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Following remarks that are identical to those from yesterday, today Yellen will conclude her semi-annual testimony, this time by presenting her vision about the economy and the path of future rate hikes to the Senate Banking Committee. Surprises, if any, will come during the Q&A.
Watch the hearing live below.
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2Y yields crashed 10bps overnight – the biggest plunge in yields since September’s FOMC fold on rate-hikes. The rest of the Treasury bond complex also saw yields crash with 10Y flash-crashing 20bps – amid collapsing liquidity – at its deepest.
Then – as if by magic – a sudden crazed Yen seller appeared and lifted all risk boats (and bond yields) “off the lows.”
One wonders how long this ‘intervention’ will last…
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Gold has reached, and so far held, notable resistance around $1200. However, as Goldman notes, there’s scope to extend much higher over time.
The current area includes the 100-wma and the trend across the highs since March ’14 (wedge resistance). It’s formed an exhaustive looking candlestick pattern and oscillators seems to be turning. Basically, it seems a good place to start a corrective pullback. The 100-wma in particular was an important pivot in determining the start of the late-’12 decline.
From a wave count perspective, the market is likely in the initial stages of a counter-trend ABC correction which could eventually retrace ~38.2% of the 5-waves from ’11 to 1,381. From a pure techs perspective, breaking from a declining wedge would initiate a medium-term target back at the start of the pattern ~1,392.
Bottom line, although 1,200-1,202 might hold in the near-term, there’s scope to extend much higher over time.
Source: Goldman Sachs
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As JPM put it best earlier today, “It’s Hard To Imagine An Uglier Morning.” And while a direct BOJ intervention shortly after 7 am, one which the local government was non-comittal on…
… coupled with a modestly better than expected initial claims report, has brought some normalcy back to what initially was a furious selloff, today will likely be one of those days when Yellen will have to come up with a big rabit out of her congressional testimony hat in just over an hour.
For now, here is, courtesy of Nanex, a forensic market-level look at the key events that took place so far this morning:
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Initial jobless claims dropped notably last week (from 285 to 269k) but the overall trend (away from the noise) appears in tact. The smoother4-week average remains near 12-month highs and as Goldman notes weakness is widespread – "there is only limited evidence that the rise in claims is due to distress in the energy sector." Continuing claims dropped modestly to 2.239mm but, as Goldman adds, "the persistence of the recent move suggests more might be going on, and we are treating the increase as more than just noise."
And finally, here is Goldman explaining why it is time to be concerned…
Initial and continuing claims for unemployment insurance benefits have moved steadily higher since late last year. After nearing their respective post-crisis lows of 256k and 2,146k this past October, initial and continuing claims are now higher by 29k and 112k, respectively. Both series can be volatile, and one should be cautious about reading too much into the week-to-week changes. But the persistence of the recent move suggests more might be going on, and we are treating the increase as more than just noise.
And moreover, Goldman warns that they find only limited evidence that the recent increase in claims directly relates to distress in the energy sector.
And looking forward, every 1k increase in claims (relative to the breakeven rate) implies a slowdown in monthly payroll growth of just over 4k. Therefore, a further rise in claims to 300-315k, if sustained, could imply payroll growth closer to a trend-like rate—assuming the benefits take-up rate and other aspects of labor market flows remain unchanged.
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A gunman has killed at least 6 people in an attack on an education department in southern Saudi Arabia, multiple sources confirm.
The attacker has been arrested. From Arab News:
A teacher armed with an automatic weapon stormed a Ministry of Education office in the southern region of Jazan and shot dead at least six people on Thursday, local media reported.
Three other office staff were injured, online news site 3alyoum.com said, quoting Jazan police.
The office is located in Al Dayer governorate, eastern Jazan.
Police have cordoned off the office compound and were looking for the assailant, who is said to be teaching at a secondary school, the report said.
Disgruntled employee (maybe he was mad that the kingdom rolled back fuel subsidies) or excuse to invade Syria? We’ll see.
Reuters: Saudi newspaper Sabq says at least five people have died in a gun attack on an education department in southern #SaudiArabia
— Sky News Newsdesk (@SkyNewsBreak) February 11, 2016
BREAKING: Senior Saudi interior ministry official confirms gun attack on education department in southern part of kingdom
— Newsweek Middle East (@NewsweekME) February 11, 2016
BREAKING: Saudi newspaper Sabq reports gun attack on education department in southern Saudi Arabia, at least 5 killed
— Newsweek Middle East (@NewsweekME) February 11, 2016
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“Whatever it takes” is not enough, it would appear as the fragility and interconnectedness forced upon the European banking/sovereign finance ponzi has rapidly come home to roost for Draghi and his followers. Peripheral bond risk has flipped from “hold your nose” buys to panic sells with Portugal risk exploding 200bps in the last week. As the European banking system’s credit risk rises 2012-crisis-like, it seems belief in a bigger bazooka is fading fast.
