Natural Gas

First it was gas prices, then it was food prices, and now it is the turn of basic utilities to see costs surge by double digits. Dow Jones reports that "Japanese utilities, forced to idle their nuclear power plants over the past two years and facing higher fuel costs due to a weak yen, are now looking to push through double-digit rate hikes for their commercial customers." This means less disposable income, less corporate profits, less monetary velocity, less growth and ultimately less "inflation" in other things such as the much desired stock market, which was supposed to be the wealth effect offset to all staples price increases. At least on paper. Of course we explained on various occasions, most recently here, why in Japan a US-style of wealth effect price substitution would never work. Surely nobody could possibly see this coming - "The action comes at a bad time for some Japanese companies that were hoping the fall in the yen and much-trumpeted efforts by the government to turn round the economy would help improve their prospects." Ah hope - the only strategy left.

Just like yesterday, it will be up to the US session to provide the perfectly expected, VIXterminating, volumeless ramp as the rest of the world just did not have it in i to take the S&P to all time highs in overnight trading. To summarize: currency talkfare out of Asia, hope springs eternal out of Europe despite the usual spate of ugly numbers, PIIGS bond auctions backstopped by the ECB and always "that much better" than the expected, a UK economy that is just imploding to provide an alibi for more open-ended QE and a crushed pound, and with the US due to make everything better by sending the SP to its all time high (just 9 points away) on the one week anniversary of the record high DJIA, as the NY Fed clobbers the VIX to a 10 handle or lower on even more ugly, unadjusted economic data.

Liquefied natural gas (LNG) technology - from LNG seaborne tankers and LNG trains to floating LNG facilities have quickly gone from concept to commercialization, opening up new possibilities in new frontiers and rendering the remote - well, much less remote. Analysts say FLNG terminals will become a major growth market within the next couple of years, as they offer more flexibility than stationary terminals. Liquefaction of natural gas is the process of super-cooling natural gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius) at which point it becomes much safer and easier to transport. After its been shipped to its destination, regasification plants at importing or receiving terminals return the fuel to a gaseous state. A lot of money is being dumped into LNG technology right now. It’s a major bet on the LNG market, but here’s why it’s solid...

• Firms Send Record Cash Back to Investors (WSJ)
• And in totally opposite news, from the same source: Firms Race to Raise Cash (WSJ)
• China warns over fresh currency tensions (FT)
• Hollande faces pressure over jobs pledge (FT)
• Obama efforts renew ‘grand bargain’ hopes (FT)
• Shirakawa BOJ Expansion Gets No Respect as Stocks Cheer Exit (BBG)
• Japan’s Nakao Defends Easing as China’s Chen Expresses Concern (BBG)
• Boeing Had Considered Battery Fire Nearly Impossible, Report Says (WSJ)
• ECB Chief Plays Down Italy Fears (WSJ)
• China moves to make its markets credible (FT)
• Euro Group head says UK at risk of 'sterling crisis' (Telegraph)

• French unemployment rises again to highest since 1999 (Reuters)
• BoJ rejects call for monetary easing (FT)
• North Korea threatens pre-emptive nuclear strike against US (Guardian)
• Firms Race to Raise Cash (WSJ)
• Time Warner Will Split From Magazine Unit in Third Spinoff (BBG) - slideshows, kittens, "all you need to knows" coming to Time
• U.S. economy, world's engine, remains in "neutral": Fed's Fisher (Reuters)
• BOE Keeps QE on Hold as Officials Weigh More Radical Measures (BBG)
• Jobs start to go as US sequestration cuts in (FT)
• BofA Times an Options Trade Well  (WSJ)
• Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook (BBG)
• Dell’s Crafted LBO Pitch Gets Messy as Investors Circle (BBG)
• Dell says Icahn opposes go-private deal (Reuters)
• Portugal Rating Outlook Raised to Stable by S&P on Budget Plan (BBG)
• China’s Richer-Than-Romney Lawmakers Reveal Reform Challenge (BBG)

• Kuroda to Hit ‘Wall of Reality’ at BOJ, Ex-Board Member Says (BBG)
• Venezuelans mourn Chavez as focus turns to election (Reuters)
• South Korea says to strike back at North if attacked (Reuters)
• Milk Powder Surges Most in 2 1/2 Years on New Zealand Drought (BBG)
• As Confetti Settles, Strategists Wonder: Will Dow's Rally Last?  (WSJ)
• Pollution, Risk Are Downside of China's 'Blind Expansion' (BBG)
• Obama Calls Republicans in Latest Round of Spending Talks (BBG)
• Ryan Budget Plan Draws GOP Flak (WSJ)
• Samsung buys stake in Apple-supplier Sharp (FT)
• China Joining U.S. Shale Renaissance With $40 Billion (BBG)
• Say Goodbye to the 4% Rule  (WSJ)
• Traders Flee Asia Hedge Funds as Job Haven Turns Dead End (BBG)
• Power rustlers turn the screw in Bulgaria, EU's poorest country (Reuters)

• As ZH has been saying for months... Draghi Will Need to Push the Euro Down Some More (WSJ) ... but careful with "redenomination risk"
• Senate Report Said to Fault JPMorgan (NYT)
• EU Opens Way for Easier Budgets After Backlash (BBG)
• China Moves to Temper Growth - Property Bubble Is a Key Concern (WSJ)
• China bets on consumer-led growth to cure social ills (Reuters)
• Italian president mulls new technocrat government (Reuters)
• Grillo says MPS won't back technocrats (ANSA)
• The Russians will be angry: Euro Chiefs Won’t Rule Out Cyprus Depositor Losses (BBG)
• China Bankers Earn Less Than New York Peers as Pay Dives (BBG)
• Investors click out of Apple into Google (FT)
• Community colleges' cash crunch threatens Obama's retraining plan (Reuters)
• Alwaleed challenges Forbes over his billions - Calculation of $20bn net worth is flawed, says Saudi prince (FT)
• Guy Hands Dips Into Own Pockets to Fund Bonuses at Terra Firma (BBG)
• North Korea to scrap armistice if South and U.S. continue drills (Reuters)

Royal Dutch Shell has just released new forecasts for its ‘New Lens Scenarios’ program, which aims to predict how current business decision and policies may unfold over time and affect the markets in the future. The scenarios take two different approaches: one considers the world with a high level of government involvement, and the other looks at the markets when they are given more freedom to develop naturally. The results are intriguing...

