Sept 1/ConocoPhillips to lay off 10% of global force/Oil drops 10% as API numbers bearish for oil/Arms index screams of a market crash/SouthKorea’s exports plummet/Dow plummets by 470 points/Bourses around the globe deeply negative/Comex bleeds silver to go along with their gold bleeding/Brazil throws in towel and gives a budgetary primary deficit/Shanghai plummets last night only to be rescued/

Good evening Ladies and Gentlemen:

Here are the following closes for gold and silver today:

Gold:  $1138.70 up $7.10   (comex closing time)

Silver $14.61 up 4 cents.

In the access market 5:15 pm

Gold $1140.00

Silver:  $14.60

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

 

At the gold comex today on first day notice, we had a poor delivery day, registering only 1  notice for 100 ounces  Silver saw 46 notices for 230,000 oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.56 tonnes for a loss of 78 tonnes over that period.

In silver, the open interest fell by 1488 contracts despite the fact that silver was up in price by 3 cents yesterday. Again, our banker friends used the opportunity to cover as many silver shorts as they could.  The total silver OI now rests at 157,158 contracts   In ounces, the OI is still represented by .785 billion oz or 112% of annual global silver production (ex Russia ex China).

In silver we had 46 notices served upon for 230,000 oz.

In gold, the total comex gold OI collapsed to 411,956 for a loss of 1202 contracts. We had 1 notice filed on second day notice for 100 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 no change in silver inventory at the SLV/ 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 1488 contracts down to 157,158 despite the fact that silver was up by 3 cents in price with respect to Monday’s trading.   The total OI for gold fell by 1292 contracts to 411,956 contracts, as gold was down by $1.50  yesterday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3. Five stories on China tonight.  The Chinese markets were somewhat rescued by POBC last night but the Shanghai Composite was still down over 1%.Last week,  the big news was official announcement of China selling its hoard of USA treasuries. China is angry at the USA as they state that the market crash is USA’s fault. Today the yuan was bought in volumes by the POBC and thus wads of USA treasuries were again sold and it also looks like German bunds were also sold.

(Reuters/zero hedge/Dave Kranzler)

4.South Korea’s exports plummet last month.  The numbers set in motion the huge bloodbath from bourses around the world.

(zero hedge)

5. Suddenly the 3rd Greek bailout looks to be in jeopardy

(zero hedge)

6. Russia’s military forces arrive in Syria

(zero hedge)

7. Putin states it is time to depart from using the uSA dollar

(RT)

8.  Hungarian forces try and stop train carrying refugees.

(live feed/zero hedge)

9. Brazil gives up and provides a budget that has a  primary deficit.

They risk their bonds being classified as junk

(zero hedge)

10. ABN Ambro warns today that the ECB may have to increase QE.

That is impossible because there is not enough bonds for them to monetize

(ABN Amro/zero hedge)

11.  Four oil related stories/oil tanks over 5% today.

Canada officially enters a recession with two straight quarters of negative growth. Also ConocoPhillips to cut 10% of global workforce.

(zero hedge/ConocoPhillips)

12 Trading of equities/ New York  (two commentaries from zero hedge)

 

13.  USA stories:

a) VIX surges creating havoc for those who have shorted this volatility vehicle

b) USA national manufacturing PMI falters to a two year low

(Markit/zero hedge)

c) Have we reached peak construction spending?

zero hedge

d) the Death of the Petrodollar

(zero hedge)

e. El Nino set to reappear and this will create havoc.

(Bruce Krasting)

f. Arms index screams of a crash.  it is now 5. Anything above 1 is bearish/anything below 1 is bullish.

(zero hedge)

 

14.  Physical stories:

  1. A good study on the merits of silver….(courtesy Profit Confidential/By Tuesday, September 1, 2015)
  2. New York Sun’s commentary tonight: a gold standard is probably a lot better than central bankers policy (New York Sun)
  3. Bill Holter explains the significance of the VIX and why we have more shares sold short than shares outstanding (Bill Holter)

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

The total gold comex open interest fell from 413,158 down to 411,956, for a loss of 1202 contracts as gold was down $1.50 with respect to yesterday’s trading. Seems our specs have been obliterated.  For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month, and today the latter continued with its decline in gold ounces standing. What is also interesting is that the LBMA gold is continually witnessing a 7.00 plus premium spot/next nearby month as gold is now in backwardation over there. We now enter the  delivery month of September and here the OI fell by 51 contracts down to 221. We had 4 notices filed yesterday so we lost 47 contracts or 4700 oz will not stand for delivery in this non active month of September. The next active delivery month is October and here the OI fell by 124 contracts up to 27,465. The big December contract saw it’s OI fall by 1971 contracts from 285,815 down to 283,844. The estimated volume on today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was estimated at 145,085. The confirmed volume on Monday (which includes the volume during regular business hours + access market sales the previous day was fair at 104,689 contracts.
Today we had only 1 notice filed for 100 oz.
 
And now for the wild silver comex results. Silver OI fell by 1458 contracts from 158,646 down to 157,158 despite the fact that  silver was up by 3 cents in price yesterday . As mentioned above we always have a huge contraction in the OI of an upcoming active precious metal month. Today we witnessed a rather large contraction in OI. The bankers continue to pull their hair out trying to extricate themselves from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena (judging from the high volume every day at the comex). We are now in the active delivery month of September. Here the OI fell by 519 contracts to 1,679. We had 167 notices filed yesterday, so we lost 352 contracts or an additional 1,760,000 oz will not stand for delivery in this active delivery month of September. The estimated volume today was estimated at 34,213 contracts (just comex sales during regular business hours).  The confirmed volume on Monday (regular plus access market) came in at 32,650 contracts which is weak in volume.
We had 46 notices filed for 230,000 oz.

September contract month:

Initial standings

September 1.2015

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz 4,851.10 oz Scotia,Manfra) oz
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 3,574.669 oz (Delaware)_
No of oz served (contracts) today 1 contract  (100 oz)
No of oz to be served (notices) 220 contracts (22,000 oz)
Total monthly oz gold served (contracts) so far this month 5 contracts(500 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 5119.6   oz
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 2 customer withdrawals:
i) Out of Manfra; 610.85 oz
ii) Out of Scotia:  4340.25 oz
total customer withdrawal:  4951.10 oz
We had 1 customer deposits:
 i)into Delaware:  3574.669 oz

Total customer deposit: 3574.669  oz

We had 3  adjustments:
 i) Out of Delaware;
we had 393.16 oz leave the dealer and this entered the customer account of Delaware;
ii)Out of Manfra; 2103.442 oz left the dealer and this entered the customer account of Manfra
iii) Out of Scotia:
a huge 46,536.906 oz left the dealer account and this entered the customer account of Scotia
In total:  49,033.508 oz left all dealers to enter the customer accounts.

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

.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 1 contract of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
 
To calculate the final total number of gold ounces standing for the August contract month, we take the total number of notices filed so far for the month (5) x 100 oz  or 500 oz , to which we  add the difference between the open interest for the front month of September (221 contracts) minus the number of notices served upon today (1) x 100 oz   x 100 oz per contract equals the number of ounces standing.
 
Thus the initial standings for gold for the September contract month:
No of notices served so far (5) x 100 oz  or ounces + {OI for the front month (221) – the number of  notices served upon today (1) x 100 oz which equals 22,500 oz  standing  in this month of Sept (.699 tonnes of gold).
Total dealer inventory 423,749.579 or 13.18 tonnes
Total gold inventory (dealer and customer) =7,219,747.871 or 224.56  tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 224.56 tonnes for a loss of 78 tonnes over that period.
 
end
And now for silver

September silver initial standings

September 1 2015:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 1,948,479.835 oz (Brinks,Delaware,CNT, Scotia,HSBC)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil
No of oz served (contracts) 46 contracts  (230,000 oz)
No of oz to be served (notices) 1632 contracts (8,360,000 oz)
Total monthly oz silver served (contracts) 213 contracts (1,065,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil
Total accumulative withdrawal  of silver from the Customer inventory this month 3,551,833.3 oz

Today, we had 0 deposits into the dealer account:

 

total dealer deposit; nil oz

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

total customer deposits: nil  oz

We had 4 customer withdrawals:
i) Out of Brinks:  2,981.300 oz
ii) Out of CNT:  617,047.45 oz
iii) Out of HSBC: 1,249,735.290 oz
iv) out of Scotia; 77,730.110 oz
v) out of Delaware; 985.685 oz

total withdrawals from customer: 1,948,479.835  oz

I can now safely say that the comex is bleeding silver to go along with their gold bleeding.

we had 1  adjustments
i) Out of Delaware:
85,539.23 oz was removed from the dealer account and this landed into the customer account of Delaware
Total dealer inventory: 53.541 million oz
Total of all silver inventory (dealer and customer) 168.613 million oz
The total number of notices filed today for the September contract month is represented by 46 contracts for 230,000 oz. To calculate the number of silver ounces that will stand for delivery in September, we take the total number of notices filed for the month so far at (213) x 5,000 oz  = 1,065,000 oz to which we add the difference between the open interest for the front month of September (1679) and the number of notices served upon today (46) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the September contract month:
213 (notices served so far)x 5000 oz + { OI for front month of August (1679) -number of notices served upon today (46} x 5000 oz ,=9,425,000 oz of silver standing for the September contract month.
end

 

The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China
And now the Gold inventory at the GLD:
Sept 1/2015: no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 31./no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 28.2015:/no change in gold tonnage at the GLD/Inventory rests at 682.59 tonnes
August 27./ a huge addition of tonnage at the GLD to the tune of 1.49 tonnes/Inventory rests at 682.59 tonnes
(I believe that the GLD has now run out of physical gold and they cannot supply China from this vehicle)
August 26.2015/ no change in tonnage at the GLD/Inventory rests at 681.10 tonnes
August 25.2015; an addition of 3.27 tonnes of gold into the GLD/Inventory rests at 681.10 tonnes.
August 24./no changes tonight at the GLD/Inventory rests at 677.83 tonnes
August 21.2015/another huge addition of 2.35 tonnes of gold into the GLD/(not sure if this is real physical or not)/inventory rests tonight at 677.83 tonnes
August 20/2015:a huge addition of 3.57 tonnes of gold into the GLD/Inventory rests tonight at 675.44 tonnes
August 19/no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
August 18.2015: no changes in inventory/GLD inventory rests tonight at 671.87 tonnes
Sept 1/2015 GLD : 682.59 tonnes
end

And now SLV:

September 1/no change in inventory over at the SLV/Inventory rests tonight at 325.922 million oz

August 31.a huge addition of 954,000 oz were added to inventory today at the SLV/Inventory rests at 325.922 million oz

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

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

 

September 1/2015:  tonight inventory rests at 325.922 million oz
end
 
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 9.0 percent to NAV usa funds and Negative 8.6% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 63.0%
Percentage of fund in silver:36.8%
cash .2%( Sept 1/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+.52%!!!! NAV (August 31/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV  rises to – .18% to NAV August 31/2015)
Note: Sprott silver trust back  into positive territory at +.50% Sprott physical gold trust is back into negative territory at -.18%Central fund of Canada’s is still in jail.

Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:

SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *

>end
And now for your overnight trading in gold and silver plus stories on gold and silver issues:

(courtesy/Mark O’Byrne/Goldcore)

Gold Up 3.5% In August, Stocks Fall 6% to 12%

DAILY PRICES
Today’s Gold Prices:  USD 1141.90, EUR 1012.23 and GBP 744.10 per ounce.
Yesterday’s Gold Prices: Bank Holiday in UK
Friday’s Gold Prices:  USD 1,125.50, EUR 998.23 and GBP 730.99 per ounce.
(LBMA AM)

Gold was marginally higher yesterday and closed at $1135.50 per ounce, up $1.10. Silver was 0.3% higher and closed at $14.64 per ounce.

Gold rose 4% in August as stocks globally saw sharp falls on growing concerns about the Chinese and the global economy. Silver was 1% lower for the month of August and  also acted as a hedge from falling stock markets globally.

Asset Performance table - August

Asset Performance in August – Finviz.com

Internationally, stocks had their worst month in the last three years. In one of the most volatile trading periods since the financial crisis, August saw $5.7 trillion erased from the value of stocks worldwide and no major stock market was left unscathed.

The S&P 500 was down a significant 6.3% and the Dow Jones Industrial Average ended the month 6.6% lower, while the Nasdaq was down 6.9%. At one stage losses were much higher but a sharp bounce toward the end of the month meant the declines were that as bad as they looked like they would be.

The weak performance of equity markets in August was mirrored across the world’s major financial centres, with the FTSE down 6.7%. The pan-European FTSEurofirst 300 index recorded a monthly loss of 9% – its worst monthly performance since August 2011.

Gold in USD - 30 Days

Gold in USD – 30 days

Germany’s DAX was down 9% and posted its worst monthly performance since August 2011. The DAX is currently some 17% below a record high reached in April.

Asian stock markets closed their worst monthly performance in more than three years in August, as shares struggled to recover from a global selloff sparked by worries about China, the Fed and the global economy.

