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Crude Drops, Yields Slump, Futures Tumble
"A global flight-to-safety continues to dominate the landscape as lower oil prices drives the bid for core fixed income markets"
- ED&F Man
Anyone who was hoping the market would rebound on last-minute news that the US government has gotten funding for another 9 months, will be disappointed this morning, when futures are finally starting to notice the relentless decline in crude, and with Brent down another 1% as of this writing following yet another cut in the forecast of Global oil demand by the IEA (the 4th in the last 5 months) and with Chinese industrial production also missing estimates (recall that the Chinese slow-motion hard landing has been said by many to be the primary catalyst for the crude collapse) which however pushed Chinese stocks higher on hopes of even more stimulus, the S&P is trading lower by some 13 points, the 10 Year is in the red zone at 2.12%, and the USDJPY is close to session lows. In short: Kevin Henry's "ETF" desk at the NY Fed will have its work cut out to generate one of the now traditional pre-weekend feel good, boost confidence stock market ramps.
Some more details
European equities trade lower (Eurostoxx50 -1.4%) following the late sell-off in the S&P 500 as oil broke USD 60 to print its lowest level since July 2009 which pushed the VIX (+8.4%) to its biggest 4 day gain since 2011. In Europe the Eurostoxx50 Volatility Index is up 10%, following its US counterpart, with the FTSE (-1.7%) underperforming due to lower commodity prices with energy the worst performing sector in Europe. The DAX (-1.3% also trades heavy as index heavyweights BASF (-2.75%) was downgraded at Morgan Stanley and Commerzbank (-1.55%) is looking to settle USD 1bln fine with US regulators.
As fixed income traders focus on the weekly LTRO update (not released at time of writing) weak equities have helped push Bunds (+45 ticks) to contract highs and German 10 year yields to record lows at 0.64%.
Overnight the US House of Representatives narrowly passed a USD 1.1trl spending package that will fund nearly all of the US government through September 2015. The Senate now has until midnight Saturday to take up the bill, thanks to a short-term resolution passed by the House to give it time. Senator Harry Reid said the chamber could take up the bill as early as Friday. (BBG)
Nikkei 225 (+0.7%) retraced recent losses amid expectations for PM Abe’s party to win an overwhelming majority in the lower house, with results due this weekend. Shanghai (+0.4%) and Hang Seng (-0.3%) traded mixed following Chinese IP Y/Y 7.2% vs. Exp. 7.5% (Prev. 7.7%) and Retail Sales Y/Y 11.7% vs. Exp. 11.5% (Prev. 11.5%). Downside was capped amid heightened expectations of further easing after China’s 2015 GDP growth targets were lowered at the Central Economic Work conference. JGBs traded higher up 7 ticks at 147.32 amid notable curve steepening after the BoJ offered to buy JPY 1.3trl of JGBs, all in the 1yr–10yr maturity range.
10Y Treasury futures traded 220k contracts overnight as European equities sell off; bund yield making record lows at 0.639%, “which in turn is underpinning Treasuries,” Tom di Galoma, head of credit and rates trading at ED&F Man writes in note. "A global flight-to-safety continues to dominate the landscape as lower oil prices drives the bid for core fixed income markets”: ED&F
The US economic calendar is a little lighter this afternoon featuring just the PPI and the preliminary UofM Consumer Sentiment for December. It will be interesting to see if lower energy prices will have an impact on the latter, we add sarcastically.

Market Wrap
European shares fall, though are off intraday lows, with the basic resources and oil & gas sectors underperforming and real estate, travel & leisure outperforming. European bond yields fall to all-time lows. IEA lowers forecast for global oil demand, WTI crude falls below $60 a barrel. Ruble falls to record, Norway’s krone falls to 11-year low. China November industrial production growth below estimates y/y. The U.K. and French markets are the worst-performing larger bourses, the Swedish the best. The euro is stronger against the dollar. German 10yr bond yields fall; French yields decline. Commodities decline, with WTI crude, Brent crude underperforming and natural gas outperforming. U.S. Michigan confidence, PPI due later.
