Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1232.70 up $16.70 (comex closing time)
Silver: $16.54 up 15 cents (comex closing time)
In the access market 5:15 pm
Gold had a boost today with news that the Ukraine has reserves of only 7.5 billion dollars. They are now within a whisker of default and need help from the iMF. It also looks very likely that we are going to have a GREXIT and with it all the ramifications. Our European bankers do not like this one bit.
Gold/silver trading: see kitco charts on right side of the commentary.
The gold comex today had a poor delivery day, registering 0 notices served for nil oz. Silver comex registered 0 notices for nil oz.
Three months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 247.23 tonnes for a loss of 56 tonnes over that period.
In silver, the open interest rose by 683 contracts with Friday’s silver price up by 4 cents. The total silver OI continues to remains relatively high with today’s reading at 155,208 contracts. However the bankers are still loathe to supply much of the non backed silver paper.The January silver OI contract remains at 15 contracts.
In gold we had a large increase in OI with the rise in price of gold on Friday to the tune of $7.60. The total comex gold OI rests tonight at 394,512 for a gain of 3030 contracts. The January gold contract remains at 124 contracts.
Today, we had no change in tonnage at the GLD / tonnes of gold/Inventory 707.82 tonnes
In silver, a huge withdrawal of 1.915 million oz silver inventory/
SLV’s inventory rests tonight at 327.979 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 in the positive direction with the exception of the one year rate. . Now the one month GOFO rate left backwardation and it is now in contango along with the other GOFO rates
Sometime in January the LBMA will officially stop providing the GOFO rates.
Jan 12 2015
+.057% +075% +.085% +.0975 .1525%
Jan 9 2014:
+.045% +.057% +.072 % +.0975% +.165%
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 3030 contracts from 391,482 all the way up to 394,512 with gold up by $7.60 on Friday (at the comex close). We are now onto the January contract month. The non active January contract month saw it’s OI contracts remain at 124 for a loss of 0. We had 0 contracts served yesterday. Thus we neither lost nor gained any gold contracts standing for delivery in this January contract month. The next big delivery month is February and here the OI fell by 5,365 contracts to 197,479 contracts with many moving to April. The estimated volume today was poor at 70,877. The confirmed volume on Friday was fair at 179,750 contracts, even though the high frequency traders gave some help with respect to volume. Today we had 0 notices filed for nil oz .
And now for the wild silver comex results. Silver OI rose by 683 contracts from 154,525 up to 155,208 with silver was up by 4 cents on Friday. The front January contract month saw its OI remain at 15 contracts for a loss of 0 contracts. We had 0 notices filed on Friday, so we neither gained nor lost any silver contracts standing for silver in the January contract month. The next big contract month is March and here the OI rose by 396 contracts up to 104,344. The estimated volume today was simply awful at 14,325. The confirmed volume on Friday was fair at 35,393. We had 0 notices filed for nil oz today. it sure looks like the bankers have scared away all investors wishing to play the comex.
January initial standings
|Withdrawals from Dealers Inventory in oz||nil oz|
|Withdrawals from Customer Inventory in oz||nil|
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||0 contracts(nil oz)|
|No of oz to be served (notices)||124 contracts (12,400 oz)|
|Total monthly oz gold served (contracts) so far this month||8 contracts(800 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month|
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 0 customer withdrawal
total customer withdrawal: nil oz
we had 0 customer deposits:
total customer deposits; nil oz
We had 0 adjustments
Today, 0 notice was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 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 (8) x 100 oz or 800 oz to which we add the difference between the January OI (124) minus the number of notices served upon today (0) x 100 oz =13,200 the amount of gold oz standing for the January contract month. (.4100 tonnes of gold)
Thus the initial standings:
8 (notices filed for the month x 100 oz) +OI for January (124) – 0(no. of notices served upon today) =13,200 oz (.41 tonnes)
we neither gained nor lost any gold contracts standing for delivery
Total dealer inventory: 770,487.09 oz or 23.96 tonnes
Total gold inventory (dealer and customer) = 7.948 million oz. (247.23) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 56 tonnes have been net transferred out. We will be watching this closely!
This initializes the month of January for gold.
And now for silver
Jan 12 2015:
January silver: initial standings
|Withdrawals from Dealers Inventory||nil oz|
|Withdrawals from Customer Inventory||103,352.600 (CNT) oz|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||695.596.42 oz (CNT)|
|No of oz served (contracts)||0 contracts (380,000 oz)|
|No of oz to be served (notices)||15 contracts (455,000 oz)|
|Total monthly oz silver served (contracts)||104 contracts (520,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month|
|Total accumulative withdrawal of silver from the Customer inventory this month||3,756,152.1 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 1 customer deposit:
i) Into CNT: 695,596.42 oz
total customer deposit 695,596.42 oz
We had 1 customer withdrawals:
i) Out of CNT: 103,352.600 oz
total customer withdrawal: 103,352.600 oz
we had 0 adjustments
Total dealer inventory: 65.037 million oz
Total of all silver inventory (dealer and customer) 174.183 million oz.
The total number of notices filed today is represented by 0 contracts for nil 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 (104) x 5,000 oz to which we add the difference between the OI for the front month of January (15) – the Number of notices served upon today (0) x 5,000 oz = 595,000 oz the number of ounces standing so far for the January delivery month.
Initial standings for silver for the January contract month:
104 contracts x 5000 oz= 520,000 oz +OI standing so far in January (15)- no. of notices served upon today(0) x 5,000 oz = 595,000 oz
we neither gained nor lost silver ounces standing for the January contract month.
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:
Jan 12 no change in gold inventory/GLD inventory tonight at 707.82 tonnes
January 9.2015: an addition of 2.99 tonnes of gold/Inventory 707.82 tonnes
Jan 8.2014: no change/inventory 704.83 tonnes
Jan 7.2015: we lost another exact 2.99 tonnes of gold inventory at the GLD/Inventory at 704.83 tonnes
Jan 6.2014: we lost 2.99 tonnes of gold inventory at the GLD//inventory 707.82 tonnes
Jan 5/2015 we gained 1.49 tonnes of gold inventory into the GLD/Inventory tonight: 710.81 tonnes
Jan 2 2015: inventory remained constant/inventory 709.02 tonnes
Dec 31.2014: we lost another 1.79 tonnes of gold at the GLD today/Inventory 709.02 tonnes
Dec 30.2014/ we lost 1.49 tonnes of gold at the GLD today/inventory 710.81 tonnes
Dec 29.2014 no change in gold inventory at the GLD/inventory 712.30 tonnes
Dec 26.2013/ a small loss of .6 tonnes of gold. Inventory tonight at 712.30 tonnes
Dec 24.2014: wow!! somebody robbed the cookie jar/ we had a huge withdrawal of 11.65 tonnes from the GLD inventory/inventory at 712.90 tonnes. England must be bleeding badly!
Today, Jan 12/2015 /no change in gold inventory at the GLD /Inventory rests tonight at 707.82 tonnes
inventory: 707.82 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 : 707.82 tonnes.
And now for silver (SLV):
Jan 12.2014 we had a huge withdrawal of 1.915 million at the SLV/inventory at 327.979 million oz.
Jan 9.2015: we had a huge addition of 1.437 million oz at the SLV/Inventory 329.894 million oz
Jan 8.2015: no change in silver inventory/inventory at 328.457 million oz.
Jan 7.2015: we had another loss of 958,000 oz of silver from the SLV/Inventory 328.457 million oz
jAN 6.2015: we had a small loss of 149,000 oz/inventory 329.415 million oz
Jan 5 no change in silver inventory/Inventory at 329.564 million oz
jan 2.2015: no change in silver inventory/ Inventory 329.564 million oz
Dec 31.2014: we had no change in silver inventory at the SLV./Inventory
at 329.564 million oz
Dec 30.2014: we lost another 574,000 oz of silver from the SLV/Inventory at 329.564 million oz/
Dec 29.2014 we had a small loss of 431,000 oz at the SLV to probably pay for fees/inventory 330.138 million oz.
