GOLD: $1287.00 UP $3.25
Silver: $17.00 DOWN 11 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: $1289.93 DOLLARS PER OZ
NY PRICE OF GOLD AT EXACT SAME TIME: $1281.60
PREMIUM FIRST FIX: $8.33(premiums getting LARGER AGAIN)
SECOND SHANGHAI GOLD FIX: $1293.60
NY GOLD PRICE AT THE EXACT SAME TIME: $1283.70
Premium of Shanghai 2nd fix/NY:$9.90 PREMIUMS GETTING LARGER AGAIN)
LONDON FIRST GOLD FIX: 5:30 am est $1284.40
NY PRICING AT THE EXACT SAME TIME: $1283.95
LONDON SECOND GOLD FIX 10 AM: $1284.80
NY PRICING AT THE EXACT SAME TIME. 1284.60
For comex gold:
NOTICES FILINGS TODAY FOR OCT CONTRACT MONTH: 2 NOTICE(S) FOR 200 OZ.
TOTAL NOTICES SO FAR: 975 FOR 97,500 OZ (3.032TONNES)
5 NOTICE(S) FILED TODAY FOR
Total number of notices filed so far this month: 869 for 4,345,000 oz
Bitcoin: BID $7119 OFFER /$7149 DOWN $328.00 (MORNING)
BITCOIN CLOSING; BID $7192 OFFER: 7217 // DOWN $265.00
Let us have a look at the data for today
In silver, the total open interest FELL BY A CONSIDERABLE 1386 contracts from 208,500 DOWN TO 201,944 DESPITE YESTERDAY’S TRADING IN WHICH SILVER ROSE BY A RATHER LARGE 16 CENTS. THIS TIME WE HAD OVER 1000 EFP’S ISSUED BY OUR BANKERS IN SILVER FOR DECEMBER DUE TO THEIR “EMERGENCY SITUATION” WHERE THEY DO NOT HAVE ENOUGH METAL TO SERVE UPON OUR LONGS. OUR LONGS AT THE COMEX RECEIVE A FIAT BONUS PLUS A DELIVERABLE PRODUCT AT A DIFFERENT EXCHANGE AND THAT NO DOUBT IS LONDON. THIS IS THE EARLIEST THAT I HAVE SEEN THAT EFP’S HAVE BEEN ISSUED FOR AN UPCOMING DELIVERY MONTH. GENERALLY IT IS GOLD THAT IS THE MEGA RECIPIENT OF EFP’S WITH SILVER MUCH SMALLER. SO NO DOUBT WE WILL SEE HUGE AMOUNTS OF EFP’S ISSUED WITHIN A WEEK OF FIRST DAY NOTICE.
RESULT: A GOOD SIZED DROP IN OI COMEX DESPITE THE CONSIDERABLE 16 CENT PRICE RISE. COMEX LONGS EXITED OUT OF THE COMEX WITH OVER 1000 EFP’S ISSUED FOR A DELIVERABLE CONTRACT OVER IN LONDON WITH A FIAT BONUS.
In ounces, the OI is still represented by just OVER 1 BILLION oz i.e. 1.009 BILLION TO BE EXACT or 144% of annual global silver production (ex Russia & ex China).
FOR THE NEW FRONT OCT MONTH/ THEY FILED: 5 NOTICE(S) FOR 25,000 OZ OF SILVER
In gold, the open interest FELL BY A TINY 453 CONTRACTS DESPITE THE GOOD SIZED RISE IN PRICE OF GOLD ($8.35) WITH YESTERDAY’S TRADING . WE MAY HAVE HAD SOME MINOR BANKER SHORT COVERING IN GOLD. The new OI for the gold complex rests at 536,390. NEWBIE LONGS RE-ENTERED THE ARENA TO WHICH THE BANKERS DUTIFULLY SUPPLIED THE NECESSARY SHORT PAPER..OUR BANKERS WERE MAY HAVE BEEN SUCCESSFUL IN COVERING A TINY PORTION OF THEIR GOLD SHORTS.
NO EFP’S WERE ISSUED FOR THE DECEMB CONTRACT MONTH.
Result: A TINY SIZED DECREASE IN OI DESPITE THE RISE IN PRICE IN GOLD ($8.35). WE MAY HAVE HAD SOME BANK SHORT COVERING. WE CERTAINLY HAD NEWBIE LONGS RE-ENTERING THE GOLD COMEX AREA TO WHICH OUR BANKERS REGRETFULLY SUPPLIED THE NECESSARY SHORT PAPER.
we had: 2 notice(s) filed upon for 200 oz of gold.
With respect to our two criminal funds, the GLD and the SLV:
No changes in gold inventory at the GLD/
Inventory rests tonight: 843.09 tonnes.
TODAY WE HAD NO CHANGE IN SILVER INVENTORY AT THE SLV
INVENTORY RESTS AT 318.074 MILLION OZ
First, here is an outline of what will be discussed tonight:
1. Today, we had the open interest in silver FELL BY A LARGE 1386 contracts from 208,500 DOWN TO 201,944 (AND now A LITTLE FURTHER FROM THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) DESPITE THE CONSIDERABLE RISE IN SILVER PRICE (A GAIN OF 16 CENTS). OUR BANKERS USED THEIR EMERGENCY PROCEDURE OF OVER 1000 EFP’S FOR DECEMBER WHICH GIVES OUR COMEX LONGS A FIAT BONUS PLUS A DELIVERABLE PRODUCT OVER IN LONDON. THIS IS QUITE EARLY FOR THESE EFP ISSUANCE..USUALLY WE WITNESS THIS ONE WEEK PRIOR TO FIRST DAY NOTICE AND THIS CONTINUES RIGHT UP UNTIL FDN.
RESULT: A GOOD SIZED DECREASE IN SILVER OI AT THE COMEX DESPITE THE 16 CENT FALL IN PRICE (WITH RESPECT TO YESTERDAY’S TRADING). OUR BANKER FRIENDS ISSED OVER 1000 EFP’S WHICH GIVES COMEX LONG HOLDERS A FIAT BONUS PLUS A DELIVERABLE PRODUCT OVER IN LONDON.
2.a) The Shanghai and London gold fix report
2 b) Gold/silver trading overnight Europe, Goldcore
and in NY: Bloomberg
3. ASIAN AFFAIRS
i)Late WEDNESDAY night/THURSDAY morning: Shanghai closed UP 12.34 points or .36% /Hang Sang CLOSED UP 228.97 pts or 0.78% / The Nikkei closed DOWN 45.11 POINTS OR 0.20%/Australia’s all ordinaires CLOSED UP 0.55%/Chinese yuan (ONSHORE) closed DOWN at 6.6380/Oil DOWN to 56.88 dollars per barrel for WTI and 63.48 for Brent. Stocks in Europe OPENED RED . ONSHORE YUAN CLOSED DOWN AGAINST THE DOLLAR AT 6.6380. OFFSHORE YUAN CLOSED WEAKER TO THE ONSHORE YUAN AT 6.6447 //ONSHORE YUAN WEAKER AGAINST THE DOLLAR/OFF SHORE WEAKER TO THE DOLLAR/. THE DOLLAR (INDEX) IS WEAKER AGAINST ALL MAJOR CURRENCIES. CHINA IS VERY HAPPY TODAY
3a)THAILAND/SOUTH KOREA/NORTH KOREA
i)North Korea//South Korea
b) REPORT ON JAPAN
Something snapped last night in Japan that saw a violent stock plunge only to be rescued by their plunge protection team
c) REPORT ON CHINA
4. EUROPEAN AFFAIRS
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i)A huge paper from Meijer on the situation inside Saudi Arabia and how its finances are bleeding faster than a speeding bullet. He outlines how Saudi Arabia is joining forces with the UAE with the help of Israel and the USA in the hope of replenishing its finances
a must read..
(courtesy Raul Meijer)
ii)As Israel and Saudi Arabia target Lebanon, here is a great commentary on the strength of Hezbollah’s military capabilities
iii)This should give you enough information that an attack on Lebanon from Saudi Arabia and Israel: Saudi Arabia outlaws travel to Lebanon effective immediately
iii b) one hour later: Kuwait also outlaws travel to Lebanon
iv)There are reports from Saudi Arabia that the Saudi King Salman will relinquish the throne to his son MBS
6 .GLOBAL ISSUES
7. OIL ISSUES
Satellite images reveal that the Saudis are storing much more oil than they claim
8. EMERGING MARKET
9. PHYSICAL MARKETS
i)Ethical behaviour by the Fed?
ii)Will the rising trend for base metals and oil have a spill over effect for silver?
( Craig Hemke/TFMetals Report/Sprott)
iii)Dave Kranzler is spotting that something is different with respect to gold and silver trading
( Dave Kranzler/IRD/GATA)
10. USA stories which will influence the price of gold/silver
i)Early trading in the uSA as tax cut hopes fade:
ib)The markets tanked on news that the Senate tax plan is to delay the corporate tax cut until 2019
ii)Trump who is now in Beijing slams China for unfair trade despite praising XI. He blames China’s predecessors.
iii)The Republican tax plan will absolutely crush the housing market in sectors like San Francisco, San Jose, Seattle, NY and other major centres
iv)Now Federal prosecutors are leaning on estranged son in law of Paul Manafort to turn on him( zerohedge)
Let us head over to the comex:
The total gold comex open interest SURPRISINGLY ROSE BY A LESS THAN EXPECTED 2234 CONTRACTS UP to an OI level of 537,077 WITH THE GOOD SIZED RISE IN THE PRICE OF GOLD ($8.35 RISE IN YESTERDAY’S TRADING). SOME NEWBIE LONGS AGAIN ENTERED THE GOLD ARENA WITH THE BANKERS REGRETTABLY SUPPLYING THE NECESSARY PAPER AS THEY COVERED ZERO AMOUNT OF THEIR HUGE SHORTFALL.
NO EFP’S WERE ISSUED FOR DECEMBER IN GOLD YESTERDAY.
Result: a SURPRISE TINY DECREASE IN OPEN INTEREST DESPITE THE CONSIDERABLE RISE IN THE PRICE OF GOLD ($8.35.) WE MAY HAVE HAD A SMALL AMOUNT OF BANKER SHORT COVERING. NEWBIE LONGS AGAIN ENTERED THE GOLD ARENA EMBOLDENED DUE TO GLOBAL TENSIONS ESPECIALLY IN SAUDI ARABIA. OUR BANKER FRIENDS REGRETTABLY HAD TO SUPPLY THE NECESSARY SHORT PAPER AS THEY WERE TOTALLY UNSUCCESSFUL IN THEIR ATTEMPT TO COVER ANY GOLD SHORTS.
We have now entered the NON active contract month of NOVEMBER.HERE WE HAD A LOSS OF 7 CONTRACT(S) DOWN TO 84. We had 7 notices filed YESTERDAY so gained 0 contracts or NIL additional oz will stand for delivery in this non active month of November. TO SEE BOTH GOLD AND SILVER RISE IN AMOUNT STANDING (QUEUE JUMPING) IS A GOOD INDICATOR OF PHYSICAL SHORTNESS FOR BOTH OF OUR PRECIOUS METALS.
The very big active December contract month saw it’s OI LOSE 8,599 contracts DOWN to 336,924. January saw its open interest rise by 35 contracts up to 624. FEBRUARY saw a gain of 5672 contacts up to 131,069.
We had 2 notice(s) filed upon today for 200 oz
VOLUME FOR TODAY (PRELIMINARY) 199.247
CONFIRMED VOLUME YESTERDAY: 392,938
We had 5 notice(s) filed for 25,000 oz for the OCT. 2017 contract
|Withdrawals from Dealers Inventory in oz||nil oz|
|Withdrawals from Customer Inventory in oz||
|Deposits to the Dealer Inventory in oz||nil oz|
|Deposits to the Customer Inventory, in oz||
|No of oz served (contracts) today||
|No of oz to be served (notices)||
|Total monthly oz gold served (contracts) so far this month||
|Total accumulative withdrawals of gold from the Dealers inventory this month||NIL oz|
|Total accumulative withdrawal of gold from the Customer inventory this month||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 2 contract(s) of which 0 notices were stopped (received) by j.P. Morgan dealer and 1 notice(s) was (were) stopped/ Received) by j.P.Morgan customer account.
|Withdrawals from Dealers Inventory||nil|
|Withdrawals from Customer Inventory||
|Deposits to the Dealer Inventory||
|Deposits to the Customer Inventory||
|No of oz served today (contracts)||
|No of oz to be served (notices)||
|Total monthly oz silver served (contracts)||869 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
Nov 9/no changes in inventory at the GLD/Inventory rests at 843.09 tonnes
NOV 8/ANOTHER HUGE WITHDRAWAL OF 1.18 TONNES OF GOLD FROM THE GLD DESPITE GOLD’S RISE TODAY. INVENTORY RESTS AT 843.09
Nov 7/a huge withdrawal of 1.48 tonnes of gold from the GLD/Inventory rests at 844.27 tonnes
NOV 6/ a tiny withdrawal of .29 tonnes to pay for fees etc/inventory rests at 845.75 tonnes
Nov 3/no change in gold inventory at the GLD/Inventory rests at 846.04 tonnes
NOV 2/STRANGE!!! WE HAD ANOTHER WITHDRAWAL OF 3.55 TONNES FROM THE GLD DESPITE GOLD’S RISE OF $6.60 YESTERDAY AND $1.55 TODAY/INVENTORY RESTS AT 846.04 TONNES
Nov 1/a withdrawal of 1.18 tonnes of gold from the GLD/Inventory rests at 849.59 tonnes
OCT 31/no change in gold inventory at the GLD/Inventory rests at 850.77 tonnes
Oct 30/STRANGE WITH GOLD UP THESE PAST TWO TRADING DAYS, THE GLD HAS A WITHDRAWAL OF 1.18 TONNES FROM ITS INVENTORY/INVENTORY RESTS AT 850.77 TONES
Oct 27/NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 851.95 TONNES
Oct 26./A WITHDRAWAL OF 1.18 TONNES OF GOLD FROM THE GLD/INVENTORY RESTS AT 851.95 TONNES
Oct 25/NO CHANGE (SO FAR) IN GOLD INVENTORY/INVENTORY RESTS AT 853.13 TONNES
Oct 24./no change in gold inventory at the GLD/inventory rests at 853.13 tonnes
OCT 23./NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY REMAINS AT 853.13 TONNES
OCT 20/NO CHANGE IN GOLD INVENTORY AT THE GLD/ INVENTORY REMAINS AT 853.13 TONNES
oCT 19/NO CHANGE/853.13 TONNES
Oct 18 /no change in gold inventory at the GLD/ inventory rests at 853.13 tonnes
Oct 17./no change in gold inventory at the GLD/inventory rests at 853.13 tonnes
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
Now the SLV Inventory
Nov 9/no change in silver inventory at the SLV/inventory rests at 318.074 million oz.
