Tag: finance

In the aftermath of last week’s disappointing G-20 Shanghai summit, there was much riding on this weekend’s start of the China’s People’s Congress, and specifically what if any stimulus announcement Beijing will make; sadly for stimulus addicts China mostly disappointed and after the unimaginative scope of growth proposals, it is hardly surprising that European stocks and US equity futures have taken a leg lower, even if Chinese stocks rose and certain commodities such as Iron Ore soared overnight on hopes China will either “rationalize” capacity or at least build some more roads to nowhere. Others, such copper were less lucky.

While few will admit, what is happening is that China has effectively confirmed the current reform cycle has been a failure and is going back to square one: as Nicola Marinelli, a fund manager at Pentalpha Capital In London told Bloomberg, “China is serving more of the same solution, more stimulus, but it just makes things worse later and it’s becoming apparent that it cannot sustain the official growth rate.

Elsewhere, European banks are starting to slide now that attention turns to Thursday’s ECB meeting when Mario Draghi is expected to further cut the European deposit rate by 10 to 20 bps, in the process further impairing bank profits. On this Marinelli said, “the ECB might also disappoint, GDP growth remains sub-par and we don’t know what to do about it, while a higher oil price means higher inflation soon and hence less headroom for central banks.”

Aside from equities, the oil ramp has shown some further strength overnight as “weak hand” shorts continue to be squeezed, while gold’s levitation continues on concerns how other central banks will respond in the global currency war in retaliation to the ECB’s further monetary easing this week. 

 

WTI extends gains to 2 month highs after the U.S. rig count fell to lowest since Dec. 2009. Brent touches highest since Dec. amid speculation ECB will increase stimulus when it meets Thursday. “On the supply-side we are continuing to see a freefall in the rig count, which confirms what has been the U.S. supply outlook for some time that we’d see production stop gaining and decline this yr,” says Danske Bank senior analyst Jens Pedersen. “The rate the rig count has fallen means output may decline harder than what was expected.”

As of this moment, according to Bloomberg, European shares fell with metals, while the dollar and German bonds climbed, as investors assessed the impact of China’s growth plans and the potential for European Central Bank stimulus measures this week. Miners led declines in the Stoxx Europe 600 Index, with Glencore Plc and Anglo American Plc among the biggest losers, a turnaround from last week’s rally. Copper fell from a four-month high, while investors continued adding to gold holdings. French bonds led gains in euro-area government securities, while the euro sank on speculation the ECB will lower the deposit rate and boost bond purchases. Crude extended last week’s gains.

The Stoxx 600 was down 0.8 percent as of 11:06 a.m. London time, while copper sank 0.8 percent. The euro fell 0.5 percent to $1.0956 and yields on German 10-year bonds fell three basis points to 0.2 percent.

Where the markets stand now:

• S&P 500 futures down 0.5% to 1986
• Stoxx 600 down 0.9% to 339
• FTSE 100 down 0.9% to 6145
• DAX down 1.3% to 9695
• German 10Yr yield down 4bps to 0.2%
• Italian 10Yr yield down 2bps to 1.44%
• Spanish 10Yr yield up 2bps to 1.58%
• MSCI Asia Pacific down 0.2% to 126
• MSCI Asia Pacific down 0.2% to 126
• Nikkei 225 down 0.6% to 16911
• Hang Seng down less than 0.1% to 20160
• Shanghai Composite up 0.8% to 2897
• US 10-yr yield up 3bps to 1.9%
• Dollar Index up 0.25% to 97.59
• WTI Crude futures up 1.1% to $36.32
• Brent Futures up 1% to $39.10
• Gold spot up 0.7% to $1,268
• Silver spot up 1.2% to $15.70

Top Global News:

• Jefferies Said to Reorganize Leveraged Finance, Promoting Walsh: Unit chief Lockhart, sponsors head Sokoloff said to leave bank. Firm looks to boost coordination between unit, joint venture
• Wells Fargo Said to Seek Dealmaking Chief to Succeed Laughlin: Seeking a new head of mergers and acquisitions to succeed John Laughlin, who will serve as vice chairman of the business
• United’s Munoz Returns as CEO Next Week After Heart Transplant: Chief had undergone transplant surgery in early January. ‘I’m ready to join you,’ he tells airline workers in a video
• Apple Software Chief Warns One Phone Break-in Can Wreak Havoc: Federighi argues government order seeks to weaken security. Criminals could exploit IPhone backdoor once created

Looking at regional markets, we start in Asia where stocks traded mostly higher following last Friday’s positive close on Wall St. where firm Non-Farm Payrolls figures and a resurgence in the commodities-complex boosted sentiment. ASX 200 (+0.93%) and the Shanghai Comp (+0.65%) was led higher by commodities after WTI broke above the USD 36/bbl level and iron ore extended on gains to hit limit up in Shanghai. Elsewhere, Nikkei 225 (-0.44%) underperformed as large exporter names were pressured by JPY strength.

