crash

Oil Prices Either Crash Or Rebound At This Juncture

Oil Prices Either Crash Or Rebound At This Juncture

Oil prices are at a major inflection point. They either turn higher or break multi-year support levels and cause more pain to oil producers. 

Nearly 2 months ago, we put out a note describing how we speculated on the upside of crude oil prices. We then subsequently implored if prices had indeed bottomed, and we made a case for both sides of the trade. Regular readers that follow our trades that we make public, will know that from the period spanning 1/27 till today, we have had 5 trades on oil. The results of these trades can be found in our most recent commentary dated 3/10.

In this note, we will share with readers a few takeaways we have gained, as well as what we expect going forward.

US Economy Officially In Deflation

US Economy Officially In Deflation

We spoke, we warned, and it has now happened. For reference, we have included a bevy of links documenting our explanation of why deflation was going to be the elephant in the China room.

With the significance of this being the first deflationary headline figure 6 years after Lehman collapsed, low oil prices have conveniently been cast as the straw man. There is some truth to this - the energy index fell 9.7% while the gasoline index fell 18.7% in January, both over December. This marks the fiercest plunge in the 7 consecutive negative prints; the report also noted that the decline in the gasoline was "overwhelmingly the cause" for broad weakness in overall prices. When annualized, the energy index and gasoline index fell 19.6% and 35.4% respectively. Staggering figures!

Swiss Franc Rises Most On Record As SNB Kills Currency Peg

Swiss Franc Rises Most On Record As SNB Kills Currency Peg

We are shocked, shell shocked in utter dismay; while we were still updating our memorial piece on the Charlie Hebdo attacks news so big and unprecedented broke, that we had no choice but to shelve all immediate plans and cover this extremely nerve wrecking story. In our more than 6 years in the financial markets, we have NEVER seen anything as ginormous as the move in the Swiss Franc has been. Something as innocuous as decoupling one's currency after 3 years of the status quo has turned out to be what will go down the history books.

The bottom line is crystal clear, almost nobody had guessed the SNB's hand in today's shocking move; and we suspect the SNB better gear up with some physical protection as we smell Molotov cocktails and napalm bombs when trading closes later and the full scene of the vicious carnage is laid fully bare for all to see.

Jim Reid: Volatile Volatility

Jim Reid: Volatile Volatility

What makes this move shocking is that just last month the SNB committed themselves to preventing their currency appreciating beyond 1.20 to the Euro and vowed they would enforce the policy with "the utmost determination". The risk for the global financial system is that if the SNB can make such a dramatic u-turn could other central banks follow at some point. We're not so concerned here as their situation is arguably a lot different to the ECB. The ECB might actually look at the wider market moves yesterday and be scared to disappoint.

19-22 December: Reeling From Russia's Pain, Belarus Implodes; Global Markets Rebound Sharply; Sony Hacking Satire

19-22 December: Reeling From Russia's Pain, Belarus Implodes; Global Markets Rebound Sharply; Sony Hacking Satire

The overnight night unsecured deposit rate on BYR has exploded north of 30% as the national bank has made it too expensive to lend BYR even amongst banks. As we learned from the bank's press release, it wants to halt sales of BYR by as much as possible though pseudo and conventional capital controls. The interest on commercial and retail deposits at local banks has also spiked to encourage individuals and businesses to leave their currency in their banks. Apparently enough, we know this is not working one bit and the run on banks continues and will probably extend all the way to Christmas Eve before there is any easing of tensions.

Indeed, just a few hours after AFP broke this news, the overnight interbank BYR deposit rate has surged past 50% as the fire intensifies.

15-16 December: Russian Ruble Falls to Record Low Despite Massive Rate Hike

15-16 December: Russian Ruble Falls to Record Low Despite Massive Rate Hike

Update: After surging 9% against the dollar in the early hours of European trading, the Ruble has resumed its slump towards 70 to the dollar, as Bloomberg reports. Seems like all is not fixed even in the surface.

Update 2: USDRUB breaches 80, RTS index down a whopping 15%. Alarm bells going off. Dollar is at session lows and safety is massively bid.

The CBR raised its main interest rate to 17% from the 10.5% last week, a 650bp hike, sending the ruble much higher as traders knew jerked to the eleventh hour decision to try halt to ruble's cataclysmic collapse amid even lower oil prices. The decision to raise the borrowing cost of interbank borrowing came at 1am local time, highlighting the desperation and intended impact of the measure

11-13 December: Ruble Sees No Respite Despite Rate Hike; Oil Continues Massacre; Weak TLTRO Results

11-13 December: Ruble Sees No Respite Despite Rate Hike; Oil Continues Massacre; Weak TLTRO Results

The IEA (international Energy Association) cuts global oil demand forecast for fourth time in 5 months as OPEC refuses to blink and global growth forecasts dim to a twinkle. This has sent WTI prices below $60 and printed a low of $57.31, the weakest since July 2009. Across the board, Brent and Canadian Heavy prices are also crashing through the floor. Corporate credit and equity of companies in the energy sector continue to take relentless beatings as analysts continue to predict ever lower prices. The contagion effect has major oil producing countries all over the world scurrying to prevent their respective economic meltdowns as revenues are clawed back by the markets for every additional cent oil prices decline.