May 10/Comex gold and silver open interest hardly move southbound despite the massive raid yesterday/GLD inventory rises by 2.38 tonnes despite the lower gold price/Chinese onshore and offshore yuan decrease in value sending another message to the USA not to raise rates/In Brazil the impeachment process is back on but Rousseff may use the courts to block this latest attempt/USA premiums in Obamocare set to increase from 20 to 30% next year/

Good evening Ladies and Gentlemen:

Gold:  $1,263.90 down $1.90    (comex closing time)

Silver 17.08  up 1 cent

In the access market 5:15 pm

Gold $1266.00

silver:  17.10

 

Our banker friends already knew the true OI reading for today and they saw very little liquidation in both the gold comex and silver comex.  The decision was unanimous: another raid.  They tried to get gold below the 1255 level but failed as it quickly recovered and it closed at 1260.00.  However in the access market once it was revealed that there truly was no liquidation,  gold comex longs seemed to be invigorated and elevated gold into the $1267 area and silver to $17.14.  Our banker friends are regrouping tonight and burning the midnight oil planning their next criminal move!

Let us have a look at the data for today

.

At the gold comex today we had a GOOD delivery day, registering 100 notices for 10,000 ounces for gold,and for silver we had 138 notices for 690,000 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 230.63 tonnes for a loss of 72 tonnes over that period

.

In silver, the open interest fell by 821 contracts down to 203,915 as the price was silver was down by  44 cents with respect to yesterday’s trading. Not much liquidation for us to see today . In ounces, the OI is still represented by just over 1 BILLLION oz i.e. .1.019 BILLION TO BE EXACT or 146% of annual global silver production (exRussia &ex China) We are now at the  all time highs for OI with respect to silver and very close in gold.

In silver we had 138 notices served upon for 690,000 oz.

In gold, the total comex gold OI FELL BY ONLY 4,134  CONTRACTS DOWN to 587,206 contracts AS THE PRICE OF GOLD WAS WHACKED $27.30 with YESTERDAY’S TRADING(at comex closing).

 

As far as the GLD, we had another huge change in tonnes (despite the gold price being down) a deposit of 2.38 tonnes into the GLD. The new inventory rests at 839.25 tonnes.  I have no problem in telling you that the addition was paper gold and not physical as London is having a tough time finding real metal. We had a huge withdrawal in silver inventory of 1.046 million oz at the SLV. Inventory rests at 335.073 million oz.

.

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

1. Today, we had the open interest in silver FELL by 821 contracts DOWN to 203,915 as the price of silver was DOWN by 44 cents with YESTERDAY’S trading. The gold open interest FELL by A TINY 4,134 contracts as  gold WAS WHACKED by $27.30  YESTERDAY. Somebody big is standing FOR SILVER and surrounding the comex with paper longs ready to ponce once called upon to take out physical silver.I also believe that for the first time we are witnessing players wishing to stand for real physical in gold. The May contract for gold investors are refusing the tempting fiat offer and want only physical.

(report Harvey).

 

2 a) Gold trading overnight, Goldcore

(Mark OByrne/off today

2b)  Gold trading earlier this morning;

(Harvey)

2c) COT report

Harvey

3. ASIAN AFFAIRS

i)Late  MONDAY night/ TUESDAY morning: Shanghai closed DOWN  BY 0.478 PTS OR 0.02%  /  Hang Sang closed UP 85.87 OR 0.43%. The Nikkei closed UP 349.16 POINTS OR 2.15% . Australia’s all ordinaires  CLOSED UP 0.42% Chinese yuan (ONSHORE) closed DOWN at 6.5144.  Oil FELL to 43.25 dollars per barrel for WTI and 43.94 for Brent. Stocks in Europe DEEPLY IN THE GREEN . Offshore yuan trades  6.5433 yuan to the dollar vs 6.5144 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS.

REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) REPORT ON JAPAN

none today

b) REPORT ON CHINA

i)A must read commentary from Jeffrey Snider of Alhambra Investments.  He describes in detail the collapse in exports from China and the resultant collapse in imports to service those exports.  He also comments on the stagnant supply of eurodollars which is also results in stagnation in the global economy:

( Jeffrey Snider/Alhambra Investments)

ii)The USA continues to provoke China in the South China Sea:

( zero hedge)
iii)A good look at the uncontrollable bubble in the Chinese commodity sector.  This is an accident waiting to happen:

(courtesy zero hedge)

4.EUROPEAN AFFAIRS

Basically there is no debt reduction, just kicking the can down the alley a little further

( Mish Shedlock)

5.EMERGING MARKETS

The lawmaker revokes his own annulment call on impeachment. It is now back on track:

( zero hedge)

6.OIL ISSUES

i)Good reason for oil to jump:  both Saudi Arabia and Kuwait are planning significant output growth:

( zero hedge)

 

ii)Today at 5 pm, API reports a big crude build

(courtesy API/Zero hedge)

7.PHYSICAL MARKETS

i)Amazing!! what took them so long to notice: Australia is now aware of the criminal proceedings against Deutsche bank in NY

( zero hedge/Sykes)
ii)China eases gold trading rules in 6 cities making it easier to buy gold;( Cheng/Shanghai Daily)

8.USA STORIES WHICH WILL INFLUENCE THE PRICE OF GOLD/SILVER

i) Just take a look at the huge increases in insurance premiums proposed for 2017.  They are enormous.  How on earth will the majority afford this?

( zero hedge)

ii)Inventory to sales remain at a stubborn 1.36.  Either sales increase dramatically lowering inventory or else the USA heads deeper into recession as this number is a negative to GDP

( zero hedge)
iii)Janet Yellen’s favourite job indicator, the jolts job openings is back to all time highs.
Thus Yellen should have no trouble in raising rates. But China will not let her raise rates as they will devalue the yuan severely:
( zero hedge)
iv)If the stock market is up bond yields must rise.  Instead they are falling!  Thus bonds are not buying the stock market rally!
( zero hedge)
v)Oh OH!! Goldman cuts interest rate forecasts as they state the USA economy is going nowhere. Expect further QE!
(courtesy Goldman Sachs/zero hedge)

Let us head over to the comex:

The total gold comex open interest  fell to an OI level  of 587,206  for a loss OF 4,134 contracts AS  THE PRICE OF GOLD WAS DOWN $27.30 with respect to YESTERDAY’S TRADING. We are now entering the NON active delivery month of MAY. For the past two years, we have strangely witnessed two interesting developments and we have generally seen two phenomena happen respect to the gold open interest:  1) total gold comex collapses in OI as we enter any delivery month  and 2) a continual drop in the amount of gold standing in that month as that month progresses. IT SURE SEEMS THAT THE LATER HAS STOPPED.   The month of May saw its OI FALL 25 contracts DOWN to 1416. We had 0 notices filed ON YESTERDAY so we LOST 25 contracts or an additional 2500 oz will stand for delivery. . The next big active gold contract is June and here the OI FELL by 20,661 contracts DOWN to 384,588.. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was FAIR at 186,475. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was EXCELLENTat 262,692 contracts. The comex is not in backwardation. We are LESS THAN 3 weeks away from first day notice for the huge June contract.

Today we had 100 notices filed for 10,000 oz in gold.

 

And now for the wild silver comex results. Silver OI FELL by 821 contracts from 204,736 DOWN to 203,915 as  the price of silver was DOWN BY 44 cents with YESTERDAY’S TRADING. For the first time in over 2 years, we have not witnessed a liquidation of open interest as we ENTERED first day notice .  The next active contract month is May and here the OI ROSE by 1 contract UP to 1072. We had 17 notices filed YESTERDAY so we GAINED 18 contracts or AN ADDITIONAL  90,000 oz of silver will  stand for delivery in this active month of May. The next non active month of June saw its OI RISE by 79 contracts UP to 874  OI.The next big delivery month is July and here the OI FELL by 1655 contracts DOWN to 141,023. The volume on the comex today (just comex) came in at 47,512 which is EXCELLENT. The confirmed volume YESTERDAY (comex + globex) was AGAIN HUGE AT 61,886. Silver is not in backwardation. London is in backwardation for several months.
THE HIGH OPEN INTEREST FOR THE ENTIRE COMPLEX PLUS THE HIGH OI FOR THE FRONT MAY CONTRACT MUST BE SCARING OUR BANKERS TO NO END.
 
We had 138 notices filed for 690,000 oz.
 

MAY contract month:

INITIAL standings for MAY

Initial Standings for MAY
May 10.
Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  64.30 OZ

Manfra

 

Deposits to the Dealer Inventory in oz 5,000 oz

Brinks

Deposits to the Customer Inventory, in oz  184,369.04 OZ

BRINKS

SCOTIA

No of oz served (contracts) today 100 contracts
(10,000 oz)
No of oz to be served (notices) 1316 CONTRACTS

131,600 OZ

Total monthly oz gold served (contracts) so far this month 732 contracts (73,200 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month  190,802.9 OZ

Today we had 1 dealer deposit

i) Into Brinks:  another of those exact and crazy 5,000.000 oz

total dealer deposit: 5,000.00 oz

THIS IS NOT A KILOBAR ENTRY/NOT DIVISIBLE BY 32.15 OZ.

 

Today we had 0 dealer withdrawals:

total dealer withdrawals:  nil oz

Today we had 0 customer deposits:

 

 

total customer deposit: nil OZ

Today we had 1 customer withdrawal:

 

 

i) Into MANFRA:  64.30 oz

Total customer withdrawals:  64.30 oz

 

Today we had 0 adjustment:

 

Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 100 contracts of which 17 notices was stopped (received) by JPMorgan dealer and 1 notices were stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the MAY contract month, we take the total number of notices filed so far for the month (732) x 100 oz  or 73200 oz , to which we  add the difference between the open interest for the front month of MAY (1416 CONTRACTS) minus the number of notices served upon today (100) x 100 oz   x 100 oz per contract equals 207,300 oz, the number of ounces standing in this non active month.  This number is huge for May. Let us see if this number remains constant throughout themonth
 
Thus the initial standings for gold for the MAY. contract month:
No of notices served so far (732) x 100 oz  or ounces + {OI for the front month (1416) minus the number of  notices served upon today (100) x 100 oz which equals 204,800 oz standing in this non  active delivery month of MAY(6.3701 tonnes).
WE GAINED 68 CONTRACTS OR 6800 OZ WILL  STAND FOR DELIVERY
Since the comex allows GLD shares to be used for settling, it may take quite a while for the physical gold to enter the comex vaults.  So far I have seen little evidence of any settling of contracts but I will continue to monitor it for you. 
 
We thus have 6.3701 tonnes of gold standing for MAY and 18.463 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing.
We now have partial evidence of gold settling for last months deliveries We now have 6.4479 TONNES FOR MAY + 12.3917 tonnes (April) +2.2311 tonnes (March) + 7.99 (total Feb)- .940 (probable delivery on March 1) tonnes -.0434 tonnes (March 11,12,17,18) + March 31: 1.2470 and then  April 1,2: – .0006 tonnes  and last week April 16 .3203 and April 22 .(0009 tonnes) + april 29  .205 tonnes + May 5:  3.799 and May 6: 1.607 tonnes  = 21.223 tonnes still standing against 18.308 tonnes available.  .
 
Total dealer inventor 593,614.083 tonnes or 18.463 tonnes
Total gold inventory (dealer and customer) =7,414,819.420 or 230.632 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 230.632 tonnes for a loss of 72 tonnes over that period. 
 
