Tuesday, July 4, 2017

Tuesday, July 4, Morning Global Market Roundup: Asian Shares Ride U.S., European Gains, Dollar Hovers Near Seven-Week High

By Nichola Saminather 
Reuters
July 4, 2017

Asian shares rose on Tuesday, thanks to strength in Europe and the United States as oil's longest stretch of daily price gains in over five years lifted energy shares, while markets in Seoul were briefly shaken by a missile launched by North Korea.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3 percent.

Japan's Nikkei was up 0.4 percent, and South Korea's KOSPI was 0.1 percent lower.

The KOSPI earlier dropped as much as 0.4 percent and the South Korean won stumbled 0.3 percent after reports North Korea had launched an missile that could land in Japanese exclusive economic zone. South Korean President Moon Jae-in called a meeting of the National Security Council in response.

The South Korean currency was last down 0.1 percent at 1,148.1 won to the dollar.

Australian shares advanced 1.65 percent, bouncing solidly from a 2.3 percent loss over the previous two sessions.

"Synchronised gains for both U.S. markets and the U.S. dollar was seen overnight with optimism channeled to the markets at the start of the week," Jingyi Pan, market strategist at IG in Singapore, wrote in a note.

Overnight on Wall Street, the S&P 500 index and the Dow Jones Industrial Average posted gains of 0.2 percent and 0.6 percent, respectively, led by financials and energy shares. The Nasdaq lost 0.5 percent, as the rotation away from technology names continued.

An error in Nasdaq's computer systems caused some third-party providers to incorrectly show large after-hours swings for the prices of Amazon Inc, Microsoft Corp and Apple Inc shares. Google parent Alphabet Inc and eBay Inc shares were among others that all appeared to be priced at $123.47 on some financial news websites on Monday evening.

The actual prices of the stocks were not affected and no trades were completed at that price, a Nasdaq spokesman confirmed.

U.S. markets are closed on Tuesday for the independence day holiday.

European markets posted even stronger gains, with the FTSEurofirst 300 jumping as much as 1.2 percent following steep losses last week.

In currency markets, the dollar crept down 0.2 percent to 113.275 yen on Tuesday, but remained within a hair of a seven-week high of 113.47 touched on Monday.

The dollar jumped after a private index of June domestic manufacturing activity rose more than expected while other data showed government outlays on construction projects in May at their highest in more than four years.

That sent two-year U.S. Treasury yields surging to their highest level since November 2008.

"Expectations towards the Federal Reserve hiking interest rates later this year had perhaps sunk too low," said Shin Kadota, a senior strategist at Barclays in Tokyo. "We are now seeing such lowered expectations being reversed a little."

The dollar index, which tracks the greenback against a basket of trade-weighted peers, was down almost 0.1 percent at 96.146, holding on to most of Monday's 0.6 percent gain.

The Australian dollar climbed 0.1 percent to $0.7666 ahead of a Reserve Bank of Australia meeting at which the central bank is expected to leave benchmark interest rates unchanged at a record low 1.5 percent.

The euro was little changed at $1.1366 on Tuesday.

Sterling inched higher to $1.294, but failed to make up most of Monday's 0.7 percent loss after poorer-than-expected data from Britain's manufacturing sector.

Crude futures posted their first session of losses in nine, ending their longest run of gains since February 2012, as traders closed positions ahead of the U.S. holiday.

U.S. crude slipped 0.5 percent to $46.82 a barrel.

Global benchmark Brent also fell 0.5 percent to $49.41. On Monday, it closed up 3.7 percent, its biggest one-day gain since December 2016.

Gold inched up from its lowest level in more than seven weeks hit on Monday on the dollar's strength. Spot gold was up 0.1 percent at $1,222.21 an ounce on Tuesday.


Article Link To Reuters:

Oil Prices Fall Ahead Of U.S. Holiday After Eight Days Of Gains

By Henning Gloystein
Reuters
July 4, 2017

Oil prices retreated in early Asian trade on Tuesday, halting a run of eight straight days of gains on signs that a relentless rise in U.S. crude production is running out of steam.

Brent crude futures fell 27 cents, or 0.5 percent, to $49.41 per barrel.

U.S. West Texas Intermediate (WTI) crude futures were trading down 24 cents, or 0.5 percent, at $46.83 a barrel.

The falls came after both benchmarks recovered around 12 percent from their recent lows on June 21.

Many traders closed positions ahead of the U.S. Independence Day holiday on July 4, while Brent also faced technical resistance as it approached $50 per barrel, traders said.

Despite this, market sentiment has shifted somewhat.

Late May and most of June were overwhelmingly bearish as U.S. output rose and doubts grew over the ability of the Organization of the Petroleum Exporting Countries (OPEC) to hold back enough production to tighten the market.

But sentiment began to shift towards the end of June, when U.S. data showed a dip in American oil output and a slight fall in drilling for new production.

"We see a recovery for oil prices in H2 2017 from current levels, with OPEC production cuts, a slowdown in global supply growth and seasonally firming demand driving up prices," BMI Research said, although it added that "large-volume supply additions will keep price growth flat y-o-y in 2018."

BMI said it expected Brent to average $54 per barrel in the second half of this year, and to average $55 a barrel in 2018.

It expects WTI to average $51 in the second have of 2017 and to average $52 next year.

ANZ bank said on Tuesday that the dips in U.S. production and drilling were "a small but significant shift in the dynamics in the oil market" and that this would take some pressure off OPEC's struggling efforts to rein in oversupply.

OPEC is leading a bid to tighten oil markets by pledging to hold back around 1.2 million barrels per day (bpd) in output between January this year and March 2018.

Its efforts have been undermined by rising output from Libya and Nigeria, who are exempt from the cuts, which helped push the group's June output to a 2017 high of 32.57 million bpd, about 820,000 bpd above its supply target.


Article Link To Reuters:

Oil Giants Lobby Against Bill To Toughen Russia Sanctions

Pushback from energy companies, other industries threatens to complicate House passage of the legislation.


By Bradley Olson and Peter Nicholas
The Wall Street Journal
July 4, 2017

Exxon Mobil Corp. and other energy companies have joined President Donald Trump in expressing concerns over a bill to toughen sanctions on Russia, arguing that it could shut down oil and gas projects around the world that involve Russian partners.

The pushback from energy companies such as Exxon and Chevron Corp. —and other industries—threatens to complicate House passage of the legislation, aimed partly at punishing Russia for what U.S. officials describe as interference in last year’s U.S. election. The bill breezed through the Senate last month on a bipartisan, 98-2 vote.

Exxon’s advocacy also presents a potential political problem for the Trump administration, which has been trying to avoid conflict-of-interest questions involving Secretary of State Rex Tillerson, the oil giant’s former chief executive.

Mr. Tillerson, who has promised to recuse himself from matters involving Exxon, hasn’t explicitly spoken out against the sanctions bill, but last month urged Congress not to take any actions that tie the administration’s hands.

Mr. Trump is set to meet Russian President Vladimir Putin face-to-face this week for the first time since the election at the G-20 summit of world leaders in Hamburg, Germany. The White House hasn’t ruled out a presidential veto of the sanctions measure, which includes a provision that would make it more difficult for the president to relax existing sanctions against the Kremlin, saying that it could erode Mr. Trump’s ability to conduct diplomacy.

A U.S. special prosecutor and Congress are investigating Russia’s use of cyberattacks in the election and whether there were improper ties between aides to Mr. Trump and Russia’s government. The president has denied any wrongdoing.

