GOLD: $1274.00 UP $13.00
Silver: $16.89 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: $1293.33 DOLLARS PER OZ
NY PRICE OF GOLD AT EXACT SAME TIME: $1285.70
PREMIUM FIRST FIX: $7.63
SECOND SHANGHAI GOLD FIX: $1292.60
NY GOLD PRICE AT THE EXACT SAME TIME: $1284.45
Premium of Shanghai 2nd fix/NY:$8.15
LONDON FIRST GOLD FIX: 5:30 am est $1284.45
NY PRICING AT THE EXACT SAME TIME: $1284.90
LONDON SECOND GOLD FIX 10 AM: $1284.30
NY PRICING AT THE EXACT SAME TIME. 1284.30
For comex gold:
NOTICES FILINGS TODAY FOR OCT CONTRACT MONTH: 14 NOTICE(S) FOR 1400 OZ.
TOTAL NOTICES SO FAR: 989 FOR 98,900 OZ (3.0762TONNES)
2 NOTICE(S) FILED TODAY FOR
Total number of notices filed so far this month: 871 for 4,355,000 oz
Bitcoin: BID $6874 OFFER /$6899 DOWN $266.00 (MORNING)
BITCOIN CLOSING; BID $6421 OFFER: 6446 // DOWN $718.00
Let us have a look at the data for today
In silver, the total open interest FELL BY A CONSIDERABLE 1349 contracts from 201,944 DOWN TO 200,595 WITH YESTERDAY’S TRADING IN WHICH SILVER FELL 11 CENTS. IT LOOKS LIKE WE GOT A FEW MORE COMEX LONGS TRANSFERRING THEIR CONTRACTS TO LONDON THROUGH THE EFP ROUTE.
RESULT: A GOOD SIZED DROP IN OI COMEX WITH THE 11 CENT PRICE FALL. COMEX LONGS EXITED OUT OF THE COMEX AND NO DOUBT WERE ISSUED EFP’S 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. 1.002 BILLION TO BE EXACT or 144% of annual global silver production (ex Russia & ex China).
FOR THE NEW FRONT OCT MONTH/ THEY FILED: 2 NOTICE(S) FOR 10,000 OZ OF SILVER
In gold, the open interest FELL BY 1348 CONTRACTS DESPITE THE GOOD SIZED RISE IN PRICE OF GOLD ($3.25) WITH YESTERDAY’S TRADING . ORIGINALLY I THOUGHT THAT WE HAD SOME MINOR BANKER SHORT COVERING IN GOLD. HOWEVER JUDGING BY THE RAID TODAY, THAT WOULD BE IMPOSSIBLE. THUS THE DROP IN OI WAS DUE TO EFP’S ISSUED BY THE CROOKED BANKERS.The new OI for the gold complex rests at 535,042.
WE MAY HAVE HAD SOME SMALL EFP’S ISSUED FOR THE DECEMBER CONTRACT MONTH (COMEX LONGS TRANSFERRING OVER TO LONDON THROUGH THE EFP ROUTE)
Result: A TINY SIZED DECREASE IN OI DESPITE THE RISE IN PRICE IN GOLD ($3.25). WE HAD COMEX LONG TRANSFERS TO LONDON THROUGH THE EFP ROUTE.
we had: 14 notice(s) filed upon for 1400 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 1,349 contracts from 218,944 DOWN TO 200,595 (AND now A LITTLE FURTHER FROM THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) WITH THE FALL IN SILVER PRICE (A LOSS OF 11 CENTS). OUR BANKERS PROBABLY USED THEIR EMERGENCY PROCEDURE TO ISSUE PRIVATE EFP’S FOR DECEMBER(WE DO NOT GET A LOOK AT THESE CONTRACTS) 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. I ORIGINALLY THOUGHT THAT WE COULD HAVE HAD SOME BANKER SHORT COVERING AT THE LOWER SILVER PRICE. HOWEVER GOLD’S RISE (AND INCREASING DEMAND) AND THE RAID TODAY LEADS ME TO BELIEVE THAT WE HAD THE FORMER.
RESULT: A GOOD SIZED DECREASE IN SILVER OI AT THE COMEX WITH THE 11 CENT FALL IN PRICE (WITH RESPECT TO YESTERDAY’S TRADING). WE PROBABLY HAD MORE EFP’S ISSUED
2.a) The Shanghai and London gold fix report
2 b) Gold/silver trading overnight Europe, Goldcore
and in NY: Bloomberg
3. ASIAN AFFAIRS
)Late THURSDAY night/FRIDAY morning: Shanghai closed UP 4.87 points or .14% /Hang Sang CLOSED DOWN 15.65 pts or 0.05% / The Nikkei closed DOWN 187.29 POINTS OR 0.82%/Australia’s all ordinaires CLOSED DOWN 0.30%/Chinese yuan (ONSHORE) closed DOWN at 6.6430/Oil UP to 57.15 dollars per barrel for WTI and 63.90 for Brent. Stocks in Europe OPENED RED . ONSHORE YUAN CLOSED DOWN AGAINST THE DOLLAR AT 6.6430. OFFSHORE YUAN CLOSED WEAKER TO THE ONSHORE YUAN AT 6.655 //ONSHORE YUAN WEAKER AGAINST THE DOLLAR/OFF SHORE WEAKER TO THE DOLLAR/. THE DOLLAR (INDEX) IS STRONGER AGAINST ALL MAJOR CURRENCIES. CHINA IS NOT VERY HAPPY TODAY.
3a)THAILAND/SOUTH KOREA/NORTH KOREA
i)North Korea//South Korea
b) REPORT ON JAPAN
c) REPORT ON CHINA
China announces that it will open its financial sector to foreign ownership for the first time. Now you must ask yourself why? Answer: their huge 40 trillion USA debt. They will try and offload some of that debt for equity. It is probably a little late.
4. EUROPEAN AFFAIRS
As you will see below, October was the worst sales on record
ii)And now you can understand why London house prices are being “battered from all sides”
5. RUSSIAN AND MIDDLE EASTERN AFFAIRS
i)The rhetoric continues as the USA Air Force claims that the missile which targeted the Saudi airport was Iranian made:
ii)Now it is the Hezbollah leader Nasrallah who declares that it is Saudi Arabia that has declared war on Lebanon. We now have both sides claiming they have declared war on each other and something must give!
ii)the powerful arms dealer Prince Bandar is among those arrested and he is very close to the west:
6 .GLOBAL ISSUES
7. OIL ISSUES
The higher price for oil is having an effect on oil rigs being utilized. The total number of rigs have risen to the most in 5 months
8. EMERGING MARKET
9. PHYSICAL MARKETS
A must read: how crypto currencies will probably destabilize fiat currencies. Alasdair outlines the 3 phases of the crypto bubble
10. USA stories which will influence the price of gold/silver
i)The blame game intensifies as 2018 premiums escalate.
ii)After leaving China, he (Trump) goes back to slamming the Middle Kingdom
iv)It looks like Mueller will indict Flynn and his son for failing to register as lobbyists for foreign countries. There now seems to be a plot whereby Flynn and his son was going to kidnap Turkish cleric residing in the USA. Erdogan claims that Gulen orchestrated a coup attempt on him. Supposedly Erdogan offered 15 million uSA to kidnap Gulen and bring him to Turkey.
v)U.Michigan Consumer Confidence (soft data) unexpectedly drops and the reasons given were inflation and rate hike fears:( zerohedge)
Let us head over to the comex:
The total gold comex open interest SURPRISINGLY FELL BY 1348 CONTRACTS DOWN to an OI level of 535,042 DESPITE THE RISE IN THE PRICE OF GOLD ($3.25 RISE IN YESTERDAY’S TRADING). SOMETHING MAY BE SCARING OUR BANKER SHORTS IF THEY COVERED AT A HIGHER PRICE. OR WHAT IS MORE LIKELY IS A COMEX TRANSFER TO LONDON THROUGH THE EFP ROUTE AND A FIAT BONUS.
Result: a SURPRISE DECREASE IN OPEN INTEREST DESPITE THE CONSIDERABLE RISE IN THE PRICE OF GOLD ($3.25.) I DOUBT VERY MUCH IF WE HAD A SMALL AMOUNT OF BANKER SHORT COVERING DUE TO GLOBAL TENSIONS ESPECIALLY IN SAUDI ARABIA. WHAT IS MORE LIKELY SCENARIO FOR THE DROP IN OI IS A TRANSFER OF COMEX LONGS TO LONDON THROUGH THE EFP ROUTE
We have now entered the NON active contract month of NOVEMBER.HERE WE HAD A GAIN OF 2 CONTRACT(S) UP TO 84. We had 2 notices filed YESTERDAY so gained 4 contracts or 400 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 14,114 contracts DOWN to 322,833. January saw its open interest rise by 113 contracts up to 737. FEBRUARY saw a gain of 10,621 contacts up to 131,069.
We had 14 notice(s) filed upon today for 1400 oz
VOLUME FOR TODAY (PRELIMINARY) 169,496
CONFIRMED VOLUME YESTERDAY: 432,819
We had 2 notice(s) filed for 10,000 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 14 contract(s) of which 0 notices were stopped (received) by j.P. Morgan dealer and 7 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)||871 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 10/no change in gold inventory at the GLD/Inventory rests at 843.09 tonnes
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 10/no change in silver inventory at the SLV/Inventory rests at 318.074 million oz/
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+ 1.51%
At 3:30 pm we receive the COT report:
The Commitment of Traders Report
*The large specs reduced their long positions by 6,811 contracts and decreased their shorts by 8,521 contracts.
*The commercials increased their longs by 2,903 contracts and increased their shorts by 2,898 contracts.
*The small specs increased their longs by 368 contracts and increased their shorts by 2,083 contracts
Large specs go net long by 1800 contracts
Commercials go net long by a tiny fraction.
and now for silver;.
*The large specs reduced their long positions by 31 contracts and increased their shorts by 4,937 contracts.
*The commercials increased their longs by 2,323 contracts and reduced their shorts by 3,134 contracts.
*The small specs increased their longs by 1,061 contracts and increased their shorts by 1,570 contracts.
In silver: large specs go net short by 5000 contracts
commercials go net long by 5,300 contracts.
The EFP’s are certainly having an effect on reading the data as longs are transferred out to London but the banks still have the obligation to deliver but on a different exchange.
Major gold/silver trading/commentaries for FRIDAY
Gold Coins and Bars Saw Demand Rise 17% to 222T in Q3
– Gold coins and bars saw demand rise 17% to 222t in Q3, driven largely by China
– Chinese investors bought price dips, notching up fourth consecutive quarter of growth
– Jewellery, ETF demand fell while gold coins and bars saw increased demand
– Central banks bought a robust 111t of gold bullion bars (+25% y-o-y)
– Russia, Turkey & Kazakhstan account for 90% of 111t of central bank demand
– Turkey increased gold purchases and saw broad based physical gold demand
– Gold demand in Q3 at eight-year low as ETF inflows slowed sharply
– Gold demand saw 9% year-on- year (y-o-y) drop in to 915 tonnes (t)
– Total global gold supply fell 2% in Q3
Editor: Mark O’Byrne
By first impressions the latest World Gold Council report could make for pretty dismal reading if one were to consider the headlines that followed its release.
Much of the focus was on the fact that record and reported gold demand was at its lowest last quarter since Q3 2009 and down 9% year-on-year.
This was predominantly down to ETF demand which fell from the very high levels seen last year. ETF gold holdings climb by just 18.9t and jewellery demand which fell by 3%.
When one looks at the real gold investment demand which was strong in both areas – demand for gold coins and bars and central bank demand – then they might have cause to start feeling more positive again.
Chinese demand is firmly back with a bang. Chinese investors bought on price dips, bringing a fourth consecutive quarter of growth. This contributed to a 17% rise in Q3 in gold coins and bar demand.
Physical gold investors weren’t the only ones picking up the pace. 111t of central bank demand marked Q3 bringing total reserve demand to nearly 290t for the year to date. 90% of this demand was thanks to Russia, Turkey and Kazakhstan.
These figures don’t really say much at face value. For example, ETF and jewellery numbers contributing to the 8 year low in gold demand suggest those avenues of investment have fallen out of favour.
However, as with the increase in physical gold investment demand and central bank demand, there is a lot more to the figures than the headlines might initially suggest.
ETF demand to blame?
The headline of the WGC report reads: ‘Gold demand in Q3 at eight-year low as ETF inflows slowed sharply’. Most readers would take from this the first part – gold demand down.
However, ETF demand was merely down not negative. Outflows did not exceed inflows, growth merely slowed as holdings only increased by 18.9t.
This is not a new phenomenon or one that was last seen only back when gold demand levels were so low. In fact we would be wise to consider the levels of outflows 2011 when the gold price was low and gold numbers were only supported by Chinese buying. Since then ETF demand has recovered.
It might also be worth noting if the lack of interest in ETFs this quarter is a statement about concerns regarding the inherent risk in both the economy and the structure of ETFs.
As both the political and financial systems appear to be inherently weaker than say a year ago investors will be starting to question to safety of their chosen asset allocations.
Given that ETF demand has fallen in contrast to physical gold demand investors may be starting to realise the dangers of holding the financial instruments that do not offer allocated and segregated physical gold bullion.
