Gold: $1,207.50 down $30.60 (comex closing time)
Silver 15.33 down 45 cents
In the access market 5:15 pm
The major reason for gold to be “under the weather” on Friday and on Monday was the following story I highlighted Friday night: the crooked CME raised margins on gold futures at the close of trading today.
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 poor delivery day, registering 0 notices for nil ounces. Silver saw 1 notice for 5,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 204.24 tonnes for a loss of 99 tonnes over that period.
In silver, the open interest rose by 964 contracts up to 168,488. In ounces, the OI is still represented by .843 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 128 contracts to 424,665 contracts despite the fact that the price of gold was down $8.80 with Friday’s trading.
We had another mammoth change in gold inventory at the GLD, a huge withdrawal of 5/06 tonnes / thus the inventory rests tonight at 710.95 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 another change in inventory and this time a huge deposit of 3.809 million oz/ and thus/Inventory rests at 312.189 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rise by 964 contracts up to 168,488 as the price of silver was down 1 cents with yesterday’s trading. The total OI for gold rose by 964 contracts to 424,665 contracts as gold fell by $8.80 in price from Friday’s level.
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i)Late SUNDAY night/ MONDAY morning: Shanghai closed down only .59% after being down 3% / Hang Sang closed up by 598.56 points or 3.27% . The Nikkei was closed up 1069.67 or 7.16%. Australia’s all ordinaires was also up 1.16%. Chinese yuan (ONSHORE) closed 6.4968 and yet they still desire further devaluation throughout this year. Oil gained to 29.21 dollars per barrel for WTI and 33.65 for Brent. Stocks in Europe so far deeply in the green . Offshore yuan trades where it finished last Friday at 6.4961 yuan to the dollar vs 6.4968 for onshore yuan/
Japanese trading Sunday night: the Nikkei rises a huge 7%. on stimulation news/yet their GDP plummeted by 1.8% year over year. China saw their exports tumbling!
At 8 pm Sunday night, we received data from Japan as their growth (GDP became negative again for the 6th time in 6 years. While this is going on its debt just keeps ballooning higher. You can safely say that Abenomics is dead!!!
( zero hedge/Monday morning Toyko time)
ii)One hour later,Sunday night, we received data on China. China’s exports collapse by a monstrous 6.6% year over year instead of the 3.6% expected and probably this data is massaged. The global financial scene is in turmoil as China is the engine that produces good and the buying is sparse. What is more fascinating is that exports tumbled despite a slightly devalued yuan:
( zero hedge/Sunday night-Monday morning)
iii) SUNDAY NIGHT
Prior to opening on the Shanghai, the POBC strengthened the yuan considerably trying to throw a monkey wrench at Kyle Bass and George Soros. However with all strengthening we will witness shortly a massive exodus of dollars;
( zero hedge)
iv MONDAY NIGHT from China/the yuan tumbles a bit but stocks remain in positive shape:
( zero hedge)
v)the big story of the night
China creates the equivalent of $1/2 trillion dollars in January in an attempt to kick start its economy. They have spent the equivalent of 1 trillion usa dollars since October:
( zero hedge)
vi)Goldman Sachs explains the huge increase in debt due to borrowings in yuan to pay down mounting USA debt:
vii)Here is another dandy story: In the Chinese brokerage business 98% of investors as fled the rigged markets. Profits plunged as the bubble burst:
viii) this ought to be great for our Hong Kong banks: commercial and housing collapse in price( zero hedge)
i)Over the weekend: Another protest and this time we have 10,000 Greek farmers stage a massive revolt in Athens as they protest the pension reform forcing farmers to pay triple their normal rate for social security.
( zero hedge)
ii)NIRP is just around the corner as the ECB has just eliminated the 500 euro note:
iv)Tuesday morning: Deutsche bank stock is down 1,3% today as it slumps for the 2nd day in a row. Interesting enough Deutsche bank was down 5% yesterday despite the DAX being higher.( zero hedge)
v)Somebody at Deutsche bank got a tap on the shoulder as they know beg for more central bank intervention. Go figure!!
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i) The big news Saturday night: Turkey fires on the Syrian Army in a massive escalation.
( zero hedge)
ii) Sunday: Turkish army enters Syria after a second day of shelling. Saudi Arabian warplanes arrive at Incirlik airbase in Turkey.
( zero hedge)
iii)Monday: The Kurds advance from the East towards Aleppo. Turkey condemns the advance and surprisingly missiles hit hospitals and schools. The Turks blame the Russians
( zero hedge)
iv)Monday A terrific explanation of the conflict between the Syrian Kurds, the Free Syrian Army, the Syrian government and Turkey. The Saker explains why a dramatic escalation appears imminent:
v)Tuesday: Escalation is imminent as the Syrian Kurds take Tal Rifaat on its way to seizing Aleppo. Erdogan is furious as the main conduit from Turkey to Aleppo is cut off. Also the Syrians Kurds are controlling the entire border area between Syria and Turkey!
vi)Russia’s balance sheet is suffering a bit because of the low oil price. So it has decided to flood the market with 167,500 carts of diamonds. DeBeers is not a happy camper tonight
vii)The collapse in the Ukraine is now beginning: Yatsenyuk is being replaced as this nations spirals out of control:
( zero hedge)
7. EMERGING MARKETS
i)Venezuela is a basket case and they will default shortly as food emergencies grip the nation:
( zero hedge)
ii)Is Rio ready for the Olympics? Not really!!
(courtesy Chavy/GlobalRisk Insights)
iii) Let us take a close look at Brazil’s finances today:
8. OIL MARKETS
i) If they offer free oil for storage, what is the value of oil? OIL will collapse shortly:
ii)Basically we have a non event: the Saudis and the Russian will not cut production but freeze it at current levels. Iran states that it will not give up its market share
iii)WTI plunges back below 30 dollars per barrel as production cut possibilities end
iv) Now WTI breaks into the 28 dollar handle as expected:
v) Of the 500 or so public oil companies out there in the USA a good 1/3 could go bust warns Deloitte as credit risk hits record highs:
9. PHYSICAL MARKETS
i) our good friends over at Goldman Sachs states to short gold. No wonder they are buying the yellow stuff by the bucketful today:
iia) zero hedge/bloomberg comments on the above story:
iii)James Turk: we are very close to a big rise in the price of silver
iv)Another big story today. It seems that the Germans have a plan for a bail in for all sovereign bonds held by commercial European banks and central banks. They want a haircut and all cuts must be made up with depositors cash. There is one dissenting German vote who stated that that action would bring down the whole house of cards:
v) Chinese citizens are scared and are trying to move their cash out of the country
( Bill Holter/Holter Sinclair collaboration)
10. USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER
i)The all important New York Manufacturing (Empire Index) contracts for the 7th straight month. Another indicator of the huge downfall in the USA economy:
ii)Yesterday the ECB announced the withdrawal of the 500 euro note. Today Larry Summers, charlatan el supremo of the USA is no advocating the removal of the 100 USA bill:
iii)Homebuilder confidence tumbles to the lowest level in 9 months: dropping from 61 down to 58:
Let us head over to the comex:
The total gold comex open interest rose to 424,665 for a gain of 128 contracts as the price of gold was down $8.80 in price with respect to Friday’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, only the first scenario was in order as we actually gained in number of gold ounces standing. In February the OI fell by 20 contracts down to 716. We had 44 notices filed on yesterday, so we gained 24 contracts or an additional 2400 oz will stand for delivery.The next non active delivery month of March saw its OI fell by 165 contracts down to 1959. After March, the active delivery month of April saw it’s OI fell by 1,990 contracts down to 300,352. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 515,782 which is enormous but includes the access trading for 4 days. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 203,677 contracts. The comex is in backwardation until April.
Feb contract month:
INITIAL standings for FEBRUARY
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil|| 361.986 oz
|Deposits to the Dealer Inventory in oz||nil|
|Deposits to the Customer Inventory, in oz|| 643.000 ozmanfra
|No of oz served (contracts) today||0 contracts
|No of oz to be served (notices)||716 contracts (71600 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||503,772.7 oz|
we had 0 adjustments.
FEBRUARY INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 1,090,263.518 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||589,801.420
|No of oz served today (contracts)||1 contract 5,000 oz|
|No of oz to be served (notices)||6 contracts (30,000 oz)|
|Total monthly oz silver served (contracts)||162 contracts (810,000 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||9,675,102.3 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 1 customer deposits:
i) Into JPM: 589,801.420 oz
total customer deposits: 589,801.420 oz
total withdrawals from customer account 1.090,263.518 oz
we had 0 adjustments:
And now the Gold inventory at the GLD:
Feb 16.a huge withdrawal of 5.06 tonnes from the GLD/the loss was probably a paper loss/inventory at 710.95 tonnes
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
Feb 16.2016: inventory rests at 710.95 tonnes
And now your overnight trading in gold, TUESDAY MORNING and also physical stories that may interest you:
Euro Bond Crisis Returns As Germany Pushes Euro Sovereign Debt Bail-in Clause
European Banks holding European sovereign debt may have to take haircuts and be part of bail in plans should that same debt default, according to a plan being pursued by German government advisers. In another attempt to shelter German tax payers from the largess and excess of fellow European neighbouring countries’ national banks, the move could trigger a run on billions of euro of sovereign debt of said banks. In an article penned by the Telegraph’s Ambrose-Evans Pritchard, one of the council’s dissenting members describes the plan as the “fastest way to break up the Eurozone”.
The plan, by The German Council Of Economic Experts, calls for banks to be bailed in should losses occur from a sovereign default before the European Stability Mechanism steps in to stabilise the situation.
Italian and Spanish banks hold vast amounts of their national government debt; in Italy’s case they are supporting the Italian treasury. Should that debt default, which is a very real possibility, then Italian banks would have to take significant losses first, only then would the ESM be allowed to step in.
Professor Bofinger, who sits on the council, has dissented. He believes that such a move could force Italy and Spain to actively depart from the euro in order to prevent their countries from facing bankruptcy. The mere prospect of such a move could ignite a bond run and cause the collapse of European sovereign debt, forcing up yields and crashing bond prices. This would mean that European nations would face far higher refinancing rates.
So will it happen?
So far the plan has attracted a number of high profile supporters, including the influential German Finance Minister Wolfgang Schauble and the German Bundesbank. When questioned about the plan, ECB president Mario Draghi stated, tellingly, on Monday that “…it is an issue that we do have to deal with. But we have to take a very considered and phased-in approach”. Portuguese 10-year bonds are already trading at yields not seen since 2014.
What does it mean?
It means that national banks facing losses from government debt defaults cannot now rely on official support until they have expended their own reserves, which may include the expropriation of customer deposits. Should a heavily indebted European country default on its bonds, any bank holding said bonds will have to cover the losses by tapping its existing reserves. The losses may then suck in client deposits as bank depositors get forced to cover the capital shortfall on the bank’s balance sheet. The possibility of contagion then rises as counterparties to the bank and the defaulting government dump any related assets or parties they suspect as having exposure. It is a house of cards that could destabilise the entire monetary system.
European integration is a mess and it will likely end very, very badly. The noble euro experiment has exposed deep chasms of distrust which the architects of the EU felt would be overcome only by throwing each member’s lot in together. Alas, we now see that German benefactors are circling the wagons in anticipation of a collapse by digging firebreaks wherever they can. They are following a nationalist mandate to protect their citizens from the excesses of their neighbours, utterly misdiagnosing the causes of the issue in the process. If you were in Whitehall, London and tasked with drafting a policy paper for Britain and its integration with Europe, what would you think? You would likely seek to make serious preparations for a disorderly wind down of the European monetary experiment.
German conservative financial elite refuse to accept any shared responsibility for the euro, that much is clear. They believe in having their cake, (a vastly depreciated export currency that ensures competitive and high value German exports), and eating it too (refusing to support by a system of transfers the benefit accruing to the German tax payer with their fellow debtor nations). The machinations of European debt problems should be shared. The peripheral European countries should take a disproportionate amount of any financial adjustment pain resulting from their greed and poor management, but the process by which this is achieved needs to be managed far more sensitively and in concert with those European neighbours. It seems that this plan may create the very storm it seeks to manage.
What you can do
In short you need to take some action now.
If you have significant euro savings you should seek to secure them in the safest of banks in the safest of jurisdictions. For more information read GoldCore’s guide to bail ins and get key insights into how bail-ins will operate and how to protect you and your family’s wealth.
You need to have an allocation to precious metals (gold or silver), a form of money that can not be debased by nefarious governments. Your bullion needs to be allocated and segregated, that means you need to be able to put your hands on the metal when and where you wish without having to enter a market sell order. You cannot do this with a gold fund or with a digital gold trading platform. There are lots of reputable dealers, few though can offer secure storage that can weather what may be coming.
Read our guide to storing metals.
Store cash and metal in your immediate possession, should a bank collapse occur you may need, as awful as this sounds, reserves to protect your family for a few days or weeks while the system corrects itself.
If you are a client of GoldCore feel free to make an appointment to discuss your issue with one of our advisers. Click here to book your appointment.
One final word
Do not panic, seriously. It is unlikely that we will face a banking collapse in the near future as we hope in time that cooler heads will come to bare. It is prudent to have some insurance in place should the unthinkable happen. A casual review of history, especially European history, will demonstrate just how boneheaded officialdom can be sometimes.
I am the CEO of GoldCore. We help investors buy and store gold and silver easily and cost effectively. We work with clients of every variety from wealth family offices to everyday people. We provide the very best market data and client service and we care deeply for our clients interests.
Goldman Tells Clients To Short Gold 5 Days After Saying Gold May Soar “Much Higher Over Time”
What a difference five days makes.
Recall last Wednesday evening, when none other than Goldman decided to be the latest to piggyback on gold’s torrid momentum, by saing “there’s scope for the gold price to extend much higher over time.” This is what Goldman’s chartists predicted:
The current area includes the 100-wma and the trend across the highs since March ’14 (wedge resistance). It’s formed an exhaustive looking candlestick pattern and oscillators seems to be turning. Basically, it seems a good place to start a corrective pullback. The 100-wma in particular was an important pivot in determining the start of the late-’12 decline.
From a wave count perspective, the market is likely in the initial stages of a counter-trend ABC correction which could eventually retrace ~38.2% of the 5-waves from ’11 to 1,381. From a pure techs perspective, breaking from a declining wedge would initiate a medium-term target back at the start of the pattern ~1,392.
Bottom line, although 1,200-1,202 might hold in the near-term, there’s scope to extend much higher over time.
Initially, this troulbed us because whenever Goldman tells clients to do one thing, the firm is doing precisely the opposite. After all, this is the firm whose Top 5 of 6 trade recommendations for 2016 were stopped out at a loss for anyone who followed them 6 weeks into 2016 as we wrote in “Goldman Capitulates: Closes Out 5 Of Its 6 Top Trades For 2016 With A Loss.”
How happy, then, we were, if very much unsurprised that less than a week later, as the gold momentum has been briefly snapped, that Goldman’s head of commodities has decided to take the other side of Goldman’s technical trade, and is now advising Goldman’s repeatedly crucified muppets, pardon, clients to short gold. Just moments ago, this is what Goldman’s head of commodities said:
As we maintain our view of rising US rates and hence lower gold prices with a 3-month target of $1100/toz and 12-month target of $1000/toz, we are recommending shorting gold through a GSCI-style rolling index. Ironically, gold has a negative yield and such a short would create a positive carry in a world concerned about negative interest rates that made gold rise in the first place. While we acknowledge that fears around systemic risks can push prices higher in the near term, we see such risks not offsetting the potential gain given how extreme pricing has become and the heavy data reporting period in coming weeks that will likely show that the while economic growth has slowed, it is not collapsing to the point to justify such extreme pricing across assets.
So “not collapsing” is the new “green shoots”? Got it. And then this:
We believe that the sharp rise in gold prices this past week was mostly due to concerns over systemic risks, particularly in the banking sector,given the sharp correlation of gold prices with bank stocks and other measures of systemic credit risks. While this is a continuation of a trend established since the beginning of the year that started with systemic concerns over oil and China, we believe that these new fears like the past fears are not justified. As our banks team argues, European banks, which are at the center of concerns over negative interest rates, can fund from the emergency funding facilities put in place in 2012 (the TLTRO remains barely used), money markets are open with no evidence of strain in either euro or dollar funding, while deposit growth is further adding to liquidity. All of this against a backdrop of higher capitalization aided by deleveraging suggests that a crisis re-run is unlikely.
That’s funny: remember the last time Goldman was very bullish on banks? It was in November, when going long big US banks was Top Trade #5 of Goldman’s 6 trades for 2016. This is what happened there:
Close long large cap US banks through the BKX Index relative to the S&P500 on 11 January 2016, opened on 19 November 2015 at 100, with a potential loss of 5.4%.
Don’t worry though, this time Goldman will get it right, promise.
Sarcasm aside, what is more important is that Goldman is now telling its clients to short gold through Goldman. Translation: after a brief period in which Goldman was actually shorting gold when it was telling it clients to buy it, the firm which controls every central banks is once again actively buying every golden ounce, in paper or physical format, its clients have to sell.
Finally, we can’t help but muse how right JPM’s Marko Kolanovic was once again when just last week the JPM quant said to buy gold with the following amusing comment describing his clueless peers:
The second argument was that of Momentum: “if an asset was going down, it will keep on going down,” We have concluded that many of our competitors rely on momentum in their commodity forecasts (e.g., when oil is $150, they forecast $200; when it is $30, they forecast teens). This type of trend following can always be rationalized (e.g., oil will go down because it is very difficult to store it – so it has to be sold; and Metals will go down because it is very easy to store them – so production will not slow down). While a simple momentum prescription does work most of the time, the key is to assess the likelihood of market turning points during which one can lose years of profits in a matter of days (less painful for a sell-side analyst and more for an investor).
But it works miracles for a sell-side analyst, like Goldman for examples, who also happens to be a prop investor taking the other side of the trade its own analysts recommend.
Wait a minute, Goldman Sachs — Didn’t FDR revalue gold upward by 70%?
Submitted by cpowell on Tue, 2016-02-16 06:21. Section: Daily Dispatches
Goldman Channels FDR’s ‘Nothing to Fear’ With Sell Gold Call
By Ranjeetha Pakiam and Jasmine Ng
Tuesday, February 16, 2016
Goldman Sachs Group Inc. says it’s time to bet against gold as bullion’s rally to the highest level in a year isn’t justified, backing the bearish call with a comment from a former U.S. leader in a report that was issued, appropriately enough, on Presidents Day. Prices tumbled.
Gold will slump back to $1,100 an ounce in three months and $1,000 an ounce in 12 months, analysts including Jeffrey Currie and Max Layton wrote in the report that was dated Feb. 15 and received on Tuesday. It was headlined with a remark from former President Franklin D. Roosevelt.
There’s “nothing to fear but fear itself,” the analysts entitled the seven-page note, channeling comments from Roosevelt’s 1933 inauguration when the U.S. economy was being ravaged by the Great Depression. “It’s time to sell the fear barometer,” the bank said, and recommended shorting gold. …
… For the remainder of the report:
LAWRIE WILLIAMS: Goldman says short gold – again. Price plunges then recovers.
When analysts at such a heavy hitter in the investment banking world as Goldman Sachs say sell gold short, and the price subsequently plunges, is that because the analysts are particularly prescient, or is it a case of cause and effect? This has just happened – again. In a report out on Feb 15th – Monday this week – the Goldman Sachs precious metals analytical team did just that with the expressed view that the fear factor, which had been driving the gold price upwards strongly over the past couple of weeks, had been overdone and that the U.S. Fed would be undeterred in raising interest rates. Now whether Goldman just got the timing right, or whether it was because of the content of the report, the gold price plunged, equities soared in the Far East in particular (the Nikkei up by the highest daily increase in years, and western markets followed suit).
Goldman’s view is that the recent gold price recovery has been hugely overdone and that the metal price will fall back to $1,100 by mid-year and to $1,000 within 12 months. One has to say the Goldman analysts have been pretty consistent in their views on gold – and largely correct in their forecasts over the past few years, but the question has to be asked whether this, in effect, is accurate forecasting, coincidence or effective manipulation of the markets in the sense that Goldman Sachs has such a strong reputation in the investment banking sector that institutional investors in particular follow the bank’s recommendations to such a strong intent that the opinions actually move the markets.
It may be coincidence too that the specific sell gold short recommendations seem to coincide with sharp upwards moves in the gold price which, if not halted in their tracks, might make Goldman’s forecasters look hugely inaccurate.
This time around, gold had risen by over $100 at one time in just a week – a fairly spectacular rise by any standards. In some respects it could be considered that gold had risen too far too fast anyway as we said in a prior article (See: The gold bulls still have the advantage – at least for now) so timing a price fall call on this basis may have made sense in any case, but a specific recommendation to sell the metal short, rather than just a prediction that prices might fall back from their peak, puts a rather different emphasis on a price fall forecast.
But, after yesterday’s big price fall, which continued overnight as Asian markets seemed to have no wish to drive gold back up again, European markets had no such qualms and at the time of writing spot gold had pulled back to over $1,215 – from an interim low of a little over $1,190. For any kind of gold upwards momentum to be maintained it probably needs to stay above $1,200, but it may well come under pressure again when U.S. markets open later today following yesterday’s holiday.
