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Morgan Stanley stock is 3.5% higher after reporting another "stellar", as Bloomberg called it, quarter with beats across the board, especially in trading and investment banking, in contrast to Goldman's somewhat soft earnings report. 

The bank reported Q2 EPS of $1.30, handily beating estimates of $1.11, on revenue of $10.6BN, half a billion above the $10.1BN expected, and compared to $9.5BN a year ago.

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Morgan Stanley stock is 3.5% higher after reporting another "stellar", as Bloomberg called it, quarter with beats across the board, especially in trading and investment banking, in contrast to Goldman's somewhat soft earnings report. 

The bank reported Q2 EPS of $1.30, handily beating estimates of $1.11, on revenue of $10.6BN, half a billion above the $10.1BN expected, and compared to $9.5BN a year ago.

Morgan Stanley reported that its effective tax rate from continuing operations was 20.6% in Q2, in line with that of Goldman and somewhat higher than expected, reflecting "the impact of intermittent net discrete tax benefits of $88 million primarily associated with new information pertaining to the resolution of multi-jurisdiction tax examinations and other matters

This was the second consecutive quarter in which Morgan Stanley reported over $10BN in revenue, as well as the 13th consecutive quarter in which Morgan Stanley reported higher revenues than Goldman.

Commenting on the result, CEO James Gorman said, “We reported robust revenue and earnings growth this quarter with strength across all businesses and geographies. The second quarter performance reflected active markets and healthy client engagement. Our strong global franchise positions us well to continue to grow organically across each of our businesses and to deliver operating leverage."

More importantly, unlike Goldman there were no complaints about a lack of market volatility during the quarter.

The revenue beat was solid and carried across all key investment banking product lines:

• Investment banking revenue $1.7BN vs $1.4BN y/y, with advisory rev. of $618MM vs $504MM on higher levels of completed M&A activity across all regions.
• Equity underwriting rev. $541MM vs $405MM y/y driven, like in Goldman's case, by higher revenues on IPOs.
• Fixed income underwriting revenues of $540MM vs $504MM, driven by junk bond loan fees.

And here an interesting league table overlap via BBG: both Morgan Stanley and Goldman Sachs are now claiming to be No. 1 in dealmaking, specifically in M&A and IPOs, with Morgan Stanley claiming it was ranked #1 in "Global Announced and Completed M&A and Global IPOs."

Sales and trading was just as strong, with net revenue rising to $3.8BN from $3.2BN a year ago, with beats also in every vertical:

• Equity sales and trading net rev. $2.5BN vs $2.2BN on "strong performance" across all products, particularly in financing business
• Fixed Income sales and trading net rev. $1.4BN vs $1.2BN on higher results in commodities, credit products

What is notable here, is that as Bloomberg's Laura Keller notes, "Morgan Stanely achieved trading greatness this quarter even as it saw a drop in its value-at-risk. VaR of $44 million in the second quarter declined on both a sequential and year-over-year basis."

Of note, Morgan Stanley keeps its global equities trading lead this quarter, with outpeforming FICC as well. Gains in both exceeded the aggregate at U.S. peers, according to Bloomberg.

In the bank's key product line, wealth management, net revenue rose to $4.3BN vs $4.2BN a year ago..

• Asset mgmt rev. $2.5b vs $2.3b on higher asset levels, positive flows
• Transactional rev. $691m vs $766m, reflecting lower fixed income rev., lower gains on investments associated with employee deferred compensation plans,

Yet even though Morgan Stanley's overall staff is getting bigger, wealth management's 595 retail locations remained unchanged Q/Q, and down from 601 this time last year. Wealth management representatives dropped from 15,682 (Q1) to 15,632 (Q2), down from 15,777 in June 2017.

On the expense side, and in contrast with Goldman which saw its accrued comp shrink as noted yesterday, compensation expense rose to $4.6BN vs $4.3BN y/y on higher revenues meaning that suddenly it's more lucrative to be a MS banker over GS; Separately, non-comp expenses rose to $2.9BN vs $2.6BN Y/Y on higher volume driven expenses; expense efficiency ratio 71% vs 72% y/y, reflecting "continued expense discipline."

Finally, during the quarter ended June 30, 2018, the Firm repurchased approximately $1.25 billion of its common stock or approximately 24 million shares. The Board authorized a share repurchase of up to $4.7 billion of common stock beginning in the third quarter of 2018 through the end of the second quarter of 2019.

MS also declared a quarterly dividend to $0.30 per share, a 20% increase from $0.25 per share, payable on August 15, 2018 to common shareholders of record on July 31, 2018.

As a result of the strong earnings, the bank's stock spiked 4% higher in kneejerk reaction, although it has since trimmed some of the gains. The earnings lifting the rest of the bank sector with Bank of America and Goldman both higher.

Still reeling from the bipartisan outrage over his press conference alongside Russian President Vladimir Putin, President Trump announced on twitter Wednesday morning that Russia has agreed to help with North Korea as the president tries to prove his critics wrong and demonstrate exactly why closer ties with Russia are a net positive for the US - as Trump has long insisted.

