Well, it's not quite the negative Bill prints we saw right after Lehman, but the second someone lifts that offer in the 1 Month, Americans will revert to paying the Treasury for the privilege of it holding 1 Month paper. Of course, the last time the 1M was on the verge of being negative, the S&P was at 666. We are now double that. What happens should stocks plummet by 50%, without the Fed withdrawing the massive amounts of liquidity still sloshing out there: -0.5%? -1.0%?
The much anticipated, and expected, IEA report is here.
- IEA SAYS TO RELEASE STOCKS
- IEA SAYS TO RELEASE 60 MILLION BARRELS OVER COMING MONTHS
- IEA SAYS TO RELEASE STOCKS TO ENSURE SUPPLY DUE TO LIBYA
- IEA SAYS MEASURE TO ALLEVIATE LIBYA UNREST, IMPACT ON SUPPLY
- IEA SAYS 132 MILLION BARRELS LOST TO LIBYA
- IEA SAYS HIGH PRICES DAMAGE ECONOMY OF EVERY COUNTRY; IMPACT WORSE ON DEVELOPING COUNTRIES
- IEA SAYS VOTED FOR EMERGENCY RELEASE FOR ONLY THIRD TIME
EURCHF Tumbling, Prints Fresh All Time Low Of 1.1914, Commodities Plunge (Update: Scratch That, New Low Is 1.1875)Submitted by Tyler Durden on 06/23/2011 - 08:41
Wonder what is happening with Greek deposits? Nothing good, at least nothing good for Greek banks. And it is not just Greece: all of Europe is scrambling into the relative security of Switzerland where the EURCHF just hit a fresh all time low of 1.1915, and likely to drop much lower. And the FX massacre has just spread to commodities where everything is screaming "Risk Off."
Big Miss In Initial Claims, Print 429,000 On Expectations Of 415,000, Downward June NFP Revisions ComingSubmitted by Tyler Durden on 06/23/2011 - 08:38
The soft patch may need to order a lifelong supply of Viagra soon, as the economic news continues going from bad to worse: Initial Claims just printed at 429,000 on expectations of 415,000. Prior was naturally revised higher, the n+1 such revision, from 414K to 420K. Continuing claims also missed the consensus of 3670K coming at 3697K, although in yet another BLS spin job, the number will be presented as a drop, since the previous number of 3675K was revised to, wait for it, 3698K, a one week sequential drop of 1K in continuing claims. The week ended June 4 saw the first spike in recipients of extended claims, with both EUCs and Extended Benefits rising by 68K. Bottom line, this is the 11th consecutive week of 400K+ Initial Claims, which likely means that the June NFP will be revised substantially lower. The state by state analysis showed that not a single state had a decline of more than 1000 claims, while 13 state had a greater than 1000 increase in claims, with the biggest hit being Pennsyvlania and California, at 6,019 and 3,884, due to layoffs in the service, manufacturing and transportation industries.
- America Faces Critical "Colonel Jessup" Moment (RCM)
- Democrats push for jobs package in debt deal (Reuters)
- HSBC Preliminary China June PMI Falls to 11-Month Low (WSJ)
- Most Euro-Zone Economies Contract (WSJ)
- Trichet Says Risk Signals Are Flashing Red as Debt Crisis Threatens Banks (Bloomberg)
- A Divine Wind Blows Against Iran’s President (NYT)
- Syrian troops mass near Turkish border (Reuters)
- Yemen Jailbreak by Al-Qaeda Fighters Highlights Risk of Descent into Chaos (Bloomberg)
- Buy and Hold Crushes Day Traders, New Report Shows (CBS)
- Greek, Irish Incomes Take Hit (WSJ)
Risk-aversion remained the dominant theme during the European session on the back of the ongoing Greek debt concern, allied with worse than expected manufacturing PMI data from core Eurozone countries like France and Germany. This resulted in weakness in European equities, which provided support to Bunds, and also observed widening of Eurozone 10-year government bond yield spreads across the board. In the forex market, strength in the USD-Index weighed upon EUR/USD and GBP/USD, whereas weakness in commodities exerted downward pressure on commodity-linked currencies. Moving into the North American open, markets look ahead to key economic data from the US in the form of jobless claims, Chicago Fed and new home sales. In fixed income, 2-, 5-, and 7-year Note refunding announcement, another Fed's Outright Treasury Coupon Purchase operation in the maturity range of Aug'21-Nov'27, with a purchase target of USD 1-1.5bln, and USD 7bln 30-year TIPS auction are also scheduled for later.
