WTI Continues to Fall After The Largest Weekly Downside Action in a Month

“West Texas Intermediate headed for its biggest weekly drop in more than a month amid signs of rising U.S. oil inventories and a global economic slowdown.

Futures slid as much as 0.8 percent in New York. Prices may decline next week amid speculation that U.S. fuel supplies will be sufficient to meet summer demand after factory output in China shrank for the first time in seven months, according to a Bloomberg News survey. Goldman Sachs Group Inc. recommended selling WTI and buying Brent contracts for December 2014 as supplies accumulate on the U.S. Gulf Coast.

“U.S. crude stocks are very well-filled, and there’s some disappointing economic data from China,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna, who estimates WTI will average $92 this quarter. “It’s not the best cocktail for crude.”

WTI for July delivery fell as much as 78 cents to $93.47 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.55 as of 12:02 p.m. London time. The volume of all contracts traded was 0.5 percent below the 100-day average. Prices are 2.6 percent lower this week, the most since the seven days ended April 19.

Brent for July settlement fell 24 cents to $102.20 a barrel on the ICE Futures Europe exchange. The European benchmark was at a premium of $8.67 to WTI compared with $8.19 yesterday.

The spread is still set to narrow toward $5 a barrel in the third quarter as new pipeline capacity to move crude out of Cushing causes stockpiles there to decline “substantially,” Goldman said.

Sweet Crude….”

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“The euro strengthened for a second day against the dollar after an industry report showed German business confidence unexpectedly increased in May, adding to optimism the region’s biggest economy is improving.

The 17-nation currency extended its biggest weekly advance in seven weeks as a separate report forecast German consumer sentiment will improve in June. The yen extended its biggest weekly gain versus the dollar since June after Bank of Japan Governor Haruhiko Kuroda said the central bank had announced sufficient monetary easing. Australia’s dollar weakened against all of its 16 major counterparts as HSBC Holdings and Goldman Sachs Group Inc. predicted it would weaken….”

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“The German economy’s return to growth in the first quarter was hampered by declines in construction activity and investment as a severe winter and a recession in Europe damped demand.

Construction fell 2.1 percent from the fourth quarter and capital investment dropped 1.5 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product increased 0.1 percent, the office said, confirming a May 15 estimate. From a year earlier, the economy shrank 0.2 percent when adjusted for working days.

With the 17-nation euro area mired in recession and the coldest March in a quarter-century freezing building activity, Europe’s largest economy has relied on domestic demand to haul it back to growth. GDP fell 0.7 percent in the fourth quarter of 2012.

“The somewhat disappointing first-quarter result was due mainly to the cold weather and the sensitivity of companies to developments in the rest of Europe,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “While that uncertainty hasn’t quite fully dissipated yet, there should be a rebound in construction activity in the second quarter and we could see better-than-expected results.”

Household spending rose 0.8 percent in the first quarter, while public spending fell 0.1 percent, today’s report showed. Exports declined 1.8 percent and imports dropped 2.1 percent. Domestic demand didn’t add to growth as stronger consumption was offset by weaker investment, while net trade contributed 0.1 percentage point to GDP.

European Recession….”

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“European Central Bank President Mario Draghi said his pledge to buy government bonds is helping to ensure that interest-rate cuts reach the parts of the euro-area economy that need them the most.

“Our measures gave breathing space from markets driven by panic, which were forcing the economy into a position where inappropriately high interest rates would make default a self-fulfilling prophecy,” Draghi said in a speech in London. “Today we are seeing some encouraging signs of tangible improvements in financial conditions. Spreads in sovereign and corporate debt markets have narrowed considerably.”

Since Draghi pledged last year to buy unlimited amounts of government bonds in exchange for countries signing up to economic reforms, conditions in euro-area financial markets have improved. Even though his so-called Outright Monetary Transactions program has yet to be used, bond yields in distressed countries such as Greece and Spain have dropped from euro-era records and banks’ reliance on ECB funding has declined, indicating confidence is returning.

The ECB has “started observing convincing signs that fragmentation on the funding side for banks has decreased greatly,” Draghi said last night. “And although bank lending to businesses and households remains anaemic, we are now seeing some signs of slight improvement on the lending side as well.”

Challenging Conditions….”

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“European stocks declined for a second day, after the Stoxx Europe 600 Index yesterday dropped the most in 10 months, as investors awaited data on U.S. durable-goods orders. U.S. index futures and Asian shares also fell.

