Gold: $1175.90 up $10.40 (comex closing time)
Silver $16.29 up 43 cents
In the access market 5:15 pm
We are now entering options expiry week: EXPECT GOLD AND SILVER PRICES TO BE SUBDUED FOR THE REST OF THE WEEK
for the Comex gold and silver: OPTIONS EXPIRE tonight Oct 27.
for the LBMA contracts: OPTIONS EXPIRE ON Friday/Oct 30
for OTC contracts:OPTIONS EXPIRE ON Friday Oct 30.
First, here is an outline of what will be discussed tonight:
At the gold comex today, we had a very good delivery day, registering 111 notices for 11,100 ounces Silver saw 5 notices for 25,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.51 tonnes for a loss of 94 tonnes over that period.
In silver, the open interest fell by a tiny 122 contracts as silver was down 8 cents in yesterday’s trading. The total silver OI now rests at 169,757 contracts In ounces, the OI is still represented by .850 billion oz or 121% of annual global silver production (ex Russia ex China).
In silver we had 5 notices served upon for 25,000 oz.
In gold, the total comex gold OI fell by a considerable 2327 to 466,780 contracts. We had 111 notices filed for 11,100 oz today.
We had a huge withdrawal of 1.2 tonnes of gold inventory at the GLD / thus the inventory rests tonight at 694.34 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,no change in silver inventory / Inventory rests at 315.553 million oz.
We have a few important stories to bring to your attention today…
1. Today, we had the open interest in silver fell by 122 contracts down to 169,757 as silver was down 4 cents with respect to Tuesday’s trading. The total OI for gold fell by 2317 contracts to 466,780 contracts as gold was down $0.20 yesterday.
2.Gold trading overnight, Goldcore
9 USA stories/Trading of equities NY
i) Hawkish Fed signals it may raise rates in December
ii Hilsenrath discusses the FOMC meeting
(Jon Hilsenrath/zero hedge)
iii) Dave Kranzler writes: why not sell USA gold reserves instead of the useful 58 million barrels of SPR oil reserves?
(courtesy Dave Kranzler IRD)
iv. Now that Illinois has cut off winners from receiving FRNs, Illinoisans are now heading to neighbouring states to purchase their lottery tickets.
10. Physical stories
i) Ex Federal Bank of NY employee and Goldman Sachs employee going to jail for bank leak
(GATA/New York Times/Ben Protess)
ii) Banks that run the credit default swap arena are their own referees and thus they suspect corruption
iii) As Lawrie Williams outlined yesterday, we have huge importation of gold into China. Today Reuters discusses the huge importation from Hong Kong
iv) gold and silver skyrocket as more QE announced throughout the globe
v) Agnico eagle gold mines surprises the street to the upside
Let us head over to the comex:
October contract month:
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| nil oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||111 contracts
|No of oz to be served (notices)||314 contract (31,400 oz)|
|Total monthly oz gold served (contracts) so far this month||636 contracts
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||185,291.0 oz|
Total customer deposit nil oz
we had 0 adjustment:
October silver Initial standings
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||166,429.110 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||589,576.600 oz
|No of oz served (contracts)||5 contract (25,000 oz)|
|No of oz to be served (notices)||0 contracts
|Total monthly oz silver served (contracts)||90 contracts (450,000 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||10,540,015.9 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
total customer deposits: 589,576.600 oz
total withdrawals from customer: 166,429.110 oz
And now SLV
Oct 28.2015: no change in silver inventory at the SLV//inventory rests at 315.533 million oz.
Oct 27/no change in silver inventory at the SLV/Inventory rests at 315.533 million oz/
Oct 26/no change in silver inventory at the SLV/Inventory rests at 315.533 million oz/
Oct 23./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz
Oct 22./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz
Oct 21:a we had a small addition in silver ETF inventory of 381,000 oz/inventory rests tonight at 315.533 million oz
Oct 20.2015/ no change in silver ETF/Inventory rests at 315.152 million oz
Oct 19.2016: no change in silver ETF/Inventory rests at 315.152 million oz
Oct 16/no change in silver ETF/inventory rests tonight at 315.152 million oz
Oct 15./no change in silver ETF inventory/rests tonight at 315.152
Oct 14/no change in silver ETF/silver inventory/rests tonight at 315.152 million oz
oct 13/no change in silver ETF /silver inventory/rests tonight at 315.152 million oz
:oct 12/ no change in the silver ETF/silver inventory rests tonight at 315.152 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 email@example.com.
“Ignore The Noise” & Focus On The Fact That Central Banks “Remain Extremely Accommodative”
The primary focus this week is again on the “all powerful” Fed. If the Fed leans toward a rate hike in December, gold could come under pressure again in the short term. However, if it leans toward raising rates next year, then gold would be expected to eke out further gains.
Bank of England – Interest Rates – 1694 to Today
Most physical buyers will ignore the noise and focus on the fact that the Fed’s monetary policies, along with the Bank of England, the ECB and most central banks in the world, remains extremely accommodative.
The perception and narrative is that a rise in rates, even by a very marginal 25 basis points will be negative for gold. This may be true in the short term as perception, even misguided perception, can drive markets in the short term.
However, rising interest rates per se are not negative for gold. What is negative is positive real interest rates and yields above the rate of inflation. This is unlikely to be seen any time soon.
Gold will also be vulnerable towards the end of an interest rate tightening cycle as was the case in January 1980. Today, central banks including the Fed are having difficulty raising interest rates in even a small nominal way.
Given the massive global debt bubble of today, it will likely be impossible for central banks to increase interest rates in any meaningful way. We are not going to see an interest rate tightening cycle akin to that which snuffed out gold’s bull market in the 1970s.
Unless, central banks lose control of the bond markets and a new breed of bond market vigilante enforces monetary discipline and pushes bond yields higher in the coming years.
Gold should be supported by data which suggests that economic growth braked sharply in the third quarter in the U.S. and that global demand for physical bullion remains very robust – particularly in India, China and Germany.
A gauge of U.S. business investment plans fell for a second straight month in September. Core capital goods orders fell 0.3 percent in September, August core capital goods were revised sharply down and durable goods orders dropped 1.2 percent.
Today’s Gold Prices: USD 1171.50, EUR 1058.98 and GBP 765.94 per ounce.
Yesterday’s Gold Prices: USD 1165.74, EUR 1054.55 and GBP 759.52 per ounce.
Gold in GBP – 1 Month
Gold closed at $1166.40 yesterday, a gain of $2.70 for the day. Silver was also up slightly yesterday, by $0.02 closing at $15.88. Platinum lost $9 to $984.
Gold has retained small overnight gains today ahead of a Federal Reserve policy statement later in the session as investors wait for more clues on the timing of a potential U.S. rate hike.
Ex-Goldman banker and Fed employee will plead guilty in document leak
Submitted by cpowell on Tue, 2015-10-27 13:11. Section: Daily Dispatches
By Ben Protess and Peter Eavis
The New York Times
Tuesday, October 27, 2015
A former Goldman Sachs banker suspected of taking confidential documents from a source inside the government has agreed to plead guilty, a rare criminal action on Wall Street, where Goldman itself is facing an array of regulatory penalties over the leak.
The banker and his source, who at the time of the leak was an employee at the Federal Reserve Bank of New York, one of Goldman’s regulators, will accept a plea deal from federal prosecutors that could send them to prison for up to a year, according to lawyers briefed on the matter who spoke on the condition of anonymity. The men, both fired after the leak, also may face lifetime bars from the banking industry.
In a statement, a Goldman spokesman emphasized that the banker worked for the firm for less than three months and that the bank “immediately began an investigation and notified the appropriate regulators” once it detected the leak. Nonetheless, the bank is expected to pay a significant penalty. …
… For the remainder of the report:
Banks that run credit-default swaps market suspect their own corruption
Submitted by cpowell on Tue, 2015-10-27 13:29. Section: Daily Dispatches
Inside the Secretive Circle That Rules a $14 Trillion Market
By Nabila Ahmed
Monday, October 26, 2015
Fifteen of the biggest players in the $14 trillion market for credit insurance are also the referees.
Firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. wrote the rules, are the dominant buyers and sellers, and, ultimately, help decide winners and losers.
Has a country such as Argentina paid what it owes? Has a company like Caesars Entertainment Corp. kept up with its bills? When the question comes up, the 15 firms meet on a conference call to decide whether a default has triggered a payout of the bond insurance, called a credit-default swap. Investors use CDS to protect themselves from missed debt payments or profit from them.
Once the 15 firms decide that a default has taken place, they effectively determine how much money will change hands.
And now, seven years after the financial crisis first brought CDS to widespread attention, pressure is growing inside and outside what’s called the determinations committee to tackle conflicts of interest, according to interviews with three dozen people with direct knowledge of the panel’s functioning who asked that their names not be used. Scandals that exposed how bank traders rigged key interest rates and fixed currency values have given ammunition to those who say CDS may also be susceptible to collusion or, worse, outright manipulation. …
… For the remainder of the report:
As Lawrie Williams pointed out, we are witnessing huge imports of gold from Hong Kong into mainland China. Also remember that we have multiple ways that China receives gold:
i) through London
ii) through Singapore
iii) through the USA
iv) through SGE
v) from its own mining (418 tonnes of gold)
China’s gold imports from Hong Kong jump to 10-month high
Submitted by cpowell on Tue, 2015-10-27 22:40. Section: Daily Dispatches
By A. Ananthalakshmi
Tuesday, October 27, 2015
China’s net gold imports from main conduit Hong Kong jumped to a 10-month high in September, data showed today, in a strong sign of recovering demand in the second half of the year.
Imports by the world’s top consumer have now risen for three consecutive months, with the third quarter recording the best quarter of the year for overseas purchases.
China’s appetite for gold has improved in the second half of 2015, as domestic stock markets performed badly.
Its net gold imports from Hong Kong rose to 97.242 tonnes last month from 59.319 tonnes in August, according to data emailed to Reuters by the Hong Kong Census and Statistics Department.
