Archive - Feb 2011 - Story

Those following the move in WTI this morning may wonder what the catalyst for the ongoing retracement has been. According to Italian sources (the country most affected by developments in Libya so take it with a grain of salt), OPEC is meeting in Riyadh to evaluate hiking crude supply in light of Libyan developments. This mirrors a less definitive statement issued earlier by the Kuwait oil minister that "OPEC could call an emergency meeting if required by disruption to oil supply due to Middle East unrest." As a reminder after peaking WTI at $98.25, it since pared gains to under $95.75, and was trading at $96.11 last. So while Bernie Bernanke can always print dollars, it is up to OPEC to print oil. And the market seems to be satisfied for now with promises of such.

• Housing data may have understated extent of collapse (Reuters)
• Powerful 6.3 Earthquake Hits New Zealand, NZD slides (FT)
• Shutdown Fears Raise Hopes for US Budget (FT)
• Oil price shock: Pandora's Box is opened (Telegraph)
• Spain's rotting corpse finally floats to surface: Spain Pegs Cajas' Possible Problem Debt at €100 billion (WSJ)
• Wal-Mart Fourth-Quarter U.S. Comparable Sales Trail Forecast (Bloomberg)
• New Property Rules Driving Rent Prices (People's Daily)
• BofA Doubles Writedown for Credit-Card Unit to $20.3 Billion (Bloomberg)
• Weber Sets Germany on Collision Course with EU (FT)
• Desperate Gaddafi Clings to Power (FT)
• Bond Market Swaps Back Bernanke's Benign Inflation View (Bloomberg)
• Sale of the Century (Newsweek)

Markets down this morning as turmoil in Libya heightens. Treasuries remained unchanged and LIBOR-OIS fell to 16.3bp from 16.75bp last Friday v 12bp at the start of the year. Look for today’s release of consumer confidence and Thursday’s release of durable goods to put the recent stock market gains in the context of the economic recovery.

More trouble for Italy, whose CDS has surprisingly not spiked in OTC trading yet. In addition to a "technical glitch" halting its stock exchange, now Reuters reports that the country's natural gas deliveries may be compromised. "Political unrest has hit Libya, which is Italy's biggest oil
supplier and covers about 10 percent of its gas needs. Gas is
carried via underwater pipeline Greenstream, which is controlled
by oil and gas major Eni. "Supplies have not been interrupted, but the situation is
very complicated," Industry Undersecretary Stefano Saglia told a
conference on Tuesday. Gas flows from Libya into Italy through the 510 km pipeline
have been slowing since late Monday, and the situation is
worsening, Italian energy publication Staffetta Quotidiana said,
quoting sources close to the situation. Who would have thought that African revolutionary butterflies can flap their wings and cause the price of that most hated of products - nattie, to be on the verge of surging.

Yesterday we pointed out that UniCredit, the bank which had fallen by 5% in day trading, was 7% owned by Libyan interests (we also noted  some other odd Libyan holdings). Today, this stigmata is far more of a curse than a blessing, as not only the bank, but the entire Italian stock exchange, the Borsa Italia, is in major unwind mode, and has been halted all day. FT reports: "Borsa Italiana, the Italian exchange, failed to open as usual on Tuesday amid concerns in the Italian broking community about possible fallout from turmoil in Libya. The outage, which left brokers unable to process orders, came a day after the main Italian stock market index closed down 3.6 per cent, making it the worst performing European market on Monday. Traders in London said the failure to open meant that the crucial opening auction, which sets initial prices at the Borsa, had also not taken place. Yet there was growing demand from investors to trade certain blue chip Italian stocks." Following up with a European market participant we got the following: "stock exchange suspension has been ordered to handle massive unwind of positions in some of the largest index components. Significant dislocation occurring on swap and option market on the FTSE MIB as well.... So you see, it's not just in the US that it is forbidden to sell." In other words, when faced with a huge deluge of selling, best to implement the biggest known circuit breaker of all and just shut it down. In the meantime, UniCredit CDS trading away from Italy was 3% wider this morning as concerns about that "7%" spook risk holders.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 22/02/11

