Month: July 2018

According to conventional wisdom, trade wars are bullish for the dollar, for two main reasons: they tend to be inflationary (import prices spike), and they impact risk assets, resulting in a flight for USD-denominated safety. Indeed, just today, Bloomberg writes that for dollar bulls, Trump’s trade wars are just what the doctor ordered.

They see the greenback as a better haven than gold should the tariff tit-for-tat intensify. Four months after the U.S. president shocked equity markets with his vision of higher duties on imports to America, investors are discovering catalysts that should help the nation’s currency withstand trade turbulence better than gold.

“The dollar has become the main destination for safe-haven investors,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by email from Copenhagen. “Geopolitical risk is on the rise, bonds and stocks have sold off and yet gold continues to drift lower.”

A “significant” driver of the dollar’s gains this year has been reduced risk appetite, spurring a tide of capital to dollar assets as emerging markets seize up, according to Jane Foley, head of currency strategy at Rabobank. That said, “the sheer liquidity associated with the dollar means that for some investors it will always be a safe haven,” she wrote in a recent note.

There is another reason why traditional economic theory would suggest the dollar should gain: the prospect that import tariffs will reduce the US current-account deficit even as the Fed hikes rates, thereby creating a rare opportunity in which the dollar can be used both as a haven and in carry trades, according to Andreas Steno Larsen, a global currency strategist at Nordea Bank AB in Copenhagen.

But is that really true? According to Bloomberg macro commentator and former Lehman trader Mark Cudmore, not only are trade wars imminently dollar negative, but in a note overnight, he writes that the dollar is set for an imminent slide on what he calls “flawed tariff logic.”

Specifically, he envisions two key things: positioning and the yield effect. On the first, last Friday we showed that after being very bearish on the dollar for the better part of a year, speculators have turned sharply bullish, suggesting there are few shorts left to cover, and the marginal buyers may already be in the trade.

Speculative USD positioning against currencies in the CFTC CoT report, in $ bn

What about yields? as Cudmore writes, “they topped out in mid-May and have been steadily declining since The flattening U.S. curve emphasizes that the more important long-term impact of any tariffs will be the hit to growth U.S.-led trade wars only encourage other countries to divert their trade relationships elsewhere, thereby undermining the dollar’s relevance at the margin.“

As a result of the flattening of the TSY curve, the more important long-term impact of any tariffs will be the hit to growth U.S.-led trade wars only encourage other countries to divert their trade relationships elsewhere, thereby undermining the dollar’s relevance at the margin.

So are all those betting on a strong dollar (and weaker yuan), as trade war begin wrong? Read his full note below and decide:

Dollar Set for Imminent Slide on Flawed Tariff Logic:

The outlook for the dollar is increasingly bearish because investor positioning is misaligned with how the trade war will play out in the market.

There’s a stale narrative that trade tensions are bullish for the dollar. This column argued that way back in March, but the dynamics are shifting negatively for the dollar at the margin.

It’s been overlooked that the Bloomberg Dollar Spot Index hit its intraday high two weeks ago and its closing high in the middle of last week.

The argument that tariffs are inflationary, and so will lead to more rate hikes, is a very poor reason to be already long the dollar.

Any price effects will take time to feed through to consumers and much of the impact will be felt long before there’s any effect on the CPI basket of goods.

For further evidence of the flaw in the tariffs-equal-inflation-equals- higher-rates-equals-stronger-dollar logic, look no further than U.S. yields themselves. Across the curve, they topped out in mid-May and have been steadily declining since

The flattening U.S. curve emphasizes that the more important long-term impact of any tariffs will be the hit to growth U.S.-led trade wars only encourage other countries to divert their trade relationships elsewhere, thereby undermining the dollar’s relevance at the margin.

As the world’s largest economy, the U.S. had the strong hand in the early stages of trade negotiations. But, if it escalates into a sustained trade war, the U.S. position weakens substantially due to its twin deficits. It can’t afford to play such hardball that foreign governments become incentivized to stop funding its largesse.

On the other hand, if trade tensions abate, investors will releverage into EM and risk assets, which will result in a de facto selling of the world’s reserve currency.

Why would fresh investors buy the dollar now? A hawkish Fed and the initial tariffs are priced. Whichever way things develop from here, it’s much more likely to be a dollar-bearish world.

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President Trump’s tweets demanding that OPEC step in and “do something” to halt the inexorable rally in oil prices (i.e. pump more) have been notably ineffective, as crude has continued to push through highs not seen since late 2014. And after the president took some time off from the July 4 holiday to again demand that OPEC turn up the pumps (after Saudi Arabia poured cold water on its “promise” to pump an extra 2 million barrels a day), Iran – which has the most to lose from an increase in Saudi production – is now begging Trump to stop tweeting, arguing that his tweets are only serving to drive prices higher.

The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!

— Donald J. Trump (@realDonaldTrump) July 4, 2018

According to Bloomberg, Iran’s OPEC governor Hossein Kazempour Ardebili issued a message to Trump, carried by the Iranian oil ministry’s news service, begging him to stop tweeting at OPEC and claiming that the tweets are “discrediting” the organization. “Your tweets have driven the prices up by at least $10 a barrel,” Kazempour said. “Pls stop it, otherwise it will go ever higher!”

“You are hammering on good guys in OPEC,” Kazempour said. “You are actually discrediting them and undermining their sovereignty, we expect you to be more polite.”

Iran’s #OPEC governor Hossein Kazempour Ardebili says #Trump tweets have already pushed up #oil prices by $10, says “he must stop this method”. #Iran #realDonaldTrump pic.twitter.com/ExOEzQXDvi

— Press TV (@PressTV) July 5, 2018

Kazempour also accused Trump of being a hypocrite by sanctioning OPEC members then trying to boss the organization around.

“OPEC has not defined oil prices for the past 30 years,” Kazempour said. “You impose sanctions on major producers, founders of OPEC, and yet you are asking them to reduce the prices?! Since when did you start ordering OPEC!”

Come to think of it, the Iranian is right: after all the biggest driver behind the recent oil spike has little to do with structural supply and demand, but rather with Trump’s latest Iran oil embargo, which the US is rushing to shove down allies’ throats.

Which also means that Trump himself could easily reverse much if not all of the recent spike in prices by simply agreeing to the Iran deal and refusing to reimpose sanctions on Iran and lift sanctions on Venezuela. Though that likely wouldn’t go over well with his base (not to mention Republicans in Congress).

But there’s another reason why Iran probably wants Trump to stop: Iran has an interest in Saudi Arabia keeping production as low as possible as sanctions kick in and Iran searches for buyers for its crude, which no longer can be paid for in dollars. And while Iran is likely sharing in the economic boost from higher oil and gas prices, the reality is that Trump’s tweets have had only a muted impact on gas and oil prices, as Goldman Sachs (and most other banks) see supply risks surrounding Venezuela and Iran as the primary culprit.

