Another 1.6% Chinese devaluation sends gold/silver soaring/GLD adds 4.18 tonnes of gold/ Bourses around the world falter badly except NY where the Plunge protection team saved the day/Germany states that the Greek bailout proposal is insufficient/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1123.20 up $15.60   (comex closing time)

Silver $15.47 up 18 cents.

In the access market 5:15 pm

Gold $1124.00

Silver:  $15.55

First, here is an outline of what will be discussed tonight:

At the gold comex today, we had a good delivery day, registering 450 notices for 45,400 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 230.85 tonnes for a loss of 72 tonnes over that period.

In silver, the open interest fell by 2531 contracts despite the fact that silver was unchanged in price yesterday. The total silver OI continues to remain extremely high, with today’s reading at 177,902 contracts   In ounces, the OI is represented by .889 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 notices served upon for 5,000 oz.

In gold, the total comex gold OI rests tonight at 435,489. We had 450 notices filed for 45,000 oz today.

We had a huge addition in gold deposited at the GLD today to the tune of 4.18 tonnes /  thus the inventory rests tonight at 671.87 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 fell by 2531 contracts down to 177,902 even though silver was unchanged in price with respect to yesterday’s trading. Again, we must have had some short covering.  The OI for gold rose by 4166 contracts to 435,489 contracts despite the fact that  gold was up by $3.40 yesterday.  We still have close to 21 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. Three stories today on the Greek supposed bailout

(zero hedge/Clive Hale)

4. Three stories on China devaluing again last night

(Agence France-Presse/zero hedge)

5 Trading of equities/ New York

(zero hedge)

6. One oil related story

(zero hedge)

7. Spain’s recovery/economy is one big lie

(zero hedge)

8.  USA stories:

i) Kraft cutting 2500 jobs

ii)10 yr USA bond yield plummets

 

Let us head over and see the comex results for today.

The total gold comex open interest rose from 431,323 up to 435,489, for a gain of 4166 contracts as gold was up $3.40 with respect to  yesterday’s trading. 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 339 contracts falling to 2910 contracts. We had 172 notices filed upon yesterday and thus we lost 167 contracts or 16,700 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 7 contracts down to 2251. The next active delivery month is October and here the OI fell by 824 contracts down to 26,446.  The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was good at 234,368. The confirmed volume on yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 205,785 contracts.
Today we had 450 notices filed for 45,000 oz.
And now for the wild silver comex results. Silver OI fell by 2531 contracts from 180,433 down to 177,902 as silver was unchanged in price 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 29. We had 1 delivery notice filed yesterday and thus we lost 0 contracts or an additional nil ounces will stand for delivery in this non active August contract month. The next major active delivery month is September and here the OI fell by 7,192 contracts to 90,566. The estimated volume today was huge at 67,913 contracts (just comex sales during regular business hours). The confirmed volume yesterday (regular plus access market) came in at 75,522 contracts which is excellent in volume.  We had 450 notices filed for 45,000 oz.

August contract month:

initial standingAugust 12.2015

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  39,970.160. oz (JPMorgan)
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz nil
No of oz served (contracts) today 450 contracts (45,000 oz)
No of oz to be served (notices) 2460 contracts (246,000 oz)
Total monthly oz gold served (contracts) so far this month 3823 contracts(382,300 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 448,877.6   oz
Today, we had 0 dealer transactions
total Dealer withdrawals: nil  oz
we had 0 dealer deposits
total dealer deposit: zero
we had 1 customer withdrawal
i) Out of JPMorgan: 39,970.16 oz
total customer withdrawal: 39,970.16  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)  and only 844,938.531 oz in its customer (eligible) account or 26.28 tonnes

.
Today, 0 notices was issued from JPMorgan dealer account and 450 notices were issued from their client or customer account. The total of all issuance by all participants equates to 450 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 (3823) x 100 oz  or 382,300 oz , to which we add the difference between the open interest for the front month of August (2910) and the number of notices served upon today (450) 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 (3823) x 100 oz  or ounces + {OI for the front month (2910) – the number of  notices served upon today (450) x 100 oz which equals 628,300 oz standing so far in this month of August (19.54 tonnes of gold).

We lost 167 contracts or an additional 16,700 ounces will not stand for delivery. Thus we have 19.54 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) =7,422,118.983 or 230.85  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 230.85 tonnes for a loss of 72 tonnes over that period. The gold comex is bleeding gold.
end
And now for silver

August silver initial standings

August 12 2015:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 110,069.05  oz (HSBC, Scotia)
Deposits to the Dealer Inventory  nil
Deposits to the Customer Inventory 697,516.098 oz (Delaware,CNT)
No of oz served (contracts) 13 contracts  (65,000 oz)
No of oz to be served (notices) 26 contracts (80,000 oz)
Total monthly oz silver served (contracts) 59 contracts (295,000 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 6,512,645.1 oz

Today, we had 0 deposits into the dealer account:

total dealer deposit: nil   oz
we had 0 dealer withdrawal:
total dealer withdrawal: nil  oz
We had 2 customer deposits:

i) Into CNT: 594,261.700 oz

ii) Into Delaware;  103,254.398 oz

total customer deposits:  697,516.098  oz

We had 2 customer withdrawals:
i) Out of HSBC: 50,041.35 oz
ii) Out of Scotia:  60,027.700 oz

total withdrawals from customer: 110,069.700  oz

we had 1  adjustment
i) Out of CNT:
440,457.85 oz was adjusted out of the dealer and this landed into the customer account of CNT
Total dealer inventory: 55.399 million oz
Total of all silver inventory (dealer and customer) 172.106 million oz
The total number of notices filed today for the August contract month is represented by 13 contracts for 65,000 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 (59) x 5,000 oz  = 295,000 oz to which we add the difference between the open interest for the front month of August (29) and the number of notices served upon today (13) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the August contract month:
59 (notices served so far)x 5000 oz + { OI for front month of August (29) -number of notices served upon today (13} x 5000 oz ,= 375,000 oz of silver standing for the August contract month.

we neither lost nor gained any silver ounces standing in this non 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 shareholdersii) demand from the bankers who then redeem for gold to send this gold onto Chinavs no sellers of GLD paper.
And now the Gold inventory at the GLD:

August 12./ a huge deposit of 4.18 tonnes of gold into the GLD/Inventory rests at 671.87 tonnes

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 12 GLD : 671.87 tonnes
end

And now SLV:

August 12.2015: no change in SLV inventory/rests tonight at 326.209 million oz.

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 12/2015:  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 9.7 percent to NAV usa funds and Negative 9.5% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.4%
Percentage of fund in silver:38.3%
cash .3%( August 12/2015)
2. Sprott silver fund (PSLV): Premium to NAV rises to -0.11%!!!! NAV (August 12/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to – .36% to NAV August12/2015)
Note: Sprott silver trust back  into negative territory at-  0.11%Sprott physical gold trust is back into negative territory at -.36%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 storieson gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Gold Price Rises After Currency Wars Reignite As China Devalues

DAILY PRICES
Today’s Gold prices were USD 1,116.80, EUR 1003.23 and GBP 717.18 per ounce.
Yesterday’s Gold prices were USD 1,113.25, EUR 1008.97 and GBP 713.74 per ounce.
[LBMA AM prices]

Gold in USD

Gold in USD – 1 Year
Gold and silver rose on the COMEX yesterday – up 0.5% to $1,108.70 and silver was up 0.6% to $15.34 per ounce.

This morning, gold is 0.85% higher to $1,119 per ounce. Silver is up 0.1% to $15.47 per ounce. Platinum and palladium are 0.5% and 1% higher to $996 and $610 per ounce respectively.

Gold Rises After Currency Wars Reignite As China Devalues

  • China surprised global markets yesterday by devaluing its currency on concerns about sharply decelerating Chinese economy
  • We were not surprised as had said that this was likely as the Chinese economic numbers are bogus
  • The devaluation was condemned by U.S. politicians as a grab for an unfair export advantage

Currency Wars

Mark Hill via Merck Investments

  • China’s central bank set its official guidance rate down nearly 2 percent to 6.2298 yuan per dollar
  • It was the biggest one-day fall since a massive devaluation in 1994
  • The devaluation hit global equities and U.S. oil prices, with investors fearing a new currency war
  • Gold prices ticked higher as the move will increase deflation pressures in the U.S. and could lead to the Fed not being able to increase interest rates
  • As expected and currency wars and competitive currency devaluations are set to escalate once again
  • Gold, silver and tangible assets will benefit once again

Continue reading

end

(courtesy New York Sun/GATA)

New York Sun editorial: The fiat yuan

Section:

From the New York Sun
Tuesday, August 11, 2015

If the Communist Chinese devalue the yuan against a dollar that is appreciating against gold, has the yuan gone up or down? We ask because the leading story on the New York Times Web site this morning reports not only that the Chicom authorities “sharply devalued” the renminbi but also that the move “could raise geopolitical tensions and weigh on growth elsewhere.” We ran the Times’ entire text through the Sun’s old hand-crank Von Mises brand language-species prose separator. It failed to find any mention of — or even allusion to — gold. …

… For the remainder of the commentary:

http://www.nysun.com/editorials/the-fiat-yuan/89249/

end

 

So much for “one-off”

(courtesy Agence France)

 

 

China cuts yuan rate against US dollar for second day

Section:

From Agence France-Presse
via Yahoo News
Wednesday, August 12, 2015

SHANGHAI — China cut the yuan’s value against the dollar for the second consecutive day Wednesday, roiling global financial markets and driving expectations the currency could be set for further falls.

