Gold: $1157.80 up $0.20 (comex closing time)
Silver 14.76 down 8 cents
In the access market 5:15 pm
Gold $1174.00
Silver: $14.97
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.
(report Harvey)
2 a) Gold trading overnight, Goldcore
(Mark OByrne)
b) COT report
(Harvey)
3. ASIAN AFFAIRS
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)
4.EUROPEAN AFFAIRS
European bank shares have plummeted badly since the beginning of the year
(Robert H)
5.RUSSIAN AND MIDDLE EASTERN AFFAIRS
( 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)
8.OIL MARKETS
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
(courtesy Reuters)
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.
| Silver COT Report: Futures | |||||
| Large Speculators | Commercial | ||||
| Long | Short | Spreading | Long | Short | |
| 70,685 | 32,097 | 17,609 | 47,967 | 93,441 | |
| 1,765 | 763 | 860 | 1,739 | 2,089 | |
| Traders | |||||
| 87 | 45 | 48 | 33 | 44 | |
| Small Speculators | Open Interest | Total | |||
| Long | Short | 157,934 | Long | Short | |
| 21,673 | 14,787 | 136,261 | 143,147 | ||
| -1,164 | -512 | 3,200 | 4,364 | 3,712 | |
| non reportable positions | Positions as of: | 141 | 126 | ||
| Tuesday, February 02, 2016 | © SilverSeek.com | ||||
Our commercials;
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.
Conclusions;
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?
end
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.
GoldCore and Finviz.com
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.
Silver In USD – 10 Years (GoldCore)
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
end
Gold trading in NY:
(courtesy zero hedge)
Gold Surges Back Into The Green After $1.2 Billion Morning Plunge
After someone decided to dump $1.2 billion notional in gold futures this morning as the jobs data hit – sparking a $20 tumble in the precious metal – it appears stock sellers are greatly rotating to the safety of bullion (over bonds)…
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
http://www.ft.com/intl/cms/s/0/a4390aba-c9d4-11e5-a8ef-ea66e967dd44.html
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.
* * *
end
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:
http://www.telegraph.co.uk/finance/economics/12141369/Dollar-tumbles-as-…
end
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:
https://www.goldmoney.com/shorting-the-yuan-is-dangerous?gmrefcode=gata
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATa.org
end
Maduro is one complete moron:
(courtesy Reuters)
Reuters
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.
-END-
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”…
https://www.bullionstar.com/blogs/koos-jansen/sge- continues-to-publish-withdrawals-figures/
end
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.
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.
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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
end
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.
w
* * *
end
EUROPEAN AFFAIRS
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%
end
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:
GLOBAL ISSUES
Mass Layoffs To Return With A Vengeance
Submitted by Adam Taggart via PeakProsperity.com,
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.
Conclusion
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.
* * *
So much for the “most crowded trade of all time”, as recently as Dec. 15.
EMERGING MARKETS
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.
END
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
silver:$14.87
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
OIL MARKETS
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
Will Non-OPEC Oil Production Collapse In 2016?
Submitted by Ron Patterson via OilPrice.com,
The IEA Oil Market Report, full issue, is now available to the public. Some interesting observations:
Non-OPEC oil supplies are sharply lower in December. Overall supplies are estimated to have slipped by more than 0.6 mb/d from the month prior, to 57.4 mb/d. A seasonal decline in biofuel production, largely due to the Brazilian sugar cane harvest, of nearly 0.4 mb/d was the largest contributor to December’s drop. Production in Vietnam, Kazakhstan, Azerbaijan and the U.S. was also seen easing from both November’s level and compared with a year earlier.Persistently low production in Mexico and Yemen were other contributors to the year-on-year decline.
As such, total non-OPEC liquids output slipped below the year earlier level for the first time since September 2012. A production surge in December 2014 inflates the annual decline rate, but the drop is nevertheless significant should these estimates be confirmed by firm data. Already in November, growth in non-OPEC supply had slipped to 640 kb/d, from as much as 2.9 mb/d at the end of 2014, and 2.4 mb/d for 2014 as a whole. For 2015, supplies look likely to post an increase of 1.4 mb/d for the year, before contracting by nearly 0.6 mb/d in 2016. A prolonged period of oil at sub-$30/bbl puts additional volumes at risk of shut in as realised prices fall close to operating costs for some producers.
The IEA has every month of 2016 Non-OPEC production below the year over year 2015 production.
For the past four years, North America has carried the load as far as the increase in Non-OPEC production is concerned. Now the IEA believes North America will suffer the lion’s share of the decline in 2016.
The IEA says U.S. Gulf of Mexico and NGLs will show an increase in 2016 but every other location will show a decline with Texas showing the largest decline.
