Copper

Oil is dropping rapidly once again - while the rest of its commodity peers remain tied to the USD movements this week. The reason? More market speculation that the House of Saud is doing everything in its power to send crude to lows just ahead of the presidential election, even as Infinite QE takes the Dow to 36,000. Just as we wrote yesterday.

Lot of noon / afternoon official chatter on the wires, but eventually nothing highly conclusive.

And oops… I still have the Blues.

Having had the last 2 weeks propped up by Ben and Jerry, oops, Mario, who delivered the f(l)avours that had been expected throughout the summer, markets will be in need for some concrete impulses to push further.

Spanish bond auction on Thu rather on the mighty side.

Mostly bored today, though...

Despite a last minute surge (as stock indices lurched from their day-session open to closing VWAP levels), US equity markets extended gains but basically slid lower once Europe had closed. The day session opened gap higher as Europe extended (though Spanish debt slumped) and rushed out of the gate to new multi-year highs only to stumble on high volume and large block size into the European close. Also notable that VIX - which had tracked stocks from the QE3 announcement, began to push higher as stocks 'capitulated' up in the high 1460s and then stocks rolled back downhill for the rest of the day. VIX ended the day up 0.5vol at 14.5% while ES closed up 8pts. Equity sectors have split into 3 groups from the FOMC statement - Materials/Energy/Financials +~3.5%, Industrials/Discretionary/Tech +~2%, and Healthcare/Staples/Utilities +~0.5%. The USD lost 1.65% on the week (EUR +2.3% and JPY -0.18%) as Treasuries saw some vol but were basically one-way street with the long-bond +26bps, 10Y +20bps, and 5Y +6bps. Commodities outperformed USD-implied moves with Oil/Silver/Gold all up around 2-3% on the week - while Copper surged overnight to gain just under 5% on the week. Credit markets were less exuberant than their tracking stocks yesterday with HYG ended the day red.

Given how many unconventional means have been deployed over the last weeks, I wouldn’t exclude some form of stimulus postpartum depression… With nothing in immediate sight, it’d better hold. Why does my heart feel so bad?

Whatever... Final sign off by Germany and an ESM start-up session for 08 Oct.

Yes, Sir, I Can Boogie.

Spanish aid “not urgent, given actual market levels”…

No Boogie?

Retirement must be on again as the Dow creeps up to close at its highest since 12/28/2007 - no more reassuring sign that we need QE stat!! The high-yield bond ETF (HYG) also pushed to new highs - amid heavy volume - as it left its credit-spread and equity risk reality in the dust (as well as its intrinsic value) but who cares - QE/ESM/OMT/WTF - it's on like donkey kong. At least VIX kept some sense of rationality as it closed near its highs on the day, pricing in somewhat the binary concerns of the next 24-36 hours. Volume was nothing to write home about - nor was average trade size - as S&P futures rolled well off their highs to fall back below VWAP into the close and after-hours (when volume picked up). Commodities were mixed with Oil and Copper up, Gold flat and Silver down as the USD dropped (down 0.3% on the week) and stabilized after Europe's close. Treasuries leaked higher in yield (despite a record-breaking 3Y) but remain below Friday's peak-yield levels.

The conundra continue to mount up around the world as central planning efforts dislocate asset-values from reality wherever one looks. Nowhere is the juxtaposition of hope-and-fear more evident than in the industrial metals. We have discussed the reality of Iron Ore, and the unreality of China stimulus (funded or unfunded) bringing the excess inventory back from the edge ad nauseum but, as the WSJ notes, the stacks of copper slabs inside the warehouses of Shanghai last month grew by 20% since July. In fact, so much copper has been sent into storage that it is being lined up outside some buildings as "there's much more metal than we'd expected," and some would see this huge inventory growth as a signal of "people's uneasiness about Chinese growth." However, sure enough, copper prices are soaring - on the back of expectations that inventories are so high that the PBoC will step in with some stimulus and all will be well in the world again. While Deutsche Bank opines "any rally in copper prices based on expectations will likely not be sustainable," the alternate perspective, based on hope and dreams is that "just a couple of months of better demand - it will quickly change the perception of surplus to tightness." Meanwhile, the effervescence of central-bank-driven exuberance in prices has driven the 'value' of a good-old-US-Nickel up to 5.2 cents (its highest in four months).

Looks like a loop bad US news, good EUR; good EUR must be good news.

Love boat, everywhere. Final Risk On, or so. And up 1%

By now everyone knows about the collapse in Chinese iron ore consumption, electricity production and luxury good demand (see Burberry), as well as the record copper stockpiling, all of which point to the arrival of the long-deferred Chinese hard landing. Rumors, subsequential denials notwithstanding, that Chinese Hu Jintao successor Xi Jinping may or may not be missing, are not helping. Below we present yet another data point which had, for the longest time managed to diverge from the underlying Chinese economic reality, only for it too now to recouple with gravity with a bang: Chinese crude imports. Coming in at 18.4 million barrels, this was a 16% plunge from July's total imported energy needs, and is the lowest print since mid-2010 swoon, first crossed to the upside back in early 2009. Which likely is where the general Chinese economy is as well, at least in terms of actual demand. Only this time instead of going from the lower left to the upper right, to quote Dennis Gartman, it is doing the inverse.

Ah, hmm, yes, Greece… Not much else to chew on.

Risk is lofty and near the point where all stimulus measures that were already priced have been delivered.

So, what's next?

Central Banks United have the upper hand these days. So don’t mess with them…

At least not this week…

China and India have always been crazy for gold, and the yellow metal remains the choice store of value in those two countries, says Don Coxe, a strategic advisor to the BMO Financial Group. In an exclusive interview with The Gold Report, Coxe explains how demographic shifts are affecting the price of gold and delves into the logic of investing in gold as a long-term strategy. Coxe also draws an important lesson in economics from his reading of Lenin.

So, ok, yes, there’s a huge conditional bazooka out there, but who wants to really use it?

 Seems like a huge defibrillator. Good to have, but beware of not shocking the patient too much.