Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1156.30 up 11.60 (comex closing time)
Silver $15.81 up 5 cents.
In the access market 5:15 pm
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a very good delivery day, registering 63 notices for 6,300 ounces Silver saw 0 notices for 10,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 207.65 tonnes for a loss of 95 tonnes over that period.
In silver, the open interest rose by a considerable 1785 contracts despite the fact that silver was down 33 cents on yesterday. I guess in silver nobody of importance wants to leave the arena. The total silver OI now rests at 157,527 contracts In ounces, the OI is still represented by .787 billion oz or 113% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI fell to 429,152 for a loss of 2,146 contracts. We had 63 notices filed for 6300 oz today.
We had no changes in tonnage at the GLD / thus the inventory rests tonight at 687.20 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. In silver, we had no changes in silver inventory at the SLV / Inventory rests at 315.152 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 a considerable 1785 contracts up to 157,527 despite the fact that silver was down in price to the tune of 33 cents with respect to yesterday’s trading. The total OI for gold fell by 2,146 contracts to 429,152 contracts, as gold was down $4.30 yesterday.
2.Gold trading overnight, Goldcore
3. COT report
4. China opens trading with liquidity concerns. The yuan was strengthened/Poor results again out of Japan/Hibor rises showing banking strains.
3b/The dollar is whacked overnight as emerging nations et al see their currencies rise against the dollar
3c) China warns the uSA to stay out of its territorial waters in the Spratly islands,( their new man made islands)
China is trying to humiliate Obama in the same fashion as Putin did with respect to Syria:
(courtesy zero hedge)
4a) Huge story this morning. The Bank of England has asked all of its banks to show its exposure risk to Glencore. In other words they believe that Glencore is like Greece, a systemic risk
4b) Credit Suisse stuns its investors with a much higher equity dilution
4c) Dave Kranzler of IRD discusses the huge toxic waste of derivatives housed over at Deutsche bank
Russia + USA affairs/Middle eastern affairs
4. a) NATO barks but Russia calls their bluff
5a) the global rally is nothing but a short squeeze
6a) Emerging nation currencies on the rise against the USA dollar. The problem of course is global demand is very weak and the very reason the mess started in the first place
Oil related stories
7a) Oil tops 50 dollars but the credit markets are not buying the commodity price rise!!
7b) Rig count drops supporting the higher oil price
8 USA stories/Trading of equities NY
a) Trading today on the NY bourses
b) Higher business inventories and lower sales spells recession is upon us
c) With more Fed officials talking about negative interest rates, Lacy Hunt and Rick Santelli discuss the huge problems corporations, citizens, insurance companies etc will face when this is hoisted upon them
d) The Republicans still have no front runner to lead the party in the House. The danger upcoming is the debt ceiling as money will run out by Nov 18.2015
9. Physical stories
i. Gold aggressively bid 4 times today after attempts to cool its jets
ii Alasdair Macleod discusses the real reason for the mini Chinese devaluation in August.
a must read (Alasdair Macleod)
iii) Bron Suchecki thinks that the huge rise in OCC precious metals derivative is a misprint
iv) Rob McEwen’s fight to keep his share above 1.00 dollar USA so he can stay on the NYSE
Let us head over to the comex:
October contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| 9979.76 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| nil
|No of oz served (contracts) today||63 contracts
|No of oz to be served (notices)||1374 contracts
|Total monthly oz gold served (contracts) so far this month||189 contracts
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||184,959.6 oz|
Total customer deposit: nil oz
***extremely unusual to have no incoming gold on a continual basis especially with 4.8615 tonnes of gold standing for delivery.
October silver Initial standings
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 1,416,744.900 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,044,305.768 oz
|No of oz served (contracts)||0 contracts (nil oz)|
|No of oz to be served (notices)||41 contracts (205,000 oz)|
|Total monthly oz silver served (contracts)||29 contracts (145,000 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||6,597,396.8 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 1,044,305.768 oz
total withdrawals from customer: 1,416,744.900 oz
And now SLV:
Oct 9.2015:/no change in the silver ETF SLV inventory/rests tonight at 315.152 million oz/
Oct 8.2015/no changes in the silver ETF SLV/Inventory rests tonight at 315.152 million oz
Oct 7/a huge withdrawal of 3.243 million oz from the SLV/Inventory rests tonight at 315.152 million oz
Oct 6/no change in silver inventory/inventory rests at 318.395 million oz
oCT 5/we had a small withdrawal of inventory at the SLV of 134,000 oz/and this is also to pay for fees/inventory rests at 318.395 million oz
Oct 2.2015: no change in silver inventory at the SLV/inventory rests at 318.529 million oz
Oct 1.2015:another addition of 1,145,000 oz of silver inventory added to the SLV inventory./inventory rests at 318.529 million oz
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
Press Release OCT 6.2015
Sprott Increases Offer for Central GoldTrust and Silver Bullion Trust
Offering an Additional Premium of US$0.10 per GTU Unit payable in Sprott Physical Gold Trust Units
and US$0.025 per SBT Unit payable in Sprott Physical Silver Trust Units
When Announced on April 23, 2015, Offers Represented a Premium of US$3.06 per GTU Unit and US$0.91 per SBT Unit for Unitholders Based on Trading Value and the NAV to NAV Exchange Ratio
Premiums as of October 5, 2015 (including the Increased Consideration) are US$1.14 per GTU Unit and US$0.61 per SBT Unit
Notice of Extension and Variation to be Filed Shortly
Offers Will Now Expire on October 30, 2015 –Unitholders Urged to Tender Now
TORONTO, Oct. 6, 2015 (GLOBE NEWSWIRE) — Sprott Asset Management LP (“Sprott” or “Sprott Asset Management”), together with Sprott Physical Gold Trust (NYSE:PHYS) (TSX:PHY.U) and Sprott Physical Silver Trust (NYSE:PSLV) (TSX:PHS.U) (together the “Sprott Physical Trusts”), today announced that it has increased the consideration payable to unitholders in connection with its offers to acquire all of the outstanding units of Central GoldTrust (“GTU”) (TSX:GTU.UN) (TSX:GTU.U) (NYSEMKT:GTU) and Silver Bullion Trust (“SBT”) (TSX:SBT.UN) (TSX:SBT.U) (the “Sprott offers”).
Unitholders will now receive an additional premium of US$0.10 per GTU unit payable in Sprott Physical Gold Trust units and US$0.025 per SBT unit payable in Sprott Physical Silver Trust units (the “Premium Consideration”), in addition to the units of Sprott Physical Gold Trust and units of Sprott Physical Silver Trust, respectively, being offered on a net asset value (NAV) to NAV exchange basis. Based on trading values and the NAV to NAV Exchange Ratio (as such term is defined in the Sprott offers) at the time Sprott announced its intention to make the Sprott offers on April 23, 2015, the offers reflected a premium of US$3.06 per GTU unit and US$0.91 per SBT unit. The premium as of October 5, 2015, based on trading values, the NAV to NAV Exchange Ratio and the Premium Consideration, represents US$1.14 per GTU unit and US$0.61 per SBT unit, respectively. In connection with this increase in consideration, the expiry time for each Sprott offer is extended to 5:00 p.m. (Toronto time) on October 30, 2015.
“Central GoldTrust and Silver Bullion Trust unitholders have been burdened for too long by a group of trustees committed to protecting the interests of the Spicer family. It is only through the public spotlight that the variety of undisclosed fees paid to supposedly independent trustees has forced public disclosures and hollow justifications. Sprott’s offers to unitholders are compelling and momentum is building as we continue to show the clear advantages of the offers. The response of the GTU and SBT trustees has been to penalize unitholders with the burden of paying for costly lawsuits and expensive advisors to protect the Spicer family and the fees they receive. We are accordingly increasing our offer to compensate unitholders for this abuse of trust, and encourage them to take advantage of this opportunity to exchange their units for an immediate premium, and trade a management committed to entrenchment to one committed to their best interests,” said John Wilson, Chief Executive Officer of Sprott Asset Management.
Added Wilson, “We have provided extensions to the offers so that no unitholders are left without this opportunity to exit an underperforming investment and enter into a high quality security that functions as intended, reflecting the value of the bullion held in the trust. Sprott appreciates the support of GTU and SBT unitholders to date and currently anticipates these extensions will be the final extensions to the Sprott offers.”
As of 5:00 p.m. (Toronto time) on October 5, 2015, there were 8,194,265 GTU units (42.46% of all outstanding GTU units) and 2,055,574 SBT units (37.60% of all outstanding SBT units) tendered into the respective Sprott offers. Total units tendered as of October 5, 2015, do not include pending units which are typically received on the date of expiration.
GTU and SBT unitholders who have questions regarding the Sprott offers, are encouraged to contact Sprott Unitholders’ Service Agent, Kingsdale Shareholder Services, at 1-888-518-6805 (toll free in North America) or at 1-416-867-2272 (outside of North America) or by e-mail at email@example.com.
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, October 06, 2015|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||148||118|
|Tuesday, October 06, 2015|
Global Recession Coming – Even “Powerhouse” Germany and UK Slow “Dramatically”
– IMF warn of “fresh financial crisis”
– German exports fall 5.2%, largest slump since recession of 2009
– German imports also fall 3.1%
– Many sectors across German economy see unexpected declines in factory orders and industrial production
– UK Chief Financial Officers (CFOs) report sharp rise in uncertainty
– UK PMI has fallen to lowest level since April 2013
– Hope for the best but be prepared for less benign scenarios
IMF 2015 Global National Debt Map – IMF
The IMF have been growing more vocal in recent weeks about the possibility of another financial crisis and severe recession. The head of financial stability at the IMF, José Viñals has said that this outlook “does not rely on extreme assumptions at all”.
IMF head, Christine Lagarde has said that the slow down now being seen in China and other large emerging markets will cut economic growth globally back to levels last seen during the crisis of 2009.
Viñals added “If we don’t get it right we could set the clock back in terms of growth.”
In its financial stability report the IMF said:
“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes.”
Just this week, we covered the similar stark warning from the BIS, the central bank of central banks, who warned of “major fault lines” in the global financial system and a “global debt bubble“.
Right on cue yesterday figures out of “powerhouse” Germany show a dramatic and unexpected decline in economic activity. Imports and exports slumped in the month – with exports slumping 5.2% in August relative to the previous month. At the same time imports into Germany are also faltering with the most recent figures showing a decline of 3.1%.
