feb22/GLD “adds” a monstrous 19.33 tonnes to its inventory/silver adds 666,000 oz to its inventory/gold bombed 20 dollars today/Gold and silver OI at the comex continues to rise/British pound tumbles as mayor of London goes to the exit side/HSBC records a quarterly loss/BHP Billiton slashes dividend as well as cut CAPEX as earnings fall by 92%/Troubles continue for Valeant as they are going to restate earnings/With NIRP firmly in place in Japan, citizens are buying safes to put their yen so they would not have to place them in the banks/PMI’s throughout the globe plummet: first China, then Europe, then USA/

Gold:  $1,209.50 down 20.90    (comex closing time)

Silver 15.18 down 19  cents

In the access market 5:15 pm

Gold $1209.00

silver: $15.18

 

ON Friday, once the COT report was received I wrote:

“Conclusions: the chance of a huge raid coming next week is 100%”
Our criminal bankers did not disappoint me!!

At the gold comex today, we had a GOOD delivery day, registering 75 notices for 7500 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 676 contracts up to 175,576. In ounces, the OI is still represented by .878 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 1672 contracts to 442,125 contracts as the price of gold was up $4.30 with Friday’s trading.(at comex closing)

We had another mammoth addition in gold inventory at the GLD,this time a huge deposit of 19.33 tonnes of gold  / thus the inventory rests tonight at 732.99 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex.   In silver,/we had another addition in inventory to the tune of 666,000 iz   and thus the Inventory rests at 311.618 million oz.

 

First, here is an outline of what will be discussed tonight:

 

1. Today, we had the open interest in silver rose by 676 contracts up to 175,576 as the price of silver was up 6 cents with Friday’s trading.   The total OI for gold rose by 676 contracts to 442,125 contracts as gold rose by $4.30 in price from Friday’s level.

(report Harvey)

2 a) Gold trading overnight, Goldcore

(Mark OByrne)

 

3. ASIAN AFFAIRS

 

i)Late  SUNDAY night/ MONDAY morning: Shanghai closed UP slightly  BY 67.71 POINTS OR 2.37  / Hang Sang closed UP by 178.59  points or 0.93% . The Nikkei closed UP 143.88 or 0.90%. Australia’s all ordinaires was down 0.98%. Chinese yuan (ONSHORE) closed down at 6.5209.   Oil GAINED  to 30.81 dollars per barrel for WTI and 34.30 for Brent. Stocks in Europe so far deeply in the GREEN . Offshore yuan trades  6.5246 yuan to the dollar vs 6.5200 for onshore yuan/

 

ii) The NIRP policy in Japan causes many Japanese citizens to buy safes so store their yen.Also in Switzerland we witness a 17% increase in the circulation of 1,000 Swiss franc notes also because of NIRP in that country

( zero hedge)

EUROPEAN AFFAIRS
i)Sunday afternoon:  The British pound  (Cable) tumbles as the mayor of London will campaign on the BREXIT side of things
ii)Sunday afternoon:  The British pound  (Cable) tumbles as the mayor of London will campaign on the BREXIT side of things:

(courtesy zero hedge)

 

iii)And the official story showing Johnson stating that he will campaign for the UK to leave the European Union:

( zero hedge)

 

iv) Monday morning:  The Pound crashes:

( zero hedge)

v)Steen Jakobsen explains what Brexit really means. It certainly looks like immigration will the huge issue and may tip the scales to the no side along with the declining economy in Britain:

( Steen Jakobsen/Saxobank)

vi) The Danish Central bank head claims that monetary policy has no more positive effect on its economy.  It is certainly correct.  However other central bankers do not agree as they start on the path of NIRP and a cashless society:

( zero hedge)

vii) This does not bode well for European banking as HSBC records a quarterly loss on lower lending income plus huge bad loan charges:

( zero hedge)

viii) We have highlighted to you, lower PMI in China and  in the EU.  Now we witness the powerful German manufacturing sector faltering and this is a good indicator as to how the world is suffering from a lack of aggregate demand.(courtesy zero hedge)

RUSSIAN AND MIDDLE EASTERN AFFAIRS

i  A.) Turkey is furious at the USA as they state they are acting like the enemy.
Turkey is threatening the USA that they will not be able to utilize the Incirlik airport.
( zero hedge)
2.B)  It sure looks like Turkey and Russia will go to war and that may bring on World War III
(zero hedge)

ii) Multiple suicide attacks in the ancient city of HOMS a predominately Shiite stronghold by ISIS and then the threat that Damascas is next:( zero hedge)

 

GLOBAL ISSUES

 

i)JPMorgan believes that the lower price of oil will cause 500 billion in stocks to be sold this year:

( zero hedge, JPMorgan)
ii) The two Canadian banks most exposed to a severe oil shock are:

1. CIBC
2. Bank of Nova Scotia
on a default by oil companies, these guys would need to cut their dividend and raise capital.
 ( zero hedge)
iii)After the market closed; the giant BHP Billiton slashed its dividend by 3/4 on a huge 92% profit plunge.  They they announced a 4.9 billion shale oil  writedown.

Expect many mining and energy companies to follow BHP’s lead and cut their dividend and cut their CAPEX.  This will do wonders for the employment sector throughout the globe;
( zero hedge)

OIL MARKETS

 

i)Banks are selling energy loans at cents on the dollar to ensure their own survival.

We have a word for this: PANIC

( zero hedge)

 

ii) Oil jumps to 33$ despite IEA glut and warnings from Abu Dhabi`s biggest bank that 20 dollar oil is possible.  Oil ramps higher in sympathy with the higher USA:Yen ramp:

( zero hedge)

iii)The low price of oil is bringing sovereign Iraq to her knees

( Charles Kennedy/Oil price.com)
iv) Amazing, the price of oil continues to rise against  the markets huge overhang of supply:  Just take in what El Badri is crying out:

(courtesy OPEC/zero hedge)
PHYSICAL MARKETS

i) Thirty six tonnes of gold has been traced from Venezuela to Switzerland.  It is here that the gold is made in kilobars and then onto China:(courtesy Koos Jansen)

 

ii) Andrew Maguire has noted that now it is physical purchases of gold that is thwarting the gold suppression scheme

( Andrew Magure/Kingworldnews/Eric King)

 

iii) Next weekend is the G20 meeting.  Will there be a reset in the gold price?

( zero hedge/GATA)

 

iv)Doug Pollitt of Toronto states that an order for 30 tonnes will be troublesome to obtan and create havoc for our gold shorters:

( Doug Pollitt/GATA)

 

v) And finally we have Bill Holter delivering a huge commentary:

It is entitled:

“Something changed, maybe the G-20 will tell us?”

vi)Lawrence Williams of Sharp’s Pixley asks a terrific question this morning as to how the ETF’s could purchase 33 tonnes of gold on Friday and then on Sunday night/Monday morning, gold is sold down by 20 dollars ?

(courtesy Williams/Sharp’s pixley)

 

vii)Lawrence Williams reports that the actual increase in gold reserves by Russia in January is 21.8 tonnes and not 700,00 oz

( Lawrence Williams/Sharp’s Pixley)

 

USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

i)What a novel idea:  let’s check withholding taxes and see if they are rising with an increase in the supposed job front.  Trimtabs have been doing these calculations and state that taxes withheld are stalling and so is the USA economy

( zero hedge)

 

ii) Remember CLO’s in the last financial debacle that occurred in 2008?  Well they are baaack…. as the equity NAV value of 348 of their debt instruments fall below zero.

As stated by a participant:
“the market changed dramatically in 6 weeks”
( zero hedge)

iii) Early this morning China announced a drop in their PMI and then Europe.  It seems that the entire globe is seeing their manufacturing sector plummet.  And then came the USA and they also announced a very weak PMI.  However what is most damaging in the USA is the decline in the service PMI.  Remember it is the service industry that is 70% of GDP:

( zero hedge)

 

iv)Bond yields fell today despite the higher Dow/ S and P.  This does not bode well for the market.  The author gives 3 explanations as to why bond rates are heading lower:

(Guggenheim/Minerd/zero hedge)
v)This will become another house of cards of which Fannie and Freddie will end up financing: Only 3% down mortgage program!!

( zero hedge)

Let us head over to the comex:

 

The total gold comex open interest rose to 1672  for a gain of 1672 contracts as the price of gold was up $4.30 in price with respect to yesterday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month.   Today, both scenarios were in order.   In February  the OI fell by 30 contracts down to 248. We had 3 notices filed on yesterday, so we lost 27 contracts or an additional 2700 oz will not stand for delivery. The next non active delivery month of March saw its OI fall by 36 contracts down to 1946. After March, the active delivery month of April saw it’s OI rise by 651 contracts up to 307,474. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 200,624 which is fair.  The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was fair at 194,228 contracts. The comex is in backwardation until March.

 

Today we had 75 notices filed for 7500 oz.
And now for the wild silver comex results. Silver OI rose by 676 contracts from 174900  up to 175,576 despite the fact that  the price of silver was down by 6 cents with respect to Friday’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 Friday, 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 4,928 contracts down to 60,323.  The volume on the comex today (just comex) came in at 80,609 , which is huge. The confirmed volume yesterday (comex + globex) was huge  at 70,304. Silver is not in backwardation at the comex but is in backwardation in London. First day notice is a week from today, the 29th of February.
 
We had 0 notices filed for nil oz.
 

Feb contract month:

INITIAL standings for FEBRUARY

Feb 22/2016

Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil 64.30 oz

Manfra

2 kilobars

Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz    nil
No of oz served (contracts) today 75 contracts
(7500 oz)
No of oz to be served (notices) 173 contracts  (17,300 oz )
Total monthly oz gold served (contracts) so far this month  2410 contracts (241,000 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month 531,649.4 oz
Today, we had 0 dealer transactions
total dealer deposit; nil oz
total dealer withdrawals nil.
We had 1  customer withdrawals
i) Out of Manfra: 64.30 oz
total customer withdrawal: 64.30 oz oz
we had 0 customer deposits:

we had 1 adjustment

i) Out of Scotia:

6,387.547 oz was adjusted out of the customer and this landed in the dealer account of scotia;

.

 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 75 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 (2410) x 100 oz  or 241,000 oz , to which we  add the difference between the open interest for the front month of February (248 contracts) minus the number of notices served upon today (75) 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 (2410) x 100 oz  or ounces + {OI for the front month (248) minus the number of  notices served upon today (75) x 100 oz which equals 258,300 oz standing in this active delivery month of February (8.0342 tonnes)
 
we gained 3 contracts  or an additional 300 oz will stand for delivery
We thus have 8.0342 tonnes of gold standing and 8.9299 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 287,099.323 or 8.9912
Total gold inventory (dealer and customer) =6,669,383.072 or 207.445 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 22/2016:

Silver
Ounces
Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory  1,631,036.308 oz

Delaware

CNT,HSBC

Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 1,623,963.480 oz

CNT

Brinks,HSBC

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 14,994,008.0 oz

Today, we had 0 deposits into the dealer account: 

total dealer deposit;nil  oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

 

we had 3 customer deposits:

i) Into CNT: 1007.89 oz

ii) Into Brinks: 600,975.200 oz

iii) Into HSBC 1,21,980.390 oz

total customer deposits: 1,623,963.480  oz

We had 3 customer withdrawals:
i) Out of Delaware: 171,900.79 oz
ii) Out of CNT:  839,012.75 oz
i11)Out of  HSBC: 1,021,980.390 oz
 
 

total withdrawals from customer account 1,623,963.480   oz

 

 we had 1 adjustment:

Out of Delaware:

i) we had 5,101.300 oz removed from the dealer account and this landed into the customer account of Delaware

 

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:  28.904 million
Total number of dealer and customer silver:   155.195 million oz
Question: in a non active month again why so much activity in the silver comex?
 
 
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 22/A huge addition of 19.33 tonnes of gold to its inventory/Inventory rests at 732.96 tonnes/ How could this happen: a huge addition of gold coupled with a huge downfall of 20 dollars in gold.

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 22.2016:  inventory rests at 732.96 tonnes

Now the SLV:
Feb 22/ we have a good addition of 666,000 oz into inventory/Inventory rests at 311.618 million oz
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 22.2016: Inventory 311.618 million oz.
1. Central Fund of Canada: traded at Negative 7.1 percent to NAV usa funds and Negative 6.9% to NAV for Cdn funds!!!!
Percentage of fund in gold 64.0%
Percentage of fund in silver:36.0%
cash .0%( feb 22.2016).
2. Sprott silver fund (PSLV): Premium to NAV falls to  +2.36%!!!! NAV (feb 22.2016) 
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, MONDAY MORNING and also physical stories that may interest you:

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

Silver and Gold Will Protect From Coming Bail-Ins

Josh Sigurdson and John Sneisen of World Alternative Media interviewed Mark O’Byrne, co-founder of GoldCore, late last week. The value of silver and gold during bail-ins and in a financial crisis was covered and other topics covered included

– History of gold and silver as money
– How gold retains value while paper money always reverts to zero eventually
– Importance of owning silver and gold in safest ways possible
– Don’t be dependent on any one counter party as it is a financial and technology risk
– The manipulation of gold prices
– “Insane” bail-in regimes which are coming

Josh Sigurdson and John Sneisen of World Alternative Media interviewed Mark O’Byrne, co-founder of GoldCore, late last week. The value of silver and gold during bail-ins and in a financial crisis was covered and other topics covered included

– History of gold and silver as money
– How gold retains value while paper money always reverts to zero eventually
– Importance of owning silver and gold in safest ways possible
– Don’t be dependent on any one counter party as it’s a financial & technology risk
– The manipulation of gold prices
– “Insane” bail-in regimes which are coming

Inline image 3

LBMA Gold Prices
22 Feb: USD 1,203.65, EUR 1,088.17 and GBP 849.21 per ounce
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


Gold and Silver News and Commentary

“Cautious” on gold in short term said GoldCore – Marketwatch
Asian Stocks Rally With Crude as Pound Sinks on ‘Brexit’ Tussle – Bloomberg
Gold dips as dollar, stocks strengthen; but holds above $1,200 – Reuters
Gold Posts Third Straight Gain on Slumping Equities, Crude Oil – Bloomberg
Gold price over $1,200 has bullion buyers sure rally will continue – CBC

Only one way to get change want – vote leave the EU – Johnson – Telegraph
The charts you love to hate: UK house prices – in gold – Money Week
Why, According to One Bank, Massive Central Bank Intervention Is Imminent – Zero Hedge
“Thirty Tonnes of Gold” – Difficult Acquiring – GATA
Gold Bull is Just Getting Started – GoldSeek

Click here


Protecting-Your-Savings-In-The-Coming-Bail-In-Era

Download Guide –Protecting Your Savings In The Coming Bail-In Era (11 pages)

Download Guide – From Bail-Outs to Bail-Ins: Risks and Ramifications (51 pages)

LBMA Gold Prices
22 Feb: USD 1,203.65, EUR 1,088.17 and GBP 849.21 per ounce
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


Gold and Silver News and Commentary

“Cautious” on gold in short term said GoldCore – Marketwatch
Asian Stocks Rally With Crude as Pound Sinks on ‘Brexit’ Tussle – Bloomberg
Gold dips as dollar, stocks strengthen; but holds above $1,200 – Reuters
Gold Posts Third Straight Gain on Slumping Equities, Crude Oil – Bloomberg
Gold price over $1,200 has bullion buyers sure rally will continue – CBC

Only one way to get change want – vote leave the EU – Johnson – Telegraph
The charts you love to hate: UK house prices – in gold – Money Week
Why, According to One Bank, Massive Central Bank Intervention Is Imminent – Zero Hedge
“Thirty Tonnes of Gold” – Difficult Acquiring – GATA
Gold Bull is Just Getting Started – GoldSeek

Download Guide –Protecting Your Savings In The Coming Bail-In Era (11 pages)

Download Guide – From Bail-Outs to Bail-Ins: Risks and Ramifications (51 pages)

Mark O’Byrne

 

end

 

Lawrence Williams of Sharp’s Pixley asks a terrific question this morning as to how the ETF’s could purchase 23 tonnes of gold on Friday and then on Sunday night, Monday morning, gold is sold down by 20 dollars?

(courtesy Williams/Sharp’s pixley)

 

“We find it somewhat unbelievable that US. Investors should buy 23.332 tonnes of gold into their two main gold ETFs on Friday and then in Asia the price falls back $19. The U.S. gold market is readying for a strong move shortly, still.

So we have to ask, “How can the prices in Asia fall so much, while New York and London are closed?” It is evident that there is little to no effective arbitrage capacity in the global gold market. China forbids the export of gold, so there is no chance that a smoothing of the gold price can come from Chinese sellers in New York or London. But liquidity levels in Shanghai are sufficient to see gold sales there with no price-chasing. Altogether Shanghai appears a more stable gold market now with less volatility.

With Chinese and Indian wholesalers buying as much gold as they can, confident that the retail and institutional buyers will be there soon thereafter, on an ongoing basis, supplies for the open market in the developed world are under strain. The volatility on the gold price in New York bears clear testament to this. As you can see even now prices fall in Asia and rise in New York substantially! If we are correct on this, then we have to expect continued and rising volatility in the weeks ahead, in daily prices.

So will there be two separate and very different gold prices across the world in the future? We discussed, in our newsletters, the developments both in and outside China in terms of the structure of the global gold markets being undertaken by the Chinese institutions. We see these as developing effective arbitrage operations, under their control. That means that the absorption of London’s liquidity in the gold market will accelerate.

Asians do not chase prices, they always want to know it won’t go lower and then they buy. With the huge growth in Chinese Middle classes, ongoing demand for gold in China will grow too. So price dips will become increasingly rare and a steadier, less volatile market will evolve in Shanghai if this market evolution continues.

