Erste bank has released the definitive report on oil price dynamics (attached) accounting for all the latest geopolitical hoopla. For what it's worth, the Austrian bank is constructive on oil prices, and see substantial upside from here: "We see mainly upside risk for the oil price. Even though the supply in the market is currently still sufficient, we believe that the wave of revolutions will continue to roll and could thus push the oil price to new highs. For technical reasons we therefore expect the upward trend to continue at least in the first half of the year, and we also think that new all-time-highs are possible. As soon as the parabolic phase has been reached, the sentiment starts spiking, and first divergences are emerging, we recommend stops be set. However, it currently seems to be too early for that. We expect an average price of Brent of USD 124 for the full year." 57 pages of pure factual and chart goodness.
Keep a very close eye out on the 55 DMA. As John Noyce pointed out over the weekend, this is the most important support level for the S&P, which has been above the 55 DMA for about 132 consecutive days. Should this be taken out, and we are about 1 point away from it, the freefall below it (at least for those who believe technical analysis) will make a few heads spin. Next support: 1,174.
That didn't take long: From Goldman's Hatzius "News Reinforces Our Sense Of Downside Risk To Q1 Growth." Ah, the propaganda bureau's primary dealers: predictable as a Swiss watch. How long before RenTec's headline parsers read between the lines and realize that QE3 will launch at the latest by September. Of course, there are a few European near-defaults and passed stress tests in the interim, so the dollar may well jump for a month or two, only to plunge to fresh(er) all time lows once more QE is announced (just prior to which Gross will start buying bonds).
US Trade Deficit Surges To $46.3 Billion On Expectations Of $41.5 Billion: Downard GDP Revisions ComingSubmitted by Tyler Durden on 03/10/2011 10:06 -0400
And another piece of bad news for both the US economy and US exporters in particular, even despite prevailing dollar weakness over the past several months: the January US trade deficit printed at $46.3 billion, on imports of $214.1 billion ($10.5 billion higher M/M) and exports of $167.7 billion ($4.4 billion higher). This was the worst number since August 2010. The December deficit was revised to $40.3 billion from $40.6 billion. The December to January increase in imports of goods reflected increases in industrial supplies and materials ($4.4 billion); automotive vehicles, parts, and engines ($2.7 billion); capital goods ($2.1 billion); consumer goods ($0.9 billion); and foods, feeds, and beverages ($0.5 billion). A decrease occurred in other goods ($0.6 billion). The December to January increase in exports of goods reflected increases in industrial supplies and materials ($3.7 billion); automotive vehicles, parts, and engines ($1.3 billion); and foods, feeds, and beverages ($0.1 billion). Decreases occurred in consumer goods ($0.6 billion); capital goods ($0.4 billion); and other goods ($0.3 billion). And unfortunately for Wall Street, few are importing US financial innovation any more: "Services exports increased $0.5 billion from December to January." So how much lower does the dollar have to plunge before someone actually starts importing US goods? And an amusing discrepancy: according to the US, the January trade deficit with China was $23.3 billion. According to China, the trade surplus with the US in January was $13.6. Just 100% off between two departments of truth. Due to notable weighting of trade data in GDP calculations, look for another round of downward GDP revisions. The Goldman spin is becoming increasingly difficult at this point. Next up: Next up: Hatzius on the Dudley hotline asking for instructions?
Update: it appears the suicide bomber has been arrested.
Earlier, Heathrow's Terminal 5 was shut down earlier on rumors of a package. According to Sky News, however, the package is about 5'10", is packing a bomb and is now in a standoff with armed police. Unclear if extra baggage fees are the culprit. The one thing so far missing from the latest geopolitical escalation was terrorism. Hopefully this incident does not usher that in.
Just a headline from Dow Jones. No reaction from the oil complex yet.
And so the economic "improvement" data takes another big step back after the rumored improvement in claims reverts, following the traditional negative prior revision to 371K, coming at 397K on expectations of 376K. Non-seasonal claims surge by 52K higher from 354K to 406K. Continuing claims declined from an upward revised 3791K to 3771K, missing expectations of 3750K. And according to a BLS official this time the factor to blame is "school holidays." It appears there was no snow last week. Disturbingly, those on EUCs and Extended Benefits surged by 200K.
- Brent crude futures fall $2 on dollar strength (Reuters)
- Inflation in Asia Strikes at Core (WSJ)
- China Central-Bank Adviser Urges Yuan Reform (WSJ)
- Prospect of China Bank Crisis Dismissed (FT) - we feel better already
- Europe’s Banks Face 5% Stress Test Ratio (FT) - Stress Test II is not Stress Test I
- Gold retreats in line with oil, but Libya underpins (Reuters) PM liquidations very likely if there is a sharp market pullback today
- Gaddafi tanks, jets strike deeper into rebel heartland (Reuters)
- FBI: ‘Sovereign citizen' cases on the rise (AJC, h/t Robert)
- Spain to Reveal Cajas’ Capital Hole in Fight Against Contagion (Bloomberg)
- Deficit Proposal Picks Up New Allies (WSJ)
Markets in negative territory this morning on the combination of Spain’s credit rating downgrade and an increase in oil prices linked to Libyan President Qaddafi’s airstrike against his country’s own oil export centers yesterday. The U.S. budget remains in limbo as the Senate rejected both a Republican and a Democratic plan yesterday, showing that some compromise is necessary for the budget to move forward. Note that the government’s spending authority ends on March 18. Trade balance figures to be released this morning are expected to show a larger deficit for January at -$41.5BE v -$40.6 prior, owing to the increase in the price of oil imports. Treasuries rallied yesterday as European risk became more apparent. Today’s initial jobless claims are estimated to increase slightly to 376KE from last week’s 368K, the lowest level in nearly three years.
