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What do the following dates have in common: September 12, October 11 and now, November 20? These are all days in which there was a forced gold slamdown so furious, it triggered a “stop logic” event on the CME resulting in a trading halt of the precious commodity. In today’s case gold trading was halted for a whopping 20 seconds as the market tried to “reliquify” itself following what was a clear attempt to reprice the gold (and silver) complex lower. Needless to say, there was absolutely no news once again to drive the move. Ironically, this comes just as the London regulator is launching an investigation into London gold benchmark manipulation – we are, however, confident that all these glaringly obvious manipulative events that take places just around the London AM fix will be routinely ignored. After all it is perfectly normal for someone to dump 1500 GC contracts in one trade and suck up all the liquidity from the market with zero regard slippage costs, or getting the best execution price possible. Well, it’s normal if that someone is the Bank of International Settlements.

Since there is nothing new in the narrative, here is what we said last time this event happened just over a month ago:

What is Stop Logic? Basically, it is a the mother of all stop hunts, which takes out the entire bid stack and continues until such time as there is absolutely no liquidity left in the entire market! From the CME:

Stop Logic detects potential market movements caused by the triggering and trading of Stop orders where the resulting price move would extend beyond an exchange specified threshold.

 

The triggering of Stop orders can potentially exaggerate price movements in temporarily illiquid markets. When triggered Stop orders attempt to move the market to an executing price beyond a pre-established value, a Stop Logic event occurs. Stop Logic detects these situations and responds by placing the identified market in a Reserved state for a predetermined period of time, usually 5 to 10 seconds, depending on the instrument. During the Reserve period, new orders are accepted and an Indicative Opening Price (IOP) is published, but trades do not occur until the Reserve period expires, thereby providing an opportunity for participants to respond to the demand for liquidity. At the end of the Reserve period, the instrument will re-open and matching will resume.

 

When a futures contract designated as a lead month contract experiences a STOP Logic event, associated options markets are paused and Mass Quotes canceled.

 

Stop Logic will not prevent markets from ultimately moving in the direction of the order flow, but allows time for liquidity to enter the market so that new orders can be matched against the triggered stop order(s).

Of course, the liquidity we re-enter at a time when the prevailing price has been reset substantially lower on what is basically a “banging the open” type of event, or in this case market open, when one or more traders attempt to generate the well-known “momentum ignition” event so known to HFT algo manipulators everywhere.

Most indicative is that this is taking place less than 24 hours after the FSA announced it was investigating precisely this kind of gold manipulation. What’s the saying… “in your face”?

And, as usual, capturing this moment of epic manipulative smackdownness which took place precisely at 6:26:40, here is Nanex showing both the 20 second trading halt and the evaporation of all liquidity following the forced sell of 1500 GC contracts pushing the price of gold over $10 lower.

1. December 2013 Gold (GC) Futures Trades.
 

 

1b. December 2013 Gold (GC) Futures Trades – Zoom 1.
 

 

1c. December 2013 Gold (GC) Futures Trades – Zoom 2.
The 20 second halt shows up clearly.
 

 

2. December 2013 Gold (GC) Futures Quotes.
 

 

2b. December 2013 Gold (GC) Futures Quotes. Zoom 1
 

 

2c. December 2013 Gold (GC) Futures Quotes – Zoom 2.
 

 

3. December 2013 Gold (GC) Futures Depth of Book
 

 

3b. December 2013 Gold (GC) Futures Depth of Book – Zoom.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/IgpzQKw-dTA/story01.htm Tyler Durden

After the DJIA and S&P briefly crossed the key resistance levels of 16000 and 1800, the upper bound on the markets has been looking increasingly more distant and this morning’s lack of an overnight ramp only makes it more so. Perhaps the biggest concern, however, is that with both Yellen and Bernanke on the tape yesterday, the S&P still was unable to close green. This follows on Monday’s double POMO day when the S&P once again closed… red. Not helping things was the overnight announcement by the Japanese government pension fund, the GPIF, in which the fund announced it would lower its bond allocation further however the new law to reform the GPIF could be written by spring 2015. This was hardly as exciting as the market had expected, and as a result both the USDJPY and the ES-moving EURJPY find themselves at overnight lows. Will the EURJPY engage in its usual post 8 am ramp – keep a close eye, especially since the usual morning gold and silver slam down just took place.

While there has been little overnight macro events of note, today’s US docket is heavy with October retail sales, October CPI, weekly mortgage applications and existing home sales on deck. The Fed releases its FOMC minutes in the latter half of the US trading session. The baffle with BS, good Fed cop/bad Fed cop routine continues once more as Ny Fed’s Dudley and St Louis Fed’s Bullard speak on the economy and monetary policy.

US Data Docket

• US: CPI % y/y, cons 1.0% (8:30)
• US: Retail sales advance m/m, cons 0.1% (8:30)
• US: POMO $1.25-$1.75 billion
• US: Existing home sales m/m, cons -2.7% (11:00)
• US: Fed speaker Bullard (13:10)
• US: Minutes of Oct 29-30 FOMC meeting (15:00)

Market Re-Cap

Dovish comments by Bernanke late yesterday, together with the release of comments by an advisory panel in Japan which indicated that Japan’s GPIF (pension fund) should raise its ratio of foreign assets failed to encourage sustained flow into riskier assets and instead stocks traded lower as market participants awaited the release of the FOMC minutes. Nevertheless, reports citing an advisory panel which said that Japan’s GPIF should review domestic bond-focused portfolio and that foreign asset ratio should be raised resulted in a temporary lift in equity markets, with Bunds also trending lower ever since. However, the move higher was not sustained after it became apparent that new a law to reform GPIF can be written only by spring 2015 and as such is unlikely to result in any immediate impact on global asset classes.

In other news, as expected the release of the minutes from the most recent BoE policy meeting largely echoed the details of the Quarterly Inflation Report. The minutes also noted that the rise in inflation expectations are of little significance, few signs of them affecting wage demands, expectations seen well-anchored in medium term. Going forward, market participants will get to digest the release of the latest Existing Home Sales data, as well as the weekly DoE report from the US.

