Thursday, 13 October 2016

China, The Wobble Returns.

Baltic Dry Index. 906 -16    Brent Crude 51.41

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

China’s wobble is back. Despite the yuan weakening against the dollar recently, China’s exports fell 10 percent year on year in September, another sign of a slowing global economy. Domestically, China’s oil production has fallen every month this year through August. Add China to the growing list of countries with a massive bad banking problem.

Dollar drops against yen as China trade data spooks investors

Published: Oct 13, 2016 1:05 a.m. ET
The yen regained strength against the dollar and other currencies in choppy Asia trade Thursday, after disappointing Chinese trade data helped bring an uptick in the dollar to an abrupt end.

Investors swung back to the perceived safety of the Japanese currency after a larger-than-expected fall in Chinese exports poured cold water on fragile market optimism.

Earlier in the session, the yen had weakened to a 10-week low against the dollar amid growing expectations for a rise in U.S. interest rates later in the year following the overnight release of Federal Reserve meeting minutes.

The dollar USDJPY, -0.35%  was changing hands at ¥103.77, having advanced to ¥104.63, its highest level since July 29 earlier in the morning session. The upward dollar run was already showing signs of reaching its limit when the Chinese data cast a shadow on the global growth outlook, adding momentum to moves to lock in profits on the dollar.

China’s exports fell sharply in dollar terms in September from a year earlier, tumbling 10.0% from a year earlier, following a decline of 2.8% in August.

China's crude imports rise to highest this year

Published: Oct 13, 2016 12:49 a.m. ET
HONG KONG--China's crude imports rose to the highest level this year in September, underscoring robust demand from refiners, as many have ended their annual maintenance, and the country's expanded storage capacity.

In September, China imported 33.06 million metric tons of crude oil, or a year-over-year rise of 18%, around 8.08 million barrels a day, preliminary data from the General Administration of Customs showed Thursday. The amount is also the second highest on record after the 33.18 million tons seen in December.
China, the world's second-largest energy consumer, has been a major guzzler of crude at a time of oversupply and rivals the U.S. as the top oil importer.

The bulk of China's imports is attributed to a growing batch of independently owned refineries that the government has recently allowed to directly import crude. In the past, teapot refiners mainly used fuel oil as their main feedstock. Those who used crude oil had to source the barrels from state-owned energy companies.

The elevated imports are also a reflection of China's dwindling crude production. In August, China's crude production fell 10% year over year to 16.54 million tons, or 3.9 million barrels a day. In the first eight months of the year, the country's production was down 5.7% compared with the same period last year.

Why China’s banks may eventually need a nearly $2 trillion capital infusion

Published: Oct 12, 2016 3:20 p.m. ET

China’s total debt surged to 220% of its GDP

A relentless rise in borrowing by China’s largest companies could eventually require a capital injection of nearly $2 trillion to clean up the country’s banking sector, according to S&P Global Ratings.
“The ever-increasing level of corporate debt is intensifying risks because of weakening borrower credit quality,” said Terry Chan, an analyst at S&P Global Rating, in a note.

A team of analysts led by Chan projected that China’s current pace of debt growth could taper off in a couple of years as the economy increasingly shifts away from a manufacturing-led model toward a consumption-driven structure.

“In our base case, credit growth would moderate by a third less by the year 2020. Even so, problem credit-to-total credit could double to 10% from our 2015 estimate of 5.6%,” said Chan.

Still, there is a risk that the increasing emphasis on consumption and services industries may further fuel companies’ demand for credit. In the worst case scenario, bad debt could surge to as much as 17% of total loans, requiring $1.7 trillion in new capital, equivalent to 16% of gross domestic product.

Since the global financial crisis, China’s total debt has jumped to 220% of GDP as of 2015 from 168% in 2009, with corporate debt accounting for a lion’s share, according to S&P Global Ratings data.

We close out the morning with an informed look at yesterday’s release of the minutes of the Federal Reserve’s last meeting.

A Fed Divided Against Itself

  By Mohamed A. El-Erian
The minutes of the September meeting of the Federal Reserve’s Open Market Committee released Wednesday explained why three Fed board members had dissented from the majority’s “close call” decision to keep rates unchanged. The highly anticipated transcript provides insights into internal and external developments, illustrating the “unusual uncertainty” that policy makers must contend with.

The transcript is an important reminder of how difficult it has become to maintain a high level of conviction about the correct policy in a time of such fluidity in the economic, financial, political and institutional environment.

Here are the main takeaways, including those where there seems to be broad agreement, those where there are differences and ending with what proved to be the missing tiebreaker.

Fed officials agreed that “the labor market has continued to strengthen” and that this is highly likely to remain the case in the period ahead. As a result, economic activity is expected to continue to expand “at a moderate rate.” Policy makers also agreed that external economic conditions, including the aftershocks of the Brexit referendum, were less threatening. In addition, they stated that “global financial conditions had improved somewhat in recent months.” This anchored the view that “near-term risks to the economic outlook” are “roughly balanced.”

When looking at the details of developments in the U.S. labor market, officials correctly noted the need to take a further look at “differential patterns of unemployment across racial and ethnic groups that remained after taking education into account.” This is both warranted and important, especially given the extent to which growth (which has been too low to begin with) has been insufficiently inclusive.