A slowdown in China’s economy, magnified by a surprise devaluation of the Chinese yuan earlier this month, accelerated a rout in Shanghai that spread across the globe, pushing down everything from stocks in the U.S. and Europe, to commodities and emerging market-currencies.

The Nikkei 225 down 8.2% – its biggest monthly decline since January 2014.

The Shanghai Composite Index ended down 12.5% , its third straight month of declines, and a close runner-up to July’s 14% loss, which was the index’s biggest monthly drop since August 2009.

India’s Sensex was down 6.5% in August.

The losses were broad-based as nine out of the 10 S&P sectors in the U.S. fell. Energy stocks were the sole gainers and interestingly oil prices have surged for a third straight day after the OPEC indicated they are prepared to discuss production levels. U.S. benchmark crude surged 8.8% to $49.20 a barrel on the New York Mercantile Exchange. Oil has surged 27% in just three days.

Today came further evidence of a global slowdown when factory gauges from France, Norway and Russia signaled contractions before data from the U.S. that economists predict will show slower growth

Gold served its function as a safe haven in August, rising strongly in the major currencies. Importantly, from a technical perspective gold recorded a monthly higher close which should see ‘trend following’ momentum traders and speculators begin to add to long positions and “to make the trend their friend”.

The ‘Fall’ and September and October can be the ‘cruelest’ months for stocks. Conversely, more years than not, precious metals prices perform well in September and the autumn period. Safe haven demand for bullion internationally remains robust and Indian festival seasonal demand looks set to be healthy as does Chinese New Year demand later in the autumn.

Given the very uncertain financial and economic outlook, it is important that investors remain diversified with healthy allocations to gold.

IMPORTANT NEWS

Gold Jumps 3.4% in August; US Mint Bullion Coins Impress – CoinNews.net
Gold regains shine in August amid market turmoil – Financial Times (registration required)
Oil’s Three Big Days Wipe Out a Month of Losses – Bloomberg
Gold Gains After China Factory Gauge Shrinks to Three-Year Low– Bloomberg
Asian shares slip as downbeat China PMIs revive growth fears – Reuters

IMPORTANT COMMENTARY

Breaking China could cripple us all – Davidmcwilliams.ie
Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report
“Something” Just Happened! – Holter – GoldSeek.com
Gold standard isn’t as crazy as today’s central banking – The New York Sun
If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek

Click on News and Commentary

end

 

A good study on the merits of silver….

(courtesy Profit Confidential/By Tuesday, September 1, 2015)

 

 

Silver Price Forecast: Here’s Why Silver Prices Could Be Heading a Lot Higher

It doesn’t matter whether you’re a short-term investor or a long-term one, because the one basic rule remains the same.

You buy shares on the downside that have huge upside potential.

But take careful note of what this formula really means. The best investors concentrate on limiting downside as a first step, and only after seriously analyzing the downside risk do they start looking at a stock’s upside potential.

Remember the old proverb about how the best defense is a great offense? Well, market trading is counter-intuitive because it’s often quite the opposite. You really want to be playing more of a defensive game than anything.

What we’re looking at today in commodity markets is a fantastic opportunity to put all this into practice. Silver prices are at a multi-year low, which gives you a good window of opportunity to structure your traders in the grey metal on the low-downside.

Silver Price Forecast: Is Silver About to Hit $35.00?

But why am I advocating for silver here?

Silver is, of course, “real” money just as gold is. Both have been used as historic currencies, and people have been turning to them as safe havens in moments of crisis for centuries. Silver is a fantastic place to park your wealth if you’re worried about devaluation in virtual money and are looking for a disaster-proof insurance policy.

Would it surprise you to find out, then, that silver’s industrial use is more than three times its use for jewelry and as a safe haven? More than half a billion ounces a year are used in the manufacturing of solar panels, electronic equipment, photography, water purification, nanotechnology, biomedical engineering. The amount that went into silver coins and bars was 250 million ounces, while another 215 million ounces went into jewelry.

Translation: if you think of silver in terms of jewelry and coins, think again. Because it’s an extremely important ingredient in high-tech industries.

Silver prices rose from $4.00 per ounce in 2001 to $21.00 per ounce in 2008. Following the 2008 Financial Crisis, silver went into freefall and dropped to $9.00 per ounce before skyrocketing to almost $50.00 per ounce in 2011.

Now, the effects of this drop are felt most keenly by silver producers. In a low-price environment such as the one we are seeing today for silver, these mining companies are getting paid less to do the exact same work with the same expenses. Lots of producers, in fact, had to put a pause on their high-cost mining operations.

But wait, doesn’t a decline in physical disruption mean a smaller supply of actual silver? Furthermore, because of fast expansion of the industries that use silver, along with the grey metal’s slumping price, shouldn’t demand start to rise fast?

Decreased silver production means a smaller supply. And low prices should lead to higher industrial and investment demand. It’s a recipe for higher silver prices to come.

If you look at this year-on-year chart below, it may well have already started.

Chart

Chart Courtesy of www.StockCharts.com

As you can see, the rapid drop in silver prices looks to be leveling off as it finds its bottom. Going on historical data, this could well be a sign that silver is poised to rise. If the economic fundamentals we’ve been talking about here are any indication, prices will begin to slowly rise.

Translation: silver shares could skyrocket.

Keep in mind that silver is a commodity, and commodities have a tendency to be volatile. The grey metal may bounce off the bottom for some time before it begins its inevitable climb.

Now, lets talk about the downside risk here of a silver investment. How can you work to reduce it?

It’s fairly simple actually, and you can do it in three ways.

One way is to get into a diversified fund which holds multiple shares of different precious metals companies. This curbs the chance of your hard-earned investment flopping because of one company’s poor performance.

Sponsored Content: (Video) This Stock Market Prediction Will Shock You, But It’s True

Another is to utilize a stop loss. You can simply sell off your shares and take a small loss if silver drops below a level you view as too dangerous.

And finally, you can keep your investment position small. Aim to make your silver investment only one part of your overall investment portfolio so that even in the worst case scenario, you won’t suffer a financial meltdown.

Best of all, even if you implement these risk minimization strategies when silver investing, you are in no way, shape, or form limiting your upside potential.

Even a 100% gain is in the realm of possibility.

So if you have a mind for investing and a nose for good defensive strategies, silver investing might just be for you. When done properly, risk can be reduced substantially without hurting your chances of making big bucks.

Also Read:

Silver Price Forecast: Is Silver Going to $60?

Silver Price Forecast: Here’s Why Silver Prices are About to Soar

Silver Price Forecast: This Could Send Silver Prices Higher in 2016

 

 

 

end

 

 

 

 

(courtesy New York Sun/GATA)

New York Sun: Gold standard isn’t as crazy as today’s central banking

Section:

9:05p ET Monday, August 31, 2015

Dear Friend of GATA and Gold:

The New York Sun tonight comments on a conference held in Wyoming by the American Principles Project to counter the one held there annually by the Federal Reserve. Quoting the financial writer Judy Shelton, the Sun says returning to a gold standard would be less crazy than the daily weirdness of today’s central banking. The Sun’s editorial is headlined “‘Crazy’?” and it’s posted here:

http://www.nysun.com/editorials/crazy/89270/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

end

Remarks from Bill Holter tonight on the VIX:

“That’s what happens when there are 64 million shares short and only 52.3 million shares outstanding…”
  Bill Holter’s comment.
   Briefly and in plain English I would like to explain this to you.  The “VIX” index, otherwise known as the fear “index” has been a major tool of the PPT and Associates in supporting the stock market. A “low” number is indicative of little fear while a high number shows more fear.  In an effort to support equities, this index has clearly been suppressed in price by selling more shares short than even exist.  (Does this sound familiar to gold and silver investors?).  This now poses a VERY BIG PROBLEM!
  Plain and simple, with more shares short than exist, a short squeeze for the ages has been set up.  Knowing a big move upward in the VIX is also synonymous with lower stock prices, one can extrapolate (along with many other technical and fundamental weaknesses) a market crash of epic proportions will happen whenever this short squeeze is actually covered.  The “squeeze” has already begun with the VIX running up to 31.8 as of this writing.  The “crash” has also started worldwide if you have been paying attention.  In my opinion, the “short covering” has the potential to push the VIX index to all time high prices.  Greater than 2001, 2008 and even 1987.  Can you guess what this will mean to averages like the Dow Jones, S+P 500 or the NASDAQ???
Standing watch,
Bill Holter,
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com
end
And now your overnight Tuesday morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan rises considerably this  time to   6.365/Shanghai bourse: red and Hang Sang: red

Surprisingly, last week, officially, China added another 19 tonnes of gold to its official reserves now totaling 1677.

2 Nikkei down 724.79   or 3.84.%

3. Europe stocks all deeply in the red    /USA dollar index down to  95.54/Euro up to 1.1257

3b Japan 10 year bond yield: falls to .3720% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.07

3c Nikkei now below 19,000

3d USA/Yen rate now just above the 120 barrier this morning

3e WTI:  47.83 and Brent:  52.44

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 .777 per cent. German bunds in negative yields from 4 years out.(China must be selling copious amounts of German bunds)

Except Greece which sees its 2 year rate falls to 12.56%/Greek stocks this morning down by 0.17%:  still expect continual bank runs on Greek banks /

3j Greek 10 year bond yield falls to  : 9.16%

3k Gold at $1141.00 /silver $14.56  (8 am est)

3l USA vs Russian rouble; (Russian rouble down 79/100 in  roubles/dollar) 65.01,

3m oil into the 47 dollar handle for WTI and 52 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 .9637 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0846 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 +.777%

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 2.90% / yield curve flatten/foreshadowing recession.

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

 

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

US Futures Tumble After Latest Abysmal Chinese Economic Data, Crude Surge Stalls

Just like the last time when Chinese flash PMI data came out at the lowest level since the financial crisis, so overnight when both the official Chinese manufacturing and service PMI data, as well as the Caixin final PMI,s confirmed China’s economy has not only ground to a halt but is now contracting with the official manufacturing data the lowest in 3 years and the first contraction in 6 months, stocks around the globe tumbled on concerns another major devaluation round by the PBOC is just around the corner (especially following the unexpected strengthening in the CNY in the past week which has cost China even more billions in reserve outflows) with the drop led by the Shanghai Composite which plunged as much as 4% before, the cavalry arrived and bought every piece of SSE 50 index of China’s biggest companies  it could find, and in a rerun of yesterday sent it to a green close, with the SHCOMP closing just -1.23% in the red. So much for the “no interventions” myth. We wonder which journalist will take the blame for today’s rout.

Despite the latest attempt by Chinese authorities to smooth the drop, Asian equity markets traded lower as the rout in global stocks continued which saw US stocks post its worst month since May 2012 (S&P 500 -0.8%).Nikkei 225 (-3.8%) traded in negative territory in the wake of weak CAPEX (5.6% vs. Exp. 8.8%) figures, while ASX 200 (-2.1 %) is dragged lower by weakness in large banks. JGBs traded higher following the stellar 10yr JGB auction where b/c was at its highest in a year. RBA kept official cash rate unchanged at 2.00% as expected.

In Europe, stocks traded lower since the open in Europe (Euro Stoxx: -3.0%), following on from a negative session for Asian equities, with indices further weighed on by the latest manufacturing PMIs, which generally printed lower than expected (EU Manufacturing PMI 52.3 vs. Exp. 52.4). On a sector specific break down, materials are the session’s laggard amid the latest indication out of China that the country is facing an economic slowdown.

“Markets may have overemphasized China’s impact, but markets are also in relatively bad shape and we’re getting more negative technical signals,” says Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich. “It’s a close call for the Fed and as long as markets are in turbulence, I don’t think it will raise rates.”

US equity futures were down 40 points at last check, having traded well lower only saved in the last few minutes by yet another violent rebound in the USDJPY, and oil which after crashing 4% earlier has also managed to recoup nearly all losses on even more speculation someone in OPEC is willing to be the first to cut production and push prices higher (hint: nobody will).

Fixed income markets have seen choppy price action in Bunds , with the German benchmark falling during the European morning as it grappled with supply and risk-averse related factors, before paring the losses ahead of the North American open to trade relatively flat, however continuing to underperform its US counterparts, with T-Notes firmly in the green.

Safe-haven related flows were particularly evident in FX during the European morning, where broad based JPY gains saw USD/JPY fall by around 150 pips to break below the 120.00 level, with EUR/JPY breaking below its 100DMA line. At the same time, the resulting USD weakness (USD-Index: -0.4%) supported EUR/USD, which also benefited from the un-wind of carry trade positions.

Elsewhere, commodity sensitive currencies such as AUD, CAD and RUB continued to come under pressure , amid the decline in energy and base metal prices, with WTI and Brent crude futures trading lower by over USD 1.50 heading into the NYMEX pit open after sharp gains seen yesterday.

Going forward, market participants will get to digest the release of the latest US manufacturing PMI, ISM manufacturing and the release of the latest US API crude oil inventories report after the closing bell on Wall Street.

In commodities, WTI and Brent crude futures traded lower amid renewed concerns of a slowdown in China, as well as a paring of the aggressive advance yesterday, which rounded off their largest 3 day gains since 1990. This comes with some market participants downplaying the significance of the OPEC report yesterday. Subsequently, however, oil managed to stage a substantial rebound from the lows and at last check was trading entirely based on what some momentum algo thought it was “worth.”

