Just over a month ago - in what seemed to be an effort to keep the dream of a global synchronous recovery narrative alive - Morgan Stanley attempted to show that the link between China's (declining) credit impulse and the global economy (which we are constantly told is ebullient) has now been severed and all is well in the world.
Their Chief Asia Economist Chetan Ahya began by confirming that "if you had been able to reliably pick the key global macro variable over 2012-16, China’s credit impulse would have been your choice" and explains why (this should be obvious to regular readers):
The incredibly tight link between the credit impulse and China’s growth cycle, emerging markets (EMs) exports, global growth and commodity prices meant that it would have accurately predicted the direction of almost all other global macro variables that mattered, with about six months’ lead time.
He further explains the "simple" - in retrospect of course - reason behind this observation:
China’s credit impulse – or its leverage cycle – was the only game in town back then. With global aggregate demand weak as developed markets (DMs) were deleveraging and EMs were adjusting, the change in China’s credit impulse was the most significant driver of the global economy
However, in a striking claim which breaks with precedent and which, if correct suggests a historic change in the relationship between China's credit creation and its impact on global markets and economies, the Morgan Stanley economist then writes that the link between China's credit impulse and the global economy "has now been broken" and justifies his answer as follows:
Read the entire article
DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
June 11, 2018
June 8, 2018
Argentina Bailed Out With Biggest Ever Loan In IMF History
Just a few weeks after Argentina became ground zero for the coming Emerging Market crisis, when its currency suddenly collapsed at the end of April amid soaring inflation, exploding capital outflows and a central bank that was far behind the curve (as in "13% of rate hikes in a week" behind)...
... the IMF has officially bailed out the country - again - this time with a $50 billion, 36-month stand-by loan, and coming in about $10 billion more than rumored earlier in the week, it was the largest ever bailout loan in IMF history, meant to help restore investor confidence in a nation that, between its soaring external debt and current account deficit, prompted JPMorgan to suggest that along with Turkey, Argentina is in effect, doomed.
As the JPM chart below shows, the country’s total budget deficit, which includes interest payments on debt, was 6.5% of GDP last year, much of reflecting a debt binge of about $100 billion over the last two and a half years. The primary fiscal deficit in 2017 was 3.9%.
The loan will have a minimum interest rate of 1.96% rising as high as 4.96%.
“We are convinced that we’re on the right path, that we’ve avoided a crisis,” Finance Minister Nicolás Dujovne said at a press conference in Buenos Aires. “This is aimed at building a normal economy.”
Read the entire article
... the IMF has officially bailed out the country - again - this time with a $50 billion, 36-month stand-by loan, and coming in about $10 billion more than rumored earlier in the week, it was the largest ever bailout loan in IMF history, meant to help restore investor confidence in a nation that, between its soaring external debt and current account deficit, prompted JPMorgan to suggest that along with Turkey, Argentina is in effect, doomed.
As the JPM chart below shows, the country’s total budget deficit, which includes interest payments on debt, was 6.5% of GDP last year, much of reflecting a debt binge of about $100 billion over the last two and a half years. The primary fiscal deficit in 2017 was 3.9%.
The loan will have a minimum interest rate of 1.96% rising as high as 4.96%.
“We are convinced that we’re on the right path, that we’ve avoided a crisis,” Finance Minister Nicolás Dujovne said at a press conference in Buenos Aires. “This is aimed at building a normal economy.”
Read the entire article
June 7, 2018
The Surprising Reason Why There Are Now More Job Openings Than Unemployed Workers
As we reported yesterday, for the first time in history, the number of job openings in the US (6.7MM) has surpassed the official number of unemployed workers (6.1MM).
And yet something about that number does not make sense.
When we reported on the jobs number back on June 1, we observed that the number of people not in the labor force has risen to nearly 96 million, and while much of this is due to demographics, and the America's "opioid" epidemic, a lot can be assigned to an increasingly inefficient labor market that lacks dynamism. Subsequent deep dives into the jobs number show us that the health of the job market may not be on a par with where it was back in 2006 , and that the job market "health" may be judging a book by its cover.
