Gold: $1157.80 up $0.20 (comex closing time)
Silver 14.76 down 8 cents
In the access market 5:15 pm
The jobs report saw the bankers knock gold and silver down early in the New York session, but this time, investors were witnessing smoke emanating from European and Chinese banks. They decided it was about time to buy both gold and silver as a safe haven for global economic chaos. By closing time the access market had gold at $1174.00 and silver finished at $14.97.
At the gold comex today, we had a poor delivery day, registering 5 notices for 500 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 rose by a gigantic 2,788 contracts up to 167,563. In ounces, the OI is still represented by .838 billion oz or 120% 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 5,732 contracts to 391,899 contracts as gold was up $16.30 with yesterday’s trading.
We had another huge change in gold inventory at the GLD, another deposit of 4.84 tonnes of gold / thus the inventory rests tonight at 698.46 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex. In silver,/we had no changes in inventory, and thus/Inventory rests at 308.999 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 2,788 contracts up to 167,563 as silver was up 12 cents with respect to yesterday’s trading. The total OI for gold rose by 5,732 contracts to 391,899 contracts as gold was up $16.30 in price from yesterday’s level.
2 a) Gold trading overnight, Goldcore
b) COT report
3. ASIAN AFFAIRS
i)Late THURSDAY night FRIDAY morning: Shanghai down 0.63% / Hang Sang UP . The Nikkei DOWN . Chinese yuan (ONSHORE) UP and yet they still desire further devaluation throughout this year. Oil gained to 32.09 dollars per barrel for WTI and 34.75 for Brent. Stocks in Europe so far mostly the green with the DAX only one in the red . Offshore yuan trades at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan AS THE SPREAD NARROWS WITH HUGE GOVERNMENT INTERVENTION / no doubt huge amounts of USA dollars left the country to support the offshore yuan/ Also the increase in credit default swaps are a problem for China and this huge volatility in the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/JAPAN INITIATES NIRP(one week ago) CREATING HAVOC AROUND THE GLOBE)
ii)The rise in the yen is causing massive problems for Japan and the many yen carry traders.
iv) An extremely important discussion on China from Kyle Bass. He explains that China now has 34 trillion USA assets in their banking system. Even though they run a huge surplus in the trade account, they have a massive banking problem. China’s GDP is 10 trillion uSA and thus they have a banking/sovereign GDP of 3.4 x, identical to what brought Europe to its knees in 2008. China has a huge problem with non performing loans probably in excess of 20%, plus fraudulent Ponzi schemes. The total USA equivalent reserves are 3.3 trillion and thus a banking bailout is in order which will wipe out its reserves. This is why Bass is betting against the yuan.
(Kyle Bass/zero hedge)
European bank shares have plummeted badly since the beginning of the year
5.RUSSIAN AND MIDDLE EASTERN AFFAIRS
thousands are massing at the Turkish border ready to enter the fight. Iran, Hezbollah and the Syrian army are now closing in on Aleppo. Will Turkey enter the fray?
( zero hedge)
6. GLOBAL ISSUES
Venezuela is hyperinflating to the tune of 720%. They now need 36 boeing 747 cargo planes to deliver fiat paper money (bolivars)
(courtesy zero hedge)
i) The following is quite something. four days after predicting oil will double, T Boone Pickens sells all of his oil holdings. This is big!!
(courtesy zero hedge)
ii) It sure looks like the non OPEC sector will see oil production collapse in 2016:
iii) Oil Rig count plunges by 31 down to 467 and this should cause production to slow down. Texas saw a drop of 19. Total rig count (oil and gas) crashed by 48 to 571
9. PHYSICAL MARKETS
i) London is now gearing towards a physical future and not a paper future:
(courtesy London’s Financial times/Sanderson)
ii)Ambrose Evans Pritchard now believes that the run on the uSA dollar is over. This will be true, if the uSA signals no more rate hikes;
( Ambrose Evans Pritchard/UKTelegraph)
iii)It seems now that the SGE is publishing withdrawals (equals gold demand)
For the month of January: 225 tonnes or 52.3 tonnes per week. Good demand from China!!
( Koos Jansen)
iv) Maduro is one complete moron: Venezuela is engaging in more gold swaps with Deutche bank
ii) Initial reaction: sell everything as believe it or not they believe more rate hikes in 2016:
iii)What a joke!! Of the jobs added, 151,000 a huge 70% or 58,000 was in the minimum wage category and the bulk was in waiters and bartenders at 47,000. The USA must have more waiters and bartenders than the rest of the world combined:
v) a. Since 2007, all of the uSA job gains were the lower paying foreign born workers:
v b. as is our custom: your update on our waiter and bartender job recovery from 207 to now:
vi) The mouthpiece for the Fed shows how confused the Fed is:
viii) We still have 45.5 million USA people on food stamps. And this is a recovery?
ix) Linked In collapses to below its IPO price: trading at 117.00 dollars.
Let us head over to the comex:
The total gold comex open interest rose to 391,899 for a gain of5,732 contracts as the price of gold was up $16.30 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, both scenarios were in order as the drop in gold ounces standing for delivery is contracting due to cash settlements. We now enter the big active delivery month is February and here the OI fell by 301 contracts down to 2390. We had 1 notice filed yesterday, so we lost 300 contracts or an additional 30,000 oz will not stand for delivery. The next non active delivery month of March saw its OI rise by 66 contracts up to 1406. After March, the active delivery month of April saw it’s OI rise by 4113 contracts up to 280,451.The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 222,956 which is fair to good. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair to good at 196,186 contracts. The comex is in backwardation until June.
Feb contract month:
INITIAL standings for FEBRUARY
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||nil|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||5 contracts
( 500 oz)
|No of oz to be served (notices)||2385 contracts (238,500 oz )|
|Total monthly oz gold served (contracts) so far this month||792 contracts (79,200 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||480,312.9 oz|
Total customer deposits nil oz
we had 0 adjustments.
Here are the number of oz held by JPMorgan:
FEBRUARY INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 1,684,431.15 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,166,803.550 oz
|No of oz served today (contracts)||0 contracts nil oz|
|No of oz to be served (notices)||137 contracts (685,000 oz)|
|Total monthly oz silver served (contracts)||0 contracts nil|
|Total accumulative withdrawal of silver from the Dealers inventory this month||nil oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||4,897,192.3 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 2 customer deposits:
i) Into Scotia: 556,394.700 oz
ii) Into JPM: 610,409.850 oz
total customer deposits: 1,684,431.15 oz
total withdrawals from customer account 1,684,431.15 oz
we had 0 adjustments:
And now the Gold inventory at the GLD:
FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.
FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.
in a little over a week we have had 29.43 tonnes added to the GLD. Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.
Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes.. In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold. It would be impossible to find 21 tonnes of physical gold and load the GLD.
Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes
Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43
JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes
jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23
jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.
Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes
Feb 5.2016: inventory rests at 698.46 tonnes
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, February 02, 2016|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||141||126|
|Tuesday, February 02, 2016||© SilverSeek.com|
those commercials that have been long in silver added 1739 contracts to their long side
those commercials that have been short in silver added only 2089 contracts to their short side.
Our small specs:
those small specs that have been long in silver pitched 1164 contracts from their long side
those small specs that have been short in silver covered 512 contracts from their short side.
It seems that our banker friends are rather timid to supply the paper silver comex contracts. Is somebody big standing for all that silver and that is why they are reticient to supply the paper?
And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:
Gold And Silver Best Performing Assets – Up 9% and 8% YTD
Gold is 3.6% higher this week and is now over 9% higher year to date. The dollar saw sharp falls this week on growing doubts that the Federal Reserve will be able to raise interest rates. The gains this week were due to increasing concerns about the U.S. and global economy.
The increasingly uncertain U.S. and global economic outlook has led to an increase in demand for gold and silver bullion. Sharp falls in stock markets globally (S&P down 6% and DAX down over 12% ytd), the Chinese slowdown and the collapse in oil prices (-0.9%), has seen safe haven demand for the precious metals.
Gold rose 5.3% in January and has now seen a further 3.6% gain in the first week of February. This has led to the precious metals being the best performing assets year-to-date, with gains of over 9 percent and 8% for gold and silver respectively.
Silver is 4% higher this week and silver buyers continue to accumulate silver in the belief that it remains great value at less than $15 per ounce. We share this view given the fact that silver remains nearly 70% below the nominal high near $50 per ounce in 1980 and again in 2011.
Also, the gold-silver ratio at 77 ($1,160/$15 per ounce) shows that silver remains great value at less than $15 per ounce.
Recent economic news has been poor with the U.S. Unemployment Claims disappointing after it climbed to 285,000. Manufacturing numbers were mixed, as Preliminary Unit Labor Costs posted a gain of 4.5%, well above the forecast. However, U.S. Factory Orders posted a decline of 2.9%, badly missing expectations.
In the heady days following the Fed’s rate hike, there was bullish talk of up to four rate hikes in 2016. We said this was highly unlikely and recent data and deteriorating economic conditions confirms this. We have been contending in recent months that the U.S. economy is much weaker than believed. Recent data has confirmed this weakness.
We continue to see a sharp recession as inevitable – both in the U.S. and globally. The question is more regarding the severity of the recession and the nature of the recession and whether it will be deflationary or stagflationary. Deflation remains the primary risk given the $200 trillion debt laden global economy.
Gold prices have been moving higher for most of the week, and have climbed above the $1150 line for the first time since the end of October.
All eyes are now on the Nonfarm Payrolls report later today. The markets are now expecting a drop compared to the previous reading and markets could react negatively and send gold prices even higher. However, a lower unemployment number may already be priced into gold and we may see a “buy the rumour, sell the news” reaction from gold.
Gold has broken above the 200-day moving average (1,129/oz) and is set to close above this important level on a weekly basis today. This is bullish from a technical perspective. Were it to close above this level this week, it would suggest we may see further gains in February.
