Archive - Nov 6, 2014

For the longest time there has been speculation whether Jihadist forces, be they ISIS, Nusra or other regional groups, had managed to spread beyond the Iraq conflict zone and infiltrate the world's oil mecca: Saudi Arabia. We now know the answer: according to Bloomberg, a Saudi citizen suspected of organizing the attack on Shiite worshipers in the oil-rich Eastern Province returned from fighting in Iraq and Syria, according to Saudi-owned newspapers. In short, ISIS has arrived in the world's largest oil exporter, which begs the question: was yesterday's news of an oil pipeline explosion, quickly downplayed by Saudi sources as "maintenance-related", in fact what most assumed at first, namely an act of sabotage? And how long until the next "planned maintenance" pipeline explosion?

The ECB will not be able to implement a QE program. Even Ben Bernanke admitted it.

Every day for the past several years, sometime after 3pm, bullish market participants exhale a sigh of relief when as if out of nowhere, an "unexpected" surge of buying lifts stocks into the 4 pm close. There are several explanations for what some have dubbed if not Divine, then certainly centrally-planned intervention. This is the time when ETF creation and (far less frequently) redemption takes place. As a result, in a world in which the bulk of liquidity has shifted away from single name stocks and even futures toward ETFs, trends in the creation and redemption of ETFs are key to watch to determine how the market may move purely for to technical reasons (since fundamentals died some time in 2009). Which is why we note, with little surprise, that according to SocGen, Equity ETFs posted a record level of monthly creations in October, driven by US, regional eurozone and UK indexations, perhaps explaining the relentless levitation of the market on ever lower volume especially in the latter part of the day.

Ebola is solved. Oil price drops are "unequivocally good news". The US election is positive. Draghi promised to do whatever it takes again. And Ukraine is in ceasefire.So why is it that Donetsk's Deputy Prime Minister Andriy Purgin claims Ukrainian security officials have started full-scale fighting, clashing 26 times today according to Ukraine military.y. With tanks advancing, Purgin exclaims, "now there is a full-scale war... attacking us, we are defending." The Ruble has been crushed to new record lows over 46 to the USDollar and Russian stocks are tumbling.

90 minutes... that is the life of a European Central Banker jawbone now...

"The main message is ECB assets are set to expand as others contract," promises ECB's Mario Draghi, adding that "ABS buying is to begin shortly." Shrugging off any rumors of mutiny or lack of sovereign QE, the markets bought every stock market and risky bond with both hands and feet. EURUSD plunged under 1.24 - its lowest since August 2012 as peripheral bond spreads tumbled 10-15bps.  US Treasury yields pushed higher and stocks knee-jerked higher. The USD index is now up 1% on the week.

While it has been obvious to many that the drop in oil prices is a weak demand issue (amid a desperate over-supply pump for revenues in a decling growth world), talking-heads have remain unashamedly bullish of growthiness and shrugged at commodities dumping at the fastest pace since Lehman. However, it appears OPEC just burst that little bubble of hope by slashing demand forecasts. Crude prices tumbled on the admission.

Having served up a large bowl of nothing with the official statement, the job of jawboning 'hope' for future monetary policy idiocy falls once again on Mario Draghi's shoulders as he takes the stage in what may well be a highly contentious press conference. Will he admit the mutiny? Will he 'fess up that OMT is a mirage? Will he admit to being a secretive dictator? Will he remove his spectacles and angrily point at a reporter?

Despite a surge in job cuts, initial jobless claims beat expectations dropping to just 278k (the 2nd lowest of the cycle). The smoother 4-week average dropped to its lowest since April 2000 - nearing levels not seen since 1974... time for moar QE? Continuing claims also dropped to cycle lows... so why did the electorate "throw the bums out" yesterday?

When it comes to the second coming of the cold war, things are not looking up for the leader of the "Free World", because for the second year in a row, at least according to Forbes editors, the person whom they have chosen as the world's most powerful in the world is the guy with sunglasses on the left.

Maybe this explains the election results? Challenger reports US companies laid off over 51,000 people in October, the most since May (and 2nd most since Feb 2013). This is a 68% surge MoM (and 11.9% rise YoY) - the biggest monthly rise since September 2011. Retail, Computer, and Pharma industries saw the biggest layoffs. Hiring also collapsed from the record 567,705 exuberance in September to just 147,935 in October. This was the worst October for layoffs since 2009.

• LOL@Fundamentals: European Stocks Fall as Investors Seek Stimulus Clarity (BBG)
• Obama, Republicans sound conciliatory note but battles loom (Reuters)
• Firms drop Pimco funds from managed accounts (Reuters)
• Not All QE Is Created Equal as U.S. Outpunches ECB-BOJ (BBG)
• Ukraine Accuses Russia of Sending Troops as Truce Wobbles (BBG)
• Lenovo Slumps After Projecting China ‘Hypergrowth’ to End (BBG)
• Palo Alto Networks discovers new malware targeted at Apple devices (Reuters)
• IPO That Brought In $1 Billion in March Implodes in Denmark (BBG)

While today's Draghi press conference is expected to be rather contentious, nobody was expecting much if anything from the actual quantitative rates announcement. Sure enough, that's precisely what the ECB delivered when moments ago it announced it would keep all three rates unchanged, with the Deposit Facility rate continuing its trek through NIRP land at -0.20%.

"we do not expect any additional easing to be announced in addition to the various measures adopted between June and September. We expect Mr Draghi’s remarks to be focused on the Comprehensive Assessment of Euro area banks, and on the fact that the decline in oil prices is lowering headline inflation in most advanced economies."

With last night's latest Japanese flash crash firmly forgotten until the next time the trapdoor trade springs open and swallows a whole lot of momentum chasing Virtu vacuum tubes, it is time to look from east to west, Frankfurt to be precise, where in 45 minutes the ECB may or may not say something of importance. As Deutsche Bank comments, "Today is the most important day since.... well the last important day as the ECB hosts its widely anticipated monthly meeting." Whilst not many expect concrete action, the success will be judged on how much Draghi hints at much more future action whilst actually probably doing nothing.