Crude Oil

The "down in European hours, and surge as soon as Europe is closed" trade is once again so well telegraphed even Mrs. Watanabe is now in it. Sure enough US futures are red as European shares slide for the second consecutive day, with 16 out of 19 sectors down, led by banks, travel and leisure. Spanish and Portuguese bond yields are up. Not much data overnight, except for Chinese Non-manufacturing PMI which rose modestly from massively revised numbers: February adjusted to 57.3 from 48.4; January to 55.7 from 52.9 - and that, BLS, is how you do it. European PPI rose 3.6% Y/Y on estimates of a 3.5% rise, while the employment situation, or rather lack thereof, in Spain gets worse with an 8th consecutive increase in jobless claims, rising by 38,769 to 4.75 million. Bloomberg reports that Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings. Francois Hollande, France’s Socialist presidential candidate, widened his lead over President Nicolas Sarkozy in voting intentions for the second round of the 2012 election, a BVA poll showed. Italian bank stocks are notably down and today seems set to be the third consecutive day in which we see trading halts in Intesa and Banca Popolare. Few more weeks of this and the financial short-selling ban is coming back with a vengeance. Yet all of this is irrelevant: the bad news will simply mean the global central banks will pump more money, putting even more cracks in the monetary dam wall, and the only question is how long before US stocks decide to front-run the European close, and whether European stocks will rise in sympathy, just because they get to close one more day.

Dear Ben:

You have publicly gone on record with some off-the-wall assertions about the gold standard.  What made you think you could get away with it?  Your best strategy would have been to ignore gold.  Although I concede that with the endgame of the regime of irredeemable paper money near, you might not be able to pretend that people aren’t talking and thinking about gold.  You can’t win, Ben.  In this letter I will address your claims and explain your errors so that the whole world can see them, even if you cannot.

The ISM Manufacturing Index, which in the aftermath of last week's weak Chicago PMI was whispered to be a miss, came at 53.4, on expectations of 53.0, up from 52.4 in February, once again continuing the narrative of a Schrodinger economic reality. While Production and Employment both rose, New Order declined from 54.9 to 54.5; What is truly suspect is that Prices dropped also from 61.5 to 61.0, putting the validity of this report in question especially following the explosion in the Chicago PMI prices paid. Perhaps HSBC was responsible for that particular report too? In other news, Construction Spending plunged from an unrevised -0.1% (revised to -0.8%) to -1.1% on expectations of a rise to 0.6%, the lowest print since July 2011. All in all, a release pair as expected, affording Bernanke the ability to be easy if need be, although giving stocks enough pump to offset weakness from Europe and Japan, telegraphing that the drop in the market does not need to begin just yet for New QE deliberations.

The main event of the past 48 hours: the Chinese "Schrodinger" PMI, which came much weaker or stronger, depending on whether one uses the HSBC or official data (which always has a seasonal jump from February into March) has been forgotten. Any bullish sentiment from a 'hard landing-refuting' PMI (which incidentally means less chance of easing), was erased following a very weak Japanese Tankan sentiment report, which saw exporters fret about a return to Yen strength. Naturally, the market response was to immediately shift hopes and dreams of more easing to the BOJ, if the PBOC is for the time being off the hook. Alas, since the BOJ's actions have traditionally had much less impact on global markets, stocks are not happy. This was followed by a bevy of Eurozone data, where unemployment rose to 10.8% from 10.7%. And while this deterioration was expected, the slide in French PMI was not, dropping from 47.6 to 46.7, on expectations of an unchanged print. The modest bounce in German PMI and especially in the UK from 51.5 to 52.7, where QE is raging, were not enough to offset fears that it is now "France's turn" and that global PMIs are once again showing that the recent $2 trillion in global liquidity equivalent injections have already peaked, in line with expectations: after all the half life of central planning interventions is getting progressively shorter.

European markets got off to a bad start following early reports that the Greek PM has not ruled out a further aid package for the country, however European cash equities are now trading higher as US participants come to market. Markets have been reacting to the announcement from EU’s Juncker that the Eurogroup has agreed upon Eurozone bailout funds of EUR 800bln. Elsewhere in the session, FPC member Clark commented that the FPC should not aim to stimulate credit growth in the UK, adding that direct intervention in the mortgage market is too politically volatile, but may be considered in the coming years. Following the reports, GBP/USD spiked lower around 15 pips, however it remains in positive territory, moving above the 1.6000 level in recent trade. In terms of data, the Eurozone CPI estimate for March came in just above expectations at 2.6%, 0.1% above the 2.5% consensus. The market reaction to this data, however, was relatively muted as participants await Eurogroup commentary. Looking ahead in the session, participants await commentary on the Spanish budget, US Personal Spending and Canadian GDP.

• Greek PM does not rule out new bailout package (Reuters)
• Euro zone agrees temporary boost to rescue capacity (Reuters)
• Madrid Commits to Reforms Despite Strike (FT)
• China PBOC: To Keep Reasonable Social Financing, Prudent Monetary Policy In 2012 (WSJ)
• Germany Launches Strategy to Counter ECB Largesse (Telegraph)
• Iran Sanctions Fuel 'Junk for Oil' Barter With China, India (Bloomberg)
• BRICS Nations Threaten IMF Funding (FT)
• Bernanke Optimistic on Long-Term Economic Growth (AP)

A bevy of economic data misses overnight, including German and UK retail sales, Japan industrial production, UK consumer confidence, and a European economy which is overheating more than expected (2.6% vs 2.5% exp, although with $10/gas this is hardly surprising), and futures are naturally green. The reason: the broken record that is the European FinMins who are now redirecting attention from the slowly fading LTRO impact to the good old standby EFSFESM, which according to a statement by de Jager has now been agreed on at €800 billion, lower than last week's preliminary expectation for €940 billion in joint firepower. That this is nothing but a headline grabber is as we have noted before, as there is much doublecounting, capital allocation to and by the PIIGS as well as funding already assigned. It will likely take stocks some time before the realization dawns that this is not new capital and liquidity entering the markets, unlike QE on either side of the Atlantic, while the amount is largely inadequate to fill the multi-trillion liquidity shortfall, let alone "solvency" of European sovereigns and banks. So for now enjoy the greenness all around.