NOV 8/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 318.074 MILLION OZ
Nov 7/a huge withdrawal of 944,000 oz from the SLV/inventory rests at 318.074 million oz/
NOV 6/no change in silver inventory at the SLV/Inventory rests at 319.018 million oz/
Nov 3/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS TONIGHT AT 319.018 MILLION OZ.
NOV 2/A TINY LOSS OF 137,000 OZ BUT THAT WAS TO PAY FOR FEES LIKE INSURANCE AND STORAGE/INVENTORY RESTS AT 319.018 MILLION OZ/
Nov 1/STRANGE! WITH SILVER’S HUGE 48 CENT GAIN WE HAD NO GAIN IN INVENTORY AT THE SLV/INVENTORY RESTS AT 319.155 MILLION OZ/
Oct 31/no change in silver inventory at the SLV/Inventory rests at 319.155 million oz
Oct 30/STRANGE!WITH SILVER UP THESE PAST TWO TRADING DAYS, WE HAD A HUGE WITHDRAWAL OF 1.133 MILLION OZ FROM THE SLV/INVENTORY RESTS AT 319.155 MILLION OZ/
Oct 27/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 320.288 MILLION OZ
Oct 26/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 320.288 MILLION OZ/
Oct 25/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 320.288 MILLION OZ
Oct 24/no change in inventory at the SLV/inventory rests at 320.288 million oz/
oCT 23./STRANGE!!WITH SILVER RISING TODAY WE HAD A HUGE WITHDRAWAL OF 1.039 MILLION OZ/inventory rests at 320.288 million oz/
OCT 20NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 321.327 MILLION OZ
oCT 19/INVENTORY LOWERS TO 321.327 MILLION OZ
Oct 18 no change in silver inventory at the SLV/inventory rest at 322.271 million oz
Oct 17/ A MONSTROUS WITHDRAWAL OF 3.494 MILLION OZ FROM THE SLV/INVENTORY RESTS AT 322.271 MILLION OZ
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
Indicative gold forward offer rate for a 6 month duration+ 1.49%
Major gold/silver trading/commentaries for THURSDAY
Prepare For Interest Rate Rises And Global Debt Bubble Collapse
– Diversify, rebalance investments and prepare for interest rate rises
– UK launches inquiry into household finances as £200bn debt pile looms
– Centuries of data forewarn of rapid reversal from ultra low interest rates
– 700-year average real interest rate in last 700 years is 4.78% (must see chart)
– Massive global debt bubble – over $217 trillion (see table)
– Global debt levels are building up to a gigantic tidal wave
– Move to safe haven higher ground from coming tidal wave
Editor: Mark O’Byrne
Last week, the Bank of England opted to increase interest rates for the first time in a decade. Since then alerts have been coming thick and fast for Britons warning them to prepare for some tough financial times ahead.
The UK government has launched an inquiry into household debt levels amid concerns of the impact of the Bank of England’s decision to raise rates. The tiny 0.25% rise means households on variable interest rate mortgages are expected to face about £1.8bn in additional interest payments whilst £465m more will be owed on the likes of credit cards, car loans and overdrafts.
The 0.25% rise is arguably not much given it comes against backdrop of record low rates and will have virtually no impact on any other rate. However it comes at a time of high domestic debt levels, no real wage growth and a global debt level of over $217 trillion.
Combined with low productivity across the developed world, experts are beginning to wonder how the financial system (and the individuals within) will cope.
After a decade of seeing negative real rates of interest many investors will be quietly celebrating that they may be about to see a turnaround for their savings. Many hope they will start being rewarded for their financial prudence as opposed to the punishing saving conditions of the last decade.
In reality this will not be the case, at least for some time. Savers and investors alike need to begin to prepare their portfolios for interest rate rises against a backdrop of crisis-triggering debt levels and unproductive economies.
Economies are junkies addicted to credit
Unsurprisingly, credit levels are equal to the increase in private debt every year. Credit is when people spend money that isn’t their own but instead borrow from banks. The bigger private debt levels are compared to a country’s GDP, the more the economy is dependent on credit.
Economic growth becomes addicted to credit. Therefore, the bigger the accumulated debt is when compared to GDP, the more likely it is an economic crisis will happen when credit levels are reduced.
An increase in interest rates means a decrease in credit levels. Especially in countries such as the US and UK where there has been no increase in real wage rates and there is a generation unprepared for an increase in the price of debt.
Consider the UK. When Mark Carney announced a decade-first increase in interest rates it was by a meagre 0.25%. Panic hit the newspapers; how would people with variable mortgages manage?
No one thought to ask, what are people who cannot manage a tiny increase in the cost of debt doing being allowed to borrow in the first place?
Currently debt-to-GDP ratios in the UK are not quite at pre-crisis or Great Depression levels. However they are fast approaching and they are at those levels globally. This combined with rising levels of interest rates makes for a tricky future and one that places savers and investors capital at risk.
700 year data forewarns of sudden interest rate turnaround
According to Bank of England guest blogger Paul Schmelzing as reported by Bloomberg the 700-year average real rate (the benchmark interest rates minus inflation) over the last 700 years (see chart at top) has been 4.78% and the average for the last two hundred years is 2.6%. Unsurprisingly he notes “the current environment remains severely depressed”.
More worryingly Schmelzing believes we have been in a downward trend for the last 500-years.
Upon closer inspection, it can be shown that trend real rates have been following a downward path for close to five hundred years, on a variety of measures. The development since the 1980s does not constitute a fundamental break with these tendencies.
Why is this worrying? Because the bounce back is not only inevitable, but will also be painful and sharp:
Most reversals to “real rate stagnation” periods have been rapid, non-linear, and took place on average after 26 years. Within 24-months after hitting their troughs in the rate depression cycle, rates gained on average 315 basis points, with two reversals showing real rate appreciations of more than 600 basis points within 2 years.
How will we know if such a correction is headed our way? Aside from the fact that central banks are beginning to increase rates of their own volition there are other macro indicators, many of which resonate with the current environment:
Most of the eight previous cyclical “real rate depressions” were eventually disrupted by geopolitical events or catastrophes, with several – such as the Black Death, the Thirty Years War, or World War Two – combining both demographic, and geopolitical inflections…the infamous “Panic of 1873” heralded the advent of two decades of low productivity growth, deflationary price dynamics, and a rise in global populism and protectionism.
$217 trillion global debt bubble set to pop
Currently the total global debt bubble is over $217 trillion, with little sign of it slowing. We have built a so-called economic recovery on debt. Spending has been encouraged on a pile of low interest rates and easy-to-reach cheap lines of credit. It has not been encouraged with the thought that one day interest rates will have to climb.
A sudden uptick in interest rates could not come at a more precarious time for global finances. It is not just personal debt levels that are of concern, especially when the Bank of International Settlements is aware of $13 trillion of ‘missing debt’.
In September this year the BIS said it was hard to assess the risk this “missing” debt poses, but its main worry was a repeat of events in the financial crisis: a liquidity crunch like the one that seized FX swap and forwards markets.
It is safe to say that a decade on from the global financial crisis we now have the makings of a new one.
Global debt woes are building up to a tidal wave
In November last year, unsecured household debt in the UK passed pre-financial crisis highs in 2008. In the UK, debt excluding student loans crept up to £192bn, the highest figure since December 2008, and it continues to rise this year. Meanwhile, in the eurozone, debt-to-GDP ratios in Greece, Italy, Portugal and Belgium remain over 100 per cent. As of March there were more than $10tn negative yielding bonds in Europe and Japan.
With or without moderate interest rate increases, debt on a global level is becoming more expensive as markets price in further rate hikes. Add to this the global imbalances we see across the globe it is becoming increasingly questionable how so many countries will manage to service these debts.
Clouded judgement of central bankers
When the Bank of England’s Mark Carney issued a statement following the 0.25% increase, he was clearly down about the future prospects for the UK. He was so wary about encouraging any kind of positivity regarding Brexit and the country’s productivity that he almost warned against sharp future rate rises. The pound dropped unexpectedly in the wake his candidness.
What’s worrying to investors is that Carney (and other fellow bankers) seem to feel interest rate rises are almost to be done at whim. In truth, they are unlikely to have much more time before they are forced to hike rates and then it will be far more dramatic than a gesture of 0.25%.
This is worrying because the economy is unlikely to be strong enough to handle such a change. In turn this will impact economies, financial markets and assets – especially risk assets.
Many economists argue that it is only growth that can pull us out of this situation but we now live in a world where we only know how to create growth from debt. We do not know how to grow a healthy economy without the dripping syringe of the current debt based banking and monetary system.
This is the case both in people’s homes and in the highest government offices. It is an epidemic of global proportions.
Investors need to protect themselves from the addictive nature of these behaviours. We all know what happens to those who are unable to cut themselves off. They find excuses and then they come knocking for help. This is where you must ensure your finances are protected. and you are not forced to “help” the reckless bankers and their dangerous monetary system.
Move to safe haven higher ground from coming debt tidal wave
As we have discussed previously, the global debt bubble is prompting the wealthiest to diversify into gold. Wealthy investors and some of the world’s largest institutions in the world, including Lord Rothchilds, Ray Dalio and insurance company Munich Re, have all expressed their desire to protect their portfolios from the next financial crisis.
The next financial crisis may well be preceded by something we did not experience ten years ago but is now a very real scenario – bail-ins. As banks struggle to retrieve payments from those unable to service debts they will begin to falter. Governments will need to step-in. ‘Luckily’ for them they had the foresight to agree that bail-ins could happen.
This places your investments and especially your deposits at arguably greater risk than before the first financial crisis. With this in mind, follow the likes of Munich Re and prepare your portfolio against counterparty risk, unforeseen consequences of interest rate climbs and the collapse of the global debt bubble. Avoid ETF and digital gold and dependence on single counter parties and have outright legal ownership of segregated, allocated gold bullion coins and bars.
News and Commentary
Gold Prices (LBMA AM)
09 Nov: USD 1,284.00, GBP 980.98 & EUR 1,106.29 per ounce
08 Nov: USD 1,282.25, GBP 976.82 & EUR 1,105.43 per ounce
07 Nov: USD 1,276.35, GBP 970.92 & EUR 1,103.28 per ounce
06 Nov: USD 1,271.60, GBP 969.72 & EUR 1,095.61 per ounce
03 Nov: USD 1,275.30, GBP 976.24 & EUR 1,094.59 per ounce
02 Nov: USD 1,276.40, GBP 965.09 & EUR 1,095.92 per ounce
01 Nov: USD 1,279.25, GBP 961.48 & EUR 1,099.52 per ounce
Silver Prices (LBMA)
09 Nov: USD 17.10, GBP 13.03 & EUR 14.69 per ounce
08 Nov: USD 17.00, GBP 12.96 & EUR 14.65 per ounce
07 Nov: USD 17.01, GBP 12.95 & EUR 14.70 per ounce
06 Nov: USD 16.92, GBP 12.90 & EUR 14.59 per ounce
03 Nov: USD 17.09, GBP 13.05 & EUR 14.67 per ounce
02 Nov: USD 17.08, GBP 12.98 & EUR 14.66 per ounce
01 Nov: USD 16.94, GBP 12.74 & EUR 14.55 per ounce
Recent Market Updates
– Platinum Bullion ‘May Be One Of The Only Cheap Assets Out There’
– World’s Largest Gold Producer China Sees Production Fall 10%
– German Investors Now World’s Largest Gold Buyers
– Gold Price Reacts as Central Banks Start Major Change
– Why Switzerland Could Save the World and Protect Your Gold
– Invest In Gold To Defend Against Bail-ins
– Stumbling UK Economy Shows Importance of Gold
– Wozniak and Thiel Fuel Bitcoin-Gold Debate: Gold Comes Out On Top
– Russia Buys 34 Tonnes Of Gold In September
– Gold Will Be Safe Haven Again In Looming EU Crisis
– Gold Is Valuable Due to “Extreme Rarity” – Must See CNN Video
– Gold Is Better Store of Value Than Bitcoin – Goldman Sachs
– Next Wall Street Crash Looms? Lessons On Anniversary Of 1987 Crash
Gold trading today:
Precious Metals Pounded As US Equities Open
Saudi warns its citizens to leave Lebanon “immediately” and gold and silver are panic-sold…
Because stocks must be ramped…
10,000 contracts ($1.3 billion notional) rushed thru in the 2 minutes before the US open…
Ethical behaviour by the Fed?
