August 1/Gold and silver rise again despite raid attempts by bankers/Silver OI rises to record levels/ Still record amount of gold is standing for August comex/Monte di Paschi rescued but all other Italian banks crash!/Erdogan issues final ultimatum to Germany: give Turkish citizens EU passes or else he will flood the EU with refugees/ Brazil games see huge problems: fires, theft and microbes!/More trouble for Hillary!

Gold:1351.30 up $2.40

Silver 20.46  up 15 cents

In the access market 5:15 pm

Gold: 1353.00

Silver: 20.43


Sorry for being late but my computer crashed again..took a while to restore the data.



For the August gold contract month,  we had a HUGE  1801 notices served upon for 180,100 ounces. The total number of notices filed so far for delivery:  6829 for 682,900 oz or  tonnes or 21.241 tonnes

In silver we had 1 notice served upon for 5,000 oz. The total number of notices filed so far this month:  1 for 5,000 oz.

Let us have a look at the data for today



In silver, the total open interest ROSE BY A CONSIDERABLE  434 contracts UP to 223,343 AND AT ITS NEW ALL TIME RECORD AS THE  PRICE OF SILVER ROSE  BY 14 CENTS WITH FRIDAY’S TRADING.In ounces, the OI is still represented by just over 1 BILLION oz i.e. 1.114 BILLION TO BE EXACT or 160% of annual global silver production (ex Russia &ex China).

In silver we had 1 notice served upon for 5,000 oz

In gold, the total comex gold ROSE BY A CONSIDERABLE 5,186 contracts as  that the price of gold ROSE by $16.70 on Friday. The total gold OI stands at 568,778 contracts.


With respect to our two criminal funds, the GLD and the SLV:


we had a big deposit of 35.94 tonnes in gold inventory . /

Total gold inventory rest tonight at: 964.03 tonnes


we had a huge change  in the SLV, a deposit of 1.235 million oz, into the SILVER INVENTORY TO THE SLV

Inventory rests at 350.955 million oz.

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

1. Today, we had the open interest in silver ROSE by 434 contracts UP to 223,343, as the price of silver ROSE BY 14 cents with FRIDAY’S trading. The gold open interest ROSE by A CONSIDERABLE  5,186 contracts UP to 568,778 as   the price of gold ROSE by $16.70 WITH FRIDAY’S TRADING.

(report Harvey).


2 a) Gold/silver trading overnight Europe, Goldcore

(Mark OByrne/zerohedge

2b  FRBNY report on earmarked gold removed from its vaults:



i)Late  SUNDAY night/MONDAY morning: Shanghai closed DOWN 25.95 POINTS OR 0.87%/ /Hang Sang closed UP 237.77 OR 1.09%. The Nikkei closed UP 66.50 POINTS OR 0.40% Australia’s all ordinaires  CLOSED up 0.45% Chinese yuan (ONSHORE) closed UP at 6.6432/Oil fell to 41.00 dollars per barrel for WTI and 42.32 for Brent. Stocks in Europe ALL IN THE RED EXCEPT THE GERMAN DAX . Offshore yuan trades  6.6467 yuan to the dollar vs 6.6467 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS SLIGHTLY AS CHINA TRIES TO STOP MORE USA DOLLARS LEAVING THEIR SHORES  



none today


Strange data points today:

The China Manufacturing PMI basically remained constant just at the 50.00 level (no growth.  However the Caixin manufacturing pMI registered a huge gain rising to 50.6

Take your pick as to who you believe

( zero hedge)


i)The stress test did not reveal all failed banks.  The large Portuguese bank BCP also failed and even though they did undergo the stress test, they failed:

( zero hedge)

ii)The full details on the rescue plan for Monte Paschi.  The problem here is that the deal cannot be replicated to the over Italian banks


i)What on earth is Erdogan up to?

( zero hedge)

ii)Erdogan issues an ultimatum to Germany for visas for Turkish citizens or else refugues flood Europe:

( zero hedge)




i)Saudi slash oil prices.  Down goes oil

( zero hedge)

ii)Looks like our long oil boys are getting annihilated. Oil falls below 40.00 dollars

( zero hedge)



Are we going to witness a similar French revolution:  “Let them eat cake”

( zero hedge)



We knew this was going to happen.
First Olympic village on fire
Second:Athletes robbed
Third:  dangerous viruses in the water
(zero hedge)


i) Alasdair Macleod’s important paper on BREXIT

(Alasdair Macleod

ii)An extremely important commentary from Ed Steer and Ted Butler as they analyze the COT report and show that even though the whole commercial gold COT covered some of their shorts (approx. 6500 contracts), the big 4 banks actually increased their shorts by 8400 contracts.  This can only mean that JPMorgan or HSBC came to the aid of a failing smaller bank like Morgan Stanley

( Ed Steer/Ted Butler)

iii)Craig Hemke sees what I see at the gold comex:

( Craig Hemke)


i)Take your pick as to which PMI or ISM data you think is right with respect to manufacturing

( zero hedge)

ii)Construction spending crashes to 5 yr lows

( zero hedge)


iii)The following is Hillary’s next headache as she orchestrated while Secretary of State an area of co operation with Russian to develop closer ties between Russian and the American people.  The city of Skolkovo was chosen and this city was develop medicines and other high tech stuff for the advancement of mankind.  The only problem is the fact that Skolkovo only developed stuff for the defense of Russia.  Hillary got tens of millions of dollars in donations to her Clinton foundation.

This will surely be a headache for her:

( zero hedge)

Let us head over to the comex:

The total gold comex open interest ROSE TO AN OI level of 568,778 for a GAIN of 5186 contracts as THE PRICE OF GOLD ROSE BY $16.70 with FRIDAY’S TRADING..   We are now in the active month of AUGUST. As I stated on Friday “Somebody big is continually standing for the gold metal despite the fact that July is  generally a poor delivery month. We  again witnessed the same scenario as in May  June and July whereby the front delivery month increases in OI standing for metal or a slight contraction We will no doubt see the same modus operandi in August.  The  big active contract month of August saw it’s OI FELL by 5883 contracts down to 8519,  We had 5028 notices filed upon on Friday so we lost 855 contracts or an additional 85,500 oz will not stand for delivery in August. The next contract month of Sept saw it’s OI rise by 110 contracts up to 10,342.The next active delivery month is October and here the OI fell by 564 contracts down to 45,895. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was  poor at 112,419. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was VERY GOOD at 254,221 contracts.The comex is not in backwardation.
Today, we had  1801 notices filed for 180,100 oz in gold
And now for the wild silver comex results. Total silver OI ROSE by 434 contracts from 222,909 up to 223,343.  We are now at  an all time record high for silver open interest set ON MONDAY AUGUST 1: (223,343). The next non active month of August saw it’s OI RISE by 1 contract UP to 416. We had 0 notices served on Friday so we gained 1 contract or an additional 5,000 oz will stand in this non active delivery month of August. The next big active month is September and here the OI fell by 2287 contracts down to 154,025. The volume on the comex today (just comex) came in at 64,565 which is HUGE. The confirmed volume yesterday (comex + globex) was huge at 73,197 with tiny rollovers.. Silver is not in backwardation. London is in backwardation for several months.
We had 1 notice filed for today
INITIAL standings for AUGUST
 August 1.
Withdrawals from Dealers Inventory in oz   nil OZ
Withdrawals from Customer Inventory in oz  nil
 32.15 oz
1 kilobar
Deposits to the Dealer Inventory in oz  8,000.000 oz



Deposits to the Customer Inventory, in oz 
 204,100.700 oz
No of oz served (contracts) today
1801 notices 
180,100 oz
No of oz to be served (notices)
6718 contracts
671,800 oz
Total monthly oz gold served (contracts) so far this month
6829 contracts (682,900 oz)
(21.241 tonnes)
Total accumulative withdrawals  of gold from the Dealers inventory this month   NIL
Total accumulative withdrawal of gold from the Customer inventory this month    32.15 OZ
My goodness we had aNOTHER huge amount of gold enter the vaults of the comex.
Today we had 1 dealer DEPOSIT
i) Into brinks:  8,000 oz???
How could this exact deposit happen. It is not kilobars as it is not divisible by 32.15
total dealer deposit:8,000    0z
Today we had  0 dealer withdrawals:
total dealer withdrawals:  nil oz
We had 1 customer deposit:
i) Into  Brinks: 204,100.700 oz
Total customer deposits:204,100.700 oz
Today we had 1 tiny customer withdrawals:????
i) Out of Brinks: 32.15 oz  (1 kilobar)
Total customer withdrawals  32.15 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 1801 contracts of which 101 notices was stopped (received) by JPMorgan dealer and 438 notices was stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the AUGUST  contract month, we take the total number of notices filed so far for the month (6829) x 100 oz  or 682,900 oz , to which we  add the difference between the open interest for the front month of AUGUST  (8519 CONTRACTS) minus the number of notices served upon today (1801) x 100 oz   x 100 oz per contract equals 1,354,700 oz, the number of ounces standing in this active month. 
Thus the INITIAL standings for gold for the AUGUST contract month:
No of notices served so far (6829) x 100 oz  or ounces + {OI for the front month (8519) minus the number of  notices served upon today (1801) x 100 oz which equals 1,440,200 oz standing in this non   active delivery month of AUGUST  (42.136 tonnes).
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 now have partial evidence of gold settling for last months deliveries We now have  +  6.889 TONNES FOR MAY + 49.09 TONNES FOR JUNE +  21.452 TONNES FOR JULY + 12.3917 + 42.136 tonnes Aug +  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 –MAY 12  .0003- May 18: 1.5635 tonnes-May 19/   2.535 tonnes-May 27 .0185 – .024 TONNES MAY 31 -jUNE 4: .5044 ; june 10 -.0008 / June 22:0.48 tonnes /June 23: 0489 tonnes, June 24..018; june 29 .036 tonnes; JUNE 30 2.49 /july 1 1778 tonnes, JULY 28 .089 TONNES / JULY 29 .128 TONNES/ THEREFORE 93.520 tonnes still standing against 66.082 tonnes available.
 Total dealer inventor 2,132,567.636 oz or 66.331 tonnes
Total gold inventory (dealer and customer) =10,930,840.689 or 330.09 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 339.99 tonnes for a  gain of 37  tonnes over that period. 


To me, the only thing that makes sense is the fact that “kilobars” are entries or hypothecated gold sent to other jurisdictions so that they will not be short in their derivatives like in England.  This would be similar to the gold used by Jon Corzine. If this is the case, this would be the greatest fraud perpetrated on USA soil.


And now for silver
 august 1.2016
Withdrawals from Dealers Inventory NIL
Withdrawals from Customer Inventory
997,047.960 oz
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served today (contracts)
(5,000 OZ)
No of oz to be served (notices)
415 contracts
2,075,000 oz)
Total monthly oz silver served (contracts) 1 contracts (5,000 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  1,953,243.9 oz
today we had 0 deposit into the dealer account:
total dealer deposit nil oz
we had 0 dealer withdrawal:
total dealer withdrawals:  NIL oz
we had 2 customer withdrawals:
i) Out of Scotia: 60,406.45 oz
iii) Out of HSBC: 936,641.510  oz
Total customer withdrawals: 997,047.960 oz
We had 0 customer deposit:
total customer deposits:  nil oz
 we had 1 adjustments
ii) Out of Delaware: 450,863.548 oz was adjusted out of the DEALER and this landed into the CUSTOMER account of Delaware.
The total number of notices filed today for the AUGUST contract month is represented by 1 contract for 5,000  oz. To calculate the number of silver ounces that will stand for delivery in AUGUST., we take the total number of notices filed for the month so far at (1) x 5,000 oz  = 5,000 oz to which we add the difference between the open interest for the front month of AUGUST (416) and the number of notices served upon today (1) x 5000 oz equals the number of ounces standing 
Thus the initial standings for silver for the AUGUST contract month:  1(notices served so far)x 5000 oz +(416 OI for front month of AUGUST ) -number of notices served upon today (1)x 5000 oz  equals  2,080,000 oz  of silver standing for the AUGUST contract month.
we gained one contract or an additional 5,000 oz will stand for delivery in this non active month of August.
Total dealer silver:  26.378 million (close to record low inventory  
Total number of dealer and customer silver:   153.092 million oz (close to a record low)
The total open interest on silver is NOW close to its all time high with the record of 223,343 being set July 28.2016.  The registered silver (dealer silver) is NOW NEAR  multi year lows as silver is being drawn out at both dealer and customer levels and heading to China and other destinations. The shear movement of silver into and out of the vaults signify that something is going on in silver.
And now the Gold inventory at the GLD
August 1/we had a huge paper deposit of 5.94 tonnes of gold into the GLD/Inventory rests at 964.03 tonnes
July 29/ we had a huge deposit of 3.86 tonnes into the GLD/inventory rests at 958.09 tonnes
July 28/no changes in gold inventory at the GLD/Inventory rests at 954.23 tonnes
July 22/ no change in gold inventory at the GLD/Inventory rests at 963.14 tonnes
July 21/ a large withdrawal of gold inventory to the tune of 2.08 tonnes/Inventory rests at 963.14 tonnes
July 20./no changes in gold inventory at the GLD/Inventory rests at 965.22 tonese
July 19/no change in gold inventory at the GLD/Inventory rests at 965.22 tonnes
July 18./ a good sized deposit of 2.37 tonnes of gld into GLD/this is a paper gold entry/inventory rests at 965.22 tonnese
July 15./no change in gold inventory at the GLD/Inventory rests at 962.85 tonnes
July 14/a good sized withdrawal of 2.37 tonnes from the GLD/this would be a “paper withdrawal”/inventory rests tonight at 962.85 tonnes..
July 13/ we had a huge paper withdrawal of 15.98 tonnes of gold from the GLD/inventory rests at 965.22 tonnes.
July 12/we had no changes in gold inventory at the GLD/Inventory rests at 981.20 tonnes
July 11/no changes in gold inventory at the GLS/Inventory rests at 981.20 tonnes
JULY 8/ A  good sized deposit of 2.91 tonnes into the GLD/Inventory rests at 981.20
July 7/a good sized withdrawal of 4.15 tonnes from the GLD/Inventory rests at 978.29 tonnes (this was nothing but a paper entry/no physical moved)
July 5/no change in inventory/rests tonight at 982.44
August 1/ Inventory rests tonight at 964,03  tonnes


Now the SLV Inventory
August 1/we had a huge paper deposit of 1.235 million oz into the SLV/Inventory rests at 350.955 million oz
July 29/we had no change in silver inventory/inventory rests at 349.720 million oz
July 28/we had 1.14 million oz of additional silver added to the SLV/Inventory rests at 349.720 million oz
July 22/we had no change in silver inventory at the SLV.Inventory rests at 348.580 million oz/
July 21/no change in silver inventory at the SLV/Inventory rests at 348.580 million oz
July 20/no change in silver inventory at the SLV/Inventory rests at 348.580 million oz
July 19/no change in silver inventory at the SLV/Inventory rests at 348.580 million oz
July 18/no change in silver inventory at he SLV/inventory restss at 348.580 million oz
July 15/ no change in  silver inventory at the SLV/Inventory rests at 348.580 million oz
July 14/no changes in silver inventory at the SLV/Inventory rests at 348.580 million oz/
July 13./ a huge addition of 5.187 million oz into silver inventory at the SLV/ this is a paper addition as inventory rests at 348.580 million oz
July 12/ a huge addition of 1.94 million oz into silver inventory at the SLV/a “paper” addition/inventory rests at 343.393 million oz
July 11/no changes in silver inventory/rests tonight at 341.453 million oz
JULY 8/no change in silver inventory/rests tonight at 341.453 million oz
July 7./no change in silver inventory/inventory rests at 341.453 million oz
july 5/no change in silver inventory/inventory rests at 333.554 milllion oz
August 1.2016: Inventory 349.720 million oz

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 2.0 percent to NAV usa funds and Negative 2.3% to NAV for Cdn funds!!!!  (the discount is starting to disappear)
Percentage of fund in gold 59.0%
Percentage of fund in silver:39.8%
cash .+1.2%( August 1/2016). Holiday today in Canada 
2. Sprott silver fund (PSLV): Premium falls  to +1.15%!!!! NAV (august 1/2016) 
3. Sprott gold fund (PHYS): premium to NAV  falls TO  1.14% to NAV  ( august 1/2016)
Note: Sprott silver trust back  into POSITIVE territory at +1.15% /Sprott physical gold trust is back into positive territory at 1.14%/Central fund of Canada’s is still in jail.