The daily reference rate that sets the value of the Chinese currency against the greenback was cut by 1.62 percent to 6.3306 yuan, from 6.2298 on Tuesday, the People’s Bank of China said in a statement on its website.

The move took the reductions to 3.5 percent this week — the largest in more than two decades — after a surprise devaluation on Tuesday, but the central bank played down expectations it would continue to depreciate the currency.

The combined drop is the biggest since China set up its modern foreign exchange system in 1994, when it devalued the yuan by 33 percent at a stroke. …

Analysts said the move could also delay an expected US hike in interest rates and even threaten a currency war as other countries come under pressure to devalue as well. …

… For the remainder of the report:

http://news.yahoo.com/imf-welcomes-chinas-currency-valuation-mechanism-0…

end

And now your overnight Wednesday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan drops big time to   6.3723/Shanghai bourse: red and Hang Sang: red

2 Nikkei down 327.98 or 1.58%

3. Europe stocks all in the red  /USA dollar index down to  96.38/Euro up to 1.1147

3b Japan 10 year bond yield: falls hugely to 36% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 124.27

3c Nikkei still just above 20,000

3d USA/Yen rate now just above the 124 barrier this morning

3e WTI 43.78 and Brent:  49.80

3f Gold up  /Yen up

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 up for WTI and up 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 .61 per cent. German bunds in negative yields from 4 years out.

Except Greece which sees its 2 year rate falls to 14.72%/Greek stocks this morning down by 1.55%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 10.22%

3k Gold at $1117.25 /silver $15.34

3l USA vs Russian rouble; (Russian rouble down 6/10 in  roubles/dollar) 64.82,

3m oil into the 43 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!!

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9758 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0879 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 +.61%

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 2.10% early this morning. Thirty year rate below 3% at 2.79% / yield curve flatten/foreshadowing recession.

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Equity Futures Tumble Again, S&P To Open Under 200DMA, 10Y Yield Approaches 1-Handle

The overnight market has been a repeat of yesterday’s action, when following China’s repeat 1.6% devaluation of the CNY (which was to be expected since the PBOC made it quite clear the fixing would be based off the market value, a value which continues plunging), the second biggest in history following Monday’s 1.9% plunge, traders appeared stunned having believed the PBOC’s lies that the devaluation was a one-off and as a result the E-Mini tumbled overnight, and is now 30 points lower from last night’s PBOC fixing announcement, trading at around 2058, and far below the “magical” 200-DMA support line, which has now been solidly breached.

Perhaps the only saving grace right now is that the PBOC stepped in the last minutes of trading to prop up the yuan, or else today’s bloodbath, not just across Asian FX as shown earlier, but in US and European equity markets would have been far, far worse. For Asia, however, it was too late: all major indices were firmly in the red, with the Nikkei 225 (-1.6%), ASX 200 (-1.7%) and Hang Seng (-2.4%) and Shanghai Comp. (-1.1%) pressured, which followed in tandem with US equity futures as the actions by the PBoC further added uncertainty and concerns of weak underlying Chinese growth. At the same time, JGBs gained 29 ticks amid a risk off tone.

But what was bad for stocks was delightful news for Treasurys, whose yields tumbled overnight, and at last check were trading just modestly off the overnight lows of 2.07%. We fully expect a 1-handle in the 10 Year within days. As RanSquawk notes, the latest move by the PBOC caused an uproar across various asset classes, with USTs now up over 1.5 points since Monday and stocks in Europe trading lower over 2% this morning amid fears of negative spill over effects. As a result, US inflation swap forward 5Y5Y rate now trades at the lowest since March while Euro 5-year/5-year inflation swap rate trades at its lowest since April 28. It’s called “currency war” for a reason: the same reason it is also called “exporting deflation.”

Looking at sectors, the exporters led the move lower in Europe and on the sector breakdown , the weakness was particularly evident across auto and luxury names. The move lower saw the DAX index break below the key 11,000 level, while the S&P e-mini future looks set to break the 200DMA line to the downside.

Focusing on FX, the USD index failed to benefit from the risk averse sentiment as lower yields, with USTs 10y yield breaking below its 200DMA yesterday, and the consequent flattening of the curve prompted realignment of market expectations with regards to potential rate hike. At the same time, FX managers recycling into EURs, together with the ongoing unwind of short carry trades (EUR/USD and EUR/CNY) see the major pair rallying to 1-month high, while EUR/CHF continued to consolidate above the key 200DMA line.

The commodity complex did see initial weakness on the back of the latest news from China, with the exception of gold which benefitted from a safe haven bid to trade higher on the day by around USD 10.00 and is now on track for its 5th straight day of gains . Away from gold, WTI crude futures initially extended losses having settled at its lowest level in 6-years despite the latest API crude report showing a 3rd consecutive drawdown. (-847K vs. Prey. -2400K), however the energy complex has retraced some of these losses this morning, with Brent and WTI trading above USD 49.00 and USD 43.00 respectively.

In Summary: European shares remain lower though are off intraday lows after the biggest two-day selloff in Asian currencies since 1998. The onshore yuan fell ~1.9%, Shanghai Composite down 1.1%.  The personal & household and autos sectors underperform and oil & gas, real estate outperform. Most European government bond yields fall, German bund yield drops to two-month low. The euro rises to a one-month high against the dollar. IEA sees oil glut enduring in 2016 after reaching 17-year high. Crude oil rises. U.K. unemployment in line with estimates, wage growth below. European industrial production below estimates. The French and Dutch markets are the worst-performing larger bourses, the U.K. the best. The euro is stronger against the dollar. Japanese 10yr bond yields fall; German yields decline. Commodities gain, with nickel, soybeans underperforming and WTI crude outperforming.

Market Wrap

  • U.S. mortgage applications, monthly budget statement, JOLT job openings due later.
  • S&P 500 futures down 1.1% to 2056.1
  • Stoxx 600 down 2.2% to 384.8
  • US 10Yr yield down 6bps to 2.08%
  • German 10Yr yield down 2bps to 0.61%
  • MSCI Asia Pacific down 1.5% to 137.9
  • Gold spot up 0.8% to $1117.3/oz
  • All 19 Stoxx 600 sectors rise; oil & gas, real estate outperform, personal & household, autos underperform
  • 2.8% of Stoxx 600 members gain, 96.8% decline
  • Eurostoxx 50 -2.6%, FTSE 100 -1.4%, CAC 40 -2.8%, DAX -2.4%, IBEX -1.9%, FTSEMIB -2.4%, SMI -1.9%
  • Asian stocks fall with the Kospi outperforming and the Hang Seng underperforming; MSCI Asia Pacific down 1.5% to 137.9
  • Nikkei 225 down 1.6%, Hang Seng down 2.4%, Kospi down 0.6%, Shanghai Composite down 1.1%, ASX down 1.7%, Sensex down 1.2%
  • 0 out of 10 sectors rise with health care, utilities outperforming and materials, financials underperforming
  • Pearson to Sell Economist Stake for $731m to Exit News
  • Euro up 0.78% to $1.1128
  • Dollar Index down 0.71% to 96.6
  • Italian 10Yr yield down 1bps to 1.78%
  • Spanish 10Yr yield down 2bps to 1.92%
  • French 10Yr yield down 1bps to 0.92%
  • S&P GSCI Index up 0.8% to 370
  • Brent Futures up 0.9% to $49.6/bbl, WTI Futures up 1.2% to $43.6/bbl
  • LME 3m Copper little changed at $5123.5/MT
  • LME 3m Nickel down 1.4% to $10600/MT
  • Wheat futures up 0.2% to 513.3 USd/bu