"While the NATO meeting in Brussels was an acknowledged triumph...the meeting with Russia may prove to be, in th Read more.....

Still reeling from the bipartisan outrage over his press conference alongside Russian President Vladimir Putin, President Trump announced on twitter Wednesday morning that Russia has agreed to help with North Korea as the president tries to prove his critics wrong and demonstrate exactly why closer ties with Russia are a net positive for the US - as Trump has long insisted.

"While the NATO meeting in Brussels was an acknowledged triumph...the meeting with Russia may prove to be, in the long run, an even greater success," Trump began (indeed, even the NYT has praised Trump because he "got from NATO everything Obama ever asked for"). "Russia has agreed to help with North Korea, where relationships with us are very good and the process is moving along."

Trump also insisted that "so many people at the higher ends of intelligence loved my press conference performance in Helsinki" although it was unclear who Trump was referring to.

So many people at the higher ends of intelligence loved my press conference performance in Helsinki. Putin and I discussed many important subjects at our earlier meeting. We got along well which truly bothered many haters who wanted to see a boxing match. Big results will come!

— Donald J. Trump (@realDonaldTrump) July 18, 2018

While the NATO meeting in Brussels was an acknowledged triumph, with billions of dollars more being put up by member countries at a faster pace, the meeting with Russia may prove to be, in the long run, an even greater success. Many positive things will come out of that meeting..

— Donald J. Trump (@realDonaldTrump) July 18, 2018

....Russia has agreed to help with North Korea, where relationships with us are very good and the process is moving along. There is no rush, the sanctions remain! Big benefits and exciting future for North Korea at end of process!

— Donald J. Trump (@realDonaldTrump) July 18, 2018

Capping off his morning tweetstorm, Trump congratulated Martha Roby of Alabama for fending off a Republican primary challenger last night. Trump credited his endorsement of Roby (who hasn't always been full-throated in her support of the president) with opening the "flood gates" that led to her landslide victory.

Congratulations to Martha Roby of The Great State of Alabama on her big GOP Primary win for Congress. My endorsement came appropriately late, but when it came the “flood gates” opened and you had the kind of landslide victory that you deserve. Enjoy!

— Donald J. Trump (@realDonaldTrump) July 18, 2018

Trump will have another chance to rebut his critics Wednesday afternoon when he tapes the second part of his interview with CBS's Jeff Glor.

Shares of Google parent Alphabet are in the red on Wednesday morning as European Union antitrust regulators unveiled a record €4.3 billion ($5 billion) fine against the tech giant for allegedly anti-competitive practices related to Google's Android operating system. The wide-ranging probes into Alphabet have been a primary focus of Margrethe Vestager, the bloc's famously aggressive competition commissioner, since she was first appointed to the role in 2014.

Wednesday's fine fo Read more.....

Global stock markets were firmer on Wednesday, supported by Tuesday's euphoric tone when not even the Netflix debacle could hold back the Nasdaq from hitting a new all time high, as a positive assessment of the US economy from Fed chair Powell boosted the dollar, lifted bond yields and and hit raw materials and emerging-market currencies, while pummeling gold to a one-year trough.

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Global stock markets were firmer on Wednesday, supported by Tuesday's euphoric tone when not even the Netflix debacle could hold back the Nasdaq from hitting a new all time high, as a positive assessment of the US economy from Fed chair Powell boosted the dollar, lifted bond yields and and hit raw materials and emerging-market currencies, while pummeling gold to a one-year trough.

On Tuesday, Powell "had a little something for everyone", cementing the rate hike path while preserving his options by saying gradual tightening would continue “for now.” The Fed chairman offered few surprises, which allowed markets to focus on earnings. Day two of Powell's testimony is later today, this time in the House.

"Powell’s testimony to the U.S. Senate yesterday gave currency markets a much-needed reality check," DBS Group strategists Philip Wee and Eugene Leow write in note. “Looking past the trade war worries meant a stronger U.S. dollar, not vice versa."

"It basically means another rate hike in September and most likely another one after that in December,” said Rabobank market economist Stefan Koopman. "He couldn’t stay away obviously from the potential threats of protectionism, but he is still waiting to see how everything pans out so he wasn’t really concerned about it - and that is giving the market another boost."

Stocks in Europe climbed, Asian stocks were mixed, while S&P 500 futures initially edged higher only to hug the unchanged line later in the day, although if yesterday's action is any indication, expect another burst higher out of the gate, now that 2,800 in the S&P is in the rearview mirror and the next resistance level for the S&P is the January 26 all time high of 2,873. In overnight trading, Google parent Alphabet fell in pre-market trading as it was said to be facing an imminent $5 billion fine, curbing Nasdaq futures.

"The S&P has finally broken to the upside through 2,800 out of the range that has confined it for most of this year, and this could now be the start of a grind higher in global equities over the next few weeks,” wrote analysts at JPMorgan in a note.