Germany’s manufacturing industry, Europe’s biggest industry in the EU’s largest economy, is taking a hit from sharply slowing demand in emerging markets and developing markets.
It is believed that the turmoil being experienced by German flagship companies Volkswagen and Deutsche Bank and geopolitical uncertainty in the Ukraine and Middle East and tensions with Russia are contributing factors to the malaise.
The situation is more that just a crisis in confidence. Major chemical company BASF SE has announced a curb in spending and reduced profit and sales expectations going forward. Bloomberg also cite a German steel industry report which shows that “crude steel production fell almost four percent in September.”
Two major shipping companies who handle three quarters of containers into Hamburg have indicated that weaker trade with Russia and China has caused them to cut their 2015 earnings forecast.
Meanwhile in the UK, there are also signs of a sudden economic slowdown.
The purchasing managers index (PMI) in the UK as compiled by Markit has fallen to its lowest level since April 2013 at the height of the sovereign debt crisis.
Headline services PMI fell to 53.3 in September down from 55.6 in August. Their figures indicate that the UK economy is growing at 0.3% down more than 50% from the rate of growth in the second quarter.
“Weakness is spreading from the struggling manufacturing sector, hitting transport and other industrial-related services in particular. There are also signs that consumers have become more cautious and are pulling back on their leisure spending,” Chris Williamson, chief economist at Markit, said according to Reuters.
The Guardian report that service sector businesses ranging from those in finance to restaurants were experiencing salaries pressure while prices charged rose “marginally”. These companies also say that generation of new business was at its slowest pace since April 2013.
An earlier composite PMI from Germany fell as did those out of Italy and Spain. France’s composite reading was the only economy to buck the trend and rose marginally to 0.2 percent growth in the third quarter, according to Markit.
Another sign of the slowdown in the UK is a survey by Deloitte showing that the “chief financial officers (CFOs) of some of Britain’s biggest companies reported a sharp rise in uncertainty facing their businesses,” according to the Guardian.
Some 60% of those surveyed believed that the economic slowdown in China would have a negative impact on their business.
|BULLION COIN & BAR PREMIUMS & AVAILABILITY – October 9, 2015|
|Gold Bars (1 oz – Perth Mint)||3.75%||In Stock|
|Gold Bars (1 oz)||4%||In Stock|
|Gold Bars (10 oz)||3.75%||In Stock|
|Gold Bars (1 kilo)||2.00%||In Stock|
|Gold Maples (1 oz)||4.25%||In Stock|
|Gold Eagles (1 oz)||5%||In Stock|
|Gold Krugerrands (1 oz)||4.25%||In Stock|
|Gold Philharmonics (1 oz)||5.00%||In Stock|
|Gold Buffalos (1 oz)||5.00%||Delivery – 1 to 2 Days|
|Gold Sovereigns (0.2354 oz)||8.50%||2015 In Stock|
|Gold Sovereigns (0.2354 oz – Pre 1933)||9.00%||Not available in volume|
|Silver Bars (100 oz Generic)||9.50%||4 Weeks|
|Silver Bars (100 oz LBMA – Asahi Refinery)||9%||Delivery – 8 Weeks|
|Silver Bars (1000 oz)||4.00%||Delivery – 1 / 10 Days|
|Silver Eagles (1 oz)||32%||Delivery – 2 / 3 Weeks|
|Silver Maples (1 oz)||24%||Delivery – 3 / 4 Weeks|
|90% Silver Bags – Call to order||28%||In Stock|
|40% Silver Bags (JFKs) – Call to order||6%||In Stock|
|Silver Kangaroo 2016 (1 oz) – Call to order||22%||Delivery – 2 Weeks|
*Note* Given continuing and deepening delays for certain popular silver bullion coins and bars and rising premiums we believe it is important to keep our clients and subscribers aware of the most up to date premiums and availability. The prices quoted are indicative and can change at any time. The premiums quoted are for smaller orders and there are volume discounts and lower premiums on larger orders.
The threat to growth highlighted by the IMF is a symptom of a system which remains very vulnerable and in a worst case scenario could implode as it did in 2008.
Alas today, there appears to be no new growth without new debt and with every sector of the global economy already choking on debt there are few options available to policy makers.
Many well placed analysts have warned that when the next crisis hits the inability of central banks to dramatically lower rates will result in unprecedented policy measures such as negative interest rates with the abolition of physical cash, bail-ins and aggressive debasement of currency in the form of QE.
Gold is the tried and tested historical safeguard against political, economic and monetary recklessness.
Investors should hope for the best while making preparations for less benign scenarios. This can be achieved by reducing leverage and speculation and having a healthy allocation to physical precious metals in the safest vaults in the world.
Today’s Gold Prices: USD 1151.50, EUR 1016.42 and GBP 749.01 per ounce.
Yesterday’s Gold Prices: USD 1143.30, EUR 1011.59 and GBP 745.31 per ounce.
Gold in USD – 1 Week
Gold closed down $5.70 yesterday at $1139.90, ending with a loss of 0.5%. Silver lost $0.32 closing at $15.70, a loss of 2% for the day. Platinum gained $4 to $947.
Gold is ticking higher and touched a three-week high of $1,154 this morning and is headed for a 1.6% gain for the week. Minutes from the Federal Reserve’s last policy meeting showed the U.S. central bank was in no hurry to raise interest rates due to growing economic risks.
Silver is poised for a 3 percent weekly jump, after hitting a 3 and a 1/2-month high on Wednesday. Platinum is on track for a 4.6 percent gain for the week, its best weekly performance since October 2013, while palladium looked set to post its fifth straight weekly gain.
Download 7 Key Allocated Storage Must Haves
Alasdair Macleod: China and the dollar
Submitted by cpowell on Thu, 2015-10-08 18:22. Section: Daily Dispatches
By Alasdair Macleod
GoldMoney.com, St. Hellier, Jersey, Channel Islands
Thursday, October 8, 2015
With the benefit of hindsight, the two-day devaluation of the yuan in mid-August might have been a masterstroke of strategy.
China executed a financial move that appeared to undermine its own position but instead created trouble for the US; how much is still to be played out. So was the devaluation a well-executed move against the dollar, or are the Chinese authorities as clueless as any other government? …
… For the remainder of the report:
Bron Suchecki: OCC precious metal derivatives fat finger
Submitted by cpowell on Thu, 2015-10-08 18:40. Section: Daily Dispatches
2:40p ET Thursday, October 8, 2015
Dear Friend of GATA and Gold:
Perth Mint research director Bron Suchecki today discerns that a recent report by the U.S. Office of the Comptroller of the Currency showing a spike in precious metals derivatives was probably a typographical error. Suchecki’s analysis is headlined “OCC Precious Metal Derivatives Fat Finger” and it’s posted at the Perth Mint’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Rob McEwen is one class act and he is a good friend to goldbugs:
(courtesy Mineweb/D+Skip Keen)
McEwen’s battle for the buck
Rob McEwen discusses share buyback to boost shares, regain $1 on the NYSE.
Kip Keen | 9 October 2015 12:37
McEwen Mining, a gold miner, is doing what it must to stay on the New York Stock Exchange. Earlier this year it was warned by the exchange to get its shareprice over a dollar for an extended period of time within six months.
That’s exchange policy, for better or worse, and it pushes McEwen into a corner in the midst of a not-so-kind market for miners and with a generally limp gold price (but picking up ever so slightly recently.) So it wasn’t a huge surprise to see McEwen go for a share buyback in recent days.
Clearly, as Rob McEwen, McEwen’s Chairman and CEO (and controlling shareholder), acknowledged in a recent interview, the buyback is directly aimed at getting McEwen’s share price back over a dollar. It’s within spitting distance now.
He also thinks the company is undervalued, of course. “It’s a good investment, simple as that,” he said over the phone.
If the buyback is something of a forced matter (and it might be nice if McEwen could sit on more cash), it does nonetheless display flexibility in McEwen Mining’s finances that at the moment is a bit of a rare thing in the sector.
It’s working capital is over $30 million now, easily affording it to meet plans to spend up to $15 million on share buybacks, and fund dividends. Meantime, it appears on the path to generating more cash, assuming the price of gold doesn’t totally wilt.
Indeed, McEwen has been miserly in this downturn: and it’s to his credit in a field where other CEOs have wasted their balance sheets on bad deals, dilution, and heavy debt. If McEwen hasn’t met self-made targets – he had hoped to get McEwen on the S&P 500 by now – he hasn’t shot the company in the foot. When he says the gold miner has exercised financial discipline it’s one of those cases where a boilerplate statement applies.
McEwen Mining basically has no debt and has started churning out cash flow in recent quarters and, as metal prices fell, long ago deferred major spending on the El Gallo II project, one of two of its main development projects.
McEwen is a strong proponent of not investing in a project that falls under a 20% internal rate of return (IRR) using conservative assumptions. He’s forthright on El Gallo II, a silver-gold project, and said it needs prices of silver over $17/oz to make more sense to build.
So holding back has helped McEwen secure a strong balance sheet. If the buyback is being done under the gun of the NYSE, it’s notable that McEwen even has it as a viable option to boost shares by reducing the company’s count.
It’s not something many miners could do now, whether or not forced by circumstance.
1 Chinese yuan vs USA dollar/yuan rises a bit in value, this time at 6.3445/Shanghai bourse: up 1.27%, hang sang: green
2 Nikkei closed up 294.50 or 1.64%
3. Europe stocks all in the green /USA dollar index down to 94.45/Euro up to 1.1362
3b Japan 10 year bond yield: falls slightly to .326% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.26
3c Nikkei now just above 18,000
3d USA/Yen rate now above the important 120 barrier this morning
3e WTI: 50.94 and Brent: 53.76
3f Gold up /Yen down
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil 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 to .616 per cent. German bunds in negative yields from 4 years out
Greece sees its 2 year rate rises to 9.55%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.76%
3k Gold at $1151.50 /silver $15.87 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 38/100 in roubles/dollar) 61.02
3m oil into the 50 dollar handle for WTI and 53 handle for Brent/ China purchases huge supplies from Saudi Arabia
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 .9602 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0912 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 5 year German bund now in negative territory with the 10 year moving further from negativity to +.616%/German 4 year rate negative%!!!
3s The ELA lowers to 87.9 billion euros, a reduction of 1.0 billion euros for Greece. The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Next step for Greece will be the recapitalization of the banks and that will be difficult.