The metals complex has generally seen weakness today, with most metals lower as a result of Chinese concerns, with the exception gold, which has seen a bout of strength today on the back of USD weakness.

Market Wrap

  • Euro up 0.5% at $1.1271
  • German 10Yr yield down 1bp at 0.79%
  • V2X up 9% at 33.8
  • S&P 500 futures down 2% at 1930.1
  • Brent futures down 2.6% at $52.8/bbl
  • LME 3m Copper down 0.9% at $5091/MT
  • Gold spot up 0.8% at $1143.7/oz

Overnight Media Digest

  • Chinese Caixin Manufacturing PMI ebbed lower to print in contractionary territory, while the official figure printed its lowest level in 3 years and 1st contraction in 6 months
  • Stocks traded lower since the open in Europe, following on from a negative session for Asian equities, with indices further weighed on by the latest manufacturing PMIs
  • Today’s highlights include the latest US manufacturing PMI, ISM manufacturing and the release of the latest US API crude oil inventories report after the closing bell on Wall Street
  • Treasuries rally as stocks, oil and industrial metals fall on weak China eco data; China also said to make banks trading FX forwards hold reserves.
  • PBOC will mandate a deposit of 20% of sales to be held at zero interest for a year on financial institutions trading FX forwards, according to six people familiar with matter
  • U.K. manufacturing growth slipped to 51.5 in August from 51.9 the prior month; firms cites strong pound, weak euro area sales, China’s economic slowdown, Markit said
  • Australia left interest rates unchanged Tuesday as a declining currency cushions the impact of lower commodity prices and a weaker outlook for key trading partner China
  • Greenlight Capital, the investment firm led by David Einhorn, fell 5.3% in its main hedge fund in August as volatility in oil and Chinese stocks rattled markets
  • $63.625b IG priced in August, $10.185b HY deals. BofAML Corporate Master Index holds at +169; reached +172 last week, widest since Sept 2012; YTD low 129. High Yield Master II OAS -2bp to +570; reached +614 last week, widest since July 2012; YTD low 438
  • Sovereign 10Y bond yields mostly lower. Asian and European stocks side, U.S.equity-index futures decline. Crude oil and coppper lower, gold gains

 

The balance of the overnight wrap comes as usual from Jim Reid

Well today we’re all coming back from a summer holiday and ushering in September. It was clearly one of the most tumultuous Augusts in recent memory but one that ended on the stronger side with Oil climbing into bull market territory after a 3-day rally continued yesterday. We’ll go through a performance review of the month and YTD at the end and publish all the usual charts and table in the pdf. We’ll also repeat the week ahead that Craig published yesterday at the end for those out yesterday. Craig also fully reviewed the weekend’s Jackson Hole news, so for a recap see yesterday’s EMR.

It’s been a less than impressive start to September in Asia this morning where equity bourses have taken another tumble following some more soft PMIs out of China. The official manufacturing PMI for August fell 0.3pts last month to 49.7, in line with expectations but down from 50 last month and the first sub-50 reading since February. The Caixin measures have shown similar pain with the manufacturing PMI reading coming in at 47.3 (vs. 47.1 expected), down 0.5pts from last month and signaling the sixth straight month of contraction in the sector and to the lowest print since March 2009. With also a fall for the Caixin services reading to 51.5 (from 53.8), the composite print has declined 1.4pts to 48.8 and below 50 for the first time this year.

The Shanghai Comp has declined 1.06% into the midday break on the back of the data, although paring earlier losses of more than 4% with the move coming despite a report from the China Securities Regulatory Commission saying that it would encourage companies to increase dividends and stock buy backs in a bid to support the equity market. There’s also been declines for the Shenzhen (-2.85%) and CSI 300 (-1.24%), while the Nikkei (-2.26%), Hang Seng (-0.47%), Kospi (-1.02%) and ASX (-1.33%) have all followed suit. Oil markets have tumbled nearly 3% following yesterday’s rally while S&P 500 futures are over a percent and a half down as we go to print. EM FX markets are generally trading stronger meanwhile, supported by a strengthening of the Yuan fix this morning by the PBoC by the most (+0.22%) since November. The AUD is little moved meanwhile after the RBA kept rates on hold as expected.

Looking back at the price action yesterday, despite the strong surge in Oil it was a weak end to the month in equity markets. A late rebound in oil stocks failed to stop the S&P 500 from closing down 0.84% and in the process marking its biggest monthly slide since May 2012. The DOW (-0.69%) and NASDAQ (-1.07%) saw similar declines yesterday with those indices having their worst months since May 2010 and May 2012 respectively. It was a similar story closer to home where the Stoxx 600 (-0.38%), DAX (-0.38%) and CAC (-0.47%) taking similar legs lower with the falls yesterday coming on the back of more weakness in Chinese equity markets and the comments from Fischer over the weekend which left investors mulling over a higher probability of a September Fed move.

That probability edged up to 42% yesterday from 38% on Friday, although still tracking below the 54% we saw earlier this month. On this theme, yesterday DB’s Peter Hooper reiterated his September liftoff view but noted that the call is very close at this point. Peter believes that there are three key factors which will drive the outcome; fundamental economic developments and prospects (including upcoming data), financial market conditions and thirdly Fedspeak. In his view the strongest case for delaying is uncertainty about inflation prospects, however this is somewhat offset by progress in the labour market. On top of this, recent financial turbulence and global uncertainties make this a close call and caution may dictate accumulating more evidence in the wake of market gyrations. Looking forward, Peter notes that assumptions for a good August employment report, no significant weakness in the August CPI report and markets settling down following the equity volatility of late should help support his September call. However, should these assumptions prove wrong, then the schedule could well slip to December or even 2016.

Back to markets yesterday. 10y Treasury yields surged higher in the last couple of hours of trading, finishing 3.7bps higher at 2.219% and over 8bps off the day’s lows as the Oil complex rallied late in the day. Indeed, Brent finished the session 8.19% higher at $54.15/bbl, over $10 higher than Wednesday’s closing price with the three-day rally of 27% the most in 25 years. WTI (+8.80%) had a similar move higher, closing at $49.20/bbl. Yesterday’s extension of gains is largely being attributed to hints of a potential softer stance from OPEC after reports that the cartel may be ready to talk with other crude exporters to reach ‘fair and reasonable prices’. Also contributing to the price action was the latest US oil output data from the EIA which showed production in June fell to 9.3m barrels a day after peaking at 9.6m in April while the WSJ reported a Kremlin aide as saying that Russia President Putin is set to discuss ‘potential mutual steps’ to stabilize global oil prices with Venezuelan President Maduro on Thursday.

Elsewhere, data flow in the US was a touch on the weaker side yesterday. The August Chicago PMI reading declined 0.3pts to 54.4 (vs. 54.5 expected) while the details revealed some declines in the new orders and production components, as well as the employment, offset by a significant bounce in inventories. The ISM Milwaukee for August also came in below consensus (47.7 vs. 50 expected) although it was up slightly from the 47.1 in July. Meanwhile there was another negative reading for the Dallas Fed manufacturing activity index which fell to -15.8 (vs. -4.0 expected) from -4.6 in July. The reading marks the 8th consecutive negative print while the six-month outlook fell to 3.4 from 18.8 in the prior month.

Despite the slightly softer readings in the US yesterday, dataflow in Europe was slightly more upbeat. The August headline CPI reading was left unchanged at +0.2% yoy after expectations for a fall to 0.1%, while the core was also left unchanged at +1.0% yoy (vs. +0.9% expected). German retail sales for July were strong meanwhile, with the +1.4% mom print ahead of expectations of +1.0% and together with upward revisions to June seeing the annualized rate come in well above consensus estimates (+3.3% yoy vs. +1.7% expected). European sovereign bond yields were little moved following the data however the leg up in Oil helped push the bulk of the region higher later in the session with 10y Bunds closing up 5.6bps at 0.795% and the periphery around 4bps higher.

end

 

Monday night 9:30 pm est/Tuesday morning Shanghai time

Markets open in China: Yuan strengthens again as more treasuries are sold. Markets set to open down considerably!!

 

(courtesy zero hedge)

 

China Strengthens Yuan By Most Since Nov 2014 After PMI Hits 3-Year Low, PBOC Offers “Hope” As A Strategy For Stocks

Having exposed the culprit for all of its economic and market woes, China is likely going to have problems explaining why its economic plague is still spreading (with South Korean exports collapsing and Japanese Capex growth slowing) and China’s official manufacturing PMI slipped into contraction for the first  time in 6 months (to 3 year lows). Amid the face-saving clean-air of Parade Week, the appearance of awesomeness must prevail and following the worst quarter since Lehman, stocks are indicated lower despite having received some ‘help’ into last night’s close. PBOC proxies push ‘hope’ as a strategy for stock stability (even as US markets and oil are re-collapsing) as margin debt drops to an 8-month low – still double YoY though.PBOC fixes Yuan 0.22% stronger- the biggest jump since Nov 2014.

 

China’s bubonic economic plague is spreading…

  • S. KOREA EXPORTS DROP BY MOST SINCE 2009, FALLING FOR 8TH MONTH

 

So guess who will be next to devalue!

*  *  *

But having arrested the culprit for all of China’s market and economic woes, following the worst 3-month slide in stocks since Lehman

 

And with Parade Week under way, the propaganda continues…

  • *PBOC ACADEMIC URGES ATTENTION ON STOCK MKT STABILITY: SEC TIMES

Which, he writes, means market expectations should be optimistic about the economy as they were during the bull market… even though there seems to disconnect between economic fundamentals and the stock market, while the gap between the link, it is the reflection of the policy.

Which roughly translated means – In China, hope is a strategy.. and if you are anything but hopeful you are arrested.

But then China PMI hit…

  • *CHINA MANUFACTURING PMI AT 49.7 IN AUG. – 3 Year Low – The Official PMI in contraction for first time in 6 months.
  • *CHINA NON-MANUFACTURING PMI AT 53.4 IN AUG.

Don’t forget – Hope fills the gap.

So having switched its focus to more economic-growth-focused measures than stock-levitation, $100s of billions later, the economy keeps sliding.

Of course, there is always the unofficial Caixin print at 2145ET to baffle everyone with bullshit.

*  *  *

There is some good news… The delveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS
  • Outstanding balance of Shanghai margin lending fell to 673.1b yuan on Monday, lowest level since Dec. 25.
  • Balance dropped by 1.5%, or 10b yuan, from previous day, in a 10th straight decline

But then again, we are not sure if we are allowed to mention that. And in any case – just to screw things up completely, China is goping full subprime in the real estate market…

China may strengthen property loosening andreduce down payment ratio on commercial mortgage loans if property investment remains weak, analysts led byNing Jingbian write in note.

 

Move to boost mkt confidence in short term, though real policy effect may be impaired due to caps on housing provident fund loans

Yeah – because loosening standards and lowering upfronts worked out so well for America’s already inflated housing market.!!

Asian equity markets are not happy…

  • *JAPAN’S NIKKEI 225 MAINTAINS LOSS AFTER CHINA PMI; DOWN 1.5%
  • *CHINA FTSE A50 STOCK-INDEX FUTURES FALL 1% AT OPEN

After two days of stronger Yuan fixes, PBOC goes crazy and drastically strengthens Yuan…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3752 AGAINST U.S. DOLLAR
  • That is the biggest single-day strengthening since Nov 2014…

 

Charts: Bloomberg

end

 

At 11:30 pm est/11:30 am in the morning Shanghai time, stocks are plunging all over the place:

 

 

(courtesy zero hedge)

US & China Stocks Are Plunging After PMI Hits 6.5-Year Low, PBOC Strengthens Yuan Most Since Nov 2014

Following China’s official PMI print at a 3-year low,Caixin’s PMI collapsed to 47.3 – the lowest sinec March 2009. Despite another CNY150bn liquidity injection(but the biggest strengthening of Yuan since Nov 2014 and a financial conditions tightening in FX trading), China, US, and Japanese stocks are plunging… SHCOMP -4%, Dow -280, NKY -340

Carnage!

 

China -4%

 

Dow -280…

 

NKY -340

Japan is now getting worried:

  • *ASO: CHINESE ECONOMY HAS BIG IMPACT ON JAPAN ECONOMY

Blood on the streets again in China…

 

None of this should come as a surprise to anyone as we noted earlier…

*  *  *

And as we detailed earlier…

Having exposed the culprit for all of its economic and market woes, China is likely going to have problems explaining why its economic plague is still spreading (with South Korean exports collapsing and Japanese Capex growth slowing) and China’s official manufacturing PMI slipped into contraction for the first time in 6 months (to 3 year lows). Amid the face-saving clean-air of Parade Week, the appearance of awesomeness must prevail and following the worst quarter since Lehman, stocks are indicated lowerdespite having received some ‘help’ into last night’s close. PBOC proxies push ‘hope’ as a strategy for stock stability (even as US markets and oil are re-collapsing) as margin debt drops to an 8-month low – still double YoY though.PBOC fixes Yuan 0.22% stronger- the biggest jump since Nov 2014 – as it injects another CNY150bn via 7-day rev.repo.

