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Oil Surges To Highest Since September As Algos Finally Find Iraq On The Map

Tyler Durden's picture




 

With another day of little otherwise completely irrelevant macro news (because following last night's abysmal Australian jobs data one would think the AUD would be weaker; one would be wrong), market participants - all 3 of them - and algos (which have finally uncovered where Iraq is on google maps) are finally turning their attention to the latest conflict in Iraq (because they obviously no longer care about the martial law in Thailand or the civil war in Ukraine), where the Al Qaeda spin off ISIS overnight seized at least 310K B/D in refinery capacity in northern Iraq according to the Police, and what is more concerning, is now less than a 100 kilometers away from Baghdad. Will ISIS dare to venture further south? Keep an eye on crude for the answer.

More importantly the world cup begins today which means another day of near record low volumes, and thus constant "market" levitation, especially now that the US-hours USDJPY rigging team (must.keep.above.102) is around, is assured.

In Asia, a number of bourses have retreated from their recent highs overnight with the Nikkei (-0.8%) and HSCEI (-0.7%) being the main laggards. Volumes are again fairly low ahead of China’s latest industrial production and retail sales data which will be released tomorrow. There are more reports from domestic Chinese media that the PBoC could expand its use of targeted RRR cuts to support the economy (Securities Journal) amid chatter that   tomorrow’s Chinese data could disappoint. In Japan, the BoJ begins its two-day policy meeting today and the discussion around potential BoJ exit strategy has again popped up. Bloomberg is reporting today that BoJ officials could adopt a strategy of maintaining the size of its balance sheet after it reaches the  2% inflation target, using cash flow from maturing assets to buy longer term JGBs. The article says that the BoJ wants to avoid a spike in yields if asset purchases were to abruptly cease given that the BoJ’s assets are now equivalent to half the size of GDP.

European stocks trade little changed as U.S. index futures rise with oil. Asian stocks fall from 6-yr highs. U.S. to report initial jobless claims, retail sales later today.

  • S&P 500 futures up 0.1% to 1945.2
  • Stoxx 600 little changed at 347.9
  • US 10Yr yield up 1bps to 2.65%
  • German 10Yr yield unchanged at 1.4%
  • MSCI Asia Pacific down 0.3% to 144.1
  • Gold spot up 0.1% to $1261.8/oz

EUROPE

  • 13 out of 19 Stoxx 600 sectors rise; media, tech outperform, basic resources, autos & parts underperform
  • 45.7% of Stoxx 600 members gain, 51.5% decline

ASIA

  • Asian stocks fall with the Sensex outperforming, Nikkei underperforming.
  • MSCI Asia Pacific down 0.3% to 144.1
  • Nikkei 225 down 0.6%, Hang Seng down 0.4%, Kospi down 0.1%, Shanghai Composite down 0.2%, ASX down 0.5%, Sensex up 0.2%
  • 2 out of 10 sectors rise with telecom, utilities outperforming and information tech, finance underperforming

Bulletin headline summary from RanSquawk and Bloomberg

  • Treasuries extend losses seen since the start of June, 10Y yield just below 2.665% 100-DMA before week’s auctions conclude with $13b 30Y.
  • Bonds to be sold today yield 3.473% in WI trading vs. 3.440% in May; 10Y were awarded at 2.648% at yday’s auction, 0.8bp above WI yield at 1pm according to Stone & McCarthy
  • Islamic militants’ sweep through northern Iraq and the collapse of the Iraqi army threaten to disrupt global oil markets and raise questions about Obama’s 2011 decision to withdraw all U.S. troops from Iraq and his reluctance to help arm moderate Syrian rebels
  • 53% of Americans oppose the Affordable Care Act, Obama’s signature legislation, even as those saying it should be repealed fell to 32%; only 26% of Americans say that the country is headed in the right direction, a Bloomberg National Poll shows 
  • Iran’s oil exports have increased so far this year, according to Bloomberg calculations, a trend that threatens to violate U.S. sanctions on the Islamic  Republic’s main source of revenue
  • U.S. House Republican leaders, seeking a swift pivot from the surprising election defeat of Majority Leader Eric Cantor, are pressing for a quick vote of party unity in the anointment of his successor
  • The Chinese agency that stockpiles strategic commodities is checking to ensure its copper purchases are free of     collateral risks amid an investigation of metals at Qingdao Port, said people with knowledge of the matter
  • China’s new yuan loans and money supply topped estimates in May as the government supports economic growth while reining in shadow banking
  • New Zealand’s central bank raised interest rates for the third time this year and signaled more tightening to come as the Christchurch rebuild and surging immigration fuel growth, sending the kiwi higher
  • Sovereign yields mixed. EU peripheral spreads tighten. Asian equities fall; European equity markets, U.S. stock futures gain. WTI crude and gold higher, copper lower