But until then, we will see daily prices between morning and evening, remaining volatile…”

 

end

 

Lawrence Williams reports that the actual increase in gold reserves by Russia in January is 21.8 tonnes and not 700,00 oz

 

(courtesy Lawrence Williams/Sharp’s Pixley)

LAWRIE WILLIAMS: Russia’s January gold reserve increase much higher than previously reported

Feb
21

Contrary to reports elsewhere, which put an increase in Russia’s gold reserve in January at some 13.6 tonnes based on the apparent announced dollar value of the rise, the actual figure as reported to the IMF was 700,000 troy ounces (21.8 tonnes). This is very much on a par with the high levels recorded in the second half of last year. Some will see the figure as particularly significant in terms of the likely continuation of a high level of central bank gold purchases this year, with China already having announced that it increased its reserves by 16 tonnes in the same month. Together the two central banks therefore will have accumulated 37.8 tonnes in January – a level which, if maintained over the year would see a further 450 tonnes plus move into the forex reserves of these two nations alone this year.

What might also been seen as significant is that Russia, for the previous two years, has tended to add little to no gold to its reserves in the first two months of the year, suggesting that the Kremlin is now going all out to bolster its gold reserve levels, perhaps by buying up all or most of its own domestic gold production. Russia is, according to the latest GFMS estimates, currently the world’s third largest producer of gold at a rate of around 22 tonnes per month, so the figure would tally with this suggestion. However other estimates put the country’s gold output figure a few tonnes higher, possibly moving it into second place ahead of Australia. We will see when official figures for the world’s gold producing nations are announced.

Additionally, it is perhaps also interesting note that, due to Russia’s currency collapse against the US dollar, in Ruble terms the gold price is close to an all-time high at around RUB95,000 – about 75% higher than it was back at the time of its US dollar peak in 2011. This tends to make the economics of gold mining in Russia far more favourable than it is in say China and the USA other nations. Currency movements put gold also at, or close to, an all-time high in such other major gold producing nations as Australia, South Africa, Canada, Brazil, Ghana and Argentina. With many cost input figures incurred in the domestic currencies, but the revenue still received at the global US dollar gold price, this has been a significant factor in global gold output remaining at around its peak levels despite the yellow metal’s falls in the US dollar gold price, which most analysts focus on to the exclusion of other factors.

http://news.sharpspixley.com/article/lawrie-williams- russias-january-gold-
reserve-increase-much-higher- than- previously-reported/245833/

end

 

Thirty six tonnes of gold has been traced from Venezuela to Switzerland.  It is here that the gold is made in kilobars and then onto China:

 

(courtesy Koos Jansen)

 

 

Koos Jansen: Gold from Venezuelan reserve lands in Switzerland

Submitted by cpowell on Fri, 2016-02-19 21:06. Section: 

4p ET Friday, February 19, 2016

Dear Friend of GATA and Gold:

Gold researcher and GATA consultant Koos Jansen reports today that 36 tonnes from Venezuela’s gold reserve arrived in Switzerland in January as the suffering country’s insolvent socialist regime began liquidating its last monetary assets to delay restoration of a market economy. Jansen disputes a Reuters report that asserting that the Venezuelan gold will not hit the market. His commentary is headlined “Venezuela Exported 36 Tonnes of Its Official Gold Reserves To Switzerland In January” and it’s posted at Bullion Star here:

https://www.bullionstar.com/blogs/koos-jansen/venezuela-exported-35t-of-…

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

 

END

 

Andrew Maguire has noted that now it is physical purchases of gold that is thwarting the gold suppression scheme

(courtesy Andrew Magure/Kingworldnews/Eric King)

Physical purchases thwart gold price suppression, Maguire tells KWN

Submitted by cpowell on Fri, 2016-02-19 17:38. Section: 

12:37p ET Friday, February 19, 2016

Dear Friend of GATA and Gold:

London metals trader Andrew Maguire today tells King World News that buying of physical gold is thwarting attempts to use paper gold to push the price back below $1,200. Maguire adds that Indian gold wholesalers have been postponing purchases in expectation of a reduction in import tariffs, and if the reduction is large enough, it could trigger a lot of buying. An excerpt from Maguire’s interview is posted at the KWN blog here:

http://kingworldnews.com/andrew-maguire-exposes-what-has-shocked-traders…

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

 

end

 

Next weekend is the G20 meeting.  Will there be a reset in the gold price?

(courtesy zero hedge/GATA)

Will next weekend bring ‘the big reset’?

Submitted by cpowell on Sat, 2016-02-20 18:44. Section: 

Why, According to One Bank, Massive Central Bank Intervention Is Imminent

From Zero Hedge, New York
Saturday, February 20, 2016

Any time the relative performance of global financials to U.S. Treasuries has stumbled as far as it has, as shown in the chart below, it has meant one thing — a major central bank intervention was imminent.

At least that’s the interpretation of Bank of America’s Michael Hartnett, who shows that in order to provide the kick for the bounce in this all-too-important “deflationary leading indicator,” central banks engaged in major unorthodox easing episodes, whether QE1-3 or the ECB’s QE. …

… For the remainder of the report:

http://www.zerohedge.com/news/2016-02-20/why-according-one-bank-massive-…

 

end

 

Doug Pollitt of Toronto states that an order for 30 tonnes will be troublesome to obtan and create havoc for our gold shorters:

(courtesy Doug Pollitt/GATA)

 

Douglas Pollitt: Just 30 tonnes of gold can be troublesome these days

Submitted by cpowell on Sun, 2016-02-21 18:56. Section: 

1:55p ET Sunday, February 21, 2016

Dear Friend of GATA and Gold:

In his firm’s market letter for February, Douglas Pollitt of Pollitt & Co. in Toronto notes what seem to be much tighter conditions in the market for physical gold and remarks that an order for even 30 tonnes of metal can seem troublesome these days.

“Should the sector return to favor, should even a small fraction of that negative-yielding sovereign debt spill into the one remaining financial asset that cannot be adulterated, the more interesting question is this: Next time, where will they find the metal?”

Pollitt’s letter is headlined “Thirty Tonnes of Gold” and he has kindly given GATA permission to post it in PDF format here:

http://www.gata.org/files/Pollitt&CoLetter-February2016.pdf

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

 

end

 

A huge commentary tonight from Bill Holter

(courtesy Holter-Sinclair collaberation)

 

 

Something changed, maybe the G-20 will tell us?

No doubt “something” changed starting the second half of last year.  In fact, in looking at many markets we saw change and reversals.  The process took quite some time but global equity markets topped and many are now quickly into bear market (down 20% or more) territory.  This is also the case in many credit markets if we exclude most sovereigns. 
  Cross currency markets have also been in disarray, the most important and telling is the yen/dollar cross closing the week with a 112 handle.  Please understand the danger of this, a good portion of the global carry trade is financed by borrowing yen, yen are becoming more expensive and thus harder to pay back.  The “harder” part is putting severe strains on the derivatives markets.  In many carry trades, the “squeeze” from the “carried” side (the carried asset) is forcing the closure of the currency side, this is creating a negative feedback loop.  What was originally borrowed (yen) now must be bought be paid back to the lender.
  We have seen this rapid strengthening in the yen AFTER a Fed tightening and AFTER Japan announcing policy of negative interest rates.  This was NOT supposed to happen but happen it has!  This is a sign of markets overrunning the central banks as the carry trade is beginning to unwind and creating demand for yen.  Put simply the central banks are losing control… of what had previously been under COMPLETE control!
We also saw gold move into severe backwardation not only in London but also on the COMEX.  This is truly amazing as COMEX is a paper exchange yet their brute force of dilution is not strong enough to keep gold and silver out of backwardation.  The next week or two will be very telling as the COT numbers are showing the commercials very short again as they have sold into the recent rallies.  The open interest has risen dramatically in both gold and silver as they moved off of 3rd quarter bottoms, can the paper dilution contain them?  Will it be business as usual and the metals routed again or has something truly changed?    
  Another $50 in gold and a mere $1 in silver will take them into official bull markets.  In my opinion, we will look back in time to see the last 4 years as corrections in bull markets that started in 2001.  With or without a true rule of law we will find out the normal “corrections” were expanded and extended in time via dilution.  This dilution will not be discovered in the courts or by the hapless CFTC, it will be obvious when the runs begin and 99 of 100 “owners” find out their metal is not and never was “there”.  I do want to say this, we should begin to see the silver/gold ratio begin to drop as it is completely skewed at 80-1 while the mining ratio is under 10-1.  Outperformance by silver will be another sign that control is being lost.
The second half of last year also saw a downshift in trade, GDP and velocity/volume.  Again, a slap in the face to central banks because their untold $ trillions have been overrun by a deflating credit system (of their own making).  It is this “change” that has spurred the recent talk of reversing course on rates and pushing them negative in the U.S..  Talk of “NIRP” was immediately followed by Europe and the U.S. (via Larry Summers) floating trial balloons for doing away with cash.
From a geopolitical standpoint, the East versus West situation also began to speed up the second half of last year.  China was admitted into the IMF basket.  The U.S. signed the ridiculous Iran and TPP treaties, Russia stepped into the Middle East physically for the first time and now actual shelling of Syria from Turkey has begun.  Turkey’s actions are confusing as we have seen both “stand down” orders from the U.S. and they are “NATO allies” at the same time.  What will Erdogan do and who is he taking orders from?
To the south of Syria, Saudi Arabia has amassed a substantial part of their military in attack position.  Are they doing this on their own or on U.S. orders?  The situation is murky as U.S. funded rebels are losing ground to Russian backed forces and Assad is regaining lost real estate.  Can Turkey and or the Saudis really attack Russian forces?  Russia has announced on several occasions their http://russia-insider.com/en/politics/did-russia-just-threaten-turkey-nuclear-weapons/ri12936  tactical nuclear weapons are not off the table should their forces face slaughter, certainly “deals” have been drawn up behind the scenes right?  In my estimation, I believe “borders” and regimes in many Middle East nations will be “re drawn”.  I truly believe these “new borders” have already been penciled in, the map only lacks blood to be used for ink.
Another area of shocking change beginning late last year was that of liquidity, or the lack.  “Stress” is building in the financial system to the point where individual names have begun to emerge.  In particular Deutsche Bank.  We could list names of various banks, cities, pension funds, cities, protectorates and even countries …but Deutsche Bank will do as they are THE largest counterparty to the fraud call “derivatives”.  They  are on record as shouting “no more negative rates” and following by “we need more liquidity NOW!”.  This conundrum is illustrated here;

As you can see, global financial stress versus “risk free” Treasury  bonds is rising and now to the point where something needs to be done quickly by the central bank community.  I also want to point out the obvious here, with all of the past quantitative easings we are back to where we started NEEDING MORE!  None of these easings reflated the system for anything other than a short time and each time we require more and more!
So here we are, back to where we were prior to each easing and prior to the fall of 2008 …with one stark difference.  The central banks and sovereign treasuries have spent all their bullets and do not have room on their balance sheets to take on more debt.  The markets have sensed this moment coming for the last six months.  I would also say this moment was sniffed out by world leaders as they posture(d) for position. 
  Not much if any of the above is new or groundbreaking, just an assessment or overview that collectively many markets and geopolitics have begun rapid change over the last 6-9 months.  I do not believe it is any coincidence the G-20 meetings this year are being held in China.  The G-20 finance ministers will meet at the end of this week.  If I told you I knew what will come out of this meeting I would be lying.  In the past, many of these meetings yielded nothing, this meeting is quite different because something, and probably quite radical needs to be done out of necessity!
  I would not be shocked by anything.  We could see coordinated QE and reflation efforts by central banks.  We could see a big devaluation by any or even all of the players including the U.S., China or the whole of Europe.  A “coordinated devaluation” would be the equivalent of a “re set” or revaluation higher in the price of gold as these currencies need to devalue against “something”.  I do not see this meeting as benign, I will be shocked as some sort of very big policy change(s) is necessary, without it the deflation boogeyman will eat everything in its path and still be hungry for more!
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome!  bholter@hotmail.com

 

end

 

Here is Bill Holter being interviewed by Greg Hunter

 

Bill Holter-Negative Rates Guaranteed Loss-Buy Gold

Preview YouTube video Bill Holter-Negative Rates Guaranteed Loss-Buy Gold

Bill Holter-Negative Rates Guaranteed Loss-Buy Gold
 end

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

1 Chinese yuan vs USA dollar/yuan DOWN to 6.5209 / Shanghai bourse IN THE GREEN:  / HANG SANG CLOSED UP 178.59 POINTS OR 0.93%

2 Nikkei closed UP 143.88 OR 0.90%

3. Europe stocks all in the GREEN /USA dollar index UP to 97.43/Euro DOWN to 1.1034

3b Japan 10 year bond yield: FALLS  TO +.002    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.88

3c Nikkei now well below 17,000

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

3e WTI::  30.81  and Brent: 34.30

3f Gold UP  /Yen UP

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund RISES  to 0..204%   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  : 10.58%  (yield curve deeply  inverted)

3k Gold at $1206.30/silver $15.05 (7:45 am est) 

3l USA vs Russian rouble; (Russian rouble UP 1 AND  3/100 in  roubles/dollar) 75.97

3m oil into the 30 dollar handle for WTI and 34 handle for Brent/

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

JAPAN ON JAN 29.2016 INITIATES NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 0.9969 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1034 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 STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.

3r the 8 year German bund now  in negative territory with the 10 year RISES to  + .204%

/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 1.77% early this morning. Thirty year rate  at 2.63% /POLICY ERROR)

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

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

Markets Surge On Chinese Debt Flood; Worst European PMI In Over A Year; Crashing Pound

The overnight news was decidedly downcast,   (Harvey : see story below) with first London mayor Boris Johnson voicing his support for Brexit leading to a collapse in the pound, validating our Saturday warning and then some, resulting in the biggest drop in cable in over a year over fears that the EU will lose one of its most critical members…

… then followed by a surprising loss, the first in 5 years, by HSBC – (Harvey: see story below) the bank that makes money laundering for criminals around the globe a breeze – as revenue dropped and loans to oil and gas companies drove a jump in impairment charges, leading to a 5% drop in its share price, but more concerning is that HSBC said bad loan impairments and provisions soared 32% to $1.62BN driven by the oil and gas sector. In other words banks are concealing far more energy losses on their books than they have so far admitted.

Finally, we got yet another indication that the global slowdown is spreading to Europe, when first French composite PMI printed at 49.8 missing expectations, then Germany’s PMI likewise missed at 50.2, which meant that the Markit composite Purchasing Managers Index for the euro zone fell to 52.7, the lowest since January 2015, from 53.6. In Germany, manufacturing took a hit from falling overseas demand, while the composite gauge for France signaled “sluggish” economic growth.

From the Markit Report:

The flash Markit Eurozone PMI fell from 53.6 in January to 52.7, the lowest since January of last year. The second consecutive monthly slowing in the rate of output expansion reflected a waning in growth of new orders for a third successive month, resulting in the smallest rise in new business for 12 months.

Backlogs of work were broadly unchanged as a result of the weaker increase in new work. With outstanding business stagnant, firms limited their hiring of new staff, leading to the weakest net increase in employment for five months.

Manufacturing output showed the smallest increase since December 2014, moving closer to stagnation amid a further faltering in growth of new orders and exports. Services fared better, though nevertheless saw growth weaken to the slowest since January of last year. Moreover, a sharp deterioration in optimism about future activity growth in the services sector points to further weakness in coming months

It wasn’t just Europe: in China the MNI business indicator for February declined 2.4 pts to 49.9, matching the level seen in November in the process. Meanwhile in Japan and kicking off a busy day for PMI’s the flash February manufacturing print tumbled 2.1pts this month to a well below market 50.2 (vs. 52.0 expected) which was the lowest since June.

And yet, despite – or rather thanks to – this slew of negative news, global markets and US equity futures soared from the moments Japan opened (driven by the traditional BOJ-inspired spike in the USDJPY), and never looked back – in the process even breaking Europe’s futures exchange Eurex, as traders focused on the record surge in Chinese loan creation, which as we reported last week will have hit $1 trillion in the first two months of 2016, which in turn pushed commodities and especially iron ore higher by 6.2%, back over $50, or $51.52 a dry ton specifically, the highest level since Oct. 27. The commodity has jumped 18 percent this year after plunging to $38.30 in December, the lowest in more than six years; the reason: Chinese corporations are taking advantage of the debt glut and doing what got them in trouble in the first place: stockpiling.

Helping lift the risk mood was the PBoC which provided CNY 169BN of funds under its Medium-term Lending Facility and the Finance Ministry announced a reduction of home transaction taxes, pushing the Shanghai Comp higher by 2.4%, the highest level in one month.

So propped up by the Chinese central bank and by a debt-spewing Chinese finance ministry, with further hopes a backsliding European economy will mean even more easing by Draghi, the risk on mood is back: “People are willing to take risk again,” Karl Goody, a private wealth manager at Shaw and Partners Ltd. in Sydney told Bloomberg. “People are looking at the selloff this year and saying: enough is enough, there’s been enough pain now.”

As a result of today’s commodity euphoria, the Stoxx 600 was led higher by miners and carmakers. BHP Billiton Ltd. and Rio Tinto Group jumped more than 5 percent, among the biggest gains in Britain’s FTSE 100 Index.  Ironlcally, U.K. equities added 1.2 percent. The FTSE 100 this year is the best performer among major national measures in western Europe, helped by a weakening pound.

