Good evening Ladies and Gentlemen:
Gold: $1,233.10 down $8.10 (comex closing time)
Silver 16.31 up 14 cents
In the access market 5:15 pm
Yesterday you all heard about the settlement of a class action lawsuit filed against the banks on gold and silver manipulation. The bank that settled was Deutsche bank.
As I stated yesterday on this huge story:
“The real question is what prompted DB to settle? Could they have received a little tap on the shoulder from the Bundesbank, angry that gold is not coming their way these past 3 months from the FRBNY as promised? Could this be the reason that they jumped at the settlement and not only that they are willing to spill the beans on the fellow manipulators.
Something big is happening behind to scenes!
Tonight the OI for silver rose dramatically again up to 192,629 contracts and again at multi year highs. The bankers only knocked off a few gold leaves with yesterday’s OI reading in gold.
Yesterday I wrote the following:
“Today (Thursday) no doubt, more leaves fell with the raid on gold today. But in silver they are having an awful time!!
We will just have to wait and see what tomorrow brings!.”
That surely was the case. Let us explore!
Let us have a look at the data for today
At the gold comex today, we had a HUGE delivery day, registering 91 notices for 9,100 ounces for gold,and for silver we had 48 notices for 240,000 oz for the non active April delivery month.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 218.995 tonnes for a loss of 84 tonnes over that period.
In silver, the open interest rose by another whopping 3,576 contracts UP to 192,629 as the silver price was DOWN 15 cents with respect to yesterday’s bullish trading. In ounces, the OI is still represented by .638 billion oz or 138% of annual global silver production (ex Russia ex China). We are now at multi year highs in OI with respect to silver
In silver we had 48 notices served upon for 240,000 oz.
In gold, the total comex gold OI fell BY A rather small 4750 contracts DOWN to 496,887 contracts as the price of gold was DOWN $21.80 with YESTERDAY’S HUGE RAID (at comex closing).
We had no changes in gold inventory at the GLD thus the inventory rests tonight at 806.08 tonnes. (Yesterday we also had 3.26 tonnes removed) I rather suspect that the bankers need to get their hands on physical quickly and the thus raided the GLD cookie jar No doubt this gold was used in the attack today. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. Our 670 tonnes of rock bottom inventory in GLD gold has been broken. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold, after they deplete the GLD will be the FRBNY and the comex. In silver,we had another withdrawal of .951 million oz of silver despite silver’s rise. No doubt that this silver was used in the fruitless attempt at knocking down the silver price. Thus the Inventory rests at 333.297 million oz.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver RISE by 3,576 contracts UP to 192,629 as the price of silver was DOWN 15 cents with YESTERDAY’S trading. The gold open interest fell by small 4750 contracts despite the raid. Our banker friends are succeeding somewhat in removing some of the gold leaves from the gold tree but they are having an awful time in silver as instead of falling it is rising. Somebody big is standing and surrounding the comex with paper longs ready to ponce once called upon to take out physical silver.
2 a) Gold trading overnight, Goldcore
2b COT report
3. ASIAN AFFAIRS
i)Late THURSDAY night/ FRIDAY morning: Shanghai closed DOWN 4.24 POINTS OR 0.14% / Hang Sang closed DOWN 21.34 OR 0.10%. The Nikkei closed DOWN 63.02 POINTS OR 0.37% . Australia’s all ordinaires CLOSED UP 0.76%. Chinese yuan (ONSHORE) closed UP at 6.4725. Oil FELL to 40.64 dollars per barrel for WTI and 42.84 for Brent. Stocks in Europe ALL IN THE RED . Offshore yuan trades 6.4865 yuan to the dollar vs 6.4725 for onshore yuan. LAST NIGHT CHINA REVALUES ITS CURRENCY HIGHER
REPORT ON JAPAN SOUTH KOREA AND CHINA
a) REPORT ON JAPAN
ii)Japan already owns 52% of all ETF’s and these turkeys want to buy more:
( zero hedge)
iii) Another earthquake, this time 10 x bigger than yesterday in Southern Japan
( zero hedge)
b) REPORT ON CHINA
iii)China’s GDP meets expectations of 6.7% along with beats in industrial production, fixed assets and retail sales. Supposedly the Chinese market is recovering (only with a massive 1 trillion USA in total social financing influx in the last quarter).
The question now will be how will Janet respond. She will need to raise rates but China will not let her!
( zero hedge)
iv)China adds a stunning 1 trillion USA in total social financing. This is unbelievable as sovereign China is heading for a debt to GDP of 350%. This cannot continue much longer:
( zero hedge)
v)It sure looks like the Chinese junk bonds have finally burst as risk soars over there:
( zero hedge)
what on earth is this world coming to: Angela Merkel will authorize a criminal probe against a German comic who mimicked Erdogan:
( zero hedge)
The city of Calgary is turning into a ghost town as one in 5 office spaces are empty
(courtesy zero hedge)
6 OIL MARKETS
i)Defaults coming fast and furious as Goodrich Petroleum is the latest to file Chapter ll
( zero hedge)
ii) If no agreement at DOHA expect a massive oil sell off as many of the oil traders are long
iii)At the end of the day, oil jumps a bit on record low USA rig counts:
It looks like Brazil has 2/3 of the necessary votes to begin the impeachment process.
The vote is on Sunday:
(courtesy zero hedge)
i)No kidding! The IMF shows that China may have 1.3 trillion of risky loans. It is probably more:
ii)Gold money and Bitcoin are aiming to replace the need for the gold ETF’s
iii)Mike Ballanger on the Deutsche bank silver and gold settlement: GATA is vindicated:
( Mike Ballanger/GATA)
9.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD AND SILVER
i)My goodness: Janet does have a problem as the NY Fed mfg index prints higher by rising from zero up to 9 points. For much of the year it has been below zero.
( zero hedge/Empire NY Mfg Index)
ii)A private research company in the uSA has shown that the median wage in the USA is $56,746 or a gain of 1.4% or about $66.00 pre tax/per month or $48.00 post tax. With home ownership falling into the toilet, most are seeking renting units and their cost as gone up on average 48 dollars. Thus the median person has gained nothing this year.
iii)An excellent editorial from Donald Trump. He describes that Colorado had an “election” without voters. A planned vote had been cancelled. He correctly asks; how has the system worked out for you;
iv)Peter Schiff echoes David Stockman that the USA economy is going nowhere. He draws on the high business inventories to sales ratios at 1.36 and this number is near its all time high. A higher number means stagnant inventories. He also draws on the higher deficits in the trade category which is negative to GDP
v)David Stockman takes on JPMorgan’s faulty earnings report along with China’s faulty reporting; He provides a true picture as to what is going on!
vi)The less accurate NY Fed just cost its first half GDP to 1%. The more accurate Atlanta Fed is .3% /and first quarter GDP only .8%( FRBNY/zero hedge)
vii)The consumer is 70% of USA GDP. The all important U. of Michigan consumer confidence report sliding to 89.7 from 91. It is not pretty. Generally these guys are more bullish that the Gallup confidence report
( zero hedge/U. of Michigan Consumer Confidence report)
viii)And now the more accurate Gallup consumer confidence report:
In a nutshell: it is getting worse!”
ix)The following is a biggy!! USA industrial production plummets for 7 months in a row.
x)Pam and Russ Martens writes on JPMorgan’s not so credible plan if they fail:
xi)this does not bode well for the global economy: iphone production is cut by 30% due to sluggish sales!
Let us head over to the comex:
The total gold comex open interest FELL SLIGHTLY to an OI level of 496,887 for a loss of 4750 contracts WITH the price of gold DOWN $21.80 in price with respect to yesterday’s raid. We are now entering the active delivery month of April. 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. We certainly witnessed both parts today . In the front month of April we lost 893 contracts from 3200 contracts down to 2307. We had 860 notices filed so we LOST 33 contracts or an additional 3300 gold ounces will NOT stand for delivery. The next non active contract month of May saw its OI FALL by 85 contracts DOWN to 2764. The next big active gold contract is June and here the OI FELL by 5,020 contracts DOWN to 369,801. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was POOR at 131,995 . The confirmed volume YESTERDAY (which includes the volume during regular business hours + access market sales the previous day was FAIR at 216,580 contracts. The comex is not in backwardation.
Today we had 91 notices filed for 9,100 oz in gold.
April contract month:
INITIAL standings for APRIL
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz nil||nil|
|Deposits to the Dealer Inventory in oz||nil
|Deposits to the Customer Inventory, in oz||4501.000 OZ
SCOTIA 120 KILOBARS
|No of oz served (contracts) today||91 contracts
|No of oz to be served (notices)||2216 contracts 221,600 oz/|
|Total monthly oz gold served (contracts) so far this month||2282 contracts (228,200 oz)|
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil|
|Total accumulative withdrawal of gold from the Customer inventory this month||103,059.2 oz|
Today we had 0 dealer deposit
Total dealer deposits; NIL oz
Today we had 0 dealer withdrawals:
total dealer withdrawals: nil oz
Today we had 2 customer deposit
i) Into SCOTIA: 3858.000 oz 120 kilobars
ii) Into Manfra: 643.00 20 kilobars
Total customer deposits: 4501 oz (140 kilobars)
Today we had 0 customer withdrawal:
Today we had 0 adjustments:
APRIL INITIAL standings
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||nil
|Deposits to the Dealer Inventory||nil|
|Deposits to the Customer Inventory||nil
|No of oz served today (contracts)||48 contracts
|No of oz to be served (notices)||66 contracts)(330,000 oz)|
|Total monthly oz silver served (contracts)||123 contracts (615,000 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||34464,991.8 oz|
today we had 0 deposits into the dealer account
total dealer deposit: nil oz
we had 0 dealer withdrawals:
total dealer withdrawals: nil
we had 0 customer deposits:
Total customer deposits: 0 oz.
We had 0 customer withdrawal
total customer withdrawals: nil oz
we had 1 adjustment
Out of CNT
We had 234,366.100 oz adjusted out of the customer and this landed into the dealer account of CNT:
|Gold COT Report – Futures|
|Change from Prior Reporting Period|
|non reportable positions||Change from the previous reporting period|
|COT Gold Report – Positions as of||Tuesday, April 12, 2016|
Our gold COT: MY GOONESS!!
Our small specs;
|Silver COT Report: Futures|
|Small Speculators||Open Interest||Total|
|non reportable positions||Positions as of:||157||127|
|Tuesday, April 12, 2016||© SilverSeek.c|
Our large specs:
APRIL 8/no changes in tonnage of gold/rests tonight at 819.60 tonnes
APRIL 7/ a huge deposit of 4.17 tonnes of “paper” gold was added to our GLD/Inventory rests tonight at 819.60 tonnes
APRIL 6/a withdrawal of .29 tonnes of gold and probably this was to pay for fees for the custodian and insurance/inventory rests at 815.43 tones
April 5/ a withdrawal of 2.37 tonnes of gold from the GLD/Inventory rests at 815.72 tonnes
April 15.2016: inventory rests at 806.82 tonnes
And now your overnight trading in gold, FRIDAY MORNING and also physical stories that may interest you:
By Mark O’Byrne
Silver Prices Up 5.6%; Gold Down 1% This Week. Deutsche Bank Settles Gold and Silver Manipulation Suits
Silver prices have surged 5.6% this week, while gold is down 1% in dollar terms, 1.5% in sterling terms but flat in euro terms. Gold appears to be consolidating after the recent gains and the bounce in stocks this week is likely leading to traders taking profits.
Silver remains strong despite gold’s weakness this week and continues to eke out gains. Since Monday April 4, silver has surged from $14.93 to $16.32 per ounce for an 9.3% gain.
The close above $16.00 per ounce was important and will embolden the technicians and momentum players who are likely positioning in expectations of silver testing resistance at higher levels. Silver is now testing technical resistance at $16.30/oz and a close above that level could see silver quickly move to test the next level of resistance at $18 per ounce seen in May 2015.
Ongoing robust physical demand finally seems to be impacting on prices which remain depressed. Investment demand is likely to remain robust and may even increase due to ineffectual QE policies, still ultra loose monetary policies, negative interest rates leading to increased allocations to non yielding, but non negative yielding silver.
Yet more evidence showing that the gold and silver markets – like all markets today – are manipulated came yesterday. Deutsche Bank agreed to settle U.S. lawsuits which said that it had conspired with other banks to manipulate gold and silver prices at investors’ expense. The settlements were disclosed in a Manhattan federal court by lawyers representing investors and traders who accused Deutsche Bank of violating U.S. antitrust law.
The gold settlement was disclosed on Thursday, and the silver settlement on Wednesday. Terms were not disclosed, but both settlements will include monetary payments by the German bank. Deutsche Bank also agreed to help the plaintiffs pursue claims against other defendants.
As defined by Wikipedia, “market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency”.
Today, the majority of major markets are subject to manipulation which is creating artificial prices. Obviously, QE and artificially depressing bond yields is the most glaring example of this. These false price signals can lead to the misallocation of capital and to lulling investors into false senses of security regarding risk assets. This heightens the risk of market dislocations involving stock and bond market crashes and indeed currency devaluations.
By artificially suppressing the pricing mechanism, similar to forcing an inflated beach ball under the water, markets that have been manipulated may rapidly bounce higher and move in the opposite direction to what is initially intended.
Manipulation of the gold and silver markets is a serious issue and one we have long expressed concerns about. It seems increasingly likely that part of the reason for the weakness seen in the gold and silver price in recent years was due to banks manipulating prices as long alleged by veteran silver analyst Ted Butler and by the Gold Anti- Trust Action Committee (GATA).
This is not a victimless crime as it likely impacted the finances of thousands of companies in the precious metals sector internationally. The entire sector – from mining companies, to refineries to bullion dealers – has been badly hit by the weakness in precious metal prices. There is also the not small matter of the millions of investors internationally who have seen losses on their gold and silver investments – be they in mining shares, ETFs or indeed in bullion. We are examining the settlement carefully.
