rating Cut
• ECB Says Forecasters Lift Inflation Outlook for 2018 and 2019
• U.K. Economy Caps Challenging Year With Surprise Growth Pickup
• Magnit Plunges as Earnings, Sales Disappoint Investors Again
• Czechs Vote for President as Ties With EU, Russia in Focus
• ‘God Is Dead’ and Other Takeaways at Credit Suisse Banker Trial

In FX markets, there was more fast and furious action as US President Trump countered ‘weak Dollar good for trade’ claims made by Treasury Secretary Mnuchin with a desire to see a strong USD and prediction that it will get stronger and stronger. His rallying call sparked a sharp short squeeze across the board, but the Greenback is already under pressure again, albeit off worst levels vs its peers. Indeed, all G10 rivals have regained the upper hand and the DXY is back below the 89.000 handle, with key Index support levels still close enough to warrant attention (88.423 and 88.282). The AUD is outperforming just below 0.8100, while Sterling the CHF, NZD and EUR are not far behind around 1.4230, 0.9350, 0.7370 and 1.2460 respectively. USD/CAD is pivoting 1.2300 again amidst dovish sounding BoC Poloz’ rhetoric and some less bullish (for the Loonie) NAFTA noises ahead of Canadian CPI data. USD/JPY has retreated to sub-109.00 levels from around 109.75 on the Trump bounce, with solid support/bids remaining at 108.50, but options eyeing further downside by end Q1 (via 105.00 expiries in March). In short, the US President’s intervention appears to have stemmed the tide of broad Greenback selling that was veering towards an avalanche in Davos, but the  overall bear trend remains intact. Finally, GBP/USD edged closer to 1.4300 after UK GDP exceeded expectations (Q/Q 0.5% vs. Exp. 0.4%, Y/Y 1.5% vs. Exp. 1.4%).

In commodities, WTI and Brent crude futures have traded relatively sideways during European trade as energy newsflow remains light and prices pare some of yesterday’s USD-inspired losses; next up for energy traders is the Baker Hughes rig count. In metals markets, gold is also off worst levels and has retraced nearly half of yesterday’s move post-Trump, elsewhere, copper has seen relatively rangebound trade with markets likely to be swayed by fluctuations in the USD.

Looking at the day ahead, this morning in Europe we’ve got January confidence indicators due in France along with December M3 money supply data for the Euro area. Also due in the UK will be a first look at Q4 GDP for the UK with the consensus expecting a +0.4% qoq and +1.4% yoy print. This afternoon in the US the main highlight will be the aforementioned first estimate of Q4 GDP. We’ll also get the Q4 Core PCE print (+1.9% qoq consensus), December advance goods trade balance, December wholesale inventories and preliminary durable and capital goods orders for December. For what it’s worth, the consensus is for +0.8% mom headline durable goods orders and +0.6% core capex orders. Expect Davos developments to be the other big focus for markets today including President Trump’s speech. BoE and BoJ Governors Carney and Kuroda are also scheduled to speak along with the IMF’s Lagarde at 2pm GMT and the ECB’s Coeure at 10am GMT. Over at the Fed, Bullard is due to speak in Oslo at 1pm GMT

US Event Calendar

• 8:30am: Advance Goods Trade Balance, est. $68.9b deficit, prior $69.7b deficit, revised $70.0b deficit
• 8:30am: Wholesale Inventories MoM, est. 0.39%, prior 0.8%; Retail Inventories MoM, prior 0.1%, revised 0.1%
• 8:30am: GDP Annualized QoQ, est. 3.0%, prior 3.2%; Personal Consumption, est. 3.7%, prior 2.2%
• 8:30am: Durable Goods Orders, est. 0.8%, prior 1.3%; Durables Ex Transportation, est. 0.6%, prior -0.1%
• 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.55%, prior -0.2%; Cap Goods Ship Nondef Ex Air, est. 0.4%, prior -0.1%

DB’s Jim Reid Concludes the overnight wrap

It may have made an assist but it’s not often that an ECB meeting gets overshadowed by a diplomatic – and somewhat confusing – war of words over currencies. Indeed, there will be plenty of people who will have to double-take their screens this morning after FX markets spun on their heels last night. Before you do though a quick 121- word summary goes as follows. Yesterday morning in Davos US Treasury Secretary Steven Mnuchin reinforced his weaker dollar rhetoric. ECB President Mario Draghi then fired an unsubtle warning shot back to Mnuchin at the ECB  press conference. The EUR/USD peaked at an intraday high of just over 1% at this stage. Then, after Europe went home, a Bloomberg story hit the screens suggesting that some ECB Governing Council members were said to favour waiting until June to start tweaking forward guidance. A matter of minutes later, President Trump then announced his presence in Davos by saying that he wants to see a strong USD and that comments from Mnuchin were taken out of context. Six hours after starting the rally and EUR/USD was back to flat.

