Cash Squeeze Causes China’s Overnight Lending Rate to Jump the Most in Two Years

“The rate China’s lenders charge one another on overnight loans jumped the most in almost two years as shrinking capital inflows led to a cash squeeze before a three-day holiday.

Yuan positions at local financial institutions, an indication of money pouring into Asia’s largest economy, rose 294 billion yuan ($48 billion) in April and China International Capital Corp. estimates the gain slowed to around 100 billion yuan last month. While the People’s Bank of China added a net 160 billion yuan to the financial system this week, it has refrained from conducting reverse-repurchase operations that inject funds since Feb. 7. Local markets will be shut from June 10 to June 12 for the Dragon Boat Festival.

“Foreign capital inflows are probably declining,” said Wang Huane, a senior bond trader at Qilu Bank Co. in Jinan, capital of the eastern Shandong province. “The PBOC has refrained from adding more capital into the financial system, which worsens the situation.”

The one-day repurchase rate, which measures interbank funding availability, climbed 253 basis points, or 2.53 percentage points, to 8.68 percent as of 4:30 p.m. in Shanghai, the biggest jump since July 2011, according to a weighted average rate compiled by the National Interbank Funding Center. It surged 4.15 percentage points this week.

Default Report…”

Full article

“Japanese Finance Minister Taro Aso said that the government won’t intervene in the currency market for now after the yen strengthened by the most in three years against the dollar.

“We are carefully watching, but we don’t have any immediate intention of taking any action, such as intervention,” the finance minister told reporters in Tokyo today. The yen jumped 0.7 percent to 96.28 per dollar as of 1:47 p.m. local time.

Japan’s currency surged 2.2 percent yesterday, adding to the headwinds of a slide in stocks and volatility in bonds as Prime Minister Shinzo Abe campaigns to revive the world’s third-biggest economy. As attention turns to a Bank of Japan meeting on June 10-11, Governor Haruhiko Kuroda’s actions may be limited by his pledge to avoid “incremental” steps after announcing a plan to double the monetary base over two years.

“Stocks rose and the yen weakened between November and May at a very rapid pace, driven by expectations for Abenomics and Kuroda-nomics, exceeding the pace of the economy’s fundamental improvement,” said Hiroaki Muto, a senior economist in Tokyo at Sumitomo Mitsui Asset Management. “The markets are now going through an adjustment phase from the too-rapid moves.”

Muto said that the “adjustment” is probably temporary because the Japanese economy is making gains. At the same time, he said the government may consider another jolt of fiscal stimulus.

Market Outlook…”

Full article

“Japan’s public pension fund, the world’s biggest manager of retirement savings, said it will reduce its holdings of local bonds and buy more shares.

The proportion of assets held in Japanese bonds will be cut to 60 percent from 67 percent, the health ministry said today in Tokyo at a briefing to announce changes to the mid-term plan of the Government Pension Investment Fund. The weighting of local shares will be increased to 12 percent from 11 percent currently. The Health and Welfare Ministry, which oversees pensions, didn’t give a time frame for the changes.

“It was a negative factor as far as bond supply and demand is concerned,” said Makoto Suzuki, a bond strategist at Okasan Securities Co. in Tokyo, one of the 24 primary dealers obliged to bid at government debt sales.

GPIF’s shift toward higher-yielding assets comes as it prepares to fund retirements in the world’s most elderly population and Prime Minister Shinzo Abe tries to revive the economy through fiscal and monetary stimulus. Domestic shares have slid since Abe said yesterday that a legislative campaign to loosen rules on businesses, the “third arrow” of his economic plan, won’t begin for months.

Nikkei 225 Stock Average futures in Singapore and Osaka erased gains after the GPIF announcement. June futures on the Nikkei 225 fell 1.5 percent to 12,645 at the 2:30 p.m. close in Singapore while those in Osaka fell 1.1 percent.

Alternative Assets….”

Full article

World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Japan, Italy, Spain, France,  and Germany …

[youtube://http://www.youtube.com/watch?v=paqXzuhzp5k 450 300]

[youtube://http://www.youtube.com/watch?v=YgEoKG2ukbw 450 300]

[youtube://http://www.youtube.com/watch?v=JLa_7wcXVCY 450 300]

Source

“America may be a service economy but for the sake of tomorrow’s NFP let’s pretend it isn’t. Because if the employment component of the Non-manufacturing (i.e., Services) ISM, which at least in the pre-centrally planned times correlated with the NFP number with an R² of about 0.9, is indicative of what to expect, one can kiss any hopes of a recovery goodbye. Which, of course, is great news! It means the Fed will never pull out and never realize that it is the Fed’s central planning and market manipulation that is responsible for the every deeper global economic depression which benefits only stock holders (and traders).

”

Full article

“As the world waits breathless for some Goldilocks print in tomorrow’s non-farm payroll data, Gallup’s most recent survey of employment trends does not paint a pretty picture for the real economy. Though, by the ‘adjustment bureau’ and their Arima-X goal-seeking, nothing is ever clear, not only is the payroll-to-population (the number of people working) worse than a year ago but the unemployment rate is also rising with under-employment – at 18.0% – near 15 month highs. If the NFP print plays out in line with this, the estimate of 165k will be woefully over-optimistic, leaving the question of whether bad-is-good, or have we crossed the Rubicon of belief in moar is better.

