GOLD: $1302.35 DOWN $1.64
Silver: $1733 DOWN 6 cents
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: $1309,55 DOLLARS PER OZ
NY PRICE OF GOLD AT EXACT SAME TIME: $1301,50
PREMIUM FIRST FIX: $8.05 (premiums getting larger)
SECOND SHANGHAI GOLD FIX: $1311.55
NY GOLD PRICE AT THE EXACT SAME TIME: $1303.50
Premium of Shanghai 2nd fix/NY:$8.60(PREMIUMS GETTING LARGER)
LONDON FIRST GOLD FIX: 5:30 am est $1305.10
NY PRICING AT THE EXACT SAME TIME: $1304.10
LONDON SECOND GOLD FIX 10 AM: $1299.60
NY PRICING AT THE EXACT SAME TIME. 1299.60
For comex gold:
NOTICES FILINGS TODAY FOR OCT CONTRACT MONTH: 19NOTICE(S) FOR 1900 OZ.
TOTAL NOTICES SO FAR: 2353 FOR 235,300 OZ (7.318TONNES)
9 NOTICES FILED TODAY FOR
Total number of notices filed so far this month: 562 for 2,810,000 oz
Bitcoin: $5659 bid /$56 79 offer up $171.00
Let us have a look at the data for today
In silver, the total open interest ROSE BY 2283 contracts from 188,711 UP TO 190,994 WITH RESPECT TO FRIDAY’S TRADING (UP 22 CENTS). THE CROOKS ARE HAVING AN AWFUL TIME TRYING TO COVER THEIR MASSIVE SILVER SHORTS. IT IS OBVIOUS THAT WE MUST HAVE HAD ZERO BANKER SHORT COVERING.
RESULT: A GOOD SIZED RISE IN OI COMEX WITH THE 22 CENT PRICE RISE. OUR BANKERS COULD NOT COVER ANY OF THEIR HUGE SHORTFAL .
In ounces, the OI is still represented by just UNDER 1 BILLION oz i.e. 0.955BILLION TO BE EXACT or 136% of annual global silver production (ex Russia & ex China).
FOR THE NEW FRONT OCT MONTH/ THEY FILED: 9 NOTICE(S) FOR 45,000 OZ OF SILVER.
In gold, the open interest ROSE BY A HUGE 6,895 CONTRACTS WITH THE GOOD SIZE RISE IN PRICE OF GOLD ($10.15 ) . The new OI for the gold complex rests at 528,142. OUR BANKER FRIENDS COULD NOT COVER ANY OF THEIR GOLD SHORTS AS THEY RETREATED TO HIGHER GROUND.
Result: A GOOD SIZED INCREASE IN OI WITH THE RISE IN PRICE IN GOLD ($10.15). WE HAD ZERO BANKER GOLD SHORT COVERING BY THE BANKERS.
we had: 19notice(s) filed upon for 1900 oz of gold.
With respect to our two criminal funds, the GLD and the SLV:
Tonight , ANOTHER BIG CHANGES in gold inventory at the GLD/A HUGE WITHDDRAWAL OF 5.32 TONNES
Inventory rests tonight: 853.13 tonnes.
Today: NO changes in inventory:
INVENTORY RESTS AT 325.765 MILLION OZ
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver ROSE BY 2283 contracts from 188,711 UP TO 190,994(AND now A LITTLE CLOSER TO THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) . OUR BANKERS WERE AGAIN UNSUCCESSFUL IN COVERING THEIR SILVER SHORTS. THE DATA ALSO SUGGESTS THAT THE BANKERS COULD NOT COVER ANY THEIR GOLD SHORTS COVERING . HOWEVER IT IS CLEAR THAT SILVER IS BECOMING IMPOSSIBLE FOR THE CROOKS TO COVER. THE BANKERS ON FRIDAY RETREATED TO HIGHER GROUND WHERE THEY WILL TRY AGAIN.
RESULT: A GOOD SIZED INCREASE IN SILVER OI AT THE COMEX WITH THE RISE IN PRICE OF 22 CENTS WITH RESPECT TO FRIDAY’S TRADING. OUR BANKER FRIENDS WERE UNSUCCESSFUL IN THEIR ATTEMPT TO COVER ANY OF OUR SILVER SHORTS AND RETREATED TO HIGHER GROUND
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 SUNDAY night/MONDAY morning: Shanghai closed DOWN12.05 points or .36% /Hang Sang CLOSED UP 216.37 pts or .76% / The Nikkei closed UP 100.38 POINTS OR .47/Australia’s all ordinaires CLOSED UP 0.55%/Chinese yuan (ONSHORE) closed DOWN at 6.5900/Oil UP to 52.26 dollars per barrel for WTI and 58.32 for Brent. Stocks in Europe OPENED IN THE GREEN EXCEPT SPAIN . ONSHORE YUAN CLOSED DOWN AGAINST THE DOLLAR AT 6.5900. OFFSHORE YUAN CLOSED STRONGER TO THE ONSHORE YUAN AT 6.5780AND //ONSHORE YUANS WEAKER AGAINST THE DOLLAR/OFF SHORE STRONGER TO THE DOLLLAR/. THE DOLLAR (INDEX) IS STRONGER AGAINST ALL MAJOR CURRENCIES. CHINA IS NOT PARTICULARLY HAPPY TODAY.
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 ROSE BY A GOOD SIZED 6,895CONTRACTS UP to an OI level of 528,142WITH THE RISE IN THE PRICE OF GOLD ($10.15 RISE IN FRIDAY’S TRADING). IT SEEMS THAT OUR BANKER FRIENDS FAILED AGAIN IN THEIR ATTEMPT TO COVER SOME OF THEIR HUGE GOLD SHORTFALL . SO THE BANKERS RETREATED TO HIGHER GROUND HOPING TO TRY AGAIN COVERING SOME OF THEIR SHORTFALL AT A LATER DATE. OCTOBER IS AN ACTIVE DELIVERY MONTH ALTHOUGH IT IS THE WEAKEST IN TERMS OF ACTUAL DELIVERIES AND OPEN INTEREST. WE VISUALIZED 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 WHEREBY ANOTHER 7200 LONG COMEX CONTRACTS WERE GIVEN 7200 EFP’S. WE HAVE NOW ENDED GOLDEN WEEK WHERE ALL OF CHINA WAS OFF AND AS SUCH WE SHOULD EXPECT GOLD TO BE STRONG THIS WEEK WITH CHINA RETURNING TO ACTIVE DUTY PURCHASING OUR PRECIOUS METALS.
Result: a GOODSIZED open interest INCREASE WITH THE GOOD SIZED RISE IN THE PRICE OF GOLD ($10.15). BANKERS RETREATED TO HIGHER GROUND AND COULD NOT COVER ANY PORTION OF THE GOLD SHORTFALL
IN SEPTEMBER,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 3 WEEKS HOPING TO COVER AS MANY GOLD/SILVER SHORTS AS POSSIBLE.
NOW THAT WE ARE CLOSE TO THE 19TH CHINESE CONGRESS, THE BANKERS ARE TAKING NO CHANCES AS THEY START TO COVER THEIR GOLD/SILVER SHORTFALL.
We have now entered the active contract month of Oct and here we saw a GAIN of 36 contracts UP TO 236 contracts. We had 0 notices filed yesterday so we GAINED 36 contracts or an additional 3600 oz will stand for delivery at the comex in this active delivery month of October and 0 EFP notices were given. The low number of notices early in the delivery cycle is evidence of a lack of physical gold.
The November contract saw A loss OF 64 contracts down to 1233.
The very big active December contract month saw it’s OI GAIN OF 6,004 contracts UP to 405,887
We had 19 notice(s) filed upon today for 1900 oz
VOLUME FOR TODAY (PRELIMINARY) not available
CONFIRMED VOLUME FRIDAY: 302,070
We had 9 notice(s) filed for 45,000 oz for the OCT. 2017 contract
|Withdrawals from Dealers Inventory in oz||n/a|
|Withdrawals from Customer Inventory in oz||
|Deposits to the Dealer Inventory in oz||n/a 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||xxx 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 19 contract(s) of which 0 notices were stopped (received) by j.P. Morgan dealer and 12 notice(s) was (were) stopped/ Received) by j.P.Morgan customer account.
|Withdrawals from Dealers Inventory||n/a|
|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)||562 contracts
|Total accumulative withdrawal of silver from the Dealers inventory this month||NIL oz|
|Total accumulative withdrawal of silver from the Customer inventory this month||xx 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 16/A HUGE WITHDRAWAL OF 5.32 TONNES FROM THE GLD/INVENTORY RESTS AT 853.13 TONNES
0CT 13/ NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 858.45 TONNES
Oct 12/NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 858.45 TONNES
Oct 10/NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 858.45 TONNES
Oct 9/ANOTHER DEPOSIT OF 4.43 TONNES INTO GLD/INVENTORY RESTS AT 858.45 TONNES
Oct 6/A DEPOSIT OF 2.96 TONNES OF GOLD INVENTORY INTO THE GLD/TONIGHT IT RESTS AT 854.02 TONNES
Oct 5/A LOSS OF 3.24 TONNES OF GOLD INVENTORY FROM THE GLD/INVENTORY RESTS AT 851.06 TONNES
Oct 4/NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 854.30 TONNES
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
Now the SLV Inventory
Oct 16/ NO CHANGES IN SILVER INVENTORY AT THE SLV.INVENTORY RESTS AT 325.765 MILLION OZ
oCT 13/ NO CHANGES IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 325.765 MILLION OZ
Oct 12/THE LAST TWO DAYS WE LOST 1.113 MILLION OZ FROM THE SLV/INVENTORY RESTS AT 325.765 MILLION OZ
Oct 10/NO CHANGE IN INVENTORY AT THE SLV/INVENTORY RESTS AT 326.898 MILLION OZ/
Oct 9/A HUGE DEPOSIT OF 1.227 MILLION OZ INTO THE INVENTORY OF THE SLV/INVENTORY RESTS AT 326.898 MILLION OZ
Oct 6/NO CHANGE IN SILVER INVENTORY/ INVENTORY RESTS AT 325.671 MILLON OZ
Oct 5/ANOTHER WITHDRAWAL OF 944,000 OZ FROM THE SLV/INVENTORY RESTS AT 325.671 MILLION OZ
OCT 4/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 326.615 MILLION Z
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/
Indicative gold forward offer rate for a 6 month duration+ 1.45%
Major gold/silver trading/commentaries for MONDAY
Silver Set To Soar
Oct 16, 2017 10:59 AM
Gold prices have far outpaced gains in silver so far this year, but silver will emerge as the winner for the second year in a row.
With a per-ounce price of $17.41 for silver futures as of Friday, analysts say the white metal is poised for a big climb, particularly as the gold-to-silver ratio stands well above historical averages. “Silver is definitely undervalued compared to gold and as a stand-alone investment. I consider it likely to be the most undervalued asset in the general investment markets,” says Paul Mladjenovic, author of Precious Metals Investing For Dummies.
The best barometer of its potential gains comes from its value relative to gold. The long-term average gold-to-silver ratio runs around 15 to 1, while the modern average going back a century is roughly 40 to 1, says Mark O’Byrne, research director at precious-metals storage provider GoldCore. The ratio, which reflects how many ounces of silver it takes to equal the value of one ounce of gold, stood at a whopping 75 to 1 on Friday.
That steep ratio suggests “it’s a good time to buy silver,” says O’Byrne. He explains that the “huge amount of silver used up in industrial applications” suggests the ratio should fall over the long term: “It’s likely that the gold/silver ratio will gradually return to below the 100-year average of 40 to 1.” At the current gold price, that would put silver at nearly $32 an ounce, O’Byrne says.
So far this year, however, prices of gold futures have risen nearly 12%, while silver has gained roughly 6%. Last year, silver’s climb of about 16% outpaced gold’s rise of almost 9%.
“Silver isn’t keeping pace with gold because the market perception is that gold is a safer play, while the market perceives silver’s role as exposed to economic weakness. But as inflation heats up, more of the public will realize silver’s second role as a store of value and inflation hedge,” says Mladjenovic.
Gold is viewed as more of a “pure monetary play, so as more difficulties emerge with paper assets,” such as currencies and debt, “gold will hold up well,” he adds. At the same time, silver, which is a smaller market, has “greater ties to industry,” notably in tech products like smartphones and solar power, and “will do well as markets see greater demand in those sectors.”
The main reason gold has outperformed silver this year, however, is the U.S. dollar, says Brien Lundin, editor of Gold Newsletter, noting, “Gold and the greenback have been trading in a very close inverse correlation for about the last two years, and the relationship has only grown closer this year.”
THE DOLLAR, AS REPRESENTED by the Intercontinental Exchange’s U.S. Dollar Index (ticker: DXY), has fallen 8.8% this year because of “underlying skepticism” about the Federal Reserve’s ability to keep raising rates, says Lundin. “Even the Fed admits a new-normal rate environment would mean a federal-funds rate of around 2.5%. Balance that against its goal of 2% inflation, and you see they [the Fed] want an ultralow real-rate environment that would be bullish for gold and bearish for the dollar,” he adds. Traders in the fed-futures market still overwhelmingly expect a quarter-percentage-point interest-rate hike at the central bank’s December meeting.
Peter Schiff, CEO of Euro Pacific Capital and SchiffGold, says most investors aren’t considering the “strong likelihood” that the Fed will have to cut rates and revert to quantitative easing before it can lift rates back to historically normal levels. A stock market correction or economic decline will force the Fed’s hand. “When rates come down, the dollar will fall and metals will rise,” he says.
If or when that happens, silver will post the bigger gain. GoldCore’s O’Byrne expects gold to finish the year above $1,300 an ounce, for a gain of roughly 13% in 2017. Silver, meanwhile, is set to test $20 an ounce by the end of this year, and close above $19—representing a “healthy” 20% gain for the year.
Gold Drops Below $1300 As Taylor Reportedly Trumps Warsh For Fed Chair
Gold and USDJPY have had a busy last 60 minutes as they swung wildly on North Korea headlines but Gold tumbled back below $1300 when Bloomberg reports that Stanford’s John Taylor is said to impress President Trump, as Warsh’s star fades.
*WARSH AND TAYLOR BOTH REMAIN ON SHORTLIST, PEOPLE FAMILIAR SAY
*TRUMP INTERVIEWED TAYLOR LAST WEEK WITH CHIEF OF STAFF KELLY
*KEVIN WARSH IS SAID TO SEE STAR FADE IN WHITE HOUSE FED SEARCH
*STANFORD’S TAYLOR IS SAID TO IMPRESS TRUMP FOR FED CHAIR
Which jumped Taylor up to 3rd place with the bookies.
The dollar strength is likely related to the fact that according to John Taylor’s “Rule”, the current Fed Funds rate based on inflation and unemployment – should be around 5.74%!!
THIS IS SUCH AN IMPORANT COMMENTARY THAT I PRESENTED TO YOU ON FRIDAY SO I AM PROVIDING IT AGAIN IN CASE YOU MISSED IT
Oil for gold – the real story
By Alasdair Macleod
Alasdair Macleod October 12, 2017
Following an article in the Nikkei Asia Review, which reported China will shortly introduce an oil futures contract priced in yuan, there has been some confusion about what it means. The article pointed out that in combination with existing gold futures priced in yuan, an oil exporter to China contracting to accept yuan could use these two futures contracts to take delivery of physical gold in payment for oil.
I was quoted in that article as follows:
“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,”i
The mechanism of introducing an oil for yuan contract could hardly be clearer, yet the rumour mill went overtime into Chinese whispers. Some analysts appeared to think China was authorising a new oil for gold contract of some sort, or that China would be supplying the gold, both of which are untrue.
The purpose of this article is to put the proposed oil for yuan contract, which has been planned for some time, into its proper context. It requires knowledge of the history of how China’s policy of internationalising the yuan has been developed, and will be brought up to date with an analysis of how the partnership of China and Russia is taking over as the dominant power over the Eurasian land-mass, a story that is now extending to the Middle East.