Clearly it’s the Trump reaction to Mnuchin’s earlier comments which has left plenty – including us – confused but before we dig into that it’s worth firstly recapping how that FX volatility reverberated around markets. First and foremost, the EUR/USD closed last night at $1.240 and -0.06% on the day. However, the intraday high-to-low range of 1.40% was the second biggest since October last year. This morning the EUR/USD is hovering around $1.242.  Meanwhile, after being down as much as -0.86% the USD index rallied back to +0.21% and in the process snapped a three-day losing run (although it’s back in the red this morning). In fact, amazingly, after being down versus all other  G10 currencies when Europe went home, only the CHF, NOK and SEK strengthened versus the USD yesterday. It won’t come as a great surprise to hear then that FX vol (based on the CVIX) is now the highest since early October.

Anyway, those FX moves really dictated the price action elsewhere in markets too. After trading a smidgen higher leading into Draghi’s press conference, the majority of European bourses ended in the red including the Stoxx 600 (-0.56%), DAX (-0.87%) and CAC (-0.25%) with the EUR/USD just off the highs. The DAX actually suffered its worst two-day drop (-1.93%) since August last year. Across the pond the S&P 500 and Dow ended +0.06% and +0.54% respectively. They also pared bigger gains as the USD rallied back. Meanwhile in bond markets, yields continued to edge north in Europe. In fact, by the closing bell 10y Bunds ended at the highest since December 2015 (+2.3bps to 0.607%). The periphery sold off a little more with yields in Spain and Portugal +5.4bps and +5.5bps higher respectively. Treasuries felt the full force of the day’s headlines however and in the end 10y Treasuries closed -3.0bps lower at 2.618% with an intraday range of over 6bps.

Given that it’s fairly rare to see such high-profile comments about the USD it’s not a huge surprise to see markets react as they have however the apparent contradiction of comments between Mnuchin and Trump make this a real head scratcher. Early yesterday Mnuchin said that a “lower USD is beneficial for the US trade balance” while also reinforcing some of his other rhetoric from the day prior. The President then said last night in an interview with CNBC in Davos that “the USD is going to get stronger and stronger and ultimately I want to see a strong USD”. He also suggested that comments made by Mnuchin were “taken out of context”. Bisecting those comments and wading into the war of words was ECB President Draghi. At the ECB press conference yesterday Draghi said that “the exchange rate has moved in part because of endogenous reasons, namely the improvement in the economy, in part due to exogenous reasons that have to do with communication. But not by the ECB, but by someone else”. He added that “this someone else’s communication doesn’t comply with the agreed terms of references”.

Trying to make sense of the Mnuchin-Trump confusion, DB’s FX Strategist Alan Ruskin believes that what you have here is two officials who like a weak(er) USD in the short-term that will help the US trade accounts and support  growth, albeit to the point where strong growth will eventually support a strong USD longer-term. In Alan’s view this is a way of saying that in the short-term a weak USD is good for US trade, and in the long-term a strong USD is good because it is indicative of strong growth a healthy economy. Alan highlights that this is clearly a very confusing message to convey and it’s unlikely to either be reported or understood correctly, which doesn’t really help the message.

In any case, he may have done so already, but the last 48 hours or so sets us up quite nicely for President Trump’s turn to take the spotlight at Davos this afternoon. With markets already on edge expect trading floors to be glued to the TV. The President is due to speak at 1pm local time in Davos (2pm GMT). Also on the agenda today is some first tier data with a first look at Q4 GDP for the US. Our US economists expect a +3.3% qoq annualized print which  compares to the market consensus of +3.0% and the previous reading of +3.2%. One thing worth noting is that a reading close to our economists’ estimate would mean that it would be the third consecutive quarter of 3%-plus-inflation-adjusted output growth and the economy will have ended the year having expanded +2.7% (Q4/
Q4). That would be the best performance since 2014.

Finally, back to the ECB. While there were no real surprises at yesterday’s meeting it felt to us like it was the hawks who probably came away feeling slightly better about life. With the forward guidance can kicked down the road for another meeting it was instead that lack of any pushback on recent EUR appreciation by Draghi which was the biggest talking point. DB’s Mark Wall thought the press conference was a bit more balanced and highlighted that the strongest message was that the sequencing on exit and the insistence that the policy rate will remain unchanged ‘well past’ the end of net asset purchases are not just carved in stone but are triple underlined in stone. He notes that there will be changes to QE forward guidance in the coming months. The end of net asset purchases by yearend feels inevitable – the Council debate is about when to act, not when it should – and the ECB apparently wants to ensure that financial conditions decouple from the QE exit process by insisting that policy rates are not up for debate at all. It is worth adding that market pricing for a first rate hike is now mid-2019 which is when our European economists also expect the first hike. On that it’s worth noting that Draghi was asked at the end of his press conference about Weidmann’s recent comment that a rate hike in mid-2019 was consistent with data and Draghi confirmed that this timing was broadly appropriate given what is known today.

