Month: May 2016

Via SRSroccoReport.com,

The days of JP Morgan controlling the silver market may be numbered as a new player in the silver market has arrived.  For the past several years, JP Morgan held the most silver on a public exchange in the world.  While the LBMA may hold (or did hold) more silver, their stockpiles are not made public.

Regardless, JP Morgan held the most silver at nearly 74 million oz (Moz) in its warehouse, up until recently.  Over the past two months, JP Morgan’s silver inventories have fallen nearly 7 Moz to 67.1 Moz today:

As I mentioned in my previous article, Why Are The Chinese Stockpiling Silver? Big Move Coming?, JP Morgan increased their silver inventories from 4 Moz in April 2011 to 69.4 Moz April 19, 2016.  However, the Shanghai Futures Exchange silver inventories surged from 7.5 Moz in August 2015 to 54.7 Moz on April 19, 2016:

Basically, JP Morgan added an average 16.3 Moz of silver each year for the past years, whereas the Shanghai Futures Exchange added nearly 7 Moz per month.  Furthermore, the majority of gains came since the beginning of 2016.  Again, here is my previous Shanghai Futures Exchange silver stock chart from the article linked above:

As we can see from this chart dated April 19th, the Shanghai Futures Exchange more than tripled their silver inventories since November 2015.  What is even more interesting is the continued buildup over the past two weeks.  Here is an updated chart based on data for May 3rd:

 

Over the past two weeks, the Shanghai Futures Exchange added another 179 metric tons (mt) or 5.8 Moz.  Now, if we update the JP Morgan and Shanghai Futures Exchange silver stock chart (from above) we have the following:

Here we can see that JP Morgan’s total silver inventories have declined from 69.4 Moz to 67.2 Moz, while the Shanghai Futures Exchange silver stocks have increased from 54.7 Moz to 60.6 Moz.  If the Shanghai Futures Exchange continues to add silver at this rate, it will surpass JP Morgan in a two to three weeks.

Comex Registered Silver Inventories Drop Nearly 4 Million Ounces Yesterday

When the CME Group published the recent silver inventory change on the Comex yesterday, nearly 4 Moz were transferred from the Registered to Eligible Category.  The majority of the transfer came from the CNT Depository at nearly 3.5 Moz with 485,325 oz from HSBC:

Some analysts say these transfers really don’t mean much if the overall inventories stay the same.  That may be true, but there was some reason the CNT Depository transferred 3.5 Moz of silver from their Registered Inventories to the Eligible.

That being said, the Chinese are adding a lot of silver to their Shanghai Futures Exchange warehouses.  The build from 7.5 Moz in August 2015 to over 60 Moz of silver in the beginning of May puts JP Morgan’s four-year inventory growth to shame.

For whatever reason, silver inventories at the Shanghai Futures Exchange warehouses are increasing at a rapid pace while the Comex silver stocks continue to decline.  Comex silver inventories were over 180 Moz in July 2015 and are now only 151 Moz.  This is quite interesting as the Shanghai Futures Exchange inventories started to build from 7.5 Moz in August 2015 to the 60.6 Moz today.

It will be interesting to see how the exchange inventories and price action of silver play out over the next several months.

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Overnight exuberance sparked by lower than expected Cushing build reported by API is fading on the heels of June OPEC headlines of no production limits (and rising Saudi production) heading into DOE inventory data. Crude inventories printed a significantly higher than expected 2.78mm build but Cushing saw a smaller than expected build of 243k. Gaosline surprised with a 536k build (API 1.17m draw) and Distillates saw a smaller than API build of 1.26m barrels.

The biggest news was the biggest plunge in US production since July 2015, and yet inventories still rose suggesting that fundamentally this is and has been as much a demand story as one of supply (even as OPEC countries are happy to offset declining US output).

API:

• Crude +1.265m (+750k exp)
• Cushing +382k (+1.3m exp.. Genscape +821k)
• Gasoline -1.17m
• Distillates -2.6m

DOE:

• Crude +2.78m (+750k exp)
• Cushing +243k (+1.3m exp.. Genscape +821k)
• Gasoline +536k
• Distillates -1.26m

Overall inventory levels continue to rise…

 

Production plunged by the most sicne July 2015 (driven by a 16.2% collapse in Alaska production – Lower 48 fell 0.4% Wow)

 

On the all important topic of gasoline, which has been a key bullish driver in recent months, gasoline stocks rose 0.5MM to 241.8MM…

 

… even as consumption is moving briskly higher, and is now above the 10 year maximum for this time of the year.

