Bond Yields Tumble To 2017 Lows After China Said “Ready To Buy More US Treasuries”

Confirming what we reported two weeks ago, when we said that based on Treasury custody holdings at the NY Fed "foreign central banks have been quietly scooping up US treasurys", moments ago Bloomberg reported that China is prepared to increase its holdings of U.S. Treasuries "as officials judge the assets are becoming more attractive than other sovereign debt and as the yuan stabilizes."

Citing source, Bloomberg adds that Chinese policy makers expect that U.S. government debt will be more attractive compared with other countries’ assets, and again confirming what we showed on May 25, adds that China has recently stopped reducing its holdings of U.S. bonds.

While the move is a reverasal to China's liquidation of US paper in 2016, when reduced its ownership of Treasuries by the most on record as it sought to defend a weakening yuan, it merely confirms recent trends observed in both the Treasury's TIC statement and custody holdings data. Bloomberg confirms as much, reporting that "China has since changed strategy, adding to its holdings in the two months through March."

Following the Bloomberg report, the 10Y Treasury yield dropped to a new YTD low of 2.136%, while the 5Y has slid to 2017 lows of 1.6909%.

For those who missed it, here are excerpts from our May 25 report titled "Foreign Central Banks Are Quietly Scooping Up US Treasurys", which previewed all that Bloomberg just reported.

As the latest custody data from the Fed reveals, in 2017, debt held at the Fed on behalf of foreign central banks has jumped by $61.2 billion to $2.922 trillion, the highest level since June 2016.

One of the biggest buyers has, perhaps surprisingly, been China – the second largest foreign holder of US paper after Japan – which after selling $188 billion in Treasurys in 2016 has bought $29 billion YTD according to the latest TIC data. A main driver behind this mini buying spree is that the relentless Chinese reserve outflow, which started in late 2014 and continued for over 2 years, has moderated after the PBOC erected an unprecedented firewall to contain capital inside the country, and which has removed the pressure on the PBOC to liquidate US-denominated assets to offset the capital outflows.

As the WSJ observes, China’s foreign reserves slid more than $500 billion between August 2015—when China shocked the world with a one-time devaluation of the yuan—and December 2016. The reserves have since rebounded from $3.01 trillion in December to $3.03 trillion in April. The slowdown in reserve outflows has also afforded the Chinese Yuan with a period of surprising stability, which has been cited by some as the reason why emerging markets have remained very stable in light of the recent geopolitical and commodity volatility.

Another factor was the strength of the dollar. as the recent reversal in the greenback has helped fuel central-bank buying of Treasurys. The strengthening USD from mid-2014 until the end of 2016 created a "negative feedback loop in emerging markets, with capital leaving developing economies, which then caused local currencies to tumble."

The weaker dollar in 2017 has also helped stabilize local EM currencies and reduced the need for central banks to sell Treasurys and use the open-market proceeds to intervene in the currency market.

Through Wednesday, the dollar had fallen 1.4% this year against the Chinese yuan freely traded in the offshore markets, after a 6% rally in 2016. And while the Yuan was barely changed the day of the Moody's downgrade, on Thursday Yuan, both the onshore and offshore, surged by the most in 2 months after at least two Chinese banks sold dollars in the onshore market, in what traders dubbed was a direct manipulation of the currency by Beijing, as the PBOC’s daily fixings had "materially diverged" from the prescribed formula resulting in a gap between the reference rate and currency’s spot value. And according to Khoon Goh of Australia & New Zealand Banking Group, instead of sticking to fixing formula, the central bank opted for active intervention to narrow the difference.

But back to Treasury flows, where in addition to China other foreign central banks have been bidding up US paper as it continues to offer more attractive yields compared with peers in Germany, Japan and the U.K. During the first quarter, Saudi Arabia’s Treasury holdings rose $11.6 billion. Russia’s holdings rose $13.7 billion, South Korea’s was up $4.2 billion and Singapore’s was up $2.5 billion. Even Japan, which earlier this year dumped the most US Treasurys since May of 2013 is back in the fray, only this time it is no longer hedging its dollar exposure, a decision which may prove painful once currency volatility returns.

A further reason for the return of foreign buyers is that after dropping at the start of the year, the price of 10Y TSYs has rebounded sharply, making the purchase a safer proposition. Purchases from foreign central banks had contributed to declines in Treasury yields this year after a big rise in late 2016. That in turn has caused hedge funds and money managers to exit from or pare back bets that bond yields would extend a climb.

This  process is now in reverse, just as the Fed is warning of not only a June rate hike but potentially unwinding its balance sheet as soon as September.

“There are not a lot of options for foreign central banks’’ to diversify their portfolios away from the Treasury bond market, said Bill Northey, chief investment officer at the private client group of U.S. Bank.

 

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Frontrunning: June 6

  • Kuwait’s Emir Moves to Mediate Saudi-Qatar Crisis (BBG)
  • Qatari riyal under pressure as Saudi, UAE banks delay Qatar deals (Reuters)
  • Qatar’s dispute with Arab states puts LNG market on edge (Reuters)
  • Trump seeks legislative wins as clock ticks, Russia probe looms (Reuters)
  • Democrats aim to turn anti-Trump sentiment into votes in Virginia (Reuters)
  • Don’t Count on China as Next Climate Crusader (WSJ)
  • In Trump’s White House, Everything’s Coming in ‘Two Weeks’ (BBG)
  • Venezuela Tries to Resell Bonds at Deep Discount (WSJ)
  • The World’s $100 Trillion Question: Why Is Inflation So Low? (BBG)
  • Most Americans want ‘aggressive’ action on climate change: (Reuters/Ipsos poll)
  • Russia scrambles jet fighter to intercept U.S. bomber over Baltic Sea (Reuters)
  • UK police face questions over London attack as third suspect named (CNN)
  • South Africa Has Second Recession in Eight Years (BBG)
  • Russia’s plan to borrow in yuan stumbled over Panda bonds: deputy finance minister (Reuters)
  • J.Crew Says Mickey Drexler to Step Aside as CEO (WSJ)
  • Harvard Endowment Ditches Hedge Fund Run by Alumnus (BBG)
  • Q&A With Steve Schwarzman: ‘There Are No Brave Old People in Finance’ (BBG)
  • Robert Mueller Drops Takata Air-Bag Assignment Due to Russia-Probe Post (WSJ)
  • Five Questions About the Fed’s $4.5 Trillion Balance Sheet (BBG)
  • Trump’s America Is Facing a $13 Trillion Consumer Debt Hangover (BBG)
  • Will Privatized Air Traffic Control Put You in Danger? (BBG)
  • Airlines Say Travelers May Be Growing Accustomed to Terror Spree (BBG)

 

Overnight Media Digest

WSJ

– Apple Inc revealed a voice-activated speaker, thrusting itself into the rapidly escalating fight between the biggest names in technology to control the home through a tabletop device. on.wsj.com/2r0k46J

– J.Crew Group Inc said its longtime leader Mickey Drexler will step aside as chief executive and hand over those duties to an outsider, as the seller of preppy clothes struggles with a prolonged sales slump and hefty debt load. on.wsj.com/2r0csRZ

– Drugmaker Perrigo Co announced that current chief executive John Hendrickson is retiring. The company has begun a search for a replacement. on.wsj.com/2r0dflF

– Airlines from the United Arab Emirates – including heavyweights Emirates Airline and Etihad Airways – Saudi Arabia, Bahrain and Egypt suspended flights to Doha on Monday, hours after their countries announced they were cutting diplomatic, air and maritime links to Qatar. The step marks an escalation in a dispute over Qatar’s alleged support for Islamist groups in the region. on.wsj.com/2r08bhb

– The special counsel investigating Russia’s alleged interference in the 2016 presidential election relinquished an assignment steering compensation to victims of rupture-prone Takata Corp air bags, potentially delaying nearly $1 billion in payouts to auto makers and consumers. on.wsj.com/2r0dld1

– Germany’s third-largest shipping firm, Rickmers Holding AG, filed for insolvency after it was cut loose by one of the country’s biggest shipping lenders, a sign Germany’s long-simmering shipping crisis has reached a boiling point. on.wsj.com/2qWccmQ

– General Motors Co Chief Executive Mary Barra faces shareholders this week, under pressure from a hedge-fund investor and fresh scrutiny following the ouster of her counterpart at a crosstown rival. on.wsj.com/2qWyNzA

 

FT

– DP Eurasia will join the London Stock Exchange next month. The company controls the Domino’s Pizza franchises in Turkey, Russia, Azerbaijan and Georgia.

– Channel 4 appointed Alex Mahon as its chief executive. Mahon, joining from the special effects business Foundry, is Channel 4’s first female chief executive.

– Uber Technologies Inc hired Frances Frei, a Harvard Business School professor, to help transform the car-hailing company before it publishes an internal investigation into its workplace culture. Frei has been advising Uber’s leadership team for several months as it went through the crisis.

– J Crew’s long-time Chief Executive Officer Mickey Drexler is stepping down and will be succeeded by James Brett, former president of retail store West Elm. Brett will take over as chief executive in July and also join J Crew’s board of directors.

