Gold: $1141.30 up $13.00 (comex closing time)
Silver 14.72 up 44 cents
In the access market 5:15 pm
Gold $1142.50
Silver: $14.67
At the gold comex today, we had a fair delivery day, registering 158 notices for 15,800 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 202.66 tonnes for a loss of 100 tonnes over that period.
In silver, the open interest fell by 176 contracts down to 157,934. In ounces, the OI is still represented by .790 billion oz or 113% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI rose by a huge 5301 contracts to 378,735 contracts as gold was down $0.60 with yesterday’s trading.
We had a huge change in gold inventory at the GLD, a deposit of 4.16 tonnes of gold / thus the inventory rests tonight at 685.59 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex. In silver,/we had a small change in inventory, a withdrawal of 130,000 oz and thus/Inventory rests at 309.380 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver fall by 176 contracts down to 17,934 as silver was down 6 cents with respect to yesterday’s trading. The total OI for gold rose by 450 contracts to 379,185 contracts as gold was down $0.60 in price from yesterday’s level.
(report Harvey)
2 a) Gold trading overnight, Goldcore
(Mark OByrne)
3. ASIAN AFFAIRS
i)Oil crashes below the 30 dollar USA barrier:
i)the following is a must read, the author Hugo Salinas Price discusses what we gold bugs understand must happen. He explains in detail the various steps in gold’s revaluation.
( Hugo Salinas Price/GATA)
ii)Bron is on the warpath with respect to the phony silver fix at the LBMA
(Bron Suchecki/Perth Mint/GATA)
USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER
i) wow!! what a change. We now have the NY Fed President Dudley hinting at a policy error as he states there is significant consequences form the strong dollar (no kidding)
( zero hedge)
ii) The markets after opening in the positive retreated badly:
iii)Yesterday, we brought to your attention, the big drop in USA manufacturing PMI and ISM. Today the all important USA service ISM and PMI data revealed another dismal performance. Remember that the service sector is the dominant one in the USA
iv) they’re back!!! (liar loans)
v)Moody’s warns that defaults are in the wind as liquidity is drying up. They also note huge financial and monetary stress.
vi) ADP employment growth tumbles:
vii) It is certainly getting bad out there: January truck orders collapse down 48%(courtesy zero hedge
viii) We will close the day with this conversation with David Stockmn and greg Hunter
And now your overnight trading in gold, MONDAY MORNING and also physical stories that may interest you:
Silver Price Fix – “Future Of The Fix Is Fraught”
The silver pricefix debacle from last week and the new London silver price fix has received a litany of severe criticism in recent days.
Perth Mint research director Bron Suchecki has done an excellent piece where he gathers together these “damming” criticisms and sums up the severe challenges facing the new silver price fix.
Since my article on the LBMA Silver Price on Friday, more market participants have come out criticising the process:
Afshin Nabavi, MKS: “People are going to lose all faith in the fix if this keeps going.”
Brad Yates, Elemetal: “When Thursday’s number came in, people initially thought CME would void it, it was so far out of line with the market. When they endorsed it and it became the official print, the benchmark immediately lost credibility. We had two clients shift business away from pricing on the fix to live pricing.”
Simon Grenfell, Natixis: “The new silver price setting mechanism appears broken. It is clearly an issue that the regulator should be looking at.”
Grzegorz Laskowski, KGHM: “The large discrepancy between the spot price and the fix is very alarming to us especially that it happened twice in a row. I think the LBMA needs to make every effort to explain why it happened and needs to help to develop a system that would help to avoid these kind of situations in the future.”
He concludes that the new silver fix is at risk of heading into a “death spiral” and that the future of the fix is fraught.
Bron Suchecki’s blog can be found on the Perth Mint blog here
Precious Metal Prices
3 Feb: USD 1,130.00, EUR 1,034.04 and GBP 781.25 per ounce
2 Feb: USD 1,123.60, EUR 1,029.65 and GBP 780.01 per ounce
1 Feb: USD 1,122.00, EUR 1,032.86 and GBP 785.60 per ounce
29 Jan: USD 1,112.90, EUR 1,019.89 and GBP 776.84 per ounce
28 Jan: USD 1,119.00, EUR 1,026.14 and GBP 781.59 per ounce
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end
Ladies and Gentlemen:
the following is a must read, the author Hugo Salinas Price discusses what we gold bugs understand must happen. He explains in detail the various steps in gold’s revaluation.
Hugo Salinas Price is Mexico’s 4th richest person in Mexico. He has been a gold and silver bug for most of his life.
enjoy…
(courtesy Hugo Salinas Price/GATA)
The Coming Revaluation Of Gold
Submitted by Hugo Salinas Price via Plata.com.mx,
The current melt-down of the world’s debt bubble is likely to continue in the course of the next months. The secular trend to expansion of credit has morphed into contraction and liquidation. It is my opinion that the new trend is now established and no action by any of the Central Banks (CB) that issue reserve currencies will do anything at all to reverse that trend.
Sandeep Jaitly thinks that the desperate reserve-issuing CBs – the US Fed, the ECB, the Bank of England and the Japanese CB – may resort to programs of QEP, by which he means“Quantitative Easing for the People”. This quantitative easing will mean putting money into the hands of the populations by rebates on taxes, invented make-work schemes or any other excuse to furnish the people with the famous “helicopter money”, to get them to spend.
As the present crisis deepens and given our experience with the way our so-called “economists” think, we can reasonably expect such programs to be launched.Nevertheless, the present trend of world economic contraction will not be reversed by any ad hoc program. The world’s expectations – positive for growth since WW II – have turned negative. This is an event of such magnitude that no “QE” will have any effect upon the final outcome: debt collapse.
The growing fear in the world’s markets arises from the recognition on the part of indebted corporations and individuals that their debt burdens are increasing due to devaluations of their national currencies. International investors are attempting to reduce their exposure. “Hot money”, invested in countries which offered higher interest rates, now wants to go home. In recent years of bonanza, foreigners borrowed some $11 trillion dollars, in various Reserve Currencies, to invest in their own countries. Of this total, it is calculated that about $7 trillion of those dollars are denominated in dollars. The debtors are now attempting to pay-off their dollar loans, and this has the effect of lowering the value of their own currencies with respect to the US Dollar, thus aggravating the situation. There is a loss of confidence in national currencies, producing Capital flight to the rising Dollar, because the countries that issue those currencies are no longer able to maintain export surpluses against the reserve-issuing countries, and are thus unable to increase reserves and are actually losing these reserves. The export-surpluses are disappearing in the “rest of the world” because the reserve-currency countries, plus China, are in an economic slump (essentially attributable to excessive debt) and are reducing their consumption of imports, thus reducing the exports of the export-surplus countries.
The loss of Reserves on the part of the countries which depend on export-surpluses for economic health makes the accumulated debt burden in the world increasingly unsustainable; investors around the world are worried that some of their assets (which are actually debt instruments, that is to say various sorts of promises to pay) may turn out to be duds, and they are trying to find ways to protect themselves – and Devil take the hindmost!
Whatever expedients are implemented, the final outcome of the unprecedented economic contraction in the world will have to be the revaluation of gold reserves, as desperate governments of the world resort to gold to preserve indispensable international trade. The revaluation of gold reserves held by Central Banks will be the only alternative for countries seeking to retain a minimum of international trade to supply their economies, whether they are based on agriculture, on manufacturing or on mining.
The amount of gold held by any particular country will not be the important factor in maintaining operating economies, because even a small amount of gold will be sufficient for that purpose; the reason being, that gold coming into newly rediscovered importance, no country will be able to maintain either trade surpluses or trade deficits. The first case would imply that other countries are sending their precious gold to the surplus export countries, but the scarcity of gold and its vital importance will not permit other countries to lose their gold to the (would-be) surplus-producing countries. In the second case, the trade-deficit countries would immediately correct their activity by devaluing their currencies ipso facto, rather than continue to lose their precious gold to cover their trade-deficits: devaluation would put an immediate stop to the excess of imports over exports. Governments resorting to credit-creation to fund their deficits would find themselves limited to balanced budgets; otherwise, their budget deficits funded by credit-creation would spill over into excessive imports and the consequent necessity for immediate devaluation of their currency.
Only gold-producing countries will be able to run trade deficits, limited to the amount of gold they produce to pay for such deficits.
Thus, the revaluation of gold will have the beneficent effect of restoring the world to a healthy condition, lost a century ago, of balanced trade and balanced national budgets.
The discipline of gold as Reserves backing currency at a revalued price will restore order to a world that has refused to adopt the necessary discipline until forced to do so in the desperate situation now evolving, where there will be no other alternative but to accept the detested fiscal and financial discipline imposed by gold.
We do not know the true amount of gold held by the world’s central banks, because it is a closely held secret. However, we need not know that figure. Whatever gold there is in CB vaults will be sufficient, for the reasons we have given.
Nor do we know at what price, in dollars, the price will be set, or how it will be set. However, given the truly astronomic amounts of debt in existence, a very high price will be necessary to “liquefy” i.e. make payable remaining debt, whatever the amount remaining after the purge which is now in process. The very high price of gold will mean that all debt instruments will be subject to large losses in terms of gold value. The revaluation of gold will reduce the weight of the present debt overhang upon the world.
The revaluation of gold does not mean that prices of goods and services will rise in tandem with the higher price of gold. Established prices will by and large remain the same prices that existed before the revaluation. However, prices will have to re-adjust to reflect the new economic realities. Many goods that we have taken for granted will disappear, as their artificial cheapness vanishes.
Another characteristic of a world that has begun to trade with gold-backed currencies as money, will be that one-way flows of gold from one region to another, or from groups of countries to a single country, will be impossible; such a flow would become a permanent drain on gold for some region or some country, and a permanent increase in gold for some region or some country. Eventually the gold would tend to pile up in some region or country, leaving the rest of the world with a lack of gold.
The oil-producing countries will have to adjust the gold price of their oil exports to balance with the gold price of their imports, plus the gold value of their investments abroad.
