Crude Oil

In order to maximize their long-term profit, the Saudi`s will be watching the shale-boom in the US for an optimal oil price. This will prove a challenge for an oil dependent nation as the natural gas price implies a far lower oil price than the political elite is comfortable with.

• Low Wages Work Against Jobs Optimism (WSJ)
• Tourre’s Junior Staff Defense Seen Leading to Trial Loss (BBG)
• Russia gives Snowden asylum, Obama-Putin summit in doubt (Reuters)
• Fortress to Blackstone Say Now Is Time to Sell on Surge (BBG)
• Brazil backs IMF aid for Greece and recalls representative (FT), previously Brazil refused to back new IMF aid for Greece, says billions at risk (Reuters)
• Google unveils latest challenger to iPhone (FT)
• Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees (BBG)
• Academics square up in fight for Fed (FT)
• Potash Turmoil Threatens England’s First Mine in Forty Years (BBG)
• Dell Deal Close but Not Final (WSJ)

On 6 July, a Montreal, Maine & Atlantic train carrying 72 tank cars filled with oil exploded after its brakes apparently failed, sending it rolling into the small Quebec town of Lac-Megantic, where it derailed and then exploded. In the conflagration that followed, an estimated 47 people were killed. Whether Canadians like it or not, the use of such trains has soared in recent years. Now, in a breathtaking display of chutzpah, the Canadian ambassador to the U.S. is warning President Obama if he does not approve the controversial Keystone XL pipeline, then he can expect similar oil trains and even trucks to enter the U.S..

• Ackman Says Pershing Square Takes 9.8% Stake in Air Products (BBG) - So is APD Carl Icahn's biggest ever short yet
• Latest Hilsenplant: Summers Hedges His Doubts on Fed's Bond Buying (WSJ)
• China Stocks World’s Worst Losing $748 Billion on Slump (BBG)
• U.S. Spy Program Lifts Veil in Court (WSJ)
• Abenomics on the rock again: Japan July manufacturing PMI shows growth at 4-month low (Reuters)
• EADS to be renamed Airbus in shake-up (FT)
• Goldman's GSAM has significantly increased its exposure to European equities (FT) - there is a reason why this is Goldman's worst division
• Japanese Megabanks Post Mega Profit Gains (WSJ) - when one excludes MTM impact from rate surge of course
• Ex-workers sue Apple, seek overtime for daily bag searches (Reuters)
• Hong Kong Yuan Deposits Snap Eight-Month Increase on Cash Crunch (BBG)
• Downtown NYC Landlords Remake Offices in Shift From Banks (BBG)

As readers are well aware by now, at 8:30 am today we get to see the rewriting of US GDP history back to 1929 with the revisions from the BEA. It’s a big last day of July with the Fed meeting coming after the GDP release. For GDP, real growth is expected to be as low as 1.0% in Q2. Opinions vary widely on today’s GDP number with one major US investment bank’s estimate as low as 0.2%, a number of bulge bracket banks at 0.5% while there are also plenty of economists above 1.5%. It is not news to anyone that nominal GDP is very low at the moment - especially in a world of nosebleed high debts - and today could see this have a 1-handle YoY (and at best a 2-handle) - a level not even normally seen at the depths of most recessions.

The world supply of crude oil isn’t going to run out any time soon, and we will be producing oil for decades to come. However, what we won’t be doing is producing crude oil – petroleum – at the present rate of around 30 billion barrels per year. For a global civilization that is based almost entirely on a plentiful supply of cheap, crude oil, this is going to present some considerable challenges.

While the market's eyes were fixed on the near record slide in Japanese Industrial Production (even as its ears glazed over the latest commentary rerun from Aso) which did however lead to a 1.53% jump in the PenNikkeiStock market on hope of more stimulus to get floundering Abenomics back on track, the most important news from the overnight session is that the PBOC's love affair with its own tapering may have come and gone after the central bank came, looked at the surge in 7 day market repo rates, and unwilling to risk another mid-June episode where SHIBOR exploded to the mid-25% range, for the first first time since February injected RMB17 billion through a 7-day reverse repo. The PBOC also announced it would cut the RRR in the earthquake-hit Lushan area. And with that the illusion of a firm and resolute PBOC is shattered, however it did result in a tiny 0.7% bounce in the SHCOMP.

Any backwardation in gold at all is serious. Recently, a related phenomenon has occurred: the GOFO rate has gone negative.

