Will $105+ Crude Send The S&P To New All Time Highs: Find Out Today

Tyler Durden's picture

If the worst Chinese trade data in years (and by that we mean unmanipulated, because what was released last night is merely China offsetting blatantly BS Q1 trade data), and yesterday's S&P downgrade of Italy (which has sent BTPs lower although the EURUSD drop was offset by buying pressure resulting from Stolper closing out his EURUSD long) doesn't send the Stalingrad & Poorski 451 to new all time highs, then all the Chairman's efforts to make a complete farce of the "market" will have been for naught. But while the Fed keeps pushing mom and pop into stocks, he may want to tell his friends at the CME to hike WTI margins, because this morning's latest surge in crude to over $105 will really start hurting refiner margins, and due to the overall energy complex roaring higher, gas prices too, which incidentally just crossed $3.50 in the wrong direction this morning.

And speaking of China, the reason why the Shanghai Composite did not bomb on horrible economic data, and instead jumped 2%, was due to yet another strategically released rumor that the PBOC may cut lender reserve-requirement ratios: "There’s some speculation about a cut in the reserve requirement ratio and that’s probably behind the rally in cyclical stocks such as commodity and coal shares" Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million. So basically the Chinese equivalent of Barry Ritholtz. So it wasn't all that surprising that no reserve cut happened, but at least the rumor prevented a complete market rout.

Going to Europe, where as RanSquawk explains, in spite of opening higher, stocks have gradually edged into negative territory as fundamentals caught up with those potentially positioned to benefit from the looming FOMC minutes, as well as subsequent speech by Bernanke, who may downplay the recent rise in rates. The sentiment was largely driven by yet another less than impressive macroeconomic data out of China, where exports posted the biggest miss in a year and the first negative print since January 2012. As a result, utilities and basic materials stocks under performed in Europe this morning, that's in spite of the fact that commodity prices generally traded higher.

Credit spreads widened sharply, with Italian banks enduring another rise in CDS rates after S&P downgraded Italy to BBB from BBB+, while the IT/GE 10y spread also widened, albeit marginally. Elsewhere, touted profit taking following dovish comments from ECB's Asmussen saw the Euribor curve steepen after the ECB sought to clarify comments by the Asmussen, saying they were aimed to confirm guidance for extended period.

Looking elsewhere, USD/JPY traded heavy, with the spot below the 100.00 level as market participants used the latest round of Chinese data to book profits ahead of the looming BOJ policy meeting. In spite of this, implied vols remained better bid, while the 1m R/R at 1.5 JPY calls traded at highest in 2-years, highlighting downside fears.

Going forward, market participants will get to digest the release of the weekly DoE report, await the release of the FOMC minutes and then a speech by Bernanke which is due shortly after the closing bell on Wall Street.

Key overnight news bulletin via Bloomberg:

  • Dollar index drops from near 3-year highs, while EUR rises from close to YTD lows before Fed minutes, Bernanke speech on policy history today; UST yields little changed; JPY gains vs G-10 currencies as economic recovery signs damp expectations for further BoJ easing.
  • Today: Fed releases minutes from June meeting; Bernanke speaks on economic policy

    China’s stocks rallied most in three months, led by financial and commodity companies, as govt may take measures to support economic growth after surprise drop in exports

  • Chinese exports for June unexpectedly dropped along with imports in drag on economy
  • UBS to Citigroup say yuan may weaken after export drop
  • Coeure says ECB stands ready to react flexibly within mandate
  • Bank of France governor Noyer said that leverage ratios are approximately same in Europe and the U.S. when adjusted for different accounting methods
  • France May Industrial Production -0.4% M/m; Est. -0.8% M/m
  • Signs of recovery in Japan’s economy reduced prospects that nation’s central bank will ease policy further this year * 13 of 20 economists in a Bloomberg News survey completed July 8 saw no extra loosening in next six months

Snapshot market summary

  • 5Y Spain/Italy Spread at 2-Month Wides, Breaks 100-DMA
  • Spanish 10Y yield up 10bps to 4.84%
  • Italian 10Y yield up 6bps to 4.47%
  • U.K. 10Y yield down 1bp to 2.43%
  • German 10Y yield down 2bps to 1.64%
  • Bund future up 0.11% to 142.71
  • BTP future down 0.52% to 110.28
  • EUR/USD up 0.25% to $1.2813
  • Dollar Index down 0.26% to 84.36
  • Sterling spot up 0.15% to 1.489
  • 1Y euro cross currency basis swap down 1bp to -17bps
  • Stoxx 600 down 0.25% to 293.84

SocGen brings the main macro highlights:

