GOLD: $1272.00 down $2.75
Silver: $16.61 up 1 CENT(S)
Closing access prices:
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: $n/a DOLLARS PER OZ
NY PRICE OF GOLD AT EXACT SAME TIME: $n/a
PREMIUM FIRST FIX: $8.24 (premiums getting larger)
SECOND SHANGHAI GOLD FIX: $n/a
NY GOLD PRICE AT THE EXACT SAME TIME: $/na
Premium of Shanghai 2nd fix/NY:$13.00 (PREMIUMS GETTING LARGER)
LONDON FIRST GOLD FIX: 5:30 am est $not important
NY PRICING AT THE EXACT SAME TIME: $not important
LONDON SECOND GOLD FIX 10 AM: $1283.10
NY PRICING AT THE EXACT SAME TIME. 1283.10
For comex gold:
NOTICES FILINGS TODAY FOR SEPT CONTRACT MONTH: 1601 NOTICE(S) FOR 160,100 OZ.
TOTAL NOTICES SO FAR: 2040 FOR 204,000 OZ (6.345 TONNES)
12 NOTICES FILED TODAY FOR
Total number of notices filed so far this month: 316 for 1,580,000 oz
Let us have a look at the data for today
In silver, the total open interest SURPRISINGLY ROSE BY 249 contracts from 182,960 UP TO 183,209 CORRESPONDING TO ANOTHER RAID THAT SILVER UNDERTOOK IN YESTERDAY’S TRADING (DOWN 8 CENTS ). THE CROOKS TRIED TO COVER AS MUCH OF THEIR SILVER SHORTS AS POSSIBLE BUT IT LOOKS LIKE THEY FAILED
RESULT: A SMALL SIZED RISE IN OI COMEX DESPITE THE 8 CENT PRICE FALL AND CONSTANT TORMENT. IT SURE LOOKS LIKE OUR BANKERS FAILED AGAIN IN THEIR ATTEMPT TO COVER THEIR MASSIVE SILVER SHORTFALL
In ounces, the OI is still represented by just UNDER 1 BILLION oz i.e. 0.915 BILLION TO BE EXACT or 131% of annual global silver production (ex Russia & ex China).
FOR THE NEW FRONT OCT MONTH/ THEY FILED: 19 NOTICE(S) FOR 95,000 OZ OF SILVER
In gold, the open interest FELL BY A MUCH SMALLER THAN EXPECTED 152 CONTRACTS DESPITE ANOTHER WICKED FALL in price of gold ($8.25 ) . The new OI for the gold complex rests at 530,731. WE HAVE NOW ENTERED GOLDEN WEEK (ONE WEEK OF CHINESE HOLIDAY)..SO EXPECT TORMENT FOR THE REST OF THE WEEK AS THE CROOKS DO NOT HAVE TO WORRY ABOUT PHYSICAL DELIVERIES FOR A WEEK. OUR BANKER FRIENDS WERE NOT SUCCESSFUL IN THE ATTEMPT TO COVER MORE OF THEIR GOLD SHORTS.
Result: A SMALL SIZED DECREASE IN OI WITH THE FALL IN PRICE IN GOLD ($3.75)
we had: 1601 notice(s) filed upon for 160,100 oz of gold.
With respect to our two criminal funds, the GLD and the SLV:
Tonight , A HUGE CHANGE in gold inventory at the GLD AGAIN WITH THE CONTINUAL DRUBBING GOLD HAS TAKEN THESE PAST FEW WEEKS. THIS HUGE WITHDRAWAL WAS REPORTED LATE LAST NIGHT: WITHDRAWAL OF 10.35 TONNES
Inventory rests tonight: 854.30 tonnes.
Today: a SMALL change in inventory: A WITHDRAWAL OF 142,000 OZ TO PAY FOR FEES
INVENTORY RESTS AT 326.615 MILLION OZ
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver SURPRISINGLY ROSE BY 249 contracts from 182,960 DOWN TO 183,209 (AND now A LITTLE CLOSER TO THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) . IT SEEMS THAT OUR BANKERS WERE UNSUCCESSFUL IN COVERING THEIR SHORTS. WITH GOLDEN WEEK IN CHINA, EXPECT THE BANKERS TO HAVE CONSTANT TORMENT THROUGH THIS COMING WEEK AS THEY TRY AND COVER AS MANY AS POSSIBLE OF THEIR SILVER/GOLD SHORTS.
RESULT: A SMALL SIZED INCREASE IN SILVER OI AT THE COMEX WITH THE FALL IN PRICE OF 8 CENTS IN FRIDAY’S TRADING. EXPECT CONSTANT TORMENT FOR THE REST OF THE WEEK. OUR BANKER FRIENDS WERE UNSUCCESSFUL IN THEIR ATTEMPT TO COVER ANY OF OUR SILVER SHORTS
2.a) The Shanghai and London gold fix report
2 b) Gold/silver trading overnight Europe, Goldcore
and in NY: Bloomberg
3. ASIAN AFFAIRS
)Late MONDAY night/TUESDAY morning: Shanghai closed /Hang Sang CLOSED / The Nikkei closed UP 44.50 POINTS OR 0.22%/Australia’s all ordinaires CLOSED UP 0.81%/Chinese yuan (ONSHORE) closed/Oil DOWN to 50.30 dollars per barrel for WTI and 55.60 for Brent. Stocks in Europe OPENED GREEN . ALL YUAN FIXINGS CLOSED
3a)THAILAND/SOUTH KOREA/NORTH KOREA
b) REPORT ON JAPAN
c) REPORT ON CHINA
4. EUROPEAN AFFAIRS
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
6 .GLOBAL ISSUES
7. OIL ISSUES
8. EMERGING MARKET
9. PHYSICAL MARKETS
10. USA Stories
Let us head over to the comex:
The total gold comex open interest FELL BY MUCH SMALLER THAN EXPECTED 152 CONTRACTS DOWN to an OI level of 530,731 DESPITE THE FALL IN THE PRICE OF GOLD ($8.25 LOSS IN YESTERDAY’S TRADING). OUR BANKER FRIENDS WERE UNSUCCESSFUL IN THEIR ATTEMPT TO COVER ANY OF THEIR HUGE GOLD SHORTFALL. OCTOBER IS AN ACTIVE DELIVERY MONTH ALTHOUGH IT IS THE WEAKEST IN TERMS OF ACTUAL DELIVERIES AND OPEN INTEREST. WE CAN VISUALIZE THAT THROUGHOUT THE MONTH OF SEPTEMBER, THE CROOKS UTILIZED THE EMERGENCY EFP SCHEME TO TRANSFER OBLIGATIONS OVER TO LONDON. IT THEN STANDS TO REASON THAT IF THE EMERGENCY WAS IN FORCE THROUGHOUT THE MONTH OF SEPTEMBER IT WOULD CONTINUE ON FIRST DAY NOTICE. IT LOOKS LIKE ANOTHER 7200 LONG COMEX CONTRACTS WERE GIVEN 7200 EFP’S. WE HAVE NOW ENTERED GOLDEN WEEK WHERE ALL OF CHINA IS OFF AND AS SUCH EXPECT CONSTANT TORMENT FOR THE REST OF THE WEEK.
Result: a SMALLER SIZED open interest DECREASE WITH THE GOOD SIZED FALL IN THE PRICE OF GOLD ($8.25) . BANKERS UNSUCCESSFUL IN THEIR ATTEMPT TO COVER THEIR GOLD SHORTFALL
CHINA THREW OUT A TRIAL BALLOON LAST MONTH THAT THEY WERE CONSIDERING A YUAN BASED OIL CONTRACT ON THE SHANGHAI EXCHANGE AND THEN THE RECIPIENT OF YUAN WILL ALSO HAVE THE OPTION OF CONVERTING TO GOLD. I NOW STRONGLY BELIEVE THAT THAT IS THE REASON FOR THE CONSTANT TORMENT. THE BANKERS KNOW THAT THEIR GAME WILL BE UP ONCE WE GET A YUAN-PETRO SCHEME WITH A CONVERSION OF YUAN INTO GOLD.
I BELIEVE THE CHINESE WILL INTRODUCE THIS SCHEME AT THEIR BIG 5 YR FORUM BEGINNING ON OCT 18.
I WOULD IMAGINE THAT THE CHINESE WOULD TAKE IN ALL GOLD INITIALLY AT SAY $2,000…AND THE NEW GOLD RECEIVED WOULD BE USED TO SETTLE ON YUAN CASHED. IF 2,000 DOLLARS IS INSUFFICIENT TO RAISE ENOUGH GOLD, THEN FURTHER INCREASES WILL BE THE ORDER OF THE DAY UNTIL EQUILIBRIUM.
THE BANKERS FEARING THIS, HAS ORCHESTRATED HUGE RAIDS THESE PAST 2 WEEKS HOPING TO COVER AS MANY GOLD/SILVER SHORTS AS POSSIBLE.
We have now entered the active contract month of Oct and here we saw a LOSS of 77 contracts DOWN to 2,222 contracts. We had 28 notices filed yesterday so we lost 49 contracts or 4900 oz will not stand for delivery at the comex. However 49 EFP notices were given to those longs which gives them a fiat bonus plus a future delivery product on another bourse and most likely that would be London. These departing longs would thus receive a London based forward contract for delivery at another date. These EFP’s are supposed to be for emergency purposes only but the crooks are continually using this escape hatch.
The November contract saw A GAIN OF 324 contracts UP to 1720.
The very big active December contract month saw it’s OI LOSS OF 1,368 contracts DOWN to 420,373.
We had 1601 notice(s) filed upon today for 160,100 oz
VOLUME FOR TODAY (PRELIMINARY) 193,960
CONFIRMED VOLUME YESTERDAY: 279,168
We had 12 notice(s) filed for 60,000 oz for the OCT. 2017 contract
|Withdrawals from Dealers Inventory in oz||nil|
|Withdrawals from Customer Inventory in oz||
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||
|No of oz served (contracts) today||
|No of oz to be served (notices)||
|Total monthly oz gold served (contracts) so far this month||
|Total accumulative withdrawals of gold from the Dealers inventory this month||NIL oz|
|Total accumulative withdrawal of gold from the Customer inventory this month||23,630.25 oz|
Today, 0 notice(s) were issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 28 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.
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||
|Deposits to the Dealer Inventory||
|Deposits to the Customer Inventory||
|No of oz served today (contracts)||
|No of oz to be served (notices)||
|Total monthly oz silver served (contracts)||316 contracts (1,580,000 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||2912.95 oz|
NPV for Sprott and Central Fund of Canada
Sprott WINS hostile 3.1 billion bid to take over Central Fund of Canada
Sprott Inc. to take control of rival gold holder Central Fund of Canada
Posted Oct 2, 2017 8:43 am PDT
Last Updated Oct 2, 2017 at 9:20 am PDT
TORONTO – Sprott Inc. (TSX:SII) says it has struck a deal to take control of rival gold-holding firm Central Fund of Canada Ltd. (TSX:CEF.A) after a protracted takeover effort.
Toronto-based Sprott said Monday it will pay $120 million in cash and stock for Central Fund of Canada Ltd.’s common shares and for the right to administer and manage the fund’s assets.
The deal, which requires approval from Central Fund shareholders, would see its class A shareholders transferred to a new Sprott Physical Gold and Silver Trust.
Sprott says the deal would add $4.3 billion to its assets under management, which are focused largely on holding physical precious metals on behalf of clients, and 90,000 investors to its client base.
In March, Sprott tried to go through the Court of Queen’s Bench of Alberta to allow Central Fund’s class A shareholders to swap their shares to Sprott after the family that controls Central Fund rebuffed their attempt to make a deal.
Last year Sprott took over Central GoldTrust, a similar fund controlled by the same family, after securing support from more than 96 per cent of shareholder votes cast.
And now the Gold inventory at the GLD
oCT 3/ A HUGE WITHDRAWAL OF 10.35 TONNES FROM THE GLD/INVENTORY RESTS AT 854.30 TONNES
Oct 2/STRANGE/WITH GOLD’S CONTINUAL WHACKING WE GOT A BIG FAT ZERO OZ LEAVING THE GLD/INVENTORY RESTS AT 864.65 TONNES
SEPTEMBER 29/no changes in gold inventory at the GLD/Inventor rests at 864.65 tonnes
Sept 28/NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 864.65 TONNES
Sept 27/WOW!! WITH GOLD DOWN $13.25, WE HAD A HUGE 8.57 TONNES OF GOLD ADDED TO THE GLD/
Sept 26/no changes in gold inventory at the GLD/Inventory rests at 856.08 tonnes
Sept 25./Another big deposit of 3.84 tonnes into GLD/Inventory rests tonight at 856.08 tonnes
Sept 22/with gold up only 1 dollar on the day we had a massive 6.21 tonnes of gold added to the GLD/.this is a good sign that gold will advance nicely this coming week.
Sept 21/no change in gold inventory tonight/inventory rests at 846.03 tonnes
Sept 20/no change in gold inventory tonight/inventory rests at 846.03 tonnes
Sept 19/another deposit of 2.07 tonnes of gold into the GLD/inventory rests at 846.03 tonnes
Sept 18/a huge 5.32 tonnes of gold deposit into the GLD despite gold’s whack today/inventory rests at 843.96 tonnes
Sept 15./strange!!no change in GLD after the whacking of gold/inventory remains at 838.64 tonnes
Sept 14./no changes at the GLD/inventory rests at 838.64 tonnes
Sept 13/late last night a huge 4.14 tonnes of gold was added to the GLD inventory/inventory rests at 838.64 tonnes.
