Gold at (1:30 am est) $1210.30 DOWN $4.70
silver at $17.15: UNCHANGED
Access market prices:
Gold: $1209.00
Silver: $17.08
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 24/17 (10:15 pm est last night): $ 1237.82
NY ACCESS PRICE: $1217.55 (AT THE EXACT SAME TIME)/premium $10.27
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Shanghai SECOND afternoon fix: 2: 15 am est (second fix/early morning):$ 1223.21
NY ACCESS PRICE: $1215.10 (AT THE EXACT SAME TIME/2:15 am)
THE SPREAD 2ND FIX TODAY!!: $8.17
China rejects NY pricing of gold as a fraud/arbitrage will now commence fully
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
London FIRST Fix: Jan 24/2017: 5:30 am est: $1213.30 (NY: same time: $1213.25 (5:30AM)
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
London Second fix Jan 24.2017: 10 am est: $1216.80 (NY same time: $1217.15 (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.
end
We are now entering options expiry week so expect the crooks to whack gold and silver down to allow illegal gains on options underwritten by the crooked banks. The comex expiry is Thursday, the 26th of January and the options for the OTC/LBMA is Tues Jan 31.
For comex gold:
NOTICES FILINGS FOR JANUARY CONTRACT MONTH: 8 NOTICE(S) FOR 800 OZ. TOTAL NOTICES SO FAR: 1203 FOR 120,300 OZ (3.7418 TONNES)
For silver:
NOTICES FOR JANUARY CONTRACT MONTH FOR SILVER: 151 NOTICE(s) FOR 755,000 OZ. TOTAL NUMBER OF NOTICES FILED SO FAR; 710 FOR 3,550,000 OZ
Let us have a look at the data for today
.
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In silver, the total open interest ROSE by 1973 contracts UP to 176,641 with respect to YESTERDAY’S TRADING. In ounces, the OI is still represented by just less THAN 1 BILLION oz i.e. .882 BILLION TO BE EXACT or 126% of annual global silver production (ex Russia & ex China).
FOR THE JANUARY FRONT MONTH IN SILVER: 151 NOTICES FILED FOR 755,000 OZ.
In gold, the total comex gold ROSE BY 4616 contracts WITH THE RISE IN THE PRICE GOLD ($10.70 with YESTERDAY’S trading ).The total gold OI stands at 483,408 contracts.
we had 8 notice(s) filed upon for 800 oz of gold.
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With respect to our two criminal funds, the GLD and the SLV:
GLD:
We had a big changes in tonnes of gold at the GLD/this time a WITHDRAWAL of 5.04 tonnes
Inventory rests tonight: 804.11 tonnes
.
SLV
we had a rather small changes in silver into the SLV: a withdrawal of 948,000 oz
THE SLV Inventory rests at: 337.408 million oz
.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver RISE by 1,973 contracts UP to 176,641 AS SILVER ROSE 15 CENTS with YESTERDAY’S trading. The gold open interest ROSE by 4,616 contracts UP to 483,408 WITH THE RISE IN THE PRICE OF GOLD OF $10.70 (YESTERDAY’S TRADING)
(report Harvey).
2.a) The Shanghai and London gold fix report
(Harvey)
2 b) Gold/silver trading overnight Europe, Goldcore
(Mark O’Byrne/zerohedge
and in NY: Bloomberg
3. ASIAN AFFAIRS
REPORT ON JAPAN SOUTH KOREA NORTH KOREA AND CHINA
3a)THAILAND/SOUTH KOREA
b) RPORT ON JAPAN
c) REPORT ON CHINA
i)China states that it has irrefutable sovereignty over the disputed islands in the South China seas. They tell the USA to act and speak cautiously as Spicer in the press talk threatens China:
( zero hedge)
ii)Then China ups the ante by deploying their new nuclear ICBM which is capable of travelling 15,000 kilometers and delivering 10 to 12 nuclear warheads
( zerohedge)
4 EUROPEAN AFFAIRS
i)England
Theresa May received the news this morning that the UK Supreme Court rules that there must be a vote before a Brexit can begin. However the opposition will not go against the will of the people. Theresa May will trigger the clause 50 but allow the opposition to agree to a final separation
( zero hedge)
ii)And here is the timetable:
(courtesy zero hedge)
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i)IRAN
Trump will certainly have his smoking gun if he wishes to tear up the Iran deal. Iran has been caught smuggling anti tank missile systems from Ukraine under false manifests.
( zero hedge)
ii)TURKEY
Most of the pundits thought Turkey would raise its interest rate trying to keep the Lira higher. However Erdogan certainly has his finger on its central bank as again they kept their benchmark rate unchanged: down goes the Lira again
( zero hedge)
6.GLOBAL ISSUES
Mexico
More havoc in Mexico has Mexican protesters have seized control of the USA order crossing in Tijuana, Drug cartel members are still high jacking much of Mexican gas and selling the gas to needy motorists
( zero hedge)
7. OIL ISSUES
Goldman Sachs correctly state that there will be an oil price shock with a border tax. Oil produced in the USA and exported will garner no tax. Thus USA produced oil will have a higher price than foreign oil. Foreign oil will probably not be used initially as its costs cannot be passed through.
This will create huge distortions in the oil market
( GoldmanSachs)
8. EMERGING MARKETS
none today
9. PHYSICAL MARKETS
i)Northern Dynasty states that it has Trump administration support to seek approvals to start mining in Alaska. It will need to seek a major to assist them. The most logical partner would be Agnico Eagle as they are quite good in mining in cold environments:
( Pearson/Bloomberg)
ii)Alasdair Macleod outlines how gold will now be used as money in the Muslim world especially as these countries are prone to devalue
( Alasdair Macleod)
iii)We brought this story to you yesterday. Bloomberg comments on Mnuchin;s lack of support for a strong dollar in the near term:
( Bloomberg)
iv)Central banks are seeking higher risk equities in the low interest rate environment. This sets of high financial risks of collapse
( Wall Street Journal)
v)Due to sanctions, Russian to sell its huge gold deposit cheap and to Russian interests.
( Devitt/reuters)
10.USA STORIES
i)Rubio saves the day by voting for Tillerson in committee which should pave the way for the new Sec of State when the full senate votes:
( zero hedge)
ii)The next bombshell: we are witnessing huge numbers of leased car returns which is causing the used car pricing to fall which in turn causes less sells in the new car market:
( zerohedge)
iii)The Senate Democrats have introduced their own 1 trillion infrastructure plan and by doing so, they will offer Trump their support if he backs it. The trouble will be tea party Republicans who want fiscal responsibility:
( zero hedge)
iv)As expected, Trump signs executive orders advancing both Keystone and Dakota pipelines: Mr Buffett and environmentalists will not be happy campers
( zero hedge)
v)Soft data manufacturing PMI soars to 3 yr high. However input costs continue to rise and the index is at 28 month highs
( US mfg PMI/zerohedge)
vi)With higher interest rates, one would expect existing home sales to plunge. The figures show a plunge equal to that in 2009. The NAR blames low inventory:
vii)Now Trump goes after the EPA( zero hedge)
viii)Do you think that they might be worried about their massive gold shorts and maybe they are wondering how they can deliver on their gold obligations to China?
( zero hedge)
ix)Transcanada Pipelines responds to Trump’s executive order. They say that Keystone XL will add 3 billion USA to its GDP
(courtesy zero hedge)
x)Dave Kranzler is our resident expert on IBM. He explains why this company is a dinosaur and their reported “increase” in earnings was due to a dubious small tax rate:
( Dave Kranzler/IRD)
Let us head over to the comex:
The total gold comex open interest ROSE BY 4,616 CONTRACTS UP to an OI level of 483,408 AS THE PRICE OF GOLD ROSE $10.70 with YESTERDAY’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 9 contract(s) DOWN to 61. We had 10 notices filed YESTERDAY so we GAINED 1 contract(s) or AN ADDITIONAL 100 oz WILL 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 9005 contracts DOWN to 179,787.(feb 2016: 145,830 contracts). March had a GAIN of 128 contracts as it’s OI is now 1047. We are now ahead with respect to OI when we compare data for open interest this year vs last year with the same amount of time to expire:
We had 8 notice(s) filed upon today for 800 oz
And now for the wild silver comex results. Total silver OI ROSE by 1,973 contracts FROM 174,668 UP TO 176,641 AS the price of silver ROSE 15 CENTS with YESTERDAY’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 ROSE by 8 contract(s) RISING TO 180. We had 0 notice(s) filed on yesterday so we gained 8 silver contracts or an additional 40,000 oz will stand in this delivery month of January. The next non active month of February saw the OI RISE by 14 contract(s) RISING TO 228.
The next big active delivery month is March and here the OI rose by 757 contracts up to 133,925 contracts.
We had 151 notice(s) filed for 755,000 oz for the January contract.
VOLUMES: for the gold comex
Today the estimated volume was 257,345 contracts which is good.
Yesterday’s confirmed volume was 280,418 contracts which is very good
volumes on gold are getting higher!
| Gold | Ounces |
| Withdrawals from Dealers Inventory in oz | nil |
| Withdrawals from Customer Inventory in oz |
nil OZ
|
| Deposits to the Dealer Inventory in oz | nil oz |
| Deposits to the Customer Inventory, in oz |
nil
|
| No of oz served (contracts) today |
8 notice(s)
800 oz
|
| No of oz to be served (notices) |
53 contracts
5300 oz
|
| Total monthly oz gold served (contracts) so far this month |
1203 notices
120300 oz
3.7418 tonnes
|
| Total accumulative withdrawals of gold from the Dealers inventory this month | 3000.000 oz |
| Total accumulative withdrawal of gold from the Customer inventory this month | 4,806,084.1 oz |
Today, 0 notice(s) were issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 8 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)
| Silver | Ounces |
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory |
608,492.901 0z
Delaware
Scotia
|
| Deposits to the Dealer Inventory |
754,815.720 oz
CNT
|
| Deposits to the Customer Inventory |
1,015,570.740 oz
JPM
CNT
|
| No of oz served today (contracts) |
151 CONTRACT(S)
(755,000 OZ)
|
| No of oz to be served (notices) |
29 contracts
(145,000 oz)
|
| Total monthly oz silver served (contracts) | 710 contracts (3,550,000 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 | 19,833,5365 oz |
end
And now the Gold inventory at the GLD
jan 24/a huge withdrawal of 5.04 tonnes and probably this was used today in the whacking of gold/inventory rests at 804.11 tonnes
Jan 23/a big change/this time a deposit of 1.19 tonnes of gold into the GLD/inventory rests at 809.15 tonnes. The drainage of gold from the GLD to Shanghai has now stopped!
Jan 20/no changes in gold inventory a the GLD/Inventory rests at 807.96 tonnes
Jan 19/no changes in gold inventory at the GLD/Inventory rests at 807.96 tonnes
Jan 18/no changes in gold inventory at the GLD/Inventory rests at 807.96 tonnes
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
end
NPV for Sprott and Central Fund of Canada
end
Major gold/silver trading/commentaries for TUESDAY
GOLDCORE/BLOG/MARK O’BYRNE
Sharia Standard May See Gold Surge
Sharia Standard May See Gold Surge In Value
“The introduction of a Sharia standard for gold will not only be good for investors but also for gold producing countries and even individual mining operations”, according to The National in an article published this morning.
Gold bars in a gold shop in Saudi Arabia. Gold has long played a role in Muslim society as a store of wealth. Fahad Shadeed / Reuters
“The new Sharia gold standard is very important as it allows Islamic investors to access and gain exposure to physical gold in a safer and more efficient manner,” says Mark O’Byrne, the executive director at the bullion trader GoldCore in London.
“It will increase the diversity of available Sharia gold-compliant investment products and spark greater emphasis on the role of physical gold coins and bars.”
GoldCore research shows that if just 1 per cent of Islamic finance goes into gold, demand could increase by up to an enormous 1,000 tonnes a year. Even if demand comes in at half that it means the gold market will undergo a considerable shake-up.
Last month the Sharia Standard was approved as a collaboration between the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Islamic standard-setting body, and The World Gold Council (WGC) in London.
“We launched the standard to enable greater access to gold for the Islamic investment community,” says Natalie Dempster, the managing director, central banks and public policy at the WGC. Currently, the WGC is talking to Islamic financiers and product developers as well as scholars over how to put the standard into practice.
Much as it is in the rest of the world, gold has long played a role in Muslim society as a store of wealth and as a means to facilitate trade.
http://www.goldcore.com/us/gold-blog/sharia-standard-gold-uae/
END
Northern Dynasty states that it has Trump administration support to seek approvals to start mining in Alaska. It will need to seek a major to assist them. The most logical partner would be Agnico Eagle as they are quite good in mining in cold environments:
(courtesy Pearson/Bloomberg)
Northern Dynasty says it has Trump administration’s support, seeks new partner
Submitted by cpowell on Mon, 2017-01-23 20:52. Section: Daily Dispatches
By Natalie Obiko Pearson
Bloomberg News
Monday, January 23, 2017
Northern Dynasty Minerals Ltd. expects to resolve a dispute with the U.S. environmental regulator by April to enable it to move ahead with permitting one of the world’s largest undeveloped copper and gold deposits.
