Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1159.60 up $6.60 (comex closing time)
Silver $15.30 down 22 cents.
In the access market 5:15 pm
We are not witnessing massive manipulation preventing gold from breaking loose from the shackles of our banking cartel. The signal to attack today was evident in the lower price of silver together with the lower gold/silver shares. Ladies and Gentlemen: this is an epic battle. World markets are crumbling and for whatever reason, the bankers are hanging on to their massive physical gold/silver shorts instead of capitulating!!
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a poor delivery day, registering 0 notice for 0 ounces Silver saw 242 notices for 1,210,000 oz. Somebody was in great need of physical silver today.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 227.43 tonnes for a loss of 75 tonnes over that period.
In silver, the open interest fell by 458 contracts despite the fact that silver was up in price by 31 cents yesterday. Something, again really spooked our shorts as they ran to the hills to cover. The total silver OI now rests at 169,192 contracts In ounces, the OI is still represented by .846 billion oz or 121% of annual global silver production (ex Russia ex China).
In silver we had 242 notices served upon for 1,210,000 oz.
In gold, the total comex gold OI rests tonight at 443,341. We had 0 notice filed for nil oz today.
We had another huge addition of 2.39 tonnes at the GLD today / thus the inventory rests tonight at 677.83 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. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. 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 458 contracts down to 169,192 despite the fact that silver was up by 31 cents in price with respect to yesterday’s trading. The OI for gold rose by 5,723 contracts to 443,341 contracts as gold was up by $24.90 yesterday. We still have 16.550 tonnes of gold standing with only 14.78 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.
2, COT report
3.Gold trading overnight, Goldcore
4. Four stories on the collapsing Chinese markets and the devaluation of the yuan
5, Greece calls for an election and the Energy minister departs Syriza to start a new party
Middle Eastern affairs:
6. a The Turkish lira plunges to all time lows as this country is in total turmoil
6b Israel fires into Syria
7. Russell Napier/Wirtschaft): An extremely important commentary as the author explains why China had to devalue and then he describes the repercussions. He strongly believes that the nations in most severe distress are Turkey followed by Brazil and Malyasia. He expects Turkey to default on major bond issues due to its huge external deficit of 400 billion USA and lower incomes due to lower commodity prices
8 Trading of equities/ New York
9. Two oil related stories,
10. USA stories:
- Bellwether Stock Deere releases poor sales and earnings results sending messages that the farmland bubble has burst
- USA national PMI falters to a 22 month low
- Bank of America states that the Dow theory charts indicate massive recession
- Bullard’s comments suggest no rescue yet for the USA stocks.
11. Physical stories:
i)Bill Holter’s paper tonight is titled:
“Bad Credit Cannot be made Good!”
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||932.35 oz (Manfra.Scotia,Brinks ( 29 kilobars)|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||0 contract (nil oz)|
|No of oz to be served (notices)||1495 contracts (149,500 oz)|
|Total monthly oz gold served (contracts) so far this month||3826 contracts(382,600 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||559,627.4 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 30 contracts or an additional 3,000 ounces will not stand for delivery. Thus we have 16.550 tonnes of gold standing and only 14.78 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.
August silver initial standings
August 21 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||1,298,371.065 oz (Brinks, Delaware)|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||601,423.57 oz (Brinks)|
|No of oz served (contracts)||242 contracts (1,210,000 oz)|
|No of oz to be served (notices)||25 contracts (125,000 oz)|
|Total monthly oz silver served (contracts)||301 contracts (1,505,000 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||7,559,380.5 oz|
total dealer deposit: nil oz
Today, we had 0 deposits into the dealer account:
total customer deposits: 601,423.510 oz
total withdrawals from customer: 1,298,371.065 oz
we gained 242 contracts or an additional 1,210,000 silver ounces will stand 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 21.2015/ no change in inventory at the SLV/Inventory rests at
324.698 million oz
August 20.2015:/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz
August 19/no changes in inventory at the SLV/Inventory rests tonight at 324.698 million oz
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. * * * * *
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, August 18, 2015|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||157||137|
|Tuesday, August 18, 2015|
“Like a Blind Man in a Dark Room Looking for a Black Hat which isn’t there”
Originally published May, 2004
For many months now I have been spending many long, enjoyable and fruitful hours reading hundreds of excellent essays in the modern day equivalents of the public library. These websites, their owners and contributors are similar to Martin Luther nailing his 95 theses to the door of the Castle Church in Wittenberg which lead to the Reformation. There are also analogous to the pamphleters of the American Revolution.
Excellent and informative websites such as www.gold-eagle.com, www.lemetropolecafe.com,www.lewrockwell.com, www.dailyreckoning.com, www.financialsense.com, www.321gold.com,www.prudentbear.com, www.depression2.tv, www.urbansurvival.com, www.fiendbear.com,www.truthout.org, www.silver-investor.com, www.zealllc.com, www.usagold.comand many others are the modern equivalent of Luther’s scroll or the American pamphleteers.
I am not exaggerating when I say that they have in effect given me a free financial, economic and monetary education.
The musings of the many wonderful minds who preach to goldbugs, contrarians, real anarchists, real patriots, conservatives and republicans, moralists, real believers in genuine free markets, solution seekers and a combination of them all, have had a significant impact on my worldview and indeed the direction in which my life is going.
Read our full article here.
Today’s gold prices: USD 1,149.35, EUR 1,021.33 and GBP 732.75 per ounce.
Yesterday’s gold prices: USD 1,137.95, EUR 1,019.80 and GBP 7128,54 per ounce.
Gold in USD – 1 Week
Yesterday, gold finished trading with a gain of 1.8% or $19.30, closing at $1,152.00/oz. Silver rose 1.5% or $0.22, closing at $15.48/oz.
Gold in EUR – 1 Week
Spot gold near five-week top as China worries spark safe-haven demand – Reuters
Asia Stocks Tumble as China PMI Hits Six-Year Low; Gold Climbs – Bloomberg
Gold prices up in Asia as China PMI flash survey shows dim picture – Investing.com
Top Metals Forecaster Says Fed Will Still Tighten, Hurt Gold – Bloomberg
Don’t be fooled by recent run-up in gold prices, say pros – MarketWatch
Investors should plan for the worst – MoneyWeek
Interest rates must rise sooner rather than later, says Kristin Forbes – The Telegraph
Why Are So Many People Freaking Out About A Stock Market Crash In The Fall Of 2015? – InvestmentWatch
World shipping slump deepens as China retreats – The Telegraph
Click on News and Commentary
(courtesy Alasdair Macleod/GATA)
another must read..on China
Alasdair Macleod: China chooses her weapons
Submitted by cpowell on Fri, 2015-08-21 00:34. Section: Daily Dispatches
8:30p ET Thursday, August 20, 2015
Dear Friend of GATA and Gold:
GoldMoney research director Alasdair Macleod writes today that China, with its small devaluations, is showing the United States and the world that it can convulse the foreign exchange markets and the world economy whenever it chooses. Macleod adds that China’s new monthly announcements of increases in its gold reserves “are a signal that China believes she can destabilize the dollar through her control of the physical gold market, because it gently reminds us of an unanswered question always ducked by the US Treasury: What evidence is there of the state of US gold reserves?”
Macleod’s commentary is headlined “China Chooses Her Weapons” and it’s posted at GoldMoney here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Ladies and Gentlemen:
the following is great news!! Gartman states that he is a seller of gold and a buyer of oil. For the past several years, he has been 100% wrong.
(courtesy Dennis Gartman/zero hedge)
The Best Possible News For Gold: Gartman Is Finally A Seller (And Buyer Of Oil)
The best possible news for gold longs has finally arrived, courtesy of the man with the golden market-timing, no pun intended, newsletter:
SPOT GOLD: Runnin “Smack” Into Long Term Resistance: We turned supportive of gold several weeks ago rather publically [ZH: sic], but now gold in US dollar terms is running into what we fear shall be formidable resistance… with the margin clerks around the world looking to sell gold to raise liquidity as stocks come under very real pressure.
Oh, and just in case you were scared to keep shorting oil…
CRUDE OIL PRICES ARE LOWER BUT WE ARE CHANGING OUR VIEW ON PRICES for having been overtly and rather relentlessly… and very publically… bearish, we are this morning turning bullish of crude oil and we are turning so because the term structure shifts mandate that we do so.
* * *
We do not make this statement lightly for this is a material shift in our view of the energy market… a very material shift.
* * *
Amidst the carnage of the global stock markets this morning and even in light of the sustained bear market in crude oil, the narrowing of the contangos in Brent and WTI brings us to become a buyer of crude as noted at length above. We’ll buy a unit of crude oil, split between Brent and WTI, upon receipt of this commentary. We shall, for the moment, give these prices the latitude to move 3% against us, hoping that we can tighten that up when we return Monday.
Thank you Dennis: we couldn’t possibly do it without you.
Draghi Already Failed. Will Kuroda Fail Now Too?
Mario Draghi’s “whatever it takes” has failed… andUSDJPY breaking its most significant trendlinesuggests Kuroda is about to fail too…
- *USD/JPY TRADES UNDER 122.00 FOR FIRST TIME SINCE JULY 13
It appears the massive Long Nikkei/Short Gold tradeis unwinding in a hurry…
Remember, this trade – as we detailed here – whichdraws together a complex web of interactions between Japanese equities, the gold market, repo financing, BoJ monetary policy meetings and anomalies in the silver market.
Here we are six years after the “Great Financial Crisis”. Since then, every acronym in the book has been thrown at the economy and financial markets but to what end? The economy has gone nowhere over these six years, “recovery” has been the meme …but never “expansion”. Hasn’t anyone wondered about this? In the good old days we used to hear the word “expansion” for two or three years before the natural recession would roll through. This time we’ve heard nothing but recovery …year after year. “Hope” (which is the vestige of fools), year after year.
