China

As we noted recently, BofAML fears "a depeg of the Saudi riyal is the number one black-swan event for the global oil market in 2016," adding that it is "a highly unlikely but highly impactful risk." Given the recent action in Saudi Riyal forwards - the market's best guess at where the oil-ruch nation's currency will trade in the future - the chance of the black swan 'de-peg' is its highest since 2002. Besides this morning's "whatever it takes" moment, which oil markets quickly shrugged off, amid heavy subsidies to keep the people calm and the costs of wars in Yemen (and more in Syria), weak oil revenues leave The Sauds with few options (outside of the load the nation with ever more debt program): It's either stop it with the whole flooding an oversupplied market strategy, or let the peg fall before reserves runs dry.

The traditional view of the impact of low oil prices seems to be, "It is just another cycle." Or, "The cure for low prices is low prices." We are doubtful that either of these views is right.

"... the next 12-18 months will be divided into three periods corresponding to the three distinct regimes of market dynamics. They can be summarized by the following modes of the curve: short-term tactical bear flatteners on the back of a Fed liftoff story, followed by volatile bear steepeners of the “taper-tantrum” type around mid-year, and a bull-flattening finale as structural factors deem rate hikes to be a policy mistake."

If you close your left eye, the US dollar is strong. The labor market has recovered to its pre-crisis levels. The US is affluent and free. But if you close your right eye, the dollar is astonishingly overvalued based on nearly every objective metric that exists, police forces have turned into federally-funded paramilitary units, and a grand surveillance state now dominates over the citizens, and many of the basic freedoms guaranteed by the Constitution have become watered-down aphorisms rather than inalienable rights. That’s our world. It is simultaneously full of risk AND reward. The important thing is to look with BOTH eyes.

2015 ends with the market cap of Amazon & Google exceeding that of every single Chinese company in the MSCI China index… the US stock market a mere 107 trading days away from becoming the 2nd longest bull market of all-time, with equity leadership driven by “growth” (longest duration of outperformance ever) & “quality” (at all-time relative high)… and $6trn of negatively-yielding government bonds, $17trn of bonds yielding <1%, and the Fed expected to raise the Fed funds rates for the 1st time since 2006.

The Federal Reserve has been telegraphing to markets that they are going to raise the fed funds rate by 25 basis points next month at its December Fed Meeting.

On November 18, the Chairman and CEO of Guotai Junan went missing, and given what we know about China's crackdown on anyone suspected of engaging in activities that might send stocks lower, you know what that means...

If you think you're fighting the market, or the banks, or the Fed, you're dead wrong!

It may be a holiday shortened week in the US with Thanksgiving and Black Friday sales on deck (some of which may be starting as soon as Wednesday) but there is a lot of macro data to digest in the next few days.

Perhaps a retail coals-in-the-stockings Christmas will awaken the mainstream media to the reality that recession is now a global phenomenon.

• Brussels on Edge as Lockdown Continues (WSJ)
• Stocks Pare Decline as Crude Oil Erases Drop on Saudi Comments (BBG)
• Italy’s Eni Plans to Pump Arctic Oil, After Others Abandon the Field (WSJ)
• Treasuries Decline as Economists Say GDP to Be Revised Higher (BBG)
• Why the Housing Rebound Hasn’t Lifted the U.S. Economy Much (WSJ)
• Argentina Fever Is Back for Investors as Kirchner Rival Triumphs (BBG)

As a result of the global commodity weakness, global stocks have fallen for the first time in six days as the sell-off in commodities continued, dragging both US equity futures and European stocks lower. However, putting this in context, last week the MSCI All Country World Index posted its biggest weekly gain in six weeks: alas, without a coincident rebound in commodity prices, it will be merely the latest dead cat bounce.

A big catalyst for the ongoing collapse in the Bloomberg commodity index which just hit a fresh 16 year low, is the relentless surge in the dollar, with the DXY rising as high as 99.98 the highest since April, as a result of rising prospects for a December U.S. rake hike (odds are now at 70%, up from 36% a month ago) boosting currency differentials and flows into the USD, making commodities more expensive for buyers in other currencies.

Front-month (Dec) copper futures are trading near $200 ($200.15) for the first time since March 2009 as the collapse in the global economic indicator extends to an unprecedented 14th day in a row. The ongoing collapse appears to have finally impacted Chinese equities which have given up the morning's gains and are drifting rapidly lower. Overall, as Goldman warns, the metals market appears to be increasingly pricing concurrent and/or future weakness in China’s old economy.