For a visual appreciation of the coming conditions, we have provided a few graphs. The first column illustrates the present condition, with present CB Reserves at $11.025 Trillion dollars, plus an estimate of CB Reserves of 31,110 tons of gold at $1,100 Dollars an ounce (according to an authoritative calculation of 183.000 tons of gold in existence at present, of which 17% are calculated to be held as Reserves by Central Banks around the world). The second column presents the present CB Dollar Reserves, below CB reserve gold revalued at $22,000 Dollars an ounce. The third column presents the present CB Dollar Reserves, below 50,000 tons of reserve gold revalued at $50,000 Dollars an ounce. We use the larger figure for CB gold, because some analysts think that China, and also Russia, have far larger gold reserves than they disclose publicly.
Why do we use $22,000 and $50,000 Dollars an ounce? Because other thinkers have estimated a necessary revaluation of gold, with various figures between a low price of $10,000 Dollars and ounce and a high price of $50,000 Dollars an ounce. So we arbitrarily selected $22,000 Dollars an ounce and $50,000 Dollars an ounce. Take your pick. The price and the quantity of gold in Central Bank vaults are really immaterial; the facts will be known eventually, and the result will be what we have pointed out above: the restoration of balanced trade and balanced budgets in our present highly disorderly world.
Once the world’s currencies are “gold-backed”, then the gold held by individuals, trusts or corporations will cease to lie lifeless in stocks of gold. All gold will have become moneyand will spring to life in furthering economic activity: the revaluation of gold by Central Banks will also revalue, simultaneously, the 151,890 tons of gold which are thought to be in private hands at present – 183,000 tons total, minus 31,110 tons held by Central Banks = 151,890 tons in private hands.
For China, the revaluation of gold means an end to the great export trade of Chinese manufactures, with the consequent inevitable, and surely very wrenching re-ordering of its economy. Perhaps this explains why the Chinese government has been urging the population of China to purchase gold.
China, which is rumored to have far more gold in its Reserves than it says it does, might have the opportunity to lend say, 50 tons of the yellow metal to each of 50 hard-hit countries, for a total of an insignificant 2,500 tons out of its large stash. In return, the recipient countries would place Chinese on the Boards of their Central Banks and as supervisors in their National Treasuries; in addition, China might obtain privileges to invest in the extraction of scarce natural resources or in agriculture – China has a huge population that will require establishing sources of food. Nothing comes without a price, and “he who has the gold makes the rules”. The Chinese are well-known as consummate merchants and as people who know how to live unobtrusively in foreign countries. China’s influence may extend around the world, with the world’s return to gold-backed currencies.
For the US, the revaluation of gold means an end to its ability to obtain any goods it desires, in any quantity, in any place, at any price by simply tendering today’s mighty fiat Dollar in mock-payment, in exchange for those goods. The US economy will have to suffer a huge and also painful, wrenching adjustment to its new situation in a different world, where balanced trade and balanced budgets are relentlessly imposed by the new status of gold as international money. On the positive side, US manufacturing will immediately spring to life to supply the US market; employment and incomes will surge with the rebirth of US manufactures.
Once all currencies are “gold-backed” by revalued gold reserves, then gold is once again the international money, and the Dollar becomes nothing more than the national currency of the US, as quantities of gold become the international means of settling trade. We need not worry ourselves about how this will take place, because that it will happen is a certainty. All prices of goods and services around the world will really be gold prices, since all currencies will be redeemable at sight, in gold.
Such is the significance of the coming revaluation of gold.
end
Bron is on the warpath with respect to the phony silver fix at the LBMA
(courtesy Bron Suchecki/Perth Mint/GATA)
Bron Suchecki: Would you risk going to jail to fix the fix?
Submitted by cpowell on Tue, 2016-02-02 17:28. Section: Daily Dispatches
12:27p ET Tuesday, February 2, 2016
Dear Friend of GATA and Gold:
Perth Mint research director Bron Suchecki today compiles many criticisms and complaints about the new London silver price fix, whose seeming malfunction last week has become a bit scandalous. There seems to be much opinion that bullion banks and traders, fearing accusations of market manipulation, are increasingly unwilling to trade simultaneously off the fix when they might need to hedge their trades with futures contracts.
If so, one might think that this serves all of them right, since so much of the monetary metals market is secretive and its bigger participants are essentially agents of central banks, whose objectives long have included currency and commodity market rigging:
http://www.gata.org/node/14839
Let them trying doing their rigging in the open again, as they did in the era of the London Gold Pool.
Suchecki’s commentary is headlined “Would You Risk Going to Jail to Fix the Fix?” and it’s posted at the Perth Mint’s research page here:
http://research.perthmint.com.au/2016/02/02/would-you-risk-going-to-jail…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
end
Craig Hemke is in the same camp as I. Gold is being moved around the comex vaults whereby “stickies” are indicating metal transferred from one place to another.
(courtesy Craig Hemke/Turd Ferguson/GATA)
TF Metals Report: Connecting the Comex dots
Submitted by cpowell on Wed, 2016-02-03 00:20. Section: Daily Dispatches
7:20p ET Tuesday, February 2, 2016
Dear Friend of GATA and Gold:
The TF Metals Report’s Turd Ferguson today finds what seems like confirmation that Comex gold deliveries are just metal passed back and forth among the same bullion banks — a charade. Ferguson’s commentary is headlined “Connecting the Comex Dots” and it’s posted at the TF Metals Report here:
http://www.tfmetalsreport.com/blog/7420/connecting-comex-dots
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATa.org
end
China’s gold production falls a bit to 450 tonnes. Jewellry demand still robost:
(courtesy Reuters)
UPDATE 1-China 2015 gold output dips 0.4 pct, consumption rises
Feb 3 China, the world’s top gold miner and consumer, produced 450.05 tonnes of the precious metal in 2015, down 0.4 percent from a year earlier, the country’s gold industry body said on Wednesday.
Consumption rose 3.7 percent to 985.9 tonnes, driven by a recovery in jewellery manufacturing and consumption, the China Gold Association said.
“Affected by falling gold prices, Chinese gold output in 2015 saw negative growth for the first time, but China remained the world’s biggest gold producing country for the ninth year in succession,” the association said in a report on its website (www.cngold.org.cn).
With prices relatively stable compared to other commodities, gold investment reached a “turning point”, it said, prompting a recovery in the manufacture and sale of gold bars and coins following a decline that started in September 2013.
“It can be predicted that in the future, Chinese gold consumption will resume its growth trend and China will maintain its position as the world’s number one gold consuming nation,” the report said.
(Reporting by David Stanway; Editing by Richard Pullin)
end
Another important commentary tonight from Bill Holter
(courtesy Bill Holter/Holter Sinclair collaboration)
FW: The Great Credit Unwind!
The action in nearly all markets worldwide changed on a dime since January 1st. I am not sure “what or why” the change coincided so closely with the calendar year but the rate hike by the Fed is the leading candidate. As for the real global economy, there is certainly evidence the weakness of late last year has deepened significantly. The pace of collapse has shifted gears as evidenced by trade, earnings and even central banks. Japan’s new policy of negative interest rates followed by new Fed trial balloons of same speak volumes about “stress”.
Another area of stress is change in the action on COMEX. I have documented over the past year several delivery months where there were more contracts standing than registered gold available for delivery. The current Feb. contract has gone past first notice day with 13.3 tons of gold standing for 3.5 tons of registered gold. A very good synopsis of this was done yesterday by Craig Hemke at TF Metals Connecting The Comex Dots I encourage you to read this.
And now your overnight WEDNESDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan RISES to 6.5770 / Shanghai bourse: in the RED by 0.38 % (ONLY AFTER LAST HR RESCUE/ hang sang: RED
2 Nikkei closed down 559.43% OR 3.15%
3. Europe stocks IN THE RED /USA dollar index DOWN to 98.67/Euro UP to 1.0916
3b Japan 10 year bond yield: FALLS TO .067 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 119.53
3c Nikkei now well below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 30.56 and Brent: 33.29
3f Gold up /Yen UP
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 0.297% German bunds in negative yields from 7 years out
Greece sees its 2 year rate rise to 11.75%/:
3j Greek 10 year bond yield rise to : 9.36% (yield curve deeply inverted)
3k Gold at $1129.75/silver $14.41 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble up 1 and 49/100 in roubles/dollar) 78.34
3m oil into the 30 dollar handle for WTI and 32 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/expect a huge devaluation imminently from POBC.
JAPAN THURSDAY NIGHT,( JAN 29.2016) INITIATES NIRP
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0169 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1001 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 7 year German bund now in negative territory with the 10 year falls to + .297%/German 7 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 1.88% early this morning. Thirty year rate at 2.69% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Europe Falls, U.S. Futures Rise As Oil Halts Two-Day Plunge
While the biggest news of the night had nothing to do with either oil or China, all that mattered to US equity futures trading also was oil and China, and since WTI managed to rebound modestly from their biggest 2-day drop in years, continuing the trend of unprecedented, HFT-driven volatility which has far surpassed that of equities and is shown in the chart below…
… despite the API reporting a jump in oil inventories, rising back over $30, and with China falling only 0.4% overnight after the National Team made a rare, for 2016, appearance and pushed stocks to close at the day’s high, US E-minis were able to rebound from overnight lows in the mid-1880s, and levitate above 1900. Whether they sustain this level remains to be seen.
However, as noted above, the biggest news was neither oil nor China whose rigged volatility is now watercooler humor talk across trading floors, but the BOJ’s Kuroda, who as reported previously, made many headlines overnight during a speech on NIRP such as the follolwing:
- KURODA: POSSIBLE TO CUT NEGATIVE RATE FURTHER IF NEEDED
- KURODA: BOJ NEEDS TO DEVISE NEW TOOLS IF MEASURES INSUFFICIENT
- KURODA: BOJ WILL DO WHATEVER IT CAN TO REACH PRICE TARGET
What was disturbing about these is that not only was the BOJ unable to push the USDJPY, or Nikkei (which plunged 3.2%) higher, but the Japanese currency surged overnight wiping out almost all post-NIRP losses, and suggesting that central bank credibility is virtually gone. A few more “emergency actions” like the BOJ’s and not all the HFT algos igniting upward momentum will be able to offset the avalanche of selling that is “pent up” and just waiting for the central bank admission of terminal failure, before all markets around the global are concurrently halted “due to market reasons.”
