Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1131.60 down $1.50 (comex closing time)
Silver $14.57 up 3 cents.
In the access market 5:15 pm
Here is the schedule for options expiry:
LBMA: options expire Monday, August 31.2015:
OTC contracts: Monday August 31.2015:
First, here is an outline of what will be discussed tonight:
I reported to you late Friday night, that an additional 58 contracts of gold were served upon. There has been no additional filings.
At the gold comex today on first day notice, we had a poor delivery day, registering only 4 notices for 400 ounces Silver saw 167 notices for 835,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.60 tonnes for a loss of 78 tonnes over that period.
In silver, the open interest fell by 5161 contracts despite the fact that silver was up in price by 12 cents on Friday. Again, our banker friends used the opportunity to cover as many silver shorts as they could. The total silver OI now rests at 158,436 contracts In ounces, the OI is still represented by .819 billion oz or 117% of annual global silver production (ex Russia ex China).
In silver we had 167 notices served upon for 835,000 oz.
In gold, the total comex gold OI collapsed to 413,158 for a loss of 2479 contracts. We had 4 notices filed on first day notice for 400 oz today.
We had no change in tonnage at the GLD today/ 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 a huge addition of 954,000 in silver inventory at the SLV tune of / Inventory rests at 325.922 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver fall by 5161 contracts down to 158,646 despite the fact that silver was up by 12 cents in price with respect to Friday’s trading. The total OI for gold fell by 2479 contracts to 415,637 contracts, as gold was up by $10.70 on Friday.
2.Gold trading overnight, Goldcore
3. Six stories on China tonight. The markets were again rescued by POBC and now arrests are being made. The big news last week 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. Today the yuan was bought in volumes by the POBC and thus wads of USA treasuries were again sold. It also looks like German bunds were also sold. We had another chemical explosion in Shandong province. This is the 3rd major blast in 3 weeks.
4.A Grenade attack on the Ukrainian Parliament today.
5. Over the weekend massive protests in Malaysia.
(3 stories/Bloomberg/zero hedge)
6.Venezuela is running out of food
7. Three oil related stories
8 Trading of equities/ New York
9. USA stories:
a) Chicago PMI and Milwaukee PMI both stall
b) the all important Dallas Fed now in negative territory
both of the above caused the NYSE to have a bad day today.
c. This week’s wrap up with Greg Hunter and Craig Hemke
(Greg Hunter/USAWatchdog,Craig Hemke)
10. Physical stories:
- Premiums for physical gold and silver rising (Jessie’s Americain cafe)
- South Africa to promote platinum (but not gold???) /Reuters
- Smaulgld reports a huge 73 tonnes of gold demand from China in latest reporting week. Also Jessie reports on the same subject.
- Two commentaries on the finding of that Nazi Gold Train/Reuters/Newsmax
- Another ten tonnes of gold leaves FRBNY after a one month hiatus/Harvey,FRBNY,zero hedge
- Isis advertises new gold coin as currency but pay their soldiers in dollars (DailyMail/London/GATA)
- New app to store gold from Bitcoin/CanadianPress/Toronto
- Bill Holter’s important paper tonight is titled: “”Something” just happened!”
- A gold dealer/jeweller from Dubai with 150 stores has defaulted over 135 million owing to several banks. (GATA/Reuters)
- Gold quantities spiking over at the LBMA as massive quantities move from London to China, India and Russia. (jessie/Americain cafe)
Let us head over and see the comex results for today.
September contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||268.47 oz Delaware,HSBC,Manfra) oz|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||1060.87 oz (HSBC,Manfra)_|
|No of oz served (contracts) today||4 contracts (400 oz)|
|No of oz to be served (notices)||268 contracts (26,800 oz)|
|Total monthly oz gold served (contracts) so far this month||4 contracts(400 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||268.47 oz|
Total customer deposit: 1060.87 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
August silver final standings
August 31 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||1,603,393.382 oz (Brinks,Delaware,CNT, Scotia)|
|Deposits to the Dealer Inventory||99,961.45 oz CNT|
|Deposits to the Customer Inventory||904,454.05 oz (Brinks, CNT)|
|No of oz served (contracts)||167 contracts (835,000 oz)|
|No of oz to be served (notices)||2031 contracts (10,155,000 oz)|
|Total monthly oz silver served (contracts)||167 contracts (835,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||nil|
|Total accumulative withdrawal of silver from the Customer inventory this month||1,603,353.382 oz|
Today, we had 1 deposit into the dealer account:
i) Into CNT: 99,691.45 oz
total dealer deposit; 99,691.45 oz
total customer deposits: 904,454.05 oz
total withdrawals from customer: 1,603,353.382 oz
And now SLV:
August 31.a huge addition of 954,000 oz were added to inventory today at the SLV/Inventory rests at 325.922
August 28.2015: no change in inventory at the SLV/Inventory rests tonight at 324.698 million oz
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. * * * * *
Gold Set for Best Month Since January as Stock Market Rout Lifts Safe Haven
Today’s Gold Prices: Bank Holiday in UK today
Friday’s Gold Prices: USD 1,125.50, EUR 998.23 and GBP 730.99 per ounce.
Last week gold and silver prices fell and gave up some of the gains from the previous week. Gold was 2% lower on Friday and indeed 2% lower for the week and closed at $1134.40 per ounce. Silver was 4.5% lower for the week and closed at $14.59 per ounce but is just 1.8% lower for the month of August.
August has been a tumultuous month with stocks seeing sharp losses and gold has again protected investors from sharp losses. Gold has had a 3.36% gain for the month so far (see table below).
Gold is on track for the best monthly advance since January after most market participants were surprised by the devaluation of China’s currency. This has fueled concerns about furthercurrency wars and about the world’s second-largest economy and indeed the global economy may be vulnerable to a recession – potentially a severe one.
Gold exchange-traded fund holdings rose to a one-month high last week on safe haven demand. The MSCI All-Country World Index of equities is headed for the worst monthly performance since May 2012 and a gauge of 22 raw materials was set to decline for a second month.
Gold Set for Best Month Since January as Rout Lifts Haven Assets – Bloomberg
Asian stocks set for worst monthly drop in three years on global rout – Reuters
Stocks Set for Worst Month Since 2012 as Fed, China Woes Collide – Bloomberg
Polish Government Confirms Discovery Of Nazi “Gold Train”, Warns It May Be Booby-Trapped – Zero Hedge
App for that? BitGold looks to take gold savings mainstream – CTV News
South Africa to promote platinum as central bank reserve asset – Reuters
The Fed Spent $23 Billion In 3 Days, But Still Had A Hard Time Pushing Up Stocks – Seeking Alpha
Red Alert For 2nd Crash Downwave… – CliveMaund.com
The Central Bankers’ Malodorous War On Savers – David Stockman’s Contra Corner
Since 2014 Foreign Central Banks Have Withdrawn 246 Tons Of Gold From The NY Fed – Zero Hedge
When David beats Goliath – Davidmcwilliams.ie
(courtesy Jessie’s American cafe)
Despite Being A ‘Pet Rock’, The Premium For Physical Bullion Is Exploding
While status quo-huggers are all too happy to point out gold and silver’s lack of utter exuberance amid this week’s carnage, perhaps they need to re-comprehend the difference between a heavily manipulated ‘paper’ market and the surging demand for physical precious metals that is evident in the 20-plus percent premium – and rising – being paid for silver bullion currently…
“One important aspect of the physical market that is often overlooked is the premium it commands over spot price. Right before the Global Financial Crisis in 2008, the spot Silver price fell as low as USD 9 per oz., whereas the price of a 1 oz. Silver Eagle was around USD 17 on the wholesale market and even higher on the retail market! That’s a price premium of 188%!
That means that if you had held 100 oz. of paper Silver, you might have had to liquidate that for USD 900 (assuming the market was not halted for trading then), whereas if you had held 100 pieces of 1 oz. Silver Eagle coins, you would have gotten at least USD 1700 for them if not more.”
Gold quantities are spiking off the LBMA:
(courtesy Jessie of Americain cafe)
30 August 2015
Gold Coming Off the LBMA Spiked Last Week
There was a interesting spike in physical gold activity last week on the LBMA.
It could be some seasonal phenomenon connected with the end of August and the approach of the prime season for gold.
But it also seems consistent with the ‘tension on the tape’ that I have been seeing. And a number of little indicators and some interesting things, like the generally ‘well informed’ Goldman taking delivery of gold at the Comex for their house account.
One outcome of this increase in physical gold flows *might* be the realization of the cup and handle bottom formation on the gold chart, and a quick run to target around the 1250 to 1270 area. And depending on what else goes with it, that might just be for openers.
Or it might once again be ignored and come to nothing.
But it does seem that the gold flows from the West to the markets in China and India are intensifying at these prices based on a number of diverse data points.
One cause of this could be a divergence between the paper price of gold with leverage and the actual physical markets because the price of gold as set in London and New York is below the clearing price in dollars as part of a momentum trend in the forex markets.
If a commodity price is set below the natural clearing price, one would expect to see the demand for the real underlying asset increasing.
Those who flatly dismiss the possibility there can be such a divergence between the market price and the natural clearing price have not been paying attention to what has been going on in any number of rigged markets over the past few years.
The excessive speculation fueled by a surfeit of paper money in a few hands and slack regulation that permits the unsustainable reckless pyramiding of positions is a good contender for the theme of the last two decades.
For what it is worth, I am seeing what appear to be increasing signs of ‘fragility’ in the precious metals market. And in a nutshell, I am thinking that we are seeing a bear market bottom. Trends, especially in forex related markets, often tend to overshoot and overstay their time.
But like the proverbial search for the lost keys, we will find the end of this era of financial madness in the last crisis, and perhaps that will be the one that breaks the Banks.
The chart below was provided by Nick Laird at goldchartsrus.com.
Fascinating!! and not promote gold???
Reuters: South Africa to promote platinum as central bank reserve asset
Submitted by cpowell on Sat, 2015-08-29 20:47. Section: Daily Dispatches
So why haven’t they figured this out for gold too? Are there no patriots in South Africa’s government?
* * *
South African Mine Industry Job Plan Targets Platinum as Central Bank Reserve Asset
By Ed Stoddard
Wednesday, August 26, 2015
JOHANNESBURG, South African — South Africa’s mining industry, unions, and the government have committed to a broad plan to stem job losses, including boosting platinum by promoting the metal as a central bank reserve asset, according to a draft agreement seen by Reuters on Wednesday.
The parties also said they would strive to delay layoffs, sell distressed mining assets instead of closing them, and look at ways of streamlining the legal process employers must follow to cut jobs.
The mining industry, which contributes around 7 percent to Africa’s most developed economy, is struggling with sinking commodity prices, rising costs, and labor unrest, forcing a number of companies into mine closures and layoffs.
The agreement is expected to be signed on Monday next week after its details were hammered out on Tuesday.
The draft agreement lays out 10 wide interventions including getting the BRICS group of emerging nations to hold “platinum as a reserve asset” — like gold — in their central banks. Brazil, Russia, India, China, and South Africa comprise the BRICS.
South Africa sits on close to 80 percent of the world’s known reserves of platinum, a metal used in emissions-capping catalytic converters and facing depressed demand. …
… For the remainder of the report:
Polish Government Confirms Discovery Of Nazi “Gold Train”, Warns It May Be Booby-Trapped
Last weekend we reported that in the past month two men, a Pole and German, claimed to have discovered the legendary Nazi “gold train” – a 150 meter long German train alleged to be full of gold, gems and weapons, which disappeared just before the end of World War II – in the proximity of the Polish town of Walbrzych, close to where the Nazi are said to have loaded up the train with valuables for its final voyage in the town of Wroclaw, just as the Soviet forces approached in 1945.
As we detailed, the train is said to have been entombed in the vast tunnel labyrinth located close to Ksiaz castle, which served as Nazi headquarters during World War II…
Ksiaz castle, Nazi headquarters during World War II
… and specifically, was said to be located at the foot of the Sowa mountain, in the woods three miles outside the town of Walbrych.
