March 24 16 Oil Note-

 

March 24 16 Oil Note-

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We are issuing an unfair high warning as our price ceiling of 36.50-40 from prior Oil Note (March 6th) has been achieved. Further appreciation in WTI is not sustainable in current domestic and foreign fundamentals. The recent advancement was built on speculation as OPEC/Non-OPEC members failed to deliver. Such speculation caused a forced short squeeze unwinding shorts in a 40-session +60% move. Higher prices are attracting higher output, re-hedging, strengthening balance sheets, and disposing of inert inventories. This is a self-defeating process of rebalancing the market, as the next market clear will be more abrupt to phase out the excess.

WTI fundamentals are bleak on an intermediate basis. We expect the market to clear in 2Q16. The clear will stem from storage issues at Cushing PADD2, which is exceeding operational capacity. There is ample evidence of capacity bottlenecks due to storage requests denied, and rerouting inventories to PADD 1/3/4 (Genscape).

Paul Horsnell, global head of commodities research at Standard Chartered . “People are worried about a short-term issue, particularly in the U.S., particularly at Cushing.” As we’ve progressed from Feb to March nothing of significance has materially developed to skew domestic or forgeign supply and or demand. Actually the picture is deteriorating, and it’s only a matter of time before forced delivers will re-enter the market like Phillips 66 Feb debacle.

WTI Price action continues to be confused as a drop in production has offset massive builds. 9.36m barrels was logged in the build this week, the 2nd highest of FY’16. In addition, Cushing’s development of a draw is great news, but inventories are only being shifted to other PADDs.

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Back in Jan’16, Moody’s put a half trillion dollars in energy debt on downgrade review. In Feb, default rates rose to 3.3% surpassing the Lehman crisis primary due to energy. In March Fitch raises US HY default rate forecast to 6%; Energy to 20%. The current deleveraging phase is a given due to a tightening cycle of the US Economy, which started in December 2015. Money base of the US Economy is not increasing, as the FED has no intentions on expanding the money base in the intermediate timeframe. We expect equities to revert to the 1700-1750 region in conjunction with WTI to the low 30s. Possible near term triggers for a WTI Clear stem from USD appreciation, equity devaluation, GDP data, WTI fundamentals, and HY debt. US Equities are forecasted to report a decline in 1Q16, which will be the 4th consecutive quarter of declines since 2008. Global growth is deteriorating as the IMF, OECD, and BIS have issued warnings in the past 30 days. Shortage of USD across the world, as well as most of the world’s central banks are easing should appreciate the USD. In return, EM decline, commodities decline, and a further devaluation by the PBOC of CNY will add headwinds for global economies.


 

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Added Bonus: The Dome of S&P500

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Morning Note March 24, 2016

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Morning Note-

Thur, March 24, 16

08:45 ET                                             Update: [Stockboardasset] S&P futures -54bps

08:45 ET                                             Update: [Stockboardasset] Nikkei -92ps

08:45 ET                                             Update: [Stockboardasset]FTSE100 -100bps DAX -117bps

 

We are issuing an unfair high warning for SPX and WTI. Recent advancements were artificial in nature producing unstable structures. The month long inclines were primary forced by short covering, central banks, and headline chasing crowds on speculation. Fundamentals were completely disregarded, which this is a symptom of a dying breed. The month long phenomenon took place in most developed economies around the world. The Shanghai Accord last month of central bankers most likely played apart. Massive short squeezes in risk assets and commodities flourished in an unexplainable fashion. We’ve seen the story before as longer timeframes do not believe the current market structure as forced buy-in exhaust to only revert back to the liquidity floor to be only jawboned by a FED speaker. Rinse and Repeat (Bullard Bounce). This time, we have the BIS,IMF, and OECD issuing stark global warnings of over excess monetary accommodations and lackluster growth. The global economy in sync is in a stall, and or contraction. From Brazil, China, EU,EM, and even the US the warnings are on the wall.

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Morning Note March 23, 2016

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Morning Note-

Wed, March 23, 16

08:45 ET                                             Update: [Stockboardasset] S&P futures +2bps

08:45 ET                                             Update: [Stockboardasset] Nikkei +12ps

08:45 ET                                             Update: [Stockboardasset]FTSE100 +26bps DAX+117bps

 

Global Equities continue to show their resilience after Brussels’s worst terrorist attack in history. The EU has a whirlwind of economic, and now apparent non-economic headwinds. The IMF labels geopolitics, terrorism, refugees, and global economic spillovers from the middle east for EU’2016. This comes at a time where IMF,BIS, and OECD are warning global economies of Stall Danger, and excess monetary issue. In the duration of the ZLB, economic and non-economic shocks are the norm these days. We are on watch for a Moody’s downgrade of D Brexit fears have reentered the limelight, and the Brussels’s event produces a stronger case for the exit. GBPUSD and EURUSD continue with sell pressure. The Guardian overnight has labeled top firms in the UK could be at risk for downgrade in light of a BREXIT. Then Lautenschlaeger appears overnight saying the ECB’s rates can go lower! What’s comical to us is Lagarde’s call of NIRP saving the world, but IMF/OECD/BIS warn of such accommodative measures. Nevertheless, German’s officials cut FY’16 GDP overnight +1.5% vs. +1.6%.

