Gold: $1,241.40 up $10.80 (comex closing time)
Silver 15.00 up 27 cents
In the access market 5:15 pm
At the gold comex today, we had a strong delivery day, registering 390 notices for 3900 ounces and for Silver surprisingly saw only 10 notices for 50,000 oz for the active March delivery month. They must have problems sourcing silver!
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 210.79 tonnes for a loss of 92 tonnes over that period.
In silver, the open interest rose by 88 contracts up to 162,293. In ounces, the OI is still represented by .811 billion oz or 116% of annual global silver production (ex Russia ex China). Generally as we go into an active delivery month the liquidation is much bigger.
In silver we had 10 notices served upon for 50,000 oz.
In gold, the total comex gold OI rose by a tiny 89 contracts to 450,555 contracts despite the fact that the price of gold was down $3.60 with yesterday’s trading.(at comex closing)
We had another huge change in gold inventory at the GLD, a mammoth sized deposit of 9.83 tonnes and gold goes down early this morning? and rises only slightly? / thus the inventory rests tonight at 786.20 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex. In silver,/we had no changes in inventory tune of 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 88 contracts up to 162,293 despite the fact that the price of silver was down 16 cents with yesterday’s trading. The total OI for gold rose by 89 contracts to 450,555 contracts as gold despite being down $3.60 in price from yesterday’s level.
2 a) Gold trading overnight, Goldcore
3. ASIAN AFFAIRS
i)Late TUESDAY night/ WEDNESDAY morning: Shanghai closed UP BY 116.51 POINTS OR 4.20%, / Hang Sang closed UP by 596.03 points or 3.07% . The Nikkei closed UP 661.04 or 4.11%. Australia’s all ordinaires was UP 2.01%. Chinese yuan (ONSHORE) closed UP at 6.5512. Oil LOST to 33.69 dollars per barrel for WTI and 36.37 for Brent. Stocks in Europe so far deeply in the GREEN EXCEPT LONDON . Offshore yuan trades 6.5541 yuan to the dollar vs 6.5512 for onshore yuan/MOODYS DOWNGRADES CHINA’S CREDIT FROM STABLE TO NEGATIVE (SEE BELOW)
ii) Moody’s downgrades sovereign debt
iii)POBC weakens yuan to one month lows on both onshore and offshore yuan;
iii)Then late in the day, the uSA fired the first shot in the currency wars by putting a massive 266% tariff on cold rolled steel. Now the next move will be China’s move. They will no doubt devalue big time:
i)Art Berman believes that oil is heading to 16 dollars
( Art Berman/Oil Price.com)
ii)Huge buildup in inventories reported by the DOE: storage conditions becoming extreme!
iii) Amazing!!, the biggest inventory build and WTI rises back again over $35.00( zero hedge)
i)Turd Ferguson seeks a stock market collapse.//Moolman expects huge currency devaluations due to its incessant desire for more debt
( TFMetals/Craig Hemke/Moolman/GATA)
ii)Why on earth would a gold mining executive want lower gold prices? So he could buy gold mines on the cheap in Africa
( Chris Powell/GATA)
iii)Nanex’s Hunsader wins a big whistleblower price from the SEC.
( Chris Powell/GATA)
iv)Russian quietly purchases 21.3 tonnes of gold last month as they are gradually increasing their totals each month. Pravda claims that Russia aims to overthrow the dollar and the West with their gold purchases:
v) tonight’s commentary from Bill Holter in entitled:
”We are all in the same boat?”
vi)Lawrie Williams on how gold will rise from this point in time onward:
( Lawrie Williams/Sharp’s Pixley)
vii) Dave Kranzler comments on the large amount of silver leaving the comex vaults, the small amount of notices filed for delivery which is very unusual for a big delivery month. Kranzler questions whether the dealer silver amounts are really there!
USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER
i)The totally inept and fictitious ADP report surprisingly shows an upbeat in jobs:
ii)Sports Authority files for bankruptcy protection and will close 1/3 of its stores
Let us head over to the comex:
The total gold comex open interest rose to 450,555 for a tiny gain of 89 contracts despite the fact that the price of gold was down $3.60 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month or for that matter an inactive month, and 2) a continual drop in the amount of gold standing in an active month. Today, both scenarios were in order as initially the total OI complex fell only to see it revive once March 1 was upon us. The front March contract month saw its OI fall by 23 contracts down to 490.We had 8 notices filed yesterday, and as such we lost 15 contracts or 1500 oz will not stand for delivery. After March, the active delivery month of April saw it’s OI fall by 2842 contracts down to 299,756. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 171,760 which is fair. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was good at 242,886 contracts. The comex is not in backwardation.
March contract month:
INITIAL standings for MARCH
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||55,943.374 oz
|Deposits to the Dealer Inventory in oz||26,355.72 oz
|Deposits to the Customer Inventory, in oz|| 48,199.960 oz
|No of oz served (contracts) today||390 contracts
|No of oz to be served (notices)||100 contracts(10,000 oz)|
|Total monthly oz gold served (contracts) so far this month||418 contracts (41,800 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||82,393.5 oz|
we had 0 adjustment
MARCH INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 219,927.64 oz(CNT,Delaware,
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil|
|No of oz served today (contracts)||10 contracts 50,000 oz|
|No of oz to be served (notices)||3430 contract (17,150,000 oz)|
|Total monthly oz silver served (contracts)||32 contracts (160,000 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||2,882,073.7 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 0 customer deposits
total customer deposits: nil oz
total withdrawals from customer account 219,927.640 oz
we had 0 adjustments
And now the Gold inventory at the GLD:
MAR 2/another mammoth paper gold addition of 8.93 tonnes of gold into the GLD/Inventory rests at 786.20 tonnes.
March 1/a mammoth 14.87 tonnes of gold deposit into the GLD/inventory rests at 770.27 tonnes
FEB 29/another deposit of 2.08 tonnes of gold into the GLD/Inventory rests at 762.40 tonnes
Feb 26./no change in gold inventory at the GLD/Inventory rests at 760.32 tonnes
Feb 25./we had a huge deposit of 7.33 tonnes of gold into the GLD/Inventory rests at 760.32 tonnes. No doubt that this is a paper gold deposit/not real as the price of gold hardly moved on that huge amount of deposit.
FEB 24/no change in gold inventory at the GLD/Inventory rests at 752.29 tonnes
FEB 23./another huge addition of 19.3 tonnes of gold into its inventory/Inventory rests at 752.29 tonnes. Again how could they accumulate this quantity of gold with backwardation in London/this vehicle is nothing but a fraud
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
March 2.2016: inventory rests at 786.20 tonnes
In two weeks we have added 75 tonnes of gold. On Feb 17 the price of gold was 1199.50 so we advanced only $42.00 per oz on that huge gold buying?
And now your overnight trading in gold, TUESDAY MORNING and also physical stories that may interest you:
Bail-In Regulation To Blame For “Bank Turmoil” In EU?
The Financial Times recently looked at how the new bail-in resolutions may be leading to “bank turmoil” and increased concerns about banks and the banking sector in the EU. As is typically the case with coverage of the new bail-in regulation in the EU, U.S. and most of the western world, the important article was little noticed.
Despite this lack of coverage, we believe bail-ins remain one of the greatest financial risks to investors, savers and indeed companies today. Yet they remain the most poorly covered financial risk and remain largely ignored by financial advisers, brokers and not surprisingly banks.
Bail-Ins – Key Considerations
Indeed, media internationally has ignored this growing and substantial financial risk and the risk that it poses to the deposits of savers, investors and companies and indeed to our respective economies. In a world already beset with huge deflationary pressures, bail-ins and confiscating deposits from savers including the capital of companies would be extremely deflationary and would likely contribute to serious recessions and potentially another global depression.
This is something we warned of when we first conducted our extensive research on the developing bail-in regimes in November 2013.
It is interesting and encouraging that the new government in Italy is aware of the risks of bail-ins and looks prepared to go against the new international deposit confiscation rules. Hopefully, it may at long last engender a real debate about the pros and significant cons of bail-ins and their risks and ramifications and contribute to people being prepared for bail-ins.
From the FT:
When Brussels last month trumpeted the launch of its new rule book on failing banks, it could hardly have imagined the political backlash would come so swiftly, or that the regime could be blamed for so much market turmoil.
At the time they were agreed in 2014, these so-called “bail-in” reforms secured unanimous backing from EU governments, which wanted to shift the burden of bank rescues away from taxpayers and on to investors and depositors.
But the nascent regime is now under sustained attack from Italy for being ill-thought through, rushed and destabilising. Some analysts also cited it as one of several factors driving this week’s volatility in European bank stocks. A messy round of forced bondholder writedowns at Portugal’s Novo Banco last month heightened creditor jumpiness.
With European bank shares facing another tempestuous day on Thursday, these issues will be on the agenda of eurozone finance ministers at their regular Brussels gathering.
Full FT article ‘Bank Turmoil: Are Europe’s New Bail-In Rules To Blame?’
LBMA Gold Prices
02 Mar: USD 1,229.35, EUR 1,131.53 and GBP 881.54 per ounce
01 Mar: USD 1,240.00, EUR 1,141.70 and GBP 886.09 per ounce
29 Feb: USD 1,234.15, EUR 1,131.46 and GBP 890.95 per ounce
26 Feb: USD 1,231.00, EUR 1117.58 and GBP 878.87 per ounce
25 Feb: USD 1,235.40, EUR 1,121.41 and GBP 887.10 per ounce
Gold and Silver News and Commentary
Gold extends losses on robust U.S. data, higher stocks – Reuters
Gold holds steady in Asia as markets assess likely next Fed move – Investing.com
Gold ends lower as stocks rally after upbeat economic data – Marketwatch
Last Time Gold ETF Flows Were Higher QE Was Just Starting – Bloomberg
Gold, Silver Soar in February; US Mint Bullion Coin Sales Strong – Coin News
Best And Worst Performing Assets Of February And 2016 – Zero Hedge
How to Prepare Your Investments for a Market Crash – Telegraph
As Mervyn King warns that the project is doomed, is it time for the Eurozone to be broken up? – City AM
Classic Video: Margaret Thatcher On The Euro And “Federal Europe” In 1990 – Dollar Collapse
How Much More Loopy Can Financial System Get? – Money Week
Read more here
‘7 Real Risks To Your Gold Ownership’ – New Must Read Gold Guide Here
Why on earth would a gold mining executive want lower gold prices? So he could buy gold mines on the cheap in Africa
(courtesy Chris Powell/GATA)
Why would a gold-mining executive want low prices to continue? That’s easy
Submitted by cpowell on Tue, 2016-03-01 19:48. Section: Daily Dispatches
2:55p ET Tuesday, March 1, 2016
Dear Friend of GATA and Gold:
GATA’s friend T.L. says he is confused about why the chief executive of a major gold-mining company — that is, Randgold’s Mark Bristow — would tell Bloomberg News yesterday that a lower gold price would be good for the industry:
Bloomberg quotes Bristow as noting that the longer that gold prices stay low, the more production will fall, thereby supporting prices over the longer term.