The “gold train” is said to be located under this hill
While many were skeptical that the mystical Nazi treasure train had been finally discovered after many years of searching, an official update last Friday by the Polish government suggested that that may indeed be the case. As the Mail reported on Friday, a representative of the Polish culture ministry, Poland’s National Heritage and Conservation Officer Piotr Zuchowski, said that the man who helped hide the train had revealed its location shortly before he died, and that proof of the train has been observed on radar.
Zuchowski added that “Information about where this train is and what its contents are were revealed on the deathbed of a person who had knowledge of the secret of this train.’ He added that Polish authorities had now seen evidence of the train’s existence in a picture taken using a ground-penetrating radar. He said the image – albeit blurred – showed the shape of a train platform and cannons.
Piotr Zuchowski, Poland’s National Heritage and Conservation Officer, confirmed the ‘unprecedented’ find
Mr Zuchowski said the find was ‘unprecedented’, adding: ‘We do not know what is inside the train.‘Probably military equipment but also possibly jewellery, works of art and archive documents.
‘Armored trains from this period were used to carry extremely valuable items and this is an armored train, it is a big clue.’ He said authorities were now ’99 percent sure the train exists’ and whatever is on it will be returned to the rightful owners, if they can be found. ‘We will be 100 per cent sure only when we find the train,’ Mr Zuchowski added.
The train found in the mountains is an ‘armored train’ which looks similar to the one pictured
Mr Zuchowski told reporters that the train was about 100 metres long but added: ‘It is not possible to disclose the exact location of where the train can be found. Still, he noted cryptically that “The local government in Walbrzych knows where it is.”
He explained it is hidden along a 4km stretch of track on the Wroclaw-Walbrzych line.
Mr Zuchowski said the person who claimed he helped load the gold train in 1945 said in a ‘deathbed statement’ the train is secured with explosives. The official declined to comment further about the man who said this but speculation is now rife that it was a former SS guard or a local Pole who stumbled upon the train before hiding it.
Deputy Mayor of Walbrzych, Zygmunt Nowaczyk told the press: ‘The city is full of mysterious stories because of its history. ‘Now it is formal information – we have found something.’
Key excerpts from the press conference by the Polish official can be seen on the Euronews clip below:
The confirmation of the discovery unleashed a surge of treasury hunters, and forced the Polish government to warn the population to stop looking because it could be booby-trapped and dangerous. Zuchowski said “foragers” have become active since two people claimed to have discovered the train last week and urged eager fortune-hunters to stop searching, saying they risk injury or death.
Zuchowski adds that “there may be hazardous substances dating from the Second World War in the hidden train, which I’m convinced exists. I am appealing to people to stop any such searches until the end of official procedures leading to the securing of the find. There’s a huge probability that the train is booby-trapped.’
If anything, tthese warnings are sure to unleash an even more aggressive wave of seekers now that the train’s existience has been confirmed, and the government is actually warning seekers to be careful in their search.
But perhaps what is more interesting is just what the discovery, which would be straight out of an Indian Jones sequel, will contain, and whether someone already got to the precious cargo over the past 7 decades. The answer should be made public shortly.
Report: Putin Could Seize Nazi Gold Train for Alleged Soviet Reparations
Report: Putin Could Seize Nazi Gold Train for Alleged Soviet Reparations
Sunday, 30 Aug 2015 02:02 PM
Russian strongman Vladimir Putin may be moving to seize the famed Nazi ghost train laden with gold that has ostensibly been discovered in Poland.
How could he do it? A Russian lawyer says Kremlin could lay claim to the valuables as compensation for the country’s losses in the Second World War, according to the Independent.
The so-called ‘Nazi gold train’ has been reportedly been found hear the town of Walbrzych, where rumors have been constant for years that a train filled with gold had been abandoned during the Nazi era and was lying undiscovered nearby. Polish government officials say that they are now “more than 99 per cent certain the train exists.”
The train could reveal the long-sought solution to the mystery of the ‘Amber room’ – an ornate chamber made of amber pearls thought to be worth at least $300 million. It was stolen by German troops from a palace near St. Petersburg during the war.
The Russian lawyer told a Russian news site that “representatives of Russia should undoubtedly be involved in determining the value of the items discovered if the train is located.
“In this case, Poland is obliged to engage international experts to clarify what is in the cargo. If the property has been taken away from territory, including the USSR, then the cargo, in accordance with international law, must be passed to the Russian side,” the lawyer said.
© 2015 Newsmax. All rights reserved.
Read Latest Breaking News from Newsmax.com http://www.newsmax.com/Newsfront/nazi-gold-train-russia/2015/08/30/id/672660/#ixzz3kORNFsaO
Urgent: Rate Obama on His Job Performance. Vote Here Now!
Saturday morning August 29, saw the FRBNY report its earmarked gold.
The report showed that :
(courtesy zero hedge)
Since 2014 Foreign Central Banks Have Withdrawn 246 Tons Of Gold From The NY Fed
First it was Germany who redeemed 120 tons of physical gold in 2014; then it was the Netherlands who “secretly” redomiciled 122 tons of gold; then this past May, we learned that Austria would be the third “core” European nation to repatriate most of its offshore gold, held primarily in the Bank of England, redepositing it in Vienna and Switzerland.
In short, beginning in 2014 and continuing through today, the gold “bleeding “from the vault located 90 feet below street level at 33 Liberty Street (and which may or may not be connected by a tunnel to the JPM gold vault locatedjust across the street at 1 Chase Manhattan Plaza) has continued. As the chart below shows, while central banks assure the population that there is nothing to worry about when it comes to paper money, and in fact it is the evil ISIS terrorists who plot and scheme to crush the benevolent Fed with their terroristy “gold dinars” and if not that then their made in Hollywood propaganda movies, they have been quietly pulling gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve.
According to the latest just released monthly update of foreign official assets held in custody at the NY Fed, in July the total holdings of foreign earmarked, i.e., physical, gold declined to just over $8 billion when evaluated at the legacy “price” of $42.22 per ounce. In ton terms, this means that after declining below 6000 tons in January, for the first time since FDR’s infamous gold confiscation spree, the total physical gold held at the NY Fed dropped another 9.6 tons in July, down to 5,950 tons.
This is the lowest amount of gold held by the NY Fed in custody in decades, is the 18th consecutive month of flat or declining gold, and when added to previous outflows, amounts to 192 tons of gold withdrawn in the past 12 months, and a whopping 246 tons pulled since the start of 2014.
Indicatively, during the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed’s bailout of the western financial system.
If past is prologue, one should ask: what current or future event is driving the ongoing redemption of gold from the NY Fed this time?
(courtesy London’s Daily Mail/GATA)
ISIS advertises its new gold coins but still pays its gunmen in U.S. dollars
Submitted by cpowell on Sun, 2015-08-30 18:08. Section: Daily Dispatches
ISIS Release Pictures of Their New Gold Coins They Say Will ‘Break Capitalist Enslavement’ — So Why Are They Still Paying Their Deranged Gunmen in U.S. Dollars?
By Tom Wyke
Daily Mail, London
Sunday, August 30, 2015
ISIS have released a new hour-long video, showing off their latest propaganda tool — their very own coin currency.
The video, which includes a dreary and distorted history of world economics, shows the smelting of gold, silver, and copper coins.
Dramatised by clips from Hollywood war films, the film accuses the United States of “confiscating Americans’ real wealth through an executive decree” with the introduction of the Gold Reserve Act in 1934.
Yet despite their glorification of their new currency, ISIS have no other means to pay their band of jihadis except through the use of U.S. dollars. …
… For the remainder of the report:
(courtesy Canadian Press/Toronto)
App for that? BitGold looks to take gold savings mainstream
Submitted by cpowell on Sun, 2015-08-30 17:59. Section: Daily Dispatches
By Ian Bickis
The Canadian Press
via CTV News, Toronto
August 30, 2015
CALGARY, Alberta, Canada — Want to buy gold as a savings alternative? Well, you guessed it — there’s an app for that.
Josh Crumb, co-founder of BitGold, says he created the software that automatically links buyers to bullion dealers and storage companies because he wanted to make it easier for people to own gold as a hedge against inflation and as a store of value.
“It’s just so much easier, like everything else, to do it from your mobile phone,” Crumb said.
The system charges a 1 percent fee to exchange cash into gold and back but storage is free. It also allows users to transfer their gold value to a prepaid credit card, so they can actually buy a cup of coffee with their gold holdings, Crumb said.
“It gives the ability without having to go to coin shops and shave off some flakes of gold to buy something.” …
… For the remainder of the report:
A huge 73 tonnes of gold was withdrawn from vaults last week.
Shanghai Gold Exchange volume for the week ended August 21, 2015.
The Shanghai Gold Exchange withdrawals were 72.91 tons of gold during the week ended August 21, 2015.
Withdrawals on the Shanghai Gold Exchange were the fourth largest ever.
Total gold withdrawals on the Shanghai Gold Exchange year to date are 1,658.22 tons.
Withdrawals on the Shanghai Gold Exchange are running 37.2% higher than last year.
China’s Insatiable Demand for Gold
The Shanghai Gold Exchange (SGE) delivered 72.91 tons of gold during the week ended August 21, 2015. The prior week the SGE delivered 65.31 tons of gold.
The two week total of withdrawals is over 121 tons of gold and the year to date total is1,585.31 tons, for an annualized run rate of approximately 2,600 tons.
Shanghai Gold Exchange Withdrawals During the Two Week Period Ended 8/21/2015 vs. Comex 2014 Deliveries
Volume of Gold Withdrawals on the Shanghai Gold Exchange
The volume of withdrawals of gold on the Shanghai Gold Exchange as of August 21, 2015, is running 37% higher than 2014 during the same period and 13.3% higher than 2013’s record pace.
China is becoming the center of the Asian gold world. A $16 billion China Gold Fund was announced in May and the Shanghai Gold Exchange continues to establish itself as viable competitor to the gold trading centers in London and Chicago. China’s gold imports, trading and mining production are one of the cornerstones of China’s de-dollarization/Yuan strengthening initiatives that focuses no so much on selling U.S. Treasuries but creating alternative financial systems like the Asian Infrastrucure Investment Bank.
China is widely believed to be making a play for inclusion in the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs) Program later this year. If China fails to gain inclusion in the SDR, its recent initiatives to strengthen its currency and gain greater acceptance of the Yuan may provide a strong alternative to the IMF regime.
China Updates its Gold Holdings
China recently announced their first update to their official gold holdings since 2009. The People’s Bank of China announced that their gold holdings had climbed from 1054 tons to 1658 tons, making China the fifth largest gold holding nation in the world.
China chose to incude six years worth of gold accumulation (over 600 tons) all in the month of June.
Earlier this month China reported that they added 19.3 tons (610,000 ounces) of gold to their reserves in July bringing their total to 1,677 tons (53.93 million ounces).
Jessie, of Americain cafe on the same subject as to the huge 73 tonnes of gold demand coming from the citizenry of China:
28 August 2015
Shanghai Exchange Has 73 Tonnes of Gold Withdrawn In 4th Largest Week In History
There were a little over 73 tonnes of physical gold withdrawn from the Shanghai Gold Exchange in the latest week ending August 21st.
This is the 4th largest withdrawal of bullion in its history.
It is hard to tell what exactly is going on in such a dodgy, highly leveraged market, with its determined attempts to keep the price knocked lower so often during the late London to NY trading hours.
But I am sensing a change in the market, and more things running under the surface than meets the eye.
Goldman is no major player in the gold bullion market, but it did strike me as odd that they are suddenly stopping large amounts of bullion for their own house account this month. It is not that they are a player in gold, because they are not. But that they are wired into many sources of information, are good at spotting trends, and are more like a hedge fund, comfortable running on the edge of the markets.