Overnight bulletin digest from Bloomberg and RanSquawk

• It was reported that Japan’s GPIF should review domestic bond-focused portfolio and that the foreign asset ratio should be raised, according to the GPIF Advisory Panel.
• However, later it was revealed by the Head of the GPIF Advisory Panel Ito that a new law to reform GPIF can be written by spring 2015 and thus provided a longer-term timeline for the news than initially expected.
• BoE minutes showed a 9-0 vote to keep QE unchanged at GBP 375bln and 9-0 to keep interest rates unchanged at 0.50%. Looking ahead market participants will get to digest a host of tier 1 data from the US as well as the FOMC minutes for the October meet.
• Treasuries maturing in 7Ys and longer gain after Bernanke last night said Fed will likely hold down fed funds rate long after ending QE and possibly after unemployment rate falls below 6.5%.
• Bank of England officials voted unanimously to keep policy unchanged this month and said a record-low interest rate may be needed even after unemployment falls to the threshold set under forward guidance, minutes to Nov. 6-7 meeting showed
• Japan’s Government Pension Investment Fund, the world’s largest manager of retirement savings, should become more independent of the government and review its domestic bond holdings, an advisory panel said
• The yuan’s three-month forwards touched a record high after China’s central bank strengthened the daily fixing to a record and elaborated on plans to ease exchange-rate controls
• Iran and world powers hold their third round of talks in six weeks toward a nuclear deal that would break a decade-long deadlock in the face of opposition from Israel and Saudi Arabia
• Sovereign yields higher, EU peripheral spreads wider. Asian stocks excluding China, European stocks, U.S. equity-index futures lower. WTI crude, copper little changed; gold lower

Asian Headlines

Japan GPIF should review domestic bond-focused portfolio, foreign asset ratio should be raised, according to panel.

– Japan should consider investing in Reits, private equity, commodities.
– Funds should consider investing in inflation-linked JGBS and indexes other than Topix.
– Pension funds should consider using JPX-Nikkei Index 400.

Head of the GPIF Advisory Panel Ito says new law to reform GPIF can be written by spring 2015.

– To consider lowering Japan bond allocation from level now.
– Japan reform panel head: GPIF, public pension funds won’t switch overnight to new ROE index from TOPIX for passive investment.

Of note, 5Y Chinese Interest Rate Swaps have reached a record high and overnight repo rates edged higher after Communist Party economic official Fang said very big chance one or two small China banks will fail next year and China must plan for bank fail scenarios to manage risks. Separately, China PBOC Deputy Governor Hu said China LGV financing may hide problems and make size too big

EU & UK Headlines

BoE MPC voted 9-0 to keep QE unchanged at GBP 375bln and 9-0 to keep interest rates unchanged at 0.50%.

– MPC growth and inflation projections underline there could be a case for not raising bank rate immediately when 7% threshold hit.

–
Rise in inflation expectations of little significance, few signs of
them affecting wage demands, expectations seen wellanchored in medium term.

Italian Head of Debt Management says expects domestic banks to cut bond holdings due to ECB’s sector check up.

ECB’s Weidmann said that there is no easy way out of crisis, printing money definitely not the solution.

Also stated that it is not sensible to immediately embark on next round of monetary policy easing after November rate cut, but also added that the ECB technically not at the end of its options.

Credit Suisse ZEW Survey Expectations (Nov) M/M 31.6 vs Prev. 24.9

US Headlines

Of note, Bernanke stated that the Fed remains committed to maintain highly accommodative policies for as long as they are needed and rates may stay near zero for considerable time after bond buys end.

Senate Democratic negotiator Patty Murray said she sees a path toward an agreement to ease automatic spending cuts Murray, asked if there was a path forward in her talks with her counterpart, Republican Representative Paul Ryan, said: “I believe there is.”

Equities

Heading into the North American open, stocks are lower across the board in Europe, with telecommunication sector underperforming where Vodafone is trading with losses close to 2%, with the stock trading exdividend today. Even though stocks traded lower, there is little sign of distress in credit markets. On a positive note, the FT reported that US fund managers are eyeing a bank revival in the Eurozone with the belief that the regions stuttering economic recovery will soon gather steam.

FX

USD/JPY failed to benefit from the reports citing an advisory panel which said that Japan’s GPIF should review domestic bond-focused portfolio and that foreign asset ratio should be raised and instead was driven by option related flow. In particular, the 100.00 level said to mark good size option strikes. Elsewhere, GBP outperformed its major counterpart EUR this morning, supported by lower EUR/GBP cross which fell below the 10DMA and was itself driven by touted offers in
EUR/USD by US names.

Commodities

Heading into the North American open, WTI Crude in minor negative territory whilst Brent crude futures trade in minor positive territory amid relatively light news flow.

Saudi Arabia say they are unconcerned by a rising tide of US shale output which threatens to eat into OPEC’s market share according to the nations Deputy Oil Minister.

The Iranian Supreme leaders says Iran will not step back ‘one iota’ from its nuclear rights.

World copper demand is expected to grow 4.5% on year in 2014 according to the ICGS.

Moody’s says growth in Euro-area GDP and in steel demand user markets turns European steel industry outlook stable.

China September gold output at 37.64 tonnes, according to Industry Association.

 

SocGen summarizes the main macro developments

The minutes of the October FOMC meeting will help to determine if the melt-up in risk is justified and whether 2.66% is too low for the UST 10y (2.71% in swaps). The statement of the last Fomc meeting was perceived as a tad less dovish after the Fed eliminated the notion (i.e. showing less of a concern) that financial conditions had tightened. One must assume that a soft CPI number and tepid gain in retail sales before the minutes would potentially offset that bearish influence. We look for annual CPI to have slowed to 1% in October vs 1.2% last month. A further deviation from the target rate of 2.0% (corroborating with a corresponding fall in the Fed’s preferred inflation proxy, the PCE index) should give investors confidence that yields will stay in a range before the December employment report. This should help to support the flow of corporate issuance which has been very strong already over the last 48hours, resulting in 5y swap spreads tightening to below 10bp, the lowest in a year.

