Crude

The only good news spin this morning was that the Greek, pardon Spanish contagion, has not reached Italy, after the boot-shaped country sold €5.25 in bonds this morning at rates that did not indicate a meltdown just yet. It sold its three-year benchmark at an average 3.91 percent yield, the highest since January but below market levels of around 4 percent at the time of the auction. It also sold three lines due in 2020, 2022 and 2025 which it has stopped issuing on a regular basis. And this was the good news. The bad news was the not only has the Spanish contagion reached, well, Spain, but that everything else is now coming unglued, as confirmed first and foremost by the US 10 Year which just hit a new 2012 low of 1.777%. Spain also is getting hammered with CDS hitting a record wide of 526 bps overnight, and its 10 Year hitting 6.26% after the country sold 364 and 518-Day Bills at rates much higher rates than on April 17 (2.985% vs 2.623%, and 3.302% vs 3.11%). But the highlight of the day was the Banco de Espana release of the Spanish bank borrowings from the ECB, which to nobody's surprise soared by €36 billion in one month to €263.5 billion, more than doubling in 2012 from the €119 billion at December 31.

All you need to read and some more.

Despite the optimistic $300 million a year savings projection, there are pros and cons of this deal for Delta

All you need to read and some more.

• PPI: -0.2%, a decline, and a miss of expectations of 0.0%, Y/Y +1.9%, Exp. 2.1%, first drop in 4 months.
• Core PPI: 0.2%, in line.
• April PPI “should allay fears of producer costs being passed through to customers downstream,” says Bloomberg economist Joseph Brusuelas
• Supports Fed’s assessment of transitory inflation increase on rising oil, commodity costs at end 2011
• Intermediate costs decline points to reduced pressure on profit margins: Brusuelas
• Core intermediate PPI, “closely” watched by Fed, increase "benign," notes Bloomberg economist Rich Yamarone

Yes, believe it or not, there is a world outside of JPM in the past 12 hours, and it was very ugly: weak Chinese CPI, big miss in Chinese industrial output (+9.3%, Est. +12.2%), even bigger miss, actually make it a decline, in Indian factory Outupt (down -3.5%, est. +1.7%), a collapse in China’s new local-currency loans plunging by 32% m/m in April, making a new money infusion paramount (yet inflation still abounds, and the threat of NEW QE keeping the PBOC mum - oh what to do?) and of course... Greece, where things are heading for a second election at breakneck speed, and where Syriza is gaining about a percent in new support each day, guaranteeing life for Europe will be a living hell in one month. What else happened overnight to send futures down 0.5% (and JPM down 8%). Below is a full recap from Bank of America.

For the third year in a row, crude oil prices have stumbled in April (-26% in 2010, -17% in 2011, and -10% in 2012 so far). Much has been made of the help this will offer the economy and consumer spending but this is ceteris-paribus linear thinking. There are a few other critical aspects to consider that make many, including Barclays, believe "there is little to the latest price action than the increasingly self-fulfilling prophecy of ‘sell it in May and go away’, exaggerated by market positioning, with broader macroeconomic concerns used as a lightening rod." With crude inventories on the high side and gasoline (and other oil product) inventories relatively low and falling - we would hold our breaths on the recent crude price drop funneling along to the retail pump price anytime soon as there is one critical aspect of the supply-demand equation that many have missed - a period of heavier-than-usual refinery maintenance which while temporary have reduced demand but tell us nothing about the state of final demand. In other words, even if a balance of sorts was achieved in terms of crude flows in March and April due to maintenance, that balance is likely to be disturbed from June onwards. The mainstream media is full of talking-heads on the chronic weakness in US oil demand, but it does not appear to be a real phenomenon according to the steadily improving flow of data and while Greece, Hollande, and US macro data has dragged out macro shorts, it would appear the fundamentals support oil prices higher from here. With the upward-sloping curve in crude to year-end and the relatively small drop this week (-1.2% only in WTI) despite all the derisking, perhaps the market is already starting to realize.

All yopu need to read.

