http://www.harveyorganblog.com or www .harveyorgan.wordpress.com
I will continue to send the comex data down to my good friends at the Doctorsilvers website on a continual basis.
They provide the comex data. I also provide other pertinent data that may interest you. So if you wish you can view that part on my website.
Gold: $1207.20 down $14.80
Silver: $16.53 down $0.49
In the access market 5:15 pm
The gold comex today had a poor delivery day, registering 35 notices served for 3,500 oz. Silver comex registered 178 notices for 890,000 oz.
A few months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 245.83 tonnes for a loss of 57 tonnes over that period.
In silver, the open interest rose by a considerable 1847 contracts with Friday’s fall in price of $0.04. Looks like some of the shorts are vacating the arena as they are scared at what they are witnessing. For the past year, we have been witnessing massive liquidation of contracts despite the fact that it cost nothing to roll. This makes no sense and it smacks of cash settlements which are totally illegal. Since I have been following comex data, I have never witnessed such a massive liquidation in both gold and silver. The total silver OI still remains relatively high with today’s reading at 149,333 contracts. The big December silver OI contract fell by 14 contracts down to 383 contracts.
In gold we had a rise in OI with the fall in price of gold Friday to the tune of $3.10. The total comex gold OI rests tonight at 373,072 for a gain of 4,551 contracts. The December gold OI rests tonight at 881 contracts losing 163 contracts.
TRADING OF GOLD AND SILVER TODAY
it is not worth discussing as the bankers are manipulating all metals 24/7. It is a waste of time/
Today, we lost 2.39 tonnes of inventory with respect to gold inventory at the GLD /Inventory 723.36 tonnes
In silver, we lost 1.341 million oz in silver inventory
SLV’s inventory rests tonight at 341.009 million oz
We have a few important stories to bring to your attention today…
Let’s head immediately to see the major data points for today.
First: GOFO rates:
most rates moved closer to the negative and one rate slightly higher. All GOFO rates are out of backwardation!!
Now, most the months of GOFO rates( one, two, six and 12 month GOFO moved slightly to the negative . They must have found a few bars to lease but the quantity must be at extreme low levels . On the 22nd of September the LBMA stated that they will not publish GOFO rates. However today we still received today’s GOFO rates. These rates are still fully manipulated. London good delivery bars are still quite scarce.
Dec 15 2014
1 Month Rate: 2 Month Rate 3 Month Rate 6 month rate 1 yr rate
+.125.% + .1400 -% -+14750 -% +. 15500 .% +. 1925%
Dec 12 2014:
+.132% +.142500% +.1450 % +.160% +.2000%
Let us now head over to the comex and assess trading over there today,
Here are today’s comex results:
Let us now head over to the comex and assess trading over there today,
Here are today’s comex results:
The total gold comex open interest rose today by 4,551 contracts from 368,521 all the way up to 373,073 with gold down by $3.10 on Friday (at the comex close). We are now into the big December contract month where the number of OI standing for the gold metal registers 881 contracts for a loss of 163 contracts. We had 1 delivery notice served on Friday so we lost 162 contracts or 16,200 oz of gold that will not stand for the December contract month. The non active January contract month rose by 52 contracts up to 473. The next big delivery month is February and here the OI rose to 231,692 contracts for a gain of 1,990 contracts. The estimated volume today was poor at 70,738. The confirmed volume on Friday was also poor at 131,715 even with the help of high frequency traders. The comex now has no credibility and many investors have vanished from this crooked casino. Today we had 35 notices filed for 3500 oz .
December initial standings
|Withdrawals from Dealers Inventory in oz||nil oz|
|Withdrawals from Customer Inventory in oz||64.30 oz (Brinks) 2 kilobars|
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||16,075.000 oz JPM (500 kilobars)|
|No of oz served (contracts) today||35 contracts(3500 oz)|
|No of oz to be served (notices)||846 contracts (84,600 oz)|
|Total monthly oz gold served (contracts) so far this month||2641 contracts(264,100 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||153,424.154 oz|
Total accumulative withdrawal of gold from the Customer inventory this month
Today, we had 0 dealer transactions
total dealer withdrawal: nil oz
we had 0 dealer deposit:
total dealer deposit: nil oz
we had 1 customer withdrawals
i) out of Brinks: 64.30 oz
total customer withdrawal: 64.30 oz
we had 1 customer deposit:
i) Into JPMorgan: 16,075.000 oz (500 kilobars) ?? this is becoming one big farce.
We had 0 adjustments
Today, 0 notice was issued from JPMorgan dealer account and 31 notices were issued from their client or customer account. The total of all issuance by all participants equates to 35 contracts of which 31 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the total number of gold ounces standing for the December contract month, we take the total number of notices filed for the month (2641) x 100 oz to which we add the difference between the OI for the front month of December (846) minus the # gold notices filed today (35) x 100 oz = 348,700 the amount of gold oz standing for the December contract month.
Thus the initial standings:
2641 (notices filed for the month x 100 oz) + (846) the number of OI notices for the front month of December served upon – (35) notices served today equals 348,700 oz or 10.846 tonnes
we lost 162 contracts or 16,200 oz that will not stand.
Total dealer inventory: 737,166.946 oz or 22.93 tonnes
Total gold inventory (dealer and customer) = 7.921 million oz. (246.396) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 57 tonnes have been net transferred out. We will be watching this closely!
This initiates the month of December for gold.
And now for silver
December silver: initial standings
|Withdrawals from Dealers Inventory||nil oz|
|Withdrawals from Customer Inventory||850,525.417 oz (Scotia,Brinks, CNT,Delaware )|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served (contracts)||178 contracts (890,000 oz)|
|No of oz to be served (notices)||205 contracts (1,025,000 oz)|
|Total monthly oz silver served (contracts)||2856 contracts (14,280,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||1,594,966.8 oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||6,466,322.7 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit: nil oz
we had 0 dealer withdrawal:
total dealer withdrawal: nil oz
We had 4 customer withdrawals:
i) Out of Scotia: 600,134.04 oz only 2 decimals)
ii) Out of Brinks: 20,536.000 oz (0 decimals)
iii) Out of Delaware 60,754.457
iv) Out of CNT: 169,100.91 oz (2 decimals)
total customer withdrawal 60,317.565 oz
We had 0 customer deposits:
total customer deposits: nil oz
we had 0 adjustments
Total dealer inventory: 64.594 million oz
Total of all silver inventory (dealer and customer) 175.597 million oz.
The total number of notices filed today is represented by 178 contracts for 890,000 oz. To calculate the number of silver ounces that will stand for delivery in December, we take the total number of notices filed for the month (2856) x 5,000 oz to which we add the difference between the total OI for the front month of December (383) minus (the number of notices filed today (178) x 5,000 oz = the total number of silver oz standing so far in November.
Thus: 2856 contracts x 5000 oz + (383) OI for the November contract month – 178 (the number of notices filed today) =15,305,000 oz of silver that will stand for delivery in December.
we lost 70,000 oz that will not stand for the December silver contract.
for those wishing to see the rest of data today see:
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:
i) demand from paper gold shareholders
ii) demand from the bankers who then redeem for gold to send this gold onto China
vs no sellers of GLD paper.
And now the Gold inventory at the GLD:
Dec 15.2014: we lost 2.39 tonnes of gold inventory at the GLD/Inventory at 723.36 tonnes
dec 12.2014: we had no change in gold inventory/GLD inventory 725.75 tonnes
Dec 11.2014: we had another addition of .95 tonnes of gold inventory at the GLD/Inventory 725.75 tonnes
dec 10.2014: we gained another 2.99 tonnes of gold at the GLD. If China cannot get its gold from London, then its only source will be the FRBNY.
Inventory: 724.80 tonnes
Dec 9.2014: we gained 2.69 tonnes of gold/inventory 721.81 tonnes
Dec 8.2014: we lost .900 tonnes of gold/inventory 719.12 tonnes
Dec 5.2014: no change in tonnage/720.02 tonnes
Dec 4 no change in tonnage/720.02 tonnes
Dec 3 no change in tonnage/720.02 tonnes/
December 2/2014; wow!! we had a huge addition of 2.39 tonnes of gold /Inventory 720.02 tonnes
December 1.2014: no change in gold inventory at GLD
Nov 28.2014: a loss in inventory of 1.19 tonnes/tonnage 717.63 tonnes
Nov 26.2014: we lost 2.09 tonnes of gold heading to India and or China/inventory at 718.82 tonnes
Today, December 15 / we lost 2.39 tonnes in inventory / 723.36 tonnes
inventory: 723.36 tonnes.
