Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1107.60 up $3.40 (comex closing time)
Silver $15.29 unchanged.
In the access market 5:15 pm
Gold $1109.00
Silver: $15.37
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a good delivery day, registering 172 notices for 17,200 ounces Silver saw 1 notice for 5,000 oz
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 232.10 tonnes for a loss of 71 tonnes over that period.
In silver, the open interest rose by 1,247 contracts as silver was up 47 cents in price yesterday. The total silver OI continues to remain extremely high, with today’s reading at 180,433 contracts In ounces, the OI is represented by .902 billion oz or 128% of annual global silver production (ex Russia ex China). This dichotomy has been happening now for quite a while and defies logic. There is no doubt that the silver situation is scaring our bankers to no end as they continue to raid as basically they have no other alternative.
In silver we had 1 notice served upon for 5,000 oz.
In gold, the total comex gold OI rests tonight at 431,323. We had 172 notices filed for 17,200 oz today.
We had no change in gold leaving the GLD today / thus the inventory rests tonight at 667.93 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. I thought that 700 tonnes is the rock bottom inventory in GLD gold, but I guess I was wrong. However we must be coming pretty close to a level of only paper gold and the GLD being totally void of physical gold. In silver, we had no changes in silver inventory at the SLV, / Inventory rests at 326.209 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rose by 1247 contracts up to 180,433 as silver was up 47 cents in price yesterday’s trading. The OI for gold rose by 5,227 contracts to 431,323 contracts as gold was up by $10.10 in yesterday’s trading. We still have a little over 20 tonnes of gold standing with only 15.206 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.
(report Harvey)
2.Gold trading overnight, Goldcore
(/Mark OByrne)
3.One stories today on Greece
(zero hedge)
4.The big story of the day/China devalues
(4 huge commentaries/zero hedge/Bill Holter/Reuters/bloomberg)
5 Trading of equities/ New York
(zero hedge)
6. Two oil related stories
(zero hedge)
7. Has Brazil hit rock bottom?
(zero hedge)
8. USA commentary:
i) Wholesaler inventories rise yet sales falter suggesting a huge red flag/USA facing a huge recession/depression
ii) The “Death cross” has just happened: the 50 day moving average surpasses the 200 day moving average. When this happens a huge downfall in the Dow is imminent
(zero hedge)
8. Physical commentaries:
i) Bill Holter/two commentaries tonight
a) Open letter to mining company executives
b) an explanation of today’s huge news concerning China’s devaluation
ii) Hugo Salinas Price: will China finally show its gold card?
iii Lawrence Williams of Mineweb where the author describes gold now trading differently as it defies gravity.
The total gold comex open interest rose from 426,096 to 431,323 for a gain of 5227 contracts as gold was up $10.10 on yesterday. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter continued with its decline after a two day hiatus. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. We are now in the contract month of August and here the OI fell by 394 contracts falling to 3249 contracts. We had 18 notices filed upon yesterday and thus we lost 376 contracts or 37600 additional ounces will not stand for delivery. We must have had some cash settlements today. The next delivery month is September and here the OI fell by 34 contracts down to 2258. The next active delivery month if October and here the OI rose by 1451 contracts up to 27,279. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was excellent at 278,912. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 161,194 contracts. Today we had 172 notices filed for 17,200 oz.
And now for the wild silver comex results. Silver OI rose by 1247 contracts from 179,186 down to 180,433 as silver was up in price by 47 cents yesterday . We continue to have some short covering as our bankers pulling their hair out with respect to the continued high silver OI as the world senses something is brewing in the silver arena. We are in the delivery month of August and here the OI fell by 1 contract falling to 30. We had 0 delivery notice filed yesterday and thus we lost 1 contract or an additional 5,000 ounces will not stand for delivery in this non active August contract month. The next major active delivery month is September and here the OI fell by 3,757 contracts to 97,758. The estimated volume today was huge at 73,405 contracts (just comex sales during regular business hours). The confirmed volume yesterday (regular plus access market) came in at 66,388 contracts which is excellent in volume. We had 1 notice filed for 5,000 oz.
August contract month: initial standing
August 11.2015
| Gold |
Ounces |
| Withdrawals from Dealers Inventory in oz | nil |
| Withdrawals from Customer Inventory in oz | 11,450.444. oz (Scotia,Delaware) |
| Deposits to the Dealer Inventory in oz | nil |
| Deposits to the Customer Inventory, in oz | nil |
| No of oz served (contracts) today | 172 contracts (17,200 oz) |
| No of oz to be served (notices) | 3077 contracts (307,700 oz) |
| Total monthly oz gold served (contracts) so far this month | 3373 contracts(337,300 oz) |
| Total accumulative withdrawals of gold from the Dealers inventory this month | nil |
| Total accumulative withdrawal of gold from the Customer inventory this month | 408,907.4 oz |
Today, we had 0 dealer transactions
total Dealer withdrawals: nil oz
we had 0 dealer deposits
total dealer deposit: zero
total customer withdrawal: 11,450.444 oz
We had 0 customer deposits:
Total customer deposit: nil oz
We had 0 adjustments
JPMorgan has 7.1966 tonnes left in its registered or dealer inventory.
(231,469.56 oz)
.
Today, 0 notices was issued from JPMorgan dealer account and 172 notices were issued from their client or customer account. The total of all issuance by all participants equates to 172 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 August contract month, we take the total number of notices filed so far for the month (3373) x 100 oz or 337,300 oz , to which we add the difference between the open interest for the front month of August (3249) and the number of notices served upon today (172) x 100 oz equals the number of ounces standing
Thus the initial standings for gold for the August contract month:
No of notices served so far (3373) x 100 oz or ounces + {OI for the front month (3249) – the number of notices served upon today (172) x 100 oz which equals 645,000 oz standing so far in this month of August (20.26 tonnes of gold).
We lost 376 contracts or an additional 37,600 ounces will not stand for delivery.
Thus we have 20.26 tonnes of gold standing and only 15.206 tonnes of registered or dealer gold to service it.
Total dealer inventory 489,964.93 or 15.239 tonnes
Total gold inventory (dealer and customer) = 7,462,089.143 (232.10 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 232.10 tonnes for a loss of 71 tonnes over that period. The gold comex is bleeding gold.
end
And now for silver
August silver initial standings
August 11 2015:
| Silver |
Ounces |
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory | 1,402,338.735 oz (CNT, Brinks Scotia) |
| Deposits to the Dealer Inventory | nil |
| Deposits to the Customer Inventory | 443,807.379 oz (Delaware) |
| No of oz served (contracts) | 1 contract (5,000 oz) |
| No of oz to be served (notices) | 29 contracts (145,000 oz) |
| Total monthly oz silver served (contracts) | 46 contracts (230,000 oz) |
| Total accumulative withdrawal of silver from the Dealers inventory this month | 85,818.47 oz |
| Total accumulative withdrawal of silver from the Customer inventory this month | 6,402,576.0 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 deposits:
i) Into Delaware: 443,807.379 oz
total customer deposits: 443,807.379 oz
We had 3 customer withdrawals:
i) Out of Brinks: 26,065.12 oz
ii) Out of Scotia: 91,700.33 oz
iii) Out of CNT: 1,284,573.285 oz
total withdrawals from customer: 1,402,338.735 oz
we had 0 adjustments
Total dealer inventory: 55.839 million oz
Total of all silver inventory (dealer and customer) 171.518 million oz
The comex has been bleeding both gold and silver.
The total number of notices filed today for the August contract month is represented by 1 contracts for 5,000 oz. To calculate the number of silver ounces that will stand for delivery in August, we take the total number of notices filed for the month so far at (46) x 5,000 oz = 230,000 oz to which we add the difference between the open interest for the front month of August (30) and the number of notices served upon today (1) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the August contract month:
46 (notices served so far)x 5000 oz + { OI for front month of August (30) -number of notices served upon today (1} x 5000 oz ,= 375,000 oz of silver standing for the August contract month.
we lost 1 contract or an additional 5,000 ounces will not stand in this non active delivery month of August.
for those wishing to see the rest of data today see:
http://www.harveyorgan.wordpress.comorhttp://www.harveyorganblog.com
end
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:
August 11.2015: no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes
August 10/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes
August 7./no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes
August 6/no change in gold inventory at the GLD/Inventory rests at 667.93 tonnes
August 5.we had a huge withdrawal of 4.77 tonnes from the GLD tonight/Inventory rests at 667.93 tonnes
August 4.2015: no change in inventory/rests tonight at 672.70 tonnes
August 3.2015: no change in inventory at the GLD./Inventory remains at 672.70 tonnes
July 29/no change in inventory/rests tonight at 680.13 tonnes
July 28/no change in inventory/rests tonight at 680.13 tonnes
July 27/no change in inventory/rests tonight at 680.13 tonnes
July 24.2015/we had another massive withdrawal of 4.48 tonnes of gold form the GLD/Inventory rests at 680.13 tonnes.
July 23.2015: we had another withdrawal of 2.68 tonnes of gold from the GLD/Inventory rests at 684.63 tonnes
july 22/another withdrawal of 2.38 tonnes of gold from the GLD/Inventory rests at 687.31
July 21.2015: a massive withdrawal of 6.56 tonnes of gold from the GLD.
Inventory rests at 689.69 tonnes. China and Russia need their physical gold badly and they are drawing their physical from this facility.
August 11 GLD : 667.93 tonnes
end
And now SLV:
August 11./ no changes in SLV inventory/rests tonight at 326.209 million oz.
August 10: no changes in SLV inventory/rests tonight at 326.209 million oz.
