- Gross Told El-Erian ‘Hell No’ Seeking to Stop Departure (BBG)
- How Caterpillar got bulldozed in China (Reuters)
- Davos Bankers Struggle to Convince Elite That Markets Are Safer (BBG)
- Lucrative Role as Middleman Puts Amazon in Tough Spot (WSJ)
- Arctic Air Blankets Northern U.S. as Texas to Get Snow (BBG)
- Lenovo buys IBM's server business in China's biggest IT acquisition (Reuters)
- SEC judge bars "Big Four" China units for six months over audits (Reuters)
- U.S. Accuses Security Background Check Firm of Fraud (WSJ)
- RIP BOE forward guidance: Bank of England rate rise is 'still some way off' - Fisher (Reuters)
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014. So will a default event in China on January 31st be the next "Lehman Brothers moment" or will it be something else? In the end, it doesn't really matter. The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years. It is just a matter of time.
- Hilsenrath: Next Cut in Fed Bond Buys Looms - Reduction to $65 Billion Could Be Announced on Jan. 29 (WSJ)
- China Workforce Slide Robs Xi of Growth Engine (BBG)
- Obama pulls the race card: Obama Says Race May Blunt Poll Standing in Interview (BBG)
- Chinese firm's IPO deal switches banks as chairman's daughter moves from JPMorgan to UBS (SCMP)
- China and Russia may hold joint naval drill in the Mediterranean (RT)
- Iran invite to Syria talks withdrawn after boycott threat (Reuters)
- Seven Chinese IPOs Halt Trading After 44 Percent Share (BBG)
- U.S. military says readying plans for Olympic security assistance (Reuters)
- Thank you Bernanke: Investors Most Upbeat in 5 Years With Record 59% Bullish in Poll (BBG)
- From His Refuge in the Poconos, Reclusive Imam Fethullah Gulen Roils Turkey (WSJ)
Judging by the collapsing Greek yields, which at this rate may drop below US bonds soon enough, the Greek economy has never been stronger. Sadly, manipulated bond levels driven by yet another bout of pre-QE euphoria (suddenly the conventional wisdom is that the ECB will conduct QE in a few months as first explained here in November) no longer reflect anything besides a massive liquidity glut and momentum chasing lemmings. Alas, as usual the reality on the European ground is much worse. The latest example comes from the Greek Public Power Corporation which has reported that Greek households and corporations are finding it increasingly difficult to pay their electricity bills. In total, debts to the power utility from unpaid bills currently amount to some €1.3 billion and growing at an average rate of €4 million per day. Also known as the Grecovery.
Markets have started the week on the back foot, despite a brief rally following a better-than-expected Q4 GDP print in China. Indeed, Asian equities recorded a small pop following the GDP report, but the gains were shortlived as the general negativity on China’s growth trajectory continues to weigh on Asian markets. In terms of the data itself, China’s Q4 GDP (7.7% YoY) was slightly ahead of expectations of 7.6% but it was slower than Q3’s 7.8%. DB’s China economist Jun Ma maintains his view that economic growth will likely accelerate in 2014 on stronger external demand and the benefits from deregulation. The slight slowdown was also evident in China’s December industrial production (9.7% YoY vs 10% previous), fixed asset investment (19.6% YoY vs 19.9% previous) and retail sales (13.6% vs 13.7% previous) data which were all released overnight. Gains in Chinese growth assets were quickly pared and as we type the Shanghai Composite (-0.8%), HSCEI (-1.1%) and AUDUSD (-0.1%) are all trading weaker on the day. On a more positive note, the stocks of mining companies BHP (+0.29%) and Rio Tinto (+0.26%) are trading flat to slightly firmer and LME copper is up 0.1%. Across the region, equities are generally trading lower paced by the Nikkei (-0.5%) and the Hang Seng (-0.7%). Staying in China, the 7 day repo rate is another 50bp higher to a three month high of 9.0% with many investors continuing to focus on the Chinese shadow banking system following the looming restructuring of a $500m trust product that was sold to ICBC’s customers.
The Forex market is dead and dying, in parallel with the US economy; which is fitting, considering the US is still the world reserve currency.
Significant harbingers that have changed the Forex market forever:
A common argument that has been made to explain the precipitous decline of the price of precious metals in 2013 (in spite of the significat demand for the physical bullion) is of investors’ disenchantment with gold and silver, which had been piling up in exchange traded products as a way for investors to gain exposure to the metals. However if redemptions are a symptom of investors' disenchantment with precious metals as an investment, shouldn't silver have suffered the same dramatic redemptions fate as gold? Indeed it should have, but we think the reason silver ETFs were not raided like gold was that Central Banks do not have a silver supply problem, they have a gold problem...
Germany's blowback against gold manipulation is accelerating. Following yesterday's report that Bafin took a hard line against precious metals manipulation, after its president Eike Koenig said possible manipulation of precious metals "is worse than the Libor-rigging scandal", today the response has trickled down to Germany and Europe's largest bank, Deutsche Bank, which announced that it would withdraw from the appropriately named gold and silver price "fixing", as European regulators investigate suspected manipulation of precious metals prices by banks. As a reminder, Deutsche is one of five banks involved in the twice-daily gold fix for global price setting and said it was quitting the process after withdrawing from the bulk of its commodities business. The scramble away from gold fixing was certainly assisted by the recent first (of many) manipulation expose in the legacy media, when Bloomberg revealed "How Gold Price Is Manipulated During The "London Fix." And sure enough, with Germany already very sensitive to the topic of its gold repatriation, and specifically why it is taking so long, it was only a matter of time before any German involvement in gold manipulation escalated to the very top.
Often “a picture paints a thousand words” and the seven key gold charts below should make gold bears nervous. As the charts show, such sentiment, price action and oversold conditions tend to coincide with major lows in gold and silver prices and multi month price gains.
Weak results from Intel, American Express and Capital One, not to mention Goldman and Citi? No problem: there's is overnight USDJPY levitation for that, which has pushed S&P futures firmly into the green after early overnight weakness: because while the components of the market may have such trivial indicators as multiples and earnings, the USDJPY to which the Emini is tethered has unlimited upside. And now that the market is back into "good news is good, bad news is better" mode, today's avalanche of macro data which includes December housing starts and building permits, industrial production, UofMichigan consumer confidence and JOLTs job openings, not to mention the up to $3 billion POMO, should make sure the week closes off in style: after all can't have the tapped out consumer enter the weekend looking at a red number on their E-trade account: they might just not spend as much (money they don't have).
Remember when banks were exposed manipulating virtually everything except precious metals, because obviously nobody ever manipulates the price of gold and silver? After all, the biggest "conspiracy theory" of all is that crazy gold bugs blame every move against them on some vile manipulator. It may be time to shift yet another conspiracy "theory" into the "fact" bin, thanks to Elke Koenig, the president of Germany's top financial regulator, Bafin, which apparently is not as corrupt, complicit and clueless as its US equivalent, and who said that in addition to currency rates, manipulation of precious metals "is worse than the Libor-rigging scandal." Hear that Bart Chilton and friends from the CFTC?
- Charter, Comcast in renewed talks on Time Warner Cable bid (Reuters)
- Bankers' Stock Awards Jet Higher (WSJ)
- Yahoo CEO Mayer Dismisses Operating Chief De Castro (BBG)
- Amazon Employees Vote to Reject Union (Reuters)
- Luxury in China loses luster as wealthy flee (Reuters)
- UnitedHealth Profit Up on Stronger Enrollments (WSJ)
- U.S. government failed to secure Obamacare site: experts (Reuters)
- Spain Sells Bonds at Record-Low Yield as Rajoy Touts Rebound (BBG)
- Newport Beach’s $100,000 Lifeguards Feel Pension Squeeze (BBG)
- Bailed-Out Euro Nations Expect Painful Challenges to Remain (BBG)
Yesterday, Deutsche's Jim Reid was kind enough to put modern capital markets in their most proper context: "in these artificial markets the percentages are skewed towards the bulls for now." Today, for everyone confused how to navigate the "artificial market", Reid has the much needed explanation. To wit: "So far this year markets have gone down on good data, gone up on good data, gone down on concerns over weaker data and also gone up on weaker data."
And now you know everything there is to "know."
Day two of the bounce from the biggest market drop in months is here, driven once again by weak carry currencies, with the USDJPY creeping up as high as 104.50 overnight before retracing some of the gains, and of course, the virtually non-existant volume. Whatever the reason don't look now but market all time highs are just around the corner, and the Nasdaq is back to 14 year highs. Stocks traded higher since the get-go in Europe, with financials leading the move higher following reports that European banks will not be required in upcoming stress tests to adjust their sovereign debt holdings to maturity to reflect current values. As a result, peripheral bond yield spreads tightened, also benefiting from good demand for 5y EFSF syndication, where price guidance tightened to MS+7bps from initial MS+9bps. Also of note, Burberry shares in London gained over 6% and advanced to its highest level since July, after the company posted better than expected sales data. Nevertheless, the FTSE-100 index underperformed its peers, with several large cap stocks trading ex-dividend today. Going forward, market participants will get to digest the release of the latest Empire Manufacturing report, PPI and DoE data, as well as earnings by Bank of America.
"...in these artificial markets the percentages are skewed towards the bulls for now." - Deutsche Bank