Q2 GDP In Trouble As Business Inventories Tumble In April

Adding further pain to Q2 GDP hope, April Business Inventories tumbled 0.2% MoM in April (following Wholesale Inventories decline). This is the biggest drop since November 2015.

  • Manufacturers inventories rose 0.1% m/m in April after rising 0.2% prior month
  • Wholesalers inventories fell 0.5% m/m in April after rising 0.1% prior month
  • Retailers inventories fell 0.2% m/m in April after rising 0.2% prior month

The November spike in inventories is now long gone…

 

Inventories-to-Sales stagnated in April but remain in a recession-signalling mode…

 

Not a good sign for Q2 GDP.

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Bundesbank’s Weidmann: Digital Currencies Will Make The Next Crisis Worse

When global financial markets crash, it won’t be just “Trump’s fault” (and perhaps the quants and HFTs who switch from BTFD to STFR ) to keep the heat away from the Fed and central banks for blowing the biggest asset bubble in history: according to the head of the German central bank, Jens Weidmann, another “pre-crash” culprit emerged after he warned that digital currencies such as bitcoin would worsen the next financial crisis.

As the FT reports, speaking in Frankfurt on Wednesday the Bundesbank’s president acknowledged the creation of an official digital currency by a central bank would assure the public that their money was safe. However, he warned that this could come at the expense of private banks’ ability to survive bank runs and financial panics.

As Citigroup’s Hans Lorenzen showed yesterday, as a result of the global liquidity glut, which has pushed conventional assets to all time highs, a tangent has been a scramble for “alternatives” and resulted in the creation and dramatic rise of countless digital currencies such as Bitcoin and Ethereum. Citi effectively blamed the central banks for the cryptocoin phenomenon.

Weidmann had a different take, and instead he focused on the consequences of this shift towards digitalisation which the Bundesbank president predicted, would be the main challenge faced by central banks. In an ironic twist, in order to challenge the “unofficial” digital currencies that have propagated in recent years, central banks have also been called on to create distinct official digital currencies, and allow citizens to bypass private sector lenders. As Weidmann explained, this will only make the next crisis worse:

Allowing the public to hold claims on the central bank might make their liquid assets safer, because a central bank cannot become insolvent. This is an feature which will become relevant especially in times of crisis when there will be a strong incentive for money holders to switch bank deposits into the official digital currency simply at the push of a button. But what might be a boon for savers in search of safety might be a bane for banks, as this makes a bank run potentially even easier.

Essentially, Weidmann warned that digital currencies – whose flow can not be blocked by conventional means – make an instant bank run far more likely, and in creating the conditions for a run on bank deposits lenders would be short of liquidity and struggle to make loans.

“My personal take on this is that central banks should strive to make existing payment systems more efficient and still faster than they already are – instant payment is the buzzword here,” the Bundesbank president said. “I am pretty confident that this will reduce most citizens’ interest in digital currencies.”

Which, considering the all time highs in both bitcoin and ethereum, would suggest that citizens faith and confidence in the existing “payment systems”, and thus central banks, is at all time lows.

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Rand Paul’s Dramatic First Hand Account Of The Shooting

Below is a first-hand account of this morning’s shooting in Washington D.C. from Senator Rand Paul who was on the scene enjoying some batting practice when the first shots rang out.  Paul recounts a chaotic scene in which Majority Whip Steve Scalise was shot while playing 2nd base and then crawled toward the outfield to get further away from the shooter who apparently took cover behind the 3rd base dugout. 

Paul, who couldn’t see the gunman from his position, said he believed the shooter fired 50-60 shots and he described the gun as sounding like an AR-15.

Paul credited the Capitol Police, who would not have been on site but for the presence of Scalise, for reacting swiftly to counteract an attack that could have been far worse.

“One of the things that’s really fortunate and probably why — everybody probably would have died expect for the fact that the Capitol Hill police were there,” he said.

 

Capitol Police were at the scene because of the presence of Scalise, the third-ranking Republican in GOP leadership.

 

“If Scalise wouldn’t have been on the team — unfortunately he was hit and I hope he does well — but also by him being there it probably saved everybody else’s life because if you don’t have a leadership person there, there would have been so security there,” Paul said.

 

“They do a great job. These are brave men and women and we were really lucky they were there,” he said.

 

And here is the Senator on CNN:

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Warning: When the Fed Tightens, It Leads to Financial “Events”

The Fed concludes its June meeting today. The Fed fund futures markets put the odds of the Fed hiking rates again at 99.6%.

This would mark the third rate hike by the Fed during this cycle.

Why would this matter?

Because it indicates the Fed is embarked on a serious tightening cycle. One rate hike can be a fluke. Two rate hikes could even be just policy error. But three rate hikes means the Fed is determined.