 

NYT

– Retailer J Crew said Millard Drexler would step aside as Chief Executive and James Brett would succeed him in July. This is the second major executive change in recent months at the company. Jenna Lyons, its long-time executive creative director, had resigned in April. nyti.ms/2rvAGqB

– The real estate company owned by the family of Jared Kushner, son-in-law and senior adviser to President Trump, is seeking $250 million to pay off its partners and lenders in a Jersey City apartment tower financed by Chinese investors through a program criticized as offering United States visas for sale. nyti.ms/2rvfnpa

– A Breitbart News editor said on Monday that she had been fired from the conservative news site for the anti-Muslim tweets she sent after an attack in London on Saturday. nyti.ms/2rvrPFh

– U.S. President Donald Trump endorsed a proposal to privatize air traffic control, seizing on a decades-old idea as proof that he is advancing the ambitious infrastructure rebuilding plan he promised during his campaign but is still months from delivering. nyti.ms/2rviSMu

 

Canada

THE GLOBE AND MAIL

** The federal government says it is concerned about high cellphone prices and is ordering the telecom regulator to review a recent ruling on roaming that makes it harder for some small wireless companies to provide inexpensive service. (tgam.ca/2rGPD7O)

** The consumer watchdog charged with overseeing Canada’s banks is pledging to publish “initial findings” from a review of sales practices by the end of the year. (tgam.ca/2syIaaZ)

NATIONAL POST

** Montreal-based Osisko Gold Royalties Ltd said it is more than doubling its precious metals portfolio with the C$1.13 billion acquisition of diamond, gold and silver assets from U.S. private equity firm Orion Mine Finance Group. (bit.ly/2sMRo2o)

** The marijuana sector’s first streaming company Cannabis Wheaton Income Corp, which came roaring onto the marijuana scene a month ago, has canceled an C$80 million financing deal with investment banks that also have stakes in the company. (bit.ly/2sc1aPd) (

 

Britain

The Times

One of the London Bridge attackers was free to carry out the atrocity despite working for a man accused of helping to train the July 7 bombing ringleader and being under investigation by police and MI5. bit.ly/2rY8SwC

KPMG has written to hundreds of its present and former partners to warn them about a dispute with the taxman over a bill dating from seven years ago that could lead to them being hit with demands for millions of pounds in taxes. bit.ly/2rXU9S8

The Guardian

British Airways has ordered an independent investigation into the systems meltdown that left 75,000 passengers stranded over the bank holiday weekend. bit.ly/2rXTNLl

HSBC Holdings PLC is offering its employees cash bonuses of up to 2,500 pounds ($3,226) if they can persuade a colleague to move from London to the bank’s new British headquarters in Birmingham. bit.ly/2rY4hdJ

The Telegraph

Channel 4 has appointed Alex Mahon of the special effects software company Foundry as its next chief executive, to steer it through choppy political and commercial waters. bit.ly/2rYzeym

Pollen Street Capital, which owned Shawbrook before floating it on the stock market two years ago, and BC Partners have lifted their offer for Shawbrook IPO-SHAW.L by 10p a share to 340p. bit.ly/2rXPfom

Sky News

Scotland Yard has named two of the terrorists involved in the London Bridge attack as Khuram Shazad Butt and Rachid Redouane. bit.ly/2rYnE6p

Former Newcastle midfielder Cheick Tiote has died at the age of 30 after collapsing during a training session in China. bit.ly/2rY7qu4

The Independent

Technology companies have responded to accusations that they are not doing enough to stamp out extremist content online, in the wake of the weekend’s brutal terror attacks in London that left seven people dead and several dozen more injured. ind.pn/2rYhu6z

 

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Third London Terrorist Named As 22-Year-Old Youssef Zaghba

British police on Tuesday named the third London Bridge attacker as Youssef Zaghba, a 22-year-old Italian of Moroccan descent who lived in East London. Italian intelligence sources told the Corriere della Sera newspaper he was of Moroccan and Italian nationality, with his mother living in the northern Italian city of Bologna. Reports said Zaghba, who was born in Fez in 1995, attempted to fly to Turkey and travel onwards to Syria last year but was stopped at Bologna airport.

Zaghba was killed in a hail of police gunfire on Saturday after he and two accomplices, Khuram Shazad Butt and Rachid Redouane, mowed down pedestrians in a van on London Bridge and attacked revelers in nearby Borough Market, the WSJ reports.

While police said Zaghba wasn’t a subject of interest to police or MI5, in what appears to be another failure of UK intel services, the Independent reports that Italian intelligence agencies had tipped off authorities in both the UK and Morocco about his movements, it was claimed. After the attempt failed, Zaghba reportedly moved back to Britain and got a temporary job at a restaurant in London.

The Metropolitan Police said it was not in a position to confirm the third man’s name, having previously identified attackers Khuram Butt and Rachid Redouane. “Inquiries are ongoing to confirm the identity of their accomplice,” said a statement on Monday.

As reported yesterday, Pakistan-born Khuram Butt, 27, and Rachid Radouane, 30, both from Barking were the other two attackers. Meanwhile, another victim has been named as Australian Kirsty Boden, who her family said ran towards London Bridge in an effort to help people, according to the BBC.

“Detectives are particularly keen to hear about places they may have frequented and their movements in the days and hours before the attack.” All three men were shot dead by armed police within eight minutes of the first 999 call to Saturday night’s attack.

The trio ploughed a hired van into pedestrians on London Bridge before rampaging through bars and pubs surrounding Borough Market stabbing passers-by, killing seven people in injuring dozens more. Butt, 27, was a British citizen who was born in Pakistan and gave his name as Abz Zeitan to acquaintances. 

Redouane, 30, formerly lived with his wife and baby daughter in Ireland and had claimed to be Moroccan and Libyan. He also used the name Rachid Elkhdar, claiming to be five years younger.

Authorities are investigating how the trio planned the atrocity, despite Butt being known to police and MI5, having being reported to the anti-terror hotline and appearing on a documentary on British Islamists. Isis claimed responsibility for the massacre, as well as the Manchester bombing and Westminster attack, saying it had been carried out by a “unit of Islamic State fighters”.

The group has called for supporters to launch intensified terror attacks around the world during the Islamic holy month of Ramadan, as it seeks to maintain momentum while suffering heavy losses in Syria and Iraq.

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Gold Surges, Global Stocks Slide As “Super Thursday” Risks Loom

With traders realizing that the “Thursday Turmoil Trifecta” looms, world stocks dropped and safe-haven assets rose as investors focused on the growing tension in the Middle East, while caution spread across markets in a week full of risk events including James Comey’s congressional testimony to the ECB’s policy meeting and Britain’s increasingly uncertain election, all in the span of 24 hours. As a result, European and Asian stocks as well as S&P futures all fell, while gold, yen and Treasuries gained.

World stocks edged further away from record highs hit last week, the MSCI world equity index fell 0.12%. Crude continued to decline despite OPEC’s best efforts to stabilize its price, with WTI edging lower by 0.2% to $47.33 a barrel, after dropping as much as 1% and rising as much as 0.7% earlier.

Quick recap of the trading action so far courtesy of Bloomberg’s macro squawk wrap:

 Europe follows defensive Asian session with little appetite for risk before events later in the week. USTs continue overnight rally, Eurodollar curve bull-flattens, bund and gilt futures move higher in tandem. DAX reopens after Whit Monday holiday and underperforms other European equity markets, construction sector lags; Banco Popular trades with small gains +1.8% after recent heavy losses. USD/JPY at overnight lows amid broad risk-off, USD grinds marginally higher from overnight lows against G-10; spot gold trades approximately $5 away from YTD high, EMFX led lower by ZAR, which spikes lower after South African economy enters recession. Focus overnight on PBOC conducting a 498b yuan 1-year MLF operation, Hibor rates continue to normalize after recent spike higher.

In an otherwise quiet session, the big FX outlier was the yen which rose 0.7% to 109.70 per dollar, reaching the strongest level in six weeks, since April 21. The yen outperformed G10 currencies on haven demand while the pound also gained against the dollar ahead of Thursday’s U.K. election.  Declines in stocks and U.S. Treasury yields prompted yen buying, leading it to break the key 110 level against the dollar in Asian trading.

“Investors appear nervous ahead of several key events on Thursday including the U.K. election, former FBI Director James Comey’s testimony before the U.S. Senate and the ECB meeting,” Credit Agricole SA strategists including Manuel Oliveri said in a note to clients

Gold, which has become an inverse trade on the USDJPY, spiked above $1,290, advancing for a third day to the highest since April 18.

10-year Treasury yields fell to near the lowest since November. The dollar traded at an eight-month low.

Europe’s benchmark share index dropped the most in a week led by Swiss pharmaceutical company Roche Holding AG after one of its drug studies disappointed. Miners were among the biggest losers again as Bloomberg’s commodities index declined a sixth day. In Asia, Japan’s Topix index fell 0.8 percent after the yen strengthened. Australia’s S&P/ASX 200 tumbled 1.5 percent, the most in more than two months and reaching the lowest since February. The Aussie dollar swung between gains and losses after the central bank left its benchmark interest rate unchanged.

The Stoxx Europe 600 Index declined 0.4 percent and the FTSE 100 fell 0.2 percent. Futures on the S&P 500 Index dropped 0.1 percent after the underlying gauge slid 0.1 percent Monday. Qatari stocks steadied after plunging the most since 2009 on Monday. Saudi Arabia and three other Arab countries severed most diplomatic and economic ties to the country.

