Gold: $1061.70 up $7.50 (comex closing time)
Silver $14.05 up 7 cents
In the access market 5:15 pm
At the gold comex today, we had an extremely poor delivery day, registering again 0 notices for nil ounces. And this is the biggest delivery month of the year for gold? Silver saw 75 notices for 375,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 200.52 tonnes for a loss of 102 tonnes over that period.
In silver, the open interest rose by 1579 contracts despite the fact that silver was down 7 cents with respect to yesterday’s trading. Generally we are witnessing a massive OI contraction once we approach the first few days of an active delivery month and they did not disappoint us with first day notice results. I promised you that we should start to see the OI in silver start to rise from this level and they did not disappoint me. The total silver OI now rests at 164,865 contracts In ounces, the OI is still represented by .824 billion oz or 117% of annual global silver production (ex Russia ex China).
In silver we had 75 notices served upon for 375,000 oz.
In gold, the total comex gold OI rose by 1579 contracts as the OI jumped to 398,649 contracts despite the fact that gold was down by $9.60 with respect to yesterday’s trading. It sure looks like the commercials were buying and the oblivious specs were the shorters.
We had a huge change in gold inventory at the GLD, a massive withdrawal of 16.00 tonnes of gold heading straight to Shanghai/ thus the inventory rests tonight at 638.80 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. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. 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, after they deplete the GLD will be the FRBNY and the comex. In silver, we had a small withdrawal of 131,000 oz and this was probably to pay for fees, / Inventory rests at 319.220 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 1579 contracts up to 164,865 despite the fact that silver was down in price by 7 cents to with respect to yesterday’s trading. The total OI for gold rose by 7709 contracts to 398,649 contracts despite the fact that gold was down by $9.60 with respect to yesterday’s trading.
2 Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i) First thing this morning 8 am:
v) The German DAX falls over 400 points or 3.75%. This is what happens when Draghi oversells what he is going to do!!
i) John Hathaway also believes that the Comex data is faulty, and a casino for paper gold/silver..not the real stuff
i) The private and important Bloomberg’s Consumer Comfort index plunges to a 13th month low.
iv) The service sector in the USA represents 70% of USA GDP. It is now crashing along with manufacturing
v) And the USA economy is just humming along, such that Janet can raise rates????
Take a look at orders for the truckers carrying huge loads to destinations in the USA:
(courtesy zero hedge)
vi) Jobless claims rise by 9,000 poor souls
Let us head over to the comex:
The total gold comex open interest rose to 398,649 for a gain of 7709 contracts despite the fact that gold was down by $9.60 with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. To our surprise we only dropped a tiny bit on the front month which means that the remainder wishes to settle in physical. We are now in the big December contract which saw it’s OI fall by a tiny 86 contracts from 3885 down to 3799. We had 0 notices filed upon yesterday, so we lost 86 contracts or 8600 oz of gold that will not stand for delivery in this active delivery month of December. As we indicated to you on many occasions, the bankers are cash settling as they do not have physical gold to settle upon.The next contract month of January saw it’s of rise by 43 contracts up to 617. The next big active delivery month is February and here the OI rose by 6372 contracts up to 286,874. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 228,485 which is good for a change. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was very poor at 130,626 contracts.
December contract month:
INITIAL standings for DECEMBER
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||20,077.961 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| 32,150.00 oz
|No of oz served (contracts) today||0 contracts
|No of oz to be served (notices)||3799 contracts
|Total monthly oz gold served (contracts) so far this month||40 contracts(4000 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||21,189.7 oz|
Total customer deposits 32,150.000 oz
DECEMBER INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 407,889.220 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||12,994.300 oz
|No of oz served today (contracts)||75 contracts
|No of oz to be served (notices)||516 contracts
|Total monthly oz silver served (contracts)||3478 contracts (17,390,000 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||1,620,563.5 oz|
Today, we had 0 deposit into the dealer account:
total dealer deposit; nil oz
we had no dealer withdrawals:
total dealer withdrawals: nil
we had 1 customer deposit:
i) Into Scotia: 12,994.300
total customer deposits: 12,994.300oz
total withdrawals from customer account: 407,889.220 oz
And now the Gold inventory at the GLD:
Dec 3/ a massive withdrawal of 16.oo tonnes of gold heading straight to Shanghai/tonnage rests tonight at 634.80 tonnes
Dec 2.2015: no change in gold inventory at the GLD/inventory rests at 654.80 tonnes
Nov 30/no change in silver inventory at the SLV/Inventory rests at 318.209 million oz
Sprott Issues Open Letter to Unitholders of Central GoldTrust and Silver Bullion Trust
The Trustees of GTU and SBT have made clear their intentions. They have entered into an agreement with Purpose Investments that will put your investment at significant risk in order to protect their own fees. You made the choice to invest in a closed-end physical bullion security, and now the Spicers and their Trustees are ignoring this choice, and betraying the principles of physical bullion securities, to ensure they continue to profit.
The Purpose Investments transaction would convert your security to an open-ended ETF. Similar transactions have resulted in redemptions of greater than 50% of assets in the first three months of trading as an ETF. There is no reason to believe something similar will not occur with your investment, given the competitive landscape of the bullion ETF market. In short, you made the decision to invest in physical bullion, and the Trustees of GTU and SBT see fit to offer you a sub-standard investment. Do not be fooled.
The proposed transaction with Purpose is highly conditional, and may yet prove to be a defensive measure by the Spicers, as there is no guarantee, or likelihood, that it will close. Such a drastic step is a reflection of their weak position. GTU and SBT have been plagued by significant underperformance, gross mismanagement and questionable side payments to the Trustees and other friends of the Spicer family.
This transaction was principally negotiated by the Spicers themselves, not the Trustees, and there are undisclosed financial arrangements between the Spicers and Purpose. This is especially troublesome, given the history of fees and self-dealing involving the Spicers and their bullion products.
The Sprott offers provide you with an immediate and real premium, certainty, and most importantly, a direct investment in physical bullion. The GTU and SBT transaction with Purpose Investments offers you none of these things.
This proposed conversion presents a number of considerable risks, many of which the GTU and SBT Trustees have declined to disclose. The tax consequences to GTU and SBT unitholders of the anticipated significant redemptions that are likely to occur at GTU and SBT are highly uncertain, and the Trustees have elected to remain silent on the issue. Until further details are provided, it is reasonable to believe that U.S. unitholders are likely to be subject to material taxes. There is no possibility for unitholders to access their physical gold or silver bullion in this investment structure, and ETFs are designed to ensure that GTU and SBT will not trade at a premium, even in a gold or silver bull market.
We urge you to not be distracted by this desperate attempt and to tender into the Sprott offers. The Sprott offers represent an opportunity to preserve the nature of your investment, receive an immediate premium, close the historical discounts to NAV, and participate in a security that trades at, near or above NAV.
With the support of the majority of your fellow unitholders, we will take the necessary steps to remove the Trustees of GTU and SBT and call a special meeting to allow you to vote on the Sprott offers. You have the right to decide. Those have not yet tendered to the Sprott offers, we urge you to tender your units today.
Thank you for your support.
CEO, Sprott Asset Management
And now your overnight trading in gold and also physical stories that may interest you:
Brexit: Was The Iron Lady’s Warning of EU ‘Superstate’ Correct?
Britain is continuing to debate its role and its participation within the European Union in preparation for a major vote on whether to leave the union altogether. There are indications that the referendum – known as Brexit – is likely to be held in 2016.
It could be argued that Britain was always a reluctant participant in the European experiment fearing for their sovereignty and independence.
As Margaret Thatcher warned back in 1988 “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level, with a European superstate exercising a new dominance from Brussels”.
According to David McWilliams writing in the Irish Independent today, “Mrs Thatcher’s concerns were bang on the money as far as Britain is concerned” and that famous euro-sceptic Thatcher speech in 1988 is remarkably consistent with the British government position today.
McWilliams thinks that sentiment in Britain is ‘sanguine’ about the possibility of Brexit. He believes life will go on. Currently, opinion polls show a slight majority in favour of leaving (see below, click to expand).
Source: The Telegraph
So if Britain does leave, will that diminish the power and resolve of the remaining members of the union? How will Ireland fare post-Brexit? Will the British economy falter or prosper as a result?
Read more from David McWilliams on “How the Iron Lady drew up the original blueprint for a Brexit”
David McWilliams is one of Ireland’s leading economic commentators. His objective is to make economics as widely available and easily understandable on as many platforms as possible. Follow him on Twitter.
See: EU referendum poll tracker and odds
Today’s Gold Prices: USD 1050.60, EUR 994.75 and GBP 703.13 per ounce.
Yesterday’s Gold Prices: USD 1066.90, EUR 1007.68 and GBP 708.80 per ounce.
Gold fell again yesterday and down by $16.30 to close at $1052.70. Silver was down $0.14 yesterday to $14.03. Platinum lost $9 to $828.
At London conference Tocqueville’s Hathaway denounces Comex
Submitted by cpowell on Wed, 2015-12-02 15:47. Section: Daily Dispatches
10:45a ET Wednesday, December 2, 2015
Dear Friend of GATA and Gold:
Reporting from the Mines and Money conference in London, Sharps Pixley’s Lawrie Williams writes that the Tocqueville Gold Fund’s John Hathaway denounced the New York Commodities Exchange’s gold contract as “fiction — a casino for paper gold.”
Hathaway added that world gold production may fall by 25 percent over the next few years without an increase in the gold price. Williams writes: “With sales out of the major gold exchange-traded funds falling back, yet continuing huge demand from Asia, he said the only way the gold price could still be falling, as it is, is if physical gold supply is being supplemented by movements out of above-ground stocks.”
Now whose would those “above-ground stocks” be?
Apparently Hathaway didn’t say, but he is getting ever closer to acknowledging what’s really going on. Maybe he’ll get there at the next conference.
Williams’ report is headlined “Comex is Fiction, a Casino for Paper Gold — Hathaway” and it’s posted at the Sharps Pixley Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The director of the CME Metals Group announced her resignation to effective December 11. No further explanation was provided – Reuters link. I’m not one to infer some type of conspiracy theory in connection with this, but it seems rather abrupt. It’s akin to Bernanke leaving the Fed much sooner than anyone expected. The rats are leaving the ship before it sinks.