As Bank of America noted in a recent research note, when the Fed becomes determined to tighten… it usually ends in an “event.”

What would an "event" look like for today's market?

A Crash is coming…

And smart investors will use it to make literal fortunes from it.

To pick up a FREE report outlining how to profit from the coming crash…

CLICK HERE NOW!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

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“Brutal Price Action” – Bonds & Bullion Surge, Dollar Dumps After Dismal Data Deluge

Disappointing inflation and retail sales data has sparked a surge in safe-haven demand for bonds and bullion, and left stocks confused this morning ahead of The Fed statement and press conference this afternoon…

 

Gold and Bonds are well bid…

 

And Nasdaq jumped on the dovish-inspiring data dump…

 

USD has been hit with a double whammy, with both retail sales and inflation firmly weak. Price action has been rather brutal, most notably in fixed income. The whole treasuries curve has been hit, with US 2y yields slipping from 1.35 to the 1.31 handle. US 5y yields have similarly slipped to just 1.723%. The spillover has been felt in Europe too.

The move has been echoed in FX. USDJPY is down 70 pips to 109.60 while EURUSD is up almost 50 pips to 1.1250. USDCHF has entirely retraced earlier gains and G10 commodity currencies have found a further bid – AUDUSD is now at 0.7600 while NZDUSD trades at 0.7273. NOK and SEK are also finding bids here. Even GBP is managing to pick itself up, all things considered.

USDJPY at 2mo lows…

 

The Dollar Index has crashed to the lowest since October 3rd… Today's drop is the biggest since The Fed hiked rates in March.

This price action might continue into the FOMC – the weakness of the data is hard to argue with.

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Suspect Reportedly Asked “Are Those Republicans Or Democrats” Before Starting To Shoot

Today’s dramatic shooting attack on Congressmen during an early morning baseball practice appears to have been politically motivated.

According to RealClearNews reporter Rebecca Berg, “Rep. Jeff Duncan plans to give a statement to police regarding a conversation he had with the shooter before leaving practice early” and she notes that “The man was wearing running clothes, asked Duncan: “Are those Republicans or Democrats out there practicing?””

Fox confirms, quoting Rep. DeSantis according to whom, the “Man Asked Whether Republicans or Dems Were on Field Before Scalise Shooting”

She adds: “Amazing heroism: Rep. Brooks tells CNN one member of security detail was shot in leg, still helped tend to Scalise afterward”

Meanwhile, Rand Paul told MSNBC that “Scalise being at practice “saved everybody else’s life. W/o leadership person there would’ve been no security there.”

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Retail Sales Tumble Most Since January 2016 As Gasoline, Electronics Sales Slump

This is not supposed to happen…

Headline retail sales tumbled 0.3% MoM in May, the biggest drop since January 2016 (and all the weather-related malarkey that was blamed on).

Core retail sales also dropped the same…

Retail sales less autos fell 0.3% in May, notably worse than the expectation of a 0.1% rise.

  • Retail sales forecast range -0.3% to 0.3% from 79 economists surveyed
  • Retail sales rose 0.4% in April
  • Retail sales fell to $473.808b in May vs $475.009b in April
  • Retail sales ex-auto dealers, building materials and gasoline stations unchanged in May
  • Retail sales ‘control group’ unchanged m/m in May

The breakdown show a big tumble in Electronics and appliance stores, along with gasoline prices.

 

This is the weakest YoY retail sales growth since the election and continues to signal that despite record high stock market indices, all is not at all well in ‘Murica.

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Producer Price Growth Plunges To 27-Month Lows As Shelter Inflation Rolls Over

Following a hotter than expected Core PPI, all eyes were on today's Consumer Price data (as RBC noted is more important for The Fed than PPI) which gravely disappointed the inflation-hoping crowd. Core PPI printed +1.7% (worse thasn expected 1.9%) and the weakest growth since Feb 2015.

May 2014 was the last time that Core PPI (Ex Food and Energy) was this high…

With goods prices dropping but services rising.

But Consumer Price growth is plunging…Headline CPI dropped 0.1% MoM in May

Headline CPI slowed from 2.2% YoY to 1.9% YoY (also missing expectations).

There is a silver lining for Americans though (which The Fed will hate)… Shelter inflation is rolling over…

 

As RBC warned overnight, if CPI comes in ‘soft,’ will crystalize “slow-flation” and may see consensus begin shifting to a Fed ‘one and done over balance of 2017’ view.

