feb 19/Huge increase in gold and silver comex OI in combination with huge increase in commercial net short positions/Oil falls by 78 cents for Brent and 91 cents for WTI/Japanese 10 yr bond yield: .013% /Japanese yen rises to 112.62 totally blowing a gasket with respect to the Central Bank of Japan’s motive of lowering its value to stimulate exports/Money market rates rise in China to over 9%/

Gold:  $1,230.40 up 4.30    (comex closing time)

Silver 15.37 down 6  cents

In the access market 5:15 pm

Gold $1226.50

silver: $15.34

At the gold comex today, we had a POOR delivery day, registering 3 notices for 300 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 a whopping 5721 contracts up to 174900. In ounces, the OI is still represented by .875 billion oz or 125% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI rose by a large 10,001 contracts to 440,453 contracts as the price of gold was up $15.00 with yesterday’s trading.

We had another change in gold inventory at the GLD,this time a huge deposit of 2.68 tonnes of gold  / thus the inventory rests tonight at 713.63 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 5721 contracts up to 174,900 as the price of silver was up 6 cents with yesterday’s trading.   The total OI for gold rose by 10,001 contracts to 440,453 contracts as gold rose by $15.00 in price from yesterday’s level.

(report Harvey)

 

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

2b) COT report

(Harvey)

 

3. ASIAN AFFAIRS

 

i)Late  THURSDAY night/ FRIDAY morning: Shanghai closed DOWN slightly    / Hang Sang closed down by 77.58  points or 0.40% . The Nikkei closed down 229.63 or 1.42%. Australia’s all ordinaires was down 0.79%. Chinese yuan (ONSHORE) closed down at 6.5202 on another bigger than usual intervention  by POBC  of cash through 7 day REPOS in support of the currency,  and yet they still desire further devaluation throughout this year.   Oil lost  to 30.28 dollars per barrel for WTI and 33.68 for Brent. Stocks in Europe so far deeply in the red . Offshore yuan trades  6.52708 yuan to the dollar vs 6.5201 for onshore yuan/

Japanese trading THURSDAY  night:  the Nikkei falls badly by 229 points reacting finally to  their trade data crumbling as their exports fall 12.9% year over year. The 10 yr interest rate plummeted to only .01% sending shivers down the spines of Abe and Kuroda.The drop in the 10 yr yield to .01%  (totally unbelievable) is driving the Central Bank of Japan crazy.  What is shocking the boys of the rising sun is the rise in the yen value:  instead of falling to the level of 122  it has risen to the 112 handle:

 

Last night: China weakened the yuan again.  Data released show continuing deflation in all sectors. The big story saw money market rates rise to as high as 9.6%.  There is also trouble in the shadow banking sector where B. of America believes that China will no longer bail out deficient entities.

(zero hedge)

ii)Up until now, the government has been bailing out deficient entities for failure to pay interest on  vehicles set up in China.  Bank of America believes that China will now let these guys fail setting off an avalanche of defaults and many dominoes cascading:

( zero hedge/Bank of America)

iii) China will no longer report on a key data which shows the size of capital outflows from its country.  This will make our life a little more difficult as this data is essential in understanding what is going on globally. However, China will need to fudge just about every other capital account.(courtesy zero hedge)

EUROPEAN AFFAIRS)

i a)  The Prime Minister of Great Britain, Cameron does an all nighter as he pushes for reforms so that he can sell it to his citizens.

( zero hedge)

 

i b) If Great Britain leaves the EU, then Paris and Frankfurt cannot wait to tackle the English’s stranglehold on financial trading.  England is the hub of financial trading throughout the world.

( GEFIRA)

ii) Consumer confidence levels plunge in Eurozone

(zero hedge)

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

i)Russia is demanding an end to Turkey’s efforts in Syria.  Russia has called an emergency meeting of the UN Security council to discuss what to do with Turkey’s aggression. We will watch developments on this front quite closely.

( zero hedge)

 

ii) It seems that Erdogan’s son Bilal Erdogan (of Turkey) has set up residency in Bologna Italy. Today he has been accused of money laundering as there is a full investigation on him;

( zero hedge)

 

iii)The USA are claiming that with direct hits on ISIS “banks” in Mosul they have effectively destroyed 1/2 billion of USA cash.

( zero hedge)

 

OIL MARKETS

 

i)It did not take oil long to tumble back below 30.00 dollars: exactly what we told you would happen!

( zero hedge)

 

ii) USA rig count drops heavily down 26 rigs  following last week;s 28 and the week before at 31.  This is the fastest 3 week plunge at over 17%. The rig count seems to track very nicely the falling oil price.  However rig productivity is increasing and thus production is still steady!

(courtesy zero hedge)

PHYSICAL MARKETS;

i)Ray Dalio of Bridgewater, believes that the next fix on the horizon is helicopter money as it goes directly where it is needed:  to the spenders:

( Ray Dalio/GATA/London’s Financial Times)

ii)Jim Sinclair and Bill Holter discuss many aspects of gold and silver( JSMinset/Holter-Sinclair collaboration/GATA)

 

iii)Bank runs anybody? Are we close to having them?

( Robin Wigglesworth/London’s Financial Times/GATA)

iv)Our quant specialist now tells us why our two hedge funds, Bridgewater and Citadel are facing problems:  lack of momentum (volume) in stocks.  He suggests that it is harder for stocks to rise due to lower S and P earnings forecast this year will be down and thus the reason for our two hedge funds getting whacked.  Interesting enough, our quant man from JPMorgan went long gold as he suggests it does have the mo jo behind it and it is time to load the boat.

(courtesy zero hedge/JPMorgan)

v)Miners are reacting to the lower gold price by cutting costs

( Lawrence Williams/Sharp Pixley)

vi)The dishoarding of gold by western central banks and the purchase of that hoard by Eastern nations:

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER

i)Our  Fed doves are certainly not going to like the consumer core prices and then prices with food and energy.  It rose at a rate of 2.2% which is higher than expected.  Shelter rose 3.7%.  It sure looks like Yellen will have her hands full if she tries QE4 down the road

 ( zero hedge)

 

ii) Just take a look at the problems facing public pension entities.  They are so underfunded that they are now trying to cut benefits today by 50% to save the systeam.

( zero hedge)
iii) this week’s wrap up is brought to you courtesy of Greg Hunter of USA Watchdog

Let us head over to the comex:

The total gold comex open interest rose to 440,453  for a gain of 10,000 contracts as the price of gold was up $15.00 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 as we actually gained in gold ounces standing for delivery.  In February  the OI fell by 256 contracts down to 278. We had 327 notices filed on yesterday, so we gained 71 contracts or an additional 7100 oz will stand for delivery. The next non active delivery month of March saw its OI fall by 105 contracts down to 1982. After March, the active delivery month of April saw it’s OI rise by 5023 contracts up to 306,818. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 219,802 which is fair.  The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 200,328 contracts. The comex is in backwardation until April.

 

Today we had 3 notices filed for 300 oz.
And now for the wild silver comex results. Silver OI rose by a whopping 5721 contracts from 169,179 up to 174,900 as  the price of silver was up by 6 cents with respect to yesterday’s trading. The next non active delivery month of February saw its OI fall by 0 contracts remaining at 1. We had 0 notices filed on yesterday, so we neither lost nor gained any  silver contracts that will stand in this non active month of February. The next big active contract month is March and here the OI fell by 3,421 contracts down to 65,251.  The volume on the comex today (just comex) came in at 54,771 , which is very good. The confirmed volume yesterday (comex + globex) was huge  at 92,555. Silver is not in backwardation at the comex but is in backwardation in London. First day notice is a week from Monday, the 29th of February.
 
We had 0 notices filed for nil oz.
 

Feb contract month:

INITIAL standings for FEBRUARY

Feb 19/2016

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil nil
Deposits to the Dealer Inventory in oz nil

 

Deposits to the Customer Inventory, in oz    nil
No of oz served (contracts) today 3 contracts
(300 oz)
No of oz to be served (notices) 275 contracts  (27,500 oz )
Total monthly oz gold served (contracts) so far this month  2335 contracts (233,500 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
Today, we had 0 dealer transactions
total dealer deposit; nil oz
total dealer withdrawals nil.
We had 0  customer withdrawals
i
total customer withdrawal:  nil oz
we had 0 customer deposits:

we had 1 adjustment

 

i) Out of HSBC:

 

384.815 oz was adjusted out of the customer and this landed in the dealer account of HSBC;

 

.

 JPMorgan has a total of 72,439.454 oz or 2.253 tonnes in its dealer or registered account.
***JPMorgan now has 634,356.528 or 19.731 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 3 contracts of which 0 notice was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account. 
 
To calculate the initial total number of gold ounces standing for the Jan contract month, we take the total number of notices filed so far for the month (2335) x 100 oz  or 233,500 oz , to which we  add the difference between the open interest for the front month of February (278 contracts) minus the number of notices served upon today (3) x 100 oz   x 100 oz per contract equals the number of ounces standing.
 
Thus the initial standings for gold for the February. contract month:
No of notices served so far (2335) x 100 oz  or ounces + {OI for the front month (278) minus the number of  notices served upon today (3) x 100 oz which equals 261,000 oz standing in this active delivery month of February (8.118 tonnes)
 
we gained 3 contracts  or an additional 300 oz will stand for delivery
We thus have 8.118 tonnes of gold standing and 8.7312 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing.
 
Total dealer inventor 280,326.961 or 8.7312
Total gold inventory (dealer and customer) =6,669,447.372 or 207.44 tonnes 
 
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. 
 
JPMorgan has only 21.99 tonnes of gold total (both dealer and customer)
end
 
 
And now for silver
 

FEBRUARY INITIAL standings/

feb 19/2016:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  780,103.425 oz

Delaware

CNT,Scotia

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 2042.190 CNT
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 13,362,972.7 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 1 customer deposits:

i) Into CNT: 2042.190 oz

 

total customer deposits: 2042.190 oz

We had 3 customer withdrawals:
i) Out of Delaware: 2011.200 oz
ii) Out of CNT:  606,140.995 oz
i11)Out of Scotia: 171,951.230
 
 

total withdrawals from customer account 780,103.425   oz

 

 we had 0 adjustments:

 

The total number of notices filed today for the February contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in February., we take the total number of notices filed for the month so far at (165) x 5,000 oz  = 825,000 oz to which we add the difference between the open interest for the front month of February (1) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing (830,000 oz)
 
Thus the initial standings for silver for the February. contract month:
165 (notices served so far)x 5000 oz +(1{ OI for front month of February ) -number of notices served upon today (0)x 5000 oz   equals  830,000 oz of silver standing for the February. contract month.
 
we neither lost nor gained any silver contracts that will  stand in this non active delivery month of February.
Total dealer silver:  28.909 million
Total number of dealer and customer silver:   155.202 million oz
Question: in a non active month again why so much activity in the silver comex?
 
 
end
Today at 3:30 pm we receive the COT report.  Let us head over and see what the crooks had in store for us:
First the Gold COT
COT Gold, Silver – February 19, 2016
Tweet LinkedIn Google + | Disqus
— Published: Friday, 19 February 2016 | E-Mail  | Print

 

Gold COT Report – Futures
Large Speculators Commercial Total
Long Short Spreading Long Short Long Short
209,101 91,741 46,240 127,800 259,784 383,141 397,765
Change from Prior Reporting Period
7,347 -11,585 493 6,443 33,504 14,283 22,412
Traders
167 115 86 47 59 255 222
 
  Small Speculators      
  Long Short Open Interest    
  45,771 31,147 428,912    
  3,796 -4,333 18,079    
  non reportable positions Change from the previous reporting period  
COT Gold Report – Positions as of Tuesday, February 16, 2016
And you thought last week was bad!!  Just take a look at this week’s data:
Our large specs:
Those large specs that have been long in gold added 7347 contracts to their long side
Those large specs that have been short in gold covered 11,585 contracts from their short side.
Our commercials;
Those commercials that have been long in gold added 6443 contracts to their long side.
Those commercials that have been short in gold added a monstrous 33,504 contracts to their short side and all of these contracts are non backed.
Our small specs;
Those small specs that have been long in gold added 3796 contracts to their long side
Those small specs that have been short in gold covered 4333 contracts.
Conclusions;
the lunatics are running the asylum!
And now for silver
Silver COT Report: Futures
Large Speculators Commercial
Long Short Spreading Long Short
80,249 21,532 18,689 44,638 114,700
2,141 -3,894 766 201 8,554
Traders
97 48 50 37 46
Small Speculators Open Interest Total
Long Short 166,645 Long Short
23,069 11,724 143,576 154,921
-1,127 -3,445 1,981 3,108 5,426
non reportable positions Positions as of: 161 126
  Tuesday, February 16, 2016   © SilverSe
Our large specs:
Those large specs that have been long in silver added 2141 contracts to their long side
Those large specs that have been short in silver covered 3394 contracts from their short side
.
Our commercials:
those commercials that are long in silver added a tiny 201 contracts to their short side
those commercials that have been short in silver added a monstrous 8554 contracts to their short side. (42.7 million oz)
Our small specs;
those small specs that have been long in silver pitched 1291 contracts from their long side
those small specs that have been short in silver covered 3551 contracts from their short side.
Conclusions:
the chance of a huge raid coming next week is 100%
end
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China

And now the Gold inventory at the GLD:

FEB 19/a huge deposit of 2.68 tonnes of gold into the GLD/Inventory rests at 713.63 tonnes

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 19.2016:  inventory rests at 713.63 tonnes

Now the SLV:
FEB 19/no change in inventory/inventory rests at 310.952 million oz
FEB 18/no change in inventory/inventory rests at 310.952 million oz
fEB 17/ a huge withdrawal of 1.237 million oz of silver removed from the SLV/Inventory rests at 310.952 million oz.
Feb 16.2016: a huge deposit of 3.809 million oz of silver added to the SLV/Inventory rests at 312.189
FEB 12 no change in silver inventory/inventory rests this weekend at 308.380 million oz
feb 11/ a withdrawal of 619,000 oz/inventory rests at 308.380 million oz/
Feb 10/no change in inventory at the SLV/rests at 308.999 million oz/
Feb 9/no change in inventory at the SLV/Inventory rests at 308.999 million oz/
Feb 8/no change in inventory at the SLV/Inventory rests at 308.999 million oz
FEB 5/we had no change in silver inventory at the SLV/Inventory rests at 308.999 million oz
Feb 19.2016: Inventory 310.952 million oz.
1. Central Fund of Canada: traded at Negative 4.9 percent to NAV usa funds and Negative 4.9% to NAV for Cdn funds!!!!
Percentage of fund in gold 63.6%
Percentage of fund in silver:36.4%
cash .0%( feb 19.2016).
2. Sprott silver fund (PSLV): Premium to NAV falls to  +2.36%!!!! NAV (feb 19.2016) 
3. Sprott gold fund (PHYS): premium to NAV falls to +.06% to NAV feb 19/2016)
Note: Sprott silver trust back  into positive territory at +2.36%/Sprott physical gold trust is back into positive territory at +0.06%/Central fund of Canada’s is still in jail.
 
