Archive - Jun 12, 2014

If there was ever a time to bring out the waterworks again, this is it. No really: as Politico reports, "Cantor’s private speech drove Boehner to tears." And now is a perfect opportunity to whip out the tears once more, this time for public consumption.

Insurgents surrounded Iraq's largest refinery in the northern town of Baiji on Thursday, police and an engineer inside said. Sunni militants first moved into Baiji late on Tuesday, closing in on the refinery, but later withdrew to the surrounding villages after reaching a deal with local tribal chiefs. A witness who lives in a house near the refinery said the militants arrived in more than 50 vehicles.

Volume is well above average pro rata as US equity markets are stumbling notably this morning. Was retail sales' miss the final straw that broke the hope back? Or was it China's CNY vol, failed auction, warehouse probe, or Japan's dismal data and misery, or Iraq's reignition, or Ukraine, or Q1 GDP downgrades, or earnings outlook downward revisions, or flows? Since Mario Draghi promised the world and made everyone believe that's what he gave them, US equity markets have rolled over hard today and Dow Transports are now notably in the red as the former high-flier unbreakable trend looks set to follow Biotechs in the momo meltdown club...

One hardly needs more charts to understand that over the past 6 years America has never become more ideologically and politically divided, but here, just to hammer that point, is the latest survey of 10,000 adults from Pew confirming just this.

While the turmoil in Iraq continues to rise, US equity markets have brushed off most of the geopolitical concerns (more worried about dismal retail sales than the surge in oil prices that is now happening) but bond traders did not wait to sell. Iraq's bond prices have plunged in the last 2 days as concerns that fighting will reach the oil-rich regions of the nation (and thus the money). As Aberdeen Asset Management's Anthony Simond told Bloomberg, "if violence can stay away from the oil region, you'll probably see a rebound in prices; the ability to pay is there... and the willingness to pay for the moment."

While all eyes are affixed on Iraq (and record highs for stocks), the situation in Ukraine continues to re-escalate. Ukraine's interior minister Arseniy Avakov, speaking at a news conference, exclaimed:

• *UKRAINE SAYS RUSSIA FAILED TO STOP REBEL CONVOY AT BORDER
• *UKRAINE SAYS ARMORED REBEL VEHICLES CROSSED BORDER FROM RUSSIA
• *UKRAINE SAYS REBEL CONVOY INCLUDES 3 TANKS, NUMBER OF APCS
• *UKRAINE MILITARY IN FIREFIGHT WITH REBEL VEHICLES NEAR BORDER

Unconfirmed reports note 3 T-72 tanks in the Snezhnoye region. Time for some more sanctions.

While Eric Cantor may have been nothing but a Wall Street pawn, eager to appease whoever the highest lobbying bidder du jour was, the biggest loser from his dramatic fall from grace at the hand of the tea party is not a Wall Street company at all, but Boeing. The reason, as Bloomberg explains is that Cantor's defeat threatens congressional reauthorization of low-cost lending that benefits the world’s largest planemaker. The name of the entity whose fate is at stake: the US Export-Import, or Ex-Im bank.

Another swing and a miss for the so-called Q2 GDP surge. After April data was revised higher, with headline retail sales pushed from 0.1% to 0.5%, and core retail sales ex-autos and gas boosted from -0.1% to 0.3%, May showed a big drop in whatever momentum may have resulted from the March spending spree. As a result May headline retail sales missed expectations of a 0.6% increase, printing at 0.3%, with the entire positive print due to auto and gas sales. Indeed, when looking at core retail sales excluding autos and gas, these were unchanged from April, printing at 0.0%, far below the 0.4% expected.

At 317k, initial claims remain close to cycle lows but it is noteworthy that this is the 2nd week in a row of rising claims (missing expectations) when all we hear about is how great things are and how Q2 will be the big swing back. Continuing claims rose for the first time in 7 weeks but remains just off cycle lows (the biggest rise in 2 months). Perhaps the celebration of escape velocity job creation was - once again - premature.

You better fire up them Teleprompters before Tee-Off time...

It seems, as we noted earlier, that the machines running the crude oil pricing algos are running on a 24-hour delay but as ISIS pushes on towards Baghdad, takes Tikrit and images of burning refineries hit YouTube, crude oil prices have shot up. WTI Crude is back over $106, a level not seen since Sept 2013 and is the highs for this time of year since 2008's consumer-sapping levels. This recent strength has already leaked into gas prices (though there is more to come if the normal lag is anything to by) as regular gas prices have not been higher for this time of year since 2011. So there we have it - the excuse for Q2 GDP consumption weakness....

Promises, promises! We’ve heard it all before. ‘We’re gonna get you, guys’. We know the song it’s just the words that get changed from time to time, but anyone can hum along to it these days. The bankers, those banksters are gonna get their comeuppance. Trouble is: they never do. It’s just getting boring now.

• Iraqi Drama Catches U.S. Off Guard (WSJ)
• Al-Qaeda Offshoot on NATO Border Threatens Turkish Rally (BBG)
• It's just the snow, people: U.S. Economic Recovery Looks Distant as Growth Lingers (NYT)
• Freed Taliban leaders may remain in Qatar beyond one-year travel ban (Reuters)
• BNP Paribas Executive Chodron de Courcel to Quit Post (WSJ)
• Greenmail is back (WSJ)
• Facebook Places Multiple Bets to Win Messenger Wars (BBG)
• ECB easing to benefit Ukraine, Russia corporate bonds (Reuters)
• Rome Shows the World How Not to Run Bike-Sharing Program (BBG)

With another day of little otherwise completely irrelevant macro news (because following last night's abysmal Australian jobs data one would think the AUD would be weaker; one would be wrong), market participants - all 3 of them - and algos (which have finally uncovered where Iraq is on google maps) are finally turning their attention to the latest conflict in Iraq (because they obviously no longer care about the martial law in Thailand or the civil war in Ukraine), where the Al Qaeda spin off ISIS overnight seized at least 310K B/D in refinery capacity in northern Iraq according to the Police, and what is more concerning, is now less than a 100 kilometers away from Baghdad. Will ISIS dare to venture further south? Keep an eye on crude for the answer.