August 7.no changes in SLV/Inventory rests this weekend at 326.209 million oz
August 6/no changes in SLV/inventory rests at 326.209 million oz
August 5/ a small withdrawal of 142,000 oz of inventory leaves the SLV/Inventory rests tonight at 326.209 million oz
August 4.2015: a small withdrawal of 476,000 oz of inventory at the SLV/Inventory rests at 326.351 million oz
August 3.2015; no change in inventory at the SLV/inventory remains at 326.829 million oz
July 29/no change in silver inventory/326.829 million oz
July 28/we had a huge withdrawal of 2.005 million oz from the SLV/Inventory rests at 326.829 oz
July 27/no change in silver inventory/inventory rests tonight at 328.834 million oz
July 24/no change in silver inventory/inventory rests tonight at 328.834 million oz
July 23.2015; no change in silver inventory/rests tonight at 328.834 million oz
july 22/no change in silver inventory/inventory rests at 328.834 million oz.
July 21.we had a massive addition of 1.241 million oz into the SLV/Inventory rests tonight at 328.834 million oz.
August 11/2015: tonight inventory rests at 326.209 million oz
end
And now for our premiums to NAV for the funds I follow:
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 11.5 percent to NAV usa funds and Negative 11.9% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.3%
Percentage of fund in silver:38.4%
cash .3%
( August 11/2015)
2. Sprott silver fund (PSLV): Premium to NAV rises to -0.56%!!!! NAV (August 11/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to – .71% to NAV(July August10/2015)
Note: Sprott silver trust back into negative territory at- 0.56%
Sprott physical gold trust is back into negative territory at -.71%
Central fund of Canada’s is still in jail.
Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:
SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64)
Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis.
Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer.
Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer.
* * * * *
>end
And now for your overnight trading in gold and silver plus stories
on gold and silver issues:
(courtesy/Mark O’Byrne/Goldcore)
Gold Bullion Holds Its Own As Media Stocks Collapse
Daily Prices
Today’s Gold prices were USD 1,113.25, EUR 1008.97 and GBP 713.74 per ounce.
Yesterday’s Gold prices were USD 1,094.80, EUR 998.50 and GBP 707.74 per ounce.
[LBMA AM prices]
Gold in USD – 1 Week
Gold and silver rose on the COMEX yesterday – up 1% to $1,103.30 and silver surged 3% to $15.24 per ounce. Both metals saw similar gains in euro, sterling and other currencies.
This morning, gold is 0.8% higher to $1,114 per ounce. Silver is up 0.82% to $15.46 per ounce.
Platinum and palladium are 1.1% and 1.8% higher to $999 and $624 per ounce respectively.
Gold Holds Its Own As Media Stocks Collapse
- That hasn’t stopped many gold bears from using this as an opportunity to disparage the yellow metal
- A recent Bloomberg article points out that the gold rout has cost China and Russia $5.4 billion
- An amount that would sound colossal were it not for the fact that U.S. media companies such as Disney and Viacom collectively lost over $60 billion for shareholders in as little as two days last week
- Above are the weekly losses for just a handful of those companies. Compared to many other asset classes, gold has held up well, even after factoring in its price decline
Read more on ‘Gold Holds Its Own As Media Stocks Collapse
end
The big announcement of the day:
(courtesy Reuters/GATA)
China’s devaluation raises currency war fear as Greece strikes deal
By Nigel Stephenson
Reuters
Tuesday, August 11, 2015
LONDON — China’s shock 2 percent devaluation of the yuan on Tuesday pushed the dollar higher and raised the prospect of a new round of currency wars, just as Greece reached a new deal to contain its debt crisis.
Stocks fell in Asia and Europe as investors worried about the implications of a move designed to support China’s slowing economy and exports.
The stronger dollar hit commodity prices, driving crude oil down after Monday’s hefty gains.
Weaker stocks lifted top-rated bonds, with yields on euro-zone debt also falling on the Greek deal, struck nine days before Athens is due to repay 3.2 billion euros to the European Central Bank.
China’s move, which the central bank described as a “one-off depreciation” based on a new way of managing the exchange rate that better reflected market forces, triggered the yuan’s biggest fall since 1994, pushing it to its lowest level against the dollar in almost three years. …
… For the remainder of the report:
http://www.reuters.com/article/2015/08/11/us-markets-global-idUSKCN0QG00.
end
Gold soars today after China devalues its currency setting up a currency war:
(courtesy zero hedge)
Gold Soars After Chinese Currency Devaluation
Yesterday, immediately in the aftermath of the PBOC’s dramatic devaluation announcement, we remarked the following:
To be sure, while it will take the Chinese mainland a few more hours to realize just what happened, and that once you unleash the devaluation genie in a global currency war you can’t simply put it back in, which means over one billion Chinese will soon be scrambling to preserve their purchasing power (but not in the stock market which particular bubble burst just last month and taught millions a very harsh lesson in get rich quick schemes), some fast thinkers realized that not only will capital outflows explode in the coming weeks and months, but that holding one’s savings in Yuan will be, well, foolish.
As a result, after initially tumbling for some inexplicable reason after the PBOC announcement, gold is now soaring back to levels from mid-July and going higher.

Here we eagerly await as the BIS’ Benoit Gilson sells a few billion in paper gold just to reset the price of gold lower as a surge in gold, and a loss of faith in paper money, at this juncture in just broken out global currency wars, is the last thing the central banks’ central bank can afford.
But wait, there’s more: because any day now the PBOC will update its revised foreign reserve and gold holdings. And so the next big leg up in gold will take place when it is revealed that the PBOC had only exposed a portion of its “new” total gold inventory, and that with every passing month it will simply reveal more and more as central-planning conditions demand it.
end
(courtesy Hugo Salinas Price
Will China Play The ‘Gold Card’?
Alasdair Macleod has posted an article atwww.goldmoney.com which I think is important.
The thrust of the article is that China, at some point, will have to revalue gold in China; which means, in other words, that China will decide to devalue the Yuan against gold.
Since “mainstream economics” holds that gold is no longer important in world business, such a measure might be regarded as just an idiosyncrasy of Chinese thinking, and not politically significant, as would be a devaluation against the dollar, which is a no-no amongst the Central Bank community of the world.
However, as I understand the measure, it would be indeed world-shaking.
Here’s how I see it:
Currently, the price of an ounce of gold in Shanghai is roughly 6.20 Yuan x $1084 Dollars = 6,721 Yuan.
Now suppose that China decides to revalue gold in China to 9408 Yuan per ounce: a devaluation of the Yuan of 40%, from 6721 to 9408 Yuan.
What would have to happen?
Importers around the world would immediately purchasephysical gold at $1,084 Dollars an ounce, and ship it to Shanghai, where they would sell it for 9408 Yuan, where the price was formerly 6,721 Yuan.
The Chinese economy operates in Yuan and prices there would not be affected – at least not immediately – by the devaluation of the Yuan against gold.
Importers of Chinese goods would then be able to purchase 40% more goods for the same amount of Dollars they were paying before the devaluation of the Yuan against gold. What importer of Chinese goods could resist the temptation to purchase goods now so much cheaper? China would then consolidate its position as a great manufacturing power. Its languishing economy would recuperate spectacularly.
The purchase of physical gold would take off, no longer the activity of detested “gold-bugs”, but an activity linked to making money, albeit fiat money.Inevitably, the price of physical gold in Dollars would separate from the price of the “paper gold” traded on Comex and go higher, leaving paper gold way behind in price.
If the US were to provide the market with physical gold in the quantities being purchased for trade with China, it might be able to prevent the rise in the price of gold in Dollars; however, we know that Comex has only one ounce of physical gold for every 124 owners of paper gold, so that action would be impossible. China would be sucking up the world’s gold at a huge rate, if the price of gold in Dollars were to remain where it is at present.
The only way that the US might counter the Chinese move, would be to revalue gold in Dollars; which is to say, the US would have to effect a corresponding devaluation of the Dollar against gold, to nullify the effect of the Chinese devaluation of the Yuan against gold.
At a Dollar price of gold of $1,517 Dollars per ounce, the Chinese devaluation would be left without effect: the present Yuan/Dollar exchange rate would then remain at 6.20 Yuan per Dollar: 9,408 Yuan/6.20 exchange rate = $1,517 Dollars per ounce.
This is the old policy of the 1930’s, commonly known as “beggar thy neighbor”, where countries carried out competitive devaluations against gold in order to preserve their manufactures and continue exporting. The response of importing nations was to raise tariffs on imported goods. (Say good-bye to an integrated world economy.)
Will China decide to “beggar its neighbors”, the US and Europe? I think that the huge problem of keeping the Chinese economy on its feet and avoiding the political instability which would rage through China by not doing so – with a population in excess of 1.3 billion human beings – will be so compelling that China will practically inevitably resort to raising the price of gold in China.
When might this happen?
The world economy is going from bad to worse by the day. The Chinese may opt for this measure out of sheer desperation, and it may be a reality soon. I have the sensation that things are falling apart around the world at an increasing rate of speed. Perhaps China will move this Fall?
Devaluing the Dollar on the part of the US would upset the apple-cart of Dollar hegemony in the world. But not to devalue would price US goods out of world markets, along with European goods. “Damned if you do, damned if you don’t.”
Dollar devaluation would force a Euro devaluation and all Hell would break loose, as all countries would belatedly realize the importance of having gold reserves, and one country after another would devalue their currencies against gold. Import tariffs and restrictions on imports would once again prevail. The dream of “Globalization based on the fiat dollar” would evaporate in the orgy of currency devaluations against gold.
The era of the Dollar as reserve currency of the world, would have ended.
When the dust shall have settled on this giant crisis, the powers of this world will have recognized, once again, that gold is money; what would remain would be the work of establishing the gold standard de jure, by international accords, in order to abolish tariffs and import restrictions and renew the free international flow of goods.