A quick refresh of our screens this morning now shows that equity markets are generally trading firmer in Asia with the exception of Japan. The Shanghai Comp (+0.28%), Hang Seng (+1.20%) and Kospi (+0.27%) are all up while H-shares have rallied another +1.96% following the first drop of the year on Thursday. The Nikkei is -0.09% with the Yen a bit more volatile after Japan’s December CPI figures missed at the headline (+1.0% yoy vs. +1.1% expected) and core-core (+0.3% yoy vs. +0.4% expected) lines.

Moving on. It feels like it’s almost been slightly forgotten about but Special Counsel Robert Mueller’s probe is picking up pace according to a Bloomberg story which did the rounds yesterday, with the obstruction part of the probesupposedly nearing its conclusion. It suggested that Mueller has interviewed a number of people close to Trump in recent weeks including James Comey, Jeff Sessions and the Director of National Intelligence Dan Coats and NSA  Director Michael Rogers, in addition to CIA Director Mike Pompeo. It’s expected that Mueller will schedule an interview with Trump in the next couple weeks which Trump responded to in front of reporters by suggesting that” we do it under oath”.

It’s worth highlighting that other parts of the investigation are however expected to last a while longer, including the investigation into Russia potentially interfering in the 2016 presidential election. This morning the NY Times is running a story suggesting that Trump ordered the firing of Mueller last June, but backed down after Mueller threatened to resign.

In other news, in Davos yesterday we also heard from UK Chancellor Philip Hammond. With Brexit unsurprisingly top of the agenda, Hammond said that “we should be confident of reaching something much more ambitious than any free trade agreement that has ever been achieved”. He also added that “an off the shelf deal, whether like Canada or Norway, is not the right option”. Also in Davos, Italy Finance Minister Pier Carlo Padoan expressed concern about potential US protectionism while the IMF’s Lagarde urged that trade rules have to be fair and clear.

Jumping to the micro now where US earnings season continues to tick along with over 20% of the S&P 500 now having reported. Yesterday we saw Caterpillar report, for who’s earnings are always worth keeping an eye on as a bit of a barometer for global growth. The numbers appeared upbeat with Caterpillar reporting that sales of retail machines in Q4 rose by the most since 2011 after they had been negative in percentage terms for every month in the two years through 2016, while overall earnings and sales figures came in ahead of analyst expectations. Guidance was also revised up for 2018 with growth gathering pace in Latin America and Europe.

Before we look at today’s calendar, for completeness yesterday’s macro data in the US didn’t really move the dial. Initial claims jumped 17k to 233k last week while December new home sales slumped a bit more than expected (-9.3% mom vs. -7.9% expected). The conference board’s leading index for December on the other hand rose a bit more than expected (+0.6% mom vs. +0.5% expected). In Europe the only data of significance came from Germany where the January IFO business climate reading for January was reported as jumping 0.4pts to 117.6 (vs. 117.0 expected), matching the record high made back in November. Current conditions jumped over 2pts to 127.7 although the expectations gauge did slide by 1pt to 108.4

Looking at the day ahead, this morning in Europe we’ve got January confidence indicators due in France along with December M3 money supply data for the Euro area. Also due in the UK will be a first look at Q4 GDP for the UK with the consensus expecting a +0.4% qoq and +1.4% yoy print. This afternoon in the US the main highlight will be the aforementioned first estimate of Q4 GDP. We’ll also get the Q4 Core PCE print (+1.9% qoq consensus), December advance goods trade balance, December wholesale inventories and preliminary durable and capital goods orders for December. For what it’s worth, the consensus is for +0.8% mom headline durable goods orders and +0.6% core capex orders. Expect Davos developments to be the other big focus for markets today including President Trump’s speech. BoE and BoJ Governors Carney and Kuroda are also scheduled to speak along with the IMF’s Lagarde at 2pm GMT and the ECB’s Coeure at 10am GMT. Over at the Fed, Bullard is due to speak in Oslo at 1pm GMT

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All major cryptocurrencies tumbled on Friday morning after Tokyo-based Coincheck – one of Japan’s biggest crypto exchanges – abruptly halted withdrawals, triggering a panic as investors feared the exchange may have experienced a Mt. Gox-style hack.

“Coincheck is a very well-known exchange in Japan,” said Hiroyuki Komiya, Chief Executive Officer of Tokyo-based Blockchain Technology Consulting. “We’ve seen several outages at various crypto exchanges recently, so the extent and seriousness of Coincheck’s halt isn’t yet clear. We’re all very eagerly awaiting to hear more detail on what’s happening.”

It has been almost four years since Mark Karpeles, Gox’s CEO, announced that his company was filing for bankruptcy after losing bitcoins worth hundreds of millions of dollars. The news ended a sharp rally that had briefly sent bitcoin above $1,200 – back then that was an all-time high – before ushering in a two-year bear market that would persist until early 2016.

The exchange said in a series of tweets that it had suspended all withdrawals, halted trading in all tokens except Bitcoin and stopped deposits into NEM coins. Employees at the exchange appeared to avoid Bloomberg‘s repeated calls and emails for comment.

“Investors and traders are very sensitive to any news involving the big exchanges,” said Peter Sin, a trader and co-head of the digital currency sub-committee at ACCESS, a Singapore-based cryptocurrency and blockchain industry association. “This will accelerate price declines.”

