Archive - May 13, 2015

Following API's data lastnight, DOE reported a 2.19 million barrel draw (more than expected) this week, crude oil prices immediately extended gains. However, that ramp quickly faded once it set in that the draw was actually notably lower than last week's. For some context, this leaves the total inventory still a near record 30% above average for this time of year. Prices were also not helped as total crude production rose modestly WoW.

Traders have been trying repeatedly to force an upwards breakout in the S&P 500. Thus far they have failed. And now the market is coming up on support.

As innovation ouptaces regulation, a few pointers on how to manage risk in the search for funding and revenue

Is bad news good? For now, stocks levitate in their ubiquitous run-stop opening ramp manner, bonds are leaking higher in yield but precious metals and currencies are extremely active...

It is perhaps an emblematic description for our current bubble age; QE doesn’t work but “we” can’t wait for more. Maybe that is just the logical evolution of monetary magic, since QE was brought on with almost mythical properties that were going to cure a lot of financial and economic ills (Bernanke the former). Now resignation (Bernanke the latter) has left it with only the hope that it can just save us from the worst downside, even without any real expectation of a true upside in the economy. In other words, markets hope for the QE zombie, where the economy is kept from death by it, with full recognition now that it will never regain full life either.

Water, water everywhere,but not a drop to drink

There was some confusion what caused the fallout between North Korean leader Kim Jong Un and his defense minister, Hyon Yong Chol. According to Reuters Chol was charged with treason, including disobeying Kim. According to Bloomberg, his offense was more trivial: he fell asleep. The defense minister "was captured napping in video footage of the event late last month."  Whichever one is true is irrelevant, but one thing is certain: nobody will ever be caught napping at official events ever again because Chol was executed in front of an anti-aircraft gun at a firing range. 

US Import Prices fell 10.7% in April (missing expectations of a 9.7% decline) making this the longest streak of YoY declines outside of a recession in history. In fact, YoY Import Prices have only risen 5 times in the last 36 months. This is also the 10th monthly decline in import prices (-0.3% vs +0.3% expectations) with with Food and Beverage prices dropping the most and non-fuel-related import costs dropping the most since 2009 and imports ex-fuel and food fell 2.2% YoY in April. The biggest price deflationary pressures appear to come from ASEAN with overall manufactured goods sliding 0.4% against non-manufactured rising 0.5% in April.

Despite bouncing back last month at the fastest pace in a year, April just printed the slowest YoY growth since Nov09 at just 0.9% (retail sales has still missed expectations for 4 of the last 5 months). Against expectations of a 0.2% MoM rise in April (considerably slower than the 0.9% pop in March), Retail Sales missed with a 0.0% change. Ex-Auto and Gas MoM also missed with a mere 0.1% gain (aghainst +0.5% exp.) but it was the control group that saw the biggest miss, printing 0.0% (against hopeful expectations of a 0.5% gain). There was widespresd weakness with outright declines in autos, furniture, gas, food, electronics (AAPL hangover), and general merchandise.

The conventional view is that the Fed will never need to print-and-buy more than a few hundred billion dollars to stem the tide of selling. But the conventional view has a fatal flaw that Greenspan outlined in his Foreign Affairs article: when markets go bidless, "animal spirits" may be beyond calming. Once central bank buying fails to stem the tide, markets will truly panic. Can central banks double, triple and quadruple their balance sheets almost overnight to absorb the mass dumping of risk-on assets? Will there be no consequences, political and financial, to central banks becoming the greater fools who will buy even as asset values are crashing?

Artificially low prices for the metal have forced mines to close in recent years. Supply may not be able to match increasing demand in the coming years.

Following an Illinois Supreme Court ruling that struck down a pension reform plan aimed at closing a $100 billion funding gap, Moody's downgrades Chicago to junk, giving the city the dubious distinction of being the only major city "in recent history" to carry such a low rating other than Detroit. Chicago now faces accelerated payments to creditors of more than $2 billion.

• Obama, McConnell missteps undercut trade pact in U.S. Senate (Reuters)
• Bears Beware: Rout Puts Investors on Wrong Side of Central Banks (BBG)
• U.S. Set to Rip Up UBS Libor Accord, Seek Conviction (BBG)
• Greece’s Creditors Said to Seek EU3 Billion in Budget Cuts (BBG)
• Amtrak train derails in Philadelphia, killing at least five (Reuters)
• Oil glut worsens as OPEC market-share battle just beginning (Reuters)
• China Stimulus Aims at Restructuring Trillions in Local-Government Debt (WSJ)

While the US economy was crushed by harsh snow in Q1, with its GDP set to be revised to nearly -1.0% (yes, we know the real reason was the collapse in Chinese end demand and the soaring dollar but don't tell the Fed), Europe must have had a very balmy winter, because as Eurostat reported earlier today, Europe grew (and considering Europe estimates the "benefit" for prostitution and illegal drugs to the economy, we use the term loosely) 0.4% in the first quarter, a 1.6% annualized growth rate, in line with expectations, up from 0.3% last quarter and a year ago, and tied for the highest GDP print in 4 years.

Following yesterday's turbulent bond trading session, where the volatility after the worst Bid to Cover in a Japanese bond auction since 2009 spread to Europe and sent Bund yields soaring again, in the process "turmoiling" equities, today's session has been a peaceful slumber barely interrupted by "better than expected" Italian and a German Bund auction, both of which concluded without a hitch, and without the now traditional "technical" failure when selling German paper. Perhaps that was to be expected considering the surge in the closing yield from 0.13% to 0.65%. Not hurting the bid for 10Y US Treasury was yesterday's report that Japan had bought a whopping $23 billion in US Treasurys in March, the most in 4 years so to all those shorting Tsys - you are now once again fighting the Bank of Japan.