Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1114.20 down $1.30 (comex closing time)
Silver $14.51. unchanged
In the access market 5:15 pm
As an alert to you, tomorrow is the FOMC jobs report. Although we all know that the results are phony, the bankers always use this opportunity to manipulate gold/silver. However judging from the poor regional surveys, the job growth number should be quite subdued.
First, here is an outline of what will be discussed tonight:
At the gold comex today, on first day notice we had a very poor delivery day, registering only 5 notices for 500 ounces Silver saw 9 notices for 45,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 213.08 tonnes for a loss of 90 tonnes over that period.
In silver, the open interest rose by 720 contracts despite the fact that silver was down in price by 5 cents yesterday. The total silver OI now rests at 157,625 contracts In ounces, the OI is still represented by .788 billion oz or 113% of annual global silver production (ex Russia ex China).
In silver we had 9 notices served upon for 45,000 oz.
In gold, the total comex gold OI rose to 417,079 for a gain of 1379 contracts. We had 5 notices filed for 500 oz today.
We had a huge addition in tonnage at the GLD to the tune of 3.28; thus the inventory rests tonight at 687.42 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. In silver, we had a huge addition in silver inventory at the SLV to the tune of 1,145,000 oz/Inventory rests at 318.529 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver rise by 720 contracts up to 157,625 despite the fact that silver was down by 5 cents in price with respect to yesterday’s trading. The total OI for gold rose by 1379 contracts to 417,079 contracts, despite the fact that gold was down $11.60 yesterday.
b) FRBNY report on earmarked gold at the NY Fed
2.Gold trading overnight, Goldcore
3. a) China opens for trading 9:30 pm est Wednesday night/Thursday morning 9:30 Shanghai time/More bad news from Japan, and China where PMI’s reported were simply disastrous.
3b) Southern China whacked again today by 17 explosions leveling many buildings
4a) The losses on Glencore stock amounts to 14.4 billion USA and this does not account for derivative losses by the company and others.
4b) DAX gives up all of yesterday’s gain
4c) Germany now wishes to expel “economic” migrants to make room for the Syrian refugees.
Russia + USA affairs/Middle eastern affairs
5a) Russia continues to bomb various sites in Syria
5b) Propaganda begins as the USA et al state that Russia is not hitting ISIS targets. The rhetoric gets louder and louder.
5c) Saudi Arabia intercepts Iranian ship probably heading to Yemen with advanced weaponry
5d) Iranian soldiers enter Iran as the Middle east is now a full blown powder keg
6a)Once again the Gartman signal works to perfection:
Copper is fully badly (this should cause ignition/blast-off to credit default swaps for Glencore and bond problems for Trafigara
stocks tumble sensing huge problems
(courtesy zero hedge)
6b) Global PMI at 24 month lows
7a Turkish lira falls to 3.02 to the dollar while its foreign reserves fall for the first time below 100 billion USA. Their big election is next month and if no majority, major chaos will ensue
. Oil related stories
9 USA stories/Trading of equities NY
a) Trading today on the NY bourses 2 commentaries
b) Did Gartman just kill the rally by going long
c) Wal-Mart to layoff hundreds at its head office
d)After Asia and Europe reported disastrous PMI, the USA PMI came out and it was stagnant
e. The private ISM report confirms the above and its survey shows manufacturing plummeting across the USA verifying the Chicago Mfg Index
f) Challenger Christmas, Gray layoff report at odds with the Dept of Labour/someone is lying!!
(Challenger/Christmas/Dept of Labour/zero hedge)
g) Dave Kranzler or the jobless number and the new Challenger report showing huge increase in layoffs
(Dave Kranzler IRD)
h) Consumer Sentiment is down badly as we reported last week. Zeitlin proposes two reasons why this time investors are not buying the dip.
i) Atlanta Fed lowers in estimate of final Q3 GDP (the quarter that just passed) to only .9%
(Atlanta Fed/zero hedge)
10. Physical stories
- Filipino mining companies using children as young as 9 years old in mines /Associated Press)
- New gold rush coming to the Yukon/Vancouver sun
- Bron and Chris Powell go head to head on gold financialization/Bron Suchecki/Chris Powell/GATA)
- Dave Kranzler of obvious gold manipulation yesterday!@! (Dave Kranzler iRD)
Let us head over to the comex:
October contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| 2199.25 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| 300.245 oz
|No of oz served (contracts) today||5 contracts
|No of oz to be served (notices)||2826 contracts
|Total monthly oz gold served (contracts) so far this month||126 contracts
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||2199.25 oz|
Total customer deposit: 300.245 oz
***extremely unusual to have no activity of gold on second day notice especially with 9.18 tonnes of gold standing for delivery.
October silver Initial standings
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 1,051,571.945 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||290,297.645 oz (Delaware,CNT)
|No of oz served (contracts)||9 contracts (45,000 oz)|
|No of oz to be served (notices)||38 contracts (190,000 oz)|
|Total monthly oz silver served (contracts)||20 contracts (100,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||nil oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||2,291,395.0 oz|
Today, we had 0 deposit into the dealer account:
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 290,297.645 oz
total withdrawals from customer: 1,051,571.945 oz
And now SLV:
Oct 1.2015:another addition of 1,145,000 oz of silver inventory added to the SLV inventory.
Sept 30/no change in silver inventory at the SLV/Inventory rests at 317.384 million oz
sept 29.2015: we had another withdrawal of 859,000 oz from the SLV/Inventory rests at 317.384 million oz
sept 28./no change in silver inventory/rests tonight at 318.243 million oz/
Sept 25./we had another 954,000 oz of silver withdrawn from the SLV/Inventory rests this weekend at 318.243 million oz
Sept 24.2015: no change in silver inventory tonight/inventory rests at 319.197 million oz
Sept 23.2015: we had a huge withdrawal of 1.718 million oz at the SLV/Inventory rests at 319.197 million oz
Sept 22/no change in inventory at the SLV/Inventory rests at 320.915 million oz
sept 21.2015: no changes in inventory at the SLV/Inventory rests at 320.915 million oz
Sept 18.2015; no changes in inventory at the SLV/inventory rests at 320.915 million oz
sept 17.2017:no change in inventory at the SLV/rest tonight at 320.915
sept 16.2015: no change in inventory at the SLV/rests tonight at 320.915 million oz/
Sept 15./no change in inventory at the SLV/rests tonight at 320.915 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. * * * * *
GoldCore Quarterly Review by Dr Constantin Gurdgiev
Gold in Q3: USD -4.5%, EUR -2.4%, GBP +1.5%, CHF +2.4%, CAD +4.6%
– Stocks face worst quarter since 2011 over fears for global economy
– Global economy concern as China slows down sharply
– Concern over Federal Reserve stewardship
– Increasing nervousness over U.S. earnings outlook
– Stock markets of the world’s ten largest economies are currently in red
– Gold rose 1.5% in GBP, 2.4% in Swiss franc and 4.6% in Canadian dollar
– Gold down 4.5% in USD while global stocks fall 5% to 13%
– Stocks remain overvalued and still opportunity to re-balance into gold
After the China Tremors of July-August, September rolled in with a roar of a veritable Bear.
All in, on a quarterly basis, S&P was down 8.2 percent, DJIA fell more than 8.7 percent and EuroStoxx 50 shed 12.9 percent. Only longer dated (5 years-plus) U.S. bonds and Japanese Yen have managed to wrestle out quarterly returns in excess of 1 percent.
Meanwhile, the CBOE Volatility Index (VIX), a popular measure of the implied volatility of S&P 500 index options, jumped 38.4 percent compared to the start of July. Risk aversion once again became a major strategy play in 3Q.
The core drivers for the changed risk sentiment are global themes.
China – at the front of the financial news flow – continued to post weakening macroeconomic data. August marked an outright collapse in Composite PMI, down to 48.8 from 50.8 in July, marking the fastest contraction of output since February 2009. September manufacturing PMI came in at a miserably low 47.2, with Composite PMI falling to 48.0 signaling a rapid rate of economic growth deterioration for the second month in a row.
Chinese economy’s woes, however, are far from being contained. Ongoing deleveraging in the markets – cutting margin loans volumes, unwinding carry trades (including across broader Asian markets), and closing off risk-parity positions – all saw Shanghai Composite Index falling from the peak of 5,166 in mid-June to 3,038 at the end of September. As of September 29, total margin debt in Chinese stock makers stood at CNY921 billion, down more than 50 percent on peak attained in June (chart), but still well ahead of 3Q 2014 levels.
The same factors also caused major ripples across the globe because Chinese economic problems, in part, reflect a global growth slowdown.
The latest IMF economic outlook, published this week, shows sharp deterioration in growth across all emerging economies (EMs). Worse, growth prospects are also becoming more volatile.
Between 2012 and 2013, the emerging economies posted annual GDP growth, on average, only 0.25 percentage points below prior consensus forecasts. This year, per IMF estimates, the gap is going to be more than four-fold.
Most current composite PMIs for August-September for BRIC economies shows weak conditions across three out of four largest Emerging Markets, with downward trend persisting since June 2014 and weak growth conditions remaining in place since the end of 1Q 2013 (see chart).
In mid-September, OECD also lowered its forecasts for the global economy for both 2015 (from 3.1% forecast at the end of 2Q 2015 to 3% at the end of 3Q 2015) and 2016 (from 3.8% to 3.6%, respectively). This marked second consecutive quarter of growth downgrades from the Paris-based body.
In line with these developments, the stock markets of the world’s ten largest economies are currently in the red, from Japan to Brazil, from New York to Moscow.
However, even with the recent corrections, stocks remain heavily overpriced by historical comparatives. MSCI World ex-financials EV/EBITDA ratio has peaked at historical highs in 1Q 2015 and declined since then, but the figures still indicate markets pricing close to 2001 dot.com bubble levels.
And corporate debt is rising fast, despite severe pressures on lower-rated junk bonds, just as the risk quality of corporate credit is falling.
Kamakura Troubled Companies Index – a measure of default risks in global corporate debt markets – has hit it highest level in five and a half years back at the end of August. Debt-fuelled M&A activities and shares buy-backs are at or near all-time highs, as corporate boards around the world are staying sold on the idea that debt will remain cheap over the medium term.
In the world of Global ZIRP, neither sales, nor earnings, nor profits matter, as leverage plays, once again, a role of the king.
Q3 2015 consensus forecast for S&P500 earnings outlook is currently indicating a -3.9 percent contraction in earnings compared to 3Q 2014, based on Thomson Reuters data. Beyond 3Q 2015, rolling 12-month forward forecast for EPS (earnings per share) is close to negative 2 percent, the lowest since late 2009.
Last, but not least, we are in the midst of a historically severe commodities crash that exacerbates markets woes. The key culprit in this process is financialisation of commodities and the cyclical nature of leverage.
All of the above factors have led to a significant spike in risk aversion. September saw VIX rising 81 percent year-on-year on a monthly average basis, following an increase of 44 percent in August. Average daily volatility in VIX rose 81 percent year-on-year in August and by 41 percent in September.
From the broader markets point of view, 4.3 percent quarterly decline in gold prices over 3Q 2015 offers a generally less negative performance than majority of other investment instruments. Against the headwinds of margin calls and leverage drying up in the financial markets, especially in emerging markets, gold downside was controlled by the elevated markets volatility, rising risk aversion of investors and its function as a hedge against currency debasement.
Directionally, quarter-on-quarter gold prices moved largely in line with currency valuations. Not surprisingly, gold fell 4.1 percent (on a quarterly data basis) in U.S. dollar terms, 2.4 percent in Euro terms and 3.3 percent in Yen.
Gold rose 1.5 percent in pound sterling, 2.4 percent in Swiss franc and 4.6 percent in Canadian dollar.
All of which simply confirms the defensive nature of gold as a longer-term hedge against core risks.
Beyond physical demand and supply imbalances, mounting uncertainty over the timing and scale of the U.S. Fed rate hike is driving short-term volatility in gold prices.
Despite what we often hear from the media, given the unprecedented nature of recent monetary policy ‘innovations’ deployed by the Central Banks around the world, there is simply no reasonable way of predicting how gold and other commodities prices will react to changes in the U.S. rates. Which means that markets nervousness about the impact of the Fed move (and, subsequently, monetary tightening by other Central Banks) is here to stay.
This suggests that in the short run, downward pressures on gold prices are unlikely to be abating.
Perhaps surprisingly, the latter is the good news for non-speculative investors. Taking a longer horizon (life-cycle of investment portfolio) view suggests that investors should take the present period of downward re-pricing of gold as an opportunity to review their portfolios to ensure a strong balancing across various asset classes, reflective of longer-term risks.