Raiffeisen Bank International AG (RBI) lost 1.8 percent after its chief executive officer offered to quit. Novo Nordisk A/S climbed after saying its liraglutide treatment helped overweight patients without diabetes to lose weight. Elan Corp. extended its longest rally since July 2011 after the Irish drugmaker’s board of directors unanimously rejected a higher takeover offer from Royalty Pharma.

The Stoxx 600 slid 0.3 percent to 303 at 10:40 a.m. in London. The gauge is heading for its first weekly loss in five weeks as the Federal Reserve signaled it will scale back its stimulus if the U.S. economy improves. Futures on the Standard & Poor’s 500 Index slipped 0.3 percent today, as did the MSCI AsiaPacific Index.

“This dip we saw yesterday took a lot of people by surprise, and everyone is now talking about the market coming off,” Manoj Ladwa, head of trading at TJ Markets, told Mark Barton on Bloomberg Television. “I’d be careful about buying stocks at these levels. There is a lot of money being taken off the table.”

In the U.S., orders for durable goods probably climbed 1.5 percent in April after falling by the most in seven months in March, economists estimated before a Commerce Department report at 8:30 a.m. in Washington…..”

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“J. Kyle Bass, whose Hayman Advisors LP made $500 million amid the U.S. subprime crisis, said the Bank of Japan will have to “dramatically” increase bond-buying efforts that have been “overwhelmed” by investors selling.

Benchmark 10-year Japanese government bond yields rose to 1 percent yesterday for the first time since April 2012, more than triple the all-time low reached last month, a day after the BOJ announced unprecedented bond buying. Japanese shares also plunged the most in two years, trimming gains since November when Shinzo Abe called for expanded fiscal and monetary stimulus before elections that made him prime minister….”

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“China agreed to give a U.S. regulator access to documents from Chinese accounting firms, moving toward a resolution of a dispute that could have pushed the country’s companies to stop trading on U.S. markets.

The Public Company Accounting Oversight Board, the China Securities Regulatory Commission and China’s Ministry of Finance signed the agreement May 7, the ministry said in a statement on its website today. The deal is a step toward resolving other disputes including one with the U.S. Securities and Exchange Commission, PCAOB Chairman James Doty was quoted as saying by the Wall Street Journal, which reported the agreement earlier today.

The SEC last year accused affiliates of the world’s top four auditing firms of withholding documents from investigators probing potential fraud by China-based companies….”

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“Japanese stocks swung wildly before closing less than 1 percent higher, the day after the biggest rout since the March 2011 disaster erased $314 billion.

The Topix Index (TPX) added 0.5 percent to close at 1,194.08 in Tokyo. The gauge earlier rose 3.3 percent and then fell by the same amount as the yen strengthened after Bank of JapanGovernor Haruhiko Kuroda said enough stimulus had been announced. The Topix slid 6.9 percent yesterday.

“The market is going up and down like a roller coaster,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo, which oversees the equivalent of $147 billion. “The fundamentals haven’t changed, but more and more investors are trading on momentum. Things will probably calm down in a week.”

The Nikkei 225 Stock Average pared a decline of as much as 3.5 percent to close 0.9 percent higher at 14,612.45. The Nikkei Volatility Index touched a two-year high, extending yesterday’s 58 percent jump, before retreating….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

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“The Federal Reserve is likely to taper its quantitative easing in September, says bond-investing legend Bill Gross, co-chief investment officer of Pimco.

The Fed is currently buying $85 billion of Treasurys and mortgage-backed securities a month.

Both Fed Chairman Ben Bernanke and New York Fed President William Dudley have suggested a tapering is coming within the next few meetings of the Fed’s policymaking Federal Open Market Committee, Gross told CNBC.

“I think we’re looking at a potential tapering in the next few months, probably around September,” he said. 

Bernanke gave conflicting comments about whether a tapering will come soon in his congressional testimony Wednesday.

“That’s what happens when you approach an inflection point,” Gross said. You talk with uncertainty to alert investors there’s change coming.”

The bond market already is preparing for a tapering, with the 10-year Treasury yield having risen to 2.04 percent from its record low of 1.38 percent in July 2012, Gross says….”

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last week revised up to 363k…..

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“As the global equity and bond markets grind ever higher, abundant signs exist that we are once again living through an asset bubble – or rather a whole series of bubbles in a variety of markets. This makes this period quite interesting, but also quite dangerous.

With equity and bond markets at or near all-time record highs, with all financial assets consistently shrugging off bad – or worse – news as the riskiest of assets continue to find consistent upward bids, we find ourselves in familiar and bubbly territory.