US Event Calendar

  • 8:30am: Retail Sales, May, est. 0.6% (prior 0.1%)
    • Retail Sales Ex Autos, May, est. 0.4% (prior 0.0%)
    • Retail Sales Ex Autos and Gas, May, est. 0.4% (prior -0.1%)
    • Retail Sales Control Group, May, est. 0.4% (prior -0.1%)
  • 8:30am: Import Price Index, May, est. 0.2% (prior -0.4%)
    • 8:30am: Initial Jobless Claims, June 7, est. 310k (prior 312k)
  • Continuing Claims, May 31, est. 2.605m (prior 2.603m)
  • 8:45am: Bloomberg June U.S. Economic Survey
  • 9:45am: Bloomberg Consumer Comfort, June 8 (prior 35.1)
  • 10:00am: Business Inventories, April, est. 0.4% (prior 0.4%) Central Banks
  • 2:00pm: BoE’s Carney and Chancellor of the Exchequer Osborne to address annual Bankers and Merchants Dinner in London
  • TBA: Bank of Japan sets monetary base target, issues monetary policy statement
  • 1:00pm: U.S. to sell $13b 30Y bonds in reopening
  • 11:00am POMO: Fed to purchase $550m-$800m TIPS in 2018-2044 sector

FIXED INCOME

Given the absence of tier 1 economic releases this morning, price action was driven by the prospective outlook for monetary policies of the ECB and the BoE, which in turn resulted in further Euribor curve flattening as EONIA fwd rates continued to edged towards zero. At the same time, Gilts underperformed Bunds, while absorption of supply, with Italy selling max targeted amount of EUR 8.5bln (3y BTP sold at record low yield) failed to provide Bunds with any direction for prices.

US HEADLINES

Newsflow out of the US remains light with attention now turning to the weekly US jobs report, retail sales, import price index and EIA natural gas storage change.

EQUITIES

Lack of positive catalysts resulted in a somewhat cautious price action, with the more defensive sectors outperforming. Basic materials sector underperformed, dragging the FTSE-100 lower, after MS cut Anglo American to underweight from equal weight. Elsewhere, Unilever +1.0%, after reports a PE consortium may launch a GBP 40/shr in a bid to break up Co.

FX

EUR remained under pressure this morning, with EUR/GBP trading at its lowest level since early December 2012, amid policy divergence between the ECB and the BoE. This has seen GBP/USD trade higher after taking out stops through its o/n tight Asian range and 50DMA at 1.6802.

Elsewhere, NZD/USD reached a 3-week high after the RBNZ hiked its key benchmark rate by 25bps to 3.25% (as expected) and struck a less dovish than expected tone in its statement, signalling further hikes this year, which was outside of market expectations. This morning, RBNZ's deputy governor said might have to raise rates higher than expected if NZD were to depreciate, adding that a neutral level for rates is 4.5%-5%.

COMMODITIES

Uncertainty surrounding potential supply disruptions from Ceyhan-Kirkuk pipeline which carries 1.6mln bbls per day amid fears that the Islamic State of Iraq and Syria (ISIS) will continue to seize cities in Iraq pushed up WTI prices to its highest level since September 2013.

Rise in risk-premium supported gold and silver prices, while platinum and palladium prices reversed overnight gains after yet another rise in palladium-backed ETFs, following reports that the AMCU Treasurer is to present wage offer to members in Rustenburg today.

* * *

DB's Jim Reid concludes the overnight recap

Global stocks took a breather yesterday markets as profit taking took hold across asset classes and investors became more selective following a strong run up in the past few days. Yesterday was the first real pull back in risk since the ECB last week but the conviction seemed low with small volumes in many markets. The low volumes can also be blamed on the light global data docket. Indeed, S&P500 volumes were the lowest for a Wednesday since the day before Thanksgiving last year. The S&P500 and Dow had their worst day in three weeks while the Stoxx600 fell by the most in a month, but the absolute quantum of the moves were not large at -0.65%, -0.60% and -0.56% respectively. The weakness started during the European session with a few negative corporate announcements and profit warnings largely to blame - not to mention a return of Middle Eastern geopolitical risks (more on that below).