The central bankers also seemed united in acknowledging a phenomenon that is now attracting greater analytical attention in many quarters: “the apparent fall over recent years in the neutral real rate of interest -- or r*.” That is a reference to the “equilibrium” rate -- the federal funds rate that neither stimulates nor restrains growth and stable inflation.

However, even though officials cited contributing factors to the lowering of r*, they are said to have disagreed on the extent and durability of the fall.

This leads us to areas where Fed officials have yet to arrive at a common viewpoint.

 At the Comex silver depositories Wednesday final figures were: Registered 29.28 Moz, Eligible 143.46 Moz, Total 172.74 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today more on the woes of Deutsche Bank. Is anyone actually in charge at DB? How much longer can state intervention be delayed?

Deutsche Bank's Bond Gambit Backfires

By Lisa Abramowicz  Oct 11, 2016 9:53 AM EDT
Deutsche Bank just sent a strong message to debt markets, but perhaps it wasn't the one it was planning.
The German lender sold $3 billion of senior unsecured bonds in a private sale Friday, which was bold timing given the recent concern about its financial health. Some interpreted the sale as a power move. "I see it as management attempting to show that it still has market access," Old Mutual Global Investors money manager Lloyd Harris said in a Bloomberg News article on Monday.

Yet the biggest impression from the sale isn't that it happened but rather how much it cost Deutsche Bank to get it done. The lender had to pay twice as big a premium to borrow as it did a year ago, 3 percentage points above benchmark rates compared with 1.4 percentage points in August 2015 on a public sale of similar notes, Tom Beardsworth of Bloomberg News pointed out.

Let's take a step back for a moment to understand just how significant this is. Since August 2015, developed-market government bond yields globally have plunged almost in half, to an average 0.6 percent. Yields on dollar-denominated bank bonds have dropped on average while those on investment-grade bonds globally recently plunged to the lowest on record. This has been a historically terrific year for bonds and almost anyone who wanted to borrow money.

It's quite different for Deutsche Bank, however. It's getting materially more expensive for the lender to borrow as it negotiates a settlement with the U.S. Department of Justice related to its handling of mortgage-backed securities.

This just showcases how much credibility the bank has lost in credit markets. Its bonds have the highest average yield among the top 50 bank-bond issuers in the U.S. as well as Europe, according to Bank of America Merrill Lynch index data.

Put another way, Deutsche Bank would have to pay $39.3 million in annual interest on $1 billion of dollar-denominated debt, more than $10 million more than Credit Suisse, Citigroup, Goldman Sachs and Bank of America would have to pay on a similar amount of debt, based on current yields tracked by Bank of America Merrill Lynch index data. That extra expense adds up quickly for a firm like Deutsche Bank, which has more than $100 billion of debt.

Deutsche Bank Fined by SEC Over Failure to Guard Research

October 12, 2016 — 5:15 PM BST Updated on October 12, 2016 — 6:52 PM BST
Deutsche Bank AG will pay $9.5 million to settle U.S. Securities and Exchange Commission allegations that the bank failed to properly safeguard non-public information generated by its research analysts.

One of the securities law violations highlighted by the SEC on Wednesday was related to a high-profile case from earlier this year in which the agency accused a Deutsche Bank Securities analyst of maintaining a “buy” rating on Big Lots Inc. while telling clients privately that he thought they should sell the stock.

The bank also encouraged equity analysts to communicate often with its trading desks and clients, and didn’t have policies and procedures in place to prevent disclosure of market-moving information, the SEC said in a statement. The company agreed to resolve the claims without admitting or denying the agency’s findings, the agency said.

Solar  & Related Update.

With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Solar power to make Noida Metro India’s greenest

Vandana Keelor | TNN | Updated: Oct 12, 2016, 10.45 AM IST
NOIDA: The 29.7km Noida Metro corridor will be India's greenest when it becomes operational a little over a year from now with a capacity to generate enough solar power to run not only all 21 stations but also its offices and train depot.

The practices being followed are similar to those Delhi Metro is employing in Phase-3 and some of its existing stations, but Noida Metro will stand out as India's most environment-friendly Metro project because the entire corridor will homogenously use solar power, right from its head office to parking lots and footbridges.

Noida Metro has set a target of generating 12MW of solar power daily, its managing director Santosh Yadav said on Tuesday. For that yield, it is installing solar panels on the rooftops of all stations, footbridges, its main office building, the depot and parking lot boundary walls. "We will also apply for a diamond rating for our buildings by the Indian Green Building Council (IGBC)," Yadav said. "Metro's total power consumption can be reduced further with better engineering practices, sleek design, recycle and reuse." Yadav said solar power will run lights, fans, elevators, escalators and air-conditioning systems at its stations and offices. The conventional power connection will be used as a supplementary source if required or as backup if there is a glitch, officials said.

Metro officials estimate the corridor's total power consumption, excluding the electricity required to run the trains and some other crucial operational facilities, will be less than the 12 MW solar power the corridor collectively generates. If there is a surplus, Metro will route it to the conventional power grid and claim a rebate on its power usage, cutting operational costs.

"Each of the stations will be powered by its own green energy. Rooftops of stations will have solar panels and the buildings will fitted with LED bulbs. The two sub-stations that will supply power for trains running on the corridor will also support solar panels," Yadav said.

The monthly Coppock Indicators finished September

DJIA: 18308  +28 Up NASDAQ:  5312 +21 Up. SP500: 2168 +32 Up.

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