The history of manipulation of the gold market is of short term success followed by ultimate failure and then much higher prices as the fundamentals of supply and demand always assert themselves in the long term. This was clearly seen after the failure of the “London Gold Pool” in the late 1960s and gold’s massive bull market in the 1970s.
While gold and silver buyers have suffered in recent years, ironically such manipulation is an opportunity for investors today as it allows them to accumulate precious metals at artificially depressed prices. This is the unintended benefit of such manipulation – the silver lining if you will.
The golden beach ball was pushed near the bottom of the ‘gold pool’ in recent months. The further a beach ball is pushed under water in a pool – the higher it ultimately jumps out of the water. This creates a great opportunity for investors to accumulate precious metals at prices which will be viewed as very cheap indeed in the coming years.
Gold Prices (LBMA)
15 April: USD 1,229.75, EUR 1,092.16 and GBP 867.46 per ounce
14 April: USD 1,240.30, EUR 1,101.04 and GBP 874.96 per ounce
13 April: USD 1,245.75, EUR 1,100.37 and GBP 875.33 per ounce
12 April: USD 1,259.20, EUR 1,102.15 and GBP 880.18 per ounce
11 April: USD 1,247.25, EUR 1,095.84 and GBP 878.96 per ounce
Silver Prices (LBMA)
15 April: USD 16.17, EUR 14.33 and GBP 11.40 per ounce
14 April: USD 16.13, EUR 14.32 and GBP 11.39 per ounce
13 April: USD 15.98, EUR 14.14 and GBP 11.21 per ounce
12 April: USD 15.96, EUR 13.98 and GBP 11.15 per ounce
11 April: USD 15.56, EUR 13.66 and GBP 10.93 per ounce
Gold News and Commentary
Silver on track to post a 5% weekly gain; Gold down 1% (Reuters)
Gold drops on “upbeat economic signs” (Marketwatch)
Deutsche Bank settles U.S. gold, silver price-fixing litigation (Reuters)
Deutsche Bank Settles Silver, Gold Price-Manipulation Suits (Bloomberg)
Bullion 2016 American Silver Eagle Sales Reach 17 Million (Silver Coins Today)
Finally, It’s Silver’s Time to Outshine Gold: Chart (Bloomberg)
Deutsche Bank Admits It Also Rigged Gold Prices, Agrees To Expose Other Manipulators (Zero Hedge)
Yes, The Dollar Should Be Backed By Gold… (Acting Man)
“Feeding The Monster” – The Complete Bear Case, In Charts (North Man)
Ugly ‘End Game’ For Japan On Debt Spiral (Telegraph)
Read More Here
No kidding! The IMF shows that China may have 1.3 trillion of risky loans. It is probably more:
China may have $1.3 trillion of risky loans, IMF report shows
Submitted by cpowell on Fri, 2016-04-15 04:18. Section: Daily Dispatches
Another reason for devaluation.
* * *
From Bloomberg News
Thursday, April 14, 2016
China may have $1.3 trillion loans extended to borrowers who don’t have sufficient income to cover interest payments, with potential losses equivalent to 7 percent of the country’s gross domestic product, according to the International Monetary Fund.
Loans “potentially at risk” would amount to 15.5 percent of total commercial lending, the IMF said in its latest Global Financial Stability Report. That compares with the 5.5 percent problem loan ratio reported by China’s banking regulator after including nonperforming and special-mention loans.
The true amount of bad debt sitting on the books of China’s banks is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. Hayman Capital Management’s Kyle Bass in January flagged a $3.5 trillion potential loan loss for China banks, though analysts from China International Capital Corp. and Macquarie Securities Ltd. have said that estimate overstates the real situation. …
… For the remainder of the report:
Gold money and Bitcoin are aiming to replace the need for the gold ETF’s
BitGold/GoldMoney aims to eliminate need for gold ETFs
Submitted by cpowell on Fri, 2016-04-15 04:36. Section: Daily Dispatches
12:34p SGT Friday, April 15, 2016
Dear Friend of GATA and Gold:
Grant Williams’ Real Vision Internet site has done an interview with Roy Sebag and Josh Crumb, founders of BitGold and executives of GoldMoney, in which they explain their belief that digitized gold is the future of money and saving. “If we do our job correctly,” Crumb says, “there will not be a gold exchange-traded fund in 10 years” — that is, no need for people to own gold in a “securitized vehicle” because it will be so easy for them to own gold itself directly. An eight-minute excerpt from the interview is posted at Real Vision’s Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Mike Ballanger on the Deutsche bank silver and gold settlement: GATA is vindicated:
(courtesy Mike Ballanger)
Mike Ballanger: Deutsche Bank silver settlement — GATA vindicated
Submitted by cpowell on Fri, 2016-04-15 05:29. Section: Daily Dispatches
1:26p SGT Friday, April 15, 2016
Dear Friend of GATA and Gold:
Deutsche Bank’s confession to manipulating the gold and silver markets with other banks is vindication for GATA and repudiation for the organization’s critics, Toronto broker and metals market analyst Michael Ballanger writes today.
While of course GATA is delighted with the development, Deutsche Bank’s confession is even more a vindication for silver market analyst Ted Butler, who was exposing silver market manipulation even before GATA got into the business. GATA won’t be able to claim full vindication until central banks and governments echo Deutsche Bank’s confession in regard to the monetary metals and mainstream financial news organizations feel compelled to report what has been only obvious for many years.
Besides, mere claiming vindication won’t actually bestow it. While the aphorism mistakenly attributed to Gandhi has often been cited as encouragement to GATA — “First they ignore you, then they ridicule you, then they fight you, and then you win” — our victory more likely will resemble Alfred E. Neuman’s adaptation of the aphorism: “First they ignore you, then they ridicule you, then they fight you, and then they go back to ignoring you, explaining that everybody really knew all along what you were trying to tell them and that the joke is still on you.”
Ballanger’s commentary is headlined “Deutsche Bank Silver Settlement: GATA Vindicated” and it’s posted at 24hGold here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Your early FRIDAY morning currency, Asian stock market results, important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight
1 Chinese yuan vs USA dollar/yuan UP to 6.4725 / Shanghai bourse CLOSED DOWN 4.24 OR 0.14% / HANG SANG CLOSED DOWN 21.34 OR 0.10%
2 Nikkei closed DOWN 63.02 or 0.37%%/USA: YEN RISES TO 108.87)
3. Europe stocks opened ALL IN THE RED /USA dollar index DOWN to 94.77/Euro UP to 1.1283
3b Japan 10 year bond yield: FALLS TO -.098% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 109.26
3c Nikkei now WELL BELOW 17,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 40.49 and Brent: 42.84
3f Gold UP /Yen UP
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil DOWN for WTI and DOWN for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund RISES to 0.161% German bunds in negative yields from 8 years out
Greece sees its 2 year rate FALL to 11.64%/:
3j Greek 10 year bond yield RISE to : 9.37% (YIELD CURVE NOW DEEPLY INVERTED)
3k Gold at $1230.20/silver $16.16 (7:45 am est)
3l USA vs Russian rouble; (Russian rouble DOWN 42/100 in roubles/dollar) 66.53
3m oil into the 40 dollar handle for WTI and 42 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. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN COLLAPSES TO 108.33 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9674 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0914 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p BRITAIN STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.
3r the 8 Year German bund now in negative territory with the 10 year RISES to + .161%
/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 1.77% early this morning. Thirty year rate at 2.57% /POLICY ERROR)
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Futures Fade As Chinese “Good News Is Bad News” For Fed, Oil Drops As Doha Concerns Emerge
Good news is still bad news after all.
After last night’s China 6.7% GDP print which while the lowest since Q1 2009, was in line with expectations, coupled with beats in IP, Fixed Asset Investment and Retail Sales (on the back of $1 trillion in total financing in Q1)…
… the sentiment this morning is that China has turned the corner (if only for the time being). And that’s the problem, because while China was a good excuse for the Fed to interrupt its rate hike cycle as the biggest “global” threat, that is no longer the case if China has indeed resumed growing. As such Yellen no longer has a ready excuse to delay. This is precisely why futures are lower as of this moment, because suddenly the “scapegoat” narrative has evaporated.
The other key event that will set the market tone today is this Sunday’s OPEC meeting in Doha. As a result, crude prices have softened for a third day in a row in the wake of comments that the Iranian Oil Minister will not attend the meeting (however the OPEC governor will be present). This will undoubtedly have potential ramifications for negotiations this weekend as Iran are seen as a key player in striking a deal given their resistance to such a deal. Therefore, the absence of the Iranian oil minister could be seen as a negative for what is already set to be a difficult weekend of discussions.
“The worst outcome for them would be if the meeting happened and some really negative sentiment came out of it – a producer, particularly Iran, came out and said the deal is not on the table,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd., said in an interview with Bloomberg Television. “OPEC don’t want prices to go back down.”
Citi further soured the mood with a report that the Doha meeting is “is all about nothing, no matter what agreement might be forged,” and warns to expect a “sharp oil market sell-off” on Monday if there’s no accord, while a slower sell-off will occur if there’s a formal agreement with “no teeth.”
Elsewhere, European stocks little changed, with investors wary of potential disappointment from the talks. Europe halted a five-day advance. German bonds pared their first weekly drop in more than a month. South Korea’s won led gains in Asian currencies as a flood of Chinese data added to evidence that the world’s second-largest economy is stabilizing. Standard & Poor’s 500 Index futures slipped 0.2 percent, after equities ended little changed on Thursday amid gains in banks and declines in technology companies. Citigroup Inc. is scheduled to report quarterly earnings Friday.
In summary: the final session of the week sees the weekend’s Doha meeting take full focus as the energy complex guides price action through much of the morning. WTI and Brent both started the session at elevated level as many participants forecast some form of deal between OPEC and non OPEC nations in an attempt to freeze oil output and bring a halt to the 18 month slide in oil prices. However, after the Iranian oil minister stated he will not attend Doha discussions but the OPEC governor will be there, WTI and Brent futures fell from their best levels. Notable underperformance has been seen in the DAX led by financials and auto names, with the likes of Volkswagen reporting a fall in their brand sales. Separately, Bunds have seen upside today, trading above the 163.50 level, benefitting from the softness in equities, while also bolstered by EUR 36b1n of redemptions from Italy, Netherlands and France.
This is where markets stand now:
- S&P 500 futures down 0.2% to 2073
- Stoxx 600 down 0.3% to 343
- FTSE 100 down 0.4% to 6342
- DAX down 0.6% to 10037
- German 10Yr yield down 2bps to 0.15%
- Italian 10Yr yield down 1bp to 1.34%
- Spanish 10Yr yield down less than 1bp to 1.5%
- S&P GSCI Index down 0.8% to 337.1
- MSCI Asia Pacific down 0.2% to 132
- Nikkei 225 down 0.4% to 16848
- Hang Seng down 0.1% to 21316
- Shanghai Composite down 0.1% to 3078
- S&P/ASX 200 up 0.8% to 5157
- US 10-yr yield down 2bps to 1.77%
- Dollar Index up less than 0.01% to 94.91
- WTI Crude futures down 1.3% to $40.97
- Brent Futures down 0.9% to $43.44
- Gold spot up 0.1% to $1,230
- Silver spot up 0.3% to $16.21
Top Global News
- Oil Producers Head for Doha Counting $315b Cost of Slump: oil countries to debate on Sunday in Doha production freeze
- IMF Says Greek Debt Numbers Don’t Add Up as EU Defends Its Plan: Lagarde says country’s debt not sustainable; relief needed
- Spanish Industry Minister Soria Resigns Over Panama Leaks: Soria linked to offshore company set up by Mossack Fonseca
- Synaptics Said to Push for Deal With Chinese Suitor by End- April: Two sides still negotiating price of about $110-per- share
- Goldman’s Blankfein Said to Push Deepest Cost Cuts in Years: Push includes firings, travel limits; more measures possible
- Volkswagen Europe Quarterly Market Share Hits Five-Year Low: VW-brand sales fall amid efforts to resolve emissions rigging
- Credit Suisse Faces Penalty in Japan for Leaking Information: SESC says an analyst shared data on a company’s earnings
Looking at regional markets this morning, we first focus on Asia where stocks saw subdued trade following a flat lead from Wall St. and as participants digest the latest Chinese data releases which mostly surpassed estimates, although GDP printed in line. Nikkei 225 (-0.5%) opened significantly lower on profit-taking following yesterday’s +3% gain and over 1000 point rally in the past 3 days. However, the index then recovered off its worst levels as JPY extended on weakness amid increased hopes of BoJ action at this month’s meeting. Shanghai Comp (-0.2%) was negative despite Chinese industrial production, retail sales and lending/financing data all beating expectations, as GDP fell to a 7-year low as expected. 10yr JGBs saw marginal support amid the risk-averse sentiment in Japan alongside the BoJ in the market for around JPY 1.2trl of JGBs under its bond buying program.
Top Asia News:
- China’s Economy Stabilizes as Debt Surge Spurs Property Comeback: Credit surge raises question marks over growth sustainability
- Tencent Said in Talks for Syndicated Loan Up to $2 Billion: Separate from $2.45b facility worked out last year
- Infosys Sales Forecast Beats Estimates After Major Deal Wins: Sales projected to grow as much as 13.8% in USD
- Saudi Arabia Says Donation to Malaysian Premier Was Genuine: Money appeared in Najib’s accounts in 2013 before elections
- At Least 9 Killed, Hundreds Injured in Southern Japan Quake: No reports of damage to nearby operating nuclear reactors
In Europe, the Stoxx Europe 600 Index slipped 0.1 percent, paring its weekly advance to 3.5 percent. Auto-related shares fell the most on the Stoxx 600, with Volkswagen AG losing 1.1 percent after data from the European Automobile Manufacturers’ Association showed its share of the European market contracted to a five-year low. Anheuser-Busch InBev NV led food and beverage companies higher, rising 2 percent after agreeing to create a fund that will support the South African beer industry and protect jobs in the country to help seal approval for its proposed takeover of SABMiller Plc, which added 1.2 percent. Carrefour SA advanced 4.1 percent after France’s largest retailer reported higher first quarter revenue as growth in southern Europe and Latin America compensated for a decline in China.
