The total gold comex open interest ROSE by 4746 CONTRACTS to an OI level of 483,983 DESPITE THE FACT THAT GOLD FELL $0.60 with YESTERDAY’S trading. In the front month of November we had 59 notices standing for a GAIN of 30 contracts.  We had 5 notices served on yesterday so we GAINED 35 contracts or 3500 ADDITIONAL oz will stand for delivery in November. The next contract month and the biggest of the year is December and here this month showed a decrease of 8,509 contracts down to 226,132. The December contract month is still highly elevated compared to a year ago.  On Wednesday Nov 18/2015 comex reading day, we had a total of 191,543 contracts standing ( a loss of 2,426 contracts from Nov 17/2015) It certainly emphasizes the huge demand for physical gold. THIS SHOULD EXPLAIN TO YOU WHY THE BANKERS ARE CONSTANTLY WHACKING OF GOLD (AND SILVER): THE HIGH OI FOR DECEMBER  AND THE HIGH PROBABILITY THAT MANY WILL TAKE DELIVERY.

In silver had 0 notice(s) filed for NIL oz

Eventually at the end of December 2015: 6.4512 tonnes of gold stood for delivery

Eventually at the end of December 2015: 18.84 million oz of silver stood for delivery.

Islamic Gold – Game Changer In Gold Market

by GoldCore

Islamic Gold – Important New Dynamic In Gold Market

• Next month, 1.6 billion people will likely have a new ‘gold investment standard’
• Islamic finance market expected to grow to US$5 trillion by 2020
• Islamic asset classes have all under performed compared to gold
• Gold has risen over 367% in US dollar terms and by more in currencies used in Islamic countries
• Gold bullion products may be additionally appealing to Islamic banks due to Basel III rules
• New Sharia Gold Standard will impact gold price

By the end of 2016, 1.6 billion people will likely have a new gold investment standard for the first time in modern history. These 1.6 billion people are the Muslims of the world who constitute nearly 25% of the 6.9 billion people on the planet. This new ‘gold standard’ is the Sharia gold standard developed as part of a three-party collaboration between AAOIFI, the World Gold Council (WGC) and Amanie Advisors.

The new Sharia or Islamic gold standard, ‘will provide guidance from a Sharia perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,’ the WGC states on its website as we reported back in May . ‘The Standard also aims to increase transparency and harmonisation regarding the use of gold in various market practices.’

The new standard is expected to act as an internationally recognised consensus on regular gold savings plans (gold accumulation plans), allocated and segregated gold bullion storage, gold certificates, physically-backed gold ETFs, certain gold futures and gold mining equities.

Gold investment is currently allowed under Sharia law, given certain conditions are met. In the physical gold market today, there are a very few gold investment products or services, such as those offered by Goldcore, which are Sharia-compliant. We will explore what sharia-compliancy means in more detail but suffice to say that the lack of guidelines means there are few eligible gold investment products out their to meet Islamic investors’ requirements.

Islamic Finance and gold investment

Many non-Muslims will be familiar with the phrase ‘Sharia Law’. It has come under some attention in recent years throughout the world as people seek to understand Islam, how it is practised and what it means in the modern world.

Whilst Sharia Law is based on the Quran and other sacred texts, it has been adapted in order to keep up with changing times, through the guidance of Islamic scholars.

Many non-Muslims understand Sharia Law to be a set of laws that guide or govern how a Muslim lives their personal life. Few realise that it also guides the financial decisions of Muslims.

Islamic Finance, the financial services industry that operates under Shariah Law, is rapidly growing in size and therefore importance. At present the Islamic Finance market is a small part of the global financial market, at just $2 trillion. But this is expected to grow. Standard and Poor’s believe it could reach US$5 trillion by 2020 as reported by Truewealth Publishing, Business Insider and MSN.

Currently money managers within Islamic financial markets find themselves limited to Sharia-compliant assets such as equities, real estate an Islamic bonds (sukuk). There are virtually no official sharia-compliant gold products on the market.

“As the Islamic financial services market grows in size and importance, so does the need for a greater understanding of the application of Shariah guidance on the use of gold,” stated  Aram Shishmanian, CEO of the WGC. “While there is some guidance for gold coins and bars, there is virtually no guidance on gold elsewhere in the financial sector.”

Whilst there are some gold-products available within Islamic finance the market is fragmented and there is no guidance for Islamic investors. “…there is a lack of Islamic gold-based products globally,” explained Maya Marissa Malek, the managing director of Amanie Advisors, “We conducted comprehensive research of the available gold-based products conventionally, with [the] WGC instrumental in providing this information. Based on that, we tried to envisage a Shariah equivalent so that the standard will be robust enough to cover both existing and future possible gold-based products.”

Muslims and the gold market

There has been awareness that change is afoot in the gold market, by gold commentators for the last eighteen months or so. For many the passing of Sharia-compliant guidelines means a huge surge in gold demand and therefore the gold price. But can we really expect this from a diverse group of people who happen to share a religion?

Yusuf DeLorenzo, an AAOIFI member, stated “…gold has historically been the choice of individual Muslims desirous of preserving wealth and value.” The AAIOFI expands on this further, “Historically, gold has always been a fascinating and charming choice of investment for humans in all societies and cultures. From the perspective of Islamic Fiqh and the Islamic economic system, gold has its specific significance. This significance arises from the specific principles provided for gold and silver as Thaman in Shari’ah.”

