Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1151.40 up $3.10 (comex closing time)
Silver: $15.52 down 4 cents (comex closing time)
In the access market 5:15 pm
Gold $1166.50
Silver: $15.90
Gold/silver trading: see kitco charts on the right side of the commentary.
Following is a brief outline on gold and silver comex figures for today:
The gold comex today had a poor delivery day, registering 2 notices served for 200 oz. Silver comex registered 118 notices for 590,000 oz .
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 246.84 tonnes for a loss of 56 tonnes over that period. Lately the removals have been rising!
In silver, the open interest fell by a tiny 24 contracts as yesterday’s silver price was down by 4 cents. The total silver OI continues to remain extremely high with today’s reading at 178,524 contracts. The front month of March fell by 0 contracts remaining at 692 contracts. We are now at a multi year high in the total OI complex despite a record low price. This dichotomy has been happening now for quite a while and defies logic.What is also strange today again is the fact that the OI went up with a very tiny volume yesterday. This must be scaring our bankers to no end.
We had 118 notices served upon for 590,000 oz.
In gold we had a huge rise in OI despite the fact that gold was down by $5.00 yesterday. The total comex gold OI rests tonight at 429,738 for a gain of 3,995 contracts. Today, surprisingly we again had 2 notices served upon for 200 oz.
Today, we had a withdrawal of .9 tonnes of gold at the GLD/ inventory at the GLD/Inventory rests at 749.77 tonnes
In silver, /SLV we had no change in inventory at the SLV/Inventory, remaining at 327.332 million oz
We have a few important stories to bring to your attention today…
1, A tiny decrease in silver despite lower prices/silver OI at multi year highs and yet silver is extremely low in price. Gold OI surprisingly rises by close to 4,000 contracts despite gold’s fall in price of $5.00 yesterday. (harvey)
2,Greece scrambles to raise 2 billion euros. The IMF basically is giving up on these guys. The European Minister is basically calling for capital controls but this can only be orchestrated by Greece itself. Then finally late in the day, the ECB is now preparing for a GREXIT and a loss of 320 billion euros. If you factor in the derivative losses, one can visualize a total meltdown in the trillions
(zero hedge/Phoenix Research Capital)
3. The big news was the dovish report from the FOMC/gold and commodities rose on the news as well as the Dow
(zero hedge/Goldman Sachs/Hilsenrath/Dave Kranzler/IRD)
4. European sovereign bond risks rise (yields rise) due to potential GREXIT:
(Bloomberg/zero hedge)
we have these and other stories for you tonight.
Let us now head over to the comex and assess trading over there today.
Here are today’s comex results:
The total gold comex open interest rose by 3,995 contracts from 425,743 up to 429,738 even though gold was down by $5.00 yesterday (at the comex close). We are now in the contract month of March which saw it’s OI remain constant at 110 for a loss of 0 contracts. We had 0 notices filed upon yesterday so we neither lost nor gained any gold contracts standing for delivery in this delivery month of March. The next big active delivery month is April and here the OI fell by 531 contracts down to 208,779. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was poor at 48,737. (Where on earth are the high frequency boys?). The confirmed volume on yesterday ( which includes the volume during regular business hours + access market sales the previous day) was poor at 175,805 contracts. It seems that our HFT boys did not show up for work today. Today we had 2 notices filed for 200 oz.
And now for the wild silver comex results. Silver OI fell slightly by 24 contracts from 178,548 down to 178,524 despite the fact that silver was down by only 4 cents with respect yesterday’s trading and equally astonishing that the volume yesterday was extremely light. We are now in the active contract month of March and here the OI fell by 0 contracts remaining at 692. We had 0 contracts served upon yesterday. Thus we neither lost nor gained any silver contracts standing in this March delivery month. The estimated volume today was simply awful at 9,840 contracts (just comex sales during regular business hours. The confirmed volume yesterday (regular plus access market) came in at 40,219 contracts which is poor in volume. We had 118 notices filed for 590,00 oz today.
March initial standings
March 18.2015
Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
96,450.000 oz (Scotia) 3,000 kilobars
Deposits to the Dealer Inventory in oz
nil
Deposits to the Customer Inventory, in oz
nil
No of oz served (contracts) today
2 contracts (200 oz)
No of oz to be served (notices)
110 contracts (11,000 oz)
Total monthly oz gold served (contracts) so far this month
8 contracts(800 oz)
Total accumulative withdrawals of gold from the Dealers inventory this month
114,790.651 oz
Total accumulative withdrawal of gold from the Customer inventory this month
494,421.0 oz
Today, we had 0 dealer transaction
total Dealer withdrawals: nil oz
we had 0 dealer deposit
total dealer deposit: nil oz
we had 1 customer withdrawals
i) Out of Scotia: 96,450.000 oz (3,000 kilobars)
total customer withdrawal: 96,450.000 oz
we had 0 customer deposits:
total customer deposits; nil oz
We had 1 adjustment
i) Out of Brinks:
192.90 oz was adjusted out of the customer and this landed into the dealer account of Brinks:
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 2 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the total number of gold ounces standing for the March contract month, we take the total number of notices filed so far for the month (8) x 100 oz or 800 oz , to which we add the difference between the open interest for the front month of March (110) and the number of notices served upon today (2) x 100 oz equals the number of ounces standing.