It wasn’t exactly a propitious start for new US Secretary of State John Kerry on his first foreign trip when he referred to “Kyrzakhstan”, where US diplomats are ostensibly working to secure “democratic institutions”. Getting all those Central Asian “stans” right can be confusing - even more so when things get muddled in the “Great Game”. And it’s no easy thing following in the footsteps of Hillary Clinton. Later - after the State Department took the liberty of omitting the mention of “Kyrzakhstan” from the official transcript - it became clear that Kerry was actually referring to Kyrgyzstan (not Kazakhstan and indeed not Kyrzakhstan). So let’s look at these two countries that Kerry has inadvertently combined.

Russia is back. President Vladimir Putin wants the world to acknowledge that Russia remains a global power.  He is making his stand in Syria. The Russians are troubled by what they see as a growing trend among the Western Powers to remove disapproved administrations in other sovereign countries and a program to isolate Russia. Again, Russia is seeing Washington’s hand in Syria in the conflict with Iran. The Russians are backing their determination to block another regime change by positioning and manning an advanced air defense system in what is becoming the Middle East casino.  Putin is betting that NATO will not risk in Syria the cost that an air operation similar to what was employed over Libya will impose.  Just in case Russia’s determination is disregarded and Putin’s bluff is called, Surface to surface Iskander missiles have been positioned along the Jordanian and Turkish frontiers. Putin is certain that he is holding the winning hand in this very high stakes poker game. When the Turks and U.S see that there is little chance of removing Al-Assad, they will have no option other than to negotiate a settlement with him; and that would involve Russia as the protector and the mediator.

Equities suffer their biggest single day loss on the year with financials performing the worst. Treasuries rallied sharply on the day in line with the broader risk off move. 10s rallied nearly 10bp on the day though flows were skewed towards better selling – hedge funds selling in the belly in both cash and swaps as accounts looked to fade the rally. Later in the day flows shifted as tactical shorts looked to cover. Gold finished up $11.60 to 1593.50 on a day characterized by broad based liquidation in the macro markets.

Depending upon the time frame natural gas is either in a distinct downtrend channel or a parallel trading range. 

Regardless of whether a market is moving up or down, there is always someone making money somewhere. There are various examples every day – be it a billionaire selling a stock short (i.e., Herbalife) or a company selling a meal short on ingredients (i.e., horsemeat economics). Some methods are legitimate, and some are not. But one thing is for sure... energy markets are by no means immune to such collusion. The natural gas market is coming under increased scrutiny, as price movement ahead of the main event of the week – the weekly storage report – appears to be being manipulated by high-frequency trading (HFT). High-frequency trading is nothing new to financial markets, but it is new to the natural gas market. It has also spawned some wonderfully inventive names to describe the pre-storage report shenanigans. The best term by far has to be ‘banging the beehive’, which is where a flood of orders is sent to trigger a huge price swing immediately before the data is released. Regardless of how comical these names are, however, this creation of ‘synthetic momentum’ is market manipulation and is being investigated accordingly.

• Office Depot Agrees to Buy Officemax for $13.50/Shr in Stock
• Bulgarian Government Resigns Amid Protests (WSJ)
• Rome will burn, regardless of Italian election result (Reuters)
• Abe Says No Need for Foreign Bond Buys Under New BOJ Chief (BBG)
• Rhetoric Turns Harsh as Budget Cuts Loom (WSJ)
• Muddy Waters Secret China Weapon Is on SEC Website (BBG)
• Business Loans Flood the Market (WSJ)
• Staples May Be Winner in Office Depot-OfficeMax Merger (BBG)
• Fortescue Won't Pay Dividend, Profit Falls (WSJ)
• Key Euribor rate on hold after rate cut talk tempered (Reuters)
• FBI Probes Trading in Heinz Options  (WSJ)
• Spain Said to Impose Yield Ceiling on Bond Sales by Regions (BBG)
• BOK’s Kim Signals No Rate Cut Needed Now as Outlook Improves (BBG)

Chevron and Royal Dutch Shell are getting an early start on shale exploration campaigns in eastern European countries. With the United States fast emerging as a shale natural gas leader, European economies eager to bolster their own energy independence are working to follow suit. Shell plans to spend more than $400 million to tap into Ukrainian shale, while Chevron has similar ambitions in eastern Romania. While regional shale gas production isn't going to match that seen in the United States, it's expected to eventually weaken the Russian grip on the region's energy sector. The U.S. Energy Department's Energy Information Administration estimates that, together, Bulgaria, Hungary and Romania may hold many trillion cubic feet of shale natural gas. That was enough to give U.S. supermajor Chevron the confidence to move ahead with an exploration campaign there. The company began taking on shale concessions in 2010 and has since announced plans to start exploration. If EIA estimates are close to accurate, there may be enough shale gas in Romania to cover its energy needs for the next 40 years.