Gold at (1:30 am est) $1212 UP $9.10 (FROM YESTERDAY/UP $16.70 FROM FRIDAY)
silver at $17.10: UP 29 CENTS (FROM YESTERDAY/38 CENTS FROM FRIDAY)
Access market prices:
THE DAILY GOLD FIX REPORT FROM SHANGHAI AND LONDON
The Shanghai fix is at 10:15 pm est last night and 2:15 am est early this morning
The fix for London is at 5:30 am est (first fix) and 10 am est (second fix)
Thus Shanghai’s second fix corresponds to 195 minutes before London’s first fix.
And now the fix recordings:
Shanghai FIRST morning fix Jan 17/17 (10:15 pm est last night): $ 1222.43
NY ACCESS PRICE: $1205.75 (AT THE EXACT SAME TIME)/premium $16.68
Shanghai SECOND afternoon fix: 2: 15 am est (second fix/early morning):$ 1236.47
NY ACCESS PRICE: $1210.50 (AT THE EXACT SAME TIME/2:15 am)
HUGE SPREAD 2ND FIX TODAY!!: $25.97
China rejects NY pricing of gold as a fraud/arbitrage will now commence fully
London Fix: Jan 17/2017: 5:30 am est: $1217.50 (NY: same time: $1214.00 (5:30AM)
(???? why the discrepancy)
London Second fix Jan 17.2017: 10 am est: $1216.05 (NY same time: $1216.40 (10 AM)
It seems that Shanghai pricing is higher than the other two , (NY and London). The spread has been occurring on a regular basis and thus I expect to see arbitrage happening as investors buy the lower priced NY gold and sell to China at the higher price. This should drain the comex.
Also why would mining companies hand in their gold to the comex and receive constantly lower prices. They would be open to lawsuits if they knowingly continue to supply the comex despite the fact that they could be receiving higher prices in Shanghai.
For comex gold:
NOTICES FILINGS FOR JANUARY CONTRACT MONTH: 61 NOTICE(S) FOR 6100 OZ. TOTAL NOTICES SO FAR: 1107 FOR 110,700 OZ (3.443 TONNES)
NOTICES FOR JANUARY CONTRACT MONTH FOR SILVER: 0 NOTICE(s) FOR nil OZ. TOTAL NUMBER OF NOTICES FILED SO FAR; 432 FOR 2,160,000 OZ
Let us have a look at the data for today
In silver, the total open interest ROSE by 602 contracts UP to 168,588 with respect to FRIDAY’S TRADING. In ounces, the OI is still represented by just less THAN 1 BILLION oz i.e. .843 BILLION TO BE EXACT or 120% of annual global silver production (ex Russia & ex China).
FOR THE JANUARY FRONT MONTH IN SILVER: 0 NOTICES FILED FOR nil OZ.
In gold, the total comex gold ROSE BY 2,054 contracts DESPITE THE FALL IN THE PRICE GOLD ($3.60 with FRIDAY’S trading ).The total gold OI stands at 454,424 contracts.
we had 61 notice(s) filed upon for 6100 oz of gold.
With respect to our two criminal funds, the GLD and the SLV:
We had a huge change in tonnes of gold at the GLD/a deposit of 2.96 tonnes
Inventory rests tonight: 807.96 tonnes
we had no changes in silver into the SLV:
THE SLV Inventory rests at: 338.356 million oz
First, here is an outline of what will be discussed tonight: Preliminary data
1. Today, we had the open interest in silver ROSE by 602 contracts UP to 168,588 AS SILVER FELL 6 CENTS with FRIDAY’S trading. The gold open interest ROSE by 2,054 contracts UP to 454,424 DESPITE THE FACT THAT THE PRICE OF GOLD FELL BY $3.60 WITH FRIDAY’S TRADING
2.a) The Shanghai and London gold fix report
2 b) Gold/silver trading overnight Europe, Goldcore
and in NY: Bloomberg
3. ASIAN AFFAIRS
REPORT ON JAPAN SOUTH KOREA NORTH KOREA AND CHINA
b) REPORT ON JAPAN
c) REPORT ON CHINA
4 EUROPEAN AFFAIRS
i)First: Monday night:
The pound at first declines when Theresa May outlines her 12 point plan. England will have a complete hard break whereby it will control immigration, restoring her power to create laws and most important, control over the courts and not listen to the European court of justice. England will make her own deals and there will not be a partial membership
( zero hedge)
Then Tuesday morning: the pound skyrockets after May calls for a parliamentary vote on the BREXIT:
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
7. OIL ISSUES
Oil falls as Brazil will not go along with production cuts. You can bet the farm that the OPEC deal will blow up in shambles
( zero hedge)
8. EMERGING MARKETS
Life in Venezuela undergoing hyperinflation
9. PHYSICAL MARKETS
i)This is a must read for all. Again international reserves of central banks decline again and Hugo is right: this will set off an economic collapse.
a must read..
( Hugo Salinas Price)
ii)Gold trading from Europe yesterday:
( Lawrie Williams/Sharp’s Pixley)
iii) Barron’s Guy describes how gold is benefiting because of Donald Trump and how rising inflation throughout the globe is also helping in gold’s resurgence.
(courtesy zero hedge)
ii)Early trading today causes the dollar to dump erasing all the post Fed gains:
iii)This is to be expected: The Fed is worried about Trump’s fiscal polices and they may stop interest rate hikes despite inflation risks
( Lael Brainard/zero hedge)
iv)The all important NY empire manufacturing index misses by printing 6.5 instead of expectations of 8.5. Thus we have growth stagnating but inflation rearing its ugly head. By definition: stagflation!!
( zero hedge)
v)This is big!! USA top court rejects the banks over Libor antitrust lawsuits. Now cases on Libor and others can commence in earnest.
(Reuters and special thanks to Robert H for sending)
Let us head over to the comex:
The total gold comex open interest ROSE BY 2054 CONTRACTS UP to an OI level of 454,424 DESPITE THE FACT THAT THE PRICE OF GOLD FELL $3.60 with FRIDAY’S trading. We are now in the contract month of JANUARY and it is one of the poorest deliveries of the year.
With the front month of January we had a LOSS of 49 contract(s) DOWN to 186. We had 0 notices filed ON FRIDAY so we LOST 49 contract(s) or AN ADDITIONAL 4900 oz WILL NOT STAND for gold in this non active delivery month of January. For the next big active delivery month of February we had a LOSS of 16,968 contracts DOWN to 217,304.(feb 17 2016: 219,000 contracts). March had a GAIN of 63 contracts as it’s OI is now 583. We are on a par with respect to OI when we compare data for open interest Feb 2016.
We had 61 notice(s) filed upon today for 6100 oz
And now for the wild silver comex results. Total silver OI ROSE by 602 contracts FROM 167,986 UP TO 168,588 AS the price of silver FELL 6 CENTS with FRIDAY’S trading. We are moving further from the all time record high for silver open interest set on Wednesday August 3/2016: (224,540).
We are now in the non active delivery month of January and here the OI FELL by 0 contract(s) REMAINING AT 229. We had 0 notice(s) filed on yesterday so we neither lost nor gained any silver contracts or oz in this delivery month of January. The next non active month of February saw the OI fall by 98 contract(s) FALLING TO 216.
The next big active delivery month is March and here the OI FALL by 1365 contracts DOWN to 129,863 contracts.
We had 0 notice(s) filed for nil oz for the January contract.
VOLUMES: for the gold comex
Today the estimated volume was 403,379 contracts which is huge.
Yesterday’s confirmed volume was 366,021 contracts which is excellent
volumes on gold are getting higher!
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||
|No of oz served (contracts) today||
|No of oz to be served (notices)||
|Total monthly oz gold served (contracts) so far this month||
|Total accumulative withdrawals of gold from the Dealers inventory this month||nil oz|
|Total accumulative withdrawal of gold from the Customer inventory this month||4,790,555.4 oz|
Today, 0 notice(s) were issued from JPMorgan dealer account and 50 notices were issued from their client or customer account. The total of all issuance by all participants equates to 61 contract(s) of which 0 notices were stopped (received) by jPMorgan dealer and 0 notice(s) was (were) stopped/ Received) by jPMorgan customer account.
March 2015: 2.311 tonnes (March is a non delivery month)
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||
|Deposits to the Dealer Inventory||
|Deposits to the Customer Inventory||
|No of oz served today (contracts)||
|No of oz to be served (notices)||
|Total monthly oz silver served (contracts)||432 contracts (2,160,000 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||14,973,048.6 oz|
And now the Gold inventory at the GLD
Jan 17/17/a deposit of 2.96 tonnes of gold/inventory at the GLD rests at 807.96 tonnes. I guess there is no more gold inventory to sent to C+Shanghai
Jan 13/17/there were no changes in gold inventory at the GLD/Inventory rests at 805.00 tonnes
Jan 12/2017/no change in gold inventory at the GLD/Inventory rests at 805.00 tonnes
Jan 11/no change in gold inventory at the GLD/Inventory rests at 805.00 tonnes
JAN 10/no changes in gold inventory at the GLD/Inventory rests at 805.00 tonnes
JAN 9/A WITHDRAWAL OF 8.87 TONNES OF GOLD FROM THE GLD/INVENTORY RESTS AT 805.00 TONNES
NPV for Sprott and Central Fund of Canada
Major gold/silver trading/commentaries for TUESDAY
Bitcoin and Gold – Outlook and Safe Haven?
Bitcoin and Gold – Outlook, Volatility and Safe Haven Diversification
– Recent performance of Bitcoin and Gold
– Price outlook
– Bitcoin, China and capital flight
– Exchanges of value?
– Can bitcoin rival gold as a safe haven?
– ‘Bitcoin vs Gold’ or ‘bitcoin and gold’?
– Importance of diversification
– Conclusion: A monetary and financial revolution?
Recent performance of bitcoin and gold
What does the recent volatility and surging price of bitcoin mean for the future of the crypto-currency and does its recent outperformance mean that it may supplant gold as a safe haven currency? Can bitcoin rival gold as a safe haven? Do bitcoin’s recent price gains herald gains for gold in 2017?
2016 was a pivotal year for both the gold price and the price of bitcoin. In dollar terms, both made new gains that have not been since in the last four years. However, the fledgling digital currency greatly outperformed gold.
Gold climbed 8.6 per cent in dollars last year, outperforming both US Treasuries and the US Dollar itself. Despite ending its four year decline and gold being higher in all major currencies, sentiment in the media and among investors remains tepid towards gold as it had a poor second half to the year and failed to end the year above its July high of $1,366.
