Archive - Dec 2, 2015 - Story

We are talking of course, about the infamous RRR-hike of 1936-1937, which took place smack in the middle of the Great Recession.

Amid the biggest single-day drop in two months, WTI Crude has been hammred back below once again as a cooling realization washes across the energy complex that Saudi Arabia will make no changes at this week's OPEC meeting (delegate quoted as saying "OPEC unlikley to cut if non-OPEC is not cutting,") leaving a grossly over-supplied (and over-leveraged Shale drillers) world to flounder...

"Emerging economies’ growth prospects look damaged in several respects. The central fact facing EM is the negative external shock that results from weak global trade growth and the collapse of Chinese import growth. This brings to an irreversible end the period of rapid, investment-led Chinese growth and strong global trade growth which had supplied EM with a once-in-a-generation positive external shock during the years between 2002 and 2013."

The EU’s political leaders and other elites are committed to holding the European Union together. To them, united Europe is an article of faith. They hold the idea with as much ferocity and fervor as any religious belief. But while the European Union is a wonderful political idea, it’s economically terrible. And the EU nations will have to face up to bearing enormous costs to save the Europe we wished for.

Good news for Trump who is once again pulling away from the pack; not so good news for Hillary whose "likability problem" is starting to haunt her.   

Great news right? Or is the entire rest of the world exporting deflation to America... and The Fed waving it in?

Janet Yellen is set to begin the first part of her two-day excuse-fest for why The Fed will raise rates (market implied odds at 74%) in December despite Chinese stocks crashing again, carnage in commodities, a revenues recession, plunging EBITDA, a collapse in US manufacturing, housing rolling over, and auto sales fading (yes, read the facts here). Few expect her to rock the boat to change the market's perception, especially following Lockhart's confirmation that The Fed's job mandate has been met.

The lack of fear in risky assets is another way of saying that risk premia have been low, or as we also like to put it, that complacency has been high. Not fully appreciative of this inherent risk, it seems many investors have refrained from rebalancing their portfolios, and bought the dips instead. We believe the Fed’s efforts to engineer an exit from its ultra-low monetary policy should get risk premia to rise once again, that if fear should come back to the market, volatility should rise, creating headwinds to ‘risky’ assets, including equities. That said, this isn’t an overnight process, as the ‘buy the dip’ mentality has taken years to be established. Conversely, it may take months, if not years, for investors to shift focus to capital preservation, i.e. to sell into rallies instead.

WTI Crude is pressing back near the lows hit before August's month-end meltup manipulation...

Look out below, for even with bloated federal spending, the real economy has hit stall speed.

US equity makrets appeared to decoupled from their long-run driver USDJPY around the time ADP data was released. Since then stocks have tracked crude oil, which thanks to its OPEC-comment-driven stop run, and DOE data is now tumbling...

"Finding customers" remained the dominant concern for euro area SMEs in the survey period, with 25% of euro area SMEs mentioning this as their main problem. "Access to finance” was considered the least important concern (unchanged at 11%)."

Confirming last night's API report, DOE reports that total crude inventories rose for the 10th week in a row (up by 1.177mm barrels) This is a huge surprise relative to the 800k draw that analysts expected as total product demand dropped 1.6% relative to last year. Which all makes panicked cash-flow sense as production rose by 37k bpd.

With the EUR plunging and everyone primed for dramatic action by Draghi, especially following today's disappointing inflation data where November CPI rose just 0.1%, below the 0.2% expected, the former Goldmanite may still disappoint. According to Market News, "the high bar set by expectations, coupled with notable opposition against aggressive action on the Governing Council as economic data developed largely as expected, creates a risk that the ECB will under-deliver Thursday."

And so it begins...