Tumbling Dollar Sends USDJPY Under 100, Oil Over $46 As Gold Spikes; Futures Flat

Overnight, John Williams’ latest uberdovish paper “Monetary Policy in a Low R-star World”, which we profiled yesterday, and which suggests lower rates for far longer, made the rounds and has led to a steep 0.8% drop in the Bloomberg Dollar spot Index, which sank to its weakest since June while the yen strengthened 1.2 percent, slipping briefly below 100 against the greenback, dropping as low as 99.95 for the first time since June 24, pushing oil and gold higher, and Asian shares lower.

The dollar is losing ground as lackluster data in the world’s biggest economies fuel speculation the Fed will refrain from raising interest rates. The Citigroup Inc. U.S. Economic Surprise Index, which measures whether data beat or miss analyst forecasts, reached the lowest in more than a month.  As a result, the latest surge in the Yen, noted overnight when various stops were tripped, sent the Nikkei sharply lower by 1.6%, and has put further pressure on the BOJ to come devalue its currency. “The yen is being driven by the dollar’s weakness, spurred by increasing expectations the Federal Reserve won’t raise rates this year,” said Nicholas Teo, a strategist at KGI Fraser Securities in Singapore. “This complicates things for Japanese policy makers seeking to stimulate Japan’s economy. If the Fed doesn’t move this year, there’s a risk of steeper moves next year. That’s very dangerous.”

“The unevenness seen over the last couple of weeks in U.S. data has diminished the relative appeal of pursuing dollar strength,” said Ned Rumpeltin, the European head of foreign-exchange strategy at Toronto Dominion Bank in London. Minutes of the last Fed meeting due this week “will be an important platform to signal whether they hope to keep the potential for a 2016 rate hike on their agenda, although markets think that chance is fairly remote right now.”

The pound jumped as U.K. inflation accelerated in July more than economists predicted. Precious metals advanced while European stocks slipped.

Global stocks were modestly lower pressured by rising local currencies, and edged away from one-year peaks on Tuesday as a stellar rally stalled, while the dollar hit a one-month low against the yen as recent weak U.S. economic data was seen limiting the scope for a near-term rate hike. Asian shares rose to a one-year peak, lifted by a rise in U.S. stocks to record highs a day earlier and expectations that monetary policy around the world will remain lower for longer than anticipated to support growth. But, in a sign that the rally in world shares may be losing momentum, Chinese stocks pulled back from seven-month highs following a sharp correction in bank shares and Japan’s Nikkei fell more than 1.5 percent to its lowest level in just over a week as the yen firmed.

Meanwhile, the skepticism over the low-volume levitation remains: “If you look at the previous days, we had upturns every couple of days, but not based on healthy volumes — that’s very often a sign that the reaction in the other direction could follow,” said Soeren Steinert, an associate director for equities trading at Quoniam Asset Management, which oversees the equivalent of $29 billion. “There’s an increasingly lower probability of a Fed rate hike this year, and that’s priced in. Brexit you don’t hear about any more. And the earnings season is over, so what’s the trigger for the upside?”

Quoted by Reuters, Michael Hewson, chief market analyst at CMC Markets said that “Equity markets are looking a bit frothy and what’s dragging them down is a bit of softness in the oil price and yen strength.  Investors are a bit nervous but ultimately in a low-yield world, stocks remain a decent bet for yield.” That’s ok, that’s what central banks are there for: to ease investor nerves.

While European shares opened broadly lower, edging away from Monday’s seven-week highs as markets in London, Paris and Frankfurt slipped 0.4-0.9 percent in early trade, they have since rebounded somewhat and the the Stoxx Europe 600 Index was trading about 0.1% lower.  Schindler Holding AG led industrial-goods companies lower, sliding 3.6 percent after forecasting a decline in the global elevator and escalator market. Electrolux AB, which gets more than a third of its revenue from North America, lost 2.1 percent after a report showed U.S. shipments of major home appliances fell in July. Antofagasta Plc helped push a measure of commodity producers to the best performance of the 19 industry groups on the Stoxx 600, climbing 3.4 percent. The company said first-half earnings rose and announcing an interim dividend of 3.1 cents a share. Linde AG jumped 5.8 percent, propelling a gauge of chemical stocks higher, after people familiar with the matter said Praxair Inc. has held merger talks with the German industrial-gas company.

S&P 500 Index futures were little changed, with the index having risen to fresh highs on Monday.

In the commodity complex, oil gained, after erasing an earlier loss as the weakness in the dollar overtook speculation that the Organization of Petroleum Exporting Countries will struggle to agree any kind of limit on production next month. West Texas Intermediate crude advanced 0.7 percent to $46.04 a barrel and Brent gained 0.5 percent to $48.58. And speaking of OPEC, after Nigeria overnight expressed doubt any supply cut would take place, when Nigerian petroleum minister Emmanuel Kachikwu said that “on oil production cuts by OPEC, optimism on my part is quite sparse but I believe engagement with the 70% oil producers might have impact,” earlier today Iran also poured cold water over expectations of a September production freeze:

• IRAN HAS YET TO DECIDE ON JOINING OPEC’S INFORMAL TALKS IN SEPTEMBER – OIL MINISTRY SPOKESWOMAN
• IRAN DOESN’T EXPECT TO REACH PRESANCTIONS PRODUCTION LEVEL BY END OF SEPTEMBER — SPOKESWOMAN

In bonds, the U.K.’s 10-year gilt yield declined one basis point to 0.52 percent, near a record low, before the Bank of England seeks to buy 1.17 billion pounds ($1.5 billion) of debt due in more than 15 years as part of its expanded quantitative-easing program. The central bank fell short of achieving a similar target at last week’s bond-buying auction, spurring gains in longer-dated gilts. The yield on U.S. Treasuries due in a decade fell three basis points to 1.53 percent. Rates on similar-maturity debt in Germany and Japan decreased by about one basis point to minus 0.08 percent and minus 0.10 percent, respectively.

Market Wrap

• S&P 500 futures down less than 0.1% to 2185
• Stoxx 600 down 0.2% to 345
• FTSE 100 down less than 0.1% to 6936
• DAX down 0.1% to 10725
• German 10Yr yield down less than 1bp to -0.08%
• Italian 10Yr yield up 1bp to 1.07%
• Spanish 10Yr yield up less than 1bp to 0.94%
• S&P GSCI Index up 0.5% to 361.3
• MSCI Asia Pacific down 0.1% to 140
• Nikkei 225 down 1.6% to 16597
• Hang Seng down less than 0.1% to 22911
• Shanghai Composite down 0.5% to 3110
• S&P/ASX 200 down 0.1% to 5532
• US 10-yr yield down 3bps to 1.53%
• Dollar Index down 0.75% to 94.92
• WTI Crude futures up 0.7% to $46.04
• Brent Futures up 0.6% to $48.62
• Gold spot up 0.7% to $1,349
• Silver spot up 1% to $20.02

