Jan 14/Big whack job against gold and silver today/most markets in Asia down/all of Europe down/However NY rises on Bullard ramp/ISIS attack in Jakarta/Turkish lira collapses to over 3.02 to the dollar/

Gold:  $1073.90 down $13.60    (comex closing time)

Silver $13.74 down 40 cents

In the access market 5:15 pm

Gold $1078.30

Silver:  $13,83

 

At the gold comex today,  we had a poor delivery day, registering 9 notices for 900 ounces.Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 199.63 tonnes for a loss of 103 tonnes over that period.

In silver, the open interest fell by 1289 contracts down to 164,883. 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 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by 3893 contracts to 401,458 contracts as gold was up $1.90  in yesterday’s trading.

Today both the gold comex and the silver comex are in severe stress.

We had no changes into inventory at the GLD / thus the inventory rests tonight at 654.06 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 no changes to inventory/Inventory rests at 316.368 million oz.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver fall by 1289 contracts down to 164,883 despite the fact that silver was up by 44 cents with respect to yesterday’s trading.   The total OI for gold rose by 3893 contracts to 401,458 contracts as gold was up $1.90 in price yesterday

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

 

3. ASIAN AFFAIRS

 

i)Early last night

Last night, WEDNESDAY night, THURSDAY morning: Shanghai up after being rescued again by POBC / Hang Sang falls. The Nikkei closed strongly in the red as did all of Asia with the exception of Shanghai. Chinese yuan down considerably and yet they still desire further devaluation throughout this year.   Oil is up,. Stocks in Europe all  in the red. Offshore yuan trades at 6.6068 yuan to the dollar vs 6.59400 for onshore yuan.  The POBC tries to soaks up off shore yuan to no avail as massive dumping occurred in Hong Kong . Hong Kong dollar suffers a decline, a first in many years.

 

EUROPEAN AFFAIRS

 

i)  another raid and this time on the big French auto giant Renault.  It plunged 20% as the French authorities stated that the probe is on emissions:

( zero hedge)

 

ii) this out to be fun: creditors of the failed Portuguese bank accuses the country of an unfair short cut in its 2 billion euro bail in

( zero hedge)

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

And now Turkey is imploding:

(courtesy zero hedge)

GLOBAL ISSUES

 

i) Canada is now panicking as it sees fruits and vegetables skyrocket in price due to the low Cdn dollar: high uSA dollars

( zero hedge)

 

ii)  the third leg on transportation rates for goods has just succumbed a violent death:  tanker rates.  You will  recall that tanker rates rose due to the need to store oil on the high seas.  Now that this has ended, we now witness tanker rates tumble with sympathy to the Baltic Dry Index and trucker rates:

( zero hedge)

iii) ISIS  (suspected) attack on the Indonesian capital Jakarta:

 ( zero hedge)

iv) Here is a report which suggests that Norway is in big trouble similar to Canada( zero hedge)

 

EMERGING MARKETS

non today

OIL MARKETS

 

The low price of oil is hitting the housing sector in North Dakota, Texas, Oklahoma and West Virginia:

( Nick Cunningham:  Oil Price.com)

PHYSICAL MARKETS

 

i) John Embry talks about gold and silver mining companies being undervalued.  He also talks about the huge amount of global debt and how that bubble will burst:

( John Embry/Kingworldnews/Eric King)

ii) The following sent the USA soaring and thus the automatic slam on gold and silver today:( zero hedge)

 

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

 

i) Trading early USA time zone:

The so called FANGS has now broken down:

e.g. Facebook, Amazon, Netflix and Google:

also  Tesla has tumbled 17% from Christmas:

( zero hedge)

ii) The following made big headlines in that former Fed governor Kocherlakota states that declining inflation expectations are something to worry about.  We brought that important chart to you yesterday and it is repeated again this morning (below)

( zero hedge)

 

iii)  a JPMorgan earnings are out and they increase only on a huge drop in the compensation pool for the crooks.  Dimon also notes that there will be stress in JPM in energy:

(JPMorgan/zero hedge)

iii) b  The story on the increase in loan loss reserves(zero hedge)

iv) The import price index shows that China is exporting the most deflation into the USA in over 6 years:

( zero hedge)

v) Subprime loans in the auto sector total in excess of one trillion dollars. Actually, the other two areas of questionable lending is student loans  (also in excess of 1 trillion dollars) and junk bonds (1 trillion )

Today, Deutsche bank begins to probe employees on exaggerating  asset backed security demand for the auto laons.
(courtesy zero hedge)

Let us head over to the comex:

 

The total gold comex open interest rose to 401,458 for a gain of 3893 contracts as gold was up by $1.90 in price 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.   Today, both scenarios held. We are now in the non active January contract which saw it’s OI fall by 4 contracts to 228.  We had 0 notices filed on yesterday, so we lost 4 contracts or an additional 400 oz will not stand for delivery in this non active delivery month of January.   The next big active delivery month is February and here the OI fell by 4753 contracts down to 223,200. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 148,196 which is poor. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was also fair at 178,276 contracts. The comex is not in backwardation in gold.

Today we had 0 notices filed for nil oz.
And now for the wild silver comex results. Silver OI fell by 1289 contracts from 166172 down to 166,172 despite the fact the price of silver was up 44 cents with respect to yesterday’s trading. We are near multi year lows in silver price and yet extremely high OI which makes no sense at all.  We are now in the non active month of January saw it’s OI rise by 13 contracts up to 98. We had 0 notices filed yesterday so we gained 13 contracts or an additional 65,000 oz will stand for delivery.  The next big active contract month is March and here the OI fell by 2,391 contracts down to 123,348. The volume on the comex today (just comex) came in at 48,639 , which is excellent. The confirmed volume yesterday (comex + globex) was excellent at 51,680. Silver is not in backwardation at the comex but is in backwardation in London. 
We had 0 notices filed for nil oz.

<

December contract month:

INITIAL standings for January

Jan 14/2016

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil
Deposits to the Dealer Inventory in oz  nil
Deposits to the Customer Inventory, in oz    nil
No of oz served (contracts) today 9 contracts 

900 oz

No of oz to be served (notices) 219 contracts(21,900) oz)
Total monthly oz gold served (contracts) so far this month 10 contracts (1000 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 45,356.2 oz
 Today, we had 0 dealer transactions
We had 0  customer withdrawals
Total customer withdrawals:
total customer withdrawals;  nil oz
We had 0 customer deposits:

Total customer deposits  nil oz

we had no adjustments.

Here are the number of oz held by JPMorgan:

 JPMorgan has a total of 7975.14 oz or 0.2480 tonnes in its dealer or registered account.
***JPMorgan now has 401,421.339 or 12.48 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 9 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 9 notices were stopped (received)  by JPMorgan customer account.
 
To calculate the final total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (10) x 100 oz  or 1000 oz , to which we  add the difference between the open interest for the front month of January (228 contracts) minus the number of notices served upon today (9) x 100 oz   x 100 oz per contract equals the number of ounces standing.
 
Thus the initial standings for gold for the January. contract month:
No of notices served so far (10) x 100 oz  or ounces + {OI for the front month(219) minus the number of  notices served upon today (9) x 100 oz which equals 22,900 oz standing in this active delivery month of January (0.7122 TONNES)
we lost 4 contracts or 400 oz will not stand for delivery in this non active delivery month of January.
We thus have 0.7122 tonnes of gold standing and 8.58 tonnes of registered gold for sale, waiting to serve upon those standing
Last month, at the conclusion of the December contract month, we had 6.445 tonnes of gold standing and the same 8.58 tonnes of registered (dealer) gold for sale.
No evidence of any movement out of the registered gold to settle upon longs.
Total dealer inventory 275,914.939 or 8.5820 tonnes
Total gold inventory (dealer and customer) =6,408,180.543 or 199.63 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 200.28 tonnes for a loss of 103 tonnes over that period. 
JPmorgan has only 12.73 tonnes of gold total (both dealer and customer)
end
And now for silver

January INITIAL standings/

Jan 14/2016:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 273,332.990 oz, Brinks, Scotia
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory nil

Delaware,

No of oz served today (contracts) 0 contracts

nil oz

No of oz to be served (notices) 98 contracts (490,000 oz)
Total monthly oz silver served (contracts) 14 contracts (70,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month 2,254,388.2 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 0 customer deposits:

 

total customer deposits: nil oz

We had 2 customer withdrawals:
i) Out of Brinks: 61,946.36 oz
ii) Out of Scotia: 211,386.63 oz
 

total withdrawals from customer account: 273,332.990   oz 

 we had 2 adjustments:

i) removal of 1101.55 oz from HSBC
ii) removal of 51.2 oz from JPM

 

The total number of notices filed today for the January contract month is represented by 0 contract for nil oz. To calculate the number of silver ounces that will stand for delivery in January., we take the total number of notices filed for the month so far at (14) x 5,000 oz  = 70,000 oz to which we add the difference between the open interest for the front month of January (98) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing
Thus the initial standings for silver for the December. contract month:
14 (notices served so far)x 5000 oz +(98) { OI for front month of January ) -number of notices served upon today (0)x 5000 oz or 560,000  of silver standing for the January. contract month.
We gained 13 silver contracts or an additional 65,000 ounces will stand in this non active month of January.
Total dealer silver:  35.764 million
Total number of dealer and customer silver:   159.740 million oz
end
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

 

Jan 14/ no changes into inventory at the GLD/Inventory rests at 654.06 tonnes.

JAN 13.2016/another huge deposit of 2.38 tonnes in gold inventory at the GLD/Inventory rests at 654.06 tonnes

*no doubt that this would be a paper addition and not real metal.

JAN 12/no change in inventory at the GLD/Inventory rests at 651.68 tonnes

JAN  11./another 2.09 tonnes of gold addition (deposit) to the GLD/Inventory rests at 651.68 tonnes.

again, I doubt that the gold added was physical.

jan 8/another huge addition of 4.46 tonnes of gold into GLD/Inventory rests at 649.59 tonnes

  • I highly doubt that the gold added was physical. Gold is severely in backwardation in London and thus almost impossible to source in two days almost 9 tonnes of gold.