“While we still have some pretty big risks out there, the market has sold off so much it was about time we got a bounce back,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We’ve seen a turnaround in the commodities sector. Some of the drag from China is also starting to ease. We have a bit further to go in this relief rally”

Futures on the Standard & Poor’s 500 Index expiring in March rose 1.2 percent, indicating equities will extend gains after posting their strongest weekly advance since November. Allergan Plc is among four S&P 500 members posting earnings on Monday. What is curious is that over the weekend the latest twist in the US Presidential campaign saw Donald Trump secure victory in the South Carolina Republican primary, beating Rubio and Cruz into second and third place respectively.  And while Trump’s steamrolling in the primaries has been said to be broadly negative for equities, so far US equity futures are up well over 1.0%.

Bottom line: Central Banks > Donald Trump, if only for today.

Where markets stand right now:

  • S&P 500 futures up 1.2% to 1937
  • Stoxx 600 up 1.6% to 332
  • FTSE 100 up 1.2% to 6024
  • DAX up 2% to 9574
  • German 10Yr yieldunchanged at 0.2%
  • Italian 10Yr yield down 3bps to 1.54%
  • MSCI Asia Pacific up 0.7% to 120
  • Nikkei 225 up 0.9% to 16111
  • Hang Seng up 0.9% to 19464
  • Shanghai Composite up 2.3% to 2927
  • S&P/ASX 200 up 1% to 5001
  • US 10-yr yield up 3bps to 1.78%
  • Dollar Index up 0.65% to 97.23
  • WTI Crude futures up 3.6% to $30.70
  • Brent Futures up 3.2% to $34.07
  • Gold spot down 1.8% to $1,204
  • Silver spot down 2.3% to $15.00

Top Global News:

  • Cameron to Make EU Case to Parliament as Johnson Backs ‘Brexit’: Possible Cameron successor among most popular U.K. politicians
  • Pound Slides Most in a Year as Johnson Backs ‘Brexit’ Campaign: gauge of 6-mo. volatility climbs to highest since 2011
  • Brent Oil Pares Losses as Russia Sees Output Talks Done by March: Futures up as much as 1.9% in London, paring 2-day, 4.3% slide
  • For OPEC, Path From Oil Freeze to Output Cuts Isn’t Clear: Saudi Arabia is sending signals that its policy could change
  • China Stocks Rise to Highest in Month Amid Regulator Reshuffle: Former chief of Agbank replaces Xiao Gang as CSRC chairman
  • Yahoo Said to Start Approaching Possible Bidders Soon As Monday: Verizon, Comcast, AT&T likely to be among interested parties
  • EFG to Buy BTG’s Swiss Private Bank in $1.34b Deal: Purchase will double assets under management for EFG
  • PayPal Eyes Growth in New Alliances With Vodafone, America Movil: Mobile carriers are gateway to 740m potential customers
  • HSBC Posts Surprise 4Q Loss; Dividend in Line With Est.: HSBC reported 4Q reported pretax loss $858m; est. $1.95b; HSBC’s Asia-Pacific Hiring Practices Being Probed by SEC: London-based bank says it’s cooperating with U.S. regulator on investigation

Looking at regional markets, we start in Asia where equities began the week on the front-foot with nearly all indices advancing, with China support measures and commodity gains lifting sentiment. Nikkei 225 (+0.9%) was driven higher by JPY weakness, while firm earnings underpinned the ASX 200 (+0.7%). Elsewhere, Shanghai Comp (+2.4%) was underpinned after the PBoC provided CNY 169bIn of funds under its Medium-term Lending Facility and the Finance Ministry announced a reduction of home transaction taxes, while China’s materials sector outperforms on steel and iron ore gains, with the latter rising limit-up to its highest levels since October. 10yr JGBs continued on its recent uptrend despite the risk-on sentiment in the region, while 20yr yields printed fresh record lows amid thin trade as participants await tomorrow’s 40yr auction and expectations of the BoJ to enter the market for the super long-end on Wednesday. As reported over the weekend, China replaced the head of its securities regulator and announced Shiyu as the new CSRC chief to replace Xiao Gang.

Asian Top News:

  • Yuan Bears Who Beat Hedge Funds to the Trade See Pain Spreading: Walker of Asianomics predicts U.S. recession, Treasury rally
  • DBS Profit Rises on Interest Income as Bad-Loan Ratio Holds: Fourth-quarter earnings jump 20% to beat analyst estimates
  • In $39 Billion China Buyout Spree, Latest Offer Angers Investors: Jumei International’s going-private offer is less than 1/3 of IPO price
  • Negative Rates Advocate Fujimaki Says BOJ’s Kuroda Got It Wrong: Bank of Japan can’t halt inflation once it takes hold, Fujimaki says
  • China’s Debt Seen Rising Through 2019, Peaking at 283% of GDP: History points to financial crisis or slowdown, Goldman Sachs says
  • BlackRock Is Betting on Japan Stocks as Other Foreigners Flee: Overseas investors have sold a net 2.24 trillion yen this year

After negotiations with his European counterparts, UK PM Cameron has agreed a package of changes to the UK’s membership of the EU and has subsequently announced a referendum on June 23rd to vote on whether Britain should remain a part of the EU. The agreement will take effect immediately if the UK votes to remain in the EU. Mr Cameron had originally wanted a complete ban on migrants sending child benefit abroad but had to compromise after some eastern European states rejected that and also insisted that existing claimants should continue to receive the full payment.

London Mayor Boris Johnson announced he would join the campaign for Britain to exit the European Union. A recent Ipsos/MORI poll found that of all the politicians in the UK, only Boris Johnson was capable of affecting the outcome of the referendum, adding a potential 15% to the ‘Leave’ campaign if he backed it publicly. (Huffington Post/Guardian)

European Top News:

  • Deutsche Telekom CEO Says Not Considering Sale of Dutch Unit: CEO Timotheus Hoettges speakss in interview on Bloomberg TV
  • Bank of Ireland Sees Dividend Next Year as 2015 Profit Soars 30%: underlying pretax, ex. items, EU1.2b in line with ests
  • AB Foods Raises FY Adj. EPS Outlook; 1H Primark Sales Miss Ests.: AB Foods now only sees “marginal decline” in FY adj. EPS, had seen “modest decline”
  • Telepizza Prepares to List Shares in Spain, Expansion Says: Could be valued at ~EU1.2b or 15 times Ebitda
  • Cortefiel Suspends IPO Plans on Political Uncertainty: Mundo: Newspaper cites unidentified people who took part in discussions
  • Unibail-Rodamco Sells Office Building for EU330m: Doesn’t disclose the name of the buyer
  • Corum CEO Tells Le Temps Swiss Watch Brand Has Become Profitable: CEO Davide Traxler cited in interview with Le Temps
  • Sanofi Says FDA Accepts NDA for Glargine, Lixisenatide Combo: Says decision anticipated in August

In FX, GBP underperforms this morning, with the most notable news over the weekend all focussed around Brexit concerns. While many were looking out for details of the deal between the EU and UK, the more interesting news came when London Mayor and touted possible PM successor Boris Johnson announced that he would campaign in favour of leaving the EU. A recent Ipsos/MORI poll found that of all the politicians in the UK, only Johnson was capable of affecting the outcome of the referendum, adding a potential 15% to the ‘Leave’ campaign. As such GBP plummeted overnight and fell further as European participants arrived at their desks, with EUR/GBP firmly above 0.7800 and GBP/USD lower on the day by almost 2.5 points, close to 1.4150.

In commodities, WTI and Brent futures have seen renewed strength today in tandem with the continuing rhetoric regarding an OPEC deal, with Russia stating they have set a March 1st deadline for completing consultations. While sources reported that the Iraq oil minister informed ministers that although Iraq will not join Doha’s MOU, they will not boost crude production level in next 4 months either. Separately, the risk-on sentiment alongside the strength in the USD-index which has made a firm break above notable resistance situated at 97.17, has seen significant pressure in the precious metal complex with Gold seeing losses of over USD 20.

Iraq Oil Minister states that they will support all efforts to control prices, adding that they are very much cooperative. (BBG) Additionally, sources reports said Iraq Oil Minister Adil Abd al-Mandi informed ministers that although Iraq will not join Doha’s MOU they will not boost crude production level in next 4 months either.

On today’s docket in the US we get the manufacturing print in the US this afternoon (expected at 52.5) along with the Chicago Fed national activity index expected at -0.10.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • Boris Johnson’s Brexit announcement sees significant selling pressure filter through GBP.
  • Risk-on sentiment in full swing with European equities kicking off the week on the front foot.
  • Looking ahead, highlights include US manufacturing PM! and comments from ECB’s Lautenschlager
  • Treasury yields rise in overnight trading amid global equity markets rally, U.S. dollar strength as British PM Cameron will address the House of Commons today about the U.K. remaining in the European Union.
  • The British pound weakened the most in a year against the dollar after London’s Conservative Mayor Boris Johnson said he’ll campaign for Britain’s exit from the EU, opposing Prime Minister David Cameron
  • HSBC Holdings Plc posted an unexpected fourth-quarter loss, its first since at least 2009, as revenue dropped and loans to oil and gas companies drove a jump in impairment charges
  • China’s stocks rose to the highest level in almost a month on speculation the new head of the nation’s securities regulator, Liu Shiyu, will take steps to boost the world’s second-largest equity market
  • As banks around the world cut sales and trading jobs in an effort to reduce costs, the bloodletting in foreign exchange is proving to be among the deepest and most painful as the world’s 12 biggest banks have reduced foreign-exchange headcount by more than a quarter since 2010
  • The world’s biggest banks last year generated the least revenue from fixed-income products since the 2008 financial crisis as businesses under-performed, clients pulled back from trading and assets lost value
  • The global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency
  • U.S. Treasury will auction $26b 2Y (Tuesday), $13b 2Y FRN and $34b 5Y (Wednesday), $28b 7Y (Thursday)
  • $4.05b IG corporates priced Friday (YTD volume $225.5b) and no HY priced (YTD volume $11.125b)
  • Sovereign 10Y bond yields mostly steady with Greece +12bp; European, Asian markets rally; U.S. equity- index futures rise. Crude oil and copper rally, gold falls

DB’s Jim Reid concludes the overnight wrap:

Since the news of the EU deal for the UK and associated referendum date announcement wires have been dominated by the response of Cameron’s fellow Conservative members, six of which have announced that they will campaign for ‘Out’ including London Mayor Boris Johnson. This is significant given the Mayor’s approval ratings and a big personality now in the ‘Out’ camp, although it remains to be seen just how much of an active role he will play in campaigning, possibly choosing to keep a low profile in light of his future Conservative Party leadership chances. The news comes after Justice Secretary Michael Gove announced himself that he will also campaign for Britain to leave too.

In any case, the weekend news has meant Sterling was the big mover when markets opened in Asia this morning. The Pound is currently down 0.85% versus the US Dollar and 0.68% against the Euro, although it has pared back losses of as much as 1% for both. FTSE 100 index futures are up +0.8% however.

Looking at the rest of markets this morning and specifically in Asia it’s generally been a fairly positive start. The Nikkei (+0.94%), Shanghai Comp (+2.49%), Hang Seng (+0.91%) and ASX (+0.98%) are all kicking off the week on the front foot, with the Kospi (-0.06%) the only index in the red. Supporting gains are a 1.5% bounce for Oil. The constructive start has also come despite some softish data this morning. In China the MNI business indicator for February declined 2.4pts to 49.9, matching the level seen in November in the process. Meanwhile in Japan and kicking off a busy day for PMI’s the flash February manufacturing print tumbled 2.1pts this month to a well below market 50.2 (vs. 52.0 expected) which was the lowest since June.

Meanwhile, US equity index futures are up half a percent this morning. Over the weekend the latest twist in the US Presidential campaign saw Donald Trump secure victory in the South Carolina Republican primary, beating Rubio and Cruz into second and third place respectively. Jeb Bush has since announced that he has suspended his campaign.

Quickly recapping what was a softish day for the most part on Friday, closing out a week of two halves. The optimism that was initially sparked on the back of those Saudi/Russia/Iran meetings concerning OPEC production freezes seemed to wane into the close of last week, with WTI wiping out the bulk of the week’s gains after dropping -3.67% on Friday and back below $30/bbl which was where it had kicked the week off. Brent (-3.70%) was down a similar amount on Friday which took it to -1.05% for the five days last week. A slightly higher than expected US CPI number (more shortly) also seemed to weigh on risk assets initially, although in fairness markets did bounce back by the close and it feels like we’ll need sustained run of better economic data to really swing Fed rate expectations from the lowly levels at the moment

After dipping as much as -0.8% in early trading, the S&P 500 closed unchanged by the close. That meant the index finished up +2.84% last week for its first weekly gain since January, although remember that this included two consecutive +1.65% daily gains on Tuesday and Wednesday before momentum faded away. It was a similar pattern for markets closer to home. The Stoxx 600 finished Friday -0.77% as a rough day for financials also played its part. That saw the index close up +4.47% last week although again with gains frontloaded. US credit was a tad softer on Friday with CDX IG 1.4bps wider meaning the index was 4bps tighter on the week. In Europe we saw Senior and Sub Fins finish 3bps and 5bps wider respectively on the day paring the five-day rebound to 5bps and 18bps tighter respectively. Main closed 3bps wider and was 5bps tighter on the week.

With regards to that data, headline CPI for the US in January came in higher than expected at 0.0% mom (vs. -0.1% expected) which saw the YoY rate lift to +1.4% from +0.7% although largely due to favorable base effects. Much of the focus was on a decent core print with the monthly reading of +0.3% mom also one-tenth ahead of expectations. That saw the YoY rate notch up to +2.2% which is the highest level now since June 2012 and continuing the strong momentum of late. It was noted that a big contributor to that was again rising shelter costs although other services were also said to play a part including medical costs, airfares and financial services. Treasury yields did initially move sharply higher post the data, with the benchmark 10y yield hitting 1.783% (up 7bps from the lows) before mirroring much of the move in equity markets to finish more or less unchanged at 1.745%.

Meanwhile, Cleveland Fed President Mester became the latest in the line of recent Fedspeakers. A voter this year and seen as a hawkish leaner, Mester joined Williams in saying that she wants to stay away from negative interest rates, while commenting that ‘policy is going to be moving gradually higher, not going backwards’ but that the actual path the Fed chooses to take ‘could very well turn out to be either less gradual or more gradual than what we anticipate it to be today’. With regards to her outlook, Mester noted that ‘my current expectation is that the US economy will work through this episode of market turbulence and the soft patch of economic data to regain its footing for moderate growth’ and that despite the volatility and various factors impacting markets this month, it would be ‘premature’ for her to materially change her outlook.

There was also some notable chatter out of the ECB to mention. In particular it was comments from Constancio which got our attention, with the ECB official highlighting that ‘in looking to what can be done if we decide to ease further, we’ll have to mitigate the effect on banks as other countries have done’. The comments lending further weight to the possibility that the ECB might be shifting away from outright deeper depo cuts and possibly instead to a tiered deposit rate system or LTRO’s. Meanwhile, ECB Governing Council member Visco made comments of his own on Friday, the most significant being that he does not see any reason why the ECB could not take on bad loans as collateral, but also commenting that there has not yet been any discussion on this.

Let us begin:

ASIAN AFFAIRS

Late  SUNDAY night/ MONDAY morning: Shanghai closed UP slightly  BY 67.71 POINTS OR 2.37  / Hang Sang closed UP by 178.59  points or 0.93% . The Nikkei closed UP 143.88 or 0.90%. Australia’s all ordinaires was down 0.98%. Chinese yuan (ONSHORE) closed down at 6.5209.   Oil GAINED  to 30.81 dollars per barrel for WTI and 34.30 for Brent. Stocks in Europe so far deeply in the GREEN . Offshore yuan trades  6.5246 yuan to the dollar vs 6.5200 for onshore yuan/

end

 

The NIRP policy in Japan causes many Japanese citizens to buy safes so store their yen.Also in Switzerland we witness a 17% increase in the circulation of 1,000 Swiss franc notes also because of NIRP in that country

 

(courtesy zero hedge)

 

Safes Sell Out In Japan, 1,000 Franc Note Demand Soars As NIRP Triggers Cash Hoarding

Negative rates may not have found their way to bank deposits in most locales (yet), but that doesn’t mean the public isn’t starting to see the writing on the wall.

At first, NIRP was an anomaly. An obscure policy tool that most analysts and market watchers assumed would be implemented on a temporary basis in a kind of “let’s see if this is even possible” experiment with an idea that, from a common sense perspective, makes no sense.

But then a funny thing happened. Central banks from Denmark to Sweden to Switzerland went negative and stayed there. They even doubled down, taking rates even more negative and before you knew it, the public started to catch on.

When NIRP failed to resuscitate global growth and trade, the cash ban calls began. The thinking is simple (if crazy): if you do away with physical banknotes, the effective lower bound is thereby eliminated. You can make rates as negative as you like because the public has no recourse as people aren’t able to push back by eschewing their bank accounts the mattress.

If that seems far-fetched, consider that the ECB is seriously considering pulling the €500 euro note and the calls are growing louder for the Fed to drop the $100 bill. Of course officials are pitching the big bill bans as an attempt to fight crime – because only a criminal would pay with a $100. But the underlying push is for a cashless society wherein monetary authorities can effectively force citizens to spend and thereby boost the economy by simply making interest rates deeply negative.

Now that the cash ban calls have gotten sufficiently loud to be heard by the generally clueless masses and now that the likes of Jose Canseco are shouting about negative rates, savers are beginning to pull their money out of the banks.

“Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash–the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates,” WSJ wrote this morning. “Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does.”

“In response to negative interest rates, there are elderly people who’re thinking of keeping their money under a mattress,” one saleswoman at a Shimachu store in eastern Tokyo told The Journal, which also says at least one model costing $700 is sold out and won’t be available again for a month.

“According to the BOJ theory, they should have moved their funds into riskier but higher-earning assets.Instead, they moved into pure cash that earned nothing,” Richard Katz, author of The Oriental Economist newsletter wrote this month.