Chinese Premier Li announced a GDP growth target range of between 6.5%-7.0% for this year vs. about 7.0% target last year, which is the first time China has opted to target a growth range in 20 years. Premier Li also announced details of China’s 5 year plan in which it aims for minimum growth of 6.5% annually through to 2020 and will also introduce a range of tax cuts this year. (Nikkei)

Top Asian News

• CLOs Revived in Japan for First Time Since 2011 Amid Yield Hunt: Japan Finance Corp is set to sell 7.5b yen ($66m) of bonds backed by loans of regional banks
• Australia Sees Resources Price Rebound as Supply Gluts Ease: Commodity demand will rebound on Asia’s urbanization, population to spur demand, Resources and Energy Minister says
• China Said to Plan Crackdown on Loans for Home Down- Payments: Chinese regulators plan to impose new rules, as they step up scrutiny of financing risk in property markets
• China’s Growth Addiction Leaves Deleveraging in Back Seat: Baseline of 6.5% GDP growth through 2020 curbs policy scope, more fiscal, monetary support on its way, as is more debt
• Malaysia Palm Reserves Seen at 11-Month Low as Output Falls: Feb. production seen at lowest since 2011

Despite the apparent risk on sentiment observed over during the Asian trading session, partly in reaction to supportive comments by Chinese Premier Li, positioning ahead of key risk event meant that stocks traded lower since the get-to in Europe. At the same time, combination of profit taking and healthy scepticism by some IB names in relation to the recent upside in base metals, meant that material names underperformed on the sector breakdown. The cautious sentiment also translated into upside bias by Bunds, though Gilts have underperformed amid the ongoing Brexit concerns. Though peripheral bond yield spreads traded mixed, with GR/GE 10y wider by 5bps, while FR/GE 10y spread tightened by 1bps.

Top European News

• EDF Finance Chief Resigns as U.K. Hinkley Point Decision Nears: Piquemal said to be worried that final decision being rushed. Executive expressed concern over financial impact of project
• BASF Said Working With Banks to Weigh Counter-Bid for DuPont: German chemicals company said undecided whether to proceed. BASF said to have spoken to DuPont last year before Dow merger
• Old Mutual Rises Most in Three Months on Speculation of Breakup: climbed in Johannesburg trading after the company said it’s considering all options for the business as part of a strategic review. Co. also traded in London

In FX, there are few discernible themes to note today. We would have expected some adjustment lower in the EUR pairs, but the lead spot rate dropped back from 1.1000+ highs to find fresh support in the mid 1.0900’s. All eyes and ears are on the ECB meeting this week, and despite fears that policy action will not be ‘enough’ to appease the market, the disappointment factor is prompting EUR support already. Cable is suffering a little as EUR/GBP grinds higher — this despite the latest YouGov poll showing the ‘stay in’ camp maintaining a lead for 4 consecutive weeks. Pressure on USD/JPY and the respective cross rates as BoJ Kuroda continues to warn against fresh policy expectations. Spot now back in the mid 113.00’s, but no real momentum on the downside to note as yet. Oil prices holding up, but the CAD off better levels along with the AUD and NZD.
 
The energy complex largely shrugged off downbeat sentiment that dominated the price action over the Europe, with both WTI and Brent crude futures trading higher, as the focus remained on the better than expected US data and the ongoing reduction in US rig count. Elsewhere, copper prices declined marginally from 4-month highs on profit taking, while iron ore continued to surge alongside steel rebar gains with both hitting limit up in early Shanghai trade which in turn saw Singapore iron ore futures advance over 16% amid expectations steel mills will be ramping up production.

Iranian oil official stated that Iran’s oil and gas condensate exports are to hit 2mln bpd by month-end. (SHANA) Also of note, it was reported citing UAE minister stating that the state has not received an invitation for oil producers meeting.

Looking at today’s event calendar, the only data of note in the US this afternoon is the January consumer credit reading.