Thus the initial standings for gold for the March contract month:
No of notices served so far (8) x 100 oz or ounces + {OI for the front month (110) – the number of notices served upon today (2) x 100 oz} = 11,600 oz or.3608 tonnes
we neither lost nor gained any gold ounces standing for delivery in this March contract month.
Total dealer inventory: 658,344.514 oz or 20.477 tonnes
Total gold inventory (dealer and customer) = 7.936 million oz. (246.84) tonnes)
Several weeks ago we had total gold inventory of 303 tonnes, so during this short time period 56.0 tonnes have been net transferred out. However I believe that the gold that enters the gold comex is not real. I cannot see continual additions of strictly kilobars.
end
And now for silver
March silver initial standings
March 18 2015:
Silver
Ounces
Withdrawals from Dealers Inventory
nil oz
Withdrawals from Customer Inventory
111,502.700 oz (CNT,HSBC)
Deposits to the Dealer Inventory
594,239.30 oz (CNT)
Deposits to the Customer Inventory
10,003.80 oz (CNT)
No of oz served (contracts)
118 contracts (590,000 oz)
No of oz to be served (notices)
574 contracts (2,870,000)
Total monthly oz silver served (contracts)
2001 contracts (10,005,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer inventory this month
4,389,317.8 oz
Today, we had 1 deposit into the dealer account:
i) Into CNT: 594,239.300 oz
total dealer deposit: 594,239.300 oz
we had 0 dealer withdrawal:
total dealer withdrawal: nil oz
We had 1 customer deposits:
i) Into CNT: 10,003.800 oz
total customer deposit: 10,003.800 oz
We had 2 customer withdrawals:
i) Out of HSBC: 101,498.900 oz
ii) Out of CNT: 10,003.800 oz
total withdrawals; 111,502.700 oz
we had 0 adjustment
Total dealer inventory: 70.027 million oz
Total of all silver inventory (dealer and customer) 176.825 million oz
.
The total number of notices filed today is represented by 118 contracts for 590,000 oz. To calculate the number of silver ounces that will stand for delivery in March, we take the total number of notices filed for the month so far at (2001) x 5,000 oz = 10,005,000 oz to which we add the difference between the open interest for the front month of March (692) and the number of notices served upon today (118) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the March contract month:
2001 (notices served so far) + { OI for front month of March(692) -number of notices served upon today (118} x 5000 oz = 12,875,000 oz standing for the March contract month.
we neither gained nor lost any silver ounces standing in this March delivery month.
for those wishing to see the rest of data today see:
http://www.harveyorgan.wordpress.com orhttp://www.harveyorganblog.com
end
The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:
i) demand from paper gold shareholders
ii) demand from the bankers who then redeem for gold to send this gold onto China
vs no sellers of GLD paper.
And now the Gold inventory at the GLD:
March 18/ we had a withdrawal of .9 tonnes of gold from the GLD/Inventory at 749.77 tonnes
March 17.2015: no change in gold inventory at the GLD/Inventory 750.67 tonnes
March 16/no change in gold inventory at the GLD/Inventory 750.67 tonnes
March 13/ we had a small change in gold inventory at the GLD (small withdrawal/probably to pay for fees)/Inventory at 750.67 tonnes
March 12.we had a withdrawal of 2.09 tonnes of gold at the GLD/Inventory at 750.95 tonnes
March 11.2015: no changes in gold inventory at the GLD/Inventory at 753.04 tonnes
March 10 no report on the GLD tonight/computer down/inventory remains 753.04 tonnes
March 9/ we had another huge withdrawal of 3.38 tonnes of gold from the GLD, no doubt heading for Shanghai/Inventory 753.04 tonnes
March 6/we had a huge withdrawal of 4.48 tonnes of gold from the GLD/inventory rests tonight at 756.32/Also HSBC is getting out of the gold business in London and is giving up all of its 7 vaults.
March 5 no change in gold inventory at the GLD/760.80 tonnnes
March 4/ no change/inventory 760.80 tonnes
March 3 we had another 2.69 tonnes of gold withdrawn from the GLD. Inventory is now 760.80 tonnes.
March 2 we had 7.76 tonnes of withdrawal from the GLD today and this physical gold landed in Shanghai/Inventory 763.49 tonnes
March 18/2015 / we had a 0.9 tonnes withdrawal from GLD/Inventory at 749.77 tonnes
inventory: 749.77 tonnes.
The registered vaults at the GLD will eventually become a crime scene as real physical gold departs for eastern shores leaving behind paper obligations to the remaining shareholders. There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat (same banks).
GLD : 749.77 tonnes.
end
And now for silver (SLV):
March 18/ no change in silver inventory/327.332 million oz
March 17/ no change in silver inventory/327.332 million oz
March 16/no change in silver inventory/327.332 million oz
March 13.2015: no change in silver inventory/327.332 million oz
March 12: no changes in silver inventory/327.332 million oz
March 11/no changes in silver inventory/327.332 million oz
March 10/ no change in silver inventory/327.332 million oz
March 9/ no change in silver inventory at the SLV/327.332 million oz
March 6: huge addition of 1.34 million oz of silver into the SLV/Inventory 727.332 million oz
March 5 no change in inventory/725.992 million oz
March 4 a slight reduction of 126,000 oz of silver/SLV inventory at 725.992 (probably to pay for fees)
March 3 a small deposit of 328,000 oz of silver into the SLV/Inventory at 726.118 million oz.