But while US equity futures are enjoying today’s crude levitation, Europe’s benchmark equity gauge dropped for a third day, with Italian banks leading losses,and the Markit iTraxx Europe Index of credit-default swaps on investment-grade companies surpassed 100 basis points for the first time since October 2013. The yen strengthened for a third day. Oil recovered after its biggest two-day drop in almost seven years, buoying Russia’s ruble, and zinc climbed to the highest in almost three months.
Where we stand now:
- S&P 500 futures up 0.3% at 1905
- Stoxx 600 down 0.4% to 333.2
- FTSE 100 down 0.8% to 5874
- DAX down 1.3% to 9461
- German 10Yr yield down less than 1bp to 0.3%
- Italian 10Yr yield down 2bps to 1.47%
- Spanish 10Yr yield up less than 1bp to 1.59%
- MSCI Asia Pacific down 2.1% to 119
- Nikkei 225 down 3.2% to 17191
- Hang Seng down 2.3% to 18992
- Shanghai Composite down 0.4% to 2739
- S&P/ASX 200 down 2.3% to 4877
- US 10-yr yield up less than 1bp to 1.85%
- Dollar Index down 0.22% to 98.66
- WTI Crude futures up 1.5% to $30.33
- Brent Futures up 1.5% to $33.20
- Gold spot up less than 0.1% to $1,130
- Silver spot up 0.6% to $14.39
Looking at regional markets, we start in Asia where the oil slump continued to linger and weigh down on global markets with local markets tracking Wall Street losses as WTI returned to sub-USD 30/bbl levels. Nikkei 225 (-3.2%) underperformed in the region as the dampened sentiment brought forth from oil with pressure also coming from a firmer JPY. ASX 200 (-2.3%) was unable to escape the grasp of the plunge in the energy complex, with the decline in oil dragging the index into negative territory. Shanghai Comp (-0.4%) abided by the trend set between the regional bourses as the index shrugged off the better than prior Caixin PMI readings in which the services figure printed a 6-month high. JGBs were supported by the risk off sentiment in the region alongside spill over buying in USTs, with yields falling to record lows across the curve.
Asian Top News:
- China Said to Plan Loosening of Limits on Foreign Fund Outflows: China’s central bank plans to loosen controls on when foreign investors can bring money in and out of the country through QFII quotas, according to people with direct knowledge of the matter
- Lenovo Tumbles as Sputtering PC, Phone Demand Hammers Sales: Rev. declines for the 1st quarter in more than 6 years
- Billionaire Ruias Said to Hold Refinery Talks With Aramco, NIOC: Exploratory talks began last month on sale of Essar Oil stake
- Panasonic Cuts Full-Year Oper Profit Forecast as China Slows: Lowers full-yr oper. profit forecast 4.7% to 410b yen; est. 426.6b yen; sales view down 5.6% to 7.55t yen; est. 7.88t yen
- Hong Kong Property Stock Gloom Seen Deepening in Options Market: Traders paid most in 4 yrs in Jan. to hedge against losses on Sun Hung Kai Properties
- BOJ Will Look Into Media Report Foreshadowing Negative Rates: Report by Nikkei news service came while Governor Haruhiko Kuroda and board were in closing stages of 2-day policy meeting
- Yuan Basket Plan Gets Momentum as Singapore-Style Fix Floated: Former central bank adviser proposes 15% band on basket
- Banker’s Accounts Said to Be Frozen in Singapore 1MDB Probe: Banker said to have been relationship manager for 1MDB Global
- Billionaire Ruias Said to Discuss Refinery Deal With Aramco: Exploratory talks began last month on sale of Essar Oil stak
European equities opened relatively flat this morning, brushing off the firm risk off sentiment in Asia, which came in spite of positive Chinese services PMI data. As we head into the North American crossover equities are broadly in negative territory however, with a bid in oil preventing a more pronounced selloff. The SMI (-0.0%) outperforms its major counterparts, after Syngenta (+5.7%) confirmed yesterday’s reports that they will be acquired by ChemChina , with the touted figure exceeding USD 43b1n or CHF 475/shr, the largest ever foreign acquisition by a Chinese conglomerate. Elsewhere, luxury names perform well in Europe following LVMH’s (+5.9%) beat on headline revenue, which they posted after the European cash close yesterday.
European Top News:
- Euro-Area Price Cuts Intensify Pressure on Draghi to Act: Euro area’s manufacturing and services industries cut prices at the fastest pace in almost a year in Jan.
- U.K. Services Firms Start to Crack as Risks Mount: Confidence at U.K. services companies fell to the lowest in 3 yrs in Jan.
- Swatch Sales Growth Forecast Draws Skepticism Amid Asia Slowdown: Watchmaker forecast sales gain “well over” 5% this year; 2015 oper. profit missed ests.
- LVMH Shares Surge as Louis Vuitton Maker Beats Asian Blues: Fashion and leather-goods lead 4Q performance; 4Q organic revenue up 5%, topping the 3.9% estimate
- BBVA Quarterly Profit Beats Estimates on Lower Provisions: BBVA 4Q net EU940m vs est. EU824.9m, Provisions for bad loans fell to EU157m in 4Q vs EU513m yr earlier
- ABB Profit Margin Widens as Cost Cuts Help Offset Slowdown: 4Q Ebita margin rises 60bps to 11.7%; sees Chinese growth in 2016, at slower pace
- Lundin Suffers Biggest Loss as Oil Collapse Forces Impairments: 4Q loss widened to $493m vs loss $436m yr ago; booked an impairment charge of $296m, FX loss of $129m
- EU Bank Rules Divide at Euro-Area Border in Draft Cameron Deal: Draft deal foresees separate rules for euro, non-euro banks, provisional pact needs endorsement of all EU leaders at summit
- Novo Nordisk CEO Sees Limited Scope for U.S. Price Increases: 4Q profit misses ests. on diabetes drug Victoza
- Statoil Seen Deepening Cuts to Keep Dividends Amid Oil Rout: Adjusted net seen dropping 33% in 4Q, seen extending investment cuts to 30% compared to 2014
In FX, the yen climbed 0.5 percent to 119.36. It’s taken back more than half of its decline against the dollar triggered when Bank of Japan Governor Haruhiko Kuroda on Friday unexpectedly cut the rate on excess reserves held by financial institutions at the central bank to minus 0.1 percent.
The New Zealand dollar jumped as the nation’s central bank signaled it won’t rush to cut its official cash rate further as inflation hovers near zero. A report Wednesday showed employment in New Zealand rebounded more than economists expected in the fourth quarter while the jobless rate tumbled to near a seven-year low.
In commodities, unlike yesterday’s rout, WTI and Brent have seen a bid since the European traders have been at their desks despite a build in API inventory levels from yesterday’s session, which printed at a build of 3.8mln. Once again we have seen some comments from Iran and Russia both stating they are willing to cooperate with OPEC in regards to the price of oil, however the rhetoric is largely a reiteration.
West Texas Intermediate crude futures climbed 1.6 percent to $30.37 a barrel in New York after falling 11 percent on Monday and Tuesday, the most since March 2009. Analysts are projecting prices will soar more than $15 by the end of 2016. New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show.
The Bloomberg Commodity Index rallied 0.4 percent for the first advance in three sessions as oil rebounded from the biggest two-day drop in almost seven years.
Zinc for delivery in three months led metals higher, gaining 0.7 percent to $1,685.50 a metric ton on the London Metal Exchange. Lead climbed to the highest in about a month, with copper, aluminum and nickel also higher.
Some notable headlines in the space:
- Oman’s Foreign Minister says there is no agreement on the timing of an OPEC meeting, but he expects it will be announced soon (RTRS)
- Iran are calling for closer ties between Russia, Iraq and Venezuela on energy issues according to the Iranian Supreme Leader. (RTRS)
- Russia’s Foreign Minister Lavrov says they are ready for talks with OPEC if there is a consensus, according to IFX. (BBG)
Looking at today’s calendar, It’s a busy afternoon of data in the US this afternoon where a lot of focus will be on the January ADP employment change print ahead of Friday’s payrolls.Remember the employment component of the ISM-manufacturing was particularly poor last month. Speaking of which, the aforementioned ISM nonmanufacturing print will be of focus while we’ll also get the final revisions to the services and composite PMI’s for the US. There’s little in the way of Central Bank speakers due up, however earnings season rolls on with 31 S&P 500 companies set to report including General Motors and Merck.
Global Top News:
- ChemChina Agrees to Buy Syngenta in Record $43b Deal: ChemChina offered $465 a share in cash, is ~20% higher than the stock’s last close; acquisition would be biggest ever by a company in China
- Yahoo Signals It’s Open to Sale in What May Be Final Flip- Flop: Co. to cut ~15% of staff, shutter some offices and units and exit product lines; to consider putting the company’s core assets up for sale, ; 4Q adj. EPS beats est.; sees 1Q adj. Ebitda, rev. ex-TAC below ests.
- Editas Raises $94.4m in First U.S. IPO of the Year: Sold 5.9m shares for $16 apiece, according to data compiled by Bloomberg, after offering them for $16 to $18 each
- Oil Seen Surging About 50% by Fourth Quarter as Supply Eases: WTI seen averaging near $46 a barrel in Q4; Brent at about $48; U.S. sees domestic oil output falling by 620,000 barrels a day
- America Supplies OPEC With Oil Freed From 40-Year Export Ban
- Chipotle Served With New Subpoena as Criminal Probe Expands: Says 2016 will be a “very difficult year,” says EPS Should Be “around” break even in 1Q, est. $1.95
- SunEdison Evaluating ‘Least Bad’ Options for Closing Vivint Deal: Deal hinges on flipping Vivint portfolio of rooftop systems
- 3M Boosts Dividend as $10 Billion Share Buyback Authorized: A Quarterly payout of $1.11/shr an 8% increase
- Gilead Seeks Deals as U.S. Hepatitis C Sales May Flatten: 4Q EPS beats ests., adds $12b to buyback plan
- Bill to Privatize U.S. Air-Traffic Control Bans In-Flight Calls: U.S. air-traffic control system would be spun off to a nonprofit corporation and airline passengers wouldn’t be allowed to talk on mobile phones
- Exxon Faces First Downgrade Since Depression as Oil Rout Worsens: Chevron’s debt rating cut by S&P for first time since 1987
- Starboard Said to Take 6.7% of Marvell; Hires Advisers: WSJ: Starboard sees opportunity for Marvell by cutting costs, for instance by exiting mobile-device business, WSJ reports
Bulletin Headline Summary from RanSquawk and Bloomberg
- Brent and WTI have retaken USD 33.00 and USD 30.00 bbl respectively, shrugging off yesterday’s API data
- In FX, GBP was the main mover in London trade, aided by positive services PMI data and ahead tomorrows ‘Super Thursday’
- Looking ahead, highlights include, US ADP Employment Change and ISM Non-Manufacturing, comments from ECB’s Draghi and Knot
- Treasuries lower in overnight trading despite continued selloff in global equity markets as oil stabilizes; 10Y yield closed yesterday at 1.84%, lowest since April 3.
