Category: zerohedge

Submitted by Michael Shedlock via MishTalk.com,

Hillary Clinton’s approval rating has plunged in the past few weeks to an all-time low.

56% have an unfavorable opinion of Hillary and only 41% have a favorable opinion.

Among registered voters, 59% hold an unfavorable opinion. That’s neck-and-neck with Trump at 60%.

The Washington Post reports A record number of Americans now dislike Hillary Clinton.

Hillary Clinton hit her stride after the Democratic National Convention, riding to a double-digit lead over Donald Trump in some national and swing-state polls — her highest of the year. As of today, though, Americans’ views of her just hit a record low.

 

A new Washington Post-ABC News poll shows 41 percent of Americans have a favorable impression of Clinton, while 56 percent have an unfavorable one. That’s the worst image Clinton has had in her quarter-century in national public life.

 

Interestingly, Clinton’s numbers appear to have dropped since that early August poll mostly in groups that have been very supportive of her:

 

• Her favorable rating among women dropped from 54 percent to just 45 percent.
• Among Hispanics, it went from 71 percent to 55 percent.
• Among liberals, it went from 76 percent to 63 percent.

 

It’s not clear quite what might have caused Clinton to fall further than ever before. It’s likely that she simply got an extended bounce after the Democratic convention that has finally faded. It’s also possible that adverse headlines last week about the Clinton Foundation and thousands of newly discovered emails from the private email server Clinton used as secretary of state reinforced the reasons views of her had been worsening prior to the July conventions.

 

Clinton is keeping this race competitive with her own personal problems. And right now, the voters who will determine the next president don’t like her much more than they like Trump.

Not Satisfied

 

Excluding Trump, Hillary is the most unpopular major-party presidential nominee in US history. Registered voter disapproval: 59% vs. 60%

— Mike Shedlock (@MishGEA) August 31, 2016

 

Shifting Odds

Nate Silver continues his silly projections. Supposedly Trump only had a 10.8% chance of winning on August 14.

Had the election been on August 30, I would have agreed. However, the election is on November 8.

Support for Hillary is dropping fast.

Winding Path

I like that chart. It’s a great representation. And it looks ominous.

But mentally shift Florida, North Carolina, and Ohio to trump’s column. It will not nearly look as bad.

Those states are not totally independent. If one shifts they likely all will shift. And they have been shifting.

In fact, those states shifted enough for Silver to move Trump’s odds from 10.8% to 24.8% in just two weeks!

Silver presumes he knew what was happening (with 89% confidence) on August 14. Was he wrong then, or now, or both.

If you said both you are correct.

Silver’s Model Fatally Flawed

Attempts to project rapidly changing attitudes months in advance is ridiculous.

Silver’s model is fatally flawed for at least two reasons.

• In the nomination process, Silver never incorporated the role of attitudes.
• Silver now neglects the factor of time.

The further away from an event, the less confident one “should” be.

@nntaleb The election is not a tennis match between players of known skills. Changing attitudes and a huge time factor are in play!

— Mike Shedlock (@MishGEA) August 31, 2016

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If there is a reason why traders walk into their office every day in a state of zombified daze, no longer able to trade various asset classes based on fundamental data or incremental news flow, there is a simple reason for that: global central bank liquidity injections have never been greater, and as of this moment, have surpassed all previous post-financial crisis central bank intervention.

As Deutsche Bank’s Jim Reid points out, “it’s difficult at the moment to fight the central bank in the credit market, especially in Europe and the UK where they are a non price sensitive buyer of the asset class. Even outside of these asset purchase programs it’s fair to say that global policy continues to be remarkably loose. Of the main central banks the Fed has been largely neutralised even if they manage to add a fresh hike in September or December, and the ECB and BoJ have increased and expanded the scope of their QE programs with the BoE recommencing theirs after a nearly four-year break.”

Collectively this means central bank liquidity is actually close to being as high as it’s been at any point post GFC even with the Fed’s QE program having been halted two years ago.

Reid concludes that after fears 12-18 months ago that we were starting to see an upcoming Fed tightening cycle and with concerns that we may actually see global central bank liquidity contract (there were even some fears of QT – quantitative tightening), the opposite has actually occurred.

As for Reid’s declaration to “not fight central banks”, he is of course right: while asset prices had disconnected with fundamentals many years ago, considering this unprecedented central bank step up in asset micromanagement, the only driver behind asset prices is the relentless wall of liquidity entering the global market at a record pace.

Incidentally the chart above also shows why there continues to be widespread, persistent skepticism about a so-called global recovery: after all, the record intervention by central banks meant to prop up asset prices (and, supposedly, economic growth) suggests that if anything, the global economy has never been weaker. 

via http://ift.tt/2chDfpP Tyler Durden

As expected Q2 US worker productivity slowed from its initial -0.5% to a final -0.6%. This is the 3rd quarterly decline – the first instance since 1979…

And the last 3 quarters are the biggest plunge in productvity since 1993 (thanks to a doubling of unit labor costs from expectations of +2.1% to +4.3%).

 

Any way you look at it – this is not good – no matter how many times the mainstream tries to explain why “we just don’t understand the new economy.”

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Submitetd by Koos Jansen. Originally published at BullionStar.com

There has been much conjecture since 2014 about the increasing numbers in the “precious metals” category on the balance sheets of listed Chinese commercial banks. By the end of 2015 China’s largest banks were holding RMB 598 billion in precious metals.

Some analysts think that the precious metals on Chinese commercial bank balance sheets are gold reserves purchased on behalf of the Chinese central bank, while others surmise that Chinese banks buy gold at the Shanghai Gold Exchange (SGE) and then lend it out so the precious metals on the balance sheets solely represent leased gold. In latter analysis it’s then assumed the leasing inflates the amount of gold withdrawn from SGE designated vaults. Most certainly there is leased gold on Chinese banks’ balance sheets, but this can hardly influence SGE withdrawals, as I have previously explained. Read this and this article for more information.

What do we know beyond the gossip about the precious metals holdings on Chinese commercial bank balance sheets?

From studying the annual reports of the respective banks and additional documentation we know the precious metals can be at least the following things (if I find more clues this post will be updated):

1. Gold savings that belong to the banks’ customers
2. Gold inventory for the banks’ retail gold business
3. Gold leasing business
4. Gold held for hedging purposes
5. Gold held outside China

Since the Chinese silver market was liberalized much earlier than gold I don’t think there is any edge for Chinese commercial banks to have a predominant role in the silver market. So, probably most of the precious metals on the balance sheets in question are gold related.

Below is an overview of the precious metals holdings of listed Chinese commercial banks as of 31 December 2015, measured in yuan (RMB). There are 16 listed Chinese commercial banks on China’s A-share market but Huaxia Bank didn’t disclose its precious metals holding in its annual report. If all aggregated precious metals holdings relate to gold, the upper bound is approximately 2,682 tonnes of gold.

Exhibit1. Source: Annual reports

Helpful for understanding this article is my post The Mechanics Of The Chinese Domestic Gold Market. 

1. Customers’ Gold Savings

A substantial amount of the precious metals reflect (fully backed) customers’ gold deposits in the form of Gold Accumulation Plans (GAP), recorded as an asset and a liability on the balance sheets of the banks. However, to me it’s unknown how much gold is exactly accumulated in China through GAPs. 

Let’s go through the annual reports of the Chinese banks having the largest precious metals holdings, seeking for information with respect to GAPs.

According to the 2015 annual report of Bank of China (BOC):

Precious metals comprise gold, silver and other precious metals. The Group retains all risks and rewards of ownership related to precious metals deposited with the Group as precious metals deposits, … and it records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognized.

From the BOC website its GAP seems to be in its infancy, so I don’t expect it to comprise much gold. ICBC on the other hand, introduced a GAP in 2010 and is thought to be largest in China. From reading ICBC’s 2015 annual report [brackets added by me]:

Seizing the opportunities arising from customers’ wealth increase and capital market growth, the Bank made efforts to establish a mega asset management business system across the whole value chain and enhance its specialized operating capabilities on the strength of the Group’s asset management, custody, pension and precious metal businesses, …

The [ICBC] Group records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognized. …

On ICBC’s website we read:

According to statistics, by the end of 2014, the business size of ICBC’s GAP was more than 250 tonnes, a 150% YOY increase. GAP clients are more than 1 million.