We still think that gold has some positive fundamentals – and certainly some of the big mainstream analytical consultancies like Metals Focus and GFMS are looking for a price pick-up in the second half of the year when new mined gold production is seen as falling – at last – while Eastern demand is seen as remaining high and, in our assessment, Western physical gold stocks are being depleted. Goldman in its forecasts seems to be suggesting that the U.S. Fed will continue with perhaps three more interest rate rises this year, which many other analysts now doubt, and maybe they are right, but then gold confounded analyst predictions that an initial Fed rate rise would hit the price hard when the first rate rise was announced in December. In the event it was general equities which seemed to suffer most and gold rose! Equities may have made a big recovery yesterday and even the Shanghai Composite Index was up a little today, but European markets today have opened uncertainly, perhaps waiting for a lead from Wall Street.
ETF purchases or sales are the other area which gives a good guide to the progress or otherwise of the gold price. So far this year we have seen strong net purchases, but as we saw last year this trend can reverse quite quickly if the mood turns against gold again and equities come back into more favour. We think the whole financial sector is poised on the edge and could move either way, with institutions like the U.S. Fed doing their best to prop up markets and maintain confidence in the light of some overall economic statistics which suggest the opposite. It’s something of a battle for investment hearts and minds. In this context the Fed may well try and maintain the view that it will continue to raise interest rates (even if it doesn’t actually do so) to try and maintain some degree of confidence in its capability of being able control the direction of the U.S. economy, however unjustified in reality.
Turk tells KWN why silver’s charts hint at spectacular rise
Submitted by cpowell on Mon, 2016-02-15 19:06. Section: Daily Dispatches
2:06p ET Monday, February 15, 2016
Dear Friend of GATA and Gold:
GoldMoney founder and GATA consultant James Turk today explains to King World News why price charts suggest that the price of silver is likely to soar:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Ambrose Evans-Pritchard: German ‘bail-in’ plan for govt. bonds risks blowing up the euro
Submitted by cpowell on Tue, 2016-02-16 00:30. Section: Daily Dispatches
By Ambrose Evans-Pritchard
The Telegraph, London
Monday, February 15, 2016
A new German plan to impose “haircuts” on holders of eurozone sovereign debt risks igniting an unstoppable European bond crisis and could force Italy and Spain to restore their own currencies, a top adviser to the German government has warned.
“It is the fastest way to break up the eurozone,” said Professor Peter Bofinger, one of the five “wise men” on the German Council of Economic Advisers.
“A speculative attack could come very fast. If I were a politician in Italy and I was confronted by this sort of insolvency risk, I would want to go back to my own currency as fast as possible, because that is the only way to avoid going bankrupt,” he told The Telegraph.
The German Council has called for a “sovereign insolvency mechanism” even though this overturns the financial principles of the post-war order in Europe, deeming such a move necessary to restore the credibility of the “no-bailout” clause in the Maastricht Treaty. Professor Bofinger issued a vehement dissent. …
… For the remainder of the report:
Chinese start to lose confidence in their currency
Submitted by cpowell on Sat, 2016-02-13 19:52. Section: Daily Dispatches
By Keith Bradsher
The New York Times
Saturday, February 13, 2016
HONG KONG — As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less.
To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas.
… For the remainder of the report:
The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas, and paying off debts owed in dollars. Others, like Smurfing, are more dubious and in certain cases outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes. …
The capital flight is already putting significant pressure on the country’s currency, the renminbi. The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets. …
“Companies don’t want renminbi and individuals don’t want renminbi,” said Shaun Rein, the founder of the China Market Research Group. “The renminbi was a sure bet for a long time, but now that it’s not, a lot of people want to get out.” …
The Chinese central bank is fighting the downward pressure by purchasing large sums of renminbi, selling dollars from its currency reserves to do so. China’s reserves sank by $108 billion in December and an additional $99 billion in January, to $3.23 trillion. A year and a half ago, they stood at $4 trillion. …
It seems that the turmoil in the markets are forcing major central banks to tear up their interest rate plans
(courtesy Peter Spence/London’s Telegraph/GATA)
Major central banks tear up interest rate plans as market turmoil forces them into reverse
Submitted by cpowell on Sun, 2016-02-14 16:58. Section: Daily Dispatches
By Peter Spence
The Telegraph, London
Saturday, February 13, 2016
The world’s most powerful central banks will be forced to tear up their plans following the carnage that has engulfed financial markets since the beginning of the year.
Investors now believe there will not be a single interest rate rise from any of the G7 group of central banks this year, while the number of expected rate cuts this year has increased from zero to six.
The data, compiled by Danske Bank analysts, suggests that investors believe monetary policymakers could slash rates and pump up their quantitative easing programmes in a bid to stabilise the economic outlook.
Carefully laid battle plans to start tightening monetary policy have been left in tatters. …
… For the remainder of the report:
We brought this to your attention last week, but it is worth repeating due to its importance
(courtesy Koos Jansen)
China Imported At Least 217 Tonnes Of Gold In December As London Dumped Precious Metals
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.
In a year that saw strong gold demand from China, in total withdrawals from the vaults of Shanghai Gold Exchange accounted 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 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 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 strong supplier of physical gold. 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 – and vice versa. Effectively, China has been able to purchase huge amounts of gold by the grace of London selling the metal. But what if London is running out and global demand picks up on the back of failing QE and negative interest rate policy (NIRP)? 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 BullionStarand 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.
Bill Holter’s offers a truly dynamic piece;
(courtesy Bill Holter/Holter Sinclair collaboration)
The situation in the Middle East has been complicated for several thousand years but never more so than it is today. At its core and “publicly” you have the dislike between the two Muslim factions Sunni and Shia and the struggle between the West and the East. Business must also be added into the mix and when I use the word “business” I am speaking of oil. The situation is extremely complicated and confusing to the point of not really making sense of who friend or foe is. I believe a good description of the very confusing situation can be read here. http://www.zerohedge.com/news/2016-02-14/road-world-war-iii-turkey-shells-syria-second-day-saudi-warplanes-arrive
From a very broad perspective here are a few observations. Because of Syria’s location, they are pivotal. You see, their land mass must be crossed in order for a pipeline from Western ally oil and gas into Europe. Russia, Syria’s “protector” Russia Prime Minister Warns US and Arab Countries: Invading Syria “will start a new world war” for a lack of better words, does not want the pipeline built as the energy flow strengthens Western business and is a direct competitor to their own energy industry. This can also be viewed from a currency standpoint and might even be called a “currency war”. One side pro dollar and the other wanting a move away from the dollar. A power struggle of epic proportions is unfolding between dollar and non dollar interests.
One might ask “why now”? Why is this heating up and look to possibly have started at this moment in time? I believe simply because there is no more time. As I mentioned before this is about “business” and we’ll go one step further here. “Business” in the West (and globally) is collapsing. Whether it be physical in the form of trade or financial in the form of markets, the wheels are coming off rapidly. It is my opinion the West “NEEDS” war for several reasons. First, a war is needed to “point at” and be able to say “our policies were working but the war came along and changed everything”. Secondly, war (if not nuclear) is always good economically and has been used for centuries to boost demand and production. Lastly, those in power understand if nothing gets done they will lose their power or “control” if they lose the system. If the loss of the system coincides with war the people can be further fooled into “begging” to be saved. We can only pray that somehow, some way, this does not go full blown but I believe the odds are slim and getting slimmer with each day.
As for the sad day America had yesterday, I inadvertently called this exactly two weeks ago. In an interview I made mention “the U.S. is just one Supreme Court Justice away from socialism/communism/dictatorship” because a shift in the balance of power at the high court will be the final nail in the American coffin. I can hear the liberals screaming already but “socialism” (really communism) is the main reason our country has completely lost its way. Even though socialism has been proven a complete economic disaster in real life, “utopia” still sounds pretty cool …depending on which “half” you belong to!
To frame this discussion, the U.S. has never been as divided as it is today since the Civil War. I would even venture to say it is MORE divided today than during the civil war. The outright “hatred” between liberals and conservatives is now so great, no “discussion” can even be had. You know where I stand on this subject. Logically, if you tell someone he will not get the full fruit of his labor or investment because it must be shared, the incentive is to not work as hard. Conversely, if you tell someone they can get something for nothing, what incentive is there to work at all? After a time, no one wants to work and “everyone has nothing” because little to nothing is being produced. Any liberal who denies this needs only to look at there very own poster child, Venezuela Venezuela´s response to food shortages? Grow your own food at home ! Suffice it to say, anytime a country has less than half its population supporting another non working and larger half, IT’S OVER!
The various topics in the balance are numerous including The Constitution itself. I would say a balance of power shift to communism will result in “The Constitution itself being ruled ‘UN’ Constitutional”. We have already seen the disaster named Obamacare destroy care availability and explode premiums (for those who MUST pay) into the stratosphere. In fact, there are now more uninsured in the U.S. than there were before “everyone” was supposed to be covered. This is because the insurance is now either unaffordable for those who WERE covered or by their employers NOW cutting work hours back to no more than 29 per week.
How “free” will free speech be if you are allowed to espouse your opinion ONLY if it agrees with whoever is in power? We already know the liberals want to ban guns because they are “bad”. Are guns bad when your own government goes “rogue” and makes demands of you at gunpoint? The original framers of The Constitution saw religious and economic oppression at the end of a gun, a “well armed” militia is what keeps the government honest. They knew this then, those voting for unicorns and skittles now will soon understand the concept. I can only wonder what people will think when their right to assemble is denied when the assembly opposes those making the rules? Just understand this, once these rights are gone, they are gone forever and too late …you will never get back what you give away!
And now your overnight MONDAY NIGHT/ TUESDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan UP to 6.5123 / Shanghai bourse IN THE GREEN: / HANG SANG CLOSED UP 203.94 POINTS OR 1.08%
2 Nikkei closed UP 31.85 OR 0.20%
3. Europe stocks all in the RED /USA dollar index UP to 96.63/Euro DOWN to 1.1159
3b Japan 10 year bond yield: FALLS TO +.049 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 111.59
3c Nikkei now well below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 29.86 and Brent: 33.85
3f Gold UP /Yen UP
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil up for WTI and up for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund rises to 0.251% German bunds in negative yields from 8 years out
Greece sees its 2 year rate rise to 14.25%/:
3j Greek 10 year bond yield FALL to : 11.26% (yield curve deeply inverted)
3k Gold at $1214.60/silver $15.38 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble down 39/100 in roubles/dollar) 77.36
3m oil into the 29 dollar handle for WTI and 33 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 0.9872 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1017 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 + .251%/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 1.78% early this morning. Thirty year rate at 2.63% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
let us first review important events on the weekend
First Sunday night/Monday morning from Asia-Europe:
Global Stocks Soar On Stimulus Hopes After Miserable Chinese, Japanese Data; Short Squeeze
Bad news is once again good news… for stocks that is.
After a month and a half of markets unable to decide if they should buy or sell on ugly data, over the weekend, People’s Bank of China Governor Zhou Xiaochuan expressed faith in the economy, and said there is no basis for further Yuan devaluation, something the PBOC has consistently implied over the past year, despite two sharp devaluation episodes. That said, for Xiaochuan to break a very long silence, shows i) just how serious the threat of devaluation for China is and ii) how eager the PBOC also is to jawbone risk higher.
And while further devaluation is guaranteed, for now traders decided to take advantage of this verbal intervention and ignore the worst Japanese GDP data in over a year, when as reported last night, the country’s economy contracted at a -1.4% annualized rate, far worse than expected -0.8%…
… as well as to ignore the worst Chinese trade data, with both exports and imports coming below the lowest Wall Street estimate, since August…
… when just days after the trade report the PBOC proceeded with its first devaluation. The data was so bad it managed to push the Shanghai Composite nearly into the green after opening down nearly 3% on a delayed catch up to the rest
of the world selloff.
The result of all this terrible economic data: hopes for more stimulus around the globe, and mostly in Asia, with bank concerns (especially of Deutsche Bank) that more stimulus is not what the global financial system needs soundly ignored for now.
The following quotes summarizes the catalysts for today’s move best:
“The Chinese market didn’t react as bad as we feared and with the weak export data there is some big hope that he central banks will react quite fast,” John Plassard, senior equity-sales trader at Mirabaud Securities LLP in Geneva, told Bloomberg. “It’s a mix of hope of intervention from the Asian central bank, short squeeze and also a relief in some energy and banking sectors, the most shorted sectors.”
And there are your catalysts for today’s surge: hope of more central bank intervention and a global short squeeze.
So back to square one.
The immediate result was the biggest Yuan surge since 2005, climbing 1.2 percent from its Feb. 5 close to 6.4942 per dollar in Shanghai; the biggest jump in Japanese equities since October 2008 on the heels of the Nikkei’s 7.2%, or 1,070 point jump; thebiggest spike in the MSCI Asia Pacific Index since 2009, a continuation of Friday’s rally in Europe with the Stoxx 600 up over 3% led by financials, and even WTI jumped nearly 2% to rise back over $30 this morning, despite being lower most of the session on renewed excess supply concerns now that Iranian tankers are en route to their destination.
Among the other oil price drivers overnight, was Iran sending its first oil cargos to offshore destination after the lifting of sanctions: South Korea imports from Iran reach 2-yr high as Saudi imports fall. Iran average oil exports at 1.3MM b/d; to climb to 1.5MM b/d by end of current Iranian year at March 20, to 2MM b/d soon after: Shana cites 1st VP Eshaq Jahangiri.
Just as important, China January crude imports fell 4.6% to 6.31m b/d, the lowest in 3 months, down from record in December, as even Chinese oil storage capacity fills up. Chinese oil product imports +13.3% at 2.66MM mt, exports +45% y/y 3.01MM mt.
While the US is closed for President’s day, US equity futures are open until noon Central Time, and at last check were up 1.6%, or 29 points to 1,888, piggybacking on the global euphoria.
A quick recap of market closures in the US for Presidents Day:
- NYSE Closed
- CME Equity: Closes at 12:00 Central; Reopens at 17:00 Central
- CME Interest Rates: Closes at 12:00 Central; Reopens at 17:00 Central
- CME FX: Closes at 12:00 Central; Reopens at 17:00 Central
- NYMEX: Closes at 12:00 Central; Reopens at 17:00 Central
For the recap of global markets, we start in Asia where stocks traded mostly higher following last Friday’s gains in Wall St. where outperformance in financials and a resurgence in crude, which posted its largest one-day gain since 2009, lifted markets from last week’s early turmoil. Nikkei 225 (+7.2%) outperformed, led by financials and energy, while ASX 200 (+1.64%) was supported by commodity-based sectors, which also followed from last week’s 5.6% rally in gold prices. Mainland China bucked the trend with the Shanghai Comp (-0.63%) negative as it played catch up to last week’s losses, with poor export trade data adding to its sombre tone. JGBs traded lower tracking T-notes as the increase in risk sentiment spurred outflows from safe haven assets.
Top Asia News
- Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing
- HSBC Keeps London Headquarters in Victory for U.K. Over Asia
- China Bad-Loan Problem Not as Bad as Bass Makes Out, CICC Says
- Airbus, Boeing Count on China as Southeast Asia Slows Down
- Hong Kong Land Price Plunges Nearly 70% in Government Tender
- Indonesia’s Jokowi Gets Traction After Tumultuous First Year
- Toyota-Led Profit Gains at Risk as Carmakers Face Strong Yen
- Record Wheat Forecast Spurs Investor Bets Price Rout Will Deepen
Looking at Europe, what we find is – literally – nothing but green:
Benchmark stock indexes of Italy, Spain and Germany rallied more than 2 percent. Putting that in context, all of these bourses lost more than 16 percent this year through Friday, becoming some of the world’s worst performers among 93 equity indexes tracked by Bloomberg.
The Euro Stoxx trades higher by over 3% this morning, with the financial sector the best performing. Of note, although financials outperform, banking heavyweights Deutsche Bank (+2.4%) and Commerzbank (+2.6%) have pared much of their gains from early in the session to underperform the main indices. Separately, the energy and materials sectors are the laggards in Europe today, with risk on sentiment failing to boost commodities. Elsewhere, Bunds have also fallen today given the turnaround in sentiment although remaining off their worst levels.
Top European News
- VW’s Winterkorn Notified of U.S. Probe in 2014: Bild am Sonntag
- Orange-Bouygues Telecom Talks Nearly Collapsed, Echos Says
- HSBC Decides to Remain Headquartered in the U.K.
- Carrefour Says French Offices Raided Feb. 9 by Anti-Fraud Body
- ArcelorMittal Says European Steel Needs Defense Against China
- Reckitt 4Q LFL Sales Growth, 2015 Adj. Oper. Profit Beats Ests.
In FX, the yuan climbed 1.2 percent from its Feb. 5 close to 6.4942 per dollar in Shanghai. People’s Bank of China chief Zhou said China’s balance of payments is good and capital outflows are normal, with the exchange rate basically stable against a basket of other currencies, according to an interview published Saturday in Caixin magazine. The comments marked an escalation in verbal support for Chinese markets, with Zhou having left most of the commentary over the past few months to deputies.
The yen retreated 0.6 percent to 113.94 per dollar, trimming this month’s advance to 6 percent. Japan’s GDP shrank an annualized 1.4 percent in the three months ended Dec. 31, following a revised 1.3 percent gain in the third quarter, official data show.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2 percent as more positive sentiment dimmed the appeal of haven currencies like the yen, euro and the Swiss franc. The index has lost 0.9 percent this year as the case for further U.S. rate hikes in 2016 dims.
The Malaysian ringgit, Russian ruble and South African rand gained at least 0.4 percent, with a gauge of developing-nation currencies adding 0.2 percent, following 0.4 percent drop last week.
In commodities, West Texas Intermediate crude reversed losses, climbing to $29.86, after earlier falling as much as 1.7 percent. Iran loaded its first cargo to Europe since international sanctions ended, while Chinese crude imports in January fell almost 20 percent from a record in the previous month.
Copper rallied with other metals after China’s central bank chief stepped up efforts to restore stability to the nation’s currency and economy. The metal gained 1.8 percent in London, while nickel surged 4.4 percent.
In Europe’s periphery, Portuguese bonds, which suffered the brunt of the selloff in riskier assets last week together with Greece, advanced for a second day. Portugal’s 10-year bond yield fell 22 basis points to 3.51 percent. Spain’s 10-year bond yield fell four basis points to 1.70 percent, leaving the spread to similar-maturity bunds at 143 basis points, after rising to 170 basis points on Feb. 11.
The cost of insuring corporate debt tumbled for a second day. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies dropped four basis points to 114 basis points. A measure of swaps on junk-rated businesses fell 21 basis points to 441 basis points. Indexes tied to swaps on financial companies’ senior and subordinated debt also dropped, largely erasing last week’s increases.
With US markets closed for Presidents’ Day today it’s a quiet start to the week with no data due in the US and just the Euro area trade balance reading due this morning in the European session
Bulletin Headline Summary from RanSquawk and Bloomberg
- Equities kick off the week on the front-foot with particular outperformance in financials, while risk-on sentiment is in full swing.
- Shanghai Comp. (-0.63%) played catch-up, consequently bucking the trend as the latest domestic trade data further highlighted the issues facing the nation’s export sector.
- Looking ahead participants will be keeping keen eye on comments from ECB President Draghi who is scheduled to speak at 1400GMT, while the US will be away from the market.
- Negative rates to cut major Japan bank profits by 8 pct this year
- Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing
- HSBC Keeps London Headquarters in Victory for U.K. Over Asia
- China Bad-Loan Problem Not as Bad as Bass Makes Out, CICC Says
- Airbus, Boeing Count on China as Southeast Asia Slows Down
- VW’s Winterkorn Notified of U.S. Probe in 2014: Bild am Sonntag
- Orange-Bouygues Telecom Talks Nearly Collapsed, Echos Says
- HSBC Decides to Remain Headquartered in the U.K.
Now the headlines overnight/Monday night Tuesday morning:
Market Euphoria Fizzles As USDJPY Resumes Slide; Crude Disappointed By Lack Of Production Cut
One day after markets saw a violent return of optimism, which sent stocks around the globe and US equity futures soaring (the US was closed for President’s Day) driven by terrible Japanese and Chinese economic data which in turn hinted at more central bank easing, animal spirits have cooled off despite some truly unprecedented Chinese credit numbers.
As we showed last night, in January Chinese bank loans soared by CNY2.5 trillion, far above the CNY1.9 trillion expected, but it was the largest debt aggregate, the TSF which soared by a record CNY3.4 trillion, or $520 billion, more than 50% higher than expected, suggesting it was not only Japan which had panicked at the end of January with NIRP – China was literally flooding its economy with debt to stimulate growth.
We doubt it will work, as increasingly more companies are now beyond the Minsky tipping point where they have to issue debt just to pay interest. With China debt/GDP already at a world (ex Japan) record 350%, it is only a matter of time before China suffers a dramatic event, one which reprices its $35 trillion in bank “assets” substantially lower.
And while S&P500 futures appeared close to breaching above the 1900 level overnight following another strong Asian session where the SHCOMP surged 3.3% on record Chinese loan data, Europe crippled the rally, for now, and despite a positive start which sold European stocks up 0.8%, sold off heading into mid-morning amid risk off sentiment (Euro Stoxx: -0.32%). This has stemmed from the weakness in financials with concerns surrounding the health of banking sector still not abated entirely. At last check Deutsche Bank stock was down nearly 5%.
