British Pound

Today’s AM fix was USD 1,386.00, EUR 1,074.92 and GBP 919.16 per ounce.  
Yesterday’s AM fix was USD 1,385.25, EUR 1,071.43 and GBP 917.75 per ounce. 

Once again: The FOMC minutes had nothing to do with overnight's events, especially since both Ben Bernanke and Bill Dudley made it very clear previously that for any tapering to occur (and which is supposedly bullish according to David Tepper, who may finally be done selling to momentum chasers) if ever, the economy would have to be be stronger (which is of course a paradox because it is the Fed's QE that is making the economy weaker). If anything, the minutes reminded us that there is a mutiny in the FOMC with finally someone having the guts to say on the record that Bernanke is blowing a bubble - something never seen before on the official FOMC record. And after all, the Nikkei opened way up, not down. It was only after the realization of what soaring bond yields mean for, wait for it, stocks (despite central planner promises that it is soaring bond yields that are a good thing - turns out, they aren't) that the sell-off really started. That, and of course copper, and the end of the Chinese Copper Financing Deals arrangement that has been China's illicit cross-asset rehypothecation scheme for years (more shortly). So in a nutshell, here is what has transpired so far, courtesy of Bloomberg.

The fundamentals of the platinum and palladium markets are beginning to receive market attention and not before time. The positive supply demand dynamics are leading to increased investment demand as seen in the ETF data and Chinese demand rising again due to both industrial and jewellery demand.

Silver’s recovery yesterday from being 10% lower at one stage to recouping these losses and then rising over 2% was very positive technically. The key reversal is leading some to postulate that we may have seen the bottom or are close to a bottom. 

Another event-free day in which the only major economic data point was the release of UK CPI, which joined the rest of the world in telegraphing price deflation, despite bubbles in the real estate and stock markets, printing 2.0% Y/Y on expectations of a 2.3% increase, the lowest since November 2009 and giving Mark Carney carte blanche to print as soon as he arrives on deck. In an amusing twist of European deja-vuness, last night Japan's economy minister who made waves over the weekend when he said that the Yen has dropped low enough to where people's lives may be getting complicated (i.e., inflation), refuted everything he said as having been lost in translation, and the result was a prompt move higher in the USDJPY, quickly filling the entire Sunday night gap. That said, and as has been made very clear in recent years, data is irrelevant, and the only thing that matters, at least so far in 2013, is whether it is Tuesday: the day that has seen 18 out of 18 consecutive rises in the DJIA so far in 2013, and whether there is a POMO scheduled. We are happy to answer yes to both, so sit back, and wait for the no-volume levitation to wash over ever. The US docket is empty except for Dudley and Bullard speaking, but more importantly, the fate of Jamie Dimon may be determined today when the vote on the Chairman/CEO title is due, while Tim Cook will testify in D.C. on the company's tax strategy and overseas profits.

It is likely that the very aggressive selling in illiquid Asian markets overnight was by a large hedge fund or bank or a combination of hedge funds and banks with deep pockets. Reuters quoted an analyst at a Japanese bank who said that silver’s price falls were due to one “unidentified investor”.

We feel that now there is a Bermuda Triangle of economics - a space where everything tends to disappear without radar contact, a black hole in which rationality and science is replaced by hope, superstition and nonsense pundits pretending to understand the real drivers of the economy. The Bermuda Triangle in real life runs from Bermuda to Puerto Rico to Miami. The Economic Bermuda Triangle (EBT) one runs from high stock market valuations to high unemployment to low growth/productivity. There is a myth that the sunken Atlantis could be in the middle of this triangle. It has been renamed Modern Monetary Theory (MMT) to make it suit the black hole's main premise of ensuring there is a fancy name for what is essentially the same economic recipe: print and spend money, then wait and pray for better weather. The EBT is getting harder and harder to justify - if for nothing else because the constant reminders of crisis keep us all defensive and non-committed to investing beyond the next quarter. We all naively think we can exit the "risk-on" trade before anyone else. We are due for a new crisis. We have governments and central banks proactively pursuing bubbles. A long time ago, policymakers entered a one-way street where reversing is, if not illegal, then impossible.

There are no surprises in the latest World Gold Council Gold Demand Trends report other than the fact that statistics show global demand for gold in Q1 2013 was on the increase before the COMEX raid on April 15th. This is a clear indication that the fundamentals supporting a strong price for gold in the long term remain and also helps to explain why there was such a shortage of gold bars and coins in the weeks after April 15th.

