Morgan Stanley

The new year has officially started because it wasn't even a day in and Mario Draghi was once again out and about, jawboning the Euro to a lower level than where it was when he said back in 2012 he would do "whatever it takes" to push it higher. The reason, as Reuters reports, why the Euro sank to a nearly 5 year low against the USD, was "clear indications that the European Central Bank will soon embark on outright money-printing." Actually, it was on just more hollow rhetoric by Draghi, who told German Handelsblatt that "the risk that we don’t fulfill our mandate of price stability is higher than it was six months ago." He also added that "it’s difficult to say” how much the institution will have to spend on government-bond purchases.

"The Greek political turmoil is likely to complicate matters for the ECB’s preparation of a sovereign QE programme. The prospect of the ECB potentially incurring severe losses is likely to intensify the debate within the Governing Council, where sovereign QE remains controversial. It could also make the start of a buying programme already on January 22 even more ambitious. In addition, the spectre of default could create new limitations on any sovereign QE design."

• U.S. agency gives quiet nod to light oil exports (Reuters)
• China’s Stocks Fall to Pare Biggest Monthly Advance Since 2007 (BBG)
• The Cartel: How BP Used a Secret Chat Room for Insider Tips (BBG)
• BRICs Busted as Stocks Diverge Most on Record on Outlook (BBG)
• Petrobras deadline prompts some bondholders to push for default (Reuters)
• AirAsia Captain at His Happiest When Flying, Family Says (BBG)
• UK housing crisis: brick stocks hit record low (Telegraph)

• European Stocks Drop as Greece’s ASE Tumbles After Vote Results (BBG)
• AirAsia Stock Drops Most Since 2011 After Flight Vanishes (BBG)
• Libya's NOC says firefighters had managed to extinguish the blaze at three of 6 burning oil tanks (BBG)
• Bomber kills 11 Shi'ite pilgrims north of Baghdad (Reuters)
• Hillary Clinton Faces Uphill Fight for White, Rural Vote (WSJ)
• Yen’s Slump Seen Longest Since Gold Standard Ended (BBG)
• The 94% Plunge That Shows Abenomics Losing Global Investors (BBG)
• Sony's 'The Interview' makes $18 million in opening weekend (Reuters)

We live in a new world, and the Saudis are either the only or the first ones to understand that. Because they are so early to notice, and adapt, I would expect them to come out relatively well. But I would fear for many of the others. And that includes a real fear of pretty extreme reactions, and violence, in quite a few oil-producing nations that have kept a lid on their potential domestic unrest to date. It would also include a lot of ugliness in the US shale patch, with a great loss of jobs (something it will have in common with North Sea oil, among others), but perhaps even more with profound mayhem for many investors in US energy. And then we’re right back to your pension plans.

• Police officers' slaying raises pressure on New York mayor (Reuters)
• People Call for Cooling of Racial Tensions After Murder of NYPD Officers (BBG)
• The $6.3 Trillion Frenzy That Vanquished Treasury Bears (BBG)
• China Investigates Possible Stock-Price Manipulation (WSJ)
• Citigroup Was Wary of Metals-Backed Loans (WSJ)
• UPS Turns Parking Lots Into Sorting Centers to Add Speed (BBG)
• U.S. Move to Normalize Cuba Ties Boosts Firms’ Asset Claims (WSJ)
• Meredith Whitney’s Fund Said to Drop 11% as Office Put on Market (BBG)
• Railcar Bottleneck Looms for Oil (WSJ)

Banks are selling a record amount of U.S. structured notes tied to the stocks of fast-growing, volatile technology companies such as Facebook and Twitter. As Bloomberg Briefs reports, sales of securities linked to Facebook soared to $457.6 million this year, more than double the $204.2 million issued during the same period of 2013. Bloomberg notes that investors are flocking to products tied to social media companies, where more volatile share prices help banks improve structured-note terms that have been hurt by low interest rates... and issuers are "trying to put shiny objects in front of the client," as the BTFD mentality gets increased leverage (and downside risk). Investors have purchased $1.88 billion of structured notes linked to the 10 most popular technology stocks so far this year - 31% more than the same period in 2013 - and $32.7bn equity- and commodity-linked notes this year alone (up ~10% YoY). As we warned last week, counterparty risks are rising.

Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."

"I’m tired of being outraged!"