- China’s central bank plans to loosen rules on when foreign investors can bring money in and out of the country, according to people with direct knowledge of the matter
- The gap between the Chinese yuan’s exchange rates at home and abroad expanded to the biggest in three weeks, a sign that international traders are reviving bets against the currency after getting burned by the central bank earlier this year
- “The markets are a gift in the sense that there are prices out there that make no sense,” Bill Miller, whose Legg Mason Opportunity Trust has lost 23% year-to-date, said in a Bloomberg interview, “Almost everything is a buy in my opinion”
- Banks complaining that regulation is damaging Europe’s €5.6 trillion ($6.1 trillion) market for borrowing and lending securities as repo agreements showed a sharp drop in the availability of securities to use as collateral
- Bankers in Europe have the most to fear in 2016 job cuts as cost reductions haven’t been enough to revive the profitability of the region’s lenders which were slower than their U.S. counterparts to eliminate jobs, reduce salaries
- Confidence at U.K. services companies fell to the lowest in three years last month as a mounting litany of threats took its toll with indicators of sentiment and order backlogs giving little reason for optimism
- Analysts are projecting prices of New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show
- The San Francisco Bay area is the first region to host a Super Bowl and like other businesses, local pot shops are offering promotions aimed at the throngs of visitors in town for the festivities
- Enrollment for food stamps remains near record levels even as the unemployment rate has fallen by half. About 45.4 million Americans, roughly one-seventh of the population, received aid last October, the most recent month of data
- Sovereign 10Y bond yields mostly lower, led by Australia (-10bp). Asian, European stocks lower; U.S. equity-index futures drop. Crude oil, gold, copper rally
DB’s Jim Reid concludes the overnight wrap
Hopes of an OPEC production cut meeting are fading fast with Persian Gulf Arab oil producers the latest to weigh in by rebuffing earlier claims which had helped to send Oil markets into a bull market. Instead, the focus is turning back to what is still a difficult fundamental picture with Oil markets succumbing to a second consecutive sharp loss yesterday. WTI (-5.50%) plummeted back below $30/bbl, eventually closing at $29.88/bbl. It’s holding around that level this morning too. The energy sector was also rocked with the news of S&P downgrading credit ratings on some of the big US drillers including Chevron and Hess, while in Europe Shell was cut by one notch to A+ and to its lowest rating on record. Weaker than expected results were announced from BP, although there was a slither of positivity to take from Exxon’s results after earnings came in ahead of analyst forecasts (which may show how low expectations have fallen more than anything).
All told risk assets were hit hard yesterday. European equity markets finished broadly 2% lower, while the S&P 500 finished with a -1.87% loss as a poor day for financials also added to the woes. Credit indices were under considerable pressure also with both CDX IG and Main finishing around 5bps wider. Sovereign bond yields resumed their downward spiral after briefly pausing for breath on Monday. 10y Bund yields were down over 4bps by the close of play at 0.305% while 10y Treasury yields collapsed 10.4bps and at 1.846% are at the lowest now since April last year (yields have now fallen over 40bps since the turn over the year). It won’t come as much surprise to hear then that Fed Funds rates are following a similar path. In fact, the probability of just the 1 rate hike this year has fallen below 50%. That’s after we started the year with the market pricing in a 93% probability that the Fed would move at least once in 2016.
Clearly the BoJ move last week has heated up the negative rates chatter and an eye-catching headline which caught our eye on Bloomberg yesterday was one which reported that $7.1tn of global government debt is now trading with a negative yield. JGB yields are currently negative up to the 8.5 year maturity mark with 9y and 10y yields currently 0.2bps and 5.9bps respectively – the latter close to joining Switzerland as the only country with negative 10y benchmark yields.
That takes us to the latest in Asia this morning where equity markets have followed the lead from Oil-led selloff yesterday. Bourses have declined across the region, led by Japan where the Nikkei is -3.29%, while the Hang Seng (-2.75%), Shanghai Comp (-1.64%), Kospi (-0.84%) and ASX (-2.33%) have also tumbled. Asia and Australian credit indices are 3 to 6bps wider while US equity index futures are pointing towards a slightly softer start. There has been some Chinese data for us to digest meanwhile, with the non-official Caixin services PMI for January showing a 2.2pt gain last month to 52.4 and in fact the highest since July last year. That’s of course in stark contrast to the manufacturing print we got earlier in the week. The data has however supported a 0.7pt gain for the composite print to 50.1.
Moving on. Yesterday also saw the Kansas City Fed President, Esther George, weigh in with some hawkish comments. Given her reputation as a renowned hawk within the voting committee the comments weren’t seen as hugely surprising. She said that recent market volatility is ‘not all that unexpected, nor necessarily worrisome’ and that ‘monetary policy cannot respond to every blip in financial markets’. George reiterated her view that the committee should continue the gradual adjustment of moving rates higher, while opining that the US economy has proven to be resilient to a wide range of shocks including sluggish growth abroad.
Yesterday’s economic data was a bit of a sideshow. US total vehicle sales were up a better than expected 17.5m annualized rate last month (vs. 17.3 expected) having dipped to 17.2m in December, while the February IBD/TIPP economic optimism print was up 0.5pts for this month to 47.8 (vs. 47.6 expected). Meanwhile in Europe we saw the Euro area unemployment rate nudge down one-tenth to 10.4% in December (expectations had been for no change), falling to a new four-year low in the process.
Staying in Europe, it was noted yesterday that the ECB’s favored measure of inflation expectations, the 5y5y breakeven rate briefly broke below 1.5% intraday before settling at the lowest close since January 2015 (a record low) which of course was just before ECB QE1 was announced. It’s significant that the rate has failed to break higher with any bounce in Oil prices and is something to consider ahead of the ECB next month.
Speaking of which, the ECB’s Mersch generated a few headlines yesterday after comments to the WSJ. The ECB Board Member said that the Bank needs to reassess its monetary policy stance ‘in view of the deterioration since our December analysis’ and that ‘everything is on the table’. Mersch also suggested that ‘we have no constraint in the use, the diversity, or the volume of our toolbox as we see fit’.
Looking at today’s calendar now, this morning in Europe will see the final revisions to the services and composite PMI’s for the Euro area, Germany and France, while we’ll also get prints for Spain, Italy and the UK. Euro area retail sales data covering the December month is also due out this morning. It’s a busy afternoon of data in the US this afternoon where a lot of focus will be on the January ADP employment change print ahead of Friday’s payrolls. Remember the employment component of the ISM-manufacturing was particularly poor last month. Speaking of which, the aforementioned ISM non-manufacturing print will be of focus while we’ll also get the final revisions to the services and composite PMI’s for the US. There’s little in the way of Central Bank speakers due up, however earnings season rolls on with 31 S&P 500 companies set to report including General Motors and Merck (both pre-market).
(courtesy zero hedge)
Kuroda Suggests “No Limit” To More NIRP Measures To Stall Japanese Bond Yields, Stocks, USDJPY Plunge
With Nikkei 225 down 800 points from post-NIRP highs and USDJPY having almost roundtripped, there is little wonder that Japanese government bond yields are collapsing toimply considerably deeper NIRP to come. With 10Y JGBs on the verge of a negative yield, 2Y yields are now at -17bps (well below Kuroda’s -10bps level). Japanese bank stocks are a bloodbath with Nomura leading the way lower.
We’re gonna need more NIRP…
- *JAPAN’S TOPIX INDEX FALLS 3.3% TO 1,404.75 AT MORNING CLOSE
- *JAPAN’S NIKKEI 225 FALLS 3.1% TO 17,194.17 AT MORNING CLOSE
And that is what bonds are implying…
- *JAPAN’S 2-YEAR YIELD FALLS TO RECORD MINUS 0.17%
- *JAPAN’S 10-YEAR BOND YIELD FALLS TO RECORD 0.045%
With the entire curve to 8Y below BoJ’s -10bps level…
And Japanese bank stocks are plunging…
Led by Nomura’s 11%-plus plunge – the most since 2011…
As none other than Nomura itself admits, Further rate cuts likely needed to attain inflation target…
In its newly released Outlook Report, the BOJ is forecasting attainment of its +2% inflation target by FY17 H1. However, we expect the ongoing improvement in the BOJ’s preferred measures of the underlying trend in prices–ie, the core-core CPI (headline CPI ex food (except alcoholic beverages) and energy) and headline CPI ex fresh food and energy–to grind to a halt. Additionally, the base wage increases negotiated in this spring’s unionized wage negotiations, which BOJ Gov. Haruhiko Kuroda is closely monitoring, look likely to be somewhat restrained. Given such an environment, the BOJ will likely ease again…The BOJ seems to have the latitude to cut its interest on excess reserve (IOER) rate to at least -0.5% or thereabouts.
Wow – that did not take long…
- *KURODA: POSSIBLE TO CUT NEGATIVE RATE FURTHER IF NEEDED
- *KURODA: NO LIMIT TO MONETARY EASING MEASURES
- *KURODA: WILL EXPAND EASING IF NEEDED FOR PRICE TARGET
- *KURODA: BOJ WILL DO WHATEVER IT CAN TO REACH PRICE TARGET
- *KURODA: BOJ TO KEEP LOOKING FOR INNOVATION IN MEASURES
- *KURODA: BOJ NEEDS TO DEVISE NEW TOOLS IF MEASURES INSUFFICIENT
Who could have seen that coming?
