July 12/Gold up $4.20/silver up 15 cents/Amount standing at the silver comex rises again/huge amount of gold leaves the registered (dealer) account/SLV witnesses another 1.986 million oz added today/in the last 3 days 7.281 million oz “added”/Canada raises rates but data seems to suggest the country is in big trouble/Yellen very dovish in her Humphrey Hawkins testimony/Hartford Ct debt is now junk/

GOLD: $1219.80  UP $4.20

Silver: $15.93  UP 15  cent(s)

Closing access prices:

Gold $1220.25

silver: $15.93

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: $1228.97 DOLLARS PER OZ

NY PRICE OF GOLD AT EXACT SAME TIME:  $1218.90

PREMIUM FIRST FIX:  $10.07

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SECOND SHANGHAI GOLD FIX: $1230.19

NY GOLD PRICE AT THE EXACT SAME TIME: $1220.15

Premium of Shanghai 2nd fix/NY:$10.04

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LONDON FIRST GOLD FIX:  5:30 am est  $1219.40

NY PRICING AT THE EXACT SAME TIME: $1219.10  

LONDON SECOND GOLD FIX  10 AM: $1218.80

NY PRICING AT THE EXACT SAME TIME. $1220.60 ???? 

For comex gold:

JULY/

NOTICES FILINGS TODAY FOR APRIL CONTRACT MONTH:  0 NOTICE(S) FOR NIL  OZ.

TOTAL NOTICES SO FAR: 63 FOR 6300 OZ    (.1959 TONNES)

For silver:

JULY

 145 NOTICES FILED TODAY FOR

725,000  OZ/

Total number of notices filed so far this month: 2757 for 13,785,000 oz

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

end

Let us have a look at the data for today

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In silver, the total open interest SLIGHTLY FELL BY 360 contract(s) DOWN to 207,592 DESPITE THE  RISE IN PRICE THAT SILVER TOOK WITH YESTERDAY’S TRADING (UP 7 CENT(S). WE AGAIN MUST HAVE HAD  NEW SPECS TRYING TO COVER THEIR NEW FOUND SHORTS WITH THE COMMERCIALS BOTH COVERING AND ALSO GOING LONG.  THE NET EFFECT A TINY DROP IN OI. SOMETHING YESTERDAY FRIGHTENED THE SHORTS FROM BOTH SIDES OF THE ISLE TO COVER

 In ounces, the OI is still represented by just OVER 1 BILLION oz i.e.  1.038 BILLION TO BE EXACT or 148% of annual global silver production (ex Russia & ex China).

FOR THE NEW FRONT MAY MONTH/ THEY FILED: 145 NOTICE(S) FOR 725,000  OZ OF SILVER

In gold, the total comex gold  FELL BY 3,998 CONTRACTS DESPITE THE  RISE IN THE PRICE OF GOLD  ($1.50 with YESTERDAY’S TRADING). The total gold OI stands at 475,669 contracts. SOMETHING FRIGHTENED THE GOLD SHORTS TO COMMENCE COVERING.

we had 0 notice(s) filed upon for 0 oz of gold.

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

GLD:

Today no  changes in tonnes of gold at the GLD/

Inventory rests tonight: 832.39 tonnes

.

SLV

Today: STRANGE: , WE HAD ANOTHER HUGE RISE IN  INVENTORY OF 1.986 MILLION OZ/

INVENTORY RESTS AT 349.012 MILLION OZ

Please note the difference between gold and silver with respect to the GLD and SLV inventory changes

end

.

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

1. Today, we had the open interest in silver  FELL BY A TINY 360 contracts  UP TO 207,592 (AND now A LITTLE FURTHER FROM THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787), DESPITE THE  RISE IN PRICE FOR SILVER WITH YESTERDAY’S TRADING  (UP 7 CENTS ).We  SEEM TO HAVE LOST NOBODY AND SOMETHING FRIGHTENED THE SHORTS TO COMMENCE COVERING

(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 DOWN 5.49 POINTS OR 0.17%   / /Hang Sang CLOSED UP 166.1 POINTS OR 0.64% The Nikkei closed DOWN 97.10 POINTS OR 0.48%/Australia’s all ordinaires CLOSED DOWN 0.88%/Chinese yuan (ONSHORE) closed UP at 6.7885/Oil UP to 45.76 dollars per barrel for WTI and 48.15 for Brent. Stocks in Europe OPENED ALL IN THE GREEN,, Offshore yuan trades  6.7929 yuan to the dollar vs 6.7885 for onshore yuan. NOW THE OFFSHORE IS A TOUCH WEAKER  TO THE ONSHORE YUAN/ ONSHORE YUAN  STRONGER (TO THE DOLLAR)  AND THE OFFSHORE YUAN IS STRONGER TO THE DOLLAR AND THIS IS COUPLED WITH THE STRONGER DOLLAR. CHINA IS NOT  HAPPY TODAY

3a)THAILAND/SOUTH KOREA/NORTH KOREA

i)NORTH KOREA

b) REPORT ON JAPAN

c) REPORT ON CHINA

Last month we commented on problems with China’s shadow banking sector  as the POBC tried to rein in their loans. In the latest figures released last night, China added 229 billion uSA’s worth of loans but M2 still fell.  Analysts are worried that $1/4 trillion is not enough!

( zero hedge)

4. EUROPEAN AFFAIRS

There have been 18 lawsuits filed with the fraudulent mortgaged back securities business which created the financial mess we are still engaged in.  Now the 17 th settlement has now been signed whereby Royal bank of Scotland which is 71% owned by the UK government will pay the USA $5.5 billion.

( zerohedge)

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

i)TURKEY/QATAR

This is escalating fast:  Turkey deploys its fifth batch of troops in defense of Qatar

( zero hedge)

ii)RUSSIA/NATO

Not good:  NATO vows support for Ukraine claiming Russia’s aggressive actions in supplying weapons to the Donbass region

( zero hedge)

Russia is certainly not happy with this $3.9 billion patriot missile defense system for Romania.  They stated that they will respond
(courtesy zero hedge)

6 .GLOBAL ISSUES

i)CANADA

Canada as expected raised rates to cool their housing sector.  This is the first raise since 2010:

( zero hedge)

ii)Canada has been relying on the housing sector for income.  Canada has twice as many workers in the construction industry as the USA.  However the debt load of the Cdn household is much greater than the USA.  The long Cdn bond rates from which the central bank keys off of for mortgages has now doubled. The raising of rates this morning in this environment is a recipe for a disaster

( zero hedge/Deutsche bank/Slok)

7. OIL ISSUES

i)OPEC finally admits that it has a huge problem: it is still producing too much oil (along with the shale boys)

( zero hedge)

ii)WTI falls despite inventory draw down but production continues to rise

( zero hedge)

8. EMERGING MARKET

The very popular ex President of Brazil convicted of corruption and could face up to 7 years in jail

( zero hedge)

9.   PHYSICAL MARKETS

i)Craig Hemke discusses why mainstream financial news always disparages gold

( Chris Hemke/TFMetals Report)

ii)Huge Russian gold producer Polyus buys another 25% of Sukhoi Log gold deposit

( Reuters/GATA)

iii)We may finally see the controversial Alaskan gold deposit mined by Canadian mining operator Northern Dynasty. The controversy was whether the very important salmon sockeye would be damaged by the tailings.

( Washington Post/Dennis/GATA)

10. USA Stories

i)Initial reaction to trading after release of Yellen’s speech (Humphrey Hawkins)

(zerohedge)

ii)The National Security chair has just called for an investigation into James Comey’s political warfare against Trump.  There is movement to purge all of Obama holdovers

( zero hedge)

iii)Seattle passes an income tax bill in order to tax the rich and give to the poor.  Only one small problem: a city does nothave the authority to create an income tax

( zero hedge)

iv)The capital of Connecticut is Hartford and this municipality has just been downgraded to junk.  Next will be the state itself

( zero hedge)

v)The following is a very important commentary from Yra Harris: he comments that Fed Governor Brainard who most likely is the confidante of Yellen believes that it is wrong to raise rates while letting bonds run off its balance sheet. She believes that too much harm will come to the uSA economy if both are attempted. Let us see if Yellen includes the following in her Humphrey Hawkins testimony today.

Here is his commentary:

( Harris/Notes from the Underground/Lyle Brainard)

vi)Yellen turns dovish and echoes Brainard’s philosophy of holding rates while letting the bonds run off.  This would be great for gold and silver.

( zero hedge)

vii) Bloomberg’s Breslow correctly slams the latest FOMC confusion.  He accurately portrays the Fed has basically has actually not knowing what to do on how to put the genie back into the bottle

( zero hedge)

viii)the Fed’s beige book warns of declining auto sales as well as rising benefit costs

( zero hedge)

ix)Wolf Richter echoes David Stockman on the USA economy that a tsunami is coming

The correct P/E for the market is now 25.6.

( WolfRichter/WolfStreet)

Let us head over to the comex:

The total gold comex open interest SURPRISINGLY FELL BY 3,998 CONTRACTS DOWN to an OI level of 4775,669 DESPITE THE  RISE IN THE PRICE OF GOLD ($1.50 with YESTERDAY’S trading). SOMETHING FRIGHTENED THE GOLD SHORTS TO COMMENCE COVERING. An open interest of around 390,000 to 400,000 is core and nothing will move these guys from their contracts. it sure looks like the supplier of the comex gold paper are the specs, and the purchasers going long are the commercials.

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 GAINED 4 contract(s) to stand at 83 contracts. We had only 1 notices filed YESTERDAY morning, so we GAINED 5 contracts or an additional 500 oz will stand in this non active month of July.  Thus 0 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 6919 contracts DOWN to 266,028, as the bankers trying to keep this month down to manageable size. The next non active contract month is September and here they GAINED another 32 contracts to stand at 462. The next active delivery month is October and here we gained 684 contracts up to 20,717.  October is the poorest of the active gold delivery months as most players move right to December.

We had 0 notice(s) filed upon today for NIL oz

For those keeping score: in the upcoming front delivery month of August:

On July 11.2016:  open interest for the front month: 402,989 contracts compared to July 11.2017:   264,620.

However last yr at this time we had a record OI in gold at 655,000 contract for the entire complex.

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And now for the wild silver comex results.  Total silver OI  FELL BY A TINY 360 contracts FROM 207,952 UP TO 207,592 DESPITE YESTERDAY’S   7 CENT GAIN (AND CONSTANT TORMENT THESE PAST FEW WEEKS). OUR BANKER FRIENDS ARE DESPERATELY TRYING TO COVER THEIR SHORTS IN SILVER BUT AS YOU CAN SEE  THEY HAVE NOT BEEN AS SUCCESSFUL AS THEY WOULD HAVE LIKED.THE COMMERCIALS MAY HAVE COVERED SOME SHORTS. IT SEEMS THAT OUR NEWBIE SPEC SHORTS WERE FRIGHTENED BY SOMETHING AS THEY TRIED TO COVER THEIR BURGEONING SHORT POSITION. THE COMMERCIALS WERE ALSO BUYING . IF SO AND THE COT REPORT SEEMS TO CONFIRM THIS, THEN THE SPECULATORS ARE BEING SET UP FOR THE KILL. 
THE OTHER BIG NEWS IS THE FACT THAT AS WE ENTERED FIRST DAY NOTICE AND BEYOND  WE HARDLY HAD ANY OBLITERATION OF OPEN INTEREST. THIS IS THE FIRST TIME THIS HAS HAPPENED IN OVER 2 YEARS.

We are now in the next big active month will be July and here the OI LOST 158 contracts DOWN to 247. We had 292 notices served  yesterday so we gained 134 notices or an additional  670,000 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 gained 43 contracts to stand at 768.  The next big active delivery month for silver will be September and here the OI already LOST ANOTHER  1701 contracts UP to 155,925.

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 145 notice(s) filed for 725,000 oz for the June 2017 contract

VOLUMES: for the gold comex

Today the estimated volume was 155,232 contracts which is fair/

Yesterday’s confirmed volume was 250,278 contracts  which is excellent

volumes on gold are STILL HIGHER THAN NORMAL!

Initial standings for JULY
 July 12/2017.
Inventory movements not available today due to the length of time to cook the books
Gold Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  
5040.455 oz
Brinks
Deposits to the Dealer Inventory in oz NIL  oz
Deposits to the Customer Inventory, in oz 
5040.455 oz
No of oz served (contracts) today
 
0 notice(s)
NIL OZ
No of oz to be served (notices)
83 contracts
8300 oz
Total monthly oz gold served (contracts) so far this month
63 notices
6300 oz
.1959 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   20,562.300 oz
Today we HAD  0 kilobar transaction(s)/ 
We had 0 deposit into the dealer:
total dealer deposits: NIL oz
We had NIL dealer withdrawals:
total dealer withdrawals:  NIL oz
we had no dealer deposits:
total dealer deposits:  nil oz
we had 1  customer deposit(s):
 i) into Scotia:  5040.455 oz (arriving form brinks)
total customer deposits; 5040.445  oz
We had 1 customer withdrawal(s)
i) Out of Brinks:  5040.455 oz
total customer withdrawals;  5040.455 oz
 we had 1 adjustment(s):
ii) Out of Scotia; 75,762.343 oz leaves the dealer account and enters the customer account of Scotia
total leaving the dealer in past two days: 130,796.2 oz  4.06 tonnes
 
For JULY:

Today, 0 notice(s) were issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0  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.

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To calculate the initial total number of gold ounces standing for the JULY. contract month, we take the total number of notices filed so far for the month (63) x 100 oz or 6,300 oz, to which we add the difference between the open interest for the front month of JUNE (83 contracts) minus the number of notices served upon today (0) x 100 oz per contract equals 14,600  oz, the number of ounces standing in this NON active month of JULY.
 
Thus the INITIAL standings for gold for the JULY contract month:
No of notices served so far (63) x 100 oz  or ounces + {(83)OI for the front month  minus the number of  notices served upon today (0) x 100 oz which equals 14,600 oz standing in this  active delivery month of JULY  (0.4541 tonnes)
We GAINED 5 contracts or AN ADDITIONAL 500 oz will stand and 0 EFP contracts were issued as described as above.
.
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Total dealer inventory 696,326.154 or 21.656 tonnes  (dealer gold continues to disappear)
Total gold inventory (dealer and customer) = 8,530,229.121 or 265.32 tonnes 
 
Over a year ago the comex had 303 tonnes of total gold. Today the total inventory rests at 265.32 tonnes for a  loss of 38  tonnes over that period.  Since August 8/2016 we have lost 89 tonnes leaving the comex. However I am including kilobar transactions and they are very suspect at best
I have a sneaky feeling that these withdrawals of gold in kilobars are being used in the hypothecating process  and are being used in the raiding of gold!

