China

In December 2013, in a sign of robust global trade driving demand for container ships, the Baltic Dry Index peaked at 2,330. By July 2014, rates had collapsed to 730. Today, rates have fallen to 471, the lowest since the recession began (in fact, the lowest ever). The BDI is a leading indicator pointing to worse trade conditions. Just as the 2014 collapse in the BDI reflected a collapse in global trade, the recent erosion in the BDI signals further trade weakness to come. Here's a snapshot of the meltdown.. and the pain is getting worse.

The Chinese are so desperate for clean air - amid the most disgusting pollution in history - that they have turned to buying cans of fresh air to breathe during the most smog-filled days. With low oil prices crushing their economy, Canada has begun to export another resource as CNBC reports Alberta-based Vitality Air is selling "Rocky Mountain air" to the Chinese for $10 to $20 per can.

Commodities managers searched in despair; for solace, in cupboards, but cupboards were bare; BRIC managers looked at each other in shock, with a new acronym for EM markets – COCK.

The Saudi strategy has yet to bear itself out, but early indications suggest it is generating returns. Non-OPEC supply is expected to suffer its steepest decline in two decades in 2016, at a drop of nearly 0.5 mbpd. Moreover, U.S. shale producers are among the hardest hit. Oil production across the seven most prolific shale plays is expected to plummet a combined 116,000 bpd in January 2016. Still, the strategy is not without sacrifice, and several OPEC members are struggling to find – and, more importantly, endure – that magical balance between non-OPEC pain, market share retention/growth, and self-inflicted damage. Their tipping points are nearly impossible to predict, but there will be more losers than winners in this game of brinksmanship.

"To be sure, there is nothing to stop Chinese warships from sailing through under international law, but they will have to do so in within the crosshairs of Japanese missiles."

For CAT the global manufacturing depression just turned 3 years old as the company has now suffered through 36 consecutive months of declining annual retail sales - something unprecedented in company history, and set to surpass the "only" 19 months of declining during the great financial crisis by a factor of two!

"The interest of firms in both borrowing and spending continues to decline, suggesting it’s past time the ‘stimulus mafia’ rethinks its Pavlovian responses. Reform or bust."

• Oil heads for third straight weekly loss as supply weighs (Reuters)
• BOJ's $2.5 Billion ETF Boost Seen Having Little Impact on Stocks (BBG)
• Japan core CPI seen flat in November, household spending down (Reuters)
• Dollar gets altitude sickness as BOJ disappoints (Reuters)
• Fed Hikes, but Some Rates Veer Lower (WSJ)
• White House calls for 'common sense steps' to help Puerto Rico (Reuters)

Following the latest BOJ statement, the market found itself wrongfooted assuming the BOJ was actually launching another episode of easing, sending the USDJPY soaring, until suddenly the realization swept the market that not only was the incremental action not really material, but even Kuroda spoke shortly after the announcement, confirming that "today's decision wasn't additional easing." The result was one of the biggest FX headfakes in recent days, perhaps on par with that from December 4 when EUR shorts were crushed, as the biggest carry pair first soared then tumbled and since the Yen correlation drives so many risk assets, also pulled down not only Japanese stocks but US equity futures.

Economic warfare aims to capture or otherwise control the supply of critical economic resources or destroying a country’s currency.  The US understands better than anybody else that a country can sometimes be hurt more by doing this than by bombing its infrastructure. The tool of exclusion from the dollar-denominated global financial system is described as a 'neutron bomb' constituting a more potent bomb than any military weapon. But recent developments signal the first stages of the US dollar’s decay.

“Communist Party graft busters have been taking officials, one by one, to a hotel close to the [CSRC’s] headquarters to press them to come clean or report on others."

"Rising rates and falling profits are not a good combination for asset prices, so we will turn sellers of risk in early 2016."

Natural-gas fell to the lowest ever inflation-adjusted price in its history of NYMEX trading on Wednesday as extremely warm weather continues to limit demand. As we recently explained, the glut in nattie is worse than that facing the crude complex, and while the glut in oil is expected to continue for the next year or so before balancing in late 2016, the pain for liquefied natural gas (LNG) could be just beginning. As one trader warned "this market is in real trouble...just wait for the bankruptcies."

Heading into the Fed's first "dovish" rate hike in nearly a decade, the consensus was two-fold: as a result of relentless telegraphing of the Fed's intentions, the hike is priced in, and it will be a "dovish" hike, with the Fed lowering its forecast for the number of hikes over the next year. Consensus was once again wrong on both accounts: first the rate hike was far more hawkish than most had expected (see previous post), and - judging by the surge in Asian, European stocks and US equity futures - the "market" simply is enamored with such hawkish hikes which will soon soak up trillions in liquidity from the financial system.

Now, slave, get back to work, if you have a job, and make sure you save some energy for your other part time employment as you will be going to those jobs later today.