Screenshot from ICBC’s Ruyi Gold Accumulation Plan.

In the 2015 annual report by China Construction Bank (CCB):

While consolidating our traditionally advantageous businesses in housing finance and cost advisory service among other things, we actively expanded our presence in … precious metals.

The Bank supported product innovation, provided and optimized new products such as … gold purchase and saving.

The Bank proactively responded to changes in the precious metals market via pursuing marketing expansion, enlarging customer base and enforcing product innovation. The Bank launched innovative products and business models, including gold accumulation plan ….

To me it’s unknown how much gold CCB’s GAP comprises. All in all, part of the precious metals on the listed Chinese commercial banks’ balance sheets are gold savings held on behalf of clients instead of reflecting the banks own metals.

(Likely, gold saved in Chinese GAPs is not stored in SGE designated vaults.)

2. Bank Gold Inventory

Chinese banks offer a wide range of retail gold investment products for sale at local branches and through internet order. Naturally, any gold inventory for this business is recorded on the balance sheets. From ICBC’s 2015 annual report:

To echo the changes in market demands, the Bank developed a variety of new brands on assorted themes and introduced a slew of products, e.g. Chinese Zodiac Coins and Panda Gold and Silver Coins, under agent sales. The Bank expanded the online channels, through which the flagship store “ICBC Gold Manager” witnessed substantial growth of sales, and it also piloted the direct distribution of logistics suiting to the characteristics of e-commerce.

ICBC gold bars.

According to the World Gold Council roughly 60 % of Chinese retail gold investment demand is supplied through commercial banks. 

Courtesy World Gold Council. Note, “retail investment demand” excludes direct purchases at the SGE by individuals and institutions.

Additionally, I have no proof, but it can be that some of the inventory in the vaults of the SGE is appearing on the Chinese bank balance sheets. Most of the banks listed in exhibit 1 have a PBOC gold import license. Once the bullion is imported into the Chinese domestic gold market, often done through consignment, it must be sold first through the SGE. By the time it has arrived in an SGE designated vault and before it's withdrawn, possibly it's shown on the balance sheet of the importing bank. Though, this analysis is speculation.

3. Gold Leasing

Probably the largest share of the precious metals on the balance sheets have to do with gold leasing. At the moment, there are no official accounting rules or guidelines related to how to record bank’s gold leasing activities. (In this post, I don’t distinguish between gold leasing and gold lending because the essence is the same.) However, most banks seem to still put gold leasing activity in the precious metals category of their balance sheet. 

Helpful for the coming paragraphs is my post Chinese Commodity Financing Deals Explained (which is about the Chinese gold lease market). 

According to the A-share annual report of the Bank of Communications [brackets added by me]:

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Precious metals that are not related to the Group’s trading activities including coins and medallions sales are initially measured at acquisition cost and subsequently measured at the lower of cost and net realizable value. Precious metals that are related to the Group’s trading activities including precious metals lease and [precious metals] interbank lending are initially and subsequently recognized at fair value, with changes in fair value arising from re-measurement recognized directly in profit or loss in the period in which they arise.

Apparently, the Bank Of Communications has its gold leasing business disclosed on its balance sheet in the precious metals category. 

Below is from the 2015 annual report of Shanghai Pudong Development Bank (page 17):

Translated:

Exhibit 2. Source Shanghai Pudong Development Bank

Shanghai Pudong Development Bank saw its precious metals holdings grow from RMB 11,707,000,000 on December 31, 2014, to RMB 28,724,000,000 on December 31, 2015. As the main cause for the growth in precious metals is considered to be "increased physical gold leases", we must conclude in the case of Shanghai Pudong Development Bank nearly all precious metals on its balance sheet relate to gold leasing. But does this mean Chinese banks buy gold on the SGE and then lease it out? Not necessarily.

Chinese banks mainly do back-to-back gold leasing – simply connecting supply and demand. Banks don’t have much money of their own. They need to borrow money or gold either from savers or in the interbank market to make loans. Would it make sense for banks to borrow money in order to buy gold to subsequently lend out gold? Or would it be more logic for banks to borrow gold to subsequently lend out gold?

From a source who worked at the precious metals trading desk at ICBC in 2014 I was told first hand ICBC has little gold of itself for leasing, most of the gold lend out is borrowed from third parties. These third parties are mostly SGE members or overseas banks that lend gold through the Chinese OTC market. By the way, all commercial bank gold leasing is settled through the SGE system.

ICBC operates in the lease market as an intermediary by connecting supply (lessors) and demand (lessees), while striking a fee. ICBC can borrow gold from international banks or local gold owners with an SGE Bullion Account, and lend the gold to miners, jewelers or speculators. My assumption is that the international gold lease rate is lower than the Chinese gold lease rate, which attracts gold from the international market into the Chinese domestic gold market. (Whenever a gold loan is to be repaid from the Chinese domestic gold market to an international lender, not the physical metal is exported, but funds cross the Chinese border, as physical gold export is prohibited from the Chinese domestic gold market.)

Also note, if banks would buy the gold to lend out, they are exposed to the price risk of gold. In order to cover this risk, banks need to hedge but this will involve additional costs. As a result, the logical solution is for banks to do back-to-back gold leasing.

The Bank of Beijing is a good example to illustrate back-to-back gold lending. Unlike other Chinese banks, Bank of Beijing does not put gold leasing in the precious metals category. It has a separate line in its books for gold leasing.

According to the 2015 annual report of the Bank of Beijing (page 123 and 132):

Exhibit 3.1. “Leased out” is lending. The unit is RMB million.

Exhibit 3.2. “Leased in” is borrowing. The unit is RMB million.

As readers can see from the excerpts above, the Bank of Beijing indeed does back-to-back gold leasing as precious metals “leased in” (RMB 1,400,000,000) are equal to precious metals “leased out”(RMB 1,400,000,000). I suspect most gold leasing by Chinese banks is back-to back leasing. 

Because the Bank of Beijing has its leasing business noted in a separated line than its "precious metals", we can see a huge discrepancy between the Bank of Beijing’s precious metals holdings in exhibit 1 (RMB 55,000,000) and its back-to back leasing business in exhibit 3 (RMB 1,400,000,000). 

Exhibit 4. Total yearly leasing turnover must not be commingled with the amount of gold leased out at any point in time. The latter is unknown as far as I know.

Other banks don’t have a separate line for the gold leased out but as mentioned before, they put it in the precious metals category. A widely-accepted method to treat borrowed gold is to include a liability called “financial liability at fair value through profit and loss”. Readers who can understand Chinese are recommended to click this and this link. The ICBC annual report provides an example of how the liability is recorded.

Source: the 2015 annual report of ICBC.

In conclusion, back-to-back gold leasing will result in an asset and a liability, for most banks highly overstating the precious metals category. When looking at exhibit 4 we can see the enormous growth in yearly Chinese gold leasing turnover, which must have enlarged Chinese banks' balance sheets.  

According to my analysis a large portion of the precious metals on the balance sheets of Chinese banks is back-to-back leasing, which in turn is gold that stays inside the SGE vaults, and thus does not impact SGE withdrawals.   

4. Hedging

China’s commercial banks offer derivatives to retail and institutional customers. Bank of China’s Qi Jin Bao is an example. Qi Jin Bao is in fact gold option business. The retail customer pays a certain amount of money (option premium) and buys a gold call option or put option.

For example (simplified): suppose the current gold price is $1300/oz and a retail customer is bullish on gold and believes that the gold price will rise in 3 months time. Therefore, the retail customer buys a 3 months call option with a notional amount of 100 oz of gold at the strike price of $1300/oz from Bank of China and pays an option premium of $35/oz. If the gold price indeed goes up in 3 month’s time, the retail customer will make money. However, derivatives are a zero-sum game. If the retail customer makes money, then the Bank of China definitely loses money. If the gold price goes up to $2000/oz, Bank of China will lose big time. In order to mitigate this risk, Bank of China will (borrow money to) buy gold to hedge the short call position and the gold purchased will appear on the balance sheet.

5. Gold Held Outside China

Gold on the balance sheets of Chinese commercial banks doesn’t necessarily have to be gold held in China. Chinese banks like ICBC, BOC and Bank of Communications have direct access to the LBMA. As a result, gold on the balance sheets of Chinese commercial banks can be located outside China mainland.

