Month: April 2024

Authored by Simon White, Bloomberg macro strategist,

The Federal Reserve’s next move this year is likely to be a rate cut – despite the re-emergence of inflation – leaving markets at risk of a dovish repricing.

When it comes to the Fed, it’s easy to get hung up on what they should do, and neglect what they actually will do. From an inflation perspective, it’s becoming increasingly clear the central bank needs to raise rates further to quell resurgent price growth. But that’s unlikely. Instead, the risks to government funding costs and mounting pressure on liquidity are likely to tilt the Fed in favor of cutting rates, even as inflation is making an unwelcome return.

This week again draws focus to the greater entanglement of monetary and fiscal policy. The Fed meets on Wednesday, but the Treasury’s QRA (quarterly refinancing announcement) is just as consequential for the path of monetary policy. We found out the Treasury’s borrowing requirements on Monday.

The amounts are eye-watering – $243 billion in 2Q and $847 billion in 3Q – and unthinkable outside a recession only a few years ago. The market is gradually waking up to the Treasury put and the realization the fiscal deficit is unlikely to go back to a non-recessionary norm any time soon. Term premium is rising as lenders demand greater compensation for holding longer-term debt.

The chart below shows a tradeable proxy for term premium – the difference between the 10-year yield and the 1-month OIS rate 10-years forward – that is as high it’s been since the GFC.

Other measures of term premium are also rising. The ACM term premium has gone back into positive territory, while implied measures of term premium based on forecasters’ estimate of the 10-year bill rate are already 150 bps higher than the OIS-based term premium shown above. Even if Treasuries are not as overpriced as this infers, the government still has a problem.

As important for yields as how much the Treasury wants to borrow is how it intends to borrow it. On Wednesday, we will find out the proportion of longer-term versus shorter-term debt (i.e. bills) Treasury expects to issue over the next two quarters.

The increase in bill issuance over the last year or so has been of immense importance to markets. The “Yellen pivot” meant that liquidity lying idle in the RRP could be used by money market funds to buy bills and thus help fund the government.

Without this, there’s a strong likelihood the mass of sovereign issuance would have crowded out other assets, and markets would be considerably weaker. The Treasury thus – implicitly or otherwise – aided the Fed by allowing it to keep rates higher for longer and proceed with quantitative tightening.

Wednesday’s announcement will shed further light on whether the Treasury will stick to its stated aim and not significantly increase coupon (i.e. non-bill) issuance for now. A look at the nominal amounts of coupons and bills issued appears to confirm this has been the case.

But in duration-adjusted terms the picture is already changing. The amount of coupons issued adjusted for duration is rising. That will amplify the move higher in term premium and ultimately jeopardize support for risk assets.

USTs are simply not in high demand at current prices. Foreigners are more wary due to reserve-confiscation risks, or put off by high FX hedging costs; banks have on net been reducing their ownership of USTs as policy has been tightened; multi-asset managers have less need when Treasuries are a poor recession hedge when inflation is elevated, and a poor portfolio hedge when the stock-bond ratio is positive; and the Fed is busy trying to offload its UST inventory.

Households have become the de facto buyer of last resort for Treasuries. But there’s nothing to suppose they’ll be happy to continue to do so at any price. As the chart below shows, consumers’ long-term inflation expectations typically lead term premium. The market’s view of longer-term inflation, i.e. breakevens, is about 150-200 basis points lower than households’ outlook. As the UST buyer of last resort, households will increasingly set the price, one that’s likely to be lower than it is now.

Higher long-term yields will lead to the government having to borrow yet more to pay its spiraling interest-bill on its outstanding debt. But that points to fewer reserves and falling reserve velocity – effectively undoing the work of the Yellen pivot and leaving the stock market in a precarious spot.

The Fed is thus likely to cut rates in a quid pro quo with the Treasury. This would not only help the government fulfill its borrowing requirements at a non-usurious cost, it also helps the Fed with its responsibility for financial stability by taking the pressure off risk assets and reducing the likelihood of a funding squeeze.

Even though such a move would be unwise, it doesn’t mean it won’t happen. Cutting rates before inflation has been snuffed out threatens to intensify structural risks for price growth.

But in the heat of liquidity drying up, funding risks rising, markets on increasingly shaky ground, and the government locked in an issuance doom-loop as its interest costs soar, the Fed is likely to cut rates as an easy first move to ease the pressure — an outcome made even more likely with an election looming.

In the short-to-medium term, it’s hard to see how quantitative tightening isn’t soon tapered or curtailed. But the Fed is unlikely to want to go full tilt into easing again, or engage in yield curve control. That’s why in the longer term some sort of financial repression – where private cash flows are directed into public debt markets – is very likely.

This would be yet another chip in the de facto erosion of Fed independence. In such an environment, gauging the central bank’s next move needs to consider the spending whims of the government as much as the outlook for inflation and unemployment.
 

After miraculously surging to two years highs in Nov 2023, Chicago PMI has plunged for five straight months, with the last four months seeing the MoM declines accelerating. Against expectations of a rise to 45.0 (from March’s 41.4), April’s PMI data printed 37.9

Source: Bloomberg

That is the worst five-month collapse since Lehman…

Source: Bloomberg

More problematically – the underlying data screams stagflation:

• Prices paid rose at a faster pace; signaling expansion

• New orders fell at a faster pace; signaling contraction

• Employment fell at a faster pace; signaling contraction

• Inventories fell at a slower pace; signaling contraction

• Supplier deliveries fell at a faster pace; signaling contraction

• Production fell at a faster pace; signaling contraction

• Order backlogs fell at a slower pace; signaling contraction

All of which leaves ‘hope’ languishing at ‘Bidenomics’-cycle lows…

Source: Bloomberg

And cue…

cue mainstream media splaining to Chicago: “you don’t understand how strong Biden’s economy is” https://t.co/W1ewTgjsLx pic.twitter.com/lrhYqDDNM7

— zerohedge (@zerohedge) April 30, 2024

Despite immense pressure coming from the Biden administration for Israel to secure the hostage deal that’s on the table with Hamas, Israeli Prime Minister Benjamin Netanyahu has pledged that an invasion of Rafah will go on with or without a deal.

He issued the words Tuesday while speaking to an audience sympathetic to his hardline coalition. “The idea that we will stop the war before achieving all its aims is not an option,” Netanyahu said. “We will enter Rafah and we will eliminate the Hamas battalions there — whether or not there is a deal — in order to achieve total victory.”

In reference to the hawkish Gvura and Tikva forums a statement from by the Prime Minister’s Office indicated that “the groups urged Netanyahu and National Security Adviser Tzachi Hanegbi to continue the war and to resist international pressure.”

According to an AP description, “Netanyahu on Tuesday was addressing the Tikva Forum, a small group of families of hostages that’s distinct from the main group representing the families of captive Israelis that has indicated it prefers to see Hamas crushed over the freedom of their loved ones.”