This despite strong gains in dollar and euro terms and surging over 31% in British pound terms and protecting UK investors and savers from sterling’s devaluation.
In contrast, 2016 saw the bitcoin price climb by more than 100% (see FT chart). With a climb of 126% it greatly outperformed all major fiat currencies in 2016.
In terms of significant developments in the gold market, 2016 was very important for gold. John Hathaway’s recent Tocqueville Gold Strategy Investor Letter pointed to two bullish factors that came to fruition in 2016 and will continue to benefit gold. Namely:
- First is the new Shariah Gold Standard, launched by AAOIFI and the World Gold Council, and brought to your attention here. This opens up investing in physical gold to approximately 25% of the world’s population – over 100 million investors
- “Second, is the incorporation of gold as a settlement currency to facilitate trade between oil-producing nations and the world’s largest hydrocarbon importer, China. Russia, Saudi Arabia, and Iran are settling most, if not all, of their energy sales to China in yuan convertible into physical gold via the Shanghai Gold Exchange”
2016 was also a year of significant maturing for bitcoin, this was in part thanks to the developments made in the underlying technology – the blockchain – but also because it had a year of lower volatility. It also began to react to macroeconomic developments, indicating that bitcoin traders and some buyers are now considering its role in the world beyond the cryptocurrency system, and instead as a form of currency hedge.
Last year was the first time in which we really saw the bitcoin price start to react to surprise economic factors, namely the hike in Federal Reserve rates last month. The Washington Post writes:
“When Greece threatened to leave the European Union in 2015, investors surged into the digital currency. The same thing happened when Britain voted to leave the European Union last year, and when Donald Trump defied polls to win the U.S. presidential election. Recent economic surprises in China, India and Venezuela that threatened to destabilize those countries’ paper currencies sparked an interest in the digital alternative as well.”
Bitcoin began to act more like gold – a hedge against geo-political, systemic and monetary risks.
Outlook for in 2017
The outlook for both bitcoin and gold looks positive in 2017. There are many positives for both gold and bitcoin as prices and holdings of both assets look set to benefit from speculators and investors’ desires for diversification, alternative currencies and safe havens.
Gold price predictions for 2017 range from $1,100 to $1,600 and beyond. Following a near 9% jump in 2016 a Bloomberg survey of analysts expect, on average, a climb on 13% this year. Goldcore, one of the analysts surveyed by Bloomberg sees gold reaching an annual high of $1,600 per ounce and closing the year over $1,400/oz.
Should analysts’ expectations play out, it will be the metal’s biggest rally since 2010.
Regardless of where analysts sit on the gold price axis, they all agree that Trump, Brexit and ongoing upset in the EU are likely to be supportive for gold. Not to mention negative real rates, inflationary policies and ongoing problems in the Eurozone banking system.
A survey on CoinDesk showed expectations for bitcoin to finish north of $1,400. Interestingly only a small percentage of those surveyed pointed to macroeconomic factors as the reason for the price climb, many in the bitcoin community still look inwardly to the technological improvements that are ongoing within the cryptocurrency, as support for higher prices.
A report from SaxoBank, released early December, also saw the potential economic impact of Trump’s governance and inflationary expectations as well as tense relations with Russia and China, as having a positive effect on the bitcoin price. The Bank made the ‘outrageous’ prediction that the bitcoin price could rise to as much as $2,000 as a result.
As we have already seen happen with gold, Saxo Bank believe it is not impossible to think that Russia and China, will move to accept bitcoin as a ‘partial alternative to the USD’.
“If the banking system as well as sovereigns such as Russia and China move to accept bitcoin as a partial alternative to the USD and the traditional banking and payment system, then we could see bitcoin easily triple over the next year going from the current $700 level to +$2,100 as the block-chains decentralised system, an inability to dilute the finite supply of bitcoins as well as low to no transaction costs gains more traction and acceptance globally.”
The start to bitcoin’s year has been promising, if volatile. On January 4th, the price reached multi-year highs over $1,129 per bitcoin. Since then, it has dropped by as much as 33% to as low as $776.
In recent days it stabilised at $800 and today it has surged over 6% to $880.
Both gold and bitcoin continue to benefit from their positions as borderless, autonomous currencies. Not only will they grow in appeal as countries look to diversify away from the US Dollar, protect themselves from cyber hacks and Trump uncertainties, including his tweets, but also as populist politicians of the left and right increasingly encroach on the roles of central bankers.
This is something that we are just starting to see in 2017 and looks set to continue for the foreseeable future. Jim Rickards points to President-elect Donald Trump’s possible decision to staff the Federal Reserve’s board with politicos. This will inevitably lead to inflation, according to Rickards:
“I’ve never known a politician who’s meddled in central bank policy to cause deflation.”
Bitcoin, China and capital flight
The volatility in the bitcoin price in January has largely been thanks to China. Much of the bitcoin activity (and subsequent interest from the government) was attributed to capital flight from the country as the yuan continues to be devalued and fall in value. The FT writes
“ The rally had caught the attention of Chinese regulators concerned that the currency was being use to facilitate capital flight. Authorities had gotten wind of the fact that some of their citizens were using it to take cash out of the country while circumventing strict regulations. People would buy bitcoin onshore, then sell it offshore for another currency, and move the money to a bank account. In the past six months, the yuan has accounted for 98 per cent of bitcoin trading.”
The PBoC released two separate statements on 6th January, both of which reminded (and quoted) readers of a 2013 statement stating bitcoin was not a currency and warning buyers of the risks involved. This is in stark contrast to Chinese official pronouncements re gold which has tended to be very positive – including at one stage encouraging Chinese people to diversify into physical gold.
Then, last week the PBoC purportedly stated that it will be carrying out ongoing investigations into China-based bitcoin exchanges. This prompted a 14% price crash.
Investigations at the moment appear to be interpreted as making sure exchanges are not faking the volumes going through sites (something the West has long been vocal about), as well as taking measures to prevent money laundering.
No one knows what the impact or extent of the Chinese government’s decisions will be. It’s unlikely that these leaks and announcement were by accident, given that the price and volatility were both covered on Chinese State television.
Put in perspective one wonders how big a deal this really is. At the moment, the bitcoin market cap is around $12.9 billion, in contrast the total amount of currency outflow from China was $320 billion.
The majority of capital flight from China, is not happening via bitcoin. Although it is obviously the reason for increased bitcoin activity. Given only 16 million bitcoin exists, it is impossible that a significant proportion of the 1 billion plus Chinese citizens are stocking up on the cryptocurrency.
For many bitcoin exchanges in China, increased transparency and more questions from the PBoC is only a good thing. The volatility seen in the last few weeks has masked a number of positive developments for bitcoin.
The announcements in regard to regulation and monitoring are welcome for an asset that is still untrusted by the majority of the financial world. In order for the market (and supporting ecosystems) to mature the currency most experience the same hurdles and be subject to the same scrutiny we see in other currencies and asset classes.
This is a familiar situation for gold. For a long-time we have been drawing attention to the activity in China, in terms of exchange developments and gold controls. It has been the controller of the physical gold market for many years, and how much the government owns and imports has been the source of much speculation and research.
However, recently gold too has come under scrutiny by the Chinese government due to concerns over capital flight. Last year gold import controls were put in place in an attempt to prevent currency leaving the country. In turn, this may have contributed to a spike in the demand for bitcoins.
These are examples of how gold and not bitcoin are being used as currency hedges and safe havens.
For some a maturing in the bitcoin market may be seen as a threat to gold. However, bitcoin has undoubtedly opened up the minds of many to alternative currencies, and the development and evolution of the bitcoin and cryptocurrency market will likely benefit gold and attitudes towards it.
Exchanges of value
When I talk to anyone about bitcoin or gold, one of the first questions I am asked is ‘if it’s money, where can I spend it?’
For sure, bitcoin is easier to spend than gold, on a day-to-day basis. However, as we have covered in recent articles, the technology that supports bitcoin (blockchain) is making it easier for gold to play a more significant role in daily spend (whether one wants to spend their gold, or not, is for another time).
Owning bitcoin and gold have been very useful for people in countries which have suffered financial crisis and currency crisis in recent months. Take, for example, currency controls in South American countries and India, to name a few.
To spend and store bitcoin has little cost and is easy if you have even basic technology know how. If you own gold in a vault in Switzerland – you can simply sell it and have your funds wired to your bank account in another jurisdiction. You then can access your currency by using your credit and debit cards.
In recent months and years, we have seen growth in gold imports across several countries whose monetary and political systems continue to come under threat. India, China and Turkey just to name a few. Turkey’s own President Erdogan is calling for citizens to convert their foreign holdings into gold and lira:
“For those who have foreign currencies under the pillow, come change this to gold, come change this to Turkish lira. Let the lira win greater value. Let gold win greater value…”
Both assets have come up against regulatory and legal issues when it comes to being able to use them as mediums of exchange. In worst case scenarios and for periods of time you may not be able to use gold or bitcoin in monetary transactions. Then their ability to potentially act as safe havens and stores of long-term value would become more important.
Can bitcoin rival gold as a safe haven?
We have seen gold’s role as a store of long-term value clearly during the financial crisis in recent years and indeed throughout history. Indeed, there is a significant body of academic and independent research which clearly shows that gold is a hedging instrument and a safe haven asset. We have been at the forefront of educating about gold’s diversification benefits and safe haven properties since 2003.
Bitcoin has not proven itself in this regard just yet. It relies on the internet and technology to be functional. The idea of crossing borders as a refugee and there being little access to technology is a situation which is all too common to millions of people today alas.
However, this is a situation gold has coped with very well over hundreds of years of human migration in times of both war and peace. Again in recent years, a nest egg of even a small amount of physical gold has helped people start new lives in foreign countries.
When it comes to the security of gold and bitcoin, you will hear different opinions. Both can be stolen, and there are recent examples of thefts in both markets. Both need to be owned and stored in the safest ways possible. How secure they are depends on you own them and where you store them.
For Nick Szabo, highly respected cryptographer and rumoured Satoshi Nakamoto, bitcoin is more secure than gold. He argues than in its history, gold has been very insecure and points to several lootings by explorers (the Spanish from the Aztecs, the English from the Spanish) by way of example.
In contrast to gold, says Szabo, bitcoin is secured by a private key to a a secured address. How you store the private key is up to you – whether online, a piece of paper or even in your head. Information, Szabo argues, is easier to protect than something physical.