And the gold chart, for what it is worth in these times of market interventions, seems to be trying to form a rounded bottom in the form of a cup and handle, with a successful retest of the handle this week. This calls out a price around the bottom of the old trend channel at 1270.
It could also be nothing. I will pursue the details of such a chart formation if we see the right kinds of follow through next week.
And I will certainly be watching silver very carefully for any signs of life. It may be pivotal next month.
Let’s see what next week brings. Gold is just one market among many, and it is certainly not the largest one in play.
And while I have your attention, I thought I would include a long term chart of the relation of deliverable gold at current prices to open interest. It might mean nothing. But it doesn’t seem to be anything familiar before 2013.
The charts below courtesy of data wrangler Nick Laird at goldchartsrus.com.
This is interesting
they do not know why they defaulted!!
Dubai gold retailer defaults on $136 million
Submitted by cpowell on Mon, 2015-08-31 14:11. Section: Daily Dispatches
By Stanley Carvalho and Tom Arnold
Monday, August 31, 2015
DUBAI, United Arab Emirates — A Dubai-based gold and jewellery retailer has defaulted on loans worth about 500 million dirhams ($136.2 million), with banks considering options including legal action to retrieve the money, four banking and trade sources told Reuters.
The non-payment by Atlas Jewellery, which has more than 50 branches across the Gulf and in India, affects at least 15 banks, the sources said on condition of anonymity because the information isn’t public.
It was not clear why Atlas Jewellery had failed to honor its debts. Company officials declined to comment and Reuters was unable to contact the company’s owner, M.M. Ramachandran. …
… For the remainder of the report:
And now Bill Holter with an important paper tonight…
(courtesy Bill Holter/Holter-Sinclair collaberation)
“Something” just happened! (reprint)
“Something” happened three weeks ago. While we cannot be sure “what” exactly happened, we can speculate. We have many dots and lots of data points to help us but first it needs to be pointed out, even if wrong in conclusion …just the knowledge alone that “something changed” is enough. If you know something has changed, you can take clues and look at various markets for inflection points. Currently, most markets are stretched to various limits. Whether it be zero bound credit markets, equities, real estate, commodities or gold and silver, all values had reached extreme highs or lows.
1 Chinese yuan vs USA dollar/yuan rises considerably this time to 6.3761/Shanghai bourse: red and Hang Sang: green
Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.
2 Nikkei down 245.84 or 1.28.%
3. Europe stocks all deeply in the red /USA dollar index up to 96.00/Euro up to 1.1208
3b Japan 10 year bond yield: falls to .3760% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.26
3c Nikkei now below 19,000
3d USA/Yen rate now just above the 121 barrier this morning
3e WTI: 44.35 and Brent: 48.86
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .738 per cent. German bunds in negative yields from 4 years out.
Except Greece which sees its 2 year rate rises to 13.03%/Greek stocks this morning down by 1.43%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield rises to : 9.31%
3k Gold at $1132.60 /silver $14.54 (8 am est)
3l USA vs Russian rouble; (Russian rouble down 1 2/3 in roubles/dollar) 66.88,
3m oil into the 44 dollar handle for WTI and 48 handle for Brent/Saudi Arabia increases production to drive out competition.
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (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 .9645 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0810 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 +.738%
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 2.16% early this morning. Thirty year rate below 3% at 2.88% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
China Dramatically Intervenes To Boost Stocks Despite Reports It Won’t; US Futtures Slump On J-Hole
Yesterday, the FT triumphantly proclaimed: “Beijing abandons large-scale share purchases“, and that instead of manipulating stocks directly as China did last week on Thursday and Friday, China would instead focus on punishing sellers, shorters, and various other entities. We snickered, especially after the Shanghai Composite opened down 2% and dropped as low as 4% overnight:
Less than five hours after this tweet, we found out that our cynical skepticism was again spot on: the moment the afternoon trading session opened, the “National Team’s” favorite plunge protection trade, the SSE 50 index of biggest companies, went super-bid and ramped from a low of 2071 to close 140 points higher, ending trading with a last minute government-facilitated surge, and pushing the Composite just 0.8% lower after trading down as much as -4.0%.
It wasn’t just direct stock market intervention: Bloomberg reported that additionally the PBOC also conducted another Short-term Liquidity Operations with some banks Monday, adding that tenors offered included six-day loans. Recently, the PBOC had conducted 7-day CNY60b SLO at 2.35% on Aug 28 and 140b yuan 6-day SLO at 2.30% on Aug 26.
China’s interventions were to be expected: what the FT got right is that the government is intent on “providing a “positive market environment in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression.” The question is whether once the September 3 event is over, will China finally allow stocks to truly trade down. We doubt it: just like the Fed has found 7 years later when even the tiniest of rate hikes threatens to collapse the house of cards, so China will hardly dare to step away at least until the Chinese premier Li Keqiang is sacrificed, literally or metaphorically, to appease the millions who have lost everything and then some (thanks to margin).
Elsewhere in Asia, equity markets traded lower following Fed’s Fischer comments over the weekend which implied that a September rate hike has not been completely ruled out. China’s Shanghai Comp, despite the late government intervention, led the region lower, after reports authorities would stop supporting stock markets through large scale buying, while Nikkei 225 (-1.3%) traded in negative territory following the release of Japanese industrial output where both M/M (-0.6%) and WY (+0.2%) figures missed expectations. 10yr JGBs traded higher amid the risk off tone in Asia while the BoJ were also in the market for JPY 1.18trl of JGBs.
Utilities underperformed on the sector breakdown as European equities spend the morning in the red (Euro Stoxx -1.2%) as participants remain concerned over the ongoing volatility in Asian markets, with RWE (-2.5%) trading sharply lower following reports that one of RWE’s municipal shareholders, expects the company to slash its dividend by as much as half. On the other hand, ENI (+3%) shares surged at the open after the company and also ensured that the Italian benchmark FTSE-MIB index outperformed, despite falling into the red during the morning, after the Co. announced that it has made a huge gas field discovery off Egyptian coast Lower stocks and dovish comments by ECB’s Constancio, who said that the fall in oil prices is an issue with regards to inflation despite the efforts of the central banks’ QE programme, kept Bunds bid, albeit marginally. However it is worth noting that trade volumes were below the usual levels given the closure of the UK’s financial district due to the August bank holiday.
In FX, EUR/USD gradually moved off the best levels printed ruing the late Asian trading hours, weighed on by touted selling by macro and corporate accounts, failure to break above 0.7300 level by EUR/GBP and dovish comments by ECB’s Constancio. Elsewhere, the ongoing volatility stemming from China, together with lower copper prices, saw AUD trade lower, with AUD/USD consolidating in 0.7100 area.
Going forward, market participants will get to digest the release of the latest EU CPI, which printed in fractionally hotter than expected, at 0.2%, vs consensus of 0.1%, and the release of the latest Chicago PMI report.
In terms of Central bank speakers and news from over the weekend:
- Fed’s Fischer (Voter, Soft Dove) said the first rate-hike would come when there is “some further improvement in the labour market” while ‘there is good reason to believe inflation will move higher and forces holding down inflation will dissipate further’. (WSJ) This comes after earlier comments that that it was too early to make a decision on a rate-hike in September. (CNBC/RTRS)
- Fed’s Lockhart (voter, neutral) stated that a rate lift-off is near and that it is an “open question” whether
the members of the FOMC decide to lift interest rates now or delay until another meeting. (RTRS)
- Fed’s Kocherlakota (Non-voter, Dove) stated that he would prefer a rate hike to occur in the 2H of 2016. (Fox Business)
- Fed Watcher Hilsenrath interpreted these comments as hawkish suggesting that the central banker did not rule out September and the point at which Fischer believes inflation will pick-up is getting closer. (WSJ)
- ECB’s Constancio (Dove) says the fall in oil prices is an issue with regards to inflation despite the efforts of the central banks’ QE programme. (RTRS)
- BoE Governor Carney (Neutral) said that a slowdown in China’s economy could push down further on inflation but at this moment in time does not alter the central bank’s position on when it will hike rates. (Observer)
- SNB’s Jordan stated the CHF is highly overvalued at present levels and interest rates will remain negative for a while. (RTRS)
Energy and base metals markets remained under pressure amid the ongoing supply glut in the market, as well as the slowdown in China. Nonetheless, despite the downside across the metals complex, gold prices traded relatively flat overnight with a mild gain seen amid a pullback in the greenback from Friday’s highs and weakness across equity markets and are on track for their best month since January.
Bulletin Headlin Summary from Bloomberg and RanSquawk
- Stocks in Europe traded lower, as market participants continued to fret over the ongoing volatility in Asian markets
- Appetite for risk was dented by somewhat hawkish comments by Fed’s Fischer, with WSJ’s Hilsenrath subsequently pointing out that comments indicate that the central banker did not rule out September rate hike
- Focus going forward will be on the release of the latest Chicago PMI report for the month of August
- Treasuries diverge as decline in long yields drives curve flattening; global stocks and crude oil lower as markets await August payrolls report on Friday.
- China’s securities regulator held meeting with representatives from 50 brokerages on Aug. 29 and told them to contribute an additional 100b yuan to support the stock market, said people familiar with the matter
- China has decided to abandon attempts to boost the stock market through large-scale share purchases and has shifted its focus to investigating and punishing manipulators, FT reports, citing an account of unidentified senior regulatory officials speaking at a meeting on Thursday
- Options traders have never been so pessimistic on China’s stock market, betting the government’s renewed effort to prop up share prices is doomed to fail
- Fed Vice-Chair Stanley Fischer proclaimed his faith at Jackson Hole this weekend that inflation is poised to move upward, suggesting a September move by Fed has not been ruled out
- The euro area’s inflation rate held steady in August, highlighting the challenge facing ECB policy makers as they seek to revive consumer-price growth
- Democratic Senator Jeff Merkley of Oregon said he will vote to support the Iran nuclear deal, a pledge that puts Obama only three votes short of protecting the pact in Congress
- One IG deal for $700m priced last week, no HY deals. BofAML Corporate Master Index -3 to +169 from +172, widest since Sept 2012; YTD low 129. High Yield Master II OAS -19bp to +572; reached +614 last week, widest since July 2012; YTD low 438
- Sovereign 10Y bond yields mostly lower. Asian and European stocks mostly lower, U.S.equity-index futures decline. Crude oil falls, gold and copper little changed
DB’s Jim Reid completes the overnight recap
So after we put an interesting and exhausting week of huge swings in markets behind us and look forward to the next five days, any hope that we might see some calm return to markets may have to be put on hold temporarily with the last payrolls report before the September 16th/17th FOMC meeting due on Friday afternoon, giving economists, analysts and the market another chance to fine tune their liftoff expectations. Fedspeak between now and then will also take on more significance with each passing day and we can look forward to comments from Rosengren on Tuesday and Lacker on Friday. We’ve got the usual full run down of the week ahead at the end but it’s Fedspeak that we start with this morning after a bumper last few days of comments, including from Fed-Vice Chair Fischer on Saturday at the Jackson Hole symposium.
Without pinning down any specific hints on timing but still leaving the September liftoff door open, Fischer’s tone certainly felt like it weighed on the more hawkish side, saying that the Fed should not wait until it meets its inflation goal while voicing confidence that prices should head higher. Specifically, Fischer said that ‘given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further’ and that ‘with inflation low, we can probably remove accommodation at a gradual pace’ however ‘because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2% to begin tightening’. The comments came a day after a TV interview with CNBC in which Fischer noted that ‘the change in the circumstance which began with the Chinese devaluation is relatively new and we’re still watching how it unfolds, so I wouldn’t want to go ahead and decide right now what the case is – more compelling, less compelling etc’, before noting that ‘we’ve got a little over two weeks before we make the decision’ and that ‘we’ve got time to wait and see the incoming data, and see what is going on now in the economy’.