The IMF yesterday called on the Fed to extend its programme of asset purchases through at least the end of 2013 after downgrading the 2013 GDP forecast to 1.7% from 1.9%. The global growth projection was scaled back from 3.3% to 3.1% and the IMF cited that possibly tighter financial conditions because of the anticipated unwinding of US monetary stimulus could cause a longer growth slowdown in emerging markets. We are more upbeat than the IMF on US growth and when it comes to the Fed preparing the exit, we are on the other side of the fence (i.e. see a shorter instead of a longer transition before QE ends). Risk assets were not ruffled by the IMF growth update and took some solace from a slip in core bond yields, with Eurostoxx stretching gains to 7.1% since 24 June. The index is back at levels seen prior to the June 18/19 FOMC meeting (incidentally, the minutes will be released tonight). This is an important checkpoint for the market as investors look to hear in more detail how Fed officials are split on the timescales for tapering. In terms of news worthiness, this should trump Fed Chairman Bernanke's speech in Boston after the market close, though his speech is a first opportunity to comment on last Friday's payrolls and where this sits in relation to the Fed's unemployment forecast.

EU 10y swaps came close to testing 1.90% yesterday and EUR/USD traded below 1.28 for the first time since 17 May after ECB member Asmussen said that a new LTRO cannot be ruled out. The 1.2746 level stands in the way of a return to 1.2682, the line in the sand from where a 5% move to 1.20 beckons. The pair has not reacted to the Italian downgrade to BBB which only re-aligns S&P with Moody's. The price action and the comments from Asmussen show that since the ECB meeting a week ago, precious nuggets of information continue to emerge as council members speak their mind, or represent the view of a number of council members. Draghi has twice articulated the accommodative stance of the central bank since last Thursday but the words of a traditionally outspoken hawk like Asmussen do carry considerable weight considering his vocal opposition to more stimulus in the past.

French and Italian industrial output is on the data calendar this morning along with Norway CPI. EUR/NOK has been subject to heavy two-way volatility since late June with the direction of UST yields being a key driver. For EUR/NOK, if we do see a test of the range limits at the 7.85 and 8.08, it is more likely to be triggered by events in the US. The auction calendar today has Germany selling EUR5bn 2015 bonds and the US selling $21bn of 10y notes.

* * *

And concluding with DB's Jim Reid complete overnight recap of events:

Talking of ashes, the US market continues to rise from them and has now recouped the 4.1% drop it saw immediately after the last FOMC, and is only 1.0% below the peak seen on May 21st - the day before Bernanke's now infamous possible taper before Labor Day comment. This is impressive but other markets around the world from bonds to EM are still considerably weaker so it’s fair to say that the Fed's impact still reverberates around markets. It’s too early to suggest that potential tapering won't be a significant issue for global markets over the summer. It will be interesting to see the first round of data come through after the recent global rise in yields.

Fed tapering is set to dominate the discussion again today with the release of minutes from the FOMC’s June 19th meeting. Recall that this was the meeting which concluded with the statement that the FOMC “sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall”. DB’s US economists expect the latest minutes to build upon the hawkish tone of the previous meeting where “a number of participants expressed willingness to adjust the flow of (asset) purchases as early as the June meeting”. However, DB thinks a July tapering is premature as there is no  urgency in tapering so soon. It makes more sense to see what the upcoming GDP revisions show and how budget negotiations unfold. In addition to that, policymakers will not have the July employment report when they meet later this month. Bernanke will also be speaking today on the topic of “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future”. The expectation is that his  speech and Q&A will be focused primarily on history rather than on forward policy especially given he has a congressional testimony scheduled for the following week.

While the markets debate the impact of tapering, yesterday saw the IMF reduced its global economic forecasts for 2013 and 2014 in its latest World Outlook. Specifically, World GDP was cut by 0.2ppts in both 2013 and 2014 to 3.1% and 3.8%, respectively. This is largely driven by an appreciably weaker domestic demand and slower growth in several key EM economies, as well as by a more protracted recession in the euro area. US GDP was similarly reduced by -0.2ppt over this year and next to 1.7% and 2.7%. With expectations of the global recovery being pushed by many, it does highlight the risk that the Fed is taking if it indeed does pull back from stimulus soon.

On the theme of weaker growth, very disappointing Chinese trade data has been the major development overnight as exports unexpectedly declined by -
3.3% yoy in June. The market was expecting +3.7% rise. Today’s export print is the first negative yoy result since January 2012. Imports were also softer than expected (-0.7% v +6.0%). Despite all this Asian equities are mostly taking cues from the US session overnight with main bourses trading in the green as we type- around a quarter to a half a percent higher with the exception of the Nikkei which is hovering around -0.6% as we type. In Asian
credit markets, Indonesia has announced a Dollar deal in an attempt to re-open  a market that hasn’t seen any new issuance in over a month. The news is not being well received by markets though with Indon’s 5yr CDS 13bp wider since the new issue announcement.