The data since the official end of the Great Recession has been consistently signaling a high probability of an on-set of the so-called secular stagnation – a longer-term period of structurally lower global growth. Added short-term risks imply building imbalances in the financial and monetary systems.
The twin combination of elevated short-term risks and long-term slower growth raises the importance of diversification in investment portfolios, including diversification into gold.
In this setting, investors looking to build defensive wealth preservation strategies should stay long gold, down-weight speculative grade financial assets, including financially instrumented commodities and low quality debt. All investors will also do well – in risk management terms – to avoid leverage and equity in debt-heavy companies.
For those who have been avoiding gold in their portfolios, there is now a chance to review their allocations.
As usual, gradually diversifying holdings to all key asset classes, including gold bullion, while carefully balancing costs and risks associated with holding different instruments is the best approach to long term wealth management.
by Dr Constantin Gurdgiev
Today’s Gold Prices: USD 1114.20, EUR 998.66 and GBP 735.69 per ounce.
Yesterday’s Gold Prices: USD 1122.50, EUR 1000.08 and GBP 739.12 per ounce.
Gold in USD – 12 Months
Gold closed at $1116.00 down $11.40 for the day. Silver was down – down 0.6% or $0.10 to close at $14.54.
Gold prices are trading at $1,114 in European trading, not far from a two-week low of $1,111.60 hit in the previous session. Gold was 4.5% lower in the quarter but it is worth noting that it has lost 3.4% in the last four sessions alone.
Gold has seen weakness into quarter end for many months now and it is frequently when gold sees intermediate lows and bounces higher immediately after the quarter end (see chart below – click to expand).
Gold in USD – 2015 YTD – [click to expand]
Source: Thomson Reuters
Platinum was the biggest faller of the last quarter, down 16%, a fifth successive quarter of losses. It hasn’t had such a long run of quarterly declines since 1991.
While gold and silver were weaker during the quarter, coin and bars sales remain very robust internationally.
The U.S. Mint sold 14.26 million ounces of American Eagle silver coins in the third quarter, the highest on records going back to 1986. The mint’s gold sales rose more than threefold from the prior three months to just under 400,000 ounces, the biggest volumes in just over five years.
The Perth Mint sold a record amount of silver coins in September, while gold sales rose to a one-year high. The mint sold more than 3.53 million ounces of silver coins in September according to Reuters. This is about five times higher than the mint’s August sales.
Demand for gold products also rose in September, with sales climbing to 67,313 ounces, the highest since September 2014. Year-on-year, gold sales were lower by 2 percent.
Rights group: Filipino child miners risk lives in gold mines
Submitted by cpowell on Wed, 2015-09-30 15:21. Section: Daily Dispatches
This is what happens when gold price suppression makes it impossible for easily regulatable corporations to mine gold responsibly in accordance with worker-safety and environmental-protection regulations. Wildcatters go into the business without any concern for protecting people or the environment.
* * *
By Teresa Cerojano
via MSNBC, New York
Wednesday, September 30, 2015
MANILA, Philippines — The Philippine government has failed to protect thousands of children, some as young as 9 years old, who risk their lives by working in illegal, small-scale gold mines under terrifying conditions, a human rights group said today.
Human Rights Watch’s report said the children work in unstable 25-meter (80-foot) deep pits or under water along coastal shores or rivers, processing gold with mercury, a toxic metal that can cause irreversible health damage. Those who dive for gold stay underwater for several hours at a time in 10-meter-deep (30-foot-deep) shafts, receiving air through a tube attached to an air compressor.
The New York-based group says it interviewed 135 people, including 65 child miners from 9 to 17 years of age, in eastern Camarines Norte and Masbate provinces in 2014 and 2015. …
… For the remainder of the report:
(courtesy Vancouver Sun/GATA)
Charging into the Yukon’s new gold rush
Submitted by cpowell on Wed, 2015-09-30 15:26. Section: Daily Dispatches
By James Kwantes
Vancouver Sun, Vancouver, British Columbia, Canada
Tuesday, September 29, 2015
DAWSON CITY, Yukon Territory, Canada — It is possible to travel by boat for hours down the Yukon River to Dawson City without spotting another human, although you will likely see moose and black bears — and if you’re lucky, a grizzly.
It is quite a contrast from the Klondike Gold Rush of 1896 to 1899, when treasure hunters turned the river into a superhighway of steamboats, barges, canoes and rafts.
One of the stops for prospectors was Coffee Creek, a farm and trading post.
Today the way station is a barge stop and base camp for Kaminak Gold, one of several Vancouver-based companies taking part in a modern-day Yukon gold rush. Kaminak’s 4-million-ounce Coffee gold deposit lies in nearby mountains.
“Thousands of prospectors would have stopped there over the years,” Kaminak founder and chairman John Robins said with a smile. His appreciation for the irony is heightened by a personal connection — his great-great-grandfather was a prospector who was part of the original gold rush.
“The Yukon has been one of the greatest teases for an exploration geologist,” Robins explained in an interview. “It’s one of the greatest places in the world for placer mining, but there’s never been a (major) gold mine.” …
… For the remainder of the report:
Dave Kranzler on obvious gold/silver manipulation
(courtesy Dave Kranzler)
The king of high frequency trading, Nanex’s Eric Hunsader, has been on a crusade lately to expose the problematic and illegal manipulative side of HFT/algo-driven trading. No where on earth is the manipulation of any market more blatant and in-your-face illegal than in the paper gold market. Yesterday morning Hunsader tweeted out this, after the gold was taken down hard in the paper gold market:
Gold was smashed at exactly 8:20 a.m. EST when the gold pit at the Comex opened. The initial hit involved the dumping of 2,748 contracts – or 274,800 ozs of paper gold – in the first minute of floor trading. The Comex is only reporting 162,221 ozs of “registered,” deliverable gold. Hmmm…From 8:00 a.m. – 9:00 a.m, 29,136 contracts traded, representing 2.9 million ozs of gold traded, most of it in the first 40 minutes after the floor trade.
Without a doubt, the blatant nature of the manipulation reflects the degree of desperation felt by the Fed and the bullion banks to keep a lid on the price of gold given that the Fed is unable to raise interest rates without crashing the system.
The blatant manipulation of gold further reflects a bigger problem facing the western Central Banks and bullion banks: the growing scarcity of gold available to deliver into entitled buyers like India and China. The Shanghai Gold Exchange withdrawals continued at record levels in September and even Bloomberg is reporting this now: LINK.
And the big festival seasons are about to begin in India and the Middle East: LINK
One last point that I believe is perhaps the strongest indicator that the wholesale gold bullion market is as tight as it’s ever been. “Conflict gold” is now thought to be part of the gold which is flowing into big buyers like India. “Conflict gold” is gold bars in dore form that are produced in places like Ghana by mines using child-labor or by mines controlled by contra-Government rebel groups in the Congo.
Allegations have surfaced that this conflict gold showing up at refiners in India. Although the only western gold market writer I’m aware of who is tracking the dore bar market in India is John Brimelow (John Brimelow’s “Gold Jottings”), India has been shifting a measurable portion of its imports to dore bars. Dore bars are 80-85% purity bars that are processed by mines and sent to refiners for further processing.
The reason the Indian demand-mix has shifted more toward dore bars, I believe, is two-fold: 1) the dore bars are subjected to a significantly lower import duty than LBMA-quality bars and 2) it reflects the inability of the global market to produce enough deliverable LMBA-quality bars to meet Indian demand.
The shift in demand toward dore bars is one of the primary reasons that the mainstream media like Reuters, the UBS metals group and Dennis Gartman are reporting that gold demand in India is weak right now. They only track the ex-duty premiums of the LBMA-quality bar imports into India and completely ignore – or, more likely, are unaware of – the booming dore bar imports. Currently the ex-duty import premiums are negative, reflecting weak demand for those bars. However, the premiums paid for dore bars reflect booming demand for those bars.
I guess it’s only a matter of time before we get another avalanche of anti-gold media propaganda and thoroughly misleading and factually unsubstantiated garbage analysis from bullion bank apologists like the Perth Mint and Jeffrey Christian.
Chris and Bron go head to head on this. You decide the victor!!
(courtesy Chris Powell/Bron Suchecki/GATA)
Bron Suchecki: Blame the carpenter or the tool?
Submitted by cpowell on Thu, 2015-10-01 11:24. Section: Daily Dispatches
7:36a ET Thursday, October 1, 2015
Dear Friend of GATA and Gold:
Replying to your secretary/treasurer, Perth Mint research director Bron Suchecki today defends the “financialization” of markets and particularly the financialization of the gold market, arguing that it has provided the advantage of leverage to retail investors.
But as your secretary/treasurer argued the other day —
— leverage is more of an advantage to those with more access to it, and no one has more access to leverage than the creators of infinite money, central banks, and even Suchecki might agree that the powerful interest of central banks is to defend the value and use of the currencies they issue and control against the value and use of the independent (or potentially independent) international currency, gold.
At least Suchecki agrees that the transparency for which GATA advocates in the gold market is desirable, which is the supreme issue in that market. But central banks oppose such transparency precisely because it would reveal their leverage and the decisive advantage it confers on them in the gold market.
Suchecki’s commentary is headlined “Financialization — Blame the Carpenter or the Tool?” Certainly GATA blames the carpenter, insofar as central banks are the surreptitious carpenters of the gold market and increasingly of other markets as well. Since only central banks are capable of using the tool of leverage as a mechanism of absolute power, those who oppose absolute power in government may resent the tool too, even as, being inanimate, it can’t really be “blamed.”
Suchecki’s commentary is posted at the Perth Mint’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Yesterday we received the FRBNY report on earmarked gold.
In July we had a reading of 8076 million dollars worth of gold stored at FRBNY at 42.22 dollar per oz.
On August 29.2015: we had a reading of 8062 million dollars worth of gold stored at FRBNY at 42.22 dollars per oz
total amount repatriated: 14 million dollars at 42.22 dollars per oz.
thus the 14 million dollars worth of gold is represented by 14 million/42.22 = 331,596 oz or 10.3104 tonnes
Since Germany is the only official country asking for their gold back, you can bet the farm that these guys are the recepient of the 10.3 tonnes.
1 Chinese yuan vs USA dollar/yuan falls a bit in value, this time at 6.3564/Shanghai bourse: off, hang sang: green
2 Nikkei closed up 334.27 or 1.92%
3. Europe stocks in the green except Germany which just turned into the red /USA dollar index up to 96.34/Euro down to 1.1154
3b Japan 10 year bond yield: falls to .335% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.68
3c Nikkei now well below 18,000
3d USA/Yen rate now below the important 120 barrier this morning
3e WTI: 46.16 and Brent: 49.35
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises slightly to .601 per cent. German bunds in negative yields from 4 years out
Greece sees its 2 year rate rises to 10.42%/Greek stocks this morning down by 0.59%: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield falls to : 8.21%
3k Gold at $1114.20 /silver $14.50 (8 am est)
3l USA vs Russian rouble; (Russian rouble down 17/100 in roubles/dollar) 65.54,
3m oil into the 46 dollar handle for WTI and 49 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 .9784 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0914 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 on criminal charges/
3r the 4 year German bund now in negative territory with the 10 year moving further from negativity to +.601%/5 year rate at 0.00%!!!
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 2.05% early this morning. Thirty year rate below 3% at 2.86% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Fourth Quarter Begins With Global Stock Rally As Bad Economic News Is Again Good
The bad economic news started with Japan’s Large Manufacturing Tankan missing expectations of +13, printing at +12 while, as Goldman summarized, “outlook DIs show across-the-board deterioration in both manufacturing and non-manufacturing industries” once again bringing up the question whether the BOJ will boost QE later this month.
Then it was China’s official and Caixin PMIs which as we reported, confirmed the economy remains in contraction, even if it is no longer in freefall mode. The Markit final September print was 47.2, the lowest since March 2009 while the Composite PMI was the lowest ever. And since Chinese stocks were closed for the next week, it was up to S&P futures to set the mood, which they did by soaring as soon as the disappointing PMI numbers hit:
Then it was Europe’s turn, where disappointing PMI came fast and furious. The final Euro area manufacturing PMI came in at 52.0 in September, in line with the flash. Between August and September, the Euro area manufacturing PMI fell by 0.3pt from 52.3 to 52.0
On a country basis, German manufacturing PMI fell on the month (53.3 to 52.3), as did the Italian (53.8 to 52.7) and Spanish prints (53.2 to 51.7). Ironically the only rebound was in what many suggest is core Europe’s worst performing economy, France, where the manufacturing PMI strengthened from 48.3 to 50.6.
