Gold: $1,269.90 up $12.50 (comex closing time)
Silver 15.68 up 55 cents
In the access market 5:15 pm
At the gold comex today, we had a fair delivery day, registering 16 notices for 1600 ounces and for silver we had 102 notices for 510,000 oz for the active March delivery month.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 212.03 tonnes for a loss of 91 tonnes over that period.
In silver, the open interest rose by 1033 contracts up to 164,801. In ounces, the OI is still represented by .824 billion oz or 118% 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 102 notices served upon for 510,000 oz.
In gold, the total comex gold OI rose by a gigantic 25,944 contracts to 482,938 contracts as the price of gold was up $16.30 with yesterday’s trading.(at comex closing)
We had another huge change in gold inventory at the GLD, a mammoth sized deposit of 7,13 tonnes and gold goes down early this morning? and rises only slightly? / thus the inventory rests tonight at 793.33 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 again had a major change in inventory/this time another huge deposit of 5.426 million oz and thus the Inventory rests at 319.776 million oz
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver rose by 1033 contracts up to 164,801 as the price of silver was up 13 cents with yesterday’s trading. The total OI for gold rose by 25,944 contracts to 482,938 contracts as gold was up $16.30 in price from yesterday’s level.
2 a) Gold trading overnight, Goldcore
2b) COT report
3. ASIAN AFFAIRS
i)Late THURSDAY night/ FRIDAY morning: Shanghai closed UP BY 14.39 POINTS OR 0.50% ON A LAST HR RESCUE, / Hang Sang closed UP by 234.94 points or 1.18% . The Nikkei closed UP 54.62 or 0.32%. Australia’s all ordinaires was UP .18%. Chinese yuan (ONSHORE) closed UP at 6.5120. Oil GAINED to 34.69 dollars per barrel for WTI and 37.20 for Brent. Stocks in Europe so far IN THE GREEN . Offshore yuan trades 6.5098 yuan to the dollar vs 6.5120 for onshore yuan/ ON WEDNESDAY, MOODYS DOWNGRADES CHINA’S CREDIT FROM STABLE TO NEGATIVE
ii) Yuan soars on POBC intervention
iii)The Chinese plunge protection team came to the rescue of markets last night ahead of the big party meeting
i) Surprisingly WTI crude spikes to 2 month highs on the massive short squeeze we are witnessing
( zero hedge)
ii)Rig counts continue to decline. They dropped below 400 for the first time since 2009:
( zero hedge)
i)THE BIG STORY OF THE DAY:
ii) Indian citizens are revolting on another sales tax for gold!
iii)This is big news. Hong Kong will change its futures gold contracts to settle in real gold and the gold will be denominated in yuan and in dollars. The previous contract was only in dollars and was cash settled.
iv)Alasdair Macleod’s commentary tonight is entitled:
“Brexit and a Hanseatic League”
v)Bill Holter’s paper is a good one. It is entitled:
vi)Good reason for copper to rise today: Chinese inventories skyrocket
vii)James Turk on the huge demand for silver:
USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER
i)payrolls surge 242,000!! even as hourly earnings unexpectedly drop: the official release!
ii)the market INITIALLY does not buy the jobs number:
iii)Over 80% of the jobs created in January were minimum wage earners:
iv) What a joke: the USA has added 360,000 waiter jobs but only 12,000 manufacturing jobs:
v)What the Fed needs is job growth. They did not get it as weekly earnings drop the most on record!
vi)Just look at what the lack of collateral in the 10 yr treasuries has done to this market. We now see an increase in “fails charge” as it is better for short investors to pay the penalty and not deliver as opposed to finding what little collateral (treasuries) are out there. The huge shorting is potentially driving up rates on the 10 yr treasuries. No doubt at around 1.88%, yield starving entities around the world would be unleashed, driving these yields back below the 1.60 level
vii)This came out of left field. Late this afternoon, stocks tumble after the Fed plans that our too big to fail banks have a bank counterparty risk cap. JPMorgan is tumbling and so are stocks.
viii)The USA trade report is worse than thought and the culprit is the high USA dollar:( Bloomberg)
ix) This week’s wrap up with greg Hunter
Let us head over to the comex:
The total gold comex open interest rose to a high of 482,938 for a monstrous gain of 25,944 contracts as the price of gold was up $16.30 in price with respect to yesterday’s trading. For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest: 1) total gold comex collapse in OI as we enter an active delivery month or for that matter an inactive month, and 2) a continual drop in the amount of gold standing in an active month. Today, only the first scenario was in order as we actually gained in number of ounces standing for March. The front March contract month saw its OI fall by 65 contracts down to 106.We had 87 notices filed yesterday, and as such we gained 22 contracts or an additional 2200 oz will stand for delivery. After March, the active delivery month of April saw it’s OI rise by 15,803 contracts up to 315,469. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 369,479 which is humongous. The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was excellent at 258,872 contracts.It seems that the bankers supplied the necessary gold paper today with reckless abandon. The comex is back in backwardation until April.
March contract month:
INITIAL standings for MARCH
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||2025.45 oz
|Deposits to the Dealer Inventory in oz||30,126.65 oz
|Deposits to the Customer Inventory, in oz||28,711.89 ozSCOTIA|
|No of oz served (contracts) today||16 contracts
|No of oz to be served (notices)||90 contracts(9000 oz)|
|Total monthly oz gold served (contracts) so far this month||521 contracts (52,100 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||101,471.1 oz|
we had 0 adjustment
MARCH INITIAL standings/
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory|| 2,108,993.611 oz(Delaware,
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||361,657.56 oz
|No of oz served today (contracts)||102 contracts 510,000 oz|
|No of oz to be served (notices)||2664 contract (13,320,000 oz)|
|Total monthly oz silver served (contracts)||320 contracts (1,600,000 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||7,036,067.3 oz|
Today, we had 0 deposits into the dealer account:
total dealer deposit;nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 1 customer deposit
i) Into Scotia: 361,657.56 oz
total customer deposits: 361,657.56 oz
total withdrawals from customer account 2,108,993.611 oz
we had 0 adjustment
And now the Gold inventory at the GLD:
MARCH 4/another mammoth sized deposit of 7.13 tonnes of gold into GLD/Inventory rests at 793.33 tonnes. This is no doubt a “a paper addition” and not physical
MAR 3/another good sized deposit of 2.37 tonnes of gold into the GLD/Inventory rests at 788.57 tonnes
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 4.2016: inventory rests at 793.33 tonnes
At 3:30 pm we receive the COT report from the CME.
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of|
Our large specs:
those large specs that have been long in gold pitched 4195 contracts from their long side as we approached first day notice in March
those large specs that have been short in silver covered 11,630 contracts from their short side.
those commercials that have been long in gold pitched 5283 contracts from their long side.
those commercials that have been short in gold only added 2999 contracts to their short side.
Our small specs:
those small specs that have been long in gold added 1700 contracts to their long side
those small specs that have been short in gold added 853 contracts to their short side.
Conclusions: our criminal commercials only went net short by 5582 contracts. I expected worse.
And now for silver
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||145||120|
|Tuesday, March 01, 2016|
Our large specs:
Those large specs that have been long in silver pitched 4582 contracts as they entered first day notice in silver
Those large specs that have been short in silver, added 1865 contracts to their short side.
Those commercials that have been long in silver added 2985 contracts to their long side
those commercials that have been short in silver covered a huge 5455 contracts from their short side
Our small specs;
Those small specs that have been long in silver pitched 2166 contracts from their long side
those small specs that have been short in silver covered 173 contracts from their short side.
Conclusions: the commercials go net long by 8440 contracts. Something is bothering them and it may explain the huge activity inside the comex vaults.
And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:
Interview: What Is Driving All Currencies Lower Against Gold?
Gold has surged another 4% this week to bring year to date gains to 20% in dollar terms, 19% in euro terms and 24% in sterling terms. We were interviewed by PickingAlpha.com yesterday afternoon and looked at what is currently driving gold prices higher in all currencies.
The sudden rise of gold prices and whether it is sustainable was considered. As was the British economy in the run up to Brexit referendum and the vulnerability of sterling due to the second largest current account deficit in the UK’s post war history and London’s property bubble.
The impact of the Chinese slowdown and the 1% rise of the Indian Duty tax, followed by country’s numerous jewelers’s strike and the outlook for Chinese and Indian demand were also looked at.
Gold is the strongest currency in the world so far this year. Gold prices began the year at $1,062.25/oz, €974.32 and £716.36 per ounce. Prices have surged in all currencies internationally and today’s AM fix was $1,271.50, €1,158.67 and £898.93 per ounce.
Or to put it more correctly, fiat currencies are being devalued and again losing value versus gold … as they do over the long term.
Listen to interview here
LBMA Gold Prices
04 Mar: USD 1,271.50, EUR 1,158.67 and GBP 898.93 per ounce
03 Mar: USD 1,241.95, EUR 1,141.48 and GBP 882.24 per ounce
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
Gold and Silver News and Commentary
– Gold Snaps Back to Bull Market as Prices Surge on Haven Demand – Bloomberg
– Gold holds near 13-month high ahead of U.S. jobs data – Reuters
– Gold prices are at their highest in more than a year with key technicals in play – Marketwatch
– Gold price: It’s official – bull market is back – Mining.com
– Hong Kong exchange will launch a gold futures contract that’s actually gold – Bloomberg
– Gold Is Starting To “Trade Like Money” says Rickards – Bloomberg Video
– Central Banks Extend Longest Gold-Buying Spree Since 1965: Chart – Bloomberg
– What Will Be Golden Ruling on London’s Bullion Market? – Platts
– London’s Property Market Heading For Fall – Money Week
– We’re in the Eye of the Financial Hurricane – Casey Research
– JPMorgan Goes Underweight Stocks, Says Buy Gold – Zero Hedge
Read more here
‘7 Real Risks To Your Gold Ownership’ – New Must Read Gold Guide Here
BlackRock Suspends ETF Issuance Due To “Surging Demand For Gold”
BlackRock’s Gold ETF (IAU) has seen fund inflows every day in 2016 (no outflows at all) and with the stock trading above its NAV for most of the year, the world’s largest asset manager has made a significant decision:
- *BLACKROCK SAYS ISSUANCE OF GOLD TRUST SHARES SUSPENDED
- *BLACKROCK SAYS SUSPENSION DUE TO DEMAND FOR GOLD
Issuance of New IAU (Gold Trust) Shares Temporarily Suspended; Existing Shares to Trade Normally for Retail and Institutional Investors on NYSE Arca and Other Venues
Suspension results from surging demand for gold, which requires registration of new shares
iShares Delaware Trust Sponsor LLC, in its capacity as the sponsor of iShares Gold Trust (IAU), has temporarily suspended the creation of new shares of IAU until additional shares are registered with the Securities and Exchange Commission (SEC).