As the nation’s top diplomat, Mr. Tillerson has said Russia must be held accountable. A senior State Department official said Monday that “Secretary Tillerson retired from Exxon prior to assuming his position as Secretary of State” and added, “As a general matter, Russian sanctions cover broad areas, including the invasion of Ukraine, and are coordinated with our allies.”

Lobbyists for Exxon and other oil industry players have expressed dismay to lawmakers about several provisions in the legislation, including measures to prohibit partnerships with Russian individuals or companies under sanctions around the world, and to add congressional review of certain sanctions exemptions. Companies also have expressed concern that the bill could force them to disclose information they consider proprietary.

Exxon spokesman Alan Jeffers said the company doesn’t have a position on sanctions but has provided legislators with information about how the bill could “disadvantage U.S. companies compared to our non-U.S. counterparts.” A Chevron spokesman declined to comment.

The lobbying by Exxon and other big oil companies is part of a push to preserve potential business relationships with Russia, even as U.S. ties with the Kremlin sink to new lows.

The bill has the potential to scuttle any U.S. business partnership around the world that involves Russian partners. That has prompted concerns not only from energy firms but also banking and industrial companies, according to people familiar with the matter. General Electric Co. is closely watching the legislation over concerns it could disadvantage U.S. companies relative to global peers, one person said.

‘This has far-reaching impacts to a variety of companies and industries. It has the potential to penalize U.S. interests and advantage Russia.’—Jack Gerard, CEO of the American Petroleum Institute


“This has far-reaching impacts to a variety of companies and industries,” said Jack Gerard, chief executive of the American Petroleum Institute. “It has the potential to penalize U.S. interests and advantage Russia.”

The bill faces an uncertain fate in the House, after objections raised by some House Republicans, including Rep. Pete Sessions of Texas. A standoff was avoidable, some analysts say.

Leon Panetta, who served as White House chief of staff under former President Bill Clinton and as a cabinet member in the Obama administration, said that Congress and the Trump administration should try to forge a consensus on what sanctions should be applied.

“When it comes to sanctions policy the best course for this country is to have both the Congress and the president in the same place,” Mr. Panetta said. “If it looks like there’s a dispute between the president and Congress it sends a terrible message to our adversaries and our allies.”

For Exxon, the stakes are especially high: The legislation could further dismantle its fragile partnership with Russian oil giant PAO Rosneft, which has been mostly on hold since the U.S. imposed sanctions on the country in 2014 after Russia’s annexation of Crimea. The oil company previously sought a waiver from sanctions, a request the Trump administration rejected in April.

Exxon has moved ahead with an expansion of a project with Rosneft that preceded the current sanctions near Russia’s Sakhalin Island in the country’s Far East. It has produced more than 650 million barrels of oil since 2005 and is one of the largest foreign investments in Russia.

As written, the bill could affect two existing Exxon projects outside of Russia in which Rosneft holds a stake, according to people familiar with the matter. One is a development involving the use of hydraulic fracturing in the Permian basin in New Mexico, and the other is a prospect in Canada’s Alberta province.

The prohibition on Russia partnerships would strike at the heart of efforts by Rosneft to expand outside of Russia. British oil giant BP PLC owns 20% of Rosneft, and the Russian company signed a deal in March with Italian energy company Eni SpA to cooperate globally. Rosneft owns a stake in a massive Eni gas field off Egypt’s shores.

Some U.S. House members have echoed Exxon and industry concerns that the legislation could lead to the release of proprietary information. Mr. Sessions, who represents the Dallas area, said he wants to change provisions that could put U.S. firms at a competitive disadvantage.

Mr. Sessions said he is “representing companies in the energy industry that don’t want to be blocked from these deals.”


Article Link To The WSJ:

The Fault Lines Of The Coming Conservative Schism

Irreconcilable differences?


Commentary
July 4, 2017 

With a Republican in the White House and Republicans in total control of the federal government, conservatives are often spared reminders that they are in crisis. Occasionally, the philosophical differences that may one day give rise to a true schism become visible. The response to the new Presidential Advisory Commission on Election Integrity is one such occasion.

The new executive-level commission established to investigate claims of voter fraud has been met with what should, in retrospect, have been obvious resistance from the states it seeks to overrule. The commission is requesting information on the personal details of every registered voter and the elections in which he has participated dating from 2006. At least 29 states have in some form told the Feds “no.”

Some of the states claim that the requested information is privileged and they are, therefore, legally obliged to resist its surrender. There is, of course, a partisan aspect to the controversy over this commission. Blue states like California and New York have preemptively rejected Washington’s request for voter data. Some states with bipartisan elections commissions, like North Carolina, consented to hand over only the information that is already publicly available.

Even some red states are resisting Washington’s overreach. For example, Mississippi’s Republican Secretary of State laid out plainly and in clear language why Washington’s request (not yet received) was so expansive it violated its residents’ right to privacy. “They can go jump in the Gulf of Mexico and Mississippi is a great state to launch from,” he added with conviction. Even the local office of the panel’s vice chairman, Kansas Attorney General Kris Kobach, has refused to provide his own commission with some of the data it requested.

There are two ways to interpret this. The more charitable is that this is a good-faith dispute between institutions with competing interests, just as the Founders intended. An effort of the states to maintain their sovereignty when challenged by the federal government—a conflict that transcends ideology, partisanship, or tribal affiliations—is a durable feature of the American republican character. For some, that’s something to celebrate. For others, it’s a source of paranoid angst.

The less charitable analysis would conclude that both sides are playing politics—that Donald Trump cares nothing for voter fraud and is only trying to reinforce his evidence-free, pride-fueled assertion that Hillary Clinton only won the popular vote as a result of millions of illegal immigrants casting ballots. The conspiratorial right sees nefarious intent at work here, too. “Numerous states are refusing to give information to the very distinguished VOTER FRAUD PANEL,” the president tweeted on Saturday morning. “What are they trying to hide?” This is a presumption of guilt absent even an alleged crime.

The fault lines of schism are visible in this debate. Regardless of how passionately they feel about the subject, partisan Republicans who have defaulted to Trump’s position will at some point encounter an irreconcilable conflict with small government conservatives who see in this feud an expression of republican virtue and vitality. The right’s Trumpian luminaries, who have a habit of boiling conservatism’s internecine squabbles down to class disparities, are kidding themselves. These are bedrock philosophical disagreements.

Perhaps Republicans who side with Trump are just fulfilling the demands placed upon them by partisanship. The fact that, just two months ago, many in this camp expressed grave concerns over the revelation that Barack Obama’s National Security Agency sought and secured personal information on millions of private citizens speaks to that possibility. Sacrificing consistency in service to a political objective is, however, how ideologies become irreversibly corrupted.

Reconciling the ambiguities in a movement that is torn between its philosophical inheritance and an institutional figurehead who is hostile toward that tradition will not be easy. It might not even be possible. The will to power has broken its fair share of honest people and resilient institutions. American conservatism may be only the latest.


Article Link To Commentary:

As U.S. Retires From World Leadership, China And Germany Step Up

Export giants set tone on trade, climate change at G-20 summit; Trump risks uniting Cold War allies and foes against him.


By Marc Champion, Peter Martin and Brian Parkin
Bloomberg
July 4, 2017

The U.S. traditionally takes point in the search for common approaches to the big global issues of the day at G-20 summits. Not this time.