In the euro zone, ECB speakers are not shying away from efforts to jawbone the EUR lower but to not much avail. After chief economist Praet, vice-president Constancio joined the bandwagon yesterday but acknowledged that no detailed discussions have taken place (yet). Asmussen instead decided to highlight the option of a negative deposit rate. The OECD, forecasting 1% real GDP growth in 2014 and 1.6% in 2015, said the ECB should look at non-standard measures (i.e. QE) to bolster the economy and counter deflation risks. EUR/JPY accelerated to a new high above 135.50, supported by PBoC comments on widening the yuan band. A break of 135.82 will lift the medium-target to the October 2009 high of 138.50. Against this backdrop, the peripheral spread tightening has further to run with yield hungry investors nudging the 10y BTP yield closer to the 4% mark.

DB’s Jim Reid concludes the overnight event summary

A dovish-sounding Bernanke has failed to lift markets this morning as we enter a second day of consolidation. There was an initial pop as the text of the speech at the National Economists Club Annual Dinner in Washington was posted online. Indeed, S&P 500 futures traded up at +0.3% and EURUSD hit a high of 1.358 (+0.3%) shortly after the speech hit the newswires. But those moves were quickly pared, and there was little further from the Q&A to excite markets. And so we are now back to trading to flat on S&P500 futures while EURUSD is +0.1% on the day (the latter shrugging off further talk of unconventional policy tools from the ECB’s Constancio and the OECD). 10yr UST yields are unchanged at 2.71% as we type.

The message from Bernanke’s speech was very much as we have come to expect from the Chairman with an emphasis on lower for longer rates and the data-dependency of QE. He agreed with Yellen’s recent testimony that the surest path to a more normal approach to monetary policy is for the Fed to do all it can today to promote a more robust recovery. There was discussion over Bernanke’s overarching goals of improving the Fed’s transparency and he repeated previous statements that unemployment thresholds for rate hikes are purely thresholds and not triggers for action. The short Q&A was a little more informative where Bernanke argued that the effect of fiscal tightening is very near term. He also talked down the implications of falling employment participation by saying that falling participation had preceded the global financial crisis. He also said that he looks forward to life after the Fed where he will be concentrating on “writing and speaking”.

So as briefly touched upon above, Asian markets this morning are trading with a heavier tone, with the initial positive sentiment at the open replaced by a more subdued atmosphere. USDJPY is holding just above 100 while the TOPIX is down 0.3%. Japanese trade data for October showed that the trade balance deteriorated to -JPY1trn on the back of surging fossil fuel imports. Partly balancing this out, exports grew 18.6% YoY which beat expectations of 16.2%. The Chinese yuan non-deliverable forward is relatively stable overnight after dropping 0.2% yesterday on comments from the PBoC that it will lessen its intervention in FX markets and commit to a wider trading band. The Hang Seng China Enterprises Index remains the clear regional outperformer today (+0.8%) and is one of the only Asian bourses to trade higher today. Indeed, the H-share index is poised to close higher for its fifth consecutive day which would be its longest winning streak in three months. During the past five days the index has added about 11%, and has significantly outperformed its domestic onshore counterpart, the Shanghai Composite, which is only up 5%.

The China offshore/onshore dichotomy is something which we have highlighted in recent days, with there appearing to be more optimism offshore about Third Plenum reforms, while some onshore indicators lag. One of the issues we wrote yesterday was the tightening onshore liquidity conditions in China – despite offshore indicators such as USD Chinese corporate credit spreads and the HSCEI performing relatively well and seemingly indicating the opposite. The issue of liquidity is something which our Chinese rate strategist, Linan Liu, has highlighted as well. Linan writes that a couple of recent developments point to a potentially unsettling liquidity issue in China before the year-end. Firstly, the recent strong capital flows into China have been quite supportive but this is expected to reverse with dividend outflows expected before the year end. Secondly, liquidity supply from fiscal spending and treasury cash management auctions has been quite low. Thirdly, the PBoC has refrained from being very accommodative in the provision of liquidity. Fourthly,  investment in non-standardized assets by large financial  institutions is a near-term threat to interbank liquidity. All this leaves her bearish on rates into year end. Linan notes that 10yr CGB yields are trading at all-time highs (and they are up a further 5bp at 4.73% this morning), but that a further squeeze in money market rates may drive the 10Y CGB yield towards 5%. We would highlight this is not the first time we’ve seen a liquidity squeeze in China this year but we’re unsure if the latest bout is more a technical phenomenon or indicative of something more structural. Either way it’s something we’ll be watching over the coming weeks as the initial optimism over reform announcements passes.

Coming back to the Fed, we should remind readers that today will see the release of the FOMC’s minutes from the October meeting. As with the previous month, market participants will be keen to see where the Fed is on the timing of tapering and whether there is anything on strengthening forward guidance. DB’s Joe Lavorgna suggests that the Fed may want to strengthen such guidance alongside a potential tapering of asset purchases in order to counteract any undesired tightening of financial conditions. While we’re on the topic of the Fed, vice-chair Janet Yellen sent a letter to US senators ahead of the Senate Banking committee’s vote on her nomination this Thursday. There was no new material information contained in the letter that we hadn’t heard in last week’s dovish testimony. Yellen repeated that she saw few signs that pre-crisis imbalances had returned.

Looking to today, we have a number of important risk events occurring over the next 24 hours. In the US we have one of the more busy days this week in terms of dataflow with October retail sales, October CPI, weekly mortgage applications and existing home sales. Consensus is expecting a 0% MoM print on headline CPI and markets will be watching to see whether we get the second straight month-on-month contraction in headline retail sales. The Fed releases its FOMC minutes in the latter half of the US trading session. The NY Fed’s Dudley and St Louis Fed’s Bullard will be speaking on the economy and monetary policy. Bullard is considered a bellwether in the Fed. The Bank of England also releases its latest meeting minutes this morning.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/SHMR8C9KxC4/story01.htm Tyler Durden

After the DJIA and S&P briefly crossed the key resistance levels of 16000 and 1800, the upper bound on the markets has been looking increasingly more distant and this morning’s lack of an overnight ramp only makes it more so. Perhaps the biggest concern, however, is that with both Yellen and Bernanke on the tape yesterday, the S&P still was unable to close green. This follows on Monday’s double POMO day when the S&P once again closed… red. Not helping things was the overnight announcement by the Japanese government pension fund, the GPIF, in which the fund announced it would lower its bond allocation further however the new law to reform the GPIF could be written by spring 2015. This was hardly as exciting as the market had expected, and as a result both the USDJPY and the ES-moving EURJPY find themselves at overnight lows. Will the EURJPY engage in its usual post 8 am ramp – keep a close eye, especially since the usual morning gold and silver slam down just took place.

