Goodbye Dollar, It Was Nice Knowing You!

Authored by Philip Giraldi via The Strategic Culture Foundation,

Over the past two years, the White House has initiated trade disputes, insulted allies and enemies alike, and withdrawn from or refused to ratify multinational treaties and agreements. It has also expanded the reach of its unilaterally imposed rules, forcing other nations to abide by its demands or face economic sanctions. While the stated Trump Administration intention has been to enter into new arrangements more favorable to the United States, the end result has been quite different, creating a broad consensus within the international community that Washington is unstable, not a reliable partner and cannot be trusted.

This sentiment has, in turn, resulted in conversations among foreign governments regarding how to circumvent the American banking system, which is the primary offensive weapon apart from dropping bombs that Washington has to force compliance with its dictates.

Consequently, there has been considerable blowback from the Make America Great Again campaign, particularly as the flip side of the coin appears to be that the “greatness” will be obtained by making everyone else less great. The only country in the world that currently regards the United States favorably is Israel, which certainly has good reason to do so given the largesse that has come from the Trump Administration. Everyone else is keen to get out from under the American heel.

Well the worm has finally turned, maybe. Even the feckless Angela Merkel’s Germany now understands that national interests must prevail when the United States is demanding that it do the unspeakable. At the recently concluded G20 meeting in Tokyo Britain, France and Germany announced that the special trade mechanism that they have been working on this year is now up and running. It is called the Instrument in Support of Trade Exchanges (Instex) and it will permit companies in Europe to do business with countries like Iran, avoiding American sanctions by trading outside the SWIFT system, which is dollar denominated and de facto controlled by the US Treasury.

The significance of the European move cannot be understated. It is the first major step in moving away from the dominance of the dollar as the world’s trading and reserve currency. As is often the case, the damage to US perceived interests is self-inflicted. There has been talk for years regarding setting up trade mechanisms that would not be dollar based, but they did not gain any momentum until the Trump Administration abruptly withdrew from the Joint Comprehensive Plan of Action (JCPOA) with Iran over a year ago.

There were other signatories to the JCPOA, all of whom were angered by the White House move, because they believed correctly that it was a good agreement, preventing Iranian development of a nuclear weapon while also easing tensions in the Middle East. Major European powers Germany, France and Great Britain, as well as Russia and China, were all signatories and the agreement was endorsed by the United Nations Security Council. The US withdrawal in an attempt to destroy the “plan of action” was therefore viewed extremely negatively by all the other signatories and their anger increased when Washington declared that it would reinstate sanctions on Iran and also use secondary sanctions to punish any third party that did not comply with the restrictions on trade.

Instex is an upgrade of a previous “Special Purpose Vehicle” set up by the Europeans a year ago to permit trading with Iran without any actual money transfers, something like a barter system based on balancing payments by value. The announcement regarding Instex came as a result of last week’s meeting in Vienna in which the JCPOA signatories minus the US got together with Iranian ministry spokesman Abbas Mousavi, who called the gathering “the last chance for the remaining parties…to gather and see how they can meet their commitments towards Iran.”

Iran is quietly pleased by the development, even though there are critics of the arrangement and the government is officially declaring that Instex is not enough and it will proceed with plans to increase its uranium production. This produced an immediate response from Secretary of State Mike Pompeo last week speaking in New Delhi “If there is conflict, if there is war, if there is a kinetic activity, it will be because the Iranians made that choice.” Nevertheless, Instex could possibly be a model for mechanisms that will allow Iran to sell its oil without hindrance from Washington. But a sharp reaction from the White House is expected. While Instex was in the development phase, US observers noted that the Iranian Special Trade and Finance Instrument, that will do the actual trading, includes government agencies that are already under US sanctions. That likely means that Washington will resort to secondary sanctions on the Europeans, a move that will definitely make the bilateral relationship even more poisonous than it already is. A global trade war is a distinct possibility and, as observed above, the abandonment of the dollar as the international reserve currency is a possible consequence.

Trump has already been “threatening penalties against the financial body created by Germany, the U.K. and France to shield trade with the Islamic Republic from US sanctions.” The Treasury’s undersecretary for terrorism and financial intelligence, Israeli Sigal Mandelker, warned in a May 7th letter that “I urge you to carefully consider the potential sanctions exposure of Instex. Engaging in activities that run afoul of US sanctions can result in severe consequences, including a loss of access to the US financial system.”

