Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1122.40 down $2.20 (comex closing time)
Silver $14.42 up 37 cents.
In the access market 5:15 pm
Here is the schedule for options expiry:
Comex: options expired last night
LBMA: options expire Monday, August 31.2015:
OTC contracts: Monday August 31.2015:
needless to say, the bankers will try and contain silver and gold until Sept 1.2015:
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a good delivery day, registering 552 notices for 55,200 ounces Silver saw 48 notices for 240,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 225.59 tonnes for a loss of 78 tonnes over that period.
In silver, the open interest rose by 21 contracts despite the fact that silver was down in price by 56 cents yesterday. Again, our banker friends are totally perplexed with the silver situation . The total silver OI now rests at 167,264 contracts In ounces, the OI is still represented by .836 billion oz or 119% of annual global silver production (ex Russia ex China).
In silver we had 48 notices served upon for 240,000 oz.
In gold, the total comex gold OI rests tonight at 422,803 for a loss of 9,351 contracts. We had 552 notices filed for 55,200 oz today.
We had another addition in tonnage at the GLD today to the tune of 1.49 tonnes of gold / thus the inventory rests tonight at 682.59 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 rise by 21 contracts up to 167,264 despite the fact that silver was down by 56 cents in price with respect to yesterday’s trading. The total OI for gold fell by 9,351 contracts to 422,803 contracts, as gold was down by $13.60 yesterday. We still have 16.099 tonnes of gold standing with only 14.70 tonnes of registered gold in the dealer vaults ready to satisfy that which stands.
2.Gold trading overnight, Goldcore
3. Six stories on China tonight. The markets were rescued in the last 1/2 hour by POBC as nobody wanted to be arrested. The big news was official announcement of China selling its hoard of USA treasuries. China is angry at the USA as they state that the market crash is USA’s fault.
4.Former Greek Finance Minister is set to start a new Pan European party that outlaws austerity.
(Keep Talking Greece)
5. The Ukraine has been offered a debt deal with a haircut. Only one problem: Russia states that it will not accept any haircut and Putin wants the entire 3 billion USA returned
6 Trading of equities/ New York
7. USA stories:
a) Jobless claims remain in neutral territory (BLS)
b) Pending home sales falter (zero hedge)
c) Inventories rise raising 2nd quarter GDP to 3.5% from 2.3%. However Atlanta Fed does not buy the data and states that 2nd Quarter GDP will rise only to 1.4%.
d)Jim Grant of Grant’s Interest Rate Observer states that the stock market is nothing but a house of mirrors.
e) Kansas City Fed survey misses for the 8th straight month’
f) VIX surges and the VIX ETF’s is in backwardation signalling greater shorts than longs outstanding.
g. JPMorgan’s head of Quants warns of a second market crash
8. Physical stories:
- JPMorgan customer deliver 500 gold contracts/picked up by Goldman (Jessie/Americain cafe)
- Mike Kosares on China’s increasing influence on the price of gold
- Alasdair Macleod on the “Economics of a Crash”
- New York Sun on cash being a barbaric relic
- Freeport McMoRan (gold/copper producer) has Carl Icahn as a suitor
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|| 89,170.43 oz (Manfra, HSBC)
( includes 10 kilobars)
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||552 contracts (55,200 oz)|
|No of oz to be served (notices)||739 contracts (73,900 oz)|
|Total monthly oz gold served (contracts) so far this month||4437 contracts
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||663,736.1 oz|
Total customer deposit: nil oz
JPMorgan has 7.1966 tonnes left in its registered or dealer inventory. (231,469.56 oz) and only 741,358.273 oz in its customer (eligible) account or 23.05 tonnes
We lost 54 contracts or an additional 5400 ounces will not stand for delivery. Thus we have 16.099 tonnes of gold standing and only 14.70 tonnes of registered or dealer gold to service it. Today, again, we must have had considerable cash settlements.
It is not possible to interpret the action fully from this report below. Let me stipulate that up front.
It seems that a ‘customer’ trading with JPM has allowed 500 of their August gold receipts to be taken for ‘delivery.’ And most of them, 442 to be exact, were picked up by Goldman Sachs for their ‘House’ account.
In and of itself this may not be so significant. For example, we do not know who the ‘customer’ at JPM might be, or why they might have been selling their bullion receipts. Perhaps they were just raising some cash to cover stock losses.
And we do not know why Goldman picked up receipts for 442,000 ounces of gold at $1124. And what exactly this ‘house account’ might be.
Goldman has been stopping, or taking deliveries, for their House account pretty steadily this month.
Don’t be too impressed by the words, because a ‘delivery’ just means paper receipts change hands. Most of the time nothing really happens to the bullion, at least in The Bucket Shop. It just gets shoved around the plate. Up for delivery, back to storage, rinse and repeat.
I do like to keep track of how many receipts are marked ‘deliverable’ or offered for sale at the prevailing price, compared to the potential number of claims, or active contracts.
This is how it is for gold. Silver, not so much.
CNT seems to be using the Comex for an actual sale and delivery and withdrawal mechanism for their actual business of obtaining a supply of bullion for their wholesale customers.
What an odd thing to do, actually transact deals between people who will take and use what they sell. Well, they are an oversized coin shop, so you will have to excuse them.
And as the pit slugs will be quick to point out, we do not know exactly what this transaction on this report ‘means.’ That is in the nature of these markets and their reports. It could have been this, it could have been that. Don’t stand too close to the table kid.
I just thought it was interesting, and wanted to make a note of it for future reference. I am curious to see how things in the warehouse reports set up for the big month of December.
And besides, it’s nice to watch someone busy doing God’s work.
August silver initial standings
August 27 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||405,668.84 oz (Brinks,CNT, HSBC)|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||150,299.47 oz (HSBC)|
|No of oz served (contracts)||48 contracts (240,000 oz)|
|No of oz to be served (notices)||1 contract (5,000 oz)|
|Total monthly oz silver served (contracts)||373 contracts (1,865,000 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||8,830,354.6 oz|
total dealer deposit: nil oz
Today, we had 0 deposits into the dealer account:
total customer deposits: 150,299.470 oz
total withdrawals from customer: 405,668.84 oz
we gained 35 contracts or an additional 175,000 oz of silver will stand in this non active month of August.
And now SLV:
August 27.no change in inventory at the SLV/Inventory rests at 324.698 million oz (for the 11th straight trading day)
August 26.2015/no change in inventory at the SLV/Inventory rests at 324.698 million oz
August 25.2015:no change in inventory at the SLV/Inventory rests at 324.698 million oz
August 24./no change in inventory at the SLV/Inventory rests at 324.698 million oz
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.
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. * * * * *
Why Gold Was the Best Buy in 2008-9 Crash and Will Be Again This Time Too
Today’s Gold Prices: USD 1128.50, EUR 728.91 and GBP 990.38 per ounce
Yesterday’s Gold Prices: USD 1134.40, EUR 724.63 and GBP 990.05 per ounce.
Gold in US Dollars – 5 Years
Yesterday, gold fell $15.40 to $1124.10 in New York – down 1.3%. Silver fell another 3% or 46 cents to $14.18 per ounce.
Why gold was the best buy in 2008-9 and will be this time too…
What was the best asset class to buy for the recovery that followed the 2008-9 crash in global financial markets? Step forward gold whose rise was only exceeded by silver.
Precious metals not only delivered the fastest recovery from that huge sell-off but offered increases way above the pre-crash levels. Gold tripled from its low in the crash, while silver went on to record an eight-fold increase, still just shy of its 1980 all-time high.
Read More on GoldSeek.com
Gold coasts along as stocks perk up, possible Fed hike delay supports – Reuters
Relief Rally Takes Hold in Asia After U.S. Rebound; Metals Gain – Bloomberg
Fed’s Dudley: September rate hike looks less compelling – CNBC
Gold Gets Ignored Amid Market Turmoil as Focus Stays on Fed – Bloomberg
Lost Nazi train full of gold ‘discovered’ beneath Polish city – Independent.ie
Why We Can’t Handle An Equities Bear Market, Part 1: State Budgets Will Implode – DollarCollapse.com
How Washington will try to rig the stock market – New York Post
Mike Kosares: Key trade in gold market signals China’s intentions
Submitted by cpowell on Thu, 2015-08-27 17:15. Section: Daily Dispatches
1:14p ET Thursday, August 27, 2015
Dear Friend of GATA and Gold:
Despite the slowing of its economy, China will have increasing influence on the price of gold and will push the gold trade toward physical delivery, USAGold’s Michael Kosares writes today. His commentary is headlined “Key Trade in Gold Market Signals China’s Intentions” and it’s posted at USAGold’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
A good one tonight from Alasdair…
(courtesy Alasdair Macleod)
Alasdair Macleod: Economics of a crash
Submitted by cpowell on Thu, 2015-08-27 16:35. Section: Daily Dispatches
By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Thursday, August 27, 2015
For the moment investors are in shock, seeking reassurance and keenly intent on preserving their diminishing assets, instead of reflecting on the broader economic reasons behind it. To mainstream financial commentators, blame for a crash is always placed on remote factors, such as China’s financial crisis, and has little to do with events closer to home. Analysis of this sort is selective and badly misplaced. The purpose of this article is to provide an overview of the economic background to today’s markets as well as the likely consequences. …
Equity markets are telling us that the debt crisis is now upon us again. The detailed course that events will take from here cannot be predicted, but we can be certain that over the coming months governments will be ready to move heaven and earth to prevent a deepening crisis, by any means at their disposal. In this respect the lesson of the Lehman crisis is that flooding the system with money and guarantees of more money actually works.
Gone will be any pretence of monetary discipline, gone will be any pretense of higher interest rates, and gone will be any constraint on the issuance of yet more debt. A crisis of malinvestment has become a crisis of the financial system, and will soon become a crisis of currencies. We can be increasingly certain that debt will be extinguished not by debtors reckoning with creditors, but by the debasement of money, and that this outcome becomes the unstated objective of policy makers. …
… For the complete commentary:
(courtesy New York Sun/GATA)
an important read..