This fulfils the prophecy of the founder of geopolitics, Sir Halford Mackinder, made over a century ago. He described the conjoined continents of Eurasia and Africa as the World Island, and that he who controls the Heartland, which lies between the Volga and the Yangtze, and the Himalayas and the Artic, controls the World Island.ii The Chinese-Russian partnership is well on its way to controlling the World Island, including sub-Saharan Africa. We know that successive Soviet and Russian leaders have been guided by Mackinder’s concept.
Events of recent months have accelerated the pace of the Heartland’s growing dominance over the World Island, and become pivotal to the balance of global power shifting in favour of the Heartland. Even political commentators in the mainstream media are hardly aware this is happening, let alone future implications. Financial commentators and economists are even less informed, despite the monetary consequences being of overriding importance for the impact on the wealth of nations and their peoples.
This is the backdrop to China’s internationalisation of her currency. To enhance our understanding of the implications of the introduction of yuan futures contracts, we must begin with the relevant monetary developments.
The Hong Kong – London axis
For a considerable time, China has followed a policy of replacing the dollar as its settlement currency for the purposes of trade. After all, China dominates international trade, and on a purchasing power parity basis, her economy rivals that of the US, and if it hasn’t done so already will soon overtake it. From China’s point of view, being forced by her trading partners to accept and pay in dollars is an irritating anachronism, a hangover from American imperialism.
Furthermore, China’s strategic military analysis has convinced her that America uses the dollar as an economic weapon, wielding it to sustain global hegemony and to support her own economy at the expense of others. Therefore, there are clear strategic reasons for China to do away with the dollar for as much of her international and trans-Asian trade as possible.iii
For America’s part, she has strongly resisted moves to have the dollar replaced as the world’s dominant trade currency. America has a tough grip on all commodities, because international physical and derivative markets are priced almost exclusively in dollars. Furthermore, nearly all currency hedging has the dollar on one side of the transaction. This allows the Americans to exercise enormous control over international markets, and even to artificially inflate commodity supplies through the creation of futures contracts, keeping prices lower than they would otherwise be. By these means, America has suppressed the relationship between monetary and price inflation, increasing the apparent stability of the dollar. This is central to the illusion of American monetary hegemony. Therefore, China’s policy of doing away with the dollar is, from the American standpoint, a fundamental challenge to her post-war global domination, and amounts to a declaration of financial war.
China’s problem in displacing the dollar is the lack of an international market for the yuan. Furthermore, with strict exchange controls limiting the ability of Chinese citizens and businesses to trade on the foreign exchanges, it was always going to be an uphill struggle to provide the necessary liquidity in the yuan to make it acceptable to foreign counterparties. China had to come up with a plan, and it made sense to use the existing financial links between Hong Kong and London to develop international markets for her own currency.
We can date public awareness of China’s strategy to June 2012, when Hong Kong Exchanges and Clearing made a successful offer for the London Metal Exchange. While noting that Hong Kong is an autonomous region, and that, officially at least, China does not meddle in Hong Kong’s affairs, China has a direct interest in important acquisitions of this sort. China is the world’s largest importer of base metals, and London is the global metal pricing centre for warehouse stocks and physical delivery.
The LME earlier this year decided to offer a series of precious metal futures contracts, priced in dollars, centred on gold. The gold contract has been a great success, something guaranteed when you bear in mind that the Industrial and Commercial Bank of China, owned by the Chinese state, is a lead sponsor of these precious metals contracts. By this action, China is parking its tanks on the London Bullion Market Association’s lawn. At some stage in the future, the LME will almost certainly offer deliverable futures contracts priced in yuan, not just for precious metals but for base metals as well.
In October 2013, fifteen months after the acquisition of the LME, Boris Johnson as Mayor of London led a trade mission to Beijing. British trade missions are a major feature of Foreign Office duties, the way Britain develops bilateral trade relationships. These trade missions, being planned through diplomatic channels, are prearranged and coordinated well in advance. Therefore, it was unusual to find that George Osborne, the Chancellor of the Exchequer, at very short notice got up a second trade mission, and met Johnson in China.
The reasons for this turn of events were never properly explained; however, we can work them out. In May 2012, David Cameron had met the Dalai Lama in London, which caused a diplomatic furore with China. Despite this earlier public spat and the point having been made, Osbourne was sent to China. While it is likely his trade mission was a cover for UK Government efforts to smooth things over, subsequent events suggest financial cooperation between Hong Kong and London was discussed, and Chinese plans to use Hong Kong and London to enhance the yuan’s international liquidity were agreed in principal. Following Osborne’s visit, David Cameron himself went to Beijing for discussions with President Xi the following month, confirming the importance to Britain of bilateral financial relations with China.
The following year, the UK took the unusual step of issuing a 3bn yuan bond, both as an indication of intent, and to help kick-start the offshore yuan market in London. This was followed by Britain being the first non-Asian nation to join the Asia Infrastructure Investment Bank as a founder member in March 2015 (announced by none other than George Osborne). The AIIB, which was set up by China and headquartered in Beijing, is the first supra-national organisation independent of the Bretton Woods institutions, which are all controlled by the US. These institutions, led by the World Bank and the IMF, as well as several regional development banks, were how the US, using the dollar, dominates the world’s finances. The establishment of the AIIB was an unwelcome development for America, and the US expressed acute disappointment that Britain had decided to join.
And lastly, after six or seven years of lobbying the IMF, the yuan was finally included in the SDR basket from 1 October last year, further promoting it as a trade settlement currency to be included in foreign countries’ reserves.
There can be no clearer evidence of China’s intention to replace the dollar with her own currency, than the sequence of events outlined above. She identified that Britain’s interests were aligned with her own, enabling her to cut out America from future developments. She has obtained arms-length control over London’s physical metal exchange. She had set up a non-dollar rival to the World Bank and IMF, ensuring future Asian development financing is under her control. And, with more than 80 member countries eventually joining the AIIB, she has successfully picked off America’s allies. The inclusion of the yuan in the SDR basket can be taken as an acknowledgement of China’s importance on the world stage.
The eventual intention is to price in yuan everything imported into and exported from China. Much trans-Asian business is already settled in yuan, and even remote Angola settles her oil sales to China in yuan. It will in time involve developing yuan futures contracts for all the tradeable commodities the state deems significant. The most important of these is a standard oil contract. But before we cover the genesis of the oil contract, we should remind ourselves about China’s gold strategy.
Cornering the physical gold market
It is only relatively recently that Western capital markets have become aware that Chinese demand for physical gold absorbs large quantities of annual mine production, and that the country is now the largest mining nation by far, extracting it at a rate of over 450 tonnes per annum. Knowledge of China’s overall demand is restricted to deliveries out of the Shanghai Gold Exchange’s vault into public hands, running at about 2,000 tonnes per annum, which with India’s public demand accounts for nearly all global mine extraction of about 3,000 tonnes.
The SGE was established in 2002, yet China began to embrace capitalism in 1980, when the first Special Economic Zone was established. China at that time showed reserves of 395 tonnes, a figure that was unchanged until 2001, when it was increased to 500 tonnes, and the following year to 600 tonnes, which it remained until 2009. Over this time, the Chinese economy enjoyed enormous capital inflows from 1980 until the early 1990s, when Western companies set up manufacturing facilities. These were followed by growing export surpluses thereafter. The Peoples Bank of China (PBOC), the state-owned central bank, was managing the currency, neutralising these flows by buying mostly dollars.
It also made sense for the Chinese to diversify the foreign exchange portfolio gained through intervention. The need to increase gold holdings would have been obvious to communist-trained economists at the heart of government. They had had the Marxist belief drummed into them that capitalism would eventually destroy itself, and the capitalists’ paper currencies with it. Rather like Germany in the 1950s and the Arabs in the 1970s, they felt it was prudent to put a significant part of their foreign exchange into gold.
Consequently, new regulations appointing the PBOC to “guarantee the state’s requirements for gold and silver” came into force on June 15, 1983.iv Private ownership of gold and silver remained banned.
It should be noted that state-owned gold declared as official reserves bear little relation to the total accumulated. Anecdotal evidence informs us that bullion is dispersed into accounts in the possession of the Peoples Liberation Army and the Communist Party. Therefore, we cannot know China’s true holdings. All one can do is make a reasonable assessment of how much gold the PBOC is likely to have accumulated since 1983 and before 2002, when private citizens were allowed for the first time to buy physical gold and silver. During this period gold had suffered the greatest bear market in the history of fiat currencies. The scale of redistribution from weak hands into stronger long-term hands was enormous, bearing in mind that Indians, the other great national buyers today, only began to buy gold in significant quantities in the early-nineties, after the repeal of the 1968 Gold Control Act in 1990. It is also known that in 1990-2000, many Middle Eastern portfolios sold gold in favour of equity investment, as did many other private investors with Swiss private bank accounts. Furthermore, central banks were leasing gold in large quantities, artificially inflating physical supply.
Taking all these factors into account, plus mine production totalling 42,460 tonnes over the period, it was easily possible for the Chinese state to secretly amass over 20,000 tonnes by 2002, through a process of gradual accumulation. As to whether they did so, we must look at the evidence from China’s gold strategy. The following bullet list is a summary:
The introduction of the 1983 regulations appointing the PBOC amounts to a declaration of intent. The PBOC as a central bank has access to capital markets, and commands the state-owned commercial banks. Accumulating gold is a natural extension of the PBOC’s currency management.
There were both the opportunity and the supply during the greatest bear market gold has ever seen. Between 1983-2002, world mine output added an estimated 42,460 tonnes to above-ground stocks at a time when the West was disgorging both central bank and privately owned physical gold. All that gold went somewhere, so China must have been a major buyer.
In 2002, the Shanghai Gold Exchange (SGE) was set up by the PBOC to permit the public to buy gold. This signalled that the state had acquired sufficient gold and silver bullion for its own purposes by then.
The state actively advertised gold ownership through the media, promoting a policy to its citizens of holding gold as sound money. This would help her corner the physical market.
The state deliberately fostered gold mining, to the point where Chinese mines are now the largest producers in the world by far. Mine output was a record 463.7 tonnes in 2016.
The state monopolises China’s refining capacity, taking in doré from other countries as well, retaining control over ingot production.
China now hosts the world’s most important bullion exchange in Asia, has set itself up as a rival to the LBMA in London through the London Metal Exchange, and is developing gold futures markets.
The LBMA 400 ounce 99.50 standard bar has been replaced by the new Chinese 99.99 one kilo bar as the Asian standard. The large Swiss refiners have been converting LBMA bars into the new standard for customers, particularly those resident in the Middle East.
Almost all gold acquired by China and her citizens remains in China. Chinese refined bars are almost never seen in Switzerland, the West’s principal refining centre.v
Gold futures contracts in yuan are now available to international dealers in Hong Kong and Dubai using the SGE gold price as benchmark.
Private ownership of gold in China is now estimated to total over 15,000 tonnes, in addition to anything the state has acquired since 1983. China’s gold policy, which may have commenced as a sensible diversification of reserves, now has strategic implications. China’s gold is now a vital defence against the hegemony of the dollar, and as Major-General Qiao Liang has advised the Peoples Liberation Army, there is a continuing risk that America will try to use its currency as a financial and economic weapon against China.vi
The Chinese state, having secured its physical gold dominance, has little need to acquire more gold in the market: that much was signalled by the establishment of the SGE in 2002. It may well have accumulated further gold since, but this is incidental. Russia is now accumulating gold under President Putin, who belatedly learned of the dangers the Western financial system poses Russia in the wake of American sanctions, and more particularly the financial devastation faced by Iran, when America forced the supposedly independent SWIFT inter-bank settlement system to ban Iranian transfers in all other currencies. Gold smuggled from Turkey via Dubai proved to be Iran’s saviour.
By having control of the physical market for gold, China can threaten to use it to destabilise the dollar, without destabilising the yuan. As such, it is potentially devastating, and used carelessly could trigger an economic collapse in Western capital markets, wreaking financial and economic havoc in America and other advanced nations. China will never be wholly independent from trade with these nations, and severe financial and economic damage to the advanced economies will rebound upon her to some extent. For this reason, she has so far held off using gold as an economic and financial weapon, while she continues to insulate herself from periodic crises in Western economies.
China, with Russia, clearly plans to create what amounts to an enormous internal market, covering most of Asia. It is doing this through trade, in contrast with the way America traditionally wields her influence, through the sticks and carrots of guns and butter. In every minor geopolitical skirmish with America, the Sino-Russian partnership has won. The patient approach of letting American influence diminish through her own errors has made the economic violence of driving up the gold price unnecessary. However, times are changing, and this phase is passing.
The oil connection
The success of the Sino-Russian partnership in outwitting the Americans has overtaken China’s own plans to develop liquidity for a wide range of derivative contracts priced in yuan on its own and other international exchanges. Nowhere has this been more obvious than in the delay of introducing an oil futures contract priced in yuan.
This was first mooted, so far as we are aware, in 2012, when it was intended to introduce a contract based on the high-sulphur grades China commonly used at that time. This contract was to be settled in either dollars or yuan at the oil supplier’s choice. However, the absence of an offshore market for yuan meant this proposal was premature.vii
In 2014, these plans resurfaced, with the Shanghai Futures Exchange chairman quoted as saying that the yuan had become more international and recognised in the market. He added that the proposed contract had support from both the government and financial regulators.viii
At about that time, Guo Jianwei, a PBOC monetary policy official, was quoted in the Shanghai Securities News as saying that the PBOC planned to start yuan-denominated gold and oil futures to help establish a global payment system for the Chinese currency.ix This statement gets to the nub of the reason for introducing oil and gold contracts together, and that is they will internationalise the yuan, probably more quickly than any other measure taken by the PBOC. To back up his quote, Mr Guo then described how the PBOC had agreed CNY2.5 trillion of currency swaps with 23 central banks, pointedly excluding the US.
The oil for yuan story rumbled on, with the Chinese delaying the introduction of internationally tradable oil futures. That is, until Damon Evans reported that not only were traders being trained, but that locally registered entities of JPMorgan and UBS are among the first to have gained regulatory approval to trade the contract.
Geopolitical developments relative to the oil contract
It is natural to assume that China and Russia are controlling, Svengali-like, all the geopolitical outcomes. China has retained an unerring focus on the grand prize of excluding the dollar from all her trade, and with it US monetary influence in Asia. But, being reliant on America to make strategic mistakes, China is not totally in control of events and their timing. For example, the collapse in July of the American campaign in Syria was sudden and unexpected, leaving Russia, in partnership with Syria, Iran, and Turkey to sort out the mess.
Even Mr Netanyahu, the Prime Minister of Israel, has beaten a path to Mr Putin’s door several times. When Turkey, still a NATO member, decided to side with Russia along with Iran, Israel recognised that US protection was no longer good enough to secure her future. When Saudi Arabia was under American influence, Israel had felt as safe as she could be in that turbulent region. But a combination of a Hezbollah/Syrian/Turkish/Iranian axis to Israel’s north, and Prince Mohammed bin Salman’s silent coup in Saudi Arabia has fundamentally altered the balance of power.
Prince Salman is now the heir-apparent to King Salman, having replaced Mohammed bin Nayef, America’s nominee, as heir to the throne. Only last week, King Salman himself visited Moscow as the guest of President Putin. No doubt, the other gulf states will follow the Saudi lead.
Instead of President Trump, Putin finds himself, very suddenly, the ring-master for most of the Middle East. And while we cannot rule out a counter-move from the Americans, it should be noted that the Arabs dislike the Americans and much of what they stand for. However, notwithstanding its national antipathy, Saudi Arabia went along with Kissinger’s plan in 1973 to use the dollar for oil payments, and to buy US Treasuries and to deposit surplus dollars in American banks. In return, America guaranteed it would protect Saudi Arabia from outside influences. Also, part of the deal was Saudi Arabia would not support Israel’s enemies.
Now that the Kissinger deal is unravelling, it is reasonable to assume the financial deal, the Middle East’s support of the petrodollar to the exclusion of all rival currencies, will also come to an end, more rapidly than thought possible only four months ago. But for this to be realised requires an alternative settlement currency to be available. And while Russia and China have already agreed joint investment projects involving both their currencies, Saudi Arabia is almost certainly not ready to accept the yuan as a full currency replacement for the dollar.