According to Goldman, “The PMI breakdown across subcomponents in September was weak. Both manufacturing output and employment fell, by 0.4pt and 0.5pt respectively. The order-to-stock difference fell marginally by 0.9pt in September, reflecting a weakening in new orders and an increase in stocks of finished goods.”
Of particular attention was Spain where the recent miracle “recovery” has now fizzled and the economy appears to have entered the downward phase of the dead cat bounce.
In short, between bad and/or deteriorating data in Japan, China and Europe, at least someone will step up and add to the liquidity spigots. That, in a nutshell, is the conditioned Pavlovian markets’ thinking as usual.
Finally, a catalyst that may be helping the market’s mood start the new quarter on the right foot is the rebound, at least for now, in Glencore stock which as of moments ago managed to wipe out its entire 27% Monday plunge, as even more sellside analysts – all of whom have been wrong on the stock – came out in defense of the company.
Any incremental price increases from here will be far more complicated.
Looking around at regional market action, Asian equity markets tracked the gains seen on Wall Street, where US equities pared some of their worst quarterly losses since 2011. The rebound in commodities bolstered the ASX 200 (+1.8%), while Nikkei 225 (+1.9%) extended on yesterday’s gains as USD/JPY remained near its highs, while the BoJ Tankan survey showed capex plans are firmer than expected, despite Large Tankan Manufacturing Outlook (10 vs. Exp. 10) declining the 1st time in 3 quarters. Furthermore, Japanese lawmaker Yamamoto continued to call for BoJ easing at the end of the month. While the Nikkei reported that Japan’s GPIF is to invest in foreign junk bonds. As noted above, markets in mainland China are closed until Oct. 7th due to the Golden Week Holiday and Hong Kong is also closed for a holiday.
Stocks in Europe came off the best levels of the session but remain in the green (Euro Stoxx: +1.0%) following the release of less than impressive EU based PMIs. At the same time , the downside in equities supported the recovery by Bunds, which too had to contend with a raft of supply from Spain and France. Nevertheless, the upside was led by energy and basic materials sectors, amid the ongoing recovery by Glencore (+5.8%) and VW (+3.7%).
In FX, markets have seen the USD-index (+0.1%) reside in modest positive territory ahead of the North American open amid the pickup in sentiment, with USD/JPY residing around the 120.00 level, at which a large option expiry (1.6bIn) is set to roll off at the 10am NY cut. Elsewhere gains across energy and base metals complex supported commodity sensitive currencies such as AUD and CAD. Going forward, market participants will get to digest the release of the latest US weekly jobs report, manufacturing PMI, ISM manufacturing as well as comments from ECB’s Draghi and Fed’s Williams.
Looking at commodities there has been an uptick today on the back improved sentiment after Chinese official manufacturing and Caixin PMI’s printed better than expected, with WTI and Brent crude futures both higher by around USD 1.00 today. Meanwhile, gold trades relatively flat with the precious metal remaining around 2-week lows following the slump seen yesterday, amid gains in equities and a firmer USD seeing gold post its longest run of quarterly losses (5) since 1997.
And with the global PMI parade out of the way, we now look to the day ahead In the US as well as the final read on the September manufacturing PMI and the latest vehicle sales numbers we will also have the September US ISM. Any deviations either way will be keenly watched for. On the central bank front we are expecting to receive the record of the BoE’s Financial Policy Committee September meeting as well as hearing from Lockhart and Williams from the Fed. David Einhorn (who is now down 17% YTD) darling Micron Tech reports after the close.
Bulletin Overnight Summary from Bloomberg and RanSquawk
- Asian equity markets tracked the gains seen on Wall Street, while better than expected China PMIs also underpinned sentiment
- Stocks in Europe came off the best levels of the session but remain in the green following the release of less than impressive EU based PMIs, with the downside in equities supporting a recovery by Bunds
- Going forward, market participants will get to digest the release of the latest US weekly jobs report, manufacturing PMI, ISM manufacturing as well as comments from ECB’s Draghi and Fed’s Williams
Treasuries decline, 10Y yields rise for first time in four days, as better than expected China factory data spurs rally in global stocks.
- China’s official PMI rose to 49.8 in September, near a three-year low and better than forecast; Caixin/Markit’s separate PMI gauge also showed improvement from its initial reading, with the final September number climbing to 47.2
- Japan’s Tankan index for large manufacturers fell to 12 in September from 15 in June, lower than the median estimate of 13 in a Bloomberg survey of economists
- Almost three years into Abe’s administration, there’s increasing concern Japan hasn’t sufficiently freed up regulations on businesses and workers. The cost could be a third lost decade
- U.K. manufacturing grew at a sluggish pace last month, with Markit’s manufacturing PMI slipping to 51.5 from 51.6 in August; employment fell for the first time in more than two years, indicating concern about the outlook among executives
- European factory-gate prices fell in September for the first time in six months as input costs declined at the fastest pace since January, Markit said, while a manufacturing PMI fell to 52 last month from 52.3
- When the Fed raises rates and the cost of capital increases, corporate bond issuers will have to instate covenants and protections for buyers that have fallen to the wayside in recent years, according to Pimco’s Mark Kiesel
- $120b IG priced in September, $22.8b HY. BofAML Corporate Master Index OAS widens +1bp to +178bp, new YTD wide and widest since Sept. 2012; YTD low 129. High Yield Master II OAS widens +2 to new YTD wide +662, widest since June 2012; YTD low 438
- Sovereign 10Y bond yields mostly lower. Asian and European stocks gain, U.S. equity-index futures rise. Crude oil and copper gain, gold falls
DB’s Jim Reid completes the overnight wrap
Q4 has kicked off in positive fashion in Asia taking a lead from the European and US sessions and helped by some stability in data with the final Chinese and Japanese PMI reads coming in slightly stronger. We also had the September official PMI from China which came in at 49.8 vs 49.7 expected, a small improvement from Augusts’ read of 49.8 suggesting at least some stability in the index even as it remains just in sub-50 contraction territory. Asian equities are up across the board with the best of the performance coming in Japanese equities, with the Nikkei up +2.2%. Asia IG is also around -4bps tighter.
Back to markets yesterday and what was generally a better day across the board for risks assets on both sides of the pond. With little new news again and instead a relatively mixed batch of economic releases, the S&P 500 closed up 1.91% with all sectors closing in positive territory. Prior to this in Europe we saw the Stoxx 600 finish +2.52%, with the culprits of the some of the recent weakness, Glencore and VW, finishing up +14% and +3% respectively. With two consecutive days of gains now, the former has in fact more than erased the huge losses on Monday. Meanwhile, credit markets were also well supported with Crossover (-6bps) and CDX HY (-6bps) both finishing tighter, while the US primary market came back to life in style, helped by a bumper offering from Hewlett Packard. The largely better sentiment saw 10y Treasury yields rise as much as 5bps shortly following a solid ADP employment change reading, however some softer data later in the session saw yields move south in a hurry with the 10y eventually finishing down 1.4bps at 2.037%.
Taking a look at that data further. Raising hopes for a supportive payrolls report, the September ADP employment change reading of 200k came in a touch ahead of expectations of 190k and followed a downwardly revised 186k in the prior month. Data following this was certainly less supportive however. The September ISM Milwaukee reading fell some 8pts to 39.4 (vs. 48.5 expected), while shortly after we saw the Chicago PMI drop 5.7pts to 48.7 (vs. 53.0 expected) for the month. The sub-50 reading marked the fifth month this year that we’ve seen a contraction in the data and combined with some other softish regional manufacturing readings of late (Empire, Philadelphia, Dallas, Kansas) will likely heap pressure on today’s ISM manufacturing print, currently expected to decline half a point to 50.6. In other news Congress managed to avoid a government shutdown as it passed a stopgap US government spending bill which will fund the government through Dec.11
Prior to this in Europe and hot on the heels of a weaker than expected headline German CPI read, there was further disappointment in the Euro area CPI print after the September headline reading fell back into negative territory unexpectedly (-0.1% yoy vs. 0.0% expected). The core was unmoved at +0.9% yoy while on the employment front we saw unemployment print at 11% after expectations for a slight decline to 10.9%. It was in fact a busy day for data in Europe yesterday. We learned that German retail sales contracted by -0.4% mom in August versus an expectation they would grow by +0.2%. We saw a similar story in the French consumer spending read which came in at +0.0% mom (vs. +0.4% expected). The German unemployment read also came in weaker than expected with the number of unemployed rising 2k vs expectation of a -5k fall in September although the Italian August unemployment rate nudged down one-tenth unexpectedly to 11.9%. Meanwhile in the UK we saw the final Q2 GDP reading confirmed at +0.7% qoq, although the annualized rate was however revised lower, by two-tenths to +2.4% yoy.
In terms of the Fedspeak yesterday, as largely expected there was little to come out of Fed Chair Yellen’s and Bullard’s comments at a community banking conference, with neither choosing to comments on the economy or monetary policy. Away from this and focusing his comments more on market liquidity, NY Fed President Dudley commented that the evidence to date that liquidity has diminished markedly is somewhat mixed and a clearer picture ‘may only emerge as monetary policy is normalized’.
Looking to the day ahead now we have the first September manufacturing PMI reads from Spain, Italy and the UK (all expected to weaken) as well as the final reads on French, German, US and Euro area manufacturing PMI’s (no change expected). We will also have the first September read out of Greece. In the US as well as the final read on the September manufacturing PMI and the latest vehicle sales numbers we will also have the September US ISM. Any deviations either way will be keenly watched for. On the central bank front we are expecting to receive the record of the BoE’s Financial Policy Committee September meeting as well as hearing from Lockhart and Williams from the Fed.
Let us begin: Late Wednesday night 9:30 pm est/Early Thursday morning/9:30 Shanghai time/Japan already open/China’s Shanghai closed. Results of PMI simply awful for both Asia and Europe.
(courtesy zero hedge)
Futures Soar After Chinese Composite PMI Drops To Lowest On Record
Chinese markets may be closed for the next week due to a national holiday but China’s goal seeked manufacturing survey(s), which were the most anticipated data points of the evening, came right on schedule (or rather, were leaked just ahead of schedule). And they certainly did not disappoint in their disappointment.
First, it was the official NBS September PMI, which at 49.8 was the smallest possible fraction above both the previous and expected, both of which were 49.7. The number was leaked about 6 minutes before the official statement, and while the leaked print which all humans were aware of well before the official release time at 9pm Eastern, had no impact on markets, it was the flashing red headline which confirmed the leak and which was read by machine-reading algos everywhere, that sent the E-mini spasming higher.
But while the official “data” was bad, and confirmed the economy remains in contraction, the Caixin – aka the new HSBC – Markit PMIs were absolutely atrocious.
We bring you… the HSBC Manufacturing print, which dropped from 47.3 to 47.2, and which according to Caixin was the lowest print since March 2009.
From the report:
A key factor weighing on the headline index was a sharper contraction of manufacturing output in September. According to panellists,
worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.
The job market continued to be a disaster:
Reflective of lower workloads,manufacturing companies cut their staff numbers again in September. Moreover, the latest reduction in employment was the fastest seen in 80 months. Meanwhile, reduced production capacity led to an increased amount of unfinished work, though the pace of backlog accumulation was only slight.
And then there’s deflation:
Manufacturing companies noted a further steep decline in average cost burdens during September. Furthermore, the rate of deflation was the sharpest seen since April. Reports from panellists mentioned that lower raw material prices, particularly for oil-related products, had cut overall input costs. Increased competition for new work led manufacturing companies to generally pass on their savings to clients, as highlighted by a solid decline in output charges.
Summarizing the finding: Production cut at quickest rate since March 2009; Total new orders contract at sharper rate amid steeper downturn in new export business; Worst deflation since April; job shedding accelerates to 80-month record, and so on.
At the same time, the Service PMI was also released which at 50.5, was a drop of 1 point from the 51.5 in August, and was the lowest since July 2014, with the prices charged index in full deflationary collapse, tumbling from 51.4 to 48.5, the lowest since June 2012, with the outstanding business index was the lowest since last November. In short: another disaster.
And it was the combination of the two indices that told the full story: at 48.0, the Caixin Composite index dropped from 48.8, down from 52.3 a year ago and was the lowest print on record.
So with another month of atrocious manufacturing and service survey data released what do futures do? Why they soar of course, with the ES now up nearly 20 points from its overnight lows, and touching on 1920.
Why? Who knows – futures would have likely soared if the data was good, but wild guess here, because the Chinese economy is in such a dire state of uncontrollable freefall, someone, somewhere has to print more and make the rich even richer.