The collapse began in earnest in 2008. This is why gold soared to all-time highs in dollar terms until late 2011. The effort to push down the price of gold is overt evidence that the systemic collapse, even with the heavy application of money printing, has been ongoing since 2008. The recurring violent hits to the price of gold using fraudulent paper gold is overt evidence that the authorities are becoming more desperate in their attempt to hide any possible market signals that the systemic collapse is accelerating. This is how gold behaved from March 2008 – October 2008. Look what happened then.
Something catastrophic is occurring behind “the curtain.” I would love to have a peak at what is melting down. We can generally speculate that, with the oil, copper and iron ore price collapse, and with emerging market currencies collapsing, there’s been a series of derivatives explosions that have been contained but that are straining the Central Banks’ abilities to keep the system from coming completely unglued. This is also why the price of gold is being contained with brute force.
We have never seen markets behave the way they’re behaving right now, with absolute unpredictability. The overt intervention is a big part of the what we’re seeing on the surface with gold, currencies, credit markets and the primary stock indices. But all indications suggest a high likelihood of several train wrecks occurring at once behind the scenes. The intervention, of course, is keeping the surface indicators from crashing. But the intervention has also destroyed the signal transmission and rational capital allocation mechanisms of the market. Adam Smith’s “invisible hand” has been amputated, if you will.
This is why stocks like AMZN, FB, GOOG and NFLX trade at insane p/e ratios. It’s debatable whether or not AMZN has bona fide economic net income in the first place. I have not looked in depth at the accounting of FB, GOOG and NFLX to assess whether or not their “net income” is a function of GAAP manipulation or if they actually produce real cash flow in excess of all expenses, on and off the income statement. But all of them unequivocally trade at sublimely irrational market caps and they are the primary devices being used to keep the S&P 500/Dow indices propped up.
Another indication of the chaos erupting behind the “curtain” is the melt-down going on the junk bond market. Alhambra Partners wrote a piece in which it asserted that the stunning spike higher in triple-CCC rated junk bonds is indicative of something blowing up in the junk bond market – LINK. But it’s not speculation, it’s a fact. And it’s not “something,” it’s the entire distressed credit asset class.
The asset class itself, like every other financial asset, is horrendously mis-priced thanks to the massive Central Bank intervention. But unavoidable leaks are springing and they are going to turn into torrential floods.
The reason triple-CCC yields are blowing out is that some entity or entities have been forced to sell. Here’s how it works – I know this based on first-hand experience trading this stuff: As you know by now, the bond market has become extremely illiquid. This means that there’s a lack of capital available to accommodate sellers who look to sell at price levels remotely close to where bonds are being quoted.
Everyone (big pension funds, hedge funds, mutual funds, etc) keeps the price marks on the bonds in their portfolio unchanged and holds their breath that a seller never appears who has to sell for whatever reason and forces a re-pricing of the bond issue, which in turn forces a re-pricing of the market. I’ve lived this nightmare as a sell-side junk bond trader running capital positions in triple-C paper.
The fact that triple-C bond yields have blown out so quickly means that sellers have appeared and the yields on these bonds are going to blow out until they become high enough for a bona fide distressed buyer to decide it’s worth the risk to buy some of the paper. We’re not talking 10-20 points below where everyone is marked. Many of these bonds will plummet from the 80’s and 90’s to the 20’s and 30’s before enough capital begins to flow into the market to provide a bid big enough to take on the selling. That’s usually the first step down before it gets even worse.
This dynamic is going to spread to other asset classes within the credit market, like subprime mortgage pass-thru trusts, collateralized debt obligations, etc. This how it began to unfold in 2008. This is why Wall Street banks are now net short corporate bonds. The problem is that this time around the amount of debt of all varieties is a few multiples greater than it was in 2008. And connected to all of this is a preponderance of OTC derivatives. Derivatives that I believe are already melting down behind “the curtain.”
At some point the “collapse dyamic” is going to hit the entire stock market. It already has in several sub-sectors and individual stocks below the surface. We see this in the “cliff-dives” that occur when companies report “unexpectedly” disappointing earnings results. Stocks which were held up with the broad indices thanks to the Fed’s monetary lasiviousness get quickly repriced to downside.
This morning a poll is out from Quinnipiac University which reports that 83% of Americans polled live in fear of another “terrorist attack.” I find this highly troubling because of the amount of power it gives the Government to control the population. I expect to see a stunning degree of abuse of this power, as if the Patriot Act, Homeland Security Act, Detainee Bill and surveillance laws are not horrifying enough.
In late 2003, a colleague and friend of mine and I surmised that we would eventually see things occur in this country that would “blow our minds.” This is in the context of Enron, 9/11 and the highly illegal invasion of Iraq having already occurred. Ponder that for a moment.
The hallmark of an empire in collapse is the imposition of Governmental totalitarianism and reckless attempted military imperialism. Currently the U.S. military is the most dangerous terrorist in the world. Contrary to the view reflected in the Quinnipiac poll, my biggest fear is that the U.S. Government is soon going to turn its reign of terror on its own citizens. History tells us this is what occurs when a powerful economic/political system is in the final stages of collapse.
Fed uses leaks to ‘steer market expectations,’ study finds
Submitted by cpowell on Thu, 2015-12-03 01:37. Section: Daily Dispatches
UC Berkeley Professor, Research Team Find Evidence of Information Leaks by Fed
By Anderson Lanham
The Daily Californian
Monday, November 30, 2015
University of California at Berkeley professor Annette Vissing-Jorgensen and her research team have discovered evidence that the Federal Reserve regularly leaks information to certain investors and media outlets, leading to a spike in stock returns.
In the study, Vissing-Jorgensen and her team discovered a biweekly pattern of high return rates that occurred after each meeting of the Federal Open Market Committee and on the weeks of closed meetings of the Board of Governors of the Federal Reserve System. According to the study, this suggests that information leaked from these closed meetings is what drives the pattern, which the researchers have concluded could have positive effects on the market. …
In an email, the three authors of the study — Vissing-Jorgensen, Duke University assistant professor Anna Cieslak, and UC Berkeley assistant professor Adair Morse — said the Fed uses “informal communication channels” on even-numbered weeks after FOMC meetings. These leaks can appear in newspapers such as the Wall Street Journal before board meeting minutes are publicly released and relay valuable information about Fed meetings.
The researchers claim evidence of regular leaks from the Fed by comparing the content of the newspaper articles with subsequently released board meeting minutes and pointing to private advice received by financial investors that contains information discussed in FOMC meetings.
In their study, the researchers said the Fed leaks information to “steer market expectations,” which allows it to enact continuous, incremental policy changes. The researchers additionally said in the email that the Fed can release information about either the economy or policy preferences of various FOMC members.
“We need to understand better which type of Fed news drives the stock market behavior and earns the premium,” the researchers said in an email.
According to the researchers, they began collecting data in late 2012 in an attempt to establish the Fed’s communication processes with both investors and the public. In an attempt to demonstrate that the biweekly spikes did not correlate with other economic news, they compared their data to Bloomberg news releases on economic data such as GDP growth and consumer confidence. The study found that the spikes in investor return rates did not match up with the releases.
“The data collection exercise was extensive, but it served our goal to understand how the Fed processes information internally and how it communicates with the public and the financial markets in particular,” the researchers said in an email.
The findings have brought up several questions, including those about the most effective way for the Fed to communicate with the public, according to the researchers. They also said their study’s findings are controversial because they argue that the Fed knowingly leaks information.
“While some informal communication is probably necessary for the Fed to learn from market participants, this is a fine balance since the Fed may be giving away very valuable information to particular investors in the private sector,” the researchers said in an email.
The researchers argued that sanctioned, clear public communication should be a substitute for informal communication, saying it would allow market expectations to be steered publicly and allow the public to request feedback on potential policy moves.
1 Chinese yuan vs USA dollar/yuan falls in value , this time to 6.3974/ Shanghai bourse: in the green , hang sang: red
2 Nikkei closed up 1.77 or .01%
3. Europe stocks mixed /USA dollar index up to 100.40/Euro down to 1.0549
3b Japan 10 year bond yield: rises to .324% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 123.14
3c Nikkei now just above 18,000
3d USA/Yen rate now well above the important 120 barrier this morning
3e WTI: 40.46 and Brent: 43.54
3f Gold down /Yen down
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to .480%. German bunds in negative yields from 6 years out
Greece sees its 2 year rate rise to 7.75%/: still expect continual bank runs on Greek banks
3j Greek 10 year bond yield rises to : 7.69% (yield curve totally flat)
3k Gold at $1054.00/silver $13.98 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 39/100 in roubles/dollar) 67.76
3m oil into the 40 dollar handle for WTI and 43 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 1.0245 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0809 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/arrests 10 traders for Euribor manipulation
3r the 6 year German bund now in negative territory with the 10 year falls to +.481%/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 2.19% early this morning. Thirty year rate below 3% at 2.91% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
European Stocks, US Futures Surge On Last Minute Hopes Of “Extraordinary Policy Easing” By Mario Draghi
This is how DB’s Jim Reid previews today’s “extraordinary” announcement from the ECB:
Let’s be honest. Even if you feel like you’ve navigated these treacherous financial markets well over the last decade, could you have really envisaged a day like today if you go back a few years? We stand on the brink of another extraordinary central bank policy easing today (from the ECB of course) which has been increasingly priced into markets meaning amongst other things that you have to pay heavily indebted governments even more for the right to lend to them at the front end of the curve. Indeed Germany has negative yields out to 7 years at the moment. We’re all getting used to it now and generally accept it but one day we’ll probably look back on this period and gasp in amazement that investors were happy to pay to lend/store a few trillion euros here and there.
One day, yes, but for now it is all great news, and sure enough yesterday’s market swoon which unwound all of Tuesday’s gains on concerns about a hawkish Fed and fears about terrorism in the US, are now completely forgotten, and have been replaced with the latest daily round of pre-ECB euphoria, driven by hopes that Mario Draghi will announce even more dovish details to Europe’s Q€ 2 than just a 10 bps rate cut and a boost to QE more than €10 billion, both of which have been already priced in.
