Category: zerohedge

Today Britain and the EU officially begin the first day of formal Brexit negotiations, “aiming for a constructive, orderly launch that avoids a noisy clash on the big policy differences over Britain’s exit”, according to the FT although the sellside reaction was decidedly less optimistic, as summarized by SocGen’s Kit Juckes who in previewing today’s events said that he expects “nothing because the UK position is as clear as mud’ beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on borer controls.“

To be sure, no breakthroughs are expected on Monday, or indeed for some weeks and possibly months to come. The idea is for the EU and UK sides to meet, exchange views, plan practicalities and set agendas, all ahead of more detailed talks in coming weeks. “This is about building trust, nothing more,” said one senior EU diplomat quoted by the FT.

Looking at today’s main political event, DB’s Jim Reid writes that the Chancellor of the Exchequer Phillip Hammond suggested yesterday in a TV interview that a gentle departure from the EU should be targeted. The Chancellor indicated that “transactional structures” would be needed to help smooth the process and that “we need to get there via a slope, not via a cliff edge” – suggesting a softer tone in negotiations. In contrast to the PM, Hammond also rejected the mantra “no deal is better than a bad deal”. Hammond also said that his position was one of a “jobs first” Brexit which is also a slight shift in tone compared to the PM. Separately, Hammond said that the UK government had “heard a message last week in the general election” and that ways to soften austerity were being looked at with voters seemingly growing “weary” of it.

Hammond did however also say that he will still look to balance the budget by the middle of the next decade and that the UK had to “live within our means”. It’s worth noting that Hammond is due to deliver his Mansion House speech tomorrow after it was delayed from last week.

On the same day there seems to be momentum building for a “day of rage” against the Government with marches and protests planned. Those on the left of the political spectrum have really been emboldened over the last few weeks. Wednesday could be an interesting day in the UK. As we’ve been saying a lot over the last year we think the Brexit and Trump vote will be seen in years to come as an inflexion point  across the world where Governments had to spend more to appease the bottom half of the population on the income scale or risk getting voted out. The recent political developments in the UK make me more convinced of this. Europe is not immune from this but as discussed above populism is seeing a slight retracement as growth edges towards the upper end of the post financial crisis range. If and when growth fades Europe will again likely face these issues.

Previously, Barclays laid out its own scenarios for a soft, hard and crash Brexit

From a high level, Brexit negotiations lead to a continuum of possible outcomes ranging from some form of status quo to the UK crashing out of the EU without any type of agreement. A first categorisation relies on the orderly or disorderly nature of Brexit:

• Orderly Brexit: Under orderly Brexit scenarios, the UK and the EU would agree on rules and governance ensuring that Brexit follows the rule of the law. An orderly Brexit would likely lead to further trade talks once the UK leaves the EU with the objective agreeing a long-term UK-EU partnership. Despite its negotiated nature, an orderly Brexit could still have a substantially negative impact on the economy, depending on the final terms of the partnership. We distinguish between a hard and a soft version of such an outcome:
• Soft Brexit: The UK leaves the single market but is able to establish an enhanced partnership with the EU. One possibility would be it stays in the single market (best case from an economic perspective, in our view) or at the very least within the Customs Union. The deviation from the status quo would be small and the economic impact, though still negative, would likely be largely contained.

Hard Brexit: The UK leaves the single market and likely also every other form of existing European trade arrangement. It is not able to establish any strong partnership with the EU in the short term. The negative impact is magnified by the fact that value chain adjustments to business operations take place over a short period of time while the reestablishment of hard borders leads to disruptions.

In case of an orderly Brexit, the UK and the EU would also likely agree on a transition period starting in April 2019 and lasting for a maximum of three years (according to the EU parliament). During the transition, existing arrangements could be upheld (under some conditions) and some long-term features, if already agreed upon, could be phased in. As the UK exits the EU, it will also be allowed to formally conduct trade negotiations with the rest of the world in order to offset its exit from the EU-RoW trade agreements.

 

Disorderly Brexit: Disorderly Brexit may occur either because talks collapse at some point during the coming 18 months, or because parliaments fail to approve the final agreement. The establishment of hard borders will inevitably generate disruptions, and the negative economic consequences would be maximal for business and citizens. Only dramatically innovative solutions could help address specific issue in selected area (WTO tariff waiver for instance for trade in goods and services).

In terms of the timing, we believe risks are the highest in the first months of discussion, and at the end of the process.

• Early Crash: Talks could collapse at the start if one of the parties walks out on negotiations. The UK and the EU might then use the remaining time until April 2019 to prepare for the April 2019 “cliff edge”. We believe that the results of the UK’s 2017 general election have, generally speaking, weakened her “no deal is better than a bad deal” stance and, accordingly, reduced the likelihood of the UK government walking away early from Brexit talks.
• Late crash: Even though talks could finish on time, failure to secure parliamentary approval could precipitate a no-deal Brexit. In the UK, a hung parliament makes it more likely that a small group of MPs blocks the approval of the final agreement by April 2019. In continental Europe, parts of the final deal will most likely require member state parliamentary or referendum ratification, which is a risky process.

Once the UK leaves the EU, all existing treaties and agreements that the UK enjoyed as part of the EU cease. If no transition is in place, the UK will face a legal vacuum regarding all cross-border trades and travel. Hence, it will have to hold emergency talks with international organisations and bilateral counterparties in order to reestablish trade and travel arrangements. While final agreements might not be in place in April 2019, the UK could request waivers to address some aspects of the transition.

 

Extension: If UK and EU fail to reach an agreement by April 2019, the EU27 can decide by a unanimous vote of the Council and with the approval of the UK, to extend the negotiations beyond the two years foreseen by the Article 50 of the Treaty of the EU. Such an extension could be used to iron out last minute roadblocks (positive scenario) or to avoid a cliff edge if the deal is rejected by one of the involved parties (emergency solution). Fundamentally, however, an extension can only be conceived as a short-term fix and will likely have to be renewed after a relatively short period of time if needed.

* * *

And while embattled Theresa May is still deciding if she, and the UK, want a “hard”, “soft”, or “scrambled” Brexit, the timeline remains quite challenging, expecting to unwind 70 years of integration in as short a period as 2 years.

In terms of today’s events, David Davis, Britain’s Brexit secretary, will see Michel Barnier, the EU’s chief negotiator, in Brussels for the debut round of a complex negotiating process that is expected to stretch to November 2018 with ever increasing pace and intensity. Barnier has already made public the EU’s positions on Brexit withdrawal issues, including citizen rights and Britain’s financial obligations. But in a bid to avoid the opening of talks being marred by a dispute over policy, Davis has pushed back plans to issue a “generous” offer on the 3 million migrants resident in Britain for later in the month, the FT reported.

As the FT adds, Theresa May will follow through on the first one-day encounter with an explanation to EU leaders at a summit dinner on Thursday night about what Britain’s inconclusive election means for her exit plans. While she will be listened to over coffee, diplomats are adamant the summit room will not be a forum for talks. As the EU treaties suggest, once she has spoken Mrs May will be escorted out of the room so the other 27 EU leaders can confer in private.

British officials say they will be going into talks with their “head held high”. Ahead of the talks, Mr Davis said he was looking forward to discussing a “new future”. “While there is a long road ahead, our destination is clear — a deep and special partnership between the UK and the EU. A deal like no other in history.”

However, in light of the recent disappointing general election which has eliminated much of May’s leverage, “one of the most telling aspects of the first exchanges appears to be a desire to avoid confrontation.”

Some in London had contemplated making a big offer on citizen rights this week, in an attempt to dramatically kick-start negotiations, with Mrs May trying to drive home a deal at the summit. With the election result, that plan was ditched.

