Archive - Aug 2013 - Story

The week ahead will be relatively quiet with few major data releases. The main focus will be on the Flash PMIs in the Eurozone and China as well as the FOMC minutes and Jackson Hole. In the US the relatively new Preliminary PMI has been found useful by our US team in forecasting the ISM. Existing and new home sales are additional data points of interest in the US.  The key focus this week will be on central bank action. Minutes from the FOMC and the RBA will be followed by rate decisions in Thailand and Turkey. Finally, on Thursday starts the annual Jackson Hole conference with lots of Fed speakers, including Yellen next weekend. Chairman Bernanke, whose term ends in January, will not attend.

Gold traded near a two-month high after holdings in the largest ETP posted the first weekly expansion this year and markets digested the very robust global physical demand data reported last week . Demand from China and India is projected to to soar to 1,000 tonnes each in 2013 and mixed U.S. data has boosted gold’s safe haven appeal.  Gold forward offered rates (GOFO),  remain negative and are becoming more negative. This shows that physical demand is leading to supply issues in the highly leveraged LBMA gold market. GOFO  rates are those which  contributors may use to lend  gold on a swap for  dollars, according to the  London Bullion Market  Association and the negative gold interest rates show a preference to own gold over dollars by bullion banks.  Negative 1, 2 and 3 month GOFO rates mean that bullion banks lent their customers, including other bullion banks,  gold to obtain a positive return, thereby increasing the "paper" gold supply. Some may now may be struggling to get their gold  back which may explain the significant decline in COMEX gold holdings of certain bullion banks (see commentary).  This is creating significant supply demand issues in the physical gold market which should lead to higher gold prices.

• Egypt, U.S. on Collision Course (WSJ), Gunmen kill 24 Egyptian police in Sinai ambush (Reuters)
• India’s efforts fail to prevent new rupee low (FT)
• More bad news for AAPL: Steve Jobs Biopic Crashes on Opening Weekend (WSJ)
• "Sustainable" - U.S. Stocks Beat BRICs by Most Ever Amid Market Flight (BBG)
• Merkel cancels election rally after hostage taking (Reuters)
• Some day, Abenomics might work... Not today though: Japan Exports Rise Most Since ’10 as Deficit Swells (BBG)
• China July Home Prices Rise as Nation Seeks Long-Term Policy (BBG)
• Spanish Bank’s Bad Loan Ratio Rises to Record in June (Reuters)
• Recovery... for some - Ferrari NART Spyder Sets $27.5 Million Auction Record (BBG)
• Bund yields hit 17-month high, rupee slumps (Reuters)
• Regulatory Headaches Worsen for J.P. Morgan (WSJ)

It's all about rates this largely newsless morning, which have continued their march wider all night, and moments ago rose to 2.873% - a fresh 2 year wide and meaning that neither Gross, nor the bond market, is nowhere near tweeted out. As DB confirms, US treasuries are front and center of mind at the moment.... the 10yr UST yield is up another 4bp at a fresh two year high of 2.87% in Tokyo trading, adding to last week’s 20bp selloff. As it currently stands, 10yr yields are up by more than 120bp from the YTD lows in early May and more than 80bp higher since Bernanke’s now infamous JEC testimony. We should also note that the recent US rates selloff has been accompanied by a rapid steepening in the rate curve. Indeed, the 2s/10s curve is at a 2 year high of 250bp and the 2s/30s and 2s/5s are also at close to their highest level in two years.

UPDATE: Everbright Securities (the Chinese fat-finger stock brokerage) just announced they SNAFU'd again - this time by 'mistakenly' selling 10Y government bonds at 4.2%

AsiaPac and EM markets are awash with red this evening. While Japanese stocks are very modestly higher on the bad-news-is-good-news that Abe's economy saw the third largest trade deficit on record (dramatically worse at over JPY1tn than expectations of JPY773), most of the rest of the overnight markets (including US Treasuries) are in the red. From plunging Aussie vehicle sales data (-3.5% from +4.0% in the prior month, to a -0.3% QoQ print for Thailand's GDP (confirming recession as opposed to expectations of a +0.2% gain); and from Indonesian current account deficit (and currency depreciation) concerns smashing stocks -4.0% (most since Oct 2011) to the ongoing collapse in India currency, bond, and now equity markets, all is not well ahead of the European open. Chinese stocks are also down for the fourth day in a row as Friday's fat-finger concerns drive brokers down hard and spike 7-day repo rates.