Sept 12/as of 5: 40 pm est, no changes in gold inventory at the GLD/Inventory rests at 834.50 tonnes
Sept 11/Today we had a rather large 2.37 tonnes of gold removed from the GLD/Inventory rests at 834.50 tonnes
Sept 8/we had a tiny withdrawal of .34 tonnes and probably that would be to pay for fees like insurance etc.
Inventory rests at 836.87 tonnes
Sept 7./no changes in gold inventory at the GLD/Inventory rests at 837.21 tonnes
SEPT 6/WE HAD ANOTHER DEPOSIT OF 5.91 TONNES INTO THE GLD/IN THE LAST TWO DAYS: 20.69 TONNES/INVENTORY RESTS AT 837.21 TONES
Sept 5/we had a huge deposit of 14.78 tonnes into the GLD/Inventory rests at 831.21 tonnes
Sept 1/ no change in gold inventory at the GLD/Inventory rests at 816.43 tonnes
AUGUST 31/no change in gold inventory at the GLD. Inventory rests at 816.43 tonnes
August 30/another deposit of 2.07 tonnes into the GLD inventory/inventory rests at 816.43 tonnes
August 29/a huge deposit of 9.16 tonnes of probable paper gold/inventory rests at 814.36 tonnes
AUGUST 28/a huge deposit f 5.91 tonnes of gold into GLD inventory/inventory rests at 805.20 tonnes
AUGUST 25/NO CHANGE IN GOLD INVENTORY/INVENTORY RESTS AT 799.29 TONNES
AUGUST 24/no change in gold inventory at the GLD/inventory rests at 799.29 tonnes
August 23/no change in gold inventory at the GLD/Inventory rests at 799.29 tonnes
August 22/no change in gold inventory at the GLD/Inventory rests at 799.29 tonnes/
AUGUST 21/this is good!! a huge deposit of gold into the GLD to the tune of 3.85 tonnes/Inventory rests at 799.29 tonnes
August 18/NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 795.44 TONNES
August 17/late last night, a deposit of 4.43 tonnes of gold at the GLD/inventory rests at 795.44 tonnes/the bleeding of gold has stopped.
Now the SLV Inventory
Oct 3/A TINY WITHDRAWAL OF 143,000 FROM THE SLV FOR FEES/INVENTORY RESTS AT 326.615 MILLION OZ
Oct 2/NO CHANGES IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 326,757 MILLION OZ
SEPTEMBER 29/no changes in silver inventory at the SLV/inventory rests at 326.757 million oz/
Sept 28/NO CHANGES IN SILVER INVENTORY/INVENTORY RESTS AT 326.757 MILLION OZ/
Sept 27/STRANGE!! SILVER IS HIT FOR 24 CENTS YESTERDAY AND. 9 CENTS TODAY AND YET NO CHANGE IN SILVER INVENTORY/INVENTORY RESTS AT 326.757 MILLION OZ
Sept 26./no change in silver inventory at the SLV/.inventory rests at 326.757 million oz
Sept 25./ a big deposit of 1.842 million oz into the SLV/inventory rests at 326.757 million oz/
Sept 22/no change in silver inventory at the SLV/Inventory rests at 324.915 million oz/
Sept 21/no change in silver inventory at the SLV/Inventory rests at 324.915 million oz
Sept 20/no changes in silver inventory/Inventory remains at 324.915 million oz
Sept 19/strange!! another withdrawal of 1.134 million oz despite the rise in silver/inventory rests at 324.915 million oz
Sept 18/a withdrawal of 1.039 million oz from the SLV/Inventory rests at 326.049 million oz
Sept 15./no change in silver inventory at the SLV/Inventory rests at 327.088 million oz/
Sept 14/no change in silver inventory at the SLV/Inventory rests at 327.088 million oz/
Sept 13/no change in silver inventory at the SLV/Inventory rests at 327.088 million oz/
Sept 12.2017/no change in silver inventory at the SLV/Inventory rests at 327.088 million oz/
Sept 11.2017: no change in silver inventory at the SLV/Inventory rests at 327.088 million oz/
Sept 8/no change in silver inventory at the SLV/Inventory rests at 327.088 million oz/
Sept 7/STRANGE!! WITH DEMAND FOR SILVER HUGE WE HAD ANOTHER 945,000 OZ WITHDRAWN. NO DOUBT THAT THIS IS CRIMINAL ACTIVITY AS SILVER IS WITHDRAWN AND USED TO CONTAIN THE RISE IN PRICE/INVENTORY RESTS AT 327.088 MILLION OZ/
SEPT 6/STRANGE WITH A HUGE DEMAND FOR SILVER THROUGHOUT THE WORLD THESE DOORKNOBS WITHDRAW A HUGE 3.148 MILLION OZ OF SILVER FROM THE SLV/INVENTORY RESTS AT 328.033 MILLION OZ
Sept 5/2017: no change in silver inventory at the SLV/Inventory rests at 331.178 million oz/
Sept 1/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 331.178 MILLION OZ
AUGUST 31/STRANGE!! a huge withdrawal of 2.019 million oz with silver up today./INVENTORY RESTS AT 331.178 MILLION OZ
August 30/no change in silver inventory at the SLV/inventory rests at 333.178 million oz
August 29/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 333.178 MILLION OZ
AUGUST 28/no change in silver inventory at the SLV/Inventory rests at 333.178 million oz/
AUGUST 25/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 333.178 MILLION OZ
AUGUST 24/A HUGE WITHDRAWAL OF 1.229 MILLION OZ FROM THE SLV/INVENTORY RESTS AT 333.178 MILLION OZ
August 23/no change in silver inventory at the SLV/Inventory rests at 334.407 million oz
August 22/no change in silver inventory at the SLV/inventory rests at 334.407 million oz.
AUGUST 21/no change in silver inventory/inventory rests at 334.407 million oz/
August 18/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY REST AT 334.407 MILLION OZ
August 17/A WITHDRAWAL OF 1.418 MILLION OZ LEAVES THE VAULTS OF THE SLV (WITH SILVER UP 25 CENTS YESTERDAY?)/INVENTORY RESTS AT 334.407 MILLION OZ
Indicative gold forward offer rate for a 6 month duration+ 1.34%
Major gold/silver trading/commentaries for TUESDAY
Plan For Run On The Pound
Run On The Pound ? Jeremy Corbyn Says Should Plan For
– Right to plan for ‘run on pound’ if Labour wins says Corbyn and Labour party
– British pound already down 20% since Brexit, collapse already in play
– Run on the pound likely due to Labour’s ‘command economy’ approach
– Collapse in Sterling would undermine UK financial system
– Portfolios holding sterling and related assets would be significantly affected
– Pension funds and property the most likely to get hit by run on the pound
– Gold to benefit as sterling collapse picks up pace
Editor: Mark O’Byrne
Last week Labour Shadow Chancellor John McDonnell said the party was carrying out “war-game-type scenario-planning” for events such as “a run on the pound”.
A run on the pound would see the value of the currency plummet, increase inflation and increase the value of those age old stores of value – namely gold and silver.
McDonnell’s reasons for war-gaming were because of expectations that a ‘radical’ Labour government would face a range of challenges.
He said was seeking to “answer the question about what happens when, or if, they come for us”.
When asked what McDonnell meant by ‘they’, party leader Jeremy Corbyn said he was likely referring to outside forces who have previously punished Labour governments in such a way.
Of course the most famous run on the pound in living memory happened in 1992 but for Labour it was nearly 50 years ago that still haunts them.
In November 1967 Harold Wilson’s government announced it was lowering the exchange rate. The pound fell to $2.40, down from $2.80, a fall of just over 14%.
Wilson is now much ridiculed for his statement made on national radio and television in which he ‘reassured’ citizens that:
“It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.”
Wilson’s comments, whilst derided at the time, seem to still ring true for our own government who do not appreciate that ongoing policies have resulted in a ongoing devaluation in the pound.
Labour’s adverse effect on the pound
It is not a ridiculous thought that ‘they’ might come for us should Labour be victorious. If one takes a look at Labour’s policies then we would come about as close to a command economy as one can get in peacetime.
McDonnell has pledged to ‘take back’ rail, water, energy and the Royal Mail.
Both the CBI the British Chambers of Commerce have denounced the shadow chancellor’s plans as “forced nationalisation”
Europe has seen this before, writes Alex Rankine:
Not since François Mitterrand took the French presidency in 1981 has a European party come this close to power with such a radical policy programme. Mitterrand’s purist socialist experiment was “brought to heel” by the markets when the franc slumped, creating a surge in inflation and a policy U-turn.
Labour are prepared for this and almost seem to be relishing the idea. Mark Serwotka, from the PCS union representing civil servants, said Labour would face “huge” opposition should it win. Serwotka predicted “all the usual arms of the ruling class will be brought to bear”.
The union leader included using financial markets to bring “economic pressures” such as “the flight of capital” and trying to destabilise the economy.
For the Conservatives, “Labour’s plans would go too far, and ordinary working people will end up footing the bill,” Chancellor Philip Hammond said.
The problem is, ordinary working people are already footing the bill. Without the help of Labour’s socialist policies.
What is a “run on the pound” and the consequences
A run on a currency usually happens when markets feel it is overvalued or is likely to drop quickly.
Both international investors and speculators sell the currency and assets denominated in that currency en masse, forcing its value down.
The UK’s most recent, famous example is from 1992. That September, a day now known as Black Wednesday, the falling value of sterling forced the Conservative government exit the European Exchange Rate Mechanism after its attempts to support the currency failed.
In the most recent threat of a run on Sterling Labour’s opposition seized on McDonnell’s comments. Current Chancellor of the Exchequer Philip Hammond said Labour’s economic policies would trigger “a collapse in business investment and a crash in the value of the pound, causing a shock wave of inflation”.
When there is a panic sell of a currency, the value drops and we see a rise in price of imported goods and raw materials.
There is of course major capital flight. A sudden exodus of large sums of money out of the country which would undermine the stability of the financial system in the UK.
Altogether financial shocks such as these could push up inflation.
It sounds awful but the truth is Labour’s success may only mean an acceleration of what is already in place.
The value of the pound has been in decline for many decades now. This is thanks to stealth inflation caused by loose monetary policies and little focus on preserving the value of the pound in our pockets.
Between 2007 and 2008 the British Pound fell 21% (peak to trough). Whilst the rest of the world was on the verge of deflationary collapse we experienced an inflationary recession. GDP contracted at a top rate of 6.1% annually and inflation touched 5.1%.
We still haven’t recovered. Previously we would have hauled ourselves out of such a fall thanks to manufacturing. Generally manufacturing has higher returns to scale than services.
Today we don’t have that option. As a result we are extremely reliant on capital inflows into the City of London to limit a fall in sterling. But, as 2007 -2008 showed, this is an extremely unstable source of foreign demand for our currency.
No right for Tory smugness
Of course one thing that in all of their criticism the Conservative Party appears to have forgotten is that for the past year the United Kingdom has been experiencing a collapse in the Pound, whilst under their rule.
Since the Brexit vote on June 23rd 2016 the value of Sterling has fallen by over 20% against the U.S. Dollar.
Many point to Brexit as the leading cause, it is most certainly the catalyst. However Conservative policies have done little to boost confidence in the currency in the last two years.
Concerns are so serious regarding Brexit and Mrs May’s ability to keep her government on side that not even a speech in Florence could give the pound a much needed boost.
Conclusion – no need for war-gaming, we’re already at war
Labour’s practice runs should perhaps be closer observed by those already in power. They should see it as a reflection of what is already happening. The only difference is the Labour scenario would be at a faster pace.
As demonstrated, the British Pound is already in free-fall. Just because we haven’t seen major capital flight since the 1970s does not mean that it isn’t happening. Just because inflation measures suggest there is little inflation in the economy does not mean it isn’t there.
Currency devaluation is very much a part of every-day financial life. We all witness it, as prices increase and our paper and electronic fiat currencies no longer goes as far.
Already pension funds and the housing market are in a state of disarray. Few really know how pension funds are going to manage their major deficits and the housing market is on the brink of collapse.
A run on the pound would merely be the final spark in a highly combustible environment. With or without a Labour victory savers’ personal wealth is already at great risk.
In all previous collapses in currencies, gold and silver have acted as hedges and safe havens. We only need to look at situations such as the stagflation that afflicted most western economies in the 1970s to see this. Or indeed the more extreme versions as seen in the Weimar Republic historically and Zimbabwe and Venezuela today.
Investors would be well advised to line their portfolios with gold bullion before the UK economy or electorate throws up yet another fuse for the international markets to take a dislike to.
UK investors have the great benefit of being able to invest in gold capital gains tax (CGT) free when they buy Gold Sovereigns or Gold Britannias for insured delivery or stored in the safest vaults in Switzerland, Singapore and Hong Kong.
The best time to get insurance is before the event you need to protect against happens … whether that be car insurance, health insurance or the financial insurance of gold coins and bars.