I wrote in 2008, “this is a crisis of ‘solvency’, more liquidity cannot turn bad loans into good ones”. Now, six years later it turns out this thought process was 100% correct. Other than financial assets being “saved”, all of the QE, all of the additional debt taken on by various sovereign treasuries has done nothing to the real economy of Main St.. The plan was to inflate asset values and this would spill onto Main St.. Even mainstream media when interviewing the talking heads of Wall St. and the liars out of Washington are questioning this. Heck, Peter Fisher (past chief of the plunge protection team Martin) this morning brought this up on his own. He said the policy of inflating assets has not worked and cannot work. The five plus year experiment has failed. One does not have to look far or even “into” the bogus reporting of unemployment to see what is happening. All you need to do is look at oil and Dr. copper. They are both crashing and now threating to break trend lines going back to the 1980’s.
In as few words as possible, we are witnessing a credit collapse. These two commodities (along with many others) are crashing NOT because currencies are so well foundationed or strong and “going up”. No, we are watching them crash because of shrinking demand. This is also confirmed by trade numbers (or lack of). We also see freight rates imploding all over the world due to the same lack of demand and trade. This should tell you something in very loud and very clear terms, the “reflation” efforts have failed miserably!
You don’t need to take my word, your own gut feel or even your very own eyes to know this. “They” have admitted it and we now even see stories going mainstream with titles such as “is the Fed out of bullets? and Fed loses its grip on debt”http://www.bloomberg.com/news/articles/2015-08-20/credit-traders-gird-for-the-worst-as-fed-loses-its-grip-on-debt. Just this week we have seen Alan Greenspan warn the “credit markets are in a bubble” http://www.marketwatch.com/story/greenspan-warns-about-bond-market-bubble-2015-08-19 . If that were not enough, the St. Louis Fedhttp://www.zerohedge.com/news/2015-08-19/after-6-years-qe-and-45-trillion-balance-sheet-st-louis-fed-admits-qe-was-mistake admits QE was a mistake and did nothing to help the economy.
In the case of Mr. Greenspan, he is simply trying to get on the record far enough to hopefully make historians forget he was the one driving the bus on the road to perdition. He is now on the record gold “is money” and a safe haven versus his precious product the dollar. Has he had some sort of come to Jesus moment? I believe no, not even possible as he’s known all along how money works and where he was driving the bus. His days with Ayn Rand were filled with quotes and writings which sounded much like today’s tin foil hat society! He knew then, he knows now and will know until his last breath, the end of the credit road is in sight. His own “legacy” and nothing else is his concern.
The St. Louis Fed is known as the “teaching” district. Their recent admission QE was a mistake is a little different than Alan Greenspan trying to get on the record. I’m not really sure what their motive is for telling the truth? It certainly does not aid their cause because they are admitting failure.
We stand on the cusp of a credit meltdown. Never mind the stock markets or the commodity markets, they are simply “symptoms” of a credit bubble going bust. The talk of “will the Fed tighten” in Sept. (or EVER again) is hilarious! The Fed will be forced to implement another round of QE no matter what the acronym or name. More QE will do what more QE has already done, simply pile more debt on top of already TOO MUCH DEBT! There are no possible fixes left, the CREDIT CRISIS has arrived. No way to reflate and no way to actually “pay” (settle) on the debt. Central banks all over the world are now beginning to act in their own best interests, it’s like the sharks are eating the sharks.
The credit BUST is here! Markets all over the world are crashing and the U.S. is now losing control. After breaking down yesterday, today looks to be another bad day. If the PPT cannot get any traction today, Monday could be a disaster. I even question whether markets remain open at some point because closure will be the ONLY way to stop the selling which will be forced (by margin calls) in nearly all markets. This is not fear mongering, it is now math. We live in a make believe world created by the illusion that “credit” is a strong foundation, it cannot be. Bad credits cannot be made good by those with too much debt. This is exactly what has been attempted by the largest debtor on the planet. The failure will be spectacular. All money today is nothing more than credit … credit IS the problem!
It is imperative you understand how this will go down. You must have exactly what you think you’ll need and what you want to own going into this. You will have no opportunity to change horses when the markets close. Bluntly, it’s not the closure of markets that will kill you …it will be the reopening!
Comments welcome! firstname.lastname@example.org
1 Chinese yuan vs USA dollar/yuan rises slightly this time to 6.3887/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 597.69 or 2.98%
3. Europe stocks all in the red /USA dollar index down to 95.44/Euro up to 1.1284
3b Japan 10 year bond yield: lowers at .362% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 122.61
3c Nikkei now below 20,000
3d USA/Yen rate now just below the 123 barrier this morning
3e WTI 41.12 and Brent: 46.23
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil 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 badly to .566 per cent. German bunds in negative yields from 4 years out. (the 5 yr bund is still trading at 0% rate)
Except Greece which sees its 2 year rate rises to 14.24%/Greek stocks this morning down by 2.83%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield rises to : 9.55%
3k Gold at $1154.40 /silver $15.44 (8 am est)
3l USA vs Russian rouble; (Russian rouble down 1/5 in roubles/dollar) 68.25,
3m oil into the 40 dollar handle for WTI and 46 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 .9538 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0761 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 +.566%
3s The ELA lowers to 89.7 billion euros, a reduction of .7 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 2.07% early this morning. Thirty year rate below 3% at 2.75% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Chinese Stocks Crash To “Red Line” Support, US Futures Rebound Then Sink Again
Perhaps the biggest surprise about the overnight Chinese stock rout is which followed the lowest manufacturing PMI since March 2009, is that it happened despite repeat sellside pleas for a PBOC RRR cut as soon as this weekend: usually that alone would have been sufficient to push the market back into the green, and it almost worked when in the afternoon session stocks rebounded after dropping as much as 4.7% below the “hard” floor of 3500, but then a second bout of selling just before the close took Chinese stocks right back to the lows with the Shanghai Composite closing at 3,507, down 4.3% on the day, having wiped out the entire 18% rebound from July 8 when the PBOC first threatened both sellers and shorters with arrest.
Which is probably why threats of harm had to be repeated: around closing time, the Chinese SEC said it was investigating major stakeholders of listed companies for illegally reducing holdings. At this point, such a rerun of China’s farcical market control will likely only lead to more selling as the PBOC has clearly lost control.
In the meantime, the sellside set the weekend stage with big hopes for a RRR cut as big as 100 bps which may be the catalyst for the next major leg lower because unless the PBOC delivers, the market will resume sliding on fears Beijing has finally given up on micromanaging and artificially pushing the stock market bubble higher. Case in point, via Bloomberg:
- Julia Wang, Hong Kong-based economist at HSBC:
- Economy’s recovery seems to have lost more momentum, reinforcing already weak market sentiment
- This will weigh on economic activity and labor conditions in coming months
- Expect further policy easing, including another 25 bp policy rate cut and 100 bp RRR cut in coming weeks
- Zhu Qibing, Beijing-based analyst at China Minzu Securities:
- Aug. flash factory PMI components reflect both weak domestic and external demand
- Further currency depreciation may not be the solution to lift Chinese exports, according to their relationship in recent years
- PBOC policy may not effectively transmit to real economy, but further RRR cuts needed to counter liquidity shortage
- Expect RRR cut at end of 3Q
- Jacqueline Rong, Beijing-based economist at BNP Paribas:
- Aug. flash PMI data reflects slowing property investment and manufacturing activities; infrastructure spending may have yet to pick up this month
- Slowing economic activity, together with equities’ performance, may risk 3Q GDP falling below 7%
- 7-day repo rate edging higher this week even after PBOC injected large amount of cash via OMOs and MLF; this suggests capital outflows may be accelerating
- Timing of another RRR cut is nearer, size of could 50-100 bps
- Nie Wen, economist at Huabao Trust:
- Yuan still has room to devalue as its REER is still relatively high vs other regional currencies
- Rising capital outflows are not a result of weakening yuan, but rather expectations for slowing economic growth
- PBOC easing is still much needed to counter the economic slowdown; another RRR cut may arrive as early as end of the month
What may be the worst news for the liquidity addicts is that according to Bloomberg, Chinese President Xi was said to be mulling shifting priorities to population growth over GDP, according to sources which could result in lowering the hard GDP target of 7% to a flexible range of 6.5%-7%. It would also mean another step lower in the “new normal” default liquidity state for China, which would impact all asset prices too.
In any case, with the Chinese cyanide-poisoned dead cat no longer bouncing and having reverted to peak intervention levels, the rest of Asia also got hammered: equities traded firmly in the red following the worst day in the S&P 500 since Feb’14 as the index turned negative YTD amid China growth fears, subsequently dampening sentiment for global stocks. Further pressure was seen in the Hang Seng (-1.5%). The KOSPI (-2.0%) saw its largest intraday fall in 3-yrs as tensions between North and South Korea take a turn for the worse, while the Nikkei 225 (-3.0%) and ASX 200 (-1.4%) has been weighed by financials with the latter trading at YTD lows. JGBs traded relatively flat despite the BoJ entering the market to purchase JPY 1.2trl of government debt.
Over in Europe there has been a modest rally after opening off the worst levels, after some good PMI data was released out of Germany (if not France), as well as the growing expectation for further easing by the PBOC and even outside calls of potential pricing in of QE2 by the ECB, stocks in Europe remain mildly in the red (Euro Stoxx: -0.1%). Still, as the following chart shows, August has been the cruelest month for the DAX, which is down 8%, on track for the worst month in 4 years.
In fitting with this, Bunds opened lower amid the equity weakness to briefly trade above the 61.8% retracement between the April high and June low at 155.87 and at their highest level since the beginning of May, however the break was not sustained and Bunds have come off their high in line with a mild recovery in stocks to trade flat heading into the North American crossover.