NEM, the 10th-largest cryptocurrency by market value, fell 15% in the 24 hours through 5:52 a.m. New York time, according to Coinmarketcap.com. Bitcoin dropped 6.5% and Ripple retreated 11%.

Cryptocurrency exchanges, many of which operate with little to no regulation, have suffered a spate of outages and hacks amid the trading boom that propelled Bitcoin and its peers to record highs last year. As we pointed out, a recent survey found that 10% of all ICO tokens have been lost or stolen by hackers.

Still, the risk of a Mt.Gox repeat in Japan is small. In Japan is one of the world’s biggest and best regulated markets for cryptocurrencies, policy makers have introduced a licensing system to increase oversight of local venues, seeking to avoid another Mt. Gox-like collapse that nearly killed the crypto market back in 2014.

Additionally, Coincheck was yet to receive a license, according to the website of Japan’s financial regulator.

According to Bloomberg, Coincheck was founded in 2012 and had 71 employees as of July with headquarters in Tokyo’s Shibuya district, an area popular with startups that was also home to Mt. Gox, according to Coincheck’s website. Last year, the exchange began running commercials on national television featuring popular local comedian Tetsuro Degawa.

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Newly released text messages between FBI officials Peter Strzok and Lisa Page reveal that the agency’s top brass was considering appointing former U.S. Attorney Patrick Fitzgerald as a special counsel in the Hillary Clinton email investigation. 

The idea is pitched in a March, 2016 exchange between Strzok and Page – relatively early on in their investigation into Hillary Clinton’s mishandling of classified information. Of note, Attorney General Loretta Lynch or one of her deputies would have had to make the ultimate decision to appoint a special prosecutor to look into the “matter.” 

“Thought of the perfect person [FBI Director James Comey] can bounce this off of?” Strzok wrote to Page in a March 18, 2016 text. “Pat….You got to give me credit if we go with him….And delay briefing him on until I can get back and do it, Late next week or later.”

“We talked about him last night, not for this, but how great he is,” Page responded.

“I could work with him again….And damn we’d get sh*t DONE,” Strzok wrote.

 

judiciary.senate.gov

 

Strzok noted that Fitzgerald was brought in by Comey as a special counsel in the investigation into who leaked the identity of CIA agent Valerie Plame.

 

 

Appointed in 2001 by President George W. Bush, Fitzgerald was the longest-serving U.S. Attorney in Chicago history – and has led several high profile federal investigations and prosecutions.

In a follow-up text exchange on May 13, 2016, Page asks Strzok “Hey forgot to ask if you mentioned the whole special counsel thing to andy?” (referring to current Deputy FBI Director Andrew McCabe). 

No special prosecutor was selected for the Clinton email investigation despite calls by Republicans to do so as early as February, 2016. 

Instead, former FBI Director James Comey had originally determined Clinton’s conduct fit the legally consequential charge of “gross negligence” which Peter Strzok later downgraded to “extremely careless” – which is not a legal term of art. The agency ultimately recommended that the Department of Justice not press charges. 

In a Thursday letter to FBI Director Christopher Wray, Senate Judiciary Committee Chairman Chuck Grassley asked if whether the FBI had approached the DOJ to appoint a special counsel. “If not, why not?” wrote Grassley, who also demanded all written communications on the subject.

judiciary.senate.gov

Politics as usual…

The newly released batch of text messages also reveal that the pair of anti-Trump FBI agents were concerned over reprisal from Hillary Clinton, should they aggressively pursue her. 

“One more thing: she might be our next president,” Page wrote, adding “The last thing you need us going in there loaded for bear. You think she’s going to remember or care that it was more doj than fbi?”

“Agreed,” Strzok replied.

Th texts also reveal that Page was engaged in a lengthy phone conversation with then-Wall St. Journal (now WaPo) reporter Devlin Barrett – several days after the journalist published a story on FBI Deputy Director Andrew McCabe’s wife receiving over half a million dollars in campaign donations from a committee tied to then-Gov. Terry McAuliffe (D-VA). Barrett also reported on an “internal feud” at the FBI over investigating the Clinton Foundation, leading some to suggest that he was a conduit for the FBI to leak information to the public. 

Strzok-Page texts show that Page spoke on phone to WSJ (now WaPo) reporter @DevlinBarrett as story of Weiner laptop emails broke. Close enough relationship that she called him Devlin. https://t.co/IdUshxPfAf

Chuck Ross (@ChuckRossDC) January 26, 2018

Page was on the phone with Barrett just as news broke that the FBI had found State Department emails on a laptop it seized while investigating former Rep. Anthony Weiner (D-N.Y.) for sexting with minors.

“Still on with devlin,” Page wrote. “Mike’s phone is ON FIRE,” she added, apparently referring to FBI public affairs chief Michael Kortan.

“You may want to tell Devlin he should turn on CNN, there’s news going on,” Strzok replied.