News and Commentary
Gold Prices (LBMA AM)
03 Oct: USD 1,270.70, GBP 959.00 & EUR 1,081.87 per ounce
02 Oct: USD 1,273.10, GBP 956.48 & EUR 1,084.55 per ounce
29 Sep: USD 1,286.95, GBP 963.15 & EUR 1,090.82 per ounce
28 Sep: USD 1,284.30, GBP 961.04 & EUR 1,091.40 per ounce
27 Sep: USD 1,291.30, GBP 963.83 & EUR 1,099.54 per ounce
26 Sep: USD 1,306.90, GBP 969.59 & EUR 1,105.38 per ounce
25 Sep: USD 1,295.50, GBP 957.89 & EUR 1,089.26 per ounce
Silver Prices (LBMA)
03 Oct: USD 16.61, GBP 12.53 & EUR 14.13 per ounce
02 Oct: USD 16.58, GBP 12.46 & EUR 14.12 per ounce
29 Sep: USD 16.86, GBP 12.60 & EUR 14.27 per ounce
28 Sep: USD 16.82, GBP 12.53 & EUR 14.28 per ounce
27 Sep: USD 16.89, GBP 12.58 & EUR 14.38 per ounce
26 Sep: USD 17.01, GBP 12.67 & EUR 14.43 per ounce
25 Sep: USD 16.95, GBP 12.57 & EUR 14.27 per ounce
Recent Market Updates
– Russia Gold Rush Sees Record Reserves For Putin Era
– China Catalyst To Send Gold Over $10,000 Per Ounce?
– Gold Matches S&P 500 Performance In First 3 Quarters; Up 12% 2017 YTD
– Gold Standard Resulted In “Fewer Catastrophes” – FT
– Financial Advice From Man Who Made $1+ Billion in 1929 – Importance Of Being Patient and “Sitting”
– “Gold prices to reach $1,400 before the end of the year” – GoldCore
– Commodities King Gartman Says Gold Soon Reach $1,400 As Drums of War Grow Louder
– Bitcoin “Is A Bubble” but Gold Is Money Says World’s Biggest Hedge Fund Manager
– Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms
– Gold Investment “Compelling” As Fed May “Kill The Business Cycle”
– “This Is Where The Next Financial Crisis Will Come From” – Deutsche Bank
– Global Debt Bubble Understated By $13 Trillion Warn BIS
– Bitcoin Price Falls 40% In 3 Days Underlining Gold’s Safe Haven Credentials
RUSSIA’S LOVE FOR GOLD IS INDICATED BY HE FACT THAT OF ALL CENTRAL BANKS IT ACCOUNTED FOR 38% OF PURCHASES IN THE SECOND QUARTER. HOWEVER CHINA DOES NOT RELEASE ANY GOLD PURCHASES
(TWO COMMENTARIES/IRISH INDEPENDENT AND ZERO HEDGE)
Russia’s rush for gold sees record reserves for Putin era
Vladimir Putin is doing his part to keep the upswing in gold alive.
Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017.
A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year.
Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data.
In the second quarter alone, it accounted for 38pc of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years. It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter. But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US.
“Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.”
Besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market.
Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes at the end of June, just behind China and more than Turkey, India and Mexico combined, bringing its share in Russia’s $427bn (€361bn) reserves to near 17pc.
If buying continues at a similar pace, the World Gold Council said the full-year increase in 2017 “could closely match” 2015 and 2016.
Russian Gold Reserves Hit Putin-Era High, Buying Frenzy Accelerates
Amid a creeping global de-dollarization, Vladimir Putin appears to be the one leading the charge from the precious metal perspective.
As Bloomberg’s Yuliya Fedorinova and Olga Tanas report, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Putin’s 17 years in power, according to World Gold Council data.
Rising at a pace of around 15% per year, Russia’s absolute gold horde is at a record high…
In the second quarter alone, it accounted for 38 percent of all gold purchased by central banks.
The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.
It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter.
“Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any western government,” said Matthew Turner, metals analyst at Macquarie Group Ltd. in London.
“This might appeal given Russia has faced financial sanctions.”
If Russia’s buying continues at a similar pace, the World Gold Council said the full-year increase in 2017 “could closely match” the 200 tons purchased annually in 2015 and 2016.
At its current pace, Moscow will unseat China for the number five spot of gold-holding nations by the first quarter of 2018.
But China is no slouch, as Reuters reports, China’s proven gold reserves reached 12,100 tonnes at the end of 2016, the state news agency Xinhua reported on Monday quoting an official with the national gold association.
China has been the world’s biggest gold producer for 10 years and the largest consumer of the metal for four years, it said.
China aims to increase its annual gold output to 500 tonnes by 2020 from around 450 tonnes currently, it said.
All of which signals the continued push away from the dollar hegemon and towards a non-dollar-dominant multi-polar order.
The following was brought to you yesterday but it is so important, I am sending it down to you again tonight
(courtesy Bill Holter)
THIS IS HOW CHINA MOVES TO A GOLD STANDARD
We have watched for years as China grew in strength economically, financially and militarily. They have pre positioned themselves by making trade deals, setting up credit facilities and even an alternative clearing system to the West’s “SWIFT”. We also know China has been gobbling up global mine supply of gold for going on 10 years now. As I’ve written in the past, just using the back of a napkin, it can be surmised they now have hoarded 20,000 tons or more compared to the “supposed” 8,133 tons held by the U.S..
It is clear China has meticulously readied themselves to take the role of world leadership from the U.S. but do they really want the responsibility AND burden of issuing the reserve currency? This has always been the question and the answer from logical thinkers is “no”. No, because we (and of course China) have seen the result of the “burdens” that comes along with the privilege of issuing the reserve currency. I must confess, I too did not believe China would desire or even accept the responsibility of reserve currency status. I now believe this thought is mistaken! I will explain shortly.
The announcement of “yuan for oil, convertible into gold” is a game changer http://www.zerohedge.com . China imports about 8 million barrels of oil per day, this works out to 3 billion barrels per year. At $50 per barrel, the oil trade by China is about $150 billion per year. If we compare that to total global production of gold, we find the 80 million ounces produced and priced at $1,300 currently amounts to just over $100 billion. In other words, China consumes more oil (in dollar terms) than ALL the gold produced in the world. Think about this for a moment, at current pricing, just one country uses more oil than the entire world produces money? Does the word “reset” at all come to mind?
Taking just one step back, China has over the last few years imported roughly 2,000 tons of gold per year. If we add India’s imports of roughly 1,000 tons per year, we see combined they are importing more than the 2,500 that are produced. These numbers by themselves illustrate that the gold supply had to come from somewhere …and that “somewhere” can only be from Western vaults. In order to extend and pretend their financial systems and currencies were sound, the West (led by the U.S.) has been bleeding their gold reserves.
Now, getting back to China, here is why I believe they are leading the world BACK to a gold standard! If China imports oil and pays with yuan and offers their yuan “convertible” into gold, how many oil producers will take them up on the conversion? Certainly not 100% and maybe not 50%. Maybe the number is only 25% or even less but that’s not important as “time” will take over. You must ask yourself, how long can China and India import 3,000 tons while the world only produces 2,500 tons? Where will another 1,000 tons (or maybe much more?) of demand be satisfied if oil producer’s newly acquired yuan are converted to gold? The easy answer is “they cannot” …AT CURRENT PRICES!
Here is the interesting part and where I believe I was mistaken in previous thought. China watched as the U.S. was bled of gold leading up to 1971. They also know we have been bleeding gold ever since as a way to camouflage the credit bubble and gross over issuance of dollars. They understand the game and do not want to be placed in the same quandary if the yuan becomes the reserve currency. Instead, I believe China is leading the world toward a de facto gold standard by diverting what was previously “oil for dollars” into “oil for gold”. I believed China might mark gold higher by making a bid and ask price at much higher numbers, instead, facilitating and using natural demand makes so much more sense.
By making yuan convertible into gold, China in essences is creating a demand they know cannot be met by supply … (again) AT CURRENT PRICES! Why would they do this? It is actually so simple I feel dumb for not seeing this previously. China actually kills an entire flock of birds at one time!
First, they are THE largest owner of gold on the planet so they are in fact marking the value of their treasury up by multiples. The higher future price of gold will also make it very difficult if not impossible for other nations to catch up in gold accumulation. By freeing the gold price, China is assuring their place as a world financial leader for many years if not many centuries as that is their mindset. They know quite well, gold is lasting wealth and also the phrase “he who has the gold makes the rules”!
Second, they will in essence be devaluing the yuan versus gold. This will have many benefits and too broad of a subject to breach here but think back to 1934 when the U.S. devalued the dollar versus gold, it creates “inflation” and makes debt easier to pay and service as well as giving a bump to the real economy.
Next and of great importance, moving the world “naturally” to a gold standard means moving away from the dollar standard and all the unfairness that goes with it. A world moving toward gold (China) is a world moving away from the dollar. Surely the dollar will devalue versus the yuan via lower demand from the oil trade and also the lessening of “power” afforded as issuer of the reserve currency. The U.S has enforced the dollar standard by military use for years. Is this action by China “neutral” enough and free market enough to avoid military conflict? We can only hope and pray the U.S. does not kick the table over in reaction.
Lastly and possibly most important, this scheme avoids the main pitfall Bretton Woods fell into, bleeding out treasury gold. If China refuses to convert yuan into treasury gold but instead buys the bullion on open markets they will never have their “De Gaulle moment”. I know what you are thinking, there just isn’t enough gold? And again I will remark “at the current price”. You see, under this scenario China does not care how high the price of gold moves because they are along for the ride. The only thing they care about is not leaking ANY of the gold they have so carefully and methodically have accumulated over these years! Make no mistake, China will not convert yuan into THEIR gold, they will purchase gold on the open market to make the conversion.
Wrapping this up, China can effectively use Mother Nature and free markets to create a gold standard where they are the wealthiest ones at the table. You can be sure China did not dream this up recently, Chairman Mao purportedly said back in 1971 “this is the beginning of the end for the dollar”. He was of course correct and as usual had a view far further into the future than any Westerners at the time. This course of action is logical and can certainly be considered “financial war”. The only question in my mind is whether or not it leads to an actual hot war?
This has been a public article. If you would like to read all of our work and the weekly recorded call for subscribers, please follow this link https://www.jsmineset.com to subscribe.
Your early TUESDAY morning currency, Asian stock market results, important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight
2. Nikkei closed UP 213.29 POINTS OR 1.05% /USA: YEN RISES TO 112.84
3. Europe stocks OPENED GREEN EXCEPT SPAIN ( /USA dollar index RISES TO 93.458/Euro UP to 1.1759
3b Japan 10 year bond yield: RISES TO -+.074%/ GOVERNMENT INTERVENTION !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 112.44/ 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:: 50.345and Brent: 56.06
3f Gold UP/Yen DOWN
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” OFF THE TABLE FOR NOW /REVERSE OPERATION TWIST ON THE BONDS: PURCHASE OF LONG BONDS AND SELLING THE SHORT END
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil UP for WTI and UP for Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund RISES TO +.470%/Italian 10 yr bond yield UP to 2.168%
3j Greek 10 year bond yield FALLS TO : 5.594???
3k Gold at $1271.90 silver at:16.64(8:15 am est) SILVER NEXT RESISTANCE LEVEL AT $18.50
3l USA vs Russian rouble; (Russian rouble DOWN 6/100 in roubles/dollar) 57.93-
3m oil into the 50 dollar handle for WTI and 56 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/GOT A GOOD SIZED REVALUATION NORTHBOUND
JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 112.84 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 0.9739 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1453 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 FALLING to +0.470%
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 2.339% early this morning. Thirty year rate at 2.882% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks Hit Fresh Record High As Dollar Rally Fizzles
It’s deja vu all over again.
In a repeat of yesterday’s session, where US equities and the dollar levitated in a one-way trade, Tuesday’s muted session – where in addition to closed China and South Korean markets, Germany’s Dax is also shut for holiday – has seen early dollar and European equity strength, while the S&P is set for new record highs amid higher E-minis and a VIX that is again lower after 5 consecutive days of declines.
It is also another day for global records: world shares hit their latest all time high on Tuesday, while the dollar was the highest in 6 weeks as encouraging U.S. data lifted it in tandem with global bond yields. MSCI’s 47-country ‘All-World’ index was pushed to the fresh peak as Europe’s main bourses added to gains made in Asia and after Wall Street set its own record close again overnight. It was the tenth new high since late July alone and extends the year’s blizzard of records that started in February to more than 40 according to Reuters, with no sign it is about to run out of steam yet.
That said, both European stocks and the dollar lost some momentum on Tuesday as concerns reemerged about the probability of Trump’s tax cuts. The euro drifted as tensions bubbled in Catalonia, with the common currency sliding briefly below 1.16 before rebounding.
Europe’s Stoxx 600 Index was mixed, and unchanged so far on Tuesday despite US stocks hitting new all time highs and amid a rally in Asian markets. Materials found a bid in Europe, as the sector
outperforms, led by Anglo American, buoyed by its upgrade at HSBC. Yesterday’s volatility seen in Spain, and in the IBEX has slowed, with the Spanish stock index trading marginally lower this morning, as many investors await clarification and insight into further developments in regards to the Catalonian region.
Japanese shares closed at their highest in more than two years, while Chinese stocks in Hong Kong surged, reopening after a one day vacation and boosted by the weekend’s targeted RRR-cut by the PBOC. Developing nation equities also jumped.
SEB investment management’s global head of asset allocation Hans Peterson pointed to strong economic and trade data and signs that firms in large economies like the United States and Europe were finally increasing investment spending. “The fun thing about that is that is will take over from the consumption cycle and means the (global business growth) cycle will be longer than consensus. So I think that is the mechanism that is driving equities at the moment. So we are long equities, we are long emerging markets and we are long Europe. We are risk on.”