Also, the market had clearly been waiting for good news from the “secret” Saudi-Russian oil summit. As reported previously, it did not get the news, and instead it got the opposite, when the two oil superpowers agreed to freeze production at record high levels. As a result WTI has slid back under $30 after nearly hitting $31 in the kneejerk reaction to the news.
“Markets need more than just a freeze in oil production, they need a cut,” said Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf. “People are looking at policy makers, be it central banks or OPEC, for more reassurance because everything boils down to what will happen to global growth.”
And that is indeed the bottom line, because even with China pumping out record amounts of debt to restart both domestic and local growth in what is increasingly a sign of desperation, growth just refuses to emerge.
Where global markets stand now
- S&P 500 futures up 1.1% to 1880
- Stoxx 600 down 0.7% to 320
- FTSE 100 down 0.2% to 5815
- DAX down 0.8% to 9134
- German 10Yr yield up 1bp to 0.25%
- Italian 10Yr yield up 1bp to 1.61%
- Spanish 10Yr yield up 4bps to 1.74%
- MSCI Asia Pacific up 1% to 119
- Nikkei 225 up 0.2% to 16054
- Hang Seng up 1.1% to 19122
- Shanghai Composite up 3.3% to 2837
- US 10-yr yield up less than 1bp to 1.76%
- Dollar Index up 0.55% to 96.47
- WTI Crude futures up 1% to $29.73
- Brent Futures up 1.6% to $33.91
- Gold spot up 0.2% to $1,211
- Silver spot down less than 0.1% to $15.32
Top Global News
- Saudi Arabia and Russia Agree Oil-Output Freeze in Qatar Talks: Ministers from Qatar, Venezuela also agreed to freeze; WTI Near $30 After Producers Agree Output Freeze
- Vodafone, Liberty Global to Combine Dutch Mobile-Phone Business: Deal to create cost, revenue synergies of ~$3.9b
- China Said to Weigh Cutting Minimum Bad-Loan Coverage Ratio: Some big banks said to have already used ratio of ~120% for their 2016 budgeting
- Supreme Court Vacancy Opens Up Partisan Chasm Over Senate’s Role: Clinton, Sanders both say an Obama nominee deserves a vote
- Berkshire Hathaway Buys 1.08m Shares of Phillips 66: Holds 75.6m shares after this week’s purchases
- Pershing, Berkshire among those to file as 13F deadline approaches: Hedge fund also adds to stake in Alphabet, which owns Google
- ‘Deadpool’ Delivers New Marvel Success to Fox With Record Debut: $135 million tally tops ‘Fifty Shades’ to set February record
- Apollo Said to Near Acquisition of Security Firm ADT, WSJ Says: PE firm to announce deal as soon as Tuesday
- Mondelez Cheese, Grocery Unit Up for Sale Next Month, Sunday Times Says: To go up for sale next month as part of $3b asset selloff
- Boeing Near Decision to Self-Fund More F/A-18 Fighters: Reuters: Awaiting U.S. govt decision on order for 28 fighter jets from Kuwait
- Daimler to Cut Over 1,200 Jobs at North Carolina Plants, WSJ Says: Truck unit layoffs to take effect Friday
We start our global equity round up as usual in Asia, where equity markets extended on yesterday’s gains after quiet global newsflow and an energy resurgence kept sentiment upbeat. Nikkei 225 (+0.2%) extended on Monday’s stellar performance, led by Telecoms after index heavyweight Softbank hit limit on an announcement of a JPY 500bIn share repurchase. Shanghai Comp (+2.5%) outperformed underpinned by record high financing and lending data, while energy names boosted the Hang Seng (+1.7%) after crude gained over 4% ahead of Russia-OPEC talks scheduled today. 10yr JGBs advanced despite the positive risk sentiment in stocks, supported by a well-received 20yr auction in while the BoJ are also expected to enter the market tomorrow.
As noted above, China’s January credit creation was simply stunning, with Chinese New Yuan Loans CNY Y/Y 2510.0B vs. Exp. 1900.0B (Prey. 597.8B); highest on record; Aggregate Financing CNY Y/Y 3420.0B vs. Exp. 2200.0B (Prey. 1820.0B); highest on record; leading to a surge in Money Supply M2 Y/Y 14.00% vs. Exp. 13.50% (Prey. 13.30%)
Top Asian News
- Chinese Premier Faults Regulators’ Handling of Stocks, Yuan Rout: Regulators didn’t respond actively to declines, some even have management problems
- Mobius Says China’s Irrational Stock Market Is Creating Bargains: Hang Seng China Enterprises Index plunged 49% from May high through last week
- China Said to Plan 400 Billion Yuan in Special Building Projects: Chief planning agency backs infrastructure projects to spur growth
- SoftBank Adds $7.3 Billion After Announcing Record Buyback Plan
- India Asks Vodafone to Pay Taxes or It May Face Asset Seizures: Vodafone should pay $2.1b tax bill, according to a letter sent to company
- Sharp Board Said to Be Split as Talks Continue on Rival Offers: Foxconn, INCJ have each won support of at least 4 of Sharp’s 13 directors
In Europe, despite a positive start sold off heading into mid-morning amid risk off sentiment (Euro Stoxx: -0.32%). This has stemmed from the weakness in financials with concerns surrounding the health of banking sector still not abated entirely.Additionally, the energy complex has somewhat pulled off best levels following comments by the Qatari energy minister stating that an agreement has been made by Saudi, Qatar, Russia and Venezuela to hold output at January levels, however this is contingent on other major producers also agreeing. Downside was seen in the energy complex in the wake of this news given that January levels of OPEC oil production was 33m1n bpd, a record high, while some participants had been hoping for a cut from oil producing nations. The news was also interpreted negatively due to the deal being contingent on other major producers also agreeing, given that the likes of Iran were not present at the meeting. In turn, the risk-off sentiment also saw Bunds come off their worst levels while notable curve steepening has been observed.
Top European News
- EDF Cuts Payout as It Sees Lower Power Prices Cutting Profit: Revenue to be ‘severely hit’ toward 2017-2018 by market drop
- Airbus Raises 2015 Tally; Order Backlog Value Tops $1 Trillion: Now includes additional net 44 aircraft to last year’s order book
- Anglo American to Exit Kumba Unit in Move Away From Iron Ore: Options for disposal include a spinoff of its 69.7% stake
- VW Loses European Market Share to Fiat in Wake of Scandal: VW brand drops 4% as overall European car demand jumps 6.3%
- Orange Says Bouygues Deal Needs More Time Amid Talks With Rivals: Talks for acquisition of smaller competitor to take weeks
In commodities, Brent for April settlement advanced as much as $2.16 to $35.55 a barrel before paring the gains. West Texas Intermediate rose 1 percent to $29.74 a barrel on the New York Mercantile Exchange. More than a year since the Organization of Petroleum Exporting Countries decided not to cut production to boost prices, oil remains about 70 percent below its 2014 peak. Supply still exceeds demand and record global oil stockpiles continue to swell, potentially pushing prices below $20 a barrel before the rout is over, Goldman Sachs Group Inc. said last week.
Qatar energy minister states an agreement has been made between Saudi Arabia, Russia, Venezuela and Qatar to hold output at January levels, however this is contingent on other major producers also agreeing. Of note, OPEC January production levels, were at a record high, while some participants had been hoping for a cut from oil production nations.
According to a senior source familiar with Iranian thinking, Iran would be willing to discuss over an oil output freeze once its production has reached pre-sanction levels. Of note, this is very similar to the recent rhetoric from Iran, consequently hinting that a cut in oil production is becoming increasingly unlikely.
Gold rose 0.4 percent in the spot market as demand for haven assets rebounded.
In FX, the yen advanced against all 16 of its major peers, climbing most versus the South Korean won and New Zealand dollar. It gained 0.5 percent to 127.19 per euro. The 19-member common currency strengthened 0.2 percent to $1.1177.
South Korea’s won dropped 0.7 percent to a two-week low as the central bank’s decision to keep the benchmark interest rate at a record-low 1.5 percent failed to quell speculation about a rate cut. Malaysia’s ringgit slid 0.6 percent, while Russia’s ruble slipped 0.5 percent. A gauge of emerging-market currencies lost 0.2 percent, halting two days of gains.
The yuan traded in the mainland weakened 0.3 percent a day after climbing the most in more than a decade, according to China Foreign Exchange Trade System prices. The currency surged on Monday as it caught up with declines in the greenback last week, when Chinese markets were shut for the Lunar New Year holidays. The People’s Bank of China set its daily reference rate little changed at 6.5130.
On today’s calendar in the US we get the February Empire manufacturing print, followed later by this month’s NAHB housing market index reading. Fedspeak wise we’re due to hear from Harker (at 2pm GMT) who is due to deliver his 2016 economic forecast, followed later on by comments from the new Minneapolis Fed President Kashkari (at 3.30pm GMT). Earnings wise we’ve got 14 S&P 500 companies set to report.
Bulletin Headline Summary
- European equities shrug off the positive lead from Asian bourses as concerns continue surround the health of financial names.
- Risk sentiment also dampened as Saudi Arabia, Qatar, Russia and Venezuela agree to freeze oil output at January levels, subsequently disappointing calls for an output cut.
- Going forward participants will be looking out for US Empire Manufacturing and comments from Fed’s Harker (Non-voter, Soft Dove) Kashkari (Non-voter-N/A) and Fed’s Rosengren (Voter, Dove)
- Treasury yield curve steeper as European equity markets mostly lower, oil rallies in overnight trading.
- Saudi Arabia and Russia, the world’s two largest crude producers, agreed to freeze output after talks in Qatar. The freeze is conditional on other nation’s agreeing to participate, Russia’s Energy Ministry said in a statement
- China’s broadest measure of new credit surged to a record as a seasonal lending binge coincided with a recovery in property prices. Aggregate financing rose to 3.42 trillion yuan ($525 billion) in January, according to a report from the PBOC
- China’s cabinet has discussed lowering the ratio of provisions banks must set aside for bad loans, potentially easing a drag on earnings after soured debts at lenders climbed to the highest in a decade
- The BOJ on Tuesday started charging 0.1% on a portion of the excess funds that financial institutions have in accounts at the central bank. The negative interest rate would have applied to ¥23.2 trillion ($203 billion) if the policy had been in place last month, the bank estimated
- With the ECB president set to give his next policy announcement on March 10, traders are positioned for a monetary-easing bonanza judging from the pace at which euro- region bond yields are dropping to new lows
- German investor confidence fell to its lowest level since October 2014 as equities plummeted amid slowing Chinese growth and concern over the profitability of euro-area lenders
- Prime Minister David Cameron takes his case for an overhaul of the terms of Britain’s membership of the European Union to Brussels Tuesday as the French government digs in its heels over aspects of his reform agenda
- U.K. inflation climbed to its highest in a year in January, driven by motor fuels, food and clothing. Consumer prices rose an annual 0.3% and core inflation slowed to 1.2%
- No IG corporates priced Friday, $1b priced on the week (YTD volume $182.575b) and no HY priced Friday, nothing priced on the week (YTD volume $9.275b)
Sovereign 10Y bond yields mixed; European stocks mostly lower, Asian markets rise; U.S. equity-index futures higher. Crude oil, copper and gold rally
DB’s Jim Reid concludes the overnight event wrap
A fresh wave of optimism has swept through markets to start this week and it’s taken a double dose of soothing Central Bank rhetoric, along with further gains for Oil to get risk assets off to a flyer. With regards to the former and following on from PBoC Governor Zhou’s calming comments concerning China’s FX policy over the weekend, it was the turn of ECB President Draghi to weigh in with some reassuring comments of his own yesterday after speaking to European Parliament lawmakers.
Specifically, it was the ‘we will not hesitate to act’ comment which had markets and investors excited. Draghi referred to this in light of two key topics at the moment, that being the banking sector, and low energy prices and the associated read-through to inflation expectations. With regards to the latter, Draghi highlighted that at the March policy meeting ‘we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations’. This was mentioned in conjunction to comments around Banks, saying that ‘in light of the recent financial turmoil, we will analyze the state of transmission of our monetary policy impulses by the financial system and in particular by banks’. Draghi concluded that if ‘either of these two factors entail downward risks to price stability’, then the ECB will not hesitate to act.
Perhaps unsurprisingly Draghi also made further comments aimed at dampening the recent concerns reverberating around European banks. The ECB President acknowledged that ‘the fall in bank equity prices was amplified by perceptions that banks may have to do more to adjust their business models to the lower growth/lower interest-rate environment and to the strengthened international regulatory framework that has been put in place since the crisis’. However, this was also followed up with the need to acknowledge that ‘the regulatory overhaul since the start of the crisis has laid the foundations for durably increasing the resilience not only of individual institutions but also of the financial system as a whole’ and that ‘perhaps most importantly, euro area banks have significantly strengthened their capital positions over the past few years’.
Bourses in Asia and specifically Japan held onto those big gains after we went to print yesterday, with the Topix (+8.02%) eventually closing up by the most since 2008. European equity markets started strongly and traded with a positive tone throughout. The end result was a sharp leg up for the Stoxx 600, eventually closing +2.99% and just outdoing the +2.91% gain made on Friday, with other core and peripheral bourses up similar amounts.
This morning in particular it’s been all about Oil with the complex extending gains which started on Friday, this time as headlines dominate the wires that Saudi Arabia, Qatar, Venezuela and Russia Oil Ministers are set to meet today in Doha. While the agenda is being kept private, the hope is that this could be a positive step forward for potential coordinated action around lower production levels for Opec and non-Opec members. In any case we’ve seen WTI rise +4.38% this morning and back towards $31/bbl, after being as low as $26 just last Thursday. Brent is up +3.89% to $34.69/bbl. One to keep an eye on as the day progresses.
Meanwhile there’s also been some China data for us to digest this morning. Aggregate financing in January has printed well above expectations at 3.42bn Yuan (vs. 2.2bn expected). Money supply growth has also strengthened, with M2 growth in particular +14.0% yoy (vs. +13.5% expected), having been at +13.3% in December. While on face value this would indicate some easing in credit conditions, seasonality may also be playing its part at this time of year.
This, combined with Draghi’s comments has helped markets in Asia build upon their strong start to the week. The Nikkei and Topix are currently up +0.72% and +0.90% respectively, while the Hang Seng (+1.33%), ASX (+1.37%) and Kospi (+1.40%) are also firmer. Its bourses in China which are leading gains however with the Shanghai Comp and CSI 300 currently +2.75% and +2.70% respectively. US equity market futures are up around half a percent while credit indices in Australia and Asia are both tighter. Meanwhile the onshore CNY has given up a little bit of yesterday’s strengthening, with the currency currently -0.28% weaker in early trading.
Wrapping up the price action yesterday. Along with the strong gains for equities, European credit markets extended the rally for a second day, led once again by moves for financials indices. ITraxx senior and sub fins closed 4.5bps and 13bps tighter respectively which helped Main (-3.5bps) and Crossover (-13.5bps) tighten further. The better tone for risk saw Gold tumble -2.32% yesterday and is down another 1% this morning which has taken it back below $1200. Other precious metals are also weaker while base metals were a bit more mixed yesterday.
Looking at today’s calendar, this morning in Europe the main data of note will firstly be the UK CPI/RPI/PPI docket for January, followed closely by the February German ZEW survey where current expectations are for a marked decline in both the current situation and expectations component. In the US this afternoon the February Empire manufacturing print is due, followed later by this month’s NAHB housing market index reading. Fedspeak wise we’re due to hear from Harker (at 2pm GMT) who is due to deliver his 2016 economic forecast, followed later on by comments from the new Minneapolis Fed President Kashkari (at 3.30pm GMT). Earnings wise we’ve got 14 S&P 500 companies set to report.
Let us begin with a review of the big stories from Asia starting Sunday night: First trading overnight Sunday through to Monday morning:
Late SUNDAY night/ MONDAY morning: Shanghai closed down only .59% after being down 3% / Hang Sang closed up by 598.56 points or 3.27% . The Nikkei was closed up 1069.67 or 7.16%. Australia’s all ordinaires was also up 1.16%. Chinese yuan (ONSHORE) closed 6.4968 and yet they still desire further devaluation throughout this year. Oil gained to 29.21 dollars per barrel for WTI and 33.65 for Brent. Stocks in Europe so far deeply in the green . Offshore yuan trades where it finished last Friday at 6.4961 yuan to the dollar vs 6.4968 for onshore yuan/
Japanese trading Sunday night: the Nikkei rises a huge 7%. on stimulation news/yet their GDP plummeted by 1.8% year over year. China saw their exports tumbling!
At 8 pm Sunday night, we received data from Japan as their growth (GDP became negative again for the 6th time in 6 years. While this is going on its debt just keeps ballooning higher. You can safely say that Abenomics is dead!!!
(courtesy zero hedge/Monday morning Toyko time)
Peter Pan Is Dead – Japanese Economy Stalls For 6th Time In 6 Years
We just cannot wait for the next time either Abe or Kuroda utter the following string of words“[stimulus – insert any combination of equity buying, bond buying, money printing, and NIRP] is having the desired effect.” For the sixth time in the last 6 years, GDP growth has once again turned negative and while the BoJ balance sheet continues to balloon, so the nation’s economy (as measure by GDP) is now shrinking as Peter Pan policy is officially dead.
With 3 of the top 4 forecasters already suggesting Japanese GDP growth would be worse than the median estimate of -0.2% growth, fairy-tales were all they had left… Nearly a year ago, Bank of Japan governor Haruhiko Kuroda described the unlikely inspiration behind Japan’s unprecedented monetary stimulus: Peter Pan.
I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’.
Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.
And now, Pan is dead… this is the 6th negative GDP growth period since 2010… printing a 0.4% QoQ drop against the -0.2% growth expectation…
This is the biggest SAAR GDP drop (down 1.4%) since Q2 2014 – right before Kuroda unleashed QQE2 once The Fed had left the money-printing business.
And in case anyone wanted it made any clearer just what an utter farce Abenomics has been…
But it gets much worse…
Private Consumption tumbled more than expected…
- *JAPAN 4Q PRIVATE CONSUMPTION FELL 0.8% Q/Q
The biggest drop since Q2 2014.
Of course – if you are an “enabler” or “central planner” this is great news – just a little more NIRP and just a little more QQE and everything will be fine… what a joke!
Japan GDP has to be a big miss to give BOJ political cover for going Peter Panic
* * *
And in just a few hours we get to see China’s made-up trade data.
One hour later,Sunday night, we received data on China. China’s exports collapse by a monstrous 6.6% year over year instead of the 3.6% expected and probably this data is massaged. The global financial scene is in turmoil as China is the engine that produces good and the buying is sparse. What is more fascinating is that exports tumbled despite a slightly devalued yuan:
(courtesy zero hedge/Sunday night-Monday morning)
China Exports Crash Most In 6 Months Despite “Devalued” Yuan
Despite the weakening of the Yuan, China exports collapses 6.6% YoY in January (massively missing the 3.6% increase expected). Imports continued their 15 month series of collapses with a 14.4% plunge (again drastically worse than the 1.8% increase expected). This pushed the trade balance to a record surplus CNY406bn.
In Yuan terms it’s ugly… Both imports and exporets were worse than the lowest forecast of all professional economists…
But in USD terms it’s a disaster…
Of course, between Japan’s disastrous GDP and China’s trade collapse, this is great news for those demanding moar as excuses for extreme monetary policy are just piling up in the ashes of previous failed policies.
Tweet: zero hedge:
Between ugly Japanese GDP, and miserable Chinese trade data, it is surprising futures aren’t up more
Of course what everyone is really waiting for is the Hong Kong trade data to see just how much capital “leaked”…
Prior to opening on the Shanghai, the POBC strengthened the yuan considerably trying to throw a monkey wrench at Kyle Bass and George Soros. However with all strengthening we will witness shortly a massive exodus of dollars;
(courtesy zero hedge)
PBOC Strengthens Yuan Most In 3 Months As China Stocks Tumble After Holiday
With China returning from the Spring Golden Week holiday, it is catch-up time for the Yuan (notably higher against a weakening USD) and Chinese stocks (significantly lower – though not as much as some might have expected given China ETFs). The PBOC strengthened the Yuan Fix by the most since the first week of November, catching it up to the 15 handle strengthening in offshore Yuan since the pre-holiday lows.
The Yuan Fix is significantly higher…
As it catches up to the huge strengthening in offshore Yuan (thought note that CNH is being sold pretty hard as China opens)..
But it appears someone is not happy about the selling…
And equities are catching down to the rest of the world’s weakness…
But not as much as expected…
- *SHANGHAI COMPOSITE FALLS 2.8% AT OPEN
- *CHINA’S CSI 300 INDEX SET TO OPEN DOWN 2.5% TO 2,888.43
All this is happening just hours PBOC Governor Zhou Xiaochuan broke his long silence to say there’s no basis for continued yuan depreciation… which is exactly what he would say after a capital outflow of $1 trillion in the past 18 months.
The nation’s balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Zhou said in an interview published Saturday in Caixin magazine.