There is certainly a desire for Muslims to invest in gold according to Dr. Mohammad Daud Bakar, Chairman of Amanie Advisors, a critical partner in the new Sharia gold standard who said:

“Gold has a unique status in Islam, but the existing Islamic standards for gold are fragmented, hampering product development and market demand. The Sharia Standard on Gold … will provide clear guidance on gold to individuals and institutions.”

For the AAIOFI the opportunity to create guidelines for Sharia-compliant gold investment products is giving Islamic investors the opportunity for further diversification, “Shari’ah compliant investment options in gold market (including physical as well as exchange based transactions) can provide Islamic Financial Institutions (IFIs) and their customers a great opportunity to diversify their investments.”

However, the AAOIFI reminds us that there is also a call in the Quran and other holy texts that call for the reader to exercise caution when investing in precious metals

“The original sources of Shari’ah i.e. the Holy Quran and Sunnah have numerous cautions on the use and hoarding of gold on the moral and ethical side. These include a few prohibitive uses, as well as, general guiding principles against hoarding of gold and silver.”

Gold and Sharia

When people talk about Sharia or Islamic gold, they are referring to gold or gold investment products that are Sharia compliant. However in Islam gold is a special case. “Gold is very much Shariah compliant in terms of using it as a commodity. But there are certain conditions from a Shariah point of view which are enforced on gold and not on other commodities,” Dr Mohamad Akram Laldin, the executive director of International Shariah Research Academy for Islamic Finance, explained to IFN.

In Islamic texts gold is a Ribawi item and investors need to practice caution when investing in it to ensure that it meets certain conditions. A Ribawi item in Sharia law is an item that must be sold on weight and measure. There are six Ribawi items: gold, silver, dates, wheat, salt and barely.

As a Ribawi item gold cannot be traded for future value or for speculation.

In most cases trading gold futures contracts is haram and forbidden or proscribed by Islamic law. It is speculation and not backed by physical gold, the price can be volatile and you can end up paying or receiving interest on your trading account.

This means that gold investment has been limited to its use as a currency and jewellery, as the earning of interest is forbidden. The immediate transfer requirement means that speculating on future values is not allowed. This makes it tricky in the area of gold futures and other paper gold products.

Dr Mohamad Akram Laldin, explained to IFN, “In other commodities the counter value can be deferred. But when it comes to gold, both counter values have to be spot. That is one of the biggest issues when it comes to the trading of gold. Under modern transactions we will have sophisticated platforms, and different ways and means to transact, but as long as these conditions are satisfied we can always trade.”

This might sound as though gold investment is near impossible in the Islamic world today. In reality it is not, although there is some confusion. Yusuf DeLorenzo, an AAOIFI member, stated

“The hesitation about investing in gold when credible Shariah standards are unavailable is nearly universal in the Islamic world  …  There might be certain other issues, particularly when it comes to delivery,” stated Dr Mohamad Akram. “If I am buying gold from a vendor on a platform, can I take physical delivery of this gold? But as long as these conditions can be satisfied, there shouldn’t be any issue. As an underlying asset, gold is Shariah compliant and can be used.”

With gold investment platforms such as Goldcore able to offer segregated, allocated gold bullion accounts with the option of physical delivery Muslims are able to invest in gold bars and coins. However, there has been no consensus on the trading of gold as a commodity, owning companies that hold gold assets (e.g. an ETF), gold futures allowing delivery etc.

Why the need for a new gold standard?

WGC data shows that in the last eight years (when reliable data first became available) the major Islamic asset classes (including REITs, the Takaful index, the Dow Jones Islamic Equities Index and the Dow Jones Sukuk Index) have all underperformed compared to gold, as have the major currencies used in the Islamic world. Since 2000, gold has risen 367% in US dollar terms (Gulf Cooperation Council currencies are pegged to the US dollar), 393% in Malaysian Ringgit terms, and 762% in Indonesian rupiah terms.

Whilst Muslims are able to invest in gold there is clearly a lack of understanding and consensus for how Sharia law can be applied to today’s vast number of gold product offerings. Hence why the WGC and their partners, believe a gold standard will be beneficial to both Muslims and the gold market.

The World Gold Council stated in its October newsletter that they hoped the new standard will ‘bring all the strategic benefits of investing in gold to Islamic investors.’ The choice of assets that Muslims are currently able to invest in is considered to be ‘so limited’ by the WGC that they are expecting the benefits of a gold investment standard to be ‘even more pronounced.’

The new Sharia gold standard will set a future path in place for gold products and those who invest in Sharia-investible assets. Once the Standard is announced on December 6th, we are likely to see increased development of new products due to the increased customer base and some diversification amongst Shariah-compliant offerings which will likely offer options for savings, hedging and diversification. So far, none of these things have been available on a standard Sharia compliant basis.

Natalie Dempster has been quoted by Reuters stating that the new guidelines for holding gold-backed products may be additionally appealing to Islamic banks who are/will be required under Basel III rules to increase the amount of High Quality Liquid Assets (HQLAs):

“Gold for its nature could fit into HQLA buffers that Islamic banks could hold…Since the financial crisis, banks have been required to set aside pockets of so-called high-quality liquid assets to protect them against another systemic liquidity crisis…Basel gave national supervisors in Islamic jurisdictions the right to define high-quality liquid assets themselves. And I think gold will fit very well there. It is an extremely liquid market.”

New gold standard

The new Sharia Gold Standard is set to be announced on the 6th December at the World Islamic Banking Conference. “Shariah Standard on Gold” will provide “guidance from the Shariah perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” according to Natalie Dempster of the World Gold Council.