Bulletin headline summary from RanSquawk and Bloomberg

  • Risk averse sentiment dominates the price action, as the PBOC weakens the CNY fix for the 2nd consecutive day, causing an uproar in financial markets
  • The USD index failed to benefit from the risk averse sentiment, as lower yields, with Videos USTs 10y yield breaking below its 200DMA yesterday and the consequent flattening of the curve prompted realignment of market expectations with regards to potential rate hike
  • Going forward, market participants will get to digest the release of the latest US JOLTs report and the weekly DOE data. In terms of earnings, the focus will be on Cisco and Macy’s.
  • Treasury yields dropped overnight led by long-end as China’s currency devaluation sparks FTQ flows and drives equities lower; this week’s U.S. Treasury auctions continue with $24b 10Y, WI 2.095% vs. 2.225% in July.
  • China’s yuan led the biggest two-day selloff in Asian currencies since 1997, fueling concern that financial-market volatility will curb global economic growth
  • Bill Gross says a weakening Chinese yuan will bring slower inflation worldwide and the nation’s move to devalue its currency is also fueling demand for dollar- denominated assets
  • While the PBOC followed through on a pledge to align its fixing more closely with the previous close, people familiar with the matter said authorities intervened to support the currency and told banks to limit some companies’ dollar purchases
  • China’s industrial production, investment and retail data all trailed analysts’ estimates, putting additional downward pressure on an already weakening currency
  • The weakest corporate borrowers are finding the days of free-flowing credit quickly evaporating as the $39.6 billion of junk-rated bonds and loans issued since July is the least since the summer of 2008, according to data compiled by Bloomberg
  • Greece’s third bailout risks being held up by German lawmakers just as the Greek government submits a new raft of proposals to its parliament, throwing into jeopardy a timeline that aims to get cash to the country
  • $750m IG and $1.8b HY priced yesterday. BofAML Corporate Master Index OAS widens +1 to new YTD wide 162; YTD low 129. High Yield Master II OAS +16 to 567, new YTD wide; YTD low 438
  • Sovereign 10Y bond yields lower. Asian, European stocks drop, U.S. equity-index futures lower. Crude oil, cooper and gold rise

DB’s Jim Reid completes the overnight recap

So a bit late, but the reason I think this could be a big deal is because it may mark the point where the global currency wars move from being friendly to being more antagonistic. Clearly the China moves so far are minor but do seem to mark a change in strategy which is the important point. So far the global currency war has been relatively benign because in my opinion the two main protagonists – namely Japan and the Euro-Area – can point to genuine reasons why they needed to do something to arrest years of growth under-performance. With China it’ll be hard for the international community to have the same sympathy for a country that is struggling to migrate from a high single digit growth rate to one supposedly around or just beneath 7% – but on official stats still faster than virtually any country in the world.

So the key here is whether this is part of a series of moves from China or perhaps more importantly whether the market or its trading partners think it is. However the big positive for financial assets (at some point) is that it surely must influence the Fed to some degree and other central banks for that matter. A full blown China devaluation would surely stop the Fed dead in their tracks and the even threat of it may slow them down. The probability of a September US hike went down from 48% before the announcement (and 54% late Monday) to 40% currently. So one has to balance the risk of a destabilising currency war with the extra global liquidity it would bring. Net net we still think the global financial system is incredibly fragile and essentially being artificially propped up by mass liquidity. This view hasn’t changed yet but the risk of something more destabilising depends on China’s likely follow-through. As you’ll see below our economists are relatively sanguine about the scale of further moves in the currency but anything like this involves risks.

Before we look at this, how have we reacted so far this morning? The headlines are dominated again by a material shift in the Yuan fix at the open this morning. The fix was set at 6.3306, a 1.6% devaluation versus the previous days fix and a 0.1% discount to yesterday’s closing level. The Yuan (-1.62%) has plummeted as a result and is on course for its biggest two-day drop (-3.48%) since 1994. The offshore Renminbi meanwhile is down 2.46% in trading this morning. We’ve seen another selloff in FX markets in Asia as a result with the Aussie Dollar (-0.84%), Korean Won (-1.25%), Taiwanese Dollar (-2.25%) and Indonesian Rupiah (-1.57%) a few of the notable movers while the Malaysian Ringgit (-1.38%) has fallen to the lowest level since 1998. We’ve also seen the first sign of a reaction from a Central Bank to China’s moves, with the State Bank of Vietnam this morning announcing a widening in the trading band of its own currency, citing the PBoC action as the reason.

Meanwhile, in reaction to the moves the IMF has this morning said that ‘greater exchange rate flexibility is important for China’ and that the economy can and should aim to achieve an effectively floating exchange rate system in two to three years. This came after the PBoC stated that the currency exchange rate fluctuation is ‘normal and should be treated objectively’ and that the daily fixing price will ‘gradually move towards stability’.
Elsewhere, 10y Treasuries have dropped a further 6bps this morning while equity bourses in Asia have sold off. The Nikkei (-1.70%) is lower, not helped by a soft PPI print while the Hang Seng (-1.75%), Kospi (-1.87%) and ASX (-1.74%) have extended moves lower. The Shanghai Comp (-0.45%) and Shenzhen (-0.36%) are again trading with little obvious direction as we head into the midday break while credit indices in Asia, Australia and Japan are generally 2-3bps wider.

Writing in a note yesterday, our China Chief Economist Zhiwei Zhang said that, in his view, the Chinese government had already sent a clear signal to the market on July 24th when it announced a set of policies to boost trade, including a statement to allow more flexibility in the exchange rate and so as a result he’d already expected some depreciation in the Yuan to occur. Zhiwei sees the move as a positive step towards a more market orientated exchange rate policy framework but doubts the government will allow depreciation of more than 10% in the next 12 months, expecting volatility on both sides. Zhiwei has reiterated his CNY forecast of 6.5 by the end of 2016 but acknowledges that the risks are balanced towards more depreciation (albeit less than 10%). Crucial in his mind for the government is the avoidance now of sharp capital outflows. In that sense he thinks we may see some volatility in the fixing and CNY spot market, as the government may want to avoid any built-up expectations of the CNY becoming a one-way trade. Despite yesterday’s move, Zhiwei has reiterated his growth and policy outlook, expecting GDP to grow at 7.0% in Q3 and 7.2% in Q4 as well as one rate cut and one RRR cut for the rest of the year (most probably Q3).

Taking a look back at the impact of the move yesterday, the Yuan eventually finished the session 1.86% weaker versus the Dollar at 6.325. Like this morning, the initial pain was felt in the more China-sensitive currencies as we saw the Aussie Dollar (-1.47%), NZ Dollar (-1.25%), Korean Won (-1.36%) and Taiwanese Dollar (-1.27%) amongst others, tumble in the aftermath. There was a general feeling of uncertainty for the most part and the move by the PBoC clearly rattled markets resulting in a risk-off session yesterday. Equity markets on both sides of the pond fell, highlighted by the S&P 500 (-0.96%), Dow (-1.21%), Stoxx 600 (-1.55%) and DAX (-2.68%). The decline for Apple (-5.15%) in particular highlighted the effect of the move at the micro level and for those companies with significant revenue exposure in China with luxury goods makers the other notable names to retreat yesterday. Meanwhile, credit markets also came under reasonable pressure with CDX IG 1.5bps wider in the US and Main (+2.5bps) and Crossover (+10bps) leaking wider through the European session.

The moves in the equity markets yesterday were probably slightly better than expected in light of the tumbles in the Oil complex yesterday. Energy stocks (-0.19%) were a notable outperformer in the S&P 500 despite WTI falling -4.18% and closer to 5% from the intraday high to close at $43.08/bbl – the lowest settlement price now since March 2009 but still not quite at the intraday low of $42.03/bbl we saw back in mid-March. There was a similar fall for Brent (-2.44%) while industrial metals were hard hit with Aluminum (-1.95%), Copper (-3.47%), Zinc (-3.99%) and Nickel (-3.54%) suffering heavy losses. It was the sovereign bond market which benefited from yesterday’s moves meanwhile. With the poorer sentiment driving the weakness in risk assets, along with more pressure in the Oil space, 10y Treasury yields fell 8.6bps lower to 2.142%

(2.08% as we go to print) and to the lowest yield level since May 29th. 2y (-4.8bps) and 30y (-8.7bps) yields also moved lower while across the Fed Funds contracts we saw 2.5bps and 6.5bps taken off the Dec15 and Dec16 contracts to 0.315% and 0.980% respectively. It was a similar story in Europe where we saw 10y Bund yields close 6.6bps lower at 0.630% and the peripherals declining similar amounts.

Of relatively passing interest, all things considered, was yesterday’s data. In the US we saw a slight uptick in the NFIB small business optimism survey to 95.4, a rise of 0.3pts as expected. Nonfarm productivity for Q2 rebounded +1.3% qoq saar (vs. +1.6% expected) during the quarter after some weakness in the prior two quarters. Unit labour costs for the quarter were higher than expected (+0.5% qoq saar vs. 0.0% expected). Meanwhile the June reading for wholesale inventories was solid (+0.9% mom vs. +0.4% expected) and the highest monthly increase since April last year. Trade sales for the month (+0.1% mom vs. +0.5% expected) were more disappointing however. Over in Europe and specifically in Germany, the August ZEW survey reading made for a mixed bag also with the current situations reading rising a better than expected 1.8pts to 65.7 (vs. 64.2 expected), but with the expectations print declining 4.7pts to 25.0 after expectations of a modest rise to 31.9. That latest leg lower marks a fifth consecutive monthly decline from the high print of 54.8 in March, a signal perhaps that the concerns around the commodity slump and China have overshadowed the progress in Greece for now.