4. USA 10 year treasury bond at 2.10% early this morning. Thirty year rate below 3% at 2.93% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Biggest Weekly Stock Rally Since 2012 Continues Driven By Tumbling Dollar, Dovish Fed; Commodities Surge
The global risk on mood (which is really anything but, and is merely an unprecedented short covering squeeze as we will report momentarily) launched by an abysmal jobs report one week ago and “validated” yesterday by the surprisingly dovish FOMC minutes, which said nothing new but merely confirmed what most knew, namely that a rate hike is almost certain to not occur until mid-2016 if ever, and accelerated by a Fed-driven collapse in the dollar which overnight has led to a historic 3.4% move in the Indonesian Rupiah the most since 2008, has pushed global stocks even higher in their biggest weekly rally since 2012, despite the start of an earnings season where virtually every single company reporting so far has stumbled on earnings reports that were far worse than even gloomy consensus had expected.
Furthermore, the return of the weak dollar/strong oil correlation means WTI has continued its surge and is trading back over $50 this morning (yes, for now Gartman is proving to be a better predictor than Goldman, which as we noted before expects a drop in crude back in $40 in the next 3 months), while other commodities such as zinc are literally flying, up some 10% or the biggest one day price gain in 26 years…
… on news Glencore is laying off thousands and after cutting copper output, is also slashing its zinc output by a third.
As Bloomberg reports Annual zinc output will fall by about 500,000 metric tons as Glencore suspends or cuts output from mines in Australia, Peru, and Kazakhstan. Global production was 13.3 million tons in 2014, according to the U.S. Geological Survey, making the reduction equivalent to almost 4 percent of world output.
The curbs will shave about 100,000 tons from its fourth-quarter output, Glencore said, while production of other metals including lead and silver will also be affected. Zinc, which helps protect steel from corrosion, rose as much as 9.4 percent on the London Metal Exchange, the most since October 2008. Prior to Glencore’s announcement, it had fallen 23 percent this year.
“Glencore is showing industry discipline by cutting unprofitable tons and saying it is worth more value to leave the tons in the ground,” Heath Jansen, a Citigroup Inc. analyst, wrote in a report Friday. “We expect assets to remain out of production until zinc prices improve materially and stay higher.” As a reminder, Glencore did the same thing over a month ago with copper production, and the rebound likewise was vicious. The issue for Glencore is that the company will now generate even less revenue, and even less cash flow, which means it will be even more reliant on short-term funding to plug the “rationalization” shortfall. For now the stock, which just doubled from its recent receord low of under 70p, seems to like the development.
Back to global markets where the dollar is getting smashed across most pairs, including the EUR which this morning triggered buying stops and surged to the highest level since September 18, however the one other currency that has weakened even more is of course the Yen, as the USDJPY continues to be the marginal and very levered global risk on indicator, one where the Bank of Japan continues to be dominant. Keep an eye on the USDJPY which will once again levitate the S&P futures with it tick for tick in today’s last for the week, and very illiquid, session.
A quick run through the markets starting in Asia, shows stocks trading broadly higher. Hang Seng (+0.5%) and ASX 200 (+1.3%) were led by strength in commodity names with the former set for its best week since April, while Nikkei 225 (+1.6%) also advanced, although was the underperformer due to losses in its largest weighted stock Fast Retailing (-9%) after downbeat earnings. Elsewhere, Shanghai Comp. (+1.3%) extended on yesterday’s gains amid reports that insurers may raise overseas investments. Finally JGBs traded flat heading into its extended weekend despite the firm risk appetite in Asia, while the BoJ’s “JOMO” meant the central bank purchased another JPY 1.18 trillion in bonds from the market.
Oddly enough, while stocks have blasted off on Fed dovishness, this has not spread to fixed income products which have failed to benefit from the dovish release which was largely focused on the uncertain macroeconomic situation in China and traded lower, with Bunds underperforming USTs in early European trade. However it is worth noting that China’s Yuan and CNH has since stabilised and the spread between the two has narrowed (which was an issue to policy makers before). WSJ has also noted that investors appear to be gaining confidence in Beijing’s intentions determining the CNY’s value.
European equities initially opening higher in line with their global counterparts after the release of dovish Fed minutes, before coming off their best levels but remain in positive territory (Euro Stoxx: 1.0%). On a sector specific breakdown, energy and material names outperform in line with strength in global commodities, which benefitted from a weaker USD on the back of the aforementioned Fed minutes.
As noted above, in FX it has been all about USD weakness stemming from dovish FOMC release failed to weigh on USD/JPY, which instead traded higher as market participants continued to speculate over further easing by the BOJ . Of note, press reports earlier in the week noted that the possibility of a stronger JPY amid reduced expectations of a Fed rate lift-off could prompt the Bank of Japan to further ease monetary policy.
Fed’s Williams (Voter, Hawk) said that he saw September FOMC decision a close call and that September payroll report was consistent with his outlook. William further added that the global outlook has not deteriorated since the prior meeting and that if there is a shock in the future, negative rates, QE and forward guidance could be considered.
Finally, also driven by the collapse in the dollar (against all but the Yen “carry” trade), overnight global commodities saw a bout of strength, benefitting from a weaker USD on the back of the aforementioned Fed minutes, with WTI crude futures breaking above the USD 50 handle for the first time since the beginning of September. Elsewhere, gold retook the USD 1150 handle, while platinum outperforms up over 2.5% in the session.
Oil continues to be the most notable move in the commodity complex and oil prices continued their rally on Friday, driven by a weakening dollar and concerns that Russia’s escalating military involvement in Syria will increase the risks for the world’s most important oil region.
On Friday, U.S. crude was oscillating around the key $50 mark, up around 10% from last week. Russia’s military foray into in Syria, which began last Wednesday, has increased the odds of more political instability in the Middle East and pushed up prices, long battered by the global oversupply of crude.
Just as we said over a month ago when previewing the Russian confronation in Syria, “Mr. Putin is potentially very bullish for oil prices,” said David Hufton of PVM brokerage. “Cruise missiles, cluster bombs, the installation of radar jamming devices in Syria and repeated incursions into Turkish airspace is enough to make even the most steely nerved short nervous and tempt others to take on speculative length.”
“Part of this week’s rally has been due to some additional geopolitical premium being priced-in,” said Olivier Jacob at consultancy Petromatrix. “Crude oil futures are having their best week since the last week of August and have managed a breakout of the September trading range.”
On oil, the question is whether the return to fundamentals predicted by Goldman yesterday will take place, or whether the levitation on hopes for more easy money/war will trump the continuing global excess supply.
Finally, looking at the US calendar this afternoon we’ve got the September import price index print along with August wholesale inventories and trade sales readings. Fedspeak wise today we’ve got Lockhart (due at 9:10am) speaking on the US economic outlook and Evans (due 1:30pm) speaking on monetary policy. Also potentially of interest will be the IMF’s Lagarde speaking again at the annual meeting tonight.
Bulletin Headline Summary from Bloomberg and RanSquawk
- Equity markets have traded higher with global stocks set for their biggest weekly rally since 2012 amid the rebound in energy prices and the dovish Fed minutes
- USD weakness stemming from dovish FOMC release failed to weigh on USD/JPY, which instead
traded higher as market participants continued to speculate over further easing by the BOJ
- Today’s highlights include the latest Canadian jobs report, US wholesale inventories data, as well as any comments from Fed’s Evans and Lockhart
- Treasuries heading for loss on the week amid gains in stocks and oil; market focus turning to retail sales, producer prices and consumer prices data next week.
- 3Q earnings season began as Alcoa, suffering under the weight of a global aluminum glut, reported results that missed analysts’ estimates after the price of the metal fell for a fourth straight quarter
- Margin debt in freefall is another reason to worry about S&P 500, according to Doug Ramsey, CIO of Leuthold Weeden Capital Management LLC, whose pessimistic predictions came true in August’s selloff
- Deutsche Bank is selling a CDS trading portfolio of more than $250 billion, with JPMorgan among several banks in talks, according to two people familiar with the matter
- John Cryan, Deutsche Bank’s new boss, delivered a harsh message to shareholders and employees: Europe’s biggest investment bank isn’t worth what it once was and can’t pay them what they’re used to
- Germany’s Angela Merkel is causing a storm at home with her open-door policy for refugees alienating political allies and a skeptical public; approval ratings lowest in almost four years
- Commerzbank sees a 20% chance of a crash in China’s corporate bond market by year-end, while Industrial Securities Co. and Huachuang Securities Co. are warning of an unsustainable rally
- Credit Suisse, Pimco and Citi say recent gains in EM currencies will prove fleeting, and most forecasters agree: all 23 EM currencies tracked by Bloomberg are projected to weaken against the dollar by the 1Q
- Glencore Plc plans to cut zinc production by about a third, after already curbing copper and coal output, as it navigates the commodity collapse that last week briefly wiped $6b from its market value
- With just four weeks to raise the U.S. debt limit or risk default, House Republicans are careening into chaos, with no clear leader, no path to pick one and open warfare among factions who blame each other for the party’s plight
- Turkey’s Erdogan, on first official visit by Turkish head of state to Brussels, found his demand for support for a “safe zone” in Syria unmet while EU President Tusk lashed out at the use of the refugee crisis as “a political bargaining chip”
- ECB should refocus its ABS purchases program on the peripheral countries most in need of its help, according to Pimco
- Sovereign 10Y bond yields slightly higher. Asian and European stocks higher, U.S. equity-index futures decline. Crude oil, copper and gold rise
DB’s Jim Reid completes the overnight event recap
Not a lot was happening in markets yesterday and it took until the release of the FOMC minutes for risk assets to continue their strong run in Q4 so far, as the S&P 500 eventually closed the session +0.88% and CDX IG tightened a couple of basis points. With regards to the minutes, in particular it was the text stating that ‘recent global economic and financial developments had imparted some restraint to the economic outlook and placed further downward pressure on inflation in the near term’ which grabbed most of the attention. Committee members also noted that compared with their previous forecasts, more officials now saw the risks to inflation as tilted to the downside. Meanwhile, while there were the usual supportive comments around the state of the labour market, there was also mention of the strengthening dollar and possible effects of slower economic growth in China and emerging markets as restraining economic activity.
In fact, the mention of China’s slowdown and concerns around emerging markets was a bit of a recurring theme yesterday having been mentioned in the ECB minutes and BoE statement too. The former in particular noted that ‘the euro area economic recovery was expected to continue at a somewhat slower than previously anticipated pace, largely reflecting the slowdown in emerging market economies’ and that there was therefore a need for the ECB to monitor closely all relevant incoming information ‘with respect to potential implications for the monetary policy stance and for the outlook for price stability’. In a similar theme, the minutes noted that lower commodity prices, recent Euro strength and lower than expected growth in the region had ‘increased the downside risk to achieving a sustainable path of inflation towards 2%’.