While there has been little overnight macro events of note, today’s US docket is heavy with October retail sales, October CPI, weekly mortgage applications and existing home sales on deck. The Fed releases its FOMC minutes in the latter half of the US trading session. The baffle with BS, good Fed cop/bad Fed cop routine continues once more as Ny Fed’s Dudley and St Louis Fed’s Bullard speak on the economy and monetary policy.

US Data Docket

• US: CPI % y/y, cons 1.0% (8:30)
• US: Retail sales advance m/m, cons 0.1% (8:30)
• US: POMO $1.25-$1.75 billion
• US: Existing home sales m/m, cons -2.7% (11:00)
• US: Fed speaker Bullard (13:10)
• US: Minutes of Oct 29-30 FOMC meeting (15:00)

Market Re-Cap

Dovish comments by Bernanke late yesterday, together with the release of comments by an advisory panel in Japan which indicated that Japan’s GPIF (pension fund) should raise its ratio of foreign assets failed to encourage sustained flow into riskier assets and instead stocks traded lower as market participants awaited the release of the FOMC minutes. Nevertheless, reports citing an advisory panel which said that Japan’s GPIF should review domestic bond-focused portfolio and that foreign asset ratio should be raised resulted in a temporary lift in equity markets, with Bunds also trending lower ever since. However, the move higher was not sustained after it became apparent that new a law to reform GPIF can be written only by spring 2015 and as such is unlikely to result in any immediate impact on global asset classes.

In other news, as expected the release of the minutes from the most recent BoE policy meeting largely echoed the details of the Quarterly Inflation Report. The minutes also noted that the rise in inflation expectations are of little significance, few signs of them affecting wage demands, expectations seen well-anchored in medium term. Going forward, market participants will get to digest the release of the latest Existing Home Sales data, as well as the weekly DoE report from the US.

Overnight bulletin digest from Bloomberg and RanSquawk

• It was reported that Japan’s GPIF should review domestic bond-focused portfolio and that the foreign asset ratio should be raised, according to the GPIF Advisory Panel.
• However, later it was revealed by the Head of the GPIF Advisory Panel Ito that a new law to reform GPIF can be written by spring 2015 and thus provided a longer-term timeline for the news than initially expected.
• BoE minutes showed a 9-0 vote to keep QE unchanged at GBP 375bln and 9-0 to keep interest rates unchanged at 0.50%. Looking ahead market participants will get to digest a host of tier 1 data from the US as well as the FOMC minutes for the October meet.
• Treasuries maturing in 7Ys and longer gain after Bernanke last night said Fed will likely hold down fed funds rate long after ending QE and possibly after unemployment rate falls below 6.5%.
• Bank of England officials voted unanimously to keep policy unchanged this month and said a record-low interest rate may be needed even after unemployment falls to the threshold set under forward guidance, minutes to Nov. 6-7 meeting showed
• Japan’s Government Pension Investment Fund, the world’s largest manager of retirement savings, should become more independent of the government and review its domestic bond holdings, an advisory panel said
• The yuan’s three-month forwards touched a record high after China’s central bank strengthened the daily fixing to a record and elaborated on plans to ease exchange-rate controls
• Iran and world powers hold their third round of talks in six weeks toward a nuclear deal that would break a decade-long deadlock in the face of opposition from Israel and Saudi Arabia
• Sovereign yields higher, EU peripheral spreads wider. Asian stocks excluding China, European stocks, U.S. equity-index futures lower. WTI crude, copper little changed; gold lower

Asian Headlines

Japan GPIF should review domestic bond-focused portfolio, foreign asset ratio should be raised, according to panel.

– Japan should consider investing in Reits, private equity, commodities.
– Funds should consider investing in inflation-linked JGBS and indexes other than Topix.
– Pension funds should consider using JPX-Nikkei Index 400.

Head of the GPIF Advisory Panel Ito says new law to reform GPIF can be written by spring 2015.

– To consider lowering Japan bond allocation from level now.
– Japan reform panel head: GPIF, public pension funds won’t switch overnight to new ROE index from TOPIX for passive investment.

Of note, 5Y Chinese Interest Rate Swaps have reached a record high and overnight repo rates edged higher after Communist Party economic official Fang said very big chance one or two small China banks will fail next year and China must plan for bank fail scenarios to manage risks. Separately, China PBOC Deputy Governor Hu said China LGV financing may hide problems and make size too big

EU & UK Headlines

BoE MPC voted 9-0 to keep QE unchanged at GBP 375bln and 9-0 to keep interest rates unchanged at 0.50%.

– MPC growth and inflation projections underline there could be a case for not raising bank rate immediately when 7% threshold hit.

–
Rise in inflation expectations of little significance, few signs of
them affecting wage demands, expectations seen wellanchored in medium term.

Italian Head of Debt Management says expects domestic banks to cut bond holdings due to ECB’s sector check up.

ECB’s Weidmann said that there is no easy way out of crisis, printing money definitely not the solution.

Also stated that it is not sensible to immediately embark on next round of monetary policy easing after November rate cut, but also added that the ECB technically not at the end of its options.

Credit Suisse ZEW Survey Expectations (Nov) M/M 31.6 vs Prev. 24.9

US Headlines

Of note, Bernanke stated that the Fed remains committed to maintain highly accommodative policies for as long as they are needed and rates may stay near zero for considerable time after bond buys end.

Senate Democratic negotiator Patty Murray said she sees a path toward an agreement to ease automatic spending cuts Murray, asked if there was a path forward in her talks with her counterpart, Republican Representative Paul Ryan, said: “I believe there is.”