But that likely won’t stop Trump from accusing OPEC of being “up to something” when he needs a political whipping boy as higher prices at the pump squeeze American consumers and threaten to undo the economic benefit from the Trump tax cuts.

To be sure, while Saudi Arabia has the capacity, pushing production to the limit would likely only briefly arrest the climb in prices while using up the buffer with which OPEC can respond to supply outages – meaning that any future outages would likely have an outsized impact.

Unless of course, there is a sharp drop in global oil demand, which could well happen if the economic slowdown in China accelerates, or if the PBOC is afraid to cut rates – as it will have to to prompt growth – over fears it is seen as trade war retaliation.

That said, Iran probably has the most to lose should Trump succeed in striking a deal with the Saudis: Not only is Trump trying to blame OPEC for a problem that he helped create, any agreement between the president and Iran would likely result in more market share going to the Saudis – Iran’s geopolitical archrival – while lower prices would rob the Iranian economy of what little benefit it has received from the rally. Finally, while Saudi Arabia will pay lip service to Trump, it would never boost production by so much it splinters OPEC as everyone still remembers what happened in November 2014 when Saudi Arabia decided to go it alone, promptly sending the price of oil crashing from $70 to as low as $20.

So, in summary, don’t expect either Trump or Iran to stop jawboning any time soon.

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Bulletin Headline Summary from RanSquawk

• European equities positive as auto names drive gains, on suggestions that US is ready to give car tariffs a break
• UK markets react to an upbeat Carney after the BoE chief suggests Q1 softness was largely due to weather
• Looking ahead, highlights include, US ADP, ISM non-MFG, DOEs, FOMC minutes, and ECB’s Weidmann and Mersch

With trade war between the US and China set to begin at midnight on Friday, the market is taking on a surprisingly relaxed attitude, and after S&P futures rose yesterday even as human traders were out on vacation, this morning S&P futures have continued their ascent and are back to where they were before the waterfall drop just before Tuesday’s close when China announced it would prohibit Micron from temporarily selling chips in China.

And in advance of the grand trade war start, on Wednesday China Mofcom said China will respond if US implements tariffs, while Customs states that tariffs on US goods will immediately take effect after US tariffs on China are in place; however as China has said just this many times before, the market largely ignored this latest threat.

It wasn’t just the US that was in a better mood this morning, but most European markets as well, if only for the time being.

The Stoxx Europe 600 was lifted by carmakers which rebounded on hopes of a cross-Atlantic tariff deal, after Handelsblatt reported the U.S. Ambassador to Germany told the country’s automakers he was asked by Washington to reach a solution between Berlin and Brussels on car tariffs. Specifically, Washington would support lowering car tariffs to zero for U.S. and European carmakers; the report added that the bosses of Volkswagen, Daimler and BMW as well as the head of parts maker Continental were in attendance. While it was unclear if Germany would accept such a broad zero-tariff regime, the market took the news as an indication of a softening in Trump’s stance, even though this is a verbatim replica of what Trump has already floated previously.

Elsewhere, recently battered Glencore Plc rose over 3% after announcing it’ll buy back as much as $1 billion of its shares, following the report earlier this week that it was being the target of a DOJ money-laundering probe.

Meanwhile, after the PBOC intervened verbally (and physically) in the yuan market on Tuesday, the Chinese currency barely budged – at least in the context of Tuesday’s gargantuan, 1200 pip intraday move, and despite a sharply higher fixing in the onshore Yuan, one which was once again stronger than the Wall Street consensus, the freely traded offshore Yuan went nowhere as the currency appears to have flatlined for the time being.

The return of stability to the Yuan did not help Chinese stocks, however, where the equity bear market deepened, with the Shanghai gauge closing at its lowest level since March 2016, as traders braced for the imposition of U.S. tariffs on July 6. The index is now 23.2% off its January highs.

China’s weakness dragged the MSCI Asia ex-Pac index lower by another 0.5% to 162.58, and pushed Japan’s Nikkei down 0.8% to 21,546.99, Hong Kong’s Hang Seng Index down 0.2%, and S. Korea’s Kospi 0.4% lower to 2,257.55. Still, the losses was relatively more manageable than in the sharp rout seen in recent days.

Elsewhere in FX, the Bloomberg Dollar Spot Index headed for its third day of declines, having touched a three-week low, and has now wiped out half its gains following the ECB’s unexpectedly dovish QE-taper-but-will-keep-rates-lower-for-longer announcement from mid-June.

The euro rose above $1.17 following hawkish rhetoric from ECB policymakers with Bloomberg reporting on Wednesday that some ECB policy makers are uneasy that investors aren’t betting on an interest-rate hike until December 2019, suggesting a move in September or October next year could be on the cards. The common currency was further boosted by Germany’s factory orders for the month of May surging 2.6% m/m, well above a forecast of 1.1% gain.

The pound held steady as U.K. Prime Minster Theresa May continues to seek backing for her vision of Brexit and after BOE’s Carney said tighter policy will be needed. The biggest gain versus the dollar was seen in the Swedish krona, boosted this week by hawkish central bank rhetoric according to which Sweden may hike rates before the end of the year.

In rates, U.S. Treasuries slipped alongside European counterparts. 10Y yields were 3bps higher at 2.86%, pushed the 2s10s spread from the flattest since 2007 after it hit 30bps on Tuesday. The yield on 10Y Germany bunds also rose three basis points to 0.34%, the highest in more than a week on the biggest increase in more than three weeks.

Brent crude fell as traders weigh tightening U.S. supplies against a pledge from Saudi Arabia to expand output. Emerging-market shares dropped for the eighth time in nine days, and developing-nation currencies nudged lower. Commodities, heavily exposed to international trade, fell. Iron ore futures in Singapore hit the lowest since May.

In the latest news surrounding the neverending Brexit saga, Theresa May is said to have asked Chancellor Hammond and Business Secretary Clarke to warn colleagues of the dangers in pressing for a hard Brexit at the meeting on Friday at Chequers. Elsewhere, there were also reports that ministers warned PM May not to sidestep controversial Brexit issues at the meeting amid concern focus on customs may neglect issues such as services sector and freedom of movement.

In the biggest central bank news overnight, Bloomberg reported that some ECB policymakers are said to be concerned regarding some investors’ expectations for a hike in end-2019 as they view this as too late, according to sources which also suggested that the door is open for possible rate move in September or October next year. The news sent the EUR higher and repriced rate hike expectations. Elsewhere, ECB’s Praet says the uncertainty about the inflation outlook has been declining significantly, and the risk of deflation has vanished, there are grounds to be confident that the sustained convergence of inflation will continue in the period ahead. Added that the expectation is that policy rates will remain at their present levels at least through the summer of 2019 and, in any case, for as long as necessary

Also overnight BoE Governor Carney said data gives him confidence that the soft UK economy in Q1 was largely due to weather and not economic climate; reiterating tighter monetary policy will be needed. Added that pay and domestic cost growth have continued to firm broadly as expected, widespread evidence that slack is largely used up. Meanwhile, BoJ Board Member Masai said it may take some time to reach to reach 2% price goal and that it is appropriate to continue with strong monetary easing in a persistent and sustainable manner. Furthermore, Masai also suggested that structural problems in the banking industry should be discussed independently from monetary easing.