Top European News:
- ING Sells $1.6b of NN Stock, Completing Exit From Insurer: bank will post net loss on deal of about 100 million euros
- STMicroelectronics Is Said to Seek Successor to CEO Bozotti: has struggled to generate consistent profit under Bozotti
- Rio Tinto CEO Says Iron Ore’s 55% Rally About to Fizzle Out: CEO Sam Walsh cites new production coming on later in 2016
- Rational Falls Most in 8 Mths as Baader-Helvea Downgrades Stock: cuts stock to sell from buy
- Carrefour Reports Higher Quarterly Sales, Buoyed by Brazil: analysts’ consensus for full-year profit is reasonable, CFO says
- AB InBev Pledges South African Fund to Smooth SABMiller Deal: Budweiser maker agrees to maintain employment levels
In FX, we have seen some cautious trading in early London, but much of the action seen in AUD and CAD this morning — the latter seeing some 2 way trade ahead of the much awaited Oil talks in Doha this weekend. There are growing expectation that there will be limited concrete progress towards production levels, so we are erring on the side of some near term CAD weakness. Sub 1.2800 bids coming in, but we are holding comfortably off the near 1.2900 highs seen yesterday. Against this we see the market intent on improving on the AUD highs seen yesterday. The spot rate hitting a .7736 high, and bids here firm from .7700 (in London) looking to a test of .7750 (good offers here). NZD/USD has followed higher, reclaiming .6900. GBP was having a quiet morning until a snap higher took Cable from 1.4130 lows to 1.4185/6. Little behind the move, as markets thin. EUR/USD also range bound, but well capped ahead of 1.1300.
In commodities, heading into the North American cross over, Crude prices have softened in the wake of comments that the Iranian Oil Minister will not attend the meeting in Doha this weekend (however the OPEC governor will be present). This will undoubtedly have potential ramifications for negotiations this weekend as Iran are seen as a key player in striking a deal given their resistance to such a deal. Therefore, the absence of the Iranian oil minister could be seen as a negative for what is already set to be a difficult weekend of discussions.
Overnight Gold prices saw uneventful trade and is on course for its first weekly decline in 3 weeks as the heightened risk sentiment earlier in the week dampened demand for the safe-haven. Elsewhere, copper and iron ore prices were subdued overnight following Chinese GDP data which fell to its lowest in 7 years, although copper prices are still on course for its best week in 1% months.
Copper, nickel and zinc declined in London, trimming their biggest weekly advances in more than a month. The metals all climbed more than 3 percent from a week ago. Iron ore futures in Dalian dropped the most this month after Rio Tinto Group, the world’s second-biggest producer, warned recent price gains aren’t sustainable. The steel-making raw material fell 2.2 percent on Friday, trimming this year’s advance to 27 percent. China, the world’s biggest steel producer, pushed output to a record in March, data showed Friday.
Investors will also look to economic releases on Friday, including industrial production and consumer sentiment — both of which are forecast to show improvements from the previous period — for indications of the health of the world’s biggest economy and the possible trajectory of interest rates.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European equities remain unresponsive to the better than expected Chinese retail sales and industrial production.
- All eyes on the Doha meeting as energy guides price actions, following announcement that the Iranian Oil Minister will not attend.
- Looking ahead, highlights include US Empire manufacturing, industrial production and University of Michigan Sentiment as well as comments from ECB’s Costa and Fed’s Evans.
- Treasuries higher in overnight trading as week’s auction completed and global equity markets sell off along with WTI crude oil; major oil suppliers meet in Doha to discuss an output freeze.
- Nations representing almost 60 percent of the world’s oil production will gather in Doha on April 17 to discuss freezing their output at January levels in an effort to stabilize prices
- Goldman Sachs is embarking on its biggest cost-cutting push in years as it tries to weather a slump in trading and dealmaking, according to people with knowledge of the effort
- Chinese leaders appear to have stabilized their $10 trillion-plus economy by relying on a tried and true playbook: unleash a torrent of credit to power a borrowing surge and spending splurge; China may have $1.3 trillion loans extended to borrowers that don’t have sufficient income to cover interest payments, with potential losses equivalent to 7% of the country’s gross domestic product, according to the IMF
- On Sunday the bitter political drama that has all but paralyzed Brazil will take its climactic turn; the Chamber of Deputies vote that could put President Dilma Rousseff a hair’s breadth from impeachment
- The war of attrition over the next Spanish government took an unexpected twist on Friday when Acting Industry Minister Jose Manuel Soria resigned over his links to an offshore company listed in the Panama leaks
- The IMF raised doubts about Greece’s ability to keep up repayments under a plan being negotiated with its European creditors, who insisted they’ve already provided plenty of debt relief
- A year ago today, European equities hit their highest levels ever. But the euphoria about Mario Draghi’s stimulus program didn’t last, and trader skepticism is now rampant
- Since Mario Draghi announced plans to start acquiring corporate debt in Europe, the market’s biggest winners are bonds he won’t be buying
Sovereign 10Y bond yields mixed, Greece -24bp; European, Asian equity markets lower; U.S. equity-index futures drop. WTI crude oil and copper drop, precious metals rise
DB’s Jim Reid completes the overnight wrap
this morning marks the start of the official UK EU referendum campaigning period. From now until the poll date on June 23rd strict rules apply on commenting or publishing non-campaign affiliated pieces. So one would expect a huge drop off in coverage of the issue from the financial world. So on this matter see you on June 24th.
Onto things we can discuss, regular readers will know that “helicopter money” has long been our expected end game to this post-GFC world. We’ve said in the recent past that we still think we’re in the early stages of money printing rather than the latter stages. It’s just that this printed money will likely eventually be directed in a different manner to what we’ve seen so far. Our expectations of this were laid out in our 2013 long-term study “A Nominal Problem”. Given this we wanted to highlight a piece George Saravelos’s team published last night entitled “Helicopters 101: Your guide to monetary financing”. It’s a great report and goes through the practicalities, historical experiences, legal constraints and potential market impacts. They conclude that monetary financing may be more likely than commonly assumed.
Before we go any further, we’re switching our focus straight over to China where the hotly anticipated Q1 GDP data has just been released. There was no unexpected surprises however after growth was reported at +6.7% yoy for the quarter (down from 6.8%) which is bang in line with market expectations and means the current rate is sitting in the middle of the Governments 6.5% to 7% target range for the year.
There’s been a raft of other data released from China too and it’s generally quite positive. Industrial production printed well above expectations in March (+6.8% yoy vs. +5.8% expected) which has resulted in the YTD YoY rate jumping four-tenths to +5.8%. Retail sales (+10.5% yoy vs. +10.4% expected) also beat, along with fixed asset investment (+10.7% ytd yoy vs. +10.4% expected) last month. New credit measures were also supportive. Aggregate financing of 2.3tn yuan exceeded estimates of 1.4tn yuan and is up from 780m yuan in February, while new loans (1.4tn yuan vs. 1.1tn yuan expected) also exceeded. The M2 measure of broad money supply rose one-tenth of a percent to 13.4% yoy.
Despite some green shoots in the data, markets are closing out the week a bit soft. In China the Shanghai Comp and CSI 300 are -0.37% and -0.29% (they were already down prior to the data) while elsewhere the Nikkei (-0.34%), Hang Seng (-0.18%) and Kospi (-0.15%) are also lower. Only the ASX (+0.34%) is trading firmer. Metals markets are little moved, although credit markets are a touch tighter in the Asia region.
Moving on. For the first time in some days and despite another decent session for risk in Europe with the Stoxx 600 (+0.27%) closing higher for the fifth day in a row, markets in the US were fairly directionless from the get go. The S&P 500 (+0.02%) was close to unchanged by the end of play despite another positive day for the banking sector. Bank of America reported quarterly revenues slightly below street expectations, although earnings pretty much matched expectations with much of that being attributed to a slashing of costs (much like JPM’s earlier this week) and also a boost from its retail arm. Wells Fargo actually beat at both the revenue and earnings line, although the focus was on the lifting of reserves against energy loan losses – a theme we’ve seen in the early reports for the sector with the FT stating that the three big US banks have so far added a combined $1.5bn of reserves in the quarter alone. Wells management also made mention to the fact that their energy portfolio remains under ‘significant stress’. Citigroup will cap off the results for the banks this week when they report this afternoon.
Earnings reports will intensify in the US next week so look out for this and also by Monday we’ll know the headlines from the oil producers meeting in Doha this weekend which should help to set the early tone for the open on Monday.
Outside of bank earnings yesterday’s inflation data out of the US was the other big focus for markets and investors. The numbers came in a touch lower than expected at both the headline (+0.1% mom vs. +0.2% expected) and core (+0.1% mom vs. +0.2% expected) which had the effect of knocking down the YoY rates for both to +0.9% and +2.2% respectively. Our US economists also point out that while that YoY core reading looks relatively robust, stripping out shelter from the series paints a different picture, with the twelve-month rate of the series down at +1.5% and suggestive that the strength in core inflation is not broad based.
Despite the inflation numbers coming in a touch below consensus, the data failed to stop Treasury yields moving higher with the benchmark 10y yield up close to 3bps and hovering around 1.793%. The US Dollar did stall slightly but still had a strongish day, while the latest initial jobless claims reading did little to dent that. Claims printed at 253k for last week, which was down 13k from the prior week and well below the street expectations of 270k. In fact that reading is the lowest since 1973 and it means claims have stayed below 300k for 14 months.
Staying with the US, over at the Fed the latest set of comments came out of the Atlanta Fed’s Lockhart. The Fed official noted a slight change of tune, opining that some recent softening in consumer spending and business investment data has impacted his thinking and as a result won’t be advocating a move in April. This came after Lockhart had previously said momentum in the data was positive enough to possibly justify a move this month. Lockhart reiterated however that June remains an option, although it’s worth highlighting that the probability of such as implied by futures markets is continuing to trend lower. We’re currently sitting at a just 16% probability of a 25bps hike, which is down from the low 20%’s a few weeks back.
There was inflation data out in Europe yesterday too. The final March print for the Euro area was revised up a tenth to 0.0% yoy, which was up from the -0.2% reading in February, while there was no change made to the core reading of +1.0% yoy. Meanwhile, yesterday’s MPC meeting in the UK saw no changes made to the BoE’s policy rate as expected with a unanimous 9-0 vote.
Turning over to the day ahead, this morning in Europe it’s a fairly quiet close to the week datawise with the only release of note the February trade balance reading for the Euro area. There’s some important data due out in the US this afternoon however, with the highlight likely to be the March IP report where current expectations are set at -0.1% mom. As well as this we’ll also get manufacturing data in the form of the manufacturing production report and the April empire manufacturing data. We’ll cap the day off with the preliminary reading for the University of Michigan consumer sentiment reading (expected at 92.0, up from 91.0 in March). Away from the data, the Fed’s Evans is due to speak this evening (at 5.50pm BST) while today will also see the IMF and World Bank spring meetings kick off, and continue over the weekend.
i)Late THURSDAY night/ FRIDAY morning: Shanghai closed DOWN 4.24 POINTS OR 0.14% / Hang Sang closed DOWN 21.34 OR 0.10%. The Nikkei closed DOWN 63.02 POINTS OR 0.37% . Australia’s all ordinaires CLOSED UP 0.76%. Chinese yuan (ONSHORE) closed UP at 6.4725. Oil FELL to 40.64 dollars per barrel for WTI and 42.84 for Brent. Stocks in Europe ALL IN THE RED . Offshore yuan trades 6.4865 yuan to the dollar vs 6.4725 for onshore yuan. LAST NIGHT CHINA REVALUES ITS CURRENCY HIGHER
FIRST REPORT ON JAPAN SOUTH KOREA AND CHINA
a) JAPAN ISSUES
Japan already owns 52% of all ETF’s and these turkeys want to buy more:
(courtesy zero hedge)
The Bank Of Japan Already Owns Over Half Of All ETFs; It Wants To Own More
Less than six months after we pointed out that the BoJ owns 52% of the entire Japanese ETF market,Reuters reports that the Kuroda’s Peter Pan fairy tale, aka the Bank of Japan, is thinking about buying even more. The BoJ is said to be currently buying $30 billion of ETF’s a year under its current policy, however since the Nikkei is down over 10% this year, that figure is apparently not enough to keep the market propped up.
Here’s how the BoJ’s holdings in the Japanese ETF market looked visually in recent months:
“Increasing ETF buying in huge amounts, combined with a modest increase in bond buying and an interest rate cut, could be the only way left to surprise markets,” said a former BOJ executive who retains close contact with incumbent policymakers.
The reason for the BOJ’s desperation shift to monopolizing the equity market next is that as we have warned since 2014, it is running out of bonds to purchase: “the BOJ’s huge bond purchases are also drying up market liquidity, which further limits the scope for a large increase.”
“They are crossing off a list of things that aren’t possible, and the only thing that’s left is buying ETFs,” said Richard Jerram, economist at Bank of Singapore.
Japan’s ETF market is just 15.8 trillion yen, of which the BOJ already holds about half, but ETFs can be easily cobbled together by brokerages, so there is scope for plenty more, given Japan’s TOPIX stock market weighs in at 500 trillion yen.
Recall that the Bank of Japan’s purchasing of ETF’s does in fact lift the market, but questions remain around how much losses the bank will incur after the euphoria wares off, and how they can ever exit their position without collapsing prices.
“The BoJ will not easily be able to retract this liquidity in the future without destabilizing markets“, said Andrew Meredith, co-managing director at Tyton Capital Advisors
What “retraction”? The BOJ will never be able to “retract” as at this point this is the all in gamble; Kuroda knows very well that should the Nikkei drop a few more percent, he and Abe are out. Even the BOJ itself realizes this:
There are doubts raised within the BOJ, too, but those voices are in retreat as Kuroda stretches the limits of monetary policy, and dissenters to his radical money-printing policies are being replaced by supporters, the sources say.
“I don’t think worries about an exit are high on the list of the BOJ’s priorities,” said another source familiar with the BOJ’s thinking.