 

Mr Davis, too, promised the “row of the summer” would be over sequencing — the European Commission’s insistence that trade talks only start once Britain gives assurances on a gross Brexit bill of up to €100bn and settles questions over the rights of 4m migrants caught out by Brexit.

Continuing the day’s event, after a first session between officials on Monday, and lunch between Mr Barnier and Mr Davis, senior officials will break into the “working groups” for talks. These four- to six-member mini-negotiations will do the technical heavy lifting on divorce: citizen rights, a financial settlement, outstanding legal issues, border questions such as Northern Ireland, and civil-nuclear matters.

Then, after taking stock at the end of the afternoon, Barnier and Davis will conclude the day by holding a press conference, formally marking the start of Brexit negotiations some 82 days after Britain’s Article 50 exit letter and just 500 days before Mr Barnier’s November 2018 deadline for an informal deal.

While we wait, here are some charts from Barclays laying out the current situation.

Cost-benefit analysis:

A guide to EU-UK negotiations:

 

Trade considerations

The people’s reaction

Finally a “simple” flowchart on how to trade the pound

via http://ift.tt/2rMzRGZ Tyler Durden

Shortly after Russia’s deputy foreign minister slammed the US downing of a Syrian Su-22 jet as an “act of aggression” and “support for terrorists”, Russia announced that starting June 19 it was halting all interactions with the US under the framework on the “memorandum of incident prevention in Syrian skies”, the Russian Defense Ministry said on Monday, thereby assuring the probability of even more deadly escalations between Russia and the US-led coalition.

In retaliation, the ministry warned that Russian missile defense will intercept any aircraft in the area of operations of the Russian Aerospace Forces in Syria,

“In areas where Russian aviation is conducting combat missions in the Syrian skies, any flying ojects, including jets and unmanned aerial vehicles of the international coalition discovered west of the Euphrates River will be followed by Russian air and ground defenses as air targets,” the Russian Defense Ministry announced, quoted by Sputnik.

Contrary to the earlier statement by the US according to which, it “contacted its Russian counterparts by telephone via an established “de-confliction line” to de-escalate the situation and stop the firing”, Russia claims the US-led coalition command didn’t use the deconfliction channel with Russia to avoid an incident during an operation in Raqqa:

“Russian Aerospace Forces’ jets were conducting operations in Syrian airspace that time. However, the command of the coalition forces didn’t use the existing channel between the air command of the Qatari airbase al Udeid and the [Russian] Hmeymim airbase to avoid incidents over Syria.”

The Russian ministry also “demands a thorough investigation by the US command with the provision of its results and measures taken.”

“We consider such actions of the US command as an intentional violation of its obligations in the framework of the memo on avoiding incidents and the safety of aviation flights during operations in Syria signed on October 20, 2015.”

A bilateral memorandum of understanding was signed between the United States and Russia signed in October 2015 to ensure the safety of flights during combat missions over Syria.

On June 18, the Syrian army said that the US-led coalition had brought down its aircraft in southern Raqqa countryside when it was fulfilling its mission against Daesh. Later, the coalition confirmed the attack saying that it shot down the Syrian government forces’ Su-22 aircraft as it had allegedly been bombing in an area where US-backed rebel forces, the Syrian Democratic Forces (SDF), were stationed, south of Tabqa in the Raqqa province. The US-led coalition called its attack on the Syrian army’s jet “collective self-defense,” adding that it contacted the Russian military to de-escalate the situation after the incident.

via http://ift.tt/2rI6zxY Tyler Durden

• UK PM May says attack on Muslims near mosque is ‘sickening’ (Reuters)
• Macron Under Pressure to Deliver as French Turnout Plummets (BBG)
• Market Volatility Has Vanished Around the World (WSJ)
• Real victory will be in 5 years, says Macron camp after election win (Reuters)
• Brexit Talks Kick Off in Brussels as May Urged to Soften Stance (BBG)
• As Brexit Talks Begin, EU’s Chief Negotiator Wants to Remove Uncertainties (WSJ)
• U.S., Japan Probe Deadly Ship Collision That Left Seven Dead (WSJ)
• With Whole Foods in the Cart, Amazon Now Faces the Hard Part (WSJ)
• Kushner Plans Trip to Middle East (WSJ)
• Boeing launches new jet as Macron opens Paris show (Reuters)
• Top Tech Executives Head to White House (WSJ)
• Vote for Goldman: Bankers Try to Ride an Anti-Trump Wave (BBG)
• Who Can Challenge the Google-Facebook ‘Duopoly’? (WSJ)
• Moody’s Cuts Ratings on Australia’s Banks on Housing Concern (BBG)
• Activist Investor Takes 4.3% Stake in Hudson’s Bay (WSJ)
• In Hamptons House, a Link to Manafort and Jared Kushner’s Dad (BBG)
• Less Stressful Tests Could Boost U.S. Bank Payouts $30 Billion (BBG)
• White House Intends to Tap GOP Staffer for FDIC Chair (WSJ)
• U.S. Drillers Are Hammering OPEC’s Plans (BBG)
• Oil’s Gloomy Summer Triggers Hedge Fund Doubts on Gasoline (BBG)
• Why Some Cyberattacks in Health Care Go Unreported (WSJ)
• Funds With $14 Trillion Have More Room for Emerging Bonds (BBG)
• Media Companies Are Getting Sick of Facebook (BBG)

 

Overnight Media Digest

WSJ

– Boeing Co’s commercial airplane boss sees big market potential for a new jetliner the company has been studying but still wants more time before committing billions of dollars to the project. on.wsj.com/2rLJMMP

– Activist investor Land & Buildings Investment Management LLC, which has accumulated a stake of roughly 4.3 percent in Hudson’s Bay Co, said in a letter that is expected to be delivered to the company’s board Monday that its real estate is worth four times the stock price. on.wsj.com/2rM3vvU

– A small autonomous-cars company Cruise Automation owned by General Motors Co is getting into the high-definition mapping business, a move that could help the Detroit auto giant compete with Google and others in the race to develop self-driving vehicles. on.wsj.com/2rLOvxT

 

FT

UK Financial Conduct Authority is searching for its next chairman after the agency’s inaugural chairman, John Griffith-Jones, confirmed he would step down when his term expires next March.

Chancellor Philip Hammond said on Sunday that the government had “heard a message last week in the general election” — in which the Labour party made unexpected gains with their manifesto that promised to end tough fiscal policies.

J Sainsbury Plc entered into exclusive discussions to buy Nisa for 130 million pounds ($166.05 million) after the convenience store operator considered buyout offers from multiple bidders.

 

NYT

– YouTube has struggled for years with videos that promote offensive viewpoints but do not necessarily violate the company’s guidelines for removal. Now it is taking a new approach: Bury them. nyti.ms/2rLtN1n

– Mattress maker Casper plans to announce as soon as Monday that it has raised $170 million. The investment is being led by Target, which on Sunday began selling Casper mattresses, pillows, sheets and more in its stores and on its website. nyti.ms/2rL7ybU

– Representatives of Jared Kushner, President Trump’s son-in-law and senior adviser, have quietly contacted high-powered criminal lawyers about potentially representing him in the wide-ranging investigation into Russia’s influence on the 2016 election, according to three people briefed on the matter. nyti.ms/2rLu1p8

 

Canada

THE GLOBE AND MAIL

** Land and Buildings Investment Management of Stamford has built a stake of almost 4.5 percent in Hudson’s Bay Co and is sending a letter to the retailer seeking a restructuring to take it private or redevelop its real estate assets. tgam.ca/2sJPrbi

** Canada could lead a regional effort to address the crisis in Venezuela, according to sources with knowledge of the diplomatic efforts in the South American country. tgam.ca/2sJxYj9