One such indicator to note is the amount of churn that occurs between jobs: churn is supposed to give an indication of how active participants in the workforce are in looking for better opportunities than the ones they currently have. In a market where there was recently more job openings than there were unemployed people to fill them, as was reported by the Wall Street Journal, one would expect churn to be at, or exceeding, levels it has previously been at during times of a "healthy" economy.
Read the entire article
And yet something about that number does not make sense.
When we reported on the jobs number back on June 1, we observed that the number of people not in the labor force has risen to nearly 96 million, and while much of this is due to demographics, and the America's "opioid" epidemic, a lot can be assigned to an increasingly inefficient labor market that lacks dynamism. Subsequent deep dives into the jobs number show us that the health of the job market may not be on a par with where it was back in 2006 , and that the job market "health" may be judging a book by its cover.
One such indicator to note is the amount of churn that occurs between jobs: churn is supposed to give an indication of how active participants in the workforce are in looking for better opportunities than the ones they currently have. In a market where there was recently more job openings than there were unemployed people to fill them, as was reported by the Wall Street Journal, one would expect churn to be at, or exceeding, levels it has previously been at during times of a "healthy" economy.
Read the entire article
June 6, 2018
China Offers $72 Billion MLF "To Ensure Banking Liquidity Remains Stable"
Just hours after we warned that it was time to start worrying about China's debt default avalanche, and shortly after the PBOC lowered its credit quality restrictions for collateral, China offered its Medium-term Lending Facility (MLF) to inject CNY463bn (~$72bn) of liquidity.
As we detailed earlier, the recent blow out in Chinese corporate bond spooked none other than the PBOC, which last last Friday announced that it will accept lower-rated corporate bonds as collateral for a major liquidity management tool in a move that analysts see as designed in part to restore confidence in the country's corporate bond market.
Specifically, the central bank said that it had decided to expand the collateral pool for the medium-term lending facility (MLF) to include corporate bonds rated AA+ or AA by domestic rating agencies. The central bank also added as collateral financial bonds rated AA and above with proceeds to support rural development, small enterprises and green projects, as well as high-quality loans supporting green projects and small enterprises, the PBoC said in a statement posted on its website.
The PBoC said the expansion of collateral would "help alleviate the financing difficulties of small companies and to promote the healthy development of the corporate bond market."
CICC confirmed as much, writing in a note that "the expansion of collateral for MLF, to some extent, is intended to bolster confidence in lower-rated corporate bonds ... and to avoid creating an apparent net financing gap which would impact the real economy."
Translated: the PBOC is providing yet another backdoor bailout to China's latest and greatest distressed sector in hopes of avoiding an avalanche of defaults as credit conditions become increasingly tighter as the PBOC hikes tit for tat with the Fed.
Read the entire article
As we detailed earlier, the recent blow out in Chinese corporate bond spooked none other than the PBOC, which last last Friday announced that it will accept lower-rated corporate bonds as collateral for a major liquidity management tool in a move that analysts see as designed in part to restore confidence in the country's corporate bond market.
Specifically, the central bank said that it had decided to expand the collateral pool for the medium-term lending facility (MLF) to include corporate bonds rated AA+ or AA by domestic rating agencies. The central bank also added as collateral financial bonds rated AA and above with proceeds to support rural development, small enterprises and green projects, as well as high-quality loans supporting green projects and small enterprises, the PBoC said in a statement posted on its website.
The PBoC said the expansion of collateral would "help alleviate the financing difficulties of small companies and to promote the healthy development of the corporate bond market."
CICC confirmed as much, writing in a note that "the expansion of collateral for MLF, to some extent, is intended to bolster confidence in lower-rated corporate bonds ... and to avoid creating an apparent net financing gap which would impact the real economy."
Translated: the PBOC is providing yet another backdoor bailout to China's latest and greatest distressed sector in hopes of avoiding an avalanche of defaults as credit conditions become increasingly tighter as the PBOC hikes tit for tat with the Fed.
Read the entire article
June 5, 2018
Central Banker Observes Sudden "Evaporation" Of Dollar Funding, Warns Of Global Turmoil
Last October, just as the Fed started shrinking its balance sheet, we published yet another article on what is arguably the biggest threat to not only risk assets, but also the global economy: "The Dollar Funding Shortage: It Never Went Away And It's Starting To Get Worse Again."