The IEA says Non-OPEC production was up 1.3 million bpd in 2015 but will be down 0.7 million bpd in 2016. Below are their numbers. They do not include biofuels or process gain.
2014 51.8
2015 53.1
2016 52.4
The IEA has Non-OPEC liquids in December 2015 down about 650,000 bpd compared to December 2014.
But if the IEA expects Non-OPEC production to be down in 2016, how will world oil production be able to meet the ever rising demand? Simple, just pick up the phone and call OPEC. They will supply the needed barrels.
Data from Rystad Energy show the number of completed wells have by far outpaced the number of wells spudded (drilled) since 4Q14. Indeed, the number of well completions per month continued to increase several months after the rig count started to drop off, peaking at more than 1,600 wells in December 2014. The number of completions are still outpacing the number of new wells drilled, and as a result, the number of uncompleted wells, or the frack-log, has been cut down from its peak of around 4,600 wells hit at the end of 2014 to around 3,700 wells currently.
Make of the above chart what you will. I do not understand the spuds going to zero. Spuds are, quite obviously, not at zero. But then it’s not my chart.
And here are a few charts of my own. I thought it would be interesting to make some comparisons between price, rig count and production. In all charts below the right axis is always color coded with the chart data. All data is through December 2015 unless otherwise noted.
(Click to enlarge)
The above rig count is just the oil rig count, not the total rig count. There is obviously a delay between rig count and production. Just how many months that delay is, is not completely clear.
(Click to enlarge)
All price data is from Index Mundi and is the average of three spot prices; Dated Brent, West Texas Intermediate, and the Dubai Fateh, in U.S. Dollars per Barrel. Quite obviously the rig count follows the price with a delay of from one year to as little as three or four months.
Related:BP Reports Huge Loss As Oil Slump Lingers On
(Click to enlarge)
And production follows price, somewhat, with a delay that is hard to calculate.
(Click to enlarge)
Well, production has followed price in the USA and Canada. But elsewhere everyone just seems to be producing flat out regardless of the price. Just as the price was peaking in early 2011, Non-OPEC production, less USA and Canada, began to decline. Production in this chart is only through October.
The recent surge in world production that was brought about by high prices was a USA and Canadian phenomenon only.
Oil Jumps As US Rig Count Plunges Most Since April
After weeks of modest declines, the US Oil Rig Count plunged by 31 to 467 this week – the biggest drop since April 2015 led by a 19 drop in Texas. Total rig count crashed 48 to 571. The reaction, though muted, was a jump in crude prices.
- *BAKER HUGHES OIL RIG COUNT FALLS 31 THIS WK TO 467
- *U.S. TOTAL RIG COUNT DOWN 48 TO 571
A big plunge – tracking lagged crude perfectly…
Led by Texas in absolute terms – but every region is accelerating in the last 6 months…
The analysis, published ahead of an annual oil-industry gathering in London next week, suggests that oil prices will need to drop even more — or stay low for a lot longer — to meaningfully reduce global production.“Since the drop in oil prices last year there have been relatively few production shut-ins,” according to the report. The company, which tracks production and costs at more than 2,000 oilfields worldwide, estimates that another 3.4 million barrels a day of production are losing money at current prices, of about $35 a barrel. It cautioned against expecting further closures, because “many producers will continue to take the loss in the hope of a rebound in prices.”
North Dakota’s Economy Has Been “Completely Devastated” By Oil’s Collapse
Yesterday, on the way to documenting the malaise China’s hard landing has inflicted on Minnesota’s mining country, we discussed the dramatic impact falling crude prices have had on the American and Canadian oil patches.
Take Texas, for instance, where a year of crude carnage has wreaked havoc upon what, until last year anyway, was the engine driving the “robust” US labor market. As we showed in November, layoffs in Lone Star land far outrun job losses in any other state. In Houston (which was already staring down a worsening pension crisis), vacant office space is “piling up.” As WSJ wrote last week, “the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings.”
“The unemployment rate in Texas rose sharply to 9.2% in 1986, an all-time high for the state,” Goldman wrote recently, recalling a previous period of low oil prices in a note entitled “How Bad Can Texas Get?”
“Real house prices fell 30% peak to trough, and the number of bankruptcy filings (including both business and non-business filings) more than doubled from 1984 to 1986,” the bank added.
North of the border, things are even worse. As regular readers are no doubt aware, Alberta is a veritable nightmare as suicide rates rise, the number of jobless multiplies, food bank usage soars, and property crime in Calgary spikes.
“Lower for longer” has been a disaster for many state and local governments in the US, as revenue projections devised before oil’s historic plunge prove increasingly optimistic.