New York Sun: Another ‘barbarous relic’
Submitted by cpowell on Thu, 2015-08-27 15:15. Section: Daily Dispatches
Another ‘Barbarous Relic’
From the New York Sun
Thursday, August 27, 2015
That’s the headline over a Financial Times editorial calling on authorities to consider phasing out the use of cash — by everyone, not just governments. This is what it has come down to. The government has run down the value of the dollar to less than 2 percent of what it was worth when our parents were born. Now it is itching to ban the use of banknotes and gets an endorsement from, of all broadsheets, the “world business newspaper.” The FT refers to the banknotes as “another ‘barbarous relic,'” which, it says, is the “moniker Keynes gave to gold.”
Actually, it was to the gold standard that Keynes gave that moniker. He did so in his 1924 “Tract on Monetary Reform,” in which he wrote: “In truth, the gold standard is already a barbarous relic.” Added he: “All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma, which had its value once, of 3 pounds, 17 shillings, 10 1/2 pence per ounce.” …
… For the remainder of the commentary:
China sells U.S. Treasuries to support yuan
Submitted by cpowell on Thu, 2015-08-27 12:49. Section: Daily Dispatches
From Bloomberg News
Thursday, August 27, 2015
China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.
Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.
The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey. …
… For the remainder of the report:
Here is more on the silver premiums from the large dealer Apmex:
From a big customer:
i have a VIP account at apmex. brandi just verified
that the BEST they can offer is $4 over spot. we have
finally gotten what we want- proof the paper prices
Carl Icahn is now going over gold/copper mining giant Freeport McMoRan
(courtesy zero hedge)
Freeport-McMoRan Up Nearly 50% Today After Carl Icahn Goes Activist, Announces 8.5% Stake
One of the biggest casualties of the Chinese economic crash, and the resultant collapse in copper prices to 6 year lows, has been Phoenix-based copper mining giant Freeport-McMoRan, whose stock had cratered from a 52-week high of $36 to just under $8 as of a few days ago. The harsh reality of the new normal finally manifested itself on the company early today when FCX announced it was lowering its spending and production in response to plunging copper prices and in addition would cut 10% of its employees.
FCX announced that it now expects $4 billion in capital expenditures for 2016, down from a prior estimate of $5.6 billion. Its 2015 capital expenditure budget currently stands at $6.3 billion.
The company said that it will reduce copper sales by about 150 million pounds per year in 2016 and 2017 and cut 2016 unit site production by 20 percent. It also plans to slash 2016 minerals exploration costs from $100 million to $50 million.
The resultant surge in the company, which exploded by 30% in the regular hours, made many wonder if there wasn’t more to the story.
The answer is: yes, there was, and moments ago none other than Carl Icahn announced an 88 million, or 8.46% stake in the copper miner, in a 13D which said that said the company was “undervalued” and that Icahn is now seeking a board seat. To wit from the just filed 13-D:
The Reporting Persons acquired their positions in the Shares in the belief that the Shares were undervalued. The Reporting Persons intend to have discussions with representatives of the Issuer’s management and board of directors relating to the Issuer’s capital expenditures, executive compensation practices and capital structure as well as curtailment of the Issuer’s high-cost production operations. The Reporting Persons may also seek shareholder board representation and to discuss the size and composition of the board. As of August 26, 2015, the Reporting Persons have not had any discussions with representatives of the Issuer’s management or board of directors.
The Reporting Persons may, from time to time and at any time: (i) acquire additional Shares and/or other equity, debt, notes, instruments or other securities (collectively, “Securities”) of the Issuer (or its affiliates) in the open market or otherwise; (ii) dispose of any or all of their Securities in the open market or otherwise; or (iii) engage in any hedging or similar transactions with respect to the Securities.
And after soaring 29% in the regular session, FCX was up another 19% in the after hours, which means Icahn is almost in the money on his accumluation which began on July 17.
The reason for Icahn’s interest is clear: despite major cash flow problems, FCX only has 3.0x debt/EBITDA which to Icahn means it can lever up at least 2-3 more turns, and use the proceeds to be more shareholder friendly. That the resultant company will inevitably go default is a different matter.
As to how the beleagured company responds, remains to be seen. One thing is clear: Icahn’s accumulation pattern which as disclosed in the 13D, is shown below.
Two words – average down…
What is also known: any FCX shorts, which are as much as 6% of the float, are not having a good day.
That said, we now wait for an update of what Icahn plans to do with his 11% stake in just as troubled energy company Chesapeake which recently traded at decade lows. Or whether AAPL is still a no-brainer here, after soaring by $120 billion market cap from the Monday flash crash lows.
1 Chinese yuan vs USA dollar/yuan rises considerably this time to 6.4055/Shanghai bourse: green and Hang Sang: green
Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.
2 Nikkei up 197.61 or 1.08.%
3. Europe stocks all deeply in the red (even with the new Chinese rate cut) /USA dollar index up to 95.33/Euro down to 1.1305
3b Japan 10 year bond yield: rises to .386% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 130.20
3c Nikkei now below 19,000
3d USA/Yen rate now just below the 120 barrier this morning
3e WTI 39.98 and Brent: 44.66 (this should blow up the shale boys)
3f Gold down /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .724 per cent. German bunds in negative yields from 4 years out.
Except Greece which sees its 2 year rate falls slightly to 12.02%/Greek stocks this morning up by .49%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield falls to : 9.43%
3k Gold at $1122.50 /silver $14.22 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 1 5/8 in roubles/dollar) 67.29,
3m oil into the 39 dollar handle for WTI and 44 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 (already upon us). 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 .9549 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0789 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 now enters in negative territory with the 10 year moving further from negativity to +.724%
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 2.17% early this morning. Thirty year rate below 3% at 2.92% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Aggressive Chinese Intervention Prevents Another Rout, Sends Stocks Soaring 5% In Last Trading Hour; US Futures Jump
After a 5 day tumbling streak, which saw Chinese stock plunge well over 20% and 17% in just the first three days of this week, overnight the Shanghai Composite was hanging by a thread (and threat) until the last hour of trading. In fact, this is what the SHCOMP looked like until the very end: Up 2.6%, up 1.2%, up 2.8%, up 0.6%, up 2%… down 0.2%. And then the cavalry came in: “Heavyweight stocks like banks and insurance companies helped pull up the index, and it’s possibly China Securities Finance entering the market again to shore up stocks,” Central China Sec. strategist Zhang Gang told Bloomberg by phone. Net result: the Composite, having been red just shortly before the close, soared higher by 156 points or 5.4%, showing the US stock market just how it’s down.
Then again, today’s move was telegraphed a mile away: in fact as we said just yesterday when comparing Chinese stocks to the Nasdaq circa 1999-2001, we said “If past is indeed prologue, now may be a good time to buy some Shanghai Composite calls, especially with China’s desperation getting more profound with each passing day.”
End result, if only for now:
It wasn’t just stocks: as the WSJ reported on its weibo account, China’s central bank also intervened in the yuan swap market, with the PBOC aiming to minimize the impact of yuan devaluation. It would achieve this by confirming what we first reported two days ago, namely that it was liquidating Treasurys in a move that is certain to attract the Treasury attention, and one which, if taken too far, has practically guaranteed the Fed’s QE4 which will be needed not so much to stabilize the stock market as to prevent a rout in the long end. More on that shortly in a follow up post.
Elsehwere in Asia, equities resided in positive territory following the strong tech led gains on Wall Street, where indices posted their best day since 2011 after Fed’s Dudley dampened expectations of a September rate hike. Tech stocks performed strongly across all markets particularly in China, where the Shanghai Comp. (+5.3%) saw some interesting price action where it fell briefly into negative territory before the close before rising relatively sharply to end the session higher by over 5% to snap a 5-day losing streak, with some commentators suggesting state purchasing of Chinese equities was behind the late move. Nikkei 225 (+1.1%) received additional support from USD/JPY regaining the 120.00 level while ASX 200 (+1.2%) was further boosted by a bout of strong earnings. JGBs (-8 ticks) traded lower amid strength across Asian equities, while a well-received Japanese 2yr bond auction failed to stoke demand.
PBoC injected CNY 150bIn via 7-day reverse repos for a net weekly injection of CNY 60bIn vs. CNY 150bIn injection last week, while the PBoC offered today’s repos at a lower rate of 2.35% vs. Prey. 2.50%.
The euphoria carried over into the European session, as market participants reacted positively to yesterday’s comments by Fed’s Dudley who dampened expectations of a September rate hike which in turn spurred the biggest gain by US equity indices since 2011.
The upside traction by stocks (Euro Stoxx: +3.2%) was led by materials and energy sectors, with WTI and Brent crude advancing over USD 1.00, while copper prices also rebounded following the recent selling pressure. Elsewhere, Bunds traded lower since the open, with peripheral bond yield spreads tighter as market participants sought higher yield assets.
Commodity and energy sensitive currencies such as AUD, CAD and RUB, all posted decent gains on the back of the latest rally across energy and metals markets. At the same time , EUR/USD ebbed lower amid modest gains in the USD (USD-Index: +0.2%) and the pick-up in sentiment seeing EUR under pressure as a result of its role as a funding currency. Elsewhere, the pick-up in sentiment resulted in broad based JPY weakness and in turn saw USD/JPY advance above 120.00 level.
The upside surge by energy prices comes amid a sharp reversal in risk appetite which prompted US equity indices to post their best day since 2011 after Fed’s Dudley dampened expectations of a September rate hike. As such the metals complex has also benefitted, with the likes of gold and copper both firmly in the green heading into US hours. Looking ahead, the notable commodity data comes in the form of EIA natural gas storage change update, which is expected to show a build of 63mmbtu.
Going forward, market participants will get to digest the release of the latest US GDP report (Q2), weekly jobs report and US pending home sales data. More importantly, the focus will be on the latest Kansas City Fed symposium (Jackson Hole) which is due to commence today.
In Summary: Europe’s Stoxx 600 rises 2.9% as of 11:21 am U.K. time on volume that is ~131% of the 30-day average, with the basic resources and oil & gas sectors outperforming and the food & beverage and real estate sectors underperforming. Index close to intraday highs Shangai Composite rebounds, rises over 5%. China said to intervene today to shore up stocks, also said to sell Treasuries as dollars needed for yuan support.
