Archive - Dec 4, 2014 - Story

When ISIS dared to steal and sell oil at below market rates, they were dire pirates that needed to be destroyed (and anyone who dared to buy it was pariah). So when, as Bloomberg reports, crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on Nov. 28 (according to the marketing arm of Plains All American Pipeline), you know there is an issue in the US Shale industry. As one analyst notes, "to a producer in Wyoming, if Brent’s $70 then I’m at $50, then I have to start asking does it economically make sense to keep drilling, they might start reallocating capital, you might see projects slowed or shut down." So with every expert in financial media clinging to some hope that oil prices can't go down any more surely right? The answer is yes... and have already broken below $50... something that may indicate not just transportation issues, but desparation for crucial liquidity needs.

Stocks are down... EU bonds are down... EURUSD is up, and Draghi is not providing his usual promises. Cue The Bank of Japan proxies buying USDJPY to ignite some momentum in risk assets... USDJPY just broke above 120 (for the first time since July 2007)... ran all the stops then tumbled back down...

Back in March the ECB predicted 2014 inflation would be 1.0%, with prices rising to 1.3% in 2015. Since then one can say that deflation has once again taken hold, and following two consecutive cuts to 2014 inflation expectations, moments ago Draghi just released the ECB's latest set of inflation expectations. In a nutshell: in just 9 short months, the ECB's current year inflation forecast has been cut in half, with 2015 inflation also down nearly 50%, from 1.3% to 0.7%.

But, but, but all the clever talking heads said he had to do it now...

*DRAGHI SAYS ECB TO REASSESS CURRENT STIMULUS NEXT QUARTER, MAY NOT DECIDE ON NEW MEASURES IN JANUARY
*DRAGHI: DECISION TO CHANGE BALANCE SHEET LANGUAGE NOT UNANIMOUS

This is not what the market wanted to hear - Draghi kicking the can with no indication they are any closer to getting Zee Germans on board with direct monetization of European fiscal irresponsibility.

With a disappointingly slow asset accumulation in the ABS and Covered Bond purchase schemes, Draghi better "get back to work" soon or the market (EURUSD down 17 handles on nothing but promises) will lose its patience. As we noted earlier, Weidmann's hints suggest the oil-price-slowdown is providing cover for monetary policy and obscuring the 'bad' deflation. Crucially Draghi will need to stress the 'need' for action and the 'unanimity' of that decision to keep the algos buying...

After last week's jerk higher (now revised even higher to 314k), this week saw a modest 17k drop to 297k (magically back below the 300k Maginot Line) but still missed expectations. Obviously, initial claims still linger near 14 year lows but the smoother 4 week average rose around 5k to 299k. Continuing claims rose 39k and has hovered at these decade-long lows for 6 weeks now - though unadjusted Regular State (ex) employees claiming UI benefits jumped 125K from 2.065 million to 2.190 million.. It appears the trend of improvement has ended/stabilized.

Nothing to see here, move along...

The price drop is a head-fake: it doesn't usher in a new era of permanently cheap oil. Rather, it unleashes dynamics that impair supply on multiple levels: geophysical, geopolitical, demographic and financial.

most notable announcement by Putin was that Russia would provide a "full amnesty" for holders of offshore funds, in a push to repatriate some of the $125 billion in capital that is said to have left the nation in 2015. To entice Russia billionaires to keep their cash in Russia Putin reminded everyone how hostile the west could be toward Russian money, using the Cyprus bail-in as an example. To wit: "I announce a full amnesty for capital returning to Russia, and i repeat, a full amnesty. What does that mean? Those people who fully legalize, fully bring back their capital to Russia, should be protected from being dragged to various law enforcement agencies, and from having to prove where they got their money from, and from being exposed to criminal investigations." Do Russians want to be "ripped-off abroad" once again when the next Cyprus takes place? Their best choice is to return to Russia, Putin added.

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.20% respectively.

While the ECB's announcement is due out in minutes, the only thing the market is looking forward to is Draghi's actual press conference due to take place in just over an hour. It is here that the former Italian and Goldman banker is expected to take jawboning to new levels, even if - as is customary - he actually does nothing and considering the ECB's balance sheet, which after all its private covered bond and ABS QE is growing at the "torrid" pace of some €4 billion per week, not even enough to offset the natural decline in the ECB's balance sheet, his actions so far have achieved absolutely nothing the algos are starting to get impatient.

• Thanks Fed: Meet the high schooler who made $300K trading penny stocks under his desk (Verge)
• Protesters block NY streets after officer cleared in chokehold death (Reuters)
• U.S. Plans Probe of New York Police Chokehold Death (BBG)
• Sharpton Leads Civil-Rights Meeting on Chokehold Decision (BBG)
• Staten Island on Edge Over Grand Jury Decision In Death of Eric Garner (WSJ)
• Draghi Tests Speed Limit as ECB Awaits Stimulus Evidence (BBG)
• European Stocks Approach Seven-Year High Before Draghi Statement (BBG)
• Britain targets multinationals that try to dodge taxes (Reuters)
• Oil Trains Hide in Plain Sight (WSJ)

Today we'll learn more about whether Mr Draghi becomes Super Mario in the near future as the widely anticipated ECB meeting is now only a few hours away. We will do another summary preview of market expectations shortly, but in a nutshell, nobody really expects Draghi to announce anything today although the jawboning is expected to reach unseen levels. The reason is that Germany is still staunchly against outright public QE, and Draghi probably wants to avoid and outright legal confrontation. As DB notes, assuming no new policy moves, the success of today's meeting will probably depend on the degree to which Draghi indicates the need for more action soon and the degree to which that feeling is unanimous within the council. Over the past weekend Weidmann's comment about falling oil prices representing a form of stimulus highlights that this consensus is still proving difficult to build. It might need a couple more months of low growth and inflation, revised staff forecasts and a stubbornly slow balance sheet accumulation to cement action.