 

China’s bubonic economic plague is spreading…

  • S. KOREA EXPORTS DROP BY MOST SINCE 2009, FALLING FOR 8TH MONTH

 

So guess who wil lbe next to devalue!

*  *  *

But having arrested the culprit for all of China’s market and economic woes, following the worst 3-month slide in stocks since Lehman

 

And with Parade Week under way, the propaganda continues…

  • *PBOC ACADEMIC URGES ATTENTION ON STOCK MKT STABILITY: SEC TIMES

Which, he writes, means market expectations should be optimistic about the economy as they were during the bull market… even though there seems to disconnect between economic fundamentals and the stock market, while the gap between the link, it is the reflection of the policy.

Which roughly translated means – In China, hope is a strategy.. and if you are anything but hopeful you are arrested.

But then China PMI hit…

  • *CHINA MANUFACTURING PMI AT 49.7 IN AUG. – 3 Year Low – The Official PMI in contraction for first time in 6 months.
  • *CHINA NON-MANUFACTURING PMI AT 53.4 IN AUG.

 

“Both domestic and external demand are weak,”said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “Market sentiment is bad and it’s too early to say the Chinese economy is bottoming out.”

 

Don’t forget – Hope fills the gap.

So having switched its focus to more economic-growth-focused measures than stock-levitation, $100s of billions later, the economy keeps sliding.

Of course, there is always the unofficial Caixin print at 2145ET to baffle everyone with bullshit.

*  *  *

There is some good news… The delveraging continues:

  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO LOWEST IN EIGHT MONTHS
  • Outstanding balance of Shanghai margin lending fell to 673.1b yuan on Monday, lowest level since Dec. 25.
  • Balance dropped by 1.5%, or 10b yuan, from previous day, in a 10th straight decline

But then again, we are not sure if we are allowed to mention that. And in any case – just to screw things up completely, China is goping full subprime in the real estate market…

China may strengthen property loosening andreduce down payment ratio on commercial mortgage loans if property investment remains weak, analysts led byNing Jingbian write in note.

 

Move to boost mkt confidence in short term, though real policy effect may be impaired due to caps on housing provident fund loans

Yeah – because loosening standards and lowering upfronts worked out so well for America’s already inflated housing market.!!

Asian equity markets are not happy…

  • *JAPAN’S NIKKEI 225 MAINTAINS LOSS AFTER CHINA PMI; DOWN 1.5%
  • *CHINA FTSE A50 STOCK-INDEX FUTURES FALL 1% AT OPEN
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 1.5% TO 3,157.83
  • *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 2.1% TO 3,296.53

After two days of stronger Yuan fixes, PBOC goes crazy and drastically strengthens Yuan…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3752 AGAINST U.S. DOLLAR
  • That is the biggest single-day strengthening since Nov 2014…

 

We are not sure of the implications yet but it seems like a tightening of financial conditions:

  • *PBOC SAID TO MAKE BANKS TRADING FX FORWARDS HOLD RESERVES: RTRS
  • *PBOC FX FORWARD RESERVE RATIO SAID TO BE 20% FOR NOW: REUTERS

 

Charts: Bloomberg

 

end

 

As noted above, China takes steps trying to stabilize the yuan. It now requires 20% holdback on forwards.  This is meant to dampen speculation and keep the yuan from plunging on further devaluations:

(courtesy zero hedge)

China Takes “10 Steps Back,” Slaps 20% Reserve Requirement On Currency Forwards

Overnight, China decided to take steps to reduce “macro financial risks.”

And by that they mean “do something quick to help ease pressure on the yuan” and by extension, on the PBoC’s rapidly depleting FX reserves.

To that end, starting October 15 banks will have to hold the equivalent of 20% of clients’ FX forward positions with the PBoC, where the money will sit, frozen, for a year, at 0% interest.

Obviously, that will drive up the cost of taking speculative positions which the PBoC hopes will help narrow the gap between onshore and offshore yuan and bring down volatility, although the degree to which this will help fill the CNY-CNH spread looks like an open question.

“It’s a move to ease the reduction in foreign-exchange reserves,” Tommy Ong, managing director for treasury and markets at DBS Bank Hong Kong, tells Bloomberg. “It will also remove lots of speculative trades that aim at short-term gains as the reserves have a minimum lock-up period of one year,” adds Stan Chart’s Becky Liu.

Here’s a bit of color from FX strategy desks via Bloomberg:

  • Andy Ji, Singapore-based currency strategist at CBA:
    • This is typical FX control, as it limits the FX forward positions
    • PBOC has intervened before in the forward market, but imposing the 20% limit on outstanding forward position will require less intervention effort
    • Spread on CNY and CNH may not substantially narrow on this move alone, as global demand on dollar remains high and China economic grow remains slow
  • Fiona Lim, Singapore-based senior FX analyst at Maybank:
    • This seems to be another move to discourage yuan forward selling and to lower yuan depreciation expectations
    • Offshore-onshore yuan gap has been pretty persistent because of yuan depreciation expectations and officials want to narrow the gap
    • Gap will be sustained as the economy continues to remain under pressure
  • Becky Liu, senior Asia Rates strategist at Standard Chartered:
    • Move aims to curb speculative onshore positions, anchor onshore forwards and hopefully eventually also bring down offshore forwards
    • This move itself would reduce the need for PBOC to intervene in the onshore market
    • Don’t think it will ease reduction in FX reserves; it basically is just making it a lot more costly to long USD in the onshore market

To the extent that the new currency regime ushered in on August 11 represented a “market-oriented” reform – and that characterization, as evidenced by daily FX interventions, is at best questionable – this move “is 10 steps back,” one Hong Kong trader told Reuters, a suggestion that this isn’t something the IMF will look favorably on when evaluating the yuan’s SDR bid.

In any event, the bottom line is that this requirement will cost banks money, which means the cost of trading for clients will rise and that, China hopes, will translate into less pressure on the yuan and will thus help to curb the FX reserve burn. As we’ve seen with Chinese equity markets, the more draconian the measures the more likely it is that Beijing feels like it’s losing control. As Credit Agricole puts it “while the introduction of reserve requirements for CNY forward trading overnight may help ease the selling pressure on the currency, the measure also reflects the fact that the markets did not really respond to the recent official attempts to prop up the CNY verbally.” In the end, this doesn’t alter any of the dynamics that are causing the depreciation pressure. Rather, it just punishes anyone looking to capitalize off those dynamics. Which we suppose is consistent with Beijing’s general approach to dealing with problems.

end

 

The anatomy of the 2 pm (China time) ramp sparing the Shanghai composite of further losses:

(courtesy zero hedge)

 

Behold China’s 2PM Ramp Capital

For the last few years, US equity traders have become conditioned to expect the miraculous arrival of some heavy-handed levitation in stock markets as 330pmET rolls by. This became ubiquitous enough to inspire a Twitter account. Well, it appears the Chinese have learnt a thing or two from the American manipulators… behold China’s 2pm Ramp Capital at work.

As Bloomberg reports,

Afternoons in the Chinese stock market have turned into a waiting game for the state-backed funds to arrive.

 

Over each of the past four days, China’s SSE 50 Index of large-capitalization companies has rebounded by an average 6.4 percent in late trading from session lows.

 

 

The gauge surged 15 percent over the four-day period, its biggest rally since 2008 and twice the 8.1 percent gain by the Shanghai Composite Index. The SSE 50 climbed 0.9 percent at the close on Tuesday, erasing an earlier loss of 4.8 percent.

 

The rallies are driven by government-backed funds buying shares to stabilize the market before a World War II victory parade on Thursday, according to IG Asia Pte.

Sadly – for the Chinese manipulators – unlike in ‘Murica, where any momentum is good momentum, the ‘burned’ farmers and grandmas are selling into government buying… not buying alongside…

“When you see a straight line buying pattern in the last 45 minutes, that’s usually the national team supporting the market,” said Michelle Leung, chief executive officer of Xingtai Capital Management Ltd. in Hong Kong.

 

“When you track market opens or you track outstanding margin balance, we could see the bulk of retail investors selling.”

And as one analyst warned…

“I don’t expect this intervention to continue in such a successive fashion longer out,” Aw said. “I will still sit tight and await better valuations.”

Welcome to the new normal, China.

end

The mess in the markets we have experiencing lately is not the fault of China

(courtesy Dave Kranzler/IRD)

Blame It On China…

Nothing is ever the fault of the “exceptional” United States.  It’s not our fault that we have to spend trillions containing the evil terrorists in the Middle East while we steal their oil and occupy their countries.

And of course it’s China’s fault that the U.S. stock market is all of a sudden finding the gravitational pull of economic, financial and political fundamentals.

BlameChina

China must be the reason that the U.S. stock market has been bought up the highest p/e ratio in history.  Note:  I’m using a p/e ratio based on the way earnings were calculated using GAAP 20 years ago – not today’s garbage GAAP which enables companies to manipulate their accounting to an extreme degree.

I guess it’s China’s fault that almost every public and private pension fund in the U.S. is extraordinarily underfunded.

It’s probably even China’s fault that U.S investors and pensions gobbled up shale oil industry junk bonds like they were going out of style on the assumption that oil would stay above $100/barrel forever.

It’s China’s fault that student debt and auto loans have hit an all-time high in this country.  When housing prices crash again that will be China’s fault too.

I guess when it comes right down to it, it’s China’s fault that Hilary Clinton is being hounded by problems with her use of her personal email to sell U.S. foreign policy decisions to the highest bidder while she was Secretary of State.  Hell, I guess it was China who took a paper towel and wiped clean the hard drive on her personal server.

The fact of the matter is that there was indeed a series of big asset bubbles that formed in China.  But they are no different or more severe than the same asset bubbles that have formed all over the world, including and especially in the United States.  But at least China is trying to address its bubbles.  It was the first to throw its cards on the table and try to let some air out its asset bubbles.  Meanwhile the U.S. continues to defend and inflate its bubbles.

I mean, c’mon on – triple C-rated junk bonds in this country were trading at 4% at one point.  A triple C rating means that the company which issued that debt has a very high probability of going bust.  Triple C-rated paper in the 1990’s traded at yields in the high teens or higher.  More than likely CCC- rated bonds become the new equity of a company when it files for bankruptcy reorganization.  Or it becomes worth pennies on the dollar if the company liquidates.   Triple C-rated paper trading at 4% implies an extreme bubble in the junk bond asset class.  But that’s China’s fault, I guess.

UntitledThis will not end well for the United States.   The problem with forcing the “blame China” propaganda on the U.S. public is that it inevitably will lead to a scenario in which the U.S.Government’s neocons who run the Department of Defense will justify starting a war with China.  A war with Russia is being started in Syria as I write this.  But that’s China’s fault too…

 

Big news of the day was the huge fall in South Korea’s exports to the tune of 14.9%.  The devaluation of China is having quite an effect on South East Asia.  Not only that but the entire global demand seems to be freezing up

(courtesy zero hedge)

Global Trade In Freefall: South Korea Exports Crash Most Since 2009

While the market’s attention overnight was focused on China’s crumbling manufacturing and service PMI, data which was already hinted in the flash PMI reports earlier in August, the real stunner came not from China but from South Korea, which last night reported an unprecedented 14.7% collapse in exports, far worse than the -5.9% consensus estimate, and more than 4 times worse than July’s 3.4%.

The number is critical because not only do exports account for about half of South Korea’s GDP (with Samusng alone anecdotally accountable for 20% of the country’s GDP), but because it also happens to be the first major exporting country to report monthly trade data. That makes it the perfect barometer of global trade flows, or as the case may be, the canary in the global trade coalmine. It also confirms what we reported just one week ago when we said that “Global Trade Is In Freefall“.

 

The carnage in Korean trade is unmistakable in the following Barclays chart:

Putting South Korea plunging trade in context, this was the worst monthly decline since August 2009, and was coupled by an 18.3% tumble in imports, the biggest drop since February. Worse, South Korea may soon run into a true Black Swan: a trade deficit: in August, the country’s trade surplus tightened to just $4.3 billion, one third worse than tha $6.1 billion expected, and nearly less tthan half the $7.7 billion surplus in July, suggesting South Korea may be forced to dip into its reserves next, or finally engage in what many have said is long overdue: the next Asian currency devaluation as China’s FX war spills over to what may be the most important harbinger of global trade.

Furthermore, with one quarter of total Korean exports going to neighbor China, this trade data is a far more accurate indicator of what is happening in China’s economy.

Kim Doo-un, economist at Hana Daetoo Securities in Seoul, told Reuters that Korea’s gloomy picture will not improve unless China’s economy manages to rebound: “The state of the Chinese economy is crucial to South Korean exports but we will not see meaningful improvement there before the end of this year,”  Kim added he sees one more rate cut in South Korea by end-2015 to boost economic activity at home. South Korea’s current policy rate stands at 1.50 percent.

We, on the other hand, anticipate far more aggressive devaluation by the BOK, along the lines of what China recently conducted.