Equities

Heading into the North American open, stocks are lower across the board in Europe, with telecommunication sector underperforming where Vodafone is trading with losses close to 2%, with the stock trading exdividend today. Even though stocks traded lower, there is little sign of distress in credit markets. On a positive note, the FT reported tha
t US fund managers are eyeing a bank revival in the Eurozone with the belief that the regions stuttering economic recovery will soon gather steam.

FX

USD/JPY failed to benefit from the reports citing an advisory panel which said that Japan’s GPIF should review domestic bond-focused portfolio and that foreign asset ratio should be raised and instead was driven by option related flow. In particular, the 100.00 level said to mark good size option strikes. Elsewhere, GBP outperformed its major counterpart EUR this morning, supported by lower EUR/GBP cross which fell below the 10DMA and was itself driven by touted offers in
EUR/USD by US names.

Commodities

Heading into the North American open, WTI Crude in minor negative territory whilst Brent crude futures trade in minor positive territory amid relatively light news flow.

Saudi Arabia say they are unconcerned by a rising tide of US shale output which threatens to eat into OPEC’s market share according to the nations Deputy Oil Minister.

The Iranian Supreme leaders says Iran will not step back ‘one iota’ from its nuclear rights.

World copper demand is expected to grow 4.5% on year in 2014 according to the ICGS.

Moody’s says growth in Euro-area GDP and in steel demand user markets turns European steel industry outlook stable.

China September gold output at 37.64 tonnes, according to Industry Association.

 

SocGen summarizes the main macro developments

The minutes of the October FOMC meeting will help to determine if the melt-up in risk is justified and whether 2.66% is too low for the UST 10y (2.71% in swaps). The statement of the last Fomc meeting was perceived as a tad less dovish after the Fed eliminated the notion (i.e. showing less of a concern) that financial conditions had tightened. One must assume that a soft CPI number and tepid gain in retail sales before the minutes would potentially offset that bearish influence. We look for annual CPI to have slowed to 1% in October vs 1.2% last month. A further deviation from the target rate of 2.0% (corroborating with a corresponding fall in the Fed’s preferred inflation proxy, the PCE index) should give investors confidence that yields will stay in a range before the December employment report. This should help to support the flow of corporate issuance which has been very strong already over the last 48hours, resulting in 5y swap spreads tightening to below 10bp, the lowest in a year.

In the euro zone, ECB speakers are not shying away from efforts to jawbone the EUR lower but to not much avail. After chief economist Praet, vice-president Constancio joined the bandwagon yesterday but acknowledged that no detailed discussions have taken place (yet). Asmussen instead decided to highlight the option of a negative deposit rate. The OECD, forecasting 1% real GDP growth in 2014 and 1.6% in 2015, said the ECB should look at non-standard measures (i.e. QE) to bolster the economy and counter deflation risks. EUR/JPY accelerated to a new high above 135.50, supported by PBoC comments on widening the yuan band. A break of 135.82 will lift the medium-target to the October 2009 high of 138.50. Against this backdrop, the peripheral spread tightening has further to run with yield hungry investors nudging the 10y BTP yield closer to the 4% mark.

DB’s Jim Reid concludes the overnight event summary

A dovish-sounding Bernanke has failed to lift markets this morning as we enter a second day of consolidation. There was an initial pop as the text of the speech at the National Economists Club Annual Dinner in Washington was posted online. Indeed, S&P 500 futures traded up at +0.3% and EURUSD hit a high of 1.358 (+0.3%) shortly after the speech hit the newswires. But those moves were quickly pared, and there was little further from the Q&A to excite markets. And so we are now back to trading to flat on S&P500 futures while EURUSD is +0.1% on the day (the latter shrugging off further talk of unconventional policy tools from the ECB’s Constancio and the OECD). 10yr UST yields are unchanged at 2.71% as we type.

The message from Bernanke’s speech was very much as we have come to expect from the Chairman with an emphasis on lower for longer rates and the data-dependency of QE. He agreed with Yellen’s recent testimony that the surest path to a more normal approach to monetary policy is for the Fed to do all it can today to promote a more robust recovery. There was discussion over Bernanke’s overarching goals of improving the Fed’s transparency and he repeated previous statements that unemployment thresholds for rate hikes are purely thresholds and not triggers for action. The short Q&A was a little more informative where Bernanke argued that the effect of fiscal tightening is very near term. He also talked down the implications of falling employment participation by saying that falling participation had preceded the global financial crisis. He also said that he looks forward to life after the Fed where he will be concentrating on “writing and speaking”.

So as briefly touched upon above, Asian markets this morning are trading with a heavier tone, with the initial positive sentiment at the open replaced by a more subdued atmosphere. USDJPY is holding just above 100 while the TOPIX is down 0.3%. Japanese trade data for October showed that the trade balance deteriorated to -JPY1trn on the back of surging fossil fuel imports. Partly balancing this out, exports grew 18.6% YoY which beat expectations of 16.2%. The Chinese yuan non-deliverable forward is relatively stable overnight after dropping 0.2% yesterday on comments from the PBoC that it will lessen its intervention in FX markets and commit to a wider trading band. The Hang Seng China Enterprises Index remains the clear regional outperformer today (+0.8%) and is one of the only Asian bourses to trade higher today. Indeed, the H-share index is poised to close higher for its fifth consecutive day which would be its longest winning streak in three months. During the past five days the index has added about 11%, and has significantly outperformed its domestic onshore counterpart, the Shanghai Composite, which is only up 5%.

The China offshore/onshore dichotomy is something which we have highlighted in recent days, with there appearing to be more optimism offshore about Third Plenum reforms, while some onshore indicators lag. One of the issues we wrote yesterday was the tightening onshore liquidity conditions in China – despite offshore indicators such as USD Chinese corporate credit spreads and the HSCEI performing relatively well and seemingly indicating the opposite. The issue of liquidity is something which our Chinese rate strategist, Linan Liu, has highlighted as well. Linan writes that a couple of recent developments point to a potentially unsettling liquidity issue in China before the year-end. Firstly, the recent strong capital flows into China have been quite supportive but this is expected to reverse with dividend outflows expected before the year end. Secondly, liquidity supply from fiscal spending and treasury cash management auctions has been quite low. Thirdly, the PBoC has refrained from being very accommodative in the provision of liquidity. Fourthly,  investment in non-standardized assets by large financial  institutions is a near-term threat to interbank liquidity. All this leaves her bearish on rates into year end. Linan notes that 10yr CGB yields are trading at all-time highs (and they are up a further 5bp at 4.73% this morning), but that a further squeeze in money market rates may drive the 10Y CGB yield towards 5%. We would highlight this is not the first time we’ve seen a liquidity squeeze in China this year but we’re unsure if the latest bout is more a technical phenomenon or indicative of something more structural. Either way it’s something we’ll be watching over the coming weeks as the initial optimism over reform
announcements passes.