However, another horrible scenario is possible: the US, run by those who insist on maintaining the plan for world domination through endless war, may decide to go to war with China and with Russia, too, for good measure.Let us hope that reason prevails and that the Dollar loses its status as world reserve currency in a peaceful manner.
Gold defying gravity as it bounces back above $1,100/oz
LONDON – We have seldom seen so many negative price forecasts for gold coming out of the bank analysts as we have over the past week or so. The latest from UBS anticipates a 13% drop in its one-month forecast. This followed close on some very negative forecasts from numerous other bank analysts showing undoubtedly something of a herd instinct as they try to outdo each other in pessimistic predictions for the yellow metal. Does this represent the turning point so beloved of contrarians?
Certainly the gold price seems to have received something of a shot in the arm over the past couple of days regardless of analyst predictions. Some of these had been calling for $1,050/oz or lower – in some cases much lower! Thus, ever since the onset of all this negative analysis, gold has done something strange. Firstly it steadied and now has risen quite sharply, moving back above the key $1,100/oz level, although whether this can be maintained remains to be seen.
Those responsible for the big gold bear raids that knocked the price down hard a couple of weeks ago might be stimulated into action again. There has been a massive increase in short positions being taken on COMEX, and there is now something of a rush to cover these and go long which could drive the price far higher still.
The lower prices have already seen huge demand for physical gold from around the world. According to http://www.zerohedge.com, COMEX registered physical gold inventories hit such a low that they had to be ‘rescued’ from potential default by JP Morgan which reclassified a big tranche (276,000 ounces – or around 8.6 tonnes) of its gold holdings from the Eligible into the Registered category, which makes it readily available for good delivery on the Exchange. (Eligible stocks are stocks which have met COMEX quality checking procedures, but may be being held on behalf of clients, or are just being vaulted securely and may never actually become Registered as available for delivery against COMEX futures contracts.)
Today, China devalued the yuan against the dollar by 1.9% that should have been negative for gold. But after an initial dip back below $1,100/oz level after the London market opened, gold started to strengthen again, and at the time of writing had breached the technically significant $1,115/oz level.
Even so, gold bulls are suddenly tasting blood after a very depressing few weeks, and the bears may be in retreat – but for how long? Whether this signals the long-awaited start of a gold price recovery or is yet another proverbial dead cat bounce is far too soon to tell, but has already regenerated talk of substantial rises ahead.
Elliott Wave analyst Peter Goodburn, who last year predicted a gold price fall to around the $1,100/oz level (see: Gold to fall to $1,100 then skyrocket – silver, platinum in behind) followed by a very strong recovery, will be hoping gold’s latest move vindicates his technical analysis, although if it is indeed happening it’s taking place around a year behind his original forecast.
But gold is also the price driver for the other precious metals and a sharp increase in the gold price could lead to an even sharper potential rise in the platinum group metals (PGM’s). PGM’s have been even more depressed than gold despite decent fundamentals, and particularly so in silver which can be much more volatile than its yellow sibling.

(courtesy Bill Holter/Holter/ Sinclair collaboration)
Open letter to the mining industry.
Please, copy and paste the below and sign with your name to any producing mining companies you have investments in. Also, do the same for any gold mutual funds you may own and ask the money manager to contact their holdings with this same letter. Government has an incentive to keep metals prices down and the lapdog regulators are allowing it to happen. Price manipulation is illegal, if the authorities will not fix it, hopefully the industry itself has sense enough to finally do something! I’m not holding my breath on this one.
Much evidence has been uncovered by GATA (Gold Anti Trust Action committee) over the last 15 years showing how gold and silver prices have been suppressed and continually manipulated yet we’ve heard not a sound from the industry itself. Many mining concerns pay dues each year to the World Gold Council which at the very best seems to be an antagonist to gold and silver, at worst a Trojan horse. I know of no other industry which does not promote their own product nor protect it from outside malicious pricing practices. This needs to change and the most logical catalyst is from within the mining industry itself.
It makes no sense at all to expend labor and capital to lose money, especially when your product is a finite resource and will not ever replenish. If working harder and digging more ore was an answer then I would be cheerleading the machines. The fact is, the more that gets dug up in the current environment the more money is lost and precious ore forever wasted. As a shareholder I ask that any product over and above expenses be withheld from sale until free and fair prices are present.
The facts are well documented, global demand is and has outstripped supply of gold and silver for many years …yet the prices are dropping. Your “product” is being diluted by paper sales of “representative metal” while the board of directors do nothing at all. Actually, the mining industry itself is aiding the suppression scheme by delivering metal. This can only start one company at a time, why not our company? Why do we deplete our ore reserves and not receive fair value for our capital and labor? Whether this proposed action is taken or not remains to be seen. Shortages of metal will occur sooner or later as physical demand and backwardation will eventually take the metals higher in price by multiples. Hopefully our company still has reserves left to be sold at fair profit margins. Many companies will not be in existence within a couple of years unless those with the fiduciary responsibility to protect our companies and shareholders …also protect our product from fraudulent dilution. Best regards, _________.
end
And now your overnight Tuesday morning trading in bourses, currencies, and interest rates from Europe and Asia:
1 Chinese yuan vs USA dollar/yuan devalues to 6.3106/Shanghai bourse: red and Hang Sang: red
2 Nikkei down 87.94 or 0.42%
3. Europe stocks all in the red /USA dollar index down 97.17/Euro up to 1.1037
3b Japan 10 year bond yield: falls to 40% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 124.95
3c Nikkei still just above 20,000
3d USA/Yen rate now just below the 125 barrier this morning
3e WTI 44.25 and Brent: 49.84
3f Gold up /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
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.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund slightly falls to .66 per cent. German bunds in negative yields from 4 years out.
Except Greece which sees its 2 year rate falls to 14.74%/Greek stocks this morning up by 1.42%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield falls to : 11.05%
3k Gold at $1112.00 /silver $15.31
3l USA vs Russian rouble; (Russian rouble up 1/4 in roubles/dollar) 63.79,
3m oil into the 44 dollar handle for WTI and 49 handle for Brent/Saudi Arabia increases production to drive out competition.
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation. This can spell financial disaster for the rest of the world/China may be forced to do QE!!/China devalues today
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9840 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0862 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p Britain’s serious fraud squad investigating the Bank of England/
3r the 4 year German bund remains in negative territory with the 10 year moving closer to negativity to +.66%
3s The ELA rose another 900 million euros to 90.4 billion euros. The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.
4. USA 10 year treasury bond at 2.17% early this morning. Thirty year rate below 3% at 2.85% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
China’s Historic Devaluation Sends Equity Futures, Oil, Bond Yields Sliding, Gold Spikes
If yesterday it was the turn of the upside stop hunting algos to crush anyone who was even modestly bearishly positioned in what ended up being the biggest short squeeze of 2015, then today it is the downside trailing stops that are about to be taken out in what remains the most vicious rangebound market in years, in the aftermath of the Chinese currency devaluation which weakened the CNY reference rate against the USD by the most on record, in what some have said was an attempt by China to spark its flailing SDR inclusion chances, but what was really a long overdue reaction by an exporter country having pegged to the strongest currency in the world in the past year.
End result: the CNY saw its biggest devaluation in history, just as we warned on Saturday was imminent.
The CNH (offshore) which was open for trade when the decision was made, weakened 2.25% vs. the USD. This lead to strength in USD, which in turn pressured its counterparts with notable weakness seen in antipodeans given their trade ties to China. Emerging market currencies have also weakened as other central banks now face pressure to weaken their own currencies. The currency devaluation completely eclipsed China’s July monetary financing data where the PBOC disclosed a far greater than expected surge in loans and M2, however upon subsequent inspection, most of this was due to commingling bank loan data with the market bailout.
In any event, no matter how you spin China’s currency devaluation, China’s entry into the currency wars is now official, and as the following Bloomberg heatmap shows, the CNY is a sea of red against virtually all currencies (including gold which soared earlier today). There are a few amusing exceptions:
Elsewhere, Asian equities traded mixed following the gains seen in EU and US counterparts. China was in focus as the Hang Seng (-0.1 %) rallied after the PBoC conducted further stimulus measures through weakening the CNY reference rate by 1.9% in response to the recent soft trade figures. ASX 200 (-0.7%) was underpinned by a bout of soft earnings, while the Nikkei 225 (-0.4%) paired gains having met resistance at the 18% year high of 20,952 coupled with initial JPY strength consequently weighing on exporters.
Over in Europe stocks (Euro Stoxx: -1.0%) trade lower following the concerns over Chinese growth prospects with underperforming sectors including auto-names such as BMW (-3.8%), VW (-3.0%) and Daimler (-4.1 %) with today’s news also coupled with disappointing Chinese vehicle sales data.
Elsewhere, markets have generally shrugged off news that a deal has been preliminarily agreed between Greece and their creditors , however the Athens Stock Exchange (1.8%) has been bolstered by the news.
In the US, E-mini futures were down about 13 points lower as of this moment, and are back to yesterday’s market open level.
In other FX crosses, after going through the European cash equity open, EUR ebbed higher with EUR/JPY printing a 2-month high underpinned by some desks noting a reversal of a substantial EUR/CNY short carry trade and news that Greece and creditors have reached a deal on a third bailout. This EUR strength then saw USD-index give back some of its overnight gains and briefly slip back into negative territory (USD-Index: 0.0%).
However, the notable tier 1 data of the morning saw EUR come off its highs as German ZER survey expectations came in at the lower end of expectations (25.0 vs. Exp. 31.9).
In the bond market, T-Notes trade higher by around 15 ticks due to the following reasons: firstly, the PBoC has acted to weaken their currency in an attempt to remain competitive amid falling exports and this has therefore been interpreted by some as an admission of global growth concerns. Secondly, in practicality, the PBoC will have to buy USTs in order to weaken their currency. The weaker CNY will in turn could lead to an overall stronger USD, which may influence the Fed’s plans for future rate hikes.