The level of counterparty risk when investing in ETFs is unprecedented when compared to likes of gold sovereigns and bars. They are also wholly prohibitive and inaccessible should the owner wish to take delivery. For example, when one would like to physically posses the gold underlying the ETF they must first own 100,000 GLD shares. Most investors do not own over $1 million dollars of shares.
At a time when we are questioning who we can trust and the tales we here from bankers and politicians it would not be surprising to me if this is an ongoing trend in the gold space. As more investors are likely to start projecting their concerns from the wider world onto their portfolios they may choose to invest in the real hard stuff of gold bars and coins.
Or was jewellery demand to blame?
Jewellery demand was certainly down more than ETF demand this last quarter, by 3% to 479t. This was the lowest Q3 demand on record.
Jewellery investment has had a tough time of it of late. This is largely thanks to the Indian government who have spent much of the last five years or so working hard to make changes in the areas of gold, tax and even cash. With each new rule comes a negative impact in demand.
Q3 this year was the first quarter following the imposition of new tax and regulatory changes which deterred customers from buying more gold. The quarter is traditionally quiet anyway for gold jewellery purchases as it follows Diwali and is prior to the busy wedding season.
As far as we can tell, Indian gold demand overall is still looking strong. In the first half of the year imports exceeded those for all of 2016.
Meanwhile in Turkey, the value of year-to-date demand was up 25% in the third quarter as demand grew by 11% much of it supported by inflows from the UAE. The country was also partly responsible for the increase in central bank demand suggesting something akin to China – where both the central bank and citizens are diversifying their portfolios into gold, in a unified manner.
Physical gold investment: demand for gold coins and bars
Purchase of gold bars and coins climbed by 17% to 64.3t this last quarter. Much of this was thanks to China where the year-to-date has seen the second highest volume of bar and coin demand on record.
Two themes have underpinned China’s market this year. First, from a macroeconomic perspective, fears over a potential depreciation of the yuan and the spectre of rising inflation continued to hang over investors. Second, there are relatively few alternative investment opportunities. The Chinese government, for example, imposed restrictions on the real estate market earlier this year. Gold, as a globally traded asset and a natural hedge against currency weakness, has benefited.
Interestingly, it was also in China where mining figures began to slow down. This might suggest further gold supply shortages will be noted later in the year, should demand remain strong.
We would be remiss if we failed to mention Turkey once again. Coin and bar demand hit 15t, almost three times higher than the same period last year.
…two themes have had a greater impact. President Ergodan’s pro-gold comments in November last year continued to lend support to the market. In addition, the government’s Credit Guarantee Fund – which guarantees loans to small and medium-sized enterprises that could not otherwise get credit – has boosted the economy and supported gold demand. Turkish gold demand was at its highest since 2013 on a y-t-d basis.
As the World Gold Council explains:
‘the y-o-y comparison flatters to deceive: Q3 last year was the lowest level of bar and coin demand since Q1 2009. When considered in the broader perspective, Q3 2017 bar and coin demand was below its 3-, 5- and 10-year quarterly averages.’
But it is interesting to note that in regions that are particularly feeling the pressure both politically and economy there have been upticks in demand. One of course is Turkey, as previously mentioned but there is also the small market of South Korea where:
Investment demand jumped 42% to 1.4t against a backdrop of heightened tensions between its neighbour, North Korea, and the US. Sales of small gold bars – 100g and 10g – were strong, as investors bought an asset that is light enough to carry and to cash in.
And finally Europe which is looking increasingly fractured also saw gold demand rise by 12t to 45.5t, a 36% improvement on Q3 last year:
Germany – the mainstay of European demand10 – made the biggest contribution, with demand up 45% to 25.1t. July saw a spurt of activity as the euro-denominated gold price dipped to its lowest level since February 2016. Geopolitical risk stemming from national polls has boosted demand in some countries in recent years, but that wasn’t the case in Germany. Contacts in the industry described the German election in September as a non-event, with minimal impact on gold demand.
Central bank demand grows as US dollar avoidance takes centre- stage
Central bank demand in recent years has been fascinating. The presence of gold in a central banks reserves has always been the ultimate statement in a country’s war chest.
Previously when we think about going to war we consider the likes of North Korea and the US. For a our major central bank buyers it is not just about harmful weapons but also about financial ones – such as avoiding and abandoning the US dollar.
As we mentioned a fortnight ago, Russia added 1.1 million ounces to reserves in September taking their total holdings to nearly 1,800t. The purchases are all part of their ongoing diversification from the US Dollar. Something they, nor the likes of China and Turkey have been particularly covert about.
Turkey yet again deserves a mention here. In the last quarter it added 30.4t. to its gold reserves taking holdings to 167.4t. This is more than 50t higher than at the end of April this year.
None of the countries that are reported to have increased their holdings are in the West or in the doldrums of issues such as Trump politics or Brexit unhappiness. They are all countries which have long been under the heavy boot sole of the US Dollar.
The likes of Russia, Turkey and Kazhakstan have been quietly accumulating gold as they prepare for a new stage in the global economy when the US is no longer as powerful and they balance of financial influence has changed.
And in other news…
Rarely do we focus on the industrial uses of gold but they are important to keep half an eye on. The WGC’s report shows that gold used technology was 2% higher yoy in its fourth quarter of consecutive growth.
The use of gold in the likes of 3D sensors and memory chips is likely to increase as humans begin to rely more on technology and its advances. This may begin to impact gold supply, something which is already falling year on year.
One of the interesting areas where there has been an increase in gold use is in wireless applications which has seen around 8% yoy growth. Gold plays an important role in areas of wireless charging and 3D sensors. The latter having wide reaching applications in the likes of gaming, healthcare and vehicle development.
Whilst half the world sabre-rattles the other half buys gold
Looking at the gold investment figures one can almost imagine a dividing line being drawn between those who are blindly wandering into economic and political disputes and those who are quietly stocking up on gold.
This is certainly the case at a central bank level. At an investor level we are also seeing some moves into gold that are clearly an expression of concern regarding the current environment.
This is a very good sign for the gold market. People invest in gold in order to diversify their portfolios and to add some insurance to their wealth. It is even more encouraging to see an uptick in the counter-party free from of investment into allocated, segregated gold and away from the likes of ETFs.
Those buying physical gold should be additionally encouraged upon reading that peak gold is on the horizon thanks to global gold supply falling by 2% yoy.
When we last wrote about Russia’s one million ounce purchase we encouraged readers to take a similar approach to portfolio diversification. The advice still stands:
Savers should take note, diversification should be the number one priority when it comes to protecting and growing your wealth in these uncertain times. This is for precisely the same reasons the Russian Central Bank is doing so – in order to protect against legal and political risks (Brexit, Trump etc) , but also economic and financial risks.
The risks to a saver may seem vastly different to those of a central bank but really they are quite similar. Both are exposed to the decisions made by politicians around the world. Like Russia, we too are awaiting with baited breath what President Trump will do next or what the EU will soon decide is the best way to ‘protect’ the Super state bloc. We are exposed, as are our savings and investments.
Gold cannot be devalued as fiat currencies can, allocated and segregated gold cannot be confiscated thanks to the irresponsible actions of a counterparty. It is a borderless, free currency that acts as the ultimate reserve in a diversified portfolio.
Gold trading: the crime scene
Gold Slammed After Someone Pukes $4 Billion Notional In Gold Futures
As we approach the European close, the dolar index just spiked and precious metals (and crude) were pummeled. Gold futures tumbled on massive volume as over $4 billion notional was purged instantaneously…
Over 30,000 contracts ripped through gold futures – over $4.2 billion notional – in the space of a minute. That’s around 10% of a normal days’ volume.
NOTE – $1281 is the 100-day moving average that has been an equiliborum level for the last few weeks…
Silver was hit too as the dollar spiked…
Notably Gold remains the only winner post-Saudi chaos… for now…
A must read: how crypto currencies will probably destabilize fiat currencies. Alasdair outlines the 3 phases of the crypto bubble
Alasdair Macleod: Cryptos may destabilize fiat currency
Submitted by cpowell on Fri, 2017-11-10 01:04. Section: Daily Dispatches
8:04p ET Thursday, November 9, 2017
Dear Friend of GATA and Gold:
Bitcoin and other cryptocurrencies are a bubble, GoldMoney research director Alasdair Macleod writes today, but potentially the ultimate bubble and they may have a fantastic distance yet to run, potentially cannibalizing government currencies and generating vast price inflation before governments try to strike them down.
Macleod’s commentary is headlined “Cryptos May Destabilize Fiat” and it’s posted at GoldMoney here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
AND HERE IS HIS WEEKLY COMMENTARY:
Cryptos may destabilise fiat
The assumption in some quarters is that crypto-currencies will replace gold as money, or at least challenge it. This is an error borne out of a misunderstanding of catallactics, or the theory of exchange. It also ignores the fact that beyond a few European countries and North America, gold is firmly money in the minds of ordinary people. I wrote an article on this subject, explaining why cryptocurrencies are not a new form of money, here.
Anyone reading this article may wish to read my original article first, to understand the true status of cryptocurrencies. I concluded that cryptocurrencies are the purest form of financial bubble in the history of speculation, and will be of great theoretical interest to future generations, just as the phenomena of the Mississippi, South Sea, and tulip bubbles are to us today. I also wrote that
“It’s worth noting that all crypto-currencies together are worth $120bn, with bitcoin $55bn of that total. This is only a very small fraction of cash and deposits worldwide. Therefore, the point where new money to fuel the craze runs out does not appear to have been reached, and could have much further to go.”
That was in August, when bitcoin was about $3,000 against today’s price of more than double that. In the short-term, all sorts of dubious promoters are sending unsolicited invitations to buy, promising price gains of thousands per cent. It’s a fair bet these promoters own cryptocurrencies themselves, and are puffing their own interest. A failure of the innocent to take the bait in sufficient numbers could easily lead to a sharp correction.
We must look beyond that. This article will examine more closely the dynamics driving bitcoin and other cryptocurrencies, and it concludes that rather than destabilise gold, if the craze continues it is far more likely to destabilise fiat currencies.
But first, we must understand the way bubbles form and progress. A word of caution: what follows is a theoretical description of how bubbles evolve and eventually implode, including the points that may be relevant to cryptocurrencies. Other factors are almost certain to impinge on how prices will progress, not least the underlying dynamics of the global credit cycle engineered by the banking system. On its own, the forthcoming credit crunch, independently from the crypto craze, threatens to be the most disruptive in our lifetime and could easily override the cryptocurrency bubble cycle. This article does not attempt to identify all the risks in this new asset class.
Dynamics of a financial bubble – the initial phase
Bubbles, like markets, tend to run through three distinct phases. The first is the initial move, driven by participants in the know, or by those close to the promotors that initiate a scheme. Sensible, experienced investors become aware early on that prices of a new venture, financial instrument or even a physical item are being inflated, irrationally they believe, so they do not participate. The wider public is generally unaware at this juncture, and many of those that might have taken an early punt will have fallen foul of sharp corrections, counterparty failure, or outright fraud. Consequently, prices are driven in the main by insiders, the earliest adopters, the creators of the new opportunity to make money.
In the case of cryptocurrencies, these are the geeks, and the tech-savvy entrepreneurs who have a good understanding of the dynamics driving values. This has been the cryptocurrency story so far. Bitcoin, the leader in a pack of about 1,000 different cryptocurrencies, has risen from nothing to over $7,000 at the time of writing, in less than a decade.
Already, this is a bubble of near-record inflation. Each bubble has its own characteristics, but this one is special. The invention of blockchain, the self-auditing process central to bitcoin, ensures payments are confirmed and property rights are unarguable. Blockchain on its own could turn out to be one of the greatest financial and technological legacies of our age. The mix of financial and technological elements is the background to cryptocurrencies, a powerful combination, compared with the single dimension bubbles of the past.
The limitation on new supply for individual cryptocurrencies is designed to ensure that increasing popularity drives prices higher. This contrasts with fiat currencies, which through the expansion of credit on an elastic base-money foundation, means the increase of their supply is virtually limitless. The difference between these two characteristics is likely to become increasingly important to future cryptocurrency prices, measured in fiat currencies.
The limitation on new demand has been significant so far, because it has had to overcome some disadvantages. Besides widespread dismissal of the phenomenon by the investment establishment, the market has also been unregulated, and therefore seen as dangerous for investment. Governments have closed bitcoin exchanges under the pretext that cryptocurrencies are being used to evade tax and launder the proceeds of crime. While the technology side of the phenomenon has been advanced and generally competent, financial aspects have been on a scale from amateurish to fraudulent. It has been a modern version of the wild-west, partly driven by anti-government libertarianism.
Governments have yet to decide their response, but apart from expressing interest in blockchain technology, they are mostly clueless and have been taken by surprise. Cryptocurrencies can undermine capital controls, important to China and many other countries trying to protect their own fiat currency values, and they arouse discomfort in those quarters accordingly.
However, we are now passing from the early stages of development, when cryptocurrencies were mainly the preserve of technophiles and starry-eyed libertarians. The transition may not be plain sailing. Nearly all the movers and shakers are fully invested themselves, so a significant downturn could lead to problems for them. A nasty wake-up call of this nature, after such enormous initial gains, should not be lightly dismissed.
