Archive - Dec 11, 2015

Three words... "not unequivocally good."

Syria was a secondary topic on Putin's mind today when during a meeting with his defense chiefs, Putin gave the order "to strengthen Russia’s strategic nuclear forces amid rising tensions with the U.S. over the global balance of power."

We have been almost alone in our exclamations at the collapsing offshore Yuan in the last few days but since The IMF blessed China's currency with inclusion in The SDR, CNH is down 13 handles. However, now we appear to have an answer. Overnight saw commentary from CFETS (China's FX market 'manager') that indicated implicitly that Trade-Weighted Yuan was still trading too high.

Following a miss in retail sales (if slight beat in core spending), the final key economic update the Fed will look at before its "first rate hike in nine years" meeting next week is today's Producer Price Inflation report which rose 0.3%, above the expected unchanged print and even higher compared to October's -0.4% decline. The report showed that while the decline in energy prices continued as expected, sliding 0.6% in the Final Demand Goods category, there was a surprising pickup in final demand services, which rebounded by 0.5% driven by Trade which rose 1.2% from the prior month, driven by an unexpected pickup in margins for apparel, jewelry, footwear, and accessories retailing.

Despite all the industry's exuberance over auto sales in America, the government's retail sales data shows vehicle sales dropped 0.4% in October (in other words, automakers are channel-stuffing). This rolled through the various headline data leaving a 4th miss in a row MoM and the weakest YoY growth for retail sales since Nov 2009 - deep in recession territory.

Now that the first casualty in the junk bond space has spilled its blood in the water, the hungry sharks are circling. And perhaps the best place to look for the chum is where Third Avenue itself was discovered: dead last in the morningstar list of worst (and best) performing High Yield funds of 2015...

"The Fed will drive home the lower and slower mantra. That is all spin, signifying nothing... There are so many unknowns, good and bad. Either way, absolutely ignore the "it’s priced in" claims... The Fed is going to raise rates next week, and anyone who claims it is not a huge deal is fooling you, as well as themselves."

'As goes oil, so goes the US equity market' appears to bethe new mantra. Just as yesterday's pump-and-dump tracked oil, so in the pre-market, WTI Crude plunged back to fresh 7-year lows after IEA warned that the oil glut will worsen, with prices lower for longer as demand remains subdued through at least 2017. This in turn sent US equities tumbling with Dow futures down 200 points (down 330 from Thursday highs).

• Futures down sharply as oil hits seven-year low (Reuters)
• Oil slides to new seven-year low as IEA warns of worse glut (Reuters)
• But... but... they all said... Cheap Oil Gives Little Help to U.S. Spending (WSJ)
• Disappearances in China Highlight Ruling Party Detention System (BBG)
• China’s Credit Rebounds as Stimulus Helps Boost Loan Demand (BBG)
• Junk Fund’s Demise Fuels Concern Over Bond Rout (WSJ)

It's official: two of America oldest publicly traded companies will merge, with Dow and DuPoint merging as equals in a combined company that will have a $130 billion market cap and will be named DowDuPont. And while shareholders already benefited from the deal with shares of both consitutents rising by 10% in the days preceding the official announcement, the biggest loser are once again the employees: the combined company announced that as part of the $700 million in restructuring efforts, 10% of the combined company's employees will be laid off.

It was a relatively calm overnight session in which European stocks wobbled modestly, Japan was up, China was down following its weakest fixing since 2011 as the PBOC continues to aggressively devalue since the SDR inclusion (stoking concerns capital outflows are once again surging), EM stocks stocks were weak and the dollar was unchanged ahead of today's retail sales data and next week's Fed meeting, and then suddenly everything snapped.

For those precious metal investors who think “All Official Data” is manipulated…. it isn’t.