The registered vaults at the GLD will eventually become a crime scene as real physical gold departs for eastern shores leaving behind paper obligations to the remaining shareholders. There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat (same banks).
GLD : 723.36 tonnes.
And now for silver:
Dec 15.2014: we lost 1.341 million oz of silver at the SLV/Inventory 341.009 million oz
Dec 12.2014 no change in silver inventory at the SLV/Inventory at 342.35 million oz
Dec 11.2014: we lost 2.873 million oz of silver inventory at the SLV/Inventory 342.35 million oz
December 10.2014; no change in inventory/345.223 million oz
Dec 9.2014: no change in inventory/345.223 million oz
Dec 8.2014: no change in inventory/345.223 million oz
Dec 5/2014: no change in inventory/345.223 million oz
Dec 4/we lost another 2.204 million oz of silver/inventory 345.223 million oz
dec 3. we lost 2.73 million oz of silver/inventory 347.427 million oz and back where we were on Dec 1.2014.
dec 2 wow@!!@ a huge addition of 2.20 million oz of silver/inventory 350.158 million oz.
December 1: no change in inventory/347.954 million oz
Nov 28.2014: no change in inventory/347.954 million oz
Nov 26.2014; no change in inventory/347.954 million oz
December 15/2014/ we lost 1.341 million oz in silver inventory at the SLV/inventory registers: 341.009 million oz
And now for our premiums to NAV for the funds I follow:
Note: Sprott silver fund now deeply into the positive to NAV
Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 11.9% percent to NAV in usa funds and Negative 11.9 % to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 60.9%
Percentage of fund in silver:38.6.%
( December 15/2014)
2. Sprott silver fund (PSLV): Premium to NAV rises to positive 0.47% NAV (Dec 12/2014)
3. Sprott gold fund (PHYS): premium to NAV falls to negative -0.58% to NAV(Dec 11/2014)
Note: Sprott silver trust back hugely into positive territory at 0.47%.
Sprott physical gold trust is back in negative territory at -0.58%
Central fund of Canada’s is still in jail.
And now for your most important physical stories on gold and silver today:
Early gold trading from Europe early Monday morning:
Silver Eagle Coin Sales Very Robust – Record High For Second Consecutive Year
Silver bullion demand remains very robust as silver stackers continue to stack. 2014 has been another record-breaking year at the U.S. Mint which has sold 43.3 million silver eagle coins – up from 42.7 million coins last year.
Record demand in 2014 was seen despite the U.S. Mint running out of Silver Eagles early last month due to very high demand throughout October. As a consequence of this lack of supply, November sales of the coins were down 40.8% according to Reuters.
Silver prices fell 36% last year and, despite obvious shortages in the supply of physical silver, they have declined a further 12.5% this year. This demonstrates the degree to which naked shorting of the market – the selling of paper contracts for gold which the seller is not actually in possession of – is determining price of the physical metal.
Why is it that demand is so high for an investment whose price is falling? For one, silver is a poor man’s gold. Working people with little disposable cash who are nervous about the condition of the global economy can hedge against instability, systemic risk and currency debasement by acquiring a small allocation of silver.
One ounce of silver is currently valued at $16.87. Whereas smaller gold bullion coins such as sovereigns are currently valued at around $283. This makes silver a more attractive and realistic option for a section of people in the western world who have seen their standards of living decimated in recent years.
Clearly, record demand for silver eagles shows a high level of anxiety and indeed fear regarding their financial well-being and that of their families.
Guide to Silver Eagles here
Today’s AM fix was USD 1,210.75, EUR 974.53 and GBP 772.41 per ounce.
Friday’s AM fix was USD 1,223.50, EUR 984.31 and GBP 779.15 per ounce.
Spot gold fell $3.00 or 0.25% to $1,222.10 per ounce Friday and silver slipped $0.04 or 0.24% to $17.01 per ounce. Gold climbed and silver soared last week – up 2.6% and 4.4% respectively.
Gold fell 0.8% today on further speculation the U.S. Federal Reserve is moving closer to raising U.S. interest rates despite a mixed economic outlook. The Fed’s meeting starts tomorrow and is from December 16-17th.
Silver for immediate delivery declined 1% to $16.8605 an ounce in London, after rising in the past two weeks. Platinum slipped 0.8% to $1,220.44 an ounce. Palladium retreated 0.4% to $812.25 an ounce.
Gold futures and options for net long positions rose for a fourth week in the period to December 9, the longest stretch of increases since July, data showed.
Gold’s 2.5% gains last week were the most in two months and came as the dollar declined and global stocks tumbled amid a drop in energy prices.
Holdings in gold-backed exchange-traded products fell 1.5 metric tons to 1,611.3 tons as of Dec. 12, data from Bloomberg shows. They reached the lowest since 2009 on December 8th.
Asian shares were lower except for shares in China which bucked the trend. The Stoxx Europe 600 Index gained 0.5% this morning, for its first gain in six days. It slumped 5.8% last week on concerns about economic growth.
Greece’s ASE Index (ASE) climbed 2% and a rally in energy shares sent European stocks higher after their biggest weekly slump in three years. Standard & Poor’s 500 Index index futures climbed 0.8% before data that may highlight U.S. industrial production rose in November. The benchmark S&P lost 3.5% last week for biggest slump since May 2012.
Get Breaking News and Updates On Gold Here
Early Monday morning trading from Europe/Asia
1. Stocks down on major Asian bourses even with a lower yen value falling to 118.91
2 Nikkei down 272 points or 1.56% (Abe wins Sunday’s election)
3. Europe stocks all up /Euro down/ USA dollar index up to 88.52/
3b Japan 10 year yield at .38% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 118.91
3c Nikkei now below 18,000
3fOil: WTI 58.15 Brent: 62.69 /all eyes are focusing on oil prices. A drop to the mid 60′s would cause major defaults.
3g/ Gold down/yen down;
3h/ Japan is to buy the equivalent of 108 billion usa dollars worth of bonds per MONTH or $1.3 trillion
Japan’s GDP equals 5 trillion usa/thus bond purchases of 26% of GDP
3i Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt (see Von Greyerz)
3j Oil rebounded this morning both WTI and Brent/Oil demand forecasts another drop/UAE minister will not drop production until Brent hits $40.
3k Greek Syriza party’s lead shrinks a bit
3l Senate passes the omnibus bill
3m Gold at $1212 dollars/ Silver: $16.88
3n USA vs Russian rouble: 60.43!!!!!! (much weaker against the dollar)/Russia raises rates for the fifth time and central bank rate yields 10.5%
3o Hostage taking in Sydney/offshoot of ISIS)
4. USA 10 yr treasury bond at 2.13% early this morning. Thirty year rate well below 3% AND COLLAPSING (2.77%)
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid
(courtesy zero hedge)/your early morning trading from Asia and Europe)
Futures Rebound, Crude “Flash Smashes” Higher As Dollar Strengthens
After the worst week for stocks in years, and following a significantly oversold condition, it will hardly come as a surprise that the mean reversion algos (if only to the upside), as well as the markets themselves (derivative trading on the NYSE Euronext decided to break early this morning just to give some more comfort that excessive selling would not be tolerated) are doing all they can to ramp equities around the globe, and futures in the US as high as possible on as little as possible volume. And sure enough, having traded with a modestly bullish bias overnight and rising back over 2000, the E-Mini has seen the now traditional low volume spike in the last few minutes, pushing it up over 15 points with the expectation being that the generic algo ramp in USDJPY ahead of the US open should allow futures to begin today’s regular session solidly in the green, even if it is unclear if the modest rebound in the dollar and crude will sustain, or – like on every day in the past week – roll over quickly after the open. Also, we hope someone at Liberty 33 tells the 10Y that futures are soaring: at 2.13% the 10Y is pricing in nothing but bad economic news as far as the eye can see.
Speaking on oil, Brent gained more than $1, after earlier dropping to lowest since July 13, 2009. There was some bullish sentiment when Libya declared force majeure at oil ports, although that will hardly last once algos process that the combined capacity that is offline is a paltry 580k b/d capacity. WTI trades ~$58.50, climbs more $2 also off 5-yr low, on the same “catalyst.” Expect both fading as the realization that OPEC isn’t kidding about $40 barrel oil filters through.