Indeed, the White House appears to be willing to engage in economic warfare with Europe over the issue of punishing Iran. The Treasury Department issued a statement regarding the Mandelker letter, saying “entities that transact in trade with the Iranian regime through any means may expose themselves to considerable sanctions risk, and Treasury intends to aggressively enforce our authorities.” Mike Pompeo also was explicit during a visit to London on May 8th when he stated that “…it doesn’t matter what vehicle’s out there, if the transaction is sanctionable, we will evaluate it, review it, and if appropriate, levy sanctions against those that were involved in that transaction. It’s very straightforward.”

It is perhaps not unreasonable to wish the Europeans success, as they are supporting free trade while also registering their opposition to the White House’s bullying tactics using the world financial system. And if the dollar ceases to be the world’s trade and reserve currency, what of it? It would mean that the Treasury might have to cease printing surplus dollars and the US ability to establish global hegemony on a credit card might well be impeded. Those would be good results and one might also hope that some day soon the United States might once again become a normal country that Americans would be proud to call home.

Fourth Of July Food Spending Is Falling

According to the National Retail Federation, 61 percent of Americans will be celebrating Independence Daythis year with a barbecue, cookout or picnic.

As Statista’s infographic shows, all of that food comes with a hefty price tag, but one which has been getting smaller in recent years.

Infographic: Fourth of July Food Spending Is Falling | Statista

You will find more infographics at Statista

$7.1 billion was expected to be spent for the festivities in 2017, but the figure is $6.8 billion this year – back to 2016 levels of planned spending.

Best economy ever?

On The Importance Of Being Anti-War

Authored by Tom Luongo,

Justin Raimondo died the last week. It was a long-time coming.

Co-Founder of Antiwar.com, Justin was one of the most important men in America you’ve probably never heard of.

In the dark days after 9/11 he was the Antiwar movement in America. I remember how quickly everything turned against libertarians politically after that.

And yet, there was Raimondo, plugging away exposing the truth, naming names and showing no fear.

Inspiration doesn’t cover it.

For close to 20 years, three times a week, wielding the biggest rhetorical stick he could find, he let the Empire have it right where it deserved it most.

Right between the eyes.

I haven’t talked about him much here on the blog or even recently on my livestreams and it was an omission.

I may have been avoiding this, to be honest. Why else would it take me a week to even address the subject?

I was forced to the other day, thankfully, by Garland Nixon when I was on Fault Lines. I stumbled through it. The interview starts at 130 minutes in.

So, I’ll try to do a slightly better job here.

We’ve all known for a long time that Justin had lung cancer. Frankly, who wants to face knowing that someone whose voice was precious to you, to your development, and without whom you wouldn’t be where you are today would be leaving?

The first time he replied to me on Twitter I was star-struck.

Raimondo was required reading for well more than a decade. He introduced me to a version of the world I didn’t know existed. Every Monday, Wednesday and Friday I would soak up what I could of what he knew and integrate it into my evolving worldview.

He wrote about the one subject that libertarians can always claim the moral high ground on: war is never the answer. War is the health of the state.

As Scott Horton says in his short statement here, it’s cool that Antiwar.com was owned by libertarians, not leftists. Not that it should matter. But looking at the current state of politics in the U.S. it certainly does right now.

Because we are the only people who are consistently, at all times, against war, philosophically. It’s something we have to teach people over and over and over again. And now Raimondo isn’t here to shoulder the load.

Okay, Justin, challenge accepted.

It is the obligation, nee the duty, of all libertarians to focus on that above all other issues. Sure lower taxes are nice and all but where do you think the push for those taxes comes from?

War.

When we withhold our taxes where do you think the funding for the Empire and all its wars comes from? The Fed and central banks around the world.

Why do you think, really, Nixon closed the gold window?

Being anti-war is not a consequence of the non-aggression principle, it is the non-aggression principle writ large.

You can’t fix what’s wrong with America until you fix the foreign policy. And you can’t fix the foreign policy until we come clean about where it comes from.

And Raimondo talked about this incessantly until he couldn’t anymore.

This is why I was so uninterested in the election in 2016 at first. Why stress about who’s in the White House when the White House doesn’t set policy? As Vladimir Putin so eloquently put it, “Presidents change. Policies do not.”

But then it looked like Donald Trump might be the real deal.

Raimondo and I were both filled with a sense of hope we hadn’t, I presume, felt since Ron Paul broke out in the 2012 race. But, even then, deep down we knew they would never let him be the nominee.

Better false hope than no hope? Or was it just the enthusiasm of knowing that the issue was popular and it, at times, gets a voice.

That, eventually, the pendulum swings back the other way and who once were kooks are now the cool kids. Hey, a guy can dream a little, no?

Trump alongside Bernie Sanders was something different than 2012. This was the Great Awakening of the American impulse to reject these neocon usurpers and pull the country (and the world, frankly) back from the brink of their planned demolition.