But additional inferences may be drawn. That is, Randgold has a few rich mines in Africa with low cash costs — the company estimates them as being less than $700 per ounce — and is comfortably profitable at current gold prices. As low prices push more marginal mines out of production, those mines become available for purchase by more profitable mining companies like Randgold at distress prices. If such marginal mines are indeed purchased at distress prices and the market eventually turns upward, as through the collapse of the latest round of gold price suppression by central banks, the acquiring mining companies will enjoy a windfall.
There would be nothing strange about such a strategy in the gold-mining business. Indeed, this was the strategy used by Barrick Gold in the 2000s when it was using gold leasing by central banks to hedge much of its production and, in doing so, even claiming to be the agent of central banks:
Barrick’s heavy hedging drove the gold price down, making other gold miners unprofitable, and then Barrick bought two big competitors cheaply, Homestake Mining and Placer Dome.
Randgold also has been considering acquisitions lately —
— and recently withdrew from a big one in Ghana after recalculating the likely profit. Any gold-mining company on the hunt for more assets certainly wouldn’t want the market to move up before the hunt was complete, just as some gold investors, figuring that the market is starting to turn back up, lately have been hoping for one more smashing of the price by central banks so investors can establish a better entry position.
Of course for other gold investors, especially those who have suffered losses over the last four years, the turn back up can’t come too soon. They shouldn’t look to Bristow for sympathy, especially since, like many other gold-mining executives, he seems perfectly content with the rigging of the gold market by central banks.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Nanex’s Hunsader wins a big whistleblower price from the SEC.
(courtesy Chris Powell/GATA)
Nanex’s Hunsader wins big whistleblower prize from useless SEC
Submitted by cpowell on Tue, 2016-03-01 20:25. Section: Daily Dispatches
3:25p ET Tuesday, March 1, 2016
Dear Friend of GATA and Gold:
Eric Scott Hunsader of the market data consultancy Nanex in Winnetka, Illinois, whose data has proven all sorts of market manipulation, including manipulation of the gold market, has won a $750,000 whistleblower award from the U.S. Securities and Exchange Commission, which is pretty ironic, since the SEC itself should be doing the work Hunsader has done but instead is completely useless to the public interest.
MarketWatch’s report of the award is here:
A tribute to Hunsader by Zero Hedge, the Internet site that has provided crucial publicity for Hunsader’s work and should have gotten an award as well, is here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Russian quietly purchases 21.3 tonnes of gold last month as they are gradually increasing their totals each month. Pravda claims that Russia aims to overthrow the dollar and the West with their gold purchases:
Pravda: Russia aims to overthrow dollar and West with gold
Submitted by cpowell on Wed, 2016-03-02 01:07. Section: Daily Dispatches
Russia Becomes World’s Largest Buyer of Gold
From Pravda, Moscow
Tuesday, March 1, 2016
The International Monetary Fund could not but pay attention to recent actions of the Russian authorities. It turned out that the Bank of Russia became the world’s largest buyer of gold among all central banks of the planet as of January. IMF experts said the Bank of Russia acquired 688,000 ounces of gold.
The statistics did not include China. Reportedly the Chinese central bank purchased about 520,000 ounces of gold in January.
Spokespeople for the Bank of Russia said that Russia’s gold and currency reserves increased by $3.2 billion to $368.3 billion.” Gold thus accounts for $52 billion in Russia’s gold and currency reserves.
“This is a quiet attack on the almighty dollar. Russian President Putin buys a lot of gold without attracting much attention to it. As long as political circles fear a new cold war between Moscow and the West, this war has already erupted in the financial sector,” Germany’s Die Welt wrote.
According to German economists, Putin is trying to undermine the power of the United State and Europe. Those who buy gold stand in the way for Western currencies in their global domination. This is a part of Putin’s plan for world domination, economists say.
Noteworthy, Want China Times reported with reference to Duowei News that China’s enormous gold reserves may crush the U.S. currency.” The publications also said that Russia had doubled its gold reserves since 2005.
Leading publications of the world started the buzz about anti-dollar intentions of Russia and China. “It appears that Russia and China have indeed decided to create a counterweight to the supremacy of the dollar,” Die Welt’s economic analyst, Holger Zschapitz, said. He adds that “the Kremlin has been secretly and purposefully buying gold for eight months already.”
Russia’s massive purchase of gold could be a major plan and geopolitical strategy of the Kremlin to get rid of the dependence on the dollar in the event the West tightens sanctions on Russia, the economist believes.
In 2014 The Daily Telegraph wrote that the Kremlin took advantage of declining prices of gold to buy 55 tonnes of the precious metal, “a lot more than other countries.”
Noteworthy, Germany has been trying to bring its gold back home from the United States, although to no avail. Washington keeps Germany on a gold leash, and the European country obediently follows its master.
The United States promised to return the German gold someday but not now. German auditors are not allowed to inspect the storage, even though German gold reserves are the second largest reserves of gold in the world after the United States. Yet almost two-thirds of Germany’s gold is kept overseas.
Lawrie Williams on how gold will rise from this point in time onward:
(courtesy Lawrie Williams/Sharp’s Pixley)
LAWRIE WILLIAMS: Gold price resilient and set for an interesting year
How things have changed in terms of market sentiment towards gold in just a couple of months! Heading into the end of 2015 virtually every bank analyst was predicting doom and gloom for gold as Fed rate rises would make holding gold less and less attractive. They were falling over each other to predict ever lower prices – $1050, $1000, $900 or even less. The only way was down.
There were some marginally conflicting analyses coming out – but only marginal – most seeing a continuing downturn in the first half or three quarters of 2016 but perhaps something of a pickup towards the year end. But this all made depressing reading for the gold investor despite some fundamental supply/demand factors suggesting that this outlook might have been too pessimistic.
The U.S. Fed duly implemented a fairly paltry 25 basis points interest rate rise in December while predicting perhaps four more such small rises during 2016, but this had been foreshadowed for so long it had little immediate impact on the gold price. But as the implications sunk in and the true realisation that neither the U.S. nor the global economies were advancing at anything like the rate the Fed and the optimists had been suggesting began to take hold, it was general equities which started to feel the strain. As they stuttered and fell back week in week out, gold started to make something of a recovery as the New Year came in. Everything was reversing.
Thus so far this year, gold has perhaps been the best performing asset class of all. From its close on December 31st it has risen by over 16% from $1,060 to $1,230 at the time of writing. Conversely the S&P 500 has been struggling and has fallen by over 3% since the beginning of the year (despite a big 2% pick-up yesterday) after a massive 150% rise from the beginning of 2009 to a peak in May last year, from where it has been somewhat more volatile. It suffered a steep fall around the time of the Chinese stock market crash and yuan devaluation in August – from which it recovered strongly, in part from ever- comforting words from the Fed and Fed-friendly analysts. But overall it ended the year well below its May peak – about 4% down – from where it has fallen further, but with a fairly volatile up-and-down path. It is currently sitting around 7% down on its 2015 peak level. Something of a shock to investors who had been used to what had appeared to be an ever-rising equities market.
Indeed, the gold price has so far been pretty resilient this year generally holding on to its big gains despite seemingly frequent attempts to pull it back. It has, though, so far failed to break through the significant $1,250 level except extremely briefly, but conversely has also so far seemed to hit strong resistance to falls in the $1,225- $1,230 levels. We are sure the downside pressures on the price will likely continue – just as the bears were victorious last year after an early year price surge – but so far the force has continued to stay with the yellow metal. Whether this can continue remains to be seen, but we do think the fundamentals, and the political risk elements ahead may well help it retain what strength it has generated so far.
One consequence of the almost six year continuing rise in equities had been the almost total rejection by the investment sector mainstream of gold as an investment asset. Gold ETF holdings were being liquidated as institutional and individual investors pulled out in favour of putting their money where the gains were to be made. In general equities. The markets ignored the fact that all these ETF liquidations, and more, were being eagerly soaked up by the Chinese, Indians and others yet the gold price was being marked down, month-in-month-out, on the COMEX futures markets where the gold price is largely set.
But in addition to the changes in direction in the general equities markets, there are other factors looming which could well be changing the global position of gold, and are all coming to a head this year. Perhaps closest at hand is the likely start-up of a Shanghai gold fix benchmark coming in probably next month and counting, so we hear, a dozen banks among its participants. This will start to wrest away gold price control from the Western bullion banks which many believe have a vested interest in keeping the gold price down at the behest of Western Central Banks which see gold as a dangerous basic economic indicator potentially outside their control. Whether the Chinese will see things differently remains to be seen but there have been continuing reports and statements that China sees gold as having a major role in the global economic hierarchy, and is building up its own gold holdings perhaps faster than its official figures might suggest. Given the large gold holdings by Chinese individuals, it is certainly possible that China might view a rising gold price as helping boost any feeling of economic well-being among its populace – important when its economy seems to be a little precarious.
A second major event this year will be the Chinese yuan’s inclusion in the SDR basket of currencies, effectively giving it reserve currency status and reducing the dominance of the US dollar in world trade. This is due to happen in October. While the initial effects will probably be minor, over time the new order could see the yuan pari-passu with the US dollar in global trade and reserve holdings and the eventual demise of the petrodollar with all the benefits that brings to the U.S. economy. China, and some of its allies, see gold as a significant element in its economic way forward.
And then there is the U.S. Presidential election in November which, after yesterday’s Super Tuesday results looks ever more set to be a runoff between Donald Trump and Hillary Clinton – two who will hugely polarise the U.S. electorate in perhaps a manner never seen before. There will be enormous political conflict here and this will undoubtedly result in extreme nervousness on behalf of the people supporting the losing candidate which may well send them running for the safe haven that is gold, whatever the metal’s performance between now and then.
There is also the distinct possibility that the UK will vote in a referendum to pull out of the European Union – Brexit – in June. This is another event which, if it happens, will create huge uncertainties not only in the UK, but throughout the rest of the EU too, giving huge momentum to anti-EU movements in other member countries . This is being perhaps exacerbated by the refugee crisis in Europe which is hugely polarising opinion in particular on the open borders policy – the Schengen accord – between most EU member states. Many would see this as the beginning of a break-up of the EU and the demise of the Euro. Yet another geopolitical uncertainty element which has to be positive for gold.