As Bloomberg notes, it’s been 42 days since ECB President Mario Draghi signaled in Malta that more stimulus would be needed in December to counter barely existent inflation. Now it’s down to the details. And while we wait for the rate cut announcement first in just over an hour, and then Draghi’s press conference laying out the details of the QE boost, the euro is hovering above its lowest level since April. Since the ECB last met on Oct. 22 the common currency has sunk almost 5 percent against the dollar.
Also expecting a very dovish ECB is the German 2 Year note, whose yield just dropped to a fresh record low of -0.4532%, having plunged by over 20 bps since Draghi’s last appearance in late October. Currently the ECB is unable to buy bonds yielding less than its deposit rate of minus 0.2 percent, leading investors to price in a cut today to at least minus 0.3 percent.
And while there is a very distinct chance that Mario Draghi may disappoint today as Market News warned yesterday, European stocks are not worried, and gain for the first day in three. The Stoxx Europe 600 Index has jumped almost 6 percent since the October meeting. In fact, European stock markets are some of the world’s best performers in 2015. France’s CAC 40 has jumped 15 percent, Italy’s FTSE MIB has surged 19 percent and Germany’s DAX is up 14 percent, entirely due to the ECB’s QE. In comparison, the S&P 500 Index is up 1 percent.
Draghi isn’t the only central bank chief in the spotlight. Federal Reserve Chair Janet Yellen appears before the congressional Joint Economic Committee a day after she said she’s confident in the outlook for U.S. economic growth, paving the way for a policy shift on Dec.16.
Adding to the overnight drama was more headline head fakes from various OPEC leakers, in a rerun of yesterday, when first Energy Intelligence reported that despite prior denials, the Saudis would proceed with a 1 million barrel cut:
- SAUDI SET TO PROPOSE EVENTUAL 1M BPD OPEC OUTPUT CUTS: EI
… only for the rumor to be denied once again just like yesterday:
- SAUDI OFFICIAL SAYS REPORTS OF PROPOSED OPEC CUTS `BASELESS’
The price of crude promptly spiked then swooned lower but the critical level of $40 was again defended courtesy of jittery headline scanning, and all too stupid, algos.
As a result of all these developments, this is where global markets currently stand.
- S&P 500 futures up 0.6% to 2095
- Stoxx 600 up 0.5% to 386
- MSCI Asia Pacific down 0.3% to 133
- US 10-yr yield up 2bps to 2.2%
- Dollar Index up 0.35% to 100.34
- WTI Crude futures up 1.4% to $40.49
- Brent Futures up 1.8% to $43.27
- Gold spot down 0.3% to $1,050
- Silver spot down 0.4% to $13.95
Looking at global markets, Asian stocks traded mostly lower following losses seen on Wall St. amid a slump in the commodities complex which saw crude briefly fall below USD 40/bbl, while gold, silver and platinum fell to 5yr, 6yr and 7yr lows respectively. Consequently, ASX 200 (-0.6%) underperformed led lower by basic materials and energy sectors, while the Nikkei 225 (0.0%) was initially pressured by losses in its largest weighted stock Fast Retailing after domestic sales fell 8.9% Y/Y but later pared as the JPY weakened. Shanghai Comp. (+1.4%) extended on yesterday’s gains led higher again by financials following yesterday’s relaxation on bond issuance rules coupled with a CNY 50bIn injection into the interbank market. 10yr JGBs traded marginally higher in subdued trade as the weakness of Asian bourses supported the paper.
Top Asia News
- Japan’s Biggest Oil Refiners Agree to Merge as Demand Drops: JX, TonenGeneral seek 100b yen annual savings from deal
- HKMA Bans Staff From Making Job Referrals to Supervised Firms: City’s de facto central bank will “immediately inform” all staff members
- Macau’s Casino Middlemen Squeezed by China’s Delinquent Debtors: >30 VIP rooms closed in past 4 mos.
- Saudi Arabia to Propose Conditional OPEC Output Cut, EI Reports: Reduction decision not expected at Friday’s meeting; possibly 2016
- A 2 Cent Fine Indian Telecom Tycoons Say May Cost $8 Billion: India to fine cos. for calls that disconnect unexpectedly
- Japan Set to Test Stealth Jet as Abe Boosts Defense Focus: Nation poised to be 4th country to fly own stealth jet
- China Energy Engineering Said to Price $1.8 Billion Initial Sale: The co. and China’s National Council for Social Security Fund sold 8.8b shares at HK$1.59 apiece
- S. Korea 3Q GDP Rose 1.3% Q/q vs 1.2% Prev. Estimate
- Caixin China Nov. Composite PMI 50.5 vs 49.9 in Oct.
- Australia Oct. Trade Deficit A$3.31b; Est. A$2.6b Deficit
Much of the European session’s price action appears to be in line with market expectations of a dovish ECB meeting scheduled for later today. As such Euro Stoxx (+0.6%) have traded in positive territory from the off while, as has been the case throughout the week, energy and material names continue to cap gains in the index. This comes as softness was seen overnight throughout the commodity sector.
Fixed income markets have traded hesitantly so far today, with Bunds Dec’15 futures remaining relatively flat as we head into mid-morning, while large volumes have been seen going through BTPs through the Eurex open and throughout the session. Separately, ECB dated forward Eonias have priced in around an 11 bps cut in the deposit rate today, while pricing in a further 11 bps reduction over the next 12 months.
Top European News
- Mediobanca Agrees to Buy Barclays Consumer Business in Italy: Mediobanca’s retail unit to see clients increase by 40%
- Paddy Power, Betfair Merger Faces Delay, Irish Times Says: cos had hoped to complete deal by March 31
- Abengoa Prepares to Sell More Than EU1.8B of Assets: Cinco Dias: to boost divestment plan from EU1.2b to convince creditor banks to provide more liquidity
- Zurich to Cut at Least 450 of 7,000 Swiss Jobs: Tages- Anzeiger: measure part of global cost-cutting actions
- Wendel 3Q Sales EU2.125b; NAV EU140.3/Share at Nov. 18: 9M sales EU5.91b, up 37.1% overall and up 2.6% organically
- Credit Mutuel in Exclusive Talks With GE on Leasing, Factoring: French bank comments in statement
- BNP Paribas Fortis to Eliminate 1,050 Jobs, L’Echo Reports: Planned cuts represent 7% of total workforce
- Musashi, Bharat Forge Said to Mull Bids for Amtek German Arm: Spain’s CIE Automotive SA has also shown preliminary interest in Tekfor
- Eurozone Nov. Composite PMI 54.2 vs Flash Reading 54.4; Eurozone Nov. Services PMI 54.2 vs Flash Reading 54.6
- Germany Nov. Composite PMI 55.2 vs Flash Reading 54.9; Germany Nov. Services PMI 55.6 vs Flash Reading 55.6
In FX, markets have continued to suggest a dovish meeting from the ECB, with EUR extending on recent softness against the USD, with the pair trading around the 1.0550 level ahead of the all-important rate decision. Separately, SEK also saw some weakness against the EUR earlier in the session after Riksbank’s Jansson described SEKs development against EUR as troublesome and stated that the Riksbank can act outside of a scheduled meeting.
Source reports yesterday indicated that the ECB’s macroeconomic projections are to be largely unchanged . However, according to one of the officials familiar with the numbers they suggested that the ECB will downgrade its 2017 inflation forecast to 1.6% from 1.7%. The FT writes that due to German-led opposition, further easing measures announced by the ECB today could be limited in firepower and subsequently disappoint investors.
In commodities, oil has seen choppy price action in the last few sessions, with comments from OPEC countries demonstrating contrasting views on production cuts . All analysts expect OPEC to maintain output at current levels on Friday, however Saudi Arabia announced that they would consider reducing production if other OPEC and non-OPEC countries followed suit, however it looks like a difficult task facilitating such an agreement.
Furthermore, this comes in light of Russia’s most recent comments saying that it will enforce a policy of maintaining output. Saudi Arabia’s announcement did cause an uptick in oil prices, however recent oil sources say that reports of a production cut by the country are ‘baseless’.
Gold saw pressure in Asian trade along with weakness across the precious metals complex, which saw gold, silver and platinum decline to 5yr, 6yr and 7yr lows respectively on Fed hike prospects. However, prices then recovered in the European session. Elsewhere copper has seen subdued trade while iron ore has remained near its lowest level in 10 years as Chinese demand and mild USD strength kept any significant gains in check.
Top Global News
- U.K. Begins Syria Air Strikes After Parliament Backs Cameron: House of Commons votes 397 to 223 in support of Cameron plan
- Draghi Supplants Yellen as Global Warden in ‘Seminal Shift’: ECB seen adding stimulus today as inflation stuck near zero while Fed could raise U.S. rates in two weeks time
- Yellen Ties Rate-Rise Pace to ‘Actual Progress’ on Inflation
- AB InBev to Explore Sale of SABMiller’s Europe Premium Beers: Brewing Co. also among the brands being considered for sale
- Spring Airlines Signs Pact to Buy 60 Airbus A320 Neo Jets: list price for the planes is $6.3b, planes will be delivered from 2019 to 2023
- Goldman Gets Excluded From IPO Bidding Process for Dong Energy: sale, which Sydbank ests may value Dong as high as DKK70b, is set to be among the biggest in Denmark’s history
- Pistorius Found Guilty of Murder by South African Court: court throws out manslaughter conviction for killing Steenkamp
Bulletin Headline Summary from Bloomberg and RanSquawk
- FX markets have continued to suggest anticipation of a dovish meeting from the ECB, with EUR extending on
recent softness against the USD
- Oil has seen choppy price action in the last few sessions, with comments from OPEC countries
demonstrating contrasting views on production cuts.
- As well as the ECB meeting, today sees US challenger job cuts, weekly employment
data, services PMI, ISM Non-Manf composite, factory orders, durable
goods and scheduled comments from Fed’s Mester, Fischer and Yellen
- Treasuries drift lower in quiet trade before ECB statement, Draghi press conference; Nov. payrolls tomorrow, est. 200k after Yellen yesterday said a FOMC decision to delay start of normalization could push economy into recession.