As Bloomberg writes, that’s an escalation in verbal support after such comments have been left in recent months to deputies and the central bank research department’s chief economist. Zhou dismissed speculation that China plans to tighten capital controls and said there’s no need to worry about a short-term decline in foreign-exchange reserves. The country has ample holdings for payments and to defend stability, he said.
“He’s desperately trying to make sure that all of his work in the past few years on capital liberalization does not go to waste,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “He’s trying hard to instill investor confidence in the renminbi so that the Chinese government does not have to resort to the extreme measure of unwinding all of the progress on offshore renminbi in the past few years.”
The comments come as Chinese financial markets prepare to reopen Monday after the week-long Lunar New Year holiday. The weakening exchange rate and declining Chinese share markets have fueled global turmoil and helped send world stocks to their lowest levels in more than two years.
Here is DB’s Zhang Zhiwei with his own take on Zhou’s comment, according to which China will continue devaluing, but only after stability has returned to the market
We maintain our baseline forecast of USDCNY at 7.0 by the end of 2016. After revision, our probability forecasts for the USDCNY exchange rate are: 10% chance of CNY appreciation against the USD by the end of 2016 from its level of 6.49 at the end of 2015; 25% chance of CNY depreciation by 0-5%; 55% chance of 5-10% depreciation; and 10% chance of more than 10% depreciation.
These revisions are based on comments from an interview conducted with the PBoC Governor Zhou Xiaochuan, which was published on Feb 14 by the Mainland Chinese journal Caixin. We believe this interview is important, as it represents the first time the Governor has spoken about the FX policy since the depegging of the CNY against the US dollar on Aug 11 last year. It is also interesting that he chose to speak right ahead of the Chinese stock market’s reopening after a long holiday.
Here is the most important statement made by the Governor in the interview: “For a large country like China, the FX reform may need some time to be achieved. China tries to balance reform, growth, and stability. The global economy is still recovering from crisis. It also needs to balance reform, growth, and stability. We are pragmatic and patient. The ultimate goal is clear for us, but we don’t aim to go that direction in a single-minded way. We want to reform, but we also need to be a responsible economic power.” This is based on our translation of the original interview published in Chinese.
To us, this statement shows that (1) the PBoC is still committed to FX policy reform from a dollar peg to a floating regime in the long term; (2) the global financial market volatility has likely closed the window for now; and (3) the PBoC will likely stick to the dollar peg for now, and wait for the next window to float the currency.
We therefore believe the chance for a large devaluation in the short term has declined. The PBoC will wait for the next “window” to float the currency. A key consideration is the global financial and economic conditions.
It remains to be seen if the market will grant the PBOC the window it needs for another devaluation, one which would unleash the next bout of volatility that sends us all back to China-inspired market chaos square one.
MONDAY NIGHT from China/the yuan tumbles a bit but stocks remain in positive shape:
(courtesy zero hedge)
Yuan Tumbles Most In A Month; Stocks, Crude Maintain Gains
Having rallied all the way back to unchanged for the year thanks to yesterday’s China re-opening “adjustment,” the Yuan selling has resumed with onshore down by the most in a month and offshore fading also.
With Crude and USDJPY holding gains (for now)…
US and Asian equities are in the green as hope springs eternal that tomorrow’s oh-so-secret Russia-OPEC meeting solves the world’s energy problems.
My goodness, China creates the equivalent of $1/2 trillion dollars in January in an attempt to kick start its economy. They have spent the equivalent of 1 trillion usa dollars since October:
(courtesy zero hedge)
China Created A Record Half A Trillion Dollars Of Debt In January
Yes, you read that right. Amid a tumbling stock market, plunging trade data, weakening Yuan, and soaring volatility, China’s aggregate debt (so-called total social financing) rose a stunning CNY3.42 trillion (or an even more insane-sounding $520 billion) in January alone.
In fact, since October, China has added over 1 trillion dollars of credit… and has nothing but margin calls, ghost-er cities, and over-supplied commodity-warehouses to show for it… oh and even-record-er debt-to-GDP ratio.
This is what the unprecedented addition of half-a-trillion dollars in one month looks like – Hyman Minsky called, he wants his chart back.
For context, consider this…
Why is China doing this? Because as we showed three years ago, China needs ever greater stimuli to achieve the same effect:
This is what else we said back in April 2013 which by now seems painfully (and plainfully) obvious:
What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.
This could be the end as the last bubble standing (in China corporate debt) has begun to burst amid the over-supply of credit.
What happens next?
China Created More Debt In January Than The GDP Of Norway, Austria Or The UAE
The world let out a collective gasp of shock last night when the PBOC announced that in January, China had created an absolutely gargantuan CNY3.4 trillion in new total debt (Total Social Financing) – or about $520 billion – more than 50% higher than expected, of which CNY2.1 trillion was in the form of new loans.
The breakdown of that massive number is shown in the table below:
What happened? Here is Goldman’s explanation:
January’s credit data was exceedingly strong. Part of the demand for new RMB loans is from demand to borrow RMB and pay down USD debt, though banks may have also started to behave differently amid profit pressures. The temporary suspension of local government bond issuance also directed more borrowing to bank loans and other channels. Strong mortgage loan growth also contributed (household medium to long term loans increased RMB 478.3bn in January, vs RMB 292.4bn in December). The window guidance meeting held by the central bank around mid-January to rein in rapid credit growth apparently did not have much effect on the behavior of commercial banks. (January loan supply tends to be very front-loaded; one would have expected there to be a more significant deceleration of credit supply if the central bank was sending a really tough message, hence market expectations were only RMB 1.9 tn even when they knew it was already RMB1.7 tn in the first half of the month.) The pace of January credit growth is likely above the comfort zone of the central bank. Should the lending continue to be as strong in February,we think it would likely invite more forceful administrative controls.
M2 growth was not quite as strong as credit growth and its sequential growth was just modestly faster than December at a sub-trend level. Fiscal deposit change was more favorable than last January, which was abnormally tight, but still significantly tighter than usual (implying a smaller amount of net spending). FX position changes which affect M2 growth were probably another drag. Judging from FX reserve data, this drag was likely not larger than it was in December though reserve change data is particularly noisy and we cannot be sure about this at the moment.
January broad credit and money data is positive news for domestic demand growth, but the effects on aggregate demand growth are likely to be at least partially cancelled out by very weak exports growth. We still expect sequential activity growth to slow down in Q1 after a meaningful but short rebound in November and December last year. Only after the signs of another round of slowdown become clear would we expect meaningful cyclical loosening measures to be rolled out.
Another hurdle to more policy loosening is the recent abnormally cold weather conditions. These have pushed up food prices to a very high level which means January and February CPI data would likely show a clear upward trend (February CPI is almost surely going to breach 2% and may be close to 3%). We expect this to be a short term phenomenon and CPI is likely to moderate again from March.
But so much for words. Here, courtesy of Simon Rabinovitch, is a chart which puts China’s credit creation just in January in its proper context. If China’s new debt in January were a country, it would be the world’s 27th-biggest economy.
Chinese Brokers’ Profits Plunge 98% As Traders Flee Rigged, Burst Bubble Markets
While both sellside analysts and buyside investors are panicking over the collapse in bank stock prices and the evaporation of market liquidity as virtually nobody trades any more, perhaps it is time someone looked further east, specifically in China where in January the results reported by local brokerages have confirmed what we have been warning about, namely the local investors – disgusted with China’s stock “market” which is not only a burst bubble now but also rigged beyond any measure – have pulled their money en masse, and left China’s brokerage to disintergated into a revenueless, profitless mess.
Red Pulse has more:
Twenty-three listed securities companies had reported January financial results through February 5, showing steep declines in earnings. The brokers collected a combined RMB6bn in revenue and RMB200m in net profits in January, decreasing 83% and 98% MoM, respectively. Overall the industry recorded a loss in January.
Brokers’ key securities trading business has been impacted by low trading inactivity as markets got off to a rocky start in 2016, falling 22% in January. Daily January trading volume was RMBS38.7bn, down 32% MoM. Margin lending balance at the 23 listed securities companies dropped to RMB915.4bn at the end of January, down 22% MoM and the lowest level in 14 months. Net assets of the 23 securities companies increased by RMB9.1bn at the end of January. However, net assets of these companies actually fell RM1311bn if the additional RMB20bn in share issuance from Industrial Securities, Pacific Securities and Soochow Securities were excluded.
this ought to be great for our Hong Kong banks: commercial and housing collapse in price
(courtesy zero hedge)
MONDAY NIGHT FROM CHINA
Two weeks ago, in our latest report on the Hong Kong housing market, we observed that according to the local Centaline Property Agency total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history.
Centaline estimated that only 3,000 transactions will have registered with developers slowing down new launches, while only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.
But while the number of transactions was crashing, prices – while down 10% from the recent all time highs…
… have been relatively tame, as sellers have not been desperate enough to hit the collapsing bids, yet.
Yet one place that provides some glimpse into true price discovery was the just completed government tender, in which a parcel of land sold by the government in the New Territories went for nearly 70% less per square foot than a similar transaction in September.
In the deal that could not be postponed “because the seller waits for a better market”, the 405,756 square foot (37,696 square meter) site in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. According to Bloomberg, the buyer was Asia Metro Investment Ltd., a subsidiary of China Overseas Land & Investment Ltd.
As we have noted previously, the Hong Kong housing bubble has already suffered a “spectacular collapse”, and all that is left now is confirmation not only in terms of transactions, but prices. We already had the former; now we have the latter.
Hong Kong home prices surged 370 percent from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. As Bloomberg notes, lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.
Making matters worse is that just like in the oil market, Hong Kong is now facing a spike in supply: “adding to the downward pressure on prices was the government on Jan. 13 raising its five-year target for new housing supply to 97,100 new homes, up from a previous estimate of 77,100 units.”
It is unclear who will be the biggest victims of Hong Kong’s housing bust: recent land sales have been dominated by mainland Chinese developers. Hong Kong property companies have been less active, as they’re struggling to sell existing units in their inventories and offering discounts of more than 12 percent to entice new buyers.
Yet stunningly, even the bursting of the Hong Kong housing bubble will not be fully clear as Chinese construction companies are merely using the HK real estate market as yet another way to circumvent Chinese capital controls and park their funds offshore: according to Nicole Wong, head of property research at CLSA Ltd. said mainland companies are outbidding their Hong Kong counterparts because they expect lower margins and are also anxious to park money offshore given the devaluation of the yuan.
One can imagine where HK real estate prices would be, if it weren’t for the ingenuity of mainlanders to park hot money into one of the few remaining venues willing to accept it, and that hasn’t been blocked by Beijing.
Still, local real estate experts remain “cautiously optimistic” even in the face of a property tsunami:
Wong cautioned against drawing conclusions on the basis of two land transactions, as it’s impossible to find two sites that are identical. She estimates land prices overall have fallen about 15 percent since their peak, based on the assumption that housing prices have fallen about 10 percent and land accounts for about 60 percent of overall development costs.
Ironically, it was Hong Kong Chief Executive Leung Chun Ying who introduced a raft of measures to cool the property market since 2012 after a rally in home prices fueled complaints of a widening wealth gap. Well, can now now undo those measures. Now that prices are finally starting to fall, property analysts including Raymond Ngai of Bank of America Corp.’s Merrill Lynch unit expect the government will ease the measures and pray to reflate the bubble once more.
However, one way to be absolutely certain that the housing crash will be far worse before all is said and done, comes courtesy of Standard & Poor’s which just issued a report today projecting a 10% to 15% decline in property prices, and said that they would need to fall 30 percent before triggering a ratings downgrade on Hong Kong developers. With S&P’s track record, a 50% collapse is now virtually assured.
The ultimate winner, however, from the bursting of the HK housing bubble are local residents, for whom housing may finally become affordable once again: Hong Kong ranked as the most expensive housing market among 87 major metropolitan regions, according to the annual Demographia International Housing Affordability Survey, which used data from the third quarter of 2015. The median home in Hong Kong costs 19 times the median annual pretax household income, the highest multiple Demographia has measured, and up from 17 in last year’s report, according to the company’s website.
Now if only the Chinese would stop buying up every piece of real estate in the US and Canada as well…
And now your summary of events on overnight trading from Asia and Europe Monday night/Tuesday morning:
Late MONDAY night/ TUESDAY morning: Shanghai closed UP 3.32% / Hang Sang closed up 203.94 or 1.08% . The Nikkei was closed up 31.85 or 0.2%. Australia’s all ordinaires was also up 1.37%. Chinese yuan (ONSHORE) closed 6.5123 and yet they still desire further devaluation throughout this year. Oil gained to 29.21 dollars per barrel for WTI and 33.65 for Brent. Stocks in Europe so far deeply in the green . Offshore yuan trades where it finished last Friday at 6.5167 yuan to the dollar vs 6.5123 for onshore yuan/
Over the weekend: Another protest and this time we have 10,000 Greek farmers stage a massive revolt in Athens as they protest the pension reform forcing farmers to pay triple their normal rate for social security.
(courtesy zero hedge)
10,000 Greek Farmers Stage Massive Revolt In Athens, Destroy Police Cars
On Friday, some 800 angry Greek farmers marched on the Agriculture Ministry in Athens and beat police with Shepherd’s crooks.
The farmers are understandably upset with Alexis Tsipras and the government for a proposal to triple the social security burden and double income taxes in an effort to appease the powers that be in Brussels who claim Greece has not made enough progress towards fiscal consolidation since the country’s third bailout was agreed last August.
Tsipras and Syriza swept to power a little over a year ago with promises to roll back austerity, but prolonged negotiations with creditors and the resulting economic malaise that gripped the country last summer broke the PM’s revolutionary spirit and now, he’s been reduced to something of a technocrat rather than a socialist firebrand.
Putting Greece on a sustainable path is a virtual impossibility at this juncture. There are myriad structural problems that cut to the heart of the currency bloc’s woes and on top of that, Athens’ debt burden is simply astounding. In other words, Tsipras and Brussels can raise taxes and cut pension benefits all they want but this problem is never going to be solved. It’s too late.
Adding insult to injury, data out Friday shows the country slipped back into recession in Q4.
All of this helps to explain why, after the tomato-tossing, stick-waving melee at the Agriculture Ministry, the farmers – joined by some 10,000 of their compatriots as well as union members, massed in Syntagma Square on Friday where tractors could be seen meandering through the crowd.
While that clip depicts a mostly peaceful scene, things weren’t so calm earlier in the day when still more farmers clashed with authorities and beat a police car half to death:
And the punchline to the whole thing is that one farmer told RT that if the measures are passed the entire lot will simply pack up and leave. “We cannot let the government pass these catastrophic measures. If they pass, we are going to have to become migrants,” Antonis Bitsakis, a member of the coordinating committee of the farmers of Creta said.
So there you have it. An irony of ironies. Thanks to Berlin’s austerity demands, Athens will not only be sending Mid-East refugees north to Germany, it will be sending Greek asylum seekers as well.
The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill
ECB wants to stop issuing 500 Euro bills – our exclusivehttps://global.handelsblatt.com/
and Bloomberg confirmed – ECB COUNCIL VOTES TO SCRAP EU500 NOTE: HANDELSBLATT – has voted to scrap the second highest denominated European bank note in circulation:
… after the CHF 1000 note.
So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.
As we wrote just one week ago, the answer is not that simple at all. Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:
Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.
This is what we said last Thursday:
In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!
And there you have it: while it may not be banning all European cash outright, we are confident the ECB would be delighted if one third of it was to start, while pretending to be fighting financial crime, terrorism, corruption and drug dealers.
Of course, what Europe would be truly doing is setting the scene for ever more aggressive NIRP, and by removing the highest denomination bank notes, it would make evading negative that much more difficult and costly (albeit would certainly favor gold).
That’s not all: as Bank of America pointed out, abolishing the €500 note may even end up even weakening the European currency:
… we would expect that abolishing a note that represents almost 30% of the total Euros in circulation would be negative for the currency, keeping everything else constant. The share of the €500 note in the total value of Euros in circulation has been falling since 2009 and this has coincided with a weakening Euro in real effective terms. This is not evidence of causality, but we should not ignore it.
If we are right, the Euro will weaken, primarily against the USD and the CHF. The USD is the most liquid currency and we would expect it to capture a large share of the drop in the demand for the Euro as a store of value. However, the CHF could also benefit, having the largest note denomination in G10 economies. Indeed, the CHF1000 note is already very popular, representing more than 60% of the CHF notes in circulation, unless the SNB follows the example of the ECB and also abolishes the CHF1000 note.
BofA is right, unless of course, in this global race to the bottom where every central bank tit has other central bank tats as a direct response, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”
Go ahead and cut, then: after all who really needs the Benjamins, right? Well, here’s the thing:
As the Treasury chart above shows, $100 bills account for for $1.08 trillion of the $1.38 trillion total in circulation. So should the Fed react to the ECB’s “scrapping” of the €500 bill, which accounts for 30% of the value of currency in circulation, then the Fed would respond in kind, by eliminating 78% of all paper currency in circulation by value.
Not a bad way to launch a global ban on paper currency ahead of a global NIRP regime, and all, of course, in the name of fighting “tax evasion, financial crime, terrorism and corruption.”
i) increase NIRPii) increase the size of monetization
Mario Draghi Speaks In Brussels, Says ECB “Won’t Hesitate To Act” As World Falls Apart
Mario Draghi is set to address the European Parliament’s Committee on Monetary and Economic affairs in Brussels on Monday.
Draghi’s comments will of course be parsed for any hints as to what the ECB will do next month, when Draghi is expected to announce further easing, either in the form of another rate cut or an expansion/extension of PSPP.
The pressure is building on the ECB as eurozone inflation remains stuck in the doldrums and European banks look to be faltering as investors fret over bad loans and bet negative rates will continue to pressure bottom lines. The Italian Treasury said on Monday that the ECB is considering buying bundles of bad loans from Italian banks and/or allowing the banks to pledge their NPLs as collateral for cheap liquidity. “The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their 200 billion euros ($225 billion) of soured credit and free up resources for new loans,” Reuters writes, before noting that “it would likely fuel a debate in other countries about whether the ECB is taking on too much risk by buying asset-backed securities (ABS) based on loans that have not been repaid for roughly three months.”
With the Riksbank and the BoJ having just eased further, the ball is now back in Draghi’s court.
Here are the notable points from the speech:
- DRAGHI SAYS ECB WILL NOT HESITATE TO ACT IF NEEDED
- DRAGHI SAYS ECB MONITORING FOR IMPAIRED TRANSMISSION OF POLICY
- DRAGHI: ECB MONITORING FOR SECOND-ROUND EFFECTS OF OIL SLUMP
- DRAGHI: ECB WILL DO ITS PART TO BOLSTER EURO-AREA RESILIENCE
- DRAGHI SAYS EURO AREA IN ‘GOOD POSITION’ TO REDUCE BAD LOANS
- DRAGHI SAYS ECONOMIC HEADWINDS NEED CLOSE MONITORING
- ECB’S DRAGHI SEES INCREASING CONCERN OVER GLOBAL ECONOMY
Deutsche bank stock is down 1,3% today as it slumps for the 2nd day in a row. Interesting enough Deutsche bank was down 5% yesterday despite the DAX being higher.
(courtesy zero hedge)
‘Unfixed’ Deutsche Bank Stock Slumps For 2nd Day
As we warned yesterday – no, Deutsche Bank is not fixed…
So, no, Deutsche Bank (and its $64 trilion derivatives book) is not “fixed” – far from it…
You Are Here…
US Financial stocks are holding “Dimon is buying” gains but their credit is leaking wider this morning.
Deutsche Bank Flip Flops, Now Begs For Central Bank Intervention And Ideally More QE
We were stunned 10 days ago when, out of the blue, it seemed as if Deutsche Bank had finally figured it out: namely that constant central bank intervention is leading to increasingly more dire outcomes… such as a surge in DB CDS and its stock price plunging to record lows.
The bank which had been crushed over the past month, released a solemn appeal to the ECB and BOJ, in which it made it quite clear that any additional easing and continuous easy money will only hurt both DB and its peer banks.
In the report titled “The Risks From Further ECB and BOJ Easing” Deutsche Bank’s Parag Thatte warned that with the Zero Lower Bound already breached in nearly a third of global markets, the benefits to risk assets from further easing no longer exist, and in fact it says that while central banks have hoped that such measures would “push investors out the risk spectrum” the “impact has been exactly the opposite.”
Well, what a difference a week makes, because whoever wrote the first DB clearly got a tap on the shoulder.
Over the weekend, it was Deutsche Bank once again who reappeared with a narrative that, not all surprisingly, was the diametrical opposite of what DB said just one week earlier, when it made it very clear, that “sorry, it was only kidding”, and that it is all up to the central banks after all. This is what Sebastian Raedler said, after he angrily took the podium over from last week’s Parag Thatte.
Without policy intervention, there is more downside risk for equities: any ECB measure to support European banks (e.g., an LTRO to reduce bank funding stress) would likely trigger a market rally, but addresses only a symptom of the current credit stress, not the root cause. To avoid a further rise in US defaults, we will likely need to see a Fed relent, leading to a sustainable drop in the dollar, higher oil prices and reduced energy balance sheet stress. The problem is that there is little sign of the Fed wanting to give up (with the JOLTS survey strong and Yellen’s remarks that easing elsewhere offsets Fed tightening). In the absence of strong policy intervention, more downside for European equities is likely: if credit spreads rise to 1,150bps to reflect our strategists’ default scenario of 7.2%, this points to 10% downside for equities, while a full default cycle would mean around 20% downside. A US default cycle would increase the risk of a US recession, as the rising cost of debt capital reduces investment and hiring, while falling asset prices push up savings ratios, thereby lowering consumption growth. Our US economists have recently downgraded their 2016 growth forecast to 1.2%, significantly below consensus at 2.2%. During the past two default cycles, IT, autos and consumer durables have all seen their consensus EPS slashed by 80%+.