The timing of the strong statement is interesting given it came as he met with ultra hardline National Security Minister Itamar Ben-Gvir, who has vowed to quit the government if Israel doesn’t proceed with the Rafah ground offensive. Netanyahu said the words also hours ahead of US Secretary of State Antony Blinken arriving in the country.

The AFP on Tuesday has reported that Israel to wait until Wednesday night for a Hamas response to the Gaza truce proposal, according to unnamed Israeli officials.

The Biden administration is desperate to see a deal through, also given it would ease the ratcheting pressure on Biden related to the ongoing revolt of Progressive Democrats ahead of the election over the plight of Palestinians.

This certainly isn’t the first time that Netanyahu government officials have issued such declarations. For example in March, Israeli Strategic Affairs Minister Ron Dermer was quoted in Bloomberg as saying the military is going to invade Rafah and defeat Hamas “even if the entire world turns on Israel, including the United States.”

And at the start of this week, in statements to NBC, US officials expressed confidence that they do not believe Israel is ready to launch a full-scale invasion of Rafah. 

Blinken has called Israel’s current ceasefire deal on the table “extraordinarily generous” and that Hamas must take it. A Hamas official was quoted as saying, “The new proposal is a positive development, but it is too early to be optimistic.”

From the Israeli side, there have been contradictory statements issued, which is sometimes typical as a negotiating tactic. Over the weekend Israeli officials reportedly gave Hamas an ultimatum, saying the group has “one last chance” to reach a deal, according to Axios. Israeli Foreign Minister Israel Katz said on Saturday, “If there is a deal, we will suspend the operation” – in reference to the planned Rafah ground offensive.

But Netanyahu appears to have just thrown cold water on that, in his fresh statements perhaps meant by design to collapse the fragile talks just before they reach the finish line.

Authored by Steve Watson via modernity.news,

Hollywood lifetimer turned shit-lib talk show host Drew Barrymore told Vice President Kamala Harris Monday that America needs her to give everyone a big hug and be their ‘Momala’.

Sitting awkwardly close and fawning so much that even Harris herself seemed a bit weirded out, Barrymore said, “I’ve been thinking that we really all need a tremendous hug in the world right now, but in our country, we need you to be ‘Momala’ of the country.”

And what was Harris’ considered response to this statement? 

“Mmm, yeah, I mean, yeah, no, I know.”

Hold on tight before you press play:

This is like something out of Idiocracy. No. Only Hollywood lefties want Kamala Harris to be their “Momala.” Full report here https://t.co/JEKmtX89mR pic.twitter.com/ZXdaKqOjQA

— m o d e r n i t y (@ModernityNews) April 30, 2024

Barrymore then added “as a woman who respects so much, and wants to share — wants to be confident, and has no ounce of meat that has competitiveness yeah when we lift each other up we all rise.”

Come again?

Just when you thought the peak of the cringeometer had been reached, Barrymore then started to cry.

The rest of the conversation focused on Harris’ stupid laugh, laughing at everything even as the country is being destroyed, and MacDonald’s ketchup.

Just the big issues.

The border is broken, the campuses are on fire, and Kamala is talking about McDonald’s ketchup.pic.twitter.com/PqIZKjqY1X

— Citizen Free Press (@CitizenFreePres) April 29, 2024

If you want to torture yourself a bit more, here it is:

Oh nice, that’s a good hit of some elite cringe

— WeaponOutfitters.com (@WeaponOutfitter) April 29, 2024

I’m going to be honest: I feel uncomfortable just watching and listening to Barrymore in this video, so I can’t imagine how uncomfortable Kamala feels here.

— Aleks Djuricic (@AleksDjuricic) April 29, 2024

Yaaaaassssssss pic.twitter.com/RyRvj6EIgN

— Fred Garvin (@Pbizzlemyshizzl) April 30, 2024

Your support is crucial in helping us defeat mass censorship. Please consider donating via Locals or check out our unique merch. Follow us on X @ModernityNews. 

US equity futures dropped, and European markets were mixed on the last day of the month amid concerns the Fed may stick to its hawkish messaging at its meeting on Wednesday. As of 7:40am, S&P 500 and Nasdaq futures were down 0.1% while Europe’s Stoxx 600 index retreated 0.4%, while Asian stocks gained on Japan’s return from holiday. The Bloomberg Dollar Spot Index climbed and 10-year Treasury yields were steady at 4.62%. The yen resumed its decline even as a Bloomberg analysis found that Japan almost certainly conducted its first currency intervention since 2022 to prop up the yen on Monday. Commodities were mixed with metals down and oil rebounding from its biggest drop in almost two weeks amid discussions on a possible cease-fire in the Middle East. Macro data today includes Q1 employment cost index, Case Shiller home prices, April MNI Chicago PMI, consumer confidence and Dallas Fed services activity. Bitcoin tumbled after activity on Hong Kong’s new crypto ETFs came in far below expectations.

In premarket trading, HSBC Holdings climbed more than 3% after solid earnings and the surprise departure of CEO Noel Quinn, which some analysts said could pave the way for the next stage in the bank’s growth plans. Chegg shares fell 13% after the online educational platform company forecast total net revenue for the second quarter that missed the average estimate. Here are some other notable premarket movers:

• Blend Labs shares jump 20% after it reported a $150 million investment by Haveli Investments in the form of convertible preferred stock with a zero percent coupon.
• Coursera’s shares drop 14%, putting them on track for a one-year low, after the online educational firm cut full-year revenue and adjusted-Ebitda forecasts, prompting analysts to lower their price targets on the stock.
• NXP Semiconductors shares rose 3.6% after the chipmaker reported better-than-expected 1Q adjusted earnings per share and forecast 2Q adjusted EPS and revenue largely above average analyst expectations.
• Paramount Global analysts note that investors are more focused on the Skydance deal rather than results this quarter. The media company replaced CEO Bob Bakish as the board negotiates a possible change in control of the company. Shares in the company fell about 0.4% in premarket trading.

US stocks are on the edge of closing out the first monthly retreat of 2024, with the S&P 500 down 2.6% in April. Amazon.com, McDonald’s and Coca-Cola are due to report later today, but all eyes are on Fed Chair Powell who will likely bolster expectations interest rates will stay higher for longer after Wednesday’s rates announcement.

“Sentiment is positive but reserved,” said Peter Rosenstreich, head of investment products at Swissquote. “There has been plenty of hype around rates, earnings and the macro environment — now markets want to see the results.”

Meanwhile, as we reported first last night, Goldman’s desk calculated that momentum traders are modeled to buy equities over the next week, regardless of market direction. Commodity trading advisers — funds that use systematic strategies to trade futures contracts — are exposed to about $106 billion in long positions after the drawdown in April, Cullen Morgan, an equity derivatives and flows specialist at the bank, wrote in a note. That’s set to support a bounce in global equities after a rough month.