U.S. President Donald Trump’s administration has “a desire to permit Pebble,” the company’s project in Alaska, Northern Dynasty Chief Executive Officer Ronald Thiessen said today in Vancouver. “We will come to a resolution within 100 days” with the U.S. Environmental Protection Agency, he said.
In 2014 the EPA moved to impose restrictions on Pebble, blocking it from applying for a permit, citing “potentially destructive impacts” to the world’s largest sockeye salmon fishery. Trump’s pick to head the regulator, Scott Pruitt, is a self-described opponent of the EPA’s “activist agenda” and has called for “regulatory rollback” at the agency.
Thiessen said today the company isn’t expecting special treatment under the Trump administration but a return to a “normalized permitting” process. That process should take about four years and cost $150 million, he said. …
… For the remainder of the report:
https://www.bloomberg.com/news/articles/2017-01-23/northern-dynasty-says…
END
Alasdair Macleod outlines how gold will now be used as money in the Muslim world especially as these countries are prone to devalue
(courtesy Alasdair Macleod)
Alasdair Macleod: Using gold as money in the Muslim world
Submitted by cpowell on Tue, 2017-01-24 00:19. Section: Daily Dispatches
7:20p ET Monday, January 23, 2017
Dear Friend of GATA and Gold:
Muslims have special reason to use gold as money, GoldMoney research director Alasdair Macleod writes today, because the government currencies of Muslim countries have been especially vulnerable to devaluation. Macleod notes that GoldMoney has been designated as a vehicle for purchasing gold in compliance with Muslim law. Macleod’s commentary is headlined “Using Gold as Money” and it’s posted at GoldMoney’s internet site here:
https://wealth.goldmoney.com/research/goldmoney-insights/using-gold-as-m…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
END
We brought this story to you yesterday. Bloomberg comments on Mnuchin;s lack of suport for a strong dollar in the near term:
(courtesy Bloomberg)
Trump’s nominee for Treasury backs off support for strong dollar
Submitted by cpowell on Tue, 2017-01-24 01:57. Section: Daily Dispatches
Inside the Mind of Mnuchin: Too-Strong Dollar May Hurt Economy
By Saleha Mohsin
Bloomberg News
Monday, January 23, 2017
U.S. Treasury Secretary nominee Steven Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy.
“The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America,” Mnuchin said in a written response to a senator’s question about the implications of a hypothetical 25 percent dollar rise. “From time to time, an excessively strong dollar may have negative short-term implications on the economy.”
The dollar slumped to the weakest in more than six weeks after the remarks, obtained by Bloomberg News today. The comments were included in answers from Mnuchin to questions from U.S. senators following his confirmation hearing last week. In that session, he had said a strong dollar is important over the long term, while noting it’s currently “very, very strong.”
President Donald Trump expressed concern about the dollar’s appreciation in an interview with the Wall Street Journal this month, saying the currency was “too strong.” That prompted speculation that his administration might reverse longstanding tradition in the U.S. to support a strong-dollar policy. …
… For the remainder of the report:
https://www.bloomberg.com/politics/articles/2017-01-23/mnuchin-says-exce..
END
Central banks are seeking higher risk equities in the low interest rate environment. This sets of high financial risks of collapse
(courtesy Wall Street Journal)
Central banks embrace risk buying stocks and bonds in era of low rates
Submitted by cpowell on Tue, 2017-01-24 03:32. Section: Daily Dispatches
By Christopher Whittal, Jon Sindreu, and Brian Blackstone
The Wall Street Journal
Monday, January 23, 2017
By keeping interest rates low and in some cases negative, central banks have prompted some of the most conservative investors to join the hunt for higher returns: other central banks.
Central banks from Switzerland to South Africa are investing a bigger share of their growing foreign-exchange reserves in equities, corporate bonds and other riskier assets.
Branching out from the traditional central-bank practice of investing primarily in ultrasafe government bonds such as U.S. Treasurys means taking on more risk. But at a time when global growth, interest rates and potential returns on many assets are low, many central bankers are becoming increasingly focused on maximizing investment returns. …
At the same time, efforts to invest reserve funds more broadly mean that more markets will be subject to what some critics describe as central-bank distortion, as large and often price-insensitive buyers run the risk of driving up prices and reducing prospective returns for other market participants. …
… For the remainder of the report:
http://www.wsj.com/articles/central-banks-embrace-risk-in-era-of-low-rat…
END
Due to sanctions, Russian to sell its huge gold deposit cheap and to Russian interests.
(courtesy Devitt/reuters)
Russia expected to sell gold deposit cheap amid sanctions, sources say
Submitted by cpowell on Tue, 2017-01-24 12:31. Section: Daily Dispatches
By Polina Devitt
Reuters
Monday, January 23, 2017
MOSCOW — Russia is expected to sell discounted rights to one of the world’s largest untapped gold deposits this week to a joint venture of miner Polyus and a state conglomerate, industry sources and analysts said, after sanctions and restrictions discouraged other bidders.
The starting price in the Jan. 26 auction of the Sukhoi Log deposit is $145 million, valuing gold there at $2 per ounce, around 10 times cheaper than deposits of a similar size elsewhere in the world, according to one analyst.
The Russian government, after 20 years of promises to sell the deposit, hopes that the start of production will generate much-needed tax revenues and jobs.
Moscow has also come under pressure from a two-year lobbying campaign by shareholders in the joint venture of Polyus and state-run Rostec, according to an industry source, who spoke on condition of anonymity.
Rostec is headed by Sergei Chemezov, a close associate of Russian President Vladimir Putin. …
… For the remainder of the report:
http://www.reuters.com/article/us-russia-sukhoilog-idUSKBN1571MA
end
Your early TUESDAY morning currency, Asian stock market results, important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight
1 Chinese yuan vs USA dollar/yuan UP to 6.8588(SMALL DEVALUATION SOUTHBOUND /CHINA UNHAPPY TODAY CONCERNING USA DOLLAR RISE/ CHINA/OFFSHORE YUAN NARROWS COMPLETELY TO 6.8139 / Shanghai bourse CLOSED UP 5.78 POINTS OR 0.18% / HANG SANG CLOSED UP 51.34 OR 0.22%
2. Nikkei closed DOWN 103.04 POINTS OR 0.55% /USA: YEN RISES TO 113.33
3. Europe stocks opened ALL IN THE GREEN ( /USA dollar index RISES TO 100.29/Euro DOWN to 1.0741
3b Japan 10 year bond yield: FALLS TO +.052%/ !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 113.33/ 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:: 52.53 and Brent: 55.27
3f Gold DOWN/Yen DOWN
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” 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 +.386%/Italian 10 yr bond yield DOWN to 1.993%
3j Greek 10 year bond yield RISES to : 7/02%
3k Gold at $1213.00/silver $17.14(8:15 am est) SILVER BELOW RESISTANCE AT $18.50
3l USA vs Russian rouble; (Russian rouble UP 23/100 in roubles/dollar) 59.32-
3m oil into the 52 dollar handle for WTI and 55 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/GOT a SMALL DEVALUATION DOWNWARD from POBC.
JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 113.33 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 0.9997 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0738 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 +.386%
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 2.430% early this morning. Thirty year rate at 3.014% /POLICY ERROR)GETTING DANGEROUSLY HIGH
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
US Futures, Oil Flat As Greenback Rises Despite Mnuchin’s “Strong Dollar” Warning
US equity futures were flat, European stocks rose and Asia was mixed after the dollar posted a modest rebound overnight despite Mnuchin’s “strong dollar” comments, while oil was flat and gold fell, as investors focused on President Donald Trump’s plans to boost growth. The pound fell after a U.K. court ruled that Parliament must vote on triggering Brexit.
The dollar struggled in Asia on Tuesday as U.S. President Donald Trump’s focus on protectionism ahead of fiscal stimulus fueled suspicions his administration might be content to gain a competitive advantage through a weaker currency. However, early European trading saw modest gains in the USD, which rose to 113.4 in the USDJPY after dropping as low as 112.52, while the EURUSD declined to 1.73 after rising as high as 1.77 in Asian trading. The talk of trade wars came even as more data pointed to a welcome revival in activity worldwide. A survey of Japanese manufacturing out Tuesday showed the fastest expansion in almost three years as export orders surged. Indeed, sentiment took an early knock when Mnuchin told senators that he would work to combat currency manipulation but would not give a clear answer on whether he views China as manipulating its yuan.
Still, the recent euphoria surrounding the Trumpflation trade now appears largely gone: “It’s interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now,” wrote analysts at ANZ in a note. “As week one in office gets underway, there is a growing sense of scepticism, not helped by the tone of Friday’s inaugural address and subsequent spat with the media.”
Doubts about exactly how much fiscal stimulus might be forthcoming helped Treasuries rally. Yields on 10-year notes eased to 2.39 percent, having enjoyed the steepest single-day drop since Jan. 5 on Monday. “The driver of a shift higher will be optimism that President Trump’s policies deliver more growth,” Juckes said. “If he starts tweeting about fiscal policy instead of trade policy maybe the bond bears can come out of hibernation again.” As the chart below shows, the dollar continues to trade in lockstep with 10Y TSY yields.
As traders arrive at their desks in the US, the greenback has managed to advance against most major currencies, reversing declines sparked after Treasury Secretary nominee Steven Mnuchin said on Monday afternoon that a strong U.S. currency could have a negative short-term effect on the economy. In written answers to a Senate Finance Committee, Mnuchin also reportedly said an excessively strong dollar could be negative in the short term.
The pound extended losses after judges ruled Prime Minister Theresa May must ask Parliament to trigger the two-year countdown to the U.K.’s departure from the European Union, handing lawmakers a chance to soften the plan. Gold fell after touching the highest since November while oil climbed above $53 a barrel.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.4 percent, while Shangahi was flat and the Nikkei slipped 0.4 percent. European stocks halted a three-day decline, led by Italian shares amid reports that Assicurazioni Generali SpA may get investment from Intesa Sanpaolo SpA and Allianz SE.
S&P500 futures were lower by 1 point at publication.
The yield on the 10-year Treasury rose three basis points to 2.42 percent.
Market Snapshot
- S&P 500 futures down less than 0.1% to 2261
- Stoxx 600 up 0.2% to 362
- FTSE 100 up 0.2% to 7167
- DAX up 0.2% to 11567
- German 10Yr yield up 2bps to 0.38%
- Italian 10Yr yield up 1bp to 2%
- Spanish 10Yr yield up 3bps to 1.46%
- S&P GSCI Index up 0.7% to 401.5
- MSCI Asia Pacific down less than 0.1% to 140
- Nikkei 225 down 0.5% to 18788
- Hang Seng up 0.2% to 22950
- Shanghai Composite up 0.2% to 3143
- S&P/ASX 200 up 0.7% to 5650
- US 10-yr yield up 2bps to 2.42%
- Dollar Index up 0.12% to 100.28
- WTI Crude futures up 0.9% to $53.22
- Brent Futures up 0.9% to $55.75
- Gold spot down 0.4% to $1,213
- Silver spot down 0.6% to $17.13
Top News
- Mnuchin Says Excessively Strong Dollar May Hurt U.S. Economy
- Australia Pushes for TPP Without U.S. After Trump Exits Deal
- Trump Said to Tell Lawmakers ‘Illegals’ Cost Him Popular Vote
- Brexit vote
- Goldman Hails Global Rebound as Currie Sees Commodity Demand
- Emirates Stokes Ire of U.S. Airlines With Flights Through Greece
- OPEC Helps Cheap U.S. Oil Find Its Way to Group’s Top Buyers
- Nike and Ford Caught in Crossfire of Trump’s Trade Overhaul
Asia stocks traded mixed following a subdued lead from Wall St. where US indices finished mostly lower amid investor uncertainty during Trump’s first day in office. ASX 200 (+0.7%) outperformed led by mining names following gains across the metals complex on the back of a weaker USD, while Nikkei 225 (-0.6%) was pressured by recent JPY strength in which USD/JPY declined below 113.00. Shanghai Comp. (+0.2%) and Hang Seng (+0.2%) traded with an indecisive tone following a weaker liquidity operation by the PBoC and as participants look ahead to Lunar New Year. 10yr JGBs were higher and tracked the gains seen in T-notes amid outperformance in the long-end, while participants also digested the latest results of the 40yr auction which resulted in a slightly higher b/c
Top Asian News
- Australia Pushes for TPP Without U.S. After Trump Exits Deal
- Trump Withdrawal From Asia Trade Deal Could Boost China Clout
- BOJ Is Said to Be Wary of Yield Target Hike Even If CPI Hits 1%
- China Small-Cap Stocks Extend January Slump on Liquidity Squeeze
- Toshiba to Report Writedown Amount on Feb. 14 With Earnings
- Top Goldman Forecaster Urges China to Tighten Monetary Policy
- $12,000 Trips Abroad Replace Chinese New Year Treks to Grandma’s
European equities trade mostly higher with some mild underperformance in the FTSE 100 with BT Group on track for its biggest ever intra-day drop after cutting profit forecast for 2017, 2018 amid Italian accounting scandal. EasyJet fell in the wake of its earnings update, in which they stated that the fall in GBP will likely reduce PBT by over GBP 100mIn. Intesa Sanpaolo falls in the wake of reports that the bank may be considering a share swap offer for Generali. Notable US pre-market earnings today include 3M, Alibaba, Du Pont, Johnson & Johnson, Kimberly Clark, Lockheed Martin, Travelers and Verizon. Gilts slipped after the aforementioned Article 50 Supreme Court ruling in favour of parliament. Eurozone debt sees a marginally pull back from yesterday’s gains with bond yields creeping higher. Slight outperformance in peripheral bonds with focus for Italy on the constitutional court hearing regarding the new electoral reform for the lower, which may increase expectations of an early snap election.