Today’s economic data include initial jobless claims, Markit PMI readings, but all attention will fall on the FOMC minutes, with traders scanning for hints of a dovish relent by the Fed after the recent repricing of a total of 4 rate hikes in 2018.

Market Snapshot

• S&P 500 futures up 0.4% to 2,724.00
• STOXX Europe 600 up 0.4% to 381.50
• MXAP down 0.5% to 162.58
• MXAPJ down 0.2% to 529.85
• Nikkei down 0.8% to 21,546.99
• Topix down 1% to 1,676.20
• Hang Seng Index down 0.2% to 28,182.09
• Shanghai Composite down 0.9% to 2,733.88
• Sensex down 0.05% to 35,626.24
• Australia S&P/ASX 200 up 0.5% to 6,215.52
• Kospi down 0.4% to 2,257.55
• German 10Y yield rose 2.9 bps to 0.334%
• Euro up 0.3% to $1.1687
• Brent Futures down 0.5% to $77.86/bbl
• Italian 10Y yield rose 1.8 bps to 2.388%
• Spanish 10Y yield rose 3.5 bps to 1.334%
• Brent Futures down 0.5% to $77.86/bbl
• Gold spot down 0.04% to $1,254.48
• U.S. Dollar Index down 0.1% to 94.40

Top Overnight News

• The U.S. imposition of tariffs on $34 billion of China’s exports will not only hurt China, but the U.S. itself and the rest of the world. That’s because $20 billion of those goods are produced by foreign companies, including American companies, Gao Feng, China’s Commerce Ministry spokesman said Thursday
• China’s proposed additional tariffs on U.S. goods will become effective “immediately” after the U.S. imposes its levies, according to a statement on General Administration of Customs Thursday
• U.K. Prime Minister Theresa May is fighting to win Cabinet backing for her Brexit plan as a compromise proposal that aimed to unite warring ministers was rejected by her chief negotiator — Brexit Secretary David Davis
• Oil traded near $74 a barrel as investors weighed tightening U.S. supplies against a pledge from Saudi Arabia to expand output. Meanwhile, President Donald Trump lashed out at OPEC
• Investors from Japan have plowed record amounts into U.S. stocks, corporate bonds and agency-backed securities, pushing investments in those assets past $1 trillion for the first time ever this year. That’s a stark contrast to the big pullback from Treasuries, which has cut Japan’s holdings to a seven-year low
• Italy’s new government will have both tax cuts and a universal basic income in its very first budget to show financial markets the coalition isn’t backing down from its agenda, Finance Minister Giovanni Tria said. The sweeping economic program is aimed at proving to investors that the populist administration is serious about its mission
• Friday July 6 is the date when the world’s two largest economies are due to slide deeper into a trade conflict that’s roiled markets and cast a shadow over the global growth outlook.
• Some European Central Bank policy makers are uneasy that investors aren’t betting on an interest-rate hike until December 2019, according to people familiar with the matter. A move in September or October next year is in the cards, the people said, even though the decision will be data dependent
• German factory orders surged in May, ending a string of declines and suggesting a much- awaited pick-up in growth momentum in Europe’s largest economy

Asian equity markets were cautious from the open ahead of this week’s key risk events and following the US holiday closure, with sentiment later deteriorating as focus turned to the looming July 6th tariffs. Nikkei 225 (-0.8%) initially struggled for direction and remained at the whim of the currency before trade war fears eventually took its toll, while ASX 200 (+0.5%) bucked the trend with upside led by strength in telecoms and the heavily-weighted financials sector. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (-0.9%) began choppy after the PBoC skipped open market operations for a net liquidity drain of CNY 140bln which coincided with its previously announced targeted RRR cut taking effect, before trade concerns and fears of a full-blown trade war proved to be the deciding factor. Finally, 10yr JGBs saw mild gains and approached closer to the 151.00 level, with the late support seen as risk sentiment soured on tariff fears and which also followed firmer demand in the 30yr auction. PBoC skipped open market operations for a net daily drain of CNY 140bln, although its previously announced targeted RRR cut took effect from today, which is said to release CNY 700bln of funds. PBoC set CNY mid-point at 6.6180 (Prev. 6.6595)

Top Asian News

• Top Manager Sticks With Samsung Before Results, Defying Analysts
• Philippines CPI Smashes Forecasts in ‘Setback’ for Espenilla
• Beauty Turns Ugly: Cosmetic Stock Implodes After Leading World
• China Says U.S. ’Fully’ Understands its Stance over Trade

Automotive names are driving European stocks higher after reports of compromises being close on auto tariffs, with a reduction in tariffs being touted. As such the DAX is outperforming on the back of strength in index heavy-weights Daimler (+3.9%), Volkswagen (+4.3%), BMW (+5.2%) and Continental (+2.8%), with traders eyeing the 100DMA of 12,515 on the upside, currently trading at 12,454. Peugeot (+3.3%) and Michelin (+3.0%) are also driving the CAC, with the bourse breaking through its 100DMA and approaching its 200DMA of 5,374. Further support is offered to the French index after Sodexo (+6.7%) reported positive sales figures. Associated British Foods (-4.6%) reported uninspiring earnings, and have increased concerns over their sugar business not meeting profit targets. This is pressuring consumer staples (-0.5%) which is currently the worst performing sector. The materials sector is outperforming on the back of mining names (FTSE 350 mining index +1.9%) moving in sympathy with Glencore (+3.3%) post announcement of a USD 1bln share repurchase. Linde (+1.3%) have said that a sale of Praxair’s European gas businesses will allow for a merger clearance by the  European Commission. Praxair have agreed to sell their assets to Taiyo Nippon Sanso

Top European News

• Italy to Start Sweeping Economic Program With Upcoming Budget
• Euro-Area Bonds Decline on Conviction ECB May Raise Rates Sooner
• SBM Slumps as Brazil Decision Keeps Company From Largest Market
• Primark Sticks to Cautious U.S. Expansion Plans as Sales Gain

In FX, The EUR currency has extended gains vs the Usd through the 1.1700 handle and first heavy expiry option hedges at the strike (2.3 bn today, and a further 1.7 bn on Friday), albeit briefly, in wake of latest ECB sources claiming market expectations for an end 2019 rate hike would be too late, and with perhaps some added momentum from upbeat German data (industrial orders). Eur/Jpy also boosted by M&A-related flows, but capped around 129.50 and just ahead of its 55 DMA (129.54). GBP/CAD/CHF/JPY – All relative stable vs the Greenback, with Cable building a firmer base above 1.3200, but not able to clear 1.3250 and its 21 DMA just above ahead of a speech from BoE Governor Carney and the next big Brexit event (Chequers on Friday). In the event the MPC head was positive on growth and the inflation outlook, lifting near term rate hike expectations and the Gbp through the aforementioned psychological and technical resistance levels albeit briefly. The Loonie is essentially stuck around 1.3150, Franc equally tight within 0.9940-10 bounds and hardly responding to in line Swiss CPI data (albeit weaker vs the Eur circa 1.1600), while the Jpy hugs 110.50 eyeing decent expiries between there and 110.60 (1 bn). SEK – Onward and upward for the Krona, and latest catalyst comes in the form of strong Swedish data (industrial output), with further gains vs the Eur that is strong in its own right, as mentioned earlier – Eur/Sek inching close towards 10.2000.

