Gold: $1,239.10 down $8.80 (comex closing time)
Silver 15.78 down 1 cent
In the access market 5:15 pm
The major reason for gold to be “under the weather” today: the crooked CME raised margins on gold futures at the close of trading today. Interestingly enough, even though gold was down today, gold/silver equity shares rose.
CME Group Hiking Margins On Comex Gold Futures As Of Friday Close
Friday February 12, 2016 08:07
(Kitco News) – CME Group is raising margins on gold futures as of the end of business on Friday, the exchange operator reported.
The “initial” margin for speculators on the Comex division of the New York Mercantile Exchange will rise to $4,675 from $4,125. The “maintenance” margin for existing accounts, as well as all hedge accounts, will increase to $4,250 from $3,750. The margin will also change for smaller-sized contracts.
Margins act as collateral for holders of positions in futures market, with traders putting up only a small percentage of the total value of a contract. In a notice late Thursday, CME Group said the increases were “per the normal review of market volatility to ensure adequate collateral coverage.”
A link to the full notice for the gold margins, as well as margin changes in a number of other markets, can be seen right here.
At the gold comex today, we had a good delivery day, registering 44 notices for 4400 ounces. Silver saw 41 notices for 205,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 204.26 tonnes for a loss of 99 tonnes over that period.
In silver, the open interest rose by a huge 6,379 contracts up to 167,524. 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 41 notices served upon for 205,000 oz.
In gold, the total comex gold OI rose by 6,379 contracts to 424,537 contracts as the price of gold was up $53.20 with yesterday’s trading.
We had a mammoth change in gold inventory at the GLD, a huge deposit of 11.98 tonnes / thus the inventory rests tonight at 716.01 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 change in inventory and thus/Inventory rests at 308.380 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 6,379 contracts up to 167,524 as the price of silver was up 51 cents with yesterday’s trading. The total OI for gold rose by 13,180 contracts to 424,537 contracts as gold rose by $53.20 in price from yesterday’s level.
2 a) Gold trading overnight, Goldcore
b) COT report
3. ASIAN AFFAIRS
i) Late THURSDAY night/ FRIDAY morning: Shanghai closed for the Chinese New Year (all week) / Hang Sang closed badly by 226 points or 1.22% . The Nikkei was closed down 760.78 or 4.84%. Australia’s all ordinaires was also down. Chinese yuan (ONSHORE) closed 6.5710 and yet they still desire further devaluation throughout this year. Oil gained to 27.53 dollars per barrel for WTI and 31.31 for Brent. Stocks in Europe so far deeply in the geen . Offshore yuan trades where it finished last Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/
ii)Japanese trading last night: the Nikkei falters by 4.78%. The big question is how will the citizenry react when they find that Abe put their pension funds in stocks and they are plummeting@!
( zero hedge)
i)Greece is again in the spotlight as their GDP drops .6% last quarter.Riots on the street as farmers refuse pension reform. Middle eastern migrants are also entering the country causing huge fiscal problems for Greek finances. There is now renewed calls for a GREXIT:
( zero hedge)
ii) Deutsche bank states that the markets are crying out for a circuit breaker but the problem is that they do not know what that breaker is. We basically have 3 problems in the globe:
iii The “death doom loop” of negative rates (see below) is having a disastrous effect on European banks.
( zero hedge)
iv) VERY IMPORTANT
( zero hedge)
ii) Michael Harnett of Bank of of America describes central banker activity as quantitative failure.
i)The real reason for oil’s fall this past yr: It is not just a supply issue. It is also a downfall in demand:( zero hedge)
ii)Two key ramps causes the USA stocks and Europe to rise:
a) USA//Yen rise to 12.90 or so
c) the algo driven rise in oil (for the phony reason of the production cut)
( zero hedge)
iv)Oil responded in a northbound trajectory once the new oil rig count was announced as it plunged by another 28 rigs:
i)A very interesting discussion from Koos Jansen as he hints that it is quite possible that London is out of gold to supply China. With gold still in backwardation in London, he is no doubt correct
ii)A super commentary from Craig Hemke as he states that the central banks are losing the confidence game and that is why gold is rising! He notes that Japan has lost confidence with the introduction of NIRP and the uSA has lost confidence with their policy failure on an increase in their rates:
iii)Ambrose Evans Pritchard discusses Japan and how their introduction of negative rates has caused the yen to rise in value instead of falling. This has caused the world to lose confidence as they basically do not know what they are doing.
v) A story on the manipulation of the equities:
( King Report/GATA)
vi)The major reason for gold to be “under the weather” today. The crooked CME raised margins on gold futures at the close of trading:
vii Lawrie on Gold
GLD increases its holdings up to 716 tonnes
(lawrie williams/sharps pixley)
8.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER
i)More phony figures from the USA: the strong January retail sales was all in seasonal adjustments:
ii) You will recall that last month business inventories over sales came in at a record 1.32 to one. January saw business inventories jump while sales tumbled. Result the new business inventories to sales jump to 1.39 to one.
iii)Confidence tumbles!! U. of Michigan confidence index plummets/ USA citizens in a “deflationary mindset”
iv) Obama must be exited: Carrier (air conditioning corporation) is moving 1400 jobs to Mexico.
Let us head over to the comex:
The total gold comex open interest rose to 424,537 for a gain of 13,180 contracts as the price of gold was up $53.20 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, both scenarios were in order. In February the OI fell by 225 contracts down to 736. We had 200 notices filed on yesterday, so we lost 25 contracts or an additional 2500 oz will not stand for delivery as they were cash settled. The next non active delivery month of March saw its OI rise by 269 contracts up to 2144. After March, the active delivery month of April saw it’s OI rise by 8,269 contracts up to 302,342. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 209,633 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was huge at 393,502 contracts. The comex is in backwardation until June.
Feb contract month:
INITIAL standings for FEBRUARY
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||nil oz|
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| 643.000 oz
|No of oz served (contracts) today||44 contracts
|No of oz to be served (notices)||692 contracts (69,200 oz )|
|Total monthly oz gold served (contracts) so far this month||1962 contracts (196,200 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||503,410.8 oz|
we had 2 adjustments.
i) Out of HSBC:
289.35 oz was adjusted out of the customer and this landed into the dealer of HSBC
ii) Out of Delaware:
482.25 0z was adjusted out of the customer and this landed into the dealer of Delaware
Here are the number of oz held by JPMorgan:
FEBRUARY INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 2,113,588.813 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||2,400,949.966 oz,
|No of oz served today (contracts)||41 contracts 205,000 oz|
|No of oz to be served (notices)||6 contracts (30,000 oz)|
|Total monthly oz silver served (contracts)||161 contracts (805,000 oz)|
|Total accumulative withdrawal of silver from the Dealers inventory this month||nil oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||8,584,838.8 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 3 customer deposits:
i) Into JPM: 586,514.460 oz
ii) Into CNT: 1,208,620.08 oz
iii) Into HSBC: 605,815.466 oz
total customer deposits: 2,400,949.966 oz
total withdrawals from customer account 2,123,588.813 oz
we had 1 adjustment:
Out of Delaware:
4,971.21 oz was adjusted out of the customer and this landed into the dealer account of Delaware
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, February 09, 2016|
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||152||127|
|Tuesday, February 09, 2016||© Silv|
And now the Gold inventory at the GLD:
fEB 12/ a huge deposit of 11.98 tonnes/inventory rests at 716.01 tonnes. With gold in severe backwardation in London, I really believe that the gold added was paper gold and not real pbhysical/
Feb 11/no change in inventory/inventory rests at 702.03 tonnes
Feb 10/ a withdrawal of 1.49 tonnes of gold from the GLD/Inventory rests at 702.03 tonnes
Feb 9./a huge addition of 5.06 tonnes of gold into the GLD/Inventory rests at 703.52 tonnes/ (no doubt that this addition is paper gold/not physical/
Feb 8/no change in inventory/inventory rests at 698.46 tonnes
FEB 5/another massive 4.84 tonnes added to the GLD/Inventory rests at 698.46 tonnes/this is a paper gold addition and this vehicle is nothing but a fraud. There is no metal behind it.
FEB 4/another massive 8.03 tonnes added to the GLD/Inventory rests at 693.62 tonnes.
in a little over a week we have had 29.43 tonnes added to the GLD. Judging from the backwardation of gold in London, it would be impossible to bring that quantity into the GLD. No doubt that the entry is a “paper” gold deposit.
Feb 3.2016: a massive 4.16 tonnes deposit of gold at the GLD/Inventory rests at 685.59 tonnes.. In a little over a week, we have had 21.42 tonnes enter the GLD. Without a doubt that this entry is paper gold. It would be impossible to find 21 tonnes of physical gold and load the GLD.
Feb 2.2016: no changes in inventory at the GLD/inventory rests at 681.43 tonnes
Feb 1/a massive deposit of 12.20 tonnes of gold inventory/Inventory rests at 681.43
JAN 29/2016/no change in gold inventory at the GLD/Inventory rests at 669.23 tonnes
jAN 28/no changes in gold inventory at the GLD/Inventory rests at 669.23
jan 27/another huge addition of 5.06 tonnes of gold to GLD/Inventory rests at 669.23 tonnes /most likely the addition is a paper deposit and not real physical,especially with gold in backwardation in both London and the comex.
Jan 26.no change in gold inventory at the GLD/Inventory rests at 664.17 tonnes
Feb 12.2016: inventory rests at 716.01 tonnes
And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:
Gold Surges Another 7% This Week – Largest Gain Since 2008
Gold bullion jumped 4 percent yesterday to $1,244.20/oz, its biggest single-day percentage rally since 2013. For the week, gold is 7.2% higher which is its biggest weekly gain since the global financial crisis in 2008.
Gold and silver have benefited along with high credit government bonds from a rush to safety as investors worry about the health of banks, the banking system and the risk of a global recession. Gold is now 16.7% higher year to date. Analysts and traders see more gains ahead as the weakness in equities is likely to continue.
Silver is 6.3% higher for the week bringing year to date gains to 14%. Both look over valued in the short term and are due a pullback. Prices could continue to rise, making dollar cost averaging prudent. Buyers should be getting into position to buy on the next dip.
Bullion dealers around the world, including GoldCore, have seen a surge in demand for gold and silver. Buyers, who had been waiting for signs that the market had bottomed and a clear uptrend for the precious metals, are allocating funds now. There are some first time buyers coming into the market but demand is mostly coming from bullion buyers adding to allocations.
Global demand for both metals remains robust and has increased as stocks have fallen sharply in recent days. This robust demand is seen in the latest World Gold Council report – Gold Demand Trends released yesterday.
Central banks continue to be some of the largest buyers of gold. Demand for gold bullion from central banks grew by 25% in the fourth quarter of 2015 to 167 metric tons, compared with 134 metric tons the same time last year, according to the World Gold Council’s latest report.
