Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1132.50 down $6.20 (comex closing time)
Silver $14.66 up 5 cents.
In the access market 5:15 pm
First, here is an outline of what will be discussed tonight:
At the gold comex today we had a poor delivery day, registering only 4 notices for 400 ounces Silver saw 78 notices for 390,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.55 tonnes for a loss of 78 tonnes over that period.
In silver, the open interest fell by 145 contracts despite the fact that silver was up in price by 4 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 157,013 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 78 notices served upon for 390,000 oz.
In gold, the total comex gold OI collapsed to 410,274 for a loss of 1682 contracts. We had 4 notices filed for 400 oz today.
We had no change in tonnage at the GLD today/ thus the inventory rests tonight at 682.59 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. In silver, we had a small change in silver inventory at the SLV, a withdrawal of 859,000 oz/ Inventory rests at 325.063 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 145 contracts down to 157,013 despite the fact that silver was up by 3 cents in price with respect to Tuesday’s trading. The total OI for gold fell by 1682 contracts to 410,274 contracts, despite the fact that gold was up by $7.10 yesterday.
2.Gold trading overnight, Goldcore
3. Five stories on China tonight. Again the Chinese markets were rescued and again China raised the yuan rate meaning another deluge of USA treasuries were sold
(zero hedge/Goldman Sachs/Bank of America)
4.Deutsche bank’s Jim Reid states that basically the globe financial world are “flying blind” (Jim Reid/Deutsche bank)
5. Sweden, with already negative interest rates are now stating that they will not accept any more new savings accounts (zero hedge)
6. Putin states it is time to depart from using the uSA dollar
7. The damage that oil will have on the economy of Saudi Arabia
9. The huge base metal giant, Glencore, seems to be heading into the crapper
10. One oil related stories/triple whamming but oil juiced higher
11 Trading of equities/ New York
12. USA stories:
a) 3 stories today on NY trading ( manipulated trading)
b) ADP report shows jobs falter (ADP private jobs report)
c) Wage growth tumbles as labour costs tumble destroying the meme of the Fed
d) Factory orders plunge for the 9th month in a row
(USA factory orders/zero hedge)
e)Beige report (Bloomberg)
13. Physical stories:
- A good study on what gold will do once a currency war develops between South Korea and China ….(courtesy Profit Confidential/By Iyer• Wednesday, September 2, 2015)
- Mint sales going through the roof/Unser/Coinnews.net
- James Turk strongly believes that gold and silver will turn around shortly/silver is deeply undervalued (James Turk/Kingworldnews)
- John Crudele on why he believes that the Fed should be audited and the governors and Fed Presidents should be put in jail (John Crudele/NYPost)
Let us head over and see the comex results for today.
September contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||160.75 oz (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||4 contracts (400 oz)|
|No of oz to be served (notices)||193 contracts (193,000 oz)|
|Total monthly oz gold served (contracts) so far this month||9 contracts(900 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||5280.5 oz|
Total customer deposit: nil oz
JPMorgan has 4.41 tonnes left in its registered or dealer inventory. (142,044.079 oz) and only 830,783.754 oz in its customer (eligible) account or 23.05 tonnes
September silver initial standings
September 2 2015:
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||709,636.33 oz (Delaware,CNT, Scotia)|
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||36,098.75 (Brinks)|
|No of oz served (contracts)||78 contracts (390,000 oz)|
|No of oz to be served (notices)||1270 contracts (6,350,000 oz)|
|Total monthly oz silver served (contracts)||291 contracts (1,455,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||nil|
|Total accumulative withdrawal of silver from the Customer inventory this month||4,261,469.6 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit; nil oz
total customer deposits: 36,098.75 oz
total withdrawals from customer: 709,636.33 oz
I can now safely say that the comex is bleeding silver to go along with their gold bleeding.
And now SLV:
Sept 2: we had a small withdrawal of 859,000 oz of silver from the SLV vaults/inventory rests tonight at 325.063 million oz
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
Sprott formally launches its offer for Central Trust gold and Silver Bullion trust:
SII.CN Sprott formally launches previously announced offers to CentralGoldTrust (GTU.UT.CN) and Silver Bullion Trust (SBT.UT.CN) unitholders (C$2.64) Sprott Asset Management has formally commenced its offers to acquire all of the outstanding units of Central GoldTrust and Silver Bullion Trust, respectively, on a NAV to NAV exchange basis. Note company announced its intent to make the offer on 23-Apr-15 Based on the NAV per unit of Sprott Physical Gold Trust $9.98 and Central GoldTrust $44.36 on 22-May, a unitholder would receive 4.45 Sprott Physical Gold Trust units for each Central GoldTrust unit tendered in the Offer. Based on the NAV per unit of Sprott Physical Silver Trust $6.66 and Silver Bullion Trust $10.00 on 22-May, a unitholder would receive 1.50 Sprott Physical Silver Trust units for each Silver Bullion Trust unit tendered in the Offer. * * * * *
Gold Coin Sales Surge 306% YoY In August, Silver Sales More Than Double
Today’s Gold Prices: USD 1140.00, EUR 1010.73 and GBP 746.46 per ounce.
Yesterday’s Gold Prices: USD 1141.90, EUR 1012.23 and GBP 744.10 per ounce.
Gold was marginally higher yesterday and closed at $1139.80 per ounce, up $4.30. Silver was 0.1% lower and closed at $14.60 per ounce.
Silver in USD – 5 Years
Stocks in the U.S., Asia and this morning in Europe had seen a renewed rout as concerns about China’s slowing economy and the global economy badly impacts financial markets.
The Standard & Poor’s 500 Index began September badly with its third-biggest loss of 2015 as the sharp falls that erased $5.7 trillion from the value of shares globally in August continued.
Oil tumbled the most in two months after a 27% gain in the previous three days. Emerging assets plunged and a measure of the risk premium on high-yield debt jumped.
Demand for safe haven assets such as Treasuries, gold and silver remerged. Despite a month over month decline in coin sales amid volatility in the metals market, the U.S. Mint posted solid coin sales in August.
According to the latest data on the US Mint’s website, sales of the American Eagle Bullion gold coin amounted to 101,500 ounces last month, down 40% from the 170,000 ounces sold in July. However, year-over-year, coin sales rose 306% when compared to the 25,000 ounces sold in August 2014 – see the full article in Commentary here.
Gold extends rally, Chinese frailty sinks equities – The Bullion Desk
US Mint’s American Eagle Bullion Sales Rally in August – CoinNews.net
Gold at One-Week High on Weaker Equities and Dollar’s Retreat– The Wall Street Journal
After a 39% Rout, China Stocks Are Still Double Hong Kong Prices – Bloomberg
Asian shares fall for third day on global growth concerns – Reuters
Gold Coin Sales Surge 306% YoY In August, Silver Sales More Than Doubled – Gold-Eagle
U.S. Gold Production Finally Hit Hard Due To Low Price – GoldSeek
Keiser Report: Stop What’s That Sound? Falling Markets! – Max Keiser
Money—How to Get It and Keep It – Casey Research
‘Death cross’ patterns spread to all corners of the stock market – MarketWatch
Mint sales skyrocketing!!
(courtesy Mike Unser/Coinnews.net)
US Mint’s American Eagle Bullion Sales Rally in August
Summer months are usually humdrum for United States Mint bullion sales but they’ve screamed along this year.
American Gold Eagles scored their second highest month of 2015, right behind July, which was the highest in 2-1/4 years, and American Silver Eagles posted their third highest month of the year, right behind January and July.
As far as Augusts go, there is no better one for American Silver Eagles and just three stronger for American Gold Eagles — in 1998 and 1999 when demand soared during the Y2K scare and in 2011. These are considerable marks for an aged American Eagle coin series that launched in 1986.
American Eagle Silver Bullion Coins
American Silver Eagles are running at a record pace. Since their return after temporarily selling out in July, the U.S. Mint has rationed their sales each week to prevent suspensions. Totals, as a result, are actually lower than what they could be. Rationing of the .999 fine silver coins is not new, but usually it’s not needed around this time of year.
In monthly comparisons, Silver Eagles closed the month at 4,935,000 coins, sliding 10.7% from the furious July total of 5,529,000 coins while leaping 136.4% higher than the year-ago level of 2,087,500 coins.
American Silver Eagles through the first eight months of the year total 32,250,000 coins, advancing 14.4% from the same period in 2014 when 28,191,000 sold. The .999 fine silver coins are on track for a more than 48 million sales year. Last year, Silver Eagle sales ended at an annual record of 44,006,000 coins.
American Eagle Gold Bullion Coins
American Gold Eagles spurred ahead in August by 101,500 ounces, or more than four times the amount of sales than the 25,000 ounces sold a year earlier, though down 40.3% from the 170,000 ounces delivered in July — the highest for a month since April 2013.
In the January to August period, Gold Eagles total 544,500 ounces for a 69.6% pick up over the 321,000 ounces ordered through the same time in 2014.
American Eagle gold coins have a 22-karat composition and come in four size options — 1 ounce, 1/2 ounce, 1/4 ounce and 1/10 ounce. These correspond to denominations inscribed on the coins of $50, $25, $10 and $5. For a sixth straight month, all sizes advanced in August. A breakout for each coin is available further below.
American Buffalo Gold Bullion Coins
American Buffalo gold coins moved up 20,000, slowing 37.5% from the prior month’s 32,000 ounces yet ran 150% faster than sales of 8,000 ounces in August 2014.
Orders of the one-ounce, .9999 fine gold coin through the first eight months of this year total 148,500, up 18.8% from the 125,000 ordered during the same eight months of last year.
ATB Five Ounce Silver Bullion Coins
August sales of America the Beautiful Five Ounce Silver Bullion Coins logged in at zero because they weren’t available. The first three 2015-dated coins sold out earlier and the next one won’t launch until Sept. 30.
