CMR is the leading provider of funding and management support for small to medium-sized businesses and entrepreneurs 

When French President Emmanuel Macron explained his vision for a "four-part" new accord that would introduce further restrictions on Iran's ballistic missile program while preserving the Joint Comprehensive Plan of Action (better known as the Iran deal), his revelation took his European allies completely by surprise.

Macron's vision, which he outlined during a White House press conference on Tuesday, pushed the limits of international diplomacy by essentially doing a Read more.....

When French President Emmanuel Macron explained his vision for a "four-part" new accord that would introduce further restrictions on Iran's ballistic missile program while preserving the Joint Comprehensive Plan of Action (better known as the Iran deal), his revelation took his European allies completely by surprise.

Macron's vision, which he outlined during a White House press conference on Tuesday, pushed the limits of international diplomacy by essentially doing an end-run around his regional allies, according to two sources who spoke with Bloomberg.

That case ran headlong into Trump’s competing instincts on foreign policy and caught fellow European powers off guard. Coordination within the European Union took place before Macron left for Washington, but once there the French president introduced elements that hadn’t been discussed in advance, according to two EU officials. The French will need to brief the rest of the EU on those issues, said the officials, who asked not to be named discussing strategy.

However, if Macron can convince Trump to stay in the deal - or at least delay a decision past a May 12 deadline imposed by the US - the other signatories may have no choice but to fall in line. But there are still problems with Macron's pitch - including the fact that it indulges Trump's desire to be "half-pregnant", that is, to preserve the JCPOA while imposing further restrictions that might chafe the Iranians.

The deal outlined by Macron would involve adopting further restrictions on the Iranian nuclear program after 2025, when the JCPOA restrictions are set to expire. It would also call for a halt to Iran's ballistic missile program while constraining its regional influence. But as President Trump said during Tuesday's press conference (where he blasted the Iran deal as "insane" and "ridiculous", "nobody knows" what the US is planning on May 12 - well, nobody aside from Macron.

A lack of European coordination may be a price worth paying if the U.S. president can be persuaded to stick to the Iran accord. Trump prizes his reputation as a deal maker, and is eager to score major foreign policy wins, yet he remains deeply skeptical of preserving the 2015 agreement with Tehran.

"It sounded to me like he wants to be half-pregnant - that he wants to withdraw from the deal but sustain the deal and add something on top of the deal so that it constrains the Iranians more," Jon Alterman, a senior vice president at the Center for Strategic and International Studies, said of Trump’s opposition. "The challenge with all of this is the president’s objection to the deal is visceral, not intellectual."

...

Macron’s hope is to stave off an American withdrawal next month from the six-party agreement to freeze Iran’s nuclear weapons program. The French leader sought to tempt his American counterpart with the promise of future diplomacy that would not only repair flaws Trump perceives in the original agreement, negotiated by the Obama administration, but resolve a range of security headaches across the Middle East.

...

At a news conference, Macron offered a portrait of a four-part “new accord” with Iran. The French president would combine the existing nuclear agreement with curbs on Iran’s nuclear program after 2025, a halt to its ballistic missile development and constraints on its regional influence.

Still, the fact that Macron has convinced Trump to even consider some of this options for preserving the deal is being interpreted as a cause for optimism.

There are still some grounds for optimistic that Macron can thread that needle, convincing Trump to preserve the existing Joint Comprehensive Plan of Action, or JCPOA, as American and European negotiators work on a series of side deals. Indications that the U.S. and France at least made advances on some of the issues Trump has raised were reasons for optimism, James Jeffrey, a fellow at the Washington Institute for Near East Policy, said in an interview.

"Trump’s repeated use of the word 'flexibility' or 'flexible' is the code word here," Jeffrey said. "But until he sees a final agreement from the three European countries, he’s clearly not going to commit."

Indeed, U.S. and European officials said they’ve made more progress than expected in their quiet discussions about coming up with proposals that would meet Trump’s demands to contain Iran. German Chancellor Angela Merkel, with whom Macron coordinated on policy last week, is due to meet with Trump in Washington on Friday.

But while analysts now half-expect the Trump administration to find some excuse to keep negotiations going past May 12, the ascendance of John Bolton, Mike Pompeo and other neoconservative Iran hawks in the Trump administration has raised the possibility that they could sabotage a new deal, should a formal agreement take shape. However, the looming talks with North Korea could also convince Trump to at least delay his decision to withdraw from the deal as he tries to avoid legitimizing the rhetoric of Iranian leaders, who've warned that pulling out of the Iran accord would prove to the international community (and the North in particular) that the US can't be trusted.

Iranian President Hassan Rouhani has repeatedly dared the US to prove to the world that it is ready to honor its commitments. Rouhani told a state-run news network that the US should "first go and respect what you have signed". He also questioned why the US is negotiating for another deal with its European allies, saying Iran had not signed off on these new negotiations.

"You said you’re making decisions with a European leader over a seven-party deal. Who allowed you to?" Rouhani said.

Which begs the question: Even if Macron can somehow secure a commitment from the US to preserve the Iran deal while negotiations continue on a separate overlay agreement, will the negotiators be able to convince Iran to remain at the table?

Yesterday morning, the Dow jumped after Caterpiller reported blowout results. Little did the market know that just a few hours later, CAT would unleash the biggest earnings call fiasco in recent history, sending the Dow plunging as much as 600 points.

This morning it will be up to Boeing to avoid any unpleasant words during the company's earnings call, because just like CAT, BA reported Q1 earnings that smashed expectations:  Q1 revenue of $23.38BN not only beat the consensus estimate Read more.....

Yesterday morning, the Dow jumped after Caterpiller reported blowout results. Little did the market know that just a few hours later, CAT would unleash the biggest earnings call fiasco in recent history, sending the Dow plunging as much as 600 points.

This morning it will be up to Boeing to avoid any unpleasant words during the company's earnings call, because just like CAT, BA reported Q1 earnings that smashed expectations:  Q1 revenue of $23.38BN not only beat the consensus estimate of $22.23BN, but was above the highest Wall Street forecast of $22.93BN. This resulted in EPS of $3.64, more than 50% higher than a year ago, which also not only beat consensus of $2.58, but was almost a dollar higher than the top analyst estimate.