On January 29, 2014, ICBC bought 60 % of the existing shares in Standard Bank Plc from Standard Bank London Holdings Limited. After completion of the acquisition, Standard Bank Plc was renamed as ICBC Standard Bank on 27 March 2015. In the 2015 annual report of ICBC (Group), which includes ICBC Standard Bank, we see that ICBC Standard Bank held RMB 18,426,000,000 in precious metals assets (equivalent to 83 tonnes of gold) on December 31, 2015.

Source: the 2015 annual report of ICBC.

As ICBC Standard Bank can be seen as an international gold arm of its group – ICBC Standard Bank is a London Bullion Market Association market maker for spot trading and a clearing member of London Precious Metal Clearing Limited (LPMCL) – we may assume any precious metals assets of ICBC Standard Bank are not located in China mainland. 

Conclusion

From the descriptions above, the precious metals holdings on the balance sheets of Chinese commercial banks are quite complicated to decipher. One thing is for sure, it's not all gold owned by banks and leased out, neither is it all purchased by banks on behalf of the Chinese central bank.

In order for us to learn more exactly what the precious metals on the balance sheets represent we need more information, more investigation is needed by gold analysts. Hopefully this blogpost can serve as a springboard to a better collective understanding.

Addendum

In addition to Gold Accumulation Plans many Chinese banks offer a variety of (paper) gold hedging and speculation broker services to their clients. For example, in the annual report 2014 from Agricultural Bank of China (ABC) we can read:

… Precious metals

… As a major precious metal market maker in the PRC, the Bank provided customers with precious metal trading, investment and hedging services through … trading of precious metal derivatives … and trading … the Shanghai Futures Exchange and the London precious metals market.

So, through ABC clients can trade paper gold, but these derivatives would be recorded off-balance sheet, or in a separate line next to "precious metals". More from the ABC annual report 2014:

Our off-balance sheet items primarily include derivative financial instruments, contingent liabilities and commitments. We enter into currency rate, interest rate and precious metals related derivative financial instruments for the purposes of trading, asset and liability management and business on behalf of customer.

Similarly, in BOC's annual report 2015 we read:

Off-balance Sheet Items

Off-balance sheet items include derivative financial instruments, …. The Group entered into various derivative financial instruments relating to … precious metals and other commodities for trading, hedging, asset and liability management and on behalf of customers. 

Implying, from my judgement, all the precious metals on-balance sheet are not (customers') paper gold. 

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Two weeks ago we were surprised to read that Italian prosecutors had launched a probe into potential accounting fraud and market manipulation by the executives of Italy’s third largest, and the world’s oldest bank, Monte Paschi just weeks after its most recent bailout was announced. It didn’t last long: moments ago Reuters reported that less than two weeks after news of the probe leaked, Milan prosecutors have filed a request to shelve a probe for alleged market manipulation and false accounting against the chief executive of Monte dei Paschi di Siena and the bank’s former chairman, three judicial sources said.

According to Reuters, news of the probe, which emerged last month, risked undermining investor sentiment in the bank’s management as it seeks to raise up to 5 billion euros in an emergency capital increase by the end of the year. A judge will now be called to rule on the request, which was submitted by prosecutors on Thursday.

As reported on August 18, a source had told Reuters last month that Monte dei Paschi CEO Fabrizio Viola and former chairman Alessandro Profumo were being investigated in relation to the way the bank booked two derivatives trades in its accounts between 2011 and 2014.

One of the sources said on Thursday the request to shelve the probe was warranted given that there was ample reference to the nature of those trades in a separate section of the bank’s financial accounts and regulators had been informed.

The probe started last year in Siena and it was transferred to Milan, which has jurisdiction over market manipulation crimes, in July.

In other words, Italy realized it couldn’t have the alleged truth about cook-booking by the bank’s top executives coming out just as the bank was scrambling to execute its €5 billion bailout and as a result, any potential wrongdoing by the bank’s executive will remain undisclosed. Justice wins again.

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• Global shares snap losing streak as oil ends its decline (Reuters)
• Trump returns to hardline position on illegal immigration (Reuters)
• U.S., others agreed to ‘secret’ exemptions for Iran after nuclear deal (Reuters)
• China’s Factory Gauge Unexpectedly Rises to Highest Since 2014 (BBG)
• Weak Pound Drives U.K. Factories Back From Brexit Shock (BBG)
• Elon Musk Faces Cash Squeeze at Tesla, SolarCity (WSJ)
• Cash Keeps Pouring Out of European Stocks (WSJ)
• Gross Calls for Two Fed Hikes at Double the Pace Seen by Market (BBG)
• Yellen Speech Contained Clue to Reading the August Jobs Report (BBG)
• Deutsche Bank Weighs Stronger Medicine (WSJ)
• Apple Squeezes Parts Suppliers to Protect Margins (WSJ)
• Hanjin Ships Get Stranded in High Seas, Roiling Supply Chain (BBG)
• Australia must choose between United States and China: U.S. Army official  (Reuters)
• Andreessen Horowitz’s Returns Trail Venture-Capital Elite (WSJ)
• Why Luck Plays a Big Role in Making You Rich (BBG)
• After Initial Drop, Fresh Surge in Migrant Arrivals Puts Extra Strain on Greece (WSJ)
• Puerto Rico Oversight Panel Named to Halt Island Debt Crisis (BBG)
• Musk Talked Merger With SolarCity CEO Before Sale of Stock (BBG)
• Hollywood’s Summertime Bombs Got a Lot More Disastrous This Year (BBG)
• Salesforce Revenue Forecast Falls Short on Cloud Competition (BBG)

Overnight Media Digest

WSJ

– Donald Trump, hours after seeming to ease on his immigration and trade policy while standing with Mexico’s president, told a crowd that all illegal immigrants are “subject to deportation” and that all those seeking legalization will have to go home and re-enter the country legally. on.wsj.com/2bDwTQ6

– Dilma Rousseff, a former leftist guerrilla who defied a dictatorship but struggled as Brazil’s president, was removed from office Wednesday following an impeachment trial she condemned as a coup. on.wsj.com/2bReJIw

– Price spikes for drugs like EpiPen and Daraprim reflect a lack of competition, which can be curbed by allowing generic drugs approved abroad to be sold in the United States. on.wsj.com/2c8Q0Qn

– A divided Supreme Court on Wednesday rejected an emergency appeal by North Carolina seeking to revive stricter state voting rules, which reduced the number of days for early voting and required photo identification at the polls. on.wsj.com/2c9kaD0

– Tesla Motors Inc, which makes electric cars, disclosed in a securities filing Wednesday that it has to pay $422 million to its bondholders in the third quarter, and that it will raise additional money by the end of the year. The purpose of the additional capital, among other things, is to support its proposed merger with home-solar company SolarCity Corp. Musk is the chairman of both companies. on.wsj.com/2bE2ZLH

– Amid the chaos of Syria’s war, the Kurds have carved out a semiautonomous region called Rojava that is home to about four million people, is as big as Belgium and stretches nearly the full length of the 565-mile border between Syria and Turkey. on.wsj.com/2bCHTwZ

– Money has flowed out of European equity funds every week for more than six months, a stretch that is now longer than the previous record set during the financial crisis. on.wsj.com/2cgq20q

 

FT

– British Medical Association’s governing council and dispute committee approved a full walkout of junior doctors from 8 a.m. to 5 p.m. for five days starting Sept. 12. The doctors will stage a new set of strikes with “full withdrawal of labour” unless the government backs down on plans to impose a contentious new contract and returns to the negotiating table.

– EDF’s five board members are petitioning to have the court declare invalid last month’s board decision to move forward with the Hinkley Point power project in the UK.

– British Airways’ business-only flights to New York’s JFK airport from London City will halve by Oct. 30 as demand for all-business flights drop.

– Nets Holding, Scandinavia’s biggest payment processor, is set to announce IPO plans as soon as Thursday that could value it as much as $5.2 billion.

