Israel

Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer... they’re actually heading in the other direction. They’re getting poorer. This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at the logic of the American Empire and what you can expect in the year(s) ahead.

Earlier we reported that the US has now officially landed a Marine force in Israel as well as an assault ship, in a visit that the US Navy promptly assured "is not associated with, nor a reaction to, any world events." It seems we were not the only ones who read this justification somewhat skeptically: so did Russia. And in a historic event, the Russian Pacific fleet, for the first time in decades, crossed the Suez Canal and entered the Mediterranean, direction Cyprus' port of Limasol (hi Cyprus - Russia will be arriving shortly) in what is now the loudest implied warning to the US and Israel amassing military units across Syria's border that Russia will not stand idly by as Syria is used by the Israeli "Defense" Forces for target practice. “The task force has successfully passed through the Suez Channel and entered the Mediterranean. It is the first time in decades that Pacific Fleet warships enter this region,” Capt. First Rank Roman Martov said. This is what is also known as dropping hints, loud and clear.

Two weeks ago, when we reported on the news of yet another aerial assault by Israel on Syria, we said that "while speculation a US-led escalation is ripe, the lack of any US naval support (as shown by Stratfor's naval update map from May 2) off the coast of Syria likely makes any immediate war is hardly likely, or that Israel will be on its own for at least the foreseeable future." Today this is no longer the case, following news that the US amphibious assult ship, LHD 3 and its cargo of the 26th Marine Expeditionary Unit, have arrived in Eilat, Israel for a "reguarly scheduled post visit." Amusingly, the US Navy was very quick to point out that "This visit is not associated with, nor a reaction to, any world events." Just purely accidental then.

... the Bank of Israel!

In the US, retail sales are expected to continue to slow in the headline, while retail sales ex autos, building materials, and gas should turn positive in April according to Wall Street analysts. Goldman remains below consensus for Thursday's Philadelphia Fed survey, forecasting a slight improvement on the previous month. The firm also expects the flash reading for Euro area Q1 GDP to come in slightly below consensus, consistent with a shallow contraction. We forecast German GDP will turn positive in Q1 after Q4 2012's negative reading. In Japan, GS sees Q1 GDP at 2.8% qoq ann., slightly above consensus, with stronger consumer spending the main driver. Among the central bank meetings this week, Russia, Chile, and Indonesia are expected to remain on hold, in line with consensus.

Following up on the earlier report that Israel had warned the US that Russia was preparing to sell "advanced" military equipment to Syria (in False Flag Broken Telephone fashion), it was only a matter of time before the new US Secretary of State voiced his indignation over a development whereby someone else was providing arms to a conflict country's government, instead of the US providing its own weapons to said country's Al Qaeda-assisted rebel forces. Sure enough, he did: "I think we have made it crystal clear that we would prefer that Russia is not supplying assistance," Mr. Kerry said at a news conference after meeting the new Italian Foreign Minister Emma Bonino." While there was no immediate quote substantiating it, there is a rumor that Russian foreign minister Sergei Lavrov's response was a less than politically correct phrasing along the lines that he "would prefer that the US not supply assistance to Syrian rebels."

We almost got an entire 24 hour period that did not have news about imminent war rumblings out of Syria. Almost. Late last night WSJ reported about the civil war torn country (in which the rebels may or may not be using chemical weapons, but are backed by both Al Qaeda and the US government) again, this time on a leak by Israel having warned the US that Russians are "imminently" going to sell advanced ground-to-air missile systems to Syria "that would significantly boost the regime's ability to stave off intervention in its civil war." Supposedly this means that Israel would be unable to continue its unimpeded military incursions of Syrian sovereign airspace and blow stuff up at whim just because it feels like it, and for whatever pretext the Israeli defense forces come up with.

At the center of any military campaign is the art of deception. In the military nothing is done without a strategy, generally planned well in advance, and the misdirection of the enemy is always part of any campaign. It would be a political disaster for Israel to attack Iran. We may begin our consideration with this premise. On the other hand, it would be politically acceptable for Israel to respond to any aggression that was inaugurated by Iran. Self-protection is always a respectable retort. The Israeli attacks are not irrelevant.

Over the weekend Israel carried out two air strikes against Syrian positions within 48 hours. Iran is a strong supporter of Assad’s regime in Syria, and is deeply involved in the efforts to repel the rebel forces. Israel has long voiced its desires to attack Iran in order to force them to end their nuclear program before they achieve the capability to create nuclear weapons. This attack against Syria could be viewed as an indirect attack on Iran. "Israel is taking a calculated risk that Assad, Iran and Hezbollah are right now fighting a war against the Syrian rebels and probably don’t want to open up a second front against a far more formidable enemy."

