Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1117.10 down $1.50 (comex closing time)
Silver $14.71 down 51 cents.
In the access market 5:15 pm
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a poor delivery day, registering 1 notice for 100 ounces Silver saw 0 notices for nil oz
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 227.62 tonnes for a loss of 75 tonnes over that period.
In silver, the open interest fell by 1,719 contracts despite the fact that silver was up in price by 9 cents yesterday. The total silver OI continues to remain extremely high, with today’s reading at 17,790 contracts In ounces, the OI is represented by .865 billion oz or 124% 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 0 notices served upon for nil oz.
In gold, the total comex gold OI rests tonight at 430,947. We had 1 notice filed for 100 oz today.
We had no changes at the GLD today / 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 tune of / Inventory rests at 324.968 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver fall by 1719 contracts down to 172,790 as silver was up 9 cents in price with respect to yesterday’s trading. Again, we must have had some short covering. The OI for gold fell by 134 contracts to 430,947 contracts despite the fact that gold was up by $5.70 on yesterday. We still have close to 18 tonnes of gold standing with only 15.243 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.
2.Gold trading overnight, Goldcore
3. Three stories on China devaluing their yuan and how this will lead to a huge deflation throughout the globe and also discussing the ramifications of the toxic explosion in Tianjin.
4, Contagion spreading in Asia as the Indonesia Rupah falters
5 Trading of equities/ New York
6. Two oil related stories
7. 23 countries are having market crashes
8. USA stories:
i Walmart sales slide
ii) Building Permits in NY area also falter
iii Atlanta Fed raises 3rd quarter GDP on phony autosales
9. World Shipping collapses
(Ambrose Evans Pritchard)
Let us head over and see the comex results for today.
August contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||nil|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||1 contract (100 oz)|
|No of oz to be served (notices)||2123 contracts (212,300 oz)|
|Total monthly oz gold served (contracts) so far this month||3825 contracts(382,500 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||552,940.1 oz|
Total customer deposit: nil oz
JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz) and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes
We lost 360 contracts or an additional 36,000 ounces will not stand for delivery. Thus we have 17.377 tonnes of gold standing and only 15.243 tonnes of registered or dealer gold to service it. today we must have had considerable cash settlements.
August silver initial standings
August 17 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||nil|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||16 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||7,424,066.4 oz|
total dealer deposit: nil oz
Today, we had 0 deposits into the dealer account:
total customer deposits: nil oz
total withdrawals from customer: 882,484.02 oz
we neither lost nor gained any silver ounces standing in this non delivery month of August.
August 12./ a huge deposit of 4.18 tonnes of gold into the GLD/Inventory rests at 671.87 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
And now SLV:
August 18.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz
August 17.2015: no changes in inventory at the SLV/Inventory rests tonight at 324.968 million oz.
August 14/no changes in inventory at the SLV/Inventory rests at 324.968 million oz.
August 13.2013: a huge withdrawal of 1.241 million oz/Inventory rests tonight at 324.968 million oz
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 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
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. * * * * *
“Focus On Value of Gold Bullion and Not Just the Price” – Newstalk Radio
Nick Bullman of Check Risk interviewed GoldCore’s Mark O’Byrne on “Down To Business” at the early hour of 0630 this morning. Topics covered were:
– Gold’s fall in price in recent months
– All focus on gold price and forgetting gold’s value as a diversification
– Weakness in Japanese, Eurozone and Chinese economies
– Likelihood that interest rates stay low and QE starts again
– Currency devaluation and perfect storm for emerging market currencies
– Gold as a hedge against inflation, deflation and “extreme risk”
– Gold ownership in western world today as low as 0.33%
– Now have global financial bubble akin to 2007/2008
– Gold mining shares are cheap but more risky than gold
– Outlook for gold?
The interview begins around the fifth of minute (Part I) and can be listened to here
Today’s Gold Prices: USD 1,119.15, EUR 1,011.30 and GBP 714.13 per ounce.
Friday’s Gold Prices: USD 1,117.30, EUR 1006.17 and GBP 714.34 per ounce.
On Monday, gold finished trading with a small gain of 0.22% or $2.40, closing at $1,117.60/oz. Silver also gained — 0.66% or $0.10, closing at $15.32/oz.
Gold Prices Rise in Asia Trade After Weak US Data – Wall Street Journal
Gold Advances as Signs of Slow U.S. Growth Ease Fed-Rate Concern – Bloomberg
China Shares Drop Most in Two Weeks as Industrial Companies Fall – Bloomberg
Gold firms on weak U.S. data, China caution lingers – Reuters
Gold futures settle higher after 2-session decline – MarketWatch
“Focus On Value of Gold and Not Just the Price” – GoldCore on Newstalk Radio (Aug 18) 6th minute – Newstalk
China moving to become the world’s reserve currency! – SilverSeek
Facts, Opinions, and Risk Management – GoldSeek
Travails Of Empire – Oil, Debt, Gold & The Imperial Dollar – Zero Hedge
The cashed-up new collectives – David McWilliams
Gartman Changes Mind On Gold – Now Bullish – CNBC
Click on News and Commentary
Just wait until the claims begin for the rigging of the gold/silver markets:
(courtesy London’s Financial times)
Banks brace for billions in civil claims over forex rate rigging
Submitted by cpowell on Tue, 2015-08-18 01:41. Section: Daily Dispatches
By Emma Dunkley and Lindsay Fortado
Financial Times, London
Monday, August 17, 2015
Global banks are facing billions of pounds-worth of civil claims in London and Asia over the rigging of currency markets, following a landmark legal settlement in New York.
Barclays, Goldman Sachs, HSBC, and Royal Bank of Scotland were among nine banks revealed last Friday to have agreed to a $2 billion settlement with thousands of investors affected by rate-rigging in a New York court case.
Lawyers warned the victory opens the floodgates for an even greater number of claims in London, the largest foreign-exchange trading hub in the world, in a sign that the currency manipulation scandal is far from over.
Banks could be hit as early as the autumn with claims in London’s High Court from corporates, fund managers, and local authorities, according to lawyers working on the cases.
In addition, investors are expected to bring cases in Hong Kong and Singapore, which are also home to large foreign exchange markets. …
… For the remainder of the report:
(courtesy Bron Suchecki/Perth Mint)
Bron Suchecki: Demand-price disconnect
Submitted by cpowell on Tue, 2015-08-18 11:24. Section: Daily Dispatches
7:23a ET Tuesday, August 16, 2015
Dear Friend of GATA and Gold:
Perth Mint research director Bron Suchecki today disputes assertions that demand for the monetary metals is rising as prices are falling and that market manipulation is the only explanation. While acknowledging market manipulation, Suchecki argues that futures market longs are as “naked” as futures market shorts — that is, longs are speculating on margin and don’t have the money to demand delivery and “crash the Comex.”
Suchecki’s commentary is headlined “Demand-Price Disconnect” and it’s posted at the Perth Mint’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Soros had to big Barrick?
(courtesy Iyer/Profit Confidential)
George Soros Bought 1.9 Million Shares of Barrick Gold Corporation (NYSE:ABX); Should You Buy, Too?
1 Chinese yuan vs USA dollar/yuan rises slightly this time to 6.3936/Shanghai bourse: red and Hang Sang: red
Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.
2 Nikkei down 65.79 or 0.32%
3. Europe stocks mostly in the red (except Spain) /USA dollar index down to 96.80/Euro down to 1.1068
3b Japan 10 year bond yield: lowers at 38% !!!!(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 41.59 and Brent: 48.45
3f Gold up /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund slightly falls to .625 per cent. German bunds in negative yields from 4 years out.
Except Greece which sees its 2 year rate rises to 10.95%/Greek stocks this morning down by 0.69%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield falls to : 9.03%
3k Gold at $1119.35 /silver $15.18
3l USA vs Russian rouble; (Russian rouble down 1/4 in roubles/dollar) 65.73,
3m oil into the 41 dollar handle for WTI and 48 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 forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9760 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0796 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 +.625%
3s The ELA remains at 90.4 billion euros for Greece. The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.
4. USA 10 year treasury bond at 2.17% early this morning. Thirty year rate below 3% at 2.83% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
China Stocks Crash, More Than Half Of Market Halted Limit Down; PBOC Loss Of Control Spooks Global Assets
China sure has its micro-managing hands full these days.
Just hours after the PBOC announced a modestly “revalued” fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39…
… it was the local stock market spinning plate – which had been relatively stable during the entire FX devaluation process – that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade, tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak. The smaller Shenzhen Composite Index fell 6.6% to 2174.42. This was the biggest single-day rout since July 27.
According to Reuters, “volatility in both indexes spiked in the afternoon in what is becoming a mysteriously recurring pattern in China’s stock markets since Beijing stepped in to avert a full-blown price crash in early summer.”
There were various reasons cited for the selling: one was that with Chinese housing data coming in stronger than expected, that Beijing may limit its future interventions to promote further easing of financial conditions and thus, supporting the market as we warned last night after the housing data came out:
Another reason cited by Bloomberg is that stocks fells on “short-selling concerns.” BBG cited Central China Securities strategist Zhang Gang who said that “investors worry about potential aggressive short-selling activities after some brokers resume short-selling transactions, and this has hurt sentiment.”
Bloomberg adds that some speculative funds exited after gains in morning on fears that short-term speculative buying of SOE concept stocks may have come to an end.
According to the WSJ, “fresh anxieties about China’s commitment to steadying the stock market sparked heavy losses in Shanghai Tuesday, despite signals of a housing recovery and the central bank’s latest steps to keep cash from fleeing.” The heavy selling in the final minutes of trading echoed sessions in recent weeks, when faltering assurances of China’s role in the market hastened losses.