European stocks also fall, led by declines in autos as Volkswagen and Mercedes Benz shares fall post-earnings which offset better-than-expected European economic data. Here are the biggest movers Tuesday:

• Logitech shares soar as much as 10%, the most in six months, after the Swiss maker of computer accessories reported better-than-expected FY25 sales guidance
• Cargotec jumps as much as 17% to a fresh high after the Finnish crane and cargo-handling equipment firm reports “record” first-quarter earnings boosted by its Marine division
• HSBC shares advanced as much as 3.6% after the lender announced a larger buyback than expected and reported earnings that analysts saw as solid
• OMV shares jump as much as 5.3%, largest intraday rise since November, after Austrian refiner reported 1Q clean CCS operating profit beat
• Clariant shares gain as much as 4.8%, to the highest level in more than six months after the Swiss specialty chemicals firm’s margins beat consensus despite some challenges
• Rotork shares rise 3.9% after the valve manufacturer reported a solid start to the year. Sales and orders both grew, while its book-to-bill ratio also improved
• European automakers shares fall as 1Q numbers from Stellantis, Volkswagen and Mercedes disappointed the market, making the SXAP auto index the worst performing subsector
• Straumann shares drop as much as 10%, the most since Oct. 26, after a soft performance in North America overshadowed the Swiss dental equipment company’s 1Q revenue beat
• SES depositary receipts drop as much as 12% after the satellite firm agreed to buy Intelsat for $3.1 billion, in a deal to be funded by cash on hand and new debt
• Air France-KLM falls as much as 4.7% after carrier reports a wider operating loss than expected in the first quarter. Bernstein says one-off costs weighed on profitability
• Santander shares drop as much as 2.9% after forecast-beating net interest income and fees in the first quarter were offset by a cost surge at the Spanish lender
• Adidas shares fell as much as 1.6% as 1Q results broadly confirmed a recent pre-release, and the sportswear maker’s guidance was seen by some as conservative

Earlier in the session, Asian stocks advanced for a third day, led by a rally in Japanese shares as the yen stabilized following wild swings in the previous session. The MSCI Asia Pacific Index rose as much as 1.1%, led by industrial shares such as Hitachi and Toyota Motor. Japan’s Topix Index jumped more than 2% as the market reopened from a holiday. Traders remain on alert for sharp yen moves after the currency’s rebound from a 34-year low sparked speculation of intervention.

“While we remain constructive on the Japan equity market over the medium term, we also believe that near-term FX movement is likely to see some profit taking from investors in the broad Japanese equity market,” said Ricky Tang, head of client portfolio management at Value Partners Group.

In FX, the dollar gained against all its major peers on expectation of a hawkish message from the Federal Reserve on Wednesday. The euro outperformed and the region’s government bonds fell after data showed the largest economies of the bloc were stronger than expected in the first quarter. The yen weakens towards 157 against the dollar. The Aussie underperforms, falling 0.5% after retail sales missed estimates.

In rates, treasuries are slightly cheaper across the curve, paring a portion of Monday’s gains, amid steeper declines for bunds after first estimate of 1Q euro-zone growth rate topped estimates. US yields cheaper by 0.5bp to 1.5bp across the curve with losses led by intermediates, steepening 2s10s spread by 1bp on the day; 10-year yields around 4.63% with bunds underperforming by 1.5bp in the sector.  Also during London morning, an array of regional inflation readings lifted intermediate German yields by ~3bp. Bunds are in the red, with German 10-year yields rising 2bps to 2.55%. S&P 500 futures are down 0.1%.

In commodities, oil prices advanced, with WTI rising 0.2% to trade near $82.80. Spot gold falls 0.8%.

Looking at today’s calendar, we have the 1Q employment cost index (8:30am), February FHFA house price index, S&P CoreLogic home prices (9am), April MNI Chicago PMI (9:45am, 3 minutes earlier for subscribers), consumer confidence (10am) and Dallas Fed services activity (10:30am). Fed members are in self-imposed quiet period ahead of May 1 policy announcement.

Market Snapshot

• S&P 500 futures down 0.1% to 5,139.50
• STOXX Europe 600 down 0.2% to 507.25
• MXAP up 0.7% to 174.73
• MXAPJ little changed at 540.41
• Nikkei up 1.2% to 38,405.66
• Topix up 2.1% to 2,743.17
• Hang Seng Index little changed at 17,763.03
• Shanghai Composite down 0.3% to 3,104.82
• Sensex up 0.5% to 75,063.11
• Australia S&P/ASX 200 up 0.3% to 7,664.08
• Kospi up 0.2% to 2,692.06
• German 10Y yield little changed at 2.54%
• Euro down 0.2% to $1.0700
• Brent Futures little changed at $88.47/bbl
• Gold spot down 0.9% to $2,314.21
• US Dollar Index up 0.31% to 105.90

Top Overnight News

• China’s NBS PMIs for April are mixed, with manufacturing about inline at 50.4 (vs. the Street 50.3 and down from 50.8 in Mar) while non-manufacturing fell short at 51.2 (vs. the Street 52.3 and down from 53 in Mar). China’s Caixin manufacturing PMI came in at 51.4, slightly ahead of the Street’s 51 forecast. WSJ
• China’s ruling Communist Party vowed to explore new measures to tackle a protracted housing crisis, which remains the biggest drag on the nation’s economy, and hinted at possible rate cuts ahead. BBG
• HSBC’s chief executive Noel Quinn is to retire unexpectedly after five years, setting off a hunt for a successor at the UK-based bank. Quinn, 62, has overhauled the lender since taking charge in 2019, selling off parts of its global operations to increase its focus on Asia, where it makes the lion’s share of its profits. FT
• BOJ accounts suggest Japan probably intervened in the FX market yesterday, buying around 5.5 trillion yen. Officials have declined to say whether they stepped in. BBG
• The chief executive of Ericsson said a focus on regulation was “driving Europe to irrelevance” as he warned that the region’s competitiveness was being undermined and called for changes to antitrust policy. FT
• EU’s Apr CPI was inline with the Street on a headline basis at +2.4% (unchanged vs. Mar) and a bit firmer on core (+2.7% vs. the Street +2.6% and vs. +2.9% in Mar). BBG
• ECB’s Knot says it is “realistic” to anticipate a cut in June and expresses confidence in inflation coming back to 2%, although he doesn’t envision rates returning to their pandemic/pre-pandemic lows. Nikkei
• Tensions grow between Trump and Lake in Arizona race for Senate. The former president fears that GOP candidate Kari Lake might not win and will drag down his own prospects in the battleground state. WaPo
• Apple has poached dozens of artificial intelligence experts from Google and has created a secretive European laboratory in Zurich, as the tech giant builds a team to battle rivals in developing new AI models and products. FT
• Caterpillar Caterpillar announced a voluntary delisting from Euronext Paris and the Six Swiss Exchange; cites low trading volumes and high administrative costs. CAT will solely trade on NYSE thereafter. (Newswires)
• Tesla (TSLA) CEO Musk is reportedly planning more layoffs as two senior executives depart, while roughly 500 people will be laid off in supercharger group, according to The Information. (The Information)
• WSJ’s Timiraos article “Fed to Signal It Has Stomach to Keep Rates High for Longer” & “Firmer price pressures could lead longer-term rates to rise as investors continue paring back expectations of cuts”