US equity futures have seen strength throughout the European session to pare much of the losses seen in yesterday’s session, although there has been a bout of renewed selling in the last few minutes. Today’s notable US earnings include Deere & Co. and Footlocker, while also of note S&P Aug’15, Nasdaq June’15 and DJIA June’15 and T-Notes Sep’15 options all expire today.
FX markets have seen EM currencies remain under pressure this morning in reaction to weaker than expected manufacturing data out of China, as well as the ongoing selling pressure in energy and metals markets . USD/RUB trades close to its highest level since Jan’15, USD/IDR at highest level since 1998 and USD/TRY also trades close to record levels. At the same time, risk averse flows and unfavourable yield differential flows meant that USD/JPY remains on the downward trend and has broken the key 100DMA line seen at 122.30.
Despite weakness in the USD, the energy complex remains soft as WTI crude futures remain under pressure despite regaining the USD 41/bbl level, on track for its 8th consecutive weekly decline , while NatGas futures are on trac for their first weekly drop of the month. Elsewhere, gold has benefitted overnight from safe haven flows to head into the North American session higher on the week by over USD 30.00.
In summary: European shares remain lower with the health care and financial services sectors underperforming and autos, chemicals outperforming. Asian stocks fall for a 6th day as Chinese manufacturing PMI misses estimates at lowest since March 2009. Yuan declines, Shanghai Composite erased rebound since July 8 low. Chinese President considering shifting priority to population growth over GDP, person familiar says. Kospi falls to two-year low as won declines amid Korean tensions. Greek PM resigns, calls for early elections to bolster power base. Oil falls, posed for longest weekly losing streak since 1986. French manufacturing PMI below estimates, euro- area, German manufacturing above. U.K. posts first July budget surplus since 2012. The Swiss and Dutch markets are the worst-performing larger bourses, the Swedish the best. The euro is stronger against the dollar. Greek 10yr bond yields rise; Italian yields increase. Commodities decline, with zinc, nickel underperforming and gold outperforming.
- U.S. manufacturing PMI due later.
- S&P 500 futures down 0.2% to 2020.8
- Stoxx 600 down 1.3% to 368.6
- US 10Yr yield up 1bps to 2.08%
- German 10Yr yield up 1bps to 0.59%
- MSCI Asia Pacific down 2.2% to 131.3
- Gold spot unchanged at $1151.7/oz
- Eurostoxx 50 -1.1%, FTSE 100 -1%, CAC 40 -1.2%, DAX -1%, IBEX -1.1%, FTSEMIB -1%, SMI -1.6%
- Asian stocks fall with the Sensex outperforming and the Shanghai Composite underperforming; MSCI Asia Pacific down 2.2% to 131.3
- Nikkei 225 down 3%, Hang Seng down 1.5%, Kospi down 2%, Shanghai Composite down 4.3%, ASX down 1.4%, Sensex down 0.9%
- Euro up 0.36% to $1.1282
- Dollar Index down 0.54% to 95.46
- Italian 10Yr yield up 6bps to 1.88%
- Spanish 10Yr yield up 3bps to 2.02%
- French 10Yr yield up 2bps to 0.97%
- S&P GSCI Index down 0.8% to 352.3
- Brent Futures down 0.8% to $46.3/bbl, WTI Futures down 0.7% to $41/bbl
- LME 3m Copper down 1.8% to $5029/MT
- LME 3m Nickel down 2.2% to $10180/MT
- Wheat futures down 0.7% to 507.5 USd/bu
Bulletin Headline Summary from RanSquawk and Bloomberg
- Despite coming off the worst levels of the session, stocks in Europe remain mildly in the red
- Risk averse flows and unfavourable yield differential flows see USD/JPY remain on the downward trend and has broken the key 100DMA line seen at 122.30
- Looking ahead, market participants will get to digest the release of the latest Canadian CPI and retail sales data and US manufacturing PMI as well as earnings from Deere & Co. and Footlocker
- Treasuries steady overnight, 5Y and 10Y yields headed for biggest weekly decline since June as stocks, commodities and EM currencies slide on China growth concern.
- A Chinese manufacturing gauge fell to lowest in more than six years, following weaker than expected data on investment, industrial output, retail sales and exports in July
- While the S&P 500 has been a source of stability amid China’s slowdown, Greece crisis and EM currency plunge, the benchmark fell the most in 18 months yesterday while the VIX has soared 49% this week alone
- A group of Greek lawmakers opposed to the country’s bailout program abandoned the governing party, Syriza, as Tsipras moved to force an early election to shore up his position.
- Aipac, which has long had an outsized reputation for clout and effectiveness, is rapidly losing ground in its biggest test as it mounts an all-out campaign to kill Obama’s nuclear deal with Iran.
- An investigation led by the FBI is probing how sensitive information got to personal e-mail accounts used by Hillary Clinton and some of her top aides and housed on a server at her New York home, according to two officials with knowledge of the inquiry who asked for anonymity
- Sovereign 10Y bond yields higher. Asian and European stocks slide, U.S. equity-index futures decline. Crude oil and copper lower, gold little changed
DB’s Jim Reid completes the overnight market recap
It looks like we’re seeing something akin to the taper tantrum developing at the moment with global markets in a fragile way. It’s difficult to assess how much is Fed related and how much is China though. Given that the odds of a September hike are fading again (32% this morning, down 16% over the last 48 hours) China and the impact on EM is the overriding driver.
Any hopes that we might see a rebound in Asia this morning are being dashed as we reach the midday break, with markets turning their focus to a weak flash manufacturing PMI number out of China (47.1 vs. 48.2 expected), falling 0.7pts from July and to the lowest level since March 2009. That’s helped fuel a sea of red across our screens with losses again being led out of China where the Shanghai Comp (-3.04%) and Shenzhen (-3.86%) have both moved a steep leg lower. The Nikkei (-2.30%), Hang Seng (-2.32%), Kospi (-1.89%) and ASX (-2.09%) have all followed suit also, while Asia credit is around 6bps wider this morning. S&P 500 futures (-0.5%) are also pointing to a weak start. Asian currency markets are showing no let up either from the recent weakness. The Malaysia Ringgit in particular has tumbled over 1%, while Korea, Indonesia and Philippines currencies are around half a percent lower. Meanwhile Treasury yields have resumed their decline with the 10y down another 2bps.
One of the big problems with China’s FX move is that although they’ve ‘only’ seen a 3% currency fall (in the onshore Yuan) since their announcement last week, others have subsequently followed suit either deliberately or via market pressure. The following countries have seen their currency depreciate at least 4% since last Monday (and using last night’s closing prices): Kazakhstan (leading the way with a huge 26% devaluation following the removal of the trading band), Russia, Ghana, Guinea, Colombia, Belarus, Turkey, Malaysia and Algeria. In fact, if we extended the analysis to include those that have seen at least a 3% depreciation then the number of countries hits 17 and unsurprisingly all sit in the EM bracket. Every day it feels like we’re hitting fresh cycle lows for a currency somewhere with yesterday’s highlights being the Turkish Lira briefly sliding past 3 against the Dollar for the first time ever, the South African Rand breaching a level not seen since 2001, the Ruble weakening to the lowest level since February and the Malaysian Ringgit returning to a 17-year low.
So whatever their intentions the Chinese have created an air of fragility around the globe. Markets now surely have to firm up considerably for the Fed to pull the trigger next month. We stand by our long-term view that they’ll struggle to raise rates this year but acknowledge that if calm does breaks out they wouldn’t require much to pull the trigger.
Investors yesterday seemed to interpret the more dovish FOMC minutes from Wednesday as more of a sign of concern about the global economy than rejoice in hopes of easier policy. It was interesting that the S&P 500 (-2.11%) had its worst day since February 3rd 2014 and returned to negative territory for the year, breaking a seven-month very tight range on the downside. The Dow (-2.06%) fell to levels seen last October and it’s clear that US equities have made hardly any progress since QE ended. This helps support our view that a large part of the gains in equities in recent years has been central bank liquidity related.
Back to yesterday, there was plenty of weakness in European equity markets too as we saw the Stoxx 600 tumble 2.06% and now 7.5% off the highs earlier this month. The thin liquidity at the moment is helping some of these material moves while the Oil complex continues to remain volatile. Yesterday we saw WTI (+0.12%) actually finish a tad higher and bounce off Wednesday’s lows but the same couldn’t be said for Brent which declined 1.15% to $46.62/bbl and the lowest close now since January 13th. Both have tumbled some 1.5% this morning though. The rest of the commodity complex actually had a reasonably strong day yesterday. Copper (+2.48%) rebounded back above $5000, while Aluminum (+1.19%), Zinc (+1.74%) and much of the precious metals space rose, with Gold in particular up 1.62% and quietly up nearly 5.5% MTD now.
Along with Gold, Treasuries also benefited from a decent bid yesterday with markets firmly in risk-off mode. The 10y moved another decent leg lower with the yield down 5.8bps at the close to 2.069%, the lowest closing yield since April 30th. The US data flow didn’t really offer too many surprises and at the margin was relatively positive. With some concerns that we might see a soft reading post the NY Fed manufacturing survey, the Philly Fed manufacturing survey for August signaled some improvement, rising 2.6pts to 8.3 and ahead of consensus estimates of 6.5 with some notable improvements in the employment and shipments indices. Initial jobless claims rose 4k last week to 277k (vs. 271k expected) while the four-week average rose to 272k, although still below where it was last week. Meanwhile the run of decent housing data continues with existing home sales for July up 2.0% mom, after forecasts for a fall of 1.1%. That lifted the annualised rate up to 5.59m from 5.48m last month and to the highest level since February 2007. The one weaker print yesterday came in the form of the July conference board’s leading index which declined 0.2% mom last month after forecasts for a +0.2% rise.
