Gold: $1,226.10 up $15.00 (comex closing time)
Silver 15.43 up 6 cents
In the access market 5:15 pm
From Matteo Renzi, Prime Minister of Italy today:
Italian PM Renzi resists bank regulation on holdings of sovereign bonds: Reuters cited Italian Prime Minister Renzi who yesterday told the Italian upper house that he would oppose any cap on banks’ holdings of domestic sovereign bonds ahead of the EU’s plans to review current rules on banks’ exposure to domestic debt. Renzi said Italy would take a firm line on the issue, adding: “Rather than worrying about government bonds in the banks we should be strong enough to say that (banks elsewhere in Europe) hold too many toxic assets.”
At the gold comex today, we had a GOOD delivery day, registering 327 notices for 32,700 ounces. Silver saw 0 notices for NIL oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 207.44 tonnes for a loss of 96 tonnes over that period.
In silver, the open interest rose by 2534 contracts up to 169,179. In ounces, the OI is still represented by .845 billion oz or 121% of annual global silver production (ex Russia ex China).
In silver we had 0 notices served upon for nil oz.
In gold, the total comex gold OI rose by 1540 contracts to 430,452 contracts as the price of gold was up $3.60 with yesterday’s trading.
We had no change in gold inventory at the GLD, / 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 no change in inventory and thus the Inventory rests at 310.952 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rose by 2534 contracts up to 169,179 as the price of silver was up 4 cents with yesterday’s trading. The total OI for gold rose by 1540 contracts to 430,452 contracts as gold rose by $3.60 in price from yesterday’s level.
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i) Late WEDNESDAY night/ THURSDAY morning: Shanghai closed DOWN government / Hang Sang closed up by 438.51 points or 2.32% . The Nikkei closed up 360.44 or 2.28%. Australia’s all ordinaires was up 2.25%. Chinese yuan (ONSHORE) closed up at 6.5151 on a bigger than usual intervention by POBC in support of the currency, and yet they still desire further devaluation throughout this year. Oil gained to 31.29 dollars per barrel for WTI and 35.21 for Brent. Stocks in Europe so far deeply in the green . Offshore yuan trades 6.5215yuan to the dollar vs 6.5151 for onshore yuan/
Japanese trading WEDNESDAY night: the Nikkei rises despite their trade data crumbling as their exports fall 12.9% year over year. Last night: China strengthens the yuan again. Data released show continuing deflation in all sectors. However what is totally uncomfortable for the POBC is the rise in consumer prices.
ii) We brought this to your attention on Tuesday, the huge creation of 1 trillion USA equivalent of debt in the first few months of 2016 in China. It seems that China reacted at about the same time as Japan in emergency measures trying to shore up their economy. Japan, foolishly introduced NIRP and China a massive avalanche of debt. China now has a debt to GDP of 350% and by the end of this year, they will surpass 400% debt/GDP. The huge amount of loans created will mask temporarily the non performing loans which are also escalating:
i) Turkey now blames the Kurds for that huge blast that occurred in Ankara on Wednesday.
ii) It seems that the finances of ISIS is in trouble: they are now stopping handing out snicker bars and gatorade :
ii) Michael Snyder of 21 new numbers that show that the global economy is absolute imploding:
iii) With no place to store the migrants, Sweden has a plan: To store 1800 migrants on a docked cruise liner.
i)Last night: WTI rises above 31 dollars on API huge drawdown:
( zero hedge)
ii) Last night: The big Devon Energy announces a huge sale of 1 billion usa in stock and will dilute existing shareholders by 13%/its stock falters by 6%:
iii) This morning: Both Iran and now Iraq refuse to commit to oil production freezes:
iv) Late in the morning, oil plummets on DOE reports of a big inventory build:
v) All hope is now lost as Saudi FinMin states that they will not cut oil production:
vi) It looks like Cushing is denying storage requests for the simple reason that they have run out of space.
i) Craig Hemke believes, as do I, that the comex gold reporting is fairy tales:
ii) The coal industry is on its death bed and the decline is irreversible. Expect many bankruptcies:( Cunningham/OilPrice.com)
iii)Khan describes the entry into negative interest rates is a dangeorus experiment and will totally cause chaos in the economy:
iv) Interviews with Greg Hunter,Bill Murphy, Dave Kranzler and James Turk( GATA)
v) Alasdair Macleod..risks in our banking system
Dave Kranzler’s answer to the war on cash and NIRP: store your wealth in gold and silver:
(courtesy Dave Kranzler IRD)
USA STORIES AND HOW IT WILL INFLUENCE THE PRICE OF GOLD AND SILVER
i)The bulls really liked what Bullard had to say: the very hawkish Bullard states that it would be unwise to hike rates. He also states that if needed, the USA will engage to future QE
ii)Wall Street not impressed with WalMart even though they “beat” the street on earnings. However it was the all important revenue numbers which faltered and this shows that the company is not growing. They cut guidance:( WalMart/zero hedge)
iii) The Philly Mfg index falls below 50 (contraction) for the 6th month in a row. The hope sector on the Philly index crashes to Nov 2012 levels;
iv) Distressed debt issuers are at the highest peak since Lehman
v)Something big is going on behind the scenes of our big hedge funds. Now it is Citadel’s Surveyor fund that is unwinding:
Let us head over to the comex:
The total gold comex open interest rose to 430,452 for a gain of 1540 contracts as the price of gold was up $3.60 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. Today, only the first scenario was in order. In February the OI fell by 40 contracts down to 534. We had 43 notices filed on yesterday, so we gained 3 contracts or an additional 300 oz will stand for delivery. The next non active delivery month of March saw its OI rose by 63 contracts up to 2087. After March, the active delivery month of April saw it’s OI fall by 325 contracts down to 301,795. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 117,721 which is anemic and strange for a rising gold price today. . The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was poor at 184,739 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|| 1,639.650 oz
|Deposits to the Dealer Inventory in oz||4000.000 0z
identical as yesterday
|Deposits to the Customer Inventory, in oz||nil|
|No of oz served (contracts) today||327 contracts
|No of oz to be served (notices)||207 contracts (20,700 oz )|
|Total monthly oz gold served (contracts) so far this month||2332 contracts (233,200 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||531,585.1 oz|
we had 0 adjustments.
FEBRUARY INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 2,330,078.39 oz
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||1,201,853.05
|No of oz served today (contracts)||0 contracts nil oz|
|No of oz to be served (notices)||1 contract (5,000 oz)|
|Total monthly oz silver served (contracts)||165 contracts (825,000 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||12,582,869.7 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 2 customer deposits:
i) Into JPM: 601,903.48 oz
ii) Into HSBC; 599,949.570 oz
total customer deposits: 1,201,853.05 oz
total withdrawals from customer account 2,330,078.390 oz
we had 0 adjustments:
And now the Gold inventory at the GLD:
fEB 18/no change in gold inventory at the GLD/Inventory rests at 710.95 tonnes
fEB 17/no change in gold inventory at the GLD/Inventory rests at 710.95 tonnes
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 18.2016: inventory rests at 710.95 tonnes
And now your overnight trading in gold, THURSDAY MORNING and also physical stories that may interest you:
ABN AMRO Predict Gold At $1,300 By Year End, Up From $900
Gold is holding solidly above $1,200, brushing off news of the freshly released Fed minutes. Iranians cautiously welcome the Saudi-Russian oil production pact, while stating that they support cooperation to achieve higher oil prices, they also have domestic pressure to ramp up export of supply and cash in after years of being locked out of the market. This may possibly weigh down future oil price rises.
Gold in USD -1 Year
Interestingly, one of the biggest gold bears, ABN AMRO group have changed their long-held negative slant on gold and turned bullish — targeting $1,300 for 2016, stating that the global economy continues to weaken with lower oil prices affecting emerging markets, but the U.S. in particular. Analyst Georgette Boel wrote, “Having been long-standing bears we have now turned bullish on precious metal prices,” and “Our new scenario sees a longer period of weaker global growth.”
You can read the full article on Bloomberg here.
TF Metals Report: The illegitimacy of Comex gold pricing
Submitted by cpowell on Wed, 2016-02-17 21:13. Section: Daily Dispatches
4:10p ET Wednesday, February 17, 2016
Dear Friend of GATA and Gold:
The TF Metals Report’s Turd Ferguson writes today that there is no real gold futures price and no renewed bull market in gold, just high-frequency and algorithm trading done off currency pairs while the major bullion banks shuffle gold warehouse receipts among themselves to give the illusion of physical delivery. Ferguson’s analysis is headlined “The Illegitimacy of Comex Pricing” and it’s posted at the TF Metals Report here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
The coal industry is on its death bed and the decline is irreversible. Expect many bankruptcies:
The Decline Of The Coal Industry Is “Long-Term” And “Irreversible”
Demand for thermal coal is declining, a trend that appears to be “irreversible.”
That is the conclusion from Goldman Sachs, which published a new report on the global coal and gas trade on February 15, and reported on by SNL. For coal producers, this is the latest in a long line of grim warnings, all of which point to a future of shuttered power plants, mine closures, and bankruptcies.
Last fall, Goldman Sachs made headlines when it predicted that “peak coal” was drawing near.“The industry does not require new investment given the ability of existing assets to satisfy flat demand, so prices will remain under pressure as the deflationary cycle continues,” the investment bank wrote in September 2015.
The reaffirmation of that belief in its latest report will make less of a splash, if only because there is agrowing realization that the coal industry is dying. Nevertheless, Goldman offers some new insights about the direction for the industry.
For much of the last decade, with coal consumption flat or declining in most of the industrialized world, there was still a massive lifeline for coal producers. China’s explosive growth led to a seemingly endless appetite for coal, despite bleak and deteriorating air quality in many of its cities. But, after years of blistering growth, China’s coal burning came to a screeching halt, likely hitting a peak in 2013.
With China’s coal market hitting a peak and entering decline, India is supposed to take over as the last vestige of growth. In the IEA’s 2015 World Energy Outlook, it published a lengthy section on India, placing it front and center as the single most important country to watch in terms of its influence on the future of energy markets.
India is supposed to add almost 900 million metric tons of new coal demand by 2040. To put that into context, it is more than twice as much demand as the rest of the world is expected to add combined over that timeframe. Coal demand in the U.S., EU, China, and Japan, to name a few, will fall from here on out.
So coal producers will simply export their coal to India, right? The problem with that plan is that India is set to ramp up its own domestic production of coal, cutting out the need to import more. India used to suffer from a shortage of supply, which led to a costly import bill and even routine blackouts in its electricity sector. But Indian mines are now churning out more coal, and stockpiles are rising. India’s increasing ability to meet its own demand for coal, Goldman Sachs says, will mean “the peak and decline in seaborne trade volumes may arrive earlier than we had previously expected.” The bank cut its forecast for thermal coal prices in Newcastle, Australia – a key global benchmark – to just $45 per tonne in 2018, down from $48 per tonne this year.
But the worst news for the industry is this: While oil and natural gas could see prices rebound as demand rises, coal has very little hope of ever seeing a price rebound again. Goldman sees long-term coal prices at $42.50 per tonne. “Unlike most other commodities, thermal coal is unlikely to experience another period of tightness ever again because investment in new coal-fired generation is becoming less common and the implied decline in long-term demand appears to be irreversible,” Goldman Sachs’ analysts concluded.
Even India will fail to make up for the shrinking thermal coal market in the rest of the world. In its latest report, Goldman downgraded cut its demand forecast for thermal coal – in September it predicted that by 2019, the world would be burning 2 percent less coal than it did in 2013. Now, it says thermal coal demand will drop by 7 percent.
This is horrific news for coal mining companies. It also ensures that the list of coal companies that have declared bankruptcy – at least several dozen in the last four years – will continue to grow.
Negative interest rates a ‘dangerous experiment’ as monetary policy hits buffers
Submitted by cpowell on Wed, 2016-02-17 21:33. Section: Daily Dispatches
By Mehreen Khan
The Telegraph, London
Wednesday, February 17, 2016
Central bank moves to impose negative interest rates mark a “dangerous experiment” in global monetary policy, posing new risks to financial stability, economists have warned.
With banking stocks around the world in turmoil, Morgan Stanley said moves into deeper negative territory threatened to unleash a new crisis of confidence in markets, eroding the profitability of commercial lenders.
Ahead of a much anticipated meeting of the European Central Bank next month, bank profits would erode by 5-10 percent should European Central Bank President Mario Draghi make another cut to interest rates, said Huw van Steenis, analyst at the investment bank.