Coming back to the Fed, we should remind readers that today will see the release of the FOMC’s minutes from the October meeting. As with the previous month, market participants will be keen to see where the Fed is on the timing of tapering and whether there is anything on strengthening forward guidance. DB’s Joe Lavorgna suggests that the Fed may want to strengthen such guidance alongside a potential tapering of asset purchases in order to counteract any undesired tightening of financial conditions. While we’re on the topic of the Fed, vice-chair Janet Yellen sent a letter to US senators ahead of the Senate Banking committee’s vote on her nomination this Thursday. There was no new material information contained in the letter that we hadn’t heard in last week’s dovish testimony. Yellen repeated that she saw few signs that pre-crisis imbalances had returned.

Looking to today, we have a number of important risk events occurring over the next 24 hours. In the US we have one of the more busy days this week in terms of dataflow with October retail sales, October CPI, weekly mortgage applications and existing home sales. Consensus is expecting a 0% MoM print on headline CPI and markets will be watching to see whether we get the second straight month-on-month contraction in headline retail sales. The Fed releases its FOMC minutes in the latter half of the US trading session. The NY Fed’s Dudley and St Louis Fed’s Bullard will be speaking on the economy and monetary policy. Bullard is considered a bellwether in the Fed. The Bank of England also releases its latest meeting minutes this morning.

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Overnight repo rates are spiking once again in early trading as the typically smaller banks that are more desperate bid aggressively for whetever liquidity they can find. 5Y Chinese swap rates have also reached a record high as the Yuan reaches its highest since Feb 2005. Chinese authorities are clearly stepping up the rhetoric:

• *CHINA SHADOW-FINANCE RISKS WILL SPREAD TO BANKS, FANG SAYS
• *VERY BIG CHANCE ONE OR TWO SMALL CHINA BANKS WILL FAIL: FANG
• *SOME CHINA TRUST INVESTMENT FIRMS MAY FAIL, SELL ASSETS: FANG
• *CHINA MUST PLAN FOR BANK-FAIL SCENARIOS TO MANAGE RISKS: FANG
• *CHINA NEEDS TO PAY MORE ATTENTION TO CORPORATE LEVERAGE: HU

The gambit between the PBOC’s liqudity provision and the growing dependence on their “spice” is clear – the question is, of course, will banks send a message (via the markets) to the PBOC or will they self-select (on first-mover’s advantage) eradicating the weakest.

 

5Y Chinese Interest Rate Swaps have reached a record high (implying expectations priced into the market of rising interest rates)…

 

and short-term liquidity is problematic again as overnight repo jumps to 5.00% in early trading..

 

What everyone is wondering is – with the failure of 1 or 2 banks seemingly guaranteed – how will the contagion be contained? How will the interbank market respond when no one knows who is it? We know what happened in the US in 2008…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_27dTDfxJAc/story01.htm Tyler Durden

Overnight repo rates are spiking once again in early trading as the typically smaller banks that are more desperate bid aggressively for whetever liquidity they can find. 5Y Chinese swap rates have also reached a record high as the Yuan reaches its highest since Feb 2005. Chinese authorities are clearly stepping up the rhetoric:

• *CHINA SHADOW-FINANCE RISKS WILL SPREAD TO BANKS, FANG SAYS
• *VERY BIG CHANCE ONE OR TWO SMALL CHINA BANKS WILL FAIL: FANG
• *SOME CHINA TRUST INVESTMENT FIRMS MAY FAIL, SELL ASSETS: FANG
• *CHINA MUST PLAN FOR BANK-FAIL SCENARIOS TO MANAGE RISKS: FANG
• *CHINA NEEDS TO PAY MORE ATTENTION TO CORPORATE LEVERAGE: HU

The gambit between the PBOC’s liqudity provision and the growing dependence on their “spice” is clear – the question is, of course, will banks send a message (via the markets) to the PBOC or will they self-select (on first-mover’s advantage) eradicating the weakest.

 

5Y Chinese Interest Rate Swaps have reached a record high (implying expectations priced into the market of rising interest rates)…

 

and short-term liquidity is problematic again as overnight repo jumps to 5.00% in early trading..

 

What everyone is wondering is – with the failure of 1 or 2 banks seemingly guaranteed – how will the contagion be contained? How will the interbank market respond when no one knows who is it? We know what happened in the US in 2008…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_27dTDfxJAc/story01.htm Tyler Durden

Submitted by Michael Krieger of Liberty Blitzkrieg blog,

The more corrupt the state, the more numerous the laws.
– Tacitus

Ever since I started writing about what is happening in the world around me, my primary theme has been that the root cancer at the core of the U.S., and indeed global economy, is cronyism and an absence of the rule of law when it comes to oligarchs. In the U.S., this cronyism is best described as an insidious relationship between large multi-national corporations and big government to funnel all of the wealth and resources of the nation to themselves at the expense of everyone else. In a genuine free market defined by heightened competition and governed by an equal application of the rule of law to all, the 0.1% does not aggregate all of a nation’s wealth. This sort of thing only happens in crony capitalism, which is basically nothing more than complete and total insider deals to aggregate newly created money into the hands of the few.

The following profile of Washington D.C.’s so-called “boom” from the St. Louis Post-Dispatch pretty much tells you all you need to know. While I think the tone of the article is absurd considering this is no “economic boom,” but merely parasitic wealth extraction on a unprecedented scale, it is still quite telling. It is no coincidence that as D.C. has grown wealthier, the nation has become much, much poorer. Key excerpts below:

The avalanche of cash that made Washington rich in the last decade has transformed the culture of a once staid capital and created a new wave of well-heeled insiders.