As first warned yesterday, Bloomberg again reminds us that all three major events – Comey, the ECB meet and British election – are set for Thursday, and as a result investors’ risk-off mood this week is understandable. It’s been compounded by a diplomatic spat among energy producing nations in the Middle East and a terror attack in London.

“There is not much scheduled today that could potentially inspire the markets as the main focus this week is on ‘Super Thursday,”’ Piotr Matys, a London-based currency strategist at Rabobank, wrote in a client note. “Essentially, we brace for a volatile session on Thursday and Friday as at least one of those crucial events could trigger sharp moves in the markets.”

Then there was Reuters, which notes that on what BayernLB analysts called “Super Thursday”, British voters will go to polls in an increasingly unpredictable general election, the European Central Bank is due to meet and later the same day former FBI director James Comey will testify before Congress.

“We have a big week or so ahead of us with the UK heading to the polls and the ECB announcing its latest monetary policy decision on Thursday and the Federal Reserve doing the same next Wednesday,” said Craig Erlam, a market analyst for OANDA securities. “Once these events pass, we may have a little more clarity and therefore see a little less caution in the markets.”

The dollar, meanwhile, touched a seven-month low ahead of Comey’s testimony. Reports suggest the former FBI chief plans to talk about conversations in which U.S. President Trump pressured him to drop his investigation into former national security adviser Mike Flynn, who was fired for failing to disclose conversations with Russian officials. The dollar index which tracks the currency against a basket of trade-weighted peers, fell to its lowest level since the November U.S. election.

A quick look at the latest polls in the UK. There were a couple released overnight, the first was another YouGov poll (conducted 29 May-4 June) with a sample size of over 50,000 (8,000 votes were taken on 4 June) which showed the Conservatives as holding a 4% lead over Labour at 42-38%. The model also suggested that the Conservatives are on track to take between 268-344 seats which again suggested that the Tories could lose their majority (326 needed). Shortly after that an ICM/Guardian poll (2-4 June) of 2000 respondents showed the Conservatives as holding an 11% lead over Labour at 45-34%. That’s unchanged versus the same poll just under a week ago. Last night a Survation Poll for ITV showed the Conservatives as holding a 1% lead at 41% to 40%. It was noted that this poll was conducted over June 2-3 and prior to the weekend terror attack.

Data on Monday of U.S. services sector activity slowing in May as new orders tumbled also hit the greenback.

 JOLTS April job openings data due. Michaels, Keysight, HD Supply are among companies reporting earnings

Bulletin Headline Summary from RanSquawk

  • European equities enter the North American crossover in negative territory with underperformance in health care names, led by Roche
  • Cable has tested 1.2950 but ran into a wall of selling interest here, but the pullback has found some support ahead of 1.2900 for now
  • Looking ahead, US APIs and NZ GDT Index

Market Snapshot

  • S&P 500 futures down 0.1% to 2,431.75
  • MXAP down 0.2% to 155.09
  • MXAPJ down 0.3% to 502.27
  • Nikkei down 1% to 19,979.90
  • Topix down 0.8% to 1,596.44
  • Hang Seng Index up 0.5% to 25,997.14
  • Shanghai Composite up 0.3% to 3,102.13
  • Sensex down 0.3% to 31,223.91
  • Australia S&P/ASX 200 down 1.5% to 5,667.47
  • Kospi down 0.1% to 2,368.62
  • STOXX Europe 600 down 0.4% to 390.43
  • German 10Y yield fell 1.6 bps to 0.271%
  • Euro down 0.03% to 1.1251 per US$
  • Brent Futures down 0.4% to $49.27/bbl
  • Italian 10Y yield rose 1.3 bps to 1.979%
  • Spanish 10Y yield fell 3.0 bps to 1.549%
  • Gold spot up 0.8% to $1,289.46
  • U.S. Dollar Index down 0.1% to 96.71

Top Overnight News From Bloomberg

  • U.K. Conservatives at 41.5%, Labour at 40.4%: Survation/GMB poll, Conservative lead falls from 17 points in Survation’s first poll in early May
  • Spain: Banco Popular is preparing the sale of a real estate portfolio worth EU1.5b-EU2b according to Vozpopuli. Bank official says ECB is “perfectly informed” of the current situation
  • Italy: lower house of parliament to start debate on new electoral law today after Constitutional Affairs Committee gave assent
  • South Africa 1Q GDP q/q: -0.7% vs +1.0% est; economy in recession for the first time since 2009
  • RBA keeps cash rate at 1.50% as expected; says GDP expected to have slowed in the March quarter
  • Qatar Crisis Draws Mediation Effort as Saudis Tighten Screws
  • China Rebuffs U.S. Over Detainees Probing Ivanka Shoe Supplier
  • Harvard Man Mindich Loses Out in Endowment Hedge Fund Overhaul
  • Airbus to Cut A380 Output Below One a Month If No New Orders
  • Brevan Howard’s Main Hedge Fund Loses Money for Third Month
  • Anonymous Analytics Says Short-Selling Rival Got It Wrong on AAC
  • Deutsche Bank Says It Can’t Share Details of Trump Relationship

Asia traded mostly lower following a subdued Wall St. close where all 3 major indices finished with minor losses amid range-bound trade. ASX 200 (-1.4%) underperformed as the utilities, REIT and IT sectors weighed down the index, whilst Nikkei 225 (-1.0%) suffered as the JPY firmed across the board. Shanghai Comp. (+0.3%) and Hang Seng (+0.5%) were initially negative after the PBoC refrained from conducting repo operations, although the Chinese bourses attempted to recover following a CNY 498b1n medium lending term facility operation. 10yr JGBs were relatively flat with only minimal gains seen amid a cautious risk tone, while the 30yr JGB auction also failed to spur firm demand despite the b/c printing its highest in 8 months of 3.63 (Prey. 3.35), as this was only a mild increase and other metrics were relatively stable from prior. PBoC skipped open market operations today, but conducted a CNY 498b1n Medium-Term Lending Facility operation.

Top Asian News

  • With 260-to-1 Leverage, A Chinese Giant Takes On Goldman in Repo
  • Billionaire Draper Shuns China Investments Amid Capital Controls
  • China Said to Give Banks More Time to Report on Exposures
  • Beijing Jingyuntong Rises After Solar Pact with Wuhai Government
  • Indian Power Surplus Outlook Signals Lagging Electrification

Souring sentiment this morning in Europe with equities weighed by oil and healthcare names. The big story this morning, is Roche (-4.5%) shares on course for its worst day in 2’/ years after investors were disappointed with the company’s Aphinity study results. Elsewhere, oil prices continue to slip due to the deepening diplomatic rift in the Middle East, this has also impacted the likes of Norsk Hydro who stated that exports from its Qatar-based JV aluminium plant were blocked. Fixed income markets at elevated levels amid the risk off tone, while the German curve has shown some bull flattening. Additionally, peripheral debt has been outperforming, with the Italian and Spanish 10yr widening against the German benchmark. Of note, supply kicked up a notch with Austria tapping 6s and 10s, while the UK issued 5yr debt which was well-digested by the market and caused little of the way in a reaction for UK paper.

Top European News

  • May Sends Johnson to Labour Heartland as Terror Shapes Campaign
  • Popular in Fight to Survive as Bank Updates ECB on Situation
  • German Top Court to Issue Nuclear-Fuel Tax Ruling June 7
  • Rocket-Backed Delivery Hero Targets $500 Million in IPO

In currencies, the yen rose 0.7 percent to 109.70 per dollar as of 10:07 a.m. in London, reaching the strongest level since April 21. The Bloomberg Dollar Spot Index fell 0.1 percent, trading at the lowest since October. The euro was little changed at $1.1254 and the British pound rose 0.2 percent to $1.2923. Watching USD/JPY, European markets have desisted from extending the USD/JPY push lower, and as we noted yesterday, 109.50-60 support here has been noteworthy, though we suspect a warranted push lower would have made light work of this. More support seen lower down at 109.00, but dealers report stops below here. Mid curve treasury yields have stabilised a little, so this is providing a near term prop, but Wall Street will likely dictate from current levels. In GBP, Cable has tested 1.2950 but ran into a wall of selling interest here, but the pullback has found some support ahead of 1.2900 for now. This will likely come under pressure as the election jitters are cranked up, and we suspect some of this is being reflected in the buoyant tone in EUR/GBP. Traders however, are also loath to sell out EUR/USD from current levels, as we await the ECB press conference on Thursday. The market is pre-empting some of communication leading to a change in tack in ECB policy, but expect Draghi and co to be as vague as possible, given their awareness of market eagerness to get ‘ahead’ of an eventual signal to reining in stimulus.

