When does the market break? When will the Narrative of Central Bank Omnipotence fail? Implicit (and sometimes explicit) in these questions is the belief that this – whatever this is – simply can’t go on much longer, that there is some natural law being violated in today’s markets that in the not-so-distant future will visit some terrible retribution on those who continue to flout it. There has never been a more unloved bull market or a more mistrusted stock market high. Public markets today are essentially hollow, as what passes for volume and liquidity is primarily machines talking to other machines for portfolio “positioning” or ephemeral arbitrage rather than the human expression of a desire to own a fractional ownership share of a real-world company. We believe that today’s public market price levels primarily reflect the greatest monetary policy accommodation in human history rather than the real-world prospects of real-world companies. We believe that the political risks to both capital market structure and international trade (which are the twin engines of global growth, period, end of story) have not been this great since the 1930’s. Simply put, we believe we are being played like fiddles.
Last week we highlighted the stunning images of China's "fists and daggers" police force training for a "working class insurrection." It appears to be good timing, given last night's terrible blasts in Urumqi. The chart below shows the worrying escalation in social unrest in China - at a time when the leadership is pushing a "strike first" anti-terrorist policy that appears to be failing badly. The "serious violent terrorist incident" that occurred last night in Urumqi, killing 31 and injuring 94, was the worst in years and prompted domestic security chief Meng Jianzhu to vow to strengthen a crackdown on the "arrogance of terrorists," but, as one analyst warns tightening controls on the Uighur region may be "smacking them in the face."
The US shale oil "miracle" has about as much believability left as Jimmy Swaggart. Just today, we learned that the EIA has placed a hefty downward revision on its estimate of the amount of recoverable oil in the #1 shale reserve in the US, the Monterey in California. As recently as yesterday, the much-publicized Monterey formation accounted for nearly two-thirds of all technically-recoverable US shale oil resources. But by this morning? The EIA now estimates these reserves to be 96% lower than it previously claimed. Yes, you read that right: 96% lower. As in only 4% of the original estimate is now thought to be technically-recoverable at today's prices.
- McDonald’s Workers Arrested at Protest Near Headquarters (BBG)
- U.S. Sends Troops to Chad to Hunt for Abducted Nigeria Girls (BBG)
- BofA Scrapping Market-Making Unit Amid Trading Scrutiny (BBG)
- Biggest attack in years kills 31 in China's troubled Xinjiang (Reuters)
- Intense Fighting Flares in Eastern Ukraine (WSJ)
- Fed Officials Tussle Over Labor Market Slack (Hilsenrath)
- Ikea Economics Lure Central Bankers Seeking New Tools (BBG)
- When Putin ordered up new hospitals, his associates botched the operation (Reuters)
- Norway’s $33 Billion Man Steps Up Search in Asia Real Estate Bet (BBG)
If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place.
Russia’s seizure of Crimea has led to speculation that a major motivating factor was to acquire potentially vast energy resources in the Black and Azov Seas. But taking control of territory rich in oil and gas is different from being able to successfully pull those energy resources from the ground.
U.S. demand for coal has fallen in recent years and export has become ever more important to domestic coal producers. Asia is the obvious export target, but challenges abound.
There was some trepidation yesterday when after the first day of Putin's visit to China the two countries did not announce the completion of the long-awaited "holy grail" gas dead, and fears that it may get scuttled over price negotiations. It wasn't: moments ago Russia's Gazprom and China's CNPC announced, that after a decade of negotiations, the two nations signed a 30 year gas contract amounting to around $400 billion. And with the west doing all it can to alienate Russia and to force it into China's embrace, this is merely the beginning of what will be a far closer commercial (and political) relationship between China and Russia.
- Eric Holder proves he is no US banker puppet by smashing another foreign bank: BNP Falls as U.S. Probe Said to Cost More Than $5 Billion (BBG)
- Fuld Was Top CEO When Fed Last Raised as New Neutral Era Beckons (BBG)
- Tymoshenko loses her magic in Ukraine presidential race (Reuters)
- GOP Sees Primaries Taming the Tea Party (WSJ)
- Heard that one before: Russian troops preparing to leave Ukraine border area (Reuters)
- Vietnam riots land another blow on the global supply chain (FT)
- Heard that one before too: Bank of England minutes show some members closer to voting for rate rise (Reuters)
- BOJ Refrains From Easing With Signs Japan Weathering Tax Rise (BBG)
- Miner Freeport Pressured by Water Costs as Copper Prices Slide (WSJ)
- Talks to end Thai crisis inconclusive, new round called (Reuters)
- Japan Court Blocks Reactor Restarts (WSJ)
Another right of perfectly round number supports: while the Shanghai Composite once again dipped below 2000 overnight to as low as 1991 only to close modestly higher, and the Nikkei followed suit, also sliding below the psychological support level of 14,000 to an intraday low of 13,964 only to close just above 14,000 if in the red, it was the USDJPY that has suffered the most technical pain when shortly after 2:30 am eastern time, the USDJPY dropped by nearly 40 pips, hours after the BOJ indicated that not only is it happy with where in the QE process it stands, but hinted there may well be no more QE, and certainly nothing imminent . In the process, the USDJPY fully smashed the 200 DMA, with the next key parallel support being the 200DMA in the EURJPY at 138.08 (which was at 138.34 last). When that too gives way, it is a straight line to double digits in the USDJPY, and the countdown to the end of the Abe regime begins in earnest.
A specter is haunting Washington, an unnerving vision of a Sino-Russian alliance wedded to an expansive symbiosis of trade and commerce across much of the Eurasian land mass - at the expense of the United States.
To compare Japanese and European bond yields in order to justify an argument for US bond yields staying historically low once the Federal Reserve is completely out of bond buying is a failed comparison.
Not much going on tonight, except for the non-coupy martial law announcement in Thailand where the government is said to still be in charge of everything except for martial law decisions taken by the army of course, which in turn is in charge of everything else apparently including the central bank which intervened so extensively in the market, the Baht was barely changed at one point. There was also news of explosions and clashes in Benghazi but as everyone knows, what difference does Libya make at this, or any other, point. Additionally overnight there were reports that the cities of Slavyansk and Kramatorsk in east Ukraine were being shelled by the Ukraine army but that too barely registered as bullish for the USDJPY (which in now traditional fashion ramped during the US day session then sold off during Asia hours).
We have previously profiled the "holy grail" gas deal between Russia and China on several occasions, and with its announcement scheduled for next week (barring some unmitigated disaster) during Putin's first visit to China since Xi's appointment as president last March, it is time to do a status update on where it stands even if according to SCMP, at this point finding the "holy grail" is merely a formality. "Russian Deputy Energy Minister Anatoly Yanovsky said on Monday that the deal was "98 per cent ready". Supply would begin no later than the end of 2018."
And just like that, the BLS is reacquainted with soaring food prices. Moments ago the US government reported that producer prices, as part of a newly reindexed PPI series, spiked by 2.1% from a year ago, or a whopping 0.6% surge in April, the biggest monthly jump since January 2010, and up from the 0.5% increase in March. So what caused this surge in producer prices? Why food costs of course, which in April soared by 2.7%.