March 2/ no change in silver inventory tonight; 725.734 million oz
Feb 27.2015 no change in silver inventory tonight: 725.734 million oz
Feb 26. no change in silver inventory at the SLV/Inventory at 725.734 million oz
Feb 25. no changes in silver inventory/SLV inventory at 725.734 million oz
March 18/2015 no change in silver inventory at the SLV/ SLV inventory rests tonight at 327.332 million oz
end
And now for our premiums to NAV for the funds I follow:
Note: Sprott silver fund now for the first time into the negative to NAV
Sprott and Central Fund of Canada.
(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
Not available tonight
1. Central Fund of Canada: traded at Negative 6.1% percent to NAV in usa funds and Negative 7.4% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.7%
Percentage of fund in silver:37.8%
cash .5%
( March 18/2015)
Sprott gold fund finally rising in NAV
2. Sprott silver fund (PSLV): Premium to NAV falls to + 2.28%!!!!! NAV (March 18/2015)
3. Sprott gold fund (PHYS): premium to NAV falls to -.03% to NAV(March 18 /2015)
Note: Sprott silver trust back into positive territory at +2.28%.
Sprott physical gold trust is back into negative territory at -03%
Central fund of Canada’s is still in jail.
end
And now for your more important physical gold/silver stories:
Gold and silver trading early this morning
(courtesy Mark O’Byrne)
Gold Price to Surge Over $2,400 Per Ounce – Doubling Asian Demand in “Asian Century”
By Mark O’Byrne March 18, 2015 0 Comments
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- Gold price set to soar to new records in ‘Asian century’
- Gold price to double by 2030: ANZ
- Gold to exceed $2,400 per ounce
- Gold demand in Asia set to double
- “Greater demand from investors and central banks will see gold prices rise materially over the long-term”
- “Most of the time you don’t want to pay for it. But if you need it, you’re glad you have it”
The price of gold is forecast to double in the next 15 years, and growing wealth across Asia, particularly in China and India, will lead to demand for gold bullion and send its value soaring, a new study from ANZ predicts.
ANZ’s just released report `East to El Dorado: Asia and the Future of Gold’ says the price of gold could exceed $2,400 per ounce by 2030, more than double its current value of around $1,150.
“Asia’s rise will have profound implications for the gold market,” ANZ chief economist Warren Hogan said. As incomes rise across Asia, so will the appetite for gold rings and necklaces, the report predicts. “A growing middle class will buy more jewellery,” Hogan said.
There will also be an increasing appetite for gold coins and bars as stores of value.
Gold holds cultural significance in China, India and across much of Asia, where gold is considered an ideal gift for weddings in the hope it can bring luck and happiness.
Difficulty in obtaining gold in China and India in the past also adds to the allure, according to the report. The Chinese government has a history of nationalizing gold stores and prohibiting gold ownership, while in India gold imports were largely banned until 1990.
Developments in money management practices in Asia, and rising demand for diverse financial products, will also help fuel demand for physical gold, the report says.
“A larger body of professional money managers will drive investment demand,” Mr Hogan said.
“And regional central banks will purchase more gold to provide confidence in newly floated currencies … These factors will support a long term and significant increase in the gold price.”
ANZ’s report predicts annual gold demand from 10 key Asian countries – including China, India, Japan, Indonesia and South Korea – will double from 2,500 tonnes to 5,000 tonnes.
ANZ said it believes the gold price will rise above $2,000/oz by 2025.
“While the near-term could see prices trade only marginally higher over the next few years, we believe the combined effect of greater demand from investors and central banks will see gold prices rise materially over the long-term,” it said.
“Beyond its role as the world’s largest producer and consumer of physical gold, we believe China will eventually dominate the price discovery process too, as Asia’s financial centres gradually open up. There is no reason why Shanghai should not become a major centre for gold trading provided the appropriate institutional and legal reforms take place.”
A climbing US dollar has dampened investor demand for gold so far in 2015, but investors still see gold as a safe haven during periods of share market and economic decline the report says.
“One things that’s never changed for the gold market in the last 30 or 40 years is its safe haven appeal,” he said.
“Most of the time you don’t want to pay for it. But if you need it, you’re glad you have it.”
Must Read Guide: 7 Gold Must Haves
MARKET UPDATE
Today’s AM fix was USD 1,149.00, EUR 1,080.50 and GBP 782.91 per ounce.
Yesterday’s AM fix was USD 1,154.75, EUR 1,087.54 and GBP 781.50 per ounce.
Gold fell 0.55% percent or $6.40 and closed at $1,148.50 an ounce yesterday, while silver slipped 0.58% or $0.09 at $15.56 an ounce.
In Singapore, bullion for immediate delivery ticked down 0.2 percent at $1,146.20 an ounce near the end of day. Comex U.S. gold futures for April delivery inched down 0.2 percent to $1,145.40 an ounce.
Gold is holding above yesterday’s 3-1/2 month low at $1,142.86/oz. Its 14-day relative strength index (RSI) remains in oversold territory at 25.5. Gold’s RSI has been below 30 for the best part of a fortnight.
Yesterday, SPDR Gold Trust ETF saw further liquidations and holdings fell 0.4 percent to 747.98 tonnes.
The Dubai Gold and Commodities Exchange (DGCX) is in an advanced stage of talks with a local bank on its plans to launch a spot gold contract, a senior executive at the exchange said. DGCX had said early last year that it planned to introduce a spot gold contract as part of its growth as a top trading centre for the precious metal. The launch had originally been scheduled for last June, but has been delayed. “We are in advanced stages of talks with a local entity,” Ian Wright, chief business officer at DGCX, told Reuters. He did not disclose the name of the local bank, but said the contract should be launched in the “near future”.