NATIONAL POST

** Senator Fabian Manning and his wife are suing the House of Commons, the public works department and the Canadian government after the senator slipped on a spill in the Centre Block cafeteria. bit.ly/2sJVMDB

** A panel representing environmentalists, oil companies, aboriginal communities and municipalities has managed to achieve consensus on a set of recommendations to the Alberta government on how to ration greenhouse gas emissions from the oilsands. bit.ly/2sJQ7gU

 

Britain

The Times

The founding chairman of the Financial Conduct Authority, John Griffith-Jones, is to step down and will not stand for a second term after a four-year stint during which he was criticised over bungled reports. bit.ly/2sgjtlr

Co-op Bank could announce a deal this week that would lead to the struggling lender’s hedge fund owners and the Co-operative Group Ltd agreeing a 700 million pounds ($894.04 million) bailout package, averting a wind down that would leave millions of customers and thousands of pensioners facing uncertainty. bit.ly/2sgltKn

The Guardian

Barclays Plc and a number of its former executives are expected to learn this week whether the Serious Fraud Office intends to bring criminal charges in relation to emergency fundraising at the height of the financial crisis. bit.ly/2sg4GXQ

Lloyds Banking Group Plc is expected to extend the deadline for making compensation offers to victims of the HBOS Reading fraud, as it emerged only one of 64 affected customers has received compensation. bit.ly/2sgrneo

The Telegraph

The corner shop group Nisa is poised to sign an exclusivity agreement with the supermarket giant J Sainsbury Plc which will temporarily bar the mutually owned group from courting other buyers. bit.ly/2sga6C5

A rescue bid from Sanjeev Gupta’s Liberty Industries group which will guarantee jobs at struggling steel business Caparo Merchant Bar could be announced as soon as Monday. bit.ly/2sgk7zn

Sky News

Blackstone Group Lp is buying British flexible office provider The Office Group in a deal will value the privately owned landlord of corporate clients such as Facebook and Santander UK at 500 million pounds, according to insiders. bit.ly/2sgwwDp

The Independent

Prime Minister Theresa May’s post-Brexit plan to slash immigration will have a devastating “double whammy” impact on the British economy, according to the most detailed study of EU nationals to date. ind.pn/2sgfhSP

 

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Content originally published at iBankCoin.com

If there’s one thing about me it’s that I do what I say I’m going to do and I don’t double cross. It’s not going to be some gotcha hit piece, I promise you that… You just trust me. -Megyn Kelly

NBC aired Megyn Kelly’s controversial interview with Infowars host Alex Jones Sunday night, and the best the network was able to cobble together after an 8 hour interview was a flaming dumpster of highly edited spin. During the 20 minute exposé, 10-20 second clips of Jones and Kelly were used to segue into propagandized vignettes attacking various topics the Infowars host has reported on over the years – ultimately tying Jones to Donald Trump in an effort to undermine the President. To help Kelly peddle this fiction, NBC even wheeled Tom Brokaw out to triage Kelly’s diced up yellow journalism.

Lol this Megyn Kelly interview with Alex Jones is a 100% hit piece.

— Ethan Ralph (@TheRalphRetort) June 18, 2017

Even after receiving fierce criticism and being called out by Jones prior to airtime for lying about his position on the Sandy Hook massacre, Megyn Kelly shamelessly trotted out the parent of a child killed in the mass shooting to let America know that questioning a suspicious fact pattern that doesn’t support the official report in a criminal investigation is wrong.

Meanwhile, Jones is calling on NBC to release the full, unedited tapes of the interview.

Infowars recorded the interview as a safeguard whereby, once again, MSM could be exposed as #fakenews

Leaked Tapes: https://t.co/pc9COKQ8PM http://pic.twitter.com/VjMcsI1F9D

— Alex Jones (@RealAlexJones) June 18, 2017

Agree or disagree I say @NBCNews RELEASE THE TAPES. Let America decide. https://t.co/I4wQjaiWy9

— Sean Hannity (@seanhannity) June 19, 2017

What did Megyn Kelly actually accomplish?

Most of the ravenous left already hate Jones – but after the NBC interview, millions of curious Americans who haven’t been introduced to the Infowars host are going to check out his platform. And what will they find? Firebrand red-pilled journalists like Paul Joseph Watson and the rest of the crew, Harvard PhD. Jerome Corsi, and frequent guests who have been deep inside government like Roger Stone and Dr. Steve Pieczenik.

And why will Jones receive millions of new readers, listeners, and watchers thanks to Megyn Kelly? Because free thinking people don’t trust the MSM anymore – especially after the 2016 election. Thanks to the internet and the relatively free flow of information, people know about all actual fake news spewing out of the MSM.

From Blue screened Iraq war coverage, to an enraged ‘protestor‘ who turned out to be a camera man, to that reporter in the canoe covering the ‘flood‘ – people are wise to all the fiction peddled by the MSM. People aren’t buying it… And thanks to Wikileaks we know about the MSM’s propaganda huddles dinners at John Podesta’s house and other close ties between the MSM and liberal politics.

As the saying goes – there’s no such thing as bad publicity, and when Megyn Kelly and NBC decided to shotgun blast America with a diced up hit-piece on Alex Jones, they didn’t count on people seeing right through their obvious propaganda. At the end of the day, the Megyn Kelly interview was nothing more than a gigantic advertisement for Infowars. Oops!

Megyn Kelly produced a hit piece against @RealAlexJones and it backfired. People will now flock to @infowars. #JonesvKelly

— Based Monitored ???????? (@BasedMonitored) June 19, 2017

#MegynKelly‘s show, is really an ATTACK TRUMP HOUR. Her effort to undermine @POTUS is backfiring. #AlexJones #MAGAhttps://t.co/luw56AZCie http://pic.twitter.com/hrUU5kZeOK

— Stephanie Hamill (@STEPHMHAMILL) June 19, 2017

Analysis (full interview below):

 

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Over the weekend, One River’s CIO Eric Peters said that last week’s announcement by the Fed marked the “end of the QE era.” At least one person, however, is not convinced: as the “increasingly grouchy” SocGen FX strategist Kit Juckes writes in his overnight note, slams calls that the Fed’s announcement was a “hawkish hike”, and says that “while we got more detail about the Fed’s plans to run down its balance sheet, these amount to a pace so slow that they’ll still have boatloads of bonds on board when the next recession strikes. My guess is they’ll be buying again long before they finish normalising the balance sheet (whatever that really means).”

Looking at the Fed’s disclosed projections, which anticipate the Fed to continue normalizing until 2020, or well past the point the next recession is expected, his skepticism is certainly warranted.

Excerpts from his note below:

I’m getting increasingly grouchy whenever anyone says that last week’s FOMC outcome was a ‘hawkish hike’. Any day now, I’ll start denying that it was actually a hike at all. Rates went up, of course, but since the groundwork for that move started months ago, it was really only confirmation of something that had effectively happened already.

 

And while we got more detail about the Fed’s plans to run down its balance sheet, these amount to a pace so slow that they’ll still have boatloads of bonds on board when the next recession strikes

 

My guess is they’ll be buying again long before they finish normalising the balance sheet (whatever that really means). The ‘dot plot’ was unchanged after accounting for personnel changes, and while it implies more/faster rate hikes than the market expects, Chair Yellen did nothing to persuade the market to take the dots seriously in her press conference.

 

The market reaction has the level of rates two years down the road almost exactly where it was before the Fed hiked, and risk assets around the world are rallying again as the ‘carry party’ resumes.

via http://ift.tt/2rIgZ0r Tyler Durden

As a follow up to Eric Peters’ comments on the Fed’s ongoing tightening strategy (which he ascribed to the Fed’s questionable desire to “subdue Wall Street“), the One River Asset Management CIO has some observations on what happens next, which roughly echo what Citi’s Matt King said last week: “the QE era is ending” and as a result, while before last week’s meeting “everyone assumed that the moment the VIX hits 20, they’ll come to the rescue. Now, no one can be sure.”