Just while we stay in the US, one notable upcoming date to keep an eye on is the Jackson Hole meeting on August 27th-29th. With Fed Chair Yellen skipping the event, the news yesterday that the Fed’s Fischer will be speaking at the event in a panel discussion on the Saturday (29th). This could well be one of the last important Fedspeak views we hear prior to the September FOMC meeting (16th-17th).
Closer to home yesterday, aside from an in-line German PPI reading for July (0.0% mom), enough to leave the annualized rate at -1.3% yoy data flow was again centered around the UK and retail sales in particular. The July headline reading of 0.1% mom (vs. +0.4% expected) was below expectations but the annualized rate remained unchanged at a solid 4.2% yoy. Meanwhile CBI total trends orders for August was better than expected (-1 vs. -10 expected), rising 9pts from July.
Yesterday’s EMR suggested that an autumn time-frame for a Greece snap election was looking likely, well following Greek PM Tsipras’ resignation yesterday it looks like that time-frame could be revised possibly to a September 20th date as per various wires this morning. Reaction from European officials so far has been relatively positive with the Eurogroup Chair Dijsselbloem saying that he hopes the elections will lead to even more support in the new Greek parliament for the new programme. In any case it looks like the Greek political situation will all be coming to a head once again pretty soon.
Looking at today’s calendar now, we see more August flash PMI’s for Europe this morning with the readings for the Euro area, Germany and France in particular. We’ll also get some confidence indicators data for the Euro area and Germany as well as more data out of the UK with public sector net borrowing readings. It’s a quiet end to the week in the US meanwhile with just the flash manufacturing PMI print.
And now major stories concerning China throughout the night and this morning:
Gold Surges Amid Asian Sea Of Red, China Strengthens Yuan By Most In 4 Months
Hong Kong’s Hang Seng index is now down over 21% from the highs, having fallen over 9% in the last week, and Taiwan’s TAIEX is down over 20% from April highs, joining Chinese stocks, both joining Chinese stocks in official bear markets. Japanese markets are down over 6% in the last few days (which Amari simply brushes off, blaming the global selloff stemming from China), a JGB trading volumes slump to a record low. Tensions in Korea are not helping. With all eyes on China’s flash PMI (though why we are not sure since PBOC is already full liquidity-tard with CNY350bn this week alone), The PBOC fixed Yuan at 6.3864, up from yesterday’s biggest strengthening in 3 months to 6.3915 (the biggest 2 day strengthening since April), andmargin debt fell for the 3rd day. Gold is surging in the Asia session, near $1160.
The 3 Bears…
- *HONG KONG’S HANG SENG INDEX FALLS 1.8% IN PREMARKET
China remains ugly…
- *SHANGHAI MARGIN DEBT DECLINES FOR THIRD DAY (Good News!)
- *CHINA’S CSI 300 STOCK-INDEX FUTURES FALL 0.6% TO 3,580.2
- *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 1.3% TO 3,714.29
- *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 1.5% TO 3,609.96
As The Yuan fix is strengthened notably..biggest 2 days strengthening in over 4 months…
- *CHINA SETS YUAN REFERENCE RATE AT 6.3864 AGAINST U.S. DOLLAR
The question is will China’s PPT rescue them from the 200DMA…
Japan is rapidly getting uglier…
- *JAPAN’S TOPIX INDEX EXTENDS LOSS TO 2.3%
But don’t worry about Japanese stocks…
- *AMARI: JAPAN STOCKS REFLECT GLOBAL SELLOFF STARTING IN CHINA
- *ASO: HAVE TO CAREFULLY WATCH CHINA CURRENCY SYSTEM
But perhaps this will wake some Japanese up…
Japanese government bond trading has slumped to a record low and the Bank of Japan’s own analysis shows a market still in stress across a range of indicators.
Trading volume sank to 15.6 trillion yen ($126 billion) in July, based on BOJ calculations using figures from the Japan Securities Dealers Association on Thursday. That’s down 73 percent from as high as 57.4 trillion yen in April 2012, a year before BOJ Governor Haruhiko Kuroda began unprecedented debt purchases.
- *S.KOREA, U.S. FORCES UPGRADE JOINT SURVEILLANCE WATCHCON:YONHAP
- *N. KOREA’S KIM JONG UN ORDERS ARMY INTO STATE OF WAR: XINHUA
- *N. KOREA SEEN MOVING ARTILLERIES CLOSER TO BORDER: YONHAP NEWS
But there is some Green…. in Gold…
* * *
Late Thursday evening:
China releases poor PMI numbers sending bourses around the world plummeting!!
US Equity Futures Nosedive After China PMI Plunge
It appears bad news in China is “bad news” for everyone. With Chinese authorities already in full liquidity spigot-mode, the fact that China PMI for August collapsed to its lowest since March 2009strongly suggests that – unlike every talking-head’s proclamation – a crashing stock market does (whether reflexively or not) impact the real economy. US equity futures legged significantly lower on the news – S&P 500 to 7-month lows, eyeing the stunning 2,000 level;and Japanese stocks also legged lower.
Weakest China Manufacturing PMI since March 2009…
and the breakdown is ugly..
The ‘confidence-inspiring’ Caixin/Markit economists proclaim…
The Caixin Flash China General Manufacturing PMI for August has fallen further from July’s two-year low,indicating that the economy is still in the process of bottoming out. But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving. There is still pressure on the front of maintaining growth rates, and to realize the goal set for this year the government needs to fine tune fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform. This will lead the market to confidence and renew the vigour of the economy.”
Thouigh we are unsure where there enthusiasm that a bottom is forming comes from.
And the result…
Later in the evening/Early Friday morning: (around 3 am est)
Chinese stock exchanges collapse!
(courtesy zero hedge)
China’s “Judgment Day” Arrives – Malicious Sellers Slam Stocks Below Communist Floor
Chinese media are describing tonight’s market action as “Judgment Day” for China, as SCMP’s George Chen explains, the crusade of ‘malicious short sellers’ against the Communist central planners and their ‘funds’ is in full swing. The “manage-the-economy-by-technical-analysis” strategy appears to have failed asShanghai Composite has broken notably below its 200-day moving average – which six times before has been defended aggressively. Chinese Stocks are back at 7-week lows, just off the crash lows in July.
- *CHINA’S SHANGHAI COMPOSITE FALLS 3% TO 3,552.82 AT BREAK
- *CHINA’S CSI 300 INDEX FALLS 3.1% TO 3,646.45 AT BREAK
The big showdown – can the 200DMA be defended… or more crucially, the July lows!!
Just look at what a 3% devaluation of China will do to the emerging nations
it is catastrophic!!
(courtesy zero hedge)
One Week Later: China’s Currency War Leads To Global FX Carnage
One of the big problems with China’s FX move is that although they’ve “only” seen a 3% currency fall (in the onshore Yuan) since their announcement last week, as Deutsche’s Jim Reid explains… others have subsequently followed suit either deliberately or via market pressure. Emerging Market FX has been falling for 9 straight weeks but the last 2 have seen a dramatic escalation in the carnage…
The following countries have seen their currency depreciate at least 4% since last Monday (and using last night’s closing prices):
Kazakhstan (leading the way with a huge 26% devaluation following the removal of the trading band), Russia, Ghana, Guinea, Colombia, Belarus, Turkey, Malaysia and Algeria.
In fact, if we extended the analysis to include those that have seen at least a 3% depreciation then the number of countries hits 17 and unsurprisingly all sit in the EM bracket.
Every day it feels like we’re hitting fresh cycle lows for a currency somewhere with yesterday’s highlights being the Turkish Lira briefly sliding past 3 against the Dollar for the first time ever, the South African Rand breaching a level not seen since 2001, the Ruble weakening to the lowest level since February and the Malaysian Ringgit returning to a 17-year low.
So whatever their intentions the Chinese have created an air of fragility around the globe.
Source: Deutsche Bank
Middle east stories
Israel fires on a car inside Syria, killing 4 including an Iranian commander:
(courtesy zero hedge)
Fears Of Another Mid-East War After Israel Conducts Air Strikes In Syria
“Israel is trying to divert attention from the defeat that it suffered in the face of the determination of the hero prisoner, Mohammed Allan.”
That’s from a spokesperson for the subtly named Islamic Jihad, a rebel group whose leadership is based in Damascus. Mohammed Allan had been starving himself for more than two months while in Israeli detention. He apparently decided to start eating again on Wednesday after Israel’s high court suspended his arrest warrant.
This “defeat”, Islamic Jihad claims, prompted Israel to blame the group for a rocket attack that hit an Israeli village on Thursday.
The rockets fell harmlessly into the brush and even if they hadn’t, Israel had deployed Iron Dome interceptors “as a precaution,” so in the event citizens were at risk, the missiles likely would have been shot down, but nevertheless, the Israeli military retaliated in characteristically disproportionate fashion striking targets in the Syrian Golan Heights “five or six times” on Friday. Here’s Reuters:
Israeli officials said two rockets struck close to a northern village in the upper Galilee, near the Lebanese border, setting off brush fires but causing no casualties. Air-raid sirens had sent residents to shelters.
The attack was unusual as that frontier had been largely quiet since the 2006 war between Israel and the Lebanese guerrilla group Hezbollah. By contrast, the Israeli-occupied Golan, about 16 km (10 miles) to the east, has occasionally come under fire from within Syria during the four-year-old civil war there.
An Israeli military source said the air force and artillery had struck “five or six times” in the Syrian Golan.
Syrian state TV confirmed Israeli strikes had hit, but said only material damage was done after “several missiles” targeted a transportation center and a public building in the Quneitra area near the Israeli frontier.
Rebel sources in Syria, however, said the strikes hit some of Damascus’s military facilities on the Golan. A monitor initially reported casualties but did not elaborate.
