Deutsche Bank

• UK is closed today
• Weidmann Says ECB Purchases Could Become ‘Addictive Like a Drug’ (Bloomberg)
• Dutch Premier Rutte Defends Austerity, Says No to More Greek Aid (Bloomberg)
• Storm Isaac forces Republicans to rework convention script (Reuters)
• Christie chose NJ over Mitt's VP role due to fears that they'd lose (NYPost)
• Ayrault warns EU fiscal pact rebels (FT)
• Is Canada's New $100 Bill Racist?  (BusinessWeek)
• Will Fed Act Again? Sizing Up Potential Costs (WSJ)
• Samsung Slumps Most in 4 Years on U.S. Sales Ban Concerns (Bloomberg)
• States may require insurers to hold more capital (WSJ)
• Wen Says China Need Measures to Promote Export Growth (Bloomberg)
• Economist Appearing On Max Keiser Show Forced To Resign (Forbes)

Today the Chinese stock market did something unthinkable: it plunged to fresh post 2009 lows on news so bad they would have been enough to send the stock markets of such "developed" bizarro economies as the US and Europe limit up. The catalyst, as Bloomberg reports, was that Chinese industrial companies’ profits fell in July by the most this year, a government report showed today, adding to evidence the nation’s economic slowdown is deepening. Income dropped 5.4 percent last month from a year earlier to 366.8 billion yuan ($57.7 billion), the fourth straight decline, National Bureau of Statistics data today showed. That compares with a 1.7 percent slide in June and a 5.3 percent drop in May. What is disturbing is that the slide persisted even as revenue in the first seven months increased 10.6 percent to 50 trillion yuan, today’s report showed. Which means that cost and wage pressures are starting to truly bite Chinese corporations, that the US ability to export inflation to China is much more limited, and that one can forget the PBOC easing monetary conditions any time soon for many of the reasons discussed in the past week. It also means that China is now stuck hoping that Wen Jiabao will at least implement some fiscal stimulus. The reality however, judging by the SHCOMP's reaction, is that the benefit from fiscal programs in China, and everywhere else, is far more limited than monetary policy intervention. End result: SHCOMP down 1.74%,to 2,055, a three year low.

The lull in market activity over the past weeks is poised to give way to a multitude of events that could potentially determine the market direction for the remainder of the year. Policy responses from both sides of the Atlantic are awaited, though nuances rather than headlines may be more important. In the short run however, Deutsche Bank notes some indicators suggest that risky assets may be vulnerable. Specifically, relative to fundamentals they also find that the US equity rally over the past quarter has now been excessive relative to the US economic leading indicators. Looking at cross asset valuations by comparing the level of asset prices today vs. their peaks and troughs since Sep-2008 we also find that the S&P500 appears to be the richest relative to fundamentals.

Think NIRP is only allowed in select European countries. Moments ago the US Treasury sold a whopping for the series $14 billion in TIPS. The yield? A record low -1.286%, courtesy of TIPS being the only US debt instrument allowed to price at a negative yield (but not for long: JPM's new head of the London CIO divison Matt Zames who is also head of the TBAC is working hard at getting negative yields legalized across the board). The first time the Treasury sold TIPS at a negative rate was back in 2010, when it priced $11 billion at -0.55%. The comment back then: "It signals people’s expectation of the Fed being able to create some inflation with the QE program,” said Alex Li, an interest-rate strategist in New York at Deutsche Bank AG, which as a primary dealer is required to bid at Treasury auctions. “With nominal rates so low, in order have high TIPS breakevens you’ve got to have negative real yields on the five-year." It didn't then. It won't now. Of course, if the CPI were actually adjusted to reflect reality, then TIPS would be the best investment imaginable. As it stands right now, it will likely keep losing money until such time as the CTRL and P keys are finally superglued in the on position.

Gold’s remonetisation in the international financial and monetary system continues.  LCH.Clearnet, the world's leading independent clearing house, said yesterday that it will accept gold as collateral for margin cover purposes starting in just one week - next Tuesday August 28th. LCH.Clearnet is a clearing house for major international exchanges and platforms, as well as a range of OTC markets. As recently as 9 months ago, figures showed that they clear approximately 50% of the $348 trillion global interest rate swap market and are the second largest clearer of bonds and repos in the world. In addition, they clear a broad range of asset classes including commodities, securities, exchange traded derivatives, CDS, energy and freight. The development follows the same significant policy change from CME Clearing Europe, the London-based clearinghouse of CME Group Inc. (CME), announced last Friday that it planned to accept gold bullion as collateral for margin requirements on over-the-counter commodities derivatives.  It is interesting that both CME and now LCH.Clearnet Group have both decided to allow use of gold as collateral next Tuesday - August 28th. It suggests that there were high level discussions between the world’s leading clearing houses and they both decided to enact the measures next Tuesday.  It is likely that they are concerned about ‘event’ risk, systemic and monetary risk and about a Lehman Brothers style crisis enveloping the massive, opaque and unregulated shadow banking system.