 

NYT

– John Cryan, the chief executive of Deutsche Bank , urged for more consolidation in the banking industry in Germany and across Europe. He said the monetary policy was eating into profits of banks even though the ECB intervened after the financial crisis. http://nyti.ms/2bDwvTd

– Brazil’s first female president, Dilma Rousseff, was impeached by the Senate on Wednesday and was effectively removed from her office for the remaining of her term. http://nyti.ms/2bDuSoG

– U.S president Barack Obama left for a trans-Pacific voyage on Wednesday, marking his 10th trip to Asia as president. He hopes to announce further progress with China on climate change. http://nyti.ms/2bDuK8J

– Donald J. Trump made an audacious attempt on Wednesday to remake his image on the issue of immigration, announcing his plan to deport 11 million undocumented people and arguing that a Trump administration and Mexico would secure the border together. http://nyti.ms/2bDtLpa

– Canada said it had applied to join China’s version of the World Bank. The move came during a trip to China by the prime minister of Canada, Justin Trudeau. http://nyti.ms/2bDw4bO

– On Wednesday, UK Prime Minister Theresa May called cabinet ministers to a brainstorm about Brexit, promising to examine “the next steps” for Britain. http://nyti.ms/2bDx6V0

 

Britain

The Times

** Record low interest rates, falling consumer prices and high employment levels have caused the largest collapse on record in Britain’s saving habits, according to a GfK report. http://bit.ly/2bD1iLn

** BHP Billiton is set to strip its chief executive of his annual bonus after the publication of a hard-hitting report into failures at the mining group’s Brazilian joint venture that led to the fatal collapse of a dam. http://bit.ly/2bD1ieh

The Guardian

** Proposals by Chris Philp, a Tory member of Parliament, to rein in executive pay by allowing remuneration packages to be vetted by shareholder committees have won the backing of Britain’s most influential fund manager, Neil Woodford. http://bit.ly/2bD0juo

** The combined deficit of the UK’s 6,000 defined benefit pension funds has grown by 100 billion pounds ($131.35 billion) in the last month, bringing the total deficit to 710 billion pounds ($932.59 billion), according to a new report. http://bit.ly/2bD0XYN

The Telegraph

** Netflix Inc is to produce its first British children’s programmes, as entertaining kids becomes a key battlefield in the intensifying pay-TV war with Amazon and Sky. http://bit.ly/2bD082r

**Warren East, chief executive of Rolls Royce Holdings , warned that unless industry can make a decent return on military contracts, it will abandon them – with serious implications for the country’s military industry. http://bit.ly/2bD0K7T

Sky News

** Theresa May has ordered her senior ministers to make a success of Brexit. She has insisted there will be no second referendum or attempts to remain in the EU by the back door. http://bit.ly/2bD1vOt

** Jet2.com says it is to create almost 1,000 new jobs in the next phase of its expansion. The budget airline said it wants to recruit 180 pilots, 700 cabin crew and 80 engineers and will be staging a number of roadshows for people interested over the coming weeks. http://bit.ly/2bD1PwJ

The Independent

** Extra Energy has attracted the highest number of customer complaints among energy companies for a second consecutive quarter, performing 80 times worse than the best-performing supplier, figures show. http://ind.pn/2bD42rY

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“Delivery of gold” has been refused by a popular German gold exchange traded commodity (ETC), Xetra-Gold, which is offered by Deutsche Bank, in the latest example of the risk of owning gold exchange traded commodities (ETCs), exchange traded funds (ETFs) and indeed most institutional gold investment offerings.

Like many gold exchange traded funds and commodities, the German ETC offered the ability to take physical delivery of the gold. As reported by Zero Hedge:

“Since the introduction of Xetra-Gold in 2007, investors have exercised this right 900 times, with a total of 4.5 tons of gold delivered.”

However, something appears to have changed. As Oliver Baron reports, those who ask for gold delivery at this moment, “could encounter difficulties.” The reason is that according to Baron, a reader of GodmodeTrader “sought physical delivery of his holdings of Xetra-Gold. For this he approached, as instructed by the German Borse document, his principal bank, Deutsche Bank.”

At that point then he encountered a big surprise: the Deutsche Bank account executive informed the investor that “the service”, is no longer offered, namely exercising physical delivery at Xetra-Gold, for “reasons of business policy” and therefore the order form provided by Clearstream Banking AG for exercising Xetra-gold is no longer available.

Baron writes that since Deutsche Bank is no longer serving the physical exercising of delivery request of Xetra-Gold is remarkable, as Deutsche Bank is the “designated sponsor” as well as fiscal, principal and redemption agent of Xetra-Gold according to its prospectus, and as the explainer of how to exercise physical delivery also reveals. Even if one is a customer of another bank, Xetra-Gold should – at least on paper- guarantee delivery by way of Deutsche Bank, as the Deutsche Borse Commodities GmbH explains in its “process description for exercising units.”

The question that arises is whether this supply issue is impacting Umicore, Deutsche Bank and the wider institutional gold market in Germany. If so it could signal wider institutional supply issues as Germany remains the largest buyer of gold in the EU and one of the largest buyers of gold in the world.

High net worth clients of ours have encountered similar issues in seeking to take delivery of their gold from the Julius Baer Physical Gold Fund. Even clients who had allocated more than $1 million to the fund were prohibited from taking delivery despite the promised “option of redeeming shares for physical gold”. Indeed, some moved from Julius Baer to GoldCore Secure Storage after they “tested” the physical redemption clause and were disappointed by the inability to take delivery.

It is worth remembering that clients of ABN AMRO, the largest Dutch bank and one of the largest banks in Europe , were also refused physical delivery of their precious metals in 2013.

ABN AMRO announced in a letter to clients in April 2013 that that it would no longer allow them to take delivery of their bullion including gold, silver, platinum, and palladium bullion coins and bars. Instead, they paid the precious metal account holders in the euro equivalent to the current spot value of the precious metal.

As we wrote at the time:

Thus, instead of legally owning a risk free, physical asset (a bullion bar or a bullion coin), the bank’s clients were unsecured creditors and were exposed to the bank and the financial system – somewhat defeating the purpose of owning precious metals.

The move highlighted once again the importance of owning physical bullion either in your possession (be that be in a safe or vault in a house, in the attic, under the floorboards or elsewhere in your possession) or in a secure vault in a country that is stable and respects property rights.

Paper, digital and financial proxies for gold are not real gold. Hence the importance of owning coins and bars either in one’s possession or in allocated and segregated storage in the safest vaults in the world.

Gold and Silver Bullion – News and Commentary

Gold above 2-month lows as dollar slip (CNBC)

Gold Holds Monthly Drop as Payrolls in Focus for Data-Driven Fed (Bloomberg)

Chicago PMI falls more than expected in August, missing consensus (Investing)

American Eagle coin August sales fall yr/yr as prices ease (Reuters)

Gold hits two-month low, but portfolio manager sees a rebound ahead (CNBC)

Deutsche Bank Refuses Delivery Of Physical Gold Upon Demand (ZeroHedge)

$5 billion in notional gold dumped into futures market (ZeroHedge)

Bond king Gross says Fed has “mastered market manipulation” (CNBC)

Fed is destroying “capitalism’s business models” – Bill Gross (ZeroHedge)

Britain’s latest rise in property prices is just the calm before the storm (BusinessInsider)

Gold Prices (LBMA AM)

01Sep: USD 1,305.70, GBP 9,985.80 & EUR 1,172.13 per ounce
31Aug: USD 1,314.45, GBP 1,000.30 & EUR 1,179.19 per ounce
30Aug: USD 1,318.85, GBP 1,008.39 & EUR 1,180.90 per ounce
26Aug: USD 1,324.90, GBP 1,002.95 & EUR 1,173.33 per ounce
25Aug: USD 1,324.50, GBP 1,001.06 & EUR 1,172.98 per ounce
24Aug: USD 1,337.30, GBP 1,010.73 & EUR 1,185.38 per ounce
23Aug: USD 1,338.50, GBP 1,015.25 & EUR 1,181.09 per ounce

Silver Prices (LBMA)

01Sep: USD 18.65, GBP 14.08 & EUR 16.73 per ounce
31Aug: USD 18.74, GBP 14.27 & EUR 16.82 per ounce
30Aug: USD 18.78, GBP 14.35 & EUR 16.82 per ounce
26Aug: USD 18.67, GBP 14.15 & EUR 16.54 per ounce
25Aug: USD 18.50, GBP 14.02 & EUR 16.39 per ounce
24Aug: USD 18.84, GBP 14.23 & EUR 16.70 per ounce
23Aug: USD 18.98, GBP 14.40 & EUR 16.75 per ounce