Finally, as we showed last night, this is what, via Nanex, a direct intervention to push crude higher – because central banks finally realized that plunging oil may be “unambiguously good” for the economy but is increasingly bad for markets – looks like: presenting the well-known “flash smash”, coming to every central-bank traded asset class near you.
Otherwise, as Ransquawk summarizes, in a relatively subdued morning, European equities start the week in positive territory after being buoyed by the energy sector following the slight bounce back in energy prices after falling below July 2009 levels at USD 58.32. This move comes despite earlier comments from UAE Energy Minister stating that ‘OPEC will stand by its decision not to cut crude oil even if oil prices fall as low as USD 40/bbl and will wait three months before an emergency meeting.’ In fixed income, the lack of pertinent macro news has failed to give Bunds much in the way of sustained direction, although they trade in negative territory with volumes exceedingly thin. Elsewhere, the Greek spread has seen a modest bout of tightening in a minor pullback of last week’s substantial widening following news that, according to weekend polls, the lead of the Greece opposition Syriza party over the ruling coalition has shrunk to 2.8-3.6% from about 4% a month ago.
US Senate passed the USD 1.1trl spending bill on Saturday night, sending it to President Obama for his signature. (BBG) Russia will take counter measures if the US imposes new sanctions over the Ukraine crisis, according to Russian Deputy Foreign Minister Ryabkov. (Interfax)
Asian equities started the week on the back-foot following Friday’s sharp sell-off on Wall Street, which saw the S&P 500 and DJIA post its biggest weekly losses since May 2012 and Sep 2011 respectively. Nikkei 225 (-1.57%) was weighed on by JPY strength benefiting from flight to safety, with the index earlier touching its lowest level since Nov. 17. Shanghai Comp (+0.52%) remains firmly in the red, while Hang Seng (-0.95%) is on course for a 2-month low, weighed on by weakness in energy stocks.
In FX markets, USD/JPY swung over 100 pips, initially opening above 119.00, following reports of a landslide victory for Japan PM Abe in the by-elections, before tumbling to 117.78 led by carry-trade unwinds and semi-official price keeping operations. Elsewhere, AUD saw a minor spell of weakness following reports of an ongoing hostage situation in a café 10 meters away from the RBA. This situation is still ongoing and we will continue to update listeners on the situation.
In precious metals, gold trades at its lowest levels since Tuesday 8th December 2014 as prices pulled back from last week’s gains which saw the precious metal record it best week in 2 months, as focus now shifts to this week’s FOMC meeting. Overnight, copper prices held on to its gains despite ongoing concerns of a slowing economy in China, amid reports mining giants BHP Billiton and Rio Tinto are said to be amassing vast copper holdings in a push to dominate the copper market, while Dalian iron ore futures also traded marginally higher for its 4th consecutive gain. For details of the moves seen in oil markets, please visit the ‘equities/fixed income section’.
Bulletin headline summary
- European equities trade in positive territory following a modest pullback in energy prices in what has otherwise been a quiet session.
- Japanese PM wins the national elections in a landslide victory, securing 2/3 of the seats in the Lower House.
- Treasuries decline amid gains in European stocks, crude oil; market focus on Fed meeting, with rate decision and Yellen presser due Wednesday.
- FOMC seen as likely to drop “considerable time” from statement, based on published research
- OPEC will stand by its decision not to cut output even if oil prices fall as low as $40/bbl, will wait at least three months before considering an emergency meeting, the United Arab Emirates’ energy minister said
- Japan’s Abe claimed a mandate for his economic program after his gamble on early elections paid off with a sweeping victory that forced the leader of the opposition to resign
- ECB will begin sovereign QE next year, according to more than 90% of respondents in Bloomberg’s monthly survey, up from 57% last month; 55% expect announcement will come in 1Q
- The “prospect of missing our target on price stability in the longer term” in connection with low growth would be a condition that could trigger QE, ECB Governing Council member Ewald Nowotny told reporters in Vienna
- France’s credit rating was cut to AA by Fitch Ratings, which said the downgrade reflected the absence of a material improvement in the nation’s public debt dynamics and slippage in the budget deficit targets
- Hours after five hostages fled a cafe in Sydney, police won’t say how many are left in the building or disclose the motives of the gunman, who has forced his captives to display a black flag with Arabic lettering sometimes used by Islamic militants
- If Greece’s parliament elects a president this month, the Troika can return to Athens Jan. 10, Finance Minister Gikas Hardouvelis says in interview in Naftemporiki newspaper
- Sovereign yields mixed. Nikkei falls 1.6% as Asian stocks ex-China decline. European stocks, U.S. equity-index futures gain. Brent crude +1.1%, copper gains, gold falls
- Looking ahead, US Empire Manufacturing (1330GMT/0730CST) and Industrial Production (1415GMT/0815CST).
US Event Calendar
- 8:30am: Empire Manufacturing, Dec., est. 12 (prior 10.16)
- 9:15am: Industrial Production m/m, Nov., est. 0.7% (prior -0.1%)
- Capacity Utilization, Nov., est. 79.3% (prior 78.9%)
- Manufacturing (SIC) Production, Nov., est. 0.6% (prior 0.2%)
- 10:00am: NAHB Housing Market Index, Dec., est. 59 (prior 58)
- 4:00pm: Net Long-term TIC Flows, Oct. (prior $164.3b); Total Net TIC Flows, Oct. (prior -$55.6b)
DB’s Jim Reid completes the weekend event summary
We open this morning with news from Japan that Prime Minister Abe has, as largely expected, retained control following the parliamentary election results. The liberal democratic party won 291 out of the 475 available seats in the lower house of parliament which matched similar levels two years ago and suggests Abe should come through the September 2015 elections fairly comfortably. The Komeito party won a further 35 seats meaning the coalition party has the two-thirds majority necessary to pass legislation without recourse to the upper house. Early reports of the turnout numbers however, appear to be disappointing with the FT reporting early indications of 52.3% which would be well below the previous low of 59.3% in 2012. Looking at market reaction, both the Topix (-1.30%) and Nikkei (-1.44%) are softer this morning whilst the JPY is around 0.1% weaker against the Dollar at 118.60. The BoJ’s Tankan survey was relatively uneventful, although suggested deterioration in the outlook for the manufacturing industry. Elsewhere all major bourses are weaker in Asia this morning with the Hang Seng (-1.10%), CSI 300 (-0.09%) and Kospi (-0.29%) all lower– reflecting the weaker sentiment in the US on Friday. Oil has bounced reasonably sharply off Friday’s lows this morning (more below) although the siege in Sydney CBD is also being featured as one of the top stories overnight. The ASX is also 0.60% lower this morning although the Aussie Dollar is off the earlier lows currently at around 82.4 versus the Dollar as we type.
Staying on markets, oil again dominated headlines on Friday after further falls in both WTI (-2.14%) and Brent (-1.79%) to $56.51/bbl and $60.74/bbl respectively. Sentiment wasn’t helped following the updated IEA forecasts for demand with the agency currently expecting global demand to grow by around 900k barrels a day next year, down from the initial 1.3m barrels previously. Risk assets took a sharp leg lower in US with the S&P 500 ending -1.62% with Energy again a notable sector laggard (-2.14%). Credit spreads were wider as well with the HY Energy sector again in focus. US HY energy names continued to slide as cash spreads widened around 39bps on Friday and 130bps over the week to mark around 260bps of widening since the OPEC meeting. US HY energy spreads have now nearly doubled to current levels of 819bps since early September when Brent was trading north of $100/bbl. The CDX IG closed 3bps wider whilst IG energy names were around 11bp wider on Friday. The pressure is clearly mounting on corporates as we’ve mentioned with cutbacks in forecasted capex in recent weeks and this has been further evident over the weekend when US oil services company Baker Hughes confirmed that idled US oil rigs increased by 29 last week – making it the largest one week increase in idled rigs since December 2012. Few Canadian energy companies also announced capex cut backs late last week.
Treasuries were the ultimate beneficiary amid a risk-off tone in broader markets. The 10y yield fell 8bps lower to 2.082%, a level that was last seen in June 2012. Data took a back seat on Friday in terms of driving the macro moves although the first reading of the December University of Michigan Confidence print was encouraging with the 93.8 level well ahead of market consensus (89.5) – the highest level since January 2007. Lower energy prices weighed on the PPI reading, with the headline print declining 0.2% mom for November although the core print was largely stable with the annualized rate unchanged at +1.8% yoy.