Take Louisiana for example, where Lt. Gov. Jay Dardenne recently announced that the state is facing a $750 million deficit. “Many people are probably wondering how this is possible, given legislators met just six weeks ago to approve a plan to close a nearly $500 million gap that was projected by state analysts,”The Times-Picayune wrote in late December. “Dardenne said he found the number ‘shocking,’ but said it was the state’s best guess at how short on cash the state will be by the end of the fiscal year given several projections that showed things are worse than previously thought.”
Louisiana officials had assumed oil prices around $62 a barrel when calculating projected tax revenue. Needless to say, their projections were slightly off the mark.
Meanwhile, in Alaska, Governor Bill Walker is looking at a $3.5 billion deficit, prompting the state to consider implementing an income tax for the first time in three decades. The new tax would generate about $200 million, based on estimates provided by Walker’s office. “Another of Walker’s proposals, unveiled in November, would divert some of the money from the state’s oil wealth investment fund, or Permanent Fund, which generates the annual payout based on earnings, toward financing state government,” Reuters reported in December. “This year, about 645,000 Alaskans received a Permanent Fund Dividend check for $2,072. A new calculation formula would cut that to about $1,000.”
“If we do nothing, we will empty our savings in the constitutional budget reserve, then we will have to tap into the earnings reserve – which means that in five years, Alaskans would no longer get dividends,” Office of Management and Budget Director Pat Pitney said.
And then there’s North Dakota which, as Bloomberg recalls, “has been the economic envy of every state in America for most of the past decade.”
“It posted the lowest jobless rate, the highest increase in personal income, and the fastest-growing population—all thanks to an historic oil boom that vaulted it past Alaska to become the country’s second-largest producer after Texas,” Bloomberg continues. “Now, amid the worst bust in a generation, North Dakota’s economy is shrinking, employment is falling fast, and the state is imposing the deepest spending cuts in its history to help plug a $1 billion budget deficit.” Here’s more:
With crude prices at 13-year lows, Republican Governor Jack Dalrymple on Feb. 1 ordered 73 state agencies to make 4 percent across-the-board cuts. Patching the deficit, which comes after years of surpluses, will require officials to take $500 million out of a rainy-day fund, leaving it with only $75 million for emergencies. Dalrymple is only the third governor in the state’s 127-year history to dip into the fund.
When state officials were drafting their budget a year ago, they assumed oil prices would range from $47 to $53 a barrel, which they thought was sufficiently pessimistic to cover them against further drops. They were not pessimistic enough. “We never would have guessed it would get down to $28 a barrel,” says Pam Sharp, the state’s budget director.
Taxes on oil production account for only about 5 percent of total state revenue, says David Flynn, chair of the economics and finance department at the University of North Dakota. The real money comes from sales tax revenue, the bulk of which is derived from the sale of equipment and services related to fracking, says Sharp. With prices down, roughly 1,000 wells that have been drilled but not fracked are sitting idle, awaiting the market’s recovery. As a result, the state’s sales tax revenue fell by a fourth during the third quarter of 2015from the same period in 2014. “Sales tax revenue alone is down $700 million from the original forecast,” says Sharp.
According to data from the Bureau of Economic Analysis, North Dakota’s economy shrank 10.4 percent in the first quarter of 2015 and 1.2 percent during the second quarter.
And there’s no respite in the cards.
Storage is overflowing, OPEC is splintered as Saudi Arabia remains generally belligerent on the idea of production cuts and Iran is reluctant to start talking about curtailing supply just as the country is attempting to ramp production back up after years spent languishing under international sanctions.
On the bright side for North Dakota, whose economy has “quite simply been devastated by the dramatic drop in oil prices” (to quote IHS economist Karl Kuykendall), at least no one can take away their new and improved roads.
“So much oil money went to road improvements,” one resident told Bloomberg. “That’s definitely a quality-of-life improvement that will last beyond the boom.”
And with cheap gas, North Dakotans can drive on them all day long.
See, there’s always a silver lining.
end
The following is a huge story: the first warning that Cushing Oklahoma’s refining capacity may be about to overflow:
(courtesy zero hedge)
To be sure, the rumors have been there for a while.
As we first wrote in March of 2015 when it became a topic of conversation, speculation that Cushing may fill, and even overflow, has been around for nearly 10 months.
As we reported then, there were floating predictions that Cushing may top out as soon as the summer of 2015.
In retrospect, these forecasts underestimated just how “stretchy” US commercial storage can be; they also ignored how many millions of barrels could and would be stored at sea even though the contango in recent months had made such storage virtually unprofitable; the recent change in the US oil exporting law helped, and much of the excess inventories were carted off toward Europe which allegedly has more oil excess capacity than the US.