We have long asserted that given the scale of foreign exchange reserves held by central banks, official diversification into gold was likely to continue until their allocations have risen from the extremely low levels of today. As a percentage of overall fx reserves, gold allocations remain extremely small.
This is particularly the case with China and Russia – the two largest buyers of gold today.
Demand for jewellery, bullion bars and coins totaled 934.9 tonnes in Q4 2015, almost matching the Q4 2014 total (938.3 tonnes) and exceeding its 5-year average (913.8 tonnes). This demand has almost certainly increased in recent weeks given concerns about the global economy and the real risks of a new global financial crisis.
Assets in the world’s biggest gold exchange-traded fund, the SPDR ETF, rose 2% yesterday, the biggest inflow in two months. Total holdings of the top eight gold ETFs have surged 3.8-million ounces so far this year, after three consecutive years of decline.
The smart money is reducing exposure to risky assets and continuing to diversify into precious metals. This trend is likely to continue given the scale of the financial and economic challenges facing investors today.
Banks, economists, brokers, financial advisers and other experts did not see the first crisis coming in 2008 and many of them are not seeing it now.
A handful of people are warning about the risks of the coming crisis and again they are largely being ignored. Investors and savers will again bear the brunt for the inability to look at the reality of the financial and economic challenges confronting us today.
Diversification and an allocation to precious metals remains vital in order to protect and preserve wealth in the coming global financial crisis.
LBMA Gold Prices
12 Feb: USD 1,239.50, EUR 1,098.65 and GBP 852.07 per ounce
11 Feb: USD 1,223.25, EUR 1,080.80 and GBP 847.33 per ounce
10 Feb: USD 1,183.40, EUR 1,052.29 and GBP 816.56 per ounce
9 Feb: USD 1,188.90, EUR 1,061.90 and GBP 822.31 per ounce
8 Feb: USD 1,173.40, EUR 1,050.16 and GBP 810.44 per ounce
Gold and Silver News and Commentary
Gold Heads for the Best Week Since 2011 as ‘Fear Is in Control’ – Bloomberg
Gold eyes best week in 4 years as market turmoil boosts haven appeal – Reuters
Even Gold Bulls Underestimated 2016 Gain Now Topping Most Assets – Bloomberg
Investors ‘go bananas’ for gold bars as global stock markets tumble – Telegraph
Gold Futures Roar to One-Year High, Near Bull-Market Territory – Bloomberg
As worries mount, European banks face sell-off more savage than 2008 – Reuters
Video: Gold on the Cusp of a Bull Market – Bloomberg
This Chart Shows Just How Wrong the Gold Skeptics Were – Profit Confidential
World Gold Council Report: Central Bank Buying Up 25% From Q415 – Value Walk
Video: $102 Billion of Bank Debt That’s Making Investors Nervous – Bloomberg
Video: Dalio Thinks the Fed Can Repeat 1937 All Over Again – Bloomberg
Awarded International Broker Of The Year 2016
We are delighted to have been awarded the International Bullion Broker of the Year 2016 by the Bullion Directory.
There were 22,624 verified votes from 5 Countries for 100 Shortlisted Dealers and 25 Finalists.
We would love to win other categories next year and would greatly appreciate if clients would leave a review for us on the Bullion Directory – Click here
London Was Bleeding 184t Of Gold In December While China Imported At Least 217t
When there is no more gold left in London to export the gold price is likely to go higher on strong global demand induced by economic headwind. At the time of writing the spot gold price is $1,251.80 per ounce, up 18 % year to date, while the S&P 500 is down 9 % year to date. Is the gold price rising because of physical supply shortages?
In December 2015 the UK has net exported 184 tonnes of gold, which is the third highest amount on record, according to data released by Eurostat. Net gold export in December was up 218 % from November and up 3,730 % from December last year.
In a year that saw strong gold demand from China, in total withdrawals from the vaults of Shanghai Gold Exchangeaccounted for 2,596 tonnes in 2015, we turn our eyes to the most obvious place for sourcing such quantities of physical gold: London, the heart of gold wholesale market. Since the gold price came down sharply in April 2013 there has been a spectacular drain from the vaults in the London Bullion Market. In 2013 the UK net exported no less than 1,424 tonnes. Whilst net gold export from the UK in 2014 decreased to 452 tonnes, in 2015 the gold exodus from London has accelerated to 573 tonnes.
In December 2015 the UK gross exported 213 tonnes of gold – the second highest number on record, which is up 127 % from November and up 315 % from December 2014. The UK’s gross import accounted for 29 tonnes in December 2015, down 20 % from November and down 38 % from December 2014.
In the chart above we can see a clear correlation between the UK’s net gold export (“Total net flow”, the black line) and China’s wholesale gold demand (measured by “SGE withdrawals”, the turquoise line), implying gold import by China is supplied, directly or indirectly, by London. In the chart below we can see the same data as in the chart above, but now I’ve inverted “SGE withdrawals” and moved its scale on the right hand side so the correlation is even more clear.
Of total export from the UK in December 29 tonnes were net exported directly to China and a “surprising” 155 tonnes were net exported to Switzerland – from where 59 tonnes were net exported to China. From what we know China net imported at least 217 tonnes in December 2015, which is the highest amount ever (computed from data by countries that export gold to China, 29 tonnes from the UK, 59 tonnes from Switzerland and 129 tonnes from Hong Kong).
Strong gold import by China in Dec is partially explained by restocking of the Shanghai Gold Exchange vaults that suffered large outflows in July, August and September due to the crashing Chinese stock market and devaluation of the renminbi.So how come the gold price has been going down from April 2013 until December 2015 while Chinese demand has been so strong? First of all, because the West has been a very willing physical gold supplier. In my view physical supply by the West and the gold price are linked. For instance, if we compare the average monthly gold price to net gold trade by the UK this interconnection becomes apparent.
We can see that whenever the UK is exporting gold the price is declining. Effectively, China can purchase huge amounts of gold by the grace of London selling the metal. But what if London is running out and there is nothing left to export? In that scenario likely the gold price would climb higher, which, coincidentally, is what we’re seeing at the time of writing. Year to date the gold price measured in US dollars has increased 18 % from $1,061 at 1 January to $1,251.80 at 11 February.
This graph is conceived with BullionStar Charts.How much gold is left in London? We can make a rough estimate, although we don’t know how much of this residual is in weak or strong hands. Research by Ronan Manly from BullionStar and Nick Laird from Sharelynx pointed out there were roughly 6,256 tonnes of gold in London in June 2015. However, of this total at least 3,779 tonnes is monetary gold owned by central banks around the world stored at the Bank Of England (BOE), which is not for sale. The remaining 2,477 tonnes in non-monetary gold was potentially for sale (note, this number included 1,116 tonnes that was allocated as ETF gold in London at the time). In any case, we know now that from June until December the UK net exported 390 tonnes of non-monetary gold, which leaves approximately 2,087 tonnes in non-monetary gold in the UK as of 31 December 2015. Assuming the People’s Bank Of China hasn’t purchased some of this gold and covertly exported it to Beijing in the past months.
As long as London is selling gold and China is buying the price can go down. However, if London stops selling (or becomes a buyer) the price can make a reversal. Possibly, we’re reaching the end of the London Bullion Market floating supply suggesting the price of gold is escalating on physical shortages.
E-mail Koos Jansen on: firstname.lastname@example.org
TF Metals Report: The confidence game is failing
Submitted by cpowell on Fri, 2016-02-12 01:09. Section: Daily Dispatches
8:10p ET Thursday, February 11, 2016
Dear Friend of GATA and Gold:
The TF Metals Report’s Turd Ferguson attributes the launch of the monetary metals to widespread loss of confidence in central banking and sees this as a first step toward greater use of gold and silver as money. His commentary is headlined “The Confidence Game is Failing” and it’s posted here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Bank of Japan loses control as QE hits the limits
Submitted by cpowell on Fri, 2016-02-12 01:17. Section: Daily Dispatches
By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, February 11, 2016
The Japanese yen has become the lightning rod of extreme stress in the global financial system, rocketing this week in violent moves that threaten to plunge Japan back into deep deflation and overwhelm the experiment of “Abenomics.”
The currency has appreciated by 9 percent against the US dollar since the Bank of Japan cut interest rates below zero for the first time ever at the end of January, entirely defeating the purpose.
The yen broke through Y111 in early trading on Thursday as safe-haven flows poured into the country and vast positions were unwound on the global derivative markets. This wiped out all the depreciation effects of the country’s “weak yen” policy over the past 15 months. The Nikkei index of stocks in Tokyo has fallen 22 percent since early December.
The drastic developments have been nothing less than a disaster for Governor Haruhiko Kuroda, who pushed through negative rates against strong protests by half the bank’s voting members. The chief motive for the move was counter deflation by weakening the currency.
“This is a reverse policy shock. We are reaching the limits of quantitative easing as we know it,” said David Bloom, currency chief at HSBC. “Countries are losing their ability to drive down their currencies.” …
… For the remainder of the report:
Bitcoin’s future threatened by software schism
Submitted by cpowell on Fri, 2016-02-12 01:26. Section: Daily Dispatches
By Richard Waters
Financial Times, London
Thursday, February 11, 2016
SAN FRANCISCO — A schism among software developers that threatens the future of bitcoin has broken into the open with Wednesday’s release of a rival version of the technology behind the digital currency.
The current version of bitcoin, which is maintained by a fractious group of volunteer developers, is at risk of hitting a wall because of a limit on the number of transactions it can handle.
But disagreements over the technology’s direction have prevented a change in the code to allow more entries to be made on blockchain, a public ledger that is at the heart of the system, leaving bitcoin facing the risk of slowed or uncompleted transactions.
In an attempt to overcome the roadblock, a group of developers claiming backing from some of the bitcoin world’s main players released a rival version of the code on Wednesday.
Known as Bitcoin Classic, it doubles the size of the “blocks,” or records of transactions, that are entered into the public ledger. The new code is meant to double the capacity of the network from its current limit of seven transactions a second.
The release represents a “hard fork” from the so-called Bitcoin Core code on which the digital currency at present relies, resulting in two rival codebases that will vie for support among users. …
… For the remainder of the report:
A story on the manipulation of the equities:
(courtesy King Report/GATA)
The King Report: Strategic buying of S&P futures is managing stock market decline
Submitted by cpowell on Fri, 2016-02-12 05:57. Section: Daily Dispatches
By Bill King
The King Report
Arbor Research and Trading, Barrington, Illinois
Friday, February 12, 2016
For six years a critical mass of investors poured into stocks as the primary hedge against wanton central bank credit creation and currency debasement. Now gold has become the hedge. Because the gold market is exponentially smaller than the globally equity market, its movements can be dramatic.
