U.S. equity futures are higher in the first trading session of 2018 offsetting Friday’s last hour sharp drop, as Asian stocks roar to new all time highs, while a surging euro which has rallied near to a 3 year high thanks to the sliding dollar, which in turn dropped to a 3 month low, pressured European stocks across the board. WTI crude oil prices retreated from a 2-1/2 year high despite initial upside as a result of the Iran violence. Treasuries fell, while gold extended a three-week rally.

Sentiment was also helped by news that North Korea had offered an olive branch to South Korea, with Kim Jong Un saying he was “open to dialogue” with Seoul.

European stocks inched lower on the first trading day of the new year, extending a losing streak that trimmed 2017 gains last week, while the euro rises to $1.2035, a level not seen since September. Europe’s Stoxx 600 fell 0.5% while the euro gained as much as 0.5% to $1.208, flirting with September peak. As a result, the exporter-heavy DAX was the most hit among European benchmarks, down 1% and losing ground for fifth session. Europe’s auto sector index down 2%, hit by strengthening euro as well as by bleak outlook from Hyundai, and a drop in French new car registrations: Lufthansa, BMW, Volkswagen, Daimler were among the biggest decliners.

European bonds likewise started off the year on the wrong foot, with yields rising following strong inflationary signals from today’s EU manufacturing PMIs and the latest German CPI. Of note, Germany’s 10y yields on course to 0.50%.

Also of note: with the start of 2018, ECB QE resumes at a slower pace of €30 billion per month for nine months. The reduced purchases in 2018 means that net supply of EGBs will be almost flat, strongly contrasting with deeply negative net supply in previous years, driving 10y bund yield to 0.85%, according to Socgen.

Overnight, the ECB’s Mersch has warned against too slow an exit from expansionary monetary policy, stating that current policy risks undermining the Euro Area’s ‘culture of saving’. Meanwhile, ECB’s Coeure said that he sees “a reasonable chance” the ECB’s PSPP will not be extended again when it expires in September.

A breakdown of today’s Eurozone PMIs, which printed at the highest level on record:

• Eurozone Markit Manufacturing Final PMI (Dec) 60.6 vs. Exp. 60.6 (Prev. 60.6)
• German Markit/BME Manufacturing Final PMI (Dec) 63.3 vs. Exp. 63.3 (Prev. 63.3)
• French Markit Manufacturing Final PMI (Dec) 58.8 vs. Exp. 59.3 (Prev. 59.3)
• Italian Markit/ADACI Manufacturing PMI (Dec) 57.4 vs. Exp. 58.6 (Prev. 58.3)
• Spanish Manufacturing PMI (Dec) 55.8 vs. Exp. 56.4 (Prev. 56.1)

“Forward-looking indicators bode well for the new year,” Chris Williamson, chief business economist at IHS Markit which compiled the manufacturing data, pointing to a near record pace of new orders and job creation.

Earlier, Asian stocks showed no concerns as they blasted off to new all time highs to greet the new year, supported by strong Chinese data. The Caixin Manufacturing PMI, released overnight, came in at 51.5, beating estimates of 50.6. This helped the Chinese bourses outperform with the Hang Seng (+1.8%) and Shanghai Composite (+1.0%) outperforming other indices. South Korean markets edged slightly higher (+0.4%), despite the recent geopolitical developments in the North with Kim Jong Un claiming he has a “nuclear button” on his desk.  Korean automakers underperformed as both Hyundai and Kia Motors warned of only modest sales growth this year. Japanese markets were closed for a public holiday.

Chinese stocks greeted the new trading year with solid gains after Caixin factory index beats all estimates and a report suggests nationwide property tax may not start before 2020 according to Bloomberg reports. H-shares rallied as much as 2.8% while Hang Seng rose 1.7%.

In macro, as noted overnight  the dollar weakened against all G10 peers, extending last year’s underperformance even as cryptocurrencies surged.