And all this without even mentioning other major flashpoints, like the Ukraine, Syria, Iraq, Libya, North Korea, the South China Sea and undoubtedly some others which will flare up through the year. While gold has seemed to be loath to move much on any of these individually, in combination with the other factors, together with the huge change in sentiment towards gold investment, this suggests the gold price could make a strong comeback this year.
We are already seeing this in gold ETF purchases which have been staggering so far. The biggest of all – GLD – has added around 144 tonnes of gold in the first two months of the year, putting it in ninth place among known gold holders (i.e. after the USA, IMF and the other top 6 central bank gold reserve holdings) with a total holding as of yesterday of 786.2 tonnes. This is still hugely below its peak of over 1,350 tonnes towards the end of 2012, though, which would have put it in around 6th place among the world’s gold holders.
Indian demand is set to pick up now after the budget uncertainty is over, despite another tax imposition on gold – the Modi Government has certainly not so far been a gold- friendly one! We await with some interest the now monthly Shanghai Gold Exchange withdrawals figure for February to see how Chinese demand is progressing this year, which is probably due out at the end of next week. By all accounts Chinese demand has slipped year on year, but has been more than replaced by gold ETF purchases. But overall gold continues to flow from West to East, while western physical gold inventories continue to be run down. This cannot continue ad infinitum without having a positive effect on the gold price as physical gold becomes harder to obtain.
All in all the above makes for a very ‘interesting’ year ahead in global geopolitics, economic growth and for precious metals. It has the potential for leading to continuing strength in the gold price. Could this be the year it finally breaks its four year downtrend?
Dave Kranzler comments on the large amount of silver leaving the comex vaults, the small amount of notices filed for delivery which is very unusual for a big delivery month. Kranzler questions whether the dealer silver amounts are really there!
Can anyone answer the question with any modicum of certainty? All published analysis on the Comex and the Commitment of Traders reports is based on the data reports compiled and issued by the Comex bullion banks – primarily JP Morgan, HSBC, Scotia. All three of these banks have been embroiled in lawsuits and regulatory action in other areas of their business involving fraud and corruption. The COT reports originate from these banks, who operate and control the trade clearing process at the Comex.
If the big banks who operate the Comex are reporting Comex Commitment of Trader and vault inventory reports accurately and honestly, it would be the only segment of their business operations for which they publish information and data that is not fraudulent to some degree, including their SEC-filed financials. I believe that bona fide Comex data reports are a highly improbable propostion. I would not bet on it. Et tu?
All publicly available data used by analysts to write commentary is based on reports that are created for public consumption by the Comex bullion banks. See a problem here? Anyone? Bueller?
Currently nearly every market “analyst” and chartist is calling for a big correction in the price of gold/silver based on two catalysts: 1) the big move in the metals since mid-January and 2) the massive bullion net short position in gold and silver vs. the massive net long position of the hedge funds on the Comex per the weekly COT report.
Historically, a position “set-up” like this has predictably led to what I call a “Commitment of Traders stop-loss long liquidation operation” implemented by the bullion banks. The bullion banks know where the hedge funds have stop-losses set against their positions because the bullion banks are the entities that clear these trades on the Comex.
Typically the banks will set off stop-loss limit triggers on days when they are able to dump enough paper on the Comex to cause a “waterfall” drop in the price of gold/silver. Thisoccurred on Monday morning, shortly after the p.m. price “fix” in London. The “waterfall” drop on the chart is created when a significant number of stops are triggered, which forces the automatic selling of hedge fund positions. (click on image to enlarge)
When a stop-loss long liquidation operation begins, it typically lasts several days, with large “shock and awe” price drops occurring over that period. Most chart and technical analysts were issuing $14 price targets for silver last Friday. As of Monday mid-day, it looked like those forecasts were almost certain.
But the current attempt by the banks to force-liquidate the long positions on the COT seems to have been stalled – at least for now. After the hit on Monday, the metals bounced back to unchanged from Friday. Yesterday, on a day when the SPX squeezed up over 2% – and the metals typically move inversely to stock market moves like that (“risk off”) – gold and silver jumped back up their pre-hit COT smash levels of early Monday morning. Another take-down attempt followed and today the metals are once again in rally mode. One wonders if Dennis Gartman and Clive Maund are scratching their heads at this point.
Everyone reading this is aware that the Comex inventory of gold and silver has been declining over the past several months, especially the metal that is declared to be “registered” (available for delivery). Even more stunning has been the absurd spike in the ratio of paper gold/silver contracts vs. the amount of underlying physical metal declared as “registered.”
The fact that the corrupt bullion banks on the Comex are having trouble implementing their standard procedural COT stop-loss long liquidation operation has lead me to question whether or not the Comex vaults truly have the amount of metal as reported. Yet to be noticed or commented on, the deliveries for the March silver contract so far have been unusually small. This is because the “issuers” have not yet issued very many delivery notices. Typically in a relatively large delivery month, like March, a lot of notices are issued in the first few days of the delivery period, which started Friday afternoon. Why aren’t issuers sending out delivery notices in volume right now?
Currently there’s 3,440 open silver contracts representing 17.2 million ozs of silver. In the first two days of the delivery period, only 32 notices have been issued. JP Morgan and Scotia – no surprise there – have been the primary issuers and stoppers. As of yesterday, the Comex vaults were reporting 24.7 million ozs in the registered account.
But are there really 24.7 million ounces of silver sitting in the registered account section of the vaults? Yesterday over 1.7 million ounces of silver was removed from the eligible accounts. None of it was moved into the registered accounts. My guess is that there might be some “Charles De Gaulles” out there who are starting to wonder the same thing as me about the amount of silver actually sitting in Comex vaults.
With the Comex registered, “deliverable” inventory at a historic low, a run on the Comex gold and silver “bank” would make things really interesting in the markets…
(COURTESY BILL HOLTER HOLTER/SINCLAIR COLLABORATION)
We are all in the same boat?
1 Chinese yuan vs USA dollar/yuan DOWN to 6.5512 / Shanghai bourse IN THE GREEN : / HANG SANG CLOSED UP 596.03 POINTS OR 3.03%
2 Nikkei closed UP 661.04 OR 4.11%
3. Europe stocks all in the GREEN EXCEPT LONDON /USA dollar index UP to 98.48/Euro DOWN to 1.0848
3b Japan 10 year bond yield: RISES TO -.038% AND YES YOU READ THAT RIGHT !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 113.05
3c Nikkei now well below 17,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 33.69 and Brent: 36.37
3f Gold DOWN /Yen DOWN
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil DOWN for WTI and DOWN for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS to 0.170% German bunds in negative yields from 8 years out
Greece sees its 2 year rate FALL to 11.14%/:
3j Greek 10 year bond yield FALL to : 10.16% (yield curve deeply inverted)
3k Gold at $1231.50/silver $14.87 (7:15 am est)
3l USA vs Russian rouble; (Russian rouble DOWN 51/100 in roubles/dollar) 73.83
3m oil into the 33 dollar handle for WTI and 36 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 .9990 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0838 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 + .170%
/German 8 year rate negative%!!!
3s The Greece ELA NOW at 71.4 billion euros,
The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”. Next step for Greece will be the recapitalization of the banks and that will be difficult.
4. USA 10 year treasury bond at 1.84% early this morning. Thirty year rate at 2.71% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Furious Rally Fizzles Overnight As Futures Follow Oil Lower
Following yesterday’s torrid 2.4% March opening rally, which resulted in the biggest S&P gain since January and the best first day of March in history on what was initially seen as very bad news, and then reinterpreted as great news, overnight futures have taken a breather, and erased a modest overnight continuation rally to track the price of oil lower.
Futures on the S&P 500 expiring in March fell 0.2 percent to 1974, erasing an earlier rise of as high as 0.3 percent as Donald Trump and Hillary Clinton solidified their positions in the race to their parties’ presidential nominations following yesterday’s Super Tuesday primaries. As the chart below shows, the oil/equities correlation is once again dominant...
… which has meant an initial weakness for both the Emini and WTI following yesterday’s gargantuan API build. However, with official DOE data on deck in a few hours, all that will take for oil to jump higher is for the announced inventory build to be just fractionally less than the 9.9 million barrels the API reported, and the HFT algos will be off to the races again, chasing Brent and WTI higher.
AS Bloomberg notes in its Super Tuesday recap, Clinton dominated Democratic Party primary contests held on Tuesday, beating rival Bernie Sanders, and Trump boosted his chances of securing the Republican Party nomination. The impact on trading was muddied as global equities rebounded on the U.S. economic data and amid stability in China markets that spurred risk-taking.
The eighth year of a presidency typically ranks last in terms of equity returns, and the first half of an election year is often even worse. Add everything else that has been weighing on markets in 2016, from China to oil and the Federal Reserve, and few money managers see a return to the calm that reigned from 2012 to 2015.
Among the other top overnight news, fracking pioneer McClendon accused of rigging Oklahoma bids, Pimco’s Jon Short leaving to join Zwirn’s Arena hedge fund, Starbucks former COO Alstead permanently resigns from company, and China’s rating outlook was put on negative by Moody’s.
Global market snapshot:
- S&P 500 futures down 0.2% to 1974
- Stoxx 600 up 0.4% to 340
- FTSE 100 up 0.2% to 6167
- DAX up 0.3% to 9742
- German 10Yr yield up 5bps to 0.2%
- Italian 10Yr yield up 2bps to 1.4%
- Spanish 10Yr yield up 2bps to 1.51%
- MSCI Asia Pacific up 2.8% to 123
- Nikkei 225 up 4.1% to 16747
- Hang Seng up 3.1% to 20003
- Shanghai Composite up 4.3% to 2850
- S&P/ASX 200 up 2% to 5021
- US 10-yr yield up 2bps to 1.84%
- Dollar Index up 0.13% to 98.48
- WTI Crude futures down 2% to $33.72
- Brent Futures down 0.8% to $36.50
- Gold spot down 0.2% to $1,230
- Silver spot down less than 0.1% to $14.82
- Fracking Pioneer McClendon Accused of Rigging Oklahoma Bids: Facing allegations he worked with an unidentified competitor to keep the price of leasing drilling rights artificially low.
- Pimco’s Jon Short Leaving to Join Zwirn’s Arena Hedge Fund: Will be president at Arena, which specializes in lending to companies that are unable to get bank loans.