 
 

end

 

And now your overnight trading in gold, THURSDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe
 
(COURTESY O’BYRNE/GOLDCORE)

“Own Some Solid Currency, In Other Words … Gold” Warns Faber

“Leave a million dollars with a bank, and in a year, you get only something like $990,000 back,” Marc Faber, respected publisher of the Gloom, Boom & Doom Report, told Bloomberg by phone yesterday.

“I would rather want to own some solid currency, in other words … gold” warned Faber.

gold_bloomberg_2016

Gold bears for years fed off the prospects for higher borrowing costs. Now bulls are thriving in a world where negative rates are becoming commonplace.

The Bank of Japan adopted negative rates last month to spur growth, joining central banks in Denmark, the euro area, Sweden and Switzerland. With about a quarter of the world economy facing negative rates in some form and growth faltering, gold has become one of this year’s best investments.

It’s a big turnaround for the metal which slid to a five-year low in December as the Federal Reserve readied for its first rate increase in almost a decade. With China’s slowdown roiling markets, there’s less chance the Fed will move again until next year. Negative rates mean depositing cash would leave investors with less than when they started, making traditional stores of value such as gold more appealing.

You can read the full article on Bloomberg here

Marc Faber is an eloquent advocate of owning physical gold which he describes as being a way to become “your own central bank.”  He believes an allocation to physical gold will serve as vital financial insurance and that Singapore is the safest place to own gold in the world today.

Marc Faber Webinar on Storing Gold in Singapore 

Essential Guide To Storing Gold In Singapore


LBMA Gold Prices

19 Feb: USD 1,221.50, EUR 1,101.14 and GBP 853.35 per ounce
18 Feb: USD 1,204.40, EUR 1,082.41 and GBP 841.19 per ounce
17 Feb: USD 1,202.40, EUR 1,080.57 and GBP 838.84 per ounce
16 Feb: USD 1,212.00, EUR 1,083.75 and GBP 838.04 per ounce
15 Feb: USD 1,208.45, EUR 1,078.94 and GBP 834.57 per ounce

For the week, gold is 0.4% lower and gold appears to have recovered from the falls seen on Sunday night and Monday morning.

For the week, silver is 0.7% lower and also appears to have recovered from the falls seen at the start of the week.

Both appear over valued in the short term and under valued in the medium and long term.

Smart money will continue to accumulate and dollar cost average into bullion.

 

Gold and Silver News and Commentary

“Bullion brokers GoldCore declared a bull market” – South China Morning Post

Gold sparkles amid global gloom to brighten mining sector – South China Morning Post

Gold firm above $1,200 as lower equities stoke safe-haven bids – Reuters

Gold Resumes Rally as ETP Assets Swell Amid Demand for Haven – Bloomberg

Gold rises, reverses earlier losses as equities pull back – Reuters

‘Helicopter money’ on the horizon, fund manager Dalio says – Finfacts

Gold Set to be the Most Popular Investment in 2016 – Prague Post

Questions and Answers with Bill Holter and Jim Sinclair – GoldSeek

New York Fed Suggests Large Asset Managers Are Systemic Risk Due To Runs – Value Walk

Negative interest rates a ‘dangerous experiment’ for the world as monetary policy hits buffers – Telegraph

Click here

Mark OByrne
end
Ray Dalio believes that the next fix on the horizon is helicopter money as it goes directly where it is needed:  to the spenders:
(courtesy Ray Dalio/GATA/London’s Financial Times)

‘Helicopter money’ on the horizon, fund manager Dalio says

Submitted by cpowell on Thu, 2016-02-18 20:52. Section: 

Robin Wigglesworth
Financial Times, London
Thursday, February 18, 2016

Bridgewater’s Ray Dalio has argued that central banks’ ability to invigorate economic growth has atrophied, and he predicts a new era of radical monetary policy possibly involving “helicopter money.”

Central banks around the world have been attempting to revive durable economic growth and combat deflationary forces through conventional measures like interest rate cuts and unconventional policies such as quantitative easing — or bond buying — and even negative interest rates.

But Mr Dalio, by one measure the most successful hedge fund manager of all time, argued in a note to clients that these measures have been exhausted and are increasingly ineffective.

“While QE will push asset prices somewhat higher, investors/savers will still want to save, lenders will still be cautious lenders, and cautious borrowers will remain cautious, so we will still have ‘pushing on a string,'” he wrote.

He therefore predicts that central banks will eventually have to usher in what he calls “monetary policy 3” — where rate cuts were the first stage and quantitative easing the second phase — which will more directly and forcefully encourage spending.

The Bridgewater founder says this third era of monetary policy will range from central banks directly financing government spending through electronic money-printing to what the famous economist Milton Friedman coined “helicopter money” in 1969 — in other words, central banks disbursing cash directly to households. …

… For the remainder of the report:

http://www.ft.com/intl/cms/s/0/5bc2c2be-d666-11e5-829b-8564e7528e54.html

 

END

 

Jim Sinclair and Bill Holter discuss many aspects of gold and silver

(courtesy JSMinset/Holter-Sinclair collaboration/GATA)

 

 

Sinclair and Holter discuss gold- and silver-related issues

Submitted by cpowell on Thu, 2016-02-18 21:07. Section: 

4:05p ET Thursday, January 18, 2016

Dear Friend of GATA and Gold:

Mining entrepreneur and gold advocate Jim Sinclair and his partner at JSMineSet.com, Bill Holter, have recorded a half-hour discussion addressing questions from readers about the world economy; the prospects for government currencies, gold, and silver; and other issues. The interview can be heard at JSMineSet.com here:

http://www.jsmineset.com/2016/02/18/questions-and-answers-from-readersfe…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

END

 

Bank runs anybody?

(courtesy Robin Wigglesworth/London’s Financial Times/GATA)

 

New York Fed warns that asset managers are vulnerable to ‘runs’

Submitted by cpowell on Thu, 2016-02-18 21:20. Section: 

By Robin Wigglesworth
Financial Times, London
Thursday, February 18, 2016

The New York Federal Reserve has warned that asset managers are vulnerable to quasi-bank runs that can cause “significant negative spillovers” across financial markets.

The combination of deteriorating trading conditions — especially in corporate bonds — and the swelling of the US mutual fund industry that promises investors the ability to redeem money at a moment’s notice has become an increasing concern for some policymakers, fund managers, and analysts.

While the New York Fed’s researchers have argued that bond market “liquidity” is not as bad as many traders and analysts maintain, they have examined the vulnerability of mutual funds to a sudden spurt of investor withdrawals, and concluded that they are indeed susceptible to “runs” despite not using leverage.

“The price dislocations that follow after large redemptions and liquidations are quite significant and have market-wide implication,” the New York Fed’s researchers said on the central bank’s Liberty Street Economics blog. “Investors seem to have become more skittish since the crisis and are quicker to redeem shares, and in larger amounts, for a given degree of underperformance.” …

… For the remainder of the report:

http://www.ft.com/intl/cms/s/0/4c000bba-d662-11e5-829b-8564e7528e54.html

 

END

Miners are reacting to the lower gold price by cutting costs

(courtesy Lawrence Williams/Sharp Pixley)

 

Gold miners cutting debt and production, improving margins

We speculated nine months  ago that gold mining companies’ successes in cutting costs might be coming to an end as most of the easy cuts had been made and anything beyond that would largely be window dressing – See: Has Gold Mine Cost Cutting Gone As Far As It Can Go?.  However we were wrong, although some of the key reasons that most gold miners have continued to be able to show both lower operating costs and better margins than the up-to-now falling gold price would suggest have been from factors completely outside the companies’ controls, with the oil price suffering a huge decline, which may only now be bottoming, and from the strength of the US dollar against producer nations’ own domestic currencies.

An interesting analysis from precious metals consultancy Metals Focus in a recent client newsletter, goes a little further.  It opens by pointing out that a few years ago when gold had started its decline from its 2011 high point of around $1,900 an ounce, a speaker from a prominent resource fund at one of the numerous gold conferences, expressed a wish to see the price fall further (it was around $1600 at the time), on the grounds that this would force the mining companies to tackle the then ever-rising operating cost scenario and ultimately make the companies financially stronger in the longer term.

A complex industry like mining can weather many storms.  It tends to get lax in its controls in good times, carried away by euphoria and pressures from greedy institutional shareholders who always want more, but who will then knife the miners in the back if things turn around adversely and their ever-growing profits start to fade.  But, as the resource fund speaker noted above suggested, such occasional severe setbacks do force the companies to at least start to put their houses in order and ultimately make their companies stronger.  That is until the cycle reverts and these things are long forgotten by a new generation of directors and managers and a degree of profligacy returns along with higher metal prices.

We are currently in the repair stages in the gold mining industry, but again we are of the opinion that there may no longer be much leeway in further operating cost cutting, as some of the external factors which have enabled many gold miners to stay afloat despite the big US dollar revenue falls, could be beginning to bottom or reverse.  Metals Focus notes that ‘looking at the industry as a whole, the average total cash cost has fallen $130/oz from the peak reached in Q2.13 down to $652/oz as of Q3.15. The average all-in sustaining cost (AISC) over the same period has been cut from $1,128/oz to $824/oz. In spite of the much lower price, this has resulted in improved margins. Basic margin between gold price received and AISC stood at $302/oz in Q3.15 which is actually higher than that recorded in Q2.13, $289/oz, when gold prices averaged $1,417/oz.’

But a large part of the industry’s problem has been that, in addition to allowing operating costs to rise faster than they should have done, many of the major miners had been embarking on hugely costly big low grade new gold mine capital programmes which, while looking potentially very profitable at a higher gold price will have led to real profit margins (in terms of free cash flow) decline sharply with the lower one.  A switch to mining higher grade sections of orebodies may have been possible in some cases (although this impacts adversely on future profitability and mine life) – but the real problem here was the massive build-up of the debt needed to finance the capital programs in the first place.

Debt servicing thus became an intolerable burden at the lower metal price, so it is no surprise perhaps that the biggest turnaround in the miners’ financial restructuring has been in reducing these huge debt levels, often by selling off non-core and low profit assets, and cutting back or eliminating any major future such expenditures.  This debt restructuring continues to have a significant positive impact in helping reduce All In Sustaining Cost (AISC) figures.

Companies like world No. 1 gold miner Barrick, for example, which had been building up enormous debt levels have very successfully been reducing these substantially – at a cost to the balance sheet, but providing a significant benefit to operating margins and lowering unit costs.  This will likely carry on at least until the miners see debt servicing costs returning to sensible levels and the finance sector may again be prepared to provide the wherewithal to develop big new projects again.  This may not be for some years yet.

One suspects that the asset disposals and more circumspect capital spending patterns will continue for the time being, all helping make for leaner and meaner mining companies, but it does also mean that output growth is now plateauing, and beginning to turn down according to the most recent available data.  Barrick, in demonstrating this, is targeting a production fall of around half a million ounces of gold in the current year compared with 2015, and more cuts looking further ahead.  With cuts in exploration and in building new operations to replace aging mines which would need to close anyway, output is set now for a continuing fall at many gold mining companies – perhaps for several years yet.

Now whether a fall in new mined output will seriously impact the gold price positively is debatable.  There are many other factors out there which can have an even bigger effect, at least in the short to medium term – See a recent article I’ve written on this subject:What does peak gold mean for the gold priceHowever a fall in global gold output will at least have an effect on sentiment towards gold investment while, as we see it, demand, particularly from the East where the ever-growing numbers of middle class consumers, with a traditional inbuilt propensity to use gold as a store of value against hard times, is continually growing.  Falling gold inventories in the West suggest that there is a looming crunch on physical gold supply as a result of continuously rising demand and potentially falling supply.  This will positively impact the gold price, and that of silver and the other precious metals, at some point in time.  It may already have started, but with a metal where the price is so dependent on the futures markets where sentiment and vested interest big money rule, we can’t be sure yet.  Gold and silver’s time will come – but when?