That said, much if not all of this huge beat was was due to the plunge in BA's tax rate, which tumbled by more than 50% from 26.4% to 12.8% in Q1.

Looking at the business, Boeing defines its addressable market at $7.6 trillion, with Aerospace Services coming in at $2.6 trillion.

What Boeing really means is that any more wars in Syria will be fantastic for the bottom line. Even now, Boeing has defense, space and security orders valued at $12BN, and a backlog of some $50BN.

For those who say war is bad for business, Boeing disagrees:

• Signed extension for Ground-based Midcourse Defense
• Initial contract for 28 F/A-18 Super Hornets for Kuwait
• Awarded contract for the final C-17 for India
• Contract with USAF for Joint Direct Attack Munition tail kits

It goes on:

• Awarded F-15 Saudi support contract
• Captured landing gear exchange contract for Aeromexico
• Released Self-Service Analytics to complement our digital portfolio
• Secured services contract for Royal Canadian Air Force’s Chinook fleet
• Signed new distribution agreement for T700 engines

Meanwhile, at the company's bread and butter commercial airplane group, Boeing reported that it delivered 184 airplanes – included 36 737 MAX, and won 221 net orders, valued at $18B, resulting in a backlog of $415B. That's almost half a trillion dollars.

Going back to the company's earnings, one notable observation is that while Boeing reported $3.1BN in Q1 operating cash flow, it spent more than all of this on its shareholders, repurchasing $3.0BN of shares and paying $1.0BN in dividends. As a result, Boeing debt rose by $1.4BN in Q1, hitting $10 billion while cash remained largely unchanged.

Finally, the main reason why Boeing stock is surging, was its guidance, which was revised higher again, and beat consensus expectations

• Sees FY core EPS $14.30 to $14.50, estimate $14.10 (range $13.90 to $14.50)
• Sees FY revenue $96.0 billion to $98.0 billion, estimate $97.47 billion (range $96.41 billion to $98.35 billion) (BD)
• Sees FY operating cash flow $15.0 billion to $15.5 billion

The result: Boeing stock has spiked premarket, and as it is the biggest Dow member, it has manged to drag the entire Dow Jones up with it.

Full Boeing presentation below:

As concerns about nuclear war with North Korea wane, Taiwan is reminding the world that its own relations with Beijing have been progressively deteriorating; to do that the small island nation will simulate a response to an "invading force", along with using civilian operated drones, in war games next week amid its increasing tensions with China the defense ministry said Tuesday Read more.....

As concerns about nuclear war with North Korea wane, Taiwan is reminding the world that its own relations with Beijing have been progressively deteriorating; to do that the small island nation will simulate a response to an "invading force", along with using civilian operated drones, in war games next week amid its increasing tensions with China the defense ministry said Tuesday according to Reuters.

While the annual Han Kuang drills, set to begin on April 30 with a computer-aided command post exercise, make no mention of China, only “offensive forces invading Taiwan” and will include a live-fire field training exercise and “enemy elimination on beaches”, it is clear that the "hypothetical" aggressor is China.

The major part of the drill will be a live-fire field training exercise from June 4-8, including “enemy elimination on beaches”, the ministry said.

“Civilian resources will also be integrated into this exercise to support military operations,” it added, envisioning exercises involving a private drone army. Tech companies will offer support with drones to mark targets and provide battlefield surveillance, and building companies will help with emergency runway repairs for the Ching Chuan Kang air base in central Taiwan, the ministry said.

According to a recent survey conducted by the Taiwan Foundation for Democracy, 68% of people said they would join the army or find other means of resistance should China invade.

The Air Combat Command will issue air raid alerts with an “aerial threat warning system” during the air defence drills, and the Coast Guard will also join in exercises with the navy, it added. In January, Taiwan held a military drill at the Port of Hualien using reconnaissance planes and F-16 fighter jets.

Beijing has been carrying out its own military operations close to the autonomous island for the past year. In March, Taiwan scrambled its air force to shadow Chinese fighter jets as they conducted drills through the Bashi Channel. Just days before, Beijing sent its sole operational aircraft carrier, the Liaoning, through the narrow Taiwan Strait that separates the two regions. China has breached Taiwan’s sea and air borders over the last year during its increased military maneuvers; on April 18, it undertook live-fire military exercises.

Chieh Chung, from the Taipei-based think tank, the National Policy Foundation, said Beijing's actions were part of its mind games with its neighbor.

"What is worth noticing is that over the past one or two years, Beijing has regularly taken advantage of these cheap, routine, small-sized, regional drills to serve its purpose of psychological warfare against Taiwan," he told Channel News Asia.

* * *

While Taiwan’s military is well-equipped thanks predominantly to US-made weaponry, military experts say China would likely overwhelm the island if any military action were to be taken, leaving them to reply on the US coming to their defence.

The United States is bound by law to provide Taiwan with the means to defend itself, but it is unclear whether Washington would want to be dragged into what would likely be a hugely destructive war with China over the island.

The tensions between the two sovereigns have been rising ever since the Trump election victory in which the US president spoke on the phone with the president of Taiwan, at the time one of his first diplomatic snafus. Taiwan has historically been one of China’s most sensitive issues and a potential military flashpoint. Beijing claims Taiwan as its sacred territory and considers it a Chinese province, not a nation. China has never renounced the use of force to bring the island under Chinese control and has ramped up military exercises in the past year or so.

China’s hostility towards Taiwan has risen since the 2016 election of President Tsai Ing-wen, a member of the island’s pro-independence Democratic Progressive Party, despite Tsai saying she wants to maintain the status quo under the ‘one China’ policy.

Twitter stock soared as much as 13% this morning after the company reported earnings which - as has been the case this earnings season - blew out expectations, even if the gain is rapidly being faded, just like most other massive beats observed in recent weeks. 

A quick look at TWTR's reported Q1 numbers, reveals GAAP Net Income of $61MM, only the company's second quarter of positive net income, and a mirror image of the $62MM lost in Q1 2017. This translated to EPS of $0.16, handily Read more.....

Twitter stock soared as much as 13% this morning after the company reported earnings which - as has been the case this earnings season - blew out expectations, even if the gain is rapidly being faded, just like most other massive beats observed in recent weeks. 