It is too bad he didn’t live long enough to see Trump put a small down payment on that promise the other day in North Korea.

Raimondo taught me to understand that foreign policy is just war by other means, and it was the most important part of our national policy. The foreign policy orthodoxy can never be challenged in the public sphere.

It is verboten.

Because it is that which drives the Empire and all the perks that come with that for those in charge of it.

It was Raimondo who helped coin and popularize the term neoconservative. It was he that traced their Trotskyite roots back to the 1950’s and helped expose the rank hypcrisy of fake conservatives like Bill Buckley, George Will and the rest of them.

It was he that also connected the dots to Paul Wolfowitz, John Bolton, Sheldon Adelson, Dick Cheney, Richard Perle and the Clintons. It was Justin who broke open the seventh seal of foreign policy, naming the names in Israel that stood alongside them.

And it’s our job to continue exposing them in his absence.

The world is a diminished place today without this lion of peace. A man who embodies the following:

Live a life of consequence, leave a life of significance.

*  *  *

Fuck war. Join my Patreon.

Philly DA Eliminates Fines And Fees For Defendants In Poverty

Philadelphia District Attorney Larry Krasner has announced that the city will eliminate various court-related fines and fees for impoverished defendants, and will instead focus on their payment of restitution in cases involving victims according to the Philly Voice

“Today, Philadelphia is a giant leap closer to a truly fair and consistent system of justice in which low-income defendants do not face additional punishment by way of unaffordable fines and fees that drive them deeper into debt and poverty,” said Krasner. 

The current system requires defendants to pay fees such as the court-mandated booking center fee ($175), judicial computer project fee ($12), Commonwealth costs ($20.30), costs of prosecution ($50), county court costs ($29.85), state court costs ($13.55), monthly offender supervision fees (minimum $25) and fees associated with the particular crimes in question. –Philly Voice

Under the new policy, fees would be waived for indigent defendants if they meet the following criteria. 

  • Representation by the public defender, court-appointed counsel, pro bono counsel, or any free legal services organization
  • Are receiving means-based public assistance
  • Have an income at or below 125% of the Federal Poverty Guidelines
  • Provide evidence showing that they are indigent

“Waiving fines and fees can help indigent defendants afford transportation and other costs associated with employment, education and training programs, completing probation terms, and child or elder care,” added Krasner. 

For offenders who owe restitution to a victim, what little funds or income they do have would be used to make those payments. 

“For people living just above the poverty line, fines and court fees become an obstacle to rehabilitation,” said Chief Defender Keir Bradford-Grey of the Philadelphia Defender Association. “They can trap people in a cycle of poverty and incarceration and effectively turn our jails into debtors’ prisons. Just last year, courts in Philadelphia ordered people to pay over $21 million in fees despite the fact that more than a quarter of Philadelphians live below the poverty line.” 

Is This A Turning Point In Libya’s Civil War?

Authored by Nick Cunningham via OilPrice.com,

Libya’s civil war has taken a catastrophic turn, plunging the country even deeper into crisis

An airstrike hit a detention center for migrants on the outskirts of Tripoli, killing at least 44 people, a death toll that is likely to climb. At the time of this writing, it was not clear who launched the airstrike, although the militia led by Khalifa Haftar, known as the Libyan National Army (LNA), is widely suspected. The Tripoli-based Government of National Accord (GNA) blamed Haftar and called on the UN to investigate. The airstrike hit a weapons cache adjacent to the detention center.

The attack comes as the LNA recently suffered a severe setback in its three-month assault on Tripoli. Last week, militias backing the GNA seized the town of Gharyan, roughly 60 miles from the capital. The town has been used as a supply route to refurbish the forces of the LNA. Shortly after the town was seized, Haftar’s LNA said it would launch an air campaign against GNA-backed forces in Tripoli, a strategy that conspicuously coincides with the horrific airstrike killing dozens of migrants.

There appears to have been an immediate change of LNA strategy in response to the loss of Gharyan, with an air force commander stating that after ‘exhausting all traditional means’ to take Tripoli, the LNA will now intensify its airstrikes on GNA targets in Tripoli,” Standard Chartered wrote in a note.

At the same time, the Interior Minister for the GNA told the AP that the airstrike could have been conducted by foreign backers of Haftar, rather than the LNA itself. Adding to the intrigue is the fact that American made missiles have showed up in Libya, and some U.S. officials suspect they found their way via the United Arab Emirates, which backs Haftar’s LNA. If true, the transfer of U.S.-made missiles to Libya would violate both the U.S. sales agreement to the UAE as well as an international arms embargo on Libya.

“The Emiratis are clearly stepping up their involvement as Hifter is floundering on the ground,” Tarek Megerisi of the European Council on Foreign Relations, told the New York Times.