When world leaders meet in Hamburg on Friday, China and Germany will move in to usurp the U.S.’s role.

The two industrial powerhouses of Asia and Europe are being nudged into an informal alliance to pick up the leadership baton that the U.S. is accused of having dropped since President Donald Trump’s inauguration earlier this year, according to diplomats and officials from several Group of 20 members.

The situation has crystallized ahead of this year’s annual G-20 meeting, which will be held in Germany’s busiest commercial port. That’s in part because, for the first time since the group’s founding, the U.S. will be represented by a president who embraces protectionism, abandoning decades of American cheer-leading for free trade.



The U.S. was also isolated on climate change at a May summit of the smaller Group of Seven club in Italy, where the final communique split six-to-one on the issue. This time, Trump risks finding himself alone against a united front of European allies, neighbors such as Canada and Mexico, and America’s former Cold War foes on the two biggest summit items.

As the previous and current hosts, China’s President Xi Jinping and Germany’s Chancellor Angela Merkel would in any case have worked together on the G-20 agenda. Yet three visits to Germany by Chinese Premier Li Keqiang to date, the latest just last month, suggest the two nations are aligned on stepping more broadly into a space that the U.S. has, at least temporarily, left vacant under Trump’s presidency.

“China and Germany’s new closeness is something that happened because of the Trump episode,” said Diego Ramiro Guelar, ambassador to Beijing for G-20 member Argentina. “The two most important leaders in the world are President Xi and Chancellor Merkel at the moment.”

Panda Diplomacy

Ties between China and Germany have been strengthening for years, driven by common economic interests and unobstructed by the kinds of geopolitical rivalries that were complicating relations between Beijing and Washington long before Trump’s election. Germany needs markets for its high-end industrial machinery and motor vehicles, and China wants them -- so much so it bought German robotics company Kuka AG.

Xi will make his second state visit to Germany just before the summit. Two giant pandas that China will loan to the Berlin Zoo arrived already, a gesture sometimes described as panda diplomacy. China gave two pandas to the U.S. in 1972, after President Richard Nixon made his historic first visit to Communist China.

“Relations between China and Germany are at their historic best,” said Michael Clauss, Germany’s ambassador to Beijing, in a recent briefing with reporters. “The economic and political dynamic from a German perspective is moving toward the east.”

The U.S. has “left somewhat of a vacuum” in the region by abandoning the proposed 12-nation Trans-Pacific Partnership free-trade agreement, Clauss said. The deal sought to build a U.S.-centered free-trade bloc among Pacific Rim countries from Chile to Vietnam, as an alternative to more China-dominated initiatives such as One Belt One Road. Trump withdrew the U.S. from the TPP plans within a day of taking office.

Trump Vacuum

The Trump vacuum is still more evident when it comes to climate change, after he announced last month that he was pulling the U.S. out of the 2015 Paris Agreement to slow global warming. The accord was signed by more than 190 countries, including all of the G-20 members.

The U.S. and China, the two biggest polluters, had formed a de facto G-2 for climate change, during the administration of former President Barack Obama. Other partners were brought in only once the big two had settled on the framework they wanted for reducing harmful emissions; neither wanted the quota-based approach favored by the European Union.

That format for climate change negotiations disappeared with Trump’s election. A new vanguard group comprising Canada, China and the EU met for the first time in May. A bilateral China-Germany working group on climate change met in Berlin last week, when each side jointly re-committed to take “an ambitious” approach to implementing Paris agreement goals, and to press that collective approach in Hamburg.

“There’s a clear recognition of our leaders that German-Chinese leadership is now needed,” said Karsten Sach, Merkel’s main climate-change sherpa for the G-20, speaking at a conference in Berlin on Friday. “Both nations are very strong exporters and in terms of the technology aspects of fighting climate change I see very strong cooperation.”



There are still significant limits to how far a Germany-China tandem can go, reflecting frustrations at what Merkel -- like Trump -- sees as lopsided terms of trade. Germany sold more than $85 billion worth of goods to China last year and was Europe’s largest investor in the Middle Kingdom. But it thinks those figures could be much higher, if the Chinese didn’t impose barriers that don’t exist in Europe.

In 2016, Chinese direct investment across the EU rose by 77 percent over the previous year, building on years of annual 30 percent increases, according to a study by the Rhodium Group and the Mercator Institute for China Studies. Kuka and resource recovery firm EEW Energy from Waste GmbH were among the prime targets.

Yet European investment in China fell for the fourth year in succession, with hurdles in industries such as insurance, onerous joint venture requirements and concerns over a new cybersecurity law, which some foreign investors fear could be used to disadvantage them.

China meanwhile prefers to lean on Germany rather than the EU due to wider disputes with the bloc which continues to oppose the granting of market economy status to China at the World Trade Organization.

Merkel is aware of the dangers of allowing China to peel Germany away from the EU, creating a decidedly unequal partnership between countries that have very different political systems and few shared values. Interviewed in this week’s edition of the German business magazine Wirtschaftswoche, Merkel backed French President Emmanuel Macron’s call for EU governments to be able to do more to block foreign purchases of important companies.

“If countries such as China want to simply buy up something that’s been built up with a lot of subsidies, we have to react to that,” she told the magazine, citing the kinds of technology companies that interest China most, such as microchips and artificial intelligence.

“Seen from Beijing, Europe is more like an Asian peninsula,” she said. “Obviously, we see things differently.”


Article Link To Bloomberg:

How To Clear The First Brexit Hurdle

Britain and the EU don’t need to fall out over treatment of each other’s citizens.


By The Editors
The Bloomberg View
July 4, 2017

The first task for the Brexit negotiators is to agree on the rights of European Union citizens in Britain, and of U.K. citizens in the EU. In a rational world, this would be straightforward. In the real world, it will be a problem if one side or the other chooses to make it one.

Roughly 3.2 million EU citizens live in Britain, and 1.2 million U.K. citizens live in Europe. Brexit casts doubt on their residency status and future rights, including access to health care and other services. The fairest and least disruptive solution is reciprocity: EU citizens in the U.K. and U.K. citizens in the EU should have the same rights.

Granted, getting to such a deal is a bit more complicated than you’d think. The EU wants its citizens living in the U.K. to have the rights they would enjoy elsewhere in the EU -- but some of those rights are more extensive than the rights of British citizens in their own country. In particular, a U.K. citizen cannot bring a non-EU spouse to live in Britain without meeting a minimum-income test of £18,600 ($23,765) a year. After Brexit, that would diminish the rights of EU citizens living in Britain.

A fair agreement would either require Britain to dispense with the income test for the spouses of EU citizens, or the EU to narrow the rights of U.K. citizens living in Europe. Either outcome ought to be acceptable. It would be a scandalous failure of leadership on both sides if disagreements as trivial as this were to block further progress in the talks.

A more fundamental worry has centered on the jurisdiction of the European Court of Justice. Throughout, the British government has emphasized the need to recover sovereignty from EU institutions, and especially from the ECJ; the EU has seemed equally determined to preserve the full sway of the court in matters relating to its citizens.

This may be changing. Bloomberg reported this week that the EU could be willing to let a new arbitration body protect the future rights of EU citizens in Britain. Prime Minister Theresa May and David Davis, the minister in charge of the Brexit talks, have previously suggested a similar compromise.

Good: The benefits of flexibility and open-mindedness on such issues would be enormous. EU citizens keep Britain’s National Health Service running and are conspicuously essential in many other parts of the economy; Europe’s businesses rely on British professionals, and British expats (notably in Spain) fuel demand and pay taxes.