September’s imports were the highest monthly overseas purchases since November 2014. …
… For the remainder of the report:
At 10 am this morning:
(courtesy zero hedge)
Gold & Silver Are Spiking As 2015 Rate-Hike Odds Plunge
and now breaking above its 200 day moving average:
With a 4.5% chance of rate hike priced into the markets at today’s FOMC meeting, it is unlikely that anything exciting will happen today. However, with China outflows, BoJ easing expectations, and Draghi still promising moar, it appears precious metals are once again bid. Both Gold & Silver have broken back above their 200-day moving-averages this morning…
Agnico Eagle Reports Record Third Quarter 2015 Gold Production; Strong Operating Performance Leads to Increased Production Guidance and Reduced Costs for 2015
Stock Symbol: AEM (NYSE (NYX) and TSX)
(All amounts expressed in U.S. dollars unless otherwise noted)
TORONTO, Oct. 28, 2015 /PRNewswire/ – Agnico Eagle Mines Limited (AEM) (“Agnico Eagle” or the “Company”) today reported quarterly net income of $1.3 million, or net income of $0.01 per share for the third quarter of 2015. This result includes losses on financial instruments of $16.6 million ($0.08 per share), a non-cash foreign currency translation loss on deferred tax liabilities of $8.1 million ($0.04 per share), various mark-to-market and other adjustment losses of $9.5 million ($0.04 per share), non-cash stock option expense of $4.1 million ($0.02 per share), non-cash foreign currency translation losses of $0.9 million (nil per share), and non-recurring gains of $1.3 million ($0.01 per share). Excluding these items would result in adjusted net income of $39.2 million or adjusted net income of $0.18 per share for the third quarter of 2015. In the third quarter of 2014, the Company reported a net loss of $15.1 million or a net loss of $0.07 per share.
Based on the exploration success in the first half of the year at several of the Company’s projects, it was previously announced that exploration expense would increase in the second half of the year. Total exploration expense for the third quarter was $37.1 million.
As a result of this increased exploration expense the Amaruq project inNunavut yielded a significant increase in inferred resources (see August 19, 2015 news release) and an initial resource is expected to be reported by mid-February 2016 at the El Barqueno project in Mexico.
For the first nine months of 2015, the Company reported net income of $40.1 million, or $0.19 per share. This compares with the first nine months of 2014 when net income was $104.3 million, or $0.55 per share. Financial results in the 2015 period were negatively impacted by much higher investment in exploration (approximately 102% higher); lower gold prices (approximately 9% lower) and lower by-product metals revenues.
Third quarter 2015 cash provided by operating activities was $143.7 million ($217.8 million before changes in non-cash components of working capital). This compares to cash provided by operating activities of $71.2 million in the third quarter of 2014 ($129.2 million before changes in non-cash components of working capital). The increase in cash provided by operating activities before changes in working capital during the current period was mainly due to an increase of 26% in gold production.
For the first nine months of 2015, cash provided by operating activities was $475.5 million ($547.4 million before changes in non-cash components of working capital), as compared with the first nine months of 2014 when cash provided by operating activities was $504.4 million ($472.8 million before changes in non-cash components of working capital). The increase in cash provided by operating activities before changes in working capital during the period was mainly due to a 20% increase in gold production.
“In the third quarter of 2015, we set a new record for quarterly gold production and lowered unit costs which resulted in strong operating cash flow. This has allowed us to continue to invest in our exploration and development pipeline, which represents the long-term future of our business,” said Sean Boyd, Agnico Eagle’s Chief Executive Officer. “Our increased level of exploration activity continues to pay dividends as witnessed by the new discoveries at Kittila, Amaruq and El Barqueno. These projects are expected to be significant contributors to our production profile in the coming years,” added Mr. Boyd.
Third Quarter 2015 Highlights Include:
- Strong performance of Abitibi operations drives record quarterly gold production and low costs – Payable gold production1 in the third quarter of 2015 was 441,124 ounces of gold at total cash costs2 per ounce on a by-product basis of $536 and all-in sustaining costs3 on a by-product basis (“AISC”) of $759 per ounce
- Two new production records set at Canadian Malartic – New quarterly records were set for average tonnes processed per calendar day (53,703 tonnes on a 100% basis), and ounces of gold produced in a quarter (153,206 ounces on a 100% basis)
- 2015 production guidance increased and cost forecasts reduced – Expected gold production for 2015 is now forecast to be approximately 1.65 million ounces (previously 1.6 million ounces) with total cash costs on a by-product basis of approximately $590 to $610 per ounce (previously $600 to $620) and AISC of approximately $840 to $860 per ounce (previously $870 to $890) expected
- Amaruq drilling expands scope of known mineralization – Drilling indicates that the Whale Tail and Mammoth zones form a single mineralized system at least 2.3 kilometres long. In addition, the V zone (part of the IVR area) has been identified as a substantial mineralized structure, locally with abundant visible gold
- Drilling extends new parallel zone at Kittila – Two recent drill holes have confirmed continuity within the new parallel lens (now called the “Sisar lens”). Highlights include: 8.1 grams per tonne (“g/t”) gold (uncapped) over 8.0 metres at 1,235 metres depth; and 5.5 g/t gold (uncapped) over 3.3 metres at 950 metres depth and 560 metres farther north along strike
- Improved financial flexibility – In the third quarter, the Company’s credit facility was amended and $25 million was repaid. In addition, a 10-year, $50-million term note was issued to Ressources Québec, a subsidiary of Investissement Québec. Capital expenditures in 2015 are also forecast to be approximately $50 million lower than previously reported due to positive foreign currency adjustments and deferrals into future periods
- A quarterly dividend of $0.08 per share was declared
1 Chinese yuan vs USA dollar/yuan falls , this time at 6.3594 Shanghai bourse: in the red, hang sang:red
2 Nikkei up 125.78 or .67%
3. Europe stocks all in the green /USA dollar index down to 96.70/Euro up to 1.1072
3b Japan 10 year bond yield: falls to .297% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.34
3c Nikkei now just above 18,000
3d USA/Yen rate now above the important 120 barrier this morning
3e WTI: 43.52 and Brent: 47.26
3f Gold up /Yen up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls dramatically to .443 per cent. German bunds in negative yields from 6 years out
Greece sees its 2 year rate rises to 8.59%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.69% (yield curve inverted)
3k Gold at $1171.80 /silver $16.04 (8 am est)
3l USA vs Russian rouble; (Russian rouble up 3/4 in roubles/dollar) 64.42
3m oil into the 43 dollar handle for WTI and 47 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 .9831 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0887 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 6 year German bund now in negative territory with the 10 year falling to +.443%/German 6 year rate negative%!!!
3s The ELA lowers to 82.4 billion euros,
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 2.04% early this morning. Thirty year rate below 3% at 2.86% / yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Markets On Hold Awaiting The Fed’s Non-Announcement As Central Banks Ramp Up Currency Wars
We would say today’s main event is the culmination of the Fed’s two-day meeting and the announcement slated for 2 pm this afternoon, however with the 90 economists polled by Bloomberg all expecting no rate hike, today’s Fed decision also happens to be the least anticipated in years (which may be just the time for the Fed to prove it is not driven by market considerations and shock everybody, alas that will not happen). And considering how bad the economic data has gone in recent months, not to mention the recent easing, hints of easing, and outright return to currency war by other banks, the Fed is once again trapped and may not be able to hike in December or perhaps ever, now that the USD is again surging not due to its actions but due to what other central banks are doing.
In fact, the biggest central bank announcement today may not be from the Fed at all, but what the Swedish Riksbank did a little over two hours ago, when it kept its interest rate at the already record low -0.35%, but boosted its QE by a further SEK65 billion, in the process slamming its currency and sending bond yields tumbling. This is what it said:
Overall, the Executive Board’s assessment is that monetary policy needs to be more expansionary in order to underpin the positive development in the Swedish economy and safeguard the robustness of the upturn in inflation. The Executive Board has therefore decided to extend the government bond purchasing programme by an additional SEK 65 billion so that purchases will amount to SEK 200 billion in total by the end of June 2016. The repo rate is left unchanged at -0.35 per cent but an initial raise in the rate will be deferred by approximately six months compared with the previous assessment.
The impact of this announcement on both the currency….
… and Sweden’s bond yields, which tumbled to fresh 2 year lows, was immediate.
Why is the Riksbank doing this? Simple: to preempt the ECB just as we described two days ago in “”Giant Wave Of Money” Heads For Sweden, As Draghi Creates “Nightmare” For Riksbank.”
For now Sweden’s response, now that currency wars have official returned after a 6 month hiatus is to monetize even more debt, and sending bonds yields to fresh lows. Sure enough, this just happened moments ago in Germany:
- GERMAN TWO-YEAR NOTE YIELD DROPS TO RECORD-LOW MINUS 0.35%
In fact, as the following chart shows, the short end across Europe is once again getting ridiculous:
And it is in this environment of resurgent deflationary signals, which are merely indicating expectations of more central bank frontrunning, that the Fed is expected to hike rates, and push the already strong dollar into the stratosphere, crushing US multinational exporters? Good luck.
Taking a quick look at overnight markets around the globe, Asian equities traded mostly lower following the subdued U.S. close as markets remain cautious ahead of the FOMC meeting today, while weakness in the energy complex also weighed on risk sentiment . ASX 200 (-0.2%) traded in mild negative territory with weakness in financials following a miss on earnings from big-4 bank NAB.
Shanghai Comp. (-1.7%) was weighed on by tech names as participants await the conclusion of the Chinese plenum and details of the next 5yr plan, where some have touted a 6.5% growth target. Nikkei 225 (+0.7%) outperformed as telecoms lifted the index amid gains in Softbank after Alibaba rose by 32% post earnings, in which the Co. holds over a 30% stake in. 10yr JGBs traded higher as the cautious tone in markets drove 10yr yields below 0.3% for the 1st time in 3 months, while the BoJ also bought JPY 380b1n of long to super long end bonds.
Remember: on Friday the BOJ may or may not join the latest round of currency warfare when it too eases, although with the JPY the carry currency of choice, for now other central banks have been doing its job for it.
European equities (Euro Stoxx: +0.8%) trade firmly in the green this morning, reversing the sentiment seen in the US and Asia amid positive stock specific news . TMT is the notable outperforming sector, benefitting from pre-market news that BT (+3.2%) merger with EE has been provisionally approved by the CMA, with stocks also benefitting from strength in both the energy complex and metals. Elsewhere, the most notable earnings report today came from Volkswagen (+4.5%), who cut 2015 profit target ‘significantly’ and missed on expectations, however shares reside in positive territory with the report not as bad as some had anticipated.
In FX, AUD has been the notable underperformer in FX markets overnight after Australian CPI figures saw the RBA preferred trimmed mean reading (2.10% vs. 2.40%) print at 3-yr low, with price action relatively muted elsewhere. Of note the USD-index resides in negative territory (-0.2%) ahead of the FOMC rate decision later today, with markets pricing in a 6% chance of a hike today.