Stocks plunged on Thursday while gold soared 5.5 percent (at its high). Someone again surfaced to save stocks. After S&P 500 March futures plunged to 1804.20 at 7 a.m. ET, someone aggressively bought them. This generated a rally to 1833 by 9:58 a.m. ET. The 29-handle rally in the S&P 500 March futures kept U.S. stocks from collapsing.
Someone is managing the U.S. and global stock decline by strategically pouring into S&P 500 March futures during European trading. This type of intervention is characteristic of central bank currency intervention.
If the S&P 500 March futures buyer was a trader trying to front-run an expected rally into Federal Reserve Chairwoman Janet Yellen’s testimony at the Senate, he or she ignored what occurred to stocks after Yellen’s appearance at the House. …
We opined a few months ago that gold would reveal when central bankers lost control of the game. This dynamic is becoming increasing clear to the people of Planet Earth. …
Lawrie on Gold
GLD increases its holdings up to 716 tonnes
(courtesy lawrie williams/sharps pixley)
Gold Today –The New York gold price closed Thursday at $1,244.20 up from $1,196.50 up an incredible $47.70. Ahead of London’s opening, prices were being quoted at $1,244. Then the LBMA set it at $1,239.50 up from $1,223.25 up another $16.25 on top of yesterday’s $39.85 with the dollar index slightly stronger at 95.70 down from 95.51 on Thursday.
The dollar is stronger against the euro at $1.1283 down from $1.1322 on Thursday. The gold price in the euro was set at €1,098.56 up from €1,080.42 up another €18.14 on top of yesterday’s €29.44.
Ahead of New York’s opening, the gold price was trading at $1,241.65 and in the euro at €1,100.17.
Silver Today –The silver price in New York closed at $15.70 up 42 cents at Thursday’s close. Ahead of New York’s opening, the silver price stood at $15.68.
The move in the gold price yesterday did more than dumbfound the markets yesterday. It has destroyed most developed world concepts of how markets behave. A rise of this magnitude through such huge resistance, that has proved insurmountable for nearly three years, breaks all the rules. Anybody that thought it had mastered the management of the gold market or any structural isolation of the gold price to the U.S. has been thrown out in one day. We have expected this for a very long time, but the demand to do this was just not there in the U.S. As physical supplies dwindled to remarkably low levels in the U.S. it became clear that just a relatively small burst of demand would break through these concepts. But to see in one day such a breakout stunned even us. What is for sure is, the cat is out of the bag and it is unlikely that it can be put back in.
Wednesday and Thursday saw purchases of 13.98 tonnes into the SPDR gold ETF but none into the Gold Trust. The holdings of the SPDR gold ETF are now at 716.011 tonnes and at 174.78 tonnes in the Gold Trust. This is the largest amount of gold bought in two days for over three years. This institution or these institutions are now committed to the gold price rising. We see their actions alone, as driving the gold price up, at one point$58. COMEX short positions were overwhelmed and forced to close with new long positions opened. For a change, stop loss protections above the price were triggered, forcing gold prices even higher.
Meanwhile global equity markets have officially entered a bear market! What a difference between 2015 and 2016 to date. While the causes of the 2016 falls were being put in place in 2010 to 2015, the markets have only really started to factor them in now. What marks another remarkable change in 2016 is the sight of a leading JP Morgan Chief Investment Officer, Robert Michele, saying, “Today’s precious metals flight shows retail investors have more confidence in gold than paper money…..Gold at $1,200 an ounce, what does that tell you? It tells you that in a flight to quality and a safe haven, people have more confidence in gold than in bank deposits or paper money. I think things have gotten out of control.”
With frantic Friday on us now, we expect more action to finish a remarkable week. Brace yourselves!
Many may continue to say that what we are seeing in the gold market is a short-term aberration, but the evidence is that this has been coming for well over a year.
Best news of the day:
Gartman: I’m not so bullish on bullion right now – CNBC video
And now your overnight FRIDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan FLAT to 6.5710 / Shanghai bourse: CLOSED/CHINA’S NEW YEAR ALL WEEK / HANG SANG CLOSED DOWN 226 POINTS OR 1.22%
2 Nikkei closed down 760.78 or 4.84%
3. Europe stocks all in the GREEN /USA dollar index down to 95.81/Euro DOWN to 1.1274
3b Japan 10 year bond yield: rises TO +.079 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.62
3c Nikkei now well below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 27.53 and Brent: 31.31
3f Gold down /Yen down
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to 0.221% German bunds in negative yields from 8 years out
Greece sees its 2 year rate rise to 14.81%/:
3j Greek 10 year bond yield rise to : 11.40% (yield curve deeply inverted)
3k Gold at $1237.90/silver $15.68 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble up 73/100 in roubles/dollar) 79.32
3m oil into the 27 dollar handle for WTI and 31 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/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 0.9744 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0986 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 8 year German bund now in negative territory with the 10 year rises to + .221%/German 8 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 1.68% early this morning. Thirty year rate at 2.54% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Despite Crashing Japan, European, U.S. Markets Rebound On Firmer Oil
There was some hope in early Japanese trading that after a seemingly endless rout in the USDJPY, which has seen the Yen surge the most in the past two weeks since the 1998 Asian crisis, the BOJ would intervene, if not via policy where it has botched things up beyond repair then directly by selling Yen on the tape: the reason for this is not only yesterday’s direct intervention that sent the USDJPY soaring by over 150 pips briefly, but also after a report that Finance Ministry’s FX chief Masatsugu Asakawa met deputy chief cabinet secretary to discuss market issues; this was followed by a meeting between Kuroda and Abe the news of which promptly allowed the USDJPY to rise to 113.
However, it was not meant to be, and when there was no major intervention during the BOJ’s preferred hours of 9-11, the USDJPY proceeded to tumble all the way down to 111.60, from where it has rebounded modestly and is now trading around 112.45.
As a result, the Nikkei 225 plunged another 4.8%, and following prior day losses of 2.3% and 5.4%, Japan’s stock market is now down a whopping 20% just this past week! Perhaps putting all those pensions in stocks was not such a great idea.
Elsewhere, with China still closed, the Hang Seng Index fell 1.2% to 18,319.58, its lowest close since June 2012; it has fallen 5% this week.
However, while Japan crashed and burned, the feeling of some fleeting optimism returned after oil halted its plunge after hitting a 13 year low yesterday following an out of context statement from the U.A.E. minister, who said that “everyone is ready to cooperate,” U.A.E. Oil Minister Suhail Al Mazrouei told Sky News Arabia in Arabic-language interview that was originally posted to website Feb. 10. He added that “Prices are not appropriate, I won’t say for the majority only, but for all producers” which is a far cry from the imminent OPEC supply cut he was spun as saying. Still, for now the algos are happy and his comment helped push oil about 5% higher. It won’t last.
Oil also helped Europe, where the Stoxx Europe 600 Index rallied from its lowest close since September 2013 following a Commerzbank AG (+17%) report that led financial institutions higher after saying it returned to profit, while miners and energy producers rose with commodities.
Still, few are optimistic, especially after Marko Kolanovic latest note which sees not only near-term risks, but a potential recession that could be worse than the 2008-2009 crisis.
Here is an example of the hyperbolic pessimism out there: “I’d be weary of calling anything a lasting rebound until I see it,” said Ben Kumar, an investment manager at Seven Investment Management told Bloomberg. “It’s crazy that the market is priced for recession and a complete failure of the financial system. But you wouldn’t want to call it the end of the rout quite yet. Nobody wants to be the first bull now.” Uhm, the S&P is about 15% below its all time high: you will know when the market is priced for a “complete failure of the financial system” – this is not it.
The yield on 10-year Treasuries rose after reaching the lowest since 2012 on Thursday. In Asian trading, Japanese stocks capped their worst week since 2008 and currencies from New Zealand to Thailand slumped.
Industrial metals also advanced. Nickel climbed 1.1 percent to $7,675 a metric ton, rebounding from a 13-year low. Copper rose 1 percent and aluminum added 0.6 percent.
Gold was modestly down from its highest levels in over a year, trading at $1242, and is headed for its biggest weekly gain in four years as investors sought out havens. Silver dropped 0.7 percent.
- S&P 500 futures up 1.2% to 1846
- Stoxx 600 up 1.8% to 309
- FTSE 100 up 1.5% to 5622
- DAX up 1.4% to 8872
- German 10Yr yield up 3bps to 0.21%
- Italian 10Yr yield down 2bps to 1.69%
- Spanish 10Yr yieldunchanged at 1.78%
- MSCI Asia Pacific down 2.9% to 113
- Nikkei 225 down 4.8% to 14953
- Hang Seng down 1.2% to 18320
- Shanghai Composite closed
- S&P/ASX 200 down 1.2% to 4765
- US 10-yr yield up 2bps to 1.68%
- Dollar Index up 0.17% to 95.72
- WTI Crude futures up 4.5% to $27.40
- Brent Futures up 4.9% to $31.53
- Gold spot unch at $1,242
- Silver spot down 0.7% to $15.65
Global Top News
- Syria Truce Set for Next Week as U.S., Russia Back Peace Bid: Munich summit of 17 nations produces accord on cease- fire
- Cameron and Merkel Head to Hamburg as EU Deal Nears Completion: PM in final push for new U.K. membership terms
- Euro Area Stalls Deal to Shield London Banks From EU Rules: Diplomats only make progress on technical and legal points
- Commerzbank Said to Have Shortlist for Successor to CEO Blessing: cites note to staff obtained by Bloomberg
- DBS, OCBC Said to Submit Bids for Barclays’s Asia Wealth Unit: The two Singapore-based cos submitted non-binding bids for the business, according to people familiar
- Deutsche Bank Ranks Last on Capital Gauge Where Citigroup Excels: U.S. banks outrank Europe’s as regulators demand more capital
- Templeton’s $5.9b Bet on Brazil Bonds Paying Off in 2016: Fund >doubled holdings of Brazil debt last quarter, while country’s local-currency bonds have returned 4.7% this year
- Pandora Said to Explore Sale of Company as Losses Mount: Online radio provider’s talks are said to be preliminary
- Goldman Sachs Bankers Said to Depart on Guidelines Breach: Two bankers in Dubai, one in London said to leave in December
Going quickly through regional markets, we start in Asia where the equity market rout continued with fuel was added to the fire with concerns rising over the health of the financial sector following yesterday’s poor earnings from SocGen. Subsequently, Nikkei 225 (-4.8%) yet again experienced another bout of heavy selling pressure amid the rampant JPY, as such,the index has now fallen over 20% YTD. ASX 200 (-0.8%) and the Hang Seng (-0.9%) were dragged lower with losses in financial names, however the latter pulled off worst levels with energy names providing some leeway following the uptick in crude prices. JGB’s fell following spill-over selling in USTs while notable underperformance had been observed in the belly of the curve.
