Israel

"To the residents of Beit Lahiya, The IDF intends to attack terrorists and terror infrastructures in the area east of Al-Atatra and Al-Salatin St., and in the area west and north of Ma'bscar Jabalyia. Israel is currently attacking, and will continue to attack, every area from which rockets are being launched at its territory.

The civilians are requested to evacuate their residences immediately and move by 12:00 PM today, south of Jabalyia Al-Badr via Shar'a Al-Faluja.  The IDF's campaign is to be short and temporary. Those who fail to comply with the instructions will endanger their lives and the lives of their families.

Beware."

1/2 BREAKING: IDF forces raided a site used to fire long-range rockets at Israel. The mission was accomplished

— IDF (@IDFSpokesperson) July 13, 2014

We earlier showed the close-up-and-personal images from the bombing raids between Hamas/ISIS/Al-Qaeda and Israel; but the following clip (which we still have not heard the final conclusion of) shows just how much of a 'surprise' these shellings can be... as a reporter is hit by a shell live on air.

Israel's bombing campaign of Gaza shows no signs of abating: as WaPo reports "Israel widened its air assault against the Gaza Strip’s Hamas rulers on Saturday, hitting a mosque it said was hiding rockets" as well as a school which it said was used by Hamas as a cover, "as Palestinians said their death toll from the five-day offensive rose to over 125." The military said it has struck more than 1,100 targets, including Hamas rocket launchers, command centers and weapon manufacturing and storage facilities, in a bid to stop relentless rocket fire coming Gaza. Officials in the territory said that besides the mosque, the strikes also hit Hamas-affiliated charities and banks, as well as a home for the disabled, killing two women.

It’s time to think like a contrarian. Why? Because capital markets seem as bulletproof as one of those up-armored military personnel carriers you see in war zones. So what could really rattle stock, bond and commodity markets over the next 3-6 months? The go-to answer, steeped in history, is geopolitical crisis, where the logical hedges are precious metals, volatility plays, and possibly crude oil. Look deeper, however, and other answers emerge.

And Hamas Had Nothing to Gain – And Everything to Lose – By Starting Violence Now

• Carl Icahn says 'time to be cautious' on U.S. stocks (Reuters)
• Banco Espirito Santo Lifts Lid on Exposure to Group (BBG)
• Slowing Customer Traffic Worries U.S. Retailers (WSJ)
• Insurgents enter military base northeast of Baghdad (Reuters)
• Obama tells Israel U.S. ready to help end hostilities (Reuters)
• Japan economics minister warns of premature QE exit, sees room for more easing (Reuters)
• Greek Banks See Quadrupling of Housing Loans by Next Year (BBG) ... to fund buybacks like in the US?
• Piggy Banks Being Raided Signal Swedish Housing Dilemma (BBG)
• London Seeks New Spenders as Russians Skip $719 Champagne (BBG)

This week was interesting to say the least and it is ending with a bang.  We are covering a number of brief subjects this week.  I hope you enjoy them.

• Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
• Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
• Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
• French Stocks Seen Extending Losses on Economy Concern (BBG)
• Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
• U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn 
• It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
• Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
• Chinese hackers pursue key data on U.S. workers (NYT)
• Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)

Gold had strong chart resistance at $1,334/oz as this was the 61.8% retracement of the March to June retreat. Gold has now broken convincingly above resistance and the key 50, 100 and 200 day moving averages (see chart).

Spying On – and Blackmailing – Politicians, Generals, Judges, Lawyers and Citizens

• Xi Says China Conflict With U.S. Would Be Disaster (BBG)
• Short selling drops to lowest level since Lehman (FT)
• Scoping the new subprime as watchdogs cry 'bubble' (Reuters)
• Carlos Slim to break up América Móvil empire (FT)
• Jury Acquits Rengan Rajaratnam in Insider-Trading Case (WSJ)
• Hamas rockets land deep in Israel as it bombards Gaza Strip (Reuters)
• Hong Kong Buyers Queue for New Homes After Prices Plunge (BBG)
• Rebel Stronghold in Ukraine Braces for Its Showdown (WSJ)
• Tiny Houses Big With U.S. Owners Seeking Economic Freedom (BBG)
• Chinese Cash-Bearing Buyers Drive U.S. Foreign Sales Jump (BBG)

While the situation between Israel and Gaza continues to escalate, pulling the markets' attention away from the recent developments in Iraq (as for the Ukraine civil war, forget it), the big news overnight came out of Chine which reported another contraction in consumer prices, which both declined to 2.3% and missed expectations of a 2.4% print (down from 2.5%). Producer Prices had another negative print, the 28th in a row, and have remained negative since 2012. This led to the Hang Seng Index falling at the fastest rate since late June to erase all YTD gains. However, as has now become the norm, macro news hardly impacted US equity futures, which are driven exclusively by the Yen carry trade, which unlike yesterday's pounding, has traded rangebound between 101.6-101.7 keeping US equity futures just barely in the green. We expect the momentum ignition algo to kick in at some point, for absolute no fundamental reason beside the NY Fed trading desk issuing a green light, sending the USDJPY surging, taking the Spoos with them, and helping stocks forget all about the weak Asian session.

Following the catalysts of broken down US-sponsored peace-talks and the teenager deaths on both sides Hamas (admitting its responsibility for the first time) unleashed more than 240 rockets into Israel in the past four weeks (including 100 since yesterday), Israel has drawn the line. As Bloomberg reports, Israel struck more than 90 targets in the Hamas-controlled Gaza strip from air and sea and PM Netanyahu suggested the option of a ground incursion was on the table. This is heaviest barrage since November 2012 and is set to worsen as Defense minister Ya'alon warned, this "will not end in just a few days," adding that Israel "is prepared to expand the campaign by every means at our disposal." In preparation for escalation, Israel has called up 40,000 reservists today as news hits that Tel Aviv airport has been closed due to shelling as "Operation Protective Edge" expands.

• Headline of the day: Complacency Breeds $2 Trillion of Junk as Sewage Funded (BBG)
• Israel intensifies Gaza offensive after surge in rocket fire (Reuters)
• Profits plunge at Vatican bank (FT)
• Investors Are Buying Troubled Golf Courses and Giving Them Makeovers (NYT)
• Pimco Dissidents Challenge Bill Gross in ‘Happy Kingdom (BBG)
• That's a new one: Marks and Spencer blames new website for sales drop  (Reuters)
• Iran's Supreme Leader calls for more enrichment capacity (Reuters)
• Boeing Faces Long-Term Credit Risk if Ex-Im Bank Closed, S&P Says (WSJ) not to mention the collapse risk to US durable goods orders
• U.K. Manufacturing Unexpectedly Slumps Most in 16 Months (BBG)
• Some Still Lack Coverage Under Health Law (WSJ)