 

The winners in the new Washington are not just the former senators, party consiglieri and four-star generals who have always profited from their connections. Now they are also the former bureaucrats, accountants and staff officers for whom unimagined riches are suddenly possible. They are the entrepreneurs attracted to the capital by its aura of prosperity and its super-educated workforce. They are the lawyers, lobbyists and executives who work for companies that barely had a presence in Washington before the boom.

 

At the same time, big companies realized that a few million spent shaping legislation could produce windfall profits. They nearly doubled the cash they poured into the capital.

Sorry these aren’t “entrepreneurs,” they are parasitic opportunists.

At Cafe Joe, a greasy spoon near the National Security Agency in suburban Maryland, software engineers with top-secret clearances merely have to look at the place mats under their fried eggs to find federal contractors trying to entice them away from their government jobs with six-figure salaries and stock options. The place-mat ads cost $250 a week. They are sold out through 2014.

 

During the past decade, the region added 21,000 households in the nation’s top 1 percent. No other metro area came close.

Two forces triggered the boom.

The share of money the government spent on weapons and other hardware shrank as service contracts nearly tripled in value. At the peak in 2010, companies based in Rep. James Moran’s congressional district in Northern Virginia reaped $43 billion in federal contracts — roughly as much as the state of Texas.

 

Back in 2000, the company spent a mere $260,000 lobbying Congress, federal records show. Its lobbyists mostly talked to lawmakers about health care: medical manufacturing issues, Medicare reimbursement rates, privacy of health records, and congressional oversight of the Food and Drug Administration.

 

By the end of the decade, the company had broadened its horizons dramatically. “Government relations” now accounted for $2.6 million — a tenfold increase. On one quarterly disclosure report from 2010, Boston Scientific listed 35 different pieces of legislation on which it was lobbying. They included proposals on patent reform, tax penalties for moving American jobs abroad, tax credits for research and development, rules for transporting lithium batteries, limits on workers’ ability to form labor unions and federal regulation of certain types of financial derivatives.

 

Government relations has become so important to the bottom line of a modern company, Becker said, that it should be a required course at business school. The numbers suggest she’s right. Companies spent about $3.5 billion annually on lobbying at the end of the last decade, a nearly 90 percent increase from 1999 after adjusting for inflation, political scientist Lee Drutman notes in a forthcoming book, “The Business of America Is Lobbying.”

And you wonder why the economy sucks?

Legal services also boomed, fueled by the growing complexities of federal business regulations. The number of lawyers in the D.C. metro area increased by a third from 2000 to 2012, nearly twice as fast as the growth rate nationwide. And those lawyers have the highest mean salaries in the country, according to George Mason University’s Center for Regional Analysis.

 

The more companies spend on influence, the lower their effective tax rates and the higher their stock returns compared with competitors’, according to recent research. A company called Strategas has built an index to track the stock performance of the 50 companies that lobby the most; last year, that index outperformed the rest of the market by 30 percent.

If you still are confused why the U.S. economy is completely stuck in the mud, look no further than the parasites of Washington D.C.

Full article here.

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From Jeremy Grantham of GMO

Timing Bear Markets

My personal view is that the Greenspan-Bernanke regime of excessive stimulus, now administered by Yellen, will proceed as usual, and that the path of least resistance, for the market will be up. I believe that it would take a severe economic shock to outweigh the effect of the Fed’s relentless pushing of the market. Look at the market’s continued advance despite almost universal disappointment in economic growth. Exhibit 3 shows the economic forecasts for major economic countries made a year ago by the IMF compared to what actually happened. Only Japan was a modest pleasant surprise at 0.7% ahead of forecast and the U.K. and Switzerland scraped home by the skin of their teeth. Everyone else fell short. There have been few such occasions when such broad disappointment with economic growth still allowed the U.S. and most other major economies to make material upward moves in their stock markets. It is yet another testimonial to the global reach of the Fed’s stimulus of equities (as was the very substantial decline in emerging market equities on just talk of tapering!)

In equities there are few signs yet of a traditional bubble. In the U.S. individuals are not yet consistent buyers of mutual funds. Over lunch I am still looking at Patriots’ highlights and not the CNBC talking heads recommending Pumatech or whatever they were in 1999. There are no wonderful and infl uential theories as to why the P/E structure should be much higher today as there were in Japan in 1989 or in the U.S. in 2000, with Greenspan’s theory of the internet driving away the dark clouds of ignorance and ushering in an era of permanently higher P/Es. (There is only Jeremy Siegel doing his usual, apparently inexhaustible thing of explaining why the market is actually cheap: in 2000 we tangled over the market’s P/E of 30 to 35, which, with arcane and ingenious adjustments, for him did not portend disaster. This time it is unprecedented margins, usually the most dependably mean reverting of all fi nancial series, which are apparently now normal.) By June this year, markets felt relatively quiet and under the surface there was still a considerable undertow of risk aversion in the institutions. The Russell 2000 and the GMO High Quality universe were both just level with the S&P, all up 16%. Normally we would have expected the Russell to outperform handsomely. However, since then speculation has perked up so that today, the broad U.S. market is up 20% and the Russell 2000 is a more typical six points ahead while stocks in the GMO High Quality universe are several points behind. We have also had a sharp and unexpected uptick in parts of the IPO market in the U.S., so I would think that we are probably in the slow build-up to something interesting – a badly overpriced market and bubble conditions.

My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve. We acclaimed the original perpetrator of this ill-fated plan – Greenspan – to be the great Maestro, in a general orgy of boot licking. His faithful acolyte, Bernanke, was reappointed by a democratic president and generally lauded for doing (I admit) a perfectly serviceable job of rallying the troops in a crash that absolutely would not have occurred without the dangerous experiments in deregulation and no regulation (of the subprime instruments, for example) of his and his predecessor’s policy. At this rate, one day we will praise Yellen (or a similar successor) for helping out adequately in the wreckage of the next utterly unnecessary financial and asset class failure. Deregulation was eventually a disappointment even to Greenspan, shocked at the bad behavior of fi nancial leaders who, incomprehensibly to him, were not even attempting to maximize long-term risk-adjusted profits. Indeed, instead of the “price discovery” so central to modern economic theory we had “greed discovery.”