The greenback pared an increase but remained higher against almost all its major counterparts. As Bloomberg’s FX strategist Vassilis Karamanlis writes this morning, dollar bulls may need to wait for U.S. jobs data and a speech by Janet Yellen to find the fresh catalyst that could finally push the Bloomberg Dollar Spot Index above its 2017 trendline resistance. The gauge pared early gains as it failed to escape this year’s downtrend. Further hawkish remarks by the Federal Reserve chair or strong employment data due Wednesday may do the trick, yet for now investors are happy to take some chips off the table. The dollar’s inability to breach the technical resistance weighed on sentiment as the euro and pound decisively rose from their day lows, which saw the common currency below $1.1700 for the first time since Aug. 17, and sterling at the lowest in nearly three weeks. The market remains long gamma in euro-dollar and thus any dips are bound to find fading interest.
As a result, profit taking was the name of the game as soon as London trading was underway, according to currency traders. Still, Goldman analysts released a report overnight, in which they see the greenback as having more room to run, thanks to solid growth prospects and the chance that Fed interest-rate hikes will prove more aggressive than market players currently anticipate. As a result, Goldman sees the dollar rising particularly against the euro, which could be hurt by political concerns amid the Spanish woes over Catalonia and by elections in Austria and Italy in coming months.
Meanwhile, the yen weakened to 113.20 per dollar, just a breath away from its Sept. 27 low at 113.26. While USD/JPY follows the market’s latest narrative of a strong dollar, risk reversals buck the trend, diving further into bearish territory for the greenback. Yen calls find good demand on structures expiring post the Oct. 22 election in Japan, while calendar trades are also in play.
“Investors have capacity to buy as the fiscal second half begins, with dip- buying potential for 10-year yields around 0.8%,” says Tadashi Matsukawa, head of fixed-income investment at PineBridge Investments Japan; “Even with strong data, inflation is subdued.”
“With views strongly intact that BOJ will cap the 10- year yield around 11 basis points, 8 basis points is where most investors are looking to buy as there is very little downside risk,” says Satoshi Shimamura, head of rates and markets in the investment strategy department at MassMutual Life Insurance Co. in Tokyo; “Some may even wait until 9 basis points. Until all this appetite has been met, it’s hard to see yields falling.”
Cable traded near session lows in the mid 1.32 range after EU’s Barnier said there is “still a serious divergence on financial settlement on Brexit” while European president Jean-Claude Juncker said the UK “have not yet made sufficient progress” in Brexit talks. Not helping was news that U.K. construction unexpectedly shrank in September, moving below the the 50 level that divides expansion from contraction.
Japanese bonds were mixed after a soft auction for benchmark 10-year notes as investors remained cautious about buying at the start of the fiscal second-half. Borrowing costs across the euro zone nudged higher too. Southern European bonds continued to underperform meanwhile as political tensions remained in Spain after Sunday’s independence vote in Catalonia was marred by police violence. In the US, the 10Y yield rose 2bps to 2.36%, while a stronger view that the Federal Reserve will raise U.S. interest rate for a third time this year in December kept two-year U.S. government bond yields hovering at a 9-year high.
WTI and Brent crude futures have seen subdued trade following the 2% sell-off seen in oil markets yesterday, which many touted to be on the news that OPEC oil output had risen last month by 50,000 BPD. The bearish push was halted by resting bids ahead of 50.00/bbl, as the support level was evident. “The fourth quarter is not too kind to the price of oil, as we switch from summer demand to expectations of winter demand,” said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.
Gold’s bearish September continued into October, as safe haven flows further reverse, with the market now testing the
1268.00 area, which was prevalent before the North Korea related rally.
- S&P 500 futures up 0.06% to 2,527.75
- E-Mini Nasdaq 100 futures up 0.1%
- VIX Index drops 1.2% after five days of declines
- MSCI Asia up 0.5% to 162.19
- MSCI Asia ex Japan up 0.6% to 534.62
- Nikkei up 1.1% to 20,614.07
- Topix up 0.7% to 1,684.46
- Hang Seng Index up 2.3% to 28,173.21
- Shanghai Composite up 0.3% to 3,348.94
- Sensex up 0.6% to 31,483.30
- Australia S&P/ASX 200 down 0.5% to 5,701.44
- Kospi up 0.9% to 2,394.47
- STOXX Europe 600 unchanged at 390.12
- German 10Y yield rose 3.4 bps to 0.485%
- Euro up 0.08% to $1.1742
- Italian 10Y yield rose 4.5 bps to 1.863%
- Spanish 10Y yield rose 1.7 bps to 1.711%
- Brent Futures up 0.04% to $56.14/bbl
- Gold spot down 0.01% to $1,270.96
- U.S. Dollar Index up 0.1% to 93.65
Bulletin Headline Summary From RanSquawk
- In FX, the Greenback’s gains have slowed against its major counterparts. RBA kept rates unchanged as expected and highlighted the firmer currency
- EU equities trade subdued following the Nikkei seeing highest level since Aug’16, as a weaker JPY aids the push
- Looking ahead, highlights include: US vehicle sales and APIs
Top Headline News
- The president will travel on Wednesday to Las Vegas after the mass shooting there. The 64-year-old gunman had no connection to international militant groups, the FBI said, rebutting a claim of responsibility by Islamic State.
- The White House ruled out talks with North Korea over its nuclear arsenal just days after Secretary of State Rex Tillerson said U.S. was in direct communication with Pyongyang. This was the latest sign that Trump and his top diplomat have different views on the best way to address North Korea’s accelerating nuclear and ballistic missile programs
- The White House is showing “softness” on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, questioning whether GOP has fortitude for tax overhaul
- Tesla Falters With Model 3 as Initial Output Trails Forecast
- Qatar Fund Is Said to Weigh Asset Sales as It Looks Homeward
- Equifax Says Additional 2.5m U.S. Consumers Potentially Impacted
- Crisis in Spain: separatist activists are taking to the streets of Barcelona to protest the police violence that marked Sunday’s vote and reinforce their demands for a split with Spain after winning an illegal referendum at the weekend
- Some analysts are projecting a small increase in auto sales for the month, which would be a first in 2017. September has one more selling day than a year ago, though, so even if the actual number of vehicles sold ticks up, the seasonally adjusted annualized rate (SAAR) probably will drop again
- Equifax Inc.’s former CEO Richard Smith, who stepped down on Sept. 26, is expected to be the sole witness at a U.S. House Energy and Commerce subcommittee hearing to examine the company’s massive data breach
- The dollar rose for a second day after U.S. factory data released Monday beat estimates, supporting the case for the Federal Reserve to raise interest rates. The Catalan independence vote and speculation about a more hawkish new Fed chief continued to support the dollar
Asia equity markets were mostly higher with Hang Seng (+2.25%) the outperformer as it played catch up on return from holiday and took its first opportunity to celebrate news of the PBoC’s targeted RRR cut which according to sellside calculations will release hundreds of billions of liquidity into the (stock) market. The Nikkei 225 (+1.05%) was also positive with sentiment underpinned amid upside in USD/JPY and after the fresh intraday records set by all the major US indices. Conversely, Shanghai Comp and KOSPI are shut for the entire week, while ASX 200 (-0.6%) underperformed with weakness in energy names after oil slipped over 2% yesterday and with financials dampened after QBE raised it catastrophe claims allowance due to the recent hurricanes.
Top Asian News
- Anil Ambani’s Telecom Unit Heads for Record Low as Merger Fails
- Kansai Electric Bellwether for Koike’s ‘Party of Hope’
- China Stock Rally Finds a New Gear as Shares Soar Most in a Year
- Mobike, Ofo Investors Are Said in Talks to Merge China Startups
- Steel Boom Drives 400% Surge for Suppliers of Critical Niche
- India Bond-Related Flows Keeping Rupee Losses in Check: Traders
- Japan’s Corporate Foreign Bond Issuance Hits Record on M&A
In Europe, equity markets trade largely sideways across the board, as many Eurex participants are off their desks amid the German holiday. European bourses have failed to gain traction from Asian and American sessions, where the Nikkei hit its highest level since August 2015, following another record for the S&P500. Materials have however found a bid in Europe, as the sector outperforms, led by Anglo American, buoyed by its upgrade at HSBC. Elsewhere, yesterday’s volatility seen in Spain, and in the IBEX has slowed, with the Spanish stock index trading marginally lower this morning, as many investors await clarification and insight into further developments in regards to the Catalonian region. Fixed Income markets have continued to trade bearishly, although volumes are lighter due to the German Unity Day Holiday, alongside a day that lacks much in the way of underlying tier one data releases. Gilts did nudge higher on the back of the surprise contraction in the UK construction PMI.
Top European News
- Ryanair Adds Fewest Customers Since March After Scrapped Flights
- Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down
- May’s Brexit Budget Offer Is Said to Be Conditional on Trade
- EU Demands More U.K. Brexit Clarity Before Approving Trade Talks
- U.K. Construction Unexpectedly Shrinks as Confidence Weakens
- UBS Starts French JV for Family Office, Private Equity
In currencies, cable was offered following the UK Markit Construction PMI, falling below 50.00 and printing the lowest figure since July 2016, at 48.1. Cable fell through yesterday’s low as a result, and August’s high could now behave as temporary support for the pair. The USD has given back ground against its major counterparts, following the bullish pressure seen through yesterday’s European and US sessions. The DXY fell short of the push toward 94.00, as EUR/USD found support at the 1.17 handle. USD/JPY saw a surge post European trade yesterday, with the pair breaching 113.00, as a clear break of the long-term 2017 resistance trendline has been confirmed. Investors will look toward July highs around 114.50 as the next bullish target. The outperformance in the Nikkei was spurred by the increased bullish pressure in USD/JPY, with talk of large fund interest in the pair, which continues to look towards September’s high, with further resistance likely at the 114.50 area. For the Euro, global political conditions have aided to the support seen in the EUR this morning, as Spanish/ Catalonian unrest wanes, with aforementioned bids arriving in EUR/USD. EUR/GBP has largely moved sideways as the greenback’s volatility dictated trade. Meanwhile for the OZ and Kiwi, the RBA was the headline of the Asian session, where rates were kept on hold at 1.50%, as expected. Concerns of the economy continued, with the bank stating that a strengthening AUD would slow economy and restrain price pressure. Further reiterating ‘it judges steady policy is consistent with the growth and inflation target. AUD saw a bearish push on the comments, as the growing currency concerns further diminish the likelihood for a RBA move. AUD/USD slipped through 0.78 and looks back toward the 2016 trading range. Kiwi suffered overnight, as New Zealand NZIER Confidence fell to an 18-month low, triggering some early Asian selling, as further pressure was witnessed as a result of the dovish skew from the RBA
In commodities, WTI and Brent crude futures have seen subdued trade following the 2% sell-off seen in oil markets yesterday, which many touted to be on the news that OPEC oil output had risen last month by 50,000 BPD. The bearish push was halted by resting bids ahead of 50.00/bbl, as the support level was evident. Gold’s bearish September continued into October, as safe haven flows further reverse, with the market now testing the 1268.00 area, which was prevalent before the North Korea related rally.
Looking at the day ahead, we have the Eurozone PPI (0.3%, Exp. 0.1% mom,; 2.5% Y/Y, exp. 2.3%) and UK’s Markit construction PMI this morning (48.1, Exp. 51.0, Last 51.1). Over in the US,
there is total and domestic vehicle sales stats for September. The BOE
will publish its record of the Financial policy committee. Over in the
US, the Fed’s Powell will speak on regulatory reform.
US Event Calendar
- Wards Total Vehicle Sales, est. 17.2m, prior 16m; Domestic Vehicle Sales, est. 13m, prior 12.5m
DB’s Jim Reid concludes the overnight wrap
Yesterday saw a battle between safe haven core bond markets wanting to rally or hold in after the Catalonian vote and equities wanting to rally due to the generally strong PMIs/ISMs. Below we update our PMI vs YoY equity analysis after yesterday’s numbers and on balance many equity markets are now ‘cheap’ albeit with the usual caveats. Before we get there let’s recap the main market moves and stories.
Turning first to the initial reactions following Catalonia’s independence vote. The EU spokesman Margaritis Schinas noted “under the Spanish constitution, the vote was not legal” and as President Juncker noted earlier “this is an internal matter for Spain that has to be dealt with in line with the constitutional order of Spain”. Locally, the leader of the Ciudadanos party (Albert Rivera – ally of PM Rajoy) called for new regional elections as “this is the only possible way we can truly go to vote and not be kidnapped as we are at the moment by this coup against democracy”.
In terms of the markets reactions, Spain’s IBEX sold off 1.21% (the weakest day since August) – led by the financials sector, the Euro dropped -0.69% and Spain’s 10y bond yields jumped 8.8bp. Elsewhere, peripheral bonds were also impacted, with Italian and Portugal’s 10y yields up c4bp, but core bond yields were lower to little changed, with UST 10y up +0.7bp, while Bunds (-1.3bp), OATs (-1bp) and Gilts (-3.5bp) fell slightly. Notably, Bunds traded with an intraday range of c5bp, before the spread between Bunds and Spanish 10y yields settled at 124bp – highest since early June.
For those who may have missed it, DB’s Marc’s De-Muzion published a report “Catalonia: What next?” He notes that if Catalan government declares independence (potentially on 6 October), then the Spanish government has little choice but to trigger Article 155 and withdraw regional government’s authority in Catalonia and call for early regional elections. If the Catalan government does not declare independence, the regional government would most likely dissolve and early regional elections would be called. Ultimately, the solution to the Catalan situation has to come via lengthy, constructive dialogue and negotiations.