Five-ounce bullion sales this year by design breakdown with:
- 2015 Blue Ridge Parkway Five Ounce Silver Bullion Coins selling out in July at 45,000.
- 2015 Kisatchie National Forest Five Ounce Silver Bullion Coins selling out in May at 42,000.
- 2015 Homestead National Monument of American Five Ounce Silver Bullion Coins selling out in March at 35,000.
- 2014 Shenandoah National Park Five Ounce Silver Coins advancing 600 in January and selling out at 25,000.
Orders of 99.9% pure silver coins total 122,600 coins or 613,000 ounces through the first wight months in 2015. Last year’s coins posted slower gains of 78,700 coins or 393,500 ounce through August.
US Mint Bullion Sales by Product
Tables below offer U.S. Mint bullion sales by product. The first table lists August 2014 sales for comparison and then monthly sales between May and August of this year. The second table offers monthly sales figures between January and April. Totals are in the number of bullion coins sold.
|United States Mint Bullion Coin Sales (# of coins)|
|Last Year Aug||May 2015||June 2015||July 2015||Aug 2015||YTD Sales|
|$50 American Eagle 1 oz Gold Coins||21,000||13,500||62,500||144,400||78,500||421,500|
|$25 American Eagle 1/2 oz Gold Coins||0||3,000||4,000||10,000||8,000||54,000|
|$10 American Eagle 1/4 oz Gold Coins||6,000||10,000||12,000||28,000||24,000||122,000|
|$5 American Eagle 1/10 oz Gold Coins||25,000||40,000||85,000||135,000||130,000||655,000|
|$50 American Buffalo 1 oz Gold Coins||8,000||9,500||21,000||32,000||20,000||148,500|
|ATB 5 oz Silver Coins||9,200||12,000||35,000||10,000||0||122,600|
|2015 American Eagle 1 oz Silver Coins||2.0875M||2.0235M||4.84M||5.529M||4.935M||32.25M|
|United States Mint Bullion Coin Sales (# of coins)|
|Jan 2015||Feb 2015||March 2015||April 2015||YTD Sales|
|$50 American Eagle 1 oz Gold Coins||51,500||12,500||35,000||23,500||421,500|
|$25 American Eagle 1/2 oz Gold Coins||18,000||2,000||5,000||4,000||54,000|
|$10 American Eagle 1/4 oz Gold Coins||36,000||0||8,000||4,000||122,000|
|$5 American Eagle 1/10 oz Gold Coins||115,000||50,000||70,000||30,000||655,000|
|$50 American Buffalo 1 oz Gold Coins||34,500||12,000||9,500||10,000||148,500|
|ATB 5 oz Silver Coins||600||20,000||15,000||30,000||122,600|
|2015 American Eagle 1 oz Silver Coins||5.53M||3.022M||3.519M||2.8515M||32.25M|
U.S. Mint bullion coins are sold to authorized distributors who resell them to the public and other companies like bullion and coin dealers. Bullion coins, whether gold or silver, are usually available for a few percentage points above the latest value of their precious metal content.
(courtesy Iyer/Profit Confidential)
Gold Price Outlook: Currency War Between China and South Korea Could Send Gold Soaring
(courtesy James Turk/Kingworldnews/Eric King/GATA)
Turk sees signs of turnaround for metals and silver’s outperformance
Submitted by cpowell on Wed, 2015-09-02 00:22. Section: Daily Dispatches
8:20p ET Tuesday, September 1, 2015
Dear Friend of GATA and Gold:
In an interview with King World News, GoldMoney founder James Turk sees indications that the bull market in gold and silver is about to resume that the silver will take the lead. The interview is excerpted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Lawrence Williams leaves MineWeb for Sharps Pixley and his own Internet site
Submitted by cpowell on Wed, 2015-09-02 12:14. Section: Daily Dispatches
8:10a ET Wednesday, September 2, 2015
Dear Friend of GATA and Gold:
Lawrence Williams, who long has written for MineWeb and is among the few financial writers willing to acknowledge the evidence of central bank manipulation of the gold market, advises that his commentary is moving away from MineWeb.
Williams writes: “I am now publishing precious metals commentary onwww.sharpspixley.com and www.biznews.com/gold. Meanwhile I will also continue to add material my own blogsite, www.lawrieongold.com, which is free to access and has already gained a good following since its inception back in mid-December last year.”
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Great commentary and he is correct!!
(courtesy John Crudele/NY Post)
NYPost’s John Crudele: Why the Federal Reserve should be audited
Submitted by cpowell on Wed, 2015-09-02 12:06. Section: Daily Dispatches
By John Crudele
New York Post
Tuesday, September 1, 2015
It is time for a comprehensive audit of Janet Yellen’s Federal Reserve — and not just for the reasons presidential candidate Rand Paul and others have given.
The Fed needs to be audited to see if its ruling body has broken the law by manipulating financial markets that are outside its jurisdiction. A thorough investigation of the Fed will show once and for all if its former chief Ben Bernanke and current Chairwoman Yellen should go to jail. …
The Fed should be audited as a brokerage firm would be — its financial holdings, its transactions, market orders, emails, and phone calls. Special attention should be given to what is called the “trade blotter” at the Federal Reserve Bank of New York, which handles all market transactions for the Fed.
The Fed’s dealing with foreign central banks — especially at times of market stress — should be given special attention. Trades in the wee hours of the morning should be in the spotlight. …
… For the full commentary:
1 Chinese yuan vs USA dollar/yuan rises considerably this time to 6.3559/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 70.29 or 0.39.%
3. Europe stocks mostly in the green slightly /USA dollar index up to 95.67/Euro down to 1.1265
3b Japan 10 year bond yield: rises to .395% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.06
3c Nikkei now below 19,000
3d USA/Yen rate now just above the 120 barrier this morning
3e WTI: 44.44 and Brent: 48.74
3f Gold up /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for WTI and down for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .805 per cent. German bunds in negative yields from 4 years out.(China must be selling copious amounts of German bunds)
Greece sees its 2 year rate falls to 12.43%/Greek stocks this morning up by 0.58%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield rises to : 9.33%
3k Gold at $1139.00 /silver $14.58 (8 am est)
3l USA vs Russian rouble; (Russian rouble down 85/100 in roubles/dollar) 67.52,
3m oil into the 44 dollar handle for WTI and 48 handle for Brent/Saudi Arabia increases production to drive out competition.
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9642 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0861 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 +.805%
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 2.15% early this morning. Thirty year rate below 3% at 2.91% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
China Stocks Fail To Close Green Ahead Of National Holiday Despite Constant Intervention, US Futures Rebound
Since today was the last day of trading for Chinese stocks this week ahead of the 4-day extended September 3 military parade holiday to mark the 70th anniversary of the allied victory over Japan, and since Chinese stocks opened to yet another early -4.7% rout coupled with the PBOC’s biggest Yuan strengthening since 2010 as we observed earlier, there was only one thing that was certain: massive intervention by the Chinese “National Team” to get stocks as close to green as possible.
Sure enough they tried, and tried so hard the “hulk’s” green color almost came through in the last hour of trading …
…. yet, despite the symbolic importance of having a green close at least one day this week ahead of China’s victory over a World War II foe, Beijing was unable to defeat the market even once in the latest week...
This takes places as China has thrown the proverbial kitchen sink at the market and achieved nothing. As a reminder, the FT reported yesterday in their most recent desperation scramble, four Chinese regulatory agencies issued a joint statement “encouraging” listed companies to hand out more dividends, buy back their own shares and carry out more mergers and corporate restructurings to boost slumping share prices. The statement from the finance ministry and the regulators in charge of securities, banking and state-owned assets was issued after Beijing’s decision to end its large-scale but unsuccessful programme of direct stock purchases.
State-owned funds and financial institutions have spent more than $200bn since early July trying to prop up the market but benchmark indices have still fallen 40 per cent from their peak of early June. The government has decided to abandon these share purchases and concentrate instead on boosting the slowing real economy, “improving the quality of the equity market” and arresting people deemed to be manipulating the market. In their statement, the four agencies pledged to step up the restructuring and mergers of listed state enterprises to make them more attractive to investors.
The statement also said the agencies would “actively encourage” listed companies to issue more cash dividends, a practice that is relatively rare among companies listed on mainland Chinese stock exchanges. The agencies will facilitate share buybacks by listed companies through regulatory measures that, analysts said, could include tax breaks. Buybacks would take place when share prices fall below net asset value.
And since everything China has tried so far, even arrests and threats, has failed, this bodes very poorly for Chinese stocks come next week because while the FT previously bombastically reported that the “National Team” will no longer intervene over the weekend, only to do just that for 3 consecutive days, at least it had a patriotic alibi. After Sunday, all bets are off.
On the whole, Asian equity markets traded mostly higher for a bulk of the session before falling back into negative territory before the close, with the Shanghai Comp. (-0.2%) paring as much as 4.7% of losses as investors readjusted positions ahead of the long weekend, while brokerages also announced additional funds to back China Securities Finance Corp and support China’s stock markets. Nikkei 225 (-0.4%) outperformed for most of the session amid short covering and JPY weakness before seeing some weakness as European particpants came to their desk, while ASX 200 (-0.86%) was weighed on by the energy sector after WTI posted its largest intraday decline in 7 months. JGBs traded mildly lower following the strength in Japanese equities, while losses were stemmed as the BoJ entered the market to purchase JPY 1.2trl of government.
Over to Europe, where cautious sentiment dominated the price action, with stocks in Europe again trading on the back foot (Euro Stoxx: -0.3%) as market participants were left somewhat uninspired by the lack of firm actions by Chinese officials to prevent the flight of capital. Energy names underperformed on the sector breakdown, whereas the more defensive sectors, such as healthcare traded in the green. Despite the ongoing downside in global equities, analysts at Morgan Stanley issued a buy alert on stocks for the first time since early 2009. Such calls typically lead to a V-shaped recovery that delivers a 23% gain in stock prices over the following 12 months.