It wasn’t just Fischer we heard from at the event. Speaking on Friday, more hawkish commentary came in the form of non-voters Mester and Bullard. Mester in particular said that ‘my view so far in looking at all of the factors is that the economy can sustain an increase in interest rates’, while Bullard signaled that the volatility of the last 10 days would not be enough to change his view that the US economy can sustain a rate rise. The lone voice in the dovish camp on Friday, Kocherlakota, said that ‘I don’t see a near term increase in interest rates as being appropriate, and by near-term I mean really through the course of 2015’. Meanwhile Lockhart, speaking once again, commented that timing for liftoff ‘is close’ but that it’s an ‘open question’ whether the Fed moves now or waits a little, noting that the October FOMC is a ‘live meeting’ and ‘in play’.
So with all the comments, the probability of a September move by the Fed has now jumped to 38% from 30% at Thursday’s close. This morning we’ve seen little change in 2y (+0.6bps) or 5y (0.0bps) Treasury yields, while the benchmark 10y is down 2.1bps to 2.159%. Much of the action is again in equity markets where S&P 500 futures are down over a percent in trading this morning. It’s much the same in bourses across Asia too. Led by China once again with the Shanghai Comp (-2.61%) and Shenzhen (-2.25%) both taking another steep leg lower into the midday break, the Nikkei (-1.94%), Hang Seng (-0.77%), Kospi (-0.32%) and ASX (-1.51%) have all followed suit with material moves lower. The lower tone this morning in markets has also been reflected in the Oil complex which is down 2% as we go to print.
With regards to the moves in Chinese equities in particular, it’s hard to tell how much of this is in response to conflicting reports of state intervention in the market this morning. The FT is running an article suggesting that state-owned investment funds and institutions, which were previously boosting the stock market through large scale purchases, are set to refrain from such actions with the government switching its attention to punishing those involved in ‘destabilizing the market’. Meanwhile, according to a Bloomberg report and in contrast to the FT article, Chinese authorities are set to seek to stabilize markets before an important military parade this week, with the regulatory commission asking 50 brokerages to contribute an additional 100bn yuan to the rescue fund.
Back to the Jackson Hole gathering quickly where along with the Fed, we also got some hints into the current thinking at the BoE and ECB. Along with Fischer, the comments echoed a more hawkish tone largely. The ECB’s Constancio noted that ‘the link between inflation and real activity appears to have strengthened in the euro area recently’ and that ‘provided our policies are able to significantly reduce the output gap, we can rely on a material effect to help bring the inflation rate closer to target’. The BoE’s Carney stated that the ‘prospect of sustained momentum’ in the economy ‘will likely put the decision as to when to start the process of gradual monetary policy normalization into sharper relief around the turn of this year’. On the hot topic of the China turmoil, Carney said that ‘recent events’ there didn’t call for a change in strategy, while Constancio warned that ‘we all know about the big challenges they face, so that is a situation we monitor closely’, but hinted that no immediate shift in policy would be needed for now. Fischer was a bit more moderate in his view, noting that the Fed is monitoring developments there more closely than usual.
Prior to the commentary on the weekend, it felt like markets entered something of a calmer state on Friday relative to the volatility of the prior ten days in particular. The S&P 500 (+0.06%) finished virtually unchanged at the close having traded in a much tighter range, although in turn posted its best three-day gain (+6.5%) since November 2011. Despite trading over 5% down part way through the week, the index managed to finish in positive territory (+0.91%) for the five days, while the VIX, having closed unchanged on Friday actually managed to retreat over 50% from Monday’s intraday highs. With little change in European equity markets too (Stoxx 600 +0.28%, DAX -0.17%, CAC +0.36%), Friday’s notable price mover was again in the oil complex where we saw WTI (+6.25%) cap its biggest two-day gain since January 2009 (+17%) after climbing to $45.22/bbl, seemingly on the back on further momentum from Thursday’s gains. There was a similar rally for Brent (+5.24%) also, while the rest of the commodity space generally had a strong session with the likes of Gold (+0.76%), Aluminum (+2.76%), Zinc (+3.28%) and Lead (+3.22%) all up.
Fischer’s comments on Friday helped support another strong day for the Dollar, with Dollar index closing up 0.52% to cap a rally of nearly 3% since Monday. There was little change in 10y Treasury yields (-0.3bps) at Friday’s close, finishing the week at 2.182% and 28bps off Monday’s intraday lows. Friday’s economic data contributed to the fairly benign price action. Much of the focus was on the July PCE readings where both the deflator (+0.1% mom) and core (+0.1% mom) prints came in line with market expectations. There was some disappointment in the August University of Michigan consumer sentiment print which was revised down 1pt to 91.9, while personal income (+0.4% mom vs. expected) and spending (+0.3% mom vs. +0.4% expected) were slightly mixed.
Over in Europe we got a slightly higher than expected inflation reading out of Germany for August, with the 0.0% mom (vs. -0.1% expected) print keeping the annualized rate at +0.2% yoy after forecasts for a slight drop to 0.1%. Euro area confidence indicators were a lot more mixed for the month, with better than expected economic (104.2 vs. 103.8 expected) and services (10.2 vs. 8.8 expected) readings, but softer industrial (-3.7 vs. -3.2 expected) and business climate (0.21 vs. 0.34 expected) indicators. UK Q2 GDP offered little in the way of surprise, unrevised at +0.7% qoq as expected with the annualized rate at +2.6% yoy.
Staying in Europe, as well as the obvious Fed progress to watch in September, Greece’s election campaign is set to garner further attention as we approach the end of the month. The first set of polls released over the weekend suggest that support for Tsipras’ Syriza party is dwindling somewhat. A poll run for Agora newspaper showed Syriza with 24.6% of total votes, a lead of 1.8% over New Democracy while a poll for Alpha TV showed Syriza with a lead of 2.1% and a Proto Thema poll suggested the lead is as small as 1.5%, opening up the possibility of messy coalition talks and a long way from the 15% lead Syriza held over its main rival back in May.
Sunday night 9:30 pm/(Monday morning 9:30 am Shanghai time): Chinese markets open. Stocks open down 2.1% as China arrests 4 major citizens.
courtesy zero hedge)
Chinese Stocks Slump After “Arrest-Fest”, Yuan Strengthens Most In 9 Months, Goldman Cuts Outlook
Update: So much for the “no more intervention” Since the government bailout fund has run dry of money, the brokerages have to step up – CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT
A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 – this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -01.8%).
- *SHANGHAI COMPOSITE INDEX FALLS 1.8% AT OPEN
- *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 1% TO 3,307.40
Yuan fixed stronger for 2nd day in a row…
- *CHINA SETS YUAN REFERENCE RATE AT 6.3893 AGAINST U.S. DOLLAR
- *CHINA RAISES YUAN REFERENCE RATE BY 0.15% TO 6.3893/USD
Then Goldman slahes China growth…
- *CHINA 2016 GDP GROWTH FORECAST CUT TO 6.4% VS 6.7% AT GOLDMAN
- *CHINA 2017 GDP GROWTH FORECAST CUT TO 6.1% VS 6.5% AT GOLDMAN
- *CHINA 2018 GDP GROWTH FORECAST CUT TO 5.8% VS 6.2% AT GOLDMAN
A “double-dip” in China’s growth in 2015…
China’s economic growth was very weak in early 2015, reflecting a combination of slowing money/credit growth, reform-driven fiscal tightening, and an appreciating CNY, among other factors. Policy easing starting in March seemed to help revive growth in May and especially June. But growth has slowed anew in July and August, prompting market and policymaker concerns and a further spate of easing measures. We retain our 2015 real GDP growth forecast of 6.8%, but note that alternative indicators of activity suggest a sharper slowdown, and mark down our 2016/17/18 forecasts to 6.4%/6.1%/5.8% respectively from 6.7%/6.5%/6.2% previously. We now expect short-term interest rates to fall further, to 1.5% by end-2016 (from 2.25% previously).
…and increased policy uncertainty…
Policy uncertainty has increased. Measures to contain local governments’ off-balance sheet financing have taken a back seat for now to a focus on reviving infrastructure spending. Equity market volatility has been large, diminishing the near-term potential for this channel to reduce reliance on debt financing. The snap 3% depreciation in the CNY is small in a macro context, but represents the sharpest weakening in two decades that were dominated by stability/appreciation vs USD, and has prompted an acceleration in capital outflows, heightening the risk of a larger move down the road.
But before all that, this happened…
First, as The FT reports, China “says” it will abandon buying stocks...
China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.
For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.
Traders and officials said the latest intervention was aimed at providing a “positive market environment” in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression”.
Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.
Which could be a problem as all that stopped total and utter carnage last week was their buying…
But then they unleashed full scale fractional reserve banking…
- *SCRAPPING OF LOAN CAP TO HELP STABILIZING ECO GROWTH: FIN. NEWS
Though we suspect this is as much use as a chocalate fireguard for the already maximally-indebted Chinese public.
But nothing stops the propaganda from flowing…
- *CHINA ECO FUNDAMENTALS BETTER THAN OTHER MAJOR ECONOMIES: 21ST
As authorities begin wide-scale crackdowns on rumor-mongers and nay-sayers…
- *CHINA DETAINS REPORTER ON SUSPECTED SPREADING RUMORS: XINHUA
- *CHINA DETAINS CSRC OFFICIAL ON SUSPECTED INSIDER TRADING:XINHUA
In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.
“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,”said an editorial in the state-controlled Securities Daily newspaper last week.
As SCMP’s Goerge Chen details…
Chinese authorities have held several people, including a journalist, an official of China’s securities watchdog and four senior executives of China’s major securities dealer for stock market violations.
Wang Xiaolu, journalist of Caijing Magazine, has been placed under “criminal compulsory measures” for suspected violations of colluding with others and fabricating and spreading fake information on securities and futures market, Xinhua learned on Sunday.
Wang confessed that he wrote fake report on Chinese stock market based on hearsay and his own subjective guesses without conducting due verifications.
He admitted that the false information have “caused panics and disorder at stock market, seriously undermined the market confidence, and inflicted huge losses on the country and investors.”
Also put under “criminal compulsory measures” were Liu Shufan, an official with China Securities Regulatory Commission.He is held over suspicions of insider dealings, taking bribes and forging official seals.
According to Liu’s confession during the investigation, he has taken advantage of his position to secure an approval from the securities authorities for a public company and help the growth of the company’s shares.
In return, the head of the company offered bribes worth several million yuan to him.
Also, Liu has used insider information from the above-mentioned company and another company and obtained millions of yuan of illegal gains, according to his confession.
Liu confessed that he has forged official seals to fake a court ruling on divorce and taxation certificates for his mistress.
Xinhua also learned from authorities that Xu Gang, Liu Wei, Fang Qingli and Chen Rongjie, senior executives of the Citic Securities, China’s leading securities dealer, have been put under “criminal compulsory measures” for suspected insider trading. They have also confessed to their violations.
“Compulsory measures” may include arrest, detention, issuing a warrant to compel a suspect to appear, bail pending trial, or residential surveillance.
* * *
Way to go China – “open” those markets up to anyone (as long as they are buying)
Evercore reports that the real GDP of China is -1.1%
(courtesy Evercore/zero hedge)
With Chinese data now an official farce even among Wall Street economists, tenured academics, and all others whose job obligation it is to accept and never question the lies they are fed, the biggest question over the past year has been just what is China’s real, and rapidly slowing, GDP – which alongside the Fed, is the primary catalyst of the global risk shakeout experienced in recent weeks.
One thing that everyone knows and can agree on, is that it isnot the official 7% number, or whatever goalseeked fabrication the communist party tries to push to a world that has realized China can’t even manipulate its stock market higher, let alone its economy.
But what is it? Over the past few months we have shown various unpleasant estimates, the lowest of which was 1.6% back in April.