With the threat of cyber security growing on a daily basis it is reasonable to see security as more of a threat to bitcoin than gold. Although many gold providers are also exposed to cyber risks.
Bitcoin’s security and functionality relies on technology, servers, the internet, the grid and electricity. One of the cases for gold’s strong outlook is because of the growing threat of cyberwarfare, something the cryptocurrency is unfortunately more exposed to.
In truth all assets carry some security risk, but much of the threat to bitcoin’s security comes down to its relative newness and whilst it matures so do the abilities and tricks of cyber hackers.
When we think about security for gold, we mainly think about government confiscation. For the bitcoin community this is the asset’s saving grace – it is yet to be confiscated by a government. In truth, this is rare in gold and there are no recent examples. It is not an occurrence that is impossible to imagine for bitcoin.
The fact is, a government is perfectly able to outlaw either asset and demand it be handover to the government. Bitcoin fans will argue that their asset is easier to hide, but surely no one would argue that you should break the law. Instead, diversification of storage is important for both assets. This is to reduce both the risk of government confiscation and cyber attacks.
Bitcoin vs Gold or ‘bitcoin and gold’?
“People are using [bitcoin] similar to how they use gold…They use it as a risk-off trade when they’re concerned about what’s going on in the capital markets.”
Statements such as this by Chris Burniske, an analyst at ARK Investment Management, to the Washington Post have a tendency to make gold investors nervous. It can plant a seed of doubt into investors’ minds that markets are going to turn off from gold and focus efforts on bitcoin during times when they would normally turn to gold.
Those who are still asking if they should by bitcoin or gold are often basing it on the fact that by the end of 2016 bitcoin had doubled in price whilst gold climbed 8.43%. Both had outpaced the S&P 500, the US Dollar and US Equities over the long term.
Granted, gold did not have the year bitcoin did, but it did not do badly. For example, at the beginning of 2016 gold continued to prove itself as a safe haven (the best performing asset, following silver in the first half of the year) and reached its 2016 high post-Brexit vote in July.
Certainly, when bitcoin first arrived in the mainstream consciousness, bitcoin versus gold was a big question. This was mainly down to the fact that bitcoin was pitched as the new gold, by many journalists.
However, I believe the majority of those who are already invested in either gold and/or bitcoin are pretty much over this issue.
Currently bitcoin plays a different role to gold. For want of an analogy, bitcoin is more the cash, whilst gold is more the savings. It is likely that we will see those looking at securing their wealth across both assets. This is likely to be done in a similar way that we see gold investors also buy silver, and divide holdings between stored bars and coins kept at home.
In the last couple of years, gold and bitcoin bugs have joined forces and many people hold both assets in their portfolio perceiving benefits to holding both forms of money.
Importance of real diversification
Investment and now currency diversification is extremely important, especially in a world of growing uncertainties and an increasing number of surprises whether politically, economically or even socially.
Gold has long been an asset to be considered in a diversified and balanced portfolio. It is only of late than bitcoin is also looking to play a role, especially as gold controls in China saw buyers turn to bitcoin.
However, as discussed above, we do not believe the debate over gold and bitcoin investment is an either/or.
In 2012 the World Gold Council released research that found the presence of gold in a portfolio ‘is a significant contributor to portfolio efficiency by reducing risk-adjusted returns and reducing expected losses’. They found that holding between 2.6% and 9.5% of one’s wealth in gold assets can help achieve beneficial diversification.
For bitcoin, the focus is still on returns, rather than its role as a safe haven or currency hedge, although we suspect this will change. A oft quoted fact is if you had bought $200 in bitcoin in 2011, it would be worth $1 million today.
It is possible for us to take any asset and demonstrate staggering returns over a perfectly chosen period. The fact is that for now, the bitcoin investment market is too new and underreported to know what role the currency may play in a portfolio.
There is also a dearth of quality bitcoin investment vehicle and at present buying bitcoin directly is the best way to benefit from price gains.
However, as we have discussed above, owning bitcoin directly can bring its own security risks and this is something there is little education and understanding about. In contrast, holding gold as part of a balanced portfolio and as a safe haven asset has been part of the public consciousness for centuries.
Conclusion: A monetary and financial revolution?
At the moment, bitcoin is very much the darling of the alternative currency world and sections of the media. However, it is still very young. There are far more ‘what ifs’ in its future than there are for gold.
Whilst there is currently no argument for or against why bitcoin will be an obsolete asset in 100 years from now, gold has history and over 2 billion people holding it. I personally do not think that bitcoin’s future is at risk but then as 2016 has shown, we really cannot predict anything.
Gold has stood the test of time and has withstood thousands of years of technological, political and economical change.
Bitcoin, as a technology-based currency is yet to experience any of these things. For all we know, another cryptocurrency may well usurp bitcoin due to more technological advances and the ability to avoid the volatility and government threats that bitcoin currently experiences. We really do not know.
The psyche that has people shifting into alternative currency hedges is the same one that is surprising the media and pollsters when it comes to discontent and worry over the political and economic system amongst the electorate.
Soon the mainstream will begin to ask why this is happening and start to take it seriously. When this happens bitcoin will no longer be a novelty and gold will again be seen as the prudent safe asset to hold in your portfolio.
In all likelihood both assets will continue to benefit from the factors that have made them preferred assets in times of uncertainty. Politics is much harder to predict these days, but the long-term demand for gold, and short-term demand for bitcoin has shown them both to be good currencies to hold when the going gets tough or unpredictable.
The financial revolution that bitcoin has driven (the thought that anyone can diversify from the modern monetary system) is beneficial for gold and we may well continue to see a split in what would have been primarily gold demand, now being split between both bitcoin and gold – especially among hhe millienials and the tech savvy younger generations. This is not a bad thing for gold.
Increasingly, gold and bitcoin will be seen as very much complementary assets, but buyers would be prudent to apply the same logic to owning bitcoin as they do for gold – diversify, own the currency in the safest ways possible – including some offline in secure ‘cold’ storage and monitor the wider political, financial and monetary environment.
This is a must read for all. Again international reserves of central banks decline again and Hugo is right: this will set off an economic collapse.
a must read..
(courtesy Hugo Salinas Price)
Hugo Salinas Price: The further decline in international reserves
Submitted by cpowell on Tue, 2017-01-17 00:58. Section: Daily Dispatches
7:58p ET Monday, January 16, 2017
Dear Friend of GATA and Gold:
Noting the continuing decline in the international reserves of central banks, Hugo Salinas Price, president of the Mexican Civic Association for Silver, writes today that credit contraction is likely to follow, along with deflation, unemployment, currency devaluation, and political instability. His analysis is headlined “The Further Decline in International Reserves” and it’s posted at the association internet site, Plata.com.mx, here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Gold trading from Europe yesterday:
(courtesy Lawrie Williams/Sharp’s Pixley)
LAWRIE WILLIAMS: Gold starts higher after US Holiday. Silver disappointing. Gloomy on pgms.
The gold price in Asia and Europe trended higher this morning, following the Martin Luther King Day holiday in the US yesterday which meant there was no report from SPDR Gold Shares (GLD) of purchases into, or sales out of the world’s largest gold ETF. GLD will be watched anxiously by gold commentators given that Friday saw the first inflow into the ETF since November 9th – the day after it was confirmed Donald Trump would be the incoming US President. Since then we have seen a big Trump bounce in equities, the US Fed beginning to raise interest rates, a sharp uptick in the dollar index and a corresponding fall in the gold price.
But this week sees Trump’s inauguration as President (on Friday) despite unprecedented attacks on his probity in terms of salacious allegations accusations of about his private life and of Russian hacking aiding his Presidential election campaign, all denied vigorously. So the reality of someone, seen even by his supporters as volatile and something of a loose cannon politically, acceding to what is almost certainly the most powerful political position on the planet is, at last, making investors nervous. And when investors are nervous they tend to turn to gold as the safe haven option.
Now can gold hold on to its recent price boost. There is evidence already today in the futures markets that there’s a fair amount of activity determined to negate any significant price increase, but we think that continuing uncertainties about Trump’s penchant for making policy statements on the hoof on twitter and about whether he really might succeed in boosting the US economy as he has stated. What will be his real position on some of the nation’s foreign relationships – particularly with China and Latin America – and will he be thwarted by the neocons in Congress and the Republican Party in attempts to devise some kind of rapprochement with President Putin and Russia.
While gold has been rising, silver investors will be disappointed in the performance so far of their preferred precious metal. The Gold:Silver ratio (GSR), for the moment seems pretty firmly set at above 71, but we suspect any continued gold price strength will indeed see silver outperform with the GSR coming in at below 70. If gold remains stronger through the year, as a number of bank analysts are now suggesting, then it is not inconceivable that the GSR could come down to 65 or below, making silver yet again the precious metal of choice.
One is not so confident though about the future of platinum group metals. While internal combustion engine powered motor car sales are doing well at the moment the war against diesel engines which is likely to see older models banned in some major cities within the next decade, will likely adversely affect the platinum catalyst market, while electric car technology seems to be advancing faster than anticipated with the prospect of making big inroads into the internal combustion engine market more rapidly than previously anticipated and a corresponding reduction in demand for platinum and palladium alike.
Barron’s Guy describes how gold is benefiting because of Donald Trump and how rising inflation throughout the globe is also helping in gold’s resurgence.
Gold bugs of the world have a simple message for Donald Trump: thank you for making gold great again.
Thank you for the spectacle that was your press conference, with the display of braggadocio (“I was offered $2 billion to do a deal in Dubai”) and belligerence (“Mexico will pay for the wall”), rather than a considered outline of your economic agenda, doing little to allay concerns you’re all slogan and no policy.
And thank you for selecting Rex Tillerson as your Secretary of State. He’s not even in the hot seat yet, but he’s already placed the U.S. on a collision course with China – they of nuclear-armed status – with talk of denying them access to the islands they’ve built in the South China Sea. War, what is it good for? Gold prices, that’s what.
This week was a gold bull’s dream, with the yellow metal boosted by a drooping U.S. dollar as Trump’s failure to provide details on his much hyped plans to make America great again got a thumbs down from traders. Gold soared to over $1,200 an ounce, bringing its advance from its December lows around $1,128 an ounce to roughly 6%. RBC Capital Markets’ head of commodity strategy Helima Croft summed it up nicely this week, saying “Trump’s election has introduced a proliferation of unknowns, which the market will have to work through as they surface”. Proliferation is an interesting choice of words, underlining the growing number of unknown unknowns as traders and investors are none the wiser about the new administration’s grand strategy one week out from taking charge of the White House. Gold is a no-brainer hedge against the risks of the unknown.