“He knows. He just got handed a note,” Page said.

“Ha. He asking about it now?” Strzok asked.

“Yeah. It was pretty funny,” Page wrote.

The text messages don’t indicate what information, if any, Page provided to Barrett or whether her discussions with the reporter were authorized by FBI management. –Politico

The texts released by Sen. Grassley on Thursday were included in a 384-page document delivery to Congressional investigators by the DOJ. While Justice officials said in a cover letter that five months of texts were “missing” and unable to be recovered due to a technical glitch, DOJ Inspector General (DOJ OIG) Michael Horowitz told lawmakers on Thursday that his office has managed to retreive the missing correspondence between Page and Strzok. 

The new batch of text messages along with Grassley’s full letter can be viewed below: 

 

 

 

 

 

 

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Authored by Kevin Muir via The Macro Tourist blog,

$11,589.01.

That’s the US dollar amount of American stocks the Swiss National Bank owns on behalf of every man, woman and child in Switzerland. Let that sink in.

A Central Bank has taken on itself to expand its balance sheet and invest in the proceeds, not in gold, nor sovereign debt – heck not even in corporate bonds. Nope, the SNB has taken it upon itself to “invest” that money in another country’s most risky part of the capital structure – equity.

And don’t think it’s a small number. It’s almost $100 billion US dollars.

In a strange twist of fate, the Swiss National Bank is not only Switzerland’s Central Bank, but also a publicly traded security. I know, it makes little sense, but in this day and age, what does? Anyways, the financial community is all abuzz with SNB’s rocket ship chart formation.

The SNB’s equity price market capitalization is only 584 million CHF, so when you consider that the S&P 500 is up almost 6% since the start of the year, and that the SNB owns $100 billion of stocks which are up $6 billion USD during the last two months, maybe it makes sense to take a punt of buying some SNB equity. Now, who really knows how to value this security? Those gains should accrue to Swiss citizens as opposed to SNB equity holders, but it’s easy to understand the excitement.

The real problem

It’s all fun and good to speculate on the SNB equity price, but I am more interested in what the SNB’s behaviour means for the global markets going forward.

The real problem is that a Central Bank just monetized their balance sheet against another country’s equity market, and instead of getting punished for this reckless behaviour, the markets are celebrating the Swiss good fortune. And I ask you – have you ever seen Central Bankers not behave like a bunch of antelopes on the Serengeti? It is an amazingly disturbing precedent.

The Swiss National Bank has gone down a rabbit hole from which it will be extremely difficult to surface. Not only does every Swiss citizen own indirectly through the Central Bank more than $10k of US stocks, but their total assets per capita is over $94,000 each!

Since the 2007 Great Financial Crisis, the SNB has taken the size of their balance sheet from 20% of GDP all the way to 125%!

And look at the period from 2014 to today. From 80% to 125%. And that was during a period of relative calm in both the markets and the economy.

What’s going to happen when the global economy rolls over?

This sort of balance sheet expansion, and especially with the corresponding move out the risk curve, is complete madness.

I know many market strategists are issuing warnings about markets due to forecasted global Central Bank asset tapering. I sure hope they are correct that this insanity ends soon. But I worry that we are being naive.

Have you looked at the Federal Reserve’s balance sheet lately? I know they are on a schedule to taper, but it’s at a glacial pace.

I worry that right now, Central Banks are being rewarded for keeping their balance sheets as big and risky as they can stomach. It appears to be a trade with no cost, and in fact, helps out by both keeping their currency weak, and in the meantime, making some money. It encourages them to be extremely slow easing off the accelerator.

The idiocy of Central Banks taking this sort of risk is beyond description, but no sense arguing about it – it is what it is. But make no mistake, it’s like wearing jeans, a denim shirt, and a jean jacket at the same time (the Canadian tuxedo), it just shouldn’t be done (unless you are Ryan Gosling and then somehow the ladies seem to like it – go figure…)

I don’t have any conclusions to draw from this diatribe. I don’t think you should take this as some sort of apocalyptic warning about a coming crash. In fact, it’s probably just the opposite. If this sort of Central Bank insanity continues at this pace even though the global economy is firmly in the green, then it only affirms my belief that Bill Fleckenstein was correct when he said, “the bubbles will continue until the bond market takes away the keys.”

PS: If the Federal Reserve decided to invest $11,589 in the US stock market per American citizen, they would need to buy $3.75 trillion of stocks… That would mean they would have to almost double the already inflated balance sheet. That’s the level of absurdity from the Swiss National Bank.

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Algebris Investments’ CEO/CIO Davide Serra reflected pointedly on ‘Davos Man’ and their generally herd-like behavior:

“I’ve been coming here for 10 years and the current Davos attendees are the most into momentum trading I’ve ever seen.“

“If the share prices are down they’re bearish; if markets are up, they’re all bullish. They’re trend followers.”

Talking to Bloomberg TV’s Erik Schatzker, Serra explained the reason for their short-sightedness…

“Trying to forecast the future for [the average Davos Man] is too hard and so they simply say ‘where are we today'” and that informs their worldview.