Over at the BoE, after voting to hold rates (as expected) on an 8-1 majority, the committee made mention to ‘a deterioration in the global demand environment’ which could slow the pace of expansion further, making special mention to the slowdown in emerging markets and China. Despite some dovish tints in the statement, BoE Governor Carney, speaking later in the day, offered a slightly different angle saying that timing of a Fed move is not decisive for timing of the BoE, making mention in particular that over the course of five rate cycles since the UK adopted inflation targeting, the BoE has moved before the Fed in two of them. Carney was also slightly more hawkish on the inflation outlook, noting that ‘importantly we are seeing building wage pressures’ and that ‘you can achieve your inflation target even in the face of some very large external forces’.
Turning now to the latest in Asia this morning where markets have generally followed the lead from the gains late in the US session yesterday. Strength has been broad based across the region, with the Hang Seng (+1.70%) and ASX (+1.03%) in particular posting strong gains. China has continued to firm up post its break, with the Shanghai Comp +0.45% while elsewhere the Nikkei (+0.78%) and Kospi (+0.68%) are also higher. There’s been an impressive rally in credit markets morning, with CDS indices in Asia and Australia 5-6bps tighter.
The strong quarter-to-date for Oil markets continued yesterday. WTI finished the session +3.39%, briefly passing the $50/bbl mark intraday where it’s not closed above since July. Brent closed firmer too, up +3.35% to the highest level since August 31st as prices found some support on the back military conflict between Russia and Syria and seemingly better sentiment around the supply and demand picture. The rest of the commodity complex was generally softer, Gold finishing down half a percent and the likes of Aluminum, Copper and Zinc off a percent.
The softness in Aluminum prices was attributed to a fairly disappointing set of results out of Alcoa last night, unofficially kicking off earnings season in the US on a down-note after missing at both the revenue and earnings line with shares down 3% after-market. As we noted yesterday earnings season is due to kick up a gear next week with the banks in particular due to report.
Moving on, yesterday’s sole data release in the US yesterday saw initial jobless claims fall 13k last week to 263k and the lowest level since July 18th. With the moves in Oil and the better data, US Treasury yields nudged higher with the benchmark 10y eventually finishing +3.7bps at 2.105%, with the brief sharp move lower post the release of the FOMC minutes quickly erased. The Dollar was bit more mixed with little obvious direction during the session as the Dollar index eventually closed down 0.19%.
There were some contrasting comments from Fed officials yesterday. Minneapolis Fed President Kocherlakota reiterated his particularly dovish view, saying that he does not see raising the target fed funds rate above its current low level either this year or next as being consistent with the pursuit of the kind of labour market outcomes the Fed is charged with delivering. Kocherlakota even went on to say that he would ‘be open to the possibility of reducing the fed funds target range even further’. This was in stark contrast to the San Francisco Fed President Williams who reiterated his view that the Fed should hike this year and that in his own view there is little real information about a significant downturn in the global outlook. His comments largely reflected those made on Tuesday.
Prior to this, European markets extended their run of recent gains yesterday with the Stoxx 600 closing the session +0.19%. European credit markets continue to grind tighter too with Crossover another couple of basis points tighter. Yesterday’s data in Europe was centered in Germany and its latest August trade numbers. The numbers made for disappointing reading however as exports slumped during the month (-5.2% mom) after expectations (-0.9% mom) for only a small drop. This was in fact the strongest MoM slump in exports since the start of 2009. Our colleagues in Europe noted that this poses a downside risk to their Q3 net trade contribution to the GDP forecast. However, they also noted that the external weakness should be compensated by strong private consumption which benefits from the oil price slump, high net migration and solid real wage growth.
Looking ahead to today, the early data in Europe is out of France where we get the August industrial and manufacturing production readings. Shortly after this we’ll get the August trade balance reading for the UK along with construction output. In the US this afternoon we’ve got the September import price index print along with August wholesale inventories and trade sales readings. Fedspeak wise today we’ve got Lockhart (due at 2.10pm BST) speaking on the US economic outlook and Evans (due 6.30pm BST) speaking on monetary policy. Also potentially of interest will be the IMF’s Lagarde speaking again at the annual meeting tonight.
Let us begin: Late last night (9;30 pm est/Friday morning 9:30 am Shanghai time:
(courtesy zero hedge)
Liquidity Strains Reappear As China’s “Golden Week” Stock & Housing Market Disappoints
Despite last night’s disappointingly weak China re-open (notably less than US ADRs had implied), it appears everyone and their pet rabbit levered up as China margin-buying rose CNY21bn – the most in 2 months. It appears China’s housing market also disappointed hope-strewn expectations as Golden Week home sales slowed dramatically YoY (blamed on weather). All is not well in the liquidity stress department as despite ongoing injections, o/n HIBOR spiked 240bps overnight. China stocks are mixed at the open as PBOC strengthens the Yuan fix for the 5th day in a row to 2 month highs. Concerns are also growing in China’s corporate bond market where bubble flows have greatly rotated from stocks to drive yields on risky firms to record lows.
The China (Stock) Bubble Is Dead, Long Live The China (Bond) Bubble…
As a rout in Chinese stocks this year erased $5 trillion of value, Bloomberg notes that investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.
China margin-buying surged 129% off 13 month lows, the biggest daily rise in almost 3 years…
Overall, Chinese stocks re-opened notably weaker than US ADRs expected…
And there is not much further gains today, despite US equity exuberance…
- *CHINA’S CSI 300 STOCK-INDEX FUTURES RISE 0.2% TO 3,241.4
And PBOC strengthens the Yuan fix further…for the 5th day in a row to 2 month highs
- *CHINA SETS YUAN REFERENCE RATE AT 6.3493 AGAINST U.S. DOLLAR
And just as the stock market disappointed, so did the housing market… Golden Week property mkt in major cities weaker than expected due to bad weather, limited time for developers to react to supportive measures, analyst Jinsong Du says in note, citing data collected by Credit Suisse.
- Recommends shrhldrs of lower-tier city developers take profit given increasing downside risks
- Agile, Guangzhou R&F among lower-tier city players
- Y/y growth in subscription sales slowed during holiday
- Sales in Sept.to early Oct. weaker than May to early June’s
- NOTE: Sunac leads Chinese developers retreat today, down 3.6%; Sino-Ocean Land -3.4%, Fantasia -3.2%
And Hong Kong Existing Home Prices Snap 5-Mo. Rising Streak
Overnight HIBOR rates surged 242bps to 4.11% as China re-opened, suggesting more than a little liquidity stress remains…
* * *
Japanese stocks are holding their heads just above water despite a major miss by Fast Retailing (parent of UNIQLO):
- *FAST RETAILING FALLS AS MUCH AS 8.9% AS FORECASTS LAG ESTIMATES
Dollar Demolition Extends To 6th Day As EM/Asian FX Soars Most In Over 6 Years
As the odds of a Fed rate-hike this century drift asymptotically back towards zero, the stability-desirous central bankers of the emerging world are suddenly facing soaring currencies as hot money floods back into Emerging Asian markets. The Rupiah and Ringgit are up almost 3% overnight as everything from the Baht to the Won are surging against the USD. Asian FX is up 6 straight days against the USD (and 8 of the last 9) for thebiggest 9-day gain since May 2009.
The China devaluation spike in The USD against Asian FX is rapidly being unwound...
The Dollar Demolition of the last 9 days is the biggest since May 2009.
As all EM FX is soaring…
Led by a massive spike in Indonesia’s Rupiah...
So now what will the talking-heads say about a weaker USD? Especially in light of the fact that they crowed about a strong USD being indicative of a strong US economy…is The US now the dirtiest dirty shirt?
China is trying to humiliate Obama in the same fashion as Putin did with respect to Syria:
(courtesy zero hedge)
China Threatens The U.S., Says Will “Not Tolerate Violations Of Its Territorial Waters”
hile the geopolitical posturing between the US and China over the South China Seas is nothing new, the latest and most dramatic installment started just one month ago, when as part of its celebration to commemorate the successful victory over Japan in World War II, China sailed five warships to the Bering Sea, off the coast of Alaska, just as Obama was quite literally taking selfies of himself a few hundred miles away.
Then yesterday, in the latest US attempt to one-up China despite the now long forgotten visit of China’s president to the US which clearly achieved absolutely nothing, and resolved even less, we reported that the US would retaliate to the most recent Chinese “prank” by sailing warships close to China’s artificial islands in the South China Sea as a signal to Beijing that Washington does not recognise Chinese territorial claims over the area.
A senior US official told the Financial Times that the ships would sail inside the 12-nautical mile zones that China claims as territory around some of the islands it has constructed in the Spratly chain. The official, who did not want to be named, said the manoeuvres were expected to start in the next two weeks.
The move, which is likely to raise tensions between the powers, comes amid disagreement over several issues, including US allegations that China is engaging in commercial cyber espionage.
As a reminder, this is area which is provoking so much consternation due to the location of vast commodity resource fields underneath:
Which is odd: one would think this could have been cleared up just two weeks earlier when the two presidents were having a state dinner in the White House (where Michele Obama was dressed in Vera Wang). One wonders just what the topic of conversation was if this most important aspect of geopolitical tensions was left entirely uncovered.
In any event, now that we know that the Spratly topic was not discussed, it then comes as no surprise that China just had a very vocal retaliation in kind to what it sees an upcoming provocation by the US.
According to Reuters, earlier today China said “it would not stand for violations of its territorial waters in the name of freedom of navigation, as the United States considers sailing warships close to China’s artificial islands in the South China Sea.”
As noted above, a U.S. defense official told Reuters the United States was mulling sending ships within the next two weeks to waters inside the 12-nautical-mile zones that China claims as territory around islands it has built in the Spratly chain. Washington has signaled it does not recognize Beijing’s territorial claims and that the U.S. navy will continue to operate wherever international law allows.
China’s response was quick, clear and unequivocal:
“We will never allow any country to violate China’s territorial waters and airspace in the Spratly Islands, in the name of protecting freedom of navigation and overflight,” Foreign Ministry spokeswoman Hua Chunying told a regular news briefing.
“We urge the related parties not to take any provocative actions, and genuinely take a responsible stance on regional peace and stability,” Hua said in response to a question about possible U.S. patrols.