So much for Europe's "recovery." In a quarter when the whisper was that some upside surprise would come out of Europe, the biggest overnight data releases, European standalone and consolidated GDPs were yet another flop, missing across the board from Germany (+0.1%, Exp. 0.3%), to France (-0.2%, Exp. 0.1%), to Italy (-0.5%, Exp. -0.4%), and to the entire Eurozone (-0.2%, Exp. 0.1%), As SocGen recapped, the first estimate of eurozone Q1 GDP comes in at -0.2% qoq, below consensus of a 0.1% drop. The economy shrank by 1.0% yoy, the worst rate since Dec-09. The decline of 0.5% qoq in Italy means that the economy has been in recession continuously since Q4-11. A 0.2% qoq drop in France means the economy has ‘double-dipped’, posting a second back-to-back drop in GDP since Q4-08. The increase of 0.1% qoq in Germany was disappointing and shows the economy is not in a position to support demand in the weaker member states (table below shows %q/q changes).

Yesterday was another less than convincing session. Indices off recent tops and Europe weaker. Treasuries tumbled then rallied part way back on less than stellar retail sales report. It rather feels like we are going through the motions with little conviction one way or another (even with today's mini-melt-up). Markets crave direction. What I'd like to see is the JGB curve bull-flatten to restore faith in Global easing and the asset grabathon. Don’t fight Kuroda – it will happen.. but when? That's the macro-trade. But the short-term trade may be to hedge some risk, like the Nikkei's recent gains, and think about how to hedge bursting bubble risks in the credit markets. Or is there something bigger going-on just behind the horizon? A "No-See-Em" that is about to confirm a particular market direction? After all... the global economy is either growing, is set for growth, or this recession is becoming a long-term depression. So let’s take a look at what's going on for signs of the hidden menace...

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">Driving the sentiment was the report that U.S. jobless benefits decreased to their lowest rate since 2007. Philadelphia Fed President Charles Plosser forecasted that day unemployment will drop to 7% by December 2013 and he favours reducing the Fed’s $85 billion monthly bond purchases next month. Plosser however has no vote on Fed policy this year.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">While hedge funds are seeing outflows of $20.8 billion from gold funds this year, BlackRock Inc. the world’ biggest money manager is still bullish, reported Bloomberg.

Overnight risk continues to ignore all newsflow (today the economic reporting finally picks up with advance retail sales due at 8:30 am as expectations for a second modest decline in a row of -0.3%) and is focused entirely on what the consensus decides to make of the Hilsenrath piece, even as the difficulty level was raised a notch following another late Sunday Hilsenrath piece, which puts more variable into the "tapering" equation, and whose focus is whether Bernanke will be replaced by Janet Yellen, Geithner or Summers, or anyone. With all three classified as permadoves, one does scratch their head how the market can be confused: worst case Fed tapers by $10/20 billion per month, market tumbles, then Bernanke's replacement or Ben himself ploughs on even more aggressively with QE. QED.

As the global economic slump continues central bankers, such as Mario Draghi, and politicians have vowed “to do whatever it takes” to get economies back on track. Such policies while having near term benefits are considered extremely risky in the longer run by many commentators as they could beckon runaway inflation or stagflation, with ruinous results.

Shinzo Abe unleashed his plan with the blessing of the Bank of Japan to begin aggressive government bond purchases. This has led to a massive growth of 60% on the Nikkei and is deflating the yen and boosting their exports.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">Jewellers across the world are seeing a surge in jewellery purchases because consumers are taking advantage of the price drop and purchasing investment pieces that will grow in value over time.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">In the USA with Mother’s Day approaching this weekend, consumers like Whitney Court who would normally buy flowers instead wants to purchase something that won’t wilt: a silver necklace. 

With another listless macro day in the offing, the main event was the previously mentioned Bank of Korea 25 bps rate cut, which coming at a time when everyone else in the world is easing was not too surprising, but was somewhat unexpected in light of persistent inflationary pressures. Either way, the gauntlet at Abenomics has been thrown and any temporary Japanese Yen-driven export gains will likely not persist as it is the quality of products perception (sorry 20th century Toshiba and Sony), that is the primary determinant of end demand, not transitory, FX-driven prices. And now that Korea is set on once again matching Japan in competitiveness, the final piece of the Abenomics unwind puzzle has finally clicked into place.  Elsewhere overnight, China reported consumer price inflation increasing by 2.4%, on expectations of a 2.3% rise, driven by a 4% jump in food costs: hardly the thing of Politburo dreams. Or perhaps the PBOC can just print more pigs, soy and birdflu-free chickens? On the other hand, PPI dropped 2.6% in April, on estimates of a 2.3% decline, as China telegraphs it has the capacity, if needed, to stimulate the economy. This is ironic considering its inflation pressures are externally-driven, and come from the Fed and the BOJ, and soon the BOE and ECB. And thus its economy stagnates while prices are driven higher by hot money flows. What to do?