Thousands of anti-austerity protesters clashed with riot police near the new headquarters of the European Central Bank (ECB) in Frankfurt on today, hours before the ceremonial opening of the 1.3 billion euro ($1.4 billion) building.
Several cars were set on fire and streets were blocked by burning stacks of tires and rubbish bins. At least one police officer was injured, police said. Police used water cannon to try to make a path through the mass of protesters to the entrance of the building, which is blocked off from the street by police barricades.
ECB President Mario Draghi was due to make a speech there this morning
Gold fell to its lowest in nearly four months, as markets await the outcome of the U.S. Federal Reserve meeting today.
As always language from the FOMC’s policy statement will be used to infer any hints on when interest rates might be raised. Analysts are focusing on the word, “patient” to determine whether the rate hike will come in June or September or be delayed again.
If the word “patient” is absent from the statement, some analysts predict further price falls for the precious metals.
In London, spot gold in the late morning is trading at $1,150.47 or up 0.07 percent. Silver is trading at $15.56 or up 0.12 percent and platinum is trading at $1,094.46 or up 0.05 percent, at a five and a half year low.
Updates and Award Winning Research Here
end
Low rates will trigger civil unrest and they lose control according to the BIS
(courtesy UKTelegraph/Chan/GATA)
Low rates will trigger civil unrest as central banks lose control, BIS says
Submitted by cpowell on Wed, 2015-03-18 17:06. Section: Daily Dispatches
By Szu Ping Chan
The Telegraph, London
Wednesday, March 18, 2015
Low inflation, bond yields, and interest rates around the world will push the boundaries of economic and political stability to breaking point if they continue on their downward trajectory, the Bank for International Settlements has warned.
The Swiss-based “bank of central banks” said the “sinking trend” of global rates would push countries further into uncharted territory.
It highlighted that $2.4 trillion (L1.6 trillion) of long-term global sovereign debt was now trading at negative yields, with an increasing number of investors willing to pay governments for the privilege of lending to them.
“As bond markets show us day after day, the boundaries of the unthinkable are exceptionally elastic,” said Claudio Borio, head of the Monetary and Economic department at the BIS. …
… For the remainder of the report:
http://www.telegraph.co.uk/finance/economics/11479425/Low-rates-will-tri…
end
Koos Jansen discusses in depth by SGE withdrawals equals Chinese demand for gold ex sovereign purchases!
(courtesy Koos Jansen)
Posted on 18 Mar 2015 by Koos Jansen
SGE Withdrawals In Perspective
Chinese gold market essentials
In 2014 SGE withdrawals, which can be used as a proxy for Chinese wholesale gold demand, have lost their accuracy since the Shanghai International Gold Exchange (SGEI) was launched in September, providing foreign enterprises to trade gold in renminbi, take delivery and export the gold from the Shanghai Free Trade Zone (FTZ). SGE and SGEI withdrawals are not published separately and thus SGEI activity can distort SGE withdrawals (being a proxy for Chinese wholesale demand). This post is about what we know at this stage about SGEI activity in relation to SGE withdrawals. It’s not exact science, but it’s the best we have right now.
It’s recommended reading The Mechanics Of The Chinese Gold Market, Chinese Gold Financing Deals Explained and The Workings Of The Shanghai International Gold Exchange for a better understanding of this post.
The SGEI facilitates gold trading in the Shanghai Free Trade Zone (FTZ). The physical gold flows through the FTZ arecompletely separated form the Chinese domestic gold market, which is a closed market. Would we get our clear view back if SGE and SGEI withdrawals would be disclosed separately? Unfortunately not. This is because Chinese domestic banks are also trading on the SGEI, when they withdrawal from the vaults in the FTZ they can import this gold into the Chinese domestic gold market (without it being required to be sold through the SGE).
The trading volume/purchases on the SGEI (contracts iAu100g, iAu99.99 and iAu99.5) can be:
Not withdrawn at all and thus not distorting SGE withdrawals – our view on Chinese wholesale demand.
Withdrawn by Chinese domestic banks to be imported into the mainland and thus being part of Chinese wholesale demand.
Withdrawn by foreign traders and exported from the FTZ; distorting SGE withdrawals. If we knew how much these withdrawals accounted for we could subtract them from total SGE withdrawals to have a clear view on Chinese wholesale demand. Unfortunately we don’t know these numbers.
Technically, as I’ve reasoned previously, Chinese wholesale gold demand is at most equal to SGE withdrawals, at least equal to SGE withdrawals minus SGEI trading volume. Because, it can be every contract traded on the SGEI is bought by a foreign trader that takes delivery, withdraws and exports the gold out of the FTZ.
For example, in week 50, 2014, total SGE withdrawals accounted for 50,027.5 Kg. SGEI trading volume over this period accounted for 6,159 Kg. We could argue Chinese wholesale gold demand must have been somewhere in between 50,027.5 Kg and 43,868.5 Kg (50,027.5 – 6,159).
More clarity was provided by chairman of the SGE, Xu Luode, which recently disclosed useful SGEI data in an article he wrote for Bullion Bulletin. Xu confirmed we don’t have to use the most extreme scenario (total SGEI volume) as a base. In February 2015 he noted:
As of November 2014, international members have traded more than 100 metric tons of gold in aggregate with a total turnover of around RMB 25 billion; imported gold tipped in at around 12 metric tons, and a total of 15 metric tons of gold have been deposited into the International Board Certified Vault.