Worse, increasingly every BOJ proposal is being seen as a joke by even the “serious” members of the analyst community.
Jerram at Bank of Singapore said he was not convinced buying ETFs would help much with the BOJ’s principal goals, however, as there wasn’t a clear transmission into economic performance.
“They do something for the sake of doing something, and people see through that pretty quickly,” he said.
With the only tangible success of NIRP being that the BoJ has broken the money market, it will now embark on a journey to push on the string from the other direction, ultimately from the boardroom.
As we said back in October, “buying individual issues would allow the BoJ to effectively control corporate management teams on the way to dictating decisions about wage hikes and capex. In other words, when Abenomics fails, the BoJ will simply take over the boardroom and mandate higher pay in an effort to fix this.”
Which brings up another question: why is it that central banks have no qualms about reporting their purchases f ETFs but, with the exception of the SNB, are yet when it comes to purchases of single name stocks (or, gasp, crude oil) during key inflection points, it is still considered a taboo? After all, there are no markets left that are isolated from central bank intervention anymore.
Another earthquake, this time 10 x bigger in southern Japan:
(courtesy zero hedge)
Major 7.0 Magnitude Quake Strikes Japan, Tsunami Advisory Issued
A day after yesterday’s “biggest quake since 2011’s tsunami,” at 1:25 local time, Japan was just struck with a massive aftershock in the form of a Magnitude 7.0 earthquake, which means it was roughly 10 times stronger than yesterday’s tremor:
- The earthquake was centered just southeast of Kumamoto.
- It struck about at a shallow depth of 10 kilometers.
- A tsunami advisory has been issued for coastal areas.
- Kumamoto is the capital city of Kumamoto Prefecture on the island of Kyushu, Japan.
- As of March 1, 2010, the city has an estimated population of 731,286 and a population density of 1,880 persons per km2
State broadcaster NHK reports that a tsunami advisory is for possible wave of 1 metre in height.
Less than 30 minutes after the initial quake, numerous aftershocks were reported, with at least one M6.0 quake hitting as well.
From the USGS:
b) CHINA ISSUES
China’s GDP meets expectations of 6.7% along with beats in industrial production, fixed assets and retail sales. Supposedly the Chinese market is recovering (only with a massive 1 trillion USA in total social financing influx in the last quarter).
The question now will be how will Janet respond. She will need to raise rates but China will not let her!
(courtesy zero hedge)
Fed Cornered: Stocks Slump As “Everything Is Awesome” In China: GDP Meets, Rest Of Data Beats
Heading into tonight’s datagasm from China, SHCOMP tumbled and Yuan was strengthening (while money-market rates were ticking higher). Then it began… Retail Sales BEAT (+10.5% vs. +10.4% exp), Industrial Production BEAT (+6.8% vs. +5.9% exp), Fixed Asset Investment BEAT (+10.7 vs. +10.4% exp) and last – but not least – GDP MEET (+6.7 vs. +6.7% exp) – though still the weakest since Q1 2009. The post-data reaction was initially opsitive but then faded fast as reality hit on the lack of stimulus coming.
*CHINA MARCH INDUSTRIAL OUTPUT RISES 6.8% ON YEAR; EST. 5.9%
*CHINA MARCH RETAIL SALES RISE 10.5% ON YEAR; EST. 10.4%
*CHINA JAN.-MARCH FIXED-ASSET INVESTMENT RISES 10.7%; EST. 10.4%
And finally, a mere two weeks after quarter-end, China can calculate GDP confidently and with not a hint of manipulation… lowest since Q1 2009
Bear in mind that the 42 estimates of tonight’s ‘manufactured’ GDP data varied from +6.3% (Barclays) to +7.2% (HFE) – a cool $100bn between most bullish and most bearish.
The reaction all of this great news…not good…
Now The Fed has a problem – solid inflation, solid wages, solid jobs, and no global turmoil – we are going to need some turmoil soon or rates are going up.
China adds a stunning 1 trillion USA in total social financing. This is unbelievable as sovereign China is heading for a debt to GDP of 350%. This cannot continue much longer:
(courtesy zero hedge)
$1,001,000,000,000: China Just Flooded Its Economy With A Record Amount Of New Debt
When China reported its economic data dump last night which was modestly better than expected (one has to marvel at China’s phenomenal ability to calculate its GDP just two weeks after the quarter ended – not even the Bureau of Economic Analysis is that fast), the investing community could finally exhale: after all, the biggest source of “global” instability for the Fed appears to have been neutralized.
But what was the reason for this seeming halt to China’s incipient hard landing? The answer was in the secondary data that was reported alongside the primary economic numbers: the March new loan and Total Social Financing report.
As the PBOC reported last night, Chinese banks made 1.37 trillion yuan ($211.23 billion) in new local-currency loans in March, well above analyst expectations, as the central bank scrambled to keep the economy engorged with new loans “to keep policy accomodative to underpin the slowing economy” as Reuters put it. This was up from February’s 726.6 billion yuan but off a record of 2.51 trillion yuan extended in January. Outstanding yuan loans grew 14.7 percent by month-end on an annual basis, versus expectations of 14.5 percent.
But it wasn’t the total loan tally that is the key figure tracking China’s credit largesse: for that one has to look at the total social financing, which in just the month of March rose to 2.34 trillion yuan, the equivalent of more than a third of a trillion in dollars!
And there is your answer, because if one adds up the Total Social Financing injected in the first quarter, one gets a stunning $1 trillion dollars in new credit, or $1,001,000,000,000 to be precise, shoved down China’s economic throat. As shown on the chart below, this was an all time high in dollar terms,and puts to rest any naive suggestion that China may be pursuing “debt reform.” Quite the contrary, China has once again resorted to the old “growth” model where GDP is to be saved at any cost, even if it means flooding the economy with record amount of debt.
And to put it all together, the PBOC also reported that the broad M2 money supply measure grew 13.4% in March from a year earlier, or precisely double the rate of growth of GDP. This means that it took two dollars in new loans to create one dollar of GDP growth.
With China’s debt/GDP already estimate at 350%, how much longer can China sustain this stunning debt (and by definition, deposit) growth continue?
It sure looks like the Chinese junk bonds have finally burst as risk soars over there:
(courtesy zero hedge)
“Last Bubble Standing” Bursts – China Junk Bond Risk Soars
In January we pointed out “the last bubble standing,” as China’s crashing equity market had spurred massive inflows – directed by a “well-meaning” central-planning committee’s propaganda – sparking a massive bubble in Chinese corporate bond markets (in an effort to enable desperately weak balance-sheet firms to roll/refi their debt and keep the zombies alive). That has now ended as China’s junk bond risk has soared to 5-month highs with its worst selloff since 2014. As HFT warns, “we should avoid junk bonds.”
China’s high-yield bonds are in the midst of their worst two-month selloff since the end of 2014 and investors say they have yet to fully price in the risk of defaults as the economy slows. The gap reached a four-month high of 379 basis points, from as low as 352 on Jan. 19, as at least seven companies reneged on bond obligations this year, up from one in the same period of 2015.
As Bloomberg details,
“Most high-yield bonds haven’t fully priced in default risks,” said Zhao Hengyi, Shanghai-based deputy director of the bond fund department at HFT Investment Management Co., which oversees 46.9 billion yuan ($7.2 billion) of assets. “We should avoid junk bonds.”
Premier Li Keqiang has pledged to pull support from zombie firms that have wasted financial resources and dragged on economic growth, which is slowed to 6.7 percent in the first quarter. Chinese companies must repay a total of 31.3 billion yuan of bonds rated AA- or lower this year, the most on record, according to Bloomberg data based on rankings from the nation’s four-biggest rating firms. Corporate notes rated AA- or lower are considered as junk bonds in China.
China’s corporate debt burden is heavy, but if you have a lot of savings and lending, the leverage compared with countries without high saving rates is not very high, People’s Bank of China Governor Zhou Xiaochuan told a briefing in Washington on Thursday. The PBOC has lowered benchmark interest rates six times since 2014, driving a record rally in the bond market and underpinning a jump in debt to 247 percent of gross domestic product.
At least 37 Chinese firms postponed or scrapped 35.2 billion yuan of planned note sales through April 13, compared with nine companies pulling 12.4 billion yuan a year ago, data compiled by Bloomberg show. About half of the cancellations took place this week after state-owned China Railway Materials Co. halted its bond trading Monday.
“The recent default events have hurt investors,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing. “So it’s natural for bond yield spreads to go up.”
As BofA warns however, there are signs that the risk-free rate in China may have bottomed and that the credit spread is widening.
This may check any enthusiasm in the market, in our view. We consider the latest rally to be tactical and we don’t recommend that investors chase it. We maintain our year-end target for HSCEI of 9,000 and, for SHCOMP, 2,600.
Chart 1 shows the 5-year Chinese Government Bond (CGB) yield vs. CSI300. At the risk of oversimplifying, we separate the market’s behaviors into two phases: before mid-2013, Phase I; post mid-2013, Phase II. We judge that market confidence in fundamentals, i.e., the earnings outlook, was generally strong in Phase I; but weak in Phase II.
In Phase I, the bond yield generally correlated positively with CSI300’s performance. When the yield rose, investors, in general, believed that the economy was strong enough to endure some tightening. As a result, they were willing to continue to bid for stocks for a while.
On the other hand, in Phase II, investors were much less confident: when the yield rose, the market almost immediately came under pressure; when the yield fell, the rebound was mostly muted (except the artificial rally from mid-2014 to mid-2015, underpinned by perceived implicit government guarantees) and often with a significant lag. Actually, since mid-2015, despite the sharp drop in rates, A-shares have continued to be under pressure.
Now, interest rates appear to be experiencing upward pressure. If they indeed move up noticeably, we would expect market sentiment to weaken fairly quickly.
The key question for us is, if interest rates indeed rise noticeably, will the market resort to the Phase I thinking, i.e., believing that the growth is strong enough to handle the rise? While we cannot rule out the possibility, we believe that this is unlikely, given the tentative stabilization of macro conditions and the continued surge in debt.
We leave it to Xia Le to conclude,
“The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid,” said Xia Le, the chief economist for Asia at Banco Bilbao. “A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets.”
“Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash… This game can’t go on forever.”
what on earth is this world coming to: Angela Merkel will authorize a criminal probe against a German comic who mimicked Erdogan:
(courtesy zero hedge)
Angela Merkel Gives In To Turkish Pressure, Authorizes Criminal Probe Against Comic
Several weeks ago, a German comedian Jan Böhmermann, landed in hot water after releasing a satirical “video poem” about the Turkish president which aired in ZDF Neo Royale program on March 31, and accuses Erdogan of repressing Turkey’s national and religious minorities, as well as of being a pedophile.
The video, which incidentally was less funny than the author had intended, can be seen in the clip below.
Most were slighly amused by it, but not the target of the clip’s satire, and a few days ago the Turkish president submitted a criminal complaint against the 35 year old German comedian for libel.
While the video fell under the protective cloak of the right to artistic freedom, press freedom and freedom of opinion, Böhmermann dubbed his poem an act of “abusive criticism” Reuters reported.
Ironically, even former Greek Finance Minister Yanis Varoufakis, who has borne the brunt of Böhmermann’s jokes himself, spoke out in support of the comedian, tweeting that “Europe first lost its soul [agreement with Turkey on refugees], now it is losing its humor.”
YANIS VAROUFOUKIS TWEET:
And while some said that this could land the humorist, already under investigation over attacking foreign representatives, in more trouble free speech watchers said that the likelihood of Merkel succumbing to Turkish pressure was low.
However, they were wrong, and earlier today Angela Merkel authorised the Turkish demand for criminal proceedings against a German TV comedian over a crude satirical poem about President Recep Tayyip Erdogan in a bitter row over free speech.
“The government will give its authorisation in the case at hand,” Merkel told reporters, adding that it was up to the courts to decide on his guilt or innocence.
However, perhaps to soften criticism of folding to Erdogan demands, Merkel also announced that Germany would by 2018 scrap the rarely-enforced section 103 of the criminal code — insulting organs or representatives of foreign states — under which the comic, Jan Boehmermann, has been accused, as a result of the embarrassing affair. A section 103 probe can only go forward with the approval of the federal government.
Ankara this month filed a formal request for a criminal inquiry to be launched in Germany against the popular Boehmermann, who accused Erdogan of having sex with goats and sheep while gleefully admitting he was flouting Germany’s legal limits on free expression.
Merkel – who had previously labelled the poem “deliberately insulting” — had pledged Turkey’s request would be “very carefully” examined, even as she underlined the German constitution’s guarantees of “freedom of expression, academia and of course the arts”.
As AFP reports, on Friday she said her government, after heated internal debate, had concluded that only the judiciary should decide whether Boehmermann had committed a criminal offence.
“In a state under the rule of law, it is not a matter for the government but rather for state prosecutors and courts to weigh personal rights issues and other concerns affecting press and artistic freedom,” she said.
Merkel stressed that Berlin’s decision did not amount to a “prejudgement” on his legal culpability and that “prosecutors and courts” would have the last word. In an ironic twist, German law also allows Erdogan to demand the court verdict be broadcast, if he wins.
And while we respect Merkel’s justification for what will be seen as another crushing blow to European free speech, we wonder how a comparable criminal complaint by Putin against a German comedian would have fared (and there are certainly more than enough media jokes for him to pick) with the chancellor. And then we remember that it is not Russia that is the critical threshold for millions of Syrian refugees which can be unleashed upon Europe at a moment’s notice, but Turkey, and promptly remember who has all the leverage.
The city of Calgary is turning into a ghost town as one in 5 office spaces are empty
(courtesy zero hedge)
“It’s Turning Into A Ghost Town” – One In Five Calgary Offices Is Now Empty
As we’ve covered extensively in the past (here and here), home prices and vacant offices in Calgary have been a complete disaster as a result of the collapse in oil prices. Recall the troubling divergence in home prices that Calgary is experiencing in relation to other major cities in Canada.
And also, vacancy rates ebb and flow with the price of crude.