- Starbucks’ Former COO Alstead Permanently Resigns From Company: Had been on unpaid sabbatical for a year to spend more time with his family. Before that was considered a contender to succeed Chief Executive Officer
- Super Tuesday Wins Tighten Clinton, Trump Grasp on Nominations: Clinton takes seven states helped by women and black voters. Blue-collar anger fuels Trump’s victories over Cruz, Rubio
Looking at regional markets, as usual we start in Asia where equities took the impetus from the strong close on Wall St. where strong data and gains in the energy complex bolstered sentiment. Nikkei 225 (+4.1%) outperformed with exporters lifted by a weaker JPY and strong performances in automakers after encouraging US auto sales results, while the ASX 200 (+2.0%) was underpinned by the resurgence in the energy sector as well as better than expected domestic GDP data. Shanghai Comp (+4.3%) conformed to the upbeat tone as material names spurred the index after cement capacity reduction plans and several regional measures were announced to support the property industry. 10yr JGBs declined amid spill-over selling from USTs after firm US data bolstered risk sentiment and US economic confidence, to the detriment of safe-haven assets. As reported last night, Moody’s affirmed China’s Aa3 rating, but revised its outlook to negative from stable.
Top Asian News:
- China Rating Outlook Cut as Moody’s Warns of Debt, Reform Risks: Cites surging debt burden, questions the government’s ability to enact reforms
- Aussie Economy Exceeds Forecasts as Households Open Wallets: Showing increased signs of transition to services; GDP growth fastest since early 2014
- China Resources to Buy Out Snow Beer Unit for $1.6 Billion: Shares jump as deal gives company full ownership of world’s best-selling beer
- Hong Kong Bourse Net Rises 54 Percent to a Record $1 Billion: 4Q net income and revenue little changed y/y, at HK$1.5b and HK$2.8b, respectively
- Jack Ma’s Ant Financial Said to Be in Talks for Caixin Stake: Caixin has been discussing stake sale w/ Ma’s Zhejiang Ant Small & Micro Financial
- Philippine Gaming Regulator Probes Money-Laundering Allegations: Up to $100m of suspicious funds were remitted to 3 casinos’ bank accounts
- Japan Pension Whale’s $41 Billion Gain Masks Hard Time Ahead: Govt Pension Investment Fund heading for losses at start of 2016, councilor says
In Europe, the Stoxx Europe 600 Index added 0.4 percent, with banks leading gains. The equity benchmark closed above its 50-day moving average on Tuesday, capping its longest winning streak since October. MorphoSys AG climbed 6.7 percent after reporting better-than-estimated 2015 earnings. Virgin Money Holdings (UK) Plc jumped 7.3 percent after posting a fourfold increase in pretax profit for last year. Luxottica Group SpA slid 3.4 percent as Exane BNP Paribas noted that the Ray-Ban maker lowered its “rule of thumb” outlook for net income growth. Despite the upside seen in equities, energy names underperform today to weigh in the index, in tandem with energy prices coming off their best levels in the wake of yesterday’s API crude oil inventory build.
Top European News:
- EU Alternatives Won’t Help U.K. Post-‘Brexit,’ Government Says: Alternative trading arrangements with the European Union in the event of a British departure from the bloc pose “serious risks” to the prosperity of Britain, Prime Minister David Cameron’s government said.
- Rolls-Royce Names ValueAct’s Singer to Board Amid Overhaul: Chief Executive Officer Warren East tries to revive earnings growth at the troubled aircraft engine maker
- Swiss Economy Grows Most in a Year on Domestic Demand: Fourth-quarter GDP rose 0.4% vs estimate for 0.1% increase. SNB expects growth to accelerate in 2016 versus last year
- CaixaBank Said to Be in Talks With Dos Santos on BPI Stake: CaixaBank SA, Spain’s third-largest bank, is in talks with Angolan investor Isabel dos Santos to acquire her stake in Portugal’s Banco BPI SA
- Billionaire Fredriksen Sells $510 Million Marine Harvest Stake: Geveran Trading Co., a company controlled by shipping and oil billionaire John Fredriksen, sold a 4.42 billion krone ($510 million) stake in Marine Harvest ASA after a surge in prices
In FX, the yen weakened against 13 of its 16 major counterparts, sliding the most against the currencies of South Korea and Australia. It weakened 0.4 percent to 114.42 per dollar. The Aussie strengthened for a third day, climbing 0.5 percent versus the greenback. Australia’s commodity-dependent economy expanded 0.6 percent in the fourth quarter from the previous period, faster than the 0.4 percent growth forecast in a Bloomberg survey. South Korea’s won rose 0.8 percent, making it the best performer among major currencies.
Another weak PMI from the UK, this time in construction (54.2 vs. Exp. 55.5), added to fresh pressure on GBP, this coming through EUR/GBP which now looks set for a short squeeze higher despite the impending actions from the ECB next week. EUR/USD has also garnered a bid in this respect, though we expect the 1.0800 near term target close in proximity is limiting the downside from here. AUD gains post strong GDP overnight have stalled, with resistance in the mid .7200’s deterring for now. All eyes on US ADPs later today.
A Bloomberg gauge of 20 developing-nation currencies was little changed after climbing 1.3 percent in two days. The Russian ruble and South Africa’s rand lost at least 0.6 percent, while currencies in Asia advanced.
The yuan traded in Hong Kong fell 0.09 percent to 6.5541 per dollar. The People’s Bank of China lowered its reference rate by 0.16 percent. China’s credit-rating outlook was lowered to negative from stable at Moody’s Investors Service, citing concerns about rising government debt and falling currency reserves in its decision to reduce the outlook.
In commodities, WTI crude future pared some of yesterday’s gains after a larger than expected build in API crude inventories (9900K vs. Exp. 3600K, Prey. 7100K) to fall back below the USD 34/bbl level . Elsewhere, gold has seen modest declines as the heightened risk appetite dampened safe-haven demand, while copper and iron prices advanced to 3-month and near 6-month highs respectively, on the upbeat sentiment with the latter back above the USD 50/ton level.
“Any rally that we see will be subdued because of the large crude inventory,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “We really need to see production cuts if we’re going to get any sustained gain in oil.”
Copper climbed 1.5 percent in London. Codelco, the world’s biggest producer of the metal, expects a global surplus will persist through next year and that recent price gains are unlikely to be sustained, Chairman Oscar Landerretche said in an interview. Glencore Plc Chief Executive Officer Ivan Glasenberg said Tuesday that he now sees commodity prices bottoming.
On today’s US calendar, we get the ADP employment change data for February due (expected: 188k), which should be watched closely ahead of the employment report on Friday. The Fed is also releasing the Beige book today. Aside from economic data, the release of the remaining results from Super Tuesday in the US should take centre stage.
Bulleting Headline Summary from RanSquawk and Bloomberg
- Bunds fall today to reside firmly in the red as risk on sentiment remains, seeing equities trade higher for the 5th straight day
- JPY is once again one of the most notable movers in FX markets, firmly back above 114.00 while AUD benefitted overnight from domestic GDP data
- Today’s highlights include US ADP, DoE Inventories, BoE’s Cunliffe and Fed’s Williams
- Treasuries lower in overnight trading as world equity markets rally despite Moody’s downgrade of China’s outlook to negative from stable, citing the country’s rising debt burden. Today’s economic data includes Fed Beige Book and ISM New York.
- China’s stocks rallied the most since November, led by property companies and commodity producers, on speculation the government will announce measures to boost growth at legislative meetings this week
- The European Central Bank is monitoring the risk that negative rates will hurt bank profitability while sticking to its commitment to deliver price stability first, Executive Board Member Benoit Coeure said
- French banks entered a tumultuous 2016 with the strongest earnings in almost a decade and pledged to reward shareholders with higher dividends
- A drive to tighten rules over how much sovereign debt banks are allowed to own has led to Italy’s PM Matteo Renzi vowing to veto any attempt to cap holdings. Italian government securities account for 10.4% of the country’s bank assets
- The Swiss economy returned to growth at the end of last year as gross domestic product rose 0.4% in the fourth quarter — the most in a year — after shrinking 0.1% in the previous three months
- Australia’s gross domestic product advanced 0.6% in the fourth quarter from three months earlier, when it rose an upwardly revised 1.1% that was the biggest increase since early 2012
- The pace at which earnings estimates are being cut is getting worse; analysts just reduced income estimates for the first quarter at a rate that more than doubled the average pace of deterioration in the last five years
- Democrat Hillary Clinton and Republican Donald Trump emerged from Super Tuesday as the odds-on favorites to capture their party’s presidential nominations, setting them up for a White House showdown
- As Trump continued to gather sweeping victories from New England to the Deep South, the urgent calls from establishment Republicans to stop him only grew louder and more apocalyptic.
- $16.8b IG corporates priced yesterday, brings YTD to $311.05b; $1.5b HY priced, YTD $16.355b
- Sovereign 10Y bond yields mixed with Greece 23bp lower; European, Asian markets mostly higher; U.S. equity- index futures lower. Crude oil drops, copper up, gold down
US Data Highlights
- 7:00am: MBA Mortgage Applications, Feb. 26 (prior -4.3%)
- 8:15am: ADP Employment Change, Feb., est. 190k (prior 205k)
- 9:45am: ISM New York, Feb. (prior 54.6)
- 11:00am: Fed’s Williams speaks in San Ramon, Calif.
- 2:00pm: Fed releases Beige Book
DB’s Jim Reid concludes the overnight wrap
We’re definitely in a period where good news equals good news with no immediate concern about what it might mean for say Fed expectations. Indeed yesterday there was a notable relief rally on the back of signs of US manufacturing slightly improving in February. The S&P 500 closed +2.4% and to 7-week highs and WTI closed 1.9% higher at $34.40 – also around 7-week highs. Much of the improved sentiment was based around the all important ISM manufacturing (49.5 vs. 48.5 expected; 48.2 prior) beating expectations and on a similar note, the Markit manufacturing PMI also marginally surprising to the upside (51.3 vs. 51.2 expected; 52.4 prior) even if it signalled a slower rate of expansion as compared to January. The ISM prices paid index posted at 38.5 (vs. 35.0 expected; 33.5 prior) which also helped. Away from manufacturing, Construction spending was another bright spot as it rose by 1.5% mom in January (vs. 0.3% expected; 0.6% prior). Auto Sales rebounded in February after a softer start to the year where seasonally adjusted sales reached 17.5million (16-year high for the month). On a more negative note however, the IBD/TIPP Economic Optimism index for March fell below expectations (46.8 vs. 47.8 expected), with economic outlook falling to 41.2 (vs. 42.5 prior).
Turning to the Super Tuesday developments overnight, Bloomberg is reporting seven wins to Clinton and Trump who are dominating their respective fields. Senator Ted Cruz has claimed his home state Texas as well as Oklahoma which was key for him to stay in the race. Senator Rubio had a disappointing day where he was only able to win Minnesota and appears to already be focusing on his campaign in his home state Florida (does not vote until 15 March). Bernie Sanders managed to win in his home state of Vermont, Minnesota, Colorado, and Oklahoma.
