Following yesterday's blow out in US bond yields, which have continued to leak wider and are now at 2.20% after touching 2.23%, the overnight Japanese trading session was relatively tame, with the 10Y JGB closing just modestly wider at 0.93%, following the market stabilization due to a substantial JPY1 trillion JOMO operation which also meant barely any change to the NKY225, while the USDJPY slipped in overnight trading below the 102 support line and was trading in the mid 101s as of this moment, pulling all risk classes lower with it. There was no immediate catalyst for the sharp slide around 3am Eastern, although there was the usual plethora of weak economic data.
A week ago, when the brand new Hong Kong Mercantile Exchange suddenly shuttered after being in operation for only two years, urgently settling what little contracts were outstanding, many questions were left unanswered. Such as: how it was possible that the exchange, expected by many to become the new preferred trading venue for Asian precious metals and to steal the CME's crown, could close on such short notice. This mystery deepened further after reports that the exchange barely had seen any volume, with allegedly only a tiny 200 open contracts remaining to be settled upon shuttering. Now, the confusion surrounding the HKMex closure has taken another big step for bizarrokind following news that not only have at least four HKMex senior executive have been arrested having been found to be in possession of false bank docs for nearly half a billion in dollars, but that government itself was forced to "shore up confidence" in CY Leung, Hong Kong's 3rd Chief Executive, whose former top aide was none other Barry Cheung Chun-yuen, founder of the HKMex.
As if China was not suffering enough from a slumping economy, the South China Morning Post now reports that the H7N9 'bird flu' virus that has infected 131 people (and killed 36) so far can be transmitted not only by close contact but by airborne exposure. Domestic reports suggest the virus appears to be brought under control largely through restrictions at bird markets but the team at the University of Hong Kong has also found that pigs can be infected (cue 'when pigs can fly' pun). The findings suggest that there may be many more cases that have been detected or reported since "people may be transmitting the virus before they know they've even got it."
The Nikkei dropped by 7.3% at the end of the day and Hong Kong’s Hang Seng dipped by 2.5%. Shanghai maintained a moderate fall at just 1.2% (if you believe that data now!). The Asian markets are down.
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.
Unless there's a shock to the system when people start seeking safety, there's not much upside momentum for gold.
- Apple Bonds Stick Buyers With $280.6 Million Loss as Rates Climb (BBG)
- Iceland Freezes EU Plans as New Government Shuns Euro Crisis (BBG)
- "Transparent Fed" - Ben Bernanke meets privately with Darrell Issa (Politico)
- Bank of Japan vows market steps to curb bond turbulence (Reuters) holds policy (FT)
- Stockholm riots spread in third night of unrest (FT)
- Dudley Says Decision on Taper Will Require 3-4 Months (BBG)
- Senate panel passes immigration bill; Obama praises move (Reuters)
- Italy to outline youth jobs plan as government struggles (Reuters)
- Apple CEO Tim Cook, Lawmakers Square Off Over Taxes (WSJ)
- Google Joins Apple Avoiding Taxes With Stateless Income (BBG)
- Sony Board Discussing Loeb’s Entertainment IPO Proposal (BBG)
- Vote Strengthens Dimon's Grip (WSJ), Dimon performance well choreographed (FT)
Today is one on those rare days in which everyone stops pretending fundamentals matter, and admits every market uptick is purely a function of what side of the bed Bernanke wakes up on, how loudly Kuroda sneezes, or how much coffee Mark Carney has had before lunch, but more importantly: that all "risk" is in the hands of a few good central-planners. Following last night's uneventful Bank of Japan meeting, in which Kuroda announced no changes to the "full speed ahead" policy of inflation or bust(ed bank sector following soaring JGB yields) and which pushed the Nikkei225 to surge above the DJIA closing at 15,627, today it is Bernanke's turn not once but twice, when he first takes the chair in the Joint Economic Committee's "Economic Outlook" hearing at 10 am, followed by the May 1 minutes release at 2pm (which may or may not have been previously leaked like last month). As a reminder, Politico reported last night that Ben Bernanke had previously met in secret with Darrell Issa and other lawmakers "to discuss the central bank’s efforts to stimulate the economy and how it could exit this strategy in the future, according to people who attended the meeting." And since we know how important transparency is to Bernanke and the Congress, "Participants in the meeting declined to disclose specifically what Bernanke told lawmakers beyond saying there was discussion about the Fed’s bond buying programs and other issues." But as long as Mr. Issa, the wealthiest man in the House, has his advance marching orders, all is well.
Since there are now numerous hard proofs that China’s export data (and to some extent import data as well) were significantly distorted recently, we naturally wonder the incentives behind the distortion and the detailed mechanism of these manipulations. As BofAML notes, there are four reasons why the distortions have risen so sharply since Q4 2012 but the various arbitrages (described in actionable detail below) between onshore and offshore currencies and interest rate differentials (and the role of gold in this) remain in place to make judging China's real trade growth as much art as science.
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.
If you develop your beliefs about gold and silver by sourcing mainstream media news, everything you believe about gold and silver will always be wrong.
While the overnight collapse in precious metals has been notably retraced, the media is unable to take its eyes off the ball that the status quo is shaking focusing on the demise and what that must mean for the future. Well, it seems, the Indian finance minister is very clear. Speaking in New Delhi P. Chidambaram explained his lack of surprise at the increase in gold imports in April (as physical demand exploded amid falling paper prices) adding:
- *CHIDAMBARAM APPEALS TO PEOPLE TO CONTAIN PASSION FOR GOLD, and
- *CHIDAMBARAM: MORE STEPS PLANNED TO CURB GOLD IMPORTS IF NEEDED
So China/Hong Kong is importing near record amounts of the precious metal into reserves and India is not only seeing demand but enough to warrant further government intervention... makes perfect sense that (paper) prices should be falling - or are the planners plans backfiring once again? As we noted here, as long as the price suppression of paper gold prices continues, don't expect any notable changes to these demand trends.
Read 'Em and Weep
Those hoping for a slew of negative news to push stocks much higher today will be disappointed in this largely catalyst-free day. So far today we have gotten only the ECB's weekly 3y LTRO announcement whereby seven banks will repay a total of €1.1 billion from both LTRO issues, as repayments slow to a trickle because the last thing the ECB, which was rumored to be inquiring banks if they can handle negative deposit rates earlier in the session, needs is even more balance sheet contraction. The biggest economic European economic data point was the EU construction output which contracted for a fifth consecutive month, dropping -1.7% compared to -0.3% previously, and tumbled 7.9% from a year before. Elsewhere, Spain announced trade data for March, which printed at yet another surplus of €0.63 billion, prompted not so much by soaring exports which rose a tiny 2% from a year ago to €20.3 billion but due to a collapse in imports of 15% to €19.7 billion - a further sign that the Spanish economy is truly contracting even if the ultimate accounting entry will be GDP positive. More importantly for Spain, the country reported a March bad loan ratio - which has been persistently underreproted - at 10.5% up from 10.4% in February. We will have more to say on why this is the latest and greatest ticking timebomb for the Eurozone shortly.
What almost everybody calls capitalism is actually fascism, a system where both consumer and capital goods are privately owned, but they are strictly regulated and controlled. This is a huge distinction.