On this subject, having dominated headlines for much of this year it seems Greece reached an accord yesterday on a €85bn deal with its creditors. The agreement paves the way for the parliamentary approval process to begin and a tentative Eurogroup finance ministers meeting scheduled for Friday with a €3.2bn ECB repayment due by August 20th. According to Ekathimerini, a draft of the memorandum says the deal has 35 measures which must be passed immediately with more measures to follow in October. Political pressure, most notably in Germany, is still appearing to play a factor however with Bloomberg reporting that the deal risks being held up by German lawmakers seeking more time to dig through the details and not rush any decision.

Taking a look at the day’s calendar now. Kicking off the European data flow this morning will be the UK where we get various June employment indicators including the unemployment rate and average weekly earnings, before we get industrial production data for the Euro area. Over in the US this afternoon there will be some focus on the June JOLTS job openings report with the hiring and quits rate both of interest while the July monthly budget statement is also due. The Fed’s Dudley speaking this afternoon (1.30pm BST) will also be worth keeping an eye on.

end

 

For the second day in a row, the POBC intervened and lowered the value of the yuan.  I have been pointing out to you that there is a massive 9 trillion USA short position.  You can approximate the short USA dollar carry trade into 3 categories:

a) short dollars/purchase emerging market assets like Brazil etc

b) short dollars and purchase USA assets or European assets e.g. oil

c) and the biggest: short dollars purchase Chinese yuan/Chinese denominated assets like Shanghai composite.

The latter carry trade has been going on for quite some time and it makes sense. The yuan was undervalued and appreciating while the dollar was declining.  The hedge funds used their borrowed dollars and purchased Chinese assets and did quite well.  They were not concerned with the rise in the dollar because the yuan was pegged to the dollar. However on Monday that all fell apart as the dollar rose against the yuan.  They were already losing due to the plummeting Chinese exchanges and now the double whammy!!

(courtesy zero hedge)

 

 

 

(courtesy zero hedge)

 

Yuantervention: PBOC Devalues The Yuan, Then Scramble To Support It In The Open Market

As we noted earlier, the most surprising development out of this mornings repeat rout in the Chinese currency was not that it happened: after all as we laid yesterday out there is at least 10-15% in immediate downside left for the Yuan…

… but that shortly before the market close, China’s central bank intervened via “at least one major Chinese state-owned bank sold large amount of dollar shortly before market closed, prompting rapid gain in yuan, according to two traders at onshore banks” Bloomberg reported adding that at least one state bank continuously sold dollar until USD/CNY reached around 6.38.

We bring this up because while we noted it when it happened just after 3am local time…

…it is now being observed by the mass medias such as the WSJ:

China intervened on Wednesday to prop up the yuan in the last minutes of trading, according to people familiar with the matter, in an apparent attempt to prevent an excessive fall in the currency as the authorities seek to give the market more say in setting the exchange rate.

The PBOC … instructed state-owned Chinese banks to sell dollars on its behalf in the last 15 minutes of Wednesday’s trading, according to the people. The result: The yuan jumped about 1% in value against the dollar in the final moments of trading, bringing it to a level where one dollar would buy 6.3870 yuan.

This in turn has led to a bounce in risk assets and bond yields, and a reversal in the selloff in some Asian assets on hope that the PBOC is back in the picture.  This is ironic because far from suggesting the PBOC is “in control”, it merely shows just how confused and ad hocthis yuantervention really is: first the PBOC shocks the market with the two biggest devaluations in history, then it proceeds to intervene and push the Yuan far stronger, whiplashing all traders in the process.

But the biggest problem for the PBOC is that interventions or not, the CNY has a long way to drop: indeed, we said 10-15% more yesterday, and now Reuters confirms as much:

China’s move to devalue its currency reflects a growing clamour within government circles for a weaker yuan to help struggling exporters, ensuring the central bank remains under pressure to drag it down further in the months ahead, sources said.

The yuan has fallen almost 4 percent in two days since the central bank announced the devaluation on Tuesday, but sources involved in the policy-making process said powerful voices inside the government were pushing for it to go still lower.

Their comments, which offer a rare insight into the argument going on behind the scenes in Beijing, suggest there is pressure for an overall devaluation of almost 10 percent.

“There have been internal calls for the exchange rate to be more flexible, or depreciated appropriately, to help stabilise external demand and growth,” said a senior economist at a government think-tank that advises policy-makers in Beijing.

“I think yuan deprecation within 10 percent will be manageable. There should be enough depreciation, otherwise it won’t be able to stimulate exports.”

* * *

“Exporters face very big pressure, and China’s economy also faces very big downward pressure,” said a researcher at the commerce ministry’s own think-tank, which recommended earlier this year that the government should unshackle the yuan.

“The yuan depreciated only slightly versus the dollar, but it has gained sharply against other currencies. China’s economy and trade are no longer strong; why should the yuan be strong?”

We wish the PBOC the best of luck as it tries to channel the Yuan to a “just right” level without blowing up countless carry trading freeloaders in the process, and pushing FX volatility off the charts just as it did with its “bull in a china store” approach to “fixing” the bursting stock market bubble. It will need it.

end

 

It sure looks like the September rate hike is off for good:

(courtesy zero hedge)

Dollar Tumbles As Fed Rate Hike Suddenly Looking Very Uncertain To Goldman, Bank Of America

After China’s shocking currency devaluation, which some more conspiratorially-minded observers have concluded was China’s retaliation to the west for the IMF’s recent snub that pushed back China’s evaluation for inclusion into the SDR to some indefinite point in 2016, the only question on everyone’s mind is whether the Fed will delay or outright cancel any imminent “data-dependent” rate hikes as a result of the implicit tightening of monetary conditions thanks to China, and the dramatic appreciation of the USD which would not have taken place without China.

And while we await the first Fed speaker to hit the public circuit since Monday’s night’s dramatic event, which is Goldman’s NY Fed’s Bill Dudley speaking in a few minutes, here is what two of the most influential banks have to say on the topic.

First, here is Goldman:

We expect that Fed officials would evaluate the recent news in a similar way. All else equal, the unexpected depreciation of the yuan implies downside risks to inflation and an additional tightening of financial conditions that may affect growth–beyond the effects from the sizable appreciation in the dollar before this week. There could be some potential offsets, such as a healthier Chinese growth outlook and/or lower US interest rates. But on balance, the PBOC action marginally lowers the odds of Fed liftoff in September, in our view, and December liftoff remains our call. The FOMC’s post-meeting statement already indicates that the committee will take into account “readings on financial and international developments,” so we do not think any additional language would be needed at this stage. Fed Chair Yellen’s press conference would be a more natural venue for discussing the dollar’s impact on financial conditions, if this remained a concern at the time of the September 16-17 meeting.

And here is Bank of America:

The timing of Fed liftoff has always been a relatively close call in our view — and with the devaluation of the Chinese yuan this morning, it just got a little closer. A stronger US dollar is both disinflationary and a drag on US growth. While the depreciation of the yuan increases the uncertainty around the upcoming FOMC meetings, at this point it does not lead us to fundamentally shift our expectations for liftoff in September. However, the effects of a stronger USD may well slow the subsequent pace of rate hikes even if they do not delay liftoff. Of course, Fed policy remains data dependent. We thus recommend paying close attention to upcoming speakers to see how they assess the risks to the Fed’s objectives and expected policy path from this regime shift in China.

A stronger dollar is also disinflationary, but Fed officials have been largely unconcerned by weak commodity and import prices to date. The smaller estimated impact on core inflation in the staff’s model — about a 0.1-0.3pp drop following a 10% appreciation — may help explain the Fed’s reaction. We expect a larger and more persistent impact. In addition, Fed officials had cited stabilization of the dollar and energy prices as supporting their view that these disinflationary forces were “transitory.” Today’s market reaction may lead them to reconsider, as stocks, oil prices and inflation expectations all fell. The larger and more sustained these moves, the more likely the FOMC will react.

Today’s events won’t likely impact the incoming data before the September FOMC meeting. Instead, we think that the Fed will need to make a risk assessment: is the greater uncertainty after the Chinese yuan depreciation enough to warrant postponing liftoff? The FOMC also has the option to slow the pace of subsequent hikes, should downside risks be realized. Fed officials will need to weigh these risks against the realized cumulative improvement in the US labor market. The Fed call is now closer than before, but it may take a significant reaction by global markets for the FOMC to stay on hold in September.

Suddenly the case for a rate hike in 2015 looks very, very wobbly. Want proof? Look no further than the DXY which suddenly is not looking all that hot.

So did China get its revenge for the IMF snub? Check back in a few weeks when the CNY is down a further 10%.

And a thought experiment: if the PBOC will intervene to buy CNY after it devalues it just hours prior, will it now intervene to support a suddenly foundering USD?

end
Clive Hale strongly believes that nothing has been fixed with respect to Greece:
(courtesy Clive Hale/View from the Bridge)

View from the Bridge – So you think Greece is fixed do you?

 

Don’t take my word for it. Here are four opinions that come to the same conclusion; the euronauts are living in cloud cuckoo land.