The United States and its allies in Asia, including Japan, have called on Beijing to halt construction on its man-made islands and the issue is central to increasingly tense U.S.-China relations. Admiral Harry Harris, commander of U.S. forces in the Pacific, told the Aspen Security Forum in July that China was building hangars on one of the reefs – Fiery Cross – that appeared to be for tactical fighter aircraft.
What is curious is that while in the past China has traditionally responded by pleading ignorance, with President Jinping saying repeatedly China has no intention of militarizing the islands even though that is precisely what he is doing, never has it escalated the rhetoric to the level just displayed.
Almost as if after Obama’s humiliating embarrassment in Syria, it is now China’s turn to test just how far it can (and will) push Obama.
And now that the threat is out there, the ball is in Obama’s court: will he provoke China by sailing the ships in a move that is nothing more than a symbolic pissing contest, or will he, once again, fold and admit that when it comes to geopolitics, the US is barely hanging on to “superpower status.”
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GLENCORE AND EUROPEAN AFFAIRS
The following is extremely important as now a Central Bank (the Bank of England) has asked its banks to reveal the full risk and exposure to Glencore. We now know that Glencore is a systemic risk:
(courtesy zero hedge)
Bank Of England Tells British Banks To Reveal Their Full Exposure To Glencore And Other Commodity Traders
Moments ago Glencore stock was halted after it tripped a circuit breaker to the upside, soaring 12% and more than doubling from its recent record lows…
… on overnight news the commodity trading giant would cut its zinc production by a third as well as lay off some 1,600 workers in Australia, in the process also sparking the biggest ever rally in the price of zinc.
Annual zinc output will fall by about 500,000 metric tons as Glencore suspends production at its Lady Loretta mine in Australia and at Iscaycruz in Peruit said Friday in a statement. It will also reduce output at McArthur River and the George Fisher mines, both also in Australia and some operations in Kazakhstan. The cuts are expected to result in about 1,600 job losses. Global zinc production was 13.3 million tons in 2014, according to the U.S. Geological Survey, making the reduction equivalent to almost 4 percent of world output.
Bloomberg notes that “as one of the world’s biggest suppliers of base metals such as copper, nickel and zinc, Glencore’s metals and minerals businesses delivered about 30 percent of its revenue last year. The shares jumped as much as 11 percent in London.”
Analysts promptly cheered the move:
“Glencore is showing industry discipline by cutting unprofitable tons and saying it is worth more value to leave the tons in the ground,” Heath Jansen, a Citigroup Inc. analyst, wrote in a report Friday. “We expect assets to remain out of production until zinc prices improve materially and stay higher.
This cut is likely to be positive for the zinc market and should be supportive for the zinc price, and net-net likely to be positive for earnings through higher price rather than volume.”
“Maybe they are the trailblazer, as there’s the specter of oversupply in many commodities,” James Wilson, a Morgans Financial Ltd. analyst, said by phone from Perth. “If you want higher prices for a commodity, you need to create price tension and to have less product in the market. Glencore’s doing that, though maybe under duress, and it’s something that other big companies should be thinking of.”
“The main reason for the reduction is to preserve the value of Glencore’s reserves in the ground at a time of low zinc and lead prices, which do not correctly value the scarce nature of our resources,” the company said. Glencore is “positive about the medium and long-term outlook for zinc, lead and silver prices.”
To be sure, the latest production cut is not the first for Glencore: the company has already curbed copper and coal supply as it navigates a collapse in raw materials that’s wiped $37 billion from its market value this year.
More importantly, as Citigroup further added the move is unlikely to affect analysts’ earnings estimates for the company or cash-flow forecasts as the operations are unprofitable at current prices.
Simply said, with sales a function of price and volume, and with Glencore aggressively cutting volumes, it is hoping the price increase will (more than) offset the drop in volumes. Which is a big gamble as other cash-strapped miners step up their own production, in the process boosting supply and once again slamming the price of zinc (and copper) lower.
It remains to be seen where the equilibrium price levels off after all these production cutbacks, although if the copper and zinc markets are anything like oil, it is certain that any volume reductions by Glencore will be promptly taken advantage of by Glencore’s competitors, because in a global deleveraging and commodity supercycle repricing, he who cooperates while others defect, always loses the game theory.
Still, the basis of Glencore’s thinking is probably something very different: as we noted earlier in the week, the company has had no problems approaching its banks with requests for further funding, requests which the banks promptly satisfied knowing that if Glencore fails, it may take all of them with it.
This is about to change.
As we reported two days ago, according to BofA analysts as a result of the dramatic collapse in GLEN equity prices and tumble in its bonds, coupled with the surge in its default risk, the company has quietly become a “systemic risk.”
We laid out the conclusions as follows:
- Comparisons are being made with some financially leveraged companies during the 2008 Global Financial Crisis (GFC).
- If credit is downgraded, banks could lower their exposure to Glencore both in terms of RCFs & LCs.
- The high yield market is small and, our credit strategist thinks we might initially see temporary dislocations in a scenario in which GLEN were downgraded to junk.
- Bank stress tests could start to include commodity trader distress. This could lead to less availability and more expensive bank funding of traders.
It was the last bullet point that was most important, and overnight we got confirmation that Glencore has indeed become a systemic risk from a regulatory standpoint after the FT reported that the Bank of England has asked British financial institutions to reveal their full exposure to commodity traders and falling prices of raw materials amid concerns over the impact of the oil and metals slump. Or, in other words, their exposure to Glencore, Trafigura, Vitol, Gunvor and Mecuria.
The Bank of England’s Prudential Regulation Authority, which was set up in 2012 to ensure the “safety and soundness” of banks in the wake of the financial crisis, sent the requests to the UK’s big banks in the past week, according to three people with direct knowledge of the matter.
And just like that Glencore is in the same boat as China and Greece: the PRA move that mirrors similar inquiries it made earlier this year about the banks’ exposure to Greece and to China, was prompted by a sharp drop in the shares of Glencore, the biggest publicly listed trading-house-cum-miner at the start of last week.
The damage control came fast and furious, with the FT quickly adding that this demand for exposure “was not provoked by any immediate concerns of a default, a person familiar with the matter said, but it was checking that banks knew what their exposures were to individual commodity houses and that they had examined the wider knock-on effects if a large commodity trader was to collapse.”
But wait, didn’t a paid-to-scribe UofHouston “professor” recently claim that commodity traders were “not a systemic risk”? The Bank of England seems to disagree.
The FT also adds that “the PRA also wants to ensure banks — many of whom trade oil and metal themselves as well as financing commodity dealers and companies — are prepared in the event of a prolonged slowdown in the sector.”
A person familiar with the move said: “This is not something we do every month, it is situation-specific,” adding it was a specific response to the recent share price moves of Glencore and other commodity trading houses.
Why is this a milestone development for Glencore? Because as BofA explained, now that Glencore is clearly in the central bank’s microscope, banks will be much more careful about how much liquidity they provide the commodity-trader with $100 billion in counterparty exposure:
Recall from BofA:
GLEN had an unencumbered asset base of over US$90bn in property, plant, equipment and inventories at the half year. However, for bank investors and regulators, after the crisis, gross nominal exposure is a key metric – including committed facilities. We believe many banks may now be more carefully reviewing their exposure to the commodities complex. Glencore’s banks span the globe, with 60 in a recent financing. Glencore has stated it has locked its financing in for an extended period, but a desire to hedge would be powerful at the banks, as likely that regulators will include commodity and energy exposures in the next stress tests as it is a stated area of focus. These stress tests typically take gross exposures and assume elevated loss-given-default – a potential 5x capital uplift. A system positioned one-way on a credit has historically tended to keep spreads high; implying rising debt costs which are likely to put pressure on credit quality: convexity is alive and well.
What does this mean for Glencore, and its stakeholders? It means that today’s rally is certainly welcome for a company which recently lost 80% of its post-IPO equity value. However, the long-term prospect remains nebulous, and as we said first in March of 2014, ultimately a bet on Glencore – in either direction – is a bet on China. If China fails to create a solid economic recovery, and push commodity prices higher, Glencore is merely buying time even as its cash flow dwindles, as its asset base shrinks and while what few unencumbered assets it has become encumbered with liens or are pledged, thus eliminating the company’s ability to boost liquidity when it needs it most.
For now Glencore has avoided the worst, but now that it is a “systemic risk”, should there be another major swoon lower in commodity prices, it may not be so lucky next time.
Deutsche Bank has $1.5 trillion of declared asset value on top of $67 billion of net worth. But a large portion of its assets are loans and related financing vehicles and trading positions connected to Glencore, VW, the energy sector, emerging market companies, high yield and a highly unreliably valued net derivatives position. It Deutsche Bank has “mismarked” the value of all these assets by just 5% its net worth is wiped out.
It’s more likely that the bulk of its assets are overvalued by at least 20-30%. And that’s in the context of the current financial and economic environment – both of which seem to be quickly deteriorating. In other words, DB is technically insolvent. I performed a similar analysis on some big bank balance sheets in late 2007/early 2008 and my model predicted the collapse of Countrywide, Wash Mutual and Wachovia. All of the big Wall Street banks should have collapsed but we know how that ended.
The present situation doesn’t remind me of 2008 right before Lehman blew up. It is more like 2008 x 10. The hidden ticking time bombs in the global financial system are significantly greater than what was ticking 2008. And the fraud and criminality used to cover it up, along with the propaganda devised to promote the idea that the economy is recovering, is many times more worse than it was in 2008.
Craig Hemke of TFMetalsReport.com me invited onto this podcast show to discuss Deutsche Bank’s latest “fluffed up” $7 billion “intangibles” write-down, which didn’t even scratch the tip of Deutsche Banks real “iceberg” of financial toxicity.
You can listen to this discussion at here: Deutsche Bank And The Coming Global Financial Catastrophe
A friend of mine with connections at DB told me yesterday that his sources describe Deutsche Bank as a toxic junkyard of chaos and complete unaccountability. In my opinion the German Government/EU will eventually either have to print money and monetize DB or its demise will trigger Lehman x 10.
Credit Suisse Stuns Investors With 50% Bigger-Than-Expected Capital Raise
Hot on the heels of Deutsche Bank’s admission that all is not well, Credit Suisse’s announcement last night of a major capital raise was greeted by buying pressure from investors. However, reality punched them in the face this morning as CS releasaed its investor day details and, as Bloomberg reports, is looking to raise up to CHF8 billion (almost 50% larger than Goldman Sachs investor survey suggested). Clearly, CS’ has a much more massive capital shortfall than expected.