Meanwhile, in Switzerland, circulation of the 1,000 franc note soared 17% last year in the wake of the SNB’s move to NIRP.

“One consequence of the decision to cut the Swiss central bank’s deposit rate into negative territory in late 2014, and deepen the negative rate to -0.75% early last year, may have been to increase stockpiling,” WSJ reports. “Holding money in cash would protect it from the risk of Swiss banks at some point charging a broad range of customers to deposit money.”

The connection between the increasing circulation of the big Swiss bill and the central bank policy is obvious,” Karsten Junius, chief economist at Bank J. Safra Sarasin said.

Well yes, it is. Just as the connection between soaring safe sales in Japan and Haruhiko Kuroda’s NIRP push is readily apparent.

So once again, we see that when one experiments with policies that fly in the face of logic (like charging people to hold their money), there are very often unintended consqeuences and when you combine sluggish demand with NIRP in a monetary regime that still has physical banknotes, you get a run on cash. And on safes to store it in.

One Japanese lawmaker brought up the soaring safe sales in parliament on Monday. “It suggests a vague sense of unease among the public,” Katsumasa Suzuki remarked.

We’re not sure “vague sense of unease” quite covers it. People are rushing to buy safes to hoard their money in because the head of the central bank has lost his mind…

Perhaps “palpable sense of panic,” better describes the situation.

In response to Suzuki Finance Minister Taro Aso could only muster the following: “There is money, but there is no demand. That is the biggest problem.”

 

end

 

EUROPEAN AFFAIRS

Sunday afternoon:  The British pound  (Cable) tumbles as the mayor of London will campaign on the BREXIT side of things:

 

(courtesy zero hedge)

Cable Tumbles As Brexit Fears Resurge After BoJo Backlash

Friday afternoon saw chaotic trading in GBPUSD (cable) as headlines flip-flopped before finally settling on a “deal” had been agreed between Cameron and The EU. Hope was high that this was a positive for “staying in” and cable rallied. But that has been dashed on the shores of Boris Johnson as London’s mayor will campaign to leave the EU sending GBPUSD down 120 pips at the open.

Just as we warned: “If Johnson refuses to back Cameron, the Friday afternoon spike in the GBP may be very promptly undone.” 

Other Brexit risk indiators remained at record highs into Friday’s close…

FX Volatility butterfly…

And credit spreads…

We will see how they open late this evening.

 

end

 

And the official story showing Johnson stating that he will campaign for the UK to leave the European Union:

 

(courtesy zero hedge)

London Mayor Boris Johnson Says He Will Campaign For The UK To Leave The European Union

Update: as expected, moments ago Boris Johnson joined the Brexit vote saying “I’ve decided after a huge amount of heartache I will be advocating the UK to leave the European Union” because he wants a better deal for the people of the country.

More coverage from SkyNews below:

Inline image 1

* * *

Yesterday, when we summarized the statements by UK politicians regarding the June 23 EU referendum, we said the one most important opinion has yet to come: that of London mayor Boris Johnson’s whose “opinion may sway the vote one way or another in four months. As the Telegraph reproted that “David Cameron is mounting a last-ditch effort to woo Boris Johnson to back his campaign to stay in the European Union, by drawing up plans for a new constitutional settlement that puts the sovereignty of British institutions beyond doubt.”

As the Telegraph added, “sources close to Johnson said he remained “genuinely torn” and that he would “chew over” what the prime minister has to say when Cameron appears on the BBC’s Andrew Marr Show on Sunday, before issuing some form of statement this evening. He will then spell out the reasons for his decision in his column for the Daily Telegraph on Monday.”

It appears that Cameron’s effort to “woo” Johnson has failed because moments ago BBC reported that “Boris Johnson is to campaign to leave the EU in the UK’s referendum, BBC understands.”

The Guardian has more:

Boris Johnson is to transform the terms of the EU referendum by announcing that he is to throw his weight behind the campaign to take Britain out of the EU, according to the BBC.

In the biggest boost to the Leave campaign so far, the London mayor is to announce that after much soul-searching he now believes the time has come for Britain to sever its EU membership.

The news was broken by the BBC’s political editor Laura Kuenssberg who tweeted: “Boris WILL campaign to leave the EU -Huge boost for Out, big blow for number ten altho expected – more soon. Official announcement tonight.”

The report was being seen at Westminster as authoritative because Johnson recorded a broadcast interview in which he was due to explain his thinking.

Last night we said that “if Johnson refuses to back Cameron, the Friday afternoon spike in the GBP may be very promptly undone.” NOw that this appears to be the case, keep a close eye on cable once it opens in a few hours in Sunday’s illiquid trade – it could get volatile.

end
Monday morning:  The Pound crashes:
(courtesy zero hedge)

Cable Crashes To 7 Year Lows As Brexit Battle Begins

With the UK’s referendum on EU membership due in four months, it appears the market is gravely concerned about the possibility of Brexit. Despite the unleashing of Project Fear (both military and corporate fearmongery), cable (GBPUSD) has crashed 2.3% (the most in 7 years) to its lowest in 7 years, and both FX volatility and credit risk Brexit indicators are soaring to record highs.

Just as we warned, Friday’s dubious gains have evaporated and cable is crashing to 7 years lows…

 

 

As Deutsche Bank’s Jim Reid notes,

So four months tomorrow we’ll see yet another important referendum for financial markets as all of us here in the UK decide on EU membership. Maybe we’re imagining it but it seems that important national referendums are becoming more widespread. In the last 12 months we’ve seen the Scottish Independence and the Greek EU deal referendums both of which were market moving events. Not long before those we had the Crimea referendum, although in fairness this was less of a market moving event, while Catalonia was the subject of a somewhat de-facto referendum back in September. If such national polls are becoming more frequent it perhaps reflects the weak global economic environment and the hope that a major change brings a better future.

 

Very crudely, the Brexit opinion polls in recent years have tended to be correlated to the economic data in Europe and the U.K. So the stay vote has polled notably higher in good times than bad. In the Euro crisis of 2012, ‘Out’ regularly polled around 70% amongst the UK population. In today’s PDF (click on the link near the top), we show the YouGov polls on Brexit over the last 5 years which highlights this. The latest poll here showed a 9% lead for ‘Out’ but we should say that a Survation poll over the weekend had ‘Remain’ in a 15% lead. Indeed all the recent phone polls (like this one) show a big lead for the status quo whereas online polls are mixed with many having ‘Out’ in the lead. We’ve collated a table of a selection of the last two months of polls in the PDF as well to highlight this.

 

 

One problem for the ‘Remain’ campaigners is the declining growth across the globe and the continent. On Friday our European economists downgraded their 2016 GDP number from 1.6% to 1.4% following a 12 month period where their 2016 forecast has remained constant at 1.6%.

 

Thinking about it, if our European friends really want the UK to stay maybe they should let us win Eurovision this year and let us have a good start to Euro 2016. Maybe PM Cameron didn’t dare hold the referendum any later than June 23rd as the UK home nations might not be in the tournament much past this date (final on July 10th) with the usual associated doom surrounding our exits.

 

Since the news of the EU deal for the UK and associated referendum date announcement wires have been dominated by the response of Cameron’s fellow Conservative members, six of which have announced that they will campaign for ‘Out’ including London Mayor Boris Johnson. This is significant given the Mayor’s approval ratings and a big personality now in the ‘Out’ camp, although it remains to be seen just how much of an active role he will play in campaigning, possibly choosing to keep a low profile in light of his future Conservative Party leadership chances. The news comes after Justice Secretary Michael Gove announced himself that he will also campaign for Britain to leave too.

And it appears Brexit indicators are pointing towards Brexit being likely…

 

One can only imagine the fearmongery ramp-up that will take place in the next few months to ‘fix’ this.

 end
Steen Jakobsen explains what Brexit really means. It certainly looks like immigration will the huge issue and may tip the scales to the no side along with the declining economy in Britain:
(courtesy Steen Jakobsen/Saxobank)

Steen Jakobsen Explains What Brexit Really Means: “No Good Outcomes To This”

Authored by Saxobank CIO Steen Jakobsen, via TradingFloor.com,

  • Cameron’s EU deal is far short of what he promised
  • This represents formal acceptance of a two-tier Europe
  • Populists elsewhere already calling for their own referendums
  • By October, Cameron and Merkel could be history and Le Pen’s star shining

cameron

 No wonder David Cameron looks worried.

This weekend saw British prime minister David Cameron get a deal from Europe, but a deal which is far from the ambition he launched in his so called ”Bloomberg speech” in 2013:  “repatriation of power”  and “fundamental” reform.

What he did get, in the words of Simon Nixon of The Wall Street Journal was: “The PM found himself in the small hours of Friday morning staking 70 years of British foreign policy on securing rights to discriminate against Polish expatriate workers.” Furthermore, the deal was seen by Brussels as giving him too much and of course by Eurosceptics and most of the media as being too little.

The bigger political risk, though, is what Wolfgang Münchau of the Financial Times states right in his headline: “Concession creates a two tier Europe”. “This is a formal exemption from the goal of ever closer union,” he writes, and underlines what this is not: an opt-out, an exemption or a derogation, as many such processes in the past has been called by the EU – it’s the acceptance of a two-tier Europe, which was never the goal or the intention.

There is unilateral agreement that in two weeks times no one will remember or understand the deal, as it’s too complicated and without any really fundamental changes, but also that the campaign will be fought on “In or Out” and that Cameron is a strong enough campaigner to make a difference underlying the uncertain future, the potential loss of jobs etc.

If he does lose he will be out of office (although he is claiming that he will remain…..): 50% of the MPs are already aligned with a No and it will be impossible for him to lead the Tories after a No, especially as the ever ambitious Boris Johnson at the last minute joined the Out camp (strategic move or conviction?)

Cameron also has the support of major companies and 50 out of FTSE 100 CEOs have either privately or as company chief executives signed up with Cameron and the Stay campaign. June 23 will be a big challenge not only for Britain but also for Europe.

I doubt the markets will find any consolation in opinion polls or even rhetoric from Cameron or the EU.The fact that Cameron delivered close to no reforms will not matter on June 23 – what will matter is how the EU tries to “convince” and how the Out camp is able to present their populist agenda. We already hear experienced hands in populism such as Marine Le Pen and Geert Wilders in the Netherlandstalking about a “need for them also to vote on EU”.

If Britain does vote No the case for a European Union will collapse – the move away from common law and equal treatment has been for everyone to see. In Greece, in year in and year out violations of the Maastricht criteria, bank union, ECB action etc. Now the timing, June, is really bad for Europe as the European Central Bank will be in total panic about kick-starting inflation, refugees will be flowing over borders and Germany‘s Angela Merkel is currently the weakest she has been during her reign as chancellor.

In the worst case, come October 2016, Merkel and Cameron will be out of power, Marine Le Pen will be leading French election polls and Europe will be closing in on itself.

This is not my favorite goal or hope, but the tectonic plates of European politics are picking up speed and decades of non-reform and non-compliance is coming back with interest on top.

Overall, though, I doubt that the UK will end up quitting. History tends to favour no change in these kind of votes, but clearly as the refugee situation become a bigger and bigger issue the focus could be somewhere entirely different by June and hence create a “natural” exit for the UK.

Main Street and Wall Street both dislike change, we are about to see some of the biggest changes in my lifetime – even I am a bit concerned. I don’t really see many good outcomes to this.

end

The Danish Central bank head claims that monetary policy has no more positive effect on its economy.  It is certainly correct.  However other central bankers do not agree as they start on the path of NIRP and a cashless society:
(courtesy zero hedge)

“We’ve Reached The Limit”: Denmark Central Bank Chief Says Monetary Policy Is Exhausted

For the likes of Paul Krugman, the Riksbank provides a cautionary tale for central banks wary of committing so-called “policy mistakes.”

Back in 2010, the bank started to hike rates. That decision halted a decline in unemployment and shortly thereafter, it became apparent that “the rock star of the recovery had turned itself into Japan.” Or soKrugman says.

He went on to blame the “error” on “Sadomonetarism,” which he hilariously described as “an attitude, common among monetary officials and commentators, that involves a visceral dislike for low interest rates and easy money, even when unemployment is high and inflation is low.”

If these “sadomonetarists” are indeed “common among monetary officials,” then it’s news to us because everywhere you turn, DM central bankers have plunged headlong into the Keynesian abyss as NIRP proliferates and QE continues unabated in Europe, Japan, and yes, in Sweden, where the Riksbank made a U-turn in 2011 on the way to pushing rates deeply into negative territory.

Here’s where the world stands as it relates to NIRP.

The question one might fairly ask Krugman is why the world is still stuck with a stubborn deflationary impulse 8 years after Ben Bernanke mustered the “courage” to print. Central banks have eased, and eased, and eased and yet inflation is still below target (and that’s putting it nicely) while global growth and trade remain stuck in the doldrums.

It could be that the competitive nature of the rate cuts and QE expansion ultimately mean that no one gets to enjoy the benefits – or at least not for long. One round of easing simply offsets another in an endless race to some lunatic bottom or, ultimately, towards the abolition of cash. Or it could simply be that this isn’t the answer when it comes to juicing aggregate demand. But whatever the case, it’s pretty clear that what the global central banker cabal is doing simply isn’t working. What’s not clear – and this is the scary part – is what the consequences of these policies will ultimately be.

On Monday, we got a look at minutes from the latest Riksbank meeting and Deputy Governor Martin Floden is getting concerned. “The Riksbank has started to approach limit to how much it can cut rate without weakening impact or problems arising,” he warned. “Monetary policy tools are becoming increasingly difficult to use,” he continued, adding that “it’s likely that interest rate cut won’t have full impact on lending rates to households and companies.”

In the same vein, Denmark’s central bank governor, Lars Rohde says monetary policy has reached its limit. “We have reached a point where monetary policy no longer has a big overall impact,’’ he said on Monday. “[It’s] overstreched [and] there’s a limit to what more one can do’.”

We agree. But we don’t expect most central bankers do and indeed the Riksbank minutes suggest there may be more easing in the cards. “The executive Board was unanimous that it is important to have a high level of preparedness to make monetary policy even more expansionary,” one absurd passage from the meeting account says.

Stefan Ingves did acknowledge one thing we’ve been pounding the table on for quite some time, namely that to the extent any of these policies are actually effective at rescuing the economy, central banks should be wary of getting themselves into a situation wherein the world careens into recession and officials are out of counter-cyclical bullets. “If the economy begins to slow down when the policy rate is zero or even negative, this could entail a very difficult situation for monetary policy further ahead.”

Why yes, yes it could. At least we know that the Riksbank is “unanimous in the need to be prepared,” to do more of what isn’t working and more of what is leaving the board increasingly boxed in. Einsteinian insanity at its finest, courtesy of global central banks.

 

 

end

 

 

This does not bode well for European banking as HSBC records a quarterly loss on lower lending income plus huge bad loan charges:
(courtesy zero hedge)

HSBC Has Quarterly Loss on Lending Income, Bad-Loan Charges

  • Quarterly loss of $858 million compared with profit in 2014
  • HSBC’s adjusted quarterly pretax profit fell to $1.9 billion

HSBC Holdings Plc, Europe’s largest bank, posted a fourth-quarter loss as income from lending fell, loan-impairment charges increased and it booked fair-value losses on its debt.

The lender’s shares erased earlier gains in Hong Kong on Monday after the bank reported in an exchange statement a pretax loss of $858 million, compared with a profit of $1.73 billion a year earlier. Analysts surveyed by Bloomberg on average forecast a $1.95 billion profit for the quarter.

Breaking Down HSBC Earnings

The result, depressed in part by the rising cost of bad loans to oil and gas companies, marks a setback to Chief Executive Officer Stuart Gulliver’s efforts to bolster profitability and reverse a share slump. In June, the CEO unveiled a new strategy to boost investment in Asia, exit unprofitable countries and cut as many as 25,000 jobs to help save as much as $5 billion by the end of 2017.

“There is a lot to do to achieve our targets but we have made a good start,” Gulliver said in the earnings release. He said HSBC reduced risk-weighted assets by $124 billion last year, taking it almost half-way toward the target for the end of 2017.

Shares in HSBC lost 1.7 percent to HK$49.40 at 2:28 p.m. in Hong Kong after advancing as much as 2 percent earlier in the day. The stock has slumped 20 percent this year, underperforming the benchmark Hang Seng Index’s 11 percent drop.

HSBC shares in Hong Kong have traded at a premium to analysts’ consensus target price just twice this decade.
HSBC shares in Hong Kong have traded at a premium to analysts’ consensus target price just twice this decade.

Revenue in the fourth quarter tumbled 18 percent to $11.8 billion as net interest income fell to $8.1 billion. Revenue was also hurt by expenses related to losses on hedging, according to HSBC spokesman Gareth Hewett. Impairments on bad loans and credit-risk provisions increased by 32 percent to $1.64 billion. That took full-year charges to $3.7 billion, exceeding the consensus analyst estimate of $3 billion.

“Income was a big miss,” Sanford C. Bernstein analysts led by Chirantan Barua wrote in a note. “The earnings outlook for the bank remains muted.”

The increase in bad-loan charges in HSBC’s wholesale banking division was driven by the oil and gas sector, where companies have been battered by the commodities slump. Wholesale banking accounted for almost $1 billion of loan impairment charges in the quarter, according to an HSBC presentation that accompanied the earnings.

Main Challenge

The bank declared a dividend of 21 cents for the fourth quarter. Operating costs in the period amounted to $11.5 billion, down from $11.9 billion a year earlier. Its end-point common equity Tier 1 capital ratio rose to 11.9 percent from 11.1 percent a year earlier.