About a week ago, Goldman Sachs closed its tactical short USDCNY Non-Deliverable Forward trade, which was opened on June 10, 2010 and which expired a year later for a 4.2% gain. Goldman added: "Our view has not changed. The necessary adjustments to global imbalances demand a weaker US Dollar, and especially so vs the CNY. The cyclical and political backdrop remains supportive along those lines. Moreover, we expect $/CNY depreciation to continue/extend in the months to come. We remain positioned for the theme via our $/CNY NDF recommended Top Trade with longer initial maturity, expiring on 4 December 2012." Nonetheless, something appears to have shifted in the derivative CNY market, where as Bloomberg points out, it now costs more to bet on RMB weakness than strength. It adds: "China appears headed for a hard landing as the country’s housing market shows more signs of weakness. Currency traders have reduced their expectations for more appreciation of the yuan versus the dollar in the derivatives market, meaning they expect Chinese policy makers to fundamentally shift their approach to the currency due to economic softening. Other markets may soon follow currency’s lead." As the attached chart shows the USDCNY 3 Month 25 Delta Risk Reversal for the first time since September 2009, there appears to be some outright bearishness on the renminbi appreciation scenario. Does this mean that yesterday's decline in the official fixing rate to 6.4736 on Thursday, lower than the record high of 6.4683 on Wednesday is more than a one time adjustment and is the start of a new trend? We will find out soon enough.
Another slow day on the economic docket, with just C-grade indicators like Initial Claims and New Home sales due, which means that more gossip, innuendo, and outright lies out of Europe and Greece will determine the direction of the EURUSD, and thus the Russell 2000, better known as the US economy.
Trichet: Debt Crisis Is Flashing “Red” - Marc Faber Continues To Like Gold And Silver And AccumulatingSubmitted by Tyler Durden on 06/23/2011 - 07:16
The European Central Bank President, Jean-Claude Trichet, was not as optimistic as he usually is, when he raised the alarm level on the debt crisis to “red” late yesterday. After the meeting of the European Systemic Risk Board in Frankfurt, Trichet who chairs the ESRB, said that risk signals for financial stability in the euro area are rising and flashing “red”. He said “on a personal basis I would say yes, it is red”. Trichet warned market participants that the crisis is nowhere close to be resolved. Trichet warned of “potential contagion effects across the union and beyond.” Overnight Marc Faber, publisher of the Gloom, Boom & Doom report, told Bloomberg this morning (see interview below) that he still favours gold and silver. He said there could be short term weakness but that he will keep accumulating gold. Faber warned against shorting the precious metals as they are likely to keep going up. He also warned regarding recent incidents of fraud and corruption by newly listed Chinese companies and said this was indicative a bubble. In his usual contrarian and witty manner, he said that “not to own any gold is to trust central bankers and that you do not want to do in your life.”
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
And while the developed world wonders whether or not Greece will default (it will), the real news continues to come from the new "White Knight" and IMF replacement, China, which according to the China Securities Journal is about to see an unprecedented surge in inflation, making life for the schizophrenic PBoC (on one hand handing out liquidity, on the other reeling it back in with rate hikes), untenable. Market News reports: "The Chinese central bank will need to raise interest rates in the near future if it is to tackle inflation pressure, despite the potential hit to economic growth, the official China Securities Journal said in an unsigned, front-page editorial Thursday. The newspaper said the central bank will move in the near future because the monetary conditions that are driving inflation are still in place, while negative rates are driving money out of the banking system, and putting those funds outside of the scope of reserve requirement adjustments. "The China Securities Journal believes that the current monetary conditions driving inflation haven't been reversed (and) the central bank will raise interest rates to address this," it said. Consumer inflation in June is very likely to exceed 6% y/y following May's 5.5% rise, the newspaper warned." Just as importantly, "real interest rates [have been pushed] into negative territory and
triggered a drain of funds from the traditional banking system in search
of yield. The newspaper said that M1 and M2 are no longer reliable indicators
of fund flows within the economy because of this drain and said "it is
urgent that interest rates are raised to reverse negative rates and
guide funds to return to the banking system." Which simply said means that the liquidity crisis we have been following every day for the past week is about to get far worse. Indeed, as of tonight, both 1 and 2 week SHIBORs are above 9%. The highest 1 week Shibor has ever been is just over 10% back in 2007, right after the quant crash in August of that year. We are confident this all time high will be taken out in a few days.