“At 2 p.m. it started to turn south again at a very fast rate,” said Steve Wang, a research director at Reorient Group. “People questioned why the government hadn’t yet stepped in” at a time of the day that it usually would, he added.
One can’t help but smile at this interpretation of what the “market” has become. Some who aren’t smiling, however, are those who once again decided to lever up with margin debt – as noted above, today was the 7th daily increase in retail investor leverage – only to lose all of it again just as we warned would happen yesterday. And now even the official party mouthpiece is starting to issue snarky announcements.
Losses among stocks of state-owned enterprises in Shanghai started building earlier in the morning amid skepticism about Beijing’s commitment to reform. Reports of efforts to accelerate reform, long touted as a way to open up bulky conglomerates to private investment and market forces, had gained momentum in recent weeks and buoyed related stocks.
The final damage: a total of 58% of stocks listed in Shanghai hit their downward daily limit of 10%, while 52% of all Shenzhen-listed shares met the same barrier, according to FactSet.
Here is a case study of what a government takeover of the stock market gone wrong looks like:
Take Guangdong Meiyan Jixiang Hydropower Co.: The state-run firm tasked to prop up the market, China Securities Finance Corp., is the biggest shareholder in the hydropower firm as of August 4, according to a company filing. CSF Corp.’s hefty role makes the company a “signature stock,” said Deng Wenyuan, an analyst at SooChow Securities.
When its shares fell by their 10% limit on Tuesday, it “may have sparked investors to resort to panic selling,” he said. The company’s shares had surged 150% as of Monday, 10 days after the stakeholder announcement.
Stocks that would benefit from reform of state-owned enterprises and those favored by CSF Corp. had been a driving force behind market rally since the June rout. “Both engines lost power today,” Mr. Deng added.
All this happened when neither measures to calm worries of capital flight given a weaker yuan nor positive economic data satiated investors.
Adding to liquidity and capital outflow fears, earlier China’s central bank injected the largest amount of cash into the financial system on a single-day basis in almost 19 months, signaling Beijing’s growing concerns about capital outflows after the yuan’s recent weakening. Reuters adds that “the central bank made its biggest injection of funds into money markets in more than six months early on Tuesday, adding to worries that liquidity was tightening as investors moved more capital out of the country. Minsheng Securities estimated 800 billion yuan ($125 billion) had flowed out in July and August alone.“
And while the currency was for the time stable as this is where all the PBOC firepower appears to be focused on these days, China also lost control of commodities: Copper dropped as much as 1.7% to $5,030/mt, lowest since 2009, before trading at $5,041. Aluminum also dropped as much as 1.2% to $1,549.50/mt, lowest in six years, before paring loss to $1,555.50. Nickel, zinc and lead decline at least 1.7%, and so on.
The return of the Chinese rout, which many thought had been “contained”, also spilled over to other global markets.
Asian equity markets fell, led by Shanghai Comp (-6.2%) as participants digested the latest property prices from China, which continued to show a recovery while the PBoC injected CNY 120bIn (most since February 9th) via open market operations, consequently disappointing growing calls of further easing, which comes alongside the resumption of short selling and margin financing by some large Chinese brokers. ASX 200 (-0.3%) and Nikkei 225 (-0.2%) were pressured by energy names as oil prices continued to slump. JGBs pulled off best levels on the back of a disappointing 20-year auction which posted a lower than prior b/c and a wider tail in price. Moody’s maintained China GDP growth forecast at 6.8% in 2015 and 6.5% in 2016, but sees growth declining to 6% in following years.
Stocks in Europe traded lower, as market participants continued to fret over the recent volatility in Chinese based financial instruments. As such European equities opened softer (Euro Stoxx: -0.20%), while energy names underperformed amid continued weakness in the commodity complex. Given the heavy commodity/energy sector weighting meant that the FTSE-100 index underperformed its EU peers.
Despite the weakness in equities, Bunds and Gilts failed to sustain the initial bid tone and pulled off the best levels following the release of firmer than expected UK CPI data. As a result, Gilts have underperformed Bunds, with the Short-Sterling curve aggressively bear steepening following the release.
In FX, GBP outperformed following the release of aforementioned firmer than expected UK CPI data, with the ONS noting that the latest increase was mainly due to clothing, with smaller price reductions in this years summer sales compared with a year ago.
Elsewhere, JPY gained from risk averse flows and also the growing uncertainty over the likelihood of a Fed rate hike, with China being seen as the main culprit for the delay, as opposed to Greece which was often noted in communiqué released by the Fed in the past.
In commodities, Commodities remained under pressure, with WTI trading near lowest level since March 2009, weighed on by the ongoing concerns over China and Iranian supply related risks. At the same time, aluminium and copper also continued to come under pressure and trade near their lowest levels since 2009.
Of note, it was reported that Kuwait Shuaiba oil refinery (Refinery has 200kbpd output) due to reopen within a few days after Monday’s closure due to a fire which had no effect on exports due to existing stockpiles.
In summary: European shares trade mixed, off earlier lows, with the tech and health care sectors outperforming and basic resources, oil & gas underperforming. Oil and copper drop, leading the Bloomberg Commodity index to a 13-year low. Sterling gains after U.K. core inflation rises to highest in 5 months. Asian stocks traded lower with Thai market underperforming after Bangkok bombing, baht reached weakest since 2009; Shanghai Composite fell 6.2% as yuan weakened in onshore trading. The Dutch and Spanish markets are the best-performing larger bourses, U.K. the worst. The euro is little changed against the dollar. Japanese 10yr bond yields fall; U.K. yields increase. Commodities decline, with zinc, copper underperforming and gold outperforming. U.S. housing starts, building permits due later.
- S&P 500 futures down 0.3% to 2094
- Stoxx 600 little changed at 387.4
- US 10Yr yield down 1bps to 2.16%
- German 10Yr yield little changed at 0.63%
- MSCI Asia Pacific down 0.6% to 137.1
- Gold spot up 0.2% to $1120.4/oz
- Eurostoxx 50 -0.2%, FTSE 100 -0.5%, CAC 40 -0.4%, DAX -0.2%, IBEX little changed, FTSEMIB -0.2%, SMI -0.1%
- Asian stocks fall with the Sensex outperforming and the Shanghai Composite underperforming; MSCI Asia Pacific down 0.6% to 137.1
- Nikkei 225 down 0.3%, Hang Seng down 1.4%, Kospi down 0.6%, Shanghai Composite down 6.1%, ASX down 1.2%, Sensex down 0.1%
- Euro down 0.06% to $1.1071
- Dollar Index down 0.05% to 96.76
- Italian 10Yr yield up 1bps to 1.77%
- Spanish 10Yr yield up 1bps to 1.95%
- French 10Yr yield up 2bps to 0.96%
- S&P GSCI Index down 0.5% to 360.6
- Brent Futures down 0.4% to $48.6/bbl, WTI Futures down 0.4% to $41.7/bbl
- LME 3m Copper down 1.8% to $5020.5/MT
- LME 3m Nickel down 1.7% to $10440/MT
- Wheat futures down 0.1% to 503.8 USd/bu
Bulletin Headline Summary from RanSquawk and Bloomberg
- Stocks in Europe traded lower, as market participants continued to fret over the recent volatility in Chinese based financial instruments
- GBP outperformed following the release of aforementioned firmer than expected UK CPI data, with the ONS noting that the latest increase was mainly due to clothing
- Commodities remained under pressure, with WTI trading near lowest level since March 2009, weighed on by the ongoing concerns over China and Iranian supply related risks
- Treasuries steady, 10Y yield lowest since late May amid declines in currencies from Russia’s ruble to AUD and as a measure of EM stocks fell to four-year low.
- Shanghai Composite Index slid 6.2%, biggest loss since 8.5% rout on July 27; about 35 stocks fell for each that rose, while more than 600 companies plunged by the daily 10% daily limit
- In giving markets a greater say in setting the yuan’s level, Zhou Xiaochuan is bowing to Robert Mundell’s maxim that a country can’t maintain independent monetary policy, a fixed- exchange rate and free capital borders all at the same time
- Britain’s inflation rate rose 0.1% in July, more than forecast, and a core measure of price growth increased to the highest in five months
- Japan needs an economic injection of as much as JPY3.5t ($28b) to shore up consumption and stave off a further economic contraction, said Etsuro Honda, an economic adviser to Abe
- Merkel and Schaeuble will lobby lawmakers today to support the EU86b aid package for Greece, saying it offers a “sustainable path” even though the IMF has yet to commit to footing part of the bill
- Bob Corker (R-TN), the chairman of the Senate Foreign Relations Committee, said he opposes the nuclear agreement with Iran, arguing it won’t end the country’s nuclear enrichment program and may lead to greater instability in Middle East
- Deutsche Bank AG co-CEO John Cryan is overhauling the fixed- income division his predecessor built as he seeks to boost profit and capital
- Sovereign 10Y bond yields mixed. Asian stocks slid, European stocks lower, U.S. equity-index futures decline. Crude oil and copper lower, gold gains
DB’s Jim Reid concludes the overnight event wrap
We’re not going to lie to you this morning. This really isn’t the most interesting EMR we’ve ever published as the summer lull seemed to suddenly hit yesterday after so far having been delayed by Greece, Fed debate and more recently China. Having said that the commodity complex continues to be weak, the Malaysia ringgit continues to drift lower, US data yesterday was mixed and Greece still has ongoing internal political intrigue to watch. Today UK CPI and US housing starts/permits will be the main events. So that’s today’s EMR in a few lines and now to justify our existence we’ll flesh it out.