Earnings

• NXP Semiconductors NV (NXPI) Shares climb 3.4% pre-market on top- and bottom-line beats, and guidance. Q1 adj. EPS 3.24 (exp. 3.16), Q1 revenue USD 3.13bln (exp. 3.13bln). Q1 gross margin 58.2% (exp. 58%), Q1 operating margin 34.5% (exp. 34%). Auto revenue -1% Y/Y, Industrial/IoT +14%, Mobile +34%, Communications Infrastructure -25% Y/Y. Exec said early views into H2 underpin a cautious optimism. Sees Q2 revenue of 3.125bln (exp. 3.11bln), Q2 EPS of 3.20 (exp. 3.12).
• Paramount Global (PARA) Q1 Adj. EPS 0.62 (exp. 0.36), Q1 revenue USD 7.69bln (exp. 7.73bln); Q1 Paramount+ net additions +3.7mln (exp. +2.2mln); Q1 EBITDA USD 0.987bln (exp. 0.756bln), Q1 FCF USD 209mln (exp. -62mln). President and CEO Bob Bakish stepped down, as many press reports suggested he would do over the weekend. Establishes a management committee; George Cheeks, Chris McCarthy, and Brian Robbins will work with CFO Naveen Chopra to accelerate growth, streamline operations, and optimise streaming strategy; Chair Shari Redstone (of National Amusements) has expressed confidence in their leadership.
• Adidas (ADS GY) Q1 (EUR): Revenue 5.45bln (exp. 5.46bln, prev. 5.27bln Y/Y). Currency-neutral sales +8% driven by growth in all regions except in North America, where revenue fell by 4% to 1.12bln. Europe: +14%.
• Stellantis (STLAM IM/STLAP FP) Q1 (EUR): Revenue 41.7bln (exp. 43.92bln), -12% Y/Y due to “volume, mix and foreign exchange headwinds, partly offset by firm net pricing”.
• Volkswagen (VOW3 GY) Q1 (EUR): Operating Profit 4.59bln (exp. 4.51bln). Revenue 75.5bln (exp. 74.193bln). Operating Margin 6.1% (prev. 7.5% Y/Y); outlook confirmed.
• Mercedes-Benz Group (MBG GY) Q1 (EUR): Adj. EBIT 3.60bln (exp. 3.71bln). Sales 35.87bln (exp. 35.58bln). Cars Adj. EBIT 2.32bln (2.57bln); Outlook maintained.
• HSBC (5 HK/ HSBA LN) Q1 (USD): Revenue 20.75bln (exp. 21.03bln). Pretax profit 12.65bln (exp. 12.61bln). CET1 ratio 15.2% (exp. 15.4%). CEO Quinn is unexpectedly retiring.

A more detailed look at markets courtesy of Newsquawk

APAC stocks were mostly higher but with gains capped heading into month-end amid a slew of data and earnings. ASX 200 was led by strength in the mining sector but with upside limited after a surprise contraction in Retail Sales. Nikkei 225 outperformed on return from the long weekend and as participants digested a slew of earnings releases. Hang Seng and Shanghai Comp. were varied in which the former made another brief foray into bull market territory, while the mainland lagged ahead of the Labour Day holidays and as participants reflected on mixed Chinese PMI data in which the official NBS Manufacturing and Caixin Manufacturing PMIs topped forecasts but Non-Manufacturing PMI disappointed despite remaining in expansion territory.

Top Asian News

• PBoC injected CNY 440bln via 7-day reverse repos with the rate at 1.80%.
• PBoC reportedly wants to halt the bond-buying spree and not join in on it, with the central bank concerned about bond market bubbles and economic gloom, according to Bloomberg.
• Japan’s top currency diplomat Kanda said no comment on FX intervention and noted that a weak yen has positive and negative impacts, while he added the currency has a bigger impact on import prices now and that excessive FX moves could impact daily lives. Kanda said they need to take appropriate actions on FX and reiterated they are ready to take action 24 hours a day and will continue taking appropriate actions when needed.
• BoJ keep monthly bond purchases plan for May unchanged from April
• China’s Communist Party Central Committee is to hold a 3rd plenum during July, via State Media; Politburo undertook a meeting on Tuesday.
• Former Japanese top FX diplomat Furusawa says it is highly likely the Japanese government intervened on Monday to prop up the JPY

European bourses, Stoxx600 (-0.3%) are mixed, with a slight negative bias. Indices initially opened around flat, though tilted lower as the morning progressed, with little driving the shift in sentiment. European sectors hold little bias, with the breadth of the market fairly narrow, with the exception of Autos, dragged down by poor results from Mercedes (-3.4%), Stellantis (-2.4%) and Volkswagen (-2.1%). Real Estate tops the pile, propped up by post-earning gains in Vonovia (+5.5%). US Equity Futures (ES -0.2%, NQ -0.2%, RTY -0.3%) are modestly softer, in fitting with the broader price action seen in European trade. Earnings include: McDonald’s, AMD, Amazon and Starbucks.

Top European News

• ECB’s Knot said he is increasingly confident inflation is falling towards the 2% target but the ECB must be cautious beyond a June rate cut.

FX

• USD is attempting to claw back some of yesterday’s JPY-induced losses which sent the index down to a low of 105.46. For now, the DXY has topped out at 105.96 and unable to reclaim 106 status, 106.18 was the high from yesterday. Recent EUR strength in the wake of the EZ data has led the index back down to the unchanged mark.
• EUR is slightly firmer vs. the broadly flat USD in the wake of a slew of EZ data with EUR being propped up by firmer than expected growth metrics. Inflation data was in-line on a headline basis and mixed from a core perspective.
• JPY is softer vs. the USD after yesterday’s wild (touted intervention led) session which saw USD/JPY swing from a 160.20 peak to a 154.51 low; currently trades towards the top end of a 156.08-99 range.
• Antipodeans are giving back yesterday’s gains and then some as the USD regains some poise. AUD/USD had advanced to a peak of 0.6586 yesterday (highest since April 12th) before pulling back as low as 0.6514 with soft retail sales also acting as a drag.