Overnight, White House spokeswoman Sanders has said “now is not the time to talk” with North Korea over its nuclear arsenal but that’s not really having much impact. Markets are trading on the firmer side in Asia with the ASX 200 down -0.41% being an exception while the Nikkei is up +0.77%. The Hang Seng has jumped +1.59%, partly reflecting a catch up effect as the market reopened post holidays as well the delayed positive reactions following cuts to bank reserve requirements (Banks +2.87%) and stronger than expected Chinese manufacturing PMI over the weekend. Note that Chinese bourses and the Kospi are closed for the week.
Turning to President Trump’s tax plan. National Economic Council Director Gary Cohn has provided a bit more clarity, noting that the cUS$2.6trln of offshore profits sitting in lower tax countries may be subjected to a one-time tax in the “10% range”, although tax industry experts suggest 15% may be more likely. Elsewhere, Moody’s has confirmed that the current tax plan is “likely credit negative” for the US government as “tax cuts would not be offset by equivalent cuts to spending”.
Quickly recapping yesterday’s market performance now. US bourses strengthened further, with the S&P up +0.39% to another record high, with gains led by the materials, health care and financials sector. Elsewhere, the Dow (+0.68%) and Nasdaq (+0.32%) also advanced modestly. Over in Europe, excluding Spain’s IBEX (-1.21%), other regional indices were all higher, with the Stoxx 600 (+0.51%), DAX (+0.58%), FTSE 100 (+0.90%) and FTSE MIB (+0.51%) seeing firm days. Notably, the VIX has remained below 10 for the fourth consecutive day and is now (9.45) the lowest since late July and getting closer to the all time lows again after the North Korea wobbles destroyed the peace in early August.
Turning to currencies, the US dollar index gained 0.52% following the stronger than expected ISMs, while Sterling fell 0.91% versus the Greenback, likely impacted by the softer manufacturing PMIs and concerns on political stability as the annual Conservative Party conference began. In commodities, WTI oil fell -2.11% following reports of higher OPEC output last month, in part as Libya’s oil fields are back online coupled with a lower OPEC production compliance rate of 82% (vs. 88% previous). Elsewhere, precious metals were slightly lower (Gold -0.67%; Silver -0.42%), while other LME base metals (Zinc +2.34%; Copper +0.19%; Aluminium -0.05%) were broadly higher yesterday.
Away from the markets and onto central banker’s commentaries. On inflation, the ECB’s Praet noted the “overall inflation developments, despite the solid (economic) growth, have remained subdued” and that “a very substantial degree of monetary accommodation is still needed for underlying inflation pressure to gradually build-up”. Notably, he was quite vocal on forward guidance, saying “….in conditions in which uncertainty is high, frontloading the accumulation of a given stock of purchases more forcefully signals the central bank’s commitment to inject the degree of accommodation necessary to support the recovery..”. Over in the US, the Fed’s Kashkari reiterated his preference to “not to raise rates again until we actually hit 2% core PCE inflation” and that “I believe the most likely cause of persistently low inflation are additional domestic labour market slack and falling inflation expectations”.
Elsewhere, data wise yesterday the most significant releases of note were the September manufacturing PMIs and ISM data in Europe and the US. With regards to the former, the final print for the Euro area was revised down a very modest 0.1pts to 58.1 however that print still puts it at the highest level in more than six and a half years. As a reminder, the August reading was 57.4. What was perhaps most notable was the lack of any negative impact of a stronger euro which you would expect to have the most impact on the manufacturing sector.
Indeed the new orders component rose another 0.2pts to 58.5 and a 3-month high. The employment component also hit a 20-year high at 56.5 and the backlog of work was also up at a new cyclical high. At a country level, Germany was left unrevised at 60.6 and France was revised up 0.1pts to 56.1 – putting both at 77- month highs. There were also significant milestones hit for the Netherlands (79- month high) and Greece (111-month high). Meanwhile, the data for the periphery revealed a much better than expected reading for Spain (+1.9pts to 54.3 vs. 53.0 expected – a 3 month high) offset by a slightly softer than expected reading for Italy (unchanged at 56.3 vs. 56.8 expected). The UK also saw a 0.8pt decline to 55.9 (vs. 56.2 expected).
Across the pond, there was a huge positive surprise in the ISM reading for the US which came in at 60.8 which compares to expectations for 58.1. The reading was also up a full 2pts from August and is the highest since May 2004. New orders also surged to 64.6 (from 60.3) and hit the highest in 7- months while employment printed at 60.3 and the highest since March 2011. The manufacturing PMI was confirmed at 53.1 (+0.1pts from the flash). Notably, the two recent storms had a modestly positive impact on the index by causing longer lead times for supplier deliveries and additional new orders, yet the underlying improvement was still broad-based across the survey.
Looking at the day ahead, we have the Eurozone PPI (0.1% mom, 2.3% yoy expected) and UK’s Markit construction PMI this morning. Over in the US, there is total and domestic vehicle sales stats for September. Onto other events, there will be numerous speakers at the UK’s Conservative Party conference, including: Home secretary Rudd, Trade secretary Fox, Brexit secretary David Davis and Foreign secretary Johnson. Then the BOE will publish its record of the Financial policy committee. Over in the US, the Fed’s Powell will speak on regulatory reform.
3. ASIAN AFFAIRS
i)Late MONDAY night/TUESDAY morning: Shanghai closed /Hang Sang CLOSED / The Nikkei closed UP 213.29 POINTS OR 1.05%/Australia’s all ordinaires CLOSED DOWN 0.47%/Chinese yuan (ONSHORE) closed/Oil UP to 50.45 dollars per barrel for WTI and 56.06 for Brent. Stocks in Europe OPENED GREEN EXCEPT SPAIN . ALL YUAN FIXINGS CLOSED
3a)THAILAND/SOUTH KOREA/NORTH KOREA
b) REPORT ON JAPAN
Barcelona totally paralyzed by general strikes as protesters put up barricades and take to the streets
“Total Stoppage”: Barcelona Paralyzed By General Strike, Barricades As Protesters Take To The Streets
The Catalan rebellion escalated on Tuesday, resulting in a day of “total stoppage” for the Catalan capital, in which Barcelona metro stations were closed, pickets blocked main roads and civil servants walked out on Tuesday in response to a strike called by pro-independence groups as separatist activists took to the streets of Barcelona to press home their demands for independence after winning an referendum on Sunday which despite a violent crackdown by the Spanish government, saw nearly 90% of the vote cast for splitting away from Madrid.
According to Bloomberg, public transport and shops were closed as demonstrators gathered in the center of the Catalan capital to protest the police violence that marked Sunday’s vote and reinforce their demands for a split with Spain. Photographs showed traffic backed up behind protesters on one of the main highways connecting Catalonia with the rest of Spain. Roads are blocked in 48 places in the region, the Spanish traffic agency said.
Regional traffic authorities in Catalonia told The Spain Report on Tuesday morning that more than 50 barricades or protests had blocked roads across the region, including major toll roads and motorways used for commercial traffic to and from France.
Normally busy metro stations in Barcelona were deserted as services were cut back sharply, pickets blocked traffic on Gran Via street and traffic on six major highways in the region was disrupted by protests, Reuters reported. Elsewhere, the response to the strike call was patchy with some shops, supermarkets and cafes open and some closed. The Boqueria market in Barcelona was almost empty. Pro-independence groups and trade unions in Catalonia called a general strike for Tuesday after Spanish police forcibly tried to close polling stations on Sunday after a referendum on Catalan independence from Spain was banned by the constitutional court.
The protests are part of a day of “total stoppage” called by Catalan separatists and backed by the leading trade unions in the region. In images and footage posted online and broadcast on TV3, tractors, students, protestors and tyres-and even two people playing chess on a table in the middle of one motorway–could all be seen blocking roads.
Catalan First Minister Carles Puigdemont said on Twitter that “Today is a day of democratic, civic, dignified protest. Don’t let yourself be provoked. The world has seen it: we are peaceful people”.
Long lines of trucks could be seen backed up on many motorways. Data from regional traffic authorities showed the largest traffic jam caused by the protest was 10 kilometers long on the AP7 motorway near Girona; another closer to Barcelona was nine kilometers long; a third near Lleida has vehicles trapped for seven kilometers.
In Barcelona, several thousand people gathered outside the central government office and protested in silence with their hands in the air in protest over the riot police charges on Sunday that the Catalan government says injured 893 people in some way.
To encourage participation in the strike, the Catalan government has eased requirements for workers to maintain a minimum level of public services such as transport, El Pais reported.
In Gerona, several thousand people gathered outside the headquarters of the Catalan government. Spanish rail track operator Adif reported on Twitter throughout the morning that protestors had alternately blocked and been cleared from the lines at the train station in Girona. By 12 p.m., train services had again been suspended.
The Civil Guard, which is responsible for policing Spanish motorways in the rest of the country, said that it did not do so in Catalonia. That power had been devolved to Catalan authorities, so responsibility for motorways in the region belongs to the Catalan Police, the Mossos. Meanwhile, the mossos said that there was no plan today to try to unblock roads in the region or remove the 50-or-so barricades or protests.
A spokesman for Spanish traffic authorities (DGT) told The Spain Report that responsibility for traffic management and motorways was a power that had been devolved to Catalonia. Separately, a spokesman for the governing Popular Party, Rafael Hernando, told a radio programme on Tuesday that the strike was entirely political and “nothing to do with labour relations or employment”.
“It’s Nazi-like”, he added, which is ironic because that’s how the government’s crackdown on referendum voters was described on Sunday.
As a reminder, on Sunday two million Catalans backed independence out of 2.3 million votes cast, with just over 5 million people eligible to vote. Before the government crackdown began, separatist leaders said they would be comfortable declaring independence with about 1.8 million votes. The central government said the vote lacked the checks and guarantees required to ensure people didn’t vote more than once.
The vote damaged Rajoy’s authority – he’d vowed to prevent it happening – and left him scrabbling to forge a united front among national political parties to confront the separatist push. One potential ally, the liberal party Ciudadanos, demanded Rajoy suspend Catalan self-government at once to head off a potential declaration of independence, while the Socialists, the biggest opposition party, urged him to open talks with Puigdemont. As Bloomberg adds, at least 500 Spanish police officers have been forced out of hotels in the region under pressure from the separatists, according to a spokesman for the police union. The pro-independence mayor of Calella, a beach resort east of Barcelona, called the manager of a hotel in the town threatening retribution unless he forced a police delegation to leave, the spokesman said.
* * *
Still, not all Catalans were united in thei protest: Spain’s two largest unions on Monday said they would not take part in the general strike and also called for dialogue between the central government and Catalonia, criticizing both the call for independence and the heavy-handed police tactics. “The UGT and the CCOO clearly state that we do not back this position or this political strategy. We are not calling a general strike for Oct. 3,” they said on Monday.
Meanwhile, the Catalan Independence campaign’s political leaders are stalling on their next move as the European Union ignores their calls for mediation. Catalan President Carles Puigdemont vowed to notify the regional parliament that voters had opted for independence in Sunday’s vote. That would trigger a process leading to a unilateral declaration of independence within 48 hours, but on Monday Puigdemont ducked the question of when he would set the clock ticking.
To be sure, the market is far less concerned about next steps: after a selloff on Monday, Spanish assets stabilized with the benchmark stock index trading in line with the rest of the euro area, government bonds a touch lower and the euro little changed against the dollar. That euphoria may be premature however.
What happens next?
Puigdemont’s time frame could see him announce the formation of a Catalan republic on Oct. 6 – exactly 83 years since his predecessor as regional president, Lluis Companys, also tried to declare independence. Companys was executed by the dictator Francisco Franco.
“What happened must receive a forceful answer from the Catalan society, who must demand that it isn’t going to happen again in our country,” Javier Pacheco, the head of Comisiones Obreras in Catalunya, said Monday in a joint press conference with his UGT counterpart.
Spain’s King Felipe Condemns Catalan “Disloyalty” As Rajoy Mulls “Nuclear Option”
Echoing the sentiment from his prime minister Mariano Rajoy, in a nationwide address on Tuesday night, Spain’s King Felipe VI said that Spanish democracy is in a serious moment, and accuses Catalan separatist leaders of violating constitution.
“For some time now, certain officials in Catalonia have repeatedly, consciously and purposefully breached the constitution and their statute of autonomy”
Toeing the government line, the King said referendum plans were illegal, and that it is “irresponsible” to conduct risks economy.
The King appealed for calm, says he remains committed to unity and, without a trace of irony, the unelected monarch said that Catalan separatists have “shattered Spain’s democratic principles.”
Some more highlights of his speech, courtesy of The Spain Report:
- King Felipe says Spain living through “very grave” moments for country because of Catalan crisis.
- King Felipe says Catalan government seeking to illegally proclaim independence.
- King Felipe says Catalan society today is fractured and divided, says economic stability of Spain at risk
- King Felipe says Catalan authorities “totally outside law and democracy. They have meant to fracture Spain”.
- King Felipe says Spanish state must ensure constitutional order in Catalonia.
- King Felipe says “very complex moments” but “we will come through” and “our democratic principles are solid”.
- King Felipe says Spanish crown firmly committed to constitutional order.
Below is the Full Text Of King Felipe’s Statement To Country On Catalan Crisis
“We are living through very grave moments for our democratic life. And in these circumstances, I want to address all Spaniards directly. We have all been witness to the events that have happened in Catalonia, with the final goal of the Catalan government being to illegally proclaim the independence of Catalonia.”
“For some time, certain authorities in Catalonia have repeatedly, consciously and deliberately not complied with the Constitution and their Statute of Autonomy, which is the law that recognises, protects and defends historical institutions and self-government.”