The rest of the world is watching closely. America’s allies officially remain onside with America, but in terms of foreign relations, interests guide relationships, not the other way around. We saw this when Britain joined the AIIB, demoting the special relationship with America. Central banks, holding massive quantities of the dollar, will be particularly jittery. Knowing this, will China dare make a move to undermine the dollar and trigger a run against it by providing the means for oil exporters to sell oil for yuan and then yuan for gold in international futures exchanges? If Shanghai fails to offer the facility, other markets, such as Hong Kong or Dubai, where there are already yuan gold contracts, could do so.
Realistically, China now has limited control over the timing of her planned moves, and this is particularly true about the prospective oil future priced in yuan. China imports over 8 million barrels of oil per day, for a total annual value of $150bn. She imports oil from a wide variety of sources, including Russia, Angola, Saudi Arabia, Iraq, Brazil, Iran and Venezuela. Some of these countries are on the US black-list (such as Russia, Iran and Venezuela) and others may prefer gold to dollars. If we assume that one-third of China’s oil imports are converted into gold, that amounts to 1,200 tonnes of gold at current prices to be sourced annually in a tight gold moarket.
The effect on the dollar could be catastrophic. Not only would the dollar sink as it loses its exorbitant privilege, but finding the extra physical gold would drive up the gold price. Inevitably, foreign holders of the dollar would probably join in by dumping the dollar and any fiat currencies aligned with it and join the rush for gold.
The ideal way for China to replace the dollar as the dominant currency for her cross-border trade is to encourage her oil suppliers to accept payment in her own currency, the yuan. It is clear from statements made in 2014 by Guo Jianwei, a PBOC monetary policy official, that China had already planned to wean her oil suppliers off the dollar by introducing both oil and gold futures denominated in yuan, allowing them to take at least part-payment in gold. Persuading them to do so without unduly disrupting global capital markets should have been a gradual process, perhaps spread out over the best part of another decade. Instead, geopolitical developments have accelerated the time-table following the election of President Trump, who is noticeably lacking in diplomatic patience. His latest renegation of the Iran nuclear deal is for Asian observers classic US perfidy.
China’s energy suppliers are not yet prepared to accept the full exposure to the yuan that oil sales contracted in yuan implies. Meanwhile, it is becoming apparent that the petrodollar has a limited life, the duration of which has been significantly shortened by America’s withdrawal from the Syrian conflict. The balance of interests is therefore undergoing a seismic change, with the dollar facing the real prospect of becoming redundant for the most significant aspect of its global use.
But if you dump your petrodollars, what do you buy? This is the question which China’s geopolitical and monetary policies must now address.
Perhaps the reason why China has been forced to bring forward plans to introduce the oil futures contract priced in yuan is indirectly due to America abandoning control over the Middle East. If so, the loss of American influence over the Eurasian continent will accelerate, and the status of the dollar will sink .
Jansen believes that the oil yuan futures contact to be gold backed will not happen as of yet
Koos Jansen: The gold-backed oil-yuan futures contract myth
Submitted by cpowell on Sun, 2017-10-15 14:06. Section: Daily Dispatches
10:06a ET Sunday, October 15, 2017
Dear Friend of GATA and Gold:
Gold researcher and Chinese gold market expert Koos Jansen today argues that the Nikkei Asian Review’s September 1 report asserting that China is planning an oil futures contract somehow “backed” by gold —
— is full of holes.
“China hasn’t announced anything but an oil-yuan futures contract. Gold has nothing to do with it.
Yuan can technically be spent on gold at the Shanghai Gold Exchange but gold in the Chinese domestic market (the Shanghai Gold Exchange system) is not allowed to be exported. Gold from the Shanghai Gold Exchange International is allowed to be exported but is bought in the international market via yuan with U.S. dollars.
“Foreign enterprises, like oil producers, cannot hedge gold on the Shanghai Futures Exchange. The Shanghai Futures Exchange is not open for international customers. There is only a spot-deferred product listed on the Shanghai Gold Exchange, which is comparable to a futures contract, through which foreign enterprises can hedge gold in yuan. But why would oil producers buy gold and subsequently hedge the metal in yuan? Their end position would be merely exposure to the price of yuan. Why then not buy a yuan-denominated bond with an interest rate? Or hold gold without the hedge?”
Jansen’s analysis is headlined “The Gold-Backed Oil-Yuan Futures Contract Myth” and it’s posted at Bullion Star here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Your early MONDAY 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 100,38 POINTS OR .76% /USA: YEN RISES TO 111.83
3. Europe stocks OPENED IN THE GREEN EXCEPT SPAIN ( /USA dollar index RISES TO 93.18/Euro DOWNto 1.1805
3b Japan 10 year bond yield: FALLS TO -+.064/ 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:: 52.26and Brent: 58.32
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 or Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund FALLS TO +.390%/Italian 10 yr bond yield UDOWN to 2.052% /SPAIN 10 YR BOND YIELD DOWN TO 1.518%
3j Greek 10 year bond yield FALLS TO : 5.50???
3k Gold at $1304.70silver at:17.44:15 am est) SILVER NEXT RESISTANCE LEVEL AT $18.50
3l USA vs Russian rouble; (Russian rouble UP 20/100 in roubles/dollar) 57.14
3m oil into the 52 dollar handle for WTI and 58handle 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 DEVALUATION SOUTHBOUND
JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 111.83 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 0.97593as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1515 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 +0.390%
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 2.291% early this morning. Thirty year rate at 2.821% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Stocks Rise Oblivious Of Growing Geopol Risks; Oil, Commodities Jump On Kurdish Clashes
World stocks and commodities rose on Monday, boosted by upbeat Chinese data, while U.S. oil futures jumped to a near six-month high as escalating tensions between the Iraqi government and Kurdish forces threatened supply. Global markets digested the large amount of weekend newsflow, and clearly liked what they saw as S&P futures were modestly in the green, as both European and Asian stocks are higher.
The USD is marginally stronger after Yellen’s comments suggest the Fed may look through weak inflation. Still, for those who missed this weekend financial elite extravaganza, Yellen stated that new normal will be lower interest rates than seen historically and that inflation has been largest surprise for the US economy this year. Yellen added that gradual hikes in fed funds rate are likely to be appropriate during next few years and that she will be paying attention to inflation data in the upcoming months, although she guesses that the soft reading will not persist. Meanwhile, Fed’s non-voting soft-hawk Rosengren said 3 to 4 rate hikes next year will probably be appropriate and that the Fed may need to overshoot on rates if unemployment is below 4% while inflation reaches target.
Looking at the big macro picture, via Bloomberg:
The dollar advanced against its major G10 peers and Treasury yields rose after Federal Reserve Chair Janet Yellen said on Sunday her “best guess” is consumer prices will soon accelerate after a period of surprising softness, a forecast echoed by European Central Bank President Mario Draghi and Bank of England Governor Mark Carney.
The Mexican peso hit a fresh five-month low as NAFTA talks revealed aggressive U.S. proposals;
Oil climbed as Iraqi troops moved to take over control of Kurdish fields.
The euro trades under pressure via crosses, EUR/JPY accelerates after breaking lower through 132.00,
JPY one-week calls also bid as they now capture domestic election date of Oct. 22;
EUR/GBP lower as GBP is supported by hawkish comments by Carney on Friday and on news U.K. PM making surprise visit to Brussels today for talks.
Gilts underperform from the open, gilt/bund spread wider by 3bps, short sterling strip bear steepens.
Bunds steadily grind higher; latest ECB sources report saying some ECB members see $3t QE is within market tapering expectations;
Little reaction seen in Spanish bonos to latest Catalonia rhetoric. However, Spanish IBEX underperforms other European equity markets as domestic banks sell off. Eurostoxx and Dax trade flat, miners rally strongly as copper forwards run upside stops through $7000/MT, new YTD high.
Crude futures higher after Iraq forces push into Kirkuk region
IBEX index lags against its counterparts, down -0.7% on Catalan fears with Spanish banks leading the losses. As reported previously, the Catalan Leader suspended independence mandate to pursue dialogue with PM Rajoy, however the letter sent by Puigdemont failed to clarify whether he has declared independence or not, prompting the head of the People’s Party in Catalonia Xavier Garcia Albiol says Puigdemont’s answer shows he is irresponsible. CaixaBank falls 2.4%, BBVA down 1.4%, Bankia down 1.5%; the IBEX is down 2% since independence vote on Oct. 1, vs 1% gain for Stoxx 600 over same period. Elsewhere, Convatec shares fall some 14% after announcing a profit warning, while strength in material names are helping European bourses make slight gains this morning.
The MSIC Asia index was higher by 0.6%, its highest level since November 2007, led by Australia’s ASX 200 (+0.3%) underpinned by strength in commodity related stocks after crude approached $52/bbl and iron ore gained over 4%, while Nikkei 225 (+0.5%) extended on its best levels in over 2 decades. Elsewhere, Hang Seng (+0.8%) outperformed and posted its highest close since December 2007 following stronger than expected Chinese Aggregate Financing, New Yuan Loans and PPI data, although the Shanghai Composite (-0.4%) lagged after the PBoC kept its liquidity operations at a minimal. Meanwhile, China’s ChiNext Index of small-cap shares drops as much as 2.3%, the biggest intraday loss since July 17, amid expectations that liquidity could tighten and as investors turn more cautious ahead of the Communist Party congress this week. “Zhou Xiaochuan’s comments signal that China will move further to rein in financial leverage and is unlikely to maintain an easy liquidity environment,” says Shen Zhengyang, Shanghai-based analyst with Northeast Securities Co.
Overnight, as reported previously, China CPI printed at 1.6% Y/Y, in line with expectations, and down from, 1.8% in August largely due to high year-over-year base effects, but it was PPI to come in smoking hot, jumping from 6.3% last month to 6.9% Y/Y, slamming ecosts and strong PMI surveys.xpectations of a 6.4% print and just shy of the highest forecast, driven by the recent surge in commodity
The Bloomberg Dollar Spot Index rose 0.1 percent as the euro weakened and Spanish shares fell after Spain’s government gave Catalonia a new deadline to back down from its independence claim. The pound extended gains as British Prime Minister Theresa May headed for Brussels to intervene in deadlocked exit negotiations. The Japanese yen increased less than 0.05 percent to 111.81 per dollar.
The Bloomberg Commodity Index gained 0.4% to the highest in six months. West Texas Intermediate crude rose 1.3% to $52.12 a barrel, the highest in two weeks, due to the conflict in Kurdish Iraq. Gold increased 0.1 percent to $1,304.53 an ounce. Copper climbed 2.3 percent to $3.21 a pound, hitting the highest in more than three years. Palladium traded above $1,000 an ounce for the first time since 2001.
Economic data include Empire Manufacturing Survey. Netflix, Schwab and CSX are among companies reporting earnings
Bulletin Headline Summary from RanSquawk
Catalonian uncertainty continues to shadow over markets
EUR marginally underperforms, as CAD benefits from bullish oil markets
Looking ahead, investors will await US NY Fed Manufacturing data
Top Overnight News
Kirkuk: Iraqi forces moved to take over oil fields from Kurdish forces
Fed’s Yellen: ongoing economic strength to warrant gradual rate hikes as soft inflation readings will not persist
ECB’s Draghi: no convincing signs of underlying inflation; would expect higher wage growth at this stage; sees V-shaped path of inflation due to oil prices
ECB QE: GC sees a limit of just over EU2.5t for the QE program based on current rules; enough bonds available to cut monthly purchases to EU30b in Jan. lasting until Sept, according to people familiar
Brexit: U.K. PM making surprise visit to Brussels today to meet EU’s Barnier and Juncker for talks; U.K. MPs holding cross-party talks in a bid to stop “No Deal” style Brexit
Catalonia: regional president does not give yes/no answer to Spanish govt. on independence declaration; defends claim to independence, asks for negotiations; Spanish Deputy PM says Thursday deadline is now activated
Italy: elections could be held March 4 after passage of 2018 budget law: Corriere
China Sept. CPI 1.6% vs 1.6% est; PPT 6.9% vs 6.4% est; M2 Money Supply: 9.2% vs 8.9% est; new Yuan Loans 1.27t vs 1.20t est; agg. Financing 1.82t vs 1.57t est.
S&P 500 futures little changed at 2,553.50
STOXX Europe 600 up 0.2% to 392.30
MSCI Asia up 0.6% to 167.66
MSCI Asia ex Japan up 0.5% to 552.89
Nikkei up 0.5% to 21,255.56
Topix up 0.6% to 1,719.18
Hang Seng Index up 0.8% to 28,692.80
Shanghai Composite down 0.4% to 3,378.47
Sensex up 0.5% to 32,603.26
Australia S&P/ASX 200 up 0.6% to 5,846.76
Kospi up 0.3% to 2,480.05
German 10Y yield unchanged at 0.403%
Euro down 0.3% to $1.18
Italian 10Y yield fell 3.3 bps to 1.815%
Spanish 10Y yield fell 1.1 bps to 1.6%
Brent futures up 1.4% to $57.98/bbl
Gold spot up 0.04% to $1,304.39
U.S. Dollar Index up 0.1% to 93.22
Asia equity markets began the week on the front-foot again after another record setting session last Friday on Wall Street, where softer than expected US CPI figures caused some to rethink the Fed’s hiking trajectory, while the region also digested encouraging Chinese lending and inflation data. ASX 200 (+0.3%) was underpinned by strength in commodity related stocks after crude approached USD 52/bbl and iron ore gained over 4%, while Nikkei 225 (+0.5%) extended on its best levels in over 2 decades. Elsewhere, Hang Seng (+0.8%) outperformed and posted its highest since December 2007 following stronger than expected Chinese Aggregate Financing, New Yuan Loans and PPI data, although the Shanghai Comp. (-0.4%) lagged after the PBoC kept its liquidity operations at a minimal. Finally, 10yr JGBs were initially mildly higher to track recent upside in T-notes and amid the BoJ’s presence in the market for an amount just shy of JPY 1tln in JGBs ranging from 1yr-10yr maturities, but then failed to sustain gains amid the positive risk tone.
For those who missed the main Chinese economic data over the weekend, here are the highlights:
China Sept fiscal revenues CNY 2.27tln +9.2% y/y, spending at CNY 2.02tln, +1.7% y/y.
Chinese New Yuan Loans (CNY)(Sep) 1270.0B vs. Exp. 1100.0B (Prev. 1090.0B).
Chinese Money Supply M2 (Sep) Y/Y 9.2% vs. Exp. 8.9% (Prev. 8.9%)
Chinese CPI YY (Sep) 1.6% vs. Exp. 1.6% (Prev. 1.8%).
Chinese PPI YY (Sep) 6.9% vs. Exp. 6.4% (Prev. 6.3%)
PBoC injected CNY 20bln via 7-day reverse repos; PBoC set CNY mid-point at 6.5839 (Prev. 6.5866)
PBoC Governor Zhou stated that total debt leverage in China is too high and that there is no clear fiscal discipline to restrict local governments; Zhou also stated that China’s economic growth is to hit 7% in H2.