The ECB’s current deposit rate — which went negative in 2014 — stands at -0.3 percent, penalizing lenders for parking money with the central bank in a bid to encourage lending. Analysts now expect at least a 10-basis point cut from the ECB in March and an expansion of its E60-billion-a-month quantitative easing programme. …
… For the remainder of the report:
Interviews with Greg Hunter,Bill Murphy, Dave Kranzler and James Turk
Interviews with GATA Chairman Murphy and GoldMoney founder Turk
Submitted by cpowell on Thu, 2016-02-18 01:14. Section: Daily Dispatches
8:17p ET Wednesday, February 17, 2016
Dear Friend of GATA and Gold:
Dave Kranzler and Rory Hall of Investment Research Dynamics this week interviewed GATA Chairman Bill Murphy about the growing volatility in the gold and silver markets and whether it signifies trouble for the price suppressors. The interview is 30 minutes long and begins at the 4:50 mark here:
Also interviewed this week was GoldMoney founder and GATA consultant James Turk, who spoke with USA Watchdog’s Greg Hunter, discussing the loss of confidence in Deutsche Bank and other banks as well as the long history of central bank manipulation of gold prices. The interview with Turk is 22 minutes long and it’s posted at USA Watchdog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Alasdair Macleod: The true role of gold
Submitted by cpowell on Thu, 2016-02-18 16:14. Section: Daily Dispatches
11:13a ET Thursday, February 18, 2016
Dear Friend of GATA and Gold:
GoldMoney research director Alasdair Macleod today explains how the growing risk of participating in the banking system is another powerful reason for owning gold. Macleod’s commentary is headlined “The True Role of Gold” and it’s posted at GoldMoney’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Dave Kranzler’s answer to the war on cash and NIRP: store your wealth in gold and silver:
(courtesy Dave Kranzler IRD)
The fear porn headlines are beginning to flood the alternative media blogs. Everyone is warning about the growing “war on cash” and negative interest rates. Yes, it’s inevitable and all the reasons why Governments prefer a digital currency to cash are obvious. First foremost is that it is the bridesmaid to the Totalitarian creep engulfing our system.
But lost in this fog of fear is the obvious alternative: gold and silver. Worried about the elimination of $100 bills because it makes it harder to accumulate and safekeep meaningful amounts of cash? An ounce of gold stores a lot more wealth than a $100 bill. Currently one roll of silver eagles is worth more than three $100 bills.
Negative interest rates? Big deal. Over long periods of time the relative value of gold accelerates vs. all other currencies when real rates are negative. When the Fed takes nominal rates negative the price of gold/silver will begin to go parabolic. Will that happen immediately? Of course not. The Fed will try to cap the price movement of gold with B-52 payloads full of paper gold. When this happens, take as much cash out of the banking system as possible and convert it into physical gold and silver bullion coins.
Will the Government try to confiscate gold and silver? The promoters of this hypothesis have glaringly failed to study the facts. Yes, the Government decreed it to be illegal to use gold bullion coins as currency but it never embarked on an effort to “confiscate” private gold holdings. In fact, other than a few idiots who took their gold to the bank and turned it in for cash, the only gold the Government “confiscated” was gold that had been found in abandoned safe deposit boxes.
FURTHERMORE, the possession and use of silver as a currency was never outlawed. Please study the facts on what happened before you promote or buy into highly misleading or false tales about gold “confiscation.”
Whether or not the Government ever revives a moratorium on the use of gold as a currency or on its outright ownership is, quite frankly, irrelevant. There will ALWAYS be a private market in which gold will freely exchange hands for like value. Gold and silver have endured over 5,000 years as legitimate currencies. The United States has been in existence for roughly 240 years. I think I know which of the two has a better probability of surviving the economic and geopolitical hurricane that is approaching.
The rampant proliferation of “war on cash / negative interest rate” warnings are little more than the childish rants of alternative media propaganda artists. It’s like a repetitive announcement that the earth is round and circles the sun. Yes, we know that the Government is going to digitize the currency system and take interest rates negative in an attempt to channel bank balances into consumption or the stock market or Treasury bonds.
But whatever measures the Government takes to implement capital controls and increasingly exert more control over your life can be offset if you move as much cash as possible out of the system now and into precious metals.
And now your overnight WEDNESDAY NIGHT/ THURSDAY morning trades in bourses, currencies and interest rate from Asia and Europe:
1 Chinese yuan vs USA dollar/yuan DOWN to 6.5151 / Shanghai bourse IN THE RED: / HANG SANG CLOSED UP 438.51 POINTS OR 2.32%
2 Nikkei closed UP 360.44 OR 2.28%
3. Europe stocks all in the GREEN (EXCEPT LONDON) /USA dollar index UP to 96.94/Euro DOWN to 1.1097
3b Japan 10 year bond yield: FALLS TO +.024 !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 114.14
3c Nikkei now well below 18,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 31.59 and Brent: 35.21
3f Gold DOWN /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 0.257% German bunds in negative yields from 8 years out
Greece sees its 2 year rate fall to 12.03%/:
3j Greek 10 year bond yield FALL to : 10.75% (yield curve deeply inverted)
3k Gold at $1207.10/silver $15.33 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble DOWN 28/100 in roubles/dollar) 75.28
3m oil into the 31 dollar handle for WTI and 35 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 0.9946 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1038 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 + .257%/German 8 year rate negative%!!!
3s The Greece ELA at 71.4 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 1.81% early this morning. Thirty year rate at 2.68% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Biggest Short Squeeze In 7 Years Continues After Bullard Hints At More QE, OECD Cuts Global Forecasts
Just when traders thought that the biggest and most violent 3-day short squeeze in 7 yearswas about to end…
… a squeeze that has resulted in 3 consecutive 1%+ sessions for the S&P for the first time since October 2011, overnight we got one of the Fed’s biggest faux-hakws, St. Louis Fed’s Jim Bullard, who said that it would be “unwise” to continue hiking rates at this moment, and hinted that “if needed”, the most natural option for the Fed going forward would be to do further Q.E.
At the time the algos ignored his comment, but once Europe opened, the local trading disks hit the buy button, pushing S&P futures from just above 1915 to 1931 where they were trading last.
It wasn’t just Bullard: yesterday’s Fed minutes were likewise as cautious, if not outright dour, about the future of the Fed’s rate hike which was great news for markets as it means the rate hike cycle has been put on indefinite hiatus. “The Fed minutes show that it does look like they’re gearing up for a slower rate hike path, which is good” for risk assets, said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors Ltd. “I think this rally has further to go, with the conditions set for the rebound to continue for a little while. Pessimism had got to extreme levels.”
Actually, as we showed yesterday, what is really happening is one of the most violent unwinds of market neutral quant funds, who finds themselves forced to chase long higher as shorts continue to rip.
This could easily continue until the S&P rises back over 2000 only this time on forward earnings that are about 10% lower than the last time the market was in such perilous territory.
It wasn’t all just a marketwide squeeze: food-related companies and miners weighed on Europe’s equity benchmark while Treasuries advanced, while the yen also climbed. Elsewhere, Emerging markets rose to a six-week high, while the Mexican peso gained a second day after lawmakers took unprecedented steps to protect the currency. Crude extended gains with Iran backing an output freeze by key energy-producing nations.
As Bloomberg writes, “while global stocks are rising for a fifth day, fueled by oil’s rally coupled with the Federal Reserve’s acknowledgment of market gyrations, the pace of gains slowed on Thursday.” That sentence was written before the momentum algos were activated today: at the current rate futures are spiking we may see the first 4-day consecutive 1%+ daily streak in the S&P500 in over 4 years.
The cherry on top was the OECD cutting its global growth forecasts, saying the economies of Brazil, Germany and the U.S. are slowing and warning that some emerging markets are at risk of exchange-rate volatility. Global gross domestic product will expand 3.0 percent in 2016, the same pace as in 2015 and 0.3 percentage point less than predicted in November, the Organization for Economic Cooperation and Development said Thursday in a report.
And now that rate hikes are increasingly off the table, bad news is one again great news. After all it means more central planner medling, and long-only algos love that.
- S&P 500 futures up 0.5% to 1932
- Stoxx 600 up 1% to 332
- FTSE 100 down 0.4% to 6009
- DAX up 1% to 9468
- German 10Yr yield down 2bps to 0.25%
- Italian 10Yr yield down 6bps to 1.55%
- Spanish 10Yr yield down 5bps to 1.69%
- S&P GSCI Index up 0.7% to 302.4
- MSCI Asia Pacific up 2.2% to 120
- US 10-yr yield down 1bp to 1.81%
- Dollar Index up 0.02% to 96.81
- WTI Crude futures up 2.6% to $31.45
- Brent Futures up 1.7% to $35.09
- Gold spot down 0.3% to $1,205
- Silver spot down 0.3% to $15.23
Global Headline News Summary
- Starboard Said to Take Initial Steps for Proxy Battle With Yahoo: Adviser has been calling shareholders, people familiar say
- PBOC to Conduct Open-Market Operations Every Working Day: Seeks to improve effectiveness of operations
- Bullard Calls Raising Rates Unwise as Inflation Falls Short: Asset-price bubbles aren’t a worry amid turmoil, he adds
- Oil Extends Gain as Iran Backs Output Freeze Without Vowing Cuts: Saudi-Russia pact contingent on other major producers joining
- Ingram Micro to Be Bought by Tianjin Tianhai for $6b: U.S. networking supplier to become part of China’s HNA Group
- Credit Suisse Americas ‘One Bank’ Head Leaving Amid U.S. Retreat: Lender retreating from managing money for U.S. clients
- Wells Fargo Said Near Deal to Lease City of London Offices: 225,000 square-foot building scheduled for completion in 2017
- Gasoline Is Trading as If U.S. Nearing Recession, Goldman Says: Contracts for summer delivery are priced less than $20 a barrel higher than crude oil
- Apple Gains Silicon Valley’s Backing in Fight Against Government: Google’s Pichai says U.S. order may set ‘troubling precedent’
- Apple Joins With China’s UnionPay to Introduce Mobile Payments: Clients of 19 Chinese lenders can shop with Apple Pay
- Swiss Watch Exports Drop as Slowing Economies Curb Demand: Hong Kong, U.S. and China drag down global watch shipments
- Obama Said to Plan Cuba Visit in March 55 Years After Ties Cut: Opponents of easing relations fault president over trip
- Chevron Indonesia Plans to Cut at Least 1,200 Jobs, Kontan Reports: Cites Amien Sunaryadi, head of upstream oil and gas regulator, known as SKK Miga
Looking at regional markets, we start in Asia where equity markets traded higher across the board, tracking similar price action from Wall St, as gains in crude and FOMC minutes supported risk-appetite. Nikkei 225 (+2.3%) and ASX 200 (+1.9%) was led higher by the energy sector, after oil rallied around 8% yesterday on optimism regarding an output freeze, coupled with an API Inventory drawdown. Shanghai Comp (-0.2%) was mildly positive for a bulk of the session before paring gains heading lower into the close, after the PBoC upped its liquidity injections with price data also more encouraging after CPI printed a 5-month high, while casino gains added to the energy-led risk sentiment in Hong Kong. 10yr JGBs traded higher as yields continued to decline in the aftermath of the BoJ’s negative rate policy with several domestic banks adjusting rates in reaction, although JGBs then reversed some gains after a weaker than prior 5- yr auction.
Top Asian News
- China Said to Guide Rates Lower Without Broader Policy Cuts: Offers to reduce medium-term borrowing cost it charges lenders in 2nd such move this year
- China’s Consumer Prices Climb in January as Food Costs Rise: Food prices rose 4.1% ahead of week-long Lunar New Year holiday, most since May 2014
- Goldman Sachs Top Analyst Says Don’t Panic as China Growth Slows: Most accurate forecaster on nation’s economy projects 6.4% growth this year
- Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates: No intervention seen until dollar falls below 105 yen, Yunosuke Ikeda says
- Australian Unemployment Spikes to 6% as Full-Time Jobs Slump: Nation’s unemployment rate unexpectedly rises to highest since September 2015
- Japan’s Exports Drop Most Since 2009 as Sales to China Fall: Imports also decline, leaving a trade deficit slightly narrower than median forecast
European equities have kicked off the session in modest positive territory today (Euro Stoxx +0.3%), continuing on from the gains seen yesterday. Looking across the indices, FTSE (-0.6%) is among the worst performers after 6 Co.’s in the index went ex-div and knocked off 24 points from the index. Separately, the SMI (-0.5%) also underperforms this morning, weighed on by Nestle (-3.4%) who are among the worst performers on the continent. Elsewhere, Bunds remain bid this morning, all be it off their best level, underpinned by somewhat cautious FOMC minutes yesterday, with supply from Spain and France yet to have a meaningful impact on the price action.
Top European News
- Nestle Sees Sales Slowdown Extending Into ‘16 on Price Pressure: CEO says dividends, M&A outweigh buybacks for uses of cash
- Vodafone to Raise About $4.1 Billion Selling Convertible Bonds: Bonds to carry coupons of 1.2%-1.5%, 1.7%-2%
- Anglo Said to Work With Bank of America on More Coal-Mine Sales: Firm advising on sale of Moranbah, Grosvenor coal assets
- BMW Buoyed U.S. Sales Numbers by Paying Dealers to Buy Loaners: Other carmakers use similar strategy but not as aggressively
- Air France-KLM Gains on First Annual Operating Profit Since 2010: Reduction of 22% in fuel costs helps end run of losses
In FX, it has been a relatively quiet morning, with limited response to the FOMC minutes released late Wednesday. Few were expecting anything ground-breaking after last week’s House/Senate testimony, with the wait-and-see mode underlined, so it was anaemic reaction from the USD pairs. Much of the same this morning, with USD/JPY back under 114.00. No panic from the earlier test on the mid 113.00’s, but stock market gains have faded a little, though Oil prices remain on the front foot. CAD still well placed for further upside, though the spot rate is still holding off the early Feb lows. MXN took out 18.0000 yesterday, but is back above the figure today. GBP trade cautious with UK PM Cameron in Brussels today and tomorrow, but we have seen some adjustment to the upside a Cable tentatively reclaims 1.4300. It is all pretty tight elsewhere, with EUR/USD still holding off 1.1100 and AUD holding the mid .7100’s despite a disappointing jobs report overnight. The Australian dollar declined at least 0.3 percent against all of its 16 major peers after a disappointing jobs report fueled investor doubts about whether the central bank is done cutting interest rates.