“Maintaining these trends while boosting revenue will be the principal challenge in the year ahead,” Gulliver said in the statement, as he warned of an “uncertain” economic environment.

Gulliver’s task of turning HSBC around has also been complicated by a slowdown in China, a key element of his “pivot to Asia” strategy. Last week, Gulliver said China’s cooling economy means he may slow the pace of hiring in the Pearl River Delta, where he’s announced plans to add some 4,000 jobs in coming years.

Earlier this month, the board decided to keep the bank’s headquarters in London, favoring the British capital over its ancestral home of Hong Kong, after obtaining concessions from the U.K. government on regulation and taxes.

Underscoring the difficulty of selling bank assets, HSBC also said it will retain and restructure its unprofitable Turkish unit. The bank had received a number of offers for the business since June, none of which “were deemed to be in the best interests of our shareholders,” Gulliver said.

 

end

 

We have highlighted to you, lower PMI in China and  in the EU.  Noticeably the powerful German manufacturing sector seems to be faltering and it is a good indicator as to how the world is suffering from a lack of aggregate demand.

(courtesy zero hedge)

 

Has The German Manufacturing Juggernaut “Lost Its Mojo?”

 

Earlier today, we highlighted the noticeable weakness in European PMIs which largely missed expectations on – what else? – sluggish global demand and generally anemic economic growth.

Specifically, Germany’s PMI fell for the second month in a row in February, declining to 53.8 from 54.5 the previous month. Worryingly, the manufacturing PMI slumped 50.2, missing estimates by a wide margin and hitting its lowest level in 15 months.

Services looked ok, but as anyone who follows global macro knows, it’s all about manufacturing for the world’s fourth largest economy. The health of Germany’s manufacturing sector serves as a useful barometer not only for the health of the European economy for the pace of global growth and trade in general. Indeed, that’s one of the reasons why the Volkswagen emissions scandal was (and still is) so troubling. It has the potential to dent Germany’s manufacturing juggernaut.

In the wake of Monday’s data, Goldman is out asking if perhaps German manufacturing “has lost its mojo.”

“German real GDP grew a moderate 0.3%qoq in the fourth quarter of last year, and by 1.5% for the whole of 2015,” Goldman writes, adding that “part of the relative disappointment can be located in the manufacturing sector, which has shown a sub-par performance since 2011.”

What’s to blame, you ask? Why sluggish global growth of course:

The relative sluggishness of German manufacturing can be partly explained by slower global growth, which has resulted in weaker German export growth (Exhibit 2). In real terms, German exports have grown on average by only 3.5%pa over the past four years, compared with 8.8% in the four years prior to the financial crisis.

 

Using a model that explains German exports using global demand and Germany’s trade-weighted exchange rate, we find that German exports over the past two years have developed broadly as the model would have predicted. This suggest that it is indeed weaker global demand and not other, more fundamental changes in German manufacturing performance – such as a loss of international competitiveness – that lies behind weaker German exports.

 

 

Yes, “it is indeed” weaker global demand, a fact which underscores one of the key themes when it comes to assessing the state of the global economy. Depressed aggregate demand, anemic growth, and sluggish trade have become endemic. It’s now a structural rather than a cyclical problem.

But everyone knows that by now (or at least they should). What puzzles Goldman is that manufacturing employment is on the rise and capacity utilization doesn’t all that bad either.

So what gives? When in doubt, just say the numbers are wrong. “Together with the relative strength of the employment figures we see a possibility that the price-adjusted figures under-report the strength of the German manufacturing sector,” Goldman posits.

Perhaps. But if the problem is subpar global growth, then analyzing the sub-components is futile. Either aggregate demand and trade pick up or the German economy sinks with everyone else. “Barring any sharp slowdown of the global economy, we would expect a continuation of the solid, though not spectacular, growth of the German economy,” Goldman concludes.

About that whole “barring any sharp slowdown of the global economy” thing…

…note the red arrows…

 

end

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

Turkey is furious at the USA as they state they are acting like the enemy.
Turkey is threatening the USA that they will not be able to utilize the Incirlik airport.
(COURTESY zerohedge)

A Furious Turkey Says US Is “Acting Like An Enemy,” Demands Washington Brand Kurds “Terrorists”

As you might have noticed, Turkish President Recep Tayyip Erdogan is about to lose his mind with the situation in Syria.

To be sure, the effort to usurp the Bashar al-Assad government wasn’t exactly going as planned in the first place. Regime change always takes time, but the conflict in Syria was dragging into its fifth year by the time the Russians got directly involved and although it did indeed look as though the SAA was on the verge of defeat, the future of the rebellion was far from certain.

But to whatever extent the rebels’ fate was up in the air before September 30, the cause was dealt a devastating blow when Moscow’s warplanes began flying sorties from Latakia and while Ankara and Riyadh were initially willing to sit on the sidelines and see how things played out, once Russia and Hezbollah encircled Aleppo, it was do or die time. The supply lines to Turkey were cut and without a direct intervention by the rebels’ Sunni benefactors, Moscow and Hassan Nasrallah’s army would ultimately move in on Aleppo proper and that, as they say, would be that.

The problem for Turkey, Saudi Arabia, and Qatar is optics. That is, everything anyone does in Syria has to be justified by an imaginary “war on terror.” Turkey can’t say it’s intervening to keep the rebels from being defeated by the Russians, and similarly, Saudi Arabia, Qatar, the US, France and everyone else needs to preserve the narrative and pretend as though this all doesn’t boil down to the West and the Sunnis versus the Russians and the Shiites.

Here’s what we said earlier this month: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.

Well it turns out that’s an impossible task and so, Turkey has resorted to Plan B: a possible false flag bombing and the old “blame the Kurds” strategy.

The attack on military personnel in Ankara this week was claimed by The Kurdistan Freedom Hawks (an offshoot of the PKK) in retaliation for Turkey’s aggressive campaign in Cizre (as documented here), but Erdogan has taken the opportunity to remind the world that the PKK and the YPG are largely synonymous. That is, they’re both armed groups of non-state actors and if one is a terrorist organization, then so is the other.

Erdogan’s anti-Kurd stance is complicated immeasurably by the fact that both the US and Russia support the YPG out of sheer necessity. The group has proven especially adept at battling ISIS and has secured most of the border with Turkey. As we noted way back in August, it was inevtiable that Washington and Ankara would come to blows over the YPG. After all, the US only secured access to Incirlik by acquiescing to Erdogan’s crackdown on the PKK, but some of the missions the US was flying from Turkey’s air base were in support of the YPG. The whole thing was absurd from the very beginning.

Well now, Turkey is not only set to use the fight against the YPG as an excuse to intervene in Syria on behalf of the Sunni rebels battling to beat back the Russian and Iranian advance, but Ankara is also demanding that the US recognize the YPG as a terrorist group. If Washington refuses, “measure will be taken.”

“If the Unites States is really Turkey’s friend and ally, then they should recognize the PYD — a Syrian branch of the PKK — as a terrorist organization. If a friend acts as an enemy, then measures should be taken, and they will not be limited to the Incirlik Airbase, Turkey has significant capabilities,” Erdogan advisor Seref Malkoc told Bugun newspaper.

So yeah. Turkey just threatened the US. It’s notable that Malkoc specifically said actions would go “beyond Incirlik,” because pulling access to the base would be the first thing any regional observers would expect from Ankara in the event of a spat with Washington. For Turkey to say that measures will go beyond that, opens the door for Erdogan to become openly hostile towards his NATO allies.

The only thing we expect from our U.S. ally is to support Turkey with no ifs or buts,” PM Ahmet Davutoglu told a news conferenceon Saturday.”If 28 Turkish lives have been claimed through a terrorist attack we can only expect them to say any threat against Turkey is a threat against them.”

In other words, Turkey is explicitly asking the US to support Ankara’s push to invade Syria and not only that, Erdogan wants Washington to sanction attacks on the YPG which the US has overtly armed, trained, and funded. “The disagreement over the YPG risks driving a wedge between the NATO allies at a critical point in Syria’s civil war,” Reuters wrote on Saturday. “On Friday, a State Department spokesman told reporters Washington would continue to support organizations in Syria that it could count on in the fight against Islamic State – an apparent reference to the YPG.”

Right. “Washington will continue to support organizations in Syria that it can count on in the fight against Islamic State.” So we suppose that means the US will support Russia. And Iran. And Hezbollah. But most certainly not Turkey, who is the biggest state sponsor of the Islamic State on the face of the planet.

 

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NATO fears a war between Turkey and Russian and that will bring on World War iii

(courtesy zero hedge/Der Spiegel)

A “Nervous” NATO Fears Turkey, Russia May Soon Go To War

If you want our take – and let’s face it, you must because that’s why you’re here – we wouldn’t put too much faith in today’s announced Syrian “ceasefire” agreement.

Although the deal calls for the cessation of hostilities as of Saturday at midnight, you shouldn’t expect the Russians and the Iranians to halt their advance on Aleppo and likewise, you shouldn’t expect Turkey to stop shelling the Azaz corridor in a largely transparent effort to keep the supply lines to the rebels open.

The stakes are simply too high now. As we’ve explained exhaustively, the fall of Aleppo to Hezbollah and the Russians would for all intents and purposes be the end of the rebellion. Assad would once again control the bulk of the country’s urban backbone in the west and that would mean his rule would be effectively restored.

Additionally, don’t expect Hezbollah to simply pack up and head back to Lebanon once the rebels are defeated. Iran will most likely keep Hassan Nasrallah’s army in place to provide security as well as members of the various Shiite militias the Quds called over from Iraq. Similarly, the Russians won’t be going anywhere either. Vladimir Putin now has an air base and a naval base in Syria and The Kremlin will want to protect those installations vociferously during what is likely to be a turbulent couple of years following the demise of the rebel cause.

Turkey and Saudi Arabia know all of this and they’re fuming mad. The last thing Saudi Arabia wants is for Tehran to preserve the Shiite crescent and the supply line to Lebanon and Turkey is now in a bitter feud with the Russians following Erdogan’s ill-fated move to down an Su-24 near the border on November 24.

Both Riyadh and Ankara have indicated that they would participate in ground operations in Syria and most recently, the Turks have been busy shelling the Syrian Kurds to keep what’s left of the supply lines to the rebels open and prevent the Russian-backed YPG from consolidating territorial gains and uniting a Kurdish proto-state on Turkey’s border.

All of the above has NATO rattled, but the thing that worries the alliance the most is the possibility that Turkey will end up in an armed, direct confrontation with Russia. Were Russia to attack Turkey, NATO would be obligated to defend Ankara but that defense would mean going to war with Moscow and, most likely, with Iran.

Below, find some insightful – if slightly biased – commentary from Der Spiegel on NATO’s “Article 5” problem.

*  *  *

From “Putin Vs. Erdogan: NATO Concerned Over Possible Russia-Turkey Hostiities” as published in Der Spiegel

It was a year deep in the Cold War, a time when the world was closer to nuclear war than ever. There were myriad provocations, red lines were violated, airspace was infringed upon and a plane was shot down.

The situation was such that an accidentally fired missile or a submarine captain losing his cool would have been enough to trigger World War III. It was 1962, the year of the Cuban Missile Crisis — an incident the current Russian prime minister finds himself reminded of today. At the Munich Security Conference last weekend, Dimitri Medvedev invoked the danger of a new Cold War. “Sometimes I think, are we in 2016 or 1962?”

Officials in Berlin have likewise been struck recently by a strange sense of déjà vu.

Syria is the Cuba of 2016 and the risk of an international confrontation there is growing by the day.

Officials in Angela Merkel’s Chancellery in Berlin are concerned about how close NATO has already come to a conflict with Russia. Indeed, Syria could become a vital test case for the military alliance. But the situation is complex: In order to thwart Putin, NATO must make it clear that it stands behind its member states in their moment of need. Yet NATO also wants to avoid a military conflict with Russia at all costs.

Officials at NATO headquarters in Brussels view the situation between Ankara and Moscow as being extremely volatile. “The armed forces of the two states are both active in fierce fighting on the Turkish-Syrian border, in some cases just a few kilometers from each other,” one NATO official says.

Since Russia became a party to the war in Syria at the end of September, there has been a significant risk of open confrontation between Moscow and Ankara. Russia has thrown its support behind the troops loyal to Syria’s unscrupulous dictator Bashar Assad while Turkey is supporting the rebels who would like to topple his autocracy.

The conflict intensified at the end of November when Turkey shot down a Russian warplane and now Putin has forged an alliance with the Syrian Kurds, Erdogan’s archenemies. The Turkish president holds the Syrian Kurds responsible for the attack on Wednesday in the Turkish capital, which saw an explosion in central Ankara kill 28 and wound 61. Syrian Kurds have denied responsibility, but the bombing has ratcheted up tensions between Ankara and Moscow even further.

Turkey too has done its part in recent weeks to ratchet up the escalation. Turkish troops are now firing artillery across the border at Kurds in Syria and Ankara has also been thinking out loud about possibly sending ground troops into Syria to take on the Kurds.

That would be a nightmare for the West: Direct fighting between the Kurds and the Turks could mean that Russian troops would be soon to follow. What, though, would happen were a NATO member state to fire at Russian soldiers? Officials in the Chancellery hope that the alliance wouldn’t be directly called on to get involved, as long as the fighting was limited to Syrian territory.

In an effort to prevent further escalation, NATO has made it exceedingly clear to the Turkish government that it cannot count on alliance support should the conflict with Russia head up as a result of a Turkish attack. “NATO cannot allow itself to be pulled into a military escalation with Russia as a result of the recent tensions between Russia and Turkey,” says Luxembourg Foreign Minister Jean Asselborn.

Should Turkey be responsible for escalation, say officials in both Berlin and Brussels, Ankara would not be able to invoke the NATO treaty. Article 4 of the alliance’s founding treaty grants member states the right to demand consultations “whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the Parties is threatened.” Turkey has already invoked this article once in the Syrian conflict. The result was the stationing of German Patriot missiles on the Syrian border in eastern Turkey.

The decisive article, however, is Article 5, which guarantees that an “armed attack against one or more of (the alliance members) in Europe or North America shall be considered an attack against them all.” But Luxembourg’s Foreign Minister Asselborn notes that “the guarantee is only valid when a member state is clearly attacked.”

“We are not going to pay the price for a war started by the Turks,” says a German diplomat. Because decisions taken by the North Atlantic Council, NATO’s primary decision-making body, must always be unanimous, it is enough for a single country to exercise its veto rights, the official says. But, the official adds, it won’t get that far: there is widespread agreement with the US and most other allies that Turkey would get the cold shoulder in such a case.

Much more in the full article

*  *  * 

Yes, but as Erdogan advisor Seref Malkoc made clear over the weekend, Ankara is getting fed up with the “cold shoulder” and if there’s anything the Turkish isn’t scared to do, it’s act unilaterally.

While NATO might indeed scold Ankara and seek to stay out of an open conflict in the initial stages, it’s unlikely that the alliance would stand idly by should Russia and Turkey actually go to war.

As a reminder, Turkey has already gotten two strikes. Erodgan downed a Russian drone and then shot down a Russian warplane. Turkey is now shelling areas where Russian and Iranian forces are very likely to be operating, if not now, then within a couple of weeks.

We can promise you that when it comes to shooting at Russian assets, be they planes, drones, or soldiers, Turkey will not get a strike three.

 

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Multiple suicide attacks in the ancient city of HOMS a predominately Shiite stronghold by ISIS and then the threat that Damascas is next:

(courtesy zero hedge)

Multiple Suicide Attacks Rock Shiite Strongholds In Syria; Dozens Killed, Hundreds Wounded

Update: Multiple sources confirm bombers have also targeted SAA and Hezbollah positions in Damascus. 22 are now reported killed. ISIS has now claimed responsibility.

Inline image 2Inline image 5Inline image 4“We have reached a provisional agreement in principle on the terms of a cessation of hostilities that could begin in the coming days,” John Kerry said on Sunday, at a news conference in Amman with Jordanian Foreign Minister Nasser Judeh.

Kerry was in contact with Sergei Lavrov today and the two diplomats reportedly agreed on “the modalities” for a ceasefire – whatever that means.

Although this is being reported by both the Western and Russian media as though it marks some kind of turning point, Russia again reiterated that any deal won’t include “the terrorists” and Moscow’s list of “terrorists” in Syria is a bit longer than Washington’s list. While Lavrov indicated that The Kremlin would refer to the UN Security Council’s list of terrorist groups, the situation on the ground is so fluid in Syria that it’s fairly easy to target whomever you please and claim there were terrorists in the area because frankly, there are terrorists, militants, and Sunni extremists virtually everywhere.

Even Kerry himself admitted the ceasefire would likely have no effect. “I do not believe that in the next few days, during which time we try to bring this into effect, there is somehow going to be a tipping point with respect to what is happening on the ground…. The opposition has made clear their determination to fight back,” he said.

Indeed, efforts to curtail the fighting are off to a rather inauspicious start. 46 people were killed in Homs on Sunday after two car bombs hit the city center’s Zahra district. Charred bodies lay smoldering in the wreckage and more than 100 injured bystanders stumbled through the streets, shell shocked. “The explosions at a traffic light at al-Siteen Street in the al-Zahra neighborhood happened within minutes of each other,” RT reports. “At least one of the two blasts was triggered by a suicide bomber driving a car.”

Although no one immediately claimed responsibility, ISIS is the likely culprit. The group killed 26 people in Homs less than a month ago in a similar attack. Here are visuals from the scene:

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GLOBAL ISSUES

JPMorgan believes that the lower price of oil will cause 500 billion in stocks to be sold this year:

(courtesy zero hedge, JPMorgan)

Sovereign Wealth Funds May Sell Half Trillion In Stocks This Year

Last month, we noted that according to JP Morgan, persistently low oil prices are set to createa $75 billion headwind for global equities in 2016.

