GOLD: $1220.40 UP $2.40
Silver: $15.92 DOWN 18 cent(s)
Closing access prices:
Gold $1227.00
silver: $16.10
SHANGHAI GOLD FIX: FIRST FIX 10 15 PM EST (2:15 SHANGHAI LOCAL TIME)
SECOND FIX: 2:15 AM EST (6:15 SHANGHAI LOCAL TIME)
SHANGHAI FIRST GOLD FIX: $1236.89 DOLLARS PER OZ
NY PRICE OF GOLD AT EXACT SAME TIME: $1228.10
PREMIUM FIRST FIX: $8.79
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
SECOND SHANGHAI GOLD FIX: $1244.88
NY GOLD PRICE AT THE EXACT SAME TIME: $1235.85
Premium of Shanghai 2nd fix/NY:$9.03
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
LONDON FIRST GOLD FIX: 5:30 am est $1235.20
NY PRICING AT THE EXACT SAME TIME: $1235.80
LONDON SECOND GOLD FIX 10 AM: $1220.30
NY PRICING AT THE EXACT SAME TIME. $1220.30
For comex gold:
JULY/
NOTICES FILINGS TODAY FOR APRIL CONTRACT MONTH: 1 NOTICE(S) FOR 100 OZ.
TOTAL NOTICES SO FAR: 39 FOR 3900 OZ (.1213 TONNES)
For silver:
JULY
397 NOTICES FILED TODAY FOR
1,985,000 OZ/
Total number of notices filed so far this month: 1601 for 8,005,000 oz
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
end
Let us have a look at the data for today
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
In silver, the total open interest SURPRISINGLY ROSE BY 2485 contract(s) UP to 203,541 DESPITE THE DRUBBING IN PRICE THAT SILVER TOOK WITH FRIDAY’S RAID (DOWN 47 CENT(S) ON TOP OF THE CONSTANT TORMENT THESE PAST FEW WEEKS.
In ounces, the OI is still represented by just OVER 1 BILLION oz i.e. 1.0175 BILLION TO BE EXACT or 145% of annual global silver production (ex Russia & ex China).
FOR THE NEW FRONT MAY MONTH/ THEY FILED: 397 NOTICE(S) FOR 1,985,000 OZ OF SILVER
In gold, the total comex gold SURPRISINGLY FELL BY ONLY 3,356 CONTRACTS DESPITE THE HUGE FALL IN THE PRICE OF GOLD ($20.80 with FRIDAY’S TRADING). The total gold OI stands at 457,201 contracts.
we had 1 notice(s) filed upon for 100 oz of gold.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
With respect to our two criminal funds, the GLD and the SLV:
GLD:
We had A HUGE change in tonnes of gold at the GLD: A MASSIVE WITHDRAWAL OF 5.62 TONNES WHICH MOST LIKELY WAS USED IN THE RAID THIS MORNING.
Inventory rests tonight: 840.67 tonnes
.
SLV
Today: STRANGE: NO CHANGE IN SILVER INVENTORY/INVENTORY RESTS AT 339.605 MILLION OZ
Please note the difference between gold and silver
end
.
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver SURPRISINGLY ROSE BY 2,485 contracts UP TO 203,541 (AND now A LITTLE CLOSER FROM THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787), DESPITE THE MAMMOTH FALL IN PRICE FOR SILVER WITH FRIDAY’S TRADING (DOWN 47 CENTS).We LOST NOBODY AS EVERYBODY remains firm and determined.
(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
i)Late TUESDAY night/WEDNESDAY morning: Shanghai closed UP 24.33 POINTS OR 0.76% / /Hang Sang CLOSED UP 132.96 POINTS OR 0.52% The Nikkei closed UP 49.28 POINTS OR 0.25%/Australia’s all ordinaires CLOSED DOWN 0.32%/Chinese yuan (ONSHORE) closed DOWN at 6.8020/Oil DOWN to 46.26 dollars per barrel for WTI and 48.86 for Brent. Stocks in Europe OPENED MOSTLY IN THE GREEN,, Offshore yuan trades 6.8026 yuan to the dollar vs 6.8020 for onshore yuan. NOW THE OFFSHORE IS A TOUCH WEAKER TO THE ONSHORE YUAN/ ONSHORE YUAN WEAKER (TO THE DOLLAR) AND THE OFFSHORE YUAN IS ALSO WEAKER TO THE DOLLAR AND THIS IS COUPLED WITH THE STRONGER DOLLAR. CHINA IS NOT VERY HAPPY TODAY
3a)THAILAND/SOUTH KOREA/NORTH KOREA
i)NORTH KOREA
As I stated last time, I guess the Kim has nothing better to do with his time than to launch missiles. He launched a ICBM which traveled around 940 km and landed in Japan’s economic zone. Talks with Trump and China will be interesting this week.
( zerohedge)
ii)Donald Trump responds to North Korea with my line: “does Kim have anything better to do with his life”?
( zero hedge)
iii)Trump is now very angry: China’s trade with North Korea advances 40% in the first quarter instead of contracting
( zero hedge)
iv)then late in the afternoon: Ambassador Haley stated today that the uSA will use the military in North Korea if it must:
( zero hedge)
v)Do not like the looks of this: Russia and China rule out military action as well as not economically strangling North Korea
( zero hedge)
b) REPORT ON JAPAN
c) REPORT ON CHINA
This is interesting: the POBC hires blockchain engineers who will oversee the creation of a digital yuan. For what purpose?
( zerohedge)
4. EUROPEAN AFFAIRS
i)ITALY
This is a huge problem: a massive migrant influx bombards Italian ports mainly from Libya. The Italians ask for help from other European nations but that will come to naught. If you look at the map, the shortest distance to a European port is Italy with Greece and Spain and France at a much greater distance
( zero hedge)
ii)ITALY
No wonder Italy is furious as Austria throw roadblocks to prevent migrants from entering Austria:
( zero hedge)
iii)Interesting: Italy is now openly discusses leaving the EU
( Mish Shedlock/Mishtalk)
iv)When will public official learn: you cannot undergo derivative contracts with corrupt bankers
( Reuters)
v)UK/EUROPE
And I bet you thought that subprime lending in the auto sector was only reserved for the USA. Guess again: the UK and Europe also have undisciplined auto lending:
( zero hedge)
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i)Saudi Arabia/Qatar:
Qatar has delivered its response to Saudi Arabia. German Finance Minister Gabriel who has seen the response believes that Saudi Arabia will state that “it is not enough” and thus they may escalate the embargoes
( zero hedge)
ib)the blockade continues after the Arab states slam the “negative” response from Qatar to their ultimatum
( zero hedge)
(courtesy Whitney Webb/AntiMedia.org)
6 .GLOBAL ISSUES
7. OIL ISSUES
8. EMERGING MARKET
i)SOUTH AFRICA
This is not good: South Africa is seeking to nationalize its Central Bank. Remember that this Central bank is private and has shareholders. The Rand plummeted on this news:
( zero hedge)
ii)My goodness: haven’t they learned? South Africa President now proposes land expropriation without compensation
Rhodesia all over again.
( zero hedge)
9. PHYSICAL MARKETS
ii)Hugo addresses Russians about the use of a Silver Rouble. He also highlights to them the manipulation of silver and gold by western authorities( Hugo Salinas Price/GATA)
iii)Citizens of India will now resort to more smuggling to offset the higher GST on gold and silver
( Reuters)
iv)The boys are finally picking up potential fraud in the metals trading as they are uncovering fraudulent warehouse receipts. If they looked close enough they will find mammoth fraud in gold and silver as well
( Mark Burton/Bloomberg/GATA)
10. USA Stories
i)the debt ceiling is going to be a huge problem as the Republicans are split into 3:
1 tea party member (slash spending/entitlements
2 moderates( tax cuts for everybody including the wealthy/increase military spending
3. war mongers (John McCain ) /spend massive amounts of money of defense and act war like
there is no way that can be an agreement on the debt ceiling
(zerohedge)
ii)Tuesday
Two states have signed their budgets for 2018 but we still have 2 major states that did not sign:
- Illinois
- Connecticut
plus another 8
( zerohedge)
iii)Trouble in Illinois, they raise Illinois tax rate by 32%/the Governor vetoes the raise and then the senate overrides it
( zero hedge)
iiib)Wow!! the scramble to pass the budget has been for naught:Moody’s has put the State of Illinois on review for a downgrade because of their failure to pass a budget on time and also because they do not have consensus on how to balance their budget. Once a downgrade is initiated all the muni funds must dump Illinois bonds and thus their cost skyrocket
( zero hedge)
iv)Carmageddon continues in the uSA. Despite huge incentives to get people to buy cars plus generous financing terms have failed to stem the auto bleeding
( zerohedge)
iv b) David Stockman continues on the same subject as above
(David Stockman)
v)Another hard data report showing factory orders tumbling. We are now getting a clear picture: hard data shows the USA economy in freefall. The soft data reports are fairytales.
( zero hedge)
vi)OH OH!! MORE HARD DATA. The traffic flow into North American stores were 8.1% lower leading up to the 4th of july holiday weekend. This is not a good harbinger for retail sales growth
(courtesy zero hedge)
Let us head over to the comex:
The total gold comex open interest SURPRISINGLY FELL BY ONLY 3,356 CONTRACTS down to an OI level of 457,201 DESPITE THE MAMMOTH FALL IN THE PRICE OF GOLD ($20.80 with FRIDAY’S trading). An open interest of around 390,000 to 400,000 is core and nothing will move these guys from their contracts.
We are now in the contract month of JULY and it is one of the POORER delivery months of the year. .
The non active July contract LOST 30 contracts to stand at 74 contracts. We had only 8 notices filed on Friday morning, so we lost 22 contracts for an additional 2200 oz that will not stand in this non active month of July. Thus 22 EFP notices were given which gives the long holder a fiat bonus plus a futures contract for delivery and most likely these are London based forwards. The contracts are private so we do not get to see all the particulars. The next big active month is August and here the OI LOST 4736 contracts DOWN to 288,401, as the bankers trying to keep this month down to manageable size. The next non active contract month is September and here they picked up another 105 contracts to stand at 185. The next active delivery month is October and here we gained 1629 contracts up to 17,532. October is the poorest of the active gold delivery months as most players move right to December.
We had 1 notice(s) filed upon today for 100 oz
We are now in the next big active month will be July and here the OI LOST 323 contracts DOWN to 1,201. We had 326 notices served on Friday so we only gained 3 notices or an additional 15,000 oz will stand at the comex, and 0 EFP contracts were issued which entitles them to receive a fiat bonus and a future delivery contract (which no doubt is a London based forward).
The month of August, a non active month lost 58 contracts to stand at 369. The next big active delivery month for silver will be September and here the OI already jumped by another 4078 contracts up to 157,195.
The line in the sand is $18.50 for silver and again it has been defended by the criminal bankers. Once this level is pierced, the monstrous billion oz of silver shorts will blow up. The bankers are defending the Alamo with their last stand at the $18.50 mark. THE NEW RECORD HIGH IN OPEN INTEREST WAS SET FRIDAY APRIL 21/2017 AT: 234,787.
As for the July contracts:
Initial amount that stood for silver for the July 2016 contract: 14.785 million oz
Final standing JULY 2016: 12.370 million with the difference being EFP’s taking delivery in London. Thus we are basically on par to what happened a year ago as to the total amount of silver ounces standing.
We had 397 notice(s) filed for 1,985,000 oz for the June 2017 contract
VOLUMES: for the gold comex
Today the estimated volume was 365,952 contracts which is excellent/
Yesterday’s confirmed volume was 324,316 contracts which is excellent
volumes on gold are STILL HIGHER THAN NORMAL!
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 oz
|
No of oz served (contracts) today |
1 notice(s)
100 OZ
|
No of oz to be served (notices) |
73 contracts
7300 oz
|
Total monthly oz gold served (contracts) so far this month |
39 notices
3,900 oz
.1213 tonnes
|
Total accumulative withdrawals of gold from the Dealers inventory this month | NIL oz |
Total accumulative withdrawal of gold from the Customer inventory this month | NIL oz |
Today, 0 notice(s) were issued from JPMorgan dealer account and 12 notices were issued from their client or customer account. The total of all issuance by all participants equates to 1 contract(s) of which 0 notices were stopped (received) by j.P. Morgan dealer and 0 notice(s) was (were) stopped/ Received) by j.P.Morgan customer account.
Silver | Ounces |
Withdrawals from Dealers Inventory | nil |
Withdrawals from Customer Inventory |
nil oz
|
Deposits to the Dealer Inventory |
602,295.92 oz
Brinks
|
Deposits to the Customer Inventory |
824,107.160 oz
Scotia
|
No of oz served today (contracts) |
397 CONTRACT(S)
(1,985,000 OZ)
|
No of oz to be served (notices) |
804 contracts
( 4,020,000 oz)
|
Total monthly oz silver served (contracts) | 1601 contracts (8,005,000 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 | 178,970.1 oz |
NPV for Sprott and Central Fund of Canada
Sprott’s hostile 3.1 billion bid to take over Central Fund of Canada
(courtesy Sprott/GATA)
Sprott makes hostile $3.1 billion bid for Central Fund of Canada
Submitted by cpowell on Thu, 2017-03-09 01:19. Section: Daily Dispatches
From the Canadian Press
via Canadian Broadcasting Corp. News, Toronto
Wednesday, March 8, 2017
http://www.cbc.ca/news/canada/calgary/sprott-takeover-bid-central-fund-c…
Toronto-based Sprott Inc. said Wednesday it’s making an all-share hostile takeover bid worth $3.1 billion US for rival bullion holder Central Fund of Canada Ltd.
The money-management firm has filed an application with the Court of Queen’s Bench of Alberta seeking to allow shareholders of Calgary-based Central Fund to swap their shares for ones in a newly-formed trust that would be substantially similar to Sprott’s existing precious metal holding entities.
The company is going through the courts after its efforts to strike a friendly deal were rebuffed by the Spicer family that controls Central Fund, said Sprott spokesman Glen Williams.
“They weren’t interested in having those discussions,” Williams said.
Sprott is using the courts to try to give holders of the 252 million non-voting class A shares a say in takeover bids, which Central Fund explicitly states they have no right to participate in. That voting right is reserved for the 40,000 common shares outstanding, which the family of J.C. Stefan Spicer, chairman and CEO of Central Fund, control.
If successful through the courts, Sprott would then need the support of two-thirds of shareholder votes to close the takeover deal, but there’s no guarantee they will make it that far.
“It is unusual to go this route,” said Williams. “There’s no specific precedent where this has worked.”
Sprott did have success last year in taking over Central GoldTrust, a similar fund that was controlled by the Spicer family, after securing support from more than 96 percent of shareholder votes cast.
The firm says Central Fund’s shares are trading at a discount to net asset value and a takeover by Sprott could unlock US$304 million in shareholder value.
Central Fund did not have any immediate comment on the unsolicited offer. Williams said Sprott had not yet heard from Central Fund on the proposal but that some shareholders had already contacted them to voice their support.
Sprott’s existing precious metal holding companies are designed to allow investors to own gold and other metals without having to worry about taking care of the physical bullion.
end
And now the Gold inventory at the GLD
July 5/A MASSIVE 5.62 TONNES OF GOLD LEFT THE GLD AND NO DOUBT WAS USED IN THE RAID THIS MORNING/INVENTORY REST
July 3/ A MASSIVE 7.37 TONNES OF GOLD LEAVE THE GLD/INVENTORY RESTS AT 846.29 TONNES
June 30/no change in gold inventory at the GLD/Inventory rests at 853.66 tonnes
June 29/no change in inventory at the GLD/inventory rests at 853.66 tonnes
June 28/no change in inventory at the GLD/Inventory rests at 853.66 tonnes
June 27.2017/a deposit of 2.64 tonnes into the GLD/inventory rests at 853.66 tonnes
June 26/a withdrawal of 2.66 tonnes from the GLD and this gold no doubt was part of the raid/Inventory rests at 851.02
June 23/no change in gold inventory at the GLD/Inventory rests at 853.68 tonnes
June 22/no change in gold inventory at the GLD/Inventory rests at 853.68 tonnes
June 21/no change in gold inventory at the GLD/Inventory rests at 853.68 tonnes
June 20/no change in gold inventory at the GLD//Inventory rests at 853.68 tonnes
June 19/NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 853.68 TONNES
June 16/no changes in gold inventory at the GLD/Inventory rests at 853.68 tonnes
June 15/ a monstrous “paper” withdrawal of 13.32 tonnes/Inventory rests at 853.68 tonnes
June 14./NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 867.00 TONNES
June 13. No change in gold inventory at the GLD/Inventory rests at 867.00 tonnes
June 12/No change in gold inventory at the GLD/Inventory rests at 867.00 tonnes
June 9/no change in inventory at the GLD/Inventory rests at 867.00 tonnes
June 8/AN ADDITION OF 3.07 TONNES OF GOLD ADDED TO THE GLD/INVENTORY RESTS AT 867.00 TONNES
June 7 a huge change in inventory/a deposit of 13.93 tonnes/inventory rests at 864.93 tonnes
June 6/ no changes in inventory at the GLD/Inventory remains at 851.00 tonnes
June 5.2017/no changes at the GLD/Inventory remain at 851.00 tonnes
June 2/2017/a huge deposit of 3.55 tonnes of gold into the GLD/Inventory rests at 851.00 tonnes
June 1/NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 847.45 TONNES
May 31./ no change in gold inventory at the GLD/Inventory rests at 847.45 tonnes
May 30/no change in gold inventory at the GLD/Inventory rests at 847.45 tonnes
May 26./no change in inventory at the GLD/Inventory rests at 847.45 tonnes
May 25./no change in inventory at the GLD/Inventory rests at 847.45 tonnes
May 24/no change in inventory at the GLD/inventory rests at 847.45 tonnes
May 23/a paper withdrawal of 5.03 tonnes of gold from the GLD/Inventory rests at 847.45 tonnes
May 22/A DEPOSIT OF 1.77 TONNES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 852.48 TONNES
May 19/NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 850.71 TONNES
May 18/a withdrawal of 1.18 tonnes of gold from the GLD/Inventory rests at 850.71
May 17/no change in the GLD inventory/inventory rests at 851.89 tonnes
end
Now the SLV Inventory
July 5/STRANGE! NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 339.605 MILLION OZ
July 3/strange! with the huge whacking of silver we got an increase of 379,000 oz into inventory.
June 30/no change in silver inventory at the SLV/Inventory rests at 339.226 million oz
June 29/no change in silver inventory at the SLV/Inventory rests at 339.226 million oz/
June 28/ a small withdrawal of 662,000 oz form the SLV/Inventory rests at 339.226 million oz/
June 27/no change in the silver inventory at the SLV/Inventory rests at 339.888 million oz/
June 26/no change in the silver inventory at the SLV/Inventory rests at 339.888 million oz/
June 23/no change in silver inventory at the SLV/Inventory rests at 339.888 million oz
June 22/ a big change; a huge deposit of 2.175 million oz into the SLV/Inventory rests at 339.888 million oz
June 21/no change in silver inventory at the SLV/inventory rests at 337.713 million oz
June 20/a deposit of 1.513 million oz/inventory rests at 337.713 million oz/.
June 19/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 336.200 MILLION OZ
June 16/no changes in inventory at the SLV/inventory rests at 336.200 million oz
June 15/ a massive “paper withdrawal” of 3.405 million oz of silver/Inventory rests at 336.200 million oz/
June 14/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 339.605 MILLION OZ/
June 13/no change in silver inventory at the SLV/Inventory rests at 339.605 million oz
June 12/no change in silver inventory at the SLV/Inventory rests at 339.605 million oz/
June 9/no change in silver inventory at the SLV/Inventory rests at 339.605 million oz/
June 8/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 339.605 MILLION OZ/
June 7/no change in inventory at the SLV/inventory rests at 339.605 million oz/
June 6/no change in inventory at the SLV/Inventory rests at 339.605 million oz.