Ethical behavior gives public confidence in Fed, Yellen says
Submitted by cpowell on Wed, 2017-11-08 13:53. Section: Daily Dispatches
So how come the Fed opposes being audited by Congress?
* * *
By David Harrison
The Wall Street Journal
Tuesday, November 7, 2017
Federal Reserve Chairwoman Janet Yellen said Tuesday that ethical behavior from the Fed allows the public to trust it is acting on its behalf.
“The Federal Reserve’s very effectiveness in setting monetary policy depends on the public’s assured confidence that we act only in its interest,” she said. “We must act ethically and we must demonstrate our ethical standards in ways that leave little room for doubt.”
Ms. Yellen spoke at a ceremony honoring her and her predecessor at the central bank, Ben Bernanke. She did not discuss the economy or monetary policy in her remarks.
The award from the Institute of Government and Public Affairs at the University of Illinois honors ethics in government and is named after the late Sen. Paul Douglas of Illinois, who devoted his political career to rooting out government corruption.
… For the remainder of the report:
Will the rising trend for base metals and oil have a spill over effect for silver?
(courtesy Craig Hemke/TFMetals Report/Sprott)
Craig Hemke: Could a commodity rally help spark silver?
Submitted by cpowell on Wed, 2017-11-08 17:26. Section: Daily Dispatches
12:26p ET Wednesday, November 8, 2017
Dear Friend of GATA and Gold:
Writing for Sprott Money, the TF Metals Report’s Craig Hemke notes the rising trends for copper and oil and wonders if they signal a rising trend for commodities generally and if such a trend can pull silver along despite the constant shorting done by investment banks in the futures market. Hemke’s commentary is headlined “Could a commodity Rally Help Spark Silver?” and it’s posted at Sprott Money here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Dave Kranzler is spotting that something is different with respect to gold and silver trading
(courtesy Dave Kranzler/IRD/GATA)
Dave Kranzler: Something different is happening with gold and silver
Submitted by cpowell on Wed, 2017-11-08 19:25. Section: Daily Dispatches
2:25p ET Wednesday, November 8, 2017
Dear Friend of GATA and Gold:
Dave Kranzler of Investment Research Dynamics writes today that the investment banks that heavily short gold and silver futures seem to be having trouble getting prices down despite their maintaining unusually large positions. His analysis is headlined “Gold and Silver: Something Different Is Occurring” and it’s posted at IRD here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Your early THURSDAY morning currency, Asian stock market results, important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight/9 AM EST
2. Nikkei closed DOWN 45.11 POINTS OR 0.20% /USA: YEN FALLS TO 113.35
3. Europe stocks OPENED RED /USA dollar index FALLS TO 94.56/Euro UP TO 1.1634
3b Japan 10 year bond yield: RISES TO . +.030/ GOVERNMENT INTERVENTION !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 114.07/ 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:: 56.88 and Brent: 63.48
3f Gold UP/Yen UP
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” OFF THE TABLE FOR NOW /REVERSE OPERATION TWIST ON THE BONDS: PURCHASE OF LONG BONDS AND SELLING THE SHORT END
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil DOWN for WTI and DOWN FOR Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund RISES TO +.372%/Italian 10 yr bond yield DOWN to 1.823% /SPAIN 10 YR BOND YIELD UP TO 1.549%
3j Greek 10 year bond yield RISES TO : 5.143???
3k Gold at $1286.65 silver at:17.10: 6 am est) SILVER NEXT RESISTANCE LEVEL AT $18.50
3l USA vs Russian rouble; (Russian rouble DOWN 2/100 in roubles/dollar) 59.25
3m oil into the 56 dollar handle for WTI and 63 handle for Brent/
3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/GOT A GOOD SIZED DEVALUATION SOUTHBOUND
JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 113.35 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 0.9955 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1582 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.
3p BRITAIN VOTES AFFIRMATIVE BREXIT/LOWER PARLIAMENT APPROVES BREXIT COMMENCEMENT/ARTICLE 50 COMMENCES MARCH 29/2017
3r the 10 Year German bund now POSITIVE territory with the 10 year RISING to +0.372%
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 2.334% early this morning. Thirty year rate at 2.805% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
Global Markets Stumble, Spooked By Japanese Stock Fireworks
The overnight fireworks in Japan, which saw the Nikkei plunge by 860 intraday points and sent vol and volumes soaring (before recovering most losses), spooked traders in Asia and around the globe, and U.S. equity futures are red this morning, along with European shares and oil. As one early riser sellside desk notes, the Nikkei 225 provided the latest example of choppy markets and the 860 point intraday plunge “got us worried. Is this a warning sign for risk assets?” President Trump’s challenge of China for “unfair trading practices” (which he blamed on his predecessors) did not help the calm mood.
“The stock market has run out of a little momentum since the blow-out on the (Japanese) topix so it feels like it’s temporarily paused,” said Societe Generale strategist Kit Juckes. “We are waiting for some news from the Republicans on the tax plans, there is a bond market that has stalled and we’ve got rather soggy looking emerging markets… We probably need to get U.S. Treasury yields higher to get things going again.”
In the aftermath of the Japanese vol spike, the MSCI Asia Pacific Index turned briefly negative having earlier climbed to all-time record.
Most of Europe’s main bourses also drifted in and out of the red after Japan’s disturbance spooked traders and after mixed earnings and as Brexit talks resumed with low expectations in Brussels. There were a series of ECB speeches and what should be buoyant new growth forecasts due later from the European Commission, though bond markets were mostly quiet following a rally this week in benchmark U.S. Treasuries and Bunds. In fact, German Bunds were sharply offered, with yields rising 9% on the day an approaching 0.36%: the move has dragged the rest of the European bonds lower, with OATs and Gilts also moving. According to some desks, this may be due to some rotation from the European equity markets, which are broadly trading into the red today and could be following in the footsteps of Nikkei.
Already shaken by events in Japan, basic-resources shares weighed on the Stoxx Europe 600 index following a decline in industrial-metals prices. An increase in growth expectations from the European Commission failed to lift stocks as disappointing results from companies including Siemens AG and Vestas Wind Systems A/S added to the malaise. Banks gained, led by Italian lenders after BPER Banca S.p.A. earnings beat estimates. Stocks in Asia earlier rose above their 2007 peak before an intraday reversal in Japanese shares on technically-driven trading pared gains in the region. Sterling edged lower as Brexit talks resumed, while oil halted a two-day drop.
Understandably, the yen was the dominant theme of the overnight session as investors rushed to buy the Japanese currency following the Nikkei plunge; the euro found support after the European Commission raised its growth outlook for the common area, while the pound reversed earlier gains as some hedge funds turned sellers;
Investor attention has been focused on Asia this week, where Trump has embarked on an 11-day tour. In Beijing Thursday, he said China is taking advantage of American workers and companies with unfair trade practices, but he blamed his predecessors in the White House rather than China for allowing the massive U.S. trade deficit to grow. A year after Trump was elected to president, investors are also reflecting on how financial markets have fared in the interim, and a rally that has outperformed all but 4 “new president” markets in US history.
As Bloomberg adds, elsewhere in the overnight session, the New Zealand dollar held onto Wednesday’s gains after the central bank flagged it may raise interest rates earlier than expected. The Kiwi was the day’s big mover, surging about 1 percent to a two-week high of before dipping to trade at $0.6956. The kiwi soared after the Reserve Bank of New Zealand (RBNZ) said the country’s fiscal stimulus and the currency’s recent fall would lead to faster inflation and likely an earlier rise in interest rates.
Treasury yields were range-bound as markets wait to see the U.S. tax proposal that will serve as the basis for further discussions. The kiwi was near two-week high after more hawkish RBNZ sends New Zealand’s 10-year yield eight basis points higher. Aussie dips briefly following surprise drop in housing finance activity and a subseqent short squeeze sent it to session highs; Australian sovereign bonds drift lower with 10-year yield up three basis points at 2.60%. JGB futures dip after mediocre 30-year auction tails 1.1bps.
The dollar index against a basket of six major currencies was 0.1 percent lower at 94.803 meanwhile, as it drifted further from the three-month high of 95.150 set in late October. A U.S. Senate tax-cut bill, differing from one already in the House of Representatives, was expected to be unveiled on Thursday, complicating a Republican tax overhaul push and increasing scepticism on Wall Street about the effort. Some also focused on fallout from Democrat wins in regional U.S. elections this week as signal for next year’s mid-term Congressional elections for U.S. President Donald Trump.
“There’s very much a risk of disappointment. The U.S. dollar could go through a weakening phase on the back of uncertainty around that tax reform,” said Steven Dooley, currency strategist for Western Union Business Solutions in Melbourne. Meanwhile, stalled Brexit talks resume on Thursday in Brussels with no indication that a breakthrough is in reach.
In commodity markets, Brent and U.S. crude oil futures were modestly lower, having hit two-year highs earlier in the week following a 40% surge since July. U.S. data showing a rise in domestic crude production had weighed on sentiment overnight but the Middle East uncertainty in Saudi Arabia limited the losses. Gold added 0.2 percent to $1,283.45 an ounce after rising to a three-week high of $1,287.13 an ounce the previous day. Palladium hovered near a 16-year high of $1,019 while nickel fell by more than 2 percent in London to its weakest since October as hype over potential electric vehicle demand that has been driving it higher eased. The nickel market had been ignoring downside risks from policy developments in supply markets Indonesia and the Philippines, and instead focusing on potential future demand from electric vehicle batteries, said Morgan Stanley in a report.
“We (have) heard little to alter our view that producing NiSO (nickel sulphate) isn’t particularly challenging/costly and we see near-term downside risk to price,” it said.
On today’s calendar, the ECB said economic growth in the U.K. is headed for a prolonged slowdown even as the euro-area economy is forecast to expand at the fastest pace in a decade this year. And in the U.S., tax reform discussions continue. The Senate is due to release a “conceptual mark” of a proposal Thursday, according to a spokeswoman. Expected economic data include jobless claims and wholesale inventories. Dish, Disney, Johnson Controls and TransCanada are among companies reporting earnings.
Bulletin Headline Summary from RanSquawk
- European markets remain subdued, as equities trade mixed with a lack of any real direction
- GBP weaker amid a late follow-through of concerning Brexit commentary
- Looking ahead, highlights include US weekly jobs, ECB’s Lautenschlaeger and Constancio
- S&P 500 futures down 0.1% to 2,588.30
- STOXX Europe 600 down 0.2% to 393.82
- MSCI Asia up 0.1% to 171.99
- MSCI Asia ex Japan up 0.3% to 561.79
- Nikkei down 0.2% to 22,868.71
- Topix down 0.3% to 1,813.11
- Hang Seng Index up 0.8% to 29,136.57
- Shanghai Composite up 0.4% to 3,427.80
- Sensex up 0.06% to 33,239.47
- Australia S&P/ASX 200 up 0.6% to 6,049.43
- Kospi down 0.07% to 2,550.57
- German 10Y yield rose 0.2 bps to 0.328%
- Euro up 0.05% to $1.1601
- Italian 10Y yield rose 4.5 bps to 1.482%
- Spanish 10Y yield rose 3.0 bps to 1.515%
- Brent futures down 0.1% to $63.41/bbl
- Gold spot up 0.2% to $1,283.82
- U.S. Dollar Index down 0.06% to 94.81
Top Overnight News
- President Trump said China is taking advantage of American workers and American companies with unfair trade practices, but blamed his predecessors in the White House for allowing the U.S. trade deficit to grow
- The European Commission’s chief Brexit negotiator, Michel Barnier, and U.K. Brexit Secretary David Davis resume talks on the terms of Britain’s exit from the EU. Timing and duration in Brussels to be determined
- ECB’s head of banking supervision, Daniele Nouy, signaled that she’s willing to compromise on controversial plans to toughen rules on bad loans after criticism from the European Parliament that sent Italian bank shares soaring
- EU is giving U.K. an informal deadline of two to three weeks to set out how much it is prepared to pay in the Brexit divorce settlement, the Financial Times reports, citing an unidentified senior EU negotiator
- Hearing on Powell for Fed Chair set for Nov. 28
- Saudi Billionaires Said to Move Funds to Escape Asset Freeze
- AT&T CEO Says He Won’t Sell CNN as Antitrust Tension Rises
- Boeing Wins China Orders for 300 Planes Worth $37 Billion
- London House-Price Slump Persists as Brokers See Sales Tumble
- Vestas Plunges Most in 6 Years on Tougher Wind Competition
- BOE’s McCafferty Says Banks May Leave Before Brexit Deal Agreed
Risk on sentiment had been in full swing in Asia as stocks continued to edge higher at the beginning of the session, before later paring initial advances, particularly in Japanese assets. Nikkei 225 had been the notable outperformer although reversed gains of 2% as US equity futures dipped, subsequently sparking safe haven flow in the JPY, while some investors also touted profit taking. Elsewhere, the ASX 200 hovered around 10yr highs with iron ore prices seeing another day of gains, consequently supporting miners. Chinese markets traded in mixed fashion with the Hang Seng keeping afloat after encouraging Chinese CPI and PPI data which tops analyst estimates, while the Shanghai Comp fluctuated between gains and losses. 10yr JGBs are a tad lower, while underperformance has been observed in the belly of the curve with the 10yr yield ticking up 0.1bps.
