Monday, September 19, 2016

Today's links

1--Foreigners turn away from Treasurys just when needed most: Analyst

The biggest buyers of U.S. Treasurys have turned fickle on U.S. debt, just when they may be needed most.
Peter Boockvar, chief market analyst at The Lindsey Group, points out that for a fourth month in a row, foreigners were net sellers of U.S. notes and bonds, dumping $13.1 billion in July for a year-to-date total of $156 billion.

That compares to net selling of $20 billion for all of 2015, but foreigners made massive purchases of about $1 trillion in total for the four years prior to that.
"This level of selling is unprecedented," he said. And it comes just as U.S. interest rates may have seen their cycle lows and bond yields look set to rise...

Now that QE could be about to slow down or even reverse, the U.S. market could become more vulnerable to this lack of foreign buying, Boockvar said.
A key factor that could turn the tide for sovereign debt yields is the Bank of Japan, which meets Tuesday and Wednesday, and may decide to stop buying longer-duration bonds, according to reports...

If the foreigners remain on the sidelines, Treasury yields could move up faster regardless of Fed policy. There is also the potential for fresh fiscal spending programs next year, when a new president is in the White House and is eager to boost economic growth. To fund those programs, the U.S. would need to issue more debt which could also send yields higher.
"Bottom line, a major crutch for the U.S. Treasury market over the past decade of foreign central bank reserve accumulation has gone away for now," Boockvar said. China is an outright seller of Treasurys, because it is seeing capital outflows and its economy is slowing.
"Foreign flows were a big part of Treasury bond buying. Take that away and central banks take away the stimulus that was affecting long-term interest rates. Deficits are expected to head higher. This is a process that takes time to see these things play out," he said

2--Fun With Fake Statistics: The 5% "Increase" In Median Household Income Is Pure Illusion

3--How a ‘twist’ by the Bank of Japan could upstage the Fed

There are several reasons why McCarthy and other central bank watchers are focused on the Bank of Japan.
The BOJ remains the most aggressive major central bank when it comes to quantitative easing—its program of bond and other asset purchases as well as negative interest rates that are designed to reflate Japan’s stubbornly moribund economy.
But there’s an increasing sense that aggressive QE by the Bank of Japan and other major central banks, including the European Central Bank, are producing, at best, diminishing returns. ...

Negative rates have failed to weaken the Japanese yen USDJPY, -0.07% EURJPY, -0.07% as might be expected. A weaker currency, which makes Japanese exports more competitive on the global market, is seen as an important pathway for transmitting monetary stimulus to the economy. In the year to date, the yen is up nearly 18% versus the dollar and 15% versus the euro....

Speculation has mounted that the Bank of Japan could undertake an “inverse twist,” shifting its bond purchases away from the longer end of the yield curve. That would be a mirror image of a Federal Reserve maneuver dubbed “Operation Twist” that the central bank used in 1961 and 2011 to flatten the yield curve by buying long-term debt and selling short term debt. Bond yields move inversely to prices....

The BoJ is potentially the more important market-moving event despite a history of under-delivering on expectations,” wrote McCarthy at Jefferies. “Were the BOJ to break with history and deliver on backing away from QE to foster a steeper curve, the bear steepener will resume in the Treasury market.”


5--China facing full-blown banking crisis, world's top financial watchdog warns

6--Syria declares end of ceasefire, US seeks clarification from Russia

"It was assumed that the ceasefire will present a real chance to end the bloodshed, but terrorist groups did not adhere to any of the points of the agreement on a ceasefire, the number of violations on their part has exceeded 300," reads the statement published by SANA news.
According to the statement, the Syrian Army has "shown the highest level of endurance in confronting the abuses by terrorist groups

7--Rift Appears Between US DoS and Pentagon Over Syrian Deal With Russia

The agreement that Secretary of State John Kerry announced with Russia to reduce the killing in Syria has widened an increasingly public divide between Mr. Kerry and Defense Secretary Ashton B. Carter, who has deep reservations about the plan for American and Russian forces to jointly target terrorist groups," The New York Times reported on September 13....

In his interview on the John Batchelor Show Stephen F. Cohen, professor emeritus of Russian studies at New York University and Princeton University, highlighted that that a covert struggle is going on between the "party of war," represented by Ashton Carter and the Hillary Clinton camp, and the "party of peace" led by John Kerry and his followers.

Commenting on the July attempts by Kerry to strike a deal with Moscow on Syria, Cohen suggested that "the party of war" and most notably Carter, could have thrown a wrench in the US-Russian negotiations.

(The Pentagon's fingerprints are everywhere) The U.S. is trying to distribute the blame for its air support of ISIS against the Syrian Arab Army in Deir Ezzor.
The facts, not put into doubt by any U.S. statement, via the Russian military report after Saturday's incident:
"Today at 17:00-17:50 Moscow time, international anti-Daesh coalition (two F-16 and two A-10 jets) carried out four strikes on Syrian government forces' units encirled by Daesh near Deir ez-Zor airport. The coalition's aircraft entered Syrian airspace from the side of the Iraqi border," Maj. Gen. Igor Konashenkov said.
As a result of the attack, 62 Syrian soldiers were killed and some 100 others were injured, according to information received from the Syrian command in Deir ez-Zor, he said.

9--62 dead, 100 wounded as US bombs Syrian army near Deir ez-Zor

Everything suggests that the attack, coming in the initial days of a US-Russian ceasefire in Syria openly criticized last week by the US army brass, was deliberately committed by forces inside the US government hostile to the ceasefire....

An anonymous Centcom official told the New York Times that US surveillance aircraft tracked the Syrian army units “for several days” before US fighters attacked them. “The attack went on for about 20 minutes, with the planes destroying the vehicles and gunning down dozens of people in the open desert, the official said. Shortly after this, an urgent call came into the American military command center in Qatar… The call was from a Russian official who said that the American planes were bombing Syrian troops and that the strike should be immediately called off.”

Nevertheless, the US jets continued to bomb the Syrian base for several minutes before ending the attack, according to the Centcom official’s account.

The attack at Deir ez-Zor shows that Washington and its allies are not seeking a cease-fire and de-escalation, let alone peace. They are pursuing the same strategy adopted by the NATO powers in Syria ever since 2011: pursuing regime change by backing Islamist militias like IS or the Al Qaeda-linked Al Nusra Front against Syrian President Bashar al-Assad’s regime. The latest attack has shown that, even after IS mounted repeated terror attacks in Europe and the United States, a definite collaboration still exists between US and IS forces to escalate the war. ...

After the emergency meeting of the UN Security Council called by Moscow, Russian Ambassador to the UN Vitaly Churkin charged that the US attack was a deliberate attempt to derail the joint US-Russian-brokered ceasefire, pointing to the “highly suspicious” timing of the attack.

“It was quite significant and not accidental that it happened just two days before the Russian-American arrangements were supposed to come into full force,” he said. “The beginning of work of the Joint Implementation Group was supposed to be September 19. So if the US wanted to conduct an effective strike on Al Nusra or ISIS, in Deir ez-Zor or anywhere else, they could wait two more days and coordinate with our military and be sure that they are striking the right people… Instead they chose to conduct this reckless operation.”

“One has to conclude that the airstrike has been conducted in order to derail the operation of the Joint Implementation Group and actually prevent it from being set in motion,” Churkin added.

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