Dec 26/ no change in silver inventory at the SLV/inventory 330.569
Dec 24.2014: we had a huge loss of 7.566 million oz/inventory 330.569 million oz
Dec 23.2014: no change in silver inventory/338.135 million oz
Jan 12/2015 / a huge withdrawal of 1.915 million oz of silver inventory at the SLV
registers: 327.979 million oz
And now for our premiums to NAV for the funds I follow:
Note: Sprott silver fund now for the first time into the negative 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 7.6% percent to NAV in usa funds and Negative 7.7 % to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.7%
Percentage of fund in silver:37.8.%
( Jan 12/2015)
2. Sprott silver fund (PSLV): Premium to NAV rises to + 1.51%!!!!! NAV (Jan 12/2015)
3. Sprott gold fund (PHYS): premium to NAV rises to negative -0.39% to NAV(Jan 12/2015)
Note: Sprott silver trust back into positive territory at +1.51%.
Sprott physical gold trust is back in negative territory at -0.39%
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:
(courtesy Mark O’Byrne)
Gold Prices Rise on Unexpected Fall in US Hourly Earnings
Today’s AM fix was USD 1,222.00, EUR 1,035.77 and GBP 808.09 per ounce.
Friday’s AM fix was USD 1,211.25, EUR 1.025.09 and GBP 799.61 per ounce.
Spot gold climbed $13.20 or 1.09% to $1,220.50 per ounce Friday and silver rose $0.15 or 0.92% to $16.46 per ounce. Gold and silver both performed strong last week up 2.78% and 4.24% respectively.
Spot gold in Singapore was trading up $4.55 or 0.37% at $1,227.2 near the end of the day.
Gold reached a 1 month high on speculation that the U.S. Federal Reserve will not act fast to increase interest rates to protect the economic expansion.
U.S. Employment data showed that hourly earnings for U.S. employees fell in December by the most since 2006, even though the payrolls number grew by 252,000.
Gold bullion priced in euros reached its highest since September 2013, as Greek citizens get ready for the January 25th election that is spurring gold’s safe haven demand.
Gold in euros traded at 1,035 EUR. Spot gold climbed to its highest since Dec. 11 at $1,231 an ounce, before edging 0.1 percent lower to $1,221.60 by 1019 GMT.
Gold for February delivery increased 0.5 percent to $1,222 an ounce on the Comex in New York.
Silver was up 0.5 percent at $16.57 an ounce, while platinum increased 0.1 percent to $1,229.49 an ounce and palladium rose 0.1 percent to $801.20.
The yellow metal is getting a boost in physical buying of coins and bars in Asia. Premiums on the Shanghai Gold Exchange ranged from $4 and $5 an ounce. Consumers are buying ahead of the Lunar New Year holiday next month.
Next week includes the Greek elections and the ECB policy meeting.
Get Breaking Gold News and Updates Here
Chris Powell interviewed by Mike Gleason and all of the important topics of gold /silver are covered:
(courtesy Chris Powell/Gleason)
Money Metals interview covers gold and commodity price rigging and journalism’s failure
8:55a ET Saturday, January 10, 2015
Dear Friend of GATA and Gold:
Your secretary/treasurer was interviewed this week by Mike Gleason of Money Metals Exchange in Idaho, discussing GATA’s history, the extensive documentation of surreptitious gold price suppression by Western central banks, the expansion of the suppression scheme to cover the commodity markets generally, and the specific questions mainstream financial journalism fails to put to central banks, questions that would expose their surreptitious interventions and their destruction of free markets and democracy throughout the world. Audio and text of the interview are posted at the Money Metals Exchange’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Koos Jansen delves into the archives establishing why the USA wants to use $42.22 as the official price of gold per oz.
(courtesy Koos Jansen)
Koos Jansen: We can’t pretend forever gold is worth $42.22 per ounce
7:20p ET Saturday, January 10, 2015
Dear Friend of GATA and Gold:
Bullion Star market analyst and GATA consultant Koos Jansen today begins a review of diplomatic archives confirming the U.S. government’s longstanding foreign and economic policies of pushing gold out of the international financial system. Today’s installment involves U.S. relations with France. Jansen’s commentary is headlined “We Can’t Pretend Forever Gold Is Worth $42.22 per Ounce” and it’s posted at Bullion Star here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
And he continues with this archive:
(courtesy Koos Jansen)
Another piece of the puzzle.
The next Wikileaks cable is a summary of a meeting that took place in October 1976 between, among others, chairman of the Federal Reserve, Arthur Burns, and a delegation of Chinese bankers from the PBOC. For the record, this was five years after Nixon suspended US dollar convertibility into gold and one month after Mao Zedong past away.
Most notably the Chinese stated they see inflation as economic weakness and particularly expressed their interest in IMF gold auctions and the issuance of SDR’s. Sounds to me the PBOC was particularly not very enthusiastic about the US dollar as the world’s reserve currency in 1976.
Inflation in China has not been close to zero since 1976, nor did they adopt a form of gold standard in the seventies. However, this can all have been according to plan. If China had any ambitions in the late seventies to move away from the dollar and become an economic powerhouse, perhaps they decided it was best to first grow and develop within the existing system before making a change, because this is exactly what happened:
China’s communist economy started to open in the late seventies when Deng Xiaoping ruled the country and implemented the socialist economy; combining the Party’s socialist ideology with a pragmatic adoption of market economic practices. In recent decades China has been the growth wonder of the world making them currently the second largest economy right after the US. In 2002 China reformed its gold market and ever since is effectively stimulating its citizens to save in physical gold, making the People’s Republic the largest gold producer and consumer on earth. Additionally, China is openly calling for replacing the US dollar as the world reserve currency. Did this all adventitiously happen or was it carefully planned many years ago?
In Mao’s era, from 1949 until 1976, Chinese yearly domestic gold mine production increased 261 %, from 1976 until present production increased 2,964 %.
In 1977 for the first time China disclosed their official gold reserves at 395 tonnes, according to the World Gold Council. Since then there have been three increases; 105 tonnes in 2001 (to 500 tonnes), 100 tonnes in 2003 (from 500 to 600) and 454 tonnes in 2009 (from 600 to 1,054 tonnes). Given the fact the PBOC is not buying such amounts in one month, but more likely spread over the years, my assumption is that the official amount disclosed by the PBOC reflects more about China’s political strategy than tonnes in reserve. China claims to have 1,054 tonnes currently, though there is overwhelming evidence they have substantially more in official reserves.
Turd Ferguson on gold demand. Ferguson gives a superb report on the latest banking participation repeat released on Friday.
a must read…
(courtesy Turd Ferguson)
T.F. Metals Report: How they did it
1p ET Monday, January 12, 2015
Dear Friend of GATA and Gold:
This could be the year when demand for real metal overwhelms the gold paper system of the Western bullion banks, the T.F. Metals Report’s Turd Ferguson argues today. His commentary is headlined “How They Did It” and it’s posted here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
(courtesy Peter Cooper/Arabian Money)
ECB to QE or not QE that is the question for gold and silver prices
Posted on 11 January 2015 with 1 comment from readers
Gold and silver prices are hovering on the brink of a breakout this weekend as financial markets contemplate the time bomb that is now ticking with the European Central Bank finally on the spot over quantitative easing after a slide into deflation last week. January 22nd is the next ECB meeting. So will it be QE or not QE?
Precious metal prices are rising in anticipation of money printing in Europe. Eurozone stock and bond markets have been pricing it in too. But there is a problem. The Germans are the paymasters of Europe and loathe money printing because it destroyed their currency twice in the last century, and they can still put up quite a fight in the law courts.
No so simple
Then there is the problem that any bond buying program would have to include Greece which is insolvent and on the brink of leaving the euro again. As ever with the Byzantine politics of the European Union this is not a straightforward situation and a messy compromise is the most likely outcome.
Unfortunately global financial markets are expecting full blown QE from the ECB, partly as a logical response, partly out of self-interested greed. Reality is likely to be very disappointing. Equities will crash and bond markets spike. Gold and silver may still benefit as a safe haven trade though they would also benefit far more in the short term from the roll of the printing presses.
Three days after the ECB meeting there is an election in Greece that may bring the left-wing Syriza party to power whose mandate is to repudiate austerity even if it means leaving the euro. What will this mean for stability in global financial markets?
Lehman part 2?
The prospect of Greece leaving the euro and defaulting on its debts is ‘Lehman Brothers squared’ in the opinion of some economists. Ultimately that might well result in emergency money printing as it did in the US after the plug was pulled on Lehman. What else could the EU do? If you are drowning you don’t throw back a rope!