- S&P 500 futures down 0.5% to 2013.1
- Stoxx 600 down 1.3% to 335
- US 10Yr yield down 3bps to 2.13%
- German 10Yr yield down 3bps to 0.64%
- MSCI Asia Pacific up 0.4% to 137.3
- Gold spot down 0.3% to $1224/oz
Bulletin Headline Summary from RanSquawk and Bloomberg
- Bunds hits contract highs and German 10y hits record low yields as European equities trade lower and the Eurostoxx50 Volatility Index is up 10% with energy the worst performing sector in Europe.
- Looking ahead will see the release of US PPI, Michigan and updates from S&P and Fitch on UK and France.
- Treasuries rise, headed for weekly gain, as EGB yields fall to all-time lows amid ongoing decline in oil and European stocks head for worst week since 2012.
- Global oil demand next year will be weaker than previously estimated, with consumption expanding by 230k barrels less than estimated in November, and supply from non-OPEC producers will be bigger, the International Energy Agency said
- China’s economy slowed in November as factory shutdowns exacerbated weaker demand, raising pressure on the central bank to add further stimulus
- The ruble tumbled to a record for a second day, spurring speculation Russia’s central bank intervened to stem the rout, and bonds slid as weaker oil prices worsen the outlook for an economy verging on recession
- Euro-area industrial production barely grew in October, rising 0.1% vs 0.2% median estimate in a Bloomberg News survey
- ECB’s supervisory board is today seeking to sign off on capital-raising plans for the lenders that failed a stress test in October, two people familiar with the issue said
- ECB said banks plan to repay EU39.758b in 3-yr loans next week, the highest-ever payback, vs EU14.04b payback this week, according to data compiled by Bloomberg
- As investors brace for a Greek presidential succession that could sink the government, Italy faces its own dilemma over appointing a new head of state after Giorgio Napolitano indicated that he’ll consider stepping down in the new year
- The Senate begins debate on a $1.1t U.S. government spending bill today after turmoil in the House yielded narrow passage of the plan amid opposition from Democrats and Republicans alike
- Sovereign yields mostly lower. Asian stocks mixed. European stocks, U.S. equity-index futures fall. Brent crude declines, WTI trading below $60/bbl; gold lower, copper gains
US Econ Calendar
- 8:30am: PPI Final Demand m/m, Nov., est. -0.1% (prior 0.2%)
- PPI Ex Food and Energy m/m, Nov., est. 0.1% (prior 0.4%)
- PPI Ex Food, Energy, Trade m/m, Nov., est. 0.1% (prior 0.1%)
- 9:55am: UofMich Confidence, Dec. preliminary, est. 89.5 (prior 88.8)
FX
FX markets have been relatively quiet as the USD (-0.19%) has traded in a small range following its recent bout of volatility. USD/JPY printed session lows after sources suggested the BoJ would reject added stimulus to ease the blow from to CPI from oil. The continued slide in oil prices pushed the RUB to all-time lows vs. USD once again, shrugging off the Russian rate cut yesterday. In the Asian session NZD fell for the first time in 4-days amid disappointing data including Manufacturing PMI (55.2 vs. Prev. 59.3) and as Fonterra in its global forecast said sees decreasing milk exports. AUD steadied despite yesterday’s attempts by RBA Governor Stevens to jaw bone the currency saying AUD/USD should be closer to 0.7500.
COMMODITIES
WTI and Brent crude futures continue their descent with the latest leg lower below USD 59 as the IEA cut their global oil demand forecast for the fourth time in five months. This comes in addition to earlier this week when OPEC cut their global demand forecasts. In terms of levels to the downside, USD 58.32bbl could be a key level, with this price being the low seen in July 2009. Precious metals have traded sideways.