JPMorgan has only 20.97 tonnes of gold total (both dealer and customer)
May is not a very good delivery month and yet 6.44 tonnes of gold is standing.  What is different from other months is that the bankers cannot offer any fiat to those standing. They want the real stuff. We are extremely close to the all time highs in both gold and silver OI.
 end
And now for silver
 

MAY INITIAL standings

 May 10.2016

Silver
Ounces
Withdrawals from Dealers Inventory nl oz
Withdrawals from Customer Inventory  206,049.03 oz

Brink,s HSBC

Deposits to the Dealer Inventory  499,899.590  oz

CNT

 

 

Deposits to the Customer Inventory  101,342.279 oz

CNT, Delaware

No of oz served today (contracts) 138  CONTRACTS

690,000 OZ

No of oz to be served (notices) 9344 contracts

4,670,000 oz

Total monthly oz silver served (contracts) 1895 contracts (9,475,000 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  1,825,324.2 oz

today we had 1 deposit into the dealer account

i) Into CNT:  499,899.590 oz

total dealer deposit:499,899.590 oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

 

we had 2 customer deposits:

i) Into CNT: 100,342.279 oz

ii) Into Delaware:  1000.000  oz??? exact weight??

Total customer deposits: 101,342.279  oz.

We had 2 customer withdrawals

i) out ouf Brinks: 185,747.210 oz

ii) Out of HSBC: 20,301.820 oz

:

total customer withdrawals:  206,049.03 oz

 
 

 

 we had 3 adjustment

i)Out of CNT:  2013.59 oz was adjusted out of the customer and this landed into the dealer account of CNT

ii) Out of Brinks:

15,752.820 oz leave the dealer Brinks and this lands into the customer account of Brinks

iii) Out of HSBC:

20,143.303. oz leaves the dealer HSBC and this lands into the dealer account of HSBC

The total number of notices filed today for the MAY contract month is represented by 138 contracts for 690,000 oz. To calculate the number of silver ounces that will stand for delivery in May., we take the total number of notices filed for the month so far at (1895) x 5,000 oz  = 9,475,000 oz to which we add the difference between the open interest for the front month of MAY (1072) and the number of notices served upon today (138) x 5000 oz equals the number of ounces standing 
 
Thus the initial standings for silver for the MAY contract month:  1895 (notices served so far)x 5000 oz +(1072{ OI for front month of MAY ) -number of notices served upon today (138)x 5000 oz  equals 14,145,000 oz of silver standing for the MAY contract month.
WE LOST ANOTHER 20  CONTRACTS OR 100,000 OZ WILL NOT STAND AS THEY WERE CASH SETTLED.
 
Total dealer silver:  29.692 million
Total number of dealer and customer silver:   152.850 million oz
The open interest on silver is still close an all time high with the record of 206,748 being set in the last week of April. The registered silver (dealer silver) is now at multi year lows as silver is being drawn out and heading to China and other destinations.
end
And now the Gold inventory at the GLD
May 10/Another huge deposit of 2.38 tonnes in gold inventory at the GLD/Inventory rests at 839.25 tonnes
May 9/Surprisingly we had another deposit of 2.68 tonnes of gold into the GLD with gold down!! Inventory 836.87 tonnes
May 6 SURPRISINGLY WE HAD ANOTHER HUGE DEPOSIT OF 8.65 TONNES OF GOLD INTO THE GLD/ INVENTORY RESTS AT 834.19 TONNES
May 5/SURPRISINGLY WE HAD A HUGE DEPOSIT OF 3.90 TONNES OF GOLD WITH THE PRICE OF GOLD DOWN???
May 4/ we had a small deposit of .6 tonnes of gold into the GLD/inventory rests at 825.54 tonnes
May 3/no change in gold inventory at the GLD/Inventory  rests at 824.94 tonnes
May 2/a hugechange in gold inventory at the GLD a deposit of 20.80/Inventory rests at 824.94 tonnes
April 29/no change in gold inventory at the GLD/Inventory rests at 804.14 tonnes
April 28/we gained 1.49 tonnes of gold at the GL/Inventory rests at 804.14
April 27/no change in gold inventory at the GLD/rests at 802.65 tonnes
aPRIL 26/ a withdrawal of 2.38 tonnes of gold/inventory rests at 802.65 tonnes
April 25.2016: no change in gold inventory/rests tonight at 805.03 tonnes
April 22/ no changes in gold inventory/rests tonight at 805.03 tonnes
April 21/no change in gold inventory/rests tonight at 805.03 tonnes
April 20/no change in gold inventory/rests tonight at 805.03 tonnes
April 19./we had a huge withdrawal of 7.43 tonnes from the GLD/Inventory rests tonight at 805.03 tonnes
April 18.2016/a huge addition of 6.38 tonnes of gold  in gold inventory at the GLD/Inventory rests at 812.46
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

May 10.:  inventory rests tonight at 839.25 tonnes

end

 

Now the SLV Inventory
May 10.2016/we had a huge withdrawal of 1.046 million oz in silver leaving the SLV,no doubt for Shanghai which lately has been gobbling up whatever inventory it could lay its hands on/Inventory rests at 335.073 million oz.
May 9. no change in silver inventory/rests at 336.119 million oz.
May 6/ SURPRISINGLY WE HAD A WITHDDRAWAL OF 1.142 MILLLION OZ FROM THE SLV
INVENTORY RESTS AT 336.119 MILLION OZ
MAY 5.2016: NO CHANGE IN INVENTORY/rests tonight at 337.261 million oz
May 4/we had a good size withdrawal of 1.553 million oz from the SLV/Inventory rests at 337.261 million oz
May 3: we had another huge deposit of 1.807 million oz/inventory rests at 338.814 million oz
May 2/a huge in silver inventory at the SLV/a deposit of 1.49 million oz/Inventory rests at 337.007 million oz
April 29.2016/no change in silver inventory at the SLV/Inventory rests at 335.580
April 28/no change in silver inventory at the SLV/Inventory rests at 335.580 million oz
April 27/we had another addition of 856,000 oz into the SLV/Inventory rests at 335.580
aPRIL 26/no change in silver inventory at the SLV/Inventory rests at 334.724 million oz.
April 25.2016/ No change in silver inventory/rests tonight at 334.724 million oz.
April 22/ no changes in silver inventory/rests tonight at 334.724 million oz
April 21/no change in silver inventory/rests at 334.724 million oz/
April 20/no change in inventory/rests at 334.724 million oz
April 19./we had a huge inventory deposit of 1.437 million oz/inventory rests at 334.724
.
May 10.2016: Inventory 335.073 million oz
end
 
1. Central Fund of Canada: traded at Negative 4.3 percent to NAV usa funds and Negative 4.6% to NAV for Cdn funds!!!!
Percentage of fund in gold 61.3%
Percentage of fund in silver:37.4%
cash .+1.3%( May 10/2016).
2. Sprott silver fund (PSLV): Premium to  FALLS to -.66%!!!! NAV (MAY 10.2016) 
3. Sprott gold fund (PHYS): premium to NAV  FALLS 1.01% to NAV  ( MAY 10.2016)
Note: Sprott silver trust back  into NEGATIVE territory at -0.66% /Sprott physical gold trust is back into positive territory at +1.01%/Central fund of Canada’s is still in jail.
It looks like Eric Sprott got on the nerves of our bankers as they lowered the premium in silver to -.66%.  Remember that Eric is to get 75 million dollars worth of silver in a new offering.
 
 
 

END

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

Trading in gold and silver overnight in Asia and Europe
Mark O’Byrne (goldcore)/

‘Silver Guru’ David Morgan Says Gold And Silver Bullion ‘Super Bull Market’ Initiated

‘Silver guru’ David Morgan was recently interviewed by Future Money Trends and said that the gold and silver bullion “super bull market” has been initiated.

“We are finally in the very beginning of the new bull market which will be the most exciting as the third leg up is the one that is the most rewarding. In fact few will believe just how high the precious metals will go. The end date is most likely 2018/2019 at this point.”

Gold and Silver Prices and News
Gold near 1-1/2-week low as dollar keeps strength (Reuters)
Indians shun gold buys during key festival as prices, drought sting (Reuters)
Gold slides with other commodities as dollar and equities rise (Reuters)
Top bullion dealers form a federation (Business Standard)
Perth Mint Gold and Silver Bullion Sales in April (Coin News)

Sprott CEO: I’m a Pragmatic Gold Bug (Bloomberg)
I’m with Stan Druckenmiller — gold has every reason to rise (Marketwatch)
Bitcoin Drama Continues: Craig Wright Disappears and Andresen Says He Was Bamboozled (Max Keiser)
What makes medieval money different from modern money? (JP Koning)
With A Historic -150% Net Short Position, Carl Icahn Is Betting On An Imminent Market Collapse (Zero Hedge)
Read More Here

Gold Prices (LBMA AM)
10 May: USD 1,264.85, EUR 1,111.04 and GBP 875.90 per ounce
09 May: USD 1,277.75, EUR 1,121.54 and GBP 884.68 per ounce
06 May: USD 1,280.25, EUR 1,121.06 and GBP 883.04 per ounce
05 May: USD 1,275.75, EUR 1,114.95 and GBP 879.23 per ounce
04 May: USD 1,280.30, EUR 1,114.18 and GBP 883.59 per ounce

Silver Prices (LBMA)
10 May: USD 17.04, EUR 15.00 and GBP 11.82 per ounce
09 May: USD 17.33, EUR 15.21 and GBP 11.99 per ounce
06 May: USD 17.31, EUR 15.15 and GBP 11.93 per ounce
05 May: USD 17.38, EUR 15.21 and GBP 12.01 per ounce
04 May: USD 17.18, EUR 14.96 and GBP 11.86 per ounce

Protecting_Your_Savings_in_the_Coming_Bail_In_Era_-_Copy-3.jpg Storing_Gold_in_Switzerland 7_Key_Storage_Must_Haves.png

Read Our Most Popular Guides in Recent Months

Mark O’Byrne
Executive Director
Published in Market Update
end
Amazing!! what took them so long to notice:
(courtesy zero hedge)

Australia notices Deutsche Bank’s agreement to settle gold, silver rigging claims

Submitted by cpowell on Mon, 2016-05-09 21:52. Section: 

New York Court Investigates Claims Silver and Gold Prices Rrigged

By Trevor Sykes
Australian Financial Review, Sydney
Monday, May 9, 2016

Silver and gold are looking strong again, partly because of interest rate movements but possibly also because of a court case being settled in New York.

The interest rate factor is clear. One of the arguments against holding precious metals has always been that they yield no interest. Now we are in an environment where government bonds and bank deposits yield very low interest anyway, so that argument has lost much of its strength.

The court case, in the Southern District of New York, has so far been unreported in Australia. A group of plaintiffs sued Deutsche Bank, the Bank of Nova Scotia, HSBC, and their private company the London Silver Market Fixing Ltd for breaches of US anti-trust legislation. Another defendant was the Swiss-based UBS.

The plaintiffs alleged the banks rigged the silver market by publishing false prices. London Silver Fixing had run the daily silver auctions in London until August 2014, when the London Bullion Market Association (LBMA) took over the auctions.

Silver traders sued the banks and the company in 2014, alleging that the banks had abused their controlling position in the silver market to reap illegitimate profits from trading. They were alleged to have hurt traders who invested billions of dollars based on the benchmarks which were set by the banks.

UBS did not set the benchmarks, but was accused of conspiring to exploit the silver fix.

On April 13, Deutsche Bank shocked the market by unilaterally agreeing to settle. The amount it has agreed to pay remains undisclosed.

Deutsche Bank also agreed to cooperate with the plaintiffs by providing “instant messages and other electronic communications”. Lawyers for the plaintiffs said the cooperation would “substantially assist plaintiffs in the prosecution of their claims against the non-settling defendants”.

When one defendant in a lawsuit breaks ranks and settles, it normally puts great pressure on the other defendants to do the same.

It will also put pressure on the current LBMA silver auctions, because HSBC and the Bank of Nova Scotia are two of the five LBMA parties. Price manipulation in this market can be prosecuted criminally.

Whether such a prosecution is launched will depend on the regulator, Britain’s Financial Conduct Authority (FCA).

More importantly, the allegations also extend to the gold market. A total of 96 plaintiffs are suing 22 defendants with claims that the gold market has been manipulated.