A quick look at TWTR's reported Q1 numbers, reveals GAAP Net Income of $61MM, only the company's second quarter of positive net income, and a mirror image of the $62MM lost in Q1 2017. This translated to EPS of $0.16, handily beating consensus exp of $0.12.

Revenue came in at $664.9mln, also solidly above expectations of $610mln, a 21% increase Y/Y with advertising revenue of $575MM also growing 21% Y/Y.

Twitter also surprised positively on Monthly Active Users, which incraesed 3% to 336 million, just above the 335.5MM expected, although the best news is that the decline in US MAUs appears to have halted, with TWTR reporting 69 million monthly US users, up 1 million from a quarter ago, if -1% from a year ago. International MAUs meanwhile increased by 4%.

... while Daily Active Users rose by 10% Y/Y.

There was more good news in the EBITDA line, which increased 44% Y/Y, rising to $244MM from $170MM, and handily beating expectations.

The obligatory EBITDA bridge:

Twitter's monetization metrics were more of a mixed bag, with a 69% Y/Y increase in ad engagements, the lowest in the past year; this was offset by 28% Y/Y decline in the cost per ad engagement.

Also somewhat disappointing is that while total revenue jumped 21%, US ad revenue increased just 1% Y/Y, from $284MM to $288MM, and declined significantly from Q4.

And while TWTR was trading about 6% higher premarket, cutting its kneejerk gain in half...

... it would be remarkable if this gain manages to stick in light of the relentless fade observed by most of TWTR's tech peers.

After closing Tuesday just a fraction away from 3.00% (2.9995% to be precise), the drama over the 10Y yield continuedovernight, with a block seller appearing in early trading, pushing the yield as high as 3.03%. Then gamma hedgers emerged around 119-00 in 10Y TSY futures according to Bloomberg, due to large put open interest at that strike, pinning the yield around 3.01% for now.

Read more.....

After closing Tuesday just a fraction away from 3.00% (2.9995% to be precise), the drama over the 10Y yield continuedovernight, with a block seller appearing in early trading, pushing the yield as high as 3.03%. Then gamma hedgers emerged around 119-00 in 10Y TSY futures according to Bloomberg, due to large put open interest at that strike, pinning the yield around 3.01% for now.

Meanwhile, in the absence of any real data or speakers, the market decided to stick with what it knows, and the USD buying has resumed in earnest; sending the USD to the highest level in three months. The euro was among the losers a day before the ECB's next rate decision, however Euro weakness was no tonic for equities, and the Stoxx Europe 600 Index fell along with U.S. futures and the MSCI Asia Pacific Index. European equity markets sell-off led by miners and industrial stocks, mirroring yesterdays move on Wall St. sparked by Caterpillar warning.  European stocks fell along with U.S. equity-index futures following the slide in stocks across Asia as technology shares faltered.

Positions are being lightened up across the board ahead of the week’s crunch events tomorrow and Friday (US data, ECB, Riksbank, BoJ etc.). The symbiotic relationship means that US fixed income also continues to be sold off, with yields pounding higher and sitting once again on the brink of some major levels. As NY walks in, as we have so often seen before, some of the moves are retracing a little, but USD remains higher on the day.

The Bloomberg Dollar Spot Index climbs 0.4% to its highest level since mid-January as the dollar gains against all major peers. Elsewhere in FX, the biggest declines were seen in the Australian and New Zealand dollars while the yen touched its weakest level in two and a half months. Emerging-market currencies mostly weakened, led by South Africa’s rand, but Turkey’s lira gained ahead of a key rate decision by the country’s central bank.

As Bloomberg notes, the upward momentum in the dollar looks set to force a rethink on many of the most popular trades just now: most notably, it may spell more turmoil for equity markets, which have been roiled by rising yields and threats to global trade in recent weeks and had been looking to earnings for some cheer. Instead, a mixed bag of results across market-driving tech shares and industrial bellwethers is doing little to calm Wall Street nerves over the fate of global growth.

Still, there was a silver lining for the bulls, as Wednesday’s moves weren’t entirely risk-off and established safe-haven assets including gold and the yen retreated.

Crude futures and metals markets trade with small losses within tight ranges.

While there is nothing on the economic calendar today, it is extremely busy among companies reporting earnings with Boeing, Twitter, AT&T, eBay, Facebook, Ford, Las Vegas Sands, PayPal, Qualcomm, and Visa all on deck.

Bulletin Headline Summary From RanSquawk

• Treasury yields continue rise putting pressure on European bourses
• Oil prices consolidate after Tuesdays highs
• Looking ahead, highlights include, the Turkish rate decision, DoEs and a slew of speakers

Top Overnight News

• The European Union would be prepared to offer Britain a better trade deal than the one it gave Turkey if it decides to stay in the customs union after Brexit, and would listen to U.K. views on trade policy, according to an EU official
• Bloomberg calculations show the ECB’s prediction for a 2.4 percent economic expansion this year already factors in weaker underlying momentum, a likely reason why officials including President Mario Draghi have done nothing to counter market expectations that their bond-buying program will end this year
• French President Emmanuel Macron is discovering the limits of cooperation with Donald Trump on foreign policy, as his last- ditch appeal to salvage the Iran nuclear deal was met with intransigence by the U.S. president
• ECB’s Mersch: confidence on inflation has risen recently; inflation has not weakened as much as ECB predicted
• China raises amount domestic funds can invest overseas by ~$8b to total of $98.3b, first increase since March 2015
• Japan’s LDP official says dissolving lower house is an option if the motion on no confidence against the Cabinet is submitted; Cabinet Secretary Suga declines to comment on snap election
• China official expects RRR cuts of 6-8% in 3 years: 21st Century
• As Trump says Nafta talks are “doing very nicely,” negotiations between ministers from the U.S., Mexico, Canada are ramping up in Washington in a redoubled push for a deal
• Tidjane Thiam is reaping the rewards of Credit Suisse Group AG’s pivot to wealth management after the bank attracted new assets at the fastest pace in seven years
• Takeda Pharmaceutical Co. reached a preliminary agreement to buy Shire Plc with a sweetened takeover offer of about 46 billion pounds ($64 billion), closing in on a takeover that would vault it into the ranks of the world’s top pharma companies