This suspension does not affect the ability of retail and institutional investors to trade on stock exchanges. Retail and institutional investors will continue to be able to buy and sell shares in IAU.
IAU holds gold as a physical asset. IAU is an exchange-traded commodity (ETC), which therefore is not eligible for registration as an investment company under the ’40 Act. IAU may only be registered under the ’33 Act as a grantor trust. Under the ’33 Act, subscriptions for new shares in excess of those registered requires additional filings with the SEC.
Nearly all other U.S. iShares are exchange-traded funds (ETFs), registered as investment companies under the ’40 Act. The ’40 Act provides for the continuous offering of shares and does not require registration of additional shares as the fund grows due to investor demand in connection to new subscriptions.
Since the start of 2016, in response to global macroeconomic conditions, demand for gold and for IAU has surged among global investors. IAU has $8 billion in assets under management, and has expanded $1.4 billion year to date.February marked its largest creation activity in the last decade.
This surge in demand has led to the temporary exhaustion of IAU shares currently registered under the ’33 Act. We are registering new shares to accommodate future creations in the primary market by filing a Form 8-K to announce the resumption of the offering of new shares. The ability of authorized participants to redeem shares of IAU is not affected.
It appears the huge demand for physical gold (and lack of supply) is finally catching up with the manipulation of paper prices.
If this is anything other than a brief technical suspension, it could well unleash panic-buying as we already pointed out – there is no physical gold!
As we previously concluded, the reality that there are just two tons of gold to satisfy delivery requsts based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.
Considering there are now less than 74,000 ounces of Registered gold at the Comex, or just over 2 tonnes, we may be about to find out how right, or wrong, the skeptics are, because at this rate the combined Registered vault gold could be depleted as soon as the next delivery request is satisfied. Or isn’t.
Meanwhile, this is how gold is taking the news – it would appear that some gold is still available… one just has to pay up for it.
The Reason For Copper’s Dramatic Surge: Chinese Copper Inventories Hit Record
Two weeks ago we reported that one month after China created a record $520 billion in total credit (TSF), through February 18 Chinese banks had followed through with another CNY2 trillion according to MarketNews, meaning that in the first two months of the year China will have created a gargantuan $1 trillion in new credit between loans and unregulated shadow banking issues.
A question that emerged is what China is spending all this newly created money on. One answer emerged overnight when Bloomberg reported that after tumbling in the first half of 2015, copper inventories at the Shanghai Futures Exchange had been steadily rising, and in the most recent week soared by 11% to an all time high of 305,106 tons.
At the same time reserves at the London Metals Exchange declined for 11 days to the lowest level in more than a year, in other words China is shifting idle inventory from Point A to Point B.
Bloomberg adds that as a result of this massive spending spree, inventories tracked by the Shanghai Futures Exchange are higher than stockpiles monitored by the London Metal Exchange for the first time in a more than a decade.
This explains two things:
- for all talk of reform, China is once again building a bubble in excess capacity and stockpiling surplus commodities, which will likely last as long as China floods the economy with newly created bank loans;
- The recent surge in the price of copper, which has been a direct function of China’s recent massive restocking
Most importantly, this means that the world is now back to the “old regime” China, where it was stockpiling massive amounts of inventory as only possible the “use of capital” of trillions in new money created, which of course is precisely the “regime” that created the hard landing scenario that China finds itself in at this very moment.
And so, can kicked. The only question is for how long.
Below is a highly engaging interview with James Turk in which he discusses the key indicators to watch in order to anticipate the next big leg of the precious metals bull market. “To me the real bull market in gold began in 1913 with the creation of the Federal Reserve.”
By law the U.S. Mint is supposed to produce enough silver eagles to meet demand. Originally the law stated that the silver used in U.S. minted coins had come from U.S. mines. The U.S. produces roughly 40 million ounces of silver per year. About five years ago the demand for silver eagles began to outstrip the amount of silver sourced from U.S. mines that could be made available for silver eagle production. The law was amended to enable the mint to use silver imported from Mexico.
From time to time since the summer of 2008, the U.S. mint has had to halt its silver eagle sales because of a shortage of silver. This occurred once again in the middle of 2015 and the production halt lasted about 3-4 weeks. Since that time, the mint has limited the amount of silver eagles to one million coins per week. In 2015 the mint sold 47 million silver eagles, an amount which was stunted by the production halt. It is likely that the mint would be able to sell in excess of 60 million silver eagles in 2016 in the absence of production limits.
Make no mistake, curtailing production like this is nothing more than a form of price control. If the demand for silver eagles outstrips the supply, then the price should rise. “Price” is the ultimate mechanism by which supply and demand is equalized. That is a law of economics. If the demand for silver eagles is greater than supply because the mint can’t secure enough silver to meet demand for its product, then let the price of silver rise to the point at which supply and demand equalize. That’s how free markets are supposed to function.
They can force a market into a certain price level but that has to be met with metal if people are asking for metal to be delivered at those low prices and metal is getting scarce. – James Turk
The fact that the U.S. Government has had to impose production controls on the production of silver eagles is one of the many indicators which reflect the fact that the Government is losing control over the financial and economic system.
The relative price of gold and silver is a thermometer that measures the degree of systemic health at any given point in time. Since gold and silver hit interim bull market highs in 2011, the western Governments and Central Banks have colluded to suppress the price of gold and silver. This was imperative to their ability to continue the massive transfer of wealth from the middle class to the ruling elite through the use of Wall Street’s financial Ponzi schemes and the Fed’s ongoing debasement of fiat currency.
The Shadow of Truth hosted Bitgold’s and Goldmoney’s James Turk for a highly engaging discussion about the current move in the precious metals market. Mr. Turk sees it as yet another signal to the markets that Governments are losing control:
Both gold and silver are so cheap relative to historical norms and historical valuations that it doesn’t matter if it’s overbought, it can stay overbought on a short term basis for a long time – longer than we can possibly expect. What’s important is not short term overbought or oversold indicators but what the trend is. And to me the trend is higher in both gold and silver. I’m measuring this by saying that gold is above all of its short term moving averages. – James Turk
India’s love affair with gold tested as tax fight spurs jeweler shutdown
Submitted by cpowell on Thu, 2016-03-03 13:26. Section: Daily Dispatches
By Swansy Afonso
Wednesday, March 2, 2016
India’s thriving gold markets have gone strangely quiet. Shops are shuttered across the world’s largest consumer after China and would-be customers are getting frustrated in a country that adores bullion.
“I will have to wait and see when the shops open next,” said Ghevar Jain, who stepped out in Mumbai this week to buy 200,000 rupees ($2,970) worth of jewelry for weddings next month. Instead, he had to return empty-handed as stores in the Zaveri Bazaar weren’t trading. “I didn’t know about the strike.”
Jain had walked into a dispute that erupted this week between the nation’s thousands of jewelers and Prime Minister Narendra Modi. Intent on boosting revenue as he reshapes Asia’s third-largest economy, Modi wants to impose a 1 percent excise duty on jewelry produced and sold within the country, and Finance Minister Arun Jaitley announced the move in the budget on Monday. By Wednesday, members of the All India Gems & Jewellery Trade Federation, which represents jewelers nationwide, had started a three-day stoppage. …
… For the remainder of the report:
Hong Kong exchange will launch a gold futures contract that’s actually gold
Submitted by cpowell on Thu, 2016-03-03 13:30. Section: Daily Dispatches
Hong Kong Bourse Revamps Gold Futures Targeting China’s Wealth
By Eduard Gismatullin
Thursday, March 3, 2016
Hong Kong Exchanges and Clearing Ltd. plans to revamp its gold futures, targeting Chinese investors after ending the previous contract a year ago.
The new contracts will be for physical delivery denominated in yuan and U.S. dollars, said Romnesh Lamba, the co-head of market development at the bourse. The previous contract, which was started in 2008, was cash-settled and quoted only in U.S. dollars. It was suspended after gold pricing was transferred to an electronic auction on March 15 from a century-old procedure. …
… For the remainder of the report:
Brexit and a Hanseatic League
David Cameron, Britain’s Prime Minister, has negotiated terms with the other EU member states, which he feels justified to put to voters in an in/out referendum called for 23 June.
At this early stage in the campaign, the terms are not sufficient to give a clear lead in favour a vote to stay, contributing to a slide in sterling on the foreign exchanges. However, if voters do vote to leave the EU, it won’t be just sterling which suffers, but the euro will face considerable challenges as well.
It is thought that arranging for the referendum to be held at the earliest possible date will limit disaffection with the EU. Within this time-scale, the strategy is to emphasise the dangers of Brexit, highlight the advantages of being able to influence EU policies from within, and to emphasise the security benefits of being in as opposed to out. It is essentially a weak and negative campaign strategy designed to scare the electorate against change. Negative campaigns are a weak strategy, which tend to wane through repetition.
There is an elephant in the room that might also trip up the planned outcome, and that is a material and growing risk of financial instability in the Eurozone. While it is probable that no major problems will surface before June, there is a significant possibility they will. The Eurozone’s banking system is somewhere between insolvency and bankruptcy with the Italian, Greek and Portuguese banks in intensive care. Eurozone government bond prices, many so over-priced they have negative yields, are certain to fall significantly at some stage, leading to an inevitable Eurozone debt crisis.
