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19Nov2015 Pre-Market Commentary: US Futures Fractionally Higher, Philadelphia Fed In Expansion, Oil Falling, Saudi's Want To Pump More

Written by Gary

US stock future indexes are up fractionally along with the Euroasian markets a day after minutes from the Federal Reserve's October meeting flagged a December interest rate hike and pointed to a cautious approach after that.

Here is the current market situation from CNN Money

European markets are broadly higher today with shares in Germany leading the region. The DAX is up 1.32% while London's FTSE 100 is up 0.94% and France's CAC 40 is up 0.49%.

Fox News: The Philadelphia Federal Reserve's gauge of manufacturing activity in the mid-Atlantic region rose to 1.9 in November, from -4.5 in October. The reading came in well above Wall Street expectations for a rise to -1. Readings above 0 point to expansion, while those below indicate contraction.

Saudi Oil Minister Ali al-Naimi is calling for sustained investment in new output capacity despite the slump in world prices. "The oil industry is required to add new production capacity of 5M bpd to compensate for the natural loss in production and meet the growth in global demand," he told an energy conference in Manama. The announcement is yet another indication Saudi Arabia is determined to stick to its policy of pumping enough oil to protect its market share, suggesting that the country is in no mood to change tack ahead of OPEC's Dec. 4 meeting in Vienna. Is crude bound to head back into the $30s?

What Is Moving the Markets

Here are the headlines moving the markets.

Starboard asks Yahoo to drop Alibaba stake spinoff plans

(Reuters) - Activist investor Starboard Value LP asked Yahoo Inc to drop plans to sell its stake in Alibaba Group Holdings Ltd , citing a significant risk of taxes on the sale.

Oil slides again as focus returns to heavy glut

LONDON (Reuters) - Oil fell on Thursday, with U.S. crude dipping below $40 per barrel, retreating from early gains amid a persistent global glut of crude and refined fuel.

U.S. jobless claims, continuing claims decline

WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits fell last week, pointing to a fairly robust labor market.

Best Buy comparable sales miss on low demand for mobile devices

(Reuters) - Best Buy Co Inc forecast a decline in sales for the crucial holiday quarter and reported weaker-than-expected comparable sales for the third quarter due to weak demand for mobile devices, TVs, computers and cameras.

Hip to be Square? Not for this IPO

SAN FRANCISCO (Reuters) - Square Inc priced shares at $9 for its initial public offering, about 25 percent less than it had hoped, as it struggled to win over investors skeptical about its business and valuation before trading begins on Thursday.

Stock futures rise after Fed minutes soothe investor nerves

(Reuters) - U.S. stock index futures were higher on Thursday, a day after minutes from the Federal Reserve's October meeting flagged a December interest rate hike and pointed to a cautious approach after that.

U.S. consumers favor Amazon for online holiday shopping

CHICAGO (Reuters) - A majority of U.S. consumers plan to go to for most of their online holiday shopping, according to a Reuters/Ipsos poll, even after traditional retailers have collectively spent billions of dollars to try to capture Web demand.

Pfizer-Allergan talks accelerate amid new inversion clamp-down

NEW YORK/WASHINGTON (Reuters) - Pfizer Inc's talks to acquire Allergan Plc in a $150 billion deal that would see the U.S. drug giant redomicile in Ireland accelerated on Wednesday, as the U.S. Treasury prepared to clamp down further on such tax inversions.

Volkswagen says 120,000 U.S. diesel owners will get gift cards, repairs

(Reuters) - Volkswagen of America said on Wednesday that 120,000 owners of diesel cars that have violated U.S. emission standards will receive $500 gift cards and $500 toward vehicle repairs.

Philly Fed Creeps Back Into Positive Despite Collapse In Prices Paid, Workweek

After 2 months of notably unusual negative prints, November's Philly Fed rose from -4.5 to +1.9 (the best MoM rise since June). Sadly, the survey's headline gains were driven by a big surge in 'hope' as the outlook surged from 36.7 to 43.4, as under the covers of the current business environment was a collapse in prices paid, further deterioration in new orders and shipments, and a plunge in average workweek.

Philly Fed remains well below 'recovery' averages...

As the underlying components expose some harsh realities...

As the average workweek collapses...