Recent Market Updates

– Debt Bubble in Ireland and Globally Sees Wealthy Diversify Into Gold
– “Why Case Against Gold Is Wrong” – James Rickards
– Obama To Leave $20 Trillion Debt Crisis For Clinton Or Trump
– Gold Bullion Averages Biggest Seasonal Gains in September Over Past 20 Years
– Gold Futures See Massive $1.5 Billion “Non Profit” Liquidation In “One Minute”
– Jim Grant Is “Very Bullish On Gold”
– Germans Warned To ‘Stockpile’ Cash In Case Of ‘War’
– Ireland’s Biggest Bank Charging Depositors – Negative Interest Rate Madness
– Rothchilds Buying Gold On “Greatest Experiment” With Money In “History of the World”
– Gold – “Mother of All Bull Markets Has Only Just Begun” – Grandich
– 45th Anniversary Of Nixon Ending The Gold Standard
– Gold In UK Pounds Collapses 38% Versus Gold and 56% Versus Silver Year To Date
– Will Ireland Be First Country In World To See Bail-in Regime?

via http://ift.tt/2bFKxlS GoldCore

Just hours after delivering subdued comments and striking a conciliatory tone alongside Mexico’s president, Donald Trump returned to form in his fiery immigration speech (full text here) in Phoenix last night, which laid out the presidential candidate’s immigration plan which definitively ruled out legal status for undocumented immigrants and once again promised to build a wall on the southern border of the U.S., saying he would force Mexico to cover the cost. “We will build a great wall,” Trump said to loud cheers “And Mexico will pay for the wall. One hundred percent. They don’t know it yet, but they’re going to pay for it.”

Trump lays out immigration plan. No. 1: “We will build a great wall along the southern border…and Mexico will pay” https://t.co/In8NY0SLwz

— ABC News (@ABC) September 1, 2016

The rally was at a convention center in downtown Phoenix. Trump’s warm-up speakers including Arizona Governor Doug Ducey; Joe Arpaio, the sheriff of an Arizona county who has become a symbol of the anti-illegal-immigration movement; former New York City Mayor Rudy Giuliani; and Trump’s running mate, Mike Pence. At various points in the speech, the crowd broke into chants of “build the wall!”

The speech, which presented crime prevention as the underlying rationale for his immigration policies, came just hours after Trump traveled to Mexico at the invitation of President Enrique Pena Nieto. The two men met privately and discussed a range of topics that included illegal immigration and the possibility of amending the North American Free Trade Agreement. They came away with markedly different interpretations on the question of Mexico’s willingness to pay for a wall.

“As with any law enforcement activity, we will set priorities. But unlike this administration, no one will be immune or exempt from enforcement,” Trump said during the more than hour-long speech. “Anyone who has entered the United States illegally is subject to deportation, that is what it means to have laws and to have a country. Otherwise we don’t have a country.”

But Trump made it clear that border security and removing illegal immigrants who are a threat to the country top his list of goals ahead of removing otherwise law-abiding people; he had previously called for the immediate deportation of the roughly 11 million people living in the country illegally.  “Under my administration, anyone who illegally crosses the border will be detained until they are returned,” Trump said, adding that, if he is elected president, the U.S. would “end catch-and-release” and beef up the number of police and immigration officers dedicated to handling undocumented workers.

Trump also promised to “immediately terminate” President Barack Obama’s executive actions on immigration, including a 2012 program that currently shields some 750,000 young people from deportation, Bloomberg noted.

“On day one, we will begin working on an impenetrable, physical, tall, powerful, beautiful southern border wall,” he said, including plans for above- and below-ground sensor technology and increased border patrol officers.

He said a “deportation task force” and triple the number of Immigration and Customs Enforcement (ICE) officers would focus on swiftly removing illegal immigrants who have committed violent crimes or who pose security threats. And Trump said those overstaying visas, recent arrivals and people dependent on welfare would also be on the top of the list for deportation.

To stem the flood of illegal immigration, Trump pledged to enact new “ideological certification to ensure those admitting to our country share our values and love our people.” Trump also promised to improve the nation’s monitoring system for those who overstay their visas, and to crack down on 23 countries that he said currently don’t take back citizens whom the U.S. deports.

If the U.S. elects him president in November and follows his prescription, Trump said, “crime will go down, border crossings will plummet, gangs will disappear, and welfare use will decrease.”

* * *

The 10-point plan emphasized conservative immigration staples like ending the “catch-and-release” of undocumented immigrants, blocking federal funds for sanctuary cities, strengthening E-Verify, and deporting immigrants back to their country of origin instead of just putting them over the border.  Recent rhetoric from Trump and his staff, especially surrounding mass deportations, prompted questions as to whether the campaign was planning a break from the hard-line stance he rode to victory in the primaries.  Wednesday’s speech shows that the Trump team is confident in the message he has been delivering since his campaign launched.

The speech emphasized a commitment to strict enforcement of immigration laws, bashing President Obama and Hillary Clinton as promoting lawless and “deadly non-enforcement policies that allow thousands of criminal aliens to freely roam our streets.”

“We will break the cycle of amnesty and illegal immigration. There will be no amnesty. Our message to the world will be this — you cannot obtain legal status or become a citizen of the United States by illegally entering our country. Can’t do it.” But he left the door open to reevaluating the approach to illegal immigrants already in America once his goals have been accomplished.  

“In several years, when we have accomplished all of our deportation goals and truly ended illegal immigration for good, including the construction of a great wall,” he said, “then, and only then, will we be in a position to consider the appropriate disposition of those individuals who remain.”

Wednesday’s speech shows that the Trump team is confident in the message he has been delivering since his campaign launched.   The speech emphasized a commitment to strict enforcement of immigration laws, bashing President Obama and Hillary Clinton as promoting lawless and “deadly non-enforcement policies that allow thousands of criminal aliens to freely roam our streets.”

“Clinton’s plan would trigger a constitutional crisis unlike almost anything we have ever seen before,” he said, accusing her of looking to legislate from the Oval Office.  “In effect, she would be abolishing the lawmaking powers of Congress in order to write her own laws from the Oval Office — and you see what bad judgment she has.”

He swore off any type of legal status for those already in America illegally.  “For those here illegally today seeking legal status, they will have one route and one route only — to return home and apply for reentry like everyone else under the rules of the new immigration system,” he said.

* *  *

Trump also reiterated his opposition to the admittance of Syrian refugees and his plan to halt immigration from countries where proper screening can’t be conducted. He said the “extreme vetting” of immigrants would include questioning people about where they stand on radical Islam, honor killings and respect for gay people, women and minorities. “It’s our right as a sovereign nation to choose immigrants that we think are the likeliest to thrive and flourish and love us,” he said, pointing to the challenges of assimilation.

Trump’s direction became clear even before the speech started, as the speakers ahead of the rally embraced the tough immigration approach that ran through the primary. Sheriff Joe Arpaio and mothers whose children were killed by undocumented immigrants warmed the crowd up for Trump, along with Sen. Jeff Sessions (R-Ala.), former New York City Mayor Rudy Giuliani and Trump’s running mate Mike Pence. Before beginning to lay out his plan, Trump detailed several gruesome murders of Americans by illegal immigrants.

* * *

Ultimately, little of what Trump proposed was new, and the speech hewed to the immigration blueprint that he published on his website in August 2015. It came after a week in which he seemed to shift his position on using a “deportation force” to remove approximately 11 million undocumented immigrants from the country. On one point, however, Trump added more clarity, pledging to deport “all illegal immigrants who are arrested for any crime whatsoever,” saying they would “be placed into immediate removal proceedings.”

The fiery speech dashed the hopes of moderate Republican operatives who wanted Trump to adopt gentler and more measured rhetoric. “There was never any pivot,” said Doug Heye, a former Republican National Committee spokesman who has been critical of Trump. “The media has been using that term for a year and it never happened. Even the Trump campaign stopped using it months ago.”

Hillary Clinton’s campaign called it Trump’s “darkest speech yet.”

Meanwhile, Trump oriented his speech around his motto of “America first,” charging that Clinton and others are putting the needs of illegal immigrants before the needs of citizens.