It is believed that it will state that gold investments must be backed by physical gold. In truth, whilst there have been some draft rounds of the Standard and quite a bit of publicity, no one knows what is set to be revealed in the ‘guidance’.

It may still exclude gold futures contracts, a draft by the WGC states that whilst gold as a currency can be traded on a spot basis, however if it is seen as a commodity then it could be the subject of a future sale under the principle of salam, or deferred delivery sale.

The gold standard draft will likely approve holding gold in ETFs, derivative contracts, investment accounts and Islamic bonds.

What the standard will not include is guidance on the sourcing of gold, which is unsurprising in some respects as their is nothing directly about this in the Quran. However, it does require its followers to be ethical – something that is an important issue in the gold market these days. “It will provide clarity on gold’s use in financial services and harmonise the relevant rules across markets, thereby creating greater access to gold,” said Natalie Dempster, Managing Director, Central Banks and Public Policy, WGC.

Overall the Standard is expected to achieve the following:

• Increase the amount of available liquid Shariah-compliant instruments
• Increase the diversity of available liquid Shariah-compliant instruments including gold bullion and some other gold related investments
• Facilitate greater consumer choice by expanding the range of Shariah-compliant financial solutions
• Greater role for the Islamic finance industry in global gold price discovery

New dynamics in gold price discovery

The final point above, to achieve a ‘Greater role for the Islamic finance industry in global gold price discovery’ is one that is playing on current gold market participants’ minds.

There are estimated to be around 1.6 billion Muslims around the world. Given the extent to which the gold market looks to Chinese and Indian demand in terms of demand, supply and price changes this move will likely come to have a very significant impact on the dynamics of the gold market.

The role of price discovery has been, up until recently, shared between the London Gold Market and the LBMA and the COMEX. However there has been a new dawn and the new policies from China regarding all aspects of the gold market have put the wheels in motion. Earlier this year the Shanghai Gold Benchmark was launched by the Shanghai Gold Exchange, seen as China’s step to “increase its weight in the global pricing of gold,” according to the People’s Daily.

When the benchmark was announced Marwan Shakarchi, chairman of Swiss-based refining group MKS (a Shanghai gold Exchange member) was quoted as saying that China is “a market of 1.2 billion people and simply cannot be neglected.” This step was seen as the first of many toward internationalisation of the Chinese Gold market.

The Islamic world is obviously different to the Chinese and Indian gold markets – dispersed geographical location, different exchanges, different nationalities, regulations and customs. However, it is worth remembering that the majority of Muslims reside in countries where there is still a strong view that gold is money and a strong store of value. In countries such as Pakistan with tricky geopolitical status, or Malaysia and Indonesia with a fluctuating currencies, one can expect to see an increase in demand for Sharia compliant gold products. And, therefore, a change in dynamic in the gold market.

The places to watch are Bahrain, Qatar, Indonesia, Saudi Arabia, Malaysia, United Arab Emirates, Turkey, Kuwait, Oman and Pakistan which currently represent 93% of Islamic financial assets within their financial institutions.

Gold coins of Kushnan Empire centering on Afghanistan, northern India and western China. British Museum. Wikimedia

Whilst one of the bodies involved in setting the standard, the AAIOFI, is based in Bahrain, we expect to see Dubai gain some serious influence with these changes.

The Emirate plays a significant role in both the physical and paper gold markets. Over $75 billion worth of gold, or about 40 per cent of the world’s physical bullion exchange, was traded through Dubai in 2013, according to the Dubai Multi Commodities Centre (DMCC). This is a city with very strong vision over what it can achieve in the gold market.

“In 2003, Dubai traded US$ 6 billion in gold; in 2012, it was US$ 70 billion. Even taking into consideration gold’s phenomenal price rise over this period, Dubai has doubled the tonnage traded through the Emirate,” according to the Dubai Multi Commodities Centre (DMCC).

Currently the Dubai Gold and Commodities Exchange (majority owned by the DMCC) already has active gold futures trading and earlier this month it announced that it would become the first foreign exchange to list Shanghai gold futures. It is clear that it has set itself up to compete with the likes of Singapore as a gateway between the East and the West, and in the meantime will play an increasing role in this increasingly globalised financial and increasingly important physical gold market.

The launch of a Sharia Gold Standard, is also an opportunity for those in the West, who are determined to maintain some control over price discovery. In London, the London Metal Exchange (LME) is the central clearing hub for Shariah compliant commodity trades. Given their recent work on updating their role in the gold market it will come as no surprise that they are reportedly looking at a gold futures contract that could be settled based on the physical delivery of gold bars. This is what the Chinese have done with gold bars in a kilo format on the Shanghai Gold Exchange (SGE). Should this happen, the LME exchange likely already has the right relationships in place to leverage a new Sharia gold standard.

Is the physical gold market big enough

It is important to retain the important point that the new gold standard will stress the need for underlying physical gold, in whatever gold products are bought. Whilst the likes of the COMEX gold market are able to grow to multiple times the size of the underlying physical market, with little impact on physical demand, this will no longer be case. Especially with the likes of China enforcing similar rules.

The World Gold Council have stated that we can expect to see an additional demand of ‘hundreds of tonnes’ once the sharia gold standard has been approved. If just 2% of the assets currently managed by Islamic finance institutions are invested into sharia-compliant gold products then we can expect to see over 1,000 tonnes of additional gold demand.

