Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1102.80 up $4.90 (comex closing time)
Silver $14.32 down 4 cents.
In the access market 5:15 pm
There are two major developments that we should be cognizant of:
- the huge removal of gold from the comex
- the rise in the TED spread (3 month interest rate charged to banks/3 month treasuries). A continual rise means banks are not trusting one another again. The last time this happened was in 2008.
First, here is an outline of what will be discussed tonight:
At the gold comex today we had a poor delivery day, registering 0 notices for nil ounces Silver saw 5 notices for 25,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 214.39 tonnes for a loss of 89 tonnes over that period.
In silver, the open interest rose by 1677 contracts despite the fact that silver was down in price by 13 cents yesterday. Again, our banker friends tried to use the opportunity to cover as many silver shorts as they could and failed. The total silver OI now rests at 157,373 contracts In ounces, the OI is still represented by .787 billion oz or 112% of annual global silver production (ex Russia ex China).
In silver we had 13 notices served upon for 65,000 oz.
In gold, the total comex gold OI fell to 411,141 for a loss of 885 contracts. We had 0 notices filed for nil oz today.
We had no changes in tonnage at the GLD, thus the inventory rests tonight at 678.18 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. In silver, we had no change in silver inventory at the SLV/Inventory rests at 320.915 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rose by 1677 contracts up to 157,375 despite the fact that silver was down by 13 cents in price with respect to yesterday’s trading. The total OI for gold fell by 885 contracts to 411,141 contracts, despite the fact that gold was up by $4.40 yesterday.
2.Gold trading overnight, Goldcore
3.China opens for trading: Last night 9:30 pm EST/9:30 am Shanghai time (zero hedge)
4. Chinese stocks drop considerably on poor data. The USA/JPY ramps up last night as speculators guess that the Bank of Japan will engage in more QE
5 USA/JPY ramps down when the B. of J governor states no more QE/ It is now up to the USA to ramp the USA/JPY which they did at 8 am
6.Refugee crisis deepens as Hungary arrest people and Germany blocks their passage
7. North Korean leader Kim Il un making noise again.
8. A Panicky Brazil does a 180 degree turn and initiates austerity; proposes raising taxes and cutting workers to save money
9.Oil related stories: 3 commentaries/zero hedge/Berman
10. USA stories/Trading of equities NY
i) Industrial production disappoints
ii) Empire (New York) manufacturing index falters badly
iii retail sales terribly disappoints
iv Business inventories constant and yet retail sales decline. Thus inventory/sales remains stubbornly high indicating trouble ahead.
v) Hewlett Packward fires 10,000 employees. Business must be good.
11. Physical stories:
i) Reg Howe delivers his first commentary in 4 years:
ii)Dave Kranzler on the fraudulent data at the comex and how analysis is worthless to do
iii The crooked JPMorgan is calling the bottom for the mining stocks. They have been decimated by the antics of the banks
iv Bill Holter’s paper tonight is titled: ”
The Ravages of War…the only way to win is not to play the game!”
and well as other commentaries…
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||157,105.843 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||32,150.150 oz
|No of oz served (contracts) today||0 contracts
|No of oz to be served (notices)||107 contracts (10,700 oz)|
|Total monthly oz gold served (contracts) so far this month||20 contracts
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||365,819.0 oz|
Total customer deposit: 32,150.000 oz
JPMorgan has only 0.3350 tonnes left in its registered or dealer inventory. (10,777.29 oz) and only 874,018.71 oz in its customer (eligible) account or 27.18 tonnes
September silver initial standings
September 15 2015:
|Withdrawals from Dealers Inventory||603,500.075 CNT|
|Withdrawals from Customer Inventory|| 141,913.300oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,196,070.550 JPMorgan, CNT|
|No of oz served (contracts)||5 contracts (25,000 oz)|
|No of oz to be served (notices)||440 contracts (2,200,000 oz)|
|Total monthly oz silver served (contracts)||1038 contracts (5,190,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||603,500.075 oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||15,386,906.4 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 1,196,070.55,oz
total withdrawals from customer: 141,913.300 oz
And now SLV:
Sept 15./no change in inventory at the SLV/rests tonight at 320.915 million oz
Sept 14./we had another withdrawal of 1.145 million oz from the SLV/Inventory rests at 320.915 million oz
Sept 11.2015: no changes in silver inventory at the SLV/inventory rests at 322.06 million oz
Sept 10.2015: we had no changes in silver inventory at the SLV/rests tonight at 322.06 million oz
we had another huge withdrawal of 1.336 million oz of silver from the vaults of the SLV/Inventory rests at 322.06 million oz
Sept 8/we had a huge withdrawal of 1.524 million oz of silver from the SLV/Inventory rests tonight at 323.396 million oz.
Sept 4.2015:no changes in inventory at the SLV/rests tonight at 324.923 million oz
sept 3/we had a small withdrawal of 140,000 oz of silver from the SLV/Inventory rests at 324.923 million oz
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
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. * * * * *
“That is real gold. The alternative is paper gold…other people’s promises.”
One of the best interviews we have seen about gold in recent weeks took place last week. It was a Bloomberg interview which involved Peter Hambro being interviewed by Francine Lacqua and Manus Cranny on Bloomberg Television’s “The Pulse.”
Some of the great quotations from this refreshing interview include:
- “I believe it [gold] is [still the safe haven]… [This gold coin] 2000 years ago buys the same amount of bread today as it did when Jesus Christ was born. That is a real safe haven asset…
- “That is real gold. The alternative is paper gold…other people’s promises. That is nobody’s promise. This is real. You can feel the weight of it. It’s lovely… “
- “It’s virtually impossible to get physical gold in London to ship to China and India.”
- “Are you sure it’s as good to have Comex futures as it is to have the real thing?”
- “The price of gold doesn’t vary, it’s the price of the promises that vary.”
- “There is no physical about. Instead, there are endless promises.”
- “I really worry that that paper market is something that could be stamped upon and people say ‘sorry, we’re going to have a financial closeout’ and it’s all over. If you want to be in the gold business, you want to be in the physical business.”
- “Gold is what I call wealth insurance. You have health insurance, fire insurance – this is wealth insurance…
- “The promises are the things that vary. Are you sure it’s as good to have Comex futures as it is to have the real thing? In the Shanghai market, which is the only big physical market, recently introduced by the Chinese – year on year, they delivered 55 million ounces from August to August. That’s 65 billion dollars worth of physical gold. That is about half of the world’s mine supply. When you add to that the gold that’s being bought by the People’s Bank of China… Chinese demand… What the Chinese have done for their people by encouraging them to buy gold, then devaluing their currency, is fantastic…”
Hambro was a bullion dealer with Mocatta & Goldsmid and from comes from a wealthy line of Anglo-Danish merchant bankers. Today he is Chairman and Co-Founder of Petropavlovsk, the second-biggest gold producer in Russia. Hambro knows more about gold than most in the industry and has that all important historical perspective.
The interview is well worth a watch and can be seen here.
Today’s Gold Prices: USD 1105.50, EUR 977.11 and GBP 716.49 per ounce.
Friday’s Gold Prices: USD 1108.00, EUR 977.98 and GBP 716.97 per ounce.
Gold had a marginal gain of 80 cents while silver fell 19 cents, or 1.3%, to $14.44 an ounce on the COMEX yesterday. Gold was marginally lower in gold trading in Singapore and fell a further $2 in European trading.
Gold in USD – 10 Years
Silver bullion is underperforming and is down 0.6%, platinum’s down 0.2%, and palladium’s down 0.3% after ending yesterday down over 1%.
All the focus is on the Federal Reserve ‘will they or won’t they’ increase interest rates by a small 25 basis points. The Fed announcement is scheduled for Thursday after a two-day meeting at which it will decide whether or not to make its first interest rate increase since 2006. The interest rate increase in 2006 (see chart above) was followed by higher gold prices as were the interest rate rises of the 1970s.
Gold holds near 1-month low ahead of Fed meeting – Reuters
Gold Holds Above One-Month Low as Investors Wait for Fed’s Move – Bloomberg
Gold Bulls Can’t Shake Fed Woes as $2.6 Billion Wiped From ETPs – Bloomberg
Gold scores gain to start week ahead of Fed rate decision – MarketWatch
Platinum Falls to 1-Month Low as Silver Drops on China Concerns – Bloomberg
“It’s Virtually Impossible to Get Physical Gold in London” – Bloomberg TV
Want a Gold IRA? Here Are 3 Ways to Get It – The Motley Fool
Financial Meltdown and the Confiscation of Bank Savings: The UK-EU Bank Depositor “Bail-In” Scheme – GlobalResearch
Goldman Sachs – Perpetrator Of The Fed’s Jihad Against Savers – David Stockman’s Contra Corner
The Coming Silver Shortage – 24 Hour Gold
My good friend has commented today:
(courtesy Reg Howe/GoldenSextant/GATA)
Reg Howe: Pray for the pope of gold
Submitted by cpowell on Mon, 2015-09-14 11:41. Section: Daily Dispatches
7:41aa ET Monday, September 14, 2015
Dear Friend of GATA and Gold:
Gold researcher and litigator Reg Howe writes today that the logic of Pope Francis’ critique of capitalism would support an encyclical in favor of sound money, insofar as unlimited money creation in the hands of governments and big banks causes war, environmental degradation, and all sorts of exploitation and damage to society — exploitation and damage that the pope well might have seen in his native country, Argentina. Howe’s commentary is headlined “Pray for the Pope of Gold” and is posted at his Internet site, the Golden Sextant, here:
Of course if, as some suspect, Francis is essentially just another socialist and all socialists, when pressed, become totalitarians, the pope is less likely to demand sound money than a ban on cash.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Here is his missive:
(courtesy Reg Howe/Golden Sextant)
Pray for The Pope of Gold “Permit me to issue and control the money of a nation, and I care not who makes its laws.” Mayer Amschel Rothschild (1744-1812, attributed) “The best way to destroy the capitalist system is to debauch the currency.” Lenin (1870-1924, attributed by Lord Keynes in The Economic Consequences of the Peace, 1919) “Money has to serve, not rule.” Pope Francis (May 16, 2013)
Pope Francis makes his first ever visit to the United States this month, and America’s elite are uncomfortable at the prospect. His criticisms of modern global capitalism, not to mention his recent encyclical on climate change, have struck a sensitive chord. As the former Soviet Union learned, an informed and charismatic pope is a dangerous opponent. Francis, whose education included training in hard science (chemical technician), urges action on the environment: “Human beings, while capable of the worst, are also capable of rising above themselves, choosing again what is good, and making a new start.”