- A Saudi Arabian official says reports of proposed OPEC supply cut are “baseless”; earlier Energy Intelligence reported, citing 1 unidentified delegate, that Saudis may propose 1m b/d group cut, to take effect some time in 2016
- Iron ore may be on the cusp of dropping into the $30s a metric ton as the biggest producers expand supply and the onset of winter in China dulls demand that’s been hurt by the slowdown in growth in the world’s top user
- Police said they can’t yet rule out terrorism in a mass shooting that left 14 people dead and 17 wounded at a social services center Wednesday in San Bernardino, California
- The suspects were identified in a late-night press conference identified the suspects as Syed Rizwan Farook, a U.S.-born county employee, and Tashteen Malik, believed to be his wife or girlfriend
- Putin raised the temperature in an increasingly bitter dispute with Turkey over the downing of a Russian warplane last week, saying the country’s “ruling gang” has lost reason as he threatened more punitive measures following economic sanctions
- Sovereign 10Y bond yields mostly higher. Asian stocks mixed, European stocks gain, U.S. equity-index futures rise. Crude oil higher, copper and gold lower
DB’s Jim Reid wraps up the overnight event summary
Let’s be honest. Even if you feel like you’ve navigated these treacherous financial markets well over the last decade, could you have really envisaged a day like today if you go back a few years? We stand on the brink of another extraordinary central bank policy easing today (from the ECB of course) which has been increasingly priced into markets meaning amongst other things that you have to pay heavily indebted governments even more for the right to lend to them at the front end of the curve. Indeed Germany has negative yields out to 7 years at the moment. We’re all getting used to it now and generally accept it but one day we’ll probably look back on this period and gasp in amazement that investors were happy to pay to lend/store a few trillion euros here and there.
Before previewing this big day ahead, I’ve just got back from Saudi Arabia where I’ve been for the last couple of days. Obviously the price of Oil was a big topic (remember the OPEC meeting tomorrow) as were London property prices given that DB’s Stuart Kirk was on hand to scare the locals that the prime bubble was bursting. The London property bubble debate is one of those things that has worn most analysts down over the years as gravity has been continually avoided. However as Stuart discussed in his note last month, big cracks have opened up in many of the supporting elements to this market. A lack of overseas buying being a topical part of the argument (given where we were) after years of money flooding in from abroad. For the record I sold my London flat in 2006 thinking the global financial bubble would burst soon taking London prices down with it. I was half right but as London house prices have typically risen annually by more than most owners earn in a year I think I picked the wrong half to be correct about.
Anyway, Stuart talked about European real estate being much more attractive helped by much lower valuations and an ECB likely to be particularly dovish today. As we highlighted on Monday, our European Economists are expecting a three-pronged easing announcement. Firstly, they expect the ECB to increase the pace of QE by EUR 10bn and also increase the range of assets available to purchase. This could possibly be done through including regional and local government purchases. Secondly they expect the duration of QE to be extended for six months to March 2017. Lastly, they expect a 10bp cut in both the deposit rate and refi rate as well as the removal of the yield floor from the asset purchase programme.
12.45pm GMT is when we’ll know just how aggressive the ECB decide to be, while President Draghi is scheduled to speak at the press conference shortly after. Policy makers are also due to present their latest updated economic forecasts. Yesterday’s benign inflation data for the Euro area did nothing other than add fuel to the fire for today. The November headline CPI reading was unchanged at +0.1% mom (vs. +0.2% expected) while the core dipped a couple of tenths to +0.9% yoy (vs. +1.1% expected).
As we start this momentus day, Asia has thrown up a few snippets worth highlighting. In China the non-official Caixin services PMI for November has shown a fall to 51.2 from 52.0 in October, although combined with the slight rise for the manufacturing print the other day the composite ticked up 0.6pts and back in ‘expansionary’ territory at 50.5. Meanwhile in Japan we’ve seen the Nikkei Composite PMI come in unchanged for the month of November at 52.3. Chinese equity markets have taken to that latest data positively, with gains for the Shanghai Comp (+0.70%) and CSI 300 (+0.34%). Japan is also up with the Nikkei +0.09% although elsewhere the Hang Seng (-0.20%), Kospi (-0.76%) and ASX (-0.58%) are all in the red.
The other notable headline overnight is the news of some rating downgrades for the US banks. S&P has cut the ratings for the eight large systemically important banks which include Bank of America, Bank of NY Mellon, Citigroup, JP Morgan, Morgan Stanley, State Street, Goldman Sachs and Wells Fargo. The rating agency cited that the reason for the downgrade reflected its view that the likelihood of the US government providing extraordinary support to its bank system is now ‘uncertain’.
Although today is all about the ECB, yesterday’s headlines reverberated around the latest comments from Fed Chair Yellen who re-affirmed the high likelihood now that we’ll see the Fed commence liftoff in just under two weeks. She confirmed that ‘on balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market’ and that ‘helps strengthen confidence that inflation will move back to our 2% objective over the medium term’. She added that liftoff is a day she that expects everyone has been ‘looking forward to’ and warned of the dangers from delaying the start of normalization for too long. As we’re becoming accustomed to, Yellen also highlighted the need for a gradual normalization process.
One of the last remaining hurdles is Friday’s payrolls number, although yesterday’s ADP employment change print did little to counter the view that we’ll see anything too surprising having risen 21k last month to 217k and above market expectations of 190k. Treasuries were weak post that data, and weakened further later in the session. A little recovery into the close meant they finished off the day’s high in yield with the 10y still up +3.7bps by the close at 2.181%. The same was true at the short end where 2y Treasuries closed +2.8bps higher at 0.936%, hitting an intraday high of 0.95% which matched the recent highs. The probability of a Fed hike this month is a tad higher at 74% this morning. Meanwhile, it was a rough day for risk assets yesterday. The S&P 500 was already trading with small losses going into Yellen but her comments helped send the index lower, eventually closing -1.10%. In the credit space CDX IG closed nearly 2bps wider. Prior to this European equity markets had closed flat to modestly lower.
The other big theme yesterday was another wild day for Oil. WTI closed the session down -4.56% and traded back below $40 for the first time since August. Brent also fell steeply, closing -4.39% lower at $42.49. Some more bearish US inventory data didn’t help matters, along with a strong day for the US Dollar with the Dollar index at one stage reaching its highest level since 2003. Most of the sharp sell-off however appeared to be dictated by headlines out of Iranian Oil Ministry’s Shana news agency which suggested that a majority of OPEC members agree on cuts to output (causing Oil prices yesterday to very briefly spike higher) before further detail revealed that the exceptions to this were Saudi Arabia and the Gulf Arab countries, which subsequently sent the oil complex tumbling. These headlines reinforce what is a nervous time for Oil markets with Friday’s OPEC meeting the next big event.
Wrapping up the rest of the data yesterday, there was no change to the final revision for Q3 nonfarm productivity in the US at +2.2% qoq saar. Q3 unit labour costs were however revised up to +1.8% qoq saar from +1.4% previously. Meanwhile the November ISM NY report was down -5.1pts from October to 60.7, although better than hoped after expectations for a fall to 58.0. Finally the Fed’s Beige Book offered few surprises, with 8 out of the 12 regions reporting modest growth in October and November. Consumer spending was said to have increased in nearly all districts while labour markets were also said to have continued to tighten modestly.
Post the market close in the US last night, the San Francisco Fed President Williams said that the Fed has done a ‘pretty good job’ in signalling liftoff soon, while also saying that his preference is ‘sooner rather than later’. Prior to this and while Yellen had earlier grabbed most of the attention, Atlanta Fed President Lockhart also weighed in saying specifically that ‘absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling’.
Looking at today’s calendar now. The big focus in the European session this morning will of course be on the ECB decision which is due at 12.45pm (GMT) with Draghi due to speak at 1.30pm. Data wise we’re expecting the final revisions to the services and composite PMI’s for the Euro area, Germany and France, as well as the first indicators from Italy, Spain and the UK. Also due out this morning will be Euro area retail sales. It’s set to be a busy afternoon for data in the US too. We’ll get the final revisions for the October durable and capital goods orders readings, along with the final PMI revisions. Initial jobless claims data is due, while the main focus this afternoon may well be on the ISM non-manufacturing print particularly given the recent very high divergence between this and the manufacturing sector. Market expectations are for a modest pullback to 58.0. However if market expectations are correct, DB’s Joe Lavorgna highlighted that the 9pt spread between the two has only ever happened on two other occasions. Factory orders data is also expected today in the US. Fedspeak wise, Fed Chair Yellen is due to appear before the Congressional Joint Economic Committee at 3.00pm GMT although it’s likely her comments will echo much of what she said yesterday. Vice-Chair Fischer is also scheduled to speak (6.10pm GMT) although the topic is set to be on financial stability. Mester is also due to speak (at 1.40pm GMT).
China Services PMI Jumps To 4-Month High (And Drops Near 2015 Lows)
Just like Chinese Manufacturing, the Services PMI surveys from official sources and Caixin contradict each other. Providng hope for every bull, bear, and greater fool, official government data suggests the services economy is doing great and stimulus is working as it jumps to 4-month highs. However, Caixin’s Services PMI shows a sudden drop near 2015 lows suggesting the need for moar stimulus now… take your pick, it’s all farce!
Yuan (on- and off-shore) are both flat following the fixing but stocks are reversing yesterday’s divergence (CSI-300 and Shanghai flat to lower, ChiNext and Shenzhen jumping higher).
Following Epic FT Snafu, ECB Cuts Deposit Rate By 10bps To -0.30% As Expected
In what may have been the most shocking ECB announcement in recent history, moments ago the ECB cut its deposits rate by 10 bps to -0.30%, just as expected.
From the ECB press release:
At today’s meeting the Governing Council of the ECB decided that the interest rate on the deposit facility will be decreased by 10 basis points to -0.30%, with effect from 9 December 2015.
The interest rate on the main refinancing operations and the interest rate on the marginal lending facility will remain unchanged at 0.05% and 0.30% respectively.
Further monetary policy measures will be communicated by the President of the ECB at a press conference starting at 14:30 CET today.
But while the rate cut was not unexpected, and was very much in line with consensus, what stunned the market is that precisely 5 minutes before the ECB’s official announcement, the Financial Times, now owned by the Nikkei, reported that instead of a rate cut the ECB had left its rate unchanged:
Policymakers on the governing council left the deposit rate, which applies to a portion of banks’ reserves parked at central banks across the currency area, at minus 0.2 per cent.