June 5/a huge change at the SLV/a withdrawal of 1.371 million oz /inventory rests at 339.605 million oz/
June 2/no change in silver inventory at the SLV/Inventory rests at 340.976 million oz/
June 1/NO CHANGE IN INVENTORY AT THE SLV/INVENTORY RESTS AT 340.976 MILLION OZ
May 31./ no change in silver inventory at the SLV/inventory rests at 340.976 million oz/
May 30/no change in silver inventory at the SLV/inventory rests at 340.976 million oz
May 26/another paper withdrawal of 946,000 oz of silver from the SLV with silver rising/inventory rests at 340.976 million oz
May 25/no change in silver inventory at the SLV/Inventory rests at 341.922 million oz
May 24./a “paper” withdrawal of 1.893 million oz from the SLV/inventory rests tonight at 341.922 million oz
May 23/no change in silver inventory at the SLV/inventory rests at 343.815 million oz
May 19/no change in silver inventory at the SLV/Inventory rests at 343.815 million oz.
may 18/2017/another big deposit of 1.42 million oz added to the SLV/inventory rests at 343.815 million oz.
may 17/no change in silver inventory at the SLV/Inventory rests at 342.395 million oz/
-
Indicative gold forward offer rate for a 6 month duration
+ 1.11% -
+ 1.40%
end
Major gold/silver trading/commentaries for WEDNESDAY
GOLDCORE/BLOG/MARK O’BYRNE.
GOLD/SILVER
Buy Gold Near $1,200 “As Insurance” – UBS Wealth
– Buy gold near $1,200 “as insurance” – UBS Wealth
– UBS believe investors should take advantage of gold’s first monthly decline
– “We like the insurance qualities for gold” on uncertainty
– Strong demand, weak output and low dollar to support
– Warning as North Korea tests intercontinental ballistic missile
– Launch of ICBCM is a “new escalation of the threat” and revives geo-political risks
– Syria, Qatar, Saudi, Israel, Iran risks mean Middle East remains powder keg
– Academic research points to gold’s role as a safe haven
– Gold as Safe Haven a must read for investors
Editor: Mark O’Byrne
Buy gold as insurance against Kim’s ‘gift giving’
Yesterday North Korea sent the US a ‘package of gifts’ for Independence Day.
Unsurprisingly the successfully tested and launched intercontinental ballistic missile (ICBM) was not well received. US Secretary of State Rex Tillerson called the move a “new escalation of the threat” to the U.S. and its allies and that “global action is required to stop a global threat.”
As the US and South Korea began military exercises in response to North Korea’s gift giving ceremony, safe haven assets rose and gold made a small rebound in the face of these escalating geopolitical concerns. Gold tends to rise on various uncertainties – whether financial, economic or geopolitical.
UBS Group AG’s wealth management unit picked up on this and said such uncertainties made a case to buy gold for its insurance qualities as reported by Bloomberg and others.
UBS Group’s comments will not come as a surprise to those who buy gold bullion as they believe in gold for it’s insurance and safe haven qualities. This ‘gut instinct’ and the lessons of history have recently been bolstered by much independent academic research (see below).
Research by academics and independent asset allocation experts alike is increasingly showing gold’s insurance and safe haven qualities. In this increasingly uncertain world, these qualities are more important than ever.
Gold is insurance against heightened uncertainty – not just US risks
It is often said that the first rule to investing is preservation of capital. For hundreds of years gold has been the insurance of choice which aids with regard this important first rule.
Anecdotal and academic research into asset allocations with gold provides evidence of the metal working to hedge investment risk and to protect capital. For example, 2010 research carried out by Dr Brian Lucey and Dr Baur found “gold is a hedge against stocks on average and a safe haven in extreme stock market conditions.”
Currently we are in an age of heightened uncertainty. Not since the Cold War has it felt like so many countries were in stand-off against one another.
It is in times such as these that investors recognise we hold gold for both its insurance qualities and because during high risk political periods and weak stock markets gold has positively boosted overall returns.
This was shown in 2016 research carried out by Dr Lucey and Sile Le, which found that
“Political risk is found to be a positive and robust determinant across countries when precious metals are safe haven against stock and bond markets tail events.”
UBS’ advice to buy gold due to it’s role as a safe haven came on the same day as a successful nuclear missile test but they were mainly in reference to the ongoing development and growing uncertainty in the US about the political and economic outlook.
The US economy has, for obvious reasons, been the focus of gold market commentary for many years. At the moment analysts are looking at US job numbers, inflation rates, FOMC decisions and Trump’s impact as president. This is a somewhat blinkered, narrow form of analysis.
The Federal Reserve, US politics and the US economy are important drivers of gold’s price and role as a safe haven. But they are not the only drivers. Tail events which can negatively impact markets and risk assets such as stocks and bonds are usually rare but when they do occur they have a significant impact on the value of your investments and pension.
Unfortunately not only are these tail events becoming more frequent but they are also becoming more difficult to prepare for as the world becomes a far more fragmented and volatile place.
Much of the media tends to paint a picture of a world which is very US economy-centric and the U.S. remains the hegemon. This is no longer the case.
North Korea sits and taunts the US. The isolated nation may listen to Russia and China, but neither of them are particularly enamoured with the US right now. In the meantime you have the major GCC countries threatening Qatar with both political and economic sanctions which could lead to both humanitarian, economic and energy crises in the region.
This is merely the latest development in a region which has its own terrorism and nuclear concerns and a potential clash between Israel and Iran is another fuse which just needs a little spark to ignite the powder keg that is the Middle East.
Gold is the requisite insurance you hope you won’t need
There is a significant and growing consensus among academics, independent researchers and asset allocation experts that gold acts a hedging instrument and a safe haven asset. Read about the increasing consensus in academic research about gold’s role as a safe haven asset in our popular guide.
Understandably this might have been difficult to understand given gold’s poor performance in the last month but investors should look at this like they would any other form of insurance.
To own precious metals in bullion coin and bar format is to own a form of financial insurance.
The majority of people in the West realise the benefit of holding insurance for their car, their health and even their pets. They may complain about paying higher premiums but they pay them.
Given the price fall in recent days, prudent buyers are accumulating the insurance of physical gold at ‘lower premiums’.
This is because they see the necessity of insurance as it is there for them when a risk comes to fruition. They are not annoyed when they buy insurance and then do not need to use it instead they are happy in the knowledge that the security and peace of mind of owning insurance was there to be used should they need to.
Owning gold and the precious metals should be seen in a similar light. When you invest in a precious metal you will not receive an income from it and you will have to pay a slight premium for this added financial security.
Owning gold bullion as an investment or in your pension is simply the price you pay for proven financial insurance.
News and Commentary
Yen, Gold Rise on Korea Worry; China Stocks Bounce (Bloomberg.com)
Asia shares cowed by Korea tensions, await Fed minutes (Reuters.com)
Illinois remains on brink of becoming first state rated junk (MarketWatch.com)
Miners lend support as rate-sensitive stocks drag Europe (Reuters.com)
India tax hike could boost illegal bullion, jewelry sales (Reuters.com)
Base Metals Trading Has a Paper Fraud Problem (Bloomberg.com)
Car Sales Have A Long Way To Fall (DollarCollapse.com)
When 47 tonnes of gold was in the middle of road (IndiaTimes.com)
Gold Prices (LBMA AM)
05 Jul: USD 1,221.90, GBP 945.87 & EUR 1,078.45 per ounce
04 Jul: USD 1,224.25, GBP 947.32 & EUR 1,078.81 per ounce
03 Jul: USD 1,235.20, GBP 952.09 & EUR 1,085.00 per ounce
30 Jun: USD 1,243.25, GBP 957.43 & EUR 1,090.83 per ounce
29 Jun: USD 1,246.60, GBP 959.88 & EUR 1,093.14 per ounce
28 Jun: USD 1,251.60, GBP 976.25 & EUR 1,101.91 per ounce
27 Jun: USD 1,250.40, GBP 980.31 & EUR 1,111.36 per ounce
Silver Prices (LBMA)
05 Jul: USD 15.95, GBP 12.36 & EUR 14.09 per ounce
04 Jul: USD 16.15, GBP 12.48 & EUR 14.23 per ounce
03 Jul: USD 16.48, GBP 12.72 & EUR 14.49 per ounce
30 Jun: USD 16.47, GBP 12.69 & EUR 14.44 per ounce
29 Jun: USD 16.83, GBP 12.98 & EUR 14.76 per ounce
28 Jun: USD 16.78, GBP 13.08 & EUR 14.78 per ounce
27 Jun: USD 16.66, GBP 13.07 & EUR 14.79 per ounce
Recent Market Updates
– UK House Prices ‘On Brink’ Of Massive 40% Collapse
– Gold Up 8% In First Half 2017; Builds On 8.5% Gain In 2016
– Pensions Timebomb In America – “National Crisis” Cometh
– London Property Bubble Bursting? UK In Unchartered Territory On Brexit and Election Mess
– Shrinkflation – Real Inflation Much Higher Than Reported
– Goldman, Citi Turn Positive On Gold – Despite “Mysterious” Flash Crash
– Worst Crash In Our Lifetime Coming – Jim Rogers
– Go for Gold – Win a beautiful Gold Sovereign coin
– Only Gold Lasts Forever
– Your Future Wealth Depends on what You Decide to Keep and Invest in Now
– Inflation is no longer in stealth mode
– James Rickards: Gold Will Start Heading Higher On “Dwindling” Supply
– Billionaires Invest In Gold
Despite lousy sentiment, gold and silver are doing well this year, Turk tells KWN
Submitted by cpowell on Mon, 2017-07-03 20:14. Section: Daily Dispatches
4:15p ET Monday, July 3, 2017
Dear Friend of GATA and Gold:
Gold and silver have done well in the first half of the year despite the terrible sentiment in the monetary metals sector, GoldMoney founder and GATA consultant James Turk tells King World News today, adding that both the monetary meals are in backwardation in the futures markets. Turk’s comments are posted at KWN here:
http://kingworldnews.com/james-turk-worried-todays-gold-silver-smash-tak…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
END
Hugo addresses Russians about the use of a Silver Rouble. He also highlights to them the manipulation of silver and gold by western authorities
(courtesy Hugo Salinas Price/GATA)
Russian academic and political leaders listen to Hugo Salinas Price about silver
Submitted by cpowell on Mon, 2017-07-03 20:42. Section: Daily Dispatches
4:48p ET Monday, July 3, 2017
Dear Friend of GATA and Gold:
Accepting an academic honor last week at a ceremony at the Russian embassy in Mexico City, Hugo Salinas Price, president of the Mexican Civic Association for Silver, argued that Mexico’s central bank should purchase a portion of the country’s silver production for monetary reserves just as China is buying the whole of that country’s gold production. Salinas Price discloses that he has urged Russia to issue a silver ruble in anticipation of replacement of the U.S. dollar standard with a metallic money standard in the world financial system. Salinas Price also discusses the suppression of gold and silver prices by a cabal of U.S.-led central banks and financial institutions.
His address is headlined “Silver and the Great Future of Mexico,” and, important as the address is, it may be more important still for showing that academic and political leaders in Russia are listening to him. It is posted at the association’s internet site, Plata.com, here:
http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=3…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
END
Citizens of India will now resort to more smuggling to offset the higher GST on gold and silver
(courtesy Reuters)
Tax hike in India could boost illegal bullion, jewelry sales and smuggling
Submitted by cpowell on Tue, 2017-07-04 12:34. Section: Daily Dispatches
By Rajendra Jadhav
Reuters
Tuesday, July 4, 2017
MUMBAI — A hike in taxes on gold sales in India could stoke under-the-counter buying and drive up appetite for precious metal smuggled into the country, where millions of people store big chunks of their wealth in bullion and jewelry.
As part of a new nationwide sales tax regime that kicked in on July 1, the goods and services tax on gold has jumped to 3 percent from 1.2 percent previously, with traders and buyers saying the move will likely force more transactions into the black market.
“Three percent is too much. I preferred to buy without receipts. The jeweler did not have any problem,” said a middle-aged buyer, who declined to be identified after making purchases on Monday at the country’s biggest bullion market, Zaveri Bazaar in Mumbai.
Smaller shops could be more inclined to sell without receipts, potentially hitting sales at big jewelers that keep to the rules, said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city Kolkata.
“Just to save 1 percent, some customers were earlier buying gold without receipts. With the 3-percent GST, now many more will be tempted to make unofficial purchases from small jewelers,” Ajmera said.
The tax hike could also encourage more smuggling into the world’s second biggest gold consumer, which buys almost all its bullion abroad. …
… For the remainder of the report:
http://www.reuters.com/article/us-india-gold-tax-idUSKBN19P0M3
END
The boys are finally picking up potential fraud in the metals trading as they are uncovering fraudulent warehouse receipts. If they looked close enough they will find mammoth fraud in gold and silver as well
(courtesy Mark Burton/Bloomberg/GATA)
Of course this would never happen with gold — or no one would ever dare to ask
Metals Trading Has a Paper Fraud Problem
By Mark Burton
Bloomberg News
Monday, July 3, 2017
For all the high-tech wizardry of modern financial markets, there’s one corner of the commodity world that still depends almost entirely on printed paper — making it an easy target for crooks.
Buyers and sellers of base metals like copper, aluminum, and nickel use documents known as warehouse receipts to prove every pound involved in a transaction actually exists and who owns it. The receipts, from a long list of issuers who often stamp them with holograms and secret codes, have become the linchpin of bank loans backed by the metal as collateral.
But like most pieces of paper, warehouse receipts can be faked, and there are signs that more lenders are being ripped off by crooks exploiting weaknesses in what commodity businesses refer to as trade financing. For the second time since 2014, some banks are facing multimillion-dollar losses after being tricked into making loans secured by goods that didn’t exist. …
… For the remainder of the report:
https://www.bloomberg.com/news/articles/2017-07-03/paper-trail-on-metal-…
END
Your early WEDNESDAY 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 WEAKER 6.8020(DEVALUATION SOUTHBOUND /OFFSHORE YUAN MOVES WEAKER TO ONSHORE AT 6.8026/ Shanghai bourse CLOSED UP 24.33 POINTS OR 0.76% / HANG SANG CLOSED UP 121.96 POINTS OR 0.52%
2. Nikkei closed UP 49.28 POINTS OR 0.25% /USA: YEN RISES TO 113.61
3. Europe stocks OPENED ALL IN THE GREEN ( /USA dollar index RISES TO 96.45/Euro DOWN to 1.1324
3b Japan 10 year bond yield: RISES TO +.092%/ !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 110.06/ 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:: 46.26 and Brent: 48.86
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 DOWN for WTI and DOWN for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund RISES TO +.476%/Italian 10 yr bond yield DOWN to 2.11%
3j Greek 10 year bond yield FALLS to : 5.343???
3k Gold at $1222.50 silver at:16.01 (8:15 am est) SILVER BELOW RESISTANCE AT $18.50
3l USA vs Russian rouble; (Russian rouble DOWN 61/100 in roubles/dollar) 60.03-
3m oil into the 46 dollar handle for WTI and 48 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/GOT A SMALL SIZED DEVALUATION SOUTHBOUND
JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 113.61 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 0.9631 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0952 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/LOWER PARLIAMENT APPROVES BREXIT COMMENCEMENT/ARTICLE 50 COMMENCES MARCH 29/2017
3r the 10 Year German bund now POSITIVE territory with the 10 year RISING to +0.476%
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 2.348% early this morning. Thirty year rate at 2.866% /POLICY ERROR)GETTING DANGEROUSLY HIGH
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks Rebound From Korea Jitters; S&P Flat As Fed Minutes Await; Oil Slides
S&P futures were little changed at 2,425, ignoring the N.Korea tensions of the past two days which will likely be a major topic in the upcoming G-20 summit, as European stocks fluctuate and Asian markets advance. Crude oil fell, snapping the longest winning streak this year, as Russia said it opposed any proposal to deepen OPEC-led production cuts.
Just like Tuesday, it was a session of two halves, with the Yen initially starting the day stronger as military tensions built up in Korean peninsula, and cash Treasuries breaking with a firmer tone as 10-year yield initially fell. Aussie reversed part of Tuesday’s losses despite a drop in Caixin PMI data, and Dalian iron ore 1.6% higher.
“North Korea has rattled markets but central bankers are more important,” said Kathleen Brooks, research director at City Index in London. “While North Korea’s military ambitions are a background threat for markets, we don’t think that this particular geopolitical event is at the stage yet where it will cause a spike in volatility.”
However as the session progressed, gold and the Japanese yen gave up early gains, with both the metal and the currency retreating. At the same time, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, regaining half the losses it saw on Tuesday when North Korea fired a missile into Japanese waters. South Korea’s main index rebounded by 0.36 percent and Japan’s Nikkei ended up 0.25 percent. Shanghai stocks rose more than 1 percent, despite a drop in the Caixin/Markit services purchasing managers’ index (PMI) to 51.6 in June, from 52.8 in May.
Of note in China is the continued aggressive tightening behind the scenes, with the People’s Bank of China refraining from offering funds in open-market operations for a ninth day, effectively draining more cash, in the past two weeks than it had injected from June 1 to June 19 amid quarter-end funding demand. The Chinese central bank has pulled 660b yuan since June 20, more than the 540b yuan it had injected from June 1 to June 19. The PBOC said there’s ample liquidity in the banking system, taking into account lenders’ reserve requirement payments and reverse-repo maturities. Sooner or later this latest tightening episode will hit risk assets and commodities, but not just yet. In fact, China’s 7-day repo rate dropped another 5bps to 2.71%, set for the lowest close since April 14. The overnight repo rate falls 14bps to 2.50%, heading for biggest decline in three monthsm while the cost of one-year interest-rate swaps declines 5bps to 3.42%.
Meanwhile, the dollar rose as U.S. stock futures and Treasuries traded sideways before the FOMC Minutes release today. The euro dropped and European stocks edged higher amid a slew of services data, and as investors await Thursday’s publication of the latest ECB minutes. The return in risk sentiment helped USDJPY push higher through 113.60, the highest since May 16 as EUR/JPY breaks to another YTD high; EUR/USD briefly spiked lower after ECB’s Coeure says the ECB has not been discussing policy changes. Gilts underperform after hawkish commentary from BOE’s Saunders overnight and duration heavy corporate issuance, short-end leads gilt curve steeper. Crude futures sold off on OPEC production concerns and Russian comments (see below) mid-morning amid heavy volume.
European equity markets initially rally from the open, DAX outperforms after Adidas upgrade; gains later fade as oil and gas stocks weigh. The Stoxx Europe 600 Index gained less than 0.1 percent after surging 1.1 percent on Monday. Futures on the S&P 500 Index were little changed. The cash index rose 0.2% Monday in a shortened session before the July 4 holiday.
While aside from FX, there were little notable moves, oil futures dropped 1.7 percent in New York, snapping eight straight sessions of gains. Russia wants to continue with the current deal and any further supply curbs would send the wrong message to the market, according to government officials. The U.S. dollar gained, reducing the appeal of commodities denominated in that currency
While prices have surged during the past week, oil remains in a bear market after concerns that rising global supply will offset output cuts from OPEC and its partners. Libya and Nigeria, exempt from the OPEC-led curbs, accounted for half of the group’s production boost last month, according to data compiled by Bloomberg.