Top European News
- Supreme Court Rules Brexit Trigger Needs Parliamentary Vote
- Euro Area Starts 2017 on Strong Note as Price Pressures Build
- Generali Jumps on Report That Intesa Plans to Mount Takeover Bid; Generali’s Move Defensive, Intesa Unlikely Buyer: Citi
- BT Plunges After Cutting Outlook, Tripling Writedown in Italy
- Philips Falls After Disclosing DoJ Talks on Defibrillators
- EasyJet Drops After Weak Pound, Fuel Costs Hurt 2017 Outlook
- Busch Seeks Rest of Vacuum Peer in Deal Valued at $1 Billion
- Etihad CEO Hogan to Go as Carrier Struggles With Investments
- EU Courting of London Banks May Derail 5-Year Tobin Tax Push
In FX, the UK supreme court ruling was pretty largely as expected, barring a few last minute jitters which saw the latter (devolution) qualification in question. Cable initially rallied towards the Asian highs just ahead of 1.2550, but held off these levels to dip back under 1.2500 figure. Bids seen ahead of 1.2400 to support, but the USD perspective takes over from here. EUR/GBP has seen choppy trade either side of 0.8600, but 0.8500-0.8700 looks safe for now. Elsewhere USD/JPY shows clear signs of basing out in the mid 112.00’s having targeted this level twice now and finding yield-play dip buyers. We are unlikely to get a major push north just yet, but we sense any form of sobriety from president Trump could facilitate a modest push back to 114.00-115.00 for now. However, EUR/USD is pretty unrelenting alongside this, with the corrective moves perhaps not yet exhausted despite some softness in the German PMIs this morning.
In commodities, consolidation prices across the board is the dominant theme, with the wait-and-see approach on president Trump’s agenda going forward puts much of the market on the sidelines for now. Gold is the first point of focus in direction relation to the greenback, but with equity markets fading a little, the risk element is also proving supportive for now. The yellow metal still trades on a USD 1200 handle, but has come off slightly in recent trade. $50.00 remains the comfort zone for Oil prices, with the backdrop of the OPEC agreement maintaining stability for the foreseeable future here. Copper outperforms Iron ore. West Texas Intermediate crude was unchanged, erasing earlier gains as Iraq said it’s close to implementing its share of pledged output curbs agreed with OPEC to trim bloated global inventories and stabilize the market. Oil slid 0.9 percent the previous session after U.S. drillers added the most rigs in more than three years.
In terms of the day ahead, we’ll also get the flash US manufacturing PMI for January while existing home sales and the Richmond Fed manufacturing survey will also be released.The Italian constitutional court is also due to rule on ex-PM Renzi’s electoral law for the Lower House known as Italicum. Central bank wise we’re due to also hear comments from the ECB’s Villeroy and Lautenschlaeger today. Meanwhile on the earnings front we’re due to get results from 21 S&P 500 companies today including Verizon and Johnson & Johnson at or prior to the open.
US Event Calendar
- 8:55am: Redbook weekly sales
- 9:45am: Markit US Manufacturing PMI, Jan. P, est. 54.5 (prior 54.3)
- 10am: Existing Home Sales, Dec., est. 5.51m (prior 5.61m)
- 10am: Richmond Fed Manufacturing Index, Jan., est. 7 (prior 8)
- 4:30pm: API weekly oil inventories
Government:
- President Trump meets with CEOs of Fiat Chrysler, GM, Ford
- 9:30am: Senate Energy and Natural Resources Cmte votes on nomination of Rep. Ryan Zinke for Interior secretary and Rick Perry for Energy secretary
- 10am: Senate Judiciary Cmte votes on nomination of Sen. Jeff Sessions for attorney general
- 10am: Senate Banking, Housing and Urban Affairs Cmte votes on nomination of Ben Carson for HUD secretary
- 10am: Senate Finance Cmte holds hearing on nomination of Rep. Tom Price for HHS secretary
- 10am: Senate Commerce, Science and Transportation Cmte to vote on nominations of Elaine Chao for Transportation secretary and Wilbur Ross for Commerce secretary
- 10:30am: House Ways and Means Cmte Chairman Kevin Brady details panel’s 2017 agenda
- 10:30am: Senate Budget Cmte holds hearing on nomination of Rep. Mick Mulvaney for OMB director
- 12pm: House considers H.R.7, which would amend Affordable Care Act to bar expenditure of federal money to purchase insurance that covers abortion services
DB’s Jim Reid concludes the overnight wrap
Today sees the UK Supreme Court appeal ruling after the Government lost their case to trigger Article 50 without a parliamentary vote. The decision has lost some of its potential impact as the expected loss is likely to be followed by PM May attempting to pass a narrow bill (with no restrictions on the government’s negotiating position) through both houses. It’s expected that such a bill passes but there are risks that last week’s speech where May admitted that leaving the single market was likely may have upset the moderates in her party and also that the Labour Party somehow manages to successfully unite behind a particular amendment that gets wider support but that the government won’t tolerate. This could lead to early elections if no bill can pass but is it really in the Labour Party’s interest to have one now? Probably not so we would expect a bill to pass. The threat hanging over a rejection in the House of Lords is reform of the chamber that might remove their influence so PM May has got leverage over both the opposition and the House of Lords.
The potential curveball from today is whether the court extends the judgement to the devolved regional assemblies (eg Scottish and Welsh) thus creating a constitutional crisis. An equally big curveball would be the court referring the whole matter to the European Court of Justice which would be heavily ironic. So a lot to look for today albeit with a clear central scenario. We’re expecting the outcome of the case around 9.30am GMT.
From my side, thinking about Brexit and also Mr Trump at a very top level, it’s fascinating to contrast Theresa May’s and Donald Trump’s big speeches last week. Simplistically the UK PM accepted that the UK will leave the EU and the single market but wants Britain to be global and seems prepared to do free trade deals with everyone who would want and allow one. In contrast Mr Trump’s main theme was nationalistic and to put “America first”. The contrast was sharp. The interesting thing though is that most economists are pretty optimistic on US growth and concerned about UK growth going forward and yet if you take both leaders at face value then the UK will be far more open to the global economy than the US. However I suppose this masks the fact that a trade shock to the UK could be bigger than the US due to its larger reliance on trade. Also it’s all very well for the UK to look to be global but it’s another thing actually getting free trade agreements, especially with the EU. Nevertheless it is interesting that at face value the UK’s official line is far more open to the rest of the world than the US at the moment. We’ll see how this evolves over the coming months.
That leads us nicely into what was a very busy and eventful first 24 hours in the new Trump administration. The most significant news yesterday was the announcement that Trump had pulled the US out of the 12-nation Trans-Pacific Partnership, calling the move a “great thing for the American worker”. The withdrawal wasn’t a huge surprise given how vocal Trump had been about the TPP during his campaign but it still evoked a wide range of reactions from various business heads and political leaders. Indeed Republican senator John McCain said that the move was a “serious mistake” and that “it will create an opening for China to rewrite the economic rules of the road at the expense of American workers”. The President also appeared to target Japan as a country which makes it difficult to sell US products there. In any case the speed with which Trump moved may have been a bit of a surprise and it now means that the focus will turn over to a likely renegotiation of NAFTA with Canada and Mexico.
Trump didn’t just stop with the TPP though. Indeed there was plenty of focus on a meeting with various business leaders in which he said that he would impose a “very major border tax” on US companies that move overseas and export back into the US. The President also said that regulations have “gotten out of control” and that he wanted to reduce regulation by at least 75%. According to the WSJ among the CEO’s in attendance at the meeting were those from Ford Motor, Lockheed Martin, Under Armour, Dow Chemical and Whirlpool. The article also suggested that Trump had asked the various leaders to come back within 30 days with ideas aimed at boosting manufacturing in the US. Away from that Trump also ordered a federal hiring freeze excluding the military while Treasury Secretary Steven Mnuchin reignited the Dollar debate again by saying that “from time to time, an excessively strong dollar may have negative short-term implications on the economy”.
While that comment sent the Greenback down further in later trading in reality it had been a fairly rough day from the get go for the US Dollar with the market clearly jittery in the face of the early protectionist policies being put through by Trump. The Dollar index ended the day down -0.58% with the index closing at the lowest level since December 5th. It’s down another -0.14% this morning. Risk assets got the jitters too although in fairness a late bounce into the close limited the decline for the S&P 500 to only -0.27% compared to -0.64% at the day’s lows. That said it’s clear that equity markets continue to remain fairly directionless. If you exclude the 0.00% return on January 10th then the index has now bounced between a gain and a loss day-to-day for 12 consecutive sessions. Meanwhile it had been much the same in Europe with the Stoxx 600 ending -0.43% while it was rates which really benefited from the risk off tone with 10y Treasury yields rallying 7.0bps to close below 2.400% again and 10y Bund yields finishing down 6.0bps at 0.358%. Gold (+0.65%) also continued its remarkable start to the year which has seen it rally over +6% already this month.
This morning in Asia we’ve seen bourses get off to yet another mixed start. While the Nikkei (-0.46%) and Kospi (-0.11%) have followed the lead from Wall Street, the Hang Seng (+0.29%), Shanghai Comp (+0.18%) and ASX (+0.37%) have edged higher. Meanwhile most Asian currencies are stronger reflecting the latest leg lower for the Dollar while Oil has largely pared yesterday’s decline. Moving on. There wasn’t much in the way of economic data out yesterday with the sole release being the flash January consumer confidence reading for the Euro area which improved a touch to -4.9 from -5.1. More notable was the latest CSPP holdings data out of the ECB. The data revealed that total holdings now stand at €56.886bn which implies net purchases settled last week of €2.876bn or an average daily run rate of €575m in that week. Not only is that well above the daily run rate since the programme started (at €362m) but it is also the strongest CSPP week since the start of the programme. We would guess though that given December was a softish month for purchases as a result of the holiday season, we may be seeing a bit of catch up in last week’s numbers.
Staying in Europe, in yesterday’s EMR we highlighted the Socialist Primary result in France where Hamon came out on top with a little over 36% of the vote. In addition, our economists noted that the turnout was disappointing on Sunday with between 1.5 and 2 million voters. They go on to say that without a higher turnout next Sunday the Socialist candidate’s campaign in the Presidential race could be called into question and senior centre-left politicians may reconsider their support. They also note that since the beginning of December, Hollande’s execonomy minister Macron has surprised many with the momentum and support he has been gathering as an independent Presidential candidate. As far as the polls are concerned they note that Le Pen is just ahead of Fillon in the first round, with both slightly above 25%.
However, based on the polls, Fillon would defeat Le Pen in the second round of the Presidential election. However, Macron could benefit from wider support of left-wing supporters and beat Le Pen as well as Fillon in the second-round. That is, the potential re-alignment of political forces in the centre and centre-left should be monitored carefully in the next few weeks as it could turn the first-round of the election campaign from a two-person to a three-person race.
In terms of the day ahead, this morning in Europe the focus will be on the January flash PMI’s where we’ll get manufacturing, services and composite readings for the Euro area, Germany and France. The UK will also release December public sector net borrowing data. Over in the US this afternoon we’ll also get the flash manufacturing PMI for January while existing home sales and the Richmond Fed manufacturing survey will also be released. Away from the data the key event today is the aforementioned Supreme Court ruling in the UK concerning the ability of the UK government to trigger article 50 without parliamentary approval. The Italian constitutional court is also due to rule on ex-PM Renzi’s electoral law for the Lower House known as Italicum. Central bank wise we’re due to also hear comments from the ECB’s Villeroy and Lautenschlaeger today. Meanwhile on the earnings front we’re due to get results from 21 S&P 500 companies today including Verizon and Johnson & Johnson at or prior to the open.
END
i)Late MONDAY night/TUESDAY morning: Shanghai closed UP 5.78 POINTS OR 0.18%/ /Hang Sang closed UP 51.34 OR 0.22%. The Nikkei closed DOWN 103.04 POINTS OR .55% /Australia’s all ordinaires CLOSED UP 0.68%/Chinese yuan (ONSHORE) closed UP at 6.8588/Oil ROSE to 52.83 dollars per barrel for WTI and 55.27 for Brent. Stocks in Europe ALL IN THE GREEN. Offshore yuan trades 6.8139 yuan to the dollar vs 6.8588 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE COMPLETELY NARROWS AS POBC ATTEMPTS TO STOP DOLLARS FROM LEAVING CHINA’S SHORES. HOWEVER BOTH CHINESE YUANS RISE WITH THE LOWER DOLLAR
3a)THAILAND/SOUTH KOREA/:
END
b) REPORT ON JAPAN
none today
c) REPORT ON CHINA
China states that it has irrefutable sovereignty over the disputed islands in the South China seas. They tell the USA to act and speak cautiously as Spicer in the press talk threatens China:
(courtesy zero hedge)
China Tells US To “Act And Speak Cautiously” In Response To Spicer “Threat” Over South China Sea
The latest diplomatic spat between the US and China erupted overnight, when China said on Tuesday it had “irrefutable” sovereignty over disputed islands in the South China Sea after White House spokesman Sean Spicer vowed to defend “international territories” in the strategic waterway. Spicer’s first official comments on Monday signaled a sharp departure from years of cautious U.S. handling of China’s assertive pursuit of territorial claims in Asia.