With the numbers from Xu we can make a far better estimate of Chinese wholesale demand in relation to SGEI activity.
The SGEI was launched September 18, 2014. From the end of November until February SGEI trading volume was 122 tonnes. Before November SGEI volume was weaker, which makes me think Xu neglects this period, as the SGEI was merely making its first steps.
From November until February SGEI volume was 122 tonnes, total SGEI deposits accounted for 15 tonnes of which 12 tonnes had been imported into the Chinese domestic gold market. SGE withdrawals reached 859 tonnes over these four months.
Concluding, most of SGEI withdrawals (at most 15 tonnes) were imported into the Chinese domestic gold market (12 tonnes); the SGEI is primarily used by Chinese banks to import gold, instead of through consignment, not distorting SGE withdrawals (Chinese wholesale gold demand).
Furthermore, SGE withdrawals (Chinese wholesale gold demand) at 859 tonnes were at most distorted by 3 tonnes – though it was likely less than 3 tonnes. If a volume of 122 tonnes could have distorted SGE withdrawals at most by 3 tonnes, SGE withdrawals are still a fairly accurate proxy for Chinese wholesale gold demand. Until new evidence comes out that would proof otherwise, that is.
For now, the SGE withdrawal distortion ratio is at most 0.0246 (3/122). Measuring Chinese wholesale gold demand conservatively would be
SGE withdrawals – (0.0246 X SGEI volume)
This post is part of the Chinese gold market essentials series. Previously published posts are:
The Mechanics Of The Chinese Gold Market
Chinese Gold Financing Deals Explained
Workings Of The Shanghai International Gold Exchange
Koos Jansen
E-mail Koos Jansen on: koos.jansen@bullionstar.com
end
Prior to the release of the FOMC statement today, Bill Holter discusses
the fact that the Fed really has no options. And Bill was proven correct
(courtesy Bill Holter/Miles Franklin)
“Damned” whatever they do … and little time to do it.
Wednesday is yet another Fed meeting where we get to hear “policy” from them. So many times in the past, the upcoming meeting has been called “THE” most important meeting ever. This one is being called the same thing. I have mentioned more than a few times in the past six years “what can they really say?”. I’ve done this because the Fed never had any choices.
Do they have any choices now and for this meeting? Let’s look at what they can do, what they cannot do and what they shouldn’t do. The first option is for the Fed to do nothing and not even change what their mantra has been for so long by remaining “patient”. If this is their choice and I suspect it should be, the question then begs whether the markets will remain patient with the Fed? An impatient market place would presumably cast their vote in the Treasury and dollar markets amongst others.
Another option and the one the press wants you to believe is the Fed will do nothing, but with a caveat being the Fed actually hints at the June meeting as their target date to begin tightening. I am not sure about this one because the markets will react by front running the Fed. Let me sidetrack for a moment and point out how front running was initialized during Alan Greenspan’s era. It used to be the Fed would meet and decide policy, and then implement it. Market participants needed to decipher by Fed actions whether they were tightening, loosening or what the policy decision was, and then place their bets. (Mr. Greenspan changed this deciding to “spoon feed” the markets and actually say what their policy was). It was in this manner the Fed truly kept people guessing and more “cautious”. Caution was thrown to the wind when the Fed began making policy statements after each meeting. I am convinced they did this because they knew by announcing an easing of credit, it would be “front run” by the markets and thus the heavy lifting done by the market. In other words, the Fed could jawbone and let the market do their work for them.
This works (worked) quite well during the easing cycles, it doesn’t work so well if the Fed needs to tighten. You see, the markets are now so levered, any front running of a tightening cycle will turn into an outright panic overnight. This is the problem. The Fed CANNOT actually tighten, they cannot even put a date on a tightening. The only thing they can do is say “we are gonna gonna gonna tighten” but never say when. They have well over a $4 trillion balance sheet that must, but can never be wound down or liquidated. The financial markets have been a one way street where the Fed could either do nothing, or accommodate more, tightening has been off the table for nearly 10 years.
Were the Fed to tighten to any extent now, the dollar will move even higher, setting losing carry trade positions even further offside. Another reason tightening is no option is the following chart.
Consumer consumption represents about 2/3rds of the U.S. economy. No matter what you look at, actual consumption, inventories or new orders, they are all in decline. The last two times all three series went negative in unison the U.S. was already well into recession. Tightening credit now will not only blow up the financial markets but also take the real economy with it. You see, the real economy need help, not a headwind. Were the Fed operating with a clean slate and the Treasury a clean balance sheet, the argument today would not be whether or not the Fed was going to tighten, it would be the reverse, whether they were going to or already EASING! The Fed is cornered …and it is of their OWN DOING!
Lastly, this meeting has a lot to do with “credibility”, or in this case, the lack of. This meeting is important because the Fed stands to lose ALL credibility because of the space they have painted themselves into. They need to actually ease and begin QE4 to soothe the markets (more importantly the real economy) but all they have done is talk about “when” they will begin to tighten. Six years worth of “medicine” has clearly not worked, can the Fed really admit this? They surely cannot reverse their talk of tightening and instead dispense more medicine …can they?