While hardly a novel problem, we first discussed the return of the dollar funding shortage in March 2015, the fact that global stocks kept rising, and that overall funding conditions remained relatively loose keeping the global economy well-lubricated, prevented said dollar funding shortage from becoming a major concern to policymakers, despite occasional recent hiccups such as the Libor-OIS spread blow out, which both we and Citi explained w as a symptom of the creeping shortage of the world's reserve currency.
Until now.
In an op-ed published overnight in the FT, a central banker writes that when it comes to the turmoil gripping the world's Emerging Markets, whether it is the acute, idiosyncratic version observed in Argentina and Turkey, which according to JPM may be doomed...
... or the more gradual selloffs observed in places like Indonesia, Malaysia, Brazil, Mexico and India, don't blame the Fed's rate hike cycle. Instead blame the "double whammy" of the Fed's shrinking balance sheet coupled with the dollar draining surge in debt issuance by the US Treasury.
Read the entire article
While hardly a novel problem, we first discussed the return of the dollar funding shortage in March 2015, the fact that global stocks kept rising, and that overall funding conditions remained relatively loose keeping the global economy well-lubricated, prevented said dollar funding shortage from becoming a major concern to policymakers, despite occasional recent hiccups such as the Libor-OIS spread blow out, which both we and Citi explained w as a symptom of the creeping shortage of the world's reserve currency.
Until now.
In an op-ed published overnight in the FT, a central banker writes that when it comes to the turmoil gripping the world's Emerging Markets, whether it is the acute, idiosyncratic version observed in Argentina and Turkey, which according to JPM may be doomed...
... or the more gradual selloffs observed in places like Indonesia, Malaysia, Brazil, Mexico and India, don't blame the Fed's rate hike cycle. Instead blame the "double whammy" of the Fed's shrinking balance sheet coupled with the dollar draining surge in debt issuance by the US Treasury.
Read the entire article
June 4, 2018
In The Global Trade War, America Has "All The Cards"
A Game of Cards
“From now on, we expect trading relationships to be fair and to be reciprocal,” announced President Trump, smiling, a slight blush. In his hand, a Royal Flush, his life history a gambler’s bluff.
“These tariffs are an affront to the longstanding security partnership between Canada and the US and to the thousands of Canadians who fought and died alongside their American brothers,” said young Justin Trudeau, announcing reciprocal tariffs, three Queens in his hand. And Trump reflected on his early property developments, bluffing his way into the big game. “That was hard. This is not,” whispered The Donald.
“Mexico’s position regarding cooperation with the US on trade, migration or security will not vary because of offensive rhetoric or unilateral and unjustified measures of this kind,” said Foreign Minister Videgaray, a pair of Jacks.
“The US now leaves us with no choice but to proceed with a WTO dispute settlement case and the imposition of additional duties on a number of imports,” said EU Commission President Juncker, a Full House. But of course, the Europeans are hopeless at poker; 28 people cannot play a single hand, each attempt sparks endless argument.
“No leader on earth could play their way out of a hand with four bankruptcies. Stormy. Hollywood Access. The Paris Accord. North Korea. Or Iran’s nuclear deal,” thought Trump, enjoying the high roller table immensely.
Read the entire article
“From now on, we expect trading relationships to be fair and to be reciprocal,” announced President Trump, smiling, a slight blush. In his hand, a Royal Flush, his life history a gambler’s bluff.
“These tariffs are an affront to the longstanding security partnership between Canada and the US and to the thousands of Canadians who fought and died alongside their American brothers,” said young Justin Trudeau, announcing reciprocal tariffs, three Queens in his hand. And Trump reflected on his early property developments, bluffing his way into the big game. “That was hard. This is not,” whispered The Donald.
“Mexico’s position regarding cooperation with the US on trade, migration or security will not vary because of offensive rhetoric or unilateral and unjustified measures of this kind,” said Foreign Minister Videgaray, a pair of Jacks.
“The US now leaves us with no choice but to proceed with a WTO dispute settlement case and the imposition of additional duties on a number of imports,” said EU Commission President Juncker, a Full House. But of course, the Europeans are hopeless at poker; 28 people cannot play a single hand, each attempt sparks endless argument.
