August 23/Gold and silver rise but not gold/silver equity shares/High libor is causing shortage of dollars and causing losses at European and Japanese banks i.e. a double whammy: negative interest rates coupled with high libor/

Gold:1340.60 up $2.90

Silver 18.91  up 7 cents

 

In the access market 5:15 pm

Gold: 1338.40

Silver: 18.82

.

For the August gold contract month,  we had a good sized 261 notices served upon for 26,100 ounces. The total number of notices filed so far for delivery:  13,387 for 1,338,700 oz or  tonnes or 41.639 tonnes.  The total amount of gold standing for August is 42.777 tonnes.

In silver we had 9 notices served upon for 45000 oz. The total number of notices filed so far this month:  480 for 2,400,000 oz.

We now enter in earnest the options expiry  for gold and silver.  The comex options expiry is: Friday, August 26.

Options expiry for the OTC /London’s LBMA contracts expire at noon August 31.

Today we witnessed gold and silver rise yet gold/silver equity shares falter. Generally this is a good sign that the crooks are orchestrating another raid in the next 24 hours. The silver situation is no doubt bothering them immensely.

 

 

Let us have a look at the data for today

.

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In silver, the total open interest FELL BY 71 contracts DOWN to 205,045 AND MOVING AWAY FROM ITS AN ALL TIME RECORD. THE OPEN INTEREST ON FRONT MONTH OF SILVER CONTRACTED BY A TINY AMOUNT DESPITE THE FACT THAT THE SILVER PRICE WAS WHACKED PRETTY HARD TO THE TUNE OF  46 CENTS IN YESTERDAY’S TRADING .In ounces, the OI is still represented by just over 1 BILLION oz i.e. 1.025 BILLION TO BE EXACT or 146% of annual global silver production (ex Russia &ex China).

In silver we had 9 notices served upon for 45,000 oz

In gold, the total comex gold FELL 1,657 contracts as the price of gold FELL BY $3.70 yesterday . The total gold OI stands at 572,845 contracts.

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

GLD

we had no changse today at the GLD/

Total gold inventory rest tonight at: 958.37 tonnes of gold

SLV

we had no changes in the SLV,  / THE SLV Inventory rests at: 358.793 million oz.

 

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

1. Today, we had the open interest in silver FELL by 71 contracts DOWN to 205,045 despite the fact that the price of silver FELL HARD BY 46 cents with YESTERDAY’S trading.The gold open interest FELL 1,657 contracts DOWN to 572,845 as the price of gold FELL by $3.70 WITH YESTERDAY’S TRADING.

(report Harvey).

 

2 a) Gold/silver trading overnight Europe, Goldcore

(Mark OByrne/zerohedge

3. ASIAN AFFAIRS

 i)Late  MONDAY night/TUESDAY morning: Shanghai closed UP 4.91 POINTS OR 0.16%/ /Hang Sang closed UP 1.02 points or 0.01%. The Nikkei closed DOWN 100.83 POINTS OR 0.61% Australia’s all ordinaires  CLOSED UP 0.70% Chinese yuan (ONSHORE) closed UP at 6.6430/Oil FELL to 47.06 dollars per barrel for WTI and 48.76 for Brent. Stocks in Europe: in the RED . Offshore yuan trades  6.6537 yuan to the dollar vs 6.6430 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS SLIGHTLY AS  MORE USA DOLLARS ATTEMPTS  LEAVE CHINA’S SHORES  

REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) REPORT ON JAPAN

i)We have been highlighted the following to you on several occasions.  Now from CLSA: the Bank of Japan has basically nationalized the Japanese stock market.

( CLSA/zero hedge)

ii)Here is another casualty of the higher Libor and its increasing costs to foreign banks. We showed (below) that the higher libor costs make buying of USA bonds impossible because their higher costs negates the deal.  Now we see that Japanese banks are having trouble locating scarce dollars in the money markets and that will have a devastating effect on their profitability

( zero hedge)

b) REPORT ON CHINA

China has spooked its market as they seem to wish to withdraw from conventional QE and instead go their less powerful 14 repos:  bond yields spike as there will be nobody to buy their bonds:

( zero hedge)

4 EUROPEAN AFFAIRS

i)Last week we reported on the scarcity of Great Britain bonds (GILTS).  Today there was a rush to purchase anything with a yield and thus scarcity of bonds is back

( zero hedge)

ii)Shear lunacy…now Mario is buying private placement debt.  They are purchasing debt equivalent to 1 trillion euros per year.  It ends in March 2017:

( Mish Shedlock)

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

An excellent commentary, with the subject that the new Russia-China- Iran alliance totally pushed the USA out of much middle east influence..

( Darius Shahtamasebi/AntiMedia.org)

6.GLOBAL ISSUES

i)A must read…the lunacy of QE and why this will bring the whole house of cards down

( David Stockman/ContraCorner)

ii)Good question:  just what are central banks terrified about…

( Phoenix Capital)

7.OIL ISSUES

i)Oil moves higher on false algo rumour of an Iran support to prop up oil market. It was denied by Iran but oil still rebounds higher

( zero hedge)

ii)Then it slides back to earth after the biggest inventory build in the last 4 months

( zero hedge)

8.EMERGING MARKETS

VENEZUELA: 

The authorities now are banning lines from forming outside bakeries

( Fisher/Reason.com/Hit & Run blog)

9.PHYSICAL STORIES

i)The biggest bond traders are continuing by buy negative yielding bonds because central banks have a huge appetite for bonds and they are hoping for capital gains instead of interest rate.

(Bloomberg/Gata)

ii)Bullion Star’s Ronan Manly discusses why China wanted inclusion into the SDR’s and how they are going to supplant the USA as a reserve currency of the world:

(courtesy Bullion Star/Ronan Manly))

10.USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER

i)Early trading today:figure out who is right and who is wrong!

S& P up! gold up! and yield on 30 yr down  (bond prices up?)

( zero hedge)

ib)The bond market, this afternoon delivered its potential verdict on Yellen’sJackson Hole address this Friday with yields falling to .76% on the two year note. The bond market is expecting nothing but dovishness:

(courtesy zero hedge)

 

ii)The USA flash manufacturing PMI for August printed a very disappointing 52.1.This is a preliminary number but it does not bode well for the USA economy:

( zero hedge/FlashPMI)
iii)Wow! what a huge downward move:  the Richmond mfg Fed survey collapses the most on record:  + 10 to – 11.

( zero hedge)

iv) New rules coming will cause problems for our derivative players as they will need to increase their margins.  The major problem of course is the lack of collateral caused by bankers soaking up everything.  This is going to hurt the bankers quite a bit…

another important read…

(Bloomberg/Sabrush)

v)Another very important commentary.  I have been pointing out to you for the past several months the continual decline in foreign demand for USA government bonds.  The latest TIC report shows aggressive foreign selling.  The big question is why? The answer lies in the cost to hedge the USA dollar.  Even though the USA has a good positive yield compared to anybody else at sovereign AAA, it is the cost to hedge that kills the trade (buy USA short EU eg.)  If investors want yield that must do so unhedged and with a USA policy to tighten that is not a very good idea

( zero hedge)

vi)The Fed admits that another 4 trillion uSA will be needed to offset another economic shock or in other words, the doubling of the Fed’s balance sheet.

( zerohedge)

Let us head over to the comex:

The total gold comex open interest FELL to an OI level of 572,845 for a LOSS of 1657 contracts as the price of gold fell by $3.70 with yesterday’s trading. We are now in the active month of August.  As I stated this month:”Somebody big is continually standing for the gold metal and continues to do so in August in the same manner as we have witnessed in May, June and July whereby the front delivery month increases in I standing for metal or a slight contraction.  We will no doubt see increases in amount standing in August and probably we will surpass the amount standing on first day notice. 

The big active contract month of August saw it’s OI fall by 46 contracts down to 627.  We had 46 notices filed upon yesterday so we neither gained nor lost any gold ounces that will  stand for delivery in August.  The next contract month of Sept saw it’s OI fall by 190 contracts down to 4218.  The September contract still remains extremely elevated and we may have another of those high deliveries rare for a non active month. The next active delivery month is October and here the OI ROSE by 85 contracts UP to 47,760.  The estimated volume today (which is just comex ales during regular business hours of 8:20 until 1:30 pm est) was POOR at 152,660.  The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was FAIR at 164.774 contracts. The comex is not in backwardation.

Today we had  261 notices filed for  26,100 oz of gold.

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And now for the wild silver comex results.  Total silver OI fell by only 71 contracts from 205,116 down to 205,045 despite the HARD fall in the price of silver to the tune of 46 cents yesterday.  We are moving away from the all time record high for silver open interest set on Wednesday August 3:  (224,540). The non active month of August saw it’s OI fall by 1 contract down to 15.  We had 0 notices served upon yesterday, so we  lost 1 silver contract or an additional 5,000 will not stand for silver in this non active delivery month of August.  The next active month is September and here the OI fell by only 13,903 contracts down to 68,374 .We have 6 days left before first day notice.  The volume on the comex today (just comex) came in at 92,896 which is  HUGE but many rollovers.  The confirmed volume yesterday (comex and globex) was also huge  at 129,696( with many rollovers). Silver is not in backwardation.  London is in backwardation for several months.
we had 9 notices filed for 45,000 oz
INITIAL standings for AUGUST
 August 23.
Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil OZ
Withdrawals from Customer Inventory in oz  nil
nil
Deposits to the Dealer Inventory in oz 3,999.970 oz

Brinks

 

Deposits to the Customer Inventory, in oz 
  nil
No of oz served (contracts) today
261 notices 
26,100 oz
No of oz to be served (notices)
627 contracts
(62,700 oz)
Total monthly oz gold served (contracts) so far this month
13,387 contracts (1,338,700 oz)
(41.639 tonnes)
Total accumulative withdrawals  of gold from the Dealers inventory this month   NIL
Total accumulative withdrawal of gold from the Customer inventory this month    538,.816.3 OZ
Today:  HUGE activity at the gold comex AND 1 KILOBAR ENTRY//
Today we had 1 dealer DEPOSIT
i) into Brinks:3999.970 oz
what happened to our usual 4,000.00 oz???
total dealer deposit: 3,999.97    0z
Today we had  0 dealer withdrawals:
total dealer withdrawals:  nil oz
We had 0 customer deposit:
Total customer deposits: nil OZ
Today we had 0 CUSTOMER withdrawals
Total customer withdrawals  nil OZ
Today we had 4 adjustment:
 i) Out of BRINKS:  5979.900 oz (186 KILOBARS) was adjusted out of the customer and this landed into the dealer account of BRINKS:
ii)Out of Delaware:  295.371 oz was transferred out of the customer account and this landed into the dealer account of Delaware
iii) Out of HSBC:  1639.701 oz was adjusted out of the dealer and this landed into the customer account of HSBC; a deemed settlement
iv) Out of Scotia; 4006.36 oz was adjusted out of the dealer and this landed into the customer account of Scotia.
total deemed settlement : .1756 tonnes
Note: If anybody is holding any gold at the comex, you must be out of your mind!!!
since comex gold storage is unallocated , rest assured any gold stored will be compromised!
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 261 contracts of which 2 notice was stopped (received) by JPMorgan dealer and 191 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 (13,387) x 100 oz  or 1,338,700 oz , to which we  add the difference between the open interest for the front month of AUGUST  (627 CONTRACTS) minus the number of notices served upon today (261) x 100 oz   x 100 oz per contract equals 1,375,300 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 (13,387) x 100 oz  or ounces + {OI for the front month (627) minus the number of  notices served upon today (261) x 100 oz which equals 1,375,300 oz standing in this non  active delivery month of AUGUST  (42.777 tonnes).
We neither gained nor lost any gold ounces that will stand for delivery in this  active delivery month of August.
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 + 42.777 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/ aUG 10// 0.219 TONNES/August 11: .3619 TONNES/ AUG 12/.05878/ aug 17. 6418, aug 23: .1756 tonnes/THEREFORE 91.663 tonnes still standing against 73.047 tonnes available.
 Total dealer inventor 2,348,477.836 oz or 73.047 tonnes
Total gold inventory (dealer and customer) =11,020,512.828 or 342.78 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 342.78 tonnes for a  gain of 40  tonnes over that period. 
 

THE GOLD COMEX IS AN ABSOLUTE FRAUD. THE USE OF KILOBARS AND EXACT WEIGHTS MAKES THE DATA TOTALLY ABSURD AND FRAUDULENT!!