Just as John Paul II had personal experience with the evils of communism in his home country, Francis lived through fascism and extreme monetary disorder in his. Few countries in the last century have declined as much as Argentina. In Philadelphia, Francis will visit Independence Mall, where at the National Constitution Center he will find much information about our nation’s founding charter, adopted after its first disastrous experience with fiat money, the continental currency. There, if he had the time, he could peruse The Federalist Papers, and ponder whether in No. 44 James Madison had not elucidated the fundamental truth about unlimited paper money:
The extension of the prohibition to bills of credit must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it.
Indeed, the Holy Father might reflect on whether Madison’s indictment of fiat money is not equally applicable today. After all, the Fed’s goal of two percent inflation would have appeared to the Founding Fathers as simple coin clipping, a capital offense. His Holiness might ask himself whether much of what he criticizes in “unfettered” capitalism flows not so much from free markets as from bad money freed from the discipline of precious metal. And he might then conclude, as he did with respect to the environment, that the best remedy is to make a new start and to choose again money credibly linked to silver or gold, or to borrow some of Madison’s words, to expiate theaccumulated guilt for the pestilent effects of fiat money by sacrificing the power which has been the instrument of it.
Today that power resides in the banks and central banks, which finance governments and other spendthrifts at the expense of savers and pensioners, Wall Street in preference to Main Street, malinvestment to the detriment of the environment, and that most expensive of all government endeavors: the military-industrial complex and war. It is no accident that what Raymond Aron labeled The Century of Total War (Doubleday, 1954) coincided with the demise of the classical gold standard and the rise of central banking.
Unfortunately, as well-documented at this site and elsewhere, the monetary provisions of Constitution of the United States have been turned upside down, and the people no longer enjoy their constitutional right to the use and benefits of sound money linked to silver or gold. As a constitutional crisis, Watergate’s long term impact has proved trivial compared to President Nixon’s closing of the gold window in 1971, when the demands of financing the Vietnam War finally overpowered the fixed $35 per ounce gold price. Since then, and especially over the past 25 years, Western governments and their central bankers have waged an undeclared but nevertheless savage war on gold — a war against sound money — to preserve and extend their own powers and privileges to dominate the planet. The casualties are uncounted; advocates of honest money — isolated and scorned as gold bugs — comprise but a tiny fraction.
It is sometimes said that there are no atheists in foxholes. At the height of the Battle of the Bulge, desperate for air cover to help rescue the beleaguered defenders at Bastogne, General Patton ordered the composition of a prayer for good flying weather. So taking a page from his wartime strategy, and recognizing that honest money is as much if not more a moral than an economic issue, we make bold to offer a prayer for the rescue of sound money:
Our Father in Heaven, lead Francis, Your vicar on Earth, To fight the sins of fiat money, Which impoverishes the honest, Enriches the wicked, and funds Wars and discord among nations. Inspire him to work for the return of Sound money based on metals Put on Earth for this purpose — Silver and gold — permanent natural Money, and by right and design, The universal monetary standard. Direct witness in his home country To monetary promiscuity causing Economic, social and moral decay, Give the former bishop from Argentina Strength and guidance to champion a Worldwide campaign for sound money. So should success crown his efforts, Francis may in the fullness of time Take his place among the saints, Known forever as The Pope of Gold.
Dave Kranzler: Gold futures market position data means little now
Submitted by cpowell on Mon, 2015-09-14 16:56. Section: Daily Dispatches
12:56p ET Monday, September 14, 2015
Dear Friend of GATA and Gold:
Dave Kranzler of Investment Research Dynamics today explains why he doesn’t think gold futures market positioning data means much anymore.
“There’s so much fraud and corruption going on in the reporting of all of this information that it’s really pointless spending the time collecting the data, analyzing it, and trying to understand it,” Kranzler writes. “JPMorganChase was fined recently by the U.S. Commodity Futures Trading Commission — a small, meaningless $650,000 — for stuffing commercial trade tickets into the managed money account bucket. I guarantee you they still are doing this.”
Kranzler’s commentary is headlined “Questions About Analyzing Gold Futures COT Data” and it’s posted at the IRD Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
(courtesy Kip Keen/Mineweb)
JPMorgan: calling the bottom
HALIFAX – JP Morgan joins the trickle of institutions and funds eyeing the mining sector. In a note this week with a few stock recommendations, it slapped a buy (i.e. overweight) on the sector in general Monday, ending what has been a bearish view of the commodities and mining sectors.
The view has been supported by high profile investors putting their money where their mouth is. Carl Icahn bought an 8% stake in Freeport McMoRan recently, taking on one of the hardest hit among North American headquartered miners that faces a heavy debt load, but owns top tier mining assets. George Soros bought a sizeable stake in Barrick Gold, which has seen a modest pickup in fund interest recently.
JP Morgan’s argument for miners was simple: that there is little downside left in the space. Mining has been punished more harshly than most sectors in recent years on the back of falling commodity prices, of course. But JP Morgan sees commodity prices as stabilizing in the coming year or so. That, combined with the depths mining shares are plumbing, has the vulture in JP Morgan circling.
“In price relative terms, mining is back to its levels from 10 years ago, when the Chinese commodity super-cycle was just starting,” JP Morgan notes, as others have in recent months. JP Morgan may be a bit early in bottom calling – and acknowledges this – but that’s part of its argument in favour of the sector. The prevailing view of it is still bearish. Yet it sees headwinds that have long been against the mining sector as diminished now, overblown or turning about.
In particular, it takes a positive view of China, arguing the manufacturing sector and a pickup in real estate sales point to a healthy enough economy for industrials. (Here its picking of evidence may be a bit selective. It doesn’t mention that construction starts in China – more directly tied to commodity consumption – have been declining, heavily, year over year.)
As for the miners, it notes they have lowered capital spending in the past few years and that valuations are at decadal lows. And while JP Morgan says more weakness in commodities prices may yet come – but if so, probably limited – along with punishment to earnings.
“This might mean some additional EPS cuts for miners near term, but again, not a step change. We believe that the bulk of EPS downgrades are behind us given the latest consensus projections of -44% year-on-year EPS growth for miners in ’15.”
In picks, JP Morgan highlights Norsk Hydro, Rio Tinto, Fresnilllo, Randgold and Thyssenkrupp. Notably, it avoids the heaviest losers among big miners, such as Glencore and Anglo American.
JP Morgan’s softening attitude to miners comes as other high profile investors dip into the sector.
(Image: Roy Luck/Truck; Neil Mishler/Eagle; Kip Keen/editing)
And now Bill Holter
(courtesy Holter/Sinclair collaberation)
The Ravages of War…the only way to win is not to play the game!
1 Chinese yuan vs USA dollar/yuan falls in value, this time at 6.3703/Shanghai bourse: deeply in the red and Hang Sang: red
2 Nikkei up 60.78 or 0.34.%
3. Europe stocks all in the green except London /USA dollar index down to 95.15/Euro up to 1.1315
3b Japan 10 year bond yield: rises to .382% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.73
3c Nikkei now above 18,000
3d USA/Yen rate now just above the important 120 barrier this morning
3e WTI: 44.33 and Brent: 46.55
3f Gold down /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to .655 per cent. German bunds in negative yields from 4 years out
Greece sees its 2 year rate falls to 11.73%/Greek stocks this morning up by 0.10%: still expect continual bank runs on Greek banks /
3j Greek 10 year bond yield falls to : 8.63%
3k Gold at $1107.75 /silver $14.41 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 84/100 in roubles/dollar) 66.69,
3m oil into the 44 dollar handle for WTI and 46 handle for Brent/Saudi Arabia increases production to drive out competition.
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (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 .9693 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0965 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 closer to negativity to +.655%
3s The ELA lowers to 89.1 billion euros, a reduction of .6 billion euros for Greece. The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Greece votes again and agrees to more austerity even though 79% of the populace are against.
