Market Share

• Bonds Rise as China Drags Down Metals, Selloff in Stocks Resumes (BBG)
• European Stock Rally Runs Out of Steam Amid China Growth Concern (BBG)
• Obama's immigration action blocked again; Supreme Court only option left (Reuters)
• Ukraine: Cyberwar’s Hottest Front (WSJ)
• With $170.4 Million Sale at Auction, Modigliani Work Joins Rarefied Nine-Figure Club (NYT)
• IEA Sees OPEC Market Share Growth in 2020 as Rivals Stagnate (BBG)

Once again, the two major macroeconomic announcements over the weekend came from China, where we first saw an unexpected, if still to be confirmed, increase in FX reserves, and then Chinese trade data once again disappointed tumbling by 6.9% while imports plunged 18.8%. So how did the market react? The Shanghai Composite Index rose for a fourth day and reached its highest since August 20because more bad data means more easing from the PBOC, and just to give what few investors are left the green light to come back into the pool, overnight Chinese brokers soared after Chinese IPOs returned after a 5 month hiatus. Elsewhere, Stocks and currencies in emerging markets slump on prospect of higher U.S. borrowing costs before year-end and after data underscored slowdown in Asia’s biggest economy. Euro strengthens.

According to the CEO of Maersk, the world's biggest container shipping company, "the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting." Andersen adds that "we believe that global growth is slowing down. Trade is currently significantly weaker than it normally would be under the growth forecasts we see....we’re a little bit more pessimistic than most forecasters."

China can’t allow its industrial economy to sink without a fight. It will have to devalue the renminbi to try to get more market share for its exports. It still has 80% of its workers earning less than $10 a day. A lower renminbi will reduce real wages further and make China’s exports cheaper than ever. And then, what about the rest of the world? As the renminbi goes down, the dollar, yen, and euro will have to go up. Commodities – priced in dollars – will stay down. U.S. corporate profits will fall. The stock market “tape” will go down. Consumer prices, too, will remain low... or go negative. Deflation. Deflation. Deflation.

With oil exports to Europe having slipped from 13% of Saudi's total to just 10% in the last six months, The FT reports, the de facto leader of OPEC has slashed its Official Selling Price (OSP) to Europe in an effort to regain market share. Saudi lowered its OSP for its Arab light crude grade in Europe by $1.30 a barrel for December, taking its discount to the weighted average of the North Sea Brent benchmark to $4.75 a barrel - the largest discount since February 2009... directly going after Russia's customer base.

"No brainer"? Seems to us like there’s only one way for things to go right and lots of ways for things to go wrong.

It is possible that we might witness the formation of two blocks within OPEC during the next December 4 meet in Vienna. One, led by Venezuela, Ecuador, Libya and Algeria that would want to reduce production levels and the other led by Saudi Arabia, UAE and Kuwait that would stick to the current strategy of defending market shar. In the end, it will come down to survival of the fittest. Players who have higher breakeven costs will be the ones who will blink first and thereby reduce their production levels.

Something very unexpected happened: the world quietly hit a tipping point when, according to Reuters, China ran out of space to store oil. According to a senior trader familiar with Sinochem's oil trading and cited by Reuters, the tankers "are both for SPR (strategic petroleum reserve), but no tank space is available to take that oil in."

OPEC altered the course of the oil markets last year when it decided to cast aside its traditional role of maintaining balance through production cuts. Instead it pursued a strategy of fighting for market share, contributing to an immediate rout in oil prices. WTI and Brent then went on to dive below $50 in the weeks following OPEC’s decision. OPEC is widely expected to continue its current strategy at its next meeting, and as such, no rebound in oil prices is expected, at least not because of the results of the group’s meeting in Vienna. But that raises a question about what the world of oil expects from OPEC: Why is it that the responsibility for balancing the market falls on OPEC? Why should OPEC be the one to fix the imbalances in the global crude oil trade?

It's crunch time for Wal-Mart as the iconic retail behemoth struggles to cope with the fallout from a move to spend billions on wage hikes for its meagerly compensated hourly employees. In order to avoid passing on rising labor costs to customers, the company has set its sights on the supply chain where some smaller vendors now say they're being driven out of business entirely.

If you’re looking to close on an M&A deal, now might be the time to do it before the cost of capital starts to rise. Sure, “liftoff” might have been delayed by a month (or 12) but you have to do your due diligence and make sure there are enough synergies to make it worth everyone’s time and effort. We suppose that helps to explain why, according to the Russian Defense Ministry, ISIS and al-Qaeda are contemplating a merger in the face of, how shall we say, “new entrants” in the race for Syrian market share.

As a desperate Saudi Arabia taps the bond market to mitigate the SAMA drawdown while simultaneously attempting to muscle in on Moscow's Eastern European market share, Russian crude sales to China soared 42% in September. The result: for the second time this year, Russia has overtaken Saudi Arabia as the number one crude supplier to Beijing. 

Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies. This observer believes the two countries cannot long withstand the pain they have brought upon themselves - and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.

"[Putin] hopes that when its ally Iran re-enters the global oil and gas market, Russia will somehow share in the profits, perhaps through new pipelines across Syria. He also wants to stop the Saudis from establishing export routes in Syria. Now that Russian energy supremacy in Europe also is at stake, Putin's determination to resolve the Syrian conflict on his terms can only grow."