Add to this the refugee problem, and we have the makings of an all too obvious Eurozone bust-up. Furthermore, it is reported that the Czech Republic’s prime minister, Bohuslav Sobotka, has warned that if Britain decides to leave the EU, the Czech Republic may follow. Furthermore, there is pressure for a similar referendum in the Netherlands. Disaffection with Brussels is widespread, and it will not be just a British rat abandoning the sinking EU ship.
So far, this has been criticised as alarmist talk, but it is interesting that the financial problem faced by the EU is already becoming an issue. George Osborne, in Shanghai for the G20 meeting last weekend, said that “fellow finance ministers and central bank chiefs had unanimously concluded that a vote to leave the EU by Britain would be one of the biggest economic dangers this year”. The draft G20 communique noted “the shock of a potential UK exit from the European Union.” These statements surely amount to an admission that the EU rather than the UK is the concern, and that Britain’s departure could well tip it over the edge. It is also a plea for Britain to sacrifice her own interests in favour of the common good.
The EU bogey-man is no longer just a figure in the imagination of doomsters and conspiracy theorists. Its problems are now officially frightening. With its intractable debt problems, the Eurozone and the euro could easily be early victims of deteriorating global economic and financial conditions, and the risk is real enough for Britain’s electorate to go off-message. So it is time for the authorities to take out insurance against Brexit and devise a Plan B. I discussed this possibility recently with a close contact who has a practical familiarity with the machinery of government, and we concluded that it is almost certain that there is already a team in Downing Street working on a contingency plan. This would involve senior civil servants from the Treasury, Foreign Office and possibly the Department for Business.
The team is bound to contact its opposite numbers in the other major European states to feel its way through the issues raised by Brexit, so that if the worst happens and the referendum goes the wrong way, the transition to British independence will be managed with as little fall-out as possible. Beside the problems posed for the UK itself, an important issue that would naturally arise from this exercise is what would be the consequences for the remaining EU members, and the interests that would drive their responses.
The gulf between the relatively responsible northern states and the profligate south would almost certainly be re-exposed, with policy responses from the northern countries differing sharply from the Mediterranean countries, including France. It is hard to see the latter group coming up with any positive input, in the face of what for all of them would probably be a first step to the rapid disintegration of the political union which they have milked so successfully until now. The northern group is more interesting, and is likely to adopt a constructive approach.
In the run-up to the Greek crisis, there was significant domestic political pressure for Germany to abandon the euro and to cut her losses. Therefore, if Britain upsets the European applecart with a Brexit, Germany might be open to negotiations. And together with Germany, we can probably add The Netherlands, Finland, and it seems the Czech Republic.
This is where the comment by Mr Sobotka gives us a steer. The Czech Republic manufactures capital goods of the highest quality, and is even reckoned by many Germans to be better at engineering than Germany itself. Its EU experience has not been all that happy. Its government had to abandon plans to join the euro, because of strong public opposition. Its open-border policy under the EU Schengen Agreement exposed the country to unwanted refugees from Syria, Iraq and Afghanistan. EU sanctions against Russia have restricted trade with a natural market of greater long-term potential than the EU itself. And lastly, her energy security has been threatened, not by Russia, but by Brussels.
The Czech Republic is in a similar position to Germany on the question of immigrants and Russian sanctions. Germany has suffered the added setback of having sacrificed her own currency, and being committed through the euro to funding high-spending states. The desire in certain quarters to split from the Eurozone and to form a separate hard currency zone remains, though currently it is out of the news headlines. Germany’s dilemma is political: she is still atoning for two world wars in the last century, and dare not be responsible for ending the European experiment.
However, if the UK votes to leave, Germany’s position changes significantly. She could well be attracted by the freedom to re-issue her own currency and to make her own trade agreements as well. There can be little doubt that splitting from Italy, Spain, France et al will involve having to write off some or all of the massive debts owed by them to Germany. Alternatively, continued membership of the Eurozone, and therefore of the EU, will eventually render her bankrupt, for the third time in one hundred years.
It is a difficult choice, but the fear level is already high, as evidenced by the G20’s concerns, so the members of the Plan B team in Whitehall will find a ready basis for discussion with their opposite numbers in Berlin. As the process of planning a Brexit contingency progresses, the fragility of the whole EU and Eurozone will become increasingly apparent to all involved. If a Brexit happens, contingency planners are likely to agree it will mark the beginning of the end of the European experiment and of the euro as a viable currency. The relative stability of Germany, the Czech Republic, Slovakia, Austria, the Netherlands, Finland, Poland and the Baltic states would be best secured under new arrangements, in line with today’s geopolitical realities. The logical solution, assuming going down with the euro ship is recognised as not an option for these states, would be to negotiate a new trade alliance with the UK, a twenty-first century version of the Hanseatic League, based on commerce rather than politics.
This solution would also disrupt NATO relationships, because free trade with Russia and Asia would become the eventual objective. Britain has already shown that commerce has primacy over defence partnerships, when she became the first NATO member to support the Asian Infrastructure Investment Bank, an institution whose prime movers are China and Russia. That was an important signal, because it marked a shift in British relations with Russia, compromising Britain’s special relationship with the United States. So not only has Britain positioned herself to benefit from future developments in Asia, but she has ever so slightly turned her back on established defence treaties already.
Therefore, if the British electorate votes for a Brexit, there is a viable option for Britain outside the EU. The cost will almost certainly be the disintegration of the EU itself, and that is something the British Government will not want to precipitate. It is hard to see how the Eurozone’s banks will survive it. This is why David Cameron is working hard to avoid a Brexit, having previously shown some support for the idea. After all, he committed the government to a referendum in the first place.
The eurocrats in Brussels are also aware of the danger. In signs of panic, they are even deferring minor regulations thought to potentially upset British voters, such as limiting the power consumption of kettles and toasters (Daily Telegraph, 28th February). And one wonders whether Germany’s banking regulator dropped three major enquiries into Deutsche Bank’s dealings, because of the potential effect of adverse publicity during the referendum campaign. What Brussels and David Cameron needs desperately is something positive and believable to say about remaining in, but it is hard to see what that might be.
In conclusion, the G20 finance ministers and central bankers have good reason to be concerned about Brexit. The campaign to prevent it will involve a considerable propaganda effort, which has so far not been deployed from a position of strength. Successful referendum campaigns are usually about persuading the electorate with a positive story, not threatening them with the consequences of voting against the status quo. In which case, we can only hope that a Plan B is being put together, and is a viable alternative to a failing super-state.
The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.
And now Bill Holter with an important topic for today:
(courtesy Bill Holter/Holter Sinclair collaboration)
It is obvious to almost anyone with half a functioning brain there is “something” (MANY things!) wrong and going in the wrong direction in the U.S.. Whether it be the economy, rule of law, governance, morality or what have you, our country is headed in the wrong direction. Donald Trump was looked at as a “joke candidate” by both Republican and Democrat establishments, now he is viewed as a threat. He has and is saying many things “the people” are thinking. About the only thing he hasn’t said is “I am mad as hell and I’m not going to take it anymore!”. Generally speaking, the mood in the country is that of ANGER! Voters took their anger out on Congress in the last election …but nothing changed and the slide towards the infernal regions has continued unabated.
What Mitt Romney did today in my opinion is despicable (when asking Jim what he thought, he said “Romney made a complete, absolute and utter ass out of himself, I have never in all my years seen anything even close to this in politics”). He failed to win an election for president in 2012 on the coat tails of an absolute landslide Congressional sweep for the Republicans. Call what he is doing now a “poor loser” or anything else you want, I call it desperation …but not only on his part! Until yesterday, Rupert Murdoch, the Koch brothers and other Republican interests had indicated they would cobble together $75 million to make sure Mr. Trump did not win, they have now announced they will not do this. You can however rest assured, Mitt Romney would not have come forward with his Trump attack without their permission or wishes.
Let’s be perfectly clear, the groundswell of angry Americans is unlike anything any of us has seen in our lifetime. In essence, Mitt Romney just spoke dozens of sound bites that Hillary Clinton will use if campaigning head to head with Trump. Please understand this, there are NOT two parties as they are both the same and serve the very same masters. We have “Republicans and Democrats” so it appears (to) we peasants have a choice in this great thing called democracy. Without a doubt we have only one choice and that is to vote for “their candidate”. If Mitt Romney’s speech today did not open your eyes to this reality, I don’t know what will!
You see, Donald Trump is an absolute threat to the status quo. The “status quo” being a country that is being milked and a treasury being bilked as hard as possible. Any “outsider” who comes in and interrupts this process is just plain bad for “profits”! I have privately said for at least 4-5 months that there is zero chance Mr. Trump will become president. It is my opinion if he gets close, he will be assassinated and the blame will go on some guy with “three names”. I hope I am wrong on this but I highly doubt it.
Our country is on the verge of collapse in so many different areas. If you look at gold as a barometer, it is now speaking to you. After a two month rise it should have corrected but has not. If you look at the COT numbers, gold should already have been slaughtered by $100 or more, it hasn’t. I believe gold is rising for one (or all) of a half dozen or more reasons. War, derivatives, debasement, China’s bid to value gold fairly via their own exchange, a “truth bomb” being dropped or whatever.
As you know by my past writings, I fully expect some sort of truth bomb to be dropped that pulls the rug out from under the dollar and thus the financial system in the West. The “truth” can be any one or all topics. Does the West have any gold of substance left? False flags or real terrorism? Is the West bankrupt financially? Is “it” real or is it fraud? No autopsy? Birth certificate? 911? I would even say since there are paper trails to almost all finance, do we have a Congress bought and paid for? Which brokers were involved? Audit the Fed? The Treasury? The bottom line is this, the whole thing is a PONZI scheme and people are beginning to sense this, what if a “truth bomb” proved this either directly …or indirectly by making it fall?
