Treasury 30-year bonds dropped as investors bet on faster inflation even as Federal Reserve Chair Janet Yellen dismissed signs of rising consumer prices.
Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina says “Fed officials will have to acknowledge the firming price environment.”
Benchmark 10-year notes fell for a third week after Yellen said June 18 that the Fed maintains its commitment to low interest rates. Gauges of expectations for consumer prices for periods from five to 30 years widened before the Commerce Department is forecast to report June 26 that the Fed’s preferred measure of inflation rose to the highest since October 2012. The Treasury will sell $107 billion of coupon debt next week.
“The market is voting with its feet and lifting rates because it doesn’t agree with Yellen’s conclusion on CPI,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York.
“The market does seem to be fighting the Fed here,” said James Caron, who manages money in New York at Morgan Stanley Investment Management, which oversees $61 billion of fixed-income assets. “The market believes it’s only a matter of time before those inflation pressures start to manifest.”
Today’s double dose of codswallop is the oil price.
Turmoil in Iraq is the predictable last chapter of the fiasco that began with a pack of lies about atomic bicycles from Dubya and Blair. Same old same old: US goes on silly half-baked venture, UK crawls up its backside, West gets bored, Islamists sit quietly waiting for laurel-resting….and then move back in.
But it’s the idea that crude oil prices have been “boosted” by the unsettled Iraqi situation that strikes me as complete poppycock. While Iraq has probably the world’s largest untapped oil reserves, it still has eleven producers ahead of it – and with the world careering towards recession aka slump, 9% of total output isn’t any kind of game changer….even if disruption were to be 100%…um, as it was when the Blair-Dubya Grand Alliance gave us all Schlockanawe.
No, the price has gone up because (1) Bourses overreact to everything – or ignore everything – depending on whether we’re talking QE or oil; and (2) the smart aka crooked money got in there first and directionalised the saps.
Remember, dark pool, algorithmic and/or speed-of-light trading (they overlap) is estimated to account for around 2 in 5 trades on the NYSE today. Or using another dimension of market concentration, just six firms on Wall Street account for 33% of all trades:
Markets are no longer there to raise money for dynamic businesses, they exist to make money for banking firms and their vaguely defined ‘clients’.
All these firms know the numbers. Their job is to suggest danger to the nervous, get them to buy, wait for the truth to dawn…and then buy back at a price lower than where they sold.
The practice contributes nothing to the real economy, but quite a lot to the unreal bonus.
If you want to see some really significant moves on this front, then look at Venezuela and Ukraine.
It’s another reason why Bourse-obsessed capitalism is on the skids.
Also on Wall Street, investors remained in a record-setting mood Thursday.
The Standard & Poor’s 500 index closed at an all-time high for the second time in two days and notched its fifth gain in five days.
The Dow Jones industrial average and Nasdaq composite ended mixed after drifting between small gains and losses for much of the day.
The three key stock indexes all opened higher, holding on to tiny gains in premarket trading as investors sized up the latest data on unemployment aid applications and an index of economic indicators.
The Labor Department reported that applications for unemployment benefits fell last week to 312,000, the lowest in more than six years. The Conference Board added to the good news, saying its index of leading indicators rose 0.5 percent in May from the previous month.
The market began to drift lower, however, as investors looked beyond the economic data and focused instead on a mixed bag of corporate earnings from companies such as Kroger, Rite Aid and Pier 1 Imports.
By midday, stocks veered into the red, where they remained until halfway through the final hour of trading, when a late push elevated the S&P 500 and Dow barely higher on the day.
The S&P 500 index rose 2.50 points, or 0.1 percent, to 1,959.48. That’s slightly above the prior day’s record close of 1,956.98. The last time the index closed at a record high was June 9th.
The Dow Jones industrial average added 14.84 points, or 0.1 percent, to 16,921.46. The Nasdaq composite slipped 3.51 points, or 0.1 percent, to 4,359.33.
The three indexes are all up for the year.