Top Asian News
- BOJ Seen as Toothless for Yen Bulls Boosting Currency Forecasts: Barclays sees yen climbing to 95/USD by yr end
- Cash Crunch in India Flips Company Bond Curve as Debt Costs Rise: India’s cash squeeze flipped corporate bond yield curve, making borrowers pay more for s-t debt than they have for almost a yr
- Asia’s Rich Urged to Buy Yen as BOJ Negative Rates Backfire: CS is advising private-banking clients to buy yen vs euro or S. Korean won
- China Turns a Glut of Oil Into a Flood of Diesel Swamping Asia: China’s total net exports of oil products will rise 31% this yr to 25m metric tons
- Rio Tinto Sees Mining Distress Spreading to Majors: Rio has M&A target list for mines not yet for sale, CEO says
European equities take a breather following a hectic week of huge intraday day moves as the banking sector once again comes into focus. One bank under the spotlight is Commerzbank (+16.7%), recover their intraweek losses in today’s trade, following a positively received earnings report. In turn financials outperform in Europe, improving the risk sentiment, with equities higher across the board. Energy is also among the best performing sectors with WTI Mar’16 futures up around a dollar in the session, holding onto the USD 27.00 handle.
In line with the long awaited return of risk on sentiment, fixed income products take a hit, with Bunds trading lower by some 50 ticks but still retaining the 165.0 level. Elsewhere peripheral spreads widen, with PE/GE spread wider by 0.8bps, amid concerns over the country’s budget plans
Top European News
- PAI Partners Said to Weigh Bid for Dental Clinic Chain Vitaldent: Co. could be valued at about EU500m
- Commerzbank Jumps After Fourth-Quarter Profit Beats Estimates: Bank expects ‘slight’ increase in profit this year from 2015
- Whisky Makers Want a Single Market for Single Malt, Not ‘Brexit’: Diageo, Pernod Ricard among cos supporting free market
- SocGen CIB Earnings Constrained, Cut to Neutral at Mediobanca: SocGen delivering on capital, missing on earnings, Mediobanca says
- Thyssenkrupp Posts Net Loss on Record Chinese Steel Imports: Co. says it needs materials recovery to meet profit target
In FX, the euro declined the most in a week against the dollar, falling 0.3 percent to $1.1287. Europe’s currency slid for a third day against the yen, dropping 0.1 percent to 127.12. The yen was little changed at 112.45, set for its biggest two-week gain versus the dollar since 1998, sparking speculation that authorities will intervene to weaken it. New Zealand’s dollar lost 0.7 percent. The Thai baht slid 0.9 percent, the most since October and the South Korean won fell 0.7 percent. An index of 20 developing-nation currencies declined less than 0.1 percent Friday, taking its drop this week to 0.6 percent, the most since Jan. 15. The gauge is down 1.4 percent this year and reached a record low in January.
In commodities, Brent and WTI have managed to hold on to their modest recovery after major declines this week, following comments from the UAE oil minister saying ‘everyone is ready to cooperate’ yesterdays, and analysts pondering the thought of producers dropping production rates to bolster markets. Gold is still holding up well on the risk on sentiment we have seen in recent days which saw its largest one day rise in seven years, with the next support coming in at 1232.59/oz. Industrials are mostly trading higher with the emptions of tin that has seen a fall of 0.90%. In the European session there has been a lack of fundamental news for commodities.
Looking at the day ahead, there’s a busier calendar for data for us to
sift through today. The key release of note in Europe will be the Q4 GDP
report for the Euro area where the print came in at 0.3%, just as expected. In the US the main focus will be on the
January retail sales report. Current market expectations are for a +0.1%
mom headline and +0.3% ex auto and gas print. Remember to keep an eye
on the retail control component given it’s a direct input into GDP. Away
from this in the US we’ll also see the January import price index
reading, December business inventories and the first estimate of the
University of Michigan consumer sentiment survey for February. In terms
of Central Bank speakers the Fed’s Dudley is due to speak at 10:00am GMT.
Bulletin Headline Summary from RanSquawk and Bloomberg
- Equities are taking a breather today after a tough week with Commerzbank leading the way higher 15%
- GBP steaming ahead, with Cable looking to trade above the weekly highs with the next resistance around 1.4665-70
- Looking ahead, US Import Prices and Retail Sales and comments from Fed’s Dudley
- Long-end Treasuries underperform overnight as European equities and bank stocks rally; retail sales and U. of Mich. sentiment today.
- Deutsche Bank’s riskiest debt was downgraded by Standard & Poor’s due to concerns that potential losses at Germany’s biggest lender could restrict its ability to pay on the obligations
- Deutsche Bank’s co-CEO John Cryan called the company’s balance sheet “rock solid” this week after the firm’s shares and bonds tumbled but its leverage ratio still lags behind every one of its main competitors
- Commerzbank jumped the most in more than two years after fourth-quarter profit beat analyst estimates, as the lender said it plans to wind down its unit for soured loans at a faster pace than forecast
- Commerzbank CEO said “no specific problem” with balance sheet, in Bloomberg TV interview
- Jamie Dimon, JPMorgan chairman and CEO, spent $26.6 million to buy shares of his bank Thursday after they tumbled to the lowest price in more than two years, bringing his total holdings to 6.75 million shares, according to a regulatory filing
- U.K. investors are harking back to 2013 and increasing bets the Bank of England will need to do more to stimulate the economy. The last time traders were this certain the central bank would cut its benchmark rate was almost three years ago
- Fresh doubts over the strength of the British economy emerged Friday as the building industry shrank more than previously estimated in the fourth quarter. Construction output fell 0.4% instead of the 0.1% decline estimated in GDP data last month
- Italy’s GDP rose 0.1% in the 4Q, its slowest pace in a year, prompting concerns that the recovery from the country’s longest recession since World War II might falter in coming months
- Germany’s GDP rose a seasonally-adjusted 0.3% in 4Q, matching the rate of the previous quarter, showing resilience amid an emerging-market slowdown that’s heightened concerns about global growth and sent equities plunging this year
- Greece entered a recession in the fourth quarter, ending a turbulent year with its economy back in the doldrums. GDP contracted 0.6% in 4Q after shrinking a revised 1.4% in the 3Q
- A top U.S. lawmaker questioned the Federal Reserve’s authority to cut interest rates below zero after Janet Yellen disclosed that the central bank was re-examining the tool as a policy option if the economy faltered
- Sovereign 10Y bond yields mixed; European stocks rise, Asian markets drop; U.S. equity-index futures rise. Crude oil and copper rally, gold falls
DB’s Jim Reid completes the overnight wrap
It’s hard to know where to start with yesterday’s price action with markets gapping and buckling everywhere following the latest bout of huge risk aversion. The Asia session had thrown open a few warning signs as safe haven flows rolled in for Gold and the Yen. Once the European session kicked into gear however it was all about moves in Banks once again after two days of relative calm. The iTraxx Senior and Sub financials indices closed 12bps and 31bps wider at 140bps and 333bps respectively. The move for the latter in particular meaning it’s now at the widest level since October 2012. That helped Main and Xover widen 9bps and 29bps on the day. European equity markets were heavily hit too with the Stoxx 600 collapsing -3.68%, the 8th time it has closed lower in the last 9 sessions with yesterday’s move the worst single day loss since August. The banking sector fell 6% – not helped by some much weaker than expected results from Societe Generale. Peripheral bourses were again the underperformers with the IBEX and FTSE MIB -4.88% and -5.63% respectively.
Sentiment wasn’t much better in the first half of the US session with the S&P 500 falling as low as -2.30% and testing the January 20th intraday lows of 1810. Focus was also on the tumbling Oil price which was helping to exacerbate the selloff as WTI at one stage traded as low as $26.05/bbl (down over 5% on the day) and the lowest since May 2003. That said, energy prices then turned on a dime which helped the S&P 500 retrace slightly into the close, finishing the day at -1.23%. WTI is actually up nearly 6% this morning with the rebound being attributed to a headline out of the WSJ quoting the UAE energy minister as saying that OPEC stands ready to co-operate on production cuts. This isn’t the first time we’ve seen such a headline in recent weeks so it remains to be seen how credible this really is.
It was the move in Gold which was perhaps the most eye catching of all yesterday. Gold closed up a massive +4.14% yesterday (although had been up as much as 5%), smashing through the $1,200 mark to eventually close at $1,247. That move was in fact the largest single daily gain since January 2009 with the metal now up close to 17% YTD already. Given the magnitude of the risk off moves yesterday, all things considered the closing moves for Treasuries were a little more muted with the 10y yield eventually finishing 1bp lower at 1.659% (although in fairness it did trade as low as 1.529%) and 2y yields nearly 4bps lower at 0.650%. Moves in European rates were a bit more aggressive however with 10y Bunds down over 5bps to 0.185% and slowly but surely creeping in on those astonishing lows made last April.
There’s been little relief for risk assets in Asia this morning. Once again the focus has been on the sizeable declines for Japanese bourses after yesterday’s holiday with the Nikkei and Topix currently down over 4.5%. The Nikkei has in fact plummeted over 10% this week. This morning’s move comes despite the Yen being a touch weaker. In Australia the ASX is -1.2% while elsewhere the Hang Seng (-0.8%) and Kospi (-1.4%) are also lower. The South Korean small cap index was however temporarily halted after tumbling 8%. Credit markets are faring little better with iTraxx Aus and Asia indices 3bps and 2bps wider respectively. US equity market futures are however pointing towards a positive start, most probably reflecting a better morning for Oil.
NIRP is a big talking point currently and yesterday we got another flavor of how far central banks are prepared to push the boundaries after the Riksbank cut its benchmark repo rate by more than expected (15bps vs. 10bps expected) to -0.50%. It was telling also that the Bank acknowledged that policy could be made ‘even more expansionary if this is needed to safeguard the inflation target’.
Fed Chair Yellen also made an interesting acknowledgment of the potential for similar policy in her comments yesterday in the Q&A following her remarks to the Senate. While Yellen stuck to her guns in saying that she doesn’t expect the Fed to be in a position anytime soon where it is necessary to cut, she did highlight that ‘we had previously considered them and decided that they would not work well to foster accommodation back in 2010’ but that ‘in light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation’.
Wrapping up yesterday, the only data of note out was the latest weekly initial jobless claims print in the US which declined 16k last week to 269k (vs. 280k expected). That was in fact a low for the year and helped to nudge down the four-week average to 281k from 285k.
Looking at the day ahead, there’s a busier calendar for data for us to sift through today. The key release of note in Europe will be the Q4 GDP report for the Euro area where current market expectations are running for a +0.3% qoq print. We’ll also see Q4 GDP reports for Germany and Italy while in France we’ll see the latest quarterly employment indicators. Euro area industrial production for December is also expected. Over in the US this afternoon the main focus will be on the January retail sales report. Current market expectations are for a +0.1% mom headline and +0.3% ex auto and gas print. Remember to keep an eye on the retail control component given it’s a direct input into GDP. Away from this in the US we’ll also see the January import price index reading, December business inventories and the first estimate of the University of Michigan consumer sentiment survey for February. In terms of Central Bank speakers the Fed’s Dudley is due to speak at 3pm GMT.