Late tonight we received the report of movement of gold from the Federal Reserve Bank of New York:

In the previous month we had 7951 million dollars worth of gold in inventory valued at 42.22 dollars per oz.

Tonight the FRBNY reports that we had 7910 million dollars worth of gold inventory valued at $42.22 per oz.

Thus a total of 41 million dollars worth of gold left New York shores valued at 42.22 dollars per oz.

Thus in oz, the amount exported out of NY:

971,103.7 oz  or 30.205 tonnes

Since Germany is the only official country to have asked for the gold back you can be safe to assume that it is this country that is the recipient of the gold.

Germany must have sent out an extra SOS to get their gold back!!.

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/David Russell

off toay



Alasdair Macleod tells now Cameron, Osborne and Carney tried to instil fear so that England would vote to remain in the EU and their theories of what would happen is all wrong

(courtesy Alasdair Macleod)


One Month Later – Brexit Post-Mortem

Submitted by Alasdair Macleod via,

It is a month after Britain’s surprise vote to leave the EU.

A new Conservative Prime Minister and Chancellor are in place, both David Cameron and George Osborne having fallen on their swords. The third man in the losing triumvirate, Mark Carney, is still in office. Having taken a political stance in the pre-referendum debate, there can be little doubt the post-referendum fall in sterling was considerably greater than if he had kept on the side-lines.

This article takes to task the Treasury’s estimates of the effect of Brexit on the British economyand Mr Carney’s role in the affair, then assesses the actual consequences.

The Treasury’s economic weapons of mass destruction

One of the Treasury’s models predicted Brexit would cost each household £4,300 every year.There were at least two things wrong with this prediction. Firstly, it was presented as if it was a loss of net income, in other words the business profit or wages the average household would lose. The estimate was nothing of the sort, it was the Treasury’s estimate of the loss of annual GDP divided by the number of households in the event of Brexit.

A second wrong should be equally obvious. No economic model is capable of predicting an outcome without subjective inputs. This is why garbage in produces garbage out. One can even goal-seek specific answers by feeding assumptions into an economic model. One suspects this was the principal basis of what the press dubbed “Project Fear”. There were in fact two Treasury models, the first one described above, which is meant to predict the medium to long-term outlook, and a second which predicted an immediate recession in the event of Vote Leave. This is the Treasury’s VAR model, which uses statistical analysis to measure and quantify the level of financial risk. The simple assumption, with no basis in evidence, was that Brexit would amount to an economic shock half as great as the 2008 financial crisis, lasting for two years.

Combining the output of these two models allowed George Osborne to threaten us with an economic disaster if we didn’t vote Remain.

An important point that seems to be lost on government economists when making their forecasting assumptions is that we all quietly get on with making a living, very successfully if we are left alone by the state. It is when they interfere that things start to go wrong. Furthermore, they are convinced we need national trade deals, and appear incapable of understanding that we manage far better with free trade.

We will not digress into why using economic models can never work, and instead note the abuse of its own models by the Treasury. An independent paper by Professor David Blake published by the Cass Business School exposes the intent in the Treasury’s approach, some of which is repeated here. He even goes so far as to describe the published outputs as “dodgy dossiers”, a phrase that was first used to describe the cooked-up intelligence report that led us into the last Iraq war. It is as if the purpose of the Treasury’s economic assessment was to threaten us, to pursue the Iraq analogy, with non-existent weapons of mass economic destruction.

Professor Blake’s findings are damning, but they were less widely read in financial circles than the Treasury’s forecasts, which were almost always accepted without question. The Treasury forecasts were then given added impetus when Mark Carney, the Governor of the Bank of England, took the unusual step of intervening in the political debate. Claiming that the Bank has a mandate to warn us of economic threats, he gave the Treasury forecasts unwarranted credibility in the foreign exchanges and international financial markets. Though he denied his intervention was political, there can be no doubting that that was the effect.

If Britain had voted to remain, there would have been no immediate problem for the markets. Ahead of the vote, sterling rallied in a growing belief the referendum would be in favour of Remain, because the bookies odds said so. Instead, the vote went the other way. There can be little doubt that the markets reacted as sharply as they did on the basis of the Treasury’s dodgy dossiers, and the added spin given to them by Mark Carney’s warnings.

In the event, sterling immediately fell over 10% and markets worldwide took a big knock. A run developed on UK commercial property funds. But the most important event, in terms of the Bank of England’s mandate, was the collapse in sterling. It went against the Bank’s stated mission, “to promote the good of the people of the United Kingdom by maintaining monetary and financial stability”.

Mr Carney’s intervention was a gamble for Remain that failed to pay off. The evidence that he was caught up in the Treasury’s deceit has now emerged, with markets rapidly regaining their poise, apart from the sad exception of sterling. The Monetary Policy Committee on 14 July decided that no further economic stimulus is required. In other words, both markets and the Bank are now signalling that Brexit does not have the consequences for the UK threatened by the Treasury, beyond a 10% sterling devaluation. And that would most likely not have occurred if markets were not preconditioned to think Brexit would be a disaster for the currency.

If it wasn’t for the sensitivity of his position, one would have expected Mr Carney to resign his post immediately. But the replacement of a central bank governor is never hurried, being managed in the interests of market stability. Therefore, Mr Carney might quietly arrange for his early departure.

What happened to the Brexit recession?

One month on from the referendum, there is no sign of the Treasury’s VAR model predictions coming to fruition. London is teeming with people, many of them foreign visitors, spending money in cafes, restaurants, theatres and other visitor attractions. The country roads are still jammed with caravans, tractors, tourists and white vans trying in all their productive mayhem to go about their business. Wimpish businessmen dithering over trade and investment plans are being forced to get on with life, and it should be noted that turncoat Remain supporter, GSK, this week announced a massive new capital investment programme, one of several such announcements in recent days.

Our long-abandoned trade friends in the Commonwealth are keen to talk to us, as is China. And who can forget President Obama’s threat when it came to negotiating T-TIP with the EU? Well, we are no longer at the back of the queue, but at the front of the line. Only this week, it was announced that our American friends will shortly be able to enjoy fine Welsh lamb and prime Scottish beef again for the first time in twenty years. Suddenly, everyone, with the exception of the EU, wants to engage with us about trade. A dyed-in-the-wool bureaucrat, Michel Barnier, has been appointed to represent the EU Commission in the Brexit divorce. He is expected to talk tough, and make any agreement with the UK hard-won. Good luck to him, when the opportunities and everyone’s focus have moved elsewhere.

The scientific community, which warned us about the loss of important subsidies and cooperation on European research projects, is now backtracking. The President of the Royal Society, says he sees no evidence that European funding bodies are discriminating against British research projects. Professor Nick Donaldson, of University College, London, points out that “money is pouring into the research and development pipeline, but new products are not getting to market, because of the expense incurred through the EU’s Active Implantable Medical Device Directive of 1990 (Letters, Daily Telegraph, 26 July). At last, we will be able to set our own rules in this and other matters for the benefit of ordinary people.

It must be extraordinary, to anyone who was sucked in by the Treasury’s forecasts, how quickly markets and the economy have recovered their poise. Mainstream economists are confounded. Again, we must refer to Professor Blake’s paper. He points out that Greenland’s economy grew rapidly when it left the EU in 1985, and Ireland’s trade with the UK was unchanged by her exit from the sterling area in 1979. Both these outcomes are wholly inconsistent with the Treasury’s assumptions. He also points out that the model on the Treasury’s input assumptions would predict the UK is better off joining the euro, and that every country in the world would be better in the EU. Tell that one to Donald Trump.

It is worth reading his key points, if not Professor Blake’s paper in its entirety. That the Treasury got is so wrong tempts one to think there was another agenda, perhaps stuck in the mind-set of the post-war geopolitical establishment.

More immediately, there is the obvious problem that the EU’s economic and financial trajectory is a genuine crisis, and that the whole project is liable to collapse. If so, Britain remaining in the EU would have amounted to a sacrifice of Britain’s relatively free trade values in the interests of the EU’s lemming-like self-destruction.

There is, of course, every possibility that the British government will screw Brexit up. The signals from the establishment are mixed, to say the least. The state-controlled Royal Bank of Scotland and its NatWest subsidiary is preparing its business customers for negative interest rates on their deposit accounts. Many economists, immersed in the beliefs of the neo-Cambridge school and with the Treasury’s forecasts still uppermost in their minds, desire further cuts in interest rates and even helicopter money.

We cannot know what the future holds, particularly when governments attempt to micro-manage their citizens’ economic activities. There is no evidence that compels us to argue that a British government and the Bank of England are much better than any other Western government and central bank. Nor can we assume that an escape from the EU is an escape from their group-think.

We do know with reasonable certainty, on the balance of firm evidence, that if the British or European economies tank, it will have nothing to do with Brexit.


An extremely important commentary from Ed Steer and Ted Butler as they analyze the COT report and show that even though the whole commercial gold COT covered some of their shorts (approx. 6500 contracts), the big 4 banks actually increased their shorts by 8400 contracts.  This can only mean that JPMorgan or HSBC came to the aid of a failing smaller bank like Morgan Stanley

(courtesy Ed Steer/Ted Butler)

A Golden Rescue on the COMEX

By Ed Steer

30 July 2016 — Saturday

Once again I was wrong about this week’s Commitment of Traders Report in silver for positions held at the close of COMEX trading on Tuesday.  Although the Commercial net short position in gold decreased by the expected smallish amount, there was a tiny increase in silver once again.

But under the surface in the headline gold number, was an absolutely stunning change that both Ted and I were shocked to see.  But it proves Ted’s premise that one of the smaller traders in the Big 8 category most likely had its financial back against the wall — and had to get bailed out in whole or in part by one or more the Big 4 traders.  More on that shortly, as first things first.

In silver, the Commercial net short position rose once again, this time by a tiny 868 contracts, or 4.34 million troy ounces of paper silver.  The Commercial net short positions stands at a new record high of 535.6 million troy ounces of paper silver.

During the reporting week, the commercial traders reduced their long position by 2,264 contracts, plus they reduced their short position by 1,396 contracts.  The difference between those two numbers is the change for the week.  With such a small change in the commercial net short position, there wasn’t much activity in each category.  Ted said that Big 4 increased their short position by a bit more than 100 contracts — and the raptors, the commercial traders other than the Big 8, added about 800 contracts to their short position, which means that the short position of the ‘5 through 8’ traders was basically unchanged.  In the grand scheme of things, these changes are not even rounding errors.  Ted pegs JPMorgan’s short position at around 32,000 contracts, unchanged from his estimate last week.  We get a new Bank Participation Report next Friday — and that will enable Ted to calibrate their short position more precisely.

Under the hood in the Disaggregated COT Report, things were quite a bit different, as the Managed Money traders added a whopping 5,200 contracts to their already gargantuan [and record] long position, plus they increased their short position by 428 contracts, for an increase on the week of 5,200-428=4,772 contracts, which was almost six times the increase in the Commercial net short position.  Of course to make up for that, the traders in the ‘Other Reportables’ and ‘Nonreportable’/small trader categories had to go short the difference — and that’s what they did.  Ted was wondering out loud as to who those traders in the Managed Money might be that were piling in on the long side so enthusiastically.  I mentioned those ‘unblinking long’ non-technical traders as a possibility — and I just know that he’ll have more to say about this in his weekly commentary later today.

Here’s the 9-year chart for the silver COT Report — and it’s as ugly as it’s ever going to get.  I said the same thing after last week’s report as well — and the week before as well.  One of these times I’ll get it right!

In gold, the Commercial net short position declined by a smallish 6,454 contracts.  I was hoping for a bit more, but it is what it is.  That change reduced the Commercial net short position in gold down to 30.90 million troy ounces, which is almost no change at all from last week’s report.

But that number is a paper-thin cover for the explosive changes within the Commercial category — and what I’m about say only hints at the future ramifications of these changes.

Even though the Commercial net short position declined by 6,454 contracts during the reporting week, Ted said that the Big 4 traders actually increased their net short position by about 8,400 contracts — plus the raptors, the commercial traders other than the Big 8, also increased their short position by around 1,800 contracts.  But the biggest change was in the ‘5 through 8’ category, as they reduced their net short position by about 16,700 contracts.  My immediate reaction when I saw that number was that one of the Big 4 — most likely JPMorgan, and I’m speculating here — had to come to the rescue of one of the ‘5 through 8’ traders that was about to go bust because of margin calls.  And rather than have this trading firm cover their short position in the open market, which would have driven gold [and most likely silver] prices to the moon and the stars, and bankrupted everyone else in the process — a Good Samaritan stepped in to prevent that from happening, saving themselves, plus everyone else in the process — at least for the moment.

