Market Share

It took a while, but three months after we wrote "How The Petrodollar Quietly Died, And Nobody Noticed", someone finally noticed.

"This is further evidence that they are hellbent on protecting their market share in China," warns one strategist as just when US talking-heads thought things were 'stabilizing' Saudi Aramco slashes its official selling price for Arab Light crude by 90 cents to $2.30 a barrel less than Middle East benchmarks - the biggest discount in 14 years. As Bloomberg reports, the desert kingdom is continuing to fight for market share, and using the oil weapon by "trying to stay competitive in what is the biggest area of growth," as Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia.

It has been a quiet overnight session, following yesterday's epic short-squeeze driven - the biggest since 2011 - breakout in the S&P500 back to green for the year, with European trading particularly subdued as the final session of the week awaits US nonfarm payroll data, expected at 230K, Goldman cutting its estimate from 250K to 210K three days ago, and with January NFPs having a particular tendency to disappoint Wall Street estimates on 9 of the past 10. Furthermore, none of those prior 10 occasions had a massive oil-patch CapEx crunch and  mass termination event: something which even the BLS will have to notice eventually. But more than the NFP number of the meaningless unemployment rate (as some 93 million Americans languish outside of the labor force), everyone will be watching the average hourly earnings, which last month tumbled -0.2% and are expected to rebound 0.3% in January.

With S&P facing billion-dollar fines for defying the narrative, Goldman Sachs just dared to go even further against the US government by suggesting that the new oil order may be a blessing in disguise for Russia's oil industry. Simply put, the impact of the lower oil price and sanctions on the Russian economy increase the importance of oil industry tax reform, which could provide stimulus for upstream investments and commercialisation of the country’s vast oil reserves. An acceleration of upstream/downstream tax rebalancing could incentivise the development of substantial new basins in Russia, leading to a production capacity increase and a reduction in refining volumes to levels necessary to supply the domestic market. As a result, in Goldman's view, Russian crude exports would increase, improving the country’s current account, government revenues would grow, and upstream would attract material incremental investments.

A straight forward discussion of the factors driving the US dollar. 

Amid the unforced errors of youth and inexperience, here is The Top 10 list of Wall Street rookie mistakes you should try hard to avoid...

With every central bank scrambling to export deflation, and with the Saudis doing everything in their power to definancialize crude as an investment asset and destroy the US shale patch, it is probably no surprise that the ECB is utterly hopeless to prevent Europe from sliding into an all out deflationary contraction, which this morning Eurostat confirmed when it reported that in January, Euro Area deflation was "worse" (assuming it is worse when consumers pay less for goods and services, which it only is if they are sinking in debt) than the -0.5% expected reading, instead sliding from -0.2% in December to -0.6% in January, which also happens to be tied for the worst deflationary print in the Euroarea history, matching the number from July 2009 when the world was reeling in the global Great Financial Crisis depression.

Chinese stocks are trading lower again (on margin crackdowns) - the first 3-day drop in 3 weeks - back into the red year-to-date. Despite weakening the fix this evening, the 'market price' for USDCNY is trading at a record 1.93% discount to the official rate - inching ever closer to the 2% peg limit. At 6.2522, the market is just 40 pips away from forcing policy makes to intervene (selling the USD and and buying Yuan) - which realistically is perhaps a positive for the Chinese to unload some USD reserves. This move comes as China’s currency overtook Canada’s dollar to rank fifth for global payments last month with a record market share of 2.17% and HSBC this evening forecast the Yuan will overtake the Japanese Yen as Asia's most-used Global FX in Q2. De-dollarization continues...

• Fed seen remaining patient with rate guidance amid global turmoil (Reuters)
• National Weather Service apologizes for blizzard forecast miss (CBS)
• Greek PM Tsipras pushes on with radical change, markets tumble (Reuters)
• Obama Drops Plan to Raise Taxes on ‘529’ College Savings Accounts (WSJ)
• Hard Choices on Easy Money Lie Ahead for Fed Chief (Hilsenrath)
• Debt That Once Boosted Its Cities Now Burdens China (WSJ)
• Skymark Said to File for Bankruptcy After Airbus Deal Flops (BBG)
• Heavy Fighting Drains Ukraine Government’s Options and Finances (WSJ)

"I think equity markets will get devastated," warns famed $12bn AUM hedge fund manager Crispin Odey in his latest letter to investors. Having been one of the biggest bulls of this particular central bank artificial-bull cycle, his dramatic bearish tilt (as we discussed what he thinks are the biggest risks underpriced by the market previously), is notable. Finally, Odey fears major economies are entering a recession that will be "remembered in a hundred years," adding that the "bearish opportunity" to short stocks looks as great as it was in 2007-2009.

Today's Russian downgrade pulled yet another raft of "smartest people in the room" to tell investors how screwed Russia is by low oil prices (and yet the US Shale industry is fine and will manage through this). However, Goldman Sachs prefers facts in its analysis of the Russian oil sector and concludes, investor concerns about the health of Russia's oil industry should remain more myth than reality.

“No stock-market crash announced bad times. The depression rather made its presence felt with the serial crashes of dozens of commodity markets. To the affected producers and consumers, the declines were immediate and newsworthy, but they failed to seize the national attention. Certainly, they made no deep impression at the Federal Reserve.” - 1921 or 2015?

With almost perfect comedic timing, Bloomberg unleashed the mainstream media's Draghi-confirming raison d'etre for QE... explaining why - shock horror - deflation is bad for you. No matter that the QE efforts of The Fed (and BoJ) entirely (totally and utterly) failed to spark any increase in inflation expectations, we must try try try again. However, despite the exuberant disgruntlement with deflation that Bloomberg offers, Portuguese economy minister Guindos had something 'odd' to say this morning: "European deflation is positive." We are sure he will issue some clarifying statement soon enough walking back such a dangerous and anti-authority comment.

Greece's bailout program is not working. After receiving hundreds of billions of Euros in new loans to stave off a sovereign default, Greeks are on the verge of electing a new government that may throw Eurozone politics into turmoil. How things will play out in Greece and abroad is anybody’s guess. But it is important to consider the factors which have contributed to the current state of affairs.

Because nothing says 'stability' like a Central Bank in charge of things, the smartest richest men in the world have proclaimed in Davos this week that "we need a central bank of oil, like the central bank in financial world." As long as they are not Swiss, of course. Oil has been volatile today amid these calls for stability after Saudi Aramco comments on cutting projects (supply) sent prices higher, and was then talked back by the CEO bringing prices lower. Oman - the largest non-OPEC Middle East oil producer - blasted that "we have created volatility," noting it was having a "really difficult time," and that's "bad for business," demanding OPEC slow production. But it was The IMF that sparked the greatest concerns as it warned oil producers to treat this oil price drop as permanent noting that they expect these economies to lose $300 billion. only to be contradicted by OPEC's al-Badri who noted "oil prices will rebound back to normal soon."