Should these numbers come to fruition this will have a major impact on supply, as well as demand. Without the existence of a formal Sharia Gold Standard, total global gold demand was just under 1,000 metric tonnes in Q3, whilst total global gold supply was just over 1,000 metric tonnes leaving a surplus of 172 metric tonnes. Should Islamic Finance begin to create significant additional demand in the gold market, then we should see these demand and supply issues in the gold market leading to higher prices.

It is always important to remember the very small size and rarity of physical gold in the world. Physical gold is both finite and extremely rare and all the gold ever mined would fit into a giant gold bar the size of a four bedroom house. It is roughly 22 metres cubed and would fit on the center court of Wimbledon – see GoldNomics video.

Conclusion

While we do not know the details of what will be announced on the 6th December, we do know the most important aspects. Indeed, GoldCore have for a number of years been working on a Sharia compliant gold bullion solution for the institutional market and have strong partners who we are working with today.

The changes will affect the physical gold market globally, 1.6 billion people will be able for the first time to use gold bullion products and platforms that offer physical delivery, allocated and segregated gold ownership.

Silk Road – Wikimedia

As we reported on last month, the impact of religious festivals on the gold market is monitored all over the world. We can expect to see similar changes and dynamics come the arrival of the Sharia Gold Standard. However, this is an entire financial market that will coming into the physical gold market. Unlike with religious festivals etc, we will see an increase in the number of structured, well-marketed and regulated financial products that have been designed to offer physical gold to sophisticated investors including high net worth (HNW), ultra high net worth (UHNW) and indeed family offices.

This will not only impact the physical gold market, but it will impact the current roles in price discovery and how 1.6 billion people choose to invest in and hold gold coins and bars.

To us, this could not have come at a more pertinent time. The West is coming under increasing economic and political pressure as the ‘Silk Road’ nations of the Middle East and Far East, including Russia and China, continue their rise and become more powerful. It is without surprise that the Silk Road nations continue to assert their independence from western dominance and monopoly – including in financial markets. And it is with even less surprise that they are doing this through gold.

Gold and Silver Bullion – News and Commentary

Uncertain state of world—economically & geo-politically—bodes well for gold in 2017 said GoldCore (MarketWatch.com)

Gold prices firm as dollar retreats from 14-year high (Reuters.com)

Asian markets slip as oil prices fall (MarketWatch.com)

Gold price ‘will be just fine’, says fund manager (TheWeek.co.uk)

Much-feared pensions time bomb is now exploding for 600,000 workers (Independent.ie)

What’s Next for Gold? (GoldSeek.com)

Gold Price Skyrockets in India after Currency Ban – Part II (Acting-Man.com)

Gold Not Driven by Inflation But Real Rates – Audio (Bloomberg.com)

Trump & The Financial Markets The Next Four Years (MarketOracle.co.uk)

Why Italy is the next country to fall to Trumpism – McWilliams (DavidMCWilliamns.ie)

Gold Prices (LBMA AM)

17 Nov: USD 1,232.00, GBP 9,988.19 & EUR 1,148.10 per ounce
16 Nov: USD 1,225.70, GBP 9,984.36 & EUR 1,144.68 per ounce
15 Nov: USD 1,228.90, GBP 998.86 & EUR 1,138.70 per ounce
14 Nov: USD 1,222.60, GBP 997.80 & EUR 1,136.53 per ounce
11 Nov: USD 1,255.65, GBP 999.19 & EUR 1,154.45 per ounce
10 Nov: USD 1,280.90, GBP 1,034.07 & EUR 1,175.48 per ounce
09 Nov: USD 1,304.55, GBP 1,050.42 & EUR 1,176.84 per ounce

Silver Prices (LBMA)

17 Nov: USD 17.04, GBP 13.65 & EUR 15.87 per ounce
16 Nov: USD 16.95, GBP 13.64 & EUR 15.85 per ounce
15 Nov: USD 17.00, GBP 13.68 & EUR 15.80 per ounce
14 Nov: USD 17.20, GBP 13.73 & EUR 15.95 per ounce
11 Nov: USD 18.59, GBP 14.73 & EUR 17.09 per ounce
10 Nov: USD 18.75, GBP 15.11 & EUR 17.20 per ounce
09 Nov: USD 18.81, GBP 15.12 & EUR 16.96 per ounce

Recent Market Updates

– Peak Gold Globally – “Bullish For Gold”
– Gold Price Should Go Higher On Global Risks and Trump – Capital Economics
– President Trump – Why Market Loves Him and Experts Wrong
– ‘Helicopter Money President’ Trump To Create Inflation and Gold Will Rise
– Central Bank Gold Demand continues in Q3
– Trump Victory Sends Gold Surging 5%
– An uncertain election outcome looks good for gold
– Ignore past elections, this one’s too uncertain
– Gold may be the only winner in US elections
– The London Gold Market – ripe for take-over by China?
– Diwali, Gold and India – Is Love Affair Over?
– Silver Krugerrands By South African Mint Coming Soon – Massive Clearance Sale on Gold Krugerrands
– Trump “Will Probably Win” and Gold “May Rise $100” Overnight – Rickards

:

BOJ “Fires Warning At Bond Market” Sending Global Yields, Dollar Lower; All Eyes On Yellen

Yesterday morning we noted why, in light of the ongoing global bond rout, all eyes would be on the BOJ, and specifically whether Kuroda would engage his “Yield control” operation to stabilize the steepness of the JGB yield curve and implicitly support global bond yields in what DB said would be “full blown helicopter money” where the “BoJ is flying the copter over the US and may be about to become the new US government’s best friend.” And sure enough that is precisely what Kuroda did last night after the Bank of Japan “fired a warning at the bond market” as Bloomberg described it, offering to buy an unlimited amount of debt at fixed yields for the first time, an operation meant to maintain the central bank’s yield-curve target and which stopped the bleeding not only across Japanese but also global bonds, in the process pushing the dollar lower.