Top Asian News
Japan Shares Rise, Topix Marks Longest Winning Streak This Year
Bad-Loan Recast Failures Portend More Pain for India Lenders
More Factories Go Dark as China’s Expansion Hangs in the Balance
Bitauto Car-Financing Arm Is Said to File for $800 Million IPO
H&M Supplier Crystal Sets Price Range for $574 Million IPO
Li’s H.K. Tower Sells for Record $5.15 Billion, Report Says
Wanda Golf Courses in Chinese Resort Shut Down by Authorities
In Europe, the IBEX lags against its counterparts on Catalan fears with Spanish banks leading the losses. As reported previously, the Catalan Leader suspended independence mandate to pursue dialogue with PM Rajoy, however the letter sent by Puigdemont failed to clarify whether he has declared independence or not. Convatec shares fall some 14% after announcing a profit warning, while strength in material names are helping European bourses make slight gains this morning. UK debt appears to have weathered an early storm, but like Short Sterling remains on the relative backfoot on near term BoE tightening prospects. This follows more policy guidance from Governor Carney at the World Bank/IMF, and precedes Tuesday’s potentially policy-defining inflation reportConsensus is for headline CPI to climb to 3% y/y, but the bias suggests an above forecast print that would see the mandate breached and by inference strengthen the MPC’s resolve to act sooner rather than later (ie in November). Bunds are steady in comparison, and rangebound amidst contrasting drivers (ECB underscoring tapering intentions, but ongoing Spanish/Catalan uncertainty underpinning the EZ safe-haven). Perhaps surprisingly, Bonos not too adversely affected by the latest regional-national Government impasse, and RAGBs also holding in despite an unexpectedly strong showing by the far right in the weekend Austrian election. US Treasuries have eased off Friday’s post-CPI highs, with Fed chair Yellen still predicting higher inflation ahead and repeating that the wage components in the latest jobs data are encouraging – inference that this is more important than the negative (and obviously hurricane distorted) headline payrolls number.
Top European News
Catalan Leader Defends Claim to Independence, Defying Spain
Spain’s OHL Studies Sale of Concessions Unit, EL Mundo Reports
Cyprus Rogue Borrowers Pose Threat to Sustained Growth
EDP Falls in Lisbon Following Regulator’s Proposal on Tariffs
European Miners Rise to 4-Yr High; Citi Still Bullish on Sector
U.K.’s Johnson Urges ‘Some Serious Negotiations’ in Brexit Talks
Serbia May Present Kosovo ‘Proposal’ in March, President Says
In currencies, morning reports from the Spanish/Catalonian saga, stating that Catalan leader, Puigdemont has suspended the independence mandate to pursue dialogue with PM Rajoy, led to no reprieve in the EUR, which saw a slow, downward grind through the Asian session, as EUR/USD came back to break through Friday’s pre-US inflation data levels. EUR/GBP has come back to trade in the 0.8900 – 0.8750 range, alongside EUR/USD breaking firmly down through 1.18, with participants showing little optimism towards positive Spanish developments. Focus now slowly moves toward the end of October, as EUR/USD volatility sellers suggest more rangebound trade as we approach the ECB meeting. Options continue to play a part in FX markets as the large expiries theme remains, with hedges evident – EUR/USD sees 2.5bln between 1.1760 and 1.1910, and EUR/GBP has 1.7bln rolling off between 0.8885 and 0.8900. The probability of a Fed move in December has declined (as low as 73.2%, according to some measures) , following Friday’s tame inflation report. Some concerns over the US economy continued over the weekend, with comments from Fed Chair Yellen, stating that the new normal will be lower interest rates, further saying that inflation has been the largest surprise for the US economy this year, yet did add that gradual hikes in the Fed Funds rate are likely to be appropriate during the next few years and will pay close attention to inflation in the coming months. DXY remains rangebound, struggling to break into the range seen prior to Friday’s Inflation report. A marginal inflow into the JPY has been seen in early European trade, however, USD/JPY continues to struggle to trade below 111.70, with rangebound price action clear. The day sees no standout economic data on the docket, with trade potentially likely to remain subdued, as investors focus on global concerns given that various geopolitical and political uncertainties remain.
In commodities, oil prices notably firmer with WTI and Brent making a breach above USD 52 and USD 58 respectively, largely as a result of the conflict between Iraqi and Iraqi-Kurdish forces, whereby Iraqi forces have moved into Kirkuk, consequently raising concerns over exports (Kirkuk exports account for roughly 600k). OPEC Secretary General Barkindo stated that OPEC and shale companies share responsibility to rebalance market, while there were also comments from Kuwait that producers need another month before deciding on deal extension and decision may be made in November. Iraqi forces capture Kirkuk’s K1 airbase from Kurdish forces, according to a military statement. Kurdish leaders have agreed to avoid fighting in Kirkuk’s Oil and Gas facilities, according to the Iraqi oil ministry.
US Event Calendar
Oct. 16-Oct. 20: Monthly Budget Statement, est. $6.0b, prior $33.4b
8:30am: Empire Manufacturing, est. 20.5, prior 24.4
DB’s Jim Reid concludes the overnight wrap
There were few inflationary gusts on Friday after the much anticipated US CPI report. After nudging against 2.40% last Friday after a strong US average hourly earnings number, 7 days later the miss on CPI saw 10yr USTs close the week at 2.274% having traded just below 2.33% most of the session before hand. September core inflation rose only 0.13% mom (vs. 0.2% expected) and 1.7% yoy (vs. 1.8% expected). In the details, core services inflation was inline, but the main miss was on the core goods side, which fell 0.2% mom (-1% over past 12 months – the lowest reading since August 2004). Our US team believes some of this weakness should prove transitory (eg: medical care commodities), but there were also more broad based signs of weakness. The team still expects core CPI inflation to remain near recent levels in yoy terms through 2017, albeit with risks that it now rounds down to 1.6%.
This now makes it 6 out of 7 months of misses relative to expectations but a) remember that we’ve previously shown US inflation tends to lag growth by around 18 months and growth was weak at the end of ‘15/ early 16, b) that many at the Fed have recently suggested a bias to look through the ‘temporary’ weakness, and c) the Fed have also made it clear they’re looking more and more at (the very loose) financial conditions in their rate discussions.
So overall, Friday’s number should reduce the risk of a December Fed hike but not perhaps by much. Bloomberg’s calculator has it at 73.3% now, down 3.4ppt versus Thursday’s close. If the usual lag between growth and CPI holds, we still may have weak YoY CPI into Q1 but just as the market gives up on inflation ever rising again, we may get some higher than expected shocks as we move into Q2 2018. Staying with inflation, China’s September CPI was in line at 1.6% yoy, but lower than the prior month, driven by lower food prices. Elsewhere, PPI was notably higher than consensus at 6.9% yoy (vs. 6.4% expected).
Over the weekend, the main movers and shakers of global central banks spoke on inflation, tapering and risks at the annual IMF meeting. Firstly, Mrs Yellen said “my best guess is that these soft readings (inflation) will not persist” and that “with the ongoing strengthening of labour markets, I expect inflation to move higher next year”. On rates, she noted “we expect the neutral level of the federal fund rates to rise somewhat over time” and that “additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion”. On fiscal policy changes, she said “it’s a source of uncertainty”, we have taken “a kind of wait and see attitude”.
ECB’s Draghi also reiterated that he is “confident” inflation will “gradually converge in a self-sustained manner”, but we should be patient, because “it’s going to take time”. On tapering, ECB’s Praet had noted the idea of a bigger reduction in monthly bond buying in exchange for longer duration of the program earlier. When asked by reporters, Draghi said that Praet “had said it very well”. Back on Friday, Bloomberg reported that ECB policy makers are considering reducing the pace of bond buying to €30bn/mth (from €60bn/mth), but for nine more months to September 2018. Elsewhere, Bundesbank President Weidmann noted he does not see the need to further expand monetary stimulus, while the ECB’s Italian governor Visco noted he would prefer not to have specific dates on the unwinding of QE as ECB needs “the flexibility that is in the program”. Given the difference in opinions, we shall find out more at the next ECB meeting next week on 26 October.
Elsewhere, BOE’s Carney reiterated he may need to raise rates in the “coming months” as the UK’s economy is running out of spare capacity. Japan’s BOJ Kuroda noted “achieving the 2% target is still a long way off and the BOJ will persistently [maintain] aggressive monetary easing” and he does not “see risks mounting in the financial markets in the US, Europe and Japan”. This was also backed up by Draghi who saw little signs that “stocks and bonds are having valuations that are stretched when compared to historical averages”.
Finally, China’s PBC Governor Zhou noted that “6.9% economic growth may continue in the second half”. He also said “the main problem (in China) is that the corporate debt is too high” and that while debt servicing costs remain low, “we need to pay further efforts to deleveraging and strengthen the policy for financial stability”. Zhou flagged that some of China’s corporate debt includes borrowing from financing vehicles owned by the local governments, so if redefined, corporate debt / GDP is closer to c125% than the official figure of 160%, while government debt would be 70% of GDP (vs. 36%). Elsewhere, he said the asset management business is “a relatively chaotic situation”, partly due to three different regulators with different sets of rules. For those who have missed it, our note “The next financial crisis” takes a closer look at this and other developing risks.
Overnight, South Korean military officials warned North Korea may be preparing for another round of missile launches, while US and SK navies have begun a joint drill involving 40 warships. Elsewhere, US Secretary of State Tillerson said he will continue with diplomacy measures with NK “until the first bomb drops”. This morning in Asia, markets havefollowed the positive lead from the US and are trading higher. The Kospi (+0.12%), Nikkei (+0.68%), ASX 200 (+0.63%) and Hang Seng (+0.81%) are slightly higher as we type.
In Austria, the centre-right People’s Party (OVP) leader Sebastian Kurz is expected to become the world’s youngest government leader (aged 31). Of the votes counted (c85%), the Interior Minister Sobotka said the OVP received 31.4% (vs. c33% in late polls per The Independent), while the Social Democrats party has 26.7% (vs. 24.4%) and the Freedom Party (FPO) has 27.4% (vs. c26%). A renewed coalition between OVP and SPO is seen as less likely, which makes the far right, anti-immigrant and euro-sceptic FPO party in a strong bargaining position when forming the next coalition government. This would mark the FPO’s first return to government since 2005. So it will be interesting to see what a potential OVP & FPO tie up would mean for Europe on issues such as immigration and deeper EU integration.
Over in Germany, Merkel’s CDU party has likely suffered the worst election result since 1959 in the northern state of Lower Saxony (home state of Volkswagen with 7.8m people). The Social Democrats Party (SPD) was the big winner, with official preliminary results putting the SPD as winning 36.9% (+4.1ppt from 2013) of the votes, while Merkel’s party came second, wining 33.6% (-2.6ppt). The loss is unlikely to shift the power mix at the state level as the Social democrats and the Green already govern the state, but the softer sentiment for her party could have follow on implications ahead of Merkel’s talks with potential coalition partners (likely the Greens & FDP) this week, in order to form the next federal government.
Indeed UK PM May is expected to travel to Brussels and meet with EC Commission President Junker and Chief Brexit negotiator Barnier for Brexit talks today. According to her office, the trip has been in her diary for some time, but has only now been publicly announced. We wait and see whether her efforts will improve the chance of some resolution ahead of the EU Summit meeting later this week. Elsewhere tomorrow’s Euro and UK CPI will be a focal point as will the 57 S&P 500 companies reporting. Today, Spain and Catalonia will be back in the spotlight with Catalan President Puigdemont due to face a deadline to clarify to the Spanish Government Catalonia’s position on independence. For the full week ahead we’ve copied the text from “Next week, this week” at the end.
On the US fiscal front, optimism and pricing of a deal has again faded but the next key step is the adoption of a budget by the Senate (expected to be later this month), which should be followed by a House-Senate conference to agree on a common FY18 budget. As DB’s fixed income weekly explains, the base case is that the House will converge towards a plan consistent with the Senate’s USD1.5 trillion deficit target (relative to the CBO baseline) and assuage deficit hawks with the prospects of higher growth reducing the deficit relative to this target. The final tax reform is more likely to amount to a more modest tax cut with a relatively limited impact on GDP. However, the increase in deficits will still be relevant to bond markets from a flow perspective.
Quickly recapping the markets performance on Friday. Equities (S&P +0.09%, Stoxx 600 +0.29%) edged higher back towards their record highs. Within the S&P, HP rose 6.42% post results, while bank results were mixed with WFC down 2.75% following an unexpected $1bn legacy legal charge and softer revenue trends, while BofA gained 1.49%, partly due to improved cost discipline.
Bond markets were broadly firmer following the US CPI miss and stronger than expected retail sales. Core bond yields fell 4-5bp at the 10y part of the curve (UST: -4.5bp; Bunds -4.1bp; OATs -4.6bp), but Gilts underperformed (-1bp). The US dollar index was broadly flat (+0.04%) while Sterling gained 0.17% but the Euro dipped 0.08% versus the Greenback. In commodities, WTI oil rose 1.68% following reports of lower US crude stockpiles, and continues to edge higher this morning as fighting broke out between Iraqi and Kurdish forces near Kirkuk. Iron Ore rallied 4.06% to $62.53/ton following China trade figures that showed a three year high for monthly ore imports.
Before we take a look at today’s calendar, we wrap up with other data releases from Friday. Excluding the CPI miss, other US macro data were broadly stronger than expected. The September retail sales (ex-auto & gas) beat expectations at 0.5% mom (vs. 0.4% expected), while the University of Michigan’s October consumer confidence also beat at 101.1 (vs. 95 expected). Elsewhere, the August business inventories print was in line at 0.7% mom. In Europe, the final readings of September CPI for Germany and Italy was unrevised, at 1.8% yoy (flat mom) and 1.3% yoy respectively.
Looking at the day ahead, in Europe the August trade balance reading for the Euro area is the sole release due while in the US the October empire manufacturing print is due. Away from the data Spain and Catalonia will be back in the spotlight with Catalan President Puigdemont due to face a deadline to clarify to the Spanish Government Catalonia’s position on independence. Earnings wise, Netflix results are likely to be the most significant.
3. ASIAN AFFAIRS
i)Late SUNDAY night/MONDAY morning: Shanghai closed DOWN12.05 points or .36% /Hang Sang CLOSED UP 216.37 pts or .76% / The Nikkei closed UP 100.38 POINTS OR .47/Australia’s all ordinaires CLOSED UP 0.55%/Chinese yuan (ONSHORE) closed DOWN at 6.5900/Oil UP to 52.26 dollars per barrel for WTI and 58.32 for Brent. Stocks in Europe OPENED IN THE GREEN EXCEPT SPAIN . ONSHORE YUAN CLOSED DOWN AGAINST THE DOLLAR AT 6.5900. OFFSHORE YUAN CLOSED STRONGER TO THE ONSHORE YUAN AT 6.5780AND //ONSHORE YUANS WEAKER AGAINST THE DOLLAR/OFF SHORE STRONGER TO THE DOLLLAR/. THE DOLLAR (INDEX) IS STRONGER AGAINST ALL MAJOR CURRENCIES. CHINA IS NOT PARTICULARLY HAPPY TODAY.
3a)THAILAND/SOUTH KOREA/NORTH KOREA
Satellite images show that North Korea is preparing another ballistic missile launch
Satellite Footage Shows North Korea Preparing Ballistic Missile Launch Ahead Of US Naval Drills
Echoing a report from earlier this week, when on Wednesday the Seoul-based Asia Business Daily reported that North Korea is preparing to fire multiple short-range rockets around the opening of the Chinese Communist Party’s twice-a-decade congress on Oct. 18 – arguably the year’s most important geopolitical event – on Saturday the South Korean press claimed that “North Korea is believed to be preparing to launch a ballistic missile ahead of an upcoming joint naval drill by the US and South Korea”, according to a government source.
The Donga Ilbo daily said satellite pictures show ballistic missiles mounted on “transporter erector vehicles” and being moved out of hangars near Pyongyang and in the North Phyongan Province. US and South Korean military officials suspect the North might be preparing to launch missiles capable of reaching US territory, the newspaper said.
A defence ministry spokesman declined to comment on the report, saying: “we don’t comment on any matters of military intelligence” but added that “we are keeping a close watch over the North.”
Quoted by AFP, Donga Ilbo said that US and South Korean military officials suspect the North might be preparing to launch missiles capable of reaching US territory, and that this could be the Hwasong-14 inter-continental ballistic missile, whose range could extend to Alaska, or Hwasong-12 intermediate-range missiles which Pyongyang threatened to fire towards the US Pacific territory of Guam in Augus . Another possibility is that the North might be preparing to test a new Hwasong-13 ICBM, it added, that has a longer maximum range than the other two missiles and could potentially reach the US West Coast.
On Friday, the US navy said that a US aircraft carrier will lead a joint naval drill between the US and South Korea in the coming week. The drills, led by the USS Ronald Reagan aircraft carrier, are scheduled to begin on Monday in waters east and west of South Korea. The 10-day exercise, which will include the USS Stethem and USS Mustin Arleigh Burke-class guided missile destroyers, will check the allies’ “communications, interoperability and partnership,” the United States Navy’s 7th Fleet said in a statement.