However, as overproduction continues, even the highly adaptive US storage system appears to be reaching its limits. Recall that the primary reason why Goldman envisions $20 oil as a possibility is because US storage capacity will be reached.
Then yesterday, the EIA itself in a blog post took on the topic of soaring inventories.
This is what it said:
Several factors have played a part in pushing U.S. crude oil prices below $30 per barrel (b), including high inventory levels of crude oil, uncertainty about global economic growth, volatility in equity and nonenergy commodity markets, and thepotential for additional crude oil supply to enter the market. Crude oil and petroleum product inventories, both domestically and internationally, have been growing since mid-2014 and are above five-year averages for this date.
Although there is still traditional, on-land storage space available, higher inventory levels and expectations for global inventories to continue building in 2016 are lowering crude oil and petroleum product prices for near-term delivery:
- Total U.S. commercial crude oil inventories as of January 29 were 503 million barrels, 132 million barrels above the 2011-15 January average. This marks the first time that U.S. inventories exceeded 500 million barrels.
- Crude oil inventories at Cushing, Oklahoma, the delivery point for the West Texas Intermediate (WTI) futures contract traded on the New York Mercantile Exchange (Nymex), are 23 million barrels above the five-year average as of January 29.
- Total U.S. distillate inventories (which include heating oil and diesel fuel) are 22 million barrels above the five-year average, and motor gasoline inventories in the United States also recently moved above historical averages.
But it was only today that we got the loudest alarm bell yet, suggesting that an “overflow” of Cushing may all too real in the not too distant future.
According to Reuters, the unprecedented build-up of surplus crude oil supplies in Cushing, Oklahoma, is beginning to cause logistical headaches for companies moving crude between thousands of steel tanks in the nation’s most important storage hub.
For one company, Enterprise Products Partners, which is a large participant in the Cushing market, this means telling at least some counterparties that it is experiencing delays in delivering crude from its tanks, Reuters said citing three sources who were informed of unspecified “terminalling and pump” issues.
Alarm bell #1:
“The sources attributed the disruptions to the unusually high level of oil collecting in Cushing, the delivery point of the CME Group’s U.S. oil futures contract. Stockpiles have risen to a record 62.4 million barrels as of last week, according to the U.S. Energy Information Administration, just 9 million barrels shy of their theoretical limit.”
“It’s hard to move barrels around right now because there’s so much oil (in Cushing),” said one trader.
And if it’s hard now, imagine what will happen in a few weeks let alone months, when 1-2 million barrels in excess production is dumped in Cushing courtesy of the relentless Saudis and Iranians.
For now at least, it’s not a panic: “The delivery delays are unusual but not severe enough to trigger contractual disputes, one source said. Oil traders routinely pump crude in and out of tanks in Cushing in order to settle futures contracts or create particular blends for refiners. Most trades are usually completed within a month’s time.”
However, that is about to change:
The hiccups may be a sign of things to come as traders fear a further increase in stocks at Cushing would test the upper limits of tanks and cause the next leg of an 18-month rout.
Alarm bell #2:
Enterprise owns just 3.3 million barrels of storage capacity in Cushing, small relative to operators like Enbridge Energy Partners with over 20 million barrels. It is not clear how much space the firm may have leased from other owners. But traders say they remain one of the larger players in that market, and first noticed that something was awry when Enterprise began bidding to buy the Feb/March WTI cash roll earlier on Thursday, indicating that they were potentially short barrels for immediate delivery.
The cash roll, which allows traders to roll their long positions forward, traded at larger volumes at negative $1.00 a barrel on Thursday. Those deals raised questions among market participants as the roll does not actively trade outside of the three-day window after the settlement of the front-month futures contract.
To be sure, this is not the first time the roll was negative: a few weeks ago, during the official roll period, it traded at negative $1.95 a barrel.
However, it is becoming increasingly recurring and certainly more acute.
The problem, the sources say, appears to be related to oil volumes being so high in Cushing that there is not enough room to drain existing tanks to blend oil to West Texas Intermediate specifications.
For now, only the smaller firms are affected which is a useful warning sign. Because if and when the large guys like Enbridge get in trouble and are no longer able to store the millions of barrels on location, we won’t learn about it in advance. Instead what we will see is the price of oil suddenly plunging by 5%, 10% or more percent, as attempts to clear and dump excess inventory spread like wildfire across the market.
So for those who are still long oil on hopes of some major supply disruption, or some miraculous surge in demand, consider this a fair warning that very soon things may change.