From his latest weekend notes:

“Can they do it? Should they?

 

“Last week was the end of the QE era,” he said. “Central banks will turn into net sellers of assets in the coming 2-3 years.”

 

The printing and buying will continue for some time, but the turn is now in sight.

 

“The Fed will start unwinding. The Canadians said they want to tighten. The UK had a hawkish meeting. China is deleveraging. The ECB is tip toeing toward the exit.” Only the Japanese still sound dovish.

 

“Before yesterday’s Fed meeting, everyone assumed that the moment the VIX hits 20, they’ll come to the rescue.” And now, no one can be sure.

And as a bonus, some additional observations on where in the business cycle we are currently:

“We’re so clearly late-cycle,” said the CIO. “The only thing that’s really missing is inflation.” US CPI had just surprised on the downside, declining 0.3 to +1.9% (core -0.2 to +1.7%).

 

“But perhaps it’s all very simple, things often are.” Q2 GDP is rebounding from the typical Q1 doldrums.

 

“Maybe this is inflation. Perhaps this is what late-cycle inflation looks like in a heavily indebted world.” Unemployment is 4.3%. The Fed sees it headed toward 4.0%. “Maybe we’re already past the peak. It may be that this was as good as it gets.”

Finally, an anecdote from Peters on disruption:

“They took everyone to the cleaners, they were everywhere,” said Lithium, handsfree on Highway One. “They were vertically integrating, they had economies of scale, the ability to pressure people politically, change local ordinances, extract tax breaks,” he continued, downshifting from ludicrous gear. “They abused workers, they had welfare recipients working in their stores, who turned around and spent their paychecks where they worked.” That’s the story of Walmart. “That’s what ‘getting there’ looks like.” In today’s winner-take-all world, that’s the destination of choice. “Investors miss the big picture on how this game really works,” explained Lithium, banking a turn at a buck-twenty.

 

“There’s a valley of death that every company has to cross.” Few firms in the world have a better plan and a better man than Tesla, and even it may not make it across. “We love everything about Musk. But he has no plan to turn the corner. His only hope is to ‘get there.’ It’s another damn the torpedoes model.” Bezos adopted the same strategy.

 

“Amazon has executed better than anyone, and yet it’s had a couple 90% drawdowns along the way. If investors can’t fathom a 90% Tesla drawdown they’re insane.” Musk may have to cross the valley of death a few times before getting there.

 

“Uber is imploding. It’ll hemorrhage and slowly die now.” Kalanick is no Bezos or Musk. “You simply have to ‘get there’ for these models to work.” And some companies that ‘get there’ may find themselves unable to monetize the model at the end. “Netflix is starting to get there. Amazon is arguably not there yet; though you can’t imagine anyone catching them.

 

Even Google could be toppled. And so many others will fail,” said Lithium. “It’s an interesting time to invest. And very dangerous. So much capital destruction lies ahead.”

via http://ift.tt/2rHJGKZ Tyler Durden

Russia slammed yesterday’s downing of a Syrian fighter jet by the US-led alliance – the first such escalation since the start of the conflict in 2011 – which CENTCOM said was “in defense of partners from the Syrian Democratic Forces”, with Russia’s Deputy Foreign Minister Sergey Ryabkov saying on Monday the attack was an “act of aggression” and assistance for terrorists that the US is fighting against.

“What is it then, if not an act of aggression, an act directly in breach of international law,” Ryabkov told journalists in Moscow, quoted by Russia’s RIA news agency.

“If you want, it’s actually help for the terrorists the US is fighting, declaring that they are conducting a counterterrorism policy,” the deputy foreign minister added.

Ryabkov said he believed the strike “should be first of all regarded as the continuation of the US agenda of neglecting the norms of international law. Regardless of who has power in Washington, people there are used to the fact that there are circumstances allowing them to arrogantly look down on – and in some situations, to openly ignore – the basics of international relations.”

As reported on Sunday, a Syrian SU-22 warplane was shot down by a US F/A-18E Super Hornet on Sunday while it was on a mission in the countryside around Raqqa. Damascus stated that the plane was carrying out routine operations against ISIS terrorists when it was downed.

A statement by the Syrian Army released on Syrian state television said the plane crashed and the pilot was missing. The army statement said it took place on Sunday afternoon near a village called Rasafah. The “flagrant attack was an attempt to undermine the efforts of the army as the only effective force capable with its allies … in fighting terrorism across its territory,” the Syrian army said.

“This comes at a time when the Syrian army and its allies were making clear advances in fighting the Daesh (Islamic State) terrorist group,” it added.

The U.S. Central Command later issued a statement saying the Syrian plane was downed “in collective self-defense of Coalition-partnered forces,” identified as fighters of the Syrian Democratic Forces (SDF) near Tabqah. Washington says that the Syrian warplane “dropped bombs near SDF fighters south of Tabqah” – which may or may not include members of various al-Qaeda spin off groups, and was shot down in accordance with “rules of engagement” of Coalition partnered forces.

Before it downed the plane, the US said it had “contacted its Russian counterparts by telephone via an established “de-confliction line” to de-escalate the situation and stop the firing.”

Below is the full statement that CENTCOM issued justifying the escalation.

via http://ift.tt/2rMAAIh Tyler Durden

Here is the latest post from The Institutional Risk Analyst — Chris

“Markets go up on an escalator, they come down on an elevator. This is the most hideously overvalued market in history.”

 

David Stockman

 

Last week’s action by the Fed was an effort to restore normalcy, but in the context of extraordinary action by the central bank. When you tell markets that the risk free rate is zero, it has profound implications for the cost of debt and equity, and resulting in different asset allocation decisions.  Ending this regime also has profound implications for investors and markets.

 

In the wake of the financial crisis, some investors found comfort in the fact that when risk free interest rates are at or near zero, the discounted future value of equity securities was theoretically infinite.  Markets seem to have validated this view.  But to us the real question is this: If a company or country has excessive and growing amounts of debt outstanding against existing assets, what is the value of the equity?  The short answer is non-zero and declining.  But hold that thought.

 

Reading through Grant’s Interest Rate Observer over the weekend, we were struck by the item on China Evergrande Group (OTC:ERGNF), a real estate development company and industrial conglomerate that has reported negative free cash flow since 2006, but has made it up in volume so to speak.  The stock is up over 200% this year, Grant’s reports.  The real estate conglomerate has its hands into all manner of businesses and seems to typify the China construction craze.

 

Grant’s recalled an earlier observation by a US Texas real estate manager in the 1980s, something to the effect that real estate is not a cash flow business, but rather an asset appreciation business – until you can no longer service the debt.  We can recall hearing similar cautionary comments about the dangers of leverage from Kevork S. Hovnanian years ago, when he spoke about holding on to some of his land investments in South Jersey for decades and with no debt.

 

Today the idea of investment without leverage draws ridicule, partly because unlevered returns in most industry sectors are down in single digits.  The observation from the unknown Texas real estate man three decades ago pretty much sums up the state of the US economy.  This week as The IRA heads for Leen’s Lodge in Grand Lake Stream for some Spring fishing, we see bubbles in the water just about everywhere, but little in the way of revenue growth.

 

Empty retail locations are multiplying across Manhattan.  Earnings in sectors like financials are up on cost cutting and share repurchases, but supported by little else.  Asset prices for all manner of investments have risen by double digit rates or more, but income – that is cash flow – seems wanting. 