‘It seems to us that the plan rests on initial forecasts for the economy and public finances which are little short of fantasy. Recent survey evidence suggests that the economic impact of capital controls has been catastrophic, with measures of activity collapsing to levels way below those seen even when the economy was contracting at annual rates of 9pc in 2010-11. Of course, such extreme weakness may end when the controls are lifted. But it is not clear that will be very soon. And even if it is, GDP could still fall much more sharply this year than the 2.1pc to 2.3pc estimate reportedly factored into the bailout’s fiscal projections. We expect a contraction of about 4pc or worse. And lasting damage to Greece’s economy and financial system, as well as its fundamental lack of competitiveness, could prolong the slump into next year and beyond. 

This, in turn, suggests that even the amended fiscal targets will prove extremely demanding, if not utterly unachievable. Indeed, the downturn in the economy looks likely to push the primary budget sharply back into deficit in the coming quarters. That would leave the surplus targets requiring considerable extra austerity, with corresponding further damage on the economy.’ Jonathan Loynes from Capital Economics

Even before the latest damage registered, the European Commission and the European Central Bank were forced to revise downward their forecast for Greece’s growth. From 0.5 percent predicted for 2015 in their spring forecast, they now expect a decline of 2.0 percent to 4.0 percent, according to a July 10 report. It concluded that Greece was expected to have a funding gap of more than 74 billion euros from July 2015 to July 2018.

The I.M.F. put the figure even higher, at 85 billion euros. Negotiations are for a loan of about 86 billion euros, but with banks in such serious trouble (they may require up to 25 billion euros more for recapitalization) and a severe shortfall in revenues, it is difficult to know what Greece’s true needs will be.

The Bank of Greece (the country’s central bank) noted in a June report that nonperforming loans came to 100 billion euros; in the same month, tax arrears amounted to 78.37 billion euros, or 42.39 percent of G.D.P., according to the General Secretariat for Public Revenues. The first half of 2015 showed a 2.36-billion-euro shortfall in revenues. With more debt and a still-unknown impact on G.D.P., even the European Commission’s “adverse scenario” of debt amounting to 187 percent of G.D.P. in 2020 could be optimistic.’ New York Times

‘Having spent the last week in Athens talking to ordinary citizens, young and old, as well as current and past officials, I’ve come to the view that this is about far more than just Greece and the euro.

Some of the basic laws demanded by the Troika deal with taxes and expenditures, and the balance between the two, and some deal with the rules and regulations affecting specific markets. What is striking about the new program (called ‘the third Memorandum’) is that on both scores it makes no sense either for Greece or for its creditors. 

Whether or not the program is well implemented, it will lead to unsustainable levels of debt, just as a similar approach did in Argentina….It’s like a 19th-century debtors’ prison. I strongly believe that the policies being imposed will not work, that they will result in depression without end, unacceptable levels of unemployment and ever-growing inequality.’ Joseph Stiglitz

‘Nobody wants this deal…What Syriza tried to do, which I thought was very honourable, was try to negotiate a better deal within the euro…[I was]…asked to look into the problems and challenges that could be faced. Questions of liquidity, payments systems, transitions and so on...The requirement in the current bailout plan for Greece to build up sizeable primary budget surpluses over the next few years looks extremely demanding, if not utterly fantastical.’ James Galbraith

The Germans, the Dutch, the Finns and the Croatians (their respective finance ministers that is, not the people at large) are adamant that there will be no debt forgiveness. Yet that is exactly what will happen by default; quite literally. The bail out is a cynical ruse, not to benefit Greece as a whole, but to benefit the banks and other creditors (the ECB and the IMF) who should take their medicine and move on. The one thing keeping the whole blighted euro project in place is an arrogant denial of the facts. A loss of political face now is a small price to pay for a much better outcome that will disadvantage far fewer people than the disorganised chaos into which Euroland will descend if the current bunch of lunatics are not put back in the asylum. Is this a Europe we want to be part of?

There is no need for a referendum; any sane government would have had us out by now. Why was there no debate over Europe in the run up to the General Election in May? `To keep the people out of the picture? It’s a farce to say we need to be in the EU to have any influence over economic affairs. We have precious little any way and Herr Shambles & Co would remove even more of our sovereignty until there was nothing left. There is nothing to negotiate. The Greeks say they have achieved a result by negotiation, but they are as barking as the rest. The bailout won’t work. Any negotiations with this bunch of serial deniers of reality won’t work either. Mr Cameron can you please find the door marked exit soon? Thank you.

 

 

end

Germany Warns Greek Bailout Is “Insufficient” As 2Y Bund Yields Collapse To Record Lows

With the Greek bailout deal now nearly done, all that stands in the way of disbursal is the Greek parliamnent and a predictably incalcitrant Germany which, according to Bild (citing EU sources) has now determined that the new bailout plan is “insufficient.” Lawmakers reportedly want “immediate answers” to three questions. Here’s the summary, via Bloomberg:

  • German govt sees agreement between creditors and Greek govt on 3rd bailout as insufficient, Germany’s Bild-Zeitung reports, citing EU officials it doesn’t name and written Finance Ministry analysis.
  • Germany sees open questions regarding participation of IMF, debt sustainability and privatizations
  • Implementation of many measures not foreseen before October or November
  • “Some very important measures are not yet implemented and are not specified”
  • Three basic questions must be answered immediately:
    • Whether IMF agreed to all terms of bailout completely
    • Whether debt sustainability can be secured although debt relief is planned to take place only later
    • Whether independent privatization fund can start work quickly and could take over Greek banks
  • Analysis criticizes that agreement falls short of almost all decisions taken by special euro region summit in July

And meanwhile, German 2-year yields have collapsed to record lows:

For those interested in the full Greek tragicomedy update, read on…

On Tuesday, in “Third Time’s The Charm? Greece Agrees To Bailout Amid Rampant Skepticism,” we argued that although formal discussions between Greek officials and creditors’ on-the-ground technical teams look to have concluded “successfully” (whatever that means in the context of Greece), there’s still quite a bit of political wrangling ahead if Athens hopes to use a portion of the new bailout funds to make a €3.2 billion payment to the ECB next week.

As absurd as the ECB “deadline” is – this is all just one circular funding scheme – it’s perceptually important. That is, the ECB can’t afford to be seen as supportive of the Greek banking system via ELA if Athens defaults on its SMP debt. Additionally, Greek banks desperately need to be recapitalized, and because €10 billion we be funneled immediately to the banking sector once the ESM program is formally in place, Athens isn’t keen on being patient.

Here are the details of the bank recapitalization effort as outlined in the bailout proposal (via Bloomberg):

  • EU25b buffer for Greek banks available under bailout deal to address bank recapitalization needs of viable banks, resolution costs of non-viable banks
  • Following assessment of 4 systemic banks’ capital needs by ECB and submission of capital plans, remaining identified capital shortfalls will be addressed fully by end-2015 latest
  • Law relating to govt guarantees on deferred tax assets will be amended to minimize funding
  • Additional measures and actions may be needed in the future to resolve NPLs issue
  • Bank of Greece will deliver report on segmentation of NPLs on banks’ balance sheets and assessment of banks’ capacity to deal with each segment by end-Oct.
  • Greece must establish judicial framework for corporate and household insolvency, establishing of Credit and Wealth Bureau as independent authority, amending the out-of-court workout law, fully operationalize specialist chambers for corporate insolvency within courts by end-Nov.
  • Greece must introduce coordination mechanisms to deal with debtors with large public and private debt by end-Dec
  • Bank of Greece to agree with banks on operational targets for NPL resolution, creation of joint ventures by end-Feb. 2016
  • Banks will report quarterly from June 2016 to the BoG against key performance indicators
  • By end-March 2016, Bank of Greece will revise Code of Conduct for debt restructuring guidelines to deal with groups of borrowers
  • Greece has by end-June 2016 to assess effectiveness of insolvency legal and institutional framework and introduce any necessary amendments

But as the German finance ministry made clear on Tuesday, this can’t “just be about Aug. 20 and an installment payment, but really about how, together with the Greeks, we can have a lasting solution for Greece.”

Of course any “lasting solution” will have to include debt writedowns and the IMF has wavered on whether the Fund will be willing to participate in the absence of debt relief. We got some indication on Wednesday as to what a compromise between Berlin and the IMF might look like on this. Here’s Reuters, summing up the original report in Die Zeit:

The German government is looking at whether the European Union could provide guarantees for Greek debt to the International Monetary Fund (IMF) in order to keep the Fund on board and avoid the need for major debt relief, German weekly Die Zeit reported.

Without citing its sources, the paper reported on Wednesday that the idea meant that “if Greece ran out of money, the Europeans would jump in and the IMF would suffer no losses. In return, the Fund would no longer demand extensive debt relief.”

The plan would thus fulfil two key demands made by German Chancellor Angela Merkel – keeping the IMF involved and avoiding

So in order to avoid having to writedown a portion of its Greek debt, Germany will effectively guarantee all Greek debt. The part that’s unspoken here is that Germany would rather guarantee the entirety of the IMF’s contribution than risk emboldening Podemos (the party that some liken to a Spanish Syriza) ahead of general elections due before the end of the year. Substituting a guarantee for debt writedowns would presumably disabuse Podemos of the idea that debt relief is possible.