Bulletin Headline Summary

• Cautious sentiment dominated the price action as market participants position for the upcoming ECB policy meeting
• EUR/USD failed to benefit from the un-wind of carry-related flow and instead the price action was dominated by pre-positioning ahead of the eagerly awaited ECB policy meeting
• Going forward, there is little in terms of tier-1 economic releases and the price action is widely expected to remain a by-product of ECB based policy expectations

DB’s Jim Reid concludes the overnight wrap

No doubt about what the big event of the week is…. Liverpool vs. Man U in the Europa League. As a warm up act we have the eagerly anticipated ECB meeting on the same day. I’m not sure if one is ever meant to feel sorry for central bankers, but this Thursday’s meeting is an incredibly hard one to calibrate for a variety of reasons. Firstly the market which was in panic mode 3-4 weeks ago is slowly regaining poise partly on expectations of action from the ECB and partly on higher oil and better recent US data. So expectations had been building up in weaker markets than we’re seeing now. However European data has been disappointing over this period relative to the US and inflation expectations are going lower again with lingering worries about what the recent sell-off in bank equities might mean for lending and thus growth going forward.

Like with the December meeting, expectations are high but 3 months further on the market is going to not only be sensitive to the scale of action but also the nuances. Simple standard cuts further into negative deposit rate territory could easily be seen as negative for banks and in turn the economy and markets if it’s perceived to impact their profitability and thus the transmission mechanism. As Mark Wall pointed out to me even front loading/increasing QE is a risk if it flattens curves further and erodes net interest margins. On the other hand being kind to banks might be seen as counter-productive medium-term as the ECB is keen for banks to adjust to the new world and find a more sustainable business model. So although policy aimed at increasing bank profits might be good for the economy in the short-term it’s hard to imagine the ECB sanctioning this without being in a deep crisis.

So where are DB’s expectations given all this? Mark Wall thinks we’ll see a two-tier system producing a cumulative fall in the Eonia rate of about 10bps. Note that this implies a much larger cut on the rate attached to the lowest tier. Second, his expectation is for new TLTRO auctions until the end of 2017. To further incentivise lending the ECB could decide to introduce a dedicated negative refi rate only for the TLTROs but there remains the risk that the Governing Council sees a negative refi rate as an unwarranted relief for banks. Third, the Governing Council could compromise by agreeing upon a temporary EUR 10bn acceleration in the pace of its monthly QE purchases. Mark feels his team is at the lower end of market expectations, and overall the risks are skewed towards less action. To sum up in a sentence, for the market to be happy it probably wants to see some way of prioritising credit easing over QE/simple deposit cuts.

All that to look forward to on Thursday but in the meantime the bulk of weekend’s newsflow has been focused on China and specifically the important snippets of information which have come out of the NPC. As widely expected we’ve had confirmation from the Premier Li Keqiang that the government is targeting GDP growth of between 6.5% to 7.0% this year (remember this had already been mentioned by the head of the NDRC back in January), with 6.5% also being set as the baseline rate through to 2020. In order to achieve this, the Premier is also proposing for a budgetary fiscal deficit of 3.0% of GDP this year, up from the 2.3% target last year (and 2.4% actual number). As well as this, the M2 growth target has been raised to 13% from 12% and the CPI increase is to be kept around 3%. Commenting on the announcements, DB’s Zhiwei Zhang thinks that the actual fiscal deficit and M2 growth may well exceed their targets again in 2016. Zhiwei highlights that Premier Li reiterated the government will try to avoid a massive general fiscal stimulus, but the recent policy actions seem to suggest a quite significant policy easing, including record high new loans in January, a rapid rise of bond issuance, a RRR cut and lower down payments required. This is suggesting that the overall fiscal policy stance may loosen more than the central government fiscal deficit suggests and Zhiwei is forecasting for the deficit to reach 4%, while on the monetary side he expects M2 growth to reach 14%.
Meanwhile, two announcements that have surprised Zhiwei from the work plan are the growth rates of budgetary fiscal revenue (cut to 3.0% from 5.8%) and expenditure (cut to 6.7% from 8.0%) being lower than they were in 2015, and secondly the work plan being less ambitious relative to 2015, on capital account liberalization and RMB internationalization. Zhiwei and his team maintain their growth forecast of 6.7% this year, with Q3 and Q4 in particular showing slowdown. They expect two more interest rate cuts in H2 and 3 more RRR cuts, one in each quarter beyond Q1.

Bourses in China have kick-started the week on the front foot post the weekend newsflow with the Shanghai Comp and CSI 300 up +0.78% and +0.59% respectively at the midday break, while the tech heavy Shenzhen has rallied for a +2% gain. Markets are also waiting on China’s latest FX reserves data which is due out at any stage now, while headlines this morning on Bloomberg suggesting that Chinese regulators are to stamp down on loans for house down-payments is also attracting some focus.