* * *
DB's Jim Reid Concludes the overnight recap
The ECB will likely start broad based asset purchases in Q1 (probably March) including corporate and government bonds. This will help European credit withstand some risks in the early months, not least from possible pivotal Greece elections. There will also likely be an early year drag from US credit due to the effects of the falling oil price on the US energy sector and periodic fears of a hawkish Fed. Although our spread forecasts are for tighter Euro/GBP spreads by the end of H1 and YE we think we could go wider in Q1 for a period of time. The days of blanket US QE and low volatility are over. Expect some challenging conditions en route to tighter spreads. As the year progresses we expect the Fed to be more dovish as still soft global growth and low inflation makes it harder for them to pull the trigger on rates in line with their own timing preferences. So credit (especially US) may have a better H2 than H1.
Within Europe we think 2014's sell-off in HY, especially single-Bs, makes it attractive against IG as technicals from the likely ECB buying spread to more 'yieldy' assets. Our excess return forecast for European HY is around 5% in 2015 while for EUR and GBP IG, excess return expectations range from 1.4%-4.9% across non-fins and fins with GBP outperforming EUR. Our US credit strategists expect the US HY default rate to rise to 3.5% in 2015 from September's cycle lows of 1.7%. This is led by the energy sector. For Europe all of our forward indicators currently point to a 1.5-2% default rate over the course of the year - still incredibly low. The risk is if US energy defaults start to lead to a wider mini credit crunch in global HY. Please see the link in your inboxes that arrived within the last 90 mins.
To celebrate finishing the report I had a glass of mulled wine and some roasted chestnuts at Vienna's fabulous main Xmas market last night. With the big day now only two weeks away I'm surprised I haven't yet heard my favourite Xmas song namely "Fairytale of New York". This normally marks the point that I turn from bah humbug to embrace the whole seasonal mood. I'm turning late this year and it probably doesn't help that markets are still busy and full of intrigue.
Next week sees the important Fed meeting where Mrs Yellen will either be seen as ‚Scrooge or Santa? and we'll also know whether Abe receives a ringing endorsement for Abenomics with the Japanese election due on Sunday – we should get the official results late on Sunday night in our timezone. The Greek presidential elections will also commence and with Greek equities down over 20% this week and with a huge inversion of the yield curve there's plenty to play for.
For now the ongoing weakness in Oil continues to dominate the headlines. Indeed yesterday saw WTI and Brent fall by 1.6% and 0.9% with the former closing below $60/bbl for the first time since July 2009. The S&P 500 got off to a pretty strong start to the day having risen as much as 1.4% helped by a decent retail sales report. The market took a turn in the afternoon as the selloff in Oil gathered momentum although the index (+0.45%) still managed to post its first up day this week. The energy sector was unsurprisingly the laggard although having closed the day unchanged it was probably one of the better outcomes that one could have hoped for. Elsewhere the 10yr benchmark Treasury yield was little changed at 2.16% but the curve flattened further led by strength by long bonds. The 30yr fell by 2.5bp to close at around 2.81% a level which is currently lower than the pre-Taper tantrum lows that we saw in May last year. Demand for the 30yr auction yesterday was strong with a bid/cover ratio (2.76x) higher than the previous sale. Credit underperformed on a relative basis with the CDX IG about half a basis point wider and the CDX HY index around four-tenths of a point lower.
Staying on Credit we have the latest US HY fund flow stats and unfortunately we don’t have much good news to share. US HY mutual funds saw outflows of over $2.6bn (0.9% AUM) in the latest week ended 10 December. This marks the fourth straight week of outflows but notably it is the biggest weekly redemption for the asset class since the peak of outflows during the summer. The latest outflow also brings the 4-week moving average flows for US HY to - $1.1bn from around -$280m in the prior week. Energy is clearly the driver here. There is some good news though for European HY investors as outflows seem to have stabilized for now. The latest week saw around $160m (0.3% AUM) of inflows into the asset class, the first in 6 weeks. This gives us a little more confidence that European HY can out-perform the US, especially given its lack of exposure to Energy. Indeed many of the companies should be benefiting from lower Oil. As usual we have updated the weekly HY fund flow charts in the PDF for those interested.