Via Gallup:

The U.S. Payroll to Population employment rate (P2P), as measured by Gallup, worsened in May, dropping to 43.9%, from 44.5% in April. P2P is also down from May 2012, when it was 44.4%

The decline in P2P versus 2012 indicates that fewer people worked full-time for an employer this May compared with a year ago. The 43.9% found this May is similar to the 43.7% recorded in 2011 and 44.0% in 2010.

Gallup’s P2P metric is an estimate of the percentage of the U.S. adult population aged 18 and older who are employed full time by an employer for at least 30 hours per week. P2P is not seasonally adjusted.

…

Gallup’s unadjusted unemployment rate for the U.S. workforce was 7.9% for the month of May, a half-point increase over April, and statistically unchanged from May 2012 (8.0%).

Gallup’s seasonally adjusted U.S. unemployment rate for May was 8.2%, up from 7.8% in April…..”

Full article

Indeed, economic news lately has ranged from mediocre to weak, which could reinforce the Fed’s conviction to hold its key rate near zero and to continue to pump $85 billion a month into the economy through asset purchases….”

Full article

“There are rip-your-face-off rallies and then there are the rip-your-face-off retreats—the kind Wall Street experienced Thursday during a brief but vicious yen surge.

At one point, the U.S. dollar lost about 4 percent to the Japanese currency as the pair trade tumbled through its 50-day moving average.

The move sent the Dow industrials plunging 115 points after flirting with positive territory through most of the early session, and delivered a quick but palpable shock through all levels of financial markets.

“Right now this just looks like a bunch of nervous hands,” said Christopher Vecchio, currency analyst at DailyFX. “The dollar was a very extended trade. This is the unwinding of that very crowded trade.” …”

Full article

“Global markets are going wild today. The big bet against the Japanese yen is unwinding, and the dollar is getting crushed against a host of currencies around the world (the dollar index is down a sizable 1.3%).

Many of these currencies come from emerging markets (EM), which have been tanking over the past few weeks against the dollar as U.S. Treasury yields have risen.

And the losses in EM haven’t been limited to currencies – stocks and bonds have taken a hit as part of the EM sell-off as well.

The big sell-off in the dollar today is a reversal of this trade. Now, everyone is looking ahead to tomorrow’s jobs report in the U.S., which could be a crucial release in terms of determining which way the momentum in global markets swings.

Will a better-than-expected jobs number confirm the strengthening dollar story of the past few weeks, or will a worse-than-expected number provide more fuel for the dollar sell-off as fears that the Federal Reserve will have to remain accommodative for longer begin to seep back into the marketplace?

Société Générale Head of Emerging Markets Strategy Benoît Anne asserts that either way, it doesn’t really matter for EM.

In a note to clients today, he writes:

No matter what happens tomorrow, sell GEM assets…”

Full article

“LOS ANGELES (Reuters) – A Republican congressman on Thursday introduced legislation to allow online gambling on a federal level, which he says will give consumers more uniformity than legalizing it on a state-by-state basis.

The move by Representative Peter King of New York follows industry lobbying for federal legislationto provide a larger, more liquid market across state lines, attracting more gamblers.

U.S. casinos operators like MGM Resorts International and Caesars Entertainment Corp plan to launch Internet operations in states like New Jersey, which recently passed online gambling legislation….”

Full article

“WASHINGTON (Reuters) – The Obama administration on Thursday defended its collection of the telephone records of millions of Americans as part of U.S. counterterrorism efforts, re-igniting a fierce debate over privacy even as it called the program critical to warding off an attack.

The admission came after Britain’s Guardian newspaper published on Wednesday a secret court order authorizing the collection of phone records generated by millions of Verizon Communicationscustomers.

Privacy advocates blasted the order as unconstitutional government surveillance and called for a review of the program amid renewed concerns about intelligence-gathering efforts launched after the September 11, 2001, attacks on the United States.

The revelation also put a spotlight on the handling of intelligence and privacy issues by President Barack Obama’s administration, which already is under fire for searching the telephone records of Associated Press journalists and the emails and phone records of a Fox News Channel reporter as part of its inquiries into leaked government information.

“The United States should not be accumulating phone records on tens of millions of innocent Americans. That is not what democracy is about. That is not what freedom is about,” said Senator Bernie Sanders, an independent from Vermont….”

Full article

Not even half the story….

“Agricultural prices will climb in the next decade on a combination of higher energy costs, falling productivity growth and rising demand, the OECD and the UN’s Food & Agriculture Organization forecast.

Extended periods of low prices for farm goods, driven by ever-increasing yields and cheap oil, “seem now a feature of a bygone era,” the Organization for Economic Cooperation & Development and the United Nation’s FAO wrote in a joint report on the outlook for agriculture through 2022.