Whatever happens, Brexit will be a severe blow, especially to Britain -- but there’s no need to make a bad situation worse. Failing to reach agreement at the outset, and on an issue where the mutual interests are so plain, would be absurd.


Article Link To The Bloomberg View:

Containing The Trump Threat In Europe

By Guy Verhofstadt
Project Syndicate
July 4, 2017

US President Donald Trump is clearly no leader of the free world. According to a new Pew Research Center study, he is deeply unpopular in most countries, and has already done serious damage to the United States’ reputation.

Pew finds that three quarters of the world has little or no confidence in Trump, whose favorability in most countries is now below that of George W. Bush when he left office. By that time, Bush had invaded Iraq and presided over the beginning of the 2008 global financial crisis. Even in neighboring Canada, just 22% of those surveyed expressed confidence in Trump.

Sentiment toward Trump is even more unfavorable in Western Europe. In Germany, only 6% of respondents think he is qualified to hold his current office, and 91% regard him as arrogant. Similarly, 89% of respondents in the United Kingdom think Trump is arrogant, and only 50% still believe that the US and the UK have a special relationship now that he is in office. This may help to explain why Trump’s scheduled state visit to the UK has been postponed indefinitely.

The countries where Trump has the most widespread support are Poland (73% see the US favorably) and Hungary (63%), which are both led by populist right-wing governments. Poland’s defense minister has already described Trump’s planned visit to Warsaw this week as an “enormous event” and a “huge success” for the Law and Justice Party (PiS) government, which has continued to rage against the European Commission and alienate Poland’s European allies.

Under the PiS, Poland has been drifting steadily toward authoritarianism and has become increasingly isolated within the European Union. So, it is not surprising that Trump would want to visit the country. After all, this is a president who campaigned on a platform of “America first” nationalism, bet on the far-right French populist Marine Le Pen, and applauded the outcome of the Brexit referendum, even musing that other countries should consider following the UK out of the EU.

Given his track record, Trump will undoubtedly try to deepen the EU’s internal divisions, by playing its eastern flank against its western members. The Hungarian and Polish governments are both eager to advance their projects of “illiberal democracy.” And we can expect to see Hungarian Prime Minister Viktor Orbán and Poland’s unelected de facto ruler, Jarosław Kaczyński, gladly indulge Trump’s bigotry; indeed, it will be music to their ears.

Trump’s simplistic, xenophobic rhetoric will also find a sympathetic audience among Poles and Hungarians who fear large-scale immigration. In recent years, large swaths of Central and Eastern Europe’s electorates have been mobilized by populist rhetoric, and the region’s governments have refused to cooperate with the EU’s collective response to the refugee crisis. While polls suggest that Western European electorates are coming back around to supporting European integration and pro-European reformers, this positive mood has not yet reached Central and Eastern Europe, where suspicion toward the EU remains strong.

Unfortunately, the political environment in Central and Eastern Europe is ideal for populists who refuse to participate constructively in the European project. Given this, and the very real danger that other countries could pursue their own exit from the bloc, Trump must not be allowed to exacerbate existing divisions. Central Europeans must understand that moving to Europe’s periphery will harm their own vital interests, by undermining their ability to influence the future of the continent. It is up to these countries to seek a compromise that enables them to continue participating in and influencing common policies.

No one has more to gain from a divided Europe than Russian President Vladimir Putin, who has long sought to disrupt the EU by destabilizing countries on its eastern periphery. For this reason, the European Commission, the European Council, and the French and German governments need to use all of the means at their disposal to ensure that the rule of law in Central and Eastern Europe is maintained.

At the same time, the European Commission and leading member-state governments should reach out to those in Central and Eastern European countries who still uphold and defend EU ideals. We need to change public opinion and build bridges in policy areas that are currently creating divisions, including migration, posted workers from one country to another within the EU, and energy policy.

With respect to the last of these issues, the EU urgently needs to create a true energy union to reduce its dependence on outside, increasingly hostile countries, not least Russia. And we should development a credible European Defense Union within NATO, which would strengthen cooperation across the EU and alleviate eastern member states’ security concerns.

Within the EU, there is room for compromise on all of these issues. If we can find common ground, we can start to bring Central and Eastern European publics back on board. It is in no one’s interest – except, of course, Putin’s – to allow any EU member states to be pushed into a corner, and potentially toward the door.

It is now up to Europe’s leaders and the Trump administration’s more responsible members, such as Secretary of Defense James Mattis, to prevent the US president from harming the EU. To do otherwise would be to risk weakening the Western alliance, upon which global stability and order rests.


Article Link To Project Syndicate:

Trump-Putin Will Talk Against Backdrop Of Broader Russian Mischief

Debate over Russia’s role in 2016 election blurs larger picture.


By Gerald F. Seib
The Wall Street Journal
July 4, 2017

When President Donald Trump meets Russian leader Vladimir Putin late this week, many will be watching to see whether they discuss alleged Russian interference in the 2016 election.

That much is obvious. Less obvious, but more important, is how any Russian meddling in the American presidential-election season—whatever form it may have taken—fits into a much larger tale. This is the tale of a systematic Russian effort to disrupt democratic and capitalist systems internationally, using an updated version of tactics Mr. Putin learned in the bad old days of the Soviet KGB.

In fact, one of the dangers in the current hyperpartisan American debate over Russia’s role in the 2016 presidential election is that it is blurring this larger picture. If the 2016 election was the tip of an iceberg, the rest of the iceberg warrants serious attention.

A useful reminder of the breadth of the problem comes in the form of “The Kremlin Playbook,” a publication released last October by the Center for Strategic and International Studies, a centrist American think tank, and the Center for the Study of Democracy, a European public-policy institute. In retrospect, it was a remarkably prescient look at the controversies that have mushroomed since the American election that came a month later.

The Playbook is an in-depth study of Russian efforts to use overt and covert tactics over a period of a decade to expand its economic and political influence in five Central and East European nations. A group of regional leaders from such nations warned President Barack Obama in a 2009 letter—which also looks prescient now—that Russia was conducting “overt and covert means of economic warfare, ranging from energy blockades and politically motivated investments to bribery and media manipulation in order to advance its interests….”

The Russian strategy, the study finds, isn’t ad hoc. Rather, it is the implementation of a doctrine developed by Russian Gen. Valery Gerasimov called “new generation warfare.” One European analyst called that “primarily a strategy of influence, not of brute force” aimed at “breaking the internal coherence of the enemy system.”

The strategy, as it has unfolded in Central and Eastern Europe, proceeds along two parallel tracks, the study found. The first track is economic. Russia seeks to find business partners and investments that allow it to establish an economic foothold, which in turn produces economically influential patrons and partners who have a vested interest in policies friendly to the Kremlin. That is a particularly fruitful endeavor in Europe, where many nations depend on Russian energy supplies.

The goal on this track is to cultivate “a network of local affiliates and power-brokers who are capable of advocating on Russia’s behalf.”

The second track, perhaps more relevant to the U.S., is designed to disrupt prevailing democratic political patterns. The goal, the Playbook says, is “to corrode democracy from within by deepening political divides and cultivating relationships with aspiring autocrats, political parties (notably nationalists, populists and Euroskeptic groups), and Russian sympathizers.”