Markets had priced in a cut of between 0.1 and 0.2 percentage points.
The main refinancing rate remained at 0.05 per cent.
The article can be shown below.
What happened? The FT had prepared an article in case the ECB did not cut rates and mistakenly hit publish. However, the ECB did cut as expected, and the outcome was that everyone who had stops in either FX or stocks, was massively stopped out first to the upside, then to the downside, and then to the upside again.
And now we await the FT to release another article on what Mario Draghi will not announce in 40 minutes during his press conference.
US Dollar, Stocks, Bonds Plunge; EU Peripheral Bonds Crash As Draghi Bazooka Fizzles
And there goes hopes for a bigger bazooka…
Peripheral Bonds are collapsing…
BoJ Rescue is underway…
And The US is not happy…
Just as we warned, the question is whether Draghi will listen to logic and reason, or if he will continue his campaign to isolate the Hawks on the ECB governing council and in the process make Europe’s monetary situation unfixable. If Draghi does relent, the EURUSD can soar as high as 1.09 tomorrow according to some estimates.
Draghi Holds Water Pistol Press Party – Live Feed
Contrary to what you might have read over at FT, Mario Draghi met (but certainly did not exceed) market expectations for a depo cut, moving 10 bps further into NIRP-dom in a desperate attempt to get inflation moving in the “right” direction and get a leg up in the global currency wars. Unfortunately, the market was looking for more and so, the EUR surged after the announcement.
Now, the fireworks can begin as the market will be glued to the presser in hopes Draghi will make up for not going with a 20 bps cut by over-delivering on QE expansion/extension.
- ECB TO EXTEND ASSET-BUYING PROGRAM TO AT LEAST MARCH 2017
- DRAGHI SAYS ECB WILL EXTEND QE UNTIL MARCH 2017 OR BEYOND (Harvey: conditions must be great in Europe)
- DRAGHI: ECB WILL REINVEST PRINCIPLE PAYMENTS AS LONG AS NEEDED (Harvey: printing more fiat)
- ECB TO BROADEN ASSET-BUYING PROGRAM TO INCLUDE REGIONAL DEBT (Munis!!)
- DRAGHI SAYS STAFF PROJECTIONS SIGNAL DOWNSIDE INFLATION RISKS
- EUR FRESH HIGH OVER 1.0800 AS ECB QE EXTENDED, NOT INCREASED (reason for the Euro rise)
- DRAGHI SAYS ECB ABLE, WILLING TO ACT WITH ALL TOOLS IF NEEDED
Make no mistake, Draghi has under-delivered just as we and others warned he might. 10 bps on the depo rate is underwhelming, especially in light of the fact that the “leaked” two-tiered NIRP regime idea seemed to telegraph a larger cut. Meanwhile, no expansion of PSPP is a major disappointment, as most seemed to be looking for at least a €15 billion increase in the monthly pace of purchases. Finally, the six month extension of the program was really the bare minimum Draghi could have announced without triggering a veritable revolt from a spoiled market.
This is undoubtedly a relief for the Riksbank, the Nationalbank, and the SNB as it takes some of the pressure off in terms of having to cut further.
Full opening statement:
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we today conducted a thorough assessment of the strength and persistence of the factors that are currently slowing the return of inflation to levels below, but close to, 2% in the medium term and re-examined the degree of monetary accommodation. As a result, the Governing Council took the following decisions in the pursuit of its price stability objective:
First, as regards the key ECB interest rates, we decided to lower the interest rate on the deposit facility by 10 basis points to -0.30%. The interest rate on the main refinancing operations and the rate on the marginal lending facility will remain unchanged at their current levels of 0.05% and 0.30% respectively.
Second, as regards non-standard monetary policy measures, we decided to extend the asset purchase programme (APP). The monthly purchases of €60 billion under the APP are now intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term.
Third, we decided to reinvest the principal payments on the securities purchased under the APP as they mature, for as long as necessary. This will contribute both to favourable liquidity conditions and to an appropriate monetary policy stance. The technical details will be communicated in due time.
Fourth, we decided to include, in the public sector purchase programme, euro-denominated marketable debt instruments issued by regional and local governments located in the euro area in the list of assets that are eligible for regular purchases by the respective national central banks.
Fifth, we decided to continue conducting the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017.
Today’s decisions were taken in order to secure a return of inflation rates towards levels that are below, but close to, 2% and thereby to anchor medium-term inflation expectations. The latest staff projections incorporate the favourable financial market developments following our last monetary policy meeting. They still indicate continued downside risks to the inflation outlook and slightly weaker inflation dynamics than previously expected. This follows downward revisions in earlier projection exercises. The persistence of low inflation rates reflects sizeable economic slack weighing on domestic price pressures and headwinds from the external environment.
Our new measures will ensure accommodative financial conditions and further strengthen the substantial easing impact of the measures taken since June 2014, which have had significant positive effects on financing conditions, credit and the real economy. Today’s decisions also reinforce the momentum of the euro area’s economic recovery and strengthen its resilience against recent global economic shocks. The Governing Council will closely monitor the evolution in the outlook for price stability and, if warranted, is willing and able to act by using all the instruments available within its mandate in order to maintain an appropriate degree of monetary accommodation. In particular, the Governing Council recalls that the APP provides sufficient flexibility in terms of adjusting its size, composition and duration.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2015, following a rise of 0.4% in the previous quarter, most likely on account of a continued positive contribution from consumption alongside more muted developments in investment and exports. The most recent survey indicators point to ongoing real GDP growth in the final quarter of the year. Looking ahead, we expect the economic recovery to proceed. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the earlier progress made with fiscal consolidation and structural reforms. Moreover, low oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment. In addition, government expenditure is likely to increase in some parts of the euro area, reflecting measures in support of refugees. However, the economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets and moderate global trade, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.
This outlook is broadly reflected in the December 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.5% in 2015, 1.7% in 2016 and 1.9% in 2017. Compared with the September 2015 ECB staff macroeconomic projections, the prospects for real GDP growth are broadly unchanged.
The risks to the euro area growth outlook relate in particular to the heightened uncertainties regarding developments in the global economy as well as to broader geopolitical risks. These risks have the potential to weigh on global growth and foreign demand for euro area exports and on confidence more widely.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.1% in November 2015, unchanged from October but lower than expected. This reflected somewhat weaker price increases in services and industrial goods, mainly compensated for by a less negative contribution from energy prices. On the basis of the information available and current oil futures prices, annual HICP inflation rates are expected to rise at the turn of the year, mainly on account of base effects associated with the fall in oil prices in late 2014. During 2016 and 2017, inflation rates are foreseen to pick up further, supported by our previous monetary policy measures – and supplemented by those announced today – the expected economic recovery, and the pass-through of past declines in the euro exchange rate. The Governing Council will closely monitor the evolution of inflation rates over the period ahead.
This broad pattern is also reflected in the December 2015 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 0.1% in 2015, 1.0% in 2016 and 1.6% in 2017. In comparison with the September 2015 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised down slightly.
Turning to the monetary analysis, recent data confirm solid growth in broad money (M3), with the annual rate of growth of M3 increasing to 5.3% in October 2015 from 4.9% in September. Annual growth in M3 continues to be mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.8% in October, after 11.7% in September.
Loan dynamics continued the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.6% in October, up from 0.1% in September. Despite these improvements, developments in loans to enterprises continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) increased to 1.2% in October, compared with 1.1% in September. Overall, the monetary policy measures in place since June 2014 have clearly improved borrowing conditions for both firms and households and credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for further monetary stimulus in order to secure a return of inflation rates towards levels that are below, but close to, 2%.
Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. However, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute decisively. Given continued high structural unemployment and low potential output growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies. In particular, actions to improve the business environment, including the provision of an adequate public infrastructure, are vital to increase productive investment, boost job creation and raise productivity. The swift and effective implementation of structural reforms, in an environment of accommodative monetary policy, will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher incomes and accelerate the beneficial effects of reforms, thereby making the euro area more resilient to global shocks. Fiscal policies should support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact is crucial for confidence in our fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies.
And European Markets Break…
Who could have seen that coming?
How do you stop a market from falling?
Wall Street Unleashes Echo Of Groans After ECB “Disappointment”
One recurring word prevails in every single Wall Street reaction to Mario Draghi’s announcement today: “disappointment”… the same disappointment wewarned about yesterday, and which we said could push the EURUSD to 1.09 today, just as happened an hour earlier.
Here is Deutsche Bank’s George Saravelos explaining why he is “Closing Our Shorts”
Our premise of continued bearishness on EUR/USD through the end of the year was a “full” delivery from both the Fed and the ECB. The latter leg was a significant disappointment today versus our expectation and we therefore close out the EUR/USD shorts we initiated in our September FX Blueprint. We are keeping all our official 2015-2017 year-end forecasts unchanged.
Here is RBS’ Michael Michaelides warning the ECB’s credibility is now at risk
The ECB’s credibility to reach CPI target at risk after today. ECB has missed CPI target by more than 1% for 25 mos. in a row and nothing Draghi has done today convinces investors that the central bank is getting ahead of the curve, RBS strategist Michael Michaelides says in a Bloomberg interview. ECB is showing its clear deflationary bias. Consequences from today’s major disappointment may lead to a tightening in euro-area financial conditions. Market may reassess ECB’s willingness to do more soon compared with previous expectations.
Here is BofA’s Athanasios Vamvakidis repeating the same sense of disappointment:
ECB President Draghi’s argument that more will be done if needed, is not enough given mkt’s high expectations and his past pattern of over-delivering, Athanasios Vamvakidis, strategist at BofAML, says in e-mailed comments. Expectations for today were just too high. ECB easing package is underwhelming, not aggressive enough and below expectations
Here is Citibank’s Josh O’Byrne on the market’s reaction to ECB disappointment:
ECB’s package of easing measures is disappointing so far, as expectations had built up high in recent weeks, especially after Draghi’s speech on Nov. 20, Josh O’Byrne, FX strategist at Citigroup, says in e-mailed comments.
Pressure on SNB and Riksbank to act is now much reduced, with pressure off EUR/SEK, EUR/CHF
* * *
Finally, the one reaction we are most eagerly looking for, is that of Goldman’s Robin Brooks who said yesterday that the EURUSD could tumble 300 pips today on the ECB announcement. We will post it as soon as it hits.