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.

 
 end
And now for silver
 
AUGUST INITIAL standings
 august 23.2016
Silver
Ounces
Withdrawals from Dealers Inventory NIL
Withdrawals from Customer Inventory
NIL
Deposits to the Dealer Inventory
 NIL OZ
Deposits to the Customer Inventory
877,523.735 OZ
CNT
DELAWARE
SCOTIA
No of oz served today (contracts)
9 CONTRACTS
(45,000 OZ)
No of oz to be served (notices)
15 contracts
75,000 oz)
Total monthly oz silver served (contracts) 480 contracts (2,400,000 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  10,150,179.0 oz
today we had 0 deposit into the dealer account:
 Total dealer deposits;  NIL oz
we had 0 dealer withdrawal:
:
total dealer withdrawals:  NIL oz
we had 0 customer withdrawal:
Total customer withdrawals: NIL oz
We had 3 customer deposit:
i) Into CNT;  983.555 oz
ii) Into Delaware; 1978.100 oz
iii) Into Scotia; 874,562.08 oz
total customer deposits:  877,523.735   oz
 
 
 
 we had 0 adjustments
The total number of notices filed today for the AUGUST contract month is represented by 0 contracts for nil 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 (480) x 5,000 oz  = 2,400,000 oz to which we add the difference between the open interest for the front month of AUGUST (15) and the number of notices served upon today (9) x 5000 oz equals the number of ounces standing 
 
Thus the initial standings for silver for the AUGUST contract month:  480(notices served so far)x 5000 oz +(15 OI for front month of AUGUST ) -number of notices served upon today (9)x 5000 oz  equals  2,430,000 oz  of silver standing for the AUGUST contract month.
we lost 5,000 additional silver ounces that will not stand for silver metal in this non active delivery month of August.
 
Total dealer silver:  27.453 million (close to record low inventory  
Total number of dealer and customer silver:   157.511 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 224,540 being set AUGUST 3.2016.  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.
END

And now the Gold inventory at the GLD
August 23/no change in gold inventory at the GLD/Inventory rests at 958.37 tonnes
August 22/ a deposit of 2.38 tonnes of gold into the GLD/Inventory rests at 958.37 tonnes
August 19/no changes at the GLD/inventory resets at 955.99 tonnes
August 18/a withdrawla of 6.24 tonnes of gold from the gLD/Inventory rests at 955.99 tonness
August 17/no change in gold inventory at the GLD/inventory rests at 962.23 tonnes
August 16/ a deposit of 1.78 tonnes of “paper gold” into the GLD/Inventory rests at 962.23 tonnes
August 15/what a farce!! a huge “paper gold’ withdrawal of 12.17 tonnes/inventory rests at 960.45 tonnes
August 12/no change in gold inventory at the GLD/Inventory rests at 972.62 tonnes
August 11/no changes in gold inventory at the GLD/Inventory rests at 972.62 tonnes
August 10/no changes in GLD/Inventory rests at 972.62 tonnes
August 9/we had a withdrawal of 1.18 tonnes of gold from the GLD inventory/inventory rests at 972.62 tonnes
August 8/a huge changes in the GLD/Inventory, a withdrawal of 6.54 tonnes of paper gold/ rests at 973.80 tonnes of gold/
August 5/ a huge deposit of 10.69 tonnes of gold (with gold down $22.40??)/GLD inventory rests at 980.34 tonnes
August 4/no change in inventory at the GLD/Inventory rests at 969.65 tonnes
August 3/a big deposit of 5.62 tonnes of paper gold/Inventory rests at 969.65 tonnes
August 2/no change in gold inventory at the GLD/Inventory rests at 964.03 tonnes
August 1/we had a huge paper deposit of 5.94 tonnes of gold into the GLD/Inventory rests at 964.03 tonnes
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
August 23/ Inventory rests tonight at 958.37 tonnes

end

Now the SLV Inventory
August 23/no change in silver inventory at the SLV/Inventory rests at 358.793 million oz.
August 22/a huge addition of 3.324 million oz into the SLV/Inventory rests at 358.793 million oz
August 19/no change in silver SLV/Inventory rests at 355.469 million oz/
August 18/ a massive paper deposit of 2.185 million oz into the SLV/Inventory rests at 355.469 million oz
August 17/ we had a huge deposit of 1.519 million oz into the SLV/Inventory rests at 353.284 million oz/
August 16/no change in inventory/rests tonight at 351.765 million oz
August 15./amazing, we have a huge withdrawal in gold and yet nothing moves out of silver: no change in silver inventory at the SLV/Inventory rests at 351.765 million oz.
August 12/no change in silver inventory at the SLV/Inventory rests at 351.765 million oz
August 11/no change in silver inventory at the SLV/Inventory rests at 351.765 oz
August 10/no changes in silver inventory at the SLV/Inventory rests at 351.765 oz
August 9/a deposit of 950,000 oz into the SLV/Inventory rests at 351.765 oz
August 8/no change in silver inventory at the SLV/Inventory rests at 350.815 million oz.
August 4/no change in silver inventory at the SLV/inventory rests at 350.815 million oz
August 3/no change in silver inventory/inventory rests at 350.815 million oz
August 2/ we had a tiny withdrawal of 40,000 oz of silver/Inventory rests at 350.815 million oz
August 1/we had a huge paper deposit of 1.235 million oz into the SLV/Inventory rests at 350.955 million oz
.
August 23.2016: Inventory 358.793 million oz

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 4.4 percent to NAV usa funds and Negative 4.4% to NAV for Cdn funds!!!!  (the discount is starting to disappear)
Percentage of fund in gold 60.3%
Percentage of fund in silver:38.5%
cash .+1.2%( August 23/2016).
2. Sprott silver fund (PSLV): Premium rises to +1.65%!!!! NAV (august 23/2016) 
3. Sprott gold fund (PHYS): premium to NAV  falls TO  0.90% to NAV  ( august 23/2016)
Note: Sprott silver trust back  into POSITIVE territory at +1.65% /Sprott physical gold trust is back into positive territory at 0.90%/Central fund of Canada’s is still in jail.
 
 
 

end

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

Trading in gold and silver overnight in Asia and Europe
Mark O’Byrne/David Russell

Germans Warned To ‘Stockpile’ Cash In Case Of ‘War’

The German government is warning its people to ‘stockpile’ food, water and cash in case of ‘war’.

For the first time since the end of the Cold War, the German government is set to tell citizens to stockpile food, water, medicine, fuel and cash in case of war, an attack, catastrophe or “national emergency”, the Frankfurter Allgemeine Sonntagszeitungnewspaper reported on Sunday.

MerkelAngela Merkel, Francois Hollande and Matteo Renzi on Aircraft Carrier Garibaldi yesterday. Photo: Guido Bergmann / DPA

Angela Merkel’s government is to “encourage the population” to have their own “personal supplies” including having some reserves of cash in their homes. People will also be urged to keep supplies of medicines, warm blankets, coal, wood, candles, torches, batteries and matches.

Regarding the advice to own cash outside the banking system, Deutsche Wellepointed out that:

“A wad of cash is another important part of any household’s emergency supplies. There may not be time to rush to a bank, and ATMs won’t work if the power is out.”

This is one of the primary reasons that one should own physical gold coins and bars outside the banking, financial and indeed the “technological system” and its dependence on electrical grids and supplies. Many of these systems are antiquated and vulnerable to attack such as from electromagnetic pulse (EMP) warfare that could quickly take out a large city or indeed a nation’s electricity infrastructure and supplies.

Frankfurter Allgemeine Sonntagszeitung  reported that the

“Population should be able to protect themselves before government measures start to ensure an adequate supply of food, water, energy and cash.”

euro_drachma
“The population will be obliged to hold an individual supply of food for ten days,” the newspaper quoted the government’s “Concept for Civil Defence” – which has been prepared by the Interior Ministry – as saying. According to information leaked toFrankfurter Allgemeine Sontagszeitung they include advice to citizens to stockpile enough food for ten days and clean drinking water for five days.

“The population should be urged by appropriate means to keep two litres of drinking water per person per day,” the newspaper quoted a government paper as saying.

The 69-page report does not see an attack on Germany’s territory, which would require a conventional style of national defense, as likely. However, the precautionary measures demand that people “prepare appropriately for a development that could threaten our existence and cannot be categorically ruled out in the future,” the paper cited the report as saying.

The government is to increase stocks of smallpox vaccine and antibiotics in case of biological attack, and set up reserves of petrol and oil at 140 locations around Germany to ensure a supply for 90 days. Other provisions include setting up decontamination sites outside hospitals in case of nuclear, biological or chemical attack.

German newspapers like Deutsche Welle have complied handy checklists such as What emergency supplies do you need?

It is important to note that another global financial crisis and collapse of the global banking and financial system would also necessitate citizens being prepared. Deutsche Bank’s share price has all the hallmarks of that of Lehman Brothers prior to Lehman’s collapse.

Political and financial complacency reigns today as it tends to do regarding geopolitical risk. The complacency of the world between 1900 and 1914 is the best example of this. There is little analysis of the potential impact of terrorism and war on the lives of citizens or indeed on their personal finances.

Owning some gold coins and bars outside the banking and financial system will protect from these scenarios. As ever, it is prudent to hope for the best but be prepared for less benign scenarios.

Gold and Silver Bullion – News and Commentary

Silver tumbles to 7-wk low, but outlook remains supportive (Bulliondesk)

Gold steady as markets await U.S. rate hike clues (Reuters)

CME Group suspends gold, natural gas trader for spoofing (Reuters)

Dollar Advances as Fischer Tips Fed Balance Toward Tightening (Bloomberg)

Mint selling more American Eagle gold bullion coins (CoinWorld)

7RealRisksBlogBanner

Pomboy: Grim Outlook for Economy, Stocks; Positive On Gold (Barrons)

Fed comments push gold lower but outlook “remains solid” (CNBC)

The US National Debt: Facing a debt crisis  (MoneyInsights)

Bubbles In Bond Land——A Central Bank Made Mania (DSCC)

Bank Of Ireland And RBS To Charge Negative Interest Rates To Depositors – Remember MF Global? (Forbes)

Gold Prices (LBMA AM)

23Aug: USD 1,338.50, GBP 1,015.25 & EUR 1,181.09 per ounce
22Aug: USD 1,334.30, GBP 1,018.20 & EUR 1,181.26 per ounce
19Aug: USD 1,346.85, GBP 1,026.30 & EUR 1,189.67 per ounce
18Aug: USD 1,347.10, GBP 1,023.93 & EUR 1,190.84 per ounce
17Aug: USD 1,342.75, GBP 1,031.23 & EUR 1,191.96 per ounce
16Aug: USD 1,349.10, GBP 1,039.89 & EUR 1,197.33 per ounce
15Aug: USD 1,339.20, GBP 1,037.21 & EUR 1,198.85 per ounce

Silver Prices (LBMA)

23Aug: USD 18.98, GBP 14.40 & EUR 16.75 per ounce
22Aug: USD 18.91, GBP 14.45 & EUR 16.74 per ounce
19Aug: USD 19.42, GBP 14.80 & EUR 17.14 per ounce
18Aug: USD 19.78, GBP 15.04 & EUR 17.47 per ounce
17Aug: USD 19.57, GBP 15.04 & EUR 17.37 per ounce
16Aug: USD 20.04, GBP 15.43 & EUR 17.77 per ounce
15Aug: USD 19.90, GBP 15.40 & EUR 17.81 per ounce


Recent Market Updates

– Ireland’s Biggest Bank Charging Depositors – Negative Interest Rate Madness
– Rothchilds Buying Gold On “Greatest Experiment” With Money In “History of the World”
– Gold – “Mother of All Bull Markets Has Only Just Begun” – Grandich
– 45th Anniversary Of Nixon Ending The Gold Standard
– Gold In UK Pounds Collapses 38% Versus Gold and 56% Versus Silver Year To Date
– Will Ireland Be First Country In World To See Bail-in Regime?
– Money “Madness” Negative Interest Rates Sees Gold Buying Surge
– Gold Investment Demand Reaches Record In First Half 2016 On “Perfect Storm”
– Peak Gold – Did Gold Production Peak in 2015?
– Financial Times: “Victory For Gold Bulls Is Only Just Beginning”
– Irish Banks Most Vulnerable In Stress Tests – Banking Contagion In EU Cometh
– Gold In Sterling 2.2% Higher After Bank Of England Cuts To 0.25% and Expands QE
– Silver Kangaroo Coins – Sales Surge To Over 10 Million

abidpasha

END

 

The biggest bond traders are continuing by buy negative yielding bonds because central banks have a huge appetite for bonds and they are hoping for capital gains instead of interest rate.

(courtesy Bloomberg/Gata)

Biggest bond traders are on a negative-yield binge, and can make it pay

Section:

By Brian Chappatta and Andrew Wong
Bloomberg News
Sunday, August 21, 2016

It might be considered absurd, if not for the unprecedented contortions in global financial markets.

Pacific Investment Management Co.’s largest international bond fund and China are piling into negative-yielding Japanese debt, buying securities that pay out less than the purchase price. And there’s a way to turn a tidy profit off the trade.

At the heart of the strategy is the world’s insatiable appetite for dollar assets, which is presenting an opportunity for investors with greenbacks to spare: the chance to pick up extra yield, a luxury in an era of record-low interest rates. For dollar lenders, even three-month Japanese bills, trading at a rate of negative 0.24 percent, offer juicy returns through a swap transaction that locks in exchange rates. …

… For the remainder of the report:

http://www.bloomberg.com/news/articles/2016-08-21/pimco-china-show-no-fe..

END.

 

Bullion Star’s Ronan Manly discusses why China wanted inclusion into the SDR’s and how they are going to supplant the USA as a reserve currency of the world:

(courtesy Zero hedge)

Song Xin: Increase Gold Reserves And Join SDR.