The defendants in the gold case are the Bank of Nova Scotia, Barclays, Deutsche Bank, HSBC, Societe Generale, UBS and The London Gold Market Fixing Ltd.

Again, it has been reported that Deutsche Bank is negotiating to unilaterally settle the claims. The repercussions from such a settlement are potentially huge.

Traders have suspected for years that the gold market was being rigged. The London fix and the Comex market in New York are the world’s dominant gold markets, but prices are set in derivatives. In theory the daily London fix is supposed to be for physical delivery, but in practice trades are settled in cash and only rarely in gold.

In the physical markets, the big buyers for many years have been China, India and other Asian nations. The biggest gold hoard in the world is supposed to be in Fort Knox, but there is a strong suspicion that its holdings are much smaller than reported.

If that is so, the gold market is truly distorted because the price is being set in US and UK derivative markets and not by the physical market. If the US lawsuit extends into the heart of gold price fixing, the revelations could be explosive.

Silver peaked at $43 an ounce in April 2011. It went as low as $19 last January but has since recovered to $23. Gold went as low as $1351 an ounce in November 2011 and has recently been trading above $1,700.

—–

Disclosure: Trevor Sykes holds shares in gold exploration companies. The author is not a licensed investment advisor. Views expressed are his own and not a substitute for tailored investment advice.

end

China eases gold trading rules in 6 cities making it easier to buy gold;

(courtesy Cheng/Shanghai Daily)

China eases gold trade rules in 6 cities

Submitted by cpowell on Mon, 2016-05-09 22:19. Section: 

By Leng Cheng
Shanghai Daily
Thursday, May 5, 2016

http://www.shanghaidaily.com/business/energy/China-eases-gold-trade-rule…

China will relax rules for cross-border trading of gold in six cities as the world’s biggest gold consumer and producer hopes this move will increase bullion imports.

Gold companies will be able to clear customs up to 12 times with just one permit after the rules are eased, a joint statement by the People’s Bank of China and the General Administration of Customs said yesterday. The current rules force the companies to apply permits for every import or export of the gold.

The rules will be effective from June 1 in the six cities of Shanghai, Beijing, Guangzhou, Nanjing, Qingdao, and Shenzhen, the statement said.

“The new measure will simplify the approval procedures and improve the gold trading environment,” the statement said.

The eased rules followed the setting up of a yuan-denominated gold fix in the Shanghai Gold Exchange two weeks ago in a bid to help China join London and New York as a global hub for bullion trading, said SGE Chairman Jiao Jinpu.

Gold consumption in China has been climbing as rising incomes and economic growth boost purchases of jewelry, bars and coins.

The gold consumption totaled 985.9 tons last year. Output stood at 450.1 tons in 2015, according to figures from the China Gold Association.

end

Your early TUESDAY 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 DOWN to 6.5144 (BIG DEVALUATION ) / Shanghai bourse  CLOSED DOWN 0.478 OR 0.02%  / HANG SANG CLOSED UP 85.87 OR 0.43%

2 Nikkei closed UP 349.16 OR 2.15% /USA: YEN FALLS TO 109.08

3. Europe stocks opened ALL IN THE GREEN  /USA dollar index UP to 94.31/Euro DOWN to 1.1367

3b Japan 10 year bond yield: RISES   TO -.087%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 109.08

3c Nikkei now WELL BELOW 17,000

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

3e WTI::  43.30  and Brent: 43.94

3f Gold UP  /Yen DOWN

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

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS to 0.135%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate FALL to 9.34%/: 

3j Greek 10 year bond yield FALL to  : 8.17%   (YIELD CURVE NOW DEEPLY INVERTED)

3k Gold at $1264.50/silver $17.05(7:45 am est) BROKE RESISTANCE AT 16.52 

3l USA vs Russian rouble; (Russian rouble UP 73 in  roubles/dollar) 66.43-

3m oil into the 43 dollar handle for WTI and 43 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 TRADES TO 109.08 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 .9747 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1081 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.

3r the 8 Year German bund now  in negative territory with the 10 year FALLS to  + .135%

/German 8 year rate negative%!!!

3s The Greece ELA NOW a 71.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.76% early this morning. Thirty year rate  at 2.60% /POLICY ERROR)

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

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

Global Stocks Jump; Oil Rises As Yen Plunges After Another Japanese FX Intervention Threat

In what has been an approximate repeat of the Monday overnight session, global stocks and US futures rose around the world as oil prices climbed toward $44 a barrel, with risk-sentiment pushed higher by another plunge in the Yen which has now soared 300 pips since the Friday post-payroll kneejerk reaction, and was trading above 109.20 this morning. At the same time base metals regained some of Monday’s steep losses following Chinese CPI data that came in line while PPI declined for 50 consecutive months however showed a modest rebound from the prior month on the back of China’s recent, and now burst, speculative commodity bubble.

The weaker yen was the main driver of overnight action: “The weakening yen is acting as a boost to stocks,” Yoshihiro Okumura, general manager at Chiba-Gin Asset Management told Bloomberg. “We’re seeing some risk-on moves overall. The key going forward is whether we’ll get a sense that all the negative earnings are over with now.” The yen weakened for a second day after Japan’s Finance Minister said the government can intervene to stabilize foreign-exchange markets if necessary. Japan’s currency fell against all its Group-of-10 peers after Taro Aso, speaking in parliament in Tokyo Tuesday, reiterated that the U.S. doesn’t object to the Asian nation’s policy. His comments came a day after he said “it’s natural that Japan has means to intervene” in the foreign-exchange markets.

“The increase in Japan’s talk about intervention is drawing market attention,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Japanese officials run the risk being ‘the boy who cried wolf’ if they keep talking without acting.” Considering they have been crying wolf all of 2016 after the disastrous NIRP experiment, one would assume the market has had enough, and yet here we are with a 300 pip squeeze in two days.

The MSCI All Country World Index’s 0.4 percent gain was its biggest in three weeks as Credit Suisse Group AG boosted European banks and Japanese shares rose. Nickel led a rebound in a Bloomberg measure of raw-materials prices as Japan’s largest supplier forecast a widening shortage. Philippine’s peso jumped the most in six weeks after Rodrigo Duterte called for “healing” after claiming victory in a presidential election and trading Europe signaled Brazilian markets would rebound as the move to oust President Dilma Rousseff appeared back on track. Optimism was dented by the latest industrial output print in Germany which declined more than expected in March while France’s unexpectedly fell highlighted the uneven nature of the recovery.

Cited by Bloomberg, Michael Hewson, a London-based market analyst at CMC Markets said that”people are slightly less risk averse now than they were end of April. Credit Suisse earnings weren’t great, but they were better than the worst of expectations. Still, the optimism is a little premature. Economic data hasn’t been very convincing.” So not great, but better than the worst expectations, and the result is a 1.5% jump in Europe and a 0.6% bounce in US futures. As a reminder, on Monday morning Goldman cuts its Stoxx 600 and Eurostoxx 50 forecast. Now we know why.

Some more details: the Stoxx Europe 600 Index advanced 1.3 percent as of 10:31 a.m. London time, with all of its industry groups rising. Lenders led the gains. Greece’s ASE Index rose 2.7 percent for the biggest rally among western-European markets. S&P 500 futures added 0.6 percent after the gauge closed little changed on Monday. Credit Suisse rallied 4.8 percent after posting a smaller loss than analysts estimated. Pandora A/S jumped 9.8 percent after the maker of charm bracelets reported better-than-projected results and raised its full-year forecast.

Market Wrap

  • S&P 500 futures up 0.6% to 2066.5
  • Stoxx 600 up 1.3% to 337.5
  • Eurostoxx 50 +1.5%
  • FTSE 100 +0.8%
  • CAC 40 +1%
  • DAX +1.1%
  • IBEX +1.9%
  • FTSEMIB +2%
  • MSCI Asia Pacific up 0.7% to 127.4
  • Nikkei 225 up 2.2%
  • Hang Seng up 0.4%
  • Kospi up 0.7%
  • Shanghai Composite up 0%
  • ASX up 0.4%
  • Sensex up 0.3%
  • Euro up 0.01% to $1.1384
  • Italian 10Yr yield down 4bps to 1.42%
  • Spanish 10Yr yield down 3bps to 1.56%
  • US 10Yr yield up 2bps to 1.77%
  • German 10Yr yield up 0bps to 0.13%
  • Gold spot up 0.2% to $1265.9/oz

Global Top News

  • Republican Senators Nowhere Near Uniting Over Trump as Nominee: some hope to meet with party nominee and urge new approach
  • Duterte Claims Big Philippine Win Amid Doubts on Economic Smarts: vice presidential vote count remains too close to call
  • Credit Suisse Posts Loss as Thiam Signals Cost-Cutting Progress: says ‘subdued’ market conditions may persist for a while
  • Brexit Backers Close Gap on ‘Remain’ in BCC Poll of Businesses: support for Leaving EU up to 37% from 30%
  • Osborne Says Pent-Up Investment to Boom If U.K. Stays in EU: says delayed decisions will go ahead if Brexit rejected
  • Several People Injured in Knife Attack in Grafing Near Munich: 4 to 5 people were injured, one of them seriously
  • EnCap Said to Seek $1.5 Billion for ‘Stack’ Oil Explorer PayRock: according to people with knowledge of the matter
  • Emirates Profit Rises 50% on Fuel Windfall, Long-Haul Routes: hedging policy reaps full benefit of declining oil price
  • Pop. Emilia Weighs Bid for All 4 of Italy’s Rescued Banks: MF: MF report doesn’t cite anyone
  • LendingClub Founder Goes From Wall Street Darling to Unemployed: Renaud Laplanche resigns after allegations tied to loan sales

Looking at regional markets, Asian stocks traded mostly higher after encouraging Chinese inflation figures supported a turnaround in sentiment. Nikkei 225 (+2.2%) outperformed as JPY weakness bolstered exporter sentiment, while ASX 200 (+0.4%) rebounded off its worst levels as strength in financials offset commodity weakness in which WTI crude futures declined below USD 44/bbl and iron ore dropped around 6%. Shanghai Comp (flat) recovered from opening losses after the latest China data release inspired an improvement in sentiment. Finally, 10yr JGBs were mildly lower as firm gains in Japanese stocks dampened demand for safe-haven assets while today’s 10yr auction also saw a decline in the b/c from prior.

Top Asian News

  • China Said to Consider Curbs on Backdoor Listing Valuations: CSRC weighs deal quota for overseas-listed Chinese cos.
  • Hedge Funds Bullish on the Philippines as Duterte Wins Election: Civetta, F&H say they are encouraged by nation’s fundamentals
  • China April Retail Auto Sales Rise 6.4% on Year, PCA Says: China’s retail auto sales in April rose to 1.72m units
  • Mitsubishi Motors Pain Spreads With $3 Billion Exposure Risk: Trading co. Mitsubishi discloses potential impact of fraud
  • SoftBank Profit Misses Estimates on Continued Losses at Sprint: Reports net income of 474.2b yen for fiscal year ended March 2016 vs 576.5b yen est.
  • Japan’s Top Trading Houses Post First Net Losses as Prices Slump: Mitsubishi, Mitsui post combined losses of 232.8b yen
  • 1MDB Default Deters Funds as Malaysia Can’t Put Scandal to Bed: Political situation still one of “biggest hurdles,” PineBridge says

European equities trade higher this morning, benefiting from the upside seen in Asia, combined with some notable positive earnings pre-market. The most notable earnings release pre-market came from Credit Suisse, with the Swiss Bank leading the way this morning, trading higher by over 5% after announcing a smaller than expected loss. The strength in equities has contributed to some of the downside in fixed income markets, with Bunds trading lower today and slipping back below the 164.00 level. Bunds have also been impacted this morning by the auction calendar, with a number of countries coming to market today including the Netherlands, Austria, UK and Germany. Elsewhere, as mentioned yesterday EUR denominated corporate bond sales have picked up this week as companies look to take advantage of low interest rates after publishing their quarterly earnings.