“No leader on earth could play their way out of a hand with four bankruptcies. Stormy. Hollywood Access. The Paris Accord. North Korea. Or Iran’s nuclear deal,” thought Trump, enjoying the high roller table immensely.
Read the entire article
June 1, 2018
After Italy... Spain Risk Soars
Political risk in Europe was largely ignored in international markets because of the mirage of the so-called 'Macron effect', the ECB’s massive quantitative easing program, and a perception that everything was different this time in Europe added to the illusion of growth and stability.
However, a storm was brewing and the same old problems seen throughout the years in Europe were increasing.
In Italy, the shock came with an election that brought a coalition of extreme left and extreme right populists. Disillusion with the Euro was evident in Italy for years, as the economy continued to be in stagnation while debt soared. However, international bodies, mainstream analysts, and banks preferred to ignore the risk, instead continuing to announce impossible growth estimates for the following year and science-fiction banks’ profitability improvements.
Italy’s economic problems are self-inflicted, not due to the Euro. Governments of all ideologies have consistently promoted inefficient dinosaur “national champions” and state-owned semi-ministerial corporations at the expense of small and medium enterprises, competitiveness and growth, labor market rigidities created high unemployment, while banks were incentivized to lend to obsolete and indebted state-owned companies in their disastrous empire-building acquisitions, inefficient municipalities, as well as finance bloated local and national government spending. This led to the highest Non-Performing Loan figure in Europe.
Now, the new government wants to solve a problem of high government intervention with more government intervention. The measures outlined would imply an additional deficit of some €130bn by 2020 and shoot the 2020 Deficit/GDP to 8%, according to Fidentiis
Read the entire article
However, a storm was brewing and the same old problems seen throughout the years in Europe were increasing.
In Italy, the shock came with an election that brought a coalition of extreme left and extreme right populists. Disillusion with the Euro was evident in Italy for years, as the economy continued to be in stagnation while debt soared. However, international bodies, mainstream analysts, and banks preferred to ignore the risk, instead continuing to announce impossible growth estimates for the following year and science-fiction banks’ profitability improvements.
Italy’s economic problems are self-inflicted, not due to the Euro. Governments of all ideologies have consistently promoted inefficient dinosaur “national champions” and state-owned semi-ministerial corporations at the expense of small and medium enterprises, competitiveness and growth, labor market rigidities created high unemployment, while banks were incentivized to lend to obsolete and indebted state-owned companies in their disastrous empire-building acquisitions, inefficient municipalities, as well as finance bloated local and national government spending. This led to the highest Non-Performing Loan figure in Europe.
Now, the new government wants to solve a problem of high government intervention with more government intervention. The measures outlined would imply an additional deficit of some €130bn by 2020 and shoot the 2020 Deficit/GDP to 8%, according to Fidentiis
Read the entire article
May 31, 2018
European Implosion Sends Panic Through Global Markets As George Soros Warns ‘We May Be Heading For Another Major Financial Crisis’
I told you to keep your eyes on Europe. On Tuesday, widespread panic shot through European financial markets and this deeply affected U.S. markets as well. The Dow Jones industrial average fell 391 points, and at this point the Dow and the S&P 500 have been down for three trading sessions in a row. But the big news is what is happening over in Europe. Tuesday’s crash represented the largest one day move for 2 year Italian bonds ever, and Italian bank stocks are now down a whopping 24 percent from their April highs. Overall, European banks have fallen a total of 11 percent over the last four days, and it isn’t just banks in troubled countries such as Italy and Spain that are hurting. The biggest bank in Europe, Deutsche Bank, just keeps on tumbling and is now just barely above all-time lows. A few days ago when I wrote that the next global economic crisis “could be just around the corner”, there were some people that criticized me for making such a statement. Well, as you will see below, now this fact has become so obvious that even George Soros is saying it.
Those that are ignoring what is going on in Italy are making a tragic mistake. Italy is the third largest economy in the eurozone, and even the Wall Street Journal is admitting that its bond market is “in meltdown”…
Risk aversion is back. Italy is the focal point, with its bond market in meltdown, its politics in crisis after President Sergio Mattarella blocked the formation of an anti establishment government, and its credit rating under threat.