The gold comex is an absolute fraud.  The use of kilobars and exact weights makes the data totally absurd and fraudulent! To me, the only thing that makes sense is the fact that “kilobars: are entries of hypothecated gold sent to other jurisdictions so that they will not be short with their underwritten derivatives in that jurisdiction.  This would be similar to the rehypothecated gold used by Jon Corzine at MF Global.
 
IN THE LAST 11 MONTHS  86 NET TONNES HAS LEFT THE COMEX.
end
And now for silver
Again inventory levels not available today as the CME had extreme trouble cooking the books
AND NOW THE June DELIVERY MONTH
 
JULY INITIAL standings
 July 12 2017
Silver Ounces
Withdrawals from Dealers Inventory  nil
Withdrawals from Customer Inventory
1000.85 oz
Delaware
Deposits to the Dealer Inventory
nil  oz
Deposits to the Customer Inventory 
nil oz CNT
No of oz served today (contracts)
145 CONTRACT(S)
(725,000 OZ)
No of oz to be served (notices)
102 contracts
( 510,000 oz)
Total monthly oz silver served (contracts) 2757 contracts (13,785,000 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 513,484.2 oz
today, we had  0 deposit(s) into the dealer account:
total dealer deposit: nil   oz
we had Nil dealer withdrawals:
total dealer withdrawals: nil oz
we had 1 customer withdrawal(s):
 i) Out of Delaware:  1000.85 oz
TOTAL CUSTOMER WITHDRAWALS:   1000.85 oz
We had 0 Customer deposit(s):
***deposits into JPMorgan have now stopped again
In the month of March and February, JPMorgan stopped (received) almost all of the comex silver contracts.
why is JPMorgan bringing in so much silver??? why is this not criminal in that they are also the massive short in silver
total customer deposits: 1,202,404.09 oz
 
 we had n/a adjustment(s)
The total number of notices filed today for the JULY. contract month is represented by 145 contract(s) for 725,000 oz. To calculate the number of silver ounces that will stand for delivery in JULY., we take the total number of notices filed for the month so far at 2757 x 5,000 oz  = 13,785,000 oz to which we add the difference between the open interest for the front month of JULY (247) and the number of notices served upon today (145) x 5000 oz equals the number of ounces standing
 

 

.
 
Thus the INITIAL standings for silver for the JULY contract month:  2757 (notices served so far)x 5000 oz  + OI for front month of JULY.(247 ) -number of notices served upon today (145)x 5000 oz  equals  14,295,000 oz  of silver standing for the JULY contract month.
We  gained 134 contracts for an additional 670,000 oz  that will stand at the comex and 0 EFP’s were issued. THE DELIVERY CYCLE IN JULY IS BEHAVING EXACTLY LIKE THE PREVIOUS MONTHS OF MAY, AND JUNE AS THE AMOUNT STANDING INCREASES EVERY SINGLE DAY AND ALSO SURPASSED WHAT WAS STANDING FOR METAL ON FIRST DAY NOTICE.
 
 
 
 
Volumes: for silver comex
Today the estimated volume was 63,495 which is EXCELLENT
YESTERDAY’s  confirmed volume was 104,040 contracts which is  HUGE
YESTERDAY’S CONFIRMED VOLUME OF 104,040 CONTRACTS EQUATES TO 520 MILLION OZ OF SILVER OR 74% OF ANNUAL GLOBAL PRODUCTION OF SILVER EX CHINA EX RUSSIA). IN OUR HEARINGS THE COMMISSIONERS STRESSED THAT THE OPEN INTEREST SHOULD BE AROUND 3% OF THE MARKET.
 
Total dealer silver:  38.502 million (close to record low inventory  
Total number of dealer and customer silver:   213.026 million oz
The record level of silver open interest is 234,787 contracts set on April 21./2017  with the price at that day at  $18.42
The previous record was 224,540 contracts with the price at that time of $20.44
end

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 6.6 percent to NAV usa funds and Negative 6.90% to NAV for Cdn funds!!!! 
Percentage of fund in gold 63.0%
Percentage of fund in silver:36.9%
cash .+0.1%( July 12/2017) 
2. Sprott silver fund (PSLV): STOCK   NAV  FALLS TO +0.52% (July 12/2017) 
3. Sprott gold fund (PHYS): premium to NAV RISES TO -0.58% to NAV  (July 12/2017 )
Note: Sprott silver trust back  into POSITIVE territory at +0.52/Sprott physical gold trust is back into NEGATIVE/ territory at -0.58%/Central fund of Canada’s is still in jail  but being rescued by Sprott.

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

 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 12/no change in gold inventory at the GLD/inventory rests at 832.39 tonnes

July 11/strange!@! we had a big withdrawal of 2.96 tonnes despite gold’s advance today/inventory rests tonight at 832.39 tonnes

July 10/no changes in gold inventory at the GLD/inventory rests at 835.35 tonnes

July 7/a massive withdrawal of 5.32 tonnes of paper gold were removed and this was used in the attack today/inventory rests at 835.35 tonnes

July 6/no changes in tonnage at the GLD/Inventory rests at 840.67 tonnes

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

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July 12 /2017/ Inventory rests tonight at 832.39 tonnes
*IN LAST 188 TRADING DAYS: 114.74 NET TONNES HAVE BEEN REMOVED FROM THE GLD
*LAST 129 TRADING DAYS: A NET  12.69 TONNES HAVE NOW BEEN ADDED INTO GLD INVENTORY.
*FROM FEB 1/2017: A NET  25.81 TONNES HAVE BEEN ADDED.

end

Now the SLV Inventory

JULY 12/another massive 1.986 million oz of silver added into the SLV/inventory rests at 349.012 million oz/the last 3 days saw 7.281 million oz added into the SV

July 11/ANOTHER MASSIVE INCREASE OF 2.364 MILLION OZ into the SLV inventory/inventory rests at 347.026 million oz

July 10/ A HUGE INCREASE OF 2.931 MILLION OZ OF SILVER DESPITE THE EARLY HIT ON SILVER THIS MORNING/INVENTORY RESTS AT 344.662 MILLION OZ.

July 7/Strange: no change in inventory (compare that with gold) Inventory rests at 341.731 million oz

July 6/ANOTHER MASSIVE DEPOSIT OF 2.126 MILLION OZ INTO THE SLV INVENTORY/INVENTORY RESTS AT 341.731 MILLION OZ.

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

July 12.2017:
 Inventory 349.012  million oz
end
  • 6 Month MM GOFO

    Indicative gold forward offer rate for a 6 month duration

    + 1.09%
  • 12 Month MM GOFO
    + 1.40%
  • 30 day trend

end

Here is a review of the 3 latest comex waterfall (whacks) on gold and silver not including the current one we are undergoing.  I have taken the nadir of the gold price before it started to rise again and compared it to OI in both gold and silver with the OPEN INTEREST.  The OI readings are the following day but we are always one day behind so this compares exactly to the nadir price.
First waterfall ended Oct 6 2016/ Nadir price of gold at that date Oct 6 2016 : $1254.70 / OI for gold Oct 7/2016: 511,340//OI for silver/Oct 7.2016: 194,811
Second waterfall ended Dec 15.2016:Nadir Price of gold Dec 15.2016:      $1128.20              //OI for gold Dec 16/2016 401,798// OI for silver: Dec 16/16 161,570
Third waterfall ended May 10/2017: Nadir Price of gold May 10 2016:   $1220.95              //  OI for gold May 11: 425,252//  OI for silver May 11/17: 199,826
and for comparison while we are undergoing another waterfall these past several weeks
 Today’s price of gold $1221.00                                                                                                    OI for gold today: 475,669//Oi for silver  207,592
The first waterfall corresponds to a silver price of $17.30 on Oct 6
The second waterfall corresponds to a silver price of $15.90 on Dec 15
The third waterfall corresponds to a silver price of $17.37 on May 10
and today:  silver price of $15.91
Since the bottom of the second waterfall the price of gold at its nadir is about the same ($1220 and $1226), but the OI for gold is much higher along with silver OI also much higher. (425,252 and 475,669 OI for gold) accompanying  199,826 and 207,592 for silver)
It seems the data suggests power manipulation to control the price through paper!
end

Major gold/silver trading/commentaries for WEDNESDAY

GOLDCORE/BLOG/MARK O’BYRNE.

GOLD/SILVER

India Gold Imports Surge To 5 Year High – 220 Tons In May Alone

– India gold imports in H1, 2017 greater than all of 2016
– India imported 521 tonnes of gold in first half of 2017
– H1 figure for gold imports $22.2 Bln versus $23 Bln in all ’16
– Gold demand was up 15% year- on-year in the first quarter
– June gold imports climbed to an estimated 75 tonnes from 22.7 tonnes a year ago
– Annual total set to surpass 900 tons, strongest year since ’12
– “I trust gold more than the currencies of countries” – 63% of Indians in Survey

Editor: Mark O’Byrne


Gold imports into India have surged in the last six months thanks to festivals, economic recovery and concerns over a new tax regime and the push for the cashless society in India.

Imports totalled 521 tonnes in the first half of this year, compared to just 510 tonnes in all of 2016.

Should buying levels continue then India could end 2017 having imported over 900 tonnes, a level not seen since 2012.

These figures are impressive given where the country’s gold demand was at the end of the 2016. The low figure of just 510 tonnes imported in the entire year was mainly thanks to a range of political and economic issues which had a more negative role than anyone foresaw.

Many of those issues are now resolved, but some had lingering effects. Some good, some bad. So it is with tentative celebration that we look at this boost in gold demand from the world’s second-largest lover of gold and ask how the country has begun to favour gold once again and if it will continue at pace.

2016: A tough year for gold buyers

Last year physical gold demand – for gold coins, gold bars and jewelery – in India hit a seven year low not because of a loss in interest in the precious metal but thanks to a range of political and economic factors.

The biggest of these events was of course the sudden announcement by the government to immediately remove all Rs500 and Rs1,000 notes by 30 December. A total of Rs15.44 trillion ($220 billion) – or 86% of the currency in circulation – was abandoned almost overnight.

Whilst many internationally and in India itself, especially their many small and medium enterprises, looked on in horror at the impact this had on savers and on the economy, the Governor of the Reserve Bank of India, Urjit Patel’s prediction that the economic recovery would be ‘V’ shaped has come to fruition.

The World Gold Council’s June newsletter draws attention to two significant indicators, the Composite PMI and the sale of motorcycles, which have demonstrated this V-recovery.

The sale of motorcycles are a good indicator of the health of India’s cash economy. Last year sales halved in one month, to their lowest in six years. The PMI dropped to its lowest level on record. Both have since rebounded.

Whilst there are still some controls on cash, new money has been printed and is making its way into circulation. Cash in circulation has increased by 58% in the first half 2017, this will no doubt help the economy past the liquidity squeeze.

2016 wasn’t just about the war-on-cash in India. The gold market was also negatively affected by a prolonged jewellers strike. Sales of gold were crippled across the country as a result. The strike is now over and supply of jewellery to the market has reportedly returned to normal levels.

Cashless push, good for gold

In the short-term the removal of 86% of the country’s cash was clearly damaging to physical gold demand and there are some lingering effects that will continue to impact the market.

The first of these is that as of April 1 2017, all cash transactions over RS200,000 (US$3,000) are banned. This is likely to prove problematic for those in rural areas where access to banking, cheques and electronic payments is not common.

We obviously don’t know what the impact of this will be. It may curb gold purchases all together, or we may see a change in gold buying behaviour namely pushing demand onto the black market or buyers spreading their purchases over a period of time.

The above is a negative, but something which is only likely to impact in the short-term. If at all, it may not given the ruling came into play in April and purchases have remained strong since then. Ultimately over time buying behaviours will change rather than the desire to hold gold.

How do we know this? Aside from India’s gold demand holding strong over hundreds of years a fantastic World Gold Council survey carried out last year found the following results:

“I trust gold more than the currencies of countries.”
63% of respondents in India agreed with the statement.

“Gold makes me feel secure for the long-term.”
And 73% of respondents in India agreed with the statement.

Whilst the survey was carried out before November 2016, we have little doubt that the sentiments echoed in the WGC’s survey are even stronger given the somewhat underhanded way in which the government went about removing cash from circulation –  and the severe impacts on many ordinary Indian savers and business people.

Will strong demand keep going?

Whilst the country appears to have recovered from the demonetisation of November-December 2016, there are new factors which will both negatively and positively impact the demand for physical gold.

One of these is the new change and simplification of the GST. Last month the government announced an increase of GST on gold products from 1.2% to 3%.

It is likely that much of the rush to buy gold in the first half of the year was partly due to concerns over the forthcoming rate hike. Gold dealers were likely looking to stock up on gold, ahead of any planned increases in the price. Therefore we may see a drop in demand now the GST rate has been announced and recently implemented.

Or we may not. The change in GST could add some much needed efficiencies to the Indian gold market. Despite the increase in GST, the move was ultimately welcomed by the gold market who had expected a higher hike, to perhaps 5%.

As the WGC wrote in last month’s report: GST should eliminate double taxation and improve supply chain efficiencies. It can make the gold industry more transparent which, coupled with recent hallmarking legislation, should ensure gold buyers have confidence in the gold products they buy, rather than continuing to suffer from the gross level of under-carating they have previously endured.

This is particularly good news when you consider the inflation-busting wage hike that government employees and pensioners are due this year. This will no doubt support demand for physical gold as will the additional income farmers are currently enjoying following the bumper agricultural crop in 2016, following the best monsoon in three years.

Gold demand cannot be calmed in India
Both rural and city incomes are set to climb in the coming months thanks to these factors, so it is unlikely a small increase in tax will put off anyone intending to buy gold.

Of course, in the short term it is likely GST will pose challenges for the industry, particularly for small artisan jewellers. But overall the move is likely to put more confidence in the marketplace.

Like everything in markets, pictures tell a very different story when you look at the long and short-term factors. Last year, gold demand in India was very weak. Stories circulated about the growing middle-class and their lack of interest in the gold that the older generations have so desired.

Long-term, there have always been changing fortunes, changing government policies and factors which will both positively and negatively impact the demand for gold. However, gold demand has always remained strong and India, alongside China, remains the world’s top gold buyers.

Conclusion
Observers are right to be positive about Indian gold demand in the long-term. Economic growth will likely continue to push demand higher thanks to the groundswell of young Indians set to enter the workplace, growing middle class incomes and the poor performance of the rupee as a store of value.