As Bloomberg reports,
Credit Suisse Group AG Chief Executive Officer Tidjane Thiam is considering selling stock in an offering that may raise 6 billion francs ($6.2 billion) to 8 billion francs, people with knowledge of the discussions said.
The bank plans to proceed with the sale after presenting a new strategy to investors later this month, said one person, who asked not to be identified because the matter is private. The company hasn’t made a final decision on the amount, the people said.
Thiam, 53, who took over from Brady Dougan in July, will present a strategy update on Oct. 21. He is under pressure to raise capital as Swiss regulators are looking to toughen requirements designed to shield the system from future financial crises. Thiam has said he plans to allocate more resources to wealth management and strengthen the bank’s position in Asia, while scaling back the investment bank, mirroring an approach of UBS Group AG.
Investors surveyed by Goldman Sachs Group Inc. on average estimated the bank will raise about 5.4 billion francs, according to a note from Oct. 1. Tougher capital requirements, litigation costs and the future direction of the company will all help determine the extent of any capital increase, UBS analysts Daniele Brupbacher and Mate Nemes said in a note on Friday.
Credit Suisse rose 2.2 percent to 24.10 francs at 5:16 p.m. in Zurich. The shares dropped 3.6 percent on Thursday after the Financial Times reported that the lender is preparing a “substantial” share sale.
“We are conducting a thorough assessment of Credit Suisse’s strategy, evaluating all options for the group, its businesses and its capital usage and requirements,” the bank said in a statement late Thursday. Tobias Plangg, a Zurich-based spokesman for Credit Suisse, declined to comment beyond the statement.
* * *
The reaction was a plunge and limit down halt before algos lifted it back to unch…
As we noted previously, the official narrative is well-known: the bank does not need the funds, it is simply a precaution ahead of new, more stringent capital requirements:
The capital is likely to be used to absorb losses triggered by a faster restructuring of the Swiss group, the people said. But Credit Suisse will also need higher capital ratios to comply with toughening demands from regulators.
The Swiss authorities are expected to announce an increase of minimum capital ratios over the coming months, which could prove more challenging for the bank than its better capitalised local rival, UBS. Credit Suisse’s common equity tier one capital ratio of 10.3 per cent compares with UBS’s 13.5 per cent
The real reason, of course, has nothing to do with this, and everything to do with the collapse of manipulation cartels involving Liebor, FX, commodities, bonds, equities, gold, and so on, because when banks can no longer collude with each other to push markets in any given direction, that’s when they start losing money. That and, of course, the fact that central bank intervention in capital markets has made it virtually impossible to trade any more. Or as they call it, “miss capital ratios.”
Expect many more such announcements in the coming weeks.
NATO Talks Tough On Troop Deployment As Kremlin Calls West’s Bluff
For years, NATO has relied upon tough talk and promises of support for its member nations in order to reinforce an image of invincibility.
That image is supported by the implicit backing of the US military and Washington has been keen to perpetuate it in the past 48 hours by presenting the straw man argument that Moscow is set to inexplicably bomb Turkey (and if you follow geopolitics you know that that makes absolutely no sense at all) and so the West must do it what it has to in order to support its friends in Ankara in the face of “Soviet” (and we use that term on purpose because that’s how this is being pitched now by Western media) aggression.
To be sure, keeping up appearances was easy in the wake of Russia’s annexation of Crimea. It was simply a matter of saying publicly that the West wouldn’t allow Moscow to overrun Kiev and re-establish the Soviet Union.
But it doesn’t take a foreign policy genius or a lion-hearted NATO general to maintain that line.
That is, some of this was just posturing, because no matter what one wants to say about The Kremlin’s support for the separatists at Donetsk, Moscow wasn’t and isn’t about to invade every state in the Balkans which means that NATO’s excuses for stationing heavy artillery in Poland (to cite just one example) and for conducting very public war games that look quite a bit like preparations for a Ukrainian invasion, are largely bogus.
Well, now that Washington is scrambling to find the right spin tactic to explain why Russia has done to ISIS in a week what the US hasn’t been able to do in over a year, NATO is now going all-in on the “we’ll defend Turkey” narrative even though i) no one is attacking Turkey, and ii) Ankara is waging a horribly bloody civil war on its own people with NATO’s blessing. Here’s AP:
NATO talked tough Thursday about Moscow’s expanding military activity in Syria, but the U.S.-led alliance’s chief response to the Russian airstrikes and cruise missile attacks was a public pledge to help reinforce the defenses of member nation Turkey if necessary.
“NATO is able and ready to defend all allies, including Turkey, against any threat,” alliance secretary-general Jens Stoltenberg declared at the onset of a meeting of NATO defense ministers.
The meeting attended by U.S. Defense Secretary Ash Carter and counterparts from NATO’s other 27 countries was overshadowed by concerns about Russia’s recent military actions in Syria. On Wednesday, Russian warships fired a volley of cruise missiles in the first combined air-and-ground assault with Syrian government troops since Moscow began its military campaign in the country last week.
U.S. officials said Thursday that some of those missiles missed their targets and landed in Iran.
Over the weekend, Turkey reported back-to-back violations of its airspace by Russian warplanes.
Stoltenberg said NATO had already increased “our capacity, our ability, our preparedness to deploy forces, including to the south, including in Turkey, if needed.”
However, pressed about what NATO precisely intended to do to aid Turkey, which shares a border with Syria, Stoltenberg told a news conference the mere existence of a beefed-up alliance response force, as well as a new and highly nimble brigade-sized unit able to deploy within 48 hours, may suffice.
“We don’t have to deploy the NATO Response Force or the spearhead force to deliver deterrence,” Stoltenberg said. “The important thing is that any adversary of NATO will know that we are able to deploy.”
Oh, ok. “Any adversary of NATO will know that we are able to deploy.” Well you know what NATO? You have an “adversary” that doesn’t seem to understand that and they are called “ISIS,” and either you are incapable of eradicating a rogue band of Nike-wearing militants, or else you’re not really trying, and if the latter is the case, then the world needs to start asking serious questions about who the “bad” guys are here.
We’ll close with the following from … well, let’s just be honest, from Russia (via RT) and from Maria Zakharova, who is quietly turning into quite the geopolitical powerplayer:
Vladimir Putin’s press secretary has said that the excuses used by NATO to move its infrastructure to Russian borders were nothing but camouflage and warned that none of such steps would be left unanswered.
“An invented excuse about the suggested threat coming from Russia is possibly just camouflage used to disguise the plans to further expand NATO toward our borders,” RIA Novosti quoted Dmitry Peskov as saying.
“We are talking about a buildup, there have been statements about larger contingent, we are talking about an increase of military presence. And it is military presence practically near the Russian borders,” he said, adding that this project was not new and that it could cause no other feelings but regret.
“Of course, any plans to bring NATO’s military infrastructure closer to the Russian Federation lead to reciprocal steps needed to restore the necessary parity,” Peskov said.
Earlier Thursday, NATO Secretary-General Jens Stoltenberg announced the alliance’s plans to boost its Response Force and set up two more headquarters in Hungary and Slovakia. Stoltenberg admitted that this will be the biggest reinforcement since the end of the Cold War as six more, smaller headquarters had already appeared in Eastern Europe.
Russian Foreign Ministry spokesperson Maria Zakharova commented on NATO’s buildup of forces in Eastern Europe, saying that these steps were not contributing to peace and stability on the continent.
“First of all, we need to hear and understand the position of those who take such actions. They need to tell us about their goals and objectives so that we could comment on them. So far, none of the latest events added stability to the European continent. On the contrary, this stability is being put in jeopardy,” Zakharova said.
“It’s Not A Risk-On Rally, This Is The Biggest Short Squeeze In Years” Says Bank Of America
Several days ago, we pointed out a startling fact: short interest in the NYSE had risen to match the record level seen just before the collapse of Lehman!
We said that just as likely presaging another major leg down in equities, this move may simply mean the following: “a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs.”
While a central bank did not directly intervene, it did so indirectly when the September payrolls was a complete disaster, slamming any possibility of a rate hike in 2015, largely confirmed by yesterday’s FOMC minutes which showed that the “no hike” decision wasn’t close at all, and that as we first presented, a rate hike is now mid-2016’s business, if ever.
Today, we got confirmation that what the rally of the past week has been all about is precisely that: a massive short-covering squeeze, when Bank of America’s Mike Hartnett looked at the latest weekly fund flow data and noted a “monster $53bn MMF inflows vs redemptions from equity ($4.3bn) & fixed income funds ($2.4bn)…rising cash levels indicate big risk rally (from intraday lows last week SPX +7.7%, EEM +13.5%, HYG +4.2%) driven primarily by short-covering rather than fresh risk-on.”
Here is the asset class flow breakdown using EPFR data;
- Equities: $4.3bn outflows (3 straight weeks) (almost all via ETFs)
- Bonds: $2.4bn outflows (outflows in 8 out of past 9 weeks)
- Money-markets: huge $53bn inflows (largest in 2 years)
- Precious Metals: small outflows ($0.2bn)
So now that we know what is causing the ongoing rampage, courtesy of a “green light” from the Fed, here is how the rest of the fund flows look like.
- Credit carnage: more pain in HY/IG/EM with 4th consecutive week of IG outflows, 10 out of 11 weeks of HY outflow, 11th consecutive week of EM outflow = worst stretch for credit in more than 2 years (Chart 2). But daily data show inflows Wednesday to both IG & HY for first time in 11/12 days so credit redemption shock easing.
- Cracks in “Crowded Longs”: Japan funds see largest weekly outflows ($2.0bn) since Nov’14; Healthcare funds see outflows in 5 out of past 7 weeks, worst stretch since Jun’14; watch October FMS (next Tuesday) for positioning unwind in other “crowded trades” (EU, Tech, Discretionary) or first UW in stocks since Jul’12 to suggest unwind mostly over.
- Weekly inflows to energy funds; this corroborates recent CFTC longs to Crude (Chart 1); in addition, staunching of EM equity outflows (smallest since July) illustrates that weak US payroll / $-weakness was the best news for EM/commodities/resources complex; also indicates crucial that Fed does not rally US$ in coming months.