After China was expected to post a $4.9 billion February trade surplus, the centrally planned economy demonstrated just how easy it is to shut all CNY "undervaluation" critics up, by posting a miraculous $7.3 billion trade DEFICIT in February, which just happened to be the largest in 7 years, following January's surging surplus. The result was due to a general contraction in both exports and imports during the month, but obviously a much larger drop in the former - Exports growth decelerated to 2.4% Y/Y in February (consensus forecast: 27.1% yoy) , down from 37.7% yoy in January. The implied month-on-month; seasonally-adjusted; annualized (s.a. ann.) growth rate was 40.7%, down from the 74.0% growth recorded in January. At the same time imports growth softened to 19.4% yoy in February (consensus forecast: 32.6% yoy) , down from 51.0% yoy in January. On a M/M seasonally adjusted annual basis, imports growth was 58.3% in February, down from 101.8% in January. And as the chart below shows, while February is traditionally the weakest export month for China, this level of surprise can only be attributed to political determination to once again shut up CNY critics, as the case that the renminbi is undervalued goes out of the window should this level of deficits persist. As for the party line, where something is always blamed for everything, this time it was the Lunar New Year's fault.
The great tightening wave in Europe is coming any minute now.... Just not yet. Below is Goldman's take on today's unsurprising move by the BOE to keep rates unchanged (although judging by the GBP some actually were surprised).
As expected, after hitting a simply ridiculous level of over 1.40, the EURUSD has started to materially roll over, and is now down to 1.383, with a first interim target in the mid 1.20s. The reason, in addition the billions in debt rollover this month (see Portugal's very weak auction yesterday), is the realization that the banking system in a Europe which is allegedly poised on the edge of tightening, is as weak as ever, and will have to take another dose of stress test placebos which will do nothing to assuage skepticism as spreads hit another day of record levels. Today, Moody's added insult to injury after downgrading Spain for the second time in 3 months, from Aa1 to Aa2, with a second level of insult arising from Moody's assessment that Spain may also suffer due to the recent surge in oil and see further downgrades as the oil rise would have Spain credit implications, adding that Spanish government has little control over region's spending.
Bernanke Tries To Explain Why A Ponzi Scheme Is A Perfectly Acceptable System For Post Civil-War America, FailsSubmitted by Tyler Durden on 03/09/2011 17:55 -0400
The following exchange between Ben Bernanke and Senator Kirk is a must watch for everyone who wonders how Ben Bernanke justifies the fact that America is now an open Ponzi scheme. Kirk's question "in laymen's terms this is one part of the government lending another part of the government money, which would not let to long term confidence once the American people understood the basics a little bit better" relates to the open monetization that the Fed does each and every day at least until the end of June. What Kirk did not ask is what happens when the American people realize just how truly preposterous the Ponzi is, and that all the interest "paid" by the Treasury to the Fed ends up being remitted as cash right back to the Treasury as revenue in essence incentivizing the Treasury to spend and borrow more in order to earn more! This is the most circular Weimarian nightmare scenario imaginable, and we can only hope that "the American people" understand this as soon as possible. As to Bernanke's surprise that the US had a currency without any Federal debt to back it up (yes, it is possible to live within one's means, even for a central bank) can we remind the Chairman that the gold on the Fed's balance sheet, all eight tungsten thousand tons of it, is actually Marked to Market to almost $300 billion, and can by definition be used as a pledge to any liability, such as a currency or excess reserves. But oh yes, how could we forget, using just gold as an asset would never afford us the kind of adamantium price stability that we have seen in recent times. Plus how on earth could one infinitely dilute the dollar if the Fed's balance sheet was limited by actual "assets" that do not require Hewlett Packard tech support every now and then.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 10/03/11
RealtyTrac has released a whopper of a foreclosure update. While total foreclosure activity had dropped in November when the first hint of fraudclosure was made evident, it subsequently stabilized and even increased slightly in January. Well, in February it took another step function lower, declining by a whopping 14% sequentially, and 27% Year over Year: the biggest decline in history. “Foreclosure activity dropped to a 36-month low in February as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets,” said James J. Saccacio, chief executive officer of RealtyTrac. “While a small part of February’s decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months. And monthly volume may never return to its peak in March 2010 of more than 367,000 properties receiving foreclosure filings.” What is even more disturbing is the following: "Scheduled judicial foreclosure auctions (NFS) decreased 7 percent from
January and were down 49 percent from February 2010. Scheduled
non-judicial foreclosure auctions (NTS) decreased 11 percent from the
previous month and were down 7 percent from February 2010." This means that banks are now actively halting process in that most critical of non-judicial states - California, which means the bottom is about to fall off the market. And with the monthly cost of associated litigation in the tens of millions for the big mortgage lenders, it is now a certainty that the banks are massively underreserved for the litigation tsunami that is coming their way, especially with MERS now out of the picture and on the verge of seeing its entire business model unwind, rendering tens of millions of mortgages potentially null and void.