At the same time, the scale of gold’s gains in a short period of time, could mean a correction and retracement in the short term. Weakness will allow value buyers to accumulate on the dip. Those seeking to allocate funds to precious metals should geometrically cost average into position by front loading their initial allocation.
LBMA Gold Prices
5 Feb: USD 1,158.50, EUR 1,035.58 and GBP 797.40 per ounce
4 Feb: USD 1,146.25, EUR 1,027.29 and GBP 782.16 per ounce
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
Gold and Silver News and Commentary – Click here
Gold trading in NY:
(courtesy zero hedge)
Gold Surges Back Into The Green After $1.2 Billion Morning Plunge
London is now gearing towards a physical future and not a paper future:
(courtesy London’s Financial times/Sanderson)
London gold market wrestles over future: ‘People want the physical, not paper’
Submitted by cpowell on Thu, 2016-02-04 13:35. Section: Daily Dispatches
By Henry Sanderson
Financial Times, London
Thursday, February 4, 2016
There aren’t many places in the UK where you can walk in off the street and buy gold as a retail customer. A new store in London’s St James’s Street a stone’s throw from the Ritz wants shoppers.
“There is unquestionably a physical renaissance going on,” says Ross Norman, of Sharps Pixley, flanked by cabinets showing gold roses and gold watches under a large chandelier. “People want the physical [gold], they don’t want the paper. It’s suggestive of an environment where trust is less than it used to be.”
Guests drinking champagne at the opening party last week included some of the most influential names in London’s gold market. But while retail demand for gold is surging, the market is wrestling with a bigger issue: how bankers and traders set the price they will pay.
London’s 250-year-old gold market faces a fundamental question: should the city remain a market where gold is traded between buyers and sellers directly, as it has been for decades, or move on to an electronic gold exchange. How that is resolved will ultimately affect the price for a customer when they walk in and buy a gold bar in the Sharps Pixley store.
In a first step, on Thursday, the body that oversees the London gold market, the London Bullion Market Association, plans to issue a tender for proposals to build an electronic hub where all trades will be recorded.
That’s set to open the door to further ideas for changes to the market. A few companies are lobbying for gold to move towards a blockchain-based solution, based on the network behind the digital currency bitcoin.
Other exchange operators are eyeing a London-based gold exchange. Garry Jones, head of the London Metal Exchange, who attended the party in St James’s Street, wants to launch a gold futures contract that could be settled based on the delivery of physical gold bars.
The LME is talking with five banks on a project backed by the World Gold Council, according to a person familiar with the matter. The banks involved are ICBC Standard Bank, Citigroup, Morgan Stanley, Goldman Sachs and Societe Generale SA, the person said.
In a world where many areas of finance are being transformed by high-speed computerised trading, London gold transactions are mainly conducted via telephone or through banks’ own individual systems. There is no data on how much gold is actually traded in the city every day, though it is estimated that roughly three-quarters of the world’s bullion dealing takes place in London.
The lack of a unified system has led to liquidity — the amount of trading on any one venue — becoming fractured, a point made by some banks to the LBMA, according to a person familiar with the process under way at the association. “The liquidity providers think there is enough liquidity and don’t need to aggregate everything — others think it could be more simplified,” says the person.
Currently the LBMA has 14 market maker banks which quote two-way or buy and sell prices in both gold and silver. But other banks have withdrawn from trading gold in recent years.
The two largest bullion banks, HSBC and JPMorgan, are not currently involved in the LME project.
Having a platform to collect trade data would make the London gold market more transparent. That in turn would provide a greater defence against regulators who are wary of any financial market where the price is set between banks, say market participants. It would also help in negotiations over proposed tighter capital requirements for banks.
“There has been discussion about moving to a centrally cleared model but there isn’t an example where any market has done that without a regulatory push — because it levels the playing field in terms of pricing,” says Seamus Donoghue, chief executive of Allocated Bullion Solutions in Singapore.
The LME would not comment on any plans for a gold futures contract. The exchange’s clearing house, LME Clear, is already approved to deal with gold.
Analysts warn that any newly launched futures contract will need to receive the backing of all London bullion banks. It is also a competitive market: there are already popularly traded gold futures contracts on the Comex exchange in the US, the Shanghai Futures Exchange and the Tokyo Commodities Exchange.
“People feel comfortable where they’ve already been and Comex has already got such a footfall in terms of people using those exchanges,” says Sharps Pixley’s Norman, who started off his career trading precious metals at Rothschild, at the sidelines of the opening party. “The question is whether you’ll get participants. My personal view is they may struggle. I don’t think there’s unmet demand.”
Whatever format it takes, one thing is clear: London’s gold market faces a change.
* * *
Ambrose Evans Pritchard now believes that the run on the uSA dollar is over. This will be true, if the uSA signals no more rate hikes;
(courtesy Ambrose Evans Pritchard/UKTelegraph)
Ambrose Evans-Pritchard: Dollar tumbles as Fed rescues China in the nick of time
Submitted by cpowell on Fri, 2016-02-05 01:33. Section: Daily Dispatches
By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, February 4, 2016
The US dollar has suffered one of the sharpest drops in 20 years as the Federal Reserve signals a retreat from monetary tightening, igniting a powerful rally for commodities and easing a ferocious squeeze on dollar debtors in China and emerging markets.
The closely-watched dollar index (DXY) has fallen 3 percent this week to 96.44 and given up all its gains since late October. This has instant effects on the world’s inter-connected financial system, today more geared to the US exchange rate and Fed policy than at any time in modern history.
David Bloom from HSBC said the blistering dollar rally of the past three years is largely over and may go into reverse as weak economic figures in the US force the Fed to pare back four rate rises loosely planned for this year.
A more dovish Fed and a weaker dollar is a bittersweet turn for the Bank of Japan and the European Central Bank as they try to push down their currencies to stave off deflation. Their task has become even harder. …
… For the remainder of the report:
A very interesting Alasdair Macleod commentary tonight. He states that the shorting of the yuan may be dangerous to the crowd such as Kyle Bass and George Soros. He claims that it is not necessarily the high yuan that is the problem but the high value of the dollar. China is doing everything possible to have goods priced in yuan so as to put a dagger into the heart of the USA dollar and USA hegemony. He states that the Chinese may be dishoarding massive dollars not because it wishes to defend its yuan but because it knows the dollar is overvalued and they wish to use other basket currencies as reserves including gold.
Alasdair is quite correct in everything he states. However he excludes China’s number one problem: huge non performing loans on its books.
(courtesy Alasdair Macleod/)
Alasdair Macleod: Shorting the yuan is dangerous
Submitted by cpowell on Fri, 2016-02-05 05:16. Section: Daily Dispatches
12:16a ET Friday, February 5, 2016
Dear Friend of GATA and Gold:
China doesn’t need to devalue its currency, the yuan, GoldMoney research director Alasdair Macleod writes this week. Rather, Macleod writes, China’s objective is to weaken the yuan’s primary competitor, the U.S. dollar.
“With dollar reserves accumulating at a record rate because of the trade surplus, China should have no problem maintaining a yuan rate of her choosing,” Macleod argues. “If anything she will seek to dispose of dollars on the basis they are overvalued relative to the commodities she needs for the future. China will sell her dollars not to protect the yuan but to dispose of an overvalued currency.”
Macleod’s analysis is headlined “Shorting the Yuan Is Dangerous” and it’s posted at GoldMoney here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Maduro is one complete moron:
Fri Feb 5, 2016 1:08pm GMT
Exclusive: Venezuela central bank in talks with Deutsche Bank on gold swap
CARACAS | BY CORINA PON
Venezuela’s central bank has begun negotiations with Deutsche Bank AG (DBKGn.DE) to carry out gold swaps to improve the liquidity of its foreign reserves as it faces heavy debt payments this year, according to two sources familiar with the talks.
Low oil prices and a decaying state-led economic model have weakened the OPEC nation’s currency reserves and spurred concerns that it could default on bonds as it struggles to pay $9.5 billion in debt service costs this year.
Around 64 percent of Venezuela’s $15.4 billion in foreign reserves are held in gold bars, which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.
In December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year, the sources said. The sources did not confirm the volume of the operation in discussion. Neither Deutsche nor the central bank responded to requests for comment.
Gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.
Venezuela is suffering from a severe recession, triple- digit inflation and chronic product shortages. The government’s currency control system has slashed approval of dollars for product imports, leading to empty store shelves and snaking supermarket lines.
The situation helped the opposition win a crushing two- thirds majority in the Congress in December. President Maduro says his socialist government is under “economic war” and dismisses default rumors as a smear campaign by adversaries.
Credit default swaps show that traders see a 78 percent chance of default in the next year, according to Thomson Reuters data.
The sources said Venezuela in recent years had been carrying out gold swaps with the Switzerland-based Bank for International Settlements (BIS) in operations ranging in duration from a week to a year. One source said Venezuela conducted a total of seven such transactions.
BIS halted these operations last year, both sources said, as a result of concerns about the associated risks.
BIS declined to comment.
Under the rule of late socialist leader Hugo Chavez, the central bank used billions of dollars in cash reserves to finance social programs and off-budget investment funds. This meant that gold became a larger percentage of reserves.
The value of Venezuela’s monetary gold has declined by $3.5 billion in the 12 months ended in November to reach $10.9 billion, central bank data shows. This appears to reflect swap operations and a 10 percent decline in the price of gold. It was not immediately evident if the central bank has also been selling gold.
The central bank in 2015 carried out a swap with Citigroup Inc’s (C.N) Citibank, according to one of the sources. Citi declined to comment in 2015.
One of the sources said the central bank has taken an unspecified amount of gold out of the country so that it can be certified, which is required for gold that is used in such swaps. The gold lost its “certificate of good delivery” in 2011 when Chavez transferred it from foreign banks to central bank coffers, one of the sources said.
Venezuela’s $1.5 billion 2016 Global Bond VE260216=RR comes due at the end of February, while state oil company PDVSA faces payments of $2.3 billion on its 2017N bond VE055409692= in October and $435 million on its 2016 bond VE046054679= in November.