Today we got the worst one yet, courtesy of Evercore ISI, which using its own GDP equivalent index – the Synthetic Growth Index (SGI) – gets a vastly different result from the official one, namely Chinese growth of -1.1% annually. Or rather, contraction.
To wit, from Evercore:
Our proprietary Synthetic Growth Index (SG!) fell 1.1% mim in July, and was also down 1.1% y/y. No wonderglobal commodities are so weak. The most recent 18 months have been much weakerthan the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% yly. And, it is not improving, Most worrisome to us; the ‘equipment’ portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.
And here is why the world is in big trouble.
Citigroup Chief Economist Thinks Only “Helicopter Money” Can Save The World Now
Having recently explained (in great detail) why QE4 (and 5, 6 & 7) were inevitable (despite the protestations of all central planners, except for perhaps Kocharlakota – who never met an economy he didn’t want to throw free money at), we found it fascinating that no lessor purveyor of the status quo’s view of the world – Citigroup’s chief economist Willem Buiter – that a global recession is imminent and nothing but a major blast of fiscal spending financed by outright “helicopter” money from the central banks will avert the deepening crisis. Faced with China’s ‘Quantitative Tightening’, the economist who proclaimed “gold is a 6000-year old bubble” and cash should be banned, concludes ominously,“everybody will be adversely affected.”
China has bungled its attempt to slow the economy gently and is sliding into “imminent recession”, threatening to take the world with it over coming months, Citigroup has warned. As The Telegraph’s Ambrose Evans-Pritchard reports, Willem Buiter, the bank’s chief economist, said the country needs a major blast of fiscal spending financed by outright “helicopter” money from the bank to avert a deepening crisis.
Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said the dollar will “go through the roof” if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.
“So why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question – the messing around with monetary policy, the hinting on doing things on the fiscal side through the policy banks. But I think the only thing that is likely to stop China from going into, I think, recession – which is, you know, 4 percent growth on the official data, the mendacious official data, for a year or so – is a large consumption-oriented fiscal stimulus, funded through the central government and preferably monetized by the People’s Bank of China.
Well, they’re not ready for that yet. Despite, I think, the economy crying out for it, the Chinese leadership is not ready for this.
So I think they will respond, but they will respond too late to avoid a recession, and which is likely to drag the global economy with it down to a global growth rate below 2 percent, which is my definition of a global recession. Not every country needs go into recession. The U.S. might well avoid it. But everybody will be adversely affected.”
Or translated from ‘economist’ to English – a massive helicopter drop of cash (well 1s and 0s) into the inflating hands of Chinese soon-to-be-consumers is all that can the world from another recession… and The Chinese leadership may need to stare into the abyss before they actually pull the trigger. Just think of the pork prices?
Mr Buiter had some more to add on the idiocy of Chinese Equity markets. He said the stock market crash in Shanghai and Shenzhen…
…is a sideshow. Consumption effects, you know, wealth effects, minor. Almost no capex in China is funded through share issue. And so it is a symbol of the policy failure rather than intrinsically economically important.
China’s problems are excessive leverage in the corporate sector, in the local government sector, and the very fragile banking system, and shadow banking system. As Chen pointed out, it won’t be allowed to collapse because it is underwritten by the government, but it won’t be a source of great funding strength.
There is excess capacity and a pathetically low rate of return on capital expenditure, right?Invest 50 percent of GDP and get, even in the official data, 7 percent growth. The true data is probably something closer to 4 ½ percent or less. So it is an economy that, I think, is sliding into recession.
And what the stock market reminds us of, I think, especially this sequence of thegovernment first cheerleading the stock market boom and bubble – because quite a few of the local pundits believed that this was a great way of deleveraging without paying for the corporate sector, to have a stock market bubble. And then, of course, the rather panicky and incompetent reaction in response.
So, once again, why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question.
* * *
So, it seems, all of a sudden – despite the permabulls, asset-gatherers, and commission-takers saying otherwise – China matters! As Bloomberg notes,China’s deepening struggles are starting to make a bigger dent in the global economic outlook.
“We’re seeing evidence that the slowdown is broader than expected” in China, saidMarie Diron, a London-based senior vice president at Moody’s and one of the report’s authors. “It’s long been clear that there’s a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That’s still the case, but we’re seeing some signs of weakness in the labor market.”
“We continue to believe that the greatest risks to our growth forecasts remain to the downside,” Schofield wrote. Actual growth is “probably even lower” because of “likely mis-measurement in China’s official data,” he wrote.
* * *
Which, is exactly what we have been saying for the last 2 years as the rolling collapse of China’s ponzi becomes ever more evident (and hidden by ever more manipulation)…
Here, for those curious, are links to previous discussions:
- China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium
- China’s Record Dumping Of US Treasuries Leaves Goldman Speechless
- How The Petrodollar Quietly Died And Nobody Noticed
- Why It Really All Comes Down To The Death Of The Petrodollar
- Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks
- What China’s Treasury Liquidation Means: $1 Trillion QE In Reverse
- It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington
And so on and so forth.
In short, stabilizing the currency in the wake of the August 11 devaluation has precipitated the liquidation of more than $100 billion in USTs in the space of just two weeks, doubling the total sold during the first half of the year.
In the end, the estimated size of the RMB carry trade could mean that before it’s all over, China will liquidate as much as $1 trillion in US paper, which, as we noted on Thursday evening, would effectively negate 60% of QE3 and put somewhere in the neighborhood of 200bps worth of upward pressure on 10Y yields.
And don’t forget, this is just China.
The potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows . The bottom line is that markets may fear that QT has much more to go.
What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving. China’s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates. The alternative would be for China’s capital outflows to stop or at least slow down. Perhaps a combination of aggressive PBoC easing and more confidence in the domestic economy would be sufficient, absent a sharp devaluation of the currency to a new stable. Either way, it is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT.
* * *
China “Punishes” Hundreds For “Maliciously” Manipulating The Market
The deadly chemical blast in the Chinese port of Tianjin was a preventable catastrophe in which more than 100 people lost their lives thanks in part to what looks like the political connections of the warehouse’s owners and although an upfront, transparent investigation and honest assessment of the environmental impact is likely the only way to safeguard the public and ensure it doesn’t happen again, no one believes the Chinese government has the will to conduct such an investigation.
But whatever you do, do not say any of the above if you live in China.
Similarly, China’s stock market collapse was an entirely preventable financial catastrophe caused by the unchecked accumulation of margin debt and the encouragement of speculation, and the bursting of the equity bubble which began in June has been nothing short of a debacle that’s led to international condemnation and accusations that, even in a centrally planned world, Beijing’s particular brand of intervention is so egregious as to stray outside the bounds of manipulated market decorum.
But if you live in China, don’t say that either.
Over the last two months there were signs that Beijing would soon resort to outright, sweeping censorship as it relates to both the stock market and the Tianjin blast. For instance, in July, phrases like “rescue the market” were reportedly banned and in the wake of the Tianjin disaster, hundreds of social media accounts were shut down for spreading “blast rumors.”
Now, ahead of a military parade that Xi Jinping will allegedly use to show the world that the Chinese lion “has woken up” (albeit with the amusing caveat that the lion is “peaceful, pleasant and civilized”), the Politburo apparently has seen just about enough criticism for its handling of the stock market collapse and the Tianjin blasts and as WSJ reports, more than 200 people have now been “punished” for their alleged role in “mislead[ing] society and the public, generat[ing] and spread[ing] fearful sentiment, and even us[ing] the opportunity to maliciously concoct rumors to attack [the] Party and national leaders.” Here’s more:
The sweep targeted people who the government said spread false Internet rumors regarding events such as the stock-market turmoil and deadly explosions earlier this month in the port city of Tianjin, the Ministry of Public Security said Sunday.
The government is facing intense public scrutiny in China over its management of the slowing economy and turbulent markets, as well as public anger over the blasts at a hazardous-chemical warehouse in Tianjin.
In its statement, the public-security ministry didn’t identify most of the 197 alleged offenders, giving only surnames for some of them. The statement quoted four people, identified only by their surnames, as expressing regret for spreading false information. It didn’t elaborate further on individual offenses and punishment, except to note that 165 online websites and accounts were shut down.
Statements described by the ministry as false included rumors that a man jumped to his death in Beijing because of the stock market slump, claims that at least 1,300 people were killed in the Tianjin blasts, and inflammatory rumors related to China’s commemorations of the 70th anniversary of victory in World War II.
Sunday’s statement came just weeks after the Cyberspace Administration of China said it shut down 18 websites permanently and suspended another 32 websites for a month for allegedly publishing unverified information or letting users spread groundless gossip related to the Aug. 12 explosions in Tianjin, which killed at least 150 people and injured more than 700.
China has also officially confirmed what multiple news outlets reported late last week. Namely that a journalist at Caixin and a prominent investment banker had been detained in connection with spreading “rumors” and “illegal trading.”From WSJ again:
In the case of Mr. Wang, the Caijing reporter, Xinhua said an alleged fabrication was a July 20 report saying the China Securities Regulatory Commission was studying a withdrawal of government funds used to stabilize the domestic stock market amid a broad-based slump.
Mr. Wang told investigators he wrote the report by combining market-related information with his own “subjective assessment.” More specifically, Wang says he“obtained the information [about the possible scaling back of CSF’s plunge protection buying] through the abnormal channel of gleaning, in private, information about the market.”
So essentially, Wang’s criminal behavior amounted to reading publicly available information in “private” (which we presume means “at his desk”), drawing conclusions, and writing a story, which is of course contrary to the tried and true method of journalism in China wherein Beijing sends journalists a dispatch telling them what to say and then journalists just regurgitate it.
As for Xu Gang, the CITIC executive, he has now apparently given a detailed account of his misdeeds, as has CSRC official Liu Wei who apparently “told investigators that he took bribes from an executive of a listed company to help that firm pass regulatory scrutiny, engaged in insider trading and made use of forged documentation to help a lover purchase an apartment in Shanghai.”
Meanwhile, China has also brought in Li Yifei, chairwoman of Man Group’s China arm. From Bloomberg:
Chinese authorities took Li Yifei, chairwoman of Man Group Plc’s China unit, into custody to assist with a police probe into market volatility, according to a person familiar with the matter.
Li assisting with the investigation doesn’t mean she is facing charges or has done anything wrong. She has led Man Group in China since November 2011, according to her profile on LinkedIn. The person asked not to be identified because the probe isn’t public.
We suspect maybe this was the mistake:
In an interview with Bloomberg Television’s Stephen Engle in November, Li said investors and regulators in China were beginning to understand hedge funds.
“The Chinese investors and regulators are beginning to understand that actually hedge fund is about hedging.”
Yes, “actually hedge fund is about hedging,” which, asCitadel learned earlier this month, would “actually” be fine as long as by “hedging” Li means “buying” or any other activity which leads equities higher. Always higher. Never, ever lower.
In any event, the Politburo has now abandoned all prestense of capital market liberalization and/or providing for an environment that’s conducive to any semblance of freedom of speech. This is of course predictable. It’s rather easy to claim that reforms are being implemented at a rapid clip both in terms of financial markets and in terms of society when everything is going well. But free markets can be painful when the invisible hand purges misallocated capital and freedom of the press can be equally painful when journalists unconstrained by censorship purge bullshit.
Of course journalists face plenty of censorship even in the US, which is supposed to be the bastion of press freedom (just ask Pedro da Costa) and capital markets are everywhere and always manipulated by central planners.
And that is perhaps the lesson Xi Jinping has yet to learn. That is, we all exist in a censorsed and manipulated world; the Politburo just hasn’t figured out how to be subtle about it yet.
Is China Dumping German Paper Now? Bund Prices Are Collapsing
German bonds are under significant pressure again this morning – despite equity weakness and US Treasury strength. This raises the rather interesting question of whether – after decimating Treasuries last week, is China turning to its Bund holdings and liquidating them to raise cash?