But back to the beginning of this article.  Can gold miners continue to cut costs further – indeed do they now need to given the recent gold price recovery if this is sustained?  Many analysts had predicted the demise of perhaps 50% of the global gold mining sector by now.  This hasn’t happened.  Indeed many look at gold’s 40% plus fall from its 2011 peak forgetting that the peak was a brief one and gold only averaged $1,572 that year – so the fall to the current price level from the 2011 average has only been 25%.  This has thus been a less serious fall than generally reckoned.  We suspect operating margins will still come down further, with the miners in cost-cutting mode, failing a decent gold price increase, despite oil prices beginning to pick up (but bear in mind many miners buy oil forward which means they can lock in current prices for a number of months ahead).  Cutting debt levels will also continue.  Meanwhile the huge cuts in capital programmes and exploration will mean there will be little new production coming on stream to replace shuttered operations.

Currency movements against the dollar are harder to predict.  For resource economies, low metal prices could still mean further depreciations against the US dollar, even though the Dollar Index itself could fall back given that this is most heavily weighted against non-resource currencies like the Euro, the Swiss Franc, the Japanese Yen and the British Pound.  There is no simple answer here.

Some major asset disposals will likely continue for the next year or so further bringing down debt and improving margins at the expense of balance sheet impairments.  So the outlook for the gold miners is perhaps more positive than many might imagine in terms of overall day to day profitability and free cash flow – even at current lower gold prices.  However there will be a continuing emphasis on improving margins which will lead to more low profit, or unprofitable, mines being shut or divested to smaller companies which may be more flexible in their approach.

As the fund manager quoted earlier was predicting, the shock of a falling gold price after 11 years of continuous rises, has certainly focused gold mining company management’s minds, while the stresses involved in doing so will continue to bear fruit for some years ahead.  The industry is definitely already meaner and leaner and now may well be the time for investors to climb back in – even though actual operating costs may start to trend upwards again as inflationary pressures begin to impact.

Article first published on www.sharpspixley.com

 

end

The dishoarding of gold by western central banks and the purchase of that hoard by Eastern nations:

(courtesy Steve St Angelo/SRSRocco Reprot)

Two Gold Charts Western Central Banks Are Worried About

 

Two Gold Charts Western Central Banks Are Worried About

 

There’s been a significant trend change in the gold market and it has the Western Central Banks worried.  Before the collapse of the U.S. Investment Banking system in 2008, annual net physical gold investment was negligible.  However, the present situation has changed considerably, putting severe stress on Western Central Bank policy makers.

Prior to 2008, many Central Banks (mostly Western) were net sellers of gold into the market.  This official Central Bank policy was designed to keep the gold price from moving up higher.  According to the figures from the World Gold Council, from 2003 to 2009, net sales of Central Bank gold totaled 2,846 metric tons (mt), or 91.5 million oz (Moz):

Central-Bank-Offical-Net-Gold-Purchases-2003-2015

Central Bank gold sales peaked in 2005 at 663 mt and accounted for 21% of total demand that year.  What would have been the market price of gold if the Central Banks didn’t dump 91.5 Moz over the seven-year period (2003-2009)?

Then something changed in 2010.  As the United States and other Western Central Banks (Japan & then the EU) continued their massive QE (Quantitative Easing – money printing) policies, Eastern and various Central Banks became net buyers of gold.

Net Central Bank gold buying started at only 79 mt in 2010, surged to 625 mt in 2011 and is estimated to be 588 mt for 2015.  Again, the majority of Central Bank gold purchases were from Eastern governments, especially in 2015.  Russia and China accounted for majority of Central Bank gold purchases last year.

What a trend change… aye?  From 2003-2009, Central Banks dumped 91.5 Moz of gold into the market.  However, this totally reversed as Central Banks were net buyers, acquiring 94 Moz of gold from 2010-2015.

While Western Central Banks dumped gold onto the market to suppress the price, Eastern Central Banks are doing the opposite.  Thus, Eastern Central Bank gold purchases have put more stress on “Net Physical Gold Investment.”  I say physical gold investment as I have excluded changes in Global Gold ETF inventories.  While Gold ETF’s are a gold investment vehicle, there is speculation that some (or a large percentage) of the Global Gold ETF inventories may be fictitious or oversubscribed.  By the term oversubscribed… it refers to the notion that there are more than one owner for each ounce.

To get an idea just how significant the trend change of net physical gold investment has been over the past several years, I created the chart below:

Net-Physical-Gold-Investment-vs-Total-Global-Demand

Basically, I took total physical Gold Bar & Coin demand for the year, subtracted or added Central Bank net purchases and divided it by total demand.  In 2003, total world Gold Bar & Coin demand was 304 mt and Central Bank gold sales were 620 mt for a net decline of total physical gold investment of 316 mt for the year.  Thus, net physical gold investment for 2003 was a negative 12%.  Which means, there was a 12% net disinvestment of physical gold in 2003.

I know this may sound a bit obtuse, but Central Bank gold sales are a liquidation of Central Bank reserves.  Furthermore, most of this Central Bank gold sales were used to supplement the overall market including Jewelry, Bar-Coin and Technology demand.

For example, here is the breakdown for 2003:

2003 Global Gold Demand

Jewelry = 2,484 mt

Technology = 386 mt

Bar & Coin = 304 mt

Total = 3,174 mt

Central Bank sales = -620 mt

Total Demand = 2,554 mt

Even though total world gold demand was 3,174 mt in 2003, Central Bank sales of 620 mt had a negative impact and lowered overall demand down to 2,554 mt.

As we can see from the chart above, net physical gold investment was actually negative or very low (2% in 2006) before the U.S. and World financial and economic markets collapsed in 2008-2009.  As Central Bank gold purchases increased after 2010, so did Gold Bar & Coin demand.

Let’s look at the peak year… 2013:

2013 Global Gold Demand

Jewelry = 2,673 mt

Bar & Coin = 1,706 mt

Central Bank = 625 mt

Technology = 354 mt

Global ETF change = -915 mt

Total = 4,443 mt

Here we can see that in ten years, there has been a significant increase in Gold Bar & Coin and Central Bank purchases.  In 2003, net physical gold investment (Bar & Coin – Central Bank sales) was a negative 318 mt versus a positive 2,331 mt in 2013.  Thus, net physical gold investment in 2013 accounted for a record 52% of total demand.

NOTE:  I did not use changes in Global Gold ETF’s in creating the “Net Physical Gold Investment” in the chart above, but I did use the total demand figures from the World Gold Council which were adjusted due to builds or declines of Global Gold ETFs.

Why is this so important?  Before 2008, net physical gold investment was minuscule or actually negative when we factor in Central Bank gold sales.  Even if we took total Gold Bar & Coin demand of 304 mt in 2003 and divide it by total demand of 2,594 mt, it would only equal 12% of total gold demand that year.

Regardless, Central Banks dumped gold onto the market to suppress the price and help supplement the market.  Now that Eastern Central Banks are net buyers of gold as well as the elevated Gold Bar & Coin demand, total net physical gold investment is consuming nearly 40% of total demand compared to the single digits prior to 2008.

Western Central Banks realize the price of gold determines demand, which is why they had to resort to knocking the price down from $1,600 to $1,150 at the beginning of 2013.  Even though demand picked up significantly in 2013, there was available stocks to loot from above ground stocks such as the GLD ETF to meet this demand.

However, I believe the real Western Central Bank strategy was to continue slowly pushing the price down lower to keep gold off the RADAR from the Main Street Investor.  There is speculation that China may be apart of the market rigging of gold, but it’s to their benefit in the long run, not the Western Central Banks.

There is one thing that I have not factored into the equation.  A lot of global jewelry demand is by Indians.  India consumed 654 mt of gold jewelry in 2015.  I would imagine most of this would be considered a “Store of Wealth”, rather than something used for adornment purposes only.  Yes, it’s true that the Chinese (and to lessor extent, Americans) purchased a lot of gold jewelry in 2015.  And yes, this gold can be sold back into the market at close to spot price if the owner is clever.

That being said, Indians view gold jewelry more as a store of wealth, than do the Chinese or Americans.  While some Chinese may be buying gold jewelry as a store of wealth, more Chinese have become like Americans and enjoy wearing gold more as adornment purposes.

Lastly, we must remember, nothing has changed since Lehman Brothers and Bear Stearns went bankrupt in 2008.  The situation in the financial system is much worse than it was in 2008.  I hear from several precious metal dealers that the wealthy investors are buying a lot of gold since the price spiked 5% in one day last week.

I believe 2016 will turn out to be an interesting year for the precious metals.  Today, the price of gold is up $30 at $1,238.  While the bullion banks continue to control the paper price, the new ABX fully allocated precious metal exchange will likely cause some real trouble for the Western Central Banks.

It wouldn’t take much of an increase of physical gold investment buying to totally overwhelm the market.  Keep an eye out for possible fireworks in the precious metal markets this year.  If this occurs, there is a good change that it may become impossible to acquire physical gold and silver.

 

end

 

And now your overnight THURSDAY NIGHT/ FRIDAY  morning trades in bourses, currencies and interest rate from Asia and Europe:

1 Chinese yuan vs USA dollar/yuan DOWN to 6.5202 / Shanghai bourse IN THE RED:  / HANG SANG CLOSED DOWN 77.58 POINTS OR 0.40%

2 Nikkei closed DOWN 229.63 OR 1.42%

3. Europe stocks all in the RED /USA dollar index DOWN to 96.81/Euro DOWN to 1.1100

3b Japan 10 year bond yield: FALLS  TO +.01    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.88

3c Nikkei now well below 18,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI::  30.12  and Brent: 33.68

3f Gold UP  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil up for WTI and up for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS  to 0.196%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate RISE to 12.05%/: 

3j Greek 10 year bond yield FALL to  : 10.75%  (yield curve deeply  inverted)

3k Gold at $1233.55/silver $15.45 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble DOWN  49/100 in  roubles/dollar) 76.89

3m oil into the 30 dollar handle for WTI and 33 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9936 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1029 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 FALLS to  + .196%

/German 8 year rate negative%!!!

3s The Greece ELA NOW a 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 1.72% early this morning. Thirty year rate  at 2.59% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

Futures Sink To Session Lows, Europe Slides Following Chinese RRR Hike Confusion, Brexit Concerns

Not even this morning’s mandatory European open ramp has been able to push US equity futures higher, and as a result moments ago the E-mini hit session lows on rising concerns about Brexit as talks drag on in Brussles, but mostly as a result of overnight confusion about China’s loan explosion and whether the PBOC has lost control over its maniacally-lending banks.

The biggest news overnight, in addition to the endless Brexit negotiations, was a report that the PBOC will hike RRR-rates on some banks, a move that may contain credit growth after advances by smaller lenders jumped in January. It also suggests that any incremental easing in China may be off the table for some time.

As a reminder, following January’s CNY3.42 trillion ( HARVEY : = 520 BILLION USA EQUIVALENT) surge in Total Social Financing, one estimate showed that February is already run-rating at roughly the same number, suggesting a total credit injection in the first two months of roughly $1 trillion. It is this surge that has apparently spooked the PBOC. 

The central bank said in a Friday statement that some banks no longer meet criteria for preferential reserve requirement ratios and will have those levels increased. Prior to the announcement, Bloomberg News reported that some lenders will face a higher ratio as officials seek to limit the risks associated with last month’s jump in credit. The PBOC said its action wasn’t driven by the speed of lending.

A notable item is that the collective loan market share for ICBC, China Construction Bank, Agri Bank and Bank of China dropped to 20% last month from almost 40% in December, the figures show. This suggests that China’s four biggest banks weren’t the driving force behind last month’s credit binge. Small- and medium-sized lenders extended a combined 1.45 trillion yuan ($222 billion) of the new loans in January, accounting for 60 percent of the total increase.

While big banks are showing caution, smaller banks “are desperate to lend,” said Mu Hua, a Guangzhou-based analyst at GF Securities Co. “I just can’t figure out where would they find so many good projects to lend to. That’s probably raising some red flag to the central bank.”

What was truly bizzare is that between the first Bloomberg report and the subsequent PBOC confirmation, PBOC governor Zhou Xiaochuan said during a forum in Beijing that he “didn’t hear about” raising reserve-ratio rate for some banks, China Business News reported, opening up questions about just what is going on with monetary policy in China and who is making the decisions.

As a result of this PBOC confusion, US equity futures’ attempt to stage an overnight breakout failed, and the E-mini was trading down 9 points sessions lows at 1906 moments ago, while stocks in Europe and Asia trimmed weekly gains as oil fell for the first time in three days, denting optimism that this year’s rout in commodities was easing: as of this moment the European Stoxx 600 was down precisely 1.1%, while Spain’s IBEX was down 2%.

As Bloomberg adds, a global equities gauge fell for the first time in six days, bringing to an end a rally fueled by the first signs that producers may consider steps to rein in a record crude glut. Friday’s drop in energy prices dragged the Bloomberg Commodity Index lower even as industrial metals rose. Britain’s pound declined as David Cameron negotiated with European Union leaders over the U.K.’s membership of the bloc, while German bonds rose. The yen strengthened against all of its 31 major peers, with the biggest gains coming versus Asian counterparts.

“It’s a bumpy stabilization on oil, currency, spreads and equities,” said Didier Duret, who oversees about $219 billion as chief investment officer of ABN Amro Bank NV’s wealth-management unit. “The tail of energy has moved the psychology of the market.”