In Europe the ongoing weakness in Greece was again one of the key market features yesterday. There was further pressure on the front end of the Greek curve with the 3yr and 5yr bond yields jumping 128bp and 98bp to close at 10.7% and 9.6% yesterday. The ASE was also down sharply closing more than 7% lower yesterday to put Greek equities as the worst performing equity markets year to date behind Russia. Indeed the ASE is poised to suffer from its worst weekly performance since 1987 and has lost around 29% this year. Our in house Greek expert George Saravelos had just returned from Athens and noted that the local opinion is firming that we are heading for an early election. What also looks to be becoming increasingly clear is that the government seems to be going down a strategy of polarization/highlighting the risks of an election while the opposition is trying to allay fears hence we are likely to get more headlines similar to Samaras’ over the course of the next few weeks. So plenty to look out for ahead of the first presidential vote (next Wednesday at 5pm London time).
Away from Greece the second round of the ECB’s TLTRO was reasonably subdued with just €130bn of funds allocated to banks - coming in at the lower end of expectations. Given the €1tn balance sheet expansion aim proposed by the central bank, the cumulative €212bn of issuance over the first two rounds lends further support to our call more broad-based QE sometime in Q1 next year, especially as upcoming legacy LTRO repayments over the next 2 and a half months are likely to exceed this amount.
Rounding out the market news, there were some contrasting moves from central banks in Europe yesterday. Starting in Norway, the Norges Bank surprised the market with a 25bp cut in rates to 1.25% with the decline in oil prices weighing on the country’s economy. On the other hand the Bank of Russia hiked 100bp yesterday to 10.5% - the fifth hike this year- although this did little to halt a further slide for the Rouble which closed 1.6% weaker versus the Dollar, extending the record low to 55.7/Dollar. Quickly updating the Asian session overnight, equity markets are mostly in the green as we type. The Nikkei, HSCEI and KOSPI are +1.1%, +0.5% and +0.4%, respectively. Onshore Chinese equities are little changed though the latest Chinese data just hit the screens as we are about to head to print. A mixed bag overall with Fixed Asset Investments (+15.8%) and Retail Sales (+11.7%) coming in line with consensus. Industrial Production (+7.2% v 7.5%) fell short of expectations though which is broadly consistent with the trends of late. More on China the PBOC yesterday said that it will maintain a prudent monetary policy with balance between loosening and tightening.
In terms of the day ahead, we have the wholesale price index from Germany but focus will probably be on the inflation data out of Spain and Italy. The US economic calendar is a little lighter this afternoon featuring just the PPI and the preliminary UofM Consumer Sentiment for December. It will be interesting to see if lower energy prices will have an impact on the latter.
Otherwise Oil and Greece should still be on top of people’s watch list ahead of next week’s FOMC meeting.
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keep stackin'
China should give up these BS numbers.....its so far out of wack it's ridiculous
Tourettes Wise Words of the Day - Don't talk Shit about the Dollar Store..
What if Yellen and Pelosi both got a job at Yelptrade? That ought to fix the deficit..? No?
I didn't know low oil prices could hurt so much.
Happy Christmas.......Merry New Year.
Has anyone seen Beeks?
Beef Jerky!!!
Go long on whiskey brown bags and lucky oversized lager - it's the next best investment besides phys..
<-------- 1% correction by 4 pm
<-------- fantastic Friday rally by 4 pm
"Sounds to me like you guys a couple of bookies."
~ Billy Rae Valentine... Capricorn
Looking good Billy Rae!!!
https://www.youtube.com/watch?v=XtKydtoLucc
Looks like someone owes me.......one dollar.
If the price goes up or down we make money either way.
GI Joe with the Kung Fu grip
Get me a joystick, two big bags of buttered popcorn, a bag of ice, and a 26 of good whiskey, and the login to the federal reserve. I'll have this bitch economy singing
By 4 PM johnny and his band of criminals will receive their full bonuses.