There will inevitably be peaks and troughs and ebbs and flows along the way, but gold will remain a key part of the Indian ‘saving DNA’. Therefore India will continue to be a vital and significant source of demand in the global gold market.

News and Commentary

Gold books gain for second straight session (MarketWatch.com)

Emails show Russian prosecutor offered Trump Jr. information on Clinton (Reuters.com)

Gold turns higher as US stocks stage brief drop (FXStreet.com)

Gold positive but upside limited as Yellen testimony looms (Investing.com)

U.S. Stocks Rebound From Early Shock, Oil Rises (Bloomberg.com)

Want to Know What’s Really Out of Favor? Gold (TheStreet.com)

Gold Stocks’ Summer Bottom (MarketOracle.co.uk)

Gold – Pet Rock Revisited (TFMetalsReport.com)

The Breaking Point & Death Of Keynes (ZeroHedge.com)

India Removes 220 Tons of Physical Gold (GoldSeek.com)

Gold Prices (LBMA AM)

12 Jul: USD 1,219.40, GBP 947.60 & EUR 1,064.29 per ounce
11 Jul: USD 1,211.90, GBP 938.98 & EUR 1,063.68 per ounce
10 Jul: USD 1,207.55, GBP 938.63 & EUR 1,060.11 per ounce
07 Jul: USD 1,220.40, GBP 944.47 & EUR 1,068.95 per ounce
06 Jul: USD 1,224.30, GBP 946.14 & EUR 1,077.51 per ounce
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

Silver Prices (LBMA)

12 Jul: USD 15.83, GBP 12.31 & EUR 13.82 per ounce
11 Jul: USD 15.51, GBP 12.02 & EUR 13.61 per ounce
10 Jul: USD 15.22, GBP 11.82 & EUR 13.36 per ounce
07 Jul: USD 15.84, GBP 12.29 & EUR 13.88 per ounce
06 Jul: USD 16.01, GBP 12.36 & EUR 14.09 per ounce
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


Recent Market Updates

– “Silver’s Plunge Is Nearing Completion”
– China, Russia Alliance Deepens Against American Overstretch
– Silver Prices Bounce Higher After Futures Manipulated 7% Lower In Minute
– Precious Metals Are “Best Defence” Against Bail-ins In Economic Crisis
– Buy Gold Near $1,200 “As Insurance” – UBS Wealth
– 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

END

Craig Hemke discusses why mainstream financial news always disparages gold

(courtesy Chris Hemke/TFMetals Report)

TF Metals Report: Pet rock revisited

 Section: 

12:28p ET Tuesday, July 11, 2017

Dear Friend of GATA and Gold:

In commentary headlined “Pet Rock Revisited,” the TF Metals Report today muses about the mainstream financial news media’s never-ending disparagement of gold, which implicitly suggests that maybe the monetary metal isn’t quite as quaint as those news organizations would like the world to believe. The commentary is headlined “Pet Rock Revisited” and it’s posted here:

https://www.tfmetalsreport.com/blog/8437/pet-rock-revisited

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

END

Huge Russian gold producer Polyus buys another 25% of Sukhoi Log gold deposit

(courtesy Reuters/GATA)

Polyus to buy another 25% of Sukhoi Log gold deposit

 Section: 

By Polina Devitt
Reuters
Tuesday, July 11, 2017

MOSCOW — Russia’s largest gold producer, Polyus, is buying an additional 25.1 percent in Sukhoi Log, one of the world’s largest untapped gold deposits, in an all-share deal worth $145.9 million, the company said today.

Polyus will pay state-owned Russian conglomerate Rostec in five tranches of its shares within the next five years. The first is expected to be in the form of existing Polyus treasury shares worth about $21.9 million within 30 business days from July 11, it said. …

… For the remainder of the report:

http://www.reuters.com/article/us-russia-polyus-gold-idUSKBN19W2BW


END

We may finally see the controversial Alaskan gold deposit mined by Canadian mining operator Northern Dynasty. The controversy was whether the very important salmon sockeye would be damaged by the tailings.

(courtesy Washington Post/Dennis/GATA)

Controversial Alaskan gold mine could be revived under Trump’s EPA

 Section: 

By Brady Dennis
Washington Post
Tuesday, July 11, 2017

The Trump administration has taken a key step toward paving the way for a controversial gold, copper, and molybdenum mine in Alaska’s Bristol Bay watershed, marking a sharp reversal from President Barack Obama’s opposition to the project.

The Environmental Protection Agency today proposed withdrawing its 2014 determination barring any large-scale mine in the area because it would imperil the region’s valuable sockeye salmon fishery. The agency said it would accept public comments on the proposal for the next 90 days. …

… For the remainder of the report:

https://www.washingtonpost.com/news/energy-environment/wp/2017/07/11/epa…

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  STRONGER 6.7885(REVALUATION NORTHBOUND   /OFFSHORE YUAN MOVES WEAKER TO ONSHORE AT   6.7929/ Shanghai bourse CLOSED DOWN 5.49 POINTS OR 0.17%  / HANG SANG CLOSED UP 166.10 POINTS OR 0.64% 

2. Nikkei closed DOWN 97.10 POINTS OR 0.48%   /USA: YEN RISES TO 113.49

3. Europe stocks OPENED GREEN      ( /USA dollar index RISES TO  95.72/Euro DOWN to 1.1457

3b Japan 10 year bond yield: FALLS  TO  +.089%/ GOVERNMENT INTERVENTION    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 114.34/ 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::  45.76 and Brent: 48.15

3f Gold UP/Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” OFF THE TABLE FOR NOW /REVERSE OPERATION TWIST ON THE BONDS: PURCHASE OF LONG BONDS  AND SELLING THE SHORT END

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil UP for WTI and UP for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund RISES TO  +.602%/Italian 10 yr bond yield DOWN  to 2.29%    

3j Greek 10 year bond yield FALLS to  : 5.37???  

3k Gold at $1217.00  silver at:15.81 (8:15 am est)   SILVER BELOW  RESISTANCE AT $18.50 

3l USA vs Russian rouble; (Russian rouble UP 24/100 in  roubles/dollar) 60.58-

3m oil into the 45 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 REVALUATION NORTHBOUND 

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 113.49 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  0.9627 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1029 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  +0.602%

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 2.3480% early this morning. Thirty year rate  at 2.912% /POLICY ERROR)GETTING DANGEROUSLY HIGH

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

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

All Eyes On Yellen As Dollar Slumps On Trump Revelations, Stocks Rebound

The dollar was broadly weaker after dovish comments from Fed Governor Lael Brainard amid reverberations from reports of Donald Trump Jr.’s contact with a Russian lawyer; European equities rebounded with oil while S&P futures were 0.2% higher at 2,428; Treasury yields are 1-2bps lower across the curve with the 10y at 2.346% ahead of Yellen’s much anticipated testimony this morning (House today, Senate tomorrow) for further clues on the trajectory of monetary policy while the Bank of Canada is expected to hike rates later.

The release of emails by President Donald Trump’s son that said Russia backed his father’s presidential campaign curbed demand for fresh dollar longs, according European traders cited by Bloomberg. The U.S. currency was also weighed down by dovish comments from Federal Reserve’s Lael Brainard.

As Bloomberg further notes, investors now look for Yellen to offer some guidance on the timing of a potential shrinking of the Fed’s balance sheet and also on the outlook for inflation and interest rates.  The greenback traded mixed versus its Group-of-10 peers and pared losses as measured by the Bloomberg Dollar Spot Index after some profit-taking in euro longs and as the pound dropped toward $1.28. The U.S. currency orbited the 1.29 level versus the loonie before the Bank of Canada’s much awaited policy decision.

Comments overnight from two of Yellen’s colleagues calling for caution on further interest rate rises have pushed back the probability of a hike again before the end of the year to 50 percent, according to the CME’s Fed watch data.

“The Yellen testimony remains the key event risk in today’s session but we remain optimistic about the dollar’s outlook and putting on a long position against the sterling is the best way to execute that view,” said Adam Cole, head of FX at RBC.

Some more thoughts on Yellen’s speech from DB’s Jim Reid: “For today, will Mrs Yellen choose to reinforce the recent more hawkish global central bank speak or will she attempt to pull things back a little? DB expect her to reinforce the message from the June 14 post-FOMC press conference and continue to guide the market towards an announcement of the beginning of balance sheet normalisation at the September 20 meeting as well as a rate hike by year-end. There will be plenty of eyes on Yellen’s comments around inflation too and our US economists expect the Chair to stick to the script that the recent pause is likely due to transitory factors. So it’s worth seeing if there is any change from this mantra.”

A pushback on further Fed tightening will be questions about the trajectory of US wages, and specifically why growth remains so anemic.

Distractions from the White House come as Federal Reserve Chair Janet Yellen prepares to give two days of testimony that will be dissected for clues on when she will start shrinking central bank bond holdings, while the Bank of Canada is expected to hike interest rates Wednesday. The release of emails by the younger Trump about his controversial meeting may give the Fed pause as it seeks to dismantle a decade of monetary stimulus, according to market strategist Bill Blain of Mint Partners, a global brokerage firm in London. “The pressure on markets and gridlock on Washington spending plans is probably enough to keep the Fed from doing anything extraordinary,” Blain said in a note to clients.

While the Federal Reserve chair is expected to say that the Fed remains on a hawkish course of steadily rising rates, any signals on how the bank is viewing a retreat in inflation and muted wage growth will be closely watched.

The Euro Stoxx 50 gained 0.6 percent, led by automakers and energy companies, and the FTSE 100 rose 0.7 percent. S&P 500 futures were steady.

Crude oil and WTI has tested the $46.00 handle this morning finding upside momentum from the latest API inventory data last night which showed the biggest draw down in crude stockpiles since September 2016 (-8.13mln vs Exp. 2.45mln) with Cushing coming in at -2.028mln, the largest draw since February 2014 according to Amplify Trading. As ever, the US output number will be key in this afternoon’s DoE release and in the interim period we have the OPEC monthly oil market report coming out shortly after midday, a report that should give insight into compliance levels and the strength of global demand.

Alongside the Dollar’s decline, the aussie and yen outperformed G-10 peers; emerging market currencies were led higher by won. Sovereign yields drifted lower following yesterday’s Trump Jr revelations; T-note yield down two basis points at 2.34%. The Nikkei slipped 0.6% while in China the PBOC injected liquidity for a second day; The yuan strengthened after official central bank publication called for wider trading band and less government intervention; H-shares and Hang Seng rally. WTI crude holds onto API-inspired overnight gains; Dalian iron ore 0.8% higher. The pound rebounded after U.K. payrolls data beat estimates and unemployment fell to a 42-year low. That offset an earlier decline following a report a key Bank of England policy maker isn’t in favor of higher rates.

Overnight, attention again shifted on Kuroda and whether the BOJ would intervene in the bond market to extend yield curve control to other sectors besides the benchmark 10-year after the recent jump in bond yields; After yesterday’s 5Y bond auction which saw strong demand, the central bank raised purchases of 3-5yr debt to JPY330b at its regular bond buying operation from JPY300b on July 5; it left purchases of 1-3yr at JPY280b and 5-10 yr at JPY500b. Response to BOJ’s offer to purchase was varied; the 5-10yr bid-to-cover ratio rose to 3.42 from 3.10 at the previous operation on July 7; the 1-3 yr bid-cover ratio fell to 3.75 from 4.14 at last operation on July 5 while 3-5yr ratio declined to 3.69 versus 3.87 at same auction. Japanese yields fell after the operation with 10-yr declining 0.5bp to 0.9%, retreating further from psychological 0.1% level; the 5-yr yield dropped 1bp to -0.04% after rising to -0.035% earlier this week

WTI crude climbed 2 percent to $45.96 a barrel. Gold was little changed at $1,218.90 an ounce. U.S. crude producers are set to pump record amounts of the commodity next year, but less so than previously projected, according to the latest government estimates. OPEC monthly market report is due today. In commodity markets, oil prices got a reprieve from worries about oversupply after the U.S. government cut its crude production outlook for next year and as fuel inventories plunged. Brent crude futures rose 1.3 percent while U.S. West Texas Intermediate (WTI) crude futures were up 2 percent.

Bulletin headline summary from RanSquawk

  • Asian equities traded mixed following a similar lead from Wall Street with political tension mounting amid the Trump Jr email revelations
  • A beat in UK data, however a dovish Broadbent leaves GBP undecided
  • Looking ahead, highlights include the OPEC monthly report, BoC rate decision, DoEs, Fed’s Yellen

Market Snapshot

  • S&P 500 Futures up 0.2% at 2428.50
  • EUR/USD: -0.2% at 1.1446
  • USD/JPY: -0.5% to 113.36
  • GBP/USD: +0.1% at 1.2857
  • WTI Crude: +1.8% to $45.86/bbl
  • U.S. 10Y Treasury yield: -2bp to 2.34%

Top Overnight News

  • Fed Chair Janet Yellen testifies to Congress amid strong job market and low inflation
  • Donald Trump Jr. said that he never told his father about a meeting last year with a person he was told would be a Russian government lawyer with potentially damaging information on Hillary Clinton
  • President Donald Trump’s credibility took a sharp blow after his son released emails that directly contradict months of assertions that investigations of possible campaign collusion with Russia were nothing more than a partisan “witch hunt”
  • National Economic Council Director Gary Cohn is the leading candidate to replace Janet Yellen as Fed chair next year, Politico says, citing four people close to the process
  • Pimco’s CIO Dan Ivascyn says news that Donald Trump Jr. met with a Russian lawyer described as having potentially damaging information on Hillary Clinton during last year’s presidential campaign dims the U.S. economic outlook
  • Bank of England Deputy Governor Ben Broadbent said he’s not ready to vote for higher interest rates, even though he sees pressures to do so building up
  • U.K. pay adjusted for inflation drops 0.5% between March and May, as unemployment falls to 4.5% — lowest since 1975
  • Fed’s Mester says reversing QE sooner rather than later preferable; Kashkari says he’s looking for wage pickup to precede inflation
  • France to cut taxes by about EU11 billion, PM Philippe tells Les Echos
  • Billionaires Warren Buffett and Paul Singer cross paths in pursuit of Oncor Electric Delivery Co.
  • China should widen the yuan’s trading band, PBOC newspaper says
  • BOJ increases purchases of 3-5-year JGBs at regular QE operation
  • API inventories according to people familiar w/data: Crude -8.1m; Cushing -2.0m; Gasoline -0.8m; Distillates +2.1m
  • Oil majors face ratings cuts amid weak recovery, S&P Global says
  • Saudi is said to cut Aug. oil exports by 600,000 B/D: Reuters
  • Total starts work at biggest Qatari oil field to maintain output
  • Saudi is said to exceed oil-output cap for first time
  • Abe said to have urged Xi to halt oil exports to N. Korea: Nikkei

Asian markets traded in mixed fashion following a relatively indecisive lead from Wall Street. ASX 200 (-0.96%) underperformed with all but one sector (materials) trading in the red, while the Nikkei 225 (-0.5%) slipped amid JPY buying. The Shanghai Comp (-0.17%) conformed to the tone with the index trading with marginal losses despite another PBoC injection, with the Hang Seng (+0.64%) today’s outperformer breaking above 26,000 amid the surge higher in financials. In fixed income, JGB yields ticked lower with the curve slightly steeper, while the BoJ also increased their purchases of 3-5Y bonds.
PBoC injected CNY 40bIn in 7-day reverse repos and CNY 30bIn in 14-day reverse repos. PBoC set CNY mid-point at 6.7868 (Prey. 6.7983)

European bourses trade in the green as the futures bounced following the release of Trump Jr’s email chain, confirming he had contact with Russian representatives. Energy is the clear out performer, as the out performance in the oil complex bolsters the energy names. The other 9 sectors in the Stoxx 600 also all trade in the green, as Burberry out-performs amid the beat in their retail sales and as a result, bolstering the other retail brands. Fixed Income have seen a slow grind, likely affected by yesterday’s political concerns emerging out the US. The data filled day sees paper on sale, with 10-years in focus as Germany and the US are both set for auctions. Spreads will be watched, with the Italy/Germany flat on the day, holding the 177bps region. UK paper has seen some early volatility with Gilts seeing a slight uptick following Broadbent’s dovish comments.