Continuing the tradition of baffle with bullshit, ECB’s Coeure said that the short term inflation forecast do not look good vs. the 2% level and that downside CPI risks could call for more monetary measures. He also stated that if the risk of inflation reaching 2% is slower than expected, it could result in adjustments to the deposit facility rate and that the central bank is having discussions about expanding asset purchases. This happened moments after another ECB governor, Hansson said he sees no convincing reason for further policy action at the next meeting, considering presently known information. Well of course not, the EURUSD is down 200 pips on Draghi’s remarks.
WTI has come off yesterday’s lows after API crude oil inventories showed a build that was less than the previous week (4100K, Prey. 7100K). WTI trades around its end of August lows, with participants looking ahead to today’s DoE inventories which are expected to print at 3750k. Gold held on to yesterday’s gains over but has seen strength in European trade to trade higher by over USD 6.00 on the day to trade in close proximity to the 200DMA at USD 1172.73
- S&P 500 futures up 0.2% at 2065.
- Equities: Shanghai Composite (-1.7%), FTSEMIB (+0.7%)
- Bonds: German 10Yr yield (+2.3%)
- Commodities: LME 3m Nickel (-0.9%), LME 3m Copper (-0.8%)
- FX: EUR/GBP (+0.1%), Euro (-0.1%)
- VStoxx Index down 1.6% at 20.35
- For a detailed market snapshot click here
- U.S. mortgage applications, FOMC rate decision due later
Bulletin Headline Summary from Bloomberg and RanSquawk
- European equities (Euro Stoxx: +0.8%) trade firmly in the green this morning, reversing the sentiment seen in the US and Asia amid positive stock specific news
- AUD has been the notable underperformer in FX markets overnight after Australian CPI figures saw the RBA preferred trimmed mean reading (2.10% vs. 2.40%) print at 3-yr low
- Looking ahead, as well as the aforementioned FOMC rate decision, today also sees the RBNZ rate decision and comments scheduled from ECB’s Constancio
- Nissan’s Ghosn says global auto demand is slowing
- The ECB may need to take additional measures to help boost prices with inflation failing to rebound as fast as policy makers had expected, Executive Board member Benoit Coeure said
- China’s steel industry, the world’s largest, is facing a crisis as demand collapses along with prices, banks tighten lending and losses stack up, the deputy head of the China Iron & Steel Association said on Wednesday
- The PBOC will refrain from further benchmark interest-rate cuts and economic growth will hold steady in the fourth quarter, according to economists surveyed by Bloomberg News
- Austria is planning to build a fence along its border with Slovenia, saying the “fixed constructions” on crossings will help to establish an “orderly” influx of refugees
- Norway’s sovereign wealth fund, the world’s largest, posted its biggest loss in four years, just as the government prepares to make its first ever withdrawals to plug budget deficits.
- The Riksbank expanded its bond-purchase plan for a fourth time since February as policy makers in Sweden struggle to keep pace with stimulus measures in the euro zone
- Sovereign 10Y bond yields mostly lower. Asian stocks lower, European stocks rise, U.S. equity-index futures gain. Crude oil and gold higher, copper lower
DB’s Jim Reid completes the overnight wrap
In another place and time today’s FOMC meeting could actually be the most important event of the year. However with no economists out of 90 polled on Bloomberg expecting a change, today’s meeting culmination – which has no planned press conference – should be a low key affair. However the statement could still contain some market moving discussion points. DB’s Joe LaVorgna expects the Fed’s communiqué to be dovish. Given that growth is likely to be sub-2% in Q3 (with many forecasts around the low-to-mid 1% range and the Atlanta Fed now at 0.8% post yesterday’s soft durable goods numbers) he doesn’t think the Fed can maintain the line “that economic activity is expanding at a moderate pace.”. He also thinks the description of the labor market will also have to change. September’s “The labor market continued to improve, with solid job gains and declining unemployment.” would sound odd in light of the current three-month moving average on private employment growth of just +138k, the weakest since August 2012. Yesterday’s weak durable goods report also challenges the description of moderate growth in “business fixed investment” from the last statement.
Finally Joe thinks if the Fed wanted to be really dovish they could tweak the following sentence: “The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced” to something that says the risks to both growth and inflation are to the downside. However he thinks that with some FOMC members still wanting the option of a December hike they are unlikely to go this far at this stage. So perhaps the key today is how much the Fed leaves the door ajar for a move in December.
The decision and statement will be released at 6pm London time which is slightly odd as European clocks have gone back but the US haven’t as yet. In Europe going home time is now going to be firmly in the dark until March – a depressing thought. On the subject of the clocks I read a fascinating article yesterday that made the point that the only places in the world where there is no official time are the North and South Poles. All the longitude lines that determine global time zones meet at the poles. So if you happen to be standing at either end of the earth you can choose any time you want. Indeed if you move a few inches and straddle the international date line, your big toe could be a day ahead of your little toe.
Indeed yesterday felt like we’d just repeated the day before as there was a similar theme in markets to that of Monday. Further weakness in the energy complex weighed on energy stocks once again as WTI (-1.77%) and Brent (-1.54%) tumbled further. Natural Gas (+1.45%) did manage to close up but not before it had slid below $2 for the first time since April 2012. Earnings reports were generally pretty mixed yesterday with BP and Pfizer beating expectations, but Ford and UPS sliding after their latest quarterlies were seen as disappointing. Despite some resilience, US equities retreated with the S&P 500 closing -0.26% and Dow finishing -0.24%. There were bigger losses for European markets where the Stoxx 600 ended -1.07%. US Treasury yields nudged a couple of basis points lower helped by some soft durable and capital goods orders data. Some of the more interesting bond moves yesterday were in Europe where there was a decent rally across much of the region, with yields generally 4-6bps lower.
More on that shortly, but firstly to the latest in Asia this morning where bourses are generally taking the lead from the US yesterday and trading lower. In China the Shanghai Comp has fallen -1.40% as we go to print, not helped by the latest October consumer sentiment print which has dropped 8.5pts from September to 109.7 this month – the lowest reading on record with data going back 8 years. The data had previously risen for the last 4 months, however the latest reading showed fairly broad-based declines across all components including a notable drop in expectations for business conditions over the next 12 months (declining -14.4pts to 108.1). Elsewhere in markets this morning, the Hang Seng (-0.59%), Kospi (-0.17%) and ASX (-0.20%) are all down, although there’s better news in Japan where the Nikkei is currently +0.64% after some disappointing retail sales numbers which have seemingly raised hopes of more BoJ stimulus on Friday. Meanwhile, some softer than expected Australia CPI data (headline +0.5% qoq vs. +0.7% expected) has seen the Aussie Dollar tumble 1% and raised the market pricing of a 25bps RBA rate cut next week to 60% from closer to 30% prior to the data.
Moving on. After the US close yesterday we got the latest hotly anticipated Apple quarterly numbers. It was something of a mixed bag, reflected in the after-market trading where, having initially jumped 2%, shares eventually closed back down at where they started. The good news was that both earnings and revenue came in above analyst forecasts, while it was noted that revenues in particular would have been 7% higher in constant currency terms. Apple’s CEO Tim Cook talked up growth in China although it was highlighted that Q4 revenues out of Greater China actually declined 5% relative to Q3. Meanwhile, for the holiday period management guided towards another record quarter with forecasted sales of between $75.5bn and $77.5bn, although analyst expectations (of $77.1bn) had already been sitting at the upper end of this guidance.
All-in-all 43 S&P 500 companies reported yesterday in what was a strong day relative to what we’ve seen so far with 35 (81%) beating earnings expectations and 21 (49%) ahead of sales estimates. Accounting for yesterday’s reporters, this compares to the overall trend of 75% and 43% respectively so far with 228 companies now having reported.
As mentioned there was a decent rally in the European government bond market yesterday, although it’s difficult to pin a single reason for the moves. The Euro area credit and money aggregates were a tad more disappointing than expected, particularly in light of the recent ECB bank lending survey. Euro area M3 growth of 4.9% yoy in September was unchanged from August and down a tenth versus expectations. Meanwhile loans to non-financial corps rose just +0.1% yoy having previously stood at +0.4%. Elsewhere, a Reuters led survey of economists suggested that there was a greater than 60% chance that the ECB announces further monetary easing at the December meeting. Meanwhile comments from the ECB’s Nowotny supported the case for continued easy policy. The ECB official said that ‘monetary policy will remain unconventional’ for some time to come and that the ECB is to continue purchases until September 2016 and at least until inflation is close to target. There were even more dovish hints to follow this late last night from ECB board member Coeure who noted that an adjustment of the deposit facility rate was an ‘open discussion’ and a ‘discussion that has started’.
Yesterday also saw Italy manage to sell 2y debt at a negative yield (-0.203%) for the first time ever in yesterday’s BTP auction. It’s pretty amazing to see this given 2y BTP’s traded at nearly 8% towards the end of 2011. Also of note and not to be outdone in yesterday’s rally, Swiss 10y yields tumbled 4bps lower yesterday to settle at a new all-time low of -0.358%.
Speaking of negative yields, T-Bills due next month traded with a negative handle yesterday having previously traded as high as 13bps on Friday. The move lower yesterday came on the back of the news that US Congress is set to vote today on a bipartisan budget/debt ceiling deal which will extend the Treasury Department’s borrowing authority until March 2017.
With regards to the dataflow yesterday, as noted US durable goods orders in September were soft at -1.2% mom (vs. -1.5% expected) which followed a downwardly revised -3.0% mom drop in August. There was weakness in core capex orders also which declined -0.3% mom (vs. 0.0% expected), while the August data was revised down also by a steep 140bps to -1.6%. Meanwhile, the flash services PMI print declined 0.6pts from last month to 54.4 (vs. 55.5 expected) and to the lowest reading since January this year. There wasn’t much better news to come out of the latest consumer confidence data either with the October print falling 5pts to 97.6 (vs. 102.9 expected) and a three-month low, driven to a large degree by the present situation component which declined 8.4pts this month. Elsewhere, the Richmond Fed manufacturing activity index for October was a tad better than expected at -1 (vs. -3 expected), up 4pts from September. Finally the S&P/Case-Shiller house price index was up +0.1% mom in August as expected.
Wrapping up yesterday’s data, in the UK the Q3 GDP print was bit softer than expected at +0.5% qoq (vs. +0.6% expected). That saw the YoY reading nudge down a tenth to 2.3% with Sterling coming under a bit of a pressure as result, finishing down 0.3% versus the Dollar.
Looking at the day ahead, the only data of note in the European session this morning are various consumer confidence indicators out of Germany, France and Italy. This afternoon in the US sees the September advanced goods trade balance reading which is one of the last key data points before Thursday’s GDP report. This is then of course followed by the conclusion of the aforementioned two-day FOMC meeting. Earnings are set to remain front and centre also with 44 S&P 500 companies scheduled to release their latest quarterly numbers, the highlights including Walgreens Boots prior to the open and Paypal and Amgen after the closing bell. In Europe 23 Stoxx 600 companies will report also, with Volkswagen set to be a closely watched affair given the recent emissions scandal, while Fiat Chrysler and Heineken are also due.