“The U.S. is going to make sure that we protect our interests there,” Spicer said when asked if Trump agreed with comments by his secretary of state nominee, Rex Tillerson. Two weeks ago, Tillerson said China should not be allowed access to islands it has built in the contested South China Sea.
“It’s a question of if those islands are in fact in international waters and not part of China proper, then yeah, we’re going to make sure that we defend international territories from being taken over by one country,” Spicer said.
This led to the now traditional escalating Chinese response, when, as cited by Reuters, the country’s Foreign Ministry spokeswoman Hua Chunying told a regular news briefing on Tuesday “the United States is not a party to the South China Sea dispute”.
She added that China’s sovereignty over the Spratly Islands in the South China Sea was “irrefutable” and said that China was also dedicated to protecting freedom of navigation and wants talks with nations directly involved to find a peaceful solution.
“We urge the United States to respect the facts, speak and act cautiously to avoid harming the peace and stability of the South China Sea,” Hua said.
“Our actions in the South China Sea are reasonable and fair. No matter what changes happen in other countries, what they say or what they want to do, China’s resolve to protect its sovereignty and maritime rights in the South China Sea will not change,” she added.
The latest verbal escalation follows similar remarks by Rex Tillerson at his Senate confirmation hearing, which prompted Chinese state media to say at the time that the United States would need to “wage war” to bar China’s access to the islands, where it has built military-length air strips and installed weapons systems.
Tillerson was asked at the hearing whether he supported a more aggressive posture toward China and said: “We’re going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands also is not going to be allowed.” The former Exxon Mobil Corp (XOM.N) chairman and chief executive did not elaborate on what might be done to deny China access to the islands. But analysts said his comments, like those of Spicer, suggested the possibility of U.S. military action, or even a naval blockade. Such action would risk an armed confrontation with China, an increasingly formidable nuclear-armed military power. It is also the world’s second-largest economy and the target of Trump accusations it is stealing American jobs.
Spicer declined to elaborate when asked how the United States could enforce such a move against China, except to say: “I think, as we develop further, we’ll have more information on it.”
Military experts said that while the U.S. Navy has extensive capabilities in Asia to stage blockading operations with ships, submarines and planes, any such move against China’s growing naval fleets would risk a dangerous escalation.
Meanwhile, in what may be even more troubling for the future of US-Sino relations, Trump aides have said the president plans a major naval build-up in East Asia to counter China’s rise. Such a move would lead to even greater anger by China which will have no choice but to retaliate with a proportional military build up and further sabre rattling.
As Reuters adds, citing Washington-based South China Sea expert Mira Rapp-Hooper at the Center for a New American Security, threats to bar China’s access in the South China Sea “incredible” and said it had no basis in international law. “A blockade – which is what would be required to actually bar access – is an act of war,” she added.
“The Trump administration has begun to draw red lines in Asia that they will almost certainly not be able to uphold, but they may nonetheless be very destabilizing to the relationship with China, invite crises, and convince the rest of the world that the United States is an unreliable partner.”
Bonnie Glaser at the Center for Strategic and International Studies think tank called Spicer’s remarks “worrisome” and said the new administration was “sending confusing and conflicting messages.” Dean Cheng, a China expert at the conservative Heritage Foundation, said Spicer’s remarks showed the South China Sea was an important issue for the Trump administration.
He said it was significant that neither Spicer nor Tillerson had been specific as to what actions would be taken and this left open the possibility that economic measures – instead of military steps – could be used against China and firms that carry out island building.
The S&P has yet to decide if a trade war between the US and China is preferable to a conventional one.
END
Then China ups the ante by deploying their new nuclear ICBM which is capable of travelling 15,000 kilometers and delivering 10 to 12 nuclear warheads
(courtesy zerohedge)
China Deploys ICBM System “In Response To Trump’s Provocative Remarks”
China is wasting no time to project power in a world in which it believes Donald Trump’s “America First” doctrine has created a “superpower vacuum.”
One day after a senior Chinese diplomat said on Monday that Beijing is prepared to “assume a role of world leadership if others step back from that position” after U.S. President Donald Trump pledged in his first speech to put “America first”, Beijing has reportedly deployed an advanced Dongfeng-41 ICBM system in Heilongjiang Province, which borders with Russia.
According to China’s nationalist Global Times tabloid, “the Chinese military intentionally revealed the Dongfeng-41 and connected it with the inauguration of US President Donald Trump. They think this is Beijing’s response to Trump’s provocative remarks on China.”
The Global Times added that “pictures of China’s Dongfeng-41 ballistic missile were exposed on Chinese mainland websites,” citing reports in “some Hong Kong and Taiwan media.” One of the reports was identified as the Apple Daily, another tabloid-style resource based ot of Hong Kong, according to RT. “It was revealed that the pictures were taken in Heilongjiang Province. Military analysts believe that this is perhaps the second Dongfeng-41 strategic missile brigade and it should be deployed in northeastern China,” the report in the Chinese newspaper notes.
The Dongfeng-41 is a nuclear solid-fuel road-mobile intercontinental ballistic missile. With a range of 15,000 kilometers and a payload of 10-12 nuclear warheads, it can target anywhere in the world and is widely considered one of the most advanced intercontinental ballistic missiles. China has yet to reveal the ICBM to the general public during a military parade or any similar event. Most information of the advanced weapon remains highly classified.
There has been speculation that China plans to deploy at least three brigades of DF-41s throughout the country. According to the Global Times, the image was purposefully leaked to coincide with Trump’s inauguration, in light of the US president’s confrontational stance towards China. Earlier today, China’s foreign ministry responded to comments by White House speaker Sean Spicer, urging the US to “act and speak cautiously” when it comes to the disputed South China Seas to “avoid harming the peace and stability” in the region.
China routinely uses demonstration of its military prowess to send signals to challengers like the US. For instance, it tested a railcar-launched version of the DF-41 in December 2016 just as then-Defense Secretary Ashton Carter visited the aircraft carrier ‘USS John C. Stennis’ deployed in the South China Sea.
Meanwhile, Russia has welcomed the placement of China’s ICBM next to its border, saying it is not an indication of threat toward China’s northern neighbor.
The alleged deployment of the DF-41 near Russia’s border should not be read as a threat to Russia, military analyst Konstantin Sivkov told RIA Novosti.
“DF-41 missiles placed near Russia’s border are a smaller threat than if they were placed deeper in the Chinese territory. Such missiles usually have a very large ‘dead zone’ [area within minimal range that cannot be attacked by a weapon],” he said, adding that the ICBMs would not be able to target Russia’s Far East and most of Eastern Siberia from the Heilongjiang Province.
The Kremlin agreed with the assessment, saying that China is Russia’s “strategic partner in political and economic senses.”
“Certainly, the actions of the Chinese military, if the reports prove correct, the military build-up in China is not perceived as a threat to our country,” said Kremlin spokesman Dmitry Peskov.
It is, however, perceived as a threat to the US, and nowhere was that made more clear than in China’s own wording.
As the Global Times added, “the US has the world’s most powerful military strength, including the most advanced and powerful nuclear arsenal. But Trump has called for a nuclear arms build-up many times. Even Washington feels that its naval forces and nuclear strength are lacking, so how can China be content with its current nuclear strength when it is viewed by the US as its biggest potential opponent?”
The Global Times then notes that “China’s nuclear capability should be so strong that no country would dare launch a military showdown with China under any circumstance, and such that China can strike back against those militarily provoking it. A military clash with the US is the last thing China wants, but China’s nuclear arsenal must be able to deter the US.”
The dangerous tone continued throughout the article:
The US has not paid enough respect to China’s military. Senior US officials of the Asia-Pacific command frequently show their intention to flex their muscles with arrogance. The Trump team also took a flippant attitude toward China’s core interests after Trump’s election win. Enhancing communication and mutual understanding is not enough. China must procure a level of strategic military strength that will force the US to respect it.
A China with or without the Dongfeng-41 is different to the outside world. That is the significance of the Dongfeng-41. We hope this strategic edge will be revealed officially soon. It will not bring the China Threat theory, but will only add authority to the People’s Liberation Army.
While Trump has had a busy morning, dismantling Obama’s (and Warren Buffett’s) anti- Keystone pipeline legacy, and has hardly caught up with the latest news out of China, we are curious how the US president will react – either on Twitter or otherwise – to the knowledge that what until now was a diplomatic “war of words”, has not so quietly spilled over into what appears to be another nuclear build up arms race.
4 EUROPEAN AFFAIRS
England
Theresa May received the news this morning that the UK Supreme Court rules that there must be a vote before a Brexit can begin. However the opposition will not go against the will of the people. Theresa May will trigger the clause 50 but allow the opposition to agree to a final separation
(courtesy zero hedge)
In Blow To Theresa May, UK Supreme Court Rules Parliament Must Vote Before Brexit Can Start
In a blow to Theresa May’s ambitions to implement a “clean Brexit”, on Tuesday morning UK’s Supreme Court ruled the UK Prime Minister can’t start the Brexit process without approval from Parliament, a decision that could potentially complicate her path toward a clear break from the European Union. Eight justices voted against the government and three voted in favor of it, in a decision that was widely expected.
The case had been brought by a group of British citizens opposed to Brexit with the help of some of the U.K.’s top constitutional lawyers. Spearheading the legal challenge were British businesswoman Gina Miller and hairdresser Deir Dos Santos. Grahame Pigney, a France-based expatriate who used crowdfunding from more than 4,000 people to pay for lawyers, joined the suit as a co-party
The government responded that the ruling wouldn’t affect May’s plans to trigger talks to leave the EU by the end of March and the opposition Labour Party said after the judgment it wouldn’t seek to stop Brexit from happening. But Labour said it would try to amend any bill introduced by Mrs. May to kick off the Brexit process, possibly influencing how the U.K.’s new relationship with the EU will look.
According to the WSJ, while a majority of lawmakers voted to stay in the EU, many have said they won’t seek to block Article 50, which formally starts Britain’s exit from the EU, given the popular vote, in which 52% voted to leave. “The British people voted to leave the EU, and the government will deliver on their verdict—triggering Article 50, as planned, by the end of March,” a U.K. government spokesman said. “Today’s ruling does nothing to change that.”
Lord David Neuberger said any change in the law to put Brexit into effect must be made by an act of Parliament. “To proceed otherwise would be a breach of settled constitutional principles stretching back many centuries,” he said. He said the Supreme Court justices were ruling on the process of legally bringing the result into effect, and that the ruling had nothing to do with whether the U.K. should exit from the EU or the timetable.
While the outcome was not surprising, the case has been one of the most politically charged in decades. After the High Court ruled against the government in November, pro-Brexit activists called the decision an attempt to overturn the will of Britons who chose to break away from the bloc in a June referendum. The Daily Mail newspaper said the three High Court judges who ruled on the case were “enemies of the people.” But the landscape has shifted since then.
As previously reported, in December, Mrs. May won lawmakers’ backing to trigger the start of Brexit by the end of March after promising to give Parliament, the majority of whom backed staying in the EU, an opportunity to scrutinize her plan first.
Mrs. May has outlined a plan for a definitive break from the EU, saying she intends to take the country out of the EU’s single market for goods and services. Leaving the single market will create uncertainties for U.K. businesses that rely on trade with Europe, particularly financial markets, auto makers and aerospace.
Asked in an interview with a German newspaper this month whether the U.K. was seeking to become a tax haven with low levels of corporate tax, U.K. Treasury Chief Philip Hammond said the U.K. could change its economic model if it isn’t granted access to trade in the EU after it leaves the bloc.
Jeremy Corbyn, Labour leader, said in a statement after the ruling that Labour “will not frustrate” the process for trigger the U.K.’s exit.
“However, Labour will seek to amend the Article 50 bill to prevent the Conservatives using Brexit to turn Britain into a bargain basement tax haven off the coast of Europe,” Mr. Corbyn said. “Labour will seek to build in the principles of full, tariff-free access to the single market and maintenance of workers’ rights and social and environmental protections.” He added that the party would demand that the U.K. government lays out a plan for negotiations so parliamentarians could hold it to account.
Kelvin Hopkins, a Labour member of Parliament, urged his party not to seek to complicate the process of leaving.
“My colleagues in the House of Commons need to realize that if we are seen to frustrate the will of the British people, by opposing or delaying Brexit we could find ourselves in a position where we will never see a Labour government again,” Mr. Hopkins said in a statement.
Over four days of hearings before the Supreme Court last month, the government said it had the right to trigger Brexit because of the so-called royal prerogative, in which executive authority is given to ministers so they can govern on the monarch’s behalf.