The U.S. currency fell further as London trading resumed after the new year holiday, with the Bloomberg Dollar Spot Index fell for a fifth day, reaching its lowest level since Sept. 26, while the broader DXY index touched a four-month low against the euro, which was buoyed by strong manufacturing PMI data, which hit a new all time high despite a handful of notable countries seeing their PMIs peak. Trading was muted in Asia with Japanese markets closed until Jan. 4.

Tuesday’s dollar drop added to the dollar’s more than 12 percent slide against the euro last year, its worst performance since 2003. Analysts surveyed by Bloomberg forecast the U.S. Dollar Index to slide further in 2018 as concerns about low inflation raise questions about the prospects for tighter Federal Reserve policy. “In our call of further dollar depreciation this year we are assuming a cautious approach by the FOMC given the considerable inflation undershoot last year leaves greater room for a more patient approach than many assume,” said Derek Halpenny, European head of global market research at MUFG. While the Japanese bank sees two Fed interest-rate increases this year, it predicts a 5% slide in the dollar index.

A major hurdle for the U.S. currency will be Wednesday’s release of minutes from the Federal Reserve’s December meeting when it raised interest rates. Two policymakers voted against the move amid doubts inflation would accelerate as hoped.

With the market now pricing in a 68 percent chance of a March hike and two hikes for 2018, there will be close inspection to assess just how shaky their confidence is for any pick-up in inflationary trends said Chris Weston, chief markets strategist at broker IG in Sydney.

“That said, the U.S. dollar is underloved and oversold and it won’t take much to promote a bout of profit-taking from the shorts.”

The dollar’s slide meant strength for emerging markets, and sure enough South Korea’s won and Taiwan’s dollar led gains in Asia’s emerging-market currencies amid speculation exporters are selling U.S. dollars. The MSCI EM Asia Index rose the most since October and sovereign bonds climbed. Most Asian currencies opened the new year on a firmer footing amid talk of exporters selling U.S. dollars and after inflows into regional stocks. The yen was steady, the Aussie advanced with stronger iron ore prices and the kiwi strengthened for a 10th day. Thai and Philippine financial markets were shut for public holidays. The onshore yuan strengthens beyond 6.5 per dollar as PBOC drains a net 290b yuan of liquidity; Aussie outperforms G-10 peers, yen slightly softer.

In rates, T-note futures drift sideways as cash Treasuries remain closed for Japanese holiday.  Germany’s 10-year yield gained three basis points to 0.45 percent, the highest in almost 10 weeks. Britain’s 10-year yield advanced seven basis points to 1.258 percent, the highest in more than a week.

The skid in the dollar, combined with strength in Chinese demand, has benefited commodities priced into the currency. Copper dipped back a little on Tuesday to $7,223.50 a tonne, but that follows a rise of 31 percent in 2017 to a four-year top. Aluminium amassed gains of 34 percent.

Gold was 0.37 percent firmer at $1,310 an ounce, after advancing by 13 percent in 2017 for its best performance in seven years.

Brent crude oil futures ended the year with a 17 percent rise, while U.S. crude climbed 12 percent on strong demand and declining global inventories. On Tuesday, Brent dipped a few cents at $66.85 a barrel, while U.S. crude firmed 3 cents to $60.47.

Market Snapshot

• E-Mini futures on S&P 500 up less than 0.1%
• E-Mini futures on Nasdaq 100 down less than 0.1%
• S&P 500 fell 0.5% on Dec. 29
• STOXX Europe 600 down 0.3% to 388.10
• MSCI Asia Pacific up 0.8% to 175.06
• MSCI Asia Pacific ex Japan up 1.1% to 575.36
• VIX Index down 0.5% to 10.99
• WTI crude futures down 0.2% to $60.30/bbl
• Brent futures down 0.1% to $66.78/bbl
• Bloomberg dollar spot index down 0.4%
• U.S. Dollar Index down 0.3% to 91.94
• Gold spot up 0.6% to $1,310.84
• German 10Y yield rose 2.5 bps to 0.452%
• Euro up 0.3% to $1.2050
• Italian 10Y yield rose 5.9 bps to 1.747%
• Spanish 10Y yield rose 3.1 bps to 1.598%
• Nikkei down 0.08% to 22,764.94
• Topix down 0.08% to 1,817.56
• Hang Seng Index up 2% to 30,515.31
• Shanghai Composite up 1.2% to 3,348.33
• Sensex down 0.01% to 33,808.10
• Australia S&P/ASX 200 down 0.06% to 6,061.28
• Kospi up 0.5% to 2,479.65