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The Chairman of the China Gold Association and General Manager and Party Committee Secretary of China National Gold Group Corporation, the latter being China’s largest gold mining enterprise, is Song Xin and happens to be one of my favorite commentators in China. This gentleman made waves in July 2014 when he candidly wrote on Sina Finance that the People’ Bank Of China (PBOC) should slowly raise its official gold reserves to 8,500 tonnes, more than what the US Treasury claims to hold. The article was published in Chinese but translated by BullionStar to share the views by Song Xin with the English speaking world:

For China, gold’s strategic mission lies in the support of renminbi internationalization, and so let China become a world economic power and make sure that the China Dream is realized. … gold forms the very material basis for modern fiat currencies. Gold is the world’s only monetary asset that has no counter party risk… That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

In the next translation further below you will read more on how Song Xin views gold’s role in China’s financial strategy. The bullet points from the article:

  • China continuously accumulates gold reserves to support and accelerate renminbi internationalization.
  • Renminbi confidence and gold are closely related. Gold reserves are the cornerstone for renminbi internationalization.
  • In modern times gold plays an important role in managing economic risk and maintaining China’s financial safety.
  • China is continuously increasing its official gold reserves in conjunction to joining the SDR.
  • The ratio of China’s official gold reserves to its GDP should be more in line with the US and other developed countries. At this moment China’s official gold reserves are still relatively low.
  • The Silk Road economic project, also called “One Belt and One Road” (OBOR), has huge development opportunities for the Chinese gold industry. Song Xin mentions that the in ground gold reserves of countries along OBOR reach 21,000 tonnes. In 2015, witnessed by Chairman Xi Jinping and President Putin, China National Gold Group Corporation and Russia’s largest gold mine Polyus have signed a strategic cooperative agreement and they are promoting detailed relevant cooperative issues at present.

What he didn’t mention is that China is striving to boost gold trade along OBOR to be settled in renminbi through the Shanghai International Gold Exchange.

Is The SDR A Means Or And End For China? 

In the mainstream media we often read China wants the SDR to replace the US dollar as the world reserve currency, based on statements from PBOC Governor Zhou Xiaochuan – among others:

Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency.

Since 2009 China has vigorously pressured the IMF for renminbi inclusion into the SDR. Finally, in 2015 the IMF decided the renminbi would be added to its currency basket in October 2016.

Zhou and other prominent economists at the PBOC are clearly pushing the SDR, but what’s China’s exact strategy?

In advance of the official inclusion of the renminbi into the SDR, which will take place on October 1, 2016, developments regarding the International Monetary Fund’s synthetic reserve currency are unfolding rapidly.

Author of the Big Reset, Willem Middelkoop, reported this August a “Substitution Fund” is being discussed in the higher echelons of the monetary elites, to facilitate dollar exchange for SDRs outside the market, and thus creating an escape from dollar reserves without putting downward pressure on the dollar.

Also in August, The PBOC allowed a division of the World Bank (the IBRD) to issue bonds denominated in SDRs in the Chinese market. The bonds worth $2.79 billion dollars can be created “soon” – presumably within a month. In addition, the Chinese government-linked China Development Bank will issue SDR notes worth somewhere in between $300 million to $800 million dollars. Both issues are “SDR-denominated financial market instruments” called M-SDRs by the IMF. Though experts think the M-SDRs will encounter many practical challenges when implemented and demand will be tepid, nevertheless the intention by the PBOC to launch these instruments is clear.

On the surface we can observe China has a vast interest in the SDR, but is the SDR a means or an end for China? What if China is simply using the SDR as a vehicle to achieve other objectives? For example:

  1. Dethroning the dollar. The SDR can be an excellent tool to unwind the dollar hegemony. In addition the Substitution Fund could help an orderly exit from China’s lob-sided dollar reserves.
  2. Internationalize the renminbi. Inclusion of the renminbi into the SDR boosts global renminbi acceptance as a reserve currency.
  3. Reduce capital outflows from China. With respect to M-SDRs, David Marsh of financial think tank the Official Monetary and Financial Institutions Forum (OMFIF) wrote:

Beijing’s SDR capital market initiative will allow domestic Chinese investors to subscribe to domestic bond issues with a significant foreign currency component, which will help dampen capital outflows… 

I think for China the SDR is just a means to an end. The end being to internationalize the renminbi, which of course is connected to the dollars retreat. And as Song Xin clearly states, “gold forms the very material basis for modern fiat currencies” and, “gold reserves should become the cornerstone … for renminbi internationalization”.

In my humble opinion the financial crisis has shown (once again) the inherent flaws of all fiat currencies. A bundle of some of these currencies will not solve the problems ahead of us; at best provide tools or a next level printing press. I still prefer gold as a store of value.

I find it interesting that Song Xin mentions the importance of the ratio between China’s official gold reserves and GDP. This concept was also brought forward by Jim Rickards. If the PBOC would have 5,000 tonnes of official gold reserves their “gold to GDP ratio” would be roughly on par with to the US, Europe and Russia.  One of the theories about our current international monetary system – that was detached from gold in 1971 – is that it can shift to a new gold anchored system when the power blocks have equalized the chips (Jim Rickards). In other words, if the US, Europe, Russia and China all have a roughly equal ratio of official gold reserves to their GDP, the international monetary system could make a transition towards gold.

Global gold vs GDP

According to my estimates the PBOC has roughly 4,000 tonnes in official gold reserves, in contrast to what is publicly disclosed at 1,800 tonnes. Perhaps the PBOC is “nearly there”.

Song Xin who was also a speaker at the “Renminbi Internationalization and China’s Gold Strategy Seminar” in Beijing on 18 September 2015.

Original source of the article below is the China Gold Association website. [Brackets added by Koos Jansen]

Song Xin, Chairman of the China Gold Association, General Manager and Party Committee Secretary of the China National Gold Group Corporation: Stick to the gold mission and boost innovative development

March 14, 2016

As the sole central enterprise in the gold industry, China National Gold Group Corporation is a firm defender of renminbi internationalization, pioneering demonstrator of the country’s “One Belt and One Road”, and faithful guardian of a happy life for people. It’s the direction that we should strive for.

On March 10 during the two assemblies, Song Xin, Chairman of the China Gold Association, General Manager and Party Committee Secretary of the China National Gold Group Corporation, was the guest in Xinhuanet’s 2016 two assemblies special Interview. In the program Dialogue with New State-owned Enterprises and Cheer up in the “13th Five-Year Plan”, he proposed the conclusions above. Besides, in the in-depth dialogue, Song Xin systematically illustrated topics including the functions of renminbi internationalization, effectively enhancing gold supply, realizing improved quality and efficiency of enterprises, practicing the central party’s “Five Development Theories”, and fulfilling the responsibilities of central enterprises.

About Gold’s Functions: Increase Gold Reserves And Accelerate Renminbi Internationalization. A Close Relationship between Increasing Gold Reserves And Joining The SDR

When the credit lines of paper currency declines and there are enough gold reserves, people can be less worried about the existing credit system and enhance their confidence in the currency.

Last year, China joined the IMF (International Monetary Fund) Special Drawing Rights (SDR), signifying the renminbi’s march towards internationalization.

Song Xin pointed out that the renminbi is closely related to gold. Gold is priced in US dollars throughout the world and in renminbi in China. There is a special relation between the renminbi and gold. We have continuously increased gold reserves since China strove to join the SDR basket of currencies. By the end of February this year, our gold reserves have increased to 1788.45 tonnes. In other words, China has continuously increased its official gold reserves and publicized the amount to the world, keeping a close relation with renminbi internationalization and joining the SDR.

Song Xin 2016:07:26

Further increase gold reserves to adapt to economic strength

China’s existing gold reserves are only about 1/5 of America’s. With the acceleration of renminbi internationalization, the renminbi should further increase its gold reserves in order to reach a level matching the national economic aggregate [GDP], especially if the renminbi wants to become a global currency.

Song Xin mentioned that China’s gold reserves once maintained around 1,054 tons. In the second half of last year, it started to increase these reserves substantially. Now, it has been increased by 70%. The increase range is big, but small compared to that of developed countries. At present, our economic aggregate [GDP] reaches second place in the world, but our gold reserves only reach the sixth place in the world. If the IMF’s reserves are excluded, China’s reserves rank in fifth place according to national rankings.

Possessing sufficient gold can strengthen confidence in a currency

Song Xin said, “There is a remarkable distance between China’s gold reserves and America’s gold reserves. America’s gold reserves are 8,133 tons and it even reached over 20,000 tons before. In those days, America controlled most of the gold in the world, which laid an important foundation for the US dollars to become a global currency.”

Before the Bretton Woods system was disintegrated in the 1970s, gold was directly connected with the US dollar. After the Bretton Woods system was corrupted, gold was disconnected from the US dollar, but America still kept sufficient gold reserves.

Song Xin believes that it has a relation with the global governing system. When the global economic aggregate was not so big, the gold standard had a certain advantage. With the expansion of the economic aggregate, the Bretton Woods system was disintegrated, and gold was disconnected from the US dollar. America announced that gold was unimportant then under this circumstance. However, in fact, when a financial crisis happens in America, its gold reserves don’t reduce at all. Americans firmed up people’s confidence in the US dollar by sufficient gold reserves.

Talk about supply reform: increase the effective supply of gold to boost quality and efficiency of enterprises rather than excess capacity, the gold industry needs to increase supply

In 2015, our domestic gold mine output reached about 450 tons, ranking the top in the world for nine consecutive years. Meanwhile, gold [retail] consumption reached almost 986 tons, surpassing India for three consecutive years and becoming the largest gold consumption country in the world.

Song Xin mentioned that our gold production can’t satisfy consumption demand and it doesn’t include the central bank’s reserves. Therefore, for the gold industry, increasing gold production and rapidly supplementing the gap above are the important missions for the gold industry.

Regarding how to increase the effective supply of gold, Song Xin believes that enterprises in the gold industry should offer more suitable marketing paths, especially customers’ favorite gold jewelries and gold investments with cultural connotation and innovation.

Maintain national financial safety and fulfill political responsibility 

“The political responsibility of the China National Gold Group Corporation is to make enterprises strong, excellent and big. Besides that, it is also to allow staff to enjoy the achievement of enterprise development. More importantly, it is to increase the effective supply of gold, to satisfy the demands of people and country for gold products, and to maintain the healthy and harmonious development of the industry”, said Song Xin.

Song Xin introduced that gold played a very important role in different historical periods. In the revolutionary war period, the underground party delivered abundant gold to Yan’an from the Jiaodong base area in order to get medicine and materials, playing a positive role for the Communist Party to gain victory. In the beginning of reform and opening up, the country’s foreign exchange was in a shortage and our country vigorously increased gold productivity, once amounting to 70% of the whole country’s foreign exchange reserve which is mainly for gold swap transactions and purchasing devices, etc. and guaranteeing foreign exchange demand of economic development. In the new era, gold has played an important role in resisting economic risk, maintaining the country’s financial safety and assisting with renminbi internationalization.

Song Xin thinks that the China National Gold Group Corporation shoulders the important mission of increasing gold reserves and production and adding trust for renminbi internationalization for the country. He said, “Gold reserves should become the cornerstone or ballasting stone for renminbi internationalization, which can improve the gold content of renminbi. In these aspects, the China National Gold Group Corporation is obligated to fulfill its own political duty.”

Chinese historic gold mining 1949 - 2015

Talk about “Five Major Development Concepts”: Explore Profound Meaning Based on Practical Conditions for Enterprise.

Make achievement in the “One Belt and One Road” With the implementation of “One Belt and One Road”, the China National Gold Group Corporation can accomplish a lot in “going out” and “going out” is an important constituent of our reform and opening up in the new era. “One Belt and One Road” has brought huge development opportunity for Chinese gold industry and enterprises. Song Xin mentioned that the gold [in ground] resources of countries along the “One Belt and One Road” reached 21,000 tons, taking up 41.5% in the world. The gold production of countries along the line reached 1,116 tons, occupying 1/3 in the world. In addition, 6 gold mines are located here among top 20 gold mines in the world.

“The consumption amount of gold jewelry in the area accounts for 82.4% of the global consumption amount. Physical gold item demand including gold bars takes up 77% of the global demand. Gold resource development potential and gold market consumption potential in the area are quite huge, bringing important strategic opportunities for Chinese gold enterprises”, he said.

Song Xin introduced that the China National Gold Group Corporation is constructing mines in Kyrgyzstan and Congo. Last year, witnessed by Chairman Xi Jinping and President Putin, China National Gold Group Corporation and the largest Russian gold enterprise have signed a strategic cooperative agreement and they are promoting detailed relevant cooperative issues at present. Meanwhile, they are preparing to export devices to countries along the “One Belt and One Road” including Russia and Kazakhstan. In the practice of open concept, China National Gold Group Corporation is comprehensive and systematical.