To finish, Donald Trump poses a huge risk to the “establishment” and as of yesterday the only outsider left in the field. I will not be surprised if Mitt Romney’s outburst of panic actually gathers more support for Mr. Trump even from Democrats. Please do not get me wrong, I am not doing a “yay rah rah Donald” here but he is the only one pointing to the problems the establishment has created. Now, the establishment sees him to be a very credible problem for THEM! The Irish bookies paid out on bets yesterday to those who bet on Trump as the Republican candidate. I would not have done this because desperate people do desperate things and the “establishment” has now shown their hand of pure desperation!
Comments welcome, email@example.com
1 Chinese yuan vs USA dollar/yuan DOWN to 6.5120 / Shanghai bourse IN THE GREEN : / HANG SANG CLOSED UP 234.94 POINTS OR 1.18%
2 Nikkei closed UP 54.62 OR 0.32%
3. Europe stocks IN THE GREEN /USA dollar index DOWN to 97.49/Euro UP to 1.0980
3b Japan 10 year bond yield: FALLS TO -.025% AND YES YOU READ THAT RIGHT !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 113.98
3c Nikkei now well below 17,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 34.69 and Brent: 36.73
3f Gold UP /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 UP for WTI and UP for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS to 0.176% German bunds in negative yields from 8 years out
Greece sees its 2 year rate FALL to 10.38%/:
3j Greek 10 year bond yield FALL to : 9.99% (yield curve INVERTED)
3k Gold at $1265.10/silver $15.35 (7:15 am est)
3l USA vs Russian rouble; (Russian rouble UP 4/100 in roubles/dollar) 73.03
3m oil into the 34 dollar handle for WTI and 37 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 .9925 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0899 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 FALLS to + .176%
/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 1.83% early this morning. Thirty year rate at 2.65% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Flat Ahead Of Payrolls As Gold Continues Surge After Entering Bull Market
There is an odd feeling of Deja QEu this morning, when with two hours to go until the February payrolls, global stocks are modestly higher, US equity futures are likewise slightly higher on the back of a weaker dollar (or perhaps stronger Euro following a Market News report according to which the ECB may disappoint, more on that shortly), but it is gold that is breaking out, and after entering a bull market yesterday when it rallied 20% from its December lows…
… gold has continued to surge, rising as high as @1,274 in early trading a price last seen in January 2015, suggesting two things: i) someone believes wholesale currency debasement is about to be unleashed once again, and ii) faith in central banks is shaking as Goldman noted when it said two weeks ago to short gold because the “only thing we have to fear is fear itself.” It was wrong about the former, and may prove all too right about the latter.
Jens Pedersen, a Danske Bank A/S analyst in Copenhagen, told Bloomberg that “the rally has mainly been on the repricing and changing expectations regarding central bank policy.” The European Central Bank and Bank of Japan may ease policy further, while the U.S. Federal Reserve could postpone any further interest rate increases, he said. Looser policy and the lower rates on securities that tend to follow add to the appeal of gold, which yields nothing. The metal is also a haven in times of crisis and slow growth. Investors are awaiting data on U.S. non-farm payrolls that will offer further insight into the health of the world’s biggest economy and the trajectory of interest rates.
“Although gold is very much driven by Fed policy, the impact of ECB policy decisions may become increasingly relevant for gold price action, as concerns about negative interest rates gain traction,” Joni Teves, a strategist at UBS Group AG, said in a note on Friday. “We think negative interest rates should be positive for gold.”
Another reason why there is a sense of QE-ness to the world, is because Bloomberg reports that the only reason Chinese equities rose this week, is due to central bank intervention with state-backed funds said to have intervened in the market ahead of the National People’s Congress on Sunday. Similar to what the Fed has done for a far longer time in the US.
Emerging markets extended their best week since October and copper advanced, supporting mining stocks, on speculation China will boost stimulus at an annual gathering of the nation’s legislature. Treasuries and developed-nation shares were little changed before U.S. jobs data.
Elsewhere, it has been a relatively quiet start, with Euro Stoxx 600 up 0.2%, US equity futures up 0.1%, while global equities have recouped more than half of this year’s losses since sinking to a 2 1/2-year low on Feb. 11. “The mood is quite positive this morning, but now everyone is waiting for payroll data,” said Benno Galliker, a trader at Luzerner Kantonalbank AG. “Two weeks ago we were accepting the fall back into a recession, and now the fears seemed to have been overblown and we have a kind of positive bias.”
That may all change shortly when the US reports February nonfarm payrolls, forecast to show 195,000 jobs were added and an unemployment rate of 4.9 percent: as we will explain shortly, a “too strong” number will be the worst case scenario for bulls, and may lead to another repeat of the February (and January) selloffs.
Finally, over the weekend China may announce its plans to revive growth when an annual meeting of the National People’s Congress gets under way on Saturday.
Global Market Wrap
- S&P 500 futures up less than 0.1% to 1991
- Stoxx 600 up less than 0.1% to 340
- FTSE 100 up 0.4% to 6158
- DAX up 0.4% to 9787
- German 10Yr yield up 2bps to 0.19%
- Italian 10Yr yield up 1bp to 1.44%
- MSCI Asia Pacific up 0.6% to 126
- Nikkei 225 up 0.3% to 17015
- Hang Seng up 1.2% to 20177
- Shanghai Composite up 0.5% to 2874
- S&P/ASX 200 up 0.2% to 5090
- US 10-yr yield down less than 1bp to 1.83%
- Dollar Index down 0.04% to 97.55
- WTI Crude futures up less than 0.1% to $34.58
- Brent Futures down less than 0.1% to $37.04
- Gold spot up 0.6% to $1,272
- Silver spot up 1.4% to $15.43
Top Global News
- Microsoft, Google Back Apple in FBI Fight Over Unlocking IPhone: Tech companies argue privacy, security threatened in case. San Bernardino shooting victim among those supporting Apple
- AMC Entertainment Buys Carmike as Wang Consolidates Cinemas: $30-a-share deal, a 19% premium over closing price, values No. 4 U.S. exhibitor at $1.1b
- Goldman, BofA Dismiss Traders After Getting Taste of 2016 Markets: Goldman said to plan cutting more than 5% of fixed- income jobs. BofA said to eliminate 150 trading, investment- banking workers
- Samsonite to Buy Tumi for About $1.8 Billion in Biggest Deal: Tumi investors will get $26.75/share in cash, ~33% more than Wednesday’s closing price
- China Said to Intervene in Stocks Before Annual Policy Meeting: state-backed funds intervened in the stock market on Friday, buying primarily bank shares before the start of the National People’s Congress on Saturday
- HP Enterprise’s Meg Whitman Shows Early Success After Split: Company pledges to buy back $2b in shares after deal. Enterprise Group first-quarter sales gain 1% to $7.1b
- Fed Plans Second Effort at Limiting Banks’ Ties to One Another: Dodd-Frank Act measure would restrict firms’ credit exposure
- Facebook to Pay Millions of Pounds More in U.K. Tax: Company to quit routing its largest ad clients through Ireland
- Snapchat Raises $175m From Fidelity at $16b Valuation, WSJ Says: Co. still at same valuation of $16b from 1 yr ago
Looking at regional markets, Asian equities saw choppy trade throughout the session with price-action indecisive amid caution ahead of key US NFP jobs data later today. Nikkei 225 (+0.3%) was mainly driven by JPY movements, while ASX 200 (+0.17%) was underpinned by materials following gains in metal prices in which gold advanced to bull-market territory, with prices over 20% higher from December 2015 lows. Shanghai Comp (+0.5%) traded in choppy fashion to ultimately close higher on touted intervention, while the PBoC conducted its largest net weekly drain in 3 years of CNY 840b1n. 10yr JGBs traded higher amid the cautious tone with the BoJ also in the market under its large asset purchase program for JPY 1.26tr1 across all maturities.
Top Asian News
- BHP Downgraded by Moody’s as Commodity Rout Weighs on Profit: World’s biggest miner cut to A3 from A1, with negative outlook. Sees credit metrics “substantially” weaker in 12 to 24 months.
- ANZ Bank Taken to Court by ASIC Over Alleged Rate Rigging: Australia’s securities regulator accuses bank of trying to set artificial bank bills price
- Nomura, UOB Said to Weigh Offers for Barclays’s Asia Wealth Unit: Second-round bids for the British lender’s unit are due by middle of this month
- Foxconn Said Near Finalizing Deal Approved by Sharp’s Board: Companies are aiming to reach a final agreement by March 7
- Kuroda Says BOJ Not Currently Considering Lowering Rates Further: Comments by BOJ Governor come less than 2 weeks before next BOJ meeting
In Europe, equities have had a more subdued morning and trade with minor gains, with sentiment tentative ahead of the key US nonfarm payroll release later today. Financials are once again one of the worst performing sectors in the EuroStoxx 600 (+0.24%), while materials have seen a continuation of their recent reprieve and remain among the best performers. In tandem with equities, fixed income markets also remain subdued, with Bunds taking a dip below the 165.50 level and shrugging off the latest geopolitical concerns after North Korea threatened physical reactions against US and others.
Top European News
- Carige Plunges as ECB Demands New Funding Plan on Deposit Drop: Italian bank restates loss for 2015 on bigger writedowns. Carige raised capital a year ago after ECB stress test failure
- Seadrill Surges as Fredriksen Piles Up Cash, Short Bets Covered: Main owner frees up $510m in cash, fueling speculation of a bailout off offshore driller
- VW to Report Earnings April 28 After Scandal Triggered Delay: Reschedules shareholders meeting for June 22
- HSBC Alters Debt-Issuance Strategy on Fed Bank-Failure Plan: HSBC Holdings Plc alone will issue TLAC-eligible debt in 2016
- Austria Suffers Heta Blow as Deutsche Bank Rejects Bond Offer: German bank sees no reason to write off state guarantees
- Edmond de Rothschild Swiss Unit Subject of French Criminal Probe: Investigation is about former business relationship managed by a former employee
In FX, the dollar fell this week against all 31 major peers, including a 3.3 percent slide against Australia’s currency. The pound fell against the dollar and euro, paring the biggest weekly gains in at least four months.