January has historically been a good month for gold, with the yellow metal ending January with a gain 65% of the time since 2000 according to ABN Amro. This month looks set to continue the trend as gold is up 4%. The question on traders’ minds is whether gold can maintain its upward momentum. History suggests there is a good reason to be bullish as Trump takes control of the Oval Office. An interesting analysis from Merk Investments shows presidential transition years have on average been great for gold. Since President Nixon took the U.S. dollar off the gold standard in 1971, the seven presidential transition years have delivered an average gold price rise of 14.8% compared to a 0.9% fall in the S&P500 in those years. While I’d caution investors against treating history as a predictive science and putting on a long gold- short S&P500 trade, it’s hard to fault Axel Merk’s conclusion: the data shows how stock investors can be disappointed by a new president’s inability to translate rhetoric into reality, and in an environment where the rules of the game are changing that makes gold a safe haven play.
But there’s more to gold’s renewed vigor than the changing of the guard in Washington. The yellow metal is also benefiting from resurgent inflation. Reports of the death of inflation look to have been exaggerated, with China’s December producer price index showing factory prices rising at the fastest pace in five years thanks to rising prices for oil, iron ore and coal. Trump should be pleased: there’s one thing that China isn’t exporting to the rest of the world any more – deflation. But it’s not just China where prices are on the rise – inflationary pressures are also growing in the U.S. and Europe.Janus Capital ’s chief investment strategist Myron Scholes, who also has a Nobel Prize to his name, argued this week that the rise in inflation isn’t just a temporary jolt from higher commodity prices as many asset classes are signaling inflation “is here and on the rise”.
China’s attempts to reflate its economy and snap a five year run of factory price deflation has been helped by the generous use of credit to juice growth. The lending spigot was opened wide in December, with Chinese banks inking new loans worth 1.04 trillion Chinese yuan against expectations of 667 billion yuan. The surge in lending was seen as a preemptive move ahead of a possible tightening of credit later this year. ANZ’s calculation that 67% of all new yuan loans went to non-financial corporates – the first time long term corporate loans have surpassed mortgages – will no doubt embolden the bears concerned about an eventual popping of China’s credit bubble. Crescat Capital is one money manager concerned about the risk of a twin banking and currency crisis, warning its investors this week that attempts to tighten lending may trigger a credit crisis, which would then force Beijing to change course and inject liquidity, which could lead to a currency crisis. The hedge fund manager is short iShares MSCI China (MCHI), iShares China Large Cap (FXI), and the Deutsche X-Trackers Harvest CSI 300 China (ASHR).
While the risks of a banking crisis rise with every poorly thought out loan to a zombie company, most brokers are focusing on short term ways to squeeze the most profit from the rise in inflation. Long term risks be damned! Deutsche Bank strategists Yuliang Chang and Joseph Huo say reflation is their favored investment theme, and reiterated financials and energy stocks as overweight recommendations. The duo are expecting strength in the PPI to extend into the first half of the year, while they see a pick-up in consumer prices in the second half.
Given the tick up in inflationary pressures it’s not surprising that Chinese gold prices are on the rise. The benchmark price on the Shanghai Gold Exchange has climbed 4% from its December lows, and there could be further gains ahead of Chinese New Year celebrations later this month. With Beijing cracking down harder on Bitcoin exchanges, the precious metal may be the last asset class of choice for jittery Chinese investors unnerved by the prospects of a weaker yuan, stricter capital controls, the impact on growth from a tightening of credit, and a lack of alternative options given policies to rein in runaway apartment prices. The deflationary threat may be waning, but China’s track record of allowing inflation to build up a head of steam means Beijing needs to tread carefully with the flow of credit and its plans to shut down capacity at a time when higher prices are beginning to pulse through the economy.
Your early TUESDAY morning currency, Asian stock market results, important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight
1 Chinese yuan vs USA dollar/yuan DOWN to 6.8490(HUGE REVALUATION NORTHBOUND /CHINA UNHAPPY TODAY CONCERNING USA DOLLAR RISE/MORE $ USA DOLLARS LEAVE CHINA/OFFSHORE YUAN NARROWS COMPLETELY TO 6.7975 / Shanghai bourse CLOSED UP 5.34 POINTS OR 0.17% / HANG SANG CLOSED UP 122.82 OR 0.54%
2. Nikkei closed DOWN 281.71 POINTS OR 1.48% /USA: YEN FALLS TO 113.40
3. Europe stocks opened MOSTLY IN THE RED ( /USA dollar index FALLS TO 100.58/Euro UP to 1.0689
3b Japan 10 year bond yield: FALLS TO +.047%/ !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 113.40/ THIS IS TROUBLESOME AS BANK OF JAPAN IS RUNNING OUT OF BONDS TO BUY./JAPAN 10 YR YIELD FINALLY IN THE POSITIVE/BANK OF JAPAN LOSING CONTROL OF THEIR YIELD CURVE AS THEY PURCHASE ALL BONDS TO GET TO ZERO RATE!!
3c Nikkei now JUST BELOW 17,000
3d USA/Yen rate now well below the important 120 barrier this morning
3e WTI:: 53.26 and Brent: 56.48
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” OFF THE TABLE FOR NOW /REVERSE OPERATION TWIST ON THE BONDS: PURCHASE OF LONG BONDS AND SELLING THE SHORT END
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 UP for WTI and UP for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund FALLS TO +.301%/Italian 10 yr bond yield DOWN to 1.894%
3j Greek 10 year bond yield RISES to : 7.06%
3k Gold at $1212.75/silver $17/01(8:15 am est) SILVER BELOW RESISTANCE AT $18.50
3l USA vs Russian rouble; (Russian rouble UP 69/100 in roubles/dollar) 59.17-
3m oil into the 53 dollar handle for WTI and 56 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 HUGE 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 113.40 DESTROYING JAPANESE CITIZENS WITH HIGHER FOOD INFLATION
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning 1.0015 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0709 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 POSITIVE territory with the 10 year FALLS to +.301%
3s The Greece ELA NOW at 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 2.345% early this morning. Thirty year rate at 2.9445% /POLICY ERROR)GETTING DANGEROUSLY HIGH
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
US Futures, Dollar Slide; Global Stocks Drop After Trump Comments; May Speech Awaited
While traders eagerly await Theresa May’s speech set to begin in minutes, even if it was largely leaked last night to minimize “market shocks” and set the stage for a big squeeze in cable which at last check was over 100 pips higher overnight, the big catalyst setting today’s risk off mood was the previously noted Trump statement, published overnight by the WSJ, in which Trump called the US currency “too strong“, and attacked the Border-Tax Adjustment, expected to boost the value of the USD by as much as 15% should it be implemented.
As a result, European shares are sliding, S&P index futures are down 12 points, while the dollar has fallen all of its G-10 peers – with the USDJPY tumbling below 113 for the first time since December, and the USDCNH back under 6.80 – as investors flee the crowded USD trade amid concern for the future of the Trumpflation rally and worries Theresa May may say today that U.K. will leave European Union’s single market. And since the dollar is now a source of risk, traders are suddenly piling into gold, which has risen to $1,218 in early trading, the highest since November 22.
Britain’s pound was higher on the day but still close to Monday’s three-month lows, while the Japanese yen hit a six-week high as investors sought shelter from the mounting political risk of a week that also includes Trump’s inauguration.
“Sterling is trading higher ahead of Theresa May’s speech on Brexit but we’re expecting a wild ride for the pound today,” said Neil Wilson, senior market analyst at ETX Capital.
Investors are seeking clarity on his policies after campaign pledges on tax cuts and government spending helped lift stocks and the dollar and were deemed positive for economic growth.
“The dollar is the guiding light at this point and all eyes are on the shape U.S. policy will take,” said Fredrik Nerbrand, global head of asset allocation at HSBC Holdings Plc in London. “I would put today’s dollar weakness down to noise rather than a structural shift. If Trump wants to become as growth-generative as he’s planning to be and you don’t have the same fiscal push coming from the rest of the world, then it’s a question of where does the capital flow to. The dollar is the tallest pygmy.”
The twin themes of Brexit and Trump are set for significant developments this week after dominating markets this year and last. The comments from Trump, who will be inaugurated Friday, have left traders guessing at his meaning, while May’s speech is likely to give the clearest view yet of the U.K.’s exit strategy.
As noted yesterday, Prime Minister May is to rule out Britain staying in the European single market in her speech as she makes immigration controls a priority in Brexit talks. She is expected to state Britain should not be “half-in, half-out” of the EU or “hold on to bits of membership as we leave.” Her speech is set to begin at 6:45am ET. “We have taken back all of the move from yesterday morning. The speech has been so well telegraphed that I think people (betting against sterling) realize that is dangerous,” said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.
Also overnight, BoE Governor Carney stated BoE sees slower UK growth and FX rate over next few years and there is evidence that consumption-led growth is less durable. Carney also commented that the central bank is prepared to act to protect economic growth in the face of Brexit triggered pressures. Carney also reiterated that the MPC has limits to the extent that above target inflation can be tolerated.
As a result of the above, Stoxx Europe 600 Index retreated 0.5 percent, with automakers among the biggest decliners for a second day. The FTSE 100 Index slipped 0.3 percent. Futures on the S&P 500 Index slid 0.6%. U.S. markets were closed Monday for a holiday.
Gold hit its highest in more than seven weeks, and was last trading at $1,213 an ounce, up almost 1 percent on the day XAU=. It has now risen for seven consecutive days. “Gold is going to do very well in the first half of the year due to Brexit concerns, Chinese currency pressure and uncertainty surrounding Donald Trump’s policies,” said Richard Xu, fund manager at China’s biggest gold exchange-traded fund, HuaAn Gold.