“Peter Pan” policy has officially arrived.. .and the market ses straight through it…
Japanese Stocks Crash 1000 Points, Erase All Kuroda’s NIRP Gains
From omnipotence to impotence…
end
The Bank Of Japan Has Betrayed Its People
The Bank of Japan’s unexpected rate cuts to negative are a desperate attempt to help out the FED and to support the dollar at the expense of the aging Japanese population.
The negative market reaction to the FED’s rate hike of December shows that investors do not believe an economic recovery in the US is underway. Two reasons make central banks start to raise interest rates.
- The first is that economy is doing well, and central banks have to prevent an overheated economy. But it is also a signal to investors everything is going well. In this situation, the first reaction of investors will be the opposite as central bankers planned they will and increase their investments and markets will go up.
- The second reason central banks raise interest rates is the defensive one; the moment the economy is out of control, investors are beginning to abandon the sinking ship. The continually increasing interest rate has the task of keeping the investors aboard. Central banks in less developed economies raise rates to defend the national currency, thus preventing investors from fleeing. An increase in the interest rate can add fuel to the fire and in many cases has the opposite effect. Investors start smelling angst of the authorities and start abandoning the sinking ship. In such a situation stock markets are coming crashing down because investors withdraw from them.
We saw this last pattern happening in the US economy after the December FED’s rate hike. As a result, the dollar-yen exchange rate is starting to decline, with the value of the dollar falling off as Japanese investors start panicking and fleeing the US market. Surely, Japanese investors know that a rate hike without an accompanying economic growth will erode every existing investment.
There is a general misconception according to which countries drive their currency down to generate growth. People adhere to the simplistic belief that a weak currency drives exports and helps the nation to prosper. The fact is that a cheap currency creates growth by giving away real goods in exchange for IOU (I Owe Yous) or paper debt obligations that will never be repaid. The US is the beneficiary or the receiving end of the weak yen policy. Because the US continues to maintain its world hegemony, it needs a strong dollar. A strong dollar makes everything the US empire buys in the world cheap. A strong dollar causes the world to be willing to exchange real goods for printed paper dollars that have no intrinsic value, and that are issued by a country that does not have the industrial capacity to ever repay what it owes its debtors.
The endless trade deficit the US has with Japan shows how the Japanese are prepared to provide the US with real goods without demanding tangible goods in return. Because the international press publishes trade data in dollars, the trade balance deficit seems to have been shrinking over the last years. The actual situation becomes apparent if we look at the trade deficit in yens.
The US trade deficit with Japan is growing bigger and bigger year after year, as Japanese producers are giving away a big chunk of their production to US consumers in return for more and more US paper debt. By manipulating the yen, Japanese authorities are giving away a real part of their GDP that they take from their people to the US empire.
In January, the yen started to appreciate because Japanese investors withdrew their money from the shaky US economy. Not only does an expensive yen lower the purchasing power of US consumers, but it can also render the US, Asian military pivot, quite expensive. It looks like Kuroda-san, president of the Bank of Japan, got new marching orders from his US masters during his Davos visit.
The submissive Japanese leaders have no choice but to obey their US masters and come up with a next trick to keep the yen cheap.
The Bank of Japan does not have much room to maneuver, so it lowered the excess-deposit rate into negative territory. It was marginal from 0.1 to -0.1 and only applicable to a small number of the Japanese bank deposits at the Bank of Japan; nevertheless, the music started playing again. It will be harder for Kuroda-san to press the yen lower and come up with new tricks indefinitely.
Investors may be fooled by the vast amount of public debt of the Japanese government, not realizing that the Japanese nation as a whole has a massive saving surplus. Some day the Bank of Japan will run out of tricks, and the yen will explode as Japanese savers will try to repatriate their savings. It will affect not only the financial markets but also the US ability to counter its Chinese rival in the Yellow Sea. For now, the desperate move of the Central Bank of Japan will not help the aging Japanese population. It will keep the financial markets happy for a short period.
…or not even that…
“We Need To Rise Up”: Bilked Chinese Investors Call For Nationwide Uprising After Massive Ponzi Uncovered
Well, don’t say we didn’t warn you.
Just yesterday, in the course of documenting the largest ponzi scheme the world has ever known (in terms of number of victims), we remarked that if China’s beleaguered masses needed yet another excuse to rise up and stage massive street protests, they got one in the form of online P2P lender Ezubao, which defrauded nearly a million people.
Ezubao’s model wasn’t exactly complicated. Investors, they said, could earn between 9% and 15% by funding a variety of projects presented on the company’s website. When the money came in, management simply absconded with it all and attempted to repay old investors with new investors’ money.
34-year-old Ding Ning – the company’s founder – had a penchant for spending investors’ hard earned money on things like CNY12 million pink diamond rings. “Among gifts that Yucheng Chairman Ding Ning gave his president, Zhang Min, were a $20 million Singapore villa, a $1.8 million pink diamond ring, luxury limousines and watches and more than $83 million in cash,”Reuters recounts, before adding that “Zhang, the group president who was marketed as ‘the most beautiful executive in online finance’, said on state broadcaster CCTV that Ding asked her to buy up everything from every Louis Vuitton and Hermès store in China, “and go overseas to buy more if that wasn’t enough.”
(Ding Ning at an “undisclosed location”)
According to a highly amusing Google translation of a Xinhua story, Ding Ning and “several closely related groups of female executives, their private life extremely extravagant, spendthrift to suck money.”
Yes, “spendthrift to suck money” and if there was anything Ezubao was particularly adept at, it was “sucking money” – from 900,000 unsuspecting Chinese who staged protests in December following the government’s move to freeze the company’s assets.
“Expect more protests to come,” we warned.
Well sure enough, disgruntled investors are now uniting in a nationwide “rights protection” movement. Their first order of business: to call for three days of protests.
“If we don’t protect our rights, make appeals and take other drastic action within three days, we will recover little,” said a bulletin making the rounds among Ezubao investors. “We need to rise up across the country and let the government know that the people’s bottom line is the return of their capital. If it is not returned our movement will not stop!”
Many investors were lured in by the company’s flashy advertising campaigns and gimmicks. “Ezubao expanded rapidly across the country by advertising extensively on Chinese Central Television.” FT writes. “It sponsored a forum about the country’s parliament on Xinhua’s website and sponsored popular events such as the China Open tennis tournament and emblazoned high-speed rail cars with its logo.”
“When you got on the train, there was an announcement saying: “‘Welcome aboard Train Ezubao’,” a company employee who lost about CNY100,000 yuan in the scheme told Reuters.
Investors who put up at least CNY150,000 were given five-gram commemorative gold bars. “I feel terrible,” an Ezubao investor surnamed Liu who said she lost CNY800,000 lamented. “I haven’t dared tell my husband yet.”
“I gave Ezubao Rmb250,000 because of their association with government activities and news outlets,” one investor told FT. “Of course we invested because of the advertising on CCTV and the high-speed trains,” another said.
“Of course” they invested. They saw an ad on a train.
This mirrors the sentiments expressed by the millions of retail investors who watched helplessly last summer as their life savings were vaporized by the harrowing decline on the SHCOMP.
It also reminds us of what happened to Fanya Metals chief Shan Jiuliang who was kidnappedby a mob of angry investors and dropped off at the police station back in August. Although Fanya was probably less of a fraud than Ezubao, the underlying story is the same: unsophisticated Chinese investors were bamboozled and once they realized they had been had, they were out for blood.
It’s not likely that Ding Ning will see the light of day anytime soon, but if he were to go free, he might quickly wish he was back in prison given the fate Shan Jiuliang suffered early one morning last summer…
So stay tuned, because judging from the tone of the “rights protection movement” bulletin excerpted above, the villagers may be about to rise up in China.
Oh, and as for whether there may be other Ding Nings and Ezubaos lurking around in China just waiting to buckle under the weight of their own extraordinary ponzi-ness, consider this from Reuters:
“By November, there were over 3,600 P2P platforms as the industry raised more than 400 billion yuan, according to the China Banking Regulatory Commission (CBRC). More than 1,000 of those were problematic.”
end
The POBC is intervening in the offshore yuan to stop the speculators:
(courtesy zero hedge)
Is The PBOC Intervening Now? Yuan Is Soaring
“We must break you” speculators… if only Ivan Drago was Chinese…
Seems like someone is panic-buying offshore Yuan…
It appears today’s panic is bringing everyone out to play.
EUROPEAN AFFAIRS
Now Germany is planning “cash” controls by banning any transaction in cash over 5,000 euros and they are also plan on banning the use of the 500 euros in Germany: Remember that NIRP provides the vehicle for a silent bank run. With NIRP firmly in place with respect to the ECB, Switzerland, Denmark, and Sweden , it is not hard to see why the next step is the elimination of paper bills. If too much paper money is removed, the multiplier effect on deposits at the bank is ruined and this would also put huge pressure on bank profits.
(courtesy zero hedge)
Germany Unveils “Cash Controls” Push: Ban Transactions Over €5,000, €500 Euro Note
It was just two days ago that Bloomberg implored officials to “bring on a cashless future” in an Op-Ed that calls notes and coins “dirty, dangerous, unwieldy, and expensive.”
You probably never thought of your cash that way, but increasingly, authorities and the powers that be seem determined to lay the groundwork for the abolition of what Bloomberg calls “antiquated” physical money.
We’ve documented the cash ban calls on a number of occasions including, most recently,those that emanated from DNB, Norway’s largest bank where executive Trond Bentestuen said that although “there is approximately 50 billion kroner in circulation, the Norges Bank can only account for 40 percent of its use.”
That, Bentestuen figures, “means that 60 percent of money usage is outside of any control.” “We believe,” he continues, “that is due to under-the-table money and laundering.”
DNB goes on to say that after identifying “many dangers and disadvantages” associated with cash, the bank has “concluded that it should be phased out.”