4. USA 10 year treasury bond at 2.17% early this morning. Thirty year rate below 3% at 2.95% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
China Stocks Drop Most Since Late August, BOJ Disappoints Bailout Addicts; US Futures Flat
Almost two weeks after we explained why any hope for a QQE boost by the BOJ is a myth, and that any increase in monetization will simply lead to a faster tapering and ultimately halt of Kuroda’s bond purchases…
… the market finally grasped this, when overnight the BOJ not only did not easy further as some – certainly the USDJPY – had expected, but kept its QE at the JPY80 trillion level and failed to offer any hints of further easing that many had hoped for, pushing the Nikkei down from up almost 400 point intraday to virtually unchanged and sending the USDJPY back under 120. JGBs also traded lower on concerns there may not be much more QE to frontrun.
As Bloomberg reports, “the move by Governor Haruhiko Kuroda and his colleagues leaves the onus on Prime Minister Shinzo Abe’s government to compile a stimulus package to boost what evidence indicates is a lackluster recovery in the second half of the year so far. Kuroda repeatedly told reporters on Tuesday that the bank sees a gradual recovery continuing in the economy.” Which is ironic considering many now see Japan’s GDP sliding in Q3 confirming the 5th recession in the past 8 years.
Still, the “experts” continue calling for further bailouts: economists from Goldman Sachs Group Inc. and Citigroup Inc. are among those who project a boost in stimulus on Oct. 30. “If the downside risks worsen the BOJ will need to take action,” said Yasuhiro Takahashi, an economist at Nomura Holdings Inc. who forecasts further stimulus in April. “The BOJ had been optimistic about the outlook for Japan’s economy but in today’s statement it lowered its view on exports and production.”
Good luck: soon the realization that a supply constrained world is the biggest nightmare for central banks is the biggest story will dawn but not for another 6-9 months as we previewed ten days ago.
What, however, is dawning right now on traders is that China has once again lost control of its market, and days after crushing index futures trading by hiking margins to unprecedented levels, the SHCOMP resumed its old acrobatics tumbling as much as 4.2% in final hour of trading, and dropping below 3,000 for the first time since Aug. 27, before closing 3.5% lower at 3,005.172.
The good news: the plunge protection team held 3000, just barely. The bad news: the drop was the biggest since August 25 and follows yesterday’s 2.7% fall, dragging the decline 2015 back to 7.1%.
However, what’s even worse this time is that unlike before, the plunge was on very low volume with trading ~53% below 100-day avg. If the National Team can’t contain this it may as well resign.
Other indices fares just as badly: CSI 300 -3.9%; ChiNext -5.7% to lowest in 7 months.“Investor confidence deteriorated following the decline yesterday and the index fell further in the absence of rebound momentum in the market. It’s a vicious cycle,” Shenwan Hongyuan Group analyst Qian Qimin says by phone, adding that “sentiment still an important factor moving stocks.” That and central bank buying of course.
Asian weakness has for now not spilled over across to Europe and the Atlantic: for the second day running, market participants largely disregarded the cautious sentiment which dominated the price action over in Asia amid the ongoing concerns regarding China and after the BoJ refrained from easing its monetary policy further to kick off the session in the green, before falling into negative territory during the European morning (Euro Stoxx: -0.3%).
The biggest news in Europe today was Germany’s ZEW Investor Confidence which tumbled for a six month in September to 12.1, from 25 in August, and well below the 18.3 expected. Surely, this was as good a reason as any to send the DAX into overdrive moments ago: the market may be realizing that the BOJ’s QE expansion is limited, but it still has a long way to go before grasping the same about the ECB, as such Mario Draghi may now be the market’s only hope for more bailouts.
In spite of the recent upside by EU equities, gains have been led by health care and other defensive based sectors. At the same time, materials sector underperformed, in reaction to lower base metal prices and also as market participants used yesterday’s gains to book profits and in turn saw commodities giant Glencore (-5.0%) trade at record lows. It’s time for Doomsday 2.0 scenario for Mr. Glasenberg.
As a result, the FTSE-100 index (-0.6%) underperformed since the open, while pharma heavy CAC outperformed.
Bunds have remain in negative territory throughout the European morning , with tomorrow set for first major batch of supply of the week, as Germany is set to come to market with their longer-duration Bund offering before Spain and France enter the market on Thursday.
In FX, the JPY strengthened across the board, with shorter-dated JPY swap tenors rising to late August levels as bets of IOER cut and further easing were unwound after the BoJ kept the policy mix unchanged . While elsewhere AUD failed to hold onto early gains following the release of the RBA September minutes, where the central bank kept the door open for a rate cut as it stated that it will observe incoming data in determining whether policy is appropriate.
In terms of the European session, UK CPI data saw upside in GBP after avoiding falling into deflationary territory (Y/Y 0.0% vs. Exp. 0.0%), while RPI printed higher than expected (Y/Y 1.10% vs. Exp. 0.90%) . In terms of mainland Europe, the German ZEW survey saw mixed results and as such failed to have a notable effect on any major EU asset class.
In commodities, Both WTI and Brent futures trade in modest positive territory heading into the NYMEX pit open amid relatively light newsflow, with the commodity bolstered by modest weakness in USD . Elsewhere metals have seen some weakness today, weighing on commodity names to see Glencore reach all time lows. Looking ahead today sees the release of the API crude oil inventories, with last week showing a build of 2100k, also of note, there is a Brent Oct’15 futures due to expire at 1930BST/1330CDT.
Overnight Media Digest
- European market participants initially disregarded the cautious sentiment which dominated the price action in Asia to see stocks kick off in the green, before falling into negative territory during the European morning
- JPY has strengthened across the board, with shorter-dated JPY swap tenors rising to late August levels as bets of IOER cut and further easing were unwound after the BoJ kept the policy mix unchanged
- Highlights today include retail sales advance, empire manufacturing and industrial production
- Treasuries gain amid losses in Chinese stocks on growth concerns; European stocks also lower as German investor confidence falls for a sixth month in Sept., declining to 12.1 (est. 18.3) from 25 in August.
- Markets likely to remain rangebound before FOMC decision Thursday; economists/analysts remain split on prospect of 1st rate increase in more than 9 yrs, based on published research
- The Bank of Japan refrained from boosting stimulus even after the economy shrank last quarter, betting that a resumption in growth will be enough to rekindle inflation
- U.K. inflation returned to zero in August, driven down by the cost of motor fuel and clothing. A measure of core price pressures also eased
- Top leaders from China’s Communist Party recently consulted former premier Zhu Rongji for his thoughts on President Xi Jinping’s plan for overhauling the country’s $16t state-run sector, according to people with knowledge of the matter
- The last time China launched such a shakeup, the charge was led by Zhu: Some 60,000 firms were closed and 40m workers let go, according to government data
- Sovereign 10Y bond yields mostly higher. Asian stocks lower, European stocks and U.S. equity-index futures decline. Crude oil higher, gold and copper lower
DB’s Jim Reid completes the overnight wrap
We start this morning in Japan where the BoJ has left its monetary policy stance and monetary base target unchanged with for now is in line with Bloomberg’s consensus poll. The BoJ expects the economy to continue to recover moderately but acknowledges that exports and production have been affected by the slowdown in Emerging Markets. The JPY is a touch stronger against the dollar at 120.08, the Nikkei is off its intraday highs but still 0.6% up on the day, the 10yr JGB yield is about 1.5bp higher on the day. All eyes will be on Kuroda’s press briefing later at around 7.30am UK time. Will he hint that recent China/EM woes are pushing the BoJ towards further easing? Like with the ECB we think there’s a high likelihood they’ll eventually be forced into doing more.
Away from Japan, investors were mostly on the back foot overnight with our screens showing the Hang Seng, Shanghai Composite and ASX 200 are down -0.3%, -2.5% and -1.2%, respectively as we go to print. Asian equities are perhaps taking cues from the softer risk session in the US overnight.
Talking of the US, whilst risk assets were generally lower trading volumes (at least on the equity side) were on the low side. Total NYSE trading volumes were the lowest in about 4 weeks which in some ways shows how busy the latter half of August was. There was a perhaps some calm ahead of the Fed storm on Thursday but investors were also staying on the sidelines given there was the Rosh Hashanah holiday and a ‘lack of US data’ Monday. The S&P 500 finished 0.41% lower on the day led by declines in 9 out of the 10 key sector groups (only Utilities finished touch higher). Energy (-0.8%) and Materials (-1.3%) suffered the most not helped by the weakness in commodities. Brent and WTI fell -3.7% and -1.4% to around US$46/bbl and US$44/bbl, respectively.
Copper lost around 2% as sentiment was somewhat affected by the softer-than-expected FAI data from China over the weekend even though Copper is now 7% off its lows of about 3 weeks ago. Perhaps Glencore’s move to shut down production may provide some base support. Elsewhere the broader CRB commodity index finished about half a percent lower on the day.
Amid the risk off tone credit continued to hold in relatively well which is impressive given the recent supply. Primary markets were reasonably active with nearly US$5bn in new issues (across 9 tranches) being priced in the US session yesterday. Our US colleagues noted that accounts continued to remain engaged in new issues with order books around 3x oversubscribed on average. Secondary credit spreads were also unchanged to a touch wider with TRACE data showing that dealers were net sellers of bonds yesterday. US 10yr Treasuries were little changed at around 2.18%. Fed Fund futures implied probability of a Fed liftoff stands at around 28% and has been steady now for a few days.
