Iran

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Much noise has been emanating out of Israel vis-a-vis its Iranian intentions, with some opinions suggesting an attack is imminent, while others claiming that Israel will ultimately defer to D.C., and postpone an attack, and the eventual gasoline price shock, until after the election. The truth is nobody but a few select generals, knows: in warfare surprise is the key factor, so outright flashing invasion intentions is usually an indicator of just the opposite. That said, the most recent update that Azerbaijan has granted Israel access to its airbases along the Iran border is hardly encouraging for Nobel peace prize winners and other pacifists. Yet as we have been claiming for the past two weeks, ever since the launch of CVN-65 on its last tour of duty, the true catalyst will be the arrival of the USS Enterprise at what may well be its last place of anchor - somewhere in the Arabian Sea, just off the side of CVN 70 and CVN 72 both of which are patrolling the Straits of Hormuz. And as the map from Stratfor below shows, the Enterprise is about to cross the Suez Canal, from which point it will be at most days from entering its catalyst location, namely supporting the Israel air force. Just because the US has never had 3 concurrent aircraft carriers in proximity to Iran before.

Iran's oil exports have dropped in March as buyers prepare for sanctions, and shipments are likely to shrink further if Obama determines by Friday that markets can adjust to less Iranian oil and tightens sanctions even further. Sanctions could eventually leave half of Iran's oil output cut off from international markets, according to analysts and officials. Iran is also being excluded from global commerce and the global economy by being locked out of the international payment system – SWIFT. SWIFT, the Brussels based clearing house, announced last week it will cut services to Iranian banks on foot of European sanctions, in order to comply with the EU Council. The service denial includes Iran’s central bank, which processes Iran’s oil revenues. Some 30 Iranian banks will be blocked from doing international business. History suggests that the trade, economic and currency war with Iran may soon degenerate into an actual war. Increasingly, the regime in Iran has little to lose in engaging in a more aggressive foreign policy – including attempting to close the strategically important Straits of Hormuz.

Going into the US open, European equity markets are trading slightly lower with some cautious trade observed so far. In individual equity news, France’s Total have shown some choppy trade following reports from their Elgin gas field in the North Sea, shares were seen down as much as 3% but the company have played down the gas leak and have regained slightly in recent trade; however they remain down 1.4%. In terms of data releases, the final reading of Q4 GDP from the UK has recorded a downward revision to -0.3%. Following the disappointing release, GBP/USD spiked lower 20pips and remains in negative territory.  In the energy complex, WTI is seen on a downward trend following last night’s build in oil reserves shown by the API data. Earlier in the session French press reported that France had made contact with the UK and the US regarding the release of emergency oil stocks, following this, WTI spiked lower around USD 0.30 but quickly regained.  Looking ahead in the session, international market focus moves to the US, with durable goods orders and the weekly DOE oil inventory due later today.

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Gold is targeting $1,700/oz after yesterday’s Bernanke QE hints and today’s urging by the OECD to boost the Eurozone ‘firewall’ by another $1.3 trillion. Gold is consolidating on yesterday’s gains today above the 200 day moving average (simple) at $1,687/oz after yesterday’s biggest daily gain since January. The gains came after Ben Bernanke warned of the risks to the fragile US economic recovery and signalled the Fed would keep interest rates low and further debase the dollar – boosting gold’s inflation hedging appeal. Gold is also likely being supported by the OECD’s warning that the debt crisis is far from over. The OECD said today that the euro zone's public debt crisis is not over despite calmer financial markets this year and warned that Europe's banks remain weak,  fiscal targets are far from assured and debt levels are still rising. The OECD said that the eurozone needs to boost crisis ‘firewalls’ to at least $1.3 trillion. Gold likes the ‘trillion’ word and talk of ‘trillions’ and will be supported by the risk of the creation of trillions of more euros, pounds and dollars in the coming months. Indian jewellers are on strike to protest against a government levy on gold and the strike is entering its 11th day in most parts of India. It has brought gold imports to a near standstill from the world's biggest buyer of bullion in the peak wedding season.  The Indian government for the second time in 2012 doubled the import tax on gold coins and bars to 4% along with an excise duty of 0.3 percent on unbranded jewellery.

In today's open mic farce that has made the president a target of a fresh republican onslaught, we have Obama telling Russian presidential pawn Dmitry Medvedev that "this is his last presidential election", and that he will have "more flexibility after the election." One can only assume that Obama is referring to the aggressive NATO expansion which has angered Russia substantially as noted previously, and even led to Russia putting radar stations on combat alert. It could be this or it could be anything, including US posturing vis-a-vis Syria assuming the stance a huanitariam, if completely impotent, do-gooder globocop, or for that matter any other foreign policy fiasco in which Russia now have the upper hand by default. Naturally, one wonders why Obama would be pandering to Russia (well, aside for the country's premier export position when it comes to nat gas and crude of course) in the first place. Or more importantly, as the GOP has now figured out, why does the president need to be more flexible after the election to begin with, and to what other special interest will Obama be far more responsive than to his mere electorate. Either way, nothing but more theater as central planning continues on its merry way to terminal dislocation with reality.