Focus now shifts to the key event on Wednesday, the latest Fed minutes. “The FOMC minutes will be the major macroeconomic highlight as the U.S. returns from the Independence Day break,” Ipek Ozkardeskaya, a market analyst at London Capital Group, wrote in a note. “Lack of details regarding the Fed’s balance sheet policy could further weigh on U.S. yields and the dollar.”
“The more interesting aspect of the minutes is going to be what they have to say about the balance sheet, and in particular, if they give any hints about the time frame,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York.
Should the minutes refer to financial conditions, reiterating comments from Yellen, Fischer and Williams, the market will have to assume that the Fed may be willing to ignore the current inflation undershoot, leaving markets with very little other option than trading closer to the Fed’s own interest rate projections as expressed by the dots, Morgan Stanley strategists say in a note to clients.
A shift towards more hawkish language by several major central banks has dominated the past week and left markets unsure of how much longer emergency stimulus in Europe will continue to support global asset prices. For now investors seem to be giving policymakers the benefit of the doubt that the global economy can take any tightening of monetary policy, although the latest data on Wednesday was mixed – strong in Europe and weaker in China.
Currency markets were in limbo, the euro trading just over half a cent below last week’s 14-month highs against the dollar. The dollar and yen were the main victims of the shift in language last week, but many analysts wonder whether the European Central Bank will be able to rein in money-printing later this year if the euro keeps gaining.
“I meet a lot of people while I talk to clients who think the ECB simply won’t be able to escape its current policy setting because a stronger currency is too damaging,” said Societe Generale strategist Kit Juckes. “The thought the ECB will resist pressure…is still leading many … to look for cheaper levels to buy euro.”
As a result, the Bloomberg Dollar Spot Index strengthened 0.2 percent. The British pound was 0.2 percent weaker at $1.2898. The euro also slipped 0.2 percent to &1.1326.
In addition to the drop in oil, safe haven gold was also weaker, dropping 0.1% to $1,222.35 an ounce, erasing an earlier gain of 0.5 percent.
In rates, the yield on 10-year Treasuries was little changed at 2.35%. U.K. benchmark yields advanced four basis points to 1.28 percent. French and German yields were little changed.
Factory orders and Federal Reserve minutes expected later.
Bulletin HeadlineSummary from RanSquawk
- Geopolitical tensions mount amid further missile testing from North Korea. North Korea aims to create an ICBM capable of hitting the US this year
- EUR sags as ECB’s Couere says the ECB has yet to discuss changing policy.
- Looking ahead, highlights include FOMC minutes and API Crude Inventories.
Market Snapshot
- S&P 500 futures little changed at 2,424.25
- STOXX Europe 600 up 0.1% to 382.4
- MXAP up 0.2% to 153.96
- MXAPJ up 0.3% to 503.49
- Nikkei up 0.3% to 20,081.63
- Topix up 0.6% to 1,618.63
- Hang Seng Index up 0.5% to 25,521.97
- Shanghai Composite up 0.8% to 3,207.13
- Sensex up 0.03% to 31,218.28
- Australia S&P/ASX 200 down 0.4% to 5,763.25
- Kospi up 0.3% to 2,388.35
- German 10Y yield rose 0.9 bps to 0.484%
- Euro up 0.04% to 1.1350 per US$
- Brent Futures up 0.08% to $49.65/bbl
- Italian 10Y yield fell 2.2 bps to 1.819%
- Spanish 10Y yield rose 1.3 bps to 1.538%
- Gold spot down 0.1% to $1,222.05
- U.S. Dollar Index up 0.1% to 96.33
Top Overnight News
- Fed Minutes May Give Clues on When Balance- Sheet Runoff to Start
- Kim Jong Un ’firmly determined and committed’ to test ICBM capable of hitting U.S. within this year: KCNA
- UN Set to Meet on North Korea as U.S. Confirms Rocket Was ICBM; U.S. says North Korean ICBM test represents a new escalation of threat
- European Jun. Service PMIs: Spain 58.3 vs 56.5 est; Italy 53.6 vs 54.6 est; France 56.9 vs 55.3 est; Germany 54.0 vs 53.7 est; Markit note a further easing in cost inflationary pressures, as input prices rose at the weakest rate since last November
- ECB’s Coeure: the Governing Council has not been discussing changes in our monetary policy, that may come in the future, but it hasn’t come yet
- BOE’s Saunders says prepare for rate increases ’at some point’: Guardian
- Germany sees Saudi-led alliance rejecting Qatar’s crisis response
- Russia said to oppose any move to deepen OPEC cuts at July talks
- Trump-Putin Talks Raise Anxiety Ex- Spymaster Will Get Upper Hand
- Stada Supervisory Board Said to Discuss Replacing CEO Wiedenfels
- ANZ Said to Narrow Bidders in $3 Billion Sale of Wealth Unit
- AIA, MetLife Said to Ready Binding Bids for ANZ Wealth Unit: AFR
- HSBC Said in Talks With U.S. to End Crisis-Era Mortgage Probe
- Monte Paschi’s Italian Rescue Wins EU Nod After Months of Talks
- Euro Area Faces Capacity Bottlenecks as Recovery Gathers Pace
- U.K. Recommends Alexion’s Strensiq for Rare Bone Disorder
- Elbit Europe Unit Gets $35m Contract for Electro Optic Systems
- Poland May Pick Lockheed to Supply Mobile Rocket Launcher System
- General Motors China June Vehicle Sales Rise 4.3% on Year
- Freeport Indonesia Is Optimistic Will Achieve Win-Win Solution
Asia equity markets were mostly higher as the region recovered from the opening losses triggered by heightened tensions in the Korean Peninsula after the recent North Korean missile test. ASX 200 (+0.1 %) and Nikkei 225 (+0.2%) were pressured for the majority of the session amid increased provocation by North Korea, although stocks in Japan returned flat with JPY price action as the main driver. China was initially subdued after Caixin Services PMI printed a 13-month low and as participants in Hong Kong were despondent from yesterday’s tech-led selling, in which Tencent dropped over 4% after a state backed paper branded its game as poison and called for tighter regulation. However, stocks in the region were also resilient as the Shanghai Comp. (+0.7%) and Hang Seng (+0.6%) gradually rebounded into positive territory. Finally, 10yr JGBs were subdued as sentiment gradually improved with 10yr JGB futures breaking below last week’s lows to test the 150.00 level to the downside. Chinese Caixin Services PMI (Jun) 51.6 vs. Exp. 52.9 (Prey. 52.8); 13-month low. (Newswires) – Caixin Composite PMI (Jun) 51.1 (Prey. 51.5)
Top Asia News
- U.S. Confirms North Korea Missile Was ICBM, Warns of UN Action
- Singapore July COE First Open Tender: Summary (Table)
- Alibaba Challenges Google, Amazon With New Echo-Like Device
- Flipkart, Snapdeal Said to Duel Over $100 Million Valuation Gap
- UN Set to Meet on North Korea as U.S. Confirms Rocket Was ICBM
- BHP’s New Chairman to Drive ‘Radical Shift’ at World’s Top Miner
- Essar Steel Launches Challenge to Stop Insolvency Proceedings
- Asia Stocks Rebound While Haven-Asset Demand Fades: Markets Wrap
- Freeport, Indonesia Eye Early Resolution to Grasberg Dispute
In European markets, risk appetite has been evident following the European cash equity open, despite Korean Peninsula geopolitical concerns continuing. Materials outperform, as Glencore trades up over 2% in the FTSE. Credit Suisse have noted the recent correlation between the oil names and mining names, as the recent reprieve seen in Oil markets seemingly benefiting the aforementioned mining names.
The risk on sentiment has been led by the treasury market, as yields continue to strengthen across the AAA’s. Increasingly hawkish commentary from the BoE, most recently BoE’s Saunders, has taken its toll on UK paper, with the weakness in Gilts leading to stops being run across the other majors. The lOy Bund is looking towards the 0.50% yield, with the T-note now trading around the 2.30% level. JPY has also seen continued bearish pressure, the noticeable mover in early FX trade, trading past the week’s high, now set to test 114.31 (May’s high).
Top European News
- Russia Said to Oppose Any Move to Deepen OPEC Cuts at Talks
- North Korea Says Missile It Fired Today Was An ICBM
- Yen Reverses Gain as Risk Sentiment Improves, Treasuries Drop
- Bunds Heavy as Stocks Gain, Bobl Lags; Gilts Hit on Issuance
- Baidu Snags 50-Plus Partners for its Apollo Driverless Car
- Qatar’s Antagonists Huddle on Next Steps as Deadline Expires
Looking at the day ahead, this morning in Europe the main focus will likely be on the remaining PMIs (services and composite readings). We’ll get final revisions for the Euro area, Germany and France as well as the first look at the data in the periphery and the UK. The other data due to be released this morning is May retail sales figures for the Euro area. Over in the US we’ll get May factory orders data and also final revisions to the May durable and capital goods numbers. This evening we’ll then get the FOMC minutes from the June meeting where it’ll be interesting to see how much of a debate there is around the inflation outlook given some of the Fed speak recently. Along with that, it’ll be interesting to see if there are any further details around balance sheet normalization. Away from the data German Chancellor Merkel is due to meet Chinese President Xi Jinping ahead of the G20 summit later this week.
US Event Calendar
- 10am: Factory Orders, est. -0.5%, prior -0.2%; Durable Goods Orders, est. -1.0%, prior -1.1%
Factory Orders Ex Trans, prior 0.1%; Durables Ex Transportation, prior 0.1% - Cap Goods Orders Nondef Ex Air, prior -0.2%; Cap Goods Ship Nondef Ex Air, prior -0.2%
- 2pm: FOMC Meeting Minutes
DB’s Jim Reid concludes the overnight wrap
Happy Boxing Independence Day. I’m sure there will likely still be lower than average volumes today as people take an extended break after yesterday’s celebrations. One interesting landmark about today is that it marks exactly 10 years since the last UK rate hike. Interestingly, if you look across the wider G20 then there are only 2 other central banks who can also say that they have gone at least 10 years since last hiking. One is Japan and the other is Saudi Arabia. Those two countries last hiked their benchmark rates in February 2007, so only a few months ahead of the BoE. It’s worth adding that we included individual central banks within the EU (given that it is part of the G20) so the actual sample size was 43 (that also includes individual central banks as part of the ECB).
In an otherwise quiet start, central banks are one of the two main themes for markets so far this week. Indeed yesterday we heard from a couple more ECB speakers. The first was board member Peter Praet who, in a speech in Rome, preached for patience at the ECB given that inflation still needs “more time to show through convincingly in the data”. He also said that the ECB needs to be persistent given that the baseline scenario for future inflation “remains crucially contingent on very easy financing conditions which to a large extent depend on the current accommodative policy stance”. Fellow board member Ewald Notowny told an audience that the ECB should “normalize as soon as the economy allows” but that at the same time he “expects a long period of low rates”.
The other theme for markets in the last 24 hours is one of a geopolitical nature following confirmation that North Korea had fired an intercontinental ballistic missile yesterday – the first such missile launch of its kind by North Korea. US Secretary of State Rex Tillerson called the move a “new escalation of the threat” last night and that “global action is required to stop a global threat”. Tillerson also said that “any country that hosts North Korean guest workers, provides any economic or military benefits, or fails to fully implement UN Security Council resolutions is aiding and abetting a dangerous regime”. Russia’s Putin and China’s Xi also condemned the move at a meeting in Moscow. The UN Security Council have announced that they will hold an emergency closed session on Wednesday to discuss the latest act while overnight we’ve learned that both the US and South Korea have conducted joint test missile launches of their own. One would have to imagine that this subject will dominate Friday and Saturday’s G20 summit agenda. As a reminder both President Trump and China’s Xi will be attending and it’s not gone unnoticed that tensions between the two leaders has been climbing in past couple of weeks.
That North Korea news appeared to be the catalyst which saw markets take a few chips off the table yesterday, albeit on thin volumes. The Stoxx 600 (-0.29%), DAX (-0.31%) and CAC (-0.40%) were all lower while Asia currencies were also weaker for the most part – particularly the South Korean Won (-0.34% and Taiwanese Dollar (-0.29%). Gold (+0.26%) rose for the first time in 6 days and is up another +0.31% this morning, while the Yen (+0.28%) is also a little firmer. Bond markets were pretty subdued with no real standout moves to highlight. The same can be said for WTI Oil which consolidated above $47/bbl despite some reports that Russia is opposing a proposal for a larger cut to production in the OPEC deal at the meeting later this month.
This morning in Asia markets have bounced back a bit following a soft start. The Nikkei (+0.07%), Hang Seng (+0.35%), Shanghai Comp (+0.24%) and Kospi (+0.17%) have all edged higher, although the ASX (-0.37%) is a shade lower. The gains in China are coming despite a reasonable decline in the Caixin services PMI to 51.6 in June from 52.8 the month prior. In Japan the Nikkei services PMI rose 0.3pts to 53.3 in June.
Moving on. With little in the way of interesting macro data yesterday (the only release being a soft -0.4% mom Euro area PPI reading for May), the more interesting data was the latest ECB CSPP and PSPP data. The former included monthly totals. Firstly the purchases settled last week implied an average daily run rate of €327mn against the average since CSPP started of €364mn. Although June’s purchases have dipped a bit the CSPP/PSPP ratio was 13.6% last month, down from 14.7% in May, but still above the average of 11.6% before the overall QE was trimmed in April. Further on this the average monthly run rate since April 2017 (after QE trimmed) has been €7.49bn (assuming 21 business days per month). The equivalent between July 2016 and March 2017 was €7.59bn (assuming 21 business day per month).
On the topic of the CSPP, Michal in my team has just published a report “CSPP Update Before the Summer Lull”. This short note provides an update on the latest pace of CSPP purchases, both in absolute terms and relative to the PSPP, and their split into primary and secondary. We show that the recent outperformance of CSPP-eligible bonds over (non-bank) ineligible ones has brought their relative pricing to where it was just before the US elections. We explain why we think the relative CSPP/PSPP trimming should only have a second-order impact on credit spreads.
With regards to the PSPP, the latest data for June revealed that the weighted average Bund maturity rose to 5.33 years from a record low 3.99 years in May. In fact that June average maturity is the highest since the changes to parameters came into full effect in February. That data also revealed a bit of deviation from the capital key for Bunds with total purchases €360m below implied levels. The flip side of that saw France (€1.1bn above capital key) and Italy (€0.9bn above capital key) both benefiting from higher purchases. Portugal (€690m below) continues to see the biggest miss relative to capital keys. Pondering on the swing in Bund purchases, our European rates’ strategists noted last month that as German purchases get closer to exhaustion at the front end, the Bundesbank would be somewhat forced to increase purchases at the longer end which may in part reflect the higher average maturity in June.
Looking at the day ahead, this morning in Europe the main focus will likely be on the remaining PMIs (services and composite readings). We’ll get final revisions for the Euro area, Germany and France as well as the first look at the data in the periphery and the UK. The other data due to be released this morning is May retail sales figures for the Euro area. Over in the US this afternoon we’ll get May factory orders data and also final revisions to the May durable and capital goods numbers. This evening we’ll then get the FOMC minutes from the June meeting where it’ll be interesting to see how much of a debate there is around the inflation outlook given some of the Fed speak recently. Along with that, it’ll be interesting to see if there are any further details around balance sheet normalization. Away from the data German Chancellor Merkel is due to meet Chinese President Xi Jinping ahead of the G20 summit later this week.
3. ASIAN AFFAIRS
i)Late TUESDAY night/WEDNESDAY morning: Shanghai closed UP 24.33 POINTS OR 0.76% / /Hang Sang CLOSED UP 132.96 POINTS OR 0.52% The Nikkei closed UP 49.28 POINTS OR 0.25%/Australia’s all ordinaires CLOSED DOWN 0.32%/Chinese yuan (ONSHORE) closed DOWN at 6.8020/Oil DOWN to 46.26 dollars per barrel for WTI and 48.86 for Brent. Stocks in Europe OPENED MOSTLY IN THE GREEN,, Offshore yuan trades 6.8026 yuan to the dollar vs 6.8020 for onshore yuan. NOW THE OFFSHORE IS A TOUCH WEAKER TO THE ONSHORE YUAN/ ONSHORE YUAN WEAKER (TO THE DOLLAR) AND THE OFFSHORE YUAN IS ALSO WEAKER TO THE DOLLAR AND THIS IS COUPLED WITH THE STRONGER DOLLAR. CHINA IS NOT VERY HAPPY TODAY
3a)THAILAND/SOUTH KOREA/NORTH KOREA
NORTH KOREA
As I stated last time, I guess the Kim has nothing better to do with his time than to launch missiles. He launched a ICBM which traveled around 940 km and landed in Japan’s economic zone. Talks with Trump and China will be interesting this week.
(courtesy zerohedge)
North Korea Fires Ballistic Missile Which Lands In Japan’s Exclusive Economic Zone
Update: According to the S. Korea military, the N. Korea’s missile flew more than 930km, before dropping into the sea. Separately, US Pacific Command said in statement that North Korea launched a land-based intermediate-range ballistic missile on Tuesday morning. The missile was tracked for 37 minutes and landed in the Sea of Japan.
* * *
North Korea fired an “unidentified ballistic missile” from a province near the border with China on Tuesday, South Korea’s military said. The launch took place just days after the South’s new President Moon Jae-In and US President Donald Trump focused on deescalation of tensions on the Korean peninsula in their first summit.
“North Korea fired an unidentified ballistic missile into the East Sea from the vicinity of Banghyon, North Pyongan Province, at around 9:40 a.m.,” the Joint Chiefs of Staff said cited by Yonhap.
The projectile reportedly landed in Japan’s Exclusive Economic Zone, Takahiro Hirano, Public Affairs Officer from Japan’s Ministry of Defense told CNN, an outcome which Tokyo may deem an act of aggression, and promptly retaliate against.
Japan’s Chief Cabinet Secretary Yoshihide Suga confirmed that the launch took place at 9:39 am and said that Japanese government would convene National Security Council Meeting; he added that Japan strongly protested to North Korea of its action.
“On Tuesday, at 09:39 [00:39 GMT on Tuesday] North Korea launched a ballistic missile. The flight has lasted for 40 minutes, the missile fell into Japan’s exclusive economic zone in the Sea of Japan. By this hour, there is no information on the damage inflicted to Japanese aircraft and ships,” Suga said at a press conference.
Suga also said Prime Minister Shinzo Abe ordered to gather related information and analysis.
Shortly after the launch, Japanese Prime Minister Shinzo Abe said today’s missile launch by N. Korea is a clear indication that its threat is escalating, and added that N. Korea has ignored repeated warnings by international community. Abe said confirmed strong ties with U.S. after speaking to President Donald Trump yesterday; Abe spoke to reporters in Tokyo after convening NSC meeting, remarks were carried on national broadcaster NHK. Abe also called on China and Russia to play a more “constructive” role.
On Monday, North Korea celebrated the day of strategic forces of the Korean People’s Army (KPA) with a statement in its state-run newspaper that the country’s rockets may strike anywhere in the world.
The newspaper reminded about recent successful launches of ballistic missiles Hwasong-12, Pukguksong-2, as well as cruise missiles. The situation on the Korean peninsula has become aggravated in recent months due to a series of missile launches and nuclear tests conducted by Pyongyang, all of which are claimed to be in violation of UN Security Council resolutions. The previous launch took place on June 8, when North Korea carried out a launch of short-range anti-ship missiles, reportedly flying some 124 miles before dropping into the Sea of Japan.
We expect a statement to be issued momentarily by the White House.
END
Donald Trump responds to North Korea with my line: “does Kim have anything better to do with his life”?
