Crude Oil

On the heels of placing its third former employee at the Fed this year alone, Goldman explains why the market is wrong about inflation and whyv a handful of ex-Goldmanites will hike by 200bps in the next two years.

Bloomberg's global commodities index is testing fresh 16 year lows but this is often excused on the basis that it includes crude oil weakness - which will mean-revert higher any day now. Perhaps the bigger, even louder warning signal is directly from the basest of base industrial metals... which are now down 50% from their 2011 "reflate the world" highs.

For the third day in a row, China dominated the overnight newsflow with the latest industrial output data, which printed at 5.6% missing expectations of a 5.8% increase, and was tied with March for the lowest print since late 2008.

Once again we feel the close tug of systemic illiquidity as it transcends the usual noise about assurances to ignore or trivialize all this growing uncertainty. Even though stocks and other assets have been trading in their own world mostly free from all this more hidden esoterica, the full weight of this analysis suggests that can’t be more than a temporary deviation. Since it is the angle of economy that is ultimately driving all of this, everything depends upon a global economy that has already been beaten down far past anticipation.

The ongoing failure of China to achieve any stabilization in its economy, after already cutting interest rates six times in the past year, and the prospect of a U.S. interest rate hike in December, had made markets increasingly jittery and worried which is not only why the S&P 500 Index had its biggest drop in a month, but thanks to the soaring dollar emerging market stocks are falling for a fourth day - led by China - bringing their decline in that period to almost 4 percent, and the global stock index down for a 5th consecutive day.

While ridiculous, Venezuela's decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid. What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.

Last week, under pressure from companies including Buffett’s BNSF - which has spent more money lobbying Congress this year than any other railroad - U.S. legislators passed, and President Obama signed, a law that delays the so-called positive train control mandate. That means railroad operators can put off having to buy and install equipment that safety advocates say would have prevented accidents that have claimed more than 245 lives and caused over 4,200 injuries since the NTSB began calling for the technology in 1969.

Having dramatically converged to the tumbling price of WTI Crude, Trannies are jumping dramatically after Bloomberg runs the following flashing-red headline: *CANADIAN PACIFIC SAID TO EXPLORE TAKEOVER OF NORFOLK SOUTHERN. Amid crashing railcar loadings (down over 23% YoY - worst since the financial crisis), this 'syngery' may make some sense but will likely only mean moar layoffs as "two wrongs do not make a right."

Moments ago in what we initially thought was a joke, abc9 reported that close to two dozen train cars derailed after a crash Monday morning. Lt. Brett Grimshaw of the Des Moines County Sheriff’s Office said the crash happened a little after 8 a.m. when a coal train hit a road grader that had been backed up onto the tracks. And before you ask, yes, this train, too, belongs to BNSF, which in turn belongs to Warren Buffett,

Once again, the two major macroeconomic announcements over the weekend came from China, where we first saw an unexpected, if still to be confirmed, increase in FX reserves, and then Chinese trade data once again disappointed tumbling by 6.9% while imports plunged 18.8%. So how did the market react? The Shanghai Composite Index rose for a fourth day and reached its highest since August 20because more bad data means more easing from the PBOC, and just to give what few investors are left the green light to come back into the pool, overnight Chinese brokers soared after Chinese IPOs returned after a 5 month hiatus. Elsewhere, Stocks and currencies in emerging markets slump on prospect of higher U.S. borrowing costs before year-end and after data underscored slowdown in Asia’s biggest economy. Euro strengthens.

With crude stocks moving up solidly despite inventories being still almost one-third above the “cycle” trend from 2009 through 2014, the economics of that behavior suggest the opposite of what the FOMC would like to project. And that would seem to bridge the eurodollar curve’s front and back ends, aligning it with commodities more generally. In that view, eurodollar futures are suggesting exactly what they have been for almost a year and a half – that the Fed might or might not act, but if they do it won’t alter the economic course but only wield the potential to make a bad (and growing more so) physical and general economy situation that much worse.

China's exports fell for the fourth consecutive month in October as evidence of collapsing global demand and trade continues to pile up. “A lot of Westerners think this helped us out a lot. But the 2% depreciation actually hurt us. It was in every newspaper and customers called us within hours pushing for 6% discount, so we had to give them 4%."

As DB so well-puts it, "Welcome to random number generator day also known as US payrolls." Consensus expects 185k jobs to have been added in October but it’s fair to say that the whisper number has edged up this week with slightly firmer US data. It is also fair to say that even if one knew the number beforehand, it would be impossible to know how the market will react.