Good morning. The investment thesis for this comment advocates a barbell. Long quality flight "insurance" Treasury bonds (despite 3 leg 2yr, 5yr, and 7yr auctions in shortened Holiday week), short complacency, and long energy/geopolitical plays. The upshot is that markets will be dominated by geopolitical risk which I don’t feel is valued properly at the moment. This is a departure from an extended period of catalysts to investment performance dominated by a chronology of sovereign and Club Med imbalances, QE light and QE2 ruminations, midterm election/budget austerity leanings, and earnings recovery/growth prospects contributions to valuations. Until ever so late the marketplace hasn’t had the liberty of focusing on simple mundane economic fundamentals, and I suggest that fundamentals may be put aside again in light of tidal wave of hearts and minds of peoples versus regimes. Petty domestic partisan budgetary and ideological spats will play second fiddle to a global stage littered with toxins that possess the potential to re-arrange global allocation of physical and human resources. The stakes are high and any investment theses must aspire to handicap risk premium of potentially explosive re-arranging of deck chairs of all things political GLOBALLY.

In continuing our interactive maps visualizing assorted episodes of violence around the world, tonight's edition focuses on that executed by Gaddafi loyalists against protesters over the past week. We will spare readers some of the more violent pictures we have seen of the resulting carnage as they truly are gruesome.

And just in case the stock market needed a little more risk off impetus...

Just because it is appropriate that the two guys who came up with the "Crash JPM, Buy Silver" meme should get some exposure tonight. In this edition of Press TV's On the Edge with Max Keiser, Max, as usual, highlights the bad conditions the US economy is in. He says the fall of the dollar is imminent and ties the latest events in the Middle East to the US economic policies. His guest, Zero Hedge regular Michael Krieger, believes that the unrest will spill over to the US as the world economy is "co-centric." He further elaborates on the competition between the US and the giant China which is taking over the rest of the world and is expected to turn the next superpower. Enjoy the show.

There was a time, long ago, when the dollar was a flight to safety instrument. Those days are gone. DXY barely budging as the overnight session begins, while silver has already put $34 in the dust. Last: $34.26 and parabolic.

Last Friday we reported that the soon to be quite pervasive spectacle of running to the bank only to find there is no money available, had spread to Korea. At that time only two banks were involved, although we speculated that "while the bank run at Busan was driven by capital inadequacy it may promptly spread to the entire banking system." Less than 3 days later, it has done just that. China Post reports that: "South Korea suspended operations at
four more savings banks on Saturday after runs developed as customers
rushed to get at their money despite official assurances the financial
sector was secure." Gee whiz, looks like last week's promises that everything was contained were, gasp, lies? " The Financial Services Commission (FSC) said Saturday it was suspending three affiliates of Busan Savings Bank — Jungang Busan Savings Bank, Busan II Savings Bank and Jeonju Savings Bank — as well as Bohae Bank for six months each. “Considering recent waves of deposit withdrawals, available liquidity, remaining deposits and capacity to borrow, the FSC concluded that they might face a situation where they are unable to pay customers,” the FSC said." And in an almost verbatim transposition of our own Telepromptermarionette-in-Chief's admonition in March 2009 that "profit and earnings" ratios were now cheap or some other such garbage, the head of the Financial Services Commission Kim Seok-dong (not related to Bang Dae-Ho) "vowed to make a personal deposit of 20 million won ($17,864) in Woolee
to convince depositors that the bank was financially sound." And if that doesn't work Korea can always rent Brian Sack out for a few days each week: truth be told, the US can easily cut down on the amount of weekly POMOs now that WTI is about to pass $100 (and Brent $110).

According to Al Arabiya, Libya's Muammar Gaddafi will deliver an address on TV imminently. Hopefully it will be better received than Mubarak's last speech.

As Zero Hedge advised in early January when the severity of the Maghreb revolution was made all too clear to anyone not willing to stick their head in the CNBC sand, oil could well be the buy of a lifetime ahead of a downward spiral of unprecedented geopolitical proportions. Sure enough, today alone, WTI (April) has surged from $90 yesterday to over $98 in electronic trading (see below). Either this is some computer gone haywire in the closed session, or when America wakes up tomorrow we may be on the verge of another flash crash. As for Brent, it passed $108.50. As a reminder, and people forget this all too readily, each dollar jump in crude wipes out $100 billion in US GDP. That means that at face value, today's move in the commodity complex, may have taken out as much as 5% of annualized GDP when fully processed through the economy!

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 21/02/11