Top Overnight News

• President Donald Trump and many Democrats and Republicans in Congress all enter the new year spoiling for a fight. Unresolved issues set aside in 2017 to make way for a tax overhaul are poised to surface early in 2018, giving Trump the opportunity for the confrontation with Washington’s establishment that he’s promised since his election
• President Donald Trump said Iran is failing and called for a change there, as security forces clashed with demonstrators rallying in a rare show of displeasure with the country’s leaders
• Euro-area manufacturing output rose by a record in December, capping a solid year that saw industry benefit from an improving global economy
• A senior Iranian official said he hopes protests that have roiled Iran over the past five days will die down in a few days. More than a dozen people have died in the unrest, which began with a rally against rising prices and the government’s handling of the economy before turning into a wider protest against the political establishment
• Vice President Mike Pence, who postponed a Middle East trip after Arab leaders denounced the U.S. for recognizing Jerusalem as Israel’s capital, will come this month despite speculation that he had delayed it again, an aide said.
• North Korean leader Kim Jong Un’s call for talks to ensure the success of the Winter Olympics in South Korea next month — and improve overall inter- Korean relations — represented a tactical shift for a regime that had previously shunned dialogue offers from Seoul
• Gold is opening the new year on the front foot. Bullion advanced for an eighth straight day to head for the longest stretch of gains since mid-2011
• China’s economy begins 2018 facing what its own leaders call three years of “critical battles.”
• BP Plc, the British oil major that invests more in the U.S. than anywhere else, expects to take a charge of about $1.5 billion following recent tax changes in the country, despite the prospects of long-term gains from the legislation
• GFG Alliance, the acquisitive group led by U.K. businessman Sanjeev Gupta, agreed to purchase an Australian coal mine from Glencore Plc to feed its steel operations in the country
• New York Fed search committee is casting a wide net to find a replacement for outgoing president William Dudley

Asian stocks began the year in positive territory, supported by strong Chinese data. The Caixin Manufacturing PMI, released overnight, came in at 51.5, beating estimates of 50.6. This helped the Chinese bourses outperform with the Hang Seng (+1.8%) and Shanghai Composite (+1.0%) outperforming other indices. South Korean markets edged slightly higher (+0.4%), despite the recent geopolitical developments in the North with Kim Jong Un claiming he has a “nuclear button” on his desk. Korean automakers underperformed as both Hyundai and Kia Motors warned of only modest sales growth this year. Japanese markets were closed for a public holiday. The latest Chinese Mfg survey data was as follows:

• China Manufacturing PMI (Dec) 51.6 vs. Exp. 51.6 (Prev. 51.8)
• China Caixin Manufacturing PMI (Dec) 51.5 vs. Exp. 50.6 (Prev. 50.8)
• China Non-Manufacturing PMI (Dec) 55.0 vs. Prev. 54.8

Top Asian News

• Solid Singapore Growth Lays Ground for Possible Tax, MAS Moves
• China Top Developers Head Into 2018 on Back of Buoyant Sales
• China Rail Stocks Rise as 2018 Spending Target Tops Expectations