Serra uses the example that three years ago, everyone at Davos was mournfully wondering around declaring the disintegration of the euro – and now look where Europe is.

Critically, Serra notes of Davos and the world – “it’s almost impossible to find a contrarian” today.

Serra is confirming much of what we noted yesterday as the big bank CEOs sang the praises of the world economy and stocks to whichever TV audience they could get in front of, while explaining how terrified they were of the complacency when they are behind closed doors.

“There is a numbness out there, there is an ambivalence out there that’s concerning,”

“When the next turn comes — and it will come — it’s likely to be more violent than it would otherwise be if we let some pressure off along the way.”

So why does Serra go to Davos? Simple…

“You need to take the pulse, check the consensus and be ready, most of the time, to do the opposite,” and…

“that’s why we’re trying to get as many hedges as we can on what has been the overall market consensus.”

The Algebris CEO notes that markets are “euphoric” because central banks have pumped a cumulative $5t into the system, adding that when money-printing stops, inflation will rise and bonds will crash:

“a crash in the bond market, which is three times the equity market, will feel more painful to the average investor” than a stocks correction.

Banks will be the biggest beneficiaries from an inflation pick-up.

“Today their own margins are being crushed by basically the zero-rate policy around the world”

“It’s very hard for a bank to lend when a corporation can borrow at almost negative rates”

Algebris would short all assets manipulated by central banks, including rates, on an inflation pick-up.

Finally, Serra noted that U.S. Treasury Secretary Mnuchin  “is adding fuel on the fire by saying he likes a weak dollar because that’s going to fuel inflation even faster”

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Authored by Luis Colasante & Sergio Mazodilla via OilPrice.com,

The Southern Gas Corridor, connecting Azerbaijan to the world’s largest economic block, is one of the most important infrastructure pipeline projects worldwide, bringing Caspian gas into Europe.

 

Europe wants to become less dependent on Russian gas and use more clean energy, taking advantage of the technological advances made in the renewables sector, along with the use of natural gas.

After 2016’s 7 percent growth, European gas consumption continued to rise through 2017. Consumption levels showed a year-on-year increase of 6 percent in the first quarter, supported by low temperatures.

The Southern Gas Corridor is around 80 percent finalized, with the first gas flow for Europe expected around 2020. That’s great news not only for Europe, but also for the Azerbaijan economy, which stands to benefit from improved exported gas volumes, with the oil and gas sector accounting for up to 45 percent of their GDP and around 75 percent of state revenues.

Europe’s natural gas import needs will continue to increase through the next 10 years, a result of the Netherlands and United Kingdom’s shift from gas exporters to importers, and Norway’s energy policy to freeze new oil and gas offshore projects.

Azerbaijan will play an essential role in European energy security, not only as a European partner with a stable economy, but also a supplier with growing export potential of the much-needed commodity in a world of rising energy prices. And while the Southern Gas Corridor won’t replace Europe’s need for Russian gas, it will, however, be an outstanding actor for Southern European countries supplied by liquefied natural gas (LNG) carrying higher shipping costs.

With gas traders exploiting the price arbitrage between the global LNG market and piped gas coming through the Southern Gas Corridor, we forecast that LNG’s market shares will continue to increase in Europe, as new fields were funded in Israel and Egypt.

The Turkish Stream project into Europe will not be a competitor of the Southern Gas Corridor — that is the priority of the European Commission. The Turkish Stream project highlights several political and legal issues, exposing the region’s energy security and strategies aimed at rendering Europe less dependent on Russian gas.

Assuming that negotiations will need to take place between Russia and Europe in the following months or years, if Russia doesn’t receive an iron-clad guarantee from the European Commission, it’s very likely — in line with Gazprom’s shift to the East — they’ll walk away from the project.

Speaking of Europe’s Russian dependency, in light of the Southern Gas Corridor project’s potential impact on Europe, Russia’s pivot toward the East — Gazprom exports to China — means any additional or new supply flows into Europe will be of much use, helping the region replenish flows that will be redirected toward the growing and higher paying Asian markets of South Korea and Japan, and newcomers like Pakistan and India.

The Southern Gas Corridor will not only offer supply into Europe, but also help dampen future upside price risk as the cost of wholesale energy (in Europe) becomes significantly susceptible to global LNG markets — a change in market dynamics affected by the region’s transition from gas exporting to importing, as seen with the United Kingdom.

Despite the fact that expected volume flows may not necessarily be threatening to the dominant position of Russia within the region, global natural gas prices have been weak further out on the curve (NBP Sum’20 contracts onward) as ongoing Australian and Qatari LNG projects come into operation, flooding global markets — alongside the goliath that is U.S. shale gas post-2020 — with new LNG exporting capacities.

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After the first round of Brexit talks coming to an unexpectedly smooth conclusion, Theresa May entered the new year grappling with members of her own party – notably Boris Johnson, her own foreign secretary – over a brewing crisis at the NHS.