Market Snapshot

• S&P 500 futures down 0.4% to 2,625.25
• STOXX Europe 600 down 0.8% to 380.25
• MXAP down 0.6% to 172.03
• MXAPJ down 0.8% to 558.60
• Nikkei down 0.3% to 22,215.32
• Topix down 0.1% to 1,767.73
• Hang Seng Index down 1% to 30,328.15
• Shanghai Composite down 0.4% to 3,117.97
• Sensex down 0.3% to 34,513.22
• Australia S&P/ASX 200 up 0.6% to 5,921.55
• Kospi down 0.6% to 2,448.81
• German 10Y yield rose 2.1 bps to 0.652%
• Euro down 0.3% to $1.2201
• Italian 10Y yield fell 2.7 bps to 1.513%
• Spanish 10Y yield rose 1.1 bps to 1.31%
• Brent futures up 0.2% to $74.04/bbl
• Gold spot down 0.4% to $1,325.60
• U.S. Dollar Index up 0.2% to 90.95

Asian stocks traded negative across the board as the region followed suit from the broad weakness on Wall St amid rising US yields, in which the Nasdaq 100 underperformed with losses of over 2% and industrials led the DJIA lower after Caterpillar suggested that Q1 could be the apex for the year. Nikkei 225 (-0.3%) and KOSPI (-0.6%) were lower with participants also digesting earnings releases, while Takeda was among the worst performers in Japan after the Co. further sweetened its offer in pursuit of Shire. ASX and NZX were shut for ANZAC Day, while Shanghai Comp. (-0.3%) and Hang Seng (-1.0%) conformed to the downbeat tone after the PBoC skipped open market operations which resulted to a net daily drain of CNY 150bln, However, the losses in the mainland were contained amid continued chatter regarding further RRR cuts and as the previously announced cut took effect from today. Finally, 10yr JGBs were uneventful and have failed to benefit from the broad risk averse tone as well as the BoJ’s presence in the market for JPY 710bln in the belly to super-long end, while USTs were choppy overnight with early pressure seen after the US 10yr yield continued to test the 3.000% level which it had earlier reclaimed for the 1st time since January 2014. China researcher noted that deflation in China is possible as soon as Q4 this year and added that further reductions in RRR are expected, while there were also reports that a Chinese official sees large room for RRR reductions and sees it lowered by between 600-800bps in 3 years. PBoC skipped open market operations for a daily net drain of CNY 150bln.

Top Asian News

• CEFC China May Cut Half Its Workers But Rosneft Deal Still Alive
• China Loosens Grip on Outflows, Raises Outbound Investing Quota
• Noble Group Creditors See ‘Irreparable Damage’ If Deal Drags
• China is Taking on the U.S. to Fill its $1.4 Trillion Stock Hole

European equities are seeing a lacklustre start following on from the sentiment seen yesterday on Wall Street and overnight during Asia-Pac trade. In terms of stock specifics, Shire (+0.2%) shares have been supported after recommending Takeda’s revised GBP 46bln takeover offer to its shareholders. In the earnings scope, markets have seen positive results from Kering, (6.4%) and Credit Suisse (+3.3%) with negative reports from Mediaset (-0.8%). Significant news later in the session from Comcast (CMCSA) whom make a superior cash offer for Sky (SKY LN), implying a value of GBP 22.0bln.

Top European News

• EU Said to Be Ready to Give U.K. a Say on Trade in Customs Union
• Osram Tumbles Most in More Than Two Years After Profit Warning
• Handelsbanken Sinks After Weak Results and Nordea Fund Warning
• Nordea Warns 2018 Goals Looking Tough After ‘Soft’ First Quarter

In FX, the DXY continues to piggy-back rising US Treasury yields after a relatively brief pause for breath as bond bears and bulls tussled for supremacy around the 3% mark in 10s. A more decisive break above has given the Dollar further impetus and the index has reclaimed 91.000+ status as a result, with fair resistance around 91.526 back on the radar ahead of 91.751 and a few more upside chart levels before early 2018 highs. EUR/JPY/CHF: The renowned safe-havens are not deriving any real support, or much from the latest decline in global equity markets against the more compelling Usd ascent, mainly on the aforementioned ratchet up in US rates, but also perhaps amidst some early month-end positioning as rebalancing models point to net Dollar demand. Eur/Usd is pivoting 1.2200 where huge option expiries roll off on ECB day tomorrow (3+ bn), with Fib support around 1.2173 still underpinning the pair, but the upside capped ahead of 1.2250. Usd/Jpy has carved out a fresh multi-month top circa 109.25 after a brief dip below 109.00 and is back above the 100 DMA at 108.98 eyeing offers at 109.50 before a major fib at 109.65. Usd/Chf remains above 0.9800 and Eur/Chf is rebounding towards 1.2000 again with the Franc hardly helped by a sharp deterioration in ZEW’s Swiss Investor Sentiment index

In commodities, oil has pulled back from Q4 2014 highs and remains flat on the day as the bullish market was slowed by US inventories increasing by 1.1mln barrels as according to API and traders taking profits following highs hit on Tuesday. Gold is currently seen around five week lows amid currency effects and rising treasury yields. Aluminium also maintained its recent slide due to the aforementioned effects as well as the Rusal sanctions announcement on Monday, with a fall noted for the 5th session in a row. Libya's oil output at the Waha oil field said to be back up to 300k bpd.

In terms of the day ahead, there’s very little scheduled in terms of data with nothing of note in the US and the only release in Europe being the April consumer confidence print in France. The ECB’s Villeroy, Knot and Lane are all due to speak in Paris this morning at the Bank of France financial stability review. Earnings will likely be the bigger focus for markets with Facebook, Boeing, AT&T, GlaxoSmithKline, Credit Suisse, Ford Motor and eBay all due to report over the course of the day.

US Event Calendar:

• 7am: MBA Mortgage Applications: -0.2%; prior 4.9%

DB's Jim Reid concludes the overnight wrap

Blink and you may have missed it, but yesterday at exactly 2.48pm BST the 10y Treasury finally passed the much hyped 3% level, topping out at 3.001%. It was certainly brief with the move only lasting a matter of seconds but it was the first time in 1567 days (since January 8th 2014) that 10y yields have gone above 3%. What has perhaps been most interesting about the recent leg higher in yields is the relatively muted level of Treasury volatility still. Indeed the 10y Treasury volatility index is at 3.99 which compares to the 3.44 to 6.07 range in 2018 so far and 4.50 average through 2017.