European equities have kicked the year off on the backfoot despite a relatively upbeat Asia-Pac session which saw indices supported by better than expected Chinese Caixin manufacturing PMI. In terms of sectors, European auto names  notably underperform their peers with the European Auto Sector Index enduring its worst day since July of last year. This comes in the context of underperformance in autos during Asia-Pac trade after both Hyundai and Kia Motors warned of only modest sales growth this year. Furthermore, the firmer EUR could also be supressing some of the more currency-sensitive exporters in Europe. Elsewhere, material names underperform despite the encouraging Chinese data overnight, while airline names have seen support after a slew of upgrades at BofA. In fixed income markets, a couple of decent sell orders appear to have exacerbated losses in debt futures, with clips of 2k noted and blocked in Bunds and Gilts at various times on the way down to fresh Eurex and Liffe lows of 161.22 and 124.45 respectively. To recap, Bunds actually traded flat initially, but then sold off immediately, while Gilts somehow resumed Liffe a tick firmer at 125.17 before correcting lower with their Eurozone counterpart and USTs that have succumbed to further weakness amidst the overall decline in bonds and ratchet higher in yields. Various catalysts including upbeat manufacturing surveys, hawkish CB commentary and bearish chart impulses/signals, while looming supply has also impacted (corporate pipeline and sovereign syndications anticipated in 10 year tenors from several Eurozone peripheral member states). Bunds inching closer to the next downside support area around 161.18/yield edging nearer to 0.50%.

Top European News

• U.K. Manufacturing Growth Slows More Than Forecast in December
• EU Can’t ‘Cherry Pick’ Post-Brexit Trade Deal, U.K.’s Davis Says
• U.K.’s Biggest House-Price Jumps Came Outside London Last Year
• Statoil Upgraded at RBC, Shell Top Pick Among ‘Super- Majors’
• OPEC Deal Doesn’t Stop Russia From Record Oil Output in 2017
• IAG, Norwegian Double-Upgraded at BofAML, Air-France Also Raised

In currencies, the Greenback has extended losses across the board, with the DXY now losing complete grip of the 92.000 handle and heading for 91.500 from around 91.750. No specific bearish news, but the overall trend of Dollar weakness persists into the New Year as markets brace for some potential fundamental drivers via FOMC minutes (Wednesday) and NFP (Friday). AUD and CAD   are vying for top G10 performer vs the beleaguered USD with the AUD buoyed by better than expected Chinese PMI data overnight and up towards multi-month peaks around 0.7835. EUR and NZD both around 0.25% firmer vs the Greenback, with the Kiwi eyeing 0.7150 next, while EUR/USD has 1.2050 in its sight following hawkish/upbeat ECB rhetoric and ahead of the final Eurozone manufacturing PMI. GBP has been seen higher throughout the session with initial optimism amid reports of a potential UK cabinet reshuffle which saw EUR/GBP slip below 0.8900 before GBP strength was stuck in its tracks after UK manufacturing PMI (56.3 vs. Exp. 58.0) fell short of expectations.

In commodities, in the energy complex, both WTI and Brent crude futures have been supported by ongoing tensions in the Middle East after Iran’s elite Revolutionary Guard Corps (IRGC) announced it is taking charge of security in Tehran as nationwide protests entered their fifth day. This has subsequently offset and over-shadowed any potential bearish pressure from news that Libya have resumed oil flows to the Es Sider terminal and the reopening of the Forties pipeline. In metals markets, gold prices remain supported after breaching USD 1300/oz to the upside last week and alongside a broadly softer USD. Elsewhere, Chinese steel futures were seen higher overnight, although some analysts note fears over potential for upside given the prospects for cold weather to slow construction activity.

US Event Calendar

• 9:45am: Markit US Manufacturing PMI, est. 55, prior 55

DB’s Jim Reid concludes the overnight wrap

Happy New Year to you all. I would say that it has been nice to recharge the batteries but the truth is that my batteries were quite full on December 22nd and are now requiring a bit of a jump start. Over the break we had to  deal with the twins and Maisie all having horrible coughs, an Ambulance being called out for Eddie on NYE due to breathing problems (he’s has viral bronchiolitis but was a bit better yesterday), several 2 year old tantrums, a power cut on Xmas Day just after everyone had finally got to sleep and we sat down to watch ‘The Crown’, the boiler breaking down on NYE leaving us currently with no heating, about 100,000 calories spread across us over the week and a few too many glasses of red. On the plus side we chose a kitchen for the new house and remarkably yesterday James slept through the night with Eddie (despite being ill) only waking a couple of times. So in spite of a tough Xmas, hopefully we’ve turned a corner!!

