Natural Gas

Something funny happened on the way to the global reflation (telegraphed so loudly by the recent surge in 10Y yields to the highest level of 2015): PPI just crumbled by a sequential 0.4% in the month of April, despite expectations it would rise by 0.1% and continue the 0.2% monthly increase seen in March.   This was a -1.3% drop in PPI - the fastest fall in 5 years. Worse, the annual decline in final demand goods was -5.2% Y/Y, the biggest drop in the revised series in record!

PetroChina just surpassed Exxon Mobil to become the largest energy company in the world, on a market cap basis. Now the question becomes: can PetroChina retain its status as the world’s largest energy company?

• Amtrak train in Philadelphia wreck was traveling at twice speed limit (Reuters)
• The engineer has no recollection of the crash and “no explanation” for what happened (WSJ)
• Taliban claim attack on Afghan guesthouse that killed 14 (Reuters)
• Chicago’s Junk Rating From Moody’s Puzzles Investors (BBG)
• House votes to end spy agencies' bulk collection of phone data (Reuters)
• Wesley Clark: The Penny-Stock General (BBG)
• AOL’s Armstrong to Leave $213 Million Richer After Verizon Deal (BBG)

As we discussed at the beginning of last month, the “revolver raids” have already begun for some heavily indebted US shale companies who were set to see their credit lines cut after banks performed their bi-annual review in April, which is based on where crude has traded over the preceding 12 months. Those credit lines will be assessed again in October and according to a UBS survey of the banks who have helped finance the oil & gas industry, the outlook is not good

History has been so fascinated with oil and its price movements that it is indeed hard to imagine our future without oil. The world is still myopic when it comes to energy. Yes, it wants to embrace renewables but not at the cost of oil. Whatever happens to oil prices in the coming years, one thing is certain: that the age of oil isn’t ending anytime soon, at least not in the next 30 years.

• Bonds Extend Global Rout as Europe Stocks Slide, Dollar Weakens (BBG)
• Verizon Communications to Buy AOL for $4.4 Billion (BBG)
• Fresh Nepal earthquake kills dozens, triggers panic (Reuters)
• Sen. Shelby to Unveil Legislation Heightening Fed Scrutiny (WSJ)
• Bill Gross: The Amount of Money I'll Give Away 'Is Staggering, Even to Me' (BBG)
• U.S. rejects notion that Gulf rulers snubbing Obama summit (Reuters)... what about AIIB?
• In Asia, Debt Market Gets Tougher (WSJ)
• Iran’s Mahan airline defies sanctions in shadowy aircraft deal (FT)

At least 22 states are facing budget shortfalls thanks to a combination of fiscal mismanagement and falling oil prices. The negative impact on the public sector has been dramatic suggesting that in the event of a sustained economic downturn, citizens' patience for austerity could wear thin leading to political instability and social unrest. 

Elon Musk, Silicon Valley’s poster-boy genius replacement for the late Steve Jobs, rolled out his PowerWall battery last week with Star Wars style fanfare, doing his bit to promote and support the delusional thinking that grips a nation unable to escape the toils of techno-grandiosity. The main delusion: that we can “solve” the problems of techno-industrial society with more and better technology. The denizens of Silicon Valley are crazy about the Tesla. There is no greater status trinket in Northern California, where the fog of delusion cloaks the road to the future.

The US is applying political pressure to Greece in an effort to dissuade Athens from participating in Russia's Turkish Stream Pipeline project which has been implicitly used, at various times, as a negotiating tactic in discussions with EU creditors. As the Times suggests, this is further evidence that Washington is becoming increasingly concerned that the world is rapidly shifting away from the US-dominated, unipolar model that has existed, in one form or another, since the collapse of the Soviet Union. This consternation is beginning to manifest itself in the revitalization of Cold War politics.

While the US is waking up in anticipation of what is once again said to be the "most important nonfarm payrolls number" at least since the last most important such number, because anything 250,000 and above puts the June rate hike right back on the Fed calendar, while a collapse in this lagging indicator will be explained away with harsh rain showers in April, and send stocks soaring due to yet another delay in tightening expectations despite Yellen's outright warning of overvalued stocks, the UK has been up all night following a dramatic election, whose outcome has been largely the opposite of what the experts predicted, with Conservatives set to win an outright majority, resulting in embarrassment for Labor, the Liberal Democrats and the UKIP, both of which have already seen dramatic changes in their leadership, and moments ago both Nick Clegg and Nigel Farage announced they would stand down as party leaders.

"The transition from investment to consumption in the Chinese economy, together with a shift towards cleaner energy sources, has caused a sharp deceleration in dry bulk trade. After expanding at an average annual rate of 7% over the period 2005-14, seaborne demand in iron ore, thermal and metallurgical coal is set to increase by only 2% in 2015 to 2.5 billion tonnes as these trends persist," Goldman says, before warning that freight rates aren't likely to recover until at least 2020.

Ever since the mysterious, unexpected bursting of ISIS on the global stage one year ago with much fanfare and even more carefully produced with just the right amount of lighting beheading video clip, we said from the very beginning that entire rehashed sequence of events in the middle east is about one thing: removing Syria's Assad from power just so the nat gas infrastructure from Qatar can traverse the territory and enter Europe, eliminating Russia's energy dominance over the continent. Today we got the latest confirmation of this in an AP report according to which "Turkey and Saudi Arabia have converged on an aggressive new strategy to bring down Syrian President Bashar Assad."

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.