Hopes that today may finally see an increase in trading volatility and volume following yesterday's reversal session will likely be dashed as the event wasteland on the horizon continues for the third day in a row. As DB explains, the FOMC meeting minutes and Juncker’s visit to Athens are likely the two main sources for key headlines today. While backward looking and certainly predating Lockhart's hawkish comments from yesterday, the FOMC minutes today are expected to shed further light on the kind of policy currently under consideration and the economic conditions required before easing is warranted. One thing that will not be discussed is the circularity of launching more QE even as gas prices have never been higher on this day in history, soy and corn are back at all time highs, and the market trading at multi-year highs. As repeatedly explained before, the option for the FOMC include pushing out the targeted exit date for fed funds, providing “exit guidance” on balance sheet measures (i.e. asset sales), various mixes of additional balance sheet expansion (including the possibility of an open-ended QE program) and  cutting interest on reserves. It is virtually certain that none of these will be enacted at the Jackson Hole meeting in one week, 2 months ahead of the presidential election, but hope springs eternal.

In Europe, the "no news" vacation for the past month was great news. The news is back... As is Merkel.

• "The Euro Crisis May Last 20 Years" - Welt
• German finmin: no new aid programme for Greece - Reuters
• Westerwelle Opposes Relaxing Greek Aid Terms: Tagesspiegel
• Euro Countries Plan Strategies to Prevent Break-Up: Sueddeutsche (via Bloomberg)
• Deutsche Bank Among Four Said to Be in U.S. Laundering Probe - Bloomberg
• Bundesbank Vice-Head Opposes Schaeuble’s Banking Proposal: WiWo (via Bloomberg)
• Westerwelle Opposes Relaxing Greek Aid Terms: Tagesspiegel
• German Industry Group Head says No Place In Greece For Eurozone: WiWo  (via Bloomberg)
• German Taxpayer Association Head Criticises ESM: Euro am Sonntag (via Bloomberg)
• Spain says there must be no limit set on ECB bond buying - RTRS
• France Favors Greece Rescue Package, Opposing Germany: Welt (via Bloomberg)

Peripheral stock indices continued to outperform today, as market participants reacted to yet another reiteration of support for ECB’s pledge to do all necessary to defend the Eurozone. As a result, banks in Europe are trading up with decent gains, with health care sector in the red given its traditional appeal as a safe-haven investment. German DAX continues to consolidate above the key 7000 mark, being driven higher by Daimler and Deutsche Bank. Looking at other asset classes, there is visible outperformance in the short-end of the curve, with the in-focus Spanish 2s tighter by around 20bps mark. The ongoing speculation of an intervention in the bond market also weighed on the German Bund, which underperformed its US counterpart. USTs come off overnight highs to trade little changed, with the move attributed to deal related selling. In the FX market, the EUR continued to re-price risks surrounding what is inevitable an unlikely scenario of a Eurozone break up. To the upside, resistance levels are seen at the 55DMA line at 1.2395 and then at 1.2400, which is also an intraday option expiry for the session.

Two years in and they are only starting now? What took them so long. Also, absolutely nothing new here, but merely the latest attempt to shift public opinion and EUR viability perceptions ever so slightly by one of Germany's most respect magazines. Those whose agenda it is to spook Germany with images of fire, brimstone, and 3-page mutual assured destruction termsheets if the Euro implodes, are now free to take the podium. One wonders: if it wasn't for the inevitable collapse of the EUR.... the inevitable collapse of the EUR.... the inevitable collapse of the EUR.... the inevitable collapse of the EUR, and of course Paul Ryan, would there be absolutely no news today?

European markets opened lower as risk-off was observed across the asset classes as participants reacted to the disappointing data from China overnight. Continental equity futures have moved horizontally throughout the session so far with little newsflow or influential data to sway price action. Heading into the European open, little has changed as all European indices are in the red, being led lower by consumer goods and utilities. China posted a sharp narrowing in their trade balance surplus to USD 25bln from USD 32bln in June, as the growth in exports slows across the month. As such, it is not a surprise to hear the usual market chatter of the Chinese central bank taking an imminent move to cut their Reserve Requirement Ratio today. However, as nothing has materialised, the riskier assets have not seen any significant lift from the talk.