And now with the price of crude hovering around $40/bbl, CBRE Canada estimates that Calgary’s downtown office vacancy rate was 20.2% as of March 31, nearly twice as high as the 11.8% a year ago. This means that one in five offices is now vacant.
It says vacancies are at historic highs, with eight million of the downtown area’s 41 million square feet of office space available and subleases making up close to half of what’s on offer
With three million square feet of office space under construction still, experts say that it could be well over a decade before the market rebalances.
Calgary’s downtown commercial office space vacancy rate has
risen to 20.2%, according to CBRE.
As CTV News adds, “it’s the first time since 1983 that more than one fifth of office space was available in downtown Calgary, and the city is on track to hit a new record above the 22 per cent rate hit that year”, citing Greg Kwong, regional managing director at CBRE.
“It’s going to get a little bit worse before it gets better,” said Kwong. “Unless oil jumps back to $80 a barrel, I don’t think we’ll go down to the teens.”
Or, we may, if oil goes back to $30 or lower.
How bad is the damage: “prices have dropped to an average of $20.97 per square foot for high-end class A office space from $29.23 in the same quarter a year ago, CBRE added.”
The dramatic reversal in the local markets, duly reported here for the past year, has caught Kwong by surprise, and he is stunned at how quickly Calgary’s market has reversed from the 2009-2014 trend, when it had the lowest vacancies and highest rental rates in Canada.
“It was amazing how robust the market was in November 2014, and literally within four or five months it was amazing how ugly it got here,” said Kwong.
Alas, that’s what happens when the one commodity that powers the city’s economy has its price cut by 60%.
Meanwhile, Calgary’s office market has been hit hard as oil and gas companies continue to cut jobs and consolidate office space due to low crude prices. Barclay Street Real Estate released a report Tuesday saying MEG Energy is trying to sublease more than 300,000 square feet, Shell Canada more than 183,000 square feet and Penn West Energy 73,000 square feet.
And once the bankruptcies begin in earnest, it will only get worse.
For now Calgary largely an outlier in Canada’s downtown office market, with Toronto’s vacancies up only slightly in the quarter to 5.3%, while Vancouver’s dropped to 8.8%, according to CBRE. However, we all know the “Vancouver story” by now.
Ultimately the real number is even worse as vacancy rates also don’t account for the unknown amount of near-empty office space that companies haven’t tried to sublease because there’s no market for them, said Kwong. “You’ll see some buildings where there are five people on a 40,000-square foot floor,” he said.
But not for long. As for the immediate future, things are only set to get worse:
Dan Lannon, a senior vice-president at real estate company Colliers International, said with about three million square feet of office space under construction, the downtown core could have 11 million square feet of empty offices in 2018. That’s the equivalent of about 647 NHL rinks.
“The fact is we’re adding a lot of office space to our market that our city really doesn’t need,” said Lannon.
With Calgary absorbing an average of about 550,000 square feet of office space per year over the past 15 years, Lannon said it “could be well over a decade before the city returns to a balanced market.”
And that assumes oil returns to its historic prices.
It looks like Brazil has 2/3 of the necessary votes to begin the impeachment process.
The vote is on Sunday:
(courtesy zero hedge)
Brazil Stock Soar After Rousseff Impeachment Vote Reaches Required Threshold
Following Monday’s decision by a special committee to commence the impeachment process against president Dilma Rousseff, all attention had been focused on the number of Congressional votes that the pro-impeachment movement would have ahead Sunday’s critical vote. As a reminder, impeachment would require two-thirds support, or 342 of the 513 lower-house lawmakers, to send the case to the Senate.
And then, following a failed attempt to stall the impeachment process last night when Brazil’s Supreme Court allowed the impeachment process to proceed despite Rousseff’s protests, moments ago, Brazil’s Folha newspaper reported that this critical 342 threshold had been met.
- BRAZIL PRO-IMPEACHMENT VOTE TALLY REACHES 2/3 THRESHOLD: FOLHA
The result: Brazilian stocks, which had already surged today, and were up 22% YTD not to mention up 44% from January’s lows, extended the rally of what has been this week’s best performing market ahead of this weekend’s impeachment vote.
Citing Ari Santos, a trader at brokerage H.Commcor in Sao Paulo, Bloomberg reports that “the market is anticipating the improvement of the economy with new policies,” said “That’s the main driver for Brazil’s stocks today as it has been in the past weeks.”
However, such an optimistic assessment may be premature: first, not only is Rousseff going to fight the process, which next goes to the Senate, tooth and nail, but a political crisis just 4 months ahead of the Olympics will hardly be beneficial for the Brazilian economy, which as we have been reported for the past year, is now openly in a depression.
“The view that Sunday’s impeachment vote will be some sort of a denouement is wide of the mark,” Nicholas Spiro, a partner at Lauressa Advisory Ltd. and previously a consultant on sovereign-credit risk, said from London. “Irrespective of the outcome, it is bound to raise more questions than answers. Markets are far too confident that Brazilian politics is moving in the right direction as far as political stability and economic reforms are concerned.”
For now, however, as the chart below shows, traders are pushing green first, and asking questions later.
Defaults coming fast and furious as Goodrich Petroleum is the latest to file Chapter ll
(courtesy zero hedge
Default Cycle Now In Full Swing As Goodrich Petroleum Is Latest To File Chapter 11
The energy bankruptcy wave has been officially unleashed.
After just yesterday Energy XXI became the latest shale company to seek bankruptcy protection, this morning another troubled energy producer, Goodrich Petroleum announced a prepackaged Chapter filing meant to implement a financial reorganization after struggling to restructure its debt amid declining energy prices.
In its press release, the company announced, that “through the Chapter 11 restructuring, the Company will eliminate approximately $400 million in debt from its balance sheet, substantially deleverage its capital structure and strategically position the Company for long-term performance in an anticipated improving commodity price environment. The RSA eliminates all of the Company’s prepetition funded indebtedness other than its first lien reserve based loan facility, which currently has approximately $40 million outstanding, resulting in a significantly deleveraged balance sheet upon the Company’s emergence from the Chapter 11 bankruptcy process. ”
The filing, just like EXXI’s is not a surprise: Goodrich earlier this month reached an agreement with creditors to use its “best efforts” to file for Chapter 11 with a prepackaged plan to reorganize and emerge from court as an operating business. That agreement came after the company’s debt-for-equity exchange offer failed to gain enough traction among debt holders.
As Bloomberg reminds us, on March 16, Goodrich delayed releasing its annual report, citing a large loss that auditors have determined may affect the company’s ability to operate as a going concern. The loss comes “mainly as a result of substantial impaired asset writedowns,” Goodrich said in the filing.
But what is most notable, and goes back to what we have said for the past year, is that even in bankruptcy energy companies will continue operating, and perhaps pump even more than prepetition: as Goodrich adds, the prepack agreement “provides for the Company’s executive management team to remain with the Company, which will allow for the Company’s operations to continue as normal throughout the court-supervised financial restructuring process, including the payment of royalty and operating expenses.”
In other words, the pumping will go on.
Goodrich has properties in the Tuscaloosa Marine shale of eastern Louisiana and southwestern Mississippi, the Eagle Ford shale in south Texas and the Haynesville shale in northeast Texas and northwest Louisiana, according to its website. Low gas prices have led it to focus on leasing its existing acreage, according to the website.
As Bloomberg adds, since the start of 2015, about 50 oil and gas producers have gone bankrupt, owing more than $17 billion, according to law firm Haynes & Boone LLP. Goodrich joins shale-focused companies such as Magnum Hunter Resources Corp., which filed for creditor protection in December.
Furthermore, as we noted yesterday, April’s total junk bond defaults, over $14 billion as of yesterday, just added another several hundred million in restructured liabilities to the tally. This means that with just 15 days past in the month of April, total high yield bankruptcies are well on their way to surpassing the highest monthly total since 2014.
Finally, putting the default cycle in perspective, here is the monthly default total for Junk and investment grade since 2011.
We expect the April line to be a new multi-year high.
“If No Agreement, Expect A Sharp Selloff” – All You Need To Know About Doha
Nations representing almost 60%of the world’s oil production will gather in Doha on April 17 to discuss “freezing their output at January levels” in an effort to stabilize prices. According to Bloomberg, Russia, Saudi Arabia, Qatar and Venezuela made a preliminary deal in February and are seeking to add more producers and extend the recent price recovery, but, despite the exuberant squeeze early this week, oil prices are fading modestly as D(oha)-Day looms.
While the mainstream narrative is that “everyone is short” oil into this decision, Oil ETF shorts hover near 4-month lows and, as Citi notes, and is now beginning to look likely given that there is only an hour allocated for closed door discussions with a press conference right after, if there is no agreement, then expect a sharp oil market sell-off on Monday.
In addition to the four signatories to the preliminary deal, Algeria, Angola, Azerbaijan, Colombia, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Kuwait, Mexico, Nigeria, Oman and the United Arab Emirates will attend.
Who’s not attending?
Some of the world’s biggest producers including the U.S., Canada, China, Brazil and Norway won’t be showing up. Among the 13 nations in the Organization of Petroleum Exporting Countries, only Libya — whose output is crippled by conflict — has ruled out going to Doha. The key OPEC member resisting a production freeze is Iran. While it will send a representative to observe the discussions in Doha, Iran has insisted it won’t constrain production before restoring output to pre-sanctions levels.
How likely is an agreement?
Forty traders and analysts surveyed by Bloomberg this week were evenly split on whether there will be a deal. While Russia’s Energy Ministry is “optimistic” and Qatar’s has a “positive feeling,” Saudi Arabia has said it will only cap its output if Iran follows suit — a notion Tehran has dismissed as “ridiculous.”
What impact would a freeze have on oil prices?
Crude has rallied more than 30 percent to above $40 a barrel since the preliminary freeze accord in mid-February prompted a shift in market sentiment. A final accord could lock that gain in place, or even extend it to $50, said Bank of America Corp. Yet a freeze will do little to mop up the glut because Saudi Arabia and Russia — the world’s biggest crude producers — are already pumping near record levels. Morgan Stanley said “our downbeat oil view is unchanged” by the prospects of a freeze.
How much oil supply is at stake?
Producers that have confirmed they will consider joining the freeze produce about 47 million barrels a day of crude. Many of those nations were already pumping flat out in January, with little scope for increasing output. Russia and Saudi Arabia both held production steady this year, even before a final agreement to freeze.
Production from the 11 members of OPEC that are backing the agreement is already almost half a million barrels a day lower than January.
Would the freeze make a difference?
With most Doha participants already expected to keep output steady, much more important for the oil market will be what happens in the U.S. and Iran. Declining shale oil production is expected to make up the lion’s share of the 710,000 barrel-a-day reduction in output from non-OPEC countries this year, according to the IEA. Iran plans to increase production by about 700,000 barrels a day this year from the 3.3 million pumped in March.
What would the accord mean for U.S. producers?
Any deal that pushed up prices would be “self-defeating” because it would allow a revival of drilling by U.S. shale producers, who can return to work at $55 a barrel, according to Goldman Sachs Group Inc. That would only postpone the supply curbs analysts say are needed to re-balance overloaded global markets.
How would the freeze be monitored and enforced?
During previous supply cuts, OPEC monitored members’ compliance using data on their production provided by external sources such as news agencies and tanker-trackers. It has no mechanism to punish countries that flout their limits and members habitually exceeded the group’s quotas, before production targets were effectively abandoned in December.
What happened when OPEC last made a deal with non-members?
OPEC has grounds to doubt the sincerity of its partners. The last time it struck a deal with rival suppliers was in late 2001, when Russia, Mexico, Oman, Angola and Norway promised to cut supply by a combined 500,000 barrels a day.
Yet by the middle of the following year, Russia had actually increased output and the only production declines were in Mexico and Norway.
* * *
What if there’s no deal?
With expectations growing over the past week, oil traders embarked on a buying spree that pushed crude to a four-month high. If ministers fail to reach an accord, prices will see a “severe negative impact,” Citigroup Inc. predicts. OPEC’s refusal to cut output in 2014 prompted calls to write the group’s obituary, and an inability to finalize the freeze might see those epitaphs being carved. The ensuing disappointment could drag prices down to $30 a barrel, said Saxo Bank A/S.
If there is no agreement, then expect a sharp oil market sell-off on Monday. If there is an agreement in name but market participants realize it has no teeth, except a slower sell-off.Main oil-producing countries, but especially Russia, have been stirring the market since late 2015 with talks of a potential agreement and the market has responded frequently, creating periodic froth to prices, only to see prices come off when no agreement has been forthcoming. Money manager net (and gross) length is around record highs on ICE Brent, giving some scope for position liquidation following any ‘disappointing’ headlines and adding to downside risk.
The main unknown going into Sunday is what Saudi Arabia’s position will be.
The world’s largest petroleum exporter has been silent about whether it attends and what position it stakes out. Saudi officials have made two recent public statements over the past two months. At the February CERA conference in Houston, the Energy Minister stated, in defining a freeze, that the Kingdom would always fulfill its customers’ needs, thereby significantly reducing the force of any verbal agreement. Then two weeks ago, in a widely cited interview, the Deputy Crown Prince stated that the Kingdom would not engage in an agreement unless Iran also participated in some way, and Iran has announced that it won’t be bound by any agreement and won’t attend the Doha event. Citi projects that Iran is likely to put close to 1-m b/d of incremental liquids supply into the market over the course of 2016.
Two critical factors are required for an agreement:
- First, the Saudi government has to be comfortable that it will lose no market share as a result of any accord. With Iran raising output this year, any freeze would translate into a loss of market share and would likely be read by the market as a sign that the Kingdom has run out of capacity to increase production. To quell such thoughts, the Kingdom’s marketers have been indicating possible increases in exports to Europe and Asia.
- Second, the ‘elephant in the room’ – the US – has to be brought in to any real deal, and that’s not feasible.