Elsewhere it’s a bit more mixed across the Asia region this morning. The Nikkei is down -0.47%, the Hang Seng is flat but has been volatile on the back of the news that Hong Kong residential home sales were said to have fallen 70% yoy in February, while there’s been gains for the Kospi (+0.26%) and ASX (+1.17%). Credit markets in Asia and Australia are flat to modestly tighter.

Meanwhile the US Presidential race – and specifically the Republican battle – has seen Ted Cruz pick up two victories in Kansas and Maine, with Trump taking Louisiana and Kentucky. Importantly, the victories for Cruz have seen him solidify his role as the main challenger to Trump in the Republican race in what’s looking now like a two-horse race.

Moving on. So after the whisper number had been leaning lower heading into Friday’s employment report, February nonfarm payrolls proved to be a big surprise to the upside with a robust and consensus beating +242k (vs. +195k expected) of job gains including 30k of upward revisions to prior months. In fact the number was higher than 91 of the 92 Bloomberg economist forecasts with retail and healthcare sectors leading the charge and defying that weaker ISM services employment print which had people nervous. The other good news was the U-3 unemployment rate holding steady at 4.9% as expected, the broader U-6 measure edging down two-tenths to 9.7% and the lowest since May 2008, while the labour force participation rate ticked up two-tenths to 62.9% (vs. 62.8% expected) and the highest since July 2014. It wasn’t all good news however. Notably, average hourly earnings unexpectedly declined last month by -0.1% mom (vs. +0.2% expected) which had the effect of dragging down the YoY rate by three-tenths to 2.2%. As well as this, average weekly hours worked fell from 34.6 hours to 34.4 hours. While some of the chatter blamed the softer earnings data in particular on the timing of the survey, much of the debate switched towards the slowdown in hours rather than employment being an obvious response to weak productivity.

The initial reaction in markets was for the US Dollar to rally and equities to wipe out the bulk of the day’s gains. That was until the energy markets had their daily say. WTI (+3.91%) rallied to finish up close to $36/bbl (with the latest rig count decline boosting sentiment) to cap a near 10% rally over the week, while base metals also continued their strong run on Friday with Copper (+3.55%), Nickel (+3.78%) and Iron Ore (+4.98%) all up strongly. That saw European equities bounce back into the close (Stoxx 600 +0.70%) while the S&P 500, after initially opening in the red, finished +0.33% and a whisper below the 2000 level (closed at 1999.99) for its fourth consecutive daily gain and the longest such run since October. The USD index closed -0.38% with EM currencies the big winners yet again, while 10y yields edged up 4bps to 1.874%

Meanwhile the rally in credit continued with CDX IG another 2.5bps tighter on Friday, the eight day the index has finished stronger. European credit rallied too (Main -3bps, Crossover -15bps) while in a sign of how quickly sentiment can turn, BNP Paribas issued a subordinated bond deal on Friday, the first such deal by a European financial since the volatility which swept over the sector towards the end of January. The bonds ultimately pricing at the tight end of guidance.

Away from this the only other data of note was a confirmation of a widening in the US trade deficit to $45.7bn from an upwardly revised $44.7bn in December. The Fed’s Kaplan also spoke again, saying that while he was pleased with last month’s employment report he still wants to see more evidence that the Fed will meet its inflation objective and that the Fed doesn’t have many tools left should the US fall into another recession.

Onto this week’s calendar now. Kicking off proceedings this morning in Europe is Germany where we’ll receive the January factory orders, followed closely by the latest Euro area investor confidence reading. The only data of note in the US this afternoon is the January consumer credit reading. It’s a busy morning for data in Asia tomorrow with the final revision to Q4 GDP in Japan, as well as the all important February trade numbers out of China. In Europe Germany industrial production and French trade data is due out prior to the preliminary reading for Euro area Q4 GDP (+0.3% qoq expected). It’s another quiet afternoon in the US on Tuesday with just the NFIB small business optimism print due. Wednesday is a light day for data all round with just French business sentiment and UK industrial production due in the morning, followed by the January wholesale inventories and trade sales data for the US in the afternoon. The focus of Thursday morning is in China again where we’ll get the February CPI and PPI prints, along with Japan PPI data. In Europe we’ll see German trade data and French industrial production prior to the main event of the week in the ECB monetary policy meeting in the early afternoon, with Draghi scheduled to speak after. In the US on Thursday we’ll see the latest initial jobless claims data along with February Monthly Budget Statement. We close the week on Friday in Europe with the final revision for Germany CPI in February and UK trade data. The final data of the week in the US is the February import price index.