(courtesy zero hedge)
Trump Responds To N.Korea’s Rocket Launch: “Does Kim Have Anything Better To Do With His Life?”
On Monday night, following news of the latest North Korean ballistic missile launch which as discussed earlier landed in the Sea of Japan, and specifically Japan’s quasi-sovereign Economic Exclusion Zone, Trump tweeted his reaction to the latest provocation, which probably falls under the “modern day presidential” umbrella.
Trump decided to eschew conventional diplomacy, and stated matter of facty, that “North Korea has just launched another missile” then prioeeded to ask of Kim Jong-Un, “does this guy have anything better to do with his life?”
Apparently the answer is no, which may explain why it was recently revealed that South Korea’s previous president was seriously contemplating the assassinating Kim.
In his second tweet, Trump added “gard to believe that South Korea and Japan will put up with this much longer. Perhaps China will put a heavy move on North Korea and end this nonsense once and for all!.”
Or perhaps after China slammed over the weekend the recent multi-billion US sale of weapons to China’s nemesis Taiwan, not to mention the deployment of a US missile-destroyer in the South China Seas which was promptly intercepted by Chinese forces, as well as Trump’s sanctioning of several Chinese entities for “doing business with North Korea, maybe China won’t do anything at all, and instead will cultivate and fund local and not so local terrorist to pick up the “global cleansing” role.
end
Trump is now very angry: China’s trade with North Korea advances 40% in the first quarter instead of contracting
(courtesy zero hedge)
“So Much For China Working With Us”: Trump Slams China On N.Korea Trade
As the G-20 meeting in Hamburg between Trump and Xi draws nearer, the US president appears eager to continue antagonizing his Chinese peer.
On his way to Warsaw this morning, where he will stay briefly ahead of the G20 summit in Hamburg which begins on Friday, Trump tweeted his displeasure at US trade deals which had been signed before his tenure: “The United States made some of the worst Trade Deals in world history. Why should we continue these deals with countries that do not help us?”
Initially it was not exactly clear from that tweet alone which trade deals he has in mind, although Nafta has been at the forefront of many minds inside and outside the White House, while the precarious trade relationship between the US and China is well-known.
Conveniently, in a subsequent tweet Trump did hint at the source of his displeasure in a following tweet, in which the President made it clear who he was referring to: “Trade between China and North Korea grew almost 40% in the first quarter. So much for China working with us – but we had to give it a try!“
A chart showing N. Korea’s reliance on Chinese trade is shown below.
North Korea claimed earlier this week it launched its first intercontinental ballistic missile (ICBM). As reported on Sunday, Pyongyang claimed the long-range weapon could “reach anywhere in the world.”
Trump after the test said he hoped China would “put a heavy move” on North Korea and “end this nonsense once and for all!”
Trump has repeatedly called on China to help curtail the North Korean regime’s missile tests and has threatened unilateral action as the launches have gone unabated. The president last month tweeted that China has tried to help the U.S. solve increased tensions with North Korea, but “it has not worked out.”
As Citi points out, “this does not bode well for the G20 Summit which begins this Friday and the bilateral meeting between China and the US on the sidelines. North Korea is back in focus after the country tested an ICBM missile on Tuesday which US Secretary of State Tillerson said represented “a new escalation of the threat.”
end
War drums beating loudly!
(courtesy Mac Slavo/SHFTPlan.com)
China Issues Dire Warning On North Korea, Sees “Out Of Control… Disastrous Consequences”
Authored by Mac Slavo via SHTFplan.com,
While the world watches in jest as Japanese residents prepare for the possibility of a confrontation with North Korea by panic buying nuclear shelters and air purifiers, we may soon realize that their efforts to desperately acquire protective gear and equipment for nuclear disaster were quite prescient.
Yesterday, North Korea successfully tested what is reportedly an ICBM (Inter-Continental Ballistic Missile) capable of striking Alaska from the Korean peninsula. Coupled with their purported advancements in nuclear technology, North Korea may now have the ability to launch devastating attacks on their southern neighbor, Japan and even the United States. And if they have not yet achieved the ability to fit a nuclear warhead on an ICBM and deliver it effectively to its target, they are inching closer by the day.
So close, in fact, that Chinese Ambassador Liu Jieyi’s recent remarks on the matter suggest that we are nearing a dangerous breaking point:
“Currently tensions are high and we certainly would like to see a de-escalation,” Liu told a news conference at UN headquarters as China takes over the Security Council presidency in July.
“If tension only goes up … then sooner or later it will get out of control and the consequences would be disastrous,” he said.
Earlier this year President Trump deployed three carrier strike groups to the region, signaling the real possibility that the United States will no longer follow what Secretary of State Rex Tillerson calls a policy of “strategic patience” employed by Trump’s predecessors.
Though the threat seems to be muted by global media, China and Russia appear to be taking it very seriously, with both having reportedly deployed tens of thousands of troops and equipment to their respective borders with the North.
All of the signs suggest that military action is about to occur. And while most Americans may think that North Korea would be another Iraq, wherein the battle could be won in a matter days, the fact is that North Korea has a massive military and now, as confirmed yesterday, an ICBM capable of striking long-range targets.
Now may be a good time to imitate the Japanese by preparing for the worst, because the moment the world realizes that war is imminent there will be a run on banks and grocery stores that will likely leave shelves and ATM machines completely empty. Following the Fukushima nuclear disaster, the price of government recommended anti-radiation pills skyrocketed from $15 to over $200 per unit. We expect to see a similar effect in coming weeks and months for preparedness equipment like gas masks and NBC body suits as tensions on the Peninsula heat up.
War is coming. President Trump has made this very clear and North Korea does not appear to be heeding his warning. All bets will be off once the missiles start flying.
Because all three of the world’s major super powers will be involved in one way or another it is not only possible, but quite likely that things could spiral out of control very quickly.
END
then late in the afternoon: Ambassador Haley stated today that the uSA will use the military in North Korea if it must:
(courtesy zero hedge)
Haley: US Will Use Military In North Korea “If It Must”
The war drums are beating louder, and as US Ambassador to the UN Nicky Haley said moments ago as she speaks live (webcast), the North Korea launch is clear, sharp military escalation and the US will use the full range of its capabilities in North Korea including military force, “if it must.” Her key soundbites from Reuters and Bloomberg:
- HALEY: PREPARED TO USE THE FULL RANGE OF ITS CAPABILITIES TO DETER NORTH KOREA, INCLUDING MILITARY FORCE “IF WE MUST”
- HALEY: U.S. WON’T HAVE PATIENCE FOR WATERED DOWN UN RESOLUTION
She also said that an escalated response needed in wake of ICBM launch, and sent a clear warning to China over supporting N. Korea whose launch shows North Korea “does not want to be part of a peaceful world”:
- HALEY SAYS COUNTRIES ALLOWING TRADE WITH NORTH KOREA IN VIOLATION OF U.N. SANCTIONS WILL NOT BE ALLOWED TO CONTINUE TRADE WITH U.S.
In the speech she said that “today is a dark day – it is a dark day because yesterday’s actions by North Korea made the world a more dangerous place.”
She also added that North Korea’s “actions are quickly closing off the possibility of a diplomatic solution,” and explained that previous sanctions against NK “have been insufficient to get them to change their destructive course.”
There is still some hope that war may be avoided: Haley said that the U.S. will introduce a new UN resolution in coming days to increase sanctions against North Korea.
Haley’s explicit warnings come after the US military warned earlier in the day it can counter any new North Korean missile threat (more on that in a subsequent post shortly).
end
Do not like the looks of this: Russia and China rule out military action as well as not economically strangling North Korea
(courtesy zero hedge)
Russia, China Rule Out Military Action In North Korea, US Responds “Will Go Its Own Path” If Needed
Russia’s deputy U.N. envoy on Wednesday said military force should not be considered against North Korea and also called for a halt to the deployment of a U.S. missile defense system in South Korea. “The possibility of taking military measures to resolve the problems of the Korean peninsula should be excluded,” said Deputy Russian U.N. Ambassador Vladimir Safronkov. “We express our support to the idea of North and South Korea engaging in dialogue and consultations.”
“The possibility of taking military measures to resolve the problems of the Korean peninsula should be excluded,” Safronkov said. “We express our support to the idea of North and South Korea engaging in dialogue and consultations.”
He also said that attempts to economically strangle North Korea are “unacceptable” and that sanctions will not resolve the issue, and also called for a halt to the deployment of a U.S. missile defense system in South Korea.
China echoed Russia’s quasi security council veto on any military actions or sanctions, and said military action “must not be an option” and repeated that it urges all sides to exercise restraint and called on the halting of deployment in North Korea. Like Russia, China also called for a halt to the U.S. deployment of an missile defense system in South Korea.
That said, China’s U.N. Ambassador Liu Jieyi on Wednesday concede North Korea’s latest ballistic missile launch was a “flagrant violation” of U.N. resolutions and “unacceptable.”
Earlier on Wednesday, the United States warned it was ready to use force “if we must” to stop North Korea’s nuclear missile program but said it prefers global diplomatic action against Pyongyang for Tuesday’s test launch of an intercontinental ballistic missile.
Meanwhile, responding to what appears to be a preemptive veto by Russia and China, the US said that it was prepared to ignore the UN resolution, and would go “its own path” if needed on North Korea.
- U.S. WILL GO ITS `OWN PATH’ IF NEEDED ON N. KOREA: HALEY
Finally, the White House said on Wednesday it was exploring its options to respond to North Korea’s test-firing of an intercontinental ballistic missile. “I think we’ve been pretty consistent that we’re never going to broadcast any next steps. We’re exploring those options,” White House spokeswoman Sarah Sanders told reporters on Air Force One as President Donald Trump flew to Poland.
end
b) REPORT ON JAPAN
end
c) REPORT ON CHINA
This is interesting: the POBC hires blockchain engineers who will oversee the creation of a digital yuan. For what purpose?
(courtesy zerohedge)
PBOC Hires Blockchain Engineers Who Will Oversee Creation Of The “Digital RMB”
For those who can’t quite reconcile the Chinese government’s tentative acceptance of bitcoin and other cryptocurrencies with the inherently anarchistic principles espoused by bitcoin’s creator, here’s yet another clue to support the theory that the Chinese government has decided to tolerate and regulate digital currencies in hopes of learning how to apply the technology to its own digital currency.
At its core, the hypothetical “digital RMB” will subvert bitcoin’s core mission – that is, to enable individuals to circumvent government control and monitoring. Instead, Chinese policy makers intend to use the currency to strengthen the Communist Party’s ability to monitor its citizens for evidence of money laundering and other financial crimes, as MarketWatch noted earlier this year.
Of course, the PBOC’s official line is that it believes a blockchain-based digital currency would allow it to make more accurate monetary policy decisions by improving its ability to gather data on financial flows…but, as with all policies in China, maintaining social control and enforcing laws is the No. 1 priority here. People’s Bank of China Gov. Zhou Xiaochuan has said it will take China approximately 10 years to fully embrace the digital renminbi, though he said later that there is no official timeline.
To that end, the Shanghai Daily reports that the PBOC has officially launched its own blockchain research institute, and is seeking to hire engineers who to oversee the creation of what could become the first blockchain-based fiat currency.
“The People’s Bank of China’s institute of printing science is offering six positions for the design and development of digital currency-related software and hardware framework, a recruitment notice said, adding that candidates with experience in blockchain and Big Data technologies will be preferred.
The candidates must hold master’s or doctoral degree in computer science, information security and cryptography, according to the notice.”
As Cryptocoins News points out, the hiring drive comes soon after the bank’s vice-governor, Fan Yifei, published a Bloomberg column opining that the best way for governments to drive innovation of digital currencies is by creating their own, which will stay under their control. Yifei sees reduced operating costs, increased efficiency and a broad range of new applications as the many outcomes of moving from a paper-based currency to its digital form.
The creation of the institute represents an expansion on a public-private partnership sponsored by the Chinese government that was launched to explore the feasibility of creating a digital RMB. That partnership, which involves experts from Citibank and Deloitte, was first reported in early 2016. China is also already experimenting with using a blockchain-based shadow system for clearing trades in local interbank credit markets.
The PBOC isn’t the only central bank that’s exploring the feasibility of its own digital currency. The Bank of England joined with researchers at University College in London to create RSCoin, a digital currency for central banks. The Bank of Canada has also said it is developing a blockchain-based digital version of the Canadian dollar. Central banks in Russia and Australia have also expressed interest in exploring digital currencies.
end
4. EUROPEAN AFFAIRS
ITALY
This is a huge problem: a massive migrant influx bombards Italian ports mainly from Libya. The Italians ask for help from other European nations but that will come to naught. If you look at the map, the shortest distance to a European port is Italy with Greece and Spain and France at a much greater distance
(courtesy zero hedge)
Italian Ports Bombarded With Migrants; Interior Minister Demands Other EU Nations “Step Up”
More than a year after the BREXIT referendum shocked the world, the various EU member nations are seemingly no closer to a consensus on how to deal with Europe’s migrant influx. The lack of a coordinated plan and disproportionate distribution of migrants across the continent has Italy threatening to close their ports to privately-funded aid boats until other nations “step up.” Per Yahoo News:
With arrivals in Italy up nearly 19 percent over the same period last year, Rome has threatened to close its ports to privately-funded aid boats or insist that funding be cut to EU countries which fail to help.
“There are NGO ships, Sophia and Frontex boats, Italian coast guard vessels” saving migrants i the Mediterranean, Minniti said, referring to the aid boats as well as vessels deployed under EU border security missions.
“They are sailing under the flags of various European countries. If the only ports where refugees are taken to are Italian, something is not working. This is the heart of the question,” he said.
“I am a europhile and I would be proud if even one vessel, instead of arriving in Italy, went to another European port. It would not resolve Italy’s problem, but it would be an extraordinary signal” of support, he said.
Of course, in the face of the ever-growing crisis, the interior ministers of France, Germany and Italy got together to do what politicians do best: talk. And while we’re sure that European citizens are very happy that “the talks went off very well,” somehow we suspect the continued “all talk, no action” approach to the crisis is not entirely satisfactory for a continent that has been devastated by terrorist attacks of late.
The French and German interior ministers met with their Italian counterpart Marco Minniti in Paris on Sunday to discuss a “coordinated response” to Italy’s migrant crisis, hours after Minniti had called on other European countries to open their ports to rescue ships.
The working dinner at the French interior ministry — also attended by EU Commissioner for Refugees Dimitris Avramopoulos — was aimed at finding “a coordinated and concerted response to the migrant flux in the central Mediterranean (route) and see how to better help the Italians,” a source close the talks said.
The four-way talks between Minniti, Thomas de Maiziere of Germany, Gerard Collomb of France and Avramopoulos will also prepare them for EU talks in Tallinn this week.
“The talks went off very well,” a member of the Italian delegation told AFP after the Paris meeting, with the “Italian proposals being discussed”. The source offered no other details.
“We are under enormous pressure,” Minniti had said earlier Sunday in an interview with Il Messaggero.
Meanwhile, over 2,000 migrants have died this year alone in their attempts to cross the Mediterranean.
More than 83,000 people rescued while attempting the perilous crossing from Libya have been brought to Italy so far this year, according to the UN, while more than 2,160 have died trying, the International Organization for Migration says.
Italy’s Red Cross has warned the situation in the country’s overcrowded reception centres is becoming critical.
“What is happening in front of our eyes in Italy is an unfolding tragedy,” UN High Commissioner for Refugees Filippo Grandi said on Saturday.
Minniti said Rome would be pushing for a way to shift the asylum application process from Italy to crisis-hit Libya, and safely bring to Europe those who win the right to protection.
“We have to distinguish before they set off (across the Mediterranean) between those who have a right to humanitarian protection and those who don’t,” he said.
Perhaps, at some point, politicians will learn how to act rather than just talk…but we won’t hold our breath.
END
ITALY
No wonder Italy is furious as Austria throw roadblocks to prevent migrants from entering Austria:
(courtesy zero hedge)
Italy Furious After Austria Deploys Troops, Armored Vehicles To Border
An angry Italy summoned Austria’s ambassador after the government in Vienna announced it was ready to re-introduce border controls and deploy troops and armored vehicles along the border to block any migrant influx out of Italy. Austrian Defence Minister Hans Peter Doskozil told Kronen Zeitung daily that troops could go to the Brenner Pass and that four Pandur armoured personnel carriers had been sent to the Tyrol region with 750 troops were on standby.
“We need to prepare for the migration development in Italy, and I expect very promptly that border controls will have to be activated and assistance requested,” Hans Peter Doskozil told the online edition of the Krone daily, adding that a military deployment at the busy Alpine pass would be “indispensable if the influx into Italy [across the Mediterranean] does not diminish”. While Austria has border checks with Hungary and Slovenia, elsewhere – such as on the border with Italy – it adheres to the EU open borders system.
Doskozil explained that “these are not battle tanks. These are armored vehicles without weapons which could block roads. These were already used during the refugee crisis 201/16 at the Spielfeld border crossing [with Slovenia],” just in case Italy got the impression that its northern neighbor was preparing to invade.
The Austrian border check point at Brenner.
The border controls will include the Alpine Brenner pass, which forms the border between Austria and Italy, one of the main mountain passes in the eastern Alps. There isn’t a strict time plan for the step-up in border security, but, according to Doskozil’s spokesman, “we see how the situation in Italy is becoming more acute and we have to be prepared to avoid a situation comparable to summer 2015” according to Reuters.
Austrian Foreign Minister Sebastian Kurz said that Vienna is prepared to “protect” the frontier with Italy “if necessary,” as he spoke with the Austria Press Agency. Later Italy’s foreign ministry said it had summoned Austrian Ambassador Rene Pollitzer “following the Austrian government’s statement about deploying troops to the Brenner (pass)”.
The latest turmoil inside Europe’s customs union comes two years after Germany admitted over a million mostly Syrian migrants, as part of Angela Merkel’s “Open Door” (since shut) welcome, and just days after Italy’s interior minister demanded other EU nations “step up” and relieve Italy of the sudden flood of inbound migrants.
The Italian governor of South Tyrol, Arno Kompatscher, sought to defuse tensions. According to BBC, he said Austria had issued similar warnings about the border previously, and the situation there remained “quiet and stable”. Austria was gearing up for a general election in October, Mr Kompatscher noted. The anti-immigration Austrian Freedom Party (FPÖ) is expected to poll strongly.
People-smuggling gangs have been exploiting the violence and chaos in Libya. The shortest crossing from Libya to Italy is only about 460km (290 miles). Nearly 85,000 migrants and refugees arrived in Italy in the first half of this year, across the Mediterranean. The UN refugee agency UNHCR says that is about 20% more than in the first half of 2016.
To be sure, the UN joined Italy’s appeal, with Vincent Cochetel, the UNHCR’S special envoy for the central Mediterranean, saying that “this is not sustainable. We need to have other countries joining Italy and sharing that responsibility.” So far, nobody in the European “Union” has stepped up to “share the responsibility” of Europe’s generous refugee acceptance program.
The latest report by the UNHCR, revealed another troubling statistics: few of the migrants coming to Europe will granted asylum: 30% of them are fleeing conflict or persecution, while 70% of those arriving in Italy are economic migrants. Most migrants and refugees are young, single men with little or no education, and almost 15% are unaccompanied minors.
Meanwhile, Italy has also warned that the current scale of migrant arrivals is unsustainable and that it could even close its ports and impound aid agencies’ rescue ships. In other words, yet another refugee crisis in Europe is imminent.