Market Wrap (or where were central banks most active overnight)
- Equities: Shanghai Composite (+5.3%), DAX (+3.1%)
- Bonds: Italian 10Yr yield (-2.9%), Spanish 10Yr yield (-2.8%)
- Commodities: WTI Futures (+4.1%), Brent Futures (+3.8%)
- FX: EUR/GBP (+0.4%), Dollar Index (+0.3%)
- U.S. jobless claims, continuing claims, Bloomberg consumer comfort, Kansas City Fed index, GDP, personal consumption, core PCE, pending home sales due later.
- Ukraine Eurobonds surge most on record after country agrees to 20% principal writedown with main creditors, Russia says won’t participate.
- FTSE 100 up 2.4%, CAC 40 up 3.1%, DAX up 3.1%, IBEX 35 up 2.7%, FTSE MIB up 2.5%, S&P 500 futures up 1.2%, Euro Stoxx 50 up 3.2%
- Bonds: German 10yr yield up 1bps to 0.71%, Greek 10yr yield down -26bps to 9.05%, Portugal 10yr yield down -8bps to 2.61%, Italian 10yr yield down -6bps to 1.92%
- Credit: iTraxx Main down 3.6 bps to 71.02, iTraxx Crossover down 19.8 bps to 324.57
- FX: Euro spot down -0.26% to 1.1285, Dollar index up 0.32% to 95.406
- Commodities: Brent crude up 3.8% to $44.77/bbl, Gold up 0.3% to $1129.03/oz, Copper up 1.7% to $5020.5/MT, S&P GSCI up 2.4%
- Asian stocks rise with the Shanghai Composite outperforming and the Kospi underperforming
- Nikkei 225 +1.1%, Hang Seng +3.6%, Kospi +0.7%, Shanghai Composite +5.3%, ASX +1.2%, Sensex +2%
- All 10 sectors rise with energy and financials outperforming and consumer discretionary and materials underperforming
Bulletin Headline Summary:
- Risk-on sentiment dominated the European session, as market participants reacted positively to yesterday’s comments by Fed’s Dudley as well as the positive close in Asian equities
- Source reports suggested that China is to reduce the amount of its US Treasury holdings in order to facilitate manageable depreciation of the CNY and that the rally in Chinese equities may be a result of purchases from the state
- Notable highlights include the release of the latest US GDP report (Q2 S), weekly jobs report and US pending home sales data as well as the latest Kansas City Fed symposium (Jackson Hole) which is due to commence today
- Treasuries gain, 10Y rebounding from decline that pushing yield ~17bps higher over last two sessions; global stocks higher as China’s government said to intervene to end $5t rout.
- Week’s auctions conclude today with $29b 7Y notes, WI 1.885%, lowest since May, vs 2.115% in July
- China wants to stabilize stocks before a Sept. 3 military parade celebrating the 70th anniversary of the victory over Japan during World War II, said the people, who asked not to be identified because the move wasn’t publicly announced
- China has cut its holdings of Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter. Channels include China selling directly as well as through agents in Belgium and Switzerland, according to one of the people; China has communicated with U.S. about the sales, said another person
- As Greece’s Tsipras steps down, his bid to regain a parliamentary majority with early elections risks failing as low turnout and disarray within his Syriza party threaten to yield no clear winner
- Ukraine agreed to a restructuring deal with creditors after five months of talks, giving President Petro Poroshenko some breathing room as he seeks to avert default and revive an economy decimated by a war with separatists backed by Russia
- No IG or HY deals priced yesterday. BofAML Corporate Master Index holds at +172, widest since Sept 2012; YTD low 129.High Yield Master II OAS +1bp to +591; reached +614 Tuesday, widest since July 2012; YTD low 438
- Sovereign 10Y bond yields mixed. Asian and European stocks higher, U.S.equity-index futures higher. Crude oil, gold and copper gain
DB’s Jim Reid completes the overnight recap
markets this week have not offered much opportunity for deep relaxing sleep. The sudden surge last night in US equities felt like something of a mirror image compared to what we saw on Tuesday as the S&P 500 shrugged off weaker sessions in China and Europe to close up 3.90%, its largest one-day gain since the 30th November 2011. Despite a strong start on the back of some decent durable and capital goods orders numbers, nerves appeared to settle in once again with the index paring nearly 2% of the initial gains as Europe declined into the close (Stoxx 600 -1.75%, DAX -1.29%). Some dovish comments from the Fed’s Dudley however, which we’ll touch on shortly, helped lift sentiment and spark a wave of buying in the last few hours of trading which finally brought to an end the six-day rout for US equities.
This morning markets in Asia appear to be following much of the lead from the US session yesterday with decent gains across the board. We’ve seen the usual volatility in China once again where at the midday break the Shanghai Comp is +1.55%, having at one stage more or less wiped out an early 3% gain. The Shenzhen (+1.06%) and CSI 300 (+2.10%) are also off to better starts. Elsewhere, it’s a sea of green across our screens with the Nikkei (+1.10%), Hang Seng (+2.53%), Kospi (+0.75%) and ASX (+1.28%) all up. S&P 500 futures are pointing towards a modestly firmer start while US Treasury yields have dropped 3bps. After a fairly subdued day yesterday, Oil markets have climbed this morning with WTI and Brent up some 2.5%. Elsewhere credit markets are benefiting from the better tone with Asia and Australia indices 3bps tighter.
Coming back to China and digging further into the violent reaction from global markets over the last two weeks, DB’s George Saravelos believes that there is a strong case to be made that it is neither the sell-off in Chinese stocks nor the weakness in the currency that matters the most. Instead, George believes that the bigger picture is what is happening to China’s FX reserves. Back in 2003, China started accumulating almost 4tn of foreign assets (more than all of the Fed’s QE program’s combined) with a global impact equivalent to QE; the PBoC printed domestic money and used liquidity to buy foreign bonds, keeping Treasury yields low and curves flat. Looking ahead to now and following plenty of rounds of global QE, George notes that this may be the first time that a major central bank is effectively unwinding its QE program. The sudden shift in currency policy has prompted a big shift in RMB expectations towards further weakness and correspondingly a huge rise in China capital outflows. In response the PBoC has been defending the RMB, selling FX reserves and reducing its ownership of foreign FI assets, the equivalent of a QE unwind – or Quantitative Tightening (QT). This has seen curves steepen over the last two weeks with real yields moving higher and inflation expectations lower. George argues that there could be more QT to go with China having a sizeable amount of non-sticky liabilities on its balance sheet which could be a source of outflows. An interesting argument and one that supports our view that the world’s financial markets are being propped up by central bank’s balance sheets and that anything that changes this is likely to be a problems for markets. We suspect that at a global level this era isn’t over yet and the ECB, BoJ and the Fed will have to compensate by easing policy relative to where they expected to be at this stage. So the first two might end up buying more and the Fed may stay lower for longer.
Talking of the Fed, yesterday saw interesting comments from the NY Fed’s Dudley. The bulk of the focus was on Dudley’s line that ‘from my perspective, at this moment, the decision to begin the normalization process at the FOMC meeting seems less compelling to me than it was a few weeks ago’. This of course comes after we got some subtle hints from his Fed colleague Lockhart on Monday showing less conviction for a September liftoff. Dudley unsurprisingly, kept the door open, saying that ‘normalization could become more compelling by the time of the meeting as we get additional information on how the US economy is performing, and more information on international and financial market developments’. The probabilities of a September move is now at 24%, down from 26% on Tuesday and well below the 54% highs we saw earlier in the month. The chatter this week from Lockhart and Dudley makes this Saturday’s comments Fed Vice-Chair Fischer, due to speak at the Jackson Hole meeting, all the more important.
The other focus yesterday was on the US dataflow. The main release was the durable goods print for July with the headline showing a decent beat (+2.0% mom vs. -0.4% expected) along with an upward revision to the prior month. There was a strong beat also for core capex orders (+2.2 mom vs. +0.3% expected), the biggest monthly gain since June 2014, with a 50bps upward revision to the June print. Core shipments rose +0.6% mom meanwhile (vs. +0.4% expected) with the June reading revised up a full percentage point to +0.9%. Following the reading, the Atlanta Fed upgraded their Q3 GDP forecast on the back of higher equipment spending in the durable goods orders reading to 1.4% from 1.3%.
Despite Dudley’s more dovish comments, the better than expected data helped support a decent rise in Treasury yields yesterday with the benchmark 10y in particular closing up 10.4bps at 2.176% and now 28bps off the intraday lows we saw on Monday. 2y and 30y yields closed up 7.1bps and 13.3bps while weak demand at a 5y auction also helped support some of the weakness in Treasuries yesterday with the bid-to-cover ratio of 2.34 falling to the lowest level since July 2009.
Also speaking yesterday was the ECB’s Praet. Following on from Constancio’s comments on Tuesday, the board member said that ‘developments in the world economy and in commodity markets have increased the downside risk of achieving the sustainable inflation path towards 2%’. In response to this, Praet reassured the market that ‘there should be no ambiguity on the willingness and ability of the Governing Council to act if needed’ and that the current asset purchasing program ‘provides sufficient flexibility to do so, in particular in terms of size, composition and length’. Those comments helped drag the Euro down yesterday, tumbling 1.76% while sovereign bond yields fell across the region, with 10y Bunds in particular down 2.5bps to 0.702%.
Elsewhere, according to a Reuters article yesterday outgoing Greek PM Tsipras has said that he would be willing to accept an easing of Greece’s debt load should he win fresh elections, without the need for any write-offs. This appears to be a change in stance from Tsipras who had previously argued that Greece would be unable to repay its debt unless write-offs were made, but seemingly now switching his view to one of more acceptance for longer maturities and a lowering of interest rates.
Looking at today’s calendar now, Euro area money supply and credit aggregates readings along with French confidence indicators are the main highlights in the European session. Over in the US this afternoon the focus will be on the second reading for Q2 GDP (with the market expecting an upward revision to 3.2% from 2.3% on the back of the latest data on construction, inventories and trade) along with the Core PCE print. Pending home sales data, initial jobless claims and the Kansas City Fed manufacturing activity index are the other releases due today.