In Asia, a number of bourses have retreated from their recent highs overnight with the Nikkei (-0.8%) and HSCEI (-0.7%) being the main laggards. Volumes are again fairly low ahead of China’s latest industrial production and retail sales data which will be released tomorrow. There are more reports from domestic Chinese media that the PBoC could expand its use of targeted RRR cuts to support the economy (Securities Journal) amid chatter that  tomorrow’s Chinese data could disappoint. In Japan, the BoJ begins its two-day policy meeting today and the discussion around potential BoJ exit strategy has again popped up. Bloomberg is reporting today that BoJ officials could adopt a strategy of maintaining the size of its balance sheet after it reaches the 2% inflation target, using cash flow from maturing assets to buy longer term JGBs. The article says that the BoJ wants to avoid a spike in yields if asset purchases were to abruptly cease given that the BoJ’s assets are now equivalent to half the size of GDP.

Returning to yesterday, US treasury yields spent much of the day within a 2bp trading range and closed basically unchanged at the end of the day. 10 UST yields popped a couple of basis points following yesterday’s lacklustre 10yr auction which left dealers with the largest share in almost a year. There was better demand for USTs coming after headlines that militants from al-Qaeda offshoot ISIS had captured the country’s largest oil facility in the town of Baiji. This was disputed by government officials however. Reports suggest that ISIS and other militant groups have now taken Tikrit, Mosul and Fallujah – the latter being fairly close in proximity to Baghdad. The wider implications of these events are unclear. Foreign Policy magazine said that ISIS is getting closer “to achieving its dream of a caliphate that reaches from the Mediterranean coast….to Iran’s Zagros Mountains”. Others were more sanguine saying that there is a risk that northwestern Iraq could become another principal destabiliser in the region (CNN). The Iraqi government has asked the US to assist with air strikes targeting militant staging camps in the country’s west but there hasn’t been a formal response from the White House. So far there has been no reported disruptions to oil supplies though there is some concern that crude prices could head upwards ahead of the northern hemisphere driving season. Brent closed 0.39% higher yesterday, and that performance is being matched in trading this morning.

After a quiet couple of days for data, today’s focus will be on US retail sales where consensus is expecting a rebound to +0.6% m/m from April’s +0.1%. DB is calling for +0.7%. Other highlights on the radar include US initial jobless claims, business inventories and the ECB’s monthly report. The Bank of Canada will publish its Financial System Review today.

 

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Thu, 06/12/2014 - 07:12 | 4847782 firstdivision
firstdivision's picture

Have no fear, Sterling will fuck up the mission and the oil fields will end up safe.

Thu, 06/12/2014 - 07:18 | 4847784 GetZeeGold
GetZeeGold's picture

 

 

I'm just glad we have the oil train death bombs and not a pipeline sending us cheap oil.....thanks Uncle Warren!

http://www.youtube.com/watch?v=Z0Yu920gQEQ

Thu, 06/12/2014 - 07:34 | 4847797 Headbanger
Headbanger's picture

I'm just glad we have the best leadership and central bank planning to get us through any such crisis without a care!

 

 

 

/sarc

(And I'm about to puke after saying that)

Thu, 06/12/2014 - 07:49 | 4847823 Oldwood
Oldwood's picture

Its a bit early to be starting off with a sour stomach. The way this looks there are going to be a lot of sour stomachs pretty soon.

Thu, 06/12/2014 - 07:36 | 4847800 Squid-puppets a...
Squid-puppets a-go-go's picture

tell me there's no FX manipulation keeping the $Aus 20-30c higher than it should be.

They're propping it up so that the aussies can keep japans exports ticking over and mitigate japans inflation

Thu, 06/12/2014 - 07:20 | 4847786 Squid Viscous
Squid Viscous's picture

Time for some boots on the ground!! What? We already tried that?

Thu, 06/12/2014 - 07:41 | 4847809 CrashisOptimistic
CrashisOptimistic's picture

Iraq pumps about 3.2 million bpd.  A good chunk of that flows north to Turkey.  The rest out of Basra for export, but a subtle item usually forgotten is the Iraqis have the audacity to burn some of their own oil.  Summer is coming and that means Honda generators on street corners powering air conditioners on a given city block for pay.  They don't run on coal.

In fact, a time is going to arrive when a lot of these people in the Middle East are going to say . . . wait a minute.

We don't really want to send oil to people in return for paper.  We don't want to send it for shiny metal, either.  We kind of like the idea of just fucking keeping it underground for our own future children . . . to power their air conditioning.  So we'll send some to East and South Ukraine in return for grain/food and we'll do without iPhones.

When that happens, smashola.

Thu, 06/12/2014 - 07:57 | 4847831 Oldwood
Oldwood's picture

The most dangerous thing about ideologues and the very religious is that they are potentially willing to cut their nose off to spite their face. If the extremist gain control of these areas I would suspect their first and primary goal will not be the welfare of their brothers but the destruction of ours. Whether we like it or not, whether we admit it or not, we are still at war until those who want to kill us, to defeat us, until they quit. That hasn't happened yet and it sounds like its going the other way. They are experiencing new empowerment due to their recent military and political wins. Radical Islam appears to be the only true Growth market in the world right now.