In currencies, the busy data day began with the UK employment data, strong average weekly earnings, supported by ILO unemployment falling to 4.5% did prove strong reading for the UK, however, many do still stay bullish GBP/USD, as some investors could see this data release as a selling opportunity. The greenback is likely to await Yellen’s testimony, expected at 15.00 BST, with a text pre-release due at 13.30 BST, with CAD awaiting the latest BoC interest rate decision. As many stay FX traders remain conserved following a busy US evening and ahead of these events, USD trade has been subdued. However, post yesterday’s close JPY was the main beneficiary from Trump Jr’s email chain publication, with rising yields continuing to pose a risk.

In commodities, oil out-performance was a result of the API inventories where the headline crude inventories fell 8.1 min bbls compared to expectations of a 2.9min bbl decline. A draw in gasoline stocks also supported the energy complex, lower by 801 k bbls compared to a forecast for a 1.1 min bbl build. Further support came from the EIA yesterday, downgrading its production outlook for next year, now expecting a 570K BPD increase, prey. 680K. WTI once again traded through USD 45/bbl and is looking towards 46.00, with the next resistance level expected around the 46.60 area. The Precious metal complex continues to bounce, with gold finding a slowdown around the 1220 level, if this can be broken, we can expect an attack of the previously rejected 1228 level. Silver and platinum have also followed gold, in finding support in recent trade.

Looking at the day ahead, this morning in Europe the UK June employment data came out printing at 4.5%, below the expected 4.6%. In the US the key event is obviously the Yellen testimony at 10am. Away from that, while there is no data due out the Beige Book will be released in the evening. The  Fed’s George will also speak at 2.15pm, while it’s worth also keeping an eye on the BoC monetary policy decision where the consensus is for a 25bp hike.

US Event Calendar

  • 7am: MBA Mortgage Applications; Jul 7, prior 1.4%
  • 8:30am: Fed releases Chair Yellen’s testimony to Congress
  • 10am: Yellen to appear before U.S. House panel
  • 2pm: Fed releases Beige Book
  • 2:15pm: Fed’s George speaks in Denver on economic outlook

DB’s Jim Reid concludes the overnight wrap

We’ve had a bit more excitement this week than financial markets have but yesterday saw things liven up a little (see below) and we now also reach the business end of this quiet week so far. Today we have Yellen’s testimony to the House which she’ll repeat tomorrow to the Senate with Q&A to follow. Today’s speech is due at 3pm BST however Congress is scheduled to release Yellen’s testimony at 1.30pm BST. In addition we have US PPI (tomorrow) and US CPI (Friday). Friday also sees US retail sales and three major US banks reporting. So plenty of life yet in a dull week.

For today, will Mrs Yellen choose to reinforce the recent more hawkish global central bank speak or will she attempt to pull things back a little? DB expect her to reinforce the message from the June 14 post-FOMC press conference and continue to guide the market towards an announcement of the beginning of balance sheet normalisation at the September 20 meeting as well as a rate hike by year-end. There will be plenty of eyes on Yellen’s comments around inflation too and our US economists expect the Chair to stick to the script that the recent pause is likely due to transitory factors. So it’s worth seeing if there is any change from this mantra.

Markets got a bit of a warm-up yesterday with a host of central bank speak over the course of the day. Over at the ECB we heard from board member Benoit Coeure who focused most of his comments on the impact of QE and negative rates on currency depreciation. The bigger focus leading into the day however was on the BoE’s Broadbent who’s exact position on the BoE dove-hawk scale is still a little open for debate. His speech ended up being a bit of an anticlimax however after steering clear of any comments on monetary policy and instead focusing much of it on the impact of a significant curtailment of trade with Europe post Brexit. Away from that Germany’s Merkel also made a rare comment on the ECB, saying that “we’re not yet back to where we want to be in terms of the ECB’s monetary policy” but that “the good news is that all euro zone member states are growing again”. European bond markets were broadly speaking another 1-5bps higher in yield yesterday while equity markets were a fair bit weaker (Stoxx 600 -0.65%) not helped by the headlines emerging out of Washington late in the session.

Indeed across the pond, we had a very minor flash crash yesterday with the S&P 500 falling 15 points in around 20 minutes which seemed to coincide with Donald Trump’s son releasing email exchanges with a Russian lawyer from last year that indicated the Russian government was trying to damage Mrs Clinton and backing his father’s presidential campaign. Markets quickly recovered their losses over the next 3 hours but the S&P 500 still closed down -0.08%. Treasury yields also fell a few basis points following the headlines but the end of day move was also fairly muted with the 10y ending 1.3bps lower (for the second day in  a row) at 2.361%. The USD (-0.37%) was a bit weaker while Gold (+0.28%) found a bit of a bid. Oil continues to chop around in a tight range but is testing $46/bbl again this morning having closed just north of $44/bbl last week.

This morning in Asia it’s been a largely directionless session. The Nikkei (-0.31%), Shanghai Comp (-0.29%) and ASX (-0.75%) have all dipped lower, while the Kospi is flat and the Hang Seng up +0.72%. The latter is now up nearly +3% this week and above the 26,000 level. Previously the index had stalled in June as it approached what is seen as a key breakthrough level. Meanwhile the BoJ announced this morning that it is to boost purchases for 3y to 5y JGBs in a bid to cap the recent rise in yields. 1y to 3y and 5y to 10y maturity purchases were left unchanged.

Staying with the overnight news, it’s worth noting that Politico also ran a story suggesting that Gary Cohn – the current National Economic Council Director and ex Goldman Sachs President – is favourite to land  the Fed Chair job and replace Yellen next year with Trump increasingly unlikely to nominate Yellen for a second term. There also appears to be a bit of movement on the US health-care bill with Bloomberg running a story suggesting that Senate Republican leaders have dropped provisions that would repeal two taxes on higher earners in a revised draft of the bill. Senate Majority Leader Mitch McConnell supposedly told reporters that a revised bill could be released on Thursday followed by a new CBO estimate and procedural vote in the coming week. So potentially another backend- of-the-week event for markets to digest too.

Back to yesterday, there was also a bit of chatter from some of Yellen’s colleagues. The overall tone was a shade dovish. Governor Brainard said that “the neutral level of the federal funds rate is likely to remain close to zero in real terms over the medium term” and that “if that is the case, we would not have much more additional work to do on moving to a neutral stance”. She did however add to the chorus of officials in supporting a start to reducing the balance sheet “soon”. The Minneapolis Fed’s Kashkari said that he is still looking for signs that wage growth is picking up.

Yesterday’s economic data didn’t really move the dial. The only reports of note were out of the US where first of all we saw the NFIB small business optimism survey dip 0.9pts to 103.6 in June (vs. 104.4 expected) putting it over 2pts below the January high. Away from that the BLS JOLTS report for May saw job openings fall from 5.97m to 5.67m however the quits rate did edge up one-tenth to 2.2%. Finally the wholesale inventories print for May was revised up one-tenth versus the initial flash estimate to +0.4% mom.

Looking at the day ahead, this morning in Europe we’ll be kicking off in the UK where the May and June employment data is due out. Also due out this morning is the May industrial production report for the Euro area (+1.0% mom expected). This afternoon in the US the key event is obviously the Yellen testimony at 3pm BST. Away from that, while there is no data due out the Beige Book will be released in the evening. The  Fed’s George will also speak at 7.15pm, while it’s worth also keeping an eye on the BoC monetary policy decision where the consensus is for a 25bp hike.

 END

3. ASIAN AFFAIRS

i)Late TUESDAY night/WEDNESDAY morning: Shanghai closed DOWN 5.49 POINTS OR 0.17%   / /Hang Sang CLOSED UP 166.1 POINTS OR 0.64% The Nikkei closed DOWN 97.10 POINTS OR 0.48%/Australia’s all ordinaires CLOSED DOWN 0.88%/Chinese yuan (ONSHORE) closed UP at 6.7885/Oil UP to 45.76 dollars per barrel for WTI and 48.15 for Brent. Stocks in Europe OPENED ALL IN THE GREEN,, Offshore yuan trades  6.7929 yuan to the dollar vs 6.7885 for onshore yuan. NOW THE OFFSHORE IS A TOUCH WEAKER  TO THE ONSHORE YUAN/ ONSHORE YUAN  STRONGER (TO THE DOLLAR)  AND THE OFFSHORE YUAN IS STRONGER TO THE DOLLAR AND THIS IS COUPLED WITH THE STRONGER DOLLAR. CHINA IS NOT  HAPPY TODAY

3a)THAILAND/SOUTH KOREA/NORTH KOREA

NORTH KOREA

b) REPORT ON JAPAN

end

c) REPORT ON CHINA

Last month we commented on problems with China’s shadow banking sector  as the POBC tried to rein in their loans. In the latest figures released last night, China added 229 billion uSA’s worth of loans but M2 still fell.  Analysts are worried that $1/4 trillion is not enough!

(courtesy zero hedge)

4. EUROPEAN AFFAIRS

There have been 18 lawsuits filed with the fraudulent mortgaged back securities business which created the financial mess we are still engaged in.  Now the 17 th settlement has now been signed whereby Royal bank of Scotland which is 71% owned by the UK government will pay the USA $5.5 billion.

(courtesy zerohedge)

RBS Pays $5.5 Billion To Settle US Mortgage-Backed Securities Probe

Another day, another British bank fined billions of dollars for its past-life transgressions.

Moments ago Royal Bank of Scotland announced it has agreed to pay $5.5 billion to the U.S. Federal Housing Finance Agency to settle a probe into its sale of toxic mortgage-backed securities ahead of the financial crisis, part of what it says was a “heavy price” paid for over-expansion before the financial crisis. The settlement targets $32 billion in debt issued by housing agencies Fannie Mae and Freddie Mac.

“This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions” said RBS CEO Ross McEwan, adding that it was an “important step forward in resolving one of the most significant legacy matters facing RBS”. There was some good news: RBS is eligible for a $754 million reimbursement under indemnification agreements with third parties.

According to the WSJ, RBS said in a statement that it had already set aside funds to cover most of the cost of the settlement. The 71% U.K. government owned bank will have to take an additional charge of $196 million which will be realized in its coming results in August.

Settling these probes is a major hurdle for RBS as it continues its slow return to private hands. U.K. government officials have said they would not sell down the government’s stake until they have clarity on the size of the U.S. fines RBS may face. RBS warned Wednesday that “further substantial provisions and costs may be recognized…depending upon the final outcomes.”

RBS had set aside $8.3 billion to cover a range of allegations linked to its role in packaging and selling on subprime mortgages in the lead up to the financial crisis. The bank still faces probes from several U.S. agencies including a criminal and civil investigation by the U.S. Department of Justice.

According to the FHFA, the RBS settlement marked the conclusion of the 17th of 18 lawsuits it filed in 2011 in relation to the matter

end

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

Not good:  NATO vows support for Ukraine claiming Russia’s aggressive actions in supplying weapons to the Donbass region

(courtesy zero hedge)

NATO Vows Support For Ukraine Against Russia’s “Aggressive Actions”

Just a few short days after President Trump’s ‘relative’ rapprochement with Russian President Putin, his ‘allies’ in NATO have stepped up the rhetoric in a very sensitive area for Putin, as NATO chief Jens Stoltenberg pledged support for Ukraine during a visit to Kiev on Monday.

As Military.com reports, Ukraine and the West accuse Moscow of smuggling weapons and troops across the porous border in support of the separatists, a charge has repeatedly denied.

“Russia has maintained its aggressive actions against Ukraine, but NATO and NATO allies stand by Ukraine and stand on your side,” Stoltenberg said at the NATO-Ukraine Commission session in Kiev.

“Russia must withdraw its thousands of soldiers from Ukraine and stop supporting the militants,” he added during a press conference with Ukrainian President Petro Poroshenko.

The conflict in eastern Ukraine and Russia’s annexation of Crimea in 2014 have driven ties between Moscow and the West to their lowest point since the Cold War.

“We are also here to demonstrate NATO’s solidarity with Ukraine and our firm support for the sovereignty and territorial integrity of your country,” Stoltenberg said.

“NATO allies do not and will not recognize Russia’s illegal and illegitimate annexation of Crimea.”

The NATO chief’s trip came a day after US Secretary of State Rex Tillerson made a maiden visit to Kiev and urged Moscow to take the “first step” to ease the conflict in Ukraine’s east.

Ukraine sees NATO accession as a way to bolster its defenses against former master Moscow. In June, Ukraine’s parliament voted to back attempts by the nation to seek membership of the 29-member bloc. It approved legal amendments enshrining membership in NATO as a foreign policy priority.

Poroshenko explained that embattled Ukraine was eager to join the bloc, but painful political and economic reforms need to be implemented before the country was ready to lay out its claims on membership.

“We are determined to reforms… to meet the membership criteria,” Poroshenko told journalists.

“NATO will continue to support Ukraine on the path towards closer relationships with NATO,” Stoltenberg added.

But the Kremlin has long been angered by NATO expansion into what Moscow views as its sphere of influence in the former Soviet region.

