Now that the US has made up its mind once more and "knows" that Wednesday's chemical attack in Syria was conducted by the government and targeting the "rebels", even as the "developed" west calls for a UN investigation to determine just that, and as the US (including the CIA), Israel and Jordan have already sent an advance military force into Syria to conduct more false flag provocations and blame it on the regime, the only next step is to soften and prepare popular opinion for what comes next. And what comes next is on the front page of the WSJ this morning: "The U.S. began refining its military options for possible strikes in Syria, officials said... Officers at the Pentagon on Thursday were updating target lists for possible airstrikes on a range of Syrian government and military installations." Then again we have seen all this before. Surely, one of these times the administration will actually go ahead and push the button instead of just talking about it.
There’s always someone waiting to dethrone the one in the position at the top of the roost, isn’t there?
- Obamacare, tepid U.S. growth fuel part-time hiring (Reuters)
- Cameron was behind UK attempt to halt Snowden reports (Reuters), Britain defends detention of journalist's partner (Reuters)
- Goldman Options Error Shows Peril Persists One Year After Knight (BBG)
- China expresses 'shock' as Japan's nuclear crisis deepens (Reuters)
- Inquiry into China insurance firm rattles industry (Caixin)
- Cheaper rivals eat into Apple’s China tablet share (FT)
- Exporting fast food: Subway Targets Europe With as Many as 1,000 New Outlets in 2014 (BBG)
- Reserve Bank of India boosts liquidity to ease pressure on banks (FT)
- Justice Department Plans New Crisis-Related Cases (WSJ) - Holder doing his cutest attempt to pretend the TBTProsecute aren't
- Syrian Opposition Alleges Gas Attack, Which Government Denies (WSJ)
More of the same downward drift this overnight trading session, with early Asian outflows coupled with a fresh record low in the Indian currency, driven in part by reports the Fukushima leak severity had been raised from Level 1 to Level 3, which however subsequently reversed following a weakening in the JPY and pushed the Nikkei from a steep early drop to a modest green close. China was unchanged even as Fan Jianping, chief economist at the State Information Center, said that a new reasonable range for China’s growth is 7%-9%, Xinhua said and ongoing liquidity additions by the PBOC. In Europe, newsflow was dominated early on by a Suddeutsche report that the third Greek bailout would be likely financed in part by EU budget as the reality that nothing is fixed in Europe slowly returns and fears that the latent and non-existent OMT will eventually have to be used. US futures have seen a modest risk off bias in part driven by concerns what today's key event, the FOMC minutes due out at 2 pm, would reveal (if anything new). Also on deck are Existing home sales at 10:00 am which expect a slight pick up to 5.15 million from a 5.08 million prior print. Moments ago the latest weekly MBA Mortgage Applications number came out and, to nobody surprise, it posted the last weekly decline, dropping another 4.6% with conventional refis dropping for the 10th consecutive week.
The week ahead will be relatively quiet with few major data releases. The main focus will be on the Flash PMIs in the Eurozone and China as well as the FOMC minutes and Jackson Hole. In the US the relatively new Preliminary PMI has been found useful by our US team in forecasting the ISM. Existing and new home sales are additional data points of interest in the US. The key focus this week will be on central bank action. Minutes from the FOMC and the RBA will be followed by rate decisions in Thailand and Turkey. Finally, on Thursday starts the annual Jackson Hole conference with lots of Fed speakers, including Yellen next weekend. Chairman Bernanke, whose term ends in January, will not attend.
It's all about rates this largely newsless morning, which have continued their march wider all night, and moments ago rose to 2.873% - a fresh 2 year wide and meaning that neither Gross, nor the bond market, is nowhere near tweeted out. As DB confirms, US treasuries are front and center of mind at the moment.... the 10yr UST yield is up another 4bp at a fresh two year high of 2.87% in Tokyo trading, adding to last week’s 20bp selloff. As it currently stands, 10yr yields are up by more than 120bp from the YTD lows in early May and more than 80bp higher since Bernanke’s now infamous JEC testimony. We should also note that the recent US rates selloff has been accompanied by a rapid steepening in the rate curve. Indeed, the 2s/10s curve is at a 2 year high of 250bp and the 2s/30s and 2s/5s are also at close to their highest level in two years.
The latest World Gold Council Gold Demand Trends report, which covers the period April-June 2013, confirms again how recent falls in the gold price were due to speculators selling paper gold rather than a decline in actual demand for physical gold.
It highlights, once again, that the price falls have generated significant increases in demand, most notably from store of wealth, jewelry, bullion coin and bar buyers in Turkey, Dubai and the Middle East, Vietnam, India, China and the rest of Asia.
Meanwhile speculators, primarily banks and hedge funds, exited their positions in the gold ETFs and futures markets. This led to liquidations of just 402 tonnes of ETF gold worth only $18.3 billion.