Plenty of fake economic numbers to run by the algos.
For weeks I've been staring at three charts (like a deer!):
1) USD-JPY
2) USD-RUB
3) WTI Crude
Whoever wants to read something bullish for the "markets" into what is happening here is just plain ignorant of how things went over the last 2-3 years in comparison. The changes are just way too important that they wouldn't have a massive impact to the downside of equity markets at one point. The only question is only: Will it be before Christmas 2014 or after?
What your missing is the EUR-USD isnt doing what its supposed to be doing... If this were real we would be (well) under 1.20 by now......
Really, the Spy was at 1840 3 weeks ago....the Fed runs so the nexf dip is still higher than the last.
How about find <one> chart that isn't rehypthecated, derivatized, and or totally manipulated - anywhere.
7, 8, 9 bucks a gallon gasoline still means Europe is paying their bills.
That is not true of the USA.
Definitely a Battle Royale between the folks who want to see oil at a million bucks a barrel and those who want to see it at zero. The volume in the market is off the charts and yes that is real money. Great time to be an Energy trader as the bid and ask in oil is absolutely huge.
60 is clearly resistance....the cost of getting oil out of the ground being probably less than a buck a barrel.
And yes...there is more new drilling on the way too...
"A global flight-to-safety continues to dominate the landscape...
OMFG!! global flight to safety? lulz out loud!
the whole world is buying e-maxis (and chinese, japanese, and euro equivalents) as fast as they can
Abe was in his counting house,
Counting out his money;
The draghi queen was in the parlour,
Eating bread and honey.
Old Yeller was in the garden,
Hanging out the clothes,
When down came a blackbird
And pecked off her jooish nose.
What's an Arab in a dress worth at 50 bucks a barrel?.
They are trying for the forties.
He's already rich, so he probably doesn't care that much what the oil price is doing.
What the fuck is going on?
Stocks are d . . . . .
Stttockkkks are dowwwuh . . . . .
Stocks are dddd.dddd.ooooowwwowwww . . . . . .
Stocks aren't up.
Patience grasshopper. Kevin hasn't gotten to his desk yet. Same as it ever was.
One day, the day the Turkey realizes that the whole year of kindness of the farmer was really about just this one day.
the turkey has a very complex computer model running that is based on past experience, and it says that the kindness will always go on. like banks
Jim Reid: "Our in house Greek expert George Saravelos had just returned from Athens and noted that the local opinion is firming that we are heading for an early election. What also looks to be becoming increasingly clear is that the government seems to be going down a strategy of polarization/highlighting the risks of an election while the opposition is trying to allay fears hence we are likely to get more headlines similar to Samaras’ over the course of the next few weeks. So plenty to look out for ahead of the first presidential vote (next Wednesday at 5pm London time)."
Isn't it so damn sad that "the markets" have the tendency to hate, hate, hate elections?
There is a tree which sheds all it's leaves in one day, this year they fell on nov 21st.
"The ECB will likely start broad based asset purchases in Q1 (probably March) including corporate and government bonds."
Jim Reid forgot to insert a: "I, and all megabankers with me, fervently hope that..." at the beginning of this sentence. btw, wasn't it January, last time?
"ECB said banks plan to repay EU39.758b in 3-yr loans next week, the highest-ever payback, vs EU14.04b payback this week, according to data compiled by Bloomberg". That's printing presses running like mad, isn't it? Isn't it? No? But I heard from Bank of America that if you add up the Japanese and the ECB printing, then...
"The ECB will likely start broad based asset purchases in Q1 (probably March) including corporate and government bonds."
I wondered the exact same thing! Maybe he's been sleeping with the Draghi.
for sure he is listening to "the" Draghi. While Silvertongue is talking to the Mighty US Stock Market. The Beast That Might Not Be Told Unwelcome Things
but as I said before, banks paying back LTRO loans and not dipping into TLTRO loans liquidity... does not sound like a parched banking system needing liquidity
for every EUR they pay back and for every EUR they don't take up... they prove there is no need for QE in Europe. but don't say that loud, Wall Street wants to hear "moar!"
