PRECIOUS METALS: Silver - Collapses Over 37% On Friday Causing Mass Deleveraging
The range Friday night for XAG was $73.97 - $109.511, Asia is currently trading around $81, -4%. The move had looked overdone but the timing of these pullbacks when things are going parabolic are always tough, but I am sure even the most vocal naysayer would not have been calling for a 37% collapse in a day. A truly monumental move that will have caused a VAR shock right across the market. There will be lots of calls to now use this dip to enter longs but my experience tells me when you have a move of this magnitude it takes a few days if not a couple of weeks to truly see the ramifications of this unprecedented move. All retail stops would have been done at the lows but the larger investment positions would not have been able to exit in any size due to the pace and lack of liquidity seen in that move. I feel should we get any sort of a bounce it will be used to fade initially as the longs that are still caught will want to pare back risk given the move we just saw. On the day, look for sellers back toward $90-$94 and then $100-$105, buyers have been seen just below the $75k area and is holding up for now. The first support is in this $70-$75k area a break below here could signal a deeper pullback toward $55-$60. This move is all about positioning and moves like this tend to squeeze everyone out before finding a base so I would not be fading this move initially but rather be patient and let the capitulation play out. Liquidity has obviously completely disappeared so it will be no surprise to continue to see swings of between 10-15% over the coming days as this continues to play out.
- The XAG Average True Range for the last 10 Trading days: $15.07
- Jim Bianco on X: “Yesterday's 19% discount to NAV broke the record set on 10/10/2008, the day the TARP was introduced during the Global Financial Crisis. Before Friday's collapse, SLV had about $60 billion in assets. The chart below shows that the silver market is now broken, meaning there is a high risk that a financial firm heavily involved in this market is either bankrupt (causing the large discount above) or in serious trouble (due to the large discount above). It doesn't mean we will automatically see a firm fail, but the silver market needs to correct itself quickly; otherwise, it probably will. Quickly correct itself = Monday or Tuesday.” See graph below
- Bloomberg - "Chinese metals traders have racked up losses totaling at least 1 billion yuan ($144 million) after one of their counterparties fled the country leaving deals unfinished, alarming top regulators worried about hidden financial risks, according to people familiar with the matter.”
Fig 1 : Silver ETF(SLV)
Source: MNI - Market News/@biancoresearch
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US DATA: Dallas Fed Weekly Index Ends Year Tracking Solid Q4 GDP Growth
The Dallas Fed's Weekly Economic Index concluded 2026 on a bright note, with the 4-quarter-scaled GDP growth rate ticking up in the Dec 27 week to 2.23% Y/Y from 2.21% prior.
- This should be caveated slightly by the fact that railroad traffic, electricity output, and fuel sales were not released for the latest week due to holidays, but it kept the 13-week (ie quarterly) moving average rate at 2.24% for a 6th consecutive week between 2.24-2.25%.
- The WEI was consistent with real GDP growth of 4+% Q/Q SAAR in Q3, which was closer to the mark than most (the official reading was 4.3%).
- Its final reading of Q4 means it tracked the equivalent of 2.5-3.0% Q/Q SAAR growth for the quarter, a little below the Atlanta Fed GDPNow estimate of 3.0%. We get the next Atlanta Fed reading on Monday after the ISM Manufacturing release for December.
US PREVIEW: Payrolls Seen Steadying Out In December After Noisy Oct/Nov (2/2)
Next Friday's release of the December employment report is the highlight of the week's macro calendar. Our usual preview will be out early next week but early consensus expectations are for relatively steady readings vs November, with 55k nonfarm payroll gains (64k in Nov) and an unemployment rate of 4.5% (4.6% in Nov), with a slight moderation in participation and an uptick in hourly earnings growth.
- This is the last payrolls report before the FOMC's end-January meeting, at which participants would probably require substantially weaker-than-expected NFPs to spur even consideration of a another 25bp cut.
- That said the December data will carry more signal to the market and Fed than the highly unusual November report, which was both delayed and abbreviated (no October Household Report/unemployment rate) due to the federal government shutdown. Additionally, there were apparent distortions blurring the signal from the data, from the shutdown-driven jump in unemployment, to the new historical low for the household survey response rate and higher standard errors.
- Note that the FOMC's December 2025 median for the Q4 unemployment rate was 4.5% so a steady rate from November would imply a dovish "miss" to the upside though the significance will be muted by the noise in the household data. That said with Fed Chair Powell stating last month that nonfarm payroll gains are overstated by 60k/month, the consensus expectation will - to the leadership of the FOMC - imply only continued softness in the labor market, keeping further rate cuts in play this year.
- So far, indicators point to a relatively steady labor market overall in December vs November. The Chicago Fed's advance estimate of December's unemployment rate is 4.56% - which would be unchanged from November's unrounded BLS reading.
- The "labor differential" in the December Conference Board consumer survey its lowest since February 2021 at 5.9, pointing to a continued pickup in the unemployment rate, while the UMIchigan survey's expected job changes expected during the next year remains at levels consistent with meaningful monthly nonfarm payrolls contractions.
- However, jobless claims data for the reference week were on the lower side of the range seen in recent months' reference periods (initial 224k, continuing 1,913k in Dec 13 week).
EUROZONE ISSUANCE: EGB Supply – W/C 5 January
Germany, Spain, and France are scheduled to kick off auction issuance for the year in the upcoming week. We pencil in issuance of E55.5bln for the week, after this week saw no scheduled operations amid the holiday period. Slovenia will also hold a syndication in the week with syndications also possible from Austria, Belgium, Germany, Ireland, Portugal and the EFSF.
- Slovenia has already announced a mandate for a new 10-year SLOREP. We expect the transaction to take place on Monday 5 January with a E1.5bln size.
- Germany will be looking to kick off EGB auction issuance for the year on Tuesday with E6bln of the 2.00% Dec-27 Schatz (ISIN: DE000BU22114).
- Germany will return to the market on Wednesday with E6bln of the new Feb-36 Bund (ISIN: DE000BU2Z064). The coupon will be announced on Tuesday.
- Spain will come to the market on Thursday with a Bono/Obli/ObliEi auction, with the 2.70% Jan-30 Bono (ISIN: ES0000012O00), the 3.00% Jan-33 Obli (ISIN: ES0000012P74), the 3.45% Jul-43 Obli (ISIN: ES0000012K95) alongside the 1.15% Nov-36 Obli-Ei (ISIN: ES0000012O18) on offer. The combined auction size is to be confirmed on Monday.
- France will come to the market on Thursday to hold a LT OAT auction, selling a combined E11.5-13.5bln of the 3.50% Nov-35 OAT (ISIN: FR0014012II5), the 0.50% May-40 OAT (ISIN: FR0013515806), the 3.60% May-42 OAT (ISIN: FR001400WYO4) and the 3.75% May-56 OAT (ISIN: FR001400XJJ3).
NOMINAL FLOWS: The upcoming week will see no redemptions. Coupon payments for the week total E4.1bln of which E4.0bln are from Germany. This leaves estimated net flows for the week at positive E51.4bln, versus negative E1.4bln this week.