For their part, Israel says a cell within the group fired the rockets at the behest of an unnamed “Iranian commander.” That commander is apparently now dead, along with at least three out of four militants whose car was the target of the Israeli airstrikes.
More from Hareetz:
On Friday morning, an Israeli aircraft struck a car carrying five people in Syria. According to Syrian state TV, the attack took place in a village near Quneitra but gave no further details. According to the IDF, four were killed in the attack, while the condition of the fifth was unknown. It said that the men were members of the Islamic Jihad.
In Syria, there were conflicting reports as to the identity of those killed in the attack. Sources in the Syrian opposition said that five people were killed in the attack, including an Iranian commander. Syrian state TV said the five were civilians.
A senior Israeli officer told reporters on Friday that the IDF was tracking the cell following the rocket attack. He said that the decision to target them was reached after intelligence information confirmed that they fired the rockets on Thursday.
The strike was carried out at the center of the Syrian Golan Heights, ten kilometers from the border with Israel. The senior officer stressed that the attack took place in an area controlled by the Syrian army.
“We have no wish to continue heating up [the border], but to protect the security of the State of Israel and its northern border,” the officer said. He stressed that the militants received their directions from Iran.
Prime Minister Benjamin Netanyahu said that Israel “has no intention to escalate the events, but our (Israel’s) policy stands. He added:“The states rushing to embrace Iran should know that an Iranian commander gave the cell orders to fire at Israel.”
The implications here are as yet unclear, but there are two things worth noting.
First, Islamic Jihad is openly backed by Iran. Should the conflict escalate it will likely serve as further ammunition (figuratively speaking) for Prime Minister Benjamin Netanyahu, who has been a sharp critic of the nuclear deal which is currently the subject of fierce debate among US lawmakers ahead of an attempt by Republicans to undercut the agreement and override a Presidential veto next month. From FT:
[The attacks] came as Israel delivered a demarche to the six world powers who signed a nuclear deal with Iran, which it blames for having co-ordinated the rocket attack.
“This is another clear and blatant demonstration of Iran’s continued and unabating support and involvement in terrorist attacks against Israel and in the region in general,” the demarche, published by Israel’s foreign ministry on Friday morning, said.
“This attack has also occurred before the ink on the . . . nuclear agreement has even dried, and provided a clear indication of how Iran intends to continue to pursue its destabilising actions and policies as the international sanctions regime is withdrawn in the near future,” the Israeli protest said.
Perhaps more importantly, Israel says it “holds the Syrian government responsible for [the] attacks,” which would seem to suggest that in the event further “stray” rockets should find their way into Israel setting off any more brush fires, the Israeli military – which, you’ll note, isn’t exactly shy about retaliating mercilessly in the face of “aggression” – might just join the melee across the border.
Turkey now enters a bear market. Erodgan calls for new elections as consumer confidence crashes to a 6 year low. Please recall that Turkey has huge twin deficits: current account and fiscal. It also has a huge 400 billion USA external deficit. The lira is now close to 3.00 to one usa dollar. I strongly believe that Turkey may even default before Brazil:
(courtesy zero hedge)
Turkey Enters Bear Market As Erdogan Calls New Elections, Consumer Confidence Crashes To Six Year Low
What began in early June with a surprisingly strong showing at the ballot box for the pro-Kurdish HDP has now ended precisely where many knew it would: with new elections.
After allegedly working behind the scenes to undercut coalition negotiations, President Recep Tayyip Erdogan will now send Turkey back to the polls on November 1. As a reminder, here’s a short recap of recent events:
The lira has been putting to new lows against the dollar on an almost daily basis as confidence suffers from a worsening political crisis which began in June when AKP lost its parliamentary majority for the first time in over a decade throwing President Recep Tayyip Erdogan’s plan to transform the country’s political system into an executive presidency into doubt. Not one to give up easily (especially when it comes to consolidating his power), Erdogan proceeded to launch an ad hoc military offensive against the PKK in an attempt to undermine support for the pro-Kurdish HDP ahead of new elections.
Thanks to the ISIS decoy, Erodgan’s crackdown on the PKK – and, by extension, his willful subversion of Turkey’s tenuous democracy – has the blessing of Washington and NATO.
On Friday, Erdogan took the opportunity to explicitly blame HDP for the violence, saying the party’s claims that they aren’t separatists are “lies from A to Z.”
And as for CHP’s seemingly reasonable request for a mandate to form a government in order to avoid sending voters back to the polls, Erdogan says he won’t be “losing time” with that. Why not, you ask? Because the party’s leader, Kemal Kilicdaroglu, refused an invitation to visit Erdogan at the President’s newly constructed, $600 million, 1,150-room palace. “Why should I invite someone who doesn’t know the road to Bestepe?” he asked reporters on Friday.
Meanwhile, consumer confidence in Turkey crashed to its lowest level since 2009, and it’s no wonder, what with the lira set up for more pain ahead, even as it’s already sitting at record lows against the dollar. As for stocks, well, the bear is here:
For anyone who hasn’t followed the story closely, note that there is a very real chance that new elections will plunge the country deeper into civil war. Indeed some lawmakers have acknowledged as much. In fact, it’s difficult to imagine a positive outcome. If AKP regains its majority and Erdogan proceeds to change the constitution (as planned) it will be seen by the Kurds as a validation of the regime’s corruption. If HDP puts in a strong showing again, or if AKP is otherwise unable to regain its majority, one shudders to think what happens next, although it’s probably safe to say that the fight against the PKK ISIS will intensify, which is just fine with the US because the more “terrorism” there is in Turkey, the greater the justification for flying combat missions into Syria from Incirlik.
Despite all of the above, no one should worry about the lira because:
- TURKEY’S ZEYBEKCI SAYS THERE’S NO REASON FOR CURRENT FX ANOMALY
For anyone curious to know more about all the reasons there are to worry about the “current FX anomaly”, we’ve included excerpts from Thursday’s analysis below.
* * *
Turkey’s central bank hasn’t helped matters and the lira legged lower on Wednesday after it was made clear that a rate hike was not in the cards until Fed liftoff is official.
Citi has taken a look at the situation and determined that in fact, the lira is the most vulnerable of all EM currencies they track:
We believe it is going to be difficult for the local markets angle of the EM asset class, in this important (potential) transition of monetary policy in the US, and also taking into account any potential move by the ECB in 2016 (away from a QE stance). That prompted us to revisit our FX vulnerability model. In the model, we look into EMFX from three angles: 1) the macro vulnerability aspect (focused on BoP dynamics, FX reserve metrics, portfolio flows and CDS); 2) interest rate coverage (measured by 1y1y forward real rates, current implied yields and bond yield premium after hedging costs); and 3) our assessment of positioning by real money investors and leveraged accounts in the several EM currencies. TRY, BRL, ZAR, MXN and MYR rank high in terms of aggregate vulnerability.
While Morgan Stanley is calling for an emergency rate hike:
What can the CBT do? Given the rapid deprecation in TRY, the CBT could be in a dilemma to decide on the next step. Recent market development could push the CBT to deliver another emergency rate hike, as it did in January 2014. Our economists see the increasing risk of emergency rate hikes of 200bp on the lending rate (upper band). The market dynamic surrounding TRY has become more disorderly with TRY weakening in a low liquidity environment and without any implicit catalyst. This suggests a sharp deterioration in domestic confidence in the exchange rate, extending from investors to corporates and households ? such a dynamic has historically preluded some form of policy response, as we analysed above. While the underlying macro and political factors that have driven USD/TRY to current levels remain in place, and domestic security risks can certainly increase ahead of early elections, we are also more cognisant of the risk of a policy response amid oversold technical conditions on TRY. While real policy rates are positive, they are clearly not high enough to stabilise the currency, and the risk of an increase in rates has risen. We doubt any measures involving the sale of USD will be seen as credible and/or have much impact, as was the case in early 2014.
And then further from Citi:
On the hard currency front, USD leverage in selected economies is sparking once again fears of any systemic implications. It is true to say markets are still far away from a systemic trigger (serious USD funding issues), but we believe it is also correct to adjust CDS (and hard currency spreads in general) higher in curves of economies more dependent on USD funding. Indonesia, Brazil and Turkey are economies that could suffer more (in different magnitudes of course) from a continuous tightening of USD funding conditions. This is the underpinning factor behind our long Turkey CDS position.
And speaking of CDS, well it’s blowing out to its widest level in three years:
Another Black Swan? Syriza Outcasts Form New Political Party, Will Push For Grexit
Once upon a time, Panagiotis Lafazanis had a plan to save Greece.
On July 14, just two days after Prime Minister Alexis Tsipras sold out the Greek referendum “no” vote by agreeing to a shockingly punitive bailout deal in Brussels, Lafazanis convened a meeting of Syriza party “rebels” at a hotel in Athens. There, he allegedly attempted to convince his fellow lawmakers to storm the Greek mint, seize the country’s reserves, and arrest central bank governor Yannis Stournaras. “Obviously, it was a moment of high tension,”one activist who attended the secret meeting later told FT.
Yes, “obviously.” Equally obvious once news of the meeting leaked was that Lafazanis would not be Energy Minister for much longer and sure enough, he was sacked by Tsipras as the premier sought to pave the way for a series of votes in parliament on bailout prior actions.
Earlier this month, as rumors started to circulate that Tsipras might not have the support to survive a confidence vote, Lafazanis announced he was forming his own political party, which was funny right up until Thursday when Tsipras resigned, setting off a series of events that will see Greeks head back to the polls in September. Now, Lafazanis has seized the opportunity to convince 28 other Greek lawmakers to join him and his new party which will be called “Popular Unity,” an ironic choice, given that it grew out of the desire to split with a party leader who had become decisively unpopular among Syriza’s Left Platform.
Here’s more from Bloomberg:
A group of Greek lawmakers opposed to the country’s bailout program abandoned the governing party, Syriza, as Prime Minister Alexis Tsipras moved to force an early election to shore up his position.