(courtesy zero hedge)
Japan’s Kuroda Denies Existence Of Currency War As China Devalues Yuan To Fresh 4 Year Lows, Injects CNY150bn Liquidity
The night began much like any other morning in Asia – with pure comedy gold from Japanese leadership with BOJ’s Kuroda saying he is “not concerned about currency wars, there is no currency war,” adding that he has “no plans for further easing.” That coincided with a drift lower in Japanese stocks from the US close – but most of Asian stock markets were green buoyed by America’s victory against malicious sellers for the first time in a week. Meanwhile, in China, margin debt drops to a 7-month lows (but is still up 133% YoY). But as rumor-mongers face death squads and any broker caught not buying with both hands and feet faces prison, it is no surprise that Chinese stocks are higher in the pre-open (A50 +5%, CSI +2.7%) but large corporate bond issues are being cancelled willy nilly even as China devalues Yuan to fresh 4-year lows (6.4085) and adds CNY150bn liquidity.
First we turn to Japan…
Some comedy genius from Japan’s central banker
- *KURODA: NOT CONCERNED ABOUT CURRENCY WAR, IS NO CURRENCY WAR
- *KURODA: CENTRAL BANKS NOT TARGETING EXCHANGE RATES
- *KURODA: SOME IN MARKET TOO PESSIMISTIC ABOUT CHINA ECONOMY
- *KURODA: FX POLICY IN JAPAN IS UP TO FINANCE MINISTRY
Well yeah apart from China (directly intervening to devalue), Japan (printing $80bn a month doesn’t count), Kazakhstan (devalue 25% or die)…
but none of the EMs should worry…
- *KURODA: UNDERSTANDS CONCERNS EXPRESSED BY EMERGING ECONOMIES
And then he dropped this little gem…
- *KURODA: NO PLANS FOR FURTHER EASING
Which sparked a little run…
Don’t worry, we got this (just like the PBOC)..
- *KURODA: CAN AVOID ANY SERIOUS FINANCIAL INSTABILITY DURING QQE
What a farce – and these are the people “in charge!!”
* * *
Having got that off our chest, we pivot to China…
Some more good news… the deleveraging continues…
- *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN SEVEN MONTHS
But its still up a stunning 133% YoY…
But with witch hunts growing, is it any wonder today’s US rally is being escalated in China…
- *FTSE CHINA A50 SEPT. FUTURES RALLY 5.5%
But not everything is awesome…
- *CHINA CSI 300 STOCK-INDEX FUTURES EXTEND GAINS TO 2.7%
But let’s get some context for this bounce in light of the last 3 days’ utter collapse…
But everything is not awesome in bond land…
- *XIAMEN HAICANG INVESTMENT CANCELS BOND SALE ON MKT VOLATILITY
- *XIAMEN HAICANG INVESTMENT CANCELS 1B YUAN BOND SALE
And even with everything awesome in stocks, it appears The PBOC still needed to devalue to frsh 4 year lows,…
- *CHINA SETS YUAN REFERENCE RATE AT 6.4085 AGAINST U.S. DOLLAR
and inject more liquidity…
- *PBOC TO INJECT 150B YUAN WITH 7-DAY REVERSE REPOS: TRADERS
But they have other problems for now…
- *SHANGHAI WARNS CHILDREN, ELDERLY STAY INDOORS ON POLLUTION
- *SHANGHAI AIR `HEAVILY POLLUTED’ AS OF 9 A.M.: MONITORING CENTER
And finally another probe…
- *TIANJIN PORT SAYS CHAIRMAN UNDER PROBE
- *TIANJIN PORT SAYS CO. KNOWS ABOUT CHAIRMAN PROBE FROM XINHUA
- *TIANJIN PORT SUSPENDS TRADING IN HONG KONG: 3382 HK
Then early this morning as promised this news certainly shook the USA:
This passage is the most important one of the last decade!!
(courtesy zero hedge)
It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington
On Tuesday evening, we asked what would happen if emerging markets joined China in dumping US Treasurys. For months we’ve documented the PBoC’s liquidation of its vast stack of US paper. Back in July for instance, we noted that China had dumped a record $143 billion in US Treasurys in three months via Belgium, leaving Goldman speechless for once.
We followed all of this up this week by noting that thanks to the new FX regime (which, in theory anyway, should have required less intervention), China has likely sold somewhere on the order of $100 billion in US Treasurys in the past two weeks alone in open FX ops to steady the yuan. Put simply, as part of China’s devaluation and subsequent attempts to contain said devaluation, China has been purging an epic amount of Treasurys.
But even as the cat was out of the bag for Zero Hedge readers and even as, to mix colorful escape metaphors, the genie has been out of the bottle since mid-August for China which, thanks to a steadfast refusal to just float the yuan and be done with it, will have to continue selling USTs by the hundreds of billions, the world at large was slow to wake up to what China’s FX interventions actually implied until Wednesday when two things happened: i) Bloomberg, citing fixed income desks in New York, noted “substantial selling pressure” in long-term USTs emanating from somebody in the “Far East”, and ii) Bill Gross asked, in a tweet, if China was selling Treasurys.
Sure enough, on Thursday we got confirmation of what we’ve been detailing exhaustively for months. Here’sBloomberg:
China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.
Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.
The latest available Treasury data and estimates by strategists suggest that China controls $1.48 trillion of U.S. government debt, according to data compiled by Bloomberg. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.
The PBOC has sold at least $106 billion of reserve assets in the last two weeks, including Treasuries, according to an estimate from Societe Generale SA. The figure was based on the bank’s calculation of how much liquidity will be added to China’s financial system through Tuesday’s reduction of interest rates and lenders’ reserve-requirement ratios. The assumption is that the central bank aims to replenish the funds it drained when it bought yuan to stabilize the currency.
Now that what has been glaringly obvious for at least six months has been given the official mainstream stamp of fact-based approval, the all-clear has been given for rampant speculation on what exactly this means for US monetary policy. Here’s Bloomberg again:
China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”
“By selling Treasuries to defend the renminbi, they’re preventing Treasury yields from going lower despite the fact that we’ve seen a sharp drop in the stock market,” David Woo, head of global rates and currencies research at Bank of America Corp., said on Bloomberg Television on Wednesday. “China has a direct impact on global markets through U.S. rates.”
As we discussed on Wednesday evening, we do, thanks to a review of the extant academic literature undertaken by Citi, have an idea of what foreign FX reserve liquidation means for USTs. “Suppose EM and developing countries, which hold $5491 bn in reserves,reduce holdings by 10% over one year – this amounts to 3.07% of US GDP and means 10yr Treasury yields rates rise by a mammoth 108bp ,”Citi said, in a note dated earlier this week.
In other words, for every $500 billion in liquidated Chinese FX reserves, there’s an attendant 108bps worth of upward pressure on the 10Y. Bear in mind here that thanks to the threat of a looming Fed rate hike and a litany of other factors including plunging commodity prices and idiosyncratic political risks, EM currencies are in free fall which means that it’s not just China that’s in the process of liquidating USD assets.
The clear takeaway is that there’s a substantial amount of upward pressure building for UST yields and that is a decisively undesirable situation for the Fed to find itself in going into September. On Wednesday we summed the situation up as follows: “one of the catalysts for the EM outflows is the looming Fed hike which, when taken together with the above, means that if the FOMC raises rates, they will almost surely accelerate the pressure on EM, triggering further FX reserve drawdowns (i.e. UST dumping), resulting in substantial upward pressure on yields and prompting an immediate policy reversal and perhaps even QE4.”
Well now that China’s UST liquidation frenzy has reached a pace where it could no longer be swept under the rug and/or played down as inconsequential, and now that Bill Dudley has officially opened the door for “additional quantitative easing”, it would appear that the only way to prevent China and EM UST liquidation from, as Citi puts it, “choking off the US housing market,” and exerting a kind of forced tightening via the UST transmission channel, will be for the FOMC to usher in QE4.
Late Wednesday night
Zero hedge warns what would happen if all the emerging nations dump their treasuries at once!!!
another must read..
(courtesy zero hedge)
What Would Happen If Everyone Joins China In Dumping Treasurys?
On Tuesday evening in “Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks,” we quantified the cost of China’s near daily open FX operations in support of the yuan.
As BNP’s Mole Hau put it on Monday, “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” And a reduced role for the market means a larger role for the PBoC and that, in turn, means burning through more FX reserves to steady the yuan.
Translation and quantification (with the latter coming courtesy of SocGen): as part of China’s devaluation and subsequent attempts to contain said devaluation, China has sold a gargantuan $106 (or more) billion in US paper just as a result of the change in the currency regime.
Notably, that means China has sold as much in Treasurys in the past 2 weeks – over $100 billion – as it has sold in the entire first half of the year.Today, we got what looks like confirmation late in the session when Bloomberg, citing fixed income desks, reported “substantial selling pressure in long end Treasuries coming from Far East.”
The question or rather, the series of questions, that need to be considered going forward are:
“What happens when China liquidates all of its Treasury holdings is anyone’s guess, and an even better question is will anyone else decide to join China as its sells US Treasurys at a never before seen pace,and best of all: will the Fed just sit there and watch as the biggest offshore holder of US Treasurys liquidates its entire inventory…”
And make no mistake, these are timely questions, because the combination of collapsing commodity prices, China’s devaluation, and the threat of a Fed hike have put enormous pressure on EM currencies the world over and that, in turn, means a drawdown of EM FX reserves and pressure on DM bonds. As JP Morgan put it last month, “the sharp reversal in EM FX reserve accumulation between Q1 and Q2 is consistent with the sharp reversal in DM core bond markets. Core bond market yields collapsed in Q1 but saw a big rise in Q2. This is a good reminder of how important FX reserve managers remain in driving core bond markets.”
Indeed. And just how important, you ask, is that for US Treasurys and, in turn, for Fed policy going forward? For the answer, we go to Citi:
Taken in isolation, a reserves drop of 1% of USD GDP (=$178bn) would infer a rise in 10y UST yields by 15-35bp based on a range of academic studies.
And more to the point:
Suppose EM and developing countries, which hold $5491 bn in reserves, reduce holdings by 10% over one year. This amounts to 3.07% of US GDP and means 10yr Treasury yields rates rise by a mammoth 108bp (35bp*3.07).