Top European News

  • Thyssenkrupp Cuts FY Forecast on Steel Price; Beats 2Q Estimates: now sees FY adj. Ebit of at least EU1.4b, compared w/ previous guidance of EU1.6b-EU1.9b
  • Abertis Reaches Accord to Buy 51.4% of A4 Holding for EU594M: A4 Holding main assets are A4 Brescia-Padova, A31 highways in Italy
  • ING Profit Falls on Regulatory Costs, Loss at Markets Unit: regulatory losses jumped on levies, deposit insurance
  • Adecco CEO Says U.K. Finance Hiring Sputters on Brexit Vote: Dehaze tells Bloomberg TV France is slowly recovering
  • Munich Re Revises Annual Profit Target on Ergo, Investments: sets new profit target of EU2.3b vs previous target of EU2.3b-EU2.8b
  • Nokia Revenue Misses Estimates Amid Waning Carrier Spending: CEO Suri seeking growth after Alcatel-Lucent acquisition
  • Nordea CEO Says Headcount Must Fall to Meet Cost-Cut Goals: CEO says “low 40s” should be cost-to-income goal for Nordea
  • EasyJet Posts Loss as Terror Clips Demand, Weighs on Fares: over-capacity hurting European carriers on short-haul routes
  • Ditecsa Prepares Offer for Abengoa Unit, Expansion Reports: unit has 1,500 staff, revenue of ~EU400m

In FX, The yen slid 0.9 percent to 109.25 per dollar, adding to Monday’s loss of 1.1 percent. It declined versus all of its 16 major counterparts, except the South African rand. Bloomberg Dollar Spot Index fell 0.1 percent, after a five-day winning streak that marked its strongest run of gains in almost a year. The Philippine peso strengthened 0.8 percent as Duterte, the tough-talking mayor of Davao City, sought to calm markets and win over Filipinos and investors watching closely how he will manage the economy.  there has been plenty of data releases overnight but none which majorly influenced FX, or indeed any of the key markets. Malaysia’s ringgit slumped to a seven-week low and Russia’s ruble weakened as trading resumed following a slide in oil on Monday. South Korea’s won fell to the lowest in almost eight weeks.

German trade data showing an improvement in the surplus, while the equivalent UK stats revealed a tighter, but still wide deficit. French industrial and manufacturing production was notably weak, but for the EUR, it was another tight trading session against the USD. However, we did see the greenback giving back some of its recent gains vs the CAD, more modestly so against GBP, but vs the JPY, the positive sentiment in equities saw the lead spot rate tipping 109.00 , with the prospect for a move on towards 110.00 now very much on the cards. Some moderation also seen in AUD/USD, with dealers reporting strong bidding interest at .7300. The recovery has been slow, but in line with the risk on tide. Little on the US data slate, so focus on Wall Street on the JPY pairings, with CAD/JPY in focus given the underlying spot moves seen this morning — up over 1.5 JPY from yesterday’s lows.

In commodities, WTI and Brent have been pushing higher this morning with WTI heading toward the USD 44.00/bbl level. Gold has seen a slight reprieve from yesterday’s sell off up marginally 0.15% as the dollar index slows down. Silver is also trading in positive territory up 0.44%.Meanwhile in base metals copper and iron ore were mixed with the red metal edging a mild recovery while Singapore iron ore futures declined below USD 50/mt for the first time since March.

On today’s US calendar the main release of note is the March wholesale inventories and trade sales report. As well as that, we’ll get the NFIB small business optimism survey reading and March JOLTS job openings data. Fedspeak wise it is the turn of Dudley who is due to speak this morning in Zurich (at 8.15pm BST) on the international monetary system.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European equities trade higher across the board as a pick-up in risk sentiment continues to guide price action
  • This sentiment has filtered through to FX markets with USD/JPY reclaiming 109.00 to the upside
  • Looking ahead, highlights include US JOLTS and API Crude Oil Inventories
  • Treasuries lower in overnight trading amid rally in global equities and commodities while oil rises back toward $44 a barrel; week’s auctions begin with $24b 3Y notes, WI 0.895%; sold at 0.89% in April.
  • German industrial production declined 1.3% m/m in March, more than expected, its second consecutive drop that could signal slackening demand in Europe’s largest economy
  • Germany posted a record current-account surplus just days after being placed on a U.S. watchlist for countries that may have an unfair foreign-exchange advantage
  • With record-low costs for mortgages and savings accounts earning almost nothing, Germany is warming to real estate. In the past five years, housing costs in Berlin, Hamburg and Munich have jumped by more than 30%
  • China’s commodities boom started as a logical bet– that China’s economic stimulus and industrial reforms would lead to shortages of construction materials — quickly morphed into a full-blown commodities frenzy with little bearing on reality
  • Saudi Arabia, the world’s biggest oil exporter, plans “significant growth” in output in 2016 and further international expansion, the head of the country’s state-run producer said
  • Credit Suisse Group AG reported a second straight pretax loss at the securities business it’s overhauling as CEO Tidjane Thiam offloaded much of the high-risk assets that have triggered more than $700 million in losses since last year
  • Faced with weak banks and an anemic economy the European Union has opened up the entire financial rule book for review, including contentious issues such as the cap on bankers’ bonuses
  • The drive to oust President Dilma Rousseff is back on track after the head of the lower house Waldir Maranhao released a statement in the dead of night revoking his own call to annul impeachment sessions in the lower house
  • Sovereign 10Y yields little changed except Greece, which rallies 71bp; European and Asian equity markets higher; U.S. equity- index futures rise. WTI crude oil and precious metals rally

DB’s Jim Reid concludes the overnight wrap

In terms of markets yesterday, caution was the name of the game as a steep selloff across the commodity complex kept investors sidelined. The S&P 500 did manage to close out with a modest +0.08% gain with performance for European markets slightly better (Stoxx 600 +0.47%). Credit markets were a smidgen tighter on both sides of the pond meanwhile. It was the moves for commodity markets which caught the eye though. Oil gets most of the attention and yesterday we saw WTI close back down below $44/bbl after falling -2.73%. However it was moves for metal markets which caught our eye though. Aluminium (-2.32%), Copper (-2.58%), Zinc (-2.81%), Nickel (-5.07%) and Iron Ore (-5.66%) were hammered and even Gold tumbled nearly 2% during yesterday’s session. We’ll touch on the moves in more detail below, along with what were some interesting developments in Greece and Brazil.

Before we do though, it’s straight to China where we’ve got some important inflation numbers to digest. China has reported CPI of +2.3% yoy in April which is both in line with March and relative to expectations. Food prices are again driving the number and were up +7.4% yoy with non-food prices currently +1.1% yoy. Meanwhile, PPI increased by nine-tenths last month and more than expected to -3.4% yoy (vs. -3.7%). That is actually the highest reading since December 2014 and further evidence prices at the factory gate may have bottomed out.

Bourses in China have been fairly muted in their reaction with the Shanghai Comp and CSI 300 +0.35% and +0.19% respectively. Elsewhere it’s been a broadly better day for Asian markets however. The Nikkei is +2.07% and benefiting from further weakening in the Yen, while the ASX (+0.26%) and Kospi (+0.47%) are also up. The Hang Seng (-0.05%) is the notable underperformer.

Staying with China, shortly after we went to print yesterday, an article from China’s People’s Daily was released which provided some important signals that China’s macroeconomic policy stance may turn from aggressive easing to a more neutral position soon in the eyes of our China economists. They note that the article indicates that the government is generally satisfied with the economic performance so far this year. It recognizes that structural challenges facing the economy will take time to resolve, and economic growth in the coming years will likely take an L-shaped path, rather than a V- or U-shaped one. The article also goes onto to say that the policy maker points out that adding leverage will not be effective in stimulating the economy at the current stage, and higher leverage could heighten systematic risks. With some focus also on the danger of indecisiveness when facing policy dilemmas, the context of the statement is a clear signal to our colleagues that the focus of the government will likely shift from promoting and stabilizing growth to control and the reduction of systematic risks in coming months. This leads them to believe that the aggressive policy easing seen in the past few months may come to an end soon.

This to some extent then helps explain that broadly poor day for commodity markets yesterday. The move for Oil was more reflective of some changing weather patterns in and around the Alberta region which is fueling hopes that the wildfires may be starting to come under control. However the China story probably had a bigger impact for metals yesterday and it now means that Aluminium, Copper and Nickel are down anywhere from 7-9% in May already. Iron ore is amazingly down 17% this month and has plummeted over $15/tn from the April highs too. Steel rebar futures were also limit down yesterday and there’s still a lot of concern in the market about the speculative trading on Chinese commodity exchanges. A Bloomberg article caught our eye yesterday noting some of the eye-watering numbers concerning this. The daily average market turnover on bourses in Dalian, Zhengzhou and Shanghai is said to have increased from about $78bn in February to a peak of $261bn on April 22nd which in contrast compares to peak turnover on the Nasdaq in early 2000 of $150bn. The same article also suggests that over 40% of volume in rebar futures in April came in the night session and once people returned from their day jobs, while the average holding period for a contract is said to be less than 3 hours. Recent measures by bourses to curb speculative trading is helping to keep a lid on turnover in the last couple of weeks and has resulted in metals prices declining from recent highs, but what started with trading in Chinese equity markets some 12 months ago and has now spread to commodity markets is a strong illustration of how quickly bubbles can form when there’s large amounts of leverage and huge amounts of credit in an economy.

Another one of the BRIC economies namely Brazil was also the focus of some attention yesterday too. It was a confusing day for the country however as mid-way through yesterday afternoon the acting head of the Lower House of Congress announced that he was to call for a new vote on the impeachment of President Rousseff. This was supposedly on the back of the vote on April 17th containing procedural irregularities. However later on in the evening, Brazil’s Senate confirmed that the impeachment proceedings would still move ahead despite the call from the Lower House, and that voting by the Senate on whether to put Rousseff on trial could begin as soon as Wednesday. All the headlines sent Brazilian assets into a tailspin however. The Real had weakened by as much as nearly 4.6% at one stage (the most since September 2011) before paring the vast bulk of that move to close just 0.41% weaker on the day. Meanwhile the Ibovespa plummeted nearly -3.5% post the early headline, before also retracing much of that to finish the day with a -1.41% loss.

Closer to home, there were some positive developments in Greece to highlight. After talks had effectively been in a standstill over the last few months, yesterday the IMF, European finance ministers and the Greek government came to an agreement on a path forward which should be workable and so as a result allow Greece to receive the funding its needs for bond payments due in July. DB’s resident expert George Saravelos noted that it was a substantial back down from the IMF which allowed for the important step forward. The fund has accepted a softer version of the initial contingency package of fiscal measures, with the Greek side now agreeing to vote on a vague ‘spending break’ that only imposes temporary across the board spending cuts the year a fiscal target is missed. A similar softer package on debt measures has also been agreed upon including short, medium and long term debt measures. A number of underlying issues still remain unresolved but it’s a positive step forward nonetheless in resolving near term risks of another Greek crisis.

Moving on, there was a bit of Fedspeak for us to take note of yesterday. The Chicago Fed President Evans came across as slightly dovish in his tone, saying that he is in favour of the Fed being in a ‘wait and see mode’ for now and that while the fundamentals for US growth continue to be good, ‘uncertainty and risks remain’. Meanwhile, Minneapolis Fed President Kashkari sounded a similar tone in comments yesterday. The Fed official said that in his view that Fed’s current stance on monetary policy is ‘about right’ and that ‘to me, just looking at the raw data, it says we should be accommodative’. Elsewhere, the ECB’s Constancio reiterated that patience is needed to judge the effects of the recent ECB measures, while also reiterating that the Bank will continue to do what is necessary to achieve its inflation goal.