Farm production will grow less rapidly in the future due to limited availability of suitable land, water constraints and rising costs of inputs such as fertilizer, according to the report. Corn and soybean prices rose to a record last year, and have more than doubled from 10 years ago.

“With energy prices high and rising and production growth declining across the board, strong demand for food, feed, fiber and industrial uses of agricultural production is leading to structurally higher prices and with significant upside risk,” the OECD and FAO wrote.

Agricultural production growth is predicted to slow to an average 1.5 percent a year through 2022 from 2.1 percent annually in the past decade, according to the report. That will still beat population growth, with farm output per person advancing by 0.5 percent per annum over the period.

Investment, Technology…”

Full article

“Ray Lane, former chairman of Hewlett-Packard Co. (HPQ) and partner emeritus at venture-capital firm Kleiner Perkins Caufield & Byers, is in a dispute with the U.S. Internal Revenue Service that has left him with a $100 million tax bill.

In December, the IRS found Lane, 66, participated in a “sham” tax shelter, generating improperly claimed losses of $251 million to offset income, according to appeal papers filed May 6 in U.S. Tax Court in Washington. Lane argued that the IRS was wrong to say that his partnership, Vanadium Partners Fund LLC, lacked “legitimate business purpose.”

The Tax Court wrangling comes amid a series of career setbacks for him. He stepped down as Hewlett-Packard’s chairman in April after less than three years. Investors were dismayed with his oversight of the computer maker’s $10.3 billion purchase of software maker Autonomy Corp. The acquisition later had to be written down.

That same month, he scaled back his role at Kleiner Perkins, becoming a partner emeritus. The following month, he left the board of Fisker Automotive Inc., the struggling electric luxury carmaker he backed while at Kleiner Perkins….”

Full article

“In the last month, the economy gave us some particularly worrisome economic data.

Societe Generale’s Albert Edwards flags two data points: Q1 corporate profit growth, which unexpectedly turned negative, and the May ISM manufacturing report, which is now signaling a contraction in the sector.

“History tells us that this is a warning sign we ignore at our peril,” he wrote.

Edwards notes that the ISM numbers have been on the same path as they were going into the last recession.

But he believes that the ISM’s signal isn’t quite as powerful as the signal being sent by the corporate profits report. From Edwards:

The US just released its Q1 corporate profits update with the GDP data. These give a less timely but more comprehensive snapshot of what is going on with corporate profits than the S&P data. Most commentators agree the BEA data is less subject to ‘manipulation’. The Q1 data showed profits falling a tad on virtually every definition, My preferred measure is pretax economic profits of domestic non-financial companies which history suggests is a good predictor of domestic investment growth (see chart below). Profits for us are a leading indicator for corporate spending. Hence, with profits essentially flat for the last four quarters, history suggests this is not good news for the economy.

Here’s Edwards’ chart:

Societe Generale

Edwards has subscribed to the work of John Hussman and James Montier who have argued extensively that record high profit margins are unsustainable and would inevitably revert to the mean. Profit margin contraction would translate into crumbling profits, which would ultimately take the legs out from under the stock market….”

Full article

SOURCE
NYSE

NASDAQ

AMEX

In Play ,

On the Wires 

“WASHINGTON—Regulators are ramping up scrutiny of an opaque corner of the market where stocks change hands in the dark.

The Financial Industry Regulatory Authority, Wall Street’s self-regulatory body, last month sent 15 examination letters to operators of “dark pools”—lightly regulated, off-exchange trading venues that have been a rising concern for regulators and some investors as more activity shifts away from exchanges.

Finra is seeking details about how the increasingly popular venues operate, what they disclose to clients and whether they adequately police trades. It could bring enforcement action against dark-pool operators or issue recommendations for tighter oversight, depending on the answers it receives and additional examinations, said John Malitzis, executive vice president of market regulation at Finra. The letters are a follow-up to an initial round of questions the regulator circulated last fall.

“We want to understand whether [dark pools] are disclosing to their customers how their orders work [and] whether customers are informed who their orders will interact with,” Mr. Malitzis said in an interview. “A big part of this is to get an understanding of practices that may or may not be problematic.”

Credit Suisse Group AG, CSGN.VX -1.56% Goldman Sachs Group Inc. GS -2.14%and Barclays BARC.LN -2.31% PLC, which operate three of the largest U.S. dark pools, were among the firms that received a letter, according to people familiar with the matter. Representatives for the three banks declined to comment.

Dark pools don’t disclose traders’ buy or sell orders and only publish trade data after transactions occur. About 13% of all stock-market action takes place on dark pools, up from about 4% five years ago, according to Tabb Group, a market-research firm. Most dark pools are run by broker-dealers—firms overseen by Finra that buy and sell assets on behalf of customers as well as trade for their own accounts.

While dark pools command an expanding slice of trading volume, regulators still have little idea about how they operate since, unlike exchanges, they aren’t required to regularly disclose detailed information about their trading systems. Finra is weighing whether to submit a plan to the Securities and Exchange Commission this summer that would allow it to more closely track dark-pool trading volumes…..”

Full article