The training mission comes after hectic US military hardware movements around the Korean peninsula in recent days. These follow a flurry of missiles from Pyongyang, which conducted its sixth and most powerful nuclear test last month in defiance of international sanctions. Also on Friday the nuclear-powered USS Michigan submarine arrived at the southern South Korean port of Busan, just days after another nuclear-powered submarine – the USS Tuscon – left after a five day visit.
The drill will also be the latest show of force against North Korea, as tensions soar over the hermit state’s weapons programme, and will likely rile Pyongyang which has previously responded angrily to joint exercises.
Indeed, as the two nations prepare for next week’s joint naval exercise, North Korean officials on Friday renewed their threat to launch ballistic missiles near Guam. An op-ed published by Pyongyang’s KCNA state news agency said: “We have already warned several times that we will take counteractions for self-defense including a salvo of missiles into waters near the US territory of Guam, an advance base for invading the DPRK, where key US bases are located.”
“The US military action hardens our determination that the US should be tamed with fire and lets us take our hand closer to ‘trigger’ for taking the toughest countermeasure,” Kim Kwang Hak, a researcher at the Institute for American Studies of North Korea’s Foreign Ministry, said in the op-ed.
KCNA’s statement also came on the heels of a flyby of two US Air Force B-1B Lancer strategic bombers over the Korean Peninsula in a show of force on Tuesday night. Two B-1Bs took off from Guam and traveled in the vicinity of the Sea of Japan, staging an aerial exercise with Japanese and South Korean combat aircraft in the middle of the night.
* * *
In any event, local experts are concerned. On Friday, a researcher at the Institute for American Studies at the North Korean Foreign Ministry warned that the joint exercise, as well as a flight by two American B-1B bombers over South Korea on Tuesday, would compel the North to “take military counteraction.” Additionally, professor Yang Moo-Jin of the University of North Korean Studies said it was “highly likely” that the North could launch missiles in response to next week’s joint navy drill.
President Trump’s continued threats of military action against Pyongyang if it does not tame its weapons ambitions have fuelled fears of conflict on the Korean peninsula. But military intervention against North Korea would have “devastating consequences”, NATO chief Jens Stoltenberg warned Friday, after Trump said diplomatic efforts had failed.
Today, the USA deploys special forces into the Korean peninsula and on board is a special “decapitation” team: the team’s primary goal is to remove the commander in chief of the enemy
US Deploys Special Forces “Decapitation” Team To South Korea
Today, the South Korean and U.S. navies kicked off massive combined drills off the coast of the Korean peninsula amid heightened tensions, a training exercise which North Korea has warned may prompt another ballistic missile launch potentially to coincide with the launch of the Chinese 19th Party Congress on October 18. The two allies plan to continue the Maritime Counter Special Operations Exercise (MCSOFEX) through Friday in the East Sea and the Yellow Sea.
As reported over the weekend, the drill involves the U.S. 7th Fleet’s aircraft carrier USS Ronald Reagan (CVN-76) and two Arleigh Burke-class destroyers – the USS Stethem (DDG-63) and the USS Mustin (DDG-89). The carrier strike group will train with South Korean warships and other defense assets, such as the Sejong the Great Aegis ship and P-3 Orion anti-submarine aircraft in the East Sea.
And while details of the drill were well-known in advance, what was reported for the first time overnight from Yonhap is that a unit of U.S. special forces tasked with carrying out “decapitation” operations is also aboard a nuclear-powered submarine in the group, according to a defense source. So far, little else is known about why said decapitation team is on location, or whether it will be put into use, although it presence may explain Trump’s “calm before the storm” comment that beffudled the media two weeks ago.
Among other assets mobilized for the joint drill are F-15K, FA-18 and A-10 fighter jets, as well as AH-64E Apache attack helicopters, Lynx and AW-159 Wild Cat naval choppers. The U.S. has also deployed a Joint Surveillance Target Attack Radar System (JSTARS) plane to closely monitor the North’s ground and naval forces.
Some more details about the drill from Yonhap:
The joint training is aimed at promoting “communications, interoperability and partnership in the (U.S.) 7th Fleet area of operations,” the fleet said. It initially announced that the practice around the peninsula will end next Thursday but later corrected the date to Friday. Meanwhile, the U.S. has sent a B-1B Lancer strategic bomber, F-22 Raptor stealth fighter jets and several other types of high-profile defense assets to the Seoul air show to open this week.
“Approximately 200 U.S. personnel are expected to participate in the Seoul International Aerospace and Defense Exhibition (ADEX) 2017, scheduled from Oct. 17-22 at the Seoul K-16 airport,” the 7th Air Force said.
Among the U.S. military aircraft to join the biennial event are the F-22 Raptor, B-1B Lancer, A-10 Thunderbolt II, C-17 Globemaster III, C-130J Hercules, KC-135 Stratotanker, E-3 Sentry, U-2 Dragon Lady and RQ-4 Global Hawk, it added. Also fielded will be the Air Force’s fifth-generation fighter, the F-35A Lightning II, U.S. Navy P-8A Poseidon and a U.S. Army CH-47F Chinook.
“This year’s air show will feature demonstrations from U.S. Air Force F-22 Raptors assigned to the 3rd Wing, Joint Base Elmendorf-Richardson, Alaska,” the 7th Air Force said. More than 400 defense firms from 33 countries plan to participate in the ADEX to begin Tuesday.
As part of the drills, the US military said on Monday that it would practice evacuating noncombatant Americans out of South Korea in the event of war and other emergencies, the NYT reported. The evacuation drill, known as Courageous Channel, is aimed at preparing American “service members and their families to respond to a wide range of crisis management events such as noncombatant evacuation and natural or man-made disasters,” the United States military said in a statement.
The South Korean government of President Moon Jae-in has repeatedly warned that it opposes a military solution to the North Korean nuclear crisis because it could quickly escalate into a full-blown war in which Koreans would suffer the most, with some estimates predicting that over 2 million South Koreans could die in the North Korean retaliation.
Meanwhile, on Monday, North Korea accused the US of “pushing” the DPRK into making a hydrogen bomb, the head of North Korea’s delegation to the multinational Inter-Parliamentary Union (IPU) meeting has said.
“Exactly the US have pushed the DPRK [Democratic People’s Republic of Korea] to become a possessor of the hydrogen bomb,” the deputy chairman of the Supreme People’s Assembly of North Korea, An Tong Chun, announced Monday. The North Korean official was speaking at the assembly of the world’s oldest international body of lawmakers in St. Petersburg, Russia. Parliamentarians from more than 160 nations are attending the IPU session.
The question now is whether North Korea will once again test said Hydrogen bomb and, if so, whether the crack “decapiation” team meant to take out North Korea’s leadership will be put to use.
b) REPORT ON JAPAN
3. CHINA REPORT
China’s CPI came in as expected but it recorded a smoking hot 6.9% PPI (a forerunner to inflation)…banks inject another equivalent 250 billion uSA into their economy
Overheating China PPI Sends 10Y Yields To 30 Month Highs As Banks Inject Another Quarter Trillion Dollars In Loans
Despite a disappointing US CPI report on Friday, which saw core inflation miss once again despite an expected spike due to the “hurricane effect”, moments ago China reported that in September, its CPI printed at 1.6% Y/Y, in line with expectations, and down from, 1.8% in August largely due to high year-over-year base effects, but it was PPI to come in smoking hot, jumping from 6.3% last month to 6.9% Y/Y, slamming expectations of a 6.4% print and just shy of the highest forecast, driven by the recent surge in commodity costs and strong PMI surveys.
While there has been no reaction in the Yuan, either on shore or off, the stronger than expected PPI has pushed China’s 10Y yield to the highest in 30 months, or since April of 2015.
Adding fuel to the flame was PBOC head Zhou Xiaochuan who said earlier that China’s GDP would pick up from the 6.9% figure recorded in the first six months of the year “thanks to a boost from household spending”, according to a synopsis of his comments at the G30 International Banking Seminar posted to the People’s Bank of China website on Monday.” The reason why his comments have impacted the long-end is that the reported, and completely fabricated number, is higher than the previous consensus forecast of a goalseeked Q3 Chinese GDP of 6.8%.
And while spiking Chinese yields wouldn’t be concerned if China was indeed deleveraging as the Communist Party and the PBOC claim it is doing, the reality is, of course, that China continues to add more and more debt as the latest weekend credit numbers out of the PBOC revealed. As Bloomberg reported earlier, China’s broadest credit aggregated, Total Social Financing, jumped to 1.82 trillion yuan, or over a quarter trillion dollars in September ($276BN to be precise), vs a Wall Street estimate of 1.57 trillion yuan and 1.48 trillion yuan the prior month. New yuan loans also beat expectations, at 1.27 trillion yuan, versus a projected 1.2 trillion yuan, while for the first time in months, the broader M2 money supply did not hit fresh fresh record lows, and instead beat expectations, rising to 9.2% from an all time low of 8.9%.
Just as notable, after China’s shadow banking credit appeared to have finally been tamed after several months of contraction, shadow banking finance saw a pick-up in Sept (trust loans, entrusted loans and undiscounted bills), which accounted for 22% of Sept TSF vs. 18% in August. This was due mostly to milder deleveraging pace post the completion of self-checking of CBRC regs
Commenting on the latest burst of credit creation by China, Kenneth Courtis, chairman of Starfort Investment Holdings and a former Asia vice chairman for Goldman Sachs Group, said that “Momentum continues to be very strong. Loan demand of the private sector has finally turned up in recent months.”
It also means that just two weeks after the PBOC cuts its RRR for most banks in an unexpected monetary easing on Sept 30, “there is little hope of further policy easing in the fourth quarter as the monetary policy is very accommodative,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “There could be even a tightening bias.”
Of course, confirming what we have been saying for years, Christopher Balding who is an associated professor in Peking Univeristy in Shenzhen said that “deleveraging is not happening if we look at any measure of credit growth” and that “lending in 2017 has actually accelerated significantly from 2016.” This is shown in the chart below, which confirms that to keep its GDP at 6.9% or some other goalseeked number, China has to inject more than double that amount in credit every single month, in this case 15%. The biggest question is what happens to China’s credit impulse after the 19th Party Congress which begins on Wednesday.
When looking at the boost in household spending noted above by Zhou Xiaochuan, all of this is the result of a surge in household lending: “Household short-term loans have increased too rapidly, with some funds being invested in stock and property markets,” said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. “Regulators have started to pay attention to the sector and required banks to strengthen credit review. I think the momentum will show signs of slowing in the fourth quarter.”
Commenting on the recent burst in Chinese household leverage, where short-term household loans soared to 1.53 trillion yuan, versus 524.7 billion yuan this time one year ago, Deutsche Bank’s Hans Fan writes that “noticeably China households are levering up quickly. We welcome the personal loans driven by genuine consumption growth, but there may be a notable portion of short-term consumer loans that were used to finance property purchases, which in our view contains higher risks.”
Some more details:
A breakdown by borrower suggests household and corporate sectors continued to lever up, making up 31%/41% of new system credit in Sept (35%/38% in Aug). For households, while mortgage growth had slowed, s/t retail loan growth accelerated to 17.6% yoy in Sept (vs. 15.8% in Aug or 7.3% in 1Q17) to make up c.10% of credit creation. We attribute this to both decent consumption growth with rising credit penetration and property-related lending. We estimate 1/3 of new consumption loans may be used to finance purchases of second homes. However, PBOC and local CBRC offices have started to crack down on property-related consumer loans in September and we expect consumer loan growth momentum to moderate in the coming months
Pepe Escobar highlights history with respect to the Spanish Civil war in 1936 with the accession of Franco. He is afraid that Madrid’s response to Barcelona’s request for dialogue will end up in a lethal response
The Spanish Civil War, Revisited: Pepe Escobar Fears “Lethal Response” From Madrid
Authored by Pepe Escobar via The Asia Times,
Puigdemont’s political twist could invoke a lethal response from Madrid: suspension of Catalonia’s government
Call it theatre of the absurd – with a lethal subtext. Under pressure from all corners – even Donald Tusk, president of the EU Council – in his fateful date with destiny Carles Puigdemont, President of Catalonia, came up with some last-minute judo dialectics. He issued a non-denial denial Unilateral Declaration of Independence from Spain. What was declared was immediately suspended; the Republic of Catalonia lasted for six seconds.
The deft political gambit left Madrid predictably bewildered. Prime Minister Mariano Rajoy, a.k.a. nano-Franco, issued an ultimatum; you have five days to say if you declared independence or not.
Independent of the answer, Madrid’s nuclear option remains on the cards; infamous article 155 of the Constitution, which calls for the suspension of Catalonia’s government and parliament from six to 12 months.
Yet that may come with a twist; an article 155 in slow motion, parallel to the hazy offer of starting a process, in six months maximum, leading to Spanish constitutional reform. Madrid needs Catalonia for this reform to succeed. So, essentially, Puigdemont just needs to say “no” for the train to start rolling.
It’s way more complex than it seems. The Catalan extreme left, up to the last minute, was trying to convince Puigdemont to proclaim unconditional independence. At the same time, those six seconds left Catalan unionists predictably furious. Moderates for their part prefer to see a faint light at the end of the tunnel.
The problem is that even with discreet back channels in place, Madrid’s strategy is to ultimately force a fissure in the independentist coalition; secession inside Catalonia to prevent secession from Spain. So far, the fissure has been prevented by some members of the Catalonian Parliament signing a declaration of support for the – still non-existent – republic.
Scrap that constitution
The President of the Cantabria region, Miguel Ángel Revilla, sums it all up: Rajoy is to blame. Revilla worries that “50% of Catalans want to leave Spain. Four years ago, that was not the case.” He stresses how a “Catalan statute – approved by the Catalans and the Spanish Parliament – was impugned by the Constitutional court, so they had to be mad, right? It did not deal with independence, it was a pact, delineating a series of obligations.”
So the unwillingness of the Spanish government to talk, according to Revilla, is what led to the current impasse. No wonder; Rajoy is closely advised by former Prime Minister José María Aznar.
The extremely reactionary administration in place in Madrid could have defused the bomb even before the referendum, by mobilizing sectors of the working class in Catalonia whose first language is Spanish, not Catalan; many of these view the independence dossier as a “war of the elites”.
Madrid though opted for Franco-ist repression tactics. King Felipe VI had one chance to appeal for calm and reunite the nation; he chose to play Scaremonger-in-Chief. EU “leaders” stuck to platitudes, like Rothschild favorite Emmanuel Macron extolling his “profound” vision of an integrated Europe and Chancellor Angela Merkel abdicating from her role of Dispenser of Wisdom; after all, this is not Crimea.
The European Commission (EC), losing the scarce credibility it still possessed, sharply ignored its own “core values”; the rights of national minorities enshrined in Article 2 of the EU founding treaty, as well as Article 21 of its charter of fundamental rights.
Podemos has some decent ideas to “save Spanish democracy”.
Yet there seems to be only one sensible road map ahead.
Kick out the incompetent, nano-Franco administration, which does not want any dialogue; a tough call in a nation so viscerally conservative as Spain.
Explain to everyone in Catalonia, especially the different strands of the working class, what independence would mean in practice – something the current “leaders” are incapable of. Catalonia – one of the EU’s wealthiest regions – in or out of the EU? Trading in which currency? Without an army? Able to manage a neighboring hostile power (Spain) and not recognized by France?
Launch a comprehensive national dialogue process to reform the outdated 1978 constitution – privileging a modern, federal charter, emphasizing more consensus among regions, and considering the concerns of at least 25% of hardcore independentists in Catalonia.
None of this seems to be on the cards – and that’s why the real tragedy is only beginning. Spain is already broken – and there will be no turning back.
