Stocks Bounce On Daily ECB QE Rumor Regurgitation, Oil Plunges On Goldman Downgrade

If you, like the BIS, are sick and tired of central bankers, and in this case the ECB's endless jawboning and now daily QE threats, determining the level of stocks, well then today is a good day as any to take your blood pressure medication. Because first it was ECB Governing Council member Ignazio Visco who told German newspaper Welt am Sonntag that the risk of deflation in the euro zone should not be underestimated and urged the bank to buy government debt, and then, yet another regurgitated story, came from CNBC whose "sources" reported that the ECB QE would be based on contributions from national central banks and paid in capital.

The result was a plunge in the EURUSD to just under 1.18, which also sent the USDJPY and all of its donwstream derivatives such as the Eurostoxx and S&P futures screaming higher.

And while otherwise the cross-correlation trades would have at least pushed the crude complex modestly higher, today it was Goldman's energy analyst Jeffrey Currie finally throwing up all over oil, with a report in which he said that "because shale can rebound quickly once capital investments return, we now believe WTI needs to trade near $40/bbl for most of 1H15 to keep capital sidelined."

The report punchline:

Once a 2H15 US supply growth slowdown is more certain and given the very high decline rates on US production, renewed Libyan disruptions and an already visible demand response in the US, we expect the market to rebalance with inventories drawing rapidly from 3Q15 onwards. To accommodate the substantial expected first half inventory build and using the storage arbitrage to the one-year ahead swap, we are revising down our 3-, 6- and 12-month price forecasts for Brent to $42/bbl, $43/bbl and $70/bbl, respectively, from $80/bbl, $85/bbl and $90/bbl, and for WTI to $41/bbl, $39/bbl and $65/bbl from $70/bbl, $75/bbl and $80/bbl. The later expected trough in WTI prices is due to excess US storage capacity.

And visually:

We will have more from the report later.

So more of the same, with central bank chatter desperate to push stocks higher even as the crude complex continues to crash. Perhaps today's only notable difference is that the Chinese stock bubble increasingly appears poised to burst violently. Indeed, the SHCOMP dropped 1.71% with the weakness partially attributed to a note from UBS who said China stock bull market has ended. Bloomberg's note that "It’s Amateur Hour in the Booming Chinese Stock Market" probably did not help, and neither did the news that developed Kaisa is now officially in default and has entered the 30-day grace period.

In summary: European shares remain higher, close to intraday highs, with the tech and chemicals sectors outperforming and oil & gas, basic resources underperforming. Crude oil continues decline. The French and German markets are the best-performing larger bourses, U.K. the worst. The euro is weaker against the dollar. Greek 10yr bond yields fall; German yields increase. Commodities decline, with natural gas, Brent crude underperforming and wheat outperforming.

Market Wrap

• S&P 500 futures up 0.6% to 2047.1
• Stoxx 600 up 1% to 341.3
• US 10Yr yield up 2bps to 1.97%
• German 10Yr yield up 2bps to 0.51%
• MSCI Asia Pacific down 0.2% to 137.5
• Gold spot down 0.2% to $1220.5/oz
• Euro down 0.37% to $1.1798
• Dollar Index up 0.36% to 92.27
• Italian 10Yr yield down 2bps to 1.86%
• Spanish 10Yr yield down 2bps to 1.7%
• French 10Yr yield up 1bps to 0.79%
• S&P GSCI Index down 1% to 390.9
• Brent Futures down 2.8% to $48.7/bbl, WTI Futures down 2.4% to $47.2/bbl
• LME 3m Copper down 0.3% to $6068.8/MT
• LME 3m Nickel down 0.9% to $15166/MT
• Wheat futures up 0.3% to 565.3 USd/bu