The U.S. economy shrank at an annual rate of 1 percent in the January-March quarter, the victim of a severe winter which slowed business activity in a number of areas. Many analysts anticipate growth rebounded strongly in the April-June quarter.
The market will get a sense of that next month, when the next round of corporate earnings begins. Until then, the next key market mover will likely be the June jobs report, due out the first week of July.
Bond prices fell, sending the yield on the 10-year Treasury note up to 2.63 percent from 2.59 percent late Wednesday.
Fierce bidding wars for homes in the nation’s capital are slashing applications from borrowers interested in taking out a purchase mortgage, an industry group said Wednesday.
Around the country, rising mortgage rates over the past year have cut applications for loans to buy a home, with the latest weekly reading on a U.S. gauge from the Mortgage Bankers Association showing a 5% drop from the prior week (as seen in the chart). But in hot markets like Washington, where there’s a low supply of homesavailable for sale and borrowers haven’t been put off by pricier loans, would-be mortgage applicants are still giving up on borrowing.
“Some lenders continue to report that they have pre-approved borrowers who have been unable to find a property given the tight inventory in certain markets,” said Mike Fratantoni, MBA’s chief economist.
Just how hot is D.C.’s market? More than one-quarter of homes sold in May closed above their list price, according to Redfin, a real estate firm. But that statistic pales in comparison to the scorching markets in San Jose and San Francisco, where almost 70% of homes sold above their asking price.
Elsewhere in the country, rising rates are taking a toll on loan applications from borrowers who have become priced out of the market. Plus, borrowers still face the extremely high standards that lenders erected in the wake of the financial crisis.
First Data announced on Thursday that its parent has received commitments to purchase about $3.5 billion of equity in a private placement, led by KKR. The proceeds will be used to repay portions of the company’s debt.
The private placement includes $1.5 billion from existing investors and $2 billion from new investors, including pension funds, mutual funds, asset managers, and individuals. KKR provided roughly $1.2 billion, First Data said.
KKR’s balance sheet will have approximately $1 billion invested in First Data’s equity.
“We have taken full advantage of the last 12 months to strengthen our company through a total focus on serving our clients and bringing them new innovations that help them grow their business,” Frank Bisignano, chairman and chief executive officer of First Data, said in a statement. “The new investment will unlock $375 million per year to help us accelerate our transformation.”
Amazon announced its first smartphone today, a bold move into a segment currently dominated by Apple and Samsung. At an event in Seattle, CEO Jeff Bezos unveiled the Fire Phone, a smartphone with a 4.7-in. 3-D display, a 2.2-GHz quadcore processor, a 13-megapixel rear-facing camera and 2 GB of RAM.
The device, which has a heavy focus on multimedia, will offer unlimited photo storage and a dedicated button to launch the camera app. It will be sold exclusively on AT&T’s network at a price of $199 for a 32-GB version with a two-year contract or $299 for a 64-GB version. Amazon is also throwing in a free year of Amazon Prime, its customer-loyalty program (existing Prime members will get a bonus year tacked onto their current subscription).
The device is currently available for preorder on Amazon’s website and will begin shipping on July 25.
The new phone is designed to be tightly integrated with Amazon’s myriad services. The company’s Instant Video service will be preinstalled on the device, as will Amazon’s newly launched music-streaming service. The phone will also come with a new program called Firefly, which allows people to scan objects, songs and TV shows (sort of like an all-purpose Shazam app) so that Amazon can identify them and offer a way to purchase them from its store. In total Firefly can recognize 100 million items, Bezos said. “Fire Phone puts everything you love about Amazon in the palm of your hand,” he said in a press release.
The phone’s 3-D capabilities are its most unique feature. Through a technology dubbed Dynamic Perspective, the Fire Phone uses four cameras placed on its front face to track a person’s head movements at all times. This allows the phone to offer a real-time 3-D-like display that presents more depth to images than a typical smartphone screen. During the event, Bezos demonstrated the phone’s map app, which showed looming skyscrapers leaping off the screen, as well as an app that allowed the user to sort through dresses as if they were in an actual 3-D space. The phone’s motion sensors allow users to scroll within certain apps by tilting the device rather than touching the screen.