So 2018 will perhaps be the year of uninterrupted sleep! Back to last year, at the end of our note today we do our usual performance review for 2017, December and Q4 with all the charts and table in the PDF. There are a few things that stand out for me about 2017 from the review. 1) Of the regular 39 assets in our sample, a very impressive 38 finished with a positive total return in USD terms and 36 did so in local currency terms. 2) The S&P 500 (+21.8%) ended the year with a positive return in every month – the first time this has ever happened in the  90 years of monthly data we have and; 3) Bunds were the worst performer out of the 39 assets in local currency terms. This is interesting as there is a perception that Bunds are bullet proof given the lack of supply and extreme ECB QE. However the fact that most of the curve still has a negative yield and that 2017 ended with the German economy growing at an annualised rate of over 4% nominal means that even Bunds couldn’t defy valuation gravity last year.

On that, today officially marks the point where ECB purchases halve in size from €60bn to €30bn per month. We think the PSPP program might be reduced by relatively more than the CSPP meaning that Government purchases actually drop by more than 50%. One of the biggest stories of 2018 will be how Government bond yields cope with the notable reduction of support from central banks. 2017 was still a peak year for the supply/demand technicals in Govvies. We think 2018 will mark the first year in around 7-8 where QE from the big-3 (Fed, ECB, BoJ) doesn’t increase relative to net issuance of the same regions’ bonds. So the technicals will deteriorate for the first time this decade all other things being equal.

To kick off the NY we thought we’d briefly recap what has happened since December 22nd with regards to data and any interesting market moves

Firstly on data. In Europe, Germany’s flash December CPI reading was above expectations at 1.6% yoy (vs. 1.4% expected), while the final readings of 3Q GDP for the UK (1.7% yoy vs. 1.5% expected) and France (2.3% yoy vs. 2.2% expected) were also above market. In the US, the December Dallas Fed manufacturing index (29.7 vs. 20 expected) and Chicago PMI (67.6 vs. 62 expected) both beat expectations, while the Richmond Fed manufacturing index was slightly below at 20 (vs. 21 expected).

Moving onto key market moves since 22 December. In government bonds, the mini-bond pre-Xmas sell off partly reversed, with the UST 10y yield down 7.6bp to 2.405% and Gilts down 5bp to 1.187%, but Bunds were broadly flat at 0.419%. Over in currencies, the EURUSD experienced a mini flash crash on Christmas day with the currency bouncing 0.84% intraday. It has since stabilised and has climbed c1.3% to above 1.20 and now near its early-September highs. Turning to equities, both the S&P and Stoxx 600 weakened 0.36% and 0.28% respectively. Within the Stoxx, the European banks index dropped 1.57%, likely weighed down by the uncertainties on how US tax reforms will impact foreign banks when it makes payments between its US and global subsidiaries. Gold  powered ahead 2.53% to be back above $1300/oz. Finally, Bitcoin retreated c6% over the week and is down c28% from its recent highs on 18 December to be around $13,360 a piece now.

This morning in Asia, China’s December Caixin manufacturing PMI beat expectations at 51.5 (vs. 50.7 expected). Equity markets are broadly higher, with the Hang Seng (+1.82%) and China’s CSI 300 (+1.30%) both up strongly  with gains led by tech, energy and property stocks. The Kospi is up 0.40% but the ASX 200 is down 0.06% as we type, while Japanese markets are closed until Thursday.

Away from markets and onto New Year speeches from politicians. In North Korea, Kim Jong Un appeared to be taking a conciliatory tone, noting that “it’s about time that the North and the South sit down and seriously discuss how to improve inter-Korean relations”. Over in Germany, Ms Merkel is keen to end the political stalemate to form the next coalition government, she noted that “the world won’t wait for us”. The talks between her party and the  SPD are scheduled to start on 7 January.