Five years ago today BNP Paribas stopped withdrawals from three of their investment funds - because they couldn't value their holdings following the subprime fallout - and arguably marked the start of the Great Financial Crisis as money markets seized up and the ECB did its first emergency liquidity pump. In the five years hence, as Deutsche's Jim Reid notes, its been a pretty good run for commodities and most fixed income assets. Given all that's gone on over this period it’s fair to say that returns have been pretty good if you've been in the right areas. The authorities have played a big part in ensuring the period wasn't a disaster even if there have been frightening periods and very poor returns in some areas. Given that there are still numerous unresolved issues, the authorities need to continue to be on full alert for the next 5 years to ensure that when we do the 10 year anniversary there haven't been set-backs in many of these assets.

The silver market was affected by “devious efforts” to move the price of the precious metal, according to Bart Chilton, a member of the U.S. Commodity Futures Trading Commission, as reported by Bloomberg. “I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver,” Chilton said by e-mail today in response to questions from Bloomberg. “There have also been silver and gold market anomalies outside of the silver investigate window that have raised, and continue to raise, market concerns.” The enforcement division of the Washington-based agency, the main U.S. overseer of derivatives markets, began pursuing allegations of manipulation in the silver market in September 2008.  Investigators have analyzed more than 100,000 documents and interviewed dozens of witnesses, the CFTC said in a November 2011 statement. Chilton said last month the investigation may be completed as early as September.

Instead of having to fire 1900 people, Deutsche Bank will now have to only let go 1899. The reason: the second most prominent casualty of the Lieborgate scandal is now none other than Bob Diamond's daughter Nell, who made quite a splash in the aftermath of the Barclays Libor manipulation revelations when the social circuit butterfly tweeted that "George Osborne and Ed Miliband can go ahead and #hmd.” As it turns out after graduation from Princeton University in June 2011, and following a stint in UNICEF, the philanthropist, whose twitter profile is riddled with photos of shoes and runway poses, joined Deutsche Bank in November 2011, whether due to her natural curiosity into the minutae of Investment Banking, or for other reasons. Of course, considering her Princeton thesis was on "The Cultural Myth of Female Hair in the Victorian Imagination" (strinkingly comparable to "The Power Of Women's Hair In The Victorian Imagination" but we digress), it likely was the latter. As it turns out, 9 months after joining the firm full time (she had a part-time stint in the summer of 2010, following comparable stints at the Abernathy Macgregor Group, Nantucket Ice Cream Company, Abercrombie and Fitch), the young woman who sold "Rates" products (Libor and other IR derivatives? Surely that would be ironic at a bank which is now front and center into the Lieborgate investigation) at Deutsche Bank has decided to call it quits, in the process saving the job of at least one low level banker who now will not have to be let go because of the lack of an English thesis focusing on Female hair during Victorian times

What a difference a revisionist market rally makes. Remember when everyone was involved in Libor manipulation? No? Curious what a few hundred DJIA points will do especially when the corporate revenues and supporting them simply are not there, and one goes all in on multiple expansion. One entity which, however, has not forgotten about Lieborgate is Pimco parent and Europe's largest insurance firm, Allianz. And they are not happy: "Europe's biggest insurer, Allianz, is worried about the role central banks may have played in an interest rate rigging scandal that has enveloped some leading international lenders, the insurer's chief financial officer said on Friday. "We do not find it funny, what has happened, in particular the arising implication that it is not just the banks but central banks being involved in this," Oliver Baete told a conference call with analysts. "That really gives us cause for concern," Baete added." Of course, neither the ECB nor the FED could care much, considering that Allianz would be immediately insolvent if the same central banks who manipulated Libor stopped manipulating interest rates... which is implicitly what Allianz is unhappy about.

Moments ago AIG stock was halted with many scratching their heads as to the the reason why. Here it is, courtesy of Bloomberg:

• TREASURY TO OFFER $4.5 BILLION OF AIG COMMON SHARES
• AIG TO BUY BACK UP TO $3 BILLION OF SHARES SOLD BY TREASURY

Full release as we get it. Bottom line: another $1.5 billion in AIG shares are about to hit the market. Of course, in this broken market this will be seen as bullish. At least initially. Then the selloff.