There has been some early buying in USD/JPY, but ahead of US payrolls, a fresh push through 114.00 was going to be a struggle. We have since drifted back into the mid 113.00’s as the market calms into the key data release. Yesterday’s ISM services showed the employment index contracting, so some early signs that a softer number may well materialise. The USD index is under pressure as a result, but this is also down to a EUR/USD upturn on fears the ECB meeting will again disappoint. EUR/GBP gains have followed through also, and this has pressured Cable a little. Fresh from testing 1.4200 yesterday, the spot rate has had the wind take out of its
sales, getting pressured into 1.4120+ bids. EUR/GBP is now back in the mid .7700’s, and eyeing .7800. AUD/USD still trying to push through .7480-85 resistance, with projections through here cited closer to circa .7700. NZD/USD following higher. CAD hit on a slip in Oil price, but spot holding off the highs seen Thursday. The euro added 0.2 percent to $1.0976, and the yen was at 113.70 per dollar.
In commodities, copper rose as much as 1.6 percent to the highest level in almost four months on bets for more stimulus in China, the largest consumer of metals. Used in everything from property construction to high-voltage cables and mobile phones, copper is a key indicator for global inflation, helping drive movements in bonds and currency markets.
Gold advanced 0.6 percent to $1,272.05 an ounce, extending its rally in the first bull market since 2013. Investors have sought the metal as a haven this year from turmoil in equity markets. Silver gained 1.3 percent and platinum added 0.9 percent. Oil traded near an eight-week high in New York, poised for a third weekly gain as the Organization of Petroleum Exporting Countries prepared for a meeting with other major producers on March 20 to renew talks on an output freeze. West Texas Intermediate was at $34.60 a barrel.
Looking at the day ahead, with little in the way of notable data out of Europe this morning it’s all eyes on the February payrolls and employment indicators in the US this afternoon, while the January trade balance will also be released alongside where a modest widening in the deficit is expected. Away from the data the Fed’s Kaplan is scheduled to speak again this evening at an event in Dallas. It might be also worth keeping an eye on any interesting comments from Germany’s Merkel this afternoon speaking at a State Party Convention which of course comes before the state elections on the 13th March.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities trade in somewhat tentative fashion, albeit in minor positive territory with participants awaiting the latest NFP report.
- In a relatively quiet session, gold has been the most notable mover, reaching its highest level for over a year
- Looking ahead, the main highlights will entail the latest US jobs report, while there will also be comments from Fed’s Kaplan
- Treasuries mostly steady in overnight trading as global equity markets rise as hopes of further central bank stimulus buoy sentiment; today’s economic calendar brings nonfarm payrolls (est. 195k) and unemployment rate unchanged at 4.9%.
- China intervened to support its stock market, helping the benchmark index cap its best weekly gain of 2016 before policy makers meet to approve a five-year road map for the economy
- Emerging markets extended their best week since October and copper advanced, supporting mining stocks, on speculation China will boost stimulus at an annual gathering of the nation’s legislature
- Greece is grappling with an escalating influx of refugees, another deadlock over financing and more political unrest. While the market is high risk and illiquid, its bonds paint a slightly different picture: they’re the best-performers in the euro region over the past week, returning almost 6%
- Goldman Sachs will eliminate more than 5% of traders and salespeople in its fixed-income business, Bank of America will dismiss about 150 trading and investment-banking employees next week
- The Federal Reserve is set to re-propose long-delayed rules for limiting Wall Street firms’ credit exposure to any other financial firms to 10% of capital, aiming to ensure megabanks won’t take others with them if they fail
- $10.7b IG corporates priced yesterday, 13th straight session with at least 1 deal pricing; 10 of those priced >$5b.; week $58.875b, March $41.475b, YTD $335.725b; No HY priced, $1.5b MTD, $16.355b YTD
- Sovereign 10Y bond yields mixed with Greece 15bp higher; European, Asian markets higher; U.S. equity- index futures rise. WTI crude oil, copper and gold rally
US Event Calendar
- 8:30am: Trade Balance, Jan., est. -$44b (prior -$43.36b)
- 8:30am: Change in Non-farm Payrolls, Feb., est. 195k (prior 151k)
- Change in Private Payrolls, Feb., est. 190k (prior 158k)
- Change in Mfg Payrolls, Feb., est. -1k (prior 29k)
- Unemployment Rate, Feb., est. 4.9% (prior 4.9%)
- Average Hourly Earnings m/m, Feb., est. 0.2% (prior 0.5%)
- Average Hourly Earnings y/y, Feb., est. 2.5% (prior 2.5%)
- Average Weekly Hours All Employees, Feb., est. 34.6 (prior 34.6)
- Change in Household Employment, Feb., est. 175k (prior 615k)
- Labor Force Participation Rate, Feb., est. 62.8% (prior 62.7%)
- Underemployment Rate, Feb. (prior 9.9%)
- 1:00pm: Fed’s Kaplan speaks in Dallas
DB’s Jim Reid concludes the overnight wrap
On the recession watch the all important ISM non-manufacturing was ok yesterday at the headline level (53.4 vs. 53.1 expected, 53.5 last month) and maintaining a 3.9 point gap with the manufacturing number. However a fair amount of attention was drawn to the employment component (49.7 vs. 52.1 last month) which came on the back of a sub-50 reading for the same component in the manufacturing print (48.5). This ahead of this afternoon’s payrolls number then where current market expectations are sitting at 195k (which is also the forecast of our US economists). Post yesterday’s data however it feels like the whisper number is sitting somewhere between today’s consensus and the January’s 151k low print. As always it’s worth keeping an eye on the rest of the data in the employment report. The unemployment rate is expected to hold steady at 4.9%, average hourly earnings are expected to have risen +0.2% mom (on the back of that bumper +0.5% gain in January) and the labour force participation rate is expected to nudge up one-tenth to 62.8%. All eyes on 1.30pm GMT.
Leading into the data, overall risk sentiment is as strong as it’s been all year at the moment, despite a bit of caution attempting to prevail in last night’s session. Despite a fairly benign day for the most part in the energy market (WTI -0.26%, Brent +0.38%, Gasoline -0.91%) it was yet another strong performance for energy stocks which helped the S&P 500 bounce off an early – 0.5% low to close +0.35% and in positive territory for the third consecutive session. Interestingly it’s not only US HY which is back in positive territory YTD but also energy stocks with the S&P 500 energy index now up to a near 1% gain for the year. The VIX dipped below 17 and to its lowest level for the year while US credit was the outperformer again with CDX IG 3bps tighter and stronger for the seventh straight day. There’s no stopping the primary market too with over $10bn of US IG issuance pricing, including a $3bn deal out of the energy sector in the form of ConocoPhillips.
Taking a look at the latest in Asia this morning, gains are relatively subdued in the region as we close out the week. The Nikkei (+0.10%), Shanghai Comp (+0.41%), Hang Seng (+0.59%) and ASX (+0.18%) in particular are all in positive territory although it’s been a bit choppy. Oil is generally holding in just below $35/bbl while the only data out this morning was in Japan where labour cash earnings nudged up three-tenths as expected to +0.4% yoy.
Back with China and looking ahead to this weekend, given the growing concern about China’s slowdown, the National People’s Congress (NPC) starting on March 5th will be closely followed. Our Chief China Economist Zhiwei Zhang will provide further updates as events transpire but has also laid out his broad policy expectations in a new note. He expects the 13th Five Year Plan to be an important focus, but doesn’t expect too many surprises deviating from the framework laid out in the Guiding Principles published following the CPC’s 5th Plenary Session last October. With regard to macroeconomic policies, Zhiwei notes that fiscal and monetary policy will likely remain supportive in 2016. The official fiscal deficit target is expected to be raised from 2.3% to slightly above 3.0% (of GDP) to remain accommodative of growth. PBoC Governor Zhou is also expected to speak in the NPC press conference and his words will help further clarify the current monetary policy stance of ‘prudent with a slight easing bias’. Finally, policy messages should shed new light on the shifting balance of supply-side reforms and demand-side support going forward.
Back to yesterday, away from the ISM number the rest of the data in the US was a bit of a mixed bag. Initial jobless claims (which cover the last week of today’s payrolls period) rose 6k last week to 278k (vs. 270k expected) although the four-week average continues to hover around 270k. Factory orders disappointed with just a +1.6% mom rise in January (vs. +2.1% expected) while the final services PMI was revised down 0.1pts to 49.7 to make the number the weakest since October 2013. Elsewhere, on the back of the GDP revisions last week, Q4 nonfarm productivity was revised up seven-tenths to -2.2% and unit labor costs were revised down a full 1% to 3.3%.
Away from this, the Fed’s Kaplan reiterated his fairly dovish stance by calling for the Fed to remain patient in light of tightening financial conditions and the continued slowing global economic growth. Kaplan highlighted that while he believes that excessive accommodation carries a cost in terms of distortions and imbalances in hiring, asset allocation and investment decisions, the Fed official also believes that the Fed needs to show patience in decisions to remove accommodation and that monetary policy is ‘somewhat’ less accommodative than it was at the beginning of the year.
Prior to the better finish in the US last night, the run of gains (which had stood at five days) for European equities finally came to an end yesterday with the Stoxx 600 closing -0.45%. Oil aside, other commodity markets extended their recent strong run with precious metals in particular the most impressive. Gold (+1.96%) extended its move past $1,260/oz and in the process snapping back into a bull market from the December lows. Meanwhile after a couple of days of rising yields, German 10y yields fell 3.7bps and back down to a shade below 17bps, while 2y Bunds extended their fresh record low in yield to -0.589%. Irish 5y yields joined the chorus of negative yields in that maturity bucket after tumbling nearly 6bps lower to -0.028%, meaning 13 European countries now have negative 5y bond yields.