Jan 7/a huge addition of 4.16 tonnes of gold into GLD/Inventory rests at 645.13 tonnes

Jan 6/2016/we had a withdrawal of 1.6 tonnes of gold from the GLD/Inventory rests at 640.97 tonnes/

Jan 5/2016: since my last report we had a total of 3.57 tonnes of gold withdrawal from the GLD/Inventory rests at 642.37 tonnes

Jan 14.2015:  inventory rests at 654.06 tonnes

Now the SLV:
Jan 14./no changes in inventory at the SLV/Inventory rests at 316.368 million oz
JAN 13.2016:/no change in inventory at the SLV/Inventory rests at 316.368 million oz
Jan 12.2016: no change in inventory at the SLV/Inventory rests at 316.368 million oz
JAN 11/no change in inventory at the SLV/Inventory rests at 316.368 million oz/
Jan 8/we had a huge withdrawal of 1.429 million oz of silver from the SLV/Inventory rests at 316.368 million oz
someone was in urgent need of silver tonight.
jan 7 no change in inventory/rests tonight at 317.797 million oz
Jan 6/no change in inventory/rests tonight at 317.797 million oz
Jan 5/2016: we had huge withdrawals of 4.282 million oz/Inventory rests at 317.797 million oz
Jan 14.2016: Inventory 316.368 million oz.
1. Central Fund of Canada: traded at Negative 11.9 percent to NAV usa funds and Negative 12.2% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 63.1%
Percentage of fund in silver:36.8%
cash .1%( Jan 14.2016).
2. Sprott silver fund (PSLV): Premium to NAV rises to  -0.36%!!!! NAV (Jan 14.2016) 
3. Sprott gold fund (PHYS): premium to NAV falls  to- 0.61% to NAV Jan 14/2016)
Note: Sprott silver trust back  into negative territory at -.36%/Sprott physical gold trust is back into negative territory at -0.61%/Central fund of Canada’s is still in jail.

And now your overnight trading in gold and also physical stories that may interest you:

 

Trading in gold and silver overnight in Asia and Europe
 
(COURTESY MARK O”BYRNE)

“Buy Gold” As Equities “Rolling Over” Warns UBS

UBS has warned that the seven-year cycle in equities is rolling over, we could see a sharp 30% correction in stocks and that as per the headline of their ‘Technical Outlook 2016′, it is time to “buy gold”.

UBS_Gold_Charts_2016

In their just released research note entitled ‘The 7-Year Cycle in Equities Is Rolling Over … Buy Gold!’, analysts Michael Riesner and Marc Müller believe the bear market that has dominated the price of gold since 2011 is nearing a bottom, with the “basis for the next multi-year bull market” now taking hold:

“Gold we expect to move into a major 8-year cycle bottom in 2016, as the basis for a new multi-year bull market.”

“Gold has been trading in a cyclical bear market since 2011. In 2016, we expect gold and gold mines moving into an 8-year cycle bottom as the basis for the next multi-year bull market. Initially, we see gold profiting as a safe haven and as of 2017, gold could profit from the US dollar moving in a major top and starting a bear market.” 

“In contrast to the underlying secular trend in commodities (which has turned bearish) we see gold (which is in our view a currency and not a commodity) still trading in a secular bull market.

Pattern wise we continue to see the 2011/2016 cyclical bear market in the same context as the 1975/1976 bear cycle in gold. Keep in mind, in the mid-70s gold lost 43% of its value from its January 1975 top before another gold bull market started into the January 1980 bubble peak. It is amazing to see that with a loss of 45% from its August 2011 top into the early December 2015 low, the decline in gold has more or less exactly the same proportion as in the mid-70s.

Furthermore, there are still a lot of market commentators who say that the August 2011 top in gold was the top of a bubble. According to the average gains we have seen in historical financial bubbles, the gold bull run from 2001 into 2011 (760%) was far away from any bubble territory.

In the first gold bubble, gold gained 2400%. In the 1903 to 1929 Dow bubble, the Dow Jones Industrial gained 1200%. The 1979-1989 Nikkei bubble came in at around 2000% and the 1980 – 2000 Nasdaq bubble topped out a +3900%.

So if gold moves into a bubble, we would need to see a gold price of minimum $3,300, and in this case we would still talk about a low bubble phenomena such as the 1903 – 1929 Dow Jones bubble!!”

The research and charts are well worth a read and can be accessed here


Precious Metal Prices
14 Jan LBMA Gold Prices: USD 1,090.75, EUR 998.03 and GBP 759.10 per ounce
13 Jan LBMA Gold Prices: USD 1,081.80, EUR 1,000.00 and GBP 749.04 per ounce
12 Jan LBMA Gold Prices: USD 1,094.95, EUR 1,008.76 and GBP 756.92 per ounce
11 Jan LBMA Gold Prices: USD 1,104.70, EUR 1,014.08 and GBP 758.18 per ounce
8 Jan LBMA Gold Prices: USD 1,097.45, EUR 1,009.86 and GBP 750.67 per ounce


Breaking Gold News and Commentary Today – Click here

Mark O’Byrne
end
John Embry talks about gold and silver mining companies being undervalued.  He also talks about the huge amount of global debt and how that bubble will burst:
(courtesy John Embry/Kingworldnews/Eric King)

Gold, silver, mining shares are only undervalued assets, Embry says

Section:

5:50p ET Wednesday, January 13, 2016

Dear Friend of GATA and Gold:

Sprott Asset Management’s John Embry tells King World News today that the U.S. government’s jobs report lies are getting too obvious, that the bubbles inflated by excessive debt are bursting, and that gold, silver, and the shares of the companies that mine them are the only undervalued assets:

http://kingworldnews.com/global-debt-crisis-to-increase-worldwide-panic-…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

end

 

The following sent the USA soaring and thus the automatic slam on gold and silver:

(courtesy zero hedge)

Gold & Silver Slammed After ECB/Basel Committee Comments

A combination of ECB minutes showing some members looking for more stimulus and Basel Committee publishing final risk rules which will mean stiffer capital demands from banks has sparked weakness in EUR (sending the USD higher) and sparking and instant slam-down in gold and silver.

 

So this:

  • *ECB ACCOUNTS SHOW SOME MEMBERS ARGUED FOR MORE STIMULUS IN DEC.

Yay – some is better than none! Vague hope.

And this:

  • *BASEL COMMITTEE PUBLISHES FINAL BANK MARKET-RISK CAPITAL RULES

Not good news so we are sure it’s implementation will be delayed.

Has sent EURUSD reeling…

 

Which has sparked panic selling in PMs…

end

And now your overnight THURSDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

 

1 Chinese yuan vs USA dollar/yuan falls considerably in value, this time to 6.5904 / Shanghai bourse: in the green after massive intervention  , hang sang: red

2 Nikkei closed  down 474.68 or 2.68%

3. Europe stocks up on Yen rise /USA dollar index down to 98.73/Euro up to 1.0918

3b Japan 10 year bond yield: rises to .228   !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 118.18

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI: 30.75  and Brent:   30.46 

3f Gold up  /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 falls  to  .566%   German bunds in negative yields from 6 years out

 Greece  sees its 2 year rate rise to 9.34%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield rise to  : 8.65%  (yield curve  inverted)

3k Gold at $1089.60/silver $14.06 (7:45 am est)

3l USA vs Russian rouble; (Russian rouble up 35/100 in  roubles/dollar) 76.31

3m oil into the 31 dollar handle for WTI and 31 handle for Brent/

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 1.0025 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0949 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  + .566%/German 6 year rate negative%!!!

3s The ELA at  75.8 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 2.05% early this morning. Thirty year rate  at 2.85% /POLICY ERROR

Overnight rate: 0.22%  (policy error)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

 

Global Markets Slide, US Futures Wipe Out Overnight Gains In Volatile Session

It has been another choppy, illiquid, volatile overnight session, which started with weakness out of China, whose Shanghai Composite dropped 20% into another bear market in early trading, then further slammed by news of a terrorist attack in Jakarta, only to rebound back over 3000 as the Chinese National Team decided to intrevene again, this time in the ChiNext small cap index, pushing it higher by 5.6%.

Then after China faded from center stage, the big mover, both in FX and cross-assets, was the EUR, which soared nearly 100 pips just after the European open on reports the ECB is content for current policy measures to filter through. This in turn slammed the carry trade of choice, the USDJPY, and ultimately trickled down to US equity futures which after hitting overnight highs just shy of 1,900 have since tumbled 22 points to session lows, at 1,879, down 0.2% on the session.

Finally, moments ago Europe was hit by a double whammy when Renault shares plunged 20%, most since August, after Agence France-Presse reported that French fraud investigators seized computers from the automaker as part of an apparent probe into emissions testing. Other carmarkers across Europe were likewise slammed…

… and since there has been no official statement from the company, nobody knows what is really going on and the selling has persisted to this moment, as the primary concern fueling the 2016 drop remains: “Everything boils down to concerns about global growth,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf. “There are few people out there willing to buy the dips because everyone is scared that the selloff will be deeper the next day. And it has been. I would sell any highs — there is definitely potential for bigger losses in the short term.”

To summarize: European shares tumbled, wiping out gains from a two-day rally, Asian stocks slid and the cost of insuring corporate debt rose as investor concern over global growth prospects resurfaced. U.S. equity-index futures pared gains of as much as 0.9 percent. Government bonds rose, with yields falling to records in Japan and China amid anxiety over the world economy. U.S. crude prices stabilized after dropping below $30 a barrel on Tuesday to touch the lowest since 2003 as Iran moved closer to boosting exports. South Korea’s won slid after the central bank kept interest rates unchanged and Indonesia’s stocks and currency dropped after several people were killed in explosions and gunfire in central Jakarta.

Top overnight news stories include Goldman’s job cuts on fixed income desk, Jakarta bombings, JPMorgan AM mandate from BlueCrest, German GDP, Blue Coat IPO managers, scrutiny towards Buffet’s Clayton Homes.

Drilling down into regional markets, Asian stocks traded with firm losses following Wall St.’s negative close, as the slump in energy prices continued to weigh on sentiment. The Nikkei 225 (-3.0%) continued to underperform as Japanese exporters were pressured by a firmer JPY, while Japanese Machine Orders printed their largest decline since May 2014. Elsewhere, the ASX 200 (-1.6%) was led lower by the energy sector as Brent crude fell back below the USD 30/bbl level for the 1st time since 2004, while Chinese bourses fluctuated as the Shanghai Comp (+2.0%) declined into bear market territory, having fallen 20% from its recent December 2015 highs, but then saw an influx of bargain hunting to recover in late trade. Finally, 10yr JGBs were initially higher amid weakness in Asian equity markets which saw the 10yr yield decline to a record low of 0.190%, while the BoJ also entered the market for JPY 1.27tr1 in government debt. However, prices then reversed as stocks came off their worst levels with Nikkei 225 climbing back above the 17000 level.