Top Global News

• Dovish comments from Fed’s Williams point to signs the Fed is seriously contemplating a change in its current policy mix; Lockhart speaks today, while Bullard and Dudley are due later this week; Any similar comments from them may spur a meaningful repricing of Fed rate hike expectations, particularly further out the curve, before Yellen’s Aug. 26 Jackson Hole speech
• Praxair, Linde Said to Be in Talks to Merge, WSJ Reports
• Morgan Stanley Targeted by ValueAct as Core Activist Stake: Activist fund owns 2% of New York-based investment bank. Jeff Ubben’s fund disclosed stake in filing on Monday
• Huntington’s FirstMerit Purchase Signals Faster Deals, CEO Says: Huntington closed on its biggest deal ever in 204 days. Steinour: Approval could spur more regional lenders to combine
• Vivint Focusing on Sustainable Growth, Not Growth at All Costs: Blackstone-backed company canceled deal with SunEdison. Installer focused on being ‘best and the most disciplined’
• Google Debuts New Chat App to Rival Skype, FaceTime: Introducing Duo. Google is trying to simplify a tangle of communication apps.
• Cargill, Louis Dreyfus Halt Brazil Soy Plants as Margins Vanish: Too few soybeans to meet export commitments, needs of crushers. Profit also hurt as chicken producers buy less soy-based feed

Looking at regional markets, Asia failed to take the impetus from the latest US record close trifecta with the major regional indices in negative territory. Nikkei 225 (-1.3%) underperformed as a firmer JPY dampened investor sentiment, while ASX 200 (-0.1%) traded in a subdued fashion with participants cautious ahead of the expected release of the worst ever financial report from index heavyweight BHP Billiton after market. Chinese markets conformed to the lacklustre tone with choppy trade seen in the Hang Seng (-0.1%), while investors booked profits in the Shanghai Comp (-0.5%) after yesterday’s stock connect-inspired outperformance. 10yr JGBs are higher as the lack of appetite for riskier assets spurred safe-haven flows into the paper, while today’s JPY 400bIn enhanced liquidity auction was slightly disappointing with a lower than prior b/c. Chinese state council has approved the Shenzhen – Hong Kong stock connect. Note that this was widely in-fitting with weekend reports. RBA minutes from August 2nd meeting stated most recent data on prices and labour costs confirmed that domestic cost pressures had been subdued. The central bank reiterated that a rising AUD complicates an economic transition and sees inflation remaining around 1.5% over this year, before increasing to between 1.5%-2.0% by the end of its forecast period.

Top Asian News

• Yen Rises Toward 100 as Dollar’s Funk Deepens on Fading Fed Bets: U.S. December rate rise odds falls to 45% from 49% on Thursday
• Yuan’s Volatility Slides to 10-Month Low as Currency Steadies: Weekly ETF inflows to China, Hong Kong surge $605 million
• China Plans Targeted Measures to Lift Hard-Hit Northeast Economy: NDRC plans 137 projects
• RBA: On Balance, Prospects Would Be Improved by Aug. 2 Cut: There was room for stronger growth, which could be assisted by lower interest rates
• BHP Reports Full-Year Profit Tumbles 81% on Prices Collapse: Biggest miner booked charges on shale unit, Brazil iron ore
• Noble Group Gets Downgraded by Moody’s on Liquidity Outlook: Moody’s two-level cut contrasts with assessment from Fitch
• Mizuho Said to Form Alliance With Maybank’s Kim Eng on Equities: Will provide research and execution for Southeast Asian stocks

In Europe, stocks have been subdued this morning, this comes German exporters are feeling the effects of a stronger EUR (+0.7%). The FTSE is currently the outperformer in terms of the European bourses, as mining names outperform with Antofagasta and BHP Billiton both reporting earnings. BHP Billiton posted a bigger than expected net loss but the underlying profit beat expectations and came in at USD 1.22bIn vs. Exp. USD 1.04bIn. The FTSE MIB underperforms after yesterday’s break, but another reason for this may be due to PM Renzi asking Brussels asking for more time and more flexibility in regards to its banking reforms. In terms of fixed income markets Bunds are performing well up 24 ticks on session as fixed income is benefiting from risk off sentiment with no major supply from the Eurozone today.

Top European News

• Offshore Wind Could Replace Hinkley Nuclear in U.K. at Same Cost: Britain would need 830 turbines to replace atomic plant. U.K. could install 5.7 gigawatts offshore for Hinkley costs
• BHP Flags Price Freefall Over After Reporting Record Net Loss: BHP Billiton Ltd., the world’s biggest mining company, flagged it’s emerging from the worst commodities price collapse in a generation with renewed impetus after reporting a record full-year loss

In FX, the Bloomberg’s dollar index sank 0.8% while the yen strengthened 1.2 percent to 100.10 versus the greenback. The MSCI Emerging Markets Currency Index added 0.3 percent and has risen 1.9 percent this month. South Korea’s won led gains, appreciating 1 percent, its first increase in three trading sessions. Malaysia’s ringgit advanced 0.4 percent and South Africa’s rand strengthened 0.3 percent. The pound rose 0.9 percent to $1.2989, after a Monday close of $1.2880 that was the weakest since June 1985. Tuesday’s gain cut its loss this month to less than 2 percent.

In commodities, gold advanced 0.9 percent to $1,351.28 an ounce amid a decline in the dollar.Silver and platinum both added more than 1 percent. Oil gained, after erasing an earlier loss as the weakness in the dollar overtook speculation that the Organization of Petroleum Exporting Countries will struggle to agree any kind of limit on production next month. West Texas Intermediate crude advanced 0.7 percent to $46.04 a barrel and Brent gained 0.5 percent to $48.58. Nickel dropped 1.3 percent to $10,370 a metric ton after posting the biggest advance in more than two weeks on Monday. Copper advanced 1.2 percent.

There’s a fair bit of data to get through in the US this afternoon with the main event being the July CPI report. Market expectations there are for no change in the mom headline reading and a +0.2% mom pickup for the core. Also due out will be industrial and manufacturing production for July along with the latest capacity utilization reading, as well as last month’s housing starts and building permits data.

* * *

Bulletin Headline Summary From RanSquawk and Bloomberg

• European equities trade lower (albeit off worst levels) with a stronger EUR and downbeat session overnight weighing on price action
• The USD-index remains soft today after breaking below 95.00 with GBP lent some support by slightly better than expected CPI data
• Looking ahead, highlights include US CPI, US Industrial Production, API Crude Oil Inventory Report and NZ Employment Change
• Treasuries higher in overnight trading while global equities selloff, WTI crude and gold rise; U.S. dollar index drops to lowest since June 23.
• Central banks in developing economies are taking advantage of the biggest rally in their currencies since 2010, using stronger exchange rates to build up foreign reserves for the first time in two years
• Japanese investors are paying the highest hedging costs since 2008 on foreign bond purchases, thwarting efforts by the central bank to spur overseas investment by boosting dollar supplies
• The Bank of Japan, already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, is on course to become the No. 1 shareholder in 55 of those firms by the end of next year
• A gauge of swings in China’s yuan fell to a 10-month low amid receding expectations of a central bank interest-rate cut, increased emerging-market inflows and bets policy makers will limit depreciation pressures
• German investor confidence rebounded in August after the initial shock of Britain’s decision to leave the European Union
• U.K. consumer-price growth picked up to 0.6% in July from 0.5% in June and there were signs of further price pressures with the weak pound leading to the biggest jump in import costs in more than four years
• Big investment banks with their European headquarters in London will start the process of moving jobs from the U.K. within weeks of the government triggering Brexit, according to people briefed on the plans being drawn up by four of the biggest firms
• Fed President John Williams argues that the level of interest rates that neither stimulates nor slows the economy has fallen. In the new low-natural rate environment, the Fed’s policy of targeting low inflation will no longer make sense

* * *

DB’s Jim Reid concludes the overnight wrap

Yesterday was all about Oil really where more jawboning from OPEC members about potential output freezes helped to send WTI and Brent up +2.81% and +2.94% respectively. In fact that was the third consecutive daily gain of at least 2% for WTI and it means Oil is now up over 16% from the early August lows. After Saudi Arabia’s energy minister signalled that the country was open to measures to stabilize the market last week, yesterday Russia’s Energy Minister Alexander Novak said that Russia is also open to such talks with the WSJ also suggesting that the country is already consulting with Saudi Arabia and other countries. OPEC is scheduled to meet for an informal gathering late next month on the sidelines of an energy conference and at the moment the incentive appears to be there for producers to talk up some sort of potential action. Remember though that the market was left disappointed back in spring after similar jawboning.