China Margin Debt Hits 8-Week High, Japan Pumps’n’Dumps As Kyle Bass Fears Looming EM Banking Crisis
Following Marc Faber’s reality check on China recently, Hayman Capital’s Kyle Bass took a swing tonight noting that “China’s 7% GDP growth is a farce,” and adding that, just as we detailed previously, China’s credit cycle has begun and non-performing loans will rise rapidly leading to an emerging Asia banking crisis ahead. Japanese markets continue to entertain with “someone” insta-ramping NKY Futs 100 points at the open only to give it all back as USDJPY slides back towards 120.00 (and 10Y JGB yields drop below 30bps for the first time in 6 months).
Hayman Capital’s Kyle Bass discusses China at Sohn San Francisco:
- *HAYMAN’S BASS SAYS CHINA 7% GDP GROWTH IS A ‘FARCE’
*HAYMAN’S BASS SAYS HE’S ASSUMING CHINA CREDIT CYCLE HAS BEGUN
*HAYMAN’S BASS: CHINA WILL FACE NPL CYCLE, CREDIT CONTRACTING
*HAYMAN’S BASS: ASSUMES 8.5%-10% CHINA LOANS NON-PERFORMING
- *HAYMAN’S BASS SEES EMERGING ASIA BANKING CRISIS AHEAD
China continues to drift quietly under the hammer ofthe Polituburo ahead of The Plenum
The Chinese continue to lever up…
- *SHANGHAI MARGIN DEBT BALANCE RISES TO EIGHT-WEEK HIGH
* * *
Japanese markets are once again a farce also…
A mysterious insta-buyer lifted Nikkei futures 100 points in one big bid at the open, but USDJPY continues to tumble as hopes of moar from The BoJ fade…
It’s been a ride..
10Y JGB yields are back under 30bps – lowest in 6 months...
The spread between Offshore an Onshore Yuan continues to widen suggesting outflows are picking up once again.
And that appears to be flowing – as we have detailed extensively – to Bitcoin...
Sales in China on Ferrari’s unexpectedly
(courtesy zero hedge)
Ferrari’s China Sales Tumble
Despite briefly dipping below its $52/share IPO price yesterday, moments ago Ferrari pleasantly surprised supercar fanatics when it reported record Q3 performance, highlighting that shipments were 1,949 units, up 21%, revenues were up 9% to €723 million, EBITDA of €214 million, up 34%, leaving to a 62% jump in net profit of €94 million.
One skim of the press release confirms that while the global middle class is slowly being gutted, the top of the wealth pyramid has never had it better: The increase in EBIT “was supported by a slightly positive mix effect due to higher sales of our limited edition supercar LaFerrari and special racing car FXX K.”
At least the world’s billionaires have good taste.
The tersely worded press release of the new public company also provided full year guidance that saw the business continuing to boom, expecting shipments: 7.7K including limited edition supercar LaFerrari, with Adjusted EBITDA on the €725 million – €745 million range.
Overall, a great quarter.
There was just one problem: Ferrari announced that while sales across the rest of the world were solid, rising by 114 and 159 units in Europe and America, to 815 and 682 units respectively, unexpectedly sales in China tumbled by 24% in the third quarter, or down 50 units Y/Y to 157.
And while we have no reason to doubt Ferrari’s optimistic outlook – after all, the only thing better for the world’s richest than ZIRP is NIRP (coupled with a few more QE expansions here and there), China’s unexplained tumble is very disturbing, and should lead to questions about just how strong even the wealthiest Chinese consumers truly are.
Sweden Launches MOAR QE, As Krugman Paradise Quadruples Down After Dovish Draghi
Over the last six months, we’ve documented Sweden’s descent into the Keynesian Twilight Zone in great detail.
Once upon a time, the Riksbank actually tried to raise rates, only to be lambasted by a furious Paul Krugman who accused the central bank of unnecessarily transforming Sweden from “recovery rockstar” to deflationary deathtrap. Tragically, the Riksbank listened to Krugman and reversed course in 2011. Before you knew it, rates had plunged 35 basis points into NIRP-dom. Unemployment subsequently fell, but the promised lift in inflation didn’t quite pan out. Sweden did, however, get amassive housing bubble for their trouble:
Obviously, those charts beg the question of why in the world Sweden (or Denmark, or Norway for that matter… or hell, even the US) are trying to contend that there’s no inflationary impulse, but let’s leave that for another day.
As for the Riksbank’s QE program, things began to go awry during the summer when the central bank managed to buy such a large percentage of the stock of government bonds that market depth was affected, causing investors to reconsider the trade off between liquidity and the benefits of frontrunning central bank asset purchases. In short, government bond yields began to rise in what perhaps marked the first instance of QE actually breaking.
But that didn’t stop the Riksbank from doubling down and increasing their asset purchases just a week later.
Since then, it’s been touch and go, with Stefan Ingveslooking warily south towards Frankfurt hoping Mario Draghi doesn’t do something that sends the krona soaring on the way to ushering in a deflationary impulse.
Well, that’s exactly what Draghi did last week when the ECB telegraphed either a further depo rate cut, an expansion of PSPP, or both in December. That pretty much sealed the deal for the Riksbank – either cut, expand QE, or concede defeat in the global currency wars.
Not ready to throw in the towel just yet, the Riksbank has just expanded QE by SEK65 billion while keeping the repo rate on hold (for now anyway). Here’s some color from the statement:
“There is still considerable uncertainty regarding the strength of the global economy and central banks abroad are expected to pursue an expansionary monetary policy for a longer time. An initial raise in the rate will be deferred by approximately six months compared with the previous assessment. The trend of rising inflation is expected to continue. But compared with the assessment at the previous monetary policy meeting, the inflation forecast has been revised down slightly. This depends on poorer inflation prospects abroad as well as on a new assessment that demand needs to be stronger in Sweden in order to stabilize inflation.”
And the knee jerk reaction in Swedish 10s (which are apparently risk-free even though other sovereign debt is not):
Here’s some color from various analysts via Bloomberg whose summary can be found here:
- Riksbank probably needs to buy other types of assets than government bonds if it wants to expand QE further next year, Anna Breman, economist at Swedbank, says by phone.
- Expects Riksbank to continue to expand QE in 2016
- Even if borrowing needs are raised next year, Riksbank will probably need to expand bond purchases into assets such as municipality or covered bonds; hard to see that borrowing needs would rise to extent that it could buy more govt bonds
- Riksbank’s govt bond purchases will now be “very high” at about 34% of total stock
- Development of krona will be very important for Riksbank
- Handelsbanken sees “no more changes in monetary policy in this cycle” after Riksbank expanded bond purchases while keeping repo rate unchanged.
- Given unchanged probability of additional rate cuts and repo rate closer to lower bound, “we should see low probability of additional rate cuts priced by the market”
- Still, after ECB “left the door wide open for additional stimulus at the December meeting, the Riksbank may experience trouble toward year-end”
- Says Riksbank is close to bottom regarding repo rate given concerns about Sweden’s housing market; extension of bond purchase program in 3Q to pare ECB’s purchases would therefore “be preferable if the Riksbank deems this necessary to reach the inflation rate target”
- Handelsbanken suggests buying SEK against EUR
- The Riksbank was softer and the QE expansion larger than Nordea had expected, Torbjoern Isaksson, economist at Nordea, says by phone.
- Nordea had expected additional bond buying of SEK35b while Riksbank expanded government bond purchases by SEK65b
- Riksbank is haunted by krona, soft ECB; krona important part of strategy to lift inflation.
- Nordea still believes in further repo rate cut in Dec.; doesn’t expect Riksbank to expand bond purchases further
Got all of that? Here’s the short version: Sweden has to figure out a way to keep the krona from soaring now that further ECB easing looks like a virtual certainty, otherwise, inflation will flatline (the housing bubble notwithstanding). Cutting the repo rate further risks exacerbating the housing bubble but at 34% of outstanding issuance, QE is almost exhausted lest the Riksbank should break the government bond market entirely and risk another episode like that which unfolded during the summer when bond yields started to move in the wrong direction. Further, there’s no way government borrowing needs in 2016 are going to translate into enough new supply to satisfy the Riksbank’s appetite. So, caught between a rock and a hard place, no one knows what Ingves will do next.
While this fourth expansion of QE may have a short-term effect on yields, we doubt whether it will be sufficient to bring about sustained krona weakness given the size of Draghi’s bazooka (so to speak), which means that despite the various Catch-22s outlined above, the Riksbank will likely persist in the monetary madness for the foreseeable future, and on that note we close with the following from Stefan Ingves:
“If krona was to appreciate too quickly, it would be harder to get inflation to rise to target of 2%. Riksbank has more space on repo rate, can cut rate further. Riksbank not worried about running out of assets to buy.”
EUR Jumps After ECB Talks Back December Q€, But Market Already “All In”
With EURUSD having crashed to a 1.09 handle, some would say Draghi’s work is done (in terms of crushing US corporate revenues) but there is a bigger problem for the ECB head. The market has already entirely priced-in a cut in the ECB Deposit Rate (in fact is already pricing in even more – at -35bps, from -20bps) which may be an issue as two ECB governors have come out today, jawboning investors not to expect more easing soon. This has sparked a reversal in EURUSD and risk assets are rolling over…
Draghi hints at moar… And the market front-runs it, and prices in an ECB Depo rate of -30 to 35bps…
And then today, two ECB governors said not to expect more!
First ECB’s Ardo Hansson said “I don’t see any convincing reason to consider further policy action in December knowing what we know today,”
A member of the European Central Bank’s governing body said he saw no need to ease policy further in December, contradicting an unexpectedly dovish message last week from ECB President Mario Draghi.
The euro zone economy appears resilient and long-term inflation expectations look relatively well-anchored, Ardo Hansson, a member of the ECB Governing Council and head of Estonia’s central bank, said on Wednesday. A rate cut would depart from the bank’s forward guidance and threaten its credibility, he said.
“I don’t see any convincing reason to consider further policy action in December knowing what we know today,” Hansson said at a news conference. “If something very fundamental changes, we could perhaps re-evaluate, but now I don’t see any need to take such a step.”
The ECB last week raised the prospect of policy easing in December and said a deposit rate cut may be on the agenda, even though the bank had earlier said rates had hit the “lower bound” and there would be no further cuts.