Looking at the day ahead, we start the year with the final reading of the December manufacturing PMI for the Eurozone, Germany, France and US, as well as the flash readings for the UK and Italy.

Investors started 2018 like this…

Pushing the S&P 500 to a new record high – which is notable, as Bloomberg reports this is the first time that the index hit a record high on the first day of trading since 1992.

And those same investors bought tech stocks (and Biotech) with both hands and feet today as Nasdaq massively outperformed (along with Trannies) and the Dow lagged…

S&P, Trannies, and Nasdaq record high.

This was Nasdaq’s best start to a year since 2013… and closed above 7,000 for the first time ever…

Futures show the excitement better…

VIX was monkeyhammered lower after Friday’s spike…From an opening high over 11 to 9.5…

Biotech’s best day in 4 months, FANG’s best day in 3 months, but banks lower…

Plenty of chatter today about Treasury yields spiking (and the yield curve steepening) as being some sign of rotation but the reality is that today’s action was much more likely based on rate-locks being set ahead of a very heavy week of IG issuance (expectations of over $30bn in sales this week and $136bn for Jan)…

30 year yields spiked to Christmas Eve levels…

The Dollar continues to freefall – down for the 5th straight day to the lowest close since Sept 26th…

After an initially weak start to the year, Bitcoin soared higher today – above $15000 – after Thiel headlines; Ethereum remains the winner so far…

Gold and Bitcoin have recoupled from their pre-December normalized relationship…

With gold futures tagging $1320 into the close…

Since The Fed hiked rates in December, there is only one winner…

The Dow is notably lower since the US cash market opened (though still higher from Friday) but Nasdaq is soaring unilaterally today…

As VIX is crushed back below 10 for good measure….

So much for “higher vol” in 2018!!

Following strong European PMI data this morning, Markit reports US Manufacturing’s final December PMI at a better than expected 55.1 – the highest since March 2015.

Manufacturing is notably diverging from the slump in Services – which is at its lowest since September 2016…

Furthermore, the rate of job creation is at its fastest since September 2014…

New business received by manufacturers continued to rise in December, with the rate of expansion accelerating to a ten-month high. Anecdotal evidence linked increases to greater demand from new and existing clients. Exports sales, however, grew at a marginal pace.

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“US manufacturers ended 2017 on a high. Output growth accelerated to its fastest since the start of the year on the back of a marked upswing in demand as the year came to a close.

“Prospects for the upturn also look good. With business optimism about the year ahead running at its highest for two years in the closing months of 2017, companies are clearly expecting to be busier in 2018.

“The upbeat mood is underscored by an increased appetite to hire new staff, with the survey indicating that factory payroll numbers are rising at a rate not seen for over three years.

“Indicators of backlogs of work and input buying likewise suggest production will continue to grow at a solid pace as we move into 2018. However, the strengthening of demand for raw materials has led to supply chain delays, which have in turn been increasingly linked to higher prices as a sellers’ market develops. Input price inflation accelerated to one of the highest rates seen over the past five years in December, as suppliers hiked prices for a wide range of inputs.

“The combination of strengthening growth, a solid labour market and rising prices will add to expectations that the Fed will remain on track for another rate hike in the near future, with March looking a likely possibility.”

Authored by Alexander Mercouris via The Duran,

Strong Republican critic of Donald Trump ‘dismayed’ by confidential information about the Trump Dossier he has seen…

Senator Lindsey Graham, previously one of President Trump’s most trenchant critics who back in July 2017 actually proposed a law to prohibit President Trump from firing Special Counsel Robert Mueller, has now made the extent of his disillusionment with the FBI’s conduct and with the whole Russiagate investigation crystal clear.

In an interview with Fox News Lindsey Graham says that after having reviewed confidential information about the Trump Dossier provided at the insistence of Congressional investigators he is filled with dismay and believes that a new Special Counsel must be appointed to investigate the FBI’s conduct and the Trump Dossier.