In Commodities,West Texas Intermediate crude climbed 2.5 percent to $31.41 a barrel after rallying 5.6 percent last session. U.S. inventories declined by 3.26 million barrels last week, the industry-funded American Petroleum Institute was said to report Wednesday. Oil’s 49 percent slump from a peak reached in June has shaken some crude-dependent economies, with S&P cutting the credit ratings of Saudi Arabia, Oman, Bahrain and Kazakhstan on Wednesday. Key oil producer Venezuela announced a currency devaluation, with the official exchange rate reduced by 37 percent, President Nicolas Maduro said on state TV. The Latin American country also raised gasoline prices for the first time since 1996 as it struggles to avoid defaulting on foreign debt. Copper in London slid 0.6 percent, while gold slipped 0.3 percent to $1,204.80 an ounce in the spot market after jumping 0.7 percent last session.
On today’s US event calendar there will be some attention paid to the latest initial jobless claims number following the prior week’s strong data and also given that this will cover the survey period for the February employment report. Also due out is the Philly Fed business outlook for this month where a modest improvement is expected, albeit to a still lowly -3.0 (from -3.5). Later on we’ll get the index of leading economic indicators where a second consecutive negative reading is forecast (-0.2% mom). Earnings wise we’ll hear from 20 S&P 500 companies including Wal-Mart.
Bulletin Headline Summary
- In what has been a relatively tame session so far, EU bourses have extended on yesterday’s gains amid outperformance in the Utilities sector.
- Asian equities followed the lead from Wall Street to trade higher, while Chinese CPI printed a 5-month high (albeit below expectations)
- Looking ahead, ECB minutes, US Philly Fed Bus. Outlook and weekly jobs data and comments from Fed’s Williams.
- Treasury yields little changed in overnight trading as global equity markets mostly higher, oil rallies and gold sells off as risk sentiment improves.
- David Cameron heads to Brussels seeking to finish off months of negotiations on new European Union membership terms with a deal that he can put to the British people
- Cameron hopes to win concessions during the two-day summit that will pave the way for a referendum to be held in Britain as soon as June, in which voters will decide whether or not the U.K. should remain in the EU
- The final draft of the proposed deal has been leaked, according to the Financial Times
- The OECD cut its global growth forecasts, saying the economies of Brazil, Germany and the U.S. are slowing and warning that some emerging markets are at risk of exchange- rate volatility
- China’s central bank drained the most funds from the financial system in two years, mopping up excess cash from the financial system after flooding lenders with funds in the run-up to last week’s Lunar New Year holiday
- PBOC said it will start conducting open-market operations every business day, strengthening its influence on interest rates
- Oil extended gains above $31 a barrel in New York after industry data showed a decline in U.S. crude inventories, while Iran cautiously supported a proposal by Saudi Arabia and Russia to freeze production at near-record levels
- Iran’s qualified backing of an accord led by Saudi Arabia and Russia to cap output sowed doubts that the agreement can succeed in tempering a record global surplus
- Turkey’s prime minister blamed two Kurdish groups for a bombing in the capital that killed 28 people, ratcheting up tensions with the U.S., which has backed one of them as a major ally in the fight against Islamic State
- $8.1b IG corporates priced yesterday (YTD volume $213.35b) and $500m HY priced yesterday (YTD volume $10.125b)
- Sovereign 10Y bond yields mostly lower led by Greece (-25bp) and Portugal (-18bp); European, Asian markets mostly higher; U.S. equity-index futures higher. Crude oil rallies, copper and gold drop
DB’s Jim Reid concludes the overnight wrap
The S&P 500 (+1.65%) completed its first 3-day gain of the year yesterday, WTI Oil (+5.58%) is now 20% off the lows and at levels first breeched on the downside on January 11th. So we’ve had nearly 6 weeks of range trading rather than the relentless falls of the prior period. Also iTraxx financial senior (-9bps) and sub (-31bps) are 26bps and 65bps off their wides from last week.
US data continues to also hold up considering the recent market stress. Various economic surprise indices are pointing up for the first time in many weeks even if there are still some misses (yesterday’s housing starts an example). Interestingly industrial production (+0.9% mom vs. +0.4% expected) picked up strongly yesterday albeit with downward revisions to the previous month. As can be seen from the graph in today’s pdf, despite yesterday’s mom pick-up, industrial production (on a yoy basis) has never been this negative without it signalling a recession. Indeed IP has been a very reliable indicator of upcoming recessions. However we’ve been slightly dubious of this link in this cycle because it’s been so obvious that the manufacturing sector has never before been so decoupled from the much larger service sector so it could be a false signal this time. Yesterday’s rebound confuses this further, especially as we’re still negative yoy. As a reminder we are fully paid up secular stagnation fan club members but we don’t think the US is going into recession… yet!!!
Before we recap the highlights from yesterday, an update on the latest in China where the January inflation numbers have been released this morning. CPI was reported as rising +0.5% mom last month having been driven by a surge in food prices with non-food prices relatively stable. It’s worth warning that food prices tend to be subject to bouts of volatility and seasonality though. However, as a result that’s seen the YoY rate lift two-tenths to +1.8% although slightly less than the +1.9% expected by the market. That said, the data is trending in the right direction after CPI dipped as low at +1.3% in October and +0.8% twelve months ago. There is better news to come out of the January PPI print too which has risen six-tenths to -5.3% yoy (vs. -5.6% expected). That does however mark 47 consecutive months of factory gate deflation.
Looking at the market reaction, there’s been some modest gains for bourses in China with the Shanghai Comp and Shenzhen +0.52% and +0.56% respectively. Bourses elsewhere are trading with a decent tone meanwhile and seemingly following the lead from the US last night. The Nikkei (+3.02%) has gained despite some soft export data overnight (-12.9% vs. -10.9% expected) while the Hang Seng (+2.32%), ASX (+2.25%) and Kospi (+1.09%) are also up strongly. Credit markets are materially tighter while Oil is up another 2% this morning. That’s also keeping US equity futures in the green.
Yesterday saw the release of the FOMC minutes from the January policy meeting. While still a big focus, Yellen’s recent comments at her Semi-Annual Testimony meant a lot of the text was already pre-flagged. Overall the message pointed towards one of the Fed still being in a wait and see mode, keeping options open but with clear uncertainty around the outlook. A lot of the focus was on the factors driving the turmoil in markets in January with the text showing that ‘while acknowledging the possible adverse effects of the tightening of financial conditions that had occurred, most policymakers thought that the extent to which tighter conditions would persist and what that might imply for the outlook were unclear, and therefore judged that it was premature to alter appreciably their assessment of the medium-term outlook’. That being said, there was however the mention that ‘uncertainty had increased’ and so ‘many saw that these developments as increasing the downside risks to the outlook’.
It was also highlighted that ‘a number of participants indicated that, in light of recent developments, they viewed the outlook for inflation as somewhat more uncertain or saw the risks as being to the downside’. Unsurprisingly China was also highlighted as a concern amongst policymakers as well as the broader effects of a greater than expected slowdown in other emerging markets. A telling stat was that the word ‘uncertainty’ or ‘uncertain’ was mentioned 14 times compared to seven times in the December minutes.
Meanwhile, Boston Fed President Rosengren provided his updated view yesterday. His comments echoed a lot of what was said in the minutes, saying specifically that ‘recent global events may make it less likely that the 2% inflation target will be achieved as quickly as had been projected in forecasts’. As a result, Rosengren said that ‘if inflation is slower to return to target, monetary policy normalization should be unhurried’. St Louis Fed President Bullard followed this up with comments late last night saying that ‘I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations’.
All said and done the combination of yesterday’s minutes and the economic data did see the probability of a Fed rate hike by the end of this year nudge up to 41% from 34% on Tuesday. 10y Treasury yields closed up just shy of 5bps at 1.820% although were lower post the minutes.
The other main focus yesterday was again on Oil where along for gain for WTI, Brent rallied +7.21% to $34.50/bbl. Attention was centered on the Iran meeting where we had confirmation (WSJ) from the Iranian Oil Minister that they would support a plan from Saudi Arabia and Russia to curb production at January levels. That being said it still feels like there is a lot of noise around this with Iran not actually committing to anything specifically and with little obvious signal that they will be taking part in the production freeze.
For now though the fact that talks are happening appears to be fueling the better sentiment with the moves for Oil enough to support a strong risk-on day yesterday. Along with the gains across the pond, European bourses finished with big moves of their own with the Stoxx 600 closing +2.62% which means it has now finished with a daily gain of at least 2.6% in three of the last four trading days.
Meanwhile in terms of the rest of yesterday’s economic data, along with yesterday’s strong IP report in the US, manufacturing production was also up a better than expected +0.5% mom in January (vs. +0.2% expected) which was actually the most since July, while capacity utilization rose six-tenths to 77.1% (vs. 76.7% expected) although it’s worth highlighting that we did see downward revisions to December reports for this, MP and IP. Elsewhere building permits declined by less than expected last month (-0.2% mom vs. -0.3% expected) to go with the steep fall for housing starts (-3.8% mom). January US PPI was better than expected at the headline (+0.1% mom vs. -0.2% expected) although the YoY rate is still in deflationary territory (at -0.2%). That said the core was up a better than expected +0.4% mom last month (vs. +0.2% expected), lifting the YoY rate to +0.6%.
Meanwhile in the UK the December ILO unemployment rate stayed unchanged at 5.1% (vs. 5.0% expected), although earnings data was a little better than expected with average weekly earnings ex bonus up +2.0% in the three months to December (vs. +1.8% expected).
Taking a look at the day ahead now, the early data out of Europe this morning will come in France where the final revisions to January CPI are expected (no change expected at -1.0% mom). Away from that and due out just after midday will be ECB minutes from the January meeting which will be worth keeping an eye on. Over in the US this afternoon there will be some attention paid to the latest initial jobless claims number following the prior week’s strong data and also given that this will cover the survey period for the February employment report. Also due out is the Philly Fed business outlook for this month where a modest improvement is expected, albeit to a still lowly -3.0 (from -3.5). Later on we’ll get the index of leading economic indicators where a second consecutive negative reading is forecast (-0.2% mom). Away from the data the Fed’s Williams is due to speak tonight on his economic outlook at 8.30pm GMT. The Eurogroup’s Dijsselbloem is due to speak this morning at the EU Parliament Panel while the leaders of 28 EU governments are set to begin a two-day summit in Brussels where the Brexit debate and refugee crisis are expected to be hot topics. Earnings wise we’ll hear from 20 S&P 500 companies including Wal-Mart.
Let us begin:
Late WEDNESDAY night/ THURSDAY morning: Shanghai closed DOWN government / Hang Sang closed up by 438.51 points or 2.32% . The Nikkei closed up 360.44 or 2.28%. Australia’s all ordinaires was up 2.25%. Chinese yuan (ONSHORE) closed up at 6.5151 on a bigger than usual intervention by POBC in support of the currency, and yet they still desire further devaluation throughout this year. Oil gained to 31.29 dollars per barrel for WTI and 35.21 for Brent. Stocks in Europe so far deeply in the green . Offshore yuan trades 6.5215yuan to the dollar vs 6.5151 for onshore yuan/
Japanese trading WEDNESDAY night: the Nikkei rises despite their trade data crumbling as their exports fall 12.9% year over year.
(see story below)
Last night: China strengthens the yuan again. Data released show continuing deflation in all sectors. However what is totally uncomfortable for the POBC is the rise in consumer prices.
(see story below)
Japanese Trade Data Collapses, Crushes “Devalue Our Way To Prosperity” Dreams
Seriously – how many more times can a central bankers’ policies be exposed for the total sham that they are?
“The turmoil in global markets is making companies cautious about spending and also weakening global demand. That will be negative to Japanese exports,” Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo, said before the trade report was released.
“There will be no driver for Japan’s economy as domestic consumption may remain weak, and sluggish exports and production may weaken capital spending in the coming months.”
Japanese trade data was just unleashed on the world… and it is abysmal.
- *JAPAN JAN. EXPORTS FALL 12.9% Y/Y
Notably worse than the expected 10.9% drop and the biggest YoY plunge since October 2009. This was driven by a collapse in exports to the most rapidly contracting marginal economy in the world: China. According to Bloomberg, “exports to China, Japan’s largest trading partner, were down almost 18 percent, driving an overall decline of nearly 13 percent in the value of overseas shipments in January from a year earlier. Imports dropped 18 percent, leaving a 645.9 billion yen ($5.7 billion) trade deficit, the Ministry of Finance said on Thursday.”
But we thought that the market had decided China was fine?