On this track, the effort is designed in part to advance parties and figures sympathetic to Russia. But the broader goal is simply to disrupt the process, create confusion and discord, and discredit democratic systems both in targeted countries and in the eyes of Russian citizens, who are told the chaos to their West shows they shouldn’t long for a Western-styled democratic system at home.

A key tool in this effort, the report says, is a “war on information” campaign that uses disinformation and propaganda to disable opponents and foment nationalist and anti-Western sentiment. “Toward this end, Russia exploits existing political pressure points such as migration and economic stagnation, blames Western and U.S. operations for all negative international dynamics (such as the attempted July 2016 coup in Turkey), and discredits the current state of Western democracy,” the report says.

Remember that this was written before Mr. Trump won the American presidency and the investigations into Russian influence went into high gear. The findings are about a broader pattern of Russian behavior, not about what it might have done in the U.S. political system.

Yet these findings present a backdrop for both the current debate over Russia’s 2016 U.S. activities, as well as Mr. Trump’s meeting with Mr. Putin on the sidelines of the G-20 meeting in Germany this week.

Heather A. Conley, a senior vice president of CSIS and one of the authors of The Kremlin Playbook, says the months since its publication have brought “an acceleration” of Russian influence-seeking, ranging from a plot against the prime minister of Montenegro to interference in the French election to cyberattacks in Ukraine.

The goal, she says, “is disruption, to create governmental policies that accommodate Russian interests,” first in ending Western economic sanctions and then in building a broader sphere of influence. She adds: “We continue to be unprepared.”


Article Link To The WSJ:

Chris Christie Flew Close To The Sun. Now, He Sits Under It, Defiantly.

By Robert Costa 
The Washington Post
July 4, 2017

The legend of New Jersey Gov. Chris Christie in national Republican politics was forged at the Jersey Shore, where he shrewdly spun headlines that were cotton candy for the GOP’s base — and for reporters.

“Get the hell off the beach!” Christie barked in 2011, as Hurricane Irene fast approached the coast. A year later, while holding an ice cream cone, he clashed with a heckler on the Seaside Heights boardwalk in the wake of enacting conservative fiscal policies that thrilled activists and donors.

But those electric days now seem like ancient times to longtime Christie observers. His prominent profile has all but drifted away following years of defeats and humiliations — punctuated this week by aerial images of him sitting on an isolated strip of sand, run on a cable-news loop.

Sporting floppy sandals and a baseball cap, Christie unapologetically lounged in the sun with his family at a state-owned beach house amid a statewide government shutdown that closed such beaches to the public. The scene — captured in airplane photographs snapped by the state’s largest newspaper, the Newark Star-Ledger — again revealed the indifferent defiance that has both lifted and hobbled Christie’s political career.

That attitude thrust him into stardom and then out — and into President Trump’s inner circle and then to its edge.

For those who know Christie — who is the most unpopular governor in the country, according to polls — the pictures of him among the dunes at Island Beach State Park were a reflection of who he has always been: a flawed brawler who relishes the limelight and who deliberately ignores decorum.

“It tells me nothing that I haven’t known for a very long time. He’s petulant, a bully, and his nature is to fight, fight, fight,” New Jersey state Sen. Richard J. Codey, a Democrat who served as acting governor from 2004 to 2006, said in an interview Monday. “I get along with every former governor, but not with him.”

Former Republican National Committee chairman Michael Steele said Christie was “Trump before Trump.”

“From the moment I met him in our first meeting in 2009, to Monday’s press conference, he has been someone who is in­cred­ibly comfortable in his skin. He does what he wants to do, and his success can be traced to that,” Steele said. “But there are consequences, of course, when you work that way.”

Similar stories of his swagger are legion. Christie used to take a 55-foot-long State Police helicopter to his son’s baseball games. He was asked to give the keynote address at the 2012 Republican National Convention but uttered only a few words about the party’s standard-bearer, Mitt Romney. Christie’s taste for luxury travel has been funded by foreign leaders and a casino magnate. And his time in the owner’s box cheering on his beloved Dallas Cowboys sparked a flurry of ethics questions.

Yet Christie has not been humbled by his waning support or inclined to keep a lower profile as he serves out his final months. Instead, he has been as dismissive and as unflinching as ever.

“The 15 percent approval rating has gotten to him, to the point that he’s giving a giant middle finger to the people of New Jersey by sitting on that beach,” Bob Ingle, a Christie biographer, said in reference to recent polling. “He is so stubborn, so thin-skinned and blames everyone but himself for what has happened.”

Even New Jersey Lt. Gov. Kim Guadagno, his deputy since 2010 and the GOP’s nominee to succeed him, has criticized Christie for his sojourn on state land during a budget impasse in Trenton, which ended late Monday after Christie struck a deal with Democrats.

“It’s beyond words. If I were governor, I sure wouldn’t be sitting on the beach if taxpayers didn’t have access to state beaches,” Guadagno said in a statement.

Christie, in his typical style, has swatted away the controversy. “That’s the way it goes,” he said Saturday when asked about his stay. “Run for governor, and you can have the residence.”

Uproar over the photos — dubbed “Beachgate” online — swelled Monday as some of the state’s “nonessential services” remained shuttered. Among those affected were a Cub Scout group forced to leave a state park campsite and drivers unable to obtain documents from the state Motor Vehicle Commission, the Associated Press reported.

On Monday, Christie tweeted his own photo from above the Jersey Shore, noting that “beaches are open in 119 of our . . . 130 miles of coastline” — the implication being that residents had alternatives to the closed stretch of beach that Christie and his family had occupied by themselves. The tweet spurred another round of shaming on social media.

Christie’s spokesman, meanwhile, punched back at the Star-Ledger. “The governor announced Monday on ‘Ask the Governor’ and at subsequent news conferences that he would be joining his family at the beach this weekend,” Brian Murray told The Washington Post. “We are gratified the Star-Ledger has confirmed what he said on three occasions.”

In an interview with a New York-based Fox affiliate, Christie also mocked the paper. “I am sure they will get a Pulitzer for this one,” he said.

The insouciant remarks were the latest in a string. When askedlate last month about the recent Quinnipiac University poll that showed him with 15 percent support, Christie shrugged.

“That fact is, who cares?” Christie told reporters. “You guys care much more about that stuff than I do. I’ve said to you over and over and over again: Poll numbers matter when you’re running for something. When you’re not running for something, they don’t matter a bit, and I don’t care.”

Christie rose to prominence nearly a decade ago because he embodied the combative ethos that many GOP voters found ­lacking in the party’s national leadership. He tangled with ­public-sector unions in a deep-blue state, so much so that his town halls became YouTube sensations. When he ran for reelection in 2013, he won a crushing 60.4 percent of the vote.

But weeks after that victory, scandal erupted. A handful of his aides were implicated, and later given prison sentences, for orchestrating traffic jams on lanes leading to the George Washington Bridge as part of an effort to punish a small-city Democratic mayor.

Christie still mounted a bid for the presidency ahead of 2016, and there were flashes of the Christie of old, especially when he took on Sen. Marco Rubio (R-Fla.) in a debate with the brutal flair he had mastered as a federal prosecutor. But his ambitions had been badly damaged by the bridge incident, and he dropped out after the New Hampshire primary.

His struggles at home have only grown. Driven by his pledge to get the state’s biggest health insurers to fund programs for opioid addiction — which has become a core cause for him — Christie attempted to pressure state lawmakers to work with him on the issue. They refused, and the government shut down for three days.