“It (Ukraine’s rapprochement with NATO) will not contribute to the strengthening of stability and security on the European continent,” Kremlin spokesman Dmitry Peskov said.

However, Kiev has yet to officially apply to start the lengthy and politically challenging process of joining the US-led alliance.

END

Russia is certainly not happy with this 3.9 billion patriot missile defense system for Romania.  They stated that they will respond
(courtesy zero hedge)

US Approves $3.9 Billion Patriot Missile System For Romania; Putin: “We Will Be Forced To Respond”

On Tuesday the State Department approved the sale of $3.9 billion in patriot missile systems to NATO-member Romania after prior Russia warnings that such actions could be met with severe reprisals.


Photo source: Darkone/Wikimedia Commons.

The announcement, issued through the Pentagon’s Defense Security Cooperation Agency, is sure to be a huge shot across the bow following on the heels of Russian President Vladimir Putin’s earlier unambiguous words (issued in May) regarding further NATO build-up in the large Balkan country:

If yesterday in those areas of Romania people simply did not know what it means to be in the cross-hairs, then today we will be forced to carry out certain measures to ensure our security. We won’t take any action until we see rockets in areas that neighbor us. We’ve been repeating like a mantra that we will be forced to respond… Nobody wants to hear us. Nobody wants to conduct negotiations with us.

Romania’s US-built $800 million ballistic missile defense shield came online for the first time in May, just prior to Trump’s meeting with Romanian President Klaus Iohannis early the following month, where the two discussed defense spending and other economic concerns. Romania has been a NATO member only since 2004, but has steadily attracted the attention of Western defense companies – it has increased its defense budget to equal 2% of its GDP this year (approximately 4 billion US dollars) – one of only 5 NATO members to hit that target.

The Pentagon agency’s press release cast Romania as the potential victim of aggression in the region:

Romania will use the Patriot missile system to strengthen its homeland defense and deter regional threats. The proposed sale will increase the defensive capabilities of the Romanian military to guard against aggression and shield the NATO allies who often train and operate within Romania’s borders.


NATO build up encroaching Russian defenses. Photo source: The Risk Advisory Group.

The proposal now moves forward for Congressional as well as Romanian parliamentary approval, and will be delivered by Raytheon Corporation and Lockheed-Martin. Other US defense contractors are increasingly in talks with Romania to modernize its army, including General Dynamics, Bell Helicopter, and The Boeing Company. News of the Patriot missile deal was released the same day a massive Patriot missile deployment drill kicked off in Lithuania involving troops from the US, UK, Latvia, and Poland.

6 .GLOBAL ISSUES

CANADA

Canada as expected raised rates to cool their housing sector.  This is the first raise since 2010:

(courtesy zero hedge)

Loonie Spikes After Bank Of Canada Raises Rates For The First Time Since 2010… As Expected

Heading into today’s meeting with a smorgasbord of ‘relatively’ good data recently, Governor Poloz had the perfect excuse to raise rates (for the first time since 2010) and tamp down the firey bubble in home prices. Not a total surprise, given hawkish comments from BOC officials in recent weeks, but the Loonie is surging on the hike but CAD stocks (which were rallying into the decision) are limping lower.

The Bank of Canada raised interest rates for the first time since 2010, citing a recent acceleration of growth that it predicts will eliminate fully the economy’s economic slack by the end of this year.

Odds of a hike were at 90% heading into the decision, so it is perhaps a little odd that the Loonie is so exuberant (perhaps combined with Yellen’s dovishness?)

Recent data had been strong…

  • * April manufacturing sales (MoM): 1.1% vs estimate 0.9%
  • * April wholesale trade sales (MoM): 1% vs estimate 0.5%
  • * April retail sales (MoM): 0.8% vs estimate 0.3%
  • * June jobs added: 45.3k vs estimate 10k
  • * June housing starts: 212.7k vs estimate 200k

By raising rates, the Bank of Canada is simply taking back some of the emergency stimulus it granted in 2015.

However, Bloomberg economist Yamarone says a number of meaningful impediments lay ahead for the Canadian economy: 

  1. Oil prices that seemingly have an aversion to reaching $50 a barrel.
  2. A regional housing bubble.
  3. Near-record household indebtedness.
  4. A recent Moody’s downgrade of the big six banks.
  5. Potential protectionist (and uncertain) policies south of the border.
  6. Some provinces are adopting restrictive fiscal policies.
  7. Legislation for a $15 minimum wage is being tossed around by some areas.

Interestingly, Bloombergnotes that BOC dropped its hope for a Trump Bump…

The Bank of Canada dropped its assumption that U.S. fiscal policy changes would add to growth stateside (and in turn, offer a modest boost to Canadian activity) over its projection horizon.

In January, the BoC penciled in personal and corporate tax cuts for the U.S. in short order. In April, they maintained their positive fiscal assumptions for the U.S. but also added in downsides pertaining to uncertainty weighing on trade and investment, which had turned the Trump effect into a slight net negative for Canada.

BoC said recent data has increased “confidence” the economy will continue to grow above potential, meaning excess capacity is being absorbed. It estimates the economy will return to full capacity by the end of 2017. BoC downplayed recent weakness in inflation, judging the sluggishness as “mostly temporary.” It predicts inflation will return “close to” its target of 2 percent by the middle of 2018 — which is later than it had predicted in April. It gave a nod to the sluggishness by saying the overnight rate will be guided by its inflation outlook.

end

Canada has been relying on the housing sector for income.  Canada has twice as many workers in the construction industry as the uSA.  However the debt load of the Cdn household is much greater than the USA.  The long Cdn bond rates from which the central bank keys off of for mortgages has now doubled. The raising of rates this morning in this environment is a recipe for a disaster

(courtesy zero hedge/Deutsche bank/Slok)

“Canada Is In Serious Trouble” Again, And This Time It’s For Real

Some time ago, Deutsche Bank’s chief international economist, Torsten Slok, presented several charts which showed that Canada is in serious trouble” mostly as a result of its overreliance on its frothy, bubbly housing sector, but also due to the fact that unlike the US, the average household had failed to reduce its debt load in time.

Additionally, he demonstrated that it was not just the mortgage-linked dangers from the housing market (and this was before Vancouver and Toronto got slammed with billions in “hot” Chinese capital inflows) as credit card loans and personal lines of credit had both surged, even as multifamily construction was at already record highs and surging, while the labor market had become particularly reliant on the assumption that the housing sector would keep growing indefinitely, suggesting that if and when the housing market took a turn for the worse, or even slowed down as expected, a major source of employment in recent years would shrink.

Fast forward to today, when the trends shown by Slok two years ago have only grown more acute, with Canada’s household debt continuing to rise, its divergence with the US never been greater…

… making the debt-service ratio disturbingly sticky.

Making matters worse, recent trends in average hourly earnings show that if the US Federal Reserve is concerned with US wages, then the Bank of Canada should be positively terrified.

As BMO writes today, the chart above “looks at the 2-year change (expressed at annualized rates), which takes out some of the wonkiness in monthly readings. It’s pretty clear that the trend in U.S. wages has moved up from a sub-2% pace in the early years of the recovery to around 2.5% now. Not a huge move, but still significant. On the other hand, Canadian 2-year wage trends have collapsed to barely above 1.5%, after being above the U.S. pace for most of the recovery. This is a much bigger concern/issue than the modest cooling in U.S. wages in the past few months (which could just be a statistical quirk).”

And yet despite all these concerning trends, virtually all of these red flags have been soundly ignored, mostly for one reason: the “wealth effect” in Canada courtesy of its housing market grew, and grew, and grew…

Looking at the chart above, last month Bloomberg said:

On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.

… and added:

No one knows when insanity like this will come to an end. Bubbles are like an avalanche. The longer they build up, the worse they will be when they eventually destabilize.

Well, nobody may know, but as Harley Bassman said yesterday, one can make an educated assumption, and as he said it most likely will be the result of higher rates.

Which brings us to today’s decision by the Bank of Canada to hike its rates for only the first time since 2010, sending the Loonie to the highest level since August 2016.

But aside from the surging currency, now that Canada has set off on a rate-hiking path, it has a bigger problem, one whose absence for so many years allowed the “Canadian housing bubble” in Bloomberg’s words to flourish: suddenly rising rates. As CBC reports, Canada’s five biggest financial institutions immediately increased their prime interest rates on Wednesday, shortly after the BOC hiked by 0.25bps. The Royal Bank of Canada was the first to announce an increase, followed by TD Canada Trust, Bank of Montreal, Scotiabank and CIBC. Effective Thursday, the prime rate at the five banks will rise to 2.95 per cent from 2.7 per cent, matching the 0.25 percentage point increase to the Bank of Canada’s overnight rate.

But the bigger problem is not so much rising short-term rates, but what is going on on the long end: it is here that the pain for the housing market will be most acute, because as 5Y rates have doubled in the recent past, the 10Y yield is now at the highest level it has been since May 2015 and rising fast.

And as US homebuyers from the time period 2004-2006 remember all too vividly, there is nothing that will burst a housing bubble faster than a spike in mortgage rates.

Which is why while Torsten Slok’s original warning that “Canada Is In Serious Trouble” two years ago may have been premature, this time it appears all too real thanks to none other than the Canadian central bank, which may just have done the one thing that will finally burst the country’s gargantuan housing bubble.

Finally, for those skeptical, here is David Rosenberg explaining why he is ‘skeptical’ about BoC’s view of a robust economy ahead

7. OIL ISSUES

OPEC finally admits that it has a huge problem: it is still producing too much oil (along with the shale boys)

(courtesy zero hedge)

OPEC Admits It Has A Problem: It Is Still Producing Too Much Oil

In its just released lastest market report for the month of July, OPEC admitted it has a problem: more than six months after the Vienna deal that was supposed to bring supply and demand in balance, the oil cartel confirmed it is pumping too much, not only in 2017, but also in 2018, blaming shale production as the primary reason behind the oversupply.

First, looking at historical data, according to secondary sources, production among the 14 OPEC member states rose by a whopping +394k b/d in June to 32.611mb/d.  The biggest monthly increases took place in those nations that had previously been supply constrained and which are exempt from the output cut accord: Libya +127k b/d, and Nigeria +97k, although even Saudi Arabia saw a substantial pick up in production, which rose by +51k b/d m/m to 9.95m b/d, the highest since the start of the year. More ominously, in direct communications to OPEC, Saudi reported a monthly increase of +190k b/d m/m, up to 10.07m b/d, suggesting that as discussed yesterday, Saudi commitment to production cuts may be “waning.”

In total, OPEC admitted that output exceeded demand in 1H this year and was set for overproduction in 2018: the total output of 32.6m b/d in June was more than the 32.2m b/d it expects will be needed in 2018.

Just as striking was the report’s suggestion that OPEC and non-OPEC’s accord to cut production was not deep enough according to Bloomberg calculations: despite reducing production, the organization’s data show it oversupplied markets by ~700k b/d in 1H this yr.  Still, surplus oil stockpiles in developed nations fell in May to 234m bbl; if OPEC maintains June output levels, it will reduce global surplus by ~70m bbl in 2H, although as we reported previously much of this is due to US oil exports which artificially depressed US commercial inventory stocks.

And the punchline: OPEC expects to oversupply global markets markets by ~900k b/d in 1Q next year, with US shale scapegoated as the culprit for OPEC’s failure to bring the market back into equilibrium: Non-OPEC supply to grow by 1.14m b/d in 2018, up from 800k b/d in 2017.

We wish OPEC the best of luck in getting US shale to produce less not more.

On the demand side, OPEC sees global oil demand rising 1.26m b/d, or 1.3% in 2018 to 97.65m b/d; its first estimate of 2018 demand growth was little changed from its unrevised forecast for 2017.

Discussing the demand side, the OPEC chief said the current oil-price cycle is driven by supply. OPEC’s unwillingness to discuss the demand side may suggest to skeptics that it is not so much the supply side, which everyone knew would be in excess thanks to shale, but indeed the demand aspect, where OPEC is facing problems, especially in India and China, whose demand growth is now projected to decline, especially if as some have suggested China’s SPR needs have declined sharply in recent months.

Meanwhile, as a first step to controlling what OPEC can control, namely supply, OPEC chief Barkindo said Libya and Nigeria are expected to send representatives to OPEC, non-OPEC Joint Technical Committee meeting in Russia on July 22, where according to some, they will be asked to also enforce production caps on their output, joining the rest of OPEC in limiting supply.

end

WTI falls despite inventory draw down but production continues to rise

(courtesy zero hedge)

WTI Slips As Inventories Draw But Production Hits New Cycle High

WTI has extended gains (on weaker dollar) from last night’s ‘bullish’ API data in a deja-vu of last week, and DOE data (showing large draws in Crude and Gasoline) confirmed continued rebalancing. However, once again mimiccing last week’s action, prices were not exuberant as another surge in production – to new cycle highs – stymied some of the excitiment.

API:

  • Crude -8.133mm (-2.45mm exp) – biggest draw since Sept 2016
  • Cushing -2.028mm – biggest draw since Feb 2014
  • Gasoline -801k (-534k exp)
  • Distillates +2.079mm

DOE:

  • Crude -7.564mm (-2.3mm exp) – biggest draw since Sept 16
  • Cushing-1.948mm – biggest draw since Feb 14
  • Gasoline -1.697mm (-682k exp)
  • Distillates +3.131mm (+728k exp)

The question heading into this week was whether last week’s bigger than expected draw was a one-off, or the start of rebalancing. This week, we get some answers and it seems like the rebalancing is continuing…

The EIA posted a draw of -2.6 million barrels of crude from the SPR last week, the largest since 2011.  Unless they were exported, these barrels will end up in commercial inventories the EIA reports this week.

Cushing inventories are now at their lowest since Nov 2015…

U.S. crude exports rose almost 20 percent last week to 918,000 barrels a day — the highest since the week ended May 26.

Rig counts rose once again this week, and while EIA cut its 2018 production outlook, this week saw the effect of field maintenance in Alaska and Tropical Storm Cindy in the Gulf of Mexico fall away and production surged once again this week – to new cycle highs…

This is the highest production for the Lower 48 since July 2015… and we suspect the highest Shale production ever.

according to the latest EIA Daily Prodctivity Report forecast released today, in July total shale basin output is expected to rise by 127kb/d in one month, hitting 5.475 mmb/d, and surpassing the previous record of 5.46 mmb/d reached in March 2015.

The market’s reaction for now appears very deva-vu all over again…

As Bloomberg notes, these headline inventory moves are close enough to the numbers published yesterday by the API to continue to support the price rise we saw after that first data release. Much of the bullish reaction had already been seen after the API data, so the upside from the EIA numbers may be limited.