In commodities, Oil prices were down with WTI languishing around the USD 74 level after US President Trump reiterated his position on Twitter overnight vs. OPEC of prices being too high. This was reversed in later trade however, with WTI positive and Brent negative on the day as traders look ahead to today’s holiday-delayed DoE inventory report. In the metals scope Gold is pulling back after hitting a one week high in yesterdays trade of USD 1,261/oz, currently at USD 1,253/oz. Base metals are slipping as the threat of a trade war looms, with zinc and nickel sulking around one-year lows. Copper is also being hit by these worries, with the bellwether metal down 2.8% in Shanghai.

Looking at the day ahead, the main focus will likely be the release of the FOMC meeting minutes for the June 13th policy meeting. We algo get the final June services and composite PMIs due along with the June ISM non-manufacturing, and June ADP employment change reading. The latest weekly initial jobless claims data will also be due. Away from that, BoE Governor Mark Carney is due to speak at an event in Newcastle while the ECB’s Mersch and Nowotny along with Bundesbank President Jens Weidmann will also be speaking at different times at the Central Bank of Austria’s annual conference.

US Event Calendar

• 7:30am: Challenger Job Cuts YoY, prior -4.8%
• 8:15am: ADP Employment Change, est. 190,000, prior 178,000
• 8:30am: Initial Jobless Claims, est. 225,000, prior 227,000; Continuing Claims, est. 1.72m, prior 1.71m
• 9:45am: Bloomberg Consumer Comfort, prior 57.3
• 9:45am: Markit US Services PMI, est. 56.5, prior 56.5; Composite PMI, prior 56
• 10am: ISM Non-Manf. Composite, est. 58.3, prior 58.6
• 2pm: FOMC Meeting Minutes

DB’s Jim Reid concludes the overnight wrap

Just as you thought it was safe to leave the office in Europe last night and relax knowing that nothing was going to happen in the US due to the holiday, along comes a Bloomberg news story after 6pm in Frankfurt suggesting that “some ECB policy makers are uneasy that investors aren’t betting on an interest-rate hike until December 2019”. It was a big headline but as DB’s Mark Wall pointed out the article really only hinted that September and October were thought to be  mis-priced. DB’s George Saravelos also made the point that markets had probably gone too far the other way in terms of not pricing the first 20bps hike until March 2020. He also made the valid point that we were reaching the limits of divergence between ECB and Fed policy expectations. If the ECB market pricing is right, it’s probably because the world is struggling (e.g. major Italy problems or a full trade war) and the Fed will have to pause. If the Fed is correct, the ECB will likely have to move earlier or more than currently priced. Overall Mark Wall still thinks the first 20bp deposit rate hike/25bp refi rate hike will be in September 2019. The Euro jumped 25c on the story but it happened too late to impact bond yields.

This morning in Asia, markets are trading lower with the Nikkei (-1.0%), Kospi (-0.69%), Hang Seng (-0.87%) and Shanghai Comp. (-0.88%) all down and losses accelerating from the open. Meanwhile the Yuan is weaker for the first time in three days (-0.1%) and the euro is little changed. In Japan, BOJ board member Masai echoed similar messages as his peers, noting that “it’s appropriate to continue with strong monetary easing in a persistent and sustainable manner…”  and that it may take “some time” to achieve the bank’s 2% price stability goal. Now turning to some trade headlines. In Europe, the Handelsblatt reported that the US ambassador Grenell told a group of German car industry leaders that the US government was seeking talks with the EU with a proposal that would reduce tariffs to zero for US and EU car makers. Although a potential obstacle is that the EU is not allowed under global rules to reduce its 10% tariff on American cars unless the union does so for all the WTO members or via other bilateral accords. Notably, the FT reported yesterday that the EU is studying whether it’s feasible to negotiate a deal with other big car exporters such as the US, Japan and South Korea which would lower tariffs to “agreed levels for a specified set of products as part of a plurilateral agreement” without including the entire membership of the WTO. So it seems lots bubbling along behind the scenes.

Meanwhile both the US and China plan to implement higher tariffs on each other from tomorrow ($34bn worth of goods), but despite the 12 hour time zone head start for Beijing, China’s Ministry of Finance clarified yesterday that “we will never fire the first shot and will not implement tariffs ahead of the US”. This morning, China’s Commerce Ministry spokesman Gao reiterated that China will have to fight back if the US goes ahead and impose the tariffs.

Following on with the trade theme, Chancellor Merkel warned the Germany parliament of the potential fallout from a trade conflict with the US, noting that tariffs on EU cars would be “much more serious” than levies on steel. Notably she seems to prefer negotiations as “it’s worth every effort to try to defuse this conflict, so it doesn’t turn into a war”, but also added that “…it takes two sides to do that”. Looking ahead, the German Economy Minister Altmaier is scheduled to meet with his French counterpart next Wednesday to discuss next steps.

Over in the US, today’s FOMC minutes should be of particular interest, especially with the Powell led-Fed growing more comfortable with inflation moving back to target, as the latest data has shown. In terms of what to look out for, our US economists believe that discussion regarding trade developments and the flattening yield curve will be of note given recent comments by Fed officials. Regarding the former, many policymakers have mentioned this as a key risk to their outlook. As Powell acknowledged in both his press conference and his Sintra appearance, there are rising anecdotal reports of concern about trade from the Fed’s business contacts. Other Fed policymakers have also echoed this sentiment.

The flattening yield curve has elicited differing views among policymakers, with some Fed officials such as Chair Powell, Governor Brainard and NY Fed Williams downplaying its significance, while other regional Fed presidents have voiced concerns. It is possible we will see some discussion on the Fed’s balance sheet policy given that interest on excess reserves (IOER) was raised five bps less than the target range for the policy rate. Out economists however doubt the Fed is contemplating any imminent changes to the pace of balance sheet roll off at present. We shall find out more soon.

As for European markets yesterday, the Stoxx 600 edged up +0.06% on muted trading volumes with gains in telco stocks broadly offset by tech (-1.18%) which was weighed down by the prior day’s news that US chipmaker Micron Technology
was temporarily banned by a Chinese court from selling in China due to a patent dispute. Across the region, the DAX and FTSE both dipped c0.3% while Spain’s IBEX rose +1.0%, as a rally in Telefonica lifted the index higher (shares +2.5%).