At issue are sovereign wealth funds, many of which are funded with proceeds from oil sales. For years, producers were next exporters of capital. That is, they funneled their crude revenue into a variety of assets including USTs and other core paper as well as equities and real estate.

All of that changed late in 2014 when Saudi Arabia moved to bankrupt the US shale sector by deliberately suppressing prices. Crude’s collapse meant revenues no longer exceeded expenses and suddenly, producing countries found themselves running deficits. That in turn left two options: tap the debt markets or tap the rainy day, SWF piggy banks.

We’ve seen this dynamic play out in Saudi Arabia where SAMA reserves have been steadily sliding as Riyadh struggles to fund a deficit that amounted to 16% of GDP in 2016 and is set to come in at 13% this year. And then there’s Norway, whose SWF is the largest in the world at $830 billion. Lower for longer crude has hit the country’s economy hard, but competitive devaluations from the likes of the ECB and the Riksbank have prevented the krone from weakening enough to absorb the blow. In order to help shield the economy from excessive damage, the country is resorting to fiscal stimulus which officials are paying for by tapping the oil fund.

To let JPMorgan tell it, all of the above will lead to a $75 billion outflow from global stocks this year. “Assuming selling in accordance to the average allocation of FX Reserve Managers and SWF across asset classes, we estimate that the sales of bonds by oil producing countries will increase from -$45bn in 2015 to -$110bn in 2016 and that the sales of public equities will increase from -$10bn in 2015 to -$75bn in 2016,” the bank wrote, in a note out last month. “There is little offset to this -$75bn of equity sales from accumulation of SWF assets by oil consuming countries, as we expect these countries to spend most of this year’s oil income windfall.”

That figure, JPM went on to note, “isn’t huge,” but considering the bank thinks retail investor flows may actually flatline in 2016, SWF selling could have a significant impact.

Well according to the Sovereign Wealth Fund Institute, JPM’s numbers are off. By a lot.

If oil prices stay between $30 and $40 SWFI says outflows from equities could total $404.3 billion in 2016 and likely hit $213.4 billion last year.

That’s fairly substantial. And even those numbers might well be optimistic. On Sunday, the National Bank of Abu Dhabi PJSC said oil prices might well “spike down towards $20.” “For at least the next few years there do appear to be solid fundamental reasons why oil prices are likely to remain in a trading range, a report reads. That “range” tops out at $45 but is $25 on the low end and if prices remain below $30, it’s entirely reasonable to suspect that nearly a half trillion in SWF money could flee global equities by the end of the year.

To what extent that’s offset by buying by the likes of the SNB and the BoJ is an open question, but do note that SWFs have more than $7 trillion in total. If even a quarter of that comes out of global markets (and we’re talking about fixed income here as well)it would amount to a meaningful reduction in global liquidity just as the world careens into recession on the back of China’s rapidly decelerating growth machine.

As a reminder, here’s a handy list of the world’s SWFs:

 

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The two Canadian banks most exposed to a severe oil shock are:
1. CIBC
2. Bank of Nova Scotia
on a default by oil companies, these guys would need to cut their dividend and raise capital.
 (courtesy zero hedge)

These Are The Two Canadian Banks Most Exposed To A Severe Oil Shock According To Moody’s

Two weeks ago we asked if, in the aftermath of the dramatic selloff suffered by European banks over commodity exposure concerns, whether Canadian banks would not be next in line. The reason was that according to an RBC report, while US banks had already taken significant reserves against future oil and gas loans, roughly amounting to 7% of their exposure, Canadian banks were stuck in denial.

 

As RBC grudgingly noted, “The small negative moves in credit would normally not even “register” were it not for plenty of evidence of issues surround the oil and gas sector and the impact it could have on the oil producing provinces in Canada.” Yes, well, China already advised its media to stick to “positive reporting” – sadly for the energy-rich or rather energy-poor province of Alberta it is now too late.

As for this reason for this surprising reserve complacency, RBC said the following:

Canadian banks like to wait for impairment events to book PCLs rather than build reserves (called sectoral reserves in the past) for problematic industries.

In other words, let’s just wait with the reserves until the losses are already on the book: hardly the most prudent approach which may be why today, with its usual several week delay, Moodys opined on which Canadian banks it views as most susceptible to a “severe oil slump.”

As quoted by to Bloomberg, Moody’s said thatCanadian Imperial Bank of Commerce and Bank of Nova Scotia would be nation’s hardest hit lenders if the oil slump became sharply worse, while Toronto-Dominion Bank would best be able weather a worsening rout.”

“The prolonged slump in oil prices will increase the financial stress on oil producers and the drillers and service companies that support them, as well as on consumers in oil-producing provinces,” Moody’s said. “Correspondingly, the Canadian banks’ losses in related corporate and consumer portfolios will increase, and their capital markets income is likely to decline.”

The good news is that if downgrades were contained, Canadian bank profits would fall though capital levels wouldn’t be hurt in a moderate stress scenario, Moody’s said.

Moody’s defines a moderate stress scenario as one in which credit ratings of relevant energy firms are downgraded two levels, banks’ losses from consumer loans, credit cards and residential mortgages reach historic peaks and capital markets net income falls 10 percent.

“There is some moderate expectation that we could see the moderate stress scenario,” David Beattie, Moody’s senior vice president, said in a telephone interview. “Even if that happens, it’s pretty addressable in terms of the earnings power of the Canadian banks. They could absorb this over a couple of quarters and move on.”

However it was the “severe stress” scenario that was more notable not only because when it comes to worst case scenarios they tend to materialize more frequently than the “best case” but because this is the one where Moody’s actually saw significant changes to Canadian bank cash management. According to Moody’s the severe stress casecould force lenders to cut dividends, sell shares or take measures to preserve capital. The six biggest banks would see losses of C$5.56 billion ($4 billion) in a moderate scenario, while losses in a severe scenario would reach C$12.9 billion, or about 1.5 times the lenders’ combined quarterly profits.

The severe scenario, which Beattie calls “remote,” would involve energy firms hit by a four-level downgrade, consumer portfolio losses surpassing the historic peak and capital markets profit plunges 20 percent. In that scenario, Canada’s banks would still generate sufficient internal capital to cover stress losses within two quarters, just not at the current payout ratio, Moody’s said.

As a reminder, according to an RBC calculations, merely increasing loss allowances to match the level of their US peers would eat up over C$2.3 billion in capital.

Which is a reason to be skeptical about Moody’s take on bank capital needs under the severe scenario, but of course the real answer would not be revealed until such a scenario actually plays out and reveals both how underreserved Canada’s banks truly were, and how substantial balance sheet impairments would be.

In any case, focusing on the two most exposed banks, here was Moody’s summary:

  • CIBC, which has the highest regulatory capital among Canada’s banks, would see its Common Equity Tier 1 capital ratio decline by 46 basis points in a moderate stress scenario and 103 basis points in the severe scenario, reflecting the Toronto-based lender’s primarily domestic focus, Moody’s said. Losses in the severe scenario could reach C$1.57 billion for Canada’s fifth-largest lender by assets, the report said.
  • Scotiabank would face a 41 basis point reduction in regulatory capital in the moderate scenario and 100 basis points in a severe situation due to larger losses from its corporate loan book, Moody’s said. The severe scenario would equate to C$3.52 billion of losses for Canada’s third-largest bank, according to the report.

So for those who are worried about the energy rout getting worse, but just must be invested in Canadian banks, which one is safest? According to Moody’s, Toronto-Dominion Bank, Canada’s largest lender, would be the least affected under both scenarios, “given its relatively small oil and gas corporate loan portfolio, lack of reliance on capital markets earnings and low concentration of retail operations in oil-producing provinces.”

For the sake of Canada, we hope Moody’s is right.

 

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The Baltic Dry Index just landed at its all time low of 315 and volumes of goods (commodities) continues to fall:

(courtesy zero hedge)

 

The Next Big Leg Lower In The Baltic Dry Is On Deck: 360 New Vessels Are About To Be Delivered

One month ago, when looking at the unprecedented, record collapse in the Baltic Dry Index for the latest time, a move which many have brushed away as simply a function of too much supply, we showed a chart by Capital Economics showing the disturbing correlation between the change in the BDIY and global trade volumes, the one metric which we have claimed for over a year is far more important to the global economy than anything central banks can spawn.

 

Fast forward to today when in the latest update on Dry Bulk shipping fundamentals by Deutsche Bank we find some good news: according to analyst Amit Mehrotra, the “total dry bulk capacity declined by almost 1M tons (net) last week as the pace of deliveries slowed and scrapping remained elevated.”

DB’s assessment of this surge in scrappage is favorable: the weekly decline is the first of the year and marks an important psychological milestone given stubbornly persistent supply growth in the face of historically weak rates.

The bank adds that it estimates 16 ships were sold for scrap last week totaling 1.6M tons (avg. 100k tons per vessel). This more than offset 9 new deliveries that added 730k tons to the fleet (avg size 81k), translating to a net reduction of 7 vessels (~1M tons). Last week’s scrapping activity represents a nice acceleration from previous weeks and when looked at by itself would represent an annualized pace of 11% of installed capacity, which is almost double the all-time high of 6.3% set in 1986.

That’s the good news: the bad news is that scrappage has no hope to offset the tremendous orderbook currently being installed in Chinese ship yards.

According to DB, with the vast majority of orders placed w/Chinese ship yards (where upfront payment terms are highly attractive to ship owners), the current market provides incentive (and maybe even increased scope) for owners to more aggressively pursue cancellations ahead of keel laying.

The problem is that the latest order book data shows a whopping 360 dry bulk vessels over 60k tons on order at Chinese ship yards (net of typical non-deliveries). This equates to 37M tons of new capacity or 5% of the fleet!

Worse, the vast majority (80%) of this is expected to be delivered this year- likely limiting the scope for cancelations- with only about 20% (65 vessels/6.5M tons) scheduled to be delivered in 2017 and beyond. Assuming an unrealistic scenario of total order book scrappage, it would only translate to 0.8% of the installed fleet.

However that won’t happen: the DB analysts writes that “while we have seen some one-off examples of newbuilding cancellations in recent months, they have been few and far between.”

What this means is that while demand will likely drift lower, the fleet may see as much as 60k tons of ships and 37M tons of new capacity come online: capacity which will manifest itself in another major leg lower in BDIY pricing.

As DB concludes, “As such we continue to believe the supply-side has much more leverage to scrapping than any (plausible) restructuring of the order book. That ship has sailed, so-to-speak.

In other words, the already record low Baltic Dry has only one direction to go in the coming months: down.

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After the market closed; the giant BHP Billiton slashed its dividend by 3/4 on a huge 92% profit plunge.  They they announced a 4.9 billion shale oil  writedown.
Expect many mining and energy companies to follow BHP’s lead and cut their dividend and cut their CAPEX.  This will do wonders for the employment sector throughout the globe;
(courtesy zero hedge)

Mining Giant BHP Billiton Slashes Dividend By 75% On 92% Profit Plunge, Announces $4.9 Billion Shale Writedown

And the dividend hits just keep on coming.

Moments ago, Australian mining giant BHP Billiton announced that underlying H1 profit plunged 92% from $4.9 billion to just $412 million, well below the lowest forecast and certainly below the consesus estimate of a $727 million profit. This was on revenue of $15.7 billion which also missed expectations of $16.02 billion, generating $4.599 billion in EBITDA and $1.2 billion in Free Cash Flow, on Operating cash flow of $5.26 billion, down 45%. The company’s net loss was $5.67 billion for the period ended December 31, also missing the estimate of of a $5.48 billion loss.

BHP also announced a 40% cut to CapEx, which declined to just $3.6 billion in the first half.

The big hit to earnings came from the company’s massive writedown of $4.9 billion in U.S. shale, thus further provoking questions about just how under- reserved US banks are to the energy and commodity sector.

BHP’s net debt was $25.9 billion as of December 31, for a net gearing ratio of 2.7%

But the biggest surprise was BHP’s announcement that for the first time since 1988 it slashed its dividend by a whopping 75% from $0.62 to $0.16. The cut marked an end to BHP’s commitment to its progressive payout policy, which held that it would pay a steady or higher dividend at each half-year result.

We continue to expect virtually all energy-facing companies to follow in BHP’s footsteps and limit cash outflow to an absolute minimum, meaning many more dividend and GDP-reducing CapEx cuts are imminent.

 

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

Euro/USA 1.1034 down .0092

USA/JAPAN YEN 113.34 up 0..813 (Abe’s new negative interest rate (NIRP)a total bust

GBP/USA 1.4112 down .0285(threat of Brexit)

USA/CAN 1.3755 down .0005

Early THIS MONDAY morning in Europe, the Euro fell by 92 basis points, trading now well above the important 1.08 level falling to 1.1034; 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: 6.5209 / (yuan down 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  southbound trajectory as IT settled down in Japan by 81 basis points and trading now well BELOW  that all important 120 level to 113.34 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 285 basis points as it now trades just below the 1.42 level at 1.4112 on fears of a BREXIT.

The Canadian dollar is now trading up 5 in basis points to 1.3755 to the dollar.

Last night, Chinese bourses were mainly in the green/Japan NIKKEI  CLOSED UP  143.88 OR 0.90%, ALL ASIAN BOURSES HIGHER/ AUSTRALIA IS HIGHER / ALL European bourses ARE  IN THE GREEN ( THE USA/YEN RAMP SUCCEEDED IN HELPING ALL BOURSES ) 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 MONDAY morning: closed UP 143.88 OR  0.90%

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

2/ Asian bourses IN THE GREEN/ Chinese bourses: Hang Sang closed UP 178.59 POINTS OR  0.93% ,Shanghai in the GREEN  Australia BOURSE IN THE GREEN: /Nikkei (Japan)GREEN/India’s Sensex in the GREEN /

Gold very early morning trading: $1204.25

silver:$15.02

Early MONDAY morning USA 10 year bond yield: 1.77% !!! UP 2 in basis points from last night  in basis points from FRIDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.64 UP 2  in basis points from FRIDAY night.  

USA dollar index early MONDAY morning: 97.43 UP 77 cents from FRIDAY’s close.(Now below resistance at a DXY of 100)

This ends early morning numbers MONDAY MORNING

 

end

 

OIL MARKETS

 

 

Banks are selling energy loans at cents on the dollar to ensure their own survival.

We have a word for this: panic

(courtesy zero hedge)

Panic Below The Surface: “Banks Are Selling Energy Loans At Cents On The Dollar To Ensure Their Own Survival”

One week ago, when we commented on the latest weekly update from Credit Suisse’s very well hooked-in energy analyst James Wicklund, one particular phrase stuck out when looking at the upcoming contraction of Oil and Gas liquidity: “while your borrowing base might be upheld, there will be minimum liquidity requirements before capital can be accessed. It is hitting the OFS sector as well. As one banker put it, “we are looking to save ourselves now.”

In his latest note, Wicklund takes the gloom level up a notch and shows that for all the bank posturing and attempts to preserve calm among the market, what is really happening below the surface can be summarized with one word: panic, and not just for the banks who are stuck holding on to energy exposure, or the energy companies who are facing bankruptcy if oil doesn’t rebound, but also for their (now former) employees. Curious why average hourly earnings refuse to go up except for those getting minimum wage boosts? Because according to CS “It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months.”

Which is bad news: as we reported late last week, the restaurant “recovery” is now over, so as these formerly very well-paid and highly skilled workers scramble to find a job, any job, they’ll find that even the “backup plan” has failed, with not even the local McDonalds suddenly hiring.

From the latest Things we’ve learned this week

One Last Cigarette? Some comments that stood out to us during earnings include, “We are in a period of unprecedented uncertainty.” “We are managing our business week-by-week, crew-by-crew and unit-by-unit.” “We are in a generational downturn.” “We are very bearish for the first half of the year.” “In the second half [of 2016], every tank and swimming pool in the world is going to fill…”

On the Precipice. Oilfield Service companies have reduced headcount by as much as 35% in some cases and the reductions continue as oil prices not only continue their decline but the argument for a strong price comeback gets more and more difficult to rationalize. It is estimated that ~250,000 people have lost their jobs in the industry in the last 18 months. People who had been saying that this is the worst downturn since the 1980’s are now thinking that this is a return to the 1980’s. There are reports of banks selling loans at cents on the dollar to try and ensure their own survival and bankruptcy courts and workout specialists are seeing their best market in decades.
Wicklund concludes with some even more troubling observations about the recent OPEC headline-induced volatility and the future price of oil:

Rolling On. What was originally a “surplus-induced” downturn is now turning into a global credit downturn, with economic demand and GDP continuing to decline. US corporate debt levels are close to all-time highs as a share of GDP and global monetary policy has very few levers left to pull. “Duration” has become the new buzzword, “survivability” appears to be the key investment metric and any lights in the tunnel appear to be dimming.

The Fix. Demand was going to be the bailout and specifically consumerled demand, however, just about every economic report issued seems to deny that possibility. It is easy to say that with demand growing and capitalstarved supply waning, reaching balance and beginning growth is inevitable. But it may not be as simple as that and the timing remains one key question. And that key question is one that everyone has an opinion on. Now, it appears that Saudi, Russia, Iraq and Iran MIGHT come to some agreement to cap production growth at January levels, which was up more than 280kbopd from December. The cap offers some positive, but it makes any production CUTS less likely.
All this, as global demand across every industry continues to contract and as central banks are now powerless to do virtually anything, means that the true lows in the oil price are still ahead of us.

 end
Oil jumps to 33$ despite IEA glut and warnings from Abu Dhabi`s biggest bank that 20 dollar oil is possible.  Oil ramps higher in sympathy with the higher USA:Yen ramp:
(courtesy zero hedge)

WTI Surges Above $33 Despite IEA ‘Glutter’-For-Longer Warnings

WTI crude prices are up almost 6% this morning with April (the new front-month) trading above $33.50 – testing post-DOE plunge stops.The irony of the ramp is that it comes amid terrible global PMIs (demand), a report from IEA of oil staying in glut for longer than expected (supply), and warnings from Abu Dhabi’s biggest bank that $20 oil is possible. Oh well, we are sure the algos know what they are doingdespite veterans of the 1980s oil glut warning it could take 7 to 10 years to emerge from the current slump.