"The ECB will likely start broad based asset purchases in Q1 (probably March) including corporate and government bonds."
Wasn't the German constitutional court probing whether the ECB overstepped its mandate How did that end?
Black Friday!
Maybe, but there's a big gap on the DOW and I can almost guarantee a ramp to that level before anything else occurs
In fact, the "V" has already begun as I write
Gap filled - Job done, now crash please and make as much noise as you like !
How predictable was that?
I've given myself a vote up as I reckon I deserve it
Well according to this mornings wall street journal radio report everything is coming up roses. "With lowwer gas prices consumers have more money to spend, this is good news for retailers" "They will also be eating out more". "On the jobs front, we see an inprovment, in every sector".
All very bullish - BULLSHIT! All we need is Mo-MOAR!
Well according to this mornings wall street journal radio report everything is coming up roses.
Thanks for doing that......I just can't listen to that crap anymore.
The media's message that all is just "peachy" is pure bullshit! Last quarter America's GDP came in at a strong 3.5% but the fact that a 10% jump in federal spending, mostly on Pentagon hardware bolstered growth and was very much behind the numbers.
This "pre-election" spending was the biggest increase in federal spending since 2009 when the Obama administration put in place a huge economic stimulus package. When you mix in an upbeat November number concerning job creation, falling oil prices and ever higher stock market prices and new record highs and many people have the impression we are on a roll.
The American and world economy is in uncharted water and weird crosscurrents are clouding our economic future. The truth is if this market is as over extended and distorted as many people think a crash may occur at any time. The article below delves into some of the many crosscurrents at work that could bring the economy to an abrupt halt.
http://brucewilds.blogspot.com/2014/12/crosscurrents-cloud-future-economic.html
Every man is his/hers, own radio.
They should just let this market fall and end the madness, but an unholy alliance of the Federal Reserve, the government, and the too big to fail has left those of us who question the validity of the recovery in a precarious position. For the big boys, its insider information and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the timid and weak bears out of their positions in this manipulated market.
Over the years we have witnessed the type of market reversal the big banks supported by the Fed can generate with a concerted effort to buy S&P 500 index futures at crucial support points. This has proved more than enough to turn the markets from red to green in the blink of an eye. The article below looks into why even if they are right bears should not be confident.
http://brucewilds.blogspot.com/2014/04/bears-have-little-reason-for-confidence.html
Confident bears? where you from bro??
That's the cost being "booker T", you are just the blind leading the blind now.
Most Ivy League economists are optimistic because if it costs $80 to get a barrel of oil out of the ground and you're selling it for $50, you can make it up by volume selling!....
Most Ivy League economists probably think it costs $200 to make the handbag they bought their wife in China.
Our biggest problem is the economy is being run by people who make assumptions based on things they have no real working knowledge of.
If you have never run a business, how can you be qualified to set policies that govern them?
People are astounded when I tell them the FOB cost of their favorite products.
Capital expenditures and employment cuts already in the works. Along with some companies in serious financial,trouble.
http://oilprice.com/Energy/Crude-Oil/Big-Oil-Slashing-Spending-Amid-Low-...
Red Fork, an Australian Co. Heavily invested in US shale gas declared bankruptcy.
http://www.forexlive.com/blog/2014/12/11/oil-price-slide-victim-red-fork...
Clearly we need to BTFD!
Huge profits meets black hole of debt.
Move along...
Everything in order and going according to plan!....
Systematically crash commodities... crash the bonds... And last but no least the last leg of the stool the markets...
Now all we need is a convenient excuse to open up Syria or Ukraine with another 9/11/MH-17 and voila!
WWIII begins
Welcome to the chapter and verse in the warped mind of a psychopath!!!
a flight to safety, americas turned into a casino that have bouncers that won't let you out, with, or without your money.