Top Asia News
- Noble Group Posts $3 Billion Year-to-Date Loss as Crisis Deepens
- Inside Noble-Vitol Deal Shows Colonial Pipeline as Top Asset
- Malaysia Says It May Consider Review of Monetary Accommodation
- Malaysian Bonds Face Specter of First Rate Hike Since 2014
- Philippines Holds Benchmark Rate as Inflation Seen on Target
- Bakrieland Says Singapore Court Approves Debt Restructuring Plan
European equities trade with little in the way of any notable price action after a directionless lead from Asia after initial gains were erased. On a sector specific basis, performance has largely been off the back of individual earnings from across the continent with notable movers including Vestas Wind Systems (-16.9%), Burberry (-10.5%), Sainsbury’s (-2.9%), Siemens (-2.6%) and Commerzbank (+2.6%). Upside in Commerzbank shares has subsequently lead to some outperformance in financial names with Italian banks also providing some support amid UniCredit’s latest trading update and a sector bounceback from yesterday’s losses. No sign of any investor angst or dampened demand whatsoever, as 2023 supply was snapped up with only a 1 tick price tail. This, despite a sharp retreat in yields following the BoE rate hike and not much in the way of concession going in to the DMO tap. Note also, the issue does not fall into the more normal 5 year bucket until next year and the average auction yield was just a shade below yesterday’s closing level. However, 10 year benchmark Liffe futures have retreated from best levels to marginal new lows for the session (125.45), albeit largely alongside a general downturn in fixed (Bunds just off a new Eurex base of 163.23). In truth, debt markets are lacking clear direction and consolidating recent gains/yield declines/curve flattening.
Top European News
- Denmark’s Negative Rates Are Seen Persisting Into Next Decade
- ECB’s Nouy Bends on Bad-Loan Plan as Italian Bank Shares Soar
- U.K. Likely to See More Utility Mergers If SSE Deal Approved
- Euro-Area Growth Forecast Lifted Again as U.K. Outlook Dims
In FX, a broadly softer Greenback, largely due to ongoing US tax reform uncertainty, and supportive RBNZ impulses has enabled the Kiwi to recoup more lost ground after the RBNZ stood pat on rates at 1.75%. Accordingly, it brought forward rate hike projections to June 2019 from Q3 previously, while Governor Spencer also contended that the NZD is now fair value (although his deputy McDermott thinks a bit more depreciation is desirable). EUR is back to pivoting around the 1.1600 level vs the Dollar where large (1.7 bn) option expiries reside. USD/JPY has seen very choppy trade in line with the Nikkei, but ultimately firmer on safe-haven grounds, as USD/JJPY retreats from 114.00 again towards November lows. Currently around 113.50, bids are seen at 113.40 and then 113.00, while offers are said to be layered from 114.00-20. Riksbank meeting minutes see several members emphasising the importance of the exchange rate for the economic outlook and inflation prospects.
In commodities, iron ore prices continued to surge higher overnight with Dalian iron ore rising as much as 2% amid the persistent rise in steel prices. Precious metals gained a slight bid following the turnaround in risk sentiment, where Japan equities reversed its 2% rise to trade with losses of 1.5%. WTI and Brent crude futures trade relatively sideways with little in the way of notable newsflow other than Goldman Sachs sticking to their USD 58bbl year-end call for Brent whilst noting the ‘potential for high spot price volatility in the coming weeks’.
Looking at today’s calendar, data wise, September Germany trade data along with UK industrial production are due. Elsewhere, US initial jobless claims and wholesale inventories are also due. We’ll also receive the latest EC economic forecasts while the ECB’s Villeroy de Galhau, Coerue, Mersch, Lautenschlaeger and Constancio are due to speak. Brexit talks are due to resume between Barnier and Davis while President Trump holds meetings with China’s Xi and Li Keqiang.
US event calendar
- 7:45am: Bloomberg Nov. United States Economic Survey
- 8:30am: Initial Jobless Claims, est. 231,500, prior 229,000; Continuing Claims, est. 1.89m, prior 1.88m
- 9:45am: Bloomberg Consumer Comfort, prior 51.7
- 10am: Wholesale Trade Sales MoM, est. 0.9%, prior 1.7%; Wholesale Inventories MoM, est. 0.3%, prior 0.3%
DB’s Jim Reid concludes the overnight wrap
Needless to say that the focus for markets today will be on what details emerge from the Senate’s version of the GOP tax bill. It’s unclear just how much detail we’ll get though with some conflicting reports out there. Axios reported that the release of the bill will be delayed however Politico reported separately that GOP leaders are ready to walk through the bill with the GOP conference at 11.30 EST. Thereafter it will be released to the public but the timing is a bit up in the air so we might have to wait and see. Overnight, a spokeswoman for the Senate Finance Committee, Ms Lawless, noted that today’s tax proposal will be a “conceptual mark” rather than the legislative details.
Over in markets, the one year Trump anniversary was one of the less exciting days that we’ve had so far. Initially the tone felt a bit more risk-off with European markets generally closing a bit softer. US markets did however pare early losses into the close at least with the S&P 500 ending +0.14%. That masked another difficult day for banks however, partly influenced by the Washington Post article that did the rounds suggesting that the Senate GOP tax bill could delay the cut in the corporate tax rate by one year. Later in the day, Treasury Secretary Steven Mnuchin also refused to rule out a possible phase-in of corporate tax cuts. Meanwhile victory for the Democrats in the two Governor races in New Jersey and especially Virginia also appeared to play a factor given the midterm elections next year. It remains to be seen whether that will transpire into taking back votes across the rest of the country but nevertheless it was a statement of intent.
Meanwhile EM tensions continue to bubble under the surface with headlines never too far from the front pages. EM sovereign debt has certainty had a tough time of it in the last week or so but we’re also starting to see some signs of selling pressure in DM HY credit with Crossover and CDX HY 11bps and 7bps wider this week, respectively. All the talk in bond markets at the moment though is the flattening across the Treasury curve. Yesterday saw both the 2s10s and 5s30s curves flatten for the 9th and 10th successive day respectively. The former dropped to 68bps and has now flattened by 16bps during that run. The latter was only modestly flatter at 78bps but is still also 12bps flatter over the same time.
So as we know the Treasury curve is the flattest it’s been in 10 years and there is plenty of ongoing debate as to what is driving the recent price action. Various reasons have been suggested. Our US rates strategists have previously noted that even with a tax plan, overseas investors and pension buying of the long-end is depressing term premium and yields. Another suggestion is that with 2y yields somewhat anchored relative to the Fed’s effective rate and therefore further rate hikes, the long-end is instead being weighed down by long-end Euro rates. Unsurprisingly there is plenty of discussion about how the recent moves are indicating late cycle tendencies. One thing we would note though is that the NY Fed recession model is only showing a 9% probability of a recession in the next 12 months. While that’s up from 3% at the end of last year the overall level is still clearly fairly low based on their model but it’s worth keeping an eye on. Also worth monitoring perhaps is the whether the flattening has had much impact on bank lending when we receive the next Fed Senior Loan Survey. In the last 3 days, US banks have dropped -3.53%, so the sector has certainly materially underperformed.
This morning in Asia, China’s October CPI was slightly above consensus at +1.9% yoy (vs. +1.8% expected) and also up from +1.6% the month prior, while PPI was steady but well above expectations at +6.9% yoy (vs. +6.6% expected). Markets are trading higher in Asia, with the Nikkei powering ahead (+0.58%) to a fresh 25 year high following sound corporate results, while the Hang Seng (+0.52%) and ASX 200 (+0.55%) are also up, but the Kospi is down 0.33%. Last night Bloomberg ran an article suggesting that the White House plans to announce $250bn of business deals with China this week based on comments from Commerce Secretary Wilbur Ross. As we go to print President Trump and China President Xi Jingping are about to hold a joint briefing. This comes after Trump called the trade relationship between the two “very one sided” and the deficit “shockingly high”. Xi said that China is to become more open to foreign investment and that the nation is “unswervingly committed” to opening up.
Moving on. In the UK, PM May’s cabinet has now lost two ministers within one week after the International Development Secretary Priti Patel offered her resignation, shortly after she admitted to holding a series of unauthorised meetings with Israeli officials without the PM’s knowledge and suggested giving British aid money to an Israeli army project. In view of the increased instability around PM May’s government, some suggested this may have knock on impacts on the progress of Brexit talks. Nonetheless, the Irish PM Varadkar has signalled that Brexit talks could have a breakthrough by December, noting that “I’m more optimistic than I was in the weeks before the October Summit”. The current round of Brexit talks will resume today in Brussels.
Following on, BoE policy maker McCafferty has warned that clarity on Brexit will be needed by early next year to better allow businesses to forward plan. He noted businesses “cannot wait until the last minute”, adding that “there’s a point…even when it becomes clear what the final deal will be – whether it’s no deal or some sort of deal – the banks will have to act”. Elsewhere, the BoE’s banking regulator Mr Woods had earlier noted that it was “plausible” the UK could lose up to 75,000 jobs in the banking and insurance sector if it left the EU bloc without a trade deal.
Staying in the UK, according to a network of UK businesses monitored by the BoE, the latest agents’ summary suggest wage growth in 2018 should improve further, now likely to be 2.5%-3.5% yoy growth (up 0.5% from prior readings), in part due to a slow-down in the availability of workers, which in some ways is not too surprising given UK’s unemployment is at a 42 year low. However, while the survey noted modest growth in spending is expected to continue for the coming year, expectations in the following two years were “weaker”.
Across the pond, the Fed’s Harker noted he has “not at this point” seen anything that would push him away from a rate hike in December, which is in line with the consensus view with the odds of rate hike unchanged at 92% (per Bloomberg). Looking ahead, he has “pencilled in three (rate) increases in 2018” but noted that this is somewhat evolving as he “will reassess that as the data comes in”. On potential tax cuts, he noted “we need more specificity as to what those programs would entail”, and that “we have not put any fiscal stimulus” in our forecasts at this stage.
Before we look at the day ahead, a quick recap of the minimal economic data from yesterday. In the US, the weekly MBA mortgage applications was flat (vs. -2.6% previous). Over in Europe, Spain’s September industrial production was above expectations at +0.1% mom (vs. -0.2% expected), leading to annual growth of +3.4% yoy (vs. +3.1% expected). In France, the September trade deficit was broadly in line at -$4.67bln, although there was a $0.3bn positive revision to the prior month’s reading. Elsewhere, the current account balance was lower than expected at -$3.1bn (vs. -$1.5bn expected). This morning in New Zealand, the central bank has the left cash rate on hold at 1.75% and noted that “monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly”. Elsewhere, inflation is now expected to trough at 1.5% yoy in 1Q18 but rebound to 2.1% yoy in 2Q.
Looking at the day ahead, data wise, September Germany trade data along with UK industrial production are due. Elsewhere, US initial jobless claims and wholesale inventories are also due. We’ll also receive the latest EC economic forecasts while the ECB’s Villeroy de Galhau, Coerue, Mersch, Lautenschlaeger and Constancio are due to speak. Brexit talks are due to resume between Barnier and Davis while President Trump holds meetings with China’s Xi and Li Keqiang.
3. ASIAN AFFAIRS
i)Late WEDNESDAY night/THURSDAY morning: Shanghai closed UP 12.34 points or .36% /Hang Sang CLOSED UP 228.97 pts or 0.78% / The Nikkei closed DOWN 45.11 POINTS OR 0.20%/Australia’s all ordinaires CLOSED UP 0.55%/Chinese yuan (ONSHORE) closed DOWN at 6.6380/Oil DOWN to 56.88 dollars per barrel for WTI and 63.48 for Brent. Stocks in Europe OPENED RED . ONSHORE YUAN CLOSED DOWN AGAINST THE DOLLAR AT 6.6380. OFFSHORE YUAN CLOSED WEAKER TO THE ONSHORE YUAN AT 6.6447 //ONSHORE YUAN WEAKER AGAINST THE DOLLAR/OFF SHORE WEAKER TO THE DOLLAR/. THE DOLLAR (INDEX) IS WEAKER AGAINST ALL MAJOR CURRENCIES. CHINA IS VERY HAPPY TODAY.
3a)THAILAND/SOUTH KOREA/NORTH KOREA
NORTH KOREA//SOUTH KOREA
3b) REPORT ON JAPAN
Something snapped last night in Japan that saw a violent stock plunge only to be rescued by their plunge protection team
Japan Rocked By Violent Stock Plunge As Nikkei Tumbles 850 Points Before Recovering Losses
Something snapped in Japan today.
With Asian stocks finally breaking out a decade-long doldrum, and hitting record highs earlier in the session, and with Japanese equities starting off the session on the right foot and continuing their recent ascent which until Wednesday had seen them rise on 23 of the past 25 days, Japanese shares suddenly lurched on Thursday, plunging sharply lower after dramatic intraday swings took the Nikkei and Topix indexes to multi-decade highs only to drop in the afternoon on futures-driven trading ahead of the following day’s options settlement. All told, in a little over an hour, what had been another solid rally in Japanese stocks turned into some rather sharp clear-air turbulence, with the Nikkei 225 Stock Average plunging about 3.6% from the afternoon-session high to its low for the day.