Portuguese 10 year bond yield: 3.13% up 10 in basis points from THURSDAY
New York equity performances plus other indicators for today:
Bloodbathery
Don’t just blindly follow someone else’s path… (FF to 40 seconds for today’s analogy)…
The Nasdaq’s collapse now turns it red since the end of QE3 – joing the rest of the US equity party poopers…
Since The Fed hiked rates, things have not gone according to plan…
As The “Growth” dream is over…
On the week, Nasdaq was boodbath’d but Trannies jumped…
NOTE: Amid all this carnage – VIX remains under 24 and the term structure not inverted – i.e. No Panic
Quite a week for The Dow…
And Nasdaq was the biggest loser on the day… the biggest single-day drop since August’s Black Monday plunge… (Nasdaq lowest close since Oct 2014)
The reaction across asset classes to today’s jobs report…
Financials disappointed as systemic risk surges and Materials’ big mid-week squeeze held its gains…
FANGs are FUBAR…
And Biotechs were battered to 2 Year lows… down 37% from its July 2015 highs…
And finally this happened…
Treasury yields jerked higher on the jobs data only to tumble as traders rotated out of growth stocks…
The USDollar Index crashed by the most since June 2009 this week (despite a bounce today) led by JPY strength (biggest week since Oct 2008!)…
A total fail for The BoJ…
Commodities were mixed on the week with USD weakness sending PMs higher but growth scares driving copper and crude lower..
Gold is “off the lows”
Gold’s best 3-week gain in over a year to near 4-month highs and Silver’s best 3-week run since May 2015…
Stocks and Crude remain highly correlated…
With China closed for a week, we wonder if the buying in gold is perhaps – just perhaps – anticipating a major devaluation by PBOC with public bank holidays already planned… but of course, this weekend will have all eyes glued to China FX outflows.
Charts: Bloomberg
Bonus Chart: Topping Pattern?
end
First: the official numbers from the job report: a big miss!! yet unemployment slides to 4.9%. Hourly wages jump suggesting wage inflation which will be troubling to the Fed.
(courtesy BLS/zero hedge)
January Payrolls Miss Big, Adding Only 151,000 Jobs, But Hourly Wages Jump And Unemployment Slides To 4.9%
A quick glimpse at the big miss in the January payrolls report, which just reported only 151,000 jobs gains well below the 190,000 expected and below most big banks’ expectations, if precisely on top of thewhisper number, would have been sufficient to send futures soaring in the pre market: after all it would mean the economy has topped out and no more hikes are necessary.
Additionally, prior months were also revised sharply lower, with the November and October prints of 292K and 252K revised to 262K and 177K, a net loss of 105K jobs in the prior two months.
However, one glance below the headline and things get troubling because if indeed the Fed is most focused on the growth in hourly wages then we may have a problem: average hourly wages jumped by 0.5% – and 2.5% from a year ago – far above last month’s unchanged print, and quite a bounce to the expected 0.2%, suggesting wage inflation is indeed starting to heat up and putting the Fed in a very uncomfortable place.
Then there was the household survey which allegedly added 615,000 jobs, even if the pace of annual increase remains below the benchmark, at just 1.6% Y/Y.
Finally, the unemployment rate dropping to a cycle low of 4.9% is surely not going to help the “there is slack in the work force” argument.
From the report:
Total nonfarm payroll employment increased by 151,000 in January. Employment rose in several industries, led by retail trade, food services and drinking places, health care, and manufacturing. Private educational services and transportation and warehousing lost jobs. Mining employment continued to decline. (See table B-1 and summary table B. See the note at the end of this news release and table A for information about the annual benchmark process.)
Retail trade added 58,000 jobs in January, following essentially no change in December. Employment rose in general merchandise stores (+15,000), electronics and appliance stores (+9,000), motor vehicle and parts dealers (+8,000), and furniture and home furnishing stores (+7,000). Employment in retail trade has increased by 301,000 over the past 12 months, with motor vehicle and parts dealers and general merchandise stores accounting for nearly half of the gain.
Employment in food services and drinking places rose in January (+47,000). Over the year, the industry has added 384,000 jobs. (Harvey: our famous bartenders and waiters)
Health care continued to add jobs in January (+37,000), with most of the increase occurring in hospitals (+24,000). Health care has added 470,000 jobs over the past 12 months, with about two-fifths of the growth occurring in hospitals.
Manufacturing added 29,000 jobs in January, following little employment change in 2015. Over the month, job gains occurred in food manufacturing (+11,000), fabricated metal products (+7,000), and furniture and related products (+3,000).
Employment in financial activities rose in January (+18,000). Job gains occurred in credit intermediation and related activities (+7,000).
Private educational services lost 39,000 jobs in January due to larger than normal seasonal layoffs.
Employment in transportation and warehousing decreased by 20,000 in January. Most of the loss occurred among couriers and messengers (-14,000), reflecting larger than usual layoffs following strong seasonal hiring in the prior 2 months.