Top Asian News:

  • Several Killed as Explosions Rock Jakarta, Police Battle Gunmen: Islamic State had warned of shining “spotlight” on Indonesia.
  • Indonesian Stocks Decline With Rupiah After Deadly Explosions: Bank Indonesia cuts key rate for first time since February.
  • Indonesia Assesses Offer for $1.7b Stake in Freeport Unit: FCX has offered Indonesia a stake of ~11% of its local unit for $1.7b, according to govt. official.
  • Herro Says Now Is a Time for True Investors to Profit From Panic: Sees opportunities in beaten-down shares, oil-related firms.
  • China Stocks Pull Back From Bear-Market Brink as Smallcaps Jump: ChiNext cos. pledge to stabilize market by not selling.
  • Yuan Bears Frustrated by Intervention Sell Freely Traded Aussie: Australian dollar is off to worst start to a year since 2009.

In Europe, Equity indices (Stoxx -2.6%) have been weighed upon in European trade following the source reports which point to a lack of further action by the ECB, while questions remain regarding the health of both the Chinese and US economies. The Stoxx 600 has fallen to its lowest since Aug 24th, with markets opening firmly in the red, but taking another leg lower in the wake of reports that a number of members on the ECB governing council are cynical as to whether the central bank needs to unveil further policy action in the near term as existing measures need time to take effect.

Meanwhile, despite the ECB sources suggesting a lack of upcoming stimulus, Bunds have also seen an uptick today amid the heightened risk off sentiment, with the Mar’16 contract having now broken above the high seen on Jan 7th at 160.19 and could now test 160.66 to the upside which marks the 27th Nov high. Also of note, today’s Spanish issuance, which hit Spanish paper after uninspiring bid to covers, concludes the raft of supply that was set for this week, combined equivalent to around 120K Bund futures, while net cash flow for this week is negative EUR 15.97b1n, with the Netherlands, Italy and Austria paying coupons/redemptions.

Top European News

  • German Economy Defied 2015 World Slowdown With Faster Growth: rose 1.7% after gain of 1.6% in 2014, Federal Statistics Office said at press conference in Berlin on Thursday.
  • Pound Touches 11-Month Low Versus Euro Before BOE Announcement: At weakest level since Feb. versus euro before the Bank of England’s first policy decision of 2016.
  • European Dark Pools Expand in Face of Rules Limiting Their Use: European dark pools had 45% jump in value of trading they handled in 2015, according to broker, equity-market operator Investment Technology Group Inc., vs 28% increase for public exchanges.
  • Burberry, Richemont Say Mainland China Luxury Sales Rebounding: Co. says luxury-goods market returned to growth in mainland China at end-2015, as sales in Hong Kong kept slumping.
  • Fiat Chrysler Accused of Falsifying Sales: Automotive News: 2 Chicago-area dealerships filed racketeering lawsuit against Fiat Chrysler, alleging co. offered dealers money to falsify sales.

In FX, The euro strengthened versus all of its 16 major peers and the yen pared a decline as stocks slid, bolstering demand for the safest assets. The currencies of commodity producers including New Zealand, Australia and Canada were among the worst performers versus the dollar.

The pound dropped to 75.90 pence per euro, the weakest level since February, before the Bank of England’s first policy decision of the year. The central bank cited sterling strength as a factor in dragging prices down in the minutes of its previous meeting on Dec. 10, when its nine-member Monetary Policy Committee voted 8-1 to keep the key rate at a record-low.

The won depreciated 0.8 percent against the dollar and Indonesia’s rupiah slid 0.6 percent, leading declines in emerging-market currencies. A gauge of 20 exchange rates slipped 0.1 percent.

The Hong Kong dollar weakened as much as 0.3 percent — its biggest intraday loss since 2003 — to HK$7.7823 versus the U.S. dollar. Speculation mounted in the options market that the city’s 32-year-old currency peg will break as investors lose confidence in Chinese assets.

One-year implied volatility on the Hong Kong dollar has doubled this month to a 12-year high of 3.43 percent. Prices for the derivatives indicate there’s a 24 percent chance the Hong Kong dollar will have weakened beyond its permitted trading range of HK$7.75-HK$7.85 versus the greenback by the end of this year, up from 9.5 percent on Dec. 31, data compiled by Bloomberg show.

Poland’s zloty dropped 0.2 percent versus the euro before the central bank decides on interest rates. While policy makers are expected to keep borrowing costs on hold Thursday, the ruling Law & Justice party, which won elections in October, has said it supports rate cuts and wants the central bank to help spur economic growth. Five of its candidates will join the 10-member rate-setting council for its next meeting in February.

In commodities, the Bloomberg Commodity Index, which tracks raw material returns, was little changed after dropping to the lowest since 1991 on Tuesday.

West Texas Intermediate oil for February delivery swung between gains and losses, with prices rising after attacks in Indonesia. Futures were up 1 percent at $30.78 a barrel after earlier dropping as much as 0.7 percent. Brent added 1.3 percent to $30.71 a barrel.

Most industrial metals traded lower on the London Metal Exchange. Copper for delivery in three months lost 0.3 percent to $4,380 a metric ton after touching a six-year low. Only aluminum managed to eke out a gain, advancing 1 percent to $1,476 a ton.

On today’s US event calendar we have the import price index print along with last week’s initial jobless claims data. Fedspeak wise we’ve got the Fed’s Bullard. US earnings will also be a focus with JP Morgan kicking off for the banks, while in the corporate space Intel is also scheduled to report.

Top Global News

  • Goldman Said to Mull Cutting Fixed-Income Staff More Than 5%: Co. considering cutting >5% of its fixed-income traders, salesmen later this quarter, according to person familiar.
  • Ackman’s Pershing Square Down 11% in 2016 After ’15 Losses: Fund lost 11.4% this year through Jan. 12, according to its website.
  • JPMorgan to Manage $1.2b of BlueCrest Hedge Fund Money: Asset Management unit will take over managing GBP804m for BlueCrest All Blue Fund Ltd.
  • Pfizer Said to Weigh Sale of Pump Unit Acquired in Hospira Deal: Co. weighing sale of the pumps, devices business that could fetch up to $2b, according to people familiar.
  • Boeing, Engineers Reach Pact Bringing Long-Term Labor Peace: New terms reached during formal talks well before existing contract expires in October, co. said Weds.
  • Blue Coat Said to Pick Morgan Stanley, JPMorgan for IPO: Internet security-software co. backed by Bain Capital, picked Morgan Stanley, JPMorgan, according to person familiar.
  • Glencore Mine Sale Said to Draw Interest From Ex-Barrick CEO: Former Barrick Gold Corp. CEO Aaron Regent among remaining bidders for Glencore’s Lomas Bayas copper mine in Chile, according to people familiar.
  • Buffett’s Mobile-Home Unit Should Be Probed: Legislators: U.S. lawmakers called for federal investigations into Clayton Homes, the mobile-home business at Warren Buffett’s Berkshire Hathaway Inc.
  • Twitter Accused in Widow’s Lawsuit of Allowing IS Use: Co. accused in lawsuit by widow of man killed at a police training center in Amman, Jordan, of knowingly allowing Islamic State to spread its terrorist message through its service.
  • Extra Space Storage to Replace Chubb in S&P 500 Index: Change to take place after close Jan. 15.
  • Cheniere Sabine Pass Approved to Export Extra 600bcf of LNG: Exports approved to take place over 2-yr period, U.S. DoE says in order issued Wednesday

Bulletin Headline Summary From RanSquawk and Bloomberg

  • The big mover in FX this morning is the EUR after reports the ECB is content for current policy measures to filter through sent the single unit higher across the board
  • Energy prices trade modestly higher after Brent crude briefly broke below USD 30/bbl for the 1st time since April 2004 yesterday
  • Today’s highlights include BoE rate decision & minutes, ECB minutes, US weekly jobs data and comments from ECB’s Draghi, Fed’s Lockhart and Bullard
  • Treasuries gain for a third day amid losses in global equity markets, Islamic State attack in Indonesia; week’s auctions conclude with $13b long bonds, WI 2.850% vs. 2.978% in Dec.; 30Y yield 3.016% at start 2016.
  • Chinese stocks headed for a bear market while government bond yields fell to a record as central bank cash injections and a stable yuan fixing failed to shore up confidence in the world’s second-largest economy
  • Lost in all the Chinese stock and currency market gyrations, policy missteps and mixed data is this economic reality: The government is constrained by a credit bubble that has ballooned to $28 trillion in an economy growing at its slowest pace in 25 years
  • Hong Kong’s dollar sank by the most in more than a decade and speculation mounted in the options market that the city’s 32-year-old currency peg will end as investors lose confidence in Chinese assets
  • The Islamic State assault in Jakarta began when a suicide bomber blew himself up inside a Starbucks; militants then opened fire and detonated further bombs, including one outside a nearby police post; at least two were killed
  • The number of refugees entering Europe in the first 10 days of 2016 is already three times the level in all of January 2015, signaling no letup in the pressure facing the region’s leaders amid the biggest wave of migration since World War II
  • The German economy expanded about a quarter of a percent in 4Q, with record employment and expansionary monetary policy fueling domestic consumption at a time of weakening global trade
  • Renault SA shares plunged as much as 20% after a union said French fraud investigators seized computers from the automaker as part of an apparent probe into emissions testing
  • Donald Trump told Bloomberg’s With All Due Respect just minutes after he finished a rousing speech to a capacity crowd of 10,000 inside a Pensacola, Florida, arena that he’s building a movement bigger than Reagan’s
  • Goldman is considering cutting more than 5% of its fixed- income traders and salesmen later this quarter as it contends with an industrywide revenue slump, according to a person with knowledge of the matter
  • Sovereign bond yields lower. Asian stocks slide with the exception of China, European stocks decline, equity-index futures steady. Crude oil higher, copper and gold lower

 

DB’s Jim Reid concludes the overnight wrap

Yesterday saw another big turnaround in markets with positive momentum from the European session quashed. For the fourth day in the row the S&P 500 got off to a reasonable start, however much like the previous three sessions the index quickly turned on a dime and headed south in a hurry. The previous two days had seen the market recover in the last hour or so into the close to finish in positive territory but there was no such rebound this time round with the index eventually closing with a -2.50% loss. That was the biggest one-day loss since September 28th as the index finished below the 1,900 level for only the fifth time in the last 15 months. The Dow finished 365pts lower (or -2.21%) with its YTD loss now close to -7.5% while the Nasdaq sold off a heavy -3.41%. Meanwhile small cap stocks in the US entered a bear market following yesterday’s moves with the Russell Index closing -3.30% to fall -22% from the all time highs made in June last year.