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

 
 

:

1 Chinese yuan vs USA dollar/yuan  UP to 6.6430(SMALL REVALUATION NORTHBOUND  /CHINA UNHAPPY TODAY CONCERNING USA DOLLAR RISE/MORE $ USA DOLLARS LEAVE CHINA/OFFSHORE YUAN NARROWS TO 6.6537) / Shanghai bourse  UP 4.97 OR 0.16%   / HANG SANG CLOSED UP 1.02 or 0.01%

2 Nikkei closed DOWN 100.83 OR .61% /USA: YEN FALLS TO 100.10

3. Europe stocks opened  IN THE GREEN,     /USA dollar index DOWN to 94.35/Euro UP to 1.1341

3b Japan 10 year bond yield: FALLS TO  -.080%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 100.10

3c Nikkei now JUST BELOW 17,000

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

3e WTI::  47.12  and Brent: 48.76

3f Gold UP  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“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 -.081%   German bunds BASICALLY negative yields from  10+ years out

 Greece  sees its 2 year rate RISE to 6.97%/: 

3j Greek 10 year bond yield RISE to  : 8.15%   (YIELD CURVE NOW  UPWARD SLOPING)

3k Gold at $1340.75-/silver $19.02(7:45 am est)   SILVER FINAL RESISTANCE AT $18.50 BROKEN 

3l USA vs Russian rouble; (Russian rouble UP 27/100 in  roubles/dollar) 64.54-

3m oil into the 47 dollar handle for WTI and 48 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.

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 100.10 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9612 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0901 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN VOTES AFFIRMATIVE BREXIT

3r the 10 Year German bund now NEGATIVE territory with the 10 year FALLS to  -0.081%

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

3s The Greece ELA NOW a 71.4 billion euros,AND NOW THE ECB WILL ACCEPT GREEK BONDS (WHAT A DISASTER)

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 1.556% early this morning. Thirty year rate  at 2.242% /POLICY ERROR)

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

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

HELICOPTER MONEY STILL ON THE TABLE/JAPANESE STIMULUS PLAN DISAPPOINTS

Stocks Creep Higher As Dollar Resumes Falling, Oil Slides For Second Day

While the summer doldrums continue, with little market-moving newsflow overnight and zombified volumes, US futures crept higher and European shares rose after EU PMIs printed modestly better than expected, while a return to dollar weakness pushed emerging markets higher, even if it failed to boost oil which as we noted last night was downgraded by Goldman on various fundamental reasons.

Commodity producers led gains in European equities and S&P 500 futures crept higher suggesting a green open. Even as markets swing between gains and losses, volatility across asset classes remained subdued, with a measure for U.S. stocks near a two-year low. Top news stories include: Bayer, Monsanto said to move closer to deal as talks advance, Google said to recruit web stars, Hulu for virtual reality push, Wal-Mart reviews Welspun records after target pulls sheets.

Perhaps the top story of the day is the ongoing dollar softness, which has promptly faded any residual Fischer/Dudley/Williams hawkishness and is back to Friday’s lows. The US currency slid against all except two of its 16 major peers as market participants raise doubts that Yellen will build upon recent hawkish comments by Fed officials at her Jackson Hole speech this Friday. Cited by Bloomberg, traders in Europe and Lonaon said that real money names for once seem to share this view, as they have been actively selling the dollar this week.  A report by a Fed staffer suggested that the Fed may have to unleash up to $4 trillion in QE if the US economy were to encounter a sharp recession.

As investors turn their attention to this week’s main event, Yellen’s speech at an annual symposium in Jackson Hole, Wyoming, on Aug. 26, they are skeptical whether she will endorse comments from other Fed officials in the past week. The dollar capped its biggest two-day gain in a month on Monday as fed fund futures showed traders increased bets for an increase this year above 50 percent.  There are “fluid expectations for Yellen’s Jackson Hole speech,” said Peter Rosenstreich, head of market strategy at Swissquote Bank SA, in Gland, Switzerland. “Hawkish comments last week and rally in yield caused traders to question their expectations for no hike in September. The data is improving but it’s still at a very soft level and there’s really no need for the Fed to tighten prematurely at this point.”

EUROPEAN PMI

The euro-area economy maintained its momentum in August, with growth showing little sign of being curtailed by fallout from the U.K.’s Brexit vote as a composite Purchasing Managers Index for the 19-nation region posting its strongest expansion in seven months, rising for a second month to 53.3 from 53.2 in July. That was the best reading in seven months. The increase was driven by an improvement in services, while manufacturing activity slipped.

  • Eurozone Aug. Flash Composite PMI 53.3; Est. 53.1
  • Eurozone Aug. Flash Services PMI 53.1; Est. 52.8
  • Eurozone Aug. Flash Manufacturing PMI 51.8; Est. 52
  • Germany Aug. Flash Composite PMI 54.4; Est 55.1
  • France Aug. Flash Composite PMI 51.6 Vs 50.1; Est 50.4

“The PMIs suggest that growth still is more robust in the service sector than in manufacturing – a phenomenon that can be observed in many regions and that goes hand in hand with slow growth of global goods trade,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen.

As a result, European shares advanced as commodity producers rebounded on higher metals prices while all 19 Stoxx 600 sectors rise with basic resources, retail outperforming and health care, oil & gas underperforming. 86% of Stoxx 600 members gain, 12% decline. “We’ve had a decent rebound, largely driven by the basic- resource sector and some decent data,” said Michael Hewson, a market analyst at CMC Markets in London. “Yesterday we saw a bit of a selloff, largely as a result of a decline in oil prices. Now we’re seeing some light buying on the back of some decent results from the housebuilding sector here in the U.K. and some fairly decent PMI data. There’s nothing really that came out this morning that would suggest that the rally we’ve seen thus far is under threat.”

In Asia, South Korea, Australia and Shanghai .SSEC all gained, while Japan’s Nikkei .N225 went the other way, easing 0.6 percent as the yen ground higher on the dollar. A survey of Japanese manufacturing activity for August showed output rose for the first time in six months, but the improvement was marginal and investors fixed their focus on the Fed instead.

10-year U.S. Treasury yields ticked up to 1.55 percent after falling 4 basis points overnight. German Bund yields nudged up as well along with the rest of the euro zone and UK Gilts. Fed fund futures imply around a 24 percent chance of an easing in September, rising to around 50 percent by December. A quarter-point hike is not fully priced in until September 2017.

In commodity markets, oil remained under pressure after shedding 3 percent on Monday amid worries about burgeoning Chinese fuel exports, more Iraqi and Nigerian crude shipments and a rising U.S. oil rig count. Brent crude lost 25 cents to $48.96 a barrel. It hit a two-month high of $51.22 on Friday. U.S. crude futures fell 36 cents to $47.07, after the September contract expired on Monday at $47.05.

Market Snapshot

  • S&P 500 futures up 0.3% to 2187
  • Stoxx 600 up 0.7% to 343
  • FTSE 100 up 0.5% to 6863
  • DAX up 0.8% to 10577
  • German 10Yr yield up 1bp to -0.08%
  • Italian 10Yr yield up 3bps to 1.14%
  • Spanish 10Yr yield up 2bps to 0.95%
  • S&P GSCI Index down 0.8% to 361.4
  • MSCI Asia Pacific up less than 0.1% to 139
  • Nikkei 225 down 0.6% to 16497
  • Hang Seng up less than 0.1% to 22999
  • Shanghai Composite up 0.2% to 3090
  • S&P/ASX 200 up 0.7% to 5554
  • US 10-yr yield up 2bps to 1.56%
  • Dollar Index down 0.12% to 94.41
  • WTI Crude futures down 1.3% to $46.79
  • Brent Futures down 1.2% to $48.56
  • Gold spot up less than 0.1% to $1,339
  • Silver spot up 0.6% to $19.03

Global Headlines

  • Bayer, Monsanto Said to Move Closer to Deal as Talks Advance: Companies said on track to reach agreement in next two weeks. CEOs said to meet several times, price differences narrowing
  • Google Said to Recruit Web Stars, Hulu for Virtual Reality Push: Company to release Daydream virtual reality service in weeks. Google said to back games, short films with YouTube celebs
  • VW Resolves Standoff With Supplier After All-Night Negotiations: Six plants in Germany suspended production as parts withheld. Supplier’s unprecedented reaction affected 27,700 VW workers
  • The Giant of Tokyo’s Stock Market Reveals Its Investment Secrets: Japan pension fund is top owner of MUFG, Honda, many more
  • China’s Best Bank Called a ‘Mirage’ Built on Murky Shadow Loans: Case of Bank of Tangshan highlights opaque financial risks across nation
  • World Bank Said to Be Planning SDR Bond Sale Next Week in China: Notes are set to price on Aug. 31, people familiar say
  • Wal-Mart Reviews Welspun Records After Target Pulls Sheets: Retailer says it’s looking at Welspun certification records. Stock slumps 36% in two days; market value below $1b

Looking at regional markets, Asian stocks trade mixed following the subdued lead from the US in which the energy sector was the laggard after crude prices fell around 3%. Nikkei 225 (-0.6%) was weighed on by a firmer JPY as USD/JPY approached 100.00 to the downside, although the index rebounded off its worst levels and briefly turned positive with movements in the currency the main catalyst for price-action. ASX 200 (+0.7%) outperformed with advances in the financial sector spearheading the index to near 1% gains. Chinese markets were mixed with the Shanghai Comp (+0.2%) led higher on talk of reduced costs for businesses, while the Hang Seng (flat) was flat following some lacklustre earnings reports. 10yr JGBs traded higher amid a lack of risk-appetite in Japan, while today’s 20yr auction also provided support after the tail in price narrowed and bid to cover increased from the prior month. Japanese Manufacturing PM! (Aug) M/M 49.6 (Prey. 49.3), 6th consecutive month of contraction. (Newswires) PBoC set CNY mid-point at 6.6586 (Prey. 6.6652) and injected CNY 100bIn via 7-day reverse repos. (Newswires)

Top Asian News

  • The Giant of Tokyo’s Stock Market Reveals Its Investment Secrets: Japan pension fund is top owner of MUFG, Honda, many more
  • China’s Best Bank Called a ‘Mirage’ Built on Murky Shadow Loans: Case of Bank of Tangshan highlights opaque financial risks across nation
  • World Bank Said to Be Planning SDR Bond Sale Next Week in China: Notes are set to price on Aug. 31, people familiar say
  • China Telecom Profit Beats Estimates on Increase in Subscribers: Co. added about 32m 4G subscribers in 1H
  • Doosan Bobcat Said to Gauge Korea IPO Demand in Early September: Korea Exchange said last week it approved co.’s share sale

EUropean equities have spent the session in the green (Euro Stoxx 50: +0.7%), with housing names among the best performers in the wake of Persimmon’s earnings (+3.7%), while material names also outperform, to pare some of yesterday’s losses. Separately on a stock specific note, automakers have been stealing the headlines, with Volkswagen (+2.3%) moving to session highs after making a deal with suppliers to end the recent suspension of production, while Renault (-1.6%) are among the worst performers after members of a state enquiry suggested a French government report omitted significant details of how Co.’s diesel cars were able to emit fewer emissions in official testing. Elsewhere, fixed income markets have seen another muted session of trade, with Bund futures continuing to hover around 167.50 and remain flat on the day, while the highlight may come later in the session in the form of the US 2-year note auction.

Top European News

  • VW Resolves Standoff With Supplier After All-Night Negotiations: Six plants in Germany suspended production as parts withheld. Supplier’s unprecedented reaction affected 27,700 VW workers
  • Schneider Said to Weigh Sale of Agriculture Data Service DTN: French company said to speak with potential sale advisers. Euromoney, others have previously shown interest in the unit
  • UniCredit Jumps as PZU CEO Reported to Discuss Pekao Takeover: PZU CEO Krupinski will fly to Milan for talks, Dziennik says. UniCredit has been seeking to sell assets to boost capital

In FX, the Bloomberg Dollar Spot Index lost 0.1 percent as of 6 a.m. in New York, after jumping 0.6 percent over the previous two trading days. South Korea’s won led gains among the 16 major currencies, jumping 1 percent versus the greenback. The yen appreciated 0.1 percent to 100.22 per dollar. “The U.S. dollar may have pulled back on hopes that the Jackson Hole symposium may focus on lower-for-longer type of policy rather than the need to imminently tighten policy,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “But in the run-up to Jackson Hole we do expect markets to be hyper-sensitive on U.S. policy hints, real or perceived, and so the U.S. dollar and U.S. yields will be volatile.” The New Zealand dollar surged as much as 1 percent after central bank Governor Graeme Wheeler said that while he intends to lower interest rates further to revive inflation, a series of rapid cuts is not justified. The South African rand was the next biggest gainer, appreciating 0.4 percent.

The commodity complex remains in focus, with WTI and Brent futures residing in close proximity to USD 47 and USD 49 respectively after the downside seen during yesterday’s session. Separately, the precious metals complex benefitted from the aforementioned USD softness early in the session, but the likes of gold and silver have failed to sustain these gains and now trade relatively flat on the session. Goldman Sachs maintained its USD 45-50/bbl estimate for Brent crude through to summer next year and added that an OPEC freeze and the USD is not sufficient to support oil further. GS added that an OPEC freeze with some non-OPEC nations could be self-defeating because it would mean that prices could rise and enable other producers to ramp up supply.