Away from the data the only Fedspeak of note comes today when we’ll hear both Vice-Chair Fischer and Governor Brainard speak at 6pm tonight. Away from this the Euro area Finance Minister’s meeting in Brussels today may be worth keeping an eye on along with the emergency meeting between EU leaders on the refugee crisis this afternoon. We’ll also be keeping up to date with any further interesting information from the National People’s Congress in China.

via Zero Hedge http://ift.tt/1QZAORn Tyler Durden

After three consecutive declines in China’s Foreign Reserves in the November-January period, which averaged nearly $100 billion per month (with particular attention paid to last month’s number), consensus expectations were for a moderation in reserve outflows in February to approximately $40 billion in February; moments ago the PBOC reported, that as expected, reserve outflow “slowed down” to just $28.6 billion, bringing China’s total foreign reserves to $3.2 trillion, the lowest level since early 2012.

 

With the February drop, Chinese total reserves are back to levels last seen in early 2012.

 

One factor for the slowdown in Chinese capital outflows may be the relative stability of the Chinese currency, which after suffering a substantial devaluation at the end of 2015 and early 2016, has since stabilized to levels during the start of year fixing. As Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd., told Bloomberg “financial markets were more stable last month compared with January and the sentiment toward the yuan has improved. Capital outflows may slow down in the second half of this year if economic fundamentals improve.”

Policy makers have been burning through their stockpile to help stabilize the currency, a key goal for China’s leaders, who are gathered this week for their annual policy meeting in Beijing. The nation’s defense of the yuan depleted its foreign reserves by $513 billion last year, while Bloomberg Intelligence estimates that a record $1 trillion of money moved overseas in 2015.

According to one theory proposed by the BIS, “persistent capital outflows from China since mid-2014 were probably driven more by local companies paying down dollar-denominated debt — in anticipation of a stronger U.S. currency — than investors ditching assets.” Those same BIS experts have probably never had the please of bidding for an abandoned house in Vancouver for $7 million, a local housing bubble which is precisely a function of local investors taking their money offshore in a panic.

Finally, recall that just two weeks ago China stopped reporting the “position for forex purchase” a series which tracked total foreign exchange purchases by both the central bank and other financial institutions. Many – us included – saw this as a premeditated attempt to confuse market watchers and prevent the full picture of Chinese outflow data from emerging. As such one will surely take the PBOC’s reserve data with an excess capacity-producing mine of salt.

In other news, China reported that the value of its gold reserves jumped to $71 billion from $63.6 billion a month ago, with the actual inventory of reported gold rising from 57.18 million in January to 57.5 million as of last month.

via Zero Hedge http://ift.tt/1TYYImo Tyler Durden

Goldman does it again.

Just hours after the central banker-spawning investment bank issued a report in which it said the iron ore rally is likely to be short lived “in the absence of a material increase in Chinese steel demand, and steel raw materials will once again drive steel prices rather than the other way around”, overnight Iron Ore futures traded on the Singapore SGX exploded as much as 19% higher to $58.95 in one session.

 As seen in the chart below, the one day squeeze has been the most violent in years in trading. It probably goes without saying that with the market suddenly offerless, there has been virtually no actual volume as bids scramble to catch whatever asks they can find, in the process crushing whoever was short the commodity and unleashing countless margin calls.

 

The euphoria was also matched on China’s Dalian Commodity Exchange where Iron Ore soared limit up to $62.47/mt – the highest in six months.

 

On Monday, steel in China also rose by the daily limit, with steel reinforcement bar for May up 5 percent to 2,073 yuan a ton on the Shanghai Futures Exchange, and hot-rolled coil climbing the same amount to 2,256 yuan a ton.

The catalyst for the move was confusing: on one hand Chinese policy makers signaled their willingness to buttress growth in the ongoing People’s Congress, while on the other authorities reiterated pledges to cut excess industrial capacity, including in steel, and implement reforms, in what are clearly contradictory promises. It is clear on which side of the this “contradiction”  the market stands, if only for now.

As Bloomberg notes, iron ore has advanced in 2016, countering expectations it would see
further losses on mounting low-cost supply from Australia and Brazil and
weakening demand for steel in China, which accounts for about half of
global output. At the annual National People’s Congress at the weekend,
authorities said they’d allow a record high deficit and higher
money-supply target to support growth of 6.5 percent to 7 percent. The
nation will also subsidize cuts to excess capacity in industries such as
steel.