And it appears the same pattern is playing out again…

And here’s the punchline, which we suspect is affecting the downward pressure on prices: the U.S. exported 149 million more barrels of crude and refined products in the four months through June than it did in the same period of 2016. This was the biggest growth in U.S. crude exports in barrel terms in living memory, some 1.255mb/d year over year.

8. EMERGING MARKET

The very popular ex President of Brazil convicted of corruption and could face up to 7 years in jail

(courtesy zero hedge)

Brazilian Real Surges After Ex-President Lula Found Guilty Of Corruption, Faces 9 Years In Prison

Just hours after current President Temer garnered enough votes necessary to block congressional motion that would put him on trial over corruption charges, Reuters reports that former President Lula has been found guilty of on corruption charges and faces 9 years in prison.

Earlier today, Bloomberg reported that Brazil President Michel Temer has more than the 172 votes necessary to block congressional motion that would put him on trial over corruption charges,according to Bloomberg tally of voter intentions. Tally based on interviews with party leaders, legislators and presidential aides is larger if divided allied parties such as DEM and PSDB are included. The motion expected to be voted in lower house committee, floor this week. Govt sees 39-41 of committee’s 66 members against trial.

Which is no all the more fascinating as Brazil’s former president Luiz Inacio Lula da Silva was just sentenced to over 9 years in prison on corruption charges, according to Estado de S. Paulo newspaper. Lula was found guilty by Judge Sergio Moro on charges of money laundering, and bribe taking, Estado reports.

And the Real is jubilant…

As Bloomberg details,  Brazil’s former President Luiz Inacio Lula da Silva has been convicted of bribe-taking and money-laundering in the most dramatic development to date of a sweeping corruption scandal that has shaken the country’s political establishment to its core.

Sergio Moro, the lead judge in the multi-billion dollar corruption probe known as Carwash, sentenced Lula to nine and a half years, according to a statement from the federal court in Parana.

The guilty verdict on Lula, one of the most popular presidents in Brazilian history, weakens his chances of leading the Workers’ Party back into power in the 2018 elections. Over the past few months he has consolidated his position in opinion polls as the front-runner for the presidential race, but he will become ineligible if his sentence is upheld on appeal. The conviction of the left-wing leader also ratchets up yet further the political tension in Brasilia, coming as President Michel Temer faces corruption charges of his own.

A political firestorm broke last year when police raided his home and briefly detained him for questioning, prompting scuffles in the street between supporters and critics. He was later charged with corruption and money laundering. In May a face-to-face encounter with Moro at his courtroom in Curitiba drew tens of thousands of the former-president’s followers to the southern city.

After two terms in office Lula left the presidency in January 2011 with a record-high approval rating after tapping into a commodity boom to pull millions of Brazilians out of poverty.

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   1.1457 DOWN .0017/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 ALL GREEN

USA/JAPAN YEN 113.49 DOWN 0.254(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 1.2863 UP .0004 (Brexit  March 29/ 2017/ARTICLE 50 SIGNED

THERESA MAY FORMS A NEW GOVERNMENT/STARTS BREXIT TALKS

USA/CAN 1.2931 UP .0022 (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 17 basis points, trading now ABOVE the important 1.08 level  FALLING to 1.1457; 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  DOWN 5.49 POINTS OR 0.17%     / Hang Sang  CLOSED UP 166.10 POINTS OR 0.64% /AUSTRALIA  CLOSED DOWN 0.88% / EUROPEAN BOURSES OPENED ALL IN THE GREEN 

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

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

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

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

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

The NIKKEI: this WEDNESDAY morning CLOSED DOWN 97.10 POINTS OR 0.88%

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

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 166.10 POINTS OR 0.64%  / SHANGHAI CLOSED DOWN 5.49 POINTS OR 0.17%   /Australia BOURSE CLOSED DOWN 0.88% /Nikkei (Japan)CLOSED DOWN 97.10 POINTS OR 0.88%    / INDIA’S SENSEX IN THE GREEN

Gold very early morning trading: 1217.15

silver:$15.83

Early WEDNESDAY morning USA 10 year bond yield: 2.3489% !!! DOWN 3 IN POINTS from TUESDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%.

 The 30 yr bond yield  2.912, DOWN 1  IN BASIS POINTS  from TUESDAY night.

USA dollar index early WEDNESDAY morning: 95.72 UP 6  CENT(S) from TUESDAY’s close.

This ends early morning numbers WEDNESDAY MORNING

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And now your closing WEDNESDAY NUMBERS

Portuguese 10 year bond yield: 3.1050%  DOWN 5 in basis point(s) yield from TUESDAY 

JAPANESE BOND YIELD: +.089%  DOWN 7/10  in   basis point yield from TUESDAY/JAPAN losing control of its yield curve

SPANISH 10 YR BOND YIELD: 1.663% DOWN 5   IN basis point yield from TUESDAY 

ITALIAN 10 YR BOND YIELD: 2.2590 DOWN 6 POINTS  in basis point yield from TUESDAY 

the Italian 10 yr bond yield is trading 63 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: +.579% UP 1 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 1.1415 DOWN .0059 (Euro DOWN 59 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 113.09 DOWN  0.653 (Yen UP 65 basis points/ 

Great Britain/USA 1.2887 UP  0.0029( POUND UP 29 basis points) 

USA/Canada 1.2751 DOWN .0159 (Canadian dollar UP 159 basis points AS OIL ROSE TO $45.04

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This afternoon, the Euro was DOWN  by 59 basis points to trade at 1.1415

The Yen ROSE to 113.09 for a GAIN of 65  Basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED/BANK OF JAPAN NOW WORRIED AS AS THEY ARE RUNNING OUT OF BONDS TO BUY AS BOND YIELDS RISE  /OPERATION REVERSE TWIST ANNOUNCED SEPT 21.2016

The POUND ROSE BY 29  basis points, trading at 1.2887/ 

The Canadian dollar ROSE by 159 basis points to 1.2751,  WITH WTI OIL RISING TO :  $45.04

The USA/Yuan closed at 6.7878/
the 10 yr Japanese bond yield closed at +.089%  DOWN 7/10  IN  BASIS POINTS / yield/ 

Your closing 10 yr USA bond yield DOWN 4 IN basis points from TUESDAY at 2.314% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic  USA 30 yr bond yield: 2.883  DOWN 3 in basis points on the day /

Your closing USA dollar index, 95.78  UP  12 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 87.17 POINTS OR 1.19%
German Dax :CLOSED UP 189.56 POINTS OR 1.52%
Paris Cac  CLOSED UP 81.53 POINTS OR 1.59% 
Spain IBEX CLOSED UP 111.30 POINTS OR 1.07%

Italian MIB: CLOSED  UP 320.85 POINTS/OR 1.52%

The Dow closed UP 123.07 OR 0.57%

NASDAQ WAS closed UP 67.87 POINTS OR 1.10%  4.00 PM EST
WTI Oil price;  45.04 at 1:00 pm; 

Brent Oil: 47.83 1:00 EST

USA /RUSSIAN ROUBLE CROSS:  60.02 DOWN 79/100 ROUBLES/DOLLAR (ROUBLE HIGHER BY 79 BASIS PTS)

TODAY THE GERMAN YIELD RISES TO  +0.579%  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:$45.38

BRENT: $47.67

USA 10 YR BOND YIELD: 2.3177%  (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)

USA 30 YR BOND YIELD: 2.846%

EURO/USA DOLLAR CROSS:  1.1415 DOWN .0058

USA/JAPANESE YEN:113.17  DOWN  0.573

USA DOLLAR INDEX: 95.76  up 9  cent(s) 

The British pound at 5 pm: Great Britain Pound/USA: 1.2885 : UP 62 POINTS FROM LAST NIGHT  

Canadian dollar: 1.2740 UP 176 BASIS pts 

German 10 yr bond yield at 5 pm: +0.579%

END

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

TRADING IN GRAPH FORM FOR THE DAY

“Buy All The Things” – Yellen’s Dovish Flip Sparks Bid In Stocks, Bonds, Bullion, & Bitcoin

Did The Fed just step in to replace the Trump premium as Junior’s email dashes hopes of tax breaks further? Timing is certainly interesting…

Equities and Treasuries rose and the dollar sank after markets interpreted Chair Yellen’s testimony before Congress as dovish even as it echoed the most recent FOMC statement. The rally was aided as the Fed chair made no mention of asset prices just a week after her comment that some looked “somewhat rich.”

Yesterday’s Trump-Junior-Dump was indeed a ‘storm in a teacup’ as a flip-flopping Yellen showed the way this morning by hinting once again at just how clueless The Fed is and that rates may not raise much from here…

Cash markets show the big gap open then only Nasdaq drifted higher (up 4 days in a row – longest streak since May)…Trannies were best

VIX was clubbed like a baby seal once again

Yellen’s dovish statement sent Bonds, Stocks, and Gold higher…

But from Trump Jr’s emails, Gold is leading…

And collapsed December rate-hike odds…

FANG Stocks rose for the 4th day in a row, back to 3-week highs and somewhat crucial resistance…

Notably, while stocks were up on the day, it is intersting that they went NOWHERE (Nasdaq best, Small Caps worst) after the initial opening ramp from Yellen… (performance from 0935ET…)

Treasuries rallied on Yellen’s dovish tone – best day in almost a month for bonds… (dropping long-end yields to 4-day lows)… Treasury cirve flattened modestly today

The Dollar Index was smashed lower (extending Trump Jr. drop) on Yellen’s prepared remarks, panic-bid back, and then sunk for the rest of the day…

The Canadian dollar saw broad gains after the BOC surprised most participants with upbeat Monetary Policy Report that dismissed low inflation as transitory and brought forward to 2017 the closing of the economy’s output gap.

Loonie strength dominated the day (on an expected rate hike from BOC)

Brazil’s currency rallied after ex-President Lula was sentenced to prison on corruption charges

Oil Prices ended the day higher but gave back most of the post-API/DOE gains as production rose once again…

Gold (up 3 days in a row) continues to extend gains off the Trump Jr. lows…

And finally, Bitcoin bounced back notably – best day in 3 weeks, rallying before and after its cameo during Yellen’s hearing…

end

Initial reaction to trading after release of Yellen’s speech (Humphrey Hawkins)

(zerohedge)

Bonds, Bullion, & Stocks Jump, Dollar Dumps On ‘Dovish’ Yellen Remarks

The market seems convinced, judging by the knee-jerk reaction, that Janet Yellen has retreated back to her ‘dovish‘ corner following the release of her prepared remarks…

Stocks have shrugged off any Trump agenda fears…

And investors are buying bonds too…and gold…

Smells like the ‘QE trade’ all over again.

And the dollar is cratering (Yellen dovishness compounding reduced Trump agenda odds)…

end

The National Security chair has just called for an investigation into James Comey’s political warefare against Trump.  There is movement to purge all of Obama holdovers

(courtesy zero hedge)

National Security Chair Calls For Investigation Of Comey’s “Political Warfare”; “Purge” Of Obama Holdovers

Last night, just as the Russian-collusion hysteria was reaching a new fevered pitch on the back of reports that Donald Trump Jr. took a meeting with a Russian-born lawyer who promised juicy opposition research on Hillary Clinton, we took the opportunity to ask which was more disturbing: (i) that Jr. sought opposition research on his father’s political opponent (a rather common, if utterly detestable, practice among politicians) or (ii) that various members of the Obama administration may have very well exploited the Foreign Intelligence Surveillance Act to unmask various members of the Trump campaign thereby effectively turning the entire U.S. intelligence apparatus into a political weapon of mass destruction?

Well, apparently we weren’t the only ones to have had that thought.  As the Washington Free Beacon points out today, Representative Ron DeSantis (R-FL), a member of the House Committee on Oversight and Government Reform and chair of its National Security subcommittee, is urging Attorney General Jeff Sessions to launch a full scale investigation into Comey’s handling of a series of potentially classified memos that were leaked to the press recently as well as efforts of the Washington “bureaucracy to weaponize” intelligence information.

“This is not just standard Washington fair,” DeSantis said. “It’s happening on such a scale with this president that it’s much different.”

“Really, it has a whiff of people inside the bureaucracy who do not accept the election results, so they’re rebelling against the elected president by leaking and doing things to damage him politically,” the lawmaker explained. “It’s unprecedented, certainly in modern American history. The way you stop the leaks is if people are leaking info that is classified, and that’s a crime, DOJ has got to pursue that.”

“If the bureaucracy is going to weaponize this stuff, I think Congress is going to be much less willing to give them the authority to do this,” DeSantis said. “It is a big deal, and if no one is held accountable it’s going to continue to happen.”

And here are his thoughts on Comey…

“Congress needs to press Sessions and other people to make sure they are investigating this because the American people need the truth,” DeSantis told the Free Beacon in a wide-ranging interview. “If he did violate any laws, he needs to be held accountable. If you’re violating laws in service of doing political warfare, that is just absolutely unacceptable, particularly for someone who held such a high position in the government.”

“Not only is he leaking this stuff, not only were the memos done in the course of his employment and likely government property, he may have disclosed classified information in this quest to basically wage a vendetta against the president because the president fired him and to try and create a special counsel,” DeSantis said.

“This guy is really a creature of the swamp. He maneuvers around D.C. in ways that are very similar to how D.C. insiders operate,” DeSantis said of Comey. “He’s one of the best in those regards.”

“Comey has made a concerted effort to not disclose these memos,” DeSantis revealed. “I think Congress obviously has a right to get them.”

Comey Rice

DeSantis also expressed confusion at the Trump administration’s continued unwillingness to fire Obama administration holdovers and fill the government with officials who are more willing to implement the White House’s vision.

“Any Obama holdover at any of these agencies, you’ve got to get them out of there because clearly they’re not on the same team and particularly on the [White House] National Security Council,” DeSantis said.

Former senior Obama administration officials who have been tied to these leaks should be brought before Congress and questioned about their actions, DeSantis said.

“I think Congress and some members on the Intelligence Committee can call Ben Rhodes to testify,” DeSantis said. “He may be able to invoke executive privilege from when Obama was president, but he definitely can’t do that in any interactions he’s had since then.”

DeSantis identified Rhodes and other senior Obama administration officials as being “involved with feeding journalists some of these [leaks]. I believe he’s in touch with people on the National Security Council. It would be absolutely legitimate as part of leak investigation to bring him in and put him under oath, and I would absolutely support doing that.”