Bulletin Headline Summary From RanSquawk and Bloomberg

  • European equities enter the North American crossover in positive territory in what has been a quiet session once again and Eurozone PMIs dissipating some fears of a post-Brexit slowdown
  • USD has been a key focus in FX markets as participants continue to question how committed Fed Chair Yellen will be at the Jackson hole speech on Friday
  • Looking ahead, highlights include Turkish & Hungarian Interest Rate Decisions, US manufacturing PMIs, New Home Sales, APIs, ECB’s Coeure, Fed Discount Minutes and a US 2yr Note Auction
  • Treasuries slip overnight, though remain in ranges, amid higher equities after Markit eurozone composite PMI rose for a second month to 53.3 from 53.2 in July; Treasury to sell $26b 2Y notes at 1pm ET, WI 0.765% vs 0.760% last month.
  • The Fed is facing two big questions related to interest rates — one short-term and one long-term — and it’s important to understand that policy makers approach them separately
  • Companies across Japan have a new name in their top 10 shareholder lists: the world’s largest pension fund as the $1.3t GPIF is top owner of Mitsubishi UFJ Financial Group Inc., Honda Motor Co. and at least 119 other Tokyo-listed firms
  • As China’s sovereign bond yields tumble to decade-lows, investors are piling into the most defensive part of the stock market in search of returns
  • China will further open its economic borders to investors from abroad in a move intended to counter sliding confidence in the outlook for the world’s second-largest economy
  • Negotiations between Bayer AG and Monsanto Co. are advancing toward a deal after the companies made progress on issues including the purchase price and termination fee, people familiar with the matter said

DB’s Jim Reid concludes the overnight wrap

August this year is proving to be very different to last year where risk assets were being routed following the fallout from the shock PBoC devaluation. In fact glancing back to the EMR on this day last year the Shanghai Comp was in the midst of a huge three-day slump in which the index capitulated 19%. Twelve months on and markets have rarely been this quiet. A little bit of to and fro from Fed speakers has at least caused some excitement but in general markets have had very little to feed off since earnings season wrapped up.

The main story over the last 24 hours has probably been the abrupt end to the recent rally for Oil with WTI (-3.46%) ending its run of seven consecutive daily gains. It barely caused a dent in US equity markets though with the S&P 500 ending -0.06% despite energy stocks coming under pressure. In fact the S&P 500 has now gone 31 consecutive sessions with daily moves up or down of less than 1% and in that time has traded in just a 61pt range.

Today we get the August flash PMI’s in Europe which should give markets something to focus on however. This will give us another important post-Brexit indicator which so far have been pretty resilient. Remember that the Euro area composite PMI actually edged up 0.1pts to 53.2 in July. Market expectations today is for the composite to stay pretty much unchanged (consensus forecast is 53.1) with the same said for both the manufacturing and services surveys. We’ll also get the readings for Germany and France with the manufacturing survey data for the UK, Spain and Italy coming next week and services data the week after.

Also out today is more data in the UK with the August CBI industrial trends orders and selling prices survey. Current market expectations are for the industrial orders data to deteriorate further. Later this afternoon we’ll also get the latest Euro area consumer confidence reading. So all that to look forward to today.

This morning in Asia it’s been yet another mixed start in markets. In Japan the Nikkei (+0.05%) and Topix (+0.04%) are little changed despite the Nikkei manufacturing PMI for Japan improving 0.3pts to 49.6 this month in the flash reading. The Hang Seng (-0.30%) is lower however while there have been gains for the Shanghai Comp (+0.47%), Kospi (+0.20%) and ASX (+0.84%). Sovereign bond markets are generally stronger while in FX Markets most emerging market currencies are up slightly. The other data out in Asia this morning came in China where the MNI business indicator for August fell 1.2pts to 54.3.
Moving on. Following on from the Fed Vice-Chair Fischer’s comments over the weekend, the initial reaction in the US Dollar was to rally with the index up as much as half a percent as we went to print yesterday. However that rally faded as the day progressed with the index eventually finishing unchanged. Treasuries followed a similar path. 2y and 10y yields were up as much as +3.2bps and +2.0bps respectively, but then unwound and actually rallied into the close, finishing -0.8bps and -3.6bps lower respectively.

The probability of a Fed rate hike by December ended up unchanged at 51% although pricing for September did actually nudge up slightly to 24% from 22%. It was the move in Oil which probably got the most attention though with that decline for WTI the largest since August 1st. The fingers of blame were pointed at increased expectations of more supply out of Iraq and also the news that a cease-fire was declared in the Niger Delta region, although this was also being met with some caution. Meanwhile metal markets were also a touch softer yesterday which weighed on commodity names in Europe. The Stoxx 600 closed +0.09% after initially climbing +0.90%.

With little in the way of economic data yesterday there was some focus on the informal European leaders meeting between Merkel, Hollande, and Renzi, intended to show their commitment to the EU post Brexit. According to the FT the leaders discussed forgoing a common plan to bolster Europe’s economy and also security, while the talks were also supposedly seen as a show of support for Renzi from Merkel ahead of the upcoming constitutional reform referendum in Italy.

Staying in Europe the latest ECB CSPP numbers were out yesterday. Impressively, given that it covers mid-August, they upped their purchases from a €250mn daily run rate the week before to €321mn this past week. The average daily number since the program started in June is around €350mn with July and Augusts’ purchases probably healthier than most would have expected given the holiday season. At this rate the €17.8bn total purchased so far is only within 2-3 weeks of exceeding the total ABS purchases of €20.3bn made since that program started in November 2014.

.

ASIA MARKETS

i)Late  MONDAY night/TUESDAY morning: Shanghai closed UP 4.91 POINTS OR 0.16%/ /Hang Sang closed UP 1.02 points or 0.01%. The Nikkei closed DOWN 100.83 POINTS OR 0.61% Australia’s all ordinaires  CLOSED UP 0.70% Chinese yuan (ONSHORE) closed UP at 6.6430/Oil FELL to 47.06 dollars per barrel for WTI and 48.76 for Brent. Stocks in Europe: in the RED . Offshore yuan trades  6.6537 yuan to the dollar vs 6.6430 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS SLIGHTLY AS  MORE USA DOLLARS ATTEMPTS  LEAVE CHINA’S SHORES  

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

We have been highlighted the following to you on several occasions.  Now from CLSA: the Bank of Japan has basically nationalized the Japanese stock market.

(courtesy CLSA/zero hedge)

CLSA: “The Bank Of Japan Has Nationalized The Japanese Stock Market”

Following the recent announcement by the BOJ that it would double its ETF purchases to ¥6 trillion, or $58 billion, up from the current ¥3.3 trillion, which is the equivalent to the Fed purchasing $580 billion in ETFs over the next two years, we noted that according to a Bloomberg analysis this would make the Bank of Japan the top shareholder of 55 companies by the end of 2017.

It should, therefore, come as no surprise that as CLSA’s NIcholas Smith wrote in a research report, the “BOJ is nationalizing the stock market” because that is precisely what it is doing with every incremental intervention in the stock market.

Of note in Smith’s note, first reported by CNBC, is that the BOJ’s purchases are focused largely on funds tracking the Nikkei 225 index, estimating that more than half of the BOJ’s ETF buying was likely in Nikkei-tied funds.”That was particularly distorting because that gauge was “a Flintstones index from an abacus age,” due to its arbitrary inclusions.” He noted that Uniqlo owner Fast Retailing had the largest weighting in the index, but that was primarily due to its high share price after avoiding any stock splits since April 2002. He estimated that BOJ buying of Nikkei-tied ETFs worked out to more than 16 percent of the stock’s free float each year. By comparison, Toyota Motor had the biggest market capitalization of any Japan stock, but was only ranked 15th by weight in the Nikkei index.

“If it seems strange that the BOJ is hamstringing the price discovery mechanism of the Japanese stock market by partially nationalizing it, it is all the stranger that it chooses to do so by substantially skewing its buying towards such a distorting index. The arbitrary decisions of the Nikkei committee get to choose the destination of trillions of yen of BOJ – and hence government – money.”

Smith then laments an issue that has especially plagued bond buyers in Europe over the past few months: the CLSA analyst expects that as long as the BOJ continued to buy ETFs, the Japanese market’s performance would become increasingly a function of liquidity in the central bank’s buying basket. Considering that the BOJ will have to intervene far more aggressively in both the bond and stock market in the coming months to push the Yen weaker, liquidity is only set to get worse.

CLSA wasn’t the only one to lament the nationalization of the Japanese market. In a Friday note, Deutsche Bank said that the BOJ’s purchases of Japan real-estate investment trusts (J-REITs) had also lost market-based “price discovery.”

Quoted by CNBC, they said that on August 18, the BOJ purchased around 1.2 billion yen worth of J-REITs for a total of around 61.2 billion yen worth so far this year and 330 billion yen worth since October of 2010. Last week’s BOJ action caused the TSE REIT index to drop sharply in the morning session then surge later in the afternoon, the report said.  Because the J-REIT market is so small, the BOJ’s purchases have an even stronger tendency to distort the market than the central bank’s ETF purchases, Deutsche Bank said.

“While real estate majors are trading at more than 30 percent discounts to net asset value, their price levels are exactly opposite those of J-REITs, which are at premiums of above 30 percent,” Deutsche Bank said, noting that both sectors should be tied to Japan’s real-estate market.

“The elimination of the price discovery function leads to lost buying opportunities for investors and ultimately weakens the investment appetite,” the report said, calling it a “serious error” by the BOJ.

Finally, Reuters summarizes these widespread fears of central bank incursion into the stock market, warning that the “Bank of Japan’s near doubling of its purchases of Tokyo shares is causing investors to worry the central bank will dominate financial markets, which could lead to price distortions as it continues to grease the economy.”

The BOJ’s buying spree will make it harder for investors to sift good companies from bad, and raises a host of other problems including misallocating capital, making equities trading more speculative and reducing incentives for companies to meet shareholder needs, analysts say.

More than three years of massive monetary stimulus has already resulted in the central bank cornering the Japanese government bond (JGB) market and distorting interest rates.

“The increased BOJ purchasing provides a very favorable demand environment for listed equities,” said Michael Kretschmer, chief investment officer at Pelargos Capital in the Hague. “Nevertheless, in the long run we strongly doubt these type of monetary gimmicks aimed at price setting of risk assets can have a sustained positive impact on economic growth.”

In retrospect, what the BOJ is doing is not new: it is merely the latest act of desperation in a process that stretches over 30 years:

Some liken the increased purchases by the BOJ – the only central bank in the world that buys stocks at the moment – to failed government efforts over more than two decades to prop up the market by pressing government-related financial institutions to buy after the bursting of the late-1980s asset bubble.

Actually, one can add the SNB to the list of banks that are open about their stock purchases. As for central banks, such as the Fed which transacts in the equity market via a very “close” relationship between NY Fed and Citadel, they are for now ignored.

As for Japan, “the market is driven completely by the BOJ’s buying rather than views on each companies’ earnings,” said a fund manager at a Japanese asset management firm.

This means that fundamental data and news are now completely ignored: all that matters – as has been the case for years in the US – is central bank intervention, either direct or indirect.

Some worry the stock market could start to resemble the bond market, where the BOJ’s purchases – about 110-120 trillion yen annually – have made traders fixate on its bond buying and pay scant attention to economic data.

The BOJ’s tactics “could weaken the market’s function in the long run,” said Keita Matsumoto, head of investor sales at Citigroup Global Markets Japan. “I’m worried that could lead to a ‘JGB-ification’ of stocks.”

Yet what is obvious to all but the BOJ is that the good times will not last, and is why some are already casting glances at the exit signs: “The rise in share prices may seem desirable but it causes harm as well,” said Shingo Ide, chief equity strategist at NLI Research Institute. “Even if companies need to improve their management, shareholders may not take them seriously if share prices are not falling.”

The endgame, when it strikes, will hardly be a surprise: a quick historical lesson of what happens when the government nationalizes all capital markets, if one can even call them that, look at what happened with the USSR. For now, however, the money printers are spinning and “one has to dance.”

Finally, one can probably absolve Kuroda of his sins – after all he is merely following orders of bankers from the private sector (recall that the BOJ launched NIPR following “peer pressure” at Davos) – by admitting that what the BOJ is doing is no different from the creeping capital markets nationalization that all other central banks around the globe have unleashed. Their redemption? They are doing it “for the people.

 

end

 

Here is another casualty of the higher Libor and its increasing costs to foreign banks. We showed (below) that the higher libor costs make buying of USA bonds impossible because their higher costs negates the deal.  Now we see that Japanese banks are having trouble locating scarce dollars in the money markets and that will have a devastating effect on their profitability

(courtesy zero hedge)

 

The First Victims Of The Libor Surge Have Emerged… In Japan

b) REPORT ON CHINA

China has spooked its market as they seem to wish to withdraw from conventional QE and instead go their less powerful 14 repos:  bond yields spike as there will be nobody to buy their bonds:

(courtesy zero hedge)

China Has Its First Taste Of “VaR Shock” As PBOC 14 Day Repo Sparks Treasury Dump

Chinese Treasury futures tumbled overnight, posting their sharpest fall in three months, after the local market was spooked when the PBOC surprised bondholder by hinting it could avoid broad easing and instead may bring back a far less powerful tool. Overnight, the People’s Bank of China asked banks about demand for 14-day reverse bond repurchase agreements for the first time since February, suggesting it may be expanding its strategy of using targeted, short-term injections rather than cutting interest rates or banks’ reserve requirements (RRR).