The central bank announced two operations: 1. buy two-year notes at minus 0.09 percent, and 2. five-year debt at minus 0.04 percent. That came after two-year yields rose as high as minus 0.095 percent on Wednesday, up 18 basis points in five days. The BOJ introduced the tools after deciding in September it would control the yield curve. As Bloomberg notes, the so-called fixed-rate operation yielded no bids, a sign that the move was more of a demonstration exercise than an intended transaction in notes. Officials acted amid relative calm in the market, but in the wake of a global bond sell-off in the past week that had driven up yields across the globe — and in the process put pressure on Japanese government bonds as well. “It’s a surprise that the BOJ took action today,” said Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo, a unit of Japan’s second-biggest lender. “Markets won’t test levels above these fixed rates as these will be seen as reflecting the BOJ’s upper limit.”

“The aim is to send a warning to markets about a significant surge in rates,” said Keiko Onogi, a fixed-income strategist at Daiwa Securities Co. in Tokyo. At the same time, “there are questions as to why the BOJ conducted this operation now, when the market had already stabilized after the surge in yields to yesterday,” she said.

“The BOJ will have welcomed the rise in Japanese stocks and decline in the yen following the Trump Shock, but they’ve shown they aren’t going to stand for a jump in JGB yields,” said Naoya Oshikubo, a rates strategist at Barclays Plc in Tokyo. “It’s the strength of that stance rather than the actual levels at which the BOJ offered to buy the debt that’s pulling down yields.”

The BOJ operation helped halt a five-day selloff in Japanese bonds, and government securities advanced from Australia to Germany, together with U.S. Treasuries. The euro strengthened for the first time in nine days as Bloomberg’s dollar index slipped from a nine-month high. Crude reversed declines as OPEC and Russia prepared to meet in Doha for more talks. European shares were little changed, and Asian equities rose with Japan’s Topix measure closing on the brink of a bull market.

In the US traders are walking to their desks, awaiting testimony from Federal Reserve Chair Janet Yellen before the Joint Economic Committee that will help shape the outlook for interest rates: focus will be on her comments about the December rate hike and the speed of future moves as financial conditions have materially tightened in recent days.

A December increase is now all but assured by the futures market which gives it a 94% probability, while prospects for further tightening triggered a global bonds rout and boosted the dollar since the start of last week.

“From the BOJ operation, it looks like it’s a firmer cap on yields than was previously being expected, so that’s supportive for fixed-income globally, ” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “It means that the other markets can trade with a bit less of downside risk, or downside fear.”

Japan’s intervention eased the Bloomberg Dollar Spot Index, which was down 0.2 percent. The yen rose 0.1 percent to 108.95 per dollar, but is still down more than 3 percent since Trump’s victory. The euro strengthened 0.3 percent against the dollar, halting an eight-day losing streak. The pound gained for the first time in four days as figures from the Office for National Statistics showed U.K. spending remained robust despite the Brexit vote.

Crude gained 0.4 percent to $45.76 a barrel in New York as Saudi Arabia and some other OPEC nations meet with Russia for informal talks without oil ministers from Iran and Iraq, the two countries that pose the biggest hurdle to an output deal. Russia will hold discussions with representatives from the Organization of Petroleum Exporting Countries in Doha from Thursday, Energy Minister Alexander Novak said.

The Stoxx Europe 600 Index added 0.1 percent. While the gauge has remained calm in recent days, it has alternated between intraday gains and losses for eight straight sessions, the longest streak in two years. Its valuation of about 14 times estimated earnings is at its lowest since Brexit relative to a measure tracking global shares. S&P 500 futures were little changed after the gauge slipped 0.2 percent on Wednesday. It closed within 0.6 percent of the record reached in August, while the Dow Jones Industrial Average slipped 0.3 percent from the all-time high it reached on Tuesday. The Russell 2000 Index of small-cap shares closed at a peak.

Among stocks moving on corporate news:

• Zurich Insurance Group AG gained 2.7 percent after saying it will increase its dividend and cut costs.
• Royal Ahold Delhaize NV declined 3.1 percent as its quarterly profits missed analyst projections.
• ABN Amro Group NV fell 3.1 percent after the Dutch state sold 65 million of its shares.
• Cisco Systems Inc. lost 4.4 percent in early New York trading after projecting sales and profit pointing to a slowdown in corporate spending on technology hardware.

Treasury 10-year yields fell three basis points to 2.19 percent at 9:19 a.m. London time, retreating further from this year’s high of 2.3 percent, reached Monday, after the BOJ’s first offer to buy an unlimited amount of securities. Japanese bonds also rose after the operation, which was viewed by many as a response to the surge in global yields. 10Y German bund yields also dropped three basis points, to 0.24 percentThe U.S. government will sell TIPS on Thursday, and demand may be robust, with BlackRock Inc., Fidelity Investments and Pacific Investment Management Co. all having recommended the securities since the presidential vote on speculation that Trump’s policies will boost consumer prices.