Oh no, a world without policy intervention, one where the global economy is finally allowed to determine what its true rate of growth is without 7 consecutive years of artificial liquidity “sweeteners.” And as for the horror of stocks dropping another 20%… let’s not even go there.
But wait, this is the same bank that just on February 6 said more easing brings major risks. It appears DB felt the need to footnote this statement, with an explanation that came also over the weekend, this time by way of equity strategist (Jim Bianco who still has a 2200 year end S&P target). It appears when DB says “easing” it only means “NIRP.” Because if “easing” means “QE4”, then by all means please do it.
Here is the nail in the coffin of whatever period of lucidity Deutsche Bank may have had, courtesy of David Bianco:
Escalating the currency war will bring mutually assured destruction, in our opinion. The WMD are negative interest rates. Central banks must stop the proliferation now. Negative rates don’t stimulate beyond currency devaluation. They began with small CBs fighting flight-to-safety surges in their currency. But negative rates set by larger CBs produce no benefit in a soft global economy because they are countered. If Euro plunges, then others from GBP to RMB will too, and then if a strong dollar breaks the US economy the whole world will suffer. This spiral risk destabilizes FX markets and price setting in other markets and threatens saver and financial system health. Stick with QE!
So there you have it: Please no more easing, but only if easing means NIRP. As everyone has seen by now, more NIRP means a collapse in DB risk assets. But if “no more easing” means “even more QE”, then go for it.
And just like that we are back to square minus one, where central banks are called upon to fix the mess that central banks made, while holding banks and their flip-flopping “analysts” (and year end bonus paychecks) hostage.
RUSSIAN AND MIDDLE EASTERN AFFAIRS
The big news Saturday night: Turkey fires on the Syrian Army in a massive escalation.
(courtesy zero hedge)
Turkey Fires On Syrian Army, Kurds, Says “Massive Escalation” In Syria Imminent As Saudis Ready Airstrikes
Update: At least two sources confirm that Turkey also fired on the Syrian army on Saturday, an exceptionally provocative move.
Update: Washington has now weighed in and is asking the Turks to please stop shelling the soldiers the Pentagon is arming.
#BREAKING US urges Turkey to halt artillery fire on Kurd, regime forces in Syria
Even as all sides – including the US, Russia, Saudi Arabia, and select rebel groups – pretend to be working towards a ceasefire and a diplomatic solution to the five year conflict in Syria, actions speak louder than words, and to put it as succinctly as possible, everyone is still fighting.
In fact, the fighting is more intense than ever. Russia and Hezbollah are closing in on Aleppo, the country’s largest city and a key urban center where rebels are dug in for what amounts to a last stand. If the city is liberated by the government (and yes, “liberated” is more accurate than “falls” because occupied territory belongs to the Syrian government, not to Sunni extremists), Assad will have regained control of the country’s backbone in the west.
That would effectively mean the end of the rebellion and the Gulf monarchies, not to mention Turkey, are not happy about it. “The main battle is about cutting the road between Aleppo and Turkey, for Turkey is the main conduit of supplies for the terrorists,” Assad said in an interview with AFP on Friday.
That supply line has been severed and now, it’s do or die time for the rebels’ Sunni benefactors in Ankara, Riyadh, and Doha. Either intervene or watch as Hezbollah rolls up the opposition under cover of Russian airstrikes, restoring the Assad government and securing the Shiite crescent for the Iranians.
As we documented extensively this week, the Saudis and the Turks are now set to invade. Assad has promised to “confront them”, which of course means that the IRGC and Hassan Nasrallah’s army are set to come into direct contact with Turkish and Saudi troops, setting the stage for an all-out sectarian war that will almost invariably end up pitting NATO against the Russians. Note that this is different from Yemen, where Tehran fights via proxies rather than directly against the Saudi military.
On Saturday the stakes were raised when Turkey said Saudi Arabia is set to send warplanes to Incirlik.
As a reminder, access to Incirlik was the carrot Erdogan used last summer to convince NATO to acquiesce to Ankara’s brutal crackdown on the PKK. “Let me wage war against my political rivals, and you can use our airbase,” is a fair approximation of Erdogan’s proposition.
Now, it appears the Saudis are set to use the base as a staging ground for strikes in Syria.
As RT reports, “Saudi Arabia is to deploy military jets and personnel to Turkey’s Incirlik Air Base in the south of the country.”
Of course the excuse is the same as it ever was for everyone involved: the fight against ISIS.
“The deployment is part of the US-led effort to defeat the Islamic State terrorist group,” Turkish Foreign Minister Mevlut Cavusoglu said. “At every coalition meeting, we have always emphasized the need for an extensive result-oriented strategy in the fight against the Daesh terrorist group,” he added.
Cavusoglu was speaking to the Yeni Safak newspaper after addressing the 52nd Munich Security Conference where over 60 foreign and defense ministers are gathered (see here for more from the meeting).
“If we have such a strategy, then Turkey and Saudi Arabia may launch a ground operation,” he added.
Remember that Ankara’s primary concern in the country is ensuring that the YPG (i.e. the Kurdish opposition that Erdogan equates with the PKK and thus with “terrorism”) doesn’t end up declaring a sovereign state on Turkey’s border. That, Erdogan fears, may embolden Kurds in Turkey who are already pushing for more autonomy.
In short: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.
How they plan to do that is anyone’s guess, but the following tweets should tell you everything you need to know about where this is headed.
BREAKING: Turkish artillery is striking Kurdish-held Minnigh Airbase in Aleppo, Syria, according to militants.
BREAKING: Turkish official says there will be a ‘massive escalation’ in Syria over next 24 hours.
BREAKING: Turkish officials confirm that country’s military is targeting Kurdish-controlled positions across northern Syria.
As you can see, Turkey has begun shelling Aleppo in what is indeed a very serious escalation that will likely prompt a Russian response.
“Shelling was reported at Menagh air base, a former Syrian Air Force facility that Kurds seized from Islamist rebels just days ago, and at three other positions between the airport and Turkish border,” The Independent reports. “The air base has been a key target for several parties in the Syrian civil war since 2012, being besieged by rebels for almost a year until it was seized by a coalition including an early form of Isis and the al-Qaeda-linked Jabhat al-Nusra in August 2013 [and] it remained in rebel hands until Thursday, when Kurdish PYD fighters capitalised on the diversion caused by Bashar al-Assad’s forces and Russian air strikes attacking rebel areas to the south to seize Menagh.”
PM Davutoglu says the shelling was in line with “rules of engagement.”
BREAKING – PM Davutoğlu: YPG targets in Syria have been hit in line with the rules of engagement
Turkey is hitting Syrian Kurds who help US defeat ISIL. Turkey and the US are allies. Good luck in beating ISIL
Turkey is frustrated that Russian/Syrian forces are taking over Azaz corridor, only supply route to rebels. View Kurds as accomplices.
“A Kurdish official confirmed the shelling of Menagh air base in the northern Aleppo countryside, which he said had been captured by the Kurdish-allied Jaysh al-Thuwwar group rather than the Kurdish YPG militia,” Reuters says, adding that “Both are part of the Syria Democratic Forces alliance.” That group, you’re reminded, was the subject of intense scrutiny late last year as we documented in our classic piece “Full Metal Retard: US Launches “Performance-Based” Ammo Paradrop Program For Make-Believe ‘Syrian Arabs.'” It’s the same group the US has been paradropping weapons to.
To sum up, Turkey is deliberately attempting to reverse gains made by the US-backed Kurds in an area that is under siege by the Russians and Iran. Or, more simply: utter chaos.
Here’s what happened according to pro-AKP (i.e. take it with a grain, or maybe a whole shaker full of salt) Anadolu Agency:
The Turkish military responded to an artillery attack on an army base close to the Syrian border on Saturday, a military source said. According to the unnamed source, who spoke on condition of anonymity due to restrictions on speaking to the media, the Akcabaglar base in Kilis province was shelled by the forces of the “PYD/PKK” — referring to a Syrian Kurdish group and its affiliate PKK, which has waged war on Turkey since 1984.
The shelling came from Azaz in Aleppo province, which has been the scene of recent heavy fighting. Turkish forces reacted within rules of engagement that provide for an immediate response to any border threat, the source said. There was no further description of the form of response or detail on when the incident occurred.
In a separate incident, the army also responded to mortar fire from Syrian government troops on a Turkish police station in Calibogazi, Hatay province, at 2.55 p.m. local time (1255GMT). Again, there was no information on the type of response.
Sunday: Turkish army enters Syria after a second day of shelling. Saudi Arabian warplanes arrive at Incirlik airbase in Turkey.
(courtesy zero hedge)
Road To World War III: Turkish Army Enters Syria After Second Day Of Shelling As Saudi Warplanes Arrive
“The Syrian government says Turkish forces were believed to be among 100 gunmen it said entered Syria on Saturday accompanied by 12 pick-up trucks mounted with heavy machine guns, in an ongoing supply operation to insurgents fighting Damascus,” Reuters reports. “The operation of supplying ammunition and weapons is continuing via the Bab al-Salama crossing to the Syrian area of Azaz,” the Assad government says.
Meanwhile, since all that would take to unleash a full-blown war is for some Russian to be unexpectedly blown up, events like this do not inspire much confidence in the Syrian “ceasefire”:
On Saturday, the geopolitical world was shocked when Turkey began shelling Aleppo, where the Syrian opposition has its back against the wall in the face of an aggressive advance by Hezbollah and the IRGC supported, of course, by Russian airstrikes.
To be sure, everyone knew Ankara and Riyadh would have to do something quick if they wanted to preserve the rebellion. Their proxies are being rolled up rapidly by Hassan Nasrallah’s army and Vladimir Putin’s air force juggernaut. But few expected the escalation would come so quickly.
But Recep Tayyip Erdogan is unpredictable (just ask the lone surviving pilot of the Su-24 Turkey shot down in November) and this weekend, he decided that there’s no time like the present when it comes to starting World War III.
Officially, Turkey says it’s shelling Kurdish positions in Syria in self defense. It’s all about securing the border against hostiles, Ankara says. Of course the idea that the YPG are set to invade Turkey is laughable. The Syrian Kurds have secured enough space in their own country to declare an autonomous proto-state, and they needn’t aspire to capturing Turkish territory.
But for Erdogan, that’s precisely the problem. Ankara fears the YPG’s gains will embolden the PKK militarily and the HDP politically and last June’s elections clearly suggest that an emboldened Kurdish minority has the power to shake up the political scene.
And so, Turkey is set to take the fight to Syria in the name of fighting “terrorists”, which for Erdogan, means eradicating the Kurds. As we noted on Saturday, the challenge for Ankara and Riyadh is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.
Incredibly, Turkey seems less concerned about the optics than we thought. In short, Erdogan looks as though he’s prepared to simply enter the war on the pretext that Turkey needs to roll back the YPG which, you’re reminded is explicitly backed by the US.
In a way that makes sense. You can’t very well shell Aleppo and use ISIS as an excuse. The group’s presence isn’t large enough in the area. But what you can do is say “the PKK are terrorists, they’re allied with the YPG who are in Aleppo, and therefore, we need to shell Aleppo.”
(Saif al Dawle neighborhood of Aleppo)
Put in the simplest possible terms, what Erdogan is really doing is trying to reopen supply lines closed by Russia and Iran by wiping out Kurdish forces who dominate the northern border with Turkey.
Turkish drones suspected of penetrating Syrian airspace over northern #Aleppo to find additional targets for artillery strikes.
The shelling continued on Sunday. “The Turkish army shelled positions held by Kurdish-backed militia in northern Syria for a second day on Sunday, killing two fighters,” Reuters reports, citing the admittedly dubious Syrian Observatory for Human Rights. The YPG controls nearly all of Syria’s northern frontier with Turkey, and has been a close ally of the United States in the campaign against Islamic State in Syria, but Ankara views the group as an extension of the Kurdistan Workers Party (PKK), which has waged a three-decade-old insurgency for autonomy in southeast Turkey.”
Jaysh al-Thuwwar, an allied group warned Turkey against further attacks, saying if the country “has goals in our dear nation, we will defend our land and our people, and view it as a hostile party”. Again, this comes from the very same groups the US is overtly supporting with arms and air power. So not the CIA-sponsored opposition. Turkey is shelling fighters who literally have the clearance to call in US airstrikes from warplanes that, in an irony of ironies, are flying from Incirlik, the Turkish air base.
And speaking of the Saudis are moving into position.
They’re also conducting “exercises” dubbed “North Thunder” or, “Road North.” Here’s SPA (translated):
Witnessing the Kingdom of Saudi Arabia during the next few hours the arrival of troops participating in the military exercise largest and most important in the history of the region, “Raad north,” In the King Khalid Military City Hafr al-Batin in the northern kingdom will be implemented exercise which is the largest military maneuver in terms of the number of countries, with the participation of 20 Arab, Islamic and friendly country, in addition to the Peninsula shield forces, and these countries are: Saudi Arabia, United Arab Emirates, Jordan, Bahrain, Senegal, Sudan, Kuwait, Maldives, Morocco , Pakistan, Chad, Tunisia, the moon, Djibouti, Oman, Qatar, Malaysia, Egypt, Mauritania, Mauritius, in addition to the Peninsula shield forces. Islands constitute Raad north, the largest military exercise of its kind in terms of the number of participating countries, and military equipment quality of weapons and military equipment diverse and sophisticated, including fighter jets from different models reflect the large quantitative and qualitative spectrum, which show him those forces, as well as the participation of a wide range of artillery and tanks, infantry and air defense systems, naval forces, in a simulation of the highest level of high alert for the armies of the countries 20 participation.
Exercise Raad North represents a clear message to the Saudi brothers and brothers and friends of the participating countries stand united to face all challenges and to maintain peace and stability in the region, in addition to the emphasis on many of the goals, all in full readiness circle and maintain the peace and security of the region and the world .
Analysts say that the exercise Raad North confirms that the leaders of the participating countries, are fully in line with the vision of the Kingdom of Saudi Arabia in the need to protect the peace and stability in the region.
A lot of words to say this: “We’re flexing our muscles on the way to invading Syria.”
“What is present now is aircraft that are part of the Saudi forces,” Brigadier General Ahmed al-Asiri told Al Arabiya News Channel on Sunday, referencing the Saudi presence at Incirlik. “The kingdom is ready to participate in any ground operations that the coalition (against ISIS) may agree to carry out in Syria,” he added.
Remember, Turkey also shelled the Syrian army on Saturday.
“Turkish artillery shelled Syrian territory, targeting Syrian Kurdish positions and the positions of the Syrian Arab Army,” SANA news agency reported, citing a letter from Damascus to the UN. Expect those attacks to continue in the name of “self defense.”
Meanwhile, the Russians aren’t letting up. Aleppo will be recaptured and that, as they say, is that.
“Russia is determined to create facts on the ground, and when they have accomplished this, then they will invite the West to fight a common enemy, this is ISIS,” Norbert Roettgen, head of the foreign affairs committee in the German parliament says, underscoring our contention that Russia is determined to negotiate from a position of absolute strength. “Let’s be clear about what this agreement does. It allows Russia’s assault on Aleppo to continue for another week,” John McCain exclaimed. “Mr Putin is not interested in being our partner. He wants to shore up the Assad regime, he wants to establish Russia as a major power in the Middle East, he wants to use Syria as a live fire exercise for Russia’s modernizing military.”
Right. And America is seemingly powerless to stop him.
In the short term, the only question now is this: how long will it be before Turkey or Saudi Arabia kills a Hezbollah fighter or an IRGC general?
Or worse: what happens when a Russian ends up dead at the hands of the region’s Sunni powers?
Monday: The Kurds advance from the East towards Aleppo. Turkey condemns the advance and surprisingly missiles hit hospitals and schools. The Turks blame the Russians
(courtesy zero hedge)
Turkey Vows “Harshest Reaction” To Kurdish Advance In Syria As Missiles Hit Hospitals, School
Over the weekend, the biggest story in the geopolitical world was Turkey’s escalation in Syria.
With the Sunni-backed opposition on its last legs in Aleppo and under near constant bombardment by Russia from the air and Hezbollah on the ground, Ankara and Riyadh have a decision to make: intervene or allow the rebellion to be crushed.
We’ve spilled quite a bit of digital ink explaining why allowing the rebels to be routed really isn’t an option. It would represent a key victory for Iran at a time when the country is already on a roll. International sanctions have been lifted, oil revenue is set to quintuple by year end, and Tehran’s grip on Iraqis military and politicians is stronger than ever. A victory in Syria would be an embarrassment for the Saudis who have funded and armed the opposition and a win at Aleppo would give the Iranians sectarian bragging rights at a time when tensions between Riyadh and Tehran are already running high thanks to the execution of prominent Shiite cleric Nimr al-Nimr.
And so, with the stakes high, the Saudis sent warplanes to Turkey’s Incirlik air base and Turkey promised an imminent “escalation.” The problem, we said, is this: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.
Well that problem hasn’t been solved, but Turkey doesn’t seem to care. Ankara began shelling YPG positions over the weekend at Menagh air base, which the Kurds seized from Turkey-backed rebels just days ago.
Turkey claims this is about self defense. Erdogan equates the YPG (which is supported overtly by the US) with the PKK, Ankara’s arch enemy that’s recognized by Washington as a “terrorist” group.
The YPG have consolidated gains in northern Syria and are essentially trying to bridge the territory they hold east of the Euphrates with their territory in the west. That, Turkey says, isn’t going to happen. “YPG elements were forced away from around Azaz. If they approach again they will see the harshest reaction,” Turkish PM Ahmet Davutoglu said on Monday. “We will not allow Azaz to fall.”
Of course Azaz already “fell” – to Islamist rebels backed by the Turks who are aiming to usurp the government of a sovereign state.
In any event, more than a dozen civilians were killed in Azaz on Monday when missiles hit a children’s hospital. “At least 14 civilians were killed when missiles hit a children’s hospital, a school and other locations in the rebel-held Syrian town of Azaz near the Turkish border,” Reuters reports. “At least five missiles hit the hospital in the town center and a nearby school, where refugees fleeing a major Syrian army offensive were sheltering [and] another refugee shelter south of the town was also hit by bombs dropped by jets believed to be Russian.”
Yes, the jets are “believed to be Russian,” although Davutoglu just finished explaining how the YPG will face “the harshest reaction” if it advances on the town.
We suppose it’s not at all possible that the Turkish army made a little targeting “mistake” with some mortars.
Also on Monday, another MSF affiliated hospital was destroyed in Idlib. “This appears to be a deliberate attack on a health structure,” Massimiliano Rebaudengo, the Doctors Without Borders head of mission in Syria said. “The destruction of the hospital leaves the local population of around 40,000 people without access to medical services in an active zone of conflict.” Here’s what was left of the building after the strike:
As Reuters goes on to note, “tens of thousands of people have fled to Azaz, the last rebel stronghold before the border with Turkey.”
“We have been moving scores of screaming children from the hospital,” one medic said.
According to Davutoglu, the school and the hospital were hit by “a Russian ballistic missile.” The PM also said Russia and the YPG have closed the “humanitarian border” north of Aleppo. In reality, Russia and Iran have closed Turkey’s supply line to the rebels. It has nothing to do with “humanitarian aid.” Moscow and Tehran have no interest in starving the people of Aleppo. They do, however, have an interest in starving the rebels of guns.
That’s what the weekend’s hostilities were all about. Turkey hasn’t figured out exactly how to intervene at Aleppo without getting into an open confrontation with Russia, but everyone knows Erdogan hates the YPG, so Ankara figured shelling the Syrian Kurds advancing on Azaz from the west would effectively kill two birds with one stone: it would help keep supply lines to the rebels open, and some Kurds would be killed in the process. And no one, Turkey figures, is going to get too bent out of shape about it because let’s face it, Turkey has been shelling the Kurds in Syria for months anyway.
Whoever was responsible for the multiple civilian casualties that unfolded across the country on Monday, it’s not going to deter the Russians from routing the opposition… er… “the terrorists.” “We are fighting with the terrorist groups (Islamic State), Nusra Front, and others linked to al Qaeda,” Russian Deputy Foreign Minister Gennady Gatilov said in an interview with Der Spiegel. “Strikes on terrorist groups will continue in any case, even if a cease-fire is agreed upon in Syria.”
“Moscow’s aim is to leave the international community with just two options in Syria: President Bashar al-Assad or Islamic State,” Davutoglu said on Monday.
Why, one might fairly ask, does the “international community” have a say in this at all? Had Syria been left to handle its own affairs five years ago, we wouldn’t be in this mess and the world wouldn’t be teetering on the edge of a global conflict. Well, at least not over Syria.
“A Dramatic Escalation Appears Imminent” In Syria
The situation in Syria has reached a watershed moment and a dramatic escalation of the war appears imminent. Let’s look again at how we reached this point.