In commodities, gold climbed 0.7 percent to $1,289.04 an ounce, advancing for a third day to the highest since April 18. WTI crude edged lower by 0.2 percent to $47.33 a barrel, after dropping as much as 1 percent and rising as much as 0.7 percent earlier. The notable mover today is Gold, pushing up towards USD1290+ levels on the back of the risk tone which is have been worsening over a combination of factors, but which until now, have done little to put a dent in the Wall Street climb higher. In spite of the gains seen in the S&P, Dow and NASDAQ, buyers of the safe haven have been `following’ the yellow metal higher, with Silver lagging as we were trading on an USD18 handle the last time Gold was up here. Consequently, base metals are sporting a heavy tone, with Copper edging back to the lower end of the USD2.50-2.60 range. This is the underperformer on the day, with Platinum and Palladium showing modest gains on the day. Oil prices will remain heavy for the foreseeable future with focus on US shale production, but we continue to watch the API’s (tonight) and the DoE report tomorrow. WTI struggles in the low USD47.00’s, though we saw a snap up from sub figure levels this morning.

Looking at the day ahead, this morning in Europe it’s fairly quiet with the only releases scheduled being the Sentix investor confidence reading for June (expected to hold steady) and Euro area retail sales data for April (+0.2% mom expected). In the US the sole release is JOLTS job openings for April. Away from that we are expecting to receive the ECB’s latest CSPP and PSPP holdings data after technical issues yesterday delayed the release.

US Event Calendar

  • 10am: JOLTS Job Openings, est. 5,750, prior 5,743

DB’s Jim Reid concludes the overnight wrap

With bigger events to come later this week including a potential ‘super’ Thursday, markets never really got out of the starting blocks on Monday. Unsurprisingly much of the focus was of a political nature following the terrible London attack over the weekend and then the Qatar and Gulf news this time yesterday. The White House confirmed last night that President Trump is committed to holding talks with all parties in the Gulf in a bid to “de-escalate” the crisis. Qatar’s main stock exchange plummeted -7.27% and by the most since 2009. Oil was initially +1.50% higher as we went to print yesterday with WTI trading up at $48.42/bbl however that move was quickly reversed as the news was seen as having a limited impact on Gulf energy supplies. In the end WTI eventually closed last night at $47.40/bbl and over 2% off the highs and it is down another half a percent this morning.

That was largely the limit of the excitement for markets though. The S&P 500 (-0.12%), Dow (-0.10%) and Stoxx 600 (-0.13%) all faded to small losses. The Nasdaq briefly touched a new intraday record high before also fading later in the session too to close -0.16%. Alphabet’s share pricing passing the $1,000 mark less than a week after Amazon achieved such a feat was a notable landmark however. If you are lucky enough to have bought and held since Google IPO’d then that’s a total return of 2260%.

Meanwhile bond markets were also a bit weaker at the margin yesterday which more than likely reflected a fairly busy day for issuance in the US. 10y Treasury yields edged up 2.3bps to close at 2.183% while yields in Europe were up 1-2bps generally. Elsewhere, in FX Sterling recovered from early losses to close up +0.12% as markets digested the latest set of opinion polls (more on that shortly). Finally the rest of the commodities complex away from Oil was soft, particularly base metals like Aluminium (-1.45%), Zinc (-1.74%) and Iron Ore (-3.27%). It’s worth noting that Iron Ore is now down to the lowest level since October last year and over 41% off the February highs.

In terms of the macro, yesterday’s US economic data wasn’t hugely inspiring. In a busier than usual day for releases following a Friday employment report, the main focus was on the ISM and PMIs. The  non-manufacturing ISM came in at 56.9 for May which was both down 0.6pts versus April and also a shade lower than the consensus of 57.1. The details were a bit more mixed. While new orders fell 5.6pts to 57.7 the employment component interestingly rose 6.4pts to 57.8 and to the highest since July 2015 which was a bit of a head scratcher given the soft payrolls report. Meanwhile the services PMI was revised down 0.6pts to 53.6 which has left the composite at 53.6 and up for the second month in a row (although below the January high of 55.8).

Away from that there were some revisions made to both Q1 nonfarm productivity – which is now reported as being flat as opposed to the initial -0.6% reading – and unit labour costs (which were revised down to 2.2% from 3.0%). In other news factory orders were reported as falling -0.2% mom in April while core capex orders were revised up one-tenth to +0.1% mom.

In Europe the main focus was on the remaining PMIs for May. The final services PMI for the Euro area was revised up one-tenth to 56.3 which means it is down just 0.1pts from the April high. That left the composite unrevised at 56.8 which is flat versus April. At a country level the services reading for France was revised down 0.8pts to a still relatively solid 57.2 while Germany was revised up 0.2pts to 55.4. In the periphery we saw small misses for both Spain and Italy. Our European economists made the important note that the details of the PMIs revealed that both input and output prices indices were revised slightly lower in the May data. This means PMI prices indices have retreated for the past 2-3 months and while they expect core inflation to begin to recover as we move into H2, much like the CPI report last month, these figures will do little to change the ECB’s cautious assessment. At a broad level however our economists also note that the PMIs are consistent with Q2 GDP growth of around +0.8% qoq assuming
June is unchanged which represents clear upside to their +0.5% qoq view. All eyes will be on the incoming Q2 hard data flow including some of the industrial data later this week.

Switching over to the latest in Asia now where markets for the most part appear to be following the soft lead from Wall Street last night and trading slightly weaker. The Nikkei (-0.72%), Shanghai Comp (-0.20%), Kospi (-0.13%) and ASX (-1.07%) have all dipped lower with most sectors under pressure. The Hang Seng (+0.20%) is the only index current tracking higher. Gold (+0.39%) and the Yen (+0.52%) are also a little firmer reflecting the risk off moves while the Aussie Dollar is a little weaker ahead of the RBA meeting where no change in policy is expected.

Back to the latest polls in the UK. There were a couple released in the morning. The first was another YouGov poll (conducted 29 May-4 June) with a sample size of over 50,000 (8,000 votes were taken on 4 June) which showed the Conservatives as holding a 4% lead over Labour at 42-38%. The model also suggested that the Conservatives are on track to take between 268-344 seats which again suggested that the Tories could lose their majority (326 needed). Shortly after that an ICM/Guardian poll (2-4 June) of 2000 respondents showed the Conservatives as holding an 11% lead over Labour at 45-34%. That’s unchanged versus the same poll just under a week ago. Last night a Survation Poll for ITV showed the Conservatives as holding a 1% lead at 41% to 40%. It was noted that this poll was conducted over June 2-3 and prior to  the weekend terror attack.

Looking at the day ahead, this morning in Europe it’s fairly quiet with the only releases scheduled being the Sentix investor confidence reading for June (expected to hold steady) and Euro area retail sales data for April (+0.2% mom expected). Over in the US this afternoon the sole release is JOLTS job openings for April. Away from that we are expecting to receive the ECB’s latest CSPP and PSPP holdings data after technical issues yesterday delayed the release. UK PM Theresa May is also due to take part in a live ITV interview this evening at 7.30pm BST.

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“No Contrarians Left”: A Very Bearish Bill Blain Is Worried That Everyone Agrees With Him

From “Blain’s Morning Porridge” by Bill Blain of Mint Partners

“You are about to embark on the great crusade toward which we have striven these many months.”

 

I find myself in something of a quandary this soggy morning. Wracked with nagging doubt. Why? Nothing to do with Theresa May effectively throwing the UK Election, that auto-loans are in serious trouble, or worries Qatar might escalate into something quite unpleasant (and I don’t just mean for Barclays..).. These things are all noise, the daily fun and games.

Nope, I’m bothered because more and more folk agree with my fundamental market concerns: cheap money and over-inflated financial assets mean a massive correction is not only inevitable, but imminent on the back of stock markets hitting new highs. You can’t be a contrarian if everyone agrees with you…

What if we’re wrong?

Many commentators now think the only questions to be asking are when does the crash happen, what triggers it and how painful will it be? Maybe last week’s weaker than expected US numbers? Maybe the global economy isn’t is such great shape after all and can’t justify all the hype we’re seeing plugged in to stock price expectations? Or maybe it’s the UK election, or the looming Italian Job coming later this year.

Yet most folk also think a correction will be followed by a massive buying opportunity – which sounds more like folk who’ve missed the rally rather than seriously concerned financial watchers. So let’s think about fundamentals again.

The Winter is Coming and that it will be followed by a glorious summer approach to the distorted financial asset model is simple to grasp and makes blindingly obvious sense. Blindingly Obvious worries me. I’m beginning to wonder.. and thinking past the Trump America “MacGuffin”. (Clue: A McGuffin is a Hitchcockian plot device to keep us focused on all the wrong things as the real action is going on elsewhere…)

What if the blindingly obvious isn’t the real issue? In fact there are a number of real things happening where we might not be fully cogent of the implications.

First, the charts point to something happening, but we don’t know what it’s likely to be. My uncertainty threshold has risen on the number of comments from leading stock chartists admitting they can’t read where the markets go from here. They typically say: lines on the charts show stocks are approaching a breakout or chaotic “moment”, but here’s the critical thing: do they break down or break up?

Yep, you read that correct. BREAK UP! Can it happen?

Let’s think what’s really still driving global markets, leading us the second point: While the Fed is talking about how to reduce the balance sheet, it’s still reinvesting $30bln a month. Elsewhere the Bank of England, Bank of Japan and the ECB have somewhere North of $12 trillion (a seriously grown up amounts) of bonds – equivalent to about 15% of global stock market cap – on their balance sheets.