* * *

Bulletin Headline Summary From RanSquawk

• European equities enter the North American crossover mostly lower as financial names pause for breath after recent election-inspired upside
• Some tentative signs of USD moderation in the making, with USD moderation against the EUR and JPY seeing 1.0650 and 110.00 levels respectively held
• Looking ahead, highlights include UK retail sales, EU & US CPI, ECB minutes, US weekly jobless data, housing starts & Philadelphia Fed Manufacturing Index & a host of Fed speakers

Global Market Wrap

• S&P 500 futures up 0.1% to 2175
• Stoxx 600 up 0.1% to 339
• FTSE 100 up 0.3% to 6770
• DAX down 0.3% to 10629
• German 10Yr yield down 2bps to 0.28%
• Italian 10Yr yield down 2bps to 2.02%
• Spanish 10Yr yield down 2bps to 1.52%
• S&P GSCI Index up 0.2% to 358.3
• MSCI Asia Pacific up 0.3% to 135
• Nikkei 225 up less than 0.1% to 17863
• Hang Seng down less than 0.1% to 22263
• Shanghai Composite up 0.1% to 3208
• S&P/ASX 200 up 0.2% to 5339
• US 10-yr yield down 3bps to 2.2%
• Dollar Index down 0.29% to 100.12
• WTI Crude futures up 0.2% to $45.66
• Brent Futures up 0.2% to $46.72
• Gold spot up 0.2% to $1,227
• Silver spot up 0.3% to $17.04

Top Headline News

• Apple Wants OLED in iPhones, But Most Suppliers Aren’t Ready Yet: Display makers seen struggling to meet iPhone output in 2017
• Apple Is Said To Cut Fees Video Services Will Pay for App Store
• Dimon Told Trump Team He Has No Interest in Treasury: Fortune
• Gingrich Doesn’t Want Formal Role in Trump White House: Fox
• Haley, McMaster Considered for Trump Cabinet: Post and Courier
• Verizon’s Buy of Fiber Network From Icahn’s XO Wins Approval: FCC clears $1.8 billion deal, says it doesn’t harm competition
• Ahold Delhaize Profit Misses Estimates on U.S. Deflation: Price pressure erodes sales at Food Lion supermarket chain
• Gilead’s Myelofibrosis Drug Gets Mixed Results in Cancer Trials: Treatment for a rare bone marrow cancer succeeded in one trial and failed in another
• Facebook Yields to IRS Demand for Records Over Asset Transfer: IRS demands for records related to co.’s transfer of global operations to Ireland in 2010
• Sen. Cotton Plans to Offer $26b Emergency Defense Spending Bill

* * *

Looking at regional markets, we start in Asia where stocks were slightly downbeat following a lacklustre lead from Wall St, where underperformance in energy and financials weighed on sentiment and saw DJIA close negative for the first time in 8 days. Nikkei 225 (Unch) was driven by JPY fluctuations, while ASX 200 (+0.2%) closed higher amid strength in defensive stocks with weak employment data also raising doubts that RBA may not be done with its easing cycle. Shanghai Comp (+0.1%) dampened amid ongoing trade concerns, while downside in the Hang Seng (-0.3%) was stemmed by consumer names and banks. 10yr JGBs gained with outperformance seen in the short-end after the BoJ announced to purchase an unlimited amount of bonds ranging from 1yr-5yr maturities at fixed rates which suggested an intent to cap yields if needed, although the BoJ found no takers and some gains were later pared following a weaker 20yr auction in which the b/c and average price fell from the prior month.
Japanese cabinet advisor Fujii stated he wants additional fiscal stimulus in 2017 and would like JPY 21trl added to the primary budget in the next fiscal year and in the following years thereafter.

Top Asian News

• JPMorgan Said Set to Pay $200 Million in China Hires Settlement: Non-prosecution deal reflects bank’s cooperation with inquiry
• Yuan Watchers Lower Forecasts as Trump Victory Raises Risks: Currency may weaken to 7 per dollar early next year
• Philippines Posts Strongest Economic Growth in Asia at 7.1%: Nation seen as among fastest-expanding in the world until 2018
• BOJ First Unlimited Bond Buys Get No Bids After Yields Retreated: BOJ announces first fixed-rate operation to buy JGBs
• Ward Ferry to Shut 15-Year-Old Asia Hedge Fund as Co-CIO Leaves: Co. will focus on long-only funds after Nash-Webber leaves

In Europe, bourses opened lower following the lead from Wall Street, as DAX (-0.2%) and EUROSTOXX (-0.2%) have both seen underperformance in financial names after a retracement from recent election-inspired gains. The Telecoms sector is the outperformer following reports of a potential merger between T-Mobile and Sprint in the US. Bond markets have also received a bid inline with general risk sentiment. In Italy the latest polls put the no vote ahead and with the referendum too close to call and as more comments filter through to the markets we must keep a close eye on eye on Italian yields particularly the short end.

Top European News

• VW Loses European Market Share as Scandal Effect Lingers: Carmaker’s October sales fell 1.8% vs. market’s 0.3% drop
• ABN Amro’s Dutch State Owner Selling 7% as Part of Exit Plan: Stock up 18% in 12 months as most European lenders have fallen
• Rio Tinto Fires Two Senior Executives Amid Payment Probe: fired two of its top executives over a payment connected to a giant iron ore project in Guinea in West Africa
• NN Group Chief Wants Delta Lloyd to Open Up to Deal Talks: NN still sees ‘strong merit’ in a combination of the firms

In FX, the Bloomberg Dollar Spot Index was down 0.2 percent. The yen rose 0.1 percent to 108.95 per dollar, but is still down more than 3 percent since Trump’s victory. The euro strengthened 0.3 percent against the dollar, halting an eight-day losing streak. The pound gained for the first time in four days as figures from the Office for National Statistics showed U.K. spending remained robust despite the Brexit vote. Malaysia’s ringgit fell for a seventh day, its longest stretch of losses in more than a year. Bank Negara Malaysia said Wednesday it will continue to restrict speculative activity in the currency market. The Vietnamese dong fell for a fourth day to a five-month low. “I’m just seeing this as overall dollar strength,” said Wu Mingze, a foreign-exchange trader in Singapore at INTL FCStone Inc., a Nasdaq-listed global payments-service provider. “Unfortunately speculators will treat Bank Negara’s statements as a sign of weakness if they do not actually do something.”