That is all now making bigger waves: Europe’s deepening troubles and disappointing global growth signals are sparking a sudden rally in haven bonds like U.S. Treasurys.
Read the entire article
Those that are ignoring what is going on in Italy are making a tragic mistake. Italy is the third largest economy in the eurozone, and even the Wall Street Journal is admitting that its bond market is “in meltdown”…
Risk aversion is back. Italy is the focal point, with its bond market in meltdown, its politics in crisis after President Sergio Mattarella blocked the formation of an anti establishment government, and its credit rating under threat.
That is all now making bigger waves: Europe’s deepening troubles and disappointing global growth signals are sparking a sudden rally in haven bonds like U.S. Treasurys.
Read the entire article
May 30, 2018
Gold Production On The Cusp Of Peaking
Gold is valuable because it is a finite resource. What happens when all available gold is mined and processed? There is still abundant gold deep within the earth, but it has not yet been found. Mining companies are unable, to dig deep enough. It is difficult for them to know where to locate this deep gold. All known locations have been depleting for years.
That is the reason mining gold has become more difficult and output is expected to begin decreasing steadily. The precious metal is becoming harder to find.
Most of the world’s gold was mined before the 1848 Gold Rush era. Since 1950, 125,000 tons of gold has been processed, which is approximately two-thirds of all gold ever mined. All of the gold that could be accessed easily has been mined.
Gold cannot be manufactured or created. It can only be mined from the earth’s crust. If we want more gold, companies, and investors will need to begin allocating more capital to exploration companies.
According Eugene King of Goldman Sachs, known mineable gold reserve may be gone in 20 years. The definitive word here is “known.” Gold mining companies are gearing up for a new era of exploration deeper below the surface than ever before. This means these companies will be incurring new costs at the same time their profits are decreasing. That is the reason why so few new mines are being excavated and few new projects are being started.
The earth’s easy-to-find gold has already been found and mined. There will not be another California Gold Rush. The search for new gold becomes increasingly challenging and expensive each year. Outdated equipment and technology need to be replaced.
Read the entire article
That is the reason mining gold has become more difficult and output is expected to begin decreasing steadily. The precious metal is becoming harder to find.
Most of the world’s gold was mined before the 1848 Gold Rush era. Since 1950, 125,000 tons of gold has been processed, which is approximately two-thirds of all gold ever mined. All of the gold that could be accessed easily has been mined.
Gold cannot be manufactured or created. It can only be mined from the earth’s crust. If we want more gold, companies, and investors will need to begin allocating more capital to exploration companies.
According Eugene King of Goldman Sachs, known mineable gold reserve may be gone in 20 years. The definitive word here is “known.” Gold mining companies are gearing up for a new era of exploration deeper below the surface than ever before. This means these companies will be incurring new costs at the same time their profits are decreasing. That is the reason why so few new mines are being excavated and few new projects are being started.
The earth’s easy-to-find gold has already been found and mined. There will not be another California Gold Rush. The search for new gold becomes increasingly challenging and expensive each year. Outdated equipment and technology need to be replaced.
Read the entire article
May 29, 2018
Which Banks Are Most Exposed To Italy's Sovereign Debt? (Other The The Horribly-Exposed Italian Banks)
Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.
On Friday, Italy’s 10-year risk premium - the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.
Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.
One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.
A recent study by the Bank for International Settlements shows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.
The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).
Read the entire article
On Friday, Italy’s 10-year risk premium - the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.
Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.
One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.
A recent study by the Bank for International Settlements shows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.
The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).
Read the entire article
May 28, 2018
Why America Is Heading Straight Toward The Worst Debt Crisis In History
Today, America is nearly 70 trillion dollars in debt, and that debt is shooting higher at an exponential rate.
Usually most of the focus in on the national debt, which is now 21 trillion dollars and rising, but when you total all forms of debt in our society together it comes to a grand total just short of 70 trillion dollars. Many people seem to believe that the debt imbalances that existed prior to the great financial crisis of 2008 have been solved, but that is not the case at all. We are living in the terminal phase of the greatest debt bubble in history, and with each passing day that mountain of debt just keeps on getting bigger and bigger.
