Having hovered around the $43/$44 level all morning, new from Baker Hughes that the oil rig count in the US rose 6 to 670 (its highest in over 3 months) has sent it back down to a $43 handle...
As the USDollar surges post-payrolls, WTI Crude futures are re-tumbling (but but but energy stocks were up yesterday!!!). With a $43 handle, WTI does not have far to fall to new cycle lows... and that has spooked professionals in the credit markets (as opposed to the machines and amateurs in the momo stock markets) as Energy credit risk surges back to 1000bps once again...
Here comes today's main event, the July non-farm payrolls - once again the "most important ever" as the number will cement whether the Fed hikes this year or punts once again to the next year, and which consensus expects to print +225K although the whisper range is very wide: based on this week's ADP report, NFP may easily slide under 200K, while if using the non-mfg PMI as an indicator, a 300K+ print is in the cards. At the end of the day, it will be all in the hands of the BLS' Arima X 12 seasonal adjusters, and whatever goalseeked print the labor department has been strongly urged is the right one.
Things are getting downright scary in emerging markets as a "triple unwind" in credit, Chinese leverage, and loose US monetary policy wreaks havoc across the space. Between a prolonged slump in commodity prices and a structural shift towards weaker global trade, the situation could worsen materially going forward.
It appears that after the great collapse of 2014, oil trading "god" Andy Hall refused to learn from his mistakes, and was convinced that oil would promptly rebound up to its historic levels. He was wrong, and as Reuters reports, after two consecutive months of 3% losses in May and June at which point he was up just 2% for the year, July was by far the cruelest month in history for the oil trader, a month in which he suffered a whopping 17% loss, one which lowered his aum by $500 million to $2.8 billion.
WTI Crude is back below $45 again this morning - pressing towards 2015 and cycle lows -after Goldman Sachs' Jeffrey Currie warns 'lower for longer' is here to stay, with price risk "substantially skewed to the downside." His reasoning are manifold, as detailed below, but overarching is oversupply (Saudi Arabia has a challenge in Asia as it battles to maintain mkt share, the Russians are coming, andother OPEC members want a bigger slice) and, even more crucially, storage is running out. As Currie concludes, this time it is different. Financial metrics for the oil industry are far worse.
It has been more of the same in the latest quiet overnight session where many await tomorrow's NFP data for much needed guidance, and where Chinese markets opened weaker, rose during the day, then went through a mini rollercoaster, then sold off in the afternoon. The Shanghai Composite and HS China Enterprises indices finished down .9% and .3%, respectively. Trading volume continued to be very subdued, running at half the thirty day average as some 20 million "investors" have pulled out of the market to be replaced with HFTs such as Virtu. But while stock action has been muted, the story of the night so far is oil and the energy complex broke out of a tight overnight range early in the European session to continue yesterday's downward trend, seeing WTI Sep'15 futures fall below the USD 45.00 handle after yesterday's DoE crude oil inventories saw US crude output rise by 0.552%. As of this moment oil was trading at $44.72, just pennies above the low print of 2015.
In an irony of ironies, Saudi Arabia is set to take advantage of the very same forgiving capital markets that have served to keep its US competition in business as persistently low oil prices and two armed conflicts look set to strain the Kingdom's finances.
Well that escalated quickly...
Despite CNBC's focus on 'lows are in' after a bigger than expected inventory draw, the realization that production continues to surge has cratered WTI crude which is now trading with a $44 handle!! This is the lowest in 5 months.
Following API's drawdown last night, DOE reported a significant 4.41mm barrel draw (dwarfing the 1.63mm barrel draw expectation). Thisis the 11th of last 14 drawdown in inventory. Crude spiked on the news, seemingly ignoring the 0.6% surge in production - its biggest jump since late May... but has given all the spike back now, hitting a $45 handle.
Futures Rebound On Ongoing Dollar Strength; Commodities Rise, China Slides, Greek Banks Continue PlungingSubmitted by Tyler Durden on 08/05/2015 06:51 -0400
In many ways the overnight session has been a mirror image of yesterday, with the dollar accelerating its Lockhart-commentary driven rise, which curiously has pushed ES higher perhaps as a result of more USDJPY correlation algos being active and various other FX tracking pairs. Indeed, the weak yen is all that mattered in Japan, where the Nikkei 225 (+0.5%) rose amid JPY weakness, despite opening initially lower as index heavyweight Fast Retailing (-4.5%) reported a 2nd consecutive monthly decline in Uniqlo sales. Elsewhere in mirror images, China slid 1.7%, undoing about half of yesterday's 3.7% jump, and is now down for 4 of the past 5 days.