There are some signs of trouble in emerging markets. And the money at risk now is bigger than ever.

• Swiss National Bank Starts Negative Interest Rate of 0.25% to Stave Off Inflows (BBG)
• Putin Strikes Uncompromising Stance Over Crisis Gripping Russia (BBG)
• Sony cancels North Korea movie in apparent win for Pyongyang hackers (Reuters)
• U.S. Said Set to Blame North Korea for Sony Cyber Attack (BBG)
• China’s Short-Term Borrowing Costs Surge as Demand for Money Grows (WSJ)
• Russia Currency Market Bends But Doesn’t Break (BBG)
• Jeb Bush Puts Pressure on Chris Christie for 2016 (WSJ)
• From joy to outrage, Florida's Cuban-Americans greet new U.S. policy (Reuters)
• Russians Quit London Luxury Homes as Only Super-Rich Stay (BBG)

• Ruble Sinks to 80 a Dollar Defying Surprise Russia Rate Increase (BBG)
• Oil slumps near $59 for first time since 2009 on oversupply (Reuters)
• Oil sinks, Russian moves fail to quell nerves (Reuters)
• Fed Seen Looking Past Low Inflation to Drop ‘Considerable Time (BBG)
• Students Among Dead as Pakistan Gunmen Kill 126 at Army School (BBG)
• Repsol to buy Talisman Energy for $13 billion (Reuters)
• Indonesia’s Rupiah Erases Decline After Central Bank Intervenes (BBG)
• Anti-Islam Rally Grows as Immigrant Backlash Hits Europe (BBG)
• Saudi Arabia is playing chicken with its oil (Reuters)

• Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
• Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
• Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
• Tremble algos: the SEC has hired... "QUANTS" (WSJ)
• When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
• Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
• Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
• Amid Crisis, Pimco Steadies Itself (WSJ)

• Oil slide hits European stocks, safe-haven assets sought (Reuters)
• IEA Cuts Global Oil Demand Forecast for 4th Time in Five Months (BBG)
• Cue constant pro-Abe propaganda out of Japan: Japan’s Secrecy Law Takes Effect as Abe Seeks Fair Vote Coverage (BBG)
• As if it has a choice: Japan’s GPIF Bets on Abenomics-Driven Recovery (WSJ)
• Heather Capital: How a $600 Million Hedge Fund Disappeared (WSJ)
• Senate Panel Votes to Authorize U.S. War on Islamic State (BBG)
• Japan’s 28 IPOs in 11 Days Give Abe a Lift as Startups Boom (BBG)
• U.S. authorities face new fallout from insider trading ruling (Reuters)
• Greek Stock Rout Means ASE Is 2014 Worst After Russia (BBG)

Anyone who was hoping the market would rebound on last-minute news that the US government has gotten funding for another 9 months, will be disappointed this morning, when futures are finally starting to notice the relentless decline in crude, and with Brent down another 1% as of this writing following yet another cut in the forecast of Global oil demand by the IEA (the 4th in the last 5 months) and with Chinese industrial production also missing estimates (recall that the Chinese slow-motion hard landing has been said by many to be the primary catalyst for the crude collapse) which however pushed Chinese stocks higher on hopes of even more stimulus, the S&P is trading lower by some 14 points, the 10 Year is in the red zone at 2.12%, and the USDJPY is close to session lows. In short: Kevin Henry's "ETF" desk at the NY Fed will have its work cut out to generate one of the now traditional pre-weekend feel good, boost confidence stock market ramps.

• Shale operaters Goodrich, Oasis Petroleum cut spending for 2015 as oil slides (Reuters)
• Greece to hold elections in January if president vote fails (Reuters)
• Norway’s Shock Rate Cut Drives Krone to Lowest Since 2009 (BBG)
• ‘Severe Downturn’ Threatening Norway, Central Bank Governor Says (BBG)
• Russia’s Fifth Rate Increase Fails to Halt Ruble Slide to Record (BBG)
• SNB Says Deflation Risks Increased as Franc Cap Maintained (BBG)
• China eases bank lending restrictions, PBOC targets 10 trillion yuan in loans for 2014 (Reuters)
• Mobius Says China’s Bull Market Is Just Getting Started (BBG)
• How Wal-Mart Made Its Crumbling China Business Look So Good for So Long (BBG)