Let us begin:
Late THURSDAY night/ FRIDAY morning: Shanghai closed for the Chinese New Year (all week) / Hang Sang closed badly by 226 points or 1.22% . The Nikkei was closed down 760.78 or 4.84%. Australia’s all ordinaires was also down. Chinese yuan (ONSHORE) closed 6.5710 and yet they still desire further devaluation throughout this year. Oil gained to 27.53 dollars per barrel for WTI and 31.31 for Brent. Stocks in Europe so far deeply in the geen . Offshore yuan trades where it finished last Friday at 6.5600 yuan to the dollar vs 6.5710 for onshore yuan/
Japanese trading last night: the Nikkei falters by 4.78%. The big question is how will the citizenry react when they find that Abe put their pension funds in stocks and they are plummeting@!
(courtesy zero hedge)
Abewrongics – 16 Months Of Japanese Money-Printing For Nothing
Neither USDJPY nor Japanese stocks can hold a bid in the early going in Asia markets which has dragged both into the red post-QQE2. Since Kuroda took over from The Fed by doubling down on his cunning plan in October 2014, Japanese stocks are down 11.4%, USDJPY is unchanged, and only Japanese bonds have made any gains (up 3.7%).
So what we want to know is – how will Abe et al. explain to the Japanese people how they lost so much of their retirement funds by forcing GPIF to allocate so much to stocks?
Worst still – Japanese real household earnings have tumbled!
Greece is again in the spotlight as their GDP drops .6% last quarter.Riots on the street as farmers refuse pension reform. Middle eastern migrants are also entering the country causing huge fiscal problems for Greek finances. There is now renewed calls for a GREXIT:
(courtesy zero hedge)
Greece Slides Back Into Recession Amid Riots, Rewewed “Grexit” Calls
It was just over a year ago that Greece elected Alexis Tsipras and Syriza amid a flurry of anti-austerity sentiment.
Things didn’t exactly go as planned.
The new PM and his “radical” finance minister Yanis Varoufakis thought they could shake things up in Brussels and wrench Greece from the clutches of Berlin-style fiscal rectitude. As it turns out, Wolfgang Schaeuble is not a man who is easily bested at the bargaining table and after more than six months of negotiations, the imposition of capital controls, a referendum on the euro that Tsipras promptly sold down the river, Greeks ended up facing an outright depression.
In the end, Varoufakis unceremoniously resigned and Tsipras agreed to a third bailout before calling for snap elections that would ultimately see the PM re-elected albeit at the helm of a party that was completely gutted by the arduous bailout talks.
As we and quite a few others warned, the new bailout and the attached terms would do exactly nothing to turn the Greek economy around. We’re all for being responsible with the budget but you can’t very well implement fiscal retrenchment during a depression unless you intend to remain in said depression in perpetuity, but alas, that’s exactly what Brussels forced Greece to do and on Friday we learn that the country has slipped back into recession.
GDP contracted 0.6% in Q4 after shrinking 1.4% in Q3. “With opposition mounting to the government’s pension reform plan, the European Union pressuring it to stem the tide of refugees entering the country and the global market rout hastening the sell-off in Greek assets, dark clouds are gathering again,” Bloomberg writes. Ironically, capital controls appear to have helped the economy perform better than expected: “The economy fared less badly than those initial expectations in part due to a 90 percent annualized increase in cashless payments since the introduction of capital controls in June, shifting activity out of the shadow economy.” Another justification for banning cash we suppose.
Earlier this month we noted that Greek bank stocks were cut in half in just a matter of 72 hours while Greek equities as a whole had fallen to their lowest levels since 1989. Yields on the Greek 10Y had spiked back above 10%.
Greece, sources told MNI, “seems unable to deliver” on a number of measures Brussels says Athens needs to implement an effective fiscal consolidation plan. “We agreed to disagree,” one official said. “Judging from (last week’s) talks, the negotiations could drag for months. Anyway, I don’t see any real funding needs for Greece until June,” the official went on to note.
Maybe not, but things are getting dicey again. Tsipras faced the largest public revolt he’s seen since his re-election earlier this month when a massive general strike that cancelled flights, ferries and public transport, shut down schools, courts and pharmacies, and left public hospitals with emergency staff. Even the undertakers were striking.
Tens of thousands took to the streets to protest pension reforms and in relatively short order, it was 2015 all over again.
And it didn’t stop there. “Greek riot police fired tear gas at farmers protesting against pension reform plans on Friday who hurled stones at the agriculture ministry in central Athens ahead of a major demonstration outside parliament scheduled for later in the day,” Reuters reported on Friday. “Under the planned reform of the pension system demanded by Greece’s international lenders, farmers face a tripling of their social security contributions and higher income tax.” Here are some images from the scene:
So no, Greece is not “fixed.” And even as the farmers swear “they won’t make us bend,” something will have to give because as Poul Thomsen, head of the International Monetary Fund’s European Department wrote in a blog post on Thursday, “Grexit fears to resurface once again [if all sides adopt] a plan built on over-optimistic assumptions.”
In other words: the reforms are a must if Greece wants to remain in the euro and those reforms entail tough times ahead for the farmers and for everyone else living in the socialist paradise.
Throw in a couple of hundred thousand refugees that are literally arriving in boats and you’ve got a particularly precarious situation that will likely devolve into the type of chaos shown above on an increasingly frequent basis.
Deutsche Bank: “Markets Are Crying Out For A Circuit Breaker”, But There Is A Problem
Having been at the forefront of the recent collapse in core European bank stock prices, Deutsche Bank has – as we first reported last weekend – been ‘crying uncle’ but not in a way most would expect: instead of begging for more central bank easing, DB told the ECB (and BOJ) to stop easing as negative rates and more excess liquidity, are crushing it. This is why central banks are trapped, because they are damned if they don’t ease any more with the global economy on the edge of recession, and damned if they ease further, pushing bank default risk even higher.
Which brings us to this morning’s note from DB’s Jim Reid who puts it best: “Markets are crying out for a circuit breaker at the moment.”
There is just one problem: nobody knows what this circuit breaks would and should be, or if it would even work.
From today’s Early Morning Reid
Markets are crying out for a circuit breaker at the moment. There is lots of talk about whether the ECB could buy senior bank debt and also whether Europe might look to bring in their own version of TARP. The former brings a whole host of moral hazard, political, legal and logistical questions especially in a bank bail-in regime. Before the ECB embarked on each of their government bond purchases (from Greece in 2010 to QE in 2015) there were similar arguments so it’s not an insurmountable challenge but it’s not a policy that is likely to be conducted overnight. With regards to TARP, remember this was a government led initiative and achieving a similar one in Europe with all the different governments having to agree on it would be a challenge to say the least. It’s not as if Angela Merkel doesn’t have her work cut out dealing with the migration crisis/backlash.
The problem for the ECB is that there are increasing worries that another deeper cut into negative deposit rate territory will create more negative sentiment for the banks due to what it might do to their profitability. Is this just a passing concern or has the market now moved against negative deposit rates? If it is the latter then central banks had better decide on an alternative quickly. The ECB will certainly have a tough 4 weeks trying to design further stimulus / market support that hits the mark ahead of their hotly anticipated March 10th meeting.
In other words, much more important than the Fed’s March meeting (when it will certainly not hike rates), the ECB’s March meeting may be the one that makes or breaks Eurozone banks if Draghi finds no middle ground between throwing even more negatve rate kitchen sinks at the problem – which has crushed Europe’s banks – and doing nothing – which in December crushed Europe’s asset managers when the EUR soared the most since the Fed’s announcement of QE1.
Which means that in addition to the BOJ and the Fed, the ECB is the latest central banks which is now trapped.
The “death doom loop” of negative rates (see below) is having a disastrous effect on European banks.
Below is a chart as to their performance over the past yr vs 2008:
(courtesy zero hedge)
Europe’s Most Distressing Chart: For Banks 2016 Is Already Worse Than 2008
As we have reported previously on various occasions things are bad for European banks: from DB’s record wide 5Y Sub CDS, to Credit Suisse record low stock price, to everyone else inbetween. But did you know that for most European banks, 2016 is shaping up far worse than the dreaded 2008? As the following chart from Reuters shows, the year-to-date stock price performance for most European banks is on pace to far surpass – to the downside – the dreadful for the global financial system 2008.
As Reuters puts its it, “Euro zone banks have seen their shares plummet by nearly 30 percent and yields on their bonds surge since the start of the year, as investors worried about thinning profits and uncomfortably high levels of bad loans in some countries.”
This is shown in the chart below.
One problem resulting from this collapse is well framed by Reuters: “A protracted selloff in the shares and bonds of euro zone banks has the potential to knock the fragile economic recovery off track by raising financing costs for banks, limiting their ability to lend. It may also undo some of what the European Central Bank has been trying to do to increase bank lending an pump up inflation via spending.
The selloff makes it more expensive for banks to raise capital on the market by selling shares or bonds.
If this situation were to last, it would dent banks’ capacity to grow their balance sheets by extending new loans to companies and households. This would jeopardise a tentative rebound in lending driven by the ECB’s ultra-easy monetary policy.
“This can have an impact on the economy, which is bank dependent in Europe,” said Sascha Steffen, professor of finance at the University of Mannheim. “And of course it puts more pressure on the ECB because it doesn’t help it bring back inflation.”
Bank lending in the euro zone started growing again in 2015 after shrinking for three years, but data for December data pointed to a loss of momentum.
* * *
But the sheer magnitude of the market rout shows investors are losing confidence in the sector. A key transmission channel is the market for Additional Tier 1 (AT1) notes – bonds that can be converted into equity under certain conditions and on which the issuer can decide whether or not to make coupon payments.
* * *
“For the past year, ECB easing has been accompanied by private banks’ easing of credit conditions,” said Marco Troiano, a director at ratings agency Scope. “If market volatility reverses this, banks would tighten lending, negating some of the ECB’s efforts.”
In other words, after the BOJ’s and the Fed’s recent policy failures, unless the ECB stabilizes Europe’s banking sector, it too will have committed the gravest of central bank sins: policy error.
The problem, however, as Deutsche Bank explained very well in the post preceding this, is that there is a problem: while the market is desperately begging for a circuit breaker, nobody – certainly not the ECB – has any idea either what it should look like, or whether it could work.