It will be the second time this has happened in two years. In 2015, the EU’s Schengen system, or the free movement across most European borders, was overwhelmed by an influx of migrants and refugees, whoe reached Central Europe via the Balkans, and most sought asylum in Germany. Since then, tighter border controls in the Balkans have reduced the numbers heading north from Greece. Most of the influx to Austria was via Hungary. Many of those who came by train or on foot were refugees from Syria, Iraq and other conflict zones.
So far 101,000 migrants have entered Europe in 2017 via the Mediterranean and according to the latest figures, 2,247 people have died or are missing at sea.
And you thought that only subprime lending in the auto sector was reserved for the uSA only..guess again
END
Interesting: Italy is now openly discusses leaving the EU
(courtesy Mish Shedlock/Mishtalk)
Italy Openly Discusses Euro Exit In Parliament: Debt Restructuring Or “Italeave” On The Way?
Authored by Mike Shedlock via MishTalk.com,
In Europe, where it is essentially taboo to publicly discuss anything deemed politically incorrect, some interesting conversations are taking place in the Italian parliament regarding the future of Italy in the eurozone.
Via email, Eurointelligence asks Is Italy heading for debt restructuring or euro exit?
We are reporting from an important conference in Rome yesterday that has caught the Italian news headlines this morning – on the future of Italian public debt. It was organized by the Five Star Movement, held in the Italian chamber of deputies, and openly discussed issues such default mechanism inside the eurozone, sovereign debt restructuring mechanisms, parallel payment systems, and of course euro exit.
What is important about this debate is that it is now taking place in public – you can’t be more public than inside the parliament. Italians, not only the Five Star Movement, are openly talking about these issues.
One of us was on the podium, where we reiterated our criticism of the Five Star Movement’s previous-held cavalier notion of a euro referendum. The essential point we were trying to make in the debate, well reflected in this morning’s coverage by the main newspapers, is that euro exit is not a decision to be taken lightly. The announcement of a referendum would produce a financial crisis and might turn into a self-fulfilling prophecy. Euro exit belongs to the category of things that, citing Shakespeare’s Macbeth, “if it were done when ‘tis done, then ‘twere well It were done quickly“.
What struck us about this event was the sheer political leverage. Luigi di Maio, the presumptive Five Star candidate for the job of prime minister, seemed to distance himself from supporting euro exit. He sat through the entire 12-hour marathon of discussions. Beppe Grillo and Davide Casaleggio made short appearances. It was very clear that the Five Star Movement is now aggressively tackling the topic of Italy’s future in the eurozone, which is likely to become a major election issue. It also raises questions, as some Italian commentators did this morning, about possible coalition choices for the party if it adopts a more nuanced position on the euro.
A lot of space was given to a discussion on fiscal money – coupons issued by the state to people for use in tax payments. We recall that Yanis Varoufakis worked on a similar scheme for Greece, and one of his advisers at the time gave some details of how such a scheme can be made to work and why it did not work in Greece. The answer is that it requires an extraordinary degree of technical and logistical preparation that is outside the scope of what most governments are physically capable of.
Conferences such as these never reach consensus, but they bring up questions. One of the questions on fiscal money is whether it is sustainable or merely transitional. Is it just an instrument through which a country transitions to a new currency, or just a short-term liquidity measure, or can it work as a supplemental form of money?
Another discussion that struck us was a paper by Alberto Bagnai and Brigitte Granville, who did a stochastic simulation of the costs of euro exit. They noted that there would be an initial cost but that strong counter-cyclical growth would soon resume. The problem with this simulation is that it does not take sufficiently into account the multiple financial shocks that are likely to be dominant during such a phase. Euro exit would do major damage to the financial system both of Italy and the eurozone. The authors have a variable that includes a banking crisis, but we do not think this does justice to the financial Armageddon we are likely to see after an Italian euro exit.
And finally, we noted a comment by Heiner Flassbeck, formerly at the German finance ministry and Unctad, who noted that there can be no solution to the eurozone’s persistent crisis unless one insists on symmetric adjustment in the eurozone. He advocates the strategy that Italy should make a credible threat to leave the eurozone in order to force a German policy shift.
Path Towards Italeave
I have noted before that all of Italy’s major political parties with the exception of Matteo Renzi’s Democratic Party have flirted with or actively support leaving the Euro.
The path to Italeave is a difficult one, requiring a referendum and a constitutional change, but trouble is brewing on a huge number of fronts simultaneously:
- The Italian banking system is insolvent
- Another refugee crisis is brewing (this time via boats from Libya)
- Italy’s youth unemployment is a whopping 37%
- The ECB is the buyer of only resort for Italian bonds
- Italy’s debt to GDP ratio is over 130% to the consternation of Eurozone officials
- The global recovery is extremely long in the tooth
- Italy made no progress during the recovery
- The topic of Italeave is no longer taboo
Any number of things could start a chain reaction making Italeave look good to a majority of Italian voters.
END
When will public official learn: you cannot undergo derivative contracts with corrupt bankers
(courtesy Reuters)
and special thanks to Robert H for sending this to us
Exclusive: Italian court to hear $3 billion claim against Morgan Stanley – source
Italian prosecutors have decided to take Morgan Stanley (MS.N) to court over allegations that the U.S. bank caused 2.7 billion euros ($3.1 billion) in losses to the state in relation to derivative transactions, a source familiar with the matter said.
The Corte dei Conti, which rules on abuses of public funds, is bringing the case against Morgan Stanley on behalf of Italy’s taxpayers. Its prosecutors made their decision after an investigation into derivatives contracts they say were drawn up by Morgan Stanley (MS.N) and Italian officials, which caused losses to the state.
In going to trial, the prosecutors believe there is a case to answer. The hearings are expected to begin next April, the source said. If the allegations are proven, a judge may order Morgan Stanley to pay compensation to the Italian government.
“The investigation phase has ended and the court will hear the damages claims,” the source said, seeking anonymity because he was not authorized to speak publicly on the decision.
Morgan Stanley declined to comment.
Last August, Morgan Stanley said in a securities filing it had received a proposal from an Italian prosecutor about a payment to settle derivative transactions. Morgan Stanley said the proposed claim was groundless.
The derivative transactions were originally entered into between 1995 and 2005 and were terminated in December 2011 and January 2012, Morgan Stanley said in the filing.
The Corte dei Conti case centers on interest rate derivatives agreed between the Treasury and Morgan Stanley. They were meant as a form of insurance for the government, one of the most heavily indebted in Europe, in the event that market interest rates were to rise.
After the 2008-2009 global financial crisis, interest rates plunged, enabling Italy to borrow more cheaply in the bond markets but incurring large losses on its derivative positions.
Offsetting such gains and losses are a normal part of hedging, but the Corte dei Conti prosecutors argue that some contracts negotiated with Morgan Stanley were speculative in nature and contained termination clauses that were overly advantageous to the bank.
The Italian court will also hear claims worth a total of 1.18 billion euros against two senior government officials – public debt chief Maria Cannata and Treasury boss Vincenzo La Via – and former finance ministers Domenico Siniscalco and Vittorio Grilli.
The offices of Cannata and La Via referred media enquiries on the case to the Treasury press office.
A Treasury spokesman said it had full faith in the work undertaken by its managers and trusted that the court could clear up these matters.
Grilli and Siniscalco declined to comment.
The prosecutors have also alleged that Morgan Stanley had a conflict of interest, saying it not only sold derivatives to the Treasury but was also engaged in helping Italy to manage its financing operations, including buying and distributing government bonds.
Between late 2011 and early 2012, the government paid Morgan Stanley around 3 billion euros to settle the termination of derivative contracts, the source said.
Compensation orders by the special audit court, which will hear the case, can be appealed. Once confirmed, they are legally enforceable through asset seizures if necessary.
(Additional reporting by Giuseppe Fonte in Rome; editing by Mark Bendeich and Jane Merriman)
UK/EUROPE
And I bet you thought that subprime lending in the auto sector was only reserved for the USA. Guess again: the UK and Europe also have undisciplined auto lending:
(courtesy zero hedge)
Undercover Investigation Exposes Deteriorating Auto Lending Standards In Europe; No Job, No Problem
Over the weekend we wrote a note about how the European auto lenders are becoming just about as ridiculously undisciplined as their counterparts in the United States. Apparently an ever-growing reliance of European millennials on lease financing has auto ABS investors worried about a potential crash in used car prices at some point in the not so distant future…that sound familiar to anyone?
But a new undercover investigation by the Daily Mail exposes just how “undisciplined” the auto lending market has become in England. Here are the headlines:
- Reckless car loan salesmen exposed: How dealers are luring young drivers into massive debt by offering them new top-brand cars with NO cash up front
- Salesman are offering customers cars worth up to £20,000 for no deposit
- The deals make the customers pay back hundreds of pounds a month for years
- The cars are being offered to those on low wages and with poor credit rating
- Experts in the City fear the huge numbers could default and cause a crash
- If drivers fall behind on payments the cars can be automatically repossessed
Of course, for American auto consumers nothing about the headlines above is all that shocking. In fact, we recently noted how one dealership in Texas was literally marketing a $1,500 “Low Credit Score” discount to buyers on a $55,000 truck. We guess it never occurred to anyone that perhaps, just maybe, a person with a credit score under 620 shouldn’t be shopping around for a $55,000 vehicle?
But we digress…back to Europe. As the Daily Mail points out, their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income.
Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.
In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.
These deals offer smaller monthly payments than traditional car loans.
A reporter who said he was working part-time on the minimum wage was offered a £15,000 Seat Ibiza without a deposit at a Seat dealership in Manchester. Another reporter suggested that he had bad credit, but he was offered an £8,600 Vauxhall Corsa in Birmingham.
Kevin Barker, 71, found himself £3,500 in debt when he suffered a heart attack six months into a PCP deal. He said a ‘pushy’ Toyota salesman ‘pressured’ him into taking out a 36-month agreement in November 2014 and he was not told of the repercussions if he fell ill or lost his job.
Meanwhile, an Audi dealer in Edinburgh offered an out-of-work, 24-year-old a deal on a brand new £15,000 Audi A1 hatchback.
‘You’ve had credit before?’ he asks, leaning forwards. ‘You’ll be fine then.’
The salesman is trying to sell a £15,000 Audi A1 hatchback to a 24-year-old who has wandered in from the street.
The buyer – an undercover Daily Mail reporter – has said he is out of work. He is applying for jobs, he says, and hopes to find one soon – but he fears he won’t pass a credit check. Surely this means he cannot afford a brand new Audi?
The confident dealer appears to have no qualms about offering him the car. He declares that for monthly payments of £215 for just 48 months, the unemployed buyer can happily drive out of the Edinburgh showroom. And after the deal ends, all he needs is another £6,958 to own it outright.
The scenario seems unfathomable. How can such a high-value car loan be offered to someone in their early twenties who doesn’t have a job?
Yet an investigation by the Mail has found that similar conversations are happening in showrooms across the country.
Seems that our neighbors across the pond are learning how to maximize their GDP potential through an ill-advised, yet massive, expansion of consumer credit.
end
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
Saudi Arabia/Qatar:
Qatar has delivered its response to Saudi Arabia. German Finance Minister Gabriel who has seen the response believes that Saudi Arabia will state that “it is not enough” and thus they may escalate the embargoes
(courtesy zero hedge)
Arab States Meet To “Deliver Verdict” On Qatar Response To Ultimatum
After announcing late last night that they had received an official response from Qatar, the Saudi-led bloc of nations that cut ties to the natural-gas rich Gulf nation are meeting in Cairo on Wednesday to “deliver a verdict” on Doha’s response to a stiff ultimatum, but settlement of the dispute seemed far off according to Reuters. Foreign ministers of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain will consider whether to escalate, or less likely abandon, the boycott imposed on Qatar last month that has rattled a key oil-producing region and unnerved strategic Western allies.
Additional punitive measures may emerge from the meeting after the deadline for Qatari compliance with the bloc’s demands was extended by 48 hours on Monday. As a reminder, Qatar’s Arab neighbors cut off diplomatic and trade links with it last month, accusing Qatar of supporting terrorism, and issued a list of demands that includes shuttering the Qatari-funded news network Al Jazeera.
Reuters adds that the editor of the Abu Dhabi government linked al-Ittihad newspaper wrote in an editorial that Qatar was “walking alone in its dreams and illusions, far away from its Gulf Arab brothers”.
“A Gulf national may be obliged to prepare psychologically for his Gulf to be without Qatar,” the editor of the Abu Dhabi al-Ittihad newspaper said.
Qatar faces further isolation and possible expulsion from the Gulf Cooperation Council (GCC) if its response to a list of demands made nearly two weeks ago is not deemed satisfactory.
Qatari Foreign Minister Mohammed bin Abdulrahman bin Jassim Al Thani
Details of the Qatari response to the bloc’s 13 demands for ending the standoff haven’t been released. But German Foreign Minister Sigmar Gabriel – who says he has been briefed on the Qatari reply – told Bloomberg Tuesday that Saudi Arabia and its allies aren’t likely to accept it. In fact, the standoff will probably intensify now that Saudi and UAE companies are divesting their supply chains from Qatar, according to Bloomberg.
“The dispute may intensify as state-run companies get involved, said Allison Wood, a Middle East and North Africa analyst with Control Risks in Dubai.
“It’s unlikely that we’re going to see anything that shows a compromise of any sort in light of the rhetoric coming from both sides,” Wood said. “We may see a lot of Emirati companies with government ownership seek to divest their supply chains from Qatar, and move to cut any economic ties as a first step.”
Qatar Petroleum said it is taking “legal actions” after Abu Dhabi National Oil Co. declared force majeure to halt shipments from Qatar of condensate, a light oil liquid. An official for the Abu Dhabi company, known as Adnoc, denied force majeure was invoked and said contracts with Qatar ended in June.”
Qatar has countered that the Arab countries want to curb free speech and take over its foreign policy, saying their 13 demands are so harsh they were made to be rejected. The gas-rich state had raised its international profile dramatically in recent years, drawing on huge gas revenues, and developed its economy with ambitious infrastructure projects. It is due to host the soccer world cup in 2022.
Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said at a joint news conference with his German counterpart on Tuesday that its response was “given in goodwill and good initiative for a constructive solution”, but insisted that Doha would not compromise on its sovereignty. Gulf officials have said the demands are not negotiable, signaling more sanctions are possible, including “parting ways” with Doha – a suggestion it may be ejected from the GCC, a regional economic and security cooperation body founded in 1981.
Here’s a breakdown of the bloc’s demands (translated by @hxhassan):
- Qatar must reduce diplomatic representation with Iran
- Qatar must immoderately shut down the Turkish military base that is being established
- Qatar must announce severance of ties with terrorist, ideological & sectarian orgs: MB, ISIS, AQ, HTS, Hizbollah
- Qatar must cease any funding activities to extremist and terrorist individuals
- Qatar must hand over all designated terrorists
- Qatar must shut down Al Jazeera and all affiliated channels
- Qatar must stop interference in these countries’ domestic and foreign affairs; stop naturalisation of their citizens; extradite such citizens
- Qatar must provide reparations to these countries for any opportunity costs incurred over the past few years because of Qatari policies. (How do they even begin to comply with this in 10 days?)
- Qatar must become in sync with its Gulf and Arab neighbourhood on all levels, and to activate Riyadh Agreement 2013/2014
- Qatar must provide all databases related to oppositionists that it provided support to & clarify what help was provided.
- Qatar must close all media outlets backed by it directly or indirectly, like Arabi21, Rasd, New Arab, Middle East Eye, Mkamlin, Sharq etc
We await the Gulf nations’ response. Until we hear from them, it’ll remain unclear whether this is the beginning of a negotiation, or whether the group will seek to achieve their goals in some other way – either through regime change in Qatar now that the Saudi alliance will have a “pretext” demonstrating Qatari non-compliance with a “goodwill” offer, or by trying to batter Qatar into further economic submission.
end
the blockade continues after the Arab states slam the “negative” response from Qatar to their ultimatum
(courtesy zero hedge)
Qatar Blockade To Continue After Arab States Slam “Negative” Response To Ultimatum
Foreign ministers from Egypt, Saudi Arabia, the United Arab Emirates and Bahrain released statements following a meeting in Cairo on Wednesday, after the latest deadline they had set to Qatar expired on Tuesday night.
The four Arab nations, locked in a diplomatic crisis with Qatar, dismissed Doha’s response to their demands as “not serious” and pledged to continue to keep the Gulf state under political and economic sanctions until it changes its policies. They also “expressed regret with regards to the negative response from Qatar, which showed complacency and non-seriousness to deal with the root of the problem and reconsider their policies and practices.”
Arab Foreign Ministers meet to discuss the diplomatic situation with Qatar, in Cairo, Egypt.
Speaking to reporters, Egyptian Foreign Minister Sameh Shukri said that Qatar’s response to the four Arab states’ list of demands, which was passed on via intermediary Kuwait on Monday, was “generally negative” and failed to “lay the foundation for Qatar’s reversal of the policies it pursues.”
He added that Qatar’s reply “lacked content”, and that it was no “longer possible to tolerate Qatari acts.” Shukri also accused Qatar of failing “to realize the gravity of the situation,” according to AP.
Separately, the Saudi Foreign Minister Adel bin Ahmed Al Jubeir says the alliance will weigh more measures against Qatar, and reserves the right to take action when appropriate. He also made it clear that “this is not a response to the Kuwait letter” so something more formal may follow as “consultations are ongoing.” He also said that the Boycott will continue until Qatar changes policy, adding that it was no surprise that Iran is trying to get closer to Qatar, while expressing hopes that Turkey will remain neutral.
In other words, it appears that while nothing firm was decided, “the boycott will continue until Qatar changes policy” according to the Saudi.
The Saudi-led alliances will meet again in Manama, Bahrain to discuss next steps.
Earlier in the day, Qatar’s Foreign Minister accused four Arab neighbors of “clear aggression” against his country. Sheikh Mohammed bin Abdulrahman al-Thani said charges cited by Saudi Arabia, Bahrain, the United Arab Emirates and Egypt in cutting diplomatic and transport links a month ago “were clearly designed to create anti-Qatar sentiment in the west”.
“Qatar continues to call for dialogue despite the violation of international laws and regulations, despite the separation of 12,000 families, despite the siege that is a clear aggression and an insult to all international treaties, bodies and jurisdictions,” he told a meeting at London’s Chatham House think-tank.
Qatar “wasn’t built on oppression, fear, censorship, has an independent view on global and regional events,” the official added. Also, the country successfully “mediated in 10 international portfolios in the course of the last 8 years,” without “interfering in the internal affairs of others.”
Qatar remains “open for dialogue, not an ultimatum,” as the country’s authorities believe that “citizens everywhere should have the right to a government that is responsive to their needs,” and their country, despite not being a democracy, caters to these needs. “That’s why Qatar wasn’t alarmed and threatened by the Arab Spring movement [back in 2011],” the Qatari Foreign Minister said.
(courtesy Whitney Webb/AntiMedia.org)
Over 500,000 Syrian Refugees Return To Government-Controlled Areas Of Syria
Authored by Whitney Webb via TheAntiMedia.org,
Crucial to the Western narrative of the Syrian conflict is the assertion that Syrian President Bashar al-Assad is a brutal dictator who has taken to killing his own people over the course of Syria’s six-year-long conflict. This allegation has been the crux of the “humanitarian” justification for foreign military intervention in Syria that would seek to depose Assad’s government, a justification frequently used by the U.S. and its allies prior to an invasion or the toppling of an extant regime.
While this narrative has been pervasive in media coverage of the Syrian conflict, it is now being debunked by the very Syrian refugees that the media purported were fleeing Assad in the first place. According to a recent statement from Andrej Mahecic, a spokesman for the UN High Commissioner for Refugees, an estimated 440,000 displaced Syrians who remained in the country have returned to their homes since the year began. In addition, 31,000 refugees in neighboring countries also returned to Syria in the first half of the year, with 260,000 having returned to Syria from other nations since 2015.