In other words, if EM currencies remain under pressure – and there is every reason to believe that they well – the reserve drawdown necessary to stabilize currencies and maintain unsustainable pegs means more Treasury liquidation and massive upward pressure on yields. Here’s a look at EM reserve accumlation vs. the yield on the 10Y (inverted):
As for what this means in the US, we go to Citi one more time:
These moves are unlikely to happen in a vacuum. For instance, any move by these magnitudes would choke off the US housing market and see the Fed stand still or ease.
Of course one of the catalysts for the EM outflows is the looming Fed hike which, when taken together with the above, means that if the FOMC raises rates, they will almost surely accelerate the pressure on EM, triggering further FX reserve drawdowns (i.e. UST dumping), resulting in substantial upward pressure on yields and prompting an immediate policy reversal and perhaps even QE4.
And as we never, ever tire of reminding readers, it allharkens back to last November…
OH OH!!! the head of the POBC exclaims that “they were wronged”. They demand that the Fed delay their rate hike!! He states that it is the Fed that is to be blamed for the Chinese rout.
What do you think he is stating to the USA “behind the scenes”?
No doubt he is warning them that if they raise raises he will dump all of their treasuries. Who would absorb 1.4 trillion in treasuries?
The threat may also be gold. It is quite possible that China has not received the quantity that they had wished for and thus the threat..
(courtesy zero hedge)
China Exclaims “We Were Wronged” – Demands Fed Delay Rate Hike, Reiterates Blame For Market Rout
With all mainstream media blame fingers pointing at China – because a market crash could never be America’s fault – Chinese authorities are not best pleased with the rhetoric. As we noted earlier in the week, China’s central bank blames The Fed for the market rout, and now, as Reuters reports, The PBOC has reiterated that a Fed rate hike will push EM into crisis and Yuan devaluation is not responsible for global market turmoil.
As Reuters reports,
- CHINA CENTRAL BANK OFFICIAL SAYS CAN’T BLAME YUAN DEVALUATION FOR GLOBAL MARKET TURMOIL
- U.S. FEDERAL RESERVE SHOULD DELAY RATE HIKE, COULD PUSH SOME EMERGING MARKETS INTO CRISIS – CHINA OFFICIAL
“China’s exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move,” Yao said. “We were wronged.”
* * *
They may have a point…
Of course, now if The Fed delays, it will be seen a yielding to Chinese demands (perhaps for fear of more Treasury selling).
As a reminder, in addition to China, the Fed is now being bombarded with demands from the IMF, Larry Summers and of course the petulant market – not to hike!
Behold: A Chinese Liquidity Crunch
Earlier on Thursday we got official confirmation of what has been quite obvious for months. Namely, China is liquidating hundreds of billions in USTs in a frantic effort to stabilize the yuan following this month’s historic devaluation.
Of course selling USD assets sucks liquidity out of the system which works at cross purposes with the multiple policy rate cuts Beijing has resorted to over the past several months, which means that the more China intervenes in FX markets the more offsetting RRR cuts will be required in a race to the bottom that will see rates at zero, along with China’s UST reserves. Over the past two weeks, China has sought to mitigate this self-feeding loop by injecting liquidity via short- and medium-term lending ops and, most dramatically, via 7-day reverse repos.
For the full backstory, see “China Rushes To Inject Hundreds Of Billions In Liquidity To Offset Yuan Intervention,” but the extent to which China is desperate to save its RRR cut dry powder by trying to mitigate short-term, FX intervention-induced tightening via emergency liquidity injections can be readily observed in the following chart.
A few years ago, we opined that Bernanke and his ilk created a stock market Frankenstein with their desire to generate ‘the wealth effect.’ We also regularly stated that eventually, markets stage violent revolts against central planning and command control. The revolt has only just begun. –The King Report, Thursday, August 27
I have maintained that part of China’s “hidden” agenda in devaluing its currency is to let the air out of its bubbles ahead of every other asset bubble-infested system – the U.S. assets bubbles being the biggest (ignore the western propaganda slamming China).
It was revealed yesterday that China is now unloading its massive U.S. Treasury bond holdings. The entire astute segment of the financial has been wondering for years when and how this would occur. China has even given the U.S. Government a “courtesy call:” China Selling Treasuries.
Rather than re-invent the wheel on my analysis, here’s some comments I made in an email exchange with Jay Taylor, who asked me if yesterday’s and today’s stock market action was a sign that the criminals running our system had “won:”
I’m trying to figure out why everyone is pegging Sept 23 as a key date. If you go to Google maps and type in 09/23/2015, the map zeroes in on CERN – the European nuclear research facility. I didn’t even know you could type dates in to Google maps. I’m wondering if that’s Google screwing around with the conspiracy crowd.
No, history tells us that the bad guys eventually always lose. It’s just that they keep reappearing over time – it’s the human condition. I personally think that China is letting the air out of its bubbles ahead of the crowd. Now we see they are starting to really unload their Treasuries. I believe part of the reason that China is devaluing is to use this as “cover” for its desire to unload as much of their massive Treasury holdings as possible without trashing the market or losing the Fed’s “bid” for Treasury paper.
You won’t see this analysis in any of the mainstream media, or even a lot of the alternative media, because most of these “information purveyors” just regurgitate the script Wall Street puts in front of them or drool out the obvious explanations. But we know that China never puts a plan into motion without a lot of planning and forethought. There’s a lot more going on than the obvious. Most “analysts” and commentators either have a very rudimentary understanding of economics and how markets really operate or they knowingly prefer to spoon-feed the public their snake-oil propaganda.
China was the first to “jump out of its seat in the crowded theatre” and head for exits, before the crowd see the inferno that’s been ignited. It’s classic “prisoner’s dilemma” behavior. Their doing this will likely mean that they suffer the least when the real brown stuff hits the fan blades. The U.S. keeps trying to inflate its bubbles. Look at yesterday/today. Look at that absurd GDP “revision.” The U.S. is interminably pumping money into the asset bubbles and churning out Orwellian propaganda. It will end a lot worse for the United States than for China.
I think the market action starting last Friday is the beginning of the end for this era. Just a question of how long the U.S. criminals can keep kicking that can.
(courtesy zero hedge)
Russia Refuses To Participate In Ukraine Debt Restructuring
War-torn Ukraine has reportedly reached a restructuring deal with a group of creditors headed by Franklin Templeton, according to the country’s finance minister Natalie Jaresko. The terms of the agreement call for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon.
President Petro Poroshenko hopes the restructuring deal will save the country billions on the way to helping Kiev adhere to the terms of its subsidized Gazprom payments IMF bailout. Here’s more from Bloomberg:
The 49-year-old Ukrainian leader, elected last year after becoming a billionaire in the chocolate business, was racing to reach a comprehensive accord with creditors before a $500 million bond comes due next month. Ukraine will temporarily suspend payments on that bond and a 600 million-euro ($677 million) note due in October, the Finance Ministry said in today’s statement. The country has a further $4 billion of payments scheduled by year’s end.
A final agreement requires the approval of 75 percent of bondholders of each note at a meeting in which at least two-thirds of them are represented. Ukraine’s debt contains cross-default clauses that mean missing a payment on one results in default on all. The government earlier threatened to declare a debt moratorium to push negotiations along.
Franklin Templeton, which owns about $7 billion of Ukrainian bonds, were joined in the talks by fellow creditors BTG Pactual Europe LLP, TCW Investment Management Co. and T. Rowe Price Associates Inc.
One person who will not be accepting the new terms is newly-minted bond vulture Vladimir Putin who, back in March, threatened to undermine negotiations with other creditors by holding out on some $3 billion in 2-year notes Moscow bought back in 2013 to help out then-President Viktor Yanukovych. “Russia won’t participate in Ukraine’s debt restructuring,” Finance Minister Anton Siluanov told Bloomberg by telephone.
Jaresko said she’s “offering Russia a restructuring opportunity that is the same as everyone else’s” which she figures is “the best way to depoliticize” the issue and “for us to all move forward together.” That, apparently, is not in the cards, but there is still a distinct possibility that everyone will move backward together. Just ask Poroshenko who told a crowd on Monday at a ceremony in central Kiev to mark 24 years of Ukrainian independence from Moscow that “we have to get through the (coming) 25th year of independence as if on brittle ice. We must understand that the smallest misstep could be fatal. The war for Ukrainian independence is continuing.”
And then there’s this, via Reuters:
Seven Ukrainian servicemen have been killed and 13 wounded in fighting with pro-Russian separatists in the past 24 hours, military spokesman Oleksander Motuzyanyk said on Thursday.
The casualties were the highest daily losses for the Ukrainian army since mid-July, as violence continues to test a six-month-old ceasefire deal.
Meanwhile, Ukraine’s central bank took the country 300 bps “closer” to ZIRP, slashing rates 300bps to only 27% citing, amusingly, “a fall in inflationary risks.”
Needless to say, the situation in Ukraine is a very, very long way from stabilizing and as we’ve detailed extensively of late, there’s a non-zero possibility that one or more of the country’s unofficial militias (whose leaders have been the subject of not-so-flattering comparisons to a certain fascist political movement that attempted to take over the world in 1939) will attempt a military coup even as the separatists push for autonomy.
Summed up in one picture…
* * *
Here’s Goldman’s take
1. Finance Minister Jaresko, in a special government session called today, announced that Ukraine has reached agreement with the ad hoc creditor committee on a bond restructuring deal. This deal includes a 20% nominal haircut, a coupon of 7.75% (up from 7.25% previously) and a maturity extension of 4 years for each bond. It also includes GDP warrants that pay out over the period 2021-40 if growth exceeds 3%, subject to nominal GDP exceeding US$125.4bn (the IMF’s projection for 2019 GDP). Minister Jaresko argues that these deal parameters are consistent with the IMF’s three objectives for the debt operation.
2. While the 20% nominal haircut was reported in the press last week, in our view the coupon increase to 7.75% and the 4-year maturity extension are likely more favourable than market expectations for a lower coupon and longer extension.
3. In order for the restructuring to take place, bondholders will have to approve the exchange offer on a bond-by-bond basis with a sufficient majority and subject to a minimum quorum. In our view, given the attractiveness of the offer relative to market expectations, the risk of a holdout scenario is relatively low.