Looking at US stocks, don’t even bother – just focus on the USDJPY, which has once again become a beacon for all E-mini algos (note last night’s Japan open surge), and spare yourself the need for 3-4 extra monitors. It is all in the hands of the BOJ’s direct and indirect interventions today, with the 120 “tractor beam” level shining through brightly (also keep in mind that after going long of stocks in confused terms on Monday, Gartman warned CNBC that he now expects a bear market – trade accordingly).
Bunds have been supported since the get-go, with peripheral bond yield spreads trading wider and Portuguese bonds underperforming as the debt agency announced that it is mandating for its 2022 bond. Of note, analysts at BNP Paribas noted that the downside by Bunds may struggle to extend from here, citing the risk that the ECB may see cause to signal more easing ahead at its press conference tomorrow.
In FX, commodity sensitive currencies remained remain the underperformer in global FX markets with WTI and Brent crude prices under pressure in early trade, while AUD/USD briefly fell below 0.7000 overnight for the first time since 2009 on the back of the lower than expected GDP reading. Elsewhere, choppy price action was observed by EUR and GBP related crosses with USD-index (+0.2%) spending the European morning in the green in a paring of some of yesterday’s losses .
In commodities, we saw a continuation of WTI and Brent crude future prices under pressure in European trade, lower by around USD 1.00, following a devastating for oil bulls API inventory build of 7.6MM barrels following a 7.3MM drawdown the week before, as suddenly US refiner demand is as volatile as Chinese stocks. Participants will be looking ahead to today’s DoE crude oil inventories update (Exp. 900k) after yesterday’s APIs saw a substantial build of 7600K (Prey. drawdown of 7300K).
Today’s highlights will see market participants will get to digest the release of the latest US ADP employment change report and factory orders data.
- S&P 500 futures up 0.4% at 1925
- Stoxx 600 gained as much as 0.8% in early trading
- Brent Futures down 1.7% at $48.7/bbl, WTI Futures down 2.2% at $44.4/bbl ahead of U.S. data forecast to show stockpiles
- Euro down 0.3% at $1.1280
- V2X down 0.4% at 34.1
- German 10Yr yield down 2bps at 0.77%
- LME 3m Copper down 0.1% at $5065.5/MT
- Gold spot unch at $1139/oz
- Shanghai Composite Index down 0.2%
- Royal Dutch Shell down 1.5%; Total down 1.5%, Statoil down 1.2%, Repsol down 1.2%, BP down 1.2%
- “Markets are just nervous and we need to bear in mind that many macro indicators will be published before the end of the week so uncertainty will remain,” Saxo Bank trader Andrea Tueni says by phone
Bulletin Headline Summary from Bloomberg and RanSquawk
- Cautious sentiment dominated the price action, with stocks in Europe again trading on the back foot
- Commodity sensitive currencies remained remain the underperformer in global FX markets with WTI and Brent crude prices under pressure in early trade
- Today’s highlights will see market participants will get to digest the release of the latest US ADP employment change report and factory orders data
- Treasuries little changed as U.S. stock-index futures and European stocks gain despite losses in Asia; ADP Employment due today, est. +200k jobs added in August; payrolls Friday, est. +218k, unemployment rate 5.2%.
- China-focused hedge funds probably had their worst month in almost 16 years in August, with firms including Orchid Asia Group Management and APS Asset Management Pte suffering losses from the nation’s stock market collapse
- China’s central bank will have to step back from supporting the yuan by early December and allow the currency to decline given the current strain on forex, according to Rabobank Group
- Even as U.S. policy makers ponder whether to raise rates this month, central bank forex reserves — one recent source of liquidity in financial markets — is drying up and the loss of it partly explains August’s trading volatility
- Australia’s economy expanded last quarter at half the pace forecast — only propped up by government and household spending — as a slowdown in key trading partner China weighed on exports
- No IG deals have priced for last 10 sessions, no HY since August 19. BofAML Corporate Master Index +1bp to +170; reached +172 last week, widest since Sept 2012; YTD low 129. High Yield Master II OAS +8bp to +578; reached +614 last week, widest since July 2012; YTD low 438
- Sovereign 10Y bond yields mostly lower. Asian and European stocks decline, U.S.equity-index futures rise. Crude oil falls, gold and copper little changed
- 2:00pm: Fed releases Beige Book
DB’s Jim Reid completes the overnight recap
It’s straight to Asia this morning where hot on the heels of more turmoil on Wall Street yesterday, as well this side of the pond, Asian equity markets have staged something of a recovery leading into the midday break. Led by China once again, the Shanghai Comp (+0.31%) has reversed earlier losses of more than 4% at the open while the Shenzhen (+0.67%) has staged a similar rebound in the last trading day for Chinese equity markets this week before bourses close for the rest of the week for public holidays. The Nikkei (+1.20%) is up also while the Hang Seng (+0.03%), Kospi (+0.19%) and ASX (-0.41%) have staged material rebounds too. Elsewhere, S&P 500 futures are pointing to a near 1% rebound while in the FX space the AUD is largely unchanged despite a softer than expected Q2 print out of Australia (+0.2% qoq vs. +0.4% expected).
Looking back at the price action yesterday, with sentiment weak in the Asia session following the soft Chinese PMI data (albeit broadly in-line with consensus), the declines in equity markets in Asia saw Europe take a fresh tumble with the Stoxx 600 (-2.73%) and DAX (-2.38%) both down sharply before the US saw the S&P 500 (-2.96%) kick start the new month very much on the back foot. A softer than expected US ISM manufacturing reading (51.1 vs. 52.5 expected) added to the damper tone across markets yesterday, while there was attention paid to the weak new orders (two-year low) and export (three-year low) components in particular which contributed in helping to nudge down September Fed liftoff expectations to 32% from the 42% this time yesterday.
On that note there was more Fedspeak for us to digest yesterday, this time from Boston Fed President Rosengren. A non-voter this year and seen as somewhat dovish in views, the Fed official didn’t offer a whole lot of new information relative to what we’ve already heard after arguing that doubts over inflation justify only a modest pace of rate hikes. Specifically, Rosengren said that ‘given current and forecast conditions, not only is the pace likely to be gradual, but the federal funds rate in the longer run may be lower than in previous tightening cycles’. Taking the attention away from timing, for which there were no real clues to take away, Rosengren also highlighted that ‘recent reports on wages and salaries still show few signs that the tightening labour markets are translating to increases in wages and salaries consistent with reaching 2% inflation’. The official did make some acknowledgement to the recent turbulence in markets, saying that ‘we are exposed to international factors, so if there is a global slowdown, we won’t be perfectly insulated’.
Speaking of turbulence, the sharp moves in Oil continue to grab much of the limelight and yesterday we saw WTI (-7.70%) and Brent (-8.48%) snap the biggest three-day rally in 25 years (falling a further 2% this morning) as the China data seemingly put a halt to the surge. Today’s weekly US production numbers from the EIA is set to be a closely watched release while the fallout from the weakness in prices this year is no more evident than in Canada where the economy there officially entered a recession on the back of a second straight quarterly decline in GDP (Q2 -0.5%), although perhaps painting a glimmer of hope that the move might be short-lived with the reading surprising to the upside after expectations of a contraction of 1% last quarter.
The generally weaker tone in markets, exaggerated by the falls in Oil saw US Treasury yields come under decent downward pressure. The benchmark 10y closed 6.6bps lower at 2.153% while there were moves lower too for the 2y (-3.3bps) and 5y (-6.0bps) parts of the curve. It was a much more choppy session for European rates where we eventually saw 10y Bunds close more or less unchanged at 0.795%.
In terms of yesterday’s data flow, along with the softer ISM manufacturing reading, there was a notable decline also for the ISM prices paid component which fell 5pts in August to 39.0, albeit in line with expectations. The generally uneasy tone yesterday was also not helped by a weak IBD/TIPP economic optimism reading (42.0 vs. 47.1 expected), slipping nearly 5pts from last month and to the lowest since October 2013 with the economic outlook component in particular dropping 6pts. Elsewhere, there was a slight upward revision to the final manufacturing PMI reading to 53.0 (+0.1pts) while construction spending for July rose +0.7% mom (vs. +0.6% expected). Finally vehicles sales in August came in a tad ahead of expectations at 13.8m saar (vs. 13.7m expected). Following the ISM manufacturing and construction spending reports, the Atlanta Fed downgraded their Q3 GDPNow forecast to 1.3% from 1.4% on the 29th August.
Closer to home yesterday, there was a modest downward revision to the final Euro area manufacturing PMI to 52.3 (from 52.4), weighed down in particular by a 0.3pt downward revision in France to 48.3, while Germany was revised up a notch to 53.3 (+0.1pts). We also got unemployment data out of Germany which saw no change last month at 6.4%, although there was a reasonable improvement in the Euro area rate to 10.9% from 11.1%, the lowest level since February 2012.
In terms of today’s calendar it’s a quiet morning in the European timezone with just Euro area PPI data due. Over in the US this afternoon the bulk of the attention will be on the August ADP employment change print as a prelude to Friday’s payrolls with market expectations at 200k. Elsewhere we’ll also get Q2 nonfarm productivity and unit labour costs, July factory orders and the ISM NY. The Fed’s Beige Book is also due to be released later this evening.