Aside from China, the dataflow over the last twenty four hours have been on the thin side. The one headline of note was Italy’s downgrade to BBB by S&P (from BBB+). S&P said that the downgrade reflects their view of the effects of further weakening growth on Italy's economic structure and resilience, and its impaired monetary transmission mechanism. The agency went on to say that the forecast net general government debt at 129% of GDP as of end-2013 would be among the highest of all rated sovereigns. The rating outlook remains “negative”. The news came after European markets had shut so there will likely be some reaction this morning. However the downgrade only brings S&P’s rating to the same level as Moodys’ Baa2. Both agencies have Italy one notch higher than Spain. The downgrade comes ahead of a 3yr Italian note auction tomorrow.

Turning to the day ahead, we have industrial production numbers in France and Italy. Across the pond, mortgage applications and wholesale inventories are the main data releases in the US. But the main focus for markets today will be on FOMC minutes which will be followed shortly thereafter by Bernanke. Oh and an Ashes prediction? 4-0 England with one game being impacted by the weather.

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GetZeeGold's picture



That and ever expanding food stamps, coupled with the rise in the part time job market, is uber bullish!

DormRoom's picture

I met an older women the other day, who was an HR professional, and unemployed for almost a year.  I asked her how it was going.  She told me it has been awful.

She's now competiing against her daughter's friends for low paying service jobs.  In fact, she says its more common to hear about how parents are competing against their children for the few good jobs that remain.

Everyone is still in survival mode, she says. She worries that there won't be a middle class for her grandchildren.


j0nx's picture

Tell her to move to DC area. Plenty of jobs here.

GetZeeGold's picture



Move east pilgram.....there's gold in those bills no one has read.

BeerBrewer09's picture

Not so sure.

My friend is 30, just received his Master's Degree after leaving a good job down there. He's been back to DC and can't find anything. There just aren't enough jobs for people in his age group/experience level/education. He worked at a wine bar with 4 other people who were the same in age group/experience/education. They were all going after the same thing! So he just came back here to work at his dad's business. There might be plenty of jobs in DC, but most are probably for entry level positions.

Another example:

Just ran into a friend from highschool who is now 30. He spent 12 years in the marines (Eagle Scout, Sniper, etc.) and just got cut from his position as an instructor at the sniper school in Garden City, NY because of the sequester cuts. He needs another 8 years to qualify for a benefit package.

GetZeeGold's picture



He's been back to DC and can't find anything.


The sequester isn't much.....but it's a start. When we see the wagon trains leaving DC, we'll know we're on the right path.

HowardBeale's picture

When we see missiles entering D.C., we'll know we're on the right path.

stocktivity's picture

I doubt there are many job openings for snipers in the states anyway. He may need a new vocation. I could be wrong.

lakecity55's picture

Oh, don't be too sure about that.

sudzee's picture

Drones replacing snipers.

Debugas's picture

stike out "low paying"

stike out "survival mode"

you aint seen nothing yet of what's coming

Headbanger's picture

Again, it's all a scam to suppoort big oil and so Goldman & their ilk can keep suckering moar Muppets into stupid fracking oil field development.

The Master's picture

Bernanke will let some of the air out of the balloon today. Later this week, the other Fed grunts will jawbone the market back up. Fed is nothing but a daytrader intent on keeping indices in a very tight range.

max2205's picture

Bens new goal print until less than 25 million are on Fed assistance. ...ie. never


It shouldn't take too long till the number hits 150 million...maybe another year

lakecity55's picture

At 150 million, you will be under martial law.

new game's picture

shalom or the pope-which one is leading us to the promised land?

Hughing's picture

Sure, use it for margin collateral

firstdivision's picture

I'm praying for $150/bbl, I'd love to see them balance the spinning plates at that level.

caShOnlY's picture

I'm praying for $150/bbl


me too!! I love when all those chevy truck ads start popping up from the bottom of my web pages that show a nice camping scene.

yogibear's picture

I'm sure the oil producers andtraders would like to see the oil highs be broken or retested.

caShOnlY's picture

In the end we need to get this game going, a trigger if you please.  Oil and energy is the perfect trigger to start the end game and stop this non-sensical bullshit.  Time to pop the final bubble, the government bubble.

buzzsaw99's picture

"the market", lulz. they should change the name to "two HFTs trading the same lot of shares back and forth a thousand times a day".