If this is what actually happened, then it has all the hallmarks of another Bear Stearns moment, when JPMorgan was forced to take over that firm back in early 2008 when the same thing was about to happen there.  I look forward to what Ted has to say about this with eager anticipation.

Here’s the 9-year COT chart for gold — and despite the improvement for the second week in a row, the numbers are still ugly.    But all eyes should now be on the changes inside the Big 8 category going forward. 

The changes in this week’s Commitment of Traders Report are certainly unprecedented — and hint at desperation on part of the commercial traders, especially the smaller ones that don’t have deep pockets like JPMorgan, Citigroup, or maybe Canada’s Scotiabank.  Firms like Morgan Stanley would certainly be a member of the Big 8 — and even Goldman Sachs could even be included in this group now.  These would be five members of the Big 8 — and whoever the three remaining firms that are part of the Big 8, wouldn’t have access to unlimited funding like the Big 5 I just mentioned.  Of course, with the probable rescue of one of the ‘5 through 8’ traders, all that does is elevate one of Ted’s raptors, the commercial traders other than the Big 8, into the Big 8 category by default — and as Ted correctly mentioned, you have to wonder about their financial ability to meet margins calls along with some of the other raptors that are close to Big 8 status as well.

One thing is for sure — there’s big, big trouble brewing in River City at the moment — and how this is resolved remains to be seen — and I’ll have some closing comments on all this in The Wrap.

Here’s Nick Laird’s “Days to Cover” chart updated with yesterday’s COT data for positions held at the close of COMEX trading on Tuesday.  It shows the days of world production that it would take to cover the short positions of the Big 4 and Big 8 traders in each physically traded commodity on the COMEX.  Click to enlarge.

As I say in every Saturday column—the short positions of the Big 4 and 8 traders in silver continues to redefine the meaning of the words ‘obscene’ and ‘grotesque.’  For the current reporting week, the Big 4 are short 167 days [more than five and a half months] of world silver production—and the ‘5 through 8’ traders are short an additional 71 days of world silver production—for a total of 238 days, which is a hair under 8 months of world silver production, or 547 million troy ounces of paper silver held short by the Big 8.  These numbers are virtually unchanged from last week’s COT Report.

And it should be pointed out here that in the COT Report above, the Commercial net short position in silver is 535 million troy ounces.  So the Big 8 hold a short position larger than the net position—and by just about 12 million troy ounces.  That’s how grotesque, twisted, obscene—and dangerous—this COT situation in silver has become—and gold and platinum aren’t far behind.

And as an aside, the two largest silver shorts on Planet Earth—JPMorgan and Canada’s Scotiabank—are short about 120 days of world silver production between the two of them—and that 120 days represents around 72 percent [almost three quarters] of the length of the red bar in silver in the above chart.  The other two traders in the Big 4 category are short, on average, about 23 days of world silver production apiece.

The Big 8 traders in gold are short 47.7 percent of the entire open interest in the COMEX futures market in gold, plus they’re short 46.0 percent of the entire COMEX futures market in silver—and these positions are held against thousands of other traders in these two precious metals who are long the COMEX futures market.   Ted pointed out that if you subtract out the market-neutral spread trades in both these precious metals, the Big 8 are actually short a bit more than 50 percent of the total open interest in both metals.


I find myself thinking about the circumstances of how the big 5 thru 8 gold short which bought back its short position and came to be replaced by JPMorgan or another big short trader. This doesn’t sound at all like a fully open market transaction in which a big short moved to buy back in a transparent manner and accepting free market sell orders to close out the short position. Instead, it reeks as an arranged trade (highly illegal) in which the vast majority of market participants and observers knew nothing about as it was transacted. The price action during the reporting week it which it occurred was highly orderly and no hint was given that a big short fish was in trouble. My guess is that the big gold short which covered came into financial distress weeks ago and was carried by the exchange until the position rearrangement was finalized.

As such, someone had to know of it – certainly the short trader which bought back and JPMorgan or whoever else added gold shorts. The CME clearing house had to know and probably arranged the illegal transaction. While I am convinced few other traders were aware of the gold short in trouble, I am not sure if the CFTC was in on this or is as out to lunch as some (including me) profess. My hunch is that the CFTC was told after the gold short got in trouble but before the transaction was effected. In any event, this was an arranged transaction in keeping with a long COMEX tradition of arranged transactions (such as the Bear Stearns takeover and the May 1, 2011 silver price massacre). The only questions are was it enough and what now?

Even though I think I have a clear reading on what took place that doesn’t extend to blueprinting short term price action. As I’ve maintained all along, I’ve narrowed it down to either we go straight up from here or experience one last hard shake to the downside before lifting off for good. This week’s extraordinary big 8 gold repositioning just accentuates either outcome. Should the commercials lose control, prices will surge and it is hard to understate all the unintended consequences. I’m not an end of the world guy, but a genuine commercial failure could rock the world.Silver analyst Ted Butler: 30 July 2016

It was obvious that the powers-that-be were all over the precious metal prices during the COMEX trading session on Friday, because if they’d been allowed to trade freely, the moon and the stars would have been the limit as far as closing prices were concerned.  Then the resulting margin calls to the Big 8 traders alone would have certainly buried more of them and, as I said in my discussion on the COT Report, it appears that one of the smaller trader has already been bailed out.


Ted mentioned on the phone yesterday that the current paper loses for the Big 8 now total at least $3 billion dollars as of the close of trading on Friday — and those loses do not include the realized gains that they made earlier this year.  He says it’s likely more than that, but wasn’t able to compute it more precisely during the time we spent on the phone yesterday, which was considerable.  These are huge loses, but there’s now no question that for some of the small traders in the Big 8 category, plus most likely for some of the raptors [the commercial traders other than the Big 8] the writing is on the wall.


I’d guess that a resolution to all this is very near — and there are only three end-game scenarios that I can think of at this time of morning — and they are all ugly — and are as follows: 1] with the approval of the CFTC and SEC, both organizations that most certainly know what’s going on at the moment, we’ll get another JPMorgan-led drive-by shooting like we had starting on May 1, 2011 in silver.  This time it would be in gold as well, plus platinum most likely.  But as to how successful that might be in the current financial and monetary environment remains to be seen. 2] Another one or more small Commercial traders rush to cover — and we have a melt-up in precious metal prices, plus a melt-down in the U.S. banking system as the margin calls bankrupt ever larger players up the precious metal food chain as the price management scheme unwinds around the world, or 3]  The CFTC is forced to close the COMEX in order save JPMorgan et al.  That would save all the short players, but suddenly the precious metals would be selling on the spot market, with no futures and options attached to them.  I can’t even begin to comprehend what would happen to the financial market on a world-wide basis if that came to pass.


Ted was of the opinion that the possibility existed that these unprecedented gold deliveries we’ve been watching unfold over the last two or three months could be part and parcel of what’s happening now.  I couldn’t agree more.


The other thing we talked about — and I alluded to in my discussion on the COT Report earlier, was the fact that with such huge volume and open interest, there could be all kinds of things going on under the hood in the COMEX futures market that can’t be seen in the COT Report, or at least that are not that obvious.  But in the ‘obvious’ category — and as a ‘for instance’ the huge increase in the long position in silver in the Managed Money category this week.  Who was that — and what was it all about?


There are many more questions than answers, but JPMorgan et al have now painted themselves into such a small corner that there doesn’t appear to be any more wiggle room left — and the first sign of big trouble was the apparent rescue of one of the Big 8 traders in the COMEX futures market in gold.


A cornered beast is a dangerous animal — and those caught in the price management scheme as it breaths its last, will do just about anything, legal or otherwise, to save themselves and the system that nurtures them.  So this bears watching carefully in the days and weeks ahead, if in fact we actually have that much time left.


‘Push’ really has become ‘shove’ at this juncture — and I must admit that I’m on ‘Red Alert’ from this point onward.


How did it come to this?





Craig Hemke sees what I see at the gold comex:

(courtesy Craig Hemke)

A Curious Pattern of Comex “Deliveries”


Even though gold “deliveries” on the Comex are nothing but a charade and shuffle of paper warehouse receipts and warrants, the latest trend is a real eye-opener and appears to be a rather interesting datapoint of extreme demand for gold in all its forms.

First of all, some background so that we’re all on the same page…

Through the year, the Comex trades futures contracts for every month on the calendar. However, not all months are treated equally. Six of the months are treated as “delivery months” and these are the contracts which carry the majority of the short-term trading interest and volume. These months are February, April, June, August, October and December, The other six months are considered “non-delivery” and are very rarely traded or utilized as physical settlement contracts. These months are January, March, May, July, September and November.

A quick look at the current “gold board” reveals that, with the Aug16 contract now in its “delivery” phase, the active front month has become the Dec16. See below:

And, as you can see on the next chart, fully 3/4 of the entire Comex gold open interest can now be found in this front month, Dec16 contract:

OK? So, when a front month comes “off the board” as the Aug16 did last Thursday, it moves into its “delivery phase”. This is when the entire charade and fraud of “Comex delivery” kicks in, usually characterized by a simple shuffling of paper warehouse receipts back and forth between the various Banks which operate the vaults. We’ve written about this on countless occasions over the past six years so we’re not going to cover all of this again. Suffice it to say that there is very little, actual metal that is ever physically delivered on Comex. The entire process is simply in place to create the illusion of physical delivery in order to give The Bullion Bank Paper Derivative Pricing Scheme some element of legitimacy. That said, what is currently happening on Comex is a shocking trend that requires your attention and consideration.

Let’s start by considering how a typical year of Comex deliveries has historically played out. Below is a chart of the delivery totals by month for Comex gold in 2015. Note that the blue bubbles draw attention to “delivery months” beginning with the Dec14 and the red bubbles denote the totals of the non-delivery months.

Do you see how this works? For all of 2015, the six delivery months produced a total gold delivery of 15,070 Comex gold contracts or, on average, about 2,500 per delivery month. Each contract represents 100 ounces of “gold” so the Comex can be said to have “delivered” 1,507,000 ounces of gold in these six months or a paltry 47 metric tonnes. For all of 2015, the six non-delivery months produced a total gold delivery of 1,148 contracts or about 200 per non-delivery month. This comes out to just 114,800 ounces of gold or almost 4 metric tonnes.

Adding this all together…For all of 2015, the Comex “delivered” 16,218 contracts of gold. This was 1,621,800 troy ounces of “gold” or about 51 metric tonnes.

(I don’t know. Maybe I should stop here for a moment and let you consider whether, in the grand scheme of things, 51 metric tonnes is really much gold at all. The world produces about 3,000 metric tonnes per year so Comex “delivers” about 1.5% of total mine supply. And yet Comex/Globex electronic derivative trading is allowed to produce the price at which physical transactions take place around the globe. Neat trick, huh?)

Anyway, not to get sidetracked. Let’s get back to the alleged Comex “deliveries” and have a look at the startling trend that we mentioned earlier…

Below is a chart of the total Comex gold deliveries thus far in 2016. Note that, as the year began, the amount of “gold” being shuffled around each month is not that dissimilar to 2015 or, frankly, any other year in the past. The non-delivery month of January kicked off the year with just 172 deliveries. Delivery February followed with 2,569. This was more than Feb15 but, all things considered, nothing significant or noteworthy. Non-delivery March saw just 743 and Delivery April had 3,984.

And now here’s where things get funky…

Non-delivery May15: 26         Non-delivery May16: 2,215

Delivery Jun15: 2,959             Delivery Jun16: 15,785

Non-delivery Jul15: 728         Non-delivery Jul16: 6,987

Hmmmm. Does this seem a little unusual to you? Me, too. In fact, go back and check the total amount of Comex gold deliveries for ALL OF 2015. Do you recall the number? 16,218 contracts for 51 metric tonnes. This year, the month of June alone nearly exceeded that total at 15,785 and 49 metric tonnes! And the just-completed, non-delivery month of July had a total of 6,987 contracts for 21.73 metric tonnes of “gold”. This is FIVE TIMES the delivered total for ALL of the 2015 non-delivery months COMBINED.

And the trend doesn’t appear to be reversing in the just-begun delivery month of August. At contract “expiration” last Thursday, the CME reported that there were 14,402 Aug16 gold contracts still open and indicating a willingness to “stand for delivery” this month. As you can see above, delivery notices for 5,028 contracts have already been sent out so August appears set to challenge June’s record for total Comex gold “deliveries” in one calendar month.

Quite an interesting trend, eh? This is all definitely something that we will monitor all month and through the remainder of the year.


At the end of the day, you should be asking yourself “why does this even matter?”. As stated above, almost ALL Comex deliveries are nothing more than an exchange of warehouse receipts and warrants and very little physical metal ever changes hands. Therefore, to claim that some kind of “delivery failure” or “default” emanating from the Comex is forthcoming would be naive. The true importance of this information is in its significance as a DATAPOINT OF GLOBAL DEMAND FOR ALL FORMS OF GOLD.  Consider:

  • The tonnage of gold flow around the globe…from West to East and from South to North.
  • The extreme and surging growth of “inventories” in the gold ETFs
  • Total open interest on Comex, which by July 11 had grown 73% from January 29
  • Global Mint and Central Bank demand, including China and Russia
  • Interest in owning mining shares has sent the HUI index up over 170% year-to-date

And now we have Comex allegedly “delivering” gold at a never-before-seen record pace.

We are truly in a brave new world my friend…off the map and into the region marked “beyond which be dragons”. These historical anomalies in Comex “delivery” are just another datapoint that signals extreme, global demand for gold in all its current forms. Our hope here at TFMR is that, one day soon, the entire Bullion Bank Paper Derivative Pricing Scheme will finally collapse as delivery demands simply overwhelm the Bullion Banks’ ability to supply physical gold on a just-in-time basis to an insatiably hungry investment world.

When will this day come? It’s impossible to say with certainty given the deliberately opaque nature of the current system. However, the day WILL come and you had best prepare for that eventuality. Buy gold and TAKE PHYSICAL DELIVERY NOW before it’s too late because, when the music stops and the paper games end, I can promise that you DO NOT want to one of the sad, uninformed few left holding nothing but a stack of meaningless paper certificates.