“The media and my opponent discuss one thing, and only this one thing: the needs of people living here illegally. The truth is, the central issue is not the needs of the 11 million illegal immigrants – or however many there may be. That has never been the central issue. It will never be the central issue,” Trump said. “To all the politicians, donors and special interests, hear these words from me today: there is only one core issue in the immigration debate and it is this: the well-being of the American people. Nothing even comes a close second.”

via http://ift.tt/2ct6eZ4 Tyler Durden

After a muted end to August, September started off on the strong foot overnight following a surprising beat in China’s official manufacturing PMI print, which rose above 50 to the highest level in almost two years. That, together with a record rebound in the UK PMI, bolstered investor confidence, fueling gains in stocks and industrial metals. The dollar advanced against most of its peers while bonds retreated before Friday’s payrolls report.

In Asia, Chinese shares in Hong Kong climbed to a two-week high after China’s official factory gauge unexpectedly rose to the highest since 2014 even as China’s head state planner Xu Shaoshi said that China is facing “great difficulties remain in meeting goals for investment and trade,” with the economy expected to be under continued pressure in the second half of the year. Also troubling was the latest Uwin real estate news according to which the Tier 1 city bubble shows no signs of abating after Shanghai’s new home sales rose to 30.1% to 1.71m square meters in August, with the average new home price rising 12.6% in August from the previous month to 42,204 yuan per square meter, suggesting China will have to crack down further on what even it admits is a housing bubble.  For now, however, markets focused on the positive as miners rebounded in Europe and S&P 500 futures signaled a two-day drop in U.S. stocks will end. Lead, tin and zinc reached the highest levels in more than a year.

“The PMI data were positive for China’s risky assets,” Tim Condon, head of Asian research at ING in Singapore, told Bloomberg. Even so, investors are “cautious about a September rate hike and tomorrow’s payrolls report could push the Fed to follow through.”

Even more impressive than China’s “economic rebound” was the surge in the UK, where instead of a post-Brexit collapse, U.K. factory activity soared by a record in August, and reached a 10-month high as the weaker pound helped manufacturing bounce back from a post-Brexit slump. IHS Markit said its Purchasing Managers Index, which dropped below the key 50 level in July, jumped by a record to 53.3. That was far better than economists had forecast; the median estimate in a Bloomberg survey was for a reading of 49.

New orders rose, with sterling’s recent drop “by far the main factor” for the improvement in exports, Markit said. “Companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients started to regain a sense of returning to business as usual,” said Rob Dobson, senior economist at Markit. As a result, the pound rallied more than 0.8% after the blistern PMI data, in Britain bounced
back from a post-Brexit slump, while the dollar strengthened for a
seventh day against the yen in the longest winning streak since March.

As Bloomberg summarizes the overnight data deluge, “signs that China’s economic slowdown is abating may bolster demand for riskier assets, while a rebound in U.K. factory activity helped ease concern that Britain’s vote to leave European Union will strangle growth. U.S. payrolls data due Friday may provide clues as to whether that policy tightening will come at this month’s Federal Reserve meeting after a private jobs report Wednesday showed steady growth in the labor market.

In Europe, the Stoxx Europe 600 Index added 0.6 percent in early trading, pushing European stocks to near 3-week high, with trading volumes 27 percent higher than the 30-day average. The final European August manufacturing PMI data of 51.7, which was fractionally weaker than the flash print of 51.8, was released overnight, broken down as follows:

• U.K. Aug. Manufacturing PMI 53.3 vs 48.3 in July; Est. 49
• Italy Aug. Manufacturing PMI 49.8 vs 51.2 in July; Est. 51.2
• Norway August Manufacturing PMI Falls to 50.8
• Denmark Aug. Manufacturing PMI Falls to 53.3 vs 62 in July
• Swedish Manufacturing PMI Falls to 50.7 in Aug. vs Est. 54.0
• Spain Aug. Manufacturing PMI 51 vs 51 in July; Est. 50.9
• Czech Rep. Aug. PMI 50.1 vs 49.3 in July; Est. 50.9
• Swiss Aug. Manufacturing PMI Rises to 51.0; Est. 50.6
• France Aug. Manufacturing PMI 48.3 vs Flash Reading 48.5
• Greece Aug. Manufacturing PMI 50.4 vs 48.7 in July

Among the notable movers, european bank stocks headed for their best 3-days gain in almost a month. Metals stocks were likewise bid with Glencore Plc and Rio Tinto Group rising at least 1.3 percent, while Banco Santander and BNP Paribas climbed more than 2 percent. Pernod Ricard SA advanced 2.3 percent after forecasting profit growth for the current fiscal year. Elekta AB gained 2.9 percent after the Swedish maker of medical devices posted better-than-expected quarterly earnings.

S&P 500 Index futures rose 0.2%, indicating equities will bounce back from Wednesday 0.2 percent decline. Salesforce.com Inc. slid 6.8 percent in early New York trading after forecasting fiscal third-quarter revenue that may fall short of some analysts’ estimates.

Crude oil erased earlier gains to trade little changed around $44.60 a barrel as a strengthening dollar provided hampered demand a day after West Texas Intermediate tumbled 3.6% on Wednesday when the DOE reported that U.S. inventories increased by 2.28 million barrels last week, keeping supplies at the highest seasonal level in almost three decades. An oversupply paired with soft demand battered European gas contracts, with gas for immediate delivery in the U.K. plunging as much as 18 percent to the lowest price in about seven years. With the OPEC informal talks later this month, which catalyzed another record squeeze in oil, it now appears a virtual certainty that nothing of note will take place, especially after Russia said overnight an oil output freeze is not needed with price around $50, adding it would consider resuming discussions if prices fall. The only near-term question that can affect oil pricing is what the impact of Hermine will be on the East Coast supply glut.

* * *

Market Snapshot

• S&P 500 futures up 0.2% to 2175
• Stoxx 600 up 0.9% to 347
• FTSE 100 up 0.2% to 6794
• DAX up 0.6% to 10658
• German 10Yr yield up 2bps to -0.05%
• Italian 10Yr yield up less than 1bp to 1.15%
• Spanish 10Yr yield up less than 1bp to 1.02%
• S&P GSCI Index up less than 0.1% to 348.4
• MSCI Asia Pacific up less than 0.1% to 138
• Nikkei 225 up 0.2% to 16927
• Hang Seng up 0.8% to 23162
• Shanghai Composite down 0.7% to 3063
• S&P/ASX 200 down 0.3% to 5416
• US 10-yr yield up 2bps to 1.6%
• Dollar Index down 0.02% to 96.0
• WTI Crude futures up 0.1% to $44.76
• Brent Futures down less than 0.1% to $46.88
• Gold spot down 0.2% to $1,306
• Silver spot up less than 0.1% to $18.66

Top Global News

• Salesforce Revenue Forecast Falls Short on Cloud Competition: 3Q sales may be held back by steeper competition in cloud-based software & services.
• Trump Affirms Nativist Immigration Vision in Speech: “We will build a great wall,” Trump said in Phoenix; “and Mexico will pay for the wall. One hundred percent. They don’t know it yet, but they’re going to pay for it.”
• Musk Talked Merger With SolarCity CEO Before Sale of Stock: Musk, SCTY’s CEO Rive discussed deal sometime before Tesla’s board was briefed on the idea on Feb. 29: filing.
• Gross Calls for Two Fed Hikes at Double the Pace Seen by Market: “I would say c’mon, let’s raise interest rates by 25 basis points in September, and c’mon, six to nine months from now let’s do it again,” Bill Gross told Bloomberg Television.
• Yellen Speech Contained Clue to Reading the Aug. Jobs Report: While focus was on Yellen’s statement that case for rate raising “has strengthened in recent months,” she followed with new language that Fed’s decisions depend on extent to which data “continues to confirm” outlook.
• AllianceBernstein Agrees to Buy RASL to Expand Alternatives: Co. agreed to buy money manager with $3 billion in assets.
• TPG Capital Said to Target More Than $4b in New Asia Fund: Firm plans to start raising money for the new fund later this year.
• Amazon Taps $1b Focus Group by Streaming Shows on Twitch: AMZN streamed 2 original TV-show pilots produced by its own studios on the gaming website.
• Investors Real Estate Trust to Sell 27 Properties for $236m Cash: Entered 6 separate sales agreements with several affiliates of Edgewood Senior Living.
• Lew Says Inappropriate for Europe to Re-Write Tax Law on Apple: Says AAPL consitutes U.S. tax base on U.S. income.
• Apple CEO Confident of Victory in Tax Fight as Irish Dither
• American Delays Target to Integrate US Airways Flight Attendants: American can’t reap all potential cost savings from merger until carriers’ flight systems integrated.
• Charter Communications to Replace EMC in S&P 500: Kraft Heinz will replace EMC in S&P 100.
• Another Uber Settlement Rejected, This Time Over Riders’ Fee: Judge proposed $28.5m payout wasn’t enough for customers vs Uber’s $459m in revenue from fee.