* * *

Looking at regional markets, we start in Asia, where stocks declined following from the negative lead from Wall St where stocks snapped a 3-day gain as oil weakness dampened sentiment. This saw the energy sector underperform across the region with the ASX 200 (-0.79%) further pressured by poor results from Santos. Nikkei 225 (-1.42%) is the laggard amid JPY strength, while the Shanghai Comp (-0.1%) saw indecisive trade as participants, however fell late in Asian trade amid source reports that the PBoC is said to have increased RRR for banks that bolstered lending too fast following the record lending data in China. 10yr JGBs tracked the gains seen in UST’s as the risk off sentiment globally spurred demand for safe-haven assets.

As noted above, the PBoC stated it has reviewed banks regarding RRR cuts, with some banks not meeting standards on targeted RRR cuts and as a result cannot enjoy the preferential RRR ratios beginning Feb 25th. This comes after PBoC’s Governor Zhou denied knowledge of source reports that the central bank have increased RRR for banks that bolstered lending too fast.

Asian stocks fall with the Kospi outperforming and the Nikkei 225 underperforming; The Nikkei 225 -1.4%, Hang Seng -0.4%, Kospi +0.4%, Shanghai Composite -0.1%, ASX -0.8%, Sensex +0%; 2 out of 10 sectors rise with utilities and health care outperforming and energy and consumer discretionary underperforming.

European markets have seen somewhat of a Friday lull so far, with newsflow particularly light and much of the price action relatively range bound. Price action has been somewhat guided by WTI and Brent futures, which both saw a bid in early European trade to retrace some of the losses in the wake of yesterday’s DoE inventories. As such WTI Apr’16 futures rose to test USD 33.00/bbl but failed to make a firm break and as such have come off their best levels in recent trade.

The Stoxx Europe 600 Index slid 0.5 percent at 11:14 a.m. London time, after rising as much as 0.3 percent. While the equity benchmark was set for a 4.7 percent gain this week, it’s still down more than 10 percent this year amid concerns ranging from global growth and the deepening oil slump, to the creditworthiness of lenders and dissipating faith in central-bank support.

Bunds have also been relatively range bound today, trading modestly higher after closing the opening gap shortly after the Eurex open, with little price action seen in the periphery. Additionally, analysts at Mizuho note that increase in average duration of EGB indexes this month-end will be a large 0.13yrs, which should be supportive for cash bonds. They also state that Austria, Italy and France will be the main beneficiaries from extension flows

“We remain reasonably confident that Europe can avoid a major macro slowdown, but current market pricing suggests otherwise.”, UBS says in note. “The markets seem to have taken a more negative view than we have on the severity of problems in the financial sector and their likely fallout on the European credit channel. The markets also seem to suspect that the ECB is running out of options to lift the economy.”

In commodities, West Texas Intermediate crude slipped 1.8 percent to $30.21 a barrel after rising the past two days on statements by the Saudis, Russians and Iranians. Brent fell 1.8 percent to $33.67.

U.S. crude stockpiles rose by 2.15 million barrels to 504.1 million last week, according to the Energy Information Administration. That’s the highest level in EIA data going back to 1930. In another sign of the glut, supplies at Cushing, Oklahoma, the biggest U.S. oil-storage hub, rose to a record 64.7 million barrels. The site, which is the delivery point for WTI, has a working capacity of 73 million, according to the EIA.

Gold lost 0.6 percent to $1,223.93 an ounce after posting a two-day, 2.5 percent jump. Copper rose 0.3 percent to $4,589 a metric ton while zinc, aluminum, tin and lead all gained more than 1 percent. Zinc is poised for its first five-week run of gains since last May and nickel is set for its biggest weekly increase since May 2014.

In FX, all the action has been in GBP this morning, with the UK retail sales numbers adding event risk to the overhang of the EU summit this morning. Early reports of selling vs the SEK fed through Cable, knocking the latter spot rate from 1.4335-40 levels down to just below 1.4300. Strong buying resumed ahead of the consumer numbers, but despite a strong read, the lack of upside progress saw the intra market turn tail to send Cable back to new lows on the day. Elsewhere, CAD and the rest of the Oil related currencies remain on the back foot, though Oil prices are relatively stable, albeit at lower levels. Euro bourses and S&P futures pretty flat on the day, helping to support USD/JPY off the earlier lows, but the heavy tone is clear to see. AUD on the back foot also, though finding some support below .7100.

The key event in the US January will be January’s CPI print where current expectations are for a -0.1% mom headline and +0.2% mom core readings which would take the YoY rates to +1.3% (up-six tenths from December) and +2.1% (unchanged versus December) respectively. In terms of Fedspeak we are due to hear from Mester at 1.30pm GMT on her economic outlook. EU leaders are also set to conclude their summit in Brussels (with Brexit discussions high on the agenda) while the ECB’s Constancio is due to speak this afternoon.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European stocks trade broadly in negative territory in what has been somewhat of a quiet end to the week.
  • UK retail sales beat expectations across the board, however downward revisions sees GBP pressured, while participants keep a close eye on the EU summit for any developments regarding Brexit talks.
  • Looking ahead, highlights include US CPI, ECB’s Draghi (Soft Dove) and Fed’s Mester (Voter, Soft Hawk)
  • Treasury yields mostly steady overnight as global equity markets and oil lower; CPI and average weekly earnings reports to be released at 8:30am ET.
  • Central banks embrace negative rates that economists scorn as just 27% of respondents in a Bloomberg survey say negative rates will help the BOJ boost feeble inflation and only 42% say the policy is succeeding in the euro area
  • U.K. retail sales surged the most in more than two years in January, boosted by demand for clothing and computers. The 2.3% jump in the volume of sales was almost three times the pace of growth forecast by economists in a Bloomberg survey
  • David Cameron pleaded for a deal on the U.K.’s EU membership that he can sell to British voters. The prime minister ran into resistance from eastern European states over demands for more welfare curbs on non-British citizens
  • Wall Street’s biggest banks boosted their Treasury holdings to the highest level in more than two years, and one of them says that’s a warning sign for the market
  • China’s central bank said some banks will be forced to lock away more reserves, a move that may contain credit growth after advances by smaller lenders jumped in January
  • Milan prosecutors are probing whether Credit Suisse engaged in money laundering and evaded taxes when it sold billions of euros of insurance policies that clients from Italy used to shield funds from tax authorities
  • In a secret meeting convened by the White House around Thanksgiving, senior national security officials ordered agencies across the U.S. government to gain access to the most heavily protected user data on the most secure consumer devices, including Apple’s iPhone
  • $8.1b IG corporates priced yesterday (YTD volume $221.45b) and $1b HY priced yesterday (YTD volume $11.125b)
    Sovereign 10Y bond yields mostly lower led except Greece (+11bp); European, Asian markets mostly lower; U.S. equity- index futures mixed. Crude oil and gold drop, copper higher

DB’s Jim Reid concludes thes overnight wrap

With newsflow taking a bit of a breather, there hasn’t been a lot to drive markets over the last 24 hours or so. US equity markets in particular saw the strong 3-day rally come to a bit of a stuttering and unspectacular end yesterday. Some bleak Wal-Mart numbers certainly weighed on the retail sector, while the latest swing in the daily oil rollercoaster moved from hope around the Iran and Saudi Arabia/Russia production meetings back to the reality of the current fundamental picture following the latest set of bearish US crude inventory numbers. WTI was up as high as $32/bbl prior to the data and the highest in 9 days, before paring the bulk of the day’s gains to close at $30.77/bbl after data showed that crude stockpiles extended an 86-year high in the US. The S&P 500 eventually closed -0.47% while in Europe we saw the Stoxx 600 (+0.04%) finish pretty much unchanged having got off to a reasonable start prior to that oil data. Peripherals (IBEX -0.83%, FTSE MIB -1.53%) were notable under-performers though.

Away from this, various US economic surprise indicators improved again yesterday with both initial jobless claims (262k vs. 275k expected) and the Philly Fed manufacturing index (-2.8 vs. -3.0 expected) ahead of expectations. The improvement in the four-week moving average for claims to 273k (from 281k) in the NFP survey week was seen as particularly positive although the details in the breakdown of the Philly Fed data was less so. Prices paid (-2.2 vs. -1.1 previously), new orders (-5.3 vs. -1.4), inventories (-17.1 vs. -15.7) and number of employees (-5.0 vs. -1.9) in particular increase the risk that the next manufacturing ISM survey remains in contractionary territory when we receive the latest data in a couple of weeks.

US Treasury yields marched lower across the curve although the moves were essentially tracking the fall in oil from mid-afternoon. The benchmark 10y finished 8bps lower at 1.740% and is back to more or less where it closed last week. Credit markets reflected the lack of direction with indices in the US finishing flat, while weakness in European financials (iTraxx Senior +4bps, Sub +6bps) drove Main and Crossover 2bps and 4bps wider. Reassuring however was another strong day of primary across the pond with over $8bn of deals said to have priced. This shows that there is still demand for the asset class in spite of everything thrown at it of late. Elsewhere Anglo American, which has been in the news a fair bit this week, came out with a bond buyback announcement which helped sentiment for the asset class.

Refreshing our screens this morning, it’s looking like a bit of a mixed ending to the week for markets in Asia. After a strong week, bourses in Japan are ending on a down note with the Nikkei and Topix -1.43% and -1.47% respectively. The ASX (-0.79%) is also lower however there’s a modest gain for the Kospi (+0.31%) while bourses in China are flat. Oil markets are down around half a percent while credit indices are generally a tad wider. As we go to print Bloomberg headlines are suggesting that the PBoC is to raise the required reserve ratio for some banks having determined that some had increased lending too quickly with regional banks said to be targeted. One to keep an eye on as more details emerge.

In terms of the rest of the economic data yesterday, in the US the Conference Board’s leading index revealed an as expected -0.2% mom decline last month to mark the second consecutive negative monthly reading. Prior to this in France we saw no change to the final January CPI print of -1.0% mom with the YoY staying unchanged at a lowly +0.2%. Yesterday’s ECB minutes didn’t offer a whole lot new with the text revealing that the governing council was unanimous that policy ‘needed to be reviewed and possibly reconsidered’ at the March meeting, although there were some hints from certain policymakers that it would be ‘preferable to act pre-emptively’ rather than ‘wait after risks had fully materialized’.

Over at the Fed the latest set of comments came from San Francisco Fed President Williams who stuck to his view that ‘a gradual pace of policy normalization as being the best course’. Williams said that the US economy ‘still needs a gentle shove’ from monetary policy headwinds but that the economy is ‘all in all, looking pretty good’. On the popular topic of negative rates, Williams said that the chances of the Fed cutting rates below zero were ‘very remote’.

Before we look at today’s calendar, the OECD became the latest agency to cut global growth forecasts yesterday. The think-tank now see’s the world economy growing by 3% this year which is three-tenths lower than its previous forecast three months ago and the same pace as 2015. That included a five-tenths downgrade to its US forecast to 2% this year while China is expected to grow 6.5%. The biggest revision was reserved for Brazil however, who the agency expects to contract 4% this year, a downward revision of 2.8 percentage points.

Looking at today’s calendar, this morning in Europe the early data is out of Germany where we’ll see the January PPI numbers. That’s closely followed by UK retail sales covering the month of January where expectations are for a relatively robust +0.7% mom print excluding fuel. UK public sector net borrowing data is also expected. In the US this afternoon much of the focus will be on the January CPI print where current expectations are for a -0.1% mom headline and +0.2% mom core readings which would take the YoY rates to +1.3% (up-six tenths from December) and +2.1% (unchanged versus December) respectively. In terms of Fedspeak we are due to hear from Mester at 1.30pm GMT on her economic outlook. EU leaders are also set to conclude their summit in Brussels (with Brexit discussions high on the agenda) while the ECB’s Constancio is due to speak this afternoon.

Let us begin:

ASIAN AFFAIRS

Late  THURSDAY night/ FRIDAY morning: Shanghai closed DOWN slightly    / Hang Sang closed down by 77.58  points or 0.40% . The Nikkei closed down 229.63 or 1.42%. Australia’s all ordinaires was down 0.79%. Chinese yuan (ONSHORE) closed down at 6.5202 on another bigger than usual intervention  by POBC  of cash through 7 day REPOS in support of the currency,  and yet they still desire further devaluation throughout this year.   Oil lost  to 30.28 dollars per barrel for WTI and 33.68 for Brent. Stocks in Europe so far deeply in the red . Offshore yuan trades  6.52708 yuan to the dollar vs 6.5201 for onshore yuan/

Japanese trading THURSDAY  night:  the Nikkei falls badly by 229 points reacting finally to  their trade data crumbling as their exports fall 12.9% year over year. The 10 yr interest rate plummeted to only .01% sending shivers down the spines of Abe and Kuroda.

(see story below)

Last night: China weakened the yuan again.  Data released show continuing deflation in all sectors. The big story saw money market rates rise to as high as 9.6%.  There is also trouble in the shadow banking sector where B. of America believes that China will no longer bail out deficient entities.

(see story below)

 

First Japan: the drop in the 10 yr yield to .01%  (totally unbelievable).  What is shocking the boys of the rising sun is the rise in the yen:  instead of falling to the level of 122  it has risen to the 112 handle:

 

A “Baffled” Bank Of Japan Is Shocked By Its “Message Of Despair”

One look at Japan’s bond yields, which moments ago hit a fresh record low for the 20Y maturity as the curve slowly but surely inverts…

…. and one would think Haruhiko Kuroda would be delighted.