With or without such a price correction, exchanges and other service providers are beginning to realise that dealing with strangers on a no-questions-asked basis is impractical, when governments insist on being able to track all transactions. Businesses making it into Phase 2 will work on improving their reputation, and are likely to embrace regulation. This brings us to the second phase.
Phase 2 – acceptance in the investment mainstream
The interest generated by the initial phase of the bubble has now caught the attention of professional investors, particularly the more adventurous hedge funds and some other quasi-institutional dealers. They note that conventional investments appear fully valued, so alternatives are being actively considered. After all, if interest rates are now going to rise from here, bonds and therefore equities are likely to fall in value. There are options, such as playing the commodity cycle, and perhaps gold, for those that understand it. However, the vast bulk of investments are in regulated assets which probably have little or no upside remaining.
These professional speculators will be monitoring closely government policy on cryptocurrencies. Cryptocurrencies are not regulated, which is a serious impediment to investing institutions. Therefore, the CME’s recent announcement that they will introduce a bitcoin future by the year-end is a mile-stone development. Futures are regulated investments, and will permit the managed money category on Comex to speculate in the bitcoin price. The proposed contract will be cash settled, based on a bitcoin reference rate, which means delivery cannot be demanded. It seems ironic that the first regulated investment medium in bitcoin uses the same mechanism that links betting to a horserace, but at least the futures contract is divorced from unregulated counterparties.
Assuming the CME goes ahead with this contract, other regulated exchanges around the world are likely to follow suit, and demand for futures covering other credible cryptocurrencies will arise. Before very long, wealthy clients will be asking their money managers about their investment policy towards cryptocurrencies, and it will no longer be possible to dismiss them as irrelevant. That is why the CME contract is such an important development. While it will deflect some of the second phase demand from buying true bitcoins through the creation of a parallel betting market, it legitimises investment in the underlying product.
Central banks and their governments will then face a huge challenge. This is a new phenomenon, and they know it is not money, but worry it could become money. Frankly, government economists lack the theoretical knowledge to deal with the issue convincingly. Some, like the Chinese, might continue to clamp down where they can, because of the threat to their capital controls. Other governments are likely to take the opposite view, on the basis that if the cryptocurrency service providers are regulated, or at least conform to financial regulation, then the enormous profits being made are a welcome additional source of tax revenue.
Tax is the carrot and could become an important key to the future acceptance of cryptocurrencies. And if governments permit cryptocurrencies to become mainstream, it will be a very bold fund manager who still refuses to get involved. It will be momentum investing versus value all over again, and a new paradigm, just like the tech bubble in the late nineties.
The division between the end of Phase 2 and the beginning of Phase 3 is unlikely to be clear-cut. When investing institutions get involved in a bubble, the public is bound to begin to do so as well. Our theoretical distinctions are just that, but in practice there is likely to be an elision between the second and third phases. The second phase, as it progresses, could see an enormous weight of money seeking to enter this market, and this is where we begin the third and final phase, the true madness of crowds.
Phase 3 – driven by public greed
Who knows how high bitcoin and the others will go in Phase 2. One thing is for certain, at the end of it you will have to be a true financial hermit not to know that the most sure-fire way of making money, more money than you can possibly make doing anything else, is to buy cryptocurrencies. Doubtless, by then bitcoin won’t have a price in the tens, or hundreds of thousands, because they will be split down, one thousand or even ten thousand to one. All a public greedy for profits will want to know is that the price is low, affordable and can only go up. It is the same with every bubble in history, but this one is potentially far larger. To enjoy the thrill of the Mississippi and South Sea bubbles, you had to be in communicable distance of Paris and London respectively. If you lived outside these capitals, you would probably risk the highwaymen, take a stage-coach with your gold and seek lodgings to be close to the brokers. Bubble hysteria probably infected no more than a few tens of thousands. These were the wealthy, when there was barely an independent middle class.
At the time of those bubbles, money was mostly sound. In other words, speculative purchases had to be paid for with real money, diverted from other uses. The result was an inflation of prices in Paris and London, reflecting the quantity of money that flowed to those centres. At the same time, prices in the provinces nearby would have been depressed due to lack of circulating money. Those that banked profits did so with real money, gold and silver.
Richard Cantillon, who was John Law’s banker in Paris, loaned real money (his own and his depositors’ gold) for the Parisian nobility to buy into John Law’s paper scheme. He took in Mississippi stock as collateral, and secretly sold it for gold. Cantillon withdrew to Italy to await developments, and Law’s Mississippi bubble duly collapsed.
The deflation of a bubble usually reflects an adjustment of values and expectations more than actual selling. Sufficient money had been sucked out of Paris, thanks mostly to a few savvy punters like Cantillon, to ensure the bubble imploded. Wealth simply disappeared, leaving everyone, including those who hadn’t bought stock, impoverished.
One cannot say there was no credit behind the bubble, but before the days of fractional reserve banking, issuing unbacked credit was very risky for a bank, being fraudulent to boot. Today, cryptocurrencies are not so hampered. Their purchase is entirely paid for by expanded bank credit and unbacked fiat money, both created out of thin air. Modern banking practice could in time allow cryptocurrencies to be accepted as collateral, and bankers will only know that prices are rising and it is a profitable loan business.
Not only will the fiat money be available, but you no longer need to be within a day’s coach ride from the action. Anyone with a bank account and a mobile ‘phone will be able to join in; not just the Paris or London aristocracy, but billions around the world. Supply, in the form of new currencies and yet to be invented investment media will likely not keep up with the increase in public demand, at least for a while. Methods of channelling the public’s money into cryptocurrencies will be regulated properly, giving them public respectability.
Just when the public knows only one thing, and that is cryptocurrencies are a financial miracle and a failsafe way to make money, they will be ready to collapse, if the history of bubbles is any guide. The last question we need to address is how this may come about.
The collapse of a bubble occurs when the increase in supply catches up with demand, or alternatively demand fails to keep pace with supply. Before fractional reserve banking was sanctioned by the state, the limitation on demand was the availability of money, which as stated above, meant that money had to be diverted from other activities to feed the bubble. Nowadays, the expansion of bank credit, in theory at least, permits bubbles to be extended both in terms of duration and extent.
In practice, supply in a bubble is always restrained, if by nothing else, the desire of individual promoters to see rising prices for their schemes. But the South Sea bubble showed that one successful promotion leads to a plethora of imitations, and so it is proving already with cryptocurrencies. Very few of them have gained market traction so far, but future cryptocurrencies could be more credible, increasing the available media. So, while the bitcoins of this world individually have supply constraints, the overall market has not.
Associated derivatives and developments are likely to evolve out of the market, and they will doubtless be more sophisticated and acceptable. Funds that invite public subscription and invest in cryptocurrency futures could be given official approval by becoming regulated through stock market listings. Their listings will organise extra demand, but there is bound to come a point where that extra demand will be fully absorbed. In theory, at least, that time is some way off.
Given the ability of banks to create the credit to inflate the bubble, it is hard to visualise that there will be an end to the madness by looking at cryptocurrencies on their own. We must therefore consider the prospects for the fiat currencies that are sold to buy cryptocurrencies, and how the expansion of the cryptocurrency bubble will affect fiat. For it is from that angle the end is likely to occur.
Measured in fiat currencies, any bubble is an inflation of prices. Exclusion of relevant assets from government inflation statistics means that the effect on consumer prices will be a second order event.
For the purposes of illustration and assuming all other things being equal, let us assume that at the height of the bubble, five per cent of the world’s population is dealing in cryptocurrencies. This is quite possible given the ubiquity of mobile ‘phones and other electronic devices. The paper wealth being created by some 350 million people enjoying the bubble, as well as a small portion of the enormous quantity of money under professional management, will then be in the trillions, possibly in the tens of trillions. That wealth will spread out into spending on goods and services, raising consumer prices everywhere. The effect is likely to be more pronounced in the advanced economies, where very few people are unbanked, and their successful speculation is likely to feed more directly into spending.
This is where the commonly accepted narrative, that cryptocurrencies are the eventual replacement for state currencies, becomes a dangerous illusion. It will not take long for central banks to realise that widespread public gains in cryptocurrencies are undermining the purchasing power of unbacked government currencies. They will then have no option but to raise interest rates sufficiently to choke off demand for them. And when demand is curtailed, there will almost certainly be a swift collapse.
In the absence of other factors, there can be little doubt that this is how the bubble should play out. It has the makings of being the purest bubble in the history of money, following the three impulse moves traditionally associated with bull markets. There is no defining difference between a bull market and a bubble except of degree, just as there is no one point where inflation becomes hyperinflation, and socialism becomes communism.
The underlying credit cycle and its affects
The progress of this phenomenon is likely to be affected or curtailed by other factors, notably the existing credit cycle. The industrial revolution throughout Asia, being masterminded by China and Russia, will almost certainly have a profound impact on the world-wide prices of goods and services over the next year or two. Not only can commodity prices be expected to rise, but funds will flow from conventional investments into capital projects, raising demand for skilled workers and increasing their wages.
Rising prices and production shortages will force nominal interest rates to rise anyway, whether the central banks wish it or not. Any expansion of bank credit to back cryptocurrency speculation will be in addition to these end-of-cycle factors. Therefore, it appears likely that interest rates will rise sufficiently to trigger a credit crisis before the cryptocurrency bubble has time to run its full theoretical course.
Assuming the commercial banks are rescued following the next credit crunch, it may be possible for the interrupted cryptocurrency bubble to continue, after a bad wobble perhaps. Bank deposits will still be intact, with depositors as a whole already possessing considerably more fiat currency than they need. Central banks will almost certainly force interest rates back to zero, or into negative territory, making cryptocurrencies a more attractive alternative to bank deposits.
This must lead towards one conclusion, and that is if it continues, the cryptocurrency bubble will play a major part in undermining the purchasing power of fiat currencies, potentially in dramatic fashion. If the public’s involvement in the final phase of the bubble occurs before the next credit crisis, it could bring forward and magnify the credit crisis itself. If it is still running its course after the credit crisis, it could undermine fiat currencies’ purchasing power in its wake, in a way we did not see after the Lehman crisis.
Will the price of gold be adversely affected? Obviously, some members of the public, particularly in Europe and North America, will think so, and sell or delay gold purchases to invest in cryptocurrencies. But gold is real money, and has survived episodes such as this before. The eventual victim in this bubble will be unbacked state-issued money. Gold will remain sound money long after the cryptocurrency bubble is recorded in history books as the most convincing and purest evidence of the madness and delusions of crowds.
Your early FRIDAY 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 187.29 POINTS OR 0.82% /USA: YEN RISES TO 113.41
3. Europe stocks OPENED RED /USA dollar index RISES TO 94.51/Euro DOWN TO 1.1645
3b Japan 10 year bond yield: RISES TO . +.043/ 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:: 57.15 and Brent: 63.90
3f Gold DOWN/Yen DOWN
3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” OFF THE TABLE FOR NOW /REVERSE OPERATION TWIST ON THE BONDS: PURCHASE OF LONG BONDS AND SELLING THE SHORT END
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil UP for WTI and UP FOR Brent this morning
3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund RISES TO +.394%/Italian 10 yr bond yield DOWN to 1.808% /SPAIN 10 YR BOND YIELD DOWN TO 1.522%
3j Greek 10 year bond yield RISES TO : 5.173???
3k Gold at $1284.70 silver at:17.05: 6 am est) SILVER NEXT RESISTANCE LEVEL AT $18.50
3l USA vs Russian rouble; (Russian rouble DOWN 1/100 in roubles/dollar) 59.29
3m oil into the 57 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 113.41 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 0.9941 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1578 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 +0.394%
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 2.366% early this morning. Thirty year rate at 2.851% /
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)
“This Looks More Frightening”: Global Stock, Bond Selloff Accelerates Amid Risk-Parity Rumblings
Yesterday’s Japan flash-crash inspired selling continues for a second day, with global equities – and bonds – sliding early Friday on concerns U.S. tax reform – and corporate tax cuts – will be delayed after Senate Republicans unveiled a plan that differed significantly from the House of Representatives’ version. After suffering their biggest plunge in 4 months on Thursday, European stocks failed to find a bid along with Asian stocks, while U.S. index futures pointed to a lower open (ES -0.5%, or -10), the Nikkei 225 ended 0.8% lower, Treasuries yields are up 1-4bps across the curve in steepening fashion, with the 10y at 2.370%, while the Bloomberg Dollar Spot Index declined for a third day. The VIX has jumped 6% this morning trading through 11 while WTI crude oil is little changed trading north of $57/bbl.
And here is one for the streak watchers: on Thursday the global MSCI index failed by one day to post its longest winning streak since 2003 as it fell 0.4% following 10 days straight of gains. The MSCI world index gained more than 18% so far this year and some investors believe a pullback is due. “I think there’s a feeling out there that there’s a long awaited correction, and no one wants to be caught by surprise,” said Emmanuel Cau, global equity strategist at JP Morgan. “When the market is down a bit people tend to extrapolate. But I think it’s simply a bit of profit taking and digesting from a very strong September and October.”
Europe’s benchmark Stoxx 600 reversed an early rebound, falling 0.2% on high volume; It is on track for its worst week in three months, if it falls on Friday , its fourth drop in row. Carmakers and retailers led the index to its biggest two-day drop since August as third-quarter earnings season continues, with aerospace-electronics maker Leonardo SpA crashing 20% after cutting sales forecasts.