Opening of the Chinese stock market: 9:30 pm est/9:30 am Shanghai Tuesday morning. The POBC strengthens the yuan again by the most since 2010. Default risks hits 2 year highs:
(courtesy zero hedge)
Chinese Stocks Open Down Hard As PBOC Strengthens Yuan By Most Since 2010 & Default Risk Hits 2-Year High
From the moment Japan opened, USDJPY buying took off (standard 100 pip rip on absolutely no news whatsoever) as yet another manipulated market breathed new life into equity longs dreams. That ‘help’ combined with the fact that, as SCMP’s George Chen reports, 50 China brokerages will jointly contribute 100 bln RMB capital to the government margin finance agency to start “new round of market rescue”provided some stability after US markets’ collapse. However, tonight’s big news appears to be a major crackdown on leverage as MNI notes regulators ordering brokerage houses to clear all non-official margin trading services – not just halting new clients but also closing existing accounts. Chinese stocks are opening modestly lower as PBOC fixes Yuan stronger for the 4th day in a row. Finally, China credit risk has spiked to 2-year highs as traders increase positions dramatically. The manipulation will continue through tomorrow at least when Parade Week peaks, so buckle up.
Japan “rescued”… “Mysterious”? – Large USD/JPY Buyer Seen Before Nikkei Index Opened: Traders
Though some weakness at the Chinese open:
- *FTSE CHINA A50 SEPT. FUTURES DROP 0.7% IN SINGAPORE
- *CHINA’S CSI 300 STOCK-INDEX FUTURES FALL 2.2% TO 2,939.8
- *SHANGHAI COMPOSITE INDEX SET TO OPEN 4.4% LOWER
And then PBOC Strengthens Yuan:
- *CHINA SETS YUAN REFERENCE RATE AT 6.3619 AGAINST U.S. DOLLAR
- *CHINA RAISES YUAN REFERENCE RATE FOR FOURTH DAY
And loses control of money markets:
- *CHINA OVERNIGHT MONEY-MARKET RATE RISES 18 BPS TO 2%
This is the biggest 4-day strengthening in 5 years!
But tonight’s big news appears be a major clampdown on margin trading (as MNI reports),
China’s stock market regulator has issued a circular ordering brokerage houses to clear all non-official margin trading services jointly provided with a third party — not just halting new clients but also closing existing accounts.
Chinese brokerage houses were allowed to offer margin trading services in 2010 but strong stock market performance since last year saw many third parties also providing margin trading services with help from brokerage houses. Beijing realized the potential threat of these fast-growing margin trading services, particularly unofficial ones, and started to push for market deleveraging in late-June this year, contributing to the stock market rout which saw Shanghai Composite Index lose nearly 40% since.
Even as margin debt drops to a fresh 9-month low…
- *SHANGHAI MARGIN DEBT BALANCE FALLS FOR 11TH STRAIGHT DAY
The very same brokerages that are seeing executives detained and are being told to shut down margin trading have also provided funds for rescuing thegovernment market…
Chinese brokerage houses are providing more funds to the China Securities Finance Corp for stock market intervention.
Many listed brokerage houses issued statements last night saying they were giving no more than 20% of their net assets to CSFC, which will use the money to set up a special account for investment in blue chip stocks. These firms include CITIC Securities, which said it’s giving another CNY5.4 billion to CSFC. CITIC Securities is at the center of a regulatory storm as many of its senior executives are being investigated by police and Chinese investors have been questioning if CITIC was a key player among short sellers that caused the recent stock market rout.
Besides CITIC, several other brokerage houses which are contributing new funds to CSFC, have also said they are being investigated by the stock market regulator.
Followed by more talk..
- *CHINA EXPORTS MAY RISE 2% IN 2015; IMPORTS SEEN DOWN 10%: NEWS
- *CHINA HAS ROOM FOR FURTHER RATES, RRR CUTS: SECURITIES NEWS
- *CHINA SHOULD MAKE FUND TO SUPPORT SMALL CO. MARKET-ORIENTED: LI
- *CHINA PREMIER LI KEQIANG COMMENTS ON 60B YUAN SMALL CO. FUND
Then – now that China is flush with cash again apparently, it decided to help out Venezuela…
- *VENEZUELA SIGNS $5B LOAN W/CHINA TO BOOST OIL PRODUCTION:MADURO
But, not everyone is happy, as Bloomberg reports,
China-focused hedge funds probably had their worst month in almost 16 years in August, with firms including Orchid Asia Group Management and APS Asset Management Pte suffering losses from the nation’s stock market collapse.
“Greater China hedge funds are on track to show the worst three month returns in at least a decade,” said Mohammad Hassan, an analyst with Eurekahedge in Singapore. “It’s not a surprise given the funds’ limited ability to short the stock markets in China.”
And finally, it appears traders are hedging China credit risk in size…
Open positions in China’s credit-default swaps increased by 212 contracts to 9,444 in the week ended Aug. 28, according to latest data from DTCC.
That’s the biggest increase among global sovereign CDS; gross notional amount rose $1.31b last week
Among Asian sovereigns, South Korea’s CDS had second-biggest increase in positions last week, with outstanding amount up 137 contracts, or $1.10b in gross notional value
This is what is going on in China if you threaten to sell your stocks;
(courtesy zero hedge)
“If I Don’t Come Home, Look After My Wife”: What Happens In China If You Sell Stocks
It’s probably safe to say that at this point, Beijing is fed up with stocks.
The thing about equities that has the Politburo so vexed is that it turns out they can go down as well as up, and because stocks aren’t people, you can’t threaten them or arrest them, although China did its best to do both by throwing CNY1 trillion at the problem and by halting nearly three quarters of the market at the height of the meltdown.
Ultimately, none of it worked.
Fortunately for Chinese authorities, carbon-based lifeforms still play an active role in China’s stock market even if they’ve been all but replaced by vacuum tubes elsewhere. These carbon-based lifeforms areresponsive to threats and intimidation which is why last week, fearing that the plunge protection effort would end up becoming a black hole, China started arresting people.
And not just a few people or any people, but in facthundreds of people and important people.
There was Xu Gang, the CITIC executive. And CSRC official Liu Shufan. And let’s not forget poor Wang Xiaolu, the Caijing reporter who, clearly under duress, made the following public confession after suggesting in a story that China’s plunge protection team might be considering an exit from the market (which is of course true): “I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime.”
Now, China is rounding up other industry players and taking them into custody so that they might “assist with inquiries.” As Reuters reports, for some fund managers, being summoned to to provide such “assistance” is tantamount to getting “sent for” by the Italian mob. Here’smore:
Investigations by Chinese authorities into wild stock market swings are spreading fear among China-based investors, with some unsure if they are simply helping with inquiries or actually under suspicion, executives in the financial community said.
Chinese fund managers say they have come under increasing pressure from Beijing as authorities’ attempts to revive the country’s stock markets hit headwinds, with some investors now being called in to explain trading strategies to regulators every two weeks.
The authorities’ meddling has unnerved many investors, leaving them questioning China’s commitment to liberalizing its capital markets and the long-term future of the country’s stock markets themselves.
Adding to those concerns is the fact that authorities have also been probing investment funds’ trading strategies, looking into whether they have been engaging in alleged “malicious” short-selling or market manipulation.
Sources told Reuters that the increased tempo of meetings with regulators has become intimidating, especially for foreign funds used to relying on their Chinese brokers to represent them when dealing with Beijing.
How intimidating, you ask? This intimidating:
One manager at a major fund – part of the “national team” of investors and brokerages charged with buying stocks to revive prices – said a friend, also an executive at a large fund, was recently summoned for a meeting with regulators, along with all other mutual funds that had engaged in short-selling activity.
“If I don’t come back, look after my wife,” his friend told him, handing the manager his home telephone number.
Because there’s little we could add to make that any more tragically absurd than it already is, we’ll simply close with the following clip.
(courtesy Goldman Sachs/zero hedge/Bank of America)
“What If China Devalues To 8?” BofA Warns Of “Profound” Consequences For Commodities, Financial System
Last week, in “Is China Quietly Targeting A 20% Devaluation,” we highlighted a Bloomberg piece which suggested that “some Chinese agencies involved in economic affairs have begun to assume in their research that the yuan will weaken to 7 to the dollar by the end of the year [and to] 8 by the end of 2016.”
Given China’s, how should we put this, “aggressive persecution” of anyone deemed to be spreading “false” information about the country’s financial markets, it’s quite understandable that Bloomberg’s sources asked to remain anonymous, but even if we don’t know the specifics, targeting a 20% devaluation by the end of 2016 would seem to be consistent with an all-out effort to give the export-driven economy a defibrillator shock, as every 10% devaluation translates roughly to a 10 point boost to export growth.
We also said the following about why a more dramatic devaluation may indeed be in the cards:
In any event, a more dramatic devaluation may ultimately be necessary not only to boost exports, but to alleviate the necessity of intervening constantly to arrest the yuan’s slide. As BNP’s Mole Hau put it in a note out Monday, “what appears to have happened is that, whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” Which explains why the FX reserve drain may well be continuing unabated causing the massive liquidity crunch that’s forced the PBoC to inject hundreds of billions of liquidity via reverse repos and ultimately forced today’s RRR cut.
Needless to say, China’s devaluation and subsequent effort to stabilize the yuan have had a dramatic impact on global markets and a deeper devaluation would likely be accompanied by similarly dramatic adjustments. For their part, BofAML says a devaluation to 8 would send commodities down another 25%, deepening an already horrendous slump and send further shockwaves through the global banking system.
* * *
Our Asia strategy team points out news reports that some Chinese government agencies are planning on the assumption of USD/CNY at 8.0 for the end of 2016. This would be a 20% devaluation back to 2006 levels.Considering the major impact of the 3% devaluation this August, the implications for EEMEA would be profound. Asset prices of commodity exporters would again suffer the most, as they have done since 10 August. Potentially even more damaging would be risk of financial contagion throughout the global banking system.
Potentially profound impact on commodities and through banks channels The long-term CNY/commodity relation implies potentially significant further downside in such a scenario, though one should not go so far as to extrapolate from this August. The bad news: assuming the broad commodity indices follow CNY back to 2006 levels in USD terms, the downside could be 25% (Chart 1).
