Brent Hits a Three Month High on China Data

“Oil rose to its highest level in almost three months in London amid signs of growth in China, the world’s second-largest fuel consumer, and as Saudi Arabia, the biggest crude exporter, reduced supplies.

Brent futures advanced as much as 1.4 percent to the highest since Oct. 18 after China’s customs agency reported overseas sales jumped 14 percent in December from a year earlier, exceeding the 5 percent median forecast in a Bloomberg survey. The nation imported 271 million metric tons of crude last year, 6.8 percent more than in 2011, according to the Beijing-based General Administration of Customs. Saudi Arabia reduced its crude production in December to a 19-month low, said a Gulf official with knowledge of the kingdom’s energy policy.

“The Chinese data is allaying concerns of a hard landing,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts Brent crude may advance to $115 a barrel this month. “Saudi Arabia will need to rein in output this year after making up for outages in 2012, and the latest numbers suggest they’re doing this.”

Brent for February settlement on the London-based ICE Futures Europe exchange rose as much as $1.53 to $113.29 a barrel. It was at $112.95 as of 11:54 a.m. local time. The European benchmark was at a premium of $18.58 to the U.S. benchmark, West Texas Intermediate, down from $18.66 yesterday.

WTI Crude for February delivery advanced as much as $1.60 to $94.70 a barrel in electronic trading on the New York Mercantile Exchange, the highest since Sept. 19. Prices lost 7.1 percent in 2012 after three years of gains….”

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“Italy sold 8.5 billion euros ($11.1 billion) of one-year Treasury bills at the lowest in three years as bond investors bet that caretaker Prime Minister Mario Monti’s economic policies will continue even if he doesn’t become premier for a second time.

The Treasury in Rome today sold the 365-day bills at 0.864 percent, down from 1.456 percent at the previous auction of similar-maturity debt Dec. 12 and the lowest since Jan. 12, 2010. Investors bid for 1.79 times the amount of bills offered, down from 1.94 times last month.

Even if Monti’s coalition of centrist parties has little chance of winning the Feb. 24-25 vote, markets seem convinced his policies will remain in place after the elections. Opinion polls show the center-left bloc led by the Democratic Party’s Pier Luigi Bersani probably will win a comfortable majority in the Chamber of Deputies, thought it may fall short of a majority in the Senate and need Monti’s support to govern….”

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“The European Central Bank kept interest rates on hold as improving economic sentiment underpinned expectations of a gradual recovery this year.

Policy makers meeting in Frankfurt today left the benchmark rate at a record low of 0.75 percent, as predicted by 50 out of 55 economists in a Bloomberg News survey. The deposit and marginal lending rates were also unchanged at 0 percent and 1.5 percent, respectively. ECB President Mario Draghi will hold a press conference at 2:30 p.m. to explain the decision.

Improving confidence indicators have eased pressure on the ECB to reduce rates from a record low, a move fraught with the unknown consequences of possibly pushing the deposit rate below zero. A pledge last year to buy as many government bonds as it takes to stabilize the single currency, buttressed by political progress on bringing economies of the 17 member states closer together, has eased fears the bloc would splinter.

“Risks will always be there but there’s no reason to cut rates,”Marco Valli, chief euro-area economist at UniCredit Global Research in Milan, said before the decision. “Signs of economic stabilization are likely already in the first half of the year, thanks to the latest stabilization in financial markets. We’ll then see a modest recovery.”

Business Confidence….”

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“The euro strengthened for the first time in three days against the dollar after Spain sold more than the maximum target at its first debt auction of the year, boosting demand for the region’s assets.

The 17-nation currency rose toward an 18-month high versus the yen as the European Central Bank refrained from cutting interest rates at a meeting today amid signs the debt crisis is easing. ECB President Mario Draghi will hold a news conference at 2:30 p.m. in Frankfurt to explain the decision. The yen fell for a second day against the dollar on bets Japanese policy makers will boost stimulus that tends to weaken the currency. Australia’s currency gained after Chinese imports increased.

“The euro has rallied with decent bond sales from Spain,” said Peter Frank, global head of foreign-exchange strategy in London at Banco Bilbao Vizcaya Argentaria SA. (BBVA) “There’s not really appetite for a rate cut yet. The market will be looking to the press conference. If Draghi is less dovish than in December we could see a bit more support for the euro.”

The euro gained 0.3 percent to $1.3108 at 12:47 p.m. London time after dropping 0.4 percent during the previous two days. The shared currency rose 0.7 percent to 115.65 yen after appreciating to 115.99 on Jan. 2, the strongest since July 2011. The yen fell 0.4 percent to 88.20 per dollar.

The Spanish Treasury in Madrid raised 5.82 billion euros from the sale of three bond issues, exceeding its upper target of 5 billion euros. The auctions included a new two-year note with so-called collective-action clauses limiting investors’ rights to oppose writedowns….”

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“Bank of England policy makers refrained from adding further stimulus to the U.K. economy today after their new credit-boosting program showed signs of success.