I can summarize my thoughts in one sentence:  How could this be happening again so soon?

In times past, it took one or more generations between bubbles for people to financially recover and forget the painful lessons before they would consider doing it all again. Yet here we are, working our way through our third set of bubbles in less than two decades, which must be some sort of world record.

I will confess to my biases right up front: I have always been deeply skeptical of both the practice of running up debts at a faster pace than income (the common practice of the entire developed world over the past several decades) and the idea that the solution to too much debt is more debt, enabled by cheaper money courtesy of thin-air money printing.

In short, instead of seeing central banks as sophisticated stewards of intricate monetary policies, I view them as serial bubble-blowers and reckless debt-enablers whose only response, when confronted with the inevitable consequences of their actions, is to serve up more thin-air money at an even cheaper rate. And when that doesn’t work, then they simply try even more of the same, but in larger quantities.

While I think central banks are populated by earnest people with impressive credentials who have rationalized their actions as being necessary and in service of the greater good, I also think that the biggest ones hold an entrenched set of institutional views that are dogmatic, fail to incorporate the idea of economic and resource limits, and are seemingly immune to healthy introspection.

Somewhere along the way, I would have hoped they might have noted that each new crisis is larger than the one before….”

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“…..Here’s where we stand – heading into yesterday the S&P 500, Dow Jones and Russell 2000 had been in a three-way race to outdo each other in the record highs department. All three had been relentlessly ripping to greater heights throughout the spring and just about every sector and sub-sector had joined the rally by early April.

When we didn’t get the traditional Sell in May pullback that so many had been positioned praying for, things just went parabolic for a week or so. Large cap pharmas like Bristol and Lilly began putting up dotcom-esque gains, highly speculative solar stocks began populating the most active lists and hedge funds took their short-squeezing, options-chasing activities into overdrive.

And then before you knew it, everyone was on the same side of the boat again…”

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[youtube:http:///www.youtube.com/watch?v=yK0P1Bk8Cx4 450 300]

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“Sony Corp. (6758) directors are discussing whether to adopt billionaire Daniel Loeb’s proposal for an initial public offering of its entertainment business, a week after the TV maker said the assets weren’t for sale.

“It’s only a start,” Chief Executive Officer Kazuo Hirai said of the talks, without giving a timeframe for any response. “It’s important that the board will discuss this and come to a decision that represents Sony’s stance.”

Sony has jumped 22 percent since Third Point LLC’s Loeb told Hirai that partially spinning off the entertainment assets would bring a higher valuation and raise cash for the company, whose movie studio topped the U.S. box office last year. Film and financial services earnings have helped the Tokyo-based company counter nine straight annual losses from making TVs.

“Sony will consider how to keep control of the company and may be forced to throw a bone to prevent a long, ugly fight,” said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp. “They will try to give up as little as possible and are no doubt receiving advice on how to fight off the aggressor.”

Elissa Doyle, a spokeswoman for Third Point, declined to comment.

Sony, which held its corporate-strategy meeting yesterday, rose to the highest in more than two years in Tokyo. Japan’s biggest TV maker surged 5.9 percent yesterday to 2,290 yen, extending gains this year to 139 percent, while Japan’s benchmark Nikkei 225 Stock Average rose 1.6 percent. Sony American Depositary receipts fell 3.3 percent to $22.15.

Third Point

The Nikkei newspaper reported that the board may discuss a potential IPO. Hirai said during a news conference yesterday that talks have started, and he declined to give his view on the proposal….”

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“Spanish and Italian bonds led losses among the securities of Europe’s so-called peripheral nations as Chinese manufacturing and euro-area services and factory output all contracted, sapping demand for higher-yielding assets.

Spanish five-year note yields rose the most in a month as the nation’s borrowing costs increased at a sale of 4.08 billion euros ($5.26 billion) of government debt maturing in 2016, 2018 and 2026. Italian 10-year yields climbed to a one-week high. Benchmark German bunds advanced as a report showed output in the euro area’s manufacturing and services industries shrank for a 16th month in May. Japan’s Topix index tumbled the most since the aftermath of the March 2011 tsunami.

“There’s a bit of a reduction in risk appetite following the big moves down in Japanese equities, so it’s more the macro theme,” said Peter Chatwell, a senior fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “Of course, we’ve got the supply factors also. Bunds have managed to trade a lot higher today.”

Spain’s 10-year yield rose seven basis points, or 0.07 percentage point, to 4.25 percent at noon London time after reaching 4.27 percent, the most since May 17. The 5.4 percent bond due in January 2023 fell 0.56, or 5.60 euros per 1,000-euro face amount, to 108.965.