The overriding theme yesterday was the continued weakness in commodity markets and yesterday we saw Oil tumble with WTI (-1.48%) tumbling to a fresh six and a half year low at $41.87/bbl and Brent (-0.91%) falling to $48.74/bbl as China concerns, soft GDP data out of Japan and lingering supply-related headlines continue to weigh on the complex. The latest leg lower has seen WTI in particular fall over 11% already this month after a 21% decline in July. Although the falls dragged down energy stocks slightly yesterday, the S&P 500 started the week on a firming footing, closing up +0.52% and rebounding after sentiment was buoyed following the latest US housing data. European stocks were a tad more mixed. The Stoxx 600 (+0.26%) and CAC (+0.57%) both finished higher, however the DAX (-0.41%) was unable to recover from an earlier decline.
Overnight FX markets have been relatively calm for the most part after the PBoC effectively made little change to the Yuan fix this morning (within 0.03% of Monday’s close). The onshore Yuan has softened 0.26% while the more freely traded offshore Yuan is 0.06% weaker having initially strengthened. Asian FX markets continue to be under pressure this morning although the moves are certainly a lot more muted relative to the last week. The Malaysian Ringgit (-0.52%) however continues to be the standout underperformer, while the Korean Won, Indonesian Rupiah and Philippine Peso are also a tad lower this morning. There’s been little change in the Aussie Dollar meanwhile (hovering around $0.738) after the RBA minutes offered few surprises and continue to point towards no change in the current cash rate.
Meanwhile, July property prices data out of China this morning showed an improving trend after prices rose in more cities than declined for the first time in 16 months. According to the National Bureau of Statistics, new home prices rose in 31 cities last month (out of 70), versus 27 in June and 20 in May. That compares to new home price declines in 29 cities for July, while 10 cities saw prices unchanged. Despite the slightly improved housing market picture out of China, equity bourses there are leading declines although the bomb blast in Thailand overnight appears to be weighing on sentiment. The Shanghai Comp and Shenzhen are -1.46% and -1.20% respectively at the midday break, while the Thailand stock exchange has plummeted over 2%. The Nikkei (-0.16%), Kospi (-0.41%), Hang Seng (-0.08%) and ASX (-0.71%) have also declined this morning.
Back to markets yesterday. Once again the weakness in the commodity complex wasn’t just confined to Oil markets as Aluminum (-0.79%) and Copper (-0.97%) also declined over the session, bringing their YTD losses now to -15.4% and -18.8%. With that pressure and the read-through to dampening inflation expectations, US Treasuries caught a bid yesterday with the 10y benchmark yield in particular falling 3bps to 2.169%. That move lower was also helped by a particularly soft August NY Fed Empire manufacturing reading with the print falling 18.8pts to -14.9, the lowest level since April 2009. The details revealed that gauges of new orders, shipments and inventories in particular were significantly weaker in the month although there was some optimism to take out of the six-month ahead expectations reading which rose 7pts to 34.6. In any case, there’ll be plenty of attention on Thursday’s Philly Fed manufacturing survey in light of the weakness in NY Fed survey.
Despite US equities initially slumping on the back of the data, homebuilders led a rebound after the release of the NAHB housing market index for August showed a 1pt uplift to 61 as expected and in turn reaching the highest reading since November 2005. It’ll be interesting to see if the positive momentum around the US housing market continues today with housing starts and building permits due this afternoon. Despite the better housing data, the Oil related pressure saw Dec15 and Dec16 Fed Fund contract yields fall 0.5bps each, while the probability of a Fed move in September edged a touch lower to 46% from 48% on Friday.
There was very little to report over in the European session yesterday. Sovereign bond yields largely mirrored the moves in the Treasury market. 10y Bund yields closed the session 3.4bps lower at 0.624% while yields in Italy, Spain and Portugal finished 4.8bps, 7.0bps and 3.9bps lower respectively with Italy now falling to the lowest yield (1.757%) since May 8th. Data wise the only notable release was the June trade balance reading for the Euro area which showed a slightly smaller than expected surplus (€21.9bn vs. €23.1bn), up €0.6bn from May.
Elsewhere, it looks like the political tensions in Greece will continue to bubble away for now with Greek press Ekathimerini suggesting that Greece PM Tsipras and his advisers are set to hold off on an immediate call for a vote of confidence and instead focus in the coming weeks on the actions that the government must take as part of its bailout commitments. The article suggests that this could as a result push back any potential timing for snap elections before going on to quote a Greek government official as saying that an October/November time frame for snap elections might be more of a possibility. Meanwhile and staying in Greece, following on from German Chancellor Merkel’s comments on the weekend, German Finance Minister Schaeuble echoed Merkel’s comments regarding IMF participation, saying on German TV ZRD yesterday that ‘I’m also very sure that the IMF will contribute to the program, just as we declared this to be indispensible’. Schaeuble also called upon fellow lawmakers to approve the bailout package, saying that it offers a ‘sustainable path’.
Turning over to today’s calendar now, it’s all eyes on the UK this morning where we get the July CPI/RPI/PPI releases and which may well shed some more light for economists revising their BoE rate forecasts. Aside from that, there’s no other releases in Europe this morning while this afternoon in the US we’ve got July housing starts and building permits data to look forward to. DB’s Joe Lavorgna notes that he expects the housing starts reading in particular to continue to support the grinding improvement in the US housing market, but that building permits may well be slightly softer relative to June due to the possible payback for upward distortions in the Northeast region over the past few months.
“Avoid ALL Contact” With Rain, American Embassy In Beijing Warns
First in “China Sends In Chemical Warfare Troops, Orders Tianjin Blast Site Evacuation After Toxic Sodium Cyanide Found” and subsequently in “Poison Rain Feared In Tianjin As Death Toll Rumored At 1,400“, we documented China’s frantic attempts to reassure an increasingly agitated and frightened public that the air and water are safe after last Wednesday’s deadly chemical explosion at Tianjin.
Although the full environmental implications of the blast likely won’t be known for quite some time, the immediate concern is that rain could react with water soluble sodium cyanide, transforming the chemical into potentially fatal hydrogen cyanide gas.
And while Beijing has already begun the censorship (some 400 Weibo and WeChat accounts have reportedly been shut down), the American Embassy isn’t mincing words.
The following unconfirmed text message is said to have originated at the Embassy:
For your information and consideration for action. First rain expected today or tonight. Avoid ALL contact with skin. If on clothing, remove and wash as soon as possible, and also shower yourself. Avoid pets coming into contact with rains, or wet ground, and wash them immediately if they do. Rise umbrellas thoroughly in your bath or shower once inside, following contact with rain. Exercise caution for any rains until all fires in Tianjin are extinguished and for the period 10 days following. These steps are for you to be as safe as possible, since we are not completely sure what might be in the air. Remember the brave firefighters and their families along with all those suffering from the accident in Tianjin. Stand strong together China!
And meanwhile, the Embassy is “aware” of these social media messages, which it claims aren’t official. Here’s the official line:
Media sources have reported extensively on explosions at the port of Tianjin, China on August 13 and August 15. The U.S. Embassy urges U.S. citizens in Tianjin to follow the guidance of local authorities and avoid the blast area until given further instructions. We are aware that local authorities are taking measures to prevent secondary disasters and are monitoring air and water pollution in the area to prevent further chemical contamination. The Embassy in Beijing remains in regular contact with local Tianjin government and hospital officials, and we have no information other than that which has been provided to the public by Chinese authorities. We continue to liaise with local authorities, businesses, and healthcare providers to seek information on any U.S. citizens who may have been affected by the explosions.
The Embassy is also aware of social media messages relating to the Tianjin explosions from sources claiming to represent the U.S. Embassy. These messages were not issued by the U.S. Embassy.
Thunderstorms are approaching Tianjin tonight sending new fears of explosions and the fear of Hydrogen Cyanide entering the atmosphere.
The damage so far excluding the loss of life is 1.5 billion dollars:
(courtesy zero hedge)
Cyanide Thunderstorms Feared As Mystery Deepens Around $1.5 Billion Tianjin Explosion
The story behind the chemical explosion that rocked China’s Tianjin port last Wednesday continues to evolve amid fears that the public could be at risk from the hundreds of tonnes of sodium cyanide stored at the facility.
More specifically, Monday’s heightened concerns were related to the possibility that rain could interact with the water soluble chemical, releasing deadly hydrogen cyanide gas into the air. “First rain expected today or tonight. Avoid ALL contact with skin,” a text message purported to have originated at the US Embassy in Beijing read. The Embassy would later deny the message’s authenticity, perhaps at the behest of the Politburo which has kicked off the censorship campaign by shutting down hundreds of social media accounts for “spreading blast rumors.”
Despite efforts to preserve order and clamp down on discussion, the anger in China is palpable as citizens demand answers as to how a catastrophe of this magnitude could have happened and as it turns out, not only was Tianjin International Ruihai Logistics storing sodium cyanide in amounts that were orders of magnitude larger than what they were supposed to be storing, but they were apparently doing so without a license. “The company has handled hazardous chemicals during a period without a licence,” an unnamed company official said on Tuesday. Apparently, Ruihai received the licenses it needed to handle the chemicals just two months ago, BBC reports, citing Xinhua.
