Archive - Jan 2015

Because nothing says sell precious metals in huge size like another central bank printing a trillion dollars... No apparent catalyst is clear though we note Treasury yields also started to tumble and EURCHF jumped 60 pips at the same time.

Despite surges in mortgage applications juxtaposed with notably downbeat commentary from KB Home and Lennar, existing home sales rose modestly in December (+2.4%) but missed expectations for the 2nd month in a row (+3.0%) for a SAAR of 5.04mm sales. Only the Southern region saw sales improve. However, for all of 2014, there were 4.93 million sales, a 3.1% decline from 2013 (5.09 million) - the first drop since 2010. This should be no surprise as NAR finally admits the problem (instead of blaming weather) - “Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.” It's the price, stupid!

Who could have seen that coming? It appears that for all the bluster that the US economy could somehow decouple from the rest of the world's demise (when as always it is simply and timing issue - lagged response), America's manufacturing renaissance is dying. Markit's US Manufacturing PMI printed 53.7 in January, missed expectations of 54.0 falling for the 5th month in a row to the lowest in 12 months. While day after day, investors are told that low oil prices are unambiguously good for America, Manufacturing PMI was last lower than this in October 2013 as survey respondents note clients operating in the oil and gas sector have weighed on new order volumes in January.

The 7-month-old plunge in oil prices will force Moscow to cut its budget for 2015 by 10 percent, perhaps even 15 percent, a senior Russian government official told a panel discussion at the World Economic Forum in Davos Switzerland, adding that Russia may find itself reducing oil production by as much as 1 million barrels per day, but he stressed that such a cut would not be made in coordination with OPEC.

For the most succinct, and most cynical, take on yesterday's ECB QE announcement we go to Deutsche Bank which 7 years after the grand money printing experiment started, has thrown in the towel on spinning the now annual CTRL-P ritual, and - in a nutshell - says: QE will fail to do anything but boost stocks, so may as well buy stocks.

Keeping the narrative dream alive, Treasury Secretary Lew told Bloomberg TV this morning that "lower energy prices are good for the US economy" - seemingly missing the huge surge in jobless claims, the lack of clear gains by firms on lower fuel costs, rig count collapsing, and homebuilder concerns in Shale states. But it was his follow up idiocy that sparked weakness:

*LEW SAYS HE DOESN'T EXPECT OIL PRODUCTION IN U.S. TO DECLINE
*LEW SAYS U.S. CRUDE PRODUCERS CAN HANDLE DECLINE IN OIL PRICES

The reaction - WTI broke quickly to a $45 handle on heavy volume. Perhaps Secretary Lew should tell the firms that are laying off 1000s how to do their jobs if he is so sure that "they can handle it."

Do we hit EURO/USD paraity in 2015?

With the leads in at least six polls (of between 4% and 10%), Syriza leader Alexis Tsipras has come out swining for the anti-EU vote this morning:

• *TSIPRAS SAYS ONLY SYRIZA CAN END GREECE'S CATASTROPHIC COURSE
  
• *TSIPRAS SAYS WON'T HONOR COMMITMENTS MADE BY PREVIOUS GOVT
• *TSIPRAS SAYS WILL NEGOTIATE WITH EUROPEAN PEERS NOT WITH MERKEL

For now Greek assets remain bid on the glorious awesomeness of Draghi but we suspect - though The ECB gave themn room to negotiate and Djisselblom mentioned the possibility of 'working' with Greece - that if things go as the polls suggest Monday could see more bloodletting in EURUSD (and bank runs in Greece).

We can only imagine how fast the narrative is being re-written as bellwether of "everything is awesome" in America, United Parcel Service missed earnings expectations and lowered guidance and is seeing its shares tumble:

*UPS 4Q PRELIM ADJ. EPS $1.25 , EST. $1.47
*UNITED PARCEL CITES UNDERPERFORMANCE OF U.S. DOMESTIC SEGMENT

Of course, we are sure that with lower fuel prices due to help them 'next' quarter... and Valentine's Day and Easter around the corner, Q1 growth will prove everything is awesome.

Another day goes by. Another day of the West’s (the One Bank’s) economic terrorism against Russia: an overt attack on that nation’s currency, and thus the economy itself. As noted in the commentary which preceded this; such economic terrorism against the ruble damages Russia’s economy, on a percentage-for-percentage basis.

Another day of defiance: by Russia itself, and (increasingly) the Rest of the World. We now know that part (and perhaps most) of the motive for this escalation of Western terrorism against Russia is gold.

• Saudi Arabia’s New King Probably Will Not Change Current Oil Policy (BBG)
• Saudi King’s Death Clouds Already Tense Relationship With U.S. (WSJ)
• Oil Pares Gains as New Saudi King Says Policies Stable (BBG)
• Kuroda Says BOJ to Mull Fresh Options in Case of More Easing (BBG)
• U.S. pulls more staff from Yemen embassy amid deepening crisis (Reuters)
• Putin Said to Shrink Inner Circle as Hawks Beat Billionaires (BBG)
• A Few Savvy Investors Had Swiss Central Bank Figured Out (WSJ)

Any hedge funds that had an even modestly long EUR position are being FXCMed right now.

Today's market action is largely a continuation of the QE relief rally, where - at least for the time being - the market bought the rumor for over 2 years and is desperate to show it can aslo buy the news. As a result, the European multiple-expansion based stock ramp has resumed with the Eurostoxx advancing for a 7th day to extend their highest level since Dec. 2007. As we showed yesterday, none of the equity action in Europe is based on fundamentals, but is the result of multiple expansion, with the PE on European equities now approaching 20x, a surge of nearly 70% in the past 2 years. But the real story is not in equities but in bonds where the perfectly expected frontrunning of some €800 billion in European debt issuance over the next year, taking more than 100% of European net supply, has hit new record level.

Gold in euros surged 3% yesterday after Mario Draghi unveiled his QE 'bazooka' as the ECB announced it’s €1 trillion quantitative easing (QE) experiment. The possibility of the very sharp, abrupt spike in gold prices in euro, dollars and all fiat currencies - akin to the Swiss franc move last week - is a real one. 

As reported earlier, several hours ago Saudi Arabia announced that its 91-year-old King Abdullah had passed away, in the process setting off what may be a fascinating, and problematic, Saudi succession fight which impacts everything from oil, to markets to geopolitics, especially in the aftermath of the dramatic political coup in neighboring Yemen. As a reminder, it is Saudi Arabia whose insistence on not cutting oil production with the intent of hobbling the US shale industry has led to the splinter of OPEC, and to a Brent price south of $50. Which is why today's event and its implications will be analyzed under a microscope by everyone: from politicians to energy traders. Here, courtesy of Ecstrat's Emad Mostaque, is an initial take at succession, the likely impact on oil, then the Saudi market & currency and finally regional politics.