In Asia it was more of the same, with stocks declining after a rally that saw them touch a record high less than 48 hours earlier, as shares in Japan extended losses following abrupt swings on Thursday. Asian stocks fell, tracking weakness in U.S. equities after the U.S. Senate released a tax plan that would delay cuts to the corporate rate until 2019, defying President Donald Trump. The MSCI Asia Pacific Index dropped 0.4 percent to 171.18, trimming its weekly advance to 0.8%; The MSCI Asia Pacific ex-Japan index fell 0.3%, while Japan’s Nikkei lost 0.8%, slipping off Thursday’s 21-year high after a 16% rally in the past two months. The decline was led by Japanese equities, which extended a loss Thursday on the heels of the largest one-day swing in a year. The Asian benchmark gauge has risen for six straight weeks, posting gains in 16 of the past 18 weeks. Thursday’s close was less than half a point from a record.
“Investors are unwinding expectations on Trump’s ambitious tax reform,” Margaret Yang, a Singapore-based strategist at CMC, said by phone. “Delay in tax cuts is the perfect excuse to book profits, but long-term fundamentals remain positive for Asian equities.” While most Asian markets fell, Hong Kong stocks traded higher, and Shanghai’s benchmark index headed for its best week since August, led by brokerages.
Meanwhile, in a move that smacks of a risk-parity deleveraging unwind, instead of dipping – as a risk-haven – 10Y TSY yields rose a third day, and core European bond yields followed suit not to mention the ongoing rout in junk bonds.
Indeed, as the Stoxx 600 dropped, Germany leads the bond market lower, sending 10-year Bund yield to a two-week high. Treasuries decline in tandem with the long-end underperforming and finallysteepening the 5s30s curve from the narrowest level in a decade.
“The world looks, if anything, more frightening given declines in both bonds and stocks,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Hellerup, Denmark, said by email. “Higher lows and lower highs following the U.S. presidential election a year ago shows a market in need of a proper spark. So far that spark remains illusive.”
In macro, majors FX pairs were trapped in familiar ranges, while bonds stole the spotlight yet again as yields ticked up steadily across traders’ screens; the Bloomberg Dollar Spot Index attempted a feeble recovery after short-term accounts took profit on shorts, but the gains lacked conviction; the pound flapped about, seeking a decisive direction, ahead of a key Brexit briefing; Treasury 10-year yields were inching closer toward the key 2.40% level. WTI crude was steady above $57 a barrel.
The catalyst for the move was yesterday’s tax reform fireworks, where Republican senators said they wanted to slash the corporate tax rate in 2019, later than the House’s proposed schedule of 2018, complicating a push for the biggest overhaul of U.S. tax law since the 1980s. The House was set to vote on its measure next week. But the Senate’s timetable was less clear.
“Things look fluid, including on when the tax cut deal will be reached,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “I would say a compromise will be reached …But if they indeed decide to delay the tax cut by a year, there is likely to be some disappointment.”
In FX, the euro declined 0.1% to 1.1641, while sterling was 0.1% higher at 1.3162.
In rates, the 10y TSY rose to 2.3753% , while Bund yields, as noted above, climbed to their highest level in over a week as euro zone bonds sold off across the board for a second consecutive day. The yield on Germany’s 10-year bund hit 0.40% for the first time since Oct. 27.
Among commodities, oil prices steadied on expectations of supply cuts by major exporters as well as continuing concern about political developments in Saudi Arabia. A spokesman for Saudi Arabia’s energy ministry said the kingdom planned to cut crude exports by 120,000 barrels per day in December from November. Brent crude was at $64.01 per barrel, close to the 2-year high of $64.65 reached earlier this week. WTI traded at $57.17, also just shy of this week’s more than two-year high of $57.69. Concerns about the stability of Saudi Arabia, sparked after the purge of 11 princes and arrests of dozen other influential figures since last week, are intensifying. Sources told Reuters that Lebanon believes the country’s former prime minister, Saad al-Hariri, was being held in Saudi Arabia, although Saudi Arabia denied reports he was under house arrest. Saudi Arabia accused Beirut earlier this week of declaring war against the kingdom.
Bulletin Headline Summary from Ransquawk
- Subdued Trade across European equities
- GBP uncertainty remerges, as Brexit concerns grow
- Looking ahead, highlights include Uni. Of Michigan and Weekly Baker Hughes Rig Count
- S&P 500 futures down 0.4% to 2,572.70
- STOXX Europe 600 down 0.3% to 389.09
- MSCI Asia down 0.4% to 171.18
- MSCI Asia ex Japan down 0.3% to 559.89
- Nikkei down 0.8% to 22,681.42
- Topix down 0.7% to 1,800.44
- Hang Seng Index down 0.05% to 29,120.92
- Shanghai Composite up 0.1% to 3,432.67
- Sensex down 0.3% to 33,160.16
- Australia S&P/ASX 200 down 0.3% to 6,029.37
- Kospi down 0.3% to 2,542.95
- German 10Y yield rose 1.1 bps to 0.386%
- Euro up 0.04% to $1.1647
- Italian 10Y yield rose 6.8 bps to 1.55%
- Spanish 10Y yield fell 0.8 bps to 1.525%
- Brent futures up 0.4% to $64.20/bbl
- Gold spot down 0.02% to $1,284.81
- U.S. Dollar Index up 0.04% to 94.48
Top Overnight News
- China took a major step toward the long-awaited opening of its financial system, saying it will remove foreign ownership limits on banks while allowing overseas firms to take majority stakes in local securities ventures, fund managers and insurers
- Senate Republicans released their vision for a tax-cut plan Thursday that would cut the corporate tax rate to 20 percent, with a one-year delay to 2019, as Congress moves quickly to fulfill one of the GOP’s biggest and most long-awaited goals
- President Donald Trump will not meet formally with Russian President Vladimir Putin at an Asia- Pacific summit in Vietnam this week due to a scheduling conflict, the White House said Friday, amid U.S. concerns that the meeting wouldn’t create genuine progress on key issues
- Alibaba is expected to announce a USD bond mandate next week and price the transaction before Nov. 23, Reuters’s IFR says
- As U.S. markets swim in sea of red, trading in the largest high-yield exchange-traded funds has skyrocketed to dizzying levels
- San Francisco Fed President John Williams expects a December hike and three more in 2018 and that U.S. interest rate will return to “a normal level” of about 2.5%, BBC reports;He expects incoming Fed chair Powell to continue “making sure that we have a strong consensus around our policy decisions and strategy”
- Australia’s central bank used its quarterly statement on monetary policy to flesh out its consistent recent view of accelerating growth and sluggish inflation, suggesting interest rates will stay at a record-low 1.5%
- Oil heads for best weekly run in a year as political upheaval in Saudi Arabia roils markets
- China Big Bang Moment Opens Banks, Funds to Foreign Control
- Pacific Nations Scramble to Save Trade Pact After Trump Exit
- China Says Foreign Firms Won’t Be Forced to Turn Over Technology
- StanChart Unit Offers to Buy Stake in Singapore Crane Firm
- World’s Biggest Wealth Fund Calls for Better FX Market Practices
- Drahi Takes Back Control of Altice as CEO Quits Amid Debt Woes
- ECB Warns of Complacency Risks in Surging Euro-Area Economy
- GOP’s Dueling Tax Overhauls Struggle to Pass a Key Red Ink Test
Asian equities are set to close out the week in the red with risk sentiment dented by US tax doubts. Nikkei 225 (-0.8%) notably underperforms, extending on the losses seen from yesterday’s dramatic swing which had come ahead of the closely watch options settlement price, which settled at 22,531. Toshiba shares fell as much as 8% following reports that they are looking to raise around JPY 600bln worth of capital. ASX 200 (-0.3%) slightly pressured, however the 6000 level has been holding, while the biggest weight has come from mining stocks. Chinese markets pared initial declines following reports that China are to relax the limit on foreign ownership. JGBs are a touch weaker with the curve showing a flattening bias. The long end-outperforming with the 40-yr yield lower by 1.6bps.
Top Asian News
- Singapore’s Stocks Haven’t Lured This Much Cash in a Decade
- Noble Group Needs More Funds as Default Risk Persists, S&P Warns
- Kobe Steel Blames Lax Controls, Focus on Profits for Scandal
- State Bank of India Surges as Margins, Bad-Loan Ratio Improve
- Brewer Sabeco to Sell Stake of at Least $2.9 Billion in 2017
- China Fintech IPO Fever Wanes as Regulators Weigh Crackdown
- Jewelers Say Haven’t Smiled in the Year Since India Cash Ban
Once again, European equities (Eurostoxx 50 -0.1%) have seen little in the way of noteworthy price action in what has been a week void of substantial European-specific macro events. In terms of sector-wide moves, financial names were granted some modest support at the open in the wake of earnings from Allianz (+1.2%) with material names also higher given the latest trading update from steel heavy-weight ArcelorMittal. To the downside, utility names in the UK have seen some pressure in the wake of reports that Ofgem is to stop gas and electricity suppliers from charging as much as GBP 900 when they forcibly install pre-payment meters in households struggling to pay bills. Bonds have continued to retreat, initially in corrective trade, but then as more sell-stops were triggered on a break of technical support levels. However, some respite amidst dip-buying has helped Bunds and Gilts recoup losses. 10 year benchmark yields have flirted with sensitive if not particularly key cash markers – UK through 1.25% and up to 1.30%, Germany resisting 0.4%. The overall trend remains bearish and curves are retracing broad flattening patterns in thinner trading conditions.
Top European News
- Catalan Speaker’s Bail Set as Rajoy Seeks Release of Separatists
- Germany Could Escape Carbon Hole at Home by Investing Abroad
- U.K. Industrial Output Jumps, Construction Shrinks in September
- Richemont Finalizes Management Revamp by Promoting Lambert
- Telecom Italia Earnings Decline Amid Tough Wireless Competition
In FX, GBP has been a key focus for FX markets once again with a slew of potentially negative Brexit reports overnight, including a potential curve ball from Ireland regarding the Northern Ireland border as well as pressure from UK and European business bodies. It was also reported, that May could up her Brexit bill offer, which would be an increased cost to the UK but potentially a positive step in terms of getting the ball rolling in negotiations. Thereafter, GBP then took the lead from the main UK data releases of the week which saw manufacturing and industrial numbers exceed expectations and sent GBP/USD back into positive territory before later paring a bulk of the move. Elsewhere, AUD remains under pressure after the RBA’s SOMP (Statement On Monetary Policy) saw the central bank cut their inflation outlook, while they also saw underlying inflation not reaching their 2% target until 2019. USD remains steady after seeing a bid early doors which saw the DXY bounce off worse levels ahead of 94.40 (Last week’s low). The RBA’s Quarterly Statement On Monetary Policy (SOMP) lowered inflation forecasts, while underlying inflation is not expected to reach 2% until 2019. i) Forecasts CPI at 2% to June 2018, then 2.25% to December 2019. ii) Forecasts GDP 2.5% to December 2017 and 3.25% for December 2018/19. iii) Further rise in AUD would slow pick-up in economic growth and inflation.
In commodities, WTI and Brent crude futures continue to remain firm and are on course to log their fifth straight week of gains, on hopes of supply cuts by major exporters as well as continuing concern about political developments in Saudi Arabia. This morning has also seen comments from the UAE energy minister who stated that he is optimistic about 2018 and does not expect any big challenges against OPEC’s decision to extend the output cut deal. Dalian iron ore futures slipped up for a third session overnight amid concerns over a reduction in consumption as Chinese producers slash production over winter. Analysts also note that iron ore prices could drift even lower over the coming months as cuts to steel output and other industrial activity could last until mid-March.
Looking at the day ahead, a fairly quiet end to the week with September industrial production data in France and the flash November University of Michigan consumer sentiment print and October monthly budget statement in the US due. With it being Veterans Day in the US, bond markets will be closed however stock markets remain open. The ECB’s Mersch is slated to make comments while President Trump will take part in the APEC summit
US Event Calendar:
- 10am: U. of Mich. Sentiment, est. 100.9, prior 100.7; Current Conditions, est. 116.3, prior 116.5; Expectations, est. 91, prior 90.5
DB’s Jim Reid concludes the overnight wrap
In a low vol world, yesterday was fascinating and a small shock to the system. Equities, bonds and spreads were all weaker which can happen when everything is expensive but perhaps markets had given up on the short-term possibility of it. Since the ECB’s dovish taper two weeks ago, the general perception was that one of the last chances to see vol in 2017 outside of the US tax plan had gone. As such we’ve seen carry trades get yet another lease of life with the assumption that they’ll be low risk into year end. However this week has seen some flies in the ointment. The US YC had hit the flattest for 10 years, there has been more widespread expectation that US tax reform may get pushed back, the Saudi anti-corruption drive has unsettled some, the oil price rise is starting to influence carry expectations, EMFX has been weak, a couple of high profile US HY ETFs have fallen to 8-months lows with heavy volumes yesterday, Japanese equities saw a 3.6% swing yesterday (largest for a year) and European bond yields rose unexpectedly.