Some more humor from Bloomberg:
Falling exports compound poor sentiment in Japan, where wage gains have stagnated, consumer prices are barely rising and households are reluctant to spend. This year stocks have plunged and the yen has gained more than 5 percent against the dollar amid concerns over China’s slowdown and U.S. growth. This adds to worries about the seesawing nature of Japan’s economy between modest growth and contraction.
Sarcasm aside, the chart below proves once and for all that the devaluation of the JPY did less-than-nothing to improve Japan’s competitiveness…
And then there is Imports – reflecting the “modest” improvement in the domestic economy…
- *JAPAN JAN. IMPORTS FALL 18.0% Y/Y
Nope – complete carnage!! The biggest YoY drop since october 2009…
Is it any wonder Abe says no more stimulus and Kuroda did not unleash anymore QE – they know it’s over and now it’s desperation.
We leave it to Alhambra’s Jeff Snider to sum up…Japan is the very definition of insanity…
GDP fell 1.4% in Q4 2015, marking the fifth contraction out of the past nine quarters and yet the word “stimulus” remains attached to QQE, the Bank of Japan and Abenomics in general. At this point, how much more time and sample size is necessary before calling it a failure? In about six weeks, Kuroda’s massive “stimulus” will mark its third anniversary and the best that can be said of it is that GDP has gone nowhere. Two and three quarters years later, real GDP (SAAR) in the last three months of 2015 was the slightest bit higher than Q2 2013 when everyone was so sure “stimulus” was all so sure.
The media provides all the evidence necessary as to why everything is so “unexpected.”
The data suggest Japan’s economy is still plagued by the weakness of domestic demand as it enters a fourth year of record monetary stimulus, with wages not rising fast enough to persuade consumers to spend.
There is no sign of a downward spiral in the economy but with the yen rising to trade at Y113.8 to the dollar in recent weeks, the figures put pressure on the Bank of Japan for even more monetary stimulus to encourage a strong round of wage rises this spring.
While economists try to determine if technical definitions for recession have been met, the plain truth of QQE is that monetary “stimulus” put Japan into recession almost immediately and it has never left. The key for any recession definition are the words “significant” and “sustained.” In other words, it is a significant and sustained deviation from the prior or underlying growth trend. By Japan’s GDP figures alone, Japan is in a significant and sustained period of weakness or contraction even when compared to the unsatisfactory growth that prevailed before it.
Since the first appearance of negative GDP in Q4 2013, long before the tax change, Japan’s average quarterly (SAAR) growth rate has been -0.07%. Period to QQE from just after the earthquake quarter, GDP averaged 1.74%. No matter how you present the GDP data, there was a significant change in economic growth dating to or close to QQE’s introduction. Since that burst of monetarism was enormous, just as policymakers had once claimed (curious, again, that commentary about QE in whatever form is derived by its tense; it will be powerful and effective vs. it was disappointing and needed more), that leaves little doubt as to the source of the economy’s digression from at least its prior trend, unacceptable as that might have been.
The fact that Japanese households have borne the brunt of the disaster only confirms its negating nature. Prior to QQE, household spending and income had been better than the overall GDP figures; after QQE, that relative position has reversed and intensely so. Nobody would accuse the Japanese economy of being robust between the tsunami and the start of 2013, but at least for households there was steady growth without “inflation” and disorder.Japan was certainly in need of re-orientation and reform so that its system could finally become a full economy once again, but QQE was the exact opposite of what was required – especially since it was just amplifying what had already failed nine times (at least) before.
The Bank of Japan and Abenomics in general put the Japanese economy into a recession from which it hasn’t yet recovered; nor are there any signs that it is even close to doing so. The conditioned response in the media and by economists is entirely the problem – it doesn’t take much to realize that “stimulus” created the recession, therefore more “stimulus” will likely only do the same.
“Consumption was weak, even after taking out seasonal factors, as households tightened their purse strings,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “The downside risks to Japan’s economy are likely to increase as the yen’s gains may damp capital spending and exports, and private consumption also is looking weak. There’s no clear driver to support Japan’s economy.”
That’s an astounding piece of commentary after nearly three years; to have “no clear driver to support Japan’s economy” is utterly damning. Monetarism doesn’t work, that much is inarguable no matter which data you use or how you use it. That it is directly harmful may be somewhat debatable, but that view is becoming less so with each passing quarter. Japanese households, in particular, were at least experiencing some steady growth prior and now they are most certainly not. Central bankers declare that the cost of implementing a full recovery, yet it is nowhere to be found even in overall GDP (which is the most generous account of any economy). After three years (let alone fifteen), there is no basis anymore for “stimulus.” None.
Sure enough, stocks are rallying in the dismal news in anticipation of some more insanity from Kuroda…
China Food Prices Soar Most Since 2013 As Producer Prices Hit 47th Straight Month Of Deflation
Another month and another massive deflationary print for Chinese Producer Prices. Year-over-year, PPI dropped 5.3% (‘better’ than the 5.3% drop expected and the 5.9% plunge last month) making this the 47th month in a row of deflation with mining’s collapse picking up again to -19.8% YoY. On th emore worrisome side, CPI rose 1.8% YoY, below expectations of +1.9% but still the hottest consumer price rise since August (and this was amid the greatest credit binge in history) driven by the biggest jump in food prices since 2013.
47th months and counting of PPI deflation… (all that stimulus is not helping)
But it is Consumer Prices that are more worrisome for the “gimme moar easing” brigade as the headline CPI hit 1.8% YoY – th emost since August, driven by a 4.1% surge in food costs – the most since Dec 2013…
And the blame for missing expectations – well they learned that from the Americans…
- *CHINA M/M CPI AFFECTED BY COLD WEATHER, CHINESE NEW YEAR
The month-on-month rise in CPI was affected by cold weather which lead to a rise in vegetable and fruit prices, as well as a pork price increase over the Lunar New Year holiday, the National Bureau of Statistics said in statement.
So to summarize, apart from New Years, Weather, and Pork prices, amid the biggest credit binge in recorded history (China January TSF rose half a trillion dollars), PPI continued to limp towards its deflationary hell and PPI missed expectations.. The trouble is of course that with protests already seen in the streets, social unrest will escalate dramatically if food prices start to soar even more.
China Unleashes A Debt Tsunami: Creates $1 Trillion In Debt In First Two Months Of 2016
One of the more stunning economic updates this week was China’s unprecedented surge in Chinese loan creation, when as reported earlier this week, China unveiled a whopping CNY3.42 trillion in Total Social Financing, its broadest debt aggregate, an amount greater than half a trillion dollars, of which CNY2.51 trillion was in new bank loans.
The reason for the surge was largely the result of frontloading loans, as well as lending to government projects in the first year of 13th Five Year Plan, which helped to boost loan growth. Many economists had expected loans to slow sharply in February as lending to government projects wound down.
However, it turns out this was just the start of China’s latest policy, which is really just a return to its old policy of flooding the economy with debt: as Market News reports expectations that “January’s surprisingly strong new loan growth would prove temporary may have been premature as bank officials in a number of Chinese cities say February new loans look to be just as strong, even with a week-long holiday in the middle of the month.”
According to MNI, new loans so far in February were similar to the levels during the same days of January.The total so far in February is seen at around CNY2 trillion already.
MarketNews adds that this was achieved despite fewer working days in February because of the lunar New Year holiday, suggesting even more loans were churned out every working day.
It also means that if the TSF components rose at a comparable rate as in January, then the total increase in aggregate Chinese debt is on pace to surpass CNY6.5 trillion, or $1 trillion in new debt created in 2 months! This is roughly how much outside money the Fed added to the US economy during one full year of QE3.
The surge was surprising. As MNI reports, the strong January numbers had been expected to moderate for a number of reasons.
- Firstly, Chinese banks typically try to get as much loan money out the door as possible early in the year to maximize interest income for the rest of the year.
- Secondly, Chinese companies have been paying down foreign debt on expectations that the yuan would continue to weaken and that process has been expected to slow.
- Thirdly, and perhaps the biggest surprise in the February loan growth thus far, loans for government infrastructure projects that helped boost the January data were expected to slow. That does not appear to be happening.
This means that just like Japan panicked on January 29 when it announced NIRP, so China too has taken on what may appear a step of desperation and is hoping to jumpstart the economy by flooding it with record mounts of debt. Mizuho said in a note to clients late Wednesday that a massive stimulus package is likely in the pipeline.
“We expect public infrastructure projects to receive another boost to stabilize the economic downtrend. This may include construction of intra-city railways, railways in the central and western provinces and making improvements in the agricultural sector. A new round of massive stimulus, in our view, will be announced around the National People’s Congress, which will likely convene in the second week of March,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd.
To be sure, the immediate impact from this credit surge will be favorable, if only in the near term as the following chart shows:
The downside to the surge in lending is that while it could support economic growth as the government undertakes much-needed structural reforms, it is also increasing the country’s already high debt burden. Credit is still growing much faster than even nominal GDP, which means China is getting far less economic bang for every yuan of lending.
Finally, recall that according to a Rabobank analyst, China’s debt/GDP is already at 350%. At this rate, it will surpass Japan’s 400% debt/GDP within the year, making China the most indebted nation in the world.
Most importantly, however, is that while the threat of NPLs coming to the fore has been a major concern for many China watchers, the indiscriminate surge in Chinese debt issuance means that the trillions in bad loans will be promptly masked by all the new loan issuance. It also means that China’s day of reckoning has likely been pushed back by at least 1 or 2 quarters.
Turkey Blames Kurds, Assad For Terrorist Attack, Vows Swift Response
Moments after a massive explosion rocked Ankara on Wednesday, we said the following: “Expect this to be pinned on either ISIS or the PKK. If it’s the latter, Ankara will once again claim that the group is working in concert with the YPG and that will be all the evidence Erdogan needs to march across the border.”
In short, we wondered whether the bombing – which apparently targeted military barracks – would be just the excuse President Recep Tayyip Erdogan needed to launch an all-out ground invasion in Syria. Turkey has been shelling YPG positions for nearly a week in an effort to keep the group (which Ankara equates with the “terrorist” PKK) from cutting the Azaz corridor – the last lifeline between Turkey and the rebels fighting to oust Bashar al-Assad. It’s unlikely that cross-border fire will ultimately halt the YPG advance and so, Erdogan needs an excuse to send in the ground troops.
Sure enough, Ankara has blamed the YPG for the attack and is vowing to retaliate. “Turkish Prime Minister Ahmet Davutoglu blamed a Syrian Kurdish militia fighter working with Kurdish militants inside Turkey for a suicide car bombing that killed 28 people in the capital Ankara, and he vowed retaliation in both Syria and Iraq,” Reuters reports, on Thursday. “Davutoglu said the attack was clear evidence that the YPG, a Syrian Kurdish militia that has been supported by the United States in the fight against Islamic State in northern Syria, was a terrorist organization and that Turkey, a NATO member, expected cooperation from its allies in combating the group.”
Right. It’s “clear evidence” of something alright, but “clear evidence” of what we’re not sure.
“The assailants have all been identified. It was Syrian national Salih Necar who was born in the northern Syrian city Amuda in 1992,” Prime Minister Ahmet Davutoglu said on Thursday. “YPG is a pawn of the Syrian regime and the regime is directly responsible for the Ankara attack. Turkey reserves the right to take any measure against the Syrian regime,” he added.
Obviously, that’s utter nonsense. Assad is fighting for his life. Both figuratively and literally. The idea that he spends his days plotting Ankara car bombs with the Kurds (who do not, by the way, wholeheartedly support the regime) is patently absurd.
For their part, the YPG says this is nonsense and also says Turkey’s self defense claim (used as an excuse to justify the shelling at Azaz) is equally absurd. “We are completely refuting that,” Saleh Muslim, co-chair of the PYD, told Reuters. “I can assure you that not even one bullet is fired by YPG into Turkey [because YPG doesn’t] consider Turkey as an enemy.”
Needless to say, this “terror attack” is exceptionally suspicious. Turkey is one of the countries with the most to lose if the effort to usurp Assad fails. And as you’re likely aware, the rebellion is on the ropes. Aleppo is surrounded by Russia and Hezbollah and it will fall in a matter of weeks. Once it’s recaptured by Assad, the rebel cause is lost. The rebellion will be over.
Sending supplies to the hodgepodge of Sunni rebels operating in and around the city is no longer sufficient and even if it were, the YPG is about to cut the last supply line. As we said last week, it’s do or die time for Ankara and Riyadh. Either go to war on behalf of the rebels orconcede defeat to Moscow and Tehran. The question, we said, is how Ankara will ultimately be able to pitch an intervention at Aleppo as a fight against terror when the ISIS presence there is relatively minimal.
Well, now we know.
Turkey will use the Ankara bombing – which killed 28 people – to justify a ground incursion to punish the YPG which, you’re reminded, are not only backed by Russia, but the US as well. “All necessary measures will be taken against [YPG and PKK] anywhere and under any circumstances. No attack against Turkey has been left unanswered,” Davutoglu promised. “All those who intend to use terror pawns against Turkey must know that [playing] this game of terror will hit them like a boomerang,” he added.
So there you have it: the excuse for Turkey to invade Syria and it’s the same as it ever was. Ankara is just “fighting terror,” like everyone else in the world.