Overnight saw Japanese PMI tumble, China PMI drop below 50 once again, and Europe worst in a year…so demand is not looking good.

On the supply side, as Bloomberg reports, the global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency.

While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth.

 

“Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Monday. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.”

 

The IEA’s new outlook is the latest sign that oil forecasters are bracing for a “lower-for-longer” price environment.The agency acknowledged that the industry’s expectations — and its own predictions — that oil markets would recover in 2015 proved “very wide of the mark.” The report also signals that while OPEC will succeed in its policy of defending market share, the group will have to endure an extended period of reduced revenues.

Which has led Abbu Dhabi’s biggest bank to warn of the possibility of $20 oil (as Bloomberg reports)

Oil prices may drop to near $20 a barrel this year as the global glut of crude persists into 2017, Abu Dhabi’s largest lender said.

 

U.S. benchmark West Texas Intermediate crude should trade in a range between $25 a barrel and $45 a barrel for the rest of the year, “although a very brief spike down towards $20 is possible,” the National Bank of Abu Dhabi PJSC wrote in its Global Investment Outlook 2016 report on Sunday. Prices at the lower end of the range will stimulate demand growth, it said.

 

“For at least the next few years there do appear to be solid fundamental reasons why oil prices are likely to remain in a trading range,” NBAD analysts wrote in the report. Producers have sold less of their crude this year through forward transactions than in past years, and forward-selling would likely accelerate if prices rallied much above $40 a barrel, the bank said.

So after all that… oil prices are soaring…

But now that we have run stops into the DOE ledgge… what happens next?

Well, if veterans of the 1980s oil glut are correct, as Reuters reports, the current drop in prices carries echoes of those desperate days.

Interviews with some of those involved in that period reveal that while there is little consensus on how long prices will stay depressed, experience suggests the current market glut will not evaporate soon.

 

 

By late 1986, Saudi Arabia and other OPEC members opened the taps again to regain market share, and prices did not recover for 20 years.

 

The memory leaves Sheikh Ali, now 71, feeling grim about a price recovery this time.

 

“Tomorrow if the price of oil goes down to $20 I would not be surprised,” he said.“You don’t take excess oil away very quickly. It was true in the 1980s, now it’s even worse.”

 

 

“They realize that at a price that’s too high … U.S. shale production comes roaring back,” said Morse, the global head of commodities research at Citigroup.

 

 

Sheikh Ali estimated it will take seven to 10 years to emerge from the current slump. “The idea that U.S. companies are going to collapse and therefore their production is going to zero is daydreaming,” he said. “Even the wells that have closed can easily re-open.”

 

 

Saudi Arabia may no longer be the swing producer of global markets, but the United States is now the world’s “spring producer,” Sheikh Ali said. Shale stands to put a long term damper on global markets, because when oil prices rise even a little, North Dakota and Texas output can pop back to market far easier than expensive deepwater or Alaskan production did decades ago, he said.

 

“I don’t think it is negative for countries in the Gulf,” he said. “It will make us more rational, pay more attention to our economy, reduce corruption, have better management. It may be a blessing in disguise.”

So unequivocally good… after all the bad is done?

 

end
Amazing, the price of oil continues to rise against  the markets huge overhang of supply:  Just take in what El Badri is crying out:
(courtesy OPEC/zero hedge)

Oil Market Shrugs At OPEC Jawboning

Either the algos aren’t paying attention or the market’s just too focused on the roll to care about another round of headline hockey from OPEC, but crude hasn’t budged in the face of a barrage of one-liners from OPEC’s secretary general Abdalla Salem El-Badri who spoke from the annual IHS CERAWeek conference in Houston.

Here’s the headline dump:

  • EL-BADRI SAYS OPEC DOESN’T KNOW HOW TO TACKLE OIL OVERHANG
  • OPEC’S EL-BADRI SAYS 70% OIL SUPPLY OVERHANG IN U.S.
  • EL-BADRI SAYS OIL SPENDING CUTS SEED FOR ‘VERY HIGH PRICE
  • OIL OUTPUT FREEZE IS FIRST STEP, EL-BADRI SAYS
  • IF SUCCESSFUL, ‘MAYBE WE CAN TAKE OTHER STEPS’:EL-BADRI
  • OPEC’S EL-BADRI SAYS SHALE OIL WILL COME BACK WITH PRICE HIKE
  • OPEC SECRETARY GENERAL BADRI SAYS DAYS THAT OPEC WAS RESPONSIBLE FOR CUTTING OUTPUT ALONE ‘ARE OVER’

It’s all shale’s fault then, and the Saudis are powerless to support prices. Got it.

One suggestion for OPEC members who just can’t seem to figure out how to “tackle the overhang,” would be to cut production. Or you could just freeze it – at record levels. That should work.

Crude is, for whatever reason, not interested.

end
The low price of oil is bringing sovereign Iraq to her knees
(courtesy Charles Kennedy/Oil price.com)

Iraq On The Brink Of Chaos As Oil Revenues Fall

Submitted by Charles Kennedy via OilPrice.com,

During a sombre visit to Germany last week, Iraqi Prime Minister Haider al-Abadi urged the international community to help boost his country’s crisis economy in the face of plummeting crude oil prices, underscoring a desperate situation in which Iraq has lost 85 percent of its oil revenues.

Iraqi oil revenues have fallen to just 15 percent of what they used to be, the embattled prime minister said, despite a boost in production ordered last year.

The surge in production has failed to compensate for the collapse of oil prices, and the situation is dire when oil revenues constitute around 43 percent of Iraq’s gross domestic product (GDP), 99 percent of its exports and 90 percent of all federal revenues.

All told for this year, the Iraqi government expects to export 3.6 million barrels of oil per day (bopd).

Only last October, Iraq’s oil revenues were holding at about $40 billion, excluding the cost of oil production.

This has prompted the Al Abadi government to announce strict austerity measures across institutions, including significant salary cuts for middle-class government employees. Protest rallies were held against delayed salaries, which later turned violent in some parts of Iraq, including the Kurdistan region.

Under these circumstances, one must question the legitimacy of the deal Baghdad has now offered to the Iraqi Kurds.

Earlier this week, Baghdad extended an offer to pay the salaries of the KRG’s public employees in return for a halting of unilateral oil exports by the Kurds. Both sides need this deal. The KRG is struggling to pay salaries, and protests are mounting—threatening the stability of what was not long ago the only peaceful and secure place in all of Iraq.

But most significantly, both Baghdad and the KRG need to ensure that the Kurdish Peshmerga fighting forces are being paid, because this is the key bulwark against further Islamic State (ISIS) advancements in the disputed territories of northern Iraq, around Mosul and oil-rich Kirkuk.

The Iraqi Kurds have accepted the deal, but they don’t really believe it will happen. Baghdad has consistently failed to make good on deals, and with its oil coffers depleted, it’s unclear how the central Iraqi government can afford this.

Al Abadi’s government inherited Iraq’s civil war-ravaged sluggish economy back in September 2014 and set out to try to consolidate the administration, which was bursting at the seams with a massive budget deficit, inherent bureaucratic corruption and the ongoing war burden with ISIS.

So with low oil prices depleting revenues, Baghdad finds itself in an uphill struggle to fund the war against ISIS, which continues to control over 10 percent of Iraq’s oil fields, including those in the Nineveh governorate. ISIS hasn’t gotten anywhere near the oil-rich area of Basra—where the serious exports are—but Basra has its own problems, which are being compounded under the multiple pressures.

All the talk of potential independence—founded on unilateral oil flows—for Iraqi Kurdistan has lent more impetus for calls for more control over oil wealth management and distribution in Basra. And Shi’ite tribal clashes are raging in Basra, far too close to the main oil installations, prompting Baghdad to divert security forces there—away from the ISIS battle.

The situation in Basra will likely intensify, too, with growing protests over the central government’s imposition of a higher customs tariff as of 18 January. Profit margins are threatened, and there will be a backlash in a province where autonomy sentiments are already running high.

The country has been losing up to 400,000 barrels of oil per day because of ISIS advances—even after recapturing a couple of oil refineries like Bajii in the Saladin Governorate, north of Baghdad, from ISIS in October last year.

All eyes are now on the giant Majnoon oil field in Basra, in the south, which is considered to be one the richest oil fields in the world, with an estimated 38 billion barrels of oil reserves. Majnoon has approximately 13 different oil and gas reservoirs, but this area, too, is now becoming a flashpoint of unrest and tribal clashes.

As such, the deal brought up earlier this week by Saudi Arabia, Russia, Venezuela and Qatar to freeze oil output to January levels will not likely see the light of day. It requires the same commitment by Iran—which is not keen—and Iraq, which is hesitant to join in.

In January, Iraqi production hit a record high, averaging 4.775 million barrels per day. January exports averaged 3.9 million bpd. But with oil prices averaging right now under or around $30 per barrel, these production figures won’t help. Iraqi oil is going for about $22 per barrel. That’s half of what it needs to be to meet budgetary requirements.

Nowhere are the stakes higher than in Iraq, and selling oil at half the price it would take to just break even could break this giant’s back. It certainly isn’t enough to stave off the unrest in Basra, not to mention the ISIS threat.

end
And now your closing MONDAY numbers

Portuguese 10 year bond yield:  3.45% up 1 in basis points from FRIDAY

Japanese 10 year bond yield: -.005% !! down 1 1/2 full  basis points from FRIDAY which was lowest on record!!
Your closing Spanish 10 year government bond, MONDAY down 5 in basis points
Spanish 10 year bond yield: 1.65%  !!!!!! (and the stock markets in Europe rose???)
Your MONDAY closing Italian 10 year bond yield: 1.52% down 4 in basis points on the day:
Italian 10 year bond trading 13 points lower than Spain (and the stock markets in Europe rose???)
.
IMPORTANT CURRENCY CLOSES FOR MONDAY
 
Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 
Euro/USA: 1.1028 down .0098 (Euro down 98 basis points)
USA/Japan: 112.79 up 0.269 (Yen down 27 basis points) and still a major disappointment to our yen carry traders and Kuroda’s NIRP
Great Britain/USA: 1.4151 down .0244 (Pound down 244 basis points on Brexit concerns)
USA/Canada: 1.3709 down.0053 (Canadian dollar up 53 basis points with oil being higher in price/wti = $31.43)
This afternoon, the Euro fell by 98 basis points to trade at 1.1028/(with Draghi’s jawboning having no effect)
The Yen fell to 112.79 for a loss of 27 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 down 244 basis points, trading at 1.4151.
The Canadian dollar rose by 53 basis points to 1.3709 as the price of oil was up today as WTI finished at $31.43 per barrel,)
The USA/Yuan closed at 6.5210
the 10 yr Japanese bond yield closed at -.005% down 1 1/2 full basis points.
(yes, you read that right minus .005% for 10 yrs out/totally insane!)
Your closing 10 yr USA bond yield: up 1/2   basis points from FRIDAY at 1.76%//(trading well below the resistance level of 2.27-2.32%) policy error
USA 30 yr bond yield: 2.61 flat 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: 97.37 up 61 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 MONDAY
 
London: up 87.50 points or 1.47%
German Dax: up 185.54 points or 1.98%
Paris Cac up 75.66 points or 1.79%
Spain IBEX up 192.80 or 2.35%
Italian MIB: up 595.02 points or 3.52%
The Dow up 228.67  or 1.40%
Nasdaq:up 66.18  or 1.47%
WTI Oil price; 31.43  at 3:30 pm;
Brent OIl:  34.57
USA dollar vs Russian rouble dollar index:  75.36   (rouble is  up 1 and 63/100 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;

Stocks Surge To Unch For Feb As Crude Jumps & VIX Dumps

Bad news is awesome news again… oh and short squeezes, VIX manipulation, and crude contract rolls are the new ‘fundamentals’… Just one waffer thin mint of monetary easing…

 

Stocks soared overnight on dismal data from China, terrible data from Europe, and the weakest PMI in US since 2012…

 

Obviously most of the move in cash markets occurred at the open – but Trannies had the best day…

 

This dragged S&P to unch for Feb, Dow green, and extended Trannies’ gains… Just look how pathetically algo-driven the aggregate indices were!! Think about the differences between them all…

 

VIX broke to its lowest levels of the year today, and back below the 100-day moving average…(down for the 6th day in a row)

 

The Short squeeze continued with “Most Shorted” stocks soaring almost 3%

 

As the “Weak Momentum” stocks soared (equity market-neutral funds continue to have trouble)…

 

This is the biggest 6-day squeeze since October 2011… to five week highs

 

As Oil ripped higher into expiration and dragged stocks with it…

 

It seems $96.50 is a line in the sand for AAPL and the last 2 days have seen an extraordinarily tight trading range for the stock… tightest 2-day range since May 2015 – just shy of the record highs for the stock

 

Equities and bonds had decoupled from mid-week as the squeeze accelerated..

 

And Yen-Carry has decoupled entirely from stocks…

 

Treasury yields traded in a narrow range but ended just barely higher (1-2bps)…

 

Cable dominated the FX headlines, tumbling 2.5% at its lows to 2009 lows. Strength in JPY and commodity currencies offset that a little but The USD Index ended 0.6% higher…

 

March Crude rallied 8% at its best today, April was dragged 5% higher also. Copper clung ito its “well China data is terrible so that means more stimulus” gains and following the European Open’s gold & Silver dump, PMs stabilized (despite the strong USD)…

 

Major flash-crash again in Silver as China closed, Europe opened…

 

Bear in mind, today’s ramp was perfectly to tag the stops at last week’s DOE “Build” sent crude diving… and then oil turned back lower… i.e. this was all technical~!!

 

Of course all the excitement today was about oil’s rally – which lifted stocks – but as a reminder, today was the roll and the March-April spread contracted notably… suggesting all was not bullish buying but covering into the close…

 

 

Charts: Bloomberg

end

 

What a novel idea:  let’s check withholding taxes and see if they are rising with an increase in the supposed job front.  Trimtabs have been doing these calculations and state that taxes withheld are stalling

(courtesy zero hedge)

An Alarm Goes Off Threatening The “Strong U.S. Jobs” Myth: Withheld Income Taxes Are Stalling

Of all the indicators that the Fed has presented to justify its rate hike mentality and to validate that the US economy remains on a growth path despite clear recessionary signals from both the manufacturing sector and the dramatic tightening in financial conditions in recent months, Yellen’s preferred metric also happens to be the most lagging one: nonfarm payrolls and the unemployment rate, both of which supposedly signal the collapsing slack in the labor market and a jump in wages that has been “just around the corner” for years.

The problem is that when shifting away from lagging indicators of the labor market, to coincident ones, a starkly different picture emerges. The best example of this is when looking at the growth of federal income and employment tax withholdings, the broadest and most timely read on the health of the job market, which as Jed Graham writes, “has been sinking at an alarming rate.”

While for most of 2015, tax withholdings rose at a rate of 5% or more from a year ago, on the back of job growth and gains in wages, commissions and other incentive pay, in recent months there has been a substantial dropoff in this key indicator.

As shown in the chart below, revenue inflows to the Treasury Department steadily slowed through the fall, bringing the annual growth rate down to just below 4% by the start of 2016.That’s when growth seemingly collapsed — to just 1.8% over the past five-plus weeks, from Jan. 11 through Feb. 16.

The problem with the jobs report is that it relies on statistically interpolated, and seasonally adjusted data from the Bureau of Labor Statistics, which not only has a significant revisionist history aspect being materially revised after a given period, but is also subject to clear political bias and huge “birth/death” assumptions, which correlate the growth in labor with the net creation of new U.S. businesses despite clear indications over the past several years  that there should be no net additions as a result of collapsing “dynamism” as the Brookings institute itself calculated some time ago and as we chronicled in August of 2014 in “4 Million Fewer Jobs: How The BLS Massively Overestimated US Job Creation

On the other hand, the official Treasury tax-receipt data — which don’t come with a margin of error and aren’t subject to revision — are obviously at odds with the much more upbeat numbers reported by the Labor Department. January’s year-over-year payroll increase of 2.665 million, or 1.9%, along with a 2.5% gain in average hourly earnings should yield something in the neighborhood of 4.5% year-over-year growth in tax withholdings — or more than double the actual growth rate in recent weeks.

And yet over the past 10 full weeks, starting Dec. 7, tax withholdings have grown just 3.1% from a year ago. While December and January data can be influenced by the size and timing of year-end bonuses, the pronounced weakness has been sustained for long enough to rule that out as the principal cause.

As Graham notes, “companies that were already facing a tough earnings environment, thanks to a stronger dollar and lackluster economic growth, have seemingly pushed the pause button on hiring amid the financial market tumult that greeted the new year.

It is not just the Treasury tax receipt data that is a major concern: as we previously reported,according to Challenger there was a total of 75,114 layoff notices in January, up 42% from January 2015, and the highest January total since 2009 as Wal-Mart, Macy’s and Yahoo joined oil services firms Halliburton and Schlumberger in workforce restructurings. Wal-Mart on Thursday reported declining earnings and weaker-than-expected same-store sales.

In fact, it appears that the only place where the strong jobs myth persists is in official government data, and it’s not only in the payrolls report: after rising to 294,000 in the January 16 week, new jobless claims have steadily fallen to 262,000. The four-week average fell 8,000 to 273,250 last week.