Barclays digs deeper into the abysmal data:

Autos and vessel shipments fell sharply in August, exacerbating the weak underlying trend in petrochemicals, minerals and steel and masking a tentative pick up in electronics. Auto shipments were particularly disappointing, falling 32.4% y/y in August, despite a rising pipeline of new launches. Vessel deliveries also dropped sharply (-24.5%) in August, paying back the one-month surge (+56.7%) in July. Vessels and autos combined made up 4.3pp of the 14.7% headline fall. If we include petrochemicals, minerals and steel, almost 11.4pp of headline fall can be explained. One silver lining in August was that amid the declines, there are signs that electronics shipments may be bottoming out.  Exports of mobile devices and PCs jumped 14.5% and 8.6%, respectively, after declining in July. The drag in household electronics shipments also narrowed. Semiconductors, managed to grow 5.7% (July: +6.2%; June: 2.9%). Ominously, shipments to China, Korea’s largest trading partner, fell more sharply in August, falling 7.6% and extending the 6.4% drop in July, likely owing to slower sales of handsets and autos, and reflecting reduced Chinese purchasing power after the CNY was devalued after 11 August.

Another breakdown showing the drop across virtually all product cateogries comes courtesy of the Y-Y chart from Goldman:

The geographic distribution of the weakness was as follows: shipments to Europe (-7.7%), Japan (-20.9%) and ASEAN (-3%) also remained sluggish in August, although US shipments (+3.4%) did marginally better.

What does this mean for the global economy, aside from the obvious:

Our concern is with the jump in the inventory/shipment ratio to 1.29x in July (June: 1.29x; April-May: 1.27x; March: 1.24x), which leaves it a shade below the Global Financial Crisis record in December 2008 (1.30x). High inventories in both supply chains are likely to weigh on IP in the months ahead, a point underscored by the weak sub-50 Nikkei PMI readings (August: 47.9; July: 47.6)

As for what this means for Korean monetary policy, no surprise here: more easing.

We now expect the BoK to deliver a further 25bp rate cut in Q4, most likely in October. We see an outside chance of an earlier move, at the 11 September meeting, but we continue to believe that the BoK will prefer to move after the initial delivery of the fiscal supplementary spending and the US FOMC meeting on 17-18 September. Also, we now expect the first rate hike in Korea in Q3 16, rather than in late Q1 16. Moreover, with key indicators for the services economy showing a healthy post-MERS rebound, we believe the urgency to act immediately is still low. We believe the existing focus on engineering a weaker KRW bias – possibly by stockpiling essential commodities such as fuel – will remain.

Of course, further easing by South Korea, or even an outright devaluation, means the ball will then be in the court of Korea’s trade competitors, who will then be compelled to match the Korean move with further easing (or devaluation) of their own, and so on, until one can no longer sweep the global recession under the rug. It isn’t called the global race to the bottom for nothing.

To be sure, all of this could have been avoided if as we have sarcastically been commenting for the past year, global central banks had learned to print trade.

For now however, we sit back and wait as South Korea becomes the latest country to join the global currency devaluation bandwagon. We won’t have long to wait.

end
If the vote does not go their way, the entire 3rd bailout may be jeopardy
(courtesy zero hedge)

Third Greek Bailout Suddenly In Jeopardy: Creditors Warn Cash May Be Delayed If Elections Don’t Go As Desired

Just when everyone was convinced that the main “risk off” event of the summer, namely the Greek bailout, was safely tucked away and that having abdicated its sovereignty to its creditors  and Germany in particular, who now hold the Greek banking system hostage courtesy of draconian capital controls, that Greece would continue to receive its monthly cash allotment just so it could repay creditors from its first two bailouts and would not make headlines for the foreseeable future , Market News just reported that suddenly even the Greek bailout is no longer on autopilot as a result of the upcoming elections in three weeks, whose outcome is anything but assured.

According to Market News, “Greece’s international creditors may delay the first review of the country’s bailout until November, multiple EU sources told MNI Tuesday, pushing talks on potential debt relief further down the road as Greece prepares for snap national elections on September 20.”

And just in case it was not clear that Greek sovereignty is now entirely conditional on the Greek people voting precisely as the Troika requires, and for a continuation of the austerity terms delineated in the 3rd Greek bailout, MNI reports that “officials will also stress that any new government that emerges from this month’s poll must meet the current bailout terms in order to release the E3 billion pending from the its first loan tranche and have already warned the interim government to continue with the implementation of prior actions set for September.

In other words more of the same: Greece pretending to reform, creditors pretending to inject funds into the Greek economy:

“Realistically speaking, the inspectors’ return to Greece might be delayed and the first assessment could take place in November instead of October. In such an event I don’t expect talks about another Greek debt relief to run simultaneously,” a top Commission source said. “But the new Greek government will have to implement a new set of milestones before receiving the remaining E3 billion irrespective of who wins.”

As a reminder, Greece and its creditors have yet to define the package of measures that will be attached as milestones and prior actions for the release of the E3 billion.

Furthermore, the biggest hurdle to any Greek formalized bailout, the IMF’s participation, remains anything but resolved: “there is still ambiguity about the involvement of the International Monetary Fund and when it will choose to agree with Greece a third loan programme. But the EU schedule will run irrespective of that.”

Another source said that the IMF’s Poul Thomsen gave recently a background briefing to the Board of Directors of the Fund where “he expressed his scepticism and reservations about the effectiveness of the new bailout and whether the IMF should participate.”

What is perplexing, is that none of this comes as a surprise to the Greek creditors: “EU leadership and Eurozone Finance Ministers knew as early as July that outgoing Prime Minister Alexis Tsipras would call elections within September.”

And here is where things get tricky: “we thought at the time that he (Tsipras) will win again and the everything will go as agreed,” the source said, adding that “now there is background worry about the outcome and the formation of the new (Greek) government, even the possibility of double elections.”

The reason for the worry is that unexpected to many, Syriza’s lead, which as recently as a month ago was seen as insurmountable, has dwindled to almost nothing. As Reuters reported over the weekend, “the gap between Syriza and the conservative New Democracy party has shrunk to 1.5 percentage points, according to a survey by pollster Alco for Sunday’s proto Thema newspaper.The poll gave Syriza 22.6 percent against 21.1 percent for New Democracy, with 79 percent of respondents saying Tsipras had disappointed their expectations and 66 percent believing he was wrong to call early elections.”

But the biggest wildcard may be the Greek youth. Overnight, Bloomberg reported that none other than “Syriza Youth Wing” has withdrawn its support for Tsipras: “We won’t support Syriza in forthcoming elections, nor participate in its election ticket,” majority of Syriza party’s youth wing leadership says in statement posted on its official website.  Instead, the group’s members say will continue fight against bailouts outside Syriza party, citing Alexis Tsipras’s decision to support an austerity-attached agreement with creditors as reason for their departure.

So the question suddenly becomes: if another party does what Syriza did in late 2014 when it promised to end austerity (with results that were very well known), will they win? And who could it be: will it be Varoufakis new “Pan-European anti-austerity” party? Or will Golden Dawn be given the mandate this time? The answer: probably neither, because courtesy of the Greek capital controls, the local population is still beholden to its European overlords courtesy of the ongoing indefinite lockdown on some €120 billion in Greek deposits.

One thing is certain: Greece will be making market-moving headlines once again, months if not years earlier than most had expected.

 end
Russia decides to play USA rules.  They state that they are entering Syria to fight the terrorist ISIS
(courtesy zero hedge)

Russian Military Forces Arrive In Syria, Set Forward Operating Base Near Damascus

While military direct intervention by US, Turkish, and Gulf forces over Syrian soil escalates with every passing day, even as Islamic State forces capture increasingly more sovereign territory, in the central part of the country, the Nusra Front dominant in the northwestern region province of Idlib and the official “rebel” forces in close proximity to Damascus, the biggest question on everyone’s lips has been one: would Putin abandon his protege, Syria’s president Assad, to western “liberators” in the process ceding control over Syrian territory which for years had been a Russian national interest as it prevented the passage of regional pipelines from Qatar and Saudi Arabia into Europe, in the process eliminating Gazprom’s – and Russia’s – influence over the continent.

As recently as a month ago, the surprising answer appeared to be an unexpected “yes”, as we described in detail in “The End Draws Near For Syria’s Assad As Putin’s Patience “Wears Thin.” Which would make no sense: why would Putin abdicate a carefully cultivated relationship, one which served both sides (Russia exported weapons, provides military support, and in exchange got a right of first and only refusal on any traversing pipelines through Syria) for years, just to take a gamble on an unknown future when the only aggressor was a jihadist spinoff which had been created as byproduct of US intervention in the region with the specific intention of achieving precisely this outcome: overthrowing Assad (see “Secret Pentagon Report Reveals US “Created” ISIS As A “Tool” To Overthrow Syria’s President Assad“).

As it turns out, it may all have been just a ruse. Because as Ynet reports, not only has Putin not turned his back on Assad, or Syria, but the Russian reinforcements are well on their way. Reinforcements for what? Why to fight the evil Islamic jihadists from ISIS of course, the same artificially created group of bogeyman that the US, Turkey, and Saudis are all all fighting. In fact, this may be the first world war in which everyone is “fighting” an opponent that everyone knows is a proxy for something else.

According to Ynet, Russian fighter pilots are expected to begin arriving in Syria in the coming days, and will fly their Russian air force fighter jets and attack helicopters against ISIS and rebel-aligned targets within the failing state.

And just like the US and Turkish air forces are supposedly in the region to “eradicate the ISIS threat”, there can’t be any possible complaints that Russia has also decided to take its fight to the jihadists – even if it is doing so from the territory of what the real goal of US and Turkish intervention is – Syria. After all, it is a free for all against ISIS, right?

From Ynet:

According to Western diplomats, a Russian expeditionary force has already arrived in Syria and set up camp in an Assad-controlled airbase. The base is said to be in area surrounding Damascus, and will serve, for all intents and purposes, as a Russian forward operating base.

 

In the coming weeks thousands of Russian military personnel are set to touch down in Syria, including advisors, instructors, logistics personnel, technical personnel, members of the aerial protection division, and the pilots who will operate the aircraft.

The Israeli outlet needless adds that while the current makeup of the Russian expeditionary force is still unknown, there is no doubt that Russian pilots flying combat missions in Syrian skies will definitely change the existing dynamics in the Middle East.

Why certainly: because in one move Putin, who until this moment had been curiously non-commital over Syria’s various internal and exteranl wars, just made the one move the puts everyone else in check: with Russian forces in Damascus implicitly supporting and guarding Assad, the western plan instantly falls apart.

It gets better: if what Ynet reports is accurate, Iran’s brief tenure as Obama’s BFF in the middle east is about to expire:

Western diplomatic sources recently reported that a series of negotiations had been held between the Russians and the Iranians, mainly focusing on ISIS and the threat it poses to the Assad regime. The infamous Iranian Quds Force commander Major General Qasem Soleimani recently visited Moscow in the framework of these talks. As a result the Russians and the Iranians reached a strategic decision: Make any effort necessary to preserve Assad’s seat of power, so that Syria may act as a barrier, and prevent the spread of ISIS and Islamist backed militias into the former Soviet Islamic republics.

See: the red herring that is ISIS can be used just as effectively for defensive purposes as for offensive ones. And since the US can’t possibly admit the whole situation is one made up farce, it is quite possible that the world will witness its first regional war when everyone is fighting a dummy, proxy enemy which doesn’t really exist, when in reality everyone is fighting everyone else!

That said, we look forward to Obama explaining the American people how the US is collaborating with the one mid-east entity that is supporting not only Syria, but now is explicitly backing Putin as well.

It gets better: Ynet adds that “Western diplomatic sources have emphasized that the Obama administration is fully aware of the Russian intent to intervene directly in Syria, but has yet to issue any reaction… The Iranians and the Russians- with the US well aware- have begun the struggle to reequip the Syrian army, which has been left in tatters by the civil war. They intend not only to train Assad’s army, but to also equip it. During the entire duration of the civil war, the Russians have consistently sent a weapons supply ship to the Russian held port of Tartus in Syria on a weekly basis. The ships would bring missiles, replacement parts, and different types of ammunition for the Syrian army.

Finally, it appears not only the US military-industrial complex is set to profit from the upcoming war: Russian dockbuilders will also be rewarded:

Arab media outlets have recently published reports that Syria and Russia were looking for an additional port on the Syrian coast, which will serve the Russians in their mission to hasten the pace of the Syrian rearmament.

If all of the above is correct, the situation in the middle-east is set to escalate very rapidly over the next few months, and is likely set to return to the face-off last seen in the summer of 2013 when the US and Russian navies were within earshot of each other, just off the coast of Syria, and only a last minute bungled intervention by Kerry avoided the escalation into all out war. Let’s hope Kerry has it in him to make the same mistake twice.

 

end

Putin scenes that the days of the USA is over:

(courtesy RT)  and special thanks to Robert H for sending this to us:

Putin says dump dollar

Russian President Vladimir Putin has drafted a bill that aims to eliminate the US dollar and the euro from trade between CIS countries.

This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets”, said a statement from Kremlin.

The bill would also help to facilitate trade in the region and help to achieve macro-economic stability.

Within the framework of the Eurasian Economic Union (EEU) the countries have also discussed the possibility of switching to national currencies. According to the agreement between Russia, Belarus, Armenia and Kazakhstan, an obligatory transition to settlements in the national currencies (Russian ruble, Belarusian ruble, dram and tenge respectively) must occur in 2025-2030.