During the first phase of the operation, the Syrian armed forces were unable to achieve an immediate strategic success. This is rather unsurprising. It is important to remember here that during the first weeks of the operation the Russians did not provide close air support to the Syrians. Instead, they chose to systematically degrade the entire Daesh (Note: I refer to *all* terrorist in Syria as “Daesh”) infrastructure including command posts, communication nodes, oil dumps, ammo dumps, supply routes, etc. This was important work, but it did not have an immediate impact upon the Syrian military. Then the Russians turned to two important tasks: to push back Daesh in the Latakia province and to hit the illegal oil trade between Daesh and Turkey. The first goal was needed for the protection of the Russian task force and the second one hit the Daesh finances. Then the Russians seriously turned to providing close air support. Not only that, but the Russians got directly involved with the ground operation.
The second phase was introduced gradually, without much fanfare, but it made a big difference on the ground: the Russians and Syrians began to closely work together and they soon honed their collaboration to a quantitatively new level which allowed the Syrian commanders to use Russian firepower with great effectiveness. Furthermore, the Russians began providing modern equipment to the Syrians, including T-90 tanks, modern artillery systems, counter-battery radars, night vision gear, etc. Finally, according to various Russian reports, Russian special operations teams (mostly Chechens) were also engaged in key locations, including deep in the rear of Daesh. As a result, the Syrian military for the first time went from achieving tactical successes to operational victories: for the first time the Syrians began to liberate key towns of strategic importance.
Finally, the Russians unleashed a fantastically intense firepower on Daesh along crucial sectors of the front. In northern Homs, the Russians bombed a sector for 36 hours in a row. According to the latest briefing of the Russian Defense Ministry, just between February 4th and February 11th, the Russian aviation group in the Syrian Arab Republic performed 510 combat sorties and engaged 1’888 terrorists targets. That kind of ferocious pounding did produce the expected effect and the Syrian military began slowly moving along the Turkish-Syrian border while, at the same time, threatening the Daesh forces still deployed inside the northern part of Aleppo. In doing so, the Russians and Syrian threatened to cut off the vital resupply route linking Daesh to Turkey. According to Russian sources, Daesh forces were so demoralized that they forced the local people to flee towards the Turkish border and attempted to hide inside this movement of internally displaced civilians.
This strategic Russian and Syrian victory meant that all the nations supporting Daesh, including Turkey, Saudi Arabia and the USA were facing a complete collapse of their efforts to overthrow Assad and to break-up Syria and turn part of it into a “Jihadistan”. The Americans could not admit this, of course, as for the Saudis, their threats to invade Syria were rather laughable. Which left the main role to Erdogan who was more than happy to provide the West with yet another maniacal ally willing to act in a completely irresponsible way just to deny the “other side” anything looking like a victory.
Erdogan seems to be contemplating two options. The first one is a ground operation into Syria aimed at restoring the supply lines of Daesh and at preventing the Syrian military from controlling the border. Here is a good illustration (taken from a SouthFront video) of what this would look like:
According to various reports, Erdogan has 18’000 soldiers supported by aircraft, armor and artillery poised along the border to execute such an invasion.
Needless to say, both plans are absolutely illegal under international law and would constitute an act of aggression, the “supreme international crime” according to the Nuremberg Tribunal, because “it contains within itself the accumulated evil of the whole.” Not that this would deter a megalomaniac like Erdogan.
Erdogan, and his backers in the West, will, of course, claim that a humanitarian disaster, or even a genocide, is taking place in Aleppo, that there is a “responsibility to protect” (R2P) and that no UNSC is needed to take such clearly “humanitarian” action. It would be “Sarajevo v2” or “Kosovo v2” all over again. The western media is now actively busy demonizing Putin, and just recently has offered the following topics to ponder to those poor souls who still listen to it:
- Putin ‘probably’ ordered the murder of Litvinenko.
- Putin ordered the murder of Litvinenko because Litvinenko was about to reveal that Putin was a pedophile (seriously, I kid you not – check for yourself!).
- WWIII could start by Russia invading Latvia.
- According to the US Treasury, Putin is a corrupt man.
- According to George Soros, Putin wants the “disintegration of the EU” and Russia is a bigger threat than the Jihadis.
- Russia is so scary that the Pentagon wants to quadruple the money for the defense of Europe.
- The Putin is strengthening ISIS in Syria and causing a wave of refugees.
There is no need to continue the list – you get the idea. It is really Bosnia, Kosovo, Iraq, Libya all over again, with the exact same “humanitarian crocodile tears” and the exact same rational for an illegal aggression. And instead of Sarajavo “martyr city besieged by Serbian butchers” we would now have Aleppo “martyr city besieged by Syrian butchers”. I even expect a series of false flags inside Aleppo next “proving” that “the world” “must act” to “prevent a genocide”.
The big difference, of course, is that Yugoslavia, Serbia, Iraq and Libya were all almost defenseless against the AngloZionist Empire. Not so Russia.
In purely military terms, Russia has taken a number of crucial steps: she declared a large scale “verification” of the “combat readiness” of the Southern and Central military districts. In practical terms, this means that all the Russian forces are on high alert, especially the AeroSpace forces, the Airborne Forces, the Military Transportation Aviation forces and, of course, all the Russian forces in Crimea and the Black Sea Fleet. The first practical effect of such “exercises” is not only to make a lot of forces immediately available, but it is also to make them very difficult to track. This not only protects the mobilized forces, but also makes it very hard for the enemy to figure out what exactly they are doing. There are also report that Russian Airborne Warning and Control (AWACS) aircraft – A-50M – are now regularly flying over Syria. In other words, Russia has taken the preparations needed to go to war with Turkey.
Needless to say, the Turks and the Saudis have also announced joint military exercises. They have even announced that Saudi aircraft will conduct airstrikes from the Incirlik air base in support of an invasion of Syria.
At the same time, the Russians have also launched a peace initiative centered around a general ceasefire starting on March 1st or even, according to the latest leaks, on February 15th. The goal is is transparent: to break the Turkish momentum towards an invasion of Syria. It is obvious that Russian diplomats are doing everything they can to avert a war with Turkey.
Here again I have to repeat what I have said already a million times in the past: the small Russian contingent in Syria is in a very precarious position: far away from Russia and very close (45km) to Turkey. Not only that, but the Turks have over 200 combat aircraft ready to attack, whereas the Russians probably has less than 20 SU-30/35/34s in total. Yes, these are very advanced aircraft, of the 4++ generation, and they will be supported by S-400 systems, but the force ratio remains a terrible 1:10.
Russia does, however, have one big advantage over Turkey: Russia has plenty of long-range bombers, armed with gravity bombs and cruise missiles, capable of striking the Turks anywhere, in Syria and in Turkey proper. In fact, Russia even has the capability to strike at Turkish airfields, something which the Turks cannot prevent and something which they cannot retaliate in kind for. The big risk for Russia, at this point, would be that NATO would interpret this as a Russian “aggression” against a member-state, especially if the (in)famous Incirlik air base is hit.
Erdogan also has to consider another real risk: that, while undoubtedly proficient, the Turkish forces might not be a match for the battle-hardened Kurds and Syrians, especially if the latter are supported by Iranian and Hezbollah forces. The Turks have a checkered record against the Kurds whom they typically do overwhelm with firepower and numbers, but whom they never succeeded in neutralizing, subduing or eliminating. Finally, there is the possibility that Russians might have to use their ground forces, especially in the task force in Khmeimim is really threatened.
In this regard, let me immediately say that the projection of, say, an airborne force so far from the Russian border to protect a small contingent like the one in Khmeimim is not something the Airborne Forces are designed for, at least not “by the book”. Still, in theory, if faced with a possible attack on the Russian personnel in Khmeimin, the Russians could decide to land a regimental-size airborne force, around 1’200 men, fully mechanized, with armor and artillery. This force could be supplemented by a Naval Infantry battalion with up to another 600 men. This might not seem like much in comparison to the alleged 18’000 men Erdogan has massed at the border, but keep in mind that only a part of these 18’000 would be available for any ground attack on Khmeimin and that the Russian Airborne forces can turn even a much larger force into hamburger meat (for a look at modern Russian Airborne forces please see here). Frankly, I don’t see the Turks trying to overrun Khmeimin, but any substantial Turkish ground operation will make such a scenario at least possible and Russian commanders will not have the luxury of assuming that Erdogan is sane, not after the shooting down of the SU-24. After that the Russians simply have to assume the worst.
What is clear is that in any war between Russia and Turkey NATO will have to make a key decision: is the alliance prepared to go to war with a nuclear power like Russia to protect a lunatic like Erdogan? It is hard to imagine the US/NATO doing something so crazy but, unfortunately, wars always have the potential to very rapidly get out of control. Modern military theory has developed many excellent models of escalation but, unfortunately, no good model of how de-escalation could happen (at least not that I am aware of). How does one de-escalate without appearing to be surrendering or at least admitting to being the weaker side?
The current situation is full of dangerous and unstable asymmetries: the Russian task force in Syria is small and isolated and it cannot protect Syria from NATO or even from Turkey, but in the case of a full-scale war between Russia and Turkey, Turkey has no chance of winning, none at all. In a conventional war opposing NATO and Russia I personally don’t see either side losing (whatever ‘losing’ and ‘winning’ mean in this context) without engaging nuclear weapons first. This suggests to me that the US cannot allow Erdogan to attack the Russian task force in Syria, not during a ground invasion and, even less so, during an attempt to establish a no-fly zone.
The problem for the USA is that it has no good option to achieve its overriding goal in Syria: to “prevent Russia from winning”. In the delusional minds of the AngloZionist rulers, Russia is just a “regional power” which cannot be allowed to defy the “indispensable nation”. And yet, Russia is doing exactly that both in Syria and in the Ukraine and Obama’s entire Russia policy is in shambles. Can he afford to appear so weak in an election year? Can the US “deep state” let the Empire be humiliated and its weakness exposed?
The latest news strongly suggests to me that the White House has taken the decision to let Turkey and Saudi Arabia invade Syria.Turkish officials are openly saying that an invasion is imminent and that the goal of such an invasion would be to reverse the Syrian army gains along the boder and near Aleppo. The latest reports are also suggesting that the Turks have begun shelling Aleppo. None of that could be happening without the full support of CENTCOM and the White House.
The Empire has apparently concluded that Daesh is not strong enough to overthrow Assad, at least not when the Russian AeroSpace forces are supporting him, so it will now unleash the Turks and the Saudis in the hope of changing the outcome of this war or, if that is not possible, to carve up Syria into ‘zones of responsibility” – all under the pretext of fighting Daesh, of course.
The Russian task force in Syria is about to be very seriously challenged and I don’t see how it could deal with this new threat by itself. I very much hope that I am wrong here, but I have do admit that a *real* Russian intervention in Syria might happen after all, with MiG-31s and all. In fact, in the next few days, we are probably going to witness a dramatic escalation of the conflict in Syria.
Turkey Will “Definitely” Join Ground Operation In Syria, Accuses Russia Of “War Crimes”
Update: Here are the latest headlines out of Russia where the defense ministry is at wit’s end with the Turks.
- RUSSIAN DEFENCE MINISTRY SAYS ‘TERRORISTS’ IN SYRIA’S IDLIB AND ALEPPO PROVINCES CONTINUE TO RECEIVE WEAPONS AND REINFORCEMENTS FROM TURKISH TERRITORY – INTERFAX
- TURKEY IS LAUNCHING ‘MASSED’ ARTILLERY STRIKES ON SYRIAN GOVT FORCES AND ‘SYRIA’S PATRIOTIC OPPOSITION’ – RIA CITES RUSSIAN DEFENCE MINISTRY
Turkey shelled Syria for a fourth consecutive day on Tuesday as Ankara steps up efforts to bolster rebels in the face of an advance by the Kurdish YPG. “As many as 150 terrorists were killed during the 4-day-long shelling targeting PYD points,” the pro-government Yeni Safak wrote today, adding that “the PYD, backed by both the US and Russia, is working with President Bashar al-Assad to control areas along the Turkish border.”
The move by Russia and Iran to encircle Aleppo and cut rebel supply lines to Turkey has allowed the YPG to advance on towns near the border, effectively consolidating the group’s grip on northern Syria, where they’ve been highly successful at holding large swaths of territory.That’s an especially undesirable outcome for Ankara where President Recep Tayyip Erdogan is hell bent on rolling back a groundswell of popular support for the pro-Kurdish HDP which, at least in AKP’s mind, is merely the political arm of the PKK.
Erdogan doesn’t distinguish between the PKK (which both Turkey and the US officially designate as a terror group) and the YPG. The US, on the other hand, openly supports the Syrian Kurds and has backed their advances with airstrikes. Ankara fears that if the YPG are allowed to bridge the territory they control east of the Euphrates with territory they control west of the river, they will effectively establish a proto-state on the border which would embolden the PKK to try something similar in southeast Turkey where some Kurds are already pushing for autonomy.
Throw in the fact that the towns the YPG are seeking to capture are held by rebels Ankara supports in the faltering bid to oust Bashar al-Assad, and there’s every reason to suspect that Turkey will not only persist in the shelling of Azaz, but will in fact invade Syria. You know, “to fight ISIS.”
On Tuesday we got still more indications that a major escalation in Syria is imminent when Turkey said it would “definitely” participate in a ground operation. “It’s impossible to end the war without it,” an official told Bloomberg, speaking on the condition of anonymity. You see how that works? It’s the same logic that France employed when officials declared that the best way to halt the refugee crisis is to bomb Syria. It’s “impossible” to the end the war in Syria without … going to war in Syria.
The official also said there was no plan for a “unilateral” ground operation by Turkey or Saudi Arabia, but according to Yeni Safak newspaper’s Ankara correspondent, Turkey is planning to send troops 10km into Syria to establish “a safe zone.” Ankara is apparently concerned that if Azaz-Tal Rifaat area falls to the YPG, 400K-500K refugees might mass at the Turkish border.
Now bear in mind, it’s not entirely clear why that would be the case. There are indeed questions about the YPG’s human rights record, but they’re hardly ISIS or al-Nusra. Why civilians would flee by the hundreds of thousands is far from evident and it certainly seems as though Turkey is just looking for an excuse to ensure that its supply lines to al-Nusra and other Sunni rebels aren’t cut, and to keep the Kurds from controlling key border towns. The “safe zone” plan – which is reminiscent of the absurd “ISIS-free” zone idea from last August – would reportedly require US support. America, Yeni Safak says “has never been sincere about Assad going from the very beginning.”
Additionally, Turkey now says 500 FSA troops have traveled to Azaz via Turkey to beat back the YPG advance. Here’s Yeni Safak again:
As many as 500 fighters from the Free Syrian Army (FSA) have entered Syrian territory through Turkey to defend Azaz town, besieged by Syrian Kurdish militia forces.
Russian-backed Syrian pro-government forces have cut off the last supply route, known as the Azaz corridor, linking partially opposition-held Aleppo with Turkey. If the last corridor completely falls, the rebel groups could lose the quarters of Aleppo they currrently control, mostly in the east.
It means that Assad’s regime, backed by Iran and Russia, and the PYD will gain the power to control the entire Turkish-Syrian border. PYD-linked armed groups’ attempt to advance to Aleppo and open harrassment fire into Turkish territory has prompted the Turkish military to retaliate with F?rt?na howitzers.
Syrian opposition forces have marched to the area which Turkish military targeted in lines with the rules of engagement. One of them is Sham Legion, known as Homs Legion, fighting in northern Idlib against forces, loyal to Assad. Sham Legion has sent its fighters to the besieged town to stop the advance of PYD’s armed groups. They appear to be protecting the corridor leading to the opposition-held eastern Aleppo.
The reports said that Sham Legion, an umbrella group of 19 different organizations some of which were previously affiliated with Syrian Muslim Brotherhood, had dispatched 500 fighters to conflict in the key town through Turkey’s Cilvegöz border crossing three days ago.
The fighters crossed into Syria under Turkey’s supervision after the government had approved their crossing into Syrian territory through the country’s border.
It’s easy to see why the Turks are getting worried. On Monday, the YPG seized control of Tal Rifaat, a town between Aleppo and Azaz. “Their latest advances are part of a bid to unite the Kurdish town of Afrin in western Aleppo province with Kurdish areas to the east,” Al Arabiya notes. “We will not let Azaz fall,” Turkish PM Ahmet Davutoglu said. “The YPG will not be able to cross to the west of the Euphrates (River) and east of Afrin.”
Obviously, simply shelling Azaz and Tal Rifaat isn’t going to do the trick. If Turkey wants to halt the advance, they’re going to have to send troops or F-16s, and the latter option is a virtual impossibility given Russia’s deployment of S-400s in the country.
Meanwhile, Moscow and Ankara continue to accuse one another of being terrorists. What should be clear from the above is that there’s no telling who the Islamist rebels fighting to keep the Azaz corridor open are. It’s the same mishmash of Sunni militants fighting everywhere else in western Syria and it seems likely that al-Nusra elements are present as well. As Russian PM Dmitri Medvedev recently told TIME, “they’re all bandits.”
Yes, rampant banditry, facilitated by the Turks.
Of course Russia isn’t innocent in all of this either. Although it’s impossible to verify the veracity of the reports, it seems possible that several Russian strikes hit hospitals on Monday, killing scores of civilians, some women and children. Ankara of course seized on the opportunity to accuse the Russians of being terrorists. “These attacks that we strongly condemn are unconscionable and obvious war crime under international law,” a statement from the Turkish foreign ministry reads. “If Russian Federation does not end those attacks immediately – which remove peace and stability – it is inevitable that Russia will face bigger and more serious results.”
The takeaway from all of this is simple: escalation imminent.
RUSSIA TO LAUNCH AIRSTRIKES ON TURKISH, SAUDI TROOPS IN SYRIA
There was no warning when Turkey shot down Russian Su-24 war plane in Syria, late last year. But Russia is giving both countries the chivalric courtesy just the same.
The geopolitical chessboard has never been as dramatic and intense as this one.
“TEHRAN (FNA)- Former Head of Russia’s Federal Security Service Nikolai Kovalyov warned Turkey and Saudi Arabia against sending ground troops to Syria, saying that Russian warplanes are likely to launch airstrikes on their positions if they deploy in the war-torn country.
“The Turkish and Saudi officials are well aware that in case of deployment of their forces in the Syrian territories, the Russian air force will likely bomb them,” Kovalyov, also a member of the State Duma’s security and resistance to corruption committee, was quoted as saying by al-Mayadeen news channel on Tuesday.
“If the Saudi and Turkish ground forces enter Syria, they cannot be distinguished from the terrorists and Russia will act upon the demand of the legal Syrian government,” he added.
His remarks came after Saudi Arabia and Turkey said they plan to send ground forces to Syria.
The idea of Riyadh’s possible participation in ground operations in Syria was first raised on February 4 by Ahmed Asiri, a spokesman for the Saudi Defense Ministry.
Turkey and Saudi Arabia are also both part of an effort to create an alleged “Islam Army,” ostensibly aimed at combating terrorism in the region and consisting of 34 Sunni Islam nations.
Almost the entire range of extremist and terrorist groups are supported by Saudi Arabia and Turkey, with their key commanders and leaders being Saudi nationals. ISIL, Al-Nusra and other extremist groups pursue the same line of ideology exercised and promoted by Saudi Arabia, Wahhabism. Hundreds of Saudi clerics are among the ranks of ISIL and Al-Nusra to mentor the militants.
Wahhabism is now the only source of the textbooks taught at schools in the self-declared capital of the ISIL terrorist group, Raqqa, in Northeastern Syria resembling the texts and lessons taught to schoolgoers in Saudi Arabia. The Wahhabi ideology, an extremist version of Sunni Islam that is promoted almost only in Saudi Arabia, sees all other faiths – from other interpretations of Sunni Islam to Shiism, Christianity and Judaism – as blasphemy, meaning that their followers should be decapitated as nonbelievers.
Early in February, the Saudi Defense Ministry said it stood ready to deploy ground troops to Syria to allegedly aid the US-led anti-ISIL, also known as Daesh, coalition.
Riyadh has been a member of the US-led coalition that has been launching airstrikes against Daesh in Syria since September 2014,without the permission of Damascus or the United Nations. In December 2015, Saudi Arabia started its own Muslim 34-nation coalition to allegedly fight Islamic extremism.
Daesh or ISIL/ISIS is a Wahhabi group mentored by Saudi Arabiaand has been blacklisted as a terrorist group everywhere in the world, including the United States and Russia, but Saudi Arabia.
Damascus, Tehran and Moscow have issued stern warnings to Riyadh, stressing that the Saudi intruders, who in fact intend to rescue the terrorists that are sustaining heavy defeats these days, will be crushed in Syria.
Syrian Foreign Minister Walid Muallem warned that any ground operation in Syria without Damascus’ approval is an “act of aggression”, warning that the Saudi aggressors “would go back home in coffins”.
In Tehran, Commander of the Islamic Revolution Guards Corps (IRGC) Major General Mohammad Ali Jafari said Saudi Arabia doesn’t have the guts to send its armed forces to Syria.
“They claim they will send troops (to Syria) but I don’t think they will dare do so. They have a classic army and history tells us such armies stand no chance in fighting irregular resistance forces,” Jafari said.