A slightly softer US Dollar also helped Oil at the margin while gains for energy and financials stocks helped lead US equities to fresh all time highs again. Indeed the S&P 500 (+0.28%), Dow (+0.32%) and Nasdaq (+0.56%) all closed at record highs while markets in Europe finished little changed (Stoxx 600 -0.01%) with volumes a lot lower than usual given the public holiday impact. Credit markets were a touch stronger although the primary market in the US slowed down considerably following a strong past three weeks.

This morning in Asia bourses are generally struggling for any sort of traction, as Oil (-0.66%) pares some of yesterday’s and news flow continues to remain relatively light. Markets in Japan and China in particular are underperforming with the Nikkei and Shanghai Comp currently -1.15% and -0.52% respectively. The Hang Seng is little changed while the ASX is also -0.11%. Only the Kospi (+0.04%) is showing a gain this morning.

Moving on. Yesterday there was a bit of focus over at the Fed and specifically the San Francisco Fed President Williams. Seen as something of a centrist, he argued that central banks need to reassess prevailing policy frameworks and specifically those related to a low natural real rate of interest. Williams noted that ‘there is simply not enough room for central banks to cut interest rates in response to an economic downturn when both natural rates and inflation are very low’. He went on to say that a higher inflation target ‘would imply a higher average level of interest rates and thereby give monetary policy more room to manoeuvre’. Williams also called for changes to fiscal policy saying that such would allow ‘predictable, systematic adjustments of fiscal policy that support the economy during recessions and recoveries’. A reminder that next week we’ve got the Jackson Hole policy symposium.

Staying on the central bank theme, yesterday we got the latest corporate bond holdings data out of the ECB. The bank disclosed that it held €16.23bn of corporate bonds as of August 12th which implies net purchases settled last week of €1.25bn. That means the average daily run rate last week was €250m which is lower than the €353m average daily run rate since the program started. It’s the lowest weekly run rate so far but that shouldn’t be all that unsurprising given the current quiet time of year.

There wasn’t too much to report datawise yesterday with the only economic reports coming out from the other side of the pond. The headline August Empire Manufacturing reading was disappointing after printing at -4.2 (vs. +2.0 expected). That represented a fall of nearly 5pts from July and is the first negative reading since May. That said we did see some improvement in key sub-indices including new orders and the number of employees. The only other data out yesterday was the NAHB housing market index for this month which rose 2pts to 60 as expected.

Looking at today’s calendar, as we noted at the top the significant data out this morning is from the UK with the July inflation docket, while the latest Gilt reverse auction will also attract attention. Also due out will be the be the Euro area trade balance reading for June and the Germany ZEW survey reading for this month where expectations are for a modest pickup in both the current situations and expectations readings. There’s a fair bit of data to get through in the US this afternoon with the main event being the July CPI report. Market expectations there are for no change in the mom headline reading and a +0.2% mom pickup for the core. Also due out will be industrial and manufacturing production for July along with the latest capacity utilization reading, as well as last month’s housing starts and building permits data.

ASIA MARKETS

i)Late  MONDAY night/TUESDAY morning: Shanghai closed DOWN 15.15 POINTS OR 0.49%/ /Hang Sang closed DOWN 21.67 points or 0.09%. The Nikkei closed DOWN 273.05 POINTS OR 1.62% Australia’s all ordinaires  CLOSED DOWN 0.14% Chinese yuan (ONSHORE) closed UP at 6.6185/Oil rose to 46.02 dollars per barrel for WTI and 48.50 for Brent. Stocks in Europe:  in the RED . Offshore yuan trades  6.6262 yuan to the dollar vs 6.6185 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS HUGELY AS IT STOPS MORE USA DOLLARS ATTEMPTING TO LEAVE CHINA’S SHORES  

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

The yen rose overnight breaking the 100 barrier as investors were disappointed at the GDP figures released yesterday.  This sent the Nikkei down very hard:

(courtesy zero hedge)

Japanese Stocks Tumble As USDJPY Plunges To Post-Brexit Lows

Following last night’s disappointing GDP data and amid an illiquid summer holiday in Japan, USDJPY is extending its losses nearing 100.00 once again following weaker than expected US macro data (and a weaker USD)…

Yen is the strongest in 6 weeks – with USDJPY getting close to post-Brexit lows…

Nikkei 225 is getting slammed tick for tick…

Luckily, the US equity market is in a world of its own… for now…

Maybe this week’s minutes will change that?

end

b) REPORT ON CHINA

China now opening supports Russia and Assad in Syria.  They said that they wil provide aid and military training to this powder keg nation.  Russia is becoming less alienated by the day:

(courtesy zero hedge)

China Sides With Russia In Syrian War, Will Provide “Aid And Military Training” To Assad

Ever since the return of the Syrian war in 2015, which has seen both US alliance forces and as – of last – September, Russian forces too, jousting for political influence in the region under the guise of fighting ISIS while in reality either seeking to oust or preserve the Assad regime, one major player was missing: China.

That is about to change as the last major superpower enters the world’s most volatile – and dangerous – region.

Beijing and Damascus have agreed that the Chinese military will have closer ties with Syria, and provide humanitarian aid to the civil war torn nation, a high-ranking People’s Liberation Army officer said, adding that the training of Syrian personnel by Chinese instructors has also been discussed, according to Xinhua.

As has been historically the case, China tends to leave Middle Eastern diplomacy to the other permanent members of the U.N. Security Council, namely the United States, Britain, France and Russia, while relying on the region for oil supplies. But lately, for unknown reasons, China has been trying to get more involved, including sending envoys to help push for a diplomatic resolution to the violence there and hosting Syrian government and opposition figures according to Reuters.

The Director of the Office for International Military Cooperation of China’s Central Military Commission, Guan Youfei,arrived in Damascus on Tuesday for talks with Syrian Defense Minister Fahad Jassim al-Freij, Xinhua added.

Guan said China had consistently played a positive role in pushing for a political resolution in Syria.

“China and Syria’s militaries have a traditionally friendly relationship, and China’s military is willing to keep strengthening exchanges and cooperation with Syria’s military,” the news agency paraphrased Guan as saying.

Rear Admiral Guan Youfei

Guan and al-Freij discussed the enhancement of training and “reached a consensus” on the Chinese military providing humanitarian aid to Syria, Xinhua reported, without providing further details.