DAX Crash Continues – Biggest Drop Since Black Monday
Having ramped its way up to the cliff’s edge of China devaluation and Black Monday’s free-fall, Germany’s DAX has come unbuttoned rapidly with a 400-plus point droip today. Down over 5.5% in the last 3 days,crushed back under 11,000 today with a 3.75% crash – the most since August 24th – all thanks to Draghi over-selling his “whatever-it-takes”-ness…
Dresden-ed – DAX is down over 400 points!!!
UK Passes Vote To Begin Syria Airstrikes
And just like that another country has decided it would send its fighter planes in the already congested skies above Syria, when moments ago the UK parliament decided, in a 397 to 223 vote, to begin airstrikes on Syria.
According to the vote, U.K. lawmakers backed Prime Minister David Cameron’s plan to extend air strikes against Islamic State from Iraq into Syria, after the opposition Labour Party split over whether to support military action.
The House of Commons in London voted in favor of a motion by Cameron’s government authorizing action. Lawmakers had earlier rejected an amendment that would have blocked the use of military force.
The 10 1/2 hours of debate saw many tetchy speeches and interventions, but the best received came from Labour foreign-affairs spokesman Hilary Benn, ending the debate by taking the opposite side of the argument from his leader, Jeremy Corbyn, a career-long opponent of military interventions.
“We must now confront this evil,” Benn said, as Corbyn sat in silence beside him. “It is now time for us to do our bit in Syria.”
What the RAF’s fighters will instead confront upon their campaign, which is set to begin imminently, is a lot of Russian dogfighters, each armed with Air to Air missiles thanks to Turkey, making the probability of a deadly chance encounter above Syria that much higher.
“Allah Took Turkey’s Sanity” Putin Says, As Davutoglu Blasts “Lying Soviet Propaganda”
On Wednesday, Russia took the PR campaign blitz up a notch on Turkey when the MoD held a 25 minute press conference during which Deputy Minister of Defence Anatoly Antonov delivered a scathing (not to mention hilarious) indictment of Ankara’s role in Islamic State’s lucrative oil trade before walking the audience through a compelling powerpoint presentation that detailed ISIS crude transport routes.
Vladimir Putin then promised to deliver more evidence to implicate Erdogan and his family in the trafficking of illicit crude next week.
The US State Department came to Ankara’s defense (albeit not as fiercely as one might have expected) as spokesman Mark Toner told reporters that Washington is confident the Turkish government “is not complicit in Islamic State oil smuggling.”
For his part, Sergei Lavrov said Russia would present evidence of Turkey’s involvement to the UN. Speaking from Belgrade, he also said the Turkish-Syrian border needs to be closed and that the US, via SpecOps and air cover, could be a big help in the effort if Washington chooses to participate.
Needless to say, Erdogan isn’t happy with Russia’s “immoral” accusations and on Thursday, PM Ahmet Davutoglu lashed out at what he calls “Soviet propaganda.”
“In the Cold War period there was a Soviet propaganda machine. Every day it created different lies. Firstly they would believe them and then expect the world to believe them. These were remembered as Pravda lies and nonsense,” Davutoglu said. “This was an old tradition but it has suddenly reared its head again.Nobody attaches any value to the lies of this Soviet-style propaganda machine.”
(“Ohhhh, burned. Show Davu some love!”)
Unfortunately for Ankara, all kinds of people are “attaching value” to Russia’s accusations, including the Iraqi government from whom Turkey is effectively stealing not only by facilitating the trafficking of ISIS oil, but also by piping over 600,000 b/d from Kurdistan to Ceyhan.
On Wednesday, Asem Jihad, the press attaché of the Iraqi Ministry of Oil, said Iraq will ask the Security Council to establish committees tasked with investigating anyone and everyone involved with the smuggling of illegal crude from Iraq and furthermore, he said Baghdad expects the international community to brand anyone found to be involved, “a criminal.”
Meanwhile, Putin’s penchant for biting criticism, not-so-veiled threats, and humor was on full display Thursday as the Russian President suggested “Allah” is out to punish Erdogan by frying his brain and warned that if Ankara thought it was going to escape from the plane debacle with “some measures on its tomatoes” (a reference to economic sanctions the The Kremlin leveled against Turkey last weekend), they are “sorely mistaken”. Here are the quotes:
“We were prepared to cooperate with Turkey on most sensitive issues and go further than their allies. Allah knows why they did it. Apparently Allah decided to punish the ruling clique in Turkey by taking their sanity.”
“We will not forget this aid to terrorists. We have always considered betrayal the worst and most shameful act. Let those in Turkey know it who shot our pilots in the back, who hypocritically tries to justify themselves and their actions and cover up the crimes of terrorists.”
“If anyone thinks that having committed this awful war crime, the murder of our people, that they are going to get away with some measures concerning their tomatoes or some limits on construction and other sectors, they are sorely mistaken.”
And then there was the obligatory critique of US foreign policy:
“Some countries in the Middle East and North Africa, which used to be stable and relatively prosperous – Iraq, Libya, Syria – have turned into zones of chaos and anarchy that pose a threat to entire world,”
“We know why it happened. We know who wanted to oust unwanted regimes, and rudely impose their own rules. They triggered hostilities, destroyed statehoods, set people against each other and simply washed their hands [of the situation] – giving way to radicals, extremists and terrorists.”
Here’s the clip:
Meanwhile, Britain conducted its first strikes against ISIS targets on Thursday as RAF Tornados took off from the Royal Air Force base at Akrotiri in Cyprus. The UK claims it hit Islamic State oil fields.
“There are plenty more of these targets throughout eastern, northern Syria which we hope to be striking in the next few days and weeks,” Defence Secretary Michael Fallon said.
Why yes Mr. Fallon, there are “plenty” of targets, the problem is, the US doesn’t seem excited about hitting them.
“We see no strikes on those convoys by the coalition – only a tripling in the number of strategic UAVs has been observed,” Lieutenant General Sergey Rudskoy said at Russia’s Wednesday presser, suggesting once again that the US has no “inherent resovle” (pun fully intended) to hit ISIS where it hurts.
There are also suggestions that Britain may send troops in a “non-combat” train and assist capacity.
So another day, another (couple) of escalations as Russia calls Erdogan crazy, Davutoglu invokes Pravda, and Britain enters the fray. Meanwhile, we imagine ISIS is pumping the usual 45,000 barrels of crude today and going about business as usual.
US Aircraft Carrier Harry Truman Is Now In The Mediterranean, Approaching Syria Coast – Full US Naval Map
Days before the dramatic military escalation between Turkey and Russia, we reported that in order to assure that the Syria proxy war has all the naval support the US-led alliance will need in the coming weeks, both a French and a US aircraft carrier were “steaming” full speed toward the Mediterranean sea, just off the coast of Syria.
As we noted, “the Truman is expected to reach the Persian Gulf before the year’s end. The U.S. has been launching air strikes into Iraq and Syria from aircraft carriers in the Persian Gulf — at least until last month, when the USS Theodore Roosevelt left the area after an extended deployment. The two-month gap is the first in nearly a decade that the U.S. has had no carrier in the region.”
Specifically, we emphasized the ETA, to wit “Once again, here is the ETA: Carrier Theodore Roosevelt left 5th Fleet in mid-October, leaving that region without a carrier until the Truman CSG gets there, which should be about six weeks, or just around the New Year” and pointed out just how busy the “parking lot” would be when the US aircraft carrier arrived. According to the Navy Times, whom we cited”
ISIS is not the only challenge that awaits the flotilla, which includes the cruiser Anzio, Carrier Wing Air 7, and destroyers Bulkeley, Gravely and Gonzalez.Russian, Chinese and Iranian marines have established their presence in Syria, and Russian warships from the Black Sea have relocated to the eastern Mediterranean to protect fighter jets conducting airstrikes in support of Syria’s Assad regime. In preparation, the strike group’s Composite Training Unit Exercise focused on adversaries that more closely resembled those of the Cold War.
We now know that there is also at least one Russian missile cruiser operating off the Syrian coast and providing air cover for Russian jets operating above the country.
In other words, the Mediterranean Sea surrounding Syria is getting more crowded by the day.
And the bottom line is that now that UK (and shortly German) planes are flying above Syria, and “striking ISIS”, having joined jets from the US, Syria, Iran, Turkey, Russia and France, the same is about to happen to the sea next to Syria.
Which, in our opinion, will also reveal the catalyst for the next, and even more serious, military escalation as one or more ships mysteriously suffer a Gulf of Tonkin incident in a proxy war in which the primary directive so far has clearly been the planting of false flags.
How long? According to the latest US naval map update from Startfor, the Truman is now off the Libyan coast, rapidly approaching Italy, and we expect is ahead of scheduled year-end ETA to its final destination, a few miles off the Syrian coast.
Mexico Faces Its Biggest Corporate Default In Two Decades As Construction Giant Misses Bond Payment
Back in August, we said that “Something Is Very Wrong At Mexico’s Largest Construction Company…”
“Let’s say, for argument’s sake, that you’re a big company in an emerging market and suddenly, a commodities crash for the ages and a “surprise” devaluation by the world’s engine for global growth and trade sends your country’s currency into a veritable tailspin,” we wrote. “If that were the case, just about the worst possible situation you could find yourself in would go something like this (adapted from Bloomberg): “Eighty-five percent of [your] backlog is denominated in the [home currency], which plunged to a record low this week [and] almost half of [your] debt is in foreign currencies, mostly dollars.”
That was the situation facing Empresas ICA SAB which had just spooked bond investors by selling a key 3% stake in an airport operator for $56 million in order to pay down debt.
Well, after turning in its worst quarter in nearly a decade and a half in October, Empresas ICA SAB missed an interest payment this week in what Bloomberg says is “just a prelude to what’s likely to be the biggest default in Mexico in at least two decades.” Some $31 million in debt service payments came due on Monday and the company elected to utilize a 30-day grace period to try and make the payment.
“Under the terms of the indenture governing the 2024 Notes, the use of the 30-day grace period does not result in an event of default,” the company said, cheerfully.