On Tuesday we got the latest evidence that officials across the globe are preparing to institute a cashless “utopia” when Handelsblatt reported (in a piece called “The Death of Cash) that the Social Democrats – the junior partner in Angela Merkel’s coalition government – have proposed a €5,000 limit on cash transactions and the elimination of the €500 note.
Berlin is using a familiar scapegoat to justify the plan: the need to fight “terrorists” and “foreign criminals.”
“Limits on cash transactions would discourage foreign criminals from coming here to launder money,” says a paper penned by the Social Democrats. “If sums over €5,000 have to pass through traceable bank transactions, laundering would be severely hampered, it adds.”
On Wednesday, we got confirmation of the plan from Deputy Finance Minister Michael Meister who told reporters that Germany is proposing a euroarea ban on cash transactions over €5,000 to combat terrorism financing and money laundering.
“Since money laundering and terrorism financing are cross-border threats,” it makes sense to adopt a bloc-wide “solution”, but “if a European solution isn’t possible, Germany will move ahead on its own,” he added.
This comes at a rather convenient time for policy makers in Europe. Rates are already sitting at -0.30% and are likely to be cut by an additional 10bps in March. But that’s not likely to do anything to curb the disinflationary impulse. Mario Draghi isn’t anywhere close to his inflation target and it says a lot about how ineffective the ECB has been when everyone is relieved to see annual inflation running at the “brisk” pace of 0.4%.
As a reminder, the gradual phasing out of cash strips the public of its economic autonomy. Central bankers can only control interest rates down to a certain “lower bound.” Once negative rates are passed on to depositors – and trust us, that’s coming – people will simply start pulling their money out of the bank. The more negative rates go, the faster those withdrawals will be.
When you ban cash you eliminate this problem. In a cashless society with a government-managed digital currency there is no effective lower bound. If the economy isn’t doing what a bunch of bureaucrats want it to do, they can simply make interest rates deeply negative, forcing would-be savers to become consumers by making them choose between spending or watching as the bank simply confiscates their money in the name of NIRP.
Obviously, banning transactions above €5,000 is a long way from a wholesale ban on cash and several other countries have similar limits on cash transactions. Still, there’s no reason why the same rationale (i.e. fighting terror financing) can’t be applied to smaller sums – or all cash transactions. After all, it’s not as though “foreign criminals” only transact in amounts over €5,000 and since “follow the money” is usually the best way to get to the bottom of a perceived “problem,” having a ledger of everything someone or some group does financially would likely be an effective way to crack down on illicit activity.
We would argue that the cost to society of creating an economy wherein people’s economic decisions are completely dictated by small groups of economists far outweighs any benefits that would accrue from using a centrally planned digital currency to deter crime.
As for how a cash ban would go over in Germany, we seriously doubt the public would take it laying down given that only 18.7% of transactions in the country involve plastic cards.
2Y German Bond Yields Collapse Below -50bps For First Time Ever
Presented with no comment…
Is It Time To Panic About Deutsche Bank?
Back in April 2013, we showed for the first time something few were aware of, namely that “At $72.8 Trillion, The Bank With The Biggest Derivative Exposure In The World” was not JPMorgan as some had expected, but Germany’s behemoth, Deutsche bank.
Some brushed it off, saying one should never look at gross derivative exposure but merely net, to which we had one simple response: net immediately becomes gross when just one counterparty in the collateral chains fails – case in point, the Lehman and AIG failures and the resulting scramble to bailout the entire world which cost trillions in taxpayer funds.
We then followed it up one year later with “The Elephant In The Room: Deutsche Bank’s $75 Trillion In Derivatives Is 20 Times Greater Than German GDP.”
Then, just last June, we asked the most pointed question yet: “Is Deutsche Bank The Next Lehman?” only this time it wasn’t just the bank’s gargantuan balance sheet risk shown below…
…. but the fact that it impaired assets had finally started to trickle down through to the income statement, leading to loss after loss, management exit after exit, market rigging settlement after market rigging settlement, and all culminating ten days ago with the bank’s “titanic”, and record, €7 billion loss, surpassing the bank’s troubles even during the depths of the Global Financial Crisis.
But while income statement losses can be brushed aside, far more troubling was that even other banks had started paying attention to the bank’s balance sheet. This is what Citi said:
We view the leverage ratio as the binding capital constraint for Deutsche. The current 3.5% is well below peers and the company’s own 4.5% target. Post restructuring & litigation charges and a Postbank divestment at 0.6x P/TB, we estimate a pro-forma leverage ratio of c3.3%. This implies a c€15bn shortfall, of which we expect part to be met by underlying retained earnings and part via AT1 issuance. However this still leaves an equity shortfall – we see a c4% leverage ratio by end-2017 – which is likely to necessitate a capital increase of up to €7bn in our view. In addition we note the target CET1 ratio of >12.5% only allows for a 0.25% management buffer above the fully-loaded SREP requirement. This provides the company with limited flexibility especially if BaFin were to introduce a counter-cyclical buffer (max 2.5% add-on).
And then there is the huge black hole that is China, and exposure to it… although others are starting to pay attention, and as New Europe wrote two weeks ago, “Major European banks… are significantly exposed to China and if there is significant deleveraging the impact will no doubt be global.” Banks such as HSBC, such as Deutsche Bank.
We bring all this up because here is what the stock price of Deutsche Bank has done since our first warning about the huge potential risks borne by Deutsche Bank, back in April 2013:
But the real chart everyone should be paying attention to – we certainly have been for a long, long time – is that of DB’s Credit Default Swaps, the earliest harbinger not of company risk, that has been there for a long, long time, but far more importantly of the market’s realization and admission of this risk.
So, our question for today, is it time to panic about Deutsche Bank yet?
end
Town hall meeting in a German town erupts after the mayor states that the schoolgirls (aged 10) should not provoke refugees.
(courtesy zero hedge)
When “Whatever It Takes” Fails – Global Bank Risks Are Soaring
The surge in credit risk across the global financial system is starting to get to the point where even Bill Miller will be forced to pay attention. With every central banker “all-in” with “whatever it takes” or “no limits” monetary policy, the fact that US, European, Chinese, Japanese, and Middle-East banks are all seeing credit risk spike should be a major concern to all…
European bank risk is at its highest since 2013…
Which is dragging the cost of funding for investment grade European corporates to their highest since 2013…
Led by a collapse in Deutsche Bank (which has the largest derivative exposure in the world)
Middle-East banks are blowing out to record high credit risk…
China banks are in trouble…
Japanese banks are collapsing…
As Raoul Pal exclaimed yesterday on CNBC when asked if there was a contagious threat to US banks from the rest of the world (paraphrased by us) “of course there [bloody] is… the tri-party repo system will spread this worldwide.”
And indeed it is…
end
The Baltic Dry Index at record low of 310:
(Trunews)
Baltic Dry Index Hits All-Time Low of 310; Rail Traffic Continues Decline
News released Tuesday reveals that the Baltic Dry Index has reached a record low of 310.
The Baltic Dry Index is compiled by the London-based Baltic Exchange and covers prices for transported cargo such as coal, grain and iron ore. The index is based on a daily survey of agents all over the world. Baltic Dry hit a temporary peak on May 20, 2008, when the index hit 11,793.
The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying industrial commodities, slipped to another all-time low on Tuesday on worries about vessel oversupply and slowing global demand.
The index has yet to register a single session of gains this year, tumbling around 35 percent and touching fresh lows in 20 of the 22 sessions.
A slowdown in the Chinese economy, which grew at its slowest pace in a quarter of a century in 2015, and a huge over-capacity in vessels has hit the index hard.
The Baltic Dry Index is an economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize,Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.
US RAIL TRAFFIC DECLINES
US rail industry monitor PowerSource outlines a continued decline in train traffic:
The nation’s rails have been carrying fewer loads recently, led by sharp declines in trains hauling coal, crude oil and other energy products, due to an unusually warm winter season and persistently low oil and gas prices.
Over the last year, shipments of coal and petroleum products on the U.S. freight railroad system are down 36 percent and 19 percent, respectively, according to traffic data collected by Association of American Railroads for the week ending Jan. 23.
Depressing traffic further, shipments of metallic ores and metals — which include coke for steelmaking and materials for pipelines — were down 16 percent from one year ago. Nonmetallic minerals, which include industrial sand used in natural gas drilling, were down 14 percent.
ANALYSIS
These two factors, shipping and rail decline, point toward a trend of decreased supply in retail inventory. Recent store closings by larger retailers reveals plans for a shrinking market:
- -Wal-Mart is closing 269 stores, including 154 inside the United States.
- -K-Mart is closing down more than two dozen stores over the next several months.
- -J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.
- -Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.
- -The Gap is in the process of closing 175 stores in North America.
- -Aeropostale is in the process of closing 84 stores all across America.
- -Finish Line has announced that 150 stores will be shutting down over the next few years.
- -Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall.
Will this mean shortages as we move through the Spring and Summer of 2016?
Read more at https://www.trunews.com/baltic-dry-index-hits-all-time-low-of-310-rail-traffic-continues-decline/#gD1j74lQjV5ky0u8.99
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/WEDNESDAY morning 7:00 am
Euro/USA 1.0916 up .0003 (Draghi’s jawboning still not working)
USA/JAPAN YEN 119.53 down 0.307 (Abe’s new negative interest rate (NIRP) not working
GBP/USA 1.4492 up .0086
USA/CAN 1.3939 up .0128
Early this WEDNESDAY morning in Europe, the Euro rose by 3 basis points, trading now just above the important 1.08 level rising to 1.0916; 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 the threat of continuing USA tightening by raising their interest rate / Last night the Chinese yuan was up in value (onshore). The USA/CNY down in rate at closing last night: 6.5770 / (yuan up but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)
In Japan Abe went BESERK with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP . The yen now trades in a northbound trajectory as IT settled UP in Japan again by 31basis points and trading now well BELOW that all important 120 level to 119.53 yen to the dollar.
The pound was UP this morning by 86 basis point as it now trades just above the 1.44 level at 1.4492.
The Canadian dollar is now trading UP 128 in basis points to 1.3939 to the dollar.