The nine-member Monetary Policy Committee led by Governor Mervyn King kept the target for quantitative easing at 375 billion pounds ($602 billion), in line with the forecast of all 39 economists in a Bloomberg News survey. They also held the key interest rate at a record low of 0.5 percent.

While the bank’s five-month-old Funding for Lending Scheme is starting to loosen credit conditions, the economy remains at risk of succumbing to a renewed recession. That’s left policy makers weighing signs of strength against threats from the euro crisis and Prime MinisterDavid Cameron’s austerity drive, the deepest since World War II.

“Most MPC members seemingly believe that there is currently not a compelling case for more QE, for now at least,” said Howard Archer, an economist at IHS Global Insight in London. “With the economy likely to continue to struggle to generate significant, sustainable growth, we expect the Bank of England to eventually give the economy a further helping hand.”

The European Central Bank in Frankfurt kept its benchmark rate at a record low of 0.75 percent today, as predicted by 50 out of 55 economists in a Bloomberg survey. The deposit and marginal lending rates were also unchanged at 0 percent and 1.5 percent, respectively….”

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“Australia’s dollar gained to its strongest since September 2008 versus the yen and a three-week high versus the greenback as Chinese data showed imports rose to a record in the nation’s biggest overseas market.

The New Zealand dollar, known as the kiwi, climbed to the highest level in more than four years against the yen as Asian stocks advanced for a second day on Chinese growth optimism.

“The Chinese data is a whole lot better than anyone expected with both imports and exports accelerating,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “That will only add to recent investor optimism that the Chinese rebound has got legs and should take the Aussie dollar higher.”

Australia’s currency climbed 0.3 percent to $1.0552 as of 4:31 p.m. in Sydney after touching $1.0555, its strongest since Dec. 18. The currency strengthened 0.7 percent to 93.03 yen, the most since September 2008.

New Zealand’s dollar gained 0.1 percent to 84.05 U.S. cents. It rose as high as 74.10 yen, the strongest since September 2008, before trading at 74.09 yen from 73.78 yesterday.

China’s exports rose 14.1 percent in December from a year earlier while imports increased 6 percent, leaving a trade surplus of $31.6 billion, the customs administration said today.

The pickup in shipments abroad compares with the 5 percent median estimate of analysts in a Bloomberg News survey and a projected 3.5 percent increase for imports….”

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“Commodities gained after China’s exports topped estimates and investors speculated Japanwill expand stimulus. Spain’s two-year yield dropped to the lowest in more than two years and the euro strengthened after the country sold more debt than targeted at its first auction this year.

The Standard & Poor’s GSCI gauge of 24 commodities advanced 1 percent at 7:25 a.m. in New York, with aluminum climbing 1.8 percent and oil rising to the highest in more than three months. The yield on Spain’s two-year notes fell 29 basis points to 2.11 percent, the lowest since November 2010, and the euro gained 0.3 percent to $1.3097. S&P 500 Index futures added 0.3 percent and the Stoxx Europe 600 Index rose less than 0.1 percent….”

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“China’s exports rose more than forecast last month and a broad measure of credit surged 28 percent, helping the nation’s new leaders sustain a pickup in economic growth after a seven-quarter slowdown.

Overseas shipments increased 14.1 percent from a year earlier, the most since May, customs administration data showed today, compared with the 5 percent median forecast in a Bloomberg News survey of 40 economists. Aggregatefinancing of 1.63 trillion yuan ($262 billion), which includes bank and non- bank lending, was up from 1.27 trillion yuan a year earlier, according to the central bank.

Asian stocks extended gains, commodities rose and the Australian dollar strengthened after the reports spurred confidence that the recovery in the world’s second-largest economy is gaining traction and global demand is stabilizing. A subdued U.S. recovery and European austerity measures may restrain China’s trade this year, while growth in non-bank financing threatens to increase debt risks.

“This improves the sequential momentum after weakness earlier in 2012,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank in Beijing. Strength in imports last quarter is also “indicative of a further recovery” in gross domestic product from the previous period, Kuijs said…”

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“Japanese shares rose, with the Nikkei 225 (NKY) Stock Average gaining for a second day, as the yen weakened after Prime Minister Shinzo Abe pressed for a higher inflation target and China’s trade data beat estimates.

Honda Motor Co. (7267), which gets about 81 percent of its sales outside Japan, advanced 2.5 percent. Komatsu Ltd., a maker of construction equipment that gets about 14 percent of sales from China, climbed 1.6 percent. Izutsuya Co. jumped 48 percent after the department-store operator raised its profit forecast. Tokyo Electric Power Co. finished the day flat after a plunge that almost erased a 19 percent gain in seconds. The stock exchange said the selloff wasn’t the result of an error.

The Nikkei 225 gained 0.7 percent to close at 10,652.64 in Tokyo. Trading volume on the gauge was 54 percent above the 30- day average. The broader Topix (TPX) Index advanced 1.1 percent to 889.02, with about three stocks advancing for each that fell.

“Optimism for policy action is continuing from the end of last year,” said Masaru Hamasaki, chief strategist at Toyota Asset Management Co., which oversees about $20 billion. “The market seems to have priced in half of the weaker yen’s impact on earnings and the effect of Abe’s stimulus measures….”