Bulletin headline summary from RanSquawk and Bloomberg

• In a subdued session, European equities trade higher with little in the way of fundamental news to dictate price action.
• Today marks the beginning of US earnings season, with Alcoa scheduled to report aftermarket and no US tier 1 data releases today.
• CNBC sources report that the ECB QE would be based on contributions from national central banks and paid in capital, and that every national central bank pays a certain amount of capital into the ECB every year would determine how much of that country's sovereign debt the central bank would purchase.
• Treasuries pare post-payrolls rally before week’s supply begins with $24b 3Y notes, yield 0.96% in WI trading vs. 1.066% award in Dec.
• Goldman cuts crude oil forecasts, now sees WTI at $41/bbl in three months, previously saw $70; Brent at $42/bbl from previous  $80/bbl and said U.S. oil prices need to trade near $40/bbl in 1H to curb shale investments
• Also cuts 6- and 12-month WTI forecasts to $39 and $65, from $75 and $80, respectively; Brent to $43 and $70, from $85 and $90, according to the report
• PBOC will strive for a balance between loosening and tightening while fine-tuning monetary policies when needed, it said in a statement summarizing its annual work conference on Jan. 9
• Signals from meeting expected to calm speculation of a system-wide reserve-requirement decrease or significant rate cut, China’s Financial News, a PBOC publication, said
• France began hunting for possible accomplices in the worst terror attacks in Paris in more the half a century as a seven-minute video emerged with one of the gunmen declaring allegiance to the Islamic State
• Prime Minister Abe’s candidate lost a race for the governorship of rural Saga prefecture to a rival backed by the agriculture sector in a blow to his plans to shake up the industry
• Holders of Kaisa Group Holdings Ltd.’s dollar-denominated 2020 notes still haven’t received a coupon payment due last week; most expect payment to be maid within 30-day grace period, two people familiar with the matter said
• Sovereign yields mixed. Asian stocks mixed, Japan closed for  holiday; European stocks, U.S. equity-index futures gain. Crude falls, with Brent and WTI below $50/bbl; copper, gold lower

US Event Calendar

• 10:00am: Fed’s Labor Market Conditions Index, Dec. (prior 2.9)

ASIA

The Shanghai Comp was the session's laggard, with the weakness partially attributed to a note from UBS who said China stock bull market has ended. The Shanghai Comp (-1.71%) finishes the session lower after the PBoC signalled there will be no system-wide reserve-requirement decrease or interest rate cuts. The Hang Seng (+0.5%) bucked the overall trend underpinned by Cheung Kong (1 HK) +20% and Hutchison Whampoa +16% after news of a restructuring deal between the Co.’s worth USD 24bln. As a reminder, Japanese markets were closed today due to the Coming of Age public holiday.

• Asian stocks fall  with the Sensex outperforming and the Shanghai Composite underperforming.
• MSCI Asia Pacific down 0.2% to 137.5
• Nikkei 225 closed, Hang Seng up 0.4%, Kospi down 0.2%, Shanghai Composite down 1.7%, ASX down 0.8%, Sensex up 0.5%
• 2 out of 10 sectors rise with industrials, staples outperforming and energy, materials underperformingEQUITIES/ FIXED INCOME

EUROPE

European Equities start off the week mostly in positive territory with the DAX amongst the outperformers as Deutsche Lufthansa and Continental lead the index higher. (Please refer to the European Equities Opening News for more details) The FTSE 100 has seen its upside capped as UK utilities trade lower as the Labour party push for domestic energy price cuts and storms damaging infrastructure in Scotland over the weekend. Elsewhere, reports were confirmed over the weekend that Shire will buy NPS Pharmaceuticals in an all-cash deal worth USD 5.2bln.

Greek assets seen outperforming with the ASE trading higher by 2.3% and the GE/GR spread tighter by 65bps on the day following source reports over the weekend that a Greek debt restructuring plan is gaining increasing support in the EU Commission.

CNBC sources reported earlier that ECB QE would be based on contributions from national central banks and paid in capital, and that every national central bank pays a certain amount of capital into the ECB every year, this would determine how much of that country's sovereign debt the central bank would purchase. (CNBC)

In fixed income markets, the Bund and UST’s continue to trade range-bound with volume expected to be increase this week due to higher supply from Europe and market participants finally return to market marking the end of the festive season. Looking ahead, there is a 3yr note auction scheduled today at 1800GMT/1330CST.

• 17 out of 19 Stoxx 600 sectors rise; tech, chemicals outperform, oil & gas, basic resources underperform
• 75.7% of Stoxx 600 members gain, 22.8% decline
• Eurostoxx 50 +1.6%, FTSE 100 +0.4%, CAC 40 +1.6%, DAX +1.5%, IBEX +1.4%, FTSEMIB +1%, SMI +1%

FX

The AUD/USD has erased all of its overnight gains weighed on by the continued fall in oil prices (also weighing on MXN,RUB,CAD) after the CFTC also reported that AUD short positions higher by a third also sending NZD/USD lower in sympathy. The firmer USD-index (+0.6%) is recovering from the Friday’s post-NFP selloff which has subsequently dragged EUR/USD lower as it fell below 1.1800 and lifted USD/JPY as it broke the 119 handle. Furthermore, analysts note that GBP/USD volume is surging vs. its 1m average at this time of day most likely related to the Shire acquisition of NPS Pharmaceuticals sending GBP/USD lower also aiding USD strength.