Like the Kindle, the Fire Phone will run on a modified version of Android and support some apps native to Google’s operating system. Popular apps such as Instagram, Facebook, Netflix, ESPN and HBO Go should be available for the device when it launches. Amazon has also released development tools to allow companies to make apps that make use of Dynamic Perspective and Firefly.
The device demonstrates Amazon’s growing interest in creating hardware. In addition to its popular line of Kindle e-readers and tablets, the company released its first set-top box, the Amazon Fire TV, earlier this year. The company has always been reticent to disclose just how successful its hardware ventures are — Bezos said today that there are “tens of millions” of Kindle owners, and there’s no real data on Fire TV sales — but smartphone sales dwarf those other segments. More than a billion smartphones were shipped globally in 2013, with Samsung and Apple controlling nearly half the market between them.
Amazon will face an uphill battle taking on those two giants, but the company has a history of eschewing profits to smother competitors in other markets. They may be embarking on a similar strategy today — the 32-GB version of the Fire Phone, for instance, will sell for $100 less than a similar model of the iPhone 5S. – Time.com
Gold futures jumped the most in 14 weeks as the Federal Reserve said U.S. interest rates will remain low, driving the dollar lower and boosting demand for the precious metal as an alternative investment.
According to Bloomberg, the greenback fell to a four-week low against a basket of 10 major currencies. Yesterday, Fed Chair Janet Yellen said rates will probably remain low for a considerable time after debt purchases by the central bank end. In 2013, gold ended a 12-year rally on expectations that the Feb would taper monetary stimulus following gains in the labor market.
“Some people are buying gold since Yellen made it clear that the low-interest rate regime is here to stay,” Tommy Capalbo, a broker at Newedge Group in New York, said in a telephone interview. “The dollar’s weakness is also supportive.”
Gold futures for August delivery rose 1.7 percent to $1,294.60 an ounce at 10:05 a.m. on the Comex in New York, A close at that price would mark the biggest gain for a most-active contract since March 12. Earlier, the metal reached $1,295.90, the highest since May 23.
Diversified mining firm Anglo American might sell its platinum assets in South Africa, valued at $1.4 billion (R15bn), next year, Deutsche Bank speculated yesterday in a note.
A sale would increase fair value for Anglo’s stock by 13 percent to £17.50 (R318 at yesterday’s exchange rate), said Rob Clifford, a Deutsche Bank mining analyst.
Sibanye Gold, South Africa’s second-largest gold producer, might be interested in the company’s three mines in Rustenburg, while an offer from platinum peers was unlikely, he said. “We think this offers Anglo the cleanest exit, minimising legacy closure and employment obligations.”
Subsidiary Anglo American Platinum (Amplats), the world’s largest platinum producer, had been rocked by the strike at its Rustenburg and Union mines since January 23.
Anglo planned to switch to mechanised open-pit mining from labour-intensive underground excavation, the chief executive, Mark Cutifani, said in April.
The company was seeking to exit its high-cost, low-return mines in Rustenburg in 2015, Clifford said. “There is an opportunity for a new owner of the Rustenburg mines to take out costs. Some industry participants are looking in general at mergers and acquisition opportunities in the platinum industry. The ongoing strike may bring some of those opportunities to fruition.”
About 37 percent of Anglo’s assets are in South Africa and generate 55 percent of operating profit. They include Kumba Iron Ore operations, the Venetia Diamond Mine in Limpopo and the Zibulo Colliery in Mpumalanga.
Brazil offers Angola new credit line worth $2-billion
Brazil has offered Angola a new credit line worth $2-billion for use in the sub-Saharan African country’s energy and construction sectors, Angolan Finance Minister Armando Manuel said on Monday.
Several Brazilian companies are involved in energy and construction in Angola, Africa’s No. 2 oil producer, although China is the main foreign partner and buys nearly half of Angola’s oil.