In terms of key market development, Moody’s outlook change on China’s Aa3 rating to Negative was perhaps the main event. The outlook change was driven by concerns around weakening fiscal metrics, the ongoing fall in reserve buffers due to capital outflows and uncertainties around China’s capacity to implement key reforms.
Whilst China sovereign CDS is only 1bp wider at 134bp, it still marks a decent underperformance what has been a fairly positive tone for other risk assets overnight. Indeed the Asia and Australia iTraxx indices are around 8bp tighter, respectively. China IG benchmark cash spreads are around 2-3bps tighter. China equity markets are over 2% higher and the offshore RMB has been fairly stable anchored at around 6.553 against the Dollar. The Asian session this morning is definitely taking the lead from the positive US session overnight. The Nikkei (+4.4%) and the Hang Seng (+3.0%) indices are trading up strongly as we go to print.
Reviewing the European data yesterday. The Eurozone manufacturing February PMI clocked in marginally above expectations at 51.2 (vs. 51.0 expected/flash estimate) but still representing a 12 month low. While manufacturing PMI numbers signified growth in seven out of eight countries surveyed, all but two countries (Austria: 51.9; France: 50.2) saw PMIs slip from January’s numbers. The prints for Germany (50.5 vs. 50.2 expected) and France (50.2 vs. 50.3 expected) came in just above and below expectations respectively, but are hovering dangerously close to contractionary territory. Perhaps the most worrisome factor was the fact that purchase costs fell for the seventh straight month and posted their largest drop since July 2009. This data certainly adds to mounting deflationary fears following Monday’s Eurozone inflation numbers, and all hopes will be pinned on ECB action next week. More positive news for the Euro Area was the unemployment rate for January dropping to 10.3% (vs. 10.4% expected) – the lowest level since August 2011.
The manufacturing PMI print out of the UK was a little alarming: the number clocked in at 50.8 (vs. 52.3 expected; 52.9 prior) and falling far more than expected to its lowest level since April 2013. Both input purchase costs and output charges saw further deflation off the back of lower commodity costs. While this certainly throws up some red flags, the reading for the larger services sector should be watched closely on Thursday before we get too concerned over a wider slowdown. European equity markets continued to shrug off soft/mixed regional economic data as the STOXX 600 (+1.44%) and the FTSE100 (+0.92%) posted gains for the fourth straight day.
As demand for safe haven assets fell, German government bond yields increased across all maturities with the 10yr yield increasing by +3.9bps (10Y: 0.146%). However, German yields continue to remain in negative territory up to the 8Y maturity. On the other hand, periphery yields dropped as Italian 10Y and Spanish 10Y yields were lower by -4.1bps and -4.2bps respectively. Credit markets benefited from the risk-on sentiment as iTraxx Senior and Sub spreads tightened by -4.9bps and -13.4bps respectively.
Finally before previewing the day ahead, DB’s TheHouseView team published a special report yesterday titled “Searching for liquidity”, exploring the myth and reality about market trading liquidity. Their analysis shows that the overall level of liquidity does not appear low, with markets seeming to work reasonably well especially in periods of low stress. But they also find that seemingly ample liquidity has tended to evaporate during times of stress. The report includes a summary of liquidity conditions across markets as well as a look at the drivers behind the changes in liquidity conditions and at how markets are responding.
It’s a very quiet day ahead in Europe, with the only data of note being the Eurozone PPI number (expected: -2.9% YoY) for January and Spanish jobless claims (expected: 7.9k) for February. Data out of the US should spark more interest with ADP employment change data for February due (expected: 188k), which should be watched closely ahead of the employment report on Friday. The Fed is also releasing the Beige book today. Aside from economic data, the release of the remaining results from Super Tuesday in the US should take centre stage.
Let us begin;
Late TUESDAY night/ WEDNESDAY morning: Shanghai closed UP BY 116.51 POINTS OR 4.20%, / Hang Sang closed UP by 596.03 points or 3.07% . The Nikkei closed UP 661.04 or 4.11%. Australia’s all ordinaires was UP 2.01%. Chinese yuan (ONSHORE) closed UP at 6.5512. Oil LOST to 33.69 dollars per barrel for WTI and 36.37 for Brent. Stocks in Europe so far deeply in the GREEN EXCEPT LONDON . Offshore yuan trades 6.5541 yuan to the dollar vs 6.5512 for onshore yuan/MOODYS DOWNGRADES CHINA’S CREDIT FROM STABLE TO NEGATIVE (SEE BELOW)
Moody’s Downgrades China’s Credit Outlook From Stable To Negative – Full Text
It is likely just a coincidence that just a month after we reported that China’s real consolidated debt/GDP was far greater than the 280% or so accepted conventionally, and was really up to 350% if not higher after the recent record loan issuance surge, moments ago Moody’s officially downgraded its outlook of China’s credit rating from stable to negative, citing three key risks:
- The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet;
- A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks;
- Uncertainty about the authorities’ capacity to implement reforms – given the scale of reform challenges – to address imbalances in the economy.
While these were topical about a year ago for the financial media, and about 6 months ago for everyone else, we can’t help but notice that as expected Moody’s has said nothing at all about China’s biggest current risk factor – its collapsing labor market and surging unemployment. That’s ok, we are confident even the rating agencies will be up to speed with what we have been reporting since last November before the year is done.
Below is the full report:
Moody’s changes outlook on China’s Aa3 government bond rating to negative from stable; affirms Aa3 rating
Singapore, March 02, 2016 — Moody’s Investors Service has today changed the outlook to negative from stable on China’s government credit ratings, while affirming the Aa3 long-term senior unsecured debt, issuer ratings, and (P)Aa3 senior unsecured shelf rating.
The key drivers of the outlook revision are:
- The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet.
- A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks.
- Uncertainty about the authorities’ capacity to implement reforms — given the scale of reform challenges — to address imbalances in the economy.
At the same time, China’s fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China’s Aa3 rating.
RATIONALE FOR ASSIGNING A NEGATIVE OUTLOOK
FIRST DRIVER — WEAKENING FISCAL METRICS AND SIZEABLE CONTINGENT LIABILITIES
The first driver of the negative outlook on China’s rating relates to the government’s fiscal strength which has weakened and which we expect to diminish further, albeit from very high levels.
The government’s balance sheet is exposed to contingent liabilities through regional and local governments, policy banks and state-owned enterprises (SOEs). The ongoing increase in leverage across the economy and financial system and the stress in the SOE sector imply a rising probability that some of the contingent liabilities will crystallize on the government’s balance sheet. In addition, we believe that continuing growth in contingent liabilities — along with stated government objectives to introduce more market discipline — suggests that support from the government and the banking system will increasingly be prioritized, based on the relative importance of each entity for the implementation of strategic national policy goals.
While not our base case scenario, the government’s fiscal strength would be exposed to additional weakening if underlying growth, excluding policy-supported economic activity, remained weak. In such an environment, the liabilities of policy banks would likely increase to fund government-sponsored investment, while the leverage of SOEs — already under stress — would rise further.
We do not expect all or even a significant proportion of contingent liabilities to crystallize on the government’s balance sheet in the short term. However, their existence and increase in size reflect economic imbalances. In particular, high and rising SOE leverage raises the risk of either a sharp slowdown in economic growth, as debt servicing constrains other spending, or a marked deterioration of bank asset quality. Either of these developments could ultimately result in higher government debt and additional downward pressure on the government’s credit profile.
In addition, government debt has risen markedly, to 40.6% of GDP at the end of 2015, according to our estimates, from 32.5% in 2012. We expect a further increase to 43.0% by 2017, consistent with an accommodative fiscal stance that will likely involve higher government spending and possible reductions in the overall tax burden.
At the same time, we expect debt affordability to remain high as large domestic savings will continue to fund government debt.
SECOND DRIVER — ERODING EXTERNAL STRENGTH
The second driver relates to China’s external vulnerability. China’s foreign exchange reserves have fallen markedly over the last 18 months, to $3.2 trillion in January 2016, $762 billion below their peak in June 2014.
At the same time, reserves remain ample, particularly in relation to the size of China’s external debt. However, their decline highlights the possibility that pressure on the exchange rate and weakening confidence in the ability of the authorities to maintain economic growth and implement reforms could fuel further capital outflows. In particular, a fall in reserves — corresponding to sustained deposit outflows — could raise pressure on the deposit-funded banking sector.
Measures to address falling foreign exchange reserves and downward pressure on the renminbi have negative implications for the economy and financial sector. First, a tightening of capital controls in response to sustained outflows would damage the credibility of the authorities’ commitment to liberalizing the capital account, an essential element of financial sector reform.
Second, allowing reserves to fall to preserve the value of the currency — when pressures exist — would tighten liquidity conditions in China at a time when parts of the economy are slowing sharply and when the debt-servicing capability of some corporates is impaired.
Third, preserving foreign exchange reserves and allowing a sharp depreciation of the currency would likely fuel further capital outflows.
THIRD DRIVER — RISKS OF A LOSS IN POLICY CREDIBILITY AND EFFICIENCY
The third driver concerns institutional strength. China’s institutions are being tested by the challenges stemming from the multiple policy objectives of maintaining economic growth, implementing reform, and mitigating market volatility. Fiscal and monetary policy support to achieve the government’s economic growth target of 6.5% may slow planned reforms, including those related to SOEs.
Incomplete implementation or partial reversals of some reforms risk undermining the credibility of policymakers. Interventions in the equity and foreign exchange markets over the past year suggest that ensuring financial and economic stability is also an objective, but there is considerably uncertainty about policy priorities.
Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable. Government debt would increase more sharply than we currently expect. These developments would likely fuel further capital outflows.
RATIONALE FOR AFFIRMING CHINA’S Aa3 RATING
The very large size of China’s economy contributes to its credit strength. Moreover, although GDP growth is slowing, it will remain markedly higher than most of China’s rating peers. The size of the buffers available to face current fiscal and capital outflow challenges allows for a gradual implementation of reform and therefore supports an affirmation of the rating at Aa3. These buffers include a relatively moderate level of government debt, which is financed at low cost, and high domestic savings and still substantial foreign exchange reserves.
We expect a gradual economic slowdown, made possible by the capacity and willingness of the authorities to support growth. Moreover, although contingent liabilities are large, they do not pose an imminent risk to the government’s balance sheet. In a largely closed financial system, buffer erosion would most likely be gradual, providing time to address key areas of reform.