Finally, focusing only on the various subseectors within equities:
- Japan cracks: $2.0bn outflows (biggest outflows since Nov’14)
- Worst is over for EM: small $0.6bn outflows (outflows in 13 straight weeks but pace of outflows slowing)
- Europe defiant: $2.0bn inflows (inflows in 19 out of past 21 weeks)
- US: $5.0bn outflows (outflows from both ETFs and mutual funds)
- By sector, healthcare funds see $0.9bn outflows (largest in 6 weeks); conversely, energy funds see $0.4bn inflows
How long will the short squeeze continue? It may well last and even overtake the all time S&P high, although keep an eye on an update from JPM’s head quant Kolanovic: after once again correctly calling the inflection point just before the massive equity rally on September 24, the time may have come for the program traders to take some substantial profits.
EM Currencies See Biggest Daily Surge In Years As Dovish Fed Trumps Fundamentals
Well, what goes up must come down, which also means that what goes down must come up we suppose, which is why once again, the previously hapless ringgit and rupiah are heavily bid.
The two currencies have of course been caught up in the global EM turmoil, but as we documented extensively on Wednesday, the tide has turned a bit this week.
When things are going especially poorly, sometimes all it takes is the slightest glimmer of hope to ignite a rally, and between a poor NFP report in the US (and yes, EM FX is clearly one place where bad news in the US economy is most definitely good news as it forestalls an FOMC liftoff), “better” than expected trade data in Malaysia, a deceptively low read on capital outflows from China, and dovish FOMC minutes, this week has brought several such glimmers and so, everyone has apparently begun backing up the truck on Asia EM optimism.
Here are some highlights from Bloomberg:
- Indonesia’s rupiah and Malaysia’s ringgit lead Asian currencies higher as Dollar Index holds overnight losses; sovereign bonds drop in Australia, while interest-rate swaps decline in Singapore.
- Rupiah heads for 8.7% gain this week versus dollar; 13,500/dollar is a competitive level for exports and to manage inflation: Bank Indonesia’s Adityaswara; says markets have responded positively to policies that have sought to add FX supply onshore and to government’s commitment to structural reform
- Rupiah move due to external and domestic factors, such as Fed minutes and confidence in govt’s structural reforms, Senior Deputy Governor Mirza Adityaswara tells reporters in Jakarta.
- Significant move in rupiah means many market players cut losses
- Bank Indonesia sees Fed delaying rate rise to after 1Q 2016
- Rupiah surges 3.4%, most since 2008, to 13,428 per dollar, taking weekly rally to 9.1%, biggest since July 2001, according to prices from local banks compiled by Bloomberg.
- Central bank continues to intervene in market: BI Senior Deputy Governor Adityaswara; says 13,500/dollar is competitive level for exports and to manage inflation
- BI sees inflation at 4.1%-4.3% at year-end
- MOF scraps import tax for machinery and materials
- Pivot point at 13,828; USD/IDR support at 13,768, 13,656, 13,484 all breached; resistance at 13,940, 14,000, 14,172
- USD/IDR below lower end of Bollinger band at 13,746
- 1-mo. implied volatility jumps 76 bps to 14.7625%; avg for past 12 mos. is 10.9534%
- Rupiah 1-mo. forwards climb 3.9%, biggest gain since 2008, to 13,541 per dollar
- BI stepped up USD selling intervention in Sept. as IDR came under pressure, BNP Paribas says in note today; recent stabilization suggests some relief on FX reserves in Oct.; central bank’s net short forward liabilities likely to rise however as it widens scope of FX intervention
- Global investors bought net $49.7m in local stocks yesterday: exchange data
- Yield on 8.375% govt bond due Sept. 2026 slides 12 bps to 8.709%: IDMA data
So that’s Indonesia. Here’s the good news on Malaysia:
- Ringgit rises 2.9% to 4.1147 per dollar for weekly gain of 6.8%, most since 1998, according to onshore prices.
- Pivot point at 4.2321; USD/MYR breaks support at 4.1944 and 4.1531, next at 4.0741; resistance at 4.2734, 4.3111, 4.3901
- USD/MYR falls below cloud top on ichimoku chart
- 1-mo. implied volatility surges 231 bps to 18.7800%; past yr’s avg is 10.5696%
- 1-mo. forwards climb 2.6% to 4.1021 per dollar
- USD/MYR fell in response to dovish FOMC minutes last night and seems to be heading to next key support at 4.1000, Bank of Tokyo-Mitsubishi UFJ writes in note today; this week’s Aug. trade data another factor propping up MYR
- 1MDB didn’t commit offense regarding central bank probe, attorney general says
- Bank Negara sells MYR2b 364-day notes
- Yield on 3.955% govt bonds due Sept. 2025 falls 3 bps to 4.134%, based on Bursa Malaysia prices
- One-year IRS down 3 bps to 3.8450%; five-year contracts down 6 bps to 4.1750%
And so just like that, crosses that were previously spiraling towards oblivion at the quickest pace in nearly two decades are now rallying at the most dramatic pace in those same two decades. Of course this is what invariably happens when something suffers an outright collapse: the rebound always looks especially good by comparison.
But don’t be fooled, the fundamentals here aren’t favorable. Sure, there will be relief rallies, but it speaks to just how absurd the entire fiat regime has become when minutes from a central planner meeting that already happened (so despite the fanfare, let’s not pretend like no one knew the committee was leaning dovish) are enough to generate huge FX rallies that, all else equal, would suggest there has been some seismic shift in the underlying factors that drive EM assets. Of course we understand all too well that what Janet Yellen says is indeed one these underlying factors, but that doesn’t thereby mean that it should be. That is, this should probably be dictated by things like global trade, demand for raw materials exports, overall sentiment, etc. Those things have clearly (and rightfully) contributed to the EM malaise and so when you look at this week’s rally the question you have to ask yourself is this: have those fundamentals really changed that much?
The answer of course, is “no” which is why you may want to fade this one before everyone suddenly remembers what’s actually going on.
WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Ain’t Buying It)
WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world’s biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees “lower for longer” suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.
Following the 2nd biggest week in crude since January 2009…
WTI Crude broke above $50 for the first time since July…
“The stocks have been oversold over the past year and that’s helping the rally now,”Jason Kenney, European head of oil and gas equity research at Banco Santander SA, said by phone from Edinburgh. “Question is where will oil prices settle now? Investors think oil companies can weather the storm because they’ve got so many levers to pull.”
However, Credit markets remain notably unimpressed (and given their focus on cashflows, we suspect at this level of risk, they are less momo and more fundamentally driven)…
Oil may rise to a “baseline” of about $60 a barrel in one year’s time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.
Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.
“People could be thinking, how much worse can it get from here, so there’s a rotation from short positions to long,” Michael Powell, a managing director of investment banking at Barclays Plc, said in London this week. “Then you ask, is this the spring of this year all over again?”
Rig count continue to decline sends oil well above the 50 dollar mark today.
(courtesy zero hedge)
Crude Jumps Back Above $50 As US Oil Rig Count Declines For 6th Straight Week
ollowing last week’s biggest rig count decline in 5 months, Baker Hughes reports a smaller decline of 9 oil rigs this week to 605 – the lowest since July 2010. WTI Crude was trading just below $50 as the data printed and jumped above it on the rig count drop.
- *U.S. OIL RIG COUNT DOWN 9 TO 605, BAKER HUGHES SAYS
WTI Crude, having slipped off its lows back below $50 ahead of the rig count data, jumpe dback above it…
Euro/USA 1.1362 up .0079
USA/JAPAN YEN 120.26 up .330
GBP/USA 1.5332 down .0017
USA/CAN 1.2936 down .0061
Early this Friday morning in Europe, the Euro rose by 79 basis points, trading now just above the 1.13 level rising to 1.1362; 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, and the continue ramping of the USA/yen cross above the 120 yen/dollar mark was successful today, causing most bourses to rises. Last night the Chinese yuan rose in value. The USA/CNY rate at closing last night: 6.3445 down .0033 (yuan higher)
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 slight southbound trajectory as settled slightly up again in Japan by 9 basis points and trading now just above the all important 120 level to 120.26 yen to the dollar.(and thus the necessary ramp for all bourses worked in propelling bourses)
The pound was down this morning by 17 basis points as it now trades just above the 1.53 level at 1.5332.
The Canadian dollar is now on a rising course, up 61 basis points to 1.2936 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 297.50 or 1.64%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses all in the green … Chinese bourses: Hang Sang green (massive bubble forming) ,Shanghai green (massive bubble ready to burst), Australia in the green: /Nikkei (Japan)green/India’s Sensex in the red/
Gold very early morning trading: $1154.75
Early Friday morning USA 10 year bond yield: 2.10% !!! up 3 in basis points from Thursday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.93 up 2 in basis points.
USA dollar index early Friday morning: 94.83 down 47 cents from Thursday’s close. (Resistance will be at a DXY of 100)
USA/Chinese Yuan: 6.345 down .0028 (Chinese yuan up)
First the NYSE performance today:
Stocks Soar To Best Week In A Year On “Mother Of All Short Squeezes”
With China shut and The Fed going full dovish panic-mode over growth fears, world markets went crazy…
- S&P up 7 of last 8 days +3.2% – best week since Oct 2014
- Russell 2000 +4.5% – best week since Oct 2014
- Nasdaq up 7 of last 8 (since Death Cross) closed above 50DMA
- Trannies up 8 of last 9 closed above 100DMA +4.9% – best week since Oct 2014
- Dow up 8 of last 9 +3.5% – best week since Feb 2015
- “Most Shorted” +4.7% – biggest squeeze in 8 months
- Biotechs -2.3%
- Financials +2.2% – best week in 3 months
- Asian Dollar Index +1.4% (worst week for USD vs Asian FX since Oct 2011)
- Dollar Index -1.2% (worst week for USD vs Majors in 2 months)
- AUD +4% – best week sicen Dec 2011
- 2Y TSY Yields +6.5bps – biggest rise in 7 weeks
- 5Y TSY Yields +11bps – biggest rise in 4 months
- WTI Crude +8.9% – 2nd best week sicne Feb 2011
- OJ +4.8% – best day since March
- Silver +3.8% – best week since May
The last 8 days have seen a massive short-squeeze… 2nd biggest in history
The last 2 times stocks were short-squeezed this much, did not end well…
And the following stunning chart shows the percent of S&P 500 names above their 50-day moving-average has soared from 4% to 60% in a few weeks…
* * *
Off the Payrolls lows, it’s been non-stop…
VIX has fallen for 9 straight days… the longest streak since Oct 2011..