- S&P 500 futures down 0.6% to 2258
- Stoxx 600 down 0.4% to 362
- FTSE 100 down 0.3% to 7302
- DAX down 0.7% to 11469
- German 10Yr yield down 4bps to 0.28%
- Italian 10Yr yield down 6bps to 1.85%
- Spanish 10Yr yield down 10bps to 1.33%
- S&P GSCI Index up 1% to 403.7
- MSCI Asia Pacific up less than 0.1% to 140
- Nikkei 225 down 1.5% to 18814
- Hang Seng up 0.5% to 22841
- Shanghai Composite up 0.2% to 3109
- S&P/ASX 200 down 0.9% to 5699
- US 10-yr yield down 7bps to 2.33%
- Dollar Index down 0.29% to 100.89
- WTI Crude futures up 1.5% to $53.13
- Brent Futures up 1.1% to $56.48
- Gold spot up 1.1% to $1,216
- Silver spot up 1.3% to $17.03
Top Global News
- Dollar Drops on Trump Comment as Traders Await May: Markets Wrap
- Trump’s Strong Dollar Comment Puzzling Traders, Macquarie Says
- BAT Wins Reynolds With Sweetened $49.4 Billion Buyout Bid
- JPMorgan Wants to Prove You’re Getting the Best Currency Trade
- Sleuthing for Fed Dots Hints at Yellen Plotting Three ‘17 Hikes
- Microsoft Veteran Will Help Run Chinese Search Giant Baidu
- GM Said to Plan $1 Billion U.S. Investment in Nod to Trump
- Trump Said to Meet Boeing CEO a Second Time Over Air Force One
- UBS Chairman Axel Weber Says Mood at Davos Is Too Gloomy
* * *
Looking at regional markets, Asian stocks traded mostly lower following the US market closure for Martin Luther King Jr. Day and negative lead from Europe due to hard Brexit concerns. ASX 200 (-0.9%) conformed to the downbeat tone and broke below the 5700 amid declines in financials as all Big 4 banks traded with losses after similar weakness in their European counterparts. Nikkei 225 (-1.5%) underperformed to plummet below the 19,000 level as JPY strengthened. In China, Shanghai Comp (+0.1%) saw choppy trade after the PBoC’s outstanding FX funds declined for the 14th straight month which suggested continued capital outflows. Furthermore, a firm CNY 330b1n injection failed to support as increased liquidity efforts are widely expected ahead of the Lunar New Year holiday later this month, while the Hang Seng (+0.6%) outperformed and traded with gains following some encouraging earnings reports. Finally, 10yr JGBs saw uneventful trade and edged minimal gains despite a risk averse tone and better than prior 20yr auction results. PBoC injected CNY 100bIn in 7-day reverse repos and CNY 230b1n in 28-day reverse repos. (Newswires) PBoC set CNY mid-point at 6.8992 (Prey. 6.8874).
- Top Asian News
- Yen Unlikely to Draw Japan Into Conflict With Trump, Sinai Says
- Samsung Succession in Disarray as Lee Criminal Case Advances
- Tata Group Said Planning to Raise Stakes in Key Listed Units
- Vietnam’s Premier to Raise Foreign-Investor Caps on Banks
- Asahi Thirsty for More Overseas Deals After SABMiller Purchases
- Cash Ban Gives India Gold Lovers No Way to Buy Wedding Rings
European bourses are broadly trading in the red as markets await UK Prime Minister May’s press conference at 1145GMT. Rolls Royce are among the best performers in Europe today after the Co. settled its bribery investigation and confirmed it will pay GBP 671 min. Elsewhere in the FTSE 100 British American Tobacco have agreed their merger with Reynolds American for USD 59.64 per share and also trade higher this morning. Fixed income prices have moved higher in line with the risk off theme this morning, led by a 6.4bps decline in the French 30-year. Looking ahead, today sees the German Schatz auction, while Gilts have outperformed as traders and investors anticipate PM Mays’s speech.
Top European News
- German Investor Confidence Surges as Economic Momentum Picks Up
- Bank Bosses Prep Plans to Move Abroad as May Signals Hard Brexit
- U.K. Inflation Surges to Fastest in 2 1/2 Years as Pound Slumps
- European Auto Sales Jump to Nine-Year High as Renault Gains
- Zurich Cuts Technology Spend as Greco Seeks $1.5 Billion Savings
- Carlsberg Cold War Analyst Says New Russia Status a Game Changer
- Deutsche Bank May Withhold 90 Percent of Bonuses, NY Post Says
- EU Parliament Votes on New Chief as Six Candidates Vie for Post
In currencies, the Bloomberg Dollar Spot Index lost 0.7 percent at 10:34 a.m. London time, set for the lowest level in a month. The pound rose 0.7 percent to $1.2133, erasing an earlier decline. The euro climbed 0.6 percent to $1.066. The yen traded at 113.26 per dollar, up 0.8 percent. The currency has strengthened 3.2 percent over seven sessions. All eyes will be on UK PM May’s key speech on Brexit but unlike the jitters experienced in early Monday, GBP has recovered some ground in the meantime, but some are discounting this down to market mechanics as we close the gap left by Asian markets yesterday. We saw Cable dipping below 1.2000 at the time, but tentative gains saw a London close around the 1.2040-50 area, with buyers taking the pair up to highs just shy of 1.2200 before the latest drop back. This has come in line with USD weakness across the board, with notable losses in USDJPY taking us below 113.00, as recent Trump rhetoric on USD strength has been underlined by his advisers speaking in Davos at the present time. Protectionist talk on China’s devaluation of the Yuan has also sparked fresh concerns on what may lie ahead after his inauguration this Friday, and this points to nerves spreading into the equities markets with the European bourses generally lower on the day so far. Elsewhere, EUR/USD has been pushed back into the upper 1.0600’s, and calls for a test on the 1.0700-1.0800 are back on the table with the ECB meeting on Thursday also adding to the mix of risk event this week.
In commodities, gold climbed 1.1 percent to $1,215.51 per ounce, extending its winning streak to seven days, the longest since November. Spot gold prices are at the highest since Nov. 22. Crude oil added 1.8 percent to $53.29 a barrel. Bloomberg’s commodity index rose for a fifth day, heading to the highest close since July 1. Oil markets have somewhat slipped back from the limelight in the commodity complex, but it is enough to say that the USD50.00 handle looks comfortable in WTI, with the backdrop of the OPEC agreement serving as a firm prop. Instead, the focus is on Gold, and while today’s drivers are coming from USD softness, the safe haven aspect may come into play as some of D. Trump’s protectionist rhetoric begins to unnerve the markets. Base metals could move the other way given the infrastructure spending implications — in both the US and China — but some near term consolidation seen in the likes of Copper as USD weakness translates into higher commodity prices across the board.
Looking at the day ahead, in the US the sole release is the NY Fed’s empire manufacturing survey. Away from the data, clearly the big focus today will be on UK PM Theresa May’s hotly anticipated Brexit speech. Also due to speak today are the Fed’s Dudley and Williams. We’ll also get the latest quarterly earnings report from Morgan Stanley, prior to the open. If that wasn’t enough, the annual World Economic Forum gets underway in Davos today where a number of key speakers are scheduled including China President Xi Jinping. So that is also well worth keeping half an eye on. Finally the European Parliament will begin the process for electing a new president today.
* * *
Jim Reid concludes the overnight wrap
Unsurprisingly markets have been spending the best part of the last 24 hours preparing themselves for Prime Minister Theresa May’s hotly anticipated Brexit speech today. The Sunday Times story served up the first few clues that May will signal plans for a ‘hard Brexit’ today. This morning the newswires are dominated by references to leaked reports from May’s planned speech, all of which is helping to further underscore a potential hard line stance strategy from the UK government.
The stories suggest that May will set out a 12-point plan for Brexit which includes gaining control of Britain’s borders, preserving the Union, signing major free trade deals, taking the UK out of the jurisdiction of the European courts and maintaining workers’ rights. Significantly though, the PM is expected to say that this will not involve “partial membership of the EU, associate membership of the EU, or anything that leaves us half-in, half-out”. In addition the leaks suggest that May will also say that “we do not seek to adopt a model already enjoyed by other countries” and “we do not seek to hold on to bits of membership as we leave”.
Instead it’s expected that the PM will say that “we seek a new and equal partnership between an independent, self-governing, Global Britain and our friends and allies in the EU”. Sterling closed down -1.11% yesterday at $1.205 after briefly testing the waters below $1.200 although it has actually pared some of those losses this morning and is hovering around $1.208. Implied overnight volatility in Cable has also spiked to 27% as we type versus 10% on Friday and is at the highest level since the BoE cut rates back in August. As a prelude to today’s speech, this morning DB’s Oliver Harvey published a short note highlighting some of the other key questions that the market will be looking for answers for. Oliver notes that the speech is expected at 11.45am GMT this morning so strap in and prepare to hold onto your hats.
Leading into this and coming off the back of what was a broadly risk-off session in Europe yesterday with those Brexit concerns at the forefront, it’s been a much more mixed session for Asian equities this morning. While there are further losses for the Nikkei (-0.71%), Shanghai Comp (-0.50%) and ASX (-0.85%) we have seen gains for the Hang Seng (+0.44%) and Kospi (+0.44%). US equity futures are currently -0.26% while 10y Treasury yields have rallied just over 3bps.
Back to yesterday. Indeed, despite the US holiday it was a fairly rough start to the week for European equity markets yesterday with the likes of the Stoxx 600 and DAX closing -0.81% and -0.64% respectively. The FTSE 100 (-0.15%) outperformed relatively speaking boosted by the Sterling weakness but finally closed in the red for the first time since December 21st. In doing so that brings to an end a remarkable and record run of 14 consecutive days of gains and in which the last 12 were record highs for the index. Meanwhile rates benefited from the risk off moves yesterday with 10y Gilt yields in particular ending the day down 5.2bps at 1.308%. Gold (+0.45%) extended its positive start to the year and has now closed the day up in 10 of the 11 trading sessions in 2017 so far. Meanwhile credit markets were a touch wider while it was interesting to see the first Tier 3 sterling bond issue from the UK insurance sector yesterday when Phoenix Group priced a £300m bond, according to the FT.
Elsewhere we didn’t really know what to expect from BoE Carney yesterday however in the end his speech ended up being a bit of a non-starter. He did say that “recently there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally” and at the same time that the British consumer appears to be “looking through Brexit-related uncertainties”. From a policy standpoint, Carney said that the “MPC will monitor developments in the light of its inflation tolerance and will explain its assessment and policy stance accordingly”. He also suggested that there are “limits to the extent to which above-target inflation can be tolerated”.
Away from this and over at the ECB, the Bank released its latest CSPP holdings data yesterday. Following a holiday-impacted first week, total holdings last week were reported at €54.01bn which implies net purchases settled during the week of €2.17bn. That works out to a €434m daily run rate which is well ahead of the €355m average since the programme. So in other words it appears that buying is back to pre-holiday levels and still going strong.
Before we move onto what is a fairly packed day ahead, yesterday the IMF also released their latest global growth forecasts. The fund maintained their 3.4% forecast for global growth in 2017 made in November, while also leaving their 3.6% forecast for 2018 as is. For the US and reflecting the impact of the Trump administration, the fund now expects growth of 2.3% in 2017 and 2.5% in 2018 which is a cumulative 0.5% upward revision. For the UK, the fund revised up their growth forecast by 0.4% in 2017 to 1.5% but revised down 2018 by 0.3% to 1.4%. Finally growth in China this year was revised up 0.3% to 6.5%, but the fund continues to expect a slowdown in 2018 to 6.0%.
Looking at the day ahead, this morning in Europe the early data comes from France where we’ll get the November budget balance. The focus then turns to the ECB’s bank lending survey, which as a reminder was a bit soft last quarter although the rebound for the sector into year-end may help to firm it up. The UK will then report December inflation numbers where the consensus is for a +0.3% mom rise in headline consumer prices. Later on we’ll then get the January ZEW survey in Germany. Over in the US this afternoon the sole release is the NY Fed’s empire manufacturing survey. Away from the data, clearly the big focus today will be on UK PM Theresa May’s hotly anticipated Brexit speech. Also due to speak today are the Fed’s Dudley (at 1.45pm GMT) and Williams (at 11pm GMT). We’ll also get the latest quarterly earnings report from Morgan Stanley, prior to the open. If that wasn’t enough, the annual World Economic Forum gets underway in Davos today where a number of key speakers are scheduled including China President Xi Jinping. So that is also well worth keeping half an eye on. Finally the European Parliament will begin the process for electing a new president today.
i)Late MONDAY night/TUESDAY morning: Shanghai closed UP 5.34 POINTS OR 0.17%/ /Hang Sang closed UP 122.42 OR 0.54%. The Nikkei closed DOWN 281.71 POINTS OR 1.48% /Australia’s all ordinaires CLOSED DOWN 0.83%/Chinese yuan (ONSHORE) closed UP at 6.8490/Oil ROSE to 53.26 dollars per barrel for WTI and 56.48 for Brent. Stocks in Europe MOSTLY IN THE RED. Offshore yuan trades 6.7975 yuan to the dollar vs 6.8490 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE COMPLETELY NARROWS AGAIN AS DOLLARS STOP LEAVING CHINA’S SHORES /
b) REPORT ON JAPAN
c) REPORT ON CHINA
4 EUROPEAN AFFAIRS
First: Monday night:
The pound at first declines when Theresa May outlines her 12 point plan. England will have a complete hard break whereby it will control immigration, restoring her power to create laws and most important, control over the courts and not listen to the European court of justice. England will make her own deals and there will not be a partial membership
(courtesy zero hedge)
Pound Slides After Theresa May’s Full Speech Leaks, Laying Out Her 12-Point Plan
While hardly coming as much of a a surprise following the weekend’s news that Theresa May would call for a “clean and hard Brexit”, confirmation received moments ago from both the Telegraph, FT and Bloomberg that on Tuesday May will indeed declare that Britain is making a “clean break” from the EU and will not seek a deal that leaves the country “half in and half out”, has send the sterling lower by some 25 pips, because even though the news is not incremental, as Bloomberg notes quoting a trader, “Algos Trade Off Keyword Flagged in Speech.”
May’s office has said she will announce 12 key objectives for the negotiations, which will include gaining full control over immigration, restoring power over lawmaking to the U.K. Parliament and ending the jurisdiction of the European Court of Justice over British laws, preserving the Union, maintaining workers’ rights and signing major free trade deals.
According to The Telegraph, which has seen an advance copy of her speech tomorrow, the UK Prime Minister will set out a 12-point plan for Brexit as she vows that the UK will not have “partial” membership of the EU “that leaves us half-in, half-out”. Mrs May will make her most significant speech since becoming Prime Minister in July last year and confirm that Britain will leave the single market and customs union after Brexit.
Some more details of her upcoming speech, courtesy of the Telegraph:
- In remarks that will delight Conservative Eurosceptics, May will pledge that Britain outside the European Union will be a “great, global trading nation” that is “respected around the world and strong, confident and united at home”.
- The Prime Minister will make regaining control of Britain’s borders one of the central themes of her Brexit strategy and will also make clear that the rights of UK expats will be protected.
- She will make clear for the first time that Britain will not seek a watered down version of Brexit, something that Remain campaigners are still pushing for.
- The Prime Minister will say that Britain is quitting the single market and although she will be less explicit on the issue of the customs union, her remarks will make clear that after Brexit the UK will no longer be a member.
- She will say that the Government has “12 objectives that amount to one big goal: a new, positive and constructive partnership between Britain and the European Union”.
The 12 objectives are understood to
“And as we negotiate that partnership, we will be driven by some simple principles: we will provide as much certainty and clarity as we can at every stage,” Mrs May will add. “And we will take this opportunity to make Britain stronger, to make Britain fairer, and to build a more Global Britain too.”
In a blow to business groups pressing for the closest possible links to Europe, May will use a speech in London to explicitly say she expects Britain to leave the single market and overhaul its links to the customs union, according to a person familiar with the matter. She has no interest in a “partial” or “associate” membership of the EU or “anything that leaves us half-in, half-out,” according to extracts released by her office.
Her remarks will be seen as a direct rebuke to European leaders who have repeatedly claimed that Britain will have to compromise on freedom of movement if it wants membership of the single market or customs union.
“We seek a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU,” the Prime Minister will say in the speech in Lancaster House in London.
“Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.
“The United Kingdom is leaving the European Union. My job is to get the right deal for Britain as we do.”
She will also use the speech to directly counter claims by her critics that she has no plan for Brexit.
Mrs May has pledged to trigger Article 50, which triggers formal Brexit negotiations with Brussels, by the end of March. The four principles guiding the negotiation with Brussels will be “certainty and clarity”, “a stronger Britain”, “a fairer Britain” and “a truly Global Britain”, Mrs May will say.
Ultimately, May will concede that the “road ahead will be uncertain at times”, but will make clear that Brexit will lead to a “brighter future” for voters’ children and grandchildren.
“A little over six months ago the British people voted for change,” Mrs May will say. “They voted to shape a brighter future for our country. They voted to leave the European Union and embrace the world.
“And they did so with their eyes open: accepting that the road ahead will be uncertain at times, but believing that it leads towards a brighter future for their children – and their grandchildren too.
“And it is the job of this Government to deliver it. That means more than negotiating our new relationship with the EU. It means taking the opportunity of this great moment of national change to step back and ask ourselves what kind of country we want to be.”
Mrs May’s speech comes after Donald Trump, the President-Elect of the United States, said that Britain and America will get a new trade deal “done quickly and done properly”.
* * *
The Telegraph adds that Eurosceptics and senior Leave campaigners will welcome Mrs May’s commitment that Britain will quit the single market.
On the customs union, Mrs May will suggest that there could be scope for negotiating access for some sectors – such as the automotive industry – after Brexit.
However, it will be clear from her words that while the Brexit negotiation may include discussions about some form of access, Britain is leaving the customs union.
While May will not set out her plans for Britain’s post-Brexit immigration system, she will favour a work permit system, meaning EU migrants will only be able to come to the UK to live or work if they have a firm job offer.
“My answer is clear,” Mrs May will add. “I want this United Kingdom to emerge from this period of change stronger, fairer, more united and more outward-looking than ever before. I want us to be secure, prosperous, tolerant country – a magnet for international talent and a home to the pioneers and innovators who will shape the world ahead.
“I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too. A country that gets out into the world to build relationships with old friends and new allies alike.”
“We want to buy your goods, sell you ours, trade with you as freely as possible, and work with one another to make sure we are all safer, more secure and more prosperous through continued friendship,” the Prime Minister will say.
* * *
The good news, if only for the market, is that with her speech fully leaked at this point, there will be no further surprise, and if anything, it is possible that the sterling’s next move is higher, especally as an adverse Supreme Court ruling on Article 50, which could come at any point, could unleash a violent short squeeze in cable.
Then Tuesday morning: the pound skyrockets after May calls for a parliamentary vote on the BREXIT:
Pound Soars Most Since 2008 After UK’s May Calls For Parliamentary Vote On Brexit
Having plunged to flash-crash lows on Sunday night following leaks of UK PM Theresa May’s Brexit speech, cable is soaring this morning as she delivered the speech confirming that both houses of Parliament will vote on the final Brexit deal.
We warned the “surprise” was priced in…
And as Bloomberg notes, U.K. PM May’s announcement that both houses of Parliament will vote on the final Brexit deal is positive for the pound as the process should ensure that extreme outcomes are avoided, analysts say. The FT notes that the votes is expected in early 2019 and it is unclear what would happen if either house were to reject the deal.
- “The deal has to be good” to be approved, BofAML strategist Athanasios Vamvakidis says in e-mailed comments
- “Final take on this speech is that May has come across very well. This, in addition to the economic fundamentals, are good arguments for not being aggressively short GBP/USD below 1.20. The way she has come across today almost puts the EU in an out-of-touch position,” Stephen Gallo, analyst at BMO Capital Markets, says in e-mailed comments
- The announcement on the Parliament vote fueled the initial extension of the GBP rally, partly because it raises expectations that MPs less in favor of Brexit could have more influence, according to Josh O’Byrne, strategist at Citigroup; still, big picture hasn’t changed much after this speech
- May didn’t add to “hard-Brexit” fears, and hence the “sell-the-fact” reaction in the market, Manuel Oliveri, strategist at Credit Agricole, says in e-mailed comments
And the result is a chaotic spike in cable – the biggest move since 2008…
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
7. OIL ISSUES
Oil falls as Brazil will not go along with production cuts. You can bet the farm that the OPEC deal will blow up in shambles
(courtesy zero hedge)
Oil Slides After Brazil Denies Saudi Production Cut Request
With US Shale production surging, and now Brazil declining Saudi Arabia’s request to cut production, doubts are continuing to rise over OPEC’s deal and the hopes for balance in the energy markets.
As Bloomberg reporets, Brazil Energy Minister Fernando Coelho Filho said during an in interview in Davos…
- Petrobras can’t reduce output after corruption scandal and drop in international oil prices.
- The company had already cut 2020 output target to 2.7 million b/d from more than 4 million b/d.
- “Petrobras is coming now from a very difficult period. They can’t reduce production now. We’re trying to put the company back on its feet”
- The Brazilian governmentt “has a lot of power on Petrobras,” but president Michel Temer gave Petrobras CEO Pedro Parente independence.
- “Petrobras will do what they think is necessary to be done”
And oil prices are tumbling…
And that is weighing on stocks…
8. EMERGING MARKETS
Life in Venezuela undergoing hyperinflation
This Is What Venezuela’s New, Vertical, Banknotes, Now With Added Zeros Look Like
We’ve all been eagerly waiting to see them: Venezuela’s crisp,brand new yet soon to be hyperinflated with many more zeros banknotes, and finally, after various failed attempts to deliver the new bills to Caracas (which according to Maduro were at least partially aborted due to pesky CIA meddling) they have arrived. And they are vertical.
A new bank note of 500 Bolivars held outside a bank in Caracas. Jan. 16, 2017.
A new bank note of 5,000 Bolivars outside a bank in Caracas. Jan. 16, 2017.
Eager to get their hands on the new currency, AP writes that Venezuelans stood in long ATM lines Monday to take out new, larger-denominated bills “that President Nicolas Maduro hopes will help stabilize the crisis-wracked economy.” Of course, they will do no such thing as the pieces of paper in circulation have absolutely no bearing on the underlying economy, or its hyperinflation, but it will take at least several more shipments of new banknotes before the Maduro figures this out.
As a reminder, in taking a page out of the Indian demonetization playbook, Maduro last month said he was scrapping circulation of the most used bill, the 100-bolivar note, and replacing it with new bills ranging from 500 to 20,000 bolivars.
The local were appalled. Residents in Caracas expressed shock at seeing bills with so many zeros — a sign of how worthless the bolivar has become amid triple-digit inflation and a collapse in foreign exchange reserves that has led to severe food shortages.
Our advice: get used to it – the fun is only just starting. Ask Zimbabwe.
“I never thought I’d have such a big bill in my hands,” Milena Molina, a 35-year-old sales clerk, said as she inspected crisp, new 500-bolivar notes she had just withdrawn. “But with the inflation we’re suffering, the notes we had weren’t worth anything and you always had to go around with huge packages of bills.”
The Weimar Republic agrees.
Monday’s rollout of the first batch of imported notes came weeks later than the government had originally promised. Maduro last month ordered the 100-bolivar note to be withdrawn from use well before the replacement bills were ready, leading to widespread chaos as Venezuelans rushed to spend the bills before they were taken out of circulation. With cash running out, looting and protests were widespread – although they were widespread before the currency exchange too, so there wasn’t much of a difference – and Maduro had to backtrack. On Sunday, he extended for the third time, until Feb. 20, the deadline for the 100-bolivar note to remain legal tender.
While the new denominations should make cash transactions easier the relief may be short-lived: since the largest, 20,000-bolivar note is worth less than $6 on the widely used black market, Maduro already has to order a fresh batch with at least one more zero. With inflation forecast by the International Monetary Fund to hit four digits this year, few economists expect the currency to rebound any time soon.
Seeking to combat the black market, the government on Monday inaugurated four currency exchange houses near the border with Colombia where Venezuelans will be able to purchase Colombian pesos at a favorable exchange rate of 4 pesos per bolivar. The bolivar currently is worth just a quarter of that amount at exchange houses over the border in Colombia.
And while on the surface this risk-free arbitrage guaranteeing 400% returns would be a slam-dunk trade, there are two problems.
First, while Gov. Jose Vielma Mora of Tachira state said the Venezuelan central bank has at its disposal a large amount of pesos to meet what is expected to be strong demand for hard currency, purchases would be capped at between $200 and $300. A second, and bigger problem, is that it was hard to find anyone Monday who had managed to buy pesos.
Opponents of Maduro said that in trying to set an exchange rate for pesos, authorities are paving the way for corruption, saying only certain individuals and companies close to the government will be able to purchase them at the official rate. They are, of course, right.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings TUESDAY morning 7:00 am
Euro/USA 1.0689 UP .0089/REACTING TO + huge Deutsche bank problems + USA election:/TRUMP WINS THE ELECTION/USA READY TO GO ON A SPENDING BINGE WITH THE TRUMP VICTORY/ITALIAN REFERENDUM DEFEAT/AND NOW ECB TAPERING BOND PURCHASES/USA FALLING RATE
USA/JAPAN YEN 113.40 DOWN 0.754(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 AND DECISION ON SEPT 21 DISAPPOINTS WITH STIMULUS/OPERATION REVERSE TWIST
GBP/USA 1.2372 UP .0284 (Brexit by March 201/UK government loses case/parliament must vote/PRIME MINISTER MAY DECIDES ON A HARD BREXIT)
USA/CAN 1.3055 DOWN .0121 (CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT FROM EU)
Early THIS TUESDAY morning in Europe, the Euro ROSE by 89 basis points, trading now WELL BELOW the important 1.08 level RISING to 1.0689; Europe is still reacting to Gr Britain HARD 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 Italian referendum defeat AND NOW THE ECB TAPERING OF ITS PURCHASES/ THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE AND NOW THE HUGE PROBLEMS FACING TOO BIG TO FAIL DEUTSCHE BANK + THE ELECTION OF TRUMP IN THE USA+ AND TODAY MONTE DEI PASCHI NATIONALIZATION / Last night the Shanghai composite CLOSED UP 5.34 or 0.317% / Hang Sang CLOSED UP 122.82 POINTS OR 0.54% /AUSTRALIA CLOSED DOWN 0.83% / EUROPEAN BOURSES MOSTLY IN THE RED
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 281.71 OR 1.48%
Trading from Europe and Asia:
1. Europe stocks MOSTLY IN THE RED
2/ CHINESE BOURSES / : Hang Sang CLOSED UP 122.82 OR 0.54% Shanghai CLOSED UP 5.34 POINTS OR 0.17% / Australia BOURSE CLOSED DOWN 0.83% /Nikkei (Japan)CLOSED DOWN 281.71 OR 1.48% / INDIA’S SENSEX IN THE RED
Gold very early morning trading: $1212.90
Early TUESDAY morning USA 10 year bond yield: 2.345% !!! DOWN 5 IN POINTS from MONDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%. THE RISE IN YIELD WITH THIS SPEED IS FRIGHTENING
The 30 yr bond yield 2.9445, DOWN 5 IN BASIS POINTS from MONDAY night.
USA dollar index early MONDAY morning: 100.58 DOWN 99 CENT(S) from MONDAY’s close.
This ends early morning numbers TUESDAY MORNING
And now your closing TUESDAY NUMBERS
Portuguese 10 year bond yield: 3.84% down 1 in basis point yield from MONDAY (does not buy the rally)
JAPANESE BOND YIELD: +.047% DOWN 1/2 in basis point yield from MONDAY/JAPAN losing control of its yield curve
SPANISH 10 YR BOND YIELD:1.392% DOWN 3 IN basis point yield from MONDAY (this is totally nuts!!/
ITALIAN 10 YR BOND YIELD: 1.915 UP 1/3 POINT in basis point yield from MONDAY
the Italian 10 yr bond yield is trading 53 points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.321% DOWN 1/ 5 IN BASIS POINTS ON THE DAY
IMPORTANT CURRENCY CLOSES FOR TUESDAY
Closing currency crosses for TUESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/1:00 PM
Euro/USA 1.0706 UP .0061 (Euro UP 61 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 112.89 DOWN: 1.272(Yen UP 127 basis points/
Great Britain/USA 1.2403 UP 0.0364( POUND UP 364 basis points)
USA/Canada 1.3049 DOWN 0.0127(Canadian dollar UP 127 basis points AS OIL ROSE TO $52.97
This afternoon, the Euro was UP by 61 basis points to trade at 1.0706
The Yen ROSE to 112.87 for a GAIN of 127 Basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED/BANK OF JAPAN NOW WORRIED AS AS THEY ARE RUNNING OUT OF BONDS TO BUY AS BOND YIELDS RISE /OPERATION REVERSE TWIST ANNOUNCED SEPT 21.2016
The POUND ROSE 364 basis points, trading at 1.2403/
The Canadian dollar ROSE by 127 basis points to 1.3049, WITH WTI OIL RISING TO : $52.97
Your closing 10 yr USA bond yield DOWN 5 IN basis points from MONDAY at 2.342% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 2.944 DOWN 5 in basis points on the day /
Your closing USA dollar index, 100.32 UP 125 CENT(S) ON THE DAY/1.00 PM
Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for TUESDAY: 1:00 PM EST
London: CLOSED DOWN 106.75 OR 1.46%
German Dax :CLOSED DOWN 14.71 POINTS OR 0.13%
Paris Cac CLOSED DOWN 22.41 OR 0.46%
Spain IBEX CLOSED DOWN 15.10 POINTS OR 0.16%
Italian MIB: CLOSED UP 48.91 POINTS OR 0.25%
The Dow was closed DOWN 58.96 OR .30%
NASDAQ WAS closed DOWN 35.39 POINTS OR .63% 4.00 PM EST
WTI Oil price; 52.97 at 1:00 pm;
Brent Oil: 56.09 1:00 EST
USA /RUSSIAN ROUBLE CROSS: 59.37 (ROUBLE up 50/100 roubles from YESTERDAY)
TODAY THE GERMAN YIELD FALLS TO +0.312% FOR THE 10 YR BOND 1:30 EST
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:$52.53
USA 10 YR BOND YIELD: 2.325% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 2.932%
EURO/USA DOLLAR CROSS: 1.0712 up .0110 (110 basis points)
USA/JAPANESE YEN:112.63 down 1.525
USA DOLLAR INDEX: 100.28 down 129 cents (BREAKS AGAIN HUGE resistance at 101.80)
The British pound at 5 pm: Great Britain Pound/USA: 1.2412 : up 373 BASIS POINTS.
German 10 yr bond yield at 5 pm: +.321%
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM
Trump Bump Stalls Amid Bullion, Brexit, Banks, Bonds, Brazil, & Black Gold
Today’s trading brought to you by the letter “B” and not by the number 20,000…
“B” is for Breaking narratives.. as the reflation trade rolls over…
“B” is for Brexit talk from Theresa May sparked the biggest surge in cable since 1993, smashing back above 1.2400…
“B” is for Banks stumbled most since the election…(despite great earnings from MS today)
“B” is for Brazil declined Saudi production cut request and hit oil prices…
“B” is for Bullion – soaring up 16 of the last 18 days (7 in a row), touching $1220 today…
“B” is for Bonds which saw yields plunge today…. (yields down 4bps to 7bps across the curve today)
Not surprising given the record short position…
And “B” is for Blood on the streets in FX land…
* * *
Year-to-date, gold is the biggest winner and The Dow back unchanged…
Small Caps end the day in the red for 2017…
Banks led markets lower…
And Banks and Energy stocks are the year’s biggest losers…
VIX somehow manage to end with an 11 handle…
All the majors rallied against the greenback today but it was cable that outperformed…
Since The Fed hiked rates, bonds have rallied… “policy error”?