Plunging Chinese manufacturing and an 11 month low PMI got you down? Don't worry: there's a Europe for that, which overnight reported that manufacturing and service PMI in Germany and, don't laugh, France soared far above expectations (German Mfg and Services PMIs of 50.3 and 52.5, up from 48.6 and 50.4, and above expectations of 49.2 and 50.8; French Mfg and Services PMIs of 48.3 and 49.8, up from 47.2 and 48.4 and an 11 and 17 month high, respectively, blowing away expectations of 47.6 and 48.8). The result was a composite Eurozone Manufacturing PMI of 50.1, above 50 for the first time since February of 2012, up from 48.8 and at a 24 month high - reporting the largest monthly increase in output sunce June 2011, as well as a composite Services PMI of 49.6, up from 48.3, and an 18 month high. In other words, European Composite PMI is expanding (above 50) for the first time since January 2012.

Lately, the parasitic, price manipulative "Office Space"-inspired HFT practice known as "spoofing" has been consistently in the news: a week ago, it was the third largest futures broker, Newedge, who made headlines following a "record" FINRA handslap. Then yesterday, a Red Bank, NJ-based HFT shop called Panther Energy Trading, and its sole owner Michael Coscia were fined $4.5 million and got a 1 year ban from the industry for engaging in the same activity. "Panther, based in Red Bank, New Jersey, and Coscia used a computer algorithm that placed and quickly canceled bids and offers in futures contracts for commodities including oil, metals, interest rates and foreign currencies. Panther and Coscia engaged in spoofing from August 8, 2011, to October 18, 2011, related to 18 futures contracts. The firm accumulated $1.4 million in profits by using the algorithm." While none of this is fundamentally new to any of our readers, we are happy to report that in conjunction with Nanex, we can now present documentary evidence of the Panther algo in action.

These are truly horrible forecasts coming after the brutal downward revision for the first quarter (from 2.4% to 1.8%). And when you consider that growth is slowing like this while the Fed is running QE 3 and QE 4, then it becomes quite clear that the Fed is fast running out of out of evidence that QE accomplishes much of anything.

Don't look now but futures are up as usual, driven higher by both good and bad news. The biggest event of the weekend, if largely priced in, was the victory by Abe's coalition in the upper-house leading to the following seat breakdown. Of course, judging by the Yen and market reaction, which barely managed to eek out a gain: its first in four trading days, the event was largely of the "sell the news" type despite such bold proclamations: "Abe’s victory in the upper house is bullish for Japanese equities and the Japanese economy as a whole, as the removal of political headwinds bolsters the government’s ability to press forward with all ‘three arrows’ of its growth strategy," John Vail, Tokyo-based chief global strategist at Nikko Asset Management Co., which manages $162 billion, wrote in an e-mail. Elsewhere in Europe, Portugal bond yields have plunged by roughly 60 bps on news that the Portuguese President Silva has backed the centre-right coalition government, consequently ruling out snap polls. Well, what else is he going to do? This also comes on the heels of a Goldman report that said a second bailout for the country will be necessary and will likely be discussed in the fall. That too is bullish. What also was bullish in Europe apparently is that government debt hit a new record high of 92.2% of GDP. Remember: debt is wealth so just buy more futures. Looking forward to the US, the market will focus on the latest existing home sales data, the Chicago Fed activity index, as well as earnings report releases from McDonalds, Texas Instruments and Halliburton and a bunch of other companies that will beat EPS and miss revenues.

For the first time since QE2 was announced (August 2010), the price of WTI Crude oil is now more expensive that Brent crude. The Brent-WTI spread has collapsed from over $23 in Feb 2013 and is now negative and notably below the long-run average level of around $0.98. At $109, WTI is the highest since March 2012. Gas prices - at the pump - continue to rise significantly reaching the highest since March, but given the lag to production, are set to reach well over $4.00 per gallon on average.

• Detroit ‘Gut Kick’ Poses New Test for Long Suffering City (BBG)
• Florida lawmakers urge overhaul of 'Stand Your Ground' law (Reuters)
• Investors pour huge sums into US equity funds (FT)
• Snowden Standoff Threatens Obama-Putin Moscow Summit (BBG)
• China, U.S. companies' great hope, now a drag (Reuters)
• Morgan Stanley stock traders rebuild burned bridges (Reuters)
• Huawei spied for China, claims ex-CIA head Michael Hayden (FT)
• Gorilla Flipping Homes as Rebound Revives Rapid Trades (BBG)
• BRICS joint action at G20 summit may be wishful thinking (Reuters)

A few hours ago, in a somewhat ironic development, Russia's most prominent opposition campaigner - whom some have likened to the US' own Edward Snowden in terms of his whistleblowing aspirations - was found guilty of embezzlement and sentenced to five years in prison, some 19 months after leading the biggest protests to challenge the Kremlin's rule since the Soviet Union's collapse. This immediately hit none other than the local "wealth effect" with RIA reporting that "Russia's stock market fell sharply on Thursday according to Moscow Exchange data, after investors took in the news that opposition blogger Alexei Navalny had been found guilty in a controversial fraud trial and sentenced to five years in jail."