(Memo: “price discovery” is the process that happens in an open and competitive and unregulated market, where the interplay of supply, demand, and cost structures determines the effi cient price. “Greed discovery” is the process by which a vastly and unnecessarily complicated fi nancial system is exploited by expert insiders. These insiders have far more knowledge than the lambs – formerly known as clients – and without adequate regulations the lambs are defleeced in a surge of “rent seeking.”)

In the meantime investors should be aware that the U.S. market is already badly overpriced – indeed, we believe it is priced to deliver negative real returns over seven years – and that most foreign markets having moved up rapidly this summer are also overpriced but less so. In our view, prudent investors should already be reducing their equity bets and their risk level in general. One of the more painful lessons in investing is that the prudent investor (or “value investor” if you prefer) almost invariably must forego plenty of fun at the top end of markets. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.

Inconvenient Conclusion

Be prudent and you’ll probably forego gains. Be risky and you’ll probably make some more money, but you may be bushwhacked and, if you are, your excuses will look thin. Your call. We of course are making our call.

Postscript 1

What can go wrong for the market? There is a slow and for me rather sinister slowing down of economic growth, most obviously in Europe but also globally, that could at worst overwhelm even the Fed. The general lack of fiscal stimulus globally and the almost precipitous decline in the U.S. Federal deficit in particular do not help. What are the odds in the next two years? Perhaps one in four.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0pBQ_weTHcU/story01.htm Tyler Durden

From Jeremy Grantham of GMO

Timing Bear Markets

My personal view is that the Greenspan-Bernanke regime of excessive stimulus, now administered by Yellen, will proceed as usual, and that the path of least resistance, for the market will be up. I believe that it would take a severe economic shock to outweigh the effect of the Fed’s relentless pushing of the market. Look at the market’s continued advance despite almost universal disappointment in economic growth. Exhibit 3 shows the economic forecasts for major economic countries made a year ago by the IMF compared to what actually happened. Only Japan was a modest pleasant surprise at 0.7% ahead of forecast and the U.K. and Switzerland scraped home by the skin of their teeth. Everyone else fell short. There have been few such occasions when such broad disappointment with economic growth still allowed the U.S. and most other major economies to make material upward moves in their stock markets. It is yet another testimonial to the global reach of the Fed’s stimulus of equities (as was the very substantial decline in emerging market equities on just talk of tapering!)

In equities there are few signs yet of a traditional bubble. In the U.S. individuals are not yet consistent buyers of mutual funds. Over lunch I am still looking at Patriots’ highlights and not the CNBC talking heads recommending Pumatech or whatever they were in 1999. There are no wonderful and infl uential theories as to why the P/E structure should be much higher today as there were in Japan in 1989 or in the U.S. in 2000, with Greenspan’s theory of the internet driving away the dark clouds of ignorance and ushering in an era of permanently higher P/Es. (There is only Jeremy Siegel doing his usual, apparently inexhaustible thing of explaining why the market is actually cheap: in 2000 we tangled over the market’s P/E of 30 to 35, which, with arcane and ingenious adjustments, for him did not portend disaster. This time it is unprecedented margins, usually the most dependably mean reverting of all fi nancial series, which are apparently now normal.) By June this year, markets felt relatively quiet and under the surface there was still a considerable undertow of risk aversion in the institutions. The Russell 2000 and the GMO High Quality universe were both just level with the S&P, all up 16%. Normally we would have expected the Russell to outperform handsomely. However, since then speculation has perked up so that today, the broad U.S. market is up 20% and the Russell 2000 is a more typical six points ahead while stocks in the GMO High Quality universe are several points behind. We have also had a sharp and unexpected uptick in parts of the IPO market in the U.S., so I would think that we are probably in the slow build-up to something interesting – a badly overpriced market and bubble conditions.

My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve. We acclaimed the original perpetrator of this ill-fated plan – Greenspan – to be the great Maestro, in a general orgy of boot licking. His faithful acolyte, Bernanke, was reappointed by a democratic president and generally lauded for doing (I admit) a perfectly serviceable job of rallying the troops in a crash that absolutely would not have occurred without the dangerous experiments in deregulation and no regulation (of the subprime instruments, for example) of his and his predecessor’s policy. At this rate, one day we will praise Yellen (or a similar successor) for helping out adequately in the wreckage of the next utterly unnecessary financial and asset class failure. Deregulation was eventually a disappointment even to Greenspan, shocked at the bad behavior of fi nancial leaders who, incomprehensibly to him, were not even attempting to maximize long-term risk-adjusted profits. Indeed, instead of the “price discovery” so central to modern economic theory we had “greed discovery.”

(Memo: “price discovery” is the process that happens in an open and competitive and unregulated market, where the interplay of supply, demand, and cost structures determines the effi cient price. “Greed discovery” is the process by which a vastly and unnecessarily complicated fi nancial system is exploited by expert insiders. These insiders have far more knowledge than the lambs – formerly known as clients – and without adequate regulations the lambs are defleeced in a surge of “rent seeking.”)

In the meantime investors should be aware that the U.S. market is already badly overpriced – indeed, we believe it is priced to deliver negative real returns over seven years – and that most foreign markets having moved up rapidly this summer are also overpriced but less so. In our view, prudent investors should already be reducing their equity bets and their risk level in general. One of the more painful lessons in investing is that the prudent investor (or “value investor” if you prefer) almost invariably must forego plenty of fun at the top end of markets. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.

Inconvenient Conclusion

Be prudent and you’ll probably forego gains. Be risky and you’ll probably make some more money, but you may be bushwhacked and, if you are, your excuses will look thin. Your call. We of course are making our call.

Postscript 1

What can go wrong for the market? There is a slow and for me rather sinister slowing down of economic growth, most obviously in Europe but also globally, that could at worst overwhelm even the Fed. The general lack of fiscal stimulus globally and the almost precipitous decline in the U.S. Federal deficit in particular do not help. What are the odds in the next two years? Perhaps one in four.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0pBQ_weTHcU/story01.htm Tyler Durden