Meanwhile, it looks as though determining who actually owns Ruihai will be complicated by the fact that in China, it’s not uncommon for front men to hold shares on behalf of a company’s real owners. This is of course an effort to obscure Communist party involvement in some enterprises and as FT reports, “that seems to be the case for Shu Jing and Li Liang, who appear in State Administration of Industry and Commerce records as holding 45 and 55 per cent of Ruihai International Logistics.” “Both Mr Shu and Mr Li told Chinese media they were holding their shares on behalf of someone else,” FT adds, “but would not say who.”
Here’s more from FT:
Licensing to operate a hazardous goods warehouse is not easy to come by, and Ruihai Logistics’ operation seems to have been approved after neighbouring lots had already been auctioned to residential developers.
Adding to the speculation, Tianjin’s online corporate registry database was inaccessible for four days after the blasts. When access resumed on Monday, a search for Ruihai Logistics yielded a curious gap.
The company was registered in 2012 but its current legal owners only bought their shares in 2013. The historic list of changes that should have reflected the previous owners did not appear.
The records reveal that many Ruihai executives are former employees of Sinochem, the giant state-owned chemicals, fertiliser and iron ore trader that owns the largest hazardous warehouse operation in Tianjin.
You get the idea. And although we’ll likely never know the true extent of the Party’s involvement with the company, local residents are furious, as evidenced by protests near the blast zone on Tuesday morning, which means Beijing must at least pretend to be serious about investigating the incident. In an effort to pacify the country’s censored masses, party mouthpiece The People’s Daily said 10 people, including the head and deputy head of Ruihai had been detained since Thursday. As Reuters reports, Yang Dongliang, head of the State Administration of Work Safety, is also under investigation:
China said on Tuesday it is investigating the head of its work safety regulator who for years allowed companies to operate without a license for dangerous chemicals, days after blasts in a port warehouse storing such material killed 114 people.
Yang Dongliang, head of the State Administration of Work Safety, is “currently undergoing investigation” for suspected violations of party discipline and the law, China’s anti-graft watchdog said in a statement on its website.
The agency, the Central Commission for Discipline Inspection, did not say that Yang’s behavior was connected to the explosions in the port of Tianjin but the company that operated the chemical warehouse that blew up did not have a license to work with such dangerous materials for more than a year.
While Beijing is busy engineering a smoke screen to appease the locals, thunderstorms are rolling into the area, which, as noted above, is bad news as the hundreds of tons of water soluble sodium cyanide are now exposed to the elements. Here’s Xinhua:
Rains are expected to complicate rescue efforts and may spread pollution at the Tianjin port, which was rocked by warehouse blasts last week. China’s central meteorological authority has predicted a thunder storm over the blast site, where hundreds of tonnes of toxic cyanide still reside. A chemical weapon specialist at the site told Xinhua that rain water may merge with the scattered chemicals, adding to probability for new explosions and spreading toxins.
Indeed, some have observed what’s been described as a “white foam” on the ground.
And as for the forecast, well, things don’t look promising:
Finally, the first estimates of the damage are beginning to trickle in and while we won’t know the full extent of the human toll for quite sometime (if ever), Fitch puts the financial impact of the blasts for Chinese insurance companies at between $1-$1.5 billion. For anyone out there who’s long (or looking to get short) the Chinese P&C space, here’s Deutsche Bank’s take:
Based on reported data, PICC was the largest P&C player in Tianjin with 28% market share in 2014, followed by Ping An at 23%, CPIC at 12% and Taiping at 5%. Tianjin is a relatively small market for listed insurers, accounted for 1.2% of 2014 premiums for PICC, 1.8% for Ping An, 1.4% for CPIC and 4.1% for Taiping.
We note that it may be too early to assess ultimate losses from this event as it generally takes time for all claims to be filed. However, assuming losses are shared based on their respective market share in Tianjin, we estimate that every Rmb1bn ultimate loss, PICC’s 2015E combined ratio could increase by 12bps, Ping An by 18bps, CPIC by 14bps, and Taiping by 32bps and PICC’s 2015E net profit would decline by 1.6%, Ping An by 0.5%, CPIC by 0.8% and Taiping by 1.2%.
We maintain our relatively cautious stance on Chinese P&C insurers as we expect underwriting profitability to be under pressure in the next 6-12 months amidst auto premium deregulation, potential increase in competition from online players and a tougher comp in 2H15E.
It also looks as though the government could be on the hook for tens of millions of yuan in insurance claims for injuries and deaths. The full Fitch statement is below.
Tianjin city sells 376m yuan of 3-yr bonds at 3.38%.
China’s Tianjin Sells 1.46b Yuan Special Bonds in Placement.
* * *
Full statement from Fitch
The insured losses from a series of explosions at a chemical warehouse in Tianjin on 12 August are likely to be material for Chinese insurance companies, potentially exceeding USD1bn-1.5bn, says Fitch Ratings. The high insurance penetration rate in this area could make the blasts one of the most costly catastrophe claims for the Chinese insurance sector in the last few years. While the incident is still developing, Fitch expects the number of reported insurance claims cases to surge further in the coming few weeks.
Fitch believes that claims from the blasts are likely to undermine the financial performance of some regional players and those property and casualty insurers with high risk accumulation in the affected areas. That said, it is too early to determine the exact impact that this incident will have on the credit strength of the Chinese insurance sector as a whole.
According to the China Insurance Regulatory Commission, non-life insurance premiums from Tianjin city amounted to CNY11bn (USD1.7bn) in 2014. As such, should insured losses come in at the high end of the initial USD1-1.5bn estimate, they would represent about 88% of total direct premiums written in Tianjin or roughly 5.4% of aggregated shareholder capital for the six most active issuers at end-2014. PICC Property and Casualty Company, Ping An Property & Casualty Insurance Company of China, China Pacific Property Insurance, China Continent Property & Casualty Insurance, Sunshine Property & Casualty Insurance and Taiping General Insurance are the most active insurers in the region, accounting for more than 77% of the non-life segment as measured by direct premiums written.
Claims from the blasts could be shared with both local and international reinsurers, which could mitigate the direct impact on the Chinese insurance sector. While insurers could recover a portion of their property claims from their reinsurers, their exposure, the amount of retention and the number of reinstatements under the catastrophe reinsurance program are likely to determine the degree of severity to which they are affected. Fitch estimates that the overall risk cession ratios of major non-life players active in the Tianjin region range from 10% to 15%.
Chinese media have reported that more than 8,000 vehicles were destroyed by the explosions. Claims from motor insurance could impair insurers’ margins and capital if their reinsurance protection is marginal and the degree of risk accumulation within the affected region is significant. Aside from motor excess of loss treaties, in which the reinsurers indemnify the ceding companies for losses that exceed a specified limit, it is common for Chinese insurers to use quota share reinsurance treaties to mitigate their solvency strain due to the strong growth in recent years from the motor insurance book of business.
The majority of claims will come from motor, cargo, liability and property insurance. However, medical and life insurance claims are also likely to be substantial. Victims of death and injuries are covered by a government-supported accident insurance plan for the Tianjin region, in addition to their own medical and life insurance policies. Each injured person who is insured by the government plan can claim compensation of between CNY20,000 and CNY35,000, depending on the extent of injuries while compensation of CNY50,000 will be paid in the event of death.
Now we have reports that they expect huge delays from the major Tianjin port due to the explosion:
(courtesy Mish Shedlock)
In the wake of the gigantic Tianjin warehouse explosion on August 12 (See Massive Fireball Explosions in Chinese Port City of Tianjin Kill 17; Video Footage, Images, Logistics, Reader Anecdotes) repercussions are still being felt.
Reader Tim Wallace writes “This could have an interesting impact. Peak shipping season should be going full bore right now out of China. Companies impacted will include Walmart. Diversion to other ports always costs more money. Fortunately I ship out of Yantian and HK.”
3PLs Eye Alternatives
SupplyChain 247 writes 3PLs Eye Alternatives Due To Severe Road Access Limits Following Tianjin Explosion.
Third-Party Logistics providers and shippers are looking to re-route cargo to other Chinese ports following Wednesday’s devastating explosion at the port of Tianjin.
The vessel access channel to the port is now open again to two-way traffic, one terminal operator confirmed to The Loadstar, but attention has now turned to access roads that have remained closed or subject to diversions, which lead to the port’s numerous box terminals.
Several forwarders reported that they expect the nearby ports of Dalian and Qingdao, some eight to nine hours away by road, “will bear the majority of the burden”.
One major 3PL confirmed that “all ocean export and import operations via Xingang/Tianjin are suspended, which may last for a week or longer”. The source added that it was anticipating news of cargo damage and was in close contact with customers, and had a contingency plan in place.
“3PLs and shippers are looking at alternative ports such as Dalian and Ningbo, which will be costly as we need to truck these boxes on roads which are closed. “It may take three to four weeks to resume to normalcy.”
One of the biggest problems, reported one company active in the city, is that the one-stop logistics centre was heavily damaged. “It’s where everyone got their paperwork done.
“That’s where the whole community – forwarders, hauliers and the rest – were doing all the other administrative activities. It was very efficient, and now companies have to go directly to their respective individual terminals to get this done.”
There remains doubt as to whether the individual terminals have the administrative infrastructure to deal with the upsurge in paperwork in the interim period.
Companies affected included Volkswagen and Toyota, which lost cars waiting to be shipped. The Wall Street Journal reported that GSK, Airbus, Wal-Mart and Deere & Co were among multinational companies that operated factories or distribution centres in the area.
At least 50 people died in the blast, while hundreds were injured.
Confusion Mounts Over Ownership
The Financial Times reports Confusion Mounts Over Tianjin Warehouse Ownership.