COMMODITIES

WTI crude futures (-0.99%) fell sharply back below USD 48/bbl level and has continued its descent during the European session as Goldman Sachs cuts WTI 6- and 12-months forecasts; now sees USD 39/bbl from USD 75/bbl and USD 65/bbl from USD 80/bbl respectively and cut Brent crude 3-, 6- and 12-months forecasts; sees USD 42/bbl, USD 43/bbl and USD 70/bbl respectively.

Goldman Sachs lowers 2015 Brent price forecast to USD 50.40/bbl from USD 83.75/bbl and cuts 2016 outlook to USD 70/bbl from USD 90/bbl. Lowers 2015 WTI price forecast to USD 47.15/bbl from USD 73.75 and cuts 2016 outlook to USD 65/bbl from USD 80/bbl. (BBG)

Venezuela said it has agreed with Saudi Arabia to work to recover the oil market and oil prices. (Shana/RTRS)

M&A

• Shire to Buy NPS for $5.2 Billion to Add Rare-Disease Drugs
• Roche Takes Majority Stake in Foundation Medicine for $1 Billion
• RBS Said to Consider Sale of Asian Corporate Banking Business

* * *

DB's Jim Reid concludes the overnight recap

It might just be under a couple of weeks of relative quiet in markets before next week's all important ECB meeting and Greek election. With the usual post-payroll quiet week for data these events will likely dominate trading this week. Friday's Bloomberg story that ECB staff have presented models to the Governing Council for buying up to 500 billion euros of IG assets grabbed the limelight as the week ended. It wasn't particularly well received as investors feared that this will mean they will fall short of the 1 trillion Euros the council has targeted in terms of expanding its balance sheet. However on the positive side this surely means January's meeting is a realistic point for some action. We've long thought March as the most likely lift-off date but it’s been getting closer to 50/50 between the two months given recent data and noises and leaks from the ECB. Even if it’s not January, Draghi would surely have to strongly hint and pave the way next week for a move in March.

The €500bn number in the story is clearly a disappointment but would they really want to pre-commit to a smaller number than is enough to reach their publicly stated intention to increase the balance sheet back to 2012's peak? If they don't currently have agreement across the council to get past €500bn then it might be prudent to leave it open ended which is what we think they will do. So we wouldn't get too caught up at the moment in the disappointment from the size angle.

Mark Wall and his team in European economics still think March is ever so slightly more likely but think the likely strong signaling in January makes the relevance of the timing of limited importance. In their Focus Europe on Friday they state that they expect "a broad-based asset purchase programme, encompassing investment grade corporate bonds as well as sovereign bonds; no target size to be set for the sovereign purchases; the ECB to conduct the purchasing over a 2 year period at least, in line with the ABS and covered bond purchases; the ECB to purchase the sovereign bonds of all member states in proportion to the Capital Key; sub-investment grade countries will need to be under a programme; and the bonds purchased to go beyond the OMT limit of 3 year but not beyond 10 years." Phew that's an information packed sentence.

So Friday's moves were dominated by the Bloomberg story. Equity markets closed in the red across Europe with the Stoxx 600 -1.29% and DAX -1.92% at the end of play. Credit markets fared little better with Xover finishing 8bps wider. Peripheral assets were perhaps the notable underperformer however. Indeed the IBEX (-3.91%) and FTSE MIB (-3.27%) declined sharply whilst 10y yields in both Spain (+5.4bps) and Italy (+3.4bps) sold off. With the ECB story already weighing on sentiment, financial stocks also weakened further with the market concerned around ECB capital requirements for banks. Banco Santander (-14.1%) and Monte dei Paschi (-8.63%) led the declines – the former in particular responding to the ECB requirements by announcing a capital raising. Data on the whole was relatively disappointing for the region. November industrial production in Germany disappointed (-0.1%mom vs. +0.3%mom expected) whilst in France both industrial (-0.3%mom vs. +0.3%mom expected) and manufacturing (-0.6%mom vs. +0.4%mom expected) production did little to help the weaker tone. Closer to home in the UK, industrial production (-0.1%mom vs. +0.2%mom expected) was also subdued although this was somewhat offset by a better than expected manufacturing reading (+0.7%mom vs. +0.3%mom expected).

