Archive - Dec 15, 2014 - Story

For anyone trying to trade today, this post is moot. For everyone else, when less than 1K ES contracts take out not 1, not 2, not 3 but 4 levels of order book depth, then one better pray that Waddell and Reed does not sneeze, and certainly not sell (or, gasp, short) anything in size or else...

Well that escalated quickly... again. While credit markets were not buying the dead-cat-bounce in stocks and oil this morning (Energy HY >1000bps, HYCDX >400bps), financial media was cock-a-hoop... "the bottom is in." Well we have a new bottom. WTI Crude futures have tumbled back to the scene of the manipulative algo crime last night back below $57. European stocks are under pressure and are now once again negative year-to-date and US stocks have given up all the overnight and US opening exuberance gains - now red from Friday.

For the first time on record, HY Energy OAS has broken above 1000bps - signifying dramatic systemic business risk in that sector (despite a modest rebound today in crude prices). The energy sector is entirely frozen out of the credit markets at this point with desk chatter that there is no bid for this distressed debt at all and air-pockets appear everywhere as each new trade reprices the entire sector. The broad high-yield 'yield' and 'spread' markets are now under significant pressure - both pushing to the cycle's worst levels.

One of the very strange non-sequiturs in today's Syndey hostage siege, now approaching its 15th hour, is that the gunman who prepared for a long standoff with authorities somehow forgot to pack the ISIS flag and as reported earlier, has been said to demand it from the outside world. Strange to say the least. But the bigger question remains: who is he? Now, courtesy of a report in Australia's The Age we know. The man who continues to hold more than a dozen people hostage, placing Sydney's CBD into lockdown is no stranger to the NSW police or the judiciary.  Self-described cleric, Man Haron Monis, 50, first came to attention of police when he penned poisonous letters to the family of dead Australian soldiers seven years ago. Last year he was charged with being an accessory to the murder of his ex-wife and mother of two.

Thanks to 'entirely sustainable' 5.1% MoM surges in both Motor Vehicle manufacturing (thank you Subprime) and Utilities (thank you Polar Vortex 2.), Industrial Production in November surged 1.3% (against expectations of +0.7%) for the biggest rise since May 2010. For context, November's surge is the 2nd biggest monthly rise since October 1998... sound right? With factory output now above late-2007 pre-recession peak levels, it seems The Fed will find it hard to talk this one down to justify lower-for-longer...

The biggest event of the coming week is surely the FOMC announcement on Wednesday, when as most expect, will see the Fed's language shifting from "considerable time" to "patient." But while "most" also expect this to be the preamble toward Fed hiking rates in mid-2015, some disagree.

Must be the weather, because lower gas prices is "unambiguously good" for everyone. The Empire Fed manufacturing survey collapsed to -3.6 from 10.16 , its lowest since January 2013, missing expectations of a rebound to 12.4 by the most in 4 years. New orders plunged and unfilled orders utterly collapsed from -7.45 to -23.96 or as some would call it, "unambiguously bad." The timing of this US macro data collapse could not be better for The Fed of course, which with the entire world reeling form a demand crunch (see oil) needs an excuse to keep lower-for-longer on the table, and even proceed with QE4 if and when needed.

The Russian Ruble has collapsed this morning. Despite a modest dead-cat-bounce-like rally in crude oil, the Ruble is down almost 3 handles smashing through the 61/USD level for the first time ever. Minutes after flash-crashing to 61.46/USD, officials, according to Reuters, halted trading in certain instruments to “prevent possible manipulation of equity futures market." Russia's 5Y CDS has broken above 500bps for the first time since 2009 (+21bps today), the RTS stock market is down over 6%, and 5Y bond yields are pushing towards 13%. It seems Putin is increasingly being put under pressure to do something...

• Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
• Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
• Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
• Tremble algos: the SEC has hired... "QUANTS" (WSJ)
• When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
• Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
• Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
• Amid Crisis, Pimco Steadies Itself (WSJ)

The Sydney hostage standoff at the Lindt chocolate store on Martin Place continues well into its 13th hour, where the latest news is that five people have escaped with others still held inside as neighboring blocks remain locked down, authorities said ABC reports. The first three people who fled sprinted out of the Lindt Chocolat Cafe about six hours into the standoff, while two women wearing aprons frantically ran from a side exit and into the arms of heavily-armed SWAT team police officers waiting outside. At the same time, media personalities said they received calls from hostages during the standoff. It remains unclear exactly how many people remain inside the cafe.

After the worst week for stocks in years, and following a significantly oversold condition, it will hardly come as a surprise that the mean reversion algos (if only to the upside), as well as the markets themselves (derivative trading on the NYSE Euronext decided to break early this morning just to give some more comfort that excessive selling would not be tolerated)  are doing all they can to ramp equities around the globe, and futures in the US as high as possible on as little as possible volume. And sure enough, having traded with a modestly bullish bias overnight and rising back over 2000, the E-Mini has seen the now traditional low volume spike in the last few minutes, pushing it up over 15 points with the expectation being that the generic algo ramp in USDJPY ahead of the US open should allow futures to begin today's regular session solidly in the green, even if it is unclear if the modest rebound in the dollar and crude will sustain, or - like on every day in the past week - roll over quickly after the open. Also, we hope someone at Liberty 33 tells the 10Y that futures are soaring: at 2.13% the 10Y is pricing in nothing but bad economic news as far as the eye can see.