Angolan President Jose Eduardo dos Santos, on a state visit to Brazil, was due to meet Brazilian President Dilma Rousseff later on Monday to discuss moves to strengthen a strategic partnership between the two Portuguese-speaking countries that began in 2010.
Angola is spending billions to rebuild transport, energy and communication networks destroyed by a 27-year civil war that ended in 2002.
This would be the sixth credit line extended by Brazil.
“The new line raises the total to $7.83-billion, which makes it clear that there is a growing link between the two countries,” Manuel said in comments broadcast by Angola state TV network TPA.
China has given an estimated $13.4-billion in so-called ‘oil-for-infrastructure’ loans to Angola. As a result, Chinese construction companies are heavily involved in the reconstruction projects.
Still, Brazil’s Odebrecht, Latin America’s biggest diversified construction conglomerate, which is engaged in the construction and agribusiness sectors, is Angola’s biggest private employer.
The US also has a strategic partnership with Angola, which the two parties are trying to strengthen.
The US-run Export-Import Bank this month financed a deal for Angola to buy $1-billion of railway and energy equipment from General Electric.
The FT reports that “a cluster of central banking investors has become major players on world equity markets.”
The report, to be published this week by the Official Monetary and Financial Institutions Forum (OMFIF), confirms $29.1tn in market investments, held by 400 public sector institutions in 162 countries, which “could potentially contribute to overheated asset prices.” China’s State Administration of Foreign Exchange has become “the world’s largest public sector holder of equities”, according to officials, and we suspect the Fed is close behind.
Central banks around the world, including China’s, have shifted decisively into investing in equities as low interest rates have hit their revenues, according to a global study of 400 public sector institutions.
“A cluster of central banking investors has become major players on world equity markets,” says a report to be published this week by the Official Monetary and Financial Institutions Forum (Omfif), a central bank research and advisory group. The trend “could potentially contribute to overheated asset prices”, it warns.
The report, seen by the Financial Times, identifies $29.1tn in market investments, including gold, held by 400 public sector institutions in 162 countries.
China’s State Administration of Foreign Exchange has become “the world’s largest public sector holder of equities”, as the report argues is “partly strategic” because it “counters the monopoly power of the dollar” and reflects Beijing’s global financial ambitions.
In Europe, the Swiss and Danish central banks are among those investing in equities. The Swiss National Bank has an equity quota of about 15 per cent. Omfif quotes Thomas Jordan, SNB’s chairman, as saying: “We are now invested in large, mid- and small-cap stocks in developed markets worldwide.” The Danish central bank’s equity portfolio was worth about $500m at the end of last year.
Eni has agreed to buy a 40 percent interest in an exploration permit granting rights to explore an offshore area of 82,000 square kilometres off South Africa’s east coast for hydrocarbons, the Italian oil and gas group said on Tuesday.
Eni sealed the deal with Sasol Petroleum International, the upstream oil and gas subsidiary of Sasol Limited, it said in a statement without disclosing any financial details.
Sasol had been granted the permit by the Petroleum Agency of South Africa (PASA) in late 2013 and the accord is subject to government approval.
The deal “reinforces Eni’s position on the East Africa coast, where Eni is already present with exploration activities in Mozambique and in Kenya,” the group said in a statement.
The exploration right (ER) permit 236, of which Sasol would transfer a 40% ownership to Eni, was granted to Sasol in November last year and comprised the right to explore for hydrocarbons in the Durban and Zululand basins offshore KwaZulu-Natal.
Sasol would retain the remaining 60% interest in the permit.
“The establishment of our partnership with Eni in respect of our offshore South African interests complements Sasol’s strategy to develop sustainable energy solutions, which will serve to ensure all-important economic growth and development in Southern Africa and the broader region,” Sasol CEO David Constable said.
He (David Constable, CEO SASOL) added that the accelerated exploration of ER236 would have many positive benefits for South Africa and the broader region, in terms of energy security and increasing levels of international investment.
Eni was among a number of international energy companies to have entered South Africa – the continent’s largest oil importer – in recent months.