China is awash with confusion over the true ownership of the hazardous goods warehouse that exploded in Tianjin last week even as the Communist party seeks to assure the public there will be no cover-up.
Identifying owners of businesses in China has been complicated since exposés of the family wealth of the Communist party’s most powerful leaders led to greater restrictions on corporate ownership registries.
The task is further complicated by the practice of individuals legally holding shares on behalf of other, unnamed but more powerful, people, often on the basis of a verbal agreement.
Adding to the speculation, Tianjin’s online corporate registry database was inaccessible for four days after the blasts. When access resumed on Monday, a search for Ruihai Logistics yielded a curious gap.
The company was registered in 2012 but its current legal owners only bought their shares in 2013. The historic list of changes that should have reflected the previous owners did not appear.
Link if video does not play: Tianjin Warehouse Explosion
Mike “Mish” Shedlock
Indonesia Impaled: Currency Crashes To 1998 Asian Crisis Low As Exports Crater
On Monday we laid out the rather dire road ahead for the world’s emerging economies in the face of China’s entry into the global currency wars. The path ahead is riddled with exported deflation and decreased trade competitiveness for a whole host of emerging economies [and] all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic.”
Well don’t look now, but trade just collapsed for Indonesia as exports and imports plunged 19.2% and 28.4% (more than double to consensus estimate), respectively in July.
Imports of raw materials dove 24%. Manufacturing and palm oil exports fell 7.1% and 2.4%, respectively, nearly tripling June’s declines. Oil and gas exports fell nearly 8%.
Meanwhile, Bank of Indonesia kept its policy rate on hold at 7.5% and indeed the bank looks to be stuck in a dilemma similar to what we described earlier this month when we noted that “EM central bankers are grappling with slumping exports and FX-pass through inflation or, more simply, bankers are caught between a ‘can’t cut to boost the economy’ rock and a ‘can’t hike to tame inflation’ hard place. The rupiah, like the Malaysian ringgit, is trading near multi-decade lows and hit its weakest level since August 1998 earlier in the session. Depressed commodity prices and slumping demand from China aren’t helping.
And neither is Beijing’s devaluation of the yuan which means that suddenly, Indonesia has lost export competitiveness to China while anything China imports from Indonesia will now cost more.
“We believe there is a strong case for the central bank remaining on hold this year,” Barclays notes, adding that“BI is visibly more reluctant to weaken the IDR in the near term, to avoid stoking imported price pressures [and] the commodity drag due to weaker demand from China has not subsided.” Similarly, Toru Nishihama, EM economist at Dai-ichi Life Research Institute says the “hurdle is higher for BI to cut rate due to the rupiah’s move even though inflation will slow toward year-end due to base effect from last year’s fuel price increase.” Of course cuts, even if they do come, are now less effective in terms of boosting exports as the yuan devaluation puts upward pressure on regional NEER.
In other words, there are no right answers. Just more pain and further pressure on the beleaguered economy and severely battered currency and further evidence that between China’s entry into the global currency wars, depressed global commodity prices, the threat of an imminent Fed hike, and a generally lackluster environment for global demand and trade, the world’s emerging markets face a perfect storm with no end in sight.
(courtesy Michael Snyder/EconomicCollapseBlog)
23 Nations Around The World Where Stock Market Crashes Are Already Happening
You can stop waiting for a global financial crisis to happen. The truth is that one is happening right now. All over the world, stock markets are already crashing. Most of these stock market crashes are occurring in nations that are known as “emerging markets”. In recent years, developing countries in Asia, South America and Africa loaded up on lots of cheap loans that were denominated in U.S. dollars. But now that the U.S. dollar has been surging, those borrowers are finding that it takes much more of their own local currencies to service those loans. At the same time, prices are crashing for many of the commodities that those countries export. The exact same kind of double whammy caused the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s.
As you read this article, almost every single stock market in the world is down significantly from a record high that was set either earlier this year or late in 2014. But even though stocks have been sliding in the western world, they haven’t completely collapsed just yet.
In much of the developing world, it is a very different story. Emerging market currencies are crashing hard, recessions are starting, and equity prices are getting absolutely hammered.
Posted below is a list that I put together of 23 nations around the world where stock market crashes are already happening. To see the stock market chart for each country, just click the link…
6. South Korea
Of course this is just the beginning. The western world is going to feel this kind of pain as well very soon. I want to share with you an excerpt from an article that just appeared in the Telegraph entitled “Doomsday clock for global market crash strikes one minute to midnight as central banks lose control“. You see, the Telegraph is not just one of the most important newspapers in the UK – it is truly one of the most important newspapers in the entire world. When it speaks on financial matters, millions of people listen very carefully. So for the Telegraph to declare that the countdown to a “global market crash” is “one minute to midnight” is a very, very big deal…
When the banking crisis crippled global markets seven years ago, central bankers stepped in as lenders of last resort. Profligate private-sector loans were moved on to the public-sector balance sheet and vast money-printing gave the global economy room to heal.
Time is now rapidly running out. From China to Brazil, the central banks have lost control and at the same time the global economy is grinding to a halt. It is only a matter of time before stock markets collapse under the weight of their lofty expectations and record valuations.
I encourage you to read the rest of that excellent article right here. It contains lots of charts and graphs, and it discusses many of the exact same things that I have been hammering on for months.
When one of the newspapers of record for the entire planet starts sounding exactly like The Economic Collapse Blog, then you know that it is late in the game.
Others are sounding the alarm about an imminent global financial crash as well. For example, just consider what Egon von Greyerz recently told King World News…
Eric, I fear that this coming September – October all hell will break loose in the world economy and markets. A lot of factors point to that, both fundamental and technical indicators and this indicates that we could have a number of shocks this autumn.
Sadly, most investors will hold stocks, bonds and property and will see any decline in value as an opportunity. It will be a long time and a very big fall before they realize that the system will not help them this time because the central bankers have run out of ammunition to save the global financial system one more time. Yes, we will see more massive money printing, but it will just make things worse. And at some stage, which could be quite soon, real fear will set in, a fear of a magnitude the world has not experienced before.
Hmm – there is another example of someone talking about September. It is funny how often that month keeps coming up.
And of course most of the major stock market crashes in U.S. history have been in the fall. Just go back and take a look at what happened in 1929, 1987, 2001 and 2008.
The “smart money” has been pulling their money out of stocks for quite a while now, and at this point a lot of others have hopped on the bandwagon. The following comes from CNBC…
The flight of investor money from U.S. stocks has turned into a stampede.
In fact, the $78.7 billion leaving domestic equity-focused funds has been worse in 2015 than it was even during the financial crisis years, when the S&P 500 tumbled some 60 percent, according to data released Friday by Morningstar. The total is the highest since 1993.
Domestic equity funds surrendered $20.4 billion in July alone and have seen $158.6 billion in redemptions over the past 12 months. Even a strong flow of money into passively managed exchange-traded funds has been unable to offset the stream to the exit among retail investors, who generally focus more on mutual funds than ETFs.
A global financial crisis has already begun.
So those that were claiming that one would not happen in 2015 are already wrong.
Over the coming months we will find out how bad it will ultimately be.
Sometimes I get criticized for talking about these things. There are a few people out there that don’t like all of the “doom and gloom” that I discuss on my website. Apparently it is a bad thing to talk about the things that really matter and we should all just be “keeping up with the Kardashians” instead.
I consider myself just to be another watchman on the wall. From our spots on the wall, watchmen such as myself all over the nation are sounding the alarm about what we clearly see coming.
If we saw what was coming and we did not warn the people, their blood would be on our hands. But if we do warn the people, then we have done our duty.
Every day I just do the best that I can with what I have been given. And there are many others just like me that are doing exactly the same thing.
Those that do not like the warning message are going to feel really stupid when things start falling apart all around them and they finally realize how wrong they truly were.
Or the same story as above:
(courtesy zero hedge)
This Is What Capitulation Looks Like, EM Positioning Is Most Extreme On Record
In the week since China shocked the world by devaluing the yuan by the most on record, emerging markets – already beset by falling commodity prices, sluggish Chinese growth, a looming Fed rate hike, and a number of idiosyncratic risk factors both economic and political – descended into chaos.
On Friday we documented a Malaysian meltdown which saw the ringgit slide to its lowest level since 1998as a $10 billion bond maturity aggravated an already precarious situation, sending the country’s currency, stocks, and bonds into a tailspin.
Brazil faces both economic and political crises as a nasty bout of stagflation and ballooning deficits portend further pressure on the real while calls for the impeachment of President Dilma Rousseff have reached a fever pitch.
In Turkey, the lira is plunging to new all-time lows against the dollar and bond yields are spiking as the central bank’s failure to address claims that it isn’t prepared to cope with the normalization of monetary policy in the developed world only served to make a bad situation worse as the country faces a political crisis and an escalating civil war.
Finally, in Indonesia, trade collapsed in July, with imports and exports falling 28% and 19% respectively as the country’s central bank is caught between a plunging rupiah (which is nearing multi-decade lows) and the effects of Beijing’s devaluation (reduced export competitiveness and an increase in the price of goods China imports).
And these are but a few examples.
In short, the path ahead is riddled with exported deflation (incidentally, Indonesia may have a cushion here as it’s the only Asia ex-Japan economy not coping with PPI deflation) and decreased trade competitiveness for a whole host of emerging economies and all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic.
Given the above, it should come as no surprise that fund managers’ positioning on EM relative to DM is the most extreme on record as shown in the following chart from BofAML’s global fund manager survey.