Second Massive Bomb Explosion Rocks Chinese City, Day After 17 Parcel Bomb Attacks Kill Seven
Yesterday, in the aftermath of the stunning report that 17 “massive” bomb explosions rocked Chinese city of Liuzhou, killing at least 7 and wounding at least 51, we asked if as a result of China’s economic hard-landing and the surge in layoffs, the widespread popular unrest – which we suggested over the weekend is due for a comeback – has finally landed in China with tragic consequences, especially since the incident is clearly being treated as a criminal act.
We further noted that “if there is one thing China’s politburo simply can not afford right now, is to layer public unrest and civil violence on top of an economy which is already in “hard-landing” move. Forget black – this would be the bloody swan that nobody could “possibly have seen coming.”
Yesterday we got the first confirmation of this civil violence “bloody swan.”
Less than 24 hours later, we got a second one, when earlier today another blast struck a sleepy area in the southern Chinese city of Liucheng, destroying a residential building.
According to the WSJ, it was unclear whether there were any casualties from Thursday’s explosion, but judging by the photos of the devastation which shows dramatic damage to a six-story building in Liucheng, it would be a miracle if nobody was injured.
Liucheng is a small county seat and is administratively part of the larger, nearby city of Liuzhou. In the wake of the explosions, post offices throughout Liuzhou are suspending delivery of packages until Oct. 3, Xinhua said. Authorities have also warned residents via text message against opening any suspicious parcels.
There was little more immediately available news:
A man answering the phone at a local courier-service company said that they had been temporarily ordered to cease operations and not told when they could resume. He said that police had warned locals not to trust strangers and hung up the phone.
Employees answering at the phone at the Liuzhou post office declined to comment. Phone calls to the local government’s information office rang unanswered.
The timing of the bomb attacks is hardly coincidental: “they come at a sensitive time as China kicks off its weeklong National Day holiday, with millions of people traveling. In the past, officials have sometimes played down or censored coverage of disasters, large accidents and other news over holidays, in part to damp a sense of public panic, according to media-monitoring groups.”
Curiously, unlike on comparable previous occasions, China is not censoring the news of the two attacks in 24 hours, at least not on websites – it is intervening on social networks like Weibo:
Official news media largely featured coverage of the holiday, though most still placed news of the bombings prominently on websites. Social media, however, appeared to be attracting more scrutiny from authorities. Some posts on Weibo Corp. ’s Twitter-like service that questioned the authorities’ explanation of events and their decision to rule out terrorism were expunged, according to Free Weibo, a site that collects posts removed from Weibo.”
Just as curioous, is that today’s explosion takes place even as the authorities claim to have apprehended the person responsible for yesterday’s bombings: police already apprehended a suspect, identified only as a 33-year-old man named Wei, a native of Liucheng county, according to Xinhua. Nothing was revealed about the possible motives for the attack..
Yesterday we concluded by asking “will today’s deadly bombing be the end of it, or is it just starting?” For now the answer appears to be the latter.
How Glencore’s Crazy Month Makes Greek Banks Look Tame
The miner’s record plunge rivals slump in Greek lenders
Expectations for more volatility in Glencore shares surge
Which was a bigger trauma for European stock investors: this summer’s pummeling of Greek banks, or the last month in Glencore Plc? Based on value lost, it’s the latter by far.
As much as $14.4 billion was erased from the mining company’s shares in September — about $4.4 billion more than was wiped out in a Greek bank index in August. Glencore’s unprecedented volatility in the past 10 days is almost double that of the Greek lenders.
After going from a record 29 percent drop on Monday to a record 17 percent gain the next day, the miner yesterday pared its monthly slump to 38 percent.
Glencore stock moved an average of 7.4 percent a day in September. The FTSE/Athex Banks Index, which includes companies such as National Bank of Greece SA and Piraeus Bank SA, rose or fell 6.5 percent daily on average during this year’s tumultuous months.
Looking at what’s coming, traders are expecting things to remain volatile for Glencore:
DAX Reverses Month-End Ramp, Suffers Worst Start-To-Q4 Since 2009
Germany’s DAX has given back all of yesterday’s exuberant month-end gains and more to suffer the worst start to Q4 since 2009 (and actually worse than 2007 and 2008)…
Early hope collapsed into reality…
Angela now wishes to expel European “economic” migrants from the Balkans to make room for the Syrian refugees.
the farce is getting worse by the day…
(courtesy zero hedge)
Germany To Expel European Migrants To Make Room For Syrian Refugees
Perhaps more than anything else (well, up until Vladimir Putin officially stepped onto the scene earlier this month) Europe’s worsening migrant crisis has served to wake the world up to just how important Syria’s four-year-old civil war truly is.
While the plight of a single drowned toddler whose lifeless body washed ashore in Turkey is indeed tragic, the fact is that thanks in no small part to Western meddling, hundreds of thousands of people have been killed and displaced as a result of the fighting in Syria and now, Angela Merkel’s attempt to improve Germany’s image abroad by promising to play host to refugees fleeing violence in the Mid-East has served to splinter the EU along racial and religious lines as the Balkan countries on the frontlines of the massive people flow believe they should have a say in who gets to settle within their borders.
Of course, as we documented on Monday, not everyone in Germany is particularly thrilled with Merkel’s stance on Syrian asylum seekers either, and now, it looks as though the country’s willingness to take in Mid-East refugees will result in the expulsion of so-called “economic migrants” from the Balkans. Here’s more from Bloomberg:
German Chancellor Angela Merkel’s government signaled it will step up expulsions of economic migrants after the influx of asylum seekers reached a record in September.
As Russian airstrikes inside Syria escalate the country’s 4 1/2 year civil war that has led millions to flee, lawmakers in Berlin took up legislation Thursday to trim benefits and step up enforcement of asylum rules. The bill also boosts spending to tackle the immediate crisis of Germany’s biggest wave of refugees since World War II.
Merkel faces criticism within her governing coalition for pledging an open door for people fleeing war and saying Germany can handle the inflow. Her green light is “a mistake we’ll be dealing with for a long time,” Horst Seehofer, head of the Merkel-allied CSU party that governs Bavaria, said last month.
Germany expects an estimated 800,000 refugees this year, many of them economic migrants from the Balkans who will eventually be sent home. September’s inflow was the highest monthly total in decades, de Maiziere told lawmakers. As many as 10,000 people per day arrived at the end of the month, he said Tuesday.
Merkel has repeatedly said that while Germany will take in war refugees, economic migrants won’t be able to stay. To help filter them out, the refugee bill, which Merkel wants to pass by Oct. 16, aims to speed up processing of asylum applications. Germany may also need to set up screening centers at the country’s land borders, similar to procedures used at airports, de Maiziere said Wednesday.
On a very important level, fleeing bullets, barrel bombs, tanks, and sword-wielding jihadists is something entirely different from fleeing poverty, but ultimately, immigrants seeking a new life in Germany are all seeking to improve their lot and it would appear that the influx of refugees from Syria will effectively mean that Germany’s borders are closed to anyone not fleeing a bloody civil war.
Again, that makes some measure of sense from a humanitarian perspective but when it comes to demographic shifts, what you ideally want is immigrants who are determined to be productive members of society and while there is no doubt that many Syrian refugees will end up being just that (it’s the law of large numbers: bring in enough people and some of them will invariably benefit society), economic migrants by definition are aiming to contribute, which means that when you systematically shut them out in order to make room for people who are simply desperate, you make it less likely that, in the final analysis, the inflow will be a net positive for the economy.
And of course the incorrigible Mr. Schaeuble will make sure that the fiscal picture isn’t darkened by spending too much to accommodate migrants, meaning that no matter how charitable Merkel wants to get, there will eventaully be a limit:
Merkel’s insistence that Germany can house, feed and assimilate the refugees — “I’m convinced we can make it,” she said in parliament on Sept. 24 — is backed with at least 6.7 billion euros ($7.5 billion) in emergency federal spending that’s part of the bill. Nonetheless, the government is sticking with its plan for a balanced budget in 2016, Finance Minister Wolfgang Schaeuble said Wednesday.
So as the pressure rises with each passing day that Syria spends in war-torn hell, and as fiscal rectitude and the spectre of social instability serve to constrain Merkel’s post-Greek-debt-drama “generosity”, we’ll simply close with the following map which does a nice job of demonstrating just how dramatic the demographic shift has been in response to the violence that plagues Syria:
Copper, Crude, Credit Crumble As Stocks, Bond Yields Tumble
It was all looking so good…(thanks to Dennis)
Who could have seen this coming?
Global Manufacturing PMI Plunges To 26-Month Lows
Ever since The Fed began to taper QE, global manufacturing growth (as ascribed by JPMorgan’s global PMI) has been falling almost incessantly. August’s 50.6 print is the weakest ‘expansion’ since June 2013 as output fell to its lowest since April 2013 with New Orders falling.
As for the details, here are the 29 regions that have reported September PMIs: 15 saw improvements in their manufacturing sectors in September, and 14 recorded a weakening.
A reading above 50 reflects expansion, while below 50 indicates contraction.
Saudi Arabia Seizes Iranian Ship “Laden With Missile Launchers, Anti-Tank Weapons”
With Syria making national headlines on a daily basis, it’s easy to forget about the Middle East’s other proxy war raging in Yemen.
For months, a Saudi-led coalition has been battling Iran-backed militants for control of the country which was effectively wrested from Mansour Hadi earlier this year when the Saudi-backed President was forced to flee to Riyadh as the Houthis advanced on Aden.
Sadly, Yemen has since descended into chaos, an embarrassment for the Obama administration which just a little over a year ago held the country up as an example of Washington’s successful counterterrorism efforts (no mention was made of the alleged covert cooperationbetween the government of Hadi’s predecessor Ali Abdullah Saleh and AQAP).
Between the Saudis, the UAE, and Qatar, the coalition has managed to push the Houthis back, but the human and cultural toll has been high. Riyadh and the Houthis routinely play headline hockey in an effort to play up or play down the number of civilian casualties that result from Saudi bombing runs and Sana’a, a UNESCO world heritage site, is gradually being decimated as coalition forces fight to take back the city. Last Thursday, a shoe bomber and an accomplicedetonated themselves in a Shia mosque where the Houthis go to pray. The attack was claimed by Islamic State which is of course notable because this is the very same Islamic State that is fighting to destabilize Bashar al-Assad who, like the Houthis, is backed by Tehran. Iran-backed Shiite militias are also fighting ISIS in Iraq, an effort which is now set to benefit from cooperation with the Russian and Syrian armies.
The takeaway here is that Yemen, like Syria and Iraq, is a theatre for the regional and global proxy wars that have pitted the US, Saudi Arabia, Qatar, and to a lesser extent Washington’s European allies against a “nexus” comprised of Russia, Iran, Syria, and China with the latter having thus far only asserted itself via its Security Council veto.
What’s particularly interesting about this is the extent to which the traditional Western conception of who the “good guys” are and who the “bad guys” are has been turned on its head of late.
That is, Russia’s willingness to confront ISIS in a straightforward way (as opposed to through the use of various proxy armies who in many cases end up defecting and becoming extremists themselves) as well as the realization that the man once billed as the world’s number one state sponsor of terror, Qasem Soleimani, is seemingly far more interested in preserving the Mid-East BOP by using Iran’s Quds Force to combat Sunni extremism in Syria and Iraq than he is in facilitating attacks on the US and its allies, have left the world to question whether it is in fact the West that’s been the proximate cause of the turmoil in the region.
It’s with all of this in mind that we bring you the following story from WSJ who reports that on Saturday, the Saudis stopped an Iranian boat bound for Yemen that was “laden with missile launchers and anti-tank weapons, including firing guiding systems.” Here’s more:
A Saudi Arabia-led military coalition that has been fighting Iran-supported rebels in Yemen said Wednesday that it had stopped an Iranian boat carrying arms to the war-torn country.
The boat carried 14 Iranians and was laden with missile launchers and anti-tank weapons, the coalition said in a statement, including firing guiding systems.
It was seized around 1pm local time Saturday, Sept. 26 in the Arabian Sea, about 150 miles southeast of the Omani port of Salalah. Oman shares a border with Yemen.
The coalition said the boat is registered under the name Jan Mohammed Hut, an Iranian citizen. The vessel had a license from Iranian authorities to fish in those waters, the coalition said.
Saudi Arabia has been fighting Iran-supported Shiite Houthi rebels in Yemen since March, in a bid to restore exiled President AbedRabbo Mansour Hadi to power.
Politically Iran supports the Houthis, but denies supplying them with weapons.
There was no immediate response on Wednesday from Iran.
Saturday’s incident is the latest seizure of boats allegedly carrying Iranian arms bound for Yemen.
The U.S. Navy and Yemeni coast guard detained a vessel called the Jihan as it sailed from Iran into Yemeni territorial waters in 2013, according to a United Nations report. The boat was loaded with rockets, plastic explosives and other munitions a U.N. panel traced back to Iran.