So, in what we imagine was a badly needed getaway, May seized the opportunity for a star-making appearance at the World Economic Forum in Davos on Thursday, where she delivered a speech and met with President Donald Trump.

Famously a Luddite, May surprised observers by focusing on the positive advances in Artificial Intelligence and its possible benefits, while touting the UK’s status as a leading innovator (behind China and the US, of course).

Speaking of flying cars and the ability to prevent pandemics, May painted a picture where many of our modern problems are ameliorated by technology.

But she also acknowleged that “as we seize these opportunities of technology so we also shape this change to ensure it works for everyone, be that in people’s jobs or their daily lives.”

May said “we need to act decisively to help people benefit from global growth now…”

“I was appalled by the reports that I read. What worries me is it’s not just about that event it’s about this wider issue in society about the progress of women…”

…I’m going to continue to work to ensure that we can get to a point where women are truly accepted and respected as equals.”

* * *

Later, while responding to a question about regulating bitcoin, May promised to consider clamping down on bitcoin as she raised concerns that cryptocurrencies are being used by criminals, Bloomberg reported.

“In areas like cryptocurrencies, like Bitcoin, we should be looking at these very seriously,” May said in a television interview in Davos with Bloomberg’s Editor-in-Chief John Micklethwait. Action on crypto-currencies may be needed “precisely because of the way they are used, particularly by criminals,” she said.

Given the recent volatility in the cryptocurrency market, May said “I think it’s something we do need to take a look at.”

Of course, May is entirely wrong. As CoinTelegraph recently reported, a recent report from the joint Bitcoin analysis team of FDD and Ellicit, a Bitcoin forensics company, indicates that less than one percent of all Bitcoin transactions involve money laundering.

The report, written to help analyze the flow of funds and the danger of money laundering, has indicated that money laundering isn’t nearly the problem some critics of cryptocurrency believe. The report states:

“The amount of observed Bitcoin laundering [is] small and darknet marketplaces such as Silk Road and, later, AlphaBay are [generally] the source of almost all of the illicit Bitcoins laundered through conversion services.”

May also reiterated that investors should put pressure on technology giants to respond more quickly to extremist content on social networks, a cause she has spoken out about publicly since the the Manchester arena bombing.

Social networks must stop providing a platform for terror, extremism and child abuse, she said, according to the BBC.

Such content ought to be “removed automatically”, May added.

* * *

Finally, she joined President Trump for a press conference where the president reaffirmed the “special relationship” between the US and the UK.

May added that they’d be working on a trade deal in the future to “both our benefits.” Trump promised that the trade “is going to increase many times.”

“The discussions that are taking place is going to lead to tremendous increases in trade between our two countries which is great for both in terms of jobs.”

Tomorrow is the final day of the Forum, which, thanks to a disruptive snowstorm, produced some memorable images that will no doubt live on for months, if not years…

 

Only in #Davos you get a sign with “private car pick-up” direction alongside the “A day in the life of a refugee” exhibition. #Davos2018 #tonedeaf @tictoc #tictocnews pic.twitter.com/yFWsN3oLq9

— Javier Blas (@JavierBlas2) January 22, 2018

 

Trump later tweeted his satisfaction with the meeting…

 

Great bilateral meeting with Prime Minister Theresa May of the United Kingdom, affirming the special relationship and our commitment to work together on key national security challenges and economic opportunities. #WEF18 pic.twitter.com/FPP8aRDAyt

— Donald J. Trump (@realDonaldTrump) January 25, 2018

 

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Authored by Judith Bergman via The Gatestone Institute,

• Germany’s new law requires social media platforms, such as Facebook, Twitter and YouTube, to censor their users on behalf of the government. Social media companies are obliged to delete or block any online “criminal offenses” within 24 hours of receipt of a user complaint — regardless of whether the content is accurate or not.
• Social media platforms now have the power to shape the form of current political and cultural discourse by deciding who will speak and what they will say.
• Notice the ease with which the police chief mentioned that he had filed charges to silence a leading political opponent of the government. That is what authorities do in police states: Through censorship and criminal charges, they silence outspoken critics and political opponents of government policies, such as Beatrix von Storch, who has sharply criticized Chancellor Angela Merkel’s migration policies.
• While such policies would doubtless have earned the German authorities many points with the old Stasi regime of East Germany, they more than likely contravene the European Convention of Human Rights (ECHR) to which Germany is a party, as well as the case law of the European Court of Human Rights.

Germany’s new censorship law, which has introduced state censorship on social media platforms, came into effect on October 1, 2017. The new law requires social media platforms, such as Facebook, Twitter and YouTube, to censor their users on behalf of the German state. Social media companies are obliged to delete or block any online “criminal offenses” such as libel, slander, defamation or incitement, within 24 hours of receipt of a user complaint — regardless of whether the content is accurate or not. Social media companies are permitted seven days for more complicated cases. If they fail to do so, the German government can fine them up to 50 million euros for failing to comply with the law.

The new censorship law, however, was not fully enforced until January 1, 2018, in order to give the social media platforms time to prepare for their new role as the privatized thought police of the German state. Social media platforms now have the power to shape the form of current political and cultural discourse by deciding who will speak and what they will say.