Last night, Asian bourses mostly in the red with Shanghai down 0.38%. .(after last hr government inventention) All European bourses were in the RED as they start their morning.
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/and now NIRP)
3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this WEDNESDAY morning: closed down 559.43 or 3.15%
Trading from Europe and Asia:
1. Europe stocks all in the RED
2/ Asian bourses all in the red/ Chinese bourses: Hang Sang RED (massive bubble forming) ,Shanghai in the RED by 0,38% (massive bubble bursting), Australia in the green: /Nikkei (Japan)red/India’s Sensex in the RED /
Gold very early morning trading: $1128.80
silver:$14.40
Early WEDNESDAY morning USA 10 year bond yield: 1.88% !!! up 1 in basis points 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 2.69 par in basis points from TUESDAY night. ( still policy error)
USA dollar index early WEDNEDAY morning: 98.67 down 14 cents from TUESDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers WEDNESDAY MORNING
OIL MARKETS
WTI Plunges Below $30 As Crude, Gasoline Inventories Surge & Demand Crashes
After initial weakness, crude prices have rallied since last night’s across the board inventory build reported by API (especially gasoline). Against headline expectations of a 3.8mm build, DOE reported a huge 7.8mm rise with Gasoline also surging 5.9mm barrels. The overnight ramp gains on OPEC rumors have been erased and WTI is back below $30.
API reported:
- Crude inventories: +3.8M barrels
- Cushing +0.1M barrels
- Distillate +0.4M barrels
- Gasoline +6.6M barrels
DOE reported:
- Crude inventories: +7.79M barrels (whisper 3.8m)
- Cushing +0.75M barrels
- Distillate -0.78M barrels (whisper -0.26m)
- Gasoline +5.9M barrels (whisper 5m)
Production fell very modestly for the 2nd week in a row…
WTI dropped after API then ripped on more OPEC-Russia chatter… only to fade after Dudley’s comments failed into the DOE data…
And finally, don’t forget that U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression.
- *U.S. CRUDE STOCKS RISE ABOVE 500M BBL FOR FIRST TIME SINCE 1930
And finally for those who exclaim this is just a supply issue – it’s not!!!
- EIA: DISTILLATE DEMAND -16.0% VS SAME 4 WKS LAST YR
Charts: Bloomberg
Oil Dumps’n’Pumps Despite Crude, Gasoline Inventories Surge
Crude has soared back above $31 as it seems a new bullish narrative around seasonally high crude refining has sparked dreams of demand…
end
Portuguese 10 year bond yield: 2.93% down 5 in basis points from TUESDAY
New York equity performances plus other indicators for today:
Complete And Utter Chaos
Services economy dismal, ADP data weak, crude fundamentals horrible… rip snorting ramp in crude and stocks…
To be clear, today’s idiotic ramp in Crude oil was nothing but an algo-induced short-squeeze just like we saw last week. Chatter of OPEC emergency meetings desparately tried to jerk headline-scanning algps higher while everything fundamentally was a disaster with inventories surging across the complex, production unchanged for the lower 48, demand plunging 16% YoY, and energy credit continuing to weaken… But then this happened…
We noted early that Yuan caught a sudden unexpected bid early…
But the following chart suggests The PBOC CNH-JPY intervention spike was the momentum ignition for today’s tomfoolery…
Dudley did a job on the dollar…
And his dovishness turned bank stocks around – but credit continued to weaken notably…
Here’s The Dow… if you needed a laugh… Pisani “well we were stupidly oversold”
The Dow’s realized (intraday inclusive) volatility is the highest since Black Monday chaos…
On the day, Nasdaq just would not join the party… Don’t ask for a catalyst for the ramp starting at 2pmET…
Double Squeeze Day…
Treasury yields plunged and ripped back to modest rise on the day…
10Y broke below 1.80% – the first time in a year…
5Y broke down to its low end of the channel – what happens next?
The Dollar was dumped against every major…as Dudley’s dovish jawboning ‘helped”
And Kuroda will not be happy…
Commodities all gained on the USD weakness but obviously Crude had the highest beta…
Gold broke notably above its 200-day moving average… and silver broke above its 100-day moving-average///
Finally – in case you wondered just how crazy the intrday swings are in crude oil… they are the highest since Lehman…
Charts: Bloomberg
Bonus Chart: Once again The Fed exposed its data-dependence…
wow!! what a change. We now have the NY Fed President Dudley hinting at a policy error as he states there is significant consequences form the strong dollar (no kidding)
(courtesy zero hedge)
Futures Jump After Bill Dudley Hints At Fed “Policy Error”, Warns Of “Significant Consequences” From Strong Dollar
With the market now predicting virtually zero rate rate hikes for the rest of 2016…
… the Fed will have to take a machete to its next exercise in erroneous groupthink known as the “dot plot”, when it will have to admit it was dead wrong about the state of the US and global economy.
But while until now most Fed speakers have sounded consistently hawkish and steadfast in their views of 4 rate hikes for the rest of the year – with the exception of a more downbeat Vice Chairman Stanley Fischer eariler in the week – moments ago in an interview with Market News, NY Fed president Bill Dudley gave the first official admission of a “Fed relent”, aka policy error, when he made it clear “he and his fellow Fed policymakers will have to discern at their March Federal Open Market Committee meeting whether or not the plunge in stock prices and other adverse market developments cloud prospects for U.S. economic growth, employment and inflation.”
From Market News:
Top Federal Reserve policymakers are leaving little doubt the financial turbulence and souring of the global economy could have significant implications for U.S. monetary policy, but they are loathe to draw too many conclusions about the appropriate path of interest rates at this juncture.
One thing is for certain: The tightening of financial conditions that has taken place since the Fed began raising short-term rates in mid-December is a matter of considerable concern to the Fed, New York Federal Reserve Bank President William Dudley said in an exclusive interview with MNI Tuesday.
But, it was supposed to signal the US economy is “strong enough” to sustain a lift off and decouple from the rest of the world which is scrambling to cut rates. Guess not.
As MNI adds, “a weakening of the global economy accompanied by further appreciation in an already strong dollar could also have “significant consequences” for the U.S. economy, Dudley told MNI.”
Consequences like halting rate hikes altogether? Or outright cutting them? Here are the key quotes from the interview:
“I can give you my own interpretation,” the committee’s vice chairman replied. “I read that as saying we’re acknowledging that things have happened in financial markets and in the flow of the economic data that may be in the process of altering the outlook for growth and the risk to the outlook for growth going forward.”
“But it’s a little soon to draw any firm conclusions from what we’ve seen,” he cautioned.
The punchline: Dudley left no doubt, however, that the deterioration of financial conditions amidst intensified economic uncertainty have registered in the minds of Fed policymakers and that there could be significant policy implications.
“One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting,” he said.
“So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision,” he added.
Kiss decoupling goodbye:
Nonfarm payrolls have shown strong growth, and there have been other indications that domestic economic fundamentals remain sound, despite the Commerce Department’s estimate that growth of the gross domestic product decelerated to 0.7% in the fourth quarter.
But Dudley suggested the U.S. economic outlook could be clouded by storms from overseas.
“There has been a very big change in terms of trade for many countries over the last year or two,” Dudley said. “It’s putting a lot of strain on their economies.”
And, by implication, that of the US as well.
So there you have it. The immediate result: a spike in ES as the market cheers the first strong suggestion by the Fed that it did a mistake and will have to change its entire strategy.
And with that, 17-year-old hedge fund managers can finally exhale, because while good news remains good, bad news is once again gooder.
We’re Gonna Need More Dudley
Dudley is no Bullard…
end
Manufacturing Recession Spills Over Into Services After Dismal PMI, ISM Data
In the words of Markit’s chief economist, “the US upturn has lost substantial momentum over the past two months,” as the golden child of any current bullish narrative – the Services economy – drops to its weakest since October 2013 (PMI 53.2, missing expectations). Plunging backlogs suggest hiring will slow notably and then ISM Services hit at a 23-month low, plunging back towards manufacturing’s weakness, with employmenmt at its weakest sicne April 2014 and unadjusted new orders at their weakest since Jan 2014.
Services PMI plunges back towards Manufacturing..
Troubling: the New Orders tumbled not only on a seasonally adjusted basis (because for some reason one needs to adjust sentiment surveys), but worse, on an unadjusted basis the 52.5 was barely above contraction territory and the lowest since January 2014.
Markit commentary is dismal…
Slower service sector activity, combined with subdued manufacturing growth, meansJanuary’s expansion was the weakest seen since October 2012 with the sole exception of October 2013, when business was affected by the government shutdown.
…backlogs of uncompleted work have been falling in recent months, which usually means that such strong hiring is unlikely to persist…
While the first quarter may see a rebound in GDP due to technical factors such as an inventory adjustment and weather-related variations, the survey data paint a darker underlying picture of business conditions.
And then ISM Services hit… tumbling to 23-month lows. The decoupling is over…
With new orders ane employment plunging…
Respondents are not exuberant:
We have experienced a slight increase in business activity since the start of the new year. Our new job orders have increased about 10 percent and the job awards about 12 percent.” (Professional, Scientific & Technical Services)
“Healthcare requirements in several states changing, which will [affect] our business directly.” (Health Care & Social Assistance)
“Research funding expected to increase during 2016 and will result in higher employment when compared to calendar year 2015.” (Educational Services)
“Protein commodities all lower due to strong U.S. dollar. Trade imbalance in exports and embargos with certain foreign nations.” (Accommodation & Food Services)
“Sales have improved. We are feeling more optimism, but remain concerned about the impact of global unrest.” (Retail Trade)
“Watching economic slowing in other sectors, but not affected yet.” (Management of Companies & Support Services)
“We continue to see record low key commodity prices driving product cost down. Record low oil prices are putting extreme pressure on exchange rates for key export markets Canada and Mexico. Falling prices [are] pushing margins down as many are forced to drop prices to meet the competition. Extreme weather conditions this season are adding additional challenge[s] to both retail and wholesale sales volume regionally.” (Wholesale Trade)
* * *
So – after all is said and done – we were right: It’s noit “decoupled” its lagging… and now the pain comes as the only cylinder still firing in the US economy just blew a gasket.
they’re back!!!