The Japan swing was the talk of the town yesterday with lots happening late in the session after we went to print. Some suggested it was due to profit taking after a strong run to a 25 year high, others pointed to position adjustments ahead of Friday’s special quotation of some futures and options. This morning in Asia, markets have followed the negative leads from US and are trading lower. The Nikkei is down -0.85%, led by losses from telco and utilities stocks but is trading close to where it opened so no real acceleration of selling has occurred so far. Elsewhere, the Kospi (-0.35%) and ASX 200 (-0.3%) are down slightly while Hang Seng is up 0.11% as we type. Chinese stocks are slightly higher and this morning, China’s Vice Finance minister Zhu has confirmed that foreign firms will be allowed to own controlling stakes (up to 51%) in local Chinese securities joint ventures. This is another step towards liberalisation of the economy.
Before all this late in the US session last night, the Senate has released their version of the draft tax bill which does not stray too much from prior press reports but is still quite different to the House’s bill. In the details, the plans
included: i) corporate tax cuts to 20% delayed by one year (vs. Jan. 2018 as per the House’s tax bill), ii) existing mortgage interest deduction for home purchases up to $1m will be retained (vs. a cut to $0.5m) , iii) state and local tax deductions for individuals will be entirely repealed (vs. mostly repealed), iv) seven individual tax brackets will be retained with the top tax bracket reduced 0.9ppt to 38.5% (vs. consolidate to 4 tax brackets and unchanged top tax rate of 39.6%), while v) the standard deductions for individuals ($12k and $24k couples) are the same. Elsewhere, in the mark up of the House tax bill, the House Ways Committee is reportedly considering lifting the one-time tax rate on US companies’ accumulated offshore earnings, from 12% to 14% if the income was held as cash (vs. 10% as per the Senate tax plan). Looking ahead, the two versions of the tax bill will be further debated, negotiated and then somehow reconciled before final voting, which was expected to be before Thanksgivings (23 November). The market is having a lot of doubts about this timetable.
Over in government bonds, UST 10y yields rose modestly (+0.7bp) yesterday before moving slightly higher this morning after the Senate tax plans were formally released. However, European bonds experienced a mini-sell off from nowhere yesterday with core 10y yields up 4-5bp (Bunds +5bp; OATs +5.3bp; Gilts +3.7bp) – the biggest moves in three weeks. Peripherals also rose 4-7bp, led by Italian bonds. We are scratching our heads a little on this, perhaps it was driven by a combination of the following; marginally higher inflation forecasts by the European Commission, more hawkish ECB talk and profit taking after the stronger bonds performance post the October ECB meeting.
Following on from this, the European Commission raised its GDP and inflation forecasts for the Euro area yesterday. GDP growth in 2017 is now expected to be the highest in a decade at 2.2% (+0.5ppt) and 2.1% (+0.3ppt) in 2018, with Germany and Spain expected to perform strongly, while forecasts for the UK have been lowered to 1.3% next year (vs. DB estimate of 1%). Elsewhere, the inflation forecasts for 2018 was marginally increased (+0.1ppt) to 1.4% in 2018 and 1.6% in 2019. The Bank of France Governor Villeroy noted “Euro area growth will be sustained in the next two years thanks to strong investment and thanks to increased convergence among countries”.
Moving onto central bankers’ commentaries. ECB’s Governing council member Lane sounded a bit hawkish, noting “there are some signs that inflation is snapping back” and that “inflation does not have to reach our goal before we discuss changing our policy”. Further “if we have enough signals, we can get active and move on” as “our monetary policy does not always have to follow such a gradual and incremental approach”. On QE tapering, he noted that as we approach the time when net bond purchases end, we will “develop a clearer communication strategy on what ECB means by well past” in its guidance on interest rates.
Elsewhere, commentary by others on the economy were fairly upbeat too. ECB’s executive board member Coeure noted “we’re now at a stage in the economic cycle where the recovery is strong….in terms of robustness and balance….probably (the strongest) in almost 20 years”. The ECB VP Constancio also noted ‘we’re encouraged by the way the economy continues to grow” and that “all the new indicators…mostly so far…indicate that growth could be indeed stronger”. On QE, he noted we should not expect “very dramatic change or development” on CSPP size in any case.
Moving to geopolitics, the official Saudi Press Agency has advised its nationals to leave Lebanon due to the “situation” without elaborating more. With the ongoing tensions regarding Iran and Saudi’s own internal anti-corruption drive heating up, we watch and see how this situation will evolve.
Now recapping the rest of market performance from yesterday. US bourses pared back early losses to close modestly weaker, in part following the Senate tax plan. The S&P traded down around -1% intraday before ending the day -0.38%. The Dow (-0.43%) and Nasdaq (-0.58%) also fell modestly. Within the S&P, losses were led by the industrials (-1.28%) and materials sector, with partial offset from energy and telco stocks. European market were all lower, with the Stoxx 600 (-1.11%) and DAX (-1.49%) down the most since 21st July, with losses driven by industrials and tech stocks. The FTSE was actually the relative outperformer, only down 0.61%. After five consecutive days of <10, the VIX jumped 7% to 10.50. Away from the markets the ECB’s head of banking supervision Ms Nouy signaled a willingness to adjust plans which could have led to higher provisions for existing non-performing loans. She noted “it is a consultation (process) and everything can be changed if we are convinced we have done something not as adequate as it should have been”. Her reassuring comments partly boosted some Italian banks, with BPER Banca SpA share price up c10% (vs. FTSE MIB -0.8%).
Over to Brexit, the current round of talks remain at a stalemate. However, the FT has reported that the UK side may be working on different scenarios to “considerably increase” the divorce settlement bill from the current EUR20bn offer (vs. EU’s reported demand of EUR60bn) with the possibility that a revised financial pledge will be tied to an agreement in principle on a transitional deal that may be announced in the December summit. Elsewhere, Brexit Secretary Davis will propose an amendment in Parliament next week, making “crystal clear” that Brexit will take place at 11pm GMT on 29 March 2019.
Back to Catalonia, the El Pais newspaper noted that Spain’s Supreme Court may take over the case and free the Catalan officials who face up to 30 years in jail for charges of sedition. Elsewhere, Bloomberg suggested that sources close to PM Rajoy noted the PM wants ousted Catalan President Puidgemont to be released if he returns to Spain and participate in the 21 December election, in part as he is confident that the pro-independence side will not secured enough votes for a majority win.
Finally, in the APEC summit at Vietnam, the 11 nations have yet to decide how to salvage the TPP (Trans-Pacific Partnership) trade deal after President Trump withdrew the US from it last year. The Australian trade minister Mr Ciobo is “hopeful of securing a deal” in the next two days, but the Canadian counter party noted “it’s far more important to get the right deal than a fast deal”.
Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the final reading of the September wholesale trade was unrevised at 0.3% mom. The wholesale sales rose 1.3% mom in September, which meant the inventory-shipments ratio fell to 1.27 – the lowest level since December 2014. Elsewhere, the weekly initial jobless claims (239k vs. 232k expected) and continuing claims (1,901k vs. 1,885k expected) were broadly in line.
In Europe, Germany’s September trade surplus was above expectations at $24.1bln (vs. $22.3bln). Both exports (7.7% yoy) and imports (7.5% yoy) were well up on a year earlier. In France, the industrial sentiment for October was slightly higher at 106 (vs. 105 expected) – a fresh six year high. In the UK the RICS housing survey weakened in October, with just net 1% of surveyors reporting rising prices and a net 11% of surveyors expecting price declines over the next three months.
Looking at the day ahead, a fairly quiet end to the week with September industrial production data in France and the flash November University of Michigan consumer sentiment print and October monthly budget statement in the US due. With it being Veterans Day in the US, bond markets will be closed however stock markets remain open. The ECB’s Mersch is slated to make comments while President Trump will take part in the APEC summi
3. ASIAN AFFAIRS
i)Late THURSDAY night/FRIDAY morning: Shanghai closed UP 4.87 points or .14% /Hang Sang CLOSED DOWN 15.65 pts or 0.05% / The Nikkei closed DOWN 187.29 POINTS OR 0.82%/Australia’s all ordinaires CLOSED DOWN 0.30%/Chinese yuan (ONSHORE) closed DOWN at 6.6430/Oil UP to 57.15 dollars per barrel for WTI and 63.90 for Brent. Stocks in Europe OPENED RED . ONSHORE YUAN CLOSED DOWN AGAINST THE DOLLAR AT 6.6430. OFFSHORE YUAN CLOSED WEAKER TO THE ONSHORE YUAN AT 6.655 //ONSHORE YUAN WEAKER AGAINST THE DOLLAR/OFF SHORE WEAKER TO THE DOLLAR/. THE DOLLAR (INDEX) IS STRONGER AGAINST ALL MAJOR CURRENCIES. CHINA IS NOT VERY HAPPY TODAY.
3a)THAILAND/SOUTH KOREA/NORTH KOREA
NORTH KOREA//SOUTH KOREA
3b) REPORT ON JAPAN
3C CHINA REPORT.
China announces that it will open its financial sector to foreign ownership for the first time. Now you must ask yourself why? Answer: their huge 40 trillion USA debt. They will try and offload some of that debt for equity. It is probably a little late.
China’s Big Bang Bombshell: Beijing Opens Financial Sector To Foreign Ownership, But Why Now?
That was quick.
Trump leaves China (only to go back on the offensive about unfair trade practices in his APEC speech) and just hours later Trump’s new Beijing friends announce that foreign firms will be permitted to take majority ownership in Chinese financial firms… well capped at 51% for now anyway. We doubt that this occurred out of the blue and was surely being worked on in the run-up to Trump’s visit. Furthermore, we suspect that Bloomberg’s Chief Asia Economist, Tom Orlik, had got wind of it ahead of time. In our preview of Trump’s visit (see “Will Xi Offer Trump A Small Victory On Trade As Cover For His Longer-Term Ambitions”), we noted this comment of his.
“In an optimistic scenario, Trump’s appetite for tweetable wins and China’s longer-term focus could coalesce around financial market opening — a boon for the U.S. investment banks, and a support for China as it attempts to tame its credit boom,” Orlik said.
Bloomberg is describing China’s move as “China’s Big Bang moment”, harking back to the deregulation of the London Stock Exchange in 1986, which permitted commercial and investment banks, both UK and foreign, to own brokers and dealers, all backstopped by deposits. Following today’s announcement foreign firms will be able to take a majority ownership in banks, securities brokerages (China’s term for investment banks), asset managers and life insurers. The chatter on the financial news networks this morning is beyond superlative, including comments such as “giant step”, “milestone”, “timing auspicious” and “the timing is conciliatory”. In reality, it could be a giant headfake.
China took a major step toward the long-awaited opening of its financial system, removing foreign ownership limits on its banks and asset-management companies, and allowing overseas firms to take majority stakes in local securities ventures and insurers. Regulators are drafting detailed rules, which will be released soon, Vice Finance Minister Zhu Guangyao said at a briefing in Beijing on Friday. Foreign firms will be allowed to own up to 51 percent in securities ventures and life-insurance companies, caps that will be removed gradually over time, he said.
China’s steps look poised to end years of frustration for foreign banks, who have long been marginal players in Asia’s largest economy. The announcement could be seen as a major win for U.S. President Donald Trump, whose first official visit to China was followed by a string of Sino-U.S. deals. On Thursday, China’s Foreign Ministry foreshadowed the latest moves, with a statement saying that entry barriers to sectors such as banking, insurance, securities and funds will be “substantially” eased. Those comments came following a meeting between Trump and his counterpart Xi Jinping.
On the surface, this is the most significant move to deregulate China’s financial system for a decade when foreign banks were allowed to set up minority-owned operations in 2007. Furthermore, the new regulations will remove the 51% cap in securities brokerages after three years. In the life insurance sector, foreign firms will be allowed to own 51% after three years with the cap being removed after 5 years.
Prior to this announcement, foreign banks had diverging China strategies. In a high-profile announcement last year, JP Morgan announced that it would sell its stake in the JPMorgan First Capital Joint Venture – a securities trader – due to poor profitability. In contrast, likes of UBS and Morgan Stanley have stated their intention to raise ownership in their joint ventures.
The South China Morning Post reported on the response to the news.
International banks doing business in China welcomed the news. “The Chinese government’s decision to allow foreign companies to take up to 51 per cent in securities joint venture represents an important step in further opening up China’s financial sector. China is a key market for UBS and…we continue to work towards increasing our stake in [joint venture] UBS Securities,” Eugene Qian, chairman of UBS’ China Strategy Board, said in a statement. Securities trading in China has been dominated by large domestic players, with the foreign banks’ joint ventures struggling to gain market share. In 2015, UBS Securities was ranked the best performing foreign joint venture among securities firms in terms of net profits, but was still 95th overall in the country, according to data from the Securities Association of China.
However, the ongoing internationalisation of China’s capital markets will provide an opportunity for the foreign players to help them overcome domestic competition. “Domestic players are already strong in areas like securities brokerages. However, with China’s capital markets opening up to foreign investors through the connect schemes, China’s securities brokerages might need more foreign strategic partners to help them better serve these new investors,” said Wang Cong, professor of finance and co-director of the centre for globalisation of Chinese companies at the China European International Business School.
The key question regarding China’s “Big Bang” moment is whether the motivation was mainly directed at placating Trump, who was always going to return to the trade issue, which had been a major part of his campaign. That was undoubtedly part of it, although Trump’s APEC speech in Vietnam in which he reverted to slamming China for its trade practices has probably caused some loss of face and irritation in Beijing.