Finally, a quick look at commodities reveals that gold resides in positive territory after tripping stops through yesterday’s highs to trade at its highest level for 3 weeks , while Dalian iron ore also saw strength overnight, benefitting from the measures by the PBoC. Elsewhere, overnight aluminium traded near 6 year lows during Asia-Pacific hours amid the initialy USD strength. WTI and Brent crude futures both saw mild weakness overnight after prices rose by the most in 2-months yesterday ahead of today’s API crude oil inventory report (Prey. -2400k).
Looking at today’s US calendar, we get the NFIB small business optimism survey due along with Q2 readings for nonfarm productivity and unit labour costs and finally the June wholesale inventories and trade sales readings. The biggest topic will surely be the PBOC devaluation and confirmation of a global growth slowdown, and just how the Fed will respond and/or retaliate to this latest entrant in the currency wars.
In summary: European shares fall with the autos and personal & household sectors underperforming and oil & gas, tech outperforming. China devalues yuan by most in two decades. Chinese car sales fell for a second month. Greece deal reached on bailout after all-night talks in Athens. The French and German markets are the worst-performing larger bourses, the Italian the best. The euro is stronger against the dollar. Greek 10yr bond yields fall; Japanese yields decline. Commodities gain, with nickel, zinc underperforming and Brent crude outperforming. U.S. wholesale inventories, small business optimism, nonfarm productivity, unit labor costs due later.
Market Wrap
- S&P 500 futures down 0.6% to 2087
- Stoxx 600 down 0.5% to 397.8
- US 10Yr yield down 6bps to 2.17%
- German 10Yr yield down 2bps to 0.68%
- MSCI Asia Pacific down 0.8% to 140.3
- Gold spot up 0.8% to $1113.5/oz
Eurostoxx 50 -0.5%, FTSE 100 -0.4%, CAC 40 -0.6%, DAX -0.6%, IBEX -0.2%, FTSEMIB -0.2%, SMI -0.3% - Asian stocks fall with the Shanghai Composite outperforming and the Kospi underperforming; MSCI Asia Pacific down 0.8% to 140.3
- Nikkei 225 down 0.4%, Hang Seng down 0.1%, Kospi down 0.8%, Shanghai Composite little changed, ASX down 0.7%, Sensex down 0.5%
- Euro up 0.19% to $1.104
- Dollar Index down 0.08% to 97.08
- Italian 10Yr yield down 4bps to 1.79%
- Spanish 10Yr yield down 4bps to 1.93%
- French 10Yr yield down 3bps to 0.97%
- S&P GSCI Index up 0.3% to 376.2
- Brent Futures up 1% to $50.9/bbl, WTI Futures up 0.5% to $45.2/bbl
- LME 3m Copper down 1.1% to $5252/MT
- LME 3m Nickel down 1.9% to $10940/MT
- Wheat futures down 0.4% to 523.5 USd/bu
Bulletin Headline Summary from RanSquawk and Bloomberg
- The main event driving price action today has been the decision by the PBoC to weaken the CNY reference rate vs. the USD by the most on record
- Elsewhere, markets have generally shrugged off news that a deal has been preliminarily agreed between Greece and their creditors
- Today’s highlights include US Wholesale Inventories and API crude oil inventories as well as a USD 24b1n 3yr note auction
- Treasury yields drop overnight, led by the long-end, after China devalued the yuan by 1.9%, the most in two decades; this week’s U.S. Treasury auctions begin today with $24b 3Y, WI 1.065% vs. 0.932% in July.
- China’s currency move rippled through global markets as its policy makers step up efforts to support exporters and boost the role of market pricing in Asia’s largest economy
- Treasuries rose as China’s devaluation of the yuan stoked speculation a slowdown in Asian economies may prompt the Federal Reserve to delay raising interest rates
- David Miles said there was a “reasonable” argument for the Bank of England to raise interest rates at its meeting last week in order to avoid faster tightening in future
- Fixed-income strategists are under growing pressure to do something they’ve never really had to do before: bring in money as investment houses struggle to make research of all kinds pay for itself
- Greece reached an accord with creditors on the terms of a third bailout, paving the way for national parliaments to vote on the deal before an Aug. 20 payment falls due to the ECB
- Alan Greenspan has a warning for bond investors as the U.S. central bank prepares to raise its benchmark interest rate from close to zero. “We have a pending bond market bubble,” he said on Bloomberg Television yesterday
- $13.5b IG and $1.1b HY priced yesterday. BofAML Corporate Master Index OAS widens +1 to new YTD wide 161; YTD low 129. High Yield Master II OAS -1 to 551, new YTD wide 549; YTD low 438
- Sovereign 10Y bond yields lower, led by Greece. Asian, European stocks drop, U.S. equity-index futures lower. Crude oil, cooper drop, gold rises
DB’s Jim Reid completes the overnight recap
It was a commodity market led rebound yesterday that finally saw the Dow (+1.39%) end its run of seven straight daily declines and its longest losing streak since 2011, finishing in positive territory for the first time this month. The S&P 500 (+1.28%) was up a similar amount as rumblings in the M&A space also helped fuel a positive start to the week for risk assets. In the commodity space it was Oil in particular which led the gains as WTI (+2.48%) and Brent (+3.70%) closed up, the latter surging the most in more than two months on the back of record China crude import data, helping the complex to rally through the afternoon. With data-flow relatively light, Fedspeak garnered much of the attention after we heard from Lockhart and Fischer yesterday.
Before we touch on that however, it’s straight to China where the breaking news this morning is that the PBoC has taken the step to devalue the Yuan, cutting the currency’s reference rate set this morning by a record 1.9% and in turn allowing the currency to depreciate following the recent run of poor data in a bid to stimulate a stuttering economy. The fixing is said to be a one-off adjustment, however a statement released from a PBoC spokesman has said that the market will play a bigger role in setting the currency rate (using a combination of the opening market makers quotes and the previous day’s close). Putting the size of the cut in perspective, the previous biggest move this year was 0.16%. We’d highlighted a while back following initiatives aimed at boosting exports that questions may be asked around China soft-entering into some form of global currency war. Well this latest move will only go further in boosting that argument following this significant shift in policy.
Looking at the market reaction, the Yuan has sold off 1.83% versus the USD as we go to print following the move (the biggest daily slide since 1994) after briefly touching its 2% limit. The move has had ramifications across FX markets with the Aussie Dollar (-1.07%), NZ Dollar (-0.98%), Korean Won (-1.03%) and Taiwanese Dollar (-1.40%) all plummeting. The Dollar index (+0.3%) has bounced on the news while 10y Treasury yields (-3.2bps) have benefited from a decent bid this morning. Chinese equity markets appear to be more uncertain over how to react. As we head into the midday break, the Shanghai Comp (-0.40%) has fallen while the Shenzhen (+0.25%) is slightly up, although the former has crossed between gains and losses 10 times already this morning. Mixed data in China has only muddled the picture with soft aggregate financing data for July (Rmb718bn vs. Rmb1tn expected) but better than expected new yuan loans data (Rmb1.48tn vs. Rmb750bn expected). Elsewhere, the Hang Seng (+0.96%) has received a boost while the Nikkei (-0.65%) and ASX (-0.59%) have both declined. WTI has tumbled 0.56% while precious metals have dropped half a percent.
Back to yesterday. In light of his comments last week which resulted in material moves across the bond market in particular, much of the focus was on the Atlanta Fed President Lockhart. Yesterday was largely a reaffirmation of his view however, saying that ‘I think the point of liftoff is close’ and telling the audience that he is ‘very disposed’ to a rate hike in September. Lockhart also added that his ‘most important message’ was that rate increases will follow a gradual path after liftoff. The Fed official saw Friday’s payrolls report as ‘satisfactory’ although continued to acknowledge that ‘downward pressures on the rate of inflation are not yet behind us’. This was a theme consistent with the rhetoric out of the Fed Vice-Chair Fischer yesterday. Giving little away on the whole, Fischer noted that the US economy is nearing full employment but inflation is ‘very low’ as a result of the temporary impact of the recent slump in commodity prices. In perhaps hinting at a slightly more dovish stance than his colleague, Fischer added that ‘the concern about this situation is not to move on before we see inflation, as well as employment, returning to more normal levels’.
The surge in Oil prices along with yesterday’s Fedspeak helped support a reasonable bear steepening across the US Treasury curve yesterday. 2y yields closed up 0.4bps at 0.723% yesterday, with the 10y (+6.5bps) and 30y (+7.7bps) part of the curve leading the move higher and closing at 2.228% and 2.896% respectively – in turn wiping out the bulk of Friday’s move lower. Across the Fed Funds contracts, the Dec15 contract finished unchanged at 0.340% while Dec16 (+0.5bps) and Dec17 (+0.5bps) contracts saw a slight nudge up to 1.045% and 1.650% respectively. The probability of a September move, meanwhile, was unchanged at 54%. Elsewhere, as well as a better day for Oil, Gold (+0.95%), Aluminum (+1.86%) and Copper (+2.63%) were some of the highlights for a broadly stronger day across the commodity space which saw the Bloomberg commodity index have its biggest gain since February after rising 2.4%. This, combined with the stronger showing in Chinese equity markets yesterday saw the Dollar come under some pressure with the broader Dollar index closing down 0.41%, slipping for a third day in its longest losing streak in two months.