However, financial markets currently look ripe for a nasty disappointment. Bond yields are already so low in Europe you have to wonder what investors can possibly see in them. Gold and silver as monetary metals have considerable advantages in such awful conventional financial markets with no counterparty, i.e. default, risk and are structurally oversold.
Last year gold was the best performing currency after the US dollar. You have to wonder which will be No1 this year. Where will you be keeping your savings in this maelstrom?
Another important discussion
(courtesy Bill Holter/Miles Franklin)
Ponzi Schemes and YOU!
And now for the important paper stories for today:
Early Monday morning trading from Europe/Asia
1. Stocks mixed on major Asian bourses / the yen falls to 119.17
1b Chinese yuan vs USA dollar/ yuan strengthens to 6.2036
2 Nikkei off
3. Europe stocks in the green /Euro falls/ USA dollar index up to 92.32/
3b WOW!!! Japan 10 year yield at .28% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.17/
3c Nikkei now above 17,000
3e The USA/Yen rate well below the 120 barrier this morning/
3fOil: WTI 46.86 Brent: 48.49 /all eyes are focusing on oil prices. This should cause major defaults.
3g/ Gold up/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 falls this morning for both WTI and Brent
3k China to stimulate its economy by 1 trillion dollars worth of infrastructure/poor Chinese PPI numbers as their economy softens.
3l jobs report in the morning will dictate bourses
3m Gold at $1222. dollars/ Silver: $16.50
3n USA vs Russian rouble: ( Russian rouble down 1 1/2 roubles per dollar in value) 62.89!!!!!!
3 0 oil falls into the 46 dollar handle for WTI and 548 handle for Brent
3p volatility high/commodity de-risking!/Europe heading into outright deflation including Germany/Germany has low unemployment/Italy very high unemployment (high jobless rate)/Germany bad factory order numbers/
3Q ECB still unsure of QE format weighs down European bourses
4. USA 10 yr treasury bond at 1.98% early this morning. Thirty year rate well below 3% (2.53%!!!!)/yield curve flattens/foreshadowing recession
5. Details: Ransquawk, Bloomberg/Deutsche bank Jim Reid
(courtesy zero hedge)/your early morning trading from Asia and Europe)
Stocks Bounce On Daily ECB QE Rumor Regurgitation, Oil Plunges On Goldman Downgrade
If you, like the BIS, are sick and tired of central bankers, and in this case the ECB’s endless jawboning and now daily QE threats, determining the level of stocks, well then today is a good day as any to take your blood pressure medication. Because first it was ECB Governing Council member Ignazio Visco who told German newspaper Welt am Sonntag that the risk of deflation in the euro zone should not be underestimated and urged the bank to buy government debt, and then, yet another regurgitated story, came from CNBC whose “sources” reported that the ECB QE would be based on contributions from national central banks and paid in capital.
The result was a plunge in the EURUSD to just under 1.18, which also sent the USDJPY and all of its donwstream derivatives such as the Eurostoxx and S&P futures screaming higher.
And while otherwise the cross-correlation trades would have at least pushed the crude complex modestly higher, today it was Goldman’s energy analyst Jeffrey Currie finally throwing up all over oil, with a report in which he said that “because shale can rebound quickly once capital investments return, we now believe WTI needs to trade near $40/bbl for most of 1H15 to keep capital sidelined.”
The report punchline:
Once a 2H15 US supply growth slowdown is more certain and given the very high decline rates on US production, renewed Libyan disruptions and an already visible demand response in the US, we expect the market to rebalance with inventories drawing rapidly from 3Q15 onwards. To accommodate the substantial expected first half inventory build and using the storage arbitrage to the one-year ahead swap, we are revising down our 3-, 6- and 12-month price forecasts for Brent to $42/bbl, $43/bbl and $70/bbl, respectively, from $80/bbl, $85/bbl and $90/bbl, and for WTI to $41/bbl, $39/bbl and $65/bbl from $70/bbl, $75/bbl and $80/bbl. The later expected trough in WTI prices is due to excess US storage capacity.
We will have more from the report later.
So more of the same, with central bank chatter desperate to push stocks higher even as the crude complex continues to crash. Perhaps today’s only notable difference is that the Chinese stock bubble increasingly appears poised to burst violently. Indeed, the SHCOMP dropped 1.71% with the weakness partially attributed to a note from UBS who said China stock bull market has ended. Bloomberg’s note that “It’s Amateur Hour in the Booming Chinese Stock Market” probably did not help, and neither did the news that developed Kaisa is now officiallyin default and has entered the 30-day grace period.
In summary: European shares remain higher, close to intraday highs, with the tech and chemicals sectors outperforming and oil & gas, basic resources underperforming. Crude oil continues decline. The French and German markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Greek 10yr bond yields fall; German yields increase. Commodities decline, with natural gas, Brent crude underperforming and wheat outperforming.
- S&P 500 futures up 0.6% to 2047.1
- Stoxx 600 up 1% to 341.3
- US 10Yr yield up 2bps to 1.97%
- German 10Yr yield up 2bps to 0.51%
- MSCI Asia Pacific down 0.2% to 137.5
- Gold spot down 0.2% to $1220.5/oz
- Euro down 0.37% to $1.1798
- Dollar Index up 0.36% to 92.27
- Italian 10Yr yield down 2bps to 1.86%
- Spanish 10Yr yield down 2bps to 1.7%
- French 10Yr yield up 1bps to 0.79%
- S&P GSCI Index down 1% to 390.9
- Brent Futures down 2.8% to $48.7/bbl, WTI Futures down 2.4% to $47.2/bbl
- LME 3m Copper down 0.3% to $6068.8/MT
- LME 3m Nickel down 0.9% to $15166/MT
- Wheat futures up 0.3% to 565.3 USd/bu
Bulletin headline summary from RanSquawk and Bloomberg
- In a subdued session, European equities trade higher with little in the way of fundamental news to dictate price action.
- Today marks the beginning of US earnings season, with Alcoa scheduled to report aftermarket and no US tier 1 data releases today.
- CNBC sources report that the ECB QE would be based on contributions from national central banks and paid in capital, and that every national central bank pays a certain amount of capital into the ECB every year would determine how much of that country’s sovereign debt the central bank would purchase.
- Treasuries pare post-payrolls rally before week’s supply begins with $24b 3Y notes, yield 0.96% in WI trading vs. 1.066% award in Dec.
- Goldman cuts crude oil forecasts, now sees WTI at $41/bbl in three months, previously saw $70; Brent at $42/bbl from previous $80/bbl and said U.S. oil prices need to trade near $40/bbl in 1H to curb shale investments
- Also cuts 6- and 12-month WTI forecasts to $39 and $65, from $75 and $80, respectively; Brent to $43 and $70, from $85 and $90, according to the report
- PBOC will strive for a balance between loosening and tightening while fine-tuning monetary policies when needed, it said in a statement summarizing its annual work conference on Jan. 9
- Signals from meeting expected to calm speculation of a system-wide reserve-requirement decrease or significant rate cut, China’s Financial News, a PBOC publication, said
- France began hunting for possible accomplices in the worst terror attacks in Paris in more the half a century as a seven-minute video emerged with one of the gunmen declaring allegiance to the Islamic State
- Prime Minister Abe’s candidate lost a race for the governorship of rural Saga prefecture to a rival backed by the agriculture sector in a blow to his plans to shake up the industry
- Holders of Kaisa Group Holdings Ltd.’s dollar-denominated 2020 notes still haven’t received a coupon payment due last week; most expect payment to be maid within 30-day grace period, two people familiar with the matter said
- Sovereign yields mixed. Asian stocks mixed, Japan closed for holiday; European stocks, U.S. equity-index futures gain. Crude falls, with Brent and WTI below $50/bbl; copper, gold lower
The Shanghai Comp was the session’s laggard, with the weakness partially attributed to a note from UBS who said China stock bull market has ended. The Shanghai Comp (-1.71%) finishes the session lower after the PBoC signalled there will be no system-wide reserve-requirement decrease or interest rate cuts. The Hang Seng (+0.5%) bucked the overall trend underpinned by Cheung Kong (1 HK) +20% and Hutchison Whampoa +16% after news of a restructuring deal between the Co.’s worth USD 24bln. As a reminder, Japanese markets were closed today due to the Coming of Age public holiday.
- Asian stocks fall with the Sensex outperforming and the Shanghai Composite underperforming.