WHAT COULD CHANGE THE RATING UP/DOWN
Moody’s could revise the rating outlook to stable if we concluded that government policy was likely to succeed in balancing competing priorities and thereby arrest the deterioration in China’s fiscal metrics and reduce contingent liabilities for the sovereign most likely through effective restructuring of SOEs in overcapacity sectors.
Moreover, a moderation in capital outflows due to improved confidence in the economy and policies as well as advancement of reforms — in particular in the SOE and financial sectors, including some further opening of the capital account — would be consistent with returning the outlook to stable.
Conversely, Moody’s could downgrade the rating if we observed a slowing pace in the adoption of reforms needed to support sustainable growth and to protect the government’s balance sheet. Tangibly, this could happen if debt metrics weaken, contingent liabilities increase, or progress on SOE reform stalls. Sustained capital outflows or a marked tightening in capital controls without tangible progress on reform implementation would also be consistent with a downgrade of the rating.
POBC weakens yuan to one month lows on both onshore and offshore yuan;
PBOC Weakens Yuan To One-Month Lows
Having yesterday expressed clearly that there was no desire to see the Yuan depreciate, ThePBOC weakened the Yuan fix by 0.16% to one-month lows. This sent offshore Yuan notably lower back to post-RRR-Cut lows. For the 2nd day in a row, PBOC also decided to‘skip’ open market operations (due to ample liquidity according to their statement).
The illusion of stability once again gives way…
And offshore Yuan drops – not helped by the Moodys ratings watch shift…
Great Depression Redux: First Currency War, Now US Unleashes Trade War With China
Given the vicious downward spiral of competitive devaluation that is washing around the world’s economic bathtub, it appears – just as we saw during The Great Depression – that currency wars have given way to mal-investment-fueled protectionism as US launches the first missile in the trade wars with a massive 266% tariff on imports of cold-rolled steel. “There’ll be a short-term benefit,“ said John Packard of Steel Market Update.”However, in the long run, the U.S. mills are always going to want more tariffs, and it’s questionable how much more [protection] they can get.”
In December, we warned of China’s flooding the world with its unwanted commodities – all created and warehoused in the biggest credit-bubble-fueled mass mal-investment “boom” in human history…as Bloomberg notes, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.
That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.
The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes.While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair,China says the overcapacity is a global problem.
The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.
Low-cost supply from China in Europe prompted producer ArcelorMittal to reduce its profit forecast and suspend its dividend. India’s government has signaled it’s planning more curbs on steel imports while regulators in the U.S. are planning to lift levies on shipments from some Chinese companies.
And then, as we explained, the dramatic over-production is exporting deflationary pressures all over the world, especially US Steel mills…
Logically, the less domestic demand for steel, and the greater China’s steel exports, the lower the price continues to tumble, now at a 10 year low.
That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.
The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.
And now, as The Wall Street Journal reports, The Department of Commerce Tuesday imposed preliminary duties on imports of cold-rolled steel, used to make auto parts, appliances and shipping containers, from seven countries including China, whose steelmakers were slapped with a massive tariff.
The duties, set at 265.79% for Chinese steelmakers, will be imposed within the next week but must still be confirmed in a final determination scheduled for this summer. They are meant to punish dumping, or selling below cost. to improperly gain market share. Chinese officials have denied the practice.
After enduring one of their worst downturns ever, American steelmakers are now counting on tariff protection to help ride out a weak market. A slowdown in the steel-heavy oil-and-gas industries combined with a boom in Chinese exports has deflated steel prices around the world.
But can tariffs really save the American steel industry?
Analysts say trade protection will prop up prices, but can’t be expected to save beleaguered companies or improve market demand, especially in the oil and gas segment.
“There’ll be a short-term benefit,“ said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills are always going to want more tariffs, and it’s questionable how much more [protection] they can get.” The U.S. already has anti-dumping duties in place on 19 categories of Chinese steel. And the U.S. needs some imports because U.S. demand—regularly over 110 million tons—is far higher than the U.S.’s annual production of around 80 million tons.
Although China is only the seventh biggest exporter of steel to the U.S., behind Canada, Brazil, Russia, Mexico, South Korea and Turkey, Chinese steelmakers have received the most attention because they have the ability to disrupt the U.S. market. Their prices tend to be 20% to 50% lower than anybody else’s, say steel traders. And because the volumes of its exports are so massive, Chinese steel is ending up everywhere. China last year exported more steel—100.4 million tons—than any other country except Japan produced.
Besides the fates of the individual companies, the tariff debate is landing in a campaign season where trade looms as a potentially major issue as we wonder what a President Trump will do… 1000% tariff?
Finally, as The Automatic Earth’s Raul Ilargi Meijer notes, there’s another side to this, one that not a soul talks about, and it has Washington, London and Brussels very worried. Here goes:
These large mining -including oil- corporations most often operate in regions in the world that are remote and located in countries with at best questionable governments (the corporations like it like that, it’s how they know who to bribe to be able to rape and pillage).
The corporations de facto form a large part of the US/UK/EU political/military control system of these areas. They work in tandem with the CIA, MI5, the US and UK military, to keep the areas ‘friendly’ to western industries and regime.
This has caused unimaginable misery across the globe, in for instance (a good example) the Congo, one of the world’s richest regions when it comes to minerals ‘we’ want, but one of the poorest areas on the planet. No coincidence there.
Untold millions have died as a result. ‘We’ have done a lot more damage there than we are presently doing in Syria, if you can imagine. And many more millions are forced to live out their lives in miserable circumstances on top of the world’s richest riches. But that will now change.
Thing is, with the major miners going belly up, ‘our’ control of these places will also fade. Because it’s all been about money all along, and the US won’t be able to afford the -political and military- control of these places if there are no profits to be made.
They’ll be sinkholes for military budgets, and those will be stretched already ‘protecting’ other places. The demise of commodities is a harbinger of a dramatically changing US position in the world. Washington will be forced to focus on protecting it own soil, and move away from expansionist policies.
Because it can’t afford those without the grotesque profits its corporations have squeezed out of the populations in these ‘forgotten’ lands. That’s going to change global politics a lot.
And it’s not as if China will step in. They can’t afford to take over a losing proposition; the Chinese economy is not only growing at a slower pace, it may well be actually shrinking. Beijing’s new reality is that imports and exports both are falling quite considerably (no matter the ‘official’ numbers), and the cost of a huge expansion into global mining territory makes little sense right now.
With the yuan now part of the IMF ‘basket‘m Beijing can no longer print at will. China must focus on what happens at home. So must the US. They have no choice. Other than going to war.
And, granted, given that choice, they all probably will. But the mining companies will still be mere shells of their former selves by then. There’s no profit left to be made.
This is not going to end well. Not for anybody. Other than the arms lobby. What it will do is change geopolitics forever, and a lot.
* * *
As we concluded, now that the US has fired the first trade war shot, it will be up to China to retaliate. It will do so either by further devaluing its currency or by reciprocating with its own protectionist measures against the US, or perhaps by accelerating the selling of US Treasurys. To be sure, it has several choices, clearly none of which are optimal from a game theory perspective, but now that the US has openly “defected” from the “prisoner’s dilemma” game, all bets are off.
One Hedge Funds Warns The Market Will Again Be Sharply Disappointed By The ECB
In the aftermath of this weekend’s disappointing G-20 summit in Shanghai in which the much anticipated “grand Chinese devaluation” was not only not discussed, but any abrupt devaluation was taken off the table (if only for the time being), the market has shifted its attention to the next big policy event, which is the March 10 ECB announcement where much more easing is already priced in.
As we added following our G-20 summary, “the next big move in the market is now entirely in Mario Draghi’s hands” citing Citi’s Israel Englander, who said laid out the possible outcomes as follows:
The ECB is in focus. EZ is undershooting on growth and inflation, and ECB President Draghi has been impassioned on the need to provide more stimulus. If they lowball or grudgingly meet expectations, we could face another December 4 move because market participants will see it as the equivalent of a ‘last ease in the cycle announcement’, basically ECB throwing in the towel. If they move aggressively (and take measures beyond vanilla QE and 10bps on rates), they will catch market off guard and unwind the view that policymakers see themselves as powerless.
We tend to believe the former, which brings to mind the warning we posted on December 2, when citing MarketNews we wrote that “Mario Draghi May “Under-Deliver” Tomorrow, MNI Warns“:
Draghi has been priming markets for action since October, saying the ECB will do what it must to raise inflation as quickly as possible, and investors are betting that the probability of a deposit-rate cut is 100 percent. Now, even with some officials voicing misgivings, his Governing Council may find that only a rate reduction combined with increased bond purchases and possibly as-yet unannounced tools will prove convincing enough.
The December 3 “shock” in which the ECB ended up doing nothing at all, and which unleashed the biggest EURUSD move higher since the announcement of QE1 which bonds and macro hedge funds P&Ls plunged, is still fresh in all traders’ minds.
Which is why the ECB may be trapped.
Having not only set expectations sky-high once again, but also forced to cover for the G-20 disappointment, Draghi will have to unveil a massive bazooka, one which combines both more QE with even more negative rates. Only in the aftermath of the BOJ NIRP fiasco, will the ECB dare to push rates lower yet again to -0.40% or more, having seen the dramatic reaction by the financial sector in both Europe and Japan following the recent rate cuts?
According to one hedge fund, Francesco Filia’s Fasanara Capital, as a result of the high expectations ahead of the ECB meeting next week, there is potential for disappointment, especially on banks as the fund’s CIO believes. Here are his thoughts:
Market recovering strongly ahead of ECB meeting next week, possibly a déjà vu’ of December meeting, potential for disappointment.
Market discounting ECB to intervene boldly, via a combination of increased QE, LTRO, depo rate cut, without collateral damage caused on banks by deeply negative interest rates.
As banks performed strongly in recent days, market may think the recent complaining about negative rates by top banks’ executives across Europe has been heard.
On the contrary, we believe deeply negative rates are coming, and are an inescapable negative for the banking sector, leading to overall weak equity markets post ECB.