Energy stocks outperformed and Healthcare (Biotechs) were the laggards…
Treasury yields surged all week but Friday saw the push slow a little… (everything but 2Y is now higher than pre-payrolls)…
The USDollar Index slipped notably after the FOMC Minutes but had been weaker all week… (AUD rose 3.8% on the week)
Commodities all rose on the week
Crude had its 2nd biggest week since Feb 2011…
Gold broke notably above its 100-day moving-average andSilver had its best week since May (breaking but not holding its 200DMA)…
But The Ags were the biggest movers today after USDA forecasts sent everything crazy… (and Orange Juice had its best day since March)
Finally, it appears stocks have decided to re-de-couple from any fundamentals as Macro and Micro data has tumbled in recent weeks…
Wholesale Inventories Rise And Sales Tumble Sending Ratio To “Recession Imminent” Cycle Highs
Wholesale Inventories rose 0.1% MoM (more than expected and the most in 7 months) and Sales dropped 1.0% MoM (notably less than expected and weakest in 7 months) sending the inventory-to-sales ratio to 1.31x – new cycle highs – and flashing the brightest recession warning yet. With inventories up 4.2% YoY and Sales down 4.5% YoY, the stunning reality is the absolute dollar spread between inventories and sales has never been bigger.
Inventories keep rising more than expected and sales keep missing…
Sending the Inventories-to-Sales Ratio is firmly in recession territory…
The annual change in these two critical time series screams one thing: inventory liquidation or at least remarking far lower:
In absolute terms the dollar difference between wholesale inventories and sales has never been bigger.
(courtesy CNBC/zero hedge)
Santelli & Hunt Warn About “Dire Consequences” Of Negative Rates
As more and more Fed speakers, talking heads, and status-quo-protectors talk of, beg for, and demand negative interest rates (NIRP), the mainstream is starting to wake up to the possibility of this farce coming to America. As Lacy Hunt tells Rick Santelli in the brief clip below, “the evidence is overwhelming that QE was more of a negative than positive,” and warns the consequences of NIRP are dire (and The Fed has the tools to enginner it) as “to make it effective they would effectively have to call in the currency.”
It appears, given the rising volume of chatter about negative rates that Americans are being conditioned to accept this… As Lacy Hunt explains below, the consequences for Main Street and Institutions is not good…
With Republicans In Disarray, And No Debt Ceiling Deal, All Eyes Turn To November 18 When The US Runs Out Of Cash
In the aftermath of Kevin McCarthy’s surprising announcement yesterday that he would quit the race for speaker after reportedly telling House Republicans that he is not the one to unite the House Republicans following reports that he did not think he had the 218 votes necessary for the October 29th House vote, the GOP has been in disarray.
According to Reuters, Friday morning House Republicans met behind closed doors “to discuss next steps in their internal leadership battle on Friday morning, the day after the front-runner to lead their chamber abruptly quit the speaker’s race.”
“Starting this morning, we’re looking for a consensus candidate,” Representative Darrell Issa told CNBC ahead of the meeting.
It won’t be easy: finding a replacement for House Speaker John Boehner has consumed Republicans as Congress faces a series of pressing decisions, from raising the government borrowing authority to funding federal agencies through September.
Further complicating matters is that the House of Representatives is set to take recess next week.
Meanwhile, the power moves behind the scenes have begun. With House Ways and Means Committee Chairman, Paul Ryan, repeatedly saying he would not run, the richest member of Congress, California’s Darrell Issa said he was considering running.
“I could potentially be a candidate,” Issa said in a separate interview on MSNBC. If no clear candidate emerges, he said, House Republicans should look at replacing all of their leadership positions. Other candidates include Representatives Daniel Webster of Florida and Jason Chaffetz of Utah.
As Reuters reports, Webster has the backing the House Freedom Caucus, a group of about 40 members aligned with the Tea Party movement that calls for lower taxes, less federal spending and reduction of the national debt and budget deficit. Walter Jones, a Republican congressman from North Carolina, on Friday said he supported Webster for the job even as he acknowledged the long odds he faces to win.
“Obviously there’s chaos up here right now, and we’re going to have to see how it works out,” he told CNN.
But while the republicans are optimistic they can circumvent the chaos, others are less sanguine.
The problem, as we explained yesterday, is that there is very little time left before Congress has to decide on how to boost the US debt ceiling, which we breached months ago, and which has just under a month left of “emergency” funding measures left before all the money runs out and the government is forced to prioritize payments, unleashing a rerun of the summer of 2011 when markets tanked on debt ceiling fears and when the US was downgraded by S&P.
As Stone McCarthy calculated, latest projections show the US Treasury with less than $2.0 billion left in its toolkit in the week that starts November 2. Given the uncertainty surrounding these projections that’s tantamount to the extraordinary measures being exhausted. Treasury Secretary Lew in his letter said Treasury expects to use up its extraordinary measures “on or about” November 5.
This however, assumes that the GOP will be able to “rise above” the gridlock and elect a speaker who is palatable to everyone, including the vocal Freedom caucus.
So as the posturing for GOP leader takes off over the next 20 days, the biggest problem remains: what happens to the US debt ceiling negotiation when considering that as of this moment the US Treasury has $60 billion left in total available funding.
One answer comes from Bank of America’s Lisa Berlin whois not very optimistic.
It is possible that current Speaker Boehner stays in his current role for slightly longer, but he is unlikely to reverse his resignation, in our view. Paul Ryan, who may have been another option for Speaker, has been adamant that he is not interested in the job. House Republicans will need to find a new nominee to be Speaker and, at this point, it is unclear who would have broad enough support to be elected.
In our view, this event may make a debt limit increase more difficult to achieve and likely increases the risk of a shutdown in December. It shows the strength of the Tea Party and allied conservatives within the House. These representatives will likely seek significant concessions from the White House and Democrats for raising the debt limit and reaching a budget agreement. The White House, however, has previously indicated that it would favor a “clean” increase in the debt ceiling.
And so the countdown begins to November 18 when SMRA calculates, just before a $14.2 billion in Social Security benefits payments, the US Treasury runs out of all cash.
Keep an eye on T-Bill yields for the turning point when the market decides this situation is becoming serious.
Why Are The IMF, The UN, The BIS And Citi All Warning That An Economic Crisis Could Be Imminent?
The warnings are getting louder. Is anybody listening? For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or a “credit panic”, but a “credit crunch” will definitely work for now. The IMF is warning that the “dangerous over-leveraging” that we have been witnessing “threatens to unleash a wave of defaults” all across the globe…
Governments and central banks risk tipping the world into a fresh financial crisis, the International Monetary Fund has warned, as it called time on a corporate debt binge in the developing world.
Emerging market companies have “over-borrowed” by $3 trillion in the last decade, reflecting a quadrupling of private sector debt between 2004 and 2014, found the IMF’s Global Financial Stability Report.
This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF’s twice yearly report.
The IMF is actually telling the truth in this instance. We are in the midst of the greatest debt bubble the world has ever seen, and it is a monumental threat to the global financial system.
But even though we know about this threat, that doesn’t mean that we can do anything about it at this point or stop what is about to happen.
The Bank of England, the UN and the Bank for International Settlements have all issued similar ominous warnings. The following is an excerpt from a recent article in the Guardian…
The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.
I particularly like Andy Haldane’s likening our current situation to a “three-part crisis trilogy”. I think that is perfect. And if you are familiar with movie trilogies, then you know that the last episode is usually the biggest and the baddest.
Citigroup economist Willem Buiter also believes that big trouble is on the horizon. In fact, he is publicly warning of a “global recession” in 2016…
Citigroup economist Willem Buiter looks at the world landscape and sees an economy performing substantially below potential output, which he uses as the general benchmark for the idea of a global recession. With that in mind, he said the chances of a global recession in 2016 are growing.
“We think that the evidence suggests that the global output gap is negative and that the global economy is currently growing at a rate below global potential growth. The (negative) output gap is therefore widening,” Buiter said in a note to clients. He added, “from an output gap that was probably quite close to zero fairly recently, continued sub-par global growth is likely to put the global economy back into recession, if indeed the world ever fully emerged of the recession caused by the global financial crisis.”
Usually when we are plunged into a new crisis there is some sort of “trigger event” that creates widespread panic. Yesterday, I wrote about the ongoing problems at commodity giants such as Glencore, Trafigura and The Noble Group. The collapse of any of them could potentially be a new “Lehman Brothers moment”.
But something else happened just yesterday that is also extremely concerning. Just a couple of weeks ago, I warned that the biggest bank in Germany, Deutsche Bank, was on the verge of massive trouble. Well, on Wednesday the bank announced a loss of more than 6 billion dollars for the third quarter of 2015…
Deutsche Bank’s new boss John Cryan set about cleaning up Germany’s biggest bank on Thursday, revealing a record pre-tax loss of 6 billion euros ($6.7 billion) in the third quarter and warning investors of a possible dividend cut.
Write downs, impairments and litigation costs all contributed to the loss, the bank said.
Cryan became chief executive in July with a promise to cut costs. The Briton is accelerating plans to shed assets and exit countries to shrink the bank and is preparing to ax about 23,000 jobs, or a quarter of the bank’s staff, sources told Reuters last month.
Keep an eye on Germany – the problems there are just beginning.
Something else that I am closely watching is the fact that major exporting nations such as China that used to buy up lots of U.S. government debt are now dumping that debt at an unprecedented pace. The following comes from Wolf Richter…
Five large purchasers of US Treasuries – China, Russia, Norway, Brazil, and Taiwan – have changed their minds. They’re dumping Treasuries, each for their own reasons that are now coinciding. And at the fastest rate on record.
For the 12-month period ended July, sales of Treasuries by central banks around the world reached a net of $123 billion, “the biggest decline since data started to be collected in 1978,” the Wall Street Journal reported.
China, the largest foreign owner of Treasuries – its hoard peaking at $1.317 trillion in November 2013 – has been unloading with particular passion. By July, the latest data available from the US Treasury Department, China’s pile was down to $1.241 trillion.
Yes, I know, the stock market went up once again on Thursday, and all of the irrational optimists are once again telling us that everything is going to be just fine.
The truth, of course, is that everything is not going to be just fine. Ever since I started the Economic Collapse Blog, I have never wavered in my belief that the greatest economic crisis that the United States has ever seen is coming, and I have written well over 1000 articles setting forth the case for the coming collapse in excruciating detail. Nobody is going to be able to say that I didn’t try to warn them.
Those that have blind faith in Barack Obama, Wall Street, the Federal Reserve and the other major central banks around the planet will continue to mock the idea that a major collapse is coming for as long as they can.
But when the day of reckoning does arrive and crisis coming knocking at their doors, what will they do then?