The bounce in Oil is one of the more notable moves overnight. The commodity appears to have rebounded around 0.7-1.0% off Friday’s close this morning to retrace some of Friday’s losses. Brent and WTI are currently $62.53/bbl and $58.23/bbl as we head to print. The market appears to have shrugged off a bearish report over the weekend from the UAE energy minister who was quoted on Bloomberg saying that OPEC will continue to keep output at current levels, even if prices fell as low as $40 a barrel. The minister also suggested that the cartel would wait for at least three months to consider another emergency meeting. Equity markets in the Middle East were lower over the weekend as the Qatar Stock Index declined nearly 6% to close nearly 23% off YTD highs. Likewise Saudi Arabia and Kuwait bourses have tumbled around 27% and 20% off their YTD highs. The correction has also been fairly material for the oil-sensitive Dubai (DFM) which is now down around 1.5% for the year after having trading some 59% higher at one point before summer.
Back to our outlook, one of our concerns in the first few months of the year is that there are indications that the Fed want to be more hawkish regardless of any market volatility that we’re seeing at the moment and any such actions might cause. When push comes to shove we don’t think they’ll find it very easy to raise rates in 2015 but they certainly might give markets a few frights first in signaling it. We’ll know more about this on Wednesday as the all important FOMC meeting draws to a conclusion. Will Mrs Yellen drop “considerable time”? Will they base their thoughts on the +321k payroll print 10 days ago or the fact that the S&P 500 had its worst week in more than two years last week with the Oil sector causing problems in equities and worse problems in credit markets? Also 5yr5yr forward breakeven inflation has fallen 20bps since October and grabbed a lot of attention last week. So a lot to throw in the mix. If the Fed are hawkish this week then we know they are serious about normalising rates, even in the face of challenging market conditions and worries about low inflation. If dovish then we know they are only going to raise rates early if all the stars are aligned. So an important meeting for understanding how they’ll behave next year.
On the other side of the Atlantic, Friday was another testing day for Greece. Indeed Greek assets continue to slide with the pressure focused at the front end of the yield curve as 3y yields closed 40bps wider to just over 11%. Greek equities also weakened, the ASE closing 0.42% lower. This all comes before the Greek presidential election this Wednesday with the somewhat expected second and third rounds due the following week so we could see some more volatility in the next couple of days leading up the event. Just on this, the latest opinion polls on the weekend showed something of a modest narrowing in support for the main opposition SYRIZA party with the Kapa poll showing a 0.3% decrease in SYRIZA support to 25.5% and Alco poll showing support dropped to 27.6% from 28% previously (Bloomberg news). Otherwise stocks in Europe took a leg lower on Friday as the Stoxx 600 closed -2.58% with similar weakness in energy names whilst Xover weakened some 20bps wider. Bunds extended their recent rally with the 10yr tightening by around 5bps to close at another new low of 0.624%.
Before we take a look at this week’s calendar, Nobel laureate Paul Krugman told the media over the weekend that he thinks a 2015 Fed hike is increasingly unlikely given weak global growth and the absence of inflation.
Looking at the week ahead and away from the FOMC meeting we are off to a quiet start in Europe this morning with no significant releases although we do have the NY Fed Empire survey (Dec), industrial production (Nov) and the latest NAHB housing market index to look forward to. In terms of tomorrow we have the latest flash HSBC manufacturing PMI from China which will likely be a source of headlines when we print the EMR tomorrow morning. Tuesday also sees flash services and manufacturing PMI’s for the Euro-area, France and Germany, the German ZEW survey, UK inflation stats, and housing starts/building permits from the US. On Wednesday we have the latest BoE minutes from the UK, final HICP prints for the euro area and CPI updates from the US although Greece will be one of the key macro focus for markets. The first of three possible parliamentary votes to elect Greece’s new President will take place this Wednesday 7pm local time (Kathimerini). On Thursday China will release the latest property price performance for November whilst German IFO, the US weekly jobless claims, and the Philly Fed survey are the other notable releases. Friday morning’s BoJ statement will be of some interest on top of the sentiment/confidence readings in Germany and France.
(from the UKTelegraph/Crichton/Sunday)
Opec willing to push oil price to $40 says Gulf oil minister – TelegraphBy Andrew Critchlow, Commodities editor
11:45AM GMT 14 Dec 2014
Opec’s most influential producers are willing to allow oil prices to fall to $40 per barrel before discussing whether the cartel should hold an emergency meeting to discuss cutting output.
According to Suhail al-Mazrouei, energy minister of the United Arab Emirates and a high profile delegate of the cartel: “We are not going to change our minds because the prices went to $60, or to $40.”
The official’s comments made to Bloomberg News at a conference in Dubai could add to further downward pressure on prices, which have already fallen more than 45pc since June. Brent crude – a global benchmark comprised of high-quality oil from 15 North Sea fields – closed last week at a new five-and-a-half-year low under $62 per barrel.
A slump in prices to levels around $40 per barrel would be a boost for parts of the UK economy and could see petrol prices drop close to £1 per litre providing relief to motorists. However, the slump will also threaten thousands of jobs in Britain’s petroleum industry and according to Wood Mackenzie place around £55bn worth of oil projects in the North Sea and Europe at risk of cancellation.
The Organisation of Petroleum Exporting Countries (Opec) – which is comprised of 12 members mainly drawn from the Middle East – agreed at its last meeting in late November to keep its production quota unchanged at 30m barrels per day (bpd), a move that has led to a rout on global oil markets. Many analysts believe that Opec has effectively launched a price war aimed at producers outside the cartel such as the US and Russia.
Former Opec president and adviser to the Emir of Qatar, Abdullah bin Hamad al-Attiyah told the Telegraph last week that the group was now “powerless” to halt the current fall in oil prices without the cooperation of other world producers such as Russia, Norway and Mexico.
The decline in prices also coincides with cooling demand for crude and a global oversupply, which Mr al-Attiyah estimates to be in the region of 2m bpd.
Last week, the world’s three leading energy bodies, including Opec cut the forecasts for demand growth into 2015.
According to the Paris-based International Energy Agency (IEA), growth in world demand for oil will next year again fall below the critical figure of 1m barrels per day (bpd), reaching 93.3m bpd in total. The agency has also warned of a 300m barrel increase that has built up in the storage tanks across Europe and North America.
American estimates for demand are even more depressed, with the Energy Information Administration (EIA) — part of the US Department of Energy — last week reducing its forecast demand growth to just 880,000 bpd, or 92.8m bpd in total. Finally, Opec itself shaved off 70,000 bpd to 92.26m bpd, of which it will account for a smaller share.
The following story sent crude down on Sunday along with the many middle eastern
bourses denominated in oil:
(courtesy zero hedge)
Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next
In space, no one can hear you scream… unless you happen to be Venezuela’s (soon to be former) leader Nicolas Maduro, who has been doing a lot of screaming this morning following news that UAE’s Energy Minister Suhail Al-Mazrouei said OPEC will stand by its decision not to cut crude output “even if oil prices fall as low as $40 a barrel” and will wait at least three months before considering an emergency meeting.
In doing so, OPEC not only confirms that the once mighty cartel is essentially non-existant and has been replaced by the veto vote of the lowest-cost exporters (again, sorry Maduro), but that all those energy hedge funds (and not only) who hoped that by allowing margin calls to go straight to voicemail on Friday afternoon, their troubles would go away because of some magical intervention by OPEC over the weekend, are about to have a very unpleasant Monday, now that the next oil price bogey has been set: $40 per barrell.
Luckily, this will be so “unambiguously good” for the US consumer, it should surely offset the epic capex destruction that is about to be unleashed on America’s shale patch, in junk bond hedge funds around the globe, and as millions of high-paying jobs created as a result of the shale miracle are pink slipped.
According to Bloomberg, OPEC won’t immediately change its Nov. 27 decision to keep the group’s collective output target unchanged at 30 million barrels a day, Suhail Al-Mazrouei said. Venezuela supports an OPEC meeting given the price slide, though the country hasn’t officially requested one, an official at Venezuela’s foreign ministry said Dec. 12. The group is due to meet again on June 5.
“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current conditions don’t justify an extraordinary OPEC meeting. “We need to wait for at least a quarter” to consider an urgent session, he said.
And with OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, according to data compiled by Bloomberg. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, feeding speculation that they’re fighting for market share amid a glut fed by surging U.S. shale production.
The above only focuses on the (unchanged) supply side of the equation – and since the entire world is rolling over into yet another round of global recession, following not only a Chinese slowdown to a record low growth rate, but also a recession in both Japan and Europe, the just as important issue is where demand will be in the coming year. The answer: much lower.
