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phil
February 8th, 2016 at 5:40 am

Good morning (not now)!  

Europe took a power-dive at the open and our Futures are down over 1.5% with them.



Oil opened lower on this Bloomberg headline and that sent everything tumbling back down:

World's Largest Energy Trader Sees a Decade of Low Oil Prices

Oil prices will stay low for as long as 10 years as Chinese economic growth slows and the U.S. shale industry acts as a cap on any rally, according to the world’s largest independent oil-trading house.

"It’s hard to see a dramatic price increase," Vitol Group BV Chief Executive Officer Ian Taylor told Bloomberg in an interview, saying prices were likely to bounce around a band with a mid-point of $50 a barrel for the next decade.

"We really do imagine a band, and that band would probably naturally see a $40 to $60 type of band," he said. "I can see that band lasting for five to ten years. I think it’s fundamentally different."

 

Oil prices may counterintuitively crash further because of oil producers' high debt levels

That came on the heels of this:

A Record Number of Investors Are Piling Into Oil

Just as hopes were getting up because of this:

Oil Trades Near $31 After Saudi-Venezuela Talks as Bets Increase









On the whole, we're right back to 1,850 so nice if it holds but tragic if it doesn't:





Big Companies Pull Back After Rough Quarter. Strong dollar, slumping stocks lead to cautious capital budgets; some firms plan layoffs. After a tough end to 2015, big companies are starting the new year with a tight rein on capital spending, and in some cases layoffs, as they seek to cope with sluggish industrial demand and uncertainties about the continued resilience of the American consumer.





Gulf Stocks Retreat From Highest Level in More Than Three Weeks. Stocks across the Gulf fell, following a drop in global markets, as traders cashed in on gains after a gauge of the region’s biggest companies climbed to a three-week high.The Bloomberg GCC 200 Index, which tracks some of the six-nation Gulf Cooperation Council’s largest companies, slipped 0.8 percent from the highest level since Jan. 11. The Tadawul All Share Index was the region’s biggest decliner as it retreated 1.3 percent, followed by ADX General Index with a 0.9 percent drop. The MSCI World Index lost 1.6 percent on Friday. “Markets have had a good run, now we’re seeing a bit of profit taking," said Wafic Nsouli, the managing director and head of equities at Dubai-based investment bank Arqaam Capital Ltd.

Back to magic 130 on 10-year notes:

















See, people are freaking out about industrial metals but gold, silver and platinum (precious) are chugging higher.

Dollar Gains Versus Yen, Euro as Fed Odds Weighed Before Yellen. The dollar rose for a second day against the euro and yen as investors looked toward Federal Reserve Chair Janet Yellen’s testimony to Congress Wednesday for signs of whether markets are underestimating the odds of a near-term interest-rate increase. The greenback climbed after a U.S. employment report showed wage growth exceeded estimates, bolstering the case for the Fed to continue lifting rates this year. Futures pricing for a move before year-end climbed to 53 percent Friday from 46 percent the previous day. The yen weakened versus Australia’s dollar as equities in Japan pared declines and the nation reported a current account surplus that was smaller than economists had forecast.

Emerging-Market Central Banks Battle Capital Flight. Rate cuts are avoided as they signal concerns about growth prospects. Central banks in some emerging markets are stepping up efforts to flood their financial systems with cash, highlighting the pressure that they face from rapid capital flight.

 

Holding Back China's Capital Flight ‘Dam’ Is Key. The decline in China’s foreign-currency reserves to a four-year low, even without evidence of widespread domestic capital flight, adds pressure on policy makers to strengthen the economy through fiscal easing and structural reforms. China’s reserves, once a continuously rising hoard, fell $99.5 billion in January, continuing a slump from 2015 as the People’s Bank of China sought to shore up the yuan. While estimates of the sources of the hard-currency outflows differ, much of the total is thought to be pay-downs of foreign debt. A much bigger threat — "the dam that the PBOC must make sure doesn’t break," according to Frederic Neumann at HSBC Holdings Plc — would be an exodus of funds from domestic investors.

The rapid pace of China's currency reserve depletion is 'simply unsustainable'

Check out the flip-flop on /NKD – that's epic!  



Consumption Seen Dropping as Japan's Workers Eke Out 0.1% Rise. Japan’s workers barely got a pay rise in 2015, with a 0.1 percent increase in cash earnings slower than the 0.4 percent bump in 2014. Total wages in Japan haven’t risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for, the labor ministry said on Monday in Tokyo. Higher wages are considered crucial to generate growth and consumption and for the Bank of Japan’s efforts to spur inflation. Japanese Prime Minister Shinzo Abe has repeatedly called for companies to boost pay, and Bank of Japan Governor Haruhiko Kuroda has said that the level of increase is "somewhat slow" considering Japan’s low unemployment and companies’ profits.

 

The Magic Formula That Powered Japanese Stocks Is Falling Apart. For Japanese investors, it must have seemed the equivalent of turning lead into gold. Unlike in the Middle Ages, the alchemy now relied on mixing central bank stimulus with a weakening yen to create rising profits and a stock market that soared to an eight-year high. But that was back in August, and the formula has since lost its potency. By one measure, earnings in the world’s third-largest stock market are poised to retreat more than 20 percent this quarter, and for the first time since 2012 more Japanese companies are missing forecasts than beating them. Meanwhile, the yen just staged its biggest weekly rally since 2009 even though the Bank of Japan surprised the world by cutting interest rates to below zero.

 





Back over 1,850 on /ES, 16,000 on /YM and 3,950 on /NQ, 975 on /TF, we can go long the laggard with tight stops if ANY of them fail to hold those lines along with DAX 9,000 (where it just bounced) – that's a good long line too if you can play it.  

Hopefully it's a flush because it was really violent and based on oil speculation and not other fundamentals.  This rotation out of oil is very painful (because financials and industrials are freaking out too) but, as I've been saying – it's not really a slow economy that's killing oil (still the popular mindset) – it's the steady lack of demand driven by the rollover of the auto fleet to cars that consumer 40% less fuel and that demand is being driven down further every time a new car replaces an old car, which is about 5,000 times an hour globally.  

I don't know why no one seems to understand this but I'll explain it on BNN on Wednesday.

Citi: 'We Should All Fear Oilmageddon'. A feedback loop of the U.S. dollar, crude, capital flows, and emerging markets. Markets are currently in a well-oiled "death spiral," according to Citigroup Inc. analysts led by Jonathan Stubbs. "It appears that four inter-linked phenomena are driving a negative feedback loop in the global economy and across financial markets," the analysts write, citing the resilient U.S. dollar, lower commodities prices, weaker trade and capital flows, and declining emerging market growth. "It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks," the analysts add. "Corporate profits and equity markets would also likely suffer further downside risk in this scenario of Oilmageddon."

A Saudi-Russian Oil Détente? Not Likely. Moscow’s call for talks went nowhere, but oil prices jumped. A deal is not only “highly unlikely,” in the estimation of Goldman Sachs, but “self-defeating” for the Saudis. By cutting production now and boosting prices, Saudi Arabia would effectively bail out U.S. shale producers just as the Saudi strategy of keeping prices low to squeeze them out of the market is beginning to work, Goldman’s Jeff Currie argues.