Are stocks ready to drop back to reality?
Two biggy points here: the dollar drops on Trump’s announcement that the dollar is too strong. That sends gold higher. However he states that the border adjustment tax is too complicated. He wants it simple…and thus down goes the dollar
(courtesy zero hedge)
Dollar Tumbles After Trump Calls Currency “Too Strong”, Slams Border-Adjustment Tax
One can probably put the time of death of the Trumpflation rally as 11:47pm on Monday night. That’s when the WSJ published the latest excerpt of its Friday interview with Donald Trump, in which the president-elect himself said the dollar was already “too strong”and blamed this is in part due to China holding down its currency and added that “our companies can’t compete with them now because our currency is too strong. And it’s killing us.”
The yuan is “dropping like a rock,” Mr. Trump said, dismissing recent Chinese actions to support it as done simply “because they don’t want us to get angry.”
As the WSJ added, Trump broke with a recent tradition of presidents refraining from comments on the dollar’s level, and more to the market’s surprise, he is now talking the dollar down, not up. The USD is up 4% against a broad basket of currencies since he was elected, and roughly 25% since mid-2014. The dollar-negative sentiment was echoed several hours later by Trump advisor Anthony Scaramucci, who told a Davos audience that “we must be careful of a rising dollar.”
In short: the dollar’s rise may be over for the time being.
Trump didn’t only lash out at the greenback, and in the same interview, which was originally conducted on Friday but whose details were only released on monday, he slammed the Border Adjustment Tax (BAT), the “cornerstone of House Republicans’ corporate-tax plan, which they had pitched as an alternative to his proposed import tariffs” and which some have speculated could catalyze as much as a 15% move higher in the USD.
“Anytime I hear border adjustment, I don’t love it”, Trump told the WSJ, calling the Border Tax Adjustment “too complicated. ”
The border adjustment measure is part of U.S. House of Representatives Speaker Paul Ryan’s “Better Way” tax reform blueprint, which was discussed with top members of the transition team during a meeting on Capitol Hill on Monday. The measure intends to boost U.S. manufacturing by taxing imports while exempting U.S. business export revenues from corporate taxation. Though some tax experts believe Trump has given his support for the border adjustment provision, he termed the measure as getting “adjusted into a bad deal” in the interview.
As warned here previously, retailers and oil refiners have likewise criticized the measure, warning it would drive up their tax bills and force them to raise prices because they rely so heavily on imported goods. But the biggest factor against the BAT may be that Koch Industries, a conglomerate run by billionaire brothers active in Republican politics, last month said the border-adjustment measure could have “devastating” long-term consequences for the economy and the American consumer.
The WSJ provided the first indication of Trump’s position on the BAT, which previously was assumed to be supported by Trump. That is no longer the case:
The apparent divide between the incoming president and congressional allies underscores the challenge Mr. Trump will face advancing his agenda, and in particular his planned tax cuts. The transition team and House leaders have been talking but they clearly have some details and agreements to work out.
“Speaker Ryan is in frequent communication with the president-elect and his team about reforming our tax code to save American jobs and keep the promises we’ve made,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan (R., Wis.) “Changing the way we tax imports and exports is a big part of that, and we’re very confident we’ll get it done.”
As the WSJ adds, on the campaign trail last year, Mr. Trump proposed lowering the corporate tax rate to 15% and in the interview with the Journal on Friday, he seemed to suggest that rate cuts were his preferred mechanism for improving the corporate tax system.
“Under the border adjustment concept, if somebody is making a motorcycle or a plane in our country, they’re getting a credit for the plane they make before they send it over to wherever it’s going,” Mr. Trump said. “And you don’t need that plus lower taxes and everything else. And it’s too complicated. They get credit on some parts and not other parts. Where was the part made? I don’t want that. I just want it nice and simple.”
Should Republicans jettison the border adjustment following Trump’s criticism, they will need some other way to prevent companies from booking their income outside the U.S., said Warren Payne, a former GOP policy aide at the Ways and Means Committee. Furthermore, unless the US finds a way to effectively tax imports, suddenly Trump’s stimulus plan looks quite expensive, putting it in jeopardy.
The result: a broad drop in the USD across all currencies overnight.
Unless Trump issued a “clarification tweet” on his position on the BAT, this may have been the official end of the Trumpflation rally.
Early trading today causes the dollar to dump erasing all the post Fed gains:
Trump Trounces Yellen – Dollar Dumps, Erases All Post-Fed Gains
It appears The Donald is stronger than The Fed (for now). The president-elect’s comments that the dollar is “too strong” have accelerated the weakness from his press conference last week, and erased all the “well the dollar is up because the US economy is so strong” gains in the greenback since The Fed hiked interest rates for the second time in a decade…
The Dollar however has a long way to go yet…
(courtesy Lael Brainard/zero hedge)
Not So Fast With Those Fed Hikes: Brainard Warns Costs Of Trump Stimulus Could Be “Significant”
Delivering her first speech on monetary policy since September, closely watched Fed governor Lael Brainard, considered to be one of Janet Yellen’s most trusted peers, said monetary policy “could be affected for some time by uncertainty surrounding fiscal policy and its effects on the economy”, specifically the magnitude, timing and composition of these changes.
And while the Fed’s recent shift to incorporate the “Trump stimulus” in its forecasts has been duly noted, and according to some has made the Fed more hawkish as the central bank expects substantial stimulus even with employment near capacity (granted, ignoring the 95 million Americans out of the labor force), Brainard on Tuesday took a modest step back and acknowledged that while expansionary fiscal policy could prompt the central bank to undertake a faster pace of interest rate increases and begin shrinking its balance sheet sooner than expected, the details of the policy shifts under Donald Trump are still quite uncertain and could come at “significant costs.”
In other words, the Fed may bypass the near-term impact of the Trump stimulus, and focus on the longer-term, more adverse and deflationary implications by what the president-elect will unveil. Translation: no hikes even as inflation rises “transitorily.” This may be the Fed’s first admission that it could stay pat, and not hike even if Trump manages to push through his proposed $1 trillion stimulus.
Still, she conceded that fiscal stimulus that targets households and businesses that are likely to spend and invest rather than save will raise aggregate demand. That can speed recovery when the economy far from full employment and price stability, but at this point, it will “more likely result in inflationary pressures,” she said in remarks prepared for the Brookings Institution in Washington. That is because data shows full employment is “within reach” and there are “signs of gradual progress toward our inflation target.”
At this point the discussion shifted to another topic near and dear to the Fed’s heart: what kind of fiscal stimulus will Trump unveil.
“Fiscal expansions that affect only aggregate demand and are enacted when the economy is near full employment and 2 percent inflation are relatively less likely to sustainably boost economic activity and relatively more likely to be accompanied by increases in interest rates.”
At the same time, she warned, because these policies do not affect the economy’s long-term growth potential “but do result in persistent fiscal deficits, they can lead to substantial increases in the debt-to-GDP ratio,” reducing “the space for fiscal policy to stabilize the economy in the event of future adverse shocks.”
Yes, we also found it amusing that the Fed continues to warn about America’s rising debt load.
There is good news. If changes in fiscal policy raise productivity growth or induce greater labor force participation with higher levels of skill and education in the workforce could boost investment and consumption and the long-run neutral rate.
If “fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise,” she said, “with the conditions the FOMC has set for a cessation of reinvestments of principal payments on existing securities holdings being met sooner than they otherwise would have been.
Another important dimension of fiscal policy shifts worth considering is the weak state of domestic demand in the rest of the world. Risks remain tiled to the downside, as interest rates in Japan and the euro
zone are still near zero, China faces capital outflow pressures and high levels of corporate debt, and the European banking sector remains fragile.
“If more expansionary fiscal policy here at home raises expectations of a growing divergence between the United States and other economies, upward pressure on the exchange rate will likely result, as we have seen recently with the renewed increase in the dollar.”
The result could be a reduction in the effect on real economic activity at home and a drag on inflation as the dollar strengthens.
Another observation: the Fed is increasingly worried about the impact of the strong dollar on the US economy. A 20% rise in the dollar over 2014 and 2015 coincided with falling real exports and import prices, with net exports subtracting more than a half percentage point from GDP growth in both 2014 and 2015, Brainard cited.
“Against this uncertain backdrop, monetary policy will continue to be guided by actual and expected progress toward our goals, the level of the neutral rate, and the balance of risks,” she concluded.
“A gradual approach will remain appropriate as long as inflationary pressures remain muted, the economy remains short of our objectives, the neutral rate remains low, and downside risks from abroad remain, although this will depend on the fiscal trajectory, as it evolves, and its uncertain effects on the economy and financial markets.”
In short: the Fed and Trump’s fiscal policies remain tied at the hip, with the Fed increasingly uncertain what the future may bring, which is to be expected, since even Trump overnight flip-flopped on what until recently, was expected to be one of the mainstays of his tax reform, namely the Border-Tax Adjustment. It is unclear how Congress will react to this snubbing by Trump, and whether it jeopardizes any or all of Trump’s proposed stimulus plans.
The all important NY empire manufacturing index misses by printing 6.5 instead of expectations of 8.5. Thus we have growth stagnating but inflation rearing its ugly head. By definition: stagflation!!
(courtesy zero hedge)
Trumphoria Fades As Empire Fed Manufacturing Survey Signals More Stagflation
Having spiked exuberantly in November and December following Trump’s election, Empire Fed’s manufacturing survey limped lower in January, missing expectations, and was revised lower as Trumphoria fades.
Jan Empoire Fed printed 6.5 (missing expectations of 8.5) from a revised lower Dec at 7.6 (from 9.0)
More worrisome still is the spike in prices paid (from 22.6 to 36.1) and tumble in new orders (from 10.4 to 3.1)…
Once again suggesting stagflationary forces are simmering just beneath the surface of equity market exuberance.
This is big!! USA top court rejects the banks over Libor antitrust lawsuits
Now cases on Libor and others can commence in earnest.
(courtesy Reuters and special thanks to Robert H for sending)
I will see you tomorrow night