Along with events in China, a lot of the blame for weakness in risk assets so far this year has clearly been on the plummeting Oil price. This was partly the case again yesterday after Oil tumbled 4% from the day’s highs in a matter of moments following some bearish inventory data which saw Brent temporarily dip below $30. However, it was interesting to see that energy stocks weren’t actually the biggest underperformers on a sector basis yesterday. Of the ten sectors in the S&P 500, energy (-1.78%) was actually the fourth best performing sector yesterday (behind the more non-cyclical utilities, telecoms and consumer staples sectors). Instead, consumer discretionary (-3.38%), healthcare (-2.93%), tech (-2.79%) and financials (-2.60%) led yesterday’s broader sell-off in a signal that some of the equity weakness is filtering into the broader economy sectors.

Yesterday was also a rough day for US credit markets with CDX IG leaking +6bps wider (and +8bps wider from the early tights). CDX HY was +20bps wider also with the spread of 536bps now the widest since November 2012. The big US HY ETF (HYG) marked a fresh six and a half year low, while US HY energy spreads were a whopping +43bps wider at 1,489bps. Of note also was Reuters reporting that the SEC is to start a review into the potential liquidity risks posed by HY fund managers in light of the recent collapse of a US credit fund, adding to the already poor sentiment.

Looking at our screens this morning bourses outside of China are following much of the lead from the US yesterday, although markets in China have rebounded post the midday break. The biggest falls have come in Japan where the Nikkei and Topix are -2.56% and -2.34% respectively. Elsewhere the Hang Seng is -0.91% while in China the CSI 300 (+0.95%) and Shanghai Comp (+0.66%) have recovered after a poor start. The CNY fix was again set unchanged this morning, but we’ve seen the onshore and offshore currencies weaken 0.2% and 0.6% respectively since. Some slightly better than expected Australian employment data has failed to lift the ASX (-1.80%) while the Aussie Dollar (-0.3%) continues to trend lower along with other EM currencies this morning. As we go to print, reports of an explosion in Jakarta has seen markets there tumble along with the Indonesian Rupiah also selling off.

Yesterday also saw a distinctly more dovish tone to the Fedspeak. In particular it was comments from the Boston Fed President Rosengren which attracted some attention. The Fed official made reference to the fact that ‘policy makers should take seriously the potential downside risks to their economic forecasts and manage those risks as we think about the appropriate path for monetary policy’. Rosengren opined that these ‘downside risks reflect continued headwinds from weakness within countries that represent many of our major trading partners, and only limited data to support the projected path of inflation’. Meanwhile, Chicago Fed President Evans reiterated his view that ‘we are likely headed toward a lower resting point’ for the fed funds rate relative to the past, while also citing that the policy of normalization should be ‘very gradual’ to bring inflation to target in a reasonable amount of time.

Having been a bit of a non-event of late, the Fed’s Beige Book also had a few interesting takeaways yesterday. The report confirmed that seven of the twelve districts reported ‘modest’ growth in the past six weeks, with two citing ‘moderate’ growth, one ‘upbeat’ and the other ‘essentially flat’. Further labour market improvement was made, but the same issues with a lack of wage pressure was evident once more as ‘price increases tended to be minimal’ with districts reporting ‘little overall change in wage and price pressures’. Of interest, auto sales ‘were somewhat mixed, as activity has begun to drop off from previously high levels in some districts’. Manufacturing sectors were said to have weakened generally as ‘several districts reported the strong dollar’s negative impact on demand’. Unsurprisingly weakness in oil and gas sectors was again a feature.

In terms of the rest of the price action yesterday, European stocks closed well off their intraday highs, declining with the moves across the pond. The Stoxx 600 finished +0.41% although it had been up as much as +1.8%. Interestingly energy stocks were the best performing sector there. Rates markets firmed up meanwhile. 10y Treasury yields extended their move lower to 2.093% although it did go as low as 2.040% before a late move higher. Some of early rally in rates was also helped by a strong US 10y auction, the bid-to-cover ratio of 2.77 the highest since December 2014.

In terms of yesterday’s data, in Europe we saw the soft regional industrial production reports confirm a -0.7% mom decline for the Euro area (vs. -0.3% expected) during November. Over in France the December CPI print came in a tad better than expected during the month at +0.2% mom (vs. +0.1% expected). In the US meanwhile we learned that the December trade deficit was wider than expected at $14.4bn (vs. $10.0bn expected).

Looking at the day ahead, it’s another relatively quiet session for data in Europe this morning with the calendar year GDP print out of Germany the main release of note. There’s some central bank action for us to follow however with the BoE decision due around midday (no change expected but the focus will be on the minutes) while we’ll also get the ECB account of the last monetary policy meeting which could be fascinating given the disappointments seen in markets after it. In the US we will receive the December import price index print along with last week’s initial jobless claims data. Fedspeak wise we’ve got the Fed’s Bullard due to speak at 2.15pm GMT, while in Europe the ECB’s Draghi and Coeure are due to participate in a Eurogroup meeting in Brussels this afternoon so it’ll be worth seeing if anything comes out of that. US earnings will also be a focus with JP Morgan kicking off for the banks, while in the corporate space Intel is also scheduled to report.

end

 

ASIAN AFFAIRS

let us begin:

 

Last night, WEDNESDAY night, THURSDAY morning: Shanghai up after being rescued again by POBC / Hang Sang falls. The Nikkei closed strongly in the red as did all of Asia with the exception of Shanghai. Chinese yuan down considerably and yet they still desire further devaluation throughout this year.   Oil is up,. Stocks in Europe all  in the red. Offshore yuan trades at 6.6068 yuan to the dollar vs 6.59400 for onshore yuan.  The POBC tries to soaks up off shore yuan to no avail as massive dumping occurred in Hong Kong . Hong Kong dollar suffers a decline, a first in many years.

The following occurred at 9:30 pm last night;

Hong Kong Dollar De-Pegging Risk Spikes As Yuan Slides, China Stocks Drop To 2-Year Lows

update:

  • SHANGHAI COMPOSITE INDEX FALLS 20% BELOW DECEMBER HIGH

 

To 2-Year Lows…

 

Offshore Yuan is being dumped again

 

And The Hong Kong Dollar is under severe pressure within its peg band…

 

As De-Pegging risk expectations ramp up…

 

As we detailed earlier,following last night’s notable weakness in Chinese stocks (now down 15-25% year-to-date) and today’s plunge in US markets, Offshore Yuan has begun to tumble lower once again ahead of today’s Yuan fix. Having slapped short Yuan speculators with a dire liquidity withdrawal, it appears traders are seeing through the “over-invoicing” bullshit of last night’s trade data and outflows appear to have restarted. Equities across AsiaPac are tumbling despite PBOC injecting a massive CNY160bn of liquidity (and modestly strengthening the Yuan fix), as safe-haven flows push 10Y China bonds to 2.70% – a record low.

Chinese bonds just hit a record low yield…

  • *CHINA 10-YEAR BOND YIELD DROPS 3 BPS TO RECORD 2.70%

 

Offshore Yuan is selling off again…

 

And Chinese equities are a bloodbath in 2016…

 

And tonight’s open is not helping…

  • *MSCI ASIA PACIFIC INDEX EXTENDS LOSS TO 2.3%
  • *FTSE CHINA A50 JANUARY FUTURES FALL 1.7% IN SINGAPORE
  • *SHANGHAI COMPOSITE FALLS BELOW AUGUST CLOSING LOW

But China “flu” appears to be spreading as carry trade unwinds spread to JPY…

Japanese stocks are plunging – NKY down 700 points from its US session highs…

 

To its weakest since Oct 2014…

 

Get back to work Mr. Kuroda!!!

 

Charts: Bloomberg

 

end

 

EUROPEAN AFFAIRS

 

Oh great!! another raid and this time on the big French auto giant Renault.  It plunged 20% as the French authorities stated that the probe is on emissions:

 

 

(courtesy zero hedge)

Renault Plunges 20% After French Authorities Raid Offices In Apparent Emissions Probe

Don’t look now, but Renault may be pulling a Volkswagen.

The French company’s shares fell by as much as 23% on Thursday after an apparent raid on what a union official described as “sites that have to do with standards testing and engine certification.

Earlier, AFP reported that the agents from the fraud office of France’s Economy Ministry visited the sites last week seizing computers as part of an apparent probe into emissions testing.

As Bloomberg notes, “French authorities started a probe in September into whether VW deceived customers about the emissions levels of its diesel cars and promised to expand the probe to cover all carmakers, including Renault and PSA Peugeot Citroen.”

Peurgeot shares fell nearly 10% in sympathy. In October, the automaker said it never used software to cheat emissions tests.

The news rattled carmakers from France to Germany where the market is still on edge after the Volkswagen scandal rocked the country’s auto industry to the core last year.

Florent Grimaldi, the CGT labor official who spoke to the press, said the searches were conducted at company offices at Lardy near Paris. The Lardy site develops engines and ironically has been requesting more resources to work on anti-pollution systems. Apparently, the certification department was targeted.

The stock’s 20% plunge is the largest single day decline in 17 years, reflecting investor fears that the scope of the probe could mirror what unfolded at its German rival.

“Separately, the country’s environmental regulator began randomly testing vehicles to check differences between emissions results found in laboratory testing and real-world figures,” Bloomberg adds.

Renault initially declined to comment but has now confirmed the story and says the company is co-operating with authorities.

 

 

 

end

 

 

this out to be fun: creditors of failed bank accuses the country of an unfair short cut in its 2 billion euro bail in

 

(courtesy zero hedge)

Creditors Accuse Portugal Of “Unfair, Populist Short-Cut” In €2 Billion Bank Bail-In

Two weeks ago, The Bank of Portugal shocked markets by bailing in senior Novo Banco bondholders.

Novo Banco was the “good” bank forged from the ashes of Banco Espirito Santo which had to be bailed out by the state in August of 2014. The idea was to sell Novo Banco to pay for the cost of the bailout, but the auction process eventually floundered amid turmoil in Chinese markets (at least two of the potential bidders were Chinese) and uncertainty about whether this “good” bank would in fact need more capital given the elevated level of NPLs already on its books.

