No one disputes that the amount of Russian gas being piped through Ukraine has been cut by at least 20 percent. But who’s responsible?
We recently explained how ISIS remains so well funded but what was unclear was who exactly what purchasing their 'recently-provisioned' oil reserves? The assumption being some desperate third-world nation or some scheming offshore hedge-fund arbitrageur; however, as Sott.net reports, a senior European Union official has revealed that some EU member states have purchased oil from ISIL Takfiri militants despite their rhetoric against the group. The official declined to disclose any names but Turkey remains a front-runner (having already shunned President Obama) and potentially France (after their recent anti-Petrodollar comments).
In the New Normal, yellow may or may not be the new black, but stock buybacks are certainly the new CapEx. And yet, companies are still forced to continue their sad existence in which the bulk of their cash is handed over to a few loud activist investors, and thus have no choice but to spend the bare minimum on capital investments. The following table shows where it all goes.
Yuanification continues around the world. As The USA attempts to corral its allies in a 'broad coalition', an increasing number of people - including domestic economic policy advisors - are shifting away from the USD as primary reserve currency. However, the move by British Chancellor of the Exchequer George Osborne, announced Friday, is likely the most notable yet in the world's de-dollarization. As Xinhua reports, the British government intend to be the first nation (ex-China) to issue Renminbi denominated bond and to use the proceeds to finance the government's reserves of foreign currency. Osborne described this dialogue outcome as "a historic moment" and a statement of British confidence in the potential of the RMB to become "the main global reserves currency".
As always, the bottom line is about leverage and bargaining power. It is here that, miraculously, things once again devolve back to, drumroll, oil, and the fact that an independent Scotland would keep 90% of the oil revenues! As we showed several days ago, Scotland's oil may be the single biggest wildcard in the entire Independence movement. It is this oil that as SocGen's Albert Edwards shows earlier this morning, is what gives Scotland all the leverage.
Glance in the rear-view mirror and say goodbye to the Era of Wishful Thinking. In this weird liminal time since the so-called Crash of 2008 leadership has depended on lies and subterfuges to prop up the illusion of resilience. The lies, frauds, and cons run between the axis of Wall Street and Washington had two fatal consequences with still-lagging effects: 1) They destroyed the capacity for markets to establish the real price of anything - rendering markets useless; 2) They disabled capital formation to the degree that we might not have the money to rebuild an economy to replace the “financialized” matrix of rackets that currently pretends to function. A lot of observers have been waiting for the moment when the fog of pretense lifts and exposes all the broken machinery within. We may be so close now that you can smell it.
Two weeks ago, as we noted here, the CME unveiled Rule 575 - designed to put an end to 'disrputive trading practices' or "rigging." Today is the first day Rule 575 is unleashed to stop "spoofing," "quote stuffing practices," and the "disorderly execution of transactions." So, as Nanex notes, why is the CME still allowing major quote-stuffing? However, it appears Rule 5757 is having a notable effect on the high-beta momo stocks where the algos play...
Ukrainian President Petro Poroshenko faces rising criticism for his decision to delay implementation of part of a European Union deal to avoid threatened Russian retaliation. And this is why neither side can afford to blink, because the moment one side folds, its domestic support collapses. And blinking is precisely what Ukraine just did and with that it set in motion the events that will likely terminate prematurely the brief, irrelevant presidency of Ukraine's "Chocolate Baron" Poroshenko. It got so bad over the weekend, that former Prime Minister Yulia Tymoshenko, who was the person least actively supported by the CIA and US state department in Ukraine's less than peaceful transition in February, and thus lost a May presidential election to Mr. Poroshenko, said the delay in implementing the EU free-trade part of the pact until 2016 was "a betrayal of national interests."
It appears Rule 575 is having an impact today. Quietly this morning, CBOE traders were told at 1027ET that the S&P 500 index was "currently unavailable for trading." As the following chart shows, this halted a drop in the market and instantly enabled a levitation to near the day's highs. Unrigged?
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
One can kiss the US subprime-driven "manufacturing renaissance" goodbye. The reason, as we reported moments ago, Industrial Production dropped 0.1%, driven by a -0.4% contraction in manufacturing, the worst print since the "harsh winter collapse" of January 2014. The answer to the key question, what drove the tumble, is simple: what goes up has come down, in this case production of Motor Vehciles and Part, after posting its best number in 5 years, just posted... it worst monthly drop in five years, or since May 2009 to be precise. As the chart below shows, following July's month's 9.3% surge in production of motor vehicles and parts, August has come and wiped out all the gains, with a 7.6% plunge, the bigest collapse since May 2009.
But but but... the survey all said record highs... Yet another piece of hard data hits the tape and disappoints. While Fed surveys point to an exuberant economy, Industrial Production fell 0.1% in August (missing +0.28% expectations) for its worst print since January's "weather"-related plunge. This comes on the heels of Chinese Industrial Production at its worst in 6 years... perhaps explaining why global GDP expectations continue to test cycle lows. US Capacity Utilization also dropped to 78.8% (lowest since Feb) and the weakness was all Manufacturing driven as production slumped 0.4% MoM - its worst since Jan. So who you gonna believe? Soft surveys? or Hard data?
With the S&P 500 hitting fresh record highs day after day (apart from last week), everything must be great, right? Wrong! As we have noted previously, the leadership in this market is becoming more and more narrowly focused as stunningly 47% of Nasdaq Composite stocks are down at least 20% from their highs with the average stock in the index in a bear market (down 24%). The same is true for the Russell 2000, with over 40% of stocks in bear market and an average drop from recent highs of 22%. By contrast only 31 names in the S&P 500 have seen drops of 20% or more this year. It appears, just as there has been an up-in-quality rotation in credit markets, so stock investors appear to have rotated into momentum winners, chasing returns in an ever-more narrow group of extreme beta stocks.
US Industrial Production and the NY Fed Empire State Manufacturing survey are the two main releases for the US. In Europe, the euro area trade balance will be the notable print. Beyond today, US PPI, German ZEW and UK CPI are the main economic reports tomorrow. Wednesday will see the release of BOE’s meeting minutes, the US CPI, and the Euro area inflation report. On Thursday, President Obama will host Poroshenko and on the data front we have Philly Fed, initial claims, and building permits to watch out for, but the biggest market moving event will surely be the Scottish independence referendum. German PPI will be the key release on what will otherwise be a relatively quiet Friday.
Following last month's biggest plunge in 2 years to 4-month lows, it is likely no surprise that the soft-survey-based Empire Fed index exploded to 27.5 (smashing 15.71 expectations) to its highest since October 2009. Of course - away from the headline exuberance, employment plunged to its lowest since 2013, the average workweek slipped, and new orders barely rose (while Prices Received soared). Seems like seasonal adjustments played a strong hand in this exuberance... given hardly any sub indices jumped.