The other, and potentially more risky, channel of contagion to EEMEA could be the global banking system. Reassuringly, indicators of funding stress, such as the EUR/USD cross-currency basis, have not reacted to the recent volatility at all. However, surely a 25% devaluation in China would have a significant impact on global credit quality? If it did, capital inflows to all of EEMEA would be hit, and not to commodity exporters: Turkey depends on EU banks to fund its deficit, and CEE is closely tied to EU banks.
And now Goldman Sachs on what it means to have the Petrodollar scheme end i.e. the accumulation of USA dollar reserves in emerging markets and other countries has just ended and it will create havoc
(courtesy zero hedge)
What Declining Global Reserves Mean For Bond Yields: Goldman’s Take
Don’t look now, but suddenly, the dynamic we began warning about last November is the talk of the financial universe and it only took one earth-shattering currency devaluation and the liquidation of a few hundred billion in US paper in the space of just two weeks to wake everyone up.
We have, as Deutsche Bank put it on Tuesday, reached the end of the “Great Accumulation” as slumping Chinese growth, plunging crude, and an imminent Fed hike have put enormous pressure on emerging economies’ accumulated stash of FX reserves and that means that buyers of USD assets are becoming sellers at the expense of global liquidity and the perpetual bid for some core paper.
Of course this didn’t just happen in the last two weeks as (almost) everyone would have you believe. This began quite some time ago and the death of the petrodollar was in many ways the starting pistol for what Deutsche Bank has correctly identified as an epochal shift.
Well, for anyone who’s lost sleep wondering what Goldman thinks, you can relax, because the “smartest” guys in the room – whose former employee at the ECB will be watched closely this week for any possible response to the China turmoil – is out with their take, excerpts from which you can find below (note the multiple nods to the fact that this began with the dying petrodollar).
* * *
Falling FX Reserves and Rising Bond Yields: Some Macro Considerations
There is increasing focus among investors on the decline in FX reserves across Emerging Markets, and in China in particular, and the negative impact this could have on government bonds in general, and more specifically on US Treasuries.
We view such dynamics as part of an ongoing structural shift in international trade and capital flows which will interact with the increase in bond yields in the advanced economies embedded in our baseline forecasts. On balance, the decline in foreign official sector reserves represents a headwind for government bonds over the medium term.
When assessing the near-term impact on fixed income resulting from these forces, however, we would advise against following a narrow flow-of-funds approach, as the correlation between changes in official sector flows (which are available only with a lag) and changes in yields is unstable, and shifts in macro expectations ultimately tend to win the day.
In big picture terms, the rise in foreign FX reserves held by non-G-7 countries that started around 2003-04 (at around US$1trn) appears to have ended for good – particularly if our ‘new oil order’ template holds, keeping crude oil prices around current levels (at least for now, official FX reserves in the advanced economies are not being diversified into CNY to a materially relevant degree). Here are some key facts:
- Official sector FX reserves held by a broad set of countries outside the G-7 peaked about a year ago. Data compiled by the IMF suggests that, in Dollar terms and excluding gold, FX reserves fell from US$7.7trn in June 2014 to US$7.1trn in June 2015 – the last data point available. The reduction has been led by China (which accounts for just over half of the total amount of FX reserves quoted here and has seen a fall of US$300bn over this period) followed by the group of oil-exporters such as Russia (-US$120bn), Saudi Arabia (-US$67bn) and Malaysia (-US$26bn).
- The decline in FX reserves reflects primarily lower accumulation of hard currency from the current account channel, related to the fall in commodity prices and shifts in relative competitiveness across regions. The depletion of FX reserves stemming from the capital account side in countries that have resisted exchange rate depreciation is a more recent phenomenon. China is among this latter set of countries, and the scale of the outflows has attracted much attention. In the first 6 months of the year, China has lost on average US$10bn reserves per month, in spite of an average monthly US$25bn addition in reserves from the current account side. In July-August, concomittant with the unexpected shift in the FX management policy, the decline in FX reserves could be well north of US$100bn, although there is considerable uncertainty around these numbers.
- Although there has been a large currency diversification of FX reserve pools, especially since the Financial Crisis, the lion’s share of official reserve assets is held in US Dollars. In the case of China, we estimate that around two-thirds of the PBoC’s reported US$3.5trn reserves are held in Dollar-denominated cash and fixed income (mostly Treasury and Agency securities, with an average duration of around 5-6 years). This split between Dollar holdings and other currencies is representative for other central banks across Asia and the Middle East, although duration is in the aggregate lower. Central bank reserves held in EUR are largely invested in ‘core markets’ (e.g., Germany and France). So it is broadly correct to assume that a decline in FX reserves will affect proportionally more Dollar-denominated fixed income.
- To the extent that the FX reserve decline is the counterpart to capital outflows, a relevant question in this context is where these private sector funds are heading. If the answer is back into Dollar fixed income securities, the impact on the pricing of the latter would be at least partly neutralized. If it is hard to say what assets central banks are selling to accommodate the demand for hard currency, it is even harder to tell where the Dollars now held in private hands are being invested. It seems reasonable to assume that, in the short term, central banks would first sell cash-proxies, and new private sector holders of Dollars park them in fixed income instruments. Over time, however, the risk preference of the private sector is likely to be higher than that of the central banks, and the privately held Dollars would find their way into riskier assets (real estate and securities, held directly or through intermediaries), resulting in a gradual transformation of EM claims against advanced economies (e.g., the PBoC holds fewer Treasuries, the Chinese private sector more foreign risky assets).
Bonds’ macro underpinnings may shift further: The fall in FX reserves in China and in commodity exporting economies has occurred together with a shift in expectations on global growth and commodity prices. Since the start of this year, our colleagues have downgraded 2017-2018 US real growth by a cumulative 75bp to just over 2%, and the corresponding Chinese numbers have also come down by 50bp to just below 6%. At the same time, primarily reflecting supply-side considerations, our medium-term commodity projections have fallen over the past quarters. These shifts are not inconsequential for the fixed income market outlook. We have argued that, among asset classes, government bonds are already discounting a very depressed trajectory for real forward rates, and offer little risk premium. This, rather than lower central bank buying, is why we forecast poor returns. But a bigger slowdown in China, or an even larger fall in oil prices – of which larger capital outflows and FX reserve depletion could be a symptom – would likely be associated with deeper revisions in prospective nominal growth in the developed world. This would lower our sights for bond yields, not lift them.
(courtesy zero hedge)
In Dramatic Escalation, China Sends Five Navy Ships Off Alaska Coast For First Time Ever
Just as China celebrates the 70th anniversary of the end of World War II with an extravagant parade designed to showcase the country’s military prowess and project Xi Jinping’s power to nervous onlookers in the West, the Pentagon says it has spotted five Chinese Navy ships in the Bering Sea, just off the coast of Alaska.
Five Chinese navy ships are currently operating in the Bering Sea, off the coast of Alaska, the first time the U.S. military has seen such activity in the area, Pentagon officials said Wednesday.
The officials said they have been aware in recent days that three Chinese combat ships, a replenishment vessel and an amphibious ship were in the vicinity after observing them moving toward the Aleutian Islands, which are split between U.S. and Russian control.
They said the Chinese ships were still in the area, but declined to specify when the vessels were first spotted or how far they were from the coast of Alaska.
The Pentagon official said there were a “variety of opinions” on how to interpret the Chinese ships’ deployment.
“It’s difficult to tell exactly, but it indicates some interest in the Arctic region,” the official said. “It’s different.”
“Different” indeed, as in “uprecedented”, and while we won’t endeavor to jump to conclusions, we would note that the PLA hasn’t exactly been shy when it comes to challenging the US from a maritime perspective of late and of course, the US has had its ships and carriers to the east and south of China for decades, so it would appear that Xi is intent on giving Washington a taste of its own medicine.
But don’t worry, the Commander in Chief is on the scene – literally.
Finally, what better diversion from its crashing stock market on its national military holiday than for China to invade the US?
Deutsche bank provides reassuring words to us:
(courtesy Deutsche bank/Jim Reid/zero hedge)
“The Biggest Problems We Face Is That We’re All Flying Blind To A Large Degree” Warns Deutsche Bank
or everyone confused about the current state of the global financial situation, you are not alone. To help, here is DB’s Jim Reid with a pretty good summary of where we all currently stand.
From DB’s Jim Reid
One of the biggest problems we face is that there is no historical template for current global market conditions so we’re all flying blind to a large degree. Never before have so many of the most important countries in the world printed so much money and left base rates at near zero for so long.Also never before has the largest economy in the world tried to start a slow process of reversing said extraordinary policy. So there is no road map for this journey, only educated (hopefully) predictions.
We continue to be bullish Euro and GBP credit mostly due to the fact that the global financial system is so fragile and the global economy so lethargic and asset prices generally so high (with exceptions) that it near forces central banks into a continuation of exceptionally easy monetary conditions. So we don’t think this high liquidity era is over yet. Given the recent widening, in the three main currency blocks, only EUR BBBs have been tighter (just) than current levels for more than half the time through history.
So we still think very easy money is still going to be the dominant theme in financial markets. However our FX colleagues wrote an interesting report yesterday exploring their recent QT (quantitative tightening) theme. They think 2015 will mark the peak in global FX reserve accumulation following two decades of ‘unremitting growth’. This is due to three cyclical drivers: China’s economic slowdown, impending US monetary tightening, and the collapse in the oil price.
They would argue that the implications of their 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. There are counter forces in the opposite direction (eg European current account surpluses and QE) but they’d argue that there is a change in the secular trend.
Our thoughts are that this will require the need for ever looser policy from Western nations to offset this impact. We’re also still not sure the US will be able to tighten much in this cycle given all that’s going on globally.
Putin Targets US Monetary System: “Aims To Eliminate US Dollar From Trade”
Something is afoot as de-dollarization escalates around the world. With CNY/RUB trading volumes up a stunning 400% year-over-year to record highs, and hot on the heels of China’s (and much of EM Asia) dumping dollar assets, Russian President Vladimir Putin has just unleashed a new bill aiming to completely eliminate the US dollar from the trade of goods.