- MSCI Asia Pacific down 0.2% to 137.5
- Nikkei 225 closed, Hang Seng up 0.4%, Kospi down 0.2%, Shanghai Composite down 1.7%, ASX down 0.8%, Sensex up 0.5%
- 2 out of 10 sectors rise with industrials, staples outperforming and energy, materials underperformingEQUITIES/ FIXED INCOME
European Equities start off the week mostly in positive territory with the DAX amongst the outperformers as Deutsche Lufthansa and Continental lead the index higher. (Please refer to the European Equities Opening News for more details) The FTSE 100 has seen its upside capped as UK utilities trade lower as the Labour party push for domestic energy price cuts and storms damaging infrastructure in Scotland over the weekend. Elsewhere, reports were confirmed over the weekend that Shire will buy NPS Pharmaceuticals in an all-cash deal worth USD 5.2bln.
Greek assets seen outperforming with the ASE trading higher by 2.3% and the GE/GR spread tighter by 65bps on the day following source reports over the weekend that a Greek debt restructuring plan is gaining increasing support in the EU Commission.
CNBC sources reported earlier that ECB QE would be based on contributions from national central banks and paid in capital, and that every national central bank pays a certain amount of capital into the ECB every year, this would determine how much of that country’s sovereign debt the central bank would purchase. (CNBC)
In fixed income markets, the Bund and UST’s continue to trade range-bound with volume expected to be increase this week due to higher supply from Europe and market participants finally return to market marking the end of the festive season. Looking ahead, there is a 3yr note auction scheduled today at 1800GMT/1330CST.
- 17 out of 19 Stoxx 600 sectors rise; tech, chemicals outperform, oil & gas, basic resources underperform
- 75.7% of Stoxx 600 members gain, 22.8% decline
- Eurostoxx 50 +1.6%, FTSE 100 +0.4%, CAC 40 +1.6%, DAX +1.5%, IBEX +1.4%, FTSEMIB +1%, SMI +1%
The AUD/USD has erased all of its overnight gains weighed on by the continued fall in oil prices (also weighing on MXN,RUB,CAD) after the CFTC also reported that AUD short positions higher by a third also sending NZD/USD lower in sympathy. The firmer USD-index (+0.6%) is recovering from the Friday’s post-NFP selloff which has subsequently dragged EUR/USD lower as it fell below 1.1800 and lifted USD/JPY as it broke the 119 handle. Furthermore, analysts note that GBP/USD volume is surging vs. its 1m average at this time of day most likely related to the Shire acquisition of NPS Pharmaceuticals sending GBP/USD lower also aiding USD strength.
WTI crude futures (-0.99%) fell sharply back below USD 48/bbl level and has continued its descent during the European session as Goldman Sachs cuts WTI 6- and 12-months forecasts; now sees USD 39/bbl from USD 75/bbl and USD 65/bbl from USD 80/bbl respectively and cut Brent crude 3-, 6- and 12-months forecasts; sees USD 42/bbl, USD 43/bbl and USD 70/bbl respectively.
Goldman Sachs lowers 2015 Brent price forecast to USD 50.40/bbl from USD 83.75/bbl and cuts 2016 outlook to USD 70/bbl from USD 90/bbl. Lowers 2015 WTI price forecast to USD 47.15/bbl from USD 73.75 and cuts 2016 outlook to USD 65/bbl from USD 80/bbl. (BBG)
Venezuela said it has agreed with Saudi Arabia to work to recover the oil market and oil prices. (Shana/RTRS)
- Shire to Buy NPS for $5.2 Billion to Add Rare-Disease Drugs
- Roche Takes Majority Stake in Foundation Medicine for $1 Billion
- RBS Said to Consider Sale of Asian Corporate Banking Business
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DB’s Jim Reid concludes the overnight recap
It might just be under a couple of weeks of relative quiet in markets before next week’s all important ECB meeting and Greek election. With the usual post-payroll quiet week for data these events will likely dominate trading this week. Friday’s Bloomberg story that ECB staff have presented models to the Governing Council for buying up to 500 billion euros of IG assets grabbed the limelight as the week ended. It wasn’t particularly well received as investors feared that this will mean they will fall short of the 1 trillion Euros the council has targeted in terms of expanding its balance sheet. However on the positive side this surely means January’s meeting is a realistic point for some action. We’ve long thought March as the most likely lift-off date but it’s been getting closer to 50/50 between the two months given recent data and noises and leaks from the ECB. Even if it’s not January, Draghi would surely have to strongly hint and pave the way next week for a move in March.
The €500bn number in the story is clearly a disappointment but would they really want to pre-commit to a smaller number than is enough to reach their publicly stated intention to increase the balance sheet back to 2012’s peak? If they don’t currently have agreement across the council to get past €500bn then it might be prudent to leave it open ended which is what we think they will do. So we wouldn’t get too caught up at the moment in the disappointment from the size angle.
Mark Wall and his team in European economics still think March is ever so slightly more likely but think the likely strong signaling in January makes the relevance of the timing of limited importance. In their Focus Europe on Friday they state that they expect “a broad-based asset purchase programme, encompassing investment grade corporate bonds as well as sovereign bonds; no target size to be set for the sovereign purchases; the ECB to conduct the purchasing over a 2 year period at least, in line with the ABS and covered bond purchases; the ECB to purchase the sovereign bonds of all member states in proportion to the Capital Key; sub-investment grade countries will need to be under a programme; and the bonds purchased to go beyond the OMT limit of 3 year but not beyond 10 years.” Phew that’s an information packed sentence.
So Friday’s moves were dominated by the Bloomberg story. Equity markets closed in the red across Europe with the Stoxx 600 -1.29% and DAX -1.92% at the end of play. Credit markets fared little better with Xover finishing 8bps wider. Peripheral assets were perhaps the notable underperformer however. Indeed the IBEX (-3.91%) and FTSE MIB (-3.27%) declined sharply whilst 10y yields in both Spain (+5.4bps) and Italy (+3.4bps) sold off. With the ECB story already weighing on sentiment, financial stocks also weakened further with the market concerned around ECB capital requirements for banks. Banco Santander (-14.1%) and Monte dei Paschi (-8.63%) led the declines – the former in particular responding to the ECB requirements by announcing a capital raising. Data on the whole was relatively disappointing for the region. November industrial production in Germany disappointed (-0.1%mom vs. +0.3%mom expected) whilst in France both industrial (-0.3%mom vs. +0.3%mom expected) and manufacturing (-0.6%mom vs. +0.4%mom expected) production did little to help the weaker tone. Closer to home in the UK, industrial production (-0.1%mom vs. +0.2%mom expected) was also subdued although this was somewhat offset by a better than expected manufacturing reading (+0.7%mom vs. +0.3%mom expected).
Coming back to the subject of ECB QE quickly, there were contrasting views out over the weekend from ECB officials. On the one hand, Lautenschlaeger was quoted by Der Spiegel saying that the ‘purchase of state bonds is the last resort of monetary policy’. However there was support from Visco yesterday, as he was also quoted in the German press (Welt am Sonntag) as saying that should inflation expectations fall further – ‘in this situation, the most effective means is buying sovereign bonds’.
Turning our attention to the other side of the Atlantic, it was of course payrolls day on Friday with the headline December +252k print beating expectations of +240k. After adjusting for the November upward revisions, our US colleagues noted that the nonfarm payrolls grew by 3million last year which was the best single year since 1999. Although we also saw the U3 unemployment tick down to 5.6% (from 5.8%) and the broader U6 measure fall to 11.2% (lowest since September 2008), sentiment in the market fell after the average hourly earnings print surprisingly declined (-0.2%mom vs. +0.2%mom expected) – the biggest fall since records began in 2006. The result was a weaker day for risk assets in the US with both the S&P 500 (-0.84%) and Dow (-0.95%) closing down – the first back-to-back weekly declines since October. The weaker tone in the market supported a strong bid for US Treasuries with the yield on the 10y benchmark closing 7.3bps lower and back below 2% at 1.945%. There was some notable weakness in the US Dollar too. The DXY closed 0.47% lower to record its first down day this year whilst the Euro pared back some of its recent weakness to strengthen +0.42% versus the Dollar to $1.184.