OPEC’s unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.
And while the bankruptcy advisors and “fondos buitre” as they are known in Buenos Aires, are circling Venezuela whose default is essentially just a matter of day, OPEC is – just in case its plan to crush higher cost production fails – doing a little of the “good cop” routing as a Plan B.
According to Reuters, OPEC secretary general tried to moderate the infighting within the oil exporters, saying “OPEC can ride out a slump in oil prices and keep output unchanged, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.”
Ah yes, it had been a while since we heard the good old “evil speculators” excuse. Usually it appeared when crude prices soared. Now, it has re-emerged to explain the historic plunge of crude.
Speaking at a conference in Dubai, Abdullah al-Badri defended November’s decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.
“We agreed that it is important to continue with production (at current levels) for the … coming period. This decision was made by consensus by all ministers,” he said. “The decision has been made. Things will be left as is.”
Some say selling may continue as few participants are yet willing to call a bottom for markets.
There is some hope for the falling knife catchers: “Badri suggested the crude price fall had been overdone. “The fundamentals should not lead to this dramatic reduction (in price),” he said in Arabic through an English interpreter. He said only a small increase in supply had lead to a sharp drop in prices, adding: “I believe that speculation has entered strongly in deciding these prices.””
Unfortunately for the crude longs, Badri is lying, as can be gleaned from the following statement:
Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November’s decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.
“Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect,” he said.
Well actually… “Saudi Arabia’s oil minister Ali al-Naimi had told last month’s OPEC meeting the organization must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister.”
And as Europe has shown repeatedly, not only is it serious when you have to lie, but it is even worse when you can’t remember what lies you have said in the past. That alone assures that the chaos within OPEC – if only for purely optical reasons – will only get worse and likely lead to least a few sovereign defaults as the petroleum exporting organization mutates to meet the far lower demand levels of the new normal.
In the meantime, the only question is how much longer can stocks ignore the bloodbath in energy (where there has been much interstellar screaming too) because as we showed on Friday, despite the worst week for stocks in 3 years, equities have a long way to go if and when they finally catch up, or rather down, with the crude reality…
The Carnage Continues – Middle East Stock Markets Are Bloodbath-ing
Following Friday’s US weakness and UAE’s hint that $40 oil is coming next, the crude carnage continues as Middle East markets are crashing. As WSJ reports, the bearish direction of oil prices again spooked investors in Dubai where the DFM General Index finished down 7.6%, extending Thursday’s 7.4% rout. The bloodbath extended across the entire region with Abu Dhabi down 3.6%, Qatar slid 5.9%, Kuwait fell 2.9%, and Saudi Arabia’s market, the largest bourse in the region, retreated 3.3%.
As one analyst warned:
“the severity of this decline could very well be explained by investors covering margin calls as leverage was used on the way up over the past year.”
And shows no signs of stopping…
This is a powder keg ready to explode!!
The following are 3 examples of bonds issued with a kicker on oil.
However with oil plummeting to $56.00, these notes are now severely underwater. The big question of course, is who is on the other side of these derivative plays;
(courtesy zero hedge)
The Oil-Price-Shock Contagion-Transmission Pathway
As we noted previously, counterparty risk concerns (and thus financial system fragility) are starting to rear their ugly heads. In the mid 2000s, it was massive one-way levered bets on “house prices will never go down again.” When the cracks started to appear, the mark-to-market losses in derivatives led to forced liquidations and snowballed systemically. In the mid 2010s, it is massively levered one-way asymmetric bets on “commodity prices [oil] will never go down again.” Meet WTI-structured-notes… the transmission mechanism for oil-price-shocks blowing up the financial system.
Because nothing says exuberant ignorance like limited upside, unlimited downside OTC (illiquid) derivatives…
And finally Barclays, Leveraged Contingent Buffer Enhanced Notes Linked to the Performance of WTI Crude that start to die if oil prices close below $77.28
* * *
All of these “notes” are simply bundles of risk-free bonds subsidized by written derivative premiums on oil-prices – and sold to greater-fool yield-reaching muppet investors around the world who never saw a short-term tren they did not extrapolate – the question is – who is on the other side of all these notes? Especially now that capital is actually being eroded instead of simply less gains…
The snowball is starting (which explains why bank credit spreads have started to bleed higher)
We are still trying to size this market but its complexity and recent issuance suggest it is anything but “contained.”
This is deadly!!!! The high yield credit spreads blow above 1000 points, making the entire
shale industry non economic. Also consider the huge derivatives
Today’s Market Contagion: Energy High-Yield Credit Spreads Blow Above 1000bps For First Time Ever
For the first time on record, HY Energy OAS has broken above 1000bps – signifying dramatic systemic business risk in that sector (despite a modest rebound today in crude prices). The energy sector is entirely frozen out of the credit markets at this point with desk chatter that there is no bid for this distressed debt at all and air-pockets appear everywhere as each new trade reprices the entire sector. The broad high-yield ‘yield’ and ‘spread’ markets are now under significant pressure – both pushing to the cycle’s worst levels.
HY Energy weakness is propagating rapidly into the broad HY markets:
This suggests significant weakness to come for Energy stocks:
This cannot end well (unless the Fed decides monetizing crude in addition to TSYs and E-Minis is part of its wealth preservation, pardon “maximum employment, stable prices, and moderate long-term interest rates” mandate…)
Goldman Sachs believes that oil prices can go much lower and more much longer.
This will totally blow up the big 5 or 6 uSA banks that have underwritten much of the oil derivatives. Their major point of contention: lack of global demand.
(courtesy zero hedge/Goldman Sachs)
Goldman Pours More Crude On The Fire: “Oil Prices Can Go Lower For Longer
What a difference 5 months makes.
It seems like it was yesterday when Goldman’s commodity strategist, Jeffrey Curie, wrote in a July 28, 2014 note that:
The long-awaited global recovery appears to be getting on track, lifting commodity demand
Apparently unaware that just 5 months later precisely the opposite narrative would be used by everyone, Goldman included, namely that plunging commodity prices (and demand) is a boost to the economy, Currie added the following:
One of our key macro views for 2014 has been a gradual return to the ‘Recovery’ phase of the business cycle – where accelerating growth would drive a gradual (but persistent) closing of the large negative output gap which opened following the 2008/09 crisis. Disappointing 1Q14 growth raised question marks over this view and appeared reminiscent of the previous “stop-start” recovery patterns of 2010-13. On aggregate, DM growth fell to +0.4% annualized (from +1.9% in 4Q13) and EM growth fell to +2.5% annualized (from +4.7% in 4Q13).
Our economists continue to see global growth accelerating to above trend later this year and into 2015. Accordingly, we expect a narrowing of the still sizeable global output gap, with DM economies leading the recovery.
As we have argued for some time, commodity prices and volatility are sensitive to the business cycle2. As a pro-cyclical asset, returns tend to be weakest in the Slowdown and Contraction phases of the business cycle as consumers spend less and previously planned capex projects are either delayed or abandoned altogether. In contrast, the Recovery phases of the business cycle tends to see improving consumption and investment demand, which eventually peaks at the end of the Expansion phase. This stronger demand for goods (particularly investment goods) boosts commodity demand.
Uhm… OOOPS. Guess we aren’t in the Recovery phase of the business cycle after all.
Which means we are either in the expansion phase (which means the peak is nigh), or more likely, already in slowdown.
And, lo and behold, after predicting that “Brent will stay at $100 for the coming few years” just in mid-October, here is Goldman again, thoroughly destroying its “Recovery” narrative and saying it expects even more downside (!) for oil from here on out.
Here is what Jeffrey “The long-awaited global recovery appears to be getting on track” Curie sent out to Goldman’s muppets overnight:
The New Oil Order: Finding a new equilibrium
1.The decline in oil prices continues unabated. We believe the oil market is experiencing a cost re-basement which makes determining when the market is oversold extremely difficult, as the price at which rebalancing occurs is now a moving target to the downside. For the market to be oversold, it requires prices to be far below costs, which are in flux as much as the oil price given the sharp declines in other commodities, currencies, rig rates and oil services costs. On top of downward cost pressures, efficiency is being forced on the industry with evidence of ‘high grading’ where rigs in non-core areas are being re-directed towards core, lower-cost resource plays. All this suggests that costs are falling nearly as fast as the price, which means oil producers can spend less to get the same or potentially even more in terms of production.