Though Mahecic noted that these refugees represent only a “fraction” of the five million Syrian refugees living in neighboring countries, what is notable is that nearly all of those who have decided to come back are settling in areas of Syria controlled by the government or where the Syrian government has made major territorial gains against ISIS and US-backed militants like al-Nusra Front in recent months – namely Aleppo, Hama, Homs and Damascus.
Even with the conflict in Syria still raging, thousands of the displaced are eagerly returning to their homes under the control of the Syrian government. This may seem strange, as the U.S. media has long suggested that most refugees were fleeing Assad, not foreign-backed terrorists like Daesh (ISIS) and Al-Nusra.
Of course, this assertion was based on “polls” of refugees conducted by the Syria Campaign,a USAID-funded organization that has long pushed for U.S. military intervention in Syria.
This begs the question: why would refugees choose to return to territory controlled by the person they supposedly sought to flee, as the mainstream media portrays?
These latest figures from the UN suggest that many refugees were not fleeing their government, but rather the violence caused by a foreign-funded insurgency intended to topple the popular Assad government. As Middle East Eye noted in 2015, prior to the outbreak of the conflict, Assad was widely popular, though his popularity allegedly evaporated as the 2011 Saudi- and U.S.-funded uprising began.
Did Assad’s popularity with the Syrian people ever really go away? Western media reports containing interviews with the handful of Syrians who support Assad as dictator claim it is so. But the evidence has long suggested that the majority of Syrians have continued to approve of their president throughout the conflict.
Indeed, there is plenty of evidence that the “popular uprisings” against the Assad government in 2011 were staged on behalf of foreign mercenaries largely backed by Saudi Arabia, Qatar and Turkey – governments that have long sought to remove Assad from power. Assad’s popularity prior to the outbreak of violence likely remained unchanged after the fact.
Polling within Syria has consistently shown this to be true. Even polls funded by anti-Assad nations like Qatar have also foundthat the majority of Syrians continue to overwhelmingly support Assad. Indeed, when elections were last held in 2014, the Western media could not hide the large crowds that came to vote, as the population re-elected Assad, who won with 88 percent of the vote. By contrast, voter turnout was 55.7 percent in the last U.S. Presidential election, suggesting that Assad has a stronger democratic mandate than U.S. President Donald Trump.
Six years into the conflict, video footage, and photographs clearly show that Assad and his wife regularly walk among the Syrian people in Damascus with little to no security detail. The Assads even drive their own cars – without security – through the countryside.
This seems like a difficult feat for a “hated” and “feared” dictator to perform on a regular basis. By contrast, some Western leaders can hardly spend a few minutes among their constituents – even with a massive security detail in tow – without being sped away for their own protection.
Even U.S. politicians who have traveled to Syria have come back acknowledging Assad’s popularity. For instance, Virginia State Senator Richard Black has cited internal reports from U.S. intelligence which state that, were an election in Syria to be held today, Assad would likely be reelected with 90 percent of the vote, including in areas occupied by terrorists.
Turkey Warns It’s Ready For Military Intervention In Syria, Accuses US Of Creating A “Terrorist Army”
Speaking in an interview with France 24, in which Turkish president Recep Erdogan lashed out at Germany for not allowing him to address the Turkish community there and preventing him from bringing his bodyguards to the upcoming G20 meeting in Hamburg, Erdogan warned that Turkey is ready to intervene militarily in north Syria to repel Syrian Kurdish forces there, forces which recall are armed and supported by the US but are seen as a terrorist organisation by Turkey.
He also said that to avoid military intervention, a de-escalation zone could soon be established by Turkish and Russian troops in the region.
Separately, Turkey’s deputy Prime Minister Numan Kurtulmus told Reuters on Wednesday that Turkish military preparations in northwest Syria are “legitimate measures against a threat from Kurdish forces in the Afrin region, and Turkey will retaliate against any hostile move.” He added in an interview that “This is not a declaration of war. We are making preparations against potential threats” adding that “It’s … a legitimate measure so that we can protect our independence. We cannot remain silent against those sending missiles from Afrin.”
Kurtulmus was responding to the head of the Syrian Kurdish YPG militia, who told Reuters that Turkish military deployments near Kurdish-held areas of northwestern Syria were a declaration of war which could trigger clashes within days.
“Their (YPG) primary goal is a threat to Turkey, and if Turkey sees a YPG movement in northern Syria that is a threat to it, it will retaliate in kind,” Kurtulmus said. “This isn’t a fantasy for us…it is an indispensible approach to protect Turkey’s border security.”
The problem stems from Ankara’s consideration of the US-allied YPG as an extension of the outlawed Kurdish PKK group which has waged an insurgency in southeast Turkey since the 1980s. Turkey was angered by a U.S. decision to arm the YPG as it marched with it allies on Raqqa.
Some more details on the latest tactical positioning:
The YPG forms a major part of the U.S.-backed campaign to capture Islamic State’s stronghold of Raqqa. It also controls a pocket of territory in Afrin, about 200 km (125 miles) west of Raqqa. Tensions between Turkish forces and the YPG have been mounting in the Afrin region in recent weeks.
Turkey’s military, which launched an incursion last August into part of northern Syria which lies between Afrin and a larger Kurdish-controlled area further east, has said that it has returned fire against members of YPG militia near Afrin several times in the last few weeks.
Adding to the absurdity of the situation, last month the Turkish defence ministry said that the Pentagon had sought to give assurances that Washington would retrieve weapons provided to the YPG after Islamic State fighters were defeated. Clearly this was a ludicrous assertion and Turkey slammed it as such:
“There has never been an incident where a group in the Middle East has been armed, and they returned the weapons,” Kurtulmus said. The United States “have formed more than a terrorist organisation there, they formed a small-scale army.”
6 .GLOBAL ISSUES
7. OIL ISSUES
8. EMERGING MARKET
SOUTH AFRICA
This is not good: South Africa is seeking to nationalize its Central Bank. Remember that this Central bank is private and has shareholders. The Rand plummeted on this news:
(courtesy zero hedge)
Rand Tumbles On Report South Africa Seeks To Nationalize Central Bank
The South African rand has tumbled following a report confirming recent speculation that South Africa’s ruling African National Congress will propose that the country’s central bank, the Reserve Bank be nationalized and wholly owned by the state, according to three people familiar with the discussions quoted by Bloomberg.
- S. AFRICA’S ANC SAID TO PROPOSE CENTRAL BANK BE STATE-OWNED
- S. AFRICA’S CENTRAL BANK CURRENTLY HAS PRIVATE SHAREHOLDERS
- S. AFRICA CENTRAL BANK’S SHAREHOLDERS HAVE NO SAY ON POLICY
Bloomberg adds that the proposal which will surely have negative consequences on the country’s financial stability was approved in plenary session of the party’s policy conference taking place in Johannesburg. However, the decision still to be ratified at the ANC electoral conference in December, so nothing is imminent. By way of background, Bloomberg reminds us that the central bank’s currently has about 600 private shareholders who have no say over the setting of monetary policy.
Furthermore, Citi cautions that it would not chase the move as “these headlines are citing unnamed sources and have not been confirmed official. We will publish the details when released. Indeed such a proposal seems at odds with the last we heard from the ANC. The Treasurer General Mkhize spoke on Tuesday saying that most members of the ANC favor an independent central bank.”
For now, however, the news has impacted the ZAR, with the USDZAR spiking as much as 2.1% intraday. (13,38 RAND/DOLLAR)
From a technical perspective, short-term USD/ZAR bulls have now set their sights on the long-term average line at 13.52 after powering through the April downtrend this week; Bloomberg’s chartist writes that the strength of the broader downtrend may be tested this week as key pivot lines come under the spotlight. The USDZAR Pair broke the April downtrend on Monday and produced a higher high on Tuesday, endorsing the bullish breakout action. The pair is also severing resistance at 13.14 and 13.21, which were important near-term swing points.
In other words, Next critical level and focus is at 13.52, the 233-DMA (number tied to Fibonacci sequence), which has been a multi- year pivot level (see long-term chart)
end
My goodness: haven’t they learned? South Africa President now proposes land expropriation without compensation
Rhodesia all over again.
(courtesy zero hedge)
Zimbabwe 2.0: South Africa President Proposes Land “Expropriation Without Compensation”
With every passing day the formerly booming nation of South Africa is getting ever closer to the formerly banana republic of Zimbabwe.
On Wednesday, South Africa’s ruling African National Congress proposed at its 5th annual national policy conference that in addition to potentially nationalizing the country’s central bank, that land expropriation without compensation should be allowed where it is “necessary and unavoidable,” President Jacob Zuma said.
There was a hard push from supporters of President Jacob Zuma for a decision on the redistribution of land without compensation‚ which would necessitate a change to the constitution. But as the Sunday Times reported, according to the ANC’s economic transformation subcommittee head‚ Enoch Godongwana‚ both this proposal and the current system of redistribution with compensation remain on the table for debate by branches. Zuma‚ however‚ hinted in his closing address that there could be legislative changes for expropriation without compensation.
“We agree on the imperative to accelerate land redistribution and land reform. Again we had robust discussions on the modalities to achieve this. We agree that using the fiscus for land redistribution must be accompanied by other measures if we are to achieve the goal at the required pace,” said Zuma in his closing remarks at the six-day conference held in Johannesburg.
“Where it is necessary and unavoidable this might include expropriation without compensation‚” Zuma said.
As discussed several months ago, land will be a key issue ahead of a December conference where a successor to Zuma will be chosen. The two current frontrunners are Deputy President Cyril Ramaphosa and Nkosazana Dlamini-Zuma, former African Union chair and Zuma’s ex-wife. As a reminder, Dlamini-Zuma has made land redistribution from whites to blacks without compensation one of her main policies.
The policy conference – which has been the top news item in South Africa for the past six days – made a dramatic turn-around and ditched the term “white monopoly capital” as being the main hindrance to the rapid socio-economic transformation of the black majority. Most of the delegates appeared to have given President Jacob Zuma and his supporters the thumbs down on this issue. They have recently used the term “white monopoly capital” in what appears to be an attempt to regain lost support among the masses.
“Nine out of those eleven commissions said the phenomenon of monopoly capital is a global one and it manifests itself differently in various parts of the globe and therefore it would not be correct to characterize ours simply as white monopoly capital,” said Joel Netshitenze of the ANC’s national executive committee.
* * *
Ordinary South Africans are meanwhile keeping close tabs on the policy conference, adamant that the ANC come up with solutions to overcome deep poverty, the uncontrollable rise in unemployment and inequality.
The ANC should once again become “the party that people voted for so many years ago,” says Mbali Nyando, lamenting that 22 years into democracy, the living conditions of the people, black people in particular, are “deteriorating rather than improving.”
Bheki Khumalo told DW that the ANC should focus on unemployment, a “major issue among the black people.” People are unemployed, hungry and they have lost hope, he says, appealing to the ANC to work more closely with entrepreneurs.
And if South Africa decides to follow in Zimbabwe’s footsteps, the already hopeless people will be even hungrier and even more unemployed.
end
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings WEDNESDAY morning 7:00 am
Euro/USA 1.1324 DOWN .0035/REACTING TO + huge Deutsche bank problems + USA election:/TRUMP HEALTH CARE DEFEAT//ITALIAN REFERENDUM DEFEAT/AND NOW ECB TAPERING BOND PURCHASES/ /USA RISING INTEREST RATES AGAIN/EUROPE BOURSES mostly IN THE GREEN
USA/JAPAN YEN 113.61 UP 0.651(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/LABOUR PARTY LOSES IN LOCAL ELECTIONS
GBP/USA 1.2912 DOWN .0024 (Brexit March 29/ 2017/ARTICLE 50 SIGNED
THERESA MAY FORMS A NEW GOVERNMENT/STARTS BREXIT TALKS
USA/CAN 1.2951 UP .0047 (CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT AND GREXIT FROM EU/TRUMP INITIATES LUMBER TARIFFS ON CANADA)
Early THIS WEDNESDAY morning in Europe, the Euro FELL by 35 basis points, trading now ABOVE the important 1.08 level FALLING to 1.1405; 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+ TRUMP HEALTH CARE BILL DEFEAT AND MONTE DEI PASCHI NATIONALIZATION / Last night the Shanghai composite CLOSED UP 24.33 POINTS OR 0.76% / Hang Sang CLOSED UP 132.96 POINTS OR 0.52% /AUSTRALIA CLOSED DOWN 0.32% / EUROPEAN BOURSES OPENED MOSTLY 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 WEDNESDAY morning CLOSED UP 49.28 POINTS OR 0.25%
Trading from Europe and Asia:
1. Europe stocks OPENED MOSTLY IN THE GREEN
2/ CHINESE BOURSES / : Hang Sang CLOSED UP 132.96 POINTS OR 0.52% / SHANGHAI CLOSED UP 24.33 POINTS OR 0.76% /Australia BOURSE CLOSED DOWN 0.32% /Nikkei (Japan)CLOSED UP 49.28 POINTS OR 0.25% / INDIA’S SENSEX IN THE GREEN
Gold very early morning trading: 1221.00
silver:$15.98
Early WEDNESDAY morning USA 10 year bond yield: 2.348% !!! UP 0 IN POINTS from MONDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%.
The 30 yr bond yield 2.8466, UP 0 IN BASIS POINTS from MONDAY night.
USA dollar index early WEDNESDAY morning: 96.45 UP 23 CENT(S) from MONDAY’s close.
This ends early morning numbers WEDNESDAY MORNING
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And now your closing WEDNESDAY NUMBERS
Portuguese 10 year bond yield: 2.978% DOWN 3 in basis point(s) yield from MONDAY
JAPANESE BOND YIELD: +.092% UP 6/10 in basis point yield from MONDAY/JAPAN losing control of its yield curve
SPANISH 10 YR BOND YIELD: 1.571% UP 5 IN basis point yield from MONDAY
ITALIAN 10 YR BOND YIELD: 2.159 UP 2 POINTS in basis point yield from MONDAY
the Italian 10 yr bond yield is trading 59 points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.470% DOWN 1/2 IN BASIS POINTS ON THE DAY
END
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IMPORTANT CURRENCY CLOSES FOR WEDNESDAY
Closing currency crosses for WEDNESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/1:00 PM
Euro/USA 1.1333 DOWN .0026 (Euro DOWN 26 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 113.36 UP 0.303 (Yen DOWN 30 basis points/
Great Britain/USA 1.2920 DOWN 0.0015( POUND DOWN 15 basis points)
USA/Canada 1.2993 UP .0060 (Canadian dollar DOWN 60 basis points AS OIL FELL TO $45.32
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This afternoon, the Euro was DOWN by 26 basis points to trade at 1.1333
The Yen FELL to 113.26 for a LOSS of 30 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 FELL BY 15 basis points, trading at 1.2920/
The Canadian dollar FELL by 60 basis points to 1.2993, WITH WTI OIL FALLING TO : $45.32
Your closing 10 yr USA bond yield DOWN 1 IN basis points from MONDAY at 2.336% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 2.8577 DOWN 1 in basis points on the day /
Your closing USA dollar index, 96.36 UP 15 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 WEDNESDAY: 1:00 PM EST
London: CLOSED UP 10.37 POINTS OR 0.14%
German Dax :CLOSED UP 16.55 POINTS OR 0.13%
Paris Cac CLOSED UP 5.20 POINTS OR 0.10%
Spain IBEX CLOSED DOWN 43.10 POINTS OR 0.41%
Italian MIB: CLOSED DOWN 91.66 POINTS/OR 0.44%
The Dow closed DOWN 1.20 OR 0.01%
NASDAQ WAS closed UP 40.80 POINTS OR 0.01% 4.00 PM EST
WTI Oil price; 45.32 at 1:00 pm;
Brent Oil: 48.05 1:00 EST
USA /RUSSIAN ROUBLE CROSS: 60.09 UP 67/100 ROUBLES/DOLLAR (ROUBLE LOWER BY 67 BASIS PTS)
TODAY THE GERMAN YIELD FALLS TO +0.470% FOR THE 10 YR BOND 4.PM EST 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 5:00 PM:$45.57
BRENT: $48.23
USA 10 YR BOND YIELD: 2.323% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 2.847%
EURO/USA DOLLAR CROSS: 1.1342 down .0017
USA/JAPANESE YEN:113.07 up 0.13
USA DOLLAR INDEX: 96.21 down 1 cent(s)
The British pound at 5 pm: Great Britain Pound/USA: 1.2926 : DOWN 9 POINTS FROM last NIGHT
Canadian dollar: 1.2878 UP 55 BASIS pts
German 10 yr bond yield at 5 pm: +0.470%
END
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM FOR THE DAY
Energy Stocks Slammed Most In 4 Months, Nasdaq Bounces Despite “Worse Than Lehman” Bearish Bets
Seemed appropriate…
Once again ‘soft’ data is hope-ing as ‘hard’ data is nope-ing...
Nasdaq outperformed (avoiding its worst losing streak since 2016) and Small Caps underperformed… Dow closed unch
Having first pointed out the spike in relative Nasdaq risk in early June, Put Open Interest in QQQ (Nasdaq ETF) has since spiked to its highest level since 2007…
“Value” dipped as “growth” bounced back into the green for July..
It was a weird day for stocks and bonds…
Oil prices tumbled after Russia hinted it would not support further output cuts…
Which in turn smacked Energy stocks – biggest drop in 4 months – as banks and tech outperformed…
FANG Stocks bounced modestly but remain lower in July so far…
And Tesla Tanked..
The Dollar Index ended the day practicaly unchanged – jumping and dumping after the Fed minutes…Notice that for the 3rd day in a row, the dollar was incessantly bid from 3am to 7am ET (green arrows)…
The biggest movers in FX land were The South African rand (tumbled around 1.75% on local political worries and land confiscation concerns), while the Turkish lira fell near 1.5% as Kurdish tensions heightened.
Treasury yields fell modestly on the day (bonds rlalied into the close after an initial sell-off after the fed)…
Gold and silver ended the day lower (though rallied post FED)…
end
This is what everybody was waiting for: the release of the minutes of the last Fed meeting:
FOMC Minutes Show “Divided” Fed Fearful Of High Asset Prices, Low Inflation
Having hiked in June amid gravely disappointing macro-economic data, all eyes are now on the minutes for inflation (weakness blamed on “idiosyncratic factors”), labor market (concerns about “sustained employment undershoot“), balance sheet normalization (Fed “divided” over when to start), and market valuation concerns (“equity market high on standard metrics”). Rate hike odds for Sept (22%) and Dec (56%) were rising into the release.
Additional headlines…
- *FED OFFICIALS DIVIDED OVER WHEN TO START BALANCE-SHEET RUNOFF
- *FED OFFICIALS REPEATED SUPPORT FOR GRADUAL INTEREST-RATE HIKES
- *A FEW FED OFFICIALS SAW EQUITY PRICES HIGH ON STANDARD METRICS
- *FED OFFICIALS NOTED FINANCIAL CONDITIONS EASED DESPITE HIKES
- *A FEW OFFICIALS SAW LOW VOLATILITY STOKING RISKS TO STABILITY
- *MOST FED OFFICIALS BLAMED SOFT PRICES ON IDIOSYNCRATIC FACTORS
- *FED DEBATED PROS, CONS OF SUSTAINED UNEMPLOYMENT UNDERSHOOT
Some of the key highlights from the minutes, first on the timing of the next rate hike, where the FOMC appears split:
“Participants expressed a range of views about the appropriate timing of a change in reinvestment policy. Several preferred to announce a start to the process within a couple of months; in support of this approach, it was noted that the Committee’s communications had helped prepare the public for such a step. However, some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation.”