On the other side of the pond, it was a relatively weak European session yesterday with equities down around -0.5% across the board largely on the back of a weak open following on from Asia. Credit widened with Xover moving +4bps with government bonds closing the day flat outside of the Periphery which saw some widening (e.g. Portugal +5bps, Greece +9bps). Looking at yesterday’s data the main release was the Eurozone July IP which came in noticeably better than expected (+0.6% MoM vs +0.3% expected and -0.4% previous read).
Looking to the day ahead after Kuroda’s press conference it’s set to be a busy day on the data front. In Europe we have the French August inflation print (expected in at +0.2% YoY), UK inflation (expected in at 0% YoY), the July Eurozone trade balance (expected to fall slightly to +€21.4bn) and finally the September German ZEW survey which is expected to weaken. However given the approaching FOMC meeting much of the focus today will likely be on the US data. We have August retail sales (with the MoM growth rate expected to slip to +0.3%), September Empire manufacturing which is expected to rebound from its big drop in August although remain in negative territory and also August IP which is expected to slip into negative territory.
USDJPY Surges Ahead Of BoJ Statement, China Strengthens Yuan As Washington Folds On Cybersecurity Sanctions
It appears someone is betting on Kuroda and his cronies to do something later this evening (just like they did as The Fed stopped QE3 back in October) in some weird monetary policy quid pro quo of – dump Yen all you like as long as the carry trade is alive and well. USDJPY is up from 119.85 to 120.50 (and NKY up over 400 points from US session lows), as perhaps the fact that The BoJ’s ETF-buying kitty is running dry at a crucial time. Chinese equity markets are extending yesterday’s losses as margin debt declines to a 9 month low (still +62% YoY), injects another CNY50bn and strengthens the Yuan fix for the 3rd day in a row; but in a somewhat embarrassing move, Washington has decided not to impose sanctions on China ahead of Xi’s first state visit next week.
Japan was excited…
JPY dumping against the USD is some odd anticipation of moar QQE from Kuroda...
This is what the big banks think…
Goldman Sachs: A key focus point in BOJ Governor Kuroda’s press conference will be the potential influence of the US FOMC rate hike on the BOJ’s decision making on its own monetary policy given that the FOMC will have its policy meeting on Sep 16-17. The other point is the impact of the renewed crude oil price decline and foreign demand risk on the BOJ’s 2% inflation target and the BOJ’s responses to this impact
We can find little in the way of hard data to corroborate the BOJ’s “virtuous circle” between wages and consumption. BOJ governor Haruhiko Kuroda spoke recently in New York about a second virtuous circle which sees rising corporate earnings spurring capex, but this is also looking somewhat tenuous, in our view. The BOJ has tended to focus only on the fall in crude oil prices as a reason for the recent CPI slowdown. That said, we think the BOJ will be eventually acknowledge rising downside risks in the much more fundamental form of the output gap, wages and inflation expectations, all of which the BOJ itself has said will be key to gauging the medium-term price outlook. Accordingly, our base scenario is still premised on the BOJ easing monetary policy further at its end-October monetary policy meeting.
The exhaustion of additional monetary stimulus options is something of a problem. We think it would be difficult for the central bank to accelerate JGB purchases from the current ¥80 tn per year given the gradual reduction in the scope for purchasing.
BoAML: Taking a broader view of Japan’s economic outlook, we identify three check-points for maintaining our (and probably BoJ’s) optimistic view. First, non-financial corporations’ profit margins reached an all-time high in 2Q, as shown in Financial Statements Statistics of Corporations by Industry, and conditions for corporate earnings are good. Although margin improvement has started to feed through to capital expenditure and household income / consumption, the current pace is still moderate. Whether or not this benign cycle of earnings translating into expenditure accelerates far enough in 3Q onwards for the government and BoJ to achieve their policy targets will be one key element to watch. Second, trends in the US economy here on. We believe contribution of external demand to 3Q growth will be zero or slightly negative. Japan’s exports to China are expected to remain weak, affected by the slowdown in China. In this context we believe the extent to which a revival in Japan’s exports to the US (via the economic recovery there) can offset the weak exports to China will be a key aspect in external demand outlook. Third, impact of the turmoil in the financial markets since mid-August. Our main scenario is for heightened risk-aversion in the financial markets proving temporary. However, if a 10%-plus rise in the yen and/or a fall in the stock market were to persist (Nikkei 225 drops below 18,000, or yen appreciates and approaches ¥115/$), this will likely have a material impact on Japan’s economy, and hence, merits continued vigilance.
Citi: With renewed weakness in crude oil prices since summer partly reflecting worrisome developments in the Chinese economy, the BoJ’s scenario for the CPI reaching the vicinity of 2% YoY around the first half of FY2016 now looks even less likely to materialize, in our view. However, if inflation does not pick up as policymakers anticipate solely because of declining energy prices, the BoJ may not take additional easing measures unless inflationary expectations are affected negatively. We note, however, there are already early signs for declining inflationary expectations, albeit still tentative at the moment.
Deutsche: The question is whether the BoJ will ease further, but we see little likelihood of this. The BoJ will probably only ease further in response to events that would make the outlook for 2% inflation impossible. Inflation expectations could fall due to a decline in oil prices like last year, but oil prices have not fallen to the extent they did in 2014. In addition, regarding the output gap, BoJ Governor Haruhiko Kuroda at the Upper House Financial Affairs Committee on the 10th said “There is a good chance that GDP will be positive in Jul-Sep”, indicating that he does not anticipate a decline in the underlying trend in inflation due to economic deterioration. If the BoJ does ease further we expect it would focus on qualitative measures such as increasing ETF purchases and extending the duration of JGB purchases. In that case, we expect the superlong sector would outperform. Kuroda indicated on the 10th that the Bank was not considering reducing or abolishing the IOER rate. A rate cut, including negative rates, is unlikely. BoJ Board Member Sayuri Shirai’s panel discussion remarks on the 8th gave numerous reasons for maintaining the IOER rate, but we see one compelling explanation for why the Bank cannot use negative rates. Excluding the BoJ, the banks’ surplus deposits have enabled the smooth absorption of JGBs equaling over 200% of GDP. The probability that negative rates would destabilize the JGB market therefore makes such a policy unlikely from the perspective of managing national risk.
Which can all be summed up thus – “we do not think The BoJ has any good reason to ease tonight… but then again, you never know!”
So, of course, where USDJPY goes – so goes Nikkei 225…Up 400 points from US session lows…
* * *
Then China slams open…
With an immediate ban on anything that doesn’t say “everything is awesome”
- *CHINA TO SHUT STATE CULTURE COS. WITH IMPROPER CONTENT: XINHUA
More open mouth operations…
- *CHINA SHOULD STABILIZE YUAN INSTEAD OF LET IT FALL: INFO DAILY
- *UNCERTAINTY BROUGHT BY YUAN FALL WOULD HURT EXPORTS: INFO DAILY
China strengthens the Yuan fix for the 3rd day in a row and inject snoather CNY50bn
- *CHINA SETS YUAN REFERENCE RATE AT 6.3665 AGAINST U.S. DOLLAR
- *PBOC TO INJECT 50B YUAN WITH 7-DAY REVERSE REPOS: TRADER
- *HONG KONG DOLLAR QUOTED NEAR UPPER END OF PERMITTED RANGE
After last night’s tumble…
Chinese equity markets are extending losses at the open...
- *FTSE CHINA A50 SEPT. FUTURES ADVANCE 0.5%
- *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 2.2% TO 3,208.74
- *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 2.3% TO 3,043.80
But flows continue to leave…
- *CHINA END-AUG. EQUITY FUNDS NET VALUE FALLS 44% ON MONTH
As delveraging continues…
- *SHANGHAI MARGIN DEBT BALANCE FALLS TO NINE-MONTH LOW
But bear in mind, margin debt remains +62% YoY...
* * *
And finally, Washington folds ahead of China’s visit…(as WaPo reports)
The United States will not impose economic sanctions on Chinese businesses and individuals before the visit of China President Xi Jinping next week, a senior administration official said Monday.
The decision followed an all-night meeting on Friday in which senior U.S. and Chinese officials reached “substantial agreement” on several cybersecurity issues, said the administration official, who spoke on the condition of anonymity because of the topic’s sensitivity.
The potential for sanctions in response to Chinese economic cyberespionage is not off the table and China’s behavior in cyberspace is still an issue, the official said. “But there is an agreement, and there are not going to be any sanctions” before Xi arrives on Sept. 24, the official said.
The breakthrough averted what would have raised a new point of tension with the Chinese that could have overshadowed the meeting — and Xi’s first state visit.
“They came up with enough of a framework that the visit will proceed and this issue should not disrupt the visit,” the official said. “That was clearly [the Chinese] goal.”
USDJPY, Nikkei 225 Tumbles After Disappointing “No Change” From Bank Of Japan
We noted earlier the premature exuberation in USDJPY and Nikkei 225 – despite most of the sell-side not expecting anything from The BoJ – and it appears the banks were right and the FOMO traders wrong. The Bank of Japan made no change to its monetary policy (no increased buying, no shift in ETF allocations, and no NIRP for now). BoJ members spewed forth their usual mix of “everything is awesome” and “any quarter now” for the recovery but the market wasn’t buying it. That leaves only one thing left to cling to for a “we must buy” crowd – no change today ‘guarantees’ moar QQE in October.