 

As in the early 2000s, the Fed has squeezed credit spreads and thereby gunned asset prices, but to little effect in terms of employment or especially income.  While some of our fishing partners believe that tight spreads are always a benefit to the economy, when spreads fail to differentiate relative credit risk, then eventually equity must be restored via a little old fashioned deflation – right?

 

Consider the case of Amazon (NASDAQ:AMZN). Here’s a company with relatively little debt and fewer profits, but high revenue and equity market growth rates.  The company has less than $2 billion in net working capital supporting $140 billion or so in revenue, but trades at 3x sales and 21x book value.  Moody’s has AMZN at “BBB+” based upon improving debt service cover for its $20 billion in long term and lease obligations.

 

One of the fabulous FAANG stocks – this after Facebook (NYSE:FB), Apple (NASDAQ:AAPL), Amazon, Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOG) — AMZN last week announced the acquisition of Whole Foods Market (NASDAQ:WFM) for $13.7 billion.  The consideration to be paid, in cash of note, is a rounding error compared with the $472 billion market cap of AMZN. 

 

And like AMZN, WFM is a low or no margin business as well, thus the pairing seems entirely appropriate — but is also enormously disruptive.  AMZN + WFM adds to the financial black hole created in retailing by AMZN. The combination of AMZN and WFM is seen as bringing the deflationary apocalypse for the retail food sector, one of the more vulnerable parts of the US economy.  Jim Cramer of CNBC says “AMZN is a deflationary force.  Fed needs to think about it.” 

 

True, but the more interesting question is how the massive expansion of debt orchestrated by the Fed since 2008 and particularly with QE after 2012 has impacted equity market valuations for stocks such as AMZN, as shown in the chart below.

 

 

By pulling trillions of dollars worth of duration out of the US financial markets via quantitative easing (QE), the Federal Open Market Committee has shifted risk preferences for both debt and equity.  The net result is a series of debt-fueled bubbles in various asset classes, but none larger and more problematic than in large cap US equities. In order to “normalize” the credit markets, the Fed must be willing to let the equity and debt markets adjust in the short-run – by no means a given.  With the toppy state of equity market valuations, the components of FAANG may be in for some significant downside.

 

Part of the reason that the FOMC remains so clearly hesitant about reducing the size of its balance sheet is the well-informed suspicion that the Street will be unable to absorb the increase in volatility that will accompany true market normalization.

 

Since much of the market in US Treasury debt and agency mortgage paper such as GNMAs is controlled by foreign central banks, the free float is small.  Dealer inventories are minimal, thanks to the Volcker Rule.  The end of portfolio reinvestment and even modest sales will increase both longer yields and market volatility.

 

For those of us who have been critical of Fed policy since the end of QE1 in 2012, the return of more normal levels of volatility would be a positive sign that the central bank finally is willing to allow markets to once again price risk.  But the downside is that the fiscal situation in the US and overseas could see yields on government debt rise dramatically once investors fully appreciate that the days of QE are ended.

 

Having redefined “normal” based upon the extraordinary environment maintained by the FOMC since 2012, the Yellen Fed is now faced with its greatest test, namely allowing the financial markets to engage in price discovery without overt government support.  We’ve been talking for years about the financial implications of the Fed’s portfolio and how trillions in duration negatively influences yields and spreads, but credit also impacts equities.

 

At the same time, mounting levels of public and private debt call into question whether investors can really invest in equities for the longer term without an assumption of more or less continuous QE.  Where would stocks like AMZN and WFM be trading in the absence of QE?  Just as a zero percent risk free rate suggests an infinite valuation for equities, the end to official market manipulation by the Fed suggests an equal adjustment in market valuations as we walk back from extraordinary to normal.

via http://ift.tt/2rHR49a rcwhalen

S&P futures rose 0.3% in subdued trading with Dow Jones futs once again in record territory as European stocks jump 0.6% following Sunday’s landslide victory for Macron’s party in the French parliamentary elections and as Brexit negotiations are set to officially roll out on Monday.

In the latest terrorist incident in London overnight, a man drove a van into pedestrians as people left their mosque following prayers, with UK PM May stating that UK police have confirmed the incident is being treated as a potential terrorist attack. Later updates stated that the one fatality could have been dead before being run-over while 2 others are considered to be seriously injured.

Asian equities opened on the front foot led by a rebound in tech stocks while benchmark sovereign yields and FX remains little changed; kiwi outperforms following solid domestic data; yen slightly lower. Australian bonds modestly softer, T-note futures unchanged with the AUDUSD sliding, but then recouping all losses after Moody’s cut the long-term ratings of Australia’s four major banks, ANZ, CBA, NAB and Westpac, to Aa3 from Aa2.

In China, the PBOC kept daily CNY fixing little changed and conducted net 110 billion yuan of open market operations, injecting liquidity for a fifth straight day and boosting cash injections in the past two days to the most since January. 7-day repo rate fell 23 basis points. Boosted by the sudden bout of PBOC liquidity generosity, Chinese 10-year sovereign bond yield declined 8 basis points, the most since Dec. 29, to 3.50%, sending the yield to the lowest since early May, however the 1-year yield dropped just 4 basis points to 3.58%, sending the Chinese 1s10s yield curve even more inverted.

Chinese and Hong Kong stocks jumped 0.7% and 1.2% ahead of a decision by index provider MSCI on Tuesday, expected to see it add mainland-listed Chinese stocks to its top share benchmarks for the first time. Chinese data had also helped, with Reuters noting that liquidity conditions appear to have eased and home prices up 10.4% in May from a year ago, although slowing from April’s 10.7% gain.

“Generally, the environment still remains fairly positive for risk appetite,” said Khoon Goh, head of Asia research at Australia and New Zealand Banking Group in Singapore.

In Europe, stocks headed for their biggest rise in seven weeks on Monday as investors snapped up slammed retail, tech and automaker stocks and France’s shares and bonds cheered an absolute parliamentary majority for President Emmanuel Macron as the Stoxx Europe 600 gained for a second day. Europe’s retailers also clawed back some ground having been clobbered along with U.S. peers like Wal-Mart and Target on Friday by Amazon’s $13.7 billion deal to buy upscale grocer Whole Foods Market. The CAC 40 jumped after President Emmanuel Macron’s government claimed a historic majority in France’s legislature, although marred by a record low turnout, which perhaps is why the German-French spread moved just fractionally on monday.

“We expect the Macron reforms to transform France like the Thatcher reforms had cured the erstwhile sick man of Europe, the United Kingdom, some 35 years ago,” said Berenberg European economist Holger Schmieding. “And like the ‘Agenda 2010’ reforms had turned Germany from one of the weakest into one of the strongest economies in Europe almost 15 years ago.”

As Bloomberg notes, investors are once again in risk-on mode as the week begins, even as a cloud of uncertainty swirls around both U.K. leadership and the outlook for Brexit negotiations.

“Risk assets around the world are rallying again as the ‘carry party’ resumes,” Societe Generale SA strategist Kit Juckes wrote in a client note. Fed Chair Janet Yellen “did nothing to persuade the market” to take its hawkish outlook for the path of interest rates seriously, he said.

Sterling rose with cable just above $1.28 ahead of the formal start of negotiations on Britain’s planned exit from the European Union, expected to generate plenty of headlines for the currency in the weeks ahead. Brexit Secretary David Davis starts negotiations in Brussels on Monday, which will be followed by a Brussels summit on Thursday and Friday where Prime Minister Theresa May will meet – but not negotiate with – fellow European Union leaders.

Davis’s agreement to Monday’s agenda led some EU officials to believe that May’s government may at last be coming around to Brussels’ view of how negotiations should be run. May’s own political survival is in doubt after she lost her parliamentary majority in an election this month.

On the topic of Brexit negotiations, which officially kick off today, SocGen’s Juckes said “we expect nothing because the UK position is as clear as mud’ beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on borer controls. Sterling’s probably range-bound. Any rally triggered by ‘soft Brexit’ hopes is probably temporary.”