Fixed Income

• Bunds began on the backfoot after hotter than expected French inflation and a sticky Services metric, with additional pressure coming from better-than-forecast GDP prints by France & Germany ahead of the EZ figures. EZ HICP headline Y/Y was in-line with the core metrics mixed against expected, which led to a hawkish reaction; Bunds currently sit at session lows around 130.40 given the strong GDP numbers and potentially mixed core.
• USTs are moving in tandem with EGBs which leaves the benchmark a touch softer but some way from Monday’s 107-18+ base. Specifics light thus far into Wednesday’s FOMC and Quarterly Refunding.
• Gilts are once again following EGB/UST impetus. A narrative that is unlikely to change significantly in the near-term given a sparse UK docket before next week’s BoE; though, we are attentive to anything from the EZ/US, particularly around the Fed, which provides insight into the Central Bank divergence narrative.
• UK sells GBP 4bln 4.125% 2029 Gilt: b/c 3.21x, average yield 4.251%, tail 0.8bps.

Commodities

• Crude futures are choppy and now in modest positive territory after earlier subdued trade. Prices are on standby ahead of key macro risk events including the FOMC and US jobs data on Friday; Brent July similarly found an intraday base at USD 86.64/bbl.
• Softer trade across precious metals amid yesterday’s geopolitical unwind coupled with a rebound in the Dollar today. Spot silver sits as the laggard after yesterday’s outperformance; XAU fell under yesterday’s low (USD 2,319.84/oz) to a current base at USD 2,310.96/oz.
• Losses seen across base metals amid the aforementioned Dollar rebound coupled with a pullback in sentiment. 3M LME copper topped USD 10,200/t earlier to reach a USD 10,217.00/t intraday peak.

Geopolitics

• “IDF finalizes Rafah plans, invasion possible if no deal in 72 hours”, according to Times of Israel.
• “Israeli delegation will not head to Cairo until Hamas gives its response, according to Israeli official”, according to Walla’s Elster.
• Hamas is expected to respond to the exchange deal proposal “tomorrow evening”, Al Arabiya reports
• Hamas delegation left Cairo and will return with a written response to the ceasefire proposal, according to Egypt’s Al Qahera News.
• An Israeli delegation plans to travel to Cairo to resume ceasefire talks if Hamas agrees to attend, according to NYT.
• Israeli PM Netanyahu asked US President Biden to help prevent the ICC from issuing arrest warrants against Israeli officials, according to Axios.
• Yemen’s Houthis said they targeted the ‘Cyclades’ vessel and two US destroyers in the Red Sea, while it also targeted ‘Israeli ship MSC Orion’ in the Indian Ocean, according to Reuters. US CENTCOM later confirmed that Iranian-backed Houthis fired three anti-ship ballistic missiles and three UAVs from Yemen into the Red Sea towards MV Cyclades but added there were no injuries or damages reported by US, coalition or merchant vessels.
• Chinese Coast Guard expelled a Philippines Coast Guard ship and vessels from waters adjacent to the Scarborough Shoal.
• Shanghai Maritime Safety Administration said military activities will be carried out in a part of the East China Sea from 07:00 AM on May 1st to 09:00 AM on May 9th local time and vessels unrelated to the activity are prohibited from entering the area.

US Event Calendar

• 08:30: 1Q Employment Cost Index, est. 1.0%, prior 0.9%
• 09:00: Feb. FHFA House Price Index MoM, est. 0.2%, prior -0.1%
• 09:00: Feb. S&P CS Composite-20 YoY, est. 6.70%, prior 6.59%
  • Feb. S&P/CS 20 City MoM SA, est. 0.10%, prior 0.14%
  • Feb. S&P/Case-Shiller US HPI YoY, est. 6.38%, prior 6.03%
• 09:45: April MNI Chicago PMI, est. 45.0, prior 41.4
• 10:00: April Conf. Board Consumer Confidenc, est. 104.0, prior 104.7
  • April Conf. Board Present Situation, prior 151.0
  • April Conf. Board Expectations, prior 73.8
• 10:30: April Dallas Fed Services Activity, prior -5.5

DB’s Jim Reid concludes the overnight wrap

Markets got the week off to a decent start yesterday, with the S&P 500 (+0.32%) building on last week’s advance as we await the Fed’s decision tomorrow and an array of earnings releases. Several factors helped to boost sentiment, including a remarkable advance for Tesla (+15.31%) as outlets including Bloomberg and the Wall Street Journal reported that Chinese government officials had given the firm in-principle approval for its driver-assistance system. In addition, investors were reassured after there was nothing alarming in the flash CPI releases from several European countries, which cemented expectations that the ECB would deliver a rate cut in June. And alongside that, concern about a geopolitical escalation continued to ebb, with Brent crude oil prices down -1.23% to $88.40/bbl. So there were several positive catalysts helping to boost sentiment. The Yen’s range of around 160.25 – 154.5 was a constant side show all day, with heavy speculation that the government had intervened in very thin holiday trading. As we type this morning the Yen is trading down slightly at 156.75 from 156.35 as the US closed last night, which continues to leave it as the worst performing G10 currency year-to-date, down -10% against the US dollar. The intervention hasn’t been officially confirmed but top currency official Kanda has commented that the authorities are watching the Yen 24 hours a day and suggested they were looking more for the size of moves rather than specific levels.

Staying in Asia, China’s factory activity remained in expansion territory for the second consecutive month in April but the pace of expansion slowed slightly as the official manufacturing PMI came in at 50.4 (v/s 50.3 expected) as against a reading of 50.8 in March. Meanwhile, the decline in non-manufacturing activity was more pronounced as the official PMI moderated to 51.2 (v/s 52.3 expected) down from a reading of 53.0. At the same time, the Caixin manufacturing PMI advanced to 51.4 in April (v/s 51.0 expected), marking the fastest pace since February 2023 and compared to an expansion of 51.1 seen in March. Our Chinese economist reviews the details within today’s PMIs in a note just out here.

Going into more detail now on the main events of the last 24 hours. Those European inflation numbers were important from the market open, as they helped to allay fears about a European inflation rebound of the sort happening in the US. We’ll have to wait for the Euro Area-wide number today, but ahead of that, Spanish inflation came in at +3.4% on the EU-harmonised measure, in line with expectations. Then in Germany, harmonised inflation ticked up to +2.4% in April (vs. +2.3% expected), whilst in Ireland it fell a tenth to +1.6%, the lowest since June 2021. So given recent ECB commentary about a potential June cut, those numbers keep that on track, and market pricing raised the chance to a 91% probability by the close, up from 88% on Friday. Estonia’s Muller also backed up that sentiment, as he said that in June “we’ll probably have reached the point where it’s already possible to start lowering central-bank interest rates”.

The lack of any bad news on inflation supported government bonds on both sides of the Atlantic, with some added support from the fall in energy prices. For instance in Europe, yields on 10yr bunds (-4.3bps), OATs (-6.2bps) and BTPs (-6.6bps) all saw decent declines. And over in the US, yields on 10yr Treasuries were also down -5.0bps to 4.61% and are a further -1bps lower overnight at 4.60% as we go to print.

