Archive - Apr 30, 2015 - Story

The world oil market is undergoing a fundamental structural change in response to expensive oil. Producers are trying to survive by limiting expenditures. While analysts have been focused on rig counts, deferred completions have emerged as the initial path to lower U.S. oil production. This unanticipated outcome suggests that others may follow. While everyone is waiting for higher oil prices and for things to return to normal, what we may be witnessing is the end of normal.

The current equities bull run seems unstoppable. No amount of geopolitical concerns, Greek default fears, rate hikes, US dollar strength, crude oil price volatility, Russian sanctions or whatever else you can think of can put a dent on it. Perhaps we should take a step back and try to understand what is driving this strength. OK, we know that central banks continue to spike the punchbowl, but what is the actual transmission mechanism that directs all this liquidity into equities – as opposed to commodities for instance, which continue to struggle?

George Soros may owe some $6.7 billion in taxes Bloomberg says, noting that despite the billionaire's call to increase taxes on the wealthy, his fund has employed a loophole that allowed for the deferral of taxes on management fees the reinvestment of which has generated billions in returns. 

"I felt a great disturbance in the Farce, as if millions of fast-money voices suddenly cried out in terror, and were suddenly silenced. I fear something terrible has happened."

Following ISM Milwaukee's major miss this morning (and income and spending data weakness), and 2 months of significant misses, Chicago PMI printed 52.3 (handily beating expectations of a bounce to 50.0). Employment rose at a faster pace in April but Prices Paid tumbled at a faster pace.

Well that escalated quickly...

Because what really matters is not spending or incomes for the average American (which both missed dismally), the market appears convinced that the 2nd lowest jobless claims print in history is what matters and the "rate hike is coming" trade is on. Bond yields are higher, dollar is jumping, and gold (and silver) and dumping...

The myth of the resurgent US consumer, who was somehow supposed to benefit massively from the "unambiguously good" plunge in oil and gas prices, has been gutted and eviscerated, with the latest confirmation coming from the Personal Income and Spending data, in which we find that not only did personal income not grow in March, with wage growth the lowest in 2015 (with manufacturing workers' incomes coming flat and Trade and Transportation wages actually down), but because spending rose by a weaker than expected 0.4% in March, the 4th miss in the past 5 months, US personal savings have resumed declining and all those "gas savings" are finally being spent: just not where they should be spent, and not in the amounts hoped.

Greece was forced to delay pension payments by 8 hours on Tuesday while Athens scrambled to find cash. Although the government claims there was a "technical glitch," officials with knowledge of the matter offered a far more elegant explanation: there wasn't enough money.

Initial jobless claims have been worse than expected for the last 2 weeks but remained below the magical 300k level, so it was only appropriate that this week all the great economic news of late - record plunge in US macro disappointments and a dismal 0.2% GDP print - would be met with the lowest claims print in 15 years. At 262k (against a 290k expectation), initial claims has only been lower once - the week of April 14th 2000 - which just happened to mark the top of the Dot-Com bubble. While this is great news, we do note that a rolling average of Texas Jobless claims shows the improving trend has stalled.

As Bloomberg summarizes the various opinions suggested by Wall Street analysts, the rout in German debt and other European sovereign bonds was caused by market-technical factors such as investor positioning and supply glut rather than shift in views on economic outlook, analysts say, with profit-taking on successful QE trades, thin market liquidity and position-squaring before month-end are cited among main bearish catalysts.

• Marchers protest police violence in Baltimore, New York (Reuters)
• Majority of Financial Pros Now Say Greece Is Headed for Euro Exit (BBG)
• Greece signals concessions in crunch talks with lenders (Reuters)
• Greece, Euro-Area Partners Target Deal by Sunday (BBG)
• Iglesias Says EU Risking Right-Wing Backlash With Greek Pressure (BBG)
• Student-Loan Surge Undercuts Millennials’ Place in U.S. Economy (BBG)
• Majors’ Quandary: Why Drill for Oil When They Can Buy Somebody Else’s? (WSJ)

The days when Russia scrambled to prevent the plunge in its currency in December of 2014, pushing its interest rate to an eye watering 17%, are now a distant memory: moments ago, the CBR announced that following the most recent cut from 15% to 14% on March 13, it once again cut rates by a greater than consensus 150 bps, to 12.50%. The majority of analysts, or 25 of 40, had expected a cut to only 13.00%.

The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.