That money pumped into the global economy via QE has to go somewhere. And there is little point leaving it in bonds when rates remain the square root of nothing.  That’s why we are seeing Global wealth managers still reallocating billions from bond markets into stocks. For the last few months and longer we’ve seen both equities and bonds in bull phase – unusual to say the least.

Stocks are supposed to be about expectations – but at present it’s the ongoing amount of surplus cash looking to generate returns that matter. Bond yields are so low they are literally forcing cash into stock markets! Crash or no crash – cheap money remains the key factor driving investment.

Any fundamental change will require the normalisation of interest rates – which isn’t about to happen for all kinds of economic and political reasons. In fact, any analysis of the new reality has to figure out what low long term rates will actually mean – low rates, financial asset inflation and constrained growth into infinity?

The third thing we’re in danger of missing is Europe. I still giggle when I read about improving economic conditions – growth across Yoorp is up by a tad above Zero. But, unemployment across Europe is actually falling faster than even the most optimistic outlooks. With European rates so low, the ECB still on fire watch, and growth, the Euro is strengthening – which is why the market is going long undervalued European stocks. The papers and Bloomberg say buyers are longer Europe than they’ve been in years.

Most importantly, the debt threat to Europe is lessened – fiscal surpluses and low rates mean most EU countries are pretty much sustainable. Job creation and growth reduces the political tension, giving the EU time to reform. There will be ongoing speed bumps: I’m unconvinced Europe will complete a transition into a single unified political and monetary economic polity anytime soon, and the adjustment process will remain long and painful.

In short, everyone has been watching Trump and America for the lead, but what’s going on in Europe plus the continued QE distortion effects on global markets are the real issues. What’s my prediction – I still think we get a short, sharp correction (my guess is October) followed by buying opportunity – which I will remain particularly suspicious of!

* * *

Meanwhile, maybe this is a warning on the current tech boom. The past is better than we remember. On Saturday I bought She-who-is-Mrs-Blain her big birthday present – a turntable, amp and speakers.
We spent ages in the hi-fi shop making the right choice and then all day playing vinyl. Brilliant. The quality is bright, clear, unconstrained and musical. We then tried same albums in digital format – again fantastic, if a little more “disciplined”. But with vinyl, you get the anticipation of choosing the album from the shelf, taking it out the sleeve, placing on the spindle and putting down the arm. Sit back. Listen.

Appreciate.

Or you can press “Play” on Spotify.

We are both delighted with our new/old toy and we’ve moved back in time to the 1970s.. (and yes, first album we played was Dark Side of the Moon.)

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Deutsche Bank Needs More Time To Respond To Maxine Waters’ Fishing Expedition On Trump Loans

A few weeks ago we highlighted a letter drafted by the infamous Maxine Waters of the House Financial Services Committee demanding information from Deutsche Bank on a Russian money laundering scheme and loans made to Trump’s businesses while he was a private citizen.  Without providing any evidence or basis for her request, Waters seemingly attempted to link Trump to the “Russian Mirror Trading Scandal” and also asked for info on whether Russian “guaranteed” $300 million of loans made to Trump’s real interests in the Doral Golf resort in Florida, a Washington D.C. hotel and a Chicago tower…you know, because Russia had an obvious interest in backstopping Trump loans made several years ago on the off chance he might run for President one day and win.

From the letter:

We write seeking information relating to two internal reviews reportedly conducted by Deutsche Bank (“Bank”): one regarding its 2011 Russian mirror trading scandal and the other regarding its review of the personal accounts of President Donald Trump and his family members held at the Bank. What is troubling is that the Bank to our knowledge has thus far refused to disclose or publicly comment on the results of either of its internal reviews. As a result, there is no transparency regarding who participated in, or benefited from, the Russian mirror trading scheme that allowed $10 billion to flow out of Russia.  Likewise, Congress remains in the dark on whether loans Deutsche Bank made to President Trump were guaranteed by the Russian Government, or were in any way connected to Russia. It is critical that you provide this Committee with the information necessary to assess the scope, findings and conclusions of your internal reviews.

Not surprisingly, Reuters now reports this morning that Deutsche Bank has now responded to the Waters’ letter by requesting more time.

Germany’s largest bank has asked for more time to respond to a request from Democrats on a U.S. House of Representatives panel for details about U.S. President Donald Trump’s possible ties to Russia, a person familiar with the matter said on Monday.

 

Deutsche Bank’s external counsel sent a letter dated Friday June 2 to the Democrats saying it needed additional time, the source told Reuters. The person spoke on condition of anonymity and declined to specify how much more time the bank’s counsel needed.

Of course, given that Maxine Waters has absolutely no authority to compel Deutsche Bank to deliver any of the documentation she requested on her Russian fishing expedition, we suspect she may continue to be disappointed. 

But the loan docs, which are most likely as standard and customary as they are boring, were never really the point anyway now were they?  No, the point was to craft a salacious letter to progress a narrative that Trump’s “unconventional relationship” with DB, because providing real estate loans is way outside DB’s ordinary business scope, is somehow tied to every shady Russian money laundering scheme ever uncovered.

“Deutsche Bank’s pattern of involvement in money laundering schemes with primarily Russian participation, its unconventional relationship with the President, and its repeated violations of U.S. banking laws over the past several years, all raise serious questions about whether the Bank’s reported reviews of the mirror trading scheme and Trump’s financial ties to Russia were sufficiently robust,” the lawmakers wrote in the letter.

Clearly this delay must mean that Trump is guilty of colluding with the Russian government to hack the 2016 election.  We’re awaiting confirmation that Maxine Waters has started drafting impeachment motions.

Here is the original letter (link):

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Dear Great Britain – Blame Your Intelligence Agencies & Government, Not The Internet

As we have noted numerous times in recent months, increasingly draconian ‘Big Brother’ counter-terrorism tactics are being implemented around the world, and in the wake of the third terrorist attack in weeks in England, Prime Minister Theresa May is calling for new Internet regulations and the suppression of digital tools that facilitate online “safe spaces” where attacks can be coordinated… with reports overnight that May is considering new powers to block access to extremist websites if internet companies fail to act over online radicalisation.

But, as Liberty Blitzkrieg's Mike Krieger notes, the dishonest and dangerous response of Theresa May’s UK government to the horrific terrorist attacks of the past month is unfortunately all too common when it comes to those in power.

Rather than look inward at the glaring shadiness and corruption inherent throughout UK government polices, its “leaders” are looking to use these barbaric acts as a excuse to push through an authoritarian and illiberal expansion of state power. Specifically, Theresa May’s government is despicably using the attacks to push for regulation and censorship of the internet.

As reported by the Independent:

New international agreements should be introduced to regulate the internet in the light of the London Bridge terror attack, Theresa May has said.

 

The Prime Minister said introducing new rules for cyberspace would “deprive the extremists of their safe spaces online” and that technology firms were not currently doing enough.

 

“We cannot allow this ideology the safe space it needs to breed – yet that is precisely what the internet, and the big companies that provide internet-based services provide,” Ms May said.

 

The Conservative manifesto pledges regulation of the internet, including forcing internet providers to participate in counter-extremism drives and making it more difficult to access pornography.

Silly me, I thought this was about terrorism.

The Act, championed by Ms May, requires internet service providers to maintain a list of visited websites for all internet users for a year and gives intelligence agencies more powers to intercept online communications. Police can access the stored browsing history without any warrant or court order.

 

Ms May’s speech is thought to be the first time she has publicly called for international cooperation in bringing forward more red tape to cyberspace, however.

 

The intervention comes after the introduction of the Investigatory Powers Act 2016 – dubbed the “Snooper’s Charter” – which expands the powers of spying agencies and the Government over the internet.

It’s important to understand that May’s government was aggressively pushing for internet censorship well before both the recent terror attacks. For example, here’s some of what I highlighted in last month’s post, UK Government Moves Aggressively to Censor and Control the Internet:

Theresa May is planning to introduce huge regulations on the way the internet works, allowing the government to decide what is said online.

 

Particular focus has been drawn to the end of the manifesto, which makes clear that the Tories want to introduce huge changes to the way the internet works.

 

“Some people say that it is not for government to regulate when it comes to technology and the internet,” it states. “We disagree.”

It would be bad enough if the UK government was actually doing its best to prevent terrorist attacks, but harsh reality paints precisely the opposite picture. Moreover, today’s post proves without a doubt that the UK government is not only in bed with terrorists, but seems to be actively covering it up.

In that regard, over the weekend I read one of the most disturbing and enlightening pieces on just how complicit UK intelligence agencies are when it comes to supporting terrorism and allowing terrorists to come back to Great Britain.

The piece is a collaboration between Nafeez Ahmed and Mark Curtis, and is a lengthy must read. It’s titled, The Manchester Bombing: Blowback from British State Collusion with Jihadists AbroadPrepare to be outraged:

(This briefing will be updated as more evidence emerges. Sources are overwhelmingly from mainstream media, except where clearly stated).

Introduction

The evidence suggests that the barbaric Manchester bombing, which killed 22 innocent people on May 22nd, is a case of blowback on British citizens arising at least partly from the overt and covert actions of British governments. The British state therefore has a serious case to answer. We focus primarily here on UK policies towards Libya but also touch on some of those related to Iraq and Syria.