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“The Bank of Japan (8301) may increase its fiscal 2014 inflation forecast at this month’s policy meeting as stimulus measures and a weaker yen boost growth prospects, according to people familiar with officials’ discussions.

The central bank may raise an October projection for an 0.8 percent increase in consumer prices excluding fresh food, the people said on condition of anonymity because the discussions are private. They didn’t specify a new number. The current forecast was made before Prime Minister Shinzo Abe took office last month, pledging aggressive measures to counter deflation…”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

Watch this video, and imagine the government taking your guns…

HERE

[youtube://http://www.youtube.com/watch?v=LQ9O9HDhgjQ 450 300]

[youtube://http://www.youtube.com/watch?v=kH1WaHzvFkw 450 300]

“We’ve been seeing a recurring theme in some of the recent market commentaries emanating from Wall Street.

It’s the second week of the new year, and there hasn’t been a whole lot of activity in the markets – which means everyone is still discussing 2013 outlooks, predictions, surprises, and so forth.

A comment from a recent client note authored by JPMorgan strategist Tom Lee – known as one of the more bullish voices on the Street – caught our interest.

Lee wrote:

Our baseline for 2013 remains that of a tricky 1H, with strength to start (and as we mentioned in earlier notes, we see a move toward 1500) but followed by a correction that sees 1350 before midyear. This is a contrarian view on timing—we are seeing a growing chorus of investors who see stocks strong throughout 2013. In fact, even notable bears have turned “bullish” on equities in 2013. We do not view this as a sign of “ringing the top”; rather, it is a reminder that investors need to be mindful of consensus and risks to the consensus view.

Today, another well-known Wall Street bull – BMO Capital strategist Brian Belski – wrote something very similar…”

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“This morning we learned that Dan Loeb is long nutritional supplement company Herbalife, and now we know why.

Loeb hashed out his thesis in his latest letter to investors — his hedge fund, Third Point is up 21.2 percent for 2012, and 9.2 percent for Q4, by the way — and said that fellow hedge fund manager Bill Ackman’s short against the company is “preposterous.”

After going over Herbalife’s awesome stats ($29.87 billion in sales with 20-50 percent growth each year since 2004). Loeb gets to the heart of why the company is not a pyramid scheme, as Ackman has said.

From the letter:

The pyramid scheme is a serious accusation that we have studied with our advisors. We don’t believe it has merit. The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for three decades and will shortly awaken (at the behest of a hedge fund short seller) to shut down the company. We find this to be preposterous.

He goes on to say that the FTC’s regulatory framework makes it possible for multi-level marketing companies to conduct business legally. Not only that, but he adds that while Ackman’s presentation was “lengthy” there was “little new ‘news’ in the presentation” or evidence to show that Herbalife had crossed into breaking the law….”

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“Faber is another one of those excellent macro thinkers who is not totally in paradigm with MR, but has a very good feel for the markets in general. He’s bearish on stocks in general, but says if you want to own stocks you need to be bullish on the names that have been beat down the most.

• He’s bullish on: Vietnamese, Japanese & Chinese equities.
• At this moment, he’s not particularly bullish about anything.
• He says he’s “deeply uncomfortable” about the current market environment and is concerned that the economic environment is extremely unstable throughout the globe.
• He says the US Dollar could rally here. He’s also bullish on gold (as expected).
• He views gold as an insurance policy.
• The Euro is not a desirable currency to own.
• The currency race to the bottom will continue….”

The recent significant fall in implicit volatilities  means that long dated volatilities (1 year) of most significant equity indices are now testing the frontier level between the post-crisis lows and the ultra low regime of 2004-2007.

Implicit 1 year volatility for the S and P500 (SPX) – source Bloomberg:

Could it be an attractive entry point or more simply a clear indication of regime change? We have to agree with our-good cross-asset friend that we have a hard time believing in the regime change when taking into account the fundamental macro picture. Could it simply be the broader impact of financial repression? One has to wonder….”

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VIX Seller Beware 

“A new analysis of the American Freshman Survey, which has accumulated data for the past 47 years from 9 million young adults, reveals that college students are more likely than ever to call themselves gifted and driven to succeed, even though their test scores and time spent studying are decreasing.

Psychologist Jean Twenge, the lead author of the analysis, is also the author of a study showing that the tendency toward narcissism in students is up 30 percent in the last thirty-odd years.
This data is not unexpected.  I have been writing a great deal over the past few years about the toxic psychological impact of media and technology on children, adolescents and young adults, particularly as it regards turning them into faux celebrities—the equivalent of lead actors in their own fictionalized life stories.

On Facebook, young people can fool themselves into thinking they have hundreds or thousands of “friends.” They can delete unflattering comments. They can block anyone who disagrees with them or pokes holes in their inflated self-esteem. They can choose to show the world only flattering, sexy or funny photographs of themselves (dozens of albums full, by the way), “speak” in pithy short posts and publicly connect to movie stars and professional athletes and musicians they “like.”…”

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Full horror story