Thu, 06/12/2014 - 07:43 | 4847811 Oldwood
Oldwood's picture

Time for us to have a foreign policy. Decide who are our friends and who are not, acting accordingly.

As a small business person for a lot of years is see my greatest asset as my relationships, my reputation, the trust that those I work with share in me. America has disposed of all of those assets. Its pretty obvious we should have never gone into Iraq or Afghanistan given we have demonstrated no will to succeed or even a strategy. We have wasted every resource we possess at a time we have none to waste.

Thu, 06/12/2014 - 07:24 | 4847789 SlipStitchPass
SlipStitchPass's picture

This Iraq thing is a funding scheme for the Al-CIAda front in Syria. I am sure that the "terrorists" will leave as fast as they came with $400M and equipment in tow.

 

Thu, 06/12/2014 - 07:35 | 4847799 Oldwood
Oldwood's picture

I bet McCain is so proud of his Syrian rebels. Largely the same rebels that we used as an excuse to take Libya down. World politics and its associated destruction knows no bounds or even rationality.

Fucking overgrown retards with a box of matches.

Thu, 06/12/2014 - 07:24 | 4847790 Downtoolong
Downtoolong's picture

These supply side price shocks in the oil market give us a hint of what would happen to oil prices if the economy really did improve and increase oil demand.

That, of course, is also why it can’t happen for very long.

Thu, 06/12/2014 - 07:27 | 4847792 GetZeeGold
GetZeeGold's picture

 

 

That's OK.....I don't think you'll have to worry about the economy improving anytime soon with Obamacare being the law of the land.

You can only produce so much with 29.5 hr/wk jobs.

Thu, 06/12/2014 - 09:52 | 4848167 Flakmeister
Flakmeister's picture

The trend to parttimers has been in place for years with no change in the trend...

It is all about Corps cutting costs on the backs of the lower end employees....

Thu, 06/12/2014 - 07:37 | 4847803 AdvancingTime
AdvancingTime's picture

So far, the violence hasn’t affected Iraq’s major oil fields, the country’s main source of revenue. Oil output increased 100,000 barrels a day to 3.2 million barrels last month, the most since August. The country pumped more crude as it increased links to wells in its predominately Shiite south. Iraq is the second-biggest producer in OPEC after Saudi Arabia.

Whenever a few hundred armed men can jump aboard vehicles and drive into a city and totally destabilize it you have a problem. ISIS fighters posted videos of themselves burning government vehicles, setting up checkpoints and issuing challenges to the authority of Mr Maliki. If it begins to effect oil production it may well be "checkmate" on an already fragile government. More on the problems in Iraq in the article below.

http://brucewilds.blogspot.com/2014/01/iraq-rapidly-falling-into-chaos.h...

Thu, 06/12/2014 - 07:40 | 4847807 greatbeard
greatbeard's picture

You would think with all that cash coming in from oil they could hire a decent mercenary army. 

Thu, 06/12/2014 - 07:46 | 4847817 Oldwood
Oldwood's picture

There is no money that hasn't already been spent years ago. The only new money coming into the system is that which is being printed, borrowed on even further out futures, or stolen.

Thu, 06/12/2014 - 07:58 | 4847834 GetZeeGold
GetZeeGold's picture

 

 

I think I still have some rehypothecated German gold credits around here somewhere.....I'll get back to you.

Thu, 06/12/2014 - 07:39 | 4847806 Jayda1850
Jayda1850's picture

The world is going to hell in a handbasket and good ol' Amerika packed the picnic.

Thu, 06/12/2014 - 07:45 | 4847816 craus
craus's picture

I was getting used to buying and selling SPY PUTS past two days. As Tyler mentions USD/JPY rigging team is at work again, they went into action around 5:30 am. So we all need to buy/sell CALLS. I'm so glad someone cracked the FEDS enigma code.

Thu, 06/12/2014 - 08:38 | 4847936 craus
craus's picture

USD/JPY just took a nose dive and like clockwork so did futures. Maybe the USDJPY rigging team reads ZH?

Thu, 06/12/2014 - 07:54 | 4847828 Taint Boil
Taint Boil's picture

 

 

Saudi proverb. "My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel."

Thu, 06/12/2014 - 08:49 | 4847963 firstdivision
firstdivision's picture

When the first bomb is dropped, I'm selling the shit out of fwd months.

Fri, 06/13/2014 - 22:54 | 4855774 Pie rre
Pie rre's picture

US gas consumption is down 75%.  I wonder if we'll get better prices? Not

http://www.zerohedge.com/news/2014-05-30/us-gasoline-consumption-plummet...

What a world

 

 

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