“They feel obliged to make sure he wins to protect their investment.”

For its part, the LNA blames Turkey for its loss at Gharyan. Turkey and the UAE find themselves on opposite sides of the civil war in Libya.

“The UN arms embargo is meant to protect civilians in Libya. But Jordan, the United Arab Emirates and Turkey, among others, are blatantly flouting it by providing sophisticated armoured vehicles, drones, guided missiles and other weapons,” Amnesty International said in a statement.

“The UN Security Council must urgently take steps to enforce the embargo, and the warring parties must respect international humanitarian law and stop recklessly endangering civilians.”

The head of the African Union said the airstrike on the detention center could amount to a war crime.

But it could be the loss of the town of Gharyan that may prove a turning point in the civil war, which could “comprise the LNA offensive on Tripoli,” according to Standard Chartered.

While Libya’s oil exports have surprisingly held steady even as the fighting has intensified, “there is now a likelihood that new fronts will be opened.” The investment bank said that Haftar and the LNA have three options.

  • First, they could focus their fighting on retaking Gharyan to reopen supply lines.

  • Second, it could “wind down the Tripoli offensive, and open up a new front against Sirte in the east.”

  • Third, the LNA could “simply disengage” and instead consolidate territory it already controls.

“All three present some risk to the maintenance of oil exports,” the investment bank said, although it would be the assault on Sirte that could present the biggest short-term risk to oil supply. Also, the GNA could begin to advance towards the Ras Lanuf oil export terminal “in an attempt to push LNA forces back towards Benghazi,” Standard Chartered said.

“In total we think the military situation in Libya is more fluid than it has been for three months, and the uncertainty over future export levels is accordingly higher,” Standard Chartered concluded. As the LNA suffers setbacks, the fighting may intensify, leading to a greater toll on the civilian population. But Libya’s oil exports are also at risk.

June Payrolls Preview: Great News Will Be Very Bad News For Stocks

With US nonfarm payrolls in two of the past four months printing at a disappointing 75K or below, Wall Street expects a decent rebound when the BLS reports June payrolls tomorrow at 830am, which are seen rising up to 160K. Fed’s Powell suggested in his recent press conference that the central bank looks at the three-month trend, rather than a single print, and if the headline was realised, it would only be a touch above the three-month average rate at 155k, according to RanSquawk.

Alongside the rebound in jobs, the pace of wage growth is also expected to accelerate vs May levels, while there will also be attention on the U6 underemployment rate, which fell to a cyclical low in May, amid a stable participation rate, which is seen as a positive. Most importantly, the data will be a key part of the FOMC’s case on whether it chooses to cut rates or stand pat on policy at the July policy meeting. A “surprisingly” poor number: anything double-digit or lower, will send stocks soaring higher as it will guarantee at least one rate cut in 3 weeks, with a big possibility for two cuts.

Courtesy of RanSquawk, here are the key expectations for tomorrow’s report:

  • Non-farm Payrolls: Exp. 160k, Prev. 75k.
  • Private Payrolls: Exp. 153k, Prev. 90k.
    • Manufacturing Payrolls: Exp. 0k, Prev. 3k.
    • Government Payrolls: Prev. -15k.
  • Unemployment Rate: Exp. 3.6%, Prev. 3.6%.
    • U6 Unemployment Rate: Prev. 7.1%.
    • Labour Force Participation: Prev. 62.8%.
  • Avg. Earnings Y/Y: Exp. 3.2%, Prev. 3.1%.
    • Avg. Earnings M/M: Exp. 0.3%, Prev. 0.2%.
    • Avg. Work Week Hours: Exp. 34.4hrs, Prev. 34.4hrs.

Arguing for an surprise beat, Goldman estimates nonfarm payrolls increased 175k in June, matching its average pace over the previous six months and a sharp rebound from the 75k gain in May, adding that it does not believe that Mississippi River flooding (or bad weather more generally) can explain last month’s job growth slowdown. Instead, its preferred explanation “is a modest deceleration in labor demand coupled with seasonal labor supply constraints—the latter of which often weigh on May job growth when the labor market is tight.” If so, the June arrival of students and recent graduates into the labor force should support a reacceleration in job growth in Friday’s report.

Why does this report matter? 

Because it will either cement the case for a rate cut at the end of the month, or – if the report is especially strong, 250K and above, it may spark speculation that the Fed could remain on hold indefinitely. As such, “very good news would be very bad news for the market”, which has priced in roughly 20% odds of two rate hikes in July.