However, what if it was more than that… and here we return again to China’s need to deflate its obscene credit bubble in an orderly fashion. No matter if we view it as a near impossibility. However, they at least need to try and outgoing PboC Governor, Zhou, has been warning of “Minsky’s moments” and “debt disguised as equity” in the last few weeks.
China’s credit bubble is far more fragile than most western investors want to acknowledge and the local authorities know this only too well. Consequently, we were impressed by these comments from Bloomberg’s Shuli Ren, who’s thinking along the same lines. Her angle, and China’s credit bubble is awash wish them, is non-performing loans and medium-sized banks.
China desperately wants to recapitalize its mid-sized joint-stock commercial banks, which it sees as posing systemic risks. Last year, the People’s Bank of China said that if a mid-sized bank were to default, on average, four to five other lenders would also be affected and more than 8 per1cent of the industry’s capital would be wiped out. Taking a look at 41 publicly listed Chinese banks shows that only the very largest — Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and China Merchants Bank Co. among them — are reasonably capitalized. Plenty of lenders, from Postal Savings Bank of China Co. to Bank of Jiangsu Co., are in need of cash. Except for China’s largest banks, mid-sized and regional lenders are in need of greater capital buffers.
Ren speculates where foreign firms might be able to play a role in saving some of these banks.
The one area that may be of interest to foreigners is bad-debt asset management firms. Beijing has been urging lenders to set up soured-loan managers to conduct debt-for-equity swaps and offload unmet obligations. Pricing and restructuring bad debt, however, is so technical and tiresome that even China’s two most prominent specialists, China Huarong Asset Management Co. and China Cinda Asset Management Co., have been busy earning their keep in the offshore high-yield corporate bond market. But, as I wrote in August, Beijing is serious about reducing corporate debt and establishing new asset-management companies for that purpose. Authorities want the firms to have a wide range of financing options open to them, from bond issues to private placements and perhaps even tapping interbank liquidity. Although China’s capital markets are getting deeper by the day, more external expertise wouldn’t go amiss. So far, only about 10 percent of the announced 1 trillion yuan ($151 billion) of debt-swap deals have been funded, in part because private-sector investors aren’t interested. That’s where foreign financial institutions should be turning their attention. There’s business here for the taking.
We wouldn’t disagree, which that’s why our initial reaction to the news last night was… skeptical.
CHINA ALLOWS FOREIGN FIRMS TO TAKE UP TO 51% IN SECURITIES COS.
And by “allows” it means begs
To be sure, a foreign bailout masked as investment would certainly help, however, we share the sentiment that it’s probably too late.
The UK “High Street” retail sales index suffered a terrible blow in the most of October. The High street index is simply the “Main” shopping area in each and every UK city and town. It takes its total sales and records it as an index.
As you will see below, October was the worst sales on record
5. RUSSIA AND MIDDLE EASTERN AFFAIRS
The rhetoric continues as the USA Air Force claims that the missile which targeted the Saudi airport was Iranian made:
Hezbollah Leader Says Saudi Arabia Has Declared War On Lebanon
If three days ago the middle east was on the “verge of a catastrophe“, then moments ago it took one big step closer to the edge.
Recall that on Tuesday we reported that Saudi Arabia had again cast itself as the victim of external Shia plotting, after its internal weekend of chaos which included a missile attack from Yemen, the deaths of two princes and other high officials within a mere 24 hours, and an aggressive crackdown against dissent in the royal family which saw close to a dozen princes placed under house arrest. And while Saudi Arabia has long blamed Iran for sowing unrest in the region, Tuesday’s declaration by Saudi Gulf affairs minister Thamer al-Sabhan that Lebanon has “declared war” against the kingdom was an historic first. But perhaps the biggest problem is that international media is currently uncritically spreading the statement, whereas what such a bizarre claim actually warrants is laughter. Thankfully, Nassim Nicholas Taleb sums it up nicely with a basic geography lesson: “Either the media is stupid, or Saudi rulers are stupid, or both. Lebanon did not formally declare war and there is no common border.”
Well, fast forward three days when Lebanon has still not declared war on Saudi Arabia, however it has turned the table on Riyadh, when moments ago Hassan Nasrallah, leader of Hezbollah, said that “Saudi Arabia has declared war on Lebanon and Hezbollah.” In a televised address to mark Hezbollah’s so-called Martyr Day, Nasrallah warned Israel against what he called “miscalculations” and said Saudis are angry because “their dreams did not come true in Syria, Lebanon.”
The Hezbollah leader also said he sees an Israeli war with Lebanon as unlikely, and warns Israel against any attempt to exploit the political chaos in Lebanon, claiming “today we are stronger.” Nasrallah also said that Yemenis have capacity to produce missiles, denying Saudi claims that Hezbollah fired a missile at Riyadh.
Claiming that the failed Saudi faceoff with Qatar, and its intervention in Bahrain made its government bankrupt, he also warned that Saudi Arabia – which claims to be helping Yemenis, but has only killed its people, spread disease, hunger – “will fail in Lebanon as it did in all other arenas in the region.”
The Hezbollah leader also said former Lebanon premier Saad Hariri, who unexpectedly resigned over the weekend, is being kept under house arrest in Saudi Arabia after resigning as Lebanese Prime Minister from its capital on Saturday, and must be allowed to return home.
And now that both sides have mutually accused each other of having declared war on each other, the question is which country will break the stalemate and move from words to actions.
the powerful arms dealer Prince Bandar is among those arrested and he is very close to the west:
Saudi “Deep State” Prince Bandar Bin Sultan Among Those Arrested In Purge: Report
According to a new report by Middle East Eye, Prince Bandar bin Sultan – Saudi Arabia’s most famous arms dealer, longtime former ambassador to the US, and recent head of Saudi intelligence – was among those detained as part of Crown Prince Mohammed bin Salman’s (MBS) so-called “corruption purge” that started with the initial arrests of up to a dozen princes and other top officials last weekend.
If confirmed, the arrest and detention of Bandar would constitute the most significant and high profile figure caught up in the purge – even above that of high profile billionaire investor Prince Alwaleed Bin Talal – given Bandar’s closeness to multiple US administrations and involvement in events ranging from Reagan’s Nicaraguan Contra program (including direct involvement in the Iran-Contra scandal), to making the case for the Iraq War as a trusted friend of Bush and Cheney, to directing US-Saudi covert operations overseeing the arming of jihadists in Syria.
Middle East Eye issued the report based on multiple contacts “inside the royal court” and indicates further that the scale of MBS’ aggressive crackdown is much larger than previously reported, and even involves the torture of “senior figures” among those detained:
Some senior figures detained in last Saturday’s purge in Saudi Arabia were beaten and tortured so badly during their arrest or subsequent interrogations that they required hospital treatment, Middle East Eye can reveal. People inside the royal court also told MEE that the scale of the crackdown, which has brought new arrests each day, is much bigger than Saudi authorities have admitted, with more than 500 people detained and double that number questioned.
And shockingly, those sources say that the longtime Saudi ‘deep state’ power broker and liaison with the West, Prince Bandar, is among the detained:
One of the most famous is Prince Bandar bin Sultan, a former Saudi ambassador to Washington and confidant of former US President George W Bush. There is no word on his fate, but Saudi authorities said that one of the corruption cases they are looking at is the al-Yamamah arms deal, in which Bandar was involved.
While no doubt Bandar’s very well-known role in Saudi “oil for arms” programs which have come to define Saudi relations with the West over the past decades is a trumped up and “selective” charge (insofar as the highest levels of the state have overseen such shady dealing) the al-Yamamah deal in particular – which goes back to the mid-1980’s – has been an historical embarrassment to both the UK and Saudi governments (BAE Systems was the prime British contractor involved) for the astounding level of fraudulent accounting exposed in UK courts.
Concerning Prince Bandar’s role in the al-Yamamah deal, Middle East Eye continues:
Bandar bought an entire village in the Cotswolds, a picturesque area of central England, and a 2,000-acre sporting estate with part of the proceeds from kickbacks he received in the al-Yamamah arms deal, which netted British manufacturer BAE £43bn ($56.5bn) in contracts for fighter aircraft.
As much as $30m (£15m) is alleged to have been paid into Bandar’s dollar account at Riggs Bank in Washington and the affair led to corruption probes in the US and UK, although the case was dropped in the UK in 2006 after an intervention by then-prime minister Tony Blair.
But more likely is that Bandar has been caught up in this week’s MBS dragnet for his closeness to Western heads of state and foreign intelligence services. With MBS’ aggressive consolidation of power which could result in ascension to the throne at any moment, and with fate of multiple princes and officials still unknown – not the least of which is now ex-PM of Lebanon Saad Hariri – a shroud of secrecy has resulted in myriad theories concerning what is really happening behind the scenes.
Likely, Bandar has been detained to ensure a communications blackout with Western intelligence and media until MBS’ plans are complete, with the added benefit of ensuring the “anti-corruption” angle to the purges for the consumption of international media.
Bandar (left) has been close to multiple US administrations spanning decades with direct involvement in events ranging from Reagan’s Nicaraguan Contra program (including being named in the Iran-Contra scandal), to making the case for the Iraq War as a trusted friend of Bush and Cheney, to directing Obama-era covert operations to arm jihadists in Syria.
Ironically, Bandar himself once seemed to publicly boast about receiving massive kickbacks in relation to Saudi weapons dealing, which perhaps further made him an easy and high profile target in this week’s crackdown. According to a royal family profile highlighting corruption in the New York Times from early this week:
Perhaps the most famous statement on corruption in Saudi Arabia was made by Prince Bandar. In an interview with PBS in 2001, he said: “If you tell me that building this whole country, and spending $350 billion out of $400 billion, that we had misused or got corrupted with $50 billion, I’ll tell you, yes. But I’ll take that anytime.”
And the New York Times summarized the key events of the multi-billion pound weapons deal with the UK as follows:
Weapons contracts have long been a source of wealth. British media reported that Prince Bandar received well over $1 billion in secret payments from BAE Systems, the leading British military contractor, over the course of a decade. The son of founding King Abdulaziz’s personal doctor, Adnan Khashoggi, became a billionaire as an arms dealer and go-between for weapons makers and members of the royal family.
Meanwhile news of Bandar’s possible arrest and detention hasn’t spread very widely in international media reports as of this writing, but it will be interesting to see the response in the West should the news be confirmed. Will Bandar’s friends in Washington and London go to bat for him? Or will Prince Bandar quietly recede into the background of a permanent forced retirement from public life?
Most likely the latter will be the case. Regardless, for friends of the former powerful Saudi intelligence director on either side of the Atlantic and within Saudi Arabia itself, Bandar no doubt knows where all the skeletons are buried, and this alone makes him a worrisome, volatile and unpredictable figure in the midst of a transfer of power.
6 .GLOBAL ISSUES
The higher price for oil is having an effect on oil rigs being utilized. The total number of rigs have risen to the most in 5 months
8. EMERGING MARKET
Venezuela Officially Declared In Default
Today at 11am, the ISDA Determinations Committee sits down to decide whether an event of default has occurred due to the delayed principal payment on the Petroleos de Venezuela SA, or PDVSA, bond that matured Nov. 2, in the process triggering PDVSA (and perhaps Venezuela) CDS, and officially declaring Venezuela in default.
We won’t have to wait that long: moments ago, Wilmington Trust, the Trustee of the 8.5% bonds due 2018, issued by Corpoelec, Venezuela’s electricity company, declared that the missed interest payment originally due October 10, and whose 30 day grace period expired on November 9, and for which no pament was sent or received, officially constitutes an event of default.
From the statement:
Wilmington Trust, National Association is communicating the following to you in its capacity as successor trustee (the “Trustee”) to The Bank of New York, as trustee, under the Indenture dated as of April 10, 2008 (the “Indenture”) for the $650,000,000 8.50% Senior Notes due 2018 (the “Notes”) of C.A. La Electricidad de Caracas (the “Issuer”). In a letter to the Trustee and various other parties dated November 30, 2012, National Electricity Corporation, S.A. (CORPOELEC) advised that it is the successor by merger to the Issuer. Capitalized terms used herein but not defined herein shall have the respective meanings set forth in the Indenture.
Please be advised that the Paying Agent with respect to the Notes has advised the Trustee that the payment of interest on the Notes that was due on October 10, 2017 was not received by the Paying Agent. The Issuer’s failure to pay interest on the Notes when due on October 10, 2017 constitutes a Default under the Indenture. The Paying Agent has further notified the Trustee that the interest payment was not received by November 9, 2017.
The Issuer’s failure to pay the overdue interest on the Notes on or before November 9, 2017 constitutes an Event of Default under Section 5.1(ii) of the Indenture. Pursuant to Section 5.1(b) of the Indenture, if an Event of Default shall occur and be continuing and has not been waived, the Holders of at least 25% in principal amount of Outstanding Notes may declare the principal of, and premium, if any, accrued interest and Additional Amounts, if any, on all the Notes to be due and payable by notice in writing to the Issuer and the Trustee specifying the Event of Default and that such notice is a “notice of acceleration”, and the same shall become immediately due and payable.
It is unclear if this formal default declaration makes today’s ISDA determinations committee decision moot, however it now looks quite certain that Monday’s meeting between creditors and the country’s vice president and chief debt negotiatior, who also happens to be a US-sanctioned drug kingpin, will no longer be necessary.