Looking at regional markets, Asian stocks began the month mixed following the energy-triggered losses in the US and as the region also digested a slew of Tier-1 data. ASX 200 (-0.3%) initially underperformed after WTI crude futures declined below USD 45/bbl post-DoE build, while Retail Sales and Q2 Capex data also missed expectations. Nikkei 225 (+0.2%) traded choppy amid a pull-back in USD/JPY, with the index edging out again as 103.00 held. China conformed to the indecisiveness after mixed PMI data with the Hang Seng (+0.8%) & Shanghai Comp (-0.7%) swinging between gains and losses after the Official Manufacturing PMI beat expectations, while Non-Manufacturing PMI was lower than prior and the Caixin Manufacturing figure missed estimates to print at the 50.0 benchmark level. 10yr JGBs tracked the losses in T-Notes amid the choppy trade in Japanese stocks, while today’s 10yr JGB auction provided some brief support with the b/c, lowest accepted price and tail in price all better than prior.

Top Asian News

• China’s Factory Gauge Unexpectedly Rises to Highest Since 2014: Large enterprises improve, small firms drop
• China Wealth-Management Products Rise to Record $3.9t: Banks sold 84t yuan of WMPs in six months to June
• WeChat Chats Fuel China Money Exodus Into Hong Kong Policies
• Rule tightening doesn’t dampen Chinese desire to get money out
• Bank of Japan Has an 8.7 Trillion Yen Gap in Balance Sheet: BOJ wrote down 874 billion yen in losses last fiscal year
• Duterte’s Stock Rally Withers as Foreign Funds Pull Cash Out: Country had worst performance in Southeast Asia during August
• Uniqlo Makes Biggest Southeast Asia Bet as CEO Looks Abroad: Yanai wants regional expansion to make up for stagnant Japan
• Singapore Has First Pregnant Woman Testing Positive for Zika: Sales of mosquito repellents and patches soar in city- state
• China’s Hard Line on Hong Kong Democracy Faces Election Test: Result to shape city’s response to growing political divide

In Europe, September has kicked off with a risk-on tone, with equities spending the European morning in the green (+0.4%) and financials leading the way higher. Italian banks have reaped the gains from the upside in financials and lead the way higher this morning, while Deutsche Bank (+2.7%) are also among the best performers, after falling into focus yesterday amid reports of their potential merger with Commerzbank. However, the FTSE 100 underperforms relative to its counterparts following the strong UK Mfg. PMI release (53.3 vs. Exp. 49) which subsequently saw GBP rally by a point to weigh on exporting names. While the figure would also suggest that there is less urgency for further measures by the Bank of England. This also filtered into Gilts which is firmly in the red, while European paper have also been under pressure amid supply from France, Spain and the UK DMO.

Top European News

• Deutsche Bank Climbs on Report Cryan Is Weighing Fresh Revamp: Rises on report that DB analyzed sale of all or part of its asset management business.
• Merkel Facing Defeat by Anti-Immigration Party in Home State: Alternative for Germany running neck-and-neck with Merkel’s Christian Democratic Union in Mecklenburg-Western Pomerania ahead of this Sunday’s vote.
• U.K. Factories Rebound From Brexit Shock as Pound Boosts Exports: IHS Markit PMI, which dropped below 50 in July, jumped by a record to 53.3.
• May Spells Out Immigration Limits as the First Brexit Red Line: U.K. PM wants to end free movement of people coming to U.K. from EU; suggests she’s willing to leave the bloc’s single market to do so.
• U.K. Banks Attacked for Elitism as May Targets Social Inequality
• Pernod Ricard to Cut Costs as Distiller’s Top 2 Brands Suffer: Co. reorganizing China business to add dedicated salesforce for premium brands; trying to speed decision- making in U.S. through new structure.

In FX, the pound surged to $1.3264. IHS Markit said its PMI, which dropped below the key 50 level in July, jumped by a record to 53.3. That was far better than economists had forecast; the median estimate in a Bloomberg survey was for a reading of 49. New orders rose, with sterling’s recent drop “by far the main factor” for the improvement in exports, Markit said. The dollar climbed against 11 of its major counterpart, gaining 0.2 percent to $1.1137 per euro and 0.1 percent to 103.56 yen. Fed Vice Chairman Stanley Fischer indicated last week that a U.S. interest-rate hike is possible in September and said Tuesday that the central bank would base its decision on economic data, putting added focus on the payrolls report. Malaysia’s ringgit sank 0.7 percent after Wednesday’s drop in crude prices dimmed prospects for Asia’s only major net oil exporter. The Aussie strengthened 0.4 percent following the manufacturing figures for China, Australia’s biggest export market.

In commodities, zinc rose as much as 1.2 percent to $2,338.50 a metric ton on the London Metal Exchange, its highest since May 2015. Lead and tin both gained as much as 1.1 percent to highs not seen since last June and February, respectively. Copper climbed 0.4 percent. “Today’s PMI data is a good surprise,” said Wei Lai, an analyst with Cofco Futures Ltd. in Shanghai. “It will initiate strong expectations for demand in the autumn and metals will be supported at least over the coming two months.” Crude oil erased earlier gains to trade little changed at $44.76 a barrel as a strengthening dollar provided a potential obstacle to demand in countries other than the U.S. West Texas Intermediate tumbled 3.6 percent on Wednesday. U.S. inventories increased by 2.28 million barrels last week, keeping supplies at the highest seasonal level in almost three decades, official data show. An oversupply paired with soft demand battered European gas contracts, with gas for immediate delivery in the U.K. plunging as much as 18 percent to the lowest price in about seven years.

On today’s US calendar we get the final confirmation for Q2 nonfarm productivity and unit labour costs data, along with the latest initial jobless claims data. The final manufacturing PMI revision follows this before we then get the important August ISM manufacturing and prices paid readings. The market consensus for the ISM number is 52.0. Away from that we’ll also get construction spending data for July and last month’s vehicle sales data. On the Fedspeak front the Fed’s Mester is due to speak.

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

• FTSE 100 underperforms, while GBP rallies as UK Mfg. PMI surprisingly moves back into expansionary territory.
• Oil prices remain pressured with the latest commentary from Russia that a production freeze is not needed with prices at current levels.
• Looking ahead, highlights include US ISM Mfg PMI and comments from Fed’s Mester & ECB’s Nowotny.
• Treasuries dropped during overnight trading with rest of developed market sovereign bonds amid supply in France and Spain, and U.K. factory activity reached a 10-month high in August.
  China’s official factory gauge unexpectedly rose last month to the highest level in almost two years, suggesting the economy’s stabilization remains intact and that a weakening in July was flood-related and temporary
• The yuan advanced against a trade-weighted currency basket for the fifth day in a row, the longest run of gains in more than a month, on speculation China’s central bank is propping up the exchange rate before a Group of 20 meeting
• An overlooked line in Federal Reserve Chair Janet Yellen’s speech last week could hold the key to whether Friday’s U.S. jobs report clinches an interest-rate increase this month
• Bill Gross is recommending the Fed raise interest rates twice by as early as March. The market doesn’t expect that degree of monetary tightening even by the end of 2017
• Ken Griffin has become impossible to ignore in the once- lucrative world of credit derivatives, where a group of Wall Street dealers long maintained a stranglehold
• The most committed backers of Europe’s proposed financial transaction tax may not be the finance ministers who’ve been trying to thrash out an agreement for more than three years
• After German Finance Minister Wolfgang Schaeuble won praise from the crowd of middle-aged and retired party faithful for his role in the country’s reunification, the goodwill quickly evaporated as he defended Chancellor Angela Merkel’s open-door refugee policy
• Anyone who got caught in the real estate bust last decade in the U.S. or U.K. probably knows this already, but now the economic data is in: home ownership can be bad for you