On January 1, 2018, however, the law was immediately enforced. Twitter began by suspending the account of the deputy leader of the Alternative for Germany party (AfD), Beatrix von Storch, for 12 hours, after she tweeted the following in response to a New Year’s greeting issued in Arabic by the Cologne Police:

“What the hell is happening in this country? Why is an official police site tweeting in Arabic? Do you think it is to appease the barbaric, gang-raping hordes of Muslim men?”

(During New Year’s Eve of 2015/16, over 1,000 mainly Muslim men sexually assaulted around 1,200 women in Cologne.)

Von Storch also had her Facebook account suspended for repeating her tweet there. Facebook told her that her post contravened German law, as it constituted “incitement to hatred”.

It did not stop there. Cologne police filed charges against von Storch for “incitement to hatred”, which is punishable under section 130 of the German Criminal Code. According to the Cologne police chief, Uwe Jacob, multilingual tweets at major events are an important part of the police’s communication strategy:

“The campaign was really well received by most people – however, some were bothered by the fact that we tweeted in Arabic and Farsi – they were very prominent right-wingers, who then felt that they had to make tweets that incited to hatred. We simply filed charges”.

Notice the ease with which the police chief mentioned that he had filed charges to silence a leading political opponent of the government. That is what authorities do in police states: Through censorship and criminal charges, they silence outspoken critics and political opponents of government policies, such as von Storch, who has sharply criticized Chancellor Angela Merkel’s migration policies.

While such policies would doubtless have earned the German authorities many points with the old Stasi regime of East Germany, they more than likely contravene the European Convention of Human Rights (ECHR) to which Germany is a party, as well as the case law of the European Court of Human Rights. Article 10 of the European Convention of Human Rights states:

1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers…

2. The exercise of these freedoms… may be subject to such… restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.

In its case law, the European Court of Human Rights has stated that Article 10

“…protects not only the information or ideas that are regarded as inoffensive but also those that offend, shock or disturb; such are the demands of that pluralism, tolerance and broad-mindedness without which there is no democratic society. Opinions expressed in strong or exaggerated language are also protected”.

Even more important in the context of charges against politicians is the fact that according to the European Court of Human Rights’ case law:

“…the extent of protection depends on the context and the aim of the criticism. In matters of public controversy or public interest, during political debate, in electoral campaigns… strong words and harsh criticism may be expected and will be tolerated to a greater degree by the Court”.

When leading politicians are criminally charged for questioning the actions of the authorities, such as in this case the actions of the police, we are no longer dealing with a democracy, but with a regular police state.

Several other accounts on Twitter and Facebook were also suspended under the new censorship law in the first days and weeks of January. One such Twitter account was the satirical magazine, Titanic, which was blocked for parodying von Storch’s tweet about the “barbaric hordes” of Muslim men. The privatized Twitter thought police, in their eagerness to censor, had overlooked that Titanic was just poking fun. The suspension of the Titanic account alerted some politicians — a mere three months after the law went into force — to the problematic nature of the law. Leader of the Green party, Simone Peter and Secretary-General of the FDP, Nicola Beer were both critical of the law. “The law is messed up and must be replaced by a decent one”, Beer said.

Another politician, Martin Sichert, AfD member of the Bundestag for Nürnberg and state Chairman for the AfD, had a Facebook post deleted for violating “community standards”. In the post, which he substantiated with links to factual sources, he drew attention, among other things, to the way women are treated in Afghanistan. He also drew attention to the sexual abuse of small children in Afghanistan:

“It is scary and at the same time shameful that our state is preventing the enlightenment of citizens by simply censoring factual opinions, publicly available citations and links to reputable sources.”

Sichert and von Storch are just the most famous people to have their speech shut down on social media. There are countless others, whose stories never reach the media.

Under the censorship law, anyone can ask a social network operator to delete postings, even if the post does not affect him personally in any way. If the social network provider does not respond within 24 hours, the person wishing to have a post deleted can involve the Federal Office of Justice; there is even a form for this purpose on the homepage of the Federal Office of Justice. This office is responsible for the prosecution of violations, and the district court of Bonn is the sole authority permitted to examine disputes about the criminal liability of comments made on social media and to impose fines on the social media companies for failing to delete those comments within the required 24 hours.

It is regrettable that Germany, which can barely keep up with the terrorism threat and the wave of violent crime, is spending such vast resources on shutting down the free speech of its citizens on social media. The Federal Department of Justice has rented additional offices in Bonn to house approximately 50 new lawyers and administrators to implement the new law and ensure that the social media providers delete “offending posts” within 24 hours. “It was also important that we created a new file management system,” explains Thomas W. Ottersbach of the Federal Office of Justice in Bonn.

“This is the only way to ensure that deadlines are met and that a statistical evaluation can be carried out. Because it is important that we keep an eye on which [social media] operator’s complaints are piling up and where they are just isolated cases.”

The old German police state is back.

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