Futures market

Short-squeeze time? ... and suddenly CNBC goes quiet on the precious metals market movements.

The bombs are going to drop – increased forward guidance on rates and decreased direct bond purchases – but these policies in and of themselves are just tactical. What’s really at stake is the strategic meaning of these policies, the belief system that takes hold (or doesn’t) around the power of the Fed to create market outcomes.  Over the next three or four months we’re going to see quite a battle for the hearts and minds of investors, with both “sides” employing the Narrative of Don’t Fight the Fed. On the one hand you will have the Fed, with their Jericho Trumpet of Hilsenrath et al shrieking at you a new interpretation of the Narrative: ZIRP is the source of the Fed’s power, not QE, so tapering is no big deal. On the other hand you also have the Fed, but the Fed of the past several years and the way it has trained the market to believe that the portfolio rebalancing effect … i.e., the behavioral impact of QE that Bernanke has directly credited with driving up the stock market … is what really matters. And if that’s your reality, then tapering is a big deal, indeed. I’ll be monitoring all this closely at Epsilon Theory in the weeks ahead.

Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis. 

Particularly vulnerable banks in each country are....

Gold (>$1260) and silver (>$20) are extending yesterday's gains as US markets awake this morning. The crack higher at around 8:07ET caused the futures market to be halted after 3,000 Gold Futures contracts traded in one second at 08:07:45 on December 10, 2013 sending the price up $10 and tripping circuit breakers for 10 seconds. Silver is now +4% on the week and gold +2.5% as Treasuries are also bid. Stocks are stumbling overnight, driven by the "fundamentals" of a drop in EURJPY after it tagged 142 overnight and fell back.

At times silver metal is being dumped in quantity in the spot market, and at other times paper silver is being bought aggressively in the futures market.

Shortly after 1amET this morning, someone with no apparent fiduciary duty to their client's for best execution or any apparent trade allocation expertise decided it was time to dump 1500 contracts into an entirely illiquid gold futures market. The 150,000 ounce notional sell order ($184.5 million), captured graphically by Nanex, sent the price down $10 instaneously, tripped the exchange's circuit breakers and halted the market's trading for 20 seconds (once again). This is now the 4th market halt in the past 3 months (and this time on no news whatsoever), as the manipulative monkey-hammerings from who knows whom (BIS?) is becoming increasingly obvious.

As DB notes, it appears that markets continue to steadily price in a greater probability of a December taper judging by the 2bp increase in 10yr UST yields, 1.2% drop in the gold price and an edging up in the USD crosses yesterday. Indeed, the Atlanta Fed’s Lockhart, who is considered a bellwether within the Fed, kept the possibility of a December tapering open in public comments yesterday. But his other comments were quite dovish, particularly when he said that he wants to see inflation accelerate toward 2% before reducing asset purchases to give him confidence that the US economy was not dealing with a “downside scenario”. Lockhart stressed that any decision by the Fed on QE would be data dependent - so his comments that the government shutdown will make coming data "less reliable" than might otherwise have been, until at least December, were also quite telling. The dovish sentiments were echoed by Kocherlakota, a FOMC voter next year. In other words, an Oscar-worthy good-cop/bad-cop performance by the Fed's henchmen, confusing algotrons for the second day in a row.

While attention was focused on the #winning (TWTR) and #failing (NASDAQ and TSLA and so on)... the fact is that the S&P 500 futures market saw its largest collapse from high to low intraday since June 24th. While the told-you-so dance seems so inappropriate, equity markets' dump - seemingly triggered by more than one levered JPY carry trader getting a tap on the shoulder after Draghi's surprise - merely catches down to credit market's lack of exberance for the last 2 weeks (though there is still more room to drop). Stocks are at 12-day lows by the close with very litle BFTATH'ers stepping in as VIX broke back above 14.00% (highest close in over 3 weeks). FX markets were insanely volatile with early USD strength obliterated by JPY and EUR strength in the afternoon. Commodities slid lower on the day and bonds rallied - with 30Y outperformance unwinding some of the week's steepening. Stocks closed on their lows with the best volume in a month.

Why China DOESN'T WANT the Yuan to Become the Reserve Currency

It seems 'someone' needed to run the S&P futures market back over Friday's highs just to flush the stops one more time. Thanks to some JPY-selling that momentum was ignited and S&P futures just made new all-time-highs... because, well why not. Soon after the stops were run in stocks, JPY started to revert and so are futures. Gold, oil, and treasuries are all unch for now as is EURUSD.

• FHFA Is Said to Seek at Least $6 Billion From BofA for MBS Sales (BBG)
• Record Pact Is on the Table, But J.P. Morgan Faces Fight (WSJ)
• Magnetar Goes Long Ohio Town While Shorting Its Tax Base (BBG)
• Mini-Wall Street' Rises in Hamptons (WSJ)
• Obama to call healthcare website glitches 'unacceptable' as fix sought (Reuters)
• Starbucks Charges Higher Prices in China, State Media Says (WSJ)
• Cruz Is Unapologetic as Republicans Criticize Shutdown (BBG)
• Berlusconi struggles to keep party united after revolt (Reuters)
• SAC Defections Accelerate as Cohen Approaches Settlement (BBG)

With WTI crude oil prices hovering at record levels for this time of year, the spread to Brent crude has bounced from zero as Syria started up to around $4.50. At the time time we noted the plunge in the spread was as much related to US infrastructure and technical issues as the war premium and now Pierre Andurand, manager of one of this year's most successful commodity hedge funds, believes US crude will trade at a premium to the Brent benchmark within weeks, counter to the expectations of many in the market. As The FT reports, the ex-Goldman trader is known for taking bold positions, and while not commenting in specific trades, he noted "In order for Cushing inventories to stop drawing and start building, I think WTI [the US benchmark] should be at a premium to Brent [the global benchmark]," within weeks.

Even as JPMorgan seems set to put its London Whale troubles behind it with a nearly $1 billion imminent settlement, while at the same time throwing two mid-level traders at NY prosecutors and washing its hands of the whole tempest in a teapot affair, a curious snag has appeared. The CFTC, which in the past has never had a problem with promptly settling any market manipulation abuse with any bank in exchange for a small cash-greased slap on the hand, is suddenly a sticking point in JPM's ability to just walk away from the biggest prop trading Snafu in history. As WSJ reports, "the CFTC is focusing on the bank's increasingly aggressive trades made over several months early last year, when it added tens of billions of dollars to its derivatives positions—contracts tied to investment-grade corporate bonds, these people say. The CFTC is likely to use new powers granted by the Dodd-Frank law that allow it to charge firms for recklessly manipulating markets, say people familiar with the agency's thinking."

• Less Tapering Becomes Tightening Credit No Matter What Fed Says (BBG)
• Yellen Is Now Top Fed Hopeful (WSJ)
• Syria - A chemical crime, a complex reaction (Reuters)
• More ECB collateral: Wrecked cruise ship Costa Concordia raised off rocks in Italy (Reuters)
• Aging Boomers Befuddle Marketers Eying $15 Trillion Prize (BBG)
• Abe Turns Pitchman, Says Japan Is Now A Buy (WSJ)
• Ex-JPMorgan Employees Indicted Over $6.2 Billion Loss (BBG)
• Barack Obama blinked first in battle for Lawrence Summers (FT)
• Berlusconi to support Italian government in video message: sources (Reuters)
• How China Lost Its Mojo: One Town's Story (WSJ)

The prices of the metals were down sharply last week. Was this manipulation? As you’ll see below, the picture in silver is astonishing.