The lawmakers, whose names were read out on Friday by a deputy parliament speaker on television from Athens, will be called “Popular Unity” and led by former Energy Minister Panagiotis Lafazanis. The number of rebels reached 29 after four more parliamentarians joined the initial breakaway group, Athens News Agency reported.
Though his eight months at the helm of Europe’s most-indebted country were beset by turmoil and brought the economy to the brink of ruin, Tsipras used a televised address on Thursday to list his achievements, from clinching a new aid package to securing a firmer commitment from euro-area partners to consider debt relief.
Tsipras remains popular with Greek voters, who gave Syriza 33.6 percent support, a 15.8 percentage-point lead over the main opposition New Democracy party, in a July 25 poll by Metron Analysis. Polls haven’t yet offered an indication of how much support Popular Unity would siphon off.
By all accounts, Tsipras will likely be able to carry the day in new elections and indeed that’s certainly the expectation among EU creditors and within the macro strategist echo chamber. Here’s a summary of the latter courtesy of Bloomberg:
Greek PM Tsipras calling an early election could consolidate his position and is unlikely to throw the country’s third bailout off course, analysts say.
- Yet, the vote could delay the first review of the program, originally expected to take place in Oct., and a potential eventual debt relief plan, analysts at RBS and JPMorgan say; this could mean GGBs don’t become eligible for ECB QE until much later in 2015 than had been expected, according to analysts at ABN Amro and RBS
- While the ballot could spur further market volatility, Rabobank analysts suggest any weakness in periphery govt bonds is a buying opportunity
- NOTE: Syriza lawmakers opposed to the bailout will form a new party called “Popular Unity,” led by former Energy Minister Panagiotis Lafazanis, the group said in an e-mailed statement
- RBS (Clement Mary-Dauphin, Marco Brancolini)
- With Syriza maintaining a commanding lead in polls, the election may deliver a more stable parliament but the vote is a source of volatility
- No longer expect ECB to reinstate the waiver for Greek sovereign collateral and don’t expect GGBs to be included in asset purchase plan until the completion of the first program review
- Skeptical that first review of Greek program will be completed in October as scheduled
- Allows a postponement of debt relief talk beyond the horizon of elections in other periphery countries – where the topic could become controversial during electoral campaigns
- Take profit on long GGB Apr. 19 trade in research portfolio, after it reached its target
- JPMorgan (Malcolm Barr)
- Most recent polling showed Syriza comfortably in lead although probably without enough support to form majority on its own
- Difficult to imagine scenarios which return a government more hostile to third program than one already in place
- There’s a risk that the election slows program implementation, delaying process of getting to a debt restructuring and the IMF committing funds to the bailout
- With an interim government likely to be in place for only a month by the time the first program review is due in Oct, it’s difficult to imagine there’ll be substantive progress in many areas by then
- Barclays (Francois Cabau, Antonio Garcia Pascual, Cagdas Aksu)
- Latest Greek polls continue to show strong support for Syriza; this should probably be interpreted with caution given party rift
- A poll published on July 14 said that if a new govt were to be formed, 68% of voters would favor Tsipras as its leader
- Neutral on peripheral govt bonds outright and on a spread basis vs Germany; maintain a short-term tactical outperformance of 10Y Spain vs Italy
- Elections will inevitably inject an added element of uncertainty; stress the current situation should not be seen as analogous to earlier referendum on the bailout, even though electoral campaign will intensify debate
- Under Greek political procedures, largest opposition parties have up to three days to attempt to form a coalition, don’t expect this to prevent elections
- In meantime, a caretaker govt should be put in place, reducing risks to the program
- Any future reviews and disbursements under the ESM support package will hinge critically on political uncertainty being resolved
- DZ Bank (Rene Albrecht)
- Expect Tsipras to emerge victorious again and a more stable government to follow
- Given the increasing political event risks surrounding
* * *
Needless to say, if Greek voters should suddenly decide that after having been burned by Tsipras twice (once in January and then again last month), it’s time to vote for someone who seems crazy enough to actually follow through on the whole anti-austerity, middle finger to the troika platform that got Syriza elected in the first place, then the entire bailout deal will not only be thrown into question, but abandoned wholesale because if the eurocrats in Brussels thought Varoufakis and Tsipras were hard to deal with, they’ll find Lafazanis downright intolerable.
So with the entire world basically convinced that despite having lied to the entire country not once, but twice, Tsipras still has the voter support to remain in power, one has to ask: is this the face of the next black swan?
Russell Napier Lays Out The Trigger For The Next Emerging Market Crisis
Submitted by Finanz und Wirtschaft
Russell Napier, independent strategist and founder of the research platform ERIC, expects a series of defaults in emerging markets following the depreciation. In this environment, the Fed would not increase rates and might even launch another round of quantitative easing.
Mr. Napier, you have been arguing for quite some time that China needs to devalue its currency. Did you expect such a step this year?
It is very hard to guess the timing of such a political decision. However, the probability of this happening increased pretty much this year because Chinese currency reserves were declining and domestic interest rates were not coming down, despite the liquidity measures by the central bank. We have seen Chinas reserves falling before, in 2012. But back then, Beijing managed to turn it around by pushing up capital imports. The last straw was the collapse of the stock market. The Chinese authorities realized that the chances of pulling in more capital were limited and that therefore, the decline of the reserves would likely continue if they did not adjust the exchange rate.
You do not believe that the devaluation was motivated by the aim to make the RMB an accepted reserve currency, as officially stated?
The main motivation behind the move was to create easier monetary conditions. You cannot combine an exchange rate target, an external deficit and easy money at the same time. We know that China wants easy money. Given it has an external deficit which it could not turn around this time, it had to move the exchange rate. China devalued the RMB simply to bring interest rates down.
But interest rates went up after the move?
Domestic interest rates are not coming down. Until they do and credit starts flowing into the economy again, the exchange rate will have to adjust further. I can’t think of a single country that managed to inflate monetary policy with such a small movement in the exchange rate.
How much further has the RMB to weaken?
I have argued for long that the RMB will have to depreciate more than 20%. This is not a forecast based on any calculation of a level to make Chinese products highly competitive on global markets. It is a «guesstimate» based upon just how much Chinese money and credit have to grow to sustain economic growth at a level acceptable to the Communist Party.
What are the implications of the devaluation?
The implications are much bigger for the rest of the world than for China. A more aggressive devaluation to reflate the economy is positive for China.
And for the rest of the world?
China will be selling things cheaper in Dollar terms, which is bad for the competitors. It adds to global deflation, and that is exactly what central banks in developed markets are trying to defeat. Even more important is that the China’s devaluation tends to shift people’s perception of what the risks in emerging markets are. And that is what makes it a global problem.
How do emerging markets cause a global problem?
Some of the emerging markets borrowed massively in foreign currency in the past. The rapid depreciation of their currency creates solvency issues. If there is a significant default in the emerging markets, we are a facing a global crisis. The last thing the world needs in times of slow global growth is a credit crunch. But such a credit crunch somewhere in the emerging markets is very likely.
Do we face a remake of the Asian crisis 1997/98?
Asia is the wrong focus. One big issue that led to the Asian crisis was the high level of foreign currency debt in relation to GDP. Most of Asia today doesn’t have as high levels of foreign currency debt to GDP as in 1997/98. The exception is Malaysia, probably because of its large oil company Petronas. The country faces similarities to 1997/98. But the rest of Asia is fine, they can let their currency devalue without having solvency problems.
If Asia is not the problem, what emerging markets are at risk?
The focus should be on Eastern Europe, less on Latin America and Asia. Eastern Europe is completely different. Some countries there will default. It is just a matter of time. They borrowed too many Euros or Dollars. Turkey for example owes 400 Billion $ to the rest of the world.
What could be the trigger for a credit crunch in emerging markets?
I have learnt from history that it is very hard working out what the trigger is. In 2008, it was the collapse of Lehman Brothers that triggered a credit crunch. Now it could be a major event in Turkey or a default of the Brazilian oil company Petrobras or some event in Malaysia. But if I have to pick one I would say it is Turkey introducing capital controls. Such controls will mean that Turkey will not pay back principals amounting to 400 Billion. $ and the interests on it.
Couldn’t the damage of a major default in Turkey be contained?
We saw in the past that when credit stops to flow to one big emerging market, it tends to stop flowing to all of them. In Eastern Europe, there are lots of countries with large current account deficits and currency links to the Euro. They need to be importing capital, but I fear it will stop flowing there.
You worked in Hong Kong, when Malaysia imposed exchange controls back in 1998. What are the lessons?
When Malaysia imposed capital controls, capital flows instantly stopped everywhere in the region as people reassessed the risks associated with investments in emerging markets. The banks had been pricing the risks far too low. It also showed that politicians can completely change the default risks with one single decision. When a country borrows foreign currency and gets into troubles it has two options: Either paying it back to the expense of the local people or not paying the foreign creditors for the benefit of the local people. Most politicians chose not to pay.
The US central bank is preparing for a rate hike. Don’t you think the Fed-officials will have to change their mind given the external headwinds?
I don’t believe the Fed will raise rates even though the economy is adding jobs and producing a little bit of wage growth. But a lot of the income growth goes into savings. I think this is driven by demographics. At the same time, the US economy faces a lot of external challenges including a dramatic decline in the oil price and a stronger dollar. The markets will soon realize that the economy is not turning up to a high level of consumption like the one we associate with the past 40 years of US economic history. Therefore, the Fed will not raise rates. If we find ourselves in the scenario with solvency issues in emerging markets, the Fed could even go back to quantitative easing or at least to opening swap lines to emerging markets.
Zero interest rates for longer or even a bond-buying program sound like good news for equities. Could developed market equities go up and shrug off the possible problems in emerging markets?