For those unfamiliar, the YPG have been the most effective on-the-ground force when it comes to fighting Islamic State. They’ve managed to secure nearly the entire border with the Turks and are seeking to unite their territory east of the Euphrates with the towns they control west of the river, and that means capturing key border cities. For Turkey, that’s an unacceptable outcome, as it would effectively mean establishing a Kurdish proto-state on the border, a move that would likely embolden Turkish Kurds who are already seeking greater autonomy.
So invading Syria serves two purposes for Ankara: 1) it checks the Kurdish advance, and 2) it shores up the rebels fighting to overthrow Bashar al-Assad.
But while the Turks are known for being exceptionally capable on the battlefield, it isn’t clear they know what they’re getting into here. Hezbollah practically invented urban warfare and their fighters view martyrdom as an honor and a privilege (and not in the perverse way that ISIS conceptualizes death). Additionally, Hassan Nasrallah’s forces are backed by what is perhaps the most capable air force on the planet.
We close with a rather inauspicious quote from Davutoglu: “I repeat my warning to Russia – which lately gives air support for YPG to advance into Azaz and conducts heavy shelling on Syrian people – not to use the terrorist organization against innocent Syrian people and Turkey.”
Those who live in glass houses Mr. Davutoglu, should most assuredly not throw stones.
ISIS Stops Handing Out Snickers Bars, Gatorade As Cash Crunch Deepens
Late last month, we reported that ISIS has cut its fighters’ salaries in half due to “exceptional circumstances the caliphate is facing.”
Those “exceptional circumstances” include Russia’s unrelenting aerial campaign against the group’s illicit oil trafficking business in Syria. The US-led “coalition” likes to take credit for helping to cripple the oil trade, but in reality it was Vladimir Putin (and Zero Hedge) that put the issue in the spotlight in November.
After Putin’s comments at the G20 summit in Antalya and the subsequent aggressive push by the Russian air force to disable the group’s oil production and transport capabilities, the US was effectively forced to join the party. Asked why The Pentagon hadn’t hit ISIS oil trucks during the 14 months the US has supposedly been bombing the group, Washington responded by claiming that America didn’t want to risk collateral damage. In other words, Washington’s excuse for not targeting Islamic State’s $450 million/year oil trade is that the US was worried about a few truck drivers.
In any event, the group’s ability to fund its activities through the sale of stolen oil has been curtailed and it will be months (at least) before that money can be recouped through the capture of Libyan crude. That means less money for fighters and civil servants.
And it also means no more Gatorade.
And no more Snickers bars.
“The extremists who once bragged about minting their own currency are having a hard time meeting expenses, thanks to coalition airstrikes and other measures that have eroded millions from their finances since last fall,” AP reports. “Having built up loyalty among militants with good salaries and honeymoon and baby bonuses, the group has stopped providing even the smaller perks: free energy drinks and Snickers bars.”
Yes, no more damn Snickers. And when it comes to taxes and utility bills, it’s now “dollars only.” Here’s AP again:
Within the last two weeks, the extremist group started accepting only dollars for “tax” payments, water and electric bills, according to the Raqqa activist, who asked to be identified by his nom de guerre Abu Ahmad for his safety. “Everything is paid in dollars,” he said. His account was bolstered by another ex-Raqqa resident, who, like Ahmad, also relies on communications with a network of family and acquaintances still in the city.
That’s exceptionally ironic because it was just last August when ISIS released a propaganda video announcing the return on the gold dinar which the group said was set to replace a worthless “piece of paper called the Federal Reserve dollar note.” Back to AP:
“Circumstances include the dramatic drop in global prices for oil — once a key source of income — airstrikes that have targeted cash stores and oil infrastructure, supply line cuts, and crucially, the Iraqi government’s decision to stop paying civil servants in territory controlled by the extremists.
A former Raqqa resident now living in Beirut said Syrians abroad are sending remittances in dollars to cover skyrocketing prices for vegetables and sugar. The resident, whose wife and baby still live in the city, did not want his name used for their safety. One of the other ex-residents, now living in Gaziantep, Turkey, said the road to Mosul was cut off late last year, and prices have risen swiftly — gas is up 25 percent, meat up nearly 70 percent, and sugar prices have doubled.
In Iraq, where Islamic State has slowly been losing ground over the past year,the Iraqi government in September cut off salaries to government workers within territory controlled by the extremists, after months of wavering about the humanitarian costs paid by those trapped in the region. Iraqi officials estimate that Islamic State taxed the salaries at rates ranging from 20 to 50 percent, and analysts and the government now estimate a loss of $10 million minimum each month.
In the Iraqi city of Fallujah, fighters who once made $400 a month aren’t being paid at all and their food rations have been cut to two meals a day, according to a resident. The account of the resident, who spoke on condition of anonymity for fear of death at the hands of extremists, was supported by that of another family trapped in Fallujah that said inhabitants can only leave the city if they pay $1,000 — a sum well beyond the means of most in the Sunni-majority city that was the first in Iraq to fall to Islamic State in 2014.
IS is also allowing Fallujah residents to pay $500 for the release of a detainee, the family in Fallujah told the AP, saying that they believed the new policy was put in place to help the group raise money — a system akin to bail.
Mosul residents contacted by AP say IS has begun fining citizens who do not adhere to its strict dress code, rather than flogging them as before. The residents say they believe this is in response to financial problems in part because the group has already confiscated anything valuable, namely cars and other goods that are later resold in Syria.
As an aside, the Assad government still pays the salaries of civil servants in Raqqa. Those salaries are likely also taxed at high rates in order to line the pockets of top ISIS officials and, ironically, to continue the battle to destabilize Syria.
In any event, one important thing to note here is that to the extent ISIS is running out of cash, it isn’t a consequence of one airstrike on a Mosul cash center as AP and other Western media would have you believe. We’re talking about an organization that brings in a billion dollars a year here, so destroying a few million in hard currency isn’t going to make a difference.
This is a direct result of Russia’s move to decimate the oil trafficking business and that includes the PR effort to put Turkey’s role in the international spotlight.
Going forward, the big question is this: to what extent will ISIS be able to plug the funding gaps by commandeering assets in Libya, where the group isn’t subject to Russian airstrikes and where government (to the extent there is a government) forces aren’t backed by a major state actor like Iran?
Or perhaps the better question is this: how long before Libya becomes yet another theatre in World War III?
or those who might have missed it, here’s the actual ISIS document announcing the pay cuts:
* * *
Bayt Mal al-Muslimeen
Decision no.: n/a
Month of Safr 1437 AH [c. November-December 2015]
In the name of God, the Compassionate, the Merciful
God Almighty has said: “Go forth, lightly or heavily armed. And wage jihad with your wealth and souls in the path of God. That is best for you if you know” (al-Tawba 41) [Qur’an 9:41]. And on the authority of Anas (may God be pleased with him): that the Prophet (SAWS) said: “Wage jihad against the mushrikeen with your wealth, souls & tongues”- Musnad Ahmad: Musnad Anas Malek (11798).
Jihad of wealth has been mentioned with jihad of soul in the Qur’an in ten cases, and in nine of those cases jihad of wealth has been presented beforehand over jihad of the soul, and only in one case has jihad of the soul been presented beforehand over jihad of wealth. And on the authority of Omar bin al-Khattab (may God be pleased with him): “The Messenger of God (SAWS) ordered us to give charity and that coincided with the time I had some wealth. So I said: ‘Today I will outdo Abu Bakr, if ever I have outdone him.’ So I came with half of my wealth, and so the Messenger of God (SAWS) said: ‘What have you left for your family?’ I said: ‘The same amount.’ And Abu Bakr came with all he had, so he said: ‘Oh Abu Bakr, what have you left for your family?’ He said: ‘I have left for them God and His Messenger.’ I said: ‘By God, I can never outdo him in anything.'” (muttafiq alayhi).
So on account of the exceptional circumstances the Islamic State is facing, it has been decided to reduce the salaries that are paid to all mujahideen by half, and it is not allowed for anyone to be exempted from this decision, whatever his position. Let it be known that work will continue to distribute provisions twice every month as usual.
And God is the guarantor of success.
Australia Stops “Cooking” Its Jobs Report And The Result Is A Disaster: Full-Time Jobs Plunge Most Since 2013
One week ago, we were delighted to report that Australia admitted that its glorious, 6 and 8-sigma outlier job numbers from October and November, were nothing but a “technical issue” glitch, in other words, one big political lie.
Specifically it was Treasury Secretary John Fraser, who admitted during testimony to parliamentary committee that jobs growth for the two months in question “may be overstated.” What’s the reason? The same one the propaganda bureau always uses when its lies are exposed: “technical issues”,
There were some “technical issues” in October and November that may have made the employment figures “look a little bit better than otherwise would be the case,” he said. The technical issues relate to “rolling off” of participants in the labor survey.
Australia’s economy added 55,000 jobs in October and a further 74,900 in November, before shedding 1,000 in December to produce the record quarterly gain. Questions regarding the accuracy of the data have been raised following acknowledgment by the statistics agency in 2014 of measurement challenges.
In conclusion we asked “why the sudden admission it was all a lie? Simple: weakness in commodity prices “is far greater than people had been expecting,” Fraser said in earlier remarks to the panel. Australia is now “swimming against the tide” because of uncertainties in the global economy, he added.”
What this really meant, as we translated, is that: “we need more easing, and to do that, the economy has to go from strong to crap.” And with the Australian economy suddenly desperate for lower rates from the RBA, one can ignore the propaganda lies, and focus once again on the far uglier truth.
That “far uglier truth” was revealed moments ago, when not only was the “jobs miracle” of October and November buried for good…
… but suddenly – as we predicted – the far uglier truth finally emerged, when Australia reported that not only did total jobs tumble by 7,900, far below the +13,000 forecast (down from the December’s 800 job decline)…
… but the actual number of full-time jobs plunged by 40,600, the biggest monthly plunge since October 2013!
The end result a sudden, and unexpected bounce in the unemployment rate from 5.80% to 6.00%, some 20 basis point above the consensus estimate.
And judging by the corresponding tumble in the AUDUSD, suddenly the realization that the RBA – no longer able to delay reality – will be the next bank to ease as the Chinese deflationary tsunami proves to strong for anyone to resist.
Jobless Benefits Claims Soar 100% In Canada’s Dying Oil Patch As Construction Jobs Plunge 84%
2015 was not a good year for job creation in Alberta.
In fact, the net 19,600 jobs the province shed marked the worst year for job losses since 1982.
Alberta is of course suffering from the dramatic collapse in oil prices, which look set to remain “lower for longer” in the face of a recalcitrant Saudi Arabia and an Iran which is hell bent on making up for lost time spent languishing under international sanctions.
Suicide rates are up in the province, as is property crime and foodbank usage. The malaise underscores the fact that Canada’s oil patch is dying. WCS prices are teetering just CAD1 above marginal operating costs, and the BoC failed to cut rates last month, meaning it’s just a matter of time before the entire Canadian oil production complex collapses on itself.
On Thursday, a new industry report shows that crude’s inexorable decline could end up costing 84% of oilsands construction jobs over the next four years.
“The oilsands sector is in danger of losing its reputation as a job-creating machine,” The Calgary Herald writes. “A new industry report shows the sector may require 84% fewer construction workers in 2020 compared to 2015 as project cancellations pile up amid a crippling oil-price environment.” Here’s more:
“Overall workforce requirements for the oil and gas industry has been severely impacted by a reduction in investment,” said Carol Howes, vice-president of communications at Petroleum Labour Market Information, part of the industry-funded Enform based in Calgary.
As crude oil prices plunged, capital expenditures in the oilsands declined 30 per cent last year from $35 billion in 2014. Canada has led the world in project deferrals during the 16-month downturn, as oilsands projects with a combined production of three million barrels per day have been shelved, according to Tudor Pickering Holt & Co.
The downturn has taken the shine off Alberta’s job-creating engine and has wiped out 100,000 direct and indirect jobs according to one industry estimate.
Recruitment consultancy Hays estimates Canadian oil and gas workers saw a 1.4 per cent decline in their paychecks last year, compared to a cumulative eight per cent growth over the previous five years.
“Hiring has pretty much seized, unless it’s for a business critical position,” said Neil Gascoigne, global business development expert at Hays, based in Houston.
“A lot of the E&P business are going through significant restructure and looking to further reduce costs, and wages and salaries are one of their high costs.”
“Companies have cut as much as they can without jeopardizing their actual business.”
That reflects something we said back in October. Namely, there’s no more “fat” to be trimmed. In other words, further cost savings will have to come from salary cuts because going forward, cutting jobs altogether will imperil companies’ ability to operate.
Meanwhile, the number of people receiving jobless benefits in Alberta jumped more than 100% in December. “Statistics Canada said 62,500 Alberta residents received job-insurance benefits in December, up from 31,200 a year earlier and accounting for most of the 7.3% increase in job-insurance beneficiaries nationally,” WSJ wrote on Thursday, adding that Vancouver-based Finning International Inc., the world’s largest dealer of Caterpillar Inc. equipment, “said it would cut 400 to 500 jobs globally on top of the 1,900 positions since the start of last year.”
Going forward, the outlook is bleak as underlined by Canada’s Conference Board which on Thursday reported that its business-confidence index “suffered its third consecutive decline in the fourth quarter of 2015, falling 1.5 percentage points to 86.6.” That’s the lowest level since the crisis.