The Fed has indicated that it was monitoring the outcome of G20 summit, and the tone of incoming data in order to make the case for any July rate cuts. The G20 meeting has passed now, and the outcome was favourable. Data points have been mixed of late, and the payrolls data will one of the key drivers of the Fed’s decision making in order to determine whether a cut is appropriate.  After the disappointing 75k reported in May, analysts look for 160k nonfarm payrolls to the US economy in June. In his recent post meeting press conference, chair Powell said he was watching the three-month average rate of payroll growth, rather than a single months’ print; as such, it is worth noting that the three month average inched up in May (to 155k from 144k), despite the disappointing headline.

However, there is no doubt that the pace of additions is easing as the US economy enters the late cycle stage. Capital Economics looks for a sub-trend and below consensus 125k in June, which it says suggests that the labour market is succumbing to the broader slowdown in economic growth. The consultancy notes that the weak May jobs report comes while the alternative household measure of employment slows more sharply: “That wouldn’t usually receive much attention because the small sample size means household employment is much more volatile than the payroll estimate,” Capital Economics argues, “but the household survey has historically been quicker at detecting turning points.” CapEco explains that the payroll data relies on the birth-death model of employment at new firms and those going out of businesses, which do not do a great job in real-time, and says initial payroll estimates at the onset of past downturns are frequently revised lower.

Key factors going into tomorrow’s jobs report

JOBLESS CLAIMS:

Weekly jobless claims data for the nonfarm payroll survey period fell by 5k in the week to 217k, and the four-week rolling average measure also decreased. Combined with the continuing claims measure, the pace of layoffs remains low, analysts said, and the trend rate of jobless claims remains between 210-220k, close to all-time lows as a share of the workforce.

ADP:

The headline missed expectations again, printing 102k in June against the Street’s view for 140k. Pantheon Macroeconomics explains that the ADP figure is generated by a model which incorporates data from firms which use ADP’s payroll processing services but also includes the previous month’s official measure, because payrolls tend to mean-revert. The consultancy says that May’s modest 90K increase in private payrolls, therefore, constrained the June ADP measure., and notes that the official numbers, however, are based only on survey data for the reference month, so Friday’s nonfarm payrolls data should be stronger than ADP suggests. “The bigger picture here is that payroll growth had to slow this year because the economy is no longer being boosted by last year’s tax cuts,” Pantheon writes, “more recently, however, payroll growth has been unusually sluggish as a result of the hit to business confidence from the drop in stock prices in Q4. But the key private sector survey measures of hiring, notably the ISM surveys and the NFIB survey, have substantially recovered.” Pantheon looks for job gains of 175K per month in Q3, and sees the June figure (released Friday) around +160K.

BUSINESS SURVEYS:

The manufacturing ISM report saw the employment sub-index rise by 0.8 points to 54.5, indicating employment rose for the 33rd consecutive month. “Employment continued to expand, and at marginally higher levels compared to May. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Comments were predominantly ‘pro hire’ in support of capacity expansion, replacing retiring workers and adding summer help. Few comments were in support of hiring freezes and head-count reductions,” ISM’s Fiore said. The non-manufacturing survey, meanwhile, saw the employment sub-index fell by 3.1 points to 55.0, though has remained above 50.0 for 64 straight months now. Comments from respondents include: “We are currently recruiting for vacant positions” and “Downsizing due to closing brick-and-mortar stores.”

CHALLENGER:

June announced job cuts printed 41,977, and US-based employers announced plans to cut 140,577 jobs from their payrolls in the second quarter of this year, down 26% from the 190,410 cuts announced in the first quarter, Challenger reported. It said that despite the drop, Q2 cuts are 34% higher than the 104,800 cuts announced in the same quarter last year. For the June data specifically, Challenger said that despite the monthly drop, June’s cuts are 13% higher than the 37,202 cuts announced in June of last year, which is the eleventh consecutive month job cuts are higher than the corresponding month the year prior. “Job cuts are trending higher overall. In addition to Retail, we’ve seen significant cuts in the Industrial Manufacturing and Automotive sectors in recent months,” Challenger said, “manufacturers are grappling with not only technological changes, but also increased competition, tariffs, changes in consumer behaviour, and skills shortages. The Automotive sector particularly has experienced some setbacks, as consumer demand for traditional vehicles wanes.”

WAGES:

Goldman Sachs estimates that average hourly wages will rise by 0.4% M/M, on the back of rounding, and that would boost the Y/Y rate to 3.2% it said. “Our forecast reflects favourable calendar effects and a possible boost from rebounding supervisory earnings—which have underperformed the production-worker subset in each of the last three months.”