It seems now that the SGE is publishing withdrawals (equals gold demand)
For the month of January: 225 tonnes or 52.3 tonnes per week. Good demand from China
(courtesy Koos Jansen)
SGE Continues To Publish Withdrawals Figures?
It seems the Shanghai Gold Exchange (SGE) is continuing to publish the amount of gold withdrawn from the vaults on a monthly basis. For the month of January “SGE withdrawals” accounted for 225 tonnes, down 1 % from December. After the first weekly SGE reports in 2016 did not disclose SGE withdrawal data and phone calls to the bourse in Shanghai answered these numbers would not be published anymore we can wonder why the Chinese have changed their stance.
It’s advised to have read The Chinese Gold Market Essentials Guide before you continue.
The SGE releases reports with trading data in several intervals in either English or Chinese. Until the last week of 2015 SGE withdrawals, a measure for Chinese wholesale gold demand, were published in the Chinese weekly and monthly reports. Then, an announcement published on the English website of the SGE on 11 January 2016 stated the “the Exchange has adjusted some terms in the Delivery Reports”…
And now your overnight FRIDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan RISES to 6.5710 / Shanghai bourse: in the RED by 0.63 % / hang sang: GREEN
2 Nikkei closed down 225.40 or 1.32%
3. Europe stocks all in the green /USA dollar index UP to 96.66/Euro DOWN to 1.1190
3b Japan 10 year bond yield: FALLS TO .043 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 116.83
3c Nikkei now well below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 32.09 and Brent: 34.75
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 0.290% German bunds in negative yields from 7 years out
Greece sees its 2 year rate rise to 11.82%/:
3j Greek 10 year bond yield rise to : 9.44% (yield curve deeply inverted)
3k Gold at $1158.50/silver $14.88 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 2/100 in roubles/dollar) 76.87
3m oil into the 32 dollar handle for WTI and 34 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 ON 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 0.9924 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1104 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 + .290%/German 7 year rate negative%!!!
3s The Greece ELA at 71.5 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 1.84% 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)
Futures Unchanged, Global Stock Algos Anemic Ahead Of U.S. Payrolls Report
US futures were largely unchanged overnight, with a modest bounce after the European close driven by a feeble attempt to push oil higher, faded quickly and as of this moment the E-mini was hugging the flatline ahead of today’s main event – the January payrolls, expected to print at 190K and 5.0% unemployment, however the whisper number – that required to push stocks higher – is well lower, at 150K (according to DB), as only a bad (in fact very bad) jobs number today will cement the Fed’s relent and assure no more rate hikes in 2016 as the market now largely expects.
The two main drivers of risk, crude and the USD, were both also unchanged as if the server farms housing the trading algos had been put in sleep mode ahead of what may be a turbulent session.
The Dollar Index was little changed after slumping 3.1% this week, the most since 2009, as traders realized the Fed is about to admit it was wrong once again. Fixed-income securities across the world have rallied in the past five days as policy makers painted a gloomy picture of the world economy. Gold climbed, extending a third weekly gain.
European stocks rose, led by automakers. Energy stocks set for third daily gain as crude advances. Spanish, Italian bourses outperformed. Pound extends drop as traders push back timing of BOE rate boost. Spanish and Italian government bonds led an advance among euro-area sovereign securities.
Explaining the cautious tone, William Hobbs, head of investment strategy at Barclays Plc’s wealth- management unit in London, told Bloomberg that “people are seeing the negative effects of the lower prices and still waiting to see the positive. Until we see evidence of better consumption it’s likely equity markets will be correlated with the oil price and that suggests volatility. Earnings aren’t confirming people’s worst fears, but they are a bit choppy.”
Asian stocks fell, with the regional benchmark index heading for a weekly loss, after Japanese shares declined as the strengthening yen pressured major exporters: indeed, the biggest moves have again come in Japan where the Nikkei has tumbled for a fourth consecutive dayand is now down -1.3% from this time last week when the BoJ announced negative rates. “The Bank of Japan has done what they should, but what they could do had its limits,” Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo, said by phone. “Until now, the view on the U.S. economy was that it was recovering, but the pace wasn’t as fast as hoped. Now there’s some concern in the market that it may actually be contracting.”
As a reminder, the main risk event for February is not the jobs report but this weekend’s Chinese official January update of its FX reserve level: a greater than expected drop will be a major hit to risk, and vice versa.
In advance of today’s most important event due out in less than 2 hours, this is where key risk levels stand:
- S&P 500 futures up 0.1% to 1909
- Stoxx 600 unchanged at 329
- FTSE 100 up 0.6% to 5931
- DAX up 0.4% to 9427
- German 10Yr yield down less than 1bp to 0.3%
- Italian 10Yr yield down 2bps to 1.51%
- Spanish 10Yr yield down 3bps to 1.61%
- MSCI Asia Pacific down 0.2% to 121
- Nikkei 225 down 1.3% to 16820
- Hang Seng up 0.5% to 19288
- Shanghai Composite down 0.6% to 2763
- US 10-yr yield up 1bp to 1.85%
- Dollar Index up 0.18% to 96.65
- WTI Crude futures up 0.8% to $3.01
- Brent Futures up 0.5% to $34.63
- Gold spot up 0.2% to $1,158
- Silver spot up 0.2% to $14.88
Here are the global top news this morning via BBG:
- LinkedIn Shares Plummet After Sales Outlook Trails Estimates: Sees 1Q rev. $820m, est. $867.1m; sees 2016 rev. $3.60b-$3.65b, est. $3.9b; fell as much as 30% in extended trading
- ArcelorMittal Asks Investors for $3 Billion Amid Steel Rout: CEO Lakshmi Mittal, who owns ~37%, committed to maintain stake and his family will take up ~$1.1b; co. to sell a $1b stake in Spanish auto-parts maker Gestamp; 2015 Ebitda fell 28% to $5.2b
- Toyota Stays on Track to Report 3 Trillion Yen in Annual Profit: Stayed on track to become first Japanese co. to top 3t yen ($25.7b) in annual oper. profit; raises full-yr net income target 0.9% to 2.27t yen; analyst est. 2.39t yen
- Platt’s BlueCrest Said to Be Probed by SEC Over Employee Fund: Being investigated by over possible conflicts posed by an internal fund that manages money for the firm’s partners, according to people with knowledge of the matter
- Linn Exploring Options During Worst Oil Downturn in 30 Years: Using all of $3.6b credit facility loan; Lazard and Kirkland & Ellis hired for advice during review
- News Corp. Profit Trails Estimates as Ad Revenue Declines: 2Q adj. EPS 20c, est. 21c; rev. $2.16b, est. $2.13b.
- Genworth Halts Life, Annuity Sales After Loss; Shares Fall: Suspended sales of traditional life insurance and fixed annuity products to focus on stabilizing unit that provides L-T care coverage; reports $292m loss for 4Q
- State Street Said Near Deal to Buy GE Asset Management, Reuters Says: State Street prevailed over other bidders incl. Goldman; Goldman declined to comment to Reuters
- Obama $10-Per-Barrel Oil Tax Lands With Thud in Congress: President says he will propose tax in 2017 budget plan
- Mattel, Hasbro Would Face Rising Antitrust Worry Over Mega Deals: Hasbro, Mattel Said to Have Held Talks on Possible Merger
- Bond Rally Defies Bear Pack as Record Low Yields Keep On Coming: U.S. 10-yr yield will end 2016 at 2.68%: Bloomberg survey
- Dollar Peaking for Principal Even Seeing Two Fed Rate Increases: Dollar probably peaking against euro, yen as 18- month rally tempers U.S. economic growth, means Fed will be slower to raise rates, according to Principal Global Investors
- Elliott Management Said to Take Large Stake in Symantec: WSJ
- Yahoo Loses Mobile Entrepreneur Arjun Sethi to Venture Firm: WSJ
Taking a closer look at regional markets we find Asian equities traded mixed, shrugging off the positive lead on Wall Street (S&P 500 +0.15 %). The Shanghai Comp (-0.6%) oscillated between gains and losses in what was a rather subdued session with trading volumes 26% below the 30-day average, while the PBoC conducted further OMO injections ahead of the Lunar New Year. ASX 200 (-0.1 %) fell amid weakness in consumer discretionary, while the Nikkei 225 (-1.3%) continues to flounder with JPY weighing on exports, with the currency set to post its best week of gains in 6-years. JGBs rose amid spill over buying in USTs with once again yields in the 10-yr dropping to record lows having fallen to 0.035%.
Top Asian News
- China Foreign Reserves Head for Record Drop on Yuan Defense: $513b plunge in 2015 was first annual slide since 1992
- Foxconn’s Gou Pressures Sharp to Accept $5.6 Billion Bailout: Sharp says it will continue talking with Foxconn, INCJ
- BOJ Roils Money Market Industry as Nomura Halts Fund Orders: Daiwa, Mitsubishi UFJ among providers with similar plans
- Sumitomo Warns on Commodity Prices as Writedowns Mount: Swung to a net loss in 3Q and cut its full-year profit target by more than half due to mounting impairments
- Noble Group Bank Debt Prices Signal Concern Worst Isn’t Over: Credit facility parcel said to have traded at ~75 cents
- Frozen Bank Accounts Sow Doubts on Malaysia Transparency Bid: Swiss, Singapore investigations continue into govt fund
A relatively quiet session in European markets today, with volatility quelled by the looming spectre of the US non-farms payrolls report, later on in the session. Furthermore, oil prices have been subdued in today’s session helping calm markets. In terms of stock specifics, BNP is the latest of the major European banks to report, and the story looked familiar at first with a large miss on headline net income. However, the saving grace for the French bank was a boost in dividend, culminating in BNP trading nearly 5% in the green.