Clearly the recent economic numbers argue the economy at best is treading water and is flat lined. Even the Fed’s own growth model shows a .3% growth rate for the first quarter. Add on top of this the dollar’s strength as the euro implodes and European banks begin to fail (two in just the last 10 days in Austria which were AAA rated). Does the Fed really believe they can tighten and press the dollar even higher? Without blowing up markets and derivatives? Can they really believe blown up derivatives will not affect our own banks …which are not exactly healthy? While I am not saying the Fed “cannot” tighten, because they can do anything they choose, if they do put a date on it we will not reach that day without a panic. The markets will front run any tightening because in effect it will be a margin call …ON EVERYTHING! A margin call with no free margin available I might add.
To finish I would like to mention Eric Sprott’s latest interview with King World News. http://kingworldnews.com/billionaire-eric-sprott-just-made-the-most-terrifying-prediction-of-2015/ He is concerned about the markets going into collapse where we see a “no bid” scenario. In my opinion he is quite correct, but this is only half of the equation. The other half will be gold and silver going “no offer”. The danger with this scenario is your avenue for insurance will be closed. As I’ve mentioned over the last couple of days, and since we are discussing “options”, I believe the Chinese will ultimately have no other option than to re mark gold into the stratosphere in order to recapitalize themselves and their banks. Any such action will put the no offer scenario front and center even if you are able to afford the new price of gold.
The Fed is now faced with the scenario of not having any options left, yet they must make a choice. They are damned whatever they do… and little time to do it. Hopefully this is something you calculated into your own actions before arriving at such a “choice”! Regards, Bill Holter
end
And now for the important paper stories for today:
Early Wednesday morning trading from Europe/Asia
1. Stocks generally higher on major Chinese bourses (only India’s Sensex lower)/yen rises to 121.13
1b Chinese yuan vs USA dollar/yuan strengthens to 6.2459
2 Nikkei up 107.48 or 0.55%
3. Europe stocks mostly in the red/USA dollar index down to 99.57/Euro rises to 1.0613
3b Japan 10 year bond yield .38% (Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 121.13/
3c Nikkei still above 19,000
3d USA/Yen rate now above 121 barrier this morning
3e WTI 42.20 Brent 53.06
3f Gold up/Yen slightly up
3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.
Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.
3h Oil down for both WTI and Brent this morning.
3i European bond buying continues to push yields lower on all fronts in the EMU
Except Greece which sees its 2 year rate rise to 20.69%/Greek stocks down again by a huge 4.31% today/expect continual bank runs on Greek banks.
3j Greek 10 year bond yield: 10.81% (up slightly by 2 basis point in yield)
Greece needs another 2 million euros raiding their pension fund.
3k Gold at 1151.00 dollars/silver $15.52
3l USA vs Russian rouble; (Russian rouble up 1/2 rouble/dollar in value) 61.14 despite lower oil prices
3m oil into the 42 dollar handle for WTI and 53 handle for Brent
3n Higher foreign deposits out of China sees hugh risk of outflows and a currency depreciation. This scan spell financial disaster for the rest of the world/China may be forced to do QE!!
30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF
3p Britain’s serious fraud squad investigating the Bank of England/ the British pound is suffering
3r the 7 year German bund still is in negative territory/no doubt the ECB will have trouble meeting its quota of purchases and thus European QE will be a total failure.
3s Netanyahu wins Israeli election/direction is to the right/drops negotiations with Palestinians to form a Palestinian state
3t Greece to auction 1 billion euros to cover Friday’s treasuries expiry.
3u World awaits the USA Fed decision on “patience” to see if wording is removed
4. USA 10 year treasury bond at 2.02% early this morning. Thirty year rate well below 3% at 2.58%/yield curve flatten/foreshadowing recession.
5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.
Futures Weak Ahead Of “Impatient” Fed, Oil Slide Continues; China Stocks Go Berserk
The only news that matters to algos today is whether Janet Yellen will include the word “patient” in the FOMC statement as a hint of a June rate hike, even though the phrase “international developments” is far more important in a world in which everyone (such as the 25 or so central banks who have cut rates in the past 80 days) is now scrambling to export deflation to everyone else. And with carbon-based traders recuperating from St. Patrick’s day, few will notice that the oil tumble continues as WTI touches new 6 year highs after yesterday’s shocking 10MM+ API build, and is now openly eyeing a collapse into the $30s.
Just as nobody will notice that even as futures in the US and European stocks are looking a little hungover ahead of the Fed and perhaps on the latest bout of anti-austerity out of Europe, the China levitation has gone full retard, with the SHCOMP up another 2.1% yesterday and now in full-blown parabolic mode as housing data – new property prices down 5.7% Y/Y and the sharpest drop on record – confirms the Chinese housing bubble has well and truly burst, and as shadow bankers dump all their funds into stocks in hopes of making up for losses due to regulatory intervention.
Unlike recent price action, the USD-index has also fell victim to the lack of overall price action with many participants firmly awaiting the FOMC statement and summary of economic projections and whether the Fed will drop the widely-watched ‘patient’ phrase. The biggest mover this morning has been GBP which was weighed on by the already discussed UK employment data and BoE minutes. In antipodean currencies, NZD has continued to be weighed on by yesterday’s particularly disappointing GDT auction and wider than expected trade deficit overnight. Finally, commodity related currencies including AUD and CAD have also been weighed on by the fall in energy and iron prices.