All of this means that China is back to its old, broken model which led China to the edge of the hard landing from which it is desperately trying to pull itself up from, and it will do so by unleashing all the same policies and debt-binge that put it here in the first place.  That should also answer questions about just how sustainable this rally truly is, apart from the technicals where the shorts have gotten pulverized.

Meanwhile, however, stocks are loving it with miners’ shares such as Australia’s Fortescue Metals rocketing higher by 24 percent. Steelmakers’ shares rose in China on Monday, with Baoshan Iron & Steel Co. up as much as 9.7 percent in Shanghai. Angang Steel Co. gained as much as 5.2 percent in Hong Kong, while Maanshan Iron & Steel rose 6.5 percent. In Australia, Rio — which said last week it expected the global supply of seaborne ore to outpace demand growth in the near term — gained 3.5 percent to the highest since December. BHP Billiton Ltd., which has forecast the raw material will probably extend declines to find a level well below $50, was up 5 percent.

Iron ore’s upswing this year has accompanied a revival in other commodities including oil and base metals such as copper. State efforts to cushion the loss of steel capacity in China, including helping retrenched staff, may help to improve the profit margins at mills that remain by reducing competition.

* * *

So to all those who listened to Goldman which just yesterday said the “Bearish case remains intact”, and pressed their shorts: our condolences.

This is what else Goldman’s Christian Lelong and Amber Cai said overnight.

Market roundup

Iron ore rallied 9% wow to US$53.50/t, a pace that flat and long steel prices failed to match with 5% and 2% wow increases respectively. On the demand side, the Chinese government announced a gradual deceleration in the economy and a modest increase in the fiscal deficit for 2016. Meanwhile, a recent tax cut on transactions should support property sales. On the supply side, up to half a million steel workers may be reallocated to other sectors in an effort to reduce overcapacity in the steel industry. Metallurgical coal also participated in the rally, rising 3% wow to US$79/t at a time when negotiations for the next quarterly benchmark prices are due to start. In spite of this relatively modest bounce in the seaborne market, 7.8Mtpa of production capacity has been flagged for closure since the start of the year. The US$420m proposed sale of the Buchanan mine in the US would indicate that premium assets are finally being offered after four years of price declines.

* * *

Spot iron ore prices have rebounded strongly from their recent low in mid-December. The contrast between a 24% ytd price rally and the previous period of mine closures and production cuts raises the following questions:

Q1: What has been driving this rally?

Steel prices should reflect the cost of raw materials and the level of industry profitability but the causal relationship between the two commodities can sometimes be reversed. In our view, steel prices have rallied because the market was in deficit and better margins were required to increase production ahead of the peak demand season. This mean reversion in steel margins happened to coincide with an unexpected increase in Chinese total social financing (TSF) for the month of January that fueled expectations of higher construction activity for 2016.

Q2: How is this rally likely to evolve?

The profitability of steel mills is the key indicator to watch, in our view. Higher steel prices encourage idled blast furnaces to incur start-up costs and resume production, but this window of profitability is currently at risk because of rapidly rising iron ore prices and a persistent mismatch between steel-making capacity and Chinese demand.

Q3: Why are we still bearish on iron ore?

We expect the current rally to be short-lived in the absence of a material increase in Chinese steel demand, and steel raw materials will once again drive steel prices rather than the other way around. The price signal to shut down marginal supply ex-China has been turned off temporarily but seaborne demand has essentially peaked and the stream of announced production cuts is bound to resume in the months ahead.

* * *

We have no doubt that Goldman will be right… in the months ahead. In the overnight session, we can’t help but feel sorry for anyone who decided to trade on Goldman’s reco and short ahead of today’s move.

via Zero Hedge http://ift.tt/1TDorRV Tyler Durden

 

We may well be in the eye of a cephalopod–WB7

via Zero Hedge http://ift.tt/1Stbad1 williambanzai7

Authored by Paul Craig Roberts,

Washington has a long history of massacring people, for example, the destruction of the Plains Indians by the Union war criminals Sherman and Sheridan and the atomic bombs dropped on Japanese civilian populations, but Washington has progressed from periodic massacres to fulltime massacring. From the Clinton regime forward, massacre of civilians has become a defining characteristic of the United States of America.

Washington is responsible for the destruction of Yugoslavia and Serbia, Afghanistan, Iraq, Libya, Somalia, and part of Syria. Washington has enabled Saudi Arabia’s attack on Yemen, Ukraine’s attack on its former Russian provinces, and Israel’s destruction of Palestine and the Palestinian people.