It all started off well enough: in the morning session, the Topix notched a new 26-year high and the Nikkei 225 broke the 23,000 level for the first time since January 1992, as financial and securities shares rallied.
Then something flipped and in a gut-churning rollercoaster of a move, the Nikkei lurched from an over 2% gain which took it to a fresh 25 year high at the end of the morning session, to a loss of as much as 1.7%. The sudden reversal quickly spread to the currency market, with the yen surging before spreading across Asia: South Korean and Hong Kong equities also tumbled in sympathy. As Bloomberg snarks, “Sydney traders could count themselves lucky their market had already closed before the worst of the sell-off.”
Some traders laid the blame on technical factors – after all, the Nikkei has been on a tear, ending the day lower in just five times since the start of October (assuming Wednesday’s 0.04% “drop” was as unchanged). Others, like Bloomberg, wondered if the Nikkei had suffered a flashback: in an odd coincidence the Nikkei 225’s was its biggest reversal (points-wise) since exactly a year ago, when Donald Trump’s shock U.S. election victory rocked markets around the world… before they bounced back the next day.
Perhaps it was indeed Trump’s fault once again: the drop started with President Trump’s first visit to the region, and the slump in the Nikkei (which then weighed on South Korean and Hong Kong stocks) accelerated as Trump spoke to reporters in Beijing. Standing alongside China’s President Xi Jinping, Trump said that the world has the power to take on the North Korean “menace.”
Whether this rhetoric contributed to the market ruckus is unclear. What is clear is that the veil of comlacency was violently pierced – the Nikkei Volatility Index surged 23%, the most since August – if only for a while.
Still, when the dust settled, the Nikkei ended down just 0.2% at 22,868.71, after tumbling 850 intraday points from a morning high of 23,382.15, or up 3%, to an afternoon session low of 22,522.83, or down -1.7%, its biggest one-day move since the election of U.S. President Donald Trump one year ago. Meanwhile, the Topix ended down 0.3 percent at 1,813.11, after soaring as high as 1,844.05 in the morning and skidding as low as 1,791.12 in the afternoon.
The modest closing drop however masked a violent undercurrent, with volatility soaring 23% while volume on the Tokyo Stock Exchange’s first section came to 4.9935 trillion yen, its highest since Nov. 4, 2014. TSE first section volume came to 2.748 billion shares, its highest since Dec. 12.
Attempts to explain the mini flash crash proliferated: “There was no special news that triggered this afternoon’s volatile moves,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “It was massive position adjustment ahead of tomorrow’s SQ.” The closely watched options settlement price, known in Japan as the special quotation, or “SQ,” is calculated from the opening prices of the 225 shares in the Nikkei average on the second Friday of every month.
Other traders said algorithm-driven trading exacerbated the moves once they began. Financial and securities shares were among strong performers in the morning, though they pared their gains in afternoon trade.
Courtesy of Bloomberg, here is the full list of possible explanation for today’s sharp tumble:
Takashi Kudo (Head of corporate sales at Moneysquare Japan Inc. in Tokyo):
- There was some speculation in the market that the drop in equities was due to profit-taking by foreign investors, before the special quotation, and that dragged the dollar/yen lower
- Typically, declines in stocks lead to yen buying.
Mitsuo Shimizu (Deputy general manager at Japan Asia Securities in Tokyo):
- “The biggest factor behind today’s roller-coaster move was position adjustments ahead of the special quotation”
- “At the end of the day, people came to realize ‘well, corporate fundamentals are still good.’ And then people bought on dips toward the market close”
Hans Goetti (Founder of HG Research in Singapore):
- The afternoon drop in Japanese stocks may just be a one-day move and is nothing to worry about
- Japan stocks could rise as much as 30 percent in next few months on earnings, valuations and central bank policy
Jingyi Pan (Strategist at IG Asia in Singapore):
- “I do think the market is taking profit indeed, but likely due to the fact that it had been an opportune moment”
- Some of the rhetoric coming out of U.S. President Donald Trump’s China visit had not been the most amicable, and across haven assets, there had been some buying. The reiteration of the need to “address the unfair trade practices” had likely been one alarming the markets
Tsutomu Yamada (Analyst at Kabu.com Securities Co. in Tokyo):
- Sudden drop in the Topix and the Nikkei 225 is simply a technical adjustment as the earlier rally was too fast. Some people are taking profits after extreme market advance
Yukio Ishizuki (Senior currency strategist at Daiwa Securities Co. in Tokyo):
- A pullback triggered gains in the yen against the dollar and other currencies, while the move wasn’t triggered by any news or currency-specific issues
So was the mini crash just a one-off event, or a harbinger of the bitcoin-esque mega plunge yet to come? And was the miraculous last minute recovery another BOJ intervention? Those are all questions the bulls – not only in Japan – will be asking themselves today.
3C CHINA REPORT.
This may turn out to be very problematic for Draghi as there will not be enough Italian bonds for the ECB to purchase around their election time
5. RUSSIA AND MIDDLE EASTERN AFFAIRS
A huge paper from Meijer on the situation inside Saudi Arabia and how its finances are bleeding faster than a speeding bullet. He outlines how Saudi Arabia is joining forces with the UAE with the help of Israel and the USA in the hope of replenishing its finances
a must read..
(courtesy Raul Meijer)
Kuwait Orders Citizens To Leave Lebanon Immediately “As Precaution Against Any Negative Impact That Might Take Place”
The drums of war are beating at a deafening pace: with Saudi Arabia ordering its citizens to immediately leave Lebanon on Thursday, just a few hours later Kuwait joined in.
According to the Kuwait News Agency, citing a foreign ministry statement, Kuwait citizens currently in Lebanon are urged to leave the country immediately.
The statement said the order is due to the “circumstances experienced by Lebanon at the moment, as well as a precautionary measure against any negative impact that might take place.”
The ministry also urged citizens not to travel to Lebanon, “wishing at the same time security and stability for the Arab country.”
At this point it is safe to assume that war between Lebanon and Saudi Arabia/Israel is just a matter of time.
For those wondering what this next regional war could look like, please read our earlier article “As Israel And Saudi Arabia Target Lebanon, What Are Hezbollah’s Military Capabilities”
Saudi King May Relinquish Throne To Crown Prince Within 48 Hours: Reports
Multiple reports and rumors currently abound that the ailing king Salman could elevate his son Prince Mohammed bin Salman to the throne at any moment (or rather, it looks like bin Salman is set to seize the throne) after a shocking week of events following the so-called “corruption purge” that left the kingdom in a rare moment of internal political chaos and which further sent geopolitical shock waves through the region, most especially in Lebanon.
Multiple reports and rumors currently abound that the ailing king Salman could elevate his son Prince Mohammed bin Salman to the throne at any moment (or rather, it looks like bin Salman is set to seize the throne) after a shocking week of events following the so-called “corruption purge” that left the kingdom in a rare moment of internal political chaos and which further sent geopolitical shock waves through the region, most especially in Lebanon.
Though a transfer of power to the crown prince has long been predicted and expected, especially after a lesser known round of mass arrests targeting well-known Saudi clerics took place in September, this week’s events point to a final “house cleaning” purge in preparation for bin Salman’s likely imminent ascent.
Unconfirmed sources: SAUDI KING SALMAN TO RELINQUISH THRONE TO CROWN PRINCE BIN SALMAN “BY THE NEXT TWO NIGHTS
After the September arrests against clerics who were largely seen as regime insiders, yet who were mildly critical of the new aggressive stance against Qatar, the WSJ quoted an adviser to the Saudi government as saying, “Mohammed bin Salman is definitely preparing to become king. He wants to tackle the internal debate about him becoming the king and focus on consolidating his power, rather than doing that while being distracted by dissidents.”
During the September crackdown, which is currently receiving little commentary in relation to last weekend’s turmoil, over 30 prominent political figures were detained, most of them clerics with large social media followings and broad influence in the Arab world. The WSJ further noted at that time that…
The government has denied an abdication is planned, but several people close to the royal family say preparations have already started. The transfer of power, which several people close to the royal family had expected to occur this month, is likely to take place late this year or early next year, these people say.
At that time, one of the few commentators to rightly point out that this was not fundamentally about rounding up “outsiders” and “oppositionists” was Middle East history professor and expert on Saudi affairs, As’ad AbuKhalil. He predicted the crackdown was part of a broader campaign aimed at regime insiders and prominent voices who threatened push-back against the crown prince’s vision for Saudi foreign policy:
Unlike what some in the media are writing on social media, this crackdown is not directed against dissidents. Many of those arrested are loyal propagandists for the Saudi regime. They are being punished not for what they say but for what they are not saying: they are being punished for not being vocal against Qatar and against the Muslim Brotherhood.
Indeed, this week’s internal Saudi earthquake which has witness two deaths of prominent princes and the detention of about a dozen other princes, as well as the freezing in billions in assets, further confirms AbuKhalil’s analysis.
And AbuKhalil, who authored a book which examined internal Saudi regime fault lines called The Battle for Saudi Arabia: Royalty, Fundamentalism, and Global Power, has just made another prediction based on his extensive contacts within Saudi Arabia. Last night he said bin Salman will declare himself king in less than 2 days:
I am hearing that he will be declaring himself king in the next 36 hours and that recent arrests paved the way.
The photo released by the Saudi Royal Palace shows King Salman (R) being welcomed by his son Crown Mohammed bin Salman (L) at Jeddah airport upon his return from holiday in Morocco on August 23, 2017.
Meanwhile, it appears that Saudi state-owned Al-Arabiya news may have tipped its hand early through a mistaken post to its official Twitter account. According to Iran’s PressTV:
A Saudi-owned television news channel has retracted a message on Twitter that had said Saudi Crown Prince Mohammed bin Salman would be appointed as the king during a planned ceremony.
Al-Arabiya state television, on its Twitter account, said on Wednesday that it would soon release or broadcast further details about the scheduled ceremony.
However, the channel deleted the tweet hours later.
The regime in Riyadh is apparently seeking to examine public reaction regarding a surprise shift in power.
In early September, the Arabic-language al-Manar daily reported that bin Salman had formed a team of aides to prepare the kingdom for celebrating his succession to power as the new king.
And here is the now deleted Al-Arabiya tweet which PressTV says prematurely revealed details of the ascension ceremony:
In the next 48 hours we could have a new king in Saudi Arabia.
The story is developing
6 .GLOBAL ISSUES
Satellite images reveal that the Saudis are storing much more oil than they claim
Satellite Images Reveal Saudis May Be Lying How Much Oil They Have In Storage
A little over a year ago, specialized satellite imaging company Orbital Insight which uses its proprietary imaging and algorithms to track above-ground oil storage, confirmed something we had alleged earlier in the year: that China was vastly under-representing the amount of oil it had stored in its Strategic Petroleum Reserve (with significant implications for prices). As we said last September “according to Orbital Insight, China had not only misrepresented how much oil it has stored, it has done so at a massive scale, with the real number dwarfing even JPM own estimate: the real amount of Chinese oil in storage, according to Orbital, was a whopping 600 million barrels as of May” an amount nearly 3 times greater than the official, at the time, number of 234 million barrels.
The resultant doubt about China’s true purchasing capacity was one of the several factors that led to the subsequent swoon in oil prices which OPEC was unable to overcome until nearly a year later, when the market became increasingly confident that the OPEC strategy of eliminating excess inventory, was working and pushed the price of WTI and Brent to two year highs, above $57 and $63 respectively.
That confidence may not last, however, and the reason may be the same one as last year: Orbital Insights.
As the FT’s David Sheppard writes, “while the oil market’s attention has been gripped this week by the corruption purge in Saudi Arabia and its tensions with Iran, from miles above the earth’s crust one company is highlighting a different kind of intrigue.” He is, of course, referring to Orbital Insight, whose analysis of Saudi crude inventories in recent months has thrown up an “interesting anomaly.’
One can call it an “anomaly”, but a better explanation of what the company has done is to catch the Saudi kingdom in lying about its inventories. Here is the official narrative:
The kingdom, which has led Opec and Russia in co-ordinated output cuts since January, has for months been reporting to official agencies that its oil held in storage has been falling, which alongside lower production has been one factor that has helped propel Brent crude oil back above $60 a barrel.
There is just one problem: it’s a lie: “Orbital’s analysis of satellite imagery suggests that Saudi Arabia’s above-ground tanks — whose floating roofs allow them to see when oil inventories are rising or falling by measuring shadows cast across the top of the tanks — have seen no real change in the past 18 months.”
This, Orbital says, is interesting because before early 2016, movements in above-ground storage closely tracked the trend in Saudi’s official numbers submitted to the Joint Organisations Data Initiative that are crucial for traders and analysts trying to get a grip of the near 100m barrel-a-day oil market.
In other words, the Saudis did not always lie about their inventory – it’s only recently that the nation decided to “pull a China” and misrepresent its true crude inventories… in fact, it only started as OPEC began aggressively jawboning the market to send the price of oil higher in the buildup to the Nov 2016 Vienna production cut agreement. In the process, OPEC’s most important member would do anything to give the fake impression there is more demand, and thus less oil in storage, than there really was.