These moves perhaps reflected the final PMI revisions yesterday which, if anything, keeps the pressure on the ECB this month. The final February composite Euro area PMI was revised up 0.3pts to 53.0 (helped by an equal upward revision to the services number) although as a reminder that’s still the lowest since January 2015. France was the biggest disappointment with the composite revised down 0.5pts to 49.3 (a full 1pt decline on the month), offset slightly by a modest upward revision for Germany to 54.1 (+0.3pts revision). Italy and Spain saw a better than expected performance in the services reading. Our European economists highlighted yesterday that the Euro area composite PMI points to GDP growth of 0.3% to 0.4% qoq, but that the inflation outlook is weakening and therefore keeps the easing pressure on the ECB. Interestingly the UK was a big miss yesterday with the composite PMI down a significant 3.4pts to 52.8 (vs. 55.7 expected), owing to the weakest services reading (52.7) since March 2013.
Looking at the day ahead, with little in the way of notable data out of Europe this morning it’s all eyes on the aforementioned February payrolls and employment indicators in the US this afternoon, while the January trade balance will also be released alongside where a modest widening in the deficit is expected. Away from the data the Fed’s Kaplan is scheduled to speak again this evening (6pm GMT) at an event in Dallas. It might be also worth keeping an eye on any interesting comments from Germany’s Merkel this afternoon speaking at a State Party Convention which of course comes before the state elections on the 13th March.
Let us begin;
Late THURSDAY night/ FRIDAY morning: Shanghai closed UP BY 14.39 POINTS OR 0.50% ON A LAST HR RESCUE, / Hang Sang closed UP by 234.94 points or 1.18% . The Nikkei closed UP 54.62 or 0.32%. Australia’s all ordinaires was UP .18%. Chinese yuan (ONSHORE) closed UP at 6.5120. Oil GAINED to 34.69 dollars per barrel for WTI and 37.20 for Brent. Stocks in Europe so far IN THE GREEN . Offshore yuan trades 6.5098 yuan to the dollar vs 6.5120 for onshore yuan/ ON WEDNESDAY, MOODYS DOWNGRADES CHINA’S CREDIT FROM STABLE TO NEGATIVE
Yuan Soars Most In A Month Ahead Of National People’s Congress
With all western eyes firmly focused on US payrolls tomorrow, China is preparing for the biggest leadership gathering of the year this weekend. Offshore Yuan (USDCNH) is soaring (up over 5 handles in the last 24 hours) ahead of The National People’s Congress as PBOC Deputy Governor hinted at support for the currency saying that it isn’t “strictly” pegged to the new basket.
This is the biggest surge in Yuan in a month…
Pushing Yuan back to 3-week highs…
This is the richest Offshore Yuan has been to Onshore Yuan since 29th Sept…
“The currency move is likely a psychological reaction to the National People’s Congress because the market is expecting to hear more comments from top officials stressing the importance of financial stability, curbing outflows and encouraging inflows,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “It’s unlikely to be any intervention.”
Chinese Plunge Protection Team To The Rescue Ahead Of Party Meeting
Last summer, millions of farmers, housewives, security guards and a litany of other newly minted daytraders, opened enough new stock trading accounts for evey man, woman and child in Las Angeles – in just one month.
The excitement was palpable – and before anyone knew it, the proliferasion of around a half back door margin lendings chanells pumpped an additional CNY1.5 trillion into an already frothy market. Without putting too fine a point on it, didn’t work, it started to uravel and the party got concerned about social instability.
China tried intimidation first by arresting a journalist who dared to comment about what was then a rather nascent “nation team,” a kind Frankstein monster designed to shore up markets and support buy using state cahs an state-affiliated funds to buy equirij
“China intervened to support its stock market on Friday, helping the benchmark index cap its best weekly gain of 2016 before policy makers meet to approve a five-year road map for the economy, according to two people with direct knowledge of the situation,” Bloombger writes., adding thatt. “”State-backed funds bought primarily bank shares, while some local branches of the securities regulator asked listed companies, mutual funds and brokerages to stabilize the market during the National People’s Congress and the Chinese People’s Political Consultative Conference, said the people, who asked not to be named because the matter isn’t public.”
Note that this is the simply they the China did las year behond the militatry oka. No in the Party want to ruin the pageantry with a look other thing a stock market rout.
“It Hasn’t Been This Bad Since The Viking Age”: Dry Bulk CEO Warns Of Bankruptcy Tsunami, Counterparty Risk
In the past three months we have repeatedly shown that, despite the recent modest rebound off the all time lows, the bottom is about to fall out of the dry bulk shipping market in articles such as these:
- It Is Now Cheaper To Rent A Dry Bulk Tanker Than A Ferrari
- A “Perfect Storm Is Coming” Deutsche Warns As Baltic Dry Falls To New Record Low
- “Nothing Is Moving,” Baltic Dry Crashes As Insiders Warn “Commerce Has Come To A Halt”
- World’s Biggest Containership “Hard Aground” As Baltic Dry Crashes Below 300 For First Time Ever
- The Next Big Leg Lower In The Baltic Dry Is On Deck: 360 New Vessels Are About To Be Delivered
Overnight, the CEO of Dry bulk shipper Golden Ocean Group, Herman Billung spoke before an industry conference in Oslo, and made it clear that our worst-case expectations may prove to be optimistic.
Photo: Golden Ocean Group
He said that Dry Bulk shippers should expect little respite for another two years, adding that an enormous oversupply of vessels isn’t sustainable: “It’s a fair assumption to make that only half of the orderbook in 2016 will be delivered.”
He warned that “in the coming months there will be a lot of bankruptcies, counterparty risk will be on everybody’s lips.”
Useful tip: any time a CEO is warning about counterparty risk, it’s probably a good idea to listen.
Just to emphasize his point to the local audience he said that “The market has never been this bad before in modern history. We haven’t seen a market this bad since the Viking age. This is not sustainable for anybody and will lead to dramatic changes.”
Yes, it’s that bad.
And what’s worse, is that once Billung is proven to be right and the dry bulk bankruptcy tsunami is unleashed sweeping away hundreds of ships with it, the next question will be just which (mostly European) banks, have the greatest “secured” loan exposure to the dry bulk industry, a sector where we fully expect recoveries on secured loans to be in the pennies on the dollar.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am
Euro/USA 1.0980 up .0035
USA/JAPAN YEN 113.73 UP .051 (Abe’s new negative interest rate (NIRP)a total bust
GBP/USA 1.4151 DOWN .0017 (threat of Brexit)
USA/CAN 1.3425 UP.0019
Early THIS FRIDAY morning in Europe, the Euro ROSE by 35 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 UP in value (onshore) The USA/CNY DOWN in rate at closing last night: 6.5120 / (yuan UP but will still undergo massive devaluation/ which will cause deflation to spread throughout the globe)
In Japan Abe went BESERK with NEW ARROWS FOR HIS Abenomics WITH THIS TIME INITIATING NIRP . The yen now trades in a SOUTHBOUND trajectory RAMP as IT settled DOWN in Japan by 5 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 DOWN this morning by 17 basis points as it now trades WELL ABOVE the 1.40 level at 1.4151.
The Canadian dollar is now trading DOWN 17 in basis points to 1.3428 to the dollar.
Last night, Chinese bourses were UP/Japan NIKKEI CLOSED UP 54.62 POINTS OR 0.32%, HANG SANG UP 234.94 OR 1.18% SHANGHAI UP 14.39 OR 0.50% ON LAST HOUR RESCUE / AUSTRALIA IS HIGHER / ALL EUROPEAN BOURSES ARE IN THE GREEN, WITH 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 FRIDAY morning: closed UP 54.62 OR 0,32%
Trading from Europe and Asia:
1. Europe stocks IN THE GREEN
2/ CHINESE BOURSES IN THE GREEN/ : Hang Sang closed UP 234.94 POINTS OR 1.38% ,Shanghai IN THE GREEN Australia BOURSE IN THE GREEN: /Nikkei (Japan)GREEN/India’s Sensex in the GREEN /
Gold very early morning trading: $1266.25
Early FRIDAY morning USA 10 year bond yield: 1.83% !!! PAR in basis points from last night in basis points from THURSDAY night and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield falls to 2.65 DOWN 1 in basis points from THURSDAY night.
USA dollar index early FRIDAY morning: 97.49 DOWN 16 cents from THURSDAY’s close.(Now below resistance at a DXY of 100)
This ends early morning numbers FRIDAY MORNING
Real Soars To 6-Month Highs After Former Brazilian President Lula Detained
The Brazilian Real has soared over 2.5% this morning after the shocking news that former President Luiz Inacio Lula da Silva (Lula) has been detained by the federal police. The long-running inquiry, known as Operation Car Wash, stems from accusations of corruption and money-laundering at Petrobras and police, who raided Lula’s home near Sao Paulo, say they now have evidence that he received illicit benefits from the kick-back scheme with Petrobras “enriching himself and the treasury of his political group.”
- *PETROBRAS RISES 18% AS FORMER PRES. LULA TARGETED IN PROBE
And the real is surging to six month highs on the news… (we presume optimism that corruption is really being cracked down on, rather than paid lip service)
Brazil’s federal police detained former president Luiz Inacio Lula da Silva for questioning on Friday in an anti-corruption and money laundering operation and said that illegal gains had financed campaigns and expenses of the ruling Workers Party.
Police said they had evidence that Lula received illicit benefits from the kick-back scheme at state oil firm Petroleo Brasileiro SA (Petrobras) (PETR4.SA) in the form of payments and luxury real estate.
“Ex-president Lula, besides being party leader, was the one ultimately responsible for the decision on who would be the directors at Petrobras and was one of the main beneficiaries of these crimes,” a police statement said.
“There is evidence that the crimes enriched him and financed electoral campaigns and the treasury of his political group.”
BBC adds that officials said some 33 search warrants and 11 detention warrants were being carried out by 200 federal police agents in the states of Rio de Janeiro, Sao Paulo and Bahia.
Lula’s house in Sao Bernardo do Campo, near Sao Paulo, was raided early on Friday. The headquarters of his institute in Sao Paulo was also targeted, as were his wife, Marisa, and sons, reports said.
Dozens of executives and politicians have been arrested or are under investigation on suspicion of overcharging contracts with Petrobras and using part of the money to pay for bribes.