No, absolutely not. Another asset purchase program by the Fed will not help this time. It’s like if you are lying in the hospital and the doctor says «The good news is you are getting more medicine. The bad news is it does not work.»
But so far, quantitative easing, known as QE, has helped to push stock prices up.
Yes, it did, but the goal of QE is to push up nominal GDP growth. That should eventually reduce the debt to GDP ratio. What we are observing now across the world is the failure of that kind of policy. Once people realize that failure, equity markets will come down because so much money has been bet on the functioning of that policy. People are going to realize that boosting nominal GDP is not the way we bring down the debt ratios. It leaves us with much more painful ways to to reduce debt, such as austerity, allowing for defaults or massive political manipulation of various prices in the market places.
The almightiness of central banks will gradually be challenged?
Exactly. The recent move of the People’s Bank of China and the decision by the Swiss National Bank to scrap the floor back in January have something in common. They are evidence that the central banks are not succeeding.
Where should investors put their money in that environment?
I recommend only cash and high quality bonds.
What about gold?
It is too early for gold. A deflationary environment and a strong dollar are not good for precious metals. Once governments are getting more active because of central bank failure, the gold price will rise again. Until we see governments implementing administrative policies under the guise of macroprudential regulation in order to influenc the flow of capital, you have to wait to invest in gold.
Is The Oil Crash A Result Of Excess Supply Or Plunging Demand: The Unpleasant Answer In One Chart
One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10Year have imagined.
Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.
Here is BofA:
Retreating global equities, bond yields and DM breakevens confirm that EM has company. Much as in late 2014, global markets are going through a significant global growth scare. To illustrate this, we update our oil price decomposition exercise, breaking down changes in crude prices into supply and demand drivers (The disinflation red-herring).
Chart 6 shows that, in early July, the drop in oil prices seems to have reflected primarily abundant supply (related, for example, to the Iran deal). Over the past month, however, falling oil prices have all but reflected weak demand.
The global outlook has indeed worsened. Our economists have recently trimmed GDP forecasts in Japan, Brazil, Mexico, Colombia and South Africa, while noting greater downside risks in Turkey due to political uncertainty. Asian exports continue to underwhelm, and capital outflows are adding to regional woes. Looking ahead, we still expect the largest DM economies to keep expanding at above-trend pace but global headwinds have intensified.
And yet, BofA’s crack economist Ethan Harris still expects a September Fed rate hike. Perhaps the price of oil should turn negative (yes, just like NIRP, negative commodity prices are very possible) for the Fed to realize just how cornered it truly is.
WTI Crude Breaks Below Historic $40 Level, Energy Credit Spikes To Record Highs After Rig Count Rise
Well, we have a winner – Oil broke to a 3 handle before 10Y rates hit a 1 handle (just – 10Y at 2.04%) following the 5th weekly rise in rg count (+2 to 674). Energy credit risk is soaring to record highs as investors realize ‘there will be blood’ in all those highly-levered loans. This is the first time the front-month crude contract traded below $40 since March 3rd 2009… just before QE was unleashed in all its asset-inflating, malinvestment-driving, zombifying glory…
This didn’t help…
- *SAUDI LIKELY TO KEEP OUTPUT NEAR 10M B/D THROUGH 2016: BARCLAYS
And thenthe rig count data hit..
- *U.S. TOTAL RIG COUNT 885 , BAKER HUGHES SAYS
- *U.S. OIL RIG COUNT UP 2 TO 674, BAKER HUGHES SAYS
WTI Crude breaks below $40….
and Energy credit risk is exploding..
Euro/USA 1.1284 up .0049
USA/JAPAN YEN 122.61 down .833
GBP/USA 1.5685 down .0003
USA/CAN 1.3082 up .0007
Early this Friday morning in Europe, the Euro rose by 49 basis points, trading now well above the 1.12 rising to 1.1284; 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, blood letting on all, European and Asian bourses. last night the Chinese yuan weakened a tiny .0012 basis points.
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 84 basis points and trading just below the 123 level to 122.61 yen to the dollar.
The pound was down this morning by 3 basis points as it now trades well above the 1.56 level at 1.5685, 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 7 basis points to 1.3082 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 Friday morning: down by 597.67 or 2.98%
Trading from Europe and Asia:
1. Europe stocks all deeply in the red
2/ Asian bourses all deeply 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: $1153.50
Early Friday morning USA 10 year bond yield: 2.07% !!! down in basis points from Wednesday night and it is trading well below resistance at 2.27-2.32%
USA dollar index early Friday morning: 96.20 down 26 cents from Thursday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3887 up .0012 ( Chinese yuan down 12 basis points)
Carnage: Worst Week For Stocks In 4 Years, VIX Soars Most Ever
Only one thing seemed appropriate…
* * *
The mainstream media nailed this last week or two… (h/t @Stalingrad_Poor)
- China’s worst week since July – closes at 5 month lows
- Global Stocks’ worst week since May 2012
- US Stocks’ worst week in 4 years
- VIX’s biggest weekly rise ever
- Crude’s longest losing streak in 29 years
- Gold’s best week since January
- 5Y TSY Yield’s biggest absolute drop in 2 years
* * *
Did you get message Fed?
THE CLEAR MESSAGE FROM THE MARKETS IS – HIKE RATES AND YOU’RE DONE, GIVE US QE4 OR IT’S ALL OVER!!!
So let’s start with stocks…
Bloodbathery… This was the worst week for global stocks (MSCI World) since May 2012
And the worst week for US equities since Nov 2011…
Futures show the pain started with China PMI, then dumped as Europe collapsed, then there was no help from the machines as gamma was so imbalanced…
Of course we saw The BoJ in da house to help squeeze stocks with some USDJPY crushing…but that only worked for the small caps (easiest to squeeze)… and then it all collapsed…
Putting these moves in context, the red lines show how long since the US Majors are unchanged…
Dow enters correction… this was the 9th largest point drop in the history of The Dow…
Financials and Energy were monkeyhammered this week (as both were completely decoupled from their credit markets)…
And Surprise!!! Energy stocks collapse to credit…
Who could have seen that coming?
Carnage in AAPL slammed the Nasdaq…
Since QE3, all but The Nasdaq are now red… (and Nasdaq is collapsing fast)…Trannies down almost 10% since the end of QE3!!
VIX exploded this week with the biggest jump ever…
And The VIX ETF saw its biggest 2-day rise since 2011 (no wonder with 61.7mm shares short agaionst just 60.6mm outstanding)
and before we leave stock-land, her is perhaps the ‘spookiest’ chart… a Fibonnaci 61.8% extension of the 2007 high to 2009 lows ‘nails the top’ for now… (h/t @allstarcharts )
* * *
OK… so let’s look at bond-land. Treasury yields collapsed this week with 10Y nearing a 1 handle… 5y yield down over 17bps is the bigest absolute drop since Sept 2013
Leaving the entire bond complex lower in yield on the year…
And stocks finally caught down to credot’s reality…
FX Markets have seen some serious carnage this week…
The US Dollar index futures contract was down 2.7% on the week – its biggest drop since June 2013…
EM FX was a disaster…
Finally – the commodity space…
Very mixed picture with PMs holding gains (despite Silver’s slam today) as industrial commodities were clobbered…
Bloomberg’s Commodity Index is at its lowest since 1999…
Crude oil fell to a 3 handle –
Dropping for 8 straight weeks for the first time since 1986…
Note that gold reversed today early on after touching its 100DMA… and silver revsed today to its 50DMA
And finally, because we suspect the mainstream media will be looking for an excuse to explain all this carnage… here is the culprit…
Bonus Chart: Today…
US Manufacturing PMI Tumbles To 22 Month Low: “Lack Of Growth” And Deflation Blamed
Not even the seasonally-adjusted sentiment surveys can give a glimmer of hope any more. A few weeks after the July ISM manufacturing report printed at the lowest since March, moments ago the Markit mfg PMI index was released, printing at justt 52.9, below the expected 53.8, and down from last month’s 53.8. This was the lowest level since October 2013 and the biggest miss in exactly 2 years, with output, new orders and employment all expand at slower rates in August; Markit adds that “Input cost inflation picks up fractionally, but remains well below the survey average.”
The report also notes that the latest rise in production volumes was the weakest since the weather-related slowdown recorded in January 2014 – perhaps someone can blame it on the record hot July. Some survey respondents cited a cyclical slowdown in new business growth, as well as heightened uncertainty regarding the demand outlook in August.
But wait, the financial comedy TV said China can not possibly affect the US. Just chalk it up to the latest thing the economists were wrong about.
Most notably, now that even highly subjective survey data can no longer be rigged to boost confidence, there is only one recourse: beg and plead for the Fed to not hike rates or better yet, as Bank of America did overnight, just hint that QE4 is just around the corner if the market crashes enough. To wit, commenting on the flash PMI data, Tim Moore, senior economist at Markit said:
“August’s survey highlights a lack of growth momentum and continued weak price pressures across the U.S. manufacturing sector, which adds some fuel to the dovish argument as policymakers weigh up tightening policy in September.
“With the headline PMI swiftly losing ground after a modest rebound during July, the latest figure now points to the weakest overall pace of manufacturing growth for almost two years.
“According to survey respondents, the strong dollar continued to put pressure on export sales and competitiveness, while heightened global economic uncertainty appeared to have dampened client spending both at home and abroad. Alongside this, manufacturers of investment goods widely cited growth headwinds from the slump in capital spending across the energy sector.
“Sluggish manufacturing demand conditions and subdued cost pressures resulted in further restraint in terms of factory gate prices during August. Output charge inflation has broadly flatlined this summer and remains close to its lowest recorded by the survey over the past three years.”
In fact, best just to do QE4, cause this time it will be different.