Counting total hydrocarbon liquids, the US has become the world’s largest supplier as a result of the shale revolution, now producing ~14.8-m b/d versus total liquids from the Kingdom of 11.7-m b/d and Russia at 11.5-m b/d. As oil prices rise in the near term, US production, the decline of which since last year is the only critical factor in markets finally balancing, is likely to come back. But US production cannot be controlled by governments. It’s the result of a competitive market with hundreds of companies and tens of thousands of investors making as many decisions. The problem at Doha is that the market has lost its regulator and no agreement is about to bring one back.
Even if there is a deal on paper, there are reasons to doubt its credibility.
The history of these deals has been disappointing, even if the initial rhetoric coming out of the meeting indeed gives the market a boost. Back in 1998-99, Russia agreed to cut its oil production by 7%; the market promptly cheered and prices rallied. But it turned out that Russian production and exports rose in 1999, probably by ~0.4-m b/d; it was only after the fact that the market realized a sizeable cut did not actually take place. In 2001, there was another attempt at coordinated production cuts, with OPEC agreeing to jointly cut 1.5-m b/d but only if non-OPEC participants cut by 0.5m b/d. Russia was supposed to be responsible for 0.3-m b/d of that, but Russia had other ideas – that is, a much smaller cut was realized. Even if Saudi Arabia were to make a conditional commitment to cut, eventual non-compliance would remain a possibility, while the Kingdom would still stand to benefit from initial market euphoria from a deal, which could raise revenue, albeit in the short term.
Simply put, as Citi concludes, Sunday’s producer meeting is all about nothing no matter what agreement might be forged. At best, the agreement will be, as Russia’s energy minister has stated, a gentlemen’s affair, with no binding commitments, no concrete next steps beyond having a review meeting, and no procedure for moving to production cuts.
At the end of the day, oil jumps a bit on record low USA rig counts:
Crude Oil Prices Rise On New Record Low US Rig Count
With all eyes on Doha this weekend, today’s rig count data may have even less signaling power than normal. The US oil rig count has risen for only one week this entire year and continues to track lagged crude prices lower, dropping 3 to 351 (lowest since Oct 09). With gas rigs unchanged, the total rig count dropped once again to a new fresh record low at 440. The reaction in crude oil prices was a small bounce.
- *U.S. GAS RIG COUNT UNCHANGED AT 89 , BAKER HUGHES SAYS
The US oil rig count is tracking lagged crude prices perfectly still…
- *U.S. OIL RIG COUNT DOWN 3 TO 351 , BAKER HUGHES SAYS
Will rig counts rise again shortly?
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/FRIDAY morning 7:00 am
Euro/USA 1.1283 UP .0016 ( STILL REACTING TO USA FAILED POLICY)
USA/JAPAN YEN 108.87 down 0.530 (Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER
GBP/USA 1.4192 UP .0053 (STILL THREAT OF BREXIT)
USA/CAN 1.2855 UP .0015
Early THIS FRIDAY morning in Europe, the Euro ROSE by 16 basis pointS, trading now WELL above the important 1.08 level RISING to 1.1283; 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 NOW THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE / Last night the Shanghai composite was DOWN 4.24 POINTS OR 0.14%/ Hang Sang DOWN 21.34 OR 0.10% / AUSTRALIA IS HIGHER BY 0.76% / ALL EUROPEAN BOURSES ARE IN THE RED as they start their morning/.
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade (blowing up and the yen carry trade HAS BLOWN up/and now NIRP)
3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this FRIDAY morning: closed DOWN 63.02 OR 0.37%
Trading from Europe and Asia:
1. Europe stocks ALL IN THE RED AS THEY START THEIR DAY
2/ CHINESE BOURSES / : Hang Sang CLOSED IN THE RED . ,Shanghai CLOSED IN THE RED / Australia BOURSE IN THE GREEN: /Nikkei (Japan)CLOSED IN THE RED/India’s Sensex in the GREEN /
Gold very early morning trading: $1230.40
Early FRIDAY morning USA 10 year bond yield: 1.77% !!! DOWN 3 in basis points from THURSDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.57 DOWN 3 in basis points from THURSDAY night.
USA dollar index early FRIDAY morning: 94.77 DOWN 18 cents from THURSDAY’s close.(Now below resistance at a DXY of 100.)
This ends early morning numbers FRIDAY MORNING
And now your closing FRIDAY NUMBERS
Portuguese 10 year bond yield: 3.17% DOWN 8 in basis points from THURSDAY
JAPANESE BOND YIELD: –.115% DOWN 2 in basis points from THURSDAY
SPANISH 10 YR BOND YIELD:1.50% DOWN 1 IN basis points from THURSDAY
ITALIAN 10 YR BOND YIELD: 1.33 DOWN 3 IN basis points from THURSDAY
the Italian 10 yr bond yield is trading 17 points lower than Spain.
GERMAN 10 YR BOND YIELD: .127% (DOWN 4 IN BASIS POINT ON THE DAY)
IMPORTANT CURRENCY CLOSES FOR FRIDAY
Closing currency crosses for FRIDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM
Euro/USA 1.1288 UP .0018 (Euro UP 18 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/reacting to dovish YELLEN/ANOTHER FALL IN USA;YEN CROSS TODAY
USA/Japan: 108.71 DOWN 0.625 (Yen UP 63 basis points)
Great Britain/USA 1.4199 UP .0058 Pound UP 58 basis points/
USA/Canad 1.2832 DOWN 0.0010 (Canadian dollar UP 10 basis points with OIL (WTI AT $41.42
This afternoon, the Euro was UP by 18 basis points to trade at 1.1288 as the markets basically traded sideways today
The Yen ROSE to 108.71 for a GAIN of 63 basis points as NIRP is STILL a big failure for the Japanese central bank/also all our yen carry traders are being fried!!.
The pound was UP 58 basis points, trading at 1.4199
The Canadian dollar rose by 10 basis points to 1.2832, DESPITE THE HUGE LOSS IN WTI TODAY: $40.34
the 10 yr Japanese bond yield closed at -.115% DOWN 2 BASIS points in yield/AND THIS IS GETTING DANGEROUS!~!
Your closing 10 yr USA bond yield: DOWN 4 basis points from THURSDAY at 1.75% //trading well below the resistance level of 2.27-2.32%) HUGE policy error
USA 30 yr bond yield: 2.56 DOWN 4 in basis points on the day ( HUGE POLICY ERROR)
Your closing USA dollar index, 94.71 DOWN 24 CENTS ON THE DAY/4 PM
Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for FRIDAY
London: CLOSED DOWN 21.35 POINTS OR 0.34%
German Dax :CLOSED DOWN 42.08 OR 0.42%
Paris Cac CLOSED DOWN 16.34 OR 0.36%
Spain IBEX CLOSED DOWN 10.60 OR 0.12`%
Italian MIB: CLOSED DOWN 71.74 OR 0.39%
The Dow was down 28.97 points or 0.16%
NASDAQ DOWN 7.67 points or 0.16%
WTI Oil price; 40.36 at 3:30 pm;
Brent Oil: 43.02
USA DOLLAR VS RUSSIAN ROUBLE CROSS: 66.43 (ROUBLE DOWN 33/100 ROUBLES PER DOLLAR FROM YESTERDAY) AS THE PRICE OF BRENT FELL AND WTI FELL.
This ends the stock indices, oil price, currency crosses and interest rate closes for today
Closing Price for Oil, 5 pm/and 10 year USA interest rate:
WTI CRUDE OIL PRICE 5 PM: $40.40
USA 10 YR BOND YIELD: 1.75%
USA DOLLAR INDEX:94.71 down 23 cents on the day
And now your more important USA stories which will influence the price of gold/silver
Trading Today in Graph form:
Silver Soars, Stocks Roar On 2nd Biggest Short-Squeeze Since 2011
After a week like this:
- Retail Sales Tumble
- Industrial Production Plunge
- Inventories-to-Sales Surge
- 30Y Yield UNCH
- Oil UNCH
- Small Caps +3%
This seemed appropriate:
This was the worst two-week period for US Macro surprises since Dec 1st 2015…
And GDP expectations plunged…but stocks don’t care…
On the week it was all about a huge short-squeeze… This was the 2nd biggest weekly short-squeeze since Dec 2011
Which left the Small Caps and Trannies top on the week..
Energy and Financials had a good week but faded notably the last 2 days…
Stocks also decoupled from Oil prices…
And Bonds ain’t buying it…
Treasury yields fell notably today, pressing 30Y all the way back to unchanged on the week, flattening 5s30s by around 5bps on the week..
The USD Index had a good week (as China devalued) with Swissy weakness offsetting commodity currency weakness…
Copper & Crude slipped lower after China data (so it was all stimulus-based hope?) but the big news was the yuuge divergence between gold and silver… This was Silver’s biggest week since May 2015
The biggest weekly plunge in the Gold/Silver ratio since Aug 2013…
Finally this is the week in crude… Unchanged after an epic ramp early on… but today was Crude’s biggest drop in 2 weeks ahead of Doha
See you all Sunday for Doha headline hockey.
My goodness: Janet does have a problem as the NY Fed mfg index prints higher by rising from zero up to 9 points. For much of the year it has been below zero.
(courtesy zero hedge/Empire NY Mfg Index)
As Empire Fed Prints Highest In Over A Year, Are The Fed’s “Global” Concerns Easing?
Janet – you have a problem. Following the all-clear from China, soaring stock prices, and ‘stability’ in oil,Empire Fed business conditions just hit a 17-month high. In other words, The Fed is gonna need some bigger ‘turmoil’ excuses or defending “no rate hikes” is going to look a whole lot more political than their independence would suggest.
Everything is awesome in New York too…
As The NY Fed notes:
Business activity expanded for New York manufacturing firms for the first time in over a year, according to the April 2016 survey. After remaining in negative territory for seven months, the general business conditions index rose to a reading slightly above zero last month, and climbed nine more points to reach 9.6 in April. Thirty-one percent of respondents reported that conditions had improved over the month, while 22 percent reported that conditions had worsened. After a steep gain last month, the new orders index edged up two points to 11.1, pointing to an increase in orders. The shipments index edged lower but, at 10.2, still signaled a modest increase in shipments. The unfilled orders and delivery time indexes both came in close to zero. The inventories index was -4.8, indicating that inventory levels were slightly lower.
The prices paid index rose sixteen points to 19.2, suggesting that input prices increased at a significantly faster pace than last month. The prices received index, up nine points to 2.9, showed a small increase in selling prices. The index for number of employees edged up to 2.0, indicating that employment levels remained fairly steady,and the average workweek index was unchanged at 2.0, a sign that hours worked remained largely the same.
Sp surging prices, better jobs, no global turmoil – what are you waiting for Janet?
This Is What You Spent Your Entire Pay Raise On
There has been some muted cheering at the Fed (and the Obama administration) when as a result of numerous statewide minimum wage hikes, average hourly earnings finally started to rise in early 2016, recently hitting a 2% annual increase, even if on a weekly basis they dropped to post-recession lows as the number of hours worked actually dropped confirming the decline in US output continues.
The news is worse if one steps away from government “data” and looks at third party research. According to a recent report by Sentier Research, median income wages rose only 1.4%. As MarketWatch calculates, on the 2015 median income of $56,746, a 1.4% gain would translate to about $66 more a month, before taxes, or about $48 after tax.
Here’s the problem. As we have repeatedly shown in the past, as a result of the death of the US housing dream, which has pushed the homeownership rate to record lows…
… and as Americans are either unable to afford a house, or the bank just won’t give them the necessary mortgage, median asking rents have soared to record highs.
Furthermore, as we showed yesterday following the latest monthly CPI report, the cost of rent rose 3.7% compared to a year ago in March. That was the fourth straight month with such a strong gain, the highest since before the financial crisis.
So here’s the math: across the nation, the median rent for a two-bedroom apartment is $1,300, according to Apartment List. So a 3.7% rent rise, or about $48, which means that just the official rise in asking rent prices… swallowed the entire salary “gain”of $48 in after tax dollars.
Oh and that excludes Obamacare: as the government also reported, medial bills soared, in fact in February, medical care grew at the fastest rate in more than three years.
So the next time someone wonders why US households are spending far less than expected, tell them it’s because they need to live, preferably with a roof above their heads..
Trump Asks “How Has The ‘System’ Worked Out For You?”
On Saturday, April 9, Colorado had an “election” without voters. Delegates were chosen on behalf of a presidential nominee, yet the people of Colorado were not able to cast their ballots to say which nominee they preferred.
A planned vote had been canceled. And one million Republicans in Colorado were sidelined.
In recent days, something all too predictable has happened: Politicians furiously defended the system. “These are the rules,” we were told over and over again. If the “rules” can be used to block Coloradans from voting on whether they want better trade deals, or stronger borders, or an end to special-interest vote-buying in Congress—well, that’s just the system and we should embrace it.
Let me ask America a question: How has the “system” been working out for you and your family?
I, for one, am not interested in defending a system that for decades has served the interest of political parties at the expense of the people. Members of the club—the consultants, the pollsters, the politicians, the pundits and the special interests—grow rich and powerful while the American people grow poorer and more isolated.
No one forced anyone to cancel the vote in Colorado. Political insiders made a choice to cancel it. And it was the wrong choice.
Responsible leaders should be shocked by the idea that party officials can simply cancel elections in America if they don’t like what the voters may decide.
The only antidote to decades of ruinous rule by a small handful of elites is a bold infusion of popular will. On every major issue affecting this country, the people are right and the governing elite are wrong. The elites are wrong on taxes, on the size of government, on trade, on immigration, on foreign policy.
Why should we trust the people who have made every wrong decision to substitute their will for America’s will in this presidential election?
Here, I part ways with Sen. Ted Cruz.
Mr. Cruz has toured the country bragging about his voterless victory in Colorado. For a man who styles himself as a warrior against the establishment (you wouldn’t know it from his list of donors and endorsers), you’d think he would be demanding a vote for Coloradans. Instead, Mr. Cruz is celebrating their disenfranchisement.
Likewise, Mr. Cruz loudly boasts every time party insiders disenfranchise voters in a congressional district by appointing delegates who will vote the opposite of the expressed will of the people who live in that district.