Elsewhere yesterday, M&A activity was also supportive of the better sentiment in markets, particularly the news that Berkshire Hathaway has agreed to buy Precision Castparts in a $37bn deal which saw the share price for the latter bounce 19% and lead all stocks in the S&P 500. Appetite for M&A deals has been particularly supportive of late and has been seemingly ramping up as the year moves on with Reuters reporting that July alone was the seventh strongest month for global deal activity since 1980. The same wire is reporting that it was no less busy for primary credit markets in the US either with yesterday the second busiest day this year by number of deals raised in IG after 12 deals raised $14bn. The earnings calendar was quiet meanwhile with just 6 of the S&P 500 reporting with Kraft Heinz in particular declining in post-market trading after disappointing analysts in its latest report. At the latest count, with 450 S&P 500 companies now having reported, sales beats are unchanged at 49% while earnings beats have ticked back up to 74% (from 71%).
It was a better day closer to home yesterday for risk assets also with gains for the Stoxx 600 (+0.69%), DAX (+0.99%) and CAC (+0.79%) while in credit markets Crossover closed 9bps tighter. The data calendar was quiet with just slightly softer than expected French business sentiment (98 vs. 99 expected) and Euro area investor sentiment readings (18.4 vs. 20.3 expected). 10y Bund yields largely mirrored the moves seen across the pond, closing 3.7bps higher at 0.696% while yields in the periphery ended 1-4bps lower. Greek equities (+2.06%) rose again as optimism continues to build that the final touches to a deal being signed with the Creditors are just around the corner. That optimism appears to continue to be driven by the Greece camp with Ekathimerini reporting that German officials yesterday continued to stress its wish for ‘quality before speed’ with regards to the conclusion of an agreement and that Germany is setting out ‘strict’ conditions for further aid with suggestions that it would be sensible to link the size of the first payment tranche to the extent of the reforms implemented.
Meanwhile, in the UK yesterday we heard from the BoE’s Miles who, despite voting to keep rates on hold last week, said that there was a ‘reasonable’ case to be made for the Bank to raise rates last week, cautioning that ‘the longer you leave it, the slightly more steep that trajectory becomes’. Suggesting that the decision wasn’t an easy one, Miles also said that, in reference to his decision last week ‘sterling had gone up a bit, oil prices had fallen a bit, there were somewhat ambiguous signals from the labour market, but on balance it was a set of economic news that probably reduced at least the near-term inflation profile by a non-trivial amount’ and that ‘for me that was what made the decision ultimately to keep policy on hold’ but that ‘it wasn’t a compelling clear-cut case one way or the other for me’.
Taking a look at today’s calendar now, this morning’s highlight in the European session is set to be the release of the August ZEW survey out of Germany. It’s a busier session over in the US this afternoon, with the NFIB small business optimism survey due along with Q2 readings for nonfarm productivity and unit labour costs and finally the June wholesale inventories and trade sales readings.
end
The big news of the day: China devalues which will set off currency devaluation wars!! We will witness China “exporting” deflation to the rest of the world as each nation fights for market share. China will have to live with increased inflation and also the exit of hot money!
(courtesy zero hedge)
China Enters Currency War – Devalues Yuan By Most On Record
Update: The Chinese currency complex is collapsing…12 month NDFs just hit a new 5 year lows against the USD – biggest plunge since Lehman
S&P futures have retraced most of the day-session gains…
And Treasury yield stumble and have unwound Monday’s losses…
And then there’s this….
* * *
As we detailed earlier…
Chinese stocks are holding on to modest losses in the pre-open as, just as we have been warning, the PBOC weakens the Yuan fix by the most on record.
As we first warned in March, and as became abundantly clear over the weekend when weaker than expected export data as well as the steepest decline in factory gate prices in six years underscored the extent to which the engine of global growth and trade has officially stalled, Beijing has no choice but to join the global currency wars, as the yuan’s dollar peg will ultimately prove to be too painful going forward. The renminbi has appreciated on a REER basis by double digits over the past 12 months, weighing heavily on already depressed exports. With multiple policy rate cuts having proven to be largely ineffective at resurrecting the flagging economy, the PBoC, despite the notion that this represents a “one-off”move, has been left with little choice. The bottom line: the danger posed by the country’s deepening economic slump now definitively outweighs the risk of accelerating capital outflows – especially after the latter moderated slightly in Q2.
As we noted over the weekend, “one can repeat that the PBOC will have to lower rates again until one is blue in the face (even as out of control soaring pork prices make it virtually impossible for the local authorities to ease any more), the realty is that Chinese QE is now inevitable. Why? Because while the government is already clearly buying stocks thereby validating the “other” transmission mechanism, the only thing the PBOC still hasn’t tried is to devalue the yuan. As global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalued next.”
Recall also what SocGen’s Albert Edwards said some five months ago:
We have long believed that China’s growth and deflation problems will necessitate a devaluation of the renminbi in a strong dollar environment. There is mounting evidence that this process may already be underway as the currency falls to a 28-month low against the dollar…
In the current deflationary environment the Chinese authorities simply can no longer tolerate the continued appreciation of their real exchange rate caused by the dollar link.
The 1.9% devaluation sends the Yuan to its weakest since April 2013. Gold is leaking lower as the offshore Renminbi collapses by the most since Oct 2011.
PBOC weakens Yuan fix by 1.9% – the most ever…
Offshore Renminbi is plunging..
Quite a shocking move, clearly aimed at regaining some competitiveness, one must wonder, given the lackluster response in stocks whether this will merely exacerbate capital outflows… though it does make one wonder who was buying yesterday ahead of the news...
Given The IMF’s delay decision, it seems that PBOC has decided maintaining a stable FX rate in the face of collapsing stock market is no longer in its best interest. Although the spin is already out…
- *PBOC SAYS YUAN EFFECTIVE FX RATE STRONGER THAN OTHER CURRENCIES
- *PBOC SAYS TODAY’S YUAN FIXING IS ONE-OFF ADJUSTMENT
- *CHINA TO KEEP YUAN STABLE AT REASONABLE, EQUILIBIRIUM LEVEL
- *PBOC SAYS YUAN EXCHANGE RATE DEVIATED FROM MARKET EXPECTATION
Officials say this is a one-off adjustment and we note that USDCNY has been trading 1t around 10 points cheap to the fix for 6 months.
- *PBOC PROPOSES TO EXTEND CNY TRADING HOURS
- *CHINA PBOC SAYS TO STRENGTHEN MARKET ROLE IN YUAN FIXING
- *PBOC TO PROMOTE CONVERGED ONSHORE, OFFSHORE YUAN EXCHANGE RATE
- *PBOC SAYS TO CONVERGE ONSHORE, OFFSHORE YUAN EXCHANGE RATES
And the reaction in gold:
* * *
1.Why choosing the current time to improve quotation of the central parity of RMB against US dollar?
Currently, the international economic and financial conditions are very complex. The U.S. economy is recovering and markets are expecting at least one interest rate hike by the FOMC this year. As such, the U.S. dollar is strengthening, while the Euro and Japanese Yen are weakening. Emerging market and commodities currencies are facing downward pressure, and we are seeing increasing volatilities in international capital flow. This complex situation is posing new challenges. As China is maintaining a relatively large trade surplus, RMB’s real effective exchange rate is relatively strong, which is not entirely consistent with market expectation. Therefore, it is a good time to improve quotation of the RMB central parity to make it more consistent with the needs of market development.
Since the reform of the foreign exchange rate formation mechanism in 2005, the RMB central parity, which serves as the benchmark of China’s exchange rate, has played an important role in market expectation and stabilizing RMB exchange rate. Recently, however, the central parity of RMB has deviated from the market rate to a large extent and with a larger duration, which, to some extent, has undermined the market benchmark status and the authority of the central parity. Currently, the foreign exchange market is developing in a sound manner, and market participants are increasingly strengthening their pricing and risk management capacities. The market expectation of RMB exchange rate is diverging, and the preconditions for improving quotation of the RMB central parity are becoming mature. Improving the market makers’ quotation will help enhance the market-orientation of RMB central parity, enlarging the operation room of market rate and enabling the exchange rate to play a key role in adjusting foreign exchange demand and supply.
2.Why did the central parity of RMB against US dollar of 11 August change by nearly 2% compared to that of 10 August?
We noticed that the central parity of RMB against US dollar of 11 August changed(in the depreciation direction) by nearly 2% compared to that of 10 August. The following two factors may be relevent. First, after the improvement of the quotation of the RMB central parity, the market makers may quote by reference to the closing rate of the previous day and, therefore, the accumulated gap between the central parity and the market rate received a one-time correction. Second, a series of macro economic and financial data released recently made the market expectation diverge. Market makers paid more attention to the changes of market demand and supply. Compared with the closing rate of 6.2097 Yuan per dollar in the previous day, today’s central parity depreciated by about 200 bps. The market still needs some time to adapt. The PBC will monitor the market condition closely, stabilizing the market expectation and ensuring the improvement of the formation mechanism of the RMB central parity in an orderly manner.
3.RMB exchange rate reform: what’s next?
Next, the reform of RMB exchange rate formation mechanism will continued to be pushed forward with a market orientation. Market will play a bigger role in exchange rate determination to facilitate the balancing of international payments. Foreign exchange market development will be accelerated and foreign exchange products will be enriched. In addition, the PBC will push forward the opening-up of the foreign exchange market, extending FX trading hours, introducing qualified foreign institutions and promoting the formation of a single exchange rate in both on-shore and off-shore markets. Based on the developing condition of foreign exchange market and the macroeconomic and financial, the PBC will enhance the flexibility of RMB exchange rate in both directions and keep the exchange rate basically stable at an adaptive and equilibrium level, enabling the market rate to play its role environment, retiring from the routine FX intervention, and improving the managed floating exchange rate regime based on market demand and supply.
Currently, under the complex international economic and financial condition, we are seeing increasingly large and volatile cross-border capital flow. As such, the PBC and SAFE will strengthen the examination of banks’ FX transactions according to relevant laws and regulations, adopt effective measures to fight money laundering, terrorist financing and tax evasion activities, and improve the monitoring of suspicious cross-border capital flow. The PBC and SAFE will severely punish illegal FX transactions, including underground banks, and maintain a compliant and orderly capital flow.