As to who China will side with, it should come as little surprise that the answer is “not the US.”

Last year, there were media reports that China had sent dozens of
military advisers to Syria to help the country fight terrorists, however these were never confirmed.

This time, however, we have confirmation. Guan met a Russian general in Damascus, Xinhua reported without giving details.

While China has shown no interest in getting involved militarily in Syria, China’s special envoy for the crisis there in April praised Russia’s military role in the war as the Kremlin staged a bombing campaign there in September 2015 to March 2016. Russia still has some of its forces in the country to provide humanitarian and military assistance to Syrian President Bashar Assad’s government.

Which means that as of this moment, every major  world superpower is officially involved in the Syrian war, which has on various occasions been aptly called a powderkeg for what may be the next global military conflict – to be sure, all required players are now officially involved.

 end

EUROPEAN AFFAIRS

 RUSSIAN AND MIDDLE EASTERN AFFAIRS

Russia is expanding its presence in the middle east while the USA dilly dallies.

For the first time Russian strategic bombers strike ISIS from Iran’s base.  Also Iran and Iraq is to give permission to Russia to strike ISIS with cruise missiles form the Caspian and Mediterranean sea.

(courtesy zero hedge)

For The First Time, Russian Strategic Bombers Strike ISIS From Iran’s Hamadan Air Base

While Obama is campaigning on behalf of Hillary Clinton, Vladimir Putin is making friends.

Russian strategic bombers with full payloads delivered their first airstrikes on terrorist targets in Syria operating from an Iranian airbase, the Russian Defence Ministry said, after Moscow deployed Russian aircraft to an Iranian air force base to widen its campaign in Syria. The ministry said the strikes, by Tupolev-22M3 long-range bombers and Sukhoi-34 fighter bombers, were launched from Iran’s Hamadan air base.

Russia’s state-backed Rossiya 24 channel earlier on Tuesday broadcast uncaptioned images of at least three bombers and a Russian military transport plane apparently inside Iran, but said it was unclear how many Russian bombers had arrived there.

This was the first time that Russia has struck targets inside Syria from Iran since it launched a bombing campaign to support Syrian President Bashar al-Assad in September last year.

Moscow and Tehran signed a military agreement allowing Russian aircraft to station at Hamadan Airport in western Iran, and according to Iran’s Natioanl Security Council the cooperation between the two countries in Syria is “strategic.”

Tehran has agreed to share its military facilities and capacities with Moscow, confirming dedication to strategic cooperation in fighting against terrorism in Syria, Iran’s Secretary of Supreme National Security Council Ali Shamkhani told Islamic Republic News Agency (IRNA) in an interview on Tuesday.

Russian media said the Tupolev-22M3 bombers, which had already conducted many strikes on militants in Syria from their home bases in southern Russia, were too large to be accommodated at Russia’s air base inside Syria.

According to RT, the main benefit for the Russian Air Force is a drastic reduction in flying time to terrorist targets in Syria. Russian long-range bombers delivered airstrikes in Syria from a base in Mozdok, Russia, and had to cover a distance of about 2,000km to get to Syrian airspace. Now that distance is reduced to some 700km, so time-sensitive airstrikes can be delivered immediately and more cheaply.

The Al-Masdar website was the first to publish photos of at least three Tu-22M3 bombers and Il-76 military transport jets in Iran.

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As Reuters notes, the move shows Russia is expanding its role and presence in the Middle East and comes amid Russian media reports Moscow has asked Iran and Iraq for permission to fire cruise missiles at Syrian targets across their territory from the Caspian Sea. The ministry said Tuesday’s strikes had targeted Islamic State and militants previously known as the Nusra Front in the Aleppo, Idlib and Deir al Zour provinces.

The bombers had been protected by fighters based at Russia’s Hmeymim air base in Syria’s Latakia Province, it said.

Meanwhile, military cooperation between Iran and Russia is developing rapidly. In January this year, Moscow and Tehran signed military cooperation deal that implies wider collaboration in personnel training and counter-terrorism activities. Russia’s Defense Minister Sergey Shoigu and his Iranian counterpart Brigadier General Hossein Dehghan signed the document during a visit by Russia’s top brass to the Iranian capital.

The Kremlin won’t stop there: on Monday, Interfax reported that Moscow has once again requested Iran and Iraq to allow cruise missiles to fly through their respective airspace to deliver strikes on terrorist targets in Syria. Also on Monday, Russia launched tactical naval drills in the Mediterranean and Caspian Seas. The warships taking part in the exercise are to engage in live artillery and missile fire “under simulated battlefield conditions.” The Mediterranean force includes two fast attack guided missile craft, both armed with Kalibr-NK cruise missile complexes equipped with eight missiles each.

Simultaneously, a group of four attack guided missile craft (each armed with 8 Kalibr-NK cruise missiles) has been deployed in the southwestern part of the Caspian Sea, also to perform live artillery and missile strikes. On October 7, 2015, four Russian Navy warships in the Caspian Sea fired a total of 26 missiles at positions in Syria held by IS, Shoigu announced. The missiles traveled some 1,500km, changing route several times, and eliminating 11 targets.

So as the US is boosting its campaign in Libya “to fight ISIS”, Russia is likewise expanding its geopolitical presence, and in the process making a deeper strategic relationship with Iran, which contrary to the Obama administration’s repeated overtures, appears to be gravitating progressively closer to America’s cold war nemesis.

END

 

Oil shoots higher despite the bearish fundamentals

(courtesy zero hedge)

Oil Panic-Buyers Ignore US Dollar Bounce

The market remains glommed onto Saudi comments from a few days ago, choosing to ignore the real bearish fundamentals which are getting worse. This morning’s USD weakness sparked some oil momentum… but once the USD started to bounce higher so oil ignored it and melted up…

Oil is ignoring the usd now that the usd is rising again…

As Oil surges above $46.50 ahead of tonight’s API data… despite Russia denial of talks, and Nigeria and Iran saying “no deal”

As Bloomberg notes, Saudi energy minister’s recent comments regarding possible action to stabilize market helped to push price “a little higher, but the reality of what they promise is a bit more unconvincing,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas, says by phone,

“Oil inventories remain just as high, the U.S. active rig count continues to rise. It’s quite interesting that the market chooses to ignore these more bearish fundamental developments to latch on to the potential promise of producer cooperation”

 end

Crude then tumbles on another surprise gasoline build

(courtesy zero hedge)

Crude Tumbles After Surprise Gasoline Inventory Build (Biggest In 6 Months)

With oil largely tracking the dollar as opposed to actual fundamentals – ignoring 3 weeks of crude builds at an odd seasonal time – the surprising build in gasoline inventories (after 2 big draws) seems to have woken some traders up. While crude and Cushing inventories fell, the combination of gasoline (biggest in 6 months) and distillates builds were significant. Oil prices had surged to one-month highs ahead of the API data but quickly dropped after the print.

 

API

• Crude -1.007m (+950k exp)
• Cushing -680k (+100k exp)
• Gasoline +2.167m
• Distillates +2.406m

After 2 big draws, gaosline had an unexpected build this week – the biggest in 6 months…

 

Cruide inventories fell following last week’s 3rd build in a row – quite unprecedented for this time of year…

 

 

Oil had pushed on to th ehighs of the day before the API data – near one-month highs.