Bunds crushed to one-month lows…
as 10Y yields spike to 6-week highs…
China Rocked By Another Massive Chemical Explosion, People’s Daily Reports
Seriously, what the f##k is going on over there?
- *BLAST SEEN IN CHEM. IND. ZONE IN SHANDONG, CHINA: PEOPLES DAILY
This is the second explosion in Shandong, which both follow the huge and deadly explosion in Tianjin.
We’ll await the details which we imagine will suggest that, as was the case in Tianjin, many more tonnes of something terribly toxic were stored than is allowed under China’s regulatory regime which apparently only applies to those who are not somehow connected to the Politburo.
After the last Shandong explosion, The People’s Daily reported that the plant contained adiponitrile,which the CDC says can cause “irritation eyes, skin, respiratory system; headache, dizziness, lassitude (weakness, exhaustion), confusion, convulsions; blurred vision; dyspnea (breathing difficulty); abdominal pain, nausea, [and] vomiting.”
This clip has just been posted to a Weibo account – reportedly showing tonight’s explosion (we are unable to confirm this is not the previous Shandong explosion though that was more twlight than dead of night)…
by Gwynn Guilford at Quartz
This week’s Chinese stock market implosion has been widely viewed as a reaction to the Chinese government’s devaluing the yuan on Aug. 11—a move many presume was a frenzied bid to lower export prices and strengthen the economy.
This interpretation doesn’t stand up to scrutiny. First, Chinese investors haven’t been investing based on how the economy is doing, but rather, based on what they think the government will do to prop up the market. The crash, termed “Black Monday,” was more likely a reaction to the central bank’s failure over the weekend to announce a widely expected cut to the bank reserve requirement since previous cuts in February and April had boosted stock prices. The government eventually caved andannounced a cut on Tuesday (Aug. 25).
Second, the crash happened nearly two weeks after the devaluation, and the government only let the yuan depreciate by about 3% before swooping in and propping up its value again—which hardly helps exporters since the currency’s value effectively rose some 14% in the last year.
The devaluation probably had more to do with breaking the yuan’s tightly managed peg to the US dollar, an obligation that has been draining the economy of scarce liquidity as capital outflows swell.
Both moves—the government pulling back from its market bailout and the currency devaluation—stem from the same ominous problem: China’s leaders are scrambling to find the money to keep its economy running. To understand the broader forces that led to this predicament, here’s a chart-based explainer tracing its origins:
China used its exchange rate to stoke growth
China has long pegged its currency to the US dollar at an artificially cheap rate. Keeping the yuan cheaper than it should be, even as export revenues and foreign investment gushed in, allowed China to amass huge foreign exchange reserves, as we explain in more detail here:
A cheap currency has also powered China’s investment-driven growth model (more on this here). By paying more yuan than the market would demand for each dollar, the People’s Bank of China (PBoC) created extra money out of thin air, sending it sloshing around in the economy. (Meanwhile, the PBoC prevented this from driving up inflation by setting its bank reserve requirements unusually high, as we explain here.)
Easy money, easy lending, easy growth. This was especially true after the global financial crisis hit, when China pumped 4 trillion yuan ($586 billion in 2008 US dollars) into its economy to protect it from the fallout. The resulting double-digit growth attracted foreign investment and hot money inflows, raising demand for yuan. To buoy its faltering export industry, the PBoC had to buy even more dollars to prevent surging yuan demand from driving up the local currency’s value.
The government pumped the stock market
But growth is now slowing, making the $28 trillion in debt China racked up in the process even harder to pay off.
About a year ago, the government turned to pumping up the stock market. The thinking behind this move, says Derek Scissors, economist at the American Enterprise Institute, was, “Hey, why not address our huge problems by replacing debt with equity?” In other words, a bull market would help indebted companies raise new capital and pay off overdue loans. But eventually the market tanked.
So starting in early July, the government launched a sweeping stock market bailout, vowing to prop up the Shanghai Composite Index until it hit 4,500. The problem is, every time it has neared that target level, investors start selling in anticipation that the government will pull back its support. As a result, the Chinese government has now spent as much as $1 trillion to prop up stocks.
Hot money fled the country
While some investors were betting on stocks, others had seen the writing on the wall and were getting out—swapping their yuan for other currencies. Starting in late 2014, the influx of hot money reversed course, and speculative investment flooded out of China. One measure of that is the drop in (mostly) short-term trade finance from foreign banks, which started in Q4 2014:
Another is the fall in foreign exchange that Chinese banks are holding:
Once people started selling the yuan, others began fearing that their yuan holdings would lose value—so they sold too. Lower demand for the yuan should have lowered the currency’s value relative to the dollar. But the PBoC had to keep the yuan’s value stable. Not only had it promised to do so as a requirement of joining the IMF’s basket of central bank reserve currencies; the yuan’s stability and gradual appreciation has long attracted foreign capital into China, says Carlo Reiter, an analyst at J Capital Research. To continue propping up the yuan’s value, the PBoC started selling dollars from its precious reserves in exchange for yuan:
Buying back yuan lowered liquidity, however, which raised borrowing costs, putting a damper on borrowing and investment and threatening deflation:
Higher borrowing costs exacerbated the country’s $28 trillion in debt, much of which has been borrowed at variable interest rates.
The rising stock market crimped bank lending
As investors shifted money from their banking deposits into brokerage accounts to buy stocks, liquidity tightened, leaving banks with less money to lend, says Christopher Balding, finance professor at Peking University. To keep the economy growing, the government continued to pressure banks to lend.
To help keep credit flowing, the Chinese government launched a bailout in early July (which, as we mentioned earlier, cost the government more than $1 trillion.) To fund this bailout, interbank lending by state-backed entities has surged, says Carlo Reiter, analyst at J Capital Research. In July, government institutions lent 9.3 trillion yuan to banks, mostly to boost the stock market, he says.
However, the flood of interbank capital eventually caught up with the PBoC. Adding even more money into the financial system put downward pressure on the yuan.
This brings us to the Aug. 11 currency devaluation, which likely occurred because the yuan became too “expensive to defend,” says Reiter. Nevertheless, the exchange rate has leveled off over the last few trading days—a sign that capital outflow is so great that the central bank has once again resorted to selling dollars for yuan.
Already, this “battle to stabilize the currency has had a significant tightening effect on domestic liquidity conditions,” wrote Wei Yao, economist at Societe Generale, in an Aug. 25 note. In other words, the government’s grand plans to reduce its debt woes while preventing capital from flowing out may have the perverse effect of causing more of both.
Early this morning, a grenade attack on the Ukraine Parliament killed one and injured 50 more.
Grenade attack on the Ukraine Parliament:
Ukraine Reignites – 50 Injured After Grenade Attack On Parliament
mid the Ukraine government’s vote for constitutional changes to give its eastern regions a special status(that it hopes will blunt their separatist drive) protests have turned deadly as RT reports50 Ukrainian nation guards have been injured in a greande blast near parliament in Kiev.
The clashes began earlier in the day…
Following, as Reuters reports,Ukraine’s parliament on Monday voted for constitutional changes to give its eastern regions a special status that it hopes will blunt their separatist drive…
At a rowdy session, a total of 265 deputies voted in favor in the first reading of a “decentralization” bill, backed by President Petro Poroshenko’s political bloc and his government – 39 more than that required to go through.
But many coalition allies, including former prime minister Yulia Tymoshenko, spoke against the changes and it is open to question whether Poroshenko will be able to whip up the necessary 300 votes for it to get through a second and final reading later this year.
Approval of legislation for special status for parts of Donetsk and Luhansk regions, which are largely controlled by Russian-backed separatists, is a major element of a peace agreement reached in Minsk, Belarus, in February.
Though a ceasefire is under pressure from sporadic shelling and shooting which government troops and rebels blame on each other, Western governments see the deal as holding out the best possible prospect for peace and are urging Ukraine to abide by the letter of the Minsk agreement.
At least 50 Special Forces troops have been injured during clashes in front of the parliament in Kiev, the Ukrainian National Guard said. Crowds of protesters came to oppose amendments to the constitution that would provide for decentralization of the country.
“About 50 soldiers of the National Guard of Ukraine have been injured during clashes near Ukrainian parliament, four of them in serious condition,” the National Guard said in a statement.
Tweets from journalists at the scene said supporters of the radical group Right Sector were brutally attacking police officers.
“A combat grenade has been thrown at the Ukrainian special forces. Some of the servicemen from [Ukraine] National Guard have been seriously injured. Their life is in danger,” Anton Gerashchenko, an adviser to Kiev’s Interior Ministry, wrote on his Facebook page.
Mass Protests Sweep Malaysian Capital As Anger At Goldman-Backed Slush Fund Boils Over
If we told you that thousands of protesters donning bright yellow shirts had taken to the streets to call for the ouster of a leader in an important emerging market, you’d be forgiven for thinking we were talking about Brazil, where President Dilma Rousseff is facing calls for impeachment amid allegations of fiscal book cooking and government corruption.
But on this particular weekend, you’d be wrong.
We’re actually talking about Malaysia, where tens of thousands of demonstrators poured into the streets of Kuala Lumpur on Saturday to call for the resignation of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account.
1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.
You really cannot make this stuff up.
What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund.
So you can see why some folks are upset, especially considering Rosmah has a habit of having, how shall we say, rich people problems, like being gouged $400 for a home visit by a personal hairstylist. Here’s The New York Times with more on the protests:
Tens of thousands of demonstrators in Malaysia defied police orders on Saturday, massing in the capital in a display of anger at the government of Prime Minister Najib Razak, who has been accused of corruption involving hundreds of millions of dollars.
The demonstration in central Kuala Lumpur, which has been planned for weeks, has been declared illegal by the Malaysian police, and the government on Friday went as far as to pass a decree banning the yellow clothing worn by the antigovernment protesters.
But the demonstrators, who represent a broad coalition of civic organizations in Malaysia, including prominent lawyers, asserted their right to protest on Saturday.
The government has acknowledged that Mr. Najib received the money in 2013 and said it was a donation from undisclosed Arab royalty.
One group of protesters on Saturday carried the image of a giant check in the amount of 2.6 billion ringgit, with a sign that read, “You really think we are stupid?”
The group organizing the protest goes by the name Bersih, which means clean in Malay.
Calls for Mr. Najib to resign have come both from within his party, which is divided, and from the opposition. One junior member of Mr. Najib’s party, the United Malays National Organization, filed a lawsuit against Mr. Najib on Friday asking for details of how the money was spent.
Of course the most prominent voice calling for Najib’s ouster is that of the former Prime Minister Mahathir Mohamad. “I don’t believe it is a donation. I don’t believe anybody would give [that much], whether an Arab, or anybody,” he says.
Meanwhile, Malaysia is facing a re-run of the 1997/98 financial crisis as the ringgit plunges amid broad-based pressure on emerging markets. With FX reserves now sitting under $100 billion some fear a return to capital controls (let’s just call it the “1998 option”) is just around the corner despite the protestations of central bank chief Zeti Akhtar Aziz. Here’s BofAML:
Capital controls are not likely, but the possibility cannot be dismissed, despite <assurances from Zeti.Introducing controls will be a regressive move and a huge setback, hurting the economy and financial sector, and derailing any ambitions of becoming an international Islamic financial center. Malaysia’s reputation and credibility remain tainted by the capital controls of 1998, even after almost two decades.
The ringgit has depreciated almost 13% year-to-date, the worst performing EM Asian currency. FX reserves fell to $94.5bn at mid-August, falling below the $100bn threshold and down by about $9bn in July alone. At the peak, FX reserves were $141bn in May 2013. Cover to short-term external debt is only 1x, while cover to imports stands at 5.9 months. Downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis over 1MDB. Malaysia’s vulnerability is also heightened by high leverage (household, quasi-public and external) and a fragile fiscal position (heavy oil dependence, off balance sheet liabilities)
The current crisis has not reached the extreme stress seen during the Asian financial crisis, when draconian capital controls were eventually introduced in September 1998. During that episode, the ringgit collapsed by about 89% from peak to trough at its worst (to 4.71 from 2.49 against the USD). The ringgit has depreciated some 26% in the current crisis. During that episode, the KLCI fell by about 79% from peak to trough (from 1,271 to 263) at its worst. The KLCI today has fallen by only about 12% from its recent peak.Nevertheless, downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis.