If like the geologically similar northern Palma-Mamba gas fields, the Zululand gas basin holds up to 75tcf of reserves, gas industry experts expect the Zululand basin gas to postpone and even replace the Karoo shale gas development too.
The European Central Bank cut interest rates to record lows on Thursday, imposing negative rates on its overnight depositors to cajole banks into lending more and to fight off the risk of Japan-like deflation.
The cut, the first time the ECB has deployed a negative deposit rate which effectively charges banks to deposit overnight, was a response to a slowdown in inflation far below the ECB’s target and to weak euro zone lending.
That is a combination that risks dragging the bloc into an economic quagmire.
The ECB lowered the deposit rate to -0.1 percent, meaning it will effectively charge banks for holding their money overnight. It cut its main refinancing rate to 0.15 percent, and the marginal lending rate – or emergency borrowing rate – to 0.40 percent.
Markets sent the euro EUR= to a four-month low of $1.3575 after the news.
“Further monetary policy measures to enhance the functioning of the monetary policy transmission mechanism will be communicated in a press release to be published at 3.30 p.m. CET today,” the ECB said in a statement.
Investors first turn their attention to ECB President Mario Draghi’s 1230 GMT news conference at which he is widely expected to present other measures to complement the rate move.
“This is a baby rate cut – a tweak to the policy stance,” said RBS economist Richard Barwell, adding that Draghi needed to announce a bundle of measures to avoid disappointing markets.
Economists polled by Reuters had expected the ECB to cut the refinancing rate to 0.10 percent from 0.25 percent and the deposit rate to -0.10 percent from zero, as well as launching a refinancing operation aimed at funding firms.
Reuters reported last month that the ECB was preparing a package of policy options for this week’s meeting, including the rate cuts and targeted measures with a view to boosting lending to small- and mid-sized firms (SMEs).
“I think expectations are very high,” Barwell added. “To exceed them, I think he (Draghi) is going to have to talk up the prospect of asset purchases in the near future.”
Just hours before the ECB policy decision, a Bank of Japan policymaker sounded a warning, saying the euro zone should not take lightly the potential danger of slipping into a Japan-style deflationary period.
In an April 24 speech, Draghi set out three broad scenarios for ECB policy action and included the possibility of a broad-based asset-purchase program in the event of a worsening of the medium-term inflation outlook.
Such a program is unlikely for now, however, even though euro zone annual inflation unexpectedly slowed to 0.5 percent last month, figures published earlier this week showed. The ECB targets inflation of close to but below 2 percent.
Draghi will present updated inflation and growth projections from ECB staff at his news conference. In March, the forecasts showed it would take 2-1/2 years for inflation to get near the ECB’s target. A weaker outlook will support robust ECB action.
QE ON THE SHELF
The ECB is widely expected to accompany the rate cuts with other measures such as offering banks cheap, long-term funding – a so-called LTRO – on condition that they use this financing to further lending to companies.
Euro zone inflation has been stuck in what Draghi has called “the danger zone” below 1 percent since October, mainly because of weaker commodity and food prices, but also because of wage and other adjustments in euro zone crisis countries.
The stronger euro exchange rate exacerbates these dynamics.
At the same time, record low interest rates are still not feeding through evenly to companies across the currency bloc. Companies in Portugal, for example, are paying on average 5.4 percent on loans compared with 2.2 percent in Finland or France.
This particularly affects smaller companies, which rely strongly on bank funding and make up the bulk of the economy.
Another possibility is the for ECB to extend its provision of unlimited access to central bank funding beyond July 2015.
U.S.-style quantitative easing (QE) – money printing to buy assets – is likely to remain someway off, however, as it is the last weapon at the ECB’s disposal and the barriers to using it are high for the hawkish contingent on the Governing Council.
“We expect the big QE-bazooka to remain in the closet,” said ING economist Carsten Brzeski. – Reuters
France would defend the interests of bank BNP Paribas after the information appeared that it faced the prospect of over a $10 billion fine from the United States on charges of violating sanctions on Iran and Sudan, the country’s foreign ministry said, calling such sanctions “unreasonable.”