In November, the ECB told Novo it woudl indeed need to raise some €1.4 billion in fresh capital which the bank initially said would come from asset sales. A little over a month later, Portugal’s central bank essentially just gave up. On December 29, the bank announced it was transferring €2 billion in NB senior notes back to Banco Espirito Santo which, like a ghost skyscraper in China, is set for demolition.

In other words, Novo Banco plugged the €1.4 billion hole by essentially declaring €2 billion in bonds null and void. 

There were five issues affected but you can get a pretty good idea about what happened next by having a look at how the 2017s traded that morning:

The reason this had to be done quickly was because if Portugal had waited until January, uninsured depositors would have been at risk under the EU’s new bank resolution mechanism. Plus, Portugal is anxious to get the auction process started again to avoid the decidedly unappealing prospect of having to keep the cost of the bailout on Lisbon’s books in perpetuity thus inflating the fiscal deficit by an extra 3% of GDP.

Now that the smoke has cleared, bondholders aren’t happy and Lisbon is doing its best to distance itself from the central bank’s decision even as it clearly paved the way for Novo’s sale, which the government obviously benefits from. “The Portuguese government said it was against the central bank’s decision to impose losses on some Novo Banco SA bondholders, according to two people familiar with the situation,” Bloomberg reports, noting that “Finance Secretary of State Ricardo Mourinho Felix told investors on Monday that the ministry had expressed concern to the central bank about the transfer of bonds to a bad bank, [but] didn’t interfere in the debt transfer because of central bank independence.”

For their part, the ECB says it had nothing to do with the transfer either. “The decision by Banco de Portugal to bail in some senior bond holders in Novo Banco was taken exclusively by BdP under its national resolution powers,” the central bank said, in a statement.

PIMCO, for one, isn’t buying the idea that the government had no say in the matter and in an op-ed for FT, managing director and global head of financial research Philippe Bodereau likens Portugal to Venezuela and Argentina before calling the Novo Banco bail-in an “inconsistent, unfair and amateurish populist short-cut.”

*  *  *

From “Discrimination at Portuguese Bank Novo Banco Sets Dangerous Precedent” as originaly published in Financial Times

Just over a year since the European Central Bank took over as the regulator for Europe’s systemically important banks, we face a situation in Portugal that calls into question the rule of law in that country and in the EU. This also raises very serious questions over how the ECB intends to act as Europe’s banking regulator.

Where banks are judged to be insolvent, then it is right and proper that senior bondholders should be bailed in and take losses. But this must be done in a fair manner and, indeed, in accordance with the law. What is clear is that in the case of Novo Banco, the ECB itself has concluded that the bank was solvent and in no need of another resolution, leaving no legal and economic rationale behind the radical course of action undertaken by the Portuguese authorities. It is important to stress that there is no new resolution, bail-in or insolvency proceeding here

In the case of Novo Banco, this shortfall could easily have been covered with private sector solutions, be they asset sales, equity raising and/or partial debt equitisation. This playbook has worked efficiently in the recent and much more challenging recapitalisation of the Greek banking sector, which led to an aggressive, but fair, bail-in of senior creditors.

The new Portuguese administration is not the first government to resort to asset confiscation and populist expediency. Venezuela and Argentina also belong to this club. The important distinction is that Portugal is a eurozone member state, and its systemically important banks are regulated by the ECB.

Indeed, it is no secret that the southern periphery of the eurozone has a large number of weak banks with significant non-performing loans on their balance sheets. The Novo Banco action sets a worrying precedent that an arbitrary and unfair confiscation of investor assets is an acceptable remedy to the financial challenges experienced by these weak banks.

It is a great shame that five years after the beginning of the eurozone sovereign and banking crisis, the eurozone is still dealing with banking crises in a manner that is inconsistent, unfair and amateurish. We collectively — investors, bankers, regulators and governments — should aspire to much higher standards and avoid populist short-cuts that will inevitably result in protracted litigation.

*  *  *

For those wondering who’s on the hook here, below find the list of bondholders who had a very bad day on December 29.

 end

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

And now we witness Turkey imploding as its lira has now surpassed the 3 level at 3.02 to the dollar

 

(courtesy zero hedge)

Presenting Turkey’s “Vicious” Depreciating Currency Cycle

In late November, Turkey dropped the word “independence” from its central bank mandate.

Although a few analysts and strategists attempted to downplay the omission by advising the market to “focus on the meaning rather than individual words” and despite assurances from Deputy Prime Minister Mehmet Simsek, who said “speculation over wording on central bank independence in the new government program doesn’t reflect the truth,” there’s reason to be concerned.

President Recep Tayyip Erdogan has repeatedly called for lower interest rates in Turkey and what Erdogan wants, Erdogan usually gets.

“In Turkey, the interest rates are high. Our rates are not those in the West, where they are low. First you have to reduce the cost of money. As long as the cost of money is on the rise, you can neither find young businessmen nor young businesswomen,” he said at the the G20 summit in Antalya, where central bank governor Erdem Basci was forced to look on as Erdogan the rates strategist lectured everyone, including Christine Lagarde, on monetary policy.

Put simply, some fear Erdogan may be moving to effectively hijack monetary policy at a time when the CBT desperately needs to move towards normalization.

This situation is complicated by the fact that 5 out of 7 of MPC members including the governor will be appointed between April and November. “We continue to see the appointment process as a major source of uncertainty, with the potential to generate significant market volatility,” Goldman wrote, earlier this month, adding that “the cluster of appointments coming due within the next 3-5 months means that the entire leadership of the CBRT can, and probably will, be overhauled.”

Right. And that’s bad news in the current environment. “This could have potentially far-reaching consequences for the conduct and direction of monetary policy, and thus condition Turkey’s short- and medium-term macroeconomic outlook in important ways,” Goldman continues.

Remember, the lira came under heavy pressure last year in the wake of the general EM FX rout and amid a long list of idiosyncratic domestic concerns including political turmoil and what amounts to a civil war with the Kurds in the southeast.

Even as the currency plunged, the CBT did nothing to arrest the slide. Well, nothing other than announce an uninspiring “roadmap” for how the central bank planned to cope with DM normalization.

In short: Turkey needs to start hiking before the lagged pass through effects of persistent TRY weakness blow the roof off the CBT’s inflation target. 

Inflation is already running well above target, as the following graphic from Morgan Stanley clearly shows:

Meanwhile, expectations are running disturbingly high:

And simply “normalizing” won’t be enough because as you can see, real rates are actually quite low:

Ultimately, the takeaway is that if Erdogan gets his way and Turkey moves in the opposite direction that it should (i.e. if the newly constituted MPC eases rather than tightens), the following “vicious cycle” will continue to turn, vaporizing Turks’ purchasing power faster than a Kurdish militant on a bad day in Cizre.

end

GLOBAL ISSUES

Canada is now panicking as it sees fruits and vegetables skyrocket in price due to the low Cdn dollar: high uSA dollars

 

(courtesy zero hedge)

 

 

Canadians Panic As Food Prices Soar On Collapsing Currency

 

 

It was just yesterday when we documented the continuing slide in the loonie, which is suffering mightily in the face of oil’s inexorable decline.

As regular readers are no doubt acutely aware, Canada is struggling through a dramatic economic adjustment, especially in Alberta, the heart of the country’s oil patch. Amid the ongoing crude carnage the province has seen soaring property crime, rising food bank usage and, sadly, elevated suicide rates, as Albertans struggle to comprehend how things up north could have gone south (so to speak) so quickly.

The plunging loonie “can only serve to worsen the death of the ‘Canadian Dream'” we said on Tuesday.

As it turns out, we were exactly right.

The currency’s decline is having a pronounced effect on Canadians’ grocery bills. AsBloomberg reminds us, Canada imports around 80% of its fresh fruits and vegetables. When the loonie slides, prices for those good soar. “With lower-income households tending to spend a larger portion of income on food, this side effect of a soft currency brings them the most acute stress,” Bloomberg continues.

Of course with the layoffs piling up, you can expect more households to fall into the “lower-income” category where they will have to struggle to afford things like $3 cucumbers, $8 cauliflower, and $15 Frosted Flakes. Have a look at the following tweets which underscore just how bad it is in Canada’s grocery aisles.

No “Jack Nasty” it’s not The Great Depression, but as we highlighted three weeks ago, it isCanada’s depression and it’s likely to get worse before it gets better. “Last year, fruits and veggies jumped in price between 9.1 and 10.1 per cent, according to an annual report by the Food Institute at the University of Guelph,” CBC said on Tuesday. “The study predicts these foods will continue to increase above inflation this year, by up to 4.5 per cent for some items.”

If you thought we were being hyperbolic when we suggested that if oil prices don’t rise soon, Canadians may well eat themselves to death, consider the following from Diana Bronson, the executive director of Food Secure Canada:

“Lower- and middle-class people — many who can’t find a job that will pay them enough to ensure that they can afford a healthy diet for their families” — also feel the pinch of rising food prices”

 

CANADIAN. PRICES:  cucumber:  $3.00; cauliflower  $8.00; Frosted Flakes:  $15.00; Tide 3 Litre:  $31.99

 

 

 

“The wrong kind of food is cheap, and the right kind of food is still expensive.”

In other words, some now fear that the hardest hit parts of the country may experience a spike in obesity rates as Canadians resort to cheap, unhealthy foods. As we put it, “in Alberta it’s ‘feast or famine’ in the most literal sense of the phrase as those who can still afford to buy food will drown their sorrows in cheap lunch meat and off-brand ice cream while the most hard hit members of society are forced to tap increasingly overwhelmed food banks.”

And the rub is that there’s really nothing anyone can do about it.

Were the Bank of Canada to adopt pro-cyclical measures to shore up the loonie, they would risk choking off economic growth just as the crude downturn takes a giant bite out of the economy – no food pun intended.

 

 

END

 

 

Here is a report which suggests that Norway is in big trouble similar to Canada

 

 

(courtesy zero hedge)

 

Norway’s Black Gold Fields Are A Sea Of Red – A Real-Time Map Of Crude Carnage

Norway is in trouble. As we have detailed previously (here, here, here, and here), the world’s largestsovereign wealth fund has begun liquidating assets (after its largest quarterly loss) as the nation faces recessionary fears (key data deterioration as oil stays lower for longer) with expectations building (despite denials by the central bank) that ZIRP (or even NIRP) is coming. Why? Simple – as the following real-time map shows – every one of Norway’s oil fields are currently underwater!