Of course – all that matters is ridiculous headlines like this… *VENEZUELA FOREIGN MINISTER SAYS TO MEET WITH SAUDI COUNTERPART… that the machines will trade.

 

Charts: Bloomberg

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/TUESDAY morning 7:00 am

Euro/USA   1.1294 UP .01122 (STILL  REACTING TO BREXIT/REACTING TO BRITISH CUT IN INTEREST RATE TO .25%

USA/JAPAN YEN 99.89  DOWN 1.370(Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER/KURODA:  HELICOPTER MONEY  ON THE TABLE BUT DISAPPOINTS WITH STIMULUS

GBP/USA 1.2987 UP .01073(CARNEY CUTS BR. INTEREST RATES TO .25%)

USA/CAN 1.2822 DOWN .01059

Early THIS MONDAY morning in Europe, the Euro ROSE by 112 basis points, trading now well above the important 1.08 level RISING to 1.1294; Europe is still reacting to Gr Britain BREXIT,deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and NOW THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE / Last night the Shanghai composite CLOSED down 15.15 POINTS OR 0.49%    / Hang Sang CLOSED DOWN 21.67 POINTS OR 0.09%     /AUSTRALIA IS LOWER BY .14% / EUROPEAN BOURSES ALL  IN THE RED

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this TUESDAY morning CLOSED DOWN 273.85 POINTS OR 1.62%  

Trading from Europe and Asia:
1. Europe stocks ALL IN THE RED

2/ CHINESE BOURSES / : Hang Sang CLOSED DOWN 21.67 POINTS OR 0.09%  ,Shanghai CLOSED DOWN 15.15  POINTS OR 0.49%    / Australia BOURSE IN THE RED: /Nikkei (Japan)CLOSED IN THE RED   /INDIA’S SENSEX IN THE RED 

Gold very early morning trading: $1353.50

silver:$20.60

Early TUESDAY morning USA 10 year bond yield: 1.530% !!! DOWN 2  in basis points from MONDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.258 DOWN  2 in basis points from MONDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early TUESDAY morning: 94.68 DOWN 92 CENTS from MONDAY’s close.

This ends early morning numbers TUESDAY MORNING

END

And now your closing TUESDAY NUMBERS

Portuguese 10 year bond yield:  2.84% UP 15 in basis points from MONDAY  (does not buy the rally)

JAPANESE BOND YIELD: -0.085% PAR in   basis points from MONDAY

SPANISH 10 YR BOND YIELD:0.981% UP 4 IN basis points from MONDAY (this is totally nuts!!/

ITALIAN 10 YR BOND YIELD: 1.12 UP 7 in basis points from MONDAY (again totally nuts/)

the Italian 10 yr bond yield is trading 14 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: -0.03% UP  4 IN  BASIS POINTS ON THE DAY

END

IMPORTANT CURRENCY CLOSES FOR TUESDAY

Closing currency crosses for TUESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM

 

Euro/USA 1.1276 UP .0094 (Euro UP 94 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 100.26 DOWN 1.0080(Yen UP 101 basis points/

Great Britain/USA 1 .3037 UP 0.0157 ( Pound UP 157 basis points/BREXIT DECISION AFFIRMATIVE/QE TO START AGAIN/UK DOWNGRADED/NEW PRIME MINISTER T. MAY/GR BRITAIN LOWERS INTEREST RATES/

USA/Canada 1.2843-DOWN 0.0109 (Canadian dollar UP 109 basis points AS OIL FELL(WTI AT $46.68). Canada keeps rate at 0.5% and does not cut!

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was UP by 94 basis points to trade at 1.1276

The Yen ROSE to 100.26 for a GAIN of 101 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED 

The POUND was UP 157 basis points, trading at 1.3037 AS PRIME MINISTER THERESA MAY TAKES OFFICE/CARNEY CUTS INTEREST RATE TO ONLY  .25%

The Canadian dollar ROSE by 109 basis points to 1.2843, WITH WTI OIL AT:  $46.65

CANADIAN RATES WERE NOT CUT

The USA/Yuan closed at 6.6240

the 10 yr Japanese bond yield closed at -.085% PAR IN  points / yield/

Your closing 10 yr USA bond yield:UP 2 IN basis points from MONDAY at 1.575% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.294 UP 1 in basis points on the day /

BANKS NEED THE LONGER BOND HIGHER IN YIELD: INSTEAD THE SPREAD LESSENS.

Your closing USA dollar index, 94.80  DOWN 81 CENTS  ON THE DAY/4 PM 

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for TUESDAY

London:  CLOSED DOWN 47.07 OR 0.68%
German Dax :CLOSED DOWN 62.56 OR  0.58%
Paris Cac  CLOSED DOWN 37.42  OR 0.83%
Spain IBEX CLOSED DOWN 98.90 OR 1.13%
Italian MIB: CLOSED DOWN  204.87 POINTS OR 1.21%

The Dow was DOWN 84.03 points or 0.45%

NASDAQ DOWN  34.90 points or 0.96%
WTI Oil price; 46.66 at 4:30 pm;

Brent Oil: 49.27

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  63.69 (ROUBLE UP  35/100 ROUBLES PER DOLLAR FROM FRIDAY) 

TODAY THE GERMAN YIELD FALLS TO -0.3%  FOR THE 10 YR BOND

END

This ends the stock indices, oil price, currency crosses and interest rate closes for today

Closing Price for Oil, 5 pm/and 10 year USA interest rate:

WTI CRUDE OIL PRICE 5 PM:46.41

BRENT: 48.82

USA 10 YR BOND YIELD: 1.574% 

USA DOLLAR INDEX: 94.79 down 81 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.3039 up .0159 or 159 basis pts.

German 10 yr bond yield at 5 pm: -0.3%

END

And now your more important USA stories which will influence the price of gold/silver

Trading Today in Graph form;  VERY IMPORTANT FOR YOU TO VIEW ALL THE CHARTS TODAY

Crude Cruises To 1-Month Highs But Dudley Damages Stocks & Bonds

 

 

This seemed appropriate for today… (you’re welcome)

 

 

Before we start – today’s big moves were driven by Fed’s Dudley spewing some shit about time to hike rates this year soon.. everything is awesome… etc… So explain this idiocy Dudley!!

 

Ok, having got that off our chest, stocks shockingly did not end higher… and puked into the close…

 

S&P and VIX danced their odd jig once again today – noticed the compression in S&P and VIX around 1200ET and the tiny downtick in VIX that snapped the ‘pennant’ pattern creating a false breakout which rapidly got sold…

 

S&P managed to stay out of the twilight zone for now…

 

Dudley sparked the initial bond/stock dump, dollar jump but weak data left everyone wondering what to do…

 

Every small ramp in stocks was sold at VWAP (suggesting institutional sell orders in the market…and volume was above average

 

Treasury yields spiked after Dudley’s comments…

 

Financials continue to ignore the curve flattening…

 

The USD Index was weak overnight as Yen strengthened, then jumped on Dudley then faded on crap data…

 

As Dudley spoke and the USD ramped so commodities were clubbed like baby seals…

 

but oil was having none of that malarkey…

 

Finally, crude just keeps on going… despite Russia, Nigeria, and now Iran confirming no output freeze is coming…

 

Charts: Bloomberg

END

First early trading

trading early this morning:  USA dollar dives to a 3 month low:

(courtesy zero hedge0

US Dollar Dives To 3-Month Lows As Rate-Hike Odds Slide

Bloomberg’s US Dollar index has tumbled most in a month to 3-month lows overnight – led by Yen and Swissy strength – as it appears the sudden realization that The Fed is on hold no matter what ripples across FX markets. Sept rate hike odds are back below 10% and even Dec odds are below 30% as a series of weaker than expected US macro data blows the recovery narrative…

The Dollar is getting dumped…

Across all the majors (led by Yen and Swissy strength)….