Some slightly more dovish comments from Fed members didn’t help arrest the weaker tone in the market on Friday. Starting with comments from Lockhart, the Fed official was reported on Bloomberg playing down the hourly earnings reading by saying that the reading was ‘potentially noise’ whilst acknowledging the strong jobs report but noting that ‘I don’t see a reason yet to accelerate my assumption of when a policy move might be appropriate’. Although Lockhart somewhat reiterated his mid-year timeline, he did perhaps err on the more dovish side by going on to say that he would rather risk being ‘a little bit late’ on any rate increases. As well as comments from Lockhart, the Fed’s Evans, speaking to CNBC was reported acknowledging the recent progress in data but that ‘I’m in favor of being patient on raising interest rates’ and that ‘we shouldn’t be raising rates before 2016 if things transpire as I’m expecting’ – noting that ‘we’re going to have to see wages increase more’.
With much of the focus on the ECB and payrolls report, oil markets took something of a backseat again although both WTI (-0.88%) and Brent (-1.67%) extended their declines to close at $48.36/bbl and $50.11/bbl respectively – both now declining for seven consecutive weeks . Friday’s moves were not helped by the latest rig count release out of Baker Hughes which showed a record decline in active rigs last week. The number of rigs fell by 61 over the week, the largest weekly fall since February 1991.
Taking a look at the early trading in Asia this morning, bourses are generally following the US lead and trading lower. The Shanghai Composite (-2.71%), Kospi (-0.18%) and ASX (-0.78%) are all weaker whilst the Hang Seng (+0.07%) is largely unchanged. Japanese equity markets are closed today for a holiday. With little data this morning in the region, energy stocks are the notable underperformers and have extended losses with further falls for both WTI (-1.84%) and Brent (-1.66%).
Before we take a look at this week’s calendar, the latest Greek opinion polls over the weekend didn’t offer any surprises, with SYRIZA still holding the lead. Both the Kapa Research and Alco polls show SYRIZA with a 2.6% and 3.2% lead respectively over the New Democracy party. Greek 10y yields closed largely unchanged on Friday (+1.7bps) at 10.142%. Elsewhere in Russia, following further declines in oil markets and overhanging sanctions the sovereign’s rating was cut to BBB- with a negative outlook by Fitch on Friday. After a volatile 2014, the Russian Rouble has been relatively stable through the New Year, currently at 61.65/Dollar, having hit an all-time low versus the Dollar at 67.91 in mid-December.
In terms of the week ahead, it’s a quiet start to the calendar today with just the December business sentiment print in France due this morning. Later this afternoon in the US we enter the usual post payrolls lull with no notable releases although the Fed’s Lockhart speaking in Atlanta on the US economic outlook will be worth keeping an eye on. Things pick up tomorrow starting in Asia with trade data out of China and Japan. Later on inflation data out of the UK will perhaps be of most focus whilst industrial production in Italy and the German wholesale price index reading will also be of interest. Across the pond on Tuesday the notable releases include the December monthly budget statement along with the IBD/TIPP economic optimism print and NFIB small business optimism survey. As well as this the JOLTS report is worth keeping an eye on although we note the lag versus recent employment reports. The Fed’s Kocherlakota will also be speaking on the US outlook. It’ll be busy on Wednesday with preliminary December inflation data due out of France (market expecting 0.0% yoy) and the final reading for Italy along with industrial production for the Euro-area. As well as this, we’ll have the ECJ ruling on ECB policies. We’re not sure what will be made public but our economist generally expects a market friendly outcome. In the US on Wednesday we’ve got December retail sales as well as business inventories. On top of this Wednesday brings the release of the Fed’s Beige Book whilst the Fed’s Plosser is also speaking on the US economy. We kick off Thursday in Japan with PPI and follow this up in Europe with RICS house price data out of the UK, CPI in Spain, with the most notable release perhaps being the 2014 GDP print out of Germany with the market expecting a 1.5% yoy print. It’s a busy day in the US on Thursday with PPI, January Empire manufacturing, claims data and the January Philadelphia Fed business outlook all due. There’s plenty to look forward to on Friday with the final December inflation readings due for Germany (headline +0.1% yoy expected) and Euro-area (headline -0.2% yoy expected) both due. Friday in the US will likely be headlined by the December CPI reading (+0.7% yoy headline, +1.8% yoy core) followed up by December industrial and manufacturing production, capacity utilization and the preliminary January University of Michigan sentiment print.
Chinese Stocks Give Up 2015 Gains, Plunge On Kaisa Default Fears
The last session in China on Friday provided an epic roller-coaster as exuberant retail BTFD’ers met their match with fading inflation and surging default risk concerns. The Monday session has opened to more of the same – with the Shanghai Composite opening down another 1.3% and erasing all the year’s gains. As Shanghaio Daily reports, the Chinese property developer Kaisa Group Holdings (that we have discussed in detail here and who’s next here) failed to repay a US$26 million bond coupon, making it the first Chinese property firm to default on dollar bonds.
- *KAISA BONDHOLDERS STILL HAVEN’T RECEIVED COUPON PAYMENT
- *BONDHOLDERS HAVEN’T RECEIVED COUPON PAYMENT: PEOPLE FAMILIAR
Friday’s plunge in stocks continues…
As Shanghai Daily reports, Chinese property developer Kaisa Group Holdings Ltd failed to repay a US$26 million bond coupon on Thursday, making it the first Chinese property firm to default on dollar bonds.
The market had speculated that Kaisa would likely default on this 2020 HSBC bond coupon after it defaulted on an earlier HSBC facility in December. A CreditSights report written on Wednesday said that Kaisa will have a 30-day grace period to resolve the current situation if it were to default.
The resignation of Kaisa’s Chairman Kwok Ying Shing on December 31 triggered a default on the HK$400 million (US$51.6 million) facility from HSBC Holdings Plc. Chief Financial Officer Cheung Hung Kwong and Vice Chairman Tam Lai Ling had also quit earlier.
Shenzhen-based Kaisa declined to comment on its debt problem but warned last week in a statement that it may default again after it failed to repay the HSBC debt.
Meanwhile, authorities blocked four projects of Kaisa in Shenzhen, Guangdong Province, on suspicions that Kwok was related to a local corruption case.
Kaisa has dealings totaling 14 billion yuan (US$2.3 billion) with 11 financial institutions, and at least three of them have applied to a court in Shenzhen yesterday to seize Kaisa properties, said Wind Information Co.
As we concluded previously, (away from the exuberant equity markets)…
“Everyone is rethinking risk right now and so are we,” said Singapore-based Brayan Lai, the head of research and money manager at One Asia Investment Partners. The credit hedge fund has about $200 million of assets. “There are uncertainties about Chinese companies” amid concerns over Greece and U.S. debt markets, he said.
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It seems stocks are catching on fast…
It sure looks like they are preparing for a Grexit.
(courtesy zero hedge)
Citi, Goldman, ICAP And Others Prepare For Grexit… Again
Every couple of years the same identical European drill repeats itself: 1) Greece makes loud noises as it approaches an election, 2) Europe says it couldn’t care what the outcome is and that Greece should stay in the Euro but if it exits it won’t be a disaster, 3) the ECB reminds everyone of the lie that it is not preparing for Plan B (it is) despite holding on to over €100 billion in “credibility-crushing” Greek bonds, 4) panicking Greek banks say the deposit outflow situation is completely under control (adding that “The Bank of Greece along with the European Central Bank are monitoring closely the developments and intervene whenever this is necessary,” which is code word for far more familiar, five-letter word), and meanwhile 5) all non-Greek banks quietly start preparing for the worst case scenario.
So far this time around, we had everything but step “5”. We do now.
According to the WSJ, “banks and other financial institutions in Europe are stress-testing their internal systems and dusting off two-year-old contingency plans for the possibility Greece could leave the region’s monetary union after a key election later this month.Among the firms running through drills are Citigroup Inc., Goldman Sachs Group Inc. and brokerage ICAP PLC, according to people familiar with the matter.”
And soon enough Bloomberg, because who can possibly forget the mysterious appearance of the “XGD Crncy” in June of 2012, only to disappear moments later after a few hurried phone calls from Frankfurt…
But back to the banks: “The firms’ plans include detailed checks on counterparties that could be significantly affected by a Greek exit, looking at credit exposures and testing how they would provide cross-border funding to local operations.”
Some firms are also preparing for the impact on payment systems and conducting trial runs of currency-trading platforms to see how they would cope with adding a new Greek currency or dealing with potential capital controls.