After all, when he launched NIRP three weeks ago, a world in which negative rates are now a reality, it should have been clear to everyone even children, that yields would collapse as the scramble for any positive yield was unleashed.

The only problem is that Kuroda did not care about yields – positive or negative: what he wanted was to crush the currency and to send the Nikkei soaring – the only two actual “arrows” of Abenomics. Sadly for the BOJ, this time it failed as precisely the opposite of what was expected happened.

But, as the WSJ wrote earlier today in an article explaining why the BOJ is baffled (at least before a call from the BOJ forced it to change the title to the far more politically correct “Bank of Japan Faces a New Opponent on Negative Rates: Main Street“)…

… Kuroda’s confusion has nothing to do with the market’s reaction; it has everything to do with the reaction by the public.

An appropriately very negative reaction.

Just yesterday, shortly after the BOJ’s shocking announcement, Kuroda found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was “victimizing consumers and sending a message of despair“, the WSJ writes.

Even a ruling-party member, Masahiro Ishida, called the policy hard to grasp. “It could have the opposite effect of confusing the market,” he said.

It already has. But the problem is not that the market is confused; it is that the market’s reaction to the BOJ’s NIRP, which as we explained previously was largely due to central banker “peer pressure” during this year’s Davos meeting, has led to a global revulsion against negative rates in general, thus validating the BOJ’s error.

The criticism has come as a surprise to central-bank officials who thought their efforts to spark lending and faster economic growth would gain more public support. “Those who understand this policy are criticizing us, and those who do not are also criticizing us,” said one official this week.

Here the WSJ adds something that is patenly wrong: “It is a symptom of a global problem. The more central banks move into unconventional policies, the harder it becomes to get their message across. That is a particular problem when the policies are supposed to work in part by inspiring confidence.”

Dead wrong: central bank policies are supposed to work by boosting the market; the narrative follows from there. It goes without sayinng that had Japan’s NIRP somehow sent stocks soaring and the Yen crashing, the avalanche of praise would have been constant and Kuroda would be deemed a hero in parliament. Alas for the BOJ – which failed at the simple task of manipulating the market higher in the initial kneejerk reaction – that did not happen, and now Kuroda is suddenly fighting for his professional life.

And since the BOJ’s market domination had finally cracked, a new narrative emerged: one which demonstrated the BOJ as being a bunch of “clueless losers”, with no understand of what they are doing.

Although negative interest rates have existed for some time in Europe, the idea was unfamiliar to most Japanese when it burst onto the front pages late last month. Initial accounts focused on what could happen to bank deposit rates. That is a sensitive issue in a society where wages have barely risen since the 1990s and where one in three citizens receives pension income.

“Deposit one million yen and earn annual interest of ¥10,” said the headline of an online article Tuesday by Japan’s biggest daily newspaper, the Yomiuri Shimbun, telling savers with nearly $10,000 in the bank that they could expect less than a dime in interest

But nothing demonstrates Kuroda’s bafflement quite as much as the outright hostile reception he got during his speech before parliament on Thursday:

In Parliament on Thursday, opposition lawmaker Shinkun Haku squared off with the Bank of Japan’s Gov. Kuroda on whether commercial banks would effectively introduce negative rates by hitting consumers with fees in excess of the tiny amount of interest paid. “Can you deny that banks will put an additional burden on average depositors?” Mr. Haku said. “If you can’t deny it, don’t. It’s a yes or no.”

Mr. Kuroda said he didn’t want to speculate about fees, but “there’s no chance that deposit interest rates will turn negative.”

Which is a lie – not only will deposit rates ultimately turn negative, the only questions are when and by how much.

He said negative interest rates had helped spur lending in Europe with few harmful effects. “Europe has much larger minus interest than the Bank of Japan, and I haven’t heard of minus interest rates being applied to individual depositors there,” he said.

Someone please inform the Credit Suisse or Deutsche Bank stock about the “few harmful effects”, or the fact that Europe’s economy is once again slowly relapsing into a recession, only this time with some 1.5 million Syrian refugees to partake in the festivities.

It didn’t stop there:

“Mr. Kuroda’s responses merely inspired further attacks from the opposition, which has been looking with little success for an issue with which to dent Prime Minister Shinzo Abe’s popularity…. a Communist Party lawmaker, Akira Koike, said negative interest rates were bad public relations. “You have sent a message to the people that they had better watch out because Japan’s economy is in trouble,” Mr. Koike said.

Which in itself is a stunning of just how stupid communists, or anyone else for that matter, still are and are utterly incapable of grasping the most simple equality of the post-crisis era, namely that any central banks intervening = the economy is in trouble.

And of course Japan’s economy is in trouble: it has had 6 recessions in the past 6 years as it rushes toward a demographic singularity in which there is simply no longer a Japanese population. Japan’s economy is in so much trouble, the only question is when does it disintegrate into a Venezuela-style supernova.

But we can see where the confusion comes from. As the WSJ conveniently notes, central banks “policies are supposed to work in part by inspiring confidence” and instead “lawmakers charged the policy was victimizing consumers and sending a message of despair.

No: the message is one of reality, because the can kicking for Japan, having gone on for 40 years, is almost over. The good news about a central bank-free future is that it will hurt – a lot – for a while, and then normal growth can resume, but not before trillions in fake paper wealth are wiped out and quadrillions (in Yen terms) in debt is swept away.

As for Kuroda, we will fondly remember him forever as Peter Panic. There was also this pearl in the WSJ piece: “opposition lawmaker Motoyuki Odachi accused Mr. Kuroda of sounding like a World War II propaganda broadcast.

Dear Motoyuki, all central bankers sound like a World War II propaganda broadcast, one on which the time has long ago come to pull the plug.

 end
The following is very troubling:  a huge spike to 9.6% in money market interest rate last night.  Remember that these money markets fund the shadow banking sector in China.
Ladies and Gentlemen; this is trouble!!  There is a huge shortfall of liquidity in China.
(courtesy zero hedge)

Chinese Money-Market Rates Are Spiking As Post-New-Year Liquidity Hangover Hits

It would appear the Chinese central bank currency squeeze is back as money-market rates are exploding higher once again. With the outpuring of liquidity heading into the new-year holiday, the post-celebration hangover was always likely unless PBOC just kept pumping but judging by the 500bps spike in overnight Yuan interbank rates to 9.3%, more than a few banks are desperate for some liquidity. We note that the last six times that Chinese banks have suffered liquidity constraints, US equities have tumbled…

While not at the extremes of mid December or mid-January’s catastrophes, O/N Yuan depo rates are soaring…

As it seems PBOC is not quite as liberal with its liquidty post-new-year…

and that bodes ill for US equities as the global liquidity problems this signals send ripples through every conduit (and their corresponding risk asset)…

Still 9.3% overnight deposit rates are probably nothing, right?

END
Up until now, the government has been bailing out deficient entities for failure to pay interest on  vehicles set up in China.  Bank of America believes that China will now let these guys fail setting off an avalanche of defaults and many dominoes cascading:
(courtesy zero hedge)

BofA Asks: Is This The Chinese Shadow Bank Failure That Will This Trigger The Chain Reaction

The reason why this particular bubble has proven so resilient is because up to this point the government has been willing to directly or indirectly bail out the participants. However, as Bank of America’s David Cui writes today, that may not be the case for much longer.

Take the case of Shanxi-based shadow bank Xinsheng. As CBN writes today, this is the latest shadow bank to collapse, a bank whose Shanghai subsidiary alone sold RMB1.9 billion in wealth management products to over 5,000 investors and is now unable to return the funds.  As Chiecon writes, the company marketed “asset securitisation” wealth management productspromising annual returns between  13%-24%. In reality, client funds were diverted into real estate projects, mainly office buildings, in lower tier cities, where chronic oversupply has depressed local property prices. Some investors are now protesting outside the company’s Shanghai branch office.

As Bank of America adds, as large as Xinsheng’s sounds, it pales against some of the other recent defaults in the lightly regulated P2P and private wealth management product markets. For example, in July 2015, a commodity exchange, Fanya, defaulted on Rmb43bn, involving some 220k investors nationwide (Yunnan News, Feb 5); in Nov, a P2P platform, Caifu Milestone, defaulted on Rmb5bn from some 75k individuals (China Business News, Jan 11); in Dec, a P2P platform, eZubao, defaulted on Rmb50bn from some 900k investors (New Beijing News, Feb 1); in Jan, a P2P platform, Rongzicheng, defaulted on Rmb1.5bn (Economic Information, Jan 26); another P2P player, Shengshi Caifu, defaulted on Rmb2bn from some 7k investors (Rong360, Jan 21).

The charts below show BofA’s estimates related to the default cases in the shadow banking sector, based on media reports of high profile actual default cases. What is notable is that while the number of reported cases has remained relatively low, the size of the blow ups has soared in recent months.

So far, none of the six cases mentioned above in the P2P and private wealth management product markets have been resolved, and there has been no clarification from the companies or local governments on potential solutions. Unless the government decides to bail investors out, large losses could ensue, Cui warns.

Previously, defaults mainly occurred in more stringently regulated areas e.g. trust and bond, and involved financial institutions with large balance sheets. The cases were often resolved in investors’ favor.

In a scenario in which investors are not bailed out and thus become more cautious, eg, rolling over some of the debt instruments in the shadow banking sector, some borrowers may struggle to obtain credit, for example, developers and coal miners.

Whether this scenario would trigger a chain reaction is a key risk that needs to be monitored.

Moreover, given the default pressure in the trust and bond market markets as detailed in the list of defaults at the end of this article, cases may emerge there eventually.

The paradox, as Cui concludes, is that if shadow banking investors continue to be bailed out, this would imply a further strengthening of the implicit guarantee, and potentially, put pressure on growth, increase the debt burden and hurt RMB stability.

BofA’s conclusion: “financial system risk is arguably the most important risk facing market this year. Until the debt issue is addressed, we believe it is unlikely we will see the bottom of the market.

We don’t know, but we find it disturbing that suddenly a whole lot of banks around the globe – from Germany to China – are being watched very closely as a potential catalyst that will spark the next crisis. Wasn’t the entire point of the 2008/9 bailout and subsequent injection of trillions in central bank liquidity to ensure that precisely this scenario does not occur?

And speaking of defaults of either plain vanilla companies, or shadow bank trusts, here is a brief list of all recent Chinese defaults: how long until the the losses from any one of these – or some upcoming default – are simply too large for the government to pocket, and the inevitable “chain reaction” is finally triggered.

END

 

China will no longer report on a key data which shows the size of capital outflows from its country.  This will make our life a little more difficult as this data is essential in understanding what is going on globally. However, China will need to fudge just about every other capital account.

(courtesy zero hedge)

 

 

China No Longer Reports Key Data Showing Size Of Its Capital Outflows

When it comes to following China’s capital outflows, the traditional place to keep track has been China’s official reserve data released monthly, which however as we showed previously can and often is manipulated to give the impression of generally smalle numbers. We noted one example in October when China disclosed an official outflow of $43 billion, yet this number was largely incomplete, and short of the total, due to the PBOC’s recent adoption of using currency forwards to manipulate the Yuan, something not tracked by the official reserve number.

This is what Goldman said at the time about a relatively more reliable data set which provides a more accurate snapshot of China’s capital position:

In our view, a preferred gauge of FX-RMB conversion trend amongst onshore non-banks would be SAFE data on banks’ FX settlement on behalf of their onshore clients (to be out on October 22nd). That report captures banks’ FX transactions vis-à-vis non-banks through both spot and forward transactions (for August this data showed an FX outflow of $178bn). But to assess the overall FX-RMB trend, including in the offshore RMB (CNH) market, other FX data sets such as the position for FX purchase would be useful supplements—these are not affected by valuation effects and include FX settlement between the onshore banking system and offshore banks, although they do not account for forward transactions. Data on the position for FX purchase covering the PBOC should be out on October 14, and similar data covering the whole onshore banking system (PBOC plus banks) should be released at around the same date, although this is not completely clear.

It appears that China has finally figured out this loophole to track the PBOC’s attempts at masking the sheer size of its outflows, because as SCMP reported overnight, “sensitive data is missing from a regular central bank report in China amid concerns about the flow of cash out of the country as its economy slows and currency weakens.

More from SCMP:

Financial analysts say the sudden lack of clear information makes it difficult for markets to assess the scale of capital flows out of China.

 

Figures on the “position for forex purchase” are regularly published in a monthly report issued by the People’s Bank of China.

The data, however, is missing from its latest report on the “Sources and Uses of Credit Funds of Financial Institutions in Foreign Currencies”.

 

Another key item of potentially sensitive financial data has also been altered in the latest report.

As SCMP adds, the central bank regularly publishes data on the ‘foreign exchange purchase” position, which covers all financial institutions including the central bank. The figure was 26.6 trillion yuan (HK$31.7 trillion) in December. The data published in January, however, only gives information on forex purchases by the central bank and details the lower figure of 24.2 trillion for last month.

The report (source) and line item in question are shown below:

Why the dramatic change in what is arguable one of the most important data series about the Chinese capital situation, one which comes at a time when China has been outflowing around $100 billion every month, shringking its total reserve holdings to dangerous levels?  We don’t know: SCMP writes that the press office at the People’s Bank of China bank has yet to respond to telephone calls or a faxed request for comment about the changes.

As it also adds, “the central bank has tweaked items on its financial statements before, but the latest unannounced change comes at a particularly sensitive time when Beijing is trying hard to stabilise the yuan exchange rate. It is also just a week ahead of the G20 central bankers and finance ministers meeting in Shanghai.”