Shares in Europe advanced after a mixed session in Asia, as carmakers were boosted by the prospect of negotiations to reduce tariffs, while technology shares were spurred by an apparent turnaround at Ericsson AB and forecast of greater profitability at chipmaker ASML Holding NV, as well as yesterday’s Nasdaq gains. European auto names are supported by reports Europe is exploring dialogue with US President Trump regarding a reduction in US auto tariffs. Earnings have been dominating the morning with the likes of Novartis (+2.2%), Akzo Nobel (+0.9%), UbiSoft (+6.3%) reporting. BHP (+3.0%) currently stands at the top of the FTSE 100 after reporting positive Q2 production. Elsewhere, Italian banks fell to the foot of the Italian benchmark after UK clearing house LCH raise the margin call on BTPs.

Earlier, Asian stocks started off on the front foot, with the MSCI Asia Pacific index advancing after Nikkei gained as much as 0.7% and Chinese stocks rise for first time in four days. However, the relentless rise in the dollar spooked the Yuan and the Chinese currency tumbled, with the USDCNH rising above 6.75, the highest level since last July, and prompting fresh questions if the PBOC "redline" which was drawn earlier this month when the currency slid below 6.70, has been long forgotten and whether Beijing will allow the Yuan to depreciate much further.

The continued weakness in the Yuan prevented Chinese stocks from rebounding, and the Shanghai Composite slumped again, closing near session lows.

In FX, the dollar rose for the second day against all of its G-10 peers after Powell's upbeat economic assessment on the U.S. economy and that the Fed will continue to gradually raise interest rates "for now." The Bloomberg Dollar Spot Index rose 0.4%, climbing to a two-week high ahead of day two of Powell's testimony, this time before the House.

Meanwhile, the pound tumbled to a 10-month low against the dollar and gilt futures rallied after U.K. CPI data fell short of consensus, with BOE rate hike odds sliding to ~74% for Aug. meeting, from ~83% ahead of the print. Meanwhile, the yen briefly weakened 113 against the dollar for first time since January as Bloomberg dollar index remains bid following Powell testimony.

Treasuries held steady; core euro-area bonds edged higher while peripheral bonds slipped even as Germany sold 30- year bunds.

In other overnight news, Fed's George (Non-Voter, Hawk) stated the US economy is in excellent condition and that monetary policy remains accommodative. Fed’s George also stated that gradual rate hikes are required and uncertainty remains regarding speed and distance of Fed rate hikes. Elsewhere, Alphabet’s Google are to be fined €4.3bln by the EU regarding Android, according to reports, pressuring the Nasdaq.

Oil declined after API reported a surprise increase in U.S. crude inventories. Commodities have been subdued, in tandem with overnight price action, WTI flirts around USD 67.50/bbl while Brent is below USD 71.50/bbl, weighed on by last night’s API’s printed a surprise build in crude inventories. Metals are lower today (Gold -0.4%), pressured by the firmer USD. Elsewhere, while copper's attempts to nurse losses were somewhat futile alongside broad subdued tone across the complex. US API Weekly Crude Stocks (9 Jul) +0.629M vs. Exp. -3.600M (Prev. -6.795M)

Looking ahead, highlights include US building permits, housing starts, DoEs and Fed’s Powel; scheduled earnings include IBM, Morgan Stanley, Abbott and American Express.

Market Snapshot

• S&P 500 futures up 0.1% to 2,813.50
• STOXX Europe 600 up 0.5% to 386.74
• MXAP down 0.02% to 164.98
• MXAPJ down 0.1% to 535.21
• Nikkei up 0.4% to 22,794.19
• Topix up 0.4% to 1,751.21
• Hang Seng Index down 0.2% to 28,117.42
• Shanghai Composite down 0.4% to 2,787.26
• Sensex down 0.5% to 36,351.67
• Australia S&P/ASX 200 up 0.7% to 6,245.11
• Kospi down 0.3% to 2,290.11
• German 10Y yield fell 0.7 bps to 0.339%
• Euro down 0.4% to $1.1610
• Brent Futures down 1% to $71.41/bbl
• Italian 10Y yield fell 10.8 bps to 2.204%
• Spanish 10Y yield rose 0.4 bps to 1.254%
• Gold spot down 0.4% to $1,223.21
• U.S. Dollar Index up 0.3% to 95.25