ECB remains committed to continue on path of negative rates, as today’s communication by ECB officials confirms:
ECB’s Cœuré defends negative rates
2016-03-02 . From JPM Research: this morning, the ECB governor gave a speech in which he defended negative interest rates. He acknowledged a possible drag on bank profits if lending rates fall more than deposit rates (which are sticky at the zero bound). He added that the ECB is well aware of the issue and that it is “studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel.” But, he then pushed back against the “narrative that banks’ challenges flow largely from our monetary policy.” He argued that banks have been able to offset declining interest revenues with higher lending volumes, lower interest expense, lower risk provisions and capital gains. For example, he said that the net interest income of Euro area banks increased last year as they refinanced high-yield liabilities at low rates. And he said that negative rates complement the ECB’s QE programme, which has been positive for asset prices, credit risk and lending volumes. He finished by saying that banks would be worse off if the ECB does not respond to global growth uncertainties, as stagnant output and falling prices are bad for their profits
ECB’s Lautenschlaeger defends negative rates
2016-03-02 . From Bloomberg: ECB Encourages Banks to Diversify Revenue Pool on Low Rates. Banks struggling to make a profit in an environment of low interest rates should diversify their revenue pool, European Central Bank Executive Board member Sabine Lautenschlaeger said. “It’s not my task to find a viable business model for each and every bank,” but “having a diversified revenue pool is always very good,” she said in an interview in New York late Tuesday. “You can see that banks are increasing their fee income right now, that they change their business model to shorter maturities when they lend in order to be able to change faster when the interest-rate environment changes again.”
Which brings to mind the report Deutsche Bank wrote less than a month ago, on February 6, when its stock was plumbing record lows, and in which it begged the ECB to stop cutting rates. Recall:
The BOJ surprised with a move to negative rates last week, while ECB rhetoric suggests additional easing measures forthcoming in March. While a fundamental tenet of these measures, in particular negative rates, has been to push investors out the risk spectrum, we remind that arguably the impact has been exactly the opposite.
This in turn reminds us of what was the biggest catalyst for the February swoon: the fear that central bankers have run out of ammo since their preferred method of intervention, namely negative rates, has direct and immediate downward consequences on financial assets, which then spread contagiously (and instantly) to all other sectors.
Since absolutely nothing has changed since then, we are confident Fasanara will end up right, and the entire rally over the past two weeks which has been predicated first on hopes of a massive G-20 stimulus, and which then was “transferred” to hope that Draghi will somehow pull a rabbit out of his hat, will be unwound, resetting the entire cycle, especially with the March FOMC meeting fast approaching and this time threatening not with more easing but with another 25 basis point of tightening following the recent “strong” economic data… at leastaccording to Reuters’ revised headline.
How to trade this?
For those who are worried about shorting stocks, that leaves two possible trades to bet on disappointment: one is to go long the EURUSD ahead of the ECB, and the other is to short the German 2Y Bund. As the chart below reminds us, what happened in the December disappointment was the 2Y yield soaring by 15 bps to the ECB’s discount rate in milliseconds.This time around the spread is 25 bps, a spread which will be closed instantly the second Draghi once again fails to present the much anticipated bazooka.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/WEDNESDAY morning 7:00 am
Euro/USA 1.0848 down .0028
USA/JAPAN YEN 114.37 UP .462 (Abe’s new negative interest rate (NIRP)a total bust
GBP/USA 1.4007 UP .0043 (threat of Brexit)
USA/CAN 1.3456 UP.0028
Early THIS WEDNESDAY morning in Europe, the Euro FELL by 28 basis points, trading now JUST above the important 1.08 level falling to 1.0883; 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: 6.5512 / (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 RAMP as IT settled DOWN in Japan by 46 basis points and trading now well BELOW that all important 120 level to 113.04 yen to the dollar. NIRP POLICY IS A COMPLETE FAILURE AND ALL OF OUR YEN CARRY TRADERS HAVE BEEN BLOWN UP (TODAY TRADERS RAMPED USA/YEN AND THUS ALL BOURSES RISE!!)
The pound was UP this morning by 43 basis points as it now trades just ABOVE the 1.40 level at 1.4007.
The Canadian dollar is now trading DOWN 28 in basis points to 1.3456 to the dollar.
Last night, Chinese bourses were UP/Japan NIKKEI CLOSED UP 661.04 POINTS OR 4.11%, HANG SANG UP 596.03 OR 3.07% SHANGHAI UP 116.51 OR 4.20% down HAD / AUSTRALIA IS HIGHER / ALL EUROPEAN BOURSES ARE IN THE GREEN, EXCEPT LONDON ON USA/YEN RAMP as they start their morning.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade HAS BLOWN up/and now NIRP)
3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this TUESDAY morning: closed UP 661.04 OR 4.11%
Trading from Europe and Asia:
1. Europe stocks all in the GREEN
2/ CHINESE BOURSES IN THE GREEN/ : Hang Sang closed UP 596.03 POINTS OR 3.07% ,Shanghai IN THE GREEN Australia BOURSE IN THE GREEN: /Nikkei (Japan)GREEN/India’s Sensex in the GREEN /
Gold very early morning trading: $1230.80
Early WEDNESDAY morning USA 10 year bond yield: 1.84% !!! UP 1 in basis points from last night in basis points from TUESDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.71 UP 1 in basis points from TUESDAY night.
USA dollar index early WEDNESDAY morning: 98.48 UP 14 cents from TUESDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers WEDNESDAY MORNING
Art Berman believes that oil is heading to 16 dollars
(courtesy Art Berman/Oil Price.com)
Art Berman Sees Oil Heading To $16, Will Lead To “Banking Bloodbath”
As Nate Hagens noted, “people think that the economy runs on money but it runs on energy,” and as Art Berman details in the following interview how the current oil price collapse represents devaluation from over-investment in unconventional oil – and most commodities – because of cheap capital, and is simply a classic bubble. “Continued oil prices of $30 per barrel or less are the only reasonable path to higher growth and a balanced oil market,” Berman contends, adding that he expects $16.50/bbl – “I think we’re gonna get there.” Berman concludes ominously, we’re not going ‘back’ to anything – “Normal is over, and there is no new normal yet.”
Full Art Berman interview below (via Macro Voices):
18:25 – OPEC will cut production in 2016
19:05 – OPEC’s objective is to kill shale drillers’ source of funding
19:30 – The idea that Iraq/Iran will cooperate with Saudi Arabia is laughable
22:30 – EIA/IEA numbers are estimates at best, and almost certainly wrong
24:00 – He doesn’t believe recent EIA figures saying consumption has fallen dramatically
24:40 – US production must drop in a more meaningful way before OPEC can affect crude price
27:00 – Baker Hughes Rig Count is only focused on by traders because it’s available data, not because it matters
29:00 – Regardless of rig count, regardless of what people think, the number of producing wells continues to increase!
31:30 – US production not necessarily in direct competition with Iranian production
33:15 – As long as storage numbers are 80% of capacity or more, prices will remain “crushed”
35:45 – Forget about the nonsense that you read in the WSJ about “the true breakeven price” for shale operators – the true breakeven price for the best operators in the 3 main US shale plays is $60-70/bbl
38:40 – These shale operators “have no money”
39:00 – If investors abandon shale company stock, their total assets decline and their debt is in trouble
40:45 – Pretty obvious to anyone who knows that this situation is going to crash in a big way, it’s just a question of when
40:55 – Similar situation to “The Big Short”
44:40 – Very few options beyond increasing Cushing storage capacity, which takes time
46:30 – Whiting Petroleum clearly out of money, made a terrible acquisition, and is stopping further drilling because they have no other option. They could care less about the shareholders and are acting out of desperation.
48:05 – Midwestern gasoline refineries cutting back on crude purchases as they don’t see sufficient demand
50:00 – $16.50/bbl – “I think we’re gonna get there”
52:35 – Capital providers clearly pulling back from investing in US tight oil projects
53:00 – Future investments in the Oil Sands are dead
54:05 – In the first half of 2016 there will be a wave of shale operator bankruptcies and defaults on bond payments, a collapse in the high yield bond market which could spill over into other markets, as well as further distress in the banking industry – “will be a bloodbath”
55:00 – 2016 shale operator bankruptcies could reach 50%
57:00 – Iran will not get back to 1970’s levels as they would like to suggest. Production levels will be far less.
58:45 – Libya is the wild card. If they ever get their civil unrest under control, they could bring 1.5MMbbl/day to market and “that would be a disaster(for oil prices)”
1:04:15 – We’re not going back to anything – “Normal is over, and there is no new normal yet”
Crude Tumbles After DOE Confirms Biggest Inventory Build In 11 Months
Following last night’s yuuge inventory build reported by API (+9.9m) and large rise in Cushing levels (+1.8m), DOE reported a crude build of even yuuger 10.37mm barrels (against the 7.1mm expectation) – the largest since early April 2015. Cushing saw a 1.2mm build – the most in 3 months. On the other side of the ledger, production fell for the 6th week in a row (-2.6% YoY to lowest since Nov 2014). Crude prices recovered from API’s losses as algos ran stops on the back of headlines about Saudi increases prices to Asia but DOE’s headline sent WTI back to its lows.
- Crude +9.9mm (+3.3mm exp)
- Cushing +1.8mm (+700k exp)
- Gasoline -2.2mm (-1.1mm exp)
- Distillates +2.7
- Crude +10.37mm (+7.1m exp)
- Cushing +1.19mm
- Gasoline -1.468mm
- Distillates +2.88mm
Which means Cushing has seen inventory builds in 16 of the last 17 weeks…
As storage concerns are becoming extreme…
Production is at its lowest level since Nov 2014, and is now down 2.6% YoY (the biggest YoY drop since Aug 2012)
Crude, after weakness from last night’s API data, rallied this morning as algos latched on to Saudi price rises to Asia (running stops to the API level)…
Amazing!!, the biggest inventory build and WTI rises back again over $35.00
(courtesy zero hedge)
Panic-Buying Sends WTI Crude To $35 After Dismal DOE Data
Because nothing says buy it with both hands and feet like the biggest inventory build in 11 months….
Portuguese 10 year bond yield: 3.04% up 3 in basis points from TUESDAY
Small Cap Stocks Soar On The Lowest Volume Day Of 2016
Another crazy day in the markets…
While stocks dropped and popped on the day… with a panic-buying scramble into the close to get Nasdaq unch…
On SPY’s lowest volume day of 2016
Crude Oil went full retard… (API Build, DOE bigger build, production down small, Saudi loans, Venezuela meetings)
With Small Caps extending their exuberant gains…
On the back of another yuuge short squeeze – biggest single-day squeeze in 3 weeks (2nd largest since Black Monday)
Bouncing hard off the Monday night lows…
For the 13th day in a row, the S&P 500 has closed either at the high or the low of the day…
VIX slammed to a 16 handle into the close…
High yield bonds were nt playing along after their surge yesterday (HYG’s worst day in a month)
Stocks decoupled from Bonds & FX carry after Europe closed…
Treasury yields ened the day mixed after yesterdays explosion (2s and 30s outperformed as the belly underperformed
The USD Index slumped back to unchanged onthe week after Europe closed today, helped by JPY and EUR strength…
Commodities all showed gains today with Gold & Silver pushing yesterday’s highs and copper accelerating…
Finally, just as we warned yesterday, NatGas tumbled today – seemingly driven on McClendon headlines…
One final thought – the last time S&P 500 closed here, consensus earnings were 5% higher.
