If yesterday's laughable lack of volume (helped by the closure of Japan and the UK) coupled with hopes that the end of the buyback blackout period was enough to send stocks surging if only to end with a whimper below all time highs despite what is now looking like three consecutive quarters of Y/Y EPS declines according to Factset, today's ramp will be more difficult for the NY Fed and Citadel to engineer, not least of all due to the headwind of the overnight "incident" by China's stock bubble which saw the Shanghai Composite tumble by 4%, the most since January.
Turkey is currently trying to decide which of the two similar though competing projects - the Eurasian or the European Energy Union - would be more beneficial for the country. Russia’s attempts to build an ever closer relationship with Turkey - and the latter’s openness to such gestures - will complicate regional energy geopolitics further. Thus, Brussels and Ankara are likely to disagree on strategically important energy security issues over the coming years unless Turkey and the EU can achieve tighter cooperation under the framework of the European Energy Union. But if Turkey instead starts to pursue a more independent policy, particularly one at odds with the European Union, the Eurasian region will experience ever more unstable and competitive energy geopolitics.
The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.
Following yesterday's early MNI rumor that a Chinese QE is being "considered" and which sent the Shanghai Composite surging 3% and led to an initial boost in US stock futures, overnight the PBOC scrambled to once again deny such speculation. Of course, going full "cold Turkey" on Chinese stimulus would be too much for the market to handle, so in a piece by the WSJ also released overnight, the author said the PBOC would pivot from outright QE to mere LTRO, which is also not new and was reported over a week ago here in "China Floats QE Trial Balloon, PBoC May Launch LTROs." In any event, for now at least, Asian stocks are not happy despite Apple's latest blockbuster results, and neither is Europe, with the Stoxx 600 down 1%, and even the E-mini is hugging 2100 unable to levitate on any imminent central bank intervention.
No matter what other problems may or may not be linked to hydraulic fracturing, or fracking, the disposal of wastewater from oil and gas drilling almost certainly is primarily responsible for the recent spate of earthquakes in Oklahoma, normally a seismologically quiet state. That’s the conclusion of a report issued April 21 by the Oklahoma Geological Survey (OGS). What’s important about Andrews’ and Holland’s conclusion is that they represent the state of Oklahoma, where energy is an important industry, providing about one-quarter of the state’s jobs.
When we deny reality and engage in irrational wishful thinking, we are engaging in something called 'hopium': "The irrational belief that, despite all evidence to the contrary, things will turn out for the best." Right now that propaganda matrix is assuring the American people that everything is going to be just fine. Well, they better be right. Because if not, they are going to have millions of people extremely angry with them when things really start falling to pieces.
Following the CEO's comments that over 100,000 energy jobs will be lost this year, an executive with Weatherford International - the fifth largest US fracker - has warned half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies. “We go by and we see yards are locked up and the doors are closed," said Rob Fulks, seemingly confirming what Weatherford CEO Duroc-Danner said earlier in the year, "we're now confronted with an unusually severe market contraction."
- Clinton charities will refile tax returns, audit for other errors (Reuters)
- China Warns North Korean Nuclear Threat Is Rising (WSJ), or another country realizes war is the only "exit"
- Shares, euro sag after euro zone PMIs disappoint (Reuters)
- China Manufacturing Gauge Drops to Lowest Level in 12 Months (BBG)
- Deutsche Bank Said to Pay $2.14 Billion in Libor Case (BBG), or roughly a €20,000 per banker "get out of jail" fee
- Brazil’s Petrobras Reports Nearly $17 Billion in Asset and Corruption Charges (WSJ)
- Can This Oil Baron’s Company Withstand Another Quake? (BBG)
- Bad for Q1 GDP: Raytheon sales fall amid weak U.S. defense spending (Reuters)
With talks between Greece and its creditors expected to go mostly nowhere in Riga later this week, and with speculation about an energy deal between Athens and Moscow (i.e. the precursor to the dreaded "Russian pivot") looking less like speculation and more like reality with each passing day, Europe is going the spite route by filing anti-trust charges against Gazprom.
- The Fed Still Wants Easy Money (BBG) - you don't say
- ECB Is Studying Curbs on Greek Bank Support (BBG)
- Banks Paid to Borrow as Three-Month Euribor Drops Below Zero (BBG)
- Baoding Tianwei is first state-owned Chinese enterprise to default (Reuters)
- Major Chinese Developer Says It Can’t Pay Dollar Debts (BBG)
- Wall Street Has No Idea How Much Money Venezuela Has (BBG)
- Goldman Sachs, Morgan Stanley Find Different Paths to Profits (WSJ)
- Does the Collapse of a Chinese Developer Signal the Start of More Defaults? (BBG)
- Retail Traders Wield Social Media for Investing Fame (WSJ)
Explaining the catalysts that move the "market" overnight has become so farcical it is practically an exercise in futility and absurdism.
China is looking to succeed where the United States has failed. Beijing — which, as a reminder, claims it will not use its regional infrastructure development initiatives as a tool of foreign policy — is now set to facilitate the construction of nearly $50 billion in power plants, roads, and railways in neighboring Pakistan. The proposal, which will give China access to the Indian Ocean via the Gwadar port on the Arabian Sea, is part of President Xi Jinping’s ambitious “Silk Road” Economic Belt, and importantly, will likely include financing for the completion of the "Peace Pipeline," which will carry natural gas from Iranian gas fields across Pakistan.
It is only fitting that the next business day following a headline that "Global Futures Slide China Tumbles On Short Selling Boost" we would see China, in an apparent panic, not only cut its RRR by 100 bps to 18.5% - far more than expected and the most since 2008 - but, more importantly, hinted that the Friday regulatory decision to encourage short sales and tighter margin rules on "umbrella trusts" was in no way meant to pop that the Chinese stock bubble, ridiculous as it may be. End result: after Chinese futures crashed by up to 6% on Friday after the Shanghai close, overnight the SHCOMP was down just 1.64%, erasing the bulk of the futures loss. More importantly, US equity futures have seen a strong bid this morning in yet another attempt to defend not only the Apple Sachs Industrial Average from going red on the year but the all important 100 DMA technical levels.
Financial engineering is one of the worst ills perpetuated by the Fed’s regime of cheap debt and money market subsidies for speculation. And these deformations are turbo-charged by the tax code which creates a powerful bias toward loading capital structures with tax deductible debt, and to delivering returns as lightly taxed capital gains rather than ordinary income. In fact, stock buybacks and LBOs are the bastard offspring of the IRS and Federal Reserve.
Just as China was closing for trade and Europe was opening, something previously unseen happened: no, not another another GPIF or Virtu inspired marketwide stop squeeze, those are quite recurring these days. It was virtually every Bloomberg terminal around the globe suddenly going dark.