With no macro data on today’s calendar, the market will await comments by New York Fed President William Dudley when he speaks at a business roundtable in New York state.

“In the wake of Friday’s weak U.S. data, Dudley could provide insight into whether the Fed is still poised to continue normalizing monetary policy,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The euro was steady as talks begin on the U.K.’s split from the European Union, while the British pound strengthened after dropping early in the session.

In commodities, oil futures lingered near six-week lows over concerns about a supply glut amid faltering demand. WTI slipped 0.35% to $44.58 a barrel, while Brent dropped 0.3% to $47.21. Iron ore rallied 2.8% after snapping a three-week losing streak.  Gold touched a 3-1/2-week low earlier in the session and was trading down slightly at $1,250 an ounce.

In rates, two-year gilts underperform the rest of the curve after the Sunday Times reported the BOE is considering ending its term funding scheme; euro-area periphery bonds outperform core peers. The yield on 10-year Treasuries was little changed at 2.15 percent.

Bulletin headline Summary from RanSquawk

• European equities enter the North American open in positive territory, continuing from Asia, buoyed by Macron’s convincing parliamentary election victory.
• A quiet morning in FX land, with all focus on GBP, GBP/USD has pivoted around the 1.28 handle, as participants await the Brexit negotiations.
• Looking ahead, the highlight will be the fallout of day one of Brexit Negotiations, with Barnier and Davis set to brief the press at 17:00BST

Global Market Snapshot

• S&P 500 futures up 0.3% to 2,437.75
• STOXX Europe 600 up 0.7% to 391.35
• MXAP up 0.6% to 155.18
• MXAPJ up 0.7% to 505.44
• Nikkei up 0.6% to 20,067.75
• Topix up 0.6% to 1,606.07
• Hang Seng Index up 1.2% to 25,924.55
• Shanghai Composite up 0.7% to 3,144.37
• Sensex up 0.8% to 31,303.70
• Australia S&P/ASX 200 up 0.5% to 5,805.17
• Kospi up 0.4% to 2,370.90
• German 10Y yield rose 0.2 bps to 0.278%
• Euro down 0.04% to 1.1193 per US$
• Brent Futures down 0.4% to $47.17/bbl
• Italian 10Y yield rose 1.9 bps to 1.695%
• Spanish 10Y yield fell 2.5 bps to 1.431%

• Brent Futures down 0.4% to $47.17/bbl
• Gold spot down 0.2% to $1,250.84
• U.S. Dollar Index up 0.01% to 97.18

Key Overnight Headlines

• London police say one dead, eight injured after van hits pedestrians
• BOE said to consider ending the Term Funding Scheme at a meeting this week
• Macron’s party secures French parliamentary majority, turnout plummets
• Trump isn’t under investigation for obstruction of justice, his lawyer says
• RBA’s Lowe repeats growth likely a bit stronger over next couple of years
• Japan May trade balance -203.4 billion yen vs +43.3 billion estimate
• Oil Declines as U.S. Adds Yet More Rigs in Oversupplied Market
• Amazon Said to Plan Cuts to Shed Whole Foods’ Pricey Image
• Basic Energy Said to Be in Talks to Merge With Rival Key Energy
• Boeing Takes Aim at Airbus Single-Aisle Edge With Stretched 737
• GE Won’t Participate on New Boeing If Three Engine Providers
• JD Takes $17.6b of Orders During ‘618’ Online Shopping Gala
• Ocado Jumps as Amazon Deal Seen Positive by Credit Suisse
• Clovis to Seek Broader Label as Ovarian Cancer Study Meets Goals
• Myriad Genetics, Foundation Medicine May Fall on Clovis Plans
• Pentagon Sees Saving $2b From 445-Jet Contract for F-35 Fighter

In Asia, equity markets began the week on the front-foot with all major indices in the green, as participants eyed the political landscape in Europe including the start of Brexit negotiations today and after French President Macron’s party and its allies won a clear majority in the 2nd round parliamentary elections. Nikkei 225 (+0.62%) gained as JPY softened across the board, while ASX 200 (+0.54%) was led higher by outperformance in utilities and financials. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (+1.1%) are also upbeat following a firm liquidity operation by the PBoC, while the region also awaits MSCI’s verdict tomorrow on whether to add China A-shares to its Emerging Markets Index in the nation’s 4th attempt for inclusion. Finally, 10yr JGBs were subdued alongside gains in riskier assets and after the BoJ’s Rinban announcement, in which it refrained from JGB purchases and instead concentrated on treasury bills.

Top Asian News

• Hong Kong Wants to Win the Next Alibaba With Exchange Revamp
• China’s Home Prices Increase in Fewer Cities as Curbs Bite
• Japan’s Recovery Creates Room for Bolder Reforms, IMF Says
• Aussie Extends Drop After Moody’s Cuts Ratings on Nation’s Banks
• CRCC May Eye Up to $2b From Shanghai, Hong Kong Share Sales: IFR
• Why the Qatar Crisis Defies Rapid Resolution: QuickTake Q&A
• Taiwan Watchdog Fines SinoPac, Ousts Chairman for Lax Oversight
• In Prohibition Pakistan, Brewery Plans Soft Drink Switch
• Abe’s Popularity Slides as Mounting Japan Scandals Take Toll
• Toshiba Finalizing Chip Sale to Group With Bain: Nikkan Kogyo

In Europe, equities likewise have kicked-off the week on the front foot, with all major European bourses firmly in the green (Eurostoxx 600 +0.6%) in a continuation of the positive sentiment seen during Asia-Pac trade. The CAC 40 (+1 %) is trading broadly in-line with the market as Macron’s victory in the French parliamentary elections was largely priced in given the results seen in the first round. In terms of sector performance, gains have been relatively broad-based with modest underperformance for RWE following a broker downgrade while Ocado (+6.5%) trade higher in the wake of Amazon’s purchase of Whole Foods. In fixed income markets, prices have largely been swayed by the upside in equities as paper trades lower this morning (albeit modestly so) in what will be a quieter week with regards to sovereign supply (Belgium comes to market today with 3 OLO offerings). Peripheral yields are marginally lower this morning with Greek paper also taking a bit of a breather after the nation managed to strike a deal with creditors last week.

Top European News

• Macron Under Pressure to Deliver as Turnout Plummets in France
• Brexit Talks Begin With May Under Pressure to Get Soft Split
• London Home Sellers Cut Price for Second Time in Three Months
• ECB’s Smets Says Start of Brexit Negotiations a ‘Sad Day’
• ECB’s Smets Says Inflation Expectations Must Be Solidly Anchored
• Buyers Line Up as Europe’s Biggest Debt Collector Divests Units
• Kazakhstan Says Eni-Shell Venture Offers Settlement to End Spat
• Astra, Tesaro May Move on Clovis Oncology’s Ovarian Cancer Data
• U.K.’s Johnson: ‘Realistic Prospect’ of Brexit Deal With EU
• SNCF Mandates Lazard to Sell Ermewa, Les Echos Says

In currencies, GBP will be a focus throughout the session as today sees the beginning of negotiations between EU’s Barnier and Brexit Secretary Davis. That said, GBP remains firmer against the greenback and back above 1.2800 even despite weekend reports of a potential attack on May’s leadership which could further add to the political uncertainty gripping the nation. Elsewhere, the broader risk sentiment has supported the USD with USD/JPY gaining traction in early trade. However, some remain cynical about how much room there is to the upside with hearty offers at 111.50. Finally, AUD saw some selling pressure this morning amid news that Moody’s has downgraded the nation’s big four banks.