Calling Rosa Luxemburg
The temptation to strike parallels with Europe a century ago are strong. What about adapting Rosa Luxemburg’s latest, searing essay before she was assassinated in January 1919; “You stupid henchmen! Your ‘order’ is built on sand.” At the same time Rosa Luxemburg warned the Left about the petty-bourgeois nationalisms emerging after the collapse of the Habsburgs (the exception was Czechoslovakia.)
“Catalanism” – which sprang up in the 19th century – is a different beast though. The Barcelona-Madrid fissure is based on deep economic/fiscal reasons, amplified by the dire consequences of the financial crisis in Spain since 2008. Catalonia’s nationalism is not narrow-minded but inclusive, largely open to The Other – from other parts of Spain and abroad.
The intractability of the political problem is that Catalonia – the most European of all Spanish regions and historically in favor of republicanism and federalism – contests the very essence of the Spanish system. To scrap this outdated constitution – written immediately after Franco’s demise and drenched in amnesty for Franco-ists – is as important as self-determination. To say that the Bourbons face a legitimacy crisis is a major understatement.
Madrid’s actions on Referendum Repression Day – led by a Franco-ist partisan of torture, infamous General Bum-Bum – could not but revive the memory of Catalonia as the key anarchist/republican hub during the Spanish Civil War; the Civil Guard in itself represents the memory of Francoism. It’s understandable how separatists prefer to discard the historic/ financial heavy load when they see the impossibility of a true modernization of Spain.
The prospect of an implosion of this current Spanish state – with repercussions everywhere from the Basque country to Scotland – should be driving Europeans east and west to think hard about all the interconnections between city, territory, nation, state and (European) union; a healthy exercise in political economy thinking.
Instead, once again, we have total Brussels paralysis. There’s no plan B. Worse; there’s no political will, as some Greens at the European Parliament have remarked. No wonder, with EU “leaders” as mediocre as the Juncker/Tusk bunch, and the number two of the EC, Dutch jurist Frans Timmermans, saying that “sometimes the rule of law must be preserved by a proportionate use of force.”
Brussels, facing the prospect of a region that may leave in one go not only the EU but also the euro, is incapable to see that the Spanish fracture is a microcosm of the nation-state fracture inside the EU. The Juncker/Tusk unconditional support for nano-Franco cannot but be interpreted all across progressive European circles for what it is; what good could possibly emerge out of “mediation” by these non-entities? It’s civil society, in tandem, in Spain and Catalonia, that should be the mediators. One wonders if they’re up to the task.
HOURS TO GO BEFORE PUIGDEMONT DECLARES HIS POSITION WHETHER CATALONIA SEEKS INDEPENDENCE. REGARDLESS OF OUTCOME, IT LOOKS LIKE WE WILL HAVE REGIONAL ELECTIONS. CATALONIA ALSO PROPOSES ITS OWN CENTRAL BANK
With Just Hours Until Spain’s Ultimatum Runs Out, Catalonia Proposes Its Own Central Bank
It’s D-Day for Catalan President Carles Puigdemont who has just a few hours left until 10 am on Monday (4am ET) to respond to the Spanish government’s ultimatum delivered last week by the prime minister, demanding to know whether Puigdemont did, indeed, declare independence last week. If Puigdemont says yes, fails to respond, or provides another meandering answer, Rajoy will start the process under Article 155 to seize control of the breakaway administration in the coming weeks.
While Catalan television station TV3, which is controlled by the regional government, said Puigdemont will not give Rajoy a clear ‘Yes’ or ‘No’ according to Bloomberg, shortly after Jordi Sanchez, leader of separatist group Catalan National Assembly, denied the report and said that, after speaking to Puigdemont on Sunday, the Catalan reply to Rajoy “will be clear.” Speaking to Spanish broadcaster La Sexta, Sanchez said he agrees 100% with Puigdemont’s reply to Spanish Prime Minister Mariano Rajoy, and that the response will be dignified and clear with no surprises, adding that a will for dialogue exists but the Catalan government will not renounce mandate given by the Oct. 1 independence referendum.
Meanwhile, El Mundo reported that Spain’s central government in Madrid is weighing two options it may impose on Catalonia if the region’s government unequivocally declares independence, El Mundo reported, without saying where it got the information. Madrid would either name a caretaker administration or a unity government made up of representatives of all parties, the newspaper said per Bloomberg. Regional elections would then be called in three to six months, according to the report. It adds that while Replacing the rebel government would require the state using special powers under Article 155 of the Spanish Constitution. that action is not imminent, and may not be taken if the Catalan government demonstrates it hasn’t broken away from Spain and instead will abide by Spanish law.
Earlier on Sunday, Puigdemont appealed for calm ahead of Monday’s deadline: “The (Catalan) Government and I want to reiterate our commitment to peace, civility and serenity, and also to (…) democracy as inspiring the decisions we have to make,” Puigdemont said during at a memorial event at Barcelona’s Montjuic cemetery. “In these difficult hours of hope in Catalonia, let’s take a clear attitude against violence (…) in favour of civility, hope, serenity and respect.”
In any event, Rajoy will demand that Puigdemont clear up his “deliberate” confusion over Catalan independence.
“The pressure building on Puigdemont is absolutely enormous,” Angel Talavera, an analyst at Oxford Economics in London, told Bloomberg. “Anything that looks at all non-committal is going to make the government act” against his regional government.
As Bloomberg adds, “this week is shaping up to be a possible watershed for the region, a $250 billion economy that’s seen dozens of its largest companies announce they’ll move elsewhere in Spain rather than face the legal limbo of secession.”
Here are the three possible outcomes tomorrow:
The best case for Spain is that Puigdemont, 54, renegs on his referendum promise and states clearly he didn’t actually declare independence for Spain’s largest regional economy. At that point his separatist alliance might start to unravel. That sets Catalonia on track toward early regional elections with an uncertain outcome to the balance of power, which currently runs in favor of separatism.
Alternatively, the worst case is – obviously – the opposite: should the Catalan leader and fomer journalist assert he did declare independence, Rajoy will use Article 155 of the Spanish Constitution to take direct control of the Catalan administration and sideline Puigdemont and his team. In that scenario, Rajoy eventually would have to call regional elections himself in order to return to normality.
A third option would be for Puigdemont to call regional elections himself. That would bring the Catalan political process back in line within the Spanish rule of law, allow a more measured debate on the rebel region’s future and may buy the president a couple more months in office at least.
To summarize Puigdemont’s deilmma, if he says he does proclaim independence, the central government will step in. If he says he did not, the far-left Catalan party CUP would probably withdraw its support for his minority government.
“The end-game looks the same whatever Puigdemont does, Catalonia is probably headed for regional elections,” said Talavera.
And as the world, and traders, await with bated breath to hear Puigdemont’ answer, at least 531 companies have already made their decision and transferred their legal bases out of Catalonia to other parts of Spain since the Oct. 1 referendum, according to El Mundo citing data from Spain’s College of Registrars. Furthermore, Spain’s largest banks have agreed not to recognize the government of Catalonia if it declares independence this week.
However, in a sign that Puigdemont may just force Rajoy to activate the “nuclear option”, late on Sunday Spain’s Efe news agency reported that the Catalan government believes the region would continue within the European Union and euro zone if it declared independence, which would require the creation of a Central Bank of Catalonia (BCC) “as a monetary authority of the new country”, with a staff of 500 employees.
While it is unclear if the proposition is a bluff, EFE cited a document that was prepared by the department of the Vice Presidency and Economy and Finance, directed by Oriol Junqueras, which was obtained by EFE, and which detailed what the Catalan economy would look like in a hypothetical republic. It was also unlear if there is any particular role for bitcoin or some other altcurrency in Catalonia’s immedia future, if for some reason, the ECB decided that the breakaway territory would no longer be part of the eurozone, leaving a major question mark over what its future currency would be.
In defiance of Rajoy, Puigdemont gives an evasive reply which in turn activates a second ultimatum deadline
Catalan Leader Defies Spain, Sends Evasive Reply To Rajoy Activating Second Ultimatum Deadline
The Catalan stand-off has been extended until Thursday as both sides hold their ground.
After days of expectation and talks with his separatist allies, Catalan leader Carles Puigdemont stood by his decision to keep his region’s declaration of independence from Spain “in suspension” despite a demand for clarity from Spain prime minister Rajoy, effectively challenging the central government to follow through on promises to forcibly take control of the region by sending an evasive reply to the central government’s Article 155 notification, which on Wednesday began the process of suspending home rule in the region.
The Spanish Prime Minister’s office was seeking a simple “yes” or “no” reply by 10 a.m. on Monday on the question of whether Mr. Puigdemont had or had not declared independence last Tuesday. Anything other than “no”, the First Minister was warned, would lead to the activation of the so-called faced the use of Article 155 of the Spanish constitution. This article is the so-called “nuclear option” which allows Madrid to dissolve the regional government and call fresh regional elections. The central government can also take over the local police force and television channels.
Eventually, Puigdemont chose more obfuscation and defiance: his four-page reply, obtained by Catalan radio stations Catalunya Radio and RAC1 and released by The Spain Report, neither confirmed nor denied he had proclaimed a new Catalan republic last week, but said the declaration remained “in suspension” and proposed two months of dialogue arguing that the Spanish people and Europe will only understand “dialogue, negotiation and agreement.” He did not say what he would do if talks did not take place by the middle of December.
The full letter is below.
“The situation we are living through”, the letter begins: “is of such transcendence that it demands political solutions and replies that are up to the job”. Both “the majority of society” and Europe would only understand a solution based on “dialogue, negotiation and agreement”.
Puigdemont says he was “surprised” by the central government’s decision to begin the process of suspending home rule, and that his proposal of dialogue was “sincere” and “honest”, not “a demonstration of weakness”. He also argued that despite “violent police action”, “more than two million Catalans” entrusted the regional parliament with a “democratic mandate to declare independence”.
Most “no” voters stayed at home on October 1 and opposition parties refused to take part in an illegal referendum campaign. 90% of those who voted chose “yes”. “The priority of my government is to seek the path of dialogue with all intensity… The suspension of the political mandate that came out of the ballot boxes on October 1 demonstrates our firm will to seek a solution and not confrontation.”
Furthermore, in addition to again not replying clearly to the Article 155 notification, and demanding dialogue with the central government, Puigdemont made two specific requests of Madrid.
First, he asked the Spanish government to lift “the repression of the people and government of Catalonia”. That means he would like sedition charges against the chairmen of Omnium Cultural, Jordi Cuixart, and the Catalan National Assembly (ANC), Jordi Sánchez, and Catalan Police chief Josep Lluis Trapero, dropped. He also says fundamental rights in the region have been violated, the Internet and media outlets “censored” and public accounts frozen. He makes a second mention of the “brutal police violence against a peaceful civilian population” on October 1.
The second thing Mr. Puigdemont wants is a meeting with Mariano Rajoy, “that allows us to explore the first agreements” pleading to “let us not allow the situation to deteriorate further.”
* * *
In response to Puigdemont’s non-confirmation – and non-denial – Spanish Prime Minister Rajoy said that Puigdemont’s response was a step toward Article 155, while Deputy Prime Minister Soraya Saenz de Santamaria said the Catalan government now has until its second deadlin, at 10 a.m. on Thursday, to disown its claims to a mandate for independence, and that Catalonia can still avert next steps by Spain.
“It is not difficult for Puigdemont to return to a sensible position” by then, said the Deputy PM, framing the Article 155 process as seeking to return legal government to the region rather than suspend home rule, one which aims to ensure regional self-govt is excercised according to law. She also said that Spain regrets that Puigdemont didn’t reply to PM Rajoy’s demand and that the second deadline of Spain’s demand is now activated.
“It has never been easier for someone to avoid the Constitution being applied.”
She concluded that dialogue can only take place within the law, in parliament, and that Puigdemont cannot keep population in uncertainty.
As for Prime Minister Rajoy, in his response to Puigdemont – also in the form of a letter – he said that he says laments not getting a response from the Catalan leader on whether or not they have declared independence, and said he now expects a clear response in the coming hours before the new and revised Oct. 19 deadline.
And so, today’s Catalan showdown has been pushed back by another three
days as neither side appears ready or willing to back down.
and just to infuriate the Catalans, Madrid seeks to jail popular Catalan police chief, Trapero
Spanish Prosecutors Seek To Jail Popular Catalan Police Chief
In a move that is set to further infuriate the Catalan separatists for whom the breakaway region’s police chief has emerged as a quasi-folk hero, and prompting an even more vocal push for independence, moments ago the Spanish Public Prosecutor’s Office petitioned Madrid Judge Carmela Lamela, investigating charges of sedition in Barcelona on September 20, to jail Catalan Police chief Josep Lluis Trapero on remand, court reporters for Spanish media tweeted
According to Bloomberg, Jordi Sanchez, head of the pro-independence campaign group the Catalan National Assembly, and Jordi Cuixart, who leads the Catalan cultural lobby group Omnium, are also to be interrogated by magistrates.
The judge is expected to make a decision at 6 p.m. on Monday.
According to the Spain Report, Major Trapero first appeared at the National High Court as part of the investigation on October 6, but was allowed to return to Barcelona and remain in his post after the hearing.
The current Spanish criminal code describes the crime of sedition as unlawfully preventing officers of the law from properly enforcing it or otherwise executing their duties. Organisers of sedition in positions of authority may be jailed for up to 15 years.
People’s Party (Foreign Minister Sebastian Kurz) 30.5% vs 24%
Freedom Party (Heinz-Christian Strache) 26.8% vs 20.5%
Social Democrats (Chancellor Christian Kern) 26.2% vs 26.8% in 2013
Neos (Matthias Strolz) 5.3% vs 5%
Greens (Ulrike Lunacek) 4.7% vs 12.4%
Liste Pilz (Peter Pilz) 4.3% (didn’t run in 2013)
The preliminary geographic breakdown of Sunday’s election shows that most constituencies voted for the People’s Party:
It remains to be seen if and how Kurz will form a coalition with the anti-immigrant Freedom Party – a historic outcome for the nationalist party which could enter government for the first time in history – however one thing is clear: just like in Germany, where Merkel’s CDU/CSU suffered its worst result since 1949, so in Austria the “establishment” SPÖ, or Social Democrat party just suffered what Europe Elects described as the “worst result since Hitler rule.”
We now await the market’s reaction to the news that Europe’s populist anti-establishment, anti-immigrant revolt, considered to have been dead and buried following the French elections, was not only revived after last month’s German election, but is once again thriving
FOR FULL REPORT SEE:
Theresa May heads to Brussels trying to get the stalled talks revived
Theresa May heads to Brussels for another surprise Brexit dinner hoping to get the stalled talks revived
After her disastrous speech at the Conservative party conference, Theresa May is in desperate need of some good news as she puts her reputation on the line by unexpectedly heading to Brussels and personally intervening in the stalled Brexit talks. News of the meeting came as a surprise to some in Westminster, although 10 Downing Street insisted that tonight’s dinner with EU leaders “had been in the diary for weeks.”
Unfortunately for Mrs May, the precedent for Brexit dinners is neither successful nor enjoyable. As the Telegraph reports, last time Mrs May had dinner with EU Commission President, Jean Claude Juncker, in April, Mr Juncker “was reported to have launched a scathing attack on Mrs May…saying that Brexit ‘cannot be a success’.
Maybe he’d had too many cognacs again.
Yesterday, in an effort to tip the odds slightly more in her favour, May phoned the only person that Mr Juncker might take instructions from, Angela Merkel. Downing Street claimed that the phone conversation focused on Iran (right), but acknowledged that they agreed on the importance of “constructive progress” in the Brexit negotiations. According to the FT “Theresa May has personally urged Angela Merkel to end the Brexit stand-off at this week’s EU summit in Brussels after Berlin and Paris led moves to toughen the EU’s negotiating line in the next phase of talks.”
Inexplicably, the Germans and the French were concerned that a draft statement for this week’s summit might raise UK hopes about what could be achieved in December 2017. This is the next time that EU leaders gather to assess whether enough progress has been made on negotiating the monetary settlement to begin talks on the future relationship (transition and trade, etc).
The FT quotes a colleague of Mrs May as saying “We’ve almost run out of things to talk about…it comes down to money.”