Key factors arguing for a stronger report:

Seasonality. Goldman views the labor market as somewhat beyond full employment, and believes the dwindling availability of workers weighed on job growth in the May report. As shown in Exhibit 1, in years with relatively tight labor markets, payroll growth tends to slow in May and reaccelerate in June and July. This could reflect the timing of students and recent graduates joining the labor force—and the related possibility that some firms pull forward hiring earlier in the year (anticipating a shortage of workers in the late Spring). Indeed, tje May job growth was particularly soft in several service industries that showed strong gains in the first four months of the year, including education and health (+27k in May vs. Jan-Apr average of +58k), other services (-1k vs. +12k), and leisure and hospitality (+26k vs. +35k).

Public Education. The 14k May decline in public education payrolls is expected to reverse in Friday’s report. As shown in Exhibit 2, May swings in this sub-industry tend to mean-revert in June, and there is the possibility that the relatively late May survey week (ended the 18th) resulted in the exclusion of some employees at state colleges (who had already left for the summer).

Jobless claims. Initial jobless claims edged down over the four weeks between the payroll reference periods (-3k to 219k on average) and remain very low by historical standards.

Service-sector surveys. Service-sector business surveys were sequentially softer in June but generally remain at solid levels. Our headline non-manufacturing tracker declined by 0.9pt and the employment component declined by 0.3pt to 54.3. Despite the sequential declines, the tracker’s levels continue to suggest that service-sector employment continues to rise at a healthy pace. Service-sector job growth rose 82k in May and averaged 143k over the last six months.

Arguing for a weaker report:

ADP. The payroll-processing firm ADP reported a 102k increase in June private payroll employment, well above the 41k rise in May but still 38k below consensus. While we had expected a soft report because of the various inputs to the ADP model this month, Mark Zandi (the chief economist of Moody’s Analytics who oversees the ADP report) indicated on CNBC that small-business hiring has stalled. Accordingly, we view the ADP report as a negative factor this month. 

Manufacturing surveys. Manufacturing-sector surveys were soft in June, as our headline manufacturing survey tracker declined by 3.0pt to 50.6—a three-year low. Our manufacturing employment tracker pulled back by less (-1.2pt to 53.5), as the employment components generally outperformed and remained at healthier levels. Manufacturing payroll employment rose 3k in May and has increased by 8k on average over the last six months.

Trade war escalation. The return of the trade war has weighed on some US growth data, particularly the May and June manufacturing surveys. The higher tariff rate on imports from China implemented over the course of May and early June—coupled with the uncertainty surrounding Mexico trade (tariffs announced May 30th and cancelled June 7th)— will likely weigh on June payrolls in some exposed industries. For example, Goldman is assuming a decline in manufacturing employment, and notes that the agreement at the G20 to delay additional Chinese tariffs occurred well after the June payroll survey period.

Job availability. The Conference Board labor market differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get—declined by 5.9pt to +27.6 in June, its largest monthly decline since February 2009. While concerning, the widely reported May payrolls miss likely influenced survey responses, and the resulting weakness may be telling us more about May than about June. If so, it may contain minimal information about the pace of June job growth, reminiscent of a similar situation in March (the labor market differential declined by 5.3pt but job growth reaccelerated from +56k to +153k). Other job availability readings were mixed, as JOLTS job openings remained high (-25k to 7,449k in April, up from 7,142k in February).

Has Trump Turned An Important Corner?

Authored by Tom Luongo via The Strategic Culture Foundation,

Donald Trump’s surprise visit to North Korea last week was impressive. It was a bold first step in repairing a foreign policy in tatters after more than a year of assaults by his neoconservative boobsie-twins Secretary of State Mike Pompeo and National Security Advisor John Bolton.

Trump took Kim at his word who said after talks broke down thanks to Bolton and Pompeo in Hanoi that no dialogue would be possible if Bolton was involved.

So, Trump sent Bolton to Mongolia. Then he went to Korea and did the one thing he had to do to begin unraveling the mess he’d gotten himself into.

Last week I asked where does Trump go after his confrontation with Iran? Trump answered that question in dramatic fashion. And he deserves a lot of credit for it.

But what does this mean in the wider context? It’s a good first step but we’ve seen this game from him before, making bold moves only to be reined in by his staff.

I would say that the optics of sending Bolton to Mongolia are pretty clear. Bolton’s time in the White House is nearly over. This is also a strong signal to Iran that Trump trying to back down without actually saying that.

The drone incident was intended to box Trump into a path to war with Iran after the tanker attack in the Gulf of Oman two weeks prior. That was likely not the Iranians but the Saudis and/or MEK, again trying to get Trump to fly off the handle, since he’s easily manipulated into emotional acts.

But he was talked out of it at the last minute, presumably by Tucker Carlson, who was with him on Air Force One when Trump went to meet Kim.

