With OPEX out of the way, the indices are free to trade on anxiety and reality... and have now given up all the post-"Greek Talks Fail" gains... WTI Crude and Treasury yields are plunging.
While markets remain in "well it is Europe and it's OPEX so BTFD" mode, entirely ignorant of what Goldman describes as the risk of a systemic shock, the EU-Greece negotiations continue... to go badly. As Bloomberg reports:
*EU OFFICIAL SAYS GREECE DEAL FRIDAY NIGHT LOOKING UNLIKELY
In fact, the official dropped his expectations so low as to say "it is possible that they could agree on progress." Which at least is one better than the no-progress meeting last week.
Today's Russian downgrade pulled yet another raft of "smartest people in the room" to tell investors how screwed Russia is by low oil prices (and yet the US Shale industry is fine and will manage through this). However, Goldman Sachs prefers facts in its analysis of the Russian oil sector and concludes, investor concerns about the health of Russia's oil industry should remain more myth than reality.
Well that escalated quickly. It appears those hoping for 'stability' are once again seeing any strength immediately sold into... Having smashed higher yesterday into the OPEX/close and then again this morning (breaking above $51 post-SNB), WTI Crude has collapsed back to $46.50... the scene of the crime for yesterday's "spoof"-ramp manipulation.
WTI Crude futures are up almost 6%, spiking above $48.50 into the close and options expiration... no fundamental catalyst for now... Once again, crude futures have been 'spoofed' all day so this is hardly a surprise.
For years, we've been warning that the economics of the US 'shale revolution' were suspect. Namely, that they've only been made possible by the new era of 'expensive' oil (an average oil price of between $80-$100 per barrel). We've argued that many players in the shale industry simply wouldn't be able to operate profitably at lower prices. Well, with oil prices now suddenly sub-$60 per barrel, we're about to find out. Using the traditional corporate income statement, it is difficult to determine if shale drilling companies make money. There are a lot of moving parts, some deliberate obfuscation at some companies, and the massive decline rates make analysis difficult – since so much of reported profitability depends on assumptions made regarding depreciation and depletion. So, can shale oil be profitable? If so, at what price? And under what conditions?
People are bombarded with sensation and that substitutes for thinking
Despite the knee-trembling awesomeness of a double-whammy promise of liquidity, US equity markets ended the week on a decidedly down note. The realization that Draghi's all talk (no impact on US stocks) and PBOC's move is not a liquidity surge and has limited impact on the economy left stocks tumbling once the opening OPEX levels had printed. The USD rose notably on the day after EUR plunged under 1.24 on Draghi (USD +0.9% on the week). Despite USD strength, gold rose 1% (as did Silver) on the week, rising for the 3rd week in a row for the first time in 4 months (and the 3rd Friday surge in a row). Oil rose 1% on the week, breaking an 8-week losing streak but Copper prices fell around 0.3% on the week, having given back the kneejerk gains post-PBOC today. Treasury yields dropped after kneejerking higher on PBOC. 30Y at 3.01% had its 2nd lowest weekly close since May 2013. VIX melted down into the close to 13.01. Late-day buying panic lifts stocks off their lows leaving Dow & S&P at all-time recordest highs of all-time ever in history (as small caps closed red).
As we already noted, Draghi's comments had no impact whatsoever on US equities overnight but when the PBOC rate-cut news hit, AUD surged and so did US equity futures... all the way into the US Open (and OPEX pins). From that moment, the selling began and as Goldman noted, the rate cut was only "slightly useful," which was later confirmed by the PBOC mouthpiece Xinhua saying "this is not a signal of a big liquidity ease." Stocks have retraced all their gains...
Ugly data in Asia, Europe, and US PMI meant US equities opened gap-down... that was unacceptable to 'someone' and so the "most shorted" names were squeezed. However, after 10 minutes the ramp started to fade... and so the big boys 'fat-fingered' VIX and that rescued the dip. That would be fine... but it happened again at 958ET when stocks started to fade again and suddenly VIX was lit up and zoom... stock momentum was ignited and all was well in the world... Broken record? Yes! But clearly someone has to take note of this rigging...
For the 25th day in a row (one short of an all-time record), the S&P closed above its 5-day moving-average. Despite dismal Asian, European, and US PMIs, US equity markets sreaked higher at the US Open, tagging yesterday's highs, then stalling when Europe closed. Small Caps led the day as shorts were squeezed once again but Trannies and Russell 2000 remain negative on the week. US Treasury yields dropped notably after European and ended the day 2-3bps lower (with 30Y unch on the week). The USD rose very modestly close-to-cvlose but traded lower thru the EU and US sessions (AUDJPY was in charge of stocks today). Copper dropped on China growth fears but oil, silver, and gold rose on the day (leaving gold +0.5% on the week). HY credit slammed tighter with stocks early then decoupled after EU closed. Dow & S&P close at record highs.