In commodities, crude gained 0.4 percent to $45.76 a barrelin New York as Saudi Arabia and some other OPEC nations meet with Russia for informal talks without oil ministers from Iran and Iraq, the two countries that pose the biggest hurdle to an output deal. Russia will hold discussions with representatives from the Organization of Petroleum Exporting Countries in Doha from Thursday, Energy Minister Alexander Novak said. There’s a high chance of an agreement and Russia is ready to support a decision, he said. Copper traded near a 17-month high in Shanghai. Jiangxi Copper Co., China’s top producer, agreed to cut processing fees for next year as mine supply is poised to be little changed and Chinese smelting capacity expands. Gold has stabilized after its U.S. election thrashing and is on course to end the week little changed, even as investors bail from bullion-backed exchange-traded funds. Prices for immediate delivery climbed 0.4 percent to $1,229.84 an ounce.

DB’s Jim Reid concludes the overnight wrap

Today the Trump story advances further with the President elect meeting his first world leader post the election with Japan’s Abe passing through town. We’ll also see Fed Chair Yellen testify before the Joint Economic Committee today – note that this is the first time we’ll hear from her following the election. We think her prepared remarks will be out at 8am EST. So potential for headlines from both events. It was also interesting that late last night Fox’s Maria Bartiromo suggested that the crucial US Treasury secretary role will be decided today (announced tomorrow) and is down to a choice between Jamie Dimon of JPM and Steve Mnuchin. The fact that Jamie Dimon is still in the race after his public comments downplaying his desire for the role would be a surprise to many but he would certainly be another appointment that Wall Street would appreciate. Indeed both potential candidates are Wall Street veterans. So one to watch over the next two days.

The most interesting news overnight is that the BoJ has announced its first operations to purchase an unlimited amount of bonds at a fixed rate following 10-year JGB yields turning positive earlier this week for the first time since the BoJ announced their desire to peg them near zero. They are carrying out two operations, one in 1-3 year maturities and another in the 3-5 year part of the curve. The operation received no bids but its the first sign that they are prepared to intervene. 10 year yields have edged back a fraction through zero as we type having traded as high as 0.035% yesterday.

As we discussed yesterday if the BoJ is serious about defending their targets in the face of rising global yields then we effectively have cross border helicopter money but with the helicopters dropping money printed in Japan over the US given Trump’s fiscal agenda. It’s an interesting backdrop to today’s meeting of the respective leaders. Trump might end up being very grateful for Japanese policy as it could help hold global yields down more than they would have been without it. Elsewhere Asian markets are relatively quiet with very little movement of note although I admit I might be too tired to spot anything significant even if there was.

A similar story was seen yesterday as markets continue to settle a little after a frenetic past week. The STOXX 600 (-0.20%) and S&P 500 (also -0.2%) both dipped though. US banks were the worst performing US sector yesterday (-2.1%), finally running out of steam following a strong post-election rally. The Dow (-0.32%) was also down for the first time since the beginning of last week.

Over in currency markets, the US dollar continued its post-election rally by gaining +0.3% and quickly erasing yesterday’s dip. Commodity markets were broadly down, with WTI and Brent falling by -0.7% and -1.0% respectively and copper down -0.6%. Gold was marginally lower on the day as it continued its string of losses (down -4.4% since the beginning of last week).

European credit markets were also down as iTraxx Main and Crossover both widened by +1bps on the day. Over in the US we saw CDX IG hold steady while CDX HY widened by +5bps on the day.
Turning to the other end of the risk spectrum, German 10Y yields dropped by -1bps on the day while US 10Y yields saw some big intraday swings that saw yields rise and fall by nearly +8bps and -2bps respectively before ending the day flat. The US curve also flattened somewhat as the US 2Y ticked up +1bp while the 30Y dropped by -4bps. Markets in general continue to price in a December Fed hike with near certainty, with the implied probability around 94% (unchanged from yesterday).

On the topic of rate hikes, one of the key questions surrounding Trump’s unexpected election victory last week was regarding the impact his policies may have on the Fed in the year ahead. DB’s GEP team focuses on one specific area of this issue – what appropriate Fed policy would look like given Trump’s policy mix. They find that a much faster pace of rate hikes are certainly implied under the new administration – even under a relatively conservative assessment the team finds that Yellen’s preferred Taylor rule would imply that the Fed should pursue one more rate hike next year than they currently expect. Under a more optimistic scenario (in which US growth rises to around 3% in 2017) the appropriate fed funds rate would be about 75bp higher than the Fed’s current expectations. However, the team notes that while a substantially faster pace of rate hikes in 2017 is a risk, this is not their base case: they believe inflation is likely to moderate early next year and the full growth benefits of Trump’s policies may not begin to be felt until the second half of the year. Hence, the Fed is likely to initially keep to their expectations for a gradual pace of rate increases, with the greater risk for faster rate hikes in late-2017 and 2018.