The market’s reaction has been subdued, with the resulting modest decline in sterling – the opposite of what would be expected from the adverse ruling – suggesting that the court’s decision had been fully priced in by the market. In fact, as HSBC predicted ahead of the decision, “if ruling states that Parliamentary approval will be needed to start the Brexit process it will be “mildly negative” for the pound.” as the government is prepared for this and “should be able to table a short and simple Parliamentary Bill in the coming days” meaning Article 50 could still be triggered before the end of March.
Sure enough, GBPUSD is now modestly lower following the announcement.
And indeed, as Reuters writes, Theresa May’s plans to start the process of Britain leaving the European Union by the end of March are unlikely to be hindered or slowed by Tuesday’s Supreme Court ruling the government must seek parliamentary approval. In the ruling, judges on Britain’s top judicial body upheld an earlier High Court decision that lawmakers had to give their assent before May can invoke Article 50 of the Lisbon Treaty which formally starts two-years of divorce talks.
However, the legal defeat, while an inconvenience and embarrassment for the government, is not expected to delay its Brexit timetable or, as some investors and pro-EU supporters hope, make it possible to stop Britain leaving the bloc. Part of this is because the opposition is divided.
“We will not block Article 50,” Jeremy Corbyn, leader of the main opposition Labour Party which campaigned against Brexit, said last week. “All Labour MPs (members of parliament) will be asked to vote in that direction next week, or whenever the vote comes up.” Not all Corbyn’s colleagues may go along, but May can get the votes she needs for overall passage.
However, what the decision could do is give an opportunity for Labour and other lawmakers who oppose a “hard Brexit” – an agreement with the EU that puts immigration curbs above access to the single market – to have a greater influence on what the final deal should look like.
The greatest potential threat to May comes from parliament’s unelected upper chamber, the House of Lords, where many peers remained strongly opposed to Brexit and do not have voters to worry about. If the Lords were to vote against approving the triggering of Article 50, the Brexit timetable could be severely delayed.
However, the government is confident the bill will pass through the Lords because there would be a constitutional crisis if unelected peers were to thwart the will of the people expressed both through the referendum and from their representatives in the Commons
end
And here is the timetable:
(courtesy zero hedge)
Brexit: The Full Timetable Of What Happens Next
Despite today’s expected decision by the UK Supreme Court, which ruled that Theresa May has to put the Brexit decision to a vote in parliament – in line with what May recently said she would – the government announced that the decision would not adversely impact its timeline for triggering Article 50 before the end of March, and that it would introduce Article 50 legislation “within days.” The result was little if any reaction from various asset classes, with the pound largely unchanged after some initial volatility.
So what happens next? Here, courtesy of Danske Bank’s Mikael Olai Milhoj, is a quick recap of next steps in the Brexit saga;
Government to introduce Article 50 legislation ‘within days’
- As expected, the Supreme Court ruled that the parliament and not the government has the power to invoke Article 50, which formally starts the exit negotiations with the EU. Thus the Supreme Court upheld the High Court’s decision in November. Market reaction was limited.
- Based on stories in UK media, most cabinet ministers expected to lose the appeal case. In PM Theresa May’s Brexit speech, it also seemed that she had already accepted that the parliament needs to be involved in the negotiation process, as she mentioned the final deal will be put to a vote in both Houses of Parliament. For more details on PM May’s Brexit speech where she outlined her 12 Brexit principles please see Brexit Monitor #21, 17 January.
- However, it was a victory for the government that it does not need to consult the assemblies in Northern Ireland, Scotland and Wales before triggering Article 50.
- We do not think the Supreme Court’s ruling will delay the triggering of Article 50. Brexit Minister David Davis has said the government will introduce Article 50 legislation ‘within days’ (see Reuters, UK to introduce Article 50 legislation ‘within days’ – Brexit minister, 24 January) and it seems unlikely that either the Conservative Party or Labour will block the legislation in the House of Commons. In a non-binding vote in December, MPs voted overwhelmingly to support PM Theresa May’s Brexit time table. It could be more problematic to pass the legislation in the pro-EU House of Lords where the Conservatives do not have majority, but it would probably create a constitutional crisis if the House of Lords tries to block or delay Brexit, see Reuters, Brexit plans unlikely to be slowed by Article 50 defeat, 24 January.
- In the Supreme Court’s judgement, it says in section 122 that ‘What form such legislation should take is entirely a matter for Parliament’, which allows the Government to present a very short bill, which makes it more difficult for the MP’s to make amendments. Both Labour and the Scottish National Party (SNP) have already said that they want to be heavily involved during the negotiation process.
- In other words, we will have some arm wrestling between the government and the members of parliaments in the coming two months ahead of the triggering of Article 50. However, it is worth noting that the EU is not bound by whatever strings may be attached by the UK government, so we still think we are heading towards a hard Brexit, as the UK cannot stay within the single market and get control over EU immigration at the same time.
- We still expect EUR/GBP to come under pressure as the triggering of Article 50 moves closer. We target EUR/GBP at 0.88 in 3M but see risks skewed to the upside.
The calendar of next steps in visual format:
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
IRAN
Trump will certainly have his smoking gun if he wishes to tear up the Iran deal. Iran has been caught smuggling anti tank missile systems from Ukraine under false manifests.
(courtesy zero hedge)
Iran Caught Smuggling Anti-Tank Missile Systems Through Ukraine Under “False Manifests”
According to new reports just surfacing today, last Thursday, the day before Trump was set to take his oath of office, Iran was caught by the State Border Guard Service of Ukraine attempting to smuggle anti-tank missile systems through Kiev’s Zulyany airport under “false manifests.” According to the Washington Free Beacon, Ukrainian authorities, upon inspecting the cargo of a plane bound for Iran last week, discovered multiple boxes filled with components for a Fagot anti-tank guided missile system.
Ukrainian authorities have confirmed that they seized a shipment of missile system components bound for Iran, according to official statements that could put the Islamic Republic in violation of international bans on such behavior.
The State Border Guard Service of Ukraine, or DPSU, announced late last week that it had seized at least 17 boxes filled with missile components bound for Iran, according to IHS Jane’s.
“The DPSU said that, during an inspection of the aircraft on 19 January, its personnel had found 17 boxes with no accompanying documents, which the aircraft’s crew said contained an aircraft repair kit,” according to the report. “Three boxes contained components that were believed to be for a Fagot anti-tank guided missile system, the rest contained aircraft parts.”
Days after this finding, the DPSU said that it had confirmed the missile components were destined for Iran’s Fagot system.
Ukrainian authorities released the following pictures of the seized components:
The components were intended for a Fagot anti-tank guided missile system like the one pictured below.
If true, such behavior, in addition to being just one final insult to the Obama administration on their way out of the White House, would be a direct violation of numerous international laws and agreements.
Michael Rubin, a former Pentagon adviser and expert on rogue regimes, said that Iran has been illicitly moving such weapons for quite some time and that only “fools and secretaries of state would trust Iran to uphold its agreements.”
“This isn’t the first time Iran has gotten caught red handed smuggling weapons with false manifests, for example, in 2010 in Nigeria,” Rubin said. “The question is how often does Iran get away with such smuggling and for what purpose? After all, if the weaponry is legal, there’s no reason for lying. If it’s not, Iran is violating international agreements. Either way, only fools and secretaries of state would trust Iran to uphold its agreements.”
of course, the key question is how the Trump administration will respond to Iran’s continued provocations after already describing Obama’s deal with the rogue state as the “highest level of incompetence.” While John Kerry’s State Department, under direction of Obama’s White House, may have buried this story to save face, we suspect the Trump administration won’t rollover quite so easily.
END
TURKEY
Most of the pundits thought Turkey would raise its interest rate trying to keep the Lira higher. However Erdogan certainly has his finger on its central bank as again they kept their benchmark rate unchanged: down goes the Lira again
(courtesy zero hedge)
Turkish Lira Crashes After Central Bank Unexpectedly Keeps Benchmark Repo Rate Unchanged
With Wall Street consensus expecting the Turkish central bank to hike its benchmark repo rate by 50bps (in two cases by as much as 75 bps and five analysts were expecting as much as a 100 bps increase) in hopes of arresting the recent record collapse in the Turkish Lira, this morning the central bank again proved it has become a political appendage of Erdogan, who has repeatedly stated he is against any rate hikes, when the central bank kept its overnight benchmark repo rate unchanged at 8%, even as it raised its less relevant overnight lending rate by the expected 75 basis points.
The latest breakdown of Turkey’s rates:
- Benchmark repo rate: 8%
- Overnight lending rate: 9.2%
- Overnight borrowing rate: 7.25%
The disappointment was particularly acute following a November decision to hike rates by 50 bps, the first such increase in more than two years.
As a result, the lira plunged nearly 2% with USD/TRY surging as much as 1.9% to session high of 3.8284.
In its justification, the central bank said that it can deliver further tightening if needed, noting “inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.”
“Moreover, necessary liquidity measures will be taken in case of unhealthy pricing behavior in the foreign exchange market that cannot be justified by economic fundamentals.”
“Recent data indicate partial recovery in economic activity, which is “expected to continue at a moderate pace. Yet, excessive fluctuations in exchange rates since the previous meeting have increased the upside risks regarding the inflation outlook”
It concluded that “significant rise in inflation is expected to continue in the short term due to lagged pass-through effects and the volatility in food prices.”
In other words, expect Turkish inflation to soar in the near future as the currency crash accelerates, all the while Erdogan blames some vast foreign conspiracy to overthrow him.
6.GLOBAL ISSUES
Mexico
More havoc in Mexico has Mexican protesters have seized control of the USA order crossing in Tijuana, Drug cartel members are still high jacking much of Mexican gas and selling the gas to needy motorists
(courtesy zero hedge)
Mexican Protesters Seize Control Of U.S. Border Crossing In Tijuana
A couple of weeks ago we highlighted the protests that had engulfed Mexico after the finance ministry announced plans to raise gasoline prices by 20.1% starting January 1st. While many people have looted gas stations and/or threatened to burn them down altogether, the latest protesting strategy of pissed off Mexican motorists is to seize control of border crossings with the United States and allow for a free flow of motorists into Mexico. According to the AP, over the weekend roughly 50 protesters were able to take control of the Otay Mesa crossing that connects San Diego to Tijuana as border officials abandoned their posts.
Protesters took control of vehicle lanes at one of the busiest crossings on the U.S. border Sunday to oppose Mexican gasoline price hikes, waving through motorists into Mexico after Mexican authorities abandoned their posts.
Motorists headed to Mexico zipped by about 50 demonstrators at the Otay Mesa port of entry connecting San Diego and Tijuana, many of them honking to show support. The demonstrators waved signs to protest gas hikes and air other grievances against the government of Mexican President Enrique Pena Nieto.
Other protests closed southbound traffic for hours at the San Diego-Tijuana San Ysidro port of entry, the busiest crossing along the 2,000-mile border, and halted southbound traffic at one of two crossings in Nogales, Arizona. U.S. Customs and Border Protection and California Highway Patrol officers closed southbound Interstate 5 to block access to the San Ysidro crossing, diverting traffic several miles east to the Otay Mesa port of entry.
Despite a free flow of motorists into Mexico, U.S. Customs and Border Protection officials confirmed that inspections were normal for all travelers entering the U.S. from Mexico.
Of course these latest protests follow reports from last week that Mexico’s drug cartels have been looting Pemex oil and gas pipelines in an effort to create their own brand new black market for petroleum products. With a modest upfront capital investment of $5,000 – $8,000, the cartels have realized they can tap directly into state-owned gas pipelines and withdraw seemingly unlimited supplies of gasoline which they then sell along the highway at a discount to official government prices. It’s a win-win situation whereby the drug cartels make 100% profit margins and citizens get “cheap” fuel.
The black market is booming. Several states experienced gasoline shortages at the end of last year as more thieves tapped into state-owned Petróleos Mexicanos (Pemex) pipelines. The pilfered fuel was sold to drivers hoping to save money. Pipeline theft in 2015 increased sevenfold, to more than 5,500 taps, from just 710 in 2010. Pemex attributes the company’s 12-year slide in crude production in part to the growth in illegal taps.
The drug cartels have turned to fuel theft as a side business worth hundreds of millions of dollars each year, and crime groups focused solely on gasoline robbery have sprung up, says Alejandro Schtulmann, president of Empra, a political-risk consulting firm in Mexico City. “You only need to invest $5,000 or $8,000 to buy some specific equipment, and the outcome of that is huge earnings.”
Fuel theft creates a vicious cycle: The theft increases costs for Pemex and makes the official gasoline supply more scarce, contributing to higher prices for legal consumers. Theft amounts to about $1 billion a year, says Luis Miguel Labardini, an energy consultant at Marcos y Asociados and senior adviser to Pemex’s chief financial officer in the 1990s. “If Pemex were a public company, they would be in financial trouble just because of the theft of fuel,” he says. “It’s that bad.”
Of course, the biggest loser in this whole situation continues to be Enrique Peña Nieto who has basically become the least popular President in Mexico since one-party rule ended in 2000.
All this is creating headaches for Enrique Peña Nieto, whose popularity was already the lowest of any president since one-party rule ended in 2000. Peña Nieto is limited to a single term, and polls show potential candidates from his Institutional Revolutionary Party (PRI) trail populist opposition leader Andrés Manuel López Obrador in the race for the mid-2018 presidential election. López Obrador has made the jump in gasoline prices his latest rallying cry against the administration.