On a side note, it’s unclear if Mick Mulvaney incorporated the productivity gains into his budget that would undoubtedly arise for the country if the Trump administration were to fire all of the New York Times’ anonymous sources thereby freeing people up to actually be able to focus on working during the day.

end

Seattle passes an income tax bill in order to tax the rich and give to the poor.  Only one small problem: a city does not have the authority to create an income tax

(courtesy zero hedge)

Seattle Passes Measure To “Tax The Rich”; There’s Just One Problem…

After passing a $15 minimum wage intended to help low-income workers in Seattle, economists at the University of Washingtonproduced a rather extensive research report a few weeks ago highlighting how the legislation was actually doing the exact opposite as companies were simply choosing to automate menial tasks, move businesses out of Seattle in search of more attractive wages rates or simply cutting back on employees to offset increased labor costs (we covered the study here: Seattle Min Wage Hikes Crushing The Poor: 6,700 Jobs Lost, Annual Wages Down $1,500 – UofW Study).

Unhappy with their failed experiment, the Seattle City Council decided to pursue a more direct form of income redistribution: a massive income tax on the rich.

As The Seattle Times points out, a measure passed by the Seattle City Council applies a 2.25% tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together.  The city estimates the tax would raise about $140 million a year and cost $10 million to $13 million to set up, plus $5 million to $6 million per year to manage and enforce.

Under the legislation sponsored by Councilmembers Lisa Herbold and Kshama Sawant, money from the tax could be used by the city to lower property taxes and other regressive taxes; address homelessness; provide affordable housing, education and transit; replace federal funding lost through budget cuts; create green jobs and meet carbon-reduction goals; and administer the tax.

According to U.S. Census Bureau data there are about 11,000 individuals in Seattle with earned annual incomes of at least $250,000 that would be impacted by the new tax.

In a statement, Mayor Ed Murray said Seattle is “challenging this state’s antiquated and unsustainable tax structure by passing a progressive income tax,” calling it a “new formula for fairness.”

Not surprisingly, Seattle’s progressive protesters came out in force to fight for the new tax on millionaires, billionaires, private jet owners.

“When we fight, we win!” they chanted with Sawant, who said more public pressure may be needed.

“If we need to pack the courts, will you be there with me?” she asked.

Karen Taylor, 34, was in the crowd holding a sign with a Seattle Times headline dating to the early 1900s: “Why don’t you come through with a little bit of the wealth Seattle has given you, rich man?”

The Judkins Park resident said she’s struggling to stay housed.

“Whoever goes against this is openly causing suffering,” she said.

And when the measure passed those same progressive protesters erupted in applause at their ‘accomplishment.’

Of course, the Times also points out that there may be just a couple of ‘small problems’ with the new Seattle income tax…the largest being that it’s likely illegal.

There are three key legal barriers, according to Mercier: The state constitution says taxes must be uniform within a class of property; a 1984 state law bars cities from taxing net income; and cities must have state authority to enact taxes.

Seattle may assert that taxing total income is different from taxing net income, while also seeking a ruling that income isn’t property.

“We are greatly disappointed,” Washington Policy Center’s president, Dann Mead Smith, said in a statement after the vote.

“As a lifelong Seattle resident, it is frustrating to see the Seattle City Council choose to waste taxpayer dollars on lawsuits for an income tax that is not needed.”

The Freedom Foundation, a conservative think tank based in Olympia, announced in a statement that the organization was prepared to challenge the tax in court — “hopefully with a coalition of other freedom-minded organizations.”

“No matter who starts out paying it, everyone will eventually suffer,” foundation CEO Tom McCabe said in the statement, warning that the tax would creep down the income ladder.

But even if Seattle does manage to implement their new “rich tax”, we have a sneaking suspicion that they’ll soon learn that they can’t restrict people from simply moving themselves and/or their businesses to more favorable taxing jurisdictions...just ask California.

end
The capital of Connecticut is Hartford and this municipality has just been downgraded to junk.  Next will be the state itself
(courtesy zero hedge)

Connecticut STATE Capital OF Hartford Downgraded To Junk By S&P

One week ago, Illinois passed its three year-overdue budget in hopes of avoiding a downgrade to junk status, however in an unexpected twist, Moody’s said that it may still downgrade the near-insolvent state, regardless of the so-called budget “deal.” In fact, a downgrade of Illinois may come at any moment, making it the first U.S. state whose bond ratings tip into junk, although as of yesterday, credit rating agencies said they were still reviewing the state’s newly enacted budget and tax package. The most likely outcome is, unfortunately for Illinois, adverse: “I think Moody’s has been pretty clear that they view the state’s political dysfunction combined with continued unaddressed long-term liabilities, and unfavorable baseline revenue performance as casting some degree of skepticism on the state’s ability to manage out of the very fragile financial situation they are in,” said John Humphrey, co-head of credit research at Gurtin Municipal Bond Management.

And yet, while Illinois squirms in the agony of the unknown, another municipality that as recently as a month ago was rumored to be looking at a bankruptcy filing, the state capital of Connecticut, Hartford, no longer has to dread the unknown: on Tuesday afternoon, S&P pulled off the band-aid, and downgraded the city’s bond rating by two notches to BB from BBB-, also known as junk, citing “growing liquidity pressures” and “weaker market access prospects”, while keeping the city’s General Obligation bonds on Creditwatch negative meaning more downgrades are likely imminent.

The downgrade to ‘BB’ reflects our opinion of very weak diminished liquidity, including uncertain access to external liquidity and very weak management conditions as multiple city officials have publicly indicated they are actively considering bankruptcy,” said S&P Global Ratings credit analyst Victor Medeiros. Hartford has engaged an outside law firm with expertise in financial restructuring. Officials also mentioned that the city would initiate discussions with bondholders for concessions to implement a debt restructuring if it didn’t receive the necessary support in the state’s 2019 biennial budget.

S&P also said that Hartford may be downgraded again if the state passage of a budget is significantly delayed, or if the city were not to receive sufficient support in a timely manner that would enable it to manage liquidity and allow it to meet obligations in a timely manner.

In short: the capital of America’s richest state (on a per capita basis), will – according to S&P – be one of the first to default in the coming months.

Full S&P note below.

Hartford, CT GO Debt Rating Lowered Two Notches To ‘BB’ On Growing Liquidity Pressures, Weaker Market Access Prospects

S&P Global Ratings has lowered its  rating on Hartford, Conn.’s general obligation (GO) bonds two notches to ‘BB’  from ‘BBB-‘ and its rating on the Hartford Stadium Authority’s lease revenue  bonds to ‘BB-‘ from ‘BB+’. The ratings remain on CreditWatch with negative  implications, where they were placed on May 15, 2017.

The downgrade to ‘BB’ reflects our opinion of very weak diminished liquidity, including uncertain access to external liquidity and very weak management conditions as multiple city officials have publicly indicated they are actively considering bankruptcy,” said S&P Global Ratings credit analyst Victor Medeiros. Hartford has engaged an outside law firm with expertise in financial restructuring. Officials also mentioned that the city would initiate discussions with bondholders for concessions to implement a debt restructuring if it didn’t receive the necessary support in the state’s 2019 biennial budget.

Maintaining the CreditWatch with negative implication reflects our opinion of continued liquidity pressures related to whether the state will provide timely extraordinary aid to the city as outlined in the governor’s proposed biennial budget and included in the city’s adopted budget,” said Mr. Medeiros. Connecticut is facing its own fiscal challenges, and there has been very little indication by the legislature on how it intends to address local government aid and specifically the level of budgetary support it would provide the city of Hartford.

The city’s full faith and credit GO pledge secures the bonds and notes outstanding. The ‘BB-‘ rating on the lease-revenue bonds issued by The Hartford Stadium Authority reflects the appropriation risk of the city of Hartford.

We expect to resolve the CreditWatch on the long-term rating with the enactment of a state budget that will provide additional information and allow us to evaluate the level of state support and the city’s overall liquidity,” added Mr. Medeiros. At the moment, we believe there is a one-in-two likelihood of a negative rating action, potentially by multiple notches. Factors that could lead to a downgrade would be if the state passage of a budget is significantly delayed, or if the city were not to receive sufficient support in a timely manner that would enable it to manage liquidity and allow it to meet obligations in a timely manner. Alternatively, if timely budget adoption translates into stabilized liquidity, and provides long-term structural support, we could remove the ratings from CreditWatch.

Here is his commentary:

(courtesy Harris/Notes from the Underground/Lyle Brainard)

Fed’s Brainard Delivers A “Very Significant Speech”

By Yra Harris from Notes From Underground

Brainard Delivers a Very Significant Speech

Tuesday, FOMC Governor Lael Brainard delivered what I deem to be a very important speech, which spoke to the necessity starting to shrink the balance sheet while halting further interest rate increases. The speech, titled, “Cross-Border Spillovers of Balance Sheet Normalization,” is packed with insight into FOMC thinking reminiscent of the powerful speeches of former Fed Vice Chairman Donald Kohn. I have noted that Brainard is Yellen’s confidant (mere conjecture on my part) similar to how Kohn served as Greenspan’s consigliere, providing great insight into FED policy. Governor Brainard puts forth the reasons for HOLDING fed funds steady while beginning the task of balance sheet shrinkage. Important points to consider:

1. Raising policy rates and reducing central bank balance sheets–appear to affect domestic output and inflation in a qualitatively similar way. This means that central banks can substitute between raising the policy rate and shrinking the balance sheet to remove accommodation;

2. Is there a difference between conventional policy hikes or shrinking the balance sheet on cross-border spillover effects? “Most prominently, the exchange rate may be more sensitive to the path of short-term rates than to balance sheet adjustments, as some research suggests,” (Stavrakeva and Tang, 2016). This issue is what I have discussed for eight years in NOTES FROM UNDERGROUND. Foreign exchange rates are more sensitive to the short-end of the curve than the long-end. A flattening curve has historically been positive for a currency as the interest rate market is signalling that the central bank is too tight for economic conditions. (Brainard cites the example of the FED‘s Operation Twist in the early 1960s.)

If a similar amount of tightening is achieved through the balance sheet reduction “… while keeping the POLICY RATEunchanged, the exchange rate would appreciate to a SMALLER degree, reflecting the lower assumed sensitivity of the exchange rate to the term premium than to policy rates.” Governor Brainard further supports this view by noting that other countries would not have to act as swiftly to raise rates in response and therefore allow other nations to pick up the slack if the U.S. economy was to slow down. Also, in the case of a managed exchange rate, she cites China in 2015-16 as China responded to the incipient rise in U.S. fed funds rate by squeezing liquidity and depreciating the YUAN.

3. If different monetary regimes are pursuing different policies in trying to contain demand shocks, the cross-border impact on the nation using interest rate policy versus balance sheet shrinkage in the other will probably result in greater foreign exchange rate movements. Brainard notes that the “… downward pressure on term premiums around the globe, especially in those foreign economies whose bonds were perceived as close substitutes.” Certainly this speaks to the BUND/U.S. 10-YEAR NOTE correlation. In this regard the Brainard suggests that the BOJ and ECB present programs provides an opportunity for the FED to reduce the balance sheet without as much disruption as the fungibility of global markets will provide some support to U.S. term premiums.

4. Inflation for Brainard will remain very important. She said, “I will want to monitor inflation developments carefully, and to move cautiously on further increases in the FEDERAL FUNDS RATE, so as to help guide inflation back up around symmetric target.”

I fully expect Chair Yellen to speak to this in her testimony this week. If I am right, the yield curve OUGHT to steepen further. The 2/10 curve closed at 98 basis points Tuesday after holding support levels. The SPOOS and NASDAQ should fine near-term strength as markets believe that FED FUNDS INCREASES ARE ON HOLD. Commodities should return to supply/demand fundamentals and the precious metals OUGHT to repel fears of rising short-term rates. Also, emerging markets should breathe a sigh of relief.

There is much to contemplate in Brainard’s speech, but if she plays Jiminy Cricket to Janet Yellen expect the Fed chair to support this outlook. The FED seems to have been shaken by the recent severe flattening in the yield curves. Other political factors such as the White House tweets and buffoonery cannot be accounted for in an algo-driven world. But I believe that Brainard did more to impact markets than the e-mails of Donald Trump, Jr.

end

Yellen turns dovish and echoes Brainard’s philosophy of holding rates while letting the bonds run off.  This would be great for gold and silver.

(courtesy zero hedge)

Yellen’s Dovish Turn: Concerned About Inflation, Sees Little Room For Rate Increases

Fed Chair Janet Yellen’s prepared remarks confirm her previous stance that they will keep normalizing their policy stance (no matter what), bringing forward the timeline for unwinding the balance sheet, and adding that “rates won’t have to rise much further to get to neutral.” This seems like a ‘dovish’ tilt, and judging by the reaction in stocks (higher) and the dollar (lower) it agrees.

Here is the key line the market is focusing on:

Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.

Is this a warning that the Fed’s dot plot is about to revised well lower than its terminal 3.0% rate, if indeed the Fed is starting to get worried about r*? Perhaps, although she gave herself a loophole:

because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.

Still, uncertainty was the key word, summed up by this line:

“I see roughly equal odds that the U.S. economy’s performance will be somewhat stronger or somewhat less strong than we currently project…”

A recap of the key considerations via BBG:

  • On inflation, “it appears that the recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices,” she says in prepared remarks to the House Financial Services Committee. She and the FOMC expect “the economy will continue to expand at a moderate pace over the next couple of years, with the job market strengthening somewhat further and inflation rising to 2 percent”
  • On domestic and foreign economic growth “should increase resource utilization somewhat further, thereby fostering a stronger pace of wage and price increases”
  • On uncertainty in the outlook: “There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization”… “I see roughly equal odds that the U.S. economy’s performance will be somewhat stronger or somewhat less strong than we currently project”
  • On monetary policy: “Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal”
  • On the balance-sheet runoff plan: “The Committee currently expects that, provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year”

Indicatively, this is what a Fed balance sheet rolloff could look like if the Fed halted reinvestments in September as the consensus believes.