But don’t worry, “the decline was modest compared with the previous quarter, when the index plunged from 105.6 to 88.1.”
So things are still getting worse in Canada. Just at a slower pace. Allahu akbar.
The Economic Collapse
21 New Numbers That Show That The Global Economy Is Absolutely ImplodingBy Michael Snyder, on February 16th, 2016
After a series of stunning declines through the month of January and the first half of February, global financial markets seem to have found a patch of relative stability at least for the moment. But that does not mean that the crisis is over. On the contrary, all of the hard economic numbers that are coming in from around the world tell us that the global economy is coming apart at the seams. This is especially true when you look at global trade numbers. The amount of stuff that is being bought, sold and shipped around the planet is falling precipitously. So don’t be fooled if stocks go up one day or down the next. The truth is that we are in the early chapters of a brand new economic meltdown, and I believe that all of the signs indicate that it will continue to get worse in the months ahead. The following are 21 new numbers that show that the global economy is absolutely imploding…
#1 Chinese exports fell by 11.2 percent year over year in January.
#2 Chinese imports were even worse in January. On a year over year basis, they declined a whopping 18.8 percent.
#3 It may be hard to believe, but Chinese imports have now plunged for 15 months in a row.
#4 In India, exports were down 13.6 percent on a year over year basis in January.
#6 For the sixth time in six years, Japanese GDP growth has gone negative.
#7 In the United States, exports were down 7 percent on a year over year basis in December.
#8 U.S. factory orders have fallen for 14 months in a row.
#9 The Restaurant Performance Index in the United States has dropped to the lowest level that we have seen since 2008.
#10 This month the Baltic Dry Index fell below 300 for the first time ever.
#11 It is now cheaper to rent a 1,100 foot merchant vessel than it is to rent a Ferrari.
#12 Orders for Class 8 trucks in the United States dropped by 48 percent on a year over year basis in January.
#13 Due to a lack of demand for trucks, Daimler just laid off 1,250 U.S. workers.
#14 Even though Saudi Arabia and Russia have agreed to freeze oil production at current levels, the price of U.S. oil has still fallen below 30 dollars a barrel.
#15 It is being reported that 35 percent of all oil and gas companies around the world are at risk of falling into bankruptcy.
#16 According to CNN, 67 oil and gas companies in the United States filed for bankruptcy during 2015.
#17 The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.
#18 All over America, retail stores are shutting down at a stunning pace. The following list of store closures comes from one of my previous articles…
-K-Mart is closing down more than two dozen stores over the next several months.
-The Gap is in the process of closing 175 stores in North America.
-Aeropostale is in the process of closing 84 stores all across America.
-Finish Line has announced that 150 stores will be shutting down over the next few years.
-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.
#19 The price of gold is enjoying its best quarterly performance in 30 years.
#20 Global stocks have fallen into bear market territory, which means that about one-fifth of all global stock market wealth has already been wiped out.
#21 Unfortunately for global central banks, they have pretty much run out of ammunition. Since March 2008, central banks have cut interest rates 637 times and they have purchased a staggering 12.3 trillion dollars worth of assets. There is not much more that they can do, and now the next great crisis is upon us.
Without any outside influences, the global economy and the global financial system will continue to rapidly fall apart.
But if we do have a major “black swan event” take place, that could cause the bottom to fall out at any moment.
In particular, I am deeply concerned about the possibility that World War III could be sparked in the Middle East. In an article that I published earlier today entitled “Turkey Is Asking The United States To Take Part In A Ground Invasion Of Syria“, I included a quote from Turkish Foreign Minister Mevlut Cavusoglu that reveals just how eager Turkey and Saudi Arabia are for war to begin…
“Some countries like us, Saudi Arabia and some other Western European countries have said that a ground operation is necessary,” Turkish Foreign Minister Mevlut Cavusoglu told Reuters in an interview.
However, this kind of action could not be left to regional powers alone. “To expect this only from Saudi Arabia, Turkey and Qatar is neither right nor realistic. If such an operation is to take place, it has to be carried out jointly, like the (coalition) air strikes,” he said.
The Turks and the Saudis very much want the United States to take a leading role in any ground invasion of Syria, but the Obama administration is not likely to do that.
So we shall see if the Turks and the Saudis are willing to go ahead without us. Let us hope that they do not decide to invade Syria, because that could start the biggest war in the Middle East that any of us have ever seen.
Unfortunately, Turkey is already attacking.
Turkey has been shelling Kurdish and Syrian military positions in northern Syria for four days in a row even though the Obama administration has been urging them to stop.
The first month and a half of 2016 has already been quite chaotic, and the stage is set for global events to greatly accelerate during the months ahead.
Sadly, the mainstream media in the United States is largely ignoring the preparations for a ground invasion of Syria, and they keep telling us that the global economy is going to be just fine, so most ordinary Americans are going to be absolutely blindsided by what is about to happen.
Sweden To Store 1,800 Migrants On Docked Luxury Cruise Ship
Sweden has found itself at the center of the refugee debate in Europe.
On the heels of the sexual assaults that allegedly occurred in Cologne, Germany on New Year’s Eve, several Swedish media sources came forward with allegations that authorities conspired to cover up a wave of attacks perpetrated by Arab youths at a festival held at central Stockholm’s Kungsträdgården last August.
Additionally, there were multiple reports that Stockholm’s main train station is under siege by Moroccan migrant children, who apparently spend their days drinking, assaulting security guards, and accosting women.
Finally, in what likely marked the last straw for many Swedes, a 22-year-old refugee center worker was stabbed to death late last month by a Somali migrant “child” who was later found to be an adult.
(that’s the victim, not the migrant child)
Exasperated, some members of the “football hooligan” scene ran amok in the Stockholm train station late last month in an effort to wrest the transportation hub from the iron grip of child migrant gangs.
According to Interior Minister Anders Ygeman, Sweden now plans to deport 80,000 of the 163,000 migrants it sheltered in 2015, but that won’t stop the flow of refugees, which means the country is going to need to find more innovative ways to house the asylum seekers.
Fortunately, Migrationsverket (the Swedish migration agency) has a plan.
They will use luxury cruise ships to store migrants.
“Swedish tabloid Aftonbladet has revealed that one of the contractors which has agreed to provide floating accommodation for the agency, US Shipmanagers, has applied for planning permission to dock the ship, The Ocean Gala, in Härnösand, on the east coast of northern Sweden,” The Local reports. “However, local councillors are opposing the bid due to the size of the ship – which would become Sweden’s largest accommodation hub for asylum seekers if the plans go ahead.”
That’s right. The largest refugee center in all of Sweden is set to be the Ocean Gala, which could potentially hold 1,800 refugees. “At more than 185 metres long and with a 26,747 gross tonnage, she was the world’s biggest cruise ferry at the time of construction,” The Local goes on to note.
There was no word on whether the refugee contango is wide enough to make the floating migrant play profitable.
Officials were also silent on whether, when night falls and the refugees are asleep, The Ocean Gala will set a course for the Mediterranean.
Venezuela Devalues Currency By 37% As Maduro Announces 62-Fold Increase In Gasoline Prices
Maybe because between the specter of defaulting in under three months, the threat of handingover its gold to Deutsche Bank, or the reality of rampant hyperinflation and a collapsing society, the already crushed population of Venezuela did not have enough things to worry about, moments ago Venezuela’s Nicolas Maduro unveiled a double whammy of “shock and awe” when the socialist president not only announced the latest devaluation of the country’s official currency, but also presented his countrymen with the first gasoline price increase since 1996.
These moves represent the latest attempt to stem a widening economic crisis, though critics of the socialist leader quickly dismissed the moves as insufficient.
On the devaluation side, the latest measure of desperation will lower the strongest official exchange rate by 37% to 10 bolivars per dollar from 6.3, and streamline the previous three-tiered system into a dual exchange rate mechanism. The weaker of the two rates will be a “free float” based on an existing system that currently sells dollars at around 200 bolivars, Maduro said.
As Reuters reports, critics immediately questioned the latter claim, noting that the government has repeatedly announced “free-floating” systems that withered away precisely because authorities never allowed them to be determined by demand.
Meanwhile, Venezuela’s true “free floating”, market-clearing currency, the black-market “dolar today” recently plunged to over 1,000 per dollar, and was at 1,045.90 as of today. It is this currency that Maduro has sought to eliminate by actually suing the website that reports what it is on a daily basis.
That was the largely irrelevant awe, especially since virtually nobody transacts at the official exchange rate which is over 100 times stronger than Venezuela’s true currency level.
As for the shock, it came in the form of 62-fold increase in the price of 95-octane gasoline to 6 bolivars/liter.
The price of premium gasoline will rise by 1,329 percent, but fuel is so heavily subsidized that fueling a small car will still cost about half the price of a soft drink, or about $0.23 based on the black market exchange rate. 91-octane gasoline will cost 1 bolivar per liter
Putting these prices in perspective for western readers should result in laughter: the new price for 95-octane is equivalent to $0.11/gallon using weakest official Simadi FX rate of about 203 VEF/USD, and 5 times less using the black market FX rate. The price previously was 0.097 bolivar/liter or about one-fifth of a U.S. cent per gallon.
And while the price is indeed laughable to western readers, price increases such as this one are all too tragic to the local population which is paid in local currency terms, and for whom this is merely the latest checkmark on the hyperinflationary wall.
Maduro’s attempt to make the price increase more palatable failed: “The time has come for a system that guarantees access to oil products but that covers the cost PDVSA pays to produce it,” Maduro says during a national TV broadcast. “Venezuela has the cheapest gasoline in the world. The cost is almost nothing,” Maduro said before announcing new price.
But if it’s almost nothing then why do it, aside from antagonizing your already miserable people?
The reason is that the measures are meant to help shore up the OPEC nation’s finances as plummeting oil prices and a collapsing state-led economic model have left the country with a severe recession, triple-digit inflation and chronic product shortages.
“This is a necessary measure, a necessary action to balance things, I take responsibility for it,” Maduro said, in reference to the fuel hike during a combative four-hour speech in which he insulted opposition leaders and occasionally used foul language.
The reforms risk fueling triple-digit inflation at a time when millions are struggling to make ends meet, and comes two months after the ruling Socialist Party suffered a blistering defeat in parliamentary elections due to anger over the crisis.
The package will likely be seen by Wall St. investors, who are increasingly concerned about a potential default, as mildly positive but still vastly insufficient to help Venezuela make some $10 billion in debt payments amid a major cash crunch.
“Bottom line is no change to cashflow for this year and hefty year end debt payments,” wrote Siobhan Morden of Nomura in an email.
“The devaluation from 6.3 to 10 will not have a relevant impact,” wrote economist and pollster Luis Vicente Leon on Twitter. “With respect to the gasoline, the only way to consolidate is to adjust (the price) regularly, otherwise it will be pulverized by inflation.”
Critics say the only solution to Venezuela’s economic problems is to entirely dismantle the 13-year-old currency system created during the government of late socialist leader Hugo Chavez.
Which will happen, but not before Maduro first sells all the country’s gold, and then proceeds to obliterate the domestic economy, formerly known as the “socialist paradise” of Latin America.
We hope Bernie Sanders is paying close attention.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/THURSDAY morning 7:00 am
Euro/USA 1.1097 down .0023
USA/JAPAN YEN 113.84 down 0.447 (Abe’s new negative interest rate (NIRP)a total bust
GBP/USA 1.4371 up .0094
USA/CAN 1.3685 up .0006
Early THIS THURSDAY morning in Europe, the Euro fell by 23 basis points, trading now well above the important 1.08 level falling to 1.1097; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and the threat of continuing USA tightening by raising their interest rate / Last night the Chinese yuan was down in value (onshore) The USA/CNY up in rate at closing last night: 6.5150 / (yuan up but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)
In Japan Abe went BESERK with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP . The yen now trades in a slight northbound trajectory as IT settled up in Japan by 45 basis points and trading now well BELOW that all important 120 level to 113.84 yen to the dollar. NIRP POLICY IS A COMPLETE FAILURE AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP
The pound was up this morning by 94 basis points as it now trades just above the 1.43 level at 1.4371.
The Canadian dollar is now trading down 6 in basis points to 1.3685 to the dollar.
Last night, Chinese bourses were mainly in the green/Japan NIKKEI CLOSED UP 360.44 OR 2.28%, MOST ASIAN BOURSES HIGHER/ AUSTRALIA IS HIGHER / MOST European bourses ARE IN THE GREEN (EXCEPT LONDON) 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 THURSDAY morning: closed UP 360.44 OR 2.26%
Trading from Europe and Asia:
1. Europe stocks all in the GREEN (EXCEPT LONDON)
2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed UP 438.41 POINTS OR 2.32% ,Shanghai in the RED Australia BOURSE IN THE GREEN: /Nikkei (Japan)GREEN/India’s Sensex in the GREEN /
Gold very early morning trading: $1204.60
Early THURSDAY morning USA 10 year bond yield: 1.81% !!! DOWN 1 in basis points from last night in basis points from WEDNESDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.68 DOWN 1 in basis points from WEDNESDAY night.