Meanwhile Sterling rose +0.28% vs. the dollar after the UK’s June services PMI rose to an eight month high and also beat consensus expectations. Government bonds softened a little with 10y bond yields up 1-3bp across the region (Bunds +1.1bp; Italy +2bp) while Gilts underperformed following the stronger services PMI print (+3.4bp). In commodities, both LME Zinc (-3.19%) and Copper (-1.62%) fell near one year lows while precious metals nudged up c0.3% (Gold +0.18%; Silver +0.40%).

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In Europe, the final readings of the June composite PMIs were stronger than expected. Both the Euro area’s services and composite PMI were revised up, to 55.2 (+0.2pt) and 54.9 (+0.1pt), respectively. In the details, most of the upward revisions came from Germany, with its composite PMI revised up 0.6pt to 54.8 while France’s print was downwardly revised by 0.6pt to 55. The UK’s services PMI rose 1.1pt mom to an eight month high of 55.1 (vs. 54.0 expected) while its’ composite PMI also beat at 55.2 (vs. 54.5). The survey also showed the fastest pick up in new work in 13 months while Markit noted these figures suggests UK economic growth has doubled to 0.4ppt in 2Q following a weak 1Q that was weighed down by harsh weather. Meanwhile Italy’s June service and composite PMIs were also above expectations, at 54.3 (vs. 53.3 expected) and 53.9 (vs. 53.2) respectively.

Looking at the day ahead, the main focus will likely be the release of the FOMC meeting minutes for the June 13th policy meeting. In terms of data, the only release of note in Europe is May factory orders data in Germany. In the US it’s a little  busier with final June services and composite PMIs due along with the June ISM non-manufacturing, and June ADP employment change reading. The latest weekly initial jobless claims data will also be due. Away from that, BoE Governor Mark Carney is due to speak at an event in Newcastle while the ECB’s Mersch and Nowotny along with Bundesbank President Jens Weidmann will also be speaking at different times at the Central Bank of Austria’s annual conference.

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Authored by Irina Slav via OilPrice.com,

When reports emerged that India and China are in talks about forming an oil buyers’ club, OPEC was probably too busy with its upcoming June 22 meeting to concern itself with that dangerous alliance. Now, it may be time for it to start worrying.

“The timing is right. The boom in U.S. oil and gas production gives us greater leverage against OPEC,” the Times of India quoted an Indian official as saying last month after the formal start of said talks. The two countries, after all, account for a combined 17 percent of global oil consumption and they are the ones that would be the hardest hit if prices rise as a result of OPEC’s actions.

What’s more, they might not be alone in this attempt to curb OPEC’s clout on the global oil market. According to Bloomberg’s Carl Pope, Europe and Japan, previously reluctant to take part in any anti-OPEC projects, may now join in. The reason they are likely to join in is that unlike in previous oil price cycles, now there are alternatives to fossil fuels. Electrification is where OPEC may have to face off with a future oil buyers’ cartel.

India, China, and Europe are all very big on EV adoption. Japan is a leader in battery manufacturing.

If they set their minds to it, these four players could upend the oil market and effectively cripple OPEC. Of course, this is a best-case scenario of the kind that rarely unfolds in reality.

Let’s take India, for example. A recent survey suggested that as many as 90 percent of Indian drivers were willing to switch to EVs if the government built the necessary charging infrastructure, reduced road taxes, and increased subsidies. Another survey identified price and range as additional roadblocks towards the mass adoption of EVs in India. Because of these challenges, New Delhi recently amended its ambitious goal of having an all-EV fleet on the roads of the country by 2030 to having 30 percent of the fleet electric.

China, for its part, is the undisputed leader in global EV adoption: the country accounted for more than 50 percent of global EV sales last year in case you were thinking, “Wait, wasn’t that Norway?” However, this was in large part made possible by generous government subsidies for EV manufacturing. These subsidies are due to be wound downto 0 by 2020, and carmakers are already beginning to brace for a future without the support of the state. It’s safe to say it remains uncertain if the EV boom will continue after 2020.

This precarious situation with EVs is reason enough for China and India to seek more clout on international oil markets dominated by OPEC and would justify the formation of a “buyers’ club.”

Europe, for its part, is, as a whole, a top performer in EV adoption and it is also very big on environmentalism. At the same time, it still imports crude and quite a lot of it, so it cares about oil prices as a large buyer.

China and India are facing challenges in EV adoption. Europe could help and benefit from it. After all, taken together, Europe, China, India, and Japan account for the manufacturing of as much as 65 percent of the world’s cars, and a lot of these are manufactured in Europe. These four also consume 35 percent of the world’s crude oil and would like to reduce this number.

According to Pope, if they get together, they would be able to negotiate either a more gradual or a faster shift to EVs. It would all depend on whether OPEC would agree to maintain lower prices or not.

A more skeptical view would note the challenges in EV adoption such as subsidies and infrastructure. These would take time to be overcome even if everyone played together. Yet long-term, an oil buyers’ alliance could be a force to be reckoned with by the oil producers, and the latter need to start paying attention now.

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Authored by Jack Matlock via JackMatlock.com,

Did the U.S. “intelligence community” judge that Russia interfered in the 2016 presidential election?

Most commentators seem to think so. Every news report I have read of the planned meeting of Presidents Trump and Putin in July refers to “Russian interference” as a fact and asks whether the matter will be discussed.

Reports that President Putin denied involvement in the election are scoffed at, usually with a claim that the U.S. “intelligence community” proved Russian interference. In fact, the U.S. “intelligence community” has not done so. The intelligence community as a whole has not been tasked to make a judgment and some key members of that community did not participate in the report that is routinely cited as “proof” of “Russian interference.”

I spent the 35 years of my government service with a “top secret” clearance. When I reached the rank of ambassador and also worked as Special Assistant to the President for National Security, I also had clearances for “codeword” material. At that time, intelligence reports to the president relating to Soviet and European affairs were routed through me for comment. I developed at that time a “feel” for the strengths and weaknesses of the various American intelligence agencies. It is with that background that I read the January 6, 2017 report of three intelligence agencies: the CIA, FBI, and NSA.

This report is labeled “Intelligence Community Assessment,” but in fact it is not that. A report of the intelligence community in my day would include the input of all the relevant intelligence agencies and would reveal whether all agreed with the conclusions. Individual agencies did not hesitate to “take a footnote” or explain their position if they disagreed with a particular assessment. A report would not claim to be that of the “intelligence community” if any relevant agency was omitted.