It’s not just Deutsche Bank…
Smashing European Peripheral risk higher…
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"Worse than Lehman" is how one European bond market trader described the carnage this week as the brief respite that ECB monetization and debt-buyback rumors provided yesterday have morphed into utter destruction this morning. European (and US) banks are a sea of contagious red with Deutsche Bank the tip of the collapse spear. Credit risk on Deutsche has exploded this morning with Sub CDS trading up 85bps to a record high 540bps… eerily reminiscent of the pre-Lehman bankruptcy week in 2008.
Time to panic now?
We've seen this kind of stress before for a financial institution…
and it did not end well…
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Overnight Media Digest
WSJ
– Theranos’ main retail partner Walgreens threatened to terminate its relationship with the blood-testing company unless it quickly fixes the problems found by federal inspectors at a laboratory in California, people familiar with the matter said. (http://on.wsj.com/1QsIXxI)
– Federal Reserve Chairwoman Janet Yellen hinted to Congress Wednesday that the central bank had increased trepidation over the path of interest-rate increases, pointing to accumulating risks to the economy in recent weeks.(http://on.wsj.com/1QsJ1NK)
– Twitter for the first time failed to show any user growth in an earnings report, pushing its shares to new lows and fueling investor anxiety that the company doesn’t have a turnaround plan.(http://on.wsj.com/1QsJ6kF)
– Bernie Sanders’ resounding New Hampshire victory over Hillary Clinton, facing the twin questions of whether his appeal is broad enough to replicate his performance elsewhere, and whether her support is strong enough to reverse the tide.(http://on.wsj.com/1Si1XEY)
– A top North Korean general was executed this month after being charged with corruption, the latest in a series of purges by leader Kim Jong Un, according to South Korean intelligence officials. (http://on.wsj.com/1Si8LCs)
FT
* Worldpay Group Plc is launching into Canada partnering with Peoples Trust Company, which gives Worldpay a domestic licence for its customers to accept card payments in Canada. It looks to replicate this deal with other customers that it has previously been unable to serve in Canada.
* Four cases of Zika have been reported in the UK since January and the number is likely to rise as travellers return from endemic areas of Latin America. Public health officials said seven UK cases had been diagnosed in the past three years and most had occurred since the start of 2016 as the virus.
* BP Plc said oil producers in the United States will recover from the collapse in crude oil prices and pump millions of barrels a day more over the next two decades even though there is resilient growth in energy demand.
* According to official data, productivity in NHS hospitals has fallen for the third year now. This will now intensify the debate over whether the service can survive without more funding.
NYT
– The U.S. Supreme Court’s surprise decision Tuesday to halt the carrying out of President Obama’s climate change regulation could weaken or even imperil the international global warming accord reached with great ceremony in Paris less than two months ago, climate diplomats say. (http://nyti.ms/20WMGea)
– On Wednesday, after many quarters of slowing user growth, Twitter said its monthly visitors in the fourth quarter totaled 320 million – exactly the same as the company reported in the previous quarter. While the number was up 9 percent from a year ago, when monthly active users stood at 288 million, the figures showed that Jack Dorsey’s recent moves have made little impact in attracting users. (http://nyti.ms/20WCX7I)
– The Fed chairwoman, Janet Yellen, testifying before Congress, reiterated the central bank’s gradual approach to interest-rate increases. (http://nyti.ms/1ott9UW)
– The federal judge overseeing hundreds of claims against General Motors related to a defective ignition switch has rejected an effort to replace Robert C. Hilliard, one of the lead plaintiffs’ lawyers on the case. (http://nyti.ms/1mtVbhu)
– HBO’s stand-alone video streaming service has attracted about 800,000 paying subscribers since starting last April, the premium cable network said Wednesday, the first time it has disclosed numbers for the service. (http://nyti.ms/1PEfJvP)
Canada
THE GLOBE AND MAIL
** Canada has competitive advantages when it comes to car manufacturing, but falls short in marketing itself and needs to change a key element of the incentive package offered to global auto makers, says Ray Tanguay, the special auto adviser to the federal and Ontario governments. (http://bit.ly/23YCCnw)
** Canadian Pacific Railway Ltd CEO Hunter Harrison has signalled he will abandon his four-month push to form North America’s biggest railway if Norfolk Southern Corp shareholders reject his latest move. (http://bit.ly/1XkRl7C)
** Pacific NorthWest LNG’s project in British Columbia would likely harm harbour porpoises and contribute to climate change, but the export terminal could be built and operated without causing major ecological damage, the Canadian Environmental Assessment Agency has ruled. (http://bit.ly/1V5TD9i)
NATIONAL POST
** Hudson’s Bay Co could be bulking up even further. The Toronto-based owner of Saks Fifth Ave. and Lord & Taylor is in the running to buy bankrupt department store chain V&D of the Netherlands, according to multiple Dutch media reports. (http://bit.ly/1SJXco5)
** Canada’s second-largest dairy producer, the farmer-owned Agropur Cooperative, says it sees the company’s growth not here in the country, where it has defended the protectionist supply-management system when threatened with free-trade deals, but in the U.S. where it can import to international markets including north of the border. (http://bit.ly/1PnEMoZ)
** Canada’s Superintendent of Financial Institutions has taken temporary control of the assets of the Canadian branch of Maple Bank GmbH, which is headquartered in Germany. (http://bit.ly/1Ta1rYD)
Britain