Lula ran Brazil from 2003 to 2010, when prosecutors allege much of the graft took place.
Brazilian media reported on Thursday that ruling party Senator Delcidio Amaral, a major legislative ally for Rousseff before he was arrested in November, allegedly tied the president and Lula to the scandal engulfing Petrobras in 400-page plea bargain made with prosecutors.
This latest step by the police is the most significant yet as the probe gets closer to Dilma Rousseff herself:
Lula, from the Workers’ Party, served two terms as president and was succeeded in office by his political protege, Dilma Rousseff.
He led Brazil during a time of rapid economic growth and is credited for lifting millions of people out of poverty.
He still is a well-liked figure but his popularity has been hit by recent allegations that he either had knowledge or involvement in the wrongdoings.
On Thursday, Lula’s institute said the former president had never committed any illegal acts before, during or after his presidential term.
The corruption scandal threatens the government of Ms Rousseff, who has faced repeated impeachment calls, analysts say. She has denied having any knowledge of wrongdoings.
And it seems she is getting nervous:*BRAZIL’S ROUSSEFF SAID TO CALL EMERGENCY MTG ON LULA: FOLHA
Surprisingly WTI crude spikes to 2 month highs on the massive short squeeze we are witnessing
(courtesy zero hedge)
WTI Crude Spikes To 2-Month Highs, Best Week Since August
Rig counts continue to decline. They dropped below 400 for the first time since 2009:
(courtesy zero hedge)
US Oil Rig Count Drops Below 400 For The First Time Since 2009
For the 11th week in a row, US oil rig counts declined (down 8 this week to 392). This is the first drop below 400 oil rigs since Dec 2009.
Judgiung by the neat perfect correlation between rig counts and lagged oil prices, we would expect further declines before any re-increase occurred.
Perhaps even more stunning, the total US rig count dropped to 489 rigs last week. 1 above the all-time record low 488 seen in April 1999…
Portuguese 10 year bond yield: 3.10% UP 11 in basis points from THURSDAY
Stocks Surge On Biggest Bear Market Short-Squeeze Since Nov 2008
They are pulling out all the stops on this one…
Another chaotically wild week…
- Small Caps (Russell 2000) up 4.65% – biggest week since Oct 2014
- S&P 500 up 3% – best week in 3 months
- Dow Transports up 3.7% – best week since Dec 2015
- “Most Shorted” stocks up 8.8% – biggest short squeeze since Nov 2008 (and in 3 weeks “Most Shorted” are up 19.8% – the most ever)
- HYG (high yield bond ETF) up 2.3% – best week in 5 months (best 3 weeks since Dec 2011)
- 2Y, 5Y, 10Y, 30Y biggest weekly surge in yields in 4 months
- 7Y biggest weekly surge in yields in 9 months
- Aussie Dollar soared 4.25% – the biggest week since Dec 2011
- Oil up 9.6% this week – 2nd biggest week since August
- Oil up 21.2% in 2 weeks – biggest 2 weeks since Jan 2009
- Copper up 7.2% – biggest week since Dec 2011
- Gold up 3.5% to 13 month highs
- Silver up 5.8% – biggest week since May 2015
Ahead of China’s National People’s Congress, Chinese stocks were ‘lifted’, but as is clear, the intervention was aimed at mega caps and not the tech-heavy small caps of ChiNext and Shenzhen…
Which lifted stocks into the payrolls print…and then the chaos began
After the initial weakness, stock were panic-bought only to snap at 2pmET on possible Fed limits on banks…
Dow tops 17000 at the close, but S&P lost 2000 right at the bell… closing at 1999.99!!
All about Super-Duper Tuesday…
Still a crazy week… with Trannies and Small Caps dramatically outperforming…
As Most Shorted soared again…
Energy & Financials outperformed… but note that when The Fed headlines hit, things stalled…
The reaction to payrolls was all over the place…
For the first time in 2 months, XIV (inverse VIX ETF) is trading below VXX (VIX ETF)…
Treasury yields spiked after the “better-than-expected” jobs data with the belly underperforming in the week (and 2s adn 30s outperforming – though still out 10bps)…
5Y yields touched the 50DMA back within their 4 year range…
The USD Index dropped (led by strength in EUR and cable, but Aussie Dollar was the big mover)
In fact Aussie Dollar was the biggest gainer of all major FX this week – up a shocking 4.25% – the most since Dec 2011, to 8 month highs…
Commodities were all on fire this week…But crude just melted up…
Gold closed at its highest in 13 months…
Finally, we note several risk assets at or near their 200 Day Moving Average:Credit Suisse comments on the slightly uncanny fact that so many risk assets now at their 200DMA (just highlights further the high level of correlation between asset classes). Brazil is now +26% from its lows and sitting right on its 200d. Glencore +104% from its lows, and on its 200d. Kumba Iron Ore +225% from its lows and on its 200d. Turkish equities +14% from their lows and on the 200d. Copper is only 2% below its 230 level. S&P500 only 1% below its 200d, so perhaps more interesting are two assets that stick out as still having significant upside: OIL 200d is at $43 and finally the ESTOXX AT 3300
February Payrolls Smash Expectations, Surge To 242,000 Even As Hourly Earnings Post Unexpected Drop
If bulls were expecting a February payrolls miss, they did not get it when moments ago the BLS reported that nonfarm payrolls surged by 242K in the past month, smashing expectations of 195K, with the January and December prints both revised higher by 21K and 9K respectively. The unemployment rate at 4.9% printed unchanged from the prior month and as expected. According to the BLS, over the past 3 months, job gains have averaged 228,000 per month.
The move higher in jobs was mostly driven by minimum wage jobs in healthcare (+57,000), retail (+55,000), and food service professions which rose by 40,000. This explains why for yet another month, wage growth was not only not there, but with a -0.1% decline after the January minimum wage hike induced bounce, posted a drop of -0.1%, which was the first drop since December 2014.
As shown in the chart below, the February hourly earnings drop was only the 6th drop in the past decade.
Worse, the average weekly earnings tumbled from $878.15 to $872.04, which rising just 1.7% Y/Y, was the weakest increase since February 2014.
There was good news in the participation rate, which ticked up solidly from near 30+ year lows of 62.7% to 62.9%, the highest since May 2015, as people not in the labor force declined by 374K.
More details from the full report:
Total nonfarm payroll employment increased by 242,000 in February. Job growth occurred in health care and social assistance, retail trade, food services and drinking places, and private educational services. Mining employment continued to decline.
Health care and social assistance added 57,000 jobs in February. Health care employment increased by 38,000 over the month, with job gains in ambulatory health care services (+24,000) and hospitals (+11,000). Over the past 12 months, hospitals have added 181,000 jobs. In February, employment rose by 19,000 in social assistance, mostly in individual and family services (+14,000).
Retail trade continued to add jobs in February (+55,000). Employment rose in food and beverage stores (+15,000) and other general merchandise stores (+13,000). Retail trade has added 339,000 jobs over the past 12 months.
Food services and drinking places added 40,000 jobs in February. Over the year, employment in the industry has grown by 359,000.
Employment in private educational services rose by 28,000 in February, after edging down by 20,000 in the prior month.
Construction employment continued to trend up in February (+19,000), with a gain of 14,000 in residential specialty trade contractors. Employment in construction was up by 253,000 over the past 12 months, with residential specialty trade contractors accounting for about half of the increase.
Employment in mining continued to decline in February (-19,000), with job losses in support activities for mining (-16,000) and coal mining (-2,000).Since a recent peak in September 2014, mining has shed 171,000 jobs, with more than three-fourths of the loss in support activities for mining.
Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, financial activities, professional and business services, and government, showed little change over the month.
The average workweek for all employees on private nonfarm payrolls declined by 0.2 hour to 34.4 hours in February. The manufacturing workweek was unchanged at 40.8 hours, and factory overtime was 3.3 hours for the third month in a row. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down by 0.1 hour to 33.7 hours. (See tables B-2 and B-7.)
In February, average hourly earnings for all employees on private nonfarm payrolls declined by 3 cents to $25.35, following an increase of 12 cents in January. Average hourly earnings have risen by 2.2 percent over the year. In February, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $21.32.
The change in total nonfarm payroll employment for December was revised from +262,000 to +271,000, and the change for January was revised from +151,000 to +172,000. With these revisions, employment gains in December and January combined were 30,000 more than previously reported. Over the past 3 months, job gains have averaged 228,000 per month.
Gold Surges, Stocks Purge As “Good Jobs” Euphoria Fades Fast
The immediate kneejerk rip in stocks (and bond yields) and dip in gold on the “good” jobs headline rapidly faded as the reality of ugly wage data seeped out. Crude is now notably lower, gold higher, stocks lower, and bond yields rallying back…
Initial rip then dip…
And gold is now soaring back…
As stocks tumble…
Over 80% Of Jobs Added In January Were Minimum Wage Earners
Jobs were good; earnings were a disaster – that’s the best summary of today’s jobs report.
As we noted earlier, February suffered the biggest ever monthly drop in average weekly earnings, because not only did hourly earnings drop but so did hours worked, resulting in far lower overall weekly wages.
What caused this? Nothing our readers don’t already know: recall that in January, “70% Of Jobs Added In January Were Minimum Wage Waiters And Retail Workers.”
February was even worse: most of the jobs that were created, if only on a goalseeked, seasonally adjusted basis, were of the lowest paying, worst possible quality as has been the case for the past 7 years as the BLS desperately seeks to “pad” its political mandate of providing proof in a recovery which however is impossible if it were to tell the truth.
As a result, as the BLS itself admitted, “job growth occurred in health care and social assistance, retail trade, food services and drinking places, and private educational services” – all of which are the lowest-paying wage groups.
The full detail is shown below:
The breakdown: of the 242K jobs created in February, 189K were of the minimum-wage variety, in:
- Education and Health (+86K)
- Retail Trade (+55K)
- Leisure and Hospitality (+48K) .
In other words, a whopping 82% of jobs “created” in February were minimum wage teachers, retail trade, and waiters, bartenders and chambermaids.