Carlos Legaspy, a money manager who holds ICA bonds due in 2017, 2021 and 2024, wasn’t as optimistic: “Do I think they’re going to pay within 30 days? No. The 30 days are not going to make any difference.” Here’s a look at the 2024s:
And the 2021s and 2017s:
And as for the equity, well, no luck there either:
Moody’s is disgusted. “The use of the 30-day grace period does not constitute an event of default in itself, however, it reflects the precarious liquidity of the company and is a likely precursor to more formal refinancing process or distressed exchange,” the ratings agency said on Wednesday, on the way to downgrading ICA to Caa3, from B3. Here’s more:
The negative outlook reflects the ongoing uncertainty as the company enters this new phase of negotiations with its creditors, payment risk on upcoming interest and debt maturity payments, and the possibility that missed coupon payments beyond grace period results in a more formal debt restructuring filing. The outlook also entails the possibility that recovery for bondholders will not be commensurate within the Caa3 rating, leading to further downgrades. For example, recovery could be affected if the company launches a distressed exchange resulting in lower than anticipated recovery or if as a result of a distressed sale of assets the company is not able to raise cash enough to cover outstanding debt.
S&P, who apparently concurs with Carlos Legaspy’s assessment of ICA’s prospects, also cut the company by three levels on Wednesday, noting that there’s a “high probablity” that the 30-day grace period will not help when it comes to avoiding default.
“The Mexico City-based builder, which hired Rothschild & Co. as a financial adviser in October, has struggled to shore up its finances as a collapse in oil prices prompted the government to cut spending,” Bloomberg goes on to say, adding that “the peso’s slide has swelled the company’s obligations.” Here’s how ICA compares to previous defaults in Mexico:
“If ICA does not make payment within 30 days, it would be considered an event of default,” BoAML reminds us, before noting that what you’re likely to get is a cross-default on the 2017s and 2021s (shown above). For any BofA clients who may be concerned, don’t worry, your broker apparently has enough sense to avoid defaulted bonds: “we’re underweight on ICA’s bonds on liquidity concerns.”
In the end, it will be haircut time for creditors and this will go down as just one more example of what happens when the EM growth story shrivels up and dies. We’ll close with another quote from Carlos Legaspy, who is aggravated at ICA’s handling of the liquidity crunch:
“It’s extremely frustrating. It shows that they’re kind of flying a little bit by the seat of their pants and that’s always not comforting.”
It’s So Bad in Brazil That Olympians Will Have to Pay for Their Own AC
Hampered by economic crisis, Rio 2016 will cut $520 million
Organizers say no changes to what broadcasters were promised
The Brazilian economic crisis has finally hit the 2016 Olympics. Following a new round of cost-cutting by the Rio 2016 organizers, athletes will be asked to pay for the air conditioning in their dorm rooms. Stadium backdrops will be stripped to their bare essentials. Fancy cars and gourmet food for VIPs are out.
“The goal here is to organize games without public funding and to organize games that make sense from an economic point of view,” Rio 2016 spokesman Mario Andrada said in an interview.
That economic focus has changed radically in the six years since Rio was awarded the Games – South America’s first. At the time, Brazil’s government pledged $700 million toward any budgetary overrun. Then the economy tanked. Unemployment has soared, and the local currency, the real, has lost one-third of its value against the dollar in the last year.
Now, with costs that ran up to 2 billion reais ($520 million) over budget and the public commitment in doubt, the organizers must stick firmly to the 7.4 billion reais they expect to earn from sponsorships, ticket sales, and a grant from the International Olympic Committee. Final decisions on what to pare back and how much should be finalized by next week, Andrada said.
By the time the Games begin, the committee plans to have 500 fewer paid staff than the 5,000 it originally expected. The deepest cuts will probably come from operational areas like catering, transportation and cleaning services.
Shifting the cost for air conditioning and other amenities from the host city to each nation’s Olympic committee – or to the athletes themselves – is a big deal, said Nick Symmonds, a two-time Olympic runner.
“The world wants to tune in and watch the world’s greatest athletes compete at the absolute highest level,” Symmonds said. “If you don’t provide them with good food, a good place to sleep and comfortable temperature, they won’t be able to recover and bring the A-plus product that the world is demanding. To cut the budget on athletes’ hospitality and comfort, that’s just going to cheapen the games.”
Andrada said air conditioning is an “absolute necessity” in some areas, though not bedrooms. The 17-day event, which kicks off on Aug. 5, takes place in Rio’s winter, and the average daytime temperature is in the mid-20s Celsius (mid-70s Farenheit). Some days are much hotter, though, with highs last August creeping into the mid-90s.
Others worry that the cuts will further underscore the chasm between athletes from wealthy countries and those from poorer ones. (Already some top athletes, including the NBA players who join the USA Basketball squad, choose luxury hotels over accommodations in the Olympic Village.) Those who can afford extra for air conditioning or who travel with laptops or iPads (the host committee has scrapped plans to provide TVs in individual bedrooms) will have it; others may not.
“Some people aren’t going to put up with it because they don’t have to, some will have to because perhaps there is no alternative,” said Rick Burton, the former marketing director for the U.S. Olympic Committee. “Is the IOC going to feel obligated to step in and raise the standards so that everyone is treated equally? Or is it going to be a statement, that this is the best this host country can do?”
An IOC spokeswoman called the adjustments in spending part of “a normal process” for Games organizers at this stage. “The IOC is working closely with the Rio team to make sure that it achieves its budgetary objectives while delivering great Games for all participants,” she wrote in an e-mail.
For the hundreds of millions of people who watch the Olympics on television or online, all of the cost-cutting should be invisible. Organizers have assured broadcast partners that there will be no changes to what they were promised, and there are also no plans to scale down any of the competition specific infrastructure.
“As long as we don’t compromise the games, the quality of the competitions, the experience of the public; we have to look for efficiencies,” Andrada said. And while the process “hasn’t been painful so far, it will be painful from now on, because we need to finish the process.”
Preparing Rio to become the first South American Olympic host has been bumpy. Massive public protests over the country’s spending priorities in 2013, ahead of last year’s soccer World Cup, jolted local politicians and Brazil President Dilma Rousseff’s government. That led to squabbling over who should pay what for the Olympics, which has a total price tag of almost 39 billion reais ($10.2 billion), and criticism from the IOC over delays at key projects.
Euro/USA 1.0549 down .0061
USA/JAPAN YEN 123.45 up .218
GBP/USA 1.4930 down .0008
USA/CAN 1.3329 down .0019
Early this morning in Europe, the Euro fell by 61 basis points, trading now just below the 1.06 level falling to 1.0594; 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, Nysmark and the Ukraine, along with rising peripheral bond yield and now further stimulation and moving more into NIRP. Last night the Chinese yuan down in value (onshore). The USA/CNY down in rate at closing last night: 6.3974 / (yuan up)
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 southbound trajectory as settled down again in Japan by 21 basis points and trading now well above the all important 120 level to 123.45 yen to the dollar.
The pound was down this morning by 9 basis points as it now trades just below the 1.60 level at 1.4930.
The Canadian dollar is now trading up 19 in basis points to 1.3329 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 THURSDAY morning: closed up 1.77 or .01%
Trading from Europe and Asia:
1. Europe stocks all green
2/ Asian bourses mostly in the red … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green barely on gov’t intervention again in the last few hours/ (massive bubble ready to burst), Australia in the red: /Nikkei (Japan) barely in the green/India’s Sensex in the red/
Gold very early morning trading: $1051.00
Early THURSDAY morning USA 10 year bond yield: 2.19% !!! up 2 in basis points from Wednesday night and it is trading well below resistance at 2.27-2.32%. The 30 yr bond yield stays at 2.91 par in basis point.
USA dollar index early THURSDAY morning: 100.40 up 38 cents from Wednesday’s close. ( Broke resistance at a DXY of 100)
This ends early morning numbers THURSDAY MORNING
WTI Crude Surges On OPEC Hope, Dollar Drop
s the USDollar plunges under the weight of short-squeezed EUR FX traders, so commodities are making gains. With OPEC right around the corner, WTI continues to bethe highest beta and has soared back to yesterday’s highs on no news whatsoever (apart from comments from OPEC that they will only cut if non-OPEC cuts).
Portuguese 10 year bond yield: 2.49% up a huge 23 basis points from WEDNESDAY
The Nasdaq:down 85.69 or 1.67%
Markets In Turmoil – Bonds, Stocks, & Dollar Dumbstruck After Disappointing Draghi & Dire Data
Draghi has one message for everyone today…
US equities had their worst day since September 28th…
US Treasuries were a bloodbath…
European equities were an even bigger bloodbath…
As DAX gave back all its Paris gains… (down over 500 points and back below 10,700)
As European bonds utterly crashed… (Bunds seen here across the curve were massive percentage moves)
All driven by The 3 ‘D’s…
- Domestic Terrorism hinted at… and the use of the word ‘radicalized’ spooked a number of markets
- Draghi Disappointed – grossly over-promised and under-delivered, trapped in a corner of QE limitations and admitt8ing it failed.
- Dire Data – US macro plunged to its lowest level in 6 months… (bonds seem to get it)… with durable goods, factory orders, and ISM Services all crushing The Fed’s narrative.
* * *
On the day, Trannies were worst but broadly speaking, the entire equity market dumped in a highly correlated manner… (notthe bounce into the EU Close then dump)
FANGs are not helping…
Futures show it’s been quite a week and now all major indices are red post-Russia-Turkey…
After Europe closed, stocks kept falling…
Some notable breaks:
- All major US equity indices are now negative year-to-date (aside from NASDAQ)
- S&P 500 broke below its 200DMA (also got close to it 50DMA before bouncing)
- Dow broke below its 200DMA
- Small Caps (Russell 2000) broke below its 100DMA
- Trannies broke below all technical support to 2 month lows
Biotechs plunged from the 100DMA to break the 50DMA…
Commentators were confused why Energy stocks dropped while oil rose… this is why – they had decoupled from raw reality a month ago…
VIX soared over 3 handles – almost touching 20 and breaking above its 50, 100, and 200DMA… This was thebiggest percentage rise in VIX since Black Monday
Treasuries were a disaster, extending losses after Europe closed…
Credit markets have been crushed with the junkiest junk now at 6 year high yields…
The USD Index crashed 2.25% – its biggest single-day drop since March 2009…. (having hit 12 year highs yesterday) Put another way – today’s lack of ECB action had the same effect on the USD as The Fed’s unleashing of QE in 2009!