Employment in mining continued to decline in January (-7,000). Since reaching a peak in September 2014, employment in the industry has fallen by 146,000, or 17 percent.
Employment in professional and business services changed little in January (+9,000), after increasing by 60,000 in December. Within the industry, professional and technical services added 25,000 jobs over the month, in line with average monthly gains over the prior 12 months. Employment in temporary help services edged down in January (-25,000), after edging up by the same amount in December.
Employment in other major industries, including construction, wholesale trade, and government, changed little over the month.
The average workweek for all employees on private nonfarm payrolls rose by 0.1 hour to 34.6 hours in January. The manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime was unchanged at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.8 hours. (See tables B-2 and B-7.)
In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent. In January, average hourly earnings of private-sector production and nonsupervisory employees rose by 6 cents to $21.33. (See tables B-3 and B-8.)
The change in total nonfarm payroll employment for November was revised from +252,000 to +280,000, and the change for December was revised from +292,000 to +262,000. With these revisions, employment gains in November and December combined were 2,000 lower than previously reported. Over the past 3 months, job gains have averaged 231,000 per month. Monthly revisions result from additional reports received from businesses since the last published estimates and the recalculation of seasonal factors. The annual benchmark process also contributed to these revisions.
Post-Payrolls Reaction: Sell Everything, Buy Dollars
The most obvious reaction to the “great” drop in the unemployment rate and “huge miss” in payrolls is arise (yes rise) in rate-hike odds for 2016. This appears to be why the Dollar is spiking and bonds, stocks, crude, gold and everything else is being sold…
Sell Mortimer Sell… oh and buy dollars…
70% Of Jobs Added In January Were Minimum Wage Waiters And Retail Workers
For those curious where the big jump in earnings came from, the answer appears rather simple: the reason, according to the BLS’ breakdown of jobs added in January (per the Establishment survey), of the 151,000 jobs added in the past month, retail trade added 58,000 jobs in January, while employment in food services and drinking places, aka waiters and bartenders, rose by 47,000 in January.
In other words, 70% of the job gains in January went to minimum wage workers.
So how does one explain the snap higher in January wages?
Simple: state regulations demanding higher wages for minimum wage workers starting January 1, which as discussed previously will promptly lead to employers passing on wage hikes to consumers in the form of 10% higher food prices starting in NYC and soon everywhere else.
This is the full breakdown of January job gains:
- Retail Trade: +58K
- Leisure and Hospitality, which includes food workers: +44K
- Professional and business service workers, excluding temp workers: +34K
- Manufacturing workers posted a curious rebound, rising by +29K. We are confident this number will be revised promptly lower.
- Construction +18K
- Wholesale Trade: +9K
- Education and Health saw a big and unexplained drop from 54K to 6K
- Information services added just 1K workers
- As for sectors losing workers included Temp Help workers, Transportation and Warehousing (courtesy of the truck and train recession), Mining and Logging, and Government workers.
Bottom line: the big sequential bounce in wages was driven entirely by the minimum wage increase, and the low December vase effect. Expect this sequential increase to renormalize in February when the base now reflect higher minimum wages.
Dear BLS, Explain This
Factory orders are collapsing. Inventories are at recession cycle highs. Manufacturing ISM and PMIs are plunging… so Dear BLS, please explain the following chart?
ISM Manufacturing employment has crashed to cycle lows… BLS claims manufacturing added 29k jobs – the most in over a year…
Double-seasonally-adjusted, everything is awessome!! Just don’t tell the real workers in real American factories.
Don’t Show Trump This Chart: All Job Gains Since December 2007 Have Gone To Foreign-Born Workers
With the Fed on the verge of a full relent and admission of policy error, the Fed’s “data (in)dependent” monetary policy once again takes on secondary relevance as we progress into 2016. However, even with the overall job picture far less important, one aspect of the US jobs market is certain to take on an unprecedented importance.
We first laid out what that is last September when we said that “the one chart that matters more than ever, has little to nothing to do with the Fed’s monetary policy, but everything to do with the November 2016 presidential elections in which the topic of immigration, both legal and illegal, is shaping up to be the most rancorous, contentious and divisive.”
We were talking about the chart showing the cumulative addition of foreign-born and native-born workers added to US payrolls according to the BLS since December 2007, i.e., since the start of the recession/Second Great Depression.
As usually happens, it is precisely this data that gets no mention following any job report. However, with Trump and his anti-immigration campaign continuing to plow on despite the Iowa disappointment, we are confident that the chart shown below will soon be recognizable to economic and political pundits everywhere.