And as you might have imagined, sentiment towards EM has deteriorated markedly since last month:
While relative to history, the space is underowned – by a lot:
For their part, BofAML is taking the contrarian angle, recommending a long EM (and commodities) position going into Septemeber.
Consider that, then consider everything said above, and trade accordingly. Or don’t.
The looting of Greece begins:
German company wins privatization bid for 14 Greek regional airports
(courtesy Keep Talking Greece/zero hedge)
Greek Liquidation Sale Begins: German Company Wins Privatization Bid For 14 Greek Regional Airports
Submitted by Keep Talking Greece
Greek Liquidation Sale Begins: German Company Wins Privatization Bid For 14 Greek Regional Airports
Who would have thought.
A German company, airport operator FRAPORT won the bid to operate and maintain 14 regional airports, considered to be top of the top in Greece. With an offer of 1.23 billion euro, the consortium of Fraport-Slentel (a unit of Greek energy group Copelouzos) won the bid to lease the regional airports for 40+10 years. Among the 14 regional airports are those on most popular tourist Greek islands like Mykonos, Rhodes, Kos, Santorini and Corfu. It is the first privatization deal under SYRIZA-ANEL coalition government and the biggest privatization deal in Greece since beginning of the crisis and the bailout programs in 2010.
Total €1.23 billion for the whole period of lease
Annual rent of €22.9 million per year
25% of the before tax, interest, revenuesamortization and fees for Civil Aviation Authority
Pledge to invest €330 million to upgrade the airports in the first four years and a total of €1.4 billion for the next four decades. (source)
Already in November 2014, Greece’s privatization company Hellenic Republic Asset Development Fund (HRADF) had declared Fraport-Slentel Consortium as the “preferred bidder” stating that its offer was “significantly higher” than the second best bid. The offers for the tender were submitted in October 2014.
Bidders – Consortiums
1. Argentina’s holding company CASA (Corporation America) – Greece engineering company METKA (Mytilinaios)
2. Germany’s FRAPORT – Greek Slentel (Kopelouzos)
3. France’s VINCI – Greek ACTOR (Bobolas)
According to HRADF statement, consultants for the tender were : “Citigroup Global Markets Limited and Eurobank EFG Equities Investment Firm S.A. as financial advisors, Your Legal Partners and Drakopoulous & Vasalakis Law firm as legal advisors and Lufthansa consulting, Doksiadis Associates and Alanna Consulting Group, as technical advisors to assist with the privatisation.”
What is highly interesting is that Lufthansa is also shareholder in Fraport at 8.45%. In Fraport official site, the shareholder structure is given as:
|State of Hesse||31.35 %|
|Stadtwerke Frankfurt am Main Holding GmbH||20.02 %|
|Deutsche Lufthansa AG||8.45 %|
|RARE Infrastructure Limited||4.87 % (10/03/2015)|
On August 13th the deal was sealed by the Greek government, yesterday, Monday, the decision was published in Greece’s official Gazette.
The 14 airports are divided into two groups:
Group A: the airports in Thessaloniki, Corfu, Chania, Kefalonia, Zakynthos, Aktion and Kavala
Group B: the airports on Rhodes, Kos, Samos, Lesvos, Mykonos, Santorini and Skiathos.
The privatization deal will upgrade the airports in Greece’s most favorite tourist destinations improving the first image of the country to the million of tourists flocking each and every year. According to the UN World Tourism Organization (UNWTO), the number of international tourists visiting Greece grew by 17 percent in the first half of 2014. This continues the strong performance of last year when Greece welcomed some 18 million international tourists.
But just 330 million euro in investment for 14 airports in the next four years? This is €82,500,000 per year, and €5,892,857.1429 per airport each year. OK, jobs will be created and really miserable airports like the International Airport on Kos will improve their services and capacities.
Now, some mean Greeks claim that the investment will beassisted with European Funds (ESPA) and some others – equally mean – wonder whether the new lessee will pay Value Added Tax to the Greek state and do not act like theGerman Hochtief that has been refusing to pay V.A.T. for handling Athens International Airport ‘Eleftherios Venizelos’ for more than 20 years.
Some other Greeks realized that in all three consortium bidders were also the famous and powerful Greek businessmen, also known as “national contractors” for having secured contracts with the Greek state for building roads, bridges, and whatever Greece wanted to build and construct in order to modernize the country in the last decades, including energy, natural gas, sewage, just to name additional few.
PS if you’re an investor interested in Greek assets here are the running tenders of HRADF for ports, trains and whatever else your soul wishes.
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For those curious who sits on the Fraport Supervisory and Advisory board, here is the answer:
Bondholders will be first to be attacked, which will be followed by depositors after Jan 1.2016 when they will be bailed in:
(courtesy zero hedge)
Greek Deposits Become Eligible For Bail-In On January 1, 2016
Earlier today, tucked away from the public’s eyes, there was another round of drama involving Greek securities this time focused on Greek senior bank bonds which promptly tumbled back to post-referendum/pre-bailout #3 levels.
The catalyst was Friday’s pronouncement by Jeroen Dijsselbloem who said depositors will be shielded from any losses resulting from the restructuring of the nation’s financial system, but that senior bondholders would certainly be impaired and probably wiped out. In other words, once again the superpriority of various classes has been flipped on its head with general unsecured liabilities ending up senior to, well, senior bank claims.
As Bloomberg reported earlier today, while “Greece’s third bailout will spare depositors in any restructuring of the nation’s financial system, senior bank bondholders may not be so lucky, according to comments from Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem. The bondholders will be in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout.”
“Bondholders were overly optimistic because bail-in of senior bonds was not explicitly mentioned before,” said Robert Montague, a senior analyst at ECM Asset Management in London. “Today they were brought back down to earth with a bump.”
Which is bad news for bondholders, but the biggest losers will once again be depositors who represent the vast bulk of unsecured Greek bank liabilities.
Going back to Friday’s statement by the Eurogroup president, he specifically said that “the bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded.” Which is confusing considering that bank stocks were broadly unchanged and in some cases rose. Of course, this makes no sense because as even a first year restructuring associate will tell you, according to traditional waterfall analysis, even the lowliest bond impairment means an equity wipeout. And yet, Greek bank equities are still trading at far more than just tip/nuisance value. Which, to repeat, makes no sense.
But that is not surprising: little of what Europe is doing with Greece makes any sense. Other agree:
“It is not clear how they will make it possible to bail-in bonds while excluding deposits, but as we have seen in other problematic situations, where there is a will there will be a way,” said Olly Burrows, London-based financials analyst at brokerage firm CRT Capital. “We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.“
And yet, it appears that following the weekend, Europe realized that it is now openly flaunting the conventional restructuring protocol.
As a reminder, Greece’s euro-area creditors made adoption of the European Union’s Bank Resolution and Recovery Directive, or BRRD, a precondition of the bailout. The directive, which makes it easier to impose losses on senior creditors, should rank senior unsecured bondholders and depositors equally, said Olly Burrows, London-based financials analyst at brokerage firm CRT Capital.
This is something which Dijsselbloem may not have been aware of when he said that one senior class would be impaired while another pari passu group of liabilities, i.e., depositors, would be protected. As noted above, that makes no sense.
Which is probably why earlier today, Bloomberg followed up with a report that a recapitalization of Greek banks will exclude all depositors from losses until the EU’s Bank Recovery and Resolution Directive rules go into effect on Jan. 1, citing an EU official.
Needless to say this was vastly different to Dijsselbloem’s blanket guarantee statement, and suggests that depositors will indeed be bailed-in (if mostly those above the €100,000 insured limit, although as European history has shown, rules will be made up on the spot and we would not at all be surprised if deposits under the insured limit are also confiscated), but not right now: only after BRRD rules come in place on the first day of 2016.
Europe’s eagerness to promise depositor stability is transparent: the finmins will do everything in their power to halt the bank run from banks which will likely be grappling with capital controls for months if not years. Still, absent some assurance, there is no way that the depositors would be precluded from withdrawing all the money they had access to, which in turn would assure that the €86 billion bailout of which billions are set aside for bank recapitalization, would be insufficient long before the funds are even transfered.
According to an Aug. 14 Eurogroup statement an asset quality review of Greek banks will take place before the end of the year,
“We expect a comprehensive assessment of the banks – so-called Asset Quality Review and Stress Tests – by the ECB/SSM to take place first,” European Commission spokeswoman Annika Breidthardt tells reporters in Brussels. “And this naturally takes a few weeks.”
In other words Europe is stalling for time: time to get more Greeks to deposit their cash in the bank now, when deposits are “safe” and while everyone is shocked with confusion at the nonsensical financial acrobatics Europe is engaging in.
But once Jan.1, 2016 rolls around, it will be a vastly different story. This was confirmed by the very next statement: “I must also stress that, depositors will not be hit” in this year’s review, she says.
In this year’s, no. But the second the limitations from verbal promises of deposit immunity expire next year, everyone who is above the European deposit insurance limit becomes fair game for bail-in.
Dijsselbloem concluded on Friday that “Depositors have been excluded from the bail-in because in the first place it’s concerning SMEs and private persons. But it is only concerning depositors with more than 100,000 euros and those are mainly SMEs. That would again lead to a blow to the Greek economy. So the ministers said we will exclude them explicitly, it would bring damage the Greek economy.“
Right, exclude them… until January 1, 2016. And only then impair them because Greece will never again be allowed to escape a state of permanent “damage” fo the economy.
As for Greeks and local corporations whose funds are parked in a bank and who are wondering what all this means for their deposits, here is the answer: for the next 4.5 months, your deposits are safe, which under the current capital control regime doesn’t much matter: it’s not as if the money can be withdrawn in cash and moved offshore.