Here is how Byron York of the Washington Examiner reports Lindsey Graham’s comments

I’ve spent some time in the last couple of days, after a lot of fighting with the Department of Justice, to get the background on the dossier, and here’s what I can tell your viewers: I’m very disturbed about what the Department of Justice did with this dossier, and we need a special counsel to look into that, because that’s not in Mueller’s charter. And what I saw, and what I’ve gathered in the last couple of days, bothers me a lot, and I’d like somebody outside DOJ to look into how this dossier was handled and what they did with it.

Host Brian Kilmeade asked Graham, “So, you’ve found out something you did not know?

“Yes,” Graham answered.

Kilmeade asked whether Graham was disturbed by the contents of the dossier or how the Justice Department used it in the Trump-Russia investigation.

“I’ve been a lawyer most of my life, a prosecutor, and a defense attorney,” Graham began. He continued:

And the one thing I can say, every prosecutor has a duty to the court to disclose things that are relevant to the request. So any time a document is used to go to court, for legal reasons, I think the Department of Justice owes it to the court to be up-and-up about exactly what this document is about, who paid for it, who’s involved, what their motives might be. And I can just say this: After having looked at the history of the dossier, and how it was used by the Department of Justice, I’m really very concerned, and this cannot be the new normal.

(bold italics added)

These words all but confirm that the FBI used material from the Trump Dossier to obtain FISA warrants from the FISA court which enabled it to conduct surveillance of US citizens involved in Donald Trump’s campaign during the election, without disclosing to the FISA court the provenance of this material or the fact that it originated in an unverified Dossier paid for by the DNC and by Hillary Clinton’s campaign.

I have been making this point – that it is the secret surveillance undertaken by the US security services during the election of Hillary Clinton’s electoral opponents – which is the true scandal of the 2016 election, ever since March

What we now learn is that the Obama administration, of which Hillary Clinton was once a part, used the US’s federal security and intelligence agencies during the election to spy on Hillary Clinton’s opponent, Donald Trump, and on his campaign.  They did so despite the fact that no evidence existed or has ever come to light of any wrongdoing by Donald Trump or by anyone else working on his behalf or for his campaign such as would normally justify surveillance.

I have discussed this again in much more detail recently as more information has come to light, especially in light of what is known about the various activities of the FBI’s former deputy director for counter espionage Peter Strzok.

We now know from a variety of sources but first and foremost from the testimony to Congress of Carter Page that the Trump Dossier provided the frame narrative for the Russiagate investigation until just a few months ago.

We also know that the Trump Dossier was included in an appendix to the January ODNI report about supposed Russian meddling in the 2016 election which was shown by the US intelligence chiefs to President elect Trump during their stormy meeting with him on 8th January 2017.

The fact that the Trump Dossier was included in an appendix to the January ODNI report shows  that at the start of this year the top officials of the FBI and of the US intelligence community  – Comey, Clapper, Brennan and the rest – believed in its truth. 

The June 2017 article in the Washington Post (discussed by me here) also all but confirms that it was the Trump Dossier that provided the information which the CIA sent to President Obama in August 2016 which supposedly ‘proved’ that the Russians were interfering in the election.

As the BBC has pointed out, it was also the Trump Dossier which Congressman Adam Schiff – the senior Democrat on the House Intelligence Community, who appears to be very close to some of the FBI investigators involved in the Russiagate case – as well as the FBI’s Russiagate investigators were using as the narrative frame when questioning witnesses about their supposed role in Russiagate.

These facts make it highly likely that it was indeed the Trump Dossier which provided the information which the FBI used to obtain all the surveillance warrants the FBI obtained from the FISA court during the 2016 election and afterwards……

This once again points to the true scandal of the 2016 election. 

On the strength of a fake Dossier paid for by the DNC and the Hillary Clinton campaign the Justice Department, the FBI and the US intelligence community carried out surveillance during the election of US citizens who were members of the campaign team of Hillary Clinton’s opponent Donald Trump.