“This will be like a coup de grâce for them. Apparently, they see no other way but this, and if this is the case, then their fate is sealed,” he added.
Jafari, said this is just cheap talks, but Iran welcomes the Saudi decision if they decide to walk on this path.
For the last three days Turkey has been shelling Syrian troops inside Aleppo to provide cover to trapped Daesh terrorists. This is probably the most undeniable proof of Erdogan’s complicity to global terror enterprise which he is also using to blackmail Germany and the rest of the EU.
“The Turkish artillery has been massively shelling Syrian troops and patriotic opposition in border areas since last week, with over 100 valleys registered in the Aleppo province, the Russian Defense Ministry’s spokesperson told journalists on Tuesday.
“Since last week, Turkey’s heavy artillery has been shelling Syrian troops and patriotic opposition in border areas. According to reconnaissance, the Turkish artillery has fired more than 100 valleys at border residential areas in the Aleppo province,” Maj. Gen. Igor Konashenkov said.
On Saturday, Turkish forces began shelling the positions of Kurdish People’s Protection Units (YPG) in Syria’s Aleppo region.
Turkish forces bombed a village and an airbase that were recently captured by Kurds, Al Mayadeen TV reported Saturday. Prior to being captured by the YPG, the village and the airbase belonged to al-Nusra Front terrorist organization.”
Aside from from the fiat monetary scam and blood-soaked petrodollar, another significant source of funds for the Nazionist Khazarian Mafia is the “healthcare” industry which registered a whopping $3.09 trillion in 2014, and is projected to soar to $3.57 trillion in 2017, in the US alone. We believe that this is just a conservative figure.
We can avoid using drugs, defeat any viral attack and scaremongering, like the Zika virus, easily by knowing how to build our own comprehensive antiviral system. Find more about it here.
DeBeers Cartel Deathwatch: Russia Set To Flood Diamond Market With Firesale Of 167,500 Carats
Thanksgiving Day in 2014 will remain in the history books for one key event: that is the day when OPEC effective collapsed, after Saudi Arabia refused to comply with demands by other OPEC members to cut oil production, unleashing the biggest ever drop in the price of oil, ultimately surpassing even that seen after the great financial crisis in duration and severity.
Now, another historic cartel may be on its last legs: the DeBeers diamond cartel, because according to Russian daily Izvestia, as part of Russia plan to combat its creeping budget deficit, Russia’s state minerals depository, known as Gokhran, will conduct two auctions on February 29 and March 10, in which it plans to sell as much as 167,500 carats of diamonds. By comparison, Russia sold only only 8,800 carats in all of 2015, generating proceeds of $3.6 million.
This is a surprising development, because while many had expected Russia to potentially sell some of its extensive gold reserves as the Kremlin battles with low oil prices, few had anticipated that Russia would flood the diamond market. Furthermore, the proceeds from the auctions are de minimis: the budget proceeds will hardly exceed $ 15 million (1.2 billion rubles) from the diamond sales according to Izvestia.
That, however, will not stop Russia. Initially, only medium-sized stones – those weighing up to 10.8 carats – will be sold. Citing experts, Izvetsia notes that such diamonds are found in abundance on the market, and do not represents a special interest for buyers, but the Russian media adds that the oversupply may adversely affect the market as a result of the sudden surge in supply.
According to the expert from the analytical industry agency Rough and Polished Sergey Goryainov, there is little grounds to expect a successful auction. He said that the Russian Ministry of Finance can only sell diamonds on the domestic market, and in Russia demand for diamonds in now at a very low level. The recent record ruble devaluation is partially to blame for the lack of diamond demand.
Goryanov adds that “the diamonds that will be sold are currently overly abundant in the market. Starting prices will be low as one can’t expect much excitement in the auction.”
While the Ministry of Finance is only expected to sell medium-sized diamonds, on previous occasions it marketed larger stones, heavier than 10.8 carats. It may have no choice but to resort to more of the same if there is no demand for the initial offered lots.
The Russian Gokhran finds itself in possession of an substantial amount of small and medium-sized diamonds. The reason is the large-scale buying diamonds by the Russian government from the state company Alrosa in the 2008-2009 period. “Alrosa” has a monopoly on diamond mining in Russia (98% of production), and its largest owners are the Federal Property Management Agency – 43.9%, and the government of Yakutia at 25% of the stock.
Until 2008, Alrosa had no experience selling diamonds – Russian precious stones were marketed in the global market by the South African company De Beers. However, in 2007 a European Court decided that such cooperation harms competition on the world diamond market. One year later the global financial crisis broke out and demand for diamonds had fallen sharply, and as a result of this double whammy the government had to bail out Alrosa and in the period January to July 2008, when the Russian Gokhran bought diamonds worth $ 1 billion. Then in 2009 Russian purchased another $872 million worth of diamonds from Alrosa, leading to the huge diamond pile currently held by Gokhran, including diamond special sized as well as medium-sized rocks; a pile which is about to be auctioned off.
Rough diamonds from the Nyurbinskaya open-pit mine. Photo property of ALROSA.
It is unclear who the Russian dumping of diamonds on the local market will impact global prices, however it is likely that a substantial arbitrage will emerge, especially if clearing prices for Russian diamonds comes at a significant discount to global, cartel-controlled fixes.
Worse, this comes as a time when the biggest marginal buyer of diamonds in both the wholesale and retail market, the wealthy Chinese investor and speculator, has been forced off the stage. Which likely means that with diamond prices trending lower ever since peaking in mid-2011 at nearly double their post-Lehman lows, prices are about to slide to new cycle lows…
… and just as the collapse of the oil cartel has led to major shakeups in the crude market, we eagerly await to see what skeletons emerge from the closet of one of the world’s most infamous and notorious cartels in history, that of the world’s diamond producers who until now had maintained a firm grasp on total supply; a grasp which is about to be shaken as a result of Russia’s desperate measure to balance its budget at any cost.
The collapse in the Ukraine is now beginning: Yatsenyuk is being replaced as this nations spirals out of control:
(courtesy zero hedge)
Victoria Nuland’s Appointed Prime Minister Of Ukraine Is About To Replaced
Nearly two years after Victoria Nuland decided that “Yats” should be her puppet prime minister in Ukraine as part of the CIA-organized presidential coup, the latest embarrassment for the U.S. State Department is about to become a fact when moments ago Ukrainian billionaire president Petro Poroshenko called on Prime Minister Arseniy Yatsenyuk to resign and urged the formation of a technocratic government to end a political crisis and reignite an overhaul of the economy.
This follows just one week after the country’s foreign “technocratic” Economy minister Aivaras Abromavicius resigned saying he had no desire “to serve as a cover-up for covert corruption, or become puppets for those who, very much like the old government, are trying to exercise control over the flow of public funds.”
This suggests that it is not the “lack of technocrats” that is the reason for Ukraine’s endless government chaos; it is the pervasive corruption at all levels of government that is hobbling the nation which only exists due to day to day IMF generosity and funding.
Cite by Bloomberg, Poroshenko’s spokesman Svyatoslav Tsegolko said on Twitter that “in order to renew trust, therapy isn’t enough, surgery is needed. To renew trust in power, the President has asked the Prosecutor General and the Prime Minister to quit.” What he meant is that it is time for someone else to embezzle millions in IMF funds.
In a separate statement on his website, Poroshenko called for a “complete government reboot” and said he’s seeking to avoid early elections. He urged lawmakers to quickly decide on the fate of the government.
In short: Ukraine’s relapse into a government crisis is almost at hand.
Consumer Confidence Crashes To 23-Year Low In Norway As Growth Grinds To A Halt
When last we checked in on Norway, we outlined what we called the country’s “currency conundrum.”
The economy desperately needs stimulus in the face of the inexorable decline in crude, but here’s the rub as we described it last month: In order to fund the fiscal stimulus the economy needs to stay on its feet, Norway is tapping into its sovereign wealth fund. In short, expenditures are set to exceed revenues and so, it’s time to tap the piggy bank which, at $830 billion, is the largest rainy day fund on the planet. The problem here is that oil proceeds must be converted to kroner before they can be used to cover budget needs. That means the Norges bank is a buyer of NOK.
But by buying NOK, the Norges Bank is feeding into krone strength just when the economy needs a weaker currency to buoy exports and keep Norway from falling behind in the global currency wars.
So in the simplest possible terms, they’re damned if they do and damned if they don’t.
As you can see from the following charts, the krone has been depreciating against both the EUR and USD over the past year and lower oil prices certainly contribute to the cause, but really, Norway needs as weak a krone as possible and the FX purchases to plug the budget gaps aren’t helping – as you can surmise from the USD chart:
“This will add pressure to the appreciation of the krone,” DNB ASA’s Magne Oestnor said in January after Norway said it would buy 900 million kroner ($104 million) a day in February as it converts its oil income into local currency to cover budget needs.
On Tuesday, we got the latest GDP data out of Norway and as expected, economic growth has flatlined. Mainland GDP, which excludes oil, gas, and shipping, rose just 0.1% in Q4, and Q3 was revised to unchanged.
“The economy of western Europe’s biggest oil producer has been struggling to withstand a plunge in oil prices [as] companies such as Statoil ASA have cut thousands of jobs, sending ripples through the rest of the economy,” Bloomberg writes. “Exports fell 2.9% in the fourth quarter, while petroleum and shipping industry output decreased 5.6%.”
Here’s the full breakdown from Goldman:
- The expenditure breakdown showed strong private consumption at +0.6%qoq (after +0.2%qoq in Q3). Government consumption rose by +0.3%qoq on the quarter, while mainland investments weakened by -0.4%qoq. The softness of investment was mainly driven by a 2.7%qoq fall in government investment, representing somewhat of a payback from the +12.3%qoq increase in Q3. Mainland exports fell 1.0%qoq, while imports rose +1.4%qoq, leading to net trade weakening by -0.7%qoq. Inventories (and statistical errors; the headline growth figure is extracted from the production side of the national accounts) contributed +0.5%qoq to mainland growth in Q4.
- The GDP breakdown from the production side showed that mainland manufacturing GVA fell 1.5%qoq in Q4 (after -2.5%qoq). The weakness was concentrated in the repair and installation of machinery and equipment (-9.6%qoq after +0.1%qoq). Service production GVA rose by +0.1%qoq, while general government GVA remained steady at +0.5%qoq
- Total GDP (mainland plus offshore) fell by 1.2%qoq in Q4, somewhat weaker than expected (Cons: -0.4%qoq). Offshore GDP fell 5.6% on the quarter, driven by a 6.8%qoq fall in offshore stocks, and a 5.5%qoq fall in offshore net trade. More relevant for mainland support industries, offshore investments fell 2.6%yoy in Q4 after a 8.6%qoq fall in Q3.
- There were some downward revisions to past growth with today’s GDP vintage. Q3 mainland GDP growth was revised down 0.2pp from +0.2%qoq to 0.0%qoq, while Q2 and Q1 GDP growth was revised down 0.1pp to +0.2%qoq. Including all revisions, the level of Q3 GDP now stands 0.5% lower relative to the previous national accounts vintage.
- Today’s GDP release shows mainland growth at +0.4%yoy, below Norges Bank’s forecast of +1.0%yoy. While today’s data show a small acceleration in growth between Q3 and Q4, the downward revisions to GDP over the previous quarters have created a substantial downward surprise to the year-on-year figure when compared to Norges Bank’s forecast. Today’s Q4 GDP growth print of +0.1%qoq is slightly weaker than the +0.2%qoq indicated by our CAI.
Meanwhile, we also got a look at consumer confidence on Tuesday and (surprise!) it plummeted to a 23 year low:
So, what comes next you ask? Well, with Russia and Saudi Arabia having failed to stabilize oil prices by promising to freeze output at record levels, with the ECB and the Riksbank still in easing mode, and with Norges bank kroner buying running at a NOK900 million per day clip, we’ll probably see a rate cut.
“This confirms a March rate cut,” DNB’s Kyrre Aamdal told Bloomberg by phone. “The future growth outlook is fragile,” Handelsbanken’s Marius Gonsholt Hov adds.
Remember, the Norges Bank is still sitting at 75 bps. That’s a positive 75 bps, for everyone who has by now become conditioned to thinking solely in terms of NIRP when it comes to Europe.
But make no mistake, a token 25 bps cut won’t do it when it comes to shoring up the economy and driving the krone down, especially considering what Draghi is likely to announce next month. That means you can expect Norway to careen into recession in the not-so-distant future. We close with a quote from Erik Bruce, a senior economist at Nordea: “Recession is absolutely a risk.”
Venezuela is a basket case and they will default shortly as food emergencies grip the nation:
(courtesy zero hedge)
In Venezuela, “Savage Suffering” Takes Hold Amid Frightening “Food Emergency”
Venezuelan President Nicolas Maduro has been working on some “measures.”
“Now that the economic emergency decree has validity, in the next few days I will activate a series of measures I had been working on,” he said Thursday, in a televised statement meant to address a “food emergency” declared by Congress.
The “validity” Maduro references comes from a high court ruling that gives the President expanded powers to tackle a deepening economic crisis that’s left hospitals without medicine and grocery stores bereft of food.
“The controversial move by the Supreme Court, which critics say is packed with supporters of Mr Maduro’s socialist government, potentially sets the scene for a bitter institutional crisis amid claims that the national assembly is being undermined,” FT notes, underscoring the extent to which opposition lawmakers – who in December won 99 of 167 seats that were up for grabs in what amounted to the worst defeat in history for Hugo Chavez’s leftist movement – feel as though last year’s election victory may have been a ruse designed to lend legitimacy to a system that is, and likely always will be, deeply undemocratic.
“This is a tyranny, which has been very successful in disguising as a democracy, and has even allowed itself to lose an election,” Moisés Naím, a former Venezuelan minister and fellow at the Carnegie Endowment for International Peace said.
Thanks to the Supreme Court decision, Maduro doesn’t need the assembly’s permission to intervene further in business, to allocate funds for imports, and to introduce new capital controls. The opposition is furious and says it will speed up efforts to usurp Maduro once and for all. “In the next few days we will have to present a concrete proposal for the departure of that national disgrace that is the government,” opposition leader Henry Ramos told reporters on Friday.
“The Supreme Court of Justice has spoken, its word is holy and must be respected by all parts of society and all institutions,” Maduro declared.
With inflation set to soar to over 700% this year, Venezuelans are struggling to persist in the world’s worst performing economy. “I hoped to buy toilet paper, rice, pasta,” 74-year-old Rosalba Castellano, told WSJ. “But you can’t find them.”
“The government is putting us through savage suffering,” she laments.
Of course Maduro blames this “savage suffering” on evil capitalists and the US, which he says is waging an economic war on the country.
In reality, mismanagement on an absurd scale including a rash of nationalizations, out of control spending, and price controls have shrunk the private sector and plunged the economy into outright chaos.
“It goes beyond the crime and economic deterioration,” Leonardo Briceno who spoke to WSJ and runs a Caracas public-relations company said. “It’s imagining a scenario where my daughter needs a medication and we can’t find it. That scares me the most.”
(Venezuelans wait in line to buy food in Caracas)
“The crisis is especially acute in what was once a centerpiece for the socialist country, its health-care system,” WSJ goes on to note. “The country’s leading trade group for drugstores says 90% of medicines are scarce,” and preventable deaths are on the rise. Here’s more:
On a recent day at the University Hospital of Maracaibo, in Venezuela’s second-largest city, patients lay on bare beds in rooms with dirty floors. There was no running water, medicine, cleaning supplies or food. Feces floated in the toilets. Medical staffers there said gang members roam the halls, forcing underpaid and harassed doctors to lock themselves in the offices to avoid assaults.
Venezuela used to export rice, coffee and meat. It now imports all three. It even imports its own bank notes, ordered from European firms and flown in on 747 jets.
The number of private companies in the country shrank by 20% between 2006 and 2014, according to Datanalisis. Multinationals such as Clorox Co. have simply left. Others including Ford Motor Co. and Oreo-maker Mondelez have written down the value of their local businesses to zero.
The crisis is felt not just in Venezuela’s teeming cities but in places like Toas, a tiny island of palm trees and crystalline waters in far western Venezuela, home to just 8,000 people.
Last December, thieves stole 15 miles of underwater power cable connecting the island to the mainland. The theft severed the island’s telephone connections and idled its water pumps.
Fisherman Genebraldo Chacin said his children haven’t bathed or gone to school since then, and they have been eating only one meal a day. His neighbors say the island is close to starvation.
“Our food rots without electricity, and it’s sad because it’s so difficult to find food here,” said Mr. Chacin’s neighbor, Sasha Almarza. “When we are able to find any in the store, we eat it all the same day.”
And so on.
As we’ve documented extensively, Venezuela is staring down an imminent default, despite the fact that the country does in fact try to service its debt. As Barclays noted last month, the country will need to spend 90% of its oil revenue on debt payments assuming $32 crude. Obviously, that’s not a tenable proposition.
(note that the headline inflation figure in the right pane is horribly understated)
Thanks to rising imports (as mentioned above) and falling oil sales, the CA deficit has worsened, forcing Caracas to liquidate assets to fund a budget deficit that’s projected to hover near 20% of GDP for the foreseeable future.
“Such high inflation has a strong detrimental effect not only on real salaries, but also on income distribution, as the lowest income part of the population tends to have fewer alternatives to protect against inflation,” Barclays warns. “This could increase social and political risks, making the current equilibrium increasingly unstable.”
Of course there is no “current equilibrium.” The opposition was already bound and determined to oust Maduro within six months and now, following the Supreme Court decision to grant him 60 days of emergency economic powers, Ramos says the timeframe for drawing up plans for the President’s exit is now “days.” Meanwhile, the public may have been unwilling to stage an outright rebellion with inflation at 200%, but at 720% it’s difficult to see how things won’t careen into outright social upheaval in the not so distant future. Especially once the country defaults and the public comes to realize just how wasteful the government is with what should be a vast store of national oil wealth.
As for what “measures” Maduro is considering to counter the officially declared “food emergency,” we’ll have to wait and see, but WSJ did give us a hint:
“In response to growing food shortages, Mr. Maduro last month created a Ministry for Urban Farming. He noted that he has 50 chickens in his own home.”
Is Rio ready for the Olympics? Not really!!
(courtesy Chavy/GlobalRisk Insights)
Is Rio Ready For The Olympics? (Spoiler Alert: No)
The Olympic Games are scheduled to begin on August 5. But will Rio de Janeiro be prepared amidst an economic recession, a looming public health crisis, delayed infrastructure developments, increasing crime rates, and numerous other problems that have rapidly developed over the past three years?
Zika: a looming threat to tourism and health standards in Brazil
The Zika virus made its way into the spotlight lately with a sudden and explosive growth of micro-encephalitis in newborns across Latin America. As a result of Brazil’s climate, inadequate public health system, and poor system for sanitation and water supplies, the virus found an ideal location to develop rapidly. While Zika has a devastating effect on pregnant women, especially in the low-income population, this issue has also brought to light other prevalent concerns regarding the Olympics this summer.
Zika looms over the Brazilian population and future tourists traveling from the around the world to watch the Olympic Games. The government’s response has been slow and inadequate; the Brazilian healthcare system has been heavily underfunded in recent years, with many poor areas in Rio de Janeiro lacking even basic infrastructure. InJanuary 2016, hospitals ran out of money to pay for drugs, equipment, and salaries. Some patients died after they were not allowed into underfunded public hospitals.
Brazilian officials expressed concerns over the possibility of visitors staying away from Rio de Janeiro out of fear of contracting Zika. The city has taken precautions to ensure that tourists and athletes of the Olympics do not feel threatened, and officials have announced that venues would be inspected on a daily basis four months in advance, aimed at eliminating any stagnant water that could serve as breeding grounds for mosquitoes.
These efforts have not been able to eliminate global concerns over the issue. With the World Health Organization declaring it a global health emergency, Brazil has already been criticized for downplaying the risks of contracting the virus at the Olympics and the ongoing Carnival celebrations, which attract 1.5 million tourists a year.
Bribery and political corruption: the Brazilian way of business
Recently, allegations of bribery against the Brazilian speaker of the lower house, Eduardo Cunha, and five construction companies involved in Olympics projects have emerged. Brazil’s attorney general, Rodrigo Janot, claimed that some construction companies, already under investigation for their ties to the Petrobras scandal,paid bribes totaling USD 475,000 to Eduardo Cunha to help secure contracts for the building of venues and other works for Olympics.
These allegations are another example of the large impact the Petrobras scandal has had on Brazilian politics and the economy. Companies involved in Olympics construction projects found themselves blocked from receiving bank loans and credit lines during the ongoing Petrobras investigation, forcing Rio de Janeiro’s city government to act as a bank and lend companies money to prevent an inevitable slowdown in construction. Despite their efforts, projects for the Olympics have already been delayed and sometimes halted, including essential repairs on sewers in Rio de Janeiro.
However, Olympic officials have denied any delays and vow that the games will be free of corruption, serving as an example of how business in Brazil can be done “above the board”.
Social unrest and security issues
On November 16, three days after the Paris attack, a leading French recruit for ISIS tweeted “Brazil, you are next”. Attacks by Islamist gunmen in Egypt, Mali, Paris and elsewhere in 2015 has raised the alarm for big international events like the Olympics. Brazilian security agencies have trained over 85,000 security personnel, 47,000 police officers, and 38,000 soldiers to guard the 10,500 athletes and thousands of tourists attending the 2016 Games.