Top European News
- BNP Paribas Surges as Lender Targets Investment-Bank Cost Cuts: Targets EU1b in savings at investment bank by 2019; 4Q net income EU665m, est. EU864.2m
- Blackstone, Onex Said to Advance With Philips Lighting Bids: Philips has selected buyout firms including Blackstone, Onex and Apollo Global and U.K. investment company Melrose Industries to advance to the second round of bidding for its lighting division, according to people familiar with the matter
- German Factory Orders Fall as Export Slowdown Cools Confidence: Dec. orders drop 0.7% on month vs estimate for 0.5% decrease; orders dropped 2.7% from a year earlier
- Volvo AB to Cut Production on Lower North American Truck Demand: Sees N. America h/d truck mkt 260k units; prior 280k; 4Q net income (Gaap) SEK2.59b vs est. SEK3.17b; sees SEK10b cost cuts complete by year-end
- U.K. Poll Shows ‘Out’ Campaign Leads by 9 Points After Deal: 45% of respondents were in favor of leaving the EU and 36% wanted to remain inside, with 19% undecided, YouGov said
Ahead of the week’s key US jobs report, FX markets have calmed down, though the key USD rates remain well placed to extend levels against the greenback. Standout is USD/JPY, which has held below 117.00 through the early European session, having found support at 116.50 in NY yesterday. Asia retested this, but unsuccessfully. Large exotic triggers noted in 115.50-115.00 area. GBP sellers were back in after the latest YouGov poll on EU showed the ‘leave’ camp up to 45% vs 36% choosing to stay in. Cable found support ahead of 1.4500 though, but EUR/GBP made a clean break through .7700. Oil prices slipped again to pull CAD off better levels, with a tight correlation now seen here. EUR/USD settles around 1.1200 for now — over 2 yards rolling off here today.
As we head into the North American session, WTI and Brent have seen an uptick with WTI Mar’16 futures retaking the USD 32.00 handle, although there is no new fundamental news to drive price action. With nothing new on the OPEC front, prices continue to be dictated to by the USD, and the key risk event come in the form of NFP report later today.
Gold traded has seen a bid n recent trade, extending upon the October 29th highs reached in yesterday’s session, following the weakening of the USD. Of note we are entering a level of key resistance territory, with the late August high of 1166.57 coming into focus.
Looking ahead to today’s calendar, the main event this afternoon in the US will be the January employment report where along with payrolls we’ll also get the latest payrolls report (exp. +190,000), unemployment rate (no change expected at 5%), average hourly earnings (expected at +0.3% mom and +2.2% yoy) and labour force participation rate (expected to nudge up one-tenth to 62.7%). Away from the employment data, we’ll also get the December trade balance data where a slight widening in the deficit is expected, along with the December consumer credit print. There’s little in the way of Central Bank speak and it’s a lot quieter on the earnings front too with just 7 S&P 500 companies set to report.
Bulletin Headline Summary from RanSquawk and Bloomberg
- A relatively quiet session in European markets today, with volatility quelled by the looming spectre of the US non-farms payrolls report later on in the session
- FX markets have calmed right down, though the key USD rates remain well placed to extend levels against the greenback
- Looking ahead, highlights include US Nonfarm Payrolls Report, Canadian Unemployment, comments from ECB’s Mersch
- Treasuries slightly lower ahead of today’s U.S. non-farm payroll report (est. +190k) while the USD index rises overnight after closing lower each day this week.
- Hints of investor optimism in Europe were snuffed out this week and sent stocks and credit markets sliding as companies reported dismal earnings, and policy makers and institutions lined up to cut economic forecasts and warn of further risks
- BNP Paribas jumped as the French lender raised its dividend to the highest in eight years and pledged to cut costs at the investment bank to help free up capital
- Nomura Asset Management stopped accepting investments into some money-market funds, joining 10 other managers in suspending such accounts as the $14.1 billion industry grapples with the negative interest rates introduced by the BOJ
- China’s foreign-exchange reserves, already at a three-year low, are poised to post a second consecutive record monthly drop as policy makers intervene to support the yuan. The central bank will say Sunday that the currency hoard fell by $118 billion to $3.2 trillion in January, according to economists’ estimates in a Bloomberg survey
- Economists are deviating even more from the Federal Reserve in forecasting how high interest rates will rise, joining bond and futures traders in doubting the central bank’s projected policy-tightening path
- The dollar is headed for its biggest weekly decline since 2009 amid signs traders are starting to pull back from a policy divergence trade that proved a winner for much of the past year and a half
- After a year of low oil prices, only 0.1% of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience
- When Bill Gross left Pacific Investment Management Co. in 2014, it wasn’t surprising that investors bolted. But now customers are deserting another Pimco star manager who’s still in his seat
- Sovereign 10Y bond yields mostly steady, though Greece +9bp. European stocks higher, Asian stocks mixed; U.S. equity- index futures rise. Crude oil mixed, copper drops, gold rises
US Event Calendar
- 8:30am: Trade Balance, Dec., est. -$43.2b (prior – $42.37b)
- 8:30am: Change in Non-farm Payrolls, Jan., est. 190k (prior 292k)
- Change in Private Payrolls, Jan., est. 180k (prior 275k)
- Change in Manufacturing Payrolls, Jan., est. -2k (prior 8k)
- Unemployment Rate, Jan., est. 5% (prior 5%)
- Average Hourly Earnings m/m, Jan., est. 0.3% (prior 0%)
- Average Hourly Earnings y/y, Jan., est. 2.2% (prior 2.5%)
- Average Weekly Hours All Employees, Jan., est. 34.5 (prior 34.5)
- Change in Household Employment, Jan. (prior 485)
- Labor Force Participation Rate, Jan., est. 62.7% (prior 62.6%)
- Underemployment Rate, Jan. (prior 9.9%)
- 3:00pm: Consumer Credit, Dec., est. $16b (prior $13.951b)
DB’s Jim Reid concludes the overnight wrap
All things considered it’s felt like markets have taken a bit of a pause for breath over the last 24 hours or so, something we’ve rarely said in 2016. A lull in newsflow combined with a relatively calm day for Oil yesterday (WTI closing down ‘just’ -1.73% at $31.72/bbl and hovering around those levels this morning) resulted in US equities in particular trading with fairly little conviction. In fact it took for the S&P 500 to swing between gains and losses an impressive 21 times to finally close with a fairly modest +0.15% gain. Moves in currency markets have been a bit more eye-catching as the US Dollar continued its downward march yesterday with the Dollar index eventually finishing with a -0.84% loss. That means the index is now down -3.1% in the four days this week which as it stands makes it the worst weekly performance since 2009.
This of course coming before the main event of the week today in the January US employment report, including the all-important nonfarm payrolls data. After the robust 292k print we got in December, market expectations are currently for a 190k gain, while our US economists are slightly more cautious and are forecasting a 175k gain (along with no change to the unemployment rate at 5%). Post the soft employment components from ISM readings we got earlier this week, it seems like the whisper number is probably closer to 150k however. As is standard practice at this time of year we’ll also get the revisions for five years of payrolls data today. Futures markets continue to price a less than 50% chance of a hike this year and given the relatively low expectations ahead of today’s data it would have to take a bumper number for that to change materially. Remember that before the FOMC meeting in March we will also get the February employment report along with a number of other important releases, while Fed Chair Yellen’s semi-annual testimony next week will be a huge focus for markets.
Ahead of the data then, equity markets in Asia are demonstrating a similar lack of direction in early trading. The Hang Seng (+0.57%) and Kospi (+0.14%) are holding in with gains, while bourses in China are a smidgen lower at the break (Shanghai Comp -0.11%) along with the ASX is -0.11%. The main moves have again come in Japan where the Nikkei (-1.76%) has tumbled for a fourth consecutive day and is now down -1.3% from this time last week when the BoJ announced negative rates. The same goes for the Yen which is slightly firmer this morning and has in fact now appreciated 1.7% post BoJ. Credit indices are underperforming this morning with iTraxx indices for Asia, Japan and Australia +2bps, +4.5bps and +6bps wider respectively.
Back to yesterday. European risk assets put in a bit of a mixed performance with corporate earnings dictating a lot of the moves. The Stoxx 600 (-0.20%) and DAX (-0.44%) ebbed and flowed before finishing with modest losses, although there was a decent rally for peripheral bourses with the likes of the IBEX and FTSE MIB up +1.85% and +1.23% respectively. While miners staged a notable rebound, Credit Suisse saw its share price fall by double figures after announcing its biggest quarterly loss since 2009. Sub-financials spreads were hit hard as a result with the sub-financials index now underperforming Crossover both this week and YTD now.
US credit was a bit of an underperformer too yesterday with CDX IG eventually closing a couple of basis points wider as consumer names in particular came under pressure on the back of some weaker than expected earnings reports. In fact, yesterday also saw a couple of big US energy names report with ConocoPhillips and Occidental failing to meet analyst expectations for both earnings and revenues. The former in fact also announced a 66% cut in the quarterly dividend and decent slash to capex. All told yesterday we had 33 S&P companies report their latest quarterly numbers with 21 beating earnings expectations (64%) but just 12 (36%) beating revenue forecasts. That’s a fair bit weaker than the overall trend so far at 78% and 46% respectively.
From the micro to the macro where yesterday comments from the Dallas Fed’s Kaplan echoed a similar tone to Brainard and Dudley in recent days. Kaplan emphasized the need for being ‘very patient’ in assessing the outlook for US growth while also acknowledging that ‘global financial conditions have tightened’ and that ‘non-US conditions have weakened’. Post the market close we also heard from Cleveland Fed President Mester who, while acknowledging the recent market turbulence and ‘soft patch’ for the US economy, continued to emphasise the belief that the US economy will work through this and ‘regain its footing for moderate growth’.
Earlier in the day we had also heard from ECB President Draghi although there wasn’t a whole lot of new information in his comments. Draghi insisted once again that ‘the risks of acting too late outweigh the risks of acting too early’ before pledging not to give in to low inflation. Meanwhile fellow ECB official, Mersch, reiterated that the ECB’s toolbox is not yet exhausted and that the ECB will make a decision once data is available in March.