“Liar Loans” Are Back In 2007 Housing Bubble Redux
In the leadup to the financial crisis, lenders did some pretty silly things.
The securitization bonanza and the attendant proliferation of the “originate to sell” model drove lenders to adopt increasingly lax underwriting standards.
Put simply, the pool of creditworthy borrowers is by definition finite. That’s a problem because the securitization machine needs feeding. So what do you do if you’re a lender? Why, you expand the pool of eligible borrowers by making it easier to get a loan.
And we’re not talking about a giving would-be buyers a few FICO points worth of leeway here. We’re talking about the infamous “liar loans” which produced myriad tales of a market run horribly amok as everyone from maids to strippers could buy a McMansion with little to nothing in the way of documentation.
Well don’t look now, but the infamous Alt-As are making a comeback thanks to “big money managers including Neuberger Berman, Pacific Investment Management Co. and an affiliate of Blackstone Group LP [who] are lobbying lenders to make more of these “liar’ loans—or even buying loan-origination companies to control more of the supply themselves,” WSJ reports.
Once again, it’s the same old story. ZIRP has left investors starved for yield and that’s herding money into riskier and riskier assets and creating demand for paper backed by everything from subprime auto to P2P loans. Alt-As can carry rates as high as 8% which obviously looks great to anyone who’s stuck squeezing 300 bps out of something you picked up during last year’s IG issuance bonanza.
As WSJ goes on to note, the structure is a bit different this time around as large banks are steering clear of the market. “Virtually none of these Alt-A loans are being sliced and packaged into securities,” The Journal writes. “Instead, private-equity firms, hedge funds and mutual-fund companies are playing a larger role as buyers, placing the loans into private funds that are sold to institutional investors and wealthy clients.”
Of course pooling the loans and issuing ABS versus pooling the loans and selling shares of funds backed by those loans are really the same thing. In both cases, investors are betting on a pile of possibly risky mortgages extended to borrowers who for whatever reason don’t meet the requirement for a standard 30-year fixed.
For their part, money managers are rolling out the same tired excuse about reaching “underserved corners” of the market where unnecessary restrictions are keeping “some folks” from buying their dream home. Here’s WSJ again:
By backing these loans, money managers said they would reach an underserved corner of the housing market: Borrowers who have good credit but might be self-employed or report income sporadically. In part because more Americans work that way, some money managers expect the market could increase to hundreds of billions of dollars each year, or more than 10% of the total mortgage debt outstanding.
Alt-A loans gained prominence in the years leading up to the financial crisis, with lenders originating $400 billion at their peak in 2006, according to trade publication Inside Mortgage Finance.
Derided as “liar loans,” they were often extended to people who had no proof of income. By February 2010, about 26% of Alt-A mortgages were 90 or more days delinquent, up from 2% three years earlier, according to CoreLogic, a real-estate data and analytics company.
That compares with conventional conforming mortgages, which saw delinquencies of 7.2% in February 2010, up from 1.4% three years earlier.
The generation of Alt-A loans has been minimal since then. Just $17 billion in Alt-A loans were originated in 2014, compared with $767 billion for conventional mortgages, according to Inside Mortgage Finance, which estimates that $18 billion to $20 billion were made in 2015.
Some money managers are apparently making the rounds in an effort to convince mortgage companies to help get the ball rolling. Essentially, they want to act as the lender by bankrolling the loans, but aren’t too keen on bothering with the actual homebuyers and all of the paperwork. The idea then, is to partner up with mortgage firms who would theoretically take care of the administrative side of things.
But that’s not good enough for some asset managers. Take Minneapolis-based Varde Partners, for instance. Rather than haggle with mortgage companies, the firm simply went out and bought one through which it will lend to Alt-A borrowers.
Needless to say, this isn’t materially different from what was going on prior to the crisis even if the “Alt-A” has been given a new nickname (the “nonqualified mortgage”) in an effort to shed the stigma.
This is still just Wall Street forcing the issue on mortgages and selling the risk to investors who are happy to go along for the ride as long as the yield is there.
It will end in tears just as it did before, for everyone involved – especially the homeowners.
Moodys Warns Defaults Set To Rise As Liquidity, Financial, & Monetary Stress Soar
US monetary conditions are the tightest since 2009, financial conditions the tightest since 2009, and as Moody’s reports today Liquidity Stress is at its worst since February 2010 – all forewarning of a notable rise in defaults in 2016… and what can the Fed do?
Worryingly, as Credit Suisse explains, US monetary conditions are now the tightest that they have been since 2009…
…At a time when financial conditions are also moving to their tightest level since 2009.
This is the first time in 10 years that monetary and financial conditions are tightening at the same time. In the past, a tightening of financial conditions has tended to be accompanied by monetary easing… but The Fed seems set on hiking rates no matter what (to sustain bank earnings?)
However, as Moody’s reported today, things are worse still as their Liquidity Stress Index (LSI) jumped to 6.8% at the end of December 2015 from 6.4% in November, reaching the index’s highest level since February 2010forewarning of a rise in the default rate in 2016.
The LSI for oil and gas increased to 19.6% in December from 19.3% in November as low oil prices continued to weaken liquidity and raise default risk. Among the four exploration and production companies downgraded to SGL-4, the weakest liquidity category, were Atlas Energy Holdings (Caa1 negative), California Resources Corp. (Caa1 negative) and Ultra Petroleum Corp. (Caa1 negative).
Liquidity weakness is also starting to spread to select lower-rated issuers in other sectors, though not broadly.
The non-oil and gas LSI rose to 3.6% in December from 3.0% in the prior month.
The ratio of all SGL liquidity downgrades to upgrades was 1.74 for 2015, with 141 downgrades to 81 upgrades — the highest since 2008 when the ratio was a record 2.96. Energy has been the key driver of liquidity downgrades, followed by metals and mining, amid weakening commodities demand in major developing countries such as China.
“As borrowing rates rise and credit markets tighten, companies closer to the margin will find it challenging to cost-effectively refinance their upcoming debt maturities.”
Moody’s forecasts the US speculative-grade default rate will climb to 4.1% in November this year from 3.0% in November 2015.
Which perhaps explains why US bank credit risk is soaring…
ADP Employment Growth Tumbles From Miraculous December Bounce
Following December’s miraculous surge in employment (to the biggest improvement in a year), ADP Employment tumbled back a more “normal” 205k in January (stilll beating expectations of 195k). Services dominated (192k vs 13k for goods). Once again manufacturing disappoints with no change in employment as large business hiring slows notably.
ADP employment cyhange dropped notably but still beat expectations…
As ADP catches down to reality comiong from initial claims…
Change in Nonfarm Private Employment
Change in Total Nonfarm Private Employment
Change By Company Size
Change By Selected Industry
The “recovery” continues to be all Services, little Goods:
- Goods-producing employment rose by 13,000 jobs in January, well off from December’s upwardly revised 30,000. The construction industry added 21,000 jobs, which was roughly in line with the average monthly jobs gained during 2015. Meanwhile, manufacturing neither added nor lost jobs.
- Service-providing employment rose by 192,000 jobs in January, down from an upwardly revised 237,000 in December. The ADP National Employment Report indicates that professional/business services contributed 44,000 jobs, down from 69,000 in December. Trade/transportation/utilities grew by 35,000, up slightly from a downwardly revised 33,000 the previous month. The 19,000 new jobs added in financial activities were the most in that sector since March 2006.
The commentary from ADP: “One of the main reasons for lower overall employment gains in January was the drop off in jobs added at the largest companies compared to December. These businesses are more sensitive to current economic conditions than small and mid-sized companies,” said Ahu Yildirmaz, VP and head of the ADP Research Institute. “Over the past year, businesses with less than 500 employees have created nearly 80 percent of new jobs.”
Mark Zandi, chief economist of Moody’s Analytics, said,
“Job growth remains strong despite the turmoil in the global economy and financial markets.Manufacturers and energy companies are reducing payrolls, but job gains across all other industries remain robust. The U.S. economy remains on track to return to full employment by mid-year.”
Full breakdown:
http://www.adpemploymentreport.com/2016/January/NER/images/infographic/m…” width=”598″ />
end
It is certainly getting bad out there: January truck orders collapse down 48%
(courtesy zero hedge
“It’s Probably Nothing”: January Truck Orders Collapse 48%
We have previously shown just how bad the situation in the US heavy trucking space – trucks with a gross weight over 33K pounds – was most recently in “US Trucking Has Not Been This Bad Since The Financial Crisis” in which we looked at November data and found, that “Class 8 truck net orders at 16,475, were 59% below a year ago and the lowest level since September 2012. This was the weakest November order activity since 2009 and was a major disappointment, coming in significantly below expectations. All of the OEMs, except one, experienced unusually low orders for the month.”
For those who missed the proverbial wheels falling of the heavy trucks, so to speak, the charts below do the situation justice:
So with 2015 in the history books, and as we start 2016 where the base effect was supposed to make the annual comps far more palatable, we just got the latest, January data. In short: the drop continues to be one of Great Recession proportions, manifesting in yet another massive 48% collapse in truck orders in the first month of the year as demand appears to have gone in a state of deep hibernation. From Reuters:
U.S. January Class 8 truck orders fell 48 percent on the year, preliminary data from freight transportation forecaster FTR showed, indicating that 2016 could be another weak year for truck makers.
FTR estimated that orders for the heavy trucks that move goods around America’s highways totaled 18,062 units in January. This follows on from a full-year decline in 2015 of nearly 25 percent to 284,000 units from 276,000.
“It is not looking to be a strong year,” for the market, FTR chief operating officer Jonathan Starks said in a statement.
Amid uncertainty over U.S. economic growth and a lackluster performance for retailers in the fourth quarter, trucking companies have been holding back on buying new models
As a reminder, unlike trains, which one can say are used to transport oil and coal, Class 8 trucks make up the backbone of U.S. trade infrastructure and logistics: what they represent is both domestic and global trade. Or in this the devastating collapse thereof.
Should one be concerned by this precipitous drop? Absolutely not: as the Federal Reserve would certainly say “it’s probably nothing” and blame it on the weather.
end
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