There was a time when the shadier online "element" was mostly interested in procuring credit card numbers, usually from Eastern European sources, in order to turn a quick buck. However, over time, interest in credit card fraud declined and according to RSA the going rate for 1000 credit card numbers has now dropped to as little as $6. What has taken the place of monetary online fraud, is artificial "likability" and "popularity." Reuters reports that with the rise of social networking, instead of obtaining credit card numbers, hackers have used their computer skills to create and sell false endorsements - such as "likes" and "followers" - that purport to come from users of Facebook, its photo-sharing app Instagram, Twitter, Google's YouTube, LinkedIn and other popular websites. This can be seen in the costs charged by "service" providers: 1,000 Instagram "followers" can be bought for $15, while 1,000 Instagram "likes" cost $30. It is likely that the going rates for fake popularity on other online social networks, FaceBook and Twitter is comparable.

"A backwardated (downward sloping) gold forward curve is very unusual. This is an indicator of how strong physical demand is, i.e. spot is bid up relative to forward prices due to strong demand for immediate delivery of gold." - JP Morgan

When one thinks Hong Kong, one usually imagines overlevered opulence, nouveau riche wealth, shady backroom deals hashed out in a cigar smoke mist and the occasional opium den. One does not usually think bad Nicholas Cage spinoffs. Yet that is precisely what happened last week at a luxury watch store at the Oriental Watch outlet in an arcade at the Holiday Inn Golden Mile on Mody Road in Hong Kong, when thieves struck in a smash-and-grab that took three thieves just three minutes, and stole 240 Tudor watches valued at HK$6.5 million (USD $840K).

If the following just released forecast of where the 10 Year is going, from Bank of America's chief technical strategist MacNeill Curry is accurate, not only is the bond bottom nowhere near but we sense a Tweetstorm is coming from Bill Gross.

For the past five years Greece, stuck in its worst depression in history with two-thirds of work eligible youths unemployed, has been actively blaming all of its problems on "(f)auxterity" even as we said all along that the Greek problems have nothing to do with how much money its government spends and everything to do with corrupt, complicit and frequently criminal politicians. Today we got the latest confirmation that we were correct after the Greek finance minister Stournaras asked for the resignation of the Greek privatisation agency chief, Stavridis, following a newspaper report that he traveled on the private plane of a businessman who just bought a state company with Stavridis' blessings.

If this latest dose of harsh language from Gollum and the Bazooko Circus doesn't end the Egyptian civil war, nothing will. Maybe Egypt should just take a hint from the ECB and issue forward guidance on domestic violence, saying it will do "whatever it takes" to crack down on future coups and countercoups, or else it will fire an imaginary bazooka at the bond vigilantes.

Depending on one's sources, the death toll since the start of the "Days of Wrath" in Egypt is anywhere between 800 and several thousand. What is worse, the situation is spiraling out of control as the west, plagued by America's failed attempt at diplomatic non-intervention to preserve its "democratic transition" narrative, is paralyzed while the death toll mounts and the country is gripped by civil war in all but name. Below, via AP, is a rundown of key events that have taken place in Egypt over the past week together with a photo album of Egypt's very own Dies Irae.

On the surface, there is nothing spectacular about the weekend news that JPMorgan is seeking to sell its 1 Chase Manhattan Plaza office building. After all, the former headquarters of Chase Manhattan Bank, located deep in the heart of the financial district and which was built by its then chairman David Rockefeller, is a remnant to another time - a time when banking was about providing loans, not about managing and trading assets which has become the realm of Midtown New York, and since JPM already has extensive Midtown exposure with its offices at 270, 270 and 245 Park, the 1 CMP building always stood out as a bit of a sore thumb. Of course, as Zero Hedge readers first learned, the big surprise is literally below the surface, some 90 feet below street level to be exact, where the formerly secret JPM gold vault is located, which also happens to be the biggest commercial gold vault in the world.

Over the last thirty some odd years, the world has seen an unprecedented level of economic growth and prosperity. That much is certain. However, things are not as they appear when the bullish rose-tinted glasses that most view the world through are removed.

And the issue is debt.