And then, ECB’s Rimsevics says No Need to Rush Into Stimulus Before Year End
“There is no need now to rush into anything, especially before the end of the year,” ECB Governing Council Ilmars Rimsevics tells reporters in Riga.
“Inbetween we will have a lot of discussion and debates and fact-finding”
Premature to assess impact of QE, need at least six more months to evaluate data
“We see some very small, marginal signs of a turnaround in lending data”
“We still need to receive more data”
“I believe the program is a good one but monetary policy alone cannot fix the problem”
“ECB definitely is going to do whatever it takes”
And EURUSD is starting to react…
Nigel Farage at his best as he rages against the EU for not allowing democracy to rule in Portugal:
(courtesy zero hedge)
Nigel Farage Rages At Modern Day “Brezhnev Doctrine” In Portugal’s Democracy Crisis
Nigel Farage unleashes another of his must-watch rage-fests aimed at the collapse of democracy in Europe. Amid the stunning “democracy crisis” in Portugal, where, as we detailed here, the government has lost its majority but the anti-EU opposition is being prevented from attempting to form a coalition, Farage fumes “this is the modern day implementation of the Brezhnev Doctrine. This is exactly what happened to states living inside the USSR.”
One of his best…
Transcript… (via Order-Order.com),
“This is the modern day implementation of the Brezhnev Doctrine. This is exactly what happened to states living inside the USSR . What is being made clear here with Greece and indeed with Portugal is that a country only has democratic rights if it’s in favour of the [European] project. If not, those rights are taken away.
And perhaps none of this should surprises us as Mr. Juncker has told us before: there can be no democratic choice against the European treaties.
And the German Finance Minister, Mr. Schäuble, has said: elections change nothing – there are rules.
I think for anyone that believes in democracy, Portugal should be the final straw. It should be the warning that this project, [in order to] to protect itself and all its failings, will destroy the individual rights of peoples and of nations. My country has always believed in parliamentary democracy so strongly that twice in the last century it risked everything to fight for parliamentary democracy, not just for Britain but for the rest of Europe too. And I actually believe that for all of us that believe in democracy and want to see it reimplemented, the British referendum offers a golden opportunity.”
The opposition in Portugal might be socialists, but the country is effectively suspending democracy to prevent Eurosceptics with a massive electoral mandate from taking power.
As we concluded previously, note what’s happened here. The will of the people is now being characterized as a “false signal” to “financial institutions, investors, and markets.”
NIRP Panic: Over Half Of European 2-Year Bonds Trade At Record Negative Yields; Italy Paid To Issue Debt
Last week it was Mario Draghi’s promise that he would push European deposit rates even further into NIRP territory from their current -0.20% level, something which market not only believed but has already priced in and then some, pushing German 2Y yields to a record -0.35%…
… but then earlier today, as predicted here previously, in a panic response Sweden’s Riksbank did the only thing it can do to halt the “money tsunami” that Draghi is unleashing as he makes money even more unwanted, by expanding its QE for the 4th time this year since it was unveiled in February in hopes of making the SEK even more worthless than the Euro.
In short, Europe has unleashed yet another monetary panic, and nowhere is it more visible than in what happened today across the short end of Europe’s government curve.
As the table below shows, more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields!
This reminds us of a post we did in January when the impact of NIRP was first felt on Europe’s bond market, and when we wrote that
“in the aftermath of the ECB’s NIRP policy, and subsequently QE, an unprecedented €1.4 trillion in European debt with a maturity of more than 1 year traded down to subzero, as in negative, yields.”
But what happens if one expands the Eurozone NIRP universe to include the debt of other countries including Japan, Denmark, Sweden, Switzerland and so on? Conveniently, JPM has done the analysis and finds that a mindblowing $3.6 trillion of government debt traded with a negative yield as recently as last week. This represents 16% of the JPM Global Government Bond Index, or in other words nearly a fifth of all global government debt is now trading with a negative yield, meaning investors pay sovereigns, using other people’s money of course, for the privilege of buying their issuance!
Following this article, there was a brief hiatus and bond yields normalized briefly on hopes the ECB may tame deflation, however all of that fell apart over the past month, when negative rates – and yields – have returned with a vengeance, as well as expansions of QE and who knows what other surprises European banks will unveil in the coming days (keep a close eye on that Denmark peg which may be the next “Swiss Franc” depegging shocker).
But nothing shows just how insane it is getting than the story of Italy, which earlier today not only sold €6 billion in Bills due April 2016, but did so at negative yields. From Reuters:
Italy sold six-month bills at an average negative yield for the first time on Wednesday as the prospect of further monetary easing in the euro zone pushed investors to pay to hold Italian debt.
Italy sold 6 billion euros ($6.6 billion) in bills due in April 2016 at a yield of minus 0.055 percent, down from a 0.023 percent yield paid a month ago on the same maturity.
Since then, the European Central Bank has indicated it could unleash new stimulus measures to shore up inflation as early as December, including possibly cutting its deposit rate further into negative territory.
The ECB’s message pushed Italian yields below zero on maturities of up to two years on the secondary market.
The sharp fall in Italian borrowing costs since the easing of the euro zone debt crisis has brought welcome relief to the country’s stretched public finances.
This was not the first time Italy was paid to issue debt: on Tuesday, Italy sold 1.75 billion euros of zero-coupon, two-year paper at a yield of minus 0.023 percent for the first time ever. The lowest yield paid at an auction of Italian bills had already fallen into negative territory in April, when six-month debt fetched a minimum yield of minus 0.011 percent.
We expect this to be only the beginning of Europe’s (and soon the US’) journey through the monetary twilight zone that is NIRP, as central banks around the globe no longer have any choice but to intervene any and every time there is even a modest 5% drawdown in risk assets, as we saw in September.
Deutsche bank just eliminated its dividend for 2015 and 2016. Things must be quite rosy in the banking circles:
(courtesy zero hedge)
Europe’s Largest Bank Just Scrapped Its Dividend
Make no mistake, the writing has been on the wall for months.
Deutsche Bank is going through a painful restructuring that began with the ouster of co-CEOs Anshu Jain and Jürgen Fitschen and culminated in new CEO John Cryan’s move to eliminate a quarter of the workforce, or some 23,000 people.
The bank then proceeded to announce a shakeup in the corporate structure before moving to cut the I-bank bonus pool by some $566 million.
Well don’t look now, but just moments ago, Europe’s biggest bank eliminated the dividend.
- DEUTSCHE BANK TO ELIMINATE 2015, 2016 DIVIDENDS TO MEET TARGETS
Here’s the press release:
The Management Board of Deutsche Bank today approved the implementation of the Bank’s strategic plan, known as “Strategy 2020”. The plan includes the following financial targets:
- CET 1 ratio: at least 12.5% from the end of 2018
- Leverage ratio: at least 4.5% at the end of 2018 and at least 5.0% at the end of 2020
- Return on Tangible Equity (RoTE): greater than 10% by 2018
- Adjusted Costs (total noninterest expenses excluding restructuring and severance, litigation, impairment of goodwill and intangibles and policyholder benefits and claims) of less than EUR 22.0 billion by 2018
- Cost/income ratio (CIR) of approximately 70% in 2018 and of approximately 65% in 2020
- Risk Weighted Assets (RWA) (excluding regulatory inflation following regulatory changes expected to be at least EUR 100 billion by 2019/2020) of approximately EUR 320 billion at the end of 2018 and of approximately EUR 310 billion at the end of 2020.
Furthermore, the plan is based on the elimination of the Deutsche Bank common share dividend for the fiscal years 2015 and 2016. The Management Board expects to recommend the payment of common share dividends commencing from fiscal year 2017 at a competitive payout ratio.
In Latest Escalation, Australia May Join US, Send Warships To China Islands
Earlier this week, the USS Lassen managed to sail by China’s man-made islands in the Spratlys without getting shot at or surrounded.
The fact that China did not move to challenge the US-flagged guided-missile destroyer was a relief for those who aren’t keen on living through World War III and as hyperbolic as that might sound, it was just this month that Beijing threatened to “stand up and use force” in the event Washington went through with the “freedom of navigation” exercise.
Of course as we outlined previously, the PLA will get plenty of other opportunities, as most security “experts” believe that in order to be “effective” (whatever that means in this context), the US will need to keep up the patrols suggesting the world could be in for a prolonged period of heightened tensions that threaten to spiral out of control on any given “pass-by.”
For anyone unfamiliar, all of this comes courtesy of Beijing’s land reclamation efforts in the South China Sea which have by now led to the creation of more than 3,000 acres of new sovereign territory on which China has constructed runways, cement factories, and all manner of other facilities. This has led Washington’s regional allies to cry foul and now, Big Brother is essentially just sailing around the islands to see if China will shoot.
As silly as that sounds, it’s become one of the more important geopolitical stories of the year and now, as WSJ reports, it looks like Australia might get involved as well. Here’s more:
Australian defense planners are looking at the possibility of a naval sail-through close to China’s artificial islands in the South China Sea, in case the government decides to follow its close ally the U.S. in testing Beijing’s territorial claims.
“Australia has been looking at options,”said one official in Australia’s military familiar with operational planning.
Another defense official, who has been involved in a military blueprint about the South China Sea for Australia’s
Defense Minister Marise Payne, confirmed that plans for possible naval operations or flights by maritime patrol aircraft had been prepared, though said there is no immediate intent to put them into play. “At this stage, it’s only been looking at what we could do,” the second official said. The military had been looking at options including a sail-through for months, the person said, as tensions in the South China Sea intensified.
Australia has two naval frigates in the South China Sea region—the HMAS Arunta and HMAS Stuart—which have been scheduled to carry out exercises alongside Chinese warships over the next week, as a naval confidence-building exercise.
More from The Journal:
Peter Jennings, the executive director of the government-backed security think tank the Australian Strategic Policy Institute, said he expected most U.S. regional allies would follow with their own exercises to assert freedom of navigation, although few would telegraph movements in advance for operational security reasons.
“I think it is now critical we follow this up so that we don’t just leave it to the United States on what is an issue worrying countries from the Philippines to Vietnam,” said Mr. Jennings, a former Australian intelligence analyst.
So there are two main takeaways here. First, as WSJ also points out, China is Australia’s largest trade partner and as we’ve seen recently with Russia and Turkey, geopolitical tensions and the egos and irrationality that often accompany them have a way of derailing trade at significant costs to all involved.
Second, this, like Syria, is now another dispute into which multiple world powers are being drawn and with each new participant, the chances of some manner of “mistake” increase exponentially.
We close with some characteristically bombastic rhetoric out of Beijing:
“Australia and the U.S. should not light a fire and add fuel to the flames.”