Just wrapping up yesterday, it was a particularly quiet day for data with the only release in the US being the April labour market conditions index reading which revealed a third consecutive monthly worsening in conditions. The index printed at -0.9pts for last month following a -2.1pts reading in March. Meanwhile in Europe there was good news to be had in the latest German factory orders data. Orders printed at +1.9% mom for March (vs. +0.6% expected) to be up +1.7% yoy now. Elsewhere the Sentix investor confidence reading printed at 6.2pts for May which is half a point higher relative to April.

Looking at today’s calendar, the main focus this morning in Europe will be the various industrial reports out of Germany, France and Italy for March. German trade data is also due to be released while later this morning we’ll receive the March trade data for the UK. Over in the US this afternoon the main release of note is the March wholesale inventories and trade sales report. As well as that, we’ll get the NFIB small business optimism survey reading and March JOLTS job openings data. Fedspeak wise it is the turn of Dudley who is due to speak this morning in Zurich (at 8.15pm BST) on the international monetary system.

end

ASIAN AFFAIRS

i)Late  MONDAY night/ TUESDAY morning: Shanghai closed DOWN  BY 0.478 PTS OR 0.02%  /  Hang Sang closed UP 85.87 OR 0.43%. The Nikkei closed UP 349.16 POINTS OR 2.15% . Australia’s all ordinaires  CLOSED UP 0.42% Chinese yuan (ONSHORE) closed DOWN at 6.5144.  Oil FELL to 43.25 dollars per barrel for WTI and 43.94 for Brent. Stocks in Europe DEEPLY IN THE GREEN . Offshore yuan trades  6.5433 yuan to the dollar vs 6.5144 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS.

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

 

b) CHINA ISSUES

A must read commentary from Jeffrey Snider of Alhambra Investments.  He describes in detail the collapse in exports from China and the resultant collapse in imports to service those exports.  He also comments on the stagnant supply of eurodollars which is also results in stagnation in the global economy:

(courtesy Jeffrey Snider/Alhambra Investments)

China Trade And The Inevitability Of Systemic Reset

Submitte dby Jeffrey Snider via Alhambra Investment Partners,

Throughout 2014 and even into 2015, the word “decoupling” was resurrected to try to calm growing unease about the direction of global growth. It’s first broad usage was during the first part of the Great Recession, as economists were sure that emerging markets then would be able to weather the “slowdown” of 2008 believed at that time confined to the US and Europe. It was an absurd suggestion but perfectly consistent with orthodox economics and its idea of closed systems.

When the word was brought back in 2014, it was under seemingly far more happy circumstances. China was acting curiously and places like Brazil were wrote off as if they had their own problems, maybe even big problems, but the US, Europe, and even Japan were supposed to be finally back on track. Again, the idea of closed systems propelled this “logic.” As I wrote in September 2014 under the headline China Profoundly Disagrees with FOMC Assessments:

That more than suggests not only a widespread slowdown, but also why Brazil and Australia are enthralled by recession. The larger question in a world obsessed by some ephemeral and eternally positive “global growth” construct (at least economists as they are in setting forward predictions about specific growth regimes) is how that Chinese slowdown fits within more unique circumstances about specific systems. When the first vestiges of Chinese production deceleration became apparent in early 2014, it seemed very curious to the mainstream because everything about “global growth” was headed in the “right direction.”

Since China’s economy was built to manufacture everything global growth could buy, it set up this major disagreement. How could industry in China be decelerating sharply and to lower and lower levels while economists saw only economic achievement for the US and the other developed markets? If economists were right particularly about the US, then they would have to explain why rapid US growth had suddenly forgotten to buy much from China.

They couldn’t, of course, which is what the word “decouple” was meant for, to simply wave China’s struggles away as if they were unimportant global components.Instead, “decouple” was as I wrote in 2014 applicable only to the FOMC and economists’ narrative about the US economy. Their views had departed from reality, as increasing Chinese misfortune was perfectly consistent with the underlying and intensifying US economic weakness obscured by whatever the BLS was producing as labor estimates.

Chinese trade figures for April 2016 are once again spotlighting the disparity, perhaps more intensely than ever. After such a hopeful rebound in March, the current monthly estimates further show that it is only economists and the mainstream narrative that sees these things. Exports rose 11.2% in March (revised), the cause of much sustained enthusiasm, but that followed -11.5% in January and then -25.4% in February. For Q1 overall, exports dropped nearly 10% which was the worst quarter since Q3 2009. So where March’s positive figure was thought to be the final turnaround, seeing -1.8% and once more a negative number for April suggests for the nth time unearned optimism like that which gave us the second set of “decoupling.”

ABOOK May 2016 China Trade Exports

For the FOMC and the narrative surrounding the US economy, the Chinese trade update was much worse than even -1.8%. Exports to the United States fell 9.3% year-over-year in April, an enormous decline that doesn’t indicate anything good about the state of the US economy two months removed from January/February ugliness. Where economic slowing in 2014 may have been due to a broader “global” problem including the US, Chinese exports to its largest market may be indicating that the world’s slowing and contraction might now be due mostly to the US. The coming months will be important in determining that as a possibility.

ABOOK May 2016 China Trade Exports Longer

Because China’s industrial sector is awash in oversupply given these export levels, there is little demand from China to the rest of the world – the entire global economy is squeezed from top to bottom. Chinese imports fell almost 11% in April in contrast to what hope was extrapolated from a less negative import estimate in March.

ABOOK May 2016 China Trade Imports Monetary Policy

It shows that China’s external demand is frighteningly consistent, unmoved by either continual bursts of confidence or even PBOC “accommodation.”

ABOOK May 2016 China Trade Imports

That is what economists seem to be missing, as there is really no difference between -9% in exports or -2%; neither of those are +25% which is what the Chinese “need” to see in global trade terms. On the other side, the rest of the world had become expectant of robust Chinese exports inviting imports into China at 20-40% year after year. When China instead contracts in its inbound trade by consistently 10-20% it is both confirmation of the global economy as a singular deficiency and a likely very messy paradigm shift. Therefore, there isn’t any actual meaning in attempting to parse the monthly difference between -10% or -20% (or -7%) as they both signal the same thing.

Unless and until China’s trade levels find their way back to pre-crisis existence, there is only trouble ahead no matter the monthly variations. What we see in these estimates is global deconstruction which will only lead to more harmful distortion and continued negative factors.

According to a Wall Street Journal analysis of Chinese public companies, Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies. Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals.

One beneficiary, Aluminum Corp. of China, or Chalco, said in October one of its units would shut down a roughly 500,000-ton-per-year smelter in the far-western Gansu region as it struggled to make profits. Executives prepped for thousands of layoffs.

Then Gansu officials slashed the plant’s electricity bill by 30%, employees say, and the factory was saved. Although a portion of capacity was taken offline, most is operational.

If there will ever be serious examination into why this downturn in “cycle” is so unusually elongated and historically inconsistent it would have to start with these kinds of “stimulus” measures. No slowdown in history has been fought tooth and nail quite like the one that began after 2011. It cannot possibly end in success, of course, that much should be fully apparent by now. The most it can accomplish is to keep the “V” shaped decline from occurring. In light of the cost of time, however, this slower, drawn-out downward slope is a much, much worse result.

Under the direction of orthodox economics (the fusion of Keynes and monetarism) the world’s “stimulus” apparatus is making a bad situation worse by (at best) dragging it out far longer than maybe it would have under more traditional business cycle conditions. They do so, of course, under the assumption that 2005 is still an available scenario and thus any weakness is a “temporary” deviation from the path returning there. Belief in the power of “stimulus” to make it happen prevents awareness of what is, again, really a paradigm shift that will not be altered. What we are analyzing, then, is not what awaits but how long it takes to get there and the huge, growing costs to delay what looks only inevitable.

The very idea of systemic reset immediately conjures the worst kinds of associations. It is understandable because going through it is not pleasant and humans by nature seek to avoid unpleasantness even where the probability of doing so is small. In economic terms, really financial since this is all being driven by the eurodollar’s retreat, systemic reset is indeed ugly and violent but ultimately fruitful. The reason for that is really simple, because any system pushed to the point where reset appears as increasingly inevitable is a system that is badly imbalanced and malfunctioning. The reset is the answer, not the problem. Delaying the answer only elongates the pain of the problem.

The systemic problem is what the eurodollar’s rise represented – an open world of financialism where credit was unrestrained not just in terms of debt proportions but within the very idea of money itself. It was highly unstable and only delivered the appearance of prosperity for those most disturbed by it (including the US). Getting away from it is the world’s first task for actual recovery, but authorities proceed as if this was all just some minor inconvenience.

ABOOK Apr 2016 Econ Baselines GDP Dark Leverage Supply

The end of the eurodollar system should be cause for global celebration but it is not since there is nothing ready by which to replace it. Instead, it comes on anyway and leaves only greater strain and uncertainty about what it will mean and the world might look like at that point.

end

A good look at the uncontrollable bubble in the Chinese commodity sector.  This is an accident waiting to happen:
(courtesy zero hedge)

“Bored” Chinese Workers Created “Uncontrollable Bubble” In Commodity Futures

With the collapse of China’s smoke-and-mirrors commodity bubble comes the post-mortem as the horde of Chinese gamblers flood from one government-appointed market to another as the American dream of get-rich-quick schemes appears to have been adopted by the burgeoning middle classes now disillusioned with real work.As Bloomberg reports so shockingly, from the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors; but rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016…“you have far too much credit, money sloshing about, money looking for higher returns.”

As we detailed previously,the surge in commodity prices was nothing but “churn baby churn” as trading volume exploded but open-interest remained flat.

“With more speculators being let in on this secret, more money poured in the game,” Fu said. “Prices went higher and higher with explosive growth in trading volumes.”

Open interest, or the amount of outstanding contracts at the end of the day, has remained relatively unchanged throughout, indicating that the trading was short-term speculation, with traders holding positions for a few hours and cashing out before the end of the day. At the peak of the trading boom, daily aggregate volume across the contracts was more than four times open interest. It was 1.4 times by May 4.

 

What started as a logical bet – that China’s economic stimulus and industrial reforms would lead to shortages of construction materials – Bloomberg explains, quickly morphed into a full-blown commodities frenzy with little bearing on reality…

As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.

 

Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing.

 

“You have far too much credit, money sloshing about, money looking for higher returns,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble.”

In many ways, China’s financial landscape was ripe for another round of mania.

New credit soared to a record in the first quarter, giving individuals and businesses plenty of cash to invest at a time when several of the country’s traditional sources of return looked unattractive.

 

Government debt yields were hovering near record lows, while wealth-management products and company bonds had been rattled by a growing number of corporate defaults. Stocks were still too risky for many investors burned by last year’s crash, and moving money offshore had become harder as the government clamped down on capital outflows.

 

“I’m pretty bored at work, so I trade commodities futures for some excitement,” said He, whose account swelled to as much as 700,000 yuan ($107,596) before sliding back to 400,000 yuan at the end of April. “Because I’m making investments with my friend, we can comfort each other when we are making a loss.”

Nobody knows for sure how much of the trading surge has been driven by individuals, but the evidence suggests retail punters are playing a big role, and China’s response to the boom suggest authorities are worried there’s froth in the market.

Officials at the China Securities Regulatory Commission have pledged to prevent excessive speculation, while the Dalian Commodity Exchange said in a statement that “some sectors of the society still have limited understanding of the futures market.’’ Regulators including the CSRC have prepared further measures to limit price fluctuations if abnormal volatility persists, people with knowledge of the matter said last month.

“They don’t want this to turn into a speculative market in commodities,”said Tiger Shi, managing partner at Bands Financial Ltd. in Hong Kong, who’s been trading commodities for two decades.

 

If China’s equity bubble is any guide, regulators may find it difficult to cool excessive speculation without triggering a collapse in prices. Domestic shares lost $5 trillion of value last summer as authorities moved to curb leveraged bets and restrain trading in the stock-index futures market, where volumes tumbled by 99 percent from their peak.

