Archive - Feb 2, 2015

Moments ago, following our chart showing the devastation in Q1 earning forecasts, Exxon Mobil came out with its Q4 earnings, and - as tends to happen when analysts take a butcher knife to estimates - beat EPS handily, when it reported $1.56 in EPS, above the $1.34 expected, if still 18% below the $1.91 Q4 EPS print from a year earlier. A primary contributing factor to this beat was surely the $3 billion in Q4 stock buybacks, with another $2.9 billion distributed to shareholders mostly in the form of dividends.  However, while XOM did the best with margins and accounting gimmickry it could under the circumstances, there was little it could do to halt the collapse in revenues, which printed at $87.3 billion, well below the $92.7 billion expected, and down a whopping 21% from a year ago. And this is just in Q4 - the Q1 slaughter has yet to be unveiled!

In a few minutes, Exxon (first, then all other energy companies) will confirm if the earnings collapse so many had predicted to take place in Q1 as a result of plunging crude prices will materialize. Wait, did we say "so many", make that nobody. Here is what Factset has to say about forecast Q1 energy earnings: "On September 30, the estimated earnings growth rate for the Energy sector for Q1 2015 was 3.3%. By December 31, the estimated growth rate fell to -28.9%. Today, it stands at -53.8%." Just a little off.

It's not exactly the same as if Wall Street were to unionize and demand higher wages, but when US energy workers - supposedly the best paid profession away from those who BTFD or BTFATH for a living - go on strike, it is time to pay attention, which is precisely what happened yesterday afternoon, when US union leaders launched a large-scale strike at nine refineries after failing to agree on a new national contract with major oil companies. It marks the first nationwide walkout since 1980 and impacts plants that together account for more than 10% of US refining capacity. The United Steelworkers Union (USW) began the strike on Sunday, after their current contract expired and no deal was reached despite five proposals.

• Germany Sees No Need to Scrap Troika in Overseeing Greek Turnaround (WSJ)
• European markets subdued as Chinese data weighs (Reuters)
• U.S. Oil Workers Strike Enters Second Day as Crude Prices Slide (BBG)
• Oil prices rally above $55 as investors pile in (Reuters)
• Obama Wants a New Tax on U.S. Companies' Overseas Profits (BBG)
• If Trading Bonds Is Hard, Think About Pain When Rates Rise (BBG)
• Julius Baer Braces for Swiss Franc Impact (WSJ)
• Coke, Budweiser win as Super Bowl ad battle gets serious (Reuters)

The overnight session had been mostly quiet until minutes ago, when unexpectedly WTI, which had traded down as low as the mid $46 range following the weakest Chinese manufacturing data in two years, saw another bout of algo-driven buying momentum which pushed it sharply, if briefly, above $50, and was last trading about 2.6% higher on the day. In today's highly correlated market, this was likely catalyzed by a brief period of dollar weakness as well as the jump of EURCHF above 1.05, within the rumored corridor implemented by the Swiss National Bank, which apparently has not learned its lesson and is a glutton for a second punishment, after its hard Swissy cap was so dramatically breached, it hopes to repeat the experience with a softer one around 1.05. Expect to see even more FX brokers blowing up once the EURCHF 1.05 floor fails to hold next.

It’s the start of a new year. The question is whither the prices of gold and silver? This Brief presents our answer.