 

However, whatever it is that the algos were looking at, the reaction in crude was quick:

 

Crude prices are slipping (focused on the outsize inventory build) since the plunge in production is driven more by Alaska (down 16.2% Wow) as opposed to Lower 48 (down 0.4% WoW)…

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Earlier this week we observed that in what may be Europe’s latest mistake, the European Union is about to grant visa-gree travel to 80 million Turks: a key concession that Erdogan obtained as a result of the ongoing negotiations over Europe’s refugee crisis which has pushed Turkey into the key player spotlight. And then, overnight, the European Commission officially granted its support to a visa-free travel deal with Turkey after Ankara threatened to back out of a landmark migration deal. It proposed to lift visa requirements by the end of June.

The decision was confirmed by European Commissioner for Competition Margrethe Vestager on Twitter.

“The European Commission is today proposing to… lift the visa requirements for the citizens of Turkey,” Vestager tweeted.

Let me be very clear: no Turkish citizen will enter the EU visa-free without a biometric passport.

— Frans Timmermans (@TimmermansEU) May 4, 2016

The deal is not yet done: EU governments and the European Parliament still have to approve visa-free travel for Turkey, however this looks larely like a formality. As we explained before Turkey holds all the chips and if this key condition is not approved, Turkey will merely start releasing the millions of pent up refugees behind its borders.

As a reminder, in April, Turkey threatened to back out of the migration agreement with the EU, unless travel rules were eased for Turkish citizens when entering the EU. The deal went into effect on March 21. The agreement stated that Ankara promised to accept repatriated refugees from Greece with no EU entry permits, in exchange for sending the same number of vetted Syrian refugees. In return, Turkey would be given up to €6 billion in European funding over the next five years.

“Turkey has made impressive progress, particularly in recent weeks, on meeting the benchmarks of its visa liberalization roadmap. There is still work to be done as a matter of urgency, but if Turkey sustains the progress made, they can meet the remaining benchmarks,” EC Vice President Frans Timmermans said. 

That’s why the European Commission is “putting a proposal on the table which opens the way for the European Parliament and the member states to decide to lift visa requirements, once the benchmarks have been met,” he added.

“Turkey has made impressive progress but there is still work to be done” – @TimmermansEU https://t.co/N2hIMzEMOQ https://t.co/NBBi7A4ubw

— European Commission (@EU_Commission) May 4, 2016

As RT reported, according to the adopted document, visa-free travel will apply to all EU member states except for Ireland and the UK, who have their own visa requirements, and to the four Schengen-associated countries (Iceland, Liechtenstein, Norway and Switzerland).

“The exemption concerns only short stays of up to 90 days (in any 180-day period) for business, tourist or family purposes, among others. The visa exemption does not provide for the right to work in the EU,” the document said. Good luck, however, trying to track down those millions who are about to enter Europe and work, well, illegally.

The EC also proposed to strengthen a “suspension mechanism” to make it easier for EU member states “to notify circumstances leading to a possible suspension and enabling the Commission to trigger the mechanism on its own initiative.”

Among entry conditions for accessing the Schengen area for Turkish citizens will be “the need to be able to prove their purpose of travel and sufficient subsidence means,” the paper added.

Meanwhile, earlier on Wednesday Turkish Foreign Minister Mevlut Cavusoglu said Ankara is about to complete the work on visa-free travel to the EU for its citizens, the country’s NTV channel reported.

The news about possible visa-free travel between Turkey and EU made headlines on Monday. An EU official told Reuters that Turkey has fulfilled 65 requirements, which means the number of conditions satisfied doubled in less than two weeks. As of the end of April, Turkey had reportedly met less than half of the conditions required.

Amusingly, also on Monday the Turkish cabinet adopted a bill allowing visa-free travel for all EU citizens, including Greek Cypriots. Though visa requirement will be lifted for all Greeks in Cyprus, a Turkish official stressed to Reuters that Ankara doesn’t recognize Cyprus. “This doesn’t mean the recognition of Cyprus. If the EU abolishes visas for Turkish citizens, then we will also abolish visas for the remaining EU countries,” the official said on condition of anonymity. “Right now, Greek Cypriots can already travel to Turkey, but we are issuing their visa on a separate paper. With this new arrangement they won’t need a visa.”