2.Although we are not willing to take a strong directional view at current price levels, there is some evidence of rebalancing beginning to happen, and it is trending faster than our forecast which was based upon $70/bbl. But the rebalancing is far from sufficient which creates more downside risks. While the overall rig count in the US dropped by 29 last week, this was almost entirely in vertical rigs, not the horizontal rigs used in shale production. Since early November, 12 US producers representing an estimated 8% of 3Q 2014 US oil production have issued 2015 capex/production growth guidance. Weighted average capex budgets are down 12% yoy. However, each is still forecasting production growth on average in 2015 vs. 2014, except one which is guiding to flat yoy production. So while reductions in capex are coming faster than expected, it is unlikely to translate into less supply than expected, highlighting both the rapid cost reductions with rig rates already down by 15-20% and efficiency gains through high grading.
3.Slowing the rebalancing and creating further downside risk is a very strong consensus view that this pull back is temporary and that oil prices will quickly rebound as they did in 2009. According to a recent Bloomberg survey, the median WTI forecast for 2016 is $86/bbl (even we forecast it going back to $80/bbl). All of these forecasts are based upon now outdated cost data that is shifting as fast as the price. It is precisely this strong view for a rebound in prices and the behavior it creates, that not only suggests that oil prices can go lower for longer, but also that the new normal is far lower than we thought just one month ago. Instead of optimizing against a lower price environment, many oil producers are trying to position themselves for the rebound in prices. There are many options available to an oil producer than just simply cutting production in response to lower oil prices – lower costs and increase volumes, sell more equity, tap a revolver or preserve liquidity to survive until another player with deeper pockets buys them even if the cost is more leverage.
4.As we argued several months ago, this sell-off has been driven by long-dated prices (a proxy for the normal price) as opposed to a weakening in the forward curve timespreads as in past bear markets. The current shape of the forward curve does not incentivize the storage of oil. Although the spot price is only at $58/bbl, the 5-year forward oil price is already lower today at $69/bbl than it was in December 2008 ($70.50/bbl) when spot WTI prices fell to $33/bbl. The reason that the forward curve was in such a deep “contango” in 2008 was that OECD inventories had swelled by 60 million barrels on a seasonally adjusted basis in October and November of that year. This October and November, the seasonally adjusted build was only 18 million barrels – far from being a significant surplus that challenges storage capacity and requires a deep contango. It is instead the expectation for forward balances to be in severe surpluses that is driving the longer-dated price decline and will ultimately help rebalance the market. We have used the phrase “long-term surpluses create near-term shortages” to characterize this trading pattern i.e. sell the forward prices on concerns of long-term surpluses that can make the reality of surpluses self-negating.
5.While this is the first time we have seen a backend driven bear market, the bull market of the 2000s was also backend driven but with weak timespreads, i.e. “long-term shortages create near-term surpluses” – the near opposite of what we are seeing today. As low-cost oil supplies were exhausted in the early 2000s the market turned to higher cost resources and input costs escalated quickly as demand increased. The higher oil prices resulting from higher costs slowed US growth, weakened the US dollar which in turn strengthened the commodity producer currencies which further drove up the cost of producing other commodities that were inputs into oil. It was a reinforcing dynamic to the upside that created cost inflation that drove up the long-dated (normal) oil price. Now it is all working in reverse as the market searches for a new equilibrium – lower oil prices, weaker commodity currencies, lower material and oil service costs and increased efficiency are all reinforcing to the downside.
6.The natural gas experience of 2011-13 is the rule, not the exception. Despite the collapse in natural gas prices several years ago, US natural gas production has continued to grow above expectations. It is often cited as an exception as the higher oil prices subsidized the associated gas output and new low-cost fields such as the Marcellus and Utica were available. In other words, the industry just shifted its activity to the lower part of the cost curve and continued to grow output. The reasons we see this as the rule, and not the exception is that we have seen this in iron ore, coal and gold as well. So there is a likelihood we could see this in oil as producers shift all their efforts to the lower part of the cost curve.
7.With no obvious new low-cost US shale oil field, beyond the high grading to each play’s sweet spot, we believe that the oil market’s Marcellus is most likely to come from abroad. Kurdistan and Southern Iraq will likely continue to grow production, with Iran potentially contributing medium term as well. Further, in a market anchored at shale’s marginal cost of production, it is in OPEC’s interest to maximize revenue through volumes, pointing to potential increases in production over time in core OPEC too. Russia could be the oil market’s Marcellus field as well. It is important to stress that the Russian ruble has weakened almost as much as the oil price has declined, leaving oil prices in Russian ruble near an all-time high. This is important as all costs are Ruble denominated while revenues are USD denominated, leaving Russian oil companies’ margins insulated despite the dollar decline in price. In addition, the Russian government is easing the export taxes which further improve the profitability of Russian oil.
8.While core-OPEC such as Saudi Arabia have substantial dollar reserves to weather low oil prices for a very long time, distressed-OPEC like Venezuela are in a very difficult position. In fact, these producers are some of the top candidates to aide in the rebalancing of the market in 2015. In addition, Libya has experienced setbacks with increased fighting over the weekend leading to another output loss to below 500 thousand barrels per day. While this may help keep the market from experiencing near-term surpluses, the temporary nature of it doesn’t help solve the longer-term imbalances.
9.While historically a 40% pull back in prices would stimulate demand by 50bp, the responsiveness of demand and global growth is likely far less than what it was historically. In the US, net imports are around 25% of demand, levels only seen during the depths of the early 1980s recession. In China and other emerging markets, governments are taking advantage of the decline in oil prices to reduce subsidies and/or introduce consumption taxes as nearly all developed markets have. Further, the sharp decline in nearly all commodity prices and the weakening in commodity currencies creates headwinds for oil demand in the commodity producing emerging markets in Latin America and the Middle East. Historically these regions didn’t contribute much to oil demand, today they do.
10.It is important to emphasize that this is a supply driven bear market and not demand driven. We have to go back to the mid-1980s to find another supply driven bear market. Because the surplus is supply driven it is easily observable in the future unlike demand shocks that are instantaneous, so the market is trying to rebalance the future, not so much the present. In the 2000s we forecasted severe supply driven shortages that never came, because long dated prices dragged the market high enough to slow demand and bring on marginal supplies –hence long-term shortages created near-term surpluses. Once again the market is trying to rebalance the future, by re-basing industry costs to take out the excess marginal production. As the industry takes the ‘fat’ out of the system that was built up over the past decade, the new equilibrium price is dropping sharply – where it settles is unknown right now, but we can comfortably say it is likely below our estimates from last month. Once we have cost data early next year from this time period we will have a better idea, but in the meantime volatility will likely remain high with risks skewed to the downside as the market searches for a new equilibrium.
The low prices of oil sent emerging nations currencies crashing. This will cause massive inflation in those countries!!
(courtesy zero hedge)
Taper Tantrum 2.0: Emerging Currencies Are Crashing
More bloodbathery. Wherever we look today, things are not going well. While we have become used to day after day of Oil Producers’ FX collapsing, today we see the tumble in Emerging Market FX rates begin to accelerate in a very Taper-Tantrum-esque manner. While the Ruble at 64 is grabbing headlines, Turkish Lira is utterly collapsing along with Indonesia and India overnight.
Here is 2013’s taper tanrtum tumble inb EM FX…
and now Taper Tantrum 2.0 as FX collapses everywhere…
BTFD though… nothing has changed fundamentally right? “cash on the sidelines” “US only place left to invest in the world…”
Could this be another black swan event that the market had no idea was coming:
(courtesy Sean Corrigan/zero hedge)
Mario Draghi: Goodbye ECB, Hello Italian Presidency?
While the entire financial world is hanging on to every Mario Draghi word in hope Europe finally improves the market’s (if not the economy’s) “fundamentals” to new record highs, and joins the rest of the “developed” world’s central banks in injecting trillions of liquidity into the Div/0 P/E stocks “whatever it takes” (because in a world where only multiple expansion is left, the ECB is the last wildcard at least until the US is dragged right back into the global recession and the Fed admits any pipe dreams of a rate hike in 2015 were just that), something far more different may be taking place behind the scenes. According to at least one journalist, the Fiscal Times’ Patrick Smith, “Draghi appears set to leave Frankfurt and return to his native Italy the first chance he gets.”