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Morning Note March 22, 2016

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Morning Note
Tues, March 22, 16

 

08:45 ET Update:  [Stockboardasset] S&P futures -42ps

08:45 ET Update:  [Stockboardasset] Nikkei +17ps

08:45 ET Update:  [Stockboardasset]FTSE100 -77bps DAX -47bps

 

Brussels’s in the overnight hour has been rocked by terrorist attacks. Global Equities were hit with overhead supply during the attack in the 4am hour. Market bids have been provided to stabilize price in FX and Indexes. These developments point to higher risks on EU due to immigration. The EU is vulnerable to non-economic origin-related events of geopolitics (Brexit), terrorism (France & Brussels), refugees, and global spillovers. The Pound and EURUSD large sells, but market overseers provided stabilization to stem contagion. German and French Manufacturing PMIs had a slight miss, as the Eurozone as a whole was flat. Next on the plate will be BREXIT.

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Morning Note March 21, 2016

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Morning Note-

Mon, March 21, 16

08:45 ET                                             Update:  [Stockboardasset] S&P futures -09bps

08:45 ET                                             Update:  [Stockboardasset] Nikkei -0bps

08:45ET                                              Update:  [Stockboardasset]FTSE100 -16bps DAX -25bps

 

US Companies are set to report a dismal earnings season for 1Q. “If the index reports a decline in earnings for Q1, it will mark the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008 through Q3 2009”FACTSET. A tactical reset in valuations for the SPX is at 1700. The number 1 buyer of corporate equity are corporations themselves. Expect a blackout of buybacks to commence as earning season starts. The great divergence of market price vs. fundamentals is at an all time high. A decade of ZIRP, and now NIRP is leading global economies into a liquidity trap. The latest rally in equities and commodities have had an absence of fundamentals due to 3 central banks priming the market in a coordinated fashion. Last year, this tactic by central banks would of only taken 1 , but shows the belief system in central banks is waning. Central Banks generate an illusion that markets cannot go down. We’ve seen this in the 2-year Dome (rounding top) in US Equities. Growth will not return to US markets until 2H16. We continue our call of finding the unfair high of this so-called rally and play reversions to point of control SPY low 190s.

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Morning Note March 18, 2016

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Morning Note-

Fri, March 18, 16

08:45 ET                                             Update:  [Stockboardasset] S&P futures +28ps

08:45 ET                                             Update:  [Stockboardasset] Nikkei -59ps

08:45ET                                               Update:  [Stockboardasset]FTSE100 +41bps DAX +37bps

On an OPEX day, we continue to see WTI surging into the 40 handle, USD down most since 2009 in a 2 day period, and SPY is at the same levels of March’15, when EPS, GDP, and projections were higher. Our hats are tipped to the OPEC Oil Minister, and 3 of the largest central banks in the stimulation of commodities and equity indexes alike since early FEB. We assume one central bank doesn’t have the kick as it use to. VIX is down 45% over the past 5 weeks, the largest decline in history. We also assume there is no risk (sarcasm). A few weeks ago, the IMF,BIS, and OECD issued stark warnings of global growth, excessive monetary accommodations, and NIRP. Headline Chasing and limited fundamentals inducing this advancement are symptoms of a dying breed. Have we forgot that US corporate earnings are projected to shrink further in Q1, as the FED continues a tighten cycle. This narrative was all the talk just 3 weeks ago. Operational profits of major US Banks are in focus, as we see layoff after layoff in the news. All is fine as WTI surges +55% since Feb as the market prices in gasoline demand, and a minor slip in production. Storage woes in Cushing continue to be a major concern, as the fundamentals have not changed domestically and globally since WTI <30. The US default rate has surpassed Lehman era crisis, and the next round of negative sentiment for HY will be in April. Not just a wave of defaults from the oil and gas complex, but we’re seeing the contagion spread. Energy and Material companies, one in particular is Peabody Energy warns of possible Bankruptcy. In biotech, Valeant’s bonds are up for possible cut from Moody’s and risk default. We’ve seen Biotech IBB in a bear flag break from the channel, and not fully participate in the broad-spectrum rally in US equities. Fitch reckons another $52bn in defaults over the course of the year, and already has topped $18bn in 3 months. The default in HY level is the highest in a non-recessionary period.