“A few of these participants also suggested that a near-term change to reinvestment policy could be misinterpreted as signifying that the Committee had shifted toward a less gradual approach to overall policy normalization.”
On balance sheet normalization:
It was observed that the ensuing reduction in securities holdings would be gradual and would follow an extended period of Committee communications on balance sheet normalization policy, including the information that would be released at the conclusion of this meeting. Consequently, the effect on financial market conditions of the eventual announcement of the beginning of the Federal Reserve’s balance sheet normalization was expected to be limited.
Several participants indicated that the reduction in policy accommodation arising from the commencement of balance sheet normalization was one basis for believing that, if economic conditions evolved broadly as anticipated, the target range for the federal funds rate would follow a less steep path than it otherwise would. However, some other participants suggested that they did not see the balance sheet normalization program as a factor likely to figure heavily in decisions about the target range for the federal funds rate. A few of these participants judged that the degree of additional policy firming that would result from the balance sheet normalization program was modest.
On the lack of inflation, which was blamed on “idiosyncratic factors” whatever that means:
“Most participants viewed the recent softness in these price data as largely reflecting idiosyncratic factors, including sharp declines in prices of wireless telephone services and prescription drugs, and expected these developments to have little bearing on inflation over the medium run.”
“Several participants expressed concern that progress toward the Committee’s 2 percent longer-run inflation objective might have slowed and that the recent softness in inflation might persist.”
On unemployment and the collapse of the Phillips curve:
“A couple of participants expressed concern that a substantial undershooting of the longer-run normal rate of unemployment could pose an appreciable upside risk to inflation or give rise to macroeconomic or financial imbalances that eventually could lead to a significant economic downturn.”
“Several participants expressed concern that a substantial and sustained unemployment undershooting might make the economy more likely to experience financial instability or could lead to a sharp rise in inflation that would require a rapid policy tightening that, in turn, could raise the risk of an economic downturn.”
On the failure of the Fed to tighten financial conditions and high equity prices:
“They also noted that, according to some measures, financial conditions had eased even as the Committee reduced policy accommodation and market participants continued to expect further steps to tighten monetary policy.”
“Corporate earnings growth had been robust; nevertheless, in the assessment of a few participants, equity prices were high when judged against standard valuation measures.”
Most notably, however, as Bloomberg Intelligence noted, financial stability concerns appear to be very high on policy makers’ radar and seem to be pushing the Fed’s hand to continue to gradually tighten policy.
Some participants suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly; a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.
As for the balance sheet, a September kickoff for the program is what traders widely expect. Any delay may affect calculations on the next rate hike (expected in December) and it may signal the Fed is worried about roiling markets, which ironically, may roil markets.
“A few of these participants also suggested that a near-term change to reinvestment policy could be misinterpreted as signifying that the Committee had shifted toward a less gradual approach to overall policy normalization.”
“Several preferred to announce a start to the process within a couple of months,” the minutes showed. “Some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation.”
Finally, on poor C&I Loan growth, traditionally a precursor to recession.
Commercial and industrial loans outstanding increased in April and May after being weak in the first quarter, although the growth of these loans remained well below the pace seen a year ago. Issuance of both corporate debt and equity was strong. Gross issuance of institutional leveraged loans was solid in April and May, although it receded from the near-record levels seen over the previous two months.
* * *
Since the Fed hiked rates in June, the Treasury curve is flatter, FANG Stocks are down, and gold has been hit hard…
September hike odds have tumbled since June but December has risen to 42%…
Several Fed members noted “somewhat rich” asset valuations... Indeed, during the history of the stock market, it has only traded at a richer valuation during one period – June 1997 to September 2001 – as the dotcom farce blew and burst. Historical data for the index is available going back to 1881.
No matter what The Fed said, they have some large maturities to deal with very soon…
Full Minutes below:
end
the debt ceiling is going to be a huge problem as the Republicans are split into 3:
1 tea party member (slash spending/entitlements
2 moderates( tax cuts for everybody including the wealthy/increase military spending
3. war mongers (John McCain ) /spend massive amounts of money of defense and act war like
there is no way that can be an agreement on the debt ceiling
(courtesy zerohedge)
Only 4 House Republicans Say They Would Support “Clean” Debt-Ceiling Hike
With the CBO warning that the Treasury is on track to run out of cash in less than four months, Republicans are facing a difficult internecine struggle to raise the debt limits as both conservatives and moderates demand riders that stipulate how the money can be spent. And while the Trump administration has sought to play down this conflict, as the Hill reports, support for a “clean” debt-ceiling hike – that is, raising the debt ceiling with no strings attached – is dwindling as only a handful of the 16 remaining House Republicans who backed the last clean hike say they would back another. Yet, though Democratic support for a clean bill is far from assured, the Republicans’ much narrower majority in the Senate increases the likelihood of a clean hike.
Only 16 House Republicans who are currently in office backed the last “clean” debt hike, and few of them will say they are certain to support it this year. If the debt ceiling is raised with a clean hike — a distinct possibility given Democratic demands and the narrow, 52-seat majority for the GOP in the Senate, Republicans will need at least 24 members of their own conference to back a clean debt bill in the House.
That could be a tall order. Only four of the 16 Republicans who voted for the clean debt hike in 2014 suggest they will or are open to doing so this fall.
Even Paul Ryan voted against the last debt-ceiling bill in 2014 when he was Chairman of the House Ways and Means Committee. And in the Senate, every Republican opposed the bill the last time around. Given these odds, the chances of another round of downgrade-inducing gridlock are high – and the possibility of raising the US borrowing limit before Congress’s August recess, as Treasury Secretary Steven Mnuchin has repeatedly urged, are looking increasingly remote. The problem is compounded by the fact that this is the first time in 11 years that the GOP will be in charge of raising the debt ceiling while controlling both chambers of Congress AND the White House, meaning that the optics surrounding who “owns” the bill will complicate the voting process.
Furthermore, the Democratic leadership appears to be standing by its policy of obstructionism, unwilling to do President Donald Trump any political favors, according to the Hill.
That political dynamic puts all of the responsibility for raising the debt ceiling on the GOP, and little if any on Democrats. House Minority Leader Nancy Pelosi (D-Calif.) will not want to give slack to vulnerable Republicans who don’t want to back the debt ceiling hike for their own party’s president.
“I don’t see Democrats bailing out Republicans, just like Republicans didn’t bail out Democrats,” said Steve Bell, senior advisor for the Bipartisan Policy Center and a former staff director of the Senate Budget Committee. “They’ll say ‘we’re going to give you the same amount of help you gave us.’”
In the spring, Pelosi and Senate Minority Leader Chuck Schumer (D-N.Y.) suggested that Democrats could withhold support from a clean debt hikeif Republicans separately press for legislation cutting taxes on the wealthy.
They later said that Democrats would back a clean debt hike, but Pelosi will want as many Republicans as possible to support it since their party controls the White House. And the tax talk has given an argument to any liberal who chooses to oppose a debt ceiling hike.
So far, only four of the 16 House Republicans who backed the clean debt ceiling in 2014 suggested they would consider voting for a clean hike – far below the 24 votes needed to pass such a bill. They are: Charlie Dent (Pa.), Darrel Issa (Calif.), Peter King (N.Y.) and David Valadao (Calif.).
Members of the Trump administration have expressed conflicting views on the debt ceiling. Mnuchin supports a clean bill, while Mick Mulvaney, a former House Republican who voted against the last clean debt-ceiling bill, has said there should not be a clean debt hike vote.
Conservative Republicans are already pressing Ryan to tie spending cuts or budgetary reforms to a debt-limit bill, signaling they do not plan on changing their strategy with fellow Republican Donald Trump in the White House. Meanwhile, the official Democratic position is to support a clean bill. If the House could pass a debt ceiling bill that includes provisions backed by conservatives, the Senate would need at least eight Democrats to back it in the Senate to overcome an expected filibuster.
The last time the US infamously shut down due to passing its debt ceiling was in August 2011, when S&P downgraded the US, formerly at a AAA rating, for the first time ever prompting a furious response from then-Treasury secretary Tim Geithner.
Of course, raising the debt ceiling is hardly the only issue where Republicans remain deeply divided. With Congress observing the July 4 holiday, they’re likely to get an earful from governors in the 31 states that expanded Medicaid, who say the Republican plan to repeal and replace Obamacare goes too far, according to the Wall Street Journal.Nine Republicans oppose the legislation in its current form – seven more than Senate Majority Leader Mitch McConnell can afford to lose.
Here’s WSJ:
Most vocal are governors of states that expanded their Medicaid eligibility under the Affordable Care Act. The bill would phase out that expansion and transform the state-federal safety-net program into one in which the federal government’s share would be capped. In all, the bill would cut $772 billion in funding for the program over a decade.
“It’s a pretty big deal, because in most cases these states have had bitter battles inside the state legislature and [with the] governor about [Medicaid], and it’s been settled in favor of expansion,” said Stewart Verdery, a former GOP Senate aide and founder of Monument Policy Group, a lobbying and public-affairs firm.
For any Republican senator “to blow that up from afar is really dicey,” Mr. Verdery said.
In Nevada, Republican Sen. Dean Heller, who faces a tough re-election fight next year, appeared with GOP Gov. Brian Sandoval at a news conference recently and said he opposes the health bill. Republican Gov. John Kasich of Ohio has said the bill’s opioid-addiction measures don’t go far enough, and he said he has conveyed his worries to the state’s GOP senator, Rob Portman. Arkansas Republican Gov. Asa Hutchinson said he has spoken to his state’s GOP senators, Tom Cotton and John Boozman, almost daily about his concerns with the bill.
And as we noted earlier, Bannon and the populist wing of the Trump administration is considering pushing for higher taxes on the wealthy – an issue that’s anathema to Republicans. With gridlock remaining the status quo in Washington, the Treasury has already begun holding larger cash balances in anticipation of deadlock, hoping to forestall the inevitable market shock should Congress blow past the CBO’s mid-October deadline.
The Treasury breached its debt limit on March 16, when the debt ceiling was reset to $19.8 trillion, however, so far there has been no new borrowing authority to surpass it. Since then the Treasury has been using so-called “extraordinary measures,” to pay bills without technically adding to the debt amount However, as Mnuchin has warned, many worry that waiting until the last minute to act on the debt ceiling could provoke a dramatic selloff in US stocks. Who knows? Maybe the debt-ceiling fight will be the straw that finally breaks the back of our ridiculously overvalued equity market.
end
Tuesday
Two states have signed their budgets for 2018 but we still have 2 major states that did not sign:
- Illinois
- Connecticut
plus another 8
(courtesy zerohedge)
Chris Christie Signs Budget Bill, Ending New Jersey Government Shutdown
After a three day state of emergency and government shutdown, on Tuesday morning New Jersey Gov. Chris Christie signed a compromise budget bill ending the state shutdown that became an embarrassment for the outgoing governor when he was photographed lounging on a beach that had been closed to the public for the holiday weekend. According to Reuters, Christie ended the state shutdown by signing a $34.7 billion budget measure that included a controversial provision reshaping the state’s largest health insurer, Horizon Blue Cross Blue Shield of New Jersey, which covers 3.8 million people in the state.
Christie said all state parks and beaches would be open on Tuesday for the Fourth of July holiday and state offices would be open as usual on Wednesday, and added that he was happy a resolution had been reached on the budget impasse, but saddened it came three days late.
“This bill is a long overdue significant reform that will have a lasting impact on New Jersey residents,” he said before signing it into law.
Separately, NJ State Senate President Steve Sweeney told a news conference: “None of this was easy.” Assembly Speaker Vincent Prieto also chimed in, saying the agreement to end the partial government shutdown was reached after long talks in “crisis” mode on Monday with Horizon and state legislators.
As noted yesterday, while Christie was largely a non participant in the bduget standoff, he was ridiculed after NJ.com posted photos of the Republican governor and his family sunbathing on a beach that had been closed to the public over the holiday weekend due to the budget standoff.
In characteristic fashion, Christie downplayed the kerfuffle. “If they had flown that plane over the beach and I was sitting next to a 25-year-old blonde in that beach chair next to me, that’s a story.”
While states have mostly recovered since the 2007-2009 recession, their revenue growth has not always kept pace with the national economy.
More than 30,000 state workers who were furloughed on Monday, would get back to their jobs as a result of the new budget.
Elsewhere, just like Jersey, the state of Maine ended also a 3-day government shutdown on Tuesday when Governor Paul LePage signed a budget for the fiscal years 2018 and 2019 following late-night negotiations with legislative leaders, the governor’s office said in a statement. Previously, members of Maine’s State Employees Association rallied outside the State House to demand a budget deal from lawmakers and Republican Governor Paul LePage.
“The Maine state government shutdown is now over. Happy Fourth of July!” LePage said.
“I have signed a budget with no tax increase. I thank the House Republicans for standing strong for the Maine people,” he said in a second tweet. Maine state police, parks and offices responsible for collecting revenue had all planned to work through the shutdown, the state’s first since 1991.
While NJ and Maine are back to spending money they don’t have, about 10 U.S. states still do not have budgets for the fiscal year that began on July 1, including Illinois, which is in its third year without an enacted budget.
Earlier today, the Illinois Senate voted to approve the final budget bill passed by the House, however Illinois Governor has vowed he will veto any spending bill, and it was unclear if and how his opinion would be overruled.
end
Trouble in Illinois, they raise Illinois tax rate by 32%/the Governor vetoes the raise and then the senate overrides it
(courtesy zero hedge)
Illinois Tax Rate Soars 32% After Senate Overrides Governor Veto
Two days ago when we reported that the Illinois House had voted 72-45 to pass a 32% income tax hike (and a $36 billion spending plan), in an last ditch scramble to provide the state with its first budget in three years (or else suffer the first ever US downgrade to “Junk”), we said that “ultimately, the fate of Illinois’ credit rating is now in the hands of Rauner, and whether and how fast his imminent veto is overriden.”
We got the answer on Independence Day afternoon, when just around noon, first the Senate voted to approve the House tax hike and spending bill, then shortly after, Gov. Rauner – just as he warned he would – vetoed both the income tax increase and the budget bill and budget implementation bill.…
…. only to be himself overriden moments later by the Senate, as it took the drastic measure to end a record budget impasse.
The 36-18 vote in the Senate on the tax hike came after a very short debate, and two days after more than a dozen Republicans in the House broke ranks with Rauner to join Democrats to support the plan amid growing frustration.
Needless to say, former PE titan, Bruce Rauner disagreed, and in his veto message to lawmakers said that “the package of legislation fails to address Illinois’ fiscal and economic crisis —and in fact, makes it worse in the long run. It does not balance the budget. It does not make nearly sufficient spending reductions, does not pay down our debt and holds schools hostage to force a Chicago bailout.” Rauner also noted he did not get the economic agenda items he had made a requirement to sign a tax hike into law.
“This budget package does not provide property tax relief to struggling families and employers. It does not provide regulatory relief to businesses to create jobs and grow the economy. It does not include real term limits on state elected officials to fix our broken political system” said Rauner, listing the issues from what he once dubbed his “turnaround agenda.”
Gov. Bruce Rauner holds a press conference
It does however stave off the day of reckoning and potentially Illinois junk status downgrade.
The voting came as Illinois entered its third year without a budget amid Wall Street’s threat of a credit downgrade to junk status, potential layoffs of construction workers and with Illinois already booted from the Powerball and Mega Millions lottery games.
“We don’t have any time left,” said Sen. Toi Hutchinson, D-Olympia Fields. She laid out what is at stake without a resolution, including the state’s credit rating being downgraded to junk status, road workers being laid off, and the dismantling of higher education and social safety net.
* * *
The tax hike and budget now head to the House, which also will have to vote to override Rauner for them to become law. But according to the Chicago Tribune, Democratic Speaker Michael Madigan said the House would not do so Tuesday, meaning the budget process will play out at least another day. The House is not scheduled to convene until 4:30 p.m., but attendance has been an issue as lawmakers had dispersed for the holiday. Still no surprises are expected:
“I think that the Senate vote is reflective of the vote in the House. I think it speaks to all the hard work that has been done by a bipartisan group in the legislature,” Madigan told WICS-TV of Springfield after the vote. “My expectation is that the bills that the Senate just passed will become law and we will have taken a huge step toward correcting the financial imbalances of the state of Illinois.”
Perhaps, although some have suggested that instead of hiking taxes, which will lead to a fresh exodus of taxpayers from both Chicago and Illinois (recall the Chicago population is already shrinking the most of any US city) what the budget should have done is slash spending. Of course, that is the last thing on the mind of legislators of one of America’s biggest nanny states.
In fact, quite the opposite: the accompanying budget plan, which the Senate also quickly approved 39-14, would have the state spend a little more than $36 billion, about $4 billion more than it currently takes in from taxes. In other words, Illinois just “saved” itself from default but assuring it would end up with even more debt.
* * *
Going back to the vote, as the Tribune adds, the 36 votes in the Senate was the minimum needed both to pass and override a veto. There are 37 Democrats in the Senate, but two voted no. They are Sen. Julie Morrison of Deerfield, and Sen. Tom Cullerton of Villa Park. Both likely will face a tough re-election challenge. Sen. Bill Haine, D-Alton, who has been undergoing treatment for blood cancer since February, traveled to the Capitol to vote for the plan. The critical vote belonged to Republican Sen. Dale Righter of Mattoon, who noted the damage done to Eastern Illinois University in his district.
“Every dollar that we throw onto the backlog of bills is a dollar the next generation has to pay for even though we got to spend it,” Righter said. “That’s simply wrong, and that is the basis for which I support this.”
* * *
So do today’s last minute Senate fireworks mean no Illinois downgrade to junk is coming? It remains to be seen: the movement after years of dysfunction was enough to delay the state’s credit rating from being cut to junk status by Wall Street ratings agencies Monday, though they warned that much rides on a final approval of the budget package. Even then, S&P Global Ratings warned that long-term damage has already been done.
“Even with a budget, however, it’s likely that Illinois’ finances would remain strained and vulnerable to unanticipated economic stress,” the agency said. “In addition to having accumulated record amounts of payables, the state’s university system has been deprived of state funding since January 2017. If a budget is enacted, the degree to which it closes the state’s structural deficit, provides a pathway for addressing the backlog of unpaid bills, and its impact on cash flows, will be important factors in our review of its effect on Illinois’ credit quality.”
Meanwhile, on Monday Fitch called the weekend developments “concrete progress,” noting that it appears the legislature may have enough votes to override Rauner’s planned veto of the tax hike. S&P called the actions a “meaningful step.” Yields on the state’s 10-year debt have soared to 4.8 percent, 2.8 percentage points more than those of benchmark obligations. That’s the highest yield of all 22 states that Bloomberg tracks.
It would be the ultimate insult to Illinois if despite the last minute scramble, S&P were to do to the insolvent state what it did to the USA in August 2011, when despite the pleas of Obama, Geithner and the entire administration, it went ahead and did the unthinkable, when it downgraded the US from its vaunted AAA rating. In any case, it’s only a matter of time before Illinois slides not only to Junk, but to Default as well…
end
Wow!! the scramble to pass the budget has been for naught:Moody’s has put the State of Illinois on review for a downgrade because of their failure to pass a budget on time and also because they do not have consensus on how to balance their budget. Once a downgrade is initiated all the muni funds must dump Illinois bonds and thus their cost skyrocket
(courtesy zero hedge)
Terrible News For Illinois: Moody’s Puts State On Review For Downgrade To Junk Despite Budget
The passage of Illinois’ budget, which is scheduled for tomorrow despite the veto of Gov. Rauner which was duly overriden on July 4, was supposed to be critical catalyst that saved the state from a downgrade to junk status by the rating agencies, a first in US history. Unfortunately, moments ago Moody’s said that the passage of the budget may have been too little too late, and moments ago the rating agency said that it had place the rating of Illinois’s Baa3 general obligation under review for possible downgrade, citing the state’s failure to fully enact timely budget for fiscal year that began July, and its failure to achieve broad political consensus on how to move toward balanced financial operations.