- *BANK OF JAPAN LEAVES MONETARY POLICY UNCHANGED AS FORECAST
- *BOJ RETAINS PLAN FOR 80T YEN ANNUAL RISE IN MONETARY BASE
- *BOJ: CPI LIKELY TO BE ABOUT 0% FOR TIME BEING
- *BOJ: TO CONTINUE QQE UNTIL STABLE 2% INFLATION MAINTAINED
And USDJPY tumbled…
Of course – the propaganda attached to the statement was sickening…
- *BOJ SAYS EASING IS EXERTING INTENDED EFFECTS (a collapse in householding spending and real wages)
- *BOJ SEES ECONOMY CONTINUING TO RECOVER MODERATELY (heading back into 4th recession in 4 years)
It’s not our fault…
- *BOJ: EXPORTS, PRODUCTION AFFECTED BY SLOW DOWN IN EMERGING MKTS
“More or less” is the new normal…
- *BOJ: PRODUCTION HAS BEEN MORE OR LESS FLAT
- *BOJ: EXPORTS HAVE BEEN MORE OR LESS FLAT
- *YAMAMOTO: JAPANESE ECONOMY IS TREADING WATER
Better spend some more on ETFs…
And now on to Europe where the refugee crisis is getting worse and more dangerous that at any time:
(courtesy zero hedge)
Refugee Crises At Dangerous Tipping Point As Hungary Makes Arrests, Germany Loses Patience
“I’m not happy. I had to leave Syria — I love Syria, but so much killing there.”
That’s from 17-year old Mohammed Al-Hamdan who made it across the Hungarian border with Serbia at a railroad crossing near the village of Roszke before it was closed on Tuesday. As NBC reports, “just before Hungarian police closed the railroad crossing, a Syrian family ran down the tracks trying to make it through, the patriarch screaming to his wife and small children, ‘Yallah, yallah!’ — Arabic for ‘Let’s go!’” Before closing the “popular” passage, Hungary had reportedly begun hauling migrants on to trains and shipping them straight to the Austrian border. “The situation is that after crossing the border these people have arrived at the collection point in Roszke, where there is no official procedure, people are just being collected. Earlier these people were being taken to the registration points … this is not happening now, but rather, buses are taking people from the collection point to the Roszke train station according to our information,” a UNHCR spokesman told Reuters.
Of course even for the migrants who were “lucky” enough to be rounded up and shipped to Austria as opposed to being stranded behind Hungary’s new migrant-be-gone fence, their fate is far from certain. As The New York Times noted on Monday, Austrian officials have now sent “2,200 soldiers to help reinforce the eastern border.”
The rush to get into the Hungary came as the country largely completed a four meter, razor wire fence meant to cut off the flow of refugees and channel them to official registration centers where they can apply for asylum. “If their applications are refused,” BBC says,“they will now be returned to Serbia rather than being given passage through Hungary.”
Government spokesman Zoltan Kovacs says “official and legal ways to come to Hungary and therefore to the European Union remain open.”
“All we ask from all migrants [is] that they should comply with international and European law,” he added.
There’s a certain extent to which Hungary’s frustrations are understandable. For many refugees, the path to the German “promised land” goes through Hungary, and the means the flow of people is daunting.
That said, Kovacs’ comments seem to perhaps overstate the government’s desire to help asylum seekers enter and/or traverse the country legally. New laws that went into effect at midnight now permit police to arrest anyone who attempts to breach the razor wire fence. Damaging the fence is now punishable by imprisonment or deportation and mounted police have been deployed to the border. Here are the images:
Meanwhile, Prime Minister Viktor Orban’s rhetoric suggests little tolerance for any meaningful demographic shift in Hungary. “Hungary is a country with a 1,000-year-old Christian culture. We Hungarians don’t want the global-sized movement of people to change Hungary,” Orban said on Monday. He also told border police that “illegal border crossings will no longer be misdemeanors but felonies punishable with prison terms or bans.” Showing his generous side, Orban did say police should treat the migrants like human beings.
But anyone sent to Serbia faces the terrifying possibility that they will be denied asylum there as well. Here’sReuters:
Serbia, an impoverished ex-Yugoslav republic years away from joining the EU, says it is readying more temporary accommodation, but warned it would not accept anyone turned back from Hungarian territory.
The United Nations refugee agency, UNHCR, reiterated on Tuesday that it advised against sending refugees back to Serbia. “Safe third country” status implies refugees have a fair chance of being granted asylum and would receive the necessary protections and support.
Rights groups say Serbia meets none of the criteria and is still finding homes for thousands of its own refugees from the collapse of Yugoslavia in the 1990s, the last time Europe confronted displacement of people on such a scale.
“That’s no longer our responsibility,” Aleksandar Vulin, the minister in charge of policy on migrants, told the Tanjug state news agency. “They are on Hungarian territory and I expect the Hungarian state to behave accordingly towards them.”
So too, apparently, does Germany, where Vice Chancellor Sigmar Gabriel looks to be reaching the end of his patience with some countries’ perceived recalcitrance. “Germany can’t be there as the paymaster in Europe and everybody is around when they need money, but no one participates when responsibility must be taken. If this goes on then that’s the end of the current funding basis.”
There was no consensus to be found on Tuesday on a plan to use a quota system proposed by Jeane Claude-Juncker last week to settle some 160,000 refugees – for now, only 40,000 will be relocated. Hungary was one of three countries in opposition. Echoing Gabriel, Germany’s Interior Minister Thomas de Maiziere suggested that Berlin may soon be forced to “exert pressure” on countries that refuse to cooperate.
As should be clear from the above, this has the potential to create a very dangerous situation in EU countries who oppose quotas but are pressured by Berline, Paris, and Brussels to comply. Where there are already elements of xenophobia in place, and where those feelings are being amplified and perpetuated by the government, the perception that Germany is forcing an unwanted demographic shift might well serve to fan the flames not only of nationalism but of religious intolerance, especially given the likelihood that those opposed to settling the migrants will be predisposed to stirring up fears of ISIS operatives slipping into Europe disguised as refugees.
And just as we said last week when we documented the construction of the anti-mirgrant fence in Hungary, “it’s not clear whether 12 feet of razor wire will be enough to dissuade those who are fleeing from bullets, tanks, barrel bombs, and sword-weilding jihadists, meaning the question really isn’t how to keep migrants out, but rather how to handle the situation once migrants get in.” On that note, we’ll close with the following account from Reuters:
Having spent the night in the open, families with small children sat in fields beneath a new 3.5-metre high fence running almost the length of the EU’s external border with Serbia, halted by a right-wing government that hailed a “new era”.
Others pressed against gates, confused and demanding passage. More still sat on the main highway from Serbia to Hungary. “I will sit here until they open the border. I cannot go back to Syria. Life in Syria is finished,” said a Kurd from Syria who gave his name as Bower.
North Korea Restarts Nuclear Complex, May Nuke US “At Any Time” For “Mischievous Behavior”
Late last month, things got tense in the Korean Peninsula after an argument over a DMZ loudspeaker spiraled out of control. After two South Korean soldiers were wounded by North Korean landmines, the South began blasting propaganda messages over giant speakers on the border. When the North took a shot at one of the speakers, the South returned fire, providing Kim Jong Un with an opportunity to remind the world that he exists (something he is forced to do every now and again when geopolitical realities conspire to relegate the North Korean “menace” to the backburner).
That conflict came on the heels of a hilarious declarationby Pyongyang that the North was prepared to invade the US mainland in retaliation for joint military drills Washington was set to carry out with the South. As part of the planned invasion, Kim said the North was prepared to use “weapons unknown to the world.”
Well, the world may just get a look at one of these heretofore “unknown” weapons on October 10, which marks the 70th anniversary of the foundation of North Korea’s ruling Workers’ Party. Kim reportedly plans to celebrate the milestone by launching an long-range ballistic missile.
But that’s not all.
The North’s atomic agency now says that Pyongyang has made good on its promise to restart its main Yongbyon nuclear complex, shut down since 2007. Here are some Yongbyon bullets from BBC:
- North Korea’s main nuclear facility, believed to have manufactured material for previous nuclear tests
- Reactor shut down in July 2007 as part of a disarmament-for-aid deal
- International inspectors banned in April 2009 when North Korea pulled out of disarmament talks
- A uranium enrichment facility was revealed in 2010. An American nuclear scientist said centrifuges appeared to be primarily for civilian nuclear power, but could be converted to produce highly enriched uranium bomb fuel
- Reactor restarted in 2013, the same year North Korea conducted a nuclear test. Became dormant in August 2014
- Experts believe that reactor could make one bomb’s worth of plutonium per year
- Nuclear test based on uranium device would be harder to monitor than plutonium
The North’s “mighty” nuclear arsenal has been improved in “both quality and quantity as required by the prevailing situation,” the agency’s director said on Monday, adding that the North may use its nukes against the US “at any time.”
And because, when it comes to North Korea, even we have a difficult time enhancing the comedic value of the government’s rhetoric, we present the following declaration from Pyongyang with no further comment:
“If the U.S. and other hostile forces persistently seek their reckless hostile policy towards the DPRK and behave mischievously, the DPRK is fully ready to cope with them with nuclear weapons any time.”
A panicky Brazil promises austerity. It is probably too late:
(courtesy zero hedge)
A Panicked Brazil Promises Billions In Austerity, Does 180 On Budget After Downgrade
Exactly two weeks after conceding that a primary surplus was no longer in the cards after budget data in July came in meaningfully worse than expected, Brazil is scrambling to restore some semblance of confidence in the government’s ability to close a yawning budget gap by implementing austerity even as political turmoil has made embattled FinMin Joaquim Levy’s life a living hell of late.