“With their decisions, they have systematically violated legally and legitimately approved rules, showing an inadmissible disloyalty towards the powers of the state. A state that those very authorities represent in Catalonia.”
“They have shattered the democratic principles of every state of law and have undermined harmony and coexistence in Catalan society itself, even, unfortunately, dividing it. Today, Catalan society is fractured and in conflict. These authorities have scorned the affection and sentiments of solidarity that have united and will unite all Spaniards, and with their irresponsible behaviour might even put the economic and social stability of Catalonia and all of Spain at risk.”
“Summing up, all of that has led to the unacceptable attempt to appropriate the historical institutions of Catalonia. These authorities, in a clear, emphatic manner, have placed themselves outside of the law and of democracy. They have sought to shatter the unity of Spain and national sovereignty, which is the right of all Spaniards to decide democratically on their life together.”
“That is why, faced with this situation of extreme gravity, which requires the firm commitment of all with the general interest, it is the responsibility of the legitimate powers of the state to ensure constitutional order and the normal functioning of our institutions, the validity of the state of law and self-government in Catalonia, based on the Constitution and its Statute of Autonomy.”
“Today, I also want to send several messages to all Spaniards, particularly to Catalans.”
“To the citizens of Catalonia—all of them—I want to reiterate that we have lived for several decades in a democratic state that offers constitutional paths for any person to defend their ideas within the respect for the law. Because, as we all know, without that respect, democratic coexistence in peace and liberty without that respect is not possible, in Catalonia, or the rest of Spain or anywhere else in the world. In constitutional and democratic Spain, you know you have a space for harmony and meeting with your fellow citizens.”
“I know very well that in Catalonia there is also much worry and anxiety about the conduct of regional authorities. To those who feel that way, I say to you that you are not alone, that you have the full support and solidarity of other Spaniards, and the absolute guarantee of our state of law in defence of your liberty and your rights.”
“And to all Spaniards, who live with the unease and sadness of these events, I send you a message of calm, confidence and also of hope.”
“These are difficult times, but we will get through them. These are very complex times, but we will push forward. Because we believe in our country and we feel proud of who we are. Because our democratic principles are strong and solid. And they are strong and solid because they are based on living together in peace and liberty. That is how we have built Spain over the last few decades. And that is how we must continue along our path, with serenity and determination. On that path, in that better Spain we all wish for, we will also find Catalonia.”
“Bringing my remarks, meant for all Spaniards, to a close, I underline once again the firm commitment of the Crown with the Constitution and with democracy, my dedication to understanding and harmony among Spaniards, and my commitment as King to the unity and permanence of Spain.”
Meanwhile, in what some have called would be the equivalent of Spain’s “nuclear option”, Bloomberg reported that Spain’s PM Rajoy was mulling whether to use Article 155 of constitution to take control from the administration in Barcelona. Needless to say, it would not go over well in Spain’s wealthiest region.
5. RUSSIA AND MIDDLE EASTERN AFFAIRS
Erdogan Says Turkey No Longer Needs EU Membership, Son Slams European “Infidels”
President Recep Tayyip Erdogan said on Sunday that Turkey no longer needs EU membership.
His son Bilal who plays an important role in Turkey’s politics went even further and described the Europeans as “gavur” (indifels).
The comments come after 12-year-long accession talks with Brussels grind to a halt.
“We will not be the side which gives up. To tell the truth, we don’t need EU membership anymore,” Erdogan said.
Turkey’s 12-year-long accession talks have ground to a halt, with the EU especially critical of Ankara’s crackdown following a failed coup last year. Tens of thousands of people including teachers and journalists have been detained.
Erdogan’s government says EU states failed to appreciate the gravity of the threat which Turkey faced, and did not respond to requests to extradite coup suspects.
“The EU failed us in a fight against terrorism,” Erdogan said on Sunday, though he also suggested the bloc still needed Turkey.
“If the EU is going to leap forward, there is only one way to do so. And it is to grant Turkey membership and start an action of cultural and economic growth,” Erdogan said.
German Chancellor Angela Merkel said in an election debate last month it was clear Turkey should not join the EU and entry talks should end, despite it being a crucial NATO ally.
His son Bilal Erdogan lashed out against against the European -the West- way of life in general and and called “gavur” (infidels) those Turks who “wear clothes, watch films, listen to music and eat Western food.”
“In this country, nothing was allowed to be done nationally. Now, we produce our own aircraft, our tank, our rifle. […]. Why are we looking for these infidel attitudes? […] We are the grandsons of an ancestor with swords, rides, arrows, ” Erdogan’s son stirred told a crowd of western-suits wearing men.
The term Gavur infidel in English – is an offensive term, a slur, historically used in the Ottoman Empire for Christians, such as Orthodox Christians in the Balkans (non-Muslims).
Good Luck, then, all the way back to Ottoman times with Janissary costumes and fake mustaches…
Russia Does Not Exclude Possibility Of War With NATO
Just days after the conclusion of Russia’s largest military exercise ever (which US military chiefs believe broke ‘observer rules’) and NATO’s massive war games, Pravda reports a recent Russian Defense Ministry report says that Russia is preparing for the possibility of a military conflict with NATO countries.
While Russia’s defense ministry said the Zapad exercises would involve 12,700 Russian and Belarusian troops, about 70 aircraft, up to 250 tanks, 200 artillery systems and 10 warships; Military.com reports that the U.S. Army’s commander in Europe says Russia broke up its Zapad war games with Belarus into parts to avoid having international monitors watch the weeklong exercises last month.
Lieutenant General Ben Hodges said Monday that the two countries deployed “way over 12,700” personnel, the limit beyond which Europe’s OSCE security organization should be allowed to send observers.
Hodges said: “My guess is that there probably were over 40,000 service members.”
He told reporters at NATO headquarters that Russia and Belarus “broke it up into all these little exercises” but that “these were all connected, because this was a whole of government effort.”
Meanwhile, what the NATO commander forgot to mention is that just days before the dreaded Russian “Zapad 2017” exercise was set to begin, NATO’s own Steadfast Pyramid 2017 military exercise kicked off in Latvia on Sunday, with 40 senior commanders from NATO states, as well as Finland and Sweden. They are expected to train how to “plan and conduct operations” amid the bloc’s buildup in the region.
Steadfast Pyramid 2017 and Steadfast Pinnacle 2017, involving more than 40 senior officers from NATO member states, plus Finland and Sweden, will take place at the Riga-based Latvian Defense Academy, the country’s national news agency LETA reported on Sunday.
Covering the duration of Russia’s drills, Steadfast Pyramid, the first part of the exercise, will last until September 15. It is reportedly “to improve the ability of top-level officers and commanders to plan and lead joint operations,” according to LETA. Steadfast Pinnacle, the next stage of the drill, will last from September 17 until September 22. Steadfast Pyramid and Steadfast Pinnacle were first held in Latvia in 2011. British General James Everard, the NATO Deputy Supreme Allied Commander Europe, is expected to arrive in Latvia to oversee both stages of the exercise, Latvia’s Defense Ministry said, according to LETA.
Meanwhile, not much is known so far about NATO’s war games. A NATO fact sheet says Steadfast Pyramid and Steadfast Pinnacle are focused on “further developing the abilities of commanders and senior staff to plan and conduct operations through the application of operational art in decision making.”
While NATO has denied it, Moscow has repeatedly accused NATO of offensive behavior, and justifies its own defensive buildup and posture on NATO’s encroachment on Russian borders.
And with that in mind – as NATO builds its presence along Russia’s borders – Pravda reports, a recent report from the Defense Ministry of the Russian Federation about the assessment of the state of Russia’s national security in the field of maritime activities says that Russia considers a possibility of a military conflict with NATO countries.
The report indicates a number of geopolitical challenges that Russia faces today. They include a “potentially possible military conflict” with NATO countries, the complicated situation in the Azov-Black Sea region, Japan’s territorial claims to the Kuril Islands, and Norway’s plans for Spitsbergen.
Experts emphasize that “the role of the factor of force” has been increasing in international relations. “Therefore, Russia is building up its naval potential for the “strategic deterrence” of potential adversaries and as an “important factor in ensuring international stability.”
Russia will not leave all possible threats unanswered, the authors of the report summarize adding that the probability of “large-scale military actions” against Russia from the direction of sea is not too high.
But while NATO and Russian military rattle sabres at one another Russian President Vladimir Putin said, as he received diplomatic credentials from new ambassadors to Moscow, including US envoy Jon Huntsman, thatMoscow wants “predictable, constructive, mutually beneficial cooperation” with Washington.
Current Russia-US bilateral relations cannot “cause satisfaction,” Putin said during an official ceremony at the Kremlin in Moscow.
“We are advocating constructive, predictable and mutually-beneficial cooperation,” the Russian leader stressed, adding that “strict adherence to the principles of equality, respect for national interests and noninterference in the internal affairs” must be the basis of the bilateral cooperation.
After the ceremony, the new chief of the US diplomatic mission vowed to work on restoring trust and strengthening bilateral cooperation between Moscow and Washington… we wonder if he will be ‘allowed’ by The Deep State. For now, it appears the direction of reconciliation is coming from Moscow as Washington (and NATO) remain steadfast in their belief that the red menace is biding its time.
6 .GLOBAL ISSUES
7. OIL ISSUES
West texas and gasoline extend their losses from yesterday after today’s big gasoline inventory build
8. EMERGING MARKET
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings TUESDAY morning 7:00 am
Euro/USA 1.1759 UP .0024/ SPAIN VS CATALONIA/REACTING TO +GERMAN ELECTION WHERE ALT RIGHT PARTY ENTERS THE BUNDESTAG/ huge Deutsche bank problems + USA election:/TRUMP HEALTH CARE DEFEAT//ITALIAN REFERENDUM DEFEAT/AND NOW ECB TAPERING BOND PURCHASES/ /USA FALLING INTEREST RATES AGAIN/HOUSTON FLOODING/EUROPE BOURSES GREEN EXCEPT SPAIN
USA/JAPAN YEN 112.84 UP 0.075(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/
GBP/USA 1.3260 DOWN .0012 (Brexit March 29/ 2017/ARTICLE 50 SIGNED
THERESA MAY FORMS A NEW GOVERNMENT/STARTS BREXIT TALKS
USA/CAN 1.2508 DOWN .0011 (CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT AND GREXIT FROM EU/(TRUMP INITIATES LUMBER TARIFFS ON CANADA)
Early THIS TUESDAY morning in Europe, the Euro ROSE by 28 basis points, trading now ABOVE the important 1.08 level RISING to 1.1759; / Last night the Shanghai composite CLOSED / Hang Sang CLOSED /AUSTRALIA CLOSED DOWN 0.47% / EUROPEAN BOURSES OPENED ALL GREEN EXCEPT SPAIN
The NIKKEI: this MONDAY morning CLOSED UP 213.29 POINTS OR 1.05%
Trading from Europe and Asia:
1. Europe stocks OPENED IN THE GREEN EXCEPT SPAIN
2/ CHINESE BOURSES / : Hang Sang CLOSED U / SHANGHAI CLOSED /Australia BOURSE CLOSED DOWN 0.47% /Nikkei (Japan)CLOSED UP 213,29 POINTS OR 1.05% / INDIA’S SENSEX IN THE GREEN
Gold very early morning trading: 1271.75
Early TUESDAY morning USA 10 year bond yield: 2.339% !!! DOWN 0 IN POINTS from MONDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%. (POLICY FED ERROR)
The 30 yr bond yield 2.882, UP 1 IN BASIS POINTS from MONDAY night. (POLICY FED ERROR)
USA dollar index early TUESDAY morning: 93.58 UP 3 CENT(S) from MONDAY’s close.
This ends early morning numbers TUESDAY MORNING
And now your closing TUESDAY NUMBERS
Portuguese 10 year bond yield: 2.411% DOWN 2 in basis point(s) yield from MONDAY
JAPANESE BOND YIELD: +.074% DOWN 1/ 10 in basis point yield from MONDAY/JAPAN losing control of its yield curve/
SPANISH 10 YR BOND YIELD: 1.773% UP 10 IN basis point yield from MONDAY
ITALIAN 10 YR BOND YIELD: 2.166 UP 1 POINTS in basis point yield from MONDAY
the Italian 10 yr bond yield is trading 39 points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.463% UP 2 IN BASIS POINTS ON THE DAY
IMPORTANT CURRENCY CLOSES FOR TUESDAY
Closing currency crosses for TUESDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/400 PM
Euro/USA 1.17490 UP .0018 (Euro UP 18 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 112.85 UP 0.076(Yen DOWN 8 basis points/
Great Britain/USA 1.3234 DOWN 0.0033( POUND DOWN 33 BASIS POINTS)
USA/Canada 1.2485 DOWN .0031 Canadian dollar UP 31 basis points AS OIL FELL TO $50.36
This afternoon, the Euro was ROSE 18 basis points to trade at 1.1749
The Yen FELL to 112.85 for a LOSS of 8 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
The POUND FELL BY 33 basis points, trading at 1.3234/
The Canadian dollar ROSE by 31 basis points to 1.2485, WITH WTI OIL FALLING TO : $50.36
Your closing 10 yr USA bond yield UP 3 IN basis points from MONDAY at 2.340% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 2.872 UP 1 in basis points on the day /
Your closing USA dollar index, 93.57 UP 1 CENT(S) ON THE DAY/400 PM/BREAKS RESISTANCE OF 92.00
Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for TUESDAY: 1:00 PM EST
London: CLOSED UP 29.27 POINTS OR 0.39%
German Dax :CLOSED
Paris Cac CLOSED UP 16.97 POINTS OR 0.32%
Spain IBEX CLOSED UP 1.90 POINTS OR 0.02%
Italian MIB: CLOSED DOWN 26.37 POINTS OR 0.51%
The Dow closed UP 84.07 OR 0.37%
NASDAQ WAS closed UP 15.00 POINTS OR 0.23% 4.00 PM EST
WTI Oil price; $50.36 1:00 pm;
Brent Oil: 55.78 1:00 EST
USA /RUSSIAN ROUBLE CROSS: 57.88 UP 1/100 ROUBLES/DOLLAR (ROUBLE LOWER BY 1 BASIS PTS)
TODAY THE GERMAN YIELD RISES TO +0.62% FOR THE 10 YR BOND 4.PM EST EST
This ends the stock indices, oil price, currency crosses and interest rate closes for today
Closing Price for Oil, 4 pm/and 10 year USA interest rate:
WTI CRUDE OIL PRICE 5:00 PM:$50.54
USA 10 YR BOND YIELD: 2.34% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 2.873%
EURO/USA DOLLAR CROSS: 1.17353 DOWN .0070
USA/JAPANESE YEN:112.75 UP 0.568
USA DOLLAR INDEX: 93.63 UP 56 cent(s)/
The British pound at 5 pm: Great Britain Pound/USA: 1.3277 : down 111 POINTS FROM LAST NIGHT
Canadian dollar: 1.2513 UP 56 BASIS pts
German 10 yr bond yield at 5 pm: +0.462%
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM FOR THE DAY
Spain’s, Planes, & Automobiles Soar As Small Caps Rebound To Another New High
As Bloomberg noted, stocks and bonds managed gains despite talk that tax reform may face insurmountable hurdles in the U.S. Senate.