The inflation disappointment would see rates again grind lower, while equities trade will revert – back to the prior YTD status quo ‘risk barbell’ trade: long ‘Secular Growth’ and ‘Defensives,’ short ‘Cyclicals’—as if Thursday, Friday and Monday didn’t happen

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Trump Gives Pentagon Unilateral Authority To Set Afghan Troop Levels

President Donald Trump has has given the Pentagon unilateral authority to set troop levels in Afghanistan, the WSJ and Reuters reported overnight, clearing the way for the military to intensify its fight against the Taliban and opening the door for future troop increases requested by Defense Secretary Jim Mattis. While no immediate decision had been made about the troop levels, which are now set at about 8,400, the Pentagon is currently weighing plans to send between 3,000 and 5,000 additional troops.

The news comes after Mattis said in testimony to the Senate Armed Services Committee that “We are not winning in Afghanistan right now. And we will correct this as soon as possible.” Mattis said the Taliban were “surging” at the moment, something he said he intended to address.

The decision is similar to one announced in April that applied to U.S. troop levels in Iraq and Syria, and came as Mattis warned Congress the U.S.-backed Afghan forces were not beating the Taliban despite more than 15 years of war. After the official announcement control over troop decisions to the Pentagon, expected to be announced on Wednesday, sets the stage for U.S. commanders to decide to reverse course in Afghanistan and begin sending more forces to the country after years of reductions in the hope that Kabul could handle internal threats on its own, the WSJ notes.

According to the WSJ, the White House decision to cede authority to Mr. Mattis is another reflection of Mr. Trump’s push to give the military wide latitude around the world. The White House has already given the Pentagon more power to carry out strikes in Yemen and Somalia. Mr. Trump removed a cap on troop levels in Iraq. And he approved Pentagon plans to send more U.S. troops and firepower into Syria to fight Islamic State.

The top U.S. commander in Afghanistan has been urging the Trump administration for months to send more troops to Afghanistan. But a decision to do so has met with resistance from some members of the Trump administration, who are wary of being dragged back into a fight that could require more forces, firepower and money.

A former U.S. official told Reuters such a decision might allow the White House to argue that it was not micromanaging as much as the administration of former President Barack Obama was sometimes accused of doing. Critics say delegating too much authority to the military does not shield Trump from political responsibility during battlefield setbacks and could reduce the chances for diplomats to warn of potential blowback from military decisions.

It has been four months since Army General John Nicholson, who leads U.S. and international forces in Afghanistan, said he needed “a few thousand” additional forces, some potentially drawn from U.S. allies.

As a reminder, the U.S. once had 100,000 troops in Afghanistan, after then-President Barack Obama approved a military surge in 2009 at a time when the war against the Taliban appeared to be in danger of failure. Before leaving office, Mr. Obama declared an end to major military operations and dramatically scaled back the U.S. military presence in Afghanistan. There now are fewer than 9,000 U.S. troops in Afghanistan, primarily to help advise and train Afghan forces, which have struggled to secure their country.

The Pentagon has been weighing plans to send between 3,000 and 5,000 troops to Afghanistan. But that decision could still take weeks, the U.S. official said. Mattis, testifying Tuesday before the Senate Armed Services Committee, said that he expected to complete a military strategy for Afghanistan by next month. That could mean that a decision on troop numbers could occur simultaneously, or sometime afterward.

Still, some officials have questioned the benefit of sending more troops to Afghanistan because any politically palatable number would not be enough to turn the tide, much less create stability and security. To date, more than 2,300 Americans have been killed and more than 17,000 wounded since the war began in 2001.

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Multiple People Shot, Including House Majority Whip Scalise, At Congressional Baseball Practice

At least five people have been shot, including House Majority Whip Steve Scalise and aides, during a baseball practice in Virginia Wednesday, Fox News confirmed. The shots were reported on East Monroe Street in Del Ray, Alexandria police said on Twitter at 7:30 a.m. The location was near a YMCA.

  • BROOKS: APPEARS SOME SECURITY DETAIL MEMBERS WERE INJURED
  • BROOKS SAYS SECURITY DETAIL SHOT BACK AT ASSAILANT
  • BROOKS: HELICOPTER LANDED ON FIELD TO TRANSPORT INJURED
  • BROOKS: AT LEAST 5 INJURED, INCL. SCALISE, STAFFER, 2 GUARDS
  • INJURED GUNMAN IN CONGRESS MEMBER SHOOTING APPREHENDED: FOX

A reporter from the Huffington Post tweeted that a congressman said he “heard there was a shooting at the Congressional baseball game practice field.” ABC 7 News reported “multiple shooting” in the 400 block of E. Monroe Street.

A reporter from Fox News tweeted that staffers were hit.

According a report from Rep. Mo Brooke, who said he was not shot, more than 50 rifle shots were fired.

Brooks adds that a helicopter landed in center field and took one of the wounded to a hospital, Rep. Brooks said

The suspected is “believed in custody,” ABC reported, according to Alexandria police.

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