Your early MONDAY morning currency, Asian stock market results,  important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight




2 Nikkei closed UP 60.50  OR 0.40% /USA: YEN RISES TO 102.29

3. Europe stocks opened ALL IN THE RED    /USA dollar index DOWN to 95.75/Euro DOWN to 1.1158

3b Japan 10 year bond yield: RISES TO  -.135%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 103.44

3c Nikkei now JUST BELOW 17,000

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

3e WTI::  41.00  and Brent: 42.32

3f Gold DOWN  /Yen DOWN

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” ON THE TABLE 

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 -.098%   German bunds BASICALLY negative yields from  10+ years out

 Greece  sees its 2 year rate RISE to 8.17%/: 

3j Greek 10 year bond yield RISE to  : 7.29%   (YIELD CURVE NOW  FLAT TO INVERTED)

3k Gold at $1348.00/silver $20.48(6:45 am est)   SILVER FINAL RESISTANCE AT $18.50 BROKEN 

3l USA vs Russian rouble; (Russian rouble DOWN 52/100 in  roubles/dollar) 66.92-

3m oil into the 41 dollar handle for WTI and 42 handle for Brent/

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


30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9855 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0838 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.


3r the 10 Year German bund now NEGATIVE territory with the 10 year FALLS to  -0.098%

/German 10+ year rate BASICALLY  negative%!!!


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 1.482% early this morning. Thirty year rate  at 2.211% /POLICY ERROR)

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

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


Euro Stocks Reverse Early Gains Dragged Lower By Slumping Banks; US Futures Flat; Crude Slides

Following last Friday’s shocking weak US GDP print, Asian stocks jumped to an 11 month high on reduced prospects of a near-term rate hike, while the region also digested mostly encouraging in conflicting Chinese PMI data. European bank stocks initially rose following the release of the 2016 stress test then declined, tempering gains in global equity indexes, amid investor skepticism over the usefulness of stress-test results and weaker oil prices. Shares and currencies in emerging markets rallied to the highest in about a year, while miners and industrial metals jumped.

Declines in European banks put a dent in global equities, which rallied in July to their best month since March on prospects central banks will add to stimulus or refrain from reducing it. Traders peeled back bets on a U.S. rate hike this year after data Friday showed annualized gross domestic product rose 1.2 percent last quarter, less than half the 2.5 percent projected by economists. The Bank of Japan added to its easing last week and economists forecast policy makers in Australia and England will cut their benchmark interest rates from record lows this week.

As Bloomberg reports, lenders in peripheral nations weighed heaviest on an index of lenders, which sank as much as 1.9 percent after opening higher. The MSCI Emerging Markets Index jumped to the highest since last August and the equivalent currency index to the highest since July 2015, with Malaysia’s ringgit and South Korea’s won gaining the most. Zinc headed for the highest close in a year. The pound weakened against all of its 16 major counterparts.

Best summarizing trader mood as we start off another week, and month, was Saxo’s Peter Garnry who told Bloomberg that “Investors are skeptical about everything these days. The problem with the stress tests is that they were too soft, only assuming a mild to moderate recession. This means that the data doesn’t tell us much, and it’s not too surprising that most banks passed.”

The Stoxx Europe 600 Index fell 0.4% as of 11:33 a.m. in London, erasing earlier gains of as much as 0.6 percent. European equities had their biggest monthly advance since October last month, with lenders jumping the most in more than a year. Yet July was marked by record outflows from European stock funds and thin volume, indicating a lack of conviction in the rally. Spain’s Banco Santander SA fell 2.9%, Banco Bilbao Vizcaya Argentaria SA lost 4%, and UniCredit SpA sank more than 7%. Banks had initially risen at the open after stress tests showed most of them would keep an adequate level of capital in a crisis. BHP Billiton Ltd. and Rio Tinto Group led miners to the biggest gain of the 19 industry groups on the Stoxx 600 as commodity prices advanced.

Futures on the S&P 500 were little changed after the benchmark index capped its longest streak of monthly gains since 2014. The MSCI Emerging Markets Index jumped 1.2 percent, the most in three weeks on a closing basis. Equity benchmarks in Taiwan, Turkey and the Philippines advance more than 1 percent while Indonesian stocks rallied 2.8 percent, rebounding from the steepest drop in five months on Friday. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 1.9 percent, the most since July 11. A private manufacturing index unexpectedly rose to the highest since February 2015, while the reading on the official government’s gauge slipped.

* * *

WTI continued to disconnect from overall risk, falling back toward $41, extending its biggest monthly decline in year as U.S. producers increased drilling, crude and fuel stockpiles remained bloated. Brent near $43. “The hope for a clear rebalancing may have to wait a couple more months, since oil’s drain is clogged in the meantime,” Barclays says in report. “Demand growth remains lackluster and has not made significant inroads into the inventory overhang.”

“There is a clear downward momentum to the market at the moment,” says Michael McCarthy, a chief strategist at CMC Markets in Sydney. “There are concerns about the oversupply situation continuing.  Clearly $40 a barrel is a key point for West Texas and I’d expect to see support there given the bounces we’ve seen previously at that level.”

Drillers boosted active rigs for 5th week, longest run of gains since August. Hedge funds expanded WTI short positions in futures, options combined, by most in data back to 2006

* * *

The 10-year Treasury note yield climbed three basis points to 1.48 percent, Bloomberg Bond Trader data show. Fed Bank of New York President William Dudley said investors are underestimating how many times policy makers in the world’s largest economy will raise interest rates. “The movement in investor expectations towards a flatter path for U.S. short-term interest rates seems broadly appropriate,” Dudley said in remarks prepared for a speech Monday at a conference in Bali. However, “it is premature to rule out further monetary policy tightening this year,” he said. The yield on Japan’s 10-year bonds climbed five basis points to minus 0.145 percent, after jumping eight basis points at the end of last week.

This morning’s top news stories include: Dudley Says He Won’t Rule Out More Fed Tightening This Year; Carney Nears Rate Cut After BOE Detour on Road to Stimulus; Steady Euro-Area Factory Output Masks Worries in Periphery; Uber China to Merge With Didi to Create $35 Billion Company; China Factory Gauges Splinter for July, While Services Advance.

Market Snapshot

  • S&P 500 futures up 0.2% to 2173
  • Stoxx 600 down 0.1% to 342
  • FTSE 100 up 0.1% to 6734
  • DAX up 0.5% to 10392
  • German 10Yr yield up 1bp to -0.11%
  • Italian 10Yr yield up less than 1bp to 1.17%
  • Spanish 10Yr yield up less than 1bp to 1.03%
  • S&P GSCI Index down 0.6% to 337.5
  • MSCI Asia Pacific up 0.8% to 138
  • US 10-yr yield up 2bps to 1.48%
  • Dollar Index up 0.17% to 95.7
  • WTI Crude futures down 1% to $41.18
  • Brent Futures down 1% to $43.09
  • Gold spot down 0.1% to $1,349
  • Silver spot up 0.9% to $20.51

Global Headline News

  • Apple Stock Drop Fails to Deter Magellan From Technology Spree
  • Didi Chuxing to Buy Uber China; Uber China Said to Merge With Didi to Create $35 Billion Company
  • China Factory Gauges Splinter for July, While Services Advance
  • Carney Nears Rate Cut After BOE Detour on Road to Stimulus
  • Dudley Says He Won’t Rule Out More Fed Tightening This Year
  • Steady Euro-Area Factory Output Masks Worries in Periphery
  • Global Earnings Tumble as Companies Dig Deeper for Cost Savings
  • Backlash Grows Over Trump’s Comments on Dead Muslim Soldier’s Parents

Looking at regional markets, Asia began the month mostly positive as weak Q2 US GDP figures further reduced prospects of a near-term rate hike, while the region also digested mostly encouraging Chinese PMI data. Nikkei 225 (+0.4%) shrugged off losses of over 1% as JPY pared some of the strength seen from the post-BoJ and US GDP disappointment. ASX 200 (+0.5%) ascended past 5,600 to print fresh YTD highs, as the commodities complex led the advances. Chinese markets were mixed which reflected the divergence in PMI numbers with Hang Seng (+1.1%) outperforming after Chinese Caixin Manufacturing PMI printed its first expansion in 17 months and Non-Manufacturing printed a 7-month high, while Shanghai Comp (-1.4%) failed to take heed as Official Manufacturing PMI, which reflects larger companies including SOEs, recorded its first contraction in 5 months.

Key Asian Data:

  • Chinese Official Manufacturing PMI (Jul) M/M 49.9 vs. Exp. 50.0 (Prey. 50.0); 1st contraction in 5 months. – Non-Manufacturing PMI (Jul) 53.9 (Prey. 53.7); 7-month high. (Newswires)
  • Chinese Caixin Manufacturing PMI (Jul) 50.6 vs. Exp. 48.8 (Prey. 48.6); 1st expansion in 17 months. (Newswires)
  • Japan July Nikkei PMI Mfg 49.3 no est. (prior 49.0)
  • Taiwan July Nikkei PMI Mfg 51.0 no est. (prior 50.5)
  • Indonesia July Nikkei PMI Mfg 48.4 no est. (prior 51.9)
  • India July Nikkei PMI Mfg 51.8 no est. (prior 51.7)
  • Thailand July CPI y/y 0.10% est. 0.50%
  • Indonesia July CPI y/y 3.21% est. 3.37%

Top Asian News

  • Didi Chuxing to Buy Uber China
  • Fosun Plans Asset Sales in Reversal of $15 Billion M&A Spree
  • MUFG Profit Falls More Than Expected as Negative Rates Bite
  • China Said to Mull Mergers to Create Two State Steel Giants
  • BOJ Confusion on Nomura Floor Shows Conundrum for Stock Traders
  • Sakakibara Says Yen Will Slowly Appreciate to 100 per Dollar
  • Japan Tobacco Net Forecast, Undermined by Yen, Misses Estimates
  • Macau July Gaming Beats Estimates as Resorts Draw Tourists
  • Japan Pension Whale’s $52 Billion Loss Tied to Passive Ways
  • India IPO Returns Beat U.S. as Funds Chase High-Growth Companies
  • Hong Kong Move to Bar Pro-Independence Candidates Jolts Election

European equities initially kick off the week on the front foot underpinned by the results of the EU stress test in which bank are seen to be at a better position and more resilient. The biggest gainer of the morning has been Monte Paschi (+5.8%) whereby the banks board agreed to unload NPLs and raise EUR 5bIn worth of capital. However, since the open, European bourses have pared their opening gains (Eurostoxx flat) with sentiment by the plethora of soft Mfg. PMI figures. While from an equity perspective UniCredit (-6%) has seen an 8% turnaround, with attention being given to comments from Credit Suisse stating that the Italian bank needs recapitalisation of EUR 4-9bIn while their CETI ratio had only just reached the 7% benchmark. In credit markets, the initial upside in equities saw fixed income assets gap lower with Bunds firmly below 168.00, however Italian credit has outperformed this morning in the wake of reports that 11th hour rescue deal for Monte Paschi staved off the immediate prospect of a government bailout.

European PMI Data:

  • Euro-zone Final Manufacturing PMI Revised to 52.0 vs Preliminary 51.9
  • Germany Final Manufacturing PMI Revised to 53.8 vs 53.7
  • France Final Manufacturing PMI Unrevised at 48.6
  • Netherlands Manufacturing PMI Rises to 53.2 vs 52.0
  • Spain Manufacturing PMI Drops to 51.0 vs 52.2
  • Italy Manufacturing PMI Drops to 51.2 vs 53.5
  • UK Manufacturing PMI Drops to 48.2 vs 49.1

Top European News

  • European Stocks Advance as Banks Rise After Stress-Test Results
  • Lufthansa Extends Pilot Union Negotiations Deadline Until Aug. 5
  • Vodafone Uses Voiceless Africa Plans to Get Tech-Savvy Youth
  • U.K. Business Lending Forecast to Shrink Until 2019, EY Says
  • Air Liquide Engineering Drop Leads to First-Half Profit Miss

In FX, sterling fell 0.5 percent to $1.3170 as a report showed U.K. manufacturing shrank more than initially forecast in July. The pound has fallen more than 11 percent against the dollar since Britain voted on June 23 to leave the European Union and posted its third consecutive monthly drop against the greenback last month. Hedge funds and other large speculators are the most bearish on the pound in almost 25 years amid speculation the Bank of England will cut interest rates for the first time in more than seven years this week. The yen retreated 0.2 percent to 102.28 per dollar after soaring 4 percent last week. BOJ Governor Haruhiko Kuroda’s decision to aim low at last week’s meeting raises the stakes for Prime Minister Shinzo Abe to deliver on a pledge for “bold” fiscal stimulus on Tuesday, when the government is due to announce details of a more than 28 trillion yen spending package. Former Japanese vice finance minister Eisuke Sakakibara said in an interview with Bloomberg Television that Abe’s fiscal stimulus package is unlikely to halt the rally that is taking the yen toward 100 per dollar. The won increased 1.1 percent, touching its strongest level since June 2015, while the ringgit gained 1.2 percent, after weakening 1 percent last month.

In commodities, Crude oil retreated 1.1 percent to $41.15 a barrel in New York, after slumping 14 percent in July. U.S. producers increased drilling for a fifth week amid a glut of crude and fuel supplies that are at the highest seasonal level in at least two decades. Most metals advanced, with nickel rising 1.2 percent and zinc climbing 1.3 percent on the London Metal Exchange after China’s official factory gauge unexpectedly fell below the dividing line between improvement and deterioration, leaving room for stimulus. China is considering a sweeping overhaul of its steel industry that would consolidate major steel producers into two giants, with one located in the north and the other in the south, according to people familiar with the plan. Iron ore futures on the Dalian Commodity Exchange climbed to a three-month high after gaining 7.6 percent last week.

On today’s calendar, the early focus is on the final revisions to the July manufacturing PMI’s, which came in mostly in line if a little weaker than expected for peripheral nations. The UK number post Brexit will also be closely watched given the dive in the flash number: it showed an even steeper decline into contraction and pushed sterling the session lows. We’ll also get the manufacturing PMI in the US which is then closely followed by the ISM manufacturing for July, along with construction spending data.