Top Overnight News from Bloomberg

• Google will be fined around 4.3 billion euros ($5 billion) by the European Union over Android apps on Wednesday, setting a new record for antitrust penalties, according to a person familiar with the EU decision
• Jerome Powell said in his semi-annual testimony Tuesday the central bank’s plan to “keep gradually raising the federal funds rate” with the caveat “for now”. He added protectionism can hurt economic growth and potentially undermine wages,
• U.K. govt whips’ tactics are under attack after PM May wins knife-edge vote, saving her from what would have been a catastrophic Brexit defeat. EU govts will probably resist further inflaming the U.K.’s Brexit turmoil when they meet on Friday
• The Trump administration plans to open an investigation into whether uranium imports are harming national security, a move that could lead to tariffs on foreign shipments of the metal, said three people familiar with the matter.
• European Commission President Jean-Claude Juncker will meet President Donald Trump in Washington next week to explore the possibility of starting negotiations on reducing car tariffs for several key trade partners, according to two people with knowledge of the plans.
• President Donald Trump said Tuesday he accepts the conclusion by U.S. intelligence agencies that Russia interfered in the U.S. presidential election, marking a rare retreat from comments just a day earlier amid a backlash from Republicans.
• European Commission President Jean-Claude Juncker will meet President Donald Trump in Washington next week to explore the possibility of starting negotiations on reducing car tariffs for several key trade partners, according to two people with knowledge of the plans
• U.K. inflation unexpectedly held at 2.4 percent last month as cheaper clothing and computer games offset the rising cost of filling up a vehicle

Asian equity markets traded with a positive tone as momentum rolled over from US where all majors gained and the Nasdaq posted fresh record highs on tech outperformance, with sentiment also underpinned after upbeat comments from Fed Chair Powell. ASX 200 (+0.7%) and Nikkei 225 (+0.4%) were higher with Australia led by miners including BHP after  the industry giant posted strong Q4 iron ore production numbers, while Japanese exporters were lifted by favourable currency moves in which USD/JPY briefly rose above 113.00 for the first time since January. Hang Seng (-0.2%) and Shanghai Comp. (-0.4%) bucked the trend despite the PBoC conducting a 3rd consecutive daily net injection via reverse repos with losses spurred by continued weakness in blue chip energy names, while Xiaomi shares surged amid reports HKEX agreed with mainland exchanges on changes to Stock Connect inclusions which will ultimately allow shares with weighted voting rights to be included for Southbound trade. Finally, 10yr JGBs were uneventful as focus was centred on riskier assets, and after an enhanced liquidity auction for longer bonds also failed to spur price action despite a higher b/c than previous.

Top Asian News

• India Stocks Erase Gains as Government Gets No Confidence Motion
• Japan’s Summer Power Prices Surge to 4-Year High Amid Heat
• Taiwan Stocks Resilient to Trade Concern as Locals Step Up
• Topix Posts Best Four-Day Advance Since February as Yen Dips

European equities kicked off the session on an optimistic note (Eurostoxx 50 +0.5%) as the tech sector is boosted by NASDAQ’s record close and earnings from ASML (+6.4%), dragging counterparts higher in sympathy. European auto names are supported by reports Europe is exploring dialogue with US President Trump regarding a reduction in US auto tariffs. Earnings have been dominating the morning with the likes of Novartis (+2.2%), Akzo Nobel (+0.9%), UbiSoft (+6.3%) reporting. BHP (+3.0%) currently stands at the top of the FTSE 100 after reporting positive Q2 production. Elsewhere, Italian banks fell to the foot of the Italian benchmark after UK clearing house LCH raise the margin call on BTPs.

Top European News

• U.K.’s May Pays Price of Trust to Survive in Tory Brexit War
• Danske’s Laundering Headache and Weak Profit Spark Selloff
• Deutsche Bank Raises European Miners to Overweight on China Bet
• StanChart Private Equity to Buy Stake in TBO Group From Naspers

In FX, the DXY was back above 95.000 in wake of supportive vibes from Fed Chair Powell on Tuesday, but the broad Usd also benefiting from the demise of rival currencies amidst further posturing and positioning in global trade wars. Note, the CNY and CNH have both fallen further below levels that previously sparked official intervention, partly by design via PBoC fixing. GBP: No let-up in the negatives for the Pound as broadly softer than forecast headline and pipeline UK inflation prints compound losses made on the back of ongoing political instability and Brexit divisions within Whitehall. Cable has now lost hold of another big figure (1.3100) and tested bids just ahead of 1.3000 before some consolidation/short covering (with perhaps circa 2 bn option expiries at the strike for tomorrow also being defended), while Eur/Gbp has breached psychological resistance at 0.8900. EUR - Also a victim of the buoyant Greenback and divergent yield/CB trends, with the single currency seriously testing 1.1600 bids after dipping through near term technical support around 1.1613.

Commodities are mostly subdued, in tandem with overnight price action, WTI flirts around USD 67.50/bbl while Brent is below USD 71.50/bbl, weighed on by last night’s API’s printed a surprise build in crude inventories. Metals are lower today (Gold -0.4%), pressured by the firmer USD. Elsewhere, while copper's attempts to nurse losses were somewhat futile alongside broad subdued tone across the complex. US API Weekly Crude Stocks (9 Jul) +0.629M vs. Exp. -3.600M (Prev. -6.795M) Citi raised long-term copper price forecast to USD 7500/ton from USD 7000/ton, while it stated that trade war is a long-term buying opportunity for copper and said to prepare for a decade of copper on steroids.