Today, some 50 percent of turnover in the EEU is in dollars and euro, which increases the dependence of the union on countries issuing those currencies.

Outside the CIS and EEU, Russia and China have been trying to curtail the dollar’s dominance as well.

 

In August, China’s central bank put the Russian ruble into circulation in Suifenhe City, Heilongjiang Province, launching a pilot two-currency (ruble and yuan) program. The ruble was introduced in place of the US dollar.

 

In 2014, the Russian Central Bank and the People’s Bank of China signed a three-year currency swap agreement, worth 150 billion yuan (around $23.5 billion), thus boosting financial cooperation between the two countries.

 

end

Today, over in Hungary, this happened:

(courtesy zero hedge)

 

Meanwhile At Budapest Main Train Station (Live Feed)

In an unprecedented move to stem the tsunami of migrants entering Europe, Hungary has decided to stop all trains at Budapest main train station to stop refugees – most of them from conflict areas such as Syria – from entering the EU onwards to Austria and Germany. For now, there are 1000s of refugees waiting at the station, with entrances blocked by police.

Clashes occurred earlier…

 

And now the police face refugees cordoned off – Live Feed…

 

 

end

 

 

With markets plummeting, ABN Amro now comes out and warns that there is a 40% chance that Mario Draghi will expand QE as soon as this week.

 

One problem:  he will not find enough bonds to monetize.

This would be a complete failure!!

 

 

(courtesy zero hedge)

 

ABN Amro Warns There Is A 40% Chance Mario Draghi Expands ECB QE “As Soon As This Week”

Last week, when we quantified what China’s reserve unwind, aka Treasury liquidation, could mean in practical terms, we quoted Bank of America which put the total Reverse QE figure as we dubbed it (or Quantitative Tightening in DB’s terms), at between $1 trillion and $1.1 trillion.

At the same time, Deutsche Bank added fuel to the fire,when it noted that “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 (chart 2). The bottom line is that markets may fear that QT has much more to go.”

Deutsche was kind enough to provide a silver lining to this otherwise dreary forecast: “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.

And there it is: the only thing that can offset the synthetic inverse QE that China and/or the rest of the EMs embarked on as Zero Hedge first warned last November, is more quite tangible QE conducted elsewhere, ideally at the ECB (which is currently 6 months into its first QE episode), or Japan (although the ceiling to debt monetization there may have been already hit with the BOJ already monetizing more than 100% of all gross issuance) but not the Fed, whose rate hike intentions are what started this entire global reserve liquidation fiasco in the first place.

Fast forward to today, when just two days before the September 3 ECB governing council meeting and press conference, ABN Amro released the genie from the bottle, when its head macro strategist Nick Kounis said the he now sees a much bigger risk that the ECB will step up QE as soon as this week’s meeting. We see this probability at around 40%, so it is an increasingly close call. The renewed drop in oil prices, which will keep headline inflation lower for longer is a key factor behind the rising risk of action in our view. This has also led to a sharp fall in inflation expectations, as measured by the 5y5y inflation swap, that ECB President Draghi has put a lot of weight on in the past (see chart).”

Why only 40%?

Our base case of no further QE ( now with a 60% chance) is still supported by indications that a moderate economic recovery is continuing, and by the bottoming out of core inflation. In any case, we expect Mr. Draghi to step his dovish rhetoric at this week’s meeting.

However, not even Kounis is so bold as to suggest that the Fed will scrap its rate hike strategy and proceed straight to more QE:

we have changed our forecast of the timing of the first rate hike by the Fed to December from September previously. There is still a chance of a move next month, given the ongoing strength in the economy and the labour market. However, we think that the FOMC will take a cautious approach given the ongoing fragility of financial markets (for instance, the VIX is still above its long-run average level). Officials may therefore decide that it makes sense to wait and see rather than risk rocking the boat. In addition, by December, the Fed will also have a better insight into how China and the global economy in general are developing. With inflation subdued it may well judge it can afford to take its time. So overall, we now expect one hike in Fed’s target for the fed funds rate this year, compared to two previously. We continue to expect four rate hikes next year, meaning a one-every other- meeting pace.

What does this mean for asset prices? Well, not much apparently with forecasts for US and German TSYs largely unchanged:

We now expect 10y Bund yields to remain broadly flat over the next few months, with an end of year forecast of 0.7%. Although the economic recovery should gain some pace, ongoing speculation about further ECB monetary easing should keep yields anchored. We still expect yields to rise next year (to 1.6% by end-2016).Meanwhile, we still expect 10y Treasury to rise this year and next, but the rise is likely to be more moderate than before – especially in the next few months – given less Fed hikes. We see yields rising to 2.4% by year end and 2.8% by the end of next year.

Perhaps ABN’s boldest call is on the EUR, which the Dutch bank sees at parity by year end.

All of this is reasonable, and the only fly in the ointment would be if the Fed does indeed take a hard right turn sometime in the next 3 weeks and decided that not only is a rate hike now impossible (and with the global and US economy rapidly stalling, would unleash the ghost of 1937 all over again as we previewed before) and would be in fact destructive to not only the economy but also confidence as measured by the S&P, but potentially pull a Bullard, and hint that should the market drop not stabilize, the Fed is ready to use “unconventional tools”, even if one considers that over the past 7 years, QE has become the most conventional – and only – tool left in the Fed’s arsenal.

Finally, while we agree with ABN that the ECB may indeed boost QE in a rerun of what the BOJ did in the great Halloween massacre of 2014, it would be largely a non-event, as the ECB biggest limitation remains the availability of monetizable assets. As such, any real monetary offset to the Reverse QE that is about to be unleashed now that the “Great Accumulation” is over, is and will always be the Fed. For a quick explanation of this, re-read “Why QE4 Is Inevitable.

 

 

end

 

 

 

Brazil last week reported a contraction in Q2 GDP of 1.9%. This week, they report that July saw their budget deficit climb to .9% of GDP which is absolutely huge and this was a primary deficit  (does not include interest payments). Having a negative primary deficit may influence the rating agencies to lower Brazil’s rating to junk.

(courtesy zero hedge)

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

Late last week, Brazil officially entered a recession as the economy contracted 1.9% in Q2, a quarter in which Brazilians suffered through the worst stagflation in over ten years.

What was perhaps worse than the GDP print however, was budget data for July which was meaningfully worse than expected. “On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target,” Goldman noted.

We summed the situation up as follows:No primary surplus for you!” 

And while analyzing LatAm fiscal policy doesn’t make for the most exciting reading in the universe, this particular budget battle is critical for a number of reasons, the most important of which is that Brazil’s investment grade credit rating might just depend on it and to the extent the country is forced to concede that it will not, after all, hit its primary surplus target this year, junk status could be just around the corner. Needless to say, if Brazil is cut to junk, that will do exactly nothing to help the country combat a bout of extremely negative market sentiment tied to Brazil’s rather prominent role in the great emerging market unwind.

Sure enough, government sources have now confirmed that embattled President Dilma Rousseff – whose political woes are making it nearly impossible to pass legislation designed to plug gaps – will now submit a 2016 budget proposal that projects a deficit. Here’s Bloomberg:

The Brazilian government will send to Congress Monday a budget proposal for 2016 that projects a primary deficit instead of the previously expected surplus, according to two government sources familiar with the matter.

 

President Dilma Rousseff had earlier abandoned the idea of reviving the so-called CPMF tax on financial transactions after a backlash from politicians and companies, said the sources, who asked not to be named because the negotiations aren’t public. The goal now is to send a budget proposal that is more aligned with the reality of a sharp economic slowdown, according to the sources.

 

Rousseff was alerted by Vice President Michel Temer in the past couple of days that the current political crisis would make it hard to convince the Congress to pass measures such as the CPMF tax. The government had planned to include the revenue collected from the tax in the budget proposal to be sent to lawmakers on Monday, one of the sources said. The president met with some ministers on Sunday to discuss the new budget proposal, according to the source.

Although, as one analyst told Reuters, “the rating agencies are trying to bend over backwards to give Brazil the benefit of the doubt,” there’s only so much they can do, especially considering the fact that no one likely wants to set a precedent of being behind the curve as we enter what may end up being an outright emerging markets crisis. And a bit more color from Bloomberg:

The government foresees a deficit next year excluding interest payments of 30.5 billion reais ($8.4 billion), or about 0.5 percent of gross domestic product, Budget Minister Nelson Barbosa told reporters in Brasilia on Monday. That compares with a target of 2 percent at the beginning of the year and a revised objective of 0.7 percent announced in July.

 

The revision reflects the growing political headwinds Finance Minister Joaquim Levy faces in winning congressional approval for austerity measures and pushes Brazil’s credit rating closer to junk status, said Italo Lombardi, senior Latin America economist at Standard Chartered Bank. The government over the weekend scrapped plans to revive a tax on financial transactions following opposition by congressional leaders.

 

“Politics are making Levy’s life very difficult,” Lombardi said by telephone. “It’s a big red flag and rating agencies would need to show a lot of patience to not downgrade Brazil.”

And that, as they say, is all she wrote for Brazil’s investment grade rating.

We’ll close with the following rather colorful analysis from Citi:

Morning Friends, A Nightmare on Elm Street – one of the scariest movies of my childhood, where Freddy Krueger (a burnt serial killer) used to haunt and execute his victims in their own nightmares, was the origin of asleep nights for many kids of my generation… Well, before I tell you the Nightmares on Via Palacio Presidencial (Brasilia) and what is keeping players asleep, let me voice you that as in any bloody terror film, the villain never dies and the sequels are worse than the initial film. So, the American villain (Fed September Lift-off) is alive, as Vice Chair Fischer suggested over the weekend, sounding less dovish than expected. Also, the Chinese anti-hero (fear of slow growth) never dies, with Korea`s Industrial Production bringing additional woes.

 

As the film says:                     

 

1&2 – Freddy’s coming for you!

 

3&4 – Better lock the door…

 

In the meantime, in our (un)beloved country, there is something scarier than Freddy Krueger: our growth / fiscal outlook. The Growth scenario is haunting and executing our policymakers, with limited ability to halt such negative vortex and took our economic team to revise our GDP forecast to -2.7% (-1.7% previous) in 2015 and to -0.7% (-0.2% prior) in 2016. Mr. Market will price a -3% GDP growth figure in 2015… This damaging growth scenario will undermine the political capability to implement any fiscal austerity measure and will undermine the already bloody fiscal situation. With no growth and no fiscal measures, the primary fiscal figure for 2015 & 2016 will be scarier than Freddy Krueger & Jason together… Our view is that the 2015 primary fiscal print will be a deficit of -0.7% GDP (-0.3% previous) and  -0.1% GDP (+0.3% prior) deficit in 2016. Wires are mentioning that the government will send a draft budget proposal with a primary DEFICIT of 0.50% GDP (+0.70% primary SURPLUS target), with the proposal of reintroduction of the financial tax transaction being defeated and President Dilma not approving further spending cuts. The Nightmares on Via Planalto Presidencial must be keeping a lot of kids asleep.

 

Rates are trading 10/51bps wider on back of such bloody fiscal news as Players are pricing the downgrade from the Investment Grade level before year end. As the film says:                     

 

1&2 – Freddy’s coming for you!

 

3&4 – Better lock the door…

end
Canada enters a recession as its economy shrinks for the 2nd straight quarter on oil problems:
(courtesy Bloomberg/Greg Quinn)
Sept 1.2015:

Canada Economy Shrinks for 2nd Straight Quarter on Oil Shock

Canada’s economy shrank again in the second quarter as plunging oil prices triggered a drop in investment, with fresh debate about a recession dealing a blow to Prime Minister Stephen Harper’s bid for re-election.

Gross domestic product declined at a 0.5 percent annualized pace from April to June, Statistics Canada said Tuesday in Ottawa. The agency revised the first-quarter contraction to 0.8 percent from 0.6 percent.

The Group of Seven’s biggest crude oil exporter is struggling as a global commodity slump guts business spending. The consecutive output declines, a so-called technical recession, are expected to shift into a slow expansion over the rest of the year, giving Bank of Canada Governor Stephen Poloz scope to avoid cutting rates Sept. 9.

“I wouldn’t say this is a big red light saying this economy is in recession. Undeniably it slowed in the first half of the year, there is no way to sugar coat that,” said Dawn Desjardins, assistant chief economist at Royal Bank of Canada in Toronto. Output may grow at about a 2 percent pace in the second half and Poloz likely won’t need to cut rates, she said.

The second-quarter contraction matches the Bank of Canada’s forecast from July, when Poloz predicted a rebound to growth of 1.5 percent in the current quarter. Economists surveyed this month by Bloomberg predict a gain of 1.9 percent.

Rate-Cut Odds

Canada’s dollar depreciated 0.3 percent to C$1.3173 per U.S. dollar at 11:55 a.m. Toronto time. The currency is down about 12 percent this year. Swaps trading showed the odds of a rate cut next week fell to about 21 percent after Tuesday’s report, down from 24 percent Monday and 36 percent a week ago.