What about well-paying jobs like finance, trucking, manufacturing or mining? +6K, -5K, -16K, and -18K, for a net loss of 33k jobs.
Perhaps the bigger surprise is how wage growth wasn’t far worse.
In The Past Year, The U.S. Added 360,000 Waiters And Only 12,000 Manufacturing Workers
We already know that US jobs “growth” continues entirely on the back of (seasonally adjusted) minimum wage job growth, and since this has been one of our preferred topics exposing the hollow core of the so-called “recovery”, we once again show the divergence between the two job categories that have come to define the New Paranormal: waiters and bartenders, aka the only truly growing (minimum wage) job category, and manufacturing workers – well paid jobs which sadly are no longer being created.
Here is how this “recovery” has looked: since last February, the US has added 360K waiters; in the same time, a paltry 12,000 manufacturing workers have been added as shown in the chart below.
How about longer-term? The next chart shows the cumulative growth (and decline) in waiter and bartender jobs since the start of the depression in December 2007. Waiter jobs added: 1.6 million and rising by 40K in February; manufacturing jobs lost: 1.4 million and dropping by 16K in February.
And that, in one chart, is your “recovery.”
This Wasn’t Supposed To Happen: Weekly Earnings Drop Most On Record
The headline jobs number was certainly good, beating expectations and well higher than last month’s disappointing (and upward revised) 182K print. However, a quick look below the headline reveals an amazing statistic: while we already noted that average hourly earnings posted only their first decline since December 2014, and just the 6th in the past decade, declining by -0.1%, what is the real surprise is that average weekly hours worked also dropped substantially by 0.2 from 34.6 to 34.4. This, naturally, is the denominator in the average hourly earnings calculation, and for it drop drop with the average also sliding, means that weekly earnings must have dropped.
And drop they did: as the chart below clearly shows, based on the data which showed a whopping tumble in average weekly earnings from 878.15 to just 872.04, at -0.7%, this was the biggest monthly drop in the entire series history!
The drop confirms that the jump in earnings observed in January, and which led many to prematurely conclude that wage growth has finally arrived, was nothing but a headfake driven by the increase in minimum wages across various states, which has now been fully digested, and as a result wage growth is once again what it was before: non-existent.
Finally, it goes without saying that in the middle of a ‘recovery’ this is not really supposed to happen.
The Government’s non-farm payroll report announced the creation of 242,000 news jobs in February. When the numbers hit the newswires, the Fed trading algos triggered a 12 point spike up in the S&P 500 futures and a $14 cliff dive in Comex gold futures.
The Government’s propagandized economic reporting has deteriorated into nothing more than an epic insult to anyone with two brain cells to rub together. Beyond that, the reports are nothing more than a source of embarrassment for the “experts” who gather on the financial networks to dissect and analyze the numbers for the purpose of “baptizing” the report.
But once the momentum from the Fed’s intervention had subsided, the SPX futures quickly retreated into a loss for the day and gold spiked up as much as $20. The response to the Fed’s “invisible hand” in the market reflects the fact that these blatantly rigged Government-produced economic reports have lost all credibility with the market’s smart money:
Gold and silver this week have traded in complete defiance of Wall Street’s “siren call” for a big price correction. The Goldman Sachs analyst, Jeff Currie, incessantly insists on embarrassing himself with a forecast of $800 for Wall Street’s Pet Rock. Contacts at Goldman told me he was instructed under no uncertain terms wipe some of the rotten egg off his face and get on CNBC to raise his target to $1000.
The behavior of gold this past week reflects an increasing loss of credibility in not just Government economic reports, but also a deteriorating faith in the fiat nature of the U.S. dollar. How can anyone place any faith in a Government which is comprised of nothing but thieves have any “credit” to back its currency? As it stands now, the U.S. dollar is backed by a technically bankrupt Government run by corrupt politicians who serve as well-paid human puppets for the banking and corporate interests who control them.
On an interesting note, it was reported today that is suspending issuance of new shares in its physical gold ETF (ticker: IAU) due to a shortage of registered shares: LINK. This is highly misleading because market makers can borrow shares and short them to buyers. Currently there’s only 2.4 million shares short in IAU out of 635 million shares issued. That’s only .3% of the float, which means there’s 10’s of millions of shares available to borrow and short in order to satiate buyer demand. Compare this to GLD, which has 4.5% of the float shorted right now.
The real reason Blackrock had to suspend issuance of shares is because it is seeing something in the physical market that is stopping the firm from creating new share “baskets” which require the procurement of physical gold to back those “baskets.” The best bet is that Blackrock knows it will ultimately be unable to buy enough physical gold on a timely basis to back the registration of new shares if called upon to do so. In other words, there is a short of Pet Rocks.
Gold and silver are moving higher because all signs indicate that the markets are broken and the Government is beginning to lose control over the system. The flow of capital out of paper assets and in to physical gold and silver is further evidence that the Government, Wall Street and the financial markets are both quickly losing credibility.
Treasurys Hits “Fails Charge ” – Dealers Are Failing To Deliver 10-Year Paper
Yesterday morning we noted a very disturbing trend: over the past three days, a shortage of 10 Year treasury paper has manifested that has grown more and more acute with every passing day, until the repo rate hit as low as -2.95% yesterday morning just shy of the “fails” -3.00% minimum rate, the lowest on record, and suggesting that the marketwide treasury shortage has never been worse as a result of a huge short overlay.
As we also noted yesterday, some such as Stone McCarthy were hopeful that the shortage would cease following yesterday’s auction schedule announcement by the Treasury. We were more skeptical:
According to SMRA this is a temporary phenomenon: “pressure will likely ease up following its auction announcement this morning.”
However, on several previous occasions, that was not the case, and what ended up happening every single time was a sharp squeeze sending 10-Y prices surging.
We were right: a quick update on today’s repo shows the following, again from Stone McCarthy:
The 10-year note has hit the fails charge. The fails charge is either 0.00%, or the low end of the fed funds rate minus 300 basis points, so currently it is at -275 basis points, exactly where the 10-year note.
The record low repo rate is shown below:
In other words, the repo rate can’t go any lower, and as of this morning any demands to cover Treasury shorts are met with “Delivery Failure” notices. For those who are unfamiliar, a “Delivery Failure”occurs when one party fails to deliver a U.S. Treasury security, Agency Debt or Agency MBS to another party by the date previously agreed by the parties (Sifma has more).
It also means that there is an unprecedented (and based on the historical data, record) amount of shorts who would rather pay the fails charge than to cover their positions on the delivery demand, or alternatively, there is simply not enough Treasurys in the private market that are not locked up in short positions.
Finally, this means that the panicked scramble by various entities, including central banks, to short US Treasurys continues unabated.
What is strange, however is that even with this unprecedented shorting onslaught, the rising 10Y yield – which is also pushing up stocks at this very moment – can barely rise to 1.88%. The reason for this is structural: no matter how much higher the Fed and other participants try to push US paper, foreign buyers starving for yield in a NIRP world will sooner or later unleash their own buying spree and in the process send yields crashing, and furthermore since it will also include a scramble by shorts to cover, we expect that the next new higher in 10Y will take out all time low yields in the U.S.
Stocks Tumble After Fed Plans Too-Big-To-Fail Bank Counterparty Risk Cap
US financials are tumbling after The Fed proposed a rule that would limit banks with $500 bln or more of assets from having net credit exposure to a “major counterparty” in excess of 15% of the lender’s tier 1 capital. Bloomberg reports that The Fed’s governors plan to vote today on the proposal. The implications of this are significant in that it will force some banks to unwind exposures and delever against one another. Guggenheim’s Jaret Seiberg warns the proposal is likely to be “stringent,” though less onerous than the Dec 2011 proposal.
JPMorgan is tumbling…
As Bloomberg reports,
Proposal would apply to extensions of credit, repurchase agreements, securities lending, certain derivative transactions and other relationships that connect banks, Fed says in Friday statement.
Fed governors plan Friday vote on proposal.
Credit risk for banks with $50 bln of assets would be capped at 25% of the lender’s total regulatory capital plus allowance for loan losses.
Credit risk for banks with more than $250 bln of assets would be capped at 25% of the lender’s tier 1 capital.
The Federal proposal on single-counter-party credit limits for SIFI banks, due later,likely to be “stringent,” though may be less onerous than Dec. 2011 proposal,Guggenheim’s Jaret Seiberg writes in note.
The USA trade report is worse than thought and the culprit is the high USA dollar:
Trade Gap in U.S. Widens More Than Forecast as Exports Slump
The U.S. trade deficit widened more than forecast in January as exports slumped to the lowest level in more than four years.
The gap grew 2.2 percent to $45.7 billion, exceeding all forecasts in a Bloomberg survey of economists and the largest in five months, from a revised $44.7 billion in December that was bigger than previously estimated, the Commerce Department reported Friday in Washington.
Soft growth plaguing U.S. trading partners is also reducing the amount of goods and services the world’s biggest economy can ship out, pinching manufacturers. Demand from American consumers will be needed to pick up the slack, putting even more importance on an improving labor market that translates into real wage growth.
“Exports and imports are both tracking negative,” Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, said before the report.
The median forecast in a Bloomberg survey of 63 economists called for a deficit of $44 billion. Estimates ranged from $39.1 billion to $45.3 billion.
After eliminating the effects of price fluctuations, which generates the numbers used to calculate gross domestic product, the trade deficit grew to $62 billion in January from $60.1 billion the previous month. It exceeded the average for the fourth quarter, indicating trade is on track to subtract from economic growth in the first three months of the year.
Exports dropped 2.1 percent to $176.5 billion in January, the lowest since June 2011. The decrease was broad-based, stretching from soybeans to fuel oil and drilling equipment.
Imports also slumped 1.3 percent to $222.1 billion, the weakest since April 2011. The drop was led by a $1.85 billion plunge in purchases of crude oil. The total value of petroleum imports was the lowest since November 2003.
We wrap up this week, with this offering from Greg hunter of USAWatchdog
(courtesy Greg Hunter/USAWatchdog)
See you on Monday.