US Treasuries had sold off by a couple of basis points later in the US session following the latest borrowing estimates from the US Treasury. These saw the expected Q2 issuance rise from $202bn to $243bn, “largely due to lower cash receipts”. This was slightly puzzling given what have been fairly strong tax receipts in the recent April tax period. Still, while the Q2 estimate was revised slightly higher, the Q3 number (excluding TGA movement) was in line with expectations, so our rates strategists don’t see meaningful alteration to the fiscal outlook. Indeed, the negative reaction in Treasuries did not persist with yields closing not far above their intra-day lows.

For equities, it was also a solid day, with the S&P 500 (+0.32%) up to its highest level in a couple of weeks, and Europe’s STOXX 600 (+0.07%) inching up to a 3-week high. The advance was a broad-based one, with the small-cap Russell 2000 (+0.70%) and the equal-weighted S&P 500 (+0.70%) posting larger gains. But there was some weakness in continental Europe, where the CAC 40 (-0.29%), the DAX (-0.24%) and the IBEX 35 (-0.48%) all lost ground.

Asian equity markets are mostly higher again this morning with the Nikkei leading gains (+1.38%) after returning from a public holiday with the KOSPI (+0.70%) also notably higher after index heavyweight Samsung Electronics topped earnings estimates for the Jan-March quarter after its semiconductor division returned to profitability. Meanwhile, the Hang Seng (+0.25%) and the S&P/ASX 200 (+0.24%) are also moving higher. Elsewhere, mainland Chinese stocks are trading slightly lower with both the CSI (-0.18%) and the Shanghai Composite (-0.12%) seeing minor losses following the batch of mixed PMI readings for April. S&P 500 (-0.11%) and NASDAQ 100 (+0.0%) futures are quiet.

Retail sales in Australia unexpectedly slumped -0.4% m/m in March (v/s +0.2% expected) as against a revised +0.2% increase the previous month thus dampening expectations that the next move in interest rates might be up. This was a very low number relative to the last several decades of data so it does put into doubt the RBA’s view that the consumer is holding up.

In the political sphere, Spanish Prime Minister Sánchez confirmed that he would remain as PM, which follows his decision to cancel engagements last week following allegations against his wife. Separately in the UK though, the Scottish First Minister Humza Yousaf announced his resignation. That comes after last week’s collapse of an agreement between his Scottish National Party and the Greens, meaning that the SNP no longer had a majority in the Scottish Parliament. We’ve got lots more UK political events this week, as local elections are taking place on Thursday, which are the final electoral test for the political parties before the next general election, which has to be held by January at the latest.

To the day ahead now, and data releases include the Euro Area flash CPI release for April, along with Q1 GDP. In the US, we’ll also get the Employment Cost Index for Q1, the FHFA house price index for February, the Conference Board’s consumer confidence for April, and the MNI Chicago PMI for April. Meanwhile in the UK, there are mortgage approvals for March. Finally, today’s earnings releases include Amazon, Eli Lilly, Coca-Cola, McDonald’s and Starbucks.

Soon on the heels of President Biden last week signing into law a $61 billion aid package for Ukraine’s defense, President Volodymyr Zelensky on Sunday indicated that he’s working with Washington on a bilateral security agreement which would last ten years.

“We are already working on a specific text,” Zelensky said in his nightly video address. “Our goal is to make this agreement the strongest of all.”

“We are discussing the specific foundations of our security and cooperation. We are also working on fixing specific levels of support for this year and the next 10 years.”

He indicated it will likely include agreements on long-term support centering on military hardware and joint arms production, as well as continuing reconstruction aid. “The agreement should be truly exemplary and reflect the strength of American leadership,” Zelensky added.

But ultimately a key purpose in locking such a long-term deal in would be to keep it immune from potential interference by a future Trump administration.

Below is what The Wall Street Journal spelled out last year:

The goal is to make sure Ukraine will be strong enough in the future to deter Russia from attacking it again. More immediately, Ukraine’s Western allies hope to discourage the Kremlin from thinking it can wait out the Biden administration for a potentially more sympathetic successor in the White House. 

Western officials are looking for ways to lock in pledges of support and limit future governments’ abilities to backtrack, amid fears in European capitals that Donald Trump, if he recaptures the White House, would seek to scale back aid. Trump has a wide lead in early polling in the Republican presidential primary field, but soundly lost the 2020 election to President Biden and has been indicted in four criminal cases in state and federal courts. 

We and others have previously underscored that NATO and G7 countries are desperately trying to “Trump-proof” future aid to Ukraine and the effort to counter Russia.

As for its first new weapons package in the wake of the $61 billion being authorized, the Biden administration has announced new arms packages totaling $7 billion. The US has vowed to rush the weapons to Kiev, given that by all indicators its forces are not doing well on the frontlines.

“We are still waiting for the supplies promised to Ukraine – we expect exactly the volume and content of supplies that can change the situation on the battlefield in the interests of Ukraine,” Zelensky had said over the weekend. “And it is important that every agreement we have reached is implemented – everything that will yield practical results on the battlefield and boost the morale of everyone on the frontline. In a conversation with Mr. Jeffries, I emphasized the need for Patriot systems, they are needed as soon as possible.”

Zelensky announces that Ukraine is working on a security agreement with the U.S. that will fix levels of support for the next 10 years. The $61 billion was just the beginning. The next two U.S. presidents won’t be able to switch it off. pic.twitter.com/q1RWCxf93m

— David Sacks (@DavidSacks) April 28, 2024

But all of this means the war will be prolonged, and this puts negotiations much further away on the horizon, despite what are now daily acknowledgements of Ukraine forces being beaten back. Currently the governments of Greece and Spain are being pressured by EU and NATO leadership to hand over what few Patriot systems they possess to Kiev. The rationale is that they don’t need them as urgently as Ukraine does.

“I strongly support free markets,” but this “corporate large-scale buying of residential homes seems to be distorting the market and making it harder for the average Texan to purchase a home,” Republican Texas Gov. Greg Abbott wrote on X in March. He added, “This must be added to the legislative agenda to protect Texas families.” 

I strongly support free markets.

But this corporate large-scale buying of residential homes seems to be distorting the market and making it harder for the average Texan to purchase a home.

This must be added to the legislative agenda to protect Texas families. https://t.co/VBs6Rluh3K

— Greg Abbott (@GregAbbott_TX) March 15, 2024

Institutional ownership of single-family homes has surged in recent years, with many firms turning the bulk of these homes into rentals. This has triggered a massive uproar with some lawmakers who want to end Wall Street’s home-buying mania. 

The Wall Street Journal reports that several lawmakers in Nebraska, California, New York, Minnesota, and North Carolina have sponsored bills requiring large single-family hedge fund owners to dispose of their portfolios or risk hefty fines. 