So in short, Malaysia is on the brink of political and financial crisis, and it looks as though the nuclear route (capital controls) may be just around the corner, which would of course only serve to alienate the country’s financial system at a time when the government looks to be on the brink of collapse. What’s particularly interesting here is the timing. Mahathir Mohamad famously clashed with George Soros during the ’98 crisis, going so far as to brand the billionaire a “moron”. Now that the country’s “founding father” is looking to oust Najib, it will be interesting to see what role he plays in shaping Malaysia’s response to the current financial crisis and on that note, we’ll leave you with a quote from Dr. Mahathir ca. 1997:
“I know I am taking a big risk to suggest it,but I am saying that currency trading is unnecessary, unproductive and immoral. It should be stopped. It should be made illegal. We don’t need currency trading. We need to buy money only when we want to finance real trade.”
This Is What Happened The Last Time Malaysia Faced A Currency Crisis
Earlier today, we highlighted the street protests currently underway in the Malaysian capital of Kuala Lumpur where tens of thousands of Malaysians are calling for the ouster of Prime Minister Najib Razak whose government has been accused of obstructing an investigation into how some $700 million from the Goldman-backed 1Malaysia Development Berhad mysteriously ended up in Najib’s personal bank account.
Of course political turmoil isn’t Malaysia’s only problem. Two weeks ago, in the wake of the yuan devaluation, a $10 billion bond maturity sparked the largest one-day plunge for the ringgit in two decades, serving notice that whispers about a replay of the currency crisis that gripped the country in 1997/98 were about to become shouts.
Sure enough, Malaysia – whose FX reserves fell under $100 billion late last month leaving it with dry powder sufficient to cover only 6 months of imports and putting its short-term external debt cover at just 1X – is now at the center of the Asia Financial Crisis 2.0 discussion and central bank head Zeti Akhtar Aziz has been at pains to reassure the market that a replay of 1998’s “draconian” crisis fighting measures is not in the cards.
Because it appears the situation is set to deteriorate meaningfully in the near term, and because the country’s political situation could serve to undermine already fragile confidence, we thought it an opportune time to revisit exactly what happened two decades ago. For the breakdown, we go to BofAML.
* * *
Capital controls – the drastic option
Concerns that Bank Negara Malaysia may re-introduce capital controls is resurfacing after the ringgit plunged past RM4 against the US dollar, with FX reserves dropping below the $100bn psychological threshold. The MYR has depreciated by 12% against the US dollar since the start of the year and by about 26% from its peak in August last year. BNM’s FX reserves fell to $96.7bn at end-July, falling below the $100bn threshold and down by about $9bn in July alone. At the peak, FX reserves were $141bn in May 2013.
During [the crisis], the ringgit collapsed by about 89% from peak-to-trough at its worst (to 4.71 from 2.49 against the USD). The ringgit has depreciated some 26% in the current crisis. During that episode, the KLCI fell by about 79% from peak-to-trough (from 1,271 to 263) at its worst. The KLCI today has fallen by only about 12% from its recent peak. Nevertheless, downside risks remain given looming Fed rate hikes, China’s RMB devaluation and the political crisis.
But depletion of FX reserves is more severe this time, down $44.7bn so far from the recent peak in May 2013, versus $8.2bn during the Asian crisis episode. Capital controls enacted in 1998 allowed BNM to rebuild FX reserves quickly, rising +$13bn to $32.6bn in a year (Chart 2).
This political crisis is probably the worst in Malaysia’s history, with no resolution in sight over the 1MDB scandal and a growing “trust deficit” with PM Najib.
Former premier Mahathir has criticized the finding that Middle Eastern sources “donated” RM2.6bn ($700m) into the PM’s accounts as “hogwash.”
Malaysia’s vulnerability is also heightened by higher leverage – household, quasipublic and external – than during the Asian crisis. Household debt is 86% of GDP, almost double that pre-Asian crisis (46%). External debt is 69% of GDP, much higher than the 44% in 1997. Even if half of external debt is MYR-denominated, foreign withdrawals will still pressure the ringgit and FX reserves. Public debt is 54% of GDP today versus 31% in 1997. Inclusive of government guarantees, quasi-public debt rises to 70% of GDP. This moreover do not include the potential liabilities from 1MDB, including “letters of support” to circumvent the use of guarantees. Only corporate debt is lower today, at 86% vs. 105% of GDP in 1997. Government-linked companies, pension and pilgrimage funds are also facing pressures to bail-out 1MDB by taking over its assets, including power plants and property projects. With the Prime Minister more focused on 1MDB and survival, the economy is in danger of slipping into another crisis.
80 Year Old Woman Trampled To Death In Venezuela Supermarket Stampede
With 30% of Venzuelans eating two or fewer meals per day, social unrest is mounting rapidly in President Nicolas Maduro’s socialist utopia. As WSJ reports,soldiers have now been deployed to stem rampant food smuggling and price speculation, which Maduro blames for triple-digit inflation and scarcity. “Due to the shortage of food… the desperation is enormous,”local opposition politician Andres Camejo said, and nowhere is that more evident than the trampling death of an 80-year-old woman outside a state-subsidized supermarket.
An 80-year-old Venezuelan woman died, possibly from trampling, in a scrum outside a state supermarket selling subsidized goods, the opposition and media said on Friday.
The melee at the store in Sabaneta, the birthplace of former Venezuelan leader Hugo Chavez, was the latest such incident in the South American nation where economic hardship and food shortages are creating long queues and scuffles.
The opposition Democratic Unity coalition said Maria Aguirre died and another 75 people were injured – including five security officials – in chaotic scenes when National Guard troops sought to control a 5,000-strong crowd with teargas.
“Due to the shortage of food … the desperation is enormous,” local opposition politician Andres Camejo said, according to the coalition’s website. It published a photo of an elderly woman’s body lying inert on a concrete floor.
Camejo said thieves had also attacked the crowd, members of which were seeking to buy cheap food on offer at an outlet of the state’s Mercal supermarket chain in Barinas state.
El Universal newspaper reported that Aguirre was knocked to the ground during jostling in the crowd, while the pro-opposition El Nacional said she was crushed in a stampede.
Another person was killed and dozens detained following looting of supermarkets in Venezuela’s southeastern city of Ciudad Guayana earlier this month.
President Nicolas Maduro accuses opponents of deliberately stirring up trouble, exaggerating incidents, and sabotaging the economy to try and bring down his socialist government.
Critics, though, say incidents of unrest are symptoms of the increasing hardships Venezuela’s 29 million people are facing due to a failed state-led economic model. Low oil prices are exacerbating economic tensions in the OPEC nation.
Shoppers are finger-printed when buying government-controlled foods…
“What’s certain is that we are going very hungry here and the children are suffering a lot,” said María Palma, a 55-year-old grandmother who on a recent blistering hot day had been standing in line at the grocery store since 3 a.m. before walking away empty-handed at midday.
In a national survey, as WSJ reports, the pollster Consultores 21 found 30% of Venezuelans eating two or fewer meals a day during the second quarter of this year, up from 20% in the first quarter.
Around 70% of people in the study also said they had stopped buying some basic food item because it had become unavailable or too expensive.
Millions, Billions, Trillions: The Disaster of Socialism, Once Again
Venezuela’s nearly full-blown socialism is making the news once again. For approximately two years now, the country’s economic crisis has been rapidly unfolding: rising prices, fuelled by increased scarcity of goods and a depreciating currency, were followed by price controls, which brought about even higher prices and more shortages. The list of basic commodities missing from stores, such as toilet paper, has gradually expanded to include cooking oil, corn flour, sugar, sanitary pads, batteries, coffins, and even oil (once the country’s main export). The Cendas survey showed that more than a third of foodstuffs cannot be found on supermarket shelves; moreover, vegetables are 32% more expensive every month, meat prices are going up by 22% every month, and beans are surging by 130%. Basic Venezuelan dishes containing rice and beans have thus become a luxury, as people queue for 8 hours a week, on average, to buy basic goods.
This time it was the bolivar, Venezuela’s currency, which made the headlines, as it tumbled from 82 bolivars to the dollar last year, to 300 bolivars in May, and to a staggering 670 bolivars this August. Because the Venezuelan administration stopped publishing inflation figures in December 2014 (when annual inflation reached 68%), some economists have designed an Arepa (i.e. cornmeal cake with cheese) hyperinflation index, which suggests a current inflation rate of around 400%. Othersestimate the annual inflation rate is actually 808%.
A photo of a Venezuelan using a 2 bolivar banknote as a napkin to hold a cheesy pastry (an empanada) has recently gone viral: the banknote is worth less than a third of one US cent on the black market, while the price of a pack of napkins is about 500-600 bolivars.The photo is reminiscent of the Weimar Republic hyperinflationary episode, where the wholesale price index jumped from 100% in July 1922 to more than 2500% in January 1923, which led to German banknotes being used to light fires (right photo).
One can only speculate at the moment the extent of the damage this episode will leave on Venezuelan savings. But if history is any indication, we could soon hear stories similar to those of some of Mises’s acquaintances (recorded from his lectures by his student, Bettina Bien-Greaves):
[A] man made a will according to which this $ 2,000,000 was to be sent back to Europe to establish another orphan asylum such as that in which this man had been educated. This was just before World War I. The money was sent back to Europe. According to the usual procedure it had to be invested in government bonds of this country, interest to be paid every year to keep up the asylum. But the war came, and the inflation. And the inflation reduced to zero this fortune of $ 2,000,000 invested in European Marks—simply to zero.
[The president of a Bank in Vienna] told me that as a young man in his twenties he had taken out a life insurance policy much too large for his economic condition at the time. He expected that when it was paid out it would make him a well-to-do burgher. But when he reached his sixtieth birthday, the policy became due. The insurance, which had been a tremendous sum when he had taken it out thirty five years before, was just sufficient to pay for the taxi ride back to his office after going to collect the insurance in person. Now what had happened? Prices went up, yet the monetary quantity of the policy remained the same. He had in fact for many, many decades made savings. For whom? For the government to spend and devastate (Mises 2010, 30-31).
As news of Venezuela’s suffering keeps coming through, one cannot help but feel a certain sense of dread. All governments control the money supply to essentially the same extent that Maduro’s administration does. All around the world we have monetary socialism, where national currencies are subject solely to political power. And one cannot help but wonder (and fear) how many more such economic disasters it will take before it becomes clear that socialism of all shapes, sizes, and degrees, is unrealizable, unbearable, and unforgivable.
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WTI Crude Tumbles To $43 Handle Despite EIA Lowering Production Estimates
After last week’s epic squeeze in crude, overnight weakness has accelerated dragging WTI back to a $43 handle. This comes after EIA (based on improved reporting) reduced the H1 2015 production data by 130,000 barrels per day.
As Reuters reports,
The U.S. government on Monday released new data on domestic oil production for the first half of this year based on improved methodology, showing output was as much as 130,000 barrels per day (bpd) lower than first estimated.
In a posting on its website prior to the formal release of new figures, the Energy Information Administration said its new, survey-based production data showed the country pumped 9.3 million bpd in June, down 100,000 bpd from a revised May figure. It said previously reported monthly data for January through May were revised down by between 40,000 and 130,000 bpd.
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Today, the USA/JPY ramp failed, then the VIX failed, so onto the 3rd
(courtesy zero hedge)
The Oil Volatility Farce Continues: Oil Now Surging As OPEC Hints At “Fair Price” Talks
The equity market momo-igniters tried USDJPY – and failed. Then they tried XIV – and failed. So what next? WTI crude of course which has just exploded back to Friday’s highs, with Brent Crude also breaking back above $50.