Led by Swissy and EUR strength…
Gold is now the week’s biggest gainer in the commodity space (crude the loser) as the entire space picked up on USD weakness…
Crude’s been volatile heading into tomorrow…
Fed Faith Falters As Consumer Comfort Plunges To 13-Month Lows
Low gas prices? High stock prices? Fed confidence in the economy? Fuhgetaboutit… Bloomberg’s Consumer Comfort Index just crashed to its lowest since November 16th. It seems the confidence in the fact that The Fed ended QE3 was entirely misplaced after all…
Spot The Factory Orders Recession
hen it comes to the US manufacturing economy, things are now abundantly clear: it is in a recession, the only question is how acute this recession will be, and how long it will last. According to the latest factory orders data released moments ago by the Dept of Commerce, while the headline number rose a modest 1.5%, above the 1.4% expected, the reality is that the baseline number was so low a sequential rebound was inevitable. The real punchline is the Y/Y change, which is shown on the chart below.
See if you can spot the manufacturing recession:
Still can’t, how about now using this chart which shows that US factory orders are back to where they were in late 2010!
Finally, if it still not visible, here is a chart which will make the US manufacturing recession visible even to the most tenured central planner and/or economist.
US Services Economy Crashes To 2015 Lows (And Surges To 6-Month Highs) – Obamacare Blamed
US Services PMI rose from 54.8 in October to 56.1 in November – the highest since May 2015(but this is a drop from the flash print of 56.5 and 2nd biggest miss against expectations of the year). ISM Services crashed from 59.1 to 55.9 (drastically missing expectations) hovering near its lowest since April 2014. Weakness is across the board with Business Activity, New Orders, Employment, Backlog, Exports and Imports all down. Why is the service economy slipping? Simple, the “Affordable Care Act impacting our business, reducing revenue while increasing cost of care.”
US Servcies PMI missed expectations but has only been higher in May…
But ISM Services collapsed…
So take your pick!
ISM Services New Orders are tumbling…
“Affordable Care Act impacting our business, reducing revenue while increasing cost of care. Several states consolidating medical/behavioral providers which have impacted existing business negatively.” (Health Care & Social Assistance)
“Customers’ outlook on their revenues is softening.” (Management of Companies & Support Services)
“Moderate activity level. Some suppliers are providing longer lead times due to their own increased backlog.” (Professional, Scientific & Technical Services)
“Conditions are holding steady for a profitable year and 4th quarter.” (Finance & Insurance)
“Overall food [cost of goods sold] (COGS) has remained generally lower throughout 2015 due to strong dollar, less exports to other countries and low corn prices.”(Accommodation & Food Services)
“Continuing competitive pressure in the grocery retail industry has led to implementation oflower prices across all markets and increased focus and efforts from the organization to reduce cost of goods [sold].” (Retail Trade)
“Q4 retail expectations high, and prep for December peak volumes up in all aspects of staffing, inventory build, and supply purchasing.” (Transportation & Warehousing)
“Year-over-year sales for the same month are down 3 percent.” (Wholesale Trade)
and across the entire survey, things are weaker…
Still just keep ignoring the data…
Manufacturing leads Services into recession.
December 3, 2015 5:10 am
S&P downgrades raft of US banks
Eric Platt and Ben McLannahan in New York
Eight of the biggest US banks have been downgraded by Standard & Poor’s, as the credit rating agency judged that the likelihood of federal government support in a future crisis had dimmed.
Bank of America, JPMorgan Chase, Citigroup and Wells Fargowere among the banks affected by the downgrade, taken as the Federal Reserve sought to finalise rules next year governing the amounts and type of capital banks must hold to withstand a huge shock to the system.
Morgan Stanley, Goldman Sachs, Bank of New York Mellon and State Street — the other four groups designated as globally systemically important banks, or GSIBs — were also downgraded, a shift signalled by S&P last month. All eight holding companies have been docked one notch, while the operating companies are unaffected.
In October the Fed projected that the six largest banks faced a$120bn capital shortfall under new rules that would require the institutions to hold big buffers of debt that could be converted into equity in a crisis. Banks are expected to hold total loss absorbing capacity — TLAC — of at least 18 per cent of their risk-weighted assets.
The rule is one of the final elements of regulators’ efforts to bolster lenders deemed “too big to fail”.
Since the financial crisis of 2008-2009 regulators have launched a succession of measures designed to ensure that taxpayers will not be burdened again in the event of another Lehman-like crisis, forcing banks to hold more capital and liquid assets while limiting the amounts they can return to shareholders through buybacks and dividends.
According to S&P, the near-completion of the TLAC rulemaking means that goal is drawing closer.
Standard & Poor’s US bank ratings Bank Previous ratings Current ratings Bank of America A- BBB+ BNY Mellon A+ A Citigroup A- BBB+ Goldman Sachs A- BBB+ JPMorgan A A- Morgan Stanley A- BBB+ State Street A+ A Wells Fargo A+ A Source: Standard & Poor’s
“We now consider the likelihood that the US government would provide extraordinary support to its banking system to be ‘uncertain’ and are removing the uplift based on government support from our ratings,” said Stuart Plesser and Devi Aurora, analysts with S&P.
The long-term issuer ratings of Bank of America, Citigroup, Morgan Stanley and Goldman Sachs were lowered from A minus to triple B plus. JPMorgan was downgraded from A to A minus, while BNY Mellon, State Street and Wells Fargo were cut from A plus to A.
The Fed’s TLAC rules require banks to maintain minimum levels of capital and long-term debt at the holding company level, which can be “bailed in” to absorb potential losses from subsidiaries and to recapitalise the operating companies. This process is designed to keep operating companies ticking over while equity investors lose everything and creditors take some pain.
S&P noted that it remained unsure which debt instruments would ultimately count as TLAC-eligible, but said it was satisfied that the effect of the changes would be to reduce the chances of another round of state-led bailouts.
Credit strategists at Bank of America Merrill Lynch expect banks to aim to comply with the new capital buffers from 2019, projecting about $50bn in new debt issuance next year to address roughly two-fifths of the shortfalls.
And the USA economy is just humming along, such that Janet can raise rates????
Take a look at orders for the truckers carrying huge loads to destinations in the USA:
(courtesy zero hedge)
There Go The Truckers: Unprecedented 59% Plunge In November Heavy Truck Orders
he rout beneath the relative calm of the market surface continues today as another sector has gotten crushed today in reaction to the domestic and global collapse in trade, the spreading domestic manufacturing recession and the bursting of the commodity bubble: truckers, and especially the heaviest, Class 8 trucks, those with a gross weight over 33K pounds, those which make up the backbone of U.S. trade infrastructure and logistics.
Such as this Kenworth W900:
The following charts of Wabco and Paccar show just where the pain is most acute today:
What happened? Nothing short of a complete disintegration in the heavy trucking sector. Wells Fargo explains:
November Class 5-8 orders decreased 40% yr/yr and 26% from October. The yr/yr decline was the eighth consecutive month of Class 5-8 contraction. The decline yr/yr was driven by weaker Class 8 order intake. Class 8 orders of 16,600 were below our channel check based 22,000-25,000 expectation, dropped 59% yr/yr and 36% from October (vs. the ten-year average 7% decrease in November from October), and was the weakest order month on a seasonally adjusted basis since August 2010. Clearly, November Class 8 orders slowed to weak levels and were beneath expectations. We estimate the Class 8 order intake translates into a Class 8 backlog decline of about 6-8% from October and 15-18% yr/yr. Further, we estimate that backlog to inventory fell to 1.6-1.7 from October’s 1.82 and remained beneath 2 for the third consecutive month.
Fundamentals appear to be progressively negative for future production trends, especially combining the sub-2 backlog to inventory ratio with a low likelihood for significant near-term order increase, given issues that tend to weigh on orders are becoming more prevalent according to our channel check (i.e., shorter order to delivery lead times and decreased used equipment pricing impact on trade-in values). We believe the Class 8 orders will be a negative surprise to investors and likely weigh on truck equipment related stocks.
And the punchline:
Class 8: Class 8 orders dropped 59% yr/yr to 16,600 and decreased 36% from October. The November orders were beneath our channel check based 22,000-25,000unit forecast range and also below seasonal trends (below the ten-year average 7% decrease in November from October). This will likely disappoint some investors.
Visually, here is how the biggest collapse since the great recession looked like:
Which is very bad news for these guys…
… and not just because robo-truck drivers are coming for their jobs.
USA jobless rate rise by 9,000!
(courtesy BLS/Eric Morath)
U.S. Jobless Claims Rise
Last week’s increase by 9,000 to seasonally adjusted 269,000 was higher than economists had expected
Dec. 3, 2015 8:35 a.m. ET
WASHINGTON—The number of Americans filing for first- time unemployment benefits rose last week, but remained at a historically low level.
Initial jobless claims, a proxy for layoffs across the U.S., increased by 9,000 to seasonally adjusted 269,000 in the week ended Nov. 28, the Labor Department said Thursday. Economists surveyed by The Wall Street Journal had expected 265,000 new claims last week.
Last week’s data includes the Thanksgiving holiday. Claims figures are often volatile around holiday periods.
Claims for the prior week were unrevised at 260,000.
The four-week moving average of claims, which evens out weekly ups and downs, fell by 1,750 to 269,250 last week.
Claims declined steadily since 2009 until this year, when they touched a four-decade low in July. They’ve stayed near that mark since.
Fewer layoffs typically means hiring is picking up. Employers added a seasonally adjusted 271,000 jobs in October, the healthiest number so far this year. The November jobs report will be released Friday. Economists project employers added 200,000 jobs to payrolls.
Thursday’s report showed the number of continuing unemployment benefits, claims drawn by workers for more than a week, rose by 6,000 to 2,161,000 in the week ended Nov. 21.
Continuing claims are reported with a one-week lag.
The Labor Department said there were no special factors affecting the latest weekly numbers. Data for Louisiana was estimated due to a technology update in state offices.
Well that about does it for tonight
I will see you tomorrow night