Looking at the day ahead, in the US, June housing starts and building permits data is due before the Fed's Beige Book in the evening. Morgan Stanley, IBM and eBay will also be reporting their Q2 earnings. Fed Chair Powell will also appear  before the House Financial Services Committee although that should largely be a copy and paste of yesterday.

US Event Calendar

• 7am: MBA Mortgage Applications, prior 2.5%
• 8:30am: Housing Starts, est. 1.32m, prior 1.35m;
  • Building Permits, est. 1.33m, prior 1.3m;
• 10am: Fed Chairman Powell Appears Before House Panel
• 2pm: U.S. Federal Reserve Releases Beige Book

DB's Craig Nicol concludes the overnight wrap

Yesterday in Washington Jerome Powell was busy flying the flag for the Fed with his semi-annual testimony in front of the Senate but it certainly lacked the drama of a mountain top finish. The prepared text was pretty much in line with expectations with one exception being the inclusion of “for now” in the sentence “the FOMC believes that, for now, the best way forward is to keep gradually raising the federal funds rate”. That was a new shift in tone and whilst the initial read-through was that it might be dovish, you could probably also make an argument both ways in that it could also mean accelerating tightening should there be obvious signs of overheating. So perhaps just an optionality play.

In terms of the Q&A much of the focus was on what the Fed Chair may or may not say about trade tensions and the flattening yield curve. On the former Powell said that there was no evidence of trade tensions coming through the data but that the Fed is hearing a “rising chorus of concerns”. That wasn’t particularly new information compared to what we’ve heard in the past from Powell. On the yield curve, Powell highlighted that what really matters is where the neutral rate sits. DB’s Matthew Luzzetti believes that while he didn’t say so explicitly, this would seem to argue for focusing on yield curve measures that may reflect expectations for neutral more accurately and are less distorted by other factors. Powell also mentioned that there are many differing views within the Committee on how concerned to be about the flattening curve so it’s certainly a topic of debate internally. Speaking at a separate event, the Fed’s Esther George sees the US economy in “excellent” shape but refrained from specific rates guidance as she noted “gradual further increases in our rates will be necessary to return policy to a neutral stance, although there is considerable uncertainty about exactly how far or fast we need to go”.

If the market was hoping for a bit of volatility in rates while Powell was speaking, well it will be fairly disappointed with the high to low range a paltry 2.1bps for the 10y Treasury. They eventually finished +0.2bps higher at 2.861% while 2y yields finished +1.9bps higher, meaning the curve flattened to a new low of 24bps. The US dollar index rallied pretty much from mid-morning however, closing +0.50%, while in Europe bond markets were for the most part a bit stronger (10y Bunds -1.8bps to 0.343%) with BTPs standing out after 10y yields fell -10.9bp and below  2.500% for the first time since the end of May.

At the other end of the risk spectrum it looked like equity markets might be in for a rough day after that disappointing Netflix earnings report and Goldman Sachs numbers which were also taken fairly negatively by the market. However, the damage for the Nasdaq lasted only a matter of minutes after the index wiped out an initial -0.72% fall at the open to hit unchanged just over an hour in, before closing +0.63% last night and at a new record high. Despite Netflix closing down -5.24% (albeit paring a fall of as much as -14.1%) the remainder of the heavyweight tech names merely shrugged their shoulders with the NYSE FANG index (+0.79%) wiping out an initial loss of -2.36% as the likes of Facebook, Amazon and Alphabet all hit new record highs. Meanwhile the S&P 500 (+0.40%) followed a similar pattern and edged back over the 2,800 mark to hit the highest closing level since February 1st despite the energy sector doing its best to hold the index back after WTI Oil fell -1.52% at the intraday lows, before recovering into the close. Here in Europe the Stoxx 600 nudged up to a +0.24% gain while the DAX finished +0.80% despite having been flat just over an hour out from the close.

That positive momentum has continued into Asia this morning with the Nikkei (+0.78%), Kospi (+0.17%), Hang Seng (+0.31%) and Shanghai Comp (+0.51%) all up, while futures on the S&P 500 are also pointing towards a positive start. It’s been fairly quiet for newsflow overnight however Bloomberg has cited unnamed sources that noted the US administration may open an investigation on whether uranium imports are a threat to national security, which could lead  to higher tariffs. The US Commerce department has declined to comment while the Commerce Secretary Ross said last month that he would make a decision on the probe “very shortly”.

Back to yesterday where there was no getting away from Brexit headlines again. In the end PM Theresa May managed to fend off the pro-European Conservative rebels, albeit by the slimmest of margins following more amendments voting last night. Crucially the government won to keep open the option of Britain entering into a customs union post by 307 to 301 votes.

So currently the muddle through continues for PM May. Meanwhile the BoE Governor Mark Carney also added to the debate, as he noted that not having a Brexit deal with the EU could present a “financial stability event” and that Britons could be worst off as the country is “moving from…an integrated market to a much less integrated system….(which) would be a hit to the economic performance…”. Further he added that the BoE will have to provide their views to any Brexit deal reached between the UK and the EU. Elsewhere Rolls-Royce CEO Warren East also cautioned that if there is no clarity on Brexit trading arrangements, the company may have to stockpile a “buffer” of parts to maintain production in the fourth quarter.