The consecutive GDP declines are milder than any back-to-back contractions since at least 1981, including the last recession in 2009 which saw drops of 3.6 percent and 8.7 percent. The job market also suggests there’s no broad-based slump in the world’s 11th largest economy. The jobless rate of 6.8 percent for July is down from 7 percent a year ago. August labor data is due Sept. 4.

The economy has dominated Canada’s election campaign in recent days, as opposition parties try to chip away at Harper’s long-held advantage on economic issues. Recent polls suggest a tight three-way race between Harper’s Conservatives, Tom Mulcair’s New Democratic Party and Justin Trudeau’s Liberals.

‘On Track’

Harper declined to use the word recession at a stop near Toronto on Tuesday morning, focusing instead on June data, which showed output grew after five prior declines. “The Canadian economy is back on track,” Harper said, adding the driver of future growth won’t be “permanent deficits, higher taxes.”

On a monthly basis, Canada’s gross domestic product rose 0.5 percent in June, the fastest since May 2014, led by the mining, quarrying and oil and gas extraction category. Economists predicted an expansion of 0.2 percent.

Trudeau, son of a former prime minister, says the economy needs three years of deficits and infrastructure spending to boost an economy he argues Harper has neglected.

“Stephen Harper is completely out of touch with the reality that Canadians are going through,” Trudeau said in Gatineau, Quebec, when asked about a recession Tuesday. “Canadians have known for a long time that his economic approach isn’t working.”

R-Word Debate

Business investment fell by 7.9 percent in the second quarter after a 10.9 percent decline in the prior three months, partly because of a drop in mineral exploration. GDP was also curbed as companies slowed their investment in inventories to C$7.1 billion from C$12 billion, Statistics Canada said.

“Our most common definition here in Canada of what a recession is has been two quarters of decline so I guess you can call this a recession,” said Pedro Antunes, deputy chief economist at the Conference Board of Canada in Ottawa. “What is most concerning about all of this is we have gone through almost two years now of very weak capital investment,” and “that is the key to future production and employment.”

Canada’s economy got a boost in the second quarter from international trade and continued support from consumer spending. Household consumption growth quickened to 2.3 percent from 0.5 percent in the first quarter, led by automobiles. Exports rose for the first time in three quarters with a 0.4 percent gain, while imports fell by 1.5 percent.

“While not yet a recession, since employment hasn’t declined, Canada’s first half was about as weak as advertised,” Avery Shenfeld, chief economist at CIBC World Markets said in a note to investors. “The momentum registered in June is consistent with our view that Q3 will provide a breather as the economy, at least for a quarter, returns to growth.”

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Oil related stories today:
Early this morning!!

WTI Crude Plunges 5.25% – Biggest Drop In A Month

WTI crude has retraced 50% of yesterday’s ridiculous gains and is now down 5.25% from the NYMEX close yesterday. It appears everything is not so awesome again…

 

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Then at 12 noon:

 

WTI Crude Crashes 8% – Biggest Plunge Since Nov 2014’s OPEC Meeting

Surprise!!! Month-end window-dressing manipulation massacred…

 

 

This is the biggest single-day drop since Nov 28 2014 – When OPEC stunned the world.

 

Charts: Bloomberg

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Now it is ConocoPhillips turn to fire 10% of its global workforce.  ht has warned of a dramatic downturn in the oil industry
(courtesy zero hedge)

ConocoPhillips Fires 10% Of Global Workforce, Warns Of “Dramatic Downturn” To Oil Industry

Remember when the oil crash was supposed to be “unequivocally good” for the global economy and the US consumer, only for this to be disproven as the biggest macroeconomic lie since “QE is good for the people”? We do –  quite vividly – which is why in December of last year we presented “150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy” and countless other articles subsequently explaining why the great oil collapse of 2014 (and 2015) is actually “unambiguously bad.” It took the so-called experts the usual 6-8 months to catch up, and admit they were wrong or at least stay silent this time.

In fact, 10 months after our first exposition on the death of the Petrodollar, the massive upcoming reserve liquidation (read Treasury selling) that is about to be unleashed as a result of the soaring dollar and plunging price of oil, has finally become a topic du jour at such banks as Bank of America and Deutsche Bank, who have finally grasped that the great oil crash precipitated nothing short of the world’s first Reverse QE episode in history as some $10 trillion in accumulated reserves start being sold.

That, however, mostly impacts the uber-wealthy: those whose net worth is invested in financial assets which are about to be sold en masse by some of the world’s biggest central banks. Where it hits much closer to home is when firms such as Houston based ConocoPhillips announce that the E&P giant is about to terminate 10%, or 1,800 people, of its global workforce, in the next several weeks as it copes with low oil prices.

As the Houston Chroncile’s FuelFix blog writes, “Daren Beaudo, a company spokesman, confirmed that an internal communication was sent to employees earlier this week informing them of the upcoming staff reductions. Most of those affected workers will receive layoff notifications next month.”

But don’t worry: the great(ly fabricated) US jobs recovery myth will not be impaired: all these formerly highly-paid engineers, technicians, drillers and chemists will find minimum wage jobs flipping burgers at their local recently IPOed Shake Shack.

FuelFix adds that “the largest portion of the job cuts will come from North America, he said, where the Houston oil producer drills for crude from the oil sands in northern Canada to the shale plays in South Texas. The firm will also trim about 1,000 core contractors from its workforce.”

Beaudo said ConocoPhillips has informed employees, city and state agencies that more than 500 of the firm’s 3,750 employees in Houston will also be cut. In Canada, the firm is cutting 400 employees and 100 contractors.

And just in case there is still any confusion about the real impact of the great oil crash, here is Conoco again warning it will certainly not be the last to engage in mass layoffs: “We’ll know more in the next several weeks as we work through our formal process,” Beaudo said in an emailed statement. “Our industry is undergoing a dramatic downturn, which has caused us to look at our future workforce needs. As we have assessed the implications of lower prices on our business, we’ve made the difficult decision that workforce reductions will be necessary.”

But before anyone panics and gets worried that while thousands are losing their jobs, there is a threat to the luxurious living standards of the 1% of Americans who alone benefit from the Fed’s policies and corporate cash flow generosity, fear not: COP may be firing thousands, but at least the dividend is safe, for now.

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After the market closed, oil got this nasty news:

(courtesy API/zero hedge)

WTI Extends Crash To 10% After API Inventories Surge Most In 5 Months

fter the worst day since last November’s OPEC meeting, WTI crude is falling further tonight as API reported a huge 7.6 million barrel inventory build. This is the biggest build (compared to DOE data) since early April!WTI Crude is now down 9.85% on the day – that is a bigger drop (close to close) than the Nov OPEC meeting drop and is not matched back to 2008/9’s collapse.

 

 

and the reaction is more selling in WTI…

 

Which is now down 10% on the day – a bigger move than the OPEC drop…

 

Charts: Bloomberg

Your early Tuesday morning currency, and interest rate moves

Euro/USA 1.1257 up .0033

USA/JAPAN YEN 120.07 down 1.033

GBP/USA 1.5343 down .0019

USA/CAN 1.3185 up .0042

Early this Monday morning in Europe, the Euro rose by 33 basis points, trading now well above the 1.12 level rising to 1.1257; 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 and Asian bourses and today another Chinese currency revaluation northbound,  Last night the Chinese yuan strengthened a huge .0220 basis points. The rate at closing last night:  6.367 which means again that the POBC used up considerable USA treasuries to again 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 up again in Japan up by 103 basis points and trading now just above the 120 level to 120.07 yen to the dollar, 

The pound was down this morning by 19 basis points as it now trades well below the 1.54 level at 1.5343.

The Canadian dollar reversed course by falling 42 basis points to 1.3185 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. Today, the yen carry traders blew up.

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).(blew up)

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this Tuesday morning: up by 724.79 or 3.84%

Trading from Europe and Asia:
1. Europe stocks all deeply in the red

2/ Asian bourses mostly in the red  … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the red/

Gold very early morning trading: $1143.00

silver:$14.59

Early Tuesday morning USA 10 year bond yield: 2.16% !!! down 5  in basis points from Monday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield lowers to  2.90 down 5 basis points. Officially we got the word that got  China is selling treasuries like mad!

USA dollar index early Tuesday morning: 95.62 down 31 cents from Monday’s close. (Resistance will be at a DXY of 100)

This ends the early morning numbers, Tuesday morning
And now for your closing numbers for Tuesday night:
Closing Portuguese 10 year bond yield: 2.73% up 7 in basis points from Monday Closing (very ominous as European bourses collapsed today and bond yields rose)
Japanese 10 year bond yield: .361% !!  down 2 in basis points from Monday
Your closing Spanish 10 year government bond, Tuesday, up 4 in basis points Spanish 10 year bond yield: 2.15% !!!!!! (very ominous..bond yields rise despite markets collapsing)
Your Tuesday closing Italian 10 year bond yield: 2.00% up 4  in basis points from Monday: trading 15 basis point lower than Spain.
IMPORTANT CURRENCY CLOSES FOR TUESDAY
Closing currency crosses for TUESDAY night/USA dollar index/USA 10 yr bond:  3:00 pm
 Euro/USA: 1.1290 up .0066 (Euro up 66 basis points)
USA/Japan: 119.80 down 1.30 (Yen up 130 basis points) *  the ramp up of the Dow failed again today
Great Britain/USA: 1.5307 down .0054 (Pound down 54 basis points USA/Canada: 1.3209 up .0065 (Canadian dollar down 65 basis points)

USA/Chinese Yuan:  6.3630  down .0240  ( Chinese yuan up 24 basis points/and again they must have sold a considerable amount of  USA treasuries)

This afternoon, the Euro rose by 66 basis points to trade at 1.1290. The Yen rose to 119.80 for a gain of 130 basis points and destroying the yen carry traders.. The pound was down 54 basis points, trading at 1.5307. The Canadian dollar fell 65 basis points to 1.3209. The USA/Yuan closed at 6.3630
Your closing 10 yr USA bond yield: down 4 basis points from Monday at 2.17%// ( well below the resistance level of 2.27-2.32%).
USA 30 yr bond yield: 2.93 down only 2 in basis points on the day (despite the huge drubbing NY stock exchanges took).
 
* not a good sign as the Dow was down massively and yields hardly moved..  Indicates again that China was massively selling Treasuries.
 Your closing USA dollar index: 95.48 down 44 cents on the day .
European and Dow Jones stock index closes:
England FTSE down 189.40 points or 3.03%
Paris CAC down 111.79 points or 2.40%
German Dax down 243.89 points or 2.38%
Spain’s Ibex down 266.20 points or 2.59%
Italian FTSE-MIB down 490.55. or 2.24%
The Dow down 469.68 or 2.84%
Nasdaq; down 140.40 or 2.94%
OIL: WTI:  $45.18   (down 8.21%. and  Brent:  $49.39  (down 8.79%)
Closing USA/Russian rouble cross: 66.58  down 2 and 1/3 roubles per dollar on the day
And now for your more important USA stories.

Presented with no comment…

 

 

Source: Investors.com

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Your closing numbers from New York

Crude Carnage & Asian Contagion Crushes Hype-Fueled Dreams Of US Stocks

A’twofer’ today… The arrogant BTFDiness of Friday’s talking heads…

 

And for everyone else worried about the“containment”…

 

So 3 big stories today – Equities collapsed… VIX ETFs turmoiled… and Crude Oil crashed…

But before we start – something odd is going on…Simply put – it is very clear now that stocks are moving in lockstep with JPY carry (China forced unwinds) and long-dated TSYs (China selling) have entirely decoupled from the rest of US assets…

We suspect that as Monday’s collapse occurred last week it forced “Risk Parity” shops into selling as China’s intervention throws their simple arbs (equities down, yields down) into a fit – unleashing all sorts of negative feedback loops which are still underway.

 

As Volatility relationships ‘break’…

 

Which summarized simply means – any time you introduce an exogenous signal to a correlation pair, it blows it up and forces derisking. The more leverage on both legs, the more unwinds needed… and the more negative the feedback loop. And this ‘correlation pair’ game has been going on for 5 years unabated.

*  *  *

This is the worst “first day the month” since Mar 2009 for The Dow

Since Sunday night, things have not been great for stocks with aggreesive US futures selling during the Asia session and weakness towards the US Close…

 

Leaving all major indices notably in the red for the first day of the month…

 

And we use The Dow Futures to illustrate the pull back… Dow was down over 530 points at the lows

 

Which has slammed Nasdaq back into the red for 2015 – joining everything else….