Summary

In summary, the evidence so far shows that there are six inter-related aspects of blowback:

  1. Salman Abedi and his father were members of a Libyan dissident group?—?the Libyan Islamic Fighting Group (LIFG)?—?covertly supported by the UK to assassinate Qadafi in 1996. At this time, the LIFG was an affiliate of Osama Bin Laden’s al-Qaeda and LIFG leaders had various connections to this terror network.
  2. Members of the LIFG were facilitated by the British ‘security services’ to travel to Libya to fight Qadafi in 2011. Both Salman Abedi and his father, Ramadan, were among those who travelled to fight at this time (although there is no evidence that their travel was personally facilitated or encouraged by the security services).
  3. A large number of LIFG fighters in Libya in 2011 had earlier fought alongside the Islamic State of Iraq?—?the al-Qaeda entity which later established a presence in Syria and became the Islamic State of Iraq and Syria (ISIS). These fighters were among those recruited into the British-backed anti-Qadafi rebellion.
  4. UK covert action in Libya in 2011 included approval of and support to Qatar’s arming and backing of opposition forces, which included support to hardline Islamist groups; this fuelled jihadism in Libya.
  5. One of the groups armed/supported by Qatar in 2011 was the February 17th Martyrs Brigade which, some reports suggest, was the organisation which Ramadan Abedi joined in 2011 to fight Qadafi.
  6. Qatar’s arms supplies to Libya in 2011 also found their way to Islamist fighters in Syria, including groups affiliated with al-Qaeda and ISIS.

Conclusions

The evidence points to the LIFG being seen by the UK as a proxy militia to promote its foreign policy objectives. Whitehall also saw Qatar as a proxy to provide boots on the ground in Libya in 2011, even as it empowered hardline Islamist groups.

 

Both David Cameron, then Prime Minister, and Theresa May?—?who was Home Secretary in 2011 when Libyan radicals were encouraged to fight Qadafi?—?clearly have serious questions to answer. We believe an independent public enquiry is urgently needed.

 

This combination of Anglo-American policies across the region has contributed to further instability and the rise of violent jihadism. In fact, an even stronger conclusion may be warranted based on the evidence of the extent of UK covert and overt action in the region in alliance with states consistently supplying arms to terrorist groups: that agencies of the British government itself have, in some senses, become part of the broader ‘terrorist network’ with which the British public is now confronted.

That was just part of the summary. Here’s some stuff from the heart of the piece.

The Manchester bomber, Salman Abedi, then aged 16, is reported to have fought against the Qadafi regime with his father Ramadan in the uprising of 2011.[3] The group that Salman Abedi joined, fighting alongside his father, was reportedly the LIFG.[4] Ramadan Abedi is reported as having been a prominent member of the LIFG, which he joined in 1994.[5]

 

Leaders in the LIFG had fought together in Afghanistan in the early 1990s, helping the Afghan mujahidin to overthrow the Soviet-backed government in Kabul.[13] The British government and CIA then covertly supported the mujahidin.[14]

 

In the mid to late 1990s, the LIFG was most active in the eastern province of Cyrenaica, was involved in violent clashes with the Benghazi police, and attempted to assassinate Qadafi. In 1996, there is evidence, now widely-known, that MI6 funded an operation to assassinate Qadafi using the LIFG. (See Box 2) The plot failed but the LIFG continued its violence in eastern Libya and sent fighters to at least two military training camps in Sudan in 1996, in which al-Qaeda was also present, thus helping the LIFG make contacts with al-Qaeda.[15]

 

When Qadafi clamped down on the LIFG following the assassination attempt, the UK gave refuge to some of its members and dozens were allowed to settle in Britain.[16]

 

By the end of the 1990s, LIFG activity had slowed drastically and many LIFG members relocated to join al-Qaeda. In 2001, the US Treasury Department listed LIFG as a foreign terrorist organisation linked to al-Qaeda. In 2002, LIFG’s al-Qaeda ties came under increasing scrutiny when Anas al-Libi, a senior LIFG commander and companion of Osama bin Laden, was detained by US forces for the 1998 bombings of American embassies in Kenya and Tanzania. In May 2003, the LIFG reportedly worked with the Moroccan Islamic Combatant Group (GCIM) to plan five synchronised suicide bombings that killed 45 people in Casablanca, Morocco.[17]

 

LIFG members played a key role in the opposition forces that toppled Qadafi in 2011. But Britain also facilitated the flow of LIFG dissidents from the UK to fight Qadafi. It also approved massive arms supplies to the opposition to Qadafi by Qatar, much of which went to hardline Islamist groups.

 

Middle East Eye has reported that the British government operated an ‘open door’ policy that allowed Libyan exiles and British-Libyan citizens to join the 2011 uprising that toppled Muammar Qadafi even though some had been subject to counter-terrorism control orders. Several former rebel fighters now back in the UK told Middle East Eye that they had been able to travel to Libya with ‘no questions asked’. These dissident were then members of the LIFG and most were from Manchester. One said that, as he was travelling back to Libya in May 2011, he was approached by two counter-terrorism police officers in the departure lounge who told him that if he was going to fight he would be committing a crime. But after providing them with the name and phone number of an MI5 officer he had spoken to previously, and following a quick phone call to him, he was waved through. As he waited to board the plane, he said the same MI5 officer called him to tell him that he had “sorted it out”.[20]

 

The Daily Mail reported that:

“when they returned to the UK, having spent months alongside groups thought by British intelligence to have links with Al-Qaeda, rebels were said to have been allowed back into the country without hesitation.”[21]

 

The Daily Mail also reported:

“Libyan officials have backed up the claims, saying the British government were ‘fully aware’ of young men being sent to fight, turning the North African country into an ‘exporter of terror’”.[22]

 

Peter Oborne, also writing in the Mail, has written that Libyan dissidents were “undoubtedly encouraged” to travel to Libya to oust Qadafi and that this was with the “encouragement of MI6” which released terror suspects from control orders.[23]

Read that over and over and over again. And the solution is to regulate the internet? What a complete joke.

Abdelhakim Belhaj, was LIFG’s emir from 1995 to 2010. In 1998, when LIFG members fled to Afghanistan to help the Taliban, Belhaj developed close relationships with Taliban chief Mullah Omar and al-Qaeda leaders.[26] He also wrote a glowing letter of support to the al-Qaeda mastermind of the 1993 World Trade Centre bombing.[27] Yet Belhaj would go on to become a military commander for the NATO-backed National Transition Council in Tripoli to bring down Qadafi in 2011.

 

During the 2011 war, the Gulf state of Qatar armed the Libyan opposition and in the process supported various hardline Islamist groups. Britain specifically backed the Qatari role in arming the opposition and worked closely with Qatar, supporting its provision of arms and support to fighters on the ground. Indeed, there is evidence that the Qatari role in Libya was specifically proposed by Britain.[28] Qatari arms went to Islamist groups such as the 17 February Martyrs Brigade, a militia comprised in part by Islamist fighters who had fought against Qadafi. Qatari support also went to Rafallah al-Sehati, a group whose extremists later broke away to form Ansar al-Shariah, the militant group that played a role in the death of the American ambassador, Christopher Stevens (see Box 5).

 

The weapons and money from Qatar strengthened militant groups in Libya, allowing them to become a destabilising force since the fall of the Qadafi regime.

 

It was also reported that Sufyan Ben Qumu, a Libyan army veteran who worked for Osama bin Laden’s holding company in Sudan and later for an al-Qaeda-linked charity in Afghanistan, ran the training of many of Darnah’s rebel recruits. Qumu spent six years at Guantanamo Bay before he was turned over to Libyan custody in 2007; he was released, along with al-Hasidi, from a Libyan prison in 2008 as part of Libya’s reconciliation with the LIFG.[30] Al-Hasidi, who had fought against the US in Afghanistan in 2001, had been arrested in Pakistan in 2002 and turned over to the US, imprisoned probably at the US base at Bagram, Afghanistan, and then mysteriously released. The US Deputy Secretary of State, James Steinberg, told Congressmen he would speak of al-Hasidi’s career only in a closed session.[31]

 

Other commentators recognised the Islamist nature of some of the rebels. Noman Benotman, a former member of the LIFG who had fought the Soviets in Afghanistan, estimated that there were 1,000 jihadists fighting in Libya.[32] Sir Richard Dearlove observed that the rebel stronghold of Benghazi was “rather fundamentalist in character” and Admiral James Stavridis, NATO’s Supreme Allied Commander in Europe, said that US intelligence had picked up “flickers” of terrorist activity among the rebel groups; this was described by senior British government figures as “very alarming”.[33] Shadow foreign secretary Douglas Alexander said in parliament that since there was evidence of the presence of al-Qaeda-linked forces among the rebels, Britain should “proceed with very real caution” in arming them. In response, Foreign Secretary William Hague downplayed the concern, saying that

 

“Of course we want to know about any links with al-Qaeda, as we do about links with any organisations anywhere in the world, but given what we have seen of the interim transitional national council in Libya, I think it would be right to put the emphasis on the positive side”.[34]

Look how that turned out.