The report states that it represents the findings of three intelligence agencies: CIA, FBI, and NSA, but even that is misleading in that it implies that there was a consensus of relevant analysts in these three agencies. In fact, the report was prepared by a group of analysts from the three agencies pre-selected by their directors, with the selection process generally overseen by James Clapper, then Director of National Intelligence (DNI). Clapper told the Senate in testimony May 8, 2017, that it was prepared by “two dozen or so analysts—hand-picked, seasoned experts from each of the contributing agencies.” If you can hand-pick the analysts, you can hand-pick the conclusions. The analysts selected would have understood what Director Clapper wanted since he made no secret of his views. Why would they endanger their careers by not delivering?

What should have struck any congressperson or reporter was that the procedure Clapper followed was the same as that used in 2003 to produce the report falsely claiming that Saddam Hussein had retained stocks of weapons of mass destruction. That should be worrisome enough to inspire questions, but that is not the only anomaly.

Clapper (far right): Picked who he wanted. (Office of Director of National Intelligence)

The DNI has under his aegis a National Intelligence Council whose officers can call any intelligence agency with relevant expertise to draft community assessments. It was created by Congress after 9/11 specifically to correct some of the flaws in intelligence collection revealed by 9/11. Director Clapper chose not to call on the NIC, which is curious since its duty is “to act as a bridge between the intelligence and policy communities.”

Unusual FBI Participation

During my time in government, a judgment regarding national security would include reports from, as a minimum, the CIA, the Defense Intelligence Agency (DIA), and the Bureau of Intelligence and Research (INR) of the State Department. The FBI was rarely, if ever, included unless the principal question concerned law enforcement within the United States. NSA might have provided some of the intelligence used by the other agencies but normally did not express an opinion regarding the substance of reports.

What did I notice when I read the January report? There was no mention of INR or DIA! The exclusion of DIA might be understandable since its mandate deals primarily with military forces, except that the report attributes some of the Russian activity to the GRU, Russian military intelligence. DIA, the Defense Intelligence Agency, is the U.S. intelligence organ most expert on the GRU. Did it concur with this attribution? The report doesn’t say.

The omission of INR is more glaring since a report on foreign political activity could not have been that of the U.S. intelligence community without its participation. After all, when it comes to assessments of foreign intentions and foreign political activity, the State Department’s intelligence service is by far the most knowledgeable and competent. In my day, it reported accurately on Gorbachev’s reforms when the CIA leaders were advising that Gorbachev had the same aims as his predecessors.

This is where due diligence comes in.

The first question responsible journalists and politicians should have asked is “Why is INR not represented? Does it have a different opinion? If so, what is that opinion?” Most likely the official answer would have been that this is “classified information.” But why should it be classified? If some agency heads come to a conclusion and choose (or are directed) to announce it publicly, doesn’t the public deserve to know that one of the key agencies has a different opinion?

The second question should have been directed at the CIA, NSA, and FBI: did all their analysts agree with these conclusions or were they divided in their conclusions? What was the reason behind hand-picking analysts and departing from the customary practice of enlisting analysts already in place and already responsible for following the issues involved?

State Department Intel Silenced

As I was recently informed by a senior official, the State Department’s Bureau of Intelligence Research did, in fact, have a different opinion but was not allowed to express it. So the January report was not one of the “intelligence community,” but rather of three intelligence agencies, two of which have no responsibility or necessarily any competence to judge foreign intentions. The job of the FBI is to enforce federal law. The job of NSA is to intercept the communications of others and to protect ours. It is not staffed to assess the content of what is intercepted; that task is assumed by others, particularly the CIA, the DIA (if it is military) or the State Department’s INR (if it is political).

The second thing to remember is that reports of the intelligence agencies reflect the views of the heads of the agencies and are not necessarily a consensus of their analysts’ views. The heads of both the CIA and FBI are political appointments, while the NSA chief is a military officer; his agency is a collector of intelligence rather than an analyst of its import, except in the fields of cryptography and communications security.

One striking thing about the press coverage and Congressional discussion of the January report, and of subsequent statements by CIA, FBI, and NSA heads is that questions were never posed regarding the position of the State Department’s INR, or whether the analysts in the agencies cited were in total agreement with the conclusions.

Let’s put these questions aside for the moment and look at the report itself. On the first page of text, the following statement leapt to my attention:

“We did not make an assessment of the impact that Russian activities had on the outcome of the 2016 election. The US Intelligence Community is charged with monitoring and assessing the intentions, capabilities, and actions of foreign actors; it does not analyze US political processes or US public opinion.”

Now, how can one judge whether activity “interfered” with an election without assessing its impact? After all, if the activity had no impact on the outcome of the election, it could not be properly termed interference. This disclaimer, however, has not prevented journalists and politicians from citing the report as proof that “Russia interfered” in the 2016 U.S. presidential election.

As for particulars, the report is full of assertion, innuendo, and description of “capabilities” but largely devoid of any evidence to substantiate its assertions. This is “explained” by claiming that much of the evidence is classified and cannot be disclosed without revealing sources and methods. The assertions are made with “high confidence” or occasionally, “moderate confidence.” Having read many intelligence reports I can tell you that if there is irrefutable evidence of something it will be stated as a fact. The use of the term “high confidence” is what most normal people would call “our best guess.” “Moderate confidence” means “some of our analysts think this might be true.”

Guccifer 2.0: A Fabrication

Among the assertions are that a persona calling itself “Guccifer 2.0” is an instrument of the GRU, and that it hacked the emails on the Democratic National Committee’s computer and conveyed them to Wikileaks. What the report does not explain is that it is easy for a hacker or foreign intelligence service to leave a false trail. In fact, a program developed by CIA with NSA assistance to do just that has been leaked and published.

Retired senior NSA technical experts have examined the “Guccifer 2.0” data on the web and have concluded that “Guccifer 2.0’s” data did not involve a hack across the web but was locally downloaded. Further, the data had been tampered with and manipulated, leading to the conclusion that “Guccifer 2.0” is a total fabrication.

The report’s assertions regarding the supply of the DNC emails to Wikileaks are dubious, but its final statement in this regard is important: “Disclosures through WikiLeaks did not contain any evident forgeries.”  

In other words, what was disclosed was the truth! So, Russians are accused of “degrading our democracy” by revealing that the DNC was trying to fix the nomination of a particular candidate rather than allowing the primaries and state caucuses to run their course. I had always thought that transparency is consistent with democratic values. Apparently those who think that the truth can degrade democracy have a rather bizarre—to put it mildly–concept of democracy.

Most people, hearing that it is a “fact” that “Russia” interfered in our election must think that Russian government agents hacked into vote counting machines and switched votes to favor a particular candidate. This, indeed, would be scary, and would justify the most painful sanctions. But this is the one thing that the “intelligence” report of January 6, 2017, states did not happen. Here is what it said:

“DHS [the Department of Homeland Security] assesses that the types of systems Russian actors targeted or compromised were not involved in vote tallying.”

This is an important statement by an agency that is empowered to assess the impact of foreign activity on the United States. Why was it not consulted regarding other aspects of the study? Or—was it in fact consulted and refused to endorse the findings? Another obvious question any responsible journalist or competent politician should have asked.