Has Trump finally woken up to the reality that he can’t appease these neocons anymore? That their lust for power can only be sated by perpetual war? That he has to lead and be President? Asking for advice from your cabinet is one thing, being led by your nose to foregone conclusions which are anathema to what put you in the White House in the first place is another.

He hasn’t drained one ounce of The Swamp because he wasn’t strong enough to do it.

His instincts are correct. His desire for denuclearization is sincere. Like Trump or not, he’s a patriot. What he does he does out of this sense of patriotism. It’s laudable but it also makes him vulnerable to bad advice and his own personality defects.

And those things nearly got the world into a war where no one wins.

So, with all that said, now what?

A lot has changed in the past four months since the end of the Mueller investigation. And the signs are all there that Trump is feeling a lot more secure both politically and financially that would allow him to not only make bold first moves but follow through on them.

Speaker Nancy Pelosi backed down on border wall funding. She’s ruled out impeachment as a bad political tactic. And she’s under fire from the hard-core Progressives in the party. This makes them weak.

So, from a re-election standpoint Trump looks very secure, especially after the “I’m more woke than you” fest that was the first debate among DNC candidates.

We’re looking at a mirror of 2016 with the Republicans that Trump beat. A wide and shallow pool of less than capable candidates who will all eat each other alive while he rides to re-election.

The difference is that these weren’t hand-selected to be pushovers to coronate Hillary Clinton. This is just the best the Democrats have to offer. And, with the exception of Tulsi Gabbard, that’s not saying much.

From a re-election perspective Trump has to shore up his foreign policy position and admit that whatever he’s tried to do to this point hasn’t worked. In fact, it has done nothing but weaken him and is adding to an already messy economic landscape worldwide, as I’ve pointed out in the past.

This turn by him is more than a small blip, in my mind. It is Trump backing away from the abyss created for him by his neocon handlers, who all hate him anyway.

Bolton was pushed on him by major Republican donor and Israeli Firster, Sheldon Adelson. And Adelson is the real issue here. So much of Trump’s foreign policy has centered around the wishes of this odious man.

With RussiaGate behind him and leading Democrats refusing to let it lie down as they try to obfuscate the obvious trail which leads back to them Trump looks a lot more secure. He’s looking at the fundraising numbers, the crowds he’s drawing at rallies more than a year out from the election, a stock market at all-time highs and he’s thinking he doesn’t really need Adelson’s money network anymore.

And if that is the case, then we may finally see the Donald Trump that he sold us during the campaign. I’m not holding high hopes for this, but I would be remiss in not pointing out his incentives.

It’s becoming obvious to everyone that the Deal of the Century for Israel and Palestine is a dead letter. So many of Trump’s mistakes have been in service of this deal which they can’t even bring to the table.

The last piece of this puzzle is whatever happened at the G-20 between Trump, Vladimir Putin and Chinese Premier Xi Jinping. Trump folded on the worst of his trade war with China. His uber-hawks wanted Huawei destroyed for not giving the US backdoor access to spy on the world, everything is just noise.

He did this agreeing to more soybean imports from China. This was a cop to the farmers he needs to keep onside if he’s going to win in 2020.

But the most important part of this are the signals by Russia and China that they would assist Iran in getting its oil to market. The Chinese will buy it and the Russians will clear the trades through their electronic payment system analogous to the US-dominated SWIFT.

Since any further action by the US to stop Iranian oil exports involve physical confrontation and interdiction that threat is now off the table after Trump nixed bombing Iran. No one will be happy with an order by Trump to detain Iran’s oil tankers, except the people who have been playing games with him, the Israelis and the Saudis.

But even then, Putin surely held the Saudis feet to his fire in agreeing to extend the oil production cuts into next year. A little leverage on the over-levered can be very effective. From the looks of things, post G-20, Trump assessed the landscape and began pulling back.

Bullying can only take you so far. Pressure applied too forcefully can always be turned against you. And in politics overplaying your hand will bust you. Next move, Mr. President?

Global Chip Supply In Jeopardy As New Trade Feud Erupts Between Japan And South Korea

The US trade war with China may have entered a tentative truce period, but a brand new, emerging trade feud threatens to jeopardize an entirely new universe of technological supply chains.

On Tuesday, Japan unexpectedly announced that it was considering imposing stricter export controls on more items bound for South Korea, in an apparent effort to raise pressure on Seoul to help resolve a bilateral dispute over compensation for wartime labor. The envisaged plan comes in response to what Tokyo views as Seoul’s failure to address the months-long dispute properly and prevent it from hurting mutual trust between the two neighbors.

