Archive - Dec 11, 2014

Many observers have proclaimed the death of OPEC. This seems to be a premature judgment, and may reflect a misunderstanding of oligopolistic practices.    

The decision not to cut production is not a sign of the OPEC impotence as has been argued.   If OPEC would have cut output, and lost market share as a consequence, would OPEC's future really been brighter? 

And other news moving markets today

It's a miracle... give the worst creditors access to cheap money for longer-and-longer terms and hey presto... 'expensive' stuff is available to everyone. Retail sales modestly beat expectations in November (+0.7% vs +0.6% expectations) - sending USDJPY spiking to confirm what great news this is. The driver of all this exuberance... Vehicle sales +1.7% MoM. Oddly, for all those prognosticators looking for windfall tax cuts from the oil price plunge, gasoline station sales dropped only 0.8% MoM - not exactly the consumption-boosting exuberance every talking head proclaims.. These numbers appear to be clearly in the "Fed wants to hike" narrative.

Just 2 short months ago we noted S&P's warning that Greece will default again within 15 months and following comments by Prime Minister Samaras that the market's drop is due to fear that Syriza will win an early election and seek a Greek exit from the Euro. Pressuring parliamentarians and the public alike, he stated "the choice is simple," warning that Greek financing needs are only covered through the end of February without further aid from the EU (but we thought they were 'recovered'). Greek stocks have crashed further, Greek default risk has spiked, and 3Y bond yields are now well north of 10% (138bps inverted to 10Y).

First it was humans. Now it is vaccum tubes.

• Shale operaters Goodrich, Oasis Petroleum cut spending for 2015 as oil slides (Reuters)
• Greece to hold elections in January if president vote fails (Reuters)
• Norway’s Shock Rate Cut Drives Krone to Lowest Since 2009 (BBG)
• ‘Severe Downturn’ Threatening Norway, Central Bank Governor Says (BBG)
• Russia’s Fifth Rate Increase Fails to Halt Ruble Slide to Record (BBG)
• SNB Says Deflation Risks Increased as Franc Cap Maintained (BBG)
• China eases bank lending restrictions, PBOC targets 10 trillion yuan in loans for 2014 (Reuters)
• Mobius Says China’s Bull Market Is Just Getting Started (BBG)
• How Wal-Mart Made Its Crumbling China Business Look So Good for So Long (BBG)

Not quite as many fireworks overnight, in another session dominated by central banks. First it was revealed that China had injected CNY400 billion into the banking system to add liquidity as the economy slows, which is ironic because on the other hand China is also seemingly doing everything in its power to crash its nascent stock market bubble mania, following the latest news that China’s CSRC approved 12 IPOs ahead of schedule which is seen as a pre-emptive step to tighten interbank liquidity amid the recent rise in margin trading. Another central bank that was busy overnight was Russia's, which proceeded with its 5th rate hike of the year, pushing the central rate up by 100 bps to 10.50% as expected. Elsewhere, the Bank of England wants to move to a Fed-style decision schedule and start releasing immediate minutes as Governor Mark Carney overhauls the framework set up more than 17 years ago. The Swiss National Bank predicted consumer prices will drop next year and said the risk of deflation has increased as it vowed to defend its cap on the franc. Finally Norway’s central bank cut its main interest rate for the first time in more than two years and signaled it may ease again next year as plunging oil prices threaten growth in western Europe’s biggest crude exporter.

Back in September, when the results of the first much-trumpeted TLTRO were announced, everyone said it was a clear disappointment, when European banks expressed just €82.6 billion in ECB credit demand, far below the €100-€300 billion range expected and well below the €400 billion across the two 2014 TLTROs hinted by Mario Draghi. Today, we got the second TLTRO-3 result which too, was a flop, if not quite the disaster the first one was, when the ECB announced that just €129.84 billion was allotted in today's TLTRO result, spread among 306 counterparties, or 51 more than the bidder who signed up for the first TLTRO, resulting in an aggregate take up for both auctions of only €212 billion, which also happens to be €55 billion, or 21%, below the consensus expectations observed in a Goldman poll back in September 9, €40 billion below the Bloomberg median consensus estimate of €170 billion for the second TLTRO, and half the total cap of €400 billion.