This “rumor” was promptly denied:

  • GERMANY ISN’T WEIGHING EU GREECE GUARANTEE FOR IMF: WEISSGERBER

Meanwhile, German Chancelor Angela Merkel reportedly told Greek PM Alexis Tsipras that she would prefer it if Greece were to apply for a bridge loan from the remainder of the funds in the EFSM rather than rush into the ESM program. Here’s Bloomberg:

Merkel discussed Greece on Tuesday with Francois Hollande of France and commission head Jean-Claude Juncker, as well as with Tsipras. Greek television cited unnamed Greek officials as saying that Merkel also spoke with Tsipras on Monday evening, telling him she would rather he asked for a bridge loan. Her office confirmed the call though refused to discuss its content.

Pressure is building on Merkel after 60 lawmakers from her caucus voted against opening bailout talks with Greece last month. Having survived that revolt, party leaders want to avoid another situation in which members are again summoned back from their summer recess at short notice to prevent a Greek bankruptcy without adequate information on which to base their vote, the two officials said.

But the bridge loan would require the backing of non-euro countries, which proved politically difficult last month, meaning that German lawmakers’ vacation plans will in all likelihood have to be interrupted in order to rush the new bailout through the political approval process. As for Greece, the 400-page bailout agreement has been submitted to parliament and lawmakers are expected to vote on the deal by the end of the week.

In the end, this will likely all be for nothing, because as we’ve said before and as Capital Economics told AFP this week, “the extremely optimistic economic and fiscal projections underlying the plan suggest that it might not last for very long.”

end

 

In today’s trading the German DAX crashes after Germany warns that the Greek bailout is “insufficient”

see story above…..

(courtesy zero hedge)

 

DAX Crashes After Germany Warns Greek Bailout “Insufficient”

With the Greek bailout deal now nearly done, all that stands in the way of disbursal is the Greek parliamnent and a predictably incalcitrant Germany which, according to Bild (citing EU sources) has now determined that the new bailout plan is “insufficient.” Lawmakers reportedly want “immediate answers” to three questions. Here’s the summary, via Bloomberg:

  • German govt sees agreement between creditors and Greek govt on 3rd bailout as insufficient, Germany’s Bild-Zeitung reports, citing EU officials it doesn’t name and written Finance Ministry analysis.
  • Germany sees open questions regarding participation of IMF, debt sustainability and privatizations
  • Implementation of many measures not foreseen before October or November
  • “Some very important measures are not yet implemented and are not specified”
  • Three basic questions must be answered immediately:
    • Whether IMF agreed to all terms of bailout completely
    • Whether debt sustainability can be secured although debt relief is planned to take place only later
    • Whether independent privatization fund can start work quickly and could take over Greek banks
  • Analysis criticizes that agreement falls short of almost all decisions taken by special euro region summit in July

And meanwhile, German 2-year yields have collapsed to record lows:

And The DAX is getting hammered…

… in fact, German stocks are now down -6% in the last two days, their biggest two-day fall in 4 years! The reason: German exporters are very focused on Chinese demand, and with a devaluation in the CNY, it means far less profits for Germany’s most important economic and financial sector. In fact, it is for the sake of German exporters why the Euro exists in the first place.

For those interested in the full Greek tragicomedy update, read on:

On Tuesday, in “Third Time’s The Charm? Greece Agrees To Bailout Amid Rampant Skepticism,” we argued that although formal discussions between Greek officials and creditors’ on-the-ground technical teams look to have concluded “successfully” (whatever that means in the context of Greece), there’s still quite a bit of political wrangling ahead if Athens hopes to use a portion of the new bailout funds to make a €3.2 billion payment to the ECB next week.

As absurd as the ECB “deadline” is – this is all just one circular funding scheme – it’s perceptually important. That is, the ECB can’t afford to be seen as supportive of the Greek banking system via ELA if Athens defaults on its SMP debt. Additionally, Greek banks desperately need to be recapitalized, and because €10 billion we be funneled immediately to the banking sector once the ESM program is formally in place, Athens isn’t keen on being patient.

Here are the details of the bank recapitalization effort as outlined in the bailout proposal (via Bloomberg):

  • EU25b buffer for Greek banks available under bailout deal to address bank recapitalization needs of viable banks, resolution costs of non-viable banks
  • Following assessment of 4 systemic banks’ capital needs by ECB and submission of capital plans, remaining identified capital shortfalls will be addressed fully by end-2015 latest
  • Law relating to govt guarantees on deferred tax assets will be amended to minimize funding
  • Additional measures and actions may be needed in the future to resolve NPLs issue
  • Bank of Greece will deliver report on segmentation of NPLs on banks’ balance sheets and assessment of banks’ capacity to deal with each segment by end-Oct.
  • Greece must establish judicial framework for corporate and household insolvency, establishing of Credit and Wealth Bureau as independent authority, amending the out-of-court workout law, fully operationalize specialist chambers for corporate insolvency within courts by end-Nov.
  • Greece must introduce coordination mechanisms to deal with debtors with large public and private debt by end-Dec
  • Bank of Greece to agree with banks on operational targets for NPL resolution, creation of joint ventures by end-Feb. 2016
  • Banks will report quarterly from June 2016 to the BoG against key performance indicators
  • By end-March 2016, Bank of Greece will revise Code of Conduct for debt restructuring guidelines to deal with groups of borrowers
  • Greece has by end-June 2016 to assess effectiveness of insolvency legal and institutional framework and introduce any necessary amendments

But as the German finance ministry made clear on Tuesday, this can’t “just be about Aug. 20 and an installment payment, but really about how, together with the Greeks, we can have a lasting solution for Greece.”

Of course any “lasting solution” will have to include debt writedowns and the IMF has wavered on whether the Fund will be willing to participate in the absence of debt relief. We got some indication on Wednesday as to what a compromise between Berlin and the IMF might look like on this. Here’s Reuters, summing up the original report in Die Zeit:

The German government is looking at whether the European Union could provide guarantees for Greek debt to the International Monetary Fund (IMF) in order to keep the Fund on board and avoid the need for major debt relief, German weekly Die Zeit reported.

Without citing its sources, the paper reported on Wednesday that the idea meant that “if Greece ran out of money, the Europeans would jump in and the IMF would suffer no losses. In return, the Fund would no longer demand extensive debt relief.”

The plan would thus fulfil two key demands made by German Chancellor Angela Merkel – keeping the IMF involved and avoiding a debt writedown.

So in order to avoid having to writedown a portion of its Greek debt, Germany will effectively guarantee all Greek debt. The part that’s unspoken here is that Germany would rather guarantee the entirety of the IMF’s contribution than risk emboldening Podemos (the party that some liken to a Spanish Syriza) ahead of general elections due before the end of the year. Substituting a guarantee for debt writedowns would presumably disabuse Podemos of the idea that debt relief is possible.

This “rumor” was promptly denied:

  • GERMANY ISN’T WEIGHING EU GREECE GUARANTEE FOR IMF: WEISSGERBER

Meanwhile, German Chancelor Angela Merkel reportedly told Greek PM Alexis Tsipras that she would prefer it if Greece were to apply for a bridge loan from the remainder of the funds in the EFSM rather than rush into the ESM program. Here’s Bloomberg:

Merkel discussed Greece on Tuesday with Francois Hollande of France and commission head Jean-Claude Juncker, as well as with Tsipras. Greek television cited unnamed Greek officials as saying that Merkel also spoke with Tsipras on Monday evening, telling him she would rather he asked for a bridge loan. Her office confirmed the call though refused to discuss its content.

Pressure is building on Merkel after 60 lawmakers from her caucus voted against opening bailout talks with Greece last month. Having survived that revolt, party leaders want to avoid another situation in which members are again summoned back from their summer recess at short notice to prevent a Greek bankruptcy without adequate information on which to base their vote, the two officials said.

But the bridge loan would require the backing of non-euro countries, which proved politically difficult last month, meaning that German lawmakers’ vacation plans will in all likelihood have to be interrupted in order to rush the new bailout through the political approval process. As for Greece, the 400-page bailout agreement has been submitted to parliament and lawmakers are expected to vote on the deal by the end of the week.

In the end, this will likely all be for nothing, because as we’ve said before and as Capital Economics told AFP this week, “the extremely optimistic economic and fiscal projections underlying the plan suggest that it might not last for very long.”

 

end
As I explained above, there was blood on the street as one of the big Euro/Yuan carry trades are now being unwound.  They basically crushed the stocks today:
(courtesy zero hedge)

Blood On The European Streets As EUR-Yuan Carry Unwinds Crush Stocks

EURCNH was among the most popular carry trades – a stable long leg and central bank sponsored weakness in the sell leg. That is why, now that The PBOC has peed in the punchbowl, all that easy money carry has been forced to unwind as volatility forces traders to buy EUR and sell CNH en masse, shuttering the carry-funded trades as they go. No where is that more clearly visible than the plunge in European stocks.

*EUROPEAN SHARES CLOSE LOWER; STOXX 600 FALLS 2.7%

This is the biggest 2-day drop since 2014.

And no, there is no rotation to US of this ‘money’ as it is all credit-created positioning, once the carry-trade is unwound the entire funding position is removed from market liquidity.

Charts: Bloomberg

end
Another fat finger???
(courtesy zero hedge)

Italian Bond Futures Flash-Crash Into Close

Fat-Finger, Flash-Crash, or Forced Liquidation… either way, something broke in the Italian bond futures market…

Fat finger?

or forced liquidation?

Charts: Bloomberg

end
The real story behind the so called recovery in Spain:
(courtesy zero hedge)

Sorry Troika, Spain’s Economic Recovery Is “One Big Lie”

During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity “success stories” was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. Here’s the official line from the German Council of Economic Experts:

The economic turnarounds in Ireland, Portugal, Spain and – until the end of last year – also in Greece show that the principle “loans against reforms” can lead to success. For the new program to work, Greece has to show more ownership for deep structural reforms. And it should make use of the technical expertise offered by its European partners.

As we’ve shown, the idea that the periphery has truly implemented anything close to “austerity” is absurd on some measures – like debt-to-GDP for instance.

Equally absurd to the 44.2% of Italian youths who are unemployed and, no doubt, to the nearly 23% of Spain’s population that are jobless, is the idea that the policies imposed by the troika in exchange for aid have done anything at all to engineer what Germany’s economic wisemen are calling “turnarounds.”

Here, courtesy of The New York Times, is what “success” and “recovery” looks like in Spain:

Spain, heralded by many as a success story for austerity policies, is on track for more than 3 percent growth this year and has created more than one million jobs since the beginning of 2014.

 

But for many Spaniards, the statistics are meaningless — even suspect.

 

Experts say that is not surprising because the vast majority of the new jobs are part-time — some lasting only a few days — and they pay poorly, doing little to improve the lives of the millions of Spaniards who lost their jobs during the global economic crisis.

 

In many ways, the crisis here was deeper and more sustained than the downturn in the United States. Spain lost about 16 percent of its jobs, more than any other eurozone country. Its G.D.P. declined by 7 percent. And for the poorest 10 percent, real income dropped by 13 percent per year from 2007 to 2011, compared with only 1.4 percent for the richest 10 percent, according to the Organization for Economic Co-operation and Development, based in Paris.

 

The desperation among job seekers is now so acute that many accept work contracts that pay less than the country’s reduced minimum wage — often by agreeing on paper to work two days a week, but actually working many more unpaid hours, experts say. And some, returning to their old jobs, are finding that they must take huge pay cuts.

 

(Job seekers line up at a job fair)

 

“A new figure has emerged in Spain: the employed person who is below the poverty threshold,” said Daniel Alastuey, the secretary general of UGT Aragón, a regional branch of one of Spain’s largest unions, with more than 1.1 million members. “For a lot of people, the ‘recovery’ just doesn’t feel like a recovery.”

With marginalization and desperation comes the desire for change – just ask Greece, whose voters thought they were electing a revolutionary Prime Minster in January. In Spain, a disillusioned populace has increasingly looked to Podemos and its leader Pablo Iglesias for hope, and although the party – which fared well in regional and municipal elections earlier this year – has at times been careful to distance itself from Syriza and Tsipras, there’s no question that many see it as an ideologically similar movement. Here’s The Times again:

Experts say that such new realities are already having a powerful effect on Spain’s political landscape, where, as in Greece, there has been growing support for populist, anti-establishment parties, many of them fielding candidates who have helped the poor and others who denounce rampant corruption among Spain’s political elite.

 

Campaigning for his center-right party recently, Prime Minister Mariano Rajoy talked of Spain’s recovery in glowing terms, at one point saying that no one was even “talking about unemployment anymore.”

 

But local and regional elections this spring were humbling for his Popular Party and for the center-left Socialist party, which lost control of cities throughout Spain, including Zaragoza and the capital, Madrid, though both parties have done better in recent polls.

 

Since then, Mr. Rajoy has curbed his optimistic language and promised change. But polls suggest that anti-establishment parties could still do well when the country holds regional and national elections this year.

All of this is important not only because of what it says about the degree to which the troika is in denial regarding the “success” of EMU bailout programs, but also because of what it portends for the currency bloc. Irrespective of whether the IMF succeeds in convincing Germany to write down Greece’s debt in exchange for the Fund’s participation in the new program for Athens, the battle lines between the periphery and what one might call the “German bloc” have been drawn and the further Spain’s citizens sink into poverty, the more likely the next government will be to stage a repeat of Greece’s recently concluded rebellion against the troika, only this time, Brussels and Berlin may have a tougher time coming out on top. And on that note, we’ll leave you with a few final thoughts from The Times piece cited above:

The economy in Zaragoza, a city of about 700,000 in northern Spain, is doing relatively well compared with the rest of the country. Even so, recent elections brought in a mayor, Pedro Santisteve, whose party is affiliated with Podemos, the new leftist party. Mr. Santisteve bluntly calls Spain’s economic recovery “a big lie.” He says there are 25,000 families in Zaragoza living on less than €300 a month, and 31,000 who cannot afford the electricity they need. In the last year, more than 500 families have been evicted from their homes.

 

Angel Puyalón [who] used to be an interior designer [before losing his job] could not agree more. Before the crisis, he earned €5,000 a month and his wife, Maria Jesús Júdez, 53, earned about €1,100. They spent conservatively, buying an apartment with a mortgage of €1,100 a month. But then he lost his job and his wife’s hours were reduced. They now fear being evicted.

 

“The politicians in office right now,” Mr. Puyalón said, “are just not connected with real life.”

end
Oil related stories:

Oil Stable Despite IEA Warning That Supply Glut Will Persist Well Into 2016

Oil prices are oscillating higher and lower this morning (likely helped by the collapsing dollar) despite a report from The IEA that the global oil glut will persist well into 2016. As The FT reports, global oil supplies are still growing at ‘breakneck speed’ and outstripped consumption in the second quarter by 3m barrels a day, the most since 1998, rather ominously concluding, “while a rebalancing has clearly begun, the process is likely to be prolonged.”

 

 

As The FT reports,

The oil industry is hunkering down for an extended period of depressed prices and have adopted the “lower for longer” mantra, the IEA said.

 

“Global inventories will pile up further,”it said, adding that demand will not cut into the surplus until late 2016 at the earliest.

 

 

“Even with the slowdown in non-Opec production and higher demand growth, a sizeable surplus remains,” the IEA said.

 

The outlook does not include higher Iranian output should sanctions be lifted.

 

 

“If the oversupply persists it becomes much more important to understand how much storage is available,” said Jamie Webster, analyst at IHS Energy. “There is not an infinite amount. Unfortunately the total volume of tankage available is an opaque topic for some key regions.”

 

The IEA said the hundreds of billions of dollars of investment cuts by energy companies will eventually help rebalance the market.

But if demand continues as it has done this year, the situation will become “increasingly sensitive”, the IEA added.

*  *  *

Which explains why the algos were buying oil earlier on.

end

 

Your early Wednesday morning currency, and interest rate moves

Euro/USA 1.11047 up .01048

USA/JAPAN YEN 124.27 down .826

GBP/USA 1.5589 up .0007

USA/CAN 1.3020 down .0082

Early this Wednesday morning in Europe, the Euro rose by 105 basis points, trading now just above the 1.11 climbing to 1.1105; 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 up again in Japan by 83 basis points and trading just above the 124 level to 124.27 yen to the dollar.

The pound was up this morning by 7 basis points as it now trades well above the 1.55 level at 1.5589, 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 finally rose as it regained 82 basis points at 1.3020 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 and yesterday the last 1/3 of the dollar short/long Chinese stocks has blown up

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 327.98 or 1.58%

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: $1117.25

silver:$15.34

Early Wednesday morning USA 10 year bond yield: 2.10% !!! down 4 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%

USA dollar index early Wednesday morning: 96.38 down 82 cents from Tuesday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Wednesday morning
And now for your closing numbers for Wednesday night:
Closing Portuguese 10 year bond yield: 2.41% up 8 in basis points from Tuesday Closing
Japanese 10 year bond yield: .36% !! down 3 in basis points from Tuesday
Your closing Spanish 10 year government bond, Wednesday, up 5 in basis points Spanish 10 year bond yield: 1.98% !!!!!!
Your Wednesday closing Italian 10 year bond yield: 1.82% up 3  in basis points from Tuesday: trading 16 basis point lower than Spain.
IMPORTANT CURRENCY CLOSES FOR WEDNESDAY

Closing currency crosses for Wednesday night/USA dollar index/USA 10 yr bond:  4 pm
 Euro/USA: 1.1167 up .0125 (Euro up 125 basis points)
USA/Japan: 124.23 down .861 (Yen up 86 basis points)
Great Britain/USA: 1.5619 up .0038 (Pound up 38 basis points USA/Canada: 1.2981 down .01310 (Canadian dollar up 131 basis points)

USA/Chinese Yuan:  6.3845

This afternoon, the Euro rose by 125 basis points to trade at 1.1166. The Yen rose to 124.23 for a gain of 86 basis points. The pound rose 38 basis points, trading at 1.5619. The Canadian dollar rose from the dead rising by 131 basis points to 1.2981. The USA/Yuan closed at 6.3845
Your closing 10 yr USA bond yield: 2.14% par in basis point from Tuesday// ( well below the resistance level of 2.27-2.32%)
 Your closing USA dollar index: 96.27 down 93 cents on the day .
European and Dow Jones stock index closes:
England FTSE down 93.35 points or 1.40%
Paris CAC down 173.60 points or 3.40%
German Dax down 369.04 points or 3.27%
Spain’s Ibex down 272.20 points or 2.44%
Italian FTSE-MIB down 700.94 or 2.96%
The Dow down 0.33. or 0.00% (plunge protection team in full force)
Nasdaq; up 7.60 or 0.15%
OIL: WTI 43.28 !!!!!!! Brent:49.69!!!
Closing USA/Russian rouble cross: 64.20 down 5/100 roubles per dollar on the day
And now for your more important USA stories.
Your closing numbers from New York

Schizo Stocks Shrug Off China, Europe Fears As Dow Roundtrips 700 Points In Giant Stop Hunt

Translating every mainstream business media channel this week…

 

The Dow gave up all of its post-QE3 gains…

 

Which leaves this – Fed ‘flow’ vs stock performance – once again the most important chart in US equity investing…

h/t @Not_Jim_Cramer

It appears the market is threatening (or calling the bluff of) The Fed… QE or else…

Across asset classes the day broke down into 3 sections – China (gappy pressure), Europe (carry unwinds escalate) and post-Europe US session (buy stocks and STFU!!)…

 

US equities gapped lower on China’s double whammy devaluation overnight and kept tumbling through the European close.. then levitated magically to get the S&P just green for the week (algos running stops)

 

But cash indices all ended the day in the green for the week…

 

The S&P and Nasdaq managed to hold green for the day… and Dow closed unch…

 

Almost 700 point roundtrip in The Dow…

 

Humpday Humor… come on!!!

 

VIX was demolished after surging up to recent highs over 16… The Twin Peaks Of Vol…

 

Stocks keep rallying away from and then plunging back towards HY credit…

 

Treasury yields were mixed with all but the long-end very modestly lower in yield on the day after a mini-meltup in yields after Europe closed…

 

The dollar tumbled further as EURCNH cary trades unwound en masse…

 

Note – it appears hope today was driven by the fact that the PBOC appeared to step in and support onshore Yuan towards the close..

 

Commodities were mixed today with crude and copper flat (after early weakness) and gold and silver surging…

 

Summing it all up…

Charts: Bloomberg and @Not_Jim_Cramer

 

Now it is Kraft’s turn to lay off 2500 jobs:
(courtesy zero hedge)

Uncle Warren Strikes Again: Kraft Heinz Cuts 2,500 Jobs

Thanks, Uncle Warren.

The Kraft-Heinz merger engineered earlier this year by everyone’s favorite folksy octogenarian billionaire along with 3G will cost some 2,500 people their jobs, as the combined entity looks to cut costs.

CEO (and 3G partner) Bernardo Hees has already slashed jobs on the Heinz side of things, so now it’s apparently time for Kraft employees to do their part to facilitate merger “synergies.”

Via AP:

Spokesman Michael Mullen says affected workers are in the U.S. and Canada and were to be notified in person.

About 700 of the cuts were coming at Kraft’s Northfield, Illinois, headquarters. The company would not specify where other cuts were taking place.

The Kraft Heinz Co. said it has a total of around 46,600 employees.

The job cuts are not surprising, given the reputation of the company’s management on Wall Street.

The combination of Pittsburgh-based Heinz and Kraft earlier this year was engineered by Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital, which has become known for its tight cost controls.

Together, the two U.S. food giants own brands including Jell-O, Heinz baked beans and Velveeta that are facing sales challenges amid changing tastes. Their combination was nevertheless seen as attractive because of the opportunity to save hundreds of millions of dollars a year by combining functions like manufacturing and distribution.

In a statement, Mullen said Wednesday the job cuts were part of the company’s process of integrating the two businesses and “designing our new organization.”

“This new structure eliminates duplication to enable faster decision-making, increased accountability and accelerated growth,” Mullen said. He said employees will be given severance benefits of at least six months.

More, from The Chicago Tribune:

Kraft Heinz on Wednesday said it will lay off 700 workers at Kraft’s corporate headquarters in north suburban Northfield, part of a cost-slashing plan that will cut the combined company’s headcount in the U.S. and Canada by 2,500 jobs.

Employees affected by the cuts, which have been expected for months, will receive “generous” severance benefits that last at least six months and outplacement services, said Michael Mullin, Kraft Heinz’s senior vice president of corporate and government affairs. The cuts take effect immediately.

“As we work to build something special at The Kraft Heinz Company, the leadership team has examined every aspect of our business to ensure we are operating as efficiently and effectively as possible,” Mullin wrote in an email. “We have developed a new streamlined structure for our organization to simplify, strengthen and leverage the company’s scale. This new structure eliminates duplication to enable faster decision-making, increased accountability and accelerated growth.”

On Monday, Kraft Heinz affirmed its commitment to cut costs by $1.5 billion by the end of 2017. As part of its merger, the company said it expected to reduce its existing workforce.

The layoffs -which are a follow up effort to other new cost cutting initiatives such as a directive which requires employees to use both sides of the paper – will reportedly save the company a cool $1.5 billion over two years. 

Sure beats spending $1.4 billion on wage hikes.

end
The 10 year yield plunges and once you see that you know there is lots of blood flowing on Wall Street:
(courtesy zero hedge)

10 Year Yields Plunge: A Very Confused Wall Street Tries To Predict What Happens Next

There was some serious fireworks in the Treasury market overnight, and especially just before the PBOC decided to intervene in the market not once but twice to undo at least some of the devaluation it caused earlier in the trading session. In fact, at one point the yield on the 10Y tumbled as low at 2.05% before levitating higher courtesy of Beijing (which may well have dumped some TSYs just at that moment to prop up the CNY), even as across the pond Germany’s 2 Year bond dropped to a fresh record low.

So what happens next? Well, it’s not like the sellside is very useful in actually providing actionable advice when something not in the script happens, but for the record here, courtesy of Bloomberg, is what the ‘experts’ are saying:

FTN (Jim Vogel):

  • “On paper, the last two weeks resemble the panicked rally of January. It will take several days to assess each bond market component for a full comparison, but that’s the headline conclusion,”
  • “The potential difference is that even at the worst of the oil collapse this winter, many global investors kept faith that central bank easing would provide sufficient stimulus for a global turnaround in 2H 2015”
  • “On a risk-adjusted look ahead at the next two months, a bull steepener this week is unlikely to hold”

BMO (Neil Bouhan):

  • “If the Chinese currency revaluations have the UST market headed in a bullish direction, then we surmise it’s largely the result of the uncertainty behind the PBOC’s medium-term goals”
  • A good JOLTS report “will help push yields back toward the pre-CNY fix levels, which is around 2.14% in 10s”

Credit Agricole (David Keeble):

  • “This afternoon, we would sell the 30Y area vs 10s because we do not like the 30Y auction”
  • “It will benefit least from the large coupon and redemption payments,” has “no strong buyer outside of the domestic mutual funds, and dealers already have USD14n of the sector”

CRT (David Ader):

  • “Question now remains” if this “was a one-off move as the PBOC appears to be suggesting, or will the currency be allowed to depreciate further in the near- term”
  • “This added to the bullish underpinnings for the market” is likely to “limit any significant back-up in yields for the time being”

ED&F Man (Tom di Galoma):

  • “The focus today will be the demand for the 10yr note auction at 1pm. The market at this point is overbought and would suggest the 10yrs will sell off prior to the auction”

Marty Mitchell (independent):

  • “We think that the 10yr reached an extreme at 2.04% overnight and, while this level could very well be tested again, the market feels like it is getting overextended up at these levels”
  • “We expect that a near-term high will be put in somewhere between 2.04% and 1.99%, but it all hinges on whether more turmoil develops around China’s devaluation or if things can stabilize”

RBS (Bill O’Donnell):

  • “The disinflationary aspects of this currency depreciation will make the pace of rate hikes all the more benign,” and “if the rumors are true that there is internal pressure for a 10% devaluation of the Yuan by year-end, it could be very difficult for the Fed to reach its 2% target rate over the medium term”

TD (Gennadiy Goldberg):

  • “September rate hike was never a slam dunk decision for the Fed, and the greatest immediate impact of CNY depreciation on the Fed would come through the volatility channel”
  • “If global markets continue to be rocked by ongoing depreciation over the next several weeks, the Fed could certainly consider the impact of adding fuel to the fire with a September rate hike”

Then again, considering all of these strategists were 101% confident the 10Y would have a 3% before a 1% handle, feel free to ignore everything they just said.

end
Well that is all for today
I will see you tomorrow night
Harvey
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