As Putin explained last year… trade in Rubles and Yuan will weaken the dollar’s influence…
And it appears to be happening….
CNY/RUB volume rose 4 times y/y to 18.4b yuan (193.3b rubles), highest since trading started at end-2010, Moscow Exchange says in statement on website.
Record daily trading was on Aug. 24 at 1.95b yuan
As SHTFPlan.com’s Mac Slavo details, last year Russia began unloading massive amounts of their US dollar reserves. In the month of December 2014 alone Putin sold some 20% of the country’s U.S. Treasurys, a move that further increased tensions surrounding what can only be described as economic warfare between East and West.
Then, as if part of a coordinated effort, this summer it was revealed that China had implemented a similar strategy, dumping half a trillion in dollar denominated assets.
But that’s just the beginning of the end for the US dollar. Amid a major meltdown in Chinese stock markets the People’s Republic sold off billions in dollar assets last week in what was reported to be an effort to stabilize their collapsing financial markets.
And now, as Russia’s economy collapses under the weight of American and European sanctions, including what many believe to be widespread downward manipulation of oil prices, Vladimir Putin is sending a clear signal to the central bank of the world’s reserve currency.
A new bill drafted by the President of the Russian Federation aims to completely eliminate the US dollar from the trade of goods:
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.
The implications for such a move, though not necessarily immediate, are serious over the long-term. That China and Russia are now overtly divesting themselves of U.S. dollar assets signals a significant paradigm shift in global trade.
The dollar may be strong today as panicked global investors rush to the perceived safety of the US Treasury assets. But as the Federal Reserve is left with no choice but to print trillions more to keep financial markets from ruin, the creditors who usually buy those assets are drying up.
There will come a breaking point in the near future, and when that day comes we will see the largest monetary collapse in the history of the world.
When the collapse of the dollar occurs, it will literally and figuratively come like a thief in the night, and I do mean overnight!
We are all familiar with the concept of inflation, which is the intentional byproduct of the Federal Reserve. But I am not just talking inflation, I’m speaking about hyperinflation which is caused by the collapse of the value of the currency resulting in runaway prices. Here are three examples of how quickly a currency collapse can occur when a nation’s money when its money no longer holds it value:
1. In Weimar Germany, from 1922 – 1923, prices doubled every three days.
2. In the modern era, in Yugoslavia from 1992-94, witnessed prices doubling every 34 hours.
3. In Zimbabwe, in the two year period from 2007 – 2008, prices doubled every 25 hours.
History is replete with examples of currency collapses and they typically follow very predictable patterns in which a nation unravels and social chaos, and many times, widespread violence and even genocide becomes part of the national landscape.
And though such things could never happen in the “developed” world, we urge our readers to consider the reality of a scenario that involves a break down of the US dollar. We direct your attention to Venezuela, where we can see what a total system collapse looks like in real-time:
With 30% of Venzuelans eating two or fewer meals per day, social unrest is mounting rapidly in President Nicolas Maduro’s socialist utopia. As WSJ reports,soldiers have now been deployed to stem rampant food smuggling and price speculation, which Maduro blames for triple-digit inflation and scarcity. “Due to the shortage of food… the desperation is enormous,” local opposition politician Andres Camejo said, and nowhere is that more evident than the trampling death of an 80-year-old woman outside a state-subsidized supermarket.
In such a scenario we can fully expect that our regular systems of commerce will break down to the point that essential goods like food, gas and other critical supplies become unattainable to the masses at almost any price.
Tess Pennington, author of The Prepper’s Blueprint, explains what happens within three to five days of the reality of the monetary disaster setting in:
Have you ever heard the saying, “We’re three days away from anarchy?” In the wake of a disaster, that’s all you have is three days to turn the crazy train around before crime, looting and chaos ensue. In reports during the aftermath of hurricane Sandy, residents from Staten Island were pleading for help from elected officials, begging for gasoline, food and clothing.
Multiple factors contribute to societal breakdowns including failure of adequate government response, population density, citizens taking advantage of the grid being down and overwhelmed emergency response teams.
The 3-5 days following a disaster is the bewitching hour. During this short amount of time, the population slowly becomes a powder keg full of angry, desperate citizens. A good example is the chaos that ensued in New Orleans following the absence of action from the local government or a timely effective federal response in the aftermath of Hurricane Katrina. In such troubled times, people were forced to fend for themselves and their families, by any means necessary. This timeline of Hurricane Katrina effectively illustrates “the breakdown,” and within three days, the citizens of New Orleans descended into anarchy, looting and murder .
Source: Anatomy of a Breakdown
It’s difficult to imagine a sustained breakdown across America. But make no mistake, should the US dollar every come under attack, and it appears that the opening salvos have already been fired by Russia and China, then life as we have come to know it in America will come to a drastic and near immediate halt.
Here’s How High Oil Prices Must Climb To Stop Saudi Arabia’s Budget Bleed
Last week, we showed how long Saudi Arabia’s stash of USD reserves will last under $30, $40, and $50 crude.
As we’ve detailed exhaustively, the country is staring down a current account-fiscal account outcome that makes Brazil look favorable by comparison. The fiscal budget deficit is projected at some 20% of GDP and two proxy wars combined with the necessity of maintaining the status quo for ordinary Saudis mean fiscal retrenchment is a tall order – even with the help of “advisers.”
Meanwhile, Saudi stocks just fell 17% in a month.
So how high, you might ask, do oil prices need to climb in order for Saudi to plug the gap? Here’s Deutsche Bank with the answer.
As you can see, there’s a long, long way to go, and between the pain from lower crude and from maintaining the riyal peg (which we’ve discussed at length), expect the petrodollar reserve bleed to continue. Here’s some color from DB:
The impact of oil prices on global central bank reserves is even greater than estimated by our model, due to the omission of Middle Eastern SWF holdings. In practice, low oil prices trigger reserve depletion through two channels. First, reserves are used to plug fiscal deficits. The Saudi government deficit, for instance, is to reach 20% of GDP this year. Second, a number of the largest oil exporters in the Middle East, notably Saudi Arabia and the UAE, maintain dollar pegs that come under pressure with low oil export revenues, which are also unhelpfully correlated with a stronger broad dollar.
We expect Middle Eastern governments to continue to lose significant reserves in the coming months. Low oil prices are only one ingredient in the mix. The exacerbating factor is our economists’ prediction that the main dollar pegs in Saudi and the UAE will hold, albeit at considerable costs in terms of reserves.
If oil prices do recover in the medium term, pressure on the pegs would naturally diminish. Our economists note, however, that Saudi public spending has increased by about 10% a year over the past decade. This has lifted the oil price needed to balance the budget from $25/bbl in 2004 to $105/bbl (Figure 22).This may be reduced with government spending cuts. Yet it seems unlikely that the budget breakeven will fall back to levels seen in the 2000s. Unless oil prices rise to unprecedented levels, therefore, OPEC reserve accumulation is unlikely to return to the run rate of the past decade. The more realistic baseline is that, over time, OPEC countries will slowly burn reserves.
Meanwhile, In Sweden, Banks Are Refusing To Open Savings Accounts
Early in July, Sweden’s Riksbank proved its dedication to the post-crisis central bank mantra of “if it’s broken, break it some more” when, after becoming the first country to witness observable, indisputable evidence of QE’s failure, the central bank pushed rates further into negative territory and expanded QE.
The problem for Sweden, as we documented in “For The First Time Ever, QE Has Officially Failed”, is that QE had soaked up so much of the available high quality collateral that bond yields and the krona were moving in the wrong direction (i.e. higher) meaning that more QE would only exacerbate the situation, leading to still higher yields and a stronger currency. Incidentally, to avoid distorting the market even further, Morgan Stanley thinks the Riksbank may have to resort to mortgage bonds in the not-so-distant future.
Of course as we’ve seen, things can always get NIRP-er-er in the new paranormal which is why the market is pricing in a 50% chance of more easing from the Riksbank at tomorrow’s meeting.
The problem is that if you go NIRP and still are not able to achieve the kind of economic outcomes you were looking for by essentially forcing depositors to choose between a tax on their savings and pulling money out and spending it, well then the next logical thing to do is to stop accepting deposits, which is apparently what it’s come to in Sweden. Here’s more from Radio Sweeden:
Richard Landén from Helsingborg, southwest Sweden, tried to open a simple savings account at Swedbank. But the bank wanted him to move over his entire account, including his monthly salary deposits and any savings he had.
“You have to be an complete customer, they said. It’s either that or nothing at all, apparently,” Landén told Swedish Radio News.
Swedbank declined to comment on the case.
Sweden’s central bank has cut its key interest rate, the repo rate, to -0.35 percent, meaning making a profit on savings alone has become nearly impossible. The central bank will announce its next interest rate decision on Thursday.
Exactly how many people have been denied opening a savings account is hard to say. But savings advisor Claes Hemberg at Avanza Bank thinks it’s a new trend. Several customers have been in touch with him about it
“Yes, savers get in touch and ask: ‘Can the bank refuse me?'” he said.
“I think it’s pretty bad style. At the same time, I have been a customer there before five years ago and has been very well treated. In this case, it was quite the contrary. It was a strange attitude from the beginning, I think,” says Landen.
According to Swedish law, barring any extenuating circumstances like suspected money laundering or large debts, banks are not allowed to deny anyone from opening an account.
But deny they apparently will, because “simple” (i.e. probably small) savings accounts are nothing but a cost center, money-losing hassle and because anyone looking to open such an account isn’t likely to be an individual with vast economic resources (i.e. is likely to be middle income at best), and because those types of people have a far higher propensity to spend what’s in their pocket (see chart below) shutting them out kills two birds with one humiliating denial stone by alleviating the bank of the aggravation of servicing their accounts and by refusing to allow people to save, thereby effectively forcing the issue in terms of M2 velocity.