Prominent American journalists and politicians seized upon this shabby, politically motivated, report as proof of “Russian interference” in the U.S. election without even the pretense of due diligence. They have objectively acted as co-conspirators in an effort to block any improvement in relations with Russia, even though cooperation with Russia to deal with common dangers is vital to both countries.

This is only part of the story of how, without good reason, U.S.-Russian relations have become dangerously confrontational. God-willing and the crick don’t rise, I’ll be musing about other aspects soon.

(Thanks to Ray McGovern and Bill Binney for their research assistance.)

*  *  *

Jack Matlock is a career diplomat who served on the front lines of American diplomacy during the Cold War and was U.S. ambassador to the Soviet Union when the Cold War ended. Since retiring from the Foreign Service, he has focused on understanding how the Cold War ended and how the lessons from that experience might be applied to public policy today.

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Venezuelan President Murderous Dictator Nicolas Maduro has managed to hang on to power in large part because he’s kept Venezuela’s military firmly in the pro-Socialist camp. So, as the country’s political and economic crisis worsens, Maduro is doing his best to keep the military on his side. Case in point: He just promoted 16,900 soldiers, calling it a reward for their “loyalty,” the BBC reports.

The promotions come as opposition politicians, who were notoriously shut out of Venezeula’s elections this spring, have called on the military to side “with the people” against their socialist oppressors. The promotions also come just a week and a half after the UN Human Rights body released a report accusing the country’s security forces of hundreds of unnecessary and arbitrary killings, alleging that there has been “a pattern of disproportionate and unnecessary use of force by security forces.”

Yet the country’s defense ministry congratulated the soldiers and thanked them for their service.

Defense Minister Vladimir Padrino said those promoted had been “loyal to the constitutionally elected president,” and he also praised them “for respecting human rights.”

[…]

Speaking at a ceremony in the capital, Caracas, Gen Padrino said those members of the armed forces who had been promoted had played a key role in securing “the institutional stability in the country and the safeguarding of Venezuelan democracy and peace”.

A little over a month ago, President Maduro demanded that members of the armed forces sign a document declaring their loyalty.

Meanwhile, dozens of high-ranking officers have been imprisoned over allegations they helped further a Western US-backed plot to undermine the Maduro regime. Just two weeks ago, the government sent soldiers to 100 food markets to make sure that mandatory price controls for food were being enforced. Violators were accused of furthering the alleged Western-backed plot that has served as the centerpiece of Maduro’s propaganda.

And in case you were wondering where Maduro is getting the funds to prevent a military coup (like the one that reportedly nearly took place earlier this year), Venezuela just revealed that China has agreed to lend the country another $5 billion to increase in oil output.

This is hardly unusual. According to Foreign Policy, between 2007 and 2014, China lent Venezuela $63 billion after finding an ideological ally in former President Hugo Chavez, who launched the socialist “Bolivarian revolution” that continues to this day. To put this in context, that amount equals more than half of China’s lending to Latin America. According to Business Insider, China remains Venezuela’s largest lender, with $23 billion in outstanding debt.

However, to guarantee repayment, Beijing has typically insisted on being repaid in oil. That has become an increasingly burdensome request following the 2014 collapse in oil prices (though that might soon change as prices move back toward the $100 a barrel mark). Still, despite the troubles in Venezuela, the country remains an important component of President Xi Jinping’s “One Belt, One Road” initiative, which seeks to spread China’s economic influence around the world. Russia has also made its share of loans to the country. Which raises the question of whether China and Russia can save the Maduro regime from a mass uprising that threatens to unseat the president – particularly as crude production continues to fall, meaning that Venezuela is missing out on many of the benefits of the recovery in crude prices.

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Authored by Andrew Korybko via Oriental Review,

The UN General Assembly recently demanded the withdrawal of Russian peacekeepers from Transnistria.

The non-legally binding decree was passed with a simple majority and intended to send a political message to both Russia and Moldovan President Dodon.

The first-mentioned has had its troops deployed in the contested region for more than two decades per an international agreement with the official host state of Moldova, with this occurring in the chaos of the post-Soviet collapse and intended to prevent a resumption of the separatist conflict.

As for the second one, President Dodon is embroiled in a ‘deep state’ civil war in which the Atlanticist elements of his permanent military, intelligence, and diplomatic bureaucracies are trying to sabotage his pro-Eurasian “balancing” act with Russia in order to streamline the country’s admission to the EU and NATO, both of which would imply a militant “solution” to the Transnistrian issue first.

The UN General Assembly Resolution was therefore accurately interpreted by the Russian Foreign Ministry as “propaganda for certain political forces in Moldova”, with First Deputy Permanent Representative to the United Nations Dmitry Polyansky lamenting that:

“The outcome of the voting is regretful for us… (because) excessive politicization of the problem occurred at the very moment when we see certain progress in talks between Chisinau and Tiraspol.”

That’s indeed the case, as President Dodon’s Atlanticist “deep state” enemies want to rekindle this frozen conflict to the extent that it provokes the renewal of low-intensity hostilities that could then be misleadingly framed as so-called “Russian aggression” in order to continue piling pressure on the country’s interests in Moldova.

Analyzed from this perspective, the West is “reverse-engineering” the scenario needed for making this as “convincing” to the international public as possible, hence the need to construct the perception of UN approval for its anti-Russian demands that – if ever implemented – would surely lead to an outbreak of hostilities against the breakaway region much worse than what happened during Saakashvili’s 2008 attack against South Ossetia.

It’s precisely for this reason why Russia won’t ever unilaterally abandon its partners in Transnistria like the Resolution demands that it do and why Moscow interprets this as a political signal more than anything else.

All told, the increasingly renewed attention being given by the West to the Transnistrian conflict portends its possible thawing, all with the intent of opening up another Hybrid War battlefront for “containing” Russia.

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Authored by Paul Craig Roberts,

July 4, 2018, is the 242 anniversary of the date chosen to stand as the date the 13 British colonies declared independence. According to historians, the actual date independence was declared was July 2, 1776, with the vote of the Second Continental Congress. Other historians have concluded that the Declaration of Independence was not actually signed until August 2.

For many living in the colonies the event was not the glorious one that is presented in history books. There was much opposition to the separation, and the “loyalists” were killed, confiscated, and forced to flee to Canada. Some historians explain the event not as a great and noble enterprise of freedom and self-government, but as the manipulations of ambitious men who saw opportunity for profit and power.

For most Americans today the Fourth of July is a time for fireworks, picnics, and a patriotic speech extolling those who “fought for our freedom” and for those who defended it in wars ever since. These are feel good speeches, but most of them make very little sense. Many of our wars have been wars of empire, seizing lands from the Spanish, Mexicans, and indigenous tribes. The US had no national interest in WW 1 and and very little in WW 2. There was no prospect of Germany and Japan invading the US. Once Hitler made the mistake of invading the Soviet Union, the European part of World War 2 was settled by the Red Army. The Japanese had no chance of standing up to Mao and Stalin. American participation was not very important to either outcome.