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Oil as a commodity has always been a highly valuable early warning indicator of economic instability.  Every conceivable element of our financial system depends on the price of energy, from fabrication, to production, to shipping, to the consumer’s very ability to travel and make purchases.  High energy prices derail healthy economies and completely decimate systems already on the verge of collapse.  Oil affects everything. This is why oil markets also tend to be the most misrepresented in the mainstream financial media.  With so much at stake over the price of petroleum, and the cost steadily climbing over the past year returning to disastrous levels last seen in 2008, the American public will soon be looking for someone to blame, and you can bet the MSM will do its utmost to ensure that blame is focused in the wrong direction.  While there are, indeed, multiple reasons for the current high costs of oil, the primary culprits are obscured by considerable disinformation…   The most prominent but false conclusions on the expanding value of oil are centered on assertions that supply is decreasing dramatically, while demand is increasing dramatically.  Neither of these claims is true…

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European cash equity markets were seen on a slight upward trend in the early hours of the session amid some rumours that the Chinese PBOC were considering a cut to their RRR. However, this failed to materialise and markets have now retreated into negative territory with flows seen moving into fixed income securities. This follows some market talk of selling in Greek PSI bonds due to the absence of CDSs. This sparked some renewed concern regarding the emergence of Greece from their recovery. Elsewhere, we saw the publication of the BoE’s financial stability review recommending that UK banks raise external capital as soon as possible. This saw risk-averse flows into the gilt, with futures now trading up around 40 ticks.

Back in early 2011, even as the global economy was at best flatlining, the one goalseeked explanation to justify a levitating stock market (which was rising solely due to the short-term effect of transitory QE2 liquidity), was soaring corporate profitability (which only lasted as long as companies could trim some residual SG&A fat; they have now cut into the bone in terms of layoffs). This time around, with corporate margins having peaked, there had to be some other validation to explain away the "narrative" of the latest bout of central bank infused stock market levitation: it just happened that this time it was once again that old faithful, and always wrong, justification - decoupling. After all one just has to listen to 5 minutes of CNBC to hear it taken for granted that the US economy is doing oh so swimmingly. Here is a newsflash for all the permabulls out there. It isn't. Not only that, but as David Rosenberg highlights, 11 of the 13 most recent economic indicators have missed consensus expectations, and one can demonstrate that the other 2 - car sales and jobs - have been simplistically manipulated into a favorable outcome. So now that the market is turning over, with Europe and China both solidly into contractionary territory, with Corporate profit margins turning over, and with US data missing virtually every print, how long until the permabullish validations all go up in smoke, and the one true source of stock market "nirvana" - cheap money - is once again in high demand from the central planning cabal. In turn, the Chairsatans of the world will do as requested, as they always do, however not with crude (the real one - Brent, not that Cushing-buffered substitate) at $125, and with the risk that Israel may attack Iran any day now, with or without the blessing of the Fed's Class A director.

In a number of stories in China's top newspapers today, the US has been slammed for its moves to restrict Iran's oil trade which could see Chinese banks sanctioned. As The People's Daily noted, Hong Lei (a Foreign Ministry spokesperson) warned such unilateral action was not only wrong but could exacerbate the stand-off over Iran's nuclear program. Arguing that China 'imports oil based on its economic development needs' without violating relevant resolutions of the UN Security Council and undermining the third party's and international community's interests, he noted China will not accept the practice of saddling unilateral sanctions on the third country. Adding to this, China Daily notes the typical UN blah-dom of Wang Min's comments of the "more pragmatic importance to be firmly committed to dialogue and negotiations in order to properly solve the Iranian nuclear issue". While China is clearly 'disappointed' in the US efforts, Russia turns the dial to 11 with its comments that the US efforts are inflaming, as Russia's Foreign Minister Sergei Lavrov said Tuesday, "Scientists in nearly all countries....are convinced that strikes may slow down the Iranian nuclear program. But they will never cancel it, close it down or eliminate it" warning that Iran will have no option but to develop nuclear weapons should the US strike. Well you can't please all the people all the time eh? Just ask Ben.

Commodities are broadly under significant pressure but nowhere is it more noteworthy than in Crude (even though the USD is only modestly higher on the day). Brent is falling but WTI is underperforming as it trades down on the day at the biggest drop in over three months. Brent-WTI is leaking higher though as the focus shifts increasingly to Brent. WTI and Brent are trading down close to the SPR-rumor spike-low levels as China and Russia both raise the rhetoric against the US on Iran.

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