As a result, and confirming once again that fundamentals are dead even in China where only liquidity injections matter just like across the entire “developed” market, the price of Chinese 10- Y treasury futures tumlbed 0.38%. This was also China’s first glimpse of what a VaR shock in government bonds will look like once yields spike from recent record lows.

A senior trader at a major Chinese state-owned bank in Shanghai, cited by Reuters, said that “the market interprets the move as another sign that the central bank won’t cut interest rates and RRR for now as it injects more short-term money into the banking system.”  He added that the PBOC announcement “is likely to set a floor for the fall of the yields of government bond futures, and thus investors sold the futures on the news.”

The People’s Bank of China (PBOC) has relied on issuance of seven-day reverse repos in daily open market operations this year, injecting cash on a regular basis to manage short-term money supply. The adjustment may imply the PBOC is preparing to extend the tenor of its short-term money management strategy.

While many have been expecting the PBOC to ease anew, with both housing data and the broader economy once again rolling over while trade data remains subdued, the PBOC has not cut RRR since March, and has not cut long-term guidance interest rates since October.

Still, while the economy urgently needs more easing, if only judged by the recent collapse in Chinese yields, the PBOC knows that more aggressive monetary policy easing will put unwanted additional pressure on the yuan currency, which is near six-year lows, and risk more capital outflows.

However, now that it has tipped its hand, a new risk emerges: VaR shock, something China has not experienced yet.

While that has yet to manifest itself, as Reuters adds, policymakers have clearly grown more concerned recently about the risks of prolonged, debt-fuelled stimulus, and appear to have turned their focus to more government spending instead.

Money markets were mixed after the PBOC’s move, with the volume weighted average of the 14-day repo down just two basis points (bps) to 2.7 percent and the seven-day weighted average rate up six bps at 2.40 percent.  Although the 14-day repo rate has been moving higher in recent days, the weighted average remains far below its recent peak of 2.82 percent in late July.

With the central bank conducting seven-day reverse repos on a nearly daily basis, the benchmark seven-day rate has remained steady for most of 2016, but the 14-day has been more volatile.

So far in 2016, the PBOC has injected a net 654.3 billion yuan ($98.44 billion) through open markets year to date by the week ending Aug 20. It has also injected funds through medium-term lending facilities which allow it to channel money to more vulnerable sectors such as agricultural firms or small businesses.

Finally, China has also injected trillions in bank debt, both in the form of conventional loans and shadow debt, neither of which have merely slowed down the decline.

EUROPEAN AFFAIRS

Last week we reported on the scarcity of Great Britain bonds (GILTS).  Today there was a rush to purchase anything with a yield and thus scarcity is back in this arena

(courtesy zero hedge)

Gilts Spike After Cover Ratio In Today’s 15Y+ POMO Tumbles, BOE Buys All Bonds At Premium

While last week the UK bond market breathed a sigh of relief when the BOE found more than enough willing sellers into its longest-maturity, 15Y+ repurchase, or POMO, operation, following the uncovered operation two weeks ago, today concerns have returned anew when moments ago the BOE reported that its GBP1.170 billion repurchase operation was covered “only” 1.54x (with GBP 1.799 billion in offers), down nearly by half from last week’s 2.93x, and suggesting that supply of longer-dated gilts may once again be getting scarce.

Just as importantly, the BOE bought all bonds at premium, with highest price paid at 141p and 151p. Most bonds were previously bought at a discount of 7p-45p, with just three issues bought at a premium of 1p-9p

In response, the yield on the 30Y gilt immediately tumbled as investors once again rushed into the longest dated bond as fears of a bond shortage have once again reemerged.

end

 

Shear lunacy…now Mario is buying private placement debt.  They are purchasing debt equivalent to 1 trillion euros per year.  It ends in March 2017:

(courtesy Mish Shedlock)

Madness In Mario-World: European Companies Issue Debt Simply Because The ECB Will Buy That Debt

Submitted by Michael Shedlock via MishTalk.com,

Debt Seller’s Paradise

Things are so absurd in the Eurozone that the ECB is buying private placement debt with little regard for safety.In turn, private equity companies issue debt simply because they know in advance the ECB will buy it.

It’s a startling example of how the market is adapting to extremes of monetary policy, and it’s a safe conclusion the experiment will not end well.

For now, it’s a Seller’s Paradise as Companies Build Bonds for European Central Bank to Buy.

The European Central Bank’s corporate-bond-buying program has stirred so much action in credit markets that some investment banks and companies are creating new debt especially for the central bank to buy.

In two instances, the ECB has bought bonds directly from European companies through so-called private placements, in which debt is sold to a tight circle of buyers without the formality of a wider auction.

Now, they are all but inviting private actors to concoct specific things for them to buy so they can continue pumping money into the financial system.

The furious central-bank buying has been a relief to companies and governments that can now borrow at rock-bottom interest rates. But it has also spurred criticism that the extreme policies are killing the returns available to other investors, such as pension funds, and loading up the economy and financial system with potentially overpriced debt.

The ECB was late to the central-bank party—it began quantitative easing only in 2015, years after the U.S., the U.K. and Japan—but it has embraced bond-buying with fervor. In March, it boosted its purchases to €80 billion ($90.6 billion) a month from €60 billion and surprised investors by saying it would soon add corporate bonds to its shopping list.

It had already bought so many government bonds that it was running out of things to purchase.

Private placements are private debt sales not open to the broader market, typically relying on a handful of investors that want to buy a company’s bonds. “Typically there won’t be a prospectus, there won’t be any transparency, there won’t be a press release. It’s all done discreetly,” said Apostolos Gkoutzinis, head of European capital markets at law firm Shearman & Sterling LLP.

The ECB executes bond purchases through the eurozone’s national central banks, which function like branches.

The Bank of Spain holds some of a €500 million private placement issued by Spanish oil company Repsol SA on July 1, and some of a €200 million deal from Spanish power utility Iberdrola SA sold on June 10, two days after the ECB program got under way.

Both deals were solely arranged by Morgan Stanley and are the only private placements issued since the start of the ECB’s corporate buying program to have been bought by national central banks, according to the Journal analysis. Morgan Stanley declined to comment.

“We’re all looking at the data,” said the head of credit trading at a major European bank. “They’re only one new customer—but it’s a big one.”

And banks are rushing to serve it. Credit Suisse Group AG reshuffled its sales coverage of national central banks in recent weeks when the trading desk realized it wasn’t doing enough business with the new largest buyer in town, according to a person familiar with the matter.

ECB Effect

ECB Effect

The ECB only announces what it will buy, not how much of it. Yet, that has spawned a guessing game driving yields lower and lower.

As soon as the ECB does buy an issue, the interest rate on those bonds collapse. And now we see private placement of debt, specifically designed with the ECB in mind.

QE is supposed to spur lending and investment. In practice, it’s killing pension plans while fostering bond bubbles.

As long as the companies do not default, the ECB can simply hold the debt to term, just as the Fed is doing now. Meanwhile, the bubbles continue to inflate.

end

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

An excellent commentary, with the subject that the new Russia-China- Iran alliance totally pushed the USA out of much middle east influence..

(courtesy Darius Shahtamasebi/AntiMedia.org)

New Russia-China-Iran Alliance Could Push US Out Of Much Of The Middle East

Submitted by Darius Shahtamasebi via TheAntiMedia.org,

When the current Syrian conflict first erupted in 2011 – and then enflamed in 2012 – a small minority of the American public probably wondered why President Obama was not intervening to help the Syrian people as he had done in Libya (they were likely completely unaware the president had already been interfering heavily in Syria since the conflict began). However, some pundits speculated that Obama would eventually intervene directly, and that this intervention would be the beginning of the end of the American empire as we know it.

What started out as a seemingly hollow prediction has become as true a statement as any. First, American involvement began with funding, arming, and training violent rebels to try to overthrow the Syrian government. Then came attempts to misrepresent so-called “intelligence” to justify military intervention against Assad in 2013. And finally, like a dream come true, Washington was then able to capitalize  on the growth of ISIS in Syria, a growth predicted by their own security establishment in 2012, which then became an excuse to start bombing Syrian territory in 2014. By interfering so forcibly in the affairs of Syria, the U.S. has forced a number of countries  — notably Iran, China and Russia — to step up and strike back at U.S. efforts to destabilize the region.

Since the beginning of the conflict, Iran has been heavily involved due to the fact Syria is an important ally to the Islamic republic, bound by a mutual defense agreementMuch to the anger of the U.S., just this week, Iran allowed Russia to strike Syrian territory from its Hamadan air base. Iran is supplying ground troops, advisement, and high level training to Syrian pro-Assad forces. They are also providing a credit line, and Iranian involvement is growing in tandem with the two nuclear powers also working in defense of the Syrian regime.

Russia has a history of being involved in Syria, but following its direct military intervention last year, they have shown they can set up their own no fly zone within the country at any moment(note that the Russian intervention is arguably legitimate given that they have received authority from the Assad regime to do so). Despite this, they have continued to extend a hand to Washington to achieve their stated goals of defeating ISIS together.

China has sided with Russia and Syria for some time now, using its veto power at the U.N Security Council level to block resolutions on Syria – after Russia and China were completely dupedby the Security Council resolution on Libya in 2011. China has warned the U.S. against attacking Syria and Iran, and now, they have officially stated they are looking to join the fight on the side of the Syrian government, further complicating the issue from Washington’s standpoint.

Unless the U.S. wants to confront these players directly, it has no choice but to accept that they have lost a war they directly and indirectly started through covert CIA operations that began in 2011 (and as some would argue, well before that). This isn’t a loss in the Iraq or Vietnam sense — which are arguably victories in the eyes of the elite class. Rather, the Syrian war is an operation that has left them with less influence in the region than when the Syrian crisis began (cue picture of John Kerry dining with Bashar al-Assad in Damascus in 2009).

It will be back to the drawing board for Washington, whose only real move is to continue arming and funding fanatical jihadists or encourage Saudi Arabia and Turkey to deliver on their threat to send ground troops into Syria. This will only delay the inevitable, however, and eventually they will have to either admit they have completely lost influence in the Shia-Crescent region of the Middle East — which has, in turn, been snatched up by Russia and China — or directly confront these nuclear powers in an all-out war.

Or they can just wait until Hillary is elected president.

GLOBAL ISSUES

A must read…the lunacy of QE and why this will bring the whole house of cards down

(courtesy David Stockman/ContraCorner)

Bubbles In Bond Land——A Central Bank Made Mania, Part 1

NOTE TO READERS

I am in the throes of finishing a book on the upheaval represented by the Trump candidacy and movement. It is an exploration of how 30 years of Bubble Finance policies at the Fed, feckless interventions abroad and mushrooming Big government and debt at home have brought America to its current ruinous condition.

It also delves into the good and bad of the Trump campaign and platform and outlines a more consistent way forward based on free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule.

In order to complete the manuscript on a timely basis, I will not be doing daily posts for the next week or two. Instead, I will post excerpts from the book that crystalize its key themes and which also relate to the on-going gong show in the presidential campaigns and in the financial and economic arenas. Another of these is included below.

I am also working with my partners at Agora Financial on a new version of Contra Corner. More information on that will be coming later this month.

Trumped Final

…..Sometimes an apt juxtaposition is worth a thousand words, and here’s one that surely fits the bill.

Last year Japan lost another 272,000 of its population as it marched resolutely toward its destiny as the world’s first bankrupt old age colony. At the same time, the return on Japan’s 40-year bond during the first six months of 2016 has been an astonishing 48%.

That’s right!

We aren’t talking Tesla, the biotech index or Facebook. To the contrary, like the rest of the Japanese yield curve, this bond has no yield and no prospect of repayment.

But that doesn’t matter because it’s not really a sovereign bond anymore.These Japanese government’s bonds (JGBs) have actually morphed into risk free gambling chips.

Front-running speculators are scooping up whatever odds and sots of JGB’s that remain on the market and are selling them to the Bank of Japan (BOJ) at higher and higher and higher prices.

At the same time, these punters face virtually no risk. The BOJ already owns 426 trillion yen of JGB’s, which is nearly half of the outstandings. And that’s saying something, given that Japan has more than one quadrillion yen of government debt which amounts to 230% of GDP.

Moreover, it is scarfing up the rest at a rate of 80 trillion yen per year under current policy, while giving every indication of sharply stepping-up its purchase rate as it segues to outright helicopter money.

It can therefore be well and truly said that the BOJ is the ultimate roach motel. At length, virtually every scrap of Japan’s gargantuan public debt will go marching into its vaults never to return, and at “whatever it takes” in terms of bond prices to meet the BOJ’s lunatic quotas.

The Big Fat Bid Of The World’s Central Banks

Surely, BOJ Governor Kuroda will go down in history as the most foolish central banker of all-time. But in the interim the man is contributing—-along with Draghi, Yellen and the rest of the central bankers’ guild—-to absolute mayhem in the global fixed income market.

The effect of their massive bond purchases or so-called QE policies has been to radically inflate sovereign bond prices. The Big Fat Bid of central bankers in the benchmark government securities sector, in turn, has caused drastic mispricing to migrate into the balance of the fixed income spectrum via spread pricing off the benchmarks, and from there into markets for converts, equities and everything else.