How much? Here’s the FT’s punchline: “While Saudi Arabia has reported to Jodi that its oil stocks have declined by about 70m barrels since early 2016, the Orbital analysis suggests the above-ground tanks have actually seen inventories rise marginally over the same period.”
If confirmed, Orbital’s startling allegation would imply that for much of the past two years, OPEC has been actively engaged in doing what it does best: cheating, not only the market, but also other cartel members, because if Saudi peers found out that Saudi Arabia was quietly warehousing tens of millions of barrels in excess oil to give the false impression of high demand, then everyone else would start doing it. Come to think of it, maybe they are…
Still, as the FT and Orbital point out, there are a few caveats. For one, Saudi Arabia’s official storage numbers include oil held overseas, in key regional hubs. It also covers line-fill for pipelines and underground tanks that cannot be monitored by eyes in the sky. These factors may account for why the numbers no longer seem to match up — though they do raise other questions. Orbital says that changes in inventory levels in above-ground domestic storage tanks are normally noticeable normally first as they are easiest to access. Saudi’s Jodi numbers and what Orbital can see through its algorithmic analysis of the satellite imagery had previously tracked each other closely.
“The floating tank data is the part that we think is most indicative of short-term changes in storage,” said James Crawford, chief executive of Orbital Insight. “The big question is why that no longer jives with the government data that shows a pretty big drop.”
There may be another explanation and it has to do with keeping higher oil storage levels at home than abroad. As the FT explains, “the most intriguing suggestion for the shift is more strategic: Riyadh’s own concerns about rising tensions with its neighbours.”
“[The] reason for no real deep stock draw in [the] kingdom will be mainly security related,” said Cyril Widdershoven, who runs the Verocy consultancy.
That suggests, he said, that Saudi Arabia is concerned enough about its deteriorating relationship with Iran, and to a lesser degree Qatar, to keep higher oil stocks at home in case of any disruption.
To be sure, with Crown Prince Mohammed bin Salman saying this week that Iran’s support for Houthi fighters in Yemen, and the provision to them of missiles capable of striking deep into the kingdom, constitutes an act of war, “it is certainly an intriguing theory”, one which Shepperd writes that “at times of heightened tension between two of Opec’s biggest producers it is one the market may start tracking closely.”
And while there is no definitive explanation for the inventory discrepnacy observed by Orbital, what makes this mystery especially intriguing is how polar opposite the two most likely explanation are in terms of oil prices: either Saudi Arabia is covering up the lack of demand and warehousing excess oil, which will eventually send oil prices sliding, or if the “security-related” explanation is accurate, then Saudi Arabia is indeed preparing for war with Iran, which once the shooting begins will send the price of oil into the stratosphere.
8. EMERGING MARKET
Venezuela Just 24 Hours Away From Formal Declaration Of Default
Less than a week after Venezuela shocked the world by announcing it would proceed to restructure its massive external debt, even as it was within the grace period on hundreds of millions in unpaid interest expense, on Thursday the socialist nation confirmed it has never been closer to an official default after Reuters reported that Venezuela’s state oil-firm company, PDVSA, has not made a debt payments to India’s top oil producer ONGC for six months, and has previously used a Russian state-owned bank and another Indian energy company as intermediaries to make payments.
Reuters sources noted that PDVSA has made no payment since April on what was a $540 million backlog of dividends owed to ONGC for an investment the Indian firm made in a an energy project in Venezuela. Venezuela’s President Nicolas Maduro said last week that the country planned to restructure some $60 billion of bonds, much of it held by PDVSA, as the country struggles to meet debt repayments.
While ONGC Videsh – the overseas investment arm of ONGC confirmed to Reuters that PDVSA had fallen behind on the payments, but declined to give details on the delays.
Curiously, the Indian company appears not to be overly concerned about non-payment for half a year, and instead was willing to keep giving Maduro the benefit of the doubt: “They have got certain challenges at this stage,” ONGC Videsh said in an emailed response to Reuters’ questions. “They have assured that they are working on it (payment of dues). In due course it will be settled and follow up steps will be undertaken.” And just to underscore that it has no intention of pushing Venezuela into involuntary bankruptcy, ONGC added that “we have a good working relationship with PDVSA.”
And while we commend India’s camaraderie, Venezuela may be declared insolvent as soon as Friday morning. According to the FT reports that despite promises to the contrary from Caracas, PDVSA did not in fact make a $1.1 billion payment which was due last Friday, and while some bondholders said they expected the money to arrive soon, others pointed out that the payment deadline had clearly been missed regardless.
“There has been no official communication on the payment delays. It is really odd that funds haven’t been received with sufficient time to process if the funds were sent last week as officials indicated,” said Siobhan Morden, head of Latin American bond strategy at Nomura.
As a result, an official declaration of default may be imminent: according to Bloomberg, ISDA has agreed to review a request to determine whether an event of default has occurred due to delayed principal payments on the Petroleos de Venezuela SA bond that matured Nov. 2. The ISDA Determinations Committee will hold its first meeting regarding PDVSA at 11am on Friday, November 10, although at this point the decision is trivial: the 5 year implied probability of a PDVSA default climbed to 99.99% on Wednesday from 93.25% a year ago, according to credit-default swaps data compiled by Bloomberg.
“We’re not sure when or how long this will take, but we wouldn’t expect it to take too long,” noted Stuart Culverhouse, chief economist at Exotix. “It might be possible to argue that Venezuela made the payment but this was not transferred to holders because of problems in the payment chain, although CDS were triggered in Argentina in 2014 in a similar situation.”
In anticipation of the default, international banks and suppliers have reduced, and in most cases halted, credit to PDVSA since cash flow problems led the firm to start delaying payments to creditors in 2014. U.S. sanctions against Venezuelan officials including PDVSA executives, have also deterred banks from offering credit.
* * *
With all that said, the saga of Venezuela’s constant “pre-default” state is clearly coming to a close: in addition to the ISDA meeting tomorrow, on Monday, Nov. 13, a bond restructuring meeting is set to take place between the nation and its creditors which however is expected to yield little; in fact US investors will be wary of even attending, given that the person leading the Venezuelan side of the talks, vice-president Tareck El Aissami, has been sanctioned by the US Treasury as an alleged drug smuggler.
Investors had previously said that the potential presence of sanctioned Venezuelan officials in that meeting has raised concerns that joining it could violate sanctions, although Venezuela has promised that no sanctioned personnel would be present.
Investors have valid reason for concern: as Bloomberg reported earlier this week, lead Venezuela debt negotiator is Vice President Tareck El Aissami: he was sanctioned by the U.S. Treasury Department this year after accusations he oversaw a cocaine-smuggling network, and remains one of the nation’s iron-fisted political operatives.
Often in charge of delivering President Nicolas Maduro’s most critical messages, he blasts critics publicly, exposing supposed conspiracy rings and threatening legal action against dissident leaders from National Assembly President Julio Borges to Luisa Ortega, the public-prosecutor-turned-whistle-blower.
And now, Tareck is in charge of convincing bondholders to accept haircuts voluntarily, or as Bloomberg puts it, “of a delicate financial dance in which investors and funds risk running afoul of the U.S. Office of Foreign Assets. Not only do U.S. sanctions prohibit Americans from receiving new bonds that Venezuela would hand them as part of a restructuring, but El Aissami is designated as a narcotics trafficker under the Kingpin Act. American corporate officers dealing with him run the risk of fines and prosecution of as much as $5 million and 30 years in prison.”
“Nobody will want to go near something that could be an OFAC violation,” said Robert Koenigsberger, chief investment officer at Gramercy Funds Management, which dumped its Venezuela debt a year ago. “If the Venezuelans say, ‘We want to talk over the restructuring with you,’ I’d say, ‘I’m not letting you in the building.’ I like sleeping in my own bed at night.”
Which means that for those following the Venezuela default drama, next week could be especially exciting.
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings THURSDAY morning 7:00 am
Euro/USA 1.1634 UP .0039/ 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 RED
USA/JAPAN YEN 113.35 DOWN 0.562(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 1.3127 UP .0017 (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 1.2695 DOWN .0033(CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT AND GREXIT FROM EU/(TRUMP INITIATES LUMBER TARIFFS ON CANADA)
Early THIS THURSDAY morning in Europe, the Euro ROSE by 39 basis points, trading now ABOVE the important 1.08 level RISING to 1.1634; / Last night the Shanghai composite CLOSED UP 12.34 POINTS OR .36% / Hang Sang CLOSED UP 228.97 POINTS OR 0.79% /AUSTRALIA CLOSED UP 0.55% / EUROPEAN BOURSES OPENED RED
The NIKKEI: this TUESDAY morning CLOSED DOWN 45.11 POINTS OR .20%
Trading from Europe and Asia:
1. Europe stocks OPENED RED
2/ CHINESE BOURSES / : Hang Sang CLOSED UP 228.97 POINTS OR 0.78% / SHANGHAI CLOSED UP 12.34 POINTS OR .36% /Australia BOURSE CLOSED UP 0.55% /Nikkei (Japan)CLOSED DOWN 45.11 POINTS OR 0.20%
INDIA’S SENSEX IN THE RED
Gold very early morning trading: 1286.75
Early THURSDAY morning USA 10 year bond yield: 2.3334% !!! UP 1 IN POINTS from TUESDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%. (POLICY FED ERROR)
The 30 yr bond yield 2.805 UP 1 IN BASIS POINTS from WEDNESDAY night. (POLICY FED ERROR)
USA dollar index early THURSDAY morning: 94.56 DOWN 30 CENT(S) from YESTERDAY’s close.
This ends early morning numbers THURSDAY MORNING
And now your closing THURSDAY NUMBERS \1 PM
Portuguese 10 year bond yield: 2.045% UP 4 in basis point(s) yield from WEDNESDAY
JAPANESE BOND YIELD: +.03% UP 1/2 in basis point yield from WEDNESDAY/JAPAN losing control of its yield curve/
SPANISH 10 YR BOND YIELD: 1.533% UP 5 IN basis point yield from WEDNESDAY
ITALIAN 10 YR BOND YIELD: 1.816 UP 6 POINTS in basis point yield from WEDNESDAY
the Italian 10 yr bond yield is trading 29 points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.375% UP 5 IN BASIS POINTS ON THE DAY
IMPORTANT CURRENCY CLOSES FOR THURSDAY
Closing currency crosses for THURSDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/1:00 PM
Euro/USA 1.1645 UP ,0049 (Euro UP49 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 113.31 DOWN 0.603(Yen UP 60 basis points/
Great Britain/USA 1.3135 UP 0.0024( POUND UP 34 BASIS POINTS)
USA/Canada 1.2693 DOWN.0034 Canadian dollar UP 34 Basis points AS OIL ROSE TO $57.16
This afternoon, the Euro was UP 49 to trade at 1.1645
The Yen ROSE to 113.31 for a GAIN of 60 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 ROSE BY 24 basis points, trading at 1.3131/
The Canadian dollar ROSE by 34 basis points to 1.2694 WITH WTI OIL RISING TO : $57.16
Your closing 10 yr USA bond yield UP 1 IN basis points from WEDNESDAY at 2.326% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 2.806 UP 3 in basis points on the day /
Your closing USA dollar index, 94.54 DOWN 33 CENT(S) ON THE DAY/1.00 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 THURSDAY: 1:00 PM EST
London: CLOSED DOWN 45.62 POINTS OR 0.61%
German Dax :CLOSED DOWN 199.86 POINTS OR 1.49%
Paris Cac CLOSED DOWN 63.68 POINTS OR 1.16%
Spain IBEX CLOSED DOWN 87.60 POINTS OR 0.86%
Italian MIB: CLOSED DOWN 189.99 POINTS OR 0.83%
The Dow closed DOWN 101.42 POINTS OR .43%
NASDAQ WAS closed DOWN 39.06 Points OR 0.58% 4.00 PM EST
WTI Oil price; 57.16 1:00 pm;
Brent Oil: 63.93 1:00 EST
USA /RUSSIAN ROUBLE CROSS: 59.38 UP 15/100 ROUBLES/DOLLAR (ROUBLE LOWER BY 15 BASIS PTS)
TODAY THE GERMAN YIELD RISES TO +.375% FOR THE 10 YR BOND 1.00 PM EST EST
This ends the stock indices, oil price, currency crosses and interest rate closes for today 4:30 PM
Closing Price for Oil, 4:30 pm/and 10 year USA interest rate:
WTI CRUDE OIL PRICE 4:30 PM:$57.10
USA 10 YR BOND YIELD: 2.333% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 2.812%
EURO/USA DOLLAR CROSS: 1.1640 UP .0045
USA/JAPANESE YEN:113.44 up 0.481
USA DOLLAR INDEX: 94.53 DOWN 34 cent(s)/
The British pound at 5 pm: Great Britain Pound/USA: 1.3148 : UP 36 POINTS FROM LAST NIGHT
Canadian dollar: 1.2674 UP 54 BASIS pts
German 10 yr bond yield at 5 pm: +0.375%
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM FOR THE DAY
Tax Tantrum Sparks Stock Slump As Credit Crash Continues
To the middle class…
Before we start, don’t forget the chaos in Japan overnight…
Gold remains the biggest winner in the post-Saudi-chaos world…
The Dow’s 7-day win streak is broken… Trannies were worst
VIX pushed higher on the Senate tax bill (topping 12), but soon enough the army of vol-selling-machines stepped in and righted the ship…
‘High Tax’ Companies dropped early but rebounded as details came out….