It simply is not mathematically possible for debt to keep on growing at a pace that is many times greater than GDP growth, and at some point this absurd bubble will come to an abrupt end. So those that are forecasting many years of prosperity to come are simply being delusional. Our current standard of living is very heavily fueled by debt, and at some point we are going to hit a wall.
Let’s talk about consumer debt first. Excluding mortgage debt, consumer debt is projected to hit the 4 trillion dollar mark by the end of the year…
Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018.
That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on nonmortgage debts including credit cards, and auto, personal and student loans.
Americans owe more than 26 percent of their annual income to this debt. That’s up from 22 percent in 2010. It’s also higher than debt levels during the mid-2000s when credit availability soared.
Read the entire article
Usually most of the focus in on the national debt, which is now 21 trillion dollars and rising, but when you total all forms of debt in our society together it comes to a grand total just short of 70 trillion dollars. Many people seem to believe that the debt imbalances that existed prior to the great financial crisis of 2008 have been solved, but that is not the case at all. We are living in the terminal phase of the greatest debt bubble in history, and with each passing day that mountain of debt just keeps on getting bigger and bigger.
It simply is not mathematically possible for debt to keep on growing at a pace that is many times greater than GDP growth, and at some point this absurd bubble will come to an abrupt end. So those that are forecasting many years of prosperity to come are simply being delusional. Our current standard of living is very heavily fueled by debt, and at some point we are going to hit a wall.
Let’s talk about consumer debt first. Excluding mortgage debt, consumer debt is projected to hit the 4 trillion dollar mark by the end of the year…
Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018.
That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on nonmortgage debts including credit cards, and auto, personal and student loans.
Americans owe more than 26 percent of their annual income to this debt. That’s up from 22 percent in 2010. It’s also higher than debt levels during the mid-2000s when credit availability soared.
Read the entire article
May 25, 2018
Petroyuan Is Only The Beginning, Pop Goes The Metals Market
When Hong Kong Exchanges and Clearing (HKEX) bought the London Metals exchange in 2012 all the speculation was about the effects on gold trading. The primary reason for buying the LME was to obtain its warehouses and ensure a free flow of metals to points east.
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words... Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
Read the entire article
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words... Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
Read the entire article
May 24, 2018
Is Oil About To Become Front-Page News Again?
Here’s a new indicator for you: It seems that the difference between the price of oil here and abroad is a measure of tightness in the market, with a rising spread indicating higher prices in the future, with all the inflationary pressures that that implies. From today’s Wall Street Journal:
Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears
U.S. oil prices are lagging behind global oil prices climbing toward $80 a barrel, the latest sign of a market that has gone from glutted to exceptionally tight in the past year.
U.S. oil futures are trailing Brent, the global benchmark, by more than $7 a barrel, settling at $71.28 a barrel on Friday. The two oil benchmarks are further apart than they have been since 2015, before U.S. crude could be freely exported.
The divergence is a sign of how stretched global oil supplies have become even as U.S. output has marched higher, overtaking Saudi Arabia and rivaling Russia. That has contributed to soaring U.S. exports, which have hit a record of nearly 2.6 million barrels a day as users clamor.
“The market is screaming right now, ‘We need every barrel we can get,’ ” said Phil Flynn, an analyst at the Price Futures Group.
Both benchmarks have been on a tear lately. The Organization of the Petroleum Exporting Countries and its allies have been holding oil off the market for more than a year, and demand has surged as the global economy roared to life. Unexpected disruptions, like plunging oil output from Venezuela, have tightened supplies even further. A glut of oil that held prices down for years is essentially gone.
Read the entire article
Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears
U.S. oil prices are lagging behind global oil prices climbing toward $80 a barrel, the latest sign of a market that has gone from glutted to exceptionally tight in the past year.
U.S. oil futures are trailing Brent, the global benchmark, by more than $7 a barrel, settling at $71.28 a barrel on Friday. The two oil benchmarks are further apart than they have been since 2015, before U.S. crude could be freely exported.
The divergence is a sign of how stretched global oil supplies have become even as U.S. output has marched higher, overtaking Saudi Arabia and rivaling Russia. That has contributed to soaring U.S. exports, which have hit a record of nearly 2.6 million barrels a day as users clamor.