Republican Senator Bob Corker who insists he won’t vote for a tax bill that adds a penny to the deficit, said he’s concerned the White House is showing “softness” on ending a $1.3 trillion federal tax deduction for state and local taxes. Separately, Senate Democratic Minority Leader Schumer said Republican tax legislation won’t pass.
For much of the day, Small Caps dared to trade lower but went green with 30 mins to go. Trannies outperformed – once again new record highs for everyone…
Small Caps U-shaped-recovery today (to get into the green above 1509.45)…started right as Europe closed… (RSI now at 85.2 – the highst soince Oct 1997)
Meanwhile, Russell 2000 VIX continues to rise…
Recent IPO Roku tumbled almost 10%…
FANGs rose on the day but drifted lower after the EU close for the 3rd day in a row…
Elsewhere there was plenty of panic-buying…
Amid strikes, protests, and massive gatherings outside police headquarters (oh and the King of Spain blasting “the irresponsible behavior of catalan leaders putting Spain’s economic stability at risk… Spain’s IBEX surged this afternoon…
Airlines exploded higher on the day (S&P Airlines index rose 5% – the most since July 2016)…
And auto stocks are on fire – jumping 5.3% in the last 2 days, the most in 9 months to the highest since Oct 2015…
Treasuries once again traded in a very narrow range ending down around 1bps on the day…
The Dollar Index jumped overnight (remember China is closed) as JPY tumbled but was sold from the European opening…3rd day in a row of ovenight strength and European/US weakness…
WTI Crude, ahead of tonight’s API data, fell once again…
Finally we note that Gold ended the day flat at 6-week-lows…(holding at the 100-day moving average around $1270)…
As China’s Golden Week trade continues to play out…
Trump will now seek an additional 10 to 15 billion dollars to bolster the FEMA account and most of the new money will go for Puerto Rico
Trump To Seek Additional $10-$15 Billion In Disaster Funds Amid Puerto Rico Fallout
Following a disagreement with San Juan mayor Carmen Yulin Cruz that seemingly turned into a full-blown political feud accouover the weekend, Politico is now reporting that the Trump administration will seek an incremental $10-$15 billion in disaster relief funding to help with recovery efforts in Texas, Florida and Puerto Rico.
The Trump administration will ask Congress to approve another between $10 billion and $15 billion for the FEMA disaster relief fund this week, according to sources with knowledge of the request. We hear the magic number will be $13 billion. This is meant to begin to cover the cost of the spate of recent natural disasters, including the storm in Puerto Rico.
For those who may have missed the chaos, Trump’s feud with Cruz escalated on Friday after the mayor took to the airwaves to make an emotional plea for help…a plea that was interpreted by the Trump administration to be nothing more than a cleverly planned political stunt to exploit the ongoing crisis in Puerto Rico. Per Politico:
It was a direct response to her emotional news conference Friday night, in which she begged the president for more help. “We are dying here,” Cruz said, slamming down two thick binders of documentation that San Juan had provided to the Federal Emergency Management Agency to obtain help.
In another world, Cruz’s frustration with the layers of bureaucracy standing between her wiped-out city and food and water delivery might have been in line with Trump’s own interest in cutting regulations and red tape.
The props she used were similar to charts Trump has wielded at news conferences to demonstrate how obtuse the country’s permitting and regulatory process can be. But Cruz’s plea was interpreted by Trump as a personal insult.
“I am asking the president of the United States to make sure somebody is in charge, that is up to the task of saving lives,” she said. “If anybody out there is listening to us, we are dying, and you are killing us with the inefficiency.”
Meanwhile, and to absolutely no one’s surprise, the Mayor’s comments drew a very quick response from the President in the form of an aggressive tweetstorm in which he attributed the disappointing Puerto Rico relief effort to the “poor leadership ability” of Cruz.
The Mayor of San Juan, who was very complimentary only a few days ago, has now been told by the Democrats that you must be nasty to Trump.
— Donald J. Trump (@realDonaldTrump) September 30, 2017
…Such poor leadership ability by the Mayor of San Juan, and others in Puerto Rico, who are not able to get their workers to help. They….
— Donald J. Trump (@realDonaldTrump) September 30, 2017
…want everything to be done for them when it should be a community effort. 10,000 Federal workers now on Island doing a fantastic job.
— Donald J. Trump (@realDonaldTrump) September 30, 2017
Of course, regardless of whether Cruz’s intentions were genuine or just an effort to score political points for an upcoming bid for the governor’s seat, Trump’s assault has helped her accomplish both with the mainstream media now fully behind her.
In fact, as we pointed out just last night, Former Puerto Rico Attorney General Jose Fuentes became the latest victim of CNN’s “technical difficulties” when he went on air to make the point that Cruz’s attacks were politically motivated.
Donald Trump’s feud with San Juan mayor Carmen Yulín Cruz got an unexpected reinforcement today, when Former Puerto Rico Attorney General Jose Fuentes, a Republican, on Sunday took aim at Cruz, accusing her of attacking President Trump and using hurricane relief efforts to lay the groundwork for a gubernatorial bid.
Speaking on CNN’s “New Day”, Fuentes accused Cruz of making an about-face, saying she supported Trump just a few days ago, until her political adviser suggested the idea of running for governor.
“The mayor of San Juan is a political hack,” Fuentes said. “She was singing the praises of the president until her political adviser, [Rep.] Luis Gutiérrez from Chicago, got there and brought her the t-shirts and said, ‘Hey you want to run for governor, if she wants to run…” at which point the CNN anchor cut him off, pointing to audio issues, and claiming he could no longer hear Fuentes, handing over the mic to CNN’s Democratic Political Commentator Maria Cardona, who unleashed a scathing critique before somehow audio returned at which point Fuentes was once again given the platform, when he again repeated that any logistical problems were the result of political posturing by the San Juan mayor at which point both the CNN anchor and and Cardona doubled down their attack, and so on.
It sure looks like the uSA is retaliating against the Cubans for “sonic-gate.” The uSA is planning to expel 60% of the Cuba’s Washington staff:
(courtesy zero hedge)
US Plans To Expel 60% Of Cuba’s Washington Embassy Staff
Stop us if you’ve heard this one before.
In the interest of maintaining diplomatic “parity” between the US and Cuba, the Trump administration is reportedly planning to ask the Cuban government to reduce the staff at its embassy in Washington by 60% following last week’s announcement that the US planned to recall two-thirds of its diplomatic personnel in Havana, according to the Associated Press.
While the government didn’t cite a justification for its decision beyond the ‘parity’ line – notably the same excuse used by the Trump administration when it ordered Russia to close its consulate in San Francisco and reduce the head count at its embassy in Washington – it’s clear that the move was meant as retaliation for a series of mysterious sonic attacks that have left 21 diplomatic personnel in Havana with injuries ranging from minor pain and nausea to permanent brain damage.
The attacks, which began shortly after the election last fall, are considered to be ongoing, yet US intelligence hasn’t been able to confirm any specifics about the weapon used to carry out the attacks – to say nothing about the identity of the attacker or attackers.
The Cuban government, for its part, has vehemently denied any knowledge or involvement in the attacks. But that didn’t stop the US from quietly expelling two embassy personnel in August.
Earlier today, the AP dropped perhaps the most revealing scoop on the subject so far when it reported that some of the diplomats who were targeted were spies. According to the AP’s sources, the US government isn’t certain that their status as spies was the motivation for their targeting; however, the injuries reported by the spies were among the most severe.
By expelling the diplomats, the Trump administration will undoubtedly strain the newly reestablished US-Cuba relationship, which has surprisingly continued to improve during the first nine months of Trump’s presidency despite his promises to reverse the Obama-era détente.
According to the AP, the State Department is expected to announce its decision Tuesday. The Cuban diplomats won’t be formally expelled unless Havana refuses to send them home.
As is often the case when shadowy intelligence agencies are (presumably) involved, the US’s motives for expelling the diplomats are murky.
If US intelligence has discovered some evidence linking Cuba to the attacks – thereby proving that Castro is lying about his noninvolvement – the expulsion would be justified.
However, if it’s merely to save face, then as the AP pointed out in its story early today, whatever agent provocateur is behind these attacks is clearly succeeding in disrupting the relationship between the two countries.
If this is the case, then the US might want to take this into consideration. Because that may be their goal.
Watch Live: Wells Fargo CEO To Apologize (Again) To Congress For Massive Fraud
“One Year Later” is the title of the hearing that Wells Fargo CEO Tim Sloan faces this morning with the Committee on Banking, Housing, & Urban Affairs.
A year after former CEO John Stumpf was grilled by lawmakers over the bank’s massive scandal over fake accounts, Sloan will tell the panel he is “deeply sorry” for the scandal but also that Wells “is a better bank today than it was a year ago,” according to prepared remarks.
“I apologize for the damage done to all the people who work and bank at this important American institution,” Mr. Sloan is expected to tell the Senate Banking Committee.
As WSJ reports, regulators last year fined Wells Fargo $185 million for “widespread illegal” sales practicesthat included opening as many as two million deposit and credit-card accounts without customers’ knowledge.
A broader review by the company has since revealed the number is potentially 3.5 million accounts, and uncovered abuses in the bank’s auto-lending business.
As The Charlotte Observer notes, one analyst said Sloan’s opening statement will not go far enough to appease lawmakers angry over the scandal.
Jaret Seiberg, with Cowen and Company, said in a report that parts of Sloan’s remarks are expected to go over well, such as the ways Wells is holding top executives accountable. But the remarks won’t satisfy Sen. Elizabeth Warren and many other Democrats who will use the hearing to demand the ousting of executives or board members in place when fake accounts were being opened, Seiberg wrote.
Sloan could face some of his toughest questioning from Warren, of Massachusetts, who at one point accusing Stumpf of “gutless leadership” and told him he should resign and be criminally investigated.
What Could Possibly Go Wrong With Tax Reform? The Answer, According To Goldman, Is “Plenty”
One of the reason why the torrid dollar rally of the past few weeks appears to have plateaued, at least for the time being, is that just like earlier in the year, doubts have emerged about the viability of the “new and improved” tax plan, which according to the Tax Policy Center would mostly benefit the “Top 1”, even as it eventually pushes taxes for the upper middle class progressively higher. One catalyst is a Bloomberg report overnight, in which Bob Corker was quoted as saying that the White House is showing “softness” on ending the $1.3 trillion federal tax deduction filers get for their state and local taxes, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul.
The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts.
Needless to say, temporary tax cuts would have far less of an impact on both stocks and the dollar than if Trump’s “biggest ever” tax reform is permanent.
But it’s not only the suddenly shaky future of SALTaxes. As Goldman’s economists write overnight in a report looking at “what could possibly go wrong” with tax reform, they note that while “recent developments on tax reform have been positive” with the Senate’s “tentative budget agreement likely headed for passage in the Budget Committee this week” and the Big Six framework signaling narrower tax policy differences, there’s “plenty that could still go wrong.”
Some of the notable hurdles that could lead to Trump’s first year to have zero major legislative victories are as follows:
- Revenue target hasn’t been finalized; Senate’s $1.5 trillion “tax cut instruction” is at high end of potential outcomes; legislation reducing revenue that much might face opposition from some Republican centrists
- Major details remain unknown, particularly which tax preferences would be curbed to help offset costs
- Some tax increases proposed to offset costs are likely to be very difficult to achieve, such as repeal of state/local tax deduction, especially with Corker adding more fuel to the fire overnight.
Still, Goldman’s Washington analyst Alec Phillips concludes on the optimistic side and sees a 65% probability that “tax legislation will be enacted by 2018.”
There will be more details once the Senate Finance Committee hold a hearing on international tax reform today at 10am.
Until then, here is the full Goldman note:
Tax Reform: What Could Possibly Go Wrong?