So in other words Mr. Landén from Helsingborg, either give the bank enough of your business to matter or else go do your patriotic duty and spend whatever you had planned to save. The Riksbank will thank you for it.
Just When You Thought It Couldn’t Get Worse For Brazil…
Brazil’s economy is incredible.
Just when you’re sure – and we mean sure – that it can’t possibly get any worse, or at least not materially worse in the very short-term, something else happens to further underscore the deep, dark economic malaise plaguing one of the world’s most important emerging markets.
So after last Friday’s GDP print which confirmed that the country slid into recession during Q2 – a quarter in which Brazilians suffered through the worst inflation-growth outcome in at least a decade – and after July’s budget data which confirmed that the country’s fiscal situation is, as Citi put it, “a bloody terror film,” we got a look at industrial production today and boy, oh boy was it bad. So bad in fact, that it missed even the lowest analyst expectations.
Here are some key excerpts from Goldman’s breakdown:
Sharp Decline in Industrial Production in July
IP contracted by a much larger than expected -1.5% mom sa (-8.9% yoy) in July (vs. the -0.1% mom sa market consensus). Furthermore, the June print was revised down to -0.9% mom sa from the original -0.3% mom sa. During the last nine months industrial production declined at an average monthly rate of -0.9% mom sa. Of the 24 main industrial segments, 14 recorded a contraction of output in July.
IP declined 8.9% yoy in July, with the largest decline recorded in capital goods -27.8%. Overall, IP declined 6.6% yoy during January-July 2015.
IP has now contracted for eight consecutive quarters and is likely to decline again during 3Q2015.
In July, IP was 14.1% below the peak level registered in June 2013 and was at the same level as March-April 2006.
The industrial sector (which has been reducing headcount) contracted 1.1% in 2014 and we expect it to contract at a much higher rate in 2015 as it continues to face strong headwinds from high levels of inventories, record low confidence indicators, a high and rising tax burden, rising energy costs, and weak external demand (particularly from Argentina for durable goods).
Meanwhile, exports cratered 24% and critically, it wasn’t all because of lower commodity prices.
CDS now at six-year wides…
Back in March of last year, when previewing the events that have rocked the world over the past month (because nobody, nobody could have possibly anticipated the Chinese economic crash and the concurrent commodity tumble which are just two sides of the same bursting credit bubble coin) we wrote “Is This The Cheapest (And Most Levered) Way To Play The Chinese Credit-Commodity Crunch?”
We were referring to Glencore credit default swaps (i.e., default risk), which trading at just over 150 bps, were, from an upside/downside and every other perspective, the cheapest, most levered and most attractive risk bet to trade the upcoming Chinese/commodity crash as a result of Glencore massive exposure to the price of copper, which in its own words stood to lose over $1 billion in EBIT for every 10% move in the price of copper …
… a sensitivity few had realized.
Fast forward to two weeks ago when the same day the Fed leaked its FOMC minutes and in the process unleashed the recent market correction, we wrote “The Next Leg Of The Commodity Carnage: Attention Shifts To Traders – Glencore Crashes, Noble Default Risk Soars” and finally, well over a year after we first introduced Glencore as the fulcrum anti-China trade, the investing public finally started to notice.
When we wrote our Glencore update on August 19 , GLEN CDS had soared from its baseline level of about 150 bps to north of 300bps, even as the stock kept sliding as show in the chart below.
In the past two weeks things for Glencore have gone from bad to worse, and as of today, the stock closed at an all time low of just 122.8p, dropping another 8%, following a 10% drop the previous day – the worst two-day drop in the stock price since going public – and taking its all time loss since its 2011 IPO to a whopping 75%!
Why the drop? Yesterday Bank of America released a report looking at global miners in attempting to answer the question whether “the miners are cheap enough yet”, in which it posed the question how much new equity do miners needs. Its answer: $50 billion now (up to) $60 bn. It added that, “as in April, we believe early “recappers” could be rewarded with less dilution, premium market ratings and possibly a “license” to undertake M&A.”
That’s for the industry in total, what about just Glencore? BofA looked at several scenario, most notably the “baby bear” (in which commodities and currencies dropped another 20%) and a “doom and gloom” (a 33% drop) and said that “Glencore has limited equity value in our “Doom and Gloom” scenario. We think this is consistent given 1) fairly high financial leverage and 2) some assets are not particularly low cost. For us, this confirms what most investors already know about GLEN, it is something of a “bull call” on commodity markets.”
BofA adds that Glencore, which has $30 billion in net debt on $9 billion of EBITDA, has a $12 billion capital shortfall if the company were to hit a target 2.0x leverage, and just over $3 billion if the leverage was stretched to 3.0x.
Putting these numbers in context, BofA estimated that Glencore has 25% downside to the base case and 64% downside to the “Baby bear” scenario. Under the “doom and gloom” case Glencore would go bankrupt.
The end result of all these considerations is what equity investors, realizing that the overlevered company would have to issue a lot of stock just to preserve equity value – it is questionable whether and at what price it could pull this off – decided to sell first, and ask questions later, pushing the stock down by nearly 20% in the past 2 trading days.
And while an equity offering would be perfectly expected given the company’s financial and cash flow plight, what is extremely confusing is that earlier today Glencore announced that instead of shoring up capital, it would partwith some $350 million in much needed capital announcing it would pay back $350 million of perpetual bonds next month, “showing the company has cash to pay debt as it battles a commodity price slump and a slowdown in China” according to Bloomberg. “The commodity trader and miner headed by billionaire Ivan Glasenberg, will redeem the 7.5 percent securities on Oct. 6, the earliest date possible, it said in a statement to the Luxembourg stock exchange. The notes will then be canceled, it said.”
“It’s a little signal from management that Glencore is comfortable with the cash profile it has despite everything that’s going on,” said Rick Mattila, head of strategy and research at Mitsubishi UFJ Securities International Plc in London. The company doesn’t “feel the need to leave this outstanding, and save themselves $350 million of liquidity.”
Management may be comfortable, but shareholders certainly weren’t, the result being Glencore’s stock hitting fresh all time lows. And, not unexpectedly, neither were bondholders, because as a result of the cash outflow there was net selling across the entire capital structure, with CDS pushed another 18 bps wider just why of 400 bps.
Which, incidentally, remains the best way to trade a company which still remains largely misunderstood, because at its hear, Glencore’s problem is not a capital structure one, nor even a purely debt one (although debt is certainly a major concern), but one of cash flow, or rather the collapse thereof, because should copper (and all other commodities) continue to trade at current subdued levels, the bigger question will be not whether GLEN can issue stock to keep itself viable, but how much the debt-to-equity exchange will have to be in the coming year, to cram down the stock and restructure the debt which is now longer feasible for the current contractionary global phase.
Which is why, while the stock may stage a violent rebound here purely on short selling, we remain convinced that GLEN CDS, which we loved at 150 bps, is still the way to trade not only the inevitable downfall of Glencore equity, but the Chinese and commodity crunch as well.
This can be seen especially when comparing just the recent violent move lower in the stock to the (still) relatively muted blow out in Glencore CDS.
Expect much more from not only this name, but from its peers Trafigura, Mercuria and of course, the company we are all keeping a very close eye on: Asia’s biggest commodity trade, Noble Group, profiled here previously.
Oil Triple Whammy: Inventory Build, Iran Nuke Deal Has Votes, & China Gives Venezuela $5 Billion Loan
Following last night’s epic inventory build., according to API, DOE has reported a 4.7mm barrel build but US crude production pluinged 1.4% (lowest since March). However, ths oil complexc has been hit by two other ‘issues’ this morning as Obama captures the votes he needs to confirm the Iran nuclear deal (guaranteeing more oil supply) and China encumbers more Venezuelan oil ($5bn loan) allowing them to keep pumping at below-cost levels. The reaction for now is notable selling pressure…
Inventory Builds most in 5 months…
The Obama administration will be jubilant this morning as it appears they have captured enough votes to confirm the Iran-nuclear deal…
- *OBAMA HAS ENOUGH U.S. SENATE SUPPORT TO UPHOLD IRAN DEAL
Sen. Barbara Mikulski, a Maryland Democrat, said Wednesday she supports the nuclear deal with Iran, giving the agreement enough votes to be upheld in the Senate. She becomes the 34th Democrat to back the deal, the magic number to sustain a veto.
Of course, that confirms the Iran oil supply is coming.
And then there is last night’s China-Venezuela “cash-for-oil” loan…
President Nicolas Maduro announced the signing of a special program w/ China for a $5b loan to increase oil production in coming months, according to a statement posted on the Venezuelan Information Ministry website.
Statement did not provide additional details on the loan
Loan agreement was signed by PDVSA president Eulogio del Pino and Venezuelan development bank Bandes president Simon Zerpa with the president of the China Development Bank, information ministry says in separate e-mailed statement
Which allows VENZ to keep producing at below cost.
* * *
The reaction to all this…
Even as production drops to six month lows…
Though we note that the majority of the production cut came from Alaska and no the Lower 48 (-100k vs -19k)
Euro/USA 1.1265 down .0030
USA/JAPAN YEN 120.06 up .348
GBP/USA 1.5279 down .0021
USA/CAN 1.3273 up .0020
Early this Monday morning in Europe, the Euro fell by 30 basis points, trading now well above the 1.12 level falling to 1.1265; 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 Asian bourses and today another Chinese currency revaluation northbound, Last night the Chinese yuan strengthened a huge .0166 basis points. The rate at closing last night: 6.3559 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 southbound trajectory as settled down again in Japan up by 35 basis points and trading now just above the 120 level to 120.04 yen to the dollar, sending a ramp for European bourses this morning.
The pound was down this morning by 21 basis points as it now trades well below the 1.53 level at 1.5279.