A downgrade from Baa3, even by just one notch, means that Illinois would become the first US state rated junk, potentially forcing many muni bond managers to dump its bonds, and sending its costs of funding sharply higher despite a relief rally that took place today on hopes the state’s day of reckoning had been pushed indefinitely into the future.
In short: the scramble to pass a budget may have been for nothing.
The full note from Moody’s is below:
Moody’s Investors Service has placed the general obligation rating of the State of Illinois, currently Baa3, under review for possible downgrade following the state’s failure to fully enact a timely budget for the fiscal year that began July 1, and its failure to achieve broad political consensus on how to move toward balanced financial operations.
The review also applies to several related state debt ratings: the Baa3 assigned to sales-tax backed Build Illinois bonds and the Ba1 ratings assigned to Illinois subject-to-appropriation bonds, the convention center bonds issued by the Metropolitan Pier and Exposition Authority and bonds issued under the state’s Civic Center program. Illinois has outstanding debt of about $32 billion, of which 82% is general obligation.
The state’s government in recent days has made legislative progress towards a fiscal recovery plan based on permanent income tax rate increases, after going through two fiscal years without a complete budget in place. The decision to place the state’s ratings under review for downgrade incorporates our expectation that the legislature will implement revenue increases, overriding the governor’s vetoes. The review will provide a limited amount of time for the Illinois General Assembly to finish voting on the measures, and for assessment of the plan’s credit implications. The review process will also address the likelihood of further deterioration in Illinois’ most pressing credit challenges: its severely underfunded pensions and a backlog of unpaid bills, which has doubled during the past year.
Despite the progress toward budget balance that the emerging fiscal plan embodies, the plan entails substantial implementation risk. The governor yesterday vetoed the plan’s revenue, spending and implementation legislation, citing a $2 billion current-year deficit and the plan’s failure to incorporate proposals in areas such as workers compensation insurance reform and caps on local property taxes. The plan’s approval relied almost entirely on Democratic party support in the state’s senate, and a vote to override the governor’s vetoes of the measures has been deferred by the state’s house of representatives. The plan therefore appears to lack broad bipartisan support, which may signal shortcomings in its effectiveness once implemented. In addition, the state’s baseline tax collections declined in fiscal 2017, suggesting that any tax increase may yield less revenue than anticipated in coming months.
So far, the plan appears to lack concrete measures that will materially improve Illinois’ long-term capacity to address its unfunded pension liabilities. A June 30 order from a federal judge that the state accelerate payments owed to Medicaid managed care organizations and service providers cast doubt on the state’s immediate ability to keep up with its statutory pension contribution schedule while also meeting obligations for debt service, payroll and school funding.
The state anticipates addressing its approximately $15 billion backlog of payments owed partly through a bond offering that probably will rank among the largest in the state’s history. This component of the state’s broader fiscal plan leaves Illinois not only dependent on market access to ease liquidity pressures, but also facing a significant increase in its tax-supported debt burden. Moreover, the effectiveness of the state’s strategy to contain and reduce its deferred bills, once the backlog-financing debt has been issued, remains to be seen.
end
Carmageddon continues in the uSA. Despite huge incentives to get people to buy cars plus generous financing terms have failed to stem the auto bleeding
(courtesy zerohedge)
Carmageddon: Record Incentives And Financing Terms Fail To Stem The Auto Bleeding In June
Yesterday we noted that auto investors celebrated the fact that, while auto sales were down massively year-over-year (to the tune of nearly 6% for the Detroit 3), June figures were ‘less bad’ than expected, so ‘good’. All of which sparked even more ‘irrational exuberance’ among OEM equity owners and sent Ford/GM shares soaring.
But, rather than focus on the headline numbers, perhaps those equity owners should spend a little more time analyzing the record incentives and deteriorating underwriting standards that have been required to generate those ‘less bad’ results.
Take, for example, incentive spending for the month of June. As Automotive News points out, overall industry incentive spending soared nearly 10% YoY with brands like Hyundai and Honda slashing 42% and 20%, respectively, to move their bloated dealer inventories.
ALG reports automakers spent an average of $3,550 per new vehicle sold in June, up 9.7 percent from a year ago. The average discount is expected to account for 10.8 percent of the average transaction price of vehicles sold last month — marking the 11th time in the past year that incentive spending has accounted for 10 percent or more of the sale price, according to industry forecasters.
Autodata Corp. says average incentive spending heading into June was up 15 percent to $3,516 per vehicle sold. Despite weakening demand for cars, incentive spending for light-duty truck increased 16 percent compared to 13 percent for light-duty passenger cars during the first five months of the year.
American automakers, which continue to offer the most cash on the hood, matched the industry average for incentive spending, up 14 percent through May, while average discounts at Asian brands increased 19 percent and deals at European automakers rose only 3.9 percent.
ALG reported Subaru, Hyundai and Kia experienced the largest increases in incentive spending in June compared with a year ago. Average discounts at Subaru — the lowest spender in the industry — increased 63 percent to $1,032; followed by Hyundai, rising 42 percent to $3,259; and Kia, with an increase of 25 percent to $3,384.
Meanwhile, Edmunds notes that auto loan terms continue to get stretched out to record new highs each month all in an effort to continually lower monthly payments so that entitled Americans can buy cars they really can’t afford.
Edmunds analysts found that the average loan term for new vehicles soared to a record high of 69.3 months in June, an increase of 1 percent from June 2016 and up 6.8 percent from five years ago. In addition, the average amount financed by new-car buyers jumped to $30,945, which is a 2.6 percent increase from this time last year and 17.2 percent more than five years ago. And the average monthly car payment is now $517: That’s 2.1 percent more than in June 2016 and an 11.3 percent increase over five years.
“Stretching out loan terms to secure a monthly payment they’re comfortable with is becoming buyers’ go-to way to get the cars they want, equipped the way they want them,” said Jessica Caldwell, executive director of industry analysis for Edmunds. “It’s financially risky, leaving borrowers exposed to being upside down on their vehicles for a large chunk of their loans, but it’s also a sign that consumers are still confident enough in the economy to spend more on their vehicles and commit to paying for them longer.”
And it’s not just new car loans as used car terms are getting stretched out as well…a fact that we’re sure will serve consumers well if Morgan Stanley’s downside case for used car prices ever actually plays out (see “Morgan Stanley: Used Car Prices May Crash 50%“).
Consumers in the market for a used vehicle are also willing to stretch their payments. An Edmunds analysis found that theaverage loan length for a used car is now 66.9 months, up 0.1 percent from June 2016 and up 6 percent than five years ago. The average amount financed has risen to $21,142, a 0.4 percent jump from last year and an increase of 9.9 percent over five years. And the average used-car payment in June was $383, which is 0.8 percent more than a year ago and up 3.5 percent from five years ago.
And don’t even get us started on the record level of “channel stuffing” going on the industry…
…with GM being the biggest culprit with inventory days up a modest 46% YoY to an all new record high of 105 days.
Finally, as Stone McCarthy Research points out, Americans, flush with their $0 down, 0% interest for 84 month auto loans, continued to shun cars for much more expensive, and profitable, trucks and SUV’s. Another “positive” for the industry…if you manage to ignore those record incentives we mentioned above which are eroding away all that extra profit.
General Motors domestic car sales came in much lower than we expected, and declined nearly 34% from June 2016. Their domestic light truck sales were much stronger than we expected, and were up over 7% from last year.
Domestic car sales were weaker than expected for Ford as well, and fell 23% from last year. Ford domestic light truck sales also came in below our expectations, though were not weak as ford domestic car sales, and were only up about 6% from June 2016.
Chrysler domestic light car sales came in right where we expected, down 19% from last year. Domestic light truck sales for Chrysler were below our expectations though, and fell around 3% from last year.
Car sales:
Truck sales:
Of course, things like math and critical thought are way more complicated than quickly reacting to ‘less bad’ headlines. That said, in the long run, math and logic tend to prevail.
end
DAVID STOCKMAN CONTINUES ON THE SAME SUBJECT AS ABOVE:
a must read…
(courtesy David Stockman/Daily/Reckoning)
The Fast Track to “Carmageddon”
Back in the 1950s when GM had 50% of the auto market they always said that, “As General Motors goes, so goes the nation.”
That was obviously a tribute to GM’s economic muscle and its role as the driver of growth and rising living standards in post-war America’s booming economy. Those days are long gone for both GM and the nation. GM’s drastically reduced 20% market share of U.S. light vehicle sales in June was still an economic harbinger, albeit of a different sort.
GM offered a record $4,361 of cash incentives during June. That was up 7% from last year and represented 12% of its average selling price of $35,650 per vehicle, also a record. But what it had to show for this muscular marketing effort was a 5% decline in year-over-year sales and soaring inventories. The latter was up 46% from last June.
My purpose is not to lament GM’s ragged estate, but to note that it — along with the entire auto industry — has become a ward of the Fed’s debt-fueled false prosperity. The June auto sales reports make that absolutely clear.
In a word, consumers spent the month “renting” new rides on more favorable terms than ever before. But that couldn’t stop the slide of vehicle “sales” from its 2016 peak.
In fact, June represented the 6th straight month of year-over-year decline. And the fall-off was nearly universal — with FiatChrysler down 7.4%, Ford and GM off about 5% and Hyundai down by 19.3%.
The evident rollover of U.S. auto sales is a very big deal because the exuberant auto rebound from the Great Recession lows during the last six years has been a major contributor to the weak recovery of overall GDP.
In fact, overall industrial production is actually no higher today than it was in the fall of 2007. That means there has been zero growth in the aggregate industrial economy for a full decade.
Real production in most sectors of the U.S. economy has actually shrunk considerably, but has been partially offset by a 15% gain in auto production from the prior peak, and a 130% gain from the early 2010 bottom.
By comparison, the index for consumer goods excluding autos is still 7% below its late 2007 level.
So if the so-called “recovery” loses its automotive turbo-charger, where will the growth come from?
These industrial production figures powerfully underscore the extent to which the weak expansion of real sales and GDP over the past seven years has been artificially supported by an energetic but unsustainable snapback in the auto sector. The soft June auto sales report further underscores that this happy booster shot is now over. Its opposite — Carmageddon — is metastasizing rapidly.
Still, booming economic growth is exactly what is priced into the still soaring stock market averages. But the Carmageddon story is evidence of the rot which lies beneath today’s mutant economy and lunatic financial bubbles.
It turns out that during June 2017, the average selling price for a light vehicle was $31,720. That’s up 75% from the average selling price recorded 20 years ago in 1997. Yet during that same interval, median household income grew by just 52% (from $37k to $56k).
So how did U.S. households afford to buy their new rides when their incomes have lagged the purchase price of a new car by nearly one-third over the last two decades? They didn’t. Financing for the average new vehicle during June amounted to $30,945 or 97.6% of the average purchase price.
That’s up 29% from the great recession lows and shows quite dramatically how the Fed’s Bubble Finance actually works. Namely, it has permitted the U.S. economy to borrow its way into an auto boom based on the rising collateral value of autos, not a commensurate gain in earned income and sustainable purchasing power of U.S. households.
In fact, since about 85% of new cars are financed, means households are taking out cash to finance transaction fees, pay-off underwater loans on trade-ins or take a joy-trip in their new ride.
Needless to say, borrowing more than the price tag of a new car and financing it over a record 69.3 months amounts to still another version of Ponzi finance. That’s especially true in this instance because unlike homes during the subprime mortgage mania, it is evident even now — before the real car loan bust — that autos depreciate rapidly, and far more rapidly than debt is reduced under current typical loans.
So the repo man will be immensely busy in the years ahead, and that will have its own harmful economic effects. And it also needs be pointed out that auto loans are essentially supported by the collateral value of the vehicle rather than the income and credit worthiness of the borrower.
As the tide of soured auto loans rises, there will be more and more horror stories about wages being garnished and other court-imposed extractions from the hard-pressed households which were sucked into the auto finance Ponzi, and at length defaulted.
Not surprisingly, auto debt per capita is now at an all-time high of $4,200 and is up 40%from the post-crisis low of $3,000 in 2010.
So the Fed may crow about a recovery that has been the weakest in modern history, but it is only a statistical paint-by-the-numbers upturn. It was purchased at the cost of burying U.S. households in levels of auto debt that were heretofore inconceivable, and which, in any event, are surely unsustainable.
The truth of the matter is that the Fed has just caused the pea to be shuffled under a different shell. Thus, Yellen and her posse continue to dismiss the threat of bad debt based on the purported success of “prudential regulation” and the improvement of bank balance sheets and the home mortgage market.
In fact, household debt has just been shoved into the auto file. At the peak of the mortgage boom in 2008 there were 98 million mortgage loans (including second mortgages and home equity lines) outstanding compared to 88 million auto loans.
The latter has now soared to 108 million car loans — an off-the-charts record level that now exceeds the number of mortgage loans outstanding by 35%.
It goes without saying that to generate 108 million auto loans, any consumer who could fog a rearview mirror had to be admitted into the auto finance game. Accordingly, subprime auto debt is now at an all-time high — notwithstanding the overwhelming evidence from the financial crisis that much of this debt will become delinquent or default when either payroll checks falter or used car prices tumble — leaving car loans hopelessly underwater.
The latter point is crucial and underscores why this time the auto debt contraction cycle will be far worse than 2008-2009. That’s because nearly one-third of vehicle trade-ins are now carrying negative equity.
This means, in turn, that prospective new-car buyers are having to stump-up increasing amounts of cash to pay off old loans, thereby pressuring volume-hungry lenders and dealers to extend loan-to-value ratios to even more absurd heights than the 120% level now prevalent.
That’s kicking the metal down the road with a vengeance!
At the end of the day, the precarious nature of the debt pyramid that underlies the auto market cannot be gainsaid. It belies the illusory debt-fueled prosperity of the auto sector, and, instead, underscores how consumers are being led even deeper into the Fed’s colossal debt trap.
That’s why GM’s June results were truly a harbinger. Even the Fed’s own surveys show that the household sector is tapped out on the auto credit front, and that auto loan demand has turned negative for the first time since the 2008-2009 collapse.
Current paychecks are still barely keeping up with inflation — especially as reflected in the cost of food, energy, medical and housing. Needless to say, if employment growth falters during the inexorable recession just ahead, the Fed’s debt-o-topia will come full circle.
After rebounding during the past two years at a rate between 5% and 6.8% year-over-year, even credit cards are again tapped out.
With balances now exceeding $1 trillion, they are back to the unsustainable level of May 2008 just before they blew up during the Great Recession.
So why are the casino gamblers still buying the dips?
Because that’s “what’s working”… until it doesn’t.
Regards,
David Stockman
for The Daily Reckoning
Another hard data report showing factory orders tumbling. We are now getting a clear picture: hard data shows the USA economy in freefall. The soft data reports are fairytales.
(courtesy zero hedge)
US Factory Orders Tumble Most Since November… “We’re Gonna Need More War”
Despite all the exuberance over ISM ‘soft’ data, ‘hard’ data takes another hit today as Factory Orders for May tumbled 0.8% (worse than the 0.5% expected drop) for the biggest slide since November.
This is the second monthly decline in a row, signaling Q2 GDP may be weaker than expected.
Worse still, May saw the biggest (and first) MoM decline in US Manufacturers new Orders (ex-transportation) since Feb 2016…
The biggest culrpits for the decline are:
- Defense aircraft and parts -30.8%, and
- Non-defense aircraft and parts -11.6%
We’re gonna need moar war.
And the divergence between the ‘industrial’ economy and the ‘industrial’ average continues to widen…
But maybe “we just don’t get the new economy.”
end
OH OH!! MORE HARD DATA. The traffic flow into North American stores were 8.1% lower leading up to the 4th of july holiday weekend. This is not a good harbinger for retail sales growth
(courtesy zero hedge)
What’s Going On With US Consumers: Store Traffic Plunges 8% Into July 4th Weekend
First it was auto the auto parts suppliers getting hammered after O’Reilly Auto announced unexpectedly poor results (duly blamed on “mild weather” and weaker than expected Hispanic spending) and tumbling the most in 5 years, and then it was the retail REITs turn, after channel checks at Prodco Retail Traffic Analytics revealed that the US consumer continued to hibernate into the July 4th weekend with North American store traffic 8.1% lower in the week leading up to the July 4 holiday weekend, a steeper drop than the year-to-date trend of down “only” 6.6%. In the week ending July 1, with footfall at luxury retailers down 9.7%, and 8.3% weaker at apparel stores, Bloomberg reported.
The justifications for the abysmal results were legion: retail 2Q sales results may be impaired by weak traffic, as consumers still prefer digital, and they swap shopping for travel, dining out, or outdoor recreation. Shopping less in-store continues to hurt retailers’ ability to prompt unplanned purchases.
The companies impacted the most included retailers such as Abercrombie & Fitch, Macy’s, J.C. Penney, Tailored Brands and Nordstrom reported declines in traffic and same-store sales. And since they’re among the tenants of REITs Kimco and General Growth, the the S&P 1500 retail REITs index fell as much as 2.8%, the most intraday in two months, with all 24 members declining: KIM is the worst performer, down as much as 5.6%; while other laggards include PEI, CDR, WRI, CBL, GGP, KRG, SKT, SPG, and MAC
Based on the above, it appears that 2Q retail sales will once again be hurt by overall weak spending even as Amazon continues to wreak havoc among the traditional retail sector. Abercrombie & Fitch, Macy’s, J.C. Penney, Tailored Brands and Nordstrom all reported declines in traffic and same-store sales.
And while many would be first to blame the (near) monopolistic dominance of Amazon in the online retail space, reading between the lines confirms that US households are aggressively shrinking their overall spending basket, as store checks by Retail Metrics throughout the month found continued soft traffic, although the May retail deterioration appears to have stabilized at a low level. This, despite elevated promotional levels at both specialty apparel retailers, and department stores,
Bloomberg adds that while June is typically a quiet month as chain stores transition from summer apparel and seasonal selling to clearance in order to make way for early fall and back-to-school merchandise, June has been extremely eventful month with additional store closures, bankruptcy filings, layoffs, acquisitions, management changes and exploration of strategic alternatives as retail industry undergoes a “broad-based transformation.”
Finally, here are some sellside views:
Wells Fargo:
- June store traffic decreased 4.7%, a modest improvement from -5.1% in May, according to same-store data from ShopperTrak.
- First 4 weeks of June each showed sequential improvement in traffic; however, week 5 fell 7.1%, which dragged down monthly traffic by almost a full point
- Pricing remained under pressure in June, based on Wells Fargo channel work
Bloomberg Intelligence:
- Retail 2Q sales results may be impaired by weak traffic, as consumers still prefer digital, and they swap shopping for travel, dining out or outdoor recreation
- Shopping less in-store continues to hurt retailers’ ability to prompt unplanned purchases
- In the week ending July 1, footfall at luxury retailers was down 9.7%, 8.3% weaker at apparel stores
Based on the just released FOMC minutes, none of this figured in the Fed’s deliberations on when to hike rates next, and when to begin balance sheet normalization.
END
We will see you THURSDAY night
.
Harvey.
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