The American state’s murderous rampage through the Middle East and North Africa was enabled by the Europeans who provided diplomatic and military cover for Washington’s crimes. Today the Europeans are suffering the consequences as they are over-run by millions of refugees from Washington’s wars. The German women who are raped by the refugees can blame their chancellor, a Washington puppet, for enabling the carnage from which refugees flee to Europe.

In the article below Mattea Kramer points out that Washington has added to its crimes the mass murder of civilians with drones and missile strikes on weddings, funerals, children’s soccer games, medical centers and people’s homes. Nothing can better illustrate the absence of moral integrity and moral conscience of the American state and the population that tolerates it than the cavalier disregard of the thousands of murdered innocents as “collateral damage.” 

If there is any outcry from Washington’s European, Canadian, Australian, and Japanese vassals, it is too muted to be heard in the US.

As Kramer points out, American presidential hopefuls are competing on the basis of who will commit the worst war crimes. A leading candidate has endorsed torture, despite its prohibition under US and international law. The candidate proclaims that “torture works” — as if that is a justification — despite the fact that experts know that it does not work. Almost everyone being tortured will say anything in order to stop the torture. Most of those tortured in the “war on terror” have proven to have been innocents. They don’t know the answers to the questions even if they were prepared to give truthful answers. Aleksandr Solzhenitsyn relates that Soviet dissidents likely to be picked up and tortured by the Soviet secret police would memorize names on gravestones in order to comply with demands for the names of their accomplices. In this way, torture victims could comply with demands without endangering innocents.

Washington’s use of invasion, bombings, and murder by drone as its principle weapon against terrorists is mindless. It shows a government devoid of all intelligence, focused on killing alone. Even a fool understands that violence creates terrorists. Washington hasn’t even the intelligence of fools.

The American state now subjects US citizens to execution without due process of law despite the strict prohibition by the US Constitution. Washington’s lawlessness toward others now extends to the American people themselves.

The only possible conclusion is that under Clinton, George W. Bush, and Obama the US government has become an unaccountable, lawless, criminal organization and is a danger to the entire world and its own citizens.

via Zero Hedge http://ift.tt/1RvSgNJ Tyler Durden

Few issues spilt America as conclusively as the Second Amendment to the US Constitution, which protects the right of the people to keep and bear arms.

In July 2015, 50% of Americans said it is important to control gun ownership, and 47% said it is more important to protect the right of Americans to own guns (Pew).

Source: BofAML

The map above shows the divide in public opinion on expanding gun control, favored greatly by the metropolitan coasts, opposed with determination by the rural middle.

via Zero Hedge http://ift.tt/1L9GpZl Tyler Durden

Submitted by Adam Taggart via PeakProsperity.com,

via Zero Hedge http://ift.tt/1QYvJsv Tyler Durden

As central bank policy-makers' forecasts have become more pessimistic (i.e. more realistic), Lord Rothschild is unsurprised at the current malaise: "not surprisingly, market conditions have deteriorated further…So much so that the wind is certainly not behind us; indeed we may well be in the eye of a storm." On this basis, Rothschild highlights a "daunting litany of problems," warning those who are optimistically sanguine about the US economy that "2016 is likely to turn out to be more difficult than the second half of 2015."

Lord Rothschild Letter to Investors (via RIT Capital):

In my half-yearly statement I sounded a note of caution, ending up by writing that “the climate is one where the wind may well not be behind us”; indeed we became increasingly concerned about global equity markets during the last quarter of 2015, reducing our exposure to equities as the economic outlook darkened and many companies reported disappointing earnings. Meanwhile central banks’ policy makers became more pessimistic in their economic forecasts for, despite unprecedented monetary stimulus, growth remained anaemic.

 

Not surprisingly, market conditions have deteriorated further. So much so that the wind is certainly not behind us; indeed we may well be in the eye of a storm.

 

The litany of problems which confronts investors is daunting:

• The QE tap is in the course of being turned off and in any event its impact in stimulating asset prices is coming to an end.
• There’s the slowing down to an unknown extent in China.
• The situation in the Middle East is likely to be unresolvable at least for some time ahead.
• Progress of the US and European economies is disappointing.
• The Greek situation remains fraught with the country now having to cope with the challenge of unprecedented immigration.
• Over the last few years we have witnessed an explosion in debt, much of it repayable in revalued dollars by emerging market countries at the time of a collapse in commodity prices. Countries like Brazil, Russia, Nigeria, Ukraine and Kazakhstan are, as a result, deeply troubled.
• In the UK we have an unsettled political situation as we attempt to deal with the possibility of Brexit in the coming months.