It appears the catalyst this time may be a stray OPEC headline:
- OPEC READY TO TALK TO OTHER PRODUCERS TO ACHIEVE `FAIR PRICES’
And then one asks: what OPEC? Didn’t Saudi Arabia destroy the cartel last November.
For now, however, welcome to the Penny-Oil market:
Friday high stops have been run – now run to the lows to test those stops?
Citi Slams Today’s Historic Oil Surge: “Another False Start, Time To Fade The Rally”
Earlier today we were wondering how long it would take the big banks – many of whom are short the commodity – to jump in the path of the oil momentum train, and we didn’t have long to wait for the answer.
Just before the NYMEX close, Bank of America revised its year end and 2016 oil forecasts lower, from $58 and $62 to $55 for 2015 and $61 for 2016. But the real downgrade came moments ago from Citi’s Ed Morse who, together with Goldman, has been bearish on oil for a good part of the past year, just slammed today’s crude breakout and doubled down on his double-dead cat skepticism, when he released a report titled “Another False Start…Time to Fade the Rally” whose punchline is that “Citi foresees that WTI and Brent prices should post another fresh leg lower—perhaps making new 2015 lows—before year-end.”
More from Morse:
The Oil Price Surge
Another False Start…Time to Fade the Rally
The bullish c20-25% crude oil price spike since late last week looks driven more by sentiment than by reality.
Bottom Line: Citi foresees that WTI and Brent prices should post another fresh leg lower—perhaps making new 2015 lows—before year-end.
In Citi’s view, it’s time to “sell the news and buy the facts.” This is reinforced by today’s strong intra-day gains around 8%, which appear driven by a misread of market data and financial headlines.
Notably, nearby timespreads are lagging the move higher in flat price, which is consistent with weak fundamentals.
Sharp gains over the past three trading sessionswere driven by a combination of short covering and chart-readers again looking to call a bottom falsely.
As recently as last Wednesday, both WTI and Brent were hovering at YTD lows of $38/bbl and $42/bbl, respectively. Combined futures and options net length held by money managers on NYMEX and ICE was also near record lows of 225-k contracts, matching the nadir in category positioning in 4Q’14.
The continuation of the rally was further buttressed today by (1) EIA reports showing US production was overstated; (2) non-agency reports that Saudi production had fallen by c60-k b/d m/m; (3) news chatter (CNBC, Reuters, Bloomberg, etc.) that highlighted the most recent OPEC Bulletin which, with no independent reporting, stated the producer group was willing to talk to non-OPEC producers to get ‘fair prices.’ In our judgment, this was a gross misrepresentation of the Bulletin’s editorial which was wistful about such a dialogue.
Almost all OPEC officials are still on holiday and the lack of further reporting suggests none actually were involved in suggesting there was a change in policy.
- The EIA data should be treated with caution.The old EIA data were a fiction coming out of modeling; the new EIA data are coming out of sampling techniques that are untested and difficult to call reliable. Given the structurally unique nature of the US shale industry, whereby separating the durability of good and bad wells needs the test of time, further complicates matters.
- 60-k b/d of Saudi production on a 10.3-10.5-m b/d base is a rounding error. Furthermore, there is no credible sign as yet of any change in Saudi market share policy, which is why Citi noted pre-open today that Saudi OSPs (official sale prices) would be of particular importance to monitor this month.
- It is unclear as to why any non-OPEC producer would want to commit to a target with OPEC.2015 is not like 1998 when both Mexican and Russian production were surging and when both countries participated in a supply cut. Russian production is growing this year because of a significantly weaker ruble cost of oil while Mexico is trying to push through energy reform. Neither country is in a position to really commit to a production cut, in our view.
Neither would the US, Canada or Brazil – the three main non-OPEC parties – willingly participate or agree to curtailing output, in our view; nor would they constitutionally be able to do so.
A (global) production cut today would mostly benefit US producers who can react quickly to price changes. The rig count increase in 3Q’15 following the (temporary) oil price rebound in 2Q’15 seems indicative of the resiliency of the US shale industry. For OPEC and other major oil states to meaningfully slow the shale juggernaut, low prices might need to be in place for perhaps a few years, so that there is enough labor forced out of the sector and equipment scrapped, making any rebound in supply more difficult. For now, there is enough talent still on staff and equipment in place across all the major shale plays to allow for a quick return to drill for oil and gas. In addition, a partial price recovery now could reopen the capital markets to the sector, giving funding to producers to keep drilling, particularly as hedge flows would increase in a higher price environment just as the Northern Hemisphere comes-off peak demand season.
On top of all of this, OPEC has a problem internally – who is going to cut? In our view, it certainly would not be Iran and Iraq, which combined might be adding over 1.5-m b/d of incremental supply over the next twelve to eighteen months. While entirely plausible for the Saudis to cut this fall, that might be more a function of its own internal consumption waning seasonally.The Kingdom burns up to 1-m b/d of crude during the peak summer months for power generation, though that begins fading in September.
For Moscow and Riyadh to reach an agreement, it would essentially mean a Saudi cut – but what quid pro quo could be achieved any time soon? A change in Iranian and Iraqi behavior? A change in the Syrian regime? This seems unlikely, in our view.
Euro/USA 1.1208 up .0028
USA/JAPAN YEN 121.26 down 0.429
GBP/USA 1.5409 up .0026
USA/CAN 1.3241 up .0045
Early this Monday morning in Europe, the Euro rose by 28 basis points, trading now well above the 1.12 level rising to 1.1208; 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, crumbling European bourses and today a Chinese currency revaluation northbound, Last night the Chinese yuan strengthened a considerable .0104 basis points. The rate at closing last night: 6.3761 which means again that the POBC used up considerable USA treasuries to support the yuan.
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 northbound trajectory as settled down again in Japan up by 15 basis points and trading now just above the 121 level to 121.26 yen to the dollar,
The pound was up this morning by 26 basis points as it now trades just above the 1.54 level at 1.5409.
The Canadian dollar reversed course by falling 45 basis points to 1.3241 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 Monday morning: up by 245.84 or 1.28%
Trading from Europe and Asia:
1. Europe stocks all deeply in the red
2/ Asian bourses mostly in the red except Hang Sang … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/
Gold very early morning trading: $1131.70
Early Monday morning USA 10 year bond yield: 2.16% !!! down 2 in basis points from Friday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield remains at 2.88 down 0 basis points. Officially we got the word that got China is selling treasuries like mad!
USA dollar index early Monday morning: 96.00 up 1 cent from Friday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3760 down .0105 ( Chinese yuan up 10.5 basis points/and again they must have sold a considerable amount of USA treasuries)
Stocks Suffer Biggest Monthly Drop In Five Years As Oil Spikes Most Since 1990
Only one thing for it really…
Forget stocks, today was all about crude oil again…
WTI pushed into the green for August!!!
3 Bear markets and 3 Bull markets now in 2015 so far… perfectly tagging the 50-day moving-average today…
This is the biggest 3-day rise in WTI since 1990!!
Oil Volatility and credit markets were not squeezed into euphoria at all…
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Having got that out of the way…Dow’s worst monthly drop since May 2010..
and had an ugly close…
Stocks got some lift from the momo-igniters -but once NYMEX closed, it was over. Stocks traded in a relatiovely narrow range glued to VWAP after the overnight plunge… Small Caps outperformed as Nasdaq Underporformed…
Futures markets giveus a better idea of the moves…NOTE -0 this is from the beginning of Friday’s pathetic EOD ramp…
Once again complete chaos on VIX ETFs…
VIX had its biggest monthly jump in history…
For the month, it’s been a wild ride!! but just look at how clustered the moves were…
Finacials & Enmergy and Healthcare (Biotech) were worst performers in August…
For all the excitment over FANG – August was a mixed bunch for them with FB and AMZN notably red…
With all the craziness in stocks, Treasury yields at the long-end ended the month practically unch… 2Y rose 8bps…
With some more notable weakness today (which was also seen in Bunds)…note once again selling weas in US session, buying in Asia and Europe…
The USD ended the day lower with some major swings in CAD…
As August’s USD Index drop was the biggest in 4 months…
Commodities were insane today – led obviously by crude!
And on the month… perhaps most notably, the perfect recoupling of crude and gold on the month!!??
But we note that Gold (+3.5%) had its best month since January even as Silver dropped
Finally – amid all the chaos in August, it appears there is a safe-haven… Gold outperforms
Chicago PMI Bounce Stalls, “Firms At Risk Of Being Over-Inventoried”
Following this morning’s ISM Milwaukee disappointment, missing for the 8th month sof the last 9 (printing 47.67 vs 50.00 exp and hovering at 2 year lows) with production and prices plunging, Chicago PMI just printed a slightly disappointing 54.4 (against expectations of 54.5). After last month’s surprise bounce, this slowdown suggests there is little to no momentum in any ‘recovery’ stemming from a Q2 bounce. Weakness under the surface is broad and as purchasers warned “failure of New Orders to materialize “within the next few weeks” could put firms at risk of being over-inventoried and curtail producton levels.” Perhaps most worrying though is the 4th consecutive contraction in employment… but the recovery?
Production and Prices plunged holding Milwaukee’s ISM near 2-year lows…
But then Chicago PMI hit…
And underlying factors were weak…
- MNI CHICAGO REPORT: BAROMETER 54.4 AUG VS 54.7 JUL SEASADJ
- MNI CHICAGO: SUPPLIER DELIVERIES RISE TO HIGHEST SINCE MARCH
- MNI CHICAGO: EMPLOYMENT UP BUT IN CONTRACTION FOR 4TH MONTH
- MNI CHICAGO: PRICES PAID FALL BACK BELOW 50
- MNI CHICAGO: INVENTORIES COMPONENT HIGHEST SINCE NOV 2014
- MNI CHICAGO: ORDER BACKLOGS CONTRACT AT FASTER RATE
- MNI CHICAGO: PRODUCTION AND NEW ORDERS EASE SLIGHTLY
Some purchasers reported enough work to keep their facilities “busy” but said that there were a lot of small orders with large orders lacking.
Part of the resilience in Production and New Orders was due to stock growth as companies built inventories at the fastest pace since November 2014.
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Judging by the market’s response – it appears bad news is now bad news.
“The Quantitative Easing Hangover Is Starting” – Dallas Fed Dead-Cat-Bounce Collapses To Post-2009 Recession Lows
With the biggest miss sicne April 2013, Dallas Fed’s 2-month dead-cat-bounce has collapsed to -15.8 (against expectations of -4.0). This is practically the weakest level for the manufacturing index since 2009. The entire report is a disaster – Fisher’s exit seems well timed? – as New Orders crash from +0.7 to -12.5 and Pries Paid craters from +0.1 to -8.0.Even worse, 14 of the 15 ‘hope’ indicators declined and as one respondent warned “the quantitative easing hangover is starting.” We have 3 simple words – “not unequivocally good.”
Under the surface the responses were really ugly, with 14 out of 15 forward-looking indicators all hinting at contraction.
Here are the best survey responses:
- “The quantitative easing hangover is starting.”
- Overall business is slowing.
- ” New orders have dropped to half of what they were last year. Capital project equipment continues to be sourced in China and Korea as the owners are chasing every dollar of savings possible. We had our first layoff in 15 years.”
- “Oil and gas prices, weather, world outlook and politics make for a poor forecast”
- “All our time is spent complying with increasing government regulations.”
- “The strong dollar has significantly impacted our export business. We have balanced this with domestic growth.”
- ” We are deeply concerned about the markets and the effects they are having globally”
- ” The interest in manufacturing has increased; however, the orders have not followed.”
- ” The continued decline in the West Texas Intermediate crude oil price is expected to soften the demand for our basic fabricated products”
- ” August will be our worst production and delivery month since March 2014.”
well that about does it for today
I will see you tomorrow night