Also of note yesterday was the Bank of England MPC meeting. While there was no change to current policy as widely expected, it was interesting to see a now unanimous vote with Ian McCafferty having retracted his previous call for tightening. Medium term inflation forecasts were little changed but we did see the Bank downgrade its growth forecasts with 2016 growth now expected to be 2.2% (cut from 2.5%) and 2017 growth downgraded to 2.4% from 2.7% previously. The minutes showed that the MPC judges the risks to the central projection to be skewed a little to the downside in the near term and it was noted that ‘low realized inflation will continue to moderate the increase in wage pressure in the near term’. In the post statement conference, Governor Carney didn’t sound too overly-bearish and made mention to the fact that the down-ward pull on inflation from overseas will be countered by more sustainable cost pressures at home.
Before we take a look at the day ahead, yesterday’s economic data in the US was generally a little softer than expected. Q4 nonfarm productivity was weak at -3.0% qoq (vs. -2.0% expected). Unit labour costs rose a little bit more than expected at +4.5% qoq (vs. +4.3%) while initial jobless claims rose 8k last week to 285k (vs. 278k expected) which resulted in the four-week average nudging up to 285k and continuing the upward trend. Factory orders were down -2.9% mom in December (vs. -2.8% expected), while the already soft durable goods orders were revised down further in December at the final revision by five-tenths to -5.0% mom.
Looking ahead to today’s calendar, it’s a pretty quiet start to proceedings this morning in Europe with just German factory orders data for December due out. The main event this afternoon in the US will of course be the aforementioned January employment report where along with payrolls we’ll also get the latest unemployment rate (no change expected at 5%), average hourly earnings (expected at +0.3% mom and +2.2% yoy) and labour force participation rate (expected to nudge up one-tenth to 62.7%). Away from the employment data, we’ll also get the December trade balance data where a slight widening in the deficit is expected, along with the December consumer credit print. There’s little in the way of Central Bank speak and it’s a lot quieter on the earnings front too with just 7 S&P 500 companies set to report.
Meanwhile it’s worth highlighting that over the weekend we’ll get the latest China FX reserves data for January which we’ll be keeping a close eye on ahead of the Asia open on Monday.
Let us begin:
Late THURSDAY night FRIDAY morning: Shanghai down 0.63% / Hang Sang UP . The Nikkei DOWN . Chinese yuan (ONSHORE) UP and yet they still desire further devaluation throughout this year. Oil gained to 32.09 dollars per barrel for WTI and 34.75 for Brent. Stocks in Europe so far mostly the green with the DAX only one in the red . Offshore yuan trades at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan AS THE SPREAD NARROWS WITH HUGE GOVERNMENT INTERVENTION / no doubt huge amounts of USA dollars left the country to support the offshore yuan/ Also the increase in credit default swaps are a problem for China and this huge volatility in the Chinese markets screams of credit problems; a leaked document suggests that China will not use the lowering of the RRR reserves but instead provide direct yuan injections into the market/JAPAN INITIATES NIRP(one week ago) CREATING HAVOC AROUND THE GLOBE)
PBOC Wins The Battle: Yuan Surges To Highest In 2016, Currency War Not Over
With China now closed for all intent and purpose for a week as Golden Week arrives, it appears The PBOC wanted to leave the market a message. Clear and direct intervention in offshore Yuan has ripped it 800 pips higher in the last 2 days to its highest since mid-December and stronger than onshore Yuan. However, while PBOC may have won this battle, surging CDS suggest the currency war is far from over.
Offshore Yuan has ripped higher (just as it did in early Jan)…
This is the strongest offshore Yuan against onshore Yuan since September…
But out of the reach of PBOC direct intervention, CDS markets are still implying a dramatic devaluation looms…
So while PBOC may have won this brief battle into Golden Week, the speculative war on their currency is far from over.
USDJPY Entirely Ignores Yet More Jawboning From Japanese Offcials
Peter Pan(ic) policy has apparently reached its limit. USDJPY continues to slide despite Kuroda unleashing NIRP, dropping the “whatever it takes” and “no limits” tape bombs, and today’s Abe advisor Honda headlining with BoJ’s next steps may include more NIRP and more QQE… It’s over!
Every time they open their mouths USDJPY drops further…
How do you say “impotent” in Japanese?
Looks like we have another Ponzi blowup in China; Bocum halts payments to lenders.More on the Ezubo fraud!
(courtesy zero hedge)
More “P”onzi-2-“P”onzi Blowups “Just A Matter Of Time” In China, Experts Warn
In early December, Ding Ning and his girlfriend Zhang Min were planning to make a run for it.
The couple had come to the end of the road with the massive fraud they were running through P2P lender Ezubo, which bilked some 900,000 people out money making it the largest ponzi scheme by number of victims in history.
Ultimately, the amount of money coming in was no longer sufficient to cover interest payments to existing clients. The pair attempted to bury the evidence in the backyard (literally) but police, using two excavators, managed to dig up 80 bags of documents buried 20 feet underground.
As a reminder, the company lured investors in with the promise of returns between 9% and 14%. In the end, nearly all of the “projects” featured on the site turned out to be fictitious.
We documented the story on Monday when we warned that this was just the type of event that could serve as the straw that breaks the camel’s back for a populace that’s already on edge thanks to a horrendous equity market meltdown and worries about the prospects for China’s currency and economy. Sure enough, the very next day, a bulletin began to make the rounds on Chinese social media calling for defrauded Chinese to “rise up” and stage nationwide protests until their money is refunded. The demonstrations would be called the “rights protection movement.”
“So stay tuned, because judging from the tone of the ‘rights protection movement’ bulletin the villagers are restless in China,” we said, before noting that Ezubo is probably just one of many P2P frauds in the country given that by November, there were over 3,600 such platforms in operation.
Bloomberg is out with a bit of color on China’s internet financing industry which was apparently allowed to flourish as Beijing attempted to figure out how to rein in shadow banking without choking off credit growth as the economy decelerated.
“China’s plan in allowing online lenders to flourish was to allow additional ways for small business to get financing rather than turn to back-alley shadow bankers — a shady world that was flourishing outside of government control when P2P lending began taking off in China in 2012 and only 3 percent of China’s 42 million small business owners could get bank loans,” Bloomberg wrote on Wednesday. “Online lending was a way for the government to encourage further economic stimulus in an economy growing at the slowest rate in a quarter century, and in theory it should be more transparent to regulators because it uses a real-time digital ledger of accounts.”
Yes, “in theory.” But in reality, these outfits are just as opaque as WMPs, trusts, channel loans, and the laundry list of other vehicles China uses to keep the credit impulse alive.
“I think the government allowed this all to happen because it was desperate to pump money into the private economy as all the other slowdowns started to happen,” Steve Dickinson, a Qingdao-based lawyer for Seattle firm Harris Moure PLLC, told Bloomberg by e-mail. “It is likely that the regulators at the top simply turned a blind eye to the risks in the desperate hope that this kind of lending vehicle would get them through a rough patch.”
“It was just a matter of time before we saw something this big keel over,” Zennon Kapron, managing director of Kapronasia, remarked.
And that means it’s “just a matter of time” before it happens again. Indeed, out of the 3,600 P2P operations in China, around 1,000 of them are deemed “problematic,” the China Banking Regulatory Commission says.
According to Xinhua, transactions on Chinese P2P sites topped $150 billion in 2015 up nearly 300% from the previous year. Sensing trouble, the CBRC published draft rules in December designed to control risk. “Due to the lack of necessary regulation, many P2P platforms play in the area between legal and illegal, using Internet concepts to brand themselves, fraudulent advertising and illegal deposit-taking to hurt public interest,” the body said.
“The harm is obvious. It’s going to damage financial reforms, cause social unrest and destabilize the regime to some extent,” Yang Dong, vice-dean at Renmin Law School and an expert on finance and securities law told Reuters this week.
We close with the following rather inauspicious headline from Bloomberg which hit the wires Thursday afternoon:
Bocom Halts Payments From Clients to Chinese P2P Lender
An extremely important discussion on China from Kyle Bass. He explains that China now has 34 trillion USA assets in their banking system. Even though they run a huge surplus in the trade account, they have a massive banking problem. China’s GDP is 10 trillion uSA and thus they have a banking/sovereign GDP of 3.4 x, identical to what brought Europe to its knees in 2008. China has a huge problem with non performing loans probably in excess of 20%, plus fraudulent Ponzi schemes. The total USA equivalent reserves are 3.3 trillion and thus a banking bailout is in order which will wipe out its reserves. This is why Bass is betting against the yuan.
(Kyle Bass/zero hedge)
I encourage you to see the tape at zero hedge
Kyle Bass Asks If China Is Fine, Why Are They So Worried About “Some Hedge Fund Manager In Texas”
If there’s one thing China hates, it’s a nefarious “manipulator” spreading innuendo, and fear in an already nervous market.
When these evildoers are Chinese citizens, the problem is easily solved. Beijing simply arrests them and beats a confession out them or else simply locks them away in the bowels of the Politburo for the remainder of their days. This is what we saw late last summer when Xi moved to crackdown on what the government claimed were multiple bad actors creating volatility and exacerbating the stock market rout.
However, when the “manipulators” aren’t Chinese citizens and don’t reside within the country’s borders, officials have fewer options. Now that a bevy of well known fund managers have the yuan in their crosshairs, China is using the only tool is has to combat foreign “speculators” intent on spreading “information that does not conform to the facts”: the captive press.
China is particularly keen on using the Party’s various media mouthpieces to counter perceived threats to the country and to calm the masses whose nerves are increasingly frayed amid the equity market collapse and the decelerating economy.
Last month for instance, a hilariously absurd “op-ed” appeared in People’s Daily carrying the title “Declaring war on China’s currency? Ha ha.” In it, Beijing calls George Soros – who said at Davos that he’s betting against Asian currencies and that China is experiencing a hard landing – a “financial crocodile” whose “war on the renminbi cannot possibly succeed.”