(courtesy zero hedge)
More Bad News For European Banks? ECB Leaks “Firm Support For A Deposit Rate Cut”
After starting out strongly this morning, with DB stock trading just shy of $17/share, European banks have seen some weakness in the past hour following a report from Reuters, in which sources were cited as saying that there is “firm support for a deposit rate cut within the European Central Bank’s Governing Council.” While a year ago this would have sent European stocks soaring, this is no longer the case as explained by none other than Deutsche Bank last weekend:
- Declining bond yields have been robustly associated with larger inflows into bonds at the expense of equities. Though a large over allocation to fixed income at the expense of equities already exists as a result of past Fed QEs and a lack of normalization of rates, further easing by the ECB and BOJ that lower bond yields globally will only exacerbate the over allocation to bonds;
- Asynchronous easing by the ECB and BOJ while the Fed is on hold risks speeding up the dollar’s up cycle, pushing oil prices lower and exacerbating credit concerns in the Energy, Metals and Mining sectors. It is notable that the ECB’s adoption of negative rates in mid-2014 which prompted the large move in the dollar and collapse in oil prices, marked the beginning of the now huge outflows from High Yield. These flows out of High Yield rotated into High Grade, ironically moving up not down the risk spectrum. The downside risk to oil prices is tempered somewhat by the fact that they look cheap and look to be already pricing in the next leg of dollar strength;
- Asynchronous easing by the ECB and BOJ that is reflected in the US dollar commensurately raises the trade-weighted RMB and increase the risk of a disorderly devaluation by China. The risk of further declines in the JPY is tempered by the fact that it is already very (-29%) cheap, but there is plenty of valuation room for the euro to fall.
This explicit warning is one additional factor why European banks have plunged by 30% in recent weeks, and as noted earlier, have suffered such an abysmal start to the year it makes 2008 seem tame by comparison.
This perhaps also explains why Reuters adds that while a rate hike is in the works, “appetite for more radical action is still limited, conversations with policymakers indicate a month before the March rate decision.”
Following DB’s line of logic, one can see why Mario Draghi should be concerned: any more unconventional easing could have an increasingly more dramatic impact on bank profitability as yield curves invert ever more.
And yet the ECB has to do something (hence the problem duly noted by DB this morning): “With long-term inflation expectations falling, the ECB will probably have to act and frame the rate cut as part of broader a package, with some measures involving changes to the bank’s flagship asset-purchase program, policymakers told Reuters.
But with no consensus yet about which further measures to take and Europe’s modest economic recovery still broadly on track, some of those spoken to cautioned against radical action. They noted, however, that their view could still change if recent market turmoil proved lasting, posing a risk to the real economy.
Turmoil resulting from the ECB’s radical actions.
More from Reuters:
ECB President Mario Draghi has said the bank would review and possibly recalibrate its stance in March to fight persistently low inflation. Markets now price at least two rate cuts, taking the deposit rate to -0.55 percent by the end of the year from -0.3 percent.
“Doing nothing in March is very unlikely,” the governor of one of the euro zone’s 19 central banks told Reuters. “Monetary conditions have tightened, long term inflation expectations are falling and credibility is at stake. I think a deposit rate cut is fairly undisputed.”
And herein lies the rub: conditions have tightened in large part due to the ECB’s actions, which means Draghi’s credibility is not only at stake, but will be further reduced no matter what he does.
Finally, if NIRP is off the table, will the ECB do something else? Quite possible:
But based on the current outlook, including the increased market volatility, moving the deposit rate alone does not appear to be enough for some policymakers.
“The chance of a rate cut is high,” said another governor, who spoke on condition of anonymity. “It wouldn’t do enough and it would be a mistake to signal that we’re relying on conventional policies when we’re going to be in the unconventional sphere for years to come.”
“Quantitative easing is our key policy tool and I think any package needs to have a QE component,” the policymaker added.
So, in short, now that we know that banks have a revulsive reaction to more NIRP, the question is how they will react to news of more QE from a European Central Bank which has for the past year become increasingly collateral constrained. If an announcement of more QE by Draghi leads to further selling, then central banks are truly out of ammo and only monetary paradrops remain.
This Is The NIRP “Doom Loop” That Threatens To Wipeout Banks And The Global Economy
Remember the vicious cycle that threatened the entire European banking sector in 2012?
It went something like this: over indebted sovereigns depended on domestic banks to buy their debt, but when yields on that debt spiked, the banks took a hit, inhibiting their ability to fund the sovereign, whose yields would then rise some more, further curtailing banks’ ability to help out, and so on and so forth.
Well don’t look now, but central bankers’ headlong plunge into NIRP-dom has created another “doom loop” whereby negative rates weaken banks whose profits are already crimped by the new regulatory regime, sharply lower revenue from trading, and billions in fines. Weak banks then pull back on lending, thus weakening the economy further and compelling policy makers to take rates even lower in a self-perpetuating death spiral. Meanwhile, bank stocks plunge raising questions about the entire sector’s viability and that, in turn, raises the specter of yet another financial market meltdown.
Below, find the diagram that illustrates this dynamic followed by a bit of color from WSJ:
In a way, the move below zero was a gamble. The theory went like this: Banks would take a hit, but negative rates would get the economy moving. A stronger economy would, in turn, help the banks recover.
It appears that wager isn’t working.
The consequences are deeply worrying. Weak banks may now drag the economy down further. And with the economy weak and deflation—a damaging spiral of falling wages and prices—looming, central banks that have gone negative will be loath to turn around and raise rates.
Moreover, central banks have few other levers to escape that doom loop. The ECB has instituted a bond-buying program, but President Mario Draghi last month indicated he was ready to launch additional monetary stimulus in March. Japan’s decision to implement negative rates follows three years of aggressive monetary easing, aimed at ending two decades of low inflation and stagnant growth.
The pushes into negative territory also amount to a sort of competitive currency war that no one seems willing to call off.
Major economies around the world are desperate to spur inflation; one way to do that is to cut interest rates, which typically would make their currencies less attractive. Lower currencies raise the prices of imported goods and boost the fortunes of exporters.
Switzerland, Sweden and Denmark have all used negative rates to help ward off inflows of foreign funds that push up their currencies. Economists said an aim of the Bank of Japan’s move to negative rates last month was to weaken the yen. It hasn’t worked: The yen shot up Thursday and is stronger than it was before the rate cut.
The move below zero compounds the miseries for lenders in those countries. Banks traditionally make a profit by lending at higher interest rates than the rates they pay on deposits, a difference called the net interest margin. Low rates have already squeezed that margin, and banks’ funding costs from other sources, such as bond markets, have surged this year.
German banks earn roughly 75% of their income from the margin between rates on savings accounts and the loans they make, according to statistics from the
Bundesbank, the country’s central bank. Plunging rates dragged German banks’ interest revenue down to €204 billion ($230 billion) in 2014 from €419 billion in 2007, according to the Bundesbank.
Negative rates cost Danish banks more than 1 billion kroner ($151 million) last year, according to a lobbying group for Denmark’s banking sector.
Consider that and then have a look at the following chart, which certainly seems to indicate that we are on step 8 in WSJ’s doom loop…
Step 9 is when things really start to go south for the real economy. So buckle up.
637 Rate Cuts And $12.3 Trillion In Global QE Later, World Shocked To Find “Quantitative Failure”
2016 is shaping up to be the year that everyone finally comes to terms with the fact that the monetary emperors truly have no clothes.
To be sure, it’s been a long time coming. For nearly 8 years, market participants and economists convinced themselves that the answer was always “more Keynes.” Global trade still stagnant? Cut rates. Economic growth still stuck in neutral? Buy more assets.
It was almost as if everyone lost sight of the fact that if printing fiat scrip and tinkering with the cost of money were the answers, there would never be any problems. That is, policy makers can always hit ctrl+P and/or move rates around. But in order to resuscitate anemic aggregate demand and revive inflation, you need to tackle the core problems facing the global economy – not paper over them (and we mean “paper over them” in the most literal sense of the term).
Well late last month, central banks officially lost control of the narrative. Kuroda’s move into negative territory reeked of desperation and given the surging JPY and tumbling Japanese stocks, it’s pretty clear that the half-life on central bank easing has fallen dramatically.
And so, as the market wakes up from the punchbowl party with a massive hangover, everyone is suddenly left to contemplate “quantitative failure.” Below, courtesy of BofA’s Michael Hartnett is a bullet point summary of 8 years spent chasing the dragon… and a list of the disappointing results.
* * *
Whether the recent tipping point was the Fed hike, negative rates in Europe & Japan, or simply the growing market dislocations and macro misallocation of resources and wealth, the deflationary theme of “Quantitative Failure” is stalking the financial markets. A multi-year period of major policy intervention & “financial repression” is ending with weak economic growth & investors rebelling against QE.
In short, monetary policies of…
- 637 rate cuts since Bear Stearns
- $12.3tn of asset purchases by global central banks in the past 8 years
- $8.3tn of global government debt currently yielding 0% or less
- 489 million people currently living in countries with official negative rates policies (i.e. Japan, Eurozone, Switzerland, Sweden, Denmark)
- -0.92%, the most negative yield in the world (2-year Swiss government bond)
…have in 2016 led to a macro environment symbolized by…
- BofAML’s Chief US Economist Ethan Harris cutting potential trend real GDP growth in the US to 1.75%
- inflation expectations in both the US & Europe dropping below 2008 levels & a global profits recession
- one of the most deflationary recoveries of all-time: in the past 26 quarters the nominal GDP of advanced economies has grown 11%
and a significant impact on Wall Street…
- a bear market in equities (median stock in ACWI is down 28% from its highs; 45% of global stocks (1123) are down >30% from highs)
- bear market in commodities (10-year rolling return from commodities is currently -5.1%, the worst since 1938) & credit markets
- $686bn of market cap loss for global banks since Dec 15th – the day before the Fed hiked – and worsening global liquidity conditions, which in-turn will likely cause bank lending standards to tighten further
- and, most conspicuously, falling bank stocks and falling bond yields suggesting that 6 years of QE has failed to arrest deflation.
* * *
What comes next is anyone’s guess but with China’s credit bubble about to burst in spectacular fashion, we wonder how central banks plan to combat the ensuing hit to the global economy. After all, their counter-cyclical policy room is not only exhausted, they’ve now taken the easing bias so far into the monetary twilight zone that in Japan’s case, things are starting to backfire and are becoming self referential (see the recently canceled JGB auction).
Throw in the fact that $12.3 trillion in asset purchases has impaired liquidity across markets and you have the conditions for what could turn into a truly harrowing year not only for Wall Street, but for Main Street as well. The same Main Street that was allegedly saved by a “courageous” Ben Bernanke who started us all down this road 8 long years ago.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am
Euro/USA 1.1274 down .0042
USA/JAPAN YEN 112.62 up 0.122 (Abe’s new negative interest rate (NIRP)a total bust
GBP/USA 1.4539 up .0061
USA/CAN 1.3918 up .0001
Early this FRIDAY morning in Europe, the Euro fell by 42 basis points, trading now well above the important 1.08 level falling to 1.1274; 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, crumbling bourses and the threat of continuing USA tightening by raising their interest rate / Last night the Chinese yuan was flat in value (onshore) due to lunar holiday. The USA/CNY flat in rate at closing last night: 6.5710 / (yuan flat 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 slight southbound trajectory as IT settled down in Japan by 12 basis points and trading now well BELOW that all important 120 level to 112.62 yen to the dollar. NIRP POLICY IS A COMPLETE FAILURE AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP
The pound was up this morning by 61 basis points as it now trades just above the 1.44 level at 1.4439.