In commodities, this morning has been a quieter one for the commodity complex with energy prices stuck in a tight range amid light newsflow, other than reports that oil output has been increasing at Libya’s Sharara oil-field. In metals, copper eked mild gains overnight amid the positive risk sentiment in Asia, although upside was limited alongside subdued trade across the complex, while the risk sentiment has acted as a downward force for gold prices. There were new details released by Jodi about Saudi Arabian oil data as follows:

• Crude exports fell by 0.226min BPD M/M to 7.006min BPD in April
• Crude Stocks fell 3.927min BBLS TO 263.927min BBLS in April
• Domestic refinery crude throughput rose 0.390min BPD to 2.651 min BPD in April
• Crude output rose by 0.046min BPD M/M to 9.946min BPD in April

Looking at the day ahead, there are no data releases scheduled in the US, although we have two Fed speakers: at 8am, Fed’s Dudley holds a business rountable in Plattsburgh, NY; while later at 7pm Fed’s Evans speaks in New York.

* * *

DB’s Jim Reid concludes the overnight wrap

Politics remains a hotbed of activity at the moment. There may only be around 20 miles between France and the UK but the fascinating thing about these two very different countries at the moment is that while the French seem to be rejecting socialism in their droves the momentum in the UK seems to be leading the country in the opposite direction. While Macron talks of sweeping labour market reform, the buoyant UK opposition (ahead in the polls now) talk of renationalisation, higher taxes and higher spending.

As expected Macron’s En Marche party swept the board in the second round of the parliamentary election yesterday winning 350 out of 577 seats – perhaps slightly short of expectations but still a commanding victory. The record low turnout (estimated at 44%) will also be a disappointment and already Melonchon has suggested that this doesn’t give Macron legitimacy to tear up worker’s rights. Indeed Melenchon said that “this bloated majority in the National Assembly does not in our eyes have the legitimacy to perpetrate the anticipated social coup, the destruction of all public social order by the repeal of the labour law”. Elsewhere the ruling Socialist party fell from 280 to an estimated 45 seats though and were firmly defeated. It’s easy to forget that it was only 14 months ago that the En Marche party was formed and how remarkable it is that they’ve come from nowhere to secure such a victory and banish the two main parties. Europe is going through a buoyant patch economically at the moment which is taking the edge off populism but under the surface huge political change is still occurring.

Meanwhile in the UK politics is as decisive as at any point I can remember with Brexit, the recent elections and the tragic fire last week in a tower block in London creating anger, resentment, activism and at times scenes descending into what seems like mob behaviour. The overnight breaking news of another vehicle striking into pedestrians in North London is sadly another talking point. When the opposition party leader Jeremy Corbyn suggests that empty privately owned houses in the region of the Grenfell Tower fire should be subject to requisition orders to house the homeless and that a YouGov poll suggests that 59% of the population agrees with the idea in theory then you can see that a political tide is turning.

Added to this, PM May has had such a difficult 10 days that opinion polls now give the Labour Party (led by a socialist core) a lead in the polls (recent Survation poll being evidence) a couple of months after being 20% behind and written off by many and expected to see one of the worst election results by an opposition party in history. For now PM May stumbles on without an official political understanding with the DUP as yet and only 2 days before the Queen’s Speech where she will lay out the Government’s legislative agenda for the next Parliamentary session (now lasting 2 years). On the same day there seems to  be momentum building for a “day of rage” against the Government with marches and protests planned. Those on the left of the political spectrum have really been emboldened over the last few weeks. Wednesday could be an interesting day in the UK. As we’ve been saying a lot over the last year we think the Brexit and Trump vote will be seen in years to come as an inflexion point across the world where Governments had to spend more to appease the bottom half of the population on the income scale or risk getting voted out. The recent political developments in the UK make me more convinced of this. Europe is not immune from this but as discussed above populism is seeing a slight retracement as growth edges towards the upper end of the post financial crisis range. If and when growth fades Europe will again likely face these issues.

Staying with the UK today sees Brexit negotiations officially begin. Chancellor of the Exchequer Phillip Hammond suggested yesterday in a TV interview that a gentle departure from the EU should be targeted. The Chancellor indicated that “transactional structures” would be needed to help smooth the process and that “we need to get there via a slope, not via a cliff edge” – suggesting a softer tone in negotiations. In contrast to the PM, Hammond also rejected the mantra “no deal is better than a bad deal”. Hammond also said that his position was one of a “jobs first” Brexit which is also a slight shift in tone compared to the PM. Separately, Hammond said that the UK government had “heard a message last week in the general election” and that ways to soften austerity were being looked at with voters seemingly growing “weary” of it. Hammond did however also say that he will still look to balance the budget by the middle of the next decade and that the UK had to “live within our means”. It’s worth noting that Hammond is due to deliver his Mansion House speech tomorrow after it was delayed from last week.

Away from politics, the big story in markets on Friday and over the weekend was that of Amazon’s $14bn bid for Whole Foods. The headlines sparked ripple effects of selling through the retail sector on Friday with investors quick to dump shares over fears of a potential huge new entrant in the market, potential further disruption and more fears of narrower margins. Bricks and mortar food retailers like Wal-Mart (-4.65%) and Kroger (-9.24%) were hit but it didn’t stop there with other general US bricks and mortar retailers under pressure. Costco (-7.19%), Walgreens Boots (-4.99%), CVS (-3.78%) and Target (-5.14%) all stood out. It was a similar story in CDS with spreads for the likes of Nordstrom (+6bps), Target (+4bps) and Wal-Mart (+3bps) all wider. Europe wasn’t immune with Tesco (-4.92%), Sainsbury (-3.85%) and Carrefour (-3.22%) also seeing big moves lower. Since the bid was made there have been plenty of articles over the weekend questioning whether this is deflationary for food prices and as such overall inflation. So it’s sure to be a talking point for a while.

While the retail sector did its best to drag markets down on Friday the S&P 500 actually managed to eke out a small +0.03% gain by the end of play after steadily rising into the close. A decent day for the energy sector had a lot to do with that after Oil (+0.63%) pared some of last week’s heavy fall. The Nasdaq (-0.22%) did however close in the red for the fifth time in the last six sessions. Prior to this the Stoxx 600 (+0.66%) had actually put up its best day since May 4th supported in part by the positive progress made in Greece to some degree.

This morning in Asia it’s been a fairly positive start to the week for risk. In equity markets the Nikkei (+0.60%), Hang Seng (+0.87%), Shanghai Comp (+0.33%), Kospi (+0.41%) and ASX (+0.20%) appear to all be feeding off the positive momentum into the Wall Street close on Friday. US equity index futures are also up +0.20%. It’s worth adding that there are some eyes already looking ahead to tomorrow’s decision from the MSCI as to whether or not China’s domestic A-shares will be included in its globally tracked EM index. The MSCI has previously delayed the decision over concerns about regulation worries and accessibility. Staying with China, house prices data out this morning revealed that new home prices rose in 56 of the 70 cities tracked by the government, down slightly from 58 in April. Meanwhile in Japan this morning our economists noted that customs trade stats for May confirmed stagnant international trade growth with a seasonally +0.9% mom rise in export volumes, a +0.4% mom rise in import volumes, flat growth in export value and +0.3% mom rise in import value.

Other markets were relatively quiet on Friday. Treasuries were a bit stronger at the margin (10y -1.2bps to 2.152%) and the USD softer (-0.28%) following some soft US data and dovish Fedspeak. In terms of the former both housing starts (-5.5% mom vs. +4.1% expected) and building permits (-4.9% mom vs. +1.7%) declined unexpectedly in May while the labour markets conditions index also rose a little less than expected (+2.3 vs. +3.0 expected). The flash June University of Michigan consumer sentiment reading was also a little disappointing after falling 2.6pts to 94.5 and the lowest since November. Both current conditions and expectations weakened although inflation expectations 1-year ahead did hold steady at 2.6% while 5-10 year expectations actually rose two-tenths to 2.6%. It’s worth noting that the Atlanta Fed’s Q2 GDPNow forecast is down to 2.9% (a 0.3% downward revision versus Wednesday) and at the lowest so far.