The bill mentioned the most in the corporate press, called the End Hedge Fund Control of American Homes Act, was introduced in the Senate by Oregon Sen. Jeff Merkley with companion legislation introduced in the House by Rep. Adam Smith. 

The Merkley/Smith bill could force hedge funds to divest their single-family home portfolios over the course of ten years. 

Lawmakers argue that “investors that have scooped up hundreds of thousands of houses to rent out are contributing to the dearth of homes for sale and driving up home prices,” according to WSJ, noting that limited housing supply has made housing unaffordable for the vast majority of Americans. 

Data from John Burns Research and Consulting shows that the share of institutional buying of single-family homes topped 25% in the first quarter—near a record high. The data goes back to 1Q16. 

Calls to block hedge funds from buying single-family homes predominantly come from Democrats, but some conservatives, such as Texas Gov. Abbott, also show support.  

In an election year, blocking hedge funds from buying single-family homes might be popular with middle-class and working-poor voters battered by the era of high inflation under failed Bidenomics. Many have been financially paralyzed in today’s economy, unable to afford a home, and stuck in a doom loop of renting and no savings with maxed-out credit cards. 

However, institutional investors have a different view of the bills being proposed by lawmakers. They’re overwhelmingly frustrated with signs that the government could step into a free market and break something. 

During a recent interview on Fox Business, Kevin O’Leary shared his stance on the proposed legislation.

“Very bad idea. Very bad policy when you try to manipulate markets or sources of capital,” O’Leary said, adding, “I don’t care if they’re Democrats or Republicans, whoever they are, stay out of the markets. Let the markets be the markets.”

The real problem isn’t the hedge funds but the Federal Reserve, which has distorted markets with record-low rates over the years. Great job, Yellen/Powell. 

Authored by Mustafa Ekin Turan via The Mises Institute,

If you have been using the internet for longer than a couple of years, you might have noticed that it used to be much “freer.”

What freer means in this context is that there was less censorship and less stringent rules regarding copyright violations on social media websites such as YouTube and Facebook (and consequently a wider array of content), search engines used to often show results from smaller websites, there were less “fact-checkers,” and there were (for better or for worse) less stringent guidelines for acceptable conduct. In the last ten years, the internet’s structure and environment have undergone radical changes. This has happened in many areas of the internet; however, this article will specifically focus on the changes in social media websites and search engines.

This article will argue that changes in European Union regulations regarding online platforms played an important role in shaping the structure of the internet to the way it is today and that further changes in EU policy that will be even more detrimental to freedom on the internet may be on the horizon.

Now that readers have an idea of what “change” is referring to, we should explain in detail which EU regulations played a part in bringing it about. The first important piece of regulation we will deal with is the Directive on Copyright in the Digital Single Market that came out in 2019. Article 17 of this directive states that online content-sharing service platforms are liable for the copyrighted content that is posted on their websites if they do not have a license for said content. To be exempt from liability, the websites must show that they exerted their best efforts to ensure that copyrighted content does not get posted on their sites, cooperated expeditiously to take the content down if posted, and took measures to make sure the content does not get uploaded again. If these websites were ever in a place to be liable for even a significant minority of the content uploaded to them, the financial ramifications would be immense.

Due to this regulation, around the same period, YouTube and many other sites strengthened their policy regarding copyrighted content, and ever since then—sometimes rightfully, sometimes wrongfully—content creators have been complaining about their videos getting flagged for copyright violations.

Another EU regulation that is of note for our topic is the Digital Services Act that came out in 2023. The Digital Services Act is a regulation that defines very large online platforms and search engines as platform sites with more than forty-five million active monthly users and places specific burdens on these sites along with the regulatory burden that is eligible for all online platforms. The entirety of this act is too long to be discussed in this article; however, some of the most noteworthy points are as follows:

1. The EU Commission (the executive body of the EU) will work directly with very large online platforms to ensure that their terms of service are compatible with requirements regarding hate speech and disinformation as well as the additional requirements of the Digital Services Act. The EU Commission also has the power to directly influence the terms of conduct of these websites.

2. Very large online platforms and search engines have the obligation to ban and preemptively fight against and alter their recommendation systems to discriminate against many different types of content ranging from hate speech and discrimination to anything that might be deemed misinformation and disinformation.

These points should be concerning to anyone who uses the internet. The vagueness of terms such as “hate speech” and “disinformation” allows the EU to influence the recommendation algorithms and terms of service of these websites and to keep any content that goes against their “ideals” away from the spotlight or away from these websites entirely.

Even if the issues that are discussed here were entirely theoretical, it would still be prudent to be concerned about a centralized supragovernmental institution such as the EU having this much power regarding the internet and the websites we use every day. However, as with the banning of Russia Today from YouTube, which was due to allegations of disinformation and happened around the same time the EU placed sanctions on Russia Today, we can see that political considerations can and do lead to content being banned on these sites. We currently live in a world with an almost-infinite amount of information; due to this, it would be impossible for anyone or even any institution to sift through all the data surrounding any issue and to come up with a definitive “truth” on the subject, and this is assuming that said persons or institution is unbiased on the issue and approaching it in good faith, which is rarely the case.

All of us have ways of viewing the world that filter our understanding of issues even when we have the best intentions, not to mention the fact that supranational bodies such as the EU and the EU Commission have vested political incentives and are influenced by many lobbies, which may render their decisions regarding what is the “truth” and what is “disinformation” to be faulty at best and deliberately harmful at worst. All of this is to say that in general, none of us—not even the so-called experts—can claim to know everything regarding an issue enough to make a definitive statement as to what is true and what is disinformation, and this makes giving a centralized institution the power to constitute what the truth is a very dangerous thing.

The proponents of these EU regulations argue that bad-faith actors may use disinformation to deceive the public. There is obviously some truth in this; however, one could also argue that many different actors creating and arguing their own narrative with regard to what is happening around the world are preferable to a centralized institution controlling a unified narrative of what is to be considered the “truth.”

In my scenario, even if some people are “fooled” (even though to accurately consider people to be fooled, we would have to claim that we know the definitive truth regarding a multifaceted complex issue that can be viewed from many angles), the public will get to hear many narratives about what happened and can make up their own minds.

If this leads to people being fooled by bad-faith actors, it will never be the entirety of the population. Some people will be “fooled” by narrative A, some by narrative B, some by narrative C, and so forth. However, in the current case, if the EU is or ever becomes the bad-faith actor who uses its power to champion its own narrative for political purposes, it has the power to control and influence what the entirety of the public hears and believes with regard to an issue, and that is a much more dangerous scenario than the one that would occur if we simply let the so-called wars of information be waged. The concentration of power is something that we should always be concerned about, especially when it comes to power regarding information since information shapes what people believe, and what people believe changes everything.

Another important thing to note is that just because it is the EU that makes these regulations does not change the fact that it affects everyone in the world. After all, even if someone posts a video on YouTube from the United States or from Turkey, it will still face the same terms of service. Almost everyone in the world uses Google or Bing, and the EU has power over the recommendation algorithms of these search engines. This means that the EU has the power over what information most people see when they want to learn something from the internet. No centralized institution can be trusted with this much power.