 

“The worry is that as soon as the bubble bursts, it’s everyone out of the door at the same time,” said Paul Adkins, managing director of AZ China Ltd., a Beijing-based aluminum consultancy. “It’s the last guys out the door that have the most pain.”

It’s not ending well at all…

China Commodities collapsed….With Iron Ore now down 22% from the meltup highs, entering a bear market…

 

And Steel Rebar down 25%, extending losses in the US session…

Average:
The USA continues to provoke China in the South China Sea:
(courtesy zero hedge)

“The US Threatened China’s Sovereignty” – China Scrambles Fighter Jets After US Warship Sails Near Disputed Reef

Following the latest escalation in South China Sea territorial tensions, which culminated with China refusing to grant the Stennis aircarrier group access to the Hong Kong port, overnight the US decided to provoke some more Chinese anger when it sailed the guided missile destroyer the USS William P. Lawrence within 12 nautical miles of Chinese-occupied Fiery Cross Reef, according to U.S. Defense Department spokesman, Bill Urban said. This was the third warship the US has sent into contested waters in the South China Sea in less than seven months.

Chinese facilities on Fiery Cross Reef include a 3,000-metre (10,000-foot) runway which the United States worries China will use it to press its extensive territorial claims at the expense of weaker rivals.

The USS William P. Lawrencea

Urban said that the so-called freedom of navigation operation was undertaken to “challenge excessive maritime claims” by China, Taiwan, and Vietnam which were seeking to restrict navigation rights in the South China Sea. What was not said is that the US once again decided to test the preparedness and eagernss of China to respond to what it perceives maritime territorial aggression.

In an emailed statement, Urban also said that “these excessive maritime claims are inconsistent with international law as reflected in the Law of the Sea Convention in that they purport to restrict the navigation rights that the United States and all states are entitled to exercise.” As has been extensively documented, China and the United States have traded accusations of militarizing the South China Sea as China undertakes large-scale land reclamations and construction on disputed features while the United States has increased its patrols and exercises.

Chinese J-10 fighter jets

Since the entire purpose of this latest provocation was to observe China’s response, it succeeded when China promptly scrambled two fighter jets in proximity to the U.S. navy ship, a patrol China denounced as an illegal threat to peace which only went to show its defense installations in the area were necessary. China’s Defence Ministry said that in addition to the two fighter, an additional three warships shadowed the U.S. ship, telling it to leave.

The U.S. patrol “again proves that China’s construction of defensive facilities on the relevant reefs in the Nansha Islands is completely reasonable and totally necessary”, it said, using China’s name for the Spratly Islands where much of its reclamation work is taking place.

Foreign Ministry spokesman Lu Kang said the U.S. ship illegally entered Chinese waters.

Additionally, China’s foreign ministry expressed anger after a U.S. navy warship carried out a freedom of navigation operation near a disputed reef in the South China Seas. Ministry spokesman Lu Kang told a daily news briefing the ship illegally entered the waters without China’s permission and that the move threatened peace and stability.

This action by the U.S. side threatened China’s sovereignty and security interests, endangered the staff and facilities on the reef, and damaged regional peace and stability,” he told a daily news briefing.

This will not be the end of it. China claims most of the South China Sea, through which $5 trillion in ship-borne trade passes every year. The Philippines, Vietnam, Malaysia, Taiwan and Brunei have overlapping claims.

As Reuters adds, the Pentagon last month called on China to reaffirm it has no plans to deploy military aircraft in the Spratly Islands after China used a military plane to evacuate sick workers from Fiery Cross. Ironically, the US makes sure China does just that with its recurring “freedom of navigation operations” in what China considers its own territory; the same way Russia reacts to US spy plans flying in close proximity to its borders.

“Fiery Cross is sensitive because it is presumed to be the future hub of Chinese military operations in the South China Sea, given its already extensive infrastructure, including its large and deep port and 3000-metre runway,” said Ian Storey, a South China Sea expert at Singapore’s ISEAS Yusof Ishak Institute.

“The timing is interesting, too. It is a show of U.S. determination ahead of President Obama’s trip to Vietnam later this month.”

The good news is that while China has reacted with anger to previous U.S. freedom of navigation operations – including the overflight of fighter planes near the disputed Scarborough Shoal last month, and when long-range U.S. bombers flew near Chinese facilities under construction on Cuarteron Reef in the Spratlys last November – so far responses have avoided more dramatic escalation.

Adding to the potential volatility of the situation, Rodrigo Duterte who looks set to become president of the Philippines after an election on Monday, has proposed multilateral talks on the South China Sea. A Chinese diplomat warned last week that criticism of China over the South China Sea “would rebound like a coiled spring.”

The Chinese navy over the past week carried out combat drills in the South China Sea, led by the Hefei, one of the country’s most advanced missile destroyers, according to official Xinhua News Agency. Five other vessels participated, along with three helicopters and dozens of “special warfare” soldiers.

end

EUROPEAN AFFAIRS

Basically there is no debt reduction, just kicking the can down the alley a little further

(courtesy Mish Shedlock)

Germany Blinks Under IMF Pressure: Breakthrough Agreement To Do Nothing

Submitted by Mike Shedlock via MishTalk.com,

In the wake of an IMF threat to back out of the Troika deal with Greece, Germany blinked under the IMF pressure.

Well, sort of.

The result was not quite the debt relief the IMF wanted, but it was more than Germany was prepared to offer yesterday.

Please consider Berlin Opens Way to Greek Debt Relief Talks.

Germany eased its objections to debt relief talks for Greece on Monday as eurozone finance ministers sought to narrow their significant differences with the International Monetary Fund over Athens’ €86bn bailout.

With Greece facing €3.5bn in debt payments in July that it will be unable to meet without support, eurozone ministers said they were ready for a political push to break a stalemate between creditors over austerity measures and Athens’ debt burden.

The political space for a deal was opened on Monday by the readiness of Wolfgang Schäuble, Germany’s finance minister, to explore ways to ease Greek debt repayments. He had, until then, strongly resisted such talks as unnecessary, putting IMF participation in the programme in doubt.

Ministers said they would seek an agreement at a meeting on May 24. The package would require Greece to prepare “contingent” budget cutting measures to be enacted if its public finances failed to sufficiently improve, as well as parallel commitments from eurozone nations to deliver on promises of debt relief, covering the short, medium and long term. [Mish Comment: the noose around Greece tightens further]

The talks framed the discussion around options, such as interest payment holidays or extensions of debt maturities, while deferring the hard political battle over what is actually needed. [Mish Comment: They agreed to kick the can, nothing more.]

“Today was about opening the debate, exploring options and giving political guidance to the technical people,” said Jeroen Dijsselbloem, Dutch finance minister and chair of the eurogroup of finance ministers. [Mish Comment: They have been debating this for years.]

This may not go far enough to satisfy the IMF, whose managing director, Christine Lagarde, reiterated in a letter to EU ministers last week that Greece’s budgetary targets were unrealistic and that any effort to meet them should be based around deep economic reform rather than arbitrary, and potentially damaging, cuts.

[Mish Comment: The targets are still absurd.]

Some creditors may demand, however, more detailed commitments from Athens on what exactly would be triggered. [Mish Comment: the noose around Greece tightens further]

Governments have firmly and repeatedly rejected any formal writedown of their holdings of Greek debt, leaving them to look at other options, such as longer grace periods and extended payment timescales.

An ESM paper, seen by the FT, outlines a range of options including 5-year maturity extensions, capping annual loan repayments at 1 per cent of gross domestic product until 2050 and capping interest rates at 2 per cent. One more radical move mentioned is to buy out the IMF with cheaper and more long-term ESM loans.

Mr Tsakalotos said the discussion, while very broad at this stage, was a breakthrough: “It’s a great relief that we’ve had this debate on debt,” he said. “We are working on a situation where Greece can at last turn the corner.”

EU officials have made clear they do not want messy negotiations to clutter the run-up to the UK’s Brexit referendum on June 23 — meaning if no agreement is reached this month, discussions will not resume until shortly before a possible Greek default.

What a Joke!

  • The EU cannot tackle this issue out of fear of Brexit.
  • The EU agreed to do something, without saying what that means.
  • The EU is tired of IMF interference and wants to buy the IMF out.

The idea that noose tightening will allow Greece to “turn the corner” is the biggest joke of all.

It’s truly a sad state of affairs when the IMF makes more sense than anyone else in the picture.

end

EMERGING MARKETS

The lawmaker revokes his own annulment call on impeachment. It is now back on track:

(courtesy zero hedge)

In Latest Shocking Twist, Brazil Impeachment Back On Track After Lawmaker Revokes His Own Annulment Call

Another day, another stunning reversal in Brazil’s neverending Rousseff impeachment saga.

Just hours after Brazilian stocks and currency tumbled when the head of Brazil’s lower house Waldir Maranhao said he would annul the soon to be former president’s impeachment process, the drive to oust President Dilma Rousseff is once again back on track after Maranhao reversed a decision that had earlier threatened to throw the entire impeachment process into chaos.

As Bloomberg reports, lawmaker Waldir Maranhao released a statement in the dead of night revoking his own call to annul impeachment sessions in the lower houseReuters adds that in his official statement to the Senate, Maranhao did not cite any reason for backtracking on his surprise announcement on Monday to annul last month’s lower house vote to recommend the Senate try Rousseff for breaking budgetary laws although one can assume that it carried a substantial price tag.

Rousseff’s allies spent most of Monday trying to capitalize on the lower house leader’s call to annul last month’s impeachment vote in the lower house. Attorney General Jose Eduardo Cardozo said the administration could file an appeal with the Supreme Court by arguing that Maranhao was right in trying to halt the process. Earlier, Maranhao argued that lower house deputies shouldn’t have announced their intention ahead of the April 17 vote to send the motion on to the Senate.

Then, Maranhao reversed that call.

“I revoke my decision issued May 9, 2016, in which the lower house sessions were annulled,” Maranhao was cited as saying in a statement released by his office. He did not elaborate.

Senate President Renan Calheiros on Monday said Maranhao was “playing with democracy” and that the Senate would press ahead with a Wednesday vote on whether to suspend Rousseff for up to six months pending a trial.

The reversal to the reversal puts the Senate back in the spotlight, with a vote on whether to put the unpopular president on trial still slated for Wednesday. If successful, it would temporarily remove her from office.

As we reported yesterday, the shocking twist jolted investors and underscored the intensity of a power struggle that is sure to heat up even further in coming days. Since proceedings began in Congress late last year, legislators have engaged in shoving matches over procedural debates and Rousseff has accused her vice president of plotting a coup against her. The Supreme Court has also been forced to step in on several occasions to clarify legal questions and further involvement by the highest court can’t be ruled out.

Meanwhile the social mood is turning uglier by the second: TV footage showed anti-impeachment protesters burning tires to stop the traffic in some of Sao Paulo’s main roads, including that leading to the international airport. At the same time, government supporters have scheduled more protests for the next few days.

“Even the best laws aren’t good enough for the scale of this battle,” said Carlos Pio, a professor of politics at the University of Brasilia. “The impeachment process will continue and with it the noise, challenges and uncertainty that we’ve been seeing.”

For now, however, all those who were stopped out of their Brazilian exposure are back and bullish once again, perfectly oblivious of Brazil’s depressionary fundamentals. Trading in Europe signaled Brazilian markets were poised to rebound. The Lyxor ETF Brazil, an exchange-traded fund, rose more than 3 percent in Paris. Brazil’s Ibovespa index of stocks slipped 1.4 percent Monday, trimming gains that have made it the second best-performing stock market in the world this year.

Bloomberg adds that some questioned the motives of Maranhao, a little-known politician from the country’s northeast who himself is under investigation for corruption. The president seemed taken aback by his announcement and urged caution during a speech earlier in the day. She was likely taken even more aback by his abrupt U-turn.

And now that attention shifts to the next impeachment step, all eyes will be on the Brazilian senate where the vote is expected to pass. Senate President Renan Calheiros said the impeachment vote could occur after 7 p.m. local time on Wednesday. Legislators from the opposition cheered while supporters of the government stood up and shouted at the senator in protest.