The Times
The Bank of England and Paul Tucker have been drawn back into the Libor scandal amid claims that Barclays Plc used what it believed was a confidential instruction from a former deputy governor to lower rates to buy billions of pounds of debt in rival British lenders at the height of the financial crisis. (http://thetim.es/1QsvC8A)
HSBC Holdings Plc’s directors will meet on Sunday to decide whether to continue to base the bank’s headquarters in London or move abroad, with an announcement on the eagerly awaited question likely to be made that day. (http://thetim.es/1QsvE00)
The Guardian
BP Plc has predicted a bright future for the oil and gas industry with crude prices spiking at $100 a barrel again, huge increases in shale output and new production from Canadian tar sands. (http://bit.ly/1QsvLsC)
Mark Price, managing director of Waitrose, is to be made a Foreign Office trade minister as David Cameron continues to try and bring more businesspeople into his government. (http://bit.ly/1Qsw8Ds)
The Telegraph
Johnston Press is in advanced talks with the Lebedev family to buy the i newspaper in a deal that will raise questions over the future of its stable mate, The Independent. It is understood both sides are brokering the sale of the tabloid, with talks expected to run into the night. (http://bit.ly/1Qswqu5)
The Telegraph understands the Competition and Markets Authority, the consumer regulator, is finalising plans to take action against Britain’s biggest supermarkets, which stand accused of using unlawful pricing and promotional practices, designed to encourage customers to spend more. (http://bit.ly/1QswxWG)
Sky News
Sky News understands that Royal Bank of Scotland Group Plc is working with bankers at Lazard to examine options for its 3 billion pounds ($4.37 billion) shipping finance operation, which could be run off, sold or hived off in chunks to potential buyers (http://bit.ly/1QrWMMP)
The UK is blocking a European rule change that could help combat the flood of cheap Chinese imports that is crippling the steel industry, Business Secretary Sajid Javid has admitted. (http://bit.ly/1QswASe)
The Independent
The fashion giant Gap Inc is the latest U.S. household name to face major questions over its use of complex financial engineering that minimises its tax bill in Britain. The multinational retailer has paid almost no corporation tax – once rebates are taken into account – since 2011 despite sales of more than 1 billion pounds, according to a new analysis of its “opaque” accounts. (http://ind.pn/1QswSIK)
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Mutual Funds, ETFs at Risk of a Run Warns Stockman
In one of his starkest warnings yet, Former White House Budget Director (Office of Management and Budget, OMB), David Stockman has warned that banks and the global financial system remain vulnerable and there is likely to be another global financial crisis which will be worse than the first involving “a run on mutual funds and ETFs.”
Stockman warns in a Bloomberg interview that Deutsche Bank
“has a $2 trillion balance sheet and they have a net tangible equity of $66 billion. So that is 3% – “they are leveraged 30 to 1 in terms of net tangible equity.”
“What is whirling around in that $2 trillion nobody knows but I do think that the banks have unloaded the worst of their stuff and today it is in mutual funds and ETFs, today it is in non bank financial institutions, like all these companies that have come up over night to make auto loans by selling junk bonds as a form of capital.”
This is reminiscent of the first financial crisis and the financial collapse wrought on the world with the subprime mortgage fraud as beautifully illustrated in the must see movie ‘The Big Short’.
Regarding how ‘mom and pop’ investors and pension owners are vulnerable, Stockman says
“The dangers of a run are far more serious now than it was with banks then. Back then, main street banks did not have to mark to market most of their assets and there never was a run on mainstreet banks, it was only on a few hedge funds …
This time you are going to have a run of $5 trillion or $6 trillion of mutual funds. This time you are going to have a run on the ETFs. There were only $1 trillion of ETFs in existence in 2008. There is over $3 trillion now and they are an accelerator mechanism.”
When everyone sells their ETFs, the managers have to go out and liquidate assets by selling the underlyings. The underlying assets are not nearly as liquid as the offer that anytime you want to sell your ETF there is a bid. Anytime you want to sell your mutual fund share, there is a bid … and I will tell you what … that is where the collision is going to come in the market.”
In another must watch Bloomberg interview, the respected Stockman warned that Deutsche Bank is in difficulty and the CEO is likely lying:
“In my experience is that when the crunch comes, bank CEOs lie.”
Stockman reminded us of the deceit and denial that emanated from Morgan Stanley, Bear Stearns and Lehman Brothers before their collapse:
“I don’t trust Deutsche Bank. I don’t trust what they’re saying. And there’s reason why the banks are being sold all across the world… because people are realizing once again that we don’t know what’s there [on bank balance sheets].”
GoldCore Note: Banks, economists, brokers, financial advisers and other experts did not see the first crisis coming in 2008 and they are not seeing it now.
A handful of people are warning about the risks and again they are largely being ignored. Investors and savers will again bear the brunt for the inability to look at the reality of the financial and economic challenges confronting us today.
Diversification remains the key to weathering the second global financial crisis.
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