Big tumble in FANG stocks at the open but that dip was bid…
Financials continued to underperform (even with modest steepening of the curve today)…
And homebuilders rallied on the normalization of interest deduction…
As stocks catch down to credit’s weakness…
High Yield Bond prices (HYG) are at 8 month lows…
VIX has started to creep higher but has further to go to fit with credit risk…
Mixed picture in bond land today with the short-end modestly bid (yields lower) and long-end the opposite… (30Y and 10Y remain lower on the week)…
The Dollar Index tumbled to its lowest since Oct 26th…
Bitcoin slid on the day… as traders rotated back to ETH as the hopes of a fork dividend fade.
Copper remains lower on the week – following hotter than expected China inflation – and gold and crude managed modest gains on the day…
Early trading in the uSA as tax cut hopes fade:
Stocks Sink As Tax-Cut Hopes Fade, Junk Bonds Hit 8-Month Lows
Sell the news? Stocks are slumping (following Japan’s overnight volatility) as traders await tax-cut legislation from the House Ways and Means Committee (and The Senate will also release its own version).
High-Tax companies are underperforming…
And Junk bonds just hit the lowest since March…
Whether this selling due to disappointment in what is expected to be in the bill… or an expectation that it will not pass anyway – is unclear.
The markets tanked on news that the Senate tax plan is to delay the corporate tax cut until 2019
Stocks Tumble On News Senate Tax Plan To Delay Corporate Tax Cut Until 2019
Confirming reports from earlier this week that the Senate GOP tax plan would delay the corporate tax cut for (at least) one year, a move that would strip the proposed tax reform of its most potent benefit, moments ago the Wapo reported that in a few hours, Senate Republicans will propose delaying a cut in the corporate tax rate from 35 percent to 20 percent until 2019. Bloomberg confirmed the news, quoting Bill Cassidy who said in an interview that that Senate Finance Committee tax legislation proposal will include a one-year delay before cutting the corporate tax rate to 20%.
The compromise would be a major departure from President Trump’s insistence on immediate changes that he says “are necessary to spur the economy.” And while some Senate Republicans objected to the one year delay, they were overruled.
As Bloomberg adds, the Senate tax writers will also propose keeping number of individual income-tax brackets at seven in a departure from the House bill that condenses the number to four, Sen. Bill Cassidy tells reporters. Cassidy also says Senate proposal won’t keep top rate at 39.6%, though doesn’t state what new top individual rate would be
In an attempt to offset the delayed economic boost from excess corporate spending, the WaPo explains that to prevent companies from waiting until 2019 to invest, “Senate Republicans will propose to allow companies to immediately deduct all capital investments in 2018 to incentivize them to spend more money immediately, the people said.”
The reason for the delay is simple: there is not enough revenue. “The one-year delay would lower the cost of the tax cut bill by more than $100 billion, and negotiators are trying to preserve as much revenue as they can for other changes.” The revision could also delay decisions by companies to move back to the United States from overseas or have companies hold off on other decisions as they wait for the corporate rate to fall.
As we have explained previously, the Senate approach is different than House Republicans are taking as it is limited by practical considerations: while the House is advancing a bill that would lower the corporate tax rate in 2018, they are also having problems dealing with the total cost of their bill, which has ballooned beyond the $1.5 trillion price tag they were permitted under budget rules.
And while Treasury Secretary Steven Mnuchin told Bloomberg yesterday that the White House’s “strong preference” would be for the tax cut to go into effect next year, the White House is not expected to threaten blocking the bill over this change.
In other words, despite the various teasers how the 1 year delay is immaterial, the biggest boost to the economy from the Senate’s tax bill is about to be eliminated. The result was immediate, with stocks dumping and the VIX spiking.
Then the release of the simplified Senate version of tax cuts:
a key part is the removal of SALT DEDUCTIONS which will have no chance of passing the house.
Details Of ‘Simplified’ Senate Tax Bill Start To Leak: 7 Tax Brackets, Scraps All SALT Deductions
As the House tax bill hits the wires, leaked details of the Senate’s tax bill are coming out…
There will be 7 tax brackets – considerably more complex than the 3 brackets in the House bill
Senate tax legislation will keep seven tax brackets but alter the rates, GOP Sen. John Hoeven tells reporters.
Hoeven says the brackets will be set at 7%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5% (lower than the current top tax rate of 39.6%)
Hoeven also says the top tax rate starts at $500k for individuals.
The Senate tax bill would fully repeal state and local tax breaks that have become a hot-button issue in the House, Senator John Hoeven said.
The so-called SALT deductions tend to benefit people in high-tax states. House Republican tax writers ran into opposition from fellow GOP members in states including New Jersey, New York and California when they first proposed to do away with the deductions — a move that would raise as much as $1.3 trillion over 10 years to help pay for the deep rate cuts the GOP wants to allow.
As a compromise, House Ways and Means Chairman Kevin Brady amended his bill to preserve the break for state and local property taxes only — a deal that would still eliminate the deduction for state and local income taxes or sales taxes.
Brady’s suggestion would cap the property tax break at $10,000.
The Senate Bill is said to double the estate tax deduction.
The Senate tax bill would reduce the number of people subject to the estate tax, but leave the levy in place, according to a Republican senator who was briefed on the bill.
The House bill would eliminate the estate tax — a long-sought goal of conservatives — after 2023.
Current law applies a 40 percent tax to estates worth more than $10.98 million for married couples, and half that amount for individuals. The Senate bill would double those thresholds, but leave the tax in place, said the senator, who asked not to be named because the bill isn’t public yet.
The Senate Finance Committee’s tax overhaul plan will keep an interest deduction for existing mortgages up to $1m, a break from House legislation currently in committee, GOP Sens. Tim Scott and John Hoeven tell reporters.
The House bill would cap the tax break at $500k for new home purchases.
And finally, Elon Musk wins, a $7,500 tax credit for electric vehicle purchases not changed in Senate tax bill, according to Sen. Dean Heller, R-Nev.
The House tax blueprint would repeal credit that provides $7,500 per electric vehicle tax credit to purchasers.
More details to come later.
Trump who is now in Beijing slams China for unfair trade despite praising XI. He blames China’s predecessors.
Trump Slams China For Unfair Trade But Praises XI, Blames Predecessors; Unveils $250BN In Deals
President Trump held a press conference with one of the most powerful people in the world and the event was… underwhelming. It didn’t last long, the two stood fairly far apart at their lecterns and afterwards ignored questions from reporters (presumably in case one asked Xi about press freedoms again). In brief, we were informed about improving Sino-US relations, progress being made on the trade balance and co-operation on the North Korean issue and both leaders said it was a great success. On another sensitive subject, Xi’s asserted that the Pacific Ocean is big enough for both countries.
Here is how the press conference was characterised by the South China Morning Post (SCMP).
Trade and North Korea predictably topped the bill, but they also discussed security cooperation and the relationship between their citizens. The joint press conference lasted less than 15 minutes, with both leaders staying on-script to speak about further cooperation on a range of bilateral issues, from security on the Korean peninsula to Sino-US trade tensions. Both heralded the trip as a success. The joint press conference ends, with both leaders ignoring shouted questions from reporters. Journalists were told ahead of the conference that they would not be allowed to ask questions, after a New York Times reporter embarrassed Xi during Barack Obama’s 2014 visit with a question about press freedom in China.
In one of the more memorable statements by Trump, the US President said China is taking advantage of American workers and American companies with unfair trade practices, but he blamed his predecessors in the White House rather than China for allowing the massive U.S. trade deficit to grow.
“Right now, unfortunately, it is a very one-sided and unfair [relationship]. But – but – I don’t blame China. After all, who can blame a country for taking advantage of another country for the benefit of its own citizens? I give China great credit. But in actuality I do blame past administrations for allowing this out of control trade deficit to take place and to grow. We have to fix this because it just doesn’t work … it is just not sustainable.”
Speaking alongside President Xi Jinping on Thursday at a briefing in Beijing, Trump’s words were in contrast to what he said was a “very good chemistry” between the two leaders as they announced $250 billion in investment deals, many of which came in the form of tentative agreements
Below are some of the “key” moments from SCMPs live feed during this underwhelming press conference.
- Xi says Trump’s China trip is a success, and China is willing to further promote the development of Sino-US relations
- Xi said it is necessary to have continued in-depth of discussion on trade and lessen restrictions on the investment environment.
- Xi says the two also discussed the need to strengthen United Nations peacekeeping operations, as well as joint counter-terrorism efforts in places such as the Middle East and Afghanistan.
- Xi tells the press conference he has told Trump that The Pacific Ocean is big enough to accommodate both China and the United States.
- Xi says he explained the outcome of the recently concluded Communist Party congress to Trump.
- Trump thanks Xi for the welcoming ceremony this morning, describing the Forbidden City as “majestic.”
- “Your people are also very proud of you,” Trump said, as he congratulates Xi for the “successful” 19th party congress last month.
- Trump said he looks forward to building an “even stronger relationship” between China and the US, as well as further exchanges between the people of their nations.
- Trump said the two discussed bilateral trade issues such as forced technology transfers, market access, and the “chronic imbalance” in trade.
- On North Korea, Trump says China has agreed to step up economic pressure until the Kim regime gives up its nuclear ambitions.
The subject of North Korea had seen Trump at his most firm with his Chinese hosts earlier in the day, as The Guardian reports.
“But time is quickly running out. We must act fast, and hopefully China will act faster and more effectively on this problem than anyone…China can fix this problem easily and quickly and I am calling on China and your great president to hopefully work on it very hard. I know one thing about your president: if he works on it hard it will happen. There is no doubt about it.”
The main focus, however, was always going to be the trade issue. What surprised us was Trump’s about turn on blaming China for the trade deficit, to blaming previous governments in his own country. Perhaps he was simply overwhelmed by the (apparent) warmth of the welcome he received from Xi and the rest of the Chinese leadership.
Excuse our cynicism, but we suspect that the Chinese appreciated that Trump would need something to “show” (or tweet) on the trade issue…and that’s what he was given. The highlight of Trump’s visit to Beijing, which is grabbing the headlines, is obviously the $253 billion of trade deals (see below) which were signed during Trump’s visit. With Trump having spent the best part of two years, before and after his election, lambasting China for the trade deficit, Xi played “Mr Nice Guy” on trade. Indeed, this is precisely what we expected, see our preview of Trump’s visit “Will Xi Offer Trump A Small Victory On Trade As Cover For His Longer-Term Ambitions” here. However, as the BBC noted.
They also announced the signing of $250bn (£190bn) worth of business deals during Mr Trump’s visit, although it is unclear how much of that figure is past deals being re-announced or simply the potential for future deals.
Bloomberg was equally sceptical.
The White House has unveiled a slew of agreements with China as President Donald Trump seeks to address an imbalance in trade. While Commerce Secretary Wilbur Ross boasted a total of $250 billion in business deals, it’s unclear how one gets to that figure. Many of them weren’t broken out into separate valuations, while a large number were in the form of nonbinding memoranda of understanding or involved agreements with existing Chinese partners.
As we noted in our preview and still stand by.
…our suspicion is that Xi’s plan is to offer a “victory” to Trump with regard to reducing the trade gap, but only a small one. Meanwhile, China will continue with its longer-term “Mackinder-esque” plan to integrate the Eurasian continent via its “One Belt, One Road Plan” and undermine the dollar by accumulating gold and steadily increasing non-dollar trade. If it wasn’t for the small matter of China’s horrendous credit bubble, the US would have an even weaker hand.
Below Bloomberg looks into the $253 billion of trade deals and tries to make sense of the winners and losers.
The White House has unveiled a slew of agreements with China as President Donald Trump seeks to address an imbalance in trade. While Commerce Secretary Wilbur Ross boasted a total of $250 billion in business deals, getting to that figure may require some fuzzy math. Many of the deals weren’t broken out into separate valuations, while a large number were in the form of non-binding memoranda of understanding or involved agreements with existing Chinese partners.
Boeing Co.’s $37 billion aircraft order consists mostly of previously agreed deals, according to officials with knowledge of the matter. An agreement involving Cheniere Energy Inc. was presented at the signing ceremony as worth $11 billion, though neither company involved announced the value. Other pacts are stretched over lengthy periods, such as a 20-year shale gas and chemical project in West Virginia.
Still, the wave of deals signals the potential for an easing of tensions between the two countries, in addition to an increase in trade for products ranging from helicopters to beef. Here are highlights of what’s been disclosed so far:
Alaska Gasline Development Corp.: a joint agreement to advance a liquefied natural gas project in Alaska, involving the state of Alaska, Sinopec, China Investment Corp. and Bank of China Ltd. The project has been in discussion for years, and Alaska Gasline applied for federal approval for the development in April. Exxon Mobil Corp., ConocoPhillips, BP Plc and TransCanada Corp. have been involved in the effort, but have distanced themselves since estimating in 2012 that it would cost as much as $65 billion and take more than a decade to construct.
Air Products & Chemicals Inc.: the industrial gases company and state-owned Yankuang Group Co. intend to form a joint venture to build and operate an air separation, gasification and syngas clean-up system for a $3.5 billion coal-to-syngas production facility. Air Products is currently a supplier to the first phase of the project. Earlier this year, Air Products scrapped its plan to acquire China’s Yingde Gases Group Co. after a private-equity firm swooped in.