Charts: Bloomberg

WTI Tumbles Back Below $40, Goldman Warns Risk Of "Sharp Leg Lower"

After an exuberantv-shaped recovery of hawkish fed minutes, WTI Crude (Dec contract) has tumbled back below $40 this morning following warnings from Goldmn Sachs of the potential for a "sharp leg lower" to $20 handle given expectations for warmer-than-normal weather this winter.

As Goldman Sachs notes, Risks of a sharp leg lower remain elevated

Our forecasts reflect our belief that "financial stress" can solve the current market imbalances, by gradually reducing excess supply capacity as demand recovers. We believe however, that there are high risks that this may prove too slow an adjustment as inventories continue to accumulate. This is particularly the case in the oil market where storage utilization is nearing historically elevated levels. The risk of markets adjusting through "operational stress", when a surplus breaches logistical capacity such that supply can no longer remain above demand, rather than financial stress, is now much greater.

Mild winter weather over the coming months (a concerning risk given current El Niño conditions) could see weak heating demand in the US and Europe. If this materializes, it would likely be the trigger for adjustments through the physical market, pushing oil prices down to cash costs which we estimate are likely around $20/bbl (see New Oil Order: Too full for comfort, published October 25, 2015 for more details). As such a drop in spot prices to c ...

Goldman Releases Its Top 6 Trades For 2016... And The Three Biggest Risks

Moments ago, just two days after it was closed out of its Top Trade for 2015 ("to be short EUR/$ via a 1.00 â€" 0.95 put spread (initially struck at 1.20-1.15 with spot at 1.25), which expires out of the money incurring a loss of premium"), Goldman released its first Top 6 Trades for 2016. For those who can't wait to take the other side of Goldman's clients, and thus the same side of Goldman's prop desk, here they are.

Top Trade #1: Long USD vs short EUR and JPY

Go long USD against an equally-weighted basket of EUR and JPY at 100, with a spot target of 110 and a stop loss of 95. Annual carry is positive at around 1%.

The divergence between the Fed and both the ECB and BoJ will continue to be one of the more durable themes of 2016, in our view. In the US, we believe ongoing improvement in the labour market and resilience in domestic demand will ultimately drive a Fed tightening cycle that is more hawkish than the market is currently discounting. And in Europe and Japan, the fragility of their economic recoveries and lower starting point for inflation mean that the policy stance will remain dovish and will lean against the Fed. Currencies are particularly sensitive to this divergence pressure and, despite the strength we have seen so far, we believe the USD has more room to appreciate vs the EUR and JPY.

Top Trade #2: Long US 10-year â€'Breakeven’ Inflation

Stay long 10-year US break-even inflation (USGGBE10 Index), opened on 10 November 2015 at 1.60%, with an initial target of 2.0% and a stop on a close below 1.40%.

In the US, core CPI inflation is running just below 2%, and the more sticky service price components of the index are trending upwards, contributing more than 200bp to the headline reading. Yet, since the oil ...

Square IPO Prices at $9 a Share, Less Than Expected

Skeptical investors forced Square Inc. to sell shares in its initial public offering for less than the mobile payments startup had hoped, dealing another setback to the battered market for new technology-company stock.

Rate-Rise Bets Heat Up After Fed Minutes

A key measure of bets that U.S. short-term interest rates will rise reached their highest level in more than a year, as investors prepared for the first Federal Reserve rate increase since 2006.

Shares of Deal Targets Reflect Regulatory Fear

Shares of some high-profile takeover targets are trading at steep discounts to the prices of deals they signed, showing fissures may lurk in the current deal boom.

A Weakening Islamic State Still Poses A Threat


-- this post authored by Scott Stewart

Earlier this month I wrote an analysis asserting that time is working against the Islamic State. I argued that the factors responsible for the Islamic State's stunning rise in popularity last year - the group's territorial gains, its successes against authorities and its propaganda - are starting to wear out. Much of the group's appeal lies in its portrayal of itself as an agent of apocalyptic Islamic prophecy, and as time passes without the prophecies coming true, people will become increasingly disillusioned.

The Wall Street Journal: San Francisco sues American Express over merchant restraints

City’s civil suit comes after AmEx lost a federal antitrust case earlier this year.

Need to Know: What the fear factor means for investors

No one fears the Fed right now, but that’s not to say there isn’t enough global jitters going around to make up for a lack of worry about a December hike. Here’s one way to use your fear in your investment portfolio.

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