They were “more antidemocratic, more hardline, closer to an extreme version of Islam” than the main rebel alliance in Libya, said a former Defense Department official’.[50] Qatar’s chief-of-staff, Major-General Hamad bin Ali al-Atiya, later said: “We acted as the link between the rebels and NATO forces”.[51] Qatar also played a key role alongside Britain in the ‘Libya contact group’ that coordinated policy against the Qadafi regime; the first meeting of the group, in April 2011, for example, was convened by Qatar and co-chaired by Britain in Doha..[52]

 

As the New York Times reported: ‘The weapons and money from Qatar strengthened militant groups in Libya, allowing them to become a destabilising force since the fall of the Qaddafi government”.[53]Indeed, some of Qatar’s arms were subsequently moved from Libya to militants in Syria and Mali.[54]

 

NATO’s intervention in Libya effectively created the conditions by which the country became a safe haven for jihadists sympathetic to al-Qaeda and ISIS, despite doctrinal disagreements. Far from the LIFG having been simply “deradicalised” as it had claimed in 2009, the documentary and public record evidence suggests that significant numbers of LIFG members remained sympathetic to the violent Islamist cause.

 

A large number of LIFG fighters in Libya in 2011 had earlier fought alongside the Islamic State of Iraq?—?the al-Qaeda entity which later established a presence in Syria and became the Islamic State of Iraq and Syria, ISIS (and later the Islamic State). They were then recruited into the British-backed anti-Qadafi rebellion.

 

Box 7: Arming the Syrian jihad

 

Document releases under FOIA from the Pentagon and Department of State show that the CIA was well aware of how weapons from anti-Qadafi rebels in Benghazi were covertly shipped to Islamist rebels in Syria by the Gulf states and Turkey.[63]

 

A September 2012 Pentagon Defence Intelligence Agency document confirmed that the Gulf states and Turkey, with Western support, were supporting Syrian rebel groups consisting of “the Salafist, the Muslim Brotherhood, and AQI [al-Qaeda in Iraq].” Al-Qaeda in Iraq’s role among “the major forces driving the insurgency in Syria” was noted in the context of anticipating that the support would lead to the creation of a “Salafist Principality” in eastern Syria. The document even predicted the possibility that al-Qaeda in Iraq’s main vehicle, ISI, “could also declare an Islamic State through its union with other terrorist organisations in Iraq and Syria.”[64]

 

The same powers that were involved in supplying Libya’s rebels, particularly Qatar, were active in Syria. Around the time that the DIA report circulated in the intelligence community, classified US intelligence assessments made available to President Obama and senior policymakers showed that most Saudi and Qatari arms were going to “hard-line Islamic jihadists, and not the more secular opposition groups”.[65]

 

In 2014, a senior Qatari official revealed that Qatar and Saudi Arabia had for years provided economic and military assistance primarily to both al-Qaeda’s Syrian arm, Jabhat al-Nusra, and to ISIS.[66]

 

A secret memo written for then Secretary of State Hillary Clinton in August 2014 (which appeared on the WikiLeaks website in 2016) noted that the Saudi and Qatari governments “are providing clandestine financial and logistic support to ISIL [ISIS] and other radical Sunni groups in the region”.[67]

 

Saudi Arabia’s neighbour Qatar, the world’s only other predominantly Wahhabi state with whom Theresa May’s government has recently signed large commercial deals, may have been the biggest funder of the Syrian rebels, with some estimates suggesting the amount may be as much as $3 billion.[68]

 

While this does not justify labelling all the Syrian rebels as jihadists, it explains why the more secular, democratic forces among the rebels have often been supplanted by hardline Islamist forces.

Even more worrisome, the more you look, the deeper the rabbit hole goes. Indeed, it appears the UK government will go to remarkable lengths in order to specifically protect its terrorist supporting allies.

For instance, take a look at this article published by the Independent a few days ago:

An investigation into the foreign funding of extremist Islamist groups may never be published, the Home Office has admitted.

 

The inquiry commissioned by David Cameron, was launched as part of a deal with the Liberal Democrats in December 2015, in exchange for the party supporting the extension of British airstrikes against Isis into Syria.

 

But although it was due to be published in the spring of 2016, it has not been completed and may never be made public due to its “sensitive” contents.

 

It is thought to focus on Saudi Arabia, which the UK recently approved £3.5bn worth of arms export licences to.

Come again?

Tom Brake, the Liberal Democrat foreign affairs spokesman, has written a letter to the Prime Minister pressing her on when the report will be published and what steps she proposes to take to address “one of the root causes of violent extremism in the UK”.

 

“You will agree with me that the protection of our country, of the British people, is the most important job of any government,” he wrote. “Certainly, more important than potential trade deals with questionable regimes, which appear to be the only explanation for your reticence.

 

Accusing the Conservatives of being “worried about upsetting their dodgy friends in the Middle East”, he said party had “broken their pledge to investigate funding of violent Islamist groups in the UK”.

 

He added: “That short-sighted approach needs to change. It is critical that these extreme, hard line views are confronted head on, and that those who fund them are called out publicly.”

This is straight up insanity, but it goes back a long way. For example, how about this from a 2008 Guardian article:

Saudi Arabia’s rulers threatened to make it easier for terrorists to attack London unless corruption investigations into their arms deals were halted, according to court documents revealed yesterday.

 

Previously secret files describe how investigators were told they faced “another 7/7” and the loss of “British lives on British streets” if they pressed on with their inquiries and the Saudis carried out their threat to cut off intelligence.

 

Prince Bandar, the head of the Saudi national security council, and son of the crown prince, was alleged in court to be the man behind the threats to hold back information about suicide bombers and terrorists. He faces accusations that he himself took more than £1bn in secret payments from the arms company BAE.

 

He was accused in yesterday’s high court hearings of flying to London in December 2006 and uttering threats which made the prime minister, Tony Blair, force an end to the Serious Fraud Office investigation into bribery allegations involving Bandar and his family.

But yeah, it’s the internet’s fault. Let’s blame YouTube videos.

Finally, the Saudis don’t only use the stick, they also brandish the carrot. As Lee Fang at The Intercept wrote yesterday:

New figures released by British Parliament show that, at a time when U.K. Prime Minister Theresa May’s ties to Saudi Arabia have become an election issue, conservative government officials and members of Parliament were lavished with money by the oil-rich Saudi government with gifts, travel expenses, and consulting fees.

 

Tory lawmakers received the cash as the U.K. backs Saudi Arabia’s brutal war against Yemen, the poorest country in the Middle East.

 

Labour leader Jeremy Corbyn has made the U.K.’s uneasy alliance with the Saudis an election issue, with voters going to the polls on June 8. The Tories’ ties to Saudi Arabia, Labour leaders charge, have resulted in record weapons sales — conservative governments have licensed £3.3 billion ($4.2 billion) in arms sales to the Saudi military since the onset of the Yemen campaign — and a reluctance to criticize human rights abuses.

 

While Tory politicians have defended the arms sales to Saudis as a move to shore up Britain’s allies in the region, Tory members of Parliament have collected £99,396 ($128,035) in gifts, travel expenses, and consulting fees from the government of Saudi Arabia since the Yemen war began.

Once the Saudis funded 9/11 and saw they could get away with it, they knew they could get away with anything.

Now let me just end this post with the following suggestion.

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Exposing “The Legend” – How Traders ‘Spoofed’ The Precious Metals Markets

Following last week's admission by a former Deutsche Bank trader that he and many other traders conspired to manipulate the precious metals markets, court documents expose chat messages that show the level of rigging and how an uknown trader known as "the legend" taught them the "tricks from the… master."

The Deutsche Bank trader, David Liew, pleaded guilty in federal court in Chicago to conspiring to spoof gold, silver, platinum and palladium futures, according to court papers. Bloomberg notes that spoofing involves traders placing orders that they never intend to fill, in an attempt to manipulate the price.

Following an introductory period that included orientation and training, LIEW was eventually assigned to the metals trading desk (which included base metals and precious metals trading) in approximately December 2009. During the Relevant Period, LIEW was employed by Bank A as a metals trader in the Asia-Pacific region, and his primary duties included precious metals market making and futures trading.

 

 

Between in or around December 2009 and in or around February 2012 (the "Relevant Period"), in the Northern District of Illinois, Eastem Division, and elsewhere, defendant DAVID LIEW did knowingly and intentionally conspire and agree with other precious metals (gold, silver, platinum, and palladium) traders to: (a) knowingly execute, and attempt to execute, a scheme and artifice to defraud, and for obtaining money and property by means of materially false and fraudulent pretenses, representations, and promises, and in furtherance of the scheme and artifice to defraud, knowingly transmit, and cause to be transmitted, in interstate and foreign commerce, by means of wire communications, certain signs, signals and sounds, in violation of Title 18, United States Code, Section 1343,which scheme affected a financial institution; and (b) knowingly engage in trading, practice, and conduct, on and subject to the rules of the Chicago Mercantile Exchange ("CME"), that was, was of the character of, and was commonly known to the trade as, spoofing, that is, bidding or offering with the intent to cancel the bid or offer before execution, by causing to be transmitted to the CME precious metals futures contract orders that LIEW and his coconspirators intended to cancel before execution and not as part of any legitimate, good-faith attempt to execute any part of the orders, in violation of Title 7, United States Code, Sections 6c(a)(5)(C) and 13(a)(2); all in violation of Title 18, United States Code, Section 371.