Boeing: China Aviation Supplies Holding Co. agreed to buy 300 aircraft worth about $37 billion before discounts that are customary in the industry for large orders. Boeing didn’t disclose how many are new orders. The state has previously placed large orders through a centralized buyer before dividing them up among its airlines and leasing companies. Chinese airlines have been on a plane-buying spree amid a projection for the country to overtake the U.S. as the largest air-travel market possibly in as soon as in five years.
General Electric Co.: Juneyao Airlines ordered GEnx engines for its Boeing 787 fleet and ICBC Leasing ordered LEAP-1B engines for Boeing 737 MAX aircraft. The list prices for the two deals totaled $2.5 billion. GE also said it signed a cooperation agreement with China Datang Group to provide the Chinese company with gas turbines and other products and services.
Honeywell International Inc.: contract with Spring Airlines Co., the Chinese budget carrier that flies over 130 routes with a fleet of Airbus A320 planes. The U.S. company is a supplier for the C919, a new single-aisle plane being produced by state-owned Commercial Aircraft Corp. of China Ltd.
Bell Helicopter: the subsidiary of Textron Inc. signed an agreement to sell 50 of its helicopters to Reignwood International Investment Group Co. The company had already ordered 60 choppers, according to Bell Helicopter.
Ford Motor Co.: Ford gave financial details of an electric-vehicle alliance with China’s Anhui Zotye Automobile Co. that was first announced in August. The companies will invest 5 billion yuan ($754 million) to develop the cars they’ll sell under a new brand unique to the Chinese market. Ford has said at least 70 percent of its own Ford-brand vehicles sold in China will offer electric or hybrid propulsion by 2025.
Beef and Pork: JD.com Inc. agreed to buy $1.2 billion of beef from the Montana Stock Growers Association and pork from Smithfield Foods Inc. over the next three years, as part of a deal by the Chinese online retailer to import $2 billion of U.S. goods over that period.
The beef portion, about $200 million, would signal a big increase in the appetite for red meat among Chinese consumers, as shipments remain low due to the limited supply that meets requirements. According to China’s Customs General Administration, the country imported 2.3 billion yuan of beef last year.
The pork deal may not be much help creating jobs at Smithfield’s U.S. factories: The company can’t sell made-in-America sausage, ham and bacon to Chinese consumers because China prohibits imports of processed meat, CEO Kenneth Sullivan said in an interview in March. Smithfield parent WH Group opened an 800 million-yuan factory in central China in 2015 to produce American-style packaged meat products.
Archer-Daniels-Midland Co.: memorandum of understanding with state-owned COFCO Group for the export of U.S. soybeans into China.
Goldman Sachs Group Inc.: China’s sovereign wealth fund and Goldman Sachs announced a fund to help invest as much as $5 billion in American companies that have existing or potential business connections with China. State-backed China Investment Corp.’s role in the fund could complicate investments in American companies, after the Trump administration in September rejected a China-led takeover of a U.S. chipmaker on national-security grounds. Moreover, Goldman Sachs may only be able to contribute 3 percent of the fund because of U.S. rules regarding banks’ private-equity investments.
Qualcomm Inc.: non-binding MOUs with Chinese smartphone vendors Xiaomi, Oppo and Vivo – all of them current customers – to sell approximately $12 billion in semiconductors over three years. The San Diego-based chip company’s China sales of $14.6 billion accounted for 65 percent of its revenue for the fiscal year ended Sept. 24.
DowDuPont Inc.: memorandum of understanding between Dow Chemical and Beijing Mobike Technology Co. to cooperate on developing lighter-weight and more environmentally friendly bicycles. The two companies began working together last year, the official China Daily reported Tuesday.
Caterpillar Inc.: cooperative framework agreement with newly formed China Energy Investment Corp. — a combination of Shenhua Group Corp., the nation’s largest coal miner, and China Guodian Corp., one of its top-five power generators. The pact “outlines future agreements” for sales and rentals of Caterpillar mining equipment and other products and services, the U.S. company said in a statement. Honeywell International: an MOU with Oriental Energy Co. to cooperate on five propane dehydrogenation projects in Chinese cities. Honeywell announced in May that two Oriental Energy subsidiaries had licensed its technology to begin producing propylene.
The Republican Tax Plan Will Crush These Housing Markets
For the past few weeks, Chuck Schumer and Nancy Pelosi have screamed to anyone who would listen that the GOP tax plan is nothing more than a tax break for millionaires and an attack on middle class working families. But, as the Wall Street Journal points out this morning, America’s millionaire, billionaire, private jet owners living in expensive urban areas are set to lose ‘bigly’ if Trump’s $500,000 cap on the mortgage interest deduction survives.
But in the priciest markets, concentrated in some of the nation’s largest coastal cities, the impact could be significant. In the San Jose, Calif., metropolitan area, 75% of new mortgage loans thus far in 2017 were for more than $500,000, according to an analysis by CoreLogic Inc., a housing data provider. The median home price there is more than $1 million, and even small starter homes can climb well above the proposed cap.
In the San Francisco metro area, 60% of new loans were for more than $500,000, while in Los Angeles and San Diego, the figures were 44% and 37%, respectively.
The impact wouldn’t be limited to California. In Honolulu, 48% of loans were greater than $500,000, while the figures for the New York area and Seattle were 22% and 25%, respectively.
An analysis by ATTOM Data Solutions yielded similar results. In the Washington, D.C., area, 35% of purchase and refinance loans in 2017 thus far were for more than $500,000. In Hawaii, 15% of loans fell into that category, while in California 12% did.
In addition to capping the mortgage interest deduction, the current GOP bill also limits the amount of property taxes that households can deduct to $10,000 annually.
Not surprisingly, the assault on McMansions has angered the realtor lobby which we’re certain will fight tooth and nail to preserve the status quo.
Jeff Barnett, a California realtor and vice chairman of the National Association of Realtors’ large-firm real-estate services committee, said his area will be hit “very, very hard” if the tax bill passes. Even if corporate tax cuts help boost the economy, he doesn’t think that will be enough to compensate.
“You’ve taken away so many incentives for housing, they can’t spend” the money from any extra economic growth, he said.
Of course, as we pointed out earlier this week (see: Trump Is About To Crush Home Prices In Counties That Voted For Hillary: Here’s Why),Clinton won the vote in the top 45 counties in the country with the highest median home prices which has resulted in rampant speculation that the mortgage cap is nothing more than a clever punishment levied on Democratic voters.
As Dennis Lee calculated, “assuming that all of these homeowners are taxed at a marginal rate of 39.6%, we find that the increase in tax burden during the first 12 months of homeownership driven solely by the mortgage interest and property tax deduction caps varies from $0 for the county with the 20th highest median home price (San Miguel County, Colorado) to approximately $7,200 for the highest-priced county (San Francisco County, California).” Barclays’ conclusion: these counties – all of which are largely pro-Clinton – would need a 0-11% decline in their median home prices to keep the after-tax monthly mortgage and property tax payments the same for would-be buyers.
Of course, only time will tell whether the swamp (a.k.a. “The National Association of Realtors” in this case) will allow this particular component of the GOP tax bill to survive…
Now Federal prosecutors are leaning on estranged son in law of Paul Manafort to turn on him
Prosecutors Push Plea Deal In Investigation Of Manafort Son-In-Law
After he was named in the grand jury indictment of Paul Manafort and Rick Gates, many in the media speculated that Special Counsel Robert Mueller might also be pursuing an indictment against Manafort’s estranged son-in-law, Jeffrey Yohai, who memorably accused his one-time father-in-law and financial backer of ‘conspiring’ to mislead a federal bankruptcy court back in September.
While the speculation wasn’t wrong, the Wall Street Journal reported Thursday that prosecutors in a separate probe are seeking a plea deal with Yohai, though the exact nature of the charges being pursued – and any relationship they might have to the charges listed in the indictment – are not yet known. It’s unclear if Yohai is also still being investigated by Mueller.
The Justice Department is seeking to reach a plea deal in its criminal investigation of the former son-in-law of Paul Manafort, President Donald Trump’s one-time campaign chairman, according to people familiar with the matter.
The investigation into Jeffrey Yohai—who hasn’t been charged with any crime—by the Federal Bureau of Investigation and U.S. attorney’s office in Los Angeles is separate from the Washington-based probe of his former father-in-law and others by Special Counsel Robert Mueller, who is examining Russian influence on last year’s presidential election, some of the people familiar with the situation said.
As the investigation into Yohai’s failed house-flipping projects progressed, federal prosecutors reached out to Yohai’s attorney and to a Los Angeles-based lender, Genesis Capital LLC, about a possible plea deal. Genesis lent money to the entities Yohai created for the failed projects, which also received an investment from Manafort. WSJ previously reported that prosecutors were looking into another Yohai venture in NYC. Aaron May, a lawyer for Yohai, said in a statement to WSJ: “Yohai has not been charged with any crime nor has he entered into any plea agreements.” It isn’t clear to what charges investigators want Yohai to plead guilty; it’s also unclear what Yohai would be charged with should he decline the deal.
Manafort and Yohai worked together on real-estate deals related to multiple properties, both in Los Angeles and New York, court and real-estate records show, including some alleged to have involved loan fraud, according to Mueller’s indictment. Yohai was referred to in the indictment as Manafort’s son-in-law, but wasn’t mentioned by name. Manafort’s daughter, Jessica, filed for divorce from Yohai earlier this year. Records show a divorce judgment was issued in August. Manafort, his wife and daughter put at least $4.2 million into house-flipping projects, federal bankruptcy-court records show. Yohai put the four properties into corporate bankruptcy in December 2016, as the lender, Genesis, was moving toward foreclosure, records show.
Genesis was also the lender in early 2016 on a Brooklyn townhouse cited by Mr. Mueller in the indictment accusing Manafort of loan fraud. Manafort purchased the property through a corporation for nearly $3 million in 2012, using money from another entity in Cyprus, then took out loans from Genesis in early 2016, in part for construction at the property. Meanwhile, Genesis got loan guarantees for the Brooklyn property from Manafort, his wife Kathleen, Yohai and Jessica Manafort, court records show.
Yohai was referenced in the Manafort indictment in connection with a Manhattan condominium Manafort purchased in 2012 through a corporation for $2.85 million, which the government alleged used funds wired from entities he controlled in Cyprus. Mueller accused Manafort of fraud for telling the bank that supplied the loan that Yohai and Manafort’s daughter, Jessica Manafort, would be living there full time, when in fact they intended to rent it out on AirBnB.
Of course, this isn’t the first time that Yonhai’s possible cooperation with federal investigators has been reported. Politico said back in August that federal investigators had approached Yohai about cooperating earlier this summer. Their approach reportedly set off “real waves” in Manafort’s orbit. Only then, they specified that it was Mueller who had come knocking, not the LA US Attorney’s office.
To be sure, the WSJ report leaves many questions unanswered. Is this probe really a smoke screen to get Yohai to deliver damning testimony against his former father-in-law – something he’s already proven more than willing to provide? As the investigation moves toward its conclusion, its relationship to the Mueller probe – if any – will become more apparent.
Speaking of the FBI, here is your humour story of the day:
FBI Supervisor Walks Into A Bar, Meets A Stripper, Wakes Up With No Gun, No Rolex, No Dignity…
With a whole host of controversies surrounding the FBI, from Comey’s mishandling of Hillary’s email case to Mueller’s Uranium One blunders, the last thing the agency needed was yet another scandal. Unfortunately, thanks to the late night drunken antics of one counterterrorism supervisor and a gaggle of strippers, a new embarrassing scandal is exactly what they have.
Sometime back in July, Robert Manson, a unit chief in the FBI’s international terrorism section, walked into a bar at the Westin Hotel in Charlotte, NC with his Glock .40-caliber handgun, a $6,000 Rolex watch, $60 in cash and some portion of his dignity. But, according to a newly revealed police report, after inviting at least one of the classy young ladies of the night back to his room for the evening, Manson apparently woke up the next morning with none of those things. Per the New York Times:
An F.B.I. counterterrorism supervisor is under internal investigation after a woman stole his gun following a night of heavy drinking in a North Carolina hotel, according to documents and government officials.
In July, Robert Manson, a unit chief in the F.B.I.’s international terrorism section, had his Glock .40-caliber handgun, a $6,000 Rolex watch and $60 in cash stolen from his room at the Westin hotel in Charlotte, N.C., according to a police report.
“Investigators determined that the victim, Robert Manson, met a woman in the hotel bar the prior night and took her back to his hotel room,” Robert Tufano, a spokesman for the Charlotte-Mecklenburg Police Department, said in a statement.
At 6:30 the next morning, police officers for the department were called to the hotel. Mr. Manson was incapacitated because of alcohol, according to the police report, which he did not file himself. A fellow agent, Kevin Thuman, gave the report, which says the theft happened from 2 a.m. to 5 a.m. The hotel bar closes at 2 a.m.
Adding to the hilarity of the event, while they failed to disclose it originally, Manson’s fellow agents later told the police that the women they had been boozing with the night before were exotic dancers. Oddly, that little detail didn’t make it into the official police report.
Of course, no arrest has been made to date but we’re sure the FBI is thoroughly enjoying the investigation into Charlotte’s finest establishments…
Well that about does it for tonight
I WILL SEE YOU ON FRIDAY NIGHT