“With Christie, the tragedy is that he’s always had to work with a left-wing, Democratic legislature. Except for the first year, when he had shock value as a new governor, he hasn’t been able to get things through,” said Larry Kudlow, a CNBC commentator who advised Trump’s presidential campaign. “He has not been able to implement his promises and his hopes for growth.”

Christie’s experience with Trump has also been defined by fits and starts. They bonded after Christie endorsed Trump last year, but the governor found himself ridiculed in March 2016 when he grimly stood behind Trump at an event. The pictures from that episode went as viral as those from the beach.

“No, I wasn’t being held hostage. No, I wasn’t sitting up there thinking, ‘Oh, my God, what have I done?’ ” Christie later said.

Then, in May of last year, Trump poked fun at Christie’s appetite. At a rally, he asked Christie, “You’re not eating Oreos anymore, are you?”

“No more Oreos for either of us, Chris. Don’t feel bad,” Trump said.

The indignities went on throughout the summer. Christie was in play to be Trump’s running mate and at one point thought he had all but clinched it, according to several people close to the campaign. But Trump ended up tapping then-Indiana Gov. Mike Pence.

During debate prep sessions, Trump veered between enjoying Christie’s company and being annoyed by what Trump saw as an eagerness to be seen as an influential campaign adviser, according to two people involved in the sessions who were not authorized to discuss them.

Soon after Trump won, Christie — who had been managing the transition team — was unceremoniously let go, and the son of a man Christie previously prosecuted — Trump’s son-in-law, Jared Kushner — largely took over.

Ever since, Christie has occasionally visited the White House and remained friendly with Trump, who has appointed him to lead a task force on opioid addiction.

At one meal together, Trump ordered for Christie. ‘‘This is what it’s like to be with Trump,’’ Christie told a radio show. ‘‘He says, ‘There’s the menu, you guys order whatever you want.’ And then he says, ‘Chris, you and I are going to have the meatloaf.’ ’’

Steele said that regardless of Christie’s stumbles, he retains stature in parts of the Republican Party as a survivor.

“I know people want to write his political epitaph, people want him to go away,” Steele said. “But this is someone who doesn’t go away. When they say ‘damaged goods,’ it doesn’t matter to him. A Senate run, a presidential run, an administration job — anything like that — could be what’s next.”


Article Link To The Washington Post:

China Bond Connect Has Potential To Shift PBOC Policy

Watch how Chinese government bond yields respond to inflation and growth data going forward given the impact of foreign investor inflows.


By Ben Emons
The Bloomberg View
July 4, 2017

China’s President Xi Jinping’s visit to Hong Kong coincided with the official start of the China Bond Connect program with Hong Kong that gives offshore investors another way to access the mainland’s $10 trillion debt market. Although the link between China’s mainland and offshore bond markets may look ceremonial, for the People’s Bank of China it could help set the stage for a policy shift.

Getting a handle on China’s monetary policy is not an easy task. That’s because the PBOC has multiple objectives: growth, price and financial stability, and controlling the currency. A shift in monetary policy, therefore, represents a change in focus within this multiple objectives strategy. This is what happened in late 2015, when policy shifted from a focus on hiking reserve requirement ratios to managing the yuan. Credit in China rapidly expanded and by the spring of 2017 the PBOC embarked on a campaign to reduce the amount of leverage in the economy and control growth in domestic credit.

The result was a sharp drop in domestic bond issuance that may have sparked efforts by Chinese authorities to quicken the pace of liberalizing the nation’s capital markets. The prospect of foreign money flowing into the domestic Chinese bond and stock markets has the potential to drive PBOC policy toward inflation and GDP targeting.

It will be key to see how Chinese government bond yields respond to inflation and growth data going forward given the impact of foreign investor inflows. Research from the Federal Reserve Bank of New York found that Chinese bond yields are relatively sensitive to changes in manufacturing, producer price and production data. This may become even more so as foreign money becomes a bigger part of the Chinese fixed-income market. When Chinese bond yields respond more to incoming data, financial conditions in China will no longer be determined by just the yuan. In that scenario, the PBOC would have to convey a clear message where it stands on inflation, employment and growth.

All that would have big implications for China’s government bonds. To understand why, it’s important to know that the securities trade with a very negative term premium, suggesting that investors are not demanding any extra compensation to own longer maturity bonds rather than just holding and rolling over a series of shorter-dated obligations as they come due. The negative term premium in China is almost entirely explained by the correlation with the short term repo rate. This may start to change when money flowing in from foreign investors normalizes the shape of the yield curve, as well as influence expectations for inflation and interest rates. That may entice the PBOC to base policy more strongly on economic fundamentals.

Chinese Term Premium and Repo Rate


Term premium = Chinese 10-year yield – repo rate 1-year forward – China CPI 1-year forecast.

Prior to capital controls and the devaluation of the yuan in August 2015, the onshore and offshore yield curves were closely aligned, implying rate and inflation expectations weren't all that influenced by efforts to manage the exchange rate. Foreign capital inflows could offset domestic capital outflows, lessening the need to manipulate short-term interest rates to control the yuan. This would also have an impact on the current gap between the high Chinese onshore rates and those in the U.S., euro zone and Japan. A change in the PBOC's approach to monetary policy prior to the China bond connect going into effect may also help normalize domestic Chinese interest rates to where global rates are trading in yuan terms. 

Chinese Forward Rates and Global Forward Hedged to Yuan 



The PBOC setting interest rates based on inflation and growth can also impact the direction of interest rates in other developed sovereign bond markets. That’s because the China bond connect program and potential capital inflows may strengthen the correlation between Chinese and global rates. Correlation is a form of policy coordination so when the PBOC’s policy regime shifts, Chinese interest rates may become another benchmark of influence for global rates. The first sign that such a policy change is perhaps already in the works came after the Federal Reserve hiked rates in mid-June and the PBOC didn’t change the reserve requirement ratio, but instead opted to strengthen the yuan to normalize elevated short-term rates. With MSCI’s decision to include Chinese A shares in its benchmark indexes and the China bond connect program now in effect, PBOC policy is likely to shift further away from proactive currency management towards a focus on economic fundamentals.

Correlation with Chinese Rates


Article Link To The Bloomberg View:

How The iPhone Built A City In China

Zhengzhou, once dominated by farmland, now has 250,000 people working to assemble Apple’s smartphone.


By Eva Dou
The Wall Street Journal
July 4, 2017

Farmer Zhang Hailin remembers the day in 2010 when he watched as helicopters flew in over fields of corn and wheat here, hovering in spots to drop balloon-shaped markers.

“Three days later, a hundred bulldozers were here,” Mr. Zhang said.

The iPhone was coming, and it wouldn’t be long before a new industrial town on the edge of Zhengzhou would be known as iPhone City.

Within months, boxy beige factory buildings appeared, power lines were connected and buses packed with workers began rolling up to Foxconn Technology Group, which assembles most of Apple Inc.’s AAPL -0.36% smartphones.

A year later, Foxconn’s billionaire chairman Terry Gou said the iPhone factory complex had 100,000 workers. Today, Foxconn says it employs about 250,000, roughly the population of Madison, Wis.

Analysts estimate that Foxconn, formally known as Hon Hai Precision Industry Co. 2317 -2.58% , makes 150 million iPhones each year, along with 20 million iPads and other electronics. Foxconn said it employs 1 million people across China and elsewhere, including southern Shenzhen, where it began manufacturing the first iPhone amid great secrecy.