As for the economic data yesterday, net-net the latest industrial production data in the US was a touch on the softer side. While the June print came in slightly ahead of consensus (+0.6% mom vs. +0.5% expected), the May reading was revised down fairly materially to -0.5% mom from -0.1%. That said production is still up a solid +3.8% yoy which is the second highest reading since 2014. Manufacturing production (+0.8% mom vs. +0.7% expected) was also hit by downward revisions to prior months while in the housing sector the July NAHB housing market index printed unchanged at 68, as expected.

In Europe the main data focus was the UK’s May and June employment data. There were no real surprises from the release however with the unemployment rate confirmed as holding steady at 4.2% as expected and weekly earnings  exbonus confirmed as growing at +2.7% 3m/yoy, also in line with expectations. The August BoE hike odds are now up to 82% having dipped below 50% just last month.

Before we wrap up, a quick mention that yesterday we got confirmation that European Commission President Jean-Claude Juncker is to meet President Trump next Wednesday (27th July) with the pair expected to discuss trade amongst other subjects. Politico ran a story yesterday quoting two Berlin officials as saying that they would like Juncker to provide Trump with three different trade deals including a bilateral EU-US agreement to lower tariffs on certain goods, a plurilateral agreement to cut tariffs on autos or a watered-down version of TTIP. So one to watch.

Looking at the day ahead, we will get the June CPI, PPI and RPI data in the UK this morning along with the May house price index print. This is followed by the release of the final June CPI report for the Euro area, along with May  construction output data. In the US, June housing starts and building permits data is due before the Fed's Beige Book in the evening. Morgan Stanley, IBM and eBay will also be reporting their Q2 earnings. Fed Chair Powell will also appear  before the House Financial Services Committee although that should largely be a copy and paste of yesterday.

Just a few hours after Loup Ventures' Gene "Channel Checks" Munster published an open letter to Elon Musk telling him to "to apologize to Vern Unsworth, "ignore short-sellers", and put the Twitter down", the Tesla CEO took at least one of the three to heart, and issued an apology to the British diver Vern Unsworth whom Musk labeled a pedophile over the weekend i Read more.....

Just a few hours after Loup Ventures' Gene "Channel Checks" Munster published an open letter to Elon Musk telling him to "to apologize to Vern Unsworth, "ignore short-sellers", and put the Twitter down", the Tesla CEO took at least one of the three to heart, and issued an apology to the British diver Vern Unsworth whom Musk labeled a pedophile over the weekend in a now-deleted Twitter post, following the rescue of a dozen Thai schoolboys and their football coach from a cave in northern Thailand.

“My words were spoken in anger after Mr. Unsworth said several untruths & suggested I engage in a sexual act with the mini-sub,” Musk, 47, said on Twitter in response to another user.

As this well-written article suggests, my words were spoken in anger after Mr. Unsworth said several untruths & suggested I engage in a sexual act with the mini-sub, which had been built as an act of kindness & according to specifications from the dive team leader.

— Elon Musk (@elonmusk) July 18, 2018

“Nonetheless, his actions against me do not justify my actions against him, and for that I apologize to Mr. Unsworth and to the companies I represent as leader. "The fault is mine and mine alone."

Nonetheless, his actions against me do not justify my actions against him, and for that I apologize to Mr. Unsworth and to the companies I represent as leader. The fault is mine and mine alone.

— Elon Musk (@elonmusk) July 18, 2018

There may have been another, more ulterior motive to Musk's apology: Unsworth, who played a leading role in the rescue, said on Tuesday that he had been approached by British and American lawyers and would seek legal advice after Musk directed abuse at him on Twitter.

Speaking to Reuters after Musk's latest tweets which were sent early on Wednesday morning, Unsworth said "I am aware of his apology, and no further comment."

Asked if there would be a financial settlement over the matter or if he was still considering legal action, and also asked how he had heard of the apology, he repeated he had no further comment.

Musk had previously offered a mini-submarine created by his rocket company SpaceX to help extract the youth soccer team and the coach from the labyrinth of partly flooded passages. However, the rescue team of elite divers and others rejected his proposal, and a war of words erupted when CNN quoted Unsworth as saying the submarine “had absolutely no chance of working” and was “just a PR stunt”.

Musk responded on Twitter, saying:

“We will make one (video) of the mini-sub/pod going all the way to Cave 5 no problem. Sorry pedo guy, you really did ask for it.”

The Tweet was later deleted.

Musk has a history of controversial outbursts, sparring with critics and investors betting against his company. Musk jokingly tweeted on April Fools’ Day "joke" that the company had gone bankrupt after Tesla shares fell 22 percent in March. The following week, he hung up on the chairman of the National Transportation Safety Board who called to tell him the agency was booting Tesla representatives from the investigation of a fatal crash involving a Model X driver. The company had published a series of blog posts that cast blame on the deceased driver.