As a reminder, many expect that China may announce a major devaluation at the upcoming G-20 meeting, which some such as Bank of America have dubbed the “Shanghai Accord.”

The result is that China’s already opaque and manipulated economic picture, will become even more so:

“The central bank used a non-transparent method which makes the market unable to have a clear picture about capital flows,” said Liu Li-Gang, chief China economist at ANZ in Hong Kong.

Given current circumstances, the move will fuel more speculation that the country is under great pressure from capital outflows. It will hurt the central bank’s credibility.”

An in-house analyst at an investment bank in Beijing, who declined to be named, said the changes were technical, but reflected the central bank’s intention to hide China’s real capital flows.

As we noted above, SCMP explains that according to analysts it was common practise to calculate China’s capital outflows by looking at the gap between positions on the yuan throughout the financial system and at the central bank alone, but the changes by the central bank would make this calculation impossible.

All data related to foreign exchange released by the central bank is closely monitored by financial analysts. They often read item by item from the dozens of tables and statistics released by the People’s Bank of China to spot new trends and changes.

What makes matters worse for China is that as Xie Yaxuan, chief economist at China Merchants Securities, says the central bank was unable to conceal data as there were many ways to obtain and assess information on capital movements.

“We are waiting for more data releases such as the central bank’s balance sheet and commercial banks’ purchase and sales of foreign exchange released by the State Administration of Foreign Exchange for a better understanding of the capital movement and interpreting the motive of the central bank for such change,” said Xie.

This means that if China truly intends to cover up how much capital is fleeing the mainland on any given month, it will have to fudge, delete, adjust and otherwise manipulate virtually every other capital account series, making a complete mockery of its already laughable economic reporting.

We wonder what the IMF will have to say about this significant occlusion to a critical currency data series by the newest member of the SDR basket.

As to whether China’s attempt to mask its outflows will succeed, there is perhaps a just as good gauge of Chinese capital outflow, or rather its inverse: the amount of Chinese capital inflows in the one place where it traditionally ends up: Vancouver real estate. Judging by the chart below, there is no risk of any slowdown in capital outflows out of China any time soon.

Finally, the real question is what impact on the local population, which as a reminder has over $20 trillion on deposit in local banks which are now openly plagued by soaring non-performing loans making the reality of a Chinese bail in all too real, this admission that money is flowing out at an ever faster pace will have.


 end

EUROPEAN AFFAIRS

 

Cameron does an all nighter as he pushes for reforms so that he can sell it to his citizens.

 

(courtesy zero hedge)

 

“Brexit” Looms As Cameron Pushes For Reforms In All-Nighter

“I was here till 5 o’clock this morning working through this and we’ve made some progress but there’s still no deal.”

That’s from British PM David Cameron, who was apparently up all night in an effort to understand why his country should stay in the EU. Unless Cameron hears what he wants to hear, he will not campaign for the UK to remain in the bloc ahead of an expected referendum on membership in June.

“Britain has always had an ambiguous relationship with the bloc, staying out of two of its most ambitious projects, the Schengen border free zone and the euro common currency,” Reuters writes. “Its exit would end the vision of the EU as the natural home for European democracies and reverse the continent’s post-World War Two march toward ‘ever closer union.’”

Cameron is seeking changes that will reduce his country’s financial burden as it relates to refugees and other EU nations. “As I have said, I would only do a deal if we get what Britain needs, so we are going to get back in there,” he said, after marathon talks.

“Paris has pushed for amendments to ensure Britain cannot veto actions by the euro zone countries or give City of London banks competitive advantage through regulation,” Reuters goes on to note. “A group of east European states chaired by the Czechs is trying to hold back how far their citizens can be denied welfare benefits in Britain or have family allowances reduced.”

Meanwhile, the Conservative Party and the UK press are pushing for reforms. “Britain’s place in Europe has been allowed to fester for too long” Cameron says, but there’s “now a chance to settle this issue for a generation”.

“For now I can only say that we have made some progress but a lot needs to be done,” EU president Donald Tusk said.

UK business leaders are skeptical. “Mr Cameron’s team has been lining up business leaders to come out in support of his EU deal next week, even before any agreement has been reached,” FT says, before noting that although “a letter from supportive business leaders is planned for next week, with  80 out of Britain’s FTSE 100 companies backing Britain staying in the EU, “that number was seen as speculative by some in the Remain camp and research by the Financial Times this month revealed that some top companies were reluctant to get drawn into the debate.”

Here’s a bit of color from Bloomberg on what “Brexit” would mean for London’s “City”:
  • What is at stake? Financial services account for 180 billion pounds ($258 billion) a year — about 12 percent — of U.K. economic output and contribute 66 billion pounds in taxes. In some areas, like foreign exchange trading (41 percent of the world total) and over-the counter derivatives (49 percent), London is the undisputed global leader. Opponents of a Brexit fear a departure would precipitate years of uncertainty and steady waning of influence and market share.
  • What is passporting and why does it matter? Under the current regime, any firm authorized in the U.K. firm is free to do business in any other European Economic Area state by applying for a “passport” from British regulators. For non-EU banks like JPMorgan Chase & Co., Credit Suisse Group AG or Nomura Holdings Inc., the ability to access the region’s 500 million customers from a base in London has been an important draw. Without it, many firms may seriously consider upping sticks.
  • What would Brexit mean for the banks? Every day more than a trillion dollars worth of euros change hands in London, close to half the global total, according to the Bank for International Settlements. The City’s global dominance of the foreign-exchange market is likely to be tested by any Brexit package that fails to guarantee a continuation of access to the single market. Over-the-counter derivatives are another area for concern. About three-quarters of all trading in such instruments in Europe currently takes place in the British capital. Without access to the single market, much of that is likely to migrate, according to lawyers and bankers who say that U.S. banks are already mulling moving operations.

Right. So this isn’t just symbolic. “While no FTSE 100 company said it wanted Britain to leave the EU, only 18 were prepared to state unequivocally that they supported continued membership,” FT goes on to note.

Right. Because in reality, there aren’t very many solid arguments for supporting continued membership and whatever arguments were left have been significantly diminished by the bloc’s worsening migrant crisis. Still, Cameron is calling for a “live and let live approach.” Here’s a look at UK trade vis-a-vis the rest of Europe.

But numbers aren’t likely to sway the British people who are prepared to opt out of the ill-fated union.

Cameron says he’s “battling for Britain”, but in reality he’s “battling for the EU.” With the future of the union already in question thanks to the festering migrant crisis, Britain may well be better off abandoning this sinking ship. “It’s the EU in question, not just one country in the EU,” French President Francois Hollande said on Friday.

Indeed. And the time has now come for Britain to decide whether it’s prepared to go down with this ship, or forge a path ahead on its own. In the meantime, expect volatility, PIMCO says. “Irrespective of the twists and turns in the debate over U.K.’s planned referendum on EU membership, uncertainty over the result is likely to weigh on U.K. markets for a good few months yet,” Mike Amey, Pimco portfolio manager said in a press release. Right. it is likely to cast a pall on markets “for a good few months yet,” as you can tell from the below:

Of course all of this is nothing a rate cut can’t fix…

 END
If Great Britain leaves the EU, then Paris and Frankfurt cannot wait to tackle the English’s stranglehold on financial trading.  England is the hub of financial trading throughout the world.
(courtesy GEFIRA)

Brexit!? France & Germany Cannot Wait

Via GEFIRA,

If London decides to leave the European Union nobody in Europe will even notice. Great Britain is an entirely separate country, isolated from the European Union and does not participate in the Euro or Schengen Agreement. The European Union as a political platform is disintegrating and becoming more and more irrelevant and will be displaced by the European Monetary Union (EMU).

The center of power in Europe has shifted from the EU to the EMU and London politicians are fully aware of it. A Brexit will accelerate the process of political integration of the EMU members and make the EU politically less significant.  Over the past decade we saw:

  1. Countries can enter the European Union;
  2. The very core values of the European Union can be set aside as we saw happening in Turkey just before the European Commission announced to restart Turkey’s accession negotiations;
  3. Trade relations with Great Britain can be suspended without any upheaval, as we saw it concerning non-EU member Russia;
  4.  Borders can be opened and closed as is the case in south-east Europe due to the refugee crisis;
  5. The Dublin Regulation can be dissolved overnight in the face of the fact that more than a million refugees have entered Europe since the summer of 2015;

All these events hardly changed the life of the Europeans. Being a member of the European Monetary Union is of another magnitude. The Greek euro crisis changed the lives of millions of Greeks. During the tense days in July 2015, when the future of Greece, the EMU and indirect the future of Europe was at stake, Chancellor Merkel and President Hollande held 24 hours emergency meetings as did the Eurogroup. Great Britain and the European Parliament did not play any role whatsoever in these decisive moments for the future of Europe. Cameron was not even invited to share his opinion.

The European Monetary Union is doomed for further political integration; the euro members have no other option but to create a fiscal union and a banking union. Without these two pillars, the whole Euro will fall apart dragging with it the complete Western financial system. A fiscal and banking union means that these countries have to integrate far beyond the European Union framework.

Prime Minister Cameron is an annoyance for the already struggling EMU. The European Monetary Union faces extreme difficulties, as on one hand further integration of the Euro countries is inevitable and on the other hand, the widespread support for this integration is eroding.

In 2011, French President Sarkozy told Cameron:”We’re sick of you criticizing us and telling us what to do. You say you hate the euro, you didn’t want to join, and now you want to interfere in our meetings,”. The EMU countries face a big political problem that is to be solved. Germany and France will never let countries outside the EMU have a say in their affairs as Cameron proposed. The diplomatic words from French Prime Minister Manuel Valls make it all clear to London as he said; “a Brexit is a shock for Europe but still members can not pick and choose rules that suit them”. The UK leaving the European Union will make life easier for Paris and Berlin as Figaro writes: “Brexit? An opportunity for Europe, for France and for Paris”
When the UK is outside the European Union Frankfurt and Paris will have more opportunities to crush London as a financial center. London could not miss Merkel’s warning against gains for British banks under ‘Brexit’. If the UK decides to leave, Berlin and Paris will do definitely more than prevent London banks from making any gain; they will do everything to establish Paris or Frankfurt as the financial center of the EMU at London’s expense.

With the UK outside the European Union and losing all its influence on the continent, Frankfurt will be able to force its will on euro transactions that are done in London. We have already seen how Washington forced its jurisdiction on European banks. In 2006 European banks were prohibited from making dollar transaction with Cuba, despite the fact that these transactions were regarded as entirely legal in Europe. French, German and Dutch banks were forced to retreat from Cuba and pay hefty fines or else they would have had to leave the US. Frankfurt and Europe can impose similar rules on banks in London and force them to comply or leave the EMU area. Some in London, like top diplomats are already aware of this as Sir Nigel Sheinwald, Sir John Grant and Sir Stephen Wall, warn that rival financial powerhouses, as Paris and Frankfurt, will not be sentimental in seeking to challenge the City’s prominence, if the referendum result is to leave the EU.

*  *  *

Meanwhile, BREXIT risks are at record highs in the FX market…

end
At 5 pm a deal is announced.  Now the fun part: to convince Brits to stay:

Cable Rallies After EU President Confirms EU-UK Deal Done

Unless Cameron heard what he wanted to hear, as we detailed earlier, he would not have campaigned for the UK to remain in the bloc ahead of an expected referendum on membership in June…. which would likely have rocked the EU once again. Well after 30 minutes of chaos after the bell tonight, EU President Donald Tusk has tweeted that “Deal. Unanimous support for new settlement.” GBPUSD is rallying on the news but now comes the fun part where Cameron persuades an increasingly euroskeptic Britain to stay inside Brussels shell…

Deal it is… No details yet…

 

And cable rallies…

end

 

The Eurozone consumer confidence index plunges by the most in 3 1/2 yrs.
(courtesy zero hedge)

Eurozone Consumer Confidence Plunges Most Since 2012 To 1 Year Lows

“Get back to work, Mr.Draghi…”

 

Not only are stock markets (and bank bonds) collapsing, so is European consumer confidence…

 

Eurozone consumer confidence fell more than expected in February, the first estimate by the European Commission showed Friday. Consumer confidence in the euro area fell to -8.8 in February from -6.3 in January, the Commission said. The decline was much sharper than the fall to -6.8 forecast by economists surveyed by MNI.

*  *  *

Nothing that more refugees, more QE, and more negative interest rates won’t fix.

For context, it appears the Europeans are not a ‘confident’ bunch very often…

 

Charts: Bloomberg

end

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

 

Russia is demanding an end to Turkey’s efforts in Syria.  Russia has called an emergency meeting of the UN Security council to discuss what to do with Turkey’s aggression. We will watch developments on this front quite closely.

(courtesy zero hedge)

Russia Demands End To Turkey’s Efforts To Undermine Syrian Sovereignty

Over the past several days, Turkey has been busy putting the world on the course to World War III.

The YPG – which Ankara identifies with the “terrorist” PKK- has contributed to the Russian and Iranian effort to cut off the Azaz corridor, the last remaining supply line to the rebels fighting to oust Bashar al-Assad in Syria.

The Kurdish effort to unite territory the group holds east of the Euphrates with cities it hold west of the river in Syria has infuriated Ankara, which views the YPG advance as a kind of precursor to Kurdish independence in Turkey.

The solution, Turkey says, is a 10 km incursion into Syria, an effort which will establish a “safe zone” for those fleeing the violence that plagues the country’s besieged urban centers. That , of course, is merely an excuse for Ankara to send ground troops into the country, where the Sunni-sponsored effort to overthrow Assad is on its last legs.