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

  • European
    equities enter the North American crossover higher (albeit off best
    levels) in the wake of the latest ECB Stress test results and upbeat
    data from China
  • ECB stress test results showed an
    improvement in the resilience of banks although the likes of Barclays,
    RBS and Banca Monte dei Paschi di Siena’s fared poorly
  • Looking ahead, highlights include US Manufacturing PMI, ISM Manufacturing and US Construction Spending
  • Treasuries lower in overnight trading, global equities mixed as emerging markets rally on reduced forecasts for Fed rate hikes.
  • Federal Reserve Bank of Dallas President Robert Kaplan said a rate increase at the next policy meeting in September is still possible even after a report last week showed second- quarter growth was a sluggish 1.2%
  • Investors are underestimating how many times the U.S. central bank will raise interest rates this year and next, but they are probably right about the pace being slower than previously thought, said Federal Reserve’s William Dudley
  • The key takeaway from the 2016 EU bank stress tests will be the message that regulators are relatively comfortable with bank solvency
  • European bank stocks declined, tempering gains in global equity indexes, amid investor skepticism over the usefulness of stress-test results and weaker oil prices
  • Corporate earnings are heading for a fifth straight quarter of declines, dragged down mostly by energy companies’ struggles with low oil prices and a tepid global economy that threatens to throttle sales growth in many industries
  • After shocking traders by leaving the key rate on hold last month, BOE Governor Mark Carney and the Monetary Policy Committee signaled that loosening would probably come this month
  • U.K. manufacturing shrank more than initially forecast in July, suffering its biggest drop in more than three years. A Purchasing Managers’ Index slumped to 48.2, below the one- off flash reading of 49.1, Markit Economics said Monday in London
  • A rule to prevent a run on the money-market industry will take effect this October and force funds to abandon a fixed $1-a-share price and float their NAV, causing a big shift into money-market funds that buy only government debt
  • Friday was a big day for Japan’s $1.3 trillion Government Pension Investment Fund which posted its worst annual loss since the financial crisis and disclosed individual equity holdings for the first time
  • Saudi Aramco lowered the pricing terms for Arab Light crude sold to Asia by the most in 10 months, signaling Saudi Arabia has no plans to back down while OPEC rival Iran tries to regain market share amid a global oversupply
  • Money managers increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market


DB’s Jim Reid concludes the overnight wrap

Although the dog days of summer are upon us, if you’d gone on holidays at 5pm Friday night only to return a week later you would have missed the results of the Euro bank stress tests, the announced proposed recap of Monte Paschi, this week’s PMIs (including the most up to date post Brexit sentiment gauge of business confidence in the UK), confirmation of the latest Japanese fiscal package tomorrow, a likely first interest rate cut in the UK since March 2009 on Thursday (and to the lowest in the bank’s 322 year history), and last but not least a crucial (ok we always seem to say that) US payroll report on Friday which after two volatile months will give us a better guide to the trend. You may even miss the opening ceremony of the Olympics in Rio if you’re delayed on your return. I can’t believe it’s 4 years since the London Olympics enthralled us here. Then again I can’t believe it was 50 years ago this past weekend that England won their only football World Cup. I wonder if it will ever happen in my lifetime? Please don’t answer!!

I’m also not sure it feels like nearly 2 years since we saw the last European bank stress tests. The results of the latest EBA tests were out late Friday night and showed only one bank out of the 51 covered with a negative fully loaded CET1 capital at YE 2018 under the adverse scenario. 49 out of 51 were above 6% on this measure.

The overall results will probably be seen as a bit of a relief as there were no nasty surprises. Most banks were in the region of where analysts had expected them with maybe a few micro surprises. However a couple of the macro issues with the test are that a) it didn’t model for a prolonged period of low or negative rates/yields or it didn’t model any Brexit type scenarios. One could argue that medium to long-term profitability issues are one of the main issues at the moment (over and above capital for now) and low/negative yields are causing big problems with this. It’ll be interesting to see whether equity investors are impressed with the relatively sanguine results when any short-term sighs of relief fade. European bank shares are down around 35% since the stress tests in 2014. The recent accelerated concerns over Italian banks came after Brexit flattened curves and were perceived to cement lower rates/yields for longer. This hasn’t changed and worries will persist but the results will probably mean that a wider Italian rescue may not be absolutely essential immediately. This means that we may not get anything before the constitutional referendum so this could linger on for a while without coming to a head. On credit a reminder that my team published a note last week on bank capital with a relative constructive view on bonds further down the capital structure. It’s likely that bank capital will respond well to these results which follows the recent trend of bank capital decoupling from bank equities.

The other big news on Friday was the US GDP report (Q2 1.2% vs 2.5% expected earlier last week) which was disappointing whichever way you look at it. The bulls might point to the decent household consumption numbers (4.2% vs 4.4% expected but improved from 1.6% in Q1) and the run down in inventories as cause for optimism but it’s worth looking at the YoY numbers to illustrate a lacklustre economy that at the moment is continuing to exhibit secular stagnation tendencies.

Real GDP was a lowly 1.2% over the past year and YoY nominal GDP fell to just 2.4%, the lowest since Q1 2010 (2.1%) a year that included a quarter from the post GFC recession. In this debt overloaded world, it’s always going to be tough to get very far with nominal GDP at these lowly levels – and this is the strongest major DM economy. As DB’s Joe LaVorgna pointed out on Friday this is also ominous for corporate profits. It’s also not great for employment prospects and we certainly think we’ve shifted into a new lower payroll regime. Joe expects 150k (consensus 175k) for this Friday which is in line with the 3-month average. The average monthly payroll in 2014 and 2015 was 251k and 229k respectively. Both employment and profits continue to look late cycle to us.

Over to Asia so far this morning and the highlight so far has been the latest PMIs from China. It’s quite difficult to decipher too much from it with the official July manufacturing number at 49.9 (vs 50 in June) and inline with consensus. However the equivalent from Caixin/Markit climbed 2 points from last month to 50.6 – the highest since February 2015. The official non-manufacturing release was 53.9 (53.7 last month). Markets are mixed with the Shanghai Comp -1.25% but with the Hang Seng +1.31%. The Nikkei has edged into positive territory (+0.3%) and the Yen is slightly weaker (-0.4%) having rallied 4% last week as the BoJ eased less than expected, thus passing the reins to Abe who we’ll hear from tomorrow.

European equities saw a small rebound on Friday following some positive surprises in Eurozone growth and inflation data. The STOXX 600 index ended the day up +0.71%, ending the week (month) marginally higher by +0.46% (+3.64%). However the market has still not managed to completely recoup its losses since the UK referendum, cumulatively down -1.28% since the day of the vote. US equities shrugged off the weak GDP numbers (probably focusing on its impact on the Fed) to also rise marginally by +0.16% on Friday but ending the week broadly flat.

Staying with equities, our European Equity strategists have published their latest update this morning and the highlight is that the FTSE 250, filled with UK domestic stocks, is now impressively within a whisker of its pre-referendum level. In the report, they argue that the rebound (up 15% from the trough) is driven by three factors: (a) the strong performance of global risk assets (the FTSE 250 tends to outperform when cyclicals do well); (b) the stabilization in the GBP and (c) the hope that the UK macro fall-out from the referendum might be limited. With our FX strategists still very bearish on the GBP, they cautious on risk assets overall and with the post-referendum UK macro indicators looking atrocious across the board (PMIs, CBI business optimism, GfK consumer confidence), they see around 10% downside for FTSE 250 relative to the more export-focused FTSE 100 by year-end. For European equities they remain cautious with the YE target 4% below current levels. for the full report.

Back to Friday, credit outperformed in Europe. iTraxx IG and Crossover tightened by -2.7bps and -6.6bps respectively to end the week flat. Over in the US CDX IG (-0.4bps) and HY (-1.3bps) also tightened marginally but ended the week wider by +3.3bps and +15.6bps respectively. The recent drop in Oil into bear market territory is starting to impact US credit again.

At the other end of the risk spectrum, we saw US and German 10Y yields drop by -3bps and -2.9bps respectively on Friday, falling by -9.1bps and -8.9bps over the course of the week. Gold was up +0.9% and gained +1.7% on the week. The US dollar index declined by -1.1% on Friday as the probability of a rate hike by December was further reduced to 34.4% (from 44.9% on Thursday). The drop capped off a week of losses (-1.9%) that erased all prior gains on the month so far.

Looking more closely now at the other main data out on Friday. In Europe we saw Euro Area GDP growth momentum slow but still come in marginally above expectations (1.6% YoY vs. 1.5% expected; 1.7% previous). French Q2 GDP numbers disappointed (1.4% YoY vs. 1.6% expected) while Spain beat expectations but saw growth slow from the quarter before (3.2% YoY vs. 3.1% expected; 3.4% previous). We also saw initial July CPI estimates for the Eurozone clocking in marginally above consensus (0.2% vs. 0.1% expected; 0.1% previous). Preliminary inflation numbers for France came in as expected (0.4% YoY; 0.3% previous) while Spain (-0.6% YoY vs. -0.8% expected) and Italy (-0.1% YoY vs. -0.2% expected) beat estimates but remained in deflationary territory. We also saw retail sales in Germany fall in June (-0.1% mom vs. 0.1% expected; 0.7% previous) but surprise on the upside on an annual basis (2.7% YoY vs. 1.5% expected; 2.8% previous). We also saw the Eurozone unemployment rate for June hold steady at 10.1% as expected.

Taking a look over at the US outside of the disappointing GDP print survey data was somewhat more positive as we saw the Chicago PMI number (MNI Business Barometer) for July decline less than expected (55.8 vs. 54 expected; 56.8 previous) from its 17-month high in June. The U.Michigan Sentiment indicator for July clocked in marginally below expectations at 90.0 (vs. 90.2 expected) but improved from the previous month’s reading (89.5).

This morning in Europe the early focus is on the final revisions to those July manufacturing PMI’s, along with a first look at the data for the periphery. The UK number post Brexit will also be closely watched given the dive in the flash number. We’ll also get the manufacturing PMI in the US which is then closely followed by the ISM manufacturing for July, along with construction spending data.

Away from the data, the only central bank speak of note comes from Kaplan when he is due to speak on Tuesday and Thursday. Earnings will continue to be a huge focus and we’ve got 115 S&P 500 companies due to report (14% of the market cap) including Proctor & Gamble (Tuesday), Pfizer (Tuesday), AIG (Tuesday), Time Warner (Wednesday) and Kraft Heinz (Thursday). In Europe we’ll also get reports from 91 Euro Stoxx companies (16% of market cap) including HSBC, Siemens, Allianz, Rio Tinto and BMW.


i)Late  SUNDAY night/MONDAY morning: Shanghai closed DOWN 25.95 POINTS OR 0.87%/ /Hang Sang closed UP 237.77 OR 1.09%. The Nikkei closed UP 66.50 POINTS OR 0.40% Australia’s all ordinaires  CLOSED up 0.45% Chinese yuan (ONSHORE) closed UP at 6.6432/Oil fell to 41.00 dollars per barrel for WTI and 42.32 for Brent. Stocks in Europe ALL IN THE RED EXCEPT THE GERMAN DAX . Offshore yuan trades  6.6467 yuan to the dollar vs 6.6467 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS SLIGHTLY AS CHINA TRIES TO STOP MORE USA DOLLARS LEAVING THEIR SHORES  





Strange data points today:

The China Manufacturing PMI basically remained constant just at the 50.00 level (no growth.  However the Caixin manufacturing pMI registered a huge gain rising to 50.6

Take your pick as to who you believe

(courtesy zero hedge)


Yuan Strengthens Most Since 2010 As China Manufacturing Spikes To 17-Month Highs AND Tumbles To 7-Month Lows

In a miracle of modern goal-seeking, China’s Manufacturing PMI clung to within an inch of ‘stable’ 50 level for the 20th month (actually missing expectations of 50.0, printing 49.9) But while manufacturing is its lowest since Feb, the non-manufacturing PMI jumped to 53.9 – its highest since Dec 15. Even better, just 45 monutes after this data, Caixin released their manufacturing PMI data which smahed expectations, surging to 50.6 – its highest since Feb 2015. Following the notable USD weakness on Friday (thanks to BoJ disappointment), and the apparent recovery of the Chinese economy (just need another trillion or two of credit to keep the dream alive), PBOC strengthened the Yuan fix by 0.35% – the most since mid-June… extending the 9-day gain to the most since Sept 2010.

Manufacturing slipped to a 5-month low…


Services hits 7-month (2016) highs…


But Caixin Manufacturing (weighted more towards smaller-caps rather than official PMI’s weighting towards SOEs) surged to 19 month highs… thanks to the quickest rise in outstanding business since March 2011.


Commenting on the China General Manufacturing PMI data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

“The Caixin China General Manufacturing PMI came in at 50.6 for July, up significantly by 2.0 points from the reading for June, marking the first expansion since February 2015. The sub-indexes of output, new orders and inventory all surged past the neutral 50-point level that separates growth from decline. This indicates that the Chinese economy has begun to show signs of stabilizing due to the gradual implementation of proactive fiscal policy. But the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued.”

Evercore ISI notes the following a China’s most crucial recent developments…

  • “Severe challenges” in the China economy says Beijing, worse than “persistent downward pressure” – their characterization of the last several months.
  • Two components to this change.  One, managing expectations down. Two, showing the upcoming G20 (Sep 4-5) attendees that the officials are on the case.
  • Conflicting Beijing comments.  Saying ‘foundation of stable economic development not solid’ – bad.   Then saying the ‘long-term positive trend in fundamentals has not changed’ – good.
  • China budget deficit now 4.2% of GDP, vs. 2.2% in worst of 2008-09 global crisis amid a big stimulus program.  More stimulus coming.
  • CBRC (banking authority) tightening regulations to contain growing risks from sketchy practices in the ‘Wealth Mgmt Products’ arena.  NPL fears also.
  • Media control even tighter by Beijing.  All original ‘current affairs news’ is now banned by internet portals.  Managing what people see – not the path of modern market economies.
  • Yuan strengthened this last week, mostly on Friday.  Think of this as more USD weakness than Yuan strength.

And that Yuan strength continues as PBOC fixes the currency stronger by the most since mid June…



This is the 8th Yuan strengthening in 9 days… the biggest strengthening since Sept 2010…


Is this the post G-20 agreement? Fed promises not rose rates, China allows Yuan to rise.. world remains stable into the election to try to ensure HRC wins?


Charts: Bloomberg





The stress test did not reveal all failed banks.  The large Portuguese bank BCP also failed and even though they did undergo the stress test, they failed:

(courtesy zero hedge)


NEWS FLASH: The European Stress Test Results Didn’t Disclose All Failed Banks!

Source: CNBC

The much-anticipated stress test results from the Europan Banking Authority (EBA) were published yesterday (and of course, a Friday night right before a weekend is the best way to publish some bad results). In the stress test, the EBA is trying to find how the banks will perform under an adverse economic scenario in the world. Not all banks are being covered, and the 51 banks that have been subject to the test could only be seen as some sort of sample. At best.

Stress Test 1

Source: EBA

4 banks ‘failed’, and one Italian bank even succeeded in ending up with a negative (!) capital ratio under the adverse scenario in the stress test, il faut le faire! Banca Monte dei Paschi has a baseline CET1 ratio of 12.24% in 2018, but its entire capital would be wiped out under the ‘adverse’ circumstances (which aren’t that harsh at all). The bank’s board of directors is in emergency meetings the entire weekend to quickly inject 5B EUR of fresh capital into the bank before the markets re-open on Monday.