There seems little hope for Mrs May if Merkel is backing a tougher negotiating stance and, right from the start, the EU has put money first, everything else second.
The following summary of the key issues in the “divorce bill” comes from today’s Telegraph. It will be calculated based on the following:
The ongoing EU budget. The current EU budgetary period began in 2014 and continues until 2020 – a year after the UK is expected to withdraw. EU negotiators argue that the UK government voted to contribute funding to, for example, long-term infrastructure projects, until 2020. The UK government would rather these funding commitments ended in 2019.
Liabilities for loans. The UK has backed EU development lending to other member states, for example Ireland, Ukraine and Portugal. The EU wants us to make funds available to cover the chance of these loans defaulting. This money would eventually be repaid as each of the loans clears.
Pension promises. The UK would be expected to cover the pension contributions of EU officials employed during its membership period.
Other expenses. For example, two European Union agencies are currently based in the UK. The European Banking Authority and the European Medicines Agency will need to relocate after Brexit.
Considerations reducing this amount will be:
The UK’s standard rebate from all EU contributions.
A discount of whatever future EU spending had been allocated to the UK
A share of assets, such as capital from the European Central Bank or the value of European Union buildings built during our membership
If May cannot make progress and the chances of a “no-deal” Brexit rise, her position will be further undermined as MPs from her own party hold talks with the opposition Labour Party for a parliamentary veto of a no-deal Brexit.
The dinner will start at 18:30 local Brussels time and only last about 90 minutes… which is barely time for Juncker and Barnier to get on to the second bottle.
The pound plummets from 1.3310 down to 1.327 on a report that the Brexit talks are heading for a catastrophic breakdown due to no EU compromise. I doubt very much that the EU will budge
Cable Plummets On Report Brexit Talks Headed For “Catastrophic Breakdown” If No EU Compromise
Having traded near sessions highs most of the morning session, sterling suddenly tumbled (even if Gilts refused to move) following a Bloomberg report that the UK is said to see Brexit breakdown if the EU refuses to compromise. In immediate kneejerk reaction, GBPUSD plunged 50 pips, to session lows on fears that Theresa May’s visit to Brussels will be meaningless and just another opportunity for Juncker to get drunk.
As Bloomberg adds, Brexit negotiations are heading for a “catastrophic breakdown” unless the European Union signals this week that it will allow talks to move on to trade, according to a person familiar with the U.K. government’s position.
While the headline is likely just another trial balloon meant to send a message to Brussles, Bloomberg notes that without a clear sign that negotiations will progress to trade and transition arrangements by December at this week’s summit of European leaders, “the entire Brexit process will be in danger of collapse – and senior British ministers are losing faith in the EU’s willingness to strike a deal”, a Bloomberg source said.
Speaking on condition of anonymity, the person said Prime Minister Theresa May took a political risk by promising to pay into the EU budget and settle the divorce bill in a speech in Florence, Italy, last month and now needs something in return before she can make further concessions. As reported earlier, the assessment comes as the prime minister heads to Brussels for dinner with EU chiefs ahead of a critical summit starting Thursday, and is calling EU leaders individually in last-minute diplomatic efforts. May will spend 90 minutes talking with European Commission President Jean-Claude Juncker and the bloc’s chief negotiator Michel Barnier on Monday in an attempt to break the deadlock in the negotiations.
Some more details from Bloomberg:
Germany and France made clear on Friday they want to toughen the tone of a declaration that’s being prepared for the summit, according to an official familiar with the discussions. The latest draft already offered the U.K. little beyond encouraging words and a call for Barnier to start preparatory discussions on trade talks — but only within the European side.
Talks have stalled because Britain won’t detail how much it’s ready to pay as it leaves the bloc until the EU starts discussing the future trading agreement and the transition that Britain wants to smooth the split. Europe says it won’t do that until May’s government takes steps toward an agreement on the bill. With or without a deal, the U.K. will leave in March 2019.
German Chancellor Angela Merkel and French President Emmanuel Macron are the two key obstacles to allowing talks to move on to trade, according to the first official. Germany has a vested interest in delaying progress in the Brexit talks because Frankfurt is trying to tempt companies away from London, the person said.
Meanwhile, Euroskeptics in May’s Conservative Party want her to “call time” on the negotiations and walk away without a deal. She needs the EU now to create the atmosphere and the space for her to make any further concessions, because her political position at home is so precarious, the person said.
Since so far no compromises have been offered by any Eurocrats, tonight’s unexpected Theresa May dinner and drinks with Juncker could make or break the Brexit process, not to mention cost May her job.
5. RUSSIA AND MIDDLE EASTERN AFFAIRS
The Syrian government is not happy with Turkey’s incursion into Syria as they ask for their unconditional withdrawal. They have stated that Turkey is allied with the terror supporting iSIS. Their real wish is to stop the Kurds from forming an independent Kurdistan
Syria Demands “Immediate, Unconditional Withdrawal” Of “Terror Supporting” Turkey From Its Territory
The Syrian government has issued a strong condemnation of Turkey’s recent military incursion into northern Syria, demanding “immediate and unconditional withdrawal” according to Syrian state media citing the foreign ministry. Though Turkey claims to be acting in accordance with the Astana agreement reached by Russia, Turkey, and Iran, Damascus is now calling the move a departure from the deal and an intentional violation of Syrian sovereignty, while further accusing Turkey of collaborating with al-Qaeda terrorists on the ground in pursuance of an expansionist policy.
On Thursday a large Turkish army convoy consisting of more than 100 Turkish soldiers, including special forces and commandos, along with at least 30 armored trucks entered Syria’s Idlib region for a joint mission ostensibly to monitor a local de-escalation zone and “to pacify al-Qaeda linked militants” there, according to official Turkish statements.
Many analysts, however, predict that Turkey will not directly confront al-Qaeda, but instead will either allow the terror group to secure an exit or will recognize it under a new form or identify while pretending it to be a local organization.
The Syrian foreign ministry said on Saturday, “The Syrian Arab Republic condemns in the strongest terms the incursion of Turkish military units in the Idlib Province, which constitutes to blatant aggression against the sovereignty and territorial integrity of Syria and flagrant violation of international law.” According to SANA Syrian state news, the foreign ministry further noted that Turkey’s military entered Idlib province “accompanied by Jabhat a-Nusra terrorists which shows clearly the close relationship between Turkish regime and terrorist groups, a matter that the international community should pay more attention to and take firm stance in order to oblige Turkey to end its support to terrorism which managed to shed the blood of Syrian people and destabilize the region and the entire world.”
Meanwhile, Russia has not formally responded to Damascus’ condemnation, and it is unclear how the Syrian government’s declaration will be interpreted. Turkish government officials have consistently claimed complete cooperation and coordination between Turkey and Russia – though President Erdogan this week stressed that Turkey would implement its “own game plan, step by step” in Syria and that “we are not bounded by just resistance or defense.”
Map source: Middle East Eye
Erdogan has also vowed to prevent the YPG (Syrian Kurdish “People’s Protection Units”) from establishing what he called a “terror corridor” to the Mediterranean. Turkey has long sought a green light from Russia to attack YPG-held Afrin – a city close to the Turkish border which is part of the Kurdish declared Rojava autonomous zone – as part of a broader Turkish attempt to prevent such a Kurdish zone from gaining any permanence. And it appears we are now witnessing the beginning this strategy which Turkey clearly holds as its top priority far and above pacifying Idlib (after all, Turkey assisted al-Qaeda’s takeover of Idlib in the first place).
Both the Syrian Kurds and the Damascus government see Turkey’s real motives in Idlib as merely a land grab using both local proxies (including al-Qaeda) and direct troop occupation. Turkey hopes the deal reached in Astana, Kazakhstan to implement “safe zones” in the area will give Russian backing to its war on the Kurds, and Turkey’s first step which it began implementing this week is to ensure the YPG is contained. As a spokesman for the Turkish sponsored Free Syrian Army (FSA) told the Reuters this week, the Turkish deployment would “ensure the area is protected from Russian and regime bombing and to foil any attempt by the separatist YPG militias to illegally seize any territory.”
In doing a deal with Turkey, it now appears Russia will walk a fine line between keeping a leash on Erdogan’s machinations and conducting legitimate anti-terror operations with its Syrian ally.
Israeli jets hit Syrian air defense targets near Damascus
Israeli Fighter Jets Launch Air Strike On Syrian Air Defense Battery Near Damascus
After years of undermining the regime of Syrian leader Bashar al Assad, an effort that has seen Israel countenance ISIS training camps near its borders and launch recurring missile strikes on Syrian territory and its army bases while threatening to bomb Assad’s palace, the simmering conflict between the two nations broke out into the open once again overnight.
The Israeli Defense Forces confirmed that Israeli Air Force fighters conducted a missile strike against a Syrian base after a missile was fired at Israeli jets on a routine aerial reconnaissance mission in Lebanese airspace, Russia’s news agency Sputnik reports. No people were in injured, and the Israeli jets returned safely, but not before attacking an anti-aircraft battery east of the Syrian capital of Damascus. As usual, The IDF blamed the Syrian government for the incident, however, presenting no proof to support the claim. Damascus has yet to comment on the situation.
“The IDF maintains its ability to thwart hostilities against Israeli civilians,” the Israeli Defense Forces stated. According to one of the heads of the Israeli military’s press service, Israel notified Russia of the airstrike as it was being carried out. Ironically, the Israeli military said that it “has no intention to destabilize the situation.”
Following several incidents earlier in the year, a de-escalation zone had been created covering territories near the Syria-Israel border in the south of the country. The agreement was reached following the first talks between Putin and US President Donald Trump at G-20 summit.
Today’s incident is the latest in a series of similar provocations that have been taking place between the two countries. Israel has claimed to have been repeatedly shelled from the Syrian territory bordering the country and retaliated for the attacks it blames on Damascus, despite the fact that terrorist groups have been controlling parts of bordering territories throughout Syria with some suggesting that Israel cultivates said terrorist organizations. A de-escalation zone had been created on territories near the Syrian border with Israel in the south of the country. The agreement was reached following the first talks between Putin and US President Donald Trump at G20 summit.
Most of the incidents took place in the Golan Heights, internationally recognized as Syrian territory that was seized by Israel during the Six-Day War in 1967 with the peace treaty never signed. In 1981, the Israeli parliament voted to annex two-thirds of the Golan Heights. The United Nations has stated on several occasions that Israel’s occupation of the Golan Heights is illegal, calling for it to be returned to Syria
KIRKUK IS NOW COMPLETELY UNDER IRAQI CONTROL WITH THE KURDS ABANDONING THE CITY…AND A MAJOR CONTRIUBTOR FOR THEIR OIL INCOME
After Lightning Offensive, Kirkuk Is Now Fully Under Iraqi Military Control
Iraq’s military has effectively gained control of major assets and government buildings in Kirkuk city, and is now set to fully pacify it after overnight clashes at a moment when oil prices rose toward a six month high as the conflict now threatens output.
Iraq’s elite U.S.-trained Counter-Terrorism Force has taken over the provincial government headquarters in the center of Kirkuk after operations to seize the city from Kurdish forces began overnight – the contested city is now reportedly under the control of Iraqi national forces. Some of the first footage Western audiences woke up to Monday morning were of (ironically enough) US supplied equipment – including tanks, being used to bulldoze images of Iraqi Kurdistan President Masoud Barzani. Iraqi forces have further pulled down Kurdish flags flying over government buildings throughout the city, while leaving the Iraqi flag flying.
Image source: Rudaw
The Iraqi advance on the oil-rich and ethnically diverse previously Kurdish-held city was lightning fast and largely without a major fight – aided by the fact that some Kurdish Peshmerga fighters fled their posts as national militias advanced, which is a reflection of Iraqi Kurdistan’s own political divide: one faction within the PUK Peshmerga (Patriotic Union of Kurdistan) is relatively pro-Baghdad, making the Iraqi advance easy in sections of the city held by the group.
And though Kurdish media frequently highlighted footage of armed civilians taking to the streets Sunday and Monday, the city’s large Turkmen population as well as the up to 20% Arab and Assyrian population generally fears and rejects Kurdish dominance over the region.
The Kurdish opposition party PUK, whose fighters allowed Iraqi forces to enter parts of the city, confirmed Monday that it allowed the breach after reaching an agreement with the Iraqi military even as fighters representing the governing Kuristan Democratic Party (KDP) continued to battle. A Peshmerga spokesman, however, warned that the “government of Abadi bears the main responsibility for triggering war on the Kurdistan people, and will be made to pay a heavy price.” The Peshmerga further accused those PUK factions which refused to fight of “plotting” against the Kurds and committing “a great and historic treason.”
A PUK Peshmerga commander, Wista Raool, told the New York Times that his party seeks the return of contested oil fields to the federal government:
Mr. Raool accused Mr. Barzani and his party of “stealing” the oil from the Iraqi government. Many members of the P.U.K., which maintains its own pesh merga force, opposed the referendum vote because it was led by Mr. Barzani.
But northwest of Kirkuk city, Kurdish fighters defending oil fields administered under Barzani’s KDP party vow to never surrender to the Iraqi army or its Shiite paramilitary forces:
The commander of forces there, Kamal Karkokly, said in an interview at his command post Sunday that his fighters would not surrender their positions.
“We have enough weapons,” Mr. Karkokly said. “We can fight as long as we have to.”
Though oil production continued without interruption throughout the end of last week and over the weekend, even as reports of fighting south of Kirkuk surfaced, Reuters reported early Monday some 350,000 barrels per day (bpd) of production was temporarily shut down from major fields Bai Hassan and Avana due to security concerns as Iraqi forces entered Kirkuk. This helped spur a jump in world oil prices Monday, and markets remain unsettled. Kirkuk oil fields produce 10% of Iraq’s total output. However, Kurdish officials are now disputing that the KRG (Kurdistan Regional Government) ever gave the order to halt production:
The Kurdistan Region’s Ministry of Natural Resources (MNR) on Monday denied rumors of oil production being shut down following the recent violence in Kirkuk Province.
Ashti Hawrami, MNR’s minister of natural resources, ordered the resumption of full production from oil fields in Kirkuk after a brief interruption.
Meanwhile, a senior Baghdad oil official told Reuters after Iraqi forces entered the city that, “We’ve got confirmation from military commanders that it’s a matter of a very short time,” and added, “our brave forces will regain control of all Kirkuk oil fields and then we will restart production immediately.”
This morning, the US embassy in Baghdad issued a statement calling for calm on both sides, and reiterating the common cause of fighting ISIS:
We support the peaceful exercise of joint administration by the central and regional governments, consistent with the Iraqi Constitution, in all disputed areas. ISIS remains the true enemy of Iraq, and we urge all parties to remain focused on finishing the liberation of their country from this menace.
6 .GLOBAL ISSUES
This may halt the rally in oil, but most important it drives a nail into the heart of USA hegemony and the uSA dollar petro scheme. Will China demand that oil be priced in yuan?
Oil Rally Threatened As China Reportedly Offers To Buy Aramco Stake Directly
Amid confusion over whether the massive Saudi Aramco IPO is on hold until 2019, or permanently shelved in favor of a private placement, Reuters suggests the latter is now more likely as ‘sources familiar with the matter’ say China is offering to buy up to 5 percent of Aramco directly (offering the Saudis the lack of transparency they may have been nervous of with a public placing).
As we noted previously, China has been very actively diversifying its sources of energy…
China has understandably played the leading role in Russia’s attempts to broaden its role as an energy supplier in Asia. Rosneft recently sold 14.16 percent of its shares to CEFC China Energy for about $9 billion by way of the Qatar Investment Authority and Glencore. The move reflected the challenges financial sanctions have created for the firm as well as China’s growing clout as an importer. Chinese demand hit 11.67 million barrels per day (bpd) and had risen 6 percent year-on-year in July. Rosneft was smart to finalize supply agreements with PetroChina set to boost its daily exports to China from 400,000 bpd to 600,000 bpd next year. Rosneft also signed an agreement with CEFC to jointly explore for Eastern Siberian reserves and increase direct deliveries to China.