“The market is screaming right now, ‘We need every barrel we can get,’ ” said Phil Flynn, an analyst at the Price Futures Group.
Both benchmarks have been on a tear lately. The Organization of the Petroleum Exporting Countries and its allies have been holding oil off the market for more than a year, and demand has surged as the global economy roared to life. Unexpected disruptions, like plunging oil output from Venezuela, have tightened supplies even further. A glut of oil that held prices down for years is essentially gone.
Read the entire article
May 23, 2018
Bank Of England Issues Working Paper On Central Bank Digital Currencies
On May 18, the Bank of England released a staff working paper, laying out various scenarios of possible risks and financial stability issues of central bank digital currencies (CBDCs).
The paper constructs three models of CBDC depending on the sectors that have access to CBDC, from a narrow CBDC where access is limited to banks and non-bank financial institutions (NBFIs), to direct and indirect access extended to households and non-financial firms.
The Financial Institutions Access model is limited to banks and NBFIs, where financial institutions can interact directly with the central bank to purchase and sell CBDC in exchange for eligible securities. Financial institutions are not supposed to provide an asset to households and firms, which are entirely backed by central bank money.
The Economy-wide Access model assumes that access to CBDCs is granted to banks and NBFIs, households and firms. In this way, a CBDC can serve as money for all agents in the economy. While only banks and NBFIs can interact directly with the central bank to buy and sell CBDCs, the report says that “households and firms must use a CBDC Exchange to buy and sell CBDC in exchange for deposits.”
Within the Financial Institutions Plus CBDC-Backed Narrow Bank Access model access is again limited to banks and NBFIs. There is at least one financial institution that acts as a ‘narrow bank,’ which provides financial assets to households and firms that are fully backed by a CBDC but that does not extend credit.
Read the entire article
The paper constructs three models of CBDC depending on the sectors that have access to CBDC, from a narrow CBDC where access is limited to banks and non-bank financial institutions (NBFIs), to direct and indirect access extended to households and non-financial firms.
The Financial Institutions Access model is limited to banks and NBFIs, where financial institutions can interact directly with the central bank to purchase and sell CBDC in exchange for eligible securities. Financial institutions are not supposed to provide an asset to households and firms, which are entirely backed by central bank money.
The Economy-wide Access model assumes that access to CBDCs is granted to banks and NBFIs, households and firms. In this way, a CBDC can serve as money for all agents in the economy. While only banks and NBFIs can interact directly with the central bank to buy and sell CBDCs, the report says that “households and firms must use a CBDC Exchange to buy and sell CBDC in exchange for deposits.”
Within the Financial Institutions Plus CBDC-Backed Narrow Bank Access model access is again limited to banks and NBFIs. There is at least one financial institution that acts as a ‘narrow bank,’ which provides financial assets to households and firms that are fully backed by a CBDC but that does not extend credit.
Read the entire article
May 22, 2018
77 Million Square Feet Of Retail Space And Counting – America’s Retail Apocalypse Is Spiraling Out Of Control In 2018
In 2017 we absolutely shattered the all-time record for retail store closings in a single year, and this year it looks like we are going to shatter the record once again. In fact, there are some that are projecting that up to 9,000 retail stores could close by the time that we get to the end of this calendar year. Already, the amount of retail space that has shut down is simply jaw-dropping. If you total up all of the retail store closings that have been announced so far in 2018, it accounts for 77 million square feet of retail space. Let that number sink in for a bit. Many shopping centers and strip malls around the country already have a post-apocalyptic feel to them, and more “space available” signs are going up with each passing day. And in case you are tempted to think that I am making this figure up, here it is straight from Bloomberg…
At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.
In the end, we could shatter the all-time record that was established just last year by 20 or 30 million square feet.
At moments such as this, the phrase “retail apocalypse” doesn’t really seem to fit the gravity of what is actually taking place.
Read the entire article
At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.
In the end, we could shatter the all-time record that was established just last year by 20 or 30 million square feet.
At moments such as this, the phrase “retail apocalypse” doesn’t really seem to fit the gravity of what is actually taking place.
Read the entire article
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