Ironically, earlier this month, Musk said in an interview with Bloomberg Businessweek that he would engage with his detractors on Twitter less often.

Then last week, James Anderson, a partner and portfolio manager at Baillie Gifford, called for “peace and execution” and urged Musk to focus on the company’s core tasks, while Munster said Musk’s "behavior is fueling an unhelpful perception" of his leadership.

Reuters even went so far as writing that "Elon Musk outburst puts Tesla board on the spot" hinting that it may be time to find a less volatile CEO."

It remains to be seen if the board will see Musk's apology as a sincere act of contrition or just the latest PR stunt.

Just like President Trump, the answer will likely be found in Musk's next tweet.

Last month we showed that as Trade Wars began in April, the world's central banks and other official institutions dumped more Treasuries than in any month since January 2016, some $48.3BN, perhaps over concerns of others selling first, and precipitating a sharp move higher in yields. Fast forward one month later to May, when according to the latest just released Treasury Intern Read more.....

Last month we showed that as Trade Wars began in April, the world's central banks and other official institutions dumped more Treasuries than in any month since January 2016, some $48.3BN, perhaps over concerns of others selling first, and precipitating a sharp move higher in yields. Fast forward one month later to May, when according to the latest just released Treasury International Capital (TIC) update, in May the selling of Treasurys by official entities continued, with another $24BN sold in the month of May, when yields continued to rise and eventually hit the 2018 highs of 3.11%.

But while the selling of Treasuries was to be expected - after all someone had to sell aggressively to push yields sharply higher in April and May - the question was who.

What we showed last month, is that contrary to some speculation, it wasn't Beijing, because after shedding a modest $6BN in April, China actually bought $1.2BN in Treasurys in May, leaving its holdings largely unchanged over the past month.

And while Japan did sell $12BN in TSYs in April, it more than made up for its in May when it purchased $17.5BN, bringing its total to $1048.8BN in May, which means that over the past two month, Japan was a net buyer of US paper.

Meanwhile, the third most prominent holder, hedge funds, aka "Cayman Islands", bought for a second consecutive month, adding another $5BN.

* * *

So if the usual suspects were buying, who was selling?

Here is the answer.

Readers may recall that last month we first reported  that for all the confusion about sharply higher yields in April, the explanation was simple: it was Vladimir Putin who liquidated a whopping half of Russia's Treasury holdings, which declined by $47.4BN to just $48.7BN - the lowest since 2008 - from $96BN in March.

But wait, it gets better, because as Trump continued to jawbone about more sanctions targeting Russia, Putin did not stop and in May he continued what was an outright liquidation of Russia's TSY holdings, which plunged by another $40BN, or 82%, from $48.7BN to just $9BN in May. Keep in mind this was over $100BN at the start of the year.

It appears that When Putin warned he would diversify Russia's state reserves  -out of Treasurys - he was serious.

And this is what a very politically motivated liquidation of Treasury holdings looks like.

In other words, in just two months, Russia sold a whopping $81BN in treasurys, a liquidation flow that was likely responsible for much if not all the blow out in rates over the period. Because what else happened as Russia was liquidating 85% of its Treasury holdings in 2 months? 10Y yields soared from 2.7% at the start of April to the 7 year high of 3.11% in late May.

At that point, yields tumbled again as traders freaked out over Trump's escalating trade war with China, and proceeded to rush into deflationary safety. 

So just like last month, we can't help but wonder - as the Yuan-denominated oil futures were launched, trade wars were threatened, and as more sanctions were unleashed on Russia - if this wasn't a dress-rehearsal, carefully coordinated with Beijing to field test what would happen if/when China also starts to liquidate its own Treasury holdings.

Authored by Max Yakubowski via CoinTelegraph.com,

A new report states the UK has the potential to become a leader in blockchain technology and the crypto economy by 2022, The Guardian  Read more.....

Authored by Max Yakubowski via CoinTelegraph.com,

A new report states the UK has the potential to become a leader in blockchain technology and the crypto economy by 2022, The Guardian reported July 16.

image courtesy of CoinTelegraph

The new report was conducted by the Big Innovation Centre, DAG Global, and Deep Knowledge Analytics, all companies aimed to connect business, academic, and public agencies to provide insights on new innovative technologies. According to the group’s analysis, Britain has the governmental, technological, and industrial resources to become a leader in the crypto economic ecosystem  and a global hub for the development of blockchain technology within the next few years.

The report states that more than £500 million in investments were made into British blockchain companies in 2017-2018.  The study’s authors consider the blockchain industry to still be in the early stages of development globally, leaving open the potential for Britain’s leadership.

Birgitte Andersen, chief executive of the Big Innovation Centre, told the Guardian that the UK parliament sees promise in blockchain technology and “has shown commitment to support the accelerated development of the digital economy via a variety of government initiatives.”