 

FANG stocks are all sufferring post-FOMC Minutes…

 

As Financials and Energy were ugly…

 

VIX rose over 10% to top 32 as the VIX complex was a mess of short-squeezes and liquidity holes. S&P is catching down to XIV (inverse VIX ETF)…

 

With what looked like VIX ETF margin calls into the close…

 

NOTE: After late-day mismacthes were offset – VIX was smashed lower as always to ensure stocks close “off the lows”

 

Treasury yields were bid through most of Asia and Europe’s session then sold off in the US session – despite equity weakness – before a late day rally…

 

The USDollar Index drifted lower today as AUD plunged and JPY surged…

 

Commodities were a mixed bag with Gold & Silver gaining as crude and copper were clubbed…

 

Crude Oil was a catastrophe. After yesterday’s epic rtamp squeeze into month-end, today saw a total collapse- the biggest drop since OPEC met late November. Note they tried to ramp it into the NYMEX close but that failed…

  • *WTI FALLS $1.65 IN LAST 15 MINS. OF TRADING, SETTLES AT $45.41

Then touched a $44 handle…

 

Gold remains the only safe haven for now post-FOMC…

 

 

Charts: Bloomberg

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Just before markets are set to open:  9:30 am/ New York time

US Equities Are Crashing Again – Dow Futures Down 430, AAPL -2.75%; NYSE Unleashes Rule 48 (Again)

US equity futures markets have just pushed to fresh overnight lows, with the last leg down seemingly triggered by the CAD recession print. Let’s hope Cramer and Cook have another email up their sleeves as weakness in AAPL is notable – down 2.75% in the pre-market. Lastly, we noted US equities are rapidly catching back down to the XIV-implied lows as the last few days bounce evaporates. And then NYSE instigates Rule 48 once again to save the world.

  • *NYSE AND NYSE MKT CASH EQUITIES MARKETS WILL INVOKE RULE 48
  • *NYSE AMEX/ARCA OPTIONS GRANT TRIPLE-WIDTH OPENING QUOTE RELIEF
  • *NYSE AMEX/ARCA OPTIONS OPENING QUOTE RELIEF FOR SEPTEMBER 1

 

 

Ugly…

 

AAPL Ugly..

 

It appears XIV was on to something after all…

 

But XIV is crashing – down 10% now – and below last Monday’s crash lows…

 

Charts: Bloomberg

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The volatility Index, or (VIX) surges indicating a “black” day for the USA markets:  Many flash crashes!!
(courtesy zero hedge)

VIX ETF Surges Above ‘Black Monday’ Spike Highs, Numerous ETF Flash-Crashes

As Nanex’s Eric Hunsader notes “there are numerous mini-flash-crashes in ETFs this morning,” as market structure comes under significant pressure. Nowhere is that more obvious than in the VIX complex with VXX spiking above last Monday’s highs and XIV collapsing…

 

VXX (VIX ETF) spikes above last Monday’s highs…

 

Underlying components very weak…

  • *LESS THAN 1% OF S&P 500 STOCKS RISING IN EARLY TRADING
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 USA manufacturing PMI’s (Markit PMI) are plunging to 2 year lows as new orders and employment tumble

(courtesy zero hedge)

US Manufacturing Plunges To 2-Year Lows As New Orders, Employment Tumble

Following disappoint PMIs from around the world, the US decoupling meme took another knock today as Markit PMI printed 53.0 (from 53.8) – its lowest in almost 2 years, led by a plunge in the employment subindex. Weakness was also evident in new factory orders. As Markit notes, “U.S. manufacturing sector continues to struggle under the weight of the strong dollar and heightened global economic uncertainty.” On the heels of Milwaukee and Dallas Fed weakness, ISM Manufacturing printed a disastrous 51.1 (vs 52.5 expectations) – the lowest since May 2013. Employment tumbled, as did New Export ordedrs, but unadjusted New Orders plunged to its lowest since 2013, which is a problem given the massive inventory builds that have saved the world in the last few months.

 

 

Manufacturing worst since Oct 2013…

And under the surface it is ugly..

  • *MARKIT AUGUST FACTORY EMPLOYMENT GAUGE DROPS TO ONE-YEAR LOW
  • *MARKIT AUGUST FACTORY ORDERS INDEX FALLS TO 54.7 FROM 55.4

As Markit summarizes,

“August’s survey highlights that the U.S. manufacturing sector continues to struggle under the weight of the strong dollar and heightened global economic uncertainty, but resilient domestic spending and subdued cost pressures are keeping the recovery on track. Reflecting this, new orders from abroad have now fallen in four of the past five months, which represents the weakest phase of manufacturing export performance since late-2012.

 

“In response to softer growth momentum, manufacturers took a more cautious approach to staff hiring and inventories in August. Stocks of finished goods were depleted for the first time in 2015 so far, and job creation was the weakest for over a year, as some firms sought to realign production schedules with expectations of sluggish growth trends ahead.”

And then ISM hit…and collapsed…

 

As non-adjusted New orders collapse to the lowest sicne 2013…

As respondents noted, hope remains high…

  • “Falling crude oil prices are benefiting all resin based purchases as well as positively impacting fuel surcharges for inbound products.” (Food, Beverage & Tobacco Products)
  • “We are oversold.” (Paper Products)
  • “Business is still strong but has slowed slightly.” (Transportation Equipment)
  • “Modest growth slightly ahead of GDP. Optimistic for the remainder of the year as we have little international exposure.” (Chemical Products)
  • “FX [Foreign Exchange] continues to be a challenge, especially in Europe. Overall though, the mood is fairly upbeat regarding H2 [second half of 2015] as we ramp up for a new product launch.” (Computer & Electronic Products)
  • “Our business is good due to the increase in commercial construction.” (Fabricated Metal Products)
  • “Raw metals price decreases will impact our business favorably.” (Miscellaneous Manufacturing)
  • “Business is guarded but steady. Margins are tight. Markets are very competitive. China is lackluster.” (Wood Products)
  • “Automotive companies are investing heavily in upgrading their equipment.” (Machinery)
  • “Business is strong and doing well. Labor continues to be a struggle to find.” (Furniture and Related Products)

 

Charts: Bloomberg

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This is interesting.  Construction spending is on tap for a 13.7% gain year over year and yet lumber prices are down badly..  Why??

see zero hedge for the explanation..

(courtesy zero hedge)

Peak Construction Spending?

Construction spending grew at 13.7% YoY in July. It has only grown at a faster pace than that once – at the very peak of the idiocy in Q1 2006.

Nope – no bubble here…

 

So that got us wondering… how is it that Construction Spending is surging as Lumber Prices are collapsing? (unless homes are now made of Twitter share certficates).

 

The answer is simple – lag… and we have seen this picture before… and it did not end well.

Clearly, the exuberant construction industry jumps on Fed-induced signals of recovery and mal-invests en masse… until reality bites again.

 

Charts: Bloomberg

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A great article from zero hedge:  the death of the Petrodollar and the biggest risks now facing the world’s central banks…
an important read…
(courtesy zero hedge)

The “Great Accumulation” Is Over: The Biggest Risk Facing The World’s Central Banks Has Arrived

To be sure, there’s been no shortage of media coverage regarding the collapse in crude prices that’s unfolded over the course of the past year. Similarly, it’s no secret that commodity prices in general are sitting near their lowest levels of the 21st century.

When Saudi Arabia, in an effort to bankrupt the US shale space and tighten the screws on a recalcitrant Moscow, endeavored late last year to keep oil prices suppressed, the kingdom killed the petrodollar, a move we argued would put pressure on USD assets and suck hundreds of billions in liquidity from global markets. 

Thanks to the fanfare surrounding China’s stepped up UST liquidation in support of the yuan, the world is beginning to understand what we meant. The accumulation of USD assets held as FX reserves across the emerging world served as a source of liquidity and kept a bid under things like US Treasurys. Now that commodity prices have fallen off a cliff thanks to lackluster global demand and trade, the accumulation of those assets slowed, and as a looming Fed hike along with fears about the stability of commodity currencies conspired to put pressure on EM FX, the great EM reserve accumulation reversed itself. This is the environment into which China is now dumping its own reserves and indeed, the PBoC’s rapid liquidation of USTs over the past two weeks has added fuel to the fire and effectively boxed the Fed in.

On Tuesday, Deutsche Bank is out extending their “quantitative tightening” (QT) analysis with a look at what’s ahead now that the so-called “Great Accumulation” is over.

“Following two decades of unremitting growth, we expect global central bank reserves to at best stabilize but more likely to continue to decline in coming years,” DB begins, before noting what we outlined above, namely that the “three cyclical drivers point[ing] to further reserve draw-downs in the short term [are] China’s economic slowdown, impending US monetary tightening, and the collapse in the oil price.”

In an attempt to quantify the effect of China’s reserve liquidation, we’ve quoted Citi, who, after reviewing the extant literature noted that for every $500 billion in EM FX reserve draw downs, the effect is to put around 108 bps of upward pressure on 10Y UST yields. Applying that to the possibility that China will have to sell up to $1.1 trillion in assets to offset the unwind of the great RMB carry and you end up, theoretically, with over 200 bps of upward pressure on yields, which would of course pressure the US economy and force the Fed, to whatever degree they might have tightened by the time China’s 365-day liquidation sale ends, to reverse course quickly.

Deutsche Bank comes to similar conclusions. To wit:

The implications of our conclusions are profound. Central banks have accumulated 10 trillion USD of assets since the start of the century, heavily concentrated in global fixed income. Less reserve accumulation should put secular upward pressure on both global fixed income yields and the USD. Many studies have found that reserve buying has reduced both bund and US treasury yields by more than 100bps. For every $100bn (exogenous) reduction in global reserves, we estimate EUR/USD will weaken by ~3 big figures.

 

[…]

 

Declining FX reserves should place upward pressure on developed market yields given that the bulk of reserves are allocated to fixed income. A recent working paper by ECB staff shows that the increase in foreign holdings of euro area bonds from 2000 to mid-2006… is associated with a reduction of euro area long-term interest rates by about 1.55 percentage points, in line with the estimated impact on US Treasury yields by other studies. On the short-term impact, one recent paper estimates that “if foreign official inflows into U.S. Treasuries were to decrease in a given month by $100 billion, 5- year Treasury rates would rise by about 40–60 basis points in the short run”, consistent with our estimates above. China and oil exporting countries played an important role in these flows.

 


Which of course means the Fed is stuck:

The current secular shift in reserve manager behavior represents the equivalent to Quantitative Tightening, or QT. This force is likely to be a persistent headwind towards developed market central banks’ exit from unconventional policy in coming years, representing an additional source of uncertainty in the global economy. The path to “normalization” will likely remain slow and fraught with difficulty.

Put simply, raising rates now would be to tighten into a tightening.

That is, the liquidation of EM FX reserves is QE in reverse. The end of the great EM FX reserve accumulation means QT is set to proliferate in the face of stubbornly low commodity prices and decelerating Chinese growth. And indeed, if the slowdown in global demand and trade turns out to be structural and endemic rather than cyclical, the pressure on EM could continue unabated for years to come. The bottom line is this: if the Fed hikes into QT, it will exacerbate capital outflows from EM, which will intensify reserve draw downs, necessitating a quick (and likely embarrassing) reversal of Fed policy and perhaps even QE4.


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Here is another indicator which suggests a crash is upon us:
The ARMS index is now 5.  Anything above 1 is bearish, below one is bullish:
(courtesy zero hedge)

The Market’s “Other” Panic Indicator Just Went Off The Charts

With indicators from macro-fundamentals (e.g. retail sales, core capex, inventory-to-sales) to market-oriented measures (VIX levels and backwardation, HY credit spreads, commodity prices) all flashing various colors of dead canary in the coal-mine red, we thoughttoday’s colossal spike in the Arms (TRIN) Index was a notable addition.

An Arms Index value above one is bearish, a value below one is bullish and a value of one indicates a balanced market. Traders look not only at the value of the index, but also at how it changes throughout the day. Traders look for extremes in the index value for signs that the market may soon change directions. The Arm’s Index was invented by Richard W. Arms, Jr. in 1967. In essence, a sudden surge in the TRIN indicates a jump in trader lack of confidence, as everyone scrambles to either go long the 2-3 rising stocks, or to sell or short the biggest decliners, ignoring the bulk of the market..

Today’s move was far greater than “Black Monday’s market-halting crash:

In longer context:

As we noted previously, the Arms index is an indicator of market breadth essentially tracks lemming like momentum-chasing behavior with respect to volume… meaning today saw panic-buying volumes which given that it was dip-buyers at the close, we suspect won’t end well…

 

Trade accordingly….

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We haven’t heart from Bruce Krasting in a while.  However today he provided a dandy where he now states that El Nino will be back this year.  It means California will have a deluge of rain as well as other sections of the globe.  However after the rains, another drought…
(courtesy Bruce Krasting)

California – A Deluge Followed by Mega Drought?

Bruce Krasting's picture

Both NOAA and the Australian Meteorologists issued El Nino updates in the past 24 hours. The weekly numbers that were released confirm that an historic event is taking place. It now is (nearly) certain that the most significant El Nino in recorded history will be with us over the next five months. From the Aussie weather geeks:

The 2015 El Niño is now the strongest El Niño since 1997–98.

The last time we were close to the current El Nino conditions was the fall/winter of 1997/1998. National Geographic has this to say of the 1997 El Nino:

It rose out of the tropical Pacific in late 1997, bearing more energy than a million Hiroshima bombs. By the time it had run its course eight months later, the giant El Niño of 1997-98 had deranged weather patterns around the world, killed an estimated 2,100 people, and caused at least 33 billion [U.S.] dollars in property damage.

At its peak, the 1997 El Nino index reached a record high of 2.3. This extreme level was nearly reached over the past week, there is every indication that it will move higher in the coming months.

The 1997-98 results: