- EU to weigh extensive sanctions on Russia (FT)
- U.S. lifts flight ban to Israel (Reuters)
- Russia says will cooperate with MH17 probe led by Netherlands (Reuters)
- Norway faces ‘concrete and credible’ terrorist threat (FT)
- Don’t Tell Anybody About This Story on HFT Power Jump Trading (BBG)
- But... but... PMI: Unilever Sales Growth Misses Estimates on Asian Slowdown (BBG)
- World’s Biggest Wealth Fund Reviews $8 Billion Russian Stake (BBG)
- Qualcomm latest US tech company to reverse in China (FT)
- Hamptons Home Sales Rise as Buyers Find More Inventory (BBG)
- Microsoft to announce biggest round of job cuts in 5 years (BBG)
- Palestinian rocket fire persists, Israel warns truce at risk (Reuters)
- China tells U.S. to stay out of South China Seas dispute (Reuters)
- Merkel Resists Sundering U.S. Ties Over Spying Affair (BBG)
- BES slide, tumbling German sentiment hit markets (Reuters)
- Top 1 Percent Is Even Richer Than Surveys Say, ECB Paper Finds (BBG)
- Puerto Rico Utility May Default on January Interest Payment (BBG)
- Can't Get a Job From an Algorithm, or So It Seems as Hot Resumes Go Nowhere Fast (BBG)
- Bank of China-CCTV drama may reveal power struggle in Beijing (SCMP)
The dollar's demise has been often foretold. The euro, SDRs, the yuan, Bitcoins all were going to be viable alternatives. The dollar persists.
We could focus on whatever events took place in the overnight session or the seasonally-adjusted economic data avalanche that will dominate US newsflow over the next two days (ADP, ISM New York, Factory Orders, Services ISM, Yellen Speaking, and of course Nonfarm payrolls tomorrow), or we could ignore all of that as it is absolutely meaningless and all very much bullish, and use a phrase from Standard Chartered which said that "the dollars Yellen is removing could be compensated for by cheap euros from the ECB; result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too." In other words, the bubble will go on, as the Fed passes the baton to the ECB, if not so much the BOJ which is drowning in its own imported inflation. Case in point: two of the three HY deals priced yesterday were PIK, and the $1 billion in proceeds was quickly used to pay back equity sponsors. The credit bubble has never been bigger.
China's own Big Apple may be rotting from the core. A new central business district modeled after New York City is going up in Tianjin but the project is in jeopardy. While the growth of China's ghost cities of entirely derelict and unlived-in residential real estate have become anathema; the story of the nation's 'if we build it they will come' commercial real estate bubble has been less exposed but is no less incredible. As Bloomberg reports, China’s project to build a replica Manhattan is taking shape against a backdrop of vacant office towers and unfinished hotels, underscoring the risks to a slowing economy from the nation’s unprecedented investment boom. Stunningly, the development has failed to attract tenants since the first building was finished in 2010 leaving one commercial real estate investor to proclaim, "Investing here won’t be better than throwing money into the water... There will be no way out - it will be very difficult to find the next buyer."
- Yellen Spending Recipe Lacking Key Ingredient: Bigger Wage Gains (BBG)
- Ukraine signs trade agreement with EU, draws Russian threat (Reuters)
- GM Documents Show Senior Executive Had Role in Switch (WSJ)
- Australian Report Postulates Malaysia Airlines Flight 370 Lost Oxygen (WSJ)
- World’s Biggest Debt Load Lures Distressed Funds to China (BBG)
- GPIF Rushing Into Riskier Assets Before Ready, Okina Says (BBG)
- Japan Prices Rise Most Since ’82 on Tax, Utility Fees (BBG)
- Italian Debt Swells to Rival Germany as Bond Yields Slide (BBG)
- China’s Manhattan Project Marred by Ghost Buildings (BBG)
- BOE's Carney Says Rates Won't Rise to Levels Previously Considered Normal (WSJ)
Abe's honeymoon is over. Following nearly two years of having free reign to crush the Japanese economy with his idiotic monetary and fiscal policies - but, but the Nikkei is up - the market may have finally pulled its head out of its, well, sand, and after last night's abysmal economic data from Japan which saw not only the highest (cost-push) inflation rate since 1982, in everything but wages (hence, zero demand-pull) - after wages dropped for 23 consecutive months, disposable income imploded - but a total collapse in household spending, the USDJPY appears to have finally been dislodged from its rigged resting place just around 102. As a result the 50 pip overnight drop to 101.4 was the biggest drop in over a month. And since the Nikkei is nothing but the USDJPY (same for the S&P), Japan stocks tumbled 1.4%, their biggest drop in weeks, as suddenly the days of the grand Keynesian ninja out of Tokyo appear numbered. Unless Nomura manages to stabilize USDJPY and push it higher, look for the USDJPY to slide back to double digits in the coming weeks.