As we explained previously, while the slump in oil has pressured the krone and thus helped the country preserve some semblance of export competitiveness, the fact that i) everyone else is easing, and ii) global demand and trade are in the doldrums, serves as a kind of counterweight, leading directly to a situation wherein the currency, in Bloomberg’s words, “just can’t get weak enough.”  

Now, Svenska Handelsbanken is out predicting that “lower for longer” crude will eventually force Norway to cut rates to zero.

Here’s more, via Bloomberg:

With oil prices still wobbling around $50, Norway is in danger of a recession that could drive its benchmark interest rates, already at a record low, to zero.

 

That’s what economists at Svenska Handelsbanken AB in Oslo say as they warn that “recessionary risks are significant.” The central bank in September cut rates to 0.75 percent and signaled more than a 50 percent chance for a third reduction since the drop in oil prices accelerated, about a year ago. Handelsbanken sees three cuts next year, bringing the benchmark to zero by the end of 2016.

 

“The Norwegian economy will now experience a deeper downturn than during the financial crisis, with output expected to stay below its potential for longer than it did last time,” Kari Due-Andresen and Knut Anton Mork, economists at Handelsbanken, wrote in their latest report.

 

 

Before the big oil price drop even got started, Norway was already battling a bigger-than-expected fall in investments. Now, with Brent crude lower still, investments by oil and gas companies operating in Norway are set to suffer.

As a reminder, Norway is now set to dip into its sovereign wealth fund for the first time. Earlier this month, budget estimates indicated that inflows from petroleum activities in 2016 will fall short of what the government plans to take out of the fund by nearly NKr4 billion. Here’s a graphic from RBS which illustrates the relative size of Norway’s SWF:

And while the asset allocation of SWFs varies meaningfully compared to official FX reserves, it’s worth noting that this is but one more example of “Great Accumulation” reversal dynamic outlined in thse pages last November and highlighted by Deutsche Bank in the wake of the China deval. That is, regardless of what’s being sold, it still represents a major turning point at which crude producers cease to be net exporters of capital.

Getting back to the Norges Bank, it’s also worth noting that just today, Governor Oeystein Olsen mentioned NIRP. As reagular readers are no doubt aware, there’s no surer sign that policymakers are in factconsidering something than when they say they aren’t considering it. The soundbite, from Bloomberg:

“We still have room to maneuver both ways. I hasten to stress that as prospects are now, we think it’s not likely in the near future that Norway will have negative rates. The board has not discussed moving into negative territory”

In the end, we suppose the real question is this: if the housing bubble that the Norges Bank has helped to inflate bursts, how does the central bank plan to deal with the fallout (which will be amplified by the economic drag from low oil prices) when it has exhausted its counter-cyclical capacity by cutting rates to zero?

And here is why it’s circling the ZIRP drain… every Norwegian oil field is operating at a loss currently…

To follow Norway’s demise in real-time, see here.

As we concluded in a previous note,

We are hoping that [Norwegian policy makers] can figure out the difference between spending and investment, taking time to understand the financials.

 

The stock and bond markets and collecting rent from high street properties cannot replace the oil industry. Although Norway has strong fishing and technology industries, their growth is relatively limited due to environmental limitations, strong unions (which are not a bad thing but they can limit a company’s ability to adapt during difficult times) and the high cost of employment.  We need a new, difficult to duplicate, industry to carry us forward.

 

Norway needs to be more Swiss and American and less European in their approaches to business and immigration. Otherwise, Norway will become a “Socialist Paradise Lost.” It will become just another European country instead the exception, like Switzerland.

 end

 

And now the third leg on transportation rates has just succumbed a violent death:  tanker rates.  You will  recall that tanker rates rose due to the need to store oil on the high seas.  Now that this has ended, we now witness tanker rates tumble with sympathy to the Baltic Dry Index and trucker rates:

 

 

(courtesy zero hedge)

 

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes

If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up ‘cheap’ oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China’s record crude imports have ceased).

In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago…

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners.

China’s crude imports last month was equivalent to 7.85 million barrels a day, 6 percent higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher.

But given the crash in tanker rates – and implicitly demand – that “boom” appears to be over.

Shipbroker analysts blame fewer January cargoes and oil companies using their own vessels for shipment as the main reasons for the dramatic decline. As Bloomberg adds,

Oil tanker earnings boomed thanks to the very thing that drove down crude prices: an abundance of supply that made ship-fuel cheaper and shipments plentiful. This month, shipbrokers report a slump in spot cargoes from the Middle East.

 

While they say it would be premature to suggest that has implications for the region’s output, the plunge in rates shows just how sensitive owners are to monthly fluctuations in shipments.

The good news after all this carnage is that, even before today’s plunge, collapsing tanker rates were already pushing economics for floating storage (the carry trade) closer to be proditable.

 

end
ISIS  (suspected) attack on the Indonesian capital Jakarta:
(courtesy zero hedge)

Explosions, Gunfire Rock Indonesia Capital: 4 Dead (1 Cop); 14 Gunmen, Suicide Bombers Involved (ISIS Suspected)

Two months after the Paris explosions of November 13, it appears terrorism has struck again, this time in Indonesia’s capital, Jakarta where moments ago, at least six bomb explosions, gunfire and casualties were reported (AFP is reporting three dead but this is unconfirmed), with at least one of the explosions taking place near the local UN office.

  • *JAKARTA POLICE RECEIVED THREAT FROM ISLAMIC STATE: METRO TV
  • ANTARA NEWS REPORTS SIX EXPLOSIONS IN CENTRAL JAKARTA
  • *JAKARTA POLICE SAYS GUNMEN STATIONED ATOP BUILDING: METRO TV
  • JAKARTA POLICE SUSPECTS BOMB AT TRAFFIC POLICE POST: METRO TV
  • JAKARTA POLICE, GUNMEN CONTINUES SHOOTING: METRO TV
  • AT LEAST 3 VICTIMS IN CENTRAL JAKARTA EXPLOSIONS: METRO TV
  • *POLICE SAYS ABT. 10-14 GUNMEN SEEN IN CENTRAL JAKARTA: METRO TV
  • *JAKARTA SAYS 1 POLICE OFFICER KILLED IN EXPLOSION: METRO TV
  • *INDONESIA POLICE SAYS GRENADE CAUSED EXPLOSION: CNN INDONESIA

One witness claimed men on motorbikes threw grenades.

The moment of one of the explosions…

 

 

As AP reports,

A massive explosion rocked downtown Jakarta in front of a popular shopping mall on Thursday and an Associated Press reporter saw at least one dead body.

 

Gunshots were heard after the midmorning explosion in front of the Sarinah shopping mall and a police station. The area also has many luxury hotels, and offices and embassies, including the French.

 

It was not clear who was shooting but police had cordoned off the area, preventing reporters from going near the scene.

 

Witnesses said the explosion was caused by a suicide bomber, but there was no immediate confirmation of the claim.

 

Indonesia has been a victim of several bombing attacks in the past, claimed by Islamic militant groups.

 

The country has been on high alert after authorities said they had foiled a plot by Islamic militants to attack government officials, foreigners and others. About 150,000 police officers and soldiers were deployed during New Year’s Eve to guard churches, airports and other public places.

 

More than 9,000 police were also deployed in Bali, the site of Indonesia’s deadliest terror attack, which killed 202 people in 2002.

 

National Police spokesman Maj. Gen. Anton Charliyan said security is focused on anticipating attacks in vulnerable regions, including Jakarta.

 

On Tuesday, the jailed radical Islamic cleric Abu Bakar Bashir appealed to an Indonesia court to have his conviction for funding a terror training camp overturned, arguing that his support for the camp was an act of worship.

 

The 77-year-old leader of the Jemaah Islamiyah militant network filed a judicial review of his 2011 conviction, when he was sentenced to 15 years in jail for setting up the camp in Aceh province. A higher court later cut the sentence to nine years.

At least one police officer has been wounded:

*  *  *

A UN Regional Representative is live-tweeting the horrific events…

 

 

As of this moment, the explosions appear to be yet another suicide bomber-driven terrorist attack, and we suspect it is only a matter of time before ISIS takes credit.

 

The local stocks have reacted dramatically:

 

And The Rupiah is tumbling…

 

 

 end

EMERGING MARKETS

none today

your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/THURSDAY morning 7:00 am

Euro/USA 1.0918 up .0035

USA/JAPAN YEN 117.74 up 0.328

GBP/USA 1.4406 up .0001

USA/CAN 1.4374 up .0021

Early this morning in Europe, the Euro rose by 35 basis points, trading now just above the important 1.08 level falling to 1.0918; 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 further stimulation as the EU is moving more into NIRP,and last night tumbling bourses and the threat of continuing USA tightening by raising their interest rate / Last  night the Chinese yuan was down in value (onshore). The USA/CNY up in rate at closing last night: 6.5904 / (yuan down and still undergoing massive devaluation/ which will cause deflation to spread throughout the globe)

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 33 basis points and trading now well below  that all important 120 level to 118.18 yen to the dollar.

The pound was up this morning by 1 basis point as it now trades just above the 1.44 level at 1.4406.

The Canadian dollar is now trading down 21 in basis points to 1.4374 to the dollar.(even though oil prices rebounded higher today)

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 and the yen carry trade also 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 down 474.68 or 2.68%

Trading from Europe and Asia:
1. Europe stocks all in the red

2/ Asian bourses mixed/ Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the green after huge gov’t intervention (massive bubble bursting), Australia in the green: /Nikkei (Japan) green/India’s Sensex in the green /

Gold very early morning trading: $1090.40

silver:$14.05

Early THURSDAY morning USA 10 year bond yield: 2.05% !!! par from last night in basis points from TUESDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield rises to 2.85  up 3 in basis points.  ( still policy error)

USA dollar index early THURSDAY morning: 98.73 down 16 cents from WEDNESDAY’s close. ( Now below resistance at a DXY of 100)

This ends early morning numbers THURSDAY MORNING

 

OIL MARKETS

 

The low price of oil is hitting the housing sector in North Dakota, Texas, Oklahoma and West Virginia:

 

 

(courtesy Nick Cunningham:  Oil Price.com)

Cheap Oil Hits Housing In North Dakota, Texas, & Others

Submitted by Nick Cunningham via OilPrice.com,

Low crude oil prices since the second half of 2014 have created a boon for consumers as the cost to fill up at the pump has plunged. The extra cash in the pockets of millions of motorists is often likened to an unexpected tax cut, which could help stimulate the economy.