4. Based on our estimates, the deal parameters imply average bond prices across the curve of 57 cents at a 14% exit yield, 63 cents at a 12% exit yield and 70 cents at a 10% exit yield. Our base case remains for a 14% exit yield, based on our estimated fair value as a function of Ukraine’s macro fundamentals and also consistent with past episodes of restructuring. These estimates assume zero value for the GDP warrants, likely a conservative assumption.
5. In addition, given that the same parameters apply to all bonds on the curve, this deal favours lower-coupon bonds over higher-coupon ones. The relatively shorter maturity extension than expected, in our view, favours the front end over the long end of the curve. Based on our estimates, at a 14% exit yield, the premium for the shortest-maturity (2015) bond over the longer-maturity (2023) bond should stand at 12 points. At a 12% exit yield, it should be 10 points, and at a 10% exit yield, 5 points.
6. Russia has said that it will not participate in the bond exchange. Minister Jaresko has reiterated that Ukraine will not treat Russia differently from other creditors. Thus, how Ukraine and the IMF (which likely views the Russian-owned bond as official debt) will address the issue of this bond maturing in December remains an open issue and should, ceteris paribus, require a higher exit yield.
7. While the terms of the debt restructuring will likely satisfy the IMF’s criteria, in our view, the question of the sustainability of Ukraine’s debt remains open. As we have argued previously, this will likely hinge on the willingness and ability of the Ukrainian authorities to follow through on structural and governance reforms and on developments in the conflict in Eastern Ukraine. Relative to the IMF’s forecasts, our macroeconomic outlook for Ukraine is considerably weaker in the medium term, with trend growth of around 2% during the structural adjustment and the Hryvnia weakening in our projections to UAH 30 vs. the USD. In our view, under this scenario, questions of debt sustainability may well resurface in the coming years. Uncertainty about the outlook as well as the geopolitical conflict, in our view, is an additional reason why we argue for a higher exit yield of 14% than consensus market expectations (which we estimate stand at around 12%).
Good for him. Varoufakis is launching a Pan European, Anti Austerity political party which is totally against austerity.
(courtesy zero hedge)
Former Greek FinMin Varoufakis Launches Pan-European Anti-Austerity Political Party
Varoufakis’ fans get ready! The ex finance minister is preparing to launch a European movement that will develop into a political party. Yanis Varoufakis will push for a Pan-?uropean network for fight austerity. Instead of running for the upcoming elections, he will put his energy into political action on European level.
Speaking to Late Night Live program of Australian ABC National Radio, Yanis Varoufakis described the elections campaign as “sad and fruitless” and said that he will not be running for Greek parliament in the September elections, as he no longer believes in what Syriza and its leader, Tsipras, are doing.
‘The party that I served and the leader that I served has decided to change course completely and to espouse an economic policy that makes absolutely no sense, which was imposed upon us.
I don’t believe that we should have signed up to it, simply because within a few months the ship is going to hit the rocks again. And we don’t have the right to stand in front of our courageous people who voted no against this program, and propose to them that we implement it, given that we know that it cannot be implemented.”
Varoufakis indirectly described Alexis Tsipras as a ‘fool’ saying that Tsipras was like mythical Sisyphus “carrying on pushing the same rock of austerity up the hill, against the laws of economics and against very profound ethical principles.” He added “as a child I considered Sisyphus a fool. I would have simply stopped pushing the rock.”
He expressed sympathy for the SYRIZA rebels of Panagiotis Lafazanis and the Popular Unity, but he added that he fundamentally disagrees with their ‘isolationist’ stance of desiring a return to the drachma.
“Instead of becoming engaged in an election campaign which in my mind is quite sad and fruitless, I’m going to be remain politically active—maybe more active than I have been so far—at the European level, trying to establish a European network.”
He criticized the bloc formations of national parties within the European Parliament and stressed that “this model doesn’t work anymore.”
“I think we should try to aim for a European network that at some point evolves into a pan-European party.”
Full interview text & audio here
PS Wise decision, Yanis, to initiate a European spring. As for Varoufakis’ fans they now know who will vote for in the next European Parliament elections.
Euro/USA 1.1305 down .0032
USA/JAPAN YEN 120.20 up 0.149
GBP/USA 1.5452 down .0027
USA/CAN 1.3230 down .0070
Early this Thursday morning in Europe, the Euro fell by 32 basis points, trading now just above the 1.13 level falling to 1.1305; 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, Last night the Chinese yuan strengthened a considerable .0035 basis points. The rate at closing last night: 6.4055
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 now trades in a southbound trajectory as settled down again in Japan up by 15 basis points and trading now just above the 120 level to 120.20 yen to the dollar,
The pound was down this morning by 27 basis points as it now trades just below the 1.55 level at 1.5452.
The Canadian dollar reversed course by rising 70 basis points to 1.3230 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 with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
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 Thursday morning: up by 347.48 or 1.89%
Trading from Europe and Asia:
1. Europe stocks all deeply in the red
2/ Asian bourses mostly in the green except India … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the red/
Gold very early morning trading: $1127.15
Early Thursday morning USA 10 year bond yield: 2.17% !!! par in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield rose to 2.92 down 1 basis points as word got out that China was selling treasuries like mad!
USA dollar index early Thursday morning: 95.33 up 24 cents from Tuesday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.4035 down .0055 ( Chinese yuan up 5.5 basis points)
Biggest 2 Day Surge In History Saved As Epic 3pm ‘VIXtermination’ Ramp Undoes “Quant Omen” Tumble
No lesser Fed-questioner than Pedro da Costa provides the visual entertainment for today…
But then, with 30 mins to go….
While stocks is “wot reelly mattahs”… today’s move in crude oil was simply epic…biggest single day surge since March 12th 2009 – this is a 6 sigma move based on the vol of the last 6 years (the equivalent of passing a man in the street who is 6’11” tall)
The Dow just went from its biggest 2-day point loss to the biggest 2-day point gain… this is not going to normalize quickly…and sure enough once JPMorgan unleashed their reality omen, and Plosser pointed the finger at GDP and a ‘decent’ economy, everything fell…only to be rescued in the last 30 mins by a VIXtermination
Quite a week… well over 7500 Points in the The Dow…
While the volatility comparisons are all tothe 2008/9 period, we noted another more accurate comparison… This surge looks like the August 2007 period when Geithner leaked the news of a 50bp discount rate cut and enabled the last hoorah for banks to unwind over-extended longs into retail greater fools…
And there is no volume in this bounce at all…
VIX remains in backwardation… but plunged today at the front-end…beforee ripping back higher after JPM/Plosser
After its biggest 2-day rise ever, today’s retracement was of similar extreme size to other events over the last 10 years…before it broke higher
* * *
The day was very wild…
Starting with stocks, we contonued to ramp after China unleashed exuberant plunge protection into their close… a 5.3% bounce into the close!
And US equities kept running all day as business media cheerleaded mom-and-pop ” did you miss your chance to buy low?” – until JPMorgan unleashed some factsand Fed’s Plosser peed in the party punch… and then VIX was punched lower in a panic-buying last 30 mins…
So US Stocks LIFTED 2.3% in last 30 mins… in context China LIFTED its stock market 5% – so Ken Henry must do better.
Just look at the noise in VIX in the last 30 mins…
Thanks to the biggest 2-day short squeeze in 4 years…
The equity exuberance was not experienced in credit land…
Today’s rip was driven by energy stocks which in turn were driven by total idicoy as above in Crude…
Because how manhy times has buying the dip in Energy stocks completely and utterly failed…
Thinking out loud on levels…
On the week, everything was awesome to start… but then the Quant Omen hit… but then again – there is always panic-selling driven by VIX collapse…
But we thought it notable that Small Caps and Nasdaq rolled over after touchingthe opening gap down levels fromlast Friday’s tumble…
The Nasdaq managed to get green year-to-date, but everything else remains red…
Treasury yields rallied as stocks fell in the afternoon – closing around unch on the day…
The US Dollar strengthened once again on the day but faded post EU Close with USDJPY dropping after JPM dropped its reality bomb…
Commodities were where the real action was today…
With crude the standout craziness…
But copper and Silver also surged…
But But But… the clever chap on CNBC yesterday said “this proves investors confidence in the market is back”??
Initial Jobless Claims Ends Losing Streak, Unchanged Since January
After four weeks of rising – the longest streak since Feb 2009 – initial claims dropped very modestly to 271k this week. This means initial jobless claims has gone nowhere since January 23rd.
Pending Home Sales Miss, NAR Says Stock Plunge Is Good For Housing Affordability
The US housing market has, inexplicably, been touted by the economy bulls as the bastion of stability and growth in an economy that has otherwise been sinking in recent months (the reality is that the high end of the market continues to be supported by Chinese and other offshore capital flows, while the middle-remains gutted as recently confirmed by a record low homeownership rate and record high asking rents). So perhaps to moderate that euphoria, moments ago the NAR reported pending home sales for July, which printed at half the expected pace of a 1.0% monthly growth, rising 0.5%.
This was also the slowest Y/Y growth in pending home sales since January:
While the overall index remains in comfortable territory, at 110.9 it has risen 7.4% from a year ago, it appears to have hit a resistance level as the July level is below both April (111.6) and May (112.3). The reason? According to NAR’s inimmitable chief “economist” Larry Yun, there are simply not enough affordable houses. From the report:
Lawrence Yun, NAR chief economist, says the housing market began the second half of 2015 on a positive note, with pending sales slightly rising in July. “Led by a solid gain in the Northeast, contract activity in most of the country held steady last month, which bodes well for existing-sales to maintain their recent elevated pace to close out the summer,” he said. “While demand and sales continue to be stronger than earlier this year, Realtors® have reported since the spring that available listings in affordable price ranges remain elusive for some buyers trying to reach the market and are likely holding back sales from being more robust. “
In other words, just like the stock market, the leadership group is declining to just those homes purchased by price-indescriminate buyers, while everyone else is left in the dust. However, since this will pull the broader everage higher, the NAR is happy to forecast that the national median existing-home price will increase 6.3% in 2015 to $221,400. It was not added that this would come entirely from the most expensive end. Yun also forecasts total existing-home sales this year to increase 7.1 percent to around 5.29 million. Putting this in context, it is about 25% below the prior peak set in 2005 (7.08 million).