Here is a brief recap from Bloomberg on how the senate impeachment process works

  • With a tally of 15 against 5, a Senate committee backed a report saying there is enough evidence to try Rousseff
  • Senate will vote on report and needs simple majority of 41 votes to start official impeachment hearings
  • If they win, Rousseff will temporarily step aside and Vice President Michel Temer takes over
  • Her mandate will be terminated if the opposition win a subsequent vote by a two thirds majority
end

OIL ISSUES

Good reason for oil to jump:  both Saudi Arabia and Kuwait are planning significant output growth:

(courtesy zero hedge)

Oil Jumps Despite Saudi Plans For “Significant Output Growth”; Kuwait Unveils Plans For Record Production Surge

A day after oil tumbled to the lowest level in weeks, it has once again started to climb, ignoring the changing dynamic in the oilsands region where the fire has now moved away from critical Canadian oil infrastructure, and is instead focusing on concerns about supply disruptions not just out of Canada but also a series of attacks on Nigeria’s oil infrastructure which pushed the country’s crude output close to a 22-year, cumulatively knocking out 2.5 million barrels of daily production.

However, two stories that oil traders are ignoring in today’s action is the latest out of Saudi Arabia where Saudi Aramco, the state oil company, announced it was raising production to capture more customers as it pushes ahead with what could be the world’s biggest stock market listing next year the FT reported earlier. Additionally, Kuwait’s head of research at state-owned Kuwait Petroleum said the country aims to produc a record 4 million a barrels a day by 2020, a major increase of nearly 50% compared to its recent 2.8mmbpd output recorded in March.

First, back to Saudi Arabia, where in some of the first comments since a major government reshuffle at the weekend, Saudi Aramco chief executive Amin Nasser emphasized the company’s willingness to compete with rivals, putting oil producers from regional adversary Iran to US shale producers on notice.

“Whatever the call on Saudi Aramco, we will meet it,” he said during a rare media visit to the headquarters of the state oil company in Dhahran. “There will always be a need for additional production. Production will increase upward in 2016.”

As we noted over the weekend when analyzing the recent Saudi oil minister succession, Mohammed bin Salman, deputy crown prince, hinted that the kingdom could easily accelerate output to more than 11m b/d as Iran, Riyadh’s regional rival, tries to attract customers after years of sanctions.Saudi Aramco, which pumps more than one in every eight barrels of crude globally, is at center of a reform program being pushed by Prince Mohammed, who has emerged as the man holding the main levers of power in Saudi Arabia.

Last year Saudi Arabia’s crude output averaged 10.2m b/d, Mr Nasser said, the highest annual level on record. He indicated the increase in 2016 would supplant high-cost output in other parts of the world, which has started to decline after almost two years of falling prices. “We are seeing a global increase in demand,” said Mr Nasser, citing growing consumption in India, the US and other parts of the world. He was explicitly focusing on China where as noted before, the Saudis have lost substantial ground to Russian exports and are rushing to retake market share as Chinese teapot refineries have boosted production in recent months.

As the FT adds, Nasser did not specify how much Aramco’s production will rise in 2016, but said the company was prepared to meet additional domestic demand this summer, when the country’s output usually rises to meet heightened domestic electricity demand as the use of air-conditioning soars. Last June production reached a high of 10.56m b/d.

Nasser added that Saudi Arabia’s production capacity was 12.5m b/d with all but 500,000 b/d controlled by Aramco. He also said that the latest stage of an expansion project at the Shaybah oilfield in the south-east would be finished in a couple of weeks, adding 250,000 b/d of production capacity and taking the field’s output to 1m b/d. This would help offset falling output at other, mature fields.

But while the Saudi production boost remains speculative, another OPEC member nation that is set to see its output soar in the coming months is Kuwait, which is targeting an almost 50% increase in oil production over the next four years in a bid to secure future economic growth for the oil-dependent nation, a Kuwaiti oil official said on Tuesday.

Speaking at the Platts Crude Oil Summit in London, Abdulaziz Al Attar, head of research at state-owned Kuwait Petroleum Corp., said the country aims at producing 4 million a barrels a day by 2020 and maintaining that level through 2030, reiterating its goal of ramping up production.

According to MarketWatch, such an increase would mark a 44% jump on Kuwait’s output of 2.77 million barrels a day in March, according to the latest monthly report from OPEC. It would also be the country’s highest output level ever, according to Bloomberg data. “We also intend to provide fuel stock capabilities to counter for seasonality and domestic energy demand,” Al Attar said at the conference.

The comments come after a three-day strike in Kuwait sent its oil production tumbling to 1.5 million a day in April. However, Al Attar brushed off concerns that similar events would significantly impact production in the future. “I don’t think there will be any future risks of strikes,” he said. The oil representative said Kuwait plans to grow domestic refining capacity to 1.4 million barrels a day and boost international cooperation.

So while the world awaits that elusive jump in demand which is the catalyst for all this upcoming excess production, in the meantime oil continues to pile up. And, as Reuters, writes, with plenty of crude available, refiners have produced large volumes of gasoline and diesel, threatening to swamp demand despite the coming U.S. summer driving season.

According to Oystein Berentsen, managing director for crude at Strong Petroleum in Singapore, “crude cannot go up without support from products, and that support is not there at the moment, and more refineries are coming out of turnarounds so there will be more products and tanks are getting full.

For now, however, oil is doing precisely that, going up as algos have resumed control over the trend and supply/demand imbalance fundamentals have been put squarely away for the time being.

end
Today at 5 pm, API reports a big crude build
(courtesy API/Zero hedge)

Oil Slides After Crude Inventory Surges Most In A Month

Following Genscape’s 1.4mm build estimate at Cushing, and expectations of a 1.1mm build, API reported a 1.46mm build. Chatter across trading desks was that API data had been leaked and that is what drove oil prices higher (after their Genscape-driven dump) which proved 100% incorrect as total crude inventories soared a shocking 3.5mm barrels (against expectations of no change) – the most in 5 weeks. Gaosline built less than expected and Distillates saw a draw but the damage was done and prices of WTI started to give back the days gains.

 

API

  • Crude +3.45mm (Exp unch)
  • Cushing +1.46mm (+1.1mm exp)
  • Gasoline +271k (+710k exp)
  • Distillates -1.36mm

The biggest weekly  build in 5 weeks…

 

Which spoiled the party in crude…

 

 

Charts: Bloomberg

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

Euro/USA   1.1367 DOWN .0016 ( STILL REACTING TO USA FAILED POLICY)

USA/JAPAN YEN 109.08 UP 0.715 (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 1.4431 UP .0023 (STILL THREAT OF BREXIT)

USA/CAN 1.2972 UP .0013

Early THIS  TUESDAY morning in Europe, the Euro FELL by 16 basis points, trading now WELL above the important 1.08 level FALLING to 1.1367; 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  CLOSED DOWN BY .478  PTS OR 0.02% / Hang Sang CLOSED UP 85.87 OR  0.43%   / AUSTRALIA IS HIGHER BY 0.42% / ALL EUROPEAN BOURSES ARE ALL IN THE GREEN  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 ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

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

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

The NIKKEI: this TUESDAY morning: closed UP 349.16 OR 2.15% 

Trading from Europe and Asia:
1. Europe stocks IN THE GREEN AS  THEY START THEIR DAY

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 85.87 PTS OR 0.43% . ,Shanghai CLOSED  DOWN 0.478 OR 0.02%/ Australia BOURSE IN THE GREEN: /Nikkei (Japan) CLOSED IN THE GREEN/India’s Sensex IN THE GREEN

Gold very early morning trading: $1264.85.

silver:$17.05

Early TUESDAY morning USA 10 year bond yield: 1.76% !!! UP 1 in basis points from MONDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield FALLS to 2.60 DOWN 2 in basis points from MONDAY night.

USA dollar index early TUESDAY morning: 94.31 UP 18 cents from MONDAY’s close.(Now below resistance at a DXY of 100.)

This ends early morning numbers TUESDAY MORNING

 

END

And now your closing TUESDAY NUMBERS

Portuguese 10 year bond yield:  3.35% UP 5 in basis points from MONDAY

JAPANESE BOND YIELD: -0.085% UP 1 in   basis points from MONDAY

SPANISH 10 YR BOND YIELD:1.64% UP 6 IN basis points from MONDAY

ITALIAN 10 YR BOND YIELD: 1.51  UP 5 IN basis points from MONDAY

the Italian 10 yr bond yield is trading 13 points lower than Spain.

GERMAN 10 YR BOND YIELD: .124% DOWN 1/5 IN BASIS POINTS ON THE DAY

 

END

IMPORTANT CURRENCY CLOSES FOR TUESDAY

Closing currency crosses for TUESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM

 

Euro/USA 1.1367 DOWN .0015 (Euro =DOWN 15  basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/reacting to dovish YELLEN/ANOTHER FALL IN USA;YEN CROSS TODAY

USA/Japan: 109.31 UP 0.951 (Yen DOWN 95 basis points )

Great Britain/USA 1.4432 UP .0023 Pound UP 23 basis points/

USA/Canada 1.2928 DOWN 0.0028 (Canadian dollar UP 32 basis points with OIL FALLING a bit(WTI AT $43.42.  CANADA IS GETTING KILLED BY THAT HUGE FIRE IN ALBERTA)

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was DOWN by 15 basis points to trade at 1.1367

The Yen FELL to 109.31 for a LOSS of 95 basis points as NIRP is STILL a big failure for the Japanese central bank/

The pound was UP 23 basis points, trading at 1.4432

The Canadian dollar ROSE by 32 basis points to 1.2928, WITH WTI OIL AT:  $44.64

The USA/Yuan closed at 6.5150

the 10 yr Japanese bond yield closed at -.085% UP 1 IN BASIS  points in yield/

Your closing 10 yr USA bond yield: PAR  basis points from MONDAY at 1.75% //trading well below the resistance level of 2.27-2.32%) HUGE policy error

USA 30 yr bond yield: 2.61 DOWN 1/2 in basis points on the day ( HUGE POLICY ERROR)

Your closing USA dollar index, 94.29 UP 13 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 TUESDAY

London:  CLOSED  DOWN 10.89 OR 0.18%
German Dax :CLOSED UP 110.54 OR 1.12%
Paris Cac  CLOSED UP 21.57  OR 0.50%
Spain IBEX CLOSED DOWN 41.30 OR 0.47%
Italian MIB: CLOSED DOWN 157.00 OR 0.88% (BANKING CRISIS)

The Dow was UP 222.44  points or 1.26%

NASDAQ up 59.67 points or 1.26%
WTI Oil price; 44.66 at 4:30 pm;

Brent Oil: 45.52

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  66.12 (ROUBLE UP 42/100 ROUBLES PER DOLLAR FROM YESTERDAY) AS THE PRICE OF BRENT ROSE AND WTI ROSE

TODAY THE GERMAN YIELD COLLAPSED TO ONLY .124% FOR THE 10 YR BOND

.

END

 

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:44.42

BRENT: 45.46

USA 10 YR BOND YIELD: 1.75%

USA DOLLAR INDEX: 94.25 UP 10

 

END

And now your more important USA stories which will influence the price of gold/silver

Trading Today in Graph form

Stocks Up, Bonds Up, Credit Up, Commodities Up, Dollar Up… Volume Down, Economy Down

Yeah ok – the best day in US equities in 2 months… on what? Data has been crap (even JOLTS ‘good news’ does nothging but corner The Fed into rate hikes even more), earnings have done nothing, bonds are rallying, and oil rallied on the back of a surge in production (perhaps front-running API inventory data)…“it’s all good” up here right?