Has the former Bank of Italy exec and Goldman employee had enough of fighting Germany tooth and nail over every proposal, if mostly for dramatic media consumption? “Impossible” most would say, and yet…
[Draghi’s departure] could be as soon as January, depending on a variety of circumstances in Frankfurt and Rome, according to well-placed sources who include a prominent private investor and a senior journalist in Rome. “Draghi wants out, fed up and stymied by Berlin,” one of these sources wrote in a note just before the weekend. In a subsequent message: “I am hearing from several [official] sources that he is entirely fed up with the monetary politics he confronts.”
To be sure, a far greater black swan to the market than even crude hitting $40 would be Draghi saying sayonara to Frankfurt and effectively admitting defeat at the hands of Weidmann, and the rest of the sound money advocates. It would also leads to a full-on market cataclysm, “no bid” peripheral bonds, and limit down equity futures.
Banish the idea: surely nobody in the statist establishment would permit their best-behaved (until now) Goldman alum to crush everyone’s hopes of kicking the can with merely verbal intervention: a stunning feat when markets demand trillions in actual monetization from both the Fed and the BOJ. Reality simply laughs in the face of such a preposterous notion. Still, Smith appears convinced: “Whether Draghi remains the European Union’s central banker now appears to depend on the political future of a man widely noted for his ambition. “The issue now is to engineer Draghi’s transition to the post of president in Italy,” as one of my sources tells me—and as all of them agree. “He would leave the ECB only if they [Draghi’s supporters] can get the transition from Frankfurt to Rome in place.”
As Smith helpfully points out, “questions arise instantly”:
Why would “Mr. Whatever It Takes,” who has proven a determined and effective builder of consensus in favor of a Keynesian recovery strategy, walk off the field before the game’s over?
It is indeed a little surprising that Draghi wants to step down now. While his war with German-led austerians has been a slog, Draghi has gradually shifted opinion in his direction. As noted in this space last week, a victory on the question of government-bond purchases now appears in the offing.
Italian sources, moreover, dismiss the thought that Draghi is succumbing to the Bundesbank’s relentless resistance in what amounts to a war of attrition. “Fatigue doesn’t explain this,” the editor in Rome says. “There are a lot of people in Germany who’d be happy if Draghi were no longer in Frankfurt, but I don’t think it’s a question of being tired.”
Some observers in Italy reckon that Draghi thinks he has done all he can at the ECB. But it’s some and some on this point.
“There are others here who say Italy now needs a president who can reassure Europe as to the direction of Italian reform policies,” my journalist colleague in Rome tells me. “Draghi rates high in this respect.”
Why would Draghi cash in a position of considerable international influence to take up the figurehead presidency of a mid-sized European power?
Again, no simple answers. Contrary to appearances, Draghi may have concluded recently that he won’t prevail against his austerian adversaries, some sources suggest. It is more likely that, as everyone has already concluded, he recognizes that there are no promising alternatives to succeed Giorgio Napolitano, who is expected to step down as president early next year. “Draghi’s a last resort for Italian politicians,” in the estimation of one informed source.
For his part, Draghi denies that he has any presidential ambitions—or any plans to pack up in Frankfurt, for that matter. But my sources advise that we assign these assertions zero credibility. Draghi went home in mid-November to deliver a speech on ECB policy to students at the University of Rome, and the occasion was widely taken to be a toe in the water prior to a full-dress presidential candidacy.
What are the chances Draghi will find the post-ECB berth he wants in Italy?
More complications. Reflecting discontent over cutbacks in funding for Italian universities and public services, the university speech bombed, provoking street protests, arrests, and a smattering of violence. While the president is elected by deputies in the two legislative chambers and heads of Italy’s regional governments, that scene was damaging.
“He has to be ‘sellable’ in a broader sense to the Italian public, so the address to the University of Roma was not a plus,” a source writes in a note. “He gave a political speech, and the students gave him, shall we say, a political reception.”
Another factor evident here is Prime Minister Matteo Renzi. One, sources say he appears to think he can make more use of Draghi in Frankfurt than at home. Two, there are indications he doesn’t want a figure of Draghi’s weight and international stature crowding into his picture frame.
The weakness of other candidates—Romano Prodi, a former prime minister, and Giuliano Amato, a former interior minister and now a member of the constitutional court—again comes into play. Even with the failed speech and Renzi’s probable resistance in view, a source in Rome concludes, “If Draghi opens the door it won’t be difficult to reach the needed consensus. He’ll get it if he wants it.”
This alternate universe in which Draghi prepares to ascend the Italian throne even as he vacates the brand new on in Frankfurt is so detailed, it even has a proposed sequence of events:
Does, he, truly [want it]?
It appears he does, although nobody has a map of either Draghi’s heart or mind. In any case, we’ll know more soon. Presidents customarily deliver end-of-year speeches, and Napolitano is expected to say more as to when he’ll step down in the one due shortly.
“The probability now is he’ll leave in the second half of January, in which case the voting will start at the end of January,” the Roman editor says. Watch this space. Draghi’s hat will be in or out in little more than a month.
What happens to the ECB if Draghi leaves?
Tired or not, he is hardly likely to walk away from what he has so far achieved, and the indications given this columnist are that ECB policy would be instantly vulnerable to hard-line inflation hawks were he to drop the guard abruptly.
“Making sure that austerity Europe doesn’t grab hold of the ECB presidency,” as this source puts it, could thus have a lot to do with Draghi’s timing—if not, indeed, with the decision itself.
This last is reassuring. Europe needs big, ambitious stimulus measures badly, and for the moment it follows that Europe needs Draghi. “For a lot of us here,” the Italian editor said by telephone the other day, “Draghi is much more useful in Frankfurt than he would be here.”
I second the thought. Mr. Whatever It Takes, you’ve chosen a hell of a time for a career crisis, it must be said. Best for the global economy altogether if you live up to the expression you made famous when the chips were down a couple of years back, please.
All that said, stranger things have happened: did anyone anticipate Barack Obama “firing” Bernanke when he did on June 18, 2013? Not a soul. Could Mario Draghi, for whatever reason, be next up in the “completely unexpected career change” category? We should know within months.
Courtesy of Sean Corrigan
In Japan, Abe wins a supermajority:
(courtesy zero hedge)
Japan’s Abe Wins In Landslide Victory, LDP To Have Supermajority According To Exit Polls
As previewed yesterday, in one of the lowest turnout elections in recent years (due to heavy snow: where have we heard that before) the ruling party of Japan’s Prime Minister Shinzo Abe, the LDP, is set for a landslide victory in the lower house elections today, according to exit polls. Here is Bloomberg with the details:
- JAPAN RULING LDP WINS 275-306 SEATS: NHK EXIT POLL
- JUNIOR COALITION PARTNER KOMEITO WINS 31-36 SEATS: NHK POLL
- JAPAN OPPOSITION DPJ WINS 61-87 SEATS: NHK EXIT POLL
- JAPAN INNOVATION PARTY WINS 30-48 SEATS: NHK EXIT POLL
- JAPAN COMMUNIST PARTY WINS 18-24 SEATS: NHK EXIT POLL
- JAPAN RULING COALITION SET TO WIN 2/3 MAJORITY, NHK EXIT POLL
- TURNOUT PROJECTED AT BETWEEN 51.7% AND 52.9%
What happens next?
Here is Goldman’s visual summary:
AP’s take: “A landslide victory could improve Abe’s chances of pushing ahead with difficult political and economic reforms, and his long-term goal of revising Japan’s constitution. Share prices have risen and many companies have reported record profits, but the recovery has faltered in recent months, with the country returning to recession after a sales tax hike chilled demand among consumers and businesses.”
Japan’s Finance Minister, Taro Aso, best known for eyewatering gaffes and constant propaganda, commented: “I believe this shows that voters gave the Abe administration a positive evaluation over the past two years.”
Unfortunately, considering that in order to push the Japanese stock market, Abe had to crush not only the economy, resulting in an unprecedented 4th recession since Lehman:
… and also send real wages reeling for a record 16 consecutive months, as a result of soaring import-cost inflation:
… as well as push corporate bankruptcies to a record highdue to the plunging yen:
… it is difficult to believe any of the prevailing propaganda narrative, especially when one considers the steadily declining popularity of Abe’s cabinet:
So what really happened? The following observation from AP is spot on: “Despite weakening popularity ratings, a recession and messy campaign finance scandals, the Liberal Democrats were virtually certain to triumphthanks to voter apathy and a weak opposition.”
And there you have it: the apathetic Japanese people have spoken, or rather chosen not to. As a result, when the entire Japanese house of Ponzi cards comes crashing down for the final time, they will have nobody but themselves to blame. Which, incidentally, is the case in every other “developed” nation.