It was unclear whether the arms were bound for Yemen or for the Houthis, although the ship’s crew was Yemeni and the shipment was arranged by a Yemeni businessman, the U.N. panel said.
The reason this is important is that it helps to provide context for the various conflicts unfolding throughout the Middle East.
The key thing to understand here is that the fighting in Yemen, Syria, and Iraq is all related and it all comes back to the existing balance of power as delineated above.
Russia’s official arrival on the scene in Syria means that Moscow is now prepared to defend this balance of power overtly, marking a step up from the dynamic that existed previously wherein, as exemplified by the story excerpted above, the powers that oppose the West were content with the “covert” support they could provide to their various proxy armies.
In short, now that Moscow has let the genie out of the bottle, it may not be long before both sides ditch the charade altogether, leading directly to a scenario that sees three proxy wars metamorphose into one outright armed conflict between the West and the Russia-Iran “nexus.”
The situation is getting scarier by the minute and you need a scorecard to determine who supports who:
It now seems that Iran want to be the power broker in the middle east replacing Saudi Arabia. Iran is Shiite, whereas Saudi Arabia is predominately Sunny.
Thus Iran backs the mainly Shiite Syria as well as the Houtis in Yemen trying to overthrow the Sunni led Yemen who is supported by Saudi Arabia.
The uSA is involved because they want a major pipeline to be built from Qatar through Saudi Arabia and onto Syria. Syria’s Assad will not let them do this and that is the reason for Russian support of Syria in order to maintain Gazprom’s virtual monopoly in supplying natural gas to Europe.
Well today, Saudi Arabia and Israel received the bad news that Iranian soldiers are now in Syria. I guess you can now say that we have a middle east coup progressing in earnest!!
(courtesy zero hedge)
Mid-East Coup: As Russia Pounds Militant Targets, Iran Readies Ground Invasions While Saudis Panic
Back in June, the commander of Iran’s Quds Force, Qasem Soleimaini, visited a town north of Latakia on the frontlines of Syria’s protracted civil war. Following that visit, he promised that Tehran and Damascus were set to unveil a new strategy that would “surprise the world.”
Just a little over a month later, Soleimani – in violation of a UN travel ban – visited Russia and held meetings with The Kremlin. The Pentagon now says those meetings were “very important” in accelerating the timetable for Russia’s involvement in Syria. The General allegedly made another visit to Moscow in September.
The timeline here is no coincidence. Iran has long provided covert and overt support to the Assad regime via financial transfers, logistical support from the Quds, and via the involvement of Hezbollah in the Assad government’s fight to regain control of the country.
As we’ve documented extensively over the past several weeks, what appears to have happened here is that Iran, unable to simply invade Syria in support of Assad (because doing so would obviously be a disaster in terms of preserving the optics around the P5+1 nuclear deal), turned to Moscow which has in the past used Russia’s Security Council veto to block the referral of the war in Syria to the Hague and which is a known ally of both Tehran and Damascus.
While it’s unclear exactly what the pitch was to Putin, Russia clearly saw an opportunity to advance The Kremlin’s geopolitical agenda at a key time in history. Moscow is keen to put on a brave face amid the most contentious standoff with the West since the Cold War (as a result of the conflict in Ukraine and the annexation of Crimea) and amid the related effort to preserve Gazprom’s market share in Europe.
In short, Putin looks to have viewed this as the ultimate geopolitical win-win. That is, Russia gets to i) expand its influence in the Middle East in defiance of Washington and its allies, a move that also helps to protect Russian energy interests and preserves the Mediterranean port at Tartus, and ii) support its allies in Tehran and Damascus thus preserving the counterbalance to the US-Saudi-Qatar alliance.
Meanwhile, Iran gets to enjoy the support of the Russian military juggernaut on the way to protecting the delicate regional nexus that is the source of Tehran’s Mid-East influence. It is absolutely critical for Iran to keep Assad in power, as the loss of Syria to the West would effectively cut the supply line between Iran and Hezbollah.
The same dynamic is playing out in Iraq. That is, Iran is fighting ISIS via various Shiite militias just as it’s fighting the Saudi-led coalition in Yemen via the Shia Houthis. It is thus extremely significant that Baghdad has agreed to share intelligence with Syria and Russia, as that effectively means the Iran-backed Shiite militias battling for control of Iraq will enjoy the support of the Russian military.
What should be obvious here is that this is a coordinated plan.
The Kremlin has effectively agreed to bring the might of the Russian air force to bear on Assad’s opponents in Syria and on Sunni militants in Iraq in support of Iranian ground troops and because the US and its allies have failed so miserably in terms of fielding anti-Assad rebels who don’t turn out to be extremists, Putin gets to pitch the whole thing as a “war on terror.” It would be difficult to design a more elegant power play.
If you think that’s far-fetched, consider the following just out from Reuters:
Hundreds of Iranian troops have arrived in Syria in the last 10 days and will soon join government forces and their Lebanese Hezbollah allies in a major ground offensive backed by Russian air strikes, two Lebanese sources told Reuters.
“The (Russian) air strikes will in the near future be accompanied by ground advances by the Syrian army and its allies,” said one of the sources familiar with political and military developments in the conflict.
“It is possible that the coming land operations will be focused in the Idlib and Hama countryside,” the source added.
The two sources said the operation would be aimed at recapturing territory lost by President Bashar al-Assad’s government to rebels.
It points to an emerging military alliance between Russia and Assad’s other main allies – Iran and Hezbollah – focused on recapturing areas of northwestern Syria that were seized by insurgents in rapid advances earlier this year.
“The vanguard of Iranian ground forces began arriving in Syria: soldiers and officers specifically to participate in this battle. They are not advisors … we mean hundreds with equipment and weapons. They will be followed by more,” the second source said. Iraqis would also take part in the operation, the source said.
And then consider this, also just out (via Reuters):
The Russian Foreign Ministry said on Thursday it would consider any request from the Iraqi government to conduct air strikes against Islamic State inside Iraq, but said it had not yet received such an appeal, the RIA Novosti news agency reported.
It cited the foreign ministry as saying it would evaluate the “political and military” logic of such a move if a request was forthcoming.
Finally, to drive the point home and further confirm the veracity of the thesis outlined above, here’s Saudi Arabia panicking at the prospect that Russia’s presence is set to completely disrupt the Mid-East BOP (via Reuters, yet again):
Saudi Arabia, a leading foe of President Bashar al-Assad, demanded his ally Russia end its raids on Syria, saying the strikes had caused civilian casualties while failing to target the hardline Islamic State militants Moscow says it opposes.
In remarks at the United Nations in New York, a senior Saudi diplomat suggested both Russia and Assad’s other main ally Iran could not claim to fight Islamic State “terrorism” at the same time as supporting the “terrorism” of the Syrian authorities.
Saudi ambassador Abdallah Al-Mouallimi expressed “profound concern regarding the military operations which
Russian forces have carried out in Homs and Hama today, places where ISIS forces are not present. These attacks led to a number of innocent victims. We demand it stop immediately and not recur.”
“As for those countries that have claimed recently to join in the fight against ISIS terrorism, they can’t do that at the same time as they support the terrorism of the Syrian regime and its terrorist foreign allies like Hezbollah and the Quds Force and other terrorist sectarian groups,” he added in comments broadcast by Saudi-owned al-Arabiya television.
ISIS is a common acronym for Islamic State, also known as ISIL. Lebanon’s Hezbollah Shi’ite militia openly fights on behalf of Assad’s government, and the Quds Force, part of Iran’s elite Revolutionary Guards, is also widely believed to be aiding Damascus.
It would be difficult to overstate the significance of what appears to be going on here. This is nothing short of a Middle Eastern coup, as Iran looks to displace Saudi Arabia as the regional power broker and as Russia looks to supplant the US as the superpower puppet master.
Do not expect Saudi Arabia and Israel to remain on the sidelines here.
If Russia ends up bolstering Iran’s position in Syria (by expanding Hezbollah’s influence and capabilities) and if the Russian air force effectively takes control of Iraq thus allowing Iran to exert a greater influence over the government in Baghdad, the fragile balanace of power that has existed in the region will be turned on its head and in the event this plays out, one should not expect Washington, Riyadh, Jerusalem, and London to simply go gentle into that good night.
The rhetoric gets louder and louder:
(courtesy zero hedge)
Washington Blasts Putin For Russian Strikes On “CIA-Backed Rebels” In Syria
On Wednesday, we said that while even we were surprised at how quickly the Western propaganda machine was put into motion in the wake of Russia’s first airstrikes in Syria, it wasn’t at all surprising to see reports surface that Moscow was targeting US-backed forces rather than ISIS. Here’s how we put it:
Followiing Russian lawmakers’ move to officially sanction airstrikes in Syria, Moscow wasted no time in launching its first round of air raids. In turn, the West wasted no time in contending that Russia is targeting areas that aren’t known to be strategically significant for ISIS. Here’s a look at two headlines which do a nice job of summarizing all of the rhetoric which you’re about to hear emanating ceaselessly from every corner of the Western world in the coming days and weeks:
- U.S. IS CONCERNED RUSSIA’S INTENT IS PROTECTING ASSAD: KERRY
- U.S. HAS ‘GRAVE CONCERNS’ IF RUSSIA STRIKES OUTSIDE ISIL AREAS
And here’s WSJ with a sneak peek at the new narrative which Washington will be working hard to refine:
Russian President Vladimir Putin inserted his country directly into Syria’s war Wednesday, as Russian forces launched their first airstrikes against what Moscow said were Islamic State targets in the Middle Eastern nation.
But Western leaders raised doubts about whether Russia really intended to take the fight to Islamic State, or merely broaden the Syrian regime’s offensive against a wide range of other opponents.
But with the exception of the area east of the town of Salamiyah in Hama province, none of the areas listed by the Syrian regime have a known presence of Islamic State fighters. They are largely dominated by relatively moderate rebel factions and Islamist groups like Ahrar al-Sham and the al Qaeda affiliate the Nusra Front.
And then Reuters jumped on the bandwagon, saying that based on a Skype interview with rebel commanders, it was clear that Russian warplanes were deliberately targeting anti-regime forces other than ISIS.
The point here isn’t to suggest that Moscow isn’t targeting other rebel factions operating in Syria, it’s to say that i) Russia has never made a secret of its intentions to bolster Assad by routing any extremist elements aiming to overthrow the government in Damascus, and ii) the idea that the US and its regional allies are a good judge of who is a “moderate” rebel and who is or will end up being a terrorist is laughable. Indeed, thanks to the brutality of ISIS, the “moderate” label is now being openly applied to al-Qaeda (see the WSJ article cited above) which would appear to suggest that Washington would prefer a Syria run by Ayman al-Zawahiri rather than Assad.
Well on Thursday the media propaganda machine kicked into high gear as WSJ is now effectively chidingRussia for hitting areas controlled in part by “CIA-backed rebels”. Here’s more:
Russia launched airstrikes in Syria on Wednesday, catching U.S. and Western officials off guard and drawing new condemnation as evidence suggested Moscow wasn’t targeting extremist group Islamic State, but rather other opponents of Bashar al-Assad’s regime.
One of the airstrikes hit an area primarily held by rebels backed by the Central Intelligence Agency and allied spy services, U.S. officials said, catapulting the Syrian crisis to a new level of danger and uncertainty. Moscow’s entry means the world’s most powerful militaries—including the U.S., Britain and France—now are flying uncoordinated combat missions, heightening the risk of conflict in the skies over Syria.
U.S. Defense Secretary Ash Carter said Russia’s approach to the Syrian war—defending Mr. Assad while ostensibly targeting extremists—was tantamount to “pouring gasoline on the fire.”
“I have been dealing with them for a long time. And this is not the kind of behavior that we should expect professionally from the Russian military,” Mr. Carter said at a Pentagon news conference.
The U.S. and its allies were angry at the Russians on many scores: that they are supporting Mr. Assad; that they aren’t coordinating their actions with the existing, U.S.-led anti-Islamic State coalition; that they provided terse notice only an hour before their operations; that they demanded the U.S. coalition stay out of Syrian airspace; and that they struck in areas where anti-Assad rebels—not Islamic State—operate.
“It does appear that they were in areas where there probably were not ISIL forces, and that is precisely one of the problems with this whole approach,” said Mr. Carter, the U.S. defense chief.
It would be a “problem with the approach” if your aim wasn’t to restore the Assad regime, but because that is Russia’s explicit (not secret, and not “mysterious”, as Washington insists) aim, there’s no “problem” with it at all.