However, the security forces will need to focus on more than terrorist threats for the Olympics. Violent political demonstrations, increased levels of robberies and shootings, and a growing amount of areas that are considered dangerous have worsened the already poor security situation in the city.
A looming recession
Amid a deteriorating fiscal situation, the once proud member of the BRICS has gotten used to its degrading economic status. Olympics organizers have tried to cut at least USD 500 million from the USD 1.9 billion operating budget for the Games, and already laid off temporary workers. Despite their efforts, the cost recently increased with an additionalUSD 100 million for electricity generation, with the final budget totalling USD 9.8 billion.
Brazil might be heading towards one of the deepest recessions since 1931. The currency plunged 33% in 2015, state security forces face a budget cut of 25%, inflation has risen to at least 10%, and unemployment has been hovering around 9%.
Brazil has also faced challenges in improving its public transportation system, particularly in the critical subway extension project. If it cannot be completed on time, Rio de Janeiro will face huge traffic jams along its mountainous coastal roads and potential empty seats in the new Olympic venues. Additionally, critical levels of water pollution and delayed infrastructure project led city officials to admit that they failed to improve sewage system in lake areas and the Copacabana coastline by 80%, a promise that was made in their Olympics bid in 2009.
Even if Brazil is able to host the Olympics with all venues prepared on time, there will be bumps in the road. The combined challenges make it very difficult to believe in a positive Olympic experience for Brazil. The legacy has the potential to do serious economic and social damage, requiring a brutal prioritization and fiscal austerity from the government afterwards.
Rio de Janeiro city officials’ promise of showing how business can be done in Brazil “above board” is becoming more of an illusion than a reality.
5,525 Companies Went Bankrupt In Brazil Last Year: “It’s A Legitimate Credit Crisis”
Well another day, another horrible piece of economic data out of Brazil.
Core retail sales in South America’s most important economy slid 2.7% M/M in December, erasing a meager gain the country eked out in November when the numbers got a boost from promotions.
Broad retail sales, meanwhile, declined 0.9% marking the eleventh decline in thirteen months. They’re now off more than 16% since peaking in August of 2012.
The breakdown is a veritable disaster, with sales of office and telecommunications equipment down 9.1%, furniture and appliances down 8.7%, and clothing and footwear lower by 2.1%. Goldman sums it up: “The near-term outlook for private consumption and retail sales remains challenging owing to the continuing deceleration of credit flows from both private and public banks, high levels of household indebtedness, declining employment and real wages, higher interest rates, rising local and federal taxes (including via inflation), higher utility and transportation tariffs, heightened economic and political uncertainty and depressed consumer confidence.” Oh, is that all?
Here’s what “disaster” looks like:
As we wrote on a number of occasions last summer (when things really began to go south in earnest), the depth of Brazil’s depression recession is astounding. But you’d think that after six months of abysmal data, one would eventually become desensitized to the numbers.
But not in Brazil’s case.
Every time we think nothing else could surprise us it seems to get worse. In the latest example of a shockingly bad economic outcomes from the “B” in BRICS we learn that in 2015, 5,525 companies went bankrupt. That’s the most since 2008.
“It’s legitimately a credit crisis,” says Fitch’s Joe Bormann, who, as Bloomberg writes, “has never seen the nation’s companies in such a dire state.”
“No Brazilian company has raised financing in overseas bond markets since June as an unprecedented corruption scandal at the state-owned oil producer and ratings downgrades have prompted investors to shun the nation’s financial assets,” Bloomberg goes on to note.
As is evident from the retail sales data outlined above, things aren’t likely to get better any time soon. Of course the worse it gets, the more the market will punish the country’s corporate borrowers. Have a look at the following chart, again from Bloomberg, which shows how quickly credit spreads have blown out for Brazilian issuers who are now effectively shut out of international markets:
So consider that, then note that the BRL plunged 33% last year:
If that trend continues and Brazil remains mired in recession crimping corporate profits, one has to wonder if the country’s corporate sector may have trouble servicing its USD debt. Some $24 billion in debt service payments come due this year and next.
We close with what we said in early December, when we took a look at Deutsche Bank’s assessment of the EM corporate debt picture: When Deutsche looks at what the bank says is a representative sample of corporate borrowers across LatAm and Ceemea, they find that only 14% of the sample is “in danger” based on net debt-to-EBITDA and cash-to-short term debt. However, when the bank uses 9%+ bond yields as a proxy for “oh shit,” it turns out that a whopping 27% of the LatAm sample is in trouble. Specifically, Brazil has some $89 billion in USD bonds trading above 9% (a large chunk is Petrobras paper). Here’s the full breakdown: Petrobras (USD37bn), USD20bn of industrials, USD15bn of banks (mostly subordinated), USD6bn of rigs, USD3bn of royalty-backed bonds and USD8bn of other sectors.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/TUESDAY morning 7:00 am
Euro/USA 1.1159 down .0017
USA/JAPAN YEN 114.04 down 0.302 (Abe’s new negative interest rate (NIRP)a total bust
GBP/USA 1.4420 down .0033
USA/CAN 1.3784 down .0039
Early THIS TUESDAY morning in Europe, the Euro fell by 17 basis points, trading now well above the important 1.08 level falling to 1.1159; 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 European bourses and the threat of continuing USA tightening by raising their interest rate / Last night the Chinese yuan was up in value (onshore) The USA/CNY down in rate at closing last night: 6.5123 / (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 northbound trajectory as IT settled up in Japan by 30 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 down this morning by 33 basis points as it now trades just above the 1.44 level at 1.4420.
The Canadian dollar is now trading UP 39 in basis points to 1.3784 to the dollar.
Last night, Chinese bourses were mainly in the green/Japan NIKKEI CLOSED UP 31.85 OR 0.20%, ALL ASIAN BOURSES HIGHER/ AUSTRALIA IS HIGHER All European bourses ARE IN THE RED as they start their morning.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade 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 TUESDAY morning: closed UP 31.85 OR 0.20%
Trading from Europe and Asia:
1. Europe stocks all in the RED
2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed UP 203.94 POINTS OR 1.08% ,Shanghai in the green Australia BOURSE IN THE green: /Nikkei (Japan)green/India’s Sensex in the red /
Gold very early morning trading: $1215.40
Early TUESDAY morning USA 10 year bond yield: 1.78% !!! up 3 in basis points from last night in basis points from FRIDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.63 UP 3 in basis points from FRIDAY night. ( EXTREME policy error)
USA dollar index early TUESDAY morning: 96.63 up 68 cents from FRIDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers TUESDAY MORNING
If they offer free oil for storage, what is the value of oil? It will drop shortly:
UAE Offers India Free Oil To Ease Storage Woes
Posted on Sun, 14 February 2016 00:00 |
Saudis, Russians Fail To Cut Oil Production, Will Freeze Output At Record January Level
Update: in case it was not clear this non-deal is a non-event, here it is again:
- IRAN’S OIL MINISTER SAYS TEHRAN WILL NOT GIVE UP ITS MARKET SHARE – SHANA
We hope that clears up any confusion about where oil is going next, and also about whether OPEC is still a production cartel.
* * *
Last night when previewing today’s main event, the “secret” meeting between the Saudi and Russian oil ministers, we explicitly said this deal would not “lead to a cut in production“, and sure enough just two hours ago the meeting between the two oil superpowers concluded and as expected the two failed to agree to any production cut; instead what they did agree on was to “freeze” production at January’s already record levels, and furthermore make the agreement contingent on other OPEC members complying, something Iran has already said it would not agree to.
- SAUDI OIL MINISTER SAYS AGREED TO FREEZE OIL PRODUCTION
- OIL PRODUCTION FREEZE CONTINGENT ON OTHERS FOLLOWING: QATAR
Here is Reuters’ take:
Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in – a major sticking point with Iran absent from the talks and determined to raise production.
The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha – their highest-level discussion in months on joint action to tackle a growing oversupply of crude and help prices recover from their lowest levels in more than a decade.
The Saudi minister, Ali al-Naimi, said freezing production at January levels – near record highs – was an adequate measure and he hoped other producers would adopt the plan. Venezuela’s Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.
“The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market,” Naimi told reporters.
“We don’t want significant gyrations in prices, we don’t want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time,” he said.
It was not exactly clear how “freezing” output at a record level will “stabilize and improve” the market but we will cross that bridge in a few months.
So what does the deal really mean?
As Bloomberg’s Julian Lee explains, “it’s hard to see big reduction to global crude glut after world’s biggest producers, Saudi Arabia and Russia, agreed to freeze output at last month’s levels.”
In fact, it is hard to see any reduction in the glut because both nations are already pumping near record levels and the deal depends on other cash-strapped producers making similar commitments:
- Saudi Arabia produced 10.2 million B/D in Jan., the highest January level since 1981, according to historical data from Centre for Global Energy Studies
- Russian output was a post-Soviet record 10.88m b/d in Jan.
Also, the Russian offer to freeze output comes at time when growth from new fields is waning anyway; IEA expects Russian output to fall 160k b/d over course of 2016; In other words, the two nations “agreeed” to keep pumping at a record pace and logistical considerations may force Russia to reduce production in any event.
Lee adds that the market needed an unlikely pledge between the the nations to cut supplies,rather than freeze them, in order to extend recent rally, curb oversupply. This has not happened
Then there is the question of contingency: If others do participate, the acid test for the output freeze and its impact on supply may come in summer when Saudi production normally rises to meet higher domestic demand.
Summarizing the above is Global Risk Management oil risk manager Michael Poulsen who said that “the odds of a supply cut was slim-to-none, but that slim chance was priced in. What we saw is no production cut, just freezing of levels in January when producers were producing as much as possible – so everyone will continue to produce as much as they can for the foreseeable future. Effectively, they have agreed to continue producing at maximum capacity.”
Worse, the non-deal appears dead in the water before it was even announced as it is practically impossible to get support for the deal from other OPEC nations such as Iran, Iraq or Libya for following reasons:
- Iran is raising production following easing of sanctions
- Iraq is rebuilding industry after decades of war, sanctions
- Libyan production hampered by unrest in country, output will be restored when possible
In fact, Bloomberg already added that Iran will seek to regain market share to pre-sanctions level, regardless of price, quoting a person with direct knowledge of country’s plans.
- IRAN SAID TO KEEP BOOSTING OIL MARKET SHARE AFTER ACCORD
The Iranian source said that producers responsible for present prices should cut their production to Dec. 2014 level, person says, which clearly is not going to happen.
It also means that with the contingent deal already having one non-compliant OPEC member, the entire deal was nothing more than a farce to top all those relentless oil production cut headlines.
The good news is that the relentless crude short squeezes on randomly flashing headlines about imminent “OPEC oil production cuts” will go away, if only for a few weeks.
Meanwhile, as we said last night, the market can focus on the real underlying dynamics: not only excess supply but clearly slowing global demand…
… and U.S. oil land storage, which as we and the market have been warning, is about to overflow. This perhaps explains why after surging in the aftermath of the headlines from the non-deal hitting the tape, WTI is back under $30. As attention now shifts to nearly full land storage, an oil price in the teens could be next because as BMI Research writes, the risk of a price collapse into the $10-$20/bbl range is mounting as the drop in U.S. crude demand may outpace production declines. Change “may” to “will”, and the next big catalyst on the oil horizon becomes apparent.
WTI Crude Plunges Back Below $30 – Gives Up All “Production Cut” Hype Gains
As traders slowly (and then quickly) woke up to the fact that a “freeze” at record levels of production is not a “cut”, WTI Crude has collapsed over 5% from its hope-stricken illiquid highs of early trading – now back below $30.
As Barclays warns:
- OPEC OUTPUT FREEZE WOULD LEAVE 1Q SURPLUS OF 1M B/D: BARCLAYS
OIL UPSIDE LIMITED EVEN IF OUTPUT FREEZE SUCCESSFUL: BARCLAYS
And the reaction to reality…
And this is taking the shine off the equity market exuberance…
As we said last night, the market can now re-focus on the real underlying dynamics: not only excess supply but clearly slowing global demand…
… and U.S. oil land storage, which as we and the market have been warning, is about to overflow. This perhaps explains why after surging in the aftermath of the headlines from the non-deal hitting the tape, WTI is back under $30. As attention now shifts to nearly full land storage, an oil price in the teens could be next because as BMI Research writes, the risk of a price collapse into the $10-$20/bbl range is mounting as the drop in U.S. crude demand may outpace production declines. Change “may” to “will”, and the next big catalyst on the oil horizon becomes apparent.
Crude Crashes 8% From OPEC “Cut Hope” Highs On Storage Concerns
Hope for production cuts were dashed early on as producers agreed to no change from the record high levels of production January – which Barclays says means 1mm bpd excess supply at current levels. However, following a Genscape report suggesting a major 705k build in Cushing crude inventories, WTI just broke down to a $28 handle (down over 8.5% from overnight highs)…
One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High
At 1600bps, the extra yield investors are demanding to take on US energy credit risk has never been higher. However, if a new report from Deloitte proves true, this is far from enough as they forecast roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt.
Record high US Energy credit risk…
The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.
The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.
“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” said William Snyder, head of corporate restructuring at Deloitte, in an interview. “It’s all about liquidity.”
Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.
“2016 is the year of hard decisions, where it will all come to a head,” John England, vice chairman of Deloitte, said in an interview.
For now, however, there is a corner of the market that offers perhaps a smidge of saefty…
Of the 53 U.S. energy companies that filed for bankruptcy last quarter, only 14 were service providers, a trend that is expected to continue in the short term, Deloitte found.
“Service providers tend to be more of a people business with less capital deployed, so it’s easier for them to financially flex,” Snyder said.
However, Snyder concludes…
“Eventually, though, they’ve got to run out of gas, too.”
Portuguese 10 year bond yield: 3.54% down 19 in basis points from FRIDAY
Stocks Surge On Biggest Short-Squeeze In 4 Months As Crude, Credit, & Carry Crumble
Stocks are up – just ignore everything else… “all is well”
One of these things is not like the other… Stocks were panic-bought once Europe closed but Crude, Credit, and Carry crumbled…
From the moment a UAE minister opened his mouth last Thursday afternoon, US equities have soared…
This is the best 2-day gain for the S&P since August!
Small Caps & Trannies were best as the squeeze came on… panic-buy8ing into the close…
As “Most Shorted” have soared 7% off Thursday lows with a big squeeze at the open today…
The last 2 days are the biggest short-squeeze in over 4 months…
US equities decoupled from Oil and USDJPY as Europe closed…
US credit markets – having had the day off yesterday – are not buying the euphoria…
Financials and Energy stocks both showed gains on the day despite credit weakness (and underlying weakness in crude)…
Don’t show Jamie Dimon this chart…
While many European banks gave up their early equity gains – including CS and DB – US Financial stocks enjoyed another day of exuberance following Jamie Dimon’ “Big Buy” – the only trouble is… credit risk for these names actually rose 1bp to 171bps… are you really going to fall for this again?
Once again VIX was extremely noisy with spikes (all lower) all morning..
Treasury yields traded in a narrow range with the long-end underperforming as they extended their surge off last week’s V-shaped bottom, not helped by AAPL and IBM issuance likely weighed on the complex…
The dollar rose for the 3rd day in a row (something it has not done for a month) for the best run in 2 months…
Between dollar strength, Goldman warnings, and the magic in stocks, commodities all weakened as hope disappeared from Crude..
As crude plunged off the hope highs back to a $28 handle…
Notably, the front-second month roll spread has narrowed back to pre-Phillips 66 dump levels…
Empire Fed Contracts For 7th Straight Month, Hovers At 7-Year Lows
The Empire Fed Manufacturing survey has been in contraction (below 0) since July 2015 and while February’s -16.64 print was above January’s -19.37, it was dramatically worse than the expected -10.0. New Orders and Shipments remain in contraction as both prices paid and recived tumbled. Hope improved modestly but remains markedly below December levels, as CapEx spending expectations weakened once again.
Still – we always have Services to take the pressure off manufacturing, right? Oh wait…
Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”
esterday we reported that the ECB has begun contemplating the death of the €500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe’s tax on money known as NIRP.
That also explains why Mario Draghi is so intent on eradicating it first, then the €200 bill, then the €100 bill, and so on.
We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note “would be negative for the currency”, to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”
Well, not even 24 hours later, and another Harvard “scholar” and Fed chairman wannabe, Larry Summers, has just released an oped in the left-leaning Amazon Washington Post, titled “It’s time to kill the $100 bill” in which he makes it clear that the pursuit of paper money is only just starting. Not surprisingly, just like in Europe, the argument is that killing the Benjamins would somehow eradicate crime, saying that “a moratorium on printing new high denomination notes would make the world a better place.”
Yes, for central bankers, as all this modest proposal will do is make it that much easier to unleash NIRP, because recall that of the $1.4 trillion in total U.S. currency in circulation, $1.1 trillion is in the form of $100 bills. Eliminate those, and suddenly there is nowhere to hide from those trillions in negative interest rate “yielding” bank deposits.
So with one regulation, the Fed – if it listens to this Harvard charlatan, and it surely will as more and more “academics” get on board with the idea to scrap paper money – could eliminate the value of 78% of all currency in circulation, which in effect would achieve practically the entire goal of destroying the one paper alternative to digital NIRP rates, in the form of paper currency.
That said, it would still leave gold as an alternative to collapsing monetary system, but by then there will surely be a redux of Executive Order 6102 banning the possession of physical gold and demanding its return to the US government.
Here is Summers’ first shot across the bow in the upcoming war against U.S. paper currency, first posted in the WaPo:
It’s time to kill the $100 bill
Harvard’s Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.
I remember that when the euro was being designed in the late 1990s, I argued with my European G7 colleagues that skirmishing over seigniorage by issuing a 500 euro note was highly irresponsible and mostly would be a boon to corruption and crime. Since the crime and corruption in significant part would happen outside European borders, I suggested that, to paraphrase John Connally, it was their currency, but would be everyone’s problem. And I made clear that in the context of an international agreement, the U.S. would consider policy regarding the $100 bill. But because the Germans were committed to having a high denomination note, the issue was never seriously debated in international forums.
The fact that — as Sands points out — in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it. Sands’ extensive analysis is totally convincing on the linkage between high denomination notes and crime. He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.
What should happen next? I’d guess the idea of removing existing notes is a step too far. But a moratorium on printing new high denomination notes would make the world a better place. In terms of unilateral steps, the most important actor by far is the European Union. The €500 is almost six times as valuable as the $100. Some actors in Europe, notably the European Commission, have shown sympathy for the idea and European Central Bank chief Mario Draghi has shown interest as well. If Europe moved, pressure could likely be brought on others, notably Switzerland.
I confess to not being surprised that resistance within the ECB is coming out of Luxembourg, with its long and unsavory tradition of giving comfort to tax evaders, money launderers, and other proponents of bank secrecy and where 20 times as much cash is printed, relative to gross domestic, compared to other European countries.
These are difficult times in Europe with the refugee crisis, economic weakness, security issues and the rise of populist movements. There are real limits on what it can do to address global problems. But here is a step that will represent a global contribution with only the tiniest impact on legitimate commerce or on government budgets. It may not be a free lunch, but it is a very cheap lunch.
Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100. Such an agreement would be as significant as anything else the G7 or G20 has done in years. China, which is hosting the next G-20 in September, has made attacking corruption a central part of its economic and political strategy. More generally, at a time when such a demonstration is very much needed, a global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.
Lawrence H. Summers, the Charles W. Eliot university professor at Harvard, is a former treasury secretary and director of the National Economic Council in the White House. He is writing occasional posts, to be featured on Wonkblog, about issues of national and international economics and policymaking.
Homebuilder Confidence Tumbles To Lowest In 9 Months
Current sales and buyer traffic tumbled in February for homebuilders who downgraded their confidence index to 58 (from 61) missing expctations and at its worst level since May 2015. While futures sales hope rose very modestly, NAHB shows buyer traffic plunged to its lowest since March 2015 with every region seeing weakness (most notably The West).
All this is odd given the surge in new and existing home sales…
Once again – hope appears not to be a strategy after all.
Did Someone ‘Tap’ The Atlanta Fed On The Shoulder In January?
In recent weeks, status-quo maintainers have pointed to The Atlanta Fed’s GDPNow forecast’s resurgence as evidence that the market is just being irrational and that everything is awesome after all. Since we first brought the world’s attention to this real-time forecast of US economic growth it has become closely-watched by all… which is why the most recent surge to +2.7% – in the face of dismal data – following our confrontation with The Fed in Janaury over “technical difficulties” makes us wonder if someone in Atlanta got a call from The Eccles Building to get on board…
For the last few years, The Atlanta Fed’s GDPNow forecast has tracked excellently with the day to day shifts in US economic data – as it should. But that changed a month ago…
On January 15th 2016, we noted The Atlanta Fed delayed the release of its most dire GDP estimate yet – a paltry +0.6% – just a month after Yellen decided to raise interest rates.
Hours later, The Atlanta Fed responded, explaining the “technical delays” were “nothing nefarious”…
But given the total decoupling that has occurred between GDPNow and US Macro data that occurred since that exact date – we are growing increasingly conspiratorial that something more ‘nefarious’ has occurred.