Leaving aside the true extent of such a stimulus, which is debatable, there is a flip side to that coin. The collapse in crude oil prices is a huge blow to areas where oil extraction and associated industries are the bread and butter of the economy.

As petro-economies suffer from the bust in crude prices, the effects are showing up in the housing market.

Take North Dakota, for example, which was on the front lines of the oil boom between 2011 and 2014. In fact, North Dakota is probably the most vulnerable to a downturn in housing because of low oil prices. The economy is smaller and thus more dependent on the oil boom than other places, such as Texas. The state saw an influx of new workers over the past few years, looking for work in in the prolific Bakken Shale. A housing shortage quickly emerged, pushing up prices. With the inability to house all of the new people, rent spiked, as did hotel rates. The overflow led to a proliferation of “man camps.”

Now the boom has reversed. The state’s rig count is down to 53 as of January 13, about one-third of the level from one year ago. Drilling is quickly drying up and production is falling. “The jobs are leaving, and if an area gets depopulated, they can’t take the houses with them and that’s dangerous for the housing market,” Ralph DeFranco, senior director of risk analytics and pricing at Arch Mortgage Insurance Company, told CNN Money.

New home sales were down by 6.3 percent in North Dakota between January and October of 2015 compared to a year earlier. Housing prices have not crashed yet, but there tends to be a bit of a lag with housing prices. JP Ackerman of HouseCanary says that it typically takes 15 to 24 months before house prices start to show the negative effects of an oil downturn.

According to Arch Mortgage, homes in North Dakota are probably 20 percent overvalued at this point. They also estimate that the state has a 46 percent chance that house prices will decline over the next two years. But that is probably understating the risk since oil prices are not expected to rebound through most of 2016. Moreover, with some permanent damage to the balance sheets of U.S. shale companies, drilling won’t spring back to life immediately upon a rebound in oil prices.

There are some other states that are also at risk of a hit to their housing markets, including Wyoming, West Virginia and Alaska. Out of those three, only Alaska is a significant oil producer, but it is in the midst of a budget crisis because of the twin threats of falling production and rock bottom prices. Alaska’s oil fields are mature, and have been in decline for years. With a massive hole blown through the state’s budget, the Governor has floated the idea of instituting an income tax, a once unthinkable idea.

The downturn in Wyoming and West Virginia has more to do with the collapse in natural gas prices, which continues to hollow out their coal industries. Coal prices have plummeted in recent years, and coal production is now at its lowest level since the Reagan administration. Shale gas production, particularly in West Virginia, partially offsets the decline, but won’t be enough to come to the state’s rescue.

Texas is another place to keep an eye on. However, Arch Mortgage says the economy there is much larger and more diversified than other states, and also better equipped to handle the downturn than it was back in the 1980s during the last oil bust.

But Texas won’t escape unscathed. The Dallas Fed says job growth will turn negative in a few months if oil prices don’t move back to $40 or $50 per barrel. Texas is expected to see an additional 161,200 jobs this year if oil prices move back up into that range. But while that could be the best-case scenario, it would still only amount to one-third of the jobs created in 2014. “The biggest risk to the forecast is if oil prices are in the range of $20 to $30 for much of the year,” Keith Phillips, Dallas Fed Senior Economist, said in a written statement. “Then I expect job growth to slip into negative territory as Houston gets hit much harder and greater problems emerge in the financial sector.”

After 41 consecutive months of increases in house prices in Houston, prices started to decline in third quarter of 2015. In Odessa, TX, near the Permian Basin, home sales declined by 10.6 percent between January and October 2015 compared to a year earlier.

Most Americans will still welcome low prices at the pump. But in the oil boom towns of yesterday, the slowdown is very much being felt.

end
Bullard states that oil has to bottom sometime and this causes the Dow to skyrocket
give me a break!!
(courtesy zero hedge)

Stock Buying-Panic Ensues As Fed’s Bullard Says “Oil Has To Bottom Sometime”

Thanks to the following deep thought:

  • BULLARD: HAVE TO HIT A BOTTOM ON OIL PRICES ‘SOMETIME’
  • BULLARD: WATER IS WET, SKY IS BLUE (just kidding)

Oil prices are surging and that means buying panics unleashed in stocks…

 

This oil move has ripped The Dow 300 points higher:

Even as the Fed is folding, and exposing a lack of credibility and crushing the growth hope meme:

  • BULLARD: QUITE BIT OF CORRELATION IN OTHER COMMOD, OIL PRICES
  • BULLARD: MKTS TAKEN BY SURPRISE BY SPEED OF OIL PRICE DECLINES
  • BULLARD: WOULDN’T EXPECT A LOT OF APPRECIATION IN US$ THIS YR
  • BULLARD: ECB’S QE CAUSED LARGE MOVEMENTS IN ’14 EXCH RATES
  • BULLARD: US$ ‘VERY SENSITIVE’ TO MON POLICY IN OTHER ECONOMIES

And stocks love it because it means that credibility aside, more easing may be coming.

end

Portuguese 10 year bond yield:  2.67% down 1 in basis points from WEDNESDAY

Japanese 10 year bond yield: .200% !! down  2 in basis points from WEDNESDAY and extremely low ****unbelievable
Your closing Spanish 10 year government bond, THURSDAY down 5 in basis points
Spanish 10 year bond yield: 1.78%  !!!!!!
Your THURSDAY closing Italian 10 year bond yield: 1.56% down 5 in basis points on the day:
Italian 10 year bond trading 22 points lower than Spain.
IMPORTANT CURRENCY CLOSES FOR THURSDAY
Closing currency crosses for THURSDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 Euro/USA: 1.0857 down .0027(Euro down 27 basis points)
USA/Japan: 118.08 up .666 (Yen down 67 basis points)
Great Britain/USA: 1.4409 up .0000 (Pound flat basis points)
USA/Canada: 1.4362 up 0.0009 (Canadian dollar down 9 basis points)
This afternoon, the Euro fell by 27 basis points to trade at 1.0857.
The Yen fell to 118.08 for a loss of 67 basis points.
The pound was up 0 basis points, trading at 1.4409.
The Canadian dollar fell by 9 basis points to 1.4362 (even the price of  oil price rose again to around $31.14 per barrel).
The USA/Yuan closed at 6.5897
Your closing 10 yr USA bond yield: up 5 basis points from WEDNESDAY at 2.10%// policy error
(trading well below the resistance level of 2.27-2.32%)  (policy error)
USA 30 yr bond yield: 2.89 up 7  in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
 Your closing USA dollar index: 99.11 up 22 cents on the day  at 2:30 pm

The so called FANGS has now broken down:

 

e.g. Facebook, Amazon, Netflix and Google:

 

also  Tesla has tumbled 17% from Christmas:

 

(courtesy zero hedge)

 

(courtesy zero hedge)

 

“Very Worrisome Signal For Fed Credibility” – Former Fed President Trolls Federal Reserve

It’s one thing for a fringe website to mock the Fed (on a daily basis, for the past 7 years),with articles such as this one we posted just before noon today, showing that inflation expectations have once again imploded, less than a month after the Fed’s rate hike was supposed to signal confidence in the economy and a renormalization in inflation:

Since The Fed hiked rates in December, the market’s inflation expectations have collapsed in yet another clear indication of “policy error.” 5Y5Y Forward inflation swaps have crashed below 2.00% for only the 3rd time in history (Lehman 2008 and September’s Fed Fold were the other two) as despite central banker promises of transitory low-flation, the money is being bet against them as the regime-shift from full-faith to no-faith in Fed support continues.

 

 

However, when a former Fed president, one who was employed as recently as two weeks ago by the Minneapolis Fed, Narayana Kocherlakota, best known for being the biggest hawk to dove conversion in Fed history, and also being the one person to dare put a negative dot on the Fed’s ever amusing dot plot, suggesting it is time for negative rates does exactly the same, you know that the Fed’s credibility has already run out.

From Kocherlakota: “Very worrisome signal for Fed credibility as 5 yr 5 yr forward breakevens plumb new lows …”

Of course, the far more worrisome signal for Fed credibility is not that inflation forwards are plunging, but that one of the Fed’s faithful has now taken to a public forum like Twitter to troll his former co-workers.

All that it would take now is for Yellen to formally admit the Fed’s credibility is gone and to cut rates first back to zero, and then negative, with a solid dose of QE on top, admitting it was always only about the markets.

end
JPMorgan earnings are out and they increase only on a huge drop in the compensation pool for the crooks.  Dimon also notes that there will be stress in JPM in energy:
(JPMorgan/zero hedge)

JPM Earnings Rebound On Big Drop In Compensation Expense; Dimon Notes “Some Stress In Energy”

There were four things we mostly cared about in today’s JPM earnings release, the first Wall Street bank to report Q4 results:

  1. how did the company’s fixed income and equity trading revenue do;
  2. what is the bank’s credit exposure to energy/oil;
  3. did the recent Fed hike do anything to boost the company’s Net Interest Margin (this has been the primary catalyst for bank share upside), and
  4. did JPM halt its practice of releasing reserves and start building reserves – a major inflection point when it comes to management expectations for future credit quality deterioration.

But before we go there, here is a quick skim of the summary income statement: as the table below shows, JPM posted a modest $0.13 increase to EPS Y/Y which rose to $1.32, beating estimates of $1.27 driven by a $1.1BN reduction in expenses while revenue increased only $0.2BN from a year ago.  One place where the cost-cutting may have come from is headcount as JPM lost 12,000 workers in 2015 and has lost ~43,000 since 2012.  However, the biggest hit was in Investment Banking compensation (as in bonus accruals) which dropped by $1.1BN Y/Y to $4.4BN, also down $1.7 billion from the prior quarter. It will not be a happy year for JPM bonus recipients.

 

Then a quick look at JPM’s balance sheet which has continued its recent trend of declining, and was down to $2.352 trillion, down $221 billion from a year ago, while the matching decline on the liability side was once again in deposits which dropped to $1.28 trillion from $1.363 trillion a year ago, while non-operating deposits decline by $200 billion. And while JPM no longer discloses the full breakdown of its Net Interest Margin, it did note that “Firm NII up $310mm QoQ and NIM up 7bps QoQ to 2.23%”, adding to “Expect 1Q16 Firmwide NII and NIM to be flat to slightly up sequentially.” One would sure hope it is up instead of flat: after all that was the whole point of the Fed rate hike right.