Of course Soros isn’t the only one waging “war” on the yuan. Kyle Bass is also betting against the currency.
China’s banking system, Bass told CNBC on Wednesday, is a $34 trillion ticking time bomb, and when it explodes, Beijing will need to plug the holes. $3.3 trillion in FX reserves will be woefully inadequate, he contends.
“Very few people have looked at what the cause of the problem is,” Bass begins. “They’ve let their banking system grow 1000% in 10 years. It’s now $34.5 trillion.”
Bass then goes on to note that special mention loans (which we’ve discussed on any number of occasions) are around 3% of total assets. “If they lose 3%, that’s a trillion dollars,” Bass exclaims. Ultimately, Bass’s argument is that when China is forced to rescue the banking system by expanding the PBoC’s balance sheet, the yuan will for all intents and purposes collapse. This is of course exacerbated by persistent capital flight.
Below, find some other soundbites from the interview. Notably, towards the end, Bass says that if China is right and speculation around a much larger devaluation is indeed unfounded, then it’s curious why China seems to care so much about what “one fund manager in Texas thinks.”
From Kyle Bass:
“The IMF says they need $2.7 trillion in FX reserves to operate the economy.They’ll hit that number in the next five months. Those who think they can burn it to zero and they have a few years ahead of them, they really only have a few months ahead of them.”
“When they lose money in their banks they’re going to have to recap their banks. They’ll have to expand the PBoC balance sheet by trillions and trillions of dollars.”
“No one’s focused on the banking system. Focus will swing to it this year.”
“A Chinese devaluation of 10% is a pipe dream. It will be 30-40% by the end.”
“If some fund manager in Texas is saying that your currency is dramatically overvalued, you shouldn’t care on a $10 trillion economy with $34 trillion in your banks. I have, call it a billion – it’s so small it should be irrelevant and yet somehow it’s really relevant.”
“If 4% of the population takes out their $50,000 quota, the FX reserves are gone. We lose ourselves in the numbers. $3.3 trillion is a big number, but the reserves to bank assets number is one of the worst in the world.”
Lest you should be inclined to believe Bass, we close with yet another amusing “Op-Ed” from Chinese media, this time courtesy of Xinhua, who will patiently explain why the “doom predictors” always get it wrong on China.
* * *
The first month of 2016 witnessed the Chinese stock market in panic selling mode and the RMB depreciating unexpectedly against the greenback. China’s GDP growth in 2015 also hit a 25-year low.
There seems to be a new surge of predictions about the “coming collapse of the Chinese economy and the end of the Chinese model”. However, looking back at China’s development journey from the late 1970s up to today, many pessimistic predictions, especially forecasting the “China breakdown”, have been proved wrong.
In 1996, Lester Brown, an American agricultural economist predicted that China would not be able to feed its large and fast-growing population and economic reforms would lead to malnutrition and hunger.
In the late 1980s and early 1990s, many Chinese pessimists predicted that economic reform without political reform would lead to a total collapse of China. In the Asian Financial Crisis of 1997-98 and the World Financial Crisis of 2007-08, many Chinese pessimists predicted that the Chinese model would not be able to sustain those drastic external shocks.
All those predictions were wrong. Since 2012, China has changed its economic development strategy from export and foreign direct investment driven to endogenous growth which emphasizes internal structural change, innovation and industrial upgrading to escape the so-called middle income trap.
In doing so, China has to eliminate excess industrial production capacity of steel, coal and other environmentally polluting products, and to promote high-end manufacturing, services, urbanization and rural modernization.
Economic slowdown is an inevitable outcome of the new development strategy, but given the tough external economic environment and surging domestic factor costs, China’s growth of 6.9% in 2015 was still the best among the world’s 10 largest economies except India. In particular, while the Russian and Brazilian economies are contracting sharply, and while many other developed economies are still struggling to move out of their own crisis, China continues to be a potent engine of growth for the global economy.
So why do doom predictors always get it wrong when it comes to China?
Firstly, some pessimists always look at China’s short term challenges and ignore its long term development capability and potential. Short term challenges and difficulties are temporal, they can be overcome if the government and the people have a strong will for success.
Secondly, some pessimists do not understand that the Chinese government is far better than they thought, and that political stability is the basic foundation of China’s success.
Thirdly, doom predictors of China underestimate the ability and determination of the Chinese people who are not only hard working and intelligent, but also resilient to all kinds of challenges and shocks.
China today is different from its past. The economy is well above 10 trillion US dollars, second only to the US, twice as large as Japan, and four times as large as India. A 6.9% growth is more than one-quarter of India’s annual GDP, and bigger than a medium-sized economy in the world.
China’s richest city, Shenzhen, erected from a small fishing village in 1980, now has a population of over 10 million people. Its per capita GDP is higher than that of Taiwan and is still growing at nearly 8% per year. China’s biggest city by population, Chongqing, has over 30 million people. The city’s GDP expanded by 11% in 2015 and the government’s plan is to achieve 10% growth in 2016.
The Chinese economic fundamentals are sound and robust: unemployment rate is low, people’s incomes are growing faster than GDP, income inequality is narrowing and energy intensity is declining.
If those pessimists were in China, they would see that all the Chinese regions are still ambitious in making their 13th Five Year Plan, which is to sustain China’s economic growth at a much higher rate than many other economies in the world. The policy objective is to build an all-round well-off society and to eliminate absolute poverty by 2020.
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Just take a look at how European banks have fared so far this yr:
(courtesy Robert H to me)
Shedding the garbage!Deutsche Bank (DB), down 29.8%Credit Suisse (CS), down 31.4%HSBC Holdings (HSBC), down 14.8%Barclays PLC (BCS), down 21.1%UBS Group (UBS), down 20.6%Royal Bank of Scotland Group PLC (RBS), down 20.1%Banco Santander (SAN), down 16.6%
RUSSIAN AND MIDDLE EASTERN AFFAIRS
thousands are massing at the Turkish border ready to enter the fight. Iran, Hezbollah and the Syrian army are now closing in on Aleppo. Will Turkey enter the fray?
(courtesy zero hedge
Video Shows Tens Of Thousands Massing At Turkey Border As Russia, Iran Bear Down On Key Syrian City
On Thursday we brought you the latest from Syria, where Hezbollah and the IRGC have encircled Aleppo and cut off rebel supply lines to Turkey.
It was months in the making, but it now appears that the city – Syria’s second largest – will soon be retaken by forces loyal to Bashar al-Assad. As we’ve explained in the past, that would effectively restore the President’s grip on power as he would effectively control most of the country’s urban centers – even if that “control” is tenuous.
Eastern Syria is of course a different story entirely, as ISIS is dug in at Raqqa, the group’s self-styled capital. If the rebels lose Aleppo, it will represent a huge blow to the effort to topple Assad’s government. Saudi Arabia and Turkey know this, which is presumably why Erdogan was busy criticizing the Russian airstrikes that have facilitated the Hezbollah advance yesterday and why Riyadh now says it’s prepared to send in ground troops (to “fight ISIS”).
Now, as the Russian air campaign continues unabated and Shiite fighters advance on the city, civilians are fleeing what they anticipate will be a bloody battle.
“The Russian (air) cover continues night and day, there were more than 250 air strikes on this area in one day,” Hassan Haj Ali, head of Liwa Suqour al-Jabal, a group that fights under the umbrella of the Free Syrian Army, said.
“Tens of thousands of Syrians fled an intensifying Russian assault around Aleppo on Friday, and aid workers said they feared the city which once held two million people could soon fall under a full government siege,” Reuters writes. “The last 24 hours saw government troops and their Lebanese and Iranian allies fully encircle the countryside north of Aleppo and cut off the main supply route linking the city – Syria’s largest before the war – to Turkey [who says] the aim is to starve the population into submission.”
Now obviously that’s ridiculous. The “aim” is to keep the rebels (some of whom are ISIS fighters) from obtaining guns and TOWs from Turkey where the government in Ankara is desperate to salvage whatever’s left of the effort to oust Assad.
In any event, the fighting looks set to create a new wave of refugees bound first for Turkey and ultimately for a beleaguered Western Europe.
“Video footage showed thousands of people, mostly women, children and the elderly, massing at the Bab al-Salam border crossing,” Reuters continues. “Men carried luggage on top of their heads, and the elderly and those unable to walk were brought in wheelchairs.”
Here are the visuals:
Mass Layoffs To Return With A Vengeance
Remember the mass layoffs of 2008-2009? The US economy shed millions of jobs quickly and relentlessly, as companies died and the rest fought for survival.
Then the Fed and the US government flooded the banks and the corporate sector with bailouts and handouts. With those giga-tons of liquidity sloshing around, as well as taking on massive amounts of new cheap debt, companies were able to finance their working capital needs, hire workers back, and even buy-back their shares en mass to make themselves look deceptively profitable. The nightmare of 2008 soon became a golden era of ‘recovery’.
Well, 2016 is showing us that that era is over. And as stock prices cease to rise, and in fact fall within many industries, layoffs are beginning to make a return as companies jettison costs in attempt to reduce losses.
Since January 1st, here is a but of subset of the headlines we’ve seen:
- Johnson & Johnson to slash 3,000 jobs
- Wal-Mart pulls plug on smallest store format, shuts 269 stores
- GE plans to cut 6,500 jobs in Europe
- BP to slash thousands more jobs in face of oil downturn
- Macy’s to cut 3,000 jobs, close 36 stores
- Sprint cutting 2,500 and closing call centers to cut costs
- Canadian Pacific Railway plans to cut 1,000 positions
- Brazil economy shed 1.5 million payroll jobs in 2015
- Pearson to cut 4,000 jobs in latest restructuring
- Barclays to slash about 1,000 investment bank jobs worldwide
- Southwestern Energy to lay off 1,100 workers amid oil slump
- Major banks are making cuts: Bank of America, Citi Group and JPMorgan Chase are trimming jobs and branches.