The summer doldrums continue. Overnight news included an expected 25 bps rate cut in Australia to a new record low of 2.50%, although the statement surprised by not retaining its expected dovish outlook. Perhaps this is due to the PBOC finally folding and despite raging for weeks that it was dead serious about its tightening experiment, injected another CNY12 billion in its banks via 7-day reverse repos at 4.0% compared to the previous, July 30 CNY14 billion 7 day injection at 4.40%. The Chinese central bank came, saw, and didn't like what it found in the Chinese interbank liquidity situation. Whether and how this will change the Politburo's reform agenda, and whether the provided liquidity will do much if anything, remains to be seen. Elsewhere, in Europe, German factory orders soared 3.8% on expectations of +1.0%, however all driven by Paris airshow orders which boosted bulk orders, and without which orders would have fallen -0.7%. The UK upward momentum continues with Industrial Production's turn now to soar to the highest since January 2011, while Italian GDP declined less than expected, dropping -0.2%, on expectations of a -0.4% slide. In other words Europe continues to rep and warrant that it does not need any assistance from the ECB despite a complete lock up in private lending and credit creation. Good luck with all that.
When one examines the impending disaster in Egypt, it is important to avoid using a narrow lens and take into account the bigger picture. An Egyptian civil war will not ultimately be about Egypt. Rather, it will be about catalyzing the whole of the Middle East towards breakdown and drawing in larger nations in the process, including the United States. It will also be about triggering energy price increases designed to give cover to the collapse of the dollar's world reserve status. If globalists within our government and within central banks allow the dollar to die today, THEY will be blamed for the collapse that follows. THEY will be painted as the villains. But, if they can create a crisis large enough, that crisis becomes the scapegoat for all other tragedies, including dollar debasement. Egypt is just one of many regions in the world where such a crisis can be fabricated. Right now, it seems to be the most opportune choice for the elites.
The LBMA clearing statistics therefore essentially represent huge daily trading through unallocated accounts, most of which is classified as spot delivery, but which is backed by very small physical metal foundations. The clearing statistics while interesting, need to be made more transparent and granular beyond the headline data. Otherwise they tend to obscure rather than illuminate.
There is no doubting the massive reserves of fossil fuels still lying close to or just beneath the earth’s surface. One of the key points made in the first edition of Insight back in February is that we must factor in the cost of processing those fossil fuels before they can enter the energy market. The future of energy production is as much as about the economic cost of processing those supplies as it is about the extraction.
Today’s bizarre confluence of negative real interest rates, money printing, eurozone sovereign default, aberrant asset prices, high unemployment, political polarization, growing distrust… none of it was supposed to happen. It is the unintended consequence of past crisis-fighting campaigns, like a troupe of comedy firemen leaving behind them a bigger fire than the one they came to extinguish. What will be the unintended consequences of today’s firefighting? We shudder to think.
With the bloodiest weekend since the ouster of Mubarak, it seems the supposed coup-less people's revolution appears to be edging ever closer to civil war. Egypt lies at the heart of the Arab revolution, even if the original spark occurred in Tunisia. But Egypt – with its strategic location, stable borders, large population, and ancient history – has been the principal power of the Arab world for centuries, defining the movement of history there like no other. This implies that the overthrow of Egypt’s democratically elected president, Mohamed Morsi, will have much broader repercussions. Europe's bloody revolutions of the 19th century changed the status quo forever and while the Arab world might not be so deeply affected, the near future there will certainly be neither peaceful nor stable.
We've discussed Jiangsu before (dead pigs, TBTF Solar companies, and bird flu) but the Chinese province (that is big enough to be a Top 20 global economy with GDP greater than that of G-20 member Turkey and 79 million people) is on the brink of collapse under the weight of its own debt (cough Detroit cough). As China's leaders attempt to rein in over-capacity industries, tamp-down residential real-estate bubbles, and generally unwind "...the greatest misallocation of capital the world has ever seen, which was China’s 2009 stimulus," Jiangsu stands head-and-shoulders. With debt far higher than its peers, its mainstay industries (shipbuilding and solar panel manufacture) drowning in over-capacity, and massive 'empty' property developments now starved of funding, Jiangsu "can potentially pose a systemic and macro economic risk to the country."
For the second consecutive day futures have drifted lower following a drubbing in the Nikkei which was down nearly 3% to just above 14K (time to start talking about the failure of Abenomics again despite National CPI posting the first positive print of 0.2% in forever and rising at the fastest pace in 5 years) and the Shanghai Composite which dropped to just above 2000 once again, after PBOC governor Zhou saying that China has big economic downward pressure and further reiterated prudent monetary policy will be pursued. This is despite Hilsenrath's latest puff piece which pushed the market into the green in yesterday's last hour of trading and despite initial optimism which saw stocks open higher following forecast-beating EU earnings gradually easing and heading into the North American open stocks are now little changed. It may be up to the WSJ mouhtpiece to provide today's 3pm catalyst to BTFATH, or else it will be up to the circular and HFT-early released UMichigan confidence index to surge/plunge in order to push stocks on any red flashing news is good news.