The rate on Italian 10-year bonds increased eight basis points to 3.99 percent.

Output Contracts…”

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“A euro-area services and factory output gauge increased more than economists forecast in May, adding to signs the currency bloc is starting to emerge from its record-long recession.

A composite index based on a survey of purchasing managers in both industries rose to 47.7 from 46.9 in April, London-based Markit Economics said today. That exceeded the median estimate of 47.2 in a Bloomberg News survey of 27 economists. A reading below 50 indicates contraction.

While the euro-zone manufacturing index rose to a three-month high of 47.8 in May, Chinese factory output contracted for the first time in seven months, signaling the country’s economic growth is losing steam for a second quarter.

“We see the euro zone being out of recession in the third quarter,” said Christian Schulz, senior European economist at Berenberg Bank in London. “We’ve seen improving confidence since the ECB provided a safety net, and the risk of countries having to leave the euro has decreased. Also austerity is fading.”

The euro extended gains after the data were released, trading at $1.2903 at 10:56 a.m. in Brussels, up 0.4 percent on the day. The Stoxx Europe 600 Index was down 2.1 percent to 303.97.

Rate Cut…”

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“Commodities fell for a third day, paced by declines in copper and oil, as manufacturing in China unexpectedly shrank for the first time in seven months and the head of the Federal Reservehinted that stimulus may be tapered.

The Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities dropped as much as 1.2 percent to the lowest level in a week, and was 0.5 percent lower at 623.11 at 11:46 a.m. inLondon. Copper in London, seen as an indicator of economic activity because of its use in construction, lost 2 percent to $7,324 a ton. Oil in New York sank 0.7 percent.

The preliminary reading for a Chinese Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics missed analysts’ estimates and came in below the level of 50 for May, indicating a contraction. China is the biggest metals consumer and the second-largest oil user. The S&P GSCI has fallen 3.7 percent this year as base metals dropped on prospects for surpluses while gold and silver tumbled into bear markets.

“China’s PMI data coming in below forecast is adding a strong downdraft across most commodity markets,” said Mark Keenan, a director of commodities research and strategy at Societe Generale SA in Singapore. “The comments from the Fed, hinting at the scaling back of quantitative easing if the economy improves further, have driven the dollar higher, which is also contributing to the general weakness.”

Fed Chairman Ben S. Bernanke said yesterday that the U.S. central bank may reduce the pace of asset purchases in the next few meetings if policy makers can be confident of sustained improvement in the world’s largest economy. The Dollar Index rose to its highest in almost three years today before declining as the yen surged after stocks tumbled.

Labor Market

Bernanke also said in testimony to Congress yesterday that a premature withdrawal of stimulus could endanger the U.S. economic recovery. Many Fed officials said more labor market progress is needed before paring $85 billion in monthly asset purchases, minutes of their last meeting showed yesterday….”

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“Global stocks fell, led by the biggest drop in Japanese shares since the aftermath of the Fukushima disaster, while metals sank as Chinese manufacturing unexpectedly contracted and speculation mounted the Federal Reserve will cut bond purchases. The yen and Treasuries rose.

The MSCI All-Country World Index declined 1.2 percent at 7:20 a.m. in New York. Japan’s Topix Index (TPX) slumped 6.9 percent, the most since March 2011. Standard & Poor’s 500 Index futures fell 0.8 percent, paring losses of as much as 1.4 percent. The yen strengthened against its 16 major peers, surging 1.4 percent to 101.79 per dollar. The yield on 10-year Treasuries slid four basis points to 2 percent. Copper retreated 2 percent and oil slipped 0.8 percent.

Factory output in China shrank for the first time in seven months, a report from HSBC Holdings Plc and Markit Economics showed. Fed Chairman Ben S. Bernanke told lawmakers yesterday a premature withdrawal of stimulus could endanger economic recovery as policy makers debated tapering the pace of bond purchases. Japan’s Topix had surged 48 percent this year to yesterday and the S&P 500 rose to a record this week as central banks worldwide pledged stimulus measures to bolster growth.

“We got the perfect storm for risky assets, with negative signals from both monetary policy and macro-fundamentals,” Witold Bahrke, who helps oversee $55 billion as senior strategist at PFA Pension A/S in Copenhagen, wrote in message. “Quantitative-easing fears got boosted yesterday, which can have quite an effect in an extremely central-bank manipulated market.”…”

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