Above all else, the QE driven falsification of bond prices means that central banks have supplanted real money savers as the marginal source of demand in the government bond markets. But by their very ideology and function, central bankers are rigidly and even fiercely price inelastic.

For example, the madman Draghi will pay any price—-absolutely any price—–to acquire his $90 billion per month QE quota. He sets the price on the margin, and at present that happens to be a yield no lower than negative 0.4% for a Eurozone government security of any maturity. Presumably that would include a 500-year bond if the Portuguese were alert enough to issue one.

Needless to say, no rational saver anywhere on the planet would “invest” in the German 10-year bund at its recent negative20 bps of yield. The operational word here is “saver” as distinguished from the hordes of leveraged speculators (on repo) who are more than happy to buy radically over-priced German bunds today.

After all, they know the madmen at the ECB stand ready to buy them back at an even higher price tomorrow.

Yet when you replace savers with central bankers at the very heart of the financial price discovery process in the benchmark bond markets, the system eventually goes tilt. You go upside down.

The Fiscal Equivalent Of A Unicorn—–“Scarcity” In Sovereign Debt Markets

That condition was aptly described in a recent Wall Street Journal piece about a new development in sovereign debt markets which absolutely defies human nature and the fundamental dynamics of modern welfare state democracies.

To wit, modern governments can seemingly never issue enough debt. This is due to the cost of their massive entitlement constituencies, special interest racketeers of every stripe and the prevalence of Keynesian-style rationalizations for not extracting from taxpayers the full measure of what politicians are inclined to spend.

Notwithstanding that endemic condition, however, there is now a rapidly growing “scarcity” of government debt—-the equivalent of a fiscal unicorn. As the WSJ noted:

A buying spree by central banks is reducing the availability of government debt for other buyers and intensifying the bidding wars that break out when investors get jittery, driving prices higher and yields lower. The yield on the benchmark 10-year Treasury note hit a record low Wednesday.

“The scarcity factor is there but it really becomes palpable during periods of stress when yields immediately collapse,’’ he said. ”You may be shut out of the bond market just when you need it the most.’’

Owing to this utterly insensible “scarcity”, central banks and speculators together have driven the yield on nearly $13 trillion of government debt—or nearly 30% of total outstandings on the planet—into the subzero zone. This includes more than $1 trillion each of German and French government debt and nearly $8 trillion of Japanese government debt.

Nor is that the extent of the subzero lunacy. The Swiss yield curve is negative all the way out to 48 years, where recently the bond actually traded at -0.0082%.

So we do mean that the systematic falsification of financial prices is the sum and substance of what contemporary central banks do.

Forty years from now, for example, Japan’s retirement colony will be bigger than its labor force, and its fiscal and monetary system will have crashed long before. Yet the 10-year JCB traded at negative 27 bps recently while the 40-year bond yielded a scant 6 basis points!

When it comes to government debt, therefore, it can be well and truly said that “price discovery” is dead and gone. Japan is only the leading edge, but the trend is absolutely clear. The price of  sovereign debt is where central banks peg it, not even remotely where real money savers and investors would buy it.

The world is even poorer ... In yield terms...after Brexit

Still, that’s only half the story, and not even the most destructive part. The truth of the matter is that the overwhelming share of government debt is no longer owned by real money savers at all. It is owned by central banks, sovereign wealth funds and leveraged speculators.

As to the latter, do not mistake the repo-style funding deployed by speculators with genuine savings. To the contrary, their purchasing power comes purely from credit (repo) extracted from the value of bond collateral, which, in turn, is being driven ever higher by the Big Fat Bid of central banks.

What this means is that real money savings—– which must have a positive nominal yield—-are being driven to the far end of the sovereign yield curve in search of returns, but most especially ever deeper into the corporate credit risk zone in quest of the same.

The Pure Lunacy Of Mario Draghi

Nowhere is the irrational stampede for yield more evident than in the European bond markets. After $90 billion per month of QE purchases by the ECB, European bond markets have been reduced to a heap of raging  financial market lunacy.

It seems that Ireland has now broken into the negative interest rate club, investment grade multinationals are flocking to issue 1% debt on the euro-bond markets and, if yield is your thing, you can get all of 3.50% on the Merrill Lynch euro junk bond index.

That’s right. You can stick your head into a veritable financial meat grinder and what you get for the hazard is essentially pocket change after inflation and taxes.

Remember, the average maturity for junk bonds is in the range of 7-8 years. During the last ten years Europe’s CPI averaged 2.0% and even during the last three deflationary years the CPI ex-energy averaged 1.2%.

So unless you think oil prices are going down forever or that the money printers of the world have abolished inflation once and for all, the real after-tax return on euro junk has now been reduced to something less than a whole number. It might be wondered, therefore, whether the reckless stretch for “yield” has come down to return free risk?

Well, no it hasn’t. Yield is apparently for desperate bond managers and other suckers.

In fact, among the speculators who wear big boy pants the bond markets are all about capital gains and playing momo games. It’s why euro junk debt—-along with every other kind of sovereign and investment grade debt—-is soaring. In a word, bond prices are going up because bond prices are going up. It’s an utterly irrational speculative mania that would do the Dutch tulip bulb punters proud.

In the days shortly before Draghi issued his “whatever it takes” ukase, for instance, the Merrill Lynch euro high yield index was trading at 11.5%. So speculators who bought the index then have made a cool 230% gain if they were old-fashioned enough to actually buy the bonds with cash.

And they are laughing all the way to their estates in the South of France if their friendly prime broker had arranged to hock them in the repo market even before payment was due. In that case, they’re in the 1000% club and just plain giddy.

BofA Merrill Euro High Yield Index 2016

Does Mario Draghi have a clue that he is destroying price discovery completely? Do the purported adults who run the ECB not see that the entire $20 trillion European bond market is flying blind without any heed to honest price signals and risk considerations at all?

Worse still, do they have an inkling that the soaring price of debt securities has absolutely nothing to do with their macroeconomic mumbo jumbo about “deflation” and “low-flation”?  Or that they are in the midst of a financial mania, not a ” weak rate environment” due to the allegedly “slack” demand for credit in the business and household sectors?

In fact, European financial markets are being stampeded by a herd of front runners who listen to Draghi reassure them on a regular basis that come hell or high water, the ECB will buy every qualifying bond in sight at a rate of $90 billion per month until March 2017. Full stop.

Never before has an agency of the state so baldy promised speculators literally trillions in windfall gains by the simple act of buying today what Draghi promises he will be buying tomorrow.

And that will be some tomorrow. As more and more sovereign debt sinks into the netherworld of negative yield and falls below the ECB’s floor (-0.4%), there will be less supply eligible for purchase from among the outstanding debt of each nation in the ECB’s capital key.

This is price fixing with a vengeance. It is no wonder that repo rates recently have plunged into negative territory.

But here’s the thing. The geniuses at the ECB are not cornering the market; they are being cornered by the speculators who are recklessly front-running the central bank with their trigger finger on the sell button.

Everything in the European fixed income market—sovereign and corporate—– is now so wildly over-priced and disconnected from reality that the clueless fools in Frankfurt dare not stop. They dare not even evince a nuance of a doubt.

So this is a house of cards like no other. Greece remains a hair from the ejection seat, yet everything is priced as if there is no “redenomination” risk.

Likewise, with the European economies still dead in the water, and notwithstanding some short-term data squiggles in the sub-basement of historic trends, the debt of Europe’s mostly bankrupt states is priced as if there is no credit risk anywhere on the continent outside of Greece.

Well then,  just consider three fundamentals that scream out danger ahead. Namely, public debt ratios continue to rise, GDP continues to flat-line, and the Eurozone superstate in Brussels continues to kick the can and bury its member states in bailout commitments that would instantly result in political insurrection in Germany, France and every other major European polity were they ever to be called……

 

END

 

Good question:  just what are central banks terrified about…

(courtesy Phoenix Capital)

 

Central Banks Are Terrified… But of What?

Phoenix Capital Research's picture

end

 

EMERGING MARKETS

VENEZUELA: 

 

The authorities now are banning lines from forming outside bakeries

(courtesy Fisher/Reason.com/Hit & Run blog)

 

Venezuela’s Latest Response To Food Shortages: Ban Lines Outside Bakeries

Submitted by Anthony Fisher via Reason.com’s Hit & Run blog,

The tragedy of Venezuela continues unabated, but that doesn’t mean the government of President Nicolás Maduro has stopped trying to fix problems like the devastating scarcity of food which has led to malnutrition, riots, food truck hijackings, vigilante lynchings of petty thieves, and thestarvation of zoo animals.

No, Maduro hasn’t admitted the failure of Chavismo — the brand of Bolivarian socialism imposed on the oil-rich country by his late predecessor Hugo Chavez — instead, Venezuela’s embattled leader has launched a war on “anxiety.”

The National Superintendency of Fair Prices has reportedly instituted a policy of fining bakeries that allow lines to stretch out their front doors, according to PanAmPost. The head of this particular bureaucracy, William Contreras, claims the lines aren’t a true indicator of a severe shortage of bread, but rather, a political “strategy of generating anxiety.”

Contreras claims there is no shortage of raw materials to make bread, but seems to not understand that bakeries just bake bread, they don’t process the different kinds of wheat used to make the flour that’s then used to make bread.

But this is indicative of the magical thinking of Venezuela’s socialist government: the breakdown of the economy couldn’t possibly because of failed economic policy, and scarcity must be the result of a greater conspiracy.

Contreras was also quoted by El Tiempo as saying the long lines represented “fairly clear political intentions and purposes” such as “destabilizing the economy and break[ing] the morale of the people.” This is in keeping with Maduro’s deflection of the blame he deserves for destroying Venezuela’s economy, which he puts at the feet of U.S.-backed agitators engaging in “economic war” by keeping things like toilet paper off supermarket shelves.

Even in a time of crisis when infants are dying in electricity-deprived hospitals, Maduro insisted on putting on a brave face and keeping with his government’s practice of lavishly asinine spendingby dropping over $400,000 on a week of celebrating the 90th birthday of the president of anotherimpoverished Latin socialist nation — Fidel Castro.

This whole battle over both the cause and greater meaning of long lines at bakeries must come as a shock to former presidential candidate and noted democratic socialist Bernie Sanders, who once argued that bread lines in socialist or communist countries were a “good thing” because they proved that everyone is suffering equally.

Meanwhile, a major rally by the Venezuelan opposition which is calling for Maduro’s recall is scheduled in Caracas for September 1. 80 percent of the Venezuelan people reportedly want Maduro to be removed from office.

 

END

OIL ISSUES

Oil moves higher on false algo rumour of an Iran support to prop up oil market. It was denied by Iran but oil still rebounds higher

(courtesy zero hedge)

Crude Explodes Higher After Iran ‘Reportedly’ “May Support Actions To Prop Up Oil Market”; Ignores Iran Denial

Another day, another strategically timed headline meant to trigger an HFT algo momentum ignition spike, and sure enough oil explodes higher, even though as Goldman explained yesterday, even an OPEC freeze will do nothing for actual production.

This hit from Reuters, which once again relies on “anonymous sources” to generate the primary source of Reuters revenue: FX volatility, in this case in the CAD.

  • IRAN SENDING POSITIVE SIGNALS THAT IT MAY SUPPORT JOINT ACTION TO PROP UP OIL MARKET – SOURCES IN OPEC, OIL INDUSTRY

Iran is sending positive signals that it may support joint action to prop up the oil market, Reuters says, citing unidentified people in OPEC and the oil industry.

Iran appears to be more willing to reach an understanding with other oil producers, though it has not decided whether to join a new effort, Reuters says, citing unidentified people.

“Negotiations are ongoing. I see positive signs coming from OPEC ’majors’,” Reuters says, citing an unidentified senior person in the industry familiar with the discussions, referring to Riyadh and Tehran

and then this happened:

Yuuuge volume too, which suggest that this is just the latest headline triggered squeeze.

Which was met with what appears like an official ‘denial’ headline shortly thereafter… but by then momentum had been ignited…

Which should not be a surprise, as Bloomberg notes, Iran is unlikely to support an oil output freeze even when its production reaches pre-sanctions level, while other OPEC countries continue to boost supply, writes Bloomberg oil strategist Julian Lee.

  • Iran to continue to raise output as much as it can even after it regains pre-sanctions level of ~4m b/d: Lee
  • Country produced 3.55m b/d in July: Bloomberg survey
  • Iran targeting 4m b/d as soon as late Sept.
  • Output from fields bordering Iraq seen rising to 290k b/d by March 2017 from 220k now
  • Iran won’t restrict output growth while watching neighboring Iraq, rival Saudi Arabia raise supply
  • Iraq produced 4.36m b/d in July, close to record 4.51m seen in Jan., accord. to Bloomberg survey
  • Country quickly to boost exports by ~150k b/d after agreement on resuming shipments from Kirkuk fields
  • Iraq’s Halfaya field to double output by mid-2018: state-run Missan Oil
  • Exxon, Petrochina in talks to develop 2 fields in south Iraq: deputy oil minister; ministry seeks to boost combined production from both fields to 550k b/d from 70k b/d

Still what really matters is algorothmic momentum ignition and the appearance that all is well.