USA set to launch more boots on the ground in Syria and Iraq
Pentagon: Ready To Launch ‘Boots On The Ground’ In Syria And Iraq
Update: While it’s not entirely clear whether this represents an explicit pivot or simply amounts to a reiteration of comments US defense officials made in the wake of the ISIS prison raid that freed some 70 captives in Iraq and led to the first US casualty in ground combat since 2011, the media is alive with reports this evening which indicate that Defense Secretary Ash Carter may be set to send more spec ops ground troops to Iraq and “engage directly” in Syria. Here’s CNN with the official White House-approved line:
The U.S. is considering increasing its attacks on ISIS through more ground action and airstrikes, Defense Secretary Ashton Carter said Tuesday.
Carter told the Senate Armed Services Committee that the U.S. “won’t hold back” from supporting partners carrying out such attacks or from “conducting such missions directly, whether by strikes from the air or direct action on the ground.”
The White House, however, has yet to make a decision on the options for upping the campaign against ISIS, according to defense and administration sources. They said that further involvement on the ground was one of the possibilities being presented.
The ground option Carter mentioned to the committee was part of a three-prong effort — which he dubbed the “three Rs” — to adapt the U.S. policy on countering ISIS.
Meanwhile, a few notable US lawmakers had some colorful remarks for Carter. First there was uber hawk John McCain insisiting that the Russians and the Assad regime are “slaughtering” the moderates:
Committee Chairman John McCain of Arizona peppered Carter with questions about how the U.S. would protect forces as Russia carries out airstrikes that have been hitting forces opposed to Syrian President Bashar al-Assad.
“Are we going to protect them from being barrel bombed by Bashar Assad and protected from Russia?” McCain asked.
“We have an obligation to do that. We made that clear right from the beginning of the train-and-equip program,” Carter said.
“We haven’t done it. We haven’t done it,” McCain disagreed.
Carter said to date, no forces that have been part of the U.S. training program have come under attack from Russian forces, but McCain once again disagreed.
“I promise you they have,” McCain said.“You will have to correct the record. … These are American-supported and coalition-supported men who are going in and being slaughtered.”
And here’s Lindsey Graham’s assessment:
“This is a half-assed strategy at best.”
On that point will not protest.
* * *
In addition to increased ground action and airstrikes, or “raids,” Carter also spoke of the need to increase pressure around the ISIS stronghold of Raqqa in Syria, where “we will support moderate Syrian forces” fighting the terror organization there.
When analyzing geopolitics it’s important to try and skate ahead of the puck, so to speak. That is, while it’s useful to understand what’s going on now, it’s even more imperative to analyze the situation in an attempt to understand how the situation is likely to evolve going forward.
As it relates to the Mid-East, that means looking past Syria and on to Iraq. As we’ve outlined in great detail of late, there’s every reason to suspect that Russia will expand its airstrikes across the Syrian border and indeed, Baghdad has reportedly given Moscow the go-ahead to hit ISIS convoys fleeing Syria into Iraqi territory. This is in direct contradiction to what PM Haider al-Abadi told Gen. Joseph Dunford last week and suggests that Baghdad is about to pivot East, after becoming frustrated with a lack of results stemming from more than a year of US airstrikes against Islamic State targets.
It’s critical to note that Iran (via the IRGC and, more specifically, the Quds Force) controls Iraqi politics and the Iraqi armed forces. This means that Russia will find an extremely receptive environment when it comes to expanding the air campaign beyond Syria. We won’t get into the details here, but we do encourage you to review the whole story as detailed in “Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan” and “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies.”
Over the weekend we brought you helmet cam footage which purported to depict a US/Peshmerga raid on an ISIS prison. The operation allegedly freed some 70 hostages whose graves Islamic State had (literally) already dug. For those who missed it, here’s the video:
And here was our assessment:
Now obviously, there’s no telling what actually went on here, nor is there any telling what 30 members of Delta Force were doing running around with the Peshmerga in northern Iraq, but one thing is for sure: the US media seems to be trying to counter the Russian propaganda blitz by holding up the Huwija raid and the death of Master Sgt. Joshua L. Wheeler as proof that Washington is serious about battling ISIS. We are of course not attempting to trivialize the death of Joshua Wheeler by writing this off as some kind of publicity stunt aimed at countering the Russian media blitz. In fact, the opposite is true. If the US is now set to ramp up the frequency with which the Pentagon puts American lives at stake by inserting spec ops in ground operations just so Washington can prove to the world that America is just as serious as Russia is about fighting ISIS, well then that’s a crying shame for US servicemen; especially considering the role the US and its regional allies had in creating the groups that Delta Force and other units are now tasked with countering.
Sure enough, others are now beginning to ask questions about the timing of the raid and subsequent release of battlefield footage. Here’s Sputnik, citing China’s CCTV:
Russian-led counterterrorism efforts are so successful that they are “unnerving” Washington, CCTV reported. As a result, last week US leadership decided to act so as to prevent Iraq from fostering ties with Moscow.
The Chinese media outlet believes that the operation to free hostages in Northern Iraq followed this new logic.Last Thursday, US and Kurdish forces managed to free 70 people from a prison located to the west of Kirkuk. The operation saw the United States lose its first soldier in combat since Obama launched the campaign to degrade and ultimately destroy Islamic State.
This mission raised questions over Washington’s plans in Iraq. On Friday, US Defense Secretary Ashton Carter tried to dispel fears of the possible mission creep by saying that the US was not “assuming a combat role” and the operation was “a continuation of our advise-and-assist mission.”
However, Carter stated that similar missions, which redefine assistance if not blur the line between combat and training, could be conducted in the future.
CCTV believes that the US-led hostage rescue operation was a show of force aimed at Iraq’s leadership. The mission was meant to send a clear message to Baghdad, which is rumored to be planning to ask Moscow for greater assistance in its fight against Islamic State.
Of course we need to consider the sources here (i.e. this is Russian media quoting Chinese media) but nevertheless, this is precisely consistent with the assessment we offered immediately after the helmet cam footage was released.
In short, it seems entirely possible that the presence of Delta Force in the ISIS prison raid might well have been premeditated by the Pentagon. The official line is that 30 US commandos where present in an advise and assist role to the Peshmerga and once the Kurds started to take losses, Delta Force decided to intervene.
But is that the real story, or did Washington deliberately send spec ops into a battle the US knew they would win so that The White House could trot the “successful” operation out to Baghdad as evidence of why Iraq shouldn’t turn to Moscow for help?
We’ll let readers decide that for themselves and simply close with the following bit from Reuters which pretty clearly indicates that suddenly, the US has had a change of heart about putting boots on the ground in Iraq…
The top U.S. military officer said on Tuesday he would consider recommending putting U.S. forces with Iraqi troops to fight Islamic State if that would improve the chances of defeating the militants.
“If it had an operational or strategic impact and we could reinforce success, that would be the basic framework within which I’d make a recommendation for additional forces to be co-located with Iraqi units,” Marine General Joseph Dunford told a Senate hearing.
Dunford, the chairman of the Joint Chiefs of Staff, outlined four reasons it might be useful to put U.S. troops with Iraqi forces: increasing the coherence of the military campaign, ensuring logistics effectiveness, boosting intelligence awareness and improving combined arms delivery.
US Ground Troops In Syria Is “Illegal, Big Mistake”, Russia Warns Obama Of “Unpredictable Consequences”
On Tuesday, Defense Secretary Ash Carter told the Senate Armed Services Committee that the US would no longer hesitate to engage in “direct action on the ground” in Iraq and Syria.
The change in rhetoric (and apparent shift in strategy) comes just days after the US seemingly prepared the public for what might be coming by releasing helmet cam footage of what Washington says was a raid on an ISIS prison by Delta Force (accompanied by the Peshmerga). 70 prisoners were allegedly freed although not before the US suffered its first combat death in Iraq since 2011.
The timing of the video is suspect, to say the least. It came just days after Joint Chiefs of Staff Gen. Joe Dunford visited Iraqi PM Haider al-Abadi in an effort to dissuade Baghdad from requesting Russian airstrikes on ISIS targets. In short, it appears as though Washington is trying to simultaneously, i) prove to Mid-East governments that the US can still be effective in the fight against terrorism even as questions remain about ulterior motives and even as Russia racks up gains in Syria, ii) prepare the public for the possibility that America is about to put boots on the ground in Iraq and Syria. Here’s more from WSJ on Washington’s new “strategy”:
The White House is seriously considering deploying a small squadron of Apache attack helicopters to Iraq as part of a package of new assistance programs to counter Islamic State, according to U.S. officials.
The move could ultimately require the deployment of hundreds more U.S. service members to Iraq. Among other proposals, U.S. officials said some in the military recommend openly deploying a small number of forces on the ground in Syria, embedded among moderate rebels or Kurdish forces there, for the first time.
Pressure is mounting on the regime to change course. Recent Russian intervention in Syria on the side of the regime, and the threat of Moscow intervening in Iraq next, has spurred the U.S. to step up its role, defense officials acknowledge.
Pentagon officials have recommended to the White House that the U.S. deploy as many as eight Apache helicopters and their crews to Iraq. The helicopters, known for their targeting prowess, could work in conjunction with as many as two dozen ground spotters who would embed with local ground forces to call in strikes against Islamic State targets.
Another proposal, which is less likely, would insert small numbers of combat advisers on the front lines with Iraqi forces and possibly with moderate rebels inside Syria. Pentagon officials are also likely to enhance Iraqi intelligence capabilities, possibly through a group on the ground that would serve as a single point of coordination between the U.S. and Iraq, a senior military official said.
Last week, the defense chief said Americans should expect more raids like the joint U.S.-Kurdish operation that took place in the town of Hawija, Iraq, in which 70 prisoners were freed and an American was killed in action, the first since 2011. The U.S. also recently dropped 50 tons of ammunition to an umbrella group of moderate rebel forces inside Syria now known as the Syria-Arab Coalition, or SAC, as part of a renewed effort to strengthen local forces.
Pentagon and White House officials indicated the deployment of Apache helicopters was being given the most serious consideration, and therefore the most likely step.
U.S. officials say momentum is building within the administration to ramp up those efforts even more, capitalizing on the strength of Kurdish and other Iraqi forces.
“I believe we will have an opportunity to reinforce Iraqi success in the days ahead,” Chairman of the Joint Chiefs of Staff Gen. Joe Dunford told Senate lawmakers at a hearing on Tuesday.
