Archive - Apr 11, 2011 - Story

Silver's nearly 3% surge in trading in Asia may indicate that the long expected short squeeze may be underway. Bullion banks with very large concentrated short positions may be being forced to buy back their short positions – propelling silver higher. This could see silver surge over the record nominal high of $50.35/oz in short order. At the same time caution is merited as silver has risen nearly 10% in April so far and over 33% year to date. Speculators need to be very cautious as margin requirements may be increased again and profit taking could lead to sharp falls in price. Leveraged speculation is extremely high risk and should be avoided by investors and savers. Proof of the lack of animal spirits in the silver marker is seen in the data which shows that speculative sentiment on the COMEX (as seen in the Commitment of Traders/ COT data – see chart below) is subdued. While the total silver ETF holdings increased to a record, they are not far above the levels seen in December 2010 (see chart above). Importantly, even at $41.30/oz the dollar value of the total silver ETF holdings remains very small at just over $20.5 billion. To put that number in perspective, today bankers put a prospective value of around $60 billion on Glencore, one of the world’s largest commodity trading companies. BP has set up a fund worth $20 billion to cover legal claims from the oil spill disaster.

The last time Bill Dudley hosted a Q&A on inflation, he made the now legendary phase, noted here, that people should just eat iPads and let their betters worry about such trivial problems as "transitory" inflation. Today Jan Hatzius' predecessor and Goldman's plant at the New York Fed continues his Titans of Taste (substitution) world tour, speaking in Tokyo, Japan, where he is experiencing one after another aftershock while discussing "Regulatory Reform of the Global Financial System." Select highlights from the speech: US economy in better shape than last summer; QE2 is partially responsible for recent rebound although the US economy has lost momentum in past few months due to oil prices; oil prices are negative to economic outlook; big focus for Fed is inflation expectations; expectations have not become anchored; CPI rise in US may be more modest than other countries as US starting at lower base; "it is important to not to overreact to rise in headline inflation as its likely to be temporary", there is more slack in the US economy than in Europe; "there should not be too much enthusiasm about tightening monetary policy too early", and many other such dovish rambling which once again confirm that Hatzius and Dudley are laying the groundwork for additional QEasing.

• Obama Push to Seize Budget Initiative (FT)
• China gives all clear on bond issuance bubble: Government Boosts the Bond Markets (China Daily)
• You mean they can't use 200% debt financing? Nasdaq OMX Needs Shareholders to Embrace Rejected Bid (Bloomberg)
• Complacent Europe Must Realise Spain Will be Next (FT)
• Japan's seismic nerve center (Japan Times)
• Kan’s DPJ Suffers Election Setback One Month After Japan Quake (Bloomberg)
• Edano Says Japan Doesn't Need BOJ to Help Fund Post-Quake Disaster Relief (Bloomberg)
• State Prosecutor Summons Mubarak (FT)
• US Doubts Air Power Can Turn Libyan Tide (FT)

According to the latest Lundberg survey the average price for a gallon of gasoline in the United States has moved closer to $4, jumping more than 19 cents since mid-March to a level less than 10 percent below its all-time high. And it's not even peak driving season, which typically sees a seasonal jump of at least 15-20% from early spring levels. Per Reuters: " The Lundberg Survey said the national average price of self-serve, regular unleaded gas was $3.765 on Friday, up from $3.573 on March 18, and up 91.3 cents from $2.852 a year ago. Prices in several western U.S. cities are already above $4 per gallon, led by San Francisco at $4.13. Chicago was close behind at $4.11 a gallon, the survey said." What is not surprising is that demand saturation is starting to set in, meaning refinery margins are now going through the window: " The national average would have been higher had refiners and retailers not resisted passing on rising crude oil prices as customers grow less willing to pay what it takes to fill their gas tanks, analyst Trilby Lundberg said in an interview. "Demand has been falling at these prices," she said."

As had been anticipated for weeks, and frankly is criminally overdue, Japan has announced that it will expand the evacuation zone around Fukushima to areas beyond a 20 km (12.4 mile) radius to include villages and towns that have had more accumulated radiation, Japan's chief cabinet secretary said on Monday. "These regions could accumulate 20 millisieverts or more radiation over a period of a year," Yukio Edano told a news conference, naming Iitate village, 40km from the plant, part of the city of Kawamata and other areas. The news preceded the latest major 6.6 magnitude aftershock which shook buildings in Tokyo and a wide swathe of eastern Japan on Monday evening, knocking out power to 220,000 households and causing a halt to water pumping to cool three damaged reactors at Fukushima. " The epicentre of the latest quake was 88 km (56 miles) east of the plant and stopped power supply for pumping water to cool reactors No. 1, No. 2 and No. 3. The aftershock also forced engineers to postpone plans to remove highly contaminated water from a trench at reactor No. 2." Also spotted was the now disgraced TEPCO president who had fallen "sick" early on in the crisis and completely disappeared from view. Per Reuters "TEPCO President Masataka Shimizu visited the area on Monday for the first time the disaster. He had all but vanished from public view apart from a brief apology shortly after the crisis began and has spent some of the time since in hospital. "I would like to deeply apologise again for causing physical and psychological hardships to people of Fukushima prefecture and near the nuclear plant," said a grim-faced Shimizu. Dressed in a blue work jacket, he bowed his head for a moment of silence with other TEPCO officials at 2:46 p.m. (0546 GMT), exactly a month after the earthquake hit." But the biggest loser is surely Prime Minister Naoto Kan who saw a landslide drubbing in local elections over the weekend, leaving Japan once again leaderless precisely at a time when it needs focused leadership more than ever.

The barrage of Fed commentary in the coming week could keep the debate over the future of Fed policy in the spotlight, as will the US PPI and CPI data that will be out toward the end of the week. Meanwhile, oil prices continue to climb, with Brent sitting firmly above $120/bbl. Elsewhere, there is a deluge of China macro data on Friday, where we expect inflation to pick-up a touch and activity to remain reasonably solid. The trade data out on Sunday posted a tiny surplus. Import and export growth both improved substantially and were stronger than expected; however, we must be mindful of Chinese New Year effects. On the monetary policy front, we and the consensus expect BoK, BI, and BoC to keep rates unchanged, though the MAS is likely to re-center the SGD NEER.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 11/04/11