Friday 8 February 2019

Then The Wheels Flew Off.


Baltic Dry Index 610 -19       Brent Crude  61.27

Trump 25 percent tariffs 20 days away.  Brexit 50 days away.

In any great organization it is far, far safer to be wrong with the majority than to be right alone.

John Kenneth Galbraith.

According to President U-turn yesterday, President Trump has no plans on meeting President Xi before the March one deadline that triggers 25 percent punitive tariffs on China’s exports to the USA. He as good as said that barring a miracle climbdown by America or China in next weeks trade talks in Beijing, 25 percent tariffs are coming in, just three weeks away.

Though Asian markets eased on the news, stock markets everywhere are in deep denial of this increasingly likely outcome. Something will turn up next week in the trade talks to pull a white rabbit out of the conjurer’s empty hat.

I have my doubts. Neither President Trump or President Xi can be seen to be the loser to the other. Having stated how easy it is to win a trade war, President Trump is trapped in a corner of his own making. But President Xi is equally trapped by his new “strong man” leadership role at the top of the Chinese Communist Party. With neither able to give any meaningful ground next week, the wheels are about to fly off most of the world’s stock markets next week.

Below, ever so slowly the new reality sinks in. The panic probably starts next week.

Asian markets drop on renewed worries over U.S.-China trade talks

By Associated Press and Marketwatch  Published: Feb 7, 2019 10:52 p.m. ET
Asian markets tumbled on Friday after President Donald Trump said he doesn’t plan to meet Chinese leader Xi Jinping before a tariffs truce ends in March.

Hong Kong’s Hang Seng HSI, -0.32%  , reopening after a Lunar New Year break, gave up 0.8%. The Kospi SEU, -1.12%   in South Korea declined 1.2% and Australia’s S&P ASX 200 XJO, -0.34%   was down 0.4%.

----Stocks fell in Indonesia JAKIDX, -0.17%   and Singapore STI, -0.17%   but rose in Malaysia FBMKLCI, -0.50%  . Markets in China and Taiwan were closed.

On Thursday, Trump did not dismiss the possibility of meeting Xi in the next month or so. But he shook his head and said no when reporters asked if the meeting would take place before March 2.
That marks the end of a 90-day tariffs truce mooted after Trump and Xi met in December.

Read: New White House message on China is that there’s a long way to go before striking trade deal

Unless American and Chinese negotiators come to a new agreement, the U.S. is expected to raise import taxes from 10% to 25% for $200 billion in Chinese goods. The trade dispute between the world’s two largest economies, which has cooled in recent months, has weighed on the outlook of businesses and the global economy.

“The worries surround the uncertainties of a resolution to the likelihood of further tariffs in this on-again, off-again confidence with regards to a deal,” Jingyi Pan of IG said in a market commentary.

U.S. Treasury Secretary Stephen Mnuchin and trade representative Robert Lighthizer will lead a delegation to Beijing next week for the next round of trade talks. Officials have reported little progress on contentious issues but remain hopeful that a deal will be struck.

Japan’s Nikkei 225 index NIK, -1.99%   was 1.6% lower. On Friday, Japanese electronics and entertainment company Sony 6758, +4.18%   announced its first 100 billion yen ($911.2 million) share buyback for 2.36% of its Tokyo-listed stock. Its shares were up by 5%early trading. Meanwhile, Nikon 7731, -11.73%   plunged and auto makers such as Toyota 7203, -1.92%   and Honda 7267, -2.23%   slipped.

On Wall Street, stocks closed lower Thursday following a sell-off by technology companies, health care stocks and banks. Twitter TWTR, -9.84%   plunged almost 10% after issuing a weak forecast. The broad S&P 500 index SPX, -0.94%   shed 0.9% to 2,706.05. The Dow Jones Industrial Average DJIA, -0.87%   was 0.9% lower at 25,169.53 and the Nasdaq composite COMP, -1.18%   slid 1.2% to 7,288.35.
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In EUSSR news, as usual it was dog against dog and all against Brussels and Berlin. More and more it looks like the rump-EU is entering recession, even before Brexit, now just about seven weeks away. But if the EUSSR enters recession, and 25 percent US punitive tariffs go into effect in three weeks against China’s exports, how long before the rest of the world plunges into recession? How long before over priced stocks smash into the wall of reality?

How Italy’s Escalating Feud With Macron Puts Business at Risk

By Gregory Viscusi and John Follain
With French and Italian leaders at each other’s throats and relations at the lowest ebb since World War II, the risk of damaging fallout for business is growing.

Ties run deep between the two euro-area powers, making President Emmanuel Macron’s withdrawal of the French ambassador to Rome all the more stunning. It’s another divisive moment for the European Union as the regional economy weakens and the EU’s enemies circle.