Alright, so let’s see if we can untangle this. Washington intends to send in the Apaches to bolster Iraqi forces both Peshmerga and otherwise. Or at least that’s what it sounds like. The Pentagon is also considering the placement of American ground troops with “moderate” rebels and with the YPG in Syria.
As we’ve detailed extensively (and this isn’t exactly a secret), Iran effectively runs the Iraqi military via its various Shiite militia proxy armies. That’s not an exaggeration. As Reuters reported earlier this month, “the Fifth Iraqi Army Division now reports to the militias’ chain of command, not to the military’s, according to several U.S. and coalition military officials.” So when the Apaches and their crews aren’t supporting the Kurds, they’ll be openly supporting Iran-backed fighters.
Only that isn’t at all consistent with placing US ground troops with Syria’s “moderate rebels” like the Free Syrian Army because after all, they’re fighting the very same Iran-backed Shiite militias. So the US would be bolstering the militiamen in Iraq with Apache gunship support and then firing on those exact same militiamen across the border in Syria in support of the “moderate” rebels battling to oust the Assad regime.
It’s beyond absurd.
And then of course there’s the whole Kurd/Turkey problem. The US is, i) fighting alongside the Peshmerga in Iraq and intends to support them going forward with Apache helicopters, ii) paradropping guns and ammo to the YPG in Syria (as part of a ridiculous ruse that involves the largely made-up SAC mentioned above by WSJ), and now iii) may even send in ground troops to fight with the YPG. But Turkey just bombed the YPG yesterday. Additionally, the US is flying sorties from Incirlik which sets up the insanely ridiculous possibility that if the US embeds troops with the Syrian Kurds, US jets could be taking off from the same base as Turkish warplanes only the US warplanes would be supporting the YPG while Turkish warplanes bomb them.
So, yeah. This is should all go swimmingly.
Finally, there’s the possibility that if the US puts boots on the ground in Syria in support of the “moderate” rebels, those troops will be killed by Russia and Iran (which Dunford said on Tuesday likely has “more than 1,000 [soldiers] on the ground in Iraq [and] something less than 2,000 in Syria”), and with that, we close with several comments from Chairman of the Russian Upper House committee for foreign affairs, Konstantin Kosachev (via RT) and a few images:
Commenting on the potential involvement of US ground troops against ISIS in Iraq and Syria, Kosachev once again highlighted that, when it comes to Syria, the US-led anti-ISIS campaign is already violating international law. Potential troops on the ground, Kosachev believes, will further violate international regulations
“Any operations – air based operations, ground based operations – in Syria by American forces will be illegal,”Kosachev told RT, explaining that Washington has not been invited by Damascus to take part in military operation in a sovereign country.
“They will get trapped, they will get involved in this ongoing conflict and the consequences will be absolutely unpredictable,” Kosachev said, addicting that sending US troops into Syria would be a “big mistake.”
At the same time, Kosachev, stressed that Russia would not send ground troops into Syria.
“No ground operation is possible [in Syria], because that would inevitably involve Russia in the ongoing war,” the politician told RT.
Euro/USA 1.1072 up .0040
USA/JAPAN YEN 120.34 down .138
GBP/USA 1.5292 down .0018
USA/CAN 1.3227 down .0045
Early this Wednesday morning in Europe, the Euro rose slightly by 40 basis points, trading now just below the 1.11 level rising to 1.1072; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore,and now Nysmark and the Ukraine, along with rising peripheral bond yields, and the unsuccessful ramping of the USA/yen cross to just above the 120 dollar/yen cross. Last night the Chinese yuan fell in value (onshore). The USA/CNY rate at closing last night: 6.3594 up .0079 (yuan down)
In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a slight northbound trajectory as settled up again in Japan by 14 basis points and trading now just above the all important 120 level to 120.34 yen to the dollar.
The pound was down this morning by 18 basis points as it now trades just below the 1.53 level at 1.5292.
The Canadian dollar is now trading up 45 basis points to 1.3227 to the dollar.
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 WEDNESday morning: closed up 125.98 or .67%
Trading from Europe and Asia:
1. Europe stocks all in the green
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red/
Gold very early morning trading: $1173.00
Early Wednesday morning USA 10 year bond yield: 2.04% !!! up 2 in basis points from Tuesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.86 up 1 in basis points.
USA dollar index early Wednesday morning: 96.70 cents down 21 cents from Tuesday’s close. (Resistance will be at a DXY of 100)
This ends early morning numbers Wednesday morning
WTI Extends Gains – Tops $45 – On Large Cushing Inventory Draw
Is this the tipping point: China has now run out of space to store oil.. How long will it take for reduced purchases from China
(courtesy zero hedge)
Crude “Tipping Point” Arrives: China Runs Out Of Space To Store Oil
It was just two days ago when we reported that according to Goldman calculations, the world was dangerously close to an almost unprecedented event (with two exceptions: 1998 and 2009): running out of space to store crude distillate products.
As a reminder, this is what Goldman said: “the build in Atlantic distillate inventories this year has been large, following near-record refinery utilization in both the US and Europe, only modest demand growth, especially relative to gasoline, and increased imports from the East on refinery expansion and rising Chinese exports.”
As a result, and despite a cold winter in both Europe and the US last year, European and US distillate storage utilization is reaching historically elevated levels, driving a sharp weakening in heating oil and gasoil time spreads.
Such high distillate storage utilization has two precedents, leading in both cases to storage capacity running out in the springs of 1998 and 2009, pushing runs and crude oil prices and timespreads sharply lower. This raises the question of whether today’s oil market oversupply can rebalance simply through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity constraints and forcing prices below cash costs like in 1998 and 2009 – is ineluctable.
Then moments ago the EIA reported that despite Goldman’s concerns, and despite yet another inventory build in the U.S., which rose by a further 3.4 million barrels, as US production rose once again, Cushing inventories actually declined further, dropping by 785K, following a -78K decline a week earlier.
This data was fitting with what we have seen outside the US. Earlier this month, we reported that supertanker day-rates has soared to over $100,000 for the first time since 2008 even as Saudi Arabia was slashing its price (to a $3.20 discount to the benchmark with the largest price cut since 2012) which suggested that in an effort to shore up its reserves and capture more market share amid dwindling demand (and excess supply) – a price war has begun led by US ally Saudi Arabia, and China is hoarding crude at these low-low prices.
* * *
And then something very unexpected happened: the world quietly hit a tipping point when, according to Reuters, China ran out of space to store oil.
In a report explaining why “oil cargoes bought for state reserve stranded at China port” Reuters notes that “about 4 million barrels of crude oil bought by a Chinese state trader for the country’s strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said.”
The oil was part of a total of at least 6 million barrels of crude bought by Sinochem for government stockpiles, but destined for a commercial tank farm in the city of Weifang, connected with Huangdao with a pipeline, the trader and port source said.
The tank farm, with total storage of about 25 million barrels, is mainly owned by Shandong Hongrun Petrochemical Co, an independent refinery partly owned by Sinochem.
The delays will cost millions of dollars and indicate how China is struggling to import record amounts of crude if storage and port capacity at Qingdao, its largest oil import terminal, are unable to keep pace.
Ocean Lily and Plata Glory, two very large crude carriers carrying oil for Sinochem Corp, arrived at Huangdao, Qingdao’s main oil terminal, in early September, and both were still at anchor this week, waiting to unload, according to Reuters’ shipping data, and trade and port sources.
Meanwhile, as noted above, China has been scrambling to buy ever more oil, which is currently en route to Qingdao and other ports, where it took will remain inert as there is absolutely no uptake capacity at this moment.
According to a senior trader familiar with Sinochem’s oil trading and cited by Reuters, the tankers “are both for SPR (strategic petroleum reserve), but no tank space is available to take that oil in.”
As reported previously, China’s crude oil imports rose nearly 9 percent in the first nine months of the year over a year earlier to 6.65 million bpd, driven partly by reserve building.
The problem, as this incident reveals, is that while China has been doing what it does best: stockpiling commodities, it has had far less end demand for the raw material, and as a result the crude pipeline has gotten clogged up. And now, it appears that even oil meant to fill up its SPR (coming at a time when the US announced it would begin selling millions of barrells from its own Strategic Petroleum Reserve), is unable to get to its destination.
China said late last year the first phase of the government’s emergency stockpile is storing about 90 million barrels of crude oil, with the construction of a second phase due by 2020, partly through private investment.
Huangdao is the site of one of China’s first SPR tanks, with space for 20 million barrels of oil and also has plans for a second phase of similar size.
A recent move to increase competition for oil imports by granting quotas to independent refineries has added to congestion at Huangdao, where operations were already hampered following a pipeline accident two years ago. “Storage and berths were not ready for such a quick market opening,” the trader said.
* * *
Broker reports show that Sinochem owns Ocean Lily, while Plata Glory was fixed on a six-month charter at around $37,750 a day in April, with an option to extend for another six months, putting the cost of keeping the two vessels idle at several million dollars.
* * *
And just like that China has, if only for the time being, run out of storage facilities.
How long until this translates into an actual drop in oil purchases, and even more importantly, how long until the U.S. itself finds itself in a comparable “overflow” bottleneck, leading to the next, and sharpest yet, drop in oil prices?
USA/Chinese Yuan: 6.3588 up 0073 on the day
New York equity performances for today:
The USA markets is one big lunatic asylum:
October’s Record “Dovish” Fed Rally Extends On “Hawkish” Fed Buying-Panic
this seemed highly appropriate…
December Rate Hike odds surged from 34% to 48%
Let’s start with the post-FOMC reaction…
The chart to explain it all… The October rally after crappy payrolls was on “no rate hikes” and then today we drop and then rip higher on looming rate hikes… “normal”
As one bright spark explained on CNBC – exposing the CONfidence job of reflexivity:
Everything fundamentally worse since September… so buy stocks (because of the delay in rate hikes)… but today we buy stocks because hiking rates must mean everything is awesome…
So let’s look close up at today’s utter insanity…
Highlighting the Post-FOMC dump’n’pump…
Which dragged stocks red for the week, before the panic-buying lifted them higher…
Financials (and Energy) Sectors were exuberant post-FOMC…
Trannies and Crude perfectly recoupled (perhaps explainig crude’s ramp)…
Russell 2000 melted up perfectly to 1167 before tumbling once again – which appears to be the most-important level in the world for Small Caps..
Amid a huge double-short-squeeze day…
* * *
Treasury yields were higher on the day, though it is clear that the long-end dramaticaly outperformed as 2Y blew notably higher…
Which sent 2s30s tumbling to 2-month lows…erasing China Deval Steepening…
The Dollar soared after The FOMC Statement…
Smashing EURUSD back to a 1.09 handle and erasing the China Deval move…
Finally quite a day in commodity land…
With Gold & Silver breaking above their 200DMAs, before crashing back…
And crude going crazy…
Quite bluntly, today’s farcical vertical buying panic feels like pure manipulation to ensure the propaganda that a Fed raising rates is a good thing – when everyoine ‘knows’ there is nothing fundamental behind it.