HowardBeale's picture

"...trading the same lot."

They can call it the FUKDAQE (Fucking up capitalism Dood! All QE)

Dr. Engali's picture

The idiots on CNBS are just now figuring out that QE has affected the flows into the stock market. It amazes me people take them seriously.

j0nx's picture

Nobody watches them or takes them seriously. Their ratings are proof of that. They are but one large part of the federal propaganda wing at this point and the people have figured it out. They are broadcasting but nobody is watching.

HowardBeale's picture

My Youtube channel now has more daily viewers than CNBC. No shit! 

new game's picture

what amazes me is that anybody watches that or tb at all.

the mind is an empty toilet bowl awaiting the next dump...

buzzsaw99's picture

the only thing i can't believe is that they would put a group that fugly on television.

youngman's picture

The reason they are losing viewers is that there are fewer and fewer "investors" in the markets....HFT´s do not count....and do not watch tv...just analize the words spoken....many people are out of the markets just trying to save their house now...and unfortunatly trying to send their kids to college...to keep their preppy lifestyle going..doing lunch forever....but their kids never will be able to...they will have to get two part time jobs to survive...and that is all that will be available..

espirit's picture

...and world oil demand over 100 mln barrels of oil per day.

Tell me once again how this is sustainable?

HowardBeale's picture


Monopoly was meant to be an after dinner board game; someone needs to point that out...

Debugas's picture

Ben - last time i talked it was a joke...

disabledvet's picture

again...the USA is already the world's largest energy producer. throw in Tesla and there's a possibility we won't be the largest energy consumer in the world too. Wall Street runs on liquidity not what the economy is doing (not that growth doesn't hurt) and higher oil prices=billions if not trillions in liquidity. not saying the record gets broken today...just sayin'. "this is not a moral tale" folks. they called the bailouts "moral hazard" for a reason.

LawsofPhysics's picture

correct on the moral hazard.  regardless, oil remains the most fungible and dense source of energy and commodity chemicals, period.  you need both for a decent quality of life.

slaughterer's picture

Either SR release or CME margin increase to cut into this rally before EOW, guaranteed.

LawsofPhysics's picture

Go ahead, make margins 100%, I double dog dare you.

CrashisOptimistic's picture

Happened to notice a ransquawk blurb "Obama consulting with middle east leaders about Egypt".

I interpreted that to be:

"Obama consulting with Middle East leaders about $105"

BTW, oil was nearing 100 before Egypt blew up.  Frankly, since 2008's pre QE spike, the only thing keeping it down has been the collapse of US oil consumption via unemployment.

But probably what's now going on is the quiet discovery that you burn as much oil driving to a part time job as to a full time job.

thismarketisrigged's picture

i cant wait to here after the ponzi scheme closes today how we were down because of some profit taking and it has nothing to do with the fed,


its just a coincidence how whenever the fed mentions the word taper, the market sells off.  but dont worry, according to MSM, the market is up because we are growing, nothing to do with the fed. if the fed left, we would still be fine.


ok MSM, if u really believe that, you got something else coming.

HowardBeale's picture

Will $105+ Crude Send The S&P To New All Time Highs: Find Out Today


I wish I had been saving the titles over the last few years; this one is a classic. It's like a movie: some poor sap is about to be elected President (doesn't know squat about squat; think Obama), and he keeps waking up in the middle of the night, frightened and moaning in confusion at the odd nightmares he's having, everything that's up is down, and vice versa...


HowardBeale's picture

Jamie Dimon advising Obama on the economy:



yogibear's picture

Maybe this time we test the highs. Gasoline towards $6/gal wouldn't be unexpected.

Bernanke and the Fed can't print oil.

orangegeek's picture

Nothing more that a market "mini-blowoff" - resistance near 106.




Oil has no business being this high - but them's the markets.

CrashisOptimistic's picture

You've talked to refineries personally to determine this?  No, not Cushing inventories.  Refineries of Brent in Europe.  You've talked to them?

They buy oil.  Not NYMEX.

CrashisOptimistic's picture

You've talked to refineries personally to determine this?  No, not Cushing inventories.  Refineries of Brent in Europe.  You've talked to them?

They buy oil.  Not NYMEX.

Hohum's picture

Mr. Geek,

Why don't you tell us what the cost of the marginal barrel for the hardest to get oil is?  Source is preferable.

Flakmeister's picture

Do you really think he even understands the point you are trying to make...

Remember that once a well is drilled it will be produced to maintain cashflow...

Trampy's picture

what resistance at $106?

breaking 104.22 was very significant, with next (s)top being 110.40

i was gonna sell the 110 front-month calls but it's too risky