As well as the 10y move, the 2s10s curve also finished a shade steeper yesterday at 52bps and is now 11bps off its tights last week. The USD index on other hand was a little weaker (-0.20%). Equity markets were a lot more volatile all things considered. The Stoxx 600 (-0.02%) closed little changed but wiped out early gains while last night the S&P 500, Dow and Nasdaq slumped to losses of -1.34%, -1.74% and -1.70% respectively. This now means the Dow is on a five-day losing streak – the longest since March 2017 – and the S&P 500 has joined the Dow in being back to negative year to date again.

Blaming the weakness in US stocks entirely on moves in the Treasury market feels like a stretch and rather it was the busy slate of earnings which really appeared to be dictating sentiment. Indeed Alphabet shares closed down -4.77% after analysts combed through the details in the report which in turn weighed on the wider tech sector. It was industrials which really struggled though in the wake of Caterpillar’s numbers. Shares in the industrial bellwether closed down -6.20% after being up as much as +4.54% following what was a decent set of numbers.  Management actually raised the outlook for the year ahead but on the conference call the comment that Q1 was likely to be the “high water mark” for the year was enough to spook the market and fuel prospects that we’ve seen the peak.  Caterpillar’s results are generally seen as a decent barometer for global growth hence the sensitivity. In any case the industrials sector ended up being the biggest underperformer in the S&P 500 yesterday, falling -2.82%.

Meanwhile, at the margin President Trump’s comment saying that Iran “will pay a price like few countries have ever  paid” should they threaten the US didn’t appear to help sentiment although Oil did finish the day broadly 1% lower, perhaps helped by French President Macron suggesting that he wants to negotiate a new accord with Iran to curb its development of missiles. Trump was much more conciliatory in his comments about North Korea’s Kim Jong Un, calling him “very honourable” so far and describing conversations as being “very good” between the two sides during a meeting with Macron.

With little in the way of new newsflow overnight, this morning in Asia bourses have taken the lead from the US and are lower across the board. That’s the case for the Nikkei (-0.59%), Hang Seng (-0.82%), Shanghai Comp (-0.31%) and Kospi (-0.99%). The 10y Treasury has passed 3% in the early going again however is failing to break higher, while commodity markets on the whole are little changed.

Moving on. Yesterday’s data highlight in the US was the April consumer confidence print which came in at a much better than expected 128.7 (vs. 126.0 expected) and the second highest reading since 2000. Notably, that was up 1.7pts from March while the expectations component also rose 1.9pts to 108.1. The labour differential reading (difference between jobs plentiful and hard to get) did fall to 22.9 and a three-month low but still remains at overall strong levels. Meanwhile, new home sales in March were reported as climbing +4.0% mom (vs. +1.9% expected) and the Richmond Fed PMI for April fell a surprising 18pts to -3 (vs. +16 expected).

The data in Europe was a bit more mixed. Of most interest for us was the ECB Bank Lending Survey which on the whole was relatively positive. Indeed, credit standards were reported as easing “considerably” for loans to enterprises and housing loans in Q1 while demand also increased across all loan categories. In terms of the details, the net percentage of banks reporting an easing in standards for large enterprises in the Euro area was 7.8% compared to 0.5% in Q4 2017

For house purchases the net percentage of banks reporting an easing rose to 11.4% from 6.2% while consumer credit rose to 3.4% from 0.7%. Also worth highlighting is that banks expect a net easing of credit standards across the three loan categories in Q2. It’s worth noting that the ECB keeps a close eye on this survey and in addition to the stabilising PMIs out on Monday it should help to provide a decent degree of comfort for the market with regards to the Euro area cyclical position right now.

The data that was a slight disappointment yesterday in Europe was the IFO survey in Germany. The April IFO business climate reading fell 1.2pts to 102.1 and a bit more than expected (102.8 expected). That’s now the lowest reading since January last year. Expectations also fell 1.3pts to 98.7 putting it at a 23-month low with the index also down for 5 months in succession now. Despite the softer data, our economists note that the IFO index still indicates positive expansion in Q1 although three consecutive declines in a row are often interpreted as a signal for a cyclical turning point.

Closer to home there was a milestone moment for the UK’s finances as the latest UK government budget deficit figure revealed that the deficit has narrowed to the smallest in 11 years at £42.6bn compared to expectations for £45.2bn. In the last 12 months, the UK actually achieved a small surplus – the first in a full fiscal year since 2002-03. Staying with the UK it’s worth noting that the April CBI data was less supportive with industrial business optimism falling sharply by 17pts to -4.

Away from the data, Italy bucked the trend for bonds yesterday with BTP yields falling 2.7bps after headlines hit the wires (Bloomberg) reporting that the acting leader of the Democratic Party, Maurizio Martina, said that the PD could be open to talks with the 5SM about forming a government as long as the 5SM drops its alliance with the League. The FTSE MIB also closed +0.22% and outperformed most other bourses as the market saw the development as positive given that a government with the participation of the PD would be seen as a moderating influence, compared to a 5SM-League alliance.

In terms of the day ahead, there’s very little scheduled in terms of data with nothing of note in the US and the only release in Europe being the April consumer confidence print in France. The ECB’s Villeroy, Knot and Lane are all due to speak in Paris this morning at the Bank of France financial stability review. Earnings will likely be the bigger focus for markets with Facebook, Boeing, AT&T, GlaxoSmithKline, Credit Suisse, Ford Motor and eBay all due to report over the course of the day.

Submitted by Bill Blain of Mint Partners

Why do we get it wrong, and what goes wrong next? Treasury yields, non-aligned economies and Tech

"I don’t think he knows about second breakfast."

Marvellous day yesterday. The 10-year US Treasury broke through the “You Shall Not Pass” 3% barrier and the dollar went up. Panic! It might be the end of the world, but I least I called it Read more.....