OK let’s start with the farcical FOMC meeting tonight. To me, and I have said this for the past several years, it would be impossible for the Fed to raise rates. Just looks at what will happen to the dollar as it rises against all currencies and this will hurt the multinationals to no end.
Also a rate hike will cause massive dollars to leave China and the uSA has no mechanism to receive all of these unwanted treasuries.
Today’s move in gold/silver was totally orchestrated from the beginning. Pay no attention to what these criminals are doing
Let us start:
“Hawkish” FOMC Statement Confirms “Moderate” Domestic Growth, No Longer Focused “Abroad”
With a 4% probability, it is no surprise that The Fed did not raise rates. Since The FOMC “folded” in September blaming global turmoil, stocks, bonds, and precious metals have soared as China (and EM) chaos has calmed while domestic data has declined. This has led to ‘lift-off’ expectations extending to April 2016, and so the question today is – how will The Fed convince the world it ‘will’ raise rates when it really can’t...
- *FED REMOVES LINE THAT GLOBAL DEVELOPMENTS MAY RESTRAIN GROWTH
- *FED SAYS U.S. ECONOMY `HAS BEEN EXPANDING AT A MODERATE PACE’
A definite hawkish bias but so we are left data-dependent (fundamentals bad, stocks good), and less economically optimistic, but are supposed to believe that December (34%) is still a live meeting (because of some hockey-stick expectation in data) because The Fed needs to raise to show that it can.
Pre-FOMC: S&P Futs 2078, 10Y 2.07%, EUR 1.1060, Gold $1176, WTI $46.01
* * *
- *FED SAYS LABOR MARKET SLACK HAS DIMINISHED SINCE EARLY THIS YR
- *FED SAYS RISKS NEARLY BALANCED, MONITORING GLOBAL DEVELOPMENTS
- *FED SEES SOLID GAINS IN HOUSEHOLD SPENDING, BUSINESS INVESTMENT
- *FED: SURVEY-BASED MEASURES OF INFLATION OUTLOOK REMAINED STABLE
- *FED REPEATS IT SEES INFLATION RISING TOWARD 2% IN MEDIUM TERM
- *FED: PACE OF JOB GAINS `SLOWED,’ UNEMPLOYMENT `HELD STEADY’
- *FED REPEATS HOUSING IMPROVED FURTHER, EXPORTS BEEN `SOFT’
* * *
Here are the key changes in the statement (full redline below).
The Fed has removed this section entirely:
The labor market continued to improve.
And removed the “global economic developments” part as well:
Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term
It added “at solid rates in recent months” here:
Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further
It also added that the Fed is monitoring both economic and financial developments, but no longer abroad:
The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financialdevelopments abroad
And made the December decision “rate hike” quite explicit:
In determining how long whether it will be appropriate to maintain this raise the target range at its next meeting
* * *
Since the September FOMC “fold”, precious metals have outperformed (Silver +9%) with Stocks and bonds close behind (up 4-5%) and HY bonds weak…
And Rate-hike odds have collapsed (Dec 32% only) as the expectations for liftoff are now back out to March/April 2016…
Despite Global turmoil’s apparent disappearance…
* * *
Full Redline Below…
see zero hedge for the full report
and now the mouthpiece of the Fed: Hilsenrath with his explanation:
(courtesy Jon Hilsenrath)
Fed Mouthpiece “Explains” Janet Yellen’s “Less Dovish” Hold
“Helm, warp one, engage!”
There aren’t many things you can count on in this crazy world, but one constant is Jon Hilsenrath’s hallmark lightspeed, embargo-assisted copy editing skills and make no mistake, it’s a good thing Hilsy can turn a 539-word FOMC statement into a 593-word article because with all of the confusion going on in the Eccles Building these days, someone has to explain things to the world – and quick.
Below, find the Fed whisperer’s latest, in which he attempts to come across as less befuddled than the central planners he’s writing about when it comes to explaining how Janet Yellen and co. have become the embodiment of the “deer in headlights” meme now that their new reaction function includes an admission of their own reflexivity. Here’s Hilsenrath on what certainly looks like a “less dovish” hold.
Federal Reserve officials Wednesday kept short-term interest rates unchanged near zero, but opened the door more explicitly than they have before to raising rates at a final 2015 meeting in December.
In a statement following a two-day policy meeting, Fed officials suggested they had become less concerned in recent weeks about turbulent financial markets and uncertain economic developments overseas.
They also pointed specifically to the next meeting as a time when they would be assessing whether it was time to raise rates.
“In determining whether it will be appropriate to raise (interest rates) at its next meeting, the (Fed) will assess progress-both realized and expected-toward its objectives of maximum employment and 2 percent inflation,” the Fed said in its statement.
The reference to the next meeting effectively meant the Fed’s decisions about rates are now being made on a meeting-to-meeting basis, though they stopped short of committing to an immediate move.
Officials struck from the statement a sentence introduced in September which pointed to market turbulence and global developments as a potential restraint on U.S. economic activity.
That doesn’t assure a rate increase this year, but it reduces an impediment officials had stressed in September as standing in their way.
The central bank said Wednesday that it is still monitoring financial markets and developments abroad, meaning it isn’t yet confident these threats—such as the economic slowdown in China—have fully receded.
Still, officials pointed to “solid” growth rates in consumer spending and business investment and improvements in housing as bright spots in recent economic developments.
The Fed pushed short-term interest rates to zero in December 2008 and has kept them there for 82 straight months.
Officials began the year signaling a rate increase was likely in 2015 as the job market improved and slack in the economy diminished. Though job growth largely lived up to hopes, inflation has been lower than officials expected, stalling the Fed’s plans to raise interest rates.
The air has cleared a bit since September. For example, the Dow Jones Industrial Average is up 5% since the last meeting, a sign financial markets stress has dissipated. Yields on 10-year Treasury notes have dropped, as has the cost of investment grade corporate debt, while the dollar has strengthened.
Still, economic data have been unsteady, a point officials acknowledged in their statement Wednesday.
Most notably, the Labor Department reported a disappointing jobs report earlier this month. The Fed said job gains had slowed. On balance, however, they didn’t appear very alarmed about the soft jobs report.
“Labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year,” the Fed said.
Other obstacles potentially stand in the Fed’s way. Officials noted in their statement that expectations for future inflation—as measured in bond markets—had receded “slightly” further in recent weeks, a sign investors don’t expect a rebound in consumer prices soon.
Fed officials watch inflation expectations closely, because expectations can affect the prices individuals, businesses and investors actually demand for goods and services.
Fed officials said, as they have before, that they won’t raise rates until they become “reasonably confident” inflation will raise to their 2% objective after running below it for more than three years.
They also want to see “some further improvement” in the job market.
Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, dissented, as he did in September. He wanted to raise the Fed’s target interest rate, called the federal funds rate, by a quarter percentage point.
The Fed’s next meeting is Dec. 15-16, the final meeting before year-end. Officials will update their forecasts for the economy before the meeting and Fed Chairwoman Janet Yellen will hold a press conference after its conclusion.
Illinoisans Look To “Get Lucky” In Other States After Lottery IOU Debacle
Two weeks ago, Illinois Comptroller Leslie Geissler Munger announced that the state would skip a $560 million pension payment in November thanks to the budget battle in Springfield. The news marked the latest embarrassment in a string of setbacks tied to an increasingly serious financial crisis that was thrust into the national spotlight in May when the State Supreme Court’s decision to strike down a pension reform bid prompted Moody’s to downgrade Chicago to junk.
As we documented back in August, the state is in fact so broke that it’s begun paying lottery winners in IOUs.
The practice of handing out Rauner bucks instead of Federal Reserve notes was initially limited to those who won more than $25,000, but in the wake of Geissler Munger’s announcement, the upper limit on cash payoutswas reduced to just $600. That followed directly on the heels of our prediction that “anyone who wins more than a few thousand in the Illinois lottery can go ahead and figure on getting a pieces of paper with Bruce Rauner’s picture rather than Ben Franklin’s for the foreseeable future.”
Now that Illinois isn’t paying out lottery winners, Illinoisans are simply driving to other states to play. Here’s The Chicago Tribune:
With Illinois delaying payouts of more than $600 because of its budget mess, neighboring states are salivating at the chance to boost their own lottery sales. Businesses near borders, particularly in Indiana, Kentucky and Iowa, say they’ve already noticed a difference.
Many gas stations, smoke shops and convenience stores in states bordering Illinois say they first noticed an increase in August, when the state said payouts over $25,000 would have to wait because there wasn’t authority to cut checks that big. Now those businesses are reporting a bigger flurry since Oct. 14, when the Illinois Lottery announced it had lowered that threshold to payouts over $600.
Idalia Vasquez, who manages a GoLo gas station in Hammond, said irked Illinois residents have been streaming in to buy lottery tickets. She estimates ticket sales are up as much as 80 percent since Illinois’ second delay announcement.
“We have long lines, but they’re patient with it because Illinois is not paying,”Vasquez said of the store roughly 20 miles from Chicago. “They’re all coming here and saying, ‘I’m from Illinois, how do you play it here?'”
The Hoosier Lottery even issued a statement welcoming Illinoisans.
In Kentucky’s McCracken County, along Illinois’ southern border, there was a 13 percent jump in scratch-offs from July 1 through Oct. 9, compared with a 9 percent jump statewide.
One retailer with higher sales is Paducah’s Kentucky Tobacco Outlet, where most of the customers are already from Illinois. According to manager Michael Coomer, those customers are now buying more and say trust in Illinois is gone.
“It’s definitely known and very vocal,” he said of Illinois’ problems. “It’s definitely going to be better for us.”
Yes, “definitely better” for neighboring states and definitely worse for Illinois. Note that this will only make the budget situation worse. That is, by not paying out lottery winners, Springfield has essentially sent all of the potential revenue from ticket sales across the state’s borders meaning the move to limit payouts is actually now set to exacerbate the conditions which forced the state to pay in IOUs in the first place.
Illinois likely won’t get much sympathy though because as State Rep. Jack Franks put it earlier this year:
“…our government is committing a fraud on the taxpayers, because we’re holding ourselves out as selling a good, and we’re not — we’re not selling anything. The lottery is a contract: I pay my money, and if I win, you’re obligated to pay me and you have to pay me timely. It doesn’t say if you have money or when you have money.”