And since the productivity data hit, rate hike odds have tumbled…

as macro data deteriorates rapidly…

With FOMC Minutes due tomorrow, we wonder whether this is front-running that or J-Hole?

END

Then Dudley went to town by describing that a Sept rate hike is in the cards and then up went the dollar: Dudley Doolittle to the rescue!!

(courtesy zero hedge)

US Dollar Jumps As Hawkish Dudley Says “September Is Possible.. Market Underpricing Rate Hikes”

With the US Dollar and rate-hike odds tumbling, Fed’s Dudley was sent into the arena to rescue the sentiment: Opining that “The Fed only raises rates when the economy is doing well,” (apart from in Dec 2015?) Dudley exclaimed that “10Y yields are pretty low given the circumstances” (so sell bonds), and that “the market is complacent about the need to gradually hike rates and the time for a rate hike is edging closer.” The reaction is obvious – ahead of tomorrow’s Minutes – USD Index jumps, rates rise, but stocks also fell disappointedly on his relative hawkishness.

• *DUDLEY: 10-YR TREASURY YIELD IS PRETTY LOW GIVEN CIRCUMSTANCES
• *DUDLEY: BOND MARKET LOOKS A BIT STRETCHED TO ME
• *DUDLEY: SEPTEMBER RATE HIKE IS POSSIBLE
• *DUDLEY: MARKET IS COMPLACENT ABOUT NEED TO GRADUALLY HIKE RATES
• *DUDLEY: WE’RE GETTING CLOSER TO TIME WHERE WE SHOULD RAISE RATE
• *DUDLEY: U.S. ELECTION WON’T WEIGH ON FED RATE DECISIONS
• *DUDLEY: IF FED HIKES RATES, IT’S BECAUSE ECONOMY DOING WELL
• *DUDLEY: MARKET RESPONSE TO BREXIT WAS VERY SHORT-LIVED

And the Dollar reacts..

And rescued USDJPY from below 100…

And across asset classes, stocks, bonds, commodities are down…

And finally:

• *DUDLEY: WE’VE BEEN RELYING TOO MUCH ON MONETARY POLICY

Seemingly falling back on what Deutsche bank said recently that we need CBs to stop, to create a market crash that forces governments to step in with their next folly.

end

The so called core CPI remains stubbornly above the Fed mandated 2% for the past 9 months.  This is despite the huge increase in energy prices in the last few weeks

(courtesy zero hedge)

Core CPI Remains Above Fed Mandated 2% For 9th Straight Month

Core CPI (ex food and energy) rose 2.2% YoY (below the 2.3% expectations) but remains above The Fed’s 2%-mandate for the 9th straight month. The modest disappointments across the board in CPI data were led by a drop in energy-related prices (down 1.6%) with food prices unchanged. The headline CPI data was unchanged month-over-month, the weakest price change since Feb 2016.

*U.S. JULY ENERGY PRICES DECREASE 1.6%, FOOD LITTLE CHANGED

While not the inflation that The Fed cares about, Core CPI remains above 2% for the 9th straight month…

Energy-related weakness in CPI…

• CPI for energy commodities fell 4.4% m/m last month.
• CPI for fuel oil and other fuels rose 0.1% m/m last month.
• CPI for fuel oil fell 1.3% m/m last month.
• CPI for propane, kerosene, and firewood rose 1.4% m/m last month.
• CPI for motor fuel fell 4.6% m/m last month.
• CPI for gasoline (all types) fell 4.7% m/m last month.
• CPI for gasoline, unleaded regular, fell 5% m/m last month.
• CPI for gasoline, unleaded midgrade, fell 4.3% m/m last month.
• CPI for gasoline, unleaded premium, fell 2.6% m/m last month.

Which is ironic given the recent surge in oil prices.

end

Single family housing stagnation continues but multi family or rental housing starts and permits jump in July

(courtesy zero hedge)

Housing Starts Jump On Spike In Rental Units As Permits Decline

While the single-family housing stagnation continues, multi-family, or rental, housing starts and permits jumped in the month of July according to the latest Census data.

In the latest month, housing starts rose by 2.1% from June, and were higher by 5.6% from a year ago, rising to 1.211MM, above the 1.180MM expected, driven by a 33K jump in rental unit starts, which rose to 433K, while single-family units remained largely unchanged at 770K, up 0.5% from last month’s 766K. As the chart below shows, single-family start have barely budged in the past year even as rental units appear to once again be growing at a solid pace.

On an annual basis, the rate of change continues to hug the flatline, and after last month’s modest decling, starts rose by 5.6% in the latest month.

Meanwhile, the more importantl building permits data series, fell modestly to 1.152MM in July from 1.160MM in June, on top of the 1.153MM expected.

While these series are notoriously volatile, if indeed multi-family housing is picking up it could provide a modest ray of hope for America’s renters who continue to suffer under record high asking rents, in part due to a lack of supply. Then again, it depends who ends up being the ultimate owner of these buildings, and if the units end up controlled by Wall Street it is likely that there will be no respite from record high rates any time soon as the “cartelling” of supply is set to continue for the indefinite future.

end

In what has to be the longest non recessionary period of contraction in USA history, the Industrial production fell .53% in July.

(courtesy zero hedge)

US Industrial Production Slumps To Longest Non-Recessionary Contraction Is History

For the 11th month in a row, US Industrial Production fell YoY (down 0.53%) in July – the longest non-recessionary period of contraction in US history. Month-over-month, IP rose 0.7% (beating an 0.3% expected rise) – the best since Nov 2014 – but June was revised notably lower. Overall, all confirming the plunge in productivity seen last week. The decline since its peak in Nov 2014 (ironically the month after The Fed’s QE3 ended) is the biggest drop since September 2008.

While the YoY losing streak continues…

MoM IP rose by most since Nov 2014…

Thanks to a surge in AC usage by the look of it…

Industrial production rose 0.7 percent in July after moving up 0.4 percent in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5 percent in July for its largest gain since July 2015. The index for utilities rose 2.1 percent as a result of warmer-than-usual weather in July boosting demand for air conditioning. The output of mining moved up 0.7 percent; the index has increased modestly, on net, over the past three months after having fallen about 17 percent between December 2014 and April 2016.