Meanwhile the Fedspeak consisted of comments from Kashkari and Kaplan. The former (who dissented last week) reiterated his view that the Fed should not have hiked rates last week given recent inflation data, preferring instead to wait and see if the data is transitory or not. The latter meanwhile told reporters that before he is comfortable taking the next step in tightening, “I’m going to want to see more evidence that we’re making progress in reaching our 2% inflation objective”.

In terms of the data in Europe on Friday, the only release of note was the confirmation of the final inflation readings for the Euro area in May. Headline CPI was unrevised at -0.1% mom which has in turn confirmed an annual reading of +1.4% yoy and down from +1.9% in April. The more significant core reading was confirmed at +0.9% yoy which compares to +1.2% the month prior.

To the week ahead now. It’s a quiet start to the week today with no data of note in either Europe of the US. It’s not looking likely to be much busier on Tuesday with only Germany PPI and the US current account balance in Q1 due. On Wednesday the early focus will be on the UK with May public sector net borrowing data due out. In the US we’ll get existing home sales for May. The calendar finally picks up a bit on Thursday. In France we’ll receive June confidence indicators while in the UK we’ll get CBI total orders data for June. In the US on Thursday the data includes initial jobless claims, Kansas City Fed’s manufacturing index, FHFA house price index and the conference board’s leading index. The busiest day for data looks set to be Friday. In Asia we’ll receive the flash June manufacturing PMI for Japan while in Europe we’ll get the flash PMIs for the Euro area, Germany and France. Also due out is the final revisions to Q1 GDP in France. Over in the US on Friday we’ll also receive the flash PMIs along with May new home sales.

Away from the data there are a bunch of Fedspeakers scheduled over the week including Dudley (Monday), Evans, Fischer, Rosengren and Kaplan (Tuesday), Powell (Thursday) and Mester, Bullard and Powell (Friday). Away from that we’ll receive BoJ minutes from the April meeting on Wednesday while the BoJ’s Kuroda (Wednesday) and Iwata (Thursday) are also due to speak. Also of note is the Queen’s speech scheduled for Wednesday which officially marks the state opening of the new parliamentary session in the UK. EU leaders are also due to gather for a 2-day meeting beginning Thursday to discuss the relocation of European agencies after Brexit.

via http://ift.tt/2rHGbnZ Tyler Durden

Authored by Peter Korzun via The Strategic Culture Foundation,

Norway is executing a drastic change in its military policy, towards a far more aggressive posture. A total of 330 US Marines have been stationed for a trial period from January at the Vaernes military base east of Trondheim. The deployment marks the first time since World War II that foreign troops have been allowed to station in Norway. Last year, the Norwegian Parliament approved a one-year trial period for the US military presence, including two six-month rotations. Now it is planned to double the Marines presence in the country from 330 to 650 soldiers. Norway and the United States are now discussing the usefulness of continuing this agreement beyond 2017.

The airport in Nord-Trøndelag can become a major military air base. The US Marine Corps Prepositioning Program-Norway, already stores large amounts of military equipment in caves. The caves currently hold enough to equip a fighting force of 4,600 Marines. The US military plans to enlarge the stockpile allowing it to store enough weapons and equipment for a Marine Expeditionary Brigade (up to 16, 000 servicemen). Planners are completing an analysis of the current gear cache that should wrap up in the next 12 months.

There are other plans to increase US military presence in the country. Last summer, a study group from the US Navy visited both Andøya and Evenes airports in northern Norway to see if they could host American P-8 Poseidon patrol aircraft.

According to Washington-based Center for Strategic and international Studies (CSIS) report, «The former Royal Norwegian Navy base at Olavsvern is ideal for supporting submarine operations in the extreme North Atlantic and Arctic Seas». The paper says it may be possible for Norway to nationalize and reopen a portion of the facility to support the rotational presence of US submarines. Olavsvern is NATO’s closest naval base to the Kola Peninsula. The paper notes that the United States needs to leverage its bilateral relationships with Norway in order to develop and deploy a new generation of undersea sensing capabilities.

The construction of sophisticated new radar system known as Globus 3 in Vardø has started. Formally, the radar’s mission is to track space debris but it’s an open secret that the site is an element of the US-led NATO ballistic missile defense (BMD).

The radar located in Svalbard (the Arctic) can also be used by US military for missile defense purposes. The site has been frequently visited by US officials and politicians. This radar is installed in violation of the 1925 treaty which states that Svalbard has a demilitarized status.

Norway used to be skeptical toward the BMD plans. In 2002, Norway condemned the US decision to pull out from the ABM Treaty. Jens Stoltenberg, the current NATO General Secretary, was skeptical about the system at a summit in Moscow in 2007. But Prime Minister Erna Solberg announced the decision to join the NATO missile defense in 2015 – the same year Norwegian ships participated with radar sensors in an allied BMD exercise.

The joint American-Norwegian radar project is an openly hostile move, which has become an irritant to negatively affect the Russian-Norwegian bilateral relationship. The missile shield will alter the strategic balance—giving Washington and NATO the ability to launch a first nuclear strike on Russia and prevent it from launching a counter-strike. Besides, the radar will be used for intelligence collection being stationed just 40 miles from the Russian Kola Peninsula where strategic submarines and other military assets are based.

According to Professor Theodore Postol, a professor at Massachusetts Technological Institute and a well-known scholar, Norway «would be dragged into a conflict between the great powers… The radar in Vardø is of the type GBR-P, formerly deployed on the Kwajalein Atoll in the Pacific. It was formerly intended to be the most important radar in the US missile shield, to be deployed in the Czech Republic».

«Norway has to understand that after becoming an outpost of NATO, it will have to face head-on Russia and Russian military might», Teimuraz Ramishvili, Russian ambassador to Oslo, told Norway’s state broadcaster, NRK. «Therefore, there will be no peaceful Arctic anymore». Formally, the radar’s mission is to track space debris but it’s an open secret that the site is part of US global ballistic missile defense (BMD) system, making Norway a prime target for attack in the event of a conflict.

Norway plans to have over 50 US-produced F-35 stealth warplanes in 2019. It will give it the capability to strike deep into the Russian territory. It underscores the fact that Norway would rapidly be drawn into any war that NATO launched against Russia. Indeed, the preparations unquestionably make Norway a target for Russian military action.

The US military presence represents a shift from the peacetime policy of prohibiting the posting of foreign troops in Norway. Before joining NATO in 1949, Norway pledged not to allow deployment of foreign military on its soil «as long as it is not under attack or threat of attack.» No Norwegian government has said it is threatened by Russia. Quite to the contrary, just a few days ago Prime Minister Erna Solberg said that she doesn't consider Russia to be a threat to Norway's security in an interview with German DW. According to her, Oslo and Moscow have a «good partnership», especially in the Arctic. «We don't believe that Russia is a direct threat to Norway, but we believe that Russia has become more unpredictable in its policies», the PM noted. Hardly so, Russia is very much predictable because it has no alternative to taking measures in response.

The border between Russia and Norway has been peaceful for centuries. The two countries have always been good neighbors. It is all changing now. Foreign troops on Norwegian soil and the construction of the new radar are parts of unfriendly policy toward Russia, which believes that the provocative moves are unacceptable. Perhaps, it should be taken into account by Norwegian politicians as the country nears the parliamentary elections in the fall.

via http://ift.tt/2sGtAAt Tyler Durden