Crude

Despite its dubious track record, oil prices are stumbling after Goldman Sachs releases a report calling for oil prices to remain lower for even longer, calling for a drop to $50 within the next 6 months.

• Central Bankers Urge Fed to Get On With Interest-Rate Increase (WSJ)
• Bond Market Casualties Leading Biggest S&P 500 Revival Since '11 (BBG)... on hopes of more easing
• U.S. Patrols to Test China’s Pledge on South China Sea Islands (WSJ)
• Merkel Under Fire: German Conservatives Deeply Split over Refugees (Spiegel)
• Assault Weapons Ban Before U.S. Supreme Court (NBC)
• Hedge Funds Are Playing 'Dangerous Game' With Copper (BBG)

With the "adult supervision" of US markets gone today as bond markets are closed for Columbus day, and the USDJPY tractor beam also missing with Japan also offline for Health and Sports day, stocks took their cues from China where speculation was rife that in lieu of cutting RRR, the PBOC has unleashed even more incremental QE by expanding its Collateral Asset Refinancing Program (CAR). Specifically, the central bank said this weekend it will expand a program allowing lenders to use loan assets as collateral for borrowing from the central bank, opening it up to nine more cities from the program's test in Shandong province and Guangdong. The new areas for the program include Beijing and Shanghai. According to some estimates released several trillions in liquidity into the market, and not only sent government bond futures to new highs, but pushed the Shanghai Composite up over 3% overnight.

Gains in the foreign currencies appears to be mostly short-covering rather than bottom-picking per se.  In bigger picture the dollar is consolidating its earlier gains.

Following last week's biggest rig count decline in 5 months, Baker Hughes reports a smaller decline of 9 oil rigs this week to 605 - the lowest since July 2010. WTI Crude was trading just below $50 as the data printed and jumped above it on the rig count drop.

WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world’s biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.

Several days ago, when pointing out the record NYSE short-interest, we noted this move may simply mean the following: "a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs." Today, we have confirmation that the rally has been precisely that: a massive short-covering squeeze, when Bank of America's Mike Hartnett looked at the latest weekly fund flow data and noted a "monster $53bn MMF inflows vs redemptions from equity ($4.3bn) & fixed income funds ($2.4bn)...rising cash levels indicate big risk rally (from intraday lows last week SPX +7.7%, EEM +13.5%, HYG +4.2%) driven primarily by short-covering rather than fresh risk-on."

The global risk on mood (which is really anything but, and is merely an unprecedented short covering squeeze as we will report momentarily) launched by an abysmal jobs report one week ago and "validated" yesterday by the surprisingly dovish FOMC minutes, which said nothing new but merely confirmed what most knew, namely that a rate hike is almost certain to not occur until mid-2016 if ever, and accelerated by a Fed-driven collapse in the dollar which overnight has led to a historic 3.4% move in the Indonesian Rupiah the most since 2008, has pushed global stocks even higher in their biggest weekly rally since 2012, despite the start of an earnings season where virtually every single company reporting so far has stumbled on earnings reports that were far worse than even gloomy consensus had expected.

News That Matters

UPDATE: Stocks are now soaring after we noted the initial reaction...

A decidedly dovish FOMC Minutes, warning that the economy is not ready for rate-hikes, has driven rate-hike odds to their lows once again. December and January odds are now below 50% and markets are reacting with bond, crude, and bullion buying, dollar selling and stocks uncertainty.

Given the tumble and stock save since September's infamous "chickening out" FOMC Meeting, investors hope today's minutes will provide some color on just how close Janet and her merry men were to pulling the trigger:

• *FED OFFICIALS SAID `PRUDENT' TO WAIT FOR CLARITY ON OUTLOOK
• *FOMC MINUTES: MOST PARTICIPANTS SEE LIFTOFF CONDITIONS MET THIS YR
• *FOMC MINUTES: ALL BUT ONE MEMBER SAID ECON COND DIDN'T WARRANT HIKE

With all the blame pinned on global turmoil (which has now "calmed" apparently) the S&P 500 has roundtripped to unchanged post-FOMC and given these minutes which suggest this was not a close-call at all. However, this was before the Sept payrolls data.

Pre-FOMC Minutes: S&P Futs 1988.25, 10Y 2.095%, Gold $1145, EUR 1.1285

WTI Crude has recovered the losses following yesterday's DOE-reported inventory and production rise as it appears comments from OPEC Secretary-General Al-Badri told The IMF that demand will climb more this year than previously projected (coming on the heels of EIA's comments that oil companies worldwide will cut investments in oil exploration and production by a record 20 percent this year.) USD weakness is also helping drive algos to run stops in crude.

Last month, when King Salman arrived in Washington to a fleet of Mercedes S-Classes, we asked if, considering the current circumstances, cutting back on spending might be in order. Indeed, in the wake of Saudi Arabia's move to tap debt markets, rumors have been circulating for months that the kingdom has enlisted the help of "advisers" to help rein in the ballooning deficit. Now, Riyadh has effectively declared a spending moratorium in the face of self-inflicted crude carnage.