- Autodesk to cut 10 pct of workforce
- Caterpillar closing 5 plants, cutting 670 jobs
- VMware posts higher-than-expected revenue, announces job cuts
- AIG to cut jobs in sweeping overhaul
- Monsanto to slash 1,000 more jobs, total planned cuts at 3,600
- Instacart layoffs may be a sign of things to come
- EMC plans layoffs as it cuts annual costs by $850M
Note that nearly all of these companies are in the Energy, Finance and Tech sectors— the three biggest engines of growth, profits and market value appreciation within the economy over the past 7 years.
What will the repercussions be if those three industries go into contraction mode at the same time?
Whatever the specifics may be, the general answer is easy to predict: Nothing good.
This topic has particular relevance to me today, as my former employer Yahoo! just announced that it’s cutting 15% of its workforce (1,700 jobs) and considering putting itself up for sale. This is no shock to me, as I’ve long publicly predicted Yahoo!’s inexorable swirl into irrelevance, but it’s timing is indicative of the new era the economy is now entering.
With its stake in Alibaba, Yahoo! participated in the mania that drove Chinese and other emerging market shares in 2014 through mid-2015. The capital that flooded into the Tech sector in general didn’t hurt, either. Both of these helped mask the business’ broken fundamentals and kept the day of reckoning for its lack of demonstrable progress at bay. But no longer.
As Warren Buffet famously quipped: Only when the tide goes out do you discover who’s been swimming naked. Well, with the collapse of the Asian stock markets last year and the entire global market so far this year, the tide is fast receding and the rot at Yahoo! is now plainly visible to all. How much rot? During its earnings call yesterday, the company announced it’s taking a write-down of $4.5 billion. That’s nearly as much as it made in top-line revenue for all of 2015!
Yahoo! is one of the weaker players in Tech these days, and it’s now stumbling hard. Here at Peak Prosperity, we predict that collapse happens ‘from the outside in’, where the weaker parties fall first, followed by the demise stronger and stronger players. We’ve been seeing that happen internationally over the past year as smaller poorer countries succumbed first to slowing global economic growth, and we’re now seeing larger and more developed countries become desperate (Japan, anyone? How about Italy?). Yahoo! is a similar harbinger for the Tech sector, and is being fast joined by the many Tech companies in the list of headlines above (by the way, there are *many* more Tech companies I could easily add to that list — like HP who announced job cuts of 85,000 last fall).
And there’s good argument to be made that mass layoffs in Tech will be worse today than back in 2008/9. Back then, there were fast-expanding private future behemoths one could jump to: Facebook, Palantir, Uber and the like. Even Google, Netflix and Amazon held up well and were still investing for growth during that period. Today, there is no ready stable of up-and-comers with similar potential to power through a recession.
The ability for those laid-off to find open positions elsewhere will likely be more similar to the 2000 Tech bubble burst. Working in Silicon Valley back then, I was amazed at how fast 101 changed from a crawling bumper-to-bumper experience to an uncrowded freeway. The number of jobs (and thus commuters) that vaporized quickly was astonishing.
And that’s just Tech. As Chris has been warning us loudly, something is deeply amiss in the Financial sector. It’s mind-boggling that the biggest of the “too-big-to-fail” banks, like Citibank and Bank of America, have lost 25% of their market value in a little over 1 month(!). Deutsche Bank has lost over 33% over the same short period. All while the general market is down about 8%.
What these prices are telling us is that something big, ugly and damaging is happening within the banking sector. We just don’t know exactly what yet. And if you remember your history, this is eerily similar to how things went south so quickly in 2008. The banks started catching the sniffles, and soon after, Hank Paulson was on his knees begging Congress for the authority to stave off a full meltdown of the banking system.
And then there’s Energy. Can it be that the price of a barrel of oil was over $70 just 10 months ago? And over $100 five short months before that? Yesterday it was below $30. As we’ve been warning about here at Peak Prosperity, the carnage that collapse in price is going to wreak across the highly-leveraged companies in the Energy sector is going to be biblical. Not to mention the many other sectors that service the energy industry (trucking, housing, retail, infrastructure development, etc). We are just beginning to see the very early-stage ramifications, but in the words of Bachman Turner Overdrive: You ain’t seen nothin’ yet.
My point here is that the worm has turned.
All the stimulus and intervention undertaken by the Fed at all gave us five pleasant years (2010-2104) of rising stock, bond and home prices that allowed us to pretend that the 2008 credit crisis was a one-time event.
2015 proved to be the year that reality intervened. The rocket ride we were on hit its zenith, and things hung precariously there.
2016 is fast proving to be the year that the laws of physics are starting to matter again, and our rocket is now beginning its descent back to Planet Earth. How far we fall this year vs next is still unknown, but the direction of the trajectory is becoming increasingly hard to dispute. And as we lose altitude, we’re going to start losing jobs along with it.
So, for anyone reading this who is a salaried employee, a very important question to ask yourself is: Do I have a Plan B in place if I get unexpectedly laid off this year or next?
I’m not trying to frighten anyone unnecessarily. But I do see the probability of wide-scale jobs losses as materially higher this year than it was just a few short months ago. And with the headlines in the news today, things can easily accelerate further from here.
If you do not have a confidence-inspiring Plan B lined up yet, remember that the best time to plan for crisis is before it arrives. Spend time asking yourself what you would do in the aftermath of a pink slip. Save a greater percentage of your income, line up professional contacts, conduct informational interviews, and develop any needed new skills now — so that if you ever do need to turn to them, they’re already there to support you. A lot of the process for doing this is detailed in our book on career transition, and our related podcasts with career coach Jennifer Winn and the Johnson O’Connor Foundation are helpful resources, too.
Investing in the other Forms of Capital (besides money) that we detail in Prosper! will only help add to your resilience, as well. Especially Emotional Capital. Dealing with job loss is stressful by itself, but potentially doing so in the midst of another punishing Great Recession would place challenging strain on any of us. Working to improve our emotional ability to deal with setback, as well as perhaps doing the same with Social Capital — ensuring you have a community to support you through any tough times, just makes good sense.
These Are The Banks The Market Is Most Concerned About
While there are numerous financial institutions in the world that are full of hidden NPLs and over-leveraged, trading at extreme levels of risk, the FSA’s “Too-Interconnected-To-Fail” list of systemically critical banks is where global investors’ attention is really focused.
BOM Capital Markets breaks down the world’s most systemically critical financial institutions using their own “special sauce” of CDS levels, CDS term structure, equity price, liquidity, and spread trends.
Frankly, as we explained previously, these are the “Musketeer” banks – one for all and all for one as any system failure in Deutsche, Credit Suisse, or Bank of China will leak immeasurably and contagiously around the world via the interconnectedness of the collateral chains used to fund these behemoths.
Global Financial System Risk Is Soaring Worldwide
We warned earlier in the week that the credit risk of the world’s financial institutions were on the rise and that trend has worsened as the week ends.
Global Bank Risk is spiking…
European Bank Risk is blowing out in Core and Peripheral nations…
And China Bank credit risk has broken to new cycle highs..
Some idiocysncratic names to keep an eye on…
Deutsche Bank – Europe’s largest derivatives exposure (and thus epicenter of collapse should things turn out as bad as the bank’s CoCos suggest) – is suffering seriously… It is becomeing very clear that banks are buying protection on DB to hedge their counterparty exposure…
ICBC Bank is among China’s largest banks (depending on the volatility of the day) and as China bank risk soars so China’s sovereign risk is soaring too with devaluation and systemic crisis co-priced into these contracts…
National Commercial Bank – the largest Saudi bank and proxy for The Kingdom’s wealth – is seeing its credit risk explode. As one analyst noted, if NCB has a crisis then Saudi military adevnturism is in grave jeaopardy…
And finally – yes it is spilling over to American banks and their “fortress” balance sheets…
But apart from that “storm in a teacup” – Buy The F**king Dip, right?
BofA: “The Sense Of Calm Which Had Descended On Markets Has Come To An Abrupt End”
The centrally-planned party is over. Here is BofA’s Kama Sharma explaining why
The sense of calm which had descended on markets in recent weeks has come to an abrupt end.
This time it has been the USD which has been the focal point. Investors continue to rotate through a vicious circle of concerns on China, commodities and US growth and with a still large long position, further near-term USD losses are likely as broader US data momentum remains weak.
Until positioning becomes cleaner, bad news on the US economy will be bad news for the USD. China will once again be back in focus next week with the release of its FX reserves data and though our estimates are for a more modest decline, any relief rally would be an opportunity to sell into.
FX: Financial conditions to hold back the Fed again?
The DXY is on pace for its worst weekly performance since 2009. A weaker-than-expected non-manufacturing ISM report (representing 80% of the US economy) challenged the presumption that the US could weather a contraction in the much smaller manufacturing sector. The dollar has been resilient to slower growth readings and the re-pricing of the Fed Funds curve since end-2015 (Chart 1) which pushed rate differentials against it.
This dislocation suggests there is further room to run, particularly as FOMC members are showing sensitivity to tighter financial conditions, and, a stronger USD. Persistent trade-weighted USD strength in recent months has been a key factor driving tighter financial conditions (Chart 2).
The divergence with rate differentials suggests non-fundamental factors (such as flight-to-quality) could be driving USD strength, making it more likely Fed officials will speak more frequently about it. This poses further downside dollar risk.
The continued wedge between the dollar and rate differentials continues to leave asymmetric risks in the near-term as the market will need to see sustained signs of a US growth turnaround before rethinking Fed policy. Chair Yellen’s Humphrey Hawkins testimony will be a key focus in this regard. Short positioning in CAD, EUR, GBP, and MXN (according to the latest CFTC data dated January 26th). Should Chair Yellen emphasize the theme of the risks from financial conditions and the USD, we would expect further long USD position unwinds in these pairs.
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So much for the “most crowded trade of all time”, as recently as Dec. 15.