Of course, it’s lucky that we are a services economy and that eyeballs matter more than effort…

We are sure that industrial production will soar back higher to confirm US equity market expectations – any month now…

Charts: Bloomberg

end

Negative/and low interest rates are playing havoc to pension funds.  In order to match assets with liabilities pension funds are now seeking yield by going further out n the yield curve.  As everybody else is seeking yield this forces the long bond rates down and thus it drives the biggest bond bubble in history:

(courtesy BIS/zero hedge)

Pension Duration Dilemma – Why Pension Funds Are Driving The Biggest Bond Bubble In History

We’ve frequently discussed the many problems faced by pension funds.  Public and private pension funds around the globe are massively underfunded yet they continue to pay out current claims in full despite insufficient funding to cover future liabilities…also referred to as a ponzi scheme.  In fact, we recently noted that the Central States Pension Fund pays out $3.46 in pension funds for every $1 it receives from employers (see our post entitled “407,000 Workers Stunned As Pension Fund Proposes 60% Cuts, Treasury Says “Not Enough”“).

The pension problem is often attributed to low returns on assets.  As Bill Gross frequently points out, low interest rates are the enemy of savers and pension funds have some of the biggest savings accounts around.

That said, the impact of declining interest rates on the asset side of a pension’s net funded status is dwarfed by the much more devastating impact of declining discount rates used to value future benefit obligations.  The problem is one of duration.  By definition, pension liabilities represent the present value of future benefit payments owed to retirees which is a virtually perpetual cash flow stream.  Obviously, the longer the duration of a cash flow stream the larger the impact of interest rate swings on the present value of that stream.

We created the chart below as a simplistic illustration of the pension “duration dilemma.”  The chart graphs how a pension liability grows in a declining interest rate environment versus the value of 5-year and 30-year treasury bonds.  As you can see, a $1BN pension that is fully funded at prevailing interest rates would be nearly $700mm underfunded if interest rates declined 300bps and all of their assets were invested in 30-year treasury bonds.  The result is obviously even worse if the fund’s assets are invested in shorter duration 5-year treasuries.

So what do you do when perpetually declining interest rates continue to drive your funded status lower and lower despite your return profile?  Well you move further and further out the yield curve, of course, in an attempt to match your asset duration with that of your liabilities.  As the Wall Street Journal recently pointed out:

By their nature, the liabilities of these kinds of investors—the money they promise to pay their clients when they retire—span very long into the future. Their assets—the securities they buy—are generally shorter-dated. This means their assets and liabilities have different “duration.” Duration measures sensitivity to interest-rate changes, so higher-duration liabilities change in value much more than their assets if rates change.

Mr. Di Domizio argues that, in order to contain the size of this gap, institutional investors have little choice but to buy more longer-dated bonds, to lengthen the duration of their assets. This would explain why demand for 30-year debt that yields peanuts hasn’t dropped.

The problem is that by “reaching for yield” (or “reaching for duration” if you prefer) large pension funds enter into a negative feedback loop that only serves to exacerbate their problem.  As billions of dollars are plowed into longer-dated securities the yields of those securities are driven even lower.  Even worse, as yields fall, negative convexity causes the duration gap between assets and liabilities to expand.  With that, pensions have no choice but to go even further out the yield curve and the cycle continues.  The Bank for International Settlements wrote about this topic in October 2015:

In a paper published last year, the Bank for International Settlements made a similar claim.BIS economists argued that a large chunk of the fall in long-term yields since mid-2014—in the part of the yield called “term premium”—was due to insurance firms and pension funds trying to fix these problems.

“If a sufficiently large segment of the market is engaged in such portfolio rebalancing, the market mechanism itself may generate a feedback loop whereby prices of longer-dated bonds are driven higher, serving to further lower long-term interest rates and eliciting yet additional purchases,” they said.

The problem of course is that pensions will never be able to match the duration of a perpetual obligation stream.  And even if they could, the best case scenario is that they would be able to lock in their existing underfunded status while doing absolutely nothing to close the gap.

As we’ve said before, the looming pension catastrophe is an inconvenient fact for elected officials as well as union bosses and their membership.  Rational solutions like cutting benefits are not palatable to employees or the elected officials that require their votes.  As such, we suspect the problem will continue to be ignored until it boils over…

The full report from the Bank of International Settlements can be reviewed below:

( SEE ZERO HEDGE)

END

What is this guy thinking: Obama will accept a surge of 8,000 Syrian refugees.

(courtesy zero hedge)

Obama Accepts “Surge” Of 8,000 Syrian Refugees – More Than All Of Europe (And Hillary Wants More)

Despite “heroic” promises to accept 160,000 Syrian refugees, European Union member states have only accepted 6,000 to date while the US alone has already admitted 8,000 of the 10,000 promised.  So in light of recent terrorist attacks this begs the question is the U.S. being honorable or just dumb?  According to Nayla Rush of the Center for Immigration Studies the answer might just be the latter (although she’s far more polite than we are):

Of the 160,000 asylum seekers in need of resettlement from Greece and Italy, EU member states admitted less than 6,000. “There is an obvious lack of solidarity,” Henry claimed.

This could be, instead, a sign of mere common sense. France has been under direct threat from ISIS and has suffered tremendously this past year from multiple terrorist attacks on its soil. French intelligence services know for a fact that terrorists from the Middle East have infiltrated refugee flows crossing into Europe. Many of those so-called refugees have been directly linked with the latest terrorist attacks in Paris and Brussels. This particular climate is even jeopardizing the Schengen Agreement and its free movement policy, as many European governments have actually started implementing border controls again.

Meanwhile, on this side of the Atlantic, the Obama administration is dead set on admitting, as promised, 10,000 Syrian refugees by the end of this fiscal year (September 30). Over 8,000 are already here and there is no doubt the remaining 2,000 will arrive before the refugee summit to be hosted by President Obama on September 20 in New York. Not only is this administration right “on track” as we predicted; in order to meet its target, a special “surge operation” was implemented in Jordan to speed up the resettlement process and allow for the screening of over 10,000 Syrian refugees in just three months.

Keeping one’s promise is certainly admirable. However, keeping citizens safe should bear no compromise. France, sadly, learned its lesson the hard way. Let us hope the U.S. doesn’t have to.

There’s no shame in shifting gears. After all, as the French say, only fools do not change their minds.

Given the inability to properly vet refugees, even the New York Times has questioned Obama’s logic after a number of refugees have been arrested for prior links to terrorist groups or direct ties to recent attacks in Europe.

But the federal authorities have charged that Mr. Jayab, who was born in Iraq and came to the United States as a refugee from Syria, traveled to that wartorn country from late 2013 to early 2014 to fight on the side of terrorist groups and then lied about it to the authorities. He faces up to eight years in prison if convicted.

“Jihadists see these programs as a back door into America and will continue to exploit them until we take action,” said Representative Michael McCaul, Republican of Texas and chairman of the House Homeland Security Committee, during a hearing this month on refugee and visa programs.

“Terrorists would be crazy to wait 18 to 24 months while undergoing a rigorous screening process to get into the country,” Mr. Carper said in an interview.

Still, some members of Congress and security experts say the arrest of Mr. Jayab has forced them to question the screening process. Federal court documents show that at least 14 people who came to the United States as refugees have been arrested on terrorism charges in the last two years, including Mr. Jayab.

Despite concerns from European leaders, Hillary has suggested that Obama hasn’t gone far enoughand would like to raise the annual admittance of Syrian refugees from 10,000 to 65,000, a policy which Alabama Senator Jeff Sessions says could cost American taxpayers over $400BN.  Hillary’s comments on Face the Nation:

“We’re facing the worst refugee crisis since the end of World War II and I think the United States has to do more.  I would like to see us move from what is a good start with 10,000 to 65,000 and begin immediately to put into place the mechanisms for vetting the people that we would take in.  I want the United States to lead the world.“

For his part, Trump has been quite clear that he would immediately shut down all immigration from Syria until “we figure out what’s going on.”