All you need to read and more.

After two months of quiet from the old world, Europe is again on the radar, pushing futures in the red, and the EURUSD lower, following a miss in March European Economic and Consumer confidence, printing at 94.4 and -19.1, on expectations of 94.5 and -19.0, as well as an Italian 5 and 10 Year auction which seemingly was weaker than the market had expected, especially at the 10 Year side, confirming the Italian long-end will be a major difficulty as noted here before, and pushing Italian yields higher (more on the market reaction below). The primary driver of bearish European sentiment continues to be a negative Willem Buiter note on Spain, as well as S&P's Kramer saying Greece will need a new restructuring. Lastly, the OECD published its G-7 report and reminded markets that Italian and likely UK GDP will shrink in the short-term. This was offset by better than expected German unemployment data but this is largely being ignored by a prevailing risk off sentiment. In other words, absolutely nothing new, but merely a smokescreen narrative to justify stock declines, which further leads us to believe that next week's NFP will be worse than expected as discussed last night.

Rising geopolitical tensions and high oil prices are continuing to help renewable energy find favour amongst investors and politicians. Yet how much faith should we place in renewables to make up the shortfall in fossil fuels? Can science really solve our energy problems, and which sectors offers the best hope for our energy future? To help us get to the bottom of this we spoke with energy specialist Dr. Tom Murphy, an associate professor of physics at the University of California. Tom runs the popular energy blog Do the Math which takes an astrophysicist’s-eye view of societal issues relating to energy production, climate change, and economic growth.

In the interview Tom talks about the following:

Why we shouldn’t get too excited over the shale boom
Why resource depletion is a greater threat than climate change
Why Fukushima should not be seen as a reason to abandon nuclear
Why the Keystone XL pipeline may do little to help US energy security
Why renewables have difficulty mitigating a liquid fuels shortage
Why we shouldn’t rely on science to solve our energy problems
Forget fusion and thorium breeders – artificial photosynthesis would be a bigger game changer

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.

Bad news is once again good news. Asia sells off on Monday's weaker profit news; the Bank of Spain says that the Spanish economy is expected to see a negative print in Q1 which if confirmed will ensure a fresh recession while the budget statistics released by the Spanish government yesterday showed further deterioration in its fiscal situation, per DB. The deficit for the first two months of the year was €20.7bn and this does not include state and  regional governments’ budgets; lastly American housing slump accelerates as MBA mortgage applications drop for the 7th consecutive week with applications down 2.7%, on the back of a 4.6% decline in refi applications, the lowest since December 7. And futures are...green. Which is to be expected, since good news is good news, and bad news is, thanks to the Fed, and in this case uber-dove Rosengren, who said more stimulus is on the table, better news. It is now obvious that the Fed will not rest until the market is at fresh all time distorted, manipulated, nominal highs.

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.

• 6.0+ Magnitude quake strikes near Tokyo (USGS)
• Ireland Faces Legal Challenge on Bank Bailout (Reuters)
• Bernanke says U.S. needs faster growth (Reuters)
• Spain Promises Austere Budget Despite Poll Blow (Reuters)
• Orban Punished by Investors as Hungary Retreats From IMF Talks (Bloomberg)
• Obama vows to pursue further nuclear cuts with Russia (Reuters)
• Japan's Azumi Wants Tax Issue Decided Tuesday (WSJ)
• Australia Losing Competitive Edge, Says Dow Chemicals CEO (Australian)
• OECD Urges ‘Ambitious’ Eurozone Reform (FT)
• Yields Less Than Italy’s Signal Indonesia Exiting Junk (Bloomberg)

Any and all negative overnight news are now completely ignored as the scramble for risk hits the usual fever pitch following Bernanke's latest attempt to transfer cash from safe point A to ponzi point B, aka stocks. First, China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and reinforcing the case for policy easing, according to Reuters. This was the first Jan-Feb profits downturn since Jan-Aug 2009. Profits fell 5.2 percent so far in 2012, according to the industrial profitability indicator, published by the National Bureau of Statistics (NBS) every month. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009. Then there was the German GfK Consumer Confidence which unlike yesterday's IFO, missed: nobody cares. Also on the negative side was an earlier auction of Spanish Bills which sold EUR 2.58 billion, just barely off the low end of a target issuance of EUR 2.5-3 billion. As noted however, neither this, nor the series of US disappointments which looks set to end March with 15 of 17 estimate misses is relevant. To wit: French consumer confidence soared to 87 on expectations of 82, as the easiest and lowest common denominator to boost risk assets is now abused everywhere, by UMich, by Germany and now by France. And why would people not be confident - stocks everywhere are higher despite fundamentals. After all if something fails, there is a central planner to fix it. Never forget - the taxpayer credit card has no limits. Net result - green across the board.