In summary: Europe made a deal with the proverbial devil in the face of Erdogan. And now it must live with the consequences.

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As the avalanche of data comes to an end for today, following factory orders, durable goods final data for March paints an ugly picture of the US manufacturing economy. Not only did Core Durable Goods Orders drop 1.4% YoY – the most since Dec 2015 – but the overall level fell to its lowest since Dec 2013.

 

The 14th straight month of YoY declines has not occurred absent an overall US economic recession, and this is the first 27-month decline since Lehman…

 

Charts: Bloomberg

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In 60 years, the US economy has never suffered a 17-month continuous YoY drop in Factory orders without being in recession. Which begs the question: are we in one now. Moments ago the Department of Commerce confirmed that in March, US factory orders – despite rising 1.1% sequentially and above the 0.6% expected –  declined for 17th consecutive month on an annual basis, dropping 4.2% from a year ago.

 

The silver lining: at $458 billion, the dollar amount was a modest rebound from February’s downward revised $453 billion, which as we noted last month was the lowest print in the past 5 years.

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Despite a modest rise in April's headline Services PMI print to 52.8 (from 52.1) the details under the surface paint a different picture (remaining weaker than its post-crisis average of 55.6). The rate of employment growth was the weakest seen since December 2015 as backlogs of work declined for the ninth consecutive month, which is the longest continuous period of depletion since the survey began in late-2009.   ISM Services data also beat expectations, rising to 55.7 despite a drop in business activity and backlogs. As Markit warns, "the fragility of growth is highlighted by inflows of new business rising at a rate only marginally above the post-recession low."

April data highlighted a sustained recovery in overall business conditions across the U.S. service sector, led by faster growth of activity and incoming new work. However, the rate of job creation slipped down to its weakest so far in 2016 amid a lack of pressure on operating capacity and subdued confidence regarding the business outlook. At the same time, squeezed pricing power remained evident in April, with average tariffs broadly unchanged despite input cost inflation accelerating to its fastest since August 2015.

 

ISM Servcies Employment subindex suggests some pain ahead for payrolls…though it bounced back this month…

 

The breakdown is mixed…

• Business activity fell to 58.8 vs 59.8 prior month
• New orders rose to 59.9 vs 56.7
• Employment rose to 53.0 vs 50.3
• Supplier deliveries unchanged at 51.0 vs 51.0
• Inventory change rose to 54.0 vs 52.5
• Prices paid rose to 53.4 vs 49.1
• Backlog of orders fell to 51.5 vs 52.0
• New export orders fell to 56.5 vs 58.5
• Imports rose to 54.0 vs 53.0
• Inventory sentiment fell to 61.0 vs 62.5

ISM Respondents were mixed…

"Severe non-skilled labor shortage is hurting the construction industry." (Construction)

 

"Business is holding steady, revenue is almost as anticipated and costs are lower which is helping to maintain current profitability." (Finance & Insurance)

 

"We expect our business condition to improve in Q2 as compared to Q1. Typically, Q1 is our slowest period and business activity picks up later through the year." (Health Care & Social Assistance)

 

"Very favorable cost conditions all around." (Accommodation & Food Services)

 

"In higher education we are gearing up for the summer conference season. This impacts (increases) the spend in our service category and drives income from many campuses." (Educational Services)

 

"Recent upturn in oil prices is creating a slightly more positive outlook for those in the energy industry, but has not been enough to initiate hiring or spending." (Professional, Scientific & Technical Services)

 

"Business is still improving. Trucking has tightened due to produce hauling season." (Wholesale Trade)

 

"Heading into a slower season, but cautious optimism of modest gains from same period last year." (Retail Trade)

But as Markit concludes,

“The PMI surveys show the economy continuing to pick itself up after the stagnation seen in February, with growth accelerating for a second successive month in April. However, the rate of expansion remains tepid, reliant on sluggish growth in services as manufacturers report a stalling of production.

 

“The surveys are consistent with economic growth picking up from the 0.5% seen in the first quarter to a mere 1.0% at the start of the second quarter, suggesting the bounce-back from the weak start to the year is far from impressive.

 

“The fragility of growth is highlighted by inflows of new business rising at a rate only marginally above the post-recession low seen in March, and optimism about the year ahead also remains close to a post-recession low.

 

“The drop in confidence seen so far this year is beginning to hit the labour market, with the survey signalling 160,000 extra jobs being created in April, down from an average of 200,000 in the first three months of the year.” 

Charts: Bloomberg

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