Unfortunately, only time will tell if Hillary and Obama’s admittance of Syrian refugees will have grave consequences for U.S. citizens.  For our money, the risk/reward of this particular trade seems skewed to the negative.

END

 

This is interesting!! After a surge in withdrawals the big brokerage firm Paul Tudor Jones terminates 15% of its workforce.  The economy must be rosy!

(courtesy zero hedge)

Paul Tudor Jones Terminates 15% Of Workforce After A Surge In Withdrawals

In the latest indication of just how difficult life, and generating profits, has become at hedge funds in the “new normal”, Bloomberg reports that billionaire Paul Tudor Jones dismissed about 15% of the workforce at his Tudor Investment Corp, after losses and investor withdrawals at the $11 billion hedge fund. Tudor Investment earlier Tuesday informed the affected employees, which include positions ranging from money managers to support staff. Tudor employed 409 people, about half in investing roles, according to a March regulatory filing.

“Amid a changing operating environment, we have made strategic adjustments to our firm’s staffing,” the firm said in a statement that didn’t specify how many jobs are being cut. “These difficult changes were made after conducting a deep and broad review of our business and are meant to optimally size the firm for future success. We are committed to treating our departing employees with care and support and appreciate their many contributions to Tudor.”

Tudor is not alone. Earlier, the WSJ reported that Brevan Howard, one of the world’s largest hedge fund firms, experienced investor withdrawals of more than $3 billion from its flagship fund in the first half of this year.

The Brevan Howard Master Fund was one of the star performers during the credit crisis but is now in its third straight calendar year of losses.

 

It has struggled recently, as bond markets have proved tough to predict. The withdrawals in the first six months of this year are according to letters to investors and calculations by The Wall Street Journal. The fund now has $15.7 billion under management, the letters said.

The withdrawals at Brevan, which is headed by Switzerland-based billionaire Alan Howard, mean the firm’s assets have now more than halved in the past two years, from around $42 billion to $19.4 billion. It has shut commodities and emerging markets funds in recent years, and also spun out its credit funds unit.

According to HFR, hedge funds have already experienced more than $23 billion of net withdrawals in the first half of this year, a number which is only set to increase. As Bloomberg noted yesterday, following the lead of pensions, some U.S. endowments and foundations are souring on hedge funds. Hedge fund fees and lagging performance are cause for concern for nonprofit investors, who are reducing their allocation, according to a survey published Monday by NEPC, a Boston-based consulting firm with 118 endowment and foundation clients with assets of $57 billion.

More than a quarter of 59 respondents said their investment committees reduced or were considering lowering their allocations to hedge funds. Of those that made changes, almost half said they put that money into public equities. NEPC conducted the survey in July, polling business officers of universities, foundations and other nonprofits on their market outlook and asset allocation. About one-third of the respondents were universities.

Ultimately, the reason why so much money is being redeemed is simple: after being cash cows during the crisis and in the first years of the decade, hedge funds no longer generate alpha as we showed last week in a report according to which the hedge fund industry has failed to generate alpha since 2011, despite collecting 2% management fees on some $3 trillion in assets under management.

Finally, Mutual Funds are likewise impacted. As Barclays calculated yesterday, there have been some $196 billion in redemptions from the MF space YTD, with the pace of redemptions accelerating since April.

 

Absent a reversal in the key factors moving the “market”, namely central banks led by clueless economists, we anticipate this period of alpha drought will continue indefinitely. More importantly, it is only a matter of time before the redemption wave forces hedge and mutual funds to begin selling some of their more liquid assets to provide the funding their LPs demand.

 

end

 

A good picture as to what is going on in the global economy:

Long Beach shipping in a big slump as traffic in and traffic out is the worst in almost 6 years:

(courtesy Mish Shedlock)

Peak Season Shipping Slumps: Containers Crash, Traffic Tumbles Most In 6 Years

Submitted by Michael Shedlock via MishTalk.com,

The Port of Long Beach Posts a  7.7% Drop in Container Volumes compared to July 2015. The port attributes the decline to high inventory levels and a slow start to the peak season.

Container volumes at the Port of Long Beach fell 7.7 percent in July compared to the same month in 2015 when harbor terminals handled a record amount of cargo.

 

Dockworkers moved 637,091 TEUs last month. Inbound containers totaled 325,608 TEUs, a 5.9 percent year-over-year decrease. Outbound containers reached 142,812 TEUs, a slight drop of 0.7 percent from July 2015. Empties decreased to 168,671 TEUs, 15.9 percent lower than July 2015, the port’s strongest July on record.

 

“Due to continued market uncertainty and high inventory levels, the traditional holiday peak season is off to a slow start and several national forecasts have been revised downward to reflect this softness in cargo movement,” the port said.

Uncertainty Yet Again

There’s that darn uncertainty cropping up again. Mercy.

If it’s any consolation, Economists Expect “Mount Everest” of Uncertainty to Clear Up by December.

However, the peak shipping season will long be over by December.

Concerned parties may also wish to read Comment of the Day Regarding Uncertainty.

Port Blames Inventories

Curiously, the port blamed inventories. The port authorities better get a hold of the Bloomberg Econoday writer pronto. On August 12, Econoday stated that inventories were in “favorable position“, specifically noting the “lean 1.39” inventory-to-sales ratio.

Total Business: Inventory to Sales Ratio

For further discussion, please see Investigating the “Favorably Lean” Position of Inventories.

Shocking Collapse in Services Final Demand

The disappointing news from the Port of Long Beach comes fresh on the heels of a Huge 6% Collapse in PPI Services Final Demand for Apparel, Jewelry, Footwear that had economists shocked.

Cass Freight Index

Truck shipments continue to dive. Shipments in June of 2016 are down vs. June of 2015, 2014, 2013, 2012, 2011, and almost but not quite 2010. Shipments in July are down vs. 2015, 2014, 2012, and 2011.

Here’s a chart I created from Cass Freight Index data.

Intermodal Shipping Also Down

Earlier today I noted Intermodal Shipping Traffic Suffers First Dip in 25 Quarters.

Overall intermodal traffic in North America fell 6.1 percent in second quarter 2016, the biggest volume decline in 25 consecutive quarters, according to data from the Intermodal Association of North America.

Harper Petersen Shipping Rates Down

Above chart from Harper Petersen.

Shipping Roundup

Retail Sales Flat

Economists missed the mark on retail sales this month by a mile. The Bloomberg Econoday consensus estimate was +0.4% in a range of +0.2% to +0.7%.

Instead of the expected gain, Retail Sales “Solidly” Flat.

Other than the above items, overall manufacturing weakness, and a massive downward revision to real wages from +4.2% to -0.4% (see Pocketbook Theory – Mish vs. Wall Street Journal), 2016 peak season shipping prospects look phenomenal.

Addendum:

The above chart originally stated Cass Index down 5.3% From June the Cass index is actually down 4.3%. About a minute after I made this post, July numbers came out from Cass. From July 2015, traffic is down 2.6% and expenditures down 5.1%.

 

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Well that is all for today

I will see you tomorrow night

Harvey