On the heels of a painful S&P downgrade, Brazil now says it plans to enact some BRL26 billion in primary spending cuts for the 2016 budget on the way to achieving in a primary surplus that amounts to 0.7% of GDP.
In other words, a complete 180 from what the government said prior to the downgrade.
Needless to say, reconciling tax increases and budget cuts with the party mandate won’t be easy. “Budget cuts and tax increases discussed by govt in response to Brazil’s credit rating downgrade don’t agree with central tenets of Workers’ Party,” Bloomberg notes, citing an unnamed party official.
Particularly divisive will be the CPMF revival which isn’t likely to be approved. Here’s Bloomberg with a bit more on the announcement:
Finance Minister Joaquim Levy proposed a new round of spending cuts and tax increases that are designed to close the budget gap and protect Brazil from further credit downgrades.
The government will reduce 26 billion reais ($6.8 billion) in expenditures from next year’s budget in large part by capping salaries of civil servants and suspending exams for new entrants, Levy said Monday. Brazil also plans to raise 28 billion reais in revenue by boosting taxes, including a levy on financial transactions.
“We know this effort to cut spending will only take us so far, so as would happen in any country in the world in a moment of reduced economic activity and tax income, you have to seek out other resources,” Levy told reporters. “We’re trying to find that balance.”
Obviously, the market will cast a wary eye towards the effort even as one assumes Brazil is to be applauded for trying, especially given the hugely contentious political environment and the threat of further social upheaval.
And here’s Goldman with the full breakdown:
The authorities announced today a number of spending cuts and expenditure saving measures (worth an estimated R$26.0bn) and tax increases and a reduction of a number of tax breaks/benefits (estimated to yield approximately R$45.8bn). The key objective is to improve the federal government fiscal balance from the -R$30.5bn (-0.5% of GDP) deficit announced on August 29, to a +R$34.4bn (+0.55% GDP) surplus.
Most of the proposed adjustment will come from higher taxes; particularly from the reinstatement of the controversial Financial Transactions Tax at a rate of 0.2% which is expected to yield a substantial R$32bn.
Minister Levy stated that the tax should “not last more than 4 years.” Furthermore, approximately R$10bn will come from the reduction in projected outlays with civil servants which is likely to elicit strong rejection by the main public sector unions.
Many of the measures require Congressional approval of several pieces of legislation which, in our assessment, adds significant implementation risk. Given the administration record low level of popularity and its weak and increasingly fragmented support base in Congress we expect some of these measures to face significant resistance (to be either rejected or watered down during the legislative debate), particularly the approval of the widely rejected CPMF tax.
In all, we expect the 2016 budget discussion to be a drawn-out, jumpy and noisy process with a significant risk that only a subset of the proposed measures will clear Congress and with fiscal yields below the government proposal.Furthermore, we could not fail to notice that in today’s announcement there were no medium- and long-term fiscal measures to arrest the projected upward drift in mandatory spending (e.g., social security reform).
Overall, we remain of the view that a deep, permanent, structural fiscal adjustment remains front-and-center on the policy agenda to restore both domestic and external balance. In our assessment, at the end of the fiscal consolidation process Brazil needs to end up with a primary surplus of 3.0% to 3.5% of GDP (which is still quite distant from today’s fiscal reality). This would be the level of primary surplus that would put gross public debt on a clear declining trajectory; something that is required for Brazil to rebuild fiscal buffers and regain policy room to use fiscal counter-cyclically, whenever needed and appropriate.
Given the very slow pace of fiscal consolidation, and its poor quality geared towards tax hikes and investment cuts), the burden of current account adjustment will likely continue to fall disproportionately on monetary policy and the BRL.
The question now, is whether this was a good move.
That is, is it better to simply stick with the projection of a primary deficit and let the market be pleasantly surprised if things miraculously turn a corner, or is it better to try and head off further pressure on the country’s credit rating by rolling out a largely non-credible plan to plug the budget gap and risk surprising on the down side?
We’ll see, but at least in the short term, Goldman is probably correct to assume that in the absence of a stable political situation, the BRL will remain in focus and if FX pass-through picks up and the Fed hikes, we may need to see a Selic hike.
For an indication of how things are going, simply watch the data points on this chart:
WTI Crude Just Plunged Back To Unchanged After White House Un-Supports Lifting Crude Export Ban
Well that escalated quickly… WTI back to a $43 handle again as The White House comments that it does not support The House bill to lift a ban on crude exports. Reuters reports that The White House says The Commerce Department should make the policy decision.
House Majority Leader Kevin McCarthy to announce that he’ll schedule
vote on bill to lift U.S. crude-export ban in last week of Sept.: WSJ.
The comment sparked selling in WTI (as Brent-WTI hit an 8-month tight)
The Shale Delusion: Why The Party’s Over For U.S. Tight Oil
The party is over for tight oil.
Despite brash statements by U.S. producers and misleading analysis by Raymond James, low oil prices are killing tight oil companies.
EIA said that U.S. production will fall by 1 million barrels per day over the next year and that, “expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns.”
IEA made the point more strongly.
“..the latest price rout could stop US growth in its tracks.”
In other words, outside of the very best areas of the Eagle Ford, Bakken and Permian, the tight oil party is over because companies will lose money at forecasted oil prices for the next year.
Global Supply and Demand Fundamentals Continue to Worsen
IEA data shows that the current second-quarter 2015 production surplus of 2.6 million barrels per day is the greatest since the oil-price collapse began in 2014 (Figure 1).
Figure 1. World liquids production surplus or deficit by quarter. Source: IEA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
EIA monthly data for August also indicates a 2.6 million barrel per day production surplus, an increase of 270,000 barrels per day compared to July (Figure 2).
Figure 2. World liquids production, consumption and relative surplus or deficit by month.
Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
It further suggests that the August production surplus is because of both a production (supply) increase of 85,000 barrels per day and a consumption (demand) decrease of 182,000 barrels per day compared to July.
The world oil demand growth picture is discouraging despite an increase in U.S. gasoline consumption (Figure 3).
Figure 3. World liquids demand growth. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
World liquids year-over-year demand growth has fallen by almost half from 2.3 percent in September 2014 to 1.2 percent in August 2015. This is part of overall weak demand in a global economy that has been severely weakened by debt.
The news from both IEA and EIA is, of course, terrible for those hoping for an increase in oil prices.
U.S. production has fallen 510,000 barrels of crude oil per day since April 2015 while OPEC production has increased 1.2 million barrels per day since the beginning of the year (Figure 4). U.S. production increases in the first quarter of 2015 were partly because of an oil-price rally that ended badly this summer, and because of new projects coming on-line in the Gulf of Mexico.
Figure 4. OPEC and U.S. crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)
It appears that OPEC is winning the contest with U.S. tight oil producers to see which can continue to over-produce oil at low prices. IEA ended its September Oil Monthly Report saying,“On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving outcostly, “inefficient” production.”
In other words, tight oil and oil sands production.
With Iran poised in early 2016 to add almost as much oil as the amount of the U.S. production decline to date, the outlook for tight oil producers could not be worse. And yet, the sell-side analysts and investment bank research groups continue to chant the refrain of logic-defying hope for tight oil producers in the face of crushingly low oil prices.
Party On, Dude!
This week, Raymond James joined the chorus with its bewildering “Energy Stat: U.S. Operators’ Response to Low Oil Prices? Get More Efficient!”
The message is all about rig productivity and drilling efficiencies. I showed in my post last week that these measures are nothing but red herrings to distract from the unavoidable truth that all tight oil companies are losing money at current oil prices.
I would like to say that Raymond James is simply repeating the shop-worn and illogical cliché that “We’re losing money but making it up on volume” but it’s much worse than that.
There is no mention of money in the report. There is not a single dollar sign ($) in the text or figures nor are there are there any costs, prices or cash flows mentioned. That seems odd since Raymond James is, after all, a financial advisory company.
Raymond James presents 30-day IP (initial production rate) data to show that everything is fine and getting better in the tight oil patch.
Really guys? Is that why oil companies are laying off staff, cutting budgets and selling assets?
Besides, everyone knows that IPs are a practically meaningless predictor of EUR or profitability, and something that producers often manipulate to create press releases in order to satisfy investors.
Nonetheless, they forecast “2015 to be a banner year for both oil/gas well productivity gains.” Interesting but irrelevant since it’s going to be an atrocious year for profits.
Here is my table from last week’s post for the best of the tight oil companies in the best parts of the plays.
Table 1. First half (H1) 2015 cost per barrel of oil equivalent summary for Pioneer, EOG and Continental.
Source: Company SEC filings and Labyrinth Consulting Services, Inc.
EOG, Pioneer and Continental lost between $10 and $24 per barrel in the first half of 2015 but Raymond James says, “Never mind and party on, Dude!”
This report by Raymond James is both misleading and clearly out-of-touch with the price and investment environment that the International Energy Agency and the Energy Information Administration describe.
ExxonMobil CEO Rex Tillerson summarized the situation this week in an interview with Energy Intelligence:
“It [tight oil] will compete. Will all of it compete at all pricing? No.”
For the next year or so, tight oil wells will not be commercial except in the best parts of the best plays. Tight oil companies will lose money. For the most part, the efficiency gains are behind us.