The deadly bombing in Ankara that claimed the lives of several dozen people on Thursday is predictably being trotted out as an excuse to put Turkish boots on the ground in Syria. “Months ago in my meeting with him I told him the U.S. was supplying weapons. Three plane loads arrived, half of them ended up in the hands of Daesh (Islamic State), and half of them in the hands of the PYD,” Turkish President Recep Tayyip Erdogan said on Friday. “Against whom were these weapons used? They were used against civilians there and caused their deaths,” he added.

Obviously, that’s completely absurd. Turkey has been funneling guns and money to the Syrian opposition for years. For Ankara to accuse anyone of “supplying weapons” to the Sunni insurgents who are endangering civilians is the epitome of hypocrisy. Turkey is only angry at the US and Russia in this case because Washington and Moscow both support Kurdish elements that Ankara views as threatening to AKP and to Turkey’s territorial integrity.

At this juncture, the only way to preserve the rebellion and protect the anti-Assad cause is to insert ground troops, a move that both Ankara and Riyadh are seriously considering. The presence of Turkish and/or Saudi boots would mark a meaningful escalation and would put Sunni forces directly into battle against Iran’s powerful Shiite proxy armies, setting the stage for a disastrous sectarian battle that would forever alter the Mid-East balance of power.

On Friday, in an effort to avert an all-out global conflict, Moscow called for a UN Security Council meeting to discuss Turkey’s plans to send troops into Syria. “Turkey’s announced plans to put boots on the ground in northern Syria undercut efforts to launch a political settlement in the Syrian Arab Republic,” Maria Zakharova said, earlier today.

The announced intentions of Ankara (as well as Riyadh and Doha) are not consistent with the will of Damascus, which has only invited Russia and Iran to the fight against “the terrorists.” Everyone else – including the US, Britain, and France – are effectively trespassing.

In May of 2014, Russia and China blocked a Security Council resolution to refer the Syria conflict to the Hague. Now, we’ll get to see whether the West will protect its allies in Ankara and Riyadh, or whether someone in the international community will finally step up and say “enough is enough” when it comes to fomenting discord in Syria.

end

It seems that Erdogan’s son Bilal Erdogan (of Turkey) has set up residency in Bologna Italy. Today he has been accused of money laundering as there is a full investigation on him;

(courtesy zero hedge)

Bilal Erdogan Accused Of Money Laundering In Italy

Regular readers are no doubt familiar with Bilal Erdogan.

Bilal is the son of Turkish dictator President Recep Tayyip Erdogan who is on the verge of kicking off World War III by invading Syria in what is sure to be an ill-fated effort to shore up rebel forces and preserve the Azaz corridor, the last remaining supply line for the opposition which is staging what amounts to a last stand at Aleppo.

Erdogan’s family was put under the microscope by the Russian defense ministry in the wake of Ankara’s decision to shoot down a Russian Su-24 on the Syrian border in late November. “What a brilliant family business!,” Deputy Minister of Defence Anatoly Antonov remarked, at a press briefing documenting Turkey’s connection to Islamic State’s illicit oil trafficking operation.

For those who might have missed the backstory, you’re encouraged to read the following articles in their entirety:

Put simply, there are any number of reasons to believe that AKP and the Erdogan family are complicit in the sale of illicit crude not only from Massoud Barzani and the Iraqi Kurds, but from Islamic State as well.

ISIS oil and Erbil’s crude are both technically “undocumented” and considering that “the terrorists” are only producing around 45,000 b/d versus the 630,000 b/d the Iraqi Kurds are churning out, it’s easy for Islamic State’s product to get “lost” or to disappear as a rounding error, as it were.

Some say Bilal Erdogan is directly involved in getting ISIS crude to market via the Turkish port of Ceyhan, where tanker rates mysteriously spike around siginificant oil-related events involving Islamic State.

Bilal owns a Maltese shipping company which is almost certainly involved in the transport of stolen (and yes, regardless of whether the Iraqi Kurds’ claims to statehood are legitimate, they are for the time being anyway, stealing oil form Baghdad) Iraqi oil to global markets. The question is whether the same connections and routes used to transport Barzani’s oil are being used to transport Islamic State’s product.

We won’t recount the whole story here as you can read the entire account in the articles linked above, but we were amused to discover that Bilal Erdogan is now being investigated by Italian authorities for money laundering. “Prosecutors in Bologna have opened an investigation into the financial dealings of Bilal Erdogan, 35, who is currently living in the city with his family while he studies for a doctorate at an offshoot of Johns Hopkins University,” The Telegraph reports, adding that “the investigation was opened after Murat Hakan Uzan, a businessman and political opponent of the Erdogan family, made the allegations about money laundering to the Italian authorities.” Here’s more:

Mr Uzan, who is in exile in France and claims to have been persecuted by the Erdogan regime, claimed that Bilal Erdogan was stockpiling money in Italy because he saw the country as a potential bolt-hole should he face problems at home.

Mr Uzan, a wealthy businessman, filed a criminal complaint with prosecutors in Bologna, accusing the president’s son of contravening Italy’s financial laws by bringing in huge amounts of money without declaring it to the authorities.

The claims of money laundering are being investigated by Manuela Cavallo, Bologna’s chief public prosecutor. Calls to her office were not answered.

Wiretapped telephone conversations were leaked in which two people alleged to be President Erdogan and his son were heard discussing how to dispose of large sums of cash.

The conversations allegedly took place in December 2013, on the day that sons of three Cabinet ministers were detained as part of a vast corruption investigation.

The Turkish government insisted they were fabricated. Both the president and his son denied any wrongdoing.

Bilal, who is one of President Erdogan’s four children, has commercial interests in shipping and oil tankers.

In December Russia accused him and his family of profiting from the illegal smuggling of oil from territory held by Islamic State in Iraq and Syria.

Bilal’s attorneys aren’t prepared to comment. “I have nothing to say,” Giovanni Trombini , one of Bilal’s lawyers said. “Trials should be held in court, not in the press.

True.

But this is the court of public opinion and we implore readers to render their judgement below

Just beware the wrath of Bilal’s bow…

END

 

The USA are claiming that with direct hits on ISIS “banks” in Mosul they have effectively destroyed 1/2 billion of USA cash.

 

(courtesy zero hedge)

 

$500 Million In ISIS Cash “Reserves” Destroyed By US Airstrikes, Officials Swear

On Thursday, we revealed something truly shocking: ISIS is no longer handing out free Snickers bars and Gatorade to its fighters.

Apparently, the cash crunch created by Russia’s unrelenting assault on the group’s illicit oil trafficking operation has left Abu Bakr al-Baghdadi with little choice but to cut salaries by 50% and eliminate some of the perks soldiers have until now enjoyed.

Like free candy bars.

And complementary sports beverages.

For those unaware, ISIS brings in around a billion a year in proceeds from various illicit activities including, but certainly not limited to, illegal crude sales, slave trading, and taxes (and yes, we deliberately lumped taxes in with “illicit activities”, an editorial decision we’re sure readers will agree with).

Those profits are being eroded by the Russian Defense Ministry’s assault on militant oil smuggling routes, and unless Raqqa’s terror-crats can figure out how to extract a commensurate amount of profits from Libya’s oil riches, the caliphate may be set to enter a terminal decline.

As we also noted on Thursday, Islamic State’s balance sheet demise “isn’t a consequence of one airstrike on a Mosul cash center as AP and other Western media would have you believe.”

We were referring to the much balleyhooed strike on an ISIS “bank” in Mosul, Iraq’s second largest city that’s been controlled by ISIS for the better part of two years. “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,” we remarked.

Well, don’t look now, but ABC is out with a new piece claiming that “coalition” strikes have destoryed more than a half billion in illegal dollars procured by Islamic State. “The U.S. believes that airstrikes in Iraq and Syria have destroyed more than $500 million in cash that ISIS used to pay its fighters and fund its terror and military operations,”ABC reports. “Ten strikes have been conducted since then with the most high profile being two airstrikes in Mosul, in northern Iraq, targeting facilities that American officials characterized as ISIS banks.”

Col. Steve Warren, the U.S. military spokesman in Baghdad now says “hundreds of millions of dollars” have been destroyed by US airstrikes in the past several months. That’s a rather remarkable upgrade to his previous assessment in which he claimed “tens of thousands” had likely been vaporized.“Obviously, it’s impossible to burn up every single bill,” Warren says. “So presumably they were able to collect a little bit of it back. But we believe it was a significant series of strikes that have put a real dent in their wallet.”

We imagine Janet Yellen will say the exact same thing when the FOMC runs out of options and bans cash.

 

end

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am

Euro/USA 1.1100 down .0008

USA/JAPAN YEN 112.88 down 0.372 (Abe’s new negative interest rate (NIRP)a total bust

GBP/USA 1.4282 down .0045

USA/CAN 1.3778 up .0041

Early THIS FRIDAY morning in Europe, the Euro fell by 8 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: 6.5202 / (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 37 basis points and trading now well BELOW  that all important 120 level to 112.88 yen to the dollar.  NIRP POLICY IS A COMPLETE FAILURE  AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP

The pound was down this morning by 45 basis points as it now trades just below the 1.43 level at 1.4282.

The Canadian dollar is now trading down 41 in basis points to 1.3778 to the dollar.

Last night, Chinese bourses were mainly in the green/Japan NIKKEI  CLOSED DOWN 229.63 OR 1.42%, MOST ASIAN BOURSES LOWER/ AUSTRALIA IS LOWER / ALL European bourses ARE  IN THE RED  as they start their morning.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this FRIDAY morning: closed DOWN 229.63 OR  1.42%

Trading from Europe and Asia:
1. Europe stocks all in the RED

2/ Asian bourses mixed/ Chinese bourses: Hang Sang closed DOWN 77.58 POINTS OR  0.40% ,Shanghai in the RED  Australia BOURSE IN THE RED: /Nikkei (Japan)RED/India’s Sensex in the GREEN /

Gold very early morning trading: $1229.50

silver:$15.36

Early FRIDAY morning USA 10 year bond yield: 1.72% !!! DOWN 4 in basis points from last night  in basis points from THURSDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.59 DOWN 4  in basis points from THURSDAY night.  

USA dollar index early FRIDAY morning: 96.89 DOWN 5 cents from THURSDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers FRIDAY MORNING

 

OIL MARKETS

 

It did not take oil long to tumble back below 30.00 dollars:

(courtesy zero hedge)

 

WTI Crude Tumbles Back Below $30

As yesterday’s DOE report – and later details from Genscape – hint at storage concerns becoming critical so overnight weakness in WTI crude is accelerating with the current front-month (March) which is set to roll, dropping back below $30, erasing the OPEC-Russia hype gains…

 

end
And now in red ink for the week:

Oil Plunges Into Red For The Week

Well that de-escalated quickly…

 

end

 

USA rig count drops heavily down 26 rigs  following last week;s 28 and the week before at 31.  This is the fastest 3 week plunge at over 17%. The rig count seems to track very nicely the falling oil price.  However rig productivity is increasing and thus production is still steady!

(courtesy zero hedge)

 

US Oil Rig Count Collapses At Fastest Rate In A Year

 

Rig counts dropped for the 9th straight week but for the 3rd week in a row, US oil rig counts dropped heavily, down 26 this week after -28, and -31 in the last 2 weeks. The 85 rig drop is a 17% plunge over 3 weeks – the fastest pace since Feb 2015, and 2nd fastest since Feb 2009.

  • U.S. OIL RIG COUNT DOWN 26 TO 413, BAKER HUGHES SAYS
  • U.S. TOTAL RIG COUNT DOWN 27 TO 514 , BAKER HUGHES SAYS

Rig counts continue to track the lagged crude price perfectly…

 

Here is the regional breakdown:

 

And yet despite this collapse in rig, why Total crude production has barely dropped.

The reason: rig productivity is soaring.

 

As we explained yesterday, rig counts are meaningless when efficiency improvements leave hardly any impact on production, when imports are soaring, and when even huge CapEx cuts as shown in the following Goldman chart…

… result in only tiny production reductions.

 end

And now your closing FRIDAY numbers

Portuguese 10 year bond yield:  3.44% up 4 in basis points from THURSSDAY

Japanese 10 year bond yield: +.013% !! down 1/2 full  basis points from THURSDAY which was lowest on record!!
Your closing Spanish 10 year government bond, FRIDAY up 1 in basis points
Spanish 10 year bond yield: 1.71%  !!!!!!
Your FRIDAY closing Italian 10 year bond yield: 1.56% up 1 in basis points on the day:
Italian 10 year bond trading 15 points lower than Spain
.
IMPORTANT CURRENCY CLOSES FOR THURSDAY
 
Closing currency crosses for FRIDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 
Euro/USA: 1.1130 up .0024 (Euro up 24 basis points)
USA/Japan: 112.52 down 0.721 (Yen up 72 basis points) and still a major disappointment to our yen carry traders and Kuroda’s NIRP
Great Britain/USA: 1.4351 up .0023 (Pound up 23 basis points)
USA/Canada: 1.3775 up.0039 (Canadian dollar down 39 basis points with oil being lower in price/wti = $29.56)
This afternoon, the Euro rose by 24 basis points to trade at 1.1130/(with Draghi’s jawboning having no effect)
The Yen rose to 112.52 for a gain of 72 basis points as NIRP is still a big failure for the Japanese central bank/also all our yen carry traders are being fried
The pound was up 23 basis points, trading at 1.4351.
The Canadian dollar fell by 39 basis points to 1.3775 as the price of oil was down today as WTI finished at 19.56 per barrel,)
The USA/Yuan closed at 6.5204
the 10 yr Japanese bond yield closed at .013% down 1/2 full basis points.
Your closing 10 yr USA bond yield: down 1/2   basis points from THURSDAY at 1.755%//(trading well below the resistance level of 2.27-2.32%) policy error
USA 30 yr bond yield: 2.61 down 2 in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries  (policy error)
 
 Your closing USA dollar index: 96.63 down 21 in cents on the day  at 2:30 pm
Your closing bourses for Europe and the Dow along with the USA dollar index closings and interest rates for FRIDAY
 
London: down 58.37 points or 0.97%
German Dax: down 75.59 points or 0.80%
Paris Cac down 16.72 points or 0.39%
Spain IBEX down 101.20 or 1.22%
Italian MIB: down 202.80 points or 1.19%
The Dow down 2144  or 0.13%
Nasdaq:up 16.89  or 0.38%
WTI Oil price; 29.55  at 3:30 pm;
Brent OIl:  32.94
USA dollar vs Russian rouble dollar index:  77.10   (rouble is  70/100 roubles per dollar from yesterday) as the price of oil rose
This ends the stock indices, oil price, currency crosses and interest rate closes for today.
end
 
 
New York equity performances plus other indicators for today and the week;

Best Week Of 2016 For Stocks Amid Biggest Short-Squeeze In A Year

Come on… stocks are up large… everything must be awesome!!