Graham further notes that “the benign data are hard to square with a stalling out of growth in federal income and employment taxes, unless the weaker receipts are more related to slower hiring, fewer hours of work and less incentive pay, than to layoffs.”

The slower pace of year-over-year gains in tax withholdings has pointed to a significantly slower pace of hiring since September, says TrimTabs Investment Research, which estimates that 820,000 jobs were added from September to January. By contrast, the Labor Department estimates 1.137 million new jobs over that span, or nearly 40% more.

“The deceleration really started back last autumn,” said TrimTabs CEO David Santschi.

Which means that it is likely only a matter of time before either the BLS admits the truth, or the official data turn significantly south.

This also leads to the question whether the Fed have been looking at the wrong jobs data when it decided to raise rates in December for the first time in nearly a decade?

A partial admission was made in the January FOMC statement when the Fed said that “information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year

However, as noted up top, employment is one of the most lagging indicators, while tax withholdings are a coincident one, and traditionally signal job weakness before the official employment data catch up.

Will this be one of those occasions?

The answer will depend on whether the Fed wants to admit policy error and halt the rate hike process, perhaps with a view to unleashing more stimulus and even the increasingly more discussed “helicopter money.”

Or perhaps the Bureau of Labor Statistics will merely take its cue from Australia which months after reporting stellar jobs data, admitted that the 6 and 8-sigma outlier October and November job additions were cooked and the result of “technical issues.”

Will the failure of the US recovery likewise be chalked up to a “technical problem”? If so, it is very much unclear just what the market’s reaction will be to a government whose data credibility is now the same as China’s, even if it means far more stimulus in the near future.

 

end
Remember CLO’s in the last financial debacle that occurred in 2008?  Well they are baaack…. as the equity NAV value of 348 of their debt instruments fall below zero.
As stated by a participant:
“the market changed dramatically in 6 weeks”
(courtesy zero hedge)

The Next Shoe Just Dropped: Equity NAVs Of 348 CLOs Slide Below Zero; “Market Changed Dramatically In 6 Weeks”

At the peak of the last financial crisis, as the credit liquidation wave was jumping from one highly levered product to the next, one of the hardest hit sectors was the Collateralized Loan Obligations (CLO) space, where the rout and massive P&L losses across most tranches led to a revulsion for new issuance, which effectively shut down the sector for the next 3 years.

However, as central banks pumped trillions into the market, it ultimately found its way back into the new and improved, or 2.0, CLO market, where the resurgent euphoria led  to a record $124.1 billion in new CLO issuance in 2014, with 2015 tailing modestly with $97.3 billion as the second busiest year for CLO issuance in US history and surpassing the last bubble peak.

The problem is that with much of loan issuance in recent years going to the lately very troubled energy companies, it now appears that the second CLO explosion in 10 years may be on deck.

As Reuters reports, downgrades to energy companies’ credit ratings are weighing on Collateralized Loan Obligations (CLO) funds’ portfolios, in another hit to a market already facing a drop of more than 50% in issuance this year. According to a report issued by S&P, the credit quality of CLO assets is deteriorating, the result of 45 energy borrower downgrades this month as oil prices remain around all-time lows. S&P notes that the credit ratings of around 1.4% of assets held by US CLOs have been downgraded or placed on credit watch with negative implications this year.

To be sure, the S&P report comes well after the market itself has figured out the latent risk in CLOs, as the following performance chart clearly shows:

According to Morgan Stanley, while the pain is spread out across all tranches, it is most acute in the single-B layer. From MS:

Distress in US CLO Market Continued in January 2016. Based on our sample, we estimate that the median total return for US CLO 2.0 (2014-15 vintage) BBs is -9.2%, and for single-Bs is -20.9%. Investment-grade US CLO tranches performed better but still within negative total return territory, except for AAAs. Collectively, US CLOs significantly underperformed relative to comparably rated corporate bonds, leveraged loans and senior tranches of CMBS.

Worse, the sudden repricing means that the negative total returns of US CLO BBs and single-Bs in January have already been more severe than those realized in the entire year of 2015.

It also means that the CLO revulsion is only just starting, and sure enough S&P has finally caught on, with its usual “fashionable delay.”

The implications is that with the CLO product suddenly abandoned, lower issuance of CLOs, the main buyers of leveraged loans, will make it harder for companies to issue new debt in the already-challenged US$870bn US leveraged loan market which provides junk loans to companies including retailer Dollar Tree and countless near-distress shale companies.

A quick prime on the current iteration of the collateralized loan oblitation market: CLOs are typically allowed to hold around 7.5% of loans with ratings of Caa1/CCC+ or lower, according to Deutsche Bank, which makes mass credit downgrades difficult for some managers. About 15% of funds have lower limits of 5%.

When low-rated loans exceed those limits, CLOs get a haircut in overcollateralization (OC) tests, which mean that the loans may have to be marked down to market value rather than par or face value. The test measures the value of funds’ assets compared to its debt and if CLOs fail, interest proceeds are used to repay debt investors. CLOs pool loans of different credit quality and sell slices of the fund of varying seniority, from Triple A to B, to investors such as insurance companies. The equity slice, the most junior and riskiest part of the fund, is paid last after bondholders.

Among the S&P report findings is that 209 US CLOs issued since the credit crisis have an average exposure of 0.69% to one or more of the 45 companies downgraded by S&P. Among these are Fieldwood Energy, held by 140 CLOs, which was downgraded to CCC from B. Templar Energy is held by 72 funds and had its rating cut to CCC- from B-.

“A number of names have been lowered to the CCC bucket, which could affect OC tests if the CCC thresholds are breached,” said Jimmy Kobylinski, an S&P analyst.

It’s just the beginning: as the number of downgrades rises, CLO impairments will propagate in an exponential fashion. Already the number of companies with a low B3 rating and a negative outlook or lower rose to 264 as of February 1, just 27 issuers below an all-time high in April 2009, according to a February 3 note from Moody’s. Oil and gas borrowers make up 28% of the list.

The growing list, formerly known as the “Bottom Rung,” shows deteriorating credit quality and points to a rising default rate in 2016, Moody’s analysts said. The ratings firm is expecting the US speculative-grade default rate to rise to 4.5% in 2016.

Heavy energy exposure is also starting to weigh on CLO ratings, Reuters adds. A tranche of a post-crisis CLO was downgraded last month when S&P cut the Class E notes of Silvermine Capital Management’s ECP 2013-5 to B- from B. Analysts said that the fund had credit deterioration in the collateral portfolio and a large exposure to the energy sector.

It has gotten so bad that Wall Street, which traditionally has no idea what is going on until it is too late (and then rushes to blame the rating agencies) has started asking questions:“People are definitely trying to get their heads around what [increased CCC holdings] says about the credit cycle,” said Chris Flanagan, head of US mortgage and structured finance research at Bank of America Merrill Lynch in New York. “The market has changed dramatically in just six weeks.

*  *  *

To help the market appreciate the severity of the above, according to a recent update from Morgan Stanley, 2015 was the first post-crisis year in which distress in the CLO market surged. During this year, CLO equity turned from a well-sought, 10%+ return asset class into a space red-flagged with cautions and concerns. While cash distributions managed to remain at ~20% annualized, NAV collapsed across all vintages with the pain most pronounced in 2013-14 deals, the median NAVs of which currently stand at near-zero levels.

The punchline is that this trend not only continued but accelerated dramatically in January 2016 – median CLO 2.0 equity NAVs tumbled by 9 percentage points, or by 85%,and according to Morgan Stanley calculations as of January 2016, a whopping 348 US CLO 2.0 deals’ equity tranches currently having NAV below zero.

And, as Morgan Stanley concludes, it is about to get much worse:

The research approach we are taking towards CLO equity has shifted from one that evaluates growth and upside to one that looks into distress and potential losses. While we do not expect this theme to change in 2016, we reiterate our view that the levels of distress in the US market may create “option-like” payoffs in CLO equity in the secondary market, especially in deals by managers who are better “credit pickers”.

In short, the next shoe in the credit market has just dropped.

 

end

 

Early this morning China announced a drop in their PMI and then Europe.  It seems that the entire globe is seeing their manufacturing sector plummet.  And then came the USA and they also announced a very weak PMI.  However what is most damaging in the USA is the decline in the service PMI.  Remember it is the service industry that is 70% of GDP:

 

 

(courtesy zero hedge)

 

PMI Plunges – The Last Time US Manufacturing Was This Weak, Bernanke Hinted At QE3

On the heels of weakness in the rest of the world’s PMIs, US Manufacturing just printed 51.0 (missing expectations of 52.4) and tumbling to its lowest since October 2012… followed rapidly by Bernanke hinting at QE3. While Markit does ‘blame the extreme weather’, it notes however that every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy.”

Not good…

Even worse…

 

Chris Williamson, chief economist at Markit said:

“US factories are reporting the worst business conditions for over three years. Every indicator from the flash PMI survey, from output, order books and exports to employment, inventories and prices, is flashing a warning light about the health of the manufacturing economy.

 

Output and order books are growing at one of their slowest rates since late-2012, with exports falling amid weakened global demand and the strong dollar. Hiring has weakened as a result. With backlogs of work slumping to the greatest extent since the height of the recession in 2009 and inventories rising for the third successive month, it’s likely that firms will come under increasing pressure to cut payroll numbers and production in coming months unless demand revives.

 

Prices are meanwhile falling at the fastest rate since mid-2012 as firms compete to win or retain customers.

 

The one caveat is that the survey was conducted in a month in which parts of the US suffered extreme weather. However, few survey respondents reported that the weather had a material impact on business over the month, instead often simply observing a general slowdown in trade and the economy.”

And with Services now tumbling also, what excuse will the permabulls have next…

 

Charts: Markit and Bloomberg

end
Bond yields fell today despite the higher Dow/ S and P.  This does not bode well for the market.  The author gives 3 explanations as to why bond rates are heading lower:
(Guggenheim/Minerd/zero hedge)

Why Bonds Aren’t Buying This Bounce, And Why Guggenheim Expects The 10-Year Yield To Drop Below 1%

While the algos are closely following every momentum-generating uptick in global equities on the back of yet another short squeeze in crude, one asset class that has been roundly ignored are Treasurys, which have refused to follow the equity euphoria and have in fact roundtripped today’s entire risk on move, suggesting that once again, “bonds aren’t buying it.”

 

And, if Bank of America analysts Shyam Rajan and Dora Xia are correct, don’t expect any “taper tantrumy” bounce in yields any times soon. According to the bank’s analysts there are three reasons against a quick turnaround.

The expected short covering bounce in risk assets and the modest back-up in rates beget questions on whether too much pessimism is already priced in and if we are setting up for a tantrum trade similar to summer 2013 and spring 2015. We do not think so. There are three reasons why this time is different and rates will find it hard to move higher sustainably, absent a coordinated policy response.

1. The move lower in yields is different

Prior tantrums in rates occurred only when the rates market decoupled from risk sentiment and investors were lured into an overweight duration position on the back of QE. This is best illustrated in Chart 1.

  • 2013 US tantrum: Following the announcement of open-ended QE by the Fed, rates decoupled from equities in early 2013 as investors were lulled into duration longs despite strong equity markets on the back of “QE infinity.”
  • 2015 Bund tantrum: The ECB’s announcement of QE in early 2015 led to a sharp disconnect between Bunds and European equity markets, as investors believed that the lack of supply would drive bund yields negative.

Unlike the prior episodes, the current move in rates reflects genuine risk-off flows and not just extended positioning. This is evident in the $45bn of outflows from equity funds and $32bn inflows to bond funds. In contrast, leading to the 2013 tantrum, equity funds and bond funds both had inflows: $38bn for equity and $17bn for bonds.

 

2. Do not take comfort in the “bad” dollar sell-off

Even though the strengthening dollar was one of the greatest headwinds to growth last year, we take no comfort in the recent weakening of the currency. As our BofAML sentiment survey shows, investors have moved from considering China as the biggest risk in 2016 to fearing slower US growth. This shift has helped push any expectations of tightening well into the future, lowered the terminal rate, and further lowered inflation expectations. The weaker dollar is a byproduct of easier Fed policy being priced in, and not necessarily a welcome sign. The correlation between the dollar and rates and dollar and breakevens has turned positive – weaker dollar, lower rates and weaker dollar, lower breakevens – proof that this is a “bad” dollar sell-off (Table 1).

3. If recession risks fade, the old fault lines in China reappear

As our FX strategists have clearly pointed out, the recent move in the dollar has not only removed the spotlight from China but also has helped the situation there in two ways. Lower US rates helped reduce the pressure on outflows, given that capital flows are historically correlated with interest rate differentials (Chart 3). A weaker dollar has reduced pressure on the PBOC to deliver higher USD/CNY fixings. However, if US recession risks fade, the resulting strengthening in the dollar and higher rates will reignite the same risks in China for the market as in August 2015 and January 2016.

The above three factors lead us to believe that a repeat of last year’s sell-off in rates is unlikely given the current backdrop. Essentially, the rates market is stuck between pricing in more Fed easing or more China worries.

* * *

Which explains why anyone hoping for a big drop in Treasurys will likely be disappointed. So if one can’t trade the short Treasury trade, maybe going long is the right trade. That is what Guggenheim’s CIO Scott Minerd is betting.

Cited by Reuters, Minerd, said on Monday that he sees the 10-year Treasury note yield falling to 1 percent, perhaps even lower, before year-end.

Much lower: “According to technical analysis, the current target bottom for the 10-year Treasury note is 28 basis points,” Minerd told Reuters. “That may seem like voodoo, but technical analysis provided key insight to our macroeconomic team a year ago when we called for oil to hit $25 per barrel back when it was trading at $60.”

If he is right, that would mean that the risk of a US recession using the Fed’s adjusted yield curve calculation first revealed by DB and subsequently adopted by everyone else, is at 100% or just a little big higher.

end
This will become another house of cards of which Fannie and Freddie will end up financing: Only 3% down mortgage program!!
(courtesy zero hedge)

Freddie Mac, Bank Of America Launch Another 3% Down Mortgage Program

Back in October we posted the following image on the way to introducing a new mortgage product co-sponsored by Quicken and Freddie Mac.

In what the companies billed as “a new effort dedicated to building a better American housing system,” Quicken and Freddie announced what they called an “innovative solution” to “meet the needs of emerging markets, including millennials, first-time homebuyers and middle-class borrowers.”

What’s “innovative” about Quicken and Freddie’s “solutions”, you ask? Well for one thing,they’re willing to give millennials a home loan with just 3% down. That’s great if you’re a struggling graduate waiting tables and having a hard time saving enough money for a down payment, but it’s not so great for the stability of the US housing market and/or the financial system which got itself into all kinds of trouble making just these kinds of loans nine years ago.

You might recall that earlier this year, House Financial Services Committee Chairman and Yellen detractor Jeb Hensarling lambasted FHFA chief Mel Watt’s announcement that Fannie Mae and Freddie Mac will seek to back loans with down payments as low as 3%.

I am extremely concerned about Director Watt’s efforts to force taxpayers to back high-risk mortgages with ultra-low down payments as little as 3%,” Hensarling said in a statement.

Obama cut mortgage-insurance premiums on FHA loans last January and in September, originations of FHA-backed mortgages were up 54% from a year earlier, Bloomberg reportedlast month. “By December, the FHA insured 22 percent of all loan originations, up from 17 percent a year earlier.”

Now, in what looks like an effort to get back at the FHA for the $800 million the agency extracted in connection with “errors” made on insured loans, Bank of America is partnering with Freddie Mac on yet another scheme that will allow borrowers to get home loans with as little as 3% down.

“Bank of America is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans,” WSJ reported, earlier today. “The new mortgage program, which the Charlotte, N.C.-based lender plans to unveil on Monday, will let borrowers avoid private mortgage insurance, a product to protect mortgage lenders and investors that is usually required for low-down-payment loans and that could make the new loans cheaper than those offered through the Federal Housing Administration.”

Essentially, BofA has cut the FHA out. “After making a mortgage under the new program, Bank of America will sell it to Self-Help, which then sells it to Freddie Mac,” The Journal goes on to recount. “If a mortgage defaults, and Self-Help isn’t able to recover the full amount owed, Self-Help takes a big chunk of the losses before Freddie Mac starts to take a loss, which lets borrowers avoid paying mortgage insurance.”

So there. Take that FHA. That’s what you get for holding banks accountable for making terrible underwriting decisions.

“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” Bank of America managing director D. Steve Boland, said. “We think there are still a lot of uncertainties out there in working with FHA.”

Of course this means a greater percentage of low downpayment mortgages will end up being guaranteed by Freddie. “As lenders become more wary of the FHA program, lenders and Fannie and Freddie executives said that their programs’ volume could rise,” WSJ continues.

Because that’s just what taxpayers need. Fannie and Freddie making more bad loans.

Gee, it’s a good thing the GSEs have adequate capital buffers. Oh, wait…

 

end
After the market closed:  this happened:

Valeant Crashes To 3-Year Lows After-Hours, Will Restate Earnings

It’s been an ugly few days for Valeant. Following Wells Fargo downgrade and Jim Chanos warnings over PBMs broadly based on Deutsche Bank’s analysis, Dow Jones reports after-hours that Valeant is set to restate earnings after an internal review.

Maybe this explains CEO Pearson’s sudden “pneumonia”…

 

The stock is down 10% after-hours, down 18% on the day and back at levels not seen since early 2013…

end
Well that about does it for tonight
I will see you tomorrow night
Harvey
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3 comments

  1. Harvey,
    You totally missed it again on GLD. You are reporting Friday’s gain. Today it went up another huge 19.3 tonnes to 752.29 tonnes. GLD had this posted on it’s website well before you put up today blog post.

    Like

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