Until market fundamentals of supply and demand come into balance, prices will remain low. Goldman Sachspredicted yesterday that U.S. oil prices through the first quarter of 2016 will be “low enough to discourage investment in new oil production and shrink the global glut of crude.”
Clearly for now, the party is over for tight oil.
Late in the day oil jumps as API reports an unexpected inventory draw.
This will be shortlived:
(courtesy zero hedge)
WTI Crude Jumps After API Reports Unexpected Inventory Draw
After 2 weeks of inventory builds (and production drops),API reports an unexpected 3.1 million barrel inventory draw (with Cushing drawing down 1.5mm bbl). Crude surged back above $45 on the news…
and the reaction…
Euro/USA 1.1315 up .0005
USA/JAPAN YEN 119.73 down .629
GBP/USA 1.5424 down .0002
USA/CAN 1.3246 down .0007
Early this Thursday morning in Europe, the Euro rose by 5 basis points, trading now well above the 1.13 level rising to 1.1315; 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, flash crashes and today crumbling bourses from all major Asian bourses except a tiny rise from Japan. Last night the Chinese yuan lowered in value . The USA/CNY rate at closing last night: 6.3703, rising .0039 (Yuan falling)/
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31. The yen now trades in a northbound trajectory as settled up again in Japan up by 63 basis points and trading now just below the 120 level to 119.73 yen to the dollar.
The pound was down this morning by 2 basis points as it now trades just above the 1.54 level at 1.5424.
The Canadian dollar reversed course by rising 7 basis points to 1.3246 to the dollar. (Harper called an election for Oct 19)
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up)
3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this Tuesday morning: up by 60.76 0.34%
Trading from Europe and Asia:
1. Europe stocks mostly in the green, except London
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red/
Gold very early morning trading: $1105.65
Early Tuesday morning USA 10 year bond yield: 2.17% !!! par in basis points from Monday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.95 up 1 basis point.
USA dollar index early Tuesday morning: 95.19 up 6 cents from Monday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3685 up .0011 (Chinese yuan down/on shore)
Bonds Baumgartner’d As Bad Data Sparks Unhedged Panic-Buying In Stocks, VXX Limit Down
This seemed appropriate… bonds dump on weak data? FF futures do not move… Stocks surge on lower rate hike likelihood on weak data.
Before we get to the insanity of US equities… Bonds were the big story today…
Despite terrible data today… and no change in rate-hike odds…
But 12-month Treasury yields exploded today to April 2010 highs – up 7bps – this is the biggest absolute rise in yields since June 2009
And 2Y yields surged to April 2011 highs…
Here is what the bond complex looked like today!!! With 30Y yields above 3.05%…
Which leaves 2Y +30bps since the end of QE3 and the rest of the curve unchanged to 5bps lower in yield…
The safety-bid dump in bonds ignited low volume momentum in stocks helped along by USDJPY...
But perhaps the most worrying indicator is the continued surge in the TED Spread – indicating ongoing interbank counterparty risk concerns… ***Harvey: very danagerous!!
Futures show that this meltup started soon after the weak retail sales data (after a ramp post-China) and was helped by a series of weak data from IP to Biz Inventories…
With Trannies today’s and the week’s big winner…
VIX was pushed notably lower – with another of those odd tailing events into the close…
As The VIX Term Structure “normalized” from Oct 2015 expiration onwards…
As VXX was hammered (halted down 10% into the close)…
VXX broke below its 200-day moving average
The US Dollar jumped higher (hinting a rate hikes) despite the weak data… EUR weakness offset AUD strength as once again China was selling USDs and Europe buying…
Commodities generally drifted lower on USD strength but oil went crazy… Silver and Gold were bid into the close…
As is evident in the violent swings on White House crude export ban comments and NYMEX close idiocy…
But Oil Vol rose once again…
Gartman Does It Again: 30Y Tops 3.00%, Stocks Surge After “Bad News”
Oops, he did it again… Gartman: Sell Stocks, Buy Bonds
And this morning’s terrible array of data was just what the doctor ordered to send stocks higher and bonds lower(because you sell stocks on recession-inspiring data because there is no safety bid)…
With USDJPY at 120.00 and Europe closing – we wonder how long this algo stop-run to yesterday’s highs in stocks will last?
Retail Sales Disappoints, Tests Recessionary Waters Ahead Of Fed Meeting
Following Gallup’s and BofAML’s clear indications of weak retail sales, it should be no surprise that retail sales in August disappointed printing +0.2% MoM (missing +0.3% expectations). This dragged the YoY retail sales change down to a recession-looming +1.6% print. Ironically, while most headline data missed, the GDP-dependent ‘control group’ rose modestly more than expected (+0.4% vs +0.3%). Since this is the last major data point before The Fed’s big decision, it would appear another nail in the coffin of a rate hike was just struck.
Retail Sales rose just 1.6% YoY... testing recessionary waters…
Industrial Production Plunges Most In 3 Years As Auto-Maker “Nightmare” Comes True
Industrial Production missed expectations notably, dropping 0.4% MoM (the 6th of the last 8 months)missing expectations of a 0.2% drop (and notably weaker than the +0.9% upward revised July print). This is thebiggest MoM drop since August 2012. The big driver of the decline – just as we warned of nightmares ahead – was the biggest decline in auto production in 4 years. The year-over-year rise in IP is just 0.9% – flashing yet another recession-looming indicator.
Worst MoM drop in 3 years…
It appears yet another US macro indicator is flashing a recessionary warning… as YoY IP flashes red!!!
Why? Simple – just as we have explained...Manufacturing output fell 0.5 percent in August primarily because of a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July
Manufacturing output fell 0.5 percent in August, as the production of durable goods fell 0.9 percent and the production of nondurable goods was unchanged. The output of durables other than motor vehicles and parts rose 0.1 percent, with gains of more than 1 percent for nonmetallic mineral products, machinery, and miscellaneous manufacturing and with losses of more than 1 percent for fabricated metal products and for aerospace and miscellaneous transportation equipment. Among the nondurable goods industries, the indexes for petroleum and coal products and for chemicals each fell about 1/2 percent, while the indexes for food, beverage, and tobacco products and for plastics and rubber products each rose about 1/2 percent. The production of other manufacturing (publishing and logging) edged down 0.2 percent.
Recession Looms As Empire Manufacturing Collapse Show No Signs Of A Bounce
Despite some strangely optimistic expectation of a -0.5 print, September Empire Manufacturing printed -14.67, showing absolutely no hockeynesian dead-cat bounce mean-reversion. Hovering at the worst levels since April 2009, the underlying data is a total disaster. New Orders remain firmly negative and inventories collapse (who could have seen that coming?), and even more concerningly, employment and average workweek plunged into negative territory for the first time in over a year.
The read through the inflation outlook and for jobs – non-hamburger flipping jobs that is – from this report was simply abysmal:
Price changes were quite modest. The prices paid index slipped to 4.1, its lowest level since the Great Recession. The prices received index dipped below zero, falling six points to -5.2 in a sign that selling prices declined. Labor market conditions worsened,
with declines in employment levels and hours worked. The index for number of employees fell below zero for the first time in well over two years, slipping eight points to -6.2, and the average workweek index dropped to -10.3.
There was no silver lining pretty much anywhere in either the 6 month outlook or the current conditions:
Worst of all: the optimism is now gone. From the report:
Indexes for the six-month outlook displayed less optimism about future conditions than in August. The index for future business conditions fell ten points to 23.2.
Indexes for expected new orders and shipments dropped to similar levels, and the indexes for both future prices paid and future prices received declined. The index for expected number of employees edged up to 7.2, while the index for future average workweek turned negative. The index for expected capital expenditures fell six points to 11.3, and the technology spending index dropped to 2.1, indicating that tech spending plans were essentially flat.
Simply put, this report suggests total carnage in the manufacturing sector and, just as we have pointed out (most recently here and here), the exuberant inventory over-accumulation of the past few years – from Fed-deluded malinvestment – is about to come crashing down.
Business Inventories Grow At Slowest Pace Since Jan, Sales-Ratio Signals Recession Imminent
Following June’s 0.8% surge in business inventories (the most in 4 years) which surged inventory-to-sales to 1.37x – the highest since 2009 – July’s data confirms the recession looms large as inventory accumulation appears to have hit its limit, up only 0.1% MoM (inventory-to-sales hovers at 1.36x – historic recession levels).
Inventories rose a mere 0.1% in July – after June’s big rise
Business Inventory-to-Sales ratio remains stubbornly high as sales just do not appear despite all the ‘signals’ from a market driven purely be fallacious fed fenagling…
Remembering that this data is lagged by 2 months (in the face of disastrous Empire Fed inventory collapse, auto production collapse and retail sales weakness), it appears the “if we build it, they will come” economy just got slapped in the face with the reality that ‘Field of Dreams’ was a fiction, just like The US ‘Recovery’. Time for The Fed to hike rates?
Oh oH!! this is getting good!!
(courtesy zero hedge)
Explosive Allegation: Citigroup Leaked Central Bank Trading ACTIVITY
For years we had been wondering when it would start: by “it” we mean angry ex-bankers, disgruntled due to either the terms of their termination, their compensation, or generally unhappy with their treatment by their former employee, standing up and blowing the whistle on crimes they witnessed while (un)happily employed.