Back to WSJ for the inevtiable comparisons with Crimea and Ukraine:
The U.S. spy agency has been arming and training rebels in Syria since 2013 to fight the Assad regime. Rebels who receive support under a separate arming and training program run by the Pentagon weren’t in areas targeted by Russia in its initial strikes, the officials said.
The combination of unpredictable, unilateral action that flouted Western exhortations posed an unmistakable resemblance to Ukraine, where Mr. Putin moved to annex the Crimea region and has defied international demands to halt its support for separatists.
Mr. Putin’s decision-making in Syria mirrors the way he has approached Ukraine, said Andrew Weiss, vice president for studies at the Carnegie Endowment for International Peace.
“He deliberately tries to do things to throw opponents off balance and he’s always trying to get some sort of element of surprise and tactical advantage over people, that’s sort of what keeps him going is this constant springing surprises and flipping events in his favor,” said Mr. Weiss, who worked on Russia policy in the George H.W. Bush and Bill Clinton administrations.
Yes, an “unmistakable resemblance to Ukraine,” much like Washington’s approach to ousting Assad by training and arming extremist elements marks an “unmistakable resemblance” to countless Mid-East foreign policy blunders where the results of Washington’s meddling end up being far worse than the “problem” the US was trying to “fix.”
And on that note, we’ll simply close by saying that while we have no doubt that Russian airstrikes will contribute to the human suffering in Syria (they’re dropping bombs on populated areas after all), anyone covering this story should be careful to note that civilians (women and children included) have been dying by the hundreds of thousands in Syria for years while the US continued to support the proxy armies that contributed to the instability. So keep that in mind when you read things like the following passage, again from WSJ:
Video filmed by people affiliated with local rebel groups and posted on YouTube showed the aftermath of the airstrikes in Talbiseh. In one video, rebels and citizens are seen rushing down a street as thick black smoke and fire engulfed heavily damaged buildings. Then they are shown attempting to rescue those trapped under the rubble. A dazed man covered in blood was lifted up from the ground and taken outside.
“Is there anyone here?” a voice is heard shouting. “I don’t know, I don’t know but lots of people live here!” answers a panicked man.
In another video a naked child covered in blood and shrapnel is shown crying on a bed at a local field hospital.
The Turkish lira falls today to 3.02 to the dollar. Their foreign reserves fall for the first time below 100 billion usa and the big election comes up next month. If Erdogan does not get a majority major chaos will ensue
(courtesy zero hedge)
In Latest Sign Of EM Chaos, Turkey’s FX Reserves Fall Below Key Threshold Ahead Of Pivotal Elections
One of the key things to understand about the veritable meltdown that’s unfolded across emerging markets is that there’s more to the story than the headline risk factors.
That is, while the list of proximate causes that includes a decelerating China, collapsing commodity prices, and uncertainty over when or even if the Fed will hike goes a long way towards explaining the carnage that’s unfolded across EM, each country has its own set of unique circumstances to grapple with. Indeed, the idiosyncratic political risks playing out across emerging economies have taken center stage as Brazil attempts to navigate congressional gridlock, Malaysia struggles with the 1MDB scandal, and Turkey faces new elections in November.
While there’s no question that the political situation in Brazil is particularly troubling, it would be difficult to imagine a more precarious scenario than that which exists in Turkey, where President Recep Tayyip Erdogan has managed to subvert the democratic process by starting a civil war, and thanks to the strategic significance of Incirlik, the effort is co-sponsored by the US and NATO.
Of course extreme political uncertainty, a bloody civil war, and an unfolding proxy war just across the border do not inspire much confidence, which helps to explain the fact that Turkey’s FX reserves have now fallen below $100 billion for the first time since 2012:
And here’s an updated look at the lira which is in the midst of a rather epic decline (which threatens to destabilize inflation) thanks to everything noted above combined with a central bank that either i) doesn’t understand the gravity of the situation, or ii) is loathe to hike rates going into the election:
If you think it’s bad now, just wait until November. If AKP doesn’t secure an absolute majority there’s no telling how Erdogan will react and if Ankara moves to nullify yet another democratic election by intentionally stirring up the PKK, you can expect outright chaos. We close by noting that data out today shows Turkey’s manufacturing PMI fell for a second straight month in September and we also think it’s worth highlighting the following excerpt from The Guardian which provides a bit of insight into what’s in store going forward if Erdogan doesn’t get his way:
Ahmet Hakan, a columnist for Turkey’s leading secular Hürriyet newspaper and a presenter on broadcaster CNN Turk, was followed home from the television station by four men in a black car late on Wednesday, before being assaulted near his residence, according to the Hürriyet editor-in-chief, Sedat Ergin.
“We see that it was an organised, planned attack,” Ergin was quoted as saying. Hakan was treated for a broken nose and ribs, the newspaper said.
The attack comes just weeks after prosecutors launched an investigation into the paper’s owner, Do?an Media Group, for alleged “terrorism propaganda“.
Euro/USA 1.1154 down .0016
USA/JAPAN YEN 119.68 down .199
GBP/USA 1.5145 up .0025
USA/CAN 1.3265 down .0043
Early this Thursday morning in Europe, the Euro fell by 16 basis points, trading now just below the 1.12 level falling to 1.1154; 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, Glencore, and the Ukraine,along with rising peripheral bond yields, even the unsuccessful ramping of the USA/yen cross, all bourses rise. Last night the Chinese yuan fell in value . The USA/CNY rate at closing last night: 6.3564, (yuan weakened)
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 50 basis points and trading now just below the all important 120 level to 119.68 yen to the dollar.
The pound was up this morning by 25 basis points as it now trades just below the 1.52 level at 1.5145.
The Canadian dollar reversed course by rising 43 basis points to 1.3266 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 Thursday morning: closed up 334.27 or 1.92%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses deeply in the green … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the green/
Gold very early morning trading: $1113.85
Early Thursday morning USA 10 year bond yield: 2.05% !!! par in basis points from Wednesday night and it is trading just above resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.87 par in basis points.
USA dollar index early Thursday morning: 96.32 up 4 cents from Wednesday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.3555 down .0065 (Chinese yuan up/on shore)
Credit & Crude Carnage Continues As Stocks Stop-Run, Slump, & Pump
Today’s equity and crude market moves…
The Nikkei tells you all you need to know about hopes for more stimulus and Kuroda crushing dreams…
It all started exuberantly as Quarter-Start, and Month-Start flows were front-run on the heels of Japan open ramp and stimlus hopes from the lowest China pMI on record. But it appears the flows did not turn up and stocks slid. Once Europe closed the algos took over and lifted stock back into the green
On the day, Trannies outperformed… and S&P went green by the close..
But since Friday, all indices remain red…
VIX was clubbed back below 23 to try and enforce a green close for the S&P 500
Stocks once again were the last to get the message…
As HYG – the HY Bond ETF – resumed its carnage
Another day, another stair-step lower in Treasury yields –
The USD Index broke the recent pattern on the first week of Q4…
Commodities were very sketchy today with copper and even more so crude surging and purging…
Crude continues its crazy algos moves…
Oil Vol and prices remain decoupled…
USDJPY Tumbles, Drags Futures Lower, After BOJ Said To See “Little Immediate Need” For More QE
And it was going so well overnight: with the USDJPY surging as high as 120.25 overnight, before finding its preferred equilibrium spot at 120, the Yen carry was doing its centrally-planned and mandated job of supporting market… and then a Bloomberg headline yanked the carpet from underneath it:
- BOJ IS SAID TO SEE LITTLE IMMEDIATE NEED FOR ADDING STIMULUS
- BOJ OFFICIALS ARE SAID TO WANT CHANCE TO SEE MORE DATA
More details from Bloomberg:
Bank of Japan officials see little need for an immediate expansion of monetary stimulus and would prefer to hold off to get a clearer picture of the economic outlook, according to people familiar with their deliberations.
Board members who gather for Oct. 6-7 policy meeting want opportunity to observe further economic data and developments in financial markets at home and abroad, according to the people, who asked not to be named because talks are private
Needless to say this is a problem for liquidity-addicted algos: with the ECB last week making a solid case against more easing any time soon, all hopes were on the BOJ’s October meeting to boost QE.
The BOJ, however, realized there are little incremental debt sellers that it can monetize debt from, as explained here on September 4 in “The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play“, and a result suddenly there is virtually nothing propping up the USDJPY which is about 200 pips rich relative to the Nikkei.
Which is why said most important carry trade for global risk markets, the USDJPY, suddenly took a 30 pip move lower, and dragged US equity futures down with it.
Because if the ECB won’t boost QE, and the BOJ won’t boost QE, and the Fed still pretending it will hike rates even as 6 out of 6 Fed surveys confirm the US economy is in a recession, just what is the upside catalyst again?
Gartman goes long again. Is the rally on NYSE snuffed?
(courtesy zero hedge)
Did Gartman Just Halt The Rally?
After two days of calling for a bear market with the market ripping at his “retirement portfolio” as prorfiled on Tuesday in “Why The Market Is Poised For A Rebound: Gartman Says “Bear Market” Will Take S&P To 1420-1550” where he said:
There are still many who deny that this is a bear market, but it is that and we fear that it has a good distance to the downside yet to travel. Merely to get to “The Box” shall take the S&P to 1420-1550! Rallies are to be sold; weakness is not to be bought.
… and again yesterday as explained in “Stocks Explode Higher As Gartman Doubles Down On Bear Market Call”
Essentially repeating what we said here yesterday, there are still many who deny that this is a bear market, we fear that it has a good distance to the downside yet to travel. Merely to get to “The Box” shall take the S&P to 1420? 1550! Rallies are to be sold
… the same day the S&P recorded its 8th best rally in 2015, everyone’s favorite newsletter writer may have just topped the latest dead-cat bounce. From his overnight letter:
the fact that our International Index has rallied 2% from its lows and now has rallied for two days in a row has our interest and does give us reason to pause in our bearish perspective.
So, if the 10 Year breaks below 2% today and stocks resume their slide, thank Dennis.
Economics 101 Strikes Again As Wal-Mart Wage Hikes Prompt Breadwinner Layoffs At Headquarters
In late July we suggested that Wal-Mart may be ready to fire as many as 1,000 employees at its home office in Bentonville. Our suspicions arose from an internal memo circulated at local staffing firm Cameron Smith & Associates. Here’s what it said:
“Please remember, these people are our neighbors and friends. You have a skill that will be very much in need when this goes down. You are experts in the job market and you know what it takes to get hired. This is a time for us to step up and do what we can to help.”
This, as we pointed out at the time, is economics 101. When your business lives and dies by the idea of “everyday low prices” – indeed, when low prices become something of a religion, passing on rising labor costs to consumers simply isn’t an option and when Wal-Mart committed earlier this year to spend around $1 billion to boost the wages of its lowest paid employees it was only a matter of time before the job cuts started rolling in.
Of course Wal-Mart tried to avoid this by squeezing the supply chain, first with requests that suppliers cut back on marketing, then with the imposition of storage fees, and finally with demands that suppliers pass along savings from the yuan devaluation to Wal-Mart corporate. But you can only extract so much by extorting your suppliers and as unlikely as it might be, the company didn’t want to end up tarnishing its record as master of supply chain management by inadvertently starting a supplier mutiny.
And so, in a desperate attempt to preserve its razor thin margins, Wal-Mart moved to cut hours and because the optics around first raising the minimum wage and then firing a bunch of minimum wage workers would be so poor, the logical next step is to cut jobs higher up in the food chain, which explained the Cameron Smith & Associates memo.
Sure enough, two months later, the home office job cuts are official. Here’s WSJ:
Wal-Mart Stores Inc. is preparing a round of layoffs as early as Friday that would affect hundreds of employees at its Bentonville, Ark., headquarters, according to people familiar with the situation.
Human resources employees have reserved many of the meeting rooms at the headquarters on Friday
as well as small rooms typically used by suppliers to pitch products to the retail giant, according to a person familiar with the matter.
Some Wal-Mart department directors were told to cancel travel this week or make sure they come to the office on Friday, said another person who spoke with the Wal-Mart employees.
Fewer than 500 workers are expected to lose their jobs. About 18,600 people work for Wal-Mart in the Bentonville region. Wal-Mart declined to comment.
And in an irony of ironies, the suddenly jobless Bentonville employees will now turn to the supply chain for work:
Any layoffs would also ripple through the large consumer-goods companies that have offices in the region to work closely with Wal-Mart, often their largest source of revenue. Suppliers frequently build their teams to mirror counterparts at Wal-Mart, and many will likely be inundated with resumes from former Wal-Mart employees, suppliers and consultants said.