Coming back to the subject of ECB QE quickly, there were contrasting views out over the weekend from ECB officials. On the one hand, Lautenschlaeger was quoted by Der Spiegel saying that the ‘purchase of state bonds is the last resort of monetary policy’. However there was support from Visco yesterday, as he was also quoted in the German press (Welt am Sonntag) as saying that should inflation expectations fall further - ‘in this situation, the most effective means is buying sovereign bonds’.

Turning our attention to the other side of the Atlantic, it was of course payrolls day on Friday with the headline December +252k print beating expectations of +240k. After adjusting for the November upward revisions, our US colleagues noted that the nonfarm payrolls grew by 3million last year which was the best single year since 1999. Although we also saw the U3 unemployment tick down to 5.6% (from 5.8%) and the broader U6 measure fall to 11.2% (lowest since September 2008), sentiment in the market fell after the average hourly earnings print surprisingly declined (-0.2%mom vs. +0.2%mom expected) – the biggest fall since records began in 2006. The result was a weaker day for risk assets in the US with both the S&P 500 (-0.84%) and Dow (-0.95%) closing down – the first back-to-back weekly declines since October. The weaker tone in the market supported a strong bid for US Treasuries with the yield on the 10y benchmark closing 7.3bps lower and back below 2% at 1.945%. There was some notable weakness in the US Dollar too. The DXY closed 0.47% lower to record its first down day this year whilst the Euro pared back some of its recent weakness to strengthen +0.42% versus the Dollar to $1.184.

Some slightly more dovish comments from Fed members didn’t help arrest the weaker tone in the market on Friday. Starting with comments from Lockhart, the Fed official was reported on Bloomberg playing down the hourly earnings reading by saying that the reading was ‘potentially noise’ whilst acknowledging the strong jobs report but noting that ‘I don’t see a reason yet to accelerate my assumption of when a policy move might be appropriate’. Although Lockhart somewhat reiterated his mid-year timeline, he did perhaps err on the more dovish side by going on to say that he would rather risk being ‘a little bit late’ on any rate increases. As well as comments from Lockhart, the Fed’s Evans, speaking to CNBC was reported acknowledging the recent progress in data but that ‘I’m in favor of being patient on raising interest rates’ and that ‘we shouldn’t be raising rates before 2016 if things transpire as I’m expecting’ – noting that ‘we’re going to have to see wages increase more’.

With much of the focus on the ECB and payrolls report, oil markets took something of a backseat again although both WTI (-0.88%) and Brent (-1.67%) extended their declines to close at $48.36/bbl and $50.11/bbl respectively – both now declining for seven consecutive weeks . Friday’s moves were not helped by the latest rig count release out of Baker Hughes which showed a record decline in active rigs last week. The number of rigs fell by 61 over the week, the largest weekly fall since February 1991.

Taking a look at the early trading in Asia this morning, bourses are generally following the US lead and trading lower. The Shanghai Composite (-2.71%), Kospi (-0.18%) and ASX (-0.78%) are all weaker whilst the Hang Seng (+0.07%) is largely unchanged. Japanese equity markets are closed today for a holiday. With little data this morning in the region, energy stocks are the notable underperformers and have extended losses with further falls for both WTI (-1.84%) and Brent (-1.66%).

Before we take a look at this week’s calendar, the latest Greek opinion polls over the weekend didn’t offer any surprises, with SYRIZA still holding the lead. Both the Kapa Research and Alco polls show SYRIZA with a 2.6% and 3.2% lead respectively over the New Democracy party. Greek 10y yields closed largely unchanged on Friday (+1.7bps) at 10.142%. Elsewhere in Russia, following further declines in oil markets and overhanging sanctions the sovereign’s rating was cut to BBB- with a negative outlook by Fitch on Friday. After a volatile 2014, the Russian Rouble has been relatively stable through the New Year, currently at 61.65/Dollar, having hit an all-time low versus the Dollar at 67.91 in mid-December.