Then, over the past month, the answer has emerged as not one, not two, but at least six individual case have emerged in which former currency traders at Citigroup, HSBC, Lloyds and other banks have seen former employees sue their previous bosses. As Bloomberg reports, “some of the traders say they were unfairly swept up in clear-outs of currency desks at the center of regulatory probes into the manipulation of foreign-exchange markets.”
And now they want revenge.
The reason for the wrath is that as a result of the crackdown on FX manipulation more than 30 traders were fired, suspended or put on leave over the last two years. However, as the Tim Hayes of Libor manipulation “rain man” fame has shown, in many cases those fired were merely the lowest men on the totem pole, and their termination was meant to cover up the crimes of individuals much higher up in the food, and value, chain. Indeed, Bloomberg adds, in the years after the 2008 financial crisis, fired bankers were telling London employment judges they had been made scapegoats for systemic failings.
Since most employment claims in the U.K. must be filed within three months of a dismissal to be allowed to proceed, they tend to come in clusters: and once one former worker shows there is little to lose, others quickly join in.
More importantly, since damages in employment cases are normally capped at about 78,300 pounds ($121,000), unless there is a finding of discrimination or the claimant wins status as a whistle-blower, employees are suddenly incentivized to expose all the crime they have been directly or indirectly witnessed to make sure their last potential parting gift from the financial industry is large enough.
And since few have the desire or eligibility to work in finance, they may as well go out with a bang: currency traders have little to lose by filing employment claims, according to James Davies, a London-based employment lawyer at Lewis Silkin. “If your reputation is already tarnished in the financial services sector then you’re less likely to be concerned by any adverse publicity arising from making a claim,” he said. “You’re also more likely to have the resources to make it possible to litigate.”
Here are some examples of the already filed cases, chronicled by Bloomberg:
Carly McWilliams, Perry Stimpson, David Madaras and Robert Hoodless all filed suits against Citigroup after they were fired amid the bank’s internal rigging investigation. Serge Sarramegna and Paul Carlier are suing HSBC and Lloyds for unfair dismissal and so-called public interest disclosure, or whistle-blowing, in relation to foreign-exchange practices. Only Stimpson’s case has reached trial so far. Carlier’s case could start as soon as Wednesday, the same day as a trial involving another Lloyds employee, Andrew Reed, is scheduled to begin. Including two discrimination complaints, as many as four banker lawsuits could be heard in London employment tribunals tomorrow.
Of all those, the case of Stimpson is by far the most interesting one.
Perry Stimpson Photographer: Luke MacGregor/Bloomberg
Testifying at a London tribunal last week, Stimpson alleged improper conduct was endemic in the bank’s currency-trading and claimed he saw managers deliberately flout the bank’s code of conduct. The former FX trader spored nobody, and named former managers and specific examples of their misbehavior. Rules of client confidentiality could “be bent at the request of senior management,” he said.
“I’m not here to mudsling, I’m here so the truth about foreign exchange at Citigroup is heard once and for all,” Stimpson said at the start of the case. The bank and the managers say his allegations are unfounded.
Maybe they are, but a deeper dive into his allegations reveals something far more troubling: Citigroup may have been sending details of its central bank customers’ trading activity to other clients, Stimpson said in a witness statement to a London court on Thursday.
Here is the kicker according to Reuters:
“Our Investor Desk would comply with a weekly request from (a client) for details of Central Bank activity that Citi had transacted,” Stimpson said in his witness statement to an employment tribunal in London. Stimpson did not specify which central banks he was referring to.
If anyone is confused, this means that not only do central banks trade FX on a day to day basis, something which has become increasingly clear in the past couple of years by merely observing the rigged market, but Citi was actively leaking this data to select clients!
Stimpson adds that Jeff Feig, who was Citi’s global head of trading at the time, called a halt to sending round the “central bank survey”, as Stimpson said it was referred to, in mid-2013 because he decided it was wrong. He did not elaborate.
Jeff Feig quit Citi in a hurry when the FX manipulation scandal was just getting started last September to join Fortress Macro as co-investment chief. He “unexpectedly” quit Fortress in this July, less than a year on the job, for “reasons unknown.” Surprisingly, it may not just be the FX manipulation catching up with him: his biggest position had been a EURCHF bet which blew up in January after the shocking SNB peg-breaker announcement. Guess he didn’t see that one coming.
Other unprecedented and criminal violations was Citigroup’s “common practice on the Investor Desk to cut and paste details of Citibank’s order book on to Bloomberg chats at the request of customers.” Stimpson said in his statement.
While unproven yet, these allegations are nothing short of a bombshell, and explain why Citigroup and its peers have rushed in an epic scramble to settle all FX manipulation allegations as fast as possible, to avoid precisely details such as these from coming out.
They did not , however, anticipate scapegoats such as Perry daring to fight back.
Of course, Citi has neither seen, nor heard, nor said nothing: a Citi spokesman said: “All of the allegations of wrongdoing being made by Mr Stimpson have been investigated and were found to be without merit.”
You mean to say the bank investigated itself and found that it did not engage in grossly criminal behavior such as leaking central bank trades to private clients? Unpossible!
On the other hand, Citi has its scapegoating narrative well laid out: it said Stimpson was dismissed for serious breaches of contract, alleging he shared confidential client information with traders at other banks via electronic chatrooms. Stimpson was dismissed last November in the wake of an industry scandal that resulted in banks paying more than $10 billion in fines for failing to stop traders attempting to manipulate the $5 trillion-a-day forex market.
Because where there is gross currency manipulation, it is always just one or two traders who did it. Nobody else! They never got the idea by watching their bosses and superiors do just that, and greenlight their own manipulation. Duh.
Ironically, Citi’s story falls apart when one digs through the evidence: Stimpson said he was strongly encouraged to gather and share more market information with colleagues and traders at other banks in order to have a broader understanding of market conditions to help the bank in its trading. Maintaining contacts to gather information became one of his annual goals that would help dictate his year-end bonuses.
“Dude, get yourself on a chat,” his then line manager Bob de Groot told him in 2009, according to Stimpson’s statement. “Perry has made a good effort to talk to other participants in the market, he could give a little more effort in sharing information and ideas across the business,” is what de Groot wrote in his 2009 year-end review, Stimpson claimed in his statement.
It gets worse:
In his testimony, Stimpson said Citigroup staff breached confidentiality around some clients and that some senior staff used inside information to trade, in contravention of the bank’s own code of conduct.
In his witness statement, Stimpson said Michael Plavnik, then head of the short-term interest rate trading desk, looked to profit from trading euros around that day’s “fixing”, the daily process of setting what are effectively benchmark exchange rates used by many funds, companies and central banks around the world.
Plavnik had heard Citi’s spot FX desk had a large order to buy euros at the fix. Armed with that knowledge, he bought 200 million euros before the fix to sell them back into the market at the fixing rate, Stimpson claimed in his statement.
And, lo and behold, a Citi spokesman told Reuters that “Plavnik has not been found to have committed any misconduct.” That is to say, who knows how many more senior bankers Plavnik could take down with him if charges were filed against even a mid-level maret rigger.
Instead he was rewarded, more for not getting caught than any other reason: Plavnik has since been promoted to global head of short-term interest rate trading.
That said, Stimpson is not innocent either: “Stimpson, who is representing himself, admitted that he had signed Citi codes of conduct, which covered a wide range of issues from ethics to client confidentiality, but barely paid any attention to their content.”
Neither did anybody else, and until all these market manipulators finally end up in jail, nobody ever will.
In the meantime, however, expect many more such scapegoats to emerge and explain to the world how all such former “conspiracy theories” were really “conspiracy fact” – who knows, maybe one day a former Fed trader will give the full explanation of just how the NY Fed’s market group manipulates the S&P500 on a day to day basis with the generous help of Citadel’s E-mini spoofing algorithms…
Hewlett-Packard To Fire 30,000
Remember when Hewlett-Packard announced it would fire 58,000 in February just so the company could spend billions on stock buybacks?
Well, since Meg Whitman clearly needs to spend even more on buybacks, another 30,000 just lost their jobs. Just out from Bloomberg:
- HPE CFO SEES 2.7BN RESTRUCTURING LEADING TO 25K-30K JOB CUTS
- HP: BY 2018 40% OF ES EMPLOYEES WILL BE IN HIGH-COST LOCATIONS
More details from Bloomberg on the latest restructuring bloodbath out of Hewlett-Packard :
- sees FY16 FCF $2b-$2.2b, with normalized FCF $3.7b.
- Sees FY16 adj. EPS $1.85-$1.95
- Sees FY16 operating cash flow $5b-$5.2b
- Sees cutting 25k-30k jobs as part of restructuring, with GAAP charges $2.7b
- Sees returning at least 50% of FCF to holders through ~$400m in dividends and the remaining in share repurchases
- Says will consider strategic partnerships, investments and M&A “in the right circumstances”
- Earlier, co. said sees HPE cloud rev. ~$3b in FY2015 growing over 20% with similar pace expected over next “several years”
- Said enterprise services business on target for 7%-9% oper. margin target and for reducing $1.4b in costs for 2015; sees similar cost reduction pace continuing next year
And so, dear 30,000 formerly-well paid computer engineers and technicians: welcome to the fast-food recovery. And don’t forget to BTFD with all that spare cash.
Now, where is that 25bps rate hike because the economy is just too strong