Sean Kiernan, the chief executive of DAG Global, predicts that the gap between Britain’s traditional and crypto economies will “lessen and eventually disappear” within the next few years, adding:

“The UK is a major global financial hub and in recent years has become a fintech leader as well. At the same time, it is starting to demonstrate significant potential to become a leader in blockchain technologies and the crypto economy.”

This report is not the first one that predicts the global transformation of the crypto economy. A recent study conducted by the Imperial College London and U.K. trading platform eToro found that cryptocurrencies have the potential to become a mainstream means of payment in the near future, as Cointelegraph reported July 9.  

Meanwhile, the UK is taking steps towards implementing blockchain-based technologies both in the public and private spheres. A group of professors from Oxford are looking to create the world’s first “blockchain university,” with the goal of democratizing the traditional structure of higher education, Cointelegraph reported June 14. Previously, the National Archives of the UK revealed that it was considering adopting blockchain tech to create immutable entries for digital records

UK governors and politicians have also been publically promoting blockchain technology recently. As Cointelegraph reported July 4, housing minister Eddie Hughes has called on the country’s leaders to make blockchain development for government a priority “to enable social freedom, to increase efficiency, and to rebuild societal trust.”

Former FBI Director James Comey suggested over Twitter on Tuesday that anyone who votes Republican in the upcoming midterm elections is un-American.

Read more.....

During a press conference last month, President Donald Trump ordered the Pentagon to “immediately” establish a “space force” as an independent service branch. As we have highlighted before, the Pentagon is preparing for decades of hybrid wars across multiple domains - space, cyberspace, air, land, maritime - against Russia and China in the 2025-2040 timeframe.

According to an unnamed Russian defense industry source, as quoted by  Read more.....

During a press conference last month, President Donald Trump ordered the Pentagon to “immediately” establish a “space force” as an independent service branch. As we have highlighted before, the Pentagon is preparing for decades of hybrid wars across multiple domains - space, cyberspace, air, land, maritime - against Russia and China in the 2025-2040 timeframe.

According to an unnamed Russian defense industry source, as quoted by Sputnik News, Russia is developing a new electronic warfare aircraft, which can degrade the effectiveness of American spy satellites or render them entirely useless by using advanced radar jamming technology mounted on the exterior of the plane.

“The work is currently underway to develop an aircraft equipped with jamming systems that will replace Il-22PP Porubshchik [electronic warfare aircraft], which are currently being delivered to the Russian Aerospace Forces. This machine will receive a fundamentally new onboard equipment, which will allow to conduct electronic suppression of any targets — ground, air, sea — and disable enemy satellites that provide navigation and radio communication on the ground,” the defense source said.

The source said the conceptual phase of this new aircraft was recently completed and the design and development phase is expected to start shortly.

The source reminded Sputnik News that the Russian Aerospace Forces are currently operating three electronic warfare aircraft based on the Ilyushin Il-22 (USAF/DOD designation Type 10). The Il-22PP versions are variants of the Il-22, is derived from the Il-18 airliner, which first flew in the 1950s.

The Ilyushin Il-22PP Porubshchik special mission aircraft was revealed in public for the first time in August 2017. It was photographed over Russia. (Source: Jane’s Information Group)

The Il-22PP made its public debut on the 105th anniversary of the Russian air force over Kubinka  August 2017. Jane’s Information Group describes the aircraft as an “escort jammer” to support other aircraft, was intended to disrupt “radars, guidance channels of surface-to-air missile systems, mid-course flight path correction channels of cruise missiles, as well as tactical data exchange networks such as Link 16.”

“The problem of Porubshchik 1 is in the aircraft platform itself, as Russia has about 10 Il-22 planes and this machine cannot be reproduced,” the defense industry source told Sputnik News.

“The new aircraft was named Porubshchik 2, but most likely, this machine will join the Aerospace Forces under a different name. There definitely will be a new air-frame. There is a possibility of developing such an aircraft on the basis of Tu-214 or Il-76 plane,” the source added.

If Russia can, in fact, disable the electronics on American spy satellites, then, this could be detrimental to the Pentagon’s nuclear command, control, and constellations of communication satellites. Such systems include the Pentagon’s legacy NC3 constellation of satellites, the Military Strategic and Tactical Relay (MILSTAR) satellites, and the Advanced Extremely High Frequency (AEHF) satellites.

The Trump’s administration Nuclear Posture Review (NPR), released in January, suggests that Washington could respond with nuclear weapons to a kinetic or cyber attack on space-based communication networks. The President will have the power to “deter Russian nuclear or non-nuclear strategic attacks—which could now include attacks against U.S. NC3 — the President must have a range of limited and graduated options, including a variety of delivery systems and explosive yields,” the NPR states.

It is becoming increasingly obvious that a space war with Russia is on the horizon. At least now we understand how the next round of wars could start…

Authored by Kai Weiss via The Mises Institute,

It’s finally over: the flood of e-mails that every single human being who possesses an inbox has received in the last few weeks thanks to the new data protection rules by the EU. These rules, called GDPR, have caused havoc even before becoming effective on May 25, and have probably caused the greatest spam wave of all Read more.....