European equities have seen a relatively directionless start to the session with opening broad-based gains trimmed after the DAX made a technical break back below 12,000. Once again the FTSE 100 has bucked the trend and leads the way higher for Europe, this time with outperformance in Standard Chartered shares after positive broker moves at Barclays and Bernstein. Nonetheless, European equities have failed to capitalise from the positive sentiment seen overnight for Chinese equities amid expectations of further easing with macro newsflow relatively muted for Europe ahead of upcoming key risk events. Gilts trade 50 ticks higher following a miss in expectations for UK wage data (3M/Y 1.8% vs. Exp. 2.2%) and BoE minutes which revealed a 9-0 vote as expected but warned the stronger GBP could lead inflation to be lower for longer. This also comes ahead of the UK budget statement which is expected to see Gilt issuance at GBP 140bln from the 2014/15 total of GBP 125.9bln.
Chinese bourses outperformed amid expectations of further easing measures after February property prices fell at a record pace (New Home Prices -5.7% Y/Y vs. Prev. -5.1%). Shanghai Comp (+2.1%) rose to its highest level since May’08 while the Hang Seng (+0.9%) climbed to its best level in over a week. Nikkei 225 (+0.6%) swung between gains and losses while the ASX 200 (flat) was the session’s laggard weighed on by miners after iron ore fell to a record low. JGBs rallied with the curve notably flatter following today’s JPY 1.2trl 20yr auction, which despite a lower than prev. b/c and the widest tail since Nov’14, attracted a higher than prev. average price.
Israeli PM Benjamin Netanyahu claimed victory in Israel’s election after exit polls put him ahead of his centre-left rivals with a hard rightward shift in which he abandoned a commitment to negotiate a Palestinian state. (RTRS)
In the commodity complex, today has been another one of losses so far for energy prices with WTI and Brent both feeling the squeeze from the latest API data which showed a build in oil stockpiles against a previous drawdown (+10.5mln vs. Prev. -404K). Of note, a close today at USD 42.82 or lower would drive prices back into a bear market (20% decline from this year’s peak). Elsewhere, given the lack of direction in the USD-index and lack of metals specific newsflow, both spot gold and spot silver trade relatively unchanged for the session. Overnight, Dalian Iron ore futures fell nearly 4% to a contract low after China’s property prices declined for the 9th consecutive month and also at a faster pace, while sentiment in China’s steel sector remains subdued with China also said to be seeking policies to reduce surplus steel capacity.
In summary: European stocks little changed after giving up earlier gains, Asian stocks rise ahead of Fed policy decision. U.S. stocks index futures also gain, dollar weakens against the euro. BOE Says U.K. Strength, Divergent Policy Could Boost Pound. Netanyahu Sweeps Aside Herzog’s Challenge to Win Israel Vote. Inditex Sales Growth Accelerates as Zara Owner Adds Stores. ECB Besieged by Protests as Draghi Fetes New $1.4b Tower.
Bulletin Headline Summary from RanSquawk and Bloomberg
FTSE 100 leads the way higher following positive broker moves for Standard Chartered while Europe trades modestly lower ahead of key risk events
GBP lower and Gilts higher following a miss in expectations for UK wage data and BoE minutes which warned the stronger GBP could lead inflation to be lower for longer
Treasuries gain as market awaits Fed statement and updated Summary of Economic Projections at 2pm ET, Yellen press conference at 2:30pm; FOMC seen dropping reference to “patient,” moving closer to rate increase.
Bank of England policy makers said the continued strength of the U.K. economy could strengthen the pound further and increase the chance that low inflation will persist
U.K. unemployment fell to its lowest level in more than six years and real pay growth accelerated in a boost for Chancellor of the Exchequer George Osborne as he prepares to announce his final budget before the election
Oil extended losses from a six-year low with U.S. government data projected to show crude stockpiles rose to a fresh record
China’s home prices dropped in more cities last month as an economic slowdown weighed on demand even after the government removed property curbs and reduced borrowing costs
Japan’s $1.1t GPIF and its smaller peers almost doubled net sales of JGBs to JPY5.56b ($46b) in 4Q, the most in BOJ figures dating back to 1998, and bought an unprecedented JPY2.39t of foreign stocks and bonds
IMF officials told their euro-area colleagues that Greece is the most unhelpful client their organization has dealt with in its 70-year history, according to two people familiar with the talks
Anti-austerity protesters seeking to spoil the inauguration of the ECB’s new headquarters in Frankfurt set several cars alight and left a trail of destruction across the city in clashes with police before the opening ceremony at 11 a.m.
Kaisa Group Holdings Ltd., the Chinese developer tied to a graft probe that’s trying to restructure its debt, will likely miss deadlines Wednesday and Thursday on bond coupons, a person familiar with the matter said
Iran’s Foreign Minister Mohammad Javad Zarif signaled that talks over his country’s nuclear program are unlikely to reach an agreement this week, even as the two sides said unmistakable progress had been made
Sovereign 10Y yields mixed; EU peripheral yields higher. Asian stocks gain, European stocks mostly lower, U.S. equity-index futures steady. Crude and copper slide, gold declines
Market Wrap
S&P 500 futures little changed at 2067.2
Stoxx Europe 600 little changed at 397.36
US 10Y yield down 2bps to 2.03%
German 10Y yield down 2bps to 0.26%
MSCI Asia Pacific up 0.6% to 145.68
Gold spot down 0.2% to $1147.71/oz
Asian stocks gain, led by the Shanghai Composite.