USA dollar index early THURSDAY morning: 96.94 UP 7 cents from WEDNESDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers THURSDAY MORNING
Last night: WTI rises above 31 dollars on API huge drawdown:
(courtesy zero hedge)
Oil Extends Gains Above $31 After API Reports Surprise Inventory Draw
against expectations of a 3.5mm build (following a small draw last week), API reports total crude oil inventories shockingly drew down by 3.3 million barrels. MeanwhileCushing inventories also drew down (by 175k versus expectations for a 700k build and 523k build last week), but we note that Gasoline inventoriers rose (by 750k) for the 14th week in a row.
- Crude down 3.3 million
- Cushing: up 175,000
- Gasoline up 750,000
- Distillate down 2 million
Having rallied all day on Iran over-supply news (??), WTI extended its gains, pushing above $31 to the day’s highs.
With the Cushing draw supporting the front-month against the out curve…
Devon Energy Announces Sale Of $1 Billion In Stock, Dilutes Existing Shareholders By 13%
Congratulations to Devon Energy: moments ago it announced that with Goldman as underwriter, it became the first company to successfully access the equity offering window in a long, long time sell equity in the form of 55 million shares in stock, or just over $1 billion in proceeds assuming today’s closing price of $20.33. The proceeds will be used “for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program.” In other words, Devon is rusing to sell equity while it still can sell equity.
Devon Energy Corporation (DVN) (“Devon” or the “Company”) announced today that it intends to commence a registered public offering of 55,000,000 shares of its common stock, subject to market conditions. The Company also expects to grant the underwriters an option to purchase up to 8,250,000 additional shares of stock at the underwriters’ election. Net proceeds from the offering are expected to be used for general corporate purposes, including bolstering the Company’s liquidity position, reducing indebtedness and funding the Company’s capital program.
Goldman, Sachs & Co. is acting as book-running manager for the offering.
And while we congratulate management for confirming that even this modest bounce in oil is to be faded (as otherwise Devon would not be selling shares when its stock price is pennies away from a decade low), we offer our condolences to anyone who bought DVN stock after yesterday’s announcement that it would slash its dividend by 75%, something which supposedly had been priced in because the stock did not tank. Well it tanked today: as of this moment, DVN was down 6% and will likely continue to drift lower, making future equity offering once the just issued $1 billion runs out, that much more dilutive if not impossible.
Finally, if equity investors are so desperate that they will buy equity offerings by E&P companies, that means that the war of attrition between shale and Saudi Arabia will be far longer than most expect.
First Iran, Now Iraq Refuses To Commit To Oil Production Freeze
For all the euphoria about the proposed OPEC oil production freeze deal, the reality is that nothing has been actually decided. As readers will recall, the only “decisions” agreed to between the Saudi and Russian oil ministers were to cap production at already record high levels of output, however contingent on everyone else voluntarily joining said production cap.
Then yesterday, as part of its own meeting, Iran made it clear that while it supports efforts to push the price of oil higher, it would certainly not limit its output at current levels, and instead requires an explicit loophole granting it a production limit from the pre-sanctions period. This put OPEC in a bind: if it grants Iran special treatment, then who else will have a similar request.
The answer was revealed just hours later when Iraq earlier today stopped short of saying it would curb production of oil to prop up sagging prices, saying negotiations are still ongoing between members of the Organization of the Petroleum Exporting Countries.
According to the WSJ, Iraq oil minister Adel Abdul Mahdi said his country supports any decision that will serve producers, prop up prices and achieve balance in the crude markets. However, just like Iran he didn’t explicitly say whether Iraq would curb its own output but said any rapprochement between all sides to restrict crude output is a step in the right direction.
As the WSJ summarizes, his comments “came a day after Iran’s oil minister didn’t commit to limiting production, throwing into question the future of a plan brokered by Saudi Arabia and Russia this week for major oil producing countries to limit their output to last month’s levels.”
“The deterioration of the oil prices has directly impacted the global economy and the historical responsibly of the producers requires great speed in finding positive solutions that will help prices return to the normal [levels],” Mr. Abdul Mahdi said in a statement.
In other words, more of the same, or as we summarized it with a brief tweet one week ago:
Only it’s even worse, because while OPEC may have the luxury of cutting, even if its members do the unthinkable and decide to trust each other to comply (which they won’t), they still have to contend with the distressed US shale sector, which courtesy of several hundred billion in debt, has no such luxury, and must keep pumping just to repay the interest and maturities on its debt or face a wave of mass defaults, one which according to Deloitte could bankrupt as much as a third of the oil space.
And then, what’s worst for OPEC, is that even in bankruptcy (and after) US producers will still keep pumping especially with a debt-free balance sheet where the all-in production costs tumble; the same is true in the case of distressed M&A because any acquiror will i) have a far stronger balance sheet and ii) a motive to keep generating cash even if it means a modest loss; because shutting down production completely means foregoing on billions in revenue (regardless of margin) while mothballing costs are so prohibitive that most would rather just keep producing in hopes that “someone else” will cut production first.
The only problem is that no one else will be the first to cut.
For now, the market has ignored the nuances and is hoping that just the tentative indications of an OPEC deal are enough, pushing oil to the highest level in weeks. We don’t expect these prices to hold.
Oil Plunges After DOE Reports Across-The-Board Inventory Builds
The exuberance following last night’s surprising inventory draw from API has been erased as DOE reports inventory builds across the entire energy complex – crude +2.15mm, distillates +1.4mm, gasoline +3.04mm, and Cushing +36k. WTI Crude has dropped back below $31, erasing API-driven overnight gains.
- *CRUDE OIL INVENTORIES ROSE 2.15 MLN BARRELS, EIA SAYS
- *DISTILLATE INVENTORIES ROSE 1.40 MLN BARRELS, EIA SAYS
- *GASOLINE INVENTORIES ROSE 3.04 MLN BARRELS, EIA SAYS
And oil is plunging….
Crude Extends Losses As Saudi FinMin Says “Will Not Cut Oil Production”
While there was never any expectation of a production “cut” from Saudi Arabia, hope still remained that “discussions of a ‘freeze'” could be extrapolated to an ‘in-the-end’ cut down the line… That is over…
AFP has just reported that…
“Saudi Arabia isn’t ready to cut its production” of oil to support prices, which have been hurt by a supply glut, AFP reports citing interview with Foreign Affairs Minister Adel al-Jubeir.
Oil prices to be “determined by supply and demand and by market forces”
And Crude is extending its losses…
Of course this is just more noise as there was never any real news regarding expectations of a cut from The Kingdom and along with Iran and Iraq refusing to join discussions of a production cut, the rally of the last week seems on fragile ground.
Cushing Is Denying Storage Requests: Some Troubling Data From Genscape And Goldman
Yesterday, one of the best-known providers of energy market intelligence thanks to its massive private and patented network of land, sea, and satellite monitors, Genscape, held a webinar titled the “Current state of the global oil market” in which it covered all the core aspects that investors in the oil space find concerning, among which the following:
- Global oversupply of oil
- OPEC’s dilemma with Saudi Arabia keeping up pressure to not cut production
- North American crude oil production forecast
- Impact of sustained weakness in crude oil prices on U.S. production
- What does the decline in U.S. production mean for the storage glut and refinery supply?
- U.S. oil storage
- Cushing, OK, storage record-highs in April 2015 and January 2016
- Where will the crude oil go?
- Expectations for additional storage coming online
While some the key topics discussed focused on the most followed issue, namely total US supply and commercial oil stocks, which as can be seen are now at a record high and rising…
… and in fact at 504 million as of today’s DOE update which saw the addition of another 2.1 mmb last week, pushing total stocks to 78mmb (18%) above year ago levels…
…two charts stood out for us, perhaps the most important ones when it comes to the near-term trajectory of oil prices: namely storage capacity. Here Genscape joins the ever louder chorus that the US is approaching the capacity tipping point:
Further, Genscape adds that when looking specifically at Cushing, the storage facility is virtually operationally full (or at 80%) with just 4-5 more months at current inventory build left until the choke point is breached, and as we have reported previously, storage requests for specific grades being denied however the silver lining is that there is a lot of open pipeline space from Cushing to gulf coast (their full presentation can be watched here).
It is this capacity that is currently being filled because if looking at today’s DOE breakdown, while PADD 2 saw inventories rise by 2.25 million barrels to a new record high 155 million, the Midwest storage hub at Cushing was up only 36,000 – a divergence which confirms that Cushing is now routinely denying storage requests, something we noted first two weeks ago.
… which has in turn prompted some industry participants to ask if Cushing is already operationally full?
Which brings us to another point brought up yesterday by Goldman’s Damien Courvalin who warned yesterday that there are ever greater near-term risks of breaching PADD 2, where Cushing is located, storage capacity:
The large builds in gasoline and crude stocks have brought PADD 2 storage utilization near record high levels. While the recent decline in Midcontinent refining margins should help avoid breaching storage capacity, by finally bringing gasoline back into deficit, this will likely only exacerbate the build in crude inventories in coming months and should require further weakness in PADD2 crude prices to spread this build to the USGC. Weaker gasoline demand/exports, or higher margins/runs or finally resilient crude imports/production, could create binding storage issues beyond the intermittent Cushing WTI cash price weakness observed so far, which would require another large leg lower in crude prices to shut production in the Midcontinent and Canada. As we have argued, this continued testing of storage constraints should keep price and margin volatility elevated.
Which brings us to the key topic: is it excess supply or declining demand. Here are the facts: we know that OPEC may or may not “freeze” production at record output, even as Iran exports flood the market and US shale producers have no choice but to pump every last drop they can within the constraints of capex reduction.
Then there was the following just released earnings from the EIA, according to whose blog post, U.S. Gulf of Mexico (GOM) crude oil production is estimated to increase to record high levels in 2017, even as oil prices remain low.
EIA projects GOM production will average 1.63 million barrels per day (b/d) in 2016 and 1.79 million b/d in 2017, reaching 1.91 million b/d in December 2017. GOM production is expected to account for 18% and 21% of total forecast U.S. crude oil production in 2016 and 2017, respectively.
And then there is the demand aspect, which according to many is not a concern, but in reality as the charts below demonstrate, is sinking fast.
Exhibit A: US distillate consumption has now averaged just 3.5 mbd over the last 4 weeks, down a whopping 650,000 from this period year ago, as end-demand appears to have cratered.
This means that to make up for the plunge in demand, distillate stocks had to rise again, which they did by 1.4 mbd, now 27% higher than a year ago, and up to a record level for this time of the year:
Meanwhile, even as demand is declining, US refineries processed a record 15.8 mbd, up 406,000 bd form a year ago:
All of which suggests that with a broken OPEC cartel failing to cause supply declines, and with demand sliding, all interim steps in the process are operating and storing at or near capacity. Which in turn suggests that the warnings by the likes of Genscape, Goldman and others that US land storage is about to hit tank tops, are all too real.
It is only when the world realizes that this contingency is an all too real actuality, that the next leg down in the price of oil take place.
* * *
For those interested, the Genscape presentation can be watched in its entirety below
Portuguese 10 year bond yield: 3.40% down 8 in basis points from WEDNESDAY
Gold Glows, Bonds Bid, Crude Crumbles, FANGs Fizzle
It was all too easy there eh? Never. Gets. Old…
The US Open and NYMEX Close were the triggers today…
Stocks did not go higher today confounding business TV anchors worldwide…
But off last Thursday’s lows, it is still impressive…
The “short squeeze” ended today…
FANGs dropped 1.4% on the day – the biggest drop in 8 days (after 5 straight up days)…
Ugly afternoon for the FANGs…
Credit wasn’t buying it again…
Treasury yields declined for the first time in 4 days, led by a 6bps plunge in 30Y (3.5bps 2Y)…
As extreme options skews unwind…
The USD gained modestly again today, led by EUR weakness but we note JPY was bid (following overnight comments from Kuroda)…
USDJPY plunged into the close of NY trading…
Extending The BoJ’s utter fail even more… NKY back below 16000
Crude tumbled back to earth a little but gold (and silver) were the best performers today with a ramp starting as US opened and accelerating after EU closed…
Gold’s 2nd best day in 13 months…
Crude roundtripped its gains from API ‘draw’ overnight…
Bonus Chart: You Are Here
Bullard Admits It’s “Unwise” To Continue Rate Hikes, Says “If Needed” Will Do More QE
For the latest confirmation of just how trapped in a corner of its own making the Fed now finds itself, look, or rather read no further than the presentation given moments ago by St. Louis Fed president James Bullard before the CFA Society in St. Louis which was circular, confusing, illogical, and thus a splendid summary of the Fed’s “thinking” from beginning to end.
In it Bullard, who one month ago said he favors 4 rate hikes in 2016, said that it would now be “unwise” for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility, in comments that mark a stark change of direction for one of the Fed’s more hawkish inflation foes.
What he really meant is that having digested the Fed’s policy error which was the decision to hike rates in December in the middle of a global recession (as warned here quite explicitly) not only did global markets tank, but so did inflation expectations (the 5Y5y inflation outlook for the US was lower than that for Europe as recently as one week ago) with the market now pricing in not only a halt to rate hikes, but a return to ZIRP if not Negative rates in the U.S.