Lindsey Graham’s words – based on his reading of confidential FBI documents – vindicates what I have been saying about the true scandal of the 2016 Presidential election since March.

We now stand at a crossroads in the Russiagate affair.

Lindsey Graham’s words show that as the truth of what actually happened during the 2016 election has slowly dripped out even many of Donald Trump’s formerly most implacable Republican opponents have begun to see the truth and are beginning to press for the real scandal of the 2016 Presidential election to be investigated.

As Lindsey Graham’s words also show, these same Republicans have now lost faith in Mueller’s ability or willingness to do this, and are increasingly demanding that a second Special Counsel be appointed to do the things Mueller cannot or will not do.

Even some Democrats are now beginning to have doubts.  Remarkably even CNN – possibly the single most strident supporter of the Russiagate conspiracy theory in the mainstream media – has now published an article by Paul Callan which outlines in detail the case against the FBI, admits that it is compelling, and ends with these (from this source) truly remarkable words

While I rarely agree with much of what the President does or says regarding legal issues, this time he’s got it right. The FBI’s reputation has been severely damaged not by the President’s criticism but by a systematic failure of the bureau’s leadership.

The field agents of the FBI should still retain the trust of the American people. Their honor and dignity has not been compromised; but the bureau’s leadership ranks require a prompt and thorough house cleaning by the new director, Christopher Wray. The bureau’s leadership has forfeited the reputation of a cherished American institution

The question is whether this is enough to tip what by rights should be the proper investigation into the real scandal of the 2016 election onto its proper course?

In the article which I have just quoted Byron York suggests that appointing a second Special Counsel would be burdensome and unnecessary because the task of investigating the FBI’s conduct can be left to the Congressional committees

Graham found the dossier affair serious enough to warrant an entirely new investigation. It’s not in Mueller’s charter, Graham said. And Graham does not appear to trust the Justice Department to investigate itself on this particular issue.

But there has been serious resistance to the idea of another special counsel in the Trump-Russia matter. Such investigations are inevitably subject to mission creep and can go on seemingly forever. It’s unclear whether anything would be done in response to Graham’s call.

In any event, the efforts pushed by Nunes and the Senate show that Congress, if it is aggressive, can investigate a matter like this. And there are still several more aggressive actions Congress can pursue, if it wants to uncover the full extent of the Trump dossier matter.

This is a dangerously complacent view, playing straight into the FBI’s hands and making investigation of its conduct hostage to the outcome of November’s Congressional elections.  Besides, as I have pointed out in the past, Congressional committees are properly speaking supervisory not investigative committees, and they are not structured for investigations of this kind.

What this situation urgently calls for is a new Special Counsel – ideally a retired federal judge rather than an investigator or prosecutor – able to send his investigators into the Justice Department and the FBI rather than have to plead with them and cajole them for answers.

I suspect that the thing which is preventing this from happening – apart obviously from the resistance of the Justice Department and the FBI themselves – is resistance to this idea from those Republicans in Congress like Marco Rubio who continue to be so embittered against Donald Trump that they are still willing the Russiagate investigation to succeed.

The stakes however could not be higher.  If what actually happened during the 2016 election is not investigated then it really does risk becoming what Lindsey Graham said – “the new normal” – with future administrations and political campaigns commissioning ‘research’ to get the US’s intelligence and security agencies to carry out surveillance on their opponents during elections.

Not only would that shift the conduct of US politics – already deeply corrupted by ‘dark money’ financing and lobbying – further towards backstairs wire-pulling, but it would risk entrenching the position of the US’s intelligence and security agencies as the final arbiters of elections.  Needless to say where that ever to happen the US constitution would no longer function and the US would cease to be a democracy.

Short term political calculations and questions of ‘inconvenience’ cannot be allowed to apply in such a situation.  Anyone who really cares about the future of the United States should understand this and support Lindsey Graham’s demand for a second Special Counsel to be appointed.