Carla Del Ponte, a member of the UN independent commission of inquiry on Syria, said that testimony gathered from casualties and medical staff indicated that the nerve agent sarin gas was used by rebel fighters. "Our investigators have been in neighbouring countries interviewing victims, doctors and field hospitals and, according to their report of last week which I have seen, there are strong, concrete suspicions but not yet incontrovertible proof of the use of sarin gas, from the way the victims were treated," Ms Del Ponte said in an interview with Swiss-Italian television, broadcast on Sunday. "This was used on the part of the opposition, the rebels, not by the government authorities," she added, speaking in Italian. Ms Del Ponte added that the inquiry has yet to see any direct evidence suggesting that government forces have used chemical weapons, but said further investigation was required before this possibility could be ruled out. The new claims come one week after the United States said it had "varying degrees of confidence" that sarin had been used by Syria's government on its people.

On the third year anniversary of the flash crash, and in a week in which earnings season unwinds and in which there is very little macro news, the bulk of the newsflow happened overnight, starting with a drop in the Chinese Service PMI, which tumbled from 54.3 to 51.1, the lowest in two years, then we got Australian retail sales which dropped -0.1% on expectations of 0.4% gain, indicating that the Chinese slowdown is dragging down the entire Asia-Pac region further.  Afterwards, we got a barrage of European non-manufacturing PMI data starting with Spain, at 44.4, down from 45.3, the lowest since December (although one wonder if Spain has finally opened a branch of the BLS, reporting that unemployment actually dipped by 46.1k, on expectations of just a 2k decline, and down from 5k the prior month: how curious the timing of the "end of austerity" and the immediate "improvement" in the economy), then Italy Service PMI printing at 47.0, up from 45.5, on expectations of a 45.8 print, the highest since August 2011, French Services PMI rising modestly from 44.1 to 44.3, Germany's up from 49.2 to 49.6, on expectations of an unchanged print, all of which leading to a combined Eurozone PMI at 47.0, up from 46.6, and beating expectations of a 46.6 print.

An overview of this week's drivers.

In the aftermath of last night's second attack in two weeks by Israel on Syria, the immediate response has so far been muted, with Syria condemning the aggression as an act of war. According to UPI, Syria "vowed to retaliate after an apparent Israeli airstrike on the capital Damascus early Sunday. A government official said on CNN the attack on a military research facility was "an act of war" that the government would not take lightly. "Syria is a country that does not accept insults and it doesn't accept humiliation," said Omran Zoabi, Syria's information minister. Zoabi added the attack had opened "a wide door for all possible options." It remains to be seen what, if any, option Syria will take or if it will merely jawbone toothlessly, inviting further unrequited air-based incursions into its territory. Most likely any response will need the preapproval, and the assistance, of Putin. Incidentally, the only response so far has come from Israel. As Stratfor reports, citing Israel News, the airspace in northern Israel has been closed until May 9 due to an Israel Defense Forces directive issued May 5. Which means the only planes flying in north Israel, which borders Syria through the Golan Heights, would be military.

Citizens in Syria's capital woke up early on Sunday to a series of powerful explosions shaking the outskirts of Damascus, sending massive fireballs into the night sky. Preliminary reports that this was an Israeli attack were subsequently confirmed by NBC citing a senior US official who said Israeli jets had bombed a military research center near of Damascus. This would be the second Israeli attack on Syrian territory in the past week, following US media reports that Israel targeted a weapons shipment to the militant group Hezbollah in neighboring Lebanon overnight Thursday to Friday, although the Jewish state has refused to confirm or deny the bombing. As RT further reports, during the attack, one Israeli jet was reportedly shot down by Syria's Air Force, according to Hezbollah's Manar TV channel, citing security sources in Damascus. This has yet to be confirmed through official channels although if accurate one expects Syrian media to promptly confirm with video evidence.

• U.S. Bulks Up to Combat Iran (WSJ)
• Taking sides in Syria is hard choice for Israel (Reuters)
• Gold Traders Most Bearish in Three Years After Drop (BBG)
• It's a Hard Job Predicting Payrolls Number  (WSJ)
• EU economies to breach deficit limits as economic picture darkens (FT)
• IBM Says U.S. Justice Investigating Bribery Allegations (BBG)
• At Texas fertilizer plant, a history of theft, tampering (Reuters)
• SAC Sets Plan to Dock Pay in Cases of Wrongdoing (WSJ) - "in case of"?
• EU to propose duties on Chinese solar panels (Reuters)
• Billionaire Kaiser Exploiting Charity Loophole With Boats (BBG)
• SEC Zeroing In on 'Prime' Funds (WSJ)
• Apple Avoids $9.2 Billion in Taxes With Debt Deal (BBG)
• China April official services PMI at 54.5 vs 55.6 in March (Reuters)