However, once January 1, 2016 hits and Greece becomes subject to a bank resolution process supervised and enforced by the BRRD, all bets are off. Which likely means that as the Greek bank balance sheet is finally “rationalized”, any outsized deposits will be promptly Cyprused.
For our part, we tried to warn our Greek readers about the endgame of this farcical process since January of this year: we will warn them again – capital controls or not, pull whatever money you can in the next few months because once 2016 rolls around, all the rules change, and those unsecured bank liabilities yielding precisely nothing, and which some call “deposits” will be promptly restructured to make the Greek financial balance sheet at least somewhat remotely viable.
The entire world shipping is coming to a standstill!!
(courtesy Ambrose Evans Pritchard/UKTelegraph)
World shipping slump deepens as China retreats
Ports across the world suffer worst hit since the Lehman crisis as emerging markets wilt, but trade may not matter so much to global GDP any longer
World shipping has fallen into a deep slump over the late summer, dashing hopes of a quick recovery from the global trade recession earlier this year and heightening fears that the six-year economic expansion may be on its last legs.
Freight rates for container shipping from Asia to Europe fell by over 20pc in the second week of August, even though trade volumes should be picking up at this time of the year. The Shanghai Containerized Freight Index (SCFI) for routes to north European ports crashed by 23pc in five trading days.
The storm in the shipping industry comes as the New York state manufacturing index for July plummeted to a recessionary low of minus 14.9, the lowest since the Great Recession and one of the steepest one-month drops ever recorded.
The new shipments component fell to -13.8, and new orders to -15.7. A similar drop occurred in 2005 and proved to be a false alarm but the latest fall comes at a delicate moment for the world economy.
There is now a full-blown August storm sweeping through global markets. The Bloomberg commodity index dropped to a fresh 13-year low on Monday and the MSCI index of emerging market equities touched depths not seen since August 2009.
A closely-watched gauge of emerging market currencies has fallen for the eighth week – the longest run of unbroken declines since the beginning of the century – led by the Malaysian Ringgit, the Russian rouble and the Turkish lira.
Asian currencies have dropped against the dollar over the last year
China’s surprise devaluation last week continues to send after-shocks through skittish global markets, already on edge over a likely rate rise by the US Federal Reserve in September – though this is now in doubt.
The currency move was widely taken as a warning that the Chinese economy is in deeper trouble than admitted so far, a menacing prospect for exporters of raw materials and for trade competitors in Asia. It threatens to transmit a fresh deflationary impulse through the global system.
The great worry is that companies in emerging markets will struggle to service $4.5 trillion of US dollar debt taken out in the boom years when quantitative easing by the Fed flooded the world with cheap money, much of it at irresistible real rates of 1pc. This is up from $1 trillion in 2002.
The monetary cycle has gone into reverse since the Fed ended QE in October 2014 and cut off the flow of fresh liquidity. While the first rate rise in eight years has been well-telegraphed, nobody knows for sure what will happen once tightening starts in earnest.
This stress-test could prove even more painful if China really has abandoned its (crawling) dollar peg and is seeking to protect export margins by driving down its currency.
The yuan has risen by 60pc against the Japanese yen and 105pc against the rouble since mid-2012. Yet China nevertheless has a trade surplus of 6pc of GDP.
Data from the Port of Hamburg released on Monday show much damage this currency surge may be doing to Chinese companies. Axel Mattern, the port’s chief executive, said a 10.9pc drop in trade with China was the chief reason why volumes of container cargoes passing through the port fell 6.8pc in the first six months.
“During the first six months of the years the euro was on average 19 percent lower than the yuan, making purchase of Chinese goods costlier for European importers,” he said.
If so, this is grist to the mill of those arguing that China timed its switch to a market-driven exchange rate in order to disguise what is really “currency warfare”, or a beggar-thy-neighbour strategy as it used to be known. The Chinese central bank has dismissed such claims as “nonsense”. It has intervened to stabilize the yuan over the last three days.
The port of Hamburg said trade with Russia collapsed by 36pc, the latest evidence that the rouble crash and deepening recession has forced Russian consumers to cut back drastically on purchases of imported cars and heavy goods.
The Dutch CPB index of world trade fell in both April and May in absolute terms, culminating five months of dire shipping activity. It had been widely-assumed that the worst was over.
World trade has slumped
Yet more recent data from Container Trades Statistics shows that global volumes fell 3.1pc in June from the already depressed levels the month before. This has come as shock: the period from June to August is typically the strongest time of the year, boosted by pre-shipments for the Christmas season.
What is even more disturbing is that fresh port data from Asia suggest that the downturn dragged on into July, and may even have deteriorated.
Singapore – the world’s second largest entrepot – saw a 13.3pc contraction in container volumes from a year earlier, the worst performance since the sudden-stop in trade after the Lehman crisis.
The growth in cargo shipments for all the major ports in East Asia (that have reported so far) fell to a new cycle-low of 0.6pc in July, according to tracking data collected by Nomura. “The clock is ticking on the third quarter. We remain sceptical of those trying to “call a bottom”,” it said.
It is still unclear how much of this weakness reflects recessionary conditions, and how much stems from a more benign shift in the structure of the global economy.
China’s reliance on imported components for its export industry has fallen to 35pc from 75pc in 1992 as the country moves up the technology ladder. The Communist Party is deliberately weaning the economy off heavy industry and mass production, shifting to a more mature service economy that relies less of trade.
At the same time, the US and Europe have been “re-shoring” manufacturing plant from China as Asian labour costs rise, reversing the process of globalisation.
These changes mean that the “trade-intensity” of the global economy is falling. The trade share of world GDP was 40pc in 1990. It rose to a peak of 61pc in 2011, and has since drifted down to below 60pc.
A recent study by the International Monetary Fund said the expansion of global supply chains driven by the US and China in the early 2000s is “exhausted”.
The implication is that trade is no longer the pulse of the global economy. Other indicators are less worrying.
Both credit and key measures of the money supply are rising briskly in Europe, the US, and latterly in China as well, pointing to a recovery later this year. These forces may prove to be more powerful in the end.
Oil related stories;
the following is a huge story as credit risk in the energy sector have never been higher
(courtesy zero hedge)
Default Wave Looms As Energy Sector Credit Risk Surges To Record High
With oil prices pushing cycle lows and Shale firms as loaded with debt as they have ever been, the spike in energy sector credit risk should come as no surprise as the hopes of the last few months are destroyed. At 1076bps, credit risk for the energy sector has never been higher. As UBS recently warned, more defaults are looming and, as we discussed this week, private equity is waiting to pick up the heavily discounted pieces.
Where are the defaults? They’re coming: we’ve seen Quicksilver Resources and Dune Energy, are likely to see American Eagle Energy, RAAM Global Energy, Venoco and thereafter perhaps Connacher Oil & Gas, Samson and Sabine Oil & Gas. Most E&P firms had hedges in place for 2015; defaults typically lag by about 12 months and the clock started ticking late last year.
We’ve talked a lot lately about HY in general and about the HY energy space more specifically. Recapping, periods of QE in the US saw US HY supply surge 50% above normal levels as issuers sought to take advantage of lower borrowing costs and investors clamored for the relatively higher yields they could get by taking on more credit risk. More recently, struggling oil producers have tapped the market in an effort to stave off insolvency as crude prices plummet, leading directly to a situation where outstanding HY energy bonds account for a disproportionate share of all outstanding debt in the space. With rates set to rise later this year, with crude prices likely to stay depressed for the foreseeable future, and with suppressed liquidity in the secondary market for corporate credit poised to bring heightened volatility,the stage may be set for a high yield meltdown.
However, what is potentially more worrying is a broader-based default cycle… driven by credit contagion, as UBS explains why commodity defaults could spread
In the wake of the commodity price swoon one of the recurring questions is will the stress in commodity markets spillover to other sectors?
First, regular readers will recall our HY energy default forecast of 10-15% through mid- 2016. Simply framed, the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis. In our view, sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries.
How large are contagion risks to the broader HY market? And what are the transmission channels? Historically, investors in the limited contagion camp would probably point to the early 1980s. In this cycle commodity price defaults spiked with the drop in oil prices yet average default rates (IG & HY) increased only moderately amidst a favorable economic environment. In our view, however, the parallels in terms of the credit and asset price cycles are a stretch versus the current context. In the last three cycles, commodity price defaults have either led or coincided with a broader rise in corporate default rates (Figure 2).
But why should there be contagion from commodity sectors to other segments?
There is a clear pattern of default correlation dependent on fluctuations in national or international economic trends. Commodity price weakness is symptomatic of weak economic growth in China and emerging markets – with possible spillover risks for commodity related sovereigns (oil exporters) and corporates.
In addition, distress in one sector affects the perceived creditworthiness as well as profits and investment of related firms in the production process. For example, exploration and production firm defaults could negatively affect suppliers and customers which would include oil equipment and service, metals, pipeline, infrastructure, and engineering firms. Furthermore, related literature points to the significance of the supply/demand balance for distressed debt; our theory is that there is a relatively finite pool of capital for distressed assets, implying greater supply of distressed paper pushes down valuations of like assets. Unfortunately, a rise in the supply of stressed bonds typically coincides with a decline in demand for such assets. This self-reinforcing dynamic historically leads to a re-pricing in lower quality segments.