- Minorities Seen Driving U.S. Household Growth (Reuters)
- GM prepares to recall some Cruze sedans with Takata air bags (Reuters)
- PBOC Halts Repos as China Money Rate Climbs to Seven-Week High (BBG)
- Ukraine Optimism Wavers on Peace as Cease-Fire Winds Down (BBG)
- Economic Rebound Seen Undercut by Weak Pay as Vote Winner (BBG)
- Cracks Open in Dark Pool Defense With Barclays Lawsuit (BBG)
- The Survivor: How Eric Holder outlasted his (many) critics (Politico)
- IBM, Lenovo Tackle Security Worries on Server Deal (WSJ)
- Militants take Iraqi gas field town, president calls parliament session (Reuters)
- Carney Surprises Confounding Markets as BOE Manages Guidance (BBG)
Following yesterday's S&P surge on the worst hard economic data (not some fluffy survey conducted by a conflicted firm whose parent just IPOed and is thus in desperate need to perpetuate the market euphoria) in five years, there is little one can comment on how "markets" react to news. Good news, bad news... whatever - as long as it is flashing red, the HFT algos will send momentum higher. The only hope of some normalization is that following the latest revelation of just how rigged the market is due to various HFT firms, something will finally change. Alas, as we have said since the flash crash, there won't be any real attempts at fixing the broken market structure until the next, and far more vicious flash crash - one from which not even the NY Fed-Citadel PPT JV will be able to recover. For now, keep an eye on the USDJPY - as has been the case lately, the overnight USDJPY trading team has taken it lower ahead of the traditional US day session rebound which also pushes the S&P higher with it. For now the surge is missing but it won't be for longer - expect the traditional USDJPY ramp just before or as US stocks open for trading.
It's official - everyone's involved! According to the 21st Century Business Herald, at least 17 financial institutions involved in copper, aluminum and other nonferrous metals financing business face losses of almost 15 billion Yuan (not including the contagious rehypothecated collateral chains involved) due to the over-invoicing of the Qingdao port. Crucially, it appears that the evaporation of collateral (i.e. multiple loans secured by the same collateral) has been confirmed officially and banks such as Standard Chartered have already ceased any new business via this supposedly secured channel.
The biggest news in the sage surrounding Chinese evaporated collateral troubles at Qingdao, which as noted is merely the 3rd largest Chinese port, is that this scandal has now spread to a second Chinese port: Penglai, which is also located in the Shandong province. Putting some size numbers for context: Qingdao's copper inventory is about 50,000 tons, compared to 800,000 tons in Shanghai, analysts say. There's "little evidence" for now that traders in Shanghai fraudulently have pledged collateral to banks, said Sijin Cheng, an analyst with Barclays Research in Singapore. Little evidence will become "lots" in the coming days when we expect more "discoveries" at all other bonded warehouses as the relentless inflow of commodities finally reverses and the beneficiaries finally demand possession. As everyone who has followed even the simplest Ponzi schemes knows, this is the part of the lifecycle when many tears are shed by most.
While we have warned about the problem with near-infinitely rehypothecated physical/funding commodities/metals, be they gold or copper, many times in the past, and most recently here, it was only this week that China finally admitted it has a major problem involving not just the commodities participating in funding deals - in this case copper and aluminum - but specifically their infinite rehypothecation, which usually results in the actual underlying metal mysteriously "disappearing", as in it never was there to begin with. It would appear our fears of global contagion (through various transmission channels) are now coming true as WSJ reports that as many as a half-dozen banks are trying to determine whether the collateral for loans they made to commodities traders was used fraudulently by a third party to obtain other loans. As we detailed previously, it appears the day when the Commodity Funding Deals finally end is fast approaching... and as we note below, why that will certainly be a watershed event.
With China's push for an international physical exchange, physical demand will begin to have a stronger influence, thereby ending gold manipulation. This will allow gold to rise to a more appropriate price given the scale of macroeconomic, systemic, geo-political and monetary risks of today.
A specter is haunting Washington, an unnerving vision of a Sino-Russian alliance wedded to an expansive symbiosis of trade and commerce across much of the Eurasian land mass - at the expense of the United States.