And yes, the criteria for the stress test were actually pretty mild. The EBA investigated how a bank’s capital ratio would change using a real GDP growth rate of -1.2% in 2016, -1.3% in 2017 and a real GDP growth of 0.7% in 2018. So this doesn’t even remotely represent how bad just the prelude of the 2008 global financial crisis was. Is a GDP shrinkage of 1.2% and 1.3% really the most adverse scenario you can base a stress test on? Give us a break!

Stress Test 2

Source: EBA

On top of that, the threshold and the minimum requirement for the banks to have been subject of the investigation was a consolidated asset base of 30B EUR. It’s totally fine to have a certain basis to cut off the smaller banks, but would a total asset base of 30B EUR be sufficient to restore the confidence in (and on) the financial markets? We don’t think so.

One of the banks that is in a bad shape but has been excluded from the stress test is BCP. In a previouscolumn in January of this year, we already warned for the potential collapse of this bank. The market seems to be agreeing with us now, as the company’s share price is trading 60% lower.

As of at the end of Q1, this bank had approximately 76B EUR in assets (which is below the minimum threshold for the EBA stress test), but isn’t doing great at all. On top of that, not a single Portuguese bank was included in the stress test results, but that doesn’t mean these banks are doing great at all. In fact, almost all Portuguese banks are still repairing their balance sheet, but as we have seen in the past, all it takes is just one little push against one domino, and trickle-down effect could destroy the entire banking system of the country.

But when we tried to look up BCP’s results of the stress test, we were astonished to find out the bank hadn’t been included in the press release and the list of 51 banks. This doesn’t mean the bank hasn’t been analyzed, because IT HAS! According to its own press release, BCP admits the EBA told the bank it would have flunked the stress test, with an ending capital ratio of 6.1%.

And this leads us to the next big question. How reliable and important is this stress test? Sure, ‘only’ 4 banks failed (although that actually is quite a lot, considering that’s 8% of the test sample), but first of all, 51 banks represent just a part of the entire banking system, and the collapse of three smaller players could have an even bigger effect than the contained failure of one of the bigger banks. BCP failed the test, so how many other, smaller banks are there out there that would have failed?

Secondly, the EBA chose a fully loaded CET1 capital ratio of 7% in 2018 to determine who ‘passed’ the test, and only 4 banks failed.

However, if that cutoff ratio would have been 8%, an additional 6 banks would have been on the list of failed banks, and amongst them are some that could be considered too big too fail. Deutsche Bank (surprise, surprise), Commerzbank, Unicredit and Barclays would all fail the test when one would have used a fully loaded CET1 capital ratio of 8%.

Keep in mind the EBA said this wasn’t a pass/fail test, and there’s a very good reason for this. It’s just another smokescreen to keep the superficial investors happy. But when you start to dig deeper, several more banks have failed to meet the minimum criteria.

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The Full Details Behind Monte Paschi’s €5 Billion Bail Out

After the close on Friday, the European Banking Authority did what it does every other year: it released the results of what it calls a “stress test” which is simply an annual exercise in boosting confidence. Case in point, the 2016 edition did not even “test” for Europe’s two biggest threats, namely negative interest rates or “Brexit.” It also did not test any banks from Greece or Portugal, knowing well what the results would have been. However, in order to retain some credibility, the same test which in previous years passed such failed institution as Dexia, Bankia and Novo Banco, had to fail one bank, and this year the honors fell to Italy’s Monte Paschi.

However, as we reported earlier on Friday, the EBA only failed Monte Paschi after the bank announced it had obtained a private bailout from a consortium of banks. The Monte Paschi bailout, a €5 billion capital increase, was unique in several ways, not least representing 5.6x BMPS’s market cap.

In a nutshell, the plan can be summarized in the following three steps:

  1. Increase the coverage ratio for Bad debt
  2. Transfer all the existing stock of Bad debt (sofferenze) into a securitization vehicle. The senior tranche will be covered by government guarantees, Mezzanine will be bought by Atlante fund and the equity tranche will be transferred to existing shareholders and deconsolidated.
  3. A €5bn capital increase to remove the negative capital impact from the operation and maintain capital level at the current level of 11.8%.

So far so good, but as Barclays’ Marta Bastoni puts it: “one problem is fixed but not easily repeatable.”

As Bastoni further writes in a July 31 note, “while the announced capital plan has the advantage of removing risks connected to the transferred NPLs from the balance sheet, and is a private solution, the €5bn capital increase represents 5.6x MPS’s market cap. We see this plan as a small positive for the sector as it reduces the total amount of provisions needed to write-down NPLs to a “market level”. However, we believe that it will be difficult to replicate the MPS plan on a large scale, and with ongoing lack of clarity on an ECB target outcome, we believe that uncertainty over the capital position of the  sector as a whole remains.”

A key role in the securitization-driven bailout will be played by Italy’s paltry, €5 billion bank bailout fund, Atlante, first introduced in April, which will be the buyer of the risky €1.6 billion “mezz” tranche. However, with that particular investment, Atlante will be effectively drained, left with just about €1 billion in “dry powder,” not nearly enough to prevent or even materially delay the ongoing Italian bank crisis.

Barclays agrees, saying that the Atlante Fund is unlikely to provide systemic solution.

Atlante is set to buy the full €1.6bn mezzanine tranche of the securitization vehicle. In addition the fund will be granted warrants on issued shares, which gives it additional upside on the operation should MPS shares recover in the next five years. We estimate that the fund has €0.9- €1.35bn of additional resources for the rest of the Italian  banking system, which would imply between €13-€19bn of NPLs that can be bought.

The problem is that even with the dramatic leverage extension granted by the chosen securitization pathway, Italy’s banks will still need vast amount of fresh capital to offset the deterioration of the biggest risk within Italy’s banking system: the hundreds of billions in non-performing loans.

* * *

And while we have covering Italy’s NPL crisis since 2011 and have little to add at this moment, let’s take a closer look at just how the Renzi government bailed out Monte Paschi… for the third time in the past two years, only this time without direct injection of public sector funds, something which Europe has officially forbidden as of this year, forcing banks to be restructured using bail-ins instead.

In answering the question whether this is a real solution, Barclays believes that “the structure of the deal works well for Monte Paschi because we understand it is designed to remove completely any risk connected to the NPLs from MPS’s balance sheet, and is a private solution.” That’s the good news.

The bad news: “while the solution is reducing some of the uncertainty around the total amount of provisions needed to write-down NPLs at a “market level”, we believe that it will be difficult to replicate the MPS plan on a large scale and with ongoing lack of clarity on ECB target outcomes, we believe that uncertainty over the capital position of the sector as a whole remains.”

Setting aside the question of whether Italian bank risk is contained, we focus on the proposed 3-step plan to de-risk Month Paschi.

Here is the big picture: once the plan is implemented, the company states Monte Paschi would have an NPL ratio of 18% vs. current 34%, no Bad debt on the balance sheet and 40% coverage ratio on the remaining NPLs. Shareholder share value however will be diluted by at least 81%.

The plan will first increase the coverage ratio for Bad debt, second, transfer all the existing stock of Bad debt (sofferenze) into a securitization vehicle. Third, a €5bn capital increase, which will essentially make this operation “capital neutral”. The details as broken down by Barclays:

First step: Coverage increase, also for the NPLs that will remain on the balance sheet.

The first step is to increase the NPL Coverage ratio: For the €27bn Bad debts (sofferenze) category, the company states the coverage should increase from 61% in 2Q16 to 67%. This level of coverage means that the transfer price used for the securitisation will be 33c. In addition, the group will also raise the coverage for NPLs that remain on the balance sheet, that is €18.1bn of ‘Unlikely to pay’ and ‘past due’ loans. The coverage ratio will be increased from 29% to 40% according to the company.

Second step: Securitization structure.

The €27bn of gross Bad debt will be transferred to the MPS special vehicle. The vehicle will have to issue funding on a net basis, so on the €9.2bn of Net NPLs. As a result of the securitization there will be no part of the structure that remains on MPS’s balance sheet. The securitization vehicle will be composed of three tranches:

  • Senior tranche : €6bn of investment grade notes that in the plan will be covered by government guarantees (GACS). The group has already arranged a €6bn bridge loan facility to ensure the deconsolidation of the NPLs, and at the same time gives them the flexibility of time to arrange longer term-issuance.
  • €1.6bn Mezzanine tranche: to be bought by the Atlante fund
  • €1.6bn Junior tranche: will be entirely assigned to current shareholders, who will see the share premium being erased, and replaced by the note.

Third step: the €5bn capital increase

The size of the capital increase is 5.6x the current market cap. The capital injection will be used to cover the capital needs arising from each step of the plan:

  • €2.2bn to increase the coverage ratio on the NPL that will remain on the Bank balance sheet up to 40%
  • €1bn to increase the coverage ratio for bad debt (sofferenze) to 67%.
  • €1.6bn to deconsolidate the equity tranche of the vehicle.

Existing shareholders

The existing shareholders will see the equity premium on their share replaced by the equity instrument of the SPV. According to MPS the equity tranche should eventually be listed, to facilitate liquidation.


September 2016: Extraordinary Shareholders Meeting and Business plan presented

October / November 2016: Extraordinary Shareholders meeting for the approval of the transaction. We do not expect much resistance from shareholders, as the alternative for the group should the plan not been passed would be bankruptcy and bail-in.

By year end 2016: Capital increase and de-recognition of the NPLs.

* * *

Finally, when looking at the future and whether the existing Atlante bailout structure is repeatable, Barclays conclusion is: yes, but only for small banks.

Atlante is set to buy the full €1.6bn mezzanine tranche of the securitization vehicle. In addition the fund will be granted warrants, on underlying newly issued shares, for an amount of up to 7% of the capital post money, and an exercise price in line with the rights issue. The warrants will have a 5 year maturity. Atlante therefore retains additional upside potential, should the price of the shares recover in the next five years.


Between the equity available for NPL acquisition and the amounts that have been subsequently pledged to the fund, we estimate that today the Fund has at least €2.5- €2.95bn of equity available to buy the junior Mezzanine tranches of the NPL SPVs, which means €0.9-€1.35bn of additional resources for the rest of the system, which using the sector level coverage and the SPV structure for MPS would imply  between €13-€19bn of NPL that can be bought. We believe that the Atlante solution could be repeatable for smaller banks, as market capacity may not be able to absorb larger scale increases at the moment.


So to summarize all of the above: Monte Paschi got a private bail-out from fellow distressed banks (to whom the cost of contagion would have been far greater than funding BMPS’ bailout) that spared the bank, but wiped out the equity in the form of massive, 80%+ dilution. The problem is that this was a one-off solution – certainly not for other large banks – one which can not be repeated unless further billions are invested in Italy’s Atlante bailout fund to capitalize future securitization-mediated rescues.

As to whether other bailouts will be needed, the question then boils down to how credible the EBA’s stress test is, and how much faith in the ECB’s calculations investors place. Considering that Deutsche Bank has passed every single stress test with flying colors only to plunge in recent weeks to new all time lows, due to both balance sheet fears as well as Europe’s NIRP, it is not very likely that investors give too much credibility to what the “stress test” has concluded.

Which then begs the question: how long until the next cycle in Europe’s banking crisis – which will likely again be centered on Italy – because while the stress test has come and gone, the biggest secular problem of all, Europe’s negative rates and hundreds of billions in bad loans, which are crushing bank revenue and profitability, are here to stay.




The Italian banks crashed today as everybody knew that they cannot be rescued

(courtesy zero hedge)


Italian Banks Crash Despite ‘All Clear’ From EU Stress Tests

For a few minutes at the open, mainstream business media persuaded itself that the EU stress tests had proved that everything was fine in Europe’s banking system again. But very quickly, things went south with Italian banks – the center of the storm – reversing gains and then extending losses with Unicredit now down 8% (after being up 4%).

As Citi’s Christian Schulz notes, “The 2016 stress test is unlikely to fully restore investors’ trust in the eurozone banking system, in our view.”

And it seems he is right…

Monte Paschi is holding gains amid its massively dilutive capital raise, but this is noise across the stock’s bid-offer.

Finally, we offer Macro-Man’s sarcastic take on the EU stress tests as evidence of why EU banking stocks are sliding…

1)  In the latest European bank stress test, Monte dei Paschi ended up with Tier 1 capital of -2.4% in the most stressed scenario


2) Although there was no official pass or fail awards, a negative capital ratio is pretty clearly an epic fail


3) Having sold  €8 billion worth of stock since 2014, BMPS proposes to sell another €5 billion before year end…


4) …providing they can also unload €9.2 billion worth of NPLs turds off of their balance sheet first


5)  Since the imposition of negative rates in Europe (illustrated by the arrow), here is what the SX7E index has done

6)  So naturally, the stress tests did not measure the impact of more negative rates, only a move higher in rates


7) This is the equivalent of measuring the impact of a dog whistle on a deaf person


8) More European banks failed the Fed’s stress test (DB and Santander) than the EBA version (albeit, as noted, there were not official pass/fail grades this time around.)


9) If you can believe it, DB scored half a percent better on the stress test than Barclays


10)  If you were wondering,  by far the highest score on the EBA stress test was achieved by NRW.Bank in Germany.   In a possibly related coincidence, their website looks like it’s a school project for a middling web design student, though its career portal does offer applicants the opportunity to “venture into the fascinating world of finance!

*  *  *

You can’t make this stuff up!!



Get a load of this:  Deutsche bank and Credit Suisse is kicked out of the Stoxx Europe 50
(courtesy zero hedge)

Deutsche Bank, Credit Suisse Kicked Out Of Stoxx Europe 50 Index

What do you do when you are one of the biggest indices in Europe and are unable to rise simply because two of your biggest constituents, if not so much in market cap any more but certainly in terms of systemic importance,  just can’t catch a bid? Why you delete them, of course even if the two names in question happen to be Europe’s two largest banks, Deutsche Bank and Credit Suisse.

Moments ago, STOXX Ltd, the operator of Deutsche Boerse Group’s index business, announced component changes in the STOXX Europe 50 Index due to the fast-exit rule. All changes become effective with the open of markets on Aug. 8, 2016.

What is the Fast Exit rule? “The rule states that a component is deleted from the Dow Jones EURO STOXX 50 or Dow Jones STOXX 50 indexes if it ranks 75 or below on the respective index’s monthly selection lists for a consecutive period of two months. Deleted components for all three indexes will be replaced by the highest ranking non-components on the monthly selection list. Component changes will be announced on the first trading day of the month following the publication of the monthly selection lists, implemented on the close of the fifth trading day and effective the next trading day.”