“This is definitely going to have consequences for the PRI,” says Jorge Chabat, a political scientist at the Center for Economic Research and Teaching, a university based in Mexico City. “Frankly, I don’t see any way that they can win in 2018.”
If all else fails, we hear that the tequila served in Tijuana is a very good, cheap and highly combustible alternative to gasoline
7. OIL ISSUES
Goldman Sachs correctly state that there will be an oil price shock with a border tax. Oil produced in the USA and exported will garner no tax. Thus USA produced oil will have a higher price than foreign oil. Foreign oil will probably not be used initially as its costs cannot be passed through.
This will create huge distortions in the oil market
(courtesy GoldmanSachs)
Goldman Warns Of Oil Price Shock As Border Tax Could Lead To Surge In US Oil Production
While much has been said about the impact on the dollar from the proposed Border Tax Adjustment, which may or may not be implemented depending on what Trump says/tweets on any given day (and as a reminder, there has already been a loud outcry against it by powerful lobby groups, including the Kochs, as a result of the expected decimation of US retailers should BTA be implemented) little has been said about how it could impact US commodity production in general, and oil in particular.
This morning, in a note titled “Destination-based taxation and the oil market”, Goldman’s Damien Courvalin focused on this issue and found that the price gain from shift to destination-based border adjusted corporate tax would prompt US drillers to “sharply increase activity” as a result of lower US corporate tax rates, which would aggressively incentivize shale drilling, resulting in a global oil price shock, sending domestic prices spiking, as global prices slide.
The border tax would have an inflationary impact on U.S. service costs and reduce U.S. dollar costs of foreign producers. A lower U.S. corporate tax rate “could force a deflationary tax policy response” elsewhere further reducing the marginal cost of oil. In short, “US oil prices would appreciate immediately and sharply vs. global oil prices“
Some observations:
If domestic oil prices remained at the same level as imported crude oil prices upon implementation of the BTA, US refiners would have an incentive to consume only domestically produced crude instead of importing crude as only the cost of domestic crude would be deducted for tax purposes, and (2) US producers would have an incentive only to export crude rather than to sell to domestic refiners as there would be no taxes on exports. This would lead to a sharp appreciation of the US domestic oil price relative to the global price oil.
Because US oil demand of 19.6 mb/d currently vastly exceeds domestic crude production of 13.5 mb/d, the US market requires imports of crude. As a result, refiners would bid domestic crude up until domestic prices rise enough to leave them indifferent about importing crude for their incremental barrels. Put another way, pricing power would be in the hands of producers upon introduction of this policy and they could charge US refiners up until these prefer to import foreign crude instead. Financial markets would anticipate this new equilibrium, with domestic oil prices reacting immediately to offset the impact of the border adjustment and leave refiners with the same pre-policy incentives to consume domestic or imported crude oil.
The magnitude of this relative price move would be determined by the new US corporate tax rate and, at 20% (the rate currently being proposed by the Republican tax BluePrint), it would imply US prices trading at a 25% premium over global oil prices.
Goldman warns that rising U.S. production would create a “renewed large oil surplus into 2018” and that there would be an “immediate decline in global oil prices” as other producers offset ramp-up in U.S. output. OPEC would probably raise production, supplies would grow and forward curve would move into “steep contango.”
As an example, assuming a 15% dollar gain and 30% pass through to global production costs, Brent would decline to $50/bbl in 2019 from ~$57/bbl now.
In pricing terms, the higher U.S. crude price would pass through to consumers with modest impact on U.S. fuel demand growth. With $5/bbl rise in U.S. crude, demand to rise 70k b/d in 2018, 55k b/d below present forecast. Meanwhile, refiners would be left with excess returns as a result of the border tax.
In the longer term, Goldman predicts that a “new market equilibrium would arise” with U.S. prices returning to pre-policy level. Border tax would reduce imports and boost exports “in theory” causing dollar to appreciate 25% to reverse initial distortion; the USD appreciation has been duly noted. However, the medium-term outcome would likely be “modestly higher U.S. oil prices and sustainably lower global oil prices, with a shift down by U.S. producers and refiners on the global cost curve.”
* * *
Here is the big picture from Goldman:
A switch to Border-Adjusted Tax (BTA) would immediately lead to a 25% appreciation of US crude and product prices vs. global prices (at a 20% corporate tax rate). This appreciation would provide excess returns to domestic producers and incentivize them to sharply increase activity. This improvement in shale’s competitiveness would be exacerbated by the introduction of a lower US corporate tax rate funded by the BTA. While the BTA’s inflationary impact on US service costs and the deflationary impact of USD appreciation on foreign costs should theoretically offset these shifts and push global prices down by 20%, the contracted nature of oil services implies that the BTA will initially leave US producers moving down on the global cost curve and capturing higher returns.
This significant incentive to ramp up US production in a market that is only starting to rebalance would create a renewed large oil surplus in 2018, likely exacerbated by a reversal of the OPEC cuts. This prospect should lead to an immediate sharp decline in global oil prices to try to offset such a potential US ramp-up, either by creating an offsetting foreign production decline or by normalizing US excess returns. Over the longer term, the decline in the US corporate tax rate and shale’s significant growth potential at higher returns could force a deflationary tax policy response abroad, sustainably reducing oil’s marginal cost of production.
Importantly, there would initially be no changes in US crude differentials and crude or product trade flows, with all US refiners benefiting from higher margins because of the lower tax rate. Differentiation between US refiners would only materialize if the supply response of US producers creates logistical constraints and wider domestic crude differentials.
And the executive summary: see zero hedge
end
Transcanada Pipelines responds to Trump’s executive order. They say that Keystone XL will add 3 billion USA to its GDP
(courtesy zero hedge)
Transcanada Responds To Trump Executive Order: Says Keystone XL Will Add $3 Billion To US GDP
In a response filed moments ago by TransCanada, the company said it is currently preparing a follow up application, and will take up President Donald Trump’s invitation to again seek permit for the Keysteon XL pipeline. It further adds that Keystone XL will add more than $3 billion to U.S. GDP and create “thousands” of construction jobs.
Full statement below:
We appreciate the President of the United States inviting us to re-apply for KXL.
We are currently preparing the application and intend to do so. KXL creates thousands of well-paying construction jobs and would generate tens of millions of dollars in annual property taxes to counties along the route as well as more than $3 billion to the U.S. GDP.
With best-in-class technology and construction techniques that protect waterways and other sensitive environmental resources, KXL represents the safest, most environmentally sound way to connect the American economy to an abundant energy resource.
Ironically, as the back and forth was taking place, news emerged that a pipeline in the western Canadian province of Saskatchewan leaked 200,000 liters (52,834 gallons) of oil in an aboriginal community, the provincial government said on Monday according to Reuters. The government was notified late in the afternoon on Friday, and 170,000 liters have since been recovered, said Doug McKnight, assistant deputy minister in the Ministry of the Economy, which regulates pipelines in Saskatchewan.
The spill came seven months after another major incident in Saskatchewan, in which a Husky Energy Inc pipeline leaked 225,000 liters into a major river and cut off the drinking water supply for two cities. It was not immediately clear how the current incident happened or which company owns the underground pipeline that leaked the oil.
McKnight said Tundra Energy Marketing Inc, which has a line adjacent to the spill, is leading cleanup efforts. “There are a number of pipes in the area,” he told reporters in Regina. “Until we excavate it, we won’t know with 100-percent certainty which pipe.”
Tundra, a privately held unit of Canadian grain trading and energy conglomerate James Richardson and Sons Ltd, released a statement saying it is cooperating with all levels of government and will ensure “the affected land is restored appropriately.”
The incident happened in the lands of the Ocean Man First Nation 140 km (87 miles) southeast of the provincial capital of Regina, according to the province.
It is still unclear how environmental groups will react to today’s executive orders by Trump.
end
8. EMERGING MARKETS
none today
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings TUESDAY morning 7:00 am
Euro/USA 1.0741 DOWN .0018/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 113.33 UP 0.550(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 1.24547 DOWN .0068 (Brexit by March 201/UK government loses case/parliament must vote/PRIME MINISTER MAY DECIDES ON A HARD BREXIT)
USA/CAN 1.3297 UP .0060 (CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT FROM EU)
Early THIS TUESDAY morning in Europe, the Euro FELL by 18 basis points, trading now WELL BELOW the important 1.08 level FALLING to 1.0741; 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 5.78 or 0.18% / Hang Sang CLOSED UP 51.34 POINTS OR 0.22% /AUSTRALIA CLOSED UP 0.68% / EUROPEAN BOURSES ALL IN THE GREEN
We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;
1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.
2, the Nikkei average vs gold carry trade ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)
3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.
These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>
The NIKKEI: this TUESDAY morning CLOSED DOWN 103.04 OR 0.55%
Trading from Europe and Asia:
1. Europe stocks ALL IN THE GREEN
2/ CHINESE BOURSES / : Hang Sang CLOSED UP 51.34 OR 0.22% Shanghai CLOSED UP 5.78 POINTS OR 0.18% / Australia BOURSE CLOSED UP 0.68% /Nikkei (Japan)CLOSED DOWN 103.04 OR 0.55% / INDIA’S SENSEX IN THE GREEN
Gold very early morning trading: $1213.60
silver:$17.13
Early TUESDAY morning USA 10 year bond yield: 2.430% !!! UP 4 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 3.014, UP 3 IN BASIS POINTS from MONDAY night.
USA dollar index early TUESDAY morning: 100.29 UP 36 CENT(S) from MONDAY’s close.
This ends early morning numbers TUESDAY MORNING
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And now your closing TUESDAY NUMBERS
Portuguese 10 year bond yield: 3.86% UP 7 in basis point yield from MONDAY (does not buy the rally)
JAPANESE BOND YIELD: +.052%DOWN 1/2 in basis point yield from MONDAY/JAPAN losing control of its yield curve
SPANISH 10 YR BOND YIELD:1.507% UP 7 IN basis point yield from MONDAY (this is totally nuts!!/
ITALIAN 10 YR BOND YIELD: 2.043 UP 5 POINTS in basis point yield from MONDAY
the Italian 10 yr bond yield is trading 53 points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.365% UP 1/4 IN BASIS POINTS ON THE DAY
END
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IMPORTANT CURRENCY CLOSES FOR TUESDAY
Closing currency crosses for TUESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/1:00 PM
Euro/USA 1.0760 up .0001 (Euro UP 1 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 113.56 UP: 0.880(Yen DOWN 88 basis points/
Great Britain/USA 1.2532 UP 0.0018( POUND UP 18 basis points)
USA/Canada 1.3120 DOWN 0.0117(Canadian dollar UP 117 basis points AS OIL ROSE TO $53.46
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This afternoon, the Euro was UP by 1 basis points to trade at 1.0760
The Yen FELL to 113.56 for a LOSS of 88 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 18 basis points, trading at 1.2532/
The Canadian dollar ROSE by 117 basis points to 1.3120, WITH WTI OIL RISING TO : $53.46
Your closing 10 yr USA bond yield UP 5 IN basis points from MONDAY at 2.449% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 3.036 UP 5 in basis points on the day /
Your closing USA dollar index, 100.03 UP 10 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 0.84 OR 0.01%
German Dax :CLOSED UP 49.19 POINTS OR 0.43%
Paris Cac CLOSED UP 8.62 OR 0.18%
Spain IBEX CLOSED UP 82.40 POINTS OR 0.89%
Italian MIB: CLOSED UP 171.13 POINTS OR 0.89%
The Dow closed UP 112.86 OR .57%
NASDAQ WAS closed UP 48.01 POINTS OR .86% 4.00 PM EST
WTI Oil price; 53.46 at 1:00 pm;
Brent Oil: 55.66 1:00 EST
USA /RUSSIAN ROUBLE CROSS: 59.19 ROUBLES/DOLLAR (UP 35/100 roubles from YESTERDAY)
TODAY THE GERMAN YIELD RISES TO +0.365% FOR THE 10 YR BOND 1:30 EST
END
This ends the stock indices, oil price, currency crosses and interest rate closes for today
Closing Price for Oil, 5 pm/and 10 year USA interest rate:
WTI CRUDE OIL PRICE 5 PM:$52.92
BRENT: $55.21
USA 10 YR BOND YIELD: 2.467% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 3.050%
EURO/USA DOLLAR CROSS: 1.0731 up .0028
USA/JAPANESE YEN:113.80 UP 1.02
USA DOLLAR INDEX: 100.28 UP 35 cents ( HUGE resistance at 101.80)
The British pound at 5 pm: Great Britain Pound/USA: 1.2518 : UP 4 BASIS POINTS.
German 10 yr bond yield at 5 pm: +.365%
END
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM
“Trillion Dollar Plan” Sends Stocks To Record Highs As ‘Volatility’ Hits Record Lows
The Dow soared non-stop (along with a VIX crash), seemingly on the heels of Senate Democrats’ $1 trillion infrastructure plan…(NOTE – VIX was crushed into the close and stocks also fell!)
As RBC’s Charlie McElligott notes, some focus in macro community today (with v little interest paid in equities, curiously) on the proposal from Senate Democrats of their own $1T infrastructure plan to President Trump per the NYT this morning.