That’s because Mr. Cruz has no democratic path to the nomination. He has been mathematically eliminated by the voters.
While I am self-funding, Mr. Cruz rakes in millions from special interests. Yet despite his financial advantage, Mr. Cruz has won only three primaries outside his home state and trails me by two million votes—a gap that will soon explode even wider. Mr. Cruz loses when people actually get to cast ballots. Voter disenfranchisement is not merely part of the Cruz strategy—it is the Cruz strategy.
The great irony of this campaign is that the “Washington cartel” that Mr. Cruz rails against is the very group he is relying upon in his voter-nullification scheme.
My campaign strategy is to win with the voters. Ted Cruz’s campaign strategy is to win despite them.
What we are seeing now is not a proper use of the rules, but a flagrant abuse of the rules. Delegates are supposed to reflect the decisions of voters, but the system is being rigged by party operatives with “double-agent” delegates who reject the decision of voters.
The American people can have no faith in such a system. It must be reformed.
Just as I have said that I will reform our unfair trade, immigration and economic policies that have also been rigged against Americans, so too will I work closely with the chairman of the Republican National Committee and top GOP officials to reform our election policies. Together, we will restore the faith—and the franchise—of the American people.
We must leave no doubt that voters, not donors, choose the nominee.
How have we gotten to the point where politicians defend a rigged delegate-selection process with more passion than they have ever defended America’s borders?
Perhaps it is because politicians care more about securing their private club than about securing their country.
My campaign will, of course, battle for every last delegate. We will work within the system that exists now, while fighting to have it reformed in the future. But we will do it the right way. My campaign will seek maximum transparency, maximum representation and maximum voter participation.
We will run a campaign based on empowering voters, not sidelining them.
Let us take inspiration from patriotic Colorado citizens who have banded together in protest. Let us make Colorado a rallying cry on behalf of all the forgotten people whose desperate pleas have for decades fallen on the deaf ears and closed eyes of our rulers in Washington, D.C.
The political insiders have had their way for a long time. Let 2016 be remembered as the year the American people finally got theirs.
Peter Schiff Slams Managers’ “Denial… And Mindless Optimism”
The Winter of 2015-2016, which came to an end a few weeks ago, has been officially designated as the mildest in the U.S. in 121 years according to NOAA. While this fact will certainly add a major talking point in the global warming debate, it should also be front and center in the current economic discussion. The fact that it isn’t is testament to the blatantly self-serving manner in which economic cheerleaders blame the weather when it’s convenient, but ignore it when it’s not. If economists were consistent (and that’s a colossal “if”), the good weather would be taken as a reason to believe the economy is weaker than is being reported.
The two previous winters were much harsher. 2013-2014 brought the infamous “Polar Vortex,” an unusual descent of frigid polar air that brought temperatures down significantly throughout most of the United States. The next winter was almost as bad, with colder than usual temperatures combined with record snowfalls in much of the country. These conditions were cited again and again by many economists to explain why Q1 GDP growth was so disappointing both years. Annualized growth came in at just -.9% and .6% respectively (Bureau of Economic Analysis). As both 2014 and 2015 got underway, economic optimism had been riding high. When both started off with such resounding stumbles, excuses were needed to explain why the forecasters were so wrong. The snow and cold provided those fig leaves.
As I quantified in a commentary on the subject two years ago, a bad winter can indeed put a chill into the economy, at least temporarily. In general, first quarter (which corresponds to the winter months of January, February, and March) shows annualized GDP growth that is roughly in line with the average of each of the other quarters. Since 1967, average annualized 1st quarter growth was 2.7%, not too far below the average 2.8% full year growth, based on BEA figures. But when winter gets nasty, the economy does slow noticeably in the first quarter.
The average annualized GDP growth for the 10 snowiest winters (not counting 2014) as reflected in Rutgers University Global Snow Lab (Seasonal Extent graph) was just .5%. While this phenomenon did not fully account for the poor results in 2014 and 2015, which missed the average by more than 2%, at least it provided a strong argument as to why we struggled unexpectedly. But that excuse is unavailable this year when the Q1 performance may be equally bad.
While official 1st quarter GDP estimates have yet to be published, researchers at the Atlanta Federal Reserve Bank put out an estimate called “GDP Now” that attempts to offer a real time estimate of economic growth. As late as mid-February, the GDP Now estimate was 2.7% for the first quarter, far below the 3.5% projection that the Fed had offered for the quarter back in December, but at least in the same ballpark. Since mid-March, the estimates have fallen steadily throughout and last week it was taken down to just .1% (although since increased to .3%). (This comes after 4th quarter 2015 growth came in at a very disappointing 1.4%)
So if we assume that the official estimates (when they arrive in a few weeks) do not stray too far from these projections, economists will have to explain why we had a very, very bad quarter (in fact, two consecutive bad quarters) at a time when the weather should have been encouraging robust activity.
An analysis of the bad winters also reveals a clear tendency for the economy to bounce back strongly in the following quarter, confirming the theory that pent up demand in a bad winter, when it’s too cold for people to go out and shop or for construction companies to break ground, results in increased activity in the spring.In the ten 2nd quarters that followed the ten snowiest winters, annualized GDP averaged a strong 4.4%, or almost four percent higher than the prior quarter. That trend was clearly seen in 2014 and 2015 when second quarter growth was an average 4 percentage points higher than Q1.
Most strategists are now confident that a similar rebound will occur this spring even if there has been no bad weather to create the “snap back” dynamic. But putting that aside, there is absolutely no evidence to support such an absurd conclusion, and any such beliefs are based on hope not reason. The weather was actually so warm this winter that rather than pushing economic activity forward into the second quarter, it likely could have pulled economic activity into the first. This could weigh down 2nd quarter performance.
We also should take note of the fast deceleration of the Atlanta Fed’s GDP estimates and the fact that the biggest declines came at the end of the quarter.
This may mean that we could be slowing down going into second quarter. Nevertheless, government and private economists still expect the traditional kind of 2nd quarter rebound.
But evidence arguing against this can be found in wholesale trade inventories for January and February that were released last week. Originally January inventories were reported as up .3% (U.S. Census Bureau), which was taken as a sign that business confidence was rising. At the time many thought that February would not sustain that pace and decline by .2%. Instead, January itself was revised to -.2% (from up .3%) and February was reported at down .5% (off of the already rolled back January number). This is a terrible outcome.
The bad dynamics have been apparent for a while in the inventory-to-sales ratio, which documents how difficult it has been for companies to move products. Last week some economists were relieved that this number had come down to 1.36 (U.S. Census Bureau). But that drop was only possible because the prior month had been revised up from 1.35 to 1.37 (a higher number indicates more stagnant inventories). Going into Q2 last year, most businesses still believed that the recovery was real, and they built their inventories throughout the quarter (which added to GDP). There is no sign that that is happening this year.I believe that based on the current high inventory-to-sales ratio companies will draw down their inventories this quarter, thus detracting further from GDP.
Another big difference between this year and the last two is the trajectory of our trade deficits. January and February trade deficits averaged $46.4 billion per month this year. They were just $41.1 billion in 2014, and $41.0 billion in 2015 (U.S. Census Bureau). Trade deficits detract from GDP.
Despite the weather, the inventories, and the trade deficits, very few of the most influential public and private economists have marked down their full year GDP forecasts very much, if at all. Goldman Sachs even believes so strongly in the strength of the recovery that it still expects the Federal Reserve to raise interest rates three more times this year (Wall Street Journal, Min Zeng, 3/31/16). The IMF just revised down its estimates for 2016 U.S. economic growth, but only by .2% from 2.6% to 2.4%. But if the 1st quarter matches the Atlanta Fed’s current estimate, GDP growth for the rest of the year will have to average over 3% to achieve that.
This is likely the type of mindless optimism and herd mentality that caused only one in five U.S. large-cap fund managers to beat the S&P 500 in the first quarter. If you have no idea what’s going on economically, you are unlikely to pick the right stocks. High priced hedge fund managers did little better. In fact, the first quarter was the worst quarter for active managers in eighteen years, according to data from Bank of America Merrill Lynch. This tells me that the degree of denial is still very high, and that those who resist the stampede may be in a position to realize gains when the likelihood of recession finally becomes apparent to all.
Unlike Goldman Sachs and other big banks, I do not see any more rate hikes in 2016.Instead, I believe that it is far more likely that the Fed will have to roll out more dovish forward guidance until the point where it officially calls off rate increases for the foreseeable future. After that, I believe it will have to take us back to zero percent interest rates, restart quantitative easing, and it may even take interest rates into negative territory. Take your stand accordingly.
by David Stockman • April 14, 2016
The robo-machines were raging yesterday based on precisely nothing except banging 2080 on the S&P cash and a teapot’s worth of short-term trading momentum. But a 1% or $300 billion gain in the stock market apparently needs some fig leaf of rationalization. So the lazy hacks who cover the casino’s daily hijinks for the mainstream media came up with some doozies.
To wit, JPMorgan purportedly had a bang up quarter and surprised to the upside and China’s export machine came roaring back. This was supposedly some kind of all clear signal. According to the bulls, the market can’t rise without “participation” by the financials and China is still the mainspring of global growth.
I won’t bother to say, not exactly. You could have learned by the second paragraph that “up” was actually “down”.
In fact, JPMorgan’s earnings were down 7% from last year, and were nearly $1 billion or 15% below its bookings for the March quarter three years ago (2013). Whatever they implied, JPM’s Q1 profits had nothing to do with a break-out to the upside.
That was reinforced by its revenue postings. They came in 3.5% below prior year, and that was no aberration. It seems as if JPMs revenues have been drooping ever since the Feds gifted it with Washington Mutual and Bear Stearns back in 2008. LTM revenues of $92.7 billion are now 10% below the $103 billion it posted back in 2010.
In any event, why would anyone argue that quarterly accounting income of the giant Wall Street banks has anything to do with the main street economy or even real profits?
It’s all just fiddling with accruals—–for loan loss provisions, litigation provisions, even bonus pool provisions. After all, until the 4th quarter of 2015, JPM had spent 22 straight quarters draining its loan loss reserve. That is, it minted accounting profits as needed in order to beat by a few pennies whatever the marked down “street” consensus was a few weeks before its quarterly release.
This time the bonus accrual took a 13% haircut in order to deliver a “beat”. But even then, the lowest Q1 compensation accrual in 5 years doesn’t necessarily mean a bleak Christmas in the Park Avenue executive suites any time soon. There are three more quarters in which to talk down the street consensus and thereby manufacture sufficient earnings headroom to accomodate ample compensation rewards all around.
On the matter of China’s booming exports—-no dice. The Chinese do have a habit of moving their New Year’s holiday week around from one year to the next——so this time the “up is down” thing operated with a vengeance. The financial pundits said March exports were up by 11.5%, implying that China had regained its traction.
Not exactly. The chart below shows that March exports were the lowest in five years, and that the first quarter as a whole was the worst since late 2008.
Q1 exports were down by nearly 10% and the slump was manifested in every one of its major customer regions. Exports to Japan were down 5.5% while South Korea exports were off by 11.2%, EU countries by 6.9%, the US by 8.8% and Brazil by 47.2%.
In fact, exports are falling throughout east Asia, meaning that the world’s great post-bubble deflation is gathering force. South Korean exports have been down for 15 consecutive months, for example, and were off 10% in March from prior year.
By all accounts, Singapore is the trading hub for the Asian mercantilist exporters as a group. Its export trends leaves little do the imagination. Shipments early this year were down more than 20% from early 2014 levels.
Undoubtedly, that’s why its normally circumspect central bankers sounded the alarms last night and reverted to easing measures not employed since the fall of 2008. Singapore based lending has literally ground to a halt. So the idea that there is anything vaguely resembling an “all clear” signal coming out of Asia is not exactly what the incoming data call to mind.
Well, unless you are a permabull.
(To be continued)
The less accurate NY Fed just cost its first half GDP to 1%. The more accurate Atlanta Fed is .3% /and first quarter GDP only .8%
(courtesy FRBNY/zero hedge)
The NY Fed Just Cut Its First Half GDP Forecast To 1.0%
The New York Fed’s ‘decidedly-more-optimistic-than-Atlanta-Fed’s-GDPNow-model’ NowCast model for GDP growth just tumbled back to reality after a week of dismal data finally forced its hand. Treasury bond yields are extending their tumble as NYFed slashes Q1 growth to just 0.8% (from 1.5% in Feb) and collapsed Q2 growth to 1.2% from 1.9% last week. This cuts the entire H1 estimate from 1.5% to 1.0%… shamed down to GDPNow’s reality.
And Q2 slashed…
The consumer is 70% of USA GDP. The all important U. of Michigan consumer confidence report sliding to 89.7 from 91. It is not pretty. Generally these guys are more bullish that the Gallup confidence report
(courtesy zero hedge/U. of Michigan Consumer Confidence report)
UMich Is Worried About “Consumer Resilience” As Sentiment Tumbles To September Lows
We were wrong: several minutes ago when we documented the collapse in the Gallup Economic confidence, we said that “we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.” Moments ago the official print came out and it was not pretty: sliding from 91 to 89.7, not only did the print miss expectations of a rebound to 92.0, but was the lowest print since September 2015, as well as the fourth consecutive drop.
The reason for the drop? Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.
And as UMich calculates, “the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.” Hardly a glowing endorsement of the 2.7% quarterly GDP growth needed to hit the Fed’s optimistic forecast.
This is what the report said:
Consumer confidence continued its slow overall decline in early April, marking the fourth consecutive monthly decline. To be sure, the sizes of the recent losses have been quite small, with the Sentiment Index falling just 2.9 Index-points since December 2015, although it was down 6.2 Index-points from a year ago and 8.4 points below the peak in January 2015. None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead.
Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation. These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016. Overall, the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.
Add to this the concern about rising gas prices that was voiced by Gallup and suddenly you have a very troubling picture of the US economy.
But perhaps most troubling for the Fed is that while 1 year inflation expectations remained unchanged at 2.7%, the 5 year forward forecast dropped from 2.7% to 2.5%, implying that whatever the Fed is doing to boost expectations of rising prices is not working.