The moves come as Greek leftist opposition party Syriza continues to lead in recent public opinion polls ahead of national elections on Jan. 25. The ruling coalition government has framed the election as a de facto poll on whether the country stays in the eurozone, saying Syriza’s antiausterity policies would force a break with eurozone partners. Syriza, though, hasn’t campaigned on an exit and most Greek voters want to stay in the monetary union, according to recent polls.
Summarizing Europe’s only strategy for the past 5 years is Frederic Ponzo, managing partner at consultancy Grey Spark: “Hope for the best, plan for the worst.”
At some European banks, that currently means dusting off plans drawn up a couple of years ago, when a eurozone breakup was a hot topic. In 2011 and 2012, banks, brokers and companies with significant exposure to Greek assets put in place contingency plans to minimize the fallout from a breakup.
Which is smart, because absolutely nothing has changed in Europe where not even “Mr. ECB Chairman got to work” but merely verbally hypnotized the bond vigilantes into a state of paralysis, and as a result, nothing at all has been fixed, aside from the idiotic low yields on European bonds all of which have been bought to ridiculous levels on what is now a 3 years frontrunning of an ECB action that has been three years in the coming, and which many say willnever actually arrive: the outright – and illegal according to Article 123 – monetization of European sovereign debt across the board.
It goes without saying that should the worst case scenario take place, the immediate question is who is next, and will the “XIL” be the next ticker everyone eagerly awaits:
The head of currencies trading at a large European bank said that reintroducing the Greek drachma to its trading system wouldn’t be too difficult, but dealing with a larger breakup would be more challenging.
“Italy could follow Greece’s steps if the exit will prove successful in providing some relief to the country’s economic crisis,” he said.
Italy… or Spain. Earlier today we got news that Spain’s own equivalent of Syriza is surging in the polls and has left the ruling socialist party in the dust: “A poll published on Sunday showed that leftist up start Podemos was again in the lead to winSpain’s next general election, which could result in the formation of party pacts, or even the country’s first coalition government.”
The Metroscopia poll of 1000 people, published in the left-leaning newspaper El Pais, showed one-year-old Podemos (We Can) would take 28.2 percent of the vote, up from 25 percent in December when it fell back to second place behind the Socialists. Podemos stood at 10.7 percent of the vote when it was first included last August.
So assuming Europe survives the Greek election in 2 weeks it has a Spanish redux to look forward to in less than 12 months:
Spain has a general election due by the end of the year and a regional and municipal election expected in May. Most of those who told Metroscopia they would vote for Podemos said they believed Spain needed to get rid of its two-party system.
If only Americans shared the same sentiment.
And yet while democracy has always been the Achilles heel in Europe’s artificial political and monetary construct which works in an ideal world dominated by technocrats, it is not even the Greek, or Spanish, elections that may be the biggest risk.
As Reuters also reminds us, a “landmark” legal opinionthis week will remind the European Central Bank as soon as Wednesday of the limits it faces as it advances towards money printing. With expectations high that the ECB is on the verge of buying government bonds with new money to shore up the economy, an influential adviser to Europe’s top court will give his view on Jan. 14 about an earlier unused bond-buying scheme.
“It is the latest chapter in a long-running and increasingly bitter dispute about quantitative easing (QE) between the ECB and Germany, the largest member of the 19-country bloc, that is likely to limit the size or scope of such a program. As the debate continues, the euro zone economy is all but grinding to a halt. Germany is expected to announce modest growth on Jan. 15 for last year.”
Here is how SocGen summarizes the threats from just the European Court of Justice decision this week, and its potential downstream affects:
“Whatever it takes”. This was the promise made by ECB President Draghi on 26 July 2012 and cemented by the OMT on 6 September 2012. Since then, market participants have placed their faith in this promise. On 12 September 2012, the German Federal Constitutional Court (GFCC) announced it would examine whether the OMT is an ultra vires act stretching beyond the limits established by the German Act approving the ESM (link to decision here).
A still lengthy process ahead, but the GFCC will have the final say: Fast forward to 7 February 2014 when the GFCC delivered its decision on the OMT (link here), referring the case to the European Court of Justice (ECJ) for a preliminary ruling (for more on the process click here), but maintaining that in case of an ultra vires act, the GFCC is competent to rule on the constitutionality of the OMT. The next key date is 14 January, when Advocate General Cruz Villalón delivers his opinion in the case (link to ECJ proceedings here). A final ruling from the ECJ will follow only months later, and the Advocate General’s opinion does not have to be followed. Only then will the GFCC give its final ruling and it may, by then, well be 2016.
If the OMT is not adapted, the GFCC is very likely to reject it: The GFCC decision already concluded that the OMT in its current form exceeds the ECB’s mandate, by encroaching upon the responsibility of the Member States for economic policy, and by being incompatible with the prohibition of monetary financing. The GFCC also suggested a possible interpretation in conformity with Union Law. In essence, it identifies three points to address.
1. Introduce a maximum limit on OMT purchases: In presenting OMT, the ECB declared it “unlimited”. In statements submitted to the GFCC, however, the ECB noted that given that OMT can only buy debt with a maturity of up to 3 years, this de facto sets a maximum of €524bn (for Italy, Spain, Portugal and Ireland). The GFCC is nonetheless concerned that this “implicit” limitation could easily be circumvented by increased sovereign issuance on shorter maturities.
SG view: Introducing an explicit limit on the potential size of OMT is likely to address GFCC concerns on “unlimited”. A limit of €500bn is, in our opinion, unlikely to trigger significant market concerns as this would still leave the OMT well armed to offer targeted support to a member states under an eventual ESM program.
2. Set a locking period around issuance: The GFCC flagged the potentially blurred line between purchases in primary and secondary markets. The former is prohibited under the Treaty while the latter is allowed. In its statements, the ECB noted that a locking period will be determined in a guideline, but not published.
SG view: A clear commitment to a locking period should suffice on this point.
3. Limit pari passu: A key strength of OMT is the promise to be pari passu with private investors in the event of a debt restructuring. In its statements to the GFCC, the ECB claimed that liability risk to national budgets is minimised by sufficient risk prevention, but added that should losses nonetheless occur they could be carried forward and balanced with revenues in the following years. The Bundesbank in its statements disagreed, noting every loss that it incurs burdens the German federal budget. The GFCC support this view highlighting that “the possibility of a debt cut must be excluded”.
SG view: To our minds, the pari passu status of the OMT is unlikely to survive the various court proceedings, marking a blow to Draghi’s “whatever it takes” promise and increasing loss-given-default for private investors. Note, that the decision by the GFCC on the ESM excludes the possibility of the ESM assuming OMT credit risk as this would de facto leverage the mechanism. To change this, the ESM Treaty would need to be renegotiated, with all the complications that this would entail.
Somewhat surprisingly, the GFCC decision had essentially no market impact when it was released back in February. Market faith in euro area government’s efforts to deliver growth and sustainable public finances offers one possible explanation. Given significant fears on sustained lowflation, we believe that more recently it is the promise of a large sovereign QE program that offers support to market confidence.
None of the above is even remotely influenced by the subsequent Greek elections and the ECB’s potential QE announcement on January 22 (which SocGen summarizes as follows: “QE unlikely to be both large scale and pari passu”).
For simplicity’s sake, here is the full calendar of risk events in just the next 2 weeks, any single one of which has the potential to send the market soaring… or crashing.
In short: New Drachma or not, the European doldrums are over. We hope that everyone enjoyed them while the lasted. Up next: deja vu Eurosis, all over again.
Greek citizens have stopped paying taxes since they are not sure if there is going to be a government in two weeks. Citizens are also moving their euros out of Greek banks and as such you can safely say we are having a bank run in Greece.
(courtesy zero hedge)
Greeks Stop Paying Taxes Ahead Of Elections As Central Bank Scrambles To Halt Bank Run Rumors
In what appears to be a desperate attempt to boost confidence in a failing financial system taken right out of the 2011/2012 playbook, over the weekend the National Bank of Greece had its latest “subprime is contained” moment and loudly announced that “the situation with deposit outflows from the country was under control” as it tried to reassure markets ahead of a Jan. 25 snap election, reports Kathimerini.
Why the urge to frontrun concerns of bank runs? Simple: the Greek media reported that there have been significant deposit outflows in recent days due to political uncertainty two weeks ahead of early elections.
Opinion polls show that the radical leftist Syriza party maintains its lead over the ruling conservatives.
“After reports about deposit outflows from the country’s banks, the Bank of Greece notes that the situation is under full control,” the central bank said in a statement.
“The Bank of Greece along with the European Central Bank are monitoring closely the developments and intervene whenever this is necessary,” it said.
Of course, one doesn’t need three official denials – one should suffice – to know that things are serious and the National Bank of Greece has to lie. In fact, expect things to get a lot more serious in the next two weeks, especially if Syriza’s lead in polling widens from the current 3-6% lead over New Democracy as reported by various polling agencies.
However, while there will be no official confirmation whether Greece did or did not have a bank run for months, unless of course some bank keels over and dies in the interim, one thing is certain: with an increasing probability they may not have a “continuity-promoting” government in less than two weeks, Greeks tax remittances to the government, which were almost non-existent to begin with, have ground to a halt!
According to a second Kathimerini report, budget revenues have slumped over the last few days as a result of the upcoming elections and taxpayers’ uncertainty about the future.
The Finance Ministry has recorded a remarkable slowdown in applications for settlement of debts to the state through the 100-installment program, as well as a reduction in revenues from the single property tax (ENFIA), while the payment of arrears to social security funds appears to have stalled.
It appears taxpayers everywhere are learning from the best: their insolvent governments. In this case, Greek (non) taxpayers have decided to slow down their mandatory remittances to the government even more because the government may just not exist in two short weeks:
Most taxpayers have chosen to delay their payments, given that the positions of the two main parties leading the election polls are diametrically opposite: Poll leader SYRIZA promises to cancel the ENFIA and even write off bad loans, while ruling New Democracy acknowledges the difficulties but is avoiding raising issues that would generate problems and fiscal consequences.
The dwindling state revenues will not only hamper the next government’s fiscal moves, but, given that the fiscal gap will expand, also negotiations with the country’s creditors. The Finance Ministry will have to make plans for new measures and make sure that salaries, pensions and operating expenses are covered, especially in case the creditors do not pay the bailout installments which are already overdue.
Speaking to Kathimerini, a top ministry official confirmed the major slowdown in the rate of applications for debt settlement, and referred to post-election consequences from the shortfall in state revenues. The tax collection mechanism appears to be largely out of action while expired debts are swelling due to taxpayers’ wait-and-see tactics and the reduction in inspections. The same official pointed out that it is normal for revenues to lag during election periods, adding that this time there is no scope for shortfalls.
And since the current Greek government largely operates on behalf of unelected Brussels eurocrats, we applaud this action by the Greeks to finally take matters into their own hands. Perhaps what is more confusing is that Greeks were actually paying any taxes in the past 5 years.
Thank You Western Taxpayer: Russia To Accelerate $3bn Of Ukraine Debt
Just 13 short months ago – two months before then President Yanukovich was ousted – Russia lent Ukraine $3 billion (by buying their Eurobonds). As Reuters reports,the terms of that loan included a condition that Ukraine’s total state debt should not exceed 60% of its GDP. As of last month, based on Moody’s estimates, Ukraine has violated that condition with a debt-to-GDP of 72% (and will likely rise to 85% of GDP in 2015).. and so, according to Russian finance minister Anton Siluanov, “Russia has the right to demand early return of this loan.” With European aid ‘contingent on major reforms’ and possibly taking up to 1 year, this leaves the good old IMF (i.e. the US and European taxpayer) to bridge Ukraine’s ‘gap’ and ironically bailout Russia.
As Reuters reports, Russia can demand early repayment of the $3 billion loan at any time…
Ukraine has violated the terms of a $3 billion Russian loan but Moscow has not yet decided whether to demand early repayment, Russian Finance Minister Anton Siluanov was quoted on Saturday as saying.
Russia lent the money in December 2013 by buying Ukrainian Eurobonds, two months before Ukraine’s then-president, the pro-Moscow Viktor Yanukovich, fled the country amid mass protests against his rule.
The terms of the loan deal included a condition that Ukraine’s total state debt should not exceed 60 percent of its annual gross domestic product (GDP).
Last month, rating agency Moody’s estimated that Ukraine’s debt amounted to 72 percent of GDP in 2014 and would rise to 83 percent in 2015. It also said “the risk of default is rising”.
“Ukraine has definitely violated the terms of the loan, and in particular (the condition) not to increase its state debt above 60 percent of GDP,” Russia’s Siluanov said, according to Interfax news agency.
“So Russia definitely has the right to demand early return of this loan. At the same time, at present this decision has not yet been taken.”
But, as Bloomberg notes, the European Union “support” could take a while and it is entirely contingent upon tough reforms for Ukraine…
The European Union is considering a further 1.8 billion euros ($2.1 billion) in aid to Ukraine to help the former Soviet republic overhaul its economy, which has been ravaged by a separatist conflict in its easternmost regions.
The European Commission, the EU executive, said the fresh loans, on top of $17 billion already pledged in the International Monetary Fund-led rescue of the troubled country, were contingent on the Ukrainian government pushing through economic reform measures and fighting corruption.
The EU has provided “unprecedented financial support and today’s proposal proves that we are ready to continue providing that support,” Commission President Jean-Claude Juncker said today in a statement. “Solidarity goes hand in hand with commitment to reform, which is urgently needed in Ukraine.”
Disbursement of the aid, which must still be approved by the European Parliament and the EU’s 28 governments, will depend on Ukraine’s adherence to the conditions of the IMF program, which include fiscal consolidation, changes in the energy and banking industries, and other measures, the commission said.
This would be the EU’s third package of loans to Ukraine, following two totaling 1.6 billion euros approved last year. A final portion of 250 million euros from the earlier aid is due to be given within the first months of this year, according to the commission.
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So – while Russia ‘suffers’ under the thumb of plunging oil prices and a tumbling currency crisis, a simple decision to push Ukraine into early repayment could leave Europe – having paid out their entire Ukraine bailout to Russia – asking for moar help from the IMF (i.e. The US Taxpayer) to keep the ‘crucial’ nation state of Ukraine from default.
Ukraine Default Risk Soars As Reserves Collapse 63% YoY
Amid contingent offers of more bailout loans from Europe, and a looming $3bn debt repayment to Russia, Ukraine’s default risk has surged once again to post-crisis record highs. With missing gold and despite foreigners encouraging investment, Ukraine’s reserves are in total freefall as this morning’s data shows a new low and down a stunning 63% year-over-year.
Not what Obama wanted…
Commodity Carnage Continues – Copper & Crude Crushed
Despite calls for a bottom all the way down from $90, $85, $80, $75, $70, $65, $60, $55, and then $50… crude oil prices (both Brent and WTI) are now below that crucial level (and as Kyle bass notes, even very wealthy nations like Saudi Arabia and Norway are going to have to tap into their sovereign wealth funds to support their annual budgets this year or next). WTI is trading with a $46 handle once again (at fresh cycle lows), and Brent is trading oince again at fresh cycle lows with a $48 handle. Just as worrying away from the apparently OPEC-over-supplied (and nothing to do with demand) oil complex, copper prices just broke below $6000/mt for the first time in 5 years (which ‘over-supplier’ will get the blame for that? Or is it really about demand after all, just as Saudi Prince bin Talal warned). And don’t mention Iron ore, Steel, Aluminum… which all hit new cycle lows…
WTI is at cycle lows – trading $46.71
Brent hits the $48 handle again and fresh cycle lows…
Copper tumbled throuigh $6000/MT for the first time since 2009…
And apart from these crucial raw materials for economic growth….
At around 1 pm:
Gold Hits $1235 As Commodities Crash To 12-Year Lows Amid $45 Oil
The only other times that Bloomberg’s broad-based (i.e. not all OPEC’s fault) Commodity Index has fallen so far so fast was in 1999 (before stocks crashed) and 2008 (before stocks crashed). At 12-year lows, the raw material of the world’s economies is flashing a big fat red warning signal that all is not well (despite stocks being a ‘smidge’ off record highs). WTI traded with a $45 handle… but apart from that, everything’s great (oh wait and the 230 pip USDJPY roundtrip). Amid all this turmoil, gold just broke to $1235 – its highest in a month.