Submitted by Bill Blain of Mint Partners

Why do we get it wrong, and what goes wrong next? Treasury yields, non-aligned economies and Tech

"I don’t think he knows about second breakfast."

Marvellous day yesterday. The 10-year US Treasury broke through the “You Shall Not Pass” 3% barrier and the dollar went up. Panic! It might be the end of the world, but I least I called it right! Relax… the sun still came up this morning.

I spent time y’day in the City and West End talking to journalists and clients, and picked up further clues as what’s been going wrong right through my 30 year plus career in finance. I’ve come to a stunning and shocking conclusion. People just aren’t as smart as we think. Folk get it wrong. Repeatedly. It was such a stunning moment of clarity I’m awarding myself one of my coveted “No Sh*t Sherlock” awards.

The business of markets is as much about economic forces as it is about watching the mistakes and behaviours of others. Definitionally, its mistakes that drive the most exciting market action!

Investors find themselves on the wrong side of little mistakes all the time – like the market waking up to major corporate changing the guarantees on its bonds, pushing bond holders down the capital ladder to make them more subordinated – as has happened with Softbank.

When the mistakes are so large and so egregious they have the capacity to cause a WTF “moment” – like we saw in 2007/08 when we realised unemployed bus drivers were unlikely to pay off massive mortgages, and over-levered banks stuffed to the gunnels with illiquid risk weren’t sustainable.

Such lightbulb moments occur infrequently – but often enough to define our careers. Based on my ongoing discussions, I sense more and more market participants fear we’re about to face another. This where it gets interesting – nobody can agree what its likely to be!

Do they fear another crash because they are scared because its been so good for so long, or do they have valid grounds to be afraid? And, do these fears mean small mistakes will get magnified into bigger, more inclusive ones? Markets are all about the behaviour of crowds and what they believe. Do we face yet another period of suddenly blinding clarity, as the lightbulb of realisation goes off.. Or will we just continue on worrying, letting our fears multiply until they trigger meltdown?

What are the main concerns?

• Is it a collapse in the bond market? Looking at the investment bank estimates, most of their analysts see the 10-year Treasury at 3.15-3.25% by year end – which hardly sounds like the bond rout so many fear. But, and but again... experience teaches us when it goes wrong in bonds, it goes wrong very quickly! These analysts may be a great example of getting it wrong.  I reckon we could hit 3.5% or drop back to 2.5% just as fast in these fraxious times.
• Another aspect is Global Synchronised Growth – Macro Alignment. That’s been the basis of the fundamental analysis narrative telling us the whole globe is aligned and growing. Yet how can we have alignment when the US is rising rates, Japan is still devaluing, Europe looks trapped in a perpetual zero-rate trap, and the we’ve got increasing protectionist policy? If we’ve got that wrong (which we actually aren’t so concerned about; we still think global growth is on the cards), then maybe the flattening yield curve is right and we’re headed back into slowdown. Who knows? There are two sides to that trade! (And buying 2yrs instead of duration is one of the them!)
• The other big concern is Tech. We pride ourselves for living in a fascinating technological age. For the past few years the Stock Market’s darlings have been dimly understood Tech ventures. We’ve accepted the disruptive narrative – but now its looking kind of jaded. Telsa and Facebook are examples where its clear market participants are struggling to understand the rules of the game, and the valuations. Apple is an evolutionary story as we wonder if the smartphone/bright shinny thing days are over. Most Tech firms are good/great companies, but do they deserve such stellar pricing and are they immune to everything we learnt in Credit 101? Have we forgotten the tenants of Ben Graham’s Intelligent Investor to our detriment?

I read a very interesting research note on Emerging Markets y’day – pointing out EM has become a tad boring in the wake of all the Tech noise. While stock market volatility has risen, EM has proved less volatile and produced better performance. On a relative basis, they look likely to continue to deliver decent returns. On the other hand, EM can prove a liquidity trap.

Although US rates burst thru the 3% panic-ceiling, rates remain benign. Investors are scrambling for the next thing now the Tech sector seems to be deflating – and were underweight EM. Commodity prices are rising – positive for most. Rumours of the demise of Oil have proved premature.

Comcast has launched a bidding war against Rupert Murdoch’s takeover of Sky with a rival £22 billion offer for Britain’s biggest pay-TV broadcaster. The US media and telecom giant which owns NBC Universal and is the largest US cable operator made an all-cash offer of £12.50 a share, a 16% premium on the offer from Murdoch’s 21st Century Fox, which values Sky at about £19bn.

Fox owns 39% of Sky and submitted its bid to take full control in December 2016, but the deal has been held up b Read more.....

Comcast has launched a bidding war against Rupert Murdoch’s takeover of Sky with a rival £22 billion offer for Britain’s biggest pay-TV broadcaster. The US media and telecom giant which owns NBC Universal and is the largest US cable operator made an all-cash offer of £12.50 a share, a 16% premium on the offer from Murdoch’s 21st Century Fox, which values Sky at about £19bn.

Fox owns 39% of Sky and submitted its bid to take full control in December 2016, but the deal has been held up by regulatory issues.

Here are the key details from the Comcast proposal (full text here):

• Sky Shareholders will be entitled to receive GBP12.50 in cash for each share, Comcast says, consideration implies a value of about GBP22.0 billion for Sky.
  • Comcast says it has committed financing available to satisfy the full consideration payable
  • Comcast currently anticipates deal will complete before the end of 2018
  • Sky Shareholders shall be entitled to receive any final dividend in respect of the financial year ended 30 June 2018, up to 21.8p per share
• Combination with Sky is expected to be accretive to Comcast’s free cash flow per share in year one, excluding one-time transaction related expenses
  • Comcast expects deal to generate annual run-rate synergies of around $500 million
  • Comcast intends to give binding undertakings enforceable by the Sky News Board to maintain safeguards to protect Sky News’ editorial independence for ten years
• Comcast also committed to protecting media plurality in the U.K. and is intending to give a binding post-offer undertaking not to acquire any majority interest in any newspapers in the UK for five years

Comcast made its move on Sky after having an offer for 21st Century Fox’s entertainment assets, which include Sky and the Deadpool to X-Men Hollywood studio 20th Century Fox, spurned by Murdoch last year. Meanwhile, Murdoch agreed a $66bn (£47bn) sale to US rival Disney but this has been held up, as Fox’s own deal for Sky continues to be scrutinized by the UK competition regulator over issues including media plurality concerns.

