Crude Oil

Putting the 'mad' in Maduro. Venezuela's heavy crude oil price just crashed almost 9% to $31.24... its lowest since December 2004. Time for another 'swap' with China?

It was a relatively calm overnight session in which European stocks wobbled modestly, Japan was up, China was down following its weakest fixing since 2011 as the PBOC continues to aggressively devalue since the SDR inclusion (stoking concerns capital outflows are once again surging), EM stocks stocks were weak and the dollar was unchanged ahead of today's retail sales data and next week's Fed meeting, and then suddenly everything snapped.

The Energy names in the S&P 500 haven't broken their August lows in the recent downdraft for the group. That’s surprising for two reasons: first, spot crude prices certainly have – $36.52 today versus a $39.65 low on August 24th; and second, December is typically the month where investors harvest tax losses by selling losing positions and the Energy sector has a bumper crop of such candidates.

After yesterday's rollercoaster session in both the S&P and in oil, where initially stocks soared alongside oil, only to promptly tumble as stops were taken out and as the refiners' inventory strategy was exposed after the DOE's latest weekly numbers were released, it has been a quieter session so far, though maybe not for China where stocks jumped at the open only to fizzle and close at the lows in what appears to be ever less intervention by the market manipulating "National Team."

The huge spike in the BofAML High Yield CCC’s that we noted last week is proving to be a real event, real trading and possibly a wholesale reset of the whole funding and liquidity environment. This is far, far more serious than just oil trading below $40 once more.. and brings the death of "transitory."

FCX announced today that its Board has suspended its annual common stock dividend of $0.20 per share. This action will provide cash savings of approximately $240 million per annum and further enhance FCX’s liquidity during this period of weak market conditions. FCX’s Board will review its financial policy on an ongoing basis and authorize cash returns to shareholders as market conditions improve.

Overnight market action has largely been a continuation of Tuesday's key themes with European stocks falling as a selloff in mining companies extended to a 7th day, even as metals prices rose and crude oil rallied modestly from a six-year low after yesterday's API crude inventory draw. U.S. equity futures have rebounded from modest declines, as emerging-market shares extended their losing streak to a 6th day while Asian stocks dropped to 2 month lows.

The day of reckoning has arrived for the oil price. After a year of "Oil Price Crash" in October the world managed record production of 97.09 Mbpd. Production momentum built in the period of high price, 2007 to 2014, is proving very difficult to switch off. It must be switched off and it seems to me the most likely scenario is sharply lower oil price in the near term.

Over the weekend, in its latest quarterly presentation, the Bank of International Settlements made what may have been a very premature assessment that China is now contained. Judging by events in the past 24 hours, the reality is anything but.

Paul Volcker and Alan Greenspan were the Elvis and Beatles of this movement – the first to see widespread fame for their efforts. Then came Ben Bernanke, perhaps the Jimi Hendrix or Led Zeppelin of his day, taking existing tools and pushing them in new, previously unconsidered, directions.  Now, we have Janet Yellen and Mario Draghi, whose legacies are as yet undefined. They may end up like the next generation of rock stars from the 1970s – something like Bruce Springsteen, with a deep focus on common people in his music. Or, they could be the Bee Gees, who focused simply on commercial success. Only time will tell.

With Draghi's Friday comments, which as we noted previously were meant solely to push markets higher, taking place after both Europe and Asia closed for the week, today has been a session of catch up for both Asian and Europe, with Japan and China up 1% and 0.3% respectively, and Europe surging 1.4%, pushing government bond yields lower as the dollar resumes its climb on expectations that Draghi will jawbone the European currency lower once more, which in turn forced Goldman to announce two hours ago that it is "scaling back our expectation for Euro downside."

Iraq “may soon ask Russia for direct military intervention in response to the Turkish invasion and the violation of Iraqi sovereignty."

Optimism in US equity futures appears to have returned, and as of this moment US equity futures are higher by 9 points to 2060 as the attention shifts to what, according to BofA, is truly the most important ever. It is unclear just how the algos would take a second consecutive major disappointment in a row: should today's NFP print be well below the 200,000 consensus, December rate hike odd will tumble and the EUR will surge even more after declining modestly from overnight highs just below 1.10, leading to even more losses in European equities and spilling over to the US. 

Yesterday's market swoon which unwound all of Tuesday's gains on concerns about a hawkish Fed and fears about terrorism in the US, are now completely forgotten, and have been replaced with the latest daily round of pre-ECB euphoria, driven by hopes that Mario Draghi will announce even more dovish details to Europe's Q€ 2 than just a 10 bps rate cut and a boost to QE more than €10 billion, both of which have been already priced in.