Archive - May 2014

Treasury Futures markets on the CBOT were halted this morning for about 10 seconds following the release of the April payrolls data. While somewhat stunning all by itself, given that the move was not massive, Nanex notes that what is unsual about this event is that quotes also stopped updating - indicating a possible system issue at the exchange. Of course, in these "unrigged" markets, what more would we expect?

Oil prices have increased recently as tension in Ukraine has escalated and raised concerns about the risks of disruption in Russian energy exports. There is a risk that the security situation in the east Ukraine will worsen even further ahead of the 25 May elections. As Nordea notes, Russia is as important an oil exporter to Europe (of both crude and refined products) as it is a gas exporter, and the consequences of a cut in Russian oil supplies could be as grave since the global oil market has little back-up capacity to lean on. As a result, a halt in the oil deliveries from Russia to Europe will spark a sharp spike in oil prices (potentially to $150/bbl) and in a worst case scenario an oil crisis and European recession (and major slowdown in global growth) and US shale oil or an SPR release will prevent the spike.

A leaked recording by the vice-chairman of Vanke Group (China’s biggest property developer), confirms, as The Telegraph's Amrbose Evans-Protchard reports, what the bears have been saying for months, 'it is a dangerous bubble, and already deflating'. Mao Daqing's words, translated, are ominous: "In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level... China has reached its capacity limit for new construction of residential projects... and I don’t see any possibility for a rise in home prices." The simple chart below highlights all one needs to know - inventory is exploding - and as Mao concludes: "housing production per 1000 people reached 35; even when the housing market is hot, no country has a figure of greater than 14 - this should cause alarm."

UPDATE: Up to 38 reported choked to death in the burned buildings of Odessa.

Wondering why Treasury yields plumb new depths, gold's having its best day in a month, and stocks can't keep a bid no matter how many times JPY or VIX is slammed? The answer lies in these disturbing images from Odessa which show Pro-Russian forces under attack by Ukrainian forces, buildings burning, deaths, and of course - most critically - the kind of anti-Russian actions that Vladimir Putin said was the red-line for him taking action... it's a long way to Tuesday

Italy’s central bank, the Banca d’Italia, has recently published an important document detailing the storage locations and composition of the country’s gold reserves. The document confirms that Italy’s gold is held across four vault locations, three of which are outside Italy. This is a significant announcement given that the Banca d’Italia is the world’s third largest official holder of gold after the U.S. and Germany. Italy officially holds 2,451.8 tonnes of gold, worth more than €72 billion (US$ 100 billion) at current market prices. In the detailed three page report focusing exclusively on its gold reserves (and only published in Italian), the Banca d’Italia reveals that 1,199.4 tonnes, or nearly half the total, is held in the Bank’s own vaults under its Palazzo Koch headquarters on Via Nazionale in Rome, while most of the other half is stored in the Federal Reserve Bank gold vault in New York. The report also states that smaller amounts are stored at the Bank of England in London, and at the vaults of the Swiss National Bank in Bern, Switzerland.

The world's most expensive apartment sale has been 'consumated'... in London (of course). As The Evening Standard reports, an Eastern European buyer (has anyone seen Yanukoych recently?) is believed to have paid £140 million (~$235 million) for the 16,000  square feet apartment — more than 10 times the size of a typical London three-bedroom home — at the One Hyde Park scheme near Harrods. This values the apartment at a 'mind-blowingly-desperate-to-launder-my-money-and-get-my-assets-away-from-potential-bank-freezes' $17,000 per square foot.

Obama won't be happy! "It would harm everybody, the Europeans and the Russians," warned Olli Rehn, the European Commissioner for Economic Affairs, adding that "any 'sensible' European Union citizen should oppose further sanctions on Russia because of the economic cost for Europe." As Merkel and Obama cozy'd up for discussions this morning, we can only imagine the promises being made if only she would support his crusade (which she clearly indicated she did not want to). Perhaps she should check in with her nation's CEOs (who have vociferously demanded no more sanctions) and, as Rehn acknowledges, the slowing Russian economy is already having a “negative impact” on Finland and Austria, and "that economic fallout probably will spread to Germany, Poland and the Baltic countries."

It happened in 2000 and 2007. Spectacular consequences! Now it happened again. And beneath the blue-chip highs, parts of the market are already crashing.

If we only voted for unbuyable candidates, money would become poison in politics rather than mother's milk.

Two months after Obama first mentioned the "costs" to Putin should he continue to do what the Russian leader has been doing for, well, the past two months, namely copycatting how the US would act if in the exact same situation, Obama today will be assisted by Germany's Angela Merkel on her first visit to D.C. in three years, to further reinforce the US deterrence idea of "costs" (perhaps to Germany in the form of a third of its gas imports being cut off?), just in case Obama alone can't handle Putin. Somehow we doubt Russia will pay much attention - after all it has been revealed time and again that Russia has all the trump cards.

First Kiev, now Odessa? The answer to the question of who is doing the shooting and who is being shot at will need to wait until another Victoria Nuland phone recording is released.

30Y yields have plunged back below 3.40% for the first time snce June 2013 and have retraced over 50% of the "Taper tantrum" sell-off. Yields have accelerated lower this morning after spiking on the jobs data, as a combination of blood on the streets of Ukraine and the reality of the jobs data send investrs to safe havens. JPY is aggressively bid (with AUDJPY ruling US equity weakness) and Gold and silver are in heavy demand. Remember, it's not Tuesday!

As if there wasn't enough news for the market to ignore, here is another. NBC reports that a subway train has derailed in Queens, the MTA says.  FDNY was responding to the Broadway and 65th Street area in Woodside, and reported heavy smoke conditions. Authorities say the train that derailed is a Manhattan-bound F train on the express track. The MTA could not immediately say how many wheels derailed. Riders should expect delays on the E, R, F and M lines.

The earlier Ukraine "anti-terrorist" operation in Solvyansk has resulted in the death of at least 2 servicemen and now tensions are roiling in Odessa (with mass brawls and molotov cocktails flying) as the Ukraine government tries to live up to the IMF's demands or "fight or no money". Violent clashes have broken out at a pro-Ukraine rally in Odessa and at least one person is dead. As the live feed below shows, things are getting out of control fast. Ukraine's acting president adds:

*TURCHYNOV SAYS OPERATION PROGRESSING SLOWER THAN GOVT WANTED - REBELS HIDING BEHIND HOSTAGES, CIVILIANS
*TURCHYNOV URGES SEPARATISTS TO LAY DOWN WEAPONS AND SURRENDER

Ukrainian authorities have also banned Russian air companies from making flights to the eastern Ukrainian cities; and, perhaps ironically to some, Russia has called for an emergency UN meeting to discuss Ukraine's actions.