“It’s Getting Worse” – Economic Outlook Plummets In Gallup Poll, Rising Gas Prices Blamed
According to the latest Weekly Economic Confidence poll released by Gallup, Americans’ confidence in the US economy is getting worse. The poll asks people to rate the economy as of today, and whether or not the economy as a whole is getting better or worse.
It turns out that ordinary people are not as excited about the US economy as those who are cheerleadingminimum wage job creation and market levels being close to all time highs, and certainly not as excited as that group of people called each month by either the Conference Board or UMich, the two far more closely tracked confidence indicators.
The Economic Confidence Index for the week ending April 10th came in at -14. Down from the prior week, and hitting a low not seen since the first week of November last year.
Digging a little deeper into the detail, Gallup reveals that people are viewing the economic outlook to be much worse than current conditions. While both components are getting worse, the economic outlook plummeted. The score of -22 reflects 37% of US adults saying the economy is “getting better”,while 59% say it’s “getting worse.”
This is how Gallup concludes:
Americans’ views of the national economy have been somewhat turbulent over the last several weeks, with confidence improving one week only to fall the following week. From a broad perspective, economic confidence so far this year has neither moved into a sustained period of positivity nor entered into a steady decline. Americans are confronted with presidential candidates using the economy as one of their talking points, mixed signals from national economic reports, volatility in the stock market and an apparent end of sub-$2 gas prices nationally — all of which may be affecting their economic assessments.
Americans’ cautiousness in their assessments of the economy may not be far off from those of economic leaders, however. Federal Reserve Board Chair Janet Yellen has been slow to raise interest rates, with some economists arguing Yellen has been overly cautious and has underestimated the economy’s actual strength. Yellen’s critics say the slow pace of raising rates will put the Fed at a disadvantage, with the possibility of increased inflation as the economy reaches its employment targets.
The disconnect in sentiment between everyday people and financial pundits must just be the result of a communications issue. And of course, we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.
US Industrial Production Plunges As March Auto Manufacturing Tumbles Most Since 2008
The US economy has never – ever – seen Industrial Production drop YoY for seven months in a row without being in a recession. Down 2.0% YoY in March, the weakest since December and down 0.6% MoM (weakest since Feb 2015) the decline in factory output is driven a 1.6% plunge in vehicle production (2.8% collapse in motor vehicles specifcally) in March. This 1.76% drop is the worst for a March since 2008.
As The Fed details,
Manufacturing output decreased 0.3 percent in March. The production of durables moved down 0.4 percent. The largest declines, about 1 1/2 percent, were registered both by motor vehicles and parts and by electrical equipment, appliances, and components. Several industries posted increases, with the largest, nearly 1 percent, for computer and electronic products. After increasing 0.9 percent in January and decreasing 0.5 percent in February, the output of nondurable manufacturing edged down in March, as gains in the production of petroleum and coal products and of chemicals nearly offset declines for most other industries. The output of other manufacturing (publishing and logging) fell almost 1 percent.
It really should be no surprise that Auto production is hitting the wall, as we have been discussing, inventories are extreme…price and sales weakness is occurring amid a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years…
The Fed Sends A Frightening Letter To JPMorgan – Corporate Media Yawns
Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed.The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.
A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.
At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?
It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”
That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that “Dodd-Frank Financial Reform Is Working” when it comes to the behemoth banks on Wall Street.
How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase.
The OFR study was authored by Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, who found the following:
“…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults. High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system. The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.”
The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis. The two regulators released background documents yesterday as part of flunking the wind-down plans (living wills) of five major Wall Street banks. (In addition to JPMorgan Chase, plans were rejected at Wells Fargo, Bank of America, State Street and Bank of New York Mellon.) One paragraph in the Resolution Plan Assessment Framework and Firm Determinations (2016) used the word “liquidity” 11 times:
“Firms must be able to reliably estimate and meet their liquidity needs prior to, and in, resolution. In this regard, firms must be able to track and measure their liquidity sources and uses at all material entities under normal and stressed conditions. They must also conduct liquidity stress tests that appropriately capture the effect of stresses and impediments to the movement of funds. Holding liquidity in a manner that allows the firm to quickly respond to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities, is critical to the execution of the plan. Maintaining sufficient and appropriately positioned liquidity also allows the subsidiaries to continue to operate while the firm is being resolved. In assessing the firms’ plans with regard to liquidity, the agencies evaluated whether the companies were able to appropriately forecast the size and location of liquidity needed to execute their resolution plans and whether those forecasts were incorporated into the firms’ day-to-day liquidity decision making processes. The agencies also reviewed the current size and positioning of the firms’ liquidity resources to assess their adequacy relative to the estimated liquidity needed in resolution under the firm’s scenario and strategy. Further, the agencies evaluated whether the firms had linked their process for determining when to file for bankruptcy to the estimate of liquidity needed to execute their preferred resolution strategy.”
Apparently, the Federal regulators believe JPMorgan Chase has a problem with the “location,” “size and positioning” of its liquidity under its current plan. The April 12 letter to JPMorgan Chase addressed that issue as follows:
“JPMC does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution…JPMC’s liquidity profile is vulnerable to adverse actions by third parties.”
The regulators expressed the further view that JPMorgan was placing too much “reliance on funds in foreign entities that may be subject to defensive ring-fencing during a time of financial stress.” The use of the term “ring-fencing” suggests that the regulators fear that foreign jurisdictions might lay claim to the liquidity to protect their own financial counterparty interests or investors.
JPMorgan’s sprawling derivatives portfolio that encompasses $51 trillion notional amount as of December 31, 2015 is also causing angst at the Fed and FDIC. The regulators wanted more granular detail on what would happen if JPMorgan’s counterparties refused to continue doing business with it if rating agencies cut its credit ratings. The regulators asked for a “narrative describing at least one pathway” for winding down the derivatives portfolio, taking into account a number of factors, including “the costs and challenges of obtaining timely consents from counterparties and potential acquirers (step-in banks).” The regulators wanted to see the “losses and liquidity required to support the active wind-down” of the derivatives portfolio “incorporated into estimates of the firm’s resolution capital and liquidity execution needs.”
According to the Office of the Comptroller of the Currency’s (OCC) derivatives report as of December 31, 2015, JPMorgan Chase is only centrally clearing 37 percent of its derivatives while a whopping 63 percent of its derivatives remain in over-the-counter contracts between itself and unnamed counterparties. The Dodd-Frank reform legislation had promised the public that derivatives would all become exchange traded or centrally cleared. Indeed, on March 7 President Obama falsely stated at a press conference that when it comes to derivatives “you have clearinghouses that account for the vast majority of trades taking place.”
But the OCC has now released four separate reports for each quarter of 2015 showing just the opposite of what the President told the press and the public on March 7. In its most recent report the OCC, the regulator of national banks, states that “In the fourth quarter of 2015, 36.9 percent of the derivatives market was centrally cleared.”
Equally disturbing, the most dangerous area of derivatives, the credit derivatives that blew up AIG and necessitated a $185 billion taxpayer bailout, remain predominately over the counter.According to the latest OCC report, only 16.8 percent of credit derivatives are being centrally cleared. At JPMorgan Chase, more than 80 percent of its credit derivatives are still over-the-counter.
Wall Street Mega Banks Are Highly Interconnected: Stock Symbols Are as Follows: C=Citigroup; MS=Morgan Stanley; JPM=JPMorgan Chase; GS=Goldman Sachs; BAC=Bank of America; WFC=Wells Fargo.
Three of the five largest U.S. banks (JPMorgan Chase, Bank of America and Wells Fargo) have now had their wind-down plans rejected by the Federal agency insuring bank deposits (FDIC) and the Federal agency (Federal Reserve) that secretly sluiced $13 trillion in rollover loans to the insolvent or teetering banks in the last epic crisis that continues to cripple the country’s economic growth prospects. Maybe it’s time for the major newspapers of this country to start accurately reporting on the scale of today’s banking problem.
U.S. Economy 2016: 3 Classic Recession Signals Are Flashing Red
Those that were hoping for an “economic renaissance” in the United States got some more bad news this week. It turns out that the U.S. economy is in significantly worse shape than the experts were projecting. Retail sales unexpectedly declined in March, total business sales have fallen again, and the inventory to sales ratio has hit the highest level since the last financial crisis. When you add these three classic recession signals to the 19 troubling numbers about the U.S. economy that I wrote about last week, it paints a very disturbing picture. Virtually all of the signs that we would expect to pop up during the early chapters of a major economic crisis have now appeared, and yet most Americans still appear to be clueless about what is happening.
Even I was surprised when the government reported that retail sales had actually fallen in March. Consumer spending is a very large part of our economy, and so if consumer spending is slowing down already that certainly does not bode well for the rest of 2016. The following comes from highly respected author Jim Quinn…
The Ivy League educated “expert” economists expected March retail sales to increase by 0.1%. They only missed by $6 billion, as retail sales FELL by 0.3%.
They have fallen for three straight months. At least gasoline sales were strong, as prices have risen 22% since mid-February. That should do wonders for the finances of American households. If you exclude gasoline sales, retail sales fell by 0.4%. As the chart below reveals, the year over year change in retail sales has been at or near recessionary levels for most of 2015, and into 2016.
You can view the chart that he was referring to right here. In addition to a decline in retail sales, total business sales have also been falling, and this is another classic recession signal. The following comes from Wolf Richter…
Total business sales fell again in February, the Commerce Department reported today. They include sales by manufacturers, retailers, and wholesalers of all sizes across the US economy. This measure is far broader than the aggregate sales by publicly traded companies, which too have been falling.
At $1.284 trillion in February, total business sales were down an estimated 0.4% from January, adjusted for seasonal and trading-day differences but not for price changes. And they were down 1.4% from the already beaten-down levels of February last year. They’re back where they’d first been in November 2012!
Yes, the stock market has been on quite a run for the past several weeks, but that temporary rebound is not based on the economic fundamentals.
The truth is that the real economy is definitely starting to slow down substantially. If you want to break it down very simply, less stuff is being bought and sold and shipped around the country, and that tells us far more about what is coming in the months ahead than the temporary ups and downs of stock prices.
Another huge red flag is the fact that the inventory to sales ratio in the U.S. has hit the highest level that we have seen since the last financial crisis…
The crucial inventory-to-sales ratio, which tracks how long unsold inventory sits around in relationship to sales, is now at a mind-bending 1.41. That’s the level the ratio spiked to in November 2008, after the Lehman bankruptcy in September had put the freeze on the economy.
Inventories represent prior sales by suppliers. When companies try to reduce their inventories, they cut their orders. Suppliers see these orders as sales. As their sales slump, suppliers adjust by cutting their own orders, thus causing the sales slump to propagate up the supply chain. They all react by cutting their expenses. And if it lasts, they’ll cut jobs. Inventory corrections have a nasty impact on the overall economy.
Because sales have slowed down, inventories are starting to pile up to alarmingly high levels. And when companies see that business is slowing down, they start to let people go.
In a previous article, I told my readers that Challenger, Gray & Christmas is reporting that job cut announcements at major firms in the United States are up 32 percent during the first quarter of 2016 compared to the first quarter of 2015.
Somehow, most of the talking heads on television don’t seem too alarmed by this.
But ordinary Americans are beginning to become alarmed about what is happening. In fact, the percentage of Americans that believe that the U.S. economy is “getting worse” is now the highest it has been since last August…
One of the more glaring examples of how strong pessimism has become is Gallup’s U.S. Economic Confidence Index. The measure gauges the difference between respondents who say the economy is improving or declining. The most recent results are not good.
Fully 59 percent say the economy is “getting worse” against just 37 percent who say it is “getting better.” That gap of 22 percentage points is the worst since August, according to Gallup, which polled 3,542 adults.
Personally, I thought that we would be a little further down the road by now, but without a doubt a new economic downturn has begun in America.
So far, it is less severe than what most of the rest of the planet is experiencing. Japan’s GDP is officially shrinking, major banks are failing all over Europe, and even CNN admits that what is going on down in Brazil is an “economic collapse”.
The global economic meltdown is steaming along, even if it is moving just a little bit slower than many of us had originally anticipated. We are moving in the exact direction that myself and many others had warned about, and the rest of 2016 is looking quite ominous for the global economy.
So hopefully everyone (including the critics) is using whatever time we have left wisely. Because I definitely wish the very best for everyone during the exceedingly hard times that are coming.
Apple Stock Slides On News It Cuts iPhone Production By 30% Due To Sluggish Sales: Nikkei
Don’t expect any optimistic emails from Tim Cook to Jim Cramer for a long time, because according to a just released report in Japan‘s Nikkei, Apple will continue its reduced production of iPhones in the April-June period in light of sluggish sales, according to parts suppliers notified of the plan.
The website reports that slow sales of the flagship iPhone 6s and iPhone 6s Plus, which debuted last autumn, have forced Apple to adjust inventories. It lowered production for the January-March quarter by about 30% from the year-earlier period. With sales still sluggish, the U.S. company has told parts suppliers in Japan and elsewhere that it will maintain the reduced output level in the current quarter.
Apple apparently does not plan to produce a large enough volume of the small iPhone SE released last month to offset the slump of its flagship series. However, should Apple decide to release its next flagship model earlier than the usual September launch, parts production for that smartphone could take off around late May.
A prolonged production cut would hurt Japanese parts suppliers such as liquid crystal display panel manufacturers Japan Display and Sharp, memory chip supplier Toshiba and Sony, which provides image sensors for cameras. With their plants already operating at reduced rates, they may be forced to downgrade their earnings forecasts for the April-June quarter.
The current production cut could last longer than the one Apple implemented in 2013. Some 1.5 billion smartphones are shipped globally in a year, but the market’s growth is slowing.
Investors are unhappy at the news.
Time for some more buybacks?
Join Greg Hunter as he goes One-on-One in a pivotal interview with Rob Kirby ofKirbyAnalytics.com.
After the Interview:
We that about does it
I will see you Monday night