Archive - Sep 2014

U.S. District Judge Carl Barbier in New Orleans ruled today that BP was "grossly negligent" in the 2010 Deepwater Horizon rig explosion and may face up to $18 billion in civil penalties, according to The WSJ. In addition, Transocean and Halliburton were found 'negligent' - a lessor offense - (fines up to $1,100 per barrel for 'negligence', $4,300 for 'gross negligence'). This result comes 2 years after BP agreed to accept criminal responsibility for the disaster and to pay $4.5 billion in fines and restitution. BP quickly issued a statement that it will appeal the decision and believes the findings "are not supported by evidence at trial."

Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector.

Various US Senators applauded French President Hollande's decision to suspend the Mistral warship delivery to Russia yesterday. However, they may be disappointed today as, having clearly been reminded of the huge potential penalties that his nation would face (let alone lost revenue/rebates) if it were to cancel the delivery of 2 Mistral warships to Russia, Hollande "explained" today that the contract for the Mistral sale to Russia "is not broken or suspended" but will instead depend on events in the coming weeks. Ironically, the Russians may actually be pleased if the deal is canceled as they avoid overpaying for the ships and benefit from France's weakening.

Draghi quasi-delivered and, so far, no nuclear weapons have been dropped in Ukraine... must be time to BTFATH in stocks... so why are investors bidding up protection costs in equity and credit markets so aggressivley this morning?

Moments ago, the Institute for Supply Management, reported some blistering numbers in the August Non-Manufacturing Report, whose headline print rose once again, this time to 59.6, or the highest since August 2005. Not only that, but the all-important employment component, ahead of tomorrow's NFP report, which also rose to 57.1, printed at what, at least on the surface, was the highest number since February 2006!  Superficially, this is great news. And yet, remember: this is the seasonal-adjustment challenged ISM, the same ISM which for some inexplicable reason believes that survey responses (not hard, or soft data), have to be seasonally adjusted. So what happens when one looks below the seasonally-adjusted surface. Well, then things get uglier.

With his shirt sleeves rolled up and tie askew, Joe Biden went full-metal-jacket yesterday in a blistering speech in comfortable New Hampshire.  Calling ISIS "Barbarians," Biden then proclaimed, "The American people are so much stronger, so much more resolved than any enemy can fully understand,” adding that "We don’t forget. We take care of those who are grieving, and when that’s finished, they should know we will follow them to the gates of hell until they are brought to justice, because hell is where they will reside." By 'we', we assume he means non-combat-boots-on-the-ground-wearing humanitarian advisers?

Borrowing more money at cheaper rates might provide short-term liquidity, but it does nothing to reduce your leverage in the real world. This is why, generally speaking, all Central bank policy is failing to generate growth: Central Banks can’t really do anything to remedy the situation!

Now that the US is just bombing Iraq just for the hell of it, having long since dropped the veil of doing so for "humanitarian" reasons which was the original pretext given a month ago, it needs to start showing positive results. Moments ago it may have gotten the first validation that its strategy of bombing runs is working following an Al Arabiya report that the aide of ISIS leader Abu Bakr al-Baghdadi has been killed after a strike on the ISIS-held city of Mosul, in northern Iraq, citing the Iraqi defense ministry said Thursday. Another ISIS figure was also declared dead, the ministry added.

Despite 2 straight months of weakness in Services PMI, ISM's non-manufacturing index (adjusted for whatever meme is required) exploded to 59.6, another huge beat, and its highest since August 2005. The Business Activity index is highest since 2004, employment highest since Feb 2006, but new orders (domestic and export) dropped.

From the earlier August flash print of 58.5, Markit's US Services PMI rose modestly to 59.5 but has now fallen 2 months in a row to the lowest since May. While a solid number in 'expansionary' >50 territory, pressure on margins continues as input cost inflation picks up. Employment gained also, prompting Markit to question "how long policymakers will be comfortable with the economy growing at this pace before hiking interest rates?"

WARNING: THIS POST IS NOT SUITABLE FOR VIEWING WITH  FOOD, BEVERAGES AND GOLF

Draghi cut rates and announced ABS/covered bond purchase plan to start next month.  Balance sheet between TLTO and purchase scheme to increase by ovre 1 trillion euros

After several months of disappointing trade data which dragged on GDP for the past two quarters, the July trade balance finally was a welcome beat of already low expectations, printing at a deficit of $40.5, better than the $42.4 billion expected, and an improvement from the downward revised deficit of $40.8 billion in July. The deficit declined as exports increased more than imports. The goods deficit decreased $0.2 billion from June to $60.2 billion in July; the services surplus was nearly unchanged from June at $19.6 billion. And yet, even as the deficit contracted, the trade balance excluding the shale revolution, has almost never been worse.

Having promised "whatever it takes" and now doing what many thought was un-possible, Mario Draghi has managed to smash EURUSD back to 14-month lows below 1.30 (without actually buying one bond - just promising) and has sent yields on most European bonds negative to 2Y (and Germany near negative in 4Y).

Mario Draghi broke new ground once again this morning by pushing rates even negative-er. We are sure the ECB's top man will further explain how ABS purchases, TLTRO, and even sovereign QE are just around the corner (so keep buying)...