One final issue of importance is the fact that the EU is investing in new technologies such as artificial intelligence programs to “tackle disinformation” and to check the veracity of content posted online. An important example of this is the InVID project, which is in its own words “a knowledge verification platform to detect emerging stories and assess the reliability of newsworthy video files and content spread via social media.”

If you are at all worried about the state of the internet as explained in this article, know that this potential development may lead to the EU doing all of the things described here in an even more “effective” manner in the future.

Tucked away in the $95 billion military aid package for Ukraine, Israel and Taiwan is a $3.5 billion slush fund to open new processing centers for Muslim migrants, in what Sen. Eric Schmitt described as a bid to “supercharge mass migration from the Middle East.“

Not only did the “Foreign Aid” package do nothing to secure our own border it included $3.5 Billion to supercharge mass migration from the Middle East. https://t.co/bsbYapsaE2

— Eric Schmitt (@Eric_Schmitt) April 24, 2024

And as Breitbart points out, the $95 billion package does not include any funds to help rebuild America’s border defenses against illegal migration – but it does contain $481 million to settle migrants in US cities, and of course, the $3.5 billion to expand migration programs worldwide.

The $3.5 billion was granted to the Department of State, which works with many international groups that feed and transport migrants on their way to the United States.

Biden’s deputies are now using the refugee programs as an adjunct to their diversity-expanding “equity” migration policy. For example, Biden’s deputies used the program in March to import 3,009 migrants from the safe and democratic countries of El Salvador and Guatemala.

They are also using the refugee funds to expand migration routes from many African and Muslim countries. In March, they pulled in 12,018 people from the Congo, plus 16,732 migrants from the Muslim countries of Afghanistan, Syria, Pakistan, Iraq, and Eritrea, according to a report by Stacker.com. -Breitbart

Tucked into the folds of the new foreign aid package is $3.5 billion for mass immigration NGOs.

America Last Republicans voted to supercharge mass immigration while approving ZERO $$ for the U.S. border.

— Theo Wold (@RealTheoWold) April 25, 2024

According to an April 23 release from the Biden DHS visa-granting agency, “The Biden-Harris administration set the refugee admissions ceiling for fiscal year 2024 at 125,000 refugees,” adding “With the opening of the Doha Field Office on May 7, 2024, and the Ankara Field Office on May 9, 2024, USCIS will have 11 international field offices. Other international field offices include Beijing; Guangzhou, China; Guatemala City; Havana; Mexico City; Nairobi, Kenya; New Delhi; San Salvador, El Salvador; and Tegucigalpa, Honduras.”

So – we have the US government encouraging migration, both legal and illegal – which hurts low-income Americans the most, while neglecting to the borders. Seems we’ve learned nothing from Europe.

Authored by John Cody via ReMix News,

The news about Alternative for Germany (AfD) MEP Maximilian Krah’s assistant and his arrest for suspected espionage on behalf of China continues to make national headlines, but as more information comes out, the more German intelligence and the political establishment continue to look worse and worse.

Now, news reports have revealed that Krah’s employee, Chinese-German national Jian G., worked for the German domestic intelligence service for years before joining the AfD politician.

Krah has since commented on the new bombshell information, writing on X:

“Remarkable turn of events!”

https://twitter.com/KrahMax/status/1783917894159458787

Much is at stake, as Krah is the top candidate for the AfD in the run-up to the EU parliamentary elections in June. The latest report shows that the powerful Office for the Protection of Constitution (BfV) not only recruited Jian G. as a spy, but also dropped him as an informant because there were concerns he was a double agent for China.

However, despite these suspicions, Jian G. gained German citizenship, became a member of the Social Democrats (SPD), and even passed the EU parliament’s security clearance.

Former minister Mathias Brodkorb questioned the story on X, writing:

They are really funny. Let’s assume the story is true:

1. The Office for the Protection of the Constitution is working with the man.

2. Then, the Office for the Protection of the Constitution ends the collaboration because the man could be a double agent.

3. Then the German state naturalizes this agent.

Intermediate question: Where was the Office for the Protection of the Constitution at that time?

4. Then, Krah wants to hire the man as an employee of the EU parliament. That cannot be done without a security check. So the EU parliament should actually have asked the German security authorities whether there was anything against the man. But apparently they didn’t. Otherwise, the man would not have been cleared and could not have been hired.

Intermediate question: Where was the Office for the Protection of the Constitution at that time? And you are now seriously asking what the problem is? Seriously?

One of the main questions is why the Office for the Protection of the Constitution never informed Krah or the AfD about their suspicions, which is standard operating procedure, and one designed to protect the country’s parties from foreign infiltration. Notably, allowing Jian G. to work for Krah created a favorable political scenario for the establishment to later arrest him in order to smear the AfD. Notably, Jian G. was arrested right before EU parliamentary elections.

The question now is whether the BfV purposefully kept the AfD in the dark for years about the information it knew in order to damage the party.

Working for the BfV all the way back in 2007

According to Bild newspaper, Jian G. was an informant for the Saxon Office for the Protection of the Constitution (BfV) since 2007 at the earliest. Previously, he had unsuccessfully offered to work for the federal branch of the BfV, but he was rejected, and referred back to the Saxon branch of the BfV.

Jian G. reportedly worked with the intelligence service on his own initiative, including supplying information that dealt with Chinese state actors taking action against Chinese exiles in Germany. Eight years after joining the Saxon BfV as an informant, the Saxon branch was informed by the Federal Office for the Protection of the Constitution that G. could be a double spy.

In 2015 and 2016, G. was then directly observed by the counterintelligence department of the Office for the Protection of the Constitution. Officers also questioned him about their suspicions but were unable to prove that he was a spy for China. He was therefore listed as a “suspected case” during that period.

In 2018, G. was finally removed as an informant by the Office for the Protection of the Constitution.

However, by that time, Jian G. had already made contact with Krah and then went on to work as his employee in the EU parliament beginning in 2019. He was then intensively monitored by the domestic intelligence service from 2020 and finally arrested in April 2024.

As noted above, despite the suspicion of espionage, the Chinese national was granted a German passport, was also a member of the SPD for a time, and was able to pass the security check for the EU parliament.

In addition, the BfV under Thomas Haldenwang (CDU), who is notoriously anti-AfD and publicly working against the party, failed to inform Krah or the AfD about the suspicion of espionage against Jian G.

As Remix News has documented, Haldenwang has made numerous remarks against the AfD, including on state-funded television, all in violation of neutrality. Haldenwang belongs to the CDU party.

Notably, this is standard procedure in such cases, which means the Office for the Protection of the Constitution withheld this information from the AfD in violation of past precedent and procedure.

Read more here