Crude

There were two reasons for today's big initial market move: one was the realization that the next LTRO could be massive to quite massive (further confirmed by a report that the ECB is now seeking a "Plan B"), the second one was that, somehow, even though China's economy came in quite better than expected, and much better than whispered, the market made up its mind that the PBoC is now well on its way to significant easing even though inflation actually came in hotter than expected, and virtually every sector of the economy, except for housing, is still reeling from Bernanke's inflationary exports. While we already discussed the first matter extensively earlier, we now present some thoughts from Standard Chartered, one of the most China-focused banks, to debunk the second, which in a note to clients earlier summarized "what the economy is really doing and where it is going" as follows: "If anything, today’s data is another reason not to expect a quick move to further loosening. The economy is slowing, but not dramatically – so far." This was subsequently validated by an editorial in the China Securities Journal which said there was no reason to cut interest rates in Q1, thereby once again confirming that the market, which in its global Bernanke put pursuit of interpreting every piece of news as good news, and as evidence of imminent Central Bank intervention, has once again gotten ahead of itself. And as the Fed will be the first to admit, this type of "monetary frontrunning" ironically make the very intervention far less likely, due to a weaker political basis to justify market intervention, while risking another surge in inflation for which it is the politicians, not the "independent" central banks, who are held accountable.

We don't have to run through the maze 5 times before we know what lever to push! 

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Just out from Reuters:

• NIGERIA'S LABOUR UNION LEADERS SAY STRIKE SUSPENDED - RTRS

Minor down tick in crude on the news, maybe because everyone is still sleeping. So, does this mean that the Iran embargo is back on, and the joint US-Israel wargames are set to resume as "budgetary" conditions have loosened?

Although gold had its largest drop in the last 2 weeks on Friday, (-1.6%), it was 1.3% higher on the week and trading higher this morning.  Many analysts feel that current sovereign, macroeconomic and geopolitical risks are not reflected in gold's price. Friday's news of France's loss of its AAA rating has put the European Financial Stability Facility (EFSF) at risk. The Eurozone economy resembles a large ship sailing in rough seas since France fund's 20% of the EFSF fund and 8 other members were also downgraded. This will almost certainly lead to the EFSF's downgrade which would result in the fund too paying more to borrow as credit costs rise.  There are icebergs lurking in increasingly murky Eurozone waters. The European downgrades were long expected and may have been priced in the markets. The risk of a non orderly Greek default and of contagion in the Eurozone remains and is not priced into markets. It would lead to the euro falling sharply against other fiat currencies and particularly against gold.

Pres. Barack Obama has launched new international diplomatic poker with “a trailing hand”. It is impossible to exaggerate the forces at play, economic as well as political, foreign and domestic, and their interplay.

The last time intermodal traffic dipped to this level, we were in denial about a Recession and the Dow continued to march from 11,500 in January of 2008 all the way to just above 13,000 in May.

Remember the cold war: evil Empire, 5 year plans, Lada cars, etc? It may very well be back, this time over the simple matter of a few million barrels of crude per day, after Russia was found to be quietly supplying an embargoed Syria with ammunition, in violation of a weapons embargo. Reuters reports: "A Russian-operated ship carrying a cargo of ammunition has reached conflict-torn Syria after being temporarily halted during a refuelling stop in Cyprus, sources in Russia and Cyprus said on Friday. A source in Cyprus, where the ship made an unscheduled stop for refuelling late on Tuesday, said the ship had given written assurances to authorities its destination would not be Syria but Turkey. It was allowed to sail a day later, whereupon it dropped off conventional tracking systems, switched course and reached Syria on Thursday. "It had bullets. There were four containers on board," a Cypriot official told Reuters." And here the plot thickens: we now have some war mongering deepthroat somewhere in Leningrad, pardon, St. Petersburg: "The ship was carrying a dangerous cargo," the source at St. Petersburg-based Westberg Ltd. said by telephone on condition of anonymity. "It reached Syria on Jan. 11th." Needless to say, the US is not very happy that Russia is doing precisely what it warned a few months ago it would do: namely protect its sphere of influence especially in light of the ever-encroaching NATO aspirations (yes, provocations go both ways as Ron Paul has long been warning): "The United States said on Friday it had raised concerns with Moscow over a Russian-operated ship that has arrived in Syria and which sources said contained a cargo of bullets. "With regard to the ship we have raised our concerns about this both with Russia and with Cyprus, which was the last port of call for the ship, and we are continuing to seek clarification as to what went down here," State Department spokeswoman Victoria Nuland said." Looks like the escalation in the Straits of Hormuz is about to shift to the backburner as we finally go back to where the real tension is and always has been: between West and East.