In terms of the week ahead, it’s a quiet start to the calendar today with just the December business sentiment print in France due this morning. Later this afternoon in the US we enter the usual post payrolls lull with no notable releases although the Fed’s Lockhart speaking in Atlanta on the US economic outlook will be worth keeping an eye on. Things pick up tomorrow starting in Asia with trade data out of China and Japan. Later on inflation data out of the UK will perhaps be of most focus whilst industrial production in Italy and the German wholesale price index reading will also be of interest. Across the pond on Tuesday the notable releases include the December monthly budget statement along with the IBD/TIPP economic optimism print and NFIB small business optimism survey. As well as this the JOLTS report is worth keeping an eye on although we note the lag versus recent employment reports. The Fed’s Kocherlakota will also be speaking on the US outlook. It’ll be busy on Wednesday with preliminary December inflation data due out of France (market expecting 0.0% yoy) and the final reading for Italy along with industrial production for the Euro-area. As well as this, we’ll have the ECJ ruling on ECB policies. We're not sure what will be made public but our economist generally expects a market friendly outcome. In the US on Wednesday we’ve got December retail sales as well as business inventories. On top of this Wednesday brings the release of the Fed’s Beige Book whilst the Fed’s Plosser is also speaking on the US economy. We kick off Thursday in Japan with PPI and follow this up in Europe with RICS house price data out of the UK, CPI in Spain, with the most notable release perhaps being the 2014 GDP print out of Germany with the market expecting a 1.5% yoy print. It’s a busy day in the US on Thursday with PPI, January Empire manufacturing, claims data and the January Philadelphia Fed business outlook all due. There’s plenty to look forward to on Friday with the final December inflation readings due for Germany (headline +0.1% yoy expected) and Euro-area (headline -0.2% yoy expected) both due. Friday in the US will likely be headlined by the December CPI reading (+0.7% yoy headline, +1.8% yoy core) followed up by December industrial and manufacturing production, capacity utilization and the preliminary January University of Michigan sentiment print.

Comments

[GetZeeGold]

I have to get gas for the truck.....but I know I'll hate myself tomorrow.

You know it's gonna be lower tomorrow.

Put in the Keystone pipeline...and they'll be paying you to come get it.

The republicans want new gas taxes.....but trust us.....they're not establishment^TM.

[Ghordius]

ever considered switching to a NatGas truck? just curious about your answer, the Wall Street Journal is wondering why they are not sold that much, in the US

[GetZeeGold]

Gotta wonder which one craters first......CNN or the Wall Street Journal?

[Arius]

a report in which he said that "because shale can rebound quickly once capital investments return,... we steal it from you .... there you go

[firstdivision]

I wouldn't get one due to the accident in Las Vegas a couple of years ago where a car plowed into a taxi that was NG powered.  Taxi basically blew up killing all occupants. 

[Rockatanski]

do they have a diesel nat gas version?

and that is the problem with gas trucks, cant get the pulling power out of gas and natgas.

[Farqued Up]

Did they tell the reader the pressure of methane at 100 degrees? I've forgotten but when I first heard about the idea, I looked it up and it was a bomb traveling at 70-80 miles per hour. Come to think of it it's a bomb in the garage if a weld blows out.

I don't want one of the things.

[Powder]

"God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives." -TD

[northern vigor]

Be careful of what you wish for...we're gonna get it.

[The Shape]

Goldman's hired their tanker then.

[firstdivision]

GS downgrading oil means they are peddling short oil contracts, which means prices are going to be going up soon.  That's the extent of my analysis.

[GetZeeGold]

Please tell me GS are the smartest guys in the room........please tell me that.

[firstdivision]

Who needs brains when you control the worlds money supply

[negative rates]

When money is a unit of time, you don't control anything.

[max2205]

Good morning Vietnam

[blown income]

Fucking EU , either put up or shut up...

[franzpick]

Here's crude entering the $46 area, which will be followed by the $45 area, on it's way even lower to the $40-42 knife-catching venue. See the monthly chart:

http://www.investing.com/commodities/crude-oil-advanced-chart

[GFORCE]

http://investfts.blogspot.co.uk/2015/01/crude-speculators-are-still-long...

Crude speculators still massively long.

[GetZeeGold]

Crude speculators still massively long.

Good.

[Quinvarius]

Goldman is, of course, always wrong.  Which is sad.  I liked cheap oil.  You cannot possibly tell who is long or short anymore.  Banks report in whatever column they want.  From Goldman's stupidity, it is probably time to start buying the dips and selling the rips while waiting for an uptrend to return.  The bottom is probably going to be more or less in for any long term shorting.  Meaning, whatever it loses, it will likely gain back quick enough.

[Ewtman]

Stock aren't going to be bouncing anywhere this week:

DOW 

http://www.globaldeflationnews.com/dow-jones-industrial-averageelliott-w...

S&P 500

http://www.globaldeflationnews.com/sp-500-indexelliott-wave-update-for-w...

[Farqued Up]

I need a program to read this alphabet soup article. If it were not abbreviated, however, it woul have required front and back covers.

[SmittyinLA]

Correct me if Im worng but didn't the Socialist Jews and Muslims in the EU just have a solidarity march for printing? 

You think that parasite mob is going to cut its own spending? 

They will print