 

 

Defendant LIEW's employer, Bank A, was one of the largest global banking and financial services companies in the world. Bank A's primary precious metals trading desks were located in the United States, the United Kingdom, and the Asia-Pacific region.

 

Defendant LIEW and other precious metals traders, including traders at Bank A, engaged in a conspiracy to commit wire fraud affecting a financial institution and spoofing, in the trading of precious metals futures contracts traded on the CME.

 

Defendant LIEW placed, and conspired to place, hundreds of orders to buy or to sell precious metals futures contracts that he intended to cancel and not to execute at the time he placed the orders (the "Spoof Orders").

And now, as Bloomberg reports, after pleading guilty to fraud charges last week and agreeing to cooperate, Liew has become a prime government witness for U.S. prosecutors investigating whether traders at the world’s biggest banks conspired to manipulate prices in silver, gold, platinum and palladium.

His chats with colleagues — part of an FBI affidavit filed in Chicago and placed under seal — provide a window into the investigation by the Justice Department, which began looking into such activities at a dozen of the biggest global banks two years ago.

"Tricks from the …master," Liew typed in a chat after working with a colleague to move gold futures prices while Liew executed a trade. In the course of a year, Liew and his colleagues used fake orders to try to manipulate prices, an illegal practice called spoofing, more than 50 times.

 

In his court plea, Liew described working with others at his own bank and at two other operations. He refers to “The Legend,” without naming him, at another unidentified global bank. Many details are cloaked.

According to the documents, at least two senior colleagues taught Liew how small orders could be placed and then quickly pulled, pushing prices in a direction to benefit traders with client orders to fill. Within a couple years, he was teaching newer traders to do the same. In all, according to the filings, he attempted to move prices on Chicago’s CME more than 300 times before he left.

After trading silver futures on March 29, 2011, Liew wrote to the trader he called The Legend. "Look at silver … all algo play … basically I sold out … by just having fake bids," according to chats transcribed in the FBI affidavit.

 

By June 2011, Liew had begun teaching others the mechanics of spoofing, according to the FBI affidavit. In a chat with a trader from an unidentified trading firm, Liew explained how he used high-speed traders to move the market to his advantage. "I just spam … then cancel a lot … its actually stupid … cause im risking … but it gets the job done."

 

That August, Liew and a colleague discussed Dodd-Frank and their trading strategy in a chat, then engaged in spoofing to help Liew’s position in gold futures, according to the affidavit. "dodd frank gonna get me fired," Liew wrote.

 

Eight minutes later, Liew wrote, "I bought some gold for us … get ready .. to buy a bit more." The two then spoofed the market through a series of orders, according to the FBI account. Later, they boasted about their profits.

 

"u greedy for 50cents pumpkin … but Im greedy for $5 …lol," Liew wrote. His Deutsche Bank colleague replied, "I think we made … a lot … its ok … ahaha."

As we noted last week, Liew quite his job in July of 2012 to start a tech company, remarking on his personal blog that he was "uncomfortable with some of the things I witnessed/experienced."

Still we are sure that anyone uttering the word "rigged" around these markets will be chopped down to size by the mainstream, despite the reams of evidence (and facts), because all that matters is financial repression, precious metals suppression, and stock market acceleration.

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Mass Immigration & The Looming Disappearance Of The Dutch Population

Via GEFIRA,

A change in demographic trends takes 50 year before they become plainly visible. The decline in fertility in the sixties started to become visible after 50 years. Cerberus, our population simulator, shows with scientific precision that the replacement of the European society has started, and within 50 years it will be visible and irreversible.

Since the seventies of the previous century, the Western societies have not produced enough offspring to keep their communities growing. The fertility rate (i.e. the average number of children per woman) is far below 2.1. i.e. the level of replacement. A population with a higher rate will grow while a population with a lower rate will shrink. As it is, the Western and Japanese societies will begin to implode 40 years from the moment their fertility rate dropped, and this demographic winter, as this phenomenon is sometimes called, will affect the world more profoundly than the climate change, so politicians and investors should take notice. 

According to official state data the Swedish, French and Dutch populations will keep growing for the foreseeable future despite their low fertility rates. Western politicians seem to be taking great pleasure in the population decline in Russia, but shouldn’t they first bother about their own turf? How e.g. is it possible that the number of residents the Netherlands keeps growing if the number of the newborns is smaller and smaller?

To get an insight into the European situation the Gefira team performed the computation, and developed Cerberus 2.0, a software tool that, using copious amounts of demographic data provided by the Central Bureaus of Statistics, simulates the population development.

Cerberus, making use of the CBS Dutch Central Bureau of Statistics data, calculates how many people died and were born for every consecutive year from 1950 till 2100 and then creates a hypothetical Dutch population growth model without migration. This model overlaps with the official data up to 1980 (blue line in Figure 1 below). In the sixties, the Netherlands had an emigration surplus, i.e. more people left the country than arrived, while in the seventies the so-called mass immigration set in and the process was reversed.

Figure 1

A couple of years of immigration has no visible effect, which is why many immigration advocates argue that 50,000 arrivals against a population of 14 million, (i.e. 0.3 percent) is negligible. This is only true if it is a one-time event. If it happens year after year, it brings about a structural change of a population.

The cumulative effect of immigration became visible in the data after 10 years in 1980. The total population in the Netherlands grew according to the official CBS data (green line) much faster than the native population calculated by Cerberus (blue line). The native Dutch population reached a peak around 2015 at 15 million people, while the total number of inhabitants according to the CBS was 17 million and growing. The Dutch society will stay more or less stable with 18 million until 2060, the final year of the CBS projection. Cerberus on the other hand shows that in 2015 the Dutch population started to decline rapidly and in 2060 there will be 12 million Dutch left while at the end of the century there will only be 9 million native Dutch. The Dutch natives will become a minority. Due to demographic inertia it takes a long period before changes in fertility and migration are felt. We remind the reader that the Dutch fertility rate started to drop in the sixties and went below the point of replacement in 1973. Since then it will have taken more than 42 years before the Dutch native population starts to decline. The inevitable replacement of the people of Europe at the end of this century is already set in motion and we believe that after 2030 this process is irreversible.

We use Cerberus to calculate how many migrants are needed to keep the Dutch population stable at 18 million. We input into Cerberus the 1950 population and, starting in 1971, added 15%, 20% and 25% immigration-related growth. Our model showed that the population stabilized with a 25% extra growth, that is about 45 thousand immigrants annually, around 18 million people, which overlaps with the CBS projection

Cerberus proves that the Netherlands needs 45 thousand immigrants to meet the official projections of the CBS. The CBS data is the basis for governmental planning. The Dutch planners keep the mass-immigration unchanged for the foreseeable future instead of anticipating a sharp drop in population. Apparently, the Dutch establishment opts for the replacement of the Dutch society.

Figure 2

To perceive the consequence of the continuation of mass-immigration, one has to take a closer look at the population growth. When more immigrant children are born than those of Dutch natives the effect is not immediately visible, migrants will still be a minority of the total population but inevitably the Dutch will become a minority within that generation. To see how the growth of the Dutch population evolves we divided it into three components:

  1. The steadily decreasing number of newborn native Dutch;
  2. The steadily increasing number of non-native newborns;
  3. A constant number of incoming immigrants.

These components are shown in Figure 2.

In 2060 50% of the growth in the Netherlands will be non-Western newborns (orange) and immigrants (red), and around 2070 50% of all newborns (orange) are non-native Dutch. From there it takes a further 25 years before the natives are a minority. The Cerberus projections are very optimistic as they assume the native fertility rate at 1.66. According to our separate calculation the real current native-Dutch fertility rate is much lower and close to 1.5. Cerberus shows that the next decades are crucial for the survival of the Dutch population. In 2060 we will cross the Rubicon and reach the point of no return, the Dutch will be inevitably replaced with a non-Western society. But in 2035, 17 years from now, the total growth of the non-Dutch population in the Netherlands will already be a shocking 42%. Measures to increase the fertility are rather counterproductive and will probably only increase the fertility rate of non-Western immigrants. It is said that in the seventies and eighties immigrant families with 6 kids were able to live on the child benefit.

Since the demographic decline is observable in all Western countries, we are in for Europeans being gradually replaced by peoples from Africa or South Asia. We are now at the eleventh hour and if we do not put an immediate stop to all immigration, the Dutch society will vanish into thin air.

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Americans Are Taking More Time Off Work

The United States, unlike many other industrialized countries, has no statuary agreement on taking paid vacation. Meaning: There is no law telling employers the minimum number of days they need to give their employees off work – that are also paid for.

However, as Statista's Dyfed Loesche notes, Project:Time Off, which is sponsored by the U.S. Travel Association, has good news: After two decades of almost steady decline the average days of vacation have risen by 0.6 days year-over-year to 16.8 days in 2016.

Infographic: Americans Are Taking More Time Off Work | Statista

You will find more statistics at Statista

"Despite this encouraging sign, taking time off continues to be a challenge in America’s always-on work culture," the authors of the latest report conclude. Still, in 2016, 662 million vacation days were left unused, four million days more than 2015.

Taking time off doesn't just profit the individual workers who is said to become more productive after being able to recharge their batteries. According to the project's estimates, "the jump in vacation usage from 16.2 to 16.8 days delivered a $37 billion impact to the U.S. economy."

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