 

end

 

Then it slides back to earth after the biggest inventory build in the last 4 months

(courtesy zero hedge)

WTI Slides After Biggest Inventory Build In 4 Months

Amid the volatility of crude prices, inventory levels, and headline hockey; API printed a surprisingly large 4.464mm crude build (against expectations of a 850k draw). Having spiked early in the day on Iran rumors (and failed to fall on denials), WTI kneejerked lower after the API data showed the biggest crude build in over 4 months (and a bigger than expected build at Cushing).

API

  • Crude +4.464mm (-850k exp)
  • Cushing +417k (+200k exp)
  • Gasoline -2.2mm (-1.7mm exp)
  • Distillates -834k

Biggest build in crude in over 4 months… (4th weekly draw in gasoline)

 

The initial reaction was a kneejerk lower.. but not much…

 

 

So to summarize, Goldman points out that even if the agree a freeze, it will be self-defeating, Iraq wants to up its output, Nigeria is set to increase supply, and Iran officials denied the unconfirmed rumors of its support for a freeze. As Michael Loewen, commodities strategist at Scotiabank, noted“It’s speculation. It’s more OPEC jawboning.”

 

Charts: Bloomberg

end

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

Euro/USA   1.1341 UP .0024 (STILL  REACTING TO BREXIT/REACTING TO BRITISH CUT IN INTEREST RATE TO .25%

USA/JAPAN YEN 100.10  DOWN .163(Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER/KURODA HELICOPTER MONEY  ON THE TABLE BUT DISAPPOINTS WITH STIMULUS

GBP/USA 1.3181 UP .0050 

USA/CAN 1.2900 DOWN .0040

Early THIS TUESDAY morning in Europe, the Euro ROSE by 24 basis points, trading now well above the important 1.08 level FALLING to 1.1381; 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 CLOSED UP 4.91 POINTS OR 0.16%    / Hang Sang CLOSED UP 1.02 POINTS OR 0.01%     /AUSTRALIA IS HIGHER BY .70% / EUROPEAN BOURSES ALL  IN THE GREEN

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

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

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

The NIKKEI: this TUESDAY morning CLOSED DOWN 100.83 POINTS OR 0.61%  

Trading from Europe and Asia:
1. Europe stocks ALL IN THE GREEN

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 1.02 POINTS OR 0.01%  ,Shanghai CLOSED UP 4.91  POINTS OR 0.16%    / Australia BOURSE IN THE GREEN: /Nikkei (Japan)CLOSED IN THE RED   /INDIA’S SENSEX IN THE  GREEN 

Gold very early morning trading: $1340.50

silver:$18.99

Early TUESDAY morning USA 10 year bond yield: 1.556% !!! UP 1  in basis points from MONDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield RISES SLIGHTLY to 2.242 UP 1 in basis points from MONDAY night. 

USA dollar index early TUESDAY morning: 94.35 DOWN 19 CENTS from MONDAY’s close.

This ends early morning numbers TUESDAY MORNING

 

END

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And now your closing TUESDAY NUMBERS

Portuguese 10 year bond yield:  3.01% DOWN 2 in basis points from MONDAY  (does not buy the rally)

JAPANESE BOND YIELD: -0.08% DOWN 2 in   basis points from MONDAY

SPANISH 10 YR BOND YIELD:0.935% PAR IN basis points from MONDAY (this is totally nuts!!/

ITALIAN 10 YR BOND YIELD: 1.12  UP 2 in basis points from MONDAY 

the Italian 10 yr bond yield is trading 17 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: -0.095% DOWN  1/2 IN  BASIS POINTS ON THE DAY

 

END

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IMPORTANT CURRENCY CLOSES FOR TUESDAY

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

 

Euro/USA 1.1309 DOWN .0008 (Euro DOWN 8 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 100.16 DOWN .108(Yen UP 11 basis points/

Great Britain/USA 1 .3198 UP 0.0066 ( Pound UP 66 basis points/BREXIT DECISION AFFIRMATIVE/QE TO START AGAIN/UK DOWNGRADED/NEW PRIME MINISTER T. MAY/GR BRITAIN LOWERS INTEREST RATES/

USA/Canada 1.2910 DOWN 0.0030 (Canadian dollar UP 30 basis points AS OIL ROSE(WTI AT $48.09). Canada keeps rate at 0.5% and does not cut!

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was DOWN by 8 basis points to trade at 1.1309

The Yen ROSE to 100.16 for a GAIN of 11 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED 

The POUND was UP 66 basis points, trading at 1.3198 AS PRIME MINISTER THERESA MAY TAKES OFFICE/CARNEY CUTS INTEREST RATE TO ONLY  .25%

The Canadian dollar ROSE by 30 basis points to 1.2910, WITH WTI OIL AT:  $48.00

CANADIAN RATES WERE NOT CUT

The USA/Yuan closed at 6.63378

the 10 yr Japanese bond yield closed at -.08% DOWN 2 IN  points / yield/

Your closing 10 yr USA bond yield:UP 1 IN basis points from MONDAY at 1.549% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.234 DOWN 1/5 in basis points on the day /

BANKS NEED THE LONGER BOND HIGHER IN YIELD: INSTEAD THE SPREAD LESSENS.

Your closing USA dollar index, 94.50  DOWN 4 CENTS  ON THE DAY/4 PM 

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for TUESDAY

London:  CLOSED UP 39.97 OR 0.59%
German Dax :CLOSED UP 98.53 OR  0.94%
Paris Cac  CLOSED UP 31.51  OR 0.72%
Spain IBEX CLOSED UP 112.90 OR 1.33%
Italian MIB: CLOSED UP 408.91 POINTS OR 2.50%

The Dow was up 17.88 points or 0.10%

NASDAQ up   15,48 points or 0.30%
WTI Oil price; 47.05 at 4:30 pm;

Brent Oil: 49.16

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  64.43 (ROUBLE UP  37/100 ROUBLES PER DOLLAR FROM FRIDAY) 

TODAY THE GERMAN YIELD FALLS TO -0.095%  FOR THE 10 YR BOND

END

This ends the stock indices, oil price, currency crosses and interest rate closes for today

Closing Price for Oil, 5 pm/and 10 year USA interest rate:

WTI CRUDE OIL PRICE 5 PM:47.64

BRENT: 49.55

USA 10 YR BOND YIELD: 1.546% 

USA DOLLAR INDEX: 94.57 DOWN 1 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.31947 UP .0064 or 64 basis pts.

German 10 yr bond yield at 5 pm: -0.095%

END

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

Trading Today in Graph form;  VERY IMPORTANT FOR YOU TO VIEW ALL THE CHARTS TODAY

Stocks Spike To Record Highs, Close Not “Off The Lows”

US and European manufacturing PMIs disappointed (but don’t tell the mainstream media), European consumer confidence tumbled, Richmond Fed business survey crashed… but New Home Sales managed a completely normal 6 standard deviation beat...

 

and so stocks rallied…

 

While not as obvious as yesterday’s malarkey, today’s market action had an odd pattern to it – the on-the-hour selling pressure… (note the overnight mini flashs crashes in VIX – which seemed to provide a day session marker)

 

As Realized Vol has collapsed to its lowest since 1994…

 

Stocks gapped higher at the open thanks to pre-market exuberance in futures, with S&P banging new record highs during the day… but – apart from Small Caps – stocks drifted lower from the gap open

 

Small Caps spiked on yet another short-squeeze…

 

Homebuilders were the best performers…

 

Trannies and The Dow fell back to red on the week…

 

Elon Musk managed to overpromise and underdeliver again…

 

Treasury yields whipsawed up, down, and up to end the day basically unchanged but lower/flatter on the week… Notice solid 2Y auction suggests no hope for a hike from Yellen

 

The USD Index also ended the day unchanged – reversing early weakness during the US day session – even as Cable surged back over 1.32…

 

Copper lost ground on the day but PMs managed to hold unchanged as Crude spiked on denied Iran rumors… Interesting that Crude ripped up to recouple with silver and stayed there…

 

Oil prices spiked on anonymous sourced comments on Iran… then refused to drop when Iran flatly denied them…

 

Seems like crude algos were playing catch up to stocks today…

 

Charts: Bloomberg

Bonus Chart: Stocks are at their richest to the Fed Balance Sheet…

end

 

Early trading today:

figure out who is right and who is wrong!

S& P up! gold up! and yield on 30 yr down  (bond prices up?)

(courtesy zero hedge)

What’s Wrong With This Picture? (Again)

Stocks at the high of the day, Treasury yields at the low of the day, gold at the high of the day… someone is wrong or the ‘QE trade’ is back…

Buy everything stupid!

More safe-haven buying…

Even crude is sliding. But VIX is extremely noisy with 3 mini flash crashes overnight

 end
The bond market, this afternoon delivered its potential verdict on Yellen’sJackson Hole address this Friday with yields falling to .76% on the two year note. The bond market is expecting nothing but dovishness:
(courtesy zero hedge)

Bond Market Gives Its Verdict On Yellen’s Jackson Hole Speech With Stellar 2 Year Auction

If today’s 2 Year auction was supposed to telegraph what the bond market thinks of Janet Yellen’s Jackson Hole statement, then the message is clear: there won’t even be a sliver of hawkishness, because while the When Issued market was expecting the note to price at 0.771%, it stopped through the When Issued by 1.1bps, printing at 0.76%, which incidentally is where the July 2 Year auction priced as well, only that particular auction tailed by 1.2 bps.

The internals were strong, with the Bid to Cover jumping from last month’s multi year low of 2.52 to a far more stable 2.831, the second highest since February. Dealers took down 29%, the lowest since July 2014, offset by an unexpcted surge in Direct bids which were allotted 25.2% of the final paper, up solidly from last month’s 10.3%. This meant Indirects were left holding 45.8% of the paper.

And while foreign central banks were somewhat leery to bid today, the key message from this auction is that 3 days ahead of Janet Yellen’s speech on Friday, the bond market is convinced: there won’t even be a trace of hawkishness when the Fed Chair speaks on Friday.

The USA flash manufacturing PMI for August printed a very disappointing 52.1.This is a preliminary number but it does not bode well for the USA economy:
(courtesy zero hedge/FlashPMI)

US Manufacturing Flashes “Warning Light” As New Orders, Employment Tumble

Following the eurozone’s disappointing drift lower in Manufacturing PMI (and weakness in German Services),August’s US preliminary manufacturing PMI printed a disasppointing 52.1 (against expectations of 52.6). Weakness in Employment (lowest in 4 months) and New Orders underpin the drop from 52.9 to 52.1 as the 2 month hope-fueled bounce has faded…

Renaissance over…

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The August drop in the PMI is a disappointment but less worrying when looked at in the context of July’s better than expected reading. Taking the July and August readings together suggests that manufacturing is enjoying its best growth so far this year in the third quarter, and should help drive stronger GDP growth.

“With August seeing the largest rise in exports for almost two years, the improved trade performance should also help drive faster economic growth.

“However, a slowdown in overall order book growth is a warning light that domestic demand has waned in August, and the pull-back in hiring suggests manufacturers have become increasingly cautious about the outlook. Inflationary pressures have meanwhile eased.

“Policymakers will therefore be pleased to see signs that the economy may have picked up speed in the third quarter, but the Fed looks unlikely to tighten policy again until the upturn has stronger foundations, suggesting any interest rate rise looks unlikely before December.”

Charts: Bloomberg

 

 

 

end

 

Wow! what a huge downward move:  the Richmond mfg Fed survey collapses the most on record:  + 10 to – 11.

(courtesy zero hedge)

Richmond Fed Manufacuring Survey Collapses By Most On Record

Following flash PMI’s drop, another early August indicator has collapsed as Richmond Fed’s manufacturing survey plunges to -11 (lowest since Jan 2013) missing expectations of +6. The plunge from July’s +10 to August’s -11 is the largest on record – back to 1993.

Biggest drop on record…

Weakness was across the board with new orders crashing from +15 to -20, order backlogs and capacity utlization crashing, and average workweek slumping. The only thing stopping this from being a monumental crash was hope that sent future shipment expectations from +19 to +41 – the highest in a year.

 

end

New rules coming will cause problems for our derivative players as they will need to increase their margins.  The major problem of course is the lack of collateral caused by bankers soaking up everything.  This is going to hurt the bankers quite a bit…

another important read…

(Bloomberg/Sabrush)

Banks Sprint to Meet $493 Trillion Swaps Market Margin Rules

(courtesy zerohedge)

As Predicted, Obamacare Is Absolutely Killing The Middle Class

end

 

Well that about does it for tonight

I will see you tomorrow night

Harvey

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3 comments

  1. JB Slear · · Reply

    Hello Harvey,

    Love your stuff but each time I get to your email it jams my services. Can you please remove me from the emails? I’ll go to your site to read what you got. Peace be with you always

    JB Slear

    Fort Wealth Trading Co LLC.

    866-443-0868 Ext 104

    817-717-5489

    Fax: 817-764-2537

    http://www.FortWealth.com

    Don’t risk what you cannot afford to lose….

    Like

  2. Harvey – I love your stuff. But what does it all mean? Can you put this in some perspective, in the sense of what sort of time frame are we talking about (a month, year, couple years) before they are overwhelmed, in your opinion?

    Like

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