The reason macros care so much of course is that a coherent and detailed infra policy would be another major boost to their view on higher rates / reflation.
Trump’s purported infra plan has had rough details out for months now via his website @ $1T in its own right, theoretically spread over 5 years but most importantly, with private-funding aspirations. The Republicans are ironically the issue here for Trump, as historically this sort of “job / works program” stuff is the stuff they have despised as “big government mismanagement / pork barrel “creep.” So this could be a fascinating test as to whether or not Trump can move across the aisle and ‘coalition build’….IF the plan has enough overlap with his own of course.
From the ‘color me skeptical’ side: this is likely a symbolic gesture with no real intent or expectation to ‘get a deal done,’ where actual hope is to float this plan in ahead of the Jan 27th ‘due date’ on the Obamacare “reconciliation” bill. If the new administration and Republicans can’t get their stuff together on that front, and the Dems were to ‘beat them to the punch’ on infra too, it would be an embarrassing PR start for Trump’s team.
From a trading perspective, it would likely take further air out of the USD-longs and likely see rates travel lower as “reflation” bets come off.
As the Trumpflation trade came back to life… cyclicals soaring over defensives…
All major indices are now green on the year and post-inauguration…
Today was the biggest short-squeeze since the first day of 2017…
The last month has seen the lowest trading range for The Dow since 1900…
And as realized volatility has collapsed…
As BofA notes, Implied vol remains low on the back of anemic S&P 500 realized volatility.
In fact, through Monday 23-Jan, the S&P 500 is on track to record its 5th lowest volatility for the month of January in 90 years.
Low short-dated vol is contributing to extremely steep implied volatility term structure and the spread between SPX 3m to 1m ATM volatility is near two-year highs.
Nasdaq and S&P hit new record highs…
An ugly 2Y auction spiked rates…
But the entire bond complex was a one-way street higher in yield today… pushing 30Y and 2Y briefly higher on the week…
The Dollar and Yields decoupled today…
The USD Index flip-flopped around all day… having tumbled to the lowest levels since The ECB meeting in December…
Copper was the biggest beneficiary of today’s Trumpflation trade…
Oil clung to gains despite the modest USD strength as $53 appears the new Maginot Line…ahead of tonight’s API data…
Notably, after piling into bets that the benchmark prices for crude oil traded in New York and London would converge by December 2019, traders are now paring those wagers. Doubts have cropped up that a Republican Congress will be able to push through plans for a levy on imports and an exemption for exports, moves that would favor U.S. produced West Texas Intermediate over the global benchmark Brent.
Gold slipped notably lower today (despite only modest moves in the USD) – almost the worst day for gold since the Fed hiked rates…
Ans gold still leads in 2017…
end
Rubio saves the day by voting for Tillerson in committee which should pave the way for the new Sec of State when the full senate votes:
(courtesy zero hedge)
Rubio Saves Tillerson Confirmation In 11-10 Vote
The Senate Foreign Relations Committee approved Rex Tillerson’s nomination as secretary of state by a vote of 11-10 – falling along party lines (with Democrats dissenting). As Bloomberg notes, this vote clears the way for the full Senate to confirm one of President Donald Trump’s most critical cabinet choices.
Before the vote on Monday, Democrats also said they were concerned about Tillerson’s statement that he would recuse himself from matters related to Exxon during his first year as secretary and rely on guidance from the State Department’s ethics office after that.
“In the end, I just had too many concerns and questions about the kind of leadership he would provide at the state department to feel comfortable voting for him,” said Senator Jeanne Shaheen, a New Hampshire Democrat.
The 11-10 vote came hours after Senator Marco Rubio, who had been the lone Republican withholding his support, said he would back the nomination of the former Exxon Mobil Corp. chief executive officer as the nation’s top diplomat despite concerns over his ties to Russian President Vladimir Putin and his refusal in his nomination hearing to condemn human rights abuses in Russia and the Philippines. As The Hill reports,
“I concluded that it would not be good for our country to unnecessarily delay or created unwarranted political controversy over this particular nomination,” Rubio told the panel at the Monday meeting.
“My concern was that Mr. Tillerson would be an advocate for and would pursue a foreign policy of dealmaking at the expense of traditional alliances and at the expense of the defense of human rights and of democracy,” he said, which he weigh against positive answers from Tillerson on issues like Cuba and supporting armament for Ukraine against Russia.
Sen. Bob Corker (R-Tenn.), the panel’s chairman, said that Tillerson had “no doubt that Rex Tillerson is well-qualified.”
“He has managed the world’s eighth largest company by revenue, with over 75,000 employees. Diplomacy has been a critical component of his positions in the past, and he has shown himself to be an exceptionally able and successful negotiator who has maintained deep relationships around the world,” Corker said.
Two key GOP senators who have been concerned about Russia and Putin, Lindsey Graham (S.C.) and John McCain (Ariz.), also announced in recent days that they would support Tillerson.
Tillerson will now face a vote in the full Senate, where he is nearly certain to get the majority vote that he needs to become the United States’ top diplomat.
end
The next bombshell: we are witnessing huge numbers of leased car returns which is causing the used car pricing to fall which in turn causes less sells in the new car market:
(courtesy zerohedge)
Soaring Lease Returns Set To Wreak Havoc Used Car Pricing and Auto Industry Profits
For months we’ve warned that declining used car prices could spell disaster for subprime auto securitizations (see “Slumping Used Car Prices Spell Disaster For Subprime Auto Securitizations“). While it’s always difficult to predict the exact timing of when bubbles will burst, a combination of record-high lease returns in 2017 and 2018, combined with rising interest rates could imply that the auto bubble is on the precipice.
As Bloomberg recently pointed out, strong used car pricing is a critical component required to prop up the overall auto market. While American’s love their brand new cars, if used car prices become too soft then substitution can hurt new car sales. Add to that the impact of falling residual values on the finance arms of the auto OEMs and you have all the ingredients required for an auto market meltdown.
A glut of used vehicles has started to depress prices. That trend will intensify as Americans will return 3.36 million leased cars and trucks this year, another jump after a 33 percent surge in 2016, according to J.D. Power. The fallout has already begun, with Ford Motor Co. shaving $300 million from its financial-services arm’s profit forecast for this year.
“Ford is the canary in the coal mine,” said Maryann Keller, a former Wall Street analyst who’s now an auto industry consultant in Stamford, Connecticut.
This drag may be hitting the rest of the industry, too. A National Automobile Dealers Association index of used-vehicle prices declined each of the last six months of last year. If used values weaken more than anticipated, it can lead to losses across the industry, hitting carmakers, auto lenders and rental companies.
Unfortunately, the volume of lease returns is only expected to grow even more in 2018 with returns expected to approach 4mm units.
As J.D. Power points out in it’s most recent “NADA Used Car Guide Industry Update,” the flood of lease returns is driving used car prices lower.
Of course, how we got here is fairly obvious. The majority of Americans buy cars based on one factor: monthly payment. And when it comes to managing your monthly payment to the lowest level possible, leasing is the way to go. Per the Bank Rate calculator below, buying a $30,000 car comes with a monthly payment of around $600 while leasing the same vehicle might only cost $420 per month.
Of course, why buy a $30,000 Ford for a $600 monthly payment when you could lease a $40,000 BMW for $560? You can afford it so long as you can cover the monthly payment, right?
Not surprisingly, these dynamics have caused lease share of U.S. vehicles to skyrocket in the wake of the “great recession” as people seek to maintain their excessive lifestyles on smaller budgets.
Of course, the problem is that leased vehicles get returned to their originating lenders every 3 years for brand new leases…we wouldn’t want anyone driving around in a 5-year-old clunker now would we? But, as we all know, vehicles have useful lives of 15-20 years. Therefore, it doesn’t take too many excessive lease cycles to flood the market with used supply and bring the whole ponzi crashing down
end
The Senate Democrats have introduced their own 1 trillion infrastructure plan and by doing so, they will offer Trump their support if he backs it. The trouble will be tea party Republicans who want fiscal responsibility:
(courtesy zero hedge)
Senate Democrats Introduce $1 Trillion Infrastructure Plan, Offer Trump Support If He Backs It
Senate Democrats are set to unveil a $1 trillion infrastructure plan and offer President Donald Trump their support if he backs it, the NYT reports.
The plan includes $180 billion to rail and bus systems, $65 billion to ports, airports and waterways, $110 billion for water and sewer systems, $100 billion for energy infrastructure, and $20 billion for public and tribal lands.
Cited by the Times, Chuck Schumer said “our urban and rural communities have their own unique set of infrastructure priorities, and this proposal would provide funding to address those needed upgrades that go beyond the traditional road and bridge repair.” The Senate Democrat leader adds that “We’re asking President Trump to work with us to make it a reality/”
As part of his agenda, Trump has promised to unveil an ambitious infrastructure package during the first 100 days of his presidency. “We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation,” he vowed in his Inaugural Address.
One of Trump’s top advisers said Monday, however, that the president’s plan may run into roadblocks in the Republican-led Congress.
“He has to come up with a financing plan, and I think there’s going to be a little bit of a tug of war between the conservatives in the Republican party who are concerned about deficits and the president who’s concerned about jobs,” Richard LeFrak said on CNBC’s “Squawk Box.” “I think he will prevail, ultimately, because he wants to put people to work.”
Republicans resisted President Barack Obama’s push for an infrastructure “surge” for eight years, arguing that the federal government couldn’t afford it and that state and local governments should shoulder more responsibility for improvements. However, now that Trump “has taken up the Democratic cause”, they may find it more problematic.
Meanwhile, as the NYT adds, the first major test of Mr. Trump and his sway over congressional Republicans will come Tuesday morning at 10 a.m. That is when the Congressional Budget Office, the nonpartisan Capitol Hill scorekeeper, will update its budget outlook. The office is expected to say that the federal deficit, after years of decline, will start swelling again this year and will pick up steam over the next decade if policies aren’t changed to curb the growth of health care programs and of Social Security in an aging populace.
The annual report could be a major brake on Mr. Trump’s agenda, which includes large increases in spending on infrastructure and defense, as well as deep tax cuts. Those plans could collide with Republican promises to balance the budget — if Republicans care about such niceties in the Trump era.
As we noted previously, according to a Barclays analysis, infrastructure spending in the US will take a long time to ramp up. The bank laid out the top 10 projects currently in planning or construction, and just these along will take as much as 1-2 years before any practical benefits “trickle down” to the long-ignored US steel sector which Trump has vowed to revitalize. This is what Barclays said last week:
Given the unknowns about Trump’s infrastructure plan – lack of clarity on total spend, past ineffectiveness of stimulus efforts, timing of implementation, pushback from Congress – we currently model no additional metals demand from supplemental infrastructure investment during 2017-18 into our baseline forecast. As greater visibility becomes available, we will adjust our consumption forecasts to take into account the latest spending plans. The key issue we think is facing the metals sector is that even if infrastructure spending is approved at the headline level ($1trn over 10 years, or $100bn a year) and implementation is effective, the project schedule does not allow for an immediate effect on metals consumption, particularly over the next two to three years.
A list of the ten largest US infra projects is shown below:
end
As expected, Trump signs executive orders advancing both Keystone and Dakota pipelines: Mr Buffett and environmentalists will not be happy campers
(courtesy zero hedge)
Trump To Sign Executive Orders Advancing Keystone, Dakota Pipelines
Update: it’s official, Trump has signed executives orders to advance the construction of the controversial Keystone XL and Dakota Access pipelines, according to which the US will renegotiate terms on the two pipelines.
It is just day two of his presidency, and already Trump is taking a sledgehammer to the Obama legacy: in his latest move reported moments ago by Bloomberg, president Trump intends to sign two executive actions today “that would advance construction of the Keystone XL and Dakota Access pipelines“, putting a spoke, so to say, in the train wheels of Warren Buffett’s train-based oil transportation quasi-monopoly.
More details from Bloomberg:
Keystone was rejected under former President Barack Obama. Trump’s move on Energy Transfer Partners LP’s 1,172-mile Dakota Access project aims to end a standoff that has stalled the $3.8 billion project since September, when the Obama administration halted work on land near Lake Oahe in North Dakota.
The moves, taken on Trump’s fourth full day in office, mark a major departure from the Obama administration’s handling of the controversial oil pipelines. The steps vividly illustrate Trump’s plan to give the oil industry more freedom to expand infrastructure and ease transportation bottlenecks.
Expect an angry reaction from Buffett, which will promptly flow through to funded environmental protest groups, who will double down in their defense of the two pipelines, of which the Dakota Access was the prominent center of media attention in the waning days of Trump’s presidency.
end
Soft data manufacturing PMI soars to 3 yr high. However input costs continue to rise and the index is at 28 month highs
(courtesy US mfg PMI/zerohedge)
US Manufacturing PMI Near 3-Year Highs As Input Costs Soar Most In 28 Months
Despite lackluster ‘hard’ data (IP only helped by cold-weather-juiced Utility surge), ‘soft’ survey data post-Trump continues to shine as US Manufacturing PMI soared in December to 55.1 – the highest since March 2015 (and notably better than preliminary values and expectations). Despite the steepest increase in new orders in 28 months, export orders were stagnant and employment slipped.