“You have to go back to the war to find relations this bad,” said Marc Lazar, a history professor at Sciences Po university in Paris. 

The feud between Macron and Italy’s two deputy premiers, Matteo Salvini and Luigi di Maio, is escalating ahead of European Parliament elections in May that they and other populists view as the next chance to cut the political establishment down to size. Here’s a look at what’s dividing France and Italy and the stakes involved. 

French Banks

France’s two biggest banks, BNP Paribas and Credit Agricole, own retail units in Italy, meaning they’re among the most exposed if a selloff in Italy starts to affect the economy and spreads through Europe’s financial system.

Read more: Why Italy’s Staggering Debts Are Europe’s Problem

Italy is France’s third-biggest export market and France is Italy’s second-largest, combining for an estimated $89 billion in trade in 2017, according to IMF data.
 
$10 Billion Train Link
France wants to move ahead with a high-speed rail link between Lyon and Turin, which envisages a 57-kilometer (36-mile) tunnel through the base of the Alps. That’s in doubt since Italy’s anti-establishment government took power last year: Salvini favors the project, while Di Maio opposes it as a waste of money. Some of the more than 800 million euros ($909 million) in approved EU funding are at risk because of the holdup.
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German industrial output falls, raising risk of recession

February 7, 2019 / 7:12 AM
BERLIN (Reuters) - German industrial output unexpectedly fell in December for the fourth consecutive month, sending another signal that growth in Europe’s biggest economy is weakening.
Data from the Federal Statistics Office on Thursday showed industrial output was down by 0.4 percent, confounding a Reuters forecast for an increase of 0.7 percent. 

Analysts said the fall makes it more likely that the economy contracted in the fourth quarter, which would translate into a recession after growth domestic product fell in the third quarter.

After nearly a decade of steady growth, the German economy has been facing headwinds from trade frictions between the United States and both China and the European Union. Britain’s possible departure from the EU next month without a deal is also clouding the outlook for German manufacturers.

December’s drop in industrial output was led by the construction sector, where activity shrank by more than 4 percent, which could not be offset by a small rise in manufacturing output, a breakdown of the data showed.

The economy ministry said the auto sector, which has been a drag on the economy because new emissions standards translated into fewer new vehicle registrations, rebounded in December as output rose by more than 7 percent.

The figure for November was revised up to a fall of 1.3 percent from a previously reported drop of 1.9 percent.

“A positive GDP reading in the fourth quarter of 2018 now looks tight,” said Thomas Gitzel of VP Bank Group. “A positive (industry) reading would have reduced the chance of a negative GDP reading in the fourth quarter.”
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EU cuts euro zone growth forecast, inflation to slow

February 7, 2019 / 10:22 AM
BRUSSELS (Reuters) - The European Commission sharply cut on Thursday its forecasts for economic growth in the euro zone this year and next because of an expected slowdown in the largest countries of the bloc caused by global trade tensions and growing public debt.

In its quarterly economic forecasts, the EU executive also revised down its estimates for the inflation in the 19-country currency bloc next year, which now is expected to be lower than forecast by the European Central Bank - likely complicating the bank’s plans for an interest rate hike this year.

The Commission said euro zone growth will slow to 1.3 percent this year from 1.9 percent in 2018, and is expected to rebound in 2020 to 1.6 percent.

The new estimates are less optimistic than the Commission’s previous forecasts, released in November, when Brussels expected the euro zone to grow 1.9 percent this year and 1.7 percent in 2020.

Growth in the 27-nation European Union - without Britain which is planning to leave in March - is expected to slow to 1.5 percent this year from 2.1 percent in 2018. Next year, the bloc is forecast to expand by 1.8 percent.

All countries of the European Union are poised to continue growing, with the bloc expected to post its seventh consecutive year of expansion, but the larger member states will brake significantly.
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Nothing is so admirable in politics as a short memory.

John Kenneth Galbraith.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over banksters and politicians.
Today, where there’s a will and a profit, commodity traders will find a way. But is it entirely legal? Does US ethanol really get blended with Asian ethanol or merely blended with rebranded US ethanol? I don’t know either, but will China now seize a few a few hapless pawns, Huawei CFO style?

Long, strange trip: How U.S. ethanol reaches China tariff-free

February 7, 2019 / 7:07 AM
NEW YORK/KUALA LUMPUR (Reuters) - In June, the High Seas tanker ship loaded up on ethanol in Texas and set off for Asia.

Two months later - after a circuitous journey that included a ship-to-ship transfer and a stop in Malaysia - its cargo arrived in China, according to shipping data analyzed by Reuters and interviews with Malaysian and Chinese port officials.

At the time, the roundabout route puzzled global ethanol traders and ship brokers, who called it a convoluted and costly way to get U.S. fuel to China. (MAP: tmsnrt.rs/2HP1ywa )

But the journey reflects a broader shift in global ethanol flows since U.S. President Donald Trump ignited a trade war with China last spring.