And here is why we are confident this particular data should have been prominently noted by all experts when dissecting today’s job report: according to the BLS’ Establishment Survey, while 151,000 total workers were added in January, a number which rises to 615,000 if looking at the Household survey, also according to the same Household survey, a whopping 567,000 native-born Americans lost their jobs, far less than the 98,000 foreign-born job losses.
Here is a chart showing native-born non-job gains since the start of the depression:
Alternatively, here are foreign-born worker additions since December 2007:
Putting the two side by side:
And the bottom line: starting with the infamous month when it all started falling apart, December 2007, the US has added just 186,000 native-born workers, offset by 13.5x times more, or 2,518,000, foreign born workers.
If Trump wins New Hampshire and South Carolina, and storms back to the top of the GOP primary polls, expect this chart to become the most important one over the next 10 months.
Source: native-born and foreign-born worker data.
An Update On The Waiter And Bartender Recovery
Since the US manufacturing sector is unofficially in a recession, and since the US service sector is allegedly growing like gangbusters, we are updating our favorite chart showing the bifurcation in the New Abnormal US economy: the job gains by U.S. manufacturing workers on one hand, and by waiters and bartenders on the other.
Here is the cumulative job gains for manufacturers vs waiters and bartenders in the past 12 months…
… and since December 2007.
May the minimum wage waiter and bartender recovery live long and continue to prosper.
Hilsenrath’s Take: March Rate Hike In Limbo, But “Fed Was Expecting A Slowdown”
Just days after Fed whisperer Goldman Sachs made its first (of many) revisions to its Fed rate hike schedule, and no longer expects a March rate hike (if still somehow seeing 3 rate hikes in 2016), moments ago Fed mouthpiece Jon Hilsenrath reiterated the Fed’s latest favorite catchphrase – that would be “watchfully waiting” for those who haven’t paid attention – , and said that today’s jobs report leave the Fed in limbo when it comes to the March rate hike decision. More importantly perhaps he adds that “Fed officials were expecting a slowdown.” However, when one adds the 105,000 in prior month revisions, was is this big?
As he writes in the WSJ, “Friday’s jobs report likely leaves Federal Reserve officials in a ” watchful waiting” mode as they consider whether to lift short-term interest rates at their next policy meeting in March.”
The reported increase of 151,000 jobs in January was a bit less than Wall Street analysts expected, but still enough to absorb new entrants into the labor force and reduce economic slack. Fed Chairwoman Janet Yellen, in testimony to the Joint Economic Committee of Congress in December, said the economy needed to produce fewer than 100,000 jobs a month to absorb new entrants into the labor force and stabilize unemployment. Fed officials were expecting a slowdown. Payroll gains averaged 279,000 a month in the fourth quarter, too much for an economy that was barely growing.
Loretta Mester, president of the Federal Reserve Bank of Cleveland, said Thursday, “I wouldn’t be surprised if the pace of job gains slowed somewhat, but the gains should be strong enough to put additional downward pressure on the unemployment rate.”
Meantime, the jobless rate decline by 0.1 percentage point to 4.9%, its lowest level since February 2008, reinforces the central theme behind the Fed’s December rate increase–slack in the job market is diminishing and will eventually lead to more wage and inflation pressure.
A 12-cent increase in average hourly earnings, which lifted wages by 2.5% from a year earlier, underscores that theme. The 2.5% increase is small by historical standards, but shows signs of lifting.
Fed officials will be wary of moving in March after the market turbulence of recent weeks. Economic growth was slow in the fourth quarter and appears to be off to a slow start in the first. Officials will want to look at more data in coming weeks to assess whether a slowdown is taking place or, instead, if the trend of 2% annual economic growth remains intact.
The market is betting against a Fed interest-rate increase in March. Still, if officials see new signs of firming inflation or wages before then, or another drop in the unemployment rate in the February jobs report (to be released in early March), or signs of a growth pickup, they might proceed with a rate raise.
Hilsy’t bottom line? “It is likely to be a last-minute decision either way, keeping investors guessing along the way.”
Of course it is, and it will entirely depend on not only China and Crude, but the Dow Jones, which in turn will depend on what the very, very confused Fed will say over the next month and a half.
Welcome to reflexivity hell, Janet.