These deals play into Russian-Saudi competition for the Chinese market. China’s oil imports are up 12.3 percent year-on-year, but cuts haven’t hit Russian exports. Saudi oil exports to China hovered at 1.03 million bpd so far this year, a 1.7 percent drop. Russia’s stood at 1.16 million bpd, a 13.2 percent increase. After closing the CEFC deal, Rosneft announced it expected to deliver 40 million tons of oil to China by year’s end, a 9 million ton increase on their expected deliveries. That would average out to around 800,000 bpd from Rosneft alone, assuring Rosneft’s dominant control over Russian supplies to the Chinese market. The increase in supplies has paralleled a long-standing project to develop a refinery in Tianjin. But the project, first announced in 2009, has no clear end date despite a press release concerning its implementation with CNPC in January.
Saudi Arabia has disproportionately lost share in China for several reasons. For one, it bears the burden of cut compliance. Angola overtook it because of China’s dominant position there and didn’t feel the need to comply. For another, Russian firms have built up new assets and export capacity in Eastern Siberia and the Far East. Russian blends have more physical access to Asia-Pacific markets, making them more competitive than they’ve historically been. Finally, spreads on the market between light and heavy crude have narrowed, making Russia’s lighter crudes more competitive against Saudi heavy crudes. But Saudi Arabia is not without a means of responding.
Saudi Aramco reached a refinery deal with state-owned China North Industries Group Corp. in May around the Belt and Road summit. Though the refinery is smaller than that proposed in Tianjin, Saudi Aramco has one considerable advantage over Rosneft: it lacks the same messy history Rosneft has with China’s state firms and it’s not sanctioned. CEFC was a logical partner for Rosneft in China because, unlike CNPC and state-owned players, it could more easily afford to take the sanctions risk. It can also dangle shares to China. Further, the refinery deal signals a willingness to work with China’s independent refiners. These so-called “teapot” refineries have driven demand growth and provide Aramco greater diversity in business opportunities longer-term than Rosneft’s relationships with CNPC and CEFC afford it.
Ever since the company started talking about an IPO of 5 percent of its shares, China has been a logical partner. A sale to Chinese firms in exchange for investments into China’s downstream would be huge win. The Kingdom also signed a similar agreement for an investment platform with China worth $20 billion in late August, just as it became clear CEFC would acquire stakes in Rosneft. That throws a fair bit of shade on Russia’s $1 billion fund agreed to this last visit. Topping it all off, King Salman and Aramco also signed deals reportedly worth $65 billion with China in March.
And than last week, headlines hit regarding delays/shelving of the IPO…
The FT notes that talks about a private sale to foreign governments – including China – and other investors have gathered pace in recent weeks, according to five people familiar with the IPO preparations, amid growing concerns about the feasibility of an international listing.
The Saudi state oil company has struggled to select a suitable international venue for its shares, as New York and London have vied for what has been billed as the largest ever flotation.
The company would still aim to list shares on the kingdom’s Tadawul exchange next year if they pursue the private sale, the people said.
The latest proposal by the company’s financial advisers was described by one of the people as a “face-saving” option for Saudi Aramco, which has worked on plans to list its shares internationally for more than a year.
Desk chatter included comments that the Saudis were anxious about the level of due diligence and transparency involved in a public offering.
A Saudi Aramco spokesperson said:
“A range of options, for the public listing of Saudi Aramco, continue to be held under active review. No decision has been made and the IPO process remains on track.”
The planned listing of a 5 per cent stake in Saudi Aramco is the centrepiece of an economic reform programme led by Saudi Arabia’s powerful crown prince Mohammed bin Salman, who is keen for a 2018 IPO. He has said the company could be worth $2tn although a Financial Times analysis put the valuation figure at around $1tn.
An economic recession in the kingdom is piling pressure on the prince, the king’s son and next in line for the throne, amid calls for the government to increase investment and ease austerity.
And now, as Reuters reports, perhaps the king has options…
Chinese state-owned oil companies PetroChina and Sinopec have written to Saudi Aramco in recent weeks to express an interest in a direct deal, industry sources told Reuters. The companies are part of a state-run consortium including China’s sovereign wealth fund, the sources say.
Saudi Arabia’s Crown Prince Mohammed bin Salman said last year the kingdom was considering listing about 5 percent of Aramco in 2018 in a deal that could raise $100 billion, if the company is valued at about $2 trillion as hoped.
“The Chinese want to secure oil supplies,” one of the industry sources said. “They are willing to take the whole 5 percent, or even more, alone.”
PetroChina and Sinopec declined to comment.
Two senior industry sources said Riyadh was keen on China, its biggest buyer of oil, becoming a cornerstone investor in Aramco.
But no decision has yet been taken on whether to accept China’s offer, or how much stock could be offered to cornerstone investors, the sources said.
Two sources told Reuters that sovereign wealth funds from South Korea and Japan, which are also major buyers of Saudi oil, were also interested in acquiring a stake in Aramco.
Critically though, as The Wall Street Journal reports, the oil rally could have the legs kicked out from under it if Saudi Aramco opts to forgo a public listing of its shares.
“I think the market is clinging to the IPO as the rationale,” said Robert McNally, president of the Rapidan Group.
Conventional wisdom has it that “the Saudis, as long as they were planning this IPO next year, they had almost no choice but to unilaterally, if necessary, cut production to keep oil prices from falling.”
Mr. McNally and other analysts said a delayed or canceled IPO wouldn’t necessarily weaken Saudi Arabia’s resolve. The kingdom needs higher oil prices to shore up its budget–not just to ensure the success of its offering.
But convincing investors of that may be a tougher sell.
“It does seem like a large number of people put significance on that Saudi IPO,” said Kyle Cooper, a consultant at ION Energy Group.
Bill O’Grady, chief market strategist at Confluence Investment Management, has said that prospect of a 2018 IPO was part of the reason he believed U.S. crude futures could climb as high as $60 a barrel. But the market may have been pricing in some skepticism.
“It is bearish news, but the market hasn’t seemed to put 2+2 together on this issue,” he said in an email Friday.
“If the market had discounted that the Saudis would do whatever necessary to get oil to $60 for the IPO, it would already be there.”
8. EMERGING MARKET
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings MONDAY morning 7:00 am
Euro/USA 1.1805 DOWN.0005/ REACTING TO 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 111.83 UP 0.234(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 1.3294 UP .0024 (Brexit March 29/ 2017/ARTICLE 50 SIGNED
THERESA MAY FORMS A NEW GOVERNMENT/STARTS BREXIT TALKS/MAY IN TROUBLE WITH HER OWN PARTY/
USA/CAN 1.2530 UP .00186(CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT AND GREXIT FROM EU/(TRUMP INITIATES LUMBER TARIFFS ON CANADA)
Early THIS MONDAY morning in Europe, the Euro FELL by 5 basis points, trading now ABOVE the important 1.08 level FALLING to 1.1805; / Last night the Shanghai composite CLOSED DOWN 12.05 POINTS OR .36% / Hang Sang CLOSED UP 216.37 OR .76% /AUSTRALIA CLOSED UP 0.55% / EUROPEAN BOURSES OPENED GREEN EXCEPT SPAIN
The NIKKEI: this MONDAY morning CLOSED UP 100,38 POINTS OR .47%
Trading from Europe and Asia:
1. Europe stocks OPENED GREEN EXCEPT SPAIN
2/ CHINESE BOURSES / : Hang Sang CLOSED UP 216.37 POINTS OR .76% / SHANGHAI CLOSED DOWN 12.05 POINTS OR .36% /Australia BOURSE CLOSED UP 0.55% /Nikkei (Japan)CLOSED UP 100.38 POINTS OR .47% / INDIA’S SENSEX IN THE GREEN
Gold very early morning trading: 1304,75
Early MONDAY morning USA 10 year bond yield: 2.291% !!! UP 2 IN POINTS from THURSDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%. (POLICY FED ERROR)
The 30 yr bond yield 2.8214 UP 2 IN BASIS POINTS from THURSDAY night. (POLICY FED ERROR)
USA dollar index early MONDAY morning: 93.18 UP 9 CENT(S) from YESTERDAY’s close.
This ends early morning numbers MONDAY MORNING
And now your closing MONDAY NUMBERS \4 PM
Portuguese 10 year bond yield: 2.329% DOWN 1/2 in basis point(s) yield from FRIDAY
JAPANESE BOND YIELD: +.064% 0 in basis point yield from FRIDAY/JAPAN losing control of its yield curve/
SPANISH 10 YR BOND YIELD: 1.582% DOWN 3 IN basis point yield from FRIDAY
ITALIAN 10 YR BOND YIELD: 2.035 down 8 POINTS in basis point yield from FRIDAY
the Italian 10 yr bond yield is trading 46points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.377% down 2 IN BASIS POINTS ON THE DAY
IMPORTANT CURRENCY CLOSES FOR MONDAY
Closing currency crosses for MONDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/12:00 PM
Euro/USA 1.1810 DOWN 0 (Euro DOWN 0 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 111.74 UP 0.153(Yen DOWN 15 basis points/
Great Britain/USA 1.3287 UP 0.0017( POUND UP 17 BASIS POINTS)
USA/Canada 1.2533 UP.0089 Canadian dollar DOWN 89 basis points AS OIL ROSE TO $51.89
This afternoon, the Euro was FLAT 15 to trade at 1.1810
The Yen FELL to 111.74 for a LOSS of 16 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 7 basis points, trading at 1.3276/
The Canadian dollar ROSE by 32 basis points to 1.2442, WITH WTI OIL RISING TO : $51.39
Your closing 10 yr USA bond yield UP 1 IN basis points from FRIDAY at 2.2873% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 2.813 UP 1 in basis points on the day /
Your closing USA dollar index, 93.15 UP 6 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 MONDAY: 1:00 PM EST
London: CLOSED DOWN 8,47 POINTS OR 0.11%
German Dax :CLOSED UP 11.83 POINTS OR .09%
Paris Cac CLOSED UP 11.14 POINTS OR 0.21%
Spain IBEX CLOSED DOWN 76.60 POINTS OR 0.75%
Italian MIB: CLOSED UP 14.77POINTS OR 0.07%
The Dow closed UP 85.24 POINTS OR .37%
NASDAQ WAS closed UP 18.20 PTS OR .28% 4.00 PM EST
WTI Oil price; 51.89 1:00 pm;
Brent Oil: 57.1731:00 EST
USA /RUSSIAN ROUBLE CROSS: 57.34 DOWN 1/100 ROUBLES/DOLLAR (ROUBLE HIGHER BY 1 BASIS PTS)
TODAY THE GERMAN YIELD FALLS TO +.377% 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, 5 pm/and 10 year USA interest rate:
WTI CRUDE OIL PRICE 5:00 PM:$51.89
USA 10 YR BOND YIELD: 2.2873% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 2.813%
EURO/USA DOLLAR CROSS: 1.1815 DOWN .0015
USA/JAPANESE YEN:111.74 UP 0.153
USA DOLLAR INDEX: 93.15 UP 6 cent(s)/
The British pound at 5 pm: Great Britain Pound/USA: 1.3287 : UP 17 POINTS FROM LAST NIGHT
Canadian dollar: 1.2533 DOWN 89 BASIS pts
German 10 yr bond yield at 5 pm: +0.377%
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM FOR THE DAY
Stocks Surge To Moar Record Highs But Taylor Chatter
by Tyler Durden
More fiction: the Empire (NY Mfg Index) soars to 8 yr highs despite the fact that new orders plunged and prices paid increased. The beat was an increase of 8 standard deviations
Empire Fed Survey Soars To Highest In 8 Years (As New Orders Plunge)
Beating expectations by 5 standard deviations…
Respondents to the Empire Fed’s Manufacturing Survey have not been more exuberant about America since Oct 2009.
This continues the recent trend of incredible survey-based beats as hard data remains unimpressed…
The only thing that is odd about this monstrous number is the plunge in new orders… and prices paid… and work hours … and inventories.
Prices paid fell to 27.3 vs 35.8
New orders fell to 18 vs 24.9
Work hours fell to 0 vs 5.7
Inventory fell to -7.8 vs 6.5
So what drove the spike? Simple – Hope!!
Six-month general business conditions rose to 44.8 vs 39.3
Good for gold and silver to retreat: NAFTA talks heat up as the Trump administration again takes a protectionist and aggressive stance on the auto sector
NAFTA Talks Heat Up As Trump Administration Takes Aggressive Stance On Autos
Trump’s NAFTA negotiators in recent days put forth a string of bold proposals on everything from auto rules of origin, a sunset clause, government procurement, and gutting dispute panels seen by the other nations as core to the pact. The moves were long-signaled, as was Canadian and Mexican opposition to them, but with a more aggressive stance taken by U.S. negotiators in the 4th round of talks, which will continue today in Washington D.C., many are beginning to question whether a deal is ultimately feasible. Per Bloomberg:
The fourth round of Nafta talks will continue Monday at a Washington-area hotel, before a ministerial-level meeting on Tuesday. People familiar with the proceedings describe essentially a two-track process: legitimate progress being made to modernize the pact in less contentious areas, including topics like regulations and services, with essentially no progress on the most divisive U.S. proposals.
Nafta’s fate may now hang on how flexible the U.S. is about its demands heading into the fifth round of talks, scheduled for Mexico City around the first week of November. While the parties had wanted to reach a deal by December, officials familiar with the negotiations say the talks are likely to drag on for months.
Of course, hanging over the negotiations are Trump’s regular threats to walk away.
One official familiar with the proceedings, who wasn’t authorized to speak publicly, said on Sunday that it seems more likely Trump will give the mandatory six months’ notice required to leave Nafta, though not necessarily end up backing out. Others were less sure.
“He’s unpredictable, so I don’t know,” said Stephen Moore, a senior economic adviser during Trump’s campaign and chief economist at the Heritage Foundation. “I do feel, though, that his bark has been worse than his bite on trade. That doesn’t mean that he’s retreating. But I think we’re going to see a Nafta 2.0 that will find areas that will give the U.S. even greater benefits, while protecting American workers.”
Mexico has signaled that it won’t negotiate during the six-month window if Trump announces he’ll walk away, and it’s unclear what the next steps would be were that to happen. Congress and others are vowing legal and political fights if the president tries to pull out. If Trump manages to, though, Canada could still fall back on an existing bilateral deal with the U.S.; Mexico has no such previous deal.
That said, as Richard Neal of Massachusetts, the top Democrat on the House Ways and Means committee, said over the weekend, a full withdrawal from NAFTA would require a vote from Congress…a hurdle which Trump has had some difficulty clearing in his first 10 months in Washington D.C.
The proposals have spurred public warnings from prominent U.S. lawmakers and the private sector about the perils of scuttling a deal that over more than two decades has broken down trade barriers, including tariffs, for industries like manufacturing and agriculture.
Warnings are growing from Congress. Richard Neal of Massachusetts, the top Democrat on the House Ways and Means committee, said he prefers a Nafta renewal to a pull-out, which he said Congress would probably block.
If Trump “even suggests that the United States should leave Nafta, to undo that relationship, you would have to go back to Congress. And that would be a much more difficult task for him,” Neal said in a Canadian TV interview with The West Block that aired on Sunday.
The U.S. Chamber of Commerce has issued its own warning. Last week, Chief Executive Officer Tom Donohue visited Mexico City and pledged to fight “like hell” to preserve Nafta. The largest American business lobbying group plans to send an “army” of representatives to Capitol Hill to demonstrate support for the deal, Donohue said.
Of course, as Boston Consulting Group pointed out in a recent presentation to the Motor & Equipment Manufacturers Association, any success in imposing tariffs on imported parts could mean large price increases for American consumers as roughly $2,000 worth of content on each U.S. assembled car is sourced from Mexico.
Meanwhile, Mexico is just one small component of a truly global automotive supply chain with $3,500 worth of imported parts on each car assembled in U.S. plants.
For those reasons, Mexico’s negotiators said they’re still optimistic a deal can be reached because they expect pushback from the U.S. private sector.
Well that about does it for tonight
I HOPE TO DO A COMMENTARY FOR TUESDAY AND WEDNESDAY NIGHT BUT NOT PROMISING