 

This was S&P and Dow Transports best week of the year… (Dow Industrials best week in 3 months, Nasdaq and Small Caps best week in 4 months)

 

Trannies are up 5 weeks in a row – the same after The Oct 2014 Bullard Bounce…

 

Let’s just look across assets this week:

  • US equities Up 2.5% to 3.5%
  • US Treasuries ~Unchanged
  • Oil ~Unchanged
  • Gold ~Unchanged
  • USDJPY -0.5%
  • IG Credit ~Unchanged

 

Homebuilders outperformed (despite weak Starts and Permits data, weak sentiment, weak mortgage applications and weak architecture billings), and Financials and Energy had their best week of the year…

 

But Credit markets did not play along with financial stocks…

 

The Wednesday panic spike in stocks appears to have been some kind of market-neutral liquidation as “Weak Momentum” stocks soared relative to “Strong Momentum” stocks…

 

And shorts were massively squeezed also… this was the biggest short-squeeze week since the first week of Feb 2015

 

And something very odd was going on in The VIX ETF complex…

 

Icahn Enterprises plunged after S&P shifted to negative watch, implying a junk rating looms…

 

Treasury yields see-sawed all week (shortened week), ending with 10Y practically unchanged and the short-end up 2-3bps…

 

USDJPY’s tumble was the biggest news this week but EUR weakness helped USD Index rise 0.75% on the week…

 

Modest USD strength on the week left gold and silver lower. Copper and crude outperformed, after crude plunged to unch on the week early on today…

 

The crude futures roll today sparked panic-buying in the March contract into the close which ramped the cash-roll higher…

 

Notably Oil VIX plunged on the week (from over 80 to almost 60)…

 

 

Charts: Bloomberg

 

end

Our  Fed doves are certainly not going to like the consumer core prices and then prices with food and energy.  It rose at a rate of 2.2% which is higher than expected.  Shelter rose 3.7%.  It sure looks like Yellen will have her hands full if she tries QE4 down the road
(courtesy zero hedge0

Fed Doves Cry As Core Consumer Prices Jump At Fastest Pace Since August 2011

This must be transitory, right? Core Consumer Prices surged 0.3% MoM – the biggest jump since August 2011 – and is up 2.2% YoY (the most since June 2012).

We assume this will be ignored for a data-dependent Fed that needs to keep the easing dream alive (as long as stocks are off the highs)…

Chart: Bloomberg

As detailed in the breakdown… this is a 2.2% YoY rise

As the details show, inflation is picking up…quickly…

The index for all items less food and energy increased 2.2 percent over the past 12 months.This is its highest 12-month change since the period ending June 2012, and exceeds the 1.9 percent average annualized increase over the last 10 years. The index for shelter has risen 3.2 percent over the span, and the medical care index has increased 3.0 percent. In contrast, the indexes for apparel and for airline fares have declined over the past 12 months.

 

The index for all items less food and energy rose 0.3 percent in January. The increase was broad-based, with most of the major  components rising, but increases in the indexes for shelter and medical care were the largest contributors.

Furthermore, Shelter costs surged 3.7% YoY – the most since October 2008. Wages may be barely growing, but at least rents are soaring – good job Janet.

 

It will be hard for Bullard to call for QE4 after this.

END
Just take a look at the problems facing public pension entities.  They are so underfunded that they are now trying to cut benefits today by 50% to save the systeam.
good luck to them:
(courtesy zero hedge)

“I Guess It’s Food Stamps”: 400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts

Dale Dorsey isn’t happy.

After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school.

Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade.

“A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.”

“What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States,” said Jay Perry, a longtime Teamsters member.

Jay is probably correct.

Public sector pension funds are grossly underfunded in places like Chicago and Houston, while private sector funds are struggling to deal with rock bottom interest rates, which put pressure on expected returns and thus drive the present value of funds’ liabilities higher.

Illinois’ pension burden has brought the state to its knees financially speaking and in November, Springfield was forced to miss a $560 million payment to its retirement fund. In the private sector, GM said on Thursday that it will sell 20- and 30-year bonds in order to meet its pension obligations.

At the end of last year GM’s U.S. hourly pension plan was underfunded by $10.4 billion,” The New York Times writes. “About $61 billion of the obligations were funded for the plan’s roughly 360,000 pensioners.” Maybe it’s time for tax payers to bail themselves out.

Speaking of GM, Kenneth Feinberg – the man who oversaw the distribution of cash compensation to victims who were involved in accidents tied to faulty ignition switches – is now tasked with deciding whether the Central States Pension Fund’s proposal to cut benefits passes legal muster. “Central States’ proposal would allow the retirees to work and still collect their reduced benefits. But some are no longer able to work, and the idea didn’t seem plausible to others,” the Star goes on to note.

“You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked Feinberg. “I’m available.”

“I’ll have to go find a job. I don’t know. I’m 68,” Gary Meyer of Concordia, Mo said. “It would probably be a minimum-wage job.”

To be sure, retirees’ frustrations are justified. That said, the fund is simply running out of money. “We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” a letter to retirees reads.

The fund is projected to go broke by 2026. Without the proposed cuts, no benefits at all will be paid from that point forward.

According to letters shared with The Star, cuts range from around 40% to 61%. “[The] average pension loss was more than $1,400 a month,” the paper says.

As for what will become of those who depend upon their benefits to survive, the above quoted Gary Meyer summed it up best: “I guess food stamps. Hopefully not. It would be a last resort.”

Don’t worry Gary, you aren’t alone…

end
Another Bellwether stock John Deere cuts guidance for the year as they see a huge 10% drop in sales due to the recession we are in;
(courtesy zero hedge)

Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”

It is not just Caterpillar that continues to post horrendous numbers, and has now recorded 38 consecutive months of declining Y/Y sales, double the length of the contraction of the great financial crisis. Moments ago heavy farm equipment maker Deere likewise shocked its investors with a round of terrible numbers, when at first it reported a revenue and EPS beat, announced it had earned $0.80 EPS in Q4, above the $0.71 estimate, on $5.53BN in revenue, well above the $4.90BN expected, however it was the unprecedented drop in the forecast that was the punchline.

According to the company’s announcement, equipment sales are projected to decrease about 10% for fiscal 2016 and to be down about 8 percent for the second quarter compared with the same period a year ago.

Here is how CEO Samuel Allen tried to spin the cut in guidance which DE had previously seen at just -7%: “Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns,” Allen said.

Downturn? We thought the Fed was hiking because of the “strong recovery.”

Some more details: Deere cuts 2016 U.S. farm cash receipts forecast to $381.3b, had seen $394.4b (Nov. 25)

  • Cuts 2016 U.S. farm net cash income to $90.8b, had seen $106.9b (Nov. 25)
  • Sees yr U.S. farm commodity price:
    • Corn 2015/16 $3.60/bushel vs prior $3.65
    • Wheat 2015/16 $5.00/bushel, unchanged
    • Soybeans 2015/16 $8.80/bushel vs prior $8.90
    • Cotton 2015/16 60c/pound vs prior 59c
  • Cuts DE 2016 capex outlook to ~$775m from ~$800m

“This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources.”

Alas, a 10% drop in revenue does not validate the “durable business model” with more revenue sources.

He continued: “As a result, the company’s financial condition remains strong and we are well-positioned to continue investing in innovative products, advanced technology and new markets. These actions, we’re confident, will provide significant value to our customers and investors in the years ahead.”

So thousands of layoffs imminent to make room for buybacks?

Finally, some more about that downturn:

John Deere’s first-quarter results reflected the continuing impact of the downturn in the global farm economy as well as weakness in construction equipment markets.”

Surely that alone is worth another 25 bps in rate hikes by Yellen and crew

 

end

 

Our quant specialist now tells us why our two hedge funds, Bridgewater and Citadel are facing problems:  lack of momentum (volume) in stocks.  He suggests that it is harder for stocks to rise due to lower S and P earnings forecast this year will be down and thus the reason for our two hedge funds getting whacked.  Interesting enough, our quant man from JPMorgan went long gold as he suggests it does have the mo jo behind it and it is time to load the boat.

 

(courtesy zero hedge/JPMorgan)

 

JPMorgan Head Quant Explains Why Most Hedge Funds Have Been Slammed In 2016

As we showed one week ago, it has been a deplorable year not only for the broader market, but for some of the marquee “hedge” fund names, who once again have shown they “hedge” only in name. We followed up with a report on the world’s largest hedge fund, Bridgewater, whose Pure Alpha strategy we further showed has gotten slammed in the first two weeks of February, losing a whopping 10% in half a month.

Why the hedge fund rout? JPM’s head quant, Marko Kolanovic, who recently called the violent rotation out of momentum stocks just before it hit several weeks ago, and the bursting of the second tech bubble, is here to explain.

YTD performance of CTAs has been strong on account of their short S&P 500 equity exposure (see Figure 3). Over the last 2 days, short term (1-month) equity momentum turned positive, and limited CTA short covering likely contributed to the market rally. Overall, medium and long term equity momentum remain negative and are more likely to stay so. To turn momentum significantly positive, the S&P 500 would need to go significantly higher, which is hard given current EPS and multiple forecasts. With every additional week, short Oil and long USD momentum signals are becoming more vulnerable.

 

YTD performance of equity long-short Hedge Funds was likely dragged down by their net long equity exposure and heavy exposure to popular growth and momentum stocks. As a result, the HFRXEH index performed in line with passive investors (S&P 500). The momentum selloff in the first week of February negatively impacted equity quants who are on average overweight  momentum/low volatility factors. This has erased the positive performance of HFRXEMN index accumulated since August (Figure 3).

 

It is unclear how much of the momentum/low vol blow up has had to do with either the Citadel Surveyor unwind first noted here, or the dramatic drop in Pure Alpha performance and/or deleveraging.

Finally, here is Kolanovic on one of his favorite long positions: gold.

… recently established positive gold momentum is becoming more robust with time.

Which means the BIS will be busy doing everything in its power to halt gold’s surging momentum higher, although even they may be powerless considering Goldman recently gave the “all clear” to buy gold when it advised muppets to go short the yellow metal.

end

 

And now with this week’s wrap up, here is Greg Hunter of USAWatchdog

 

(courtesy Greg Hunter/USAWatchdog)

 

Could WWIII in Middle East Start Soon, Even MSM Knows Economy Tanking, Trump vs Pope

The top story is the Middle East and the possibility of WWIII. I am not exaggerating here as both Saudi Arabia and Turkey have strongly suggested that their countries would invade Syria. Saudi Arabia and other Middle East countries have reportedly amassed 350,000 troops on the Syrian border. Russian President Vladimir Putin says any troops entering Syria without the permission of Syria would be considered an “Act of War.” This would be huge and, no doubt, would go nuclear. Maybe this is the reason why Russia dispatched a brand new cruise missile ship to the Eastern Mediterranean last week.

The economy sucks, and even the mainstream media is beginning to admit it. Big global bank executives at JPMorgan and Citigroup announced they are buying shares of their banks. Deutsche announced it is buying $5.4 billion of its own debt. Deutsche Bank has $70 trillion in derivatives (debt bets) while the German GDP is only $3.8 trillion annually. That’s leverage at one bank that’s nearly 20 times the economy of Germany. What could go wrong? Why are the banks trying to paint a positive picture about their banks? Could the banking sector be in trouble around the world? The simple answer is yes. Look out for negative rates and bail-ins coming to a bank near you in the not-too-distant future.

The Pope is attacking candidate and private citizen Donald Trump. There is an old saying, and it is “When you start taking flack, you know you are over the target. The Pope questions Trump’s Christianity for his stance on illegal immigration and building a wall. Trump says if ISIS attacks the Vatican, he will wish Trump was President.

Join Greg Hunter as he looks at these stories and much more in the Weekly News Wrap-Up.

Well that about does it for this week

I will see you on Monday

 

harvey

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2 comments

  1. Harvey,
    That little gain in GLD was added yesterday. You keep reporting it a day late. Today there was a monster 19.3 tonnes added!

    Like

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