 

Drilling down on just JPM’s income statement, we focus on the most important group, Corporate and Investment bank, where total revenue slumbped by $314MM Y/Y to $7.1 billion mostly as a resulyt of a decline in IB revenue, which at $1.5B, was down 11% YoY “driven by lower debt underwriting fees, partially offset by higher advisory fees.” In other words, JPM does not do too well when there is a debt issuance drought.

 

Then we focus on what until recently was every bank’s favorite non-GAAP accounting piggybank: releases from loan loss reserves. Here something changed, because after years of declining loan loss reserves, in Q4, for the first time in many consecutive quarters, JPM increased in loan reserve by $89 million to $13.555 billion.

 

What drove this increase in reserves? As JPM notes in the earnings presentation, “Credit costs of $81mm primarily reflecting higher reserves driven by Oil & Gas” within the IB group and a “reserve build of ~$100mm driven by $60mm in Oil & Gas and $26mm in Metals & Mining” within the commercial banking group.

The first oil and energy cracks are indeed starting to emerge, further confirmed by Jamie Dimon who said that while JPM had a good quarter as 2015 came to a close, “businesses generated strong loan growth and credit quality, except for some stress in energy.” How much stress, exactly, won’t be revealed for a few more months.

Until then, we will keep our eye on the other big banks and see if anyone else will crack first and admit just how big their exposure to the foundering oil and energy sector truly is.

The full Q4 JPM presentation is below

 

end

 

Here is a story on the increase in loan loss reserves

(zero hedge)

JPMorgan Just Did Something It Has Not Done In 6 Years

esterday we reported something disturbing: a small regional bank, BOK Financial, announced that it had underestimated its exposure to energy loans, or rather loan, issued by just one company, and as a result its  previously forecasted provision for credit losses of $3.5 million to $8.5 million would be insufficient, and due to the unexpected loan impairment it would have to take a dramatic $22.5 million in credit losses.” As a result BOKF stock crashed and is now trading at levels not seen since 2010.

The reason this is troubling is because as we said yesterday “banks have taken every possible opportunity to assure investors they all overly provisioned for any potential losses stemming from their exposure to impaired energy loans.”

Clearly when it came to at least one lender this was not the case. And now the attention shifts to all the other banks, which brings us to the first big bank to report earnings earlier today, JPM.

Earlier we spread the company’s financials and showed that while revenues had barely grown, and in the all important Investment Banking and Trading division revenues actually declined (offset with big cuts to compensation expenses, read bonuses), something else stood out: when skimming through the company’s loan loss reserve disclosure, we found that in Q4 JPM did something it hasn’t done in 6 years: for the first time in 22 quarters, or since March 2010, JPM actually increased its loan loss provisions by $89 million, instead of reducing this amount.

Indicatively, after peaking at $38.2 billion in Q1 2010, the amount of loan loss reserves had declined by $24.7 billion (an amount that went straight to JPM’s net income line) through Q3 2015, before rising for the first time in 6 years in the fourth quarter.

What happened?

As JPM disclosed in its earnings presentation, it had taken a “reserve build of ~$100mm driven by $60mm in Oil & Gas and $26mm in Metals & Mining” within the commercial banking group.”

In other words, after half a decade of smooth sailing, Jamie Dimon is starting to get concerned.  This is what he said during the JPM earnings call:

JP MORGAN’S DIMON SAYS NOT WORRIED ABOUT BIG OIL COMPANIES, PROVISIONS ARE INCREASED AGAINST SMALLER ENERGY FIRMS

So JPM is not worried about big oil companies for now, but by implication it is worried about “smaller energy firms.” The problem is that “smaller energy firms” account for about half of the production and the leverage in the US shale space.

Which brings us back to the original question: if a regional bank like BOK Financial was slammed by just one loan (to what we can only assume was a smaller energy firm), where does the buck stop, and how many other regional, or even big, banks, are woefully underreserved in their exposure to energy loans. And most importantly, how long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones: how underreserved is JPM for that eventuality?

As for the rest, earnings season is just getting started: we expect to find just who has been far more busy managing investor expectations instead of actually provisioning for soaring loan losses in the coming weeks. Remember: increasingly more managers are predicting that up to a third of US energy companies will go bankrupt if oil fails to rebound from current prices. And that is an eventuality no bank has provisioned for.

 

end

After months of jobless claims falling it has now changed course as it now jumps to 6 month highs;

(courtesy BLS:  zero hedge)

Initial Jobless Claims Jump To 6 Month Highs

Something has changed! After years of consistent down-trend in initial jobless claims, the regime has change since mid-October to an uptrend. This past week saw claims rise 7k to 284k leaving the less-noisy 4-week average at 279k – its highest since early July 2015.

 

 

What many appears to be unable to grasp is that we have seen the best and history tells us what comes next…

 

Charts: Bloomberg

end
The import price index shows that China is exporting the most deflation into the USA in over 6 years:
(courtesy zero hedge)

China Exports Most Deflation To The US Since December 2009

The December import price index report from the BLS showed a modest deterioration at the headline level: declining by 1.20% this was fractionally better than the expected decline of -1.40% however a notable drop from last month’s -0.50%. While most of the December decrease was attributable to falling fuel  prices, nonfuel prices continued to trend down as well, with Import prices ex-fuels dropping 0.3% (after falling 0.2% in Nov), suggesting the rest of the world continues to export substantial deflation to the US.

Annually, the pace of declines also picked up modestly dropping “only” -8.2% from a year ago, higher than the -9.5% slide in October. Import prices have now seen an annual decline for 17 consecutive months starting in July 2014. Fuel prices decreased 9.5 percent in December, following a 3.5-percent drop in November. The December decline was the largest 1-month fall in the index since a 12.7-percent decrease in August and was led by a 10.0-percent drop in petroleum prices. Natural gas prices also declined in December, falling 6.8 percent.

Before blaming only sliding commodity costs for the continuing collapse in import prices, read this: prices for nonfuel imports fell 0.3 percent in December and have not  recorded a monthly advance since the index rose 0.1 percent in July 2014. Lower prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; and each of the major finished goods categories all contributed to the overall drop in nonfuel prices. The price index for nonfuel imports declined 3.4 percent over the past year, the biggest calendar-year drop since the index was first published in 2001.

And while the trend of US trade partners exporting deflation either across the Atlantic or Pacific continues, one name continues to stand out.

China.

As the BLS reported, the price index for imports from China edged down 0.1 percent in December and has not recorded a monthly increase since the index rose 0.1 percent in December 2014. Import prices from China declined 1.7 percent in 2015, the largest calendar-year decrease since the index fell 1.8 percent in 2009.

In other words, just like in the aftermath of the Global Financial Crisis, China has found the perfect escape valve for its unprecedented excess production (now that its own economy can’t fit it in) – dump it in the US.

Nowhere is this more visible than in the following chart showing the Chinese import price index dropping by 1.7% Y/Y, the most since December 2009.

 

Expect China to continue flooding the US with deflation especially since as we showed before, there is only one thing it can do with all that excess production of aluminum, steel and all other commodities: export it to whoever will buy it at (or below) dumping prices.

 

end
Subprime loans in the auto sector total in excess of one trillion dollars. Actually, the other two areas of questionable lending is student loans  (also in excess of 1 trillion dollars) and junk bonds (1 trillion )
Today, Deutsche bank begins to probe employees on exaggerating  asset backed security demand for the auto laons.
(courtesy zero hedge)

Subprime Auto Canary: Deutsche Bank Probes Employees For “Exaggerating ABS Demand”

Perhaps more than anyone else, we’ve been keen on documenting the rise of subprime auto loans.

Over the course of the last 12 months, data from Experian clearly shows that underwriting standards are falling in the industry as competition for a shrinking pool of eligible borrowers heats up.

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

Note that this is the same dynamic that unfolded in the US housing market in the lead up to the crisis. In order to keep the music going, the universe of borrowers must be perpetually expanded, and that means extending more generous terms to entice customers.

This is critical for two reasons. First, the much ballyhooed US auto “renaissance” must be sustained at all costs or else Phil LeBeau won’t have anything to talk about. As we demonstrated last week, the cracks are already starting to show.

Second, Wall Street’s securitization machine needs feeding. Just as securitizations fueled the housing market prior to the meltdown in 2008, so too does consumer ABS issuance “drive” (no pun intended) to auto market in America today. The model is called “originate to sell,” which simply means that lenders make loans and promptly sell them off for securitization by investment banks who then sell the resulting paper to investors. Obviously, this exacerbates the trend towards lower underwriting standards. That is, if the loan isn’t going to stay on my books, why do I care if the borrower is creditworthy?

Over the last year we’ve seen some truly awful deals go off including a number of horrendous securitizations from Skopos Financial, where “the best part [about getting a loan] is speed.” In late October, Skopos went “full-retard”, selling $154 million of paper backed by a pool of credits in which 14% of the loans were made to borrowers with no credit score.

Needless to say, news that those kind of deals are getting done might well spook investors who have managed to keep a level head amid what is now a trillion dollar bubble.

When investors get spooked, they want more yield for their trouble and that’s likely especially true now given the worrying statistics on loan terms and the three charts shown above.

Given all of this, we weren’t terribly surprised to learn that Deutsche Bank is now conducting an internal probe to determine whether employees “exaggerated demand” in the course of selling subprime ABS in an effort to artificially suppress yields.

“Deutsche Bank AG officials are reviewing whether some employees exaggerated demand as they marketed new securities backed by risky auto loans, potentially suppressing yields for investors,” Bloomberg reports, citing people familiar with the matter. “The bank has looked at communications between the employees and investors to determine whether such marketing practices were normal salesmanship or if they crossed a line, said the person, who asked not to be named because the matter is private.”

Apparently, new CEO John Cryan is also looking at whether special treatment was afforded to VIP clients.

So, it would appear that demand for auto loan ABS may be beginning to dry up as investment banks are forced to engineer an artificial buzz around new deals in order to keep skeptical investors from demanding sharply higher yields.

As a reminder, if the market for auto loan ABS stalls (so to speak), it will trigger a chain reaction all the way down to the dealers who will suddenly care about the creditworthiness of borrowers again.

Once that happens, the US auto “miracle” will suddenly disappear in a cloud of noxious tail pipe exhaust as the one reliable “driver” of consumption in America is exposed for what it is: a castle built on subprime quicksand.

end
Well that about does it for tonight
I will see you tomorrow night
Harvey
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