No Fourth of July orator will say this, and it is unlikely any will make reference to the seven or eight countries that Washington has destroyed in whole or part during the 21st century or to the US overthrow of the various reform governments that have been elected in Latin America. The Fourth of July is a performance to reinforce The Matrix in which Americans live.

When the Fourth of July comes around, I re-read the words of US Marine General Smedley Butler.

General Butler is the most highly decorated US officer in history. By the end of his career, he had received 16 medals, five for heroism. He is one of 19 men to receive the Medal of Honor twice, one of only three men to be awarded both the Marine Corps Brevet Medal and the Medal of Honor, and the only to be awarded the Brevet Medal and two Medals of Honor, all for separate actions.

Butler served in all officer ranks that existed in the US Marines of his time, from Second Lieutenant to Major General.

He said that “during that period, I spent most of my time being a high class muscle-man for Big Business, for Wall Street and for the Bankers. In short, I was a racketeer, a gangster for capitalism.”

Butler says he was a long time escaping from The Matrix and that he wishes “more of today’s military personnel would realize that they are being used by the owning elite as a publicly subsidized capitalist goon squad.”

Butler wrote:

“WAR is a racket. It always has been.

“It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.

“A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.

“A few profit — and the many pay. But there is a way to stop it. You can’t end it by disarmament conferences. You can’t eliminate it by peace parleys at Geneva. Well-meaning but impractical groups can’t wipe it out by resolutions. It can be smashed effectively only by taking the profit out of war.

“The only way to smash this racket is to conscript capital and industry and labor before the nation’s manhood can be conscripted. One month before the Government can conscript the young men of the nation — it must conscript capital and industry and labor. Let the officers and the directors and the high-powered executives of our armament factories and our munitions makers and our shipbuilders and our airplane builders and the manufacturers of all the other things that provide profit in war time as well as the bankers and the speculators, be conscripted — to get $30 a month, the same wage as the lads in the trenches get.”

In November, 1935, Butler wrote in Common Sense magazine:

“I spent 33 years and four months in active military service and during that period…

I helped make Mexico and especially Tampico safe for American oil interests in 1914.

I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in.

I helped in the raping of half a dozen Central American republics for the benefit of Wall Street.

I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902–1912.

I brought light to the Dominican Republic for the American sugar interests in 1916.

I helped make Honduras right for the American fruit companies in 1903.

In China in 1927 I helped see to it that Standard Oil went on its way unmolested.

Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.”

The military/security complex, about which President Eisenhower warned Americans 57 years ago, adroitly uses the Fourth of July to portray America’s conflicts in a positive light in order to protect its power and profit institutionalized in the US government.

In stark contrast, by the end of his career General Butler saw it differently.

Washington has never fought for “freedom and democracy,” only for power and profit. Butler said that “there are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights.”

Today the anti-gun lobby and militarized police have made it very difficult to fight for the defense of our homes, and the War on Terror has destroyed the Bill of Rights. If there could be a second American revolution, maybe we could try again.

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Japanese Prime Minister Shinzo Abe’s struggle to combat incidences of Karoshi – a Japanese term for “death by overwork” – reached an key milestone on Friday, when Japan’s parliament approved a bill that limits overtime work to less than 100 hours a month per worker, and less than 720 hours per year, while setting penalties for companies that violate the new labor rules, according to the Wall Street Journal.

Before the law, there was no limit to the number of hours companies could ask their employees to work, as long as labor unions didn’t make a fuss.

Recently released government data revealed that Japan’s jobless rate touched 2.2% in May, the lowest level in 26 years. And as Japan’s working-age population dwindles, job openings have outpaced the number of workers available to fill them: As a reference, two months ago, there were 160 job offers available for every 100 workers seeking a job.

The law should also improve working conditions for “nonregular” workers – what we would call “temps” in the US – who lack the job security of their salaried peers.

“Work-style reforms are the best means to improve labor productivity,” Mr. Abe said in Parliament June 4. “We will correct long working hours and improve people’s balance between work and life.”

The new law also seeks to improve the lot of Japan’s growing pool of “nonregular” workers in temporary or part-time jobs who don’t have the job security of full-time regular employees. It says employers must pay equally for the same work, regardless of workers’ status. In a 2016 interview with The Wall Street Journal, Mr. Abe said he wanted to “eliminate the word ‘nonregular’ from the lexicon.”

The suicide of a 24-year-old female employee of Japanese advertising firm Dentsu helped inspire the law, as the government and the young woman’s family condemned Japan’s culture of long working hours.

In addition to the curbing suicides, Abe hopes that limiting workers’ hours will help reverse or at least arrest the country’s declining productivity (although it wasn’t exactly clear how). Declining productivity has been the scourge of the developed world, including the US, where the issue has mystified the Federal Reserve and economists, who fail to explain the lack of a rebound in US economic output.

That said, Japan isn’t the only Asian country where work-life balance is hopelessly out out of whack. In South Korea, a law that lowered the country’s maximum workweek to 52 hours, down from 68, also took effect this week. Altogether, workers in South Korea will be allowed to work the standard 40 hours, with an additional 12 hours of overtime thrown in.

One Seoul resident interviewed by the Straits Times said she was “delighted” by the news. A small business owner, she said she left her large office to start her own company because the owners chose to keep the office perpetually understaffed, guaranteeing that workers would need to stay late to finish their work.

Under the law, which slashed the maximum weekly work hours to 52 from 68, workers in South Korea will be allowed to work 40 hours and an additional 12 hours of overtime.

Those who make their employees work more than 52 hours weekly now face up to two years in prison or a fine of up to 20 million won (S$24,484).

“I’m delighted by the news,” said Shin Na-eun, 29, a Seoul resident who runs her own business after quitting her job at a large-size firm two years ago.

“There were many reasons why I quit my job, which was seen as stable by many. One of the reasons was definitely the heavy workload.”

Shin said in her experience, no one really forced her to stay late in the office. Rather, it was her workload that made it impossible for her to leave work on time. She said the office was understaffed, and that she had to bring her work home on many occasions.

“I’m not naive enough to believe that this law will change everything overnight, but I feel like we are certainly going in the right direction,” she said.

Before the new law, studies showed that the average South Korean worked 40 hours a week, combined with an additional 16 hours of overtime. However, not all South Korean workers are so enthusiastic. Indeed, many fear that companies will continue to pressure workers to put in long hours at the office – but because of the law, workers won’t receive any compensation for this overtime since reporting it would be illegal.

Yet others are angry about the overtime they stand to lose, arguing that they preferred the status quo.

“What if you prefer money or work over life?” one anonymous office worker told the Straits Times. “I think those who want to work more and thereby make more money should have the right to do so.”

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