Fed Increasingly Cornered As ADP Reports Surprising Beat In Jobs
After surprisingly jumping in December, ADP’s employment report fell back to a more normal200k ish level in January and now in Feb it rises once again to 214k (from 193k in Jan – revised down from 205k – and better than expectations of 190k). Manufacturing jobs, according to ADP remain relatively flat for the last year (down 9k in Feb – the second largest drop in 5 years), despite a collapse in ISM Manufacturing’s Employmet index. Job gains surged across all company sizes and Mark Zandi is cock-a-hoop: “America’s job machine is in high gear.”
Dear Mark Zandi, please explain this…
Goods-producing employment rose by 5,000 jobs in February, just over a quarter of January’s upwardly revised 19,000. The construction industry added 27,000 jobs, which was slightly above January’s upwardly revised 26,000. Meanwhile, manufacturing lost 9,000 jobs, the second largest drop in five years.
Service-providing employment rose by 208,000 jobs in February, up from a downwardly revised 174,000 in January. The ADP National Employment Report indicates that professional/business services contributed 59,000 jobs, up sharply from January’s downwardly revised 38,000. Trade/transportation/utilities grew by 20,000, down from a downwardly revised 26,000 the previous month. The 8,000 new jobs added in financial activities were the least in that sector since August 2015.
“Large businesses showed surprisingly strong job gains in February, despite the continuation of economic trends that negatively impact big companies like turmoil in international markets and a strengthening dollar,” said Ahu Yildirmaz, VP and head of the ADP Research Institute. “The gains were mostly driven by the service sector which accounted for almost all the jobs added by large businesses.”
Mark Zandi, chief economist of Moody’s Analytics, said,
“Despite the turmoil in the global financial markets, the American job machine remains in high gear. Energy and manufacturing remain blemishes on the job market, but other sectors continue to add strongly to payrolls. Full-employment is fast approaching.”
Finally here is the full breakdown…
Great news!! March rate hike anyone?
Sports Authority Files For Bankruptcy, Will Close One Third Of Its Stores
Following weeks of fertile speculation whether it will or won’t file for bankruptcy, this morning Colorado-based Sports Authority, whose name graces the home stadium to the Super Bowl champion Denver Broncos, put all doubts to rest when it filed Chapter 11 in Delaware bankruptcy court (Case 16-10527) listing $0-$50,000 in assets and between $1 and 10 billion in liabilities in its bankruptcy filing, adding that it will close as many as 140 of its 463 locations. As part of its bankruptcy process, the bankrupt retailer reported that it has access to a $595 million in debtor in possession financing loan.
In its summary of the company’s recent, troubled and overlevered history Bloomberg writes that Sports Authority has fallen far since a $1.3 billion buyout in 2006 piled it with debt. “In 2006, the chain was even with Dick’s Sporting Goods Inc. in sales. Today, Dick’s has hundreds more locations and takes in almost twice as much per store, making it the U.S. leader in selling athletic gear, while Englewood, Colorado-based Sports Authority’s debt load has hampered its ability to expand or innovate.”
“We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry,” said Michael E. Foss, chief executive officer of Sports Authority. “We intend to use the Chapter 11 process to streamline and strengthen our business both operationally and financially so that we have the financial flexibility to continue to make necessary investments in our operations.”
In many ways this outcome was inevitable: in 2015, sales at U.S. retailers were the weakest since 2009, according to the U.S. Commerce Department. But as big-box giants and online merchants encroached on clothing stores and consumer electronics chains, sports were one of the few healthy areas. And, as BLoomberg adds, while companies including Target Corp. and Gap Inc. shored up sales by expanding their fitness offerings, American Apparel Inc. and Quiksilver Inc. last year all sought creditor protection.
Sports Authority has about 200 fewer stores than Dick’s. The company said that in addition to the retail store closures, distribution centers in Denver and Chicago will be shut down or sold. This also means a big victory for Dick’s which will be faced with far less local competition, unless of course shoppers head straight to Amazon.
In any event, straddled with too much debt to manage after the buyout, Sports Authority hasn’t been able to make the kind of improvements seen at its larger rival.
One area where it’s lagged is presentation, according to Joe Feldman, an analyst at Telsey Advisory Group. Dick’s excels in layouts and displays and has partnered with manufacturers including Nike Inc. and Under Armour Inc., which operate in-store shops. Those improvements have helped Dick’s pull in about $10 million a year in sales from the average store, while Sports Authority collects about $5.75 million, according to Steven Ruggiero, a credit analyst at RW Pressprich & Co.
We anticipate the bankruptcy filing will further weaken those commercial real estate loans and CMBS issues for locations where SA was a tennant as its rent payments will now cease; we also expect many other retailers to follow suit as the troubled US consumer has far less discretionary cash to spend courtesy of soaring health insurance premiums and record asking rents, or as the Fed calls it, deflation.
The full bankruptcy filling is below.
As Exxon Slashes 2016 CapEx Forecast By 25%, US Faces Big Hit To GDP
And the CapEx hits just keep on coming.
Two weeks after Goldman reported something troubling, namely that there is a massive gap of nearly 20% between sellside CapEx estimate for what US oil companies will spend on CapEx and what implied guidance suggests as shown in the table below…
… moments ago Rex Tillerson, the CEO of world’s formerly biggest by market cap company, Exxon, confirmed that the great CapEx drought of 2016 will be a definite reality, one which will subtract billions from U.S. 2016 GDP in the form of fixed investment, also known as Capital Expenditures, when it announced that it now expected full year 2016 capex to decline by 25% from 2015 to just $23 billion.
To be sure, Tillerson tried to spin the attempt to preserve some $7 billion in cash in a positive light:
“We remain steadfast in our mission to create superior long-term shareholder value,” Tillerson said at the company’s annual analyst meeting at the New York Stock Exchange. “We have the financial flexibility to pursue attractive opportunities and can adjust our investment program based on market demand fundamentals.”
ExxonMobil anticipates capital spending of $23 billion in 2016, down 25 percent from 2015. The company continues to selectively advance its investment portfolio, building upon attractive longer-term opportunities.
“We are focused on maximizing benefits across the energy value chain,” Tillerson said. The company captures unique value from its diverse, high-quality resource base from exploration, development and production all the way through to the fuels, lubricants and petrochemical products used by consumers.
Among the other noted highlights, is that “ExxonMobil generated $33 billion of cash flow from operations and asset sales and $6.5 billion of free cash flow in 2015.” Of course, the company wants to keep generating billions in cash, hence the need for dramatic capex cuts.
Which brings us to the one point which Goldman made in mid-February, looking at the odd discrepancy between plunging capex and barely declining oil production, bringing up the question just how much more CapEx can the majors cut without suffering material oil production, and thus revenue, hits?
We will find out soon, but not before the U.S. economy is hit with the double whammy of hundreds of thousands of well-paid and now laid off energy workers contributing nothing to consumption, and the ongoing collapse in CapEx by virtually every energy company, a drop which according to some will subtract up to $100 billion in fixed investment from US 2016 GDP.
We wonder how many seasonal adjustments the US BEA will need to cover up that latest recessionary indicator.
Fed Beige Book: Confused By Mixed Impact Of Low Gas Prices, Blames Stock Market, Sees Rising Wage Pressures
In addition to noticing the diminishing impact of the weather (there were 26 instances of “weather” in the January beige book, down to 17 in March), one thing that caught our eyes about the Fed’s March Beige Book was three odd mentions of the “stock market”(compared to zero in January) which was blamed for everything from concerning business responses, to slowing new leasing activity, to lack of activity, to wit:
- Some contacts mention concerns about business response to stock market fluctuations, the strong dollar, and political uncertainty due to the upcoming elections.
- In Providence, new leasing activity slowed somewhat and deals in progress proceeded at a slower pace, developments attributed to heightened uncertainty stemming from stock market volatility and the national election cycle.
- Some suggested that uncertainty and stock market volatility may have contributed to the lack of activity.
Another thing that the Fed was confused by was the mixed response to lower gas prices:
- There were mixed reports about the effects of lower gasoline prices on consumer spending, with contacts in Cleveland, Philadelphia, and St. Louis attributing some increased spending to lower gas prices and contacts from Boston and Chicago expressing disappointment about the extent to which lower gas prices were increasing other spending.
- Contacts expressed disappointment in the extent to which lower gas prices and improvements in the labor market were translating into sales growth.
But what was most notable is that while the Fed clearly is focusing on the stock market and the gas pump, it may have run out of “data dependent” hedges to use to avoid hiking rates. Recall this from the January beige book, when the Fed clearly was worried about “subdued” wage pressures:
Overall, wage pressures remained relatively subdued, as evidenced by reports from Philadelphia, Atlanta, Chicago, and Kansas City. Just two Districts–New York and San Francisco–indicated some acceleration in upward wage pressures. Cleveland, Richmond, and Dallas cited mixed reports, ranging from flat to moderate wage pressures. Seven Districts mentioned greater wage pressures for skilled workers in a variety of industries, including construction, manufacturing, financial, professional, technology, and health-care sectors. However, wage pressures among low-skilled positions were almost as pervasive, with six Districts citing pressure stemming from state minimum wage increases and from labor shortages or turnover among entry-level positions in banking, retail, and hospitality.
This has now become the following:
Wages generally increased, as most Districts experienced slight to strong wage growth. However, the Kansas City, Richmond and Atlanta Districts reported flat wage growth. St. Louis noted strong wage growth as fifty-six percent of contacts, the highest in two years, reported that wages were above year-ago levels. Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, and San Francisco reported positive wage growth among high-skilled workers, especially for occupations in the technology, high-skilled manufacturing, aerospace and defense, financial services, and professional technical sectors. Furthermore, Cleveland, Richmond, Atlanta, Chicago, and Kansas City reported wage growth among low-skill and entry-level positions. A contact in Chicago attributed the rise of entry-level wages in Michigan to an increase in the minimum wage. Staffing firms in the Boston District reported single-digit wage increases, but staffing services contacts in Dallas cited easing wage pressures, especially in Houston. Wage pressures moderated in the service sector in Richmond but continued upward pressure was cited in New York. Wages in the retail sector declined in the Kansas City District but increased in Cleveland.
In other words, while the Fed realizes that its actions are impacting the market, and that plunging gas prices are not the “unambiguously good” thing macrotourists expected one year ago, it now has to deal with not only the highest core inflation in years, but rising wages.
And just like that, the March FOMC meeting just went “rate hike” hot again.