Nikkei 225 up 0.55%, Hang Seng up 0.91%, Kospi down 0.07%, Shanghai Composite up 2.13%, ASX up 0%, Sensex down 0.29%; MSCI Asia Pacific up 0.6% to 145.68
Euro up 0.1% to $1.0612
Dollar Index little changed at 99.55
Italian 10Y yield up 8bps to 1.35%
Spanish 10Y yield up 7bps to 1.32%
3m Euribor/OIS little changed at 10.28bps
S&P GSCI index down 0.6% to 384.49
Brent futures down 0.7% to $53.16/bbl, WTI futures down 2.5% to $42.39/bbl
LME 3m copper down 2% to $5667.5/MT
LME 3m nickel down 0.7% to $13630/MT
Wheat futures up 0.1% to $504.25/bu
DB’s Jim Reid as usual wraps up the wrap up
It is looking increasingly likely that the ‘patience’ language will be removed today in order to give more flexibility, but we expect that the Fed will want to stress data dependency as to if and when they raise rates. The updated economic and financial projections could well offer some clues on potential timing whilst it’s likely that the dot plots will take up a decent amount of attention. Can the profile of expected hikes ahead really stay this high given current inflation trends and other central bank actions? We remain sceptical as to whether the Fed will be able to raise rates this year but we probably won’t know too much about whether we’ll be right or wrong from this meeting.
The official DB view from Peter Hooper is that he expects the key development to be either the removal or substantial modification of the ‘patient’ language. Peter thinks that the Fed will move fully into a data-dependent mode and that although June will be open for liftoff, it’s not necessarily the most likely date and that the rate of ascent after liftoff will likely be cautious and dependent on data and also on how the market and economy responds. So an interesting meeting ahead.
Peter also thinks that when Yellen is inevitably asked about the dollar, she will likely say that they will be monitoring developments in that area as well as others, but without expressing serious concern. He thinks that while there are limits to how far and how fast the Fed will be comfortable with seeing the dollar go, those limits have not been reached yet.
Ahead of this big event it’s been a reasonably quiet 24 hours news-flow wise yesterday with markets a touch weaker. The S&P 500 continues to trade between gains and losses having finished -0.33% lower at the end of the session. The Dollar was little changed at the close with the broader DXY finishing +0.02% and the US Treasury curve flattening with 2y yields 2.2bps higher and 10y and 30y yields falling 2.1bps and 4.2bps respectively. Data continues to disappoint after yesterday’s housing starts posted a significant weather-related downside miss. The -17.0% mom reading for February was below market expectations of -2.4% and was the largest monthly decline since February 2011. The weather impact was made more obvious given the contrast to the building permits data which rose +3.0% mom (vs. +0.5% expected) in February. As well as a further fall for the US economic surprise index – extending its 6-year low – the Atlanta Fed GDPNow forecast ticked down once more to 0.3% for Q1 from 0.6% previously. The latest revision comes following the weaker industrial production numbers out on Monday.
Commodity markets also took another leg lower yesterday. WTI finished -0.96% and has in fact traded some 2% lower overnight taking it to $42.74/bbl. Brent closed 0.80% weaker yesterday. It was a softer day for Gold also (notwithstanding Tony Hadley’s appreciation of it) with it closing 0.45% at $1,149/oz – the lowest level since November last year. The weakness in oil is clearly being seen in the US breakevens with the 10y now down at 1.653% (a six week low) having touched 1.88% earlier this month.
Before this in Europe, it was a weaker day for risk assets as the Stoxx (-0.71%) and DAX (-1.54%) closed back below the 400 and 12,000 level respectively and Crossover ended 7bps wider. It was another soft day for the bond market also. 10y yields in France (+2.0bps) and Germany (+0.3bps) finished wider and yields in the periphery sold off some 7-9bps. The move yesterday now takes Italian and Spanish 10y yields 23bps and 21bps off Thursday’s intraday low in yields now. The Euro meanwhile strengthened for the second successive day versus the Dollar to finish 0.27% higher at $1.0597.
With news flow relatively quiet, much of the focus was on what was a mixed German ZEW survey. The March current situations print rose an impressive 9.6pts to 55.1pts (and ahead of expectations of 52.0) – which was the highest since July last year. The survey expectations printed well below consensus however at 54.8 (versus 59.4), although was still up from the February reading of 53.0. Elsewhere we got the final February CPI reading for the Euro-area which delivered no real surprises. The headline print was unchanged at -0.3% yoy while the core reading was revised up a touch to +0.7% yoy (from +0.6%).
Despite lagging most major European equity markets year-to-date, the FTSE (+0.49%) enjoyed a better day yesterday ahead of the Budget due out around lunch time today. DB’s George Buckley does not expect much material alteration to the fiscal plans announced three months ago. However, given that the Budget is the last before the general election of May 7th, George notes that it would not be a surprise to hear the Chancellor make much of the continued recovery and the rise in earnings growth and at the same time laud previously announced policies to raise the personal income tax allowance and cut stamp duty for most home transactions. The positive news on the public finances will likely allow the Chancellor to provide some modest electoral sweeteners more than anything else.
Onto the latest in Greece, the government will today look to auction around €1bn in T-Bills to cover Friday’s maturity. According to Reuters, yesterday’s call between Greece and Euro-area deputy finance ministers ended in something of a frustrating state with Greece refusing to update on its reform progress and instead signalled that the talks should be moved to this Thursday’s EU summit. Despite an agreement from Greece to start talks on implementing reform measures, we are yet to