US Event Calendar

• 7:30am: Challenger Job Cuts, Aug. (prior -57.1%)
• 8:30am: Non-farm Productivity, 2Q F, est. -0.6% (prior -0.5%); Unit Labor Costs, 2Q F, est. 2.1% (prior 2%)
• 8:30am: Initial Jobless Claims, Aug. 27, est. 265k (prior 261k); Continuing Claims, Aug. 20 (prior 2.145m)
• 9:45am: Bloomberg Consumer Comfort, Aug. 28 (prior 45.3)
• 9:45am: Markit U.S. Manufacturing PMI, Aug. F, est. 52.1 (prior 52.1)
• 10:00am: Construction Spending, July, est. 0.5% (prior -0.6%)
• 10:00am: ISM Manufacturing, Aug., est. 52 (prior 52.6); ISM Prices Paid, Aug., est. 54.8 (prior 55); ISM New Orders, Aug. (prior 56.9)
• Wards Domestic Vehicle Sales, Aug., est. 13.5m (prior 13.77m)
• Wards Total Vehicle Sales, Aug., est. 17.2m (prior 17.77m)

DB’s Jim Reid concludes the overnight wrap

Over in markets the main story yesterday was the sharp leg lower for Oil following the latest US crude stockpile data. WTI tumbled -3.56% for its biggest daily decline since July 13th and in the process closed below $45/bbl for the first time in three weeks. The latest EIA report showed that crude stockpiles rose 2.3m barrels last week after analyst expectations were for a gain closer to 1.3m barrels. That sent energy stocks tumbling lower which more than offset another relatively decent day for financials. The end result was a -0.24% decline for the S&P 500 and the fifth time in the last six sessions that the index has closed in the red.

In Europe the Stoxx 600 (-0.35%) edged lower in late trading for the same reason while in credit markets both CDX IG (+1.5bps) and Main (+1bp) finished wider. Brazil’s Ibovespa closed -1.15% following the confirmation of the impeachment of President Dilma Rousseff in the Senate by a 61 to 20 majority. Vice-President Michel Temer has now replaced Rousseff and will continue in office until January 2019, ending the long and exhausting process that started in December 2015. As our EM economists noted yesterday, the success of the Temer administration will depend on its ability to overcome the economic crisis which will require unpopular measures on fiscal policy, in particularly addressing two critical reforms in the spending cap and social security reform.

In actual fact it ended up being a relatively busy day for newsflow yesterday, certainly compared to the rest of August. Ahead of tomorrow’s payrolls report there was plenty of focus on the August ADP employment change print which came in pretty much in line with the market at 177k (vs. 175k expected). That follows a 15k upwardly revised July reading of 194k. The rest of the US data was a mixed bag. On the positive side pending home sales rose +1.3% mom in July (vs. +0.7% expected) although the June reading was revised down sharply. Meanwhile the Chicago PMI for August printed at a slightly disappointing 51.5 (vs. 54.0 expected), meaning it was down 4.3pts relative to July and at a three month low.

There was some more Fedspeak for us to digest also yesterday. The usually dovish Rosengren and Evans both spoke early in the morning. The former said that he believes that the Fed’s dual mandate ‘is likely to be achieved relatively soon’ and that ‘by slowly normalizing rates, we would hope to continue to support growth’. However Rosengren also expressed some concern about financial stability risks in the commercial real estate market. On the other hand Evans said the he see’s less reason to fear financial instability and that ‘lower policy rate expectations act as a restraint on how much long-term rates could rise following a surprise over the near-term policy path’.

Treasury yields edged slightly higher with the 10y up +1.4bps to 1.581% although still very much anchored in the 1.50-1.60% range which it’s been in for some time. Market implied probabilities for the next Fed hike didn’t change too much. September edged up to 36% from 34% the day prior, while December edged up to 60% from 59%.

European bond markets were also weaker and especially so in Spain where the 10y yield there ended up +6.3bps higher at 1.007%, the weakest day since June 24th. Yesterday’s move came after Spanish PM Rajoy lost a vote of confidence in Parliament by 180 votes to 170 in the 350-strong assembly. While Rajoy was backed by the liberals of Ciudadanos and a small party from the Canary Islands, the Socialists and anti-establishment Podemos group both voted against as expected. A second confidence vote is now expected to take place tomorrow, where a simple majority is required.

Switching to the latest in Asia this morning where bourses are kicking off the month of September on a bit of a mixed note. The Nikkei (+0.13%) and Hang Seng (+0.28%) have rebounded from early losses, however the Shanghai Comp (-0.24%), Kospi (-0.42%) and ASX (-0.25%) are in the red. There’s been some data to get through this morning too. In China the official manufacturing PMI for August rose 0.5pts to 50.4 and so exceeding expectations of 49.8. In fact that’s the highest reading since October 2014. There was a bit of contrast between this and the private Caixin survey however which showed that the manufacturing PMI fell 0.6pts to 50.0. Meanwhile the official non-manufacturing PMI fell 0.4pts in August but to a still relatively healthy 53.5. In Japan the Nikkei manufacturing print for August was revised down 0.1pts at the final reading to 49.5.

In terms of the remainder of the data yesterday, in Europe the August CPI report for the Euro area was a little disappointing after coming in below market at the headline (+0.2% yoy vs. +0.3% expected) and unchanged from July. The core also declined one-tenth unexpectedly to +0.8% yoy. Over in Germany unemployment held steady at 6.1% in August while retail sales data for July well exceeded expectations after rising +1.7% mom (vs. +0.5% expected). Consumer spending data in France was more disappointing however (-0.2% mom vs. +0.3% expected) while France’s CPI report for August revealed headline inflation growth of +0.3% mom (vs. +0.4% expected).

Looking at today’s calendar there’s a fair bit of economic data to get through today. This morning in Europe we’ll get confirmation of the final August manufacturing PMI’s as well as a first look for the data in the periphery and of course the UK. Remember that last month the UK’s manufacturing PMI plummeted 4.2pts to 48.2 and the lowest since February 2013. Expectations today are for another sub-50 reading, albeit a slight improvement to 49.0. Across the pond we’ll first of all kick off with the final confirmation for Q2 nonfarm productivity and unit labour costs data, along with the latest initial jobless claims data. The final manufacturing PMI revision follows this before we then get the important August ISM manufacturing and prices paid readings. Our US economists expect the ISM manufacturing to stay relatively unchanged at 52.5 (vs. 52.6 in July), while the market consensus is 52.0. Away from that we’ll also get construction spending data for July and last month’s vehicle sales data. On the Fedspeak front the Fed’s Mester is due to speak at 5.25pm BST.

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The plight of the American farmer has been a frequent topic for us over the past couple of months.  A few weeks ago we pointed out how declining corn, wheat and soybean prices were leading to the first declines in farmland values in the Midwest since the 80s (see "Farmland Bubble Bursts As Ag Credit Conditions Crumble").  We also questioned whether California farmland was overvalued by $70 billion as almond prices have been cut in half over the past year and drought conditions threaten farming sustainability in many regions of the Central Valley (see "Is California Farmland Overvalued By $70 Billion?").

Most food grown in the U.S. has come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from the combined effect both a weak Chinese economy and a relatively strong U.S. dollar.  This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand.

Unfortunately, per the USDA's latest farming income forecast for 2016 (released yesterday), conditions only look to be getting worse for farmers as demand still remains low but supply has been slow to adjust in the wake of improving yields.  Below are a couple of the key takeaways from the USDA's 2016 forecast.

Real farm incomes in 2016 are expected to sink below 2010 levels which represents a 34% decline from the recent peak and 14% decline YoY.

 

Meanwhile farm debt continues to rise at an astonishing rate…

 

While farmer leverage has spiked to the highest level since the early 80s.

 

And of course, lower incomes means less money to spend on shiny new John Deere tractors with equipment capex expected to decline 31% YoY.

 

And finally, farmer returns have crashed to the lowest levels ever.  We're not sure about you but a 2% ROIC seems a "little low" even in our current rigged interest rate environment.  So, there's only a couple of ways to fix that problem…either commodity prices have to recover quickly or farmland prices need to come down substantially.  Which do you think will happen first?

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