The risks that confront investors are clearly considerable at a time when stock market valuations remain relatively high.

 

There are, however, some influential and thoughtful investment managers who remain sanguine about markets in 2016 on the grounds that the US economy is in decent shape – outside of manufacturing – while they feel that economic conditions may be improving. To them, the decline in these markets may have more to do with sentiment than substance. Others are less optimistic but feel that the odds remain against these potential difficulties materialising in a form which would undermine global equity markets. However our view is that 2016 is likely to turn out to be more difficult than the second half of 2015. Our policy will be towards a greater emphasis on seeking absolute returns. We will remain highly selective when considering public and private investment opportunities. Reflecting this policy, our quoted equity exposure has been reduced to 43% of net asset value.

 

There’s an old saying that in difficult times the return of capital takes precedence over the return on capital. Our principle will therefore be to exercise caution in all things in the current year, while remaining agile where opportunities present themselves. Problems have a habit of creating opportunities and I remain confident of our ability to identify and profit from them during 2016.

Perhaps Lord Rothschild is on to something…

Fundamentally…

Source: @DonDraperClone

Of course, even The Fed is forced to admit that recession probabilities are rising fast…  

 

And technically, we are indeed in the "eye of the storm"

 

However, we have seen this pattern on a bigger scale before… and it did not end well.

What happens next?

 

Eye of the Storm? Or Storm In A Teacup?

via Zero Hedge http://ift.tt/1TYwvw7 Tyler Durden

Officials would have you believe that all of this talk about banning cash is nonsense – a myth likely perpetuated by fringe bloggers or else by Austrian economists in the early stages of dementia.

The problem, however, is that we get more signs that cash is on the way out each and every day.

Take Larry Summers, who reckons it might be time to get rid of the $100 note in order to “make the world a better place” (the idea being that only criminals transact in high denomination notes). There’s also Citi’s Willem Buiter, and the German Council of “Experts” Peter Bofinger, and Harvard’s Kenneth Rogoff, and the list goes on. In fact, just yesterday we learned that Sweden will likely be completely cashless in the short space of 5 years.

As mentioned above, there’s always this amorphous notion of fighting crime built in there somehow as if the world’s central banks recently adopted a Batman mandate to go along with price stability, but the real reason is, and always will be, simple: controlling citizens’ economic decisions. Or, put a little more harshly: stripping depositors of their economic autonomy.

Do away with cash and you can set rates as low as you want them. People not spending enough to get the economy moving? Well to hell with those people – set interest rates at -30%. You can bet they’ll start spending then. Economy overheating? No problem, jack interest rates on savings up to +20% and watch the personal savings rate rise.

One of the most high profile cases of a looming cash ban is the ECB’s call for the elimination of the €500 note. Draghi, of course, says it’s “not about reducing cash.” Which is proof positive that it is. Here’s what we said last month: 

Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:

Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!

Well on Sunday we got an interesting tip from a reader with the following attachment:

That’s from Piraeus Bank and it can be found here under this table:

Note that 5.9 (where this appears) is apparently a new line item – or at least it wasn’t there last month:

While we’re not entirely sure what this means in the context of the elimination of the €500 note, we wonder if it’s possible that the ECB is going to try and charge citizens for turning in their high denomination bills, thereby making a profit off the €500’s “retirement”? 

As a reminder, Greeks who stored €500 notes at home “rushed to deposit the money in their accounts” once the ECB made it clear it was considering doing away with the big bills.

Just look at it as a repo for everyday depositors: post your €500 notes as collateral, take the haircut, get smaller bills in return. 

via Zero Hedge http://ift.tt/24Kx3cQ Tyler Durden

Hedge Funds covered their short oil bets by the most in 11 months last week. CFTC data shows managed-money short positions dropped 25,639 contracts last week, sustaining a 26% rally off February lows. In April 2015, WTI rallied over 20% off its lows amid the same short-covering squeeze, only to collapse 40% in the next 3 months (despite OPEC hope and calls for stability). Oil ETF shorts have also capitulated back to “normal” long-short ratios suggesting oil has seen “peak” short-covering.

Futures shorts covering in size…

 

And Oil ETF Shorts have collapsed back to “norms”…

 

And while this degree of short-covering may be significant, we leave it to Tim Evans, an energy analyst at Citi Futures Perspective in New York, to remind traders of the ‘reality’ of the supply-demand imbalances…

“We might be starting to chip away at the surplus but have a long way to go before the market moves back into balance.”

via Zero Hedge http://ift.tt/1nqd5SA Tyler Durden