By Tyler Durden
The calm is over. FX marksts are open and Cable is currently down another 170 pips, testing 1.3500 once again. USDJPY is also sliding back below 102.00 as the world awaits China’s reaction with its official peg as offshore Yuan plunged on Friday…
Source: Currency Carnage Continues: Cable, USDJPY Tumble As FX Markets Open
By Tyler Durden
While the world is focused on the aftermath of the Brexit vote, another surprise to the European status quo was just served thanks to Spain’s parliamentary elections, where according to the just released exit polls…
LATEST: Table comparing two exit polls with actual result from December:https://t.co/NtMMNlbvTR pic.twitter.com/bAAn4PTZ9t
— The Spain Report (@thespainreport) June 26, 2016
… the country’s two main progressive parties, the 137-year-old Socialists and the anti-establishment group Podemos, most likely have won a majority of seats in parliament according to early exit polls.
Podemos won 91 to 95 seats compared with 71 at the last vote in December while the Socialists won 81 to 85 seats compared with 90, according to the poll by Sigma Dos published by the state broadcaster. Parties need 176 lawmakers for a majority in the 350-seat chamber. Caretaker Prime Minister Mariano Rajoy’s People’s Party won the most seats with 117 to 121, though the second- and third-placed groups have both ruled out supporting him. The liberals of Ciudadanos fell to 26 to 30 seats compared with 40 last time.
The election is perhaps most notable for the latest confirmation of total apathy: while 37 million people are eligible to participate, barely half of them had voted by 6 p.m. in Madrid, the lowest turnout on record.
As a reminder, this is the second election following a previous one in December when the result was deadlocked, preventing any single party or alliance from claiming a majority. Opinion polls had suggested the parliament that emerges this time will be just as fragmented as the previous one. Four big parties and six smaller regional ones are likely to win seats in the 350-strong assembly, none of them coming close to a majority.
The center-right People’s Party (PP) looks set to be the biggest party again, with around 120 seats. But its natural coalition partner, the liberal Ciudadanos (“Citizens”), appears likely to win only 30 seats or less, far worse than polls had expected, leaving them well short of the 176 needed for a majority.
In theory, the rise of Unidos Podemos (“Together We Can”), a leftist alliance led by Podemos, could offer a way out. The 90+ seats it is expected to win, combined with around 80 for the Socialist Party (PSOE), would be close to a majority. Support from some of the regional parties could enable them to form a government.
That said, it all depends on the socialists: analysts believe that the 137-year-old Socialist Party would prefer to form a ‘grand coalition’ with the PP, led by the acting prime minister, Mariano Rajoy, or give passive support to a minority PP government, rather than combine with a group that threatens their existence, according to Reuters.
“This is a crucial time for the left. Our time has come. We have an opportunity for change,” said Carlos Martinez, a retired administrative clerk who cast his ballot for Unidos Podemos in the Arganzuela neighborhood, in the south of Madrid. However, the 77-year-old, who voted in December for …read more
Source: In Latest Shock To Status Quo, Spanish Left-Wing Parties Set To Win Parliamentary Majority
By Tyler Durden
Years before Ferguson, Missouri became famous for the Michael Brown shooting and subsequent emergence of the Black Lives Matter movement, the City's finances were in trouble, and the Finance Director had a proposal to help fill the gaps.
The Finance Director's proposal, as Priceonomics reports, was to have the police generate more revenues from fines (eg: traffic violations, parking tickets, missing court appearances), warning that the city would be in financial trouble “unless ticket writing ramps up significantly before the end of the year.” The Finance Director went on to add that “given that we are looking at a substantial sales tax shortfall, it's not an insignificant issue.”
This correspondence was uncovered as part of the US Department of Justice's investigation of the Ferguson Police Department as a result of the Michael Brown shooting in August 2014 with the goal of better understanding why the citizens of Ferguson felt so at odds with the police department.
The DOJ concluded that the mistrust primarily resulted of excessive fining. “Ferguson's law enforcement practices are shaped by the City's focus on revenue rather than by public safety needs” the DOJ report stated. Adding that the use of fines to fund the government undermined “law enforcement legitimacy among African Americans in particular”
To find out whether or not Ferguson is an anomaly, Priceonomics investigated the proportion of revenues that cities typically receive from fines, as well as the characteristics of cities that rely on fines the most.
Here is what was found:
We found one demographic that was most characteristic of cities that levy large amounts of fines on their citizens: a large African American population. Among the fifty cities with the highest proportion of revenues from fines, the median size of the African American population—on a percentage basis—is more than five times greater than the national median.
Surprisingly, we found that income had very little connection to cities’ reliance on fines as a revenue source. Municipalities that are overwhelming White and non-Hispanic do not exhibit as much excessive fining, even if they are poor.
Our analysis indicates that the use of fines as a source of revenue is not a socioeconomic problem, but a racial one. The cities most likely to exploit residents for fine revenue are those with the most African Americans.
The following chart shows the relationship between the % of revenues from fines and forfeitures and the proportion of the population that is African-American.
This chart shows that poverty rates really don't play a factor in the % of revenues that come from fines.
In looking at a regression, Priceonomics admits that while there is a correlation between African-American population and the % of revenues from fines for municipalities, it is not fully explained by just a strong African-American population. However, some outliers can be seen for some Southern states.
Of the top 100 municipalities in terms of revenues from fines, more than two thirds are in just six states: Texas (19), Georgia (17), Missouri (12), Illinois (9), Maryland (9), and …read more
Source: The Fining Of Black America: Are Municipalities Issuing Tickets Along Racial Lines?
“Independence Day: Resurgence” didn’t bring any fireworks at the box office this weekend. …read more
Source: ‘Independence Day: Resurgence’ lacks fireworks at the box office
By Tyler Durden
Any “faint prospect” of a Fed July rate increase has entirely vanished, ING economist Rob Carnell wrote in note adding that the longstanding ING call for Sept. hike looks to be “hanging in tatters.” Here are more comments, courtesy of Bloomberg, from Wall Steet’s so-called experts, none of whom predicted the actual a Brexit outcome, about U.S. monetary policy outlook following the outcome of the U.K. referendum.
BofAML (Ethan Harris, others)
BoT-Mits (Cliff Tan)
Janus Capital (Bill Gross)
JPMorgan (Michael Feroli)
Macquarie (David Doyle, Brendan Livingstone)
Renaissance Macro (Neil Dutta)
Stifel (Lindsey Piegza)
Warburg (Carsten Klude)
Fed funds futures price 1st rate hike to 0.50%-0.75% range as more than likely for Nov.-Dec. 2017 as of Fri., compared with Jan. 2017 at Thur.’s close. Also, as noted on Friday, there is a greater probability of a rate cut than a rate hike now.
Source: The Fed’s Rate Hike Plans Are Now "In Tatters" – What Wall Street Thinks
Low interest rates can be a great tool to get an economy in slow-down mode going again, but there always is an unwanted side effect. If credit becomes too cheap and available for just anyone, there’s bound to be ‘abuse’ in the system, as households (and companies) can spend the borrowed cash on anything they want.
We have already warned you before about the share buybacks on the financial markets, as the increasing profits (per share) are mainly inflated by lower interest expenses and a lower amount of outstanding shares, rather than really seeing a substantial improvement of the business and sector those companies are operating in.
Source: Factset Research
Even though there has been a lot of chatter of a rate hike (which will very likely be completely off the table after the Brexit-vote), S&P 500 companies still seem to be ‘addicted’ to borrowing cash to repurchase shares, and in the first quarter of this year, the 500 companies that are part of the S&P index have spent a stunning $161B on share repurchases, which is the second largest quarterly buyback rate since Q3 2007. And yes, we see the same sort of hubris in the markets today and we don’t think it’s a coincidence the record-high buyback rate was peaking right before the global financial crisis erupted in 2008.
Source: Factset Research
The same alarm bells are ringing now as well, as the world economy is slowing down and central banks are considering rate cuts and new rounds of quantitative easing to keep things going. Granted, this has been going on for a while, but the recent Brexit vote might be the long-awaited catalyst as it’s an indication things are changing in this world…
The massive buyback scheme (with almost $600B spent on buybacks from Q2 2015-Q1 2016) will simply HAVE to slow down as approximately 60% of the free cash flow of the S&P 500 is being spent on these buybacks. Sure, this means there’s an additional margin of 40% to make sure the S&P companies can keep this pace up, but then the next chart is showing there’s no way those companies can keep this thing going when (and not if) the economy will slowing down.
Source: Factset Research
Yes indeed, the dividend payout ratio on a trailing twelve month basis is approximately 40% for the S&P companies, and combined with the 60% spent on share buybacks, these companies have no fully allocated cash flow to fund share buybacks and dividends, rather than investing in growth. And that’s a worrisome conclusion.
After all, the central banks around the world are still playing with the idea to increase the interest rates as they think the world economy has been fixed, but if this indeed happens, the companies will have a …read more
Source: Forget Brexit, This Is The Ticking Time Bomb For The Markets
By Tyler Durden
Yesterday we warned that the biggest threat to the UK political process in the aftermath of the Friday referendum is neither an arguably fake petition to hold another referendum (it won’t happen), nor the so-called buyer’s remorse on the side of “Leave” voters, especially with ComRes confirming a negligible 1% of those voters were “Unhappy” with the outcome…
Vote split // On the #EUref result (Remain / Leave):
Happy: 4% / 92%
Unhappy: 88% / 1%
Indifferent: 7% / 5%
(via ComRes)— Britain Elects (@britainelects) June 25, 2016
…but rather a surprising discovery in a UK government Command Paper laying out “The Process of withdrawing from the European Union“, which goes through the process of invoking the infamous Article 50 of the Treaty on European Union, and notes that there may be a rather substantial hurdle to the actual Brexit process: a Scottish and/or Northern Irish veto to Britain’s separation from the EU. To wit:
The role of the devolved legislatures in implementing the withdrawal agreement:
We asked Sir David whether he thought the Scottish Parliament would have to give its consent to measures extinguishing the application of EU law in Scotland. He noted that such measures would entail amendment of section 29 of the Scotland Act 1998, which binds the Scottish Parliament to act in a manner compatible with EU law, and he therefore believed that the Scottish Parliament’s consent would be required. He could envisage certain political advantages being drawn from not giving consent.
We note that the European Communities Act is also entrenched in the devolution settlements of Wales and Northern Ireland. Though we have taken no evidence on this specific point, we have no reason to believe that the requirement for legislative consent for its repeal would not apply to all the devolved nations.
As it turns out, this warning was spot on, because earlier today Scotland’s First Minister Nicola Sturgeon told the BBC that the Scottish Parliament could try to block the UK’s exit from the EU. As a reminder, unlike England where the vote went 52% to 48% in Brexit’s favor, in Scotland the picture was vastly different with 62% backing Remain and 38% wanting to go. And as predicted, the Scottish National Party leader, who went through her own UK independence referendum two years ago and is now considering yet another referendum, said that “of course” she would ask MSPs to refuse to give their “legislative consent”.
Scotland’s First Minister @NicolaSturgeon on potentially blocking British exit from EU https://t.co/K6pbNn362q
https://t.co/IquNADYPlX— BBC Breaking News (@BBCBreaking) June 26, 2016
In other words, Scotland’s leader is threatening to break down the very concept of a “Great Britain”, which includes England, Wales and Scotland, and pledge allegiance to the EU, while turning her back on more than half of the English population.
In an interview with the BBC‘s Sunday Politics Scotland program Sturgeon was asked what the Scottish Parliament would do now. Ms …read more
Source: Scotland Threatens To Veto Brexit
By Tyler Durden
While global financial markets, not to mention Europe’s political elite, rushes to preempt the global political fallout from Brexit, the UK itself is undergoing a chaotic and very much ad hoc politcal transformation, one which has seen no precedent in UK history, in the short day since David Cameron announced his resignation while the Chancellor George Osborne appears to have vaporized, just days after spending every waking moment prognosticating about doom and gloom should the Leave camp win.
In the middle of this transformation is none other than Boris Johnson, the leader of the successful “Leave” campaign, who however has cause to celebrate tonight because according to the Sunday Times, the former London mayor has won the backing of a key colleague to replace David Cameron as prime minister. Justice minister Michael Gove, who together with Johnson led the “Leave” campaign, called Johnson on Saturday to say he would back him for the leadership of the ruling Conservative Party, Reuters added.
The Sunday Times said interior minister Theresa May was expected to enter the leadership contest in the coming days and was likely to get support from allies of Cameron who see her as the best candidate to take on Johnson, a former London mayor.
May supported the “Remain” campaign but took a lower profile than Cameron and finance minister George Osborne, whose hopes of becoming the party’s next leader took a big blow with the outcome of the referendum.
One also wonders what, if any role, Nigel Farage will hold in the new cabinet: after all, if it weren;’t for the UKIP in last year’s elections, David Cameron would have never called the Referendum which has since cost him his job and the UK’s presence in the EU. For him to be omitted from any key position would be a massive oversight, and significant gamble, on the part of the Conservative Party.
But it wasn’t just the Conservative Party that was seeing dramatic changes in its leadership overnight. As Sky News also reported moments ago, Jeremy Corbyn sacked Hilary Benn from the shadow cabinet following reports of a coup to oust the Labour leader. It follows claims in The Observer newspaper that the shadow foreign secretary would ask Mr Corbyn to resign if there was significant support for a move against the leader.
Mr Benn had also reportedly asked fellow MPs to join him in resigning from the shadow cabinet if Mr Corbyn ignored the request. A Labour spokesman said: “Jeremy has sacked him on the grounds that he has lost confidence in him.” Sky’s chief political correspondent, Jon Craig, said: “A shadow cabinet mutiny is much more serious than a backbench revolt, so Mr Corbyn has acted swiftly.
“He has sacked Mr Benn, but that does not mean that the mutiny will not go ahead. Other shadow cabinet members may walk out now that Mr Benn has been sacked.”
On Saturday, the embattled Labour leader had warned he would not stand aside if a leadership contest was held. He …read more
Source: Boris Johnson Wins Key Support To Become PM As Labour Leader Foils Leadership Coup
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By Tyler Durden
Submitted by Visual Capitalist
Is Brexit the First of Many Dominoes?
Markets have been turned upside down by a surprise Brexit result and the resignation of David Cameron. While there is looming uncertainty around how this will affect the United Kingdom and Europe from an economic perspective, it might be just the tip of the iceberg in terms of long-run consequences.
A Brexit opens the door for future events that would be previously unfathomable by popular opinion, and it gives vital ammunition to groups that are seeking their own referendums for independence.
Unwilling Passengers?
As the UK ship distances itself from European docks, there are two passengers that may have been more comfortable remaining on shore.
While England and Wales voted to “Leave” with 53.4% and 52.5% respectively, Scotland and Northern Ireland were both firmly in “Remain” territory. Scotland, which previously held its own independence referendum in 2014, voted overwhelmingly to have the UK remain in the EU with a 62% vote. Northern Ireland had a similar sentiment with 55.8% voting “Remain”.
Scotland’s First Minister, Nicola Sturgeon, said today that a second independence referendum for Scotland is “highly likely”. She feels Scotland was taken out of the EU against its own will, and that Scottish independence is worth revisiting.
Meanwhile, Northern Ireland has echoed these calls, instead potentially looking at voting on a united Ireland. Northern Ireland is the only country in the UK that shares a land border with a country in the EU.
Others Dominoes
The Brexit result has energized other populist movements across the European Union. Anti-immigration leaders such as Geert Wilders and Marine Le Pen have ratcheted up cries for their own independence votes:
Hurrah for the British! Now it is our turn. Time for a Dutch referendum! #ByeByeEUhttps://t.co/kXZ0aQtgmx
— Geert Wilders (@geertwilderspvv) June 24, 2016
Victoire de la liberté ! Comme je le demande depuis des années, il faut maintenant le même référendum en France et dans les pays de l'UE MLP
— Marine Le Pen (@MLP_officiel) June 24, 2016
However, it is not just people on the fringe that are interested in revisiting EU membership. Even before the Brexit result, a poll by Ipsos Mori showed that the majority of people in France in Italy want to at least have a referendum on leaving:
Meanwhile, over 40% of Swedes, Poles, and Belgians are in the same boat.
Now that Brexit is a thing, will these numbers trend higher? What will be the next domino to fall?
Source: Is Brexit The First Of Many Dominoes? A Few Charts
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