Deere Rocked By Bursting Of U.S. Farmland Bubble: Sales Miss, Profit Tumbles, Forecast Cut
The bursting of the farmland bubble should come as no surprise to regular readers: we covered it extensively over the past year in post such as “Another Bubble Pops: Price Of Farmland Suffers First Annual Decline Since 1986“, “The Tragedy Of The American Farmer, Revealed In A Craiglist “For Sale” Post“, and most recently “US Farmers In “Dire Straits”: JPM Warns Of Imminent Liquidity Crunch”
For those strapped for time, here is the summary:
Moments ago said burst bubble came to roost when Deere reported EPS of $1.53 which beat expectations modestly, if down 35% from a year ago, yet which missed on the top-line with revenues coming in weak at $6.84bn, vs consensus expectations of $7.17bn. The one sentence summary: Deere revenues down 22%, profits down 39%.
Deere also cut 2015 net income from $1.9 billion to $1.8 billion, far below Wall Street’s estimates of a $1.93 billion.
But the worst aspect of the just reported earnings was the commentary which confirmed that the bursting farmland bubble has finally trickled through to the income statement. To wit:
“John Deere’s third-quarter results reflected the continuing impact of the downturn in the farm economy as well as lower demand for construction equipment,” said Samuel R. Allen, chairman and chief executive officer.
* * *
Lower commodity prices and falling farm incomes are continuing to pressure demand for agricultural machinery, with the declines most pronounced in higher-horsepower models. Conditions are more positive in the U.S. livestock sector, supporting some improvement in the sales of smaller sizes of equipment. Based on these factors, industry sales for agricultural equipment in the U.S. and Canada are forecast to be down about 25 percent for 2015.
Full-year 2015 industry sales in the EU28 are forecast to be down about 10 percent, with the decline attributable to lower crop prices and farm incomes as well as pressure on the dairy sector. In South America, industry sales of tractors and combines are projected to be down 20 to 25 percent mainly as a result of economic uncertainty in Brazil and higher interest rates on government-sponsored financing. Asian sales are projected to be down moderately, with most of the decline in India and China. Industry sales in the Commonwealth of Independent States are expected to be down significantly due to economic pressures and tight credit conditions.
* * *
Company equipment sales are projected to decrease about 21 percent for fiscal 2015 and to be down about 24 percent for the fourth quarter compared with year-ago periods. Included in the forecast is a negative foreign-currency translation effect of about 4 percent for the full year and 5 percent for the fourth quarter. For fiscal 2015, net income attributable to Deere & Company is anticipated to be about $1.8 billion.
So in case you needed one more thing to worry about, just turn your attention to the US flyover states where the latest and greatest slow-motion tractor wreck is currently taking place.
He said WHAT?????
(courtesy zero hedge)
Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt”
This was written by a Nobel prize winning economist without a trace or sarcasm, irony or humor. It is excerpted, and presented without commentary.
From the NYT:
Debt Is Good
… the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?
Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.
I know that may sound crazy. After all, we’ve spent much of the past five or six years in a state of fiscal panic, with all the Very Serious People declaring that we must slash deficits and reduce debt now now now or we’ll turn into Greece, Greece I tell you.
But the power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people — most recently Narayana Kocherlakota, the departing president of the Minneapolis Fed — are making the case that we need more, not less, government debt.
One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right. The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future, and a very bad time for what has actually happened: an unprecedented decline in public construction spending adjusted for population growth and inflation.
Beyond that, those very low interest rates are telling us something about what markets want. I’ve already mentioned that having at least some government debt outstanding helps the economy function better. How so? The answer, according to M.I.T.’s Ricardo Caballero and others, is that the debt of stable, reliable governments provides “safe assets” that help investors manage risks, make transactions easier and avoid a destructive scramble for cash.
* * *
[L]ow interest rates, Mr. Kocherlakota declares, are a problem. When interest rates on government debt are very low even when the economy is strong, there’s not much room to cut them when the economy is weak, making it much harder to fight recessions. There may also be consequences for financial stability: Very low returns on safe assets may push investors into too much risk-taking — or for that matter encourage another round of destructive Wall Street hocus-pocus.
What can be done? Simply raising interest rates, as some financial types keep demanding (with an eye on their own bottom lines), would undermine our still-fragile recovery. What we need are policies that would permit higher rates in good times without causing a slump. And one such policy, Mr. Kocherlakota argues, would be targeting a higher level of debt.
* * *
Now, in principle the private sector can also create safe assets, such as deposits in banks that are universally perceived as sound….
* * *
* * *
At this point we stopped reading.
If your a technical analyst, this does not bode well for the USA markets:
(courtesy Bank of America/zero hedge)
BofA Pushes The Panic Buttton: “Dow Theory Sell Signal, Key Supports Broken, Semis Sinking, No Capitulation”
To think it only took an unprecedented surge in volatility as the market suddenly realized that central banks are losing control in a world where secular stagnation is a direct function of 7 years of failed central bank policy, to get the banks out of permabullish hibernation and to slam the “sell everything” alert.
Here is BofA’s new chief technical research strategist Stephen Suttmeier telling his clients “Dow Theory flashes Sell Signal”
- Dow Theory flashes sell signal. S&P 500, NYSE & Russell 2000 all closed below key supports.
- No tactical capitulation. Not 90% down. ARMS below 2.0. 10-day total put/call ratio not showing panic. But VXV/VIX oversold.
Some more details from BofA with charts and what not that our readers have, as usual, known for weeks in advance.
Red light: Dow Theory flashes Sell signal as of August 20
The Dow Theory flashed a sell signal yesterday. The Dow Industrial Average (INDU) closed below its January 30 closing basis low of 17,164.95 on August 20 to confirm the Dow Transportation Average (TRAN) close below its January 30 closing basis low on April 2. This reverses the Dow Theory buy signal from January 18, 2013 and moves the Dow Theory to a sell signal. The message from Dow Theory is that the primary trend for US equities has turned down.
This Sell signal occurs with the Fed looking to be less accommodative
The last two Dow Theory sell signals from May 17, 2012 and August 8, 2011 both saw continued near-term downside into June 2012 and October 2011, respectively, but both quickly reversed into Dow Theory buy signals. The prior two sell signals occurred with the backdrop of accommodative Federal Reserve policy, while yesterday’s sell signal occurs with the Fed looking to begin a tightening cycle.
Semiconductors keep sinking
While not part of the Dow Theory, the Philadelphia Semiconductor Index (SOX) broke below its January 30 closing low in early July and has remained weak. Both the Transports and Semiconductors are important economically sensitive groups (canary groups). Both are also prior strong leadership groups that have broken down.
Key supports broken on SPX, NYSE & R2K
The S&P 500, NYSE Comp, and Russell 2000 all closed below their key supports highlighted in Chart Talk: 20 August 2015. These supports are 2052-2040 on the S&P 500, 10,600 on the NYSE, and 1200 on the Russell 2000. Sustaining the break below 2052-2040 on the S&P 500 suggests deeper risk to 1980-1972 (Feb/Dec lows) and 1940 (pattern projection). This means that weekly uptrend support from late 2011 near 2028 is at risk. A failure to regain the 200-day MA near 2078 on rallies keeps the bears in immediate control.
A quick reminder on Dow Theory:
The Dow Theory was created by Charles Dow over 100 years ago. The theory uses the Dow Jones Industrial (INDU) and Transportation Averages (TRAN) as a gauge of the US equity market’s primary trend.
When both the INDU and TRAN are rallying to new highs, the Dow Theory is on a confirmed buy signal and the primary trend is up. When both the INDU and TRAN are declining to new lows, the Dow Theory is on a confirmed sell signal and the primary trend is down.
The INDU and TRAN must confirm. When they do not, the existing Dow Theory signal enters into a nonconfirmation phase. This is either a secondary correction ahead of a reconfirmation of the existing signal or a transition period ahead of a reversal of the existing signal
* * *
So what does this mean? Well, if this report had been authored by BofA’s former chief technician MacNeil Curry whose Gartmanesque track record was almost as good as that of Tom Stolper, we would say the time to buy has arrived (Curry is gone as of this month – he, like Stolper, just couldn’t take it). However, in this case we will give it the benefit of the doubt: maybe, just maybe, a sellside “strategist” is actually right for once.
Bullard did not help today with his comments:
(courtesy zero hedge)
No Bullard Bailout Today: Unscheduled Fed President Comments Leave BTFDers Bent Over
The last time Bullard made unscheduled comments during a market crash, was last October when he hinted at QE4 and the market went vertical. Moments ago the St. Louis Fed president once again was quoted by Bloomberg, although much to the chagrin of Pavlov’s BTFDers, he had absolutely no soothing words for what is a week the permabulls would love to forget.
- ST. LOUIS FED’S BULLARD SPEAKS ON SIRIUSXM BUSINESS RADIO
- BULLARD SAYS MORE SANGUINE THAN MARKET ON GLOBAL OUTLOOK, CHINA
- BULLARD: FED WILL ASSESS ECONOMIC PROGRESS AT SEPT. FOMC
- BULLARD: LOT OF GOOD THINGS HAVE HAPPENED IN U.S. LABOR MARKET
- BULLARD: WE’RE IN VERY GOOD SHAPE WITH RESPECT TO LABOR MARKET
- BULLARD SAYS HE SEES U.S. JOBLESS RATE DECLINING FURTHER
The funniest line by far:
- BULLARD SAYS FED DOESN’T REACT DIRECTLY TO EQUITY MARKETS
We are still laughing at that one… But worst of all:
- FED’S BULLARD SAYS U.S. GROWTH OUTLOOK IS `RELATIVELY GOOD
Oh well – if the Fed won’t prevent a 10% correction, check back when we are approacing an S&P bear market.
Let us close with this week’s wrap up courtesy of Greg Hunter of USAWatchdog
(courtesy Greg Hunter/USAWatchdog)
That is all for this week
I will see you Monday night