Gold is resurging…
As Commodities are at 12-year lows…
WTI trades with a $45 handle…
And USDJPY is in trouble…
Your more important currency crosses early Monday morning:
Eur/USA 1.1789 down .0048
USA/JAPAN YEN 119.17 up .718
GBP/USA 1.5134 down .0012
USA/CAN 1.1900 up .0038
This morning in Europe, the euro continues on its downward spiral, trading down and now well below the 1.18 level at 1.1789 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. He now wishes to give gift cards to poor people in order to spend. The yen continues to trade in yoyo fashion. This morning it settled down in Japan by 72 basis points and settling well below the 120 barrier to 119.17 yen to the dollar. The pound was down this morning as it now trades just above the 1.51 level at 1.5124.(very worried about the health of Barclays Bank and the FX/precious metals criminal investigation/Dec 12 a new separate criminal investigation on gold,silver oil manipulation). The Canadian dollar is well down today trading at 1.1900 to the dollar. It seems that the global dollar trade is being unwound. The total dollar global short is 9 trillion USA, and as such we now witness a sea of red blood on the streets as derivatives blow up.We also have the second big yen carry trade unwind as the yen refuses to blow past the 120 level. These massive carry trades are causing deflation as the world reacts to a lack of demand. Europe is even considering the “helicopter route” in providing cash to all citizens (around 3,000 Euros per person)
Early Monday morning USA 10 year bond yield: 1.98% !!! up 1 in basis points from Friday night/
USA dollar index early Monday morning: 92.32 up 39 cents from Friday’s close
The NIKKEI: Monday morning : off
Trading from Europe and Asia:
1. Europe stocks all in the green.
2/ Asian bourses mostly in the green … Chinese bourses: Hang Sang in the green ,Shanghai in the red, Australia in the red: /Nikkei (Japan) off/India’s Sensex in the green/
Gold early morning trading: $1220
Closing Portuguese 10 year bond yield: 2.60% down 4 in basis points from Friday
Closing Japanese 10 year bond yield: .28% !!! par in basis points from Friday
Your closing Spanish 10 year government bond, Monday down 8 in basis points in yield from Friday night.
Spanish 10 year bond yield: 1.64% !!!!!!
Your Monday closing Italian 10 year bond yield: 1.81% down 7 in basis points from Friday:
trading 17 basis points higher than Spain:
IMPORTANT CLOSES FOR TODAY
Closing currency crosses for Monday night/USA dollar index/USA 10 yr bond:
Euro/USA: 1.1844 up .0006
USA/Japan: 118.27 down .127
Great Britain/USA: 1.5180 up .0035
USA/Canada: 1.1957 up .0095
The euro rose a lot in value during the afternoon and by closing time , finishing, it finished up by .0006 and well above the 1.18 level to 1.1844. The yen was well up in the afternoon, but it was up by closing to the tune of 13 basis points and closing well below the 119 cross at 118.27 still causing much grief again to our yen carry traders who need a much lower yen. The British pound gained some ground during the afternoon session but it was up on the day closing at 1.5180. The Canadian dollar was down badly in the afternoon and was down on the day at 1.1957 to the dollar.
As explained above, the short dollar carry trade is being unwound and this is causing massive derivative losses. This is being coupled with those unwinding their yen carry trades. As such massive derivative losses have occurred, blowing up this powder keg!!
Your closing USA dollar index: 91.96 up 2 cents from Friday.
your 10 year USA bond yield , down 6 in basis points on the day: 1.91%!!!!
European and Dow Jones stock index closes:
England FTSE up 0.28 points or 0.00%
Paris CAC up 49.17 or 1.18%
German Dax up 133.40 or 1.38%
Spain’s Ibex up 78.50 or 0.81%
Italian FTSE-MIB up 172.06 or 0.95%
The Dow: down 96.53 or 0.54%
Nasdaq; down 39.36 or 0.84%
OIL: WTI 45.85 !!!!!!!
Closing USA/Russian rouble cross: 62.96 down 1 1/2 roubles per dollar on the day.
And now for your more important USA economic stories for today:
(Your trading today from the New York):
Crude Crash Erases Stocks’ “Catastrophe” Exuberance, Bonds & Bullion Surge
Did something change? The Dow just avoided its 6th day in a row of triple-digit moves…
Despite crude’s overnight collapse to fresh lows, stocks stahed their usual pumpathon into the opening bell… but that was rapidly erased – along with all the gains post-Charlie Evans’ “catastrophe” comment… not helped by Fed’s Williams late-day confirmation that:
- FED’S WILLIAMS SAYS JUNE RATE RISE `REASONABLE’ AMID JOB GAINS
- WILLIAMS SAYS U.S. LABOR MARKET CONTINUING `STRONG MOMENTUM’
On the day in the cash indices, Nasdaq and S&P underperformed…
Energy was today’s biggest loser and Builders – thanks to another miracle squeeze – outpeformed…
And from the ‘awesome jobs report’…
All managed by JPY (which massively roundtripped against the USD) mostly against the EUR…
As stocks begin to catch down to oil prices…
led by Energy stocks…
And Stocks retrace back lower towards bonds year-to-date reality…
Treasury yields hit fresh multi-year lows…
The USDollar gave back most of its gains during the US day session but closed higher…
Commodities saw mixed action with the dollar weakness during the US session supporting more strength in PMs (gold at one month highs) as oil prices cratered to fresh cycle lows…
With WTI closing at the lows of the day – with a $45 handle!!
Let us close with this Greg Hunter interview with Dr Lawrence Kotlikoff. (Remember he is the one who states that the total USA obligations are over 220 trillion dollars)
(courtesy Greg Hunter/Dr Lawrence Kotlikoff)
European Bank Runs Could Come to America-Laurence Kotlikoff
By Greg Hunter’s USAWatchdog.com (Early Sunday Release)
Boston University Economics Professor Laurence Kotlikoff says Greece is, once again, in financial trouble and that could set off another global financial calamity. Dr. Kotlikoff contends, “So, you have the same problem. You have a country that is fiscally unsustainable, and they haven’t really been able to get out from under that situation. . . . It sets up a situation where you could have runs on other banks like in Italy, Spain, Portugal, and that could spread to other banks in other countries, including France and Germany. Remember, the big to do about the Cypriot banks that failed and said they weren’t going to pay off the depositors? That led to a major international panic. It was a small country with two relatively small banks.”
So, a daisy chain of defaults and bank runs could happen in Europe. Could it also come to America? Dr. Kotlikoff says, “Yes, it could also come to the U.S. If everybody believes the banks are going to be solvent and they can get their money out, that’s fine. But if everybody starts to run on the banks, you want to run before they do because you want to get you money out before it’s all gone.”
With the price of oil plunging, Russian banks are also at risk. Dr. Kotlikoff says, “There are questions about the sustainability of Russia’s fiscal policy now that oil prices have dropped so much. About 40% of the revenues for Russia come from the oil sector. So, now you see what you say in 1998, which is the concern about Russian banks failing. They did fail in ’98, and there were concerns about the government printing money.” Dr. Kotlikoff goes on to say, “Demand deposit insurance, in the United States it’s FDIC insurance, is not real insurance if everybody is concerned about inflation. If I know prices are going to skyrocket . . . and I think prices are going to be rising rapidly, first thing I want to do is go get that money and buy something real. So, money starts becoming a hot potato. That’s what happens in hyperinflation. . . . We have the basis for hyperinflation given the policies the Fed has been running.”
Dr. Kotlikoff, who was also a top economist in the Reagan Administration, thinks if things get out of control, we’ll get hyperinflation–not deflation. Dr. Kotlikoff warns, “I think it’s already gotten out of control because of the amount of money that has been printed. I don’t think anything fundamental has been done in the U.S. or Europe to address the structural issues. The banking system is in riskier shape than it was. There is nothing in the Dodd-Frank legislation that I see in terms of keeping us from anther meltdown or another run on the banks that we had before. I do worry about that, and I worry that in the U.S. we have no adult leadership in either party. . . . Social security is 33% under-financed, according to its own trustees report. . . . Our entire fiscal enterprise is about 58% under-financed, meaning we need a 58% immediate increase in our taxes to cover all the spending that we have. . . . So, the country is really broke.”
Join Greg Hunter as he goes One-on-One with renowned economist Dr. Laurence Kotlikoff.
(There is much more in the video interview.)
We will see you on Tuesday.
bye for now