Venezuela is hyperinflating to the tune of 720%. They now need 36 boeing 747 cargo planes to deliver fiat paper money (bolivars)
(courtesy zero hedge)
Hyperinflating Venezuela Used 36 Boeing 747 Cargo Planes To Deliver Its Worthless Bank Notes
The weeks ago, when we showed “What The Death Of A Nation Looks Like: Venezuela Prepares For 720% Hyperinflation“, we said that after looking at a chart of Venezuela’s upcoming hyperinflation…
… a hyperinflation in which the soaring stock market has failed to keep pace with the collapsing currency, thereby mocking all erroneous thought experiments that under hyperinflation being long the stock market is a sure hedge to currency destruction…
… we joked that it is unclear just where the country will find all the paper banknotes it needs for all its new currency.
After all, central-bank data shows Venezuela more than doubled the supply of 100-, 50- and 2-bolivar notes in 2015 as it doubled monetary liquidity including bank deposits. Supply has grown even as Venezuela has fewer U.S. dollars to support new bolivars, a result of falling oil prices.
This question, as morbidly amusing as it may have been to us if not the local population, became particularly poginant yesterday, when for the first time, one US Dollar could purchase more than 1000 Venezuela Bolivars on the black market.
And, as if on cue, the WSJ answered. As it turns out we were not the only ones wondering how the devastated “socialist paradise” gets its exponentially collapsing paper currency, which in just the past month has lost 17% of its value.
The answer: 36 Boeing 747s.
From the WSJ:
Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy.
But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar.
The shipments were part of the import of at least five billion bank notes that President Nicolás Maduro’s administration authorized over the latter half of 2015 as the government boosts the supply of the country’s increasingly worthless currency, according to seven people familiar with the deals.
More planes are coming: in December, the central bank began secret negotiations to order 10 billion more bills, five of these people said, which would effectively double the amount of cash in circulation. That order alone is well above the eight billion notes the U.S. Federal Reserve and the European Central Bank each print annually—dollars and euros that unlike bolivars are used world-wide.
This means that Venezuela’s hyperinflation, already tentatively estimated at 720%, will likely add on a few (hundred) zeroes by this time next year. It is also quite likely that Venezuela the country, as we know it now, will no longer exist because once any country is swept up in hyperinflationary rapids two things occur like clockwork: social uprisings and political coups.
But before it gets there, Venezuela’s president Maduro will be busy liquidating the nation’s roughly $12 billion in gold reserves, which his late predecessor fought hard in 2011 to repatriate back to Caracas. Sadly that gold was never meant to stay in Venezuela after all.
Meanwhile, life in Venezuela is disturbingly comparably to that under Weimar Germany, wheelbarrows of cash and all:
While use of credit cards and bank transfers is up, Venezuelans have to carry stacks of cash as many vendors try to avoid transaction fees. Dinner at a nice restaurant can cost a brick-size stack of bills. A cheese-stuffed corn cake—called an arepa—sells for nearly 1,000 bolivars, requiring 10 bills of the highest-denomination 100-bolivar bill, each worth less than 10 U.S. cents.
Rigid state price controls have only made matters worse, economists say, generating a thriving black market for just about every good, from car tires to baby diapers, in which cash is the preferred form of payment.
Adding insult to injury the very process of printing the almost instantly worthless currency costs Venezuela hundreds of millions of dollars.
“The bank-note buying spree is costing the cash-strapped leftist government hundreds of millions of dollars, said all seven of the people, who have been briefed on the deals Venezuela has entered with bank-note producers.”
But it gets even more ridiculous for the government where the largest bill in denomination is 100 Bolivars:
The high cost of the printing binge is an especially heavy burden as Venezuela reels from the oil-price collapse and 17 years of free-spending socialist rule that have left state finances in shambles.
Most countries around the world have outsourced bank-note printing to private companies that can provide sophisticated anticounterfeiting technologies like watermarks and security strips. What drives Venezuela’s orders is the sheer volume and urgency of its currency needs.
The central bank’s own printing presses in the industrial city of Maracay don’t have enough security paper and metal to print more than a small portion of the country’s bills, the people familiar with the matter said. Their difficulties stem from the same dollar shortages that have plagued Venezuela’s centralized economy, as the Maduro administration struggles to pay for imports of everything,including cancer medication, toilet paper and insect repellent to battle the mosquito-borne Zika virus.
That means Venezuela has to buy bolivars from abroad at any cost. “It’s easy money for a lot of these companies,” one of the people with details on the negotiations said.
Venezuela’s misery means a hefty pay day for those who end up printing its worthless currency, among them, the same company which printed Weimar’s own currency:
The huge order for 10 billion notes can’t be satisfied by a single firm, the people familiar with the deals said. So it has generated interest from some of the world’s largest commercial printers, each vying for a piece of the pie at a time when low profits in bank-note printing have pushed many of them to cut back on capacity.
According to the people familiar with the deals, the companies include the U.K.’s De La Rue, the Canadian Bank Note Co., France’s Oberthur Fiduciaire and a subsidiary of Munich-based Giesecke & Devrient, which printed currency in 1920s Weimar Germany, when citizens hauled wheelbarrows of cash to buy bread. More recently, the German technology company was the source of security paper for Zimbabwe when it was stricken in 2008 with a hyperinflation episode in which prices doubled daily.
Wait a minute, why not just print a single 100,000,000 Bolivar note instead of one million 100 bolivar bills? After all the savings on the printing, let along the air freight, to the already insolvent country will be tremendous and allow it to pretend it is not a failed nation for at least a few more days? It is here that the sheer brilliance of the rulers of this socialist paradise shines through:
Currency experts say the logistical challenges of importing and storing massive quantities of bank notes underscore an undeniable truth: Venezuela is spending a lot more than it needs because the government hasn’t printed a higher-denomination bank note—revealing a misplaced fear, analysts say, that doing so would implicitly acknowledge high inflation the government publicly denies.
“Big bills do not cause inflation. Big bills are the result of inflation,” said Owen W. Linzmayer, a San Francisco-based bank-note expert and author who catalogs world currencies. “Larger bills can actually save money for the central bank because instead of having to replace 10 deteriorated notes, you only need five or one,” he said.
The Venezuelan central bank’s latest orders have been exclusively only for 100- and 50-bolivar notes, according to the seven people familiar with the deals, because 20s, 10s, 5s and 2s are worth less than the production cost.
Mr. Maduro and his allies say galloping consumer prices reflect a capitalist conspiracy to destabilize the government.
Well, no, but at this point one may as well sit back and be amused by the idiocy of it all. But at least we will give Maduro one thing: he has done away with the pretense that when push comes to shove, the state and the central bank (and thus commercial banks) are two different things: “the president in late December changed a law to give himself full control over the central bank, stripping congressional oversight just as his political opponents took control of the National Assembly for the first time in 17 years.”
Finally, while the rest of the world is wrapped up in such deflationary monetary madness as negative interest rates, Venezuela is subject to monetary lunacy too, only of a far more familiar, hyperinflationary kinds:
A color photocopy of a 100-bolivar bill costs more than the note. In an image that went viral on social media, a diner is shown using a 2-bolivar note to hold a greasy fried turnover because it is cheaper than a napkin.
And before we close this latest chapter on our ongoing chronicle of Venezuela’s complete economic disintegration, we are delighted to find that Kyle Bass’s “nickel” idea has made its way even in this Latin American socialist paradise:
On a recent day, a 46-year-old slum-dweller named Mario walked the streets of a wealthy district of Caracas with a megaphone, calling on residents to sell him their coins, which he gathered into a rolling water cooler. The idea: to melt it down later.
“You can make an amazing ring,” said Mario, who wouldn’t give his last name but said he preferred to go by his nickname, Moneda, or “Coins.”
Now if only Venezuela had a way of exporting some of its hyperinflation to the rest of the world, drowning in “deflation” the result of a few hundred trillion in debt. Actually, fear not: ultimately hyperinflation is easy to achieve – Venezuela is a good example of this; what is difficult is to admit when the current system has failed and when importing 36 Jumbo Jets full of cash is the only solution.
With every passing day, the rest of the “Developed Word” gets one step closer to recreating Venezuela’s experience.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am
Euro/USA 1.1190 down .0009 (Draghi’s jawboning still not working)
USA/JAPAN YEN 116.83 down 0.017 (Abe’s new negative interest rate (NIRP) not working
GBP/USA 1.4538 down .0040
USA/CAN 1.3743 down .0014
Early this FRIDAY morning in Europe, the Euro fell by 9 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: 6.5710 / (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 2 basis points and trading now well BELOW that all important 120 level to 116.83 yen to the dollar.
The pound was down this morning by 40 basis point as it now trades just above the 1.45 level at 1.4538.
The Canadian dollar is now trading UP 14 in basis points to 1.3743 to the dollar.
Last night, Asian bourses were mixed with Shanghai down 0.63% falling badly in the last hour. All European bourses were mixed 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 FRIDAY morning: closed down 225.40 or 1.32%
Trading from Europe and Asia:
1. Europe stocks mixed
2/ Asian bourses mixed/ Chinese bourses: Hang Sang GREEN (massive bubble forming) ,Shanghai in the red by 0.63% (massive bubble bursting), Australia in the red: /Nikkei (Japan)red/India’s Sensex in the GREEN /
Gold very early morning trading: $1158.65
Early FRIDAY morning USA 10 year bond yield: 1.84% !!! down 3 in basis points from last night in basis points from THURSDAY night and it is trading BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.69 down 1 in basis points from THURSDAY night. ( still policy error)
USA dollar index early FRIDAY morning: 96.66 up 11 cents from THURSDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers FRIDAY MORNING
The following is quite something. four days after predicting oil will double, T Boone Pickens sells all of his oil holdings. This is big!!
(courtesy zero hedge)
Four Days After Predicting Oil Will Double, T. Boone Pickens Sells All Oil Holdings
(courtesy zero hedge)
Portuguese 10 year bond yield: 3.13% up 10 in basis points from THURSDAY
(courtesy BLS/zero hedge)