And here comes the first confirmation of just how confused the Fed is:
- BULLARD SAYS FED HAD GOOD REASONS TO HIKE IN DECEMBER AND DOES NOT CONSIDER THE MOVE A MISTAKE
Yes, the Fed it hiked: and the hike itself led to the collapse in not only inflation expectations but markets, and the latest devaluation of the Yuan. But one clearly can not be a Fed economist to realize all these very simple things.
The ironies continues: Bullard, who for much of last year argued for an earlier rate hike, said he now feels key assumptions supporting higher rates have been undermined.
Inflation expectations have fallen “too far for comfort,” making it more probable inflation itself will fall and continue to miss the Fed’s 2 percent target, Bullard said in remarks prepared for delivery to a gathering of financial analysts.
“I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations,” Bullard said. In addition, declining equity prices and other tightened financial conditions have made dangerous asset bubbles “less of a concern over the medium term.”
As a result, it would be “unwise” for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility.
And just like that, Bullard admits that just like all throughout the 2009-2015 period, the Fed remains hostage to the market’s every whim.
Then there was the topic of bubbles, which was mentioned on at least 8 separate occasions in his presentation. His point here was simple: at 2100, the S&P is too high and so the Fed was justified to hike; at 1900 the S&P is too low and the bubbles have popped. It appears that for the Fed, the Fed balance sheet implied fair value of 2,000 for the S&P is the perfect sweet spot of “fair value”.
This lunacy is best summarized by the following tweet:
Here is one of the Fed’s biggest fake hawks justifying the need for a full Fed relent, and halting the rate hike cycle until risk asset prices increase:
- BULLARD:TIPS SPREADS DOWN 100 BP; WANT TO SEE COME BACK UP
But what about the Fed’s own inflation survey which suggest far higher inflation expectation?
- BULLARD:DON’T TRUST SURVEY MEASURES OF INFL EXPCNS; TOO STATIC
Translation: these aren’t influenced by the S&P500 so ignore them.
Another question: what if the market is simply reflecting the slide of the world into another recession?
- BULLARD: DON’T THINK GLOBAL MKT SELL-OFF PREDICTING RECESSION
Oh ok. But what if it is?
- BULLARD: PLENTY OF CAPACITY TO EASE IF NEED TO
Yeah, 25 basis points.
But the punchline, and why tonight’s speech was a rerun of the first Bullard moment from October 15, 2014 when the market soared after Bullard hinted at QE4 was the following:
- BULLARD: MOST NATURAL OPTION IF NEED WOULD BE FURTHER Q.E.
And there it is: the first admission that the Fed is not only contemplating NIRP – in the middle of a rate-hike cycle no less – but also QE.
What should be most troubling for the Fed is that while any other time a Fed hint of more QE would have sent futures soaring, that this time nothing is happening as a result of the “second Bullard moment” is the most disturbing sign that not only can the Fed can no longer jawbone the market higher, even with the most nonsensical statements and hidden promises, but that the Fed is on the verge of losing control of the market.
For those who wish to waste 5 minutes of their life, his presentation is below (pdf)
Wall Street not impressed with WalMart even though they “beat” the street on earnings. However it was the all important revenue numbers which faltered and this shows that the company is not growing. They cut guidance:
(courtesy WalMart/zero hedge)
Wal-Mart Tumbles Despite Earnings Beat After Revenue And Same Store Sales Miss, Guidance Cut
Moments ago the world’s largest retailer by workers (if not by market cap any more courtesy of AMZN), reported non-GAAP earnings which at $1.49/share in Q4 beat expectations of $1.46 (GAAP missed at $1.43 but let’s ignore that). The company also announced that comp sales at Walmart U.S. were positive for the fifth consecutive quarter, up 1.5% with traffic increasing 1.7%.
That was the good news: the bad news for the company which many thought had “kitchen sinked” all near-term disappointment three months ago was that same-store sales at US locations were up only 0.6%, below the 1.0% forecast, that SSS at Sam’s Club declined by -0.5% ex gas below the +1% expected, that revenue of $129.7 billion missed expectations by $900 million, that Free Cash Flow declined notably to $15.9 billion for the full year compared to $16.4 billion the year before, that Operating Income continues to drop far faster than revenues, either with or without FX suggesting costs increases are far greater than the offsetting topline…
… and that it slashed guidance on the top-line saying that net sales growth is now “expected to be relatively flat, which compares to the previous estimate for growth of 3 to 4 percent on a constant currency basis.” The reason: rising wages and strong USD headwinds, precisely the two things which the Fed is desperately wants more of, which means that as long as Yellen keeps getting her way, stocks like WMT will suffer.
The full guidance.
- The impact from incremental investments in wages and training in the U.S. is projected to be approximately $0.30 per share for the full year. As a result of the timing of wage investments, the company expects the first quarter will be impacted somewhat more on a year-over-year basis than in subsequent quarters.
- Currency exchange rate fluctuations, based on current exchange rates, are expected to negatively impact net sales by approximately $12 billion for fiscal year 2017.Additionally, currency is expected to impact EPS by approximately $0.10 per share for the year, including approximately $0.03 in the first quarter.
- The company is updating its estimate for net sales growth for fiscal year 2017. Net sales growth is now expected to be relatively flat, which compares to the previous estimate for growth of 3 to 4 percent on a constant currency basis.This change reflects the impact from recently announced store closures globally, as well as the continued strengthening of the U.S. dollar. Excluding the impact of currency and store closures, our net sales growth guidance would have remained in the 3 to 4 percent growth range.
Finally, in n attempt to cushion the blow from its results, WMT announced it would boost its annual dividend from $1.96 to $2.00/share. Judging by the more than 4% plunge in WMT’s $210BN market cap (which accounts for more than 2% of the Dow Jones) after the earnings report few care.
Philly Fed Contracts For 6th Month In A Row As “Hope” Crashes To Nov 2012 Lows
While jobless claims look rosy, Philly Fed’s employment index plunged by the most since May 2013 as the headline survey extended its period of sub-50 contraction to six straight months – the longest streak outside of a recesssion in history. Across the board the underlying components were weak with current all tumbling led a collapse in average workweek, employment, and new orders. Worse still, the “hope” index plunged to its lowest since Nov 2012.
6 straight months of contraction flash red for recession…
The underlying components were a disaster…
As hope plunged…
The diffusion index for future general activity fell from a reading of 19.1 in January to 17.3 this month. The index has trended down since last summer and is now at its lowest reading since November 2012 (see Chart 1). The largest share of firms expects an increase in activity over the next six months (42 percent), but 25 percent expect declines. The future indexes for new orders and shipments also edged down slightly this month. Firms’ forecasts for future employment have been moderating the past few months. The future employment index fell from 5.5 to 2.3 this month, the third consecutive decline.The future workweek index also declined into negative territory for the first time in six months.
Bad News For Fed Doves – Initial Jobless Claims Plunge Near 43 Year Lows
After a dismal start to the year, pushing initial jobless claims to six-month highs, it appears ‘everything is awesome’ again as despite surging layoffs (Challenger, Grey and headline after headline in the press), initial claims tumbled to 262k this week – just above the 43 year lows of last fall. It’s not all ponnies and unicorns of course as continuing claims rise once again to 2.273mm – just shy of the highest levels in 7 months.
Initial claims tumble sback towards 43 years lows…
But Continuinmg Claims surges to 7 month highs…
We are sure as long as The Dow keeps falling that The Fed will stay on hold but this “good” data is clearly not helping the dives case.
“Worst Since Lehman”
If “everything’s fixed,” then why is the number of distressed debt issuers still the highest “since Lehman.”
And the answer is not – it’s just energy and it’s different this time.
Is Citadel Unwinding A $50 Billion Portfolio In The Aftermath Of The Surveyor Debacle
Two weeks ago, before the market was shaken by the most recent bout of volatility, one which led to the dramatic outcome of Birdgewater’s Pure Alpha suffering two consecutive 5% weekly losses as reported earlier, we received a tip from an insider that as a result of substantial losses at Citadel’s internal hedge fund Surveyor, Ken Griffen’s organization was not only laying off numerous portfolio managers and traders, but that the unwinds of the associated portfolios were a direct reason for the selloff suffered at the beginning of the month.
Without going into detail, we quizzed our readers the following on February 3:
Today, the WSJ has confirmed what we heard, when Rob Copeland wrote that Citadel “cut more than a dozen members of its investment staff this week in the wake of early losses for the firm in 2016.” This is true, however, when adding all the other PMs and investment managers who have quit or left on their own in the past month, the number is far greater.
The WSJ continues:
The Chicago-based firm, led by billionaire Kenneth Griffin, parted ways with analysts, associates and portfolio managers in its multibillion dollar Surveyor Capital arm. Surveyor is one of Citadel’s three internal units that bet on and against stocks worldwide. Last month, the firm replaced the longtime head of Surveyor, Jon Venetos. The unit recently had about 200 employees, with a majority considered investment staff.
Further validating our information, the WSJ notes that “through the second week of February, Citadel’s main fund is down 6.5% this year, a person familiar with the matter said.” As Copeland notes, “Mr. Griffin grapples with a money-losing stretch unusual for one of the hedge-fund world’s marquee names.“Perhaps the HFTs are no longer profitable?
In any case, that is only part of the story.
Here is what the WSJ missed.
As our source reveals, Citadel is quietly trying to unwind the $50 billion leveraged Surveyor portfolio.
Following massive losses last year by a Boston-based trader Scott Carmel (who lost over $150 million from 2015 through January 2016 trading financial stocks, and was fired for performance last month), Ken Griffin, angered by the underperformance of Surveyor vs the core Global Equities book, ordered the dismissal of several teams. As the WSJ confirmed today, more employees are expected to be fired soon.
Not surprisingly, Carmel promptly scrubbed his LinkedIn profile to remove any trace of association with Citadel although it still remains in the google cache.
As the WSJ also reported today, the head of Surveyor – Jon Venetos was demoted and quickly quit, leaving the unit in disarray.
What the WSJ did not note is that “now there is a desperate scramble to try to unwind a massively leveraged equities portfolio (over $50 billion gross).”
Our source concludes that “Citadel investors do not know the truth of what is happening here. They are trying to maintain the illusion but there is chaos amongst employees.”
Well, now Citadel investors are fully aware of what is happening there, even though Ken Griffen is doing his best to maintain the image that all is well by splurging $500 million on artwork by de Kooning and Jackson Pollock.
But what matters to our readers is whether or not Citadel’s unwinding of this major portfolio has concluded, or still a work in progress. Because quietly liquidating $50 billion in securities in a market as illiquid and choppy as this one, would be certain to move it and not in an upward direction.
Company Flagged By Kyle Bass As A Ponzi Scheme Was Just Raided By The FBI
Over the years, Hayman Capital’s Kyle Bass has gotten heat for his trade recommendations, with “virtual portfolio” pundits accusing the Texan of being a “one-hit wonder” ever since his subprime trade, with little else to show for his repurtation.
That is no longer the case: after making a strong case over the past 3 months that Texas-based REIT United Development Funding IV is nothing but a Ponzi scheme – a name he has been short – the stock tumbled, jumped, and then tumbled again.
However, after its most recent plunge moments ago which led to its being halted, we doubt it will rebound again.
The reason for today’s most recent, and surely final crash: an FBI raid of UDF’s Texas office.
As NBC DFW reports, the FBI on Thursday raided the office of a Grapevine company that has financed more than $1 billion in residential development across Texas, but some say the company operates as a Ponzi scheme.
Agents were seen carrying boxes out of United Development Funding on the 1300 block of Municipal Way and loading the boxes into large trucks.
UDF has acknowledged it has been under investigation by the U.S. Securities and Exchange Commission and said it was cooperating, but added no specific charges of wrongdoing have been made.
The FBI raid was the first indication that a criminal investigation into the company was under way.
A hedge fund founded by Dallas investor Kyle Bass, Hayman Capital Management, claims in a website that, “UDF exhibits characteristics consistent with a Ponzi scheme.”
Two weeks ago, UDF’s chief executive officer, Hollis Greenlaw, tried to defend his company when he posted an online message to shareholders accusing Hayman of making “false and misleading statements about our company.” We doubt he will have any witty rejoinders this time:
FBI spokeswoman Allison Mahan confirmed that agents were at the firm’s offices conducting a law enforcement operation, which she declined to characterize as a search warrant.
UDF stock is currently T1 halted, and we doubt it will reopen ever again.
Did The “Bartender & Waitress” Jobs ‘Recovery’ Just End?
In the new bifurcated normal US economy, with the manufacturing sector unofficially in recession, it has been the growth of the services sector, and, as we detailed here, implicitlythe surge in “bartenders & waiters” jobs, has saved the government’s “recovery” statistics in the last few years. Given the recent performance of the National Retail Association’s Restaurant Performance Index, the jobs recovery ‘party’ just ended.
Since December 2007, it is clear where the jobs gains have been…
But judging by the lagged effect of the collapse of the Restaurant Performance Index,that party is over…
Just like it was in 2008…
We are sure this is nothing that some double-seasonal-adjustments can’t fix, but for those who don’t believe in unicorns, the lagged impact of a collapsing manufacturing economy have now hit the services sector… and with that knocked the last leg of the “recovery” stool out from under The Fed.