If Earnings Were “OK” And “We Are In A Bull Market”, This Would Not Happen
- SHARES OF LIONS GATE ENTERTAINMENT FALL 5 PCT IN EXTENDED TRADE AFTER QUARTERLY RESULTS – RTRS
- TABLEAU SOFTWARE SHARES TUMBLE 40 PCT IN AFTER HOURS TRADING – RTRS
- YRC WORLDWIDE SHARES DOWN 16.4 PCT AFTER THE BALL FOLLOWING RESULTS – RTRS
- SPLUNK INC SHARES DOWN 7.6 PCT IN AFTER HOURS TRADING – RTRS
- LINKEDIN SHARES EXTEND DECLINE, DOWN 24 PCT AFTER RESULTS, GUIDANCE – RTRS
- HANESBRANDS SHARES FURTHER ADD TO LOSSES IN EXTENDED TRADE, LAST DOWN 14.9 PCT – RTRS
- OUTERWALL SHARES FALL 11 PCT IN EXTENDED TRADING AFTER QUARTERLY RESULTS – RTRS
- GENWORTH SHARES DOWN 16.5 PCT AFTER THE BELL FOLLOWING RESULTS, RESTRUCTURING PLAN
LinkedIn Collapses Below IPO-Day Highs
Well that escalated quickly…
From its $45 IPO price, LNKD soared to $122.70 on its first day of trading… For those that bought it that day, they are now under water as LNKD has crashed 40% after slashing guidance…
Two words – Dot… Com.
Amazon Crashes To 4 Month Lows, Breaks Key Technical Support As “Growth” Fails
It appears the growth-value divergence is collapsing…
AMZN just failed to hold its 200-day moving average and is down over 5% – 27% off its record highs to 4-month lows…
And the entire FANG dream disappears..
Who’s laughing now?
Welcome To The Recovery: 1 In 7 Americans (45.5 Million) Remain On Food Stamps
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
The following article from the New York Times is shameful in many ways. While the paper is forced to cover the undeniable fact that real wages for the lowest income Americans have plunged during the so-called “economic recovery” over the past six years, it fails to actually pin blame on the undemocratic, oligarch institution most responsible for this humanitarian crisis: The Federal Reserve.
Of course, I and many others have been saying this for years, but now more than half a decade into what is supposed to be a recovery, people are finally being forced to admit what this really is — large scale theft.
In fact, Ben Bernanke and his crew of upward wealth distributing academics have pulled off the greatest wealth heist in American history. In its wake we have been left with a hollowed out, asset striped Banana Republic. Thanks for playin’ Main Street. Or more accurately, thanks for being played.
– From the post: The Oligarch Recovery – Study Shows Real Wages Have Plunged for Low Income Workers During the “Recovery”
More than six years into Dear Leader’s glorious economic recovery, 45.5 million Americans, or one in seven, remain on food stamps.
I’d say that’s a problem, but I don’t want to be accused of “peddling economic fiction.”
From Bloomberg:
During the 2007-2009 recession, state and federal governments actively encouraged people like Crofoot to take advantage of the aid. Millions did, and many are still claiming benefits. Enrollment in the Supplemental Nutrition Assistance Program, the formal name for food stamps, remains near record levels, even as the unemployment rate has fallen by half.
“When unemployment was rising people said enrollment would fall sharply when things got better,” said Parke Wilde, an associate professor of nutrition policy at Tufts University in Boston. “That hasn’t happened.”
About 45.4 million Americans, roughly one-seventh of the population, received nutrition aid last October, the most recent month of data. Unemployment was 5 percent that month. The last time joblessness fell to that level, in April 2008, 28 million Americans used food stamps, and the program cost less than half of what the government paid out last year.
There goes Bloomberg News, “peddling that economic fiction” again.
The uneven recovery has swelled the ranks of long-term unemployed and reduced the number of people working or looking for work, further boosting demand. Even for those with jobs, pay may be lower than in the past: In real dollars, SNAP recipients in 2014 had net incomes of $335 a month, the lowest since at least 1989.
Read that over and over and over again. Since 1989. Now here’s a chart of what a gradual transition into oligarch serfdom looks like:
Able-bodied, unemployed adults aged 18-49 who don’t have children are supposed to be limited to three months of food stamp benefits during a 36-month period.That can be extended during tough job markets, a provision that’s boosted the percentage of recipients who fit that description to 10.3 percent in 2014 from 6.7 percent in 2007.
But isn’t the job market supposed to be strong?
I think it’s clear who’s actually peddling economic fiction, and it’s not me.
For more on the oligarch recovery, see:
The Oligarch Recovery – U.S. Military Veterans are Selling Their Pensions in Order to Pay the Bills
The Oligarch Recovery – 30 Million Americans Have Tapped Retirement Savings Early in Last 12 Months
Another Tale from the Oligarch Recovery – How a $1,500 Sofa Costs $4,150 When You’re Poor
harveyorganblog.com 
[…] FEB 5/GLD ADDS ANOTHER 4.8 TONNES OF GOLD INTO ITS INVENTORY/GOLD RISES TO $1174.00 IN ACCESS MARKET… […]
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[…] by Harvey Organ Harvey Organ’s Blog […]
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