Today’s news will not come as a surprise to CDS holders, who had already priced in a 99.99% probability of default in 5 years.
The full statement is below:
Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings FRIDAY morning 7:00 am
Euro/USA 1.1659 UP .0012/ 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 113.41 UP 0.048(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 1.3182 UP .0042 (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 1.2670 DOWN .0009(CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT AND GREXIT FROM EU/(TRUMP INITIATES LUMBER TARIFFS ON CANADA)
Early THIS FRIDAY morning in Europe, the Euro FELL by 1 basis points, trading now ABOVE the important 1.08 level RISING to 1.1645; / Last night the Shanghai composite CLOSED UP 4.87 POINTS OR .14% / Hang Sang CLOSED DOWN 15.65 POINTS OR 0.05% /AUSTRALIA CLOSED DOWN 0.30% / EUROPEAN BOURSES OPENED RED
The NIKKEI: this FRIDAY morning CLOSED DOWN 187.29 POINTS OR .82%
Trading from Europe and Asia:
1. Europe stocks OPENED RED
2/ CHINESE BOURSES / : Hang Sang CLOSED DOWN 15.65 POINTS OR 0.05% / SHANGHAI CLOSED UP 4.87 POINTS OR .14% /Australia BOURSE CLOSED DOWN 0.30% /Nikkei (Japan)CLOSED DOWN 187.29 POINTS OR 0.82%
INDIA’S SENSEX IN THE GREEN
Gold very early morning trading: 1284.80
Early FRIDAY morning USA 10 year bond yield: 2.366% !!! UP 3 IN POINTS from THURSDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%. (POLICY FED ERROR)
The 30 yr bond yield 2.851 UP 4 IN BASIS POINTS from THURSDAY night. (POLICY FED ERROR)
USA dollar index early FRIDAY morning: 94.51 UP 7 CENT(S) from YESTERDAY’s close.
This ends early morning numbers FRIDAY MORNING
And now your closing FRIDAY NUMBERS \1 PM
Portuguese 10 year bond yield: 2.059% UP 3 in basis point(s) yield from THURSDAY
JAPANESE BOND YIELD: +.043% UP 1 in basis point yield from THURSDAY/JAPAN losing control of its yield curve/
SPANISH 10 YR BOND YIELD: 1.576% UP 4 IN basis point yield from THURSDAY
ITALIAN 10 YR BOND YIELD: 1.846 UP 3 POINTS in basis point yield from THURSDAY
the Italian 10 yr bond yield is trading 27 points HIGHER than Spain.
GERMAN 10 YR BOND YIELD: +.410% UP 4 IN BASIS POINTS ON THE DAY
IMPORTANT CURRENCY CLOSES FOR FRIDAY
Closing currency crosses for FRIDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/1:00 PM
Euro/USA 1.1659 UP ,0012 (Euro UP 12 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/
USA/Japan: 113.48 UP 0.126(Yen UP 13 basis points/
Great Britain/USA 1.3210 UP 0.0068( POUND UP 68 BASIS POINTS)
USA/Canada 1.2685 UP.0006 Canadian dollar DOWN 6 Basis points AS OIL ROSE TO $57.12
This afternoon, the Euro was UP 12 to trade at 1.1659
The Yen FELL to 113.48 for a LOSS of 13 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 68 basis points, trading at 1.3210/
The Canadian dollar FELL by 6 basis points to 1.2694 WITH WTI OIL RISING TO : $57.12
Your closing 10 yr USA bond yield UP 7 IN basis points from THURSDAY at 2.391% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic USA 30 yr bond yield: 2.874 UP 7 in basis points on the day /
Your closing USA dollar index, 94.42 DOWN 2 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 FRIDAY: 1:00 PM EST
London: CLOSED DOWN 51.11 POINTS OR 0.69%
German Dax :CLOSED DOWN 56.09 POINTS OR 0.42%
Paris Cac CLOSED DOWN 27.03 POINTS OR 0.50%
Spain IBEX CLOSED DOWN 48.40 POINTS OR 0.48%
Italian MIB: CLOSED DOWN 80.52.99 POINTS OR 0.36%
The Dow closed DOWN 39.73 POINTS OR .17%
NASDAQ WAS closed up 0.89 Points OR 0.01% 4.00 PM EST
WTI Oil price; 57.12 1:00 pm;
Brent Oil: 63.69 1:00 EST
USA /RUSSIAN ROUBLE CROSS: 59.15 DOWN 13/100 ROUBLES/DOLLAR (ROUBLE HIGHER BY 13 BASIS PTS)
TODAY THE GERMAN YIELD RISES TO +.410% 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:$56.84
USA 10 YR BOND YIELD: 2.402% (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)
USA 30 YR BOND YIELD: 2.885%
EURO/USA DOLLAR CROSS: 1.1665 UP .0019
USA/JAPANESE YEN:113.53 up 0.171
USA DOLLAR INDEX: 94.38 DOWN 6 cent(s)/
The British pound at 5 pm: Great Britain Pound/USA: 1.3193 : UP 52 POINTS FROM LAST NIGHT
Canadian dollar: 1.2674 down 1 BASIS pts
German 10 yr bond yield at 5 pm: +0.410%
And now your more important USA stories which will influence the price of gold/silver
TRADING IN GRAPH FORM FOR THE DAY
Hindenburg Omen Sighted As Stocks Suffer First Weekly Loss In 2 Months
Before we start – let’s celebrate. As @BespokeInvest notes, we’re making history today: first 12 month period in the history of the S&P 500 without a 3% drawdown. The VIX is also the lowest on record using a rolling 12 month average.
All major indices ended the week red. This is the Dow & S&P’s first weekly loss in the last 9 weeks. Trannies were worst (worst weekly loss since July). Small Caps worst week since August.
This was VIX’s biggest weekly rise in 3 months…
Russell 2000 VIX actually ended slightly lower with S&P VIX the biggest riser on the week…
Financials (green) were the week’s worst performing sector, Utes (blue) and Retailers (black) outperformed…
On the week when the goivernment unveiled its tax plan, high tax stocks underperformed…
Bonds and Stocks fell on the week for the first time since June…
Which coincided with the worst drop in Risk-Parity funds since June…
All of which happens as a cluster of Hindebnburg Omens strikes…
Breadth in stocks remains weak…
HYG (High Yield Bond prices) tumbled most in 3 months…
High Yield continues to diverge from stocks…
VIX remains suppressed…
Treasuries sold off quite hard today – notable along with the equity weakness, suggesting Risk Parity problems – as the long-end underperformed, swinging the curve steeper…
The yield curve ended the week very marginally steeper after a v-shaped bounce midweek…
The Dollar Index fell for the first week in the last 4…
Crude was up for the 5th week in a row, copper lagged…
Gold and Bitcoin tumbled on the day…
One reason for the drop in Bitcoin is perhaps some wealth transfer from crypto to cash spending for Singles Day…
Gold was hit hard today a $4billion notional dump but remains higher on the week post-Saudi-chaos…
The blame game intensifies as 2018 premiums escalate.
Blame Game Over Obamacare’s 2018 Premium Surge Reaches Feverish Pitch, Will It Matter In 2018?
As Americans head to the exchanges to purchase their Obamacare plans for 2018, many are experiencing a bit of sticker shock. As the Wall Street Journal points out this morning, folks in Deaf Smith, Texas can expect their premiums to surge 87% next year while those in Clinton, Iowa are looking at a sickening increase of 171%, with monthly premiums surging from $288 to $781.
In Deaf Smith, Texas, for example, a 40-year old single individual who earns too much for federal aid will see premiums jump 87%—from about $290 to $540—according to a Kaiser Family Foundation analysis of prices for a popular, midprice health plan. Only people who make less than 400% of the poverty level—about $48,000 in most states this year—are eligible for federal aid.
In Clinton, Iowa, premiums will rise from $288 to $781, an increase of 171%, for the same plan.
“There is unquestionably a growing divide in affordability between lower-income people who qualify for premium subsidies and middle-income people who do not,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation.
AnnMarie McIlwain, a patient advocate in Summit, N.J., pays $1,087 a month for a family policy, and her premiums next year are going up 39%. With their deductible, the family’s annual health costs could surpass $20,000.
“I find it outrageous. I think there’s going to be a huge outcry,” said Mrs. McIIwain, 56. “They have gone up year over year, but never like this.”
Meanwhile, one customer in North Carolina apparently received this charming letter from Blue Cross and Blue Shield letting him know that, while his prior year healthcare plan had been cancelled, he could easily signup for a new “comparable” plan for a mere 300% more.
Of course, with mid-term elections just around the corner, Democrats are eagerly looking to pin the 2018 premium surge on Trump’s decision to defund Obamacare’s marketing budget and cut subsidies payments for insurers. The question is, after years of similar premium increases, will voters buy that it’s suddenly Trump’s fault as opposed to just a continuation of the death spiral that started long before he moved into the White House?
According to the WSJ, the answer to the question above was likely just answered by Virginia voters.
Tuesday’s election results suggest the politics of health care may be tilting against Republicans for the first time in years. Democrats have long paid a political price for the ACA’s unpopularity, losing elections since 2010 after the law was passed through last year, when the health law’s problems factored heavily into the Republican message.
But this week, Virginia voters cited health care in exit polls as an important reason for delivering the governorship to Democrat Ralph Northam, while a ballot initiative in Maine to expand the state’s Medicaid program won decisively. That follows the GOP’s failure to repeal the ACA and low public approval for the alternatives it offered.
If those developments signal a broader shift in the landscape, it could have a big impact on the 2018 midterm elections, where all seats in the House and a third in the Senate are up for grabs. Adding an unpredictable element to the mix, many voters in states that supported Mr. Trump will face some of the biggest increases.
According to an October poll by The Wall Street Journal and NBC News, 50% of Americans would blame Republicans if health-care costs rise and people lose coverage, while 37% would blame Democrats.
Of course, this is a perfectly logical conclusion for voters to draw…if they choose to ignore the fact that Obamacare’s 2018 premium increases are not some new phenomenon that started once Trump took office, but rather just a continuation of a devastating trend that has been ongoing since 2013.
Of course, logic rarely plays a critical role in politics so we’re sure the data above will be promptly overlooked.
Meanwhile, somewhere in Chicago:
After leaving China, he goes back to slamming the Middle Kingdom
In APEC Speech, Trump Slams China, WTO And TPP For Holding Back His “Indo-Pacific Dream”
Trump may have sensed that he appeared too conciliatory towards President Xi and China during his visit to Beijing, and so shortly after doubling down on his parting message to China by tweeting that “I don’t blame China, I blame the incompetence of past Admins for allowing China to take advantage of the U.S. on trade leading up to a point where the U.S. is losing $100’s of billions. How can you blame China for taking advantage of people that had no clue? I would’ve done same!”…
I don’t blame China, I blame the incompetence of past Admins for allowing China to take advantage of the U.S. on trade leading up to a point where the U.S. is losing $100’s of billions. How can you blame China for taking advantage of people that had no clue? I would’ve done same!
… which prompted countless snarky comments from the blue-check gallery, Trump arrived in Vietnam where he immediately spoke at the APEC (Asia Pacific Economic Cooperation) summit; here the US president went back to his “roots” of harshly criticizing China, its state-owned enterprises, all manner of anti-competitive practices by the Middle Kingdom, the WTO and the TPP. Trump also added that the United States will no longer tolerate the abuses and, while previous administrations have done nothing about them, he will.
In summary, Trump:
- Slammed China for the unacceptable trade deficit, lack of market access, government-run industrial planning, currency manipulation and other abuses for gaining economic advantage;
- Slammed China’s subsidised state-owned enterprises which carry out the government’s predatory industrial policy and put private competitors out of business;
- Slammed China for forcing companies to surrender technology to the state and forcing them into joint ventures to gain market access;
- Slammed the WTO for unfairly treating the US and allowing countries, notably China, to break the rules;
- Slammed the TPP (without naming it directly) which would tie America’s hands, remove its sovereignty and prevent the enforcement of WTO rules;
- Will make bilateral trade agreements with Indo-Pacific nations; and
- Stated that economic security is national security.
While Trump’s speech was greeted with a standing ovation, we suspect it was less well received by his new “friends” in Beijing.
Here is the key part of Trump’s speech regarding trade.
We seek robust trade relationships rooted in principles of fairness and reciprocity. When the US enters into trade relationships, from now on we will expect our partners will faithfully follow the rules just like we do. We expect that markets will be open to an equal degree on both sides and private industry, not government planners, will direct investment. It’s been unfair for too long and in too many places. The US systematically opened our economy with few conditions. We lowered or ended tariffs, reduced trade barriers and allowed foreign goods to flow freely into our country. But while we lowered market barriers, other countries didn’t open their markets to us. Countries were embraced by the WTO even if they didn’t abide by its stated principles. Simply put, we have not been treated fairly by the WTO. Organisations like the WTO can only function properly when all countries follow the rules and respect the sovereign rights of every member. We cannot achieve open markets if we do not ensure fair market access. In the end, unfair trade undermines us all.
The US promoted private enterprise, innovation and industry. Other countries use government-run industrial planning and state-owned enterprises. We adhere to WTO in protecting intellectual property and ensuring fair and equal market access. They engaged in product dumping, subsidised goods, currency manipulation and predatory industrial policies. They ignored the rules to gain advantages over those who followed the rules, causing enormous distortions in commerce and threatening the foundations of international trade itself. Such practices, along with our collective failure to respond to them, hurt many people in our country and also in other countries. Jobs, factories and industries were stripped out of the United States and out of many countries in addition.