Key headlines:

  • *YELLEN SAYS INFLATION RESPONSE TO ECONOMY IS KEY UNCERTAINTY
  • *YELLEN SAYS FED MONITORING INFLATION DEVELOPMENTS CLOSELY
  • *YELLEN: JOB GAINS, GROWTH SHOULD FOSTER WAGE AND PRICE GAINS
  • *YELLEN: RATES WON’T HAVE TO RISE MUCH FURTHER TO GET TO NEUTRAL
  • *YELLEN: ODDS AROUND U.S. ECONOMIC OUTLOOK ARE ROUGHLY EQUAL
  • *YELLEN SAYS INFLATION RUNNING BELOW GOAL, HAS DECLINED RECENTLY
  • *YELLEN: U.S. FISCAL POLICY ANOTHER SOURCE OF UNCERTAINTY
  • *YELLEN: INVESTMENT HAS TURNED UP, GROWTH ABROAD STRENGTHENING
  • *YELLEN SEES MODERATE GROWTH PACE CONTINUING NEXT FEW YEARS
  • *YELLEN: LONG-RUN NORMAL SIZE OF B/SHEET STILL TO BE DETERMINED
  • *YELLEN: FOMC EXPECTS TO BEGIN SHRINKING BALANCE SHEET THIS YR
  • *YELLEN: FED DOESN’T EXPECT TO USE B/SHEET AS ACTIVE POLICY TOOL
  • *YELLEN: ADDITIONAL GRADUAL RATE HIKES NEEDED IN NEXT FEW YEARS

*  *  *

Finally, her full prepared remarks:

Semiannual Monetary Policy Report to the Congress

Chairman Hensarling, Ranking Member Waters, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. In my remarks today I will briefly discuss the current economic situation and outlook before turning to monetary policy.

Current Economic Situation and Outlook

Since my appearance before this committee in February, the labor market has continued to strengthen. Job gains have averaged 180,000 per month so far this year, down only slightly from the average in 2016 and still well above the pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Indeed, the unemployment rate has fallen about 1/4 percentage point since the start of the year, and, at 4.4 percent in June, is 5-1/2 percentage points below its peak in 2010 and modestly below the median of Federal Open Market Committee (FOMC) participants’ assessments of its longer-run normal level. The labor force participation rate has changed little, on net, this year–another indication of improving conditions in the jobs market, given the demographically driven downward trend in this series. A broader measure of labor market slack that includes workers marginally attached to the labor force and those working part time who would prefer full-time work has also fallen this year and is now nearly as low as it was just before the recession. It is also encouraging that jobless rates have continued to decline for most major demographic groups, including for African Americans and Hispanics. However, as before the recession, unemployment rates for these minority groups remain higher than for the nation overall.

Meanwhile, the economy appears to have grown at a moderate pace, on average, so far this year. Although inflation-adjusted gross domestic product is currently estimated to have increased at an annual rate of only 1-1/2 percent in the first quarter, more-recent indicators suggest that growth rebounded in the second quarter. In particular, growth in household spending, which was weak earlier in the year, has picked up in recent months and continues to be supported by job gains, rising household wealth, and favorable consumer sentiment. In addition, business fixed investment has turned up this year after having been soft last year. And a strengthening in economic growth abroad has provided important support for U.S. manufacturing production and exports. The housing market has continued to recover gradually, aided by the ongoing improvement in the labor market and mortgage rates that, although up somewhat from a year ago, remain at relatively low levels.

With regard to inflation, overall consumer prices, as measured by the price index for personal consumption expenditures, increased 1.4 percent over the 12 months ending in May, up from about 1 percent a year ago but a little lower than earlier this year. Core inflation, which excludes energy and food prices, has also edged down in recent months and was 1.4 percent in May, a couple of tenths below the year-earlier reading. It appears that the recent lower readings on inflation are partly the result of a few unusual reductions in certain categories of prices; these reductions will hold 12-month inflation down until they drop out of the calculation. Nevertheless, with inflation continuing to run below the Committee’s 2 percent longer-run objective, the FOMC indicated in its June statement that it intends to carefully monitor actual and expected progress toward our symmetric inflation goal.

Looking ahead, my colleagues on the FOMC and I expect that, with further gradual adjustments in the stance of monetary policy, the economy will continue to expand at a moderate pace over the next couple of years, with the job market strengthening somewhat further and inflation rising to 2 percent. This judgment reflects our view that monetary policy remains accommodative. Ongoing job gains should continue to support the growth of incomes and, therefore, consumer spending; global economic growth should support further gains in U.S. exports; and favorable financial conditions, coupled with the prospect of continued gains in domestic and foreign spending and the ongoing recovery in drilling activity, should continue to support business investment. These developments should increase resource utilization somewhat further, thereby fostering a stronger pace of wage and price increases.

Of course, considerable uncertainty always attends the economic outlook. There is, for example, uncertainty about when–and how much–inflation will respond to tightening resource utilization. Possible changes in fiscal and other government policies here in the United States represent another source of uncertainty. In addition, although the prospects for the global economy appear to have improved somewhat this year, a number of our trading partners continue to confront economic challenges. At present, I see roughly equal odds that the U.S. economy’s performance will be somewhat stronger or somewhat less strong than we currently project.

Monetary Policy

I will now turn to monetary policy. The FOMC seeks to foster maximum employment and price stability, as required by law. Over the first half of 2017, the Committee continued to gradually reduce the amount of monetary policy accommodation. Specifically, the FOMC raised the target range for the federal funds rate by 1/4 percentage point at both its March and June meetings, bringing the target to a range of 1 to 1-1/4 percent. In doing so, the Committee recognized the considerable progress the economy had made–and is expected to continue to make–toward our mandated objectives.
The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level–that is, the level of the federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.

As I noted earlier, the economic outlook is always subject to considerable uncertainty, and monetary policy is not on a preset course. FOMC participants will adjust their assessments of the appropriate path for the federal funds rate in response to changes to their economic outlooks and to their judgments of the associated risks as informed by incoming data. In this regard, as we noted in the FOMC statement last month, inflation continues to run below our 2 percent objective and has declined recently; the Committee will be monitoring inflation developments closely in the months ahead.

In evaluating the stance of monetary policy, the FOMC routinely consults monetary policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives. However, such prescriptions cannot be applied in a mechanical way; their use requires careful judgments about the choice and measurement of the inputs into these rules, as well as the implications of the many considerations these rules do not take into account. I would like to note the discussion of simple monetary policy rules and their role in the Federal Reserve’s policy process that appears in our current Monetary Policy Report.

Balance Sheet Normalization

Let me now turn to our balance sheet. Last month the FOMC augmented its Policy Normalization Principles and Plans by providing additional details on the process that we will follow in normalizing the size of our balance sheet. The Committee intends to gradually reduce the Federal Reserve’s securities holdings by decreasing its reinvestment of the principal payments it receives from the securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps. Initially, these caps will be set at relatively low levels to limit the volume of securities that private investors will have to absorb. The Committee currently expects that, provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year.

Once we start to reduce our reinvestments, our securities holdings will gradually decline, as will the supply of reserve balances in the banking system. The longer-run normal level of reserve balances will depend on a number of as-yet-unknown factors, including the banking system’s future demand for reserves and the Committee’s future decisions about how to implement monetary policy most efficiently and effectively.

The Committee currently anticipates reducing the quantity of reserve balances to a level that is appreciably below recent levels but larger than before the financial crisis.

Finally, the Committee affirmed in June that changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy. In other words, we do not intend to use the balance sheet as an active tool for monetary policy in normal times. However, the Committee would be prepared to resume reinvestments if a material deterioration in the economic outlook were to warrant a sizable reduction in the federal funds rate. More generally, the Committee would be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.

Thank you. I would be pleased to take your questions.

end

Bloomberg’s Breslow correctly slams the latest FOMC confusion.  He accurately portrays the Fed has basically has actually not knowing what to do on how to put the genie back into the bottle

(courtesy zero hedge)

Breslow Slams Fed Confusion: “FOMC Charts Will Soon Need Virtual Reality Headsets”

Hawkish? Dovish? Balance sheet reductionist? Rate-hike limited? Worried about inflation or excited by the economic outlook? Or just plain old confused?

What and why did Yellen just say what she did, unleashing the latest market reaction to her supposedly “dovish” congressional testimony, and sending risk assets higher just two weeks after the same Janet Yellen warned about frothy market valuations?

It turns out, you are not the only one who can no longer make any sense of it. As Bloomberg’s macro commentator Richard Brelsow notes, “we’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll.”

He than rages at the Fed which “has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker.

And then a disclaimer on disclaimers:

Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves

He concludes with an ominous warning for the Fed: “I have news for you, when this chapter of financial history is written, the authors won’t spend a lot of time dwelling on the disclaimers then, either.

Then again, Breslow has had a rather “angry” period in the past few weeks; our advice: relax – the Fed confusion over how to put the genie which the Fed first released, back in the bottle, is only just starting.

His full note below:

The Fed’s Making Hawks or Doves a Quaint Concept

Have you ever actually read the tiny print on the lengthy warning insert included with even the most innocuous drug? Doubtful. The farthest you are likely to get is the list of side-effects designed to insulate the manufacturer and ensure you stop reading immediately. Put this gel on your cut finger to prevent infection. But discontinue use if you experience bleeding from your eye sockets for an extended period. You end up just taking it on faith that someone other than the product liability lawyer who wrote it has read it. Certainly the clerk who rings up the purchase doesn’t make you study it first. Hey, you opened the tube so it’s now all on you.

It’s even worse with fund offering memoranda. They begin by telling you that this opportunity is only to be made available to sophisticated investors. Stop right there. I’m sophisticated, so do I really need to focus on the details? I don’t want to look like a rube in front of these people. And if you’ve ever been to a pitch, no one spends even a nanosecond on those disclaimer paragraphs in the documents. Shall we quickly just flip to the past results graph and look at what we’re all sure will be replicated. Oh, and don’t get caught up in the language about side-pockets. Don’t think of it as style drift. More like, say, responding to exigent circumstances.

In both of these cases, the presumption is strongly skewed to making the leap of faith that nothing can go wrong. Trust me, I know best. So let’s focus on the good. Which is why I find the hand-wringing and introspection by the members of the FOMC over whether, when and how to begin balance sheet reduction along with further rate rises troubling as well as frustrating.

The market has so far accepted the premise that the experts know exactly the way those trillions of assets can be run-off with pain to no one. Why should it affect any of the assets that have been wildly distorted by building up the balance sheet to begin with? What does Jamie Dimon know about markets, anyway?

The Fed has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker.

Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves.

We’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll. I have news for you, when this chapter of financial history is written, the authors won’t spend a lot of time dwelling on the disclaimers then, either.

end

the Fed’s beige book warns of declining auto sales as well as rising benefit costs

(courtesy zero hedge)

Fed’s Beige Book Warns Of Declining Auto Sales, Sees Rising Benefit Costs Limiting Wages

While the Fed’s traditionally drab Beige Book is routinely ignored by the market, especially on blockbuster days like today when Janet Yellen turns dovish again and then speaks for nearly 4 hours in the Senate, this time there were several notable highlights in the just released July edition, not least of all the apparent downgrade of the low end of overall economic activity, which for the first time described the pace of growth as “slight to moderate” versus its staple “modest to moderate.” 

Of note, while the Fed described consumer spending as “rising across a majority of Districts, led by increases in non-auto retail sales and tourism” it did caution that there appears to be “some softening in consumer spending, particularly in auto sales which declined in half of the Districts.” Ironically, contrary to what the Fed reports every week in its H.8 statement where C&I loan growth is virtually unchanged on an annual basis, it said that “loan demand was steady to increasing in most Districts.” Perhaps in poke at Trump’s plans to revitalize the coal industry, the Fed also remarked that “coal production remained sluggish although higher than year-ago levels.”

Discussing the most sensitive topic for the Fed, employment and wages, the Beige Book noted that while “most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels.” On the whole, however, labor markets tightened further, particularly in the construction and IT sectors. The Fed also observed that there were reports of a shortage of qualified workers across a broad range of industries “which had limited hiring.” Apparently, it has still not dawned on anyone that one can overcome such shortages by raising wages.

On the topic of prices, the Fed noted that several Districts reported higher construction materials costs and freight prices. It also warned that “low agricultural prices were causing stress for some farmers, although some food retailers reported improved margins due to lower commodity prices.” Meanwhile, not surprisingly, “home prices continued to increase in most Districts” while “retail prices held steady or slightly increased.”

Finally, below are some of the more notable anecdotes by region:

Boston:

  •  A manufacturer of cardboard boxes was hiring additional workers without raising wages, but noted that finding qualified workers was difficult because production jobs increasingly involve using computers
  • A cardboard box manufacturer reported 10 percent year-over-year growth resulting from increased e-commerce

New York:

  • Broadway theater attendance and revenues were reported to be fairly strong in May and June
  • Broadway theaters noted rising ticket prices, with the average price up 10-15 percent from a year earlier

Philadelphia:

  • Staffing contacts reported spending more time and money on recruiting labor and refilling positions after the initial hire quit, sometimes after just a few days. Workers appear to have less loyalty to the job, and more job-hopping is showing up on résumés

Cleveland:

  • Freight haulers mentioned difficulty recruiting enough qualified drivers despite increasing driver wages recently
  • Freight haulers saw increased demand from oil and gas and strong demand from construction material producers

Richmond:

  • A few firms reported increased productivity resulting from recent new equipment purchases, and they expected further efficiency gains once employees were trained on operating the equipment
  • A few contacts in D.C. and Maryland cited concerns over slowing federal procurement spending

Atlanta:

  • Firms continued to deploy various tactics in an effort to find and develop pipelines of talent and retain workers; for example, developing partnerships with workforce development entities, schools, and military bases, expanding internal and external training and apprenticeship programs, strengthening recruiting efforts, and seeking out retirees to return to work
  • Firms continued to explore or deploy technology as viable future replacements for labor, especially in hard-to-fill jobs

Chicago:

  • A staffing firm that primarily supplies manufacturers with production workers reported a slight decline in billable hours

St. Louis:

  • Manufacturing contacts in Louisville and Memphis reported difficulties finding experienced or qualified employees, with some citing candidates’ inability to pass drug tests or to consistently report to work
  • A science and technology contact reported that rising costs of benefits have limited increases in wages

Minneapolis:

  • Average wages for 18 Minnesota construction unions saw annual increases of between 3.3 percent and 5 percent in recent three-year contracts negotiated in May

Kansas City:

  • Restaurant contacts reported slight declines in both input and selling prices

Dallas:

  • Rail cargo rose, led by strong gains in shipments of fracking sand and grains, although shipments of petroleum products and motor vehicles continued to decline

San Francisco:

  • Wage pressures for skilled software engineers intensified further as competition for programmers with experience in cybersecurity and cloud computing remained fierce
  • Contacts reported that they increasingly filled job openings with older workers who were reportedly seeking health-care benefits or supplemental income
  • Residential construction activity continued to be strong in much of the District, slowed only by a lack of available land and labor

end

Wolf Richter echoes David Stockman on the USA economy that a tsunami is coming

The correct P/E for the market is now 25.6.

(courtesy WolfRichter/WolfStreet)

Harvey.

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