* * *
It is unclear what the potential losses for hedging/trading vehicles will be in the ‘most stable carry currency’ but as we noted in April 2014, TRF losses would be the 10s of billions…
The total size of the carry trade is hard to estimate although even just looking at some of the onshore CNY positions accumulated, DB Asia FX strategist Perry Kojodjojo estimates that corporate USD/CNY short positions are around $500bn.The size of the carry trade and the fact that China saw significant capital outflows during the last period of substantial Renminbi depreciation in the summer of 2012 has led to concerns over what this might mean for both the Chinese economy and financial markets as well as broader global financial implications.
Morgan Stanley believes that one such carry-trade structured product that will be the “pressure point” for this – should the Yuan continue to depreciate – is the Target Redemption Forward (TRF) which has a payoff that looks as follows…
While this is just an example of a product payoff matrix to the holder, the broader point is that the USD/CNH market has a particular level (or range of potential levels) at which three factors can create non-linear price action. These are:
1. Losses on TRF products will (on average) crystallize if USD/CNH goes above a certain level. This has implications for holders of TRF products, who are mostly corporates;
2. The hedging needs of writers of TRF products (banks) mean that there is a point of maximum vega for banks in USD/CNH. Below this level banks need to sell USD/CNH vol; above this level banks need to buy USD/CNH vol;
3. The delta-hedging needs of banks are complex. As we approach the average strike (the 6.15 in the theoretical point of Exhibit 1), banks need to buy spot USD/CNH. Above this point but below the European Knock-in (EKI) (i.e., between 6.15 and 6.20 in Exhibit 1), banks need to sell spot. Then above the EKI, banks don’t need to do anything in spot.
From internal Morgan Stanley data, we estimate that the point of maximum vega is somewhere in the range of 6.15-6.20, and that the 6.15-6.20 in Exhibit 1 is reasonably indicative of the average strikes and EKIs in the market.
In other words, so long as the TRF products remain in place (i.e., are not closed out) and we remain below the maximum vega point (somewhere between 6.15 and 6.20), there is natural selling pressure by banks in USD/CNH vol. When we get above that level, there is natural vol buying pressure.
Of course, in the scenario that USD/CNH keeps trading higher and goes above the average EKI level, the removal of spot selling flow by banks and the need to buy vol means the topside move may accelerate.
Simply put, if the CNY keeps going (whether by PBOC hand or a break of the virtuous cycle above), then things get ugly fast…
How Much Is at Stake?
In their previous note, MS estimated that US$350 billion of TRF have been sold since the beginning of 2013. When we dig deeper, we think it is reasonable to assume that most of what was sold in 2013 has been knocked out (at the lower knock-outs), given the price action seen in 2013.
Given that, and given what business we’ve done in 2014 calendar year to date, we think a reasonable estimate is that US$150 billion of product remains.
Taking that as a base case, we can then estimate the size of potential losses to holders of these products if USD/CNH keeps trading higher.
In round numbers, we estimate that for every 0.1 move in USD/CNH above the average EKI (which we have assumed here is 6.20), corporates will lose US$200 million a month. The real pain comes if USD/CNH stays above this level, as these losses will accrue every month until the contract expires. Given contracts are 24 months in tenor, this implies around US$4.8 billion in total losses for every 0.1 above the average EKI.
Deutsche Bank concludes…
Looking forward it’s possible that the PBOC is not attempting to actively engineer a sustained depreciation of the Renminbi but rather is attempting to increase the level of two-way volatility in the market to discourage the carry trade and also excessive capital inflows. In terms of the broad risk going forward the sheer scale of the challenge the PBOC has set out to tackle likely means they will have to move with restraint. This is certainly a story to watch…
As Morgan Stanley warns however, this has much broader implications for China…
The potential for US$4.8 billion in losses for every 0.1 above the average EKI could have significant implications for corporate China in its own right, as could the need to post collateral on positions even if the EKI level is not breached.
However, the real concern for corporate China is linked to broader credit issues. On that, it’s worth reiterating that the corporate sector in China is the most leveraged in the world. Further loss due to structured products would add further stress to corporates and potentially some of those might get funding from the shadow banking sector. Investment loss would weaken their balance sheets further and increase repayment risk of their debt.
In this regard, it would potentially cause investors to become more concerned about trust products if any of these corporates get involved in borrowing through trust products. In this regard, this would raise concerns among investors, given that there is already significant risk of credit defaults to happen in 2014.
Remember, as we noted previously, these potential losses are pure levered derivative losses… not some “well we are losing so let’s greatly rotate this bet to US equities” which means it has a real tightening impact on both collateral and liquidity around the world… yet again, as we noted previously, it appears the PBOC is trying to break the world’s most profitable and easy carry trade – which has created a massive real estate bubble in their nation (and that will have consequences).
* * *
As we noted then, and seems just as applicable now, The Bottom Line is the question of whether the PBOC’s engineering this CNY weakness is merely a strategy to increase volatility and thus deter carry-trade malevolence (in line with reform policies to tamp down bubbles) OR is it a more aggressive entry into the currency wars as China focuses on its trade (exports) and keeping the dream alive? (Or, one more thing, the former morphs into the latter as a vicious unwind ensues OR the market tests the PBOC’s willingness to break their momentum spirit).
Finally, putting aside speculative trader P&L losses, many of which are said to be of Japanese origin and thus will hardly enjoy much or any PBOC sympathies,here is CLSA’s Russel Napier on what the long-term fate of the Renminbi will be:
“Mercantilist alchemy transmutes China’s external surpluses into foreign exchange reserves and renminbi. But with capital outflows from China at record highs, those surpluses are only maintained due to its citizens’ foreign-currency borrowing. Bank-reserve and M2 growth are already near historical lows and are driving tighter monetary policy. This will lead to severe credit-quality issues and force the authorities to accept a credit crunch or opt for a major devaluation of the renminbi. They will do the latter; and despite five years of QE, the world will get deflation anyway.”
One now wonders how the Bank of Japan and The Bank of Korea will respond.. especially as protectionism rears it ugly head also…
- RTRS – CHINA TO RESUME 13 PCT VALUE ADDED TAX RATE ON FERTILISER IMPORTS AND SALES FROM SEPT 1 – GOVT
Charts: Bloomberg
A Stunned Wall Street Reacts To China’s Currency Devaluation
There is much stunned confusion among Wall Street’s “best and brightest” following China’s historic Yuan devaluation overnight which was predicted by exactly zero of said best and brightest, just like nobody expected the SNB to give up its own peg to the EUR in January.

The problem as the WSJ puts it, is that a devaluation for China is both good, and very bad. Good because it will help the struggling export sector, which has stalled amid weak global demand. Exports in July, for example, sank more than 8% and they were down nearly 1% for the first seven months of the year.
At the same time, it was essential for the People’s Bank of China not to alarm domestic and foreign investors to avoid triggering a wave of capital outflows. Investors tend to dump a weakening currency and move their assets into other currencies. Thus, the PBOC said the move was a one-time reform effort to bring the yuan more in line with the markets.
That, of course, is a lie: the Fed’s first QE was a “one-time” abnormal monetary intervention which has since become the de facto standard of every single central bank.
Finally, the central bank may also have had the International Monetary Fund in its sights. The yuan is up for possible inclusion in international agency’s Special Drawing Rights, a basket of currencies that serves as a global reserve. Too big a move might have damaged Beijing’s case that the yuan is a suitable candidate for addition to that basket of currencies, analysts said.
To show the many different and often opposing views, here is a summary of sellside views compiled by Zero Hedge and the WSJ:
The PBOC adjusted the CNY fixing mechanism, which prompted a step weakening in today’s fixing. From now on, FX market makers are asked to base their contribution to CNY fixing on: i) the closing FX rate in the previous day, ii) CNY supply-demand conditions, and iii) the movements of other major currencies. While public comments suggest this could be a one-off move, in our view it increases the uncertainty around the future path of the CNY, especially if closing FX rate significantly deviates from the fixing. In our view, the market’s previous expectations for a fairly stable CNY have seemingly been de-anchored by the surprising move today. Although information at this stage is limited, our current expectation is that the PBOC will likely use open market FX operations to try to reduce sharp volatilities and avoid further destabilizing the market’s CNY expectations in coming days.
– MK Tang, Goldman Sachs
The People’s Bank of China shocked the market today by weakening the yuan reference rate in the largest single-day depreciation since the central bank’s exchange rate reform on July 21, 2005. The PBOC statement interprets the depreciation as a one-off adjustment to fix the persistent discrepancy between the reference rate and the actual spot rate in the market. Since June, the yuan/dollar spot has been consistently about 1.5% higher than the daily fixing. The PBOC statement said that today’s adjustment will fix the discrepancy, and going forward daily fixing will align more closely with the closing spot rate on the previous day. The strong appreciation of the yuan has put a lot of pressure on China’s exports. It is unlikely that China will achieve the 6% trade growth target set for this year. Today’s announcement is also a response to weakening currencies around the Asian region.
– Haibin Zhu, JPMorgan
The PBOC was hitting two birds with one stone: The PBOC’s move will lead to a weaker yuan, lending support to export growth. It will also make the yuan exchange rate more market-determined, which could help China at the upcoming Special Drawing Rights review in November. In the past, one major problem with the yuan exchange rate setting was too much emphasis on its stability against the U.S. dollar while neglecting [trends in] other currencies. In the past 12 months, the yuan appreciated by 23% against the euro and 17% against the yen. As a result, so far this year, China’s exports to the EU and Japan are down 4% and 11% year on year. Today’s change should mitigate the problem. –Larry Hu, Macquarie Securities
We believe the unexpected devaluation today is more about the Special Drawing Rights bid rather than an intention to support exports. Tomorrow’s fixing will be the key to test whether this devaluation of fixing is one-off event or a start of new fixing system. Our best guess is that it may be a one-off adjustment. Should it prove to be a one-off event, we think a combination of a widening of the yuan’s daily trading band and a cut in the bank reserve requirement ratio is likely to be the next policy option to increase the yuan’s flexibility. In the near term,
we may see more volatility ahead.
– Tommy Xie Dongming, OCBC
We think it unlikely that the Chinese government will let only market momentum drive the yuan exchange rate from now on, as that can be quite destabilizing. We think the government may still want to take a relatively cautious approach on the exchange rate front. The upcoming SDR review is one consideration, and avoiding destabilizing depreciation expectations and capital outflows would be a more important one. In this context , how China sets its daily fixing and manages foreign exchange market flows in the next few days will be very telling. Nevertheless, we do see today’s move an important change in China’s way of managing the exchange rate.
– Wang Tao and Donna Kwok, UBS
The People’s Bank of China is finally acknowledging that the yuan has appreciated excessively in real effective terms, given the sharp depreciation of the euro and the yen. Such real exchange rate appreciation is clearly one of the key reasons for the extremely weak July export data published last weekend and must have pushed the PBOC to use one of its most powerful instruments to reboot the Chinese economy: the exchange rate. China has been losing competitiveness in third markets in an aggressive way. However, we believe that the PBOC will not dare let the yuan depreciate too rapidly or too aggressively. Moderate capital outflows have been the norm during the last few months to the point that China has nearly $350 billion less in foreign exchange reserves from a peak of $3.99 trillion. A rapid yuan depreciation would only feed additional capital outflows, putting additional pressure on the PBOC.
– Alicia Garcia Herrero, Natixis
The central bank has described this as a way to help exporters and said it is a one-off move. But that puts the central bank’s credibility on the line. The risk is that the move isn’t large enough. I don’t think the 2% adjustment does very much.
– Andrew Polk, Conference Board economist
This Is Not A Drill: India, Russia And Thailand Prepare For Currency War
When China sneezes, the world catches a cold. Alternatively, when China devalues, the rest of the (exporting) world scrambles to not be the last (exporting) nation standing, and to do so next, before everyone else does.
Case in point, at least three major emerging market nations announced they are bracing for currency war.
First India, where NDTV ask rhetorically “How China’s Devaluation of Renminbi Impacts India” and answers:
1) The Indian rupee slipped to a two-month low of 64.26 against the US dollar on Tuesday tracking the devaluation of the renminbi. Other currencies such as the Australian dollar and the South Korean won also lost ground.
2) The over 0.5 per cent fall in the rupee weighed on traders’ sentiments, resulting in a drop in equity markets. Both the BSE Sensex and the Nifty traded with 0.4 per cent losses.
3) According to SV Prasad of Chime Consulting, renminbi’s devaluation may push the Reserve Bank of India to cut interest rates in India. Lower interest rates will put off foreign investors and will further weaken the rupee, he added.
4) However, fund manager Sandip Sabharwal said India should not be too worried about the devaluation in renminbi. “Analysts are out with predictions of how a 1.5 per cent fall of Chinese currency will lead to a sharp increase in dumping etc. However the Indian rupee has also fallen nearly 0.8 per cent in sympathy and is now down 5 per cent over the last one year. It is hard to see a major impact of this on Indian stock markets or the economy unless yuan depreciation becomes a trend which seems unlikely at this stage,” he said.
5) A fall in the value of the rupee is good for Indian exporters and sectors such as IT and pharma are seen gaining from the depreciation in the rupee. IT stocks were the top performers in stock markets today.However, China-focused Indian companies saw selling pressure because the devaluation of renminbi will make imports costlier in the country. As a result metal stocks saw selling pressure and underperformed broader markets.
Then there is Thailand, where the senior executive vice president of the Stock Exchange of Thailand, Pakorn Peetathawatchai, said that “China is a very important market and a weaker yuan makes our exports there more expensive.” He added that weaker yuan also increases travel costs for Chinese tourists.
Well, yes, it’s called “war” for a reason.
Finally, there is Russia whose economy is already in a tailspin now that the dead cat bounce in oil has ended, and where moments ago RIA said that the Yuan devaluation puts pressure on RUB, other EM currencies. Still, the Russian Economy Ministry sees no domestic factors for ruble devaluation, RIA adds even as it admits crude prices to stay under pressure in 2015.
We give Russia, Thailand and India (as well as the rest of the EM countries, actually make that all countries, the US included) at least a few days (hours may suffice) before they all realize that in a beggar-thy-neighborglobal currency war, where the ZIRP (or NIRP) liquidity trap is already stalking at least half of the entire world,there really is no choice.
Expect a dramatic surge in interest rate cuts over the next several weeks as the rest of the world realizes this is not some bad dream and responds, and the tit-for-tat FX defection regime (also known elsewhere as “war”) goes thermonuclear.
end
How this devaluation will hurt Australia, New Zealand and China’s biggest trading partner Japan:
(courtesy Valentin Marenov/Credite Agricole)
After The Chinese Devaluation, Who’s Next?
Via Credit Agricole’s Valentin Marenov,
In a surprise move overnight, the PBOC devalued the CNY by most on record, sending Asia G10 and EM currencies lower.
The selloff seems driven by concerns that the FX boost to the Chinese international competitiveness would affect other manufacturing exporters while pricier commodities could dampen Chinese demand for Australian and NZ exports.
On a broader level, the devaluation signals PBOC’s eagerness to join the global currency wars. With the competitive devaluation by various central banks gaining momentum but global trade slowing, the latest CNY devaluation could be seen as likely to force other central banks to consider similar measures before long. Yet another consideration here should be the impact of the PBOC actions on the capital outflows from China.
If the outflows were to intensify after the CNY tumble, the erosion of central bank’s FX reserves should continue and add to concerns about insufficient future sovereign demand for global assets. In turn this should continue to boost risk premia in the global bond and stock markets.
* * *
One currency that so far has successfully weathered the storm has been JPY.
We doubt that JPY could decouple from the selloff in Asia FX for too long, however. The CNY devaluation comes on the back of disappointing trade data out of China (Japan’s main trading partner) and highlights that the external conditions for Japanese exporters could deteriorate further.
All this adds to the list of BoJ’s worriesthat already includes the stubbornly low Japanese inflation and casts doubt over the bank’s ability to achieve its 2% target anytime soon.
Against this background, potential disappointments from the Japanese machine orders release today and industrial production data tomorrow could extend the BoJ’s list of concernswith investors anxiously anticipating the Q2 GDP release next week.
While recent communication from Governor Kuroda did not seem to signal any desire for an imminent change in policy, we believe that the time the BoJ announces yet another QE is drawing near.
We subsequently see risks for USD/JPY on the upside from here.
Japan National Debt Rises To New Record ¥1,057,224,000,000,000
The first half of 2015 saw Japan’s national debt rise at its fastest pace in four years, hitting a new record high at ¥1.057 Quadrillion!! Have we reached Keynesian nirvana yet? Or is just a little more “what difference does it make” debt-fueled fallacy going to fix it all?
end
This deal will not last long. In order for Greece to survive they must allow for a huge haircut of their debt. They claim that they will need between 20 to 40 billion euros to fix their banking system. I think they will need a lot more!
(courtesy zero hedge)
For anyone who might have missed it, Brazil is in trouble.
The country is “at the center of a triple unwind of EM credit, China’s leverage, and US monetary easing” (toquote Morgan Stanley) and as Goldman recently pointed out, faces a stagflationary nightmare.
Last quarter, Brazil suffered through the worst growth-inflation mix in over ten years. As Goldman put it, “since 1Q2004 there has not been a single quarter in which we had simultaneously higher inflation and lower growth than during 2Q2015.”
And then there’s the twin deficit problem. Here’s Goldman again:
Over the last 11.5 years, we cannot identify a month with a strictly-worse fiscal-CA deficit outcome than that of May-15 (lower left quadrant is empty). In fact, at 7.9% of GDP the fiscal deficit is now the widest it has ever been since Jan-04, and there were only a few months (5 out of 137 months in the sample) were the current account deficit was marginally wider than currently.
Meanwhile, as we mentioned on Monday, Dilma Rousseff is now the most unpopular democratically elected president since a military dictatorship ended in 1985, with an approval rating of just 8%. In a recent poll, 71% said they disapprove of the way Rousseff is doing her job… and two-thirds would like to see her impeached. Here’s Bloomberg summing up the situation:
To be sure, the president faces a host of challenges this month, not least of which is a nationwide protest planned for Aug. 16.
The country’s audit court also must decide whether the government broke the fiscal law by doctoring budget results last year. A ruling against the government could provide the legal foundation to start impeachment hearings, opposition lawmakers say. Her administration says previous presidents used the same practices.
Investors are concerned that the political instability will push Brazil into a deeper recession and make it increasingly vulnerable to a sovereign-credit downgrade. The real has depreciated 8.1 percent in the last month, the biggest decline among 16 major currencies tracked by Bloomberg.
Given all of this, just about the last thing Brazil needed was for China to officially enter the global currency wars, which is of course exactly what happened overnight. Our response:
And the response from Brazil’s trade ministry (viaReuters):
Brazil’s Trade Minister Armando Monteiro on Tuesday said China’s decision to devalue the yuan could hurt the country’s manufacturing exports.
So what lies ahead for Brazil given all of the above? Well, further BRL weakness – or at least according to Goldman. Here’s more:
We are moving our BRL forecasts to show further downside – we expect $/BRL to reach 4.00 in 12 months (relative to 3.55 previously). A weaker BRL is part of a necessary adjustment to address the macro imbalances in Brazil; and the combination of a weak and increasingly back-loaded path of fiscal adjustment and a central bank that appears to be done with tightening policy for now suggests that the exchange rate is likely to bear more of the overall burden of absorbing the impact of the commodity price downdraft, restoring competitiveness and correcting the current account deficit.
Brazil stands at a crossroads – both roads involve currency depreciation. The combination of significant macro challenges (economic contraction, elevated inflation and large fiscal and current account deficits) and a deteriorating political and institutional backdrop means that Brazil stands at a pivotal crossroads. One road involves the risk of a further deterioration in the political backdrop morphing into a full-fledged governability and institutional crisis (potentially including the departure of key policymakers) and a further deterioration in investor (and rating agency) confidence, with an associated additional hit to an already contracting economy. The other road involves a potential stabilisation in the political picture, which in turn would provide the authorities with room to undertake necessary short- and medium-term fiscal consolidation measures, coupled with monetary easing further down the line. In either case, we think the BRL is likely to depreciate further because it is hard for us to see a route back to a more balanced set of macro outcomes in Brazil that do not involve currency weakness.Along the first road, the depreciation is likely to be sharper and disruptive, with scope for overshooting and an eventual rebound; the alternative scenario would likely involve a grinding, more controlled move, potentially encouraged by policymakers.
Macro imbalances in Brazil are large, the worst in almost a decade…We have developed a simple scoring algorithm to assess the scale of internal (inflation relative to target) and external imbalances (current accounts relative to sustainable levels) and, as Exhibit 1 shows,in Brazil these imbalances are at their widest combined level in a decade. The fiscal deficit at -8.1% of GDP is also at its widest in more than 20 years, with the combined twin deficits now tracking at a disquieting 12.5% of GDP.
Of course as we said late last month, the simple fact is that whether it’s China, runaway stagflation, or simple politician greed and corruption, Brazil has passed the recession phase and its economy is in absolute free fall and against a backdrop of an escalating currency war (which the country’s most important trading partner has just officially entered), unattainable fiscal targets, and protracted weakness in commodity prices, the path to stabilization and rebalancing is anything but clear, but what does seem virtually certain is that Brazil has a date with junk status in the not-so-distant future.
We suppose the only lingering questions are whether Rousseff will be impeached and whether economic decay, a dangerously unstable political situation, and problems of a more, shall we say, “putrid” nature, will conspire to make Rio a veritable ghost town for next summer’s Olympic games.
Then again, this young lady doesn’t seem particularly concerned…

Your early Tuesday morning currency, and interest rate moves
Euro/USA 1.1037 up .0022
USA/JAPAN YEN 124.95 up .319
GBP/USA 1.5578 down .0004
USA/CAN 1.3072 up .0061
Early this Tuesday morning in Europe, the Euro rose by 22 basis points, trading now just above the 1.10 climbing to 1.1037; Europe is still reacting to deflation, announcements of massive stimulation, a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece and the Ukraine, rising peripheral bond yields, and flash crashes and a Chinese currency devaluation.
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen continues to trade in yoyo fashion as this morning it settled down again in Japan by 32 basis points and trading we;; above the 124 level to 124.95 yen to the dollar.
The pound was down this morning by 4 basis points as it now trades well above the 1.55 level at 1.5578, still very worried about the health of Barclay’s Bank and the FX/precious metals criminal investigation/Dec 12 a new separate criminal investigation on gold, silver and oil manipulation.
The Canadian dollar continues to occupy the toilet as it fell by 25 basis points at 1.3139 to the dollar. (Harper called an election for Oct 19)
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies
2, the Nikkei average vs gold carry trade (still ongoing)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this Tuesday morning: down by 87.94 or 0.42%
Trading from Europe and Asia:
1. Europe stocks all in the red
2/ Asian bourses all in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) red/India’s Sensex in the red/
Gold very early morning trading: $1112.00
silver:$15.31
Early Tuesday morning USA 10 year bond yield: 2.17% !!! down 6 in basis points from Monday night and it is trading below resistance at 2.27-2.32%
USA dollar index early Tuesday morning: 97.17 down 1 cent from Monday’s close. (Resistance will be at a DXY of 100)
This ends the early morning numbers, Tuesday morning
And now for your closing numbers for Tuesday night:
Closing Portuguese 10 year bond yield: 2.33% down 9 in basis points from Monday
Closing Japanese 10 year bond yield: .39% !! down 2 in basis points from Monday
Your closing Spanish 10 year government bond, Tuesday, down 4 in basis points
Spanish 10 year bond yield: 1.93% !!!!!!
Your Tuesday closing Italian 10 year bond yield: 1.79% down 4 in basis points from Monday:
trading 14 basis point lower than Spain.
IMPORTANT CURRENCY CLOSES FOR TUESDAY
Closing currency crosses for Tuesday night/USA dollar index/USA 10 yr bond: 4 pm
Euro/USA: 1.1026 up .0011 (Euro up 11 basis points)
USA/Japan: 125.13 up .500 (Yen down 50 basis points)
Great Britain/USA: 1.5560 down .0023 (Pound down 23 basis points
USA/Canada: 1.31312 up .01220 (Canadian dollar down 122 basis points)
USA/Chinese Yuan: 6.323
This afternoon, the Euro rose by 11 basis points to trade at 1.1026. The Yen fell to 125.13 for a loss of 50 basis points. The pound fell 23 basis points, trading at 1.5560. The Canadian dollar landed back into the toilet falling by 122 basis points to 1.31312.
The USA/Yuan closed at 6.323
Your closing 10 yr USA bond yield: 2.14% down 9 in basis point from Monday// ( well below the resistance level of 2.27-2.32%)/
Your closing USA dollar index:
97.33 up 14 cents on the day
.
European and Dow Jones stock index closes:
England FTSE down 71.68 points or 1.06%
Paris CAC down 96.38 points or 1.86%
German Dax down 311.13 points or 2.68%
Spain’s Ibex down 159.40 points or 1.41%
Italian FTSE-MIB down 267.95 or 1.12%
The Dow down 212.33. or 1.21%
Nasdaq; down 65.01 or 1.27%
OIL: WTI 43.17 !!!!!!!
Brent:49.23!!!
Closing USA/Russian rouble cross: 64.16 down 1 and 1/8 rouble per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York
Manic Monday Becomes Turmoil Tuesday As China Rocks The Global Boat
In honor of China’s historic devaluation, today seemed like a two-clip day… For the Traders…
and of course… for the news media after yesterday’s celebrations…
Ok, having got that off our chest we start with…USDCNH’s collapse (utterly destroying carry traders as implying vol exploded) has continued after China’s close…
Is it any wonder that carry trades worldwide exploded?
US equities roundtripped all of yesterday’s gains… then bounced…
Leaving only Nasdaq red on the week though…but they did try to ramp that too…
Weighed down by AAPL..down 5% – worst since Jan 2014…
Dow Death Crosses…
VIX rollercoaster continues – VIX up 13% breaking above 14…
With a late day slam in VIX to ramp the S&P perfectly to VWAP… NOTE the institutional selling at VWAP on each bounce…and the volume difference!!
File these two charts under the WTF folder… Energy credit spiked to 1028bps and WTI crude collapsed to a $42 handle… so it makes perfect sense that energy stocks would surge…
Submerging markets collapse to 4 year lows…
Treasury yields collapsed around 9bps across the complex… The 5Y, 7Y, 10Y, and 30Y all closed below their 200DMAs
FX markets turmoiled… commodities currencies were monkey-hammered and EUR strengthened as the most popular CNH carry pair (which led to modest USD strength)..
Commodities were mixed with PMs up and industrials/base down…
Precious Metals appeared to get a nod that things were coming…
Crude Carnaged to fresh 6 year lows today… with a $42 handle… increased OPEC production (Supply) along with China growth (Demand) fears
And Copper closed at fresh 6 year lows…
Finally – a message from your friendly CNBC correspondent: “Flat Is The New Up”
Charts: Bloomberg
Even before the big announcement from China we witness wholesale inventories surge while sales falter..a sure red flag for a recession:
(courtesy zero hedge)
Recession Imminent As Wholesale Inventories Surge, Sales Disappoint; Autos Worst Since 2009
The ratio of wholesale inventories-to-sales pushed back up to 1.3 – its highest since the recession and is flashing an enormous red flag for an imminent recesion in America…
with the automotive industry the biggest factor in this.
A bigger-than-expeted 0.9% surge in inventories (biggest since April 2014) was accompanied by a considerably slower than expected 0.1% growth in sales (weakest since March) suggest that ‘field of dreams’ corporate planning remains in place.
Most crucially, as The Atlanta Fed warns, “lower inventory investment will subtract 1.7ppt from Q3 real GDP growth.” The higher Q2 ‘build’ the worst Q3 will be – though we are sure economists will extrapolate Q2 growth no matter what…
Charts: Bloomberg
end
We just witnessed the “Death Cross”. This is when the 50 day moving average crosses over the 200 day moving average. To a chartist this is deadly. You can see what happened the last time this occurred!!
(courtesy zero hedge)
Dow “Death Cross”-es For First Time In 4 Years
Just as we warned yesterday, unless the Dow can miraculously rally over 17,850, The Dow will close in a Death Cross pattern. This is the first time that the 50-day moving average crosses below the 200-day moving average since August 2011(which was followed by a 1300 point swing from high to low in The Dow)…
For the first time since Aug 2011, The Dow Death Cross’d…
And this is what happened last time…
After a reflexive bounce, The Dow dumped 1300 points in 4 weeks.
end
Well that about does it for today.
I will see you tomorrow night
Harvey





















































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