We can no longer tolerate the abuses and we will not tolerate them. Despite years of broken promises, we were told someday soon everyone will behave fairly and responsibly. People throughout America and the Indo-Pacific region have waited for that day to come, but it never has and that is why I am here today. To speak frankly about the challenges and work towards a brighter future for all of us. I recently had an excellent trip to China where I spoke openly and directly to President Xi about China’s unfair trade practices and the enormous trade deficits they have produced with the United States. I expressed our strong desire to work with China to achieve a trading relationship that is conducted on a truly fair and equal basis. The current trade imbalance is not acceptable. I do not blame China or any other country for taking advantage of the United States on trade. If their representatives are able to get away with it, they are just doing their jobs. I wish previous administrations in my country saw what was happening and did something about it. They did not, but I will.
From this day forward, will compete on a fair and equal basis. We are not going to let the United States be taken advantage of any more. I am always going to put America first, the same way I expect all of you in this room to put your countries first. The US is prepared to work with each of the leaders in this room today to achieve mutually beneficial commerce that is in the interest of both your countries and mine. That is the message I am here to deliver. I will make bilateral agreements with any Indo-Pacific nation that wants to be our partner and will abide by the principles of free and reciprocal trade. What we will no longer do is enter into large agreements that will tie our hands, surrender our sovereignty and make meaningful enforcement practically impossible. Instead we will deal on the basis of mutual respect and mutual benefit. We will respect your independence and sovereignty, we want you to strong prosperous and self-reliant, rooted in your history and branching out towards the future. That is how we will grow together, in partnerships of real and lasting value.
But for this, and I call it the Indo-Pacific dream, if it’s going to be realised, we must ensure that all play by the rules, which they do not right now. Those who do will be our closest partners, those who do not can be certain that the United States will no longer turn a blind eye to violations, cheating or economic aggression. Those days are over. We will no longer tolerate the audacious theft of intellectual property. We will confront the destructive practices of forcing businesses to surrender their technology to the state and forcing them into joint ventures in exchange for market access. We will address the massive subsiding of industries through colossal state-owned enterprises that put private competitors out of businesses. We will not remain silent as American companies are targeted by state-affiliated actors for economic gain, whether through cyber-attack, corporate espionage or other anti-competitive practice…The US has been reminded time and time again in recent years that economic security is not related to national security. Economic security is national security. It is vital to our national security.
He concluded with…
“God bless the Pacific region, God bless the United States of America.
… which the locals seemed to particularly enjoy.
The Podesta group, as we have indicated to you has been under investigation by Robert Mueller for their Russian involvement in USA affairs. Tony Podesta quit when he was implicated. Now the rats are starting to leave this lobbying group as the person who was suppose to take over from Tony Podesta quit herself
Podesta Group CEO Unexpectedly Quits Just Days After Tony’s Departure
Less than two weeks after John Podesta’s brother, Tony, quit as head of the prominent Democratic lobbying group, the Podesta Group just days after it was revealed that Special Prosecutor Robert Mueller was investigating Podesta for potentially violating the Foreign Agents Registration Act for his work involving Ukraine clients, Politico reported overnight that Podesta Group longtime CEO, Kimberley Fritts, is leaving the firm to start her own lobbying shop, according to three Podesta Group staffers.
Tony Podesta tapped Fritts as his successor when he announced he’d step down as chairman last week, hours after an indictment charging Paul Manafort and his deputy, Rick Gates, with violating foreign lobbying law, was unsealed. As a reminder, the widely leaked indictment accused Manafort of hiring the Podesta Group to lobby for an ostensibly independent nonprofit that “was under the ultimate direction” of the Ukrainian president, his party and the Ukrainian government.
And while Fritts had been expected to relaunch the Podesta Group – under a new name of course – in the days after Podesta stepped down, after just a week of trying to hammer out the details of what the new firm would look like, Fritts announced at a staff meeting late on Thursday that she would resign and start a new firm, “exacerbating questions about the future of the Podesta Group and its dozens of employees” as Politico politely puts it. Which, of course, is a less polite way of saying that the Podesta group is almost certain to be formally charged for the same violations that dragged down Manafort.
Fitts’ was just the latest exodus from the sinking ship: last week Paul Brathwaite, a Podesta Group principal, said that he was leaving to start his own shop, Federal Street Strategies.
Politico quoted one Podesta Group staffer who described Fritts’ decision as as the next step in rebuilding the firm without Tony Podesta: “Tony Podesta’s name had become a scarlet letter,” the staffer said, speaking on condition of anonymity.”
Wells Fargo and Oracle, two of the firm’s highest-paying clients, cut ties with the firm, although others said last week they would stick with the Podesta Group for now.
But it’s not clear how many staffers — and how many of the firm’s clients — will follow Fritts to her new firm.
“I just don’t know,” said another Podesta Group staffer. “This is a really painful process, trying to navigate who can go with and who can be let go.”
Fritts declined to comment.
While neither Tony Podesta, nor the Podesta Group has been charged publicly with crimes in the Manafort investigation, that is likely to change in the coming weeks.
Meanwhile, rival lobbying firms see the implosion of the Podesta Group as a prime moment to poach the Podesta Group’s top lobbyists. At least six other firms have reached out to Podesta
Mueller Probes Flynn’s Role In $15 Million Plot To Kidnap Erdogan’s Arch-Nemesis
Last week, we reported that Special Counsel Robert Mueller is close to asking a grand jury to approve indictments for former National Security Adviser Mike Flynn and his son, Mike Flynn Jr., as investigators believe they have enough evidence to bring charges after speaking to multiple witnesses about Flynn’s lobbying work, including whether he laundered money or lied to federal agents about his overseas contacts. Now, we have a somewhat clearer picture of what Mueller has been digging around for in his investigation of Flynn who was fired after just 24 days on the job.
According to the Wall Street Journal, Mueller is probing a plot involving Flynn and his son to forcibly, and lucratively, remove Fethullah Gulen, who as most regular readers know is Turkish president Erdogan’s arch-nemesis, and the man who – according to Erdogan – controls Turkey’s “deep state”, and was responsible for the failed (and faked) July 2016 coup attempt against Erdogan. In more practical terms, Gulen is a 76-year-old Muslim cleric currently residing in rural Pennsylvania. And, as is also well-known, Erdogan has for years been attempting, lobbying and threatening the US in hopes of getting him extradited back to Turkey. This is where Flynn allegedly comes in: reportedly he, and his son, were part of a plan to grab Gulen and deliver him to Turkey in return for $15 millions. To wit:
Under the alleged proposal, Mr. Flynn and his son, Michael Flynn Jr., were to be paid as much as $15 million for delivering Fethullah Gulen to the Turkish government, according to people with knowledge of discussions Mr. Flynn had with Turkish representatives. President Recep Tayyip Erdogan, who has pressed the U.S. to extradite him, views the cleric as a political enemy.
While this may sounds too bizarre to be true – as are most things involving Turkey’s cartoonish dictator – this isn’t the first time the public has been informed about an alleged plot involving Flynn to kidnap Gulen and rendition him to an isolated Turkish prison island to face charges of orchestrating the July 2016 attempted coup that killed more than 200 Turks.
Before entering the Trump administration as the president’s national security adviser, Flynn was lobbying on behalf of Turkish interests in the US, including on the Gulen issue. The problem is that – like Manafort and Podesta – he didn’t disclose that work until much later, in Flynn’s case March of this year, well after he was forced out of the White House for misleading Vice President Mike Pence and other White House officials about conversations he had with the Russian ambassador.
Furthermore, Federal records show that the company, Flynn Intel Group, was paid $530,000 for advocacy work that “could be construed to have principally benefited the Republic of Turkey.” He is now facing military, congressional and criminal investigations into allegations that he improperly concealed his financial ties to Turkey and Russia, and into whether the ties played any role in his decisions as the president’s adviser.
More details from the WSJ:
Under the alleged proposal, Mr. Flynn and his son, Michael Flynn Jr., were to be paid as much as $15 million for delivering Fethullah Gulen to the Turkish government, according to people with knowledge of discussions Mr. Flynn had with Turkish representatives. President Recep Tayyip Erdogan, who has pressed the U.S. to extradite him, views the cleric as a political enemy.
Federal Bureau of Investigation agents have asked at least four individuals about a meeting in mid-December at the ‘21’ Club in New York City, where Mr. Flynn and representatives of the Turkish government discussed removing Mr. Gulen, according to people with knowledge of the FBI’s inquiries. The discussions allegedly involved the possibility of transporting Mr. Gulen on a private jet to the Turkish prison island of Imrali, according to one of the people who has spoken to the FBI.
That wasn’t the first time Flynn allegedly met with representatives of the Turkish government to discuss kidnapping removing Gulen. As former CIA Director James Woolsey told The Wall Street Journal back in March, Woolsey attended another meeting in September where he says he told the group that the plan sounded illegal.
Ironically, the Fed’s interest in whether Flynn was pursuing potentially illegal means to forcibly deal with Gulen indicates that the former Trump adviser faces another investigation stemming from his work on behalf of Turkish government interests, both before and after the presidential election. We say ironically because last time we checked, Turkey is not in Russia, at least not yet according to NATO.
Even so, the entire account is based on hearsay:
“the people who described the alleged proposal said they didn’t attend the December meeting and didn’t have direct knowledge from Flynn or his associates about its purported details. It isn’t clear how advanced Mueller’s investigation of the alleged plan to remove Gulen is, nor is there any indication that any money changed hands, according to those familiar with the discussions and the FBI investigation.”
In light of the charges against Manafort and Gates, it is also likely that Flynn will face a charge of violating the Foreign Agents Registration Act, which requires US citizens to disclose when they are acting in the US on behalf of foreign powers. And, like Manafort and Gates, the violations being examined have nothing to do with Flynn’s work on the Trump campaign or his brief tenure as National Security Adviser. However, like Manafort, Gates and Papadopoulos, Mueller is working to find any dirt on anyone associated with the campaign in the hopes of flipping them, or convincing them to testify against their former boss in exchange for leniency.
Until then, look out for more indictments, and – of course – the best part: Erdogan’s angry response which he is never too shy to deliver
U.Michigan Consumer Confidence (soft data) unexpectedly drops and the reasons given were inflation and rate hike fears:
Consumer Confidence Unexpectedly Drops On Inflation, Rate-Hike Fears
UMich consumer sentiment declined from 100.7 to 97.8 in the preliminary November print, disappointing expectations of a small rise as anticipation of a pickup in inflation and higher interest rates weighed on the gauge.
Even with the decline, sentiment was the second-highest since January, reinforcing other reports that Americans remain optimistic about employment and the economy.
Other highlights include:
- Consumers saw the inflation rate in the next year at 2.6 percent, up from 2.4 percent the prior month
- Consumers expected an annual income gain of 2.1 percent for the second straight month, the best two-period average since 2008
- Inflation rate over next five to 10 years held at 2.5 percent
- Six in 10 consumers saw stock-market gains as likely in the year ahead
- References to low mortgage rates fell to 32 percent in early November from 40 percent last month
Consumers (and policy makers) have four key concerns: prospective trends in jobs, wages, inflation, and interest rates. An improving labor market was spontaneously mentioned by a record number of consumers in early November, and anticipated wage gains recorded their highest two-month level in a decade. These favorable trends were countered by a slight rise in year-ahead inflation expectations and a growing consensus that interest rates will increase during the year ahead.
Americans are as exuberant about their wealth effect as they were at the peak ahead of the last crisis…
“While the majority judged current conditions in the economy favorably and consumers anticipated continued growth on balance, consumers judged the outlook less satisfactory, and were equally divided about whether the expansion would last another five years,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.
Let us close out the week with this offering courtesy of Greg Hunter of USAWatchdog
(courtesy Greg Hunter)
Trump Deals with China, Senate Tax Cuts-NOT, Financial Market Warning
By Greg Hunter On November 10, 2017 In Weekly News Wrap-Ups
By Greg Hunter’s USAWatchdog.com
The most important stop on President Trump’s Asia visit is undoubtedly China. Trump slammed the massive trade deficit, but did not blame China for cutting a deal that was to their advantage. Trump blames the lopsided trade deficit on past administrations and Congress. Trump is trying to balance the scale between the U.S. and China by pushing $250 billion in deals.
The Senate version of a tax cut is out, and it’s basically a complicated scam that won’t cut taxes at all for many, especially in the top brackets. Trump pushed for simplicity, and the new Senate tax bill is 450 pages long. I wonder if Senate Majority Leader Mitch McConnell is really just covertly trying to make things so complicated and onerous to sabotage Donald Trump’s mandate given to him in the 2016 election.
Gregory Mannarino of TradersChoice.net is worried about the financial markets. Mannarino noted in a rare occurrence that both the bond markets and the stock markets sold off at the open Thursday morning. Mannarino said if the markets were “real,” this would be an ominous sign that the financial markets were headed for big trouble.
These stories and more are analyzed by Greg Hunter of USAWatchdog.com in the Weekly News Wrap-Up.
Well that about does it for tonight
I WILL SEE YOU ON MONDAY NIGHT