Although China slapped retaliatory tariffs up to 70 percent on U.S. ethanol shipments, the fuel can still legally enter China tariff-free if it arrives blended with at least 40 percent Asian-produced fuel, according to trade rules established between China and the Association of Southeast Asian Nations (ASEAN), the regional economic and political body.

In a striking example of how global commodity markets respond to government policies blocking free trade, some 88,000 tonnes of U.S. ethanol landed on Malaysian shores through November of last year - all since June, shortly after China hiked its tax on U.S. shipments. The surge follows years of negligible imports of U.S. ethanol to Malaysia.

In turn, Malaysia has exported 69,000 tonnes of ethanol to China, the first time the nation has been an exporter of the fuel in at least three years, according to Chinese import data.

Blending U.S. and Asian ethanol for the Chinese market undermines the intent of Beijing’s tariffs and helps struggling American ethanol producers by keeping a path open to a major export market that would otherwise be closed.

“Global commodity markets are incredibly creative in finding ways to ensure willing sellers are able to meet the demands of willing buyers,” Geoff Cooper, head of the Renewable Fuels Association, said in a statement to Reuters. The group represents U.S. ethanol producers.

In at least two cases examined by Reuters, including that of the High Seas, blending of U.S. ethanol cargoes with other products appeared to have occurred in Malaysia before the cargoes were shipped on to China, according to a Reuters analysis of shipping records and interviews with port officials.

Chinese merchants including the state-backed oil company Unipec notified Chinese authorities about the unusual activity last summer - which represented competition they had not anticipated under the tariff scheme, according to two industry sources.
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"In economics, hope and faith coexist with great scientific pretension."

John Kenneth Galbraith.

Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

Cyber-warfare could be entering a new and alarming phase, ex-CIA analyst tells MPs

Future attacks, says Christopher Porter, could target the global financial system and government debt

Murray Brewster · CBC News · Posted: Feb 06, 2019 7:34 PM ET

Online attacks on Canada's financial system could become far more destructive as more militaries around the globe get involved in cyber operations, a security expert and former CIA analyst told a House of Commons committee Wednesday.

Christopher Porter, the chief intelligence strategist for the cyber security company Fireeye, Inc., testified that as NATO countries share their expertise on how to defend against and defeat online threats, "major cyber powers outside the alliance" will likely do the same.

The consequences, he said, could be dire.

The West's imposition of sanctions on "some countries" has in the past been met with denial-of-service attacks on financial services websites, he said — attacks that have only been disruptive.

"In the future, they may respond with destructive attacks aimed at permanently disabling financial services or altering data in ways that undermine trust in the global financial system, such as by delaying or impairing the trustworthy settlement of collateralized government debt," Porter said.

"For countries sufficiently sanctioned and therefore increasingly outside that financial system anyway, there is little incentive not to do so during a confrontation."

He did not name the countries he believes pose an imminent threat, but North Korea, Russia and Iran are widely known to possess sophisticated cyber capabilities and — in some cases — loose associations with groups of private hackers.

The Commons public safety committee is studying security in the financial sector. Wednesday's hearing focused on online threats.

"I am gravely concerned about the militarization of cyber operations," said Porter, who spent nearly nine years at the CIA and served as the cyber threat intelligence briefer to White House National Security Council staff.

"(The) proliferation of cutting-edge offensive cyber power, combined with an increased willingness to use it with minimal blowback and spiraling distrust, has set the stage for more disruptive and destabilizing cyber events, possibly in the near future."

The cyber espionage threat Canada faces is still "moderate," said Porter, but his organization has noted at least 10 groups from China, Russia and Iran that have targeted Canada in the last few years.

His grim assessment was echoed by another private sector expert who appeared before the committee. Jonathan Reiber, head of cybersecurity at Illumio, an American business data center, said most of Washington's efforts to get everyone to step back from the cyber-warfare brink have gone nowhere.

He also suggested that online militarization was inevitable. "Adversaries have escalated in cyberspace, despite U.S. efforts at deterrence," he said.
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Another weekend, possibly the last weekend before the recession Panzers, May 1940 style, come crashing through complacent, unprepared positions. Have a great weekend everyone. A little excitement seems to lie ahead if President Trump’s new assessment holds.

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.

John Kenneth Galbraith

The monthly Coppock Indicators finished January.

DJIA: 24,999 +76 Down. NASDAQ: 7,282 +124 Down. SP500: 2,704 +71 Down. 
Normally this would suggest more correction still to come, but with President Trump wanting to be judged by the performance of the stock market and the Fed’s Plunge Protection Team now officially part of President Trump’s re-election team, probably the safest action here is fully paid up synthetic double options on most of the major indexes.

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