The Canadian dollar reversed course by falling 20 basis points to 1.3273 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 Wednesday morning: up by 70.29 or 0.39%
Trading from Europe and Asia:
1. Europe stocks mostly in the green/slightly
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 green: /Nikkei (Japan)red/India’s Sensex in the red/
Gold very early morning trading: $1139.20
Early Wednesday morning USA 10 year bond yield: 2.15% !!! down 1 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield lowers to 2.91 down 1 basis point. Officially we got the word that got China is selling treasuries like mad!
USA dollar index early Wednesday morning: 95.67 up 29 cents from Tuesday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3544 down .0181 ( Chinese yuan up 18 basis points/and again they must have sold a considerable amount of USA treasuries)
eVIXeration & Gartman Send Stocks Soaring “Back To Normal”
This seemed appropriate after last night’s BOJ and PBOC efforts and today’s oil idiocy…
And then this utter farce…a 1% surge in the S&P and 4 point crash in VIX in the last 30 minutes!!
So let’s start with stocks – which CNBC reflected on as “back to normal” with today’s 275 point rally in The Dow
Thank you very much-o, Mr. Kuroda… As the media began their pre-open jawboning this morning they had the backdrop of a triple-digit gain in The Dow to support any and every bullish – everything’s fine – mantra – all thanks to a 120 point rip the moment Japan opened… Until the l;ast 30 minute spanic buying onmthe back of VIX clubbing, stocks went nowhere…
But of course, no one cares – its tonight’s news headlines that count – and Trannies are up 2% as
But on the week, it all remains red…
Which dragged Nasdaq barely into the green year-to-date!
Do not get too excited…
VIX dropped 15% today – its biggest drop in almost 2 months
We note VIX was crushed around the market break mid-afternoon and VXX was presured to the lows of the day (first non-short-squeeze in a few days…)
After Europe closed, HY bonds were not loving it…
Bonds were battered again during the US session leaving 30Y 6bps higher on the week (even as stocks remain well red)…
but we note the collapse on 2Y swap spreads (and 5Y) continues…
The US Dollar drifted higher on the day but remains lower on the week – notably quiet day in FX markets (especiallyJPY anchored at 120)…
Gold was modestkly weaker but silver jumped. Crude and Copper were joined at the hip in this morning’s melt-up…
Silver was an illiquid mess….
So let’s just have a look at the day in Crude!!! (just like yesterday we ripped into the NYMEX close then faded)…
With China closed for the rest of Parade Week, we wonder what market gets monkeyhammered tonight? (Don’t forget FTSE A50 Futures trade in Signapore 😉
(courtesy zero hedge)
With China’s Markets Closed For 2 Days, The “National Team” Comes To America
Following China’s adoption of Nasdaq surveillance technology (to catch those malicious sellers), it appears ‘Murica decided to borrow The National Team for the last 30 minutes of the day today…
We need stock higher… so dump VIX, ramp AAPL, and all is well…
As AAPL vol was crushed… a 5 vol crash in the last 30 minutes!
And all to get The Nasdaq Green for 2015…
Manipulation – it’s not just for the Chinese!!
Not only has volatility ramped up and several NYSE Rule 48’s issued over the past week, but now the ETFs are broken. I’ll have more to say about this in a future post but Bank of New York, which is the custodian for a large number of ETFs, has not issued an updated price for any of its ETFs for a week. And today the VIX ETFs were behaving like apes on LSD: VIX ETFs Are In Crisis Mode
The Fed’s points of interventions have become more obvious by the day and it’s becoming more obvious that the Fed’s ability to prop up the stock market is losing traction:
Either the massive stock market bubble is finally bursting or the Plunge Protection Team is letting the stock market drop so they can blame their decision to defer raising interest rates again in two weeks on China.
Some of the stock bubble angels have fared better than the S&P 500, but that will soon change, as many of them have a high beta vs. the SPX, meaning that they move a lot more in either direction than the overall market. My favorite “bubble angel” is Amazon.com – click to enlarge:
AMZN gapped up at the end of July on its aggressively promoted Q2 earnings report. It trended sideways for several days and filled that gap on last weeks stock market sell-off. It bounced, along with the SPX when the Fed pumped the market back up and it has rolled back over the last two trading days. So it filled that break-away gap from the end of July, bounced and has re-filled that gap.
The SPX has already crashed through its 50 and 200 day moving averages, now it’s AMZN’s turn. If the stock market continues to slide, the selling in AMZN will accelerate. Assuming the Fed’s continued attempts to prop up the stock market fails, AMZN will quickly shed another 100 pts down to its 200 dma.
My report on AMZN shows in fine detail why the Company’s Q2 earnings were a literal joke. AMZN trades at 45x EBITDA and 323,699x operating income. To say that AMZN is “overvalued” is an extreme insult to the term “overvalued.” The hedge fund community is loaded up on AMZN. They will be looking for “bagholders” to whom they can unload blocks of AMZN. The Swiss National Bank does not own any AMZN, amazingly, so I’m guessing they’ll pass on being a stool pigeon for the hedge funds.
You can read why AMZN is insanely overvalued in my AMAZON dot CON report. Several readers of this report have already made several hundred percent gains from buying puts. My report has a section devoted to capital management and options strategies, if you are not comfortable shorting stock outright.
ADP Misses Again, Drops YoY For 7th Month In A Row
Following its disapppointing tumble in July (having missed expectations for 6 of the last 7 months), August ADP printed another miss at 190k against expectations of a 200k rise with last month revised lower. As the energy sectyoir continues to bleed jobs at a rate of 10k per month, ADP’s Zandi notes that manufacturing jobs growth is all auto-related (which is extremely worrying given the size of inventories). Job groiwth was largely driven by small businesses (85k) as opposed to large business (40k) with Service-producing goods drastically outpacing manufacturing job growth (173k to 17k). Perhaps most notably, ADP jobs data has dropped YoY for the last months
Not exactly escape velocity…
But the year over year data is ugly…
Change By Selected Industry
The full breakdown:
The breakdown by job type:
- Goods-producing employment rose by 17,000 jobs in August, more than double the 7,000 gained in July. The construction industry added 17,000 jobs in August, up from 15,000 last month. Meanwhile, manufacturing added 7,000 jobs in August, after gaining only 1,000 in July.
- Service-providing employment rose by 173,000 jobs in August, up slightly from 170,000 in July. The ADP National Employment Report indicates that professional/business services contributed 29,000 jobs in August, up 3,000 from July. Trade/transportation/utilities grew by 28,000, down from 34,000 the previous month. The 13,000 new jobs added in financial activities was a gain from last month’s 10,000.
Mark Zandi, chief economist of Moody’s Analytics, said,
“Recent global financial market turmoil has not slowed the U.S. job market, at least not yet. Job growth remains strong and broad-based, except in the energy industry, which continues to shed jobs. Large companies also remain more cautious in their hiring than smaller ones.”
http://www.adpemploymentreport.com/2015/August/NER/images/infographic/ma…” width=”598″ />Charts: Bloomberg
Wage Growth Meme Destroyed – Unit Labor Costs Tumble At Fastest Pace In A Year
Unit Labor Costs dropped 1.4% in Q2, missing expectations of a 1.2% drop and falling to the lowest since Q2 2014. Despite all the sound and fury and wage growth looming any minute now… it is not! This is the first consecutive drop in unit labor costs since Q4 2008.
US Recession Looms As Factory Orders Plunge 9th Month In A Row
US Manufacturers saw new orders rise at a modest 0.4% in July (missing expectations of a 0.9%). However, year-over-year Factory Orders crashed 14.7% (thanks in large part to last year’s Boeing order dropping out of the cycle). But even ex-Transports, New orders tumbled 0.6% in July and plunged 6.9% YoY. This is the 9th month in a row of YoY drops and is without doubt signalling an imminent US recession.
The breakdown as summarized by MNI: “The value of new factory orders rose 0.4% in July, below the 0.7% increase expected in an MNI survey due to a sharp 1.3% drop in nondurables orders, data released by the Commerce Department Wednesday morning showed.”
Total factory orders excluding transportation were down 0.6% in July on the decline in nondurable goods orders that more than offset a 0.4% increase for durables orders outside of transportation. The nontransportation durables reading was a downward revision from the 0.6% gain in the advance estimate.
Once again, it’s all about autos (subprime loans), and war: Transportation orders themselves were revised sharply higher to a 5.5% jump in July from the originally reported 4.7% rise; motor vehicles orders are now reported up 4.0%, while nondefense aircraft orders are reported down 6.1% and defense aircraft orders fell 13.1%. Orders for ships and boats were up 19.5%.”
Headline Factory orders collapse.
and even adjusting out Boeing’s huge order, it is a bloodbath.
Weather? Ports? What can ‘they’ blame this on? Doesn’t matter – full steam ahead with the rate hike!
Fed’s Beige Book Says Economy Expanded Across Most RegionsJeanna Smialek/Bloomberg
September 2, 2015 — 2:03 PM EDT
The U.S. economy expanded across most regions and industries in July and August, a Federal Reserve report showed.
Six of 12 Fed districts reported “moderate” growth, and five others said expansion was “modest,” according to the Beige Book, released Wednesday in Washington. The survey is based on reports gathered on or before Aug. 24 by regional Fed banks.
The report gives central bank officials, who next meet Sept. 16-17, an anecdotal picture of growth as they consider ending more than six years of near-zero interest rates. The U.S. economy expanded at a 3.7 percent annualized rate in the second quarter, an Aug. 27 report showed, and employment has been rising at a steady clip. Officials will gain an additional month of labor data when August figures are released Friday in Washington.
While domestic economic data have been strong, global equity markets have been volatile in recent weeks, and weaker Chinese growth is clouding the international outlook. China surprised investors on Aug. 11 by devaluing the yuan and aligning its exchange-rate policy more with market forces, stoking speculation that the world’s second-largest economy may be slowing more than expected.