But hope springs eternal in greater fool stock land…
Oil falls as Cushing OK inventory builds:
(courtesy zero hedge)
API Reports 4th Consecutive Inventory Draw But Crude Slides On Cushing Build
API reports a 2.3 million barrel inventory draw – a bigger draw than the prior week – extending the run to 4 consecutive weeks of drawdowns. The initial reaction was a pop higher, however the machines had not noticed thatCushing saw an inventory build (up 389k barrels)and that triggered weakness in WTI Crude…
Total inventory drewdown but Cushing saw a build…
Which is weighing modestly on crude prices…
Submitted by Tyler Durden on 08/18/2015 16:47 -0400
Euro/USA 1.1068 down .0007
USA/JAPAN YEN 124.27 down .170
GBP/USA 1.5692 up .01131
USA/CAN 1.3110 up .0016
Early this Tuesday morning in Europe, the Euro fell by 7 basis points, trading now just below the 1.11 falling to 1.1068; 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 another Chinese currency devaluation although last night it surprisingly strengthened a tiny .0019.
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 17 basis points and trading just above the 124 level to 124.27 yen to the dollar.
The pound was well up this morning by 113 basis points as it now trades well above the 1.56 level at 1.5692, 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 fell again by 16 basis points to 1.3110 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 especially last week with the fall of the yuan carry trade.
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 65.79 or 0.32%
Trading from Europe and Asia:
1. Europe stocks mostly in the red (except Spain slightly in the green)
2/ Asian bourses all in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/
Gold very early morning trading: $1119.35
Early Tuesday morning USA 10 year bond yield: 2.16% !!! up 1 in basis points from Monday night and it is trading well below resistance at 2.27-2.32%
USA dollar index early Tuesday morning: 96.80 down 2 cents from Monday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3935 up .0027 ( Chinese yuan down 27 basis points)
Chinado 2.0: Dollar Pump, Stocks Slump, Copper & Silver Dump
Manic Monday to Tempestuous Tuesday… Overheard from an algo somewhere deep in Mahwah…
Are you not entertained?
It all started in China again… (exactly as it did last Tuesday Manic Monday Becomes Turmoil Tuesday As China Rocks The Global Boat)
But in the US, what goes up on vapid volume, must come down on even vapid-er volume…notice the sells every time ES hit VWAP…
Leaving everything green for the week but small Caps dropping the most – note that for the 5th day in a row the initial kneejerk olower at the open was bid into the European close…
Futures for the day show the pain started in China, was ramped by ‘good’ housing starts data (ignore the crappy permits data) then sunk after EU close…
And with homebuilders the only sector in the green today (energy lower despite higher oil prices as it catches down to credit’s ugly reality)…
Credit protection markets continue to press wider…
Investment Grade credit risk is at its highest since Oct 2013…
and for once equity protection is decoupling from stocks…
Treasury yields jumped notably intraday – pushing 30Y yields higher on the week…
The US Dollar surged on the back of EUR weakness…
Very mixed bag in Commodities – despite the USD strength…
Silver was slammed off its 50DMA
But Gold bounced back…
Copper was clubbed to new 6 year lows…
Finally, after yesterday’s “oil crusher algo” was unleahed into the NYMEX close, today saw the “oil gusher algo” set free… (and no, there was NO NEWS!!)
Walmart Stock Slides After EPS Miss, Profits Tumble, Full Year Guidance Slashed
It may not rely on such tech bubble (ver 1.0 and 2.0) buzzwords as eyeballs, clicks, “story”, “sharing”, “hyperxxxx, “non-GAAP” and so on, in fact with 2.2 million worldwide employees Wal-Mart is as old-school as it gets, which is why the fact that what was once the world’s most valuable retailer (until Amazon dethroned it a month ago) just reported not only a miss, on tumbling operating earnings, but slashed its guidance by 7%, should be very troubling to anyone who still looks as such trivial things as “fundamentals” and how these reflect the even more trivial “economy.”
This is what happened:
- Despite reporting revenue of $120.2 billion, or virtually unchanged from a year ago, and above the $119.7 billion expected, WMT reported EPS of $1.08, below the exp. $1.12. WMT promptly blamed exchange rates as the culprit for the $0.04 miss. Needless to say, when the dollar is weak no company ever says “EPS beat by $X.XX because of a favorable exchange rate.”
- The first problem emerged when looking at operating income, which dropped by -10.0% consolidated, and tumbled by a whopping -14.2% in the firm’s international stores.
- What was even more problematic is that while Wal-Mart reported a 4.8% increase in Net Sales in the US, rising to $74 billion, domestic Operating Income also tumbled by 8.2% to $4.8 suggesting there is a significant margin compression going on. Expect mass layoffs next as the company realizes that boosting minimum wages always has a profit trade off.
- Then there was the most important factor: free cash flow. “Free cash flow was $5.1 billion for the six months ended July 31, 2015, compared to $6.8 billion in the prior year. The decrease in free cash flow was due to lower income from continuing operations and the timing of payments.“
- But the worst news for WMT shareholders, and the reason why the stock is down 3% pre-market is because the company slashed its guidance as follows: Walmart updated full year EPS guidance to a range of $4.40 to $4.70, from a previous range of $4.70 to $5.05. This range includes Q3 EPS guidance of $0.93 to $1.05.
But at least stock was being repurchased: The company paid $1.6 billion in dividends and repurchased approximately 14 million shares for $1.0 billion. Even if it means a few thousand less greeters…
Oh well, time to brush such old-economy behemoths as WMT aside, and focus on the “new economy” stalwarts such as AMZN, which may have a fraction of WMT’s sales and profit, but at least it has a greater market cap. At least until investors realize that the secular decline in the US and Global economy as demonstrated by WMT is for real, and “stories” and “hype” can only carry you so far.
Full breakdown of WMT results:
Building Permits Plunge After NYC Property Tax Break Expires, Housing Starts Stable
After 3 months of exploding building permits – driven exclusively by the Northeast region as a result of an expiring property tax break in NYC, reality bit in July as permits plunged 16.3% to the lowest since March, down to 1.119MM from 1.337M last month, and far below the 1.228M expected, confirming once again that economists did not even have a clue about the driver behind the recentt surge, even though as we warned just before the number was announced…
Sure enough that’s precisely what happened.
This was also the biggest miss on record for permits.
Housing Starts rose less than expected but thanks to a dramatic upward revision are stable at around 1.2 million units SAAR (driven by a rise in single-family units trumping multi-family units), although in absolute terms at 1.206MM, the number was fractionally better than the expected.
The 3 month surge into the NYC property tax break expiration has ended:
The good news, and the reason why the USD suddenly found a modest bid, is that Single-family starts once again picked back up.
Looks like we are going to need some more tax break expirations to keep the housing recovery dream alive.
Atlanta Fed Q3 GDP Forecast Doubles Thanks To Subprime Auto Loans
Thanks to the economic miracle of offering cheap money to the least creditworthy of society, The Atlanta Fed just increased its forecast for Q3 GDP from +0.7% to +1.3% – though this is still less than half consensus estimates. The driver of this ‘almost doubling’ was due to a 15.3% increase in seasonally adjusted motor vehicle assemblies in July stuffing inventories even fuller. Of course, as we previously noted, this is entirely unsustainable and we await the mean-reversion in August and September.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.3 percent on August 18, up from 0.7 percent on August 13. The forecast for real GDP growth increased from 0.7 percent to 1.2 percent after Friday’s industrial production release from the Federal Reserve. Most of this increase was due to a 15.3 percent increase in seasonally adjusted motor vehicle assemblies in July that boosted the forecast of the contribution of real inventory investment to third-quarter GDP growth from -2.2 percentage points to -1.8 percentage points.
But as we showed previously, this is simply unsustainable as automakers face a massive inventory already…
Automakers just unleashed a massive production surge to keep the dream alive…
With inventories at record highs (having risen for 61 straight months)…
Which would be fine if sales were keeping up – but they are not…
To sum up…
- The only way automakers are making sales is by lowering credit standards to truly mind-numbing levels…. that cannot last.
- China’s economic collapse has crushed sales forecasts for the automakers.
- Inventories are already at record highs.
- And July saw a massive surge in production.
* * *
What comes next is simple… a production slump.. and we look forward to checking back with The Atlanta Fed as that data hits their forecast…
“Calm Before The Storm?” Dow’s 2015 Range Crashes To Lowest Ever
The Dow’s volatility is dead… long live The Dow’s volatility.
2015 is now officially the least volatile (lowest trading range) in stock market history…
After 157 trading days, the Dow has traded in a 6.44% range – the tightest range EVER!
Western countries are increasingly displaying symptoms of looming instability as described by Nassim Taleb, the author of the The Black Swan, ever since the publication of an essay written with Gregory Treverton entitled “The Calm Before the Storm.”
In their essay, Taleb and Treverton highlight five characteristics that could help identify states that – while appearing stable on the surface – may actually be quite fragile.
“Fragility”, they write, “is aversion to disorder”.
The five characteristics they view as major factors in instability are:
- – centralised decision making,
- – lack of economic diversity
- – high levels of debt and leverage
- – absence of political variability
- – lack of track record in surviving shocks
With regards to centralised decision making the article points to the autocratic Arab states which while appearing strong on the surface quickly succumbed to the “Arab Spring” uprisings before degenerating into chaos – albeit compounded by external influences.
“Although centralization reduces deviations from the norm, making things appear to run more smoothly, it magnifies the consequences of those deviations that do occur. It concentrates turmoil in fewer but more severe episodes, which are disproportionately more harmful than cumulative small variations.
In other words, centralization decreases local risks, such as provincial barons pocketing public funds, at the price of increasing systemic risks, such as disastrous national-level reforms.”