 

US economic data continues to deteriorate…

 

And it appears bonds have been right…

 

Volume plunges to 2016 lows…

 

Russell 2000 Small Caps underperfomed on the day as the rest of the major indices seemed to trade tick for tick after Europe closed except for Nasdaq’s meltup (today’s move felt much more index top down driven than any “stock” buying)

 

Nasdaq “Golden Cross”-ed this week, seemingly traded very technically, bouncing off the 100DMA and pushing to test the 50/200DMA…

 

Futures give us a better look at the excitement…

 

VIX tumbled to 3-week lows (13 handle) extending S&P’s bounce off the Year-to-Date “unch” levels…

 

Bonds and stocks decoupled (both bid)…

 

Stocks accelerated notably more than VIX implied…

 

And “Most Shorted” stocks were squeezed for 30 mins after Europe’s close, they continue to underperform…

 

After the biggest 7-day redemption in history (yes ever ever), HYG soared today by the most in 2 months – makes perfect sense… (CDX HY rallied by the most in 2 months also – tightening 18bps to 441bps)

 

Treasury yields traded in a narrow range, with the curve modestly glatter (2Y +2bps, 30Y -0.5bps)…

 

The USD Index gained modestly onteh day thanks to continued weakness in JPY (despite strength in commodity currencies)…

 

While copper ended red, and despite USD gains, Crude soared and PMs managed decent gains on the day…

 

Finally, it appears the dismal jobs data on Friday has prompted excitment in stocks and crude oil (yay less people employed to buy gasoline!!), left bonds unphased, and caused safe haven buyers to abandon Gold (hey – a job’s a job right)…

 

Charts: Bloomberg

end

 

Just take a look at the huge increases in insurance premiums proposed for 2017.  They are enormous.  How on earth will the majority afford this?

(courtesy zero hedge)

Obamacare Update: Insurance Premiums Set To Explode Higher In 2017

Just recently we warned that thanks to Obamacare, insurers would be unveiling enormous premium increases to the publicironically just one week before the presidential election.

As the Wall Street Journal reportsOregon and Virginia are the first two states to make insurers’ premium proposals for 2017 public, and we are now able to see a glimpse of what will be coming regarding insurance premiums for next year [Spoiler alert: it’s ugly].While it is noted that some of the subsidies provided by the federal government will help the lowest income consumers cover the bill, based on what we have learned from Virginia and Oregon, a vast majority of individuals will be googling “sticky wages” soon, as they scramble to figure out how they’re going to be able to afford such enormous increases.


Starting in Virginia, Anthem Inc and Carefirst BlueCross BlueShield are proposing 15.8% and 25% increases respectively. In Oregon, the increases are stunning to say the least.Providence Health Plan, currently the largest insurer for people buying coverage through the Oregon health exchange, is seeking an average increase of 29.6%. Not to be outdone, Moda Health Plan Inc, another large insurer for the state, is proposing a premium increase of 32.3% – this is after a 25% hike last year. For some context as to how out of control premium increases will be for those enrolled in Oregon, Kaiser Foundation Health Plan of the Northwest is asking for an increase of 14.5%, the second lowest percentage increase in the stateInsurers seeking double digit rate increases are citing higher than expected medical costs (just as we said) incurred by their enrollees as factors in their decisions.

Oregon’s insurance commissioner has the authority to block proposed premium changes, but indicated that she wants to make sure the companis can cover insurance claims as well as making sure the plans are affordable for consumers.

“For the next two months, we will analyze the requested rates to ensure they adequately cover costs without being too high or too low” said commissioner Laura Cali.

Good luck with that Laura.

What was easy to predict is now happening, which is that Obamacare is doing absolutely nothing to help drive down costs of anyone’s premiums, and is in fact driving double digit increases. We look forward to learning how The Donald and presumably Hillary (if she’s still in the race) will deal with the public outrage as the sticker shock sets in right before the election. Whatever the strategy, we are sure that the message will certainly resonate with the public that the government works for those on main street, and its here to help.

end
\
Inventory to sales remain at a stubborn 1.36.  Either sales increase dramatically lowering inventory or else the USA heads deeper into recession as this number is a negative to GDP
(courtesy zero hedge)

Wholesale Inventories-Sales Ratio Holds Near Record Highs As Automakers Suffer

While wholesale sales rose modestly MoM, the continued stagnation in wholesale inventories (lowest since 2010) bodes poorly for Q2 GDP. At 1.36x, the wholesale inventories-to-sales remains near record highs, but Automotive inventories to sales soared to cycle highs at 1.83x (as Auto sales dropped 0.7% MoM but inventories rose 1.0% MoM).

The gap remains wide…

Leaving inventories-to-sales near record highs…

As Automotive inventories continue to build as sales collapse…

Either sales must massively surge or inventory destocking (and thus recession-creating production cuts) begins soon.

end

Janet Yellen’s favourite job indicator, the jolts job openings is back to all time highs.
Thus Yellen should have no trouble in raising rates. But China will not let her raise rates as they will devalue the yuan severely:
(courtesy zero hedge)

Job Openings Back To All Time Highs: Yellen’s “Favorite Labor Indicator” Says Its Time To Hike

When last Friday’s disappointing payrolls report hit, which saw just 160K jobs added in April, stocks initially tumbled only to surge as the case of a June rate hike was quickly taken off the table. Not only that, but according to Fed Fund futures as of this moment, the Fed won’t hike until some time in early 2017. However, one look at the latest JOLTS data, admittedly Janet Yellen’s favorite jobs indicator, paints a very different picture.

According to the BLS, in March (there is a one time lag between JOLTS and the payrolls report), the number of job openings soared by 312K, and is now effectively at its all time high level of 5.8 million jobs. If this number is accurate (with the BLS that is a big if after we caught the BLS manipulating JOLTS data back in 2013), it means that the Fed should be hiking essentially… now.

Also confirming that the payrolls data does not capture the underlying euphoria in the jobs market was the quits level, or as Nick Colas calls it the “take this job and shove it” indicator, as it suggests confidence in the job market when people are quitting instead of being laid off/discharged. In April this series also rose by 25K to 3 million, also in line with the highest print since the financial crisis.

There was just one fly in the ointment: the total number of hires dropped by 218,000 in March, offset however by a 114K drop in separations. This was the second biggest drop in hiring since 2013, excluding only the surprising 276K drop record in January, which however was offset by a 385K hiring surge, mostly in retail workers, in February.

But the most interesting observation was that the total number of hires have finally caught up with where the 12 month cumulative change in jobs suggests they should be. The last time this happened, payrolls – and hires – promptly reversed. Will this happen again?

And if not, just what excuses will the Fed come up with this time to keep delaying its rate hike – after all, even the Fed’s Beige Book recently admitted that the FOMC is content with the pace of wage growth. Unless, of course, it was always “one and done” from the beginning…

end
If the stock market is up bond yields must rise.  They are falling!  Thus bonds are not buying the stock market rally!
(courtesy zero hedge)

Bonds Ain’t Buying It

This morning’s exuberance in equity markets, despite weak inventories data and nothing good from AsiaPac, appears to be entirely ignored by the US Treasury market…

end
Oh OH!! Goldman cuts interest rate forecasts as they state the USA economy is going nowhere. Expect further QE!
(courtesy Goldman Sachs/zero hedge)

Goldman Warns Central Banks May Unleash “Financial Turbulence, Rate Shock” As It Cuts Yield Forecasts

Every year for the past four, Goldman started off the year with an undauntedly optimism and a bullish forecast, one which usually involved a material increase to GDP expectations and, just as importantly, rising 10Y bond yields. And every year for the past four, it took Goldman a few months before it was forced to trim both its GDP forecast and cut its expectations where the 10Y would end the year.

Moments ago 2016 became the latest year in which Goldman was forced to admit it had been too bullish if not on economic growth (that too will come) then certainly on inflation expectations, and as the bank’s Francesco Garzarelli admitted moments ago, “we are lowering our bond yield forecasts in the major advanced economies by an average 30-40bp across the forecast horizon. Specifically, we now see 10-yr US Treasuries ending 2016 at 2.40% and 2017 at 2.75%, from 2.75% and 3.30%, previously. The corresponding new forecasts for German Bunds are 0.50% and 1.00% (compared to 0.60% and 1.00% previously), and those for JGBs are 0.10% and 0.30% (from 0.30% and 0.60% before). Exhibit 13 at the end of this document summarizes the forecast changes.”

Why the cut? Because after the bank was finally forced to throw in the towel on its wrong 3 rate hike call last week, it no longer has a catalyst to push a strong inflation agenda. Here’s Goldman:

Our new projections reflect (i) a downgrade in the profile for Fed Funds rates announced by our US team last Friday (2 further hikes in the remainder of this year, followed by a further 3 next year, compared with 3 and 4 previously); and (ii) the ongoing absorption of duration risk by the ECB and particularly by the BoJ, delivered in conjunction with negative policy rates.

In other words, much slower growth than Goldman had originally expected, coupled with more central bank intervention and frontrunning of bond purchases, coupled with yield differentials between Europe and Japan where the central banks are actively soaking up all available Treasuries, and the US where for the time being there is no QE.

The forecasts conservatively assume that the current deviation from our Bond Sudoku valuation framework (between 1.5 and 2.0 standard deviations from ‘fair’) will be slowly corrected over the forecast horizon to one standard deviation over the next 6-9-months and close to half a standard deviation by end 2018. We reiterate our view that yield levels below 1.75% in 10-yr US Treasuries (a two standard deviation event) are unlikely to be sustained unless the macro outlook deteriorates materially.

Translation: expect the 10Y to drop below 1.75% on very short notice.

Of course, Goldman does not want to admit that it is wrong (as in the case of its EURUSD parity call), but rather that the market is, well, broken, and provides the following chart to explain why that is the case:

US Treasuries Are Close to 2 Standard Deviations Expensive Relative to Their Fair Value

Well, if they are so “expensive” maybe central banks should stop buying them and further distorting the market? Just a thought.

Ironically, even Goldman now admits that central banks have broken the bond market:

The policy stance of the ECB and the BoJ is shifting away from cuts in policy rates into deeper negative territory towards ‘credit easing’ measures, which should revive final domestic demand (rather than help export-oriented sectors via a lower exchange rate). This shift is important because our analysis suggests that the combination of negative short rates and outright purchases of long-term debt put in place by these two central banks have largely contributed to depressing the bond premium globally. If official rates are close to their effective lower bound, and asset purchases are spread over a broader pool of assets, financial conditions are likely to ease and this could lead to a rebuild in inflation premium.

JGBs Have Pulled Down Global Long-Term Rates

 

And then the following even more surprising admission:

Last but not least, the starting point for bond valuations is extremely stretched, in our view. In the US, our survey-based measure of the bond premium and the term premium estimates produced by the New York Fed are now back to the lowest level since the European financial crisis. Our global measure of the bond premium is also very depressed. We attribute this largely to the distortions in long-dated yields stemming from the ECB and BoJ QEs, and their spillover effects.

Premium on US Treasuries Lower than During the GFC

 

But the most surprising comment from Goldman is the following warning, which is the first time we have seen Goldman do:

On the policy front, all three major central banks can create financial turbulence if not careful in managing investors expectations. The Fed is tightening with very few hikes priced – a historical anomaly increasing the odds of a ‘rate shock’. The ECB and the BoJ are distorting the price of duration (and in Europe, sovereign credit) through their asset purchase programs.Any unanticipated shift in their behaviour could have magnified effects on asset prices. Consider that in 6-months time, there will be only three left to go until the end of ECB QE. We think that purchases will be extended for longer, but this will be a passage that the market will need to navigate.

And so here we stand, 7 years after “the end of the Great recession“, and Goldman has just given its most dire warning that if central banks withdraw their support, or even fail to properly manage investor expectations, they could crush the already broken bond market, leading to a “rate shock”, one which would result in “financial turbulence” and have dramatic consequences on all asset prices.

In other words, everything is fine.

Ah, the joys of central-planning and micromanaging the world by a few academics locked inside marble buildings.

end
Well that about does it for tonight
I will see you tomorrow night
H
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