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Morning Note March 17, 2016

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Morning Note-

 

Thur, March 17, 16

08:45 ET                                             Update:  [Stockboardasset] S&P futures -22ps

08:45 ET                                             Update:  [Stockboardasset] Nikkei -136ps

08:45ET                                               Update:  [Stockboardasset]FTSE100 -54bps DAX -180bps

Overnight, Global Markets are sour post FED meeting of unchanged rates. The FED sights global economic risks, which is a far different from Dec’15. Something has spooked the FED, which is the commentary coming out of the Bank of Tokyo-Mitsubishi. In FX, the FED crushed the USD, and took the ECB, and BOJ with it, to side with China. USDJPY <112 handle, EURUSD >1.13, and USD <.95. We are concerned about carry trades unwinding from the EURUSD into EM and other various assets. Global equities are under pressure overnight, as the FED policy hold should of lifted markets. JPN225 and USDJPY continue their plunge to QQE2 levels. Regional equities in China were modestly up despite volatility in developed markets. EU sovereign, US treasury yields slide, but once again Gold is the clear winner. FED’s credibility continues to be in question. EU Regional equities are sliding into the 830am hour. BREXIT will certainty be on the plate again as the economic risk of removing Brittan from the EU flourishes in FX. In a 30-day course, Global equities have advanced due to an oil minister, G20 Meeting, and 3 central banks. Fundamentals weren’t involved, never the less central bank headline chasing was all the glamour. We warrant caution in the recent US Equity move.

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Morning Note March 16, 2016

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Morning Note-

Wed, March 16, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -16bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei -.06ps

08:45ET                                         Update:  [Stockboardasset]FTSE100 -31bps DAX -12bps

All eyes are on the 2pm mark as the FED will announce their assessment of the US Economy. Here are Cliff

Notes from Barclays:

  1. 1. CPI: We expect the headline CPI to have fallen 0.2% m/m on account of sharply lower seasonally adjusted prices for retail gasoli
  2. 2. Housing starts: We forecast housing starts to rise 2.0% m/m to 1.12mn units in February
  3. 3. Industrial production: We look for total industrial production to have declined 0.2% m/m in

February

Global economies are plagued with divergent monetary policies. The US FED entered into a tightening cycle in Dec’15, as many leading economies adopted interest rate cuts rather than tighten. /FF shows the odds of a US Rate Hike by the end of June skyrocketing to 54%. US FX will respond favorably as the FED should be more hawkish with hints of upcoming future rate hikes. This should add pressure on commodities and EM FX. Overnight, Super-Tuesday engulfed the political sphere as Trump wins Florida, Illinois, and North Carolina. According to Gingrich, the Republican Party won’t be able to stop him in a recent interview on Brietbart. Will be interesting how markets view a Clinton vs. Trump race if each can obtain the party nominee. Its fact that markets will view each candidate with a different view on markets.

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Morning Note March 15, 2016

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Morning Note-

Tues, March 15, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -64bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei -200ps

08:45ET                                         Update:  [Stockboardasset]FTSE100 -61bps DAX -96bps

Overnight, the BOJ signaled no policy change and language suggesting an early retirement of NIRP. This was sure a head scratcher for us as the BOJ has sworn on the positive implications of NIRP.

 

From the statement:

  • Maintains 80 trln yen base money target and 0.1 pct negative interest rate
  • To review once every 3 months ratio of reserves for which negative interest rate will be applied
  • BOJ says will exempt money reserve funds (MRF) from negative interest rates
  • Removes language from its statement that it will cut interest rates further into negative territory if judged necessary
  • BOJ will take additional easing steps in 3 dimensions of quantity, quality and interest rate, if needed to hit price target
  • Economy continues to recover moderately as a trend
  • Pickup in exports has recently paused
  • Industrial production has continued to be more or less flat
  • Inflation expectations rising from longer-term perspective but have recently weakened
  • Japan’s economy likely to expand moderately as a trend
  • Uncertainty on emerging economies, impact of fed policy on markets among risks to outlook
  • Global markets have remained volatile
  • Must pay attention to risk that market volatility hurts business confidence, delays a shift from deflationary mindset
  • Will apply zero rates to twice the size of increase in loans banks offer under boj’s loan support programme.

Exemption of MRF from negative rate will take effect from May April

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Morning Note March 14, 2016

Morning Note-

Monday, March 14, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -30bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +30bps

08:45ET                                         Update:  [Stockboardasset]FTSE100 -11bps DAX +74bps

All eyes are on the BOJ and FOMC this week as central bank decisions could dictate trajectories of global markets in an intermediate term. Last month, central banks converged at the G20 to voice major headwinds affecting the global economy. An executive summary states that the global recovery weakened further, along with financial turbulence and falling risk assets was the theme in early 2016. Over the course of the recovery, central banks have cut rates 619 times, excessive monetary policy, and have produced a debt issue stagnating global growth. This comes at a time where the BIS and IMF are issuing warnings about QE and NIRP. The US is in tightening cycle as the FED talked up the USD for nearly a year before implementing /FF tick up in Dec’15. Due to USD demand, a heavy weight was put on commodity prices, and EM FX. The FED will be speaking March 16th as the market does not expect a rate hike. Recent global equity rebound, stabilizing commodities, and inflation stabilizing, we expect an eager FED sooner rather than later to hike.

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