Expanding the list of items, possibly to include electronic parts and related materials that can be diverted to military use, will likely exacerbate bilateral tensions, according to the Japan Times, and some within the government remain cautious about taking further steps, even though Japan has already announced that effective today, it will require manufacturers to file applications when they export to South Korea three materials used in the production of semiconductors and displays for smartphones and TVs.

Prime Minister Shinzo Abe on Wednesday defended the government’s export controls.

“We cannot give the preferential treatment that has been afforded until now, as the other country has not kept its promise,” he said during a nationally televised debate with leaders of other political parties, a day before official campaigning begins for the July 21 Upper House election. “This does not go against WTO agreements at all.”

Meanwhile, Seoul, which regards the move as conflicting with the spirit of free trade, has threatened to launch a complaint against Japan at the World Trade Organization.

Commenting on the latest trade feud, the Nikkei warned that Japan’s new export controls on South Korea, a country that produces the bulk of the world’s memory chips, threaten a ripple effect that spreads beyond the two wary neighbors to electronics manufacturing globally, and could result in another semiconductor shockwave across the globe.

The restrictions mark the latest setback in a bilateral relationship between the two Pacific Rim nations, fraught with colonial-era grievances. The move prompted Seoul to say it was considering retaliatory measures and left chipmakers to confront an immediate supply challenge.

Adding to the complications, Japan’s government expects export reviews to take about three months. But South Korean chipmakers typically keep only one to two months’ worth of parts and materials in stock.

A source at chipmaker SK Hynix told Nikkei the company does not have three months of inventory. The chipmaker would have to halt production if it cannot procure necessary materials from Japan for that long, the source said. Top memory chip maker Samsung Electronics said it was assessing the situation, without elaborating.

The impact could spread worldwide.

South Korean players control 70% of the global market for dynamic random access memory and 50% for NAND flash memory. Samsung leads the global chip market by revenue, with SK Hynix in third. These chips go into devices such as Apple’s iPhone, rival models from Huawei Technologies, personal computers made by HP and Lenovo Group as well as televisions from Sony and Panasonic.

A representative at a major Japanese electrical equipment maker expressed concern that the new controls could backfire.

“If supplies of things like memory from South Korea are delayed and production of Apple’s iPhone falls [as a result], there could be an impact on our provision of parts,” the representative said.

Lesser-known Japanese companies hold leading market shares in the three restricted materials. Polyimides are used to make flexible organic light-emitting diode displays. The others are used in forming circuit patterns: resist – a coating substance – and etching gas. These companies include JSR, Showa Denko and Shin-Etsu Chemical – all of which are a third or more owned by foreign investors.

Japan also plans to remove South Korea by August from an export “whitelist” of 27 friendly countries that includes the U.S., Germany and France, meaning that shipments of products with potential military applications will require government approval. No country has ever been dropped from the list.

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Tokyo cited a deteriorating relationship with Seoul as the reason for the controls, seemingly referring to a long-running dispute over compensation from Japanese companies to South Koreans for wartime labor.

The move follows Tokyo’s increase in inspections of some South Korean seafood that began last month, reportedly in retaliation for continued curbs on imports of food from areas affected by Japan’s 2011 Fukushima Daiichi nuclear disaster.

“It’s become difficult to manage exports based on a relationship of trust with South Korea,” Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura told reporters Monday.

* * *

In response to the sudden trade aggression, South Korean Vice Foreign Minister Cho Sei-young summoned Japanese Ambassador Yasumasa Nakamine to demand that the export controls be removed. He expressed concern about the impact on South Korean industry and bilateral relations, and argued that the restrictions directly contradict Japan’s advocacy for “free and fair trade” at the Group of 20 summit in Osaka last week.

Cho said that the government would work with businesses to prepare countermeasures. South Korea’s Ministry of Trade, Industry and Energy also said it would respond with “appropriate measures,” including filing a complaint with the World Trade Organization.

“We’ll make this an opportunity to enhance South Korea’s technological capabilities,” industry Minister Sung Yun-mo said.

Experts differed on whether the new regulations are valid under WTO rules. “This is an area where Japan can make decisions on its own, so it’s probably not a violation,” said Keisuke Hanyuda, partner at Japan-based Deloitte Tohmatsu Consulting. But Yuka Fukunaga, a professor at Waseda University in Tokyo, argued that the curbs may violate WTO agreements, as they fall into a “gray area.”

Whether a quick ceasefire follows in the coming weeks, and whether the US trade war with China ends up in a deal, remains unclear, but should trade relations collapse between Japan and South Korea, two nations at the cutting edge of global semi and tech manufacturing, the consequences not only for global trade but for corporate profitability would be disastrous. And case in point, this just hit: