European bonds fell and stocks rose led by banks and retailers as surging inflation data prompted investors to switch into reflationary assets even as speculation about ECB tapering has returned. Asian stocks and US equity futures declined. The Yen and gold advanced after Trump’s firing of the U.S. acting attorney general added to concern over the unpredictability of decisions in the new administration.

Overnight, the BOJ did not surprise markets when it kept its rates and yield target on hold, although an upside revision to its growth targets put a hawkish angle on the release, leading the Yen to rise, only to see all gains disappear after the European open.

The U.S. dollar headed for its worst start to a year since 2008 on Tuesday while world stock losses, already the biggest in six weeks, grew after widespread protests against President Donald Trump’s stringent curbs on travel to the United States, while Trump’s decision to fire the acting AG added to policy uncertainty. “His actions over the last few days is another reminder that there were two sides to his campaign and Trump is just as adamant to follow through on those measures that will likely weigh on market sentiment in the coming months,” said Craig Erlam, senior market analyst at OANDA.

Euro stocks reversed two days of declines triggered by Trump’s Friday immigration order as banks led gains. Euro-region inflation accelerated after the currency bloc’s economy posted its strongest expansion in three quarters. Euro-area inflation accelerated more than forecast to effectively reach the European Central Bank’s goal, which may intensify a debate among policy makers about their long-running stimulus programs. The 1.8% annual increase in consumer prices in January was the fastest since early 2013 and beat the 1.5 percent median forecast in a Bloomberg survey. That’s in line with the ECB goal of just below 2 percent, though the less-volatile core rate remains at just half that level. Core inflation remained at 0.9 percent in January.

Despite being mostly driven by higher oil prices, the inflation pickup is feeding into questions about the appropriate degree of monetary stimulus for the 19-nation currency bloc. ECB President Mario Draghi has repeatedly stressed that underlying price pressures are still weak and he wants certainty that the acceleration will prove durable, though German policy makers have started to push for a discussion about winding down quantitative easing.

Nonetheless dovish analysts hoping for a contination of the status quo were quick to look through the spike in prices:  “It’s very straight forward: Draghi laid out the criteria that make it clear that inflation has to be self-sustained, durable over time, and for the whole of the euro area,” said Frederik Ducrozet, senior economist at Banque Pictet & Cie SA in Geneva. “This is not what the ECB would consider price stability, even if the hawks get louder.”

Still, as controversial decisions by the U.S. president dim enthusiasm he will embark on an era of fiscal easing to rival the Reagan years, Europe is suddenly emerging as a safe haven and investors are turning more bullish on Europe. The firing of Sally Yates added to jitters sparked by Trump’s imposition of a ban on U.S. entry for passport holders from a number of Muslim-majority nations. Reports of quickening inflation underscore BlackRock Inc.’s bet on the rotation into stocks and out of bonds.

“We have greater confidence that inflation will meet central bank targets, with some scope for overshooting in the near term as economies are allowed to run a little hotter,” according to Richard Turnill, BlackRock’s global chief investment strategist in London. “We prefer equities over fixed income in this reflationary, low-yield and low-return environment.”

Going back to Trump, elevated uncertainty about his policies, including a lack of detail so far on his plans for tax cuts and fiscal spending, offset optimism on the U.S. economy. “We’ve seen a jump in U.S. economic sentiment after Trump’s victory. But the improvement in hard economic data remains moderate,” said Haruka Kazama, senior economist at Mizuho Research Institute. “And if Trump takes more steps to limit permits for immigrants, that would surely boost inflation as the U.S. is now near a full employment.”

Oil headed toward its first monthly decline since October while gold climbed for a third day. The euro rose, while the yen weakened after the Bank of Japan left monetary policy unchanged.

As controversial decisions by the U.S. president dim enthusiasm he will embark on an era of fiscal easing to rival the Reagan years, investors are turning more bullish on Europe. The firing of Sally Yates added to jitters sparked by Trump’s imposition of a ban on U.S. entry for passport holders from a number of Muslim-majority nations. Reports of quickening inflation underscore BlackRock Inc.’s bet on the rotation into stocks and out of bonds.

Traders will be looking at this week’s busy calendar which will see the lower house of Parliament will begin on Tuesday to debate a 137-word bill that gives Prime Minister Theresa May permission to start the legal mechanism by which the U.K. will leave the European Union. The Fed announces its policy decision on Wednesday. Like the BOJ, it is expected to leave lending rates where they are, though the Fed’s statement will be parsed for any reading on Trump’s impact on the world’s largest economy. Trump plans to announce his nomination to the Supreme Court Tuesday, a move likely to dominate headlines and perhaps delay the presentation of further details on spending policies.

Overnight Bulletin Summary from RanSquawk

• Surprise upside in inflation data from Eurozone sparks a rise in Eurozone bond yields
• Month-end flow sees EUR/GBP race through 0.8600 with GBP/USD finding support around 1.2420-30
• Looking ahead, highlights include US employment cost index, Chicago PMI, API crude oil report as well as earnings from Apple and Exxon.

Market Snapshot

• S&P 500 futures down 0.1% to 2,274.00
• STOXX Europe 600 up 0.2% to 363.32
• MXAP down 1% to 140.88
• MXAPJ down 0.6% to 450.42
• Nikkei down 1.7% to 19,041.34
• Topix down 1.4% to 1,521.67
• Sensex down 0.7% to 27,655.96
• Australia S&P/ASX 200 down 0.7% to 5,620.91
• Kospi down 0.8% to 2,067.57
• German 10Y yield rose 2.9 bps to 0.478%
• Euro up 0.09% to 1.0705 per US$
• Brent Futures unchanged at $55.23/bbl
• Italian 10Y yield rose 10.2 bps to 2.329%
• Spanish 10Y yield fell 1.0 bps to 1.62%
• Brent Futures unchanged at $55.23/bbl
• Gold spot up 0.2% to $1,198.12
• U.S. Dollar Index up 0.02% to 100.45

Global Top News

• Trump Firing of Yates Deepens Conflict Over U.S. Immigrant Order
• Buffett Bought $12 Billion of Stock From Election Through Friday
• Trump Expected to Make Supreme Court Pick From Two Finalists
• Teva Plunges After U.S. Judge Invalidates Four Copaxone Patents
• Chevron Freezes CEO’s Salary With Delayed Compensation Plan
• Wal-Mart’s India Unit to Add 50 More Stores in Next Five Years
• Oil Set for Monthly Loss as OPEC Cuts Seen Spurring U.S. Supply
• El Nino May Make a Comeback as Australia Sees Pacific Warming
• General Motors Sheds Last Junk Rating After Moody’s Upgrade
• Fox Monitors Trump Policy as Murdochs Call Immigration Essential
• Benchmark Electronics May Move After Sanmina Gains on Rev. View
• GE Sees No Need to Sell More Assets as Part of Baker Hughes Deal

Asia equity markets traded lower amid a lack of demand in holiday-thinned trade, with sentiment also dampened following Monday’s poor close in the US and after President Trump signed an executive order banning travel from 7 predominantly Muslim countries. ASX 200 (-0.9%) underperformed with broad based declines seen across all sectors and heavy losses in IT stocks, while Nikkei 225 (-0.6%) suffered from a firmer JPY with Toshiba shares the worst performer after reports that the Chairman is poised to step down and that several trust banks are preparing lawsuits against the Co. Markets in China, Hong Kong, Taiwan, South Korea and Singapore are all shut due to public holiday. 10yr JGBs traded subdued with the yield curve flattening amid underperformance in the short-end, although mild support was seen following today’s 2yr JGB auction which resulted in the highest b/c since May.

Top Asian News

• Jaitley Aide Seeks Bold Tax Cuts as Cash Ban Hits India GDP
• BOJ Holds Stimulus With Little Change in Inflation Outlook
• BOJ’s Next Challenge Could Be Excessive Yen Weakness
• Nomura’s Profit Doubles on Trading Income, Overseas Revival
• Nintendo Results Underscore Need for Switch Console to Succeed
• Komatsu Joins Peers to Signal Mining Rebound Remains Elusive
• Sony Drops After Taking $1 Billion Writedown in Movie Business
• Toshiba Mulls Selling Stake It Holds in Westinghouse: Sankei

European equities have been in a tight range this morning to trade modestly in the green, although similar to yesterday’s Germany readings, surprise upside in inflation data from the Eurozone (1.8% vs. Exp. 1.6%) has yet again brought into question the potential talk over QE tapering (despite ECB’s Nowotny refuting that tapering is currently up for a discussion and now ECB’s Villeroy). As such, fixed income markets have come under pressure so far this morning, with Bunds lower by around 50 ticks this morning, while the BoJ have also weighed on sentiment after announcing that they will cut purchases of 5 and 10 year bonds by JPY 40bIn in February. UK paper has been provide with a lift amid a strong 2026 auction with a better than prior b/c and a narrower tail.

Top European News

• Euro-Area Inflation Surges to 1.8%, Intensifying ECB Debate; Euro-Area Economy Expands 0.5% in 4Q, Matching Estimate
• Shell Sells $4.7 Billion of Fields as Disposal Push Accelerated
• Deutsche Bank Bill for Russia Mirror Trades Reaches $629 Million;
• H&M Bucks Apparel Retailers’ Gloom as Profit Beats Estimates
• Cash for VW’s Clunkers: Diesel Buybacks Boost U.S. Auto Demand
• This 45-Year Analysis Shows Sterling Has Reached a Floor
• What the World’s Biggest Banks Say About Fleeing Brexit- Britain
• German Unemployment Falls to Record Low as Economy Gathers Pace
• Italian Unemployment at 18-Month High Amid Consumer Pessimism
• French Economy Accelerates, Stoking Debate on ECB Tapering

European Economic Data

• France 4Q GDP YoY 1.1%, est. 1.1%, prior 1.0%
• France Jan. EU Harmonized CPI YoY, 1.2%, est. 1.6%, prior 0.8%
• Spain Jan. CPI EU Harmonised YoY 3.0%, est. 2.2%, prior 1.4%
• German Jan. Unemployment Claims Rate, 5.9%, est. 6.0%, prior 6.0%
• Italy Dec. Unemployment Rate, 12.0%, est. 11.8%, prior 11.9%
• U.K. Dec. Mortgage Approvals, 67.9k est. 69,2k, prior 67,5k
• Euro-Zone Dec. Unemployment Rate, 9.6%, est. 9.8%, prior 9.8%
• Euro-Zone 4Q SA QoQ, 0.5%, est. 0.5%, prior 0.3%
• Euro-Zone Jan. CPI Estimate YoY, 1.8% est. 1.5%, prior 1.1%

In currencies, it has been a quiet day in FX markets, and a case of closing the gap left in the overnight month end trade has been busier. Top of the list is EURGBP, racing up through 0.8600 after taking out the highs from Monday, as buying out of Europe (CB), pushes the cross rate up to highs around .8633. Strong resistance seen and anticipated ahead of 0.8700, but little give seen on the downside as yet, though this may come through Cable which has been slammed down into the support seen ahead of 1.2400. 1.2420-30 was our area of note, and we have tested just below here, but with limited follow through as yet. Portfolio rebalancing flow has dominated the tape, which so far points to USD selling, observed against the JPY, EUR and CHF, but USD/JPY has found support again ahead of 113.00 despite the backlash over president Trump’s travel ban, while EUR/USD sellers above 1.0700 are not giving up. EU data all better than expected though as Q4 growth and CPI both 1.8% on a yoy basis respectively. BoJ kept policy unchanged as expected overnight whilst upgrading forecasts, but JPY weakness will have been factored into this despite the near(er) term moves seen. USD/CHF has tested below 0.9950, but it has been an extremely staggered move lower in recent sessions. The Bloomberg Dollar Spot Index was little changed near the lowest level in two months, and is down 1.9 percent for the year. The euro climbed 0.2 percent to $1.0712.

In commodities, West Texas Intermediate crude slipped 0.3 percent to $52.49 a barrel, after losing more than 1 percent during each of the previous two sessions. Crude is heading for a monthly drop of 2.5 percent as signs that U.S. supply is expanding offset OPEC’s production curbs. Gold added 0.3 percent to $1,198.68 an ounce, and is heading for its biggest monthly rally since June. There has been upside movement in base metals with the likes of Copper and Palladium seeing decent price gains alongside Zinc, but Nickel being the out-performer gaining a little over 2% on the day. Still China remains on vacation, so trading conditions thin, perhaps explaining away some of today’s price action, though Copper has been on the rise recently as the strike vote in Escondida (Chile) mine is in the final stages. Gold is back at USD1200; this on risk sentiment as it is on the turnaround in the USD; gold is heading for its biggest monthly rally since June. . Oil prices are still trading in comfortable territory, but now towards the lower end of the recent range. Bloomberg Commodity Index set for first monthly loss since October.

Looking at today’s events, the most significant release is likely the Q4 employment cost index reading which both the market and our US economists expect to print at +0.6% for the quarter. That implies a YoY growth rate of +2.4% although still below the +2.6% peak in Q1 2015. Also due out today is the Chicago PMI for January, consumer confidence for this month and S&P/Case-Shiller house price index reading for November. Meanwhile earnings pick up with 31 S&P 500 companies due to report highlighted by Apple after the close. Pfizer and Exxon Mobil will also report. Also of potential interest today is the commencement of the two-day debate by the House of Commons on the government’s draft law giving PM May authority to trigger Article 50.

DB’s Jim Reid concludes the overnight wrap

We may only be 11 days into the first 100 days of the new Trump administration but one thing is becoming more apparent and that is that markets are going to be continually tested in the near term by the words and actions of President Trump. The fallout from the executive order put in place over the weekend continued throughout yesterday’s session with global political leaders and CEO’s alike all announcing various levels of disapproval. It’s also continued overnight with the news that Trump has fired the acting US attorney general Sally Yates after she ordered the justice department not to enforce the President’s order. The order has also unnerved some of the Republican Senators and it’s these sorts of responses which will be important to monitor as things progress and as we move on to the more direct economic agenda.

Yesterday we speculated as to whether or not the weekend news would spill over into financial markets but it was clear from the get go that markets were on edge given the uncertainty and uneasiness stemming from the news. Look no further than the VIX (+12.29%) which rose by the most since November 3rd. Equity markets had their worst day of the year too. The S&P 500 – which has been up as much as +8.36% since the Trump election victory – fell -0.60% and closed down for the third day in a row while having its worst day this year. The Dow (-0.61%) pared losses but still edged back below 20,000 while losses were even greater in Europe with the Stoxx 600 (-1.05%) down by the most since November. In fact yesterday was a decent microcosm of the volatility that we expect to feature in markets this year. Treasuries ended up little changed around 2.488% but chopped and changed while 10y Bund yields edged 1.2bps lower to 0.445%. That was in stark contrast to the periphery however where similar maturity yields in Italy, Spain and Portugal finished anywhere from 4bps to 10bps higher while Greek yields ended up 39bps higher. We’ll come back to those moves later. Meanwhile, credit indices edged wider (CDX IG +1.6bps and iTraxx Main +2bps) although that failed to stop Microsoft launching a bumper $17bn deal, while Gold is back above $1200/oz again.

In the mean time the focus on Mr Trump will continue into today with the President expected to announce his Supreme Court nominee which will likely trigger another battle within the Senate. In addition, last night Trump also signed an executive order on all new federal regulations by establishing a “one in, two out” rule. In other words, for each new regulation issued, two will have to be scrapped. Trump confirmed that “this will be the biggest such act” that the US has ever seen and that it will be “normalised control”. The reality of eliminating regulation might be in itself a very different proposition but its more evidence of the unpredictability that we’re now facing.

Thankfully markets have at least some distraction from politics this week with the steady stream of central bank meetings and it has kicked off this morning with the BoJ. As expected there were no real surprises policy-wise. The BoJ has kept the policy rate at -0.1%, the pace of asset purchases steady at ¥80tn and maintained to target the 10y JGB yield at around 0%. There was some focus on the outlook report though where the median forecast for CPI ex fresh food is at 1.5% in 2017 fiscal year and unchanged relative to the October forecast. Real GDP is also expected to grow at 1.5% in the same period, an upgrade on the original 1.3% forecast. However the BoJ did also say that “risks to both economic activity and prices are skewed to the downside”. Governor Kuroda is due to speak shortly after we go to print so keep an eye on that.

The Yen is about +0.30% stronger as we type although that move, combined with the weak session on Wall Street last night, is weighing on Japanese equities with the Nikkei (-1.49%) and Topix (-1.28%) both sharply lower. The Kospi is also -0.56%, the ASX -0.95% and US equity index futures -0.28% with the fallout from the Trump’s latest actions showing little sign of abating just yet.

Moving on. As we noted at the top there was a reasonable underperformance across the peripheral assets in Europe yesterday and a few factors appeared to be at play. In Greece, along with the selloff in bonds the Athens stock exchange suffered its second consecutive -3.50% fall as the Greek government and European creditors failed to make any progress on the terms and conditions attached to Greece’s latest bailout review. We appear to still be on all-too familiar ground with the IMF saying that the proposed fiscal targets beyond 2018 are not sustainable and more relief is needed, and so not signing up to the program, while Germany continues to maintain a stance of refusing to let the IMF leave or provide debt relief. Indeed the headlines suggest that almost two-thirds of actions needed for the disbursement of the next tranche are still not yet completed. The next key event to keep an eye on is the IMF board meeting on February 6th followed by a Eurogroup Working Group meeting on February 9th. It’s possible that a lack of progress at the meetings means that talks stall until after the Dutch elections.

Meanwhile in Italy the fallout from the Constitutional Court decision continues while a trading update from UniCredit yesterday added to the pain for the banking sector. The Bank also confirmed that the ECB has demanded further updates to a plan for dealing with bad loans with an end-February deadline. Elsewhere, France was also seen as a bit of a catalyst to yesterday’s moves with market jitters on the rise following the victory of Hamon in the Socialist Primary. The victory appears to have sparked further momentum in interest of independent challenger Emmanuel Macron who was also given a boost yesterday after it was announced that former premier Fillon will be the subject of an examination over whether or not he broke the law by employing his wife in his parliamentary office.  Interestingly a Kantar Sofres Poll released yesterday in Le Figaro showed that the first round election on April 23rd would have Le Pen in the lead at 25% followed by Fillon on 22% and Macron on 21%. Should a second round between Le Pen and Fillon come to fruition, then the poll suggested that Fillon would be the victor at 60% to 40%. Should Fillon face Macron then Macron would win by 60% versus 40%. In the other scenario of a Macron versus Le Pen race, the former would win by 65% versus 35% according to the polls. French 10y bond yields finished +2.5bps higher yesterday at 1.051% and it’s worth nothing too that the 2y spread between France and Germany has now risen to 25bps and the widest since the 2013 taper tantrum when it got to 36bps. That spread actually got to a low of less than 1bp back in November last year.

Elsewhere, yesterday’s economic data ended up being a bit of a sideshow to all things Trump related. In reality though the data didn’t really sway too much from the market consensus. In the US personal spending was confirmed as rising +0.5% mom in December, matching market expectations while personal income rose +0.3% mom (vs. +0.4% expected). The core PCE deflator rose +0.1% mom which left the YoY rate at +1.7% while the deflator also came in in-line at +0.2% mom. Elsewhere there was good news to come out of the latest regional manufacturing data with the Dallas Fed’s manufacturing survey rising 4.4pts to 22.1 and to the highest since 2010. Finally pending home sales rose +1.6% mom and better than expected (vs. +1.0% expected).

Meanwhile, in Europe the European Commission’s economic sentiment index reading edged up 0.1pts to 107.9 this month which is actually the highest reading since March 2011. The other notable data came from Germany where HICP headline inflation rose to +1.9% yoy from +1.7%, albeit a one-tenth miss versus consensus. Our economists highlighted however that their estimate of core inflation pulled back to +1.2% yoy from +1.5% previously and that the peak of the energy-related base effect may have already been felt. Also out yesterday were the latest ECB CSPP holdings data. As of the end of last week, the ECB reported total holdings of €58.82bn which implied net purchases settled last week of €1.93bn or a daily run rate of €386m. That compare to a €363m average daily run rate since the program started. So a steady as she goes week following the previous weeks’ record purchases.

Looking at today’s calendar, this morning in Europe we’re kicking off in France where Q4 GDP and January CPI data will be released before we then get retail sales numbers and unemployment data in Germany. The UK will then release December money and credit aggregates before we then get Q4 GDP for the Euro area (consensus for +0.5% qoq) and January CPI (+1.5% yoy headline expected). Over in the US this afternoon, the most significant release is likely the Q4 employment cost index reading which both the market and our US economists expect to print at +0.6% for the quarter. That implies a YoY growth rate of +2.4% although still below the +2.6% peak in Q1 2015. Also due out today is the Chicago PMI for January, consumer confidence for this month and S&P/Case-Shiller house price index reading for November. Meanwhile earnings pick up with 31 S&P 500 companies due to report highlighted by Apple after the close. Pfizer and Exxon Mobil will also report. Also of potential interest today is the commencement of the two-day debate by the House of Commons on the government’s draft law giving PM May authority to trigger Article 50.

Submitted by Michael Shedlock via MishTalk.com,

The IMF has once again threatened to pull out of the Troika following a warning that Eurogroup Loan Measures Not Enough for Greek Debt.

Greek debt yields had already been rising and spiked on the news.

Let’s take a look at what’s happening, culminating with an explanation of seemingly preposterous positions from all involved.

In the IMF’s baseline scenario, Greece’s government debt will reach 275 percent of its gross domestic product by 2060, when its financing needs will represent 62 percent of GDP, the report obtained by Bloomberg says. The government estimates public debt around 180 percent of GDP at present.

Europe Responds

The IMF board is set to discuss Greece’s ability to service its debt on Feb. 6. The fund has resisted pressure from countries including Germany and the Netherlands to contribute to the bailout program, seeing it as doomed unless Greece takes further steps to rein in spending or euro-area governments ease the terms of the loans.

Europe’s aid program for Greece is credible and backed by contingency measures to handle unforeseen events, a spokesman for the European Stability Mechanism, an EU agency that provides bailout loans to Greece, said in e-mailed statement Sunday.

IMF Proposals

As in the past, the IMF is proposing that Europe extend grace periods and maturity dates on the loans. The document also calls for further deferral of interest payments and to lock in interest rates.

Greek debt is “highly unsustainable” and “even with the full implementation of policies agreed under the European Stability Mechanism program, public debt and financing needs will become explosive in the long run,” the document says. A “substantial restructuring” of European loans to Greece is required to restore debt sustainability, it says.

The IMF agrees with Greece’s euro-area creditors on one point. Both want Greece to introduce a law triggering austerity measures if the country fails to maintain a budget surplus before interest payments of 3.5 percent of GDP. Greek Finance Minister Euclid Tsakalotos last week rejected that demand as “unacceptable.”

Greek Bond Yields Soar

Reuters reports Greek Bond Yields Soar on Worries about IMF role in Bailout.

Yields on short-dated bonds spiked 300 basis points, on track for their biggest one-day jump since July 2015, while 10-year bond yields rose to their highest in almost three months.

Germany said on Monday it believed the IMF would participate and that it was too early to start thinking about other possible scenarios.

But concerns were heightened after a leaked report that the Fund expects Greek debt to explode to 275 percent of GDP by 2060, analysts said.

“There’s a bit of disquiet regarding the IMF’s role…,” said Orlando Green, European fixed income strategist at Credit Agricole.

“The bottom line is that the IMF wants debt relief for Greece and the EU has taken baby steps towards this, but it is not what the IMF is looking for long-term. When there are divisions between the EU and IMF, that arouses concerns about Greece.”

He was answering a question about a report in the Bild newspaper that said Finance Minister Wolfgang Schaeuble would argue for a Greek exit from the euro zone should the IMF withdraw from the third bailout programme.

Short-dated government bond yields in Greece rose as far as 9.98 percent, their highest level in about seven months.

Five and 10-year Greek bond yields also rose sharply, with 10-year yields climbing 50 bps to around 7.76 percent – their highest since early November.

Perpetual Nonsense

The IMF argues correctly that Greek debt is unsustainable. Previously the IMF correctly argued Greece could not maintain a primary account surplus of 3.5 percent.

Yet the IMF now demands Greece automatically implement rules forcing it to have a primary account surplus of 3.5 percent of GDP as far as the eye can see.

Last week Eurointelligence reported that Greek officials were elated the much-despised IMF might exit the program. Although Greece hates the IMF, the IMF has at least been partially on Greece’s side, arguing for debt reductions.

Were the IMF to actually pull out to happen, Schaeuble wants Greece out of the Eurozone.

Meanwhile, Eurozone officials pretend the program is working when they know full well its not.

WTF Moments

This is one of those WTF moments where statements from Greece, from the IMF, and also the Eurozone make no apparent sense.

Yet, despite the obviously apparent nonsense, it’s possible to piece together what’s happening.

1. Neither Germany nor the Netherlands is willing to throw Greece the smallest of bones for fear of election consequences. It’s far easier for Eurozone nannycrats to pretend things are running smoothly.
2. Schaeuble has long wanted Greece out of the Eurozone. But Germany does not want to take the blame. Instead, Schaeuble wants the IMF or Greece to take the blame.
3. The IMF does not want the blame either, so it takes a preposterous stance that the debt is not sustainable but a 3.5% primary account surplus for as far as the eye can see is sustainable. The IMF takes this view despite having argued many times that 3.5% is not sustainable.
4. By pretending to now be in favor of 3.5% perpetually, the IMF can argue it is not one-sided to Greece.
5. Despite the fact the IMF is more on Greece’s side than Germany or the Eurozone nannycrats, Greece hates the IMF so much that its position of not wanting the IMF involved overrides common sense.
6. As an alternative to point 5, consider the possibility that Greece wants outs of the Eurozone, but none of the politicians want to take the blame. Instead, the politicians want to blame the IMF or Germany and are just itching for the IMF to get the hell out so they could do what they wanted to years ago (exit the eurozone). In this possibility, Greece looks to place the blame elsewhere and is waiting for the right moment.

Troika Blame Game Theory

Points 1-4 are certain. Points 5-6 are pick one. Despite the apparent absurdity of conflicting views and the IMF’s changing stance, blame game theory explains all you need to know. Here is a shorter synopsis.

1. Greece wants to blame the IMF and Germany
2. Germany wants to blame Greece and the IMF
3. The IMF wants to blame Greece and Germany

The Trump administration just fired the first shot in the US-European currency, and thus trade, wars when Trump’s top trade advisor Peter Navarro accused Germany of using a “grossly undervalued” euro to “exploit the US and its EU partners“, the FT reported noting the comments are “likely to trigger alarm in Europe’s largest economy.” News of the statement sent the EURUSD surging and the dollar tumbling to fresh 2 month lows.

Navarro, the head of Mr Trump’s new National Trade Council, told the Financial Times the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main partners. While not necessarily novel – Germany has often been accused of being the biggest winner from a weak euro at the expense of peripherla Europe – his views suggest the new administration is focusing on currency as part of its hard-charging approach on trade ties, according to the FT. Furthermore, virtually assuring a deterioration in US-German relation, and in a departure from past US policy, Navarro also called Germany one of the main hurdles to a US trade deal with the EU and declared talks with the bloc over a Transatlantic Trade and Investment Partnership dead.

“A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued,” Mr Navarro said. “The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress.”

The comments highlight a growing willingness by the Trump administration to antagonise EU leaders and particularly Angela Merkel, the German chancellor. Besides publicly supporting Mrs May’s government in its negotiations with the EU over the terms of its exit, Mr Trump called the EU a vehicle for Germany, and Nato an obsolete alliance.

Mr Navarro’s intervention follows a visit to Washington last week by Theresa May, the British prime minister, in which she and Mr Trump discussed ways to launch negotiations for a US-UK trade deal.

“Brexit killed TTIP on both sides of the Atlantic even before the election of Donald Trump. I personally view TTIP as a multilateral deal with many countries under one ‘roof’,” Mr Navarro wrote in emailed responses to FT questions. Trump last week also withdrew from a 12-country Pacific Rim deal negotiated by Mr Obama.

In further bad news for globalists, Navarro said one of the administration’s trade priorities was “unwinding and repatriating the international supply chains on which many US multinational companies rely, taking aim at one of the pillars of the modern global economy.“

“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” he said. “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

As the FT also notes, Navarro effectively endorsed an import tax plan pushed by Republican leaders in the House of Representatives that has split the US business community. The proposal would eliminate companies’ ability to deduct import costs from their taxable revenues while making any export revenues tax-free. It drew attention last week when the White House pointed to it as one way in which it could pay for a wall on the Mexican border. Navarro rejected the argument that US consumers would end up paying the cost of such a tax change. That was “an old and tired argument the globalist wing of the offshoring lobby has used for years to put Americans out of work and depress wages by shipping our jobs offshore”.

The proposal has seen mixed reactions among the US corporate community. Exporters such as General Electric have hailed the switch to a “border adjustable” system as putting them on an equal footing with international competitors that are able to claim value added tax refunds on their exports. Retailers such as Walmart and other import-dependent businesses, however, say that what would amount to 20 per cent tax on imports would raise consumer prices and hurt their businesses.

A bigger implication of a border tax, however, would be a potential surge in the dollar. As we reported on many occasions before, analysts argue that at least some of the impact on consumers would be absorbed by a one-time appreciation in the dollar which could push the USD as much as 15%. That in turn could also impact on US export competitiveness and lead to a widening of the US trade deficit with the world, which the Trump administration has vowed to reduce. Navarro, however, said he was not concerned about the possibility of a stronger dollar and its impact on US exports.

“I worry about the actual impact America’s trade deficit in goods is having on our rates of economic growth and income growth.”

It was not immediately clear how Navarro’s easy stance on a stronger dollar due to BAT would reconcile with his accusations that the EUR is being held artificially weak which implies that if anything the Trump administration should be seeking policies that weaken the dollar. So far it has failed to reconcile this fundamental FX/trade quandary.

end

Italy

In addition to creating mass chaos in America’s airports and general confusion around the world, Trump’s immigration ban is putting Saudi Arabia, a key ally in the middle-east, in a fairly awkward position.  Per the Wall Street Journal, Trump’s immigration ban, which currently does not include Saudi Arabia, has put the country in the awkward position of having to manage a desire to pursue stronger ties with the U.S. at the risk of alienating key allies, like Yemen and Sudan, that will inevitably view such a move as abandoning Muslim neighbors.

The monarchy’s desire to cultivate a better relationship with the Trump administration than it had with the U.S. under Barack Obama is exposing Saudi Arabia to criticism that it is unwilling to stand up for its Muslim allies, particularly those caught in an executive order that restricts entry to the U.S. for citizens of seven predominantly Muslim countries.

“The ban puts Saudi Arabia in an awkward position,” said Ibrahim Fraihat, a professor of conflict resolution at the Doha Institute for Graduate Studies. “Saudi Arabia will be expected to take a position against it because some of the countries included in the ban like Sudan and Yemen are key allies and because it projects itself as leader of the Muslim world.”

The ban applies to citizens of Sudan, a member of the coalition of Muslim countries assembled by Saudi Arabia to combat terrorism. Also included is Yemen, where Saudi Arabia intervened militarily in 2015 against Iran-backed Houthi rebels with the aim of restoring President Abed Rabbo Mansour Hadi to power. The ban applies to Syrians fleeing their country’s war, too, and Riyadh is a key supporter of Syrian rebels fighting President Bashar al-Assad as well as his Iranian and Russian backers.

For now, at least publicly, the Kingdom has decided to support the Trump administration’s travel restrictions with the official Saudi Press Agency saying that “the view of the two leaders were identical…the president requested and the King agreed to support safe zones in Syria and Yemen, as well as supporting other ideas to help the many refugees who are displaced by the ongoing conflicts.”

“The president requested and the King agreed to support safe zones in Syria and Yemen, as well as supporting other ideas to help the many refugees who are displaced by the ongoing conflicts,” the White House said.

A statement carried on the official Saudi Press Agency said “the view of the two leaders were identical” on issues that included confronting terrorism and extremism, along with countering “those who seek to undermine security and stability in the region and interfere in the internal affairs of other state,” a reference to Iran and to the activities of its regional proxies.

The White House also said they agreed on the “importance of rigorously enforcing” the nuclear deal Iran struck with other world powers including the U.S. in 2015. Mr. Trump and Saudi officials have repeatedly criticized the agreement, which lifted sanctions on Iran in exchange for curbs on its nuclear program.

Ironically, Saudi Arabia has produced more extremists that went on to carry out attacks on U.S. soil than any of the countries directly affected by the ban. Osama bin Laden, the late head of al Qaeda, was from one of the kingdom’s most prominent business families and 15 of the 19 Sept. 11, 2001, hijackers were Saudi. Only Tunisia has contributed more foreign fighters to the Islamic State, according to a 2015 study by the Soufan Group, a security consultancy.

Of course, this all comes as the ACLU is gearing up to fight the Trump administration in the Supreme Court on the basis that the new travel restrictions represent an unconstitutional ban of Muslims in direct violation of the First Amendment.

Something tells us that Saudi Arabia is wishing that the millions of dollars they funneled to the Hillary Clinton campaign would have been a little more impactful.