- Recent developments on tax reform have been positive. The tentative budget agreement announced in the Senate two weeks ago has been formally proposed and appears headed for passage in the Senate Budget Committee this week. The House also appears likely to pass its budget resolution this week, and the framework on tax reform released by the “Big Six” on September 27 signals a narrowing of tax policy differences.
- That said, there is plenty that could still go wrong. First, the revenue target has not yet been finalized, and it is becoming increasingly clear that the Senate’s $1.5 trillion tax cut instruction is at the high end of the potential range of outcomes. It is possible that tax legislation that reduces revenues that much might still face opposition from some Republican centrists.
- Second, while the recently released framework demonstrates greater consensus among the House, Senate, and White House than appeared to exist a few months ago, there are major details that remain unknown, particularly which tax preferences would be curbed to help offset the cost of the tax cuts.
- Third, some of the tax increases that have been proposed to offset the cost are likely to be very difficult to achieve, such as repeal of the state and local tax deduction.
- That said, in light of the increased flexibility the tentative $1.5 trillion revenue target would provide for tax reform efforts, we currently believe there is a 65% probability that tax legislation will be enacted by 2018.
The prospects for tax reform have increased markedly in the last couple of weeks as a result of the recently released budget agreement in the Senate and, to a lesser extent, the framework on tax reform released by the “Big Six”. While we have noted these positive developments several times recently, in today’s US Daily we focus on the long road ahead and the obstacles tax reform is likely to encounter along the way.
Tax reform is moving on two tracks. The first track involves the budget resolution for fiscal year (FY) 2018, which congressional Republicans hope to use to include “reconciliation instructions” for tax reform. These instructions typically carry three pieces of information: (1) which committees must carry out the instructions, (2) the fiscal goal of the policy change (to raise or reduce taxes, spending, or the deficit), and (3) the deadline by which the committees must pass the relevant bill. The draft budget resolution that was released on September 29 by the Senate Budget Committee instructs the House Ways and Means Committee and Senate Finance Committee to pass legislation to reduce revenues by $1.5 trillion over the next ten years by November 13, 2017. As shown in Exhibit 1, the Senate must then pass the resolution, and the House and Senate must the agree on a single, common version of the budget resolution, which could happen through a House-Senate conference committee, or by the House simply accepting the Senate’s resolution once the Senate has passed it. Once a final resolution has been agreed upon by simple majorities in the House and Senate, the second track begins in earnest.
The second track involves the passage of detailed legislation that reforms the tax code. While the draft resolution’s deadline for passage by the tax-writing committees is currently November 13, we expect them to take a little longer to pass a tax bill, given that there is no penalty for missing the deadline and there are still a number of issues to be worked out. That said, it is certainly possible that the House Ways and Means Committee will pass tax reform legislation in November. Passage in the full House is likely to follow no sooner than late November and more likely December. Senate consideration is unlikely to start until December and is likely to carry over into 2018, in our view. Even if the Senate were able to pass a bill by December, it seems unlikely to us that the House and Senate would be able to resolve all of their differences before year end, so enactment in Q1 2018 is our base case.
The budget resolution looks likely to include a placeholder for a tax cut… The Senate’s draft budget resolution includes a placeholder for a tax cut of $1.5 trillion over ten years. With around $450bn in expiring tax provisions over the next ten years, this implies a $1.05 trillion tax cut compared with the tax that would be collected if current policy was simply extended. The revenue effects of the tax cut might be estimated on a “dynamic” basis, where the Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO) would consider the economic growth implications of the tax bill and add back the resulting tax receipts to the estimate, lowering the overall cost of the tax bill. In the past, JCT dynamic scoring models have typically reduced the cost of a tax cut by around 10% to 20% compared with a conventional estimate. Depending on whether the dynamic score is applied to the $1.5 trillion or the $1.05 trillion figure, this could allow for a “real world” tax cut up to $1.2 trillion (0.4% of GDP) to $1.4 trillion (0.6% of GDP) over the next ten years.
…but this is a limit and the final tax cut could be smaller. The risk appears to be to the downside of the Senate’s tax reform placeholder, for two reasons. First, the House and Senate need to finalize their “reconciliation instruction” and the House’s draft takes a much more conservative approach, calling for revenue-neutral tax reform combined with $200 billion in spending cuts. While we expect that the instruction included in the final budget resolution will resemble the Senate’s version, changes are possible and the $1.5 trillion figure is more likely to move lower than higher if it does change.
Second, the instruction sets a limit on the size of a tax cut, and political constraints could lead to a smaller change. If the tax legislation cuts taxes by more than instructed under the budget resolution, it would trigger a procedural objection in the Senate that would take 60 votes to waive. Assuming Democrats will largely oppose the tax bill, this effectively limits the size of the tax cut to whatever amount is included in the reconciliation instruction. However, centrist Republicans might try to force the size of the tax cut down further. For example, Senator Corker (R-Tenn.) has indicated he plans to oppose any tax legislation that adds to the deficit over the long term beyond the cost of extending expiring tax provisions and the amount of tax cut that might be offset by a “reasonable” estimate of the revenue gain from economic growth under dynamic scoring. While it is hard to gauge what Sen. Corker might deem to be reasonable when it comes to dynamic scoring, there is a possibility that he and other like-minded centrist Republicans in the Senate would oppose a tax bill that cuts taxes as much as allowed under the $1.5 trillion reconciliation instruction, even if they have voted for the budget resolution that allows it. With Senator McCain (R-Ariz.) suggesting he might oppose legislation that is not considered under “regular order” with bipartisan support (as opposed to the reconciliation process), any further opposition from the remaining 50 (out of 52) Senate Republicans could sink the bill.
The tax policy debate is just getting started but key details remain unknown. The release of the “unified framework” on tax reform on September 27 represented a small step in reaching consensus on tax reform among the key White House and congressional leaders (Exhibit 2). However, there are many details that have not yet been clarified, including the income levels at which the new tax rates for individuals would kick in; without this detail it is impossible to determine the size of the tax cut for individuals, or whether it would be a tax cut at all.
Reliance on repeal of the state and local tax (SALT) deduction to pay for individual tax cuts is risky. The Tax Policy Center estimates repeal of the state and local deduction would generate $1.3 trillion in new revenue under the proposal. However, with 28 House Republicans representing the highest tax states of New York, New Jersey and California and dozens more representing states with slightly lower taxes, the odds of repeal are low in our view. While a limitation of some kind—a percentage limitation, a dollar cap, converting the deduction to a credit of a reduced amount, or repealing only the income tax deduction and allowing deductibility of only property taxes –is possible, this would raise substantially less revenue than outright repeal.
On the corporate side, the proposal is more detailed, but may not be affordable… The framework calls for a 20% corporate tax rate, which would reduce revenues on a “static” basis by around $1.8 trillion over ten years. Other corporate changes would add slightly to this total. The proposal also calls for a 25% rate on pass-through income earned by partnerships, sole proprietorships and other entities. The effect on tax receipts would depend on how much wage and other individual income was recharacterized as pass-through income, but a recent estimate by the Tax Policy Center puts the cost around $770bn over ten years. Most of the other business tax proposals in the framework are smaller and work in both directions, roughly offsetting each other. Nevertheless, this suggests that the business tax cuts account for at least a $2.5 trillion revenue loss.
…And will probably need to be substantially scaled back… The cost of the corporate provisions is far beyond the $1.5 trillion maximum revenue loss envisioned in the Senate’s budget resolution, and perhaps even farther beyond what centrist Republican senators might be willing to accept. Moreover, passing a large corporate tax cut while leaving individual taxes roughly unchanged on the whole would be difficult to sustain politically, suggesting that the business tax cut figure will need to come down well below the $1.5 trillion revenue target.
…Or phased in gradually. White House officials and the president himself have repeatedly stated that they are unwilling to negotiate on the 20% corporate tax rate. However, with the fiscal math as it is, it will be very difficult to achieve a corporate rate of 20% over the next ten years. In 2001, tax writers solved a similar issue by phasing in rate reductions over several years, which allowed them to pass legislation with much lower terminal tax rates than would be possible if rate reductions were phased in immediately. We expect that this could come into play on the corporate side, in particular, since it would allow congressional Republicans and the White House to announce a low headline rate even if it takes several years to achieve. By contrast, we would expect individual tax cuts to take effect more quickly, since lawmakers are likely to want to provide voters with a tangible benefit ahead of the 2018 midterm election.
Budget rules still pose a challenge. There are two important technical obstacles that must be overcome to pass tax reform via reconciliation. First, pay-as-you-go (PAYGO) rules constrain the consideration of deficit-increasing legislation. While most of these rules can be circumvented, one that could be difficult to get around is the statutory PAYGO rule enacted in 2010, which imposes automatic spending cuts via sequestration to offset the effect of any deficit increasing legislation Congress passes. This would not prevent Congress from passing a net tax cut, but might serve as a deterrent. Second, the “Byrd” rule in the Senate prohibits reconciliation legislation from increasing the budget deficit outside of the window covered by the budget resolution (traditionally 10 years). This is less of an issue regarding individual tax cuts, which might be allowed to expire after ten years under the assumption they would be extended later. However, it could pose problems for corporate tax changes, which tax writers hope to make permanent. Waiving either rule requires 60 votes in the Senate, so tax legislation will need to work within these constraints.
The next political test will be the upcoming Senate vote on its budget resolution. This week’s votes on the House Floor and in the Senate Budget Committee do not appear to pose much risk, as each chamber’s respective budget resolution looks likely to pass without substantial changes. There is somewhat greater uncertainty later in October, for two reasons. First, when the Senate resolution reaches the Senate, Republican centrists may attempt to reduce the size of the tax cut further, though at the moment our expectation is that whatever can pass the Senate Budget Committee can probably pass the full Senate as well. Second, and more importantly, the House and Senate resolutions are substantially different, as noted above. While we expect the Senate version to largely prevail, changes are possible before the final version is agreed to.
We see enactment of tax legislation by Q1 2018 as the base case, despite these risks. We upgraded our outlook on tax reform following the tentative budget agreement in the Senate two weeks ago, and believe there is a 65% chance that tax reform will be enacted by 2018. This is mainly because of the flexibility that the $1.5 trillion tax cut placeholder in the budget resolution gives tax writers, who will be able to avoid making as many politically difficult choices in order to lower tax rates, which increases the odds of tax reform, in our view. The tax cut placeholder also makes possible the enactment of a simple tax cut in 2018 if broader tax reform efforts fall through. As outlined above, there are a number of potential risks along the way, but at this point the arguments in favor of enactment of tax legislation by 2018 outweigh the arguments against it.
Strange!! yields slide as their is chatter that ultra dove Jerome Powell may get the nod of Fed Governor. If Trump makes his move why replace an ultra dove Yellen with an ultra dove Powell.
Yields Slide As Market Smells A Squeeze On Powell Fed Chair Chatter
Having noted earlier the 44%, or 11-year high, in short Treasury positions among all bond traders (according to the latest JPM client survey), and a record high 70% among JPM’s “active” clients, we suggested that the most likely next move in the Treasury sector is a squeeze on even the faintest news that derails the recent hawkish narrative. And, predictably if aonly for now, this morning Treasuries have ground higher, with 10-year note futures matching Asia session highs, and the yield on the 10Y sliding to session lows of 2.33%.
What about the catalyst?
It appears that the news that spooked the weaker shorts into covering this morning is a rerun of a story from Politico that contrary to last week’s speculation that noted Fed “maverick hawk” Kevin Warsh is the frontrunner to replace Janet Yellen, that honor may fall to Fed governor Jerome Powell, a far more “dovish” candidate who, unlike Warsh, has never lashed out at the Fed’s policies and who is the favored candidate of Treasury Secretary Steven Mnuchin. As a reminder, Treasuries tumbled last week following the widely circulated report that Trump was said to meet Warsh about Fed chair position, suggesting he was the President’s preferred candidate. As Politico notes, that may not be the case:
MM spoke to a couple of other sources close to the Fed Chair selection process and they confirmed Kevin Warsh and Jerome Powell as the current front-runners with Treasury Secretary Steven Mnuchin said to be favoring Powell. That’s something of a head scratcher to outside observers of the process who did not have Powell on short-lists before the process began.Warsh was always viewed as a top contender though he does not really know President Trump.
These sources also said that Trump’s comment that he could make a decision in “two or three weeks” was not really a throwaway line and that the president really could tap someone in that short a time-frame. Or it could take a couple of months. It’s really up to the president to make a decision. The vetting process for the finalists is evidently very far along. Obviously some of the other final candidates including NEC Director Gary Cohn and current Fed Chair Janet Yellen are already heavily vetted and have all their paperwork in place.
Add to this what we noted earlier, and what Bloomberg’s Edward Bolingbroke wrote this morning, namely that as a result of the extreme short positioning in the TSY space, the “the market leaves Treasuries open for short squeeze-driven gains“, and one can explain today’s sharp move lower in TSY yields.
Then again, the squeeze may be short-lived, because if one trusts the online betting market, despite the chatter of Mnuchin’s support for the “conventional” Jerome Powell, Warsh remains a distant favorite even after the Politico report, with a 42% probability of being Yellen’s replacement, more than Powell, whose latest contract has jumped to 35% (+8 on the day), with Yellen and Cohn a distant 3rd and 4th, with 18% and11% respectively. The latest rack from PredictIt:
Well that about does it for tonight
I will see you WEDNESDAY night. MY COMMENTARY WILL BE SHORTER THAN NORMAL ON TUESDAY THROUGH TO FRIDAY. HOWEVER I WILL PROVIDE THE ESSENTIALS. YOU MAY RECEIVE THE COMMENTARY VERY LATE IN THE EVENING