The always insightful market observers at Global Tactical Asset Allocation have released their third Q3 update compendium following equities and credit, this time focusing on FX, which is a must read for everyone trading currencies. Not surprisingly, the US Dollar is the fulcrum currency of choice: "The USD is becoming increasingly undervalued against most currencies and ridiculously so against some. It is at a 40 year low on a real broad trade-weighted basis. Its economy is much more dynamic and has started to rebalance earlier than other developed economies. Companies have been cutting costs aggressively and are much more competitive in the international markets. They are many challenges ahead but currencies are not an absolute bet on a country but a relative one...The 2 main problems remain are that: 1. the Fed is suppressing real government bond yields through quantitative easing. Ceteris paribus, the USD will have to be more undervalued on a PPP basis to be in equilibrium. Indeed, the deficit of interests payment foreigners are receiving has to be compensated by a lower price I.e. lower USD (this is another reason, beside the Balassa-Samuelson effect, why emerging markets with negative real yields have very undervalued currencies on a PPP basis). At current levels we think the compensation is large enough. 2. Uncertainties regarding future fiscal initiatives and long-term deficit reduction plans are high and foreign investors do not like incertitude." Naturally the result leads to Fx warfare, and other undesirable yet very exciting developments in FX trading. For everything one needs to develop an opinion on a given currency, including valuations, sentiment, liquidity, trade, seasonality, and more technical analysis that is healthy, this is the presentation for you.
Tomorrow, in an amendment to bill S.679, aimed at streamlining presidential appointments, proposed by Jim DeMint, the Senate will vote around noon as to whether or not to end the "U.S. government's authority to provide loans to the International Monetary Fund (IMF) and rescind related appropriated amounts." Another fun amendment to the same bill comes from David Vitter, whose amendment "would end the ability of the White House to appoint policy "czars," and prohibit funds for salaries and expenses for appointed czars." But it is the DeMint amendment that will be the focus of attention, since should the US, as primary source of capital for the IMF, which itself is a key contributor of funds to the Troica, so desperately needed to bail out Greece, no longer have legislative freedom to use taxpayer funds to bailout European countries, things in Greece and in half of Europe, may soon turn very ugly.
Last week it was Forex.com, now it is Oanda. As a reminder "Forex.com, a large retail foreign-exchange operation, on Friday told clients it will discontinue its gold and silver over-the-counter products marketed to retail investors who are U.S. residents. It asked investors to close their positions by July 15." This was first reported on Zero Hedge. "Trading gold and silver over the counter -- bypassing a futures exchange -- offered investors a chance to enter a highly speculative, leveraged market that also left many investors at risk of fraud, according to one trade group. “In order to trade, it needs to be done in a exchange, or it can’t be done at all,” said Dan Driscoll, a vice president with the National Futures Association. The industry group asked Congress for such changes, due to numerous cases of fraud in such contracts. Doing business with a futures exchange offers retail investors more protections and transparency, he said." There you go: it's the extensive fraud that did it. And just as we predicted, this is only the beginning to heard all PM investors into the waiting clutches of the CME's margin demands.
Considering the only soundbite that was relevant from Ben Bernanke's 45 minute 2:15pm oratory was that "we don't have a precise read on why this slower pace of growth is persisting" America, and the entire civilized world, could have done just as well without it. Instead, we should have listened to Jim Grant, who once again correctly identifies all the things that the Fed chairman should have said (Bernanke certainly focused on the other side): "What we are not going to get is a concession that QE2 has achieved its unintended consequences, namely a lower dollar exchange rate, a higher gold price meaning weaker confidence in the dollar, slower economic growth and a higher measured rate of inflation. Those are some of the things that have come out of this experiment and let us call it by its name money printing...How do we know that this 30% gain in the Russell and 20% gain in Dow since the Chairman spoke in August, how are we to know these are real values. The prices are up, but are people who are buying these stocks on the back of the Fed, are they doing something wise from an investment point of view, and if the market is too high because the Fed has put it there, what does the Fed do when the market comes down, which opens the fate for QE3." And on a far more important topic which we will soon hear much more of, namely extensive US money market exposure in Europe, which will be completely locked up if, pardon, when there is a major liquidity run in Europe snagging American money market liquidity: "The money market mutual funds have nothing to do in this country cause rates are zero, go to Europe. So money market mutual funds investors are taking quite ponderable risks for about a 0% return, these funds are yielding a few basis points only. But to get those few basis point, these funds are crossing the Atlantic right smack dab in the middle of the European banking crisis. This is a prime example of the unintended consequences of this massive intervention by our central bank." Indeed, this is just one simple example of the massive clusterfuck, which certainly does not need Greece's $5 billion notional in CDS, to make the Lehman liquidity freeze seems like a little melting ice cube. And since everyone now agrees that Greece will default, and it is only a matter of time, all the trillions in dollars in the shadow and open banking systems that we have been exposing for years now, will suddenly be locked up in the forms of 1 and 0 in computers belonging to institutions that are no longer operational. And most unfortunately, the man in charge of it all, has a quivering lip problem.