Another key topic of focus following Trump’s victory has been the potential for increased fiscal spending in the US – particularly infrastructure spending. While such a policy is largely expected to prove to be growth positive, there are also fears regarding how such unfunded spending may be possible without damaging the government’s fiscal position. However, a Bloomberg news story yesterday noted that the Trump administration is exploring ways of establishing an ‘infrastructure bank’ to fund such planned infrastructure investments. Depending on its structure, such an entity could potentially provide a way to accommodate increased spending and investment while managing the impact on the government balance sheet. Trump’s policy mix so far has had its share of unknowns (note the campaign team derided a similar policy from Clinton) and so this development might be worth following.

Another piece of political news out yesterday was that Emmanuel Macron officially confirmed his plan to run for French presidency as an independent. While Macron’s candidacy for next year’s election was expected, it does introduce further uncertainty into the race as it may further fragment the electorate. DB’s France economist Marc de-Muizon discussed Macron’s potential candidacy (among other political issues) in a report published last month and noted that his position was more difficult than his high popularity ratings suggested.

Taking a look now at some of the data out today, we saw the September and October employment report from the UK which was a bit of a mixed bag. The ILO unemployment rate for September came in marginally better than expected at 4.8% (vs. 4.9% expected; 4.9% previous). However there remain signs that the labour market may be cooling as the employment change numbers for September came in below expectations at 49k (vs. 91k expected; 106k previous) and jobless claims numbers for October ticked up to 9.8k (vs. 2.0k expected) with September being revised up to 5.6k as well (0.7k before revision). Average weekly earnings growth for September was unchanged and marginally below expectations at +2.3% (vs. +2.4% expected; +2.3% previous).

In the US data slightly disappointed. Wholesale prices for October were unexpectedly unchanged on the month (PPI +0.0% mom) and below expectations of a +0.3% increase. Industrial production was flat and below expectations in October (+0.2% expected), while the September number was revised down to -0.2% (vs. +0.1% before revision). Capacity utilization in October also ticked down and came in marginally below expectations at 75.3% (vs. 75.5% expected; 75.4% previous). The NAHB housing market index for November however did hold stable and come in as expected at 63.

Looking at the data calendar for the day ahead now, we kick off in France where we get the Q3 employment numbers, with the headline unemployment rate (9.9% expected; 9.9% previous) expected to remain unchanged. Thereafter we turn to the UK where we will see the October retail sales numbers (+0.4% mom expected; 0.0% previous). Thereafter we will see the final October CPI numbers for the Eurozone where no revisions are expected (+0.5% YoY expected).

Over in the US, the key data to watch will be the October inflation report with headline CPI expected to tick up (+0.4% mom expected; +0.3% previous). In terms of labour market data we will get the initial jobless claims numbers for last week (257k expected; 254k previous) and the continuing claims from the week before (2030k expected; 2041k previous). We will also see the Housing starts (1156k expected; 1047k previous) and the Building Permits numbers (1195k expected; 1225k previous) for October, and finally round out the day with the Philadelphia Fed PMI for November (7.8 expected; 9.7 previous).

Away from data, we continue on a busy week for Fedspeak. As already noted above, Fed Chair Yellen will testify before the Joint Economic Committee today – the first time we’ll hear from her following the US elections. We will also hear from Brainard in New York. The other event to note for today is the scheduled meeting between US President-elect Trump and Japanese PM Abe

3a)THAILAND/SOUTH KOREA/:

none today

b) REPORT ON JAPAN

c) Report on CHINA

(courtesy zero hedge)

4 EUROPEAN AFFAIRS

Italy Leads Euro-Area Bond Selloff as ECB Calms QE Expectations

Italy’s bonds fell for a second day, leading declines among Europe’s higher-yielding sovereign securities, as European Central Bank officials sought to temper investor expectations that they will extend stimulus measures.

German 10-year bonds, the region’s benchmark government debt, rose for a third day, while those of Spain and Portugal tracked the decline in Italian securities. Three weeks before the Governing Council’s next meeting, an account of the Oct. 19-20 gathering showed that officials were keen that they didn’t create undue expectations about more quantitative easing.

“Some of these comments have probably caused the selloff and I can understand how the market may have interpreted these to be periphery negative,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “Actually, my interpretation is different. The ECB has no choice but to extend QE at this point.”

Italian 10-year bond yields jumped seven basis points, or 0.07 percentage point, to 2.10 percent as of 4:05 p.m. London time. The 1.25 percent security due December 2026 fell 0.6, or 6 euros per 1,000-euro ($1,068) face amount, to 92.415. The yield jumped to 2.23 percent on Nov. 14, the highest since July 2015.

Spanish 10-year bond yields climbed six basis points to 1.60 percent and those on similar-maturity Portuguese debt reached 3.77 percent, the highest since Feb. 12. German 10-year bund yields dropped two basis points to 0.28 percent.

The ECB is due to review its 1.7 trillion-euro asset-purchase program, which is scheduled to run until at least March 2017, at its meeting on Dec. 8. It will also publish new economic forecasts through 2019. With annual inflation running at 0.5 percent, compared with the ECB’s goal of just under 2 percent, many economists predict QE will be extended.

“They will have to clarify because the March deadline is coming up,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan.

 

end

 

This might scare you:  the only other time that the Euro dropped 9 days in a row was a few days before Lehman brothers went toast

(courtesy Citibank)

Citi: The Only Other Time The Euro Dropped 9 Straight Days Ended Very Badly

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

none today

6.GLOBAL ISSUES

8.EMERGING MARKETS

none today