But these job seekers will likely be out of luck, because as noted above, and as detailed in these pages on countless occasions, suppliers are, if anything, likely to be firing not hiring because Wal-Mart is squeezing them for every last penny of savings.
We close with what we said when we first reported that the retail behemoth may be considering cuts in Bentonville (the first excerpts are from the Arkansas Democrat-Gazette):
Cutting through red tape and trimming bureaucracy has been among the goals of McMillon, who took over as CEO in February 2014.
“As we’ve grown and time has gone on, we’ve created pockets of our business, situations where people don’t want to share bad news. Lots of PowerPoints get built, lots of pre-meetings are held to socialize things so people aren’t surprised during a meeting,” McMillon said. “That is bureaucracy. That slows us down.”
Got it. Too many people are working on PowerPoints and when someone making $10 an hour calls the home office, the hold time is too long. These are clear signs of an elephantine, Washington-esque bureaucracy, which must be done away with.
Just don’t dare suggest that the cuts are the indirect or even direct result of the wage hikes that will cost the retailer around $1 billion this year, because that would mean that critics of the push to hike the pay floor are correct to assert that forcing employers to pay more will immediately result in equal and offsetting layoffs.
Only here they aren’t necessarily “equal” at all.
That’s in no way a commentary on the “worth” (in a philosophical sense of the word) of an hourly worker versus a salaried employee, but if layoffs in Arkansas do materialize as Cameron Smith predicts, it seems entirely fair to suggest that the pittance given to hundreds of thousands of low paid workers will ultimately come at the cost of 1,000 or so breadwinner positions.
We’ll leave it to readers to determine whether that is a net win for the economy.
US Manufacturing PMI Stagnates at 2-Year Low With Weakest Employment Since June 2013
Given the fact that for the first time since the recession, manufacturing has added zero jobs this year, that ADP just saw a drop in manufacturing jobs, Markit reports September US Manufacturing PMI has stagnated for the last 2 months at 2 year lows (printing 53.1 final vs 53.0 prelim). Worst still, and confirming even further the demise of the US manufacturing “renaissance”, the Employment sub-index dropped to 50.8 – the lowest since June 2013. As Markit sums up, “The Fed is therefore likely to keep an open mind as to whether tighter policy is appropriate given current economic conditions and await a clearer idea of the health of the economy in the fourth quarter.” On a side note Canadian manufacturing PMI printed at a post-recession low.
Manufacturers indicated another slowdown in employment growth during September,with survey respondents citing the uncertain business outlook and reduced pressure on capacity. Moreover, the latest rise in staffing levels was the slowest in the current 27-month period of expansion.
September data also highlighted ongoing caution in terms of stock levels, with post-production inventories falling for a second month running.
The headline print remains stagnant at 2 year lows…
“The US manufacturing sector has seen a distinct loss of growth momentum in recent months, endured the worst performance for two years during the third quarter. Headwinds include the rising dollar, weak demand in global markets, a downturn in business investment and financial market jitters.“We must remember, however, that the manufacturing sector only accounts for around one-tenth of the economy, and robust service sector data – as indicated by last week’s flash PMI results – indicate that the wider economy remains in good health, albeit with signs that businesses have become more worried about the outlook. The survey data suggest that the economy continued to grow at a 2.2% annualised rate in the third quarter and added 207,000 jobs in September.“The manufacturing slowdown therefore will be insufficient on its own to deter the Fed from hiking rates later this year, but adds a warning light that the pace of economic growth is set to slow as we move into the final quarter of the year. The Fed is therefore likely to keep an open mind as to whether tighter policy is appropriate given current economic conditions and await a clearer idea of the health of the economy in the fourth quarter.”
ISM Manufacturing Weakest Since May 2013 Amid Collapse In New Orders
Following Manufacturing PMI’s weakness and ADP’s Manufacturing employment weakness (and six regional Fed surveys’ weakness), ISM printed 50.2 (the 3rd miss in a row, the 9th miss in the past 11 months, and lowest since May 2013). Under the surface was a disaster with New Orders collapsing (unadjusted are weakest since before 2013) with just 22% saying New Orders are better (the lowest since August 2012), and greater than respondents saying “Worse” for the first time since December 2012
As New Orders completely collapse…
Virtually everything else tumbled too, with Production, Employment, Deliveries, Prices, Backlogs and Imports all dropping:
This is what the respondents said:
- “Revenues and profits in our industry continue to [be] impacted by low crude and gas prices.” (Petroleum & Coal Products)
- “North American business steady. International business trending bearish.” (Chemical Products)
- “High value of dollar is affecting global procurement pricing.” (Computer & Electronic Products)
- “Concerns about China downturn and its effect on our consumer confidence.” (Fabricated Metal Products)
- “Overall business is slowing. Consumers are nervous. Not sure what is coming next.” (Transportation Equipment)
- “Business is picking up.” (Furniture & Related Products)
- “The orders from customers seem to be slowing a bit from the first part of the year. We have promises but not actual Purchase Order numbers.” (Nonmetallic Mineral Products)
- “Sales revenue and profitability improving slowly. Getting close to 2015 budget/sales plan. Not seeing consistent trends up or down.” (Electrical Equipment, Appliances & Components)
- “Continue to feel impact of oil and gas market slowdown. Aerospace demand has also been slower than expected. Consumer Electronics not robust.” (Primary Metals)
- “Concern for AI [Avian Influenza] for poultry when bird migration begins.” (Food, Beverage & Tobacco Products)
With 6 of 6 regional Fed Surveys all recessionary…
And according to ADP, for the first time this decade, the US hasn’t created a single manufacturing job for the entire year. In fact, it has lost some 6,600 jobs.
Does Not Compute: DOL Continues To Paint Rosy Jobless Claims Picture As Challenger Sees “Surge” In Unemployment
Does not compute.
That may be the best way to summarize the discrepancy between the statistically-massaged, seasonally-adjusted initial claims data reported by the DOL, which moments ago printed at 277K in the latest week, modestly higher than the 267K reported last week, and just above the 271K expected, however as the chart below shows, the claims trend remains at the lowest level seen in decades.
Even more curious was the drop in Continuing Claims which declined from 2244K to just 2191K, below the 2,230K expected, suggesting tomorrow’s NFP report should have no problem printing above 200K.
Which on the surface is great… and then one looks at the Challenger Job Cuts report released just an hour earlier, which painted a dramatically different picture. From the Challenger report:
The third quarter ended with a surge in job cuts, as U.S.-based employers announced plans to shed 58,877 in September, a 43 percent increase from the previous month, according to a report released Thursday by global outplacement consultancy Challenger, Gray & Christmas, Inc.
The September total was third largest of the year behind July (105,696) and April (61,582). It was 93 percent higher than the 30,477 planned layoffs announced the same month a year ago.
In all, 205,759 job cuts were announced in the third quarter, making it the largest job-cut quarter since the third quarter of 2009, when planned layoffs totaled 240,233.
It gets even more confusing when looking at the full year trend, where one notices that so far in 2015,employers have announced 493,431 planned layoffs, 36 percent more than the 363,408 cuts tracked from January through September a year ago. The year-to-date total is actually 2.0 percent higher than the 2014 year-end total of 483,171. “The Q3 total was 40 percent higher than the previous quarter’s 181,213 job cuts. It was 75 percent higher than the third quarter of 2014, when 117,374 job cuts were announced.”
Some commentary: “Job cuts have already surpassed last year’s total and are on track to end the year as the highest annual total since 2009, when nearly 1.3 million layoffs were announced at the tail-end of the recession,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.”
Most damning was the report of layoffs in the west, which according to Challenger just spiked to the highest in over three years, on the back of the mass terminations announced by Hewlett Packard in September, just so the company can buy back more stock.
And some concluding observations from Challenger:
For the year, the biggest job cutting sector is energy, which has announced 72,708 job cuts since January 1. Most of the energy cuts occurred in the first half of year, with just 12,208 job cuts recorded in the latest quarter.
“While oil cuts have slowed, the issues that helped drive oil prices down in the first place are still impacting the economy. We continued to see the ripple effect of low demand last month when heavy-equipment maker Caterpillar announced plans to reduce its workforce over the next year- and-a-half,” said Challenger.
“We could see more fallout, which appears to have its origins in China, which after years of building up its national infrastructure appears to now have far too much capacity. As a result, manufacturing plants, retail stores and even entire apartment building are sitting empty.
Someone is lying, or perhaps the US Department of Labor simply did not get the memo?
Putting the jobless claims and the Challenger Christmas layoff report Dave Kranzler puts everything into proper order:
(courtesy Dave Kranzler/IRD)
After non-farm payrolls, GDP and CPI and new home sales, the jobless claims report is probably the useless data report released by the Government. It supposedly measures the relative strength of the jobs market by indexing the weekly number of new claims for jobless benefits. However, there’s two obvious and distinct problems with this report.
First and foremost, the data is based on weekly reports filed by each State’s unemployment insurance claims office. The data is often subject to delayed reporting and reporting errors. And, of course the data gets to go through the Governments trusty “seasonal adjustments” meat grinder. That latter fact alone renders the data completely suspect.
But there’s bigger problem. It has to do with the nature of the labor force. Obviously we’ve seen ad nauseum that the labor force participation rate graph is falling go quickly that it appears to trying to dig a hole to China. As the actual number of workers in the labor force declines, the layoff rate declines and therefore the rate of workers (who qualify) file of jobless benefits declines.
Furthermore, by the Government’s own rigged numbers, since 2008 character of the workforce has been shifting from full-time to part-time. Part of the reason for this is that Companies can eliminate the expense of paying unemployment insurance by replacing full-time workers with part-time employees, even if it means hiring a few more bodies. Full-time workers are entitled to health insurance, pension and unemployment insurance benefits. By eliminating the need to pay these entitlements, the cost of paying three part-time workers in place of two full-time workers.
The OBVIOUS result of this workforce demographic shift is that there will be a lot less workers filing for jobless claims on a weekly basis simply because the labor force is composed of a significantly higher percentage of workers who do not qualify to file for jobless benefits when they get “downsized.”
Ergo, the weekly jobless claims filings decline over time, as do the 4 week running continuing claims. The idiots on bubblevision (CNBC, Bloomberg, and Fox Biz) report the continuously low – relative to history – weekly jobless benefit filings with a high-five and an end zone dance because they think it reflects a healthy labor market. But, quite the contrary, the low weekly jobless benefits claims reflects a tragically declining labor rate participation rate and workforce composition demographic that is riddled with terminal pancreas cancer.
As you can see the regional Fed metrics are showing a stunning negative divergence from the Government massaged reports. Which one do you trust?
Furthermore, Challenger, Gray released its monthly layoff report this morning which showed that layoffs surged 43% in September. Yet, these layoffs didn’t move the needle on the weekly jobless claims, which Bloomberg bills as being “near a decade low.”
I suspect the real layoff numbers are even worse than is being reflected by Challenger, Gray and the Fed surveys. The housing and auto industries are turning lower again rather quickly. The construction industry employs a lot of independent contractors who don’t register as part of the labor force and thus don’t register as “unemployed” when they can’t get contract work. Soon retailers and restaurants will cutting a lot jobs and then the real fun begins…
Atlanta Fed Slashes Q3 GDP Estimate By 50% To Just 0.9%
Yesterday, when the Atlanta Fed boosted its Q3 GDP tracker from 1.4% to 1.8%, the permabulls were crowing how the global recession has been called off. We are confident they will be mysteriously mute, however, following today’s dramatic revision lower which cut the number for the current quarter by half to just 0.9% as a result of the previously reported tumble in the advance report on U.S. international trade which slashed the Atlanta Fed’s model contribution of net exports to third-quarter real GDP growth by 0.7 percentage points to -0.9%.
As a reminder sellside consensus is at just 2.4% still, if not for long.
Consumer Sentiment Plunges On 401K Drop
Submitted by Andrew Zeitlin of Moneyball Economics
Connect the Dots
The University of Michigan’s Consumer Sentiment dropped from 91.9 to 85.7 – the lowest level in a year.
Meanwhile the S&P 500 remains down, -5% year over year and -10% since July.
It’s no coincidence that consumer sentiment stumbled at the same time that the stock market plunged.
Coming back from Summer vacations, households saw:
- The deepest drop in 401K wealth in years
- The most prolonged drop in years
It has been a shock because investors have been conditioned to ignore the dips; or better still, to buy the foolish dips (BTFD) because time-after-time the dips reverse within a few weeks and the market plows onward and upward. In July last year, the market tumbled 3% and then fully recovered within four weeks.
This time is very different. Household 401Ks tumbled 10% and remain down after ten weeks – deeper and longer. That’s a big break from the normal routine. Another difference is that previous market drops had identifiable causes: a government sequester, a Greek bond collapse, and so on. Not this time, and that will create a lot more anxiety and uncertainty because without a clear reason for the collapse there can be no clear remedy.