But the biggest surprise came from the following Yun statement: “Uncertainty in the equity markets — even if the Fed raises short-term rates in September — could stabilize long-term mortgage rates and preserve affordability for buyers.”
So with China, Larry Summer and the IMF now calling for a rate hike, the NAR – of all entities – is suddenly quite happy to see the recent market rout continue, which would keep rates lower and promote “affordability.”
Guess nobody tell Larry that China has now started dumping bonds.
September Rate Hike Back On Table: Q2 GDP Soars In Revision From 2.3% To 3.7% Driven By Record Inventory Build
Well, if the Fed is truly data-dependent, September is now squarely back on the table following the first revision of (double seasonally-adjusted) Q2 GDP data which soared from 2.3% to a whopping 3.7%, blowing out the Wall Street consensus estimate of 3.2%, and printing above the highest Wall Street forecast (the 3.6% from JPM).
This is what the BEA said about the source of the upside:
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment, in federal government spending, and in residential fixed investment.
Here is the breakdown:
But the real reason for the surge is shown in the chart below: from an inventory build of $124 in the first GDP estimate, the BEA now sees a total of $136.2 billion in inventory build in Q2. This is an all time record, and a number which suggests the upcoming inventory liquidation will be truly epic, not to mention recessionary.
So, paradoxically, as the market bulls scramble to find some bad news in this report which in isolation puts a September rate hike back on the table, the reality is that the inventory liquidation is result in a tumble in Q3 GDP (or Q4, or Q1 2016 – whenever it does take place). As such, the market bulls can point to the latest Atlanta Fed “nowcast“, which after yesterday’s “strong” durable goods number was revised from 1.3% to just 1.4%.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 1.4 percent on August 26, up from 1.3 percent on August 18. The forecast for real GDP growth increased 0.1 percentage point to 1.4 percent after this morning’s advance report on durable goods from the Census Bureau. The report boosted the model’s forecast for equipment spending in the third quarter from 7.7 percent to 8.9 percent, and led to a slight improvement in the contribution of real inventory investment to third-quarter GDP growth.
As a result of the record increase in inventories, expect the Atlanta Fed to promptly cut its already painfully low Q3 GDP estimate, which may just be the hook the Fed will use to avoid hiking rates in three weeks time.
Jim Grant Warns “The Fed Turned The Stock Market Into A ‘Hall Of Mirrors'”
The question we appear to be getting answered this week is, as Grant’s Interest Rate Observer’s Jim Grant so poetically explains, “how much of this paper moon market is real, and how much is governmental whipped cream?” In this brief but, as usual, perfectly to the point interview with Reason.com’s Matt Welch, Grant asks (and answers), “are prices meant to be imposed from on high, or discovered by individuals acting spontaneously in markets?” noting that, while many readers here may know the answer, “they’re regrettably in the minority.” The always entertaining Grant then goes on to discuss the underlying causes of the recent market turbulence, why we don’t really “have interest rates anymore.”
“One thing to recall is that markets are meant to be two-way propositions – they go up, they go down – but it has been almost four years since we have seen a 10% correction…what’s unusual is not the occasional down day but The Great Sedation that preceded.”
“Confoundingly to me, people have come to be quite accepting of the value attached by fiat to these pieces of paper we call currency.”
Well worth the price of admission during a week when financial markets start to show their true colors…
Kansas City Fed Survey Misses For 8th Straight Month – Flashes Recessionary Signal
The last two times the Kansas City Fed survey was this low, the US was in recession.The KC Fed survey has missed expected for eight straight months, falling to -9 in August from -7 (missing the -4 estimate). Across the board, underlying components were ugly with Shipments collapsing, Order backlogs echoing earlier surveys in demise, New Orders tumbling, and Prices received crashing.
But still the mainstream sees “no recession imminent”
To all my American friends..sorry about this!!
Media Blackout: Canada Plans To Dump Nuclear Waste Less Than Mile From US Border
Over the last few years, the United States has not had the best track record with Deep Geologic Repositories (DGR) for nuclear waste. In February of 2014, the U.S.’ DGR, known as the Waste Isolation Pilot Plant (WIPP), had two separate incidents that compromised the integrity of the project by releasing airborne radioactive contamination. While most U.S. citizens were relatively unaffected by the events, ourCanadian neighbors have proposed a plan to construct a DGR 0.6 miles from America’s largest source of fresh water, the Great Lakes — and the U.S. State Department is remaining relatively uninvolved.
In 2004, Ontario Power Generation (OPG) signed an agreement with the mayor of the Municipality of Kincardine that detailed the million-dollar payments OPG would make to Kincardine and four other shoreline municipalities for their support in the construction of a DRG. On December 2nd, 2005, OPG submitted a proposal to the Canadian Nuclear Safety Commission (CNSC) to construct a long-term DGR for low and intermediate level nuclear waste on the Bruce Nuclear site within Kincardine. Bruce Nuclear is situated on the banks of Lake Huron — the same Lake Huron that borders the state of Michigan.
The 157-page document the OPG submitted to the CNSC outlined their plan to bury low and intermediate level nuclear waste — radioactive contaminated mops, rags, and industrial items as well as, resins, filters, and irradiated components from the nuclear reactors.
The OPG’s 2005 plan included thirty-one limestone burial caverns carved 680 meters below ground, extending approximately 1 kilometer (0.62 miles) from Lake Huron. In the initial report, the OPG published a favorable community reaction:
“The results of Public Attitude Research indicate that…a large number of local residents feel a long-term waste management facility would have no effect on their level of satisfaction with the community,” it said.
Fast forward ten years, and some important public attitudes outside of the Municipality of Kincardine have vehemently voiced their opposition towards a nuclear waste dump less than a mile from one of the world’s largest fresh water sources. There are 41 million people living in the Great Lake region, and the OPG’s plan for a DGR is rightfully rubbing them the wrong way — so much so that groups like Stop the Great Lakes Nuclear Dump, the Canadian Environmental Law Agency (CELA), and the Sierra Club Canada are actively and vocally calling attention to the invalidity of the OPG’s plan, which includes a $35.7 million payment to fund construction.
In a statement to VICE, the Sierra Club’s program director, John Bennet, questioned the integrity of the OPG’s review panel, as it is full of “ex-nuclear industry officials.” He stated, “…[the panel has] never not approved a [nuclear] project.” If you are wondering why a site so close to such an important body of fresh water was chosen to store radioactive nuclear material, you’re not alone. In CELA’s assessment of OPG’s research and plans, they stated:
“OPG has not described how the alternatives to the proposed DGR and the alternative means of carrying out the project were evaluated and compared in light of risk avoidance, adaptive management capacity, and preparation for surprise…The DGR project cannot be identified as the preferred option until this has been done.”
The aforementioned environmental groups are not the only constituents fighting against the DGR. In the United States and Canada, 169 resolutions have been passed against the DGR. Further, U.S. Senators Debbie Stabenow and Gary Peters have co-introduced the Stop Nuclear Waste by Our Lakes Act. The act calls for the State Department to invoke the 1909 Boundary Waters Treaty, mandating a study of OPG’s plan by the International Joint Commission.
Given the United States’ failure to build its own secure DGR, you would think the State Department would be concerned about its largest fresh water source’s close proximity to one. But, according to a VICE source,
“…[a representative from the State Department] said they have no plans to call for the binational review the senators are demanding.”
Above all, given the risk inherent to the generation, disposal, and storage of nuclear power and waste, it is essential we use cases like this to support the aggressive promulgation of sustainable, clean energy. Beyond the threat imposed to those living in Kincardine and the Great Lakes region, everyone along the three hour drive between the Pickering and Darlington nuclear stations and the Bruce Nuclear site will be at risk while the waste is transported to the dump. Our current system is literally toxic and until citizens step up and stop millions of dollars from swaying government municipalities’ support of nuclear power companies, we will have few solutions to this poisonous problem.
3:13 PM (34 minutes ago)
3:40 PM (7 minutes ago)
“more shares short than actually exist!”
Here is this very important commentary
(courtesy zero hedge)
Just look what the head of JPMorgan’s Quant desk just came out with;
(courtesy JPMorgan/zero hedge)
JPM Head Quant Warns Second Market Crash May Be Imminent: Violent Selling Could Return On Thursday
Last Friday, when the market was down only 2%, wepresented readers with a note which promptly became the most read piece across Wall Street trading desks, which was written by JPM’s head quant Marko Kolanovic, who correctly calculated the option gamma hedging imbalance into the close, and just as correctly predicted the closing dump on Friday which according to many catalyzed Monday’s “limit down” open.
Given that the market is already down ~2%, we expect the market selloff to accelerate after 3:30PM into the close with peak hedging pressure ~3:45PM. The magnitude of the negative price impact could be ~30-60bps in the absence of any other fundamental buying or selling pressure into the close.
We bring it up because Kolanovic is out with another note, one which may be even more unpleasant for bulls who, looking at nothing but price action, were convinced that after the biggest two day market jump in history, the worst is behind us.
In the just released note, the head JPM quant warns that a large pool of assets controlled by price-insensitive managers including derivatives hedgers, Trend Following strategies (CTAs), Risk Parity portfolios and Volatility Managed strategies, which is programmatically trading equities regardless of underlying fundamentals, is about to start selling equities, “and will negatively affect market in coming days and weeks.” For good measure, he casually tosses the word “crash” in the note as well.
By way of reference, JPM notes that a good example of how price-insensitive sellers can cause market a disruption/crash is the price action on the US Monday open. It says that technical selling related to various hedging programs, in an environment of low (pre-market) liquidity indeed caused a ‘flash crash’ on Monday’s open. S&P 500 futures hit a 5% limit down preopen, and then a 7% limit low at 9:31 and 9:33. The inability of hedgers to short futures spilled over into large cap stocks that were still trading and could be used as a proxy hedge. Had it not been for the futures limit down event, the selloff would likely have been worse as indicated by the price of the index implied by individual stocks. The figure below shows the S&P 500 futures, SPY ETF and S&P 500 replicated from
the largest stocks that were trading near the market open.