The Canadian dollar is now trading DOWN 1 in basis points to 1.3918 to the dollar.
Last night, Chinese bourses were closed/Japan NIKKEI IS CLOSED DOWN 770.78 OR 4.84%, ALL ASIAN BOURSES LOWER/ AUSTRALIA IS LOWER All European bourses ARE DEEPLY IN THE GREEN 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 HAS BLOWN 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 760.78 OR 4.84%
Trading from Europe and Asia:
1. Europe stocks all in the GREEN
2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed DOWN 1.22% OR DOWN 226 POINTS ,Shanghai in the closed Australia BOURSE IN THE RED: /Nikkei (Japan)red/India’s Sensex in the red /
Gold very early morning trading: $1238.80
Early FRIDAY morning USA 10 year bond yield: 1.68% !!! up 5 in basis points from last night in basis points from THURSDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.54 UP 4 in basis points from THURSDAY night. ( EXTREME policy error)
USA dollar index early FRIDAY morning: 95.81 up 21 cents from THURSDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers FRIDAY MORNING
The real reason for oil’s fall this past yr: It is not just a supply issue. It is also a downfall in demand:
(courtesy zero hedge)
Crushing The “Oil’s Just A Supply Issue” Meme In 1 Painful Chart
Day after day we are told that the plunge in oil prices (just like the collapse in The Baltic Dry freight index) is a “supply” issue… it’s transitory and global demand is doing fine thank you very much. Sadly, as everyone really knows deep down inside their Keynesian hearts, this is utter crap and as Barclays shows the shocking 18% YoY crash in distillates “demand” – something that has never happened outside of a recession – blows the one-sided argument of the energy complex out of the water.
Still gonna claim “it’s a supply issue?”
Two key ramps causes the USA stocks and Europe to rise:
i) USA//Yen rise to 12.90 or so
ii) the algo driven rise in oil (for the phony reason of the production cut)
(courtesy zero hedge)
Algos Panic-Buy “Stabilized” Crude Oil To Key Resistance
Oil Soars Most Since Feb 2009 On OPEC Production Cut Headline Redux
Another day, another OPEC Production Cut rumor, and another massive swing in WTI Crude oil prices. But having run stops to these levels, we wonder what happens next?
This 11.5% ramp is among the biggest single-day moves in oil’s history…
Driving realized volatility near record highs…
But sadly, stocks are not correlating…
Here Is The ETF Liquidation That Sent Shockwaves Through The Crude Oil Market
A week ago we exposed the real reason for the “crazy volatility” in crude oil markets, and specifically the driver of the immense rally (despite weak data) in crude – a massive liquidation of the triple-inverse ETF DWTI. Today we have another mysterious, even larger spike in crude oil prices (for no good reason other than ‘old’ misunderstood rumors about OPEC production cuts). The driver, it would appear, is another liquidation as the ETF trades at a huge discount to NAV. The last time this happened, it didn’t last.
We saw the same actin last week (and the delayed data exposed the liquidtaion)… it’s happening again…
And DWTI is trading at a dramatic discount to NAV – which suggests – given the day lag (There is a day’s lag between when redemptions and creations are ordered and when they show up in share figures) that buying pressure hits today…
On Wednesday, oil prices surged more than 8 percent to $32.28 a barrel, despite a seemingly bearish report from the U.S. Energy Information Administration showing nationwide crude inventories rose by 7.8 million barrels last week.
The evidence is even clearer in the sudden spike in the 1st-2nd month spread – despite no news whatsoever on the storage constraints (as ETF managers are forced to buy back futures in the front-month as the inverse ETF is liqudated)
So that explains the sudden squeeze carnage today… and without further liquidation in the fund why the rip won’t hold.
US Oil Rig Count Plunges By Most In 10 Months
Following last week’s dramatic 31 rig decline, Baker-Hughes reports another major decline of 28 oil rigs (dropping the total oil rigs to 439 – lowest since Jan 2010 – for the 8th consecutive week). The total rig count dropped 30. On the heels of OPEC rumors overnight and then re-rumored bullshit from Venezuela, oil prices had already surged during the day and the biggest 2-week rig count decline in 10 months after initially being sold, is rallying once again.
- *U.S. OIL RIG COUNT DOWN 28 TO 439, BAKER HUGHES SAYS
- *U.S. TOTAL RIG COUNT DOWN 30 TO 541 , BAKER HUGHES SAYS
As the rig count continues to track almost perfectly the lagged oil price…
The declines were widespread with Texas dropping the most absolutely…
Oil did not rip on this “great” news… but minutes later pushed to new highs
Portuguese 10 year bond yield: 3.73% down 37 in basis points from THURSDAY
Gold Soars, Stocks Sink Despite Biggest Oil Rally In 7 Years
And all of this on a Dudley statement (that said nothing), an oil rumor (repeatedly uttered with no actual news) and a seasonal adjustrment (which made retail sales ‘appear positive’)…
Public Service Announcement:
Crude is the headline of the day…WTI RISES 12% TO $29.44/BBL, BIGGEST PCT GAIN SINCE FEB. 2009
And while everyone crowed about Jamie Dimon’s share purchase – which had the stink of Lehman-esque time when every bank CEO trotted out his own brand of confidence inspiring headlines – and that ramped financial stocks… but once again credit wouldn’t play along… in cash markets…
and even less so in CDS (hedging)
* * *
Gold wins the week, bonds sencond best…
* * *
Today’s ripfest stalled at 1130ET when Europe closed but the incessant ramp in crude oil lifted everything as algos latched on…
Nasdaq desperately wanted to “get back to even” for the week in today’s ramp but only Trannies closed the week green…
With today’s ramp led by Jamie Dimon’s financials… (which still closed lower by 2.4% on the week – worst of all sectors)
But just look at the mess that is VIX in the last 2 days…
Does this look like financials are fixed?
When stocks took off at around 1300ET (as Oil spiked on rig count data), HY credit did not want to play…
Still could be worse… could be Japan…
A stunning roundtrip in US Treasury yields this week with 10Y swinging to down 30bps at Thursday’s lows befoere faxce-ripping higher by over 20bps in the last 24 hours…
The USD rallied modestly today as sellers reappeared in Yen and EUR weakened…
The USD Index collapsed 3.7% in the last 2 weeks – the biggest drop since October 2010…to 4-month lows…
Despite all the algos and liquidation-fueled craziness, crude ended the week down over 5% – the 5th losing week in the last 7; as gold had its best week since dec 08…
You decide if you trust this rally in crude (and thus every risk asset pinned off it)
Bonus Chart: Meanwhile these two developed markets now have inverted yield curves…
The Curious Case Of The “Strong” January Retail Sales: It Was All In The Seasonal Adjustment
There was hardly a blemish in today’s retail sales report: the January numbers not only beat expectations across the board, including the all important control group which printed at 0.6% or the highest since May, but the December data was also revised notably higher. At first glance, great news for those who hope consumer spending is finally getting some traction from collapsing gasoline prices.
And yet, even a modestly deeper look below the strong retail sales headline numbers once again reveals just how this “across the board beat” was accomplished.
It was all in the seasonal adjustment, something which plagued the January non-farm payrolls report as well as numerous sellside analysts lamented.
The thing about seasonally adjusted retail sales is that while they are supposed to smooth out month-to-month changes in any given data series, they should be virtually identical to the non-seasonally adjusted retail sales on a annual, year-over-year basis. After all the same “seasonal” adjustment that was applicable this January, was applicable last January, the Januarybefore it, and so on, unless of course, something changed.
To the best of our knowledge nothing changed, even though while seasonally adjusted sales rose modestly by $800 million to $449.9 billion, on an unadjusted basis retail sales actually dropped by $112.7 billion with a “B.”
And indeed, when looking at the annual change in headline retail sales data we find that, as expected, the seasonally-adjusted (blue) and unadjusted (red)retail sales series are almost identical…
… but not quite.
If one zooms in on the most recent data, one finds something surprising: a substantial rebound in SA retail sales, which according to the Dept. of Commerce rose 3.4% – the best print since January 2015 – while unadjusted retail sales rose by just 1.4% – the worst montly print since August, and hardly inspiring confidence that what is happening on a seasonally adjusted basis is indicative of what is really happening.
To isolate the problem we decided to look at only the annual (YoY) change in January data. The chart below shows the surprising finding: while virtually every January in the prior 5 years saw an almost identical change in the SA and NSA data, this January, there was a major disconnect: in fact on an NSA basis, January retail sales were mathced for the lowest increase since the financial crisis at 1.4%, a far cry from the far more respectable and adjusted 3.4%.
To show just how much of an outlier January 2016 was compared to January in prior years, here is the seasonal “adjustment ratio” for the month of January for every year since 2010 to 2016, by which we define the ratio of “seasonally adjusted” to “unadjusted” retail sales. Spotting the outlier should be easy enough.
In other words, any “strong” rebound in January retail sales was all in the seasonal adjustment factor.
We wonder if Yellen’s “dot plot” will likewise come in unadjusted and seasonally adjusted flavors from now on to reflect both the actual underlying U.S. economy and the economy the Fed would like to see when observed through the filter of the government’s politically biased Arima-X-12 seasonal adjustment model?
Business Inventories Jump, Sales Tumble Sending Ratio To Recession-Warning Cycle Highs
After some stabilization into mid-2015, the ratio of business inventories-to-sales has surged as sales have disappointed and mal-investment-driven dreams have over-stocked. Business inventories rose 0.1% MoM in December (retail up 0.4%) and sales tumbled 0.6%.
Year-over-year, Inventories are now up 1.7% (led by retailers up 5.4%) while Sales are down 2.4% (led by Manufacturers down 5.1%)
At 1.39x, the current ratio is flashing a warning that a deep de-stocking recession looms.
Americans’ “Deflationary Mindset” Has Never Been Stronger
Having already warned of a “deflationary mindset,” today’s University of Michigan Confidence data suggests Americans are falling deeper into dis-inflation territory. Today’s headline tumble in confidence to 4-month lows, with “hope” dropping to 6-month lows is dominated by the plunge in 5-10 year inflation expectations to 2.4% (from 2.7%) – a 36-year record low.
Whatever you’re doing Janet – It’s not working!