European equities continue the downward trend throughout the morning, despite opening slightly higher. Similarly to yesterday the moves are not data-driven, however the ECB have revised their forecasts for Euroarea growth downwards to -0.2% this year from -0.1% and have revised their inflation outlook upwards to 2.3% from 1.9%. The focus remains on Greece as the PASOK leader Venizelos grabs the baton and now attempts to form a stable coalition. Commentary from Greece so far has not been revelatory; Venizelos has reiterated that he wishes to remain within the Eurozone and affirmed that his party has not changed its policy with respect to the bailout. Flight to quality is observed throughout the markets, with the German Bund already testing yesterday’s highs several times and the major cash equities seen lower throughout the continent.

There was no good news overnight: CSCO (a rather prominent DJIA member) imploded on global demand weakness, China posted a larger than expected trade surplus which however was due to a greater than expected drop in imports, European industrial production was slightly better in Italy but offset by worse than expected news out of France (as for Greece - forget it), while all the attention continues to be focus on how the Greek endgame plays out, and now Spain too. Still, futures are on the cusp of greenness simply because following 6 days of declines stocks are oversold, and will desperately try to rally into any good news: such as initial claims later today, which will once again be spun as "declining" following a bigger upward revision to last week's number, making this week's appear to drop... at least until next week. As usual be on the watch for any erroneous headlines based on spurious rumors out of Greek developments: these tend to more the EURUSD, and thus ES, quite violently.

And Keystone will only drive prices HIGHER

Ask yourself the following. For the technologies which allowed for the increased rate of extraction of coal in the 19th century, or,  which now allow for the increased rate of extraction of natural gas from shale in the 21st century: did those technologies create the resources or merely extract them as they already existed? The answer seems rather obvious, doesn’t it? I mean, I want to be sympathetic to the view that technology creates resources, in the sense that technology makes previous unrecognized or unrecoverable resources available. But a threshold I cannot cross, however, is that idea that there are always a new resources waiting to be discovered, if we can only create a technology to obtain them.

Which brings us back to mining for minerals. On asteroids.

European equities continue the trend of the week as they move lower throughout the morning session, as no news is bad news from Greece. In the early hours of the session, reports from German press revealed that the Troika have cancelled their May mission to the country, on the grounds that the current political instability could derail the rescue effort. The continued risk-aversion in Europe is evident in the strong demand for both German and British securities, as both countries sell strongly in their respective auctions. As such, the German Bund contract has hit on all time highs several times in the session today and the Spanish yield on their 10-yr government bond remains elevated above the 6.00% mark. Overnight source comments speculated that the Spanish government are pressing their national banks to set aside between EUR 20-40bln in funds for bad loan provisions and capital buffers. The reports have weighed down on the IBEX 35 throughout the morning, which is currently severely underperforming its European counterparts.

All you need to read and some more.

One word: Spain, and more specifically, 6.00%+. That's where Spanish 10 Year bond yields are again, with Spanish CDS soaring to a fresh all time wide of 512 bps (+13.5 bps), and the Spanish-Bund spread blowing out to the widest since November. And to think it was only two days ago that the schizo market interpreted Spain's bank sector nationalization as good news. It may be for the bank sector (for a few days at least), but it sure isn't for the sovereign which would end up onboarding on the risk. Naturally, 48 hours later the market has figured out this fine nuance and is dumping everything Spain related once again. That this is surprising is an overstatement: we have seen all of this before, only last time it was Greece. Hopefully the same playbook works for Spain, and works better. The result - redness everywhere, especially in the aftermath of an implosion, and halt, in Italy's oldest and one of its biggest banks (guess which PIIG is next on the nationalization bandwagon), after Italian prosecutors on Wednesday ordered searches at the headquarters of Banca Monte dei Paschi di Siena and its top shareholder in a probe over alleged market manipulation linked to Monte Paschi's 2007 purchase of smaller peer Antonveneta. From Reuters: "Prosecutors in Siena, where Monte dei Paschi is based, said in a statement the offices of several Italian and foreign financial institutions based in Italy were also being searched by financial police as well as private homes, without elaborating. They said the searches were part of an investigation into possible market manipulation and obstructing the work of regulators with regard to raising the funds to buy Antonveneta." But probably the worst news comes from Bank of America which summarizes the Greek situation as follows: "If another election takes place, as seems very likely, Syriza could win. Their populist rhetoric is gaining momentum in Greece. Moreover, left voters from the Communist Party of Greece and Democratic Left are likely to vote for Syriza given its chance to win." Which naturally, is Europe's biggest nightmare. Sorry to say, but Europe appears very much unfixed and is about to break even more.