In other words, someone did not like how DB and CS were trading and decided to kick them out.

And here are the replacements.

What does this really mean from a price index standpoint? Simple: the following.

And that is how you “boost” the performance of the constituent index. It was not immediately clear if there would be any forced selling as a result of these names getting kicked out of one of Europe’s 2 most important indices alongside the broader Stoxx 600 index.



What on earth is Erdogan up to?

(courtesy zero hedge)


While it is common knowledge by now that the failed and/or staged Turkish coup two weekends ago was nothing more than an excuse for Erdogan to concentrate even more power and eradicate all political and independent opposition, a story that has gotten less attention is the sudden, and acute deterioration in US-Turkish relations. This culminated two days ago when the Commander of US Central Command (CENTCOM) General Joseph Votel was forced to deny on the record having anything to do with the attempted coup in Turkey following pointed allegations from the very top in the local government that the US orchestrated last Friday’s “coup”, according to a statement released by the US military on Friday.

As Stars and Stripes reported late last week, the recent failed coup and jailing of military leaders in Turkey could impact U.S. operations there against the Islamic State group, Gen. Joseph Votel said Thursday at a security conference in Colorado. Votel said the coup attempt in Turkey two weeks ago left him “concerned” about how U.S. operations and personnel at Incirlik Air Base will be affected.

Army Gen. Joseph Votel, commander of U.S. Central Command

“Turkey of course …sits on an extraordinarily important seam between the central region and Europe,” Votel said at the Aspen Security Forum. “It will have an impact on the operations we do along that very important seam. Obviously, we are very dependent on Turkey for basing of our resources…I am concerned it will impact the level of cooperation and collaboration that we have with Turkey.”

Yeni Safak, a daily paper known for its loyal support of Erdogan, even reported retired Army Gen. John F. Campbell, former commander of NATO forces in Afghanistan, was the mastermind behind the attempted overthrow. However, the paper also reported White House Press Secretary Josh Earnest called the allegations against the general unsubstantiated.

Votel said Thursday that the United States was “continuing to work through some of the friction that continues to exist” following the failed coup. He did not elaborate.

The general did say some of the arrested Turkish officers worked with U.S. personnel to coordinate airstrikes against the Islamic State group. “Yes, I think some of them are in jail,” Votel said of certain key Turkish military liaisons.

As a result of the coup attempt, U.S. air operations were temporarily suspended and the Turkish government cut power to Incirlik.

The diplomatic spat continued on Friday when comments made at an Erdogan’s rally once again blasted Votel for criticizing Turkey’s  post-coup attempt purge saying “Who are you? Know your place.” Erdogan went on to hint once more that the United States planned the failed government overthrow bid.

To this Votel again responded that “any reporting that I had anything to do with the recent unsuccessful coup attempt in Turkey is unfortunate and completely inaccurate,” Votel said. He was responding to an interpretation of comments made at a think tank in Washington, DC by Turkey’s President Recep Tayyip Erdogan accusing Votel of sympathizing with the coup plotters.

* * *

Meanwhile, Turkey’s war of words against the US escalated on Friday, when Turkey’s authoritarian despot Erdogan condemned the West for refusing to show solidarity with Ankara, accusing NATO ‘allies’ as being more concerned about the fate of coup supporters than the survival of Turkey are not friends of Ankara. Erdogan blasted the West for criticizing the massive purge of Turkey’s military and other state institutions which has seen 60,000 people detained, removed or suspended over suspected links with the coup and for cancelling 50,000 civilian passports which many worry is but a prelude to an expansion of the reign of terror inside the country.

“The attitude of many countries and their officials over the coup attempt in Turkey is shameful in the name of democracy,” Erdogan told hundreds of supporters at the presidential palace in Ankara.

“Any country and any leader who does not worry about the life of Turkish people and our democracy as much as they worry about the fate of coupists are not our friends,” said Erdogan, who narrowly escaped capture and perhaps death on the night of the coup.

As Sputnik notes, the statements come in response to US National Intelligence Director James Clapper’s statement on Thursday that the purges were harming the fight against Daesh in Syria and Iraq by stripping away key Turkish officers who had worked closely with the United States. 

“My people know who is behind this scheme… they know who the superior intelligence behind it is, and with these statements you are revealing yourselves, you are giving yourselves away.”  The remarks come at a troubling time only one day after over 5,000 protesters yelling “death to the US” marched towards NATO’s critical Incirlik Air Base which houses between 50 and 90 US tactical nuclear weapons before security officials successfully dispersed the raging demonstrators.

* * *

Which brings us to today, and the news that NATO’s critical Incirlik Air Base was hours ago completely blocked off by Turkey, with all inputs and outputs to the Adana base having been closed according to Turkey’s Hurriyet among rumors of yet another coup.

As the Turkish Minister for European Affairs, Omar Celik, tweeted moments ago, this is just a routine “safety inspection”, although it has not stopped local papers from speculating that a a second Gulen-inspired coup attempt may be underway.

ADANA’dayım. İncirlik veya Adana’daki başka yerle ilgili bir sıkıntı yok. Genel güvenlik değerlendirmesi de yaptık. Herhangi bir sorun yok

Hurriyet has raised concern that the closing may be tied to an attempt by the Erdogan regime to prevent a second coup attempt.

Video: Situation outside airbase in where police have closed entrances & exits

Some 7,000 armed police with heavy vehicles have surrounded and blocked the Incirlik air base in Adana used by NATO forces, already restricted in the aftermath of a failed coup. Unconfirmed reports say troops were sent to deal with a new coup attempt.

Hurriyet reported earlier that Adana police had been tipped off about a new coup attempt, and forces were immediately alerted. The entrance to the base was closed off.  Security forces armed with rifles and armored TOMA vehicles used by Turkish riot police could be seen at the site in photos taken by witnesses.

@Brasco_Aad Pro Erdogan/AKParti supporters (civilians) are trying to get near the air base, but are being held back by Military Police

@Brasco_Aad These heavy dump trucks are being made ready to enter Air Base (are they trying to close it?)

View image on TwitterView image on Twitter

Indeed, the massive presence of armed police supported by heavy vehicles calls into question the Turkish government’s official line that the lock down at the Incirlik base is merely a “safety inspection.”?

View image on TwitterView image on Twitter

derken üssünde olağanüstü hareketlilik.giriş çıkışları tutmuş tetikte bekliyor.

Local media has focused on the base after the failed coup in Turkey occurred the night of July 15. Although the main scenes of the events were Istanbul and Ankara, Incirlik was shut down  for a time by local authorities shortly after the putsch, and several Turkish soldiers from the base were deemed by Turkish officials to be involved in the overthrow attempt.

The lockdown at Incirlik follows a massive wave of protests on Thursday when pro-Erdogan nationalists took to the streets yelling “death to the US” and called for the immediate closure of the Incirlik base. Security personnel dispersed the protesters before they were able to make it to the base.

And while there has been no official statement from US armed forces stationed at Incirlik at this time, the situation continues to develop in front of the air bBase as more heavy trucks have been dispatched to surround and block access to the critical military facility.

UPDATE: Minister for EU affairs says that all is ok at Incirlik base, claims it is just a ‘safety inspection’ 

It is unclear if Erdogan is naive enough to think that he can out-bluff and out-bully the US and keep Incirlik hostage until he gets Gulen repatriated by Obama on a silver platter, a hostage “tit for tat” we first described two weeks ago. If so, one wonders, if he is doing so alone, or with the moral support of others, perhaps such recently prominent enemies of Erdogan as Vladimir Putin. Recall that just over a month ago Erdogan publicly apologized to Putin for downing the Russian Su-24 fighter jet in November, and called Putin “a friend.”

Finally, at least as of this moment, it appears that theairspace around Incirlik is closed.



Erdogan issues an ultimatum to Germany for visas for Turkish citizens or else refugues flood Europe:

(courtesy zero hedge)


Germany Furious After Turkey Issues Ultimatum, Threatens With Refugee Exodus

Ever since a shocked Europe rushed to sign a “refugee” deal with Turkey‘s Erdogan in March of this year, according to which it would pay the Turkish ruler €6 billion and offered Turks visa-free travel across the customs union just to contain the 2 million Syrian refugees inside its borders and prevent another mass migration exodus toward Germany, Erdogan knew he has the upper hand in all future negotiations with Europe.

This was confirmed yesterday when Turkey announced it would not fulfill its part of the refugee deal with the EU if the bloc does not lift its visa requirements for Turkish citizens by October, Turkey’s foreign minister, Mevlut Cavusoglu, told a German daily.

Turkey’s fulfillment of its commitments under the refugee deal with the EU “depends on the lifting of visa requirements for our citizens that is also a subject of the agreement,” Cavusoglu said during an exclusive interview with Frankfurter Allgemeine Zeitung. The minister also stressed that the Turkish government is waiting for a “specific deadline” to be set for the lifting of visa requirements. “It can be early or mid-October but we wait for an exact date,” he said.

Diplomatically, Cavusoglu emphasized that his words are “not a threat,” but added that “if there is no visa abolition, we will be forced to abandon the agreement struck on March 18 concerning taking back [refugees].”

So yes, it was a threat, if only one which reacts to Europe’s realization that it had made a bargain with the devil, and was trying to pull out however while hoping Turkey would keep its end of the bargain. Turkey, however, has refused, and now the 2 month countdown to October and another refugee flood may have begun.

Cavusoglu also said that the deal is working only because Turkey is taking “very serious measures” to stop the refugee inflow, particularly in fighting people smugglers. Under the agreement signed in March, Brussels pledged to pay Turkey €6 billion, grant visa-free travel to Turkish nationals, and speed up EU accession talks with Ankara. In exchange, Turkey agreed to take back all illegal migrants and refugees that reach Greece via Turkey, while allowing a certain number of asylum seekers to travel to the EU legally.

The deal came into force on March 20. The visa-free pass was initially to be introduced by July, however, Europe came up with a loophole according to which Turkey had failed to comply with all of the EU’s 72 criteria for lifting the visa requirement, including relaxing its stringent anti-terror legislation, which has become a sticking point in negotiations. The situation was further complicated, as RT adds, by the failed coup attempt in Turkey on July 15, as many EU officials and politicians have voiced concern over the Turkish government’s crackdown on fundamental rights. Some have stressed that the foiled rebellion must not be used as a “carte blanche for arbitrariness.”

New concerns emerged after the possible reintroduction of the death penalty in Turkey, which caused particular concern in Europe. EU Foreign Policy Chief Federica Mogherini has warned that no country with capital punishment can become an EU member, and German government spokesman Steffen Seibert said that bringing back the death penalty would lead to an “immediate suspension of accession talks.”

In the meantime, the refugee leaks may have already started. On Sunday Greece complained about an increasing influx of refugees from Turkey, stressing that the number of new arrivals had grown significantly following the foiled coup. Some people in Greece have even compared the present situation to that which had existed before the deal with Turkey was struck.

* * *

Fast forward to today when Germany’s vice chancellor Sigmar Gabriel responded to Turkey’s latest ultimatum, saying It depends on Ankara whether Turks enjoy visa-free travel to Europe, adding that it was the right decision to ban a live broadcast by the Turkish president to a rally in Cologne on the weekend. “It is up to Turkey if there is or there isn’t visa liberalization,” Reuters quoted German Vice Chancellor Sigmar Gabriel as saying while on an official visit to northern Germany.

“Germany and Europe should under no circumstances be blackmailed,” Gabriel added.

The vice chancellor also welcomed the move by Germany’s highest court to block a livestream address by Turkish President Recep Tayyip Erdogan to a rally of Turkish nationals in Germany’s Cologne on Sunday.

Needless to say Germany is playing a dangerous game here as Erdogan knows he has little to lose if he breaches the terms of the March deal, which he can claim was already violated by Europe and thus boost his populist image even more. After all, once Germany is flooded with another million in potential radical jihadists, it will come crawling to Ankara, begging to redo the deal, only this time the terms will be that much higher. Then again, perhaps Germany and the “European democracies” should have though of all this before they agreed to deal with Erdogan who is now well on his way to becoming the undisputed authoritarian leader of the Turkish nation, which continues to undergo historic purges of all of Erdogan’s political opponents.






In an effort to avoid a full-blown banking crisis, Bloomberg is reporting that the Saudi Arabian Monetary Agency, the Saudi central bank, has offered domestic lenders $4BN in discounted, 1-year loans to ease liquidity constraints.  Banks in the kingdom are facing a cash squeeze as the government withdraws deposits and sells local-currency debt to fund the budget deficit.  Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, expects to see further easing in the coming days, saying:

“We expect to see further measures, such as possibly reducing the reserve requirement ratio or increasing the loan-to-deposit ceiling in the coming days.”

This announcement should come as no surprise to our readers (see “Saudi Arabia Admits To A Full-Blown Liquidity Crisis: Will Pay Government Contractors With IOUs, Debt”).  The Saudi circular ref whereby “low oil prices -> budget deficits -> more oil pumping -> even lower oil prices” can only end badly.

An update of Saudi “stress” indicators implies the kingdom’s situation has continued to deteriorate.  Short-term lending rates continue to gap higher indicating liquidity constraints…

Saudi 3M Libor

…driving higher risks of default…

Saudi CDS

…and leaving the market to question if a devaluation is imminent.


Charts: Bloomberg




Are we going to witness a similar French revolution:  “Let them eat cake”

(courtesy zero hedge)

Let Them Eat Cake: Venezuela Celebrates Chavez’ Birthday With $100,000 Cake, While Citizens Starve

Nothing describes socialism more aptly than baking a 4 feet tall cake weighing 90 kilos for Hugo Chavez’s birthday (a dead man) while the rest of the country starves, cannot find basic necessities

The cake is a recreation of the “Cuartel de la Montana”, the palace that Chavez famously stormed in 1992 as an army commander to protest Carlos Andres Perez’s government.

According to a local newspaper, the following ingredients were used :

  1. 720 eggs
  2. 23 kilos of butter
  3. 90 kilos of flour
  4. 90 kilos of sugar
  5. 44 gallons of milk

with the state sponsored food program. Evidently, the government’s priorities are elsewhere.

We knew this was going to happen.
First Olympic village on fire
Second:Athletes robbed
Third:  dangerous viruses in the water

Welcome To Rio: Olympic Village Catches Fire, Athletes Robbed, & Water “Teeming With Dangerous Viruses”

As the Olympic Games are set to get underway in Rio de Janeiro, the host country is experiencing a couple of “minor glitches.”  Already reports have come in of gas leaks in athlete rooms (rooms which the Australians have labeled “uninhabitable”), athletes being robbed, a collapse of the main boat ramp intended for use in sailing competitions and a minor problem with water quality which an AP study found to be “contaminated with raw human sewage teeming with dangerous viruses and bacteria.