Manufacturing employment continued to increase in January as firms looked to increase their capacity. Though solid overall, the rate of job creation eased slightly from the 18-month high seen in December.
The rate of input price inflation accelerated for the second month in a row in January amid reports of higher raw material costs. Moreover, the latest increase in cost burdens was the sharpest seen in 28 months. As a result, companies raised their selling prices for the fourth successive month, albeit at a moderate pace that was similar to that seen in December.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“US manufacturers are seeing a bumper start to 2017, with production surging higher in January on the back of rising inflows of new orders.
“New work is growing at the fastest rate for over two years, thanks mainly to rising demand from customers in the home market. Export growth remains subdued, stymied by the strong dollar.
“The survey results suggest that faster manufacturing growth and inventory rebuilding should help boost GDP in the first quarter if current trends persist in coming months. Rising factory employment should also help improve consumer morale and spending.
“However, with such strong growth being signalled and price pressures rising, speculation around the next Fed rate hike will intensify.”
December Existing Home Sales Plunge Most Since 2009, NAR Blames Rate “Surge” & Record Low Inventory
With spiking mortgage rates, and tumbling mortgage applications, it is hardly surprising that existing home sales tumbled in December but the 2.8% plunge is the biggest since July and is the worst decline for December since 2009.
Larry Yun, NAR chief economist, said that while the housing market had its best year since the Great Recession, it ended on a softer note: “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” he said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.” He added that “while a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end.”
However, worse is yet to come since these closings come from before rates really exploded.
The median existing-home price for all housing types in December was $232,200, up 4.0 percent from December 2015 ($223,200). December’s price increase marks the 58th consecutive month of year-over-year gains.
Lawrence Yun’s dour warnings about the future of the housing market in light of surging rates continued when he said that “Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” said Yun.
“Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production.”
Yun was also quick to blame the lack of sales on a record low inventory:
Total housing inventory at the end of December dropped 10.8 percent to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015).
“Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it’s not getting any easier to be a first-time buyer,” said Yun. “It’ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”
But ultimately it is a question of deteriorating affordability:
“Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” said Yun. “Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production.”
It’s even worse for first time home buyers: “”Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it’s not getting any easier to be a first-time buyer,” said Yun. “It’ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”
* * *
Needless to say, the NAR was unhappy with Trump’s reversal of the FHA mortgage insurance fee. NAR President William E. Brown, said that by cutting annual premiums from 0.85 percent to 0.60 percent, an FHA-insured mortgage becomes a more viable and affordable option for these buyers.
“Without the premium reduction, we estimate that roughly 750,000 to 850,000 homebuyers will face higher costs and between 30,000 and 40,000 would-be buyers will be prevented from entering the market,” he said.
Properties typically stayed on the market for 52 days in December, up from 43 days in November but down from a year ago (58 days). Short sales were on the market the longest at a median of 97 days in December, while foreclosures sold in 53 days and non-distressed homes took 50 days. Thirty-seven percent of homes sold in December were on the market for less than a month.
Somre more details:
- All-cash sales were 21 percent of transactions in December, unchanged from November and down from 24 percent a year ago. Individual investors, who account for many cash sales, purchased 15 percent of homes in December, up from 12 percent in November and unchanged from a year ago. Fifty-nine percent of investors paid in cash in December.
- Distressed sales — foreclosures and short sales — rose to 7 percent in December, up from 6 percent in November but down from 8 percent a year ago. Five percent of December sales were foreclosures and 2 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in December (17 percent in November), while short sales were discounted 10 percent (16 percent in November).
- Single-family home sales declined 1.8 percent to a seasonally adjusted annual rate of 4.88 million in December from 4.97 million in November, but are still 1.5 percent above the 4.81 million pace a year ago. The median existing single-family home price was $233,500 in December, up 3.8 percent from December 2015.
- Existing condominium and co-op sales dropped 10.3 percent to a seasonally adjusted annual rate of 610,000 units in December, and are now 4.7 percent below a year ago. The median existing condo price was $221,600 in December, which is 5.5 percent above a year ago.
Finally, the regional breadkwon was as follows:
- Sales In the Northeast slid 6.2 percent to an annual rate of 760,000, but are still 2.7 percent above a year ago. The median price in the Northeast was $245,900, which is 3.8 percent below December 2015.
- In the Midwest, existing-home sales decreased 3.8 percent to an annual rate of 1.28 million in December, but are still 2.4 percent above a year ago. The median price in the Midwest was $178,400, up 4.6 percent from a year ago.
- Sales In the South in December were at an annual rate of 2.25 million (unchanged from November), and are 0.4 percent above December 2015. The median price in the South was $207,600, up 6.5 percent from a year ago.
- Sales In the West fell 4.8 percent to an annual rate of 1.20 million in December, and are now 1.6 percent below a year ago. The median price in the West was $341,000, up 6.0 percent from December 2015.
end
Now Trump goes after the EPA
(courtesy zero hedge)
Trump Orders Media Blackout At EPA: Bans Use Of Social Media, Bars New Contracts
The Trump administration has instituted a media blackout at the Environmental Protection Agency and barred staff from awarding any new contracts or grants according to the AP.
BREAKING: Trump bans EPA employees from providing updates on social media or to reporters, bars awarding new contracts or grants.
Emails sent to EPA staff since President Donald Trump’s inauguration on Friday and reviewed by The Associated Press, detailed the specific prohibitions banning press releases, blog updates or posts to the agency’s social media accounts. On Monday, the Huffington Post reported that EPA grants had been frozen, with agency employees barred from speaking of the matter. The memo ordering the social media blackout is shown below.
Cited by The Hill, Myron Ebell, who leads the Trump EPA transition, confirmed the freeze to ProPublica. “They’re trying to freeze things to make sure nothing happens they don’t want to have happen, so any regulations going forward, contracts, grants, hires, they want to make sure to look at them first,” Ebell told ProPublica.
Trump’s pick for EPA director, Oklahoma Attorney General Scott Pruitt, has frequently challenged agency policy in court.
The Trump administration reportedly told the Department of the Interior to stop tweeting from its accounts over the weekend after the National Park Service’s Twitter account retweeted a post about the crowd sizes at Trump’s inauguration Friday. The agency brought back its accounts on Saturday.
The Trump administration has also ordered a “temporary suspension” of all new business activities at the department, including issuing task orders or work assignments to EPA contractors. The orders are expected to have a significant and immediate impact on EPA activities nationwide.
As such, it appears that the first intra-agency vendetta for the new president has broken out not surprisingly with the agency that is most at risk from Trump’s upcoming policy changes, and which was catalyzed by the EPA’s role in the bizarre media scandal over the “participation” in Trump’s inauguration rally. The EPA has yet to make an official statement.
end
Do you think that they might be worried about their massive gold shorts and maybe they are wondering how they can deliver on their gold obligations to China?
(courtesy zero hedge)
You’re Buying, They’re Selling: Big Bank Execs Dump $100 Million In Stock As Market Soared
Shortly after the melt-up in US bank stocks began following Trump’s election victory, we noted heavy insider-selling (and options expiration) among Goldman Sachs executives. Well the selling never stopped, as WSJ reports executives at the biggest Wall Street banks have sold nearly $100 million worth of stock since the presidential election, more than in that same period in any year over the past decade.
As we detailed in mid-November, while the mainstream media proclaims the surge in bank stocks as heralding a new dawn in everything-is-awesome-ness for America, we note that insiders at Goldman Sachs sold $205 million of stock since Nov. 8, company filings show.
That’s three times more than the group has sold in any month for at least five years, data compiled by Bloomberg show.
Not a bad week for Cohn, Blankfein, and Viniar…
And since then, as the bank’s stock prices have soared, despite lackluster earnings expectations and a yield curve that did not steepen (pumping up NIM)…
The Wall Street Journal reports,bankers sold nearly $100 million worth of stock since the presidential election, more than in that same period in any year over the past decade…
The share sales occurred as financial stocks soared since Nov. 9 on expectations of lighter regulation, lower taxes and pro-growth economic policies. The KBW Nasdaq Bank index is up nearly 20% since Donald Trump’s victory, about triple the gains notched by the broader market.
In addition to the share sales, bank executives have sold another $350 million worth of stock to cover the cost of exercising options, filings show. That is twice the amount sold for that purpose at big banks in the year leading up to the election.
An added bonus: The post-election run-up in share prices gave value to some options that were likely to expire worthless. At Goldman Sachs Group Inc., for instance, the postelection bounce turned half a billion dollars worth of stock options into winners—some just days before they were set to expire.
They are all doing it…
Further selling may be in store, and not all big banks have filed reports on selling by all their top executives.
What’s more, bank employees typically can’t sell shares or exercise options in the run-up to earnings reports. The big banks finished posting their latest round of earnings last week, meaning employees will now in most cases be free to sell.
Those sales won’t be as apparent, though. Banks only have to disclose trades for a handful of top executives, although some rank-and-file employees are paid largely in stock and options.
So who is the sucker at this table?
Dick Bove gets it… “banks won’t be able to hold on to the earnings boost they get from higher interest rates. The hole in the bottom of the piggy bank, as he described it, would be that higher rates would also hurt the value of financial assets held by the bank, thus leaking out any benefits from increasing borrowing costs.”
END
Dave Kranzler is our resident expert on IBM. He explains why this company is a dinosaur and their reported “increase” in earnings was due to a dubious small tax rate:
(courtesy Dave Kranzler/IRD)
Why I Just Shorted IBM
IBM stock has spiked up Friday, yesterday and today because the Company released Q4 and full year earnings which “beat” the Street estimates – by design and by the heavy application of GAAP earnings management.
But here’s the facts: 1) Revenues year over year for the full year dropped 5.9%; quarter over quarter they dropped 1.3% ; this was the 5th year in a row of annual declines and the 19th quarter in a row of year over year quarterly declines; 2) gross and operating margins continue to shrink; pre-tax earnings (this is important) plunged, literally plunged, 22.7% for 2016 vs. 2015; 3) long term debt increased 3.5% year over year – it was 43.4% of revenues in at the end of 2016 vs. 40.8% of revenues at the end of 2015; 4) cash generated by operations (from the statement of cash flows) plunged 49.3% in Q4 2016 vs. Q4 2015 – it dropped 2.3% for the full year (see below for significance); 5) despite the heavy application fo GAAP management, net income dropped 10% in 2016, with a small quarter over quarter net income gain of 1%, which would have been a decline if IBM had not applied subjective GAAP manipulations.
With regard to IBM’s liberal application of GAAP earnings management techniques, the Company arbitrarily applied a 9.6% “effective” tax rate in Q4 2016 vs. the 12.5% utilized in Q4 2015. The Company claimed a 3.6% GAAP tax rate for 2016 vs. 16.2% in 2015. Manipulating the “effective” GAAP tax rate is the very first lesson taught in any high quality forensics accounting class. I give IBM an A+ for its maneuvers in this regard. But the “devil in the details” and fact that the cash generated from operations plunged 49% quarter over quarter should raise a huge red flag for any financial analyst (Wall Street pimps of course will turn a blind eye to that glaring financial “tumor”).
The stock popped today on IBM’s announcement that hit would hire 25,000 people in the U.S. in an obvious maneuver to avoid the stock-deadly “Trump tweet.” However, the Company has continued to maintain on analyst conference calls that the hiring is part of its normal operations and should not be differentiated from its cost-cutting layoff plans. But the hedge fund algos only care about the 25k hiring headlines.
Interestingly, IBM heavily promoted the success of its cloud business and artificial intelligence business, the revenues from which increased 13% in 2016. But this business can not be very profitable, otherwise IBM’s gross, operating and pre-tax net margins would not have dropped. This achievement is less than dubious.
Additionally, 20% of IBM’s revenues are derived from its global business services unit. As Trump escalates the trade war with the rest of the world, specifically China/Asia, this unit’s revenues, which dropped 4.1% quarter over quarter, will get hit even harder.
IBM is an American corporate dinosaur that is dying a slow, painful death from terminal business cancer. The Company has done well to survive this long. Amazon and Oracle have ignited a pricing war in the cloud space that will eat IBM’s cloud business alive. The cloud business is quickly become a highly commoditized product with no limit to capacity constraints and almost zero pricing power or real product differentiation. It’s quite similar to the fiber optic business that soared then crashed and burned last decade.
IBM’s current legacy, like most large corporations – US corporate debt has tripled since 2006 and is at record levels – is issuing debt to buy-back shares and skimp on payments into its pension in order to generate GAAP net income. It’s an American tragedy in the making. The stock market is historically overvalued now and is set up for a big sell-off, which I believe will occur this year. While the Dow and SPX have been flirting with record all-time highs, IBM sits 18.6% below its all-time high reached in 2013. It was IBM’s turn to be used as prop for today’s Dow rally, as IBM has been one of biggest contributors to today’s Dow gains. As I’ve shown above, there has been zero fundamental factors behind IBM’s stock move over the last three days.
This is the type of analysis that accompanies my weekly Short Seller’s Journal. If you would like to try it, you can subscribe using this link: Short Seller’s Journal subscription. I provide my own market analysis in which I remove “alternative facts” from the weekly economic reports. I also provide short-sell ideas, including suggestions for using options.
end
That that about does it for tonight
I will see you tomorrow night
H
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