Kolanovic correctly takes credit for his prediction and notes that “in our Friday note we forecasted end-of-the-day selling pressure due to option gamma hedging. We saw similar price impacts on Thursday, Friday, and Monday (pushing the market lower into the close) and an upside squeeze on Wednesday. Our estimate is that up to 20% of market volume was driven by hedging of various derivative exposures such as options, dynamic delta hedging programs, levered ETF stop loss orders, and other related products and strategies (note that levered ETFs have gamma exposure of only ~$1bn per 1%, i.e., much smaller than that of S&P 500 options). We estimate the cumulative selling pressure from options hedging during the market selloff to be ~$100bn. Options gamma is expected to remain substantially (in excess of $20bn) tilted towards puts while the S&P 500 is between 1850 and 2000.
The figure below shows Put-Call Gamma assuming current open interest and different spot prices. JPM expects high volatility to persist (should we stay in this price range) and cause quick intraday moves up or down, particularly towards the end of the trading day.
According to the quant, it is not only derivative hedgers who are pushing the market around like a toy with barely any resistance: :in fact, there is a much larger pool of assets that is programmatically trading equities regardless of underlying fundamentals.”
It is these investors who, “in the current environment” are selling equities and “will negatively impact the market over the coming days and weeks.”
Trend Following strategies (CTAs), Risk Parity portfolios, and Volatility Managed strategies all invest in equities based on past price performance and volatility. For instance, in our June market commentary we showed that if the equity indices fall 10%, these trend followers may need to subsequently sell ~$100bn of equity exposure. These types of ‘price insensitive’ flows are starting to materialize, and our goal is to estimate their likely size and timing. These technical flows are determined by algorithms and risk limits, and can hence push the market away from fundamentals.
This is where it gets scary for the bulls who thought we may be out of the woods, and that the crash was behind us. If Marko is right, as of this moment we are merely in the eye of the hurricane:
The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity,they may cause a market crash such as the one we saw at the US market open on Monday. We attempt to estimate the amount of these flows from three groups of investors: Trend Following strategies (CTA), Risk Parity portfolios, and Volatility Managed strategies. These investors follow different signals and have different rebalancing time frames. The time frame is important as it may give us an estimate of how much longer we may see selling pressure.
So, how much longer may we see the selling pressure?
1. Volatility Target (or Volatility Control) strategies provide the most immediate selling as a reaction to the increase in volatility. These strategies adjust equity leverage based on short-term realized volatility. Typical signals are 1-, 2-, or 3-month realized volatility. Volatility target products are provided by many dealers, index providers and asset managers. Volatility targeting strategies also became very popular with the insurance industry. After the 2008 financial crisis, many Variable Annuity (VA) providers moved from hedging their equity exposure with options to investing directly in volatility target indices (e.g., 10% volatility target S&P 500). It is estimated that VA issuers have ~$360bn in strategies that are managing volatility; some of these use options to manage tail risk, some buy low volatility stocks, and some invest in volatility target strategies. We estimate that strategies that are targeting a particular level of volatility or managing to an equity floor could have $100-$200bn of assets.
Assuming that, on average, these strategies follow a 2-month realized volatility signal, we can estimate their selling pressure. 2M realized volatility increased over the past week from ~10% to ~20% (i.e., doubled), so these strategies need to reduce equity exposure by up to ~50% to keep volatility constant. This could lead to $50-$100bn of selling, and it likely started already this week. There is often a delay of 1-3 days between when a signal is triggered and trade implementation, and positions are often reduced over several days. We think this could have contributed to the ‘unexpected’ selloff that happened in the last hour of Tuesday’s trading session. While these flows may continue to have a negative impact over the next few days, they would be the first to reverse (start buying the market) when volatility declines.
2. Trend Following strategies/CTA funds have an estimated ~$350bn in AUM. We modelled CTA exposures in our May and June commentaries, and estimated flows under different scenarios for asset prices. In particular, under a 10% down scenario in equites we estimated CTAs need to sell ~$100bn of equities. In our model, the bulk of selling was in US markets, some in Japan and relatively little in Europe. S&P 500 futures did underperform Europe (by ~3%) and Japan (by ~2%) over the last two trading sessions (European hours), which may indicate that CTA flows have started to impact equity markets. The rebalance time frame for CTA strategies is typically longer than for volatility control strategies. CTA funds may act on their signal in a period that ranges from several days to a month. We believe thatselling from CTAs may have just started and will continue over the next several days/weeks.
3. Risk Parity is one of the most popular and (historically) successful portfolio construction methodologies. Risk Parity allocates portfolio weights in proportion to assets’ total contribution to risk (a simplified version, called Equal Marginal Volatility allocates inversely proportional to the asset’s realized volatility). In a survey of quantitative investment managers (~800 clients in US and Europe), we found that ~50% prefer a Risk Parity approach (vs. 15% for traditional fixed weights (e.g., 60/40), 20% Markowitz MVO, and ~20% active asset timing). Estimated assets in Risk Parity strategies are ~$500bn and ~40% of these assets may be allocated to equities. Risk Parity portfolios may also incorporate leverage, often 1-2x. Risk parity funds often rebalance at a lower frequency (e.g., monthly, vs. daily for volatility target) and use slower moving signals (e.g. 6M or 1Y realized volatility). The increase in equity volatility and correlation would cause Risk Parity portfolios to reduce equity exposure. For instance, 6M realized volatility increased from 11% to 15% and a modest increase in correlations would result in approximately a ~20% reduction of equity exposure.Based on our estimate of Risk Parity equity exposure, this could translate into $50bn-$100bn of selling over the coming weeks.
In summary, JPM estimates that “the combined selling of Volatility Target strategies, CTAs and Risk Parity portfolios could be $150-$300bn over the next several weeks. Rebalancing of these funds may appear as a persistent and fundamentally unjustified selling pressure as these funds execute their programs.In addition, there may be a positive feedback loop between all of these sellers – Gamma hedging of derivatives causes higher market volatility, which in turn leads to selling in Risk Parity portfolios, and the resulting downward price action invites further CTA shorting. All of these flows pose risk for fundamental investors eager to buy the market dip. Fundamental investors may wish to time their market entry to coincide with the abatement of these technical selling pressures.”
* * *
In other words, if JPM is right, yesterday and today are merely the eye of the hurricane – enjoy them; tomorrow is when the winds return full force.
For your enjoyment;
(courtesy zero hedge)
Art Collectors Pawn Masterpieces To Meet Market Rout Margin Calls
Earlier this year, Picasso’s Women of Algiers (Version O), set an auction house record when it sold for $179,365,000, including the house’s premium, prompting us to remark that if you were looking for signs of runaway inflation, Christie’s may be a good place to start. We remarked further:
The nearly $200 million price tag for the “riot of colors focused on scantily dressed women” is, according to WSJ, reflective of the work’s “trophy” status which it earned as a result of its “ownership pedigree”. Translated from high-end art world parlance to plain English: for billionaires who have seen their obscene fortunes balloon under monetary policies designed to inflate financial assets at the expense of everything else (including market stability), purchasing art affords the buyer an even greater opportunity to “boast” than hoarding $100 million homes because after all, there a lot of mega mansions, but there’s only one vibrant, multi-hued Picasso riff on a Delacroix, so really, $180 million is a bargain, especially when most of the purchase price will be recouped by S&P 2,500, or SHCOMP 6,000 (depending on the nationality of the unnamed buyer).
Well that was then, and this is now, and after the close of trading in Shanghai and New York on Monday, the SHCOMP was sitting at 3,209 and the S&P was at 1,893, prompting some of the collectors who had so willingly forked over tens and even hundreds of millions for “riots of colors” on canvas were suddenly forced to consider pawning these treasures for cash as the margin calls rolled in.
Here’s Bloomberg with more:
Art dealer Asher Edelman’s vacation in Comporta, Portugal, was interrupted Monday by inquiries from clients as global equities plunged.
Some asked about borrowing against their art collections from Edelman’s art-financing company ArtAssure Ltd. Others wanted to sell works. Everyone was looking for the same thing: liquidity.
“There are many margin calls,” Edelman said in a phone interview, adding that no deals were struck yet.
Boutique lenders said they were unusually busy in late August, when most of the art world is on holiday. Global equities and the art market have become intertwined as art prices have soared and more wealthy buyers view their collections as an investment they can borrow against.
“Ten years ago no one in the art market paid close attention to these corrections in the stock market,” said Elizabeth von Habsburg, managing director of Winston Art Group, an independent art appraisal and advisory firm. “Now clients respond immediately.”
“When liquidity leaves the marketplace people will consider art loans as an option to replace volatile margin securities loans,” said John Arena, senior credit executive for Bank of America’s Private Wealth Management Business. He said his group — which didn’t see a spike in art loan inquiries Monday — doesn’t limit its credit exposure to art loans during market turmoil.
Edelman said his clients asked about the borrowing terms against works ranging from Iranian artifacts to Andy Warhol paintings.
And while some clients were content to borrow, others apparently opted for firesales, causing dealers to line up bank financing in order to take advantage of opportunistic prices.
Collectors aren’t the only ones looking for liquidity with art-backed loans. Art Finance Partners, a New York-based firm, was contacted on Monday by dealers looking to borrow money to close private sales.
In one instance, market uncertainty spurred the seller of a painting by Camille Pissaro, with the asking price of about $500,000, to close the transaction with a dealer, who will use a loan to buy the work, said Andrew Rose, president of Art Finance Partners.
With the deadlines to consign art for the November auctions coming up, some collectors have decided to sell works rather than wait.
“Some are pulling the trigger,” Rose said. “People want certainty.”
So it would appear that China, via the pressure its collapsing stock market and currency shocker have put on global equities, has single-handedly reversed the fortunes of the hyperinflating high-end art world as collectors’ collective scramble for liquidity is creating a buyer’s market and indeed, as one expert told Bloomberg, “hot emerging artists whose prices exploded in the past year [have] recently started to cool off.”
In other words, even Picasso isn’t immune from exported Chinese deflation.
Well that about does it for tonight
I will see you tomorrow night