Investors are asking what’s wrong and they can’t help but notice reports of negative economic news, from a slump in payrolls to slowing factory production. From The Economist to USA Today, the media is discussing a global economic slowdown. Once it hits USA Today, Middle America is informed. Fears of a slowdown accompanied by a very real hit to household wealth will make US consumers defensive. We recently warned that consumers were very sensitive to the stock market and that it would definitely hit spending if it did not reverse quickly.
Because of the conditioned response and the expectation that all would return to normal growth, the stock market tumble did not hold back consumer spending in August. September, on the other hand, is a much different beast. Suddenly economic slowdown is a very hot topic.
Holiday spending and travel are now at risk. The next few weeks are when travel and holiday shopping budgets are set. Those budgets aren’t typically funded by stock portfolios or 401Ks, but if households suspect that a falling equity market is signaling a recession is coming, then job security anxiety increases. They know from experience that after markets turn bearish, the next shoe to drop will be jobs. That leads to frugality and consumer spending retrenchment. It becomes a self-fulfilling cycle.
Is the stock market down because of an impending recession? I don’t think so. First, because the US economy is more stable than it appears, once we look past the problems in the energy and materials sectors. The economy is slowing and this cycle is long in the tooth. The second reason is the timing, suddenness and breadth of the drop. From July into September, all asset classes fell. Gold wasn’t a safe haven in the carnage – it fell from $1,200 to $1,100. We had a race to the exits as everyone ran to liquidate, and by everyone we mean banks and big investors. The trigger for the sudden run was the strong possibility of a Fed rate hike in mid-September.
Adding to the race for cash was China’s yuan devaluation. A lot of investments were backed by the yuan, so when it dropped in value, a lot of big investors had to cover their very big bets. That meant cashing out of other positions. It launched another liquidity fire sale.
I will leave you tonight with this great piece from Chris Martenson
on his warning of deflation upon all of us!!
Deflation Warning: The Next Wave
The signs of deflation are now flashing all over the globe. In our estimation, the possibility of an associated financial crisis is now dangerously high over the next few months.
As we’ve been saying for a while, our preferred model for how things are going to unfold follows the Ka-Poom!Theory as put out by Erik Janszen of iTulip.com.
That theory states that this epic debt bubble will ultimately burst first by deflation (the “Ka!”) before then exploding (the “Poom!”) in hyperinflation due to additional massive money printing efforts by frightened global central bankers acting in unison.
First an inwards collapse, then an outwards explosion. Ka-Poom!
We’ve been tracking the deflationary impulse for a while, and declared deflation the winner back in July of this year.
A Failed Strategy
What exactly do we mean by deflation? Back in 2008 the central banks of the developed world, as well as China, had a choice:
- admit that prior policies geared towards encouraging borrowing at a faster rate than income growth were a horrible idea, or
- double down and push those failed policies even harder
As we all know, they chose option #2. And so here we are, just 8 years later, with nearly $60 trillion in new debt piled on top of the prior mountain — while GDP grew by only $12 trillion over the same time period:
[Note: Global nominal GDP is projected to be $68.6 trillion in 2015, virtually unchanged from 2013]
In other words, instead of saying to ourselves: Hmmm…. it was probably a terrible idea to pile up debt at 2x the rate of income growth, what the world did instead was to double down on that terrible idea and pile on more debt at 5x the rate(!) of nominal GDP growth.
Talk about not learning from your past mistakes….
At any rate, what all of that money printing, lower interest rates and new debt creation did was force capital over the globe to look for some place to go. Absent any really good and creative ideas, that money primarily chased yield. It piled into risk assets like stocks and junk bonds, often in bubble-like fashion (meaning, in haste), and without proper due diligence.
The only way the central bank “strategy” (and we use that word very loosely) could have worked was if very rapid economic growth emerged to justify the accumulated levels of debt, comprised of both old and new borrowing. Central banks were indeed hoping such growth would materialize and lesson the burden of servicing the interest on all that debt.
But that growth, quite predictably (as forecasted by us among many others), did not emerge.
Perhaps Japan’s experience should have tipped the central bankers off as to why not. For several decades now, Japan has served as a warning: too much debt is the malady, not the cure.
So here we are. What are we to make of it all? It’s our view that the financial markets are important to monitor because they will signal to us when sentiment has shifted, and let us know in advance that events will unfold at a faster pace.
Judging from the market action over the past month, we think that shift has happened. And we’re increasingly concerned that this next ‘correction’ could be pretty rough for a lot of folks.
Bright Red Warning Lights
The global economy is downshifting fast, and there are lots of flashing red warning lights indicating as much.
Doug Noland has captured the emerging market pain caused by the hot money that is now flooding out of those territories, as well as provided a great explanation of the bubble dynamics in play:
The Federal Reserve is flailing and global currency markets are in disarray. Notably, theBrazilian real dropped more than 10% in five sessions, before Thursday’s sharp recovery reversed much of the week’s loss. This week the Colombian peso dropped 3.0%, and the Chilean peso fell 3.1%. The Mexican peso dropped 1.9%.
The Malaysian ringgit sank 4.5% for the week, with the South Korean won down 2.7% and the Indonesia rupiah losing 2.2%. The Singapore dollar fell 1.8%. The South African rand sank 4.4% and the Turkish lira fell 1.4%.
Notably, market dislocation was not limited to EM.The Norwegian krone was hit for 4.4%, and the Swedish krona lost 2.0%. The British pound declined 2.3%. The Australian dollar also lost 2.3%.
The global Bubble is bursting – hence financial conditions are tightening. Bubbles never provide a convenient time to tighten monetary policy. Best practices would require central bankers to tighten early before Bubble Dynamics take firm hold. Central bankers instead nurture and accommodate Bubble excess. It ensures a policy dead end.
As the unfolding EM crisis gathered further momentum this week, the transmission mechanism to the U.S. has begun to clearly show itself. While “full retreat” may be a little too strong at this point, the global leveraged speculating community is backpedaling. Biotech stocks suffered double-digit losses this week, as a significant Bubble deflates in earnest. It’s also worth noting that the broader market underperformed.
What does it mean when we see currencies in retreat across the globe? It means that the hot, speculator money is rushing out of weaker economies and back towards the stronger center. This is consistent with a liquidity crisis, one where all the borrowed money used to spark all those heady asset gains and falling yields on the way out do the exact opposite on the way back.
And Doug is exactly right – there’s never a good time to pop a bubble. So the central bankers just sit, paralyzed, afraid to even raise rates by a token amount for fear that the daisy-chain of global bubbles will burst as a result. They needn’t fear: the bubbles will burst no matter what the Fed, et al., does.
A credit default swap (CDS) is a bit of insurance you can buy if you own a bond and are worried that the issuer may default on it. In a stable climate, the cost of that insurance (measured in percentage points above the stated yield on that debt) is pretty flat. It’s usually close to the yield of the bond in question.
So you might have to pay 1% to 2% (i.e. 100 to 200 basis points) above the yield on, say a Brazilian ten year bond, to insure it against a default. As things begin to break down and become less certain, that cost will rise.
Now take a look at this chart of recent emerging market CDS ‘spreads’:
See those CDS ‘spreads’ blowing out to the upside? That’s the sort of thing I was tracking in 2008 that gave me a clear, early warning that things were about to fall apart. While these levels are not (yet) flashing the same level of danger that we are seeing in the CDS paper for Glencore (which is almost certain to go bankrupt now), or for US shale drillers (tons of bankruptcies coming there, too), these are pretty serious warning signs to see in sovereign debt.
Why would the sovereign debt of Russia, Turkey, Brazil, and Malaysia be spiking right now? Because the hot money is flooding out of those countries. There’s now an elevated risk that they may default on their bonds in the future.
These emerging market countries are being squeezed from every direction. But the worst pain is being experience by those that borrowed heavily in dollars (or other stable currencies). From the WSJ (Sept 29), we see the magnitude of the predicament for companies located in EM nations:
Developing-country firms quadrupled their borrowing from around $4 trillion in 2004 to well over $18 trillion last year, with China accounting for a major share.
Now, prospects in industrializing economies are weakening fast even as the U.S. Federal Reserve is getting set to raise interest rates for the first time in nearly a decade, a move that will raise borrowing costs around the world.
The burden of 26% larger average corporate debt ratios and higher interest rates come as commodity prices plummet, a staple export for many emerging-market economies.
Compounding problems, many firms borrowed heavily in dollars. As the greenback surges against the value of local currency revenues, it makes repaying those loans increasingly difficult.
So the afflicted countries are going to see vastly weaker exports, plunging currencies, and their local corporations unable to pay off dollar-denominated loans — on borrowing that ballooned from $4 trillion in 2004 to over $18 trillion just 11 years later. It’s an amazing statistic, one of many fostered by a cluster of central banks that know everything about blowing bubbles but nothing about ending them.
The punch line from the above article is this: “That massive debt build-up means it is “vital” for authorities to be increasingly vigilant, especially to threats to systemically important companies and the firms they have links to, including banks and other financial firms, the IMF said.”
Decoded, that means that $18 trillion is a big number. If even a small portion of that goes into default, it could easily drag down whole swaths of the developed world’s financial corporate structure. A systemic crisis that would begin on the edge but rapidly spread to the center.
Well, based on the DDBAX ETF which holds bonds priced in local currencies, we can get a sense of the pain those EM companies are feeling which have dollar denominated loans, but conduct business in their local currency:
Ouch! Based on the above chart, the past year has been painful indeed for those emerging market corporations and governments. No sign of a bottom yet either.
Not So Fast There….
One so-called ‘bright spot’ in the world economy is the US, which supposedly is doing better than everyone else. As you know, I consider US GDP statistics to be nearly useless because of all the statistical tricks and gimmicks that are now deployed (such as now counting ‘intangibles’ to go along with Owner Occupied Rent which records the price value of people not paying themselves rent, etc.,) to make things look better than they are.
So I’m having trouble believing that the US economy is doing well when our major trading partner to the south is struggling so much due to a huge drop drop in exports:
Mexico factory exports slump by most in over 6-1/2 years in Aug
Sept 25, 2015
(Reuters) – Mexico’s factory-made exports slumped in August by the most in more than 6-1/2 years after uneven growth in the first half of 2015, data showed on Friday, while consumer imports rose.
Manufactured exports sank 7.2 percent in August compared with July, falling back after two months of gains, the national statistics agency said in a statement. It was the biggest month-on-month drop since December 2008, data showed.
Mexico exports mostly manufactured goods like cars and televisions and about three-quarters are sent to the United States.
It’s hard to imagine that the US economy is doing fine when a major trading partner who exports 75% of its finished product to the US is experiencing a deep export slump.
But it’s not just Mexico that’s seeing a big decline in export activity:
For the first seven months of 2015, U.S. exports dropped 5.6% to $895.7 billion. The value of South Korean exports shrank a revised 14.9% in August from a year earlier, the sharpest fall in six years, as shipments to China dropped. Chinese imports in August fell 13.8% in dollar terms from a year earlier, after an 8.1% decrease in July.
If this keeps up, 2015 will see the worst global trade performance since…wait for it…2008. For the US, 2015 will be the first year that exports have declined since the financial crisis. Ditto for a number of other countries.
Beyond exports, the surveys of US manufacturing and service sector activity are also flashing recession warning signs. In fact, the manufacturing survey has only been this low in the past during prior recessions. Maybe this time is different?
On the plus side for the US: reasonably robust housing activity, low initial claims for unemployment, and growing income and expenditures. But the data for some of these is suspect (nearly 100 million working-age adults are not counted in the workforce), and in other areas, not robust enough to hang too many hopes on.
Add it all up, and there are a number of signs that not only is the US economy is far from robust, it may even be teetering on the verge of a recession. But the global economic landscape is decidedly tilted towards contraction, not expansion.
Why is all this important? Because seeing these signs early enough gives us a better chance to mentally, financially, and physically prepare for the next shock. The press does a very good job of constantly painting everything in a rosy light, and that’s fine, but it’s not very helpful if it also misleads.
Lots of people are woefully unprepared for what’s coming next. For many it will be a shock. Not because they couldn’t see it coming years in advance and made their own mental and financial adjustments on their own terms, but because they wouldn’t. Preferring to avoid an unpleasant truth they put it out of sight and out of mind, hoping that somehow things would work out in their favor.
In Part 2: From Deflation To Hyperinflation, we detail out the likeliest progression of the unfolding deflationary rout and the inevitable tsunami of money printing that the central banks will respond with, unleashing the final hyperinflationary chapter.