With Apple embracing outsourced manufacturing in Chinese cities, the iPhone’s success in the decade since it launched has fueled China’s rise at the center of the global electronics supply chain.

The explosion of higher-tech manufacturing was encouraged by Beijing as leaders sought to move factories up the value chain from making plastic toys and clothes. That shift transformed the lives of millions of Chinese, bringing welcome jobs but also leading to complaints from some workers of repetitive labor, restrictive work rules and crowded living conditions in company housing.

The iPhone’s global success has increased scrutiny of Apple and its suppliers. The Cupertino, Calif., company said it holds Foxconn and others “to the strictest standards in the industry.” It said it has educated 12 million workers on their rights, ensured workweeks don’t exceed 48 hours, and offered career- and personal-development courses. “We hold our suppliers to the standard we hold ourselves: They must treat everyone with dignity and respect,” a spokesman said in a statement. Apple said wages and working conditions at its suppliers have improved significantly in the past five years.

The move to Zhengzhou followed a spate of suicides in 2010 at Foxconn’s other primary iPhone production facility in Shenzhen, along the coast where wages were higher. Foxconn said in response to questions from The Wall Street Journal that many factors were behind choosing Zhengzhou, including the proximity to workers’ hometowns, and suitable infrastructure and transportation.

“Zhengzhou’s pro-business policies and the investment the government continues to make to build strong infrastructure to support manufacturing make the province an attractive location for our operations,” Foxconn said in a statement.

Like American company towns a century ago—Pullman, Ill., Hershey, Pa., and Henry Ford’s Detroit—iPhone City revolves mainly around a single product, and it largely depends on that product for its wealth.

In iPhone City, shopping malls, restaurants and karaoke parlors, some started by former Foxconn workers, sprouted to cater to the Foxconn workforce. Government statistics indicate that exports of electronics have skyrocketed from Henan, a poor province of 94 million people with Zhengzhou at its heart.

Officials had welcomed the iPhone: China’s top leaders greenlighted a national-level special trade zone, and the province threw its resources into constructing and populating what would become iPhone City.

During last fall’s rush to make the iPhone 7, when Foxconn was short-handed, state-owned coal companies lent workers to Foxconn. In past years, according to government notices online, the province issued quotas to local authorities stating how many workers they needed to produce for Foxconn.

Readying for a production surge to make the next iPhone model, due this fall, recruiters recently visited villages to put up posters and find workers.

“While the government has provided assistance in helping us with our recruitment requirements, the costs associated with hiring and training new workers are all covered by Foxconn,” the company said.

On a recent June day, a speaker blared outside the factory gate: “We’re recruiting the cream of society. Your personality must be optimistic, your work diligent.”

Foxconn workers earn some 1,900 yuan ($278) in quiet months to more than 4,000 yuan with overtime when production ramps up. Their income isn’t high, but many are better off than they were as rural villagers. For the workers, the iPhone is an expensive choice, and many say they buy cheaper, Chinese-branded smartphones instead.



Yuan Yanling, 28 years old, said she has worked three stints on iPhone assembly lines, quitting each time better-paid or more fun jobs appeared. Last November she traded in her Foxconn uniform for heels and began selling cosmetics in a nearby mall.

“Our customers are virtually all Foxconn workers,” said Ms. Yuan, who lives with her husband, a Foxconn employee, and two children in a rented one-room apartment.

Some of Ms. Yuan’s neighbors in the apartment complex are less content than she, with some who relocated during development complaining about inadequate land compensation. Zhengzhou authorities said their land compensation was based on national standards.

In 2013, one farmer, Xiao Malai, rankled local government officials by protesting his home’s demolition for a development inside the industrial park anchored by Foxconn’s factories, according to court documents from the trial of an official who allegedly paid an industrial park employee and other villagers to beat the farmer. Mr. Xiao died as a result of the beating, and the official, the industrial park employee and others were jailed over his death.

“We were not aware of the tragic death of Xiao Malai or the circumstances of his death,” an Apple spokesman said.

Other local farmers say the compensation paid for their land was more than they could ever earn in a lifetime cultivating wheat and corn. Mr. Zhang, who saw the markers drop from the helicopters in 2010, used part of his payout to buy two apartments. He said he earned more as a street sweeper than he did on the farm. His wife works at Foxconn, and their son also has.

Yet unease abounds in Zhengzhou over how long Foxconn—or Apple—will need iPhone City. Sales of the iPhone declined last year for the first time since its debut in 2007. During last year’s production downturn, Chinese Premier Li Keqiang asked Mr. Gou whether iPhone production would rise or fall this year, according to people present at the meeting.

Foxconn said it has acquired 80% of the buildings it uses in Zhengzhou, leasing the remainder, and will continue to invest there.

Regardless, Chinese officials see the iPhone factory as a worthwhile investment, said Shi Pu, an economics professor in Henan. “Foxconn has helped train hundreds of thousands of Henan’s people,” he said. “They can use those skills to go on to other jobs.”


Article Link To The WSJ:

For A More Regulated Internet, Thank Canada

The U.S. does little to control online content, but companies may be forced to change anyway.


By Noah Feldman
The Bloomberg View
July 4, 2017

Does Canada own the internet? The question may sound like a joke, but it’s the serious challenge presented by a Canadian Supreme Court decision issued last week. The court ordered Google to deindex search results that were letting one side of a lawsuit violate the intellectual property rights of the other -- not just in Canada, but worldwide.

The court tried to avoid the difficult free-speech issues by saying those weren’t involved in the case. But what makes the precedent so important is that it raises the core problem of who gets to regulate the internet by ordering around search companies and social media. The U.S. Supreme Court recently clarified that it thinks the First Amendment mostly blocks the U.S. government from such regulation. That leaves other governments like Canada -- or Germany, which on Friday enacted legislation that forces social media entities to remove unwanted content.

A good way to think about regulation in the internet age is to consider two radically different views about who should be doing it, if anyone. In the U.S., the internet is treated as a free-speech zone made up of “vast democratic forums,” as Justice Anthony Kennedy said in a recent opinion. The federal government and the states can’t do much to regulate what is said in that space.

At the same time, the means we use to access that vast forum, such as search engines like Google or social media platforms like Facebook, are treated under U.S. law as private entities with free speech rights of their own. That means Google and Facebook can shape access to content as they please, subject only to market pressures. The First Amendment protects their right to do so.

In sharp contrast to the U.S. model is the approach exemplified by the Canadian decision, as well as by European laws. According to this view, governments are entitled to regulate what happens on the internet in order to protect their citizens according to their own laws.

And those laws include various bans on hate speech and enforcement of privacy laws. It’s important to remember in this context that the U.S. is a free-speech outlier, embracing unfettered discourse in ways most countries -- including free ones -- consider mistaken and even wrongheaded.

In the Canadian opinion, Google v. Equustek, a British Columbia technology company was trying to block another company from reselling its stolen intellectual property via websites on servers in unknown locations. To protect the company, a trial court ordered Google to deindex, or block, the predator’s website worldwide.

Google was willing to deindex in Canada, but it objected to becoming the means by which the Canadian court sought to enforce its order throughout the world. Among other things, Google said that it was possible the victim company couldn’t have gotten the order in other countries and that deindexing might force Google to violate the laws of some other place.

Invoking a hot-button term in international law, Google said the worldwide order would violate “comity” -- roughly, the notion that courts in one country shouldn’t interfere with the laws of other countries. To international lawyers, a comity violation is serious business, conjuring visions of competing jurisdictions fighting legal battles across borders.