“If there is a an error or a violation then it’s normal that there is a fine, but the fine has to be proportionate and reasonable,” French foreign minister Laurent Fabius said on France 2 television. “These figures are not reasonable,” he said.
Currently, little is known about BNP Paribas’ negotiations with US authorities’ investigation whether it evaded sanctions related primarily to countries Iran, Syria, Sudan between 2002 and 2009.
US authorities declared that the BNP Paribas, which is the France’s biggest lender, stripped out identifying information from wire transfers so they could pass through the US financial system, Reuters reports.
Sources familiar with the negotiations said a settlement could include a fine of over $10 billion and other penalties, such as a possible temporary suspension of the bank’s authority to clear US dollar transactions.
Foreign minister Fabius said that US decision would raise questions over European Union-US trade negotiations given the agreement should be based on reciprocity.
“But here you would have an example of unfair and unilateral decision. It would be an extremely serious problem.”
Fabius’ comments come just two days before US President Barack Obama’s visit to France where he is going hold bilateral talks with his French counterpart Francois Hollande.
“These figures could have a negative impact and BNP could see its funds hit and that means less loans especially for French firms,” Fabius stated.
“It’s an extremely serious question that the Americans must handle in a spirit of partnership and not unilaterally,” he said.
The collapse of the monetary system awaits the world in the near future, says financial expert James Rickards. Russia and China’s desire to rid the US dollar of its global reserve currency status is an early sign of the “increasingly inevitable” crisis.
“China has three trillion dollars, but they are buying gold as fast as they can. China worries that the US is going to devalue the dollar through inflation so they want to have a hedge if the dollar goes down, so the gold will go up,” Rickards told RT.
As one of the key events in support of his forecast, Rickards points to the words uttered by Russian President Vladimir Putin at the 18th International Economic Forum in St. Petersburg that took place earlier this month.
“Putin said he envisions a Eurasian economic zone involving Eastern Europe, Central Asia, and Russia. The Russian ruble is nowhere near ready to be a global reserve currency, but it could be a regional reserve currency,” he said, as quoted by ETF Daily News.
Rickards’ book about the demise of the dollar was released in April under quite an apocalyptic name – ‘The Death of Money.’ However, the author is surprised that the events are unfolding much faster than he predicted.
“If anything, the tempo of events is faster than expected. Therefore, some of these catastrophic outcomes may come sooner than I wrote about.”
Last Wednesday, China and Russia signed a historic US$400 billion gas deal which will provide the world’s fastest growing economy with the natural gas it needs to keep pace for the next 30 years. Experts say this could be the catalyst that dethrones the greenback as the world’s reserve currency.
The best-selling author writes that the “linchpin” of the collapse is the approaching failure of the dollar since it is at the foundation of the system. Powerful countries such as Russia, China, Iran, and India do not rely on the US in their national security and would benefit from the US economy being weaker, thus desiring to break free from the dollar standard.
He elaborates that the dual collapse “looks increasingly inevitable.”
“The mistakes have already been made. The instability is already in the system. We’re just waiting for that catalyst that I call the snowflake that starts the avalanche,” he said, as quoted by ETF.
There are three big international factors that are pressuring the dollar right now – Russia, China, and Saudi Arabia.
“Since the 1970s, Saudi Arabia [has been] the leader in what’s called the petrodollar. It basically means that Saudi Arabia and, by extension, OPEC, price oil in dollars, so the world market is in dollars.
“Russia is a major natural resource exporter; they price their exports in dollars as well. But Russia now is engaged in a financial war with the US around the issues in Crimea and Ukraine.”
The threats to the dollar are “ubiquitous,” the author states in his book. The only way the US can pay off its $17 trillion debt is with inflation, which would drive other countries away from the dollar while the accumulation of gold by Russia and China presages the shift to a new reserve asset.
“The next time we will have a liquidity crisis in the world it’s going to be bigger than the ability of central banks to deal with it. The IMF will basically have to bail out the world by printing the SDRs (an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves). By that time, you will see the SDR emerge as the new global world currency,” Rickards told RT.
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