European Indices are trading up at the midpoint of the session following strong performance from financials, however, Italian bond auction results dampened this effect after failing to replicate the success of the Spanish bond auction yesterday with relatively lacklustre demand. There has been market talk that this lull in demand for Italian bonds is due to technical error preventing some participants from bidding in the auction, but this still remains unconfirmed. Heading into the North American open, fixed income futures are still trading higher on the day having seen the Bund touch on a fresh session high and with peripheral 10-year government bond yield spreads widening ahead of the treasury pit open. Markets now anticipate the release of US trade balance figures and The University of Michigan confidence report.

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UPDATE: Oil Sub $100.

And so the escalation ends, if only for the time being, as Iran chalks a (Pyrrhic?) victory.

• EU IRAN OIL EMBARGO SAID TO BE LIKELY DELAYED BY SIX MONTHS

Why? Because the world slowly realized that the potential surge in oil prices would tip a world already on the verge of a recession even deeper into economic contraction. Not rocket science, but certainly something the US president apparently has been unable to comprehend, especially if hoping that he would merely transfer exports from Iran to his close ally Saudi Arabia which would cement its European market monopoly even further. Or, perhaps, someone just explained to Obama that Embargo in January + QE3 in March = No Reelection...

In other news, crude is now dumping.

Imagine pensions not paying retiree funds, insurers not paying claims, and banks collapsing everywhere. Sounds like fun? I will be discussing this live on RT's Capital Account with the lusciously locquacious Lauryn Lyster at 4:30pm.

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Crude prices rose modestly this morning so far (up to $102) as news of the Nigerian oil and gas union will shut down all production starting Sunday in a nationwide strike over fuel prices. As the Associated Press reports, the nationwide strike has been under way since Monday and the 20,000 oil and gas union members joining on Sunday will mean a top supplier of crude to the US (approximately 2.4mm barrels per day) will stop production. The union notes that the Nigerian government's reversal of a two-decade-long subsidy program to keep gas prices low for Nigerians "forced them to go ahead and apply the bitter option of ordering the systematic shutting down of oil and gas production." The market for now does not seem too bothered by this drop in supply, even in the tight markets we are facing, as most of the oil move seems driven by USD weakness post the ECB decision - perhaps things will change when the unions call the market's bluff on Sunday?

• Hedge Funds Try to Profit From Greece as Banks Face Losses (Bloomberg)
• Spain Doubles Target in Debt Auction, Yields Down (Reuters)
• Italy 1-Year Debt Costs More Than Halve at Auction (Reuters)
• Obama to Propose Tax Breaks to Get Jobs (WSJ)
• GOP Seeks to Pass Keystone Pipeline Without Obama (Reuters)
• Debt Downgrades to Rise ‘Substantially’ in 2012, Moody’s Says (Bloomberg)
• Petroplus wins last-minute reprieve (FT)
• Geithner gets China snub on Iranian oil as Japan plans cut (Bloomberg)
• Fed officials split over easing as they prepare interest rate forecasts (Bloomberg)
• Draft eurozone treaty pleases UK (FT)
• Premier Wen looks at the big picture (China Daily)
• US Foreclosure Filings Hit 4-Year Low in 2011 (Reuters)