Earlier this month, the UK takeover panel ruled that Disney must make a full takeover bid for Sky even if the competition regulator quashes Murdoch’s attempt to buy 100% of the pay-TV broadcaster.

Following the news, sky shares spiked 3% in London trading.

In response to the Comcast overbid, FOX said that it remained committed to the cash offer for Sky, and is considering options.

Picking up where DoubleLine CEO Jeff Gundlach left off yesterday with his Ira Sohn recommendation, which as a reminder was to short Facebook on concerns of regulatory crackdown and go long commodities ahead of a late-cycle inflationary boom, on Tuesday Gundlach spoke at an event for DoubleLine clients and reiterated his late-cycle skepticism, warning that treasuries are still "not attractive" even though t Read more.....

Picking up where DoubleLine CEO Jeff Gundlach left off yesterday with his Ira Sohn recommendation, which as a reminder was to short Facebook on concerns of regulatory crackdown and go long commodities ahead of a late-cycle inflationary boom, on Tuesday Gundlach spoke at an event for DoubleLine clients and reiterated his late-cycle skepticism, warning that treasuries are still "not attractive" even though the benchmark 10Y yield briefly crossed the key 3% threshold earlier in the day.

The bond king said he is in no rush to buy, well, bonds, because he expects that, based on recent Core CPI prints and the NY Fed underlying inflation gauge, that US inflation will go even higher, sending Treasury prices lower. The fund manager said some indicators are suggesting 3% inflation, and noted that while it might not get there, "something higher than the current rate is sensible."

Quoted by Reuters, Gundlach said the Fed’s "quantitative tightening", which as we described earlier today is already taking the high-grade corporate market by storm where "cash-rich" companies haven't issued a single bond YTD, was a factor in rising Treasury yields.

Furthermore, picking up on another previously covered topic, namely the recent surge in USD funding costs, Gundlach warned that the rising yields will continue as foreigners will be averse to purchasing U.S. Tsys because of hedging costs which have made the US 30Y Treasury the least economical of all govt bonds.

Still, the DoubleLine CEO said he has little conviction the 10Y will break hard above the 3% level:

"Maybe this level will hold on the 10-year. I’m not in that camp, but my conviction is low. My conviction on breaking above 3 is low. I don’t think you need conviction - let the market prove your opinion."

More curiously, unlike a growing chorus on Wall Street, and even the market itself where forward OIS curves have already inverted, Gundlach said that he does not think the yield curve will invert before the next recession. This likely goes to Gundlach's thesis, which he proposed in January, that in the next recession we won't see a bid for safety out of stocks and into bonds. In other words "we won't see a bond market rally."

If so, he is right: there would be no inversion; there would be just an epic cross-asset crash, that incidentally will blow up all risk-parity funds in the process.

Which leads us to the final two points.

First, Gundlach said he thinks that Fed chair Jerome Powell is "not going to bail out the market." Here he may be referring to what Zero Hedge first observed in January, when in the recently declassified 2012 FOMC transcripts, we found the following gem:

[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position.

Second, Gundlach said that the next big move will likely be in gold prices which have broken their downtrend line, and are on the verge of breaking out to the upside. "It’s getting almost exciting...  something big is happening,” he said cryptically.

He then revealed his target, saying that based on classic chart reading, an "explosive, potential energy" of a huge "head-and-shoulders bottom" base was signaling a move of $1,000 in gold prices, and added that "Gold is maintaining an upward pattern above its rising 200-day moving average, which is extremely good."

Authored by Tom Luongo,

Armenia is an important part Russia’s long-term plans.  A member of the Eurasian Economic Union Armenia is key to protecting Russia’s southern flank.

So, I was not shocked back in 2016 when the disputed region of Nagorno-Karabakh was activated by the U.S.  Read more.....

Authored by Tom Luongo,

Armenia is an important part Russia’s long-term plans.  A member of the Eurasian Economic Union Armenia is key to protecting Russia’s southern flank.

So, I was not shocked back in 2016 when the disputed region of Nagorno-Karabakh was activated by the U.S. after a brief visit by then Secretary of State John Kerry as punishment for Russia’s intervention into Syria.

Nagorno-Karabakh had been peaceful for more than twenty years before Kerry’s visit.  And within days, fighting broke out on the Azeri side of the region which lies between the two countries.

So, color me not shocked that as the Neoconservatives take control of the Trump White House that they activate a color revolution in Armenia while simultaneously pushing Russia in Ukraine, Syria, the U.K., the financial markets and seemingly everywhere else at the same time.

The story at Zerohedge this morning gives us the political picture, former president Serzh Sargsyan, was elected as Prime Minister creating the facade of a transfer of power.  This sparked protests which grew to a point where Sargsyan had to resign.

Color Revolutions created by western NGOs stoke mild opposition to a sitting government and turns it into a lynch mob by escalating the violence in the streets.

Why would Armenians now begin trashing Turkish stores in Aleppo (that’s right in Syria) over an internal Armenian political matter?

Because it’ll give Turkish President Erdogan an excuse to finish the Armenian genocide (which Erdogan and Israel refuse to acknowledge happened) his predecessors started a hundred years ago.

And the hope is that this provocation will drive a wedge between Turkey and Russia at a time when everyone’s nerves are frayed to the point of breaking.

Turkey announces over the weekend it is repatriating all of its gold from the Federal Reserve vaults in New York.

Iran announces it no longer accepts dollars in its business dealings and switches to the euro for international trade, in preparation for Trump decertifying the JCPOA and re-establishing sanctions from 2012 which includes SWIFT expulsion again.

If Armenia’s government falls here there will be an immediate push to get them into NATO and create an absolute nightmare in the region.

So, that puts everyone in a bind because Russia has to continue backing the existing government which it shares a very strategic military integration with.  Remember, Armenia is a member of the CSTO and has a joint military command agreement with Moscow.

So, this coup attempt at this point in time is quite a cynical and inflammatory move in the wake of Azeri elections which sees Russian-Azeri relations continue improving.  The latest being a commitment to triple Azeri exports to Russia over the next few years.