Welcome To Obama’s Recovery: Carrier Moving 1400 Jobs To Mexico
In his final state-of-the-union address, President Obama famously accused anyone who dares to question the strength of the US economic “recovery” of “peddling fiction.”
Shortly thereafter, we learned that the US economy grew at a paltry 0.69% in Q4. Below estimates.
Perhaps the most disturbing thing about the state of the economy – well, besides the fact that healthcare spending is essentially driving “growth” – is that the labor market has becoming awaiter and bartender creation machine. That’s come at the expense of manufacturing jobs, where skilled workers can actually earn a decent living.
Here’s what the disparity looks like since 2007:
No fiction “peddling” there. Just numbers.
Additionally, we’ve noted the fact that foreign born workers account for the vast majority of job creation in America since the crisis:
On Wednesday, United Technologies decided to reinforce both of these trends all at once, when the company announced it would be eliminating 1,400 jobs at a Carrier plant in Indianapolis in favor of hiring some new “foreign-born” employees – only these “foreign-born” workers will be hired in Mexico.
“Two Indiana plants that make products for the heating, ventilating and air conditioning industry are shifting their manufacturing operations to Mexico, which will cost about 2,100 workers their jobs,” The Indianapolis Star reports. “Carrier is shuttering its manufacturing facility on Indianapolis’ west side, eliminating about 1,400 jobs during the next three years [and] United Technologies Electronic Controls said that it will move its Huntington manufacturing operations to a new plant in Mexico, costing the northeastern Indiana city 700 jobs by 2018.”
Watch below as 1,000 soon-to-be Donald Trump voters react to the announcement:
Economists called the move “highly unusual.” “Today’s surprise announcement was without warning,” the mayor said.
Actually, it’s neither “highly unusual” or “surprising.” Here’s why (again from The Star): “Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime.”
Something tells us labor costs will be “slightly” lower south of the border.
Who’s “peddling fiction” now?
This is getting just plain nuts. Here is what Janet Yellen said today about the possibility of negative interest rates:
In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.“
The operative words here are “European countries” and “add accommodation”. Yet even a brief reflection on those items demonstrates that Janet is a delusional Simpleton. To adapt Jim Kunstler’s felicitous phrase about Senator Rubio’s 4-Peat incantation during the last GOP debate, our financial system is being led by a monetary android with a broken flash drive.
She says the same damn stupid thing over and over, endlessly.
Someone should tell Janet and her posse of Keynesian money printers that there is no such economic ether as “accommodation”. That’s Fed groupspeak for their utterly erroneous conceit that the US economy is everywhere and always sinking towards collapse unless it is countermanded, stimulated, supported and propped up by central bank policy intervention.
No it isn’t. Janet may prefer a dutch boy hair cut, but she’s not got her finger in the dike, nor is she warding off any other catastrophe. The deluge that is coming is actually the handiwork of the Fed and its bubble ridden Wall Street casino, not the capitalist hinterlands of main street.
There are only two tangible transmission channels through which the Fed can impact our $18 trillion main street economy, as opposed to merely subsidizing Wall Street speculators to artificially bid up the price of existing financial assets.
It can inject central bank credit conjured from thin air into the bond market in order to raise prices and lower yields. And it can falsify money market interest rates and the yield curve. Both of these effects are aimed at inducing businesses and households to borrow more than they would otherwise, and to then spend more than they produce.
That’s the old Keynesian parlor trick and, yes, it worked 50 years ago when Janet’s Keynesian professors first had their way with America’s virgin balance sheets. But now those household and business balance sheets are all used up because we are at Peak Debt, along with most of the rest of the world.
Indeed, in the case of the US household sector the massive leveraging up of wage and salary income between the late 1960s and 2008 has now begun to slowly reverse. The credit string that the Fed is pushing on is evident in the chart below. But apparently Janet is still in a time warp obeying the injunctions of James Tobin’s ghost wafting up from the earlier side of the red vertical.
Accordingly, the stimulative effect of low and ultra-low interest rates never really leaves the canyons of Wall Street. And when it does, it trickles its way into credit extensions to the weakest borrowers left in the land. That is, students and subprime auto borrowers.
Outside of those dubious precincts—– where the next wave of defaults or government bailouts will surely occur——there has actually beennegative growth in household debt since the financial crisis.Notwithstanding 86 months of ZIRP and its current equivalent, total household debt is still $400 billion below it pre-crisis peak, and mortgage and credit card debt are down by more than $1 trillion.
Likewise, the $2 trillion rise in total business debt outstanding has not gone into productive assets such as tangible plant, equipment and technology. It has been short-circuited into financial engineering by the false financial bubble fostered by Fed policies. That is, massive stock buybacks and M&A deal volumes have simply used the agency of the stock options obsessed C-suite to recycle newly issued business debt right back into the canyons of Wall Street.
So if 86 months of ZIRP has already proved that the old Keynesian parlor trick—–which is the say, the household and business credit channel of monetary policy transmission—-is a dead letter, why in the world would Janet think that a few more basis points through the negative side of 0.0% would make any difference?
And especially after the ECB has tried it, and to no avail! As is evident from the bank loan data for the Eurozone, credit extensions to private business have been sinking since 2012 when Draghi issued his “anything it takes” ukase. The ECB’s move to negative deposit rates last year has not changed that trend in the slightest.
Likewise, household debt in Europe soared during the decade through 2010, but has been oscillating on the flat-line ever since. And the reason is beyond the power of the ECB or any central bank to remedy. Namely, European households are also at Peak Debt, meaning that central bank fiddling with negative deposit rates is pointless and irrational.
It might seem puzzling that Yellen, Bernanke and their camp followers have all offered the European experience as a reason to revisit NIRP when the data is this dispositive the other way. But that’s because these monetary plumbers can’t tell the difference between transient squiggles and true, lasting trends.
Here is a longer term look at bank credit extensions to households and businesses in the eurozone. You don’t need a PhD economist to explain why NIRP is a colossal failure in debt besotted Europe.
Why do our central bankers think NIRP can possibly stimulate credit growth and old-fashioned Keynesian GDP expansion in a world of Peak Debt?
Well, the truth is, they don’t think it; they assume it. Since they erroneously believe that capitalist main street is utterly dependent upon their constant ministrations, virtually any short-run development—adverse or otherwise—- is taken as evidence that more monetary policy intrusion is needed.
Indeed, this faulty frame of mind has gone so far that they now interpret the negative feedback loop from their own bubble inflation as evidence that monetary conditions are too “tight” and more policy stimulus—-such as NIRP—-is warranted in order to offset headwinds to growth.
Here is a doozy from Janet’s written testimony.
Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity…..
It does not take much expertise to read the code. Simple Janet is saying that it doesn’t matter that the Fed has spent years falsely inflating equity markets via massive liquidity injections and props and puts under risk assets. Any correction in stock prices and any regression of ultra-tight credit spreads to normality which could cause economic and job growth to slow must be countered at all hazards.
In short, the only thing they plan to do about a bursting bubble is to reflate it. It puts you in mind of the boy who killed his parents and then threw himself on the mercy of the courts on the grounds that he was an orphan!
In fact, the absurdity of Simple Janet’s circular reasoning was on display today in real time during her Senate testimony. Even the Fed’s official court jester, Jon Hilsenrath, couldn’t help from reporting the irony:
“We are… looking very carefully at global financial market and economic developments that create risk to the economy,” she said. “We are evaluating them, recognizing that these factors may well influence the balance of risks or the trajectory of the economy, and thereby might affect the appropriate stance of monetary policy.”
Stock prices sank as Ms. Yellen spoke. In what looks like a perverse feedback loop, she worries that market conditions could pinch the economy, and her lack of confidence sends markets lower still.
At the end of the day, don’t take my word for it. Attached below is Simple Janet’s written testimony. It was indeed generated by a monetary android with a broken flash drive.
Almost every line in it consists of notations about incoming data trivia that have been repeated month after month to absolutely no avail; or it references a simple-minded bathtub model of a closed US economy——one that is later contradicted by extended jawing about headwinds from China, global oil and commodity prices and shrinking US exports.
Obviously, you can’t have it both ways. Either the Fed has total control of “aggregate demand” and can dial-up its monetary management controls until the US economy is full to the brim and all the “slack” is drained out of the labor market or there is massive leakage and interaction with the rest of the world. If it is the later—-and of course it is——then Simple Janet is truly lost in the Keynesian Puzzle Palace.
After all, why does she spend several paragraphs boasting about the Fed’s success in stimulating 13 million jobs and getting the U-3 unemployment rate down to 4.9% when by her own observation the US economy is being bludgeoned by an array of forces originating outside the bathtub of domestic GDP?
Why do these labor market metrics even matter when they are subject to being trumped by forces far outside the Fed’s remit? Or has the Eccles Building now appointed itself central banker of the world?
Although recent economic indicators do not suggest a sharp slowdown in Chinese growth, declines in the foreign exchange value of the renminbi have intensified uncertainty about China’s exchange-rate policy and the prospects for its economy. This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth. These growth concerns, along with strong supply conditions and high inventories, contributed to the recent fall in the prices of oil and other commodities. In turn, low commodity prices could trigger financial stresses in commodity-exporting economies, particularly in vulnerable emerging-market economies, and for commodity-producing firms in many countries. Should any of these downside risks materialize, foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further.”
The point is, Simple Janet is just emitting jabberwocky. The above paragraph completely negates the notion that there is a purely domestic business cycle that the Fed can manage and manipulate to the perfection of full employment.
In fact, today’s $80 trillion global economy is endowed with a plethora of stormy seas by Simple Janet’s own account. So why would you measure jobs growth from the very bottom month of the recession or even bother to reference the totally flawed U-3 unemployment rate in a world of gigs, temps and hours, not 40 hour work weeks at the Ford factory?
The fact is, 62% of the job gains cited by Yellen are “born again” jobs; only 5 million net jobs have been created since the pre-crisis peak, representing the weakest growth rate in modern history. Likewise, the employment to population ratio is still at modern lows and has recovered only a small fraction of its post-crisis loss; it renders the U-3 rate essentially meaningless.
So here’s the thing. Simple Janet and her posse are completely lost. And now they are thrashing about randomly pretending to be managing the monetary dials in the Eccles Building based on the incoming data.
No they are not. They are sliding by the seat of their pants. They have declared war on savers and are fixing to make their assault even more viscous. And their phony wealth effects doctrine is blowing-up in their face, reducing the financial markets to the status of a theme park roller coaster ride.
If Simple Janet occupied any office in the elective branches of government she would have been in the impeachment docket long ago.
Maybe The Donald will take notice of her assault on tens of millions of retirees, savers, main street business people and just plain folks. They are all being sacrificed to Simple Janet’s Keynesian lunacy and the last grasp of the Wall Street gamblers.
So after all that has gone before, it will only take one loud voice to trigger an uprising against the crime of NIRP—–and then the casino will discovery what real price discovery is all about.