On the water issue, The Associated Press commissioned a 16-month study on the waterways of Rio which revealed consistent and dangerously high levels of viruses from pollution and untreated human sewage.  In fact, the AP’s tests revealed that Copacabana Beach, where the marathon and triathlon swimming are to be held and thousands of tourists are likely to take a dip, exceeded California’s limit for fecal coliforms (aka poop) by 5x over 13 months of testing.  In addition, tests found that infectious adenovirus readings turned up at nearly 90 percent of the test sites over 16 months of testing.  Dr. Valerie Harwood, Chair of the Department of Integrative Biology at the University of South Florida, reflected on the test results:

“That’s a very, very, very high percentage.  Seeing that level of human pathogenic virus is pretty much unheard of in surface waters in the U.S.  You would never, ever see these levels because we treat our waste water. You just would not see this.”

When asked what athletes could do to protect themselves from illness at the games, Dr. Harwood responded very simply:

Don’t put your head under water.


As if reports of raw sewage in the water wasn’t enough for Olympic sailors, the main ramp of the Rio de Janeiro Olympics sailing venue partially collapsed Saturday, a little over a week before it is to be used for competition.  The Rio 2016 Committee said the ramp will need to “undergo repairs” while members of sailing delegations said the structure was destroyed and would have to be completely redone.

Rio Boat Ramp

Meanwhile, back at the Olympic village, Australian athletes described rooms as “uninhabitable” after reports surfaced of a gas leaks and exposed wiring.  If that weren’t bad enough, a fire started by an employee in one of the buildings was apparently used as cover to rob some Australian athletes of their team shirts and a laptop.

Well, at least everyone will be safe, right?  Apparently, not so much.  According to sources, Brazil is being forced to bring in 3,000 national guard members to assist with security at the games after a security company’s last-minute admission that it failed to hire enough workers to man gates and operate X-ray machines.  Artel Recursos Humanos, a small company which won the $5mm security contract for the games in spite of no previous experience with security contracts (hmmmm), apparently only managed to hire 500 employees instead of the 3,400 guaranteed under the contract.

National Guard

Well, seems like things are off to a great start.  Let The Games begin


Saudi slash oil prices.  Down goes oil

(courtesy zero hedge)

Saudis Slash Oil Prices For Asian Markets; So Much For Solving That Banking Liquidity Crisis

Shortly after we spoke yesterday about the banking liquidity crisis in Saudi Arabia caused by the “Saudi circ ref” (low oil prices -> budget deficits -> more oil pumping -> even lower oil prices), almost on cue, the state-owned Saudi Aramco, the worlds largest oil exporter, announced the largest price cut for Arab light sweet crude sold into Asian markets in 10 months.  Aramco priced September exports to Asia $1.10 per barrel below regional benchmarks which is a $1.30 cut vs. August pricing.  Oil pricing into Asian markets has come under intense pressure in 2016 as the battle for market share has intensified between the Saudis, Russians and Iranians (a topic we’ve covered extensively here, here andhere).

Saudi Oil Price

Saudi prices cuts, which we fully anticipate to be matched by the Iranians, come as Iran continues to flood the market with supply in a race to return production to pre-sanction levels of 4 mm barrels per day.  Since international sanctions against Iran were eased in January, 1H16 shipments to Asia have surged with Japan’s purchases up 28%, India up 63%, South Korea up over 100% and China up 2.5%.  Mohsen Ghamsari, director of international affairs at state-run National Iranian Oil Co., said:

“Iran is exporting about 2 million barrels of its daily output of 3.8 million.  It has regained about 80 percent of the market share it held before the U.S. and European Union tightened sanctions on its oil industry in 2012.”

Iran has already boosted crude production 25% this year and aims to reach an eight-year high for daily output of 4 million barrels by the end of the year.




Looks like our long oil boys are getting annihilated. Oil falls below 40.00 dollars

(courtesy zero hedge)

“Ominous” Oil-Equity Divergence Looms As WTI Tumbles Under $40 To 4-Month Lows

This is a crucial level as BofA warns, should oil slice through $40/bbl, attention will quickly switch to weak oil, weak Chinese renminbi and weak credit in a repeat of last summer.

Well that escalated quickly… $39.86 hit…


Deja vu all over again…


Stocks suddenly wake up to the collapse in crude prices…

Who needs oil when you have ‘apps’ and ‘eyeballs’? Bloomberg highlights a chart ZH readers have seen countless time before, an “ominous pattern that preceded the two worst equity selloffs in 2015 is showing up again.”

Why is the formation called “ominous”? Because the last two times it emerged, stocks proceeded to tumble


But we do note that Oil ETF Shorts are building dangerously once again…


Squeeze time?

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




USA/CAN 1.3081 UP .0071

Early THIS MONDAY morning in Europe, the Euro FELL by 12 basis points, trading now JUST above the important 1.08 level FALLING to 1.1058; Europe is still reacting to Gr Britain BREXIT,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 DOWN 25.95 POINTS OR .87%   / Hang Sang CLOSED UP 237.77 POINTS OR 1.09%    /AUSTRALIA is HIGHER BY .45% / EUROPEAN BOURSES  ALL IN THE RED EXCEPT GERMANY

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 MONDAY morning CLOSED UP 66.50 POINTS OR 0.40%  

Trading from Europe and Asia:

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 237.77 POINTS OR 1.09%  ,Shanghai CLOSED DOWN 25.95 OR .87%    / Australia bourse in the green: /Nikkei (Japan) closed UP 66.50 POINTS OR .40%/INDIA’S Sensex IN THE RED  

Gold very early morning trading: $1347.20


Early MONDAY morning USA 10 year bond yield: 1.482% !!! UP 2  in basis points from FRIDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield RISES to 2.211 UP 3 in basis points from FRIDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early MONDAY morning: 95.75 UP 16 CENTS from FRIDAY’s close.

This ends early morning numbers MONDAY MORNING


And now your closing MONDAY NUMBERS

Portuguese 10 year bond yield:  2.90% DOWN 4 in basis points from FRIDAY  (does not buy the rally)

JAPANESE BOND YIELD: -0.135% DOWN 6  in   basis points from FRIDAY

SPANISH 10 YR BOND YIELD: 1.02% par IN basis points from FRIDAY (this is totally nuts!!/

ITALIAN 10 YR BOND YIELD: 1.18 UP 1 in basis points from FRIDAY (again totally nuts/)

the Italian 10 yr bond yield is trading 16 points HIGHER than Spain.




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

Euro/USA 1.1161 DOWN .0008 (Euro DOWN 8 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 102.39 UP .449(Yen DOWN 45 basis points/


USA/Canada 1.3123-UP 0.0132 (Canadian dollar DOWN 113 basis points AS OIL ROSE (WTI AT $41.38). Canada keeps rate at 0.5% and does not cut!


This afternoon, the Euro was DOWN by 8 basis points to trade at 1.1161

The Yen FELL to 102.39 for a LOSS of 45 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED 


The Canadian dollar FELL by 113 basis points to 1.3123, WITH WTI OIL AT:  $40.14


The USA/Yuan closed at 6.6423

the 10 yr Japanese bond yield closed at -.135% DOWN 6  IN BASIS  points in yield/

Your closing 10 yr USA bond yield: UP 8 IN basis points from FRIDAY at 1.523% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.231 UP 9  in basis points on the day /


Your closing USA dollar index, 95.80 UP 21 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 MONDAY

London:  CLOSED DOWN 30.48 OR 0.30%
German Dax :CLOSED DOWN  6.98 OR  0.07%
Paris Cac  CLOSED  DOWN 30.64  OR 0.69%
Spain IBEX CLOSED DOWN 73.80 OR 0.86%
Italian MIB: CLOSED DOWN 292.032 OR 1.73%

The Dow was DOWN 27.73 points or 0.15%

NASDAQ  UP 22.06 points or 0.43%
WTI Oil price; 40.12 at 4:30 pm;

Brent Oil: 42.20




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:


BRENT: 42.25

USA 10 YR BOND YIELD: 1.521% 

USA DOLLAR INDEX: 95.80 UP 21 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.3183 DOWN .0038 or 38 basis pts.

German 10 yr bond yield at 5 pm: -.098%


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



Dow Suffers Longest Losing Streak In A Year As Crude Crashes, Credit Craters

It appears the market thinks Janet is the net…


After a multi-decade record 9 up-days in a row, The Dow is now down 6 days in a row – the longest losing streak since August 2015…


The S&P 500 managed to make intraday record highs once again, thanks to a VIX smash to 12.00… but then the machines ran out of stops again…


As investors rushed for the safe haven triple-digit P/Es of FANG stocks…


Which sent Nasdaq higher on the day.. and thanks to an utterly farcical panic bid into the close, Small Caps managed green too…


We’re gonna need another stress test…


As Energy stocks began to really accelerate down to crude reality…


Gold remains the post-FOMC winner…


High yield credit spreads surged over 14bps today – the worst day in 6 weeks…


Amid all this ugliness, we note that Treasury yields rose rather notably… and steepened…


There was some rate-locks chatter but we suspect the move is more algorithmic as the month starts…


The USD Index rose on the day helped by weakness in commodity currencies (AUD and CAD)…


Despite the USD gains, gold and silver rallied on the day as copper slipped (weak China PMI) and crude carnage-d…


WTI Crude plunged below $40 – near 4-month lows – and closed in a bear market (Sept WTI -24% close to close from June 8th high)… Today’s drop is the biggest in 6 weeks… (and crude is down 9 of 11 days)…and is negative YTD


It’s probably nothing…the last three times this kind of divergence between stocks and oil emerged, stocks proceeded to tumble…


Charts: Bloomberg

Bonus Chart: What Could Go Wrong?




Take your pick as to which PMI or ISM data you think is right with respect to manufacturing

(courtesy zero hedge)


US Manufacturing PMI Bounces To 9-Month Highs, ISM Drops



Construction Spending Growth Crashes To 5-Year Lows



The following is Hillary’s next headache as she orchestrated while Secretary of State an area of co operation with Russian to develop closer ties between Russian and the American people.  The city of Skolkovo was chosen and this city was develop medicines and other high tech stuff for the advancement of mankind.  The only problem is the fact that Skolkovo only developed stuff for the defense of Russia.  Hillary got tens of millions of dollars in donations to her Clinton foundation.

This will surely be a headache for her:

(courtesy zero hedge)


Hillary’s Latest Headache: Skolkovo

The subject of Russia’s influence in American politics has been a hot topic of late, particularly as the MSM continues to link Donald Trump to Vladimir Putin and the DNC hack. However, a report published by the Government Accountability Institute presents a new twist in the Kremlin-US political ties. It all started with the 2009 “Russian reset” touted by then-Secretary of State Hillary Clinton.

As detailed in a WSJ op-ed by Peter Schweizer (author of the GAI report), after President Obama visited Russia in 2009, both nations agreed to “identifying areas of cooperation and pursuing joint projects and actions that strengthen strategic stability, international security, economic well-being, and the development of ties between the Russian and American people.”

One such project was Skolkovo, an “innovation city” of 30,000 people on the outskirts of Moscow, billed as Russia’s version of Silicon Valley. As chief diplomat, Hillary was in charge of courting US companies to invest in this new Russian city. Russia, on the other hand, had committed to spend $5 billion over the next three years (2009-12).

Hillary Clinton and Russian Foreign Minister Sergei Lavrov

As Schweizer continues, “soon, dozens of U.S. tech firms, including top Clinton Foundation donors like Google, Intel and Cisco, made major financial contributions to Skolkovo, with Cisco committing a cool $1 billion. In May 2010, the State Department facilitated a Moscow visit by 22 of the biggest names in U.S. venture capital—and weeks later the first memorandums of understanding were signed by Skolkovo and American companies.

By 2012 the vice president of the Skolkovo Foundation, Conor Lenihan—who had previously partnered with the Clinton Foundation—recorded that Skolkovo had assembled 28 Russian, American and European“Key Partners.”

Of the 28 “partners,” 17, or 60%, have made financial commitments to the Clinton Foundation, totaling tens of millions of dollars, or sponsored speeches by Bill Clinton…

Russians tied to Skolkovo also flowed funds to the Clinton Foundation. Andrey Vavilov, the chairman of SuperOx, which is part of Skolkovo’s nuclear-research cluster, donated between $10,000 and $25,000 (donations are reported in ranges, not exact amounts) to the Clinton’s family charity”

Thus far, this should not be surprising. It is yet another instance of crony capitalism that has so well characterized the Clintons over the years. However, as US intelligence agencies including the FBI were soon to find out, the Russian Silicon Valley served other purposes as well.

More from the WSJ op-ed: “The state-of-the-art technological research coming out of Skolkovo raised alarms among U.S. military experts and federal law-enforcement officials. Research conducted in 2012 on Skolkovo by the U.S. Army Foreign Military Studies Program at Fort Leavenworth declared that the purpose of Skolkovo was to serve as a “vehicle for world-wide technology transfer to Russia in the areas of information technology, biomedicine, energy, satellite and space technology, and nuclear technology.”Moreover, the report said: “the Skolkovo Foundation has, in fact, been involved in defense-related activities since December 2011, when it approved the first weapons-related project—the development of a hypersonic cruise missile engine. . . . Not all of the center’s efforts are civilian in nature…”

The FBI believes the true motives of the Russian partners, who are often funded by their government, is to gain access to classified, sensitive, and emerging technology from the companies. The [Skolkovo] foundation may be a means for the Russian government to access our nation’s sensitive or classified research development facilities and dual-use technologies with military and commercial application.”

As Schweizer concludes:

Even if it could be proven that these tens of millions of dollars in Clinton Foundation donations by Skolkovo’s key partners played no role in the Clinton State Department’s missing or ignoring obvious red flags about the Russian enterprise, the perception would still be problematic. (Neither the Clinton campaign nor the Clinton Foundation responded to requests for comment.) What is known is that the State Department recruited and facilitated the commitment of billions of American dollars in the creation of a Russian “Silicon Valley” whose technological innovations include Russian hypersonic cruise-missile engines, radar surveillance equipment, and vehicles capable of delivering airborne Russian troops.


A Russian reset, indeed.

Naturally, the Hillary campaign did not reply to any requests from Schweizer on the report. But we are comfortable that HRC’s response would likely be along the lines “what difference at this point does it make?



So long for now

see you tomorrow night




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