Russia has skillfully managed its relationship with both countries under Putin with Armenia obviously the more important of the two strategically since it protects Russia’s southern flank.

And a stable Armenia means a much slower flow of ‘terrorists’ coming into Russia.

The goal of Syria, among other things, is the creation of a failed state and terrorist stronghold to destabilize the region, including Iraq, Iran and Turkey, but with the ultimate goal of bleeding Russia white over time.

And as each domino falls, the harder it is for Russia to defend its positions in the former Soviet republics.  This is why Putin has been so focused on developing stronger defense and economic ties with these countries.  He’s been skillful in his diplomacy with Ukbezistan, for example, after the death of its long-time leader Karimov in September of 2016.

The same can be said for how he and Iranian President Rouhani have handled relations with Azerbaijan, despite the open wound of Nagorno-Karabakh.

So, as things ratchet up in Armenia, the question over the next few days will be whether the removal of long-time Russian ally Sargsyan from Armenia politics will be enough to dissipate the current anger.

I don’t know but I do know that this situation will be escalated a la the Maidan in Kiev if it begins to flag in intensity.

Bernie Sanders is preparing to release his version of the "jobs guarantee" that has become a fixture of the UK Labour Party's platform under leader Jeremy Corbyn.

And although his office admits it hasn't carried out a cost analysis for its visionary plan, Sanders says his goal is to guarantee a job (paying $15 an hour) in construction, health-care, education and a handful of other fields, to every American who wants one.

But while the socialist fervor unleashed by Sanders's 20 Read more.....

Bernie Sanders is preparing to release his version of the "jobs guarantee" that has become a fixture of the UK Labour Party's platform under leader Jeremy Corbyn.

And although his office admits it hasn't carried out a cost analysis for its visionary plan, Sanders says his goal is to guarantee a job (paying $15 an hour) in construction, health-care, education and a handful of other fields, to every American who wants one.

But while the socialist fervor unleashed by Sanders's 2016 primary run shows little sign of abating, a draft report released by the World Bank shows just how misguided a "jobs guarantee" would be.

In the report, the World Bank proposes lowering minimum wage and easing restrictions on hiring and firing for employers to help prepare countries for the onslaught of robot labor that consultancies including McKinsey believe will kill 800 million jobs by 2030, according to the Guardian.

The World Bank is proposing lower minimum wages and greater hiring and firing powers for employers as part of a wide-ranging deregulation of labour markets deemed necessary to prepare countries for the changing nature of work.

A working draft of the bank’s flagship World Development Report – which will urge policy action from governments when it comes out in the autumn – says less "burdensome" regulations are needed so that firms can hire workers at lower cost. The controversial recommendations, which are aimed mainly at developing countries, have alarmed groups representing labour, which say they have so far been frozen out of the Bank’s consultation process.

Of course, anybody who has followed our coverage of minimum wage hikes in Ontario, Seattle (as well as McDonald's workers' "Fight for $15) would know that these types of government-mandated wage hikes often destroy more jobs than their backers realize. Furthermore, studies have found that mandated wage hikes disproportionately harm female and minority workers.

But despite all available empirical evidence, Labor organizations are slamming the World Bank for ignoring the harsh realities faced by workers every day.

Peter Bakvis, Washington representative for the International Trade Union Confederation, said the proposals were harmful, retrograde and out of synch with the shared-prosperity agenda put forward by the bank’s president Jim Yong Kim.

He added that the WDR’s vision of the future world of work would see firms relieved of the burden of contributing to social security, have the flexibility to pay wages as low as they wanted, and to fire at will. Unions would have a diminished role in new arrangements for "expanding workers’ voices."

The paper "almost completely ignores workers’ rights, asymmetric power in the labour market and phenomena such as declining labour share in national income," Bakvis said.

The International Labour Organisation has also expressed alarm at the proposals, which include the right for employers to opt out of paying minimum wages if they introduce profit-sharing schemes for their workers.

The WDR draft says: "High minimum wages, undue restrictions on hiring and firing, strict contract forms, all make workers more expensive vis-à-vis technology."

The World Bank doesn't focus solely on minimum wage. In addition to waiving the minimum wage, the NGO advocated loosening restrictions on hiring and firing employees to encourage companies to hire more Why? Because by making it more expensive to fire a worker, governments are making companies more risk-averse when hiring workers, too.

And while labor leaders are aghast at what they perceive as the World Bank arguing for labor-market deregulation, they're apparently ignoring the researchers' claim that labor market regulations - in their current form - only "protect the few who hold formal jobs while leaving out most workers."

And what's more, the World Bank is only advocating eliminating minimum wages for companies that agree to introduce profit-sharing arrangements for their employees - thereby better aligning the interests of labor with the interests of management.

The report is being prepared amid growing speculation about the impact of artificial intelligence and automation on employment and wages in future decades.

"Rapid changes to the nature of work put a premium on flexibility for firms to adjust their workforce, but also for those workers who benefit from more dynamic labor markets," the draft says.

Bakvis said the draft "puts forward a policy programme of extensive labour market deregulation, including lower minimum wages, flexible dismissal procedures and UK-style zero-hours contracts. The resulting decline of workers’ incomes would be compensated in part by a basic level of social insurance to be financed largely by regressive consumption taxes."

The paper says that labour regulations "protect the few who hold formal jobs while leaving out most workers" and the sort of social protection schemes that began with the German chancellor Otto von Bismarck in the late 19th century were not appropriate because they covered only a third of developing country populations.

...

A World Bank spokesman said: "To stimulate debate and draw attention to critical issues, the report will present a range of ideas for how governments can create the conditions for workers to benefit from huge shifts in technology, demographics, urbanisation and other factors."

"To end poverty and boost shared prosperity, it’s vital that we consider new initiatives to meet the disruption that will surely come from these structural changes. We encourage and look forward to comments and an evidence-driven discussion on this important topic."

Of course, this doesn't make the idea any less toxic to the labor movement - though if they would only continue reading for a few more sentences, instead of becoming overwhelmed by sanctimonious anger after reading the phrase "lower the minimum wage", maybe they'd understand that something is going to need to change in the labor market to accommodate the advent of the robot era.

And until we all agree on a solution, no proposal should be too profane to consider.