In an opinion by Justice Rosalie Abella, who is widely known in international judicial circles, the Canadian court ruled 7-2 that Google had to comply. Abella pointed out that Google hadn’t actually shown that deindexing would break any laws or limit freedom of expression. If in a future case Google found itself in such a bind, Abella said, Google could bring that up. “We have not, to date,” she commented acerbically, “accepted that freedom of expression requires the facilitation of the unlawful sale of goods.”

Abella’s distinction means that Canada, at least, might balk at a worldwide injunction that blocks what other countries would count as free speech. But that won’t be true elsewhere. The proposed German law won’t work if it only limits what is searchable on German Google. Internet regulation has to be universal to work.

That sets up a future of conflict between countries that want to regulate effectively within their borders and those that, like the U.S., want to keep information flowing freely without government intervention.

The particular anomaly is that Google could be regulated within the U.S. by foreign nations -- while U.S. law would protect it against domestic regulation.

Advocates of a free internet warn of a race to the bottom, in which the most restrictive countries block free speech everywhere. That’s conceivable but unlikely. Right now Google and Facebook have the capacity to resist being bullied by countries that don’t respect free speech and might want to make access to their markets depend on giving up freedom elsewhere.

But what could happen is something more like a partial jog to the middle -- where platforms comply with reasonable countries’ reasonable speech limitations worldwide. That could mean adopting limits on hate speech, for example, or protecting privacy.

In the U.S., after all, those private platforms have the right to adopt those restrictions by choice. So it wouldn’t be unlawful for them to follow, say, Canadian or German guidelines.

In this scenario, Canada really would rule the internet, or at least the platforms we use to access it. Would that really be such a bad outcome?


Article Link To The Bloomberg View:

Facebook Fights U.S. Gag Order That It Says Chills Free Speech

By David Ingram and Dustin Volz
Reuters
July 4, 2017

Facebook Inc (FB.O) is challenging a gag order from a U.S. court that is preventing the company from talking about three government search warrants that it said pose a threat to freedom of speech, according to court documents.

Facebook said it wants to notify three users about the search warrants seeking their communications and information and also give those users an opportunity to object to the warrants, according to a filing in a Washington, D.C., appeals court seen by Reuters.

"We believe there are important First Amendment concerns with this case, including the government's refusal to let us notify three people of broad requests for their account information in connection with public events," Facebook said in a statement on Monday.

The First Amendment to the U.S. Constitution guarantees certain rights including freedom of speech.

William Miller, a spokesman for U.S. prosecutors, declined to comment.

Facebook decided to challenge the gag order around the three warrants because free speech was at stake and because the events underlying the government's investigation were generally known to the public already, Facebook said in the undated court document.

The precise nature of the government's investigation is not known. One document in the case said the timing of proceedings coincides with charges against people who protested President Donald Trump's inauguration in January.

More than 200 people were arrested in Washington the day Trump was sworn in. Masked activists threw rocks at police, and multiple vehicles were set on fire.

Tech firms comply with thousands of requests for user data annually made by governments around the world, but in extraordinary circumstances, companies such as Microsoft Corp (MSFT.O) and Twitter Inc (TWTR.N) have challenged government secrecy orders.

Facebook recently fought a secrecy order related to a disability fraud investigation, losing in April in New York state's highest court.

Companies and privacy advocates argue that gag orders rely on outdated laws and are applied too often, sometimes indefinitely, to bar them from notifying customers about government requests for their private online data. Facebook says about half of U.S. requests are accompanied by a non-disclosure order prohibiting it from notifying affected users.

In April, a local judge in Washington denied Facebook's request to remove the gag order there, according to the document. Facebook is appealing and has preserved the relevant records pending the outcome, the document said.

"The government can only insulate its actions from public scrutiny in this way in the rarest circumstances, which likely do not apply here," said Andrew Crocker, a staff attorney at the Electronic Frontier Foundation, a nonprofit group that advocates for digital rights.

Facebook is getting support in court papers from several organizations including the Electronic Frontier Foundation and the American Civil Liberties Union, as well as eight tech companies such as Microsoft and Apple Inc (AAPL.O).

The District of Columbia Court of Appeals, which is the highest court in Washington for local matters, is scheduled to hear the case in September, according to an order obtained by BuzzFeed News, which first reported Facebook's challenge to the gag order on Monday.


Article Link To Reuters:

Apple, Google And Other Nasdaq Stocks Swing Wildly In After-Hours Trading

Issue was caused by a data test, according to spokesman; Stocks including Apple and Google seemed to swing wildly.


By Annie Massa and Alex Webb
Bloomberg
July 4, 2017

An error at Nasdaq Inc.’s computer systems caused confusion among traders Monday, as Wall Street closed early for the July 4 holiday.

The exchange operator was conducting a test of its pricing data feed that led to some third-party providers showing wild moves in shares including Google Inc. and Microsoft Corp. that never occurred, according to spokesman Joe Christinat. Nasdaq is working with the providers to resolve the issue, he said.

The apparent swings came on a day that the U.S. stock market closed three hours earlier than usual at 1 p.m. While Nasdaq’s website said its systems were operating normally, trading screens around the world showed the likes of Amazon.com Inc. and Microsoft’s shares appearing to fall by more than 50 percent, while Apple Inc.’s stock was at one stage looking as if it had risen 348 percent. The data showed more than a dozen securities, including Nasdaq’s own company stock, at the same price, $123.47.

Nasdaq has had previous issues with its pricing data feed. In 2013, the exchange halted all trading in its listed stocks for about three hours because of a fault with the feed.

Bloomberg LP, the parent of this news organization, distributes Nasdaq data and was among those affected.


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Bullish Market Sign? Dow Transports Set New Record High

By Lewis Krauskopf
Reuters
July 4, 2017

U.S. market watchers on Monday received a bullish sign to kick off the second half of the year as the closely followed Dow transports set record highs for the first time since March 1.

The Dow Jones Transport Average index, which includes airlines, railroads and package delivery companies, is often viewed as a barometer of economic activity.

The 20-component index eclipsed its March 1 intraday record of 9,639.33, rising as high as 9,681.88 during the session. It also tallied its first closing high since March 1, finishing at 9,639.63, up 0.8 percent on the day.

"If people are looking for validation that the economy is still on pretty solid footing and can continue to kind of accelerate, that’s a good sign to see,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana and a contributing editor to the Dow Theory Forecasts newsletter.

Dow Theory tracks the transports and the Dow Jones Industrial Average to confirm major trends in the stock market.

While the Dow industrials have been setting successive record highs over the past six weeks, the transports slumped after March 1 and only recently surged back to record territory.

A new closing high for the transports reconfirms the bull market trend, which "emboldens investors to buy the dips," said Carlson.

Among the stocks giving the index the biggest lift on Monday were freight and logistics company Landstar System Inc, trucking and transportation logistics company J.B. Hunt Transport Services Inc and railroad Norfolk Southern Corp.

The transports' record surge, on a shortened trading day ahead of the July Fourth holiday, came on a generally higher day for the broader market. The benchmark S&P 500 rose 0.2 percent and the Dow industrials gained 0.6 percent, while a decline in the technology sector dragged the Nasdaq Composite 0.5 percent lower.

The Dow industrials' 8 percent rise in the first six months of the year marked their best first-half performance since 2013.


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