Yesterday, a hostage taking in the Lindt coffee shop in Syndey.
The gunmen are of Islamic persuasion. During their night, officers raided the coffee shop with one of the gunman dead and one hostage dead.
(courtesy zero hedge)
Sydney Hostage Standoff Update: 5 Escape, Gunman Identified; Demands Islamic State Flag, Conversation With Prime Minister
The Sydney hostage standoff at the Lindt chocolate store on Martin Place continues well into its 13th hour, where the latest news is that five people have escaped with others still held inside as neighboring blocks remain locked down, authorities said ABC reports. The first three people who fled sprinted out of the Lindt Chocolat Cafe about six hours into the standoff, while two women wearing aprons frantically ran from a side exit and into the arms of heavily-armed SWAT team police officers waiting outside. At the same time, media personalities said they received calls from hostages during the standoff. It remains unclear exactly how many people remain inside the cafe.
Additionally, according to Reuters, Australian police said on Monday they are monitoring alleged demands made on social media by hostages being held in a siege at a Sydney cafe and the “situation is contained in one area”.
Network 10 reported that two female hostages had called with claims from the gunman that two bombs were planted elsewhere in the city.
Three men and two women, who sprinted from the Lindt Chocolate Cafe, told the media that the man had warned them that two bombs were set to explode in the cafe, and other bombs were planted at two locations in the city.
Social media posts by alleged hostages claimed the gunman wanted to speak directly with Prime Minister Tony Abbott.
“That is forming a part of our tactical response in how to handle this,” Deputy Police Commissioner Catherine Burn said of the reports, declining to comment on any demands from the hostage-taker. She said people should go about their business as normal in Sydney.
Elsewhere, Xinhua reports that the hostage-taker gunman has been identified after five hostages managed to flee the hours-long siege. The Australian Broadcasting Commission (ABC) reported that the man was known to police, but it has been told not to reveal his name.
The armed man also demanded the delivery of an Islamic State (IS) flag and a conversation with Australian Prime Minister Tony Abbott.
The escapees told Channel 10 TV that the man forced his captives to call him “brother” and would release a hostage if the flag was delivered. That should put the heated discussion about just what flag is being shown in the window, to rest. It would appear that the gunman is at least superficially an ISIS sympathzier, who just couldn’t get his hands on the right flag in advance.
The siege began at 9:40 a.m. local time (2240 GMT), and has involved hundreds of armed police who surrounded the cafe located at the Martin Place in Sydney’s central business district.
The government convened a meeting of the National Security Committee this morning. It has been warning for months that a terror attack could happen in Australia.
“We don’t know whether this is politically motivated, although obviously there are some indications that it could be,” Prime Minister Abbott said in the capital of Canberra.
After the anti-terror raids in September, he said all that was required for a domestic IS-ordered terror attack was a “knife, iPhone and a victim.”
New South Wales police commissioner Andrew Scipione told reporters that the police were doing all they could to resolve the situation peacefully.
“The officers there are well trained. They know what they are doing,” he said, adding that there were tight controls around the location, and the police had not made contact with the gunman.
Scipione said the police still did not know the his motivation and were working to determine where he was from.
Perhaps the best summary of current, very fluid events, comes from the latest headline from Reuters: Sydney gripped by fear.
Finally, in what is said to be an unrelated incident, four gunmen took a man hostage in an apartment in the Belgian city of Ghent on Monday, officials said, adding there was no initial evidence linking the assault to a jihadist organization. Belgian police cordoned off part of the city after the four men were seen entering the building in the Dampoort district, where they took a hostage. “For the time being we have no indication that there is a link to terrorism,” a spokeswoman for state prosecutors said.
According to more recent reports, the Belgian hostage situation appears to have just ended.
Do you remember the movie: “Rollover” where there was fear that the Japanese would not rollover their bonds? Well it seems that Russia and China are dumping their USA treasuries:
(courtesy zero hedge)
China, Russia Dump US Treasurys In October As Foreigners Sell Most US Stocks Since 2007
Perhaps the most notable feature of the October Treasury International Capital report is that in October foreigners sold a whopping $27.2 billion in US equities, surpassing the dump just after the first Taper Tantrum, when they sold $27.1 billion in June of 2013 when they also sold $40.8 billion in Treasurys. This was the largest selling of US corporate stocks by foreign entities since the August 2007 quant flash crash, when some $40.6 billion in US stocks were sold by offshore accounts.
However, what this month’s TIC data will surely be best remember for, is that both China and Russia dumped US Treasurys in October, some $14 billion and $10 billion, respecitvely, in the process sending China’s total Treasury holdings to just $1,253 billion, the lowest since February 2013 and just $30 billion more than the TSYs held by America’s second largest (offshore) creditor, Japan. This happens even as Belgium which many have said is a proxy for Chinese bond purchases, also saw its total holdings decline by $5 billion to $348 billion.
As for Russia, after selling $9.7 billion in October (a process which certainly continued in November) its latest total is just $108 billion, or just modestly higher than the $100 billion hit in March after the Ukraine conflict first broke out, and the second lowest total Russian Treasury holdings since 2008.
For a long time China and Russia have been warning about selling US paper, if only in theory. Increasingly, this appears to be also taking place in practice.
Eur/USA 1.2430 down .0024
USA/JAPAN YEN 118.91 up .170
GBP/USA 1.5668 down .0031
USA/CAN 1.1590 up .0020
This morning in Europe, the euro is down , trading now just above the 1.24 level at 1.2430 as Europe reacts to deflation and announcements of massive stimulation. In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31 and last night won his big election. And now he wishes to give gift cards to poor people in order to spend. The yen continues to trade in yoyo fashion as this is causing havoc to our yen carry traders. This morning it settled down in Japan by 17 basis points and settling just below the 119 barrier to 118.91 yen to the dollar ( still heading towards 123). The pound is down this morning as it now trades just above the 1.57 level at 1.5668.(very worried about the health of Barclays Bank and the FX/precious metals criminal investigation). The Canadian dollar is down today trading at 1.1590 to the dollar.
Early Monday morning USA 10 year bond yield: 2.13% !!! up 3 in basis points from Friday night/
USA dollar index early Monday morning: 88.52 up 15 cents from Friday’s close
The NIKKEI: Monday morning down 272 points or 1.57%
Trading from Europe and Asia:
1. Europe all in the green
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang in the red ,Shanghai in the green, Australia in the red: /Nikkei (Japan) red/India’s Sensex in the red/
Gold early morning trading: $1212.00
Closing Portuguese 10 year bond yield: 2.92% down 7 in basis points from Friday
Closing Japanese 10 year bond yield: .38% !!! down 2 in basis points from Friday
Your closing Spanish 10 year government bond Friday down 9 in basis points in yield from Friday night.
Your Thursday closing Italian 10 year bond yield: 2.00% down 6 in basis points from friday:
trading 21 basis points higher than Spain:
IMPORTANT CLOSES FOR TODAY
Closing currency crosses for Monday night/USA dollar index/USA 10 yr bond:
Euro/USA: 1.2435 down .0016
USA/Japan: 117.99 down .751 ( the yen carry traders are whacked again)
Great Britain/USA: 1.5643 down .0056
USA/Canada: 1.1641 up .0063 (oil countries are getting killed in their currencies)
The euro fell in value during the afternoon , and it is down by closing time , finishing just above the 1.24 level to 1.2439. The yen fell a bit in the afternoon, but it was still well up by closing up to the tune of 75 basis points and closing just below the 118 cross at 117.99. The British pound lost some ground during the afternoon session and it was down on the day closing at 1.5643. The Canadian dollar was well down in the afternoon and was down on the day at 1.1641 to the dollar.
Currency wars at their finest today.
Your closing USA dollar index: 88.51 up 14 cents from Friday.
your 10 year USA bond yield , down 3 in basis points on the day: 2.10%!!!! wow!!
European and Dow Jones stock index closes:
England FTSE down 117.91 or 1.87%
Paris CAC down 103.58 or 2.92%
German Dax down 260.72 or 2.72%
Spain’s Ibex down 241.10 or 2.